I
106TH CONGRESS
2D SESSION
H. R. 4770
To amend title XVIII of the Social Security Act to provide a prescription
medicine benefit under the Medicare Program, to enhance the preventive
benefits covered under such program, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 27, 2000
Mr. GEPHARDT (for himself, Mr. HOEFFEL, Mr. BONIOR, Mr. RANGEL, Mr.
DINGELL, Mr. STARK, Mr. BROWN of Ohio, Mr. MATSUI, Mr. COYNE,
Mr. LEVIN, Mr. CARDIN, Mr. MCDERMOTT, Mr. KLECZKA, Mr. LEWIS
of Georgia, Mr. NEAL of Massachusetts, Mr. MCNULTY, Mr. JEFFERSON,
Mr. TANNER, Mr. BECERRA, Mrs. THURMAN, Mr. DOGGETT, Mr. WAX-
MAN, Mr. MARKEY, Mr. BOUCHER, Mr. PALLONE, Mr. STUPAK, Mr.
ENGEL, Mr. GREEN of Texas, Mr. ALLEN, Mr. BACA, Mr. BENTSEN, Ms.
BERKLEY, 
Mr. 
BISHOP, 
Mrs. 
CAPPS, 
Mr. 
BLAGOJEVICH, 
Mr.
BLUMENAUER, Mr. BRADY of Pennsylvania, Ms. BROWN of Florida, Mr.
CAPUANO, Mr. CLAY, Mrs. CLAYTON, Mr. CLEMENT, Mr. CONYERS, Mr.
COSTELLO, Mr. CUMMINGS, Ms. DANNER, Mr. DAVIS of Illinois, Ms.
DEGETTE, Mr. DELAHUNT, Ms. DELAURO, Mr. DIXON, Mr. DOYLE, Mr.
EDWARDS, Mr. EVANS, Mr. FARR of California, Mr. FORBES, Mr. FRANK
of Massachusetts, Mr. FROST, Mr. GONZALEZ, Mr. GUTIERREZ, Mr.
HILLIARD, Ms. NORTON, Mr. HOYER, Mr. INSLEE, Mr. JACKSON of Illi-
nois, Ms. JACKSON-LEE of Texas, Ms. EDDIE BERNICE JOHNSON of
Texas, Mr. KENNEDY of Rhode Island, Mr. KILDEE, Ms. KILPATRICK,
Mr. KUCINICH, Mr. LAMPSON, Mr. LANTOS, Ms. LEE, Mrs. LOWEY, Mr.
MCGOVERN, Mrs. MALONEY of New York, Mr. MEEHAN, Mr. MENEN-
DEZ, Ms. MILLENDER-MCDONALD, Mr. MOAKLEY, Mrs. NAPOLITANO,
Mr. OBERSTAR, Mr. OLVER, Mr. ORTIZ, Mr. PASCRELL, Mr. PASTOR,
Ms. PELOSI, Mr. PHELPS, Mr. POMEROY, Mr. REYES, Mr. RODRIGUEZ,
Ms. ROYBAL-ALLARD, Ms. SANCHEZ, Mr. SANDLIN, Mr. SKELTON, Ms.
SLAUGHTER, Mr. SNYDER, Mr. SPRATT, Ms. STABENOW, Mrs. JONES of
Ohio, Mr. TURNER, Mr. UDALL of New Mexico, Mr. UNDERWOOD, Mr.
WEYGAND, Mr. WEXLER, and Ms. WOOLSEY) introduced the following
bill; which was referred to the Committee on Ways and Means, and in
addition to the Committee on Commerce, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
a prescription medicine benefit under the Medicare Pro-
gram, to enhance the preventive benefits covered under
such program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Guaranteed and Defined Rx Benefit and
Health Provider Relief Act of 2000’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings.
TITLE I—MEDICARE PRESCRIPTION MEDICINE BENEFIT
PROGRAM
Sec. 101. Prescription medicine benefit program.
‘‘PART D—PRESCRIPTION MEDICINE BENEFIT FOR THE AGED AND
DISABLED
‘‘Sec. 1860. Establishment of defined prescription medicine benefit pro-
gram for the aged and disabled under the medicare pro-
gram.
‘‘Sec. 1860A. Scope of defined benefits; coverage of all medically necessary
prescription medicines.
‘‘Sec. 1860B. Payment of defined basic and catastrophic benefits.
‘‘Sec. 1860C. Eligibility and enrollment.
‘‘Sec. 1860D. Monthly premium; initial $25 premium.
‘‘Sec. 1860F. Prescription medicine insurance account.
‘‘Sec. 1860G. Administration of benefits .
‘‘Sec. 1860H. Incentive program to encourage employers to continue cov-
erage .
‘‘Sec. 1860I. Appropriations to cover government contributions.
‘‘Sec. 1860J. Definitions.’’.
Sec. 102. Medicaid buy-in of medicare prescription drug coverage for certain
low-income individuals.
‘‘Sec. 1860E. Special eligibility, enrollment, and copayment rules for low-
income individuals.’’.
Sec. 103. Offset for catastrophic prescription medicine benefit.
Sec. 104. GAO ongoing studies and reports on program; miscellaneous studies
and reports.
TITLE II—IMPROVEMENT IN BENEFICIARY SERVICES
Subtitle A—Improvement of Medicare Coverage and Appeals Process
Sec. 201. Revisions to medicare appeals process.
Sec. 202. Provisions with respect to limitations on liability of beneficiaries.
Sec. 203. Waivers of liability for cost sharing amounts.
Subtitle B—Establishment of Medicare Ombudsman
Sec. 211. Establishment of Medicare Ombudsman for Beneficiary Assistance
and Advocacy.
TITLE III—MEDICARE+CHOICE REFORMS; PRESERVATION OF
MEDICARE PART B DRUG BENEFIT
Subtitle A—Medicare+Choice Reforms
Sec. 301. Increase in national per capita Medicare+Choice growth percentage
in 2001 and 2002.
Sec. 302. Permanently removing application of budget neutrality beginning in
2002.
Sec. 303. Increasing minimum payment amount.
Sec. 304. Allowing movement to 50:50 percent blend in 2002.
Sec. 305. Increased update for payment areas with only one or no
Medicare+Choice contracts.
Sec. 306. Permitting higher negotiated rates in certain Medicare+Choice pay-
ment areas below national average.
Sec. 307. 10-year phase in of risk adjustment based on data from all settings.
Subtitle B—Preservation of Medicare Coverage of Drugs and Biologicals
Sec. 311. Preservation of coverage of drugs and biologicals under part B of the
medicare program.
Sec. 312. Comprehensive immunosuppressive medicine coverage for transplant
patients.
Subtitle C—Improvement of Certain Preventive Benefits
Sec. 321. Coverage of annual screening pap smear and pelvic exams.
TITLE IV—ADJUSTMENTS TO PAYMENT PROVISIONS OF THE
BALANCED BUDGET ACT
Subtitle A—Payments for Inpatient Hospital Services
Sec. 401. Eliminating reduction in hospital market basket update for fiscal year
2001.
Sec. 402. Eliminating further reductions in indirect medical education (IME)
for fiscal year 2001.
Sec. 403. Eliminating further reductions in disproportionate share hospital
(DSH) payments.
Sec. 404. Increase base payment to Puerto Rico hospitals.
Subtitle B—Payments for Skilled Nursing Services
Sec. 411. Eliminating reduction in SNF market basket update for fiscal year
2001.
Sec. 412. Extension of moratorium on therapy caps.
Subtitle C—Payments for Home Health Services
Sec. 421. 1-year additional delay in application of 15 percent reduction on pay-
ment limits for home health services.
Sec. 422. Provision of full market basket update for home health services for
fiscal year 2001.
Subtitle D—Rural Provider Provisions
Sec. 431. Elimination of reduction in hospital outpatient market basket in-
crease.
Subtitle E—Other Providers
Sec. 441. Update in renal dialysis composite rate.
Subtitle F—Provision for Additional Adjustments
Sec. 451. Guarantee of additional adjustments to payments for providers from
budget surplus.
SEC. 2. FINDINGS.
Congress makes the following findings:
(1) Prescription medicine coverage was not a
standard part of health insurance when the medicare
program under title XVIII of the Social Security Act
was enacted in 1965. Since 1965, however, medicine
coverage has become a key component of most pri-
vate and public health insurance coverage, except for
the medicare program.
(2) At least 2⁄3 of medicare beneficiaries have
unreliable, inadequate, or no medicine coverage at
all.
(3) Seniors who do not have medicine coverage
typically pay, at a minimum, 15 percent more than
people with coverage.
(4) Medicare beneficiaries at all income levels
lack prescription medicine coverage, with more than
1⁄2 of such beneficiaries having incomes greater than
150 percent of the poverty line.
(5) The number of private firms offering retiree
health coverage is declining.
(6) Medigap premiums for medicines are too ex-
pensive for most beneficiaries and are highest for
older senior citizens, who need prescription medicine
coverage the most and typically have the lowest in-
comes.
(7) While the management of a medicare pre-
scription medicine benefit program should mirror the
practices employed by benefit administrators in de-
livering prescription medicines, the Secretary of
Health and Human Services should oversee that pro-
gram to assure that a guaranteed and defined pre-
scription drug benefit is provided to all medicare
beneficiaries.
(8) All medicare beneficiaries should have ac-
cess to a voluntary, reliable, affordable, dependable,
and defined outpatient medicine benefit as part of
the medicare program that assists with the high cost
of prescription medicines and protects them against
excessive out-of-pocket costs.
TITLE I—MEDICARE PRESCRIP-
TION 
MEDICINE 
BENEFIT
PROGRAM
SEC. 101. ESTABLISHMENT OF THE MEDICARE PRESCRIP-
TION MEDICINE BENEFIT PROGRAM.
(a) IN GENERAL.—Title XVIII of the Social Security
Act (42 U.S.C. 1395 et seq.) is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new
part:
‘‘PART D—PRESCRIPTION MEDICINE BENEFIT FOR THE
AGED AND DISABLED
‘‘ESTABLISHMENT OF DEFINED PRESCRIPTION MEDICINE
BENEFIT PROGRAM FOR THE AGED AND DISABLED
UNDER THE MEDICARE PROGRAM
‘‘SEC. 1860. (a) IN GENERAL.—There is established
as a part of the medicare program under this title a vol-
untary insurance program to provide defined prescription
medicine benefits, including pharmacy services, in accord-
ance with the provisions of this part for individuals who
are aged or disabled or have end-stage renal disease and
who voluntarily elect to enroll under such program, to be
financed from premium payments by enrollees together
with contributions from funds appropriated by the Federal
Government.
‘‘(b) NONINTERFERENCE BY THE SECRETARY.—In
administering the prescription medicine benefit program
established under this part, the Secretary may not—
‘‘(1) require a particular formulary, institute a
price structure for benefits, or in any way ration
benefits;
‘‘(2) interfere in any way with negotiations be-
tween benefit administrators and medicine manufac-
turers, or wholesalers; or
‘‘(3) otherwise interfere with the competitive
nature of providing a prescription medicine benefit
using private benefit administrators, except as is re-
quired to guarantee coverage of the defined benefit.
‘‘SCOPE OF DEFINED BENEFITS; COVERAGE OF ALL
MEDICALLY NECESSARY PRESCRIPTION MEDICINES
‘‘SEC. 1860A. (a) IN GENERAL.—The benefits pro-
vided to an individual enrolled in the insurance program
under this part shall consist of—
‘‘(1) payments made, in accordance with the
provisions of this part, for covered prescription
medicines (as specified in subsection (b)) dispensed
by any pharmacy participating in the program under
this part (and, in circumstances designated by the
benefit administrator, by a nonparticipating phar-
macy), including any specifically named medicine
prescribed for the individual by a qualified health
care professional regardless of whether the medicine
is included in a formulary established by the benefit
administrator if such medicine is certified as medi-
cally necessary by such health care professional (ex-
cept that to the maximum extent possible the substi-
tution and use of lower-cost generics shall be encour-
aged); and
‘‘(2) charging by pharmacies of the negotiated
discount price—
‘‘(A) for all covered prescription medicines,
without regard to such basic benefit limitation;
and
‘‘(B) established with respect to any drugs
or classes of drugs described in subparagraphs
(A), (B), (D), (E), or (F) of section 1927(d)(2)
that are available to individuals receiving bene-
fits under this title.
‘‘(b) COVERED PRESCRIPTION MEDICINES.—
‘‘(1) IN GENERAL.—Covered prescription medi-
cines, for purposes of this part, include all prescrip-
tion medicines (as defined in section 1860J(1)), in-
cluding smoking cessation agents, except as other-
wise provided in this subsection.
‘‘(2) EXCLUSIONS FROM COVERAGE.—Covered
prescription medicines shall not include drugs or
classes of drugs described in subparagraphs (A)
through (D) and (F) through (H) of section
1927(d)(2) unless—
‘‘(A) specifically provided otherwise by the
Secretary with respect to a drug in any of such
classes; or
‘‘(B) a drug in any of such classes is cer-
tified to be medically necessary by a health care
professional.
‘‘(3) 
NONDUPLICATION
OF
PRESCRIPTION
MEDICINES COVERED UNDER PART A OR B.—A med-
icine prescribed for an individual that would other-
wise be a covered prescription medicine under this
part shall not be so considered to the extent that
payment for such medicine is available under part A
or B (including all injectable drugs and biologicals
for which payment was made or should have been
made by a carrier under section 1861(s)(2) (A) or
(B) as of the date of enactment of the Medicare
Guaranteed and Defined Rx Benefit and Health
Provider Relief Act of 2000). Medicines otherwise
covered under part A or B shall be covered under
this part to the extent that benefits under part A or
B are exhausted.
‘‘(4) STUDY ON INCLUSION OF HOME INFUSION
THERAPY SERVICES.—Not later than one year after
the date of the enactment of the Medicare Guaran-
teed and Defined Rx Benefit and Health Provider
Relief Act of 2000, the Secretary shall submit to
Congress a legislative proposal for the delivery of
home infusion therapy services under this title and
for a system of payment for such a benefit that co-
ordinates items and services furnished under part B
and under this part.
‘‘PAYMENT OF DEFINED BASIC AND CATASTROPHIC
BENEFITS
‘‘SEC. 1860B. (a) PAYMENT OF BENEFITS.—There
shall be paid from the Prescription Medicine Insurance
Account within the Supplementary Medical Insurance
Trust Fund, in the case of each individual who is enrolled
in the insurance program under this part and who pur-
chases covered prescription medicines in a calendar year,
the sum of the benefit amounts under subsections (b) and
(c).
‘‘(b) BASIC BENEFIT.—
‘‘(1) IN GENERAL.—An amount (not exceeding
50 percent of the annual limitation under paragraph
(3)) equal to the applicable government percentage
(specified in paragraph (2)) of the negotiated price
for each such covered prescription medicine or such
higher percentage as is proposed under section
1860G(d)(9).
‘‘(2) 
APPLICABLE
GOVERNMENT
PERCENT-
AGE.—The applicable government percentage speci-
fied in this paragraph is 50 percent or such higher
percentage as may be proposed under section
1860G(d)(9), if the Secretary finds that such higher
percentage will not increase aggregate costs to the
Prescription Medicine Insurance Account.
‘‘(3) ANNUAL LIMITATION IN BASIC BENEFIT.—
‘‘(A) FOR 2003 THROUGH 2009.—For pur-
poses of the basic benefit described in para-
graph (1), the annual limitation under this
paragraph is—
‘‘(i) $2,000 for each of 2003 and
2004;
‘‘(ii) $3,000 for each of 2005 and
2006;
‘‘(iii) $4,000 for each of 2007 and
2008; and
‘‘(iv) $5,000 for 2009.
‘‘(B) 
FOR
2010
AND
SUBSEQUENT
YEARS.—For purposes of paragraph (1), the
annual limitation under this paragraph for
2010 and each subsequent year is equal to the
limitation for the preceding year adjusted by
the annual percentage increase in average per
capita aggregate expenditures for covered out-
patient medicines in the United States for
medicare beneficiaries, as estimated by the Sec-
retary. Any amount determined under this sub-
paragraph that is not a multiple of $10 shall be
rounded to the nearest multiple of $10.
‘‘(c) CATASTROPHIC BENEFIT.—
‘‘(1) FOR 2003.—In the case of and with respect
to out-of-pocket expenditures, the amount of such
expenditures that exceeds the catastrophic benefit
level established by the Secretary under paragraph
(2) and increased in subsequent years by the annual
percentage increase under paragraph (3).
‘‘(2) ESTABLISHMENT OF CATASTROPHIC BEN-
EFIT
LEVEL.—The Chief Actuary shall estimate,
over each five-year period, beginning with 2003, the
amount of savings to the program under this title
attributable to the operation of section 103 of the
Medicare Guaranteed and Defined Rx Benefit and
Health Provider Relief Act of 2000. Based on such
estimates, the Secretary shall establish the cata-
strophic benefit level in a manner so that the aggre-
gate amount of expenditures under this paragraph
does not exceed the aggregate amount of such sav-
ings, except that in 2003 and each year thereafter,
the catastrophic benefit level may not be greater
than $4,000, as adjusted under paragraph (3).
‘‘(3) INDEXING
FOR
OUTYEARS.—For a year
beginning after 2003, the catastrophic benefit level
shall be increased by annual percentage increase de-
termined for the year involved under subsection
(b)(3)(B).
‘‘ELIGIBILITY AND ENROLLMENT
‘‘SEC. 1860C. (a) ELIGIBILITY.—Every individual
who, in or after 2003, is entitled to hospital insurance ben-
efits under part A or enrolled in the medical insurance
program under part B is eligible to enroll in the insurance
program under this part, during an enrollment period pre-
scribed in or under this section, in such manner and form
as may be prescribed by regulations.
‘‘(b) ENROLLMENT.—
‘‘(1) IN GENERAL.—Each individual who satis-
fies subsection (a) shall be enrolled (or eligible to en-
roll) in the program under this part in accordance
with the provisions of section 1837, as if that section
applied to this part, except as otherwise explicitly
provided in this part.
‘‘(2) SINGLE ENROLLMENT PERIOD.—Except as
provided in section 1837(i) (as such section applies
to this part), 1860E (relating to loss of coverage
under the medicaid program), or 1860H(e) (relating
to loss of employer or union coverage), or as other-
wise explicitly provided, no individual shall be enti-
tled to enroll in the program under this part at any
time after the initial enrollment period without pen-
alty, and in the case of all other late enrollments,
the Secretary shall develop a late enrollment penalty
for the individual that fully recovers the additional
actuarial risk involved in providing coverage for the
individual.
‘‘(3) SPECIAL ENROLLMENT PERIOD IN 2003.—
‘‘(A) IN
GENERAL.—An individual who
first satisfies subsection (a) in 2003 may, at
any time on or before December 31, 2003—
‘‘(i) enroll in the program under this
part; and
‘‘(ii) enroll or reenroll in such pro-
gram after having previously declined or
terminated enrollment in such program.
‘‘(1) $25 MONTHLY PREMIUM RATE IN 2003.—
The monthly premium rate in 2003 for prescription
medicine benefits under this part is $25.
‘‘(2) 
PREMIUM
RATES
IN
SUBSEQUENT
YEARS.—
‘‘(A) IN GENERAL.—The Secretary shall,
during September of 2003 and of each suc-
ceeding year, determine and promulgate a
monthly premium rate for the succeeding year
in accordance with the provisions of this para-
graph.
‘‘(B) DETERMINATION
OF
ANNUAL
BEN-
EFIT COSTS.—The Secretary shall estimate an-
nually for the succeeding year the amount equal
to the total of the benefits (but not including
catastrophic benefits under section 1860B(c))
that will be payable from the Prescription Medi-
cine Insurance Account for prescription medi-
cines dispensed in such calendar year with re-
spect to enrollees in the program under this
part. In calculating such amount, the Secretary
shall include an appropriate amount for a con-
tingency margin.
‘‘(C) DETERMINATION OF MONTHLY PRE-
MIUM RATES.—
‘‘(i) IN
GENERAL.—The Secretary
shall determine the monthly premium rate
with respect to such enrollees for such suc-
ceeding year, which shall be 1⁄12 of the
share specified in clause (ii) of the amount
determined under subparagraph (B), di-
vided by the total number of such enroll-
ees, and rounded (if such rate is not a
multiple of 10 cents) to the nearest mul-
tiple of 10 cents.
‘‘(ii) ENROLLEE AND EMPLOYER PER-
CENTAGE SHARES.—The share specified in
this clause, for purposes of clause (i), shall
be—
‘‘(I) one-half, in the case of pre-
miums paid by an individual enrolled
in the program under this part; and
‘‘(II) two-thirds, in the case of
premiums paid for such an individual
by a former employer (as defined in
section 1860H(f)(2)).
‘‘(D) PUBLICATION
OF
ASSUMPTIONS.—
The Secretary shall publish, together with the
promulgation of the monthly premium rates for
the succeeding year, a statement setting forth
the actuarial assumptions and bases employed
in arriving at the amounts and rates deter-
mined under this paragraph.
‘‘(b) PAYMENT OF PREMIUMS.—
‘‘(1) GENERALLY THROUGH DEDUCTION FROM
SOCIAL
SECURITY, RAILROAD
RETIREMENT
BENE-
FITS, OR BENEFITS ADMINISTERED BY OPM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is entitled to or receiving benefits as
described in subsection (a), (b), or (d) of sec-
tion 1840, premiums payable under this part
shall be collected by deduction from such bene-
fits at the same time and in the same manner
as premiums payable under part B are collected
pursuant to section 1840.
‘‘(B) TRANSFERS OF DEDUCTION TO AC-
COUNT.—The Secretary of the Treasury shall,
from time to time, but not less often than quar-
terly, transfer premiums collected pursuant to
subparagraph (A) to the Prescription Medicine
Insurance Account from the appropriate funds
and accounts described in subsections (a)(2),
(b)(2), and (d)(2) of section 1840, on the basis
of the certifications described in such sub-
sections. The amounts of such transfers shall be
appropriately adjusted to the extent that prior
transfers were too great or too small.
‘‘(2) OTHERWISE THROUGH DIRECT PAYMENTS
BY ENROLLEE TO SECRETARY.—
‘‘(A) IN THE CASE OF INADEQUATE DE-
DUCTION.—An individual to whom paragraph
(1) applies (other than an individual receiving
benefits as described in section 1840(d)) and
who estimates that the amount that will be
available for deduction under such paragraph
for any premium payment period will be less
than the amount of the monthly premiums for
such period may (under regulations) pay to the
Secretary the estimated balance, or such great-
er portion of the monthly premium as the indi-
vidual chooses.
‘‘(B) OTHER
CASES.—An individual en-
rolled in the insurance program under this part
with respect to whom none of the preceding
provisions of this subsection applies (or to
whom section 1840(c) applies) shall pay pre-
miums to the Secretary at such times and in
such manner as the Secretary shall by regula-
tions prescribe.
‘‘(C) DEPOSIT
OF
PREMIUMS
IN
AC-
COUNT.—Amounts paid to the Secretary under
this paragraph shall be deposited in the Treas-
ury to the credit of the Prescription Medicine
Insurance Account in the Supplementary Med-
ical Insurance Trust Fund.
‘‘(c) CERTAIN
LOW-INCOME
INDIVIDUALS.—For
rules concerning premiums for certain low-income individ-
uals, see section 1860E.
‘‘PRESCRIPTION MEDICINE INSURANCE ACCOUNT
‘‘SEC. 1860F. (a) ESTABLISHMENT.—There is cre-
ated within the Federal Supplemental Medical Insurance
Trust Fund established by section 1841 an account to be
known as the ‘Prescription Medicine Insurance Account’
(in this section referred to as the ‘Account’).
‘‘(b) AMOUNTS IN ACCOUNT.—
‘‘(1) IN GENERAL.—The Account shall consist
of—
‘‘(A) such amounts as may be deposited in,
or appropriated to, such fund as provided in
this part; and
‘‘(B) such gifts and bequests as may be
made as provided in section 201(i)(1).
‘‘(2) SEPARATION OF FUNDS.—Funds provided
under this part to the Account shall be kept sepa-
rate from all other funds within the Federal Supple-
mental Medical Insurance Trust Fund.
‘‘(c) 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 the payments provided for by this part, and
the payments with respect to administrative ex-
penses 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.
‘‘ADMINISTRATION OF BENEFITS
‘‘SEC. 1860G. (a) ADMINISTRATION.—
‘‘(1) USE OF PRIVATE BENEFIT ADMINISTRA-
TORS AS PROVIDED FOR UNDER PARTS A AND B.—
The Secretary shall provide for administration of the
benefits under this part through a contract with a
private benefit administrator designated in accord-
ance with subsection (c), for enrolled individuals re-
siding in each service area designated pursuant to
subsection (b) (other than such individuals enrolled
in a Medicare+Choice program under part C), in ac-
cordance with the provisions of this section.
‘‘(2) GUARANTEE
OF
PROGRAM
ADMINISTRA-
TION.—In the case of a service area in which no pri-
vate benefit administrator has entered into a con-
tract with the Secretary under paragraph (1) for the
administration of this part, the Secretary shall seek
to enter into a contract with a fiscal intermediary
under part A (with a contract under section 1816)
or a carrier under part B (with a contract under
section 1842) to administer this part in that service
area in accordance with the provisions of subsection
(d). If the Secretary is unable to enter into such a
contract for that service area, the Secretary shall
provide for the administration of this part in that
service area in accordance with the provisions of
subsection (d) through another benefit adminis-
trator.
‘‘(b) 
DESIGNATION
OF
GEOGRAPHIC
SERVICE
AREAS.—
‘‘(1) IN GENERAL.—The Secretary shall divide
the total geographic area served by the programs
under this title into an appropriate number of serv-
ice areas for purposes of administration of benefits
under this part.
‘‘(2) CONSIDERATIONS IN DETERMINING SERV-
ICE AREAS.—In determining or adjusting the num-
ber and boundaries of service areas under this sub-
section, the Secretary shall seek to ensure that—
‘‘(A) there is a reasonable level of competi-
tion among entities eligible to contract to ad-
minister the benefit program under this section
for each area; and
‘‘(B) the designation of areas is consistent
with the goal of securing contracts under this
section that use the volume purchasing power of
enrollees to obtain the same or similar type of
prescription medicine discounts as are afforded
favored, large purchasers.
‘‘(c) DESIGNATION OF BENEFIT ADMINISTRATOR.—
‘‘(1) AWARD AND DURATION OF CONTRACT.—
‘‘(A) COMPETITIVE
AWARD.—Each con-
tract for a service area shall be awarded com-
petitively in accordance with section 5 of title
41, United States Code, for a period (subject to
subparagraph (B)) of not less than 2 nor more
than 5 years.
‘‘(B) REVIEW.—A contract for a service
area shall be subject to an evaluation after a
year and termination for cause.
‘‘(2) ELIGIBLE
BENEFIT
ADMINISTRATORS.—
An entity shall not be eligible for consideration as a
benefit administrator responsible for administering
the prescription medicine benefit program under this
part in a service area unless it meets at least the fol-
lowing criteria:
‘‘(A) TYPE OF ENTITY.—The entity shall
be capable of administering a prescription medi-
cine benefit program, and may be a prescription
medicine vendor, wholesale and retail pharmacy
delivery system, health care provider or insurer,
any other type of entity as the Secretary may
specify, or a consortium of such entities.
‘‘(B) 
PERFORMANCE
CAPABILITY.—The
entity shall have sufficient expertise, personnel,
and resources to perform effectively the benefit
administration functions for such area.
‘‘(C) FINANCIAL
INTEGRITY.—The entity
and its officers, directors, agents, and man-
aging employees shall have a satisfactory record
of professional competence and professional and
financial integrity, and the entity shall have
adequate financial resources to perform services
under the contract without risk of insolvency.
‘‘(3) PROPOSAL REQUIREMENTS.—
‘‘(A) IN GENERAL.—An entity’s proposal
for award or renewal of a contract under this
section shall include such material and informa-
tion as the Secretary may require.
‘‘(B) SPECIFIC INFORMATION.—A proposal
described in subparagraph (A) shall—
‘‘(i) include a detailed description of—
‘‘(I) the schedule of negotiated
prices that will be charged to enroll-
ees;
‘‘(II) how the entity will deter
medical errors that are related to pre-
scription medicines; and
‘‘(III) proposed contracts with
local pharmacy providers designed to
ensure access, including compensation
for local pharmacists’ services;
‘‘(ii) be accompanied by such informa-
tion as the Secretary may require on the
entity’s past performance; and
‘‘(iii) disclose ownership and shared
financial interests with other entities in-
volved in the delivery of the benefit as pro-
posed.
‘‘(4) CRITERIA
FOR
COMPETITIVE
SELEC-
TION.—In awarding a contract competitively, the
Secretary shall consider the comparative merits of
each of the applications by eligible entities, as deter-
mined on the basis of the entities’ past performance
and other relevant factors, with respect to the fol-
lowing:
‘‘(A) the estimated total cost of the con-
tract, taking into consideration the entity’s pro-
posed fees and price and cost estimates, as eval-
uated and adjusted by the Secretary in accord-
ance with the provisions of the Federal Acquisi-
tion Regulation concerning contracting by nego-
tiation;
‘‘(B) prior experience in administering a
type of health insurance program;
‘‘(C) effectiveness in containing costs
through obtaining discounts from manufactur-
ers, pricing incentives, utilization management,
and drug utilization review;
‘‘(D) the quality and efficiency of benefit
management services with respect to such mat-
ters as claims processing and benefits coordina-
tion; record-keeping and reporting; maintenance
of medical records confidentiality; and drug uti-
lization review, patient information, customer
satisfaction, and other activities supporting
quality of care; and
‘‘(E) such other factors as the Secretary
deems necessary to evaluate the merits of each
application.
‘‘(5) FLEXIBILITY IN SECURING BEST BENEFIT
ADMINISTRATOR.—In awarding contracts under this
subsection, the Secretary may waive conflict of inter-
est rules generally applicable to Federal acquisitions
(subject to such safeguards as the Secretary may
find necessary to impose) in circumstances where the
Secretary finds that such waiver—
‘‘(A) is not inconsistent with the purposes
of the programs under this title and the best in-
terests of enrolled individuals; and
‘‘(B) will permit a sufficient level of com-
petition for such contracts, promote efficiency
of benefits administration, or otherwise serve
the objectives of the program under this part.
If the Secretary waives such rules, the Secretary
shall establish a special monitoring program to en-
sure that beneficiaries served by the benefit adminis-
trator have access to all necessary pharmaceuticals
as prescribed.
‘‘(6) MAXIMIZING
COMPETITION
AND
SAV-
INGS.—In awarding contracts under this section, the
Secretary shall give consideration to the need to
maintain sufficient numbers of entities eligible and
willing to administer benefits under this part to en-
sure vigorous competition for such contracts, while
also giving consideration to the need for a benefit
administrator to have sufficient purchasing power to
obtain appropriate cost savings.
‘‘(d) FUNCTIONS OF BENEFIT ADMINISTRATOR.—A
benefit administrator for a service area shall (or in the
case of the function described in paragraph (9), may) per-
form the following functions:
‘‘(1) PARTICIPATION
AGREEMENTS, 
PRICES,
AND FEES.—
‘‘(A) PRIVATELY
NEGOTIATED
PRICES.—
Each benefit administrator shall establish,
through negotiations with medicine manufactur-
ers and wholesalers and pharmacies, a schedule
of prices for covered prescription medicines.
‘‘(B) AGREEMENTS
WITH
ANY
WILLING
PHARMACY.—Each benefit administrator shall
enter into participation agreements under sub-
section (e) with any willing pharmacy, that in-
clude terms that—
‘‘(i) secure the participation of suffi-
cient numbers of pharmacies to ensure
convenient 
access 
(including 
adequate
emergency access);
‘‘(ii) permit the participation of any
willing pharmacy in the service area that
meets the participation requirements de-
scribed in subsection (e); and
‘‘(iii) allow for reasonable dispensing
and consultation fees for pharmacies.
‘‘(C) LISTS OF PRICES AND PARTICIPATING
PHARMACIES.—Each benefit administrator shall
ensure that the negotiated prices established
under subparagraph (A) and the list of phar-
macies with agreements under subsection (e)
are regularly updated and readily available in
the service area to health care professionals au-
thorized to prescribe medicines, participating
pharmacies, and enrolled individuals.
‘‘(2) TRACKING OF COVERED ENROLLED INDI-
VIDUALS.—In coordination with the Secretary, each
benefit administrator shall maintain accurate, up-
dated records of all enrolled individuals residing in
the service area (other than individuals enrolled in
a plan under part C).
‘‘(3) PAYMENT AND COORDINATION OF BENE-
FITS.—
‘‘(A) PAYMENT.—Each benefit adminis-
trator shall—
‘‘(i) administer claims for payment of
benefits under this part and encourage, to
the maximum extent possible, use of elec-
tronic means for the submissions of claims;
‘‘(ii) determine amounts of benefit
payments to be made; and
‘‘(iii) receive, disburse, and account
for funds used in making such payments,
including through the activities specified in
the provisions of this paragraph.
‘‘(B) COORDINATION.—Each benefit ad-
ministrator shall coordinate with the Secretary,
other benefit administrators, pharmacies, and
other relevant entities as necessary to ensure
appropriate coordination of benefits with re-
spect to enrolled individuals, including coordina-
tion of access to and payment for covered pre-
scription medicines according to an individual’s
in-service area plan provisions, when such indi-
vidual is traveling outside the home service
area, and under such other circumstances as
the Secretary may specify.
‘‘(C) EXPLANATION OF BENEFITS.—Each
benefit administrator shall furnish to enrolled
individuals an explanation of benefits in accord-
ance with section 1806(a), and a notice of the
balance of benefits remaining for the current
year, whenever prescription medicine benefits
are provided under this part (except that such
notice need not be provided more often than
monthly).
‘‘(4) 
REQUIREMENTS
WITH
RESPECT
TO
FORMULARIES.—If a benefit administrator uses a
formulary to contain costs under this part, the ben-
efit administrator shall—
‘‘(A) use a pharmacy and therapeutics
committee comprised of licensed practicing phy-
sicians, pharmacists, and other health care
practitioners to develop and manage the for-
mulary;
‘‘(B) include in the formulary at least 1
medicine from each therapeutic class and, if
available, a generic equivalent thereof; and
‘‘(C) disclose to current and prospective
enrollees and to participating providers and
pharmacies in the service area, the nature of
the formulary restrictions, including informa-
tion regarding the medicines included in the
formulary and any difference in cost-sharing
amounts.
‘‘(5) COST
AND
UTILIZATION
MANAGEMENT;
QUALITY
ASSURANCE.—Each benefit administrator
shall have in place effective cost and utilization man-
agement, drug utilization review, quality assurance
measures, and systems to reduce medical errors, in-
cluding at least the following, together with such ad-
ditional measures as the Secretary may specify:
‘‘(A) DRUG UTILIZATION REVIEW.—A drug
utilization review program conforming to the
standards provided in section 1927(g)(2) (with
such modifications as the Secretary finds ap-
propriate).
‘‘(B) FRAUD AND ABUSE CONTROL.—Ac-
tivities to control fraud, abuse, and waste, in-
cluding prevention of diversion of pharma-
ceuticals to the illegal market.
‘‘(C) 
MEDICATION
THERAPY
MANAGE-
MENT.—
‘‘(i) IN
GENERAL.—A program of
medicine therapy management and medica-
tion administration that is designed to as-
sure that covered outpatient medicines are
appropriately used to achieve therapeutic
goals and reduce the risk of adverse
events, including adverse drug interactions.
‘‘(ii) 
ELEMENTS
OF
MEDICATION
THERAPY
MANAGEMENT.—Such program
may include—
‘‘(I) enhanced beneficiary under-
standing of such appropriate use
through beneficiary education, coun-
seling, and other appropriate means;
and
‘‘(II) increased beneficiary adher-
ence with prescription medication
regimens through medication refill re-
minders, special packaging, and other
appropriate means.
‘‘(iii) DEVELOPMENT OF PROGRAM IN
COOPERATION
WITH
LICENSED
PHAR-
MACISTS.—The program shall be developed
in cooperation with licensed pharmacists
and physicians.
‘‘(iv) CONSIDERATIONS IN PHARMACY
FEES.—The benefit administrators 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.
‘‘(6) EDUCATION
AND
INFORMATION
ACTIVI-
TIES.—Each benefit administrator shall have in
place mechanisms for disseminating educational and
informational materials to enrolled individuals and
health care providers designed to encourage effective
and cost-effective use of prescription medicine bene-
fits and to ensure that enrolled individuals under-
stand their rights and obligations under the pro-
gram.
‘‘(7) BENEFICIARY PROTECTIONS.—
‘‘(A) CONFIDENTIALITY
OF
HEALTH
IN-
FORMATION.—Each benefit administrator shall
have in effect systems to safeguard the con-
fidentiality of health care information on en-
rolled individuals, which comply with section
1106 and with section 552a of title 5, United
States Code, and meet such additional stand-
ards as the Secretary may prescribe.
‘‘(B) GRIEVANCE
AND
APPEAL
PROCE-
DURES.—Each benefit administrator shall have
in place such procedures as the Secretary may
specify for hearing and resolving grievances and
appeals, including expedited appeals, brought
by enrolled individuals against the benefit ad-
ministrator or a pharmacy concerning benefits
under this part, which shall include procedures
equivalent to those specified in subsections (f)
and (g) of section 1852.
‘‘(8) RECORDS, REPORTS, AND AUDITS OF BEN-
EFIT ADMINISTRATORS.—
‘‘(A) RECORDS AND AUDITS.—Each ben-
efit administrator shall maintain adequate
records, and afford the Secretary access to such
records (including for audit purposes).
‘‘(B) REPORTS.—Each benefit adminis-
trator shall make such reports and submissions
of financial and utilization data as the Sec-
retary may require taking into account stand-
ard commercial practices.
‘‘(9) PROPOSAL
FOR
ALTERNATIVE
COINSUR-
ANCE AMOUNT.—
‘‘(A) SUBMISSION.—Each benefit adminis-
trator may submit a proposal for decreased
beneficiary cost-sharing for generic prescription
medicines, prescription medicines on the benefit
administrator’s formulary, or prescription medi-
cines obtained through mail order pharmacies.
‘‘(B) CONTENTS.—The proposal submitted
under subparagraph (A) shall contain evidence
that such decreased cost-sharing would not re-
sult in an increase in aggregate costs to the Ac-
count, including an analysis of differences in
projected drug utilization patterns by bene-
ficiaries whose cost-sharing would be reduced
under the proposal and those making the cost-
sharing payments that would otherwise apply.
‘‘(10) OTHER
REQUIREMENTS.—Each benefit
administrator shall meet such other requirements as
the Secretary may specify.
‘‘(e) PHARMACY PARTICIPATION AGREEMENTS.—
‘‘(1) IN GENERAL.—A pharmacy that meets the
requirements of this subsection shall be eligible to
enter an agreement with a benefit administrator to
furnish covered prescription medicines and phar-
macists’ services to enrolled individuals residing in
the service area.
‘‘(2) TERMS OF AGREEMENT.—An agreement
under this subsection shall include the following
terms and requirements:
‘‘(A) LICENSING.—The pharmacy and
pharmacists shall meet (and throughout the
contract period will continue to meet) all appli-
cable State and local licensing requirements.
‘‘(B) LIMITATION
ON
CHARGES.—Phar-
macies participating under this part shall not
charge an enrolled individual more than the ne-
gotiated price for an individual medicine as es-
tablished under subsection (d)(1), regardless of
whether such individual has attained the basic
benefit limitation under section 1860B(b)(3),
and shall not charge an enrolled individual
more than the individual’s share of the nego-
tiated price as determined under the provisions
of this part.
‘‘(C) 
PERFORMANCE
STANDARDS.—The
pharmacy and the pharmacist shall comply with
performance standards relating to—
‘‘(i) measures for quality assurance,
reduction of medical errors, and participa-
tion in the drug utilization review program
described in subsection (d)(3)(A);
‘‘(ii) systems to ensure compliance
with the confidentiality standards applica-
ble under subsection (d)(5)(A); and
‘‘(iii) other requirements as the Sec-
retary may impose to ensure integrity, effi-
ciency, and the quality of the program.
‘‘(D) DISCLOSURE OF PRICE OF GENERIC
MEDICINE.—A pharmacy participating under
this part that dispenses a prescription medicine
to a medicare beneficiary enrolled under this
part shall inform the beneficiary at the time of
purchase of the drug of any differential between
the price of the prescribed drug to the enrollee
and the price of the lowest cost generic drug
that is therapeutically and pharmaceutically
equivalent and bioequivalent.
‘‘(f) FLEXIBILITY IN ASSIGNING WORKLOAD AMONG
BENEFIT ADMINISTRATORS.—During the period after the
Secretary has given notice of intent to terminate a con-
tract with a benefit administrator, the Secretary may
transfer responsibilities of the benefit administrator under
such contract to another benefit administrator.
‘‘(g) GUARANTEED ACCESS TO MEDICINES IN RURAL
AND HARD-TO-SERVE AREAS.—
‘‘(1) IN GENERAL.—The Secretary shall ensure
that all beneficiaries have guaranteed access to the
full range of pharmaceuticals under this part, and
shall give special attention to access, pharmacist
counseling, and delivery in rural and hard-to-serve
areas, including through the use of incentives such
as bonus payments to retail pharmacists in rural
areas and extra payments to the benefit adminis-
trator for the cost of rapid delivery of pharma-
ceuticals, and any other actions necessary.
‘‘(2) GAO REPORT.—Not later than 2 years
after the implementation of this part the Comp-
troller General of the United States shall submit to
Congress a report on the access of medicare bene-
ficiaries to pharmaceuticals and pharmacists’ serv-
ices in rural and hard-to-serve areas under this part
together with any recommendations of the Comp-
troller General regarding any additional steps the
Secretary may need to take to ensure the access of
medicare beneficiaries to pharmaceuticals and phar-
macists’ services in such areas under this part.
‘‘(h) INCENTIVES FOR COST AND UTILIZATION MAN-
AGEMENT AND QUALITY IMPROVEMENT.—The Secretary
is authorized to include in a contract awarded under sub-
section (c) such incentives for cost and utilization manage-
ment and quality improvement as the Secretary may deem
appropriate, including—
‘‘(1) bonus and penalty incentives to encourage
administrative efficiency;
‘‘(2) incentives under which benefit administra-
tors share in any benefit savings achieved;
‘‘(3) financial incentives under which savings
derived from the substitution of generic medicines in
lieu of non-generic medicines are made available to
beneficiaries enrolled under this part, benefit admin-
istrators, pharmacies, and the Prescription Medicine
Insurance Account; and
‘‘(4) any other incentive that the Secretary
deems appropriate and likely to be effective in man-
aging costs or utilization.
‘‘INCENTIVE PROGRAM TO ENCOURAGE EMPLOYERS TO
CONTINUE COVERAGE
‘‘SEC. 1860H. (a) PROGRAM AUTHORITY.—The Sec-
retary shall develop and implement a program under this
section called the ‘Employer Incentive Program’ that en-
courages employers and other sponsors of employment-
based health care coverage to provide adequate prescrip-
tion medicine benefits to retired individuals and to main-
tain such existing benefit programs, by subsidizing, in
part, the cost of providing coverage under qualifying
plans.
‘‘(b) SPONSOR REQUIREMENTS.—In order to be eligi-
ble to receive an incentive payment under this section with
respect to coverage of an individual under a qualified re-
tiree prescription medicine plan (as defined in subsection
(f)(3)), a sponsor shall meet the following requirements:
‘‘(1) ASSURANCES.—The sponsor shall—
‘‘(A) annually attest, and provide such as-
surances as the Secretary may require, that the
coverage offered by the sponsor is a qualified
retiree prescription medicine plan, and will re-
main such a plan for the duration of the spon-
sor’s participation in the program under this
section; and
‘‘(B) guarantee that it will give notice to
the Secretary and covered retirees—
‘‘(i) at least 120 days before termi-
nating its plan; and
‘‘(ii) immediately upon determining
that the actuarial value of the prescription
medicine benefit under the plan falls below
the actuarial value of the insurance benefit
under this part.
‘‘(2) OTHER
REQUIREMENTS.—The sponsor
shall provide such information, and comply with
such requirements, including information require-
ments to ensure the integrity of the program, as the
Secretary may find necessary to administer the pro-
gram under this section.
‘‘(c) INCENTIVE PAYMENT.—
‘‘(1) IN GENERAL.—A sponsor that meets the
requirements of subsection (b) with respect to a
quarter in a calendar year shall have payment made
by the Secretary on a quarterly basis to the appro-
priate employment-based health plan of an incentive
payment, in the amount determined as described in
paragraph (2), for each retired individual (or
spouse) who—
‘‘(A) was covered under the sponsor’s
qualified retiree prescription medicine plan dur-
ing such quarter; and
‘‘(B) was eligible for but was not enrolled
in the insurance program under this part.
‘‘(2) AMOUNT
OF
INCENTIVE.—The payment
under this section with respect to each individual de-
scribed in paragraph (1) for a month shall be equal
to 2⁄3 of the monthly premium amount payable from
the Prescription Medicine Insurance Account for an
enrolled individual, as set for the calendar year pur-
suant to section 1860D(a)(2).
‘‘(3) PAYMENT
DATE.—The incentive under
this section with respect to a calendar quarter shall
be payable as of the end of the next succeeding cal-
endar quarter.
‘‘(d) CIVIL MONEY PENALTIES.—A sponsor, health
plan, or other entity that the Secretary determines has,
directly or through its agent, provided information in con-
nection with a request for an incentive payment under this
section that the entity knew or should have known to be
false shall be subject to a civil monetary penalty in an
amount up to 3 times the total incentive amounts under
subsection (c) that were paid (or would have been payable)
on the basis of such information.
‘‘(e) PART
D ENROLLMENT
FOR
INDIVIDUALS
WHOSE EMPLOYMENT-BASED RETIREE HEALTH COV-
ERAGE ENDS.—
‘‘(1) ELIGIBLE
INDIVIDUALS.—An individual
shall be given the opportunity to enroll in the pro-
gram under this part during the period specified in
paragraph (2) if—
‘‘(A) the individual declined enrollment in
the program under this part at the time the in-
dividual first satisfied section 1860C(a);
‘‘(B) at that time, the individual was cov-
ered under a qualified retiree prescription medi-
cine plan for which an incentive payment was
paid under this section; and
‘‘(C)(i) the sponsor subsequently ceased to
offer such plan; or
‘‘(ii) the value of prescription medicine cov-
erage under such plan became less than the
value of the coverage under the program under
this part.
‘‘(2) SPECIAL ENROLLMENT PERIOD.—An indi-
vidual described in paragraph (1) shall be eligible to
enroll in the program under this part during the 6-
month period beginning on the first day of the
month in which—
‘‘(A) the individual receives a notice that
coverage under such plan has terminated (in
the 
circumstance 
described 
in 
paragraph
(1)(C)(i)) or notice that a claim has been de-
nied because of such a termination; or
‘‘(B) the individual received notice of the
change in benefits (in the circumstance de-
scribed in paragraph (1)(C)(ii)).
‘‘(f) DEFINITIONS.—In this section:
‘‘(1) EMPLOYMENT-BASED
RETIREE
HEALTH
COVERAGE.—The term ‘employment-based retiree
health coverage’ means health insurance or other
coverage of health care costs for retired individuals
(or for such individuals and their spouses and de-
pendents) based on their status as former employees
or labor union members.
‘‘(2) EMPLOYER.—The term ‘employer’ has the
meaning given to such term by section 3(5) of the
Employee Retirement Income Security Act of 1974
(except that such term shall include only employers
of 2 or more employees).
‘‘(3) QUALIFIED RETIREE PRESCRIPTION MEDI-
CINE PLAN.—The term ‘qualified retiree prescription
medicine plan’ means health insurance coverage in-
cluded in employment-based retiree health coverage
that—
‘‘(A) provides coverage of the cost of pre-
scription medicines whose actuarial value to
each retired beneficiary equals or exceeds the
actuarial value of the benefits provided to an in-
dividual enrolled in the program under this
part; and
‘‘(B) does not deny, limit, or condition the
coverage or provision of prescription medicine
benefits for retired individuals based on age or
any health status-related factor described in
section 2702(a)(1) of the Public Health Service
Act.
‘‘(4) SPONSOR.—The term ‘sponsor’ has the
meaning given the term ‘plan sponsor’ by section
3(16)(B) of the Employee Retirement Income Secu-
rity Act of 1974.
‘‘APPROPRIATIONS TO COVER GOVERNMENT
CONTRIBUTIONS
‘‘SEC. 1860I. (a) IN GENERAL.—There are author-
ized to be appropriated from time to time, out of any mon-
eys in the Treasury not otherwise appropriated, to the
Prescription Medicine Insurance Account, a Government
contribution equal to—
‘‘(1) the aggregate premiums payable for a
month pursuant to section 1860D(a)(2) by individ-
uals enrolled in the program under this part; plus
‘‘(2) one-half the aggregate premiums payable
for a month pursuant to such section for such indi-
viduals by former employers; plus
‘‘(3) the benefits payable by reason of the appli-
cation of section 1860B(c) (relating to catastrophic
benefits).
‘‘(b) APPROPRIATIONS TO COVER INCENTIVES FOR
EMPLOYMENT-BASED RETIREE MEDICINE COVERAGE.—
There are authorized to be appropriated to the Prescrip-
tion Medicine Insurance Account from time to time, out
of any moneys in the Treasury not otherwise appropriated
such sums as may be necessary for payment of incentive
payments under section 1860H(c).
‘‘DEFINITIONS
‘‘SEC. 1860J. As used in this part—
‘‘(1) the term ‘prescription medicine’ means—
‘‘(A) a drug that may be dispensed only
upon a prescription, and that is described in
subparagraph (A)(i), (A)(ii), or (B) of section
1927(k)(2); and
‘‘(B) insulin certified under section 506 of
the Federal Food, Drug, and Cosmetic Act, and
needles, syringes, and disposable pumps for the
administration of such insulin; and
‘‘(2) the term ‘benefit administrator’ means an
entity which is providing for the administration of
benefits under this part pursuant to 1860G.’’.
(b) CONFORMING AMENDMENTS.—
(1) 
AMENDMENTS
TO
FEDERAL
SUPPLE-
MENTARY HEALTH INSURANCE TRUST FUND.—Sec-
tion 1841 of the Social Security Act (42 U.S.C.
1395t) is amended—
(A) in the last sentence of subsection (a)—
(i) by striking ‘‘and’’ after ‘‘section
201(i)(1)’’; and
(ii) by inserting before the period the
following: ‘‘, and such amounts as may be
deposited in, or appropriated to, the Pre-
scription Medicine Insurance Account es-
tablished by section 1860F’’;
(B) in subsection (g), by inserting after
‘‘by this part,’’ the following: ‘‘the payments
provided for under part D (in which case the
payments shall come from the Prescription
Medicine Insurance Account in the Supple-
mentary Medical Insurance Trust Fund),’’;
(C) in the first sentence of subsection (h),
by inserting before the period the following:
‘‘and section 1860D(b)(4) (in which case the
payments shall come from the Prescription
Medicine Insurance Account in the Supple-
mentary Medical Insurance Trust Fund)’’; and
(D) in the first sentence of subsection
(i)—
(i) by striking ‘‘and’’ after ‘‘section
1840(b)(1)’’; and
(ii) by inserting before the period the
following: ‘‘, section 1860D(b)(2) (in which
case the payments shall come from the
Prescription Medicine Insurance Account
in the Supplementary Medical Insurance
Trust Fund)’’.
(2) PRESCRIPTION
MEDICINE
OPTION
UNDER
MEDICARE+CHOICE PLANS.—
(A) ELIGIBILITY, ELECTION, AND ENROLL-
MENT.—Section 1851 of the Social Security Act
(42 U.S.C. 1395w–21) is amended—
(i) in subsection (a)(1)(A), by striking
‘‘parts A and B’’ inserting ‘‘parts A, B,
and D’’; and
(ii) in subsection (i)(1), by striking
‘‘parts A and B’’ and inserting ‘‘parts A,
B, and D’’.
(B) VOLUNTARY
BENEFICIARY
ENROLL-
MENT
FOR
MEDICINE
COVERAGE.—Section
1852(a)(1)(A) of such Act (42 U.S.C. 1395w–
22(a)(1)(A)) is amended by inserting ‘‘(and
under part D to individuals also enrolled under
that part)’’ after ‘‘parts A and B’’.
(C) 
ACCESS
TO
SERVICES.—Section
1852(d)(1) of such Act (42 U.S.C. 1395w–
22(d)(1)) is amended—
(i) in subparagraph (D), by striking
‘‘and’’ at the end;
(ii) in subparagraph (E), by striking
the period at the end and inserting ‘‘;
and’’; and
(iii) by adding at the end the fol-
lowing new subparagraph:
‘‘(F) the plan for prescription medicine
benefits under part D guarantees coverage of
any specifically named covered prescription
medicine for an enrollee, when prescribed by a
physician in accordance with the provisions of
such part, regardless of whether such medicine
would otherwise be covered under an applicable
formulary or discount arrangement.’’.
(D) PAYMENTS TO ORGANIZATIONS.—Sec-
tion 1853(a)(1)(A) of such Act (42 U.S.C.
1395w–23(a)(1)(A)) is amended—
(i) by inserting ‘‘determined sepa-
rately for benefits under parts A and B
and under part D (for individuals enrolled
under that part)’’ after ‘‘as calculated
under subsection (c)’’;
(ii) by striking ‘‘that area, adjusted
for such risk factors’’ and inserting ‘‘that
area. In the case of payment for benefits
under parts A and B, such payment shall
be adjusted for such risk factors as’’; and
(iii) by inserting before the last sen-
tence the following: ‘‘In the case of the
payments for benefits under part D, such
payment shall initially be adjusted for the
risk factors of each enrollee as the Sec-
retary determines to be feasible and appro-
priate. By 2006, the adjustments would be
for the same risk factors applicable for
benefits under parts A and B.’’.
(E) CALCULATION OF ANNUAL MEDICARE
+CHOICE CAPITATION RATES.—Section 1853(c)
of such Act (42 U.S.C. 1395w–23(c)) is
amended—
(i) in paragraph (1), in the matter
preceding subparagraph (A), by inserting
‘‘for benefits under parts A and B’’ after
‘‘capitation rate’’;
(ii) in paragraph (6)(A), by striking
‘‘rate of growth in expenditures under this
title’’ and inserting ‘‘rate of growth in ex-
penditures for benefits available under
parts A and B’’; and
(iii) by adding at the end the fol-
lowing new paragraph:
‘‘(8) PAYMENT
FOR
PRESCRIPTION
MEDI-
CINES.—The Secretary shall determine a capitation
rate for prescription medicines—
‘‘(A) dispensed in 2003, which is based on
the projected national per capita costs for pre-
scription medicine benefits under part D and
associated claims processing costs for bene-
ficiaries under the original medicare fee-for-
service program; and
‘‘(B) dispensed in each subsequent year,
which shall be equal to the rate for the previous
year updated by the Secretary’s estimate of the
projected per capita rate of growth in expendi-
tures under this title for prescription medicines
for an individual enrolled under part D.’’.
(F) LIMITATION
ON
ENROLLEE
LIABIL-
ITY.—Section 1854(e) of such Act (42 U.S.C.
1395w–24(e)) is amended by adding at the end
the following new paragraph:
‘‘(5) SPECIAL RULE FOR PROVISION OF PART D
BENEFITS.—In no event may a Medicare+Choice or-
ganization include as part of a plan for prescription
medicine benefits under part D the following re-
quirements:
‘‘(A) NO DEDUCTIBLE; NO COINSURANCE
GREATER THAN 50 PERCENT.—A requirement
that an enrollee pay a deductible, or a coinsur-
ance percentage that exceeds 50 percent.
‘‘(B) MANDATORY
INCLUSION
OF
CATA-
STROPHIC BENEFIT.—A requirement that the
catastrophic benefit level under the plan be
greater than such level established under sec-
tion 1860B(c).’’.
(G) REQUIREMENT FOR ADDITIONAL BEN-
EFITS.—Section 1854(f)(1) of such Act (42
U.S.C. 1395w–24(f)(1)) is amended by adding
at the end the following new sentence: ‘‘Such
determination shall be made separately for ben-
efits under parts A and B and for prescription
medicine benefits under part D.’’.
(H) PROTECTIONS
AGAINST
FRAUD
AND
BENEFICIARY PROTECTIONS.—Section 1857(d)
of such Act (42 U.S.C. 1395w–27(d)) is amend-
ed by adding at the end the following new para-
graph:
‘‘(6) AVAILABILITY OF NEGOTIATED PRICES.—
Each contract under this section shall provide that
enrollees who exhaust prescription medicine benefits
under the plan will continue to have access to pre-
scription medicines at negotiated prices equivalent to
the total combined cost of such medicines to the
plan and the enrollee prior to such exhaustion of
benefits.’’.
(3) EXCLUSIONS FROM COVERAGE.—
(A) APPLICATION
TO
PART
D.—Section
1862(a) of the Social Security Act (42 U.S.C.
1395y(a)) is amended in the matter preceding
paragraph (1) by striking ‘‘part A or part B’’
and inserting ‘‘part A, B, or D’’.
(B) PRESCRIPTION
MEDICINES
NOT
EX-
CLUDED FROM COVERAGE IF APPROPRIATELY
PRESCRIBED.—Section 1862(a)(1) of such Act
(42 U.S.C. 1395y(a)(1)) is amended—
(i) in subparagraph (H), by striking
‘‘and’’ at the end;
(ii) in subparagraph (I), by striking
the semicolon at the end and inserting ‘‘,
and’’; and
(iii) by adding at the end the fol-
lowing new subparagraph:
‘‘(J) in the case of prescription medicines
covered under part D, which are not prescribed
in accordance with such part;’’.
SEC. 102. MEDICAID BUY-IN OF MEDICARE PRESCRIPTION
MEDICINE COVERAGE FOR CERTAIN LOW-IN-
COME INDIVIDUALS.
(a) STATE OPTION TO BUY-IN DUALLY ELIGIBLE
INDIVIDUALS.—
(1) COVERAGE OF PREMIUMS AS MEDICAL AS-
SISTANCE.—Section 1905(a) of the Social Security
Act (42 U.S.C. 1396d) is amended in the second
sentence of the flush matter at the end by striking
‘‘premiums under part B’’ the first place it appears
and inserting ‘‘premiums under parts B and D’’.
(2) STATE
COMMITMENT
TO
CONTINUE
PAR-
TICIPATION IN PART D AFTER BENEFIT LIMIT EX-
CEEDED.—Section 1902(a) of such Act (42 U.S.C.
1396a) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64);
(B) by striking the period at the end of
paragraph (65)(B) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
paragraph:
‘‘(66) provide that in the case of any individual
whose eligibility for medical assistance is not limited
to medicare or medicare medicine cost-sharing and
for whom the State elects to pay premiums under
part D of title XVIII pursuant to section 1860E, the
State will purchase all prescription medicines for
such individual in accordance with the provisions of
such part D, without regard to whether the basic
benefit limitation for such individual under section
1860B(b)(3) has been reached.’’.
(b) GOVERNMENT PAYMENT OF MEDICARE MEDI-
CINE COST-SHARING REQUIRED FOR QUALIFIED MEDI-
CARE BENEFICIARIES.—Section 1905(p)(3) of the Social
Security Act (42 U.S.C. 1396d(p)(3)) is amended—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘and’’ at the
end;
(B) in clause (ii), by inserting ‘‘and’’ at
the end; and
(C) by adding at the end the following new
clause:
‘‘(iii) 
premiums 
under 
section
1860D.’’; and
(2) in subparagraph (D)—
(A) by inserting ‘‘(i)’’ after ‘‘(D)’’; and
(B) by adding at the end the following:
‘‘(ii) PART
D
COST-SHARING.—The dif-
ference between the amount that is paid under
section 1860B and the amount that would be
paid under such section if any reference to ‘50
percent’ therein were deemed a reference to
‘100 percent’ (or, if the Secretary approves a
higher percentage under such section, if such
percentage were deemed to be 100 percent).’’.
(c) GOVERNMENT PAYMENT OF MEDICARE MEDI-
CINE COST-SHARING REQUIRED FOR MEDICARE BENE-
FICIARIES WITH INCOMES BETWEEN 100 AND 150 PER-
CENT OF POVERTY LINE.—
(1) 
STATE
PLAN
REQUIREMENT.—Section
1902(a)(10)(E) of the Social Security Act (42
U.S.C. 1396a(a)(10)(E)) is amended—
(A) in clause (iii), by striking ‘‘and’’ at the
end; and
(B) by adding at the end the following new
clause:
‘‘(v) for making medical assistance avail-
able for medicare medicine cost-sharing (as de-
fined in section 1905(x)(2)) for qualified medi-
care medicine beneficiaries described in section
1905(x)(1); and’’.
(2) 100 PERCENT
FEDERAL
MATCHING
OF
STATE MEDICAL ASSISTANCE COSTS FOR MEDICARE
MEDICINE COST-SHARING.—Section 1903(a) of the
Social Security Act (42 U.S.C. 1396b(a)) is
amended—
(A) by redesignating paragraph (7) as
paragraph (8); and
(B) by inserting after paragraph (6) the
following new paragraph:
‘‘(7) except in the case of amounts expended for
an individual whose eligibility for medical assistance
is not limited to medicare or medicare medicine cost-
sharing, an amount equal to 100 percent of amounts
as expended as medicare medicine cost-sharing for
qualified medicare medicine beneficiaries (as defined
in section 1905(x)); plus’’.
(3) ADDITIONAL FUNDS FOR MEDICARE MEDI-
CINE
COST-SHARING
IN
TERRITORIES.—Section
1108 of the Social Security Act (42 U.S.C. 1308) is
amended—
(A) in subsection (f), by striking ‘‘sub-
section (g),’’ and inserting ‘‘subsections (g) and
(h)’’; and
(B) by adding at the end the following new
subsection:
‘‘(h) ADDITIONAL MEDICAID PAYMENTS TO TERRI-
TORIES FOR MEDICARE MEDICINE COST-SHARING.—
‘‘(1) IN GENERAL.—In the case of a territory
that develops and implements a plan described in
paragraph (2) (for providing medical assistance with
respect to the provision of prescription drugs to
medicare beneficiaries), the amount otherwise deter-
mined under subsection (f) (as increased under sub-
section (g)) for the State shall be increased by the
amount specified in paragraph (3).
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of some or all medicare
medicine cost sharing (as defined in section
1905(x)(2)) to low-income medicare bene-
ficiaries; and
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the
operation of this subsection are used only for
such assistance.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified
in this paragraph for a State for a year is equal
to the product of—
‘‘(i) the aggregate amount specified in
subparagraph (B); and
‘‘(ii) the amount specified in sub-
section (g)(1) for that State, divided by the
sum of the amounts specified in such sec-
tion for all such States.
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph
for—
‘‘(i) 2003, is equal to $25,000,000; or
‘‘(ii) a subsequent year, is equal to the
aggregate amount specified in this sub-
paragraph for the previous year increased
by annual percentage increase specified in
section 1860B(b)(3)(B) for the year in-
volved.’’.
(4) DEFINITIONS OF ELIGIBLE BENEFICIARIES
AND COVERAGE.—Section 1905 of the Social Secu-
rity Act (42 U.S.C. 1396d) is amended by adding
at the end the following new subsection:
‘‘(x)(1) The term ‘qualified medicare medicine bene-
ficiary’ means an individual—
‘‘(A) who is enrolled or enrolling under part D
of title XVIII;
‘‘(B) whose income (as determined under sec-
tion 1612 for purposes of the supplemental security
income program, except as provided in subsection
(p)(2)(D)) is above 100 percent but below 150 per-
cent of the official poverty line (as referred to in
subsection (p)(2)) applicable to a family of the size
involved; and
‘‘(C) whose resources (as determined under sec-
tion 1613 for purposes of the supplemental security
income program) do not exceed twice the maximum
amount of resources that an individual may have
and obtain benefits under that program.
‘‘(2) The term ‘medicare medicine cost-sharing’
means the following costs incurred with respect to a quali-
fied medicare medicine beneficiary, without regard to
whether the costs incurred were for items and services for
which medical assistance is otherwise available under the
plan:
‘‘(A) In the case of a qualified medicare medi-
cine beneficiary whose income (as determined under
paragraph (1)) is less than 135 percent of the offi-
cial poverty line—
‘‘(i) premiums under section 1860D; and
‘‘(ii) the difference between the amount
that is paid under section 1860B and the
amount that would be paid under such section
if any reference to ‘50 percent’ therein were
deemed a reference to ‘100 percent’ (or, if the
Secretary approves a higher percentage under
such section, if such percentage were deemed to
be 100 percent).
‘‘(B) In the case of a qualified medicare medi-
cine beneficiary whose income (as determined under
paragraph (1)) is at least 135 percent but less than
150 percent of the official poverty line, a percentage
of premiums under section 1860D, determined on a
linear sliding scale ranging from 100 percent for in-
dividuals with incomes at 135 percent of such line
to 0 percent for individuals with incomes at 150 per-
cent of such line.
‘‘(3) In the case of any State which is providing med-
ical assistance to its residents under a waiver granted
under section 1115, the Secretary shall require the State
to meet the requirement of section 1902(a)(10)(E) in the
same manner as the State would be required to meet such
requirement if the State had in effect a plan approved
under this title.’’.
(d) MEDICAID MEDICINE PRICE REBATES UNAVAIL-
ABLE
WITH
RESPECT
TO
MEDICINES
PURCHASED
THROUGH MEDICARE BUY-IN.—Section 1927 of the So-
cial Security Act (42 U.S.C. 1396r–8) is amended by add-
ing at the end the following new subsection:
‘‘(l) MEDICINES PURCHASED THROUGH MEDICARE
BUY-IN.—The provisions of this section shall not apply
to prescription medicines purchased under part D of title
XVIII pursuant to an agreement with the Secretary under
section 1860E (including any medicines so purchased
after the limit under section 1860B(b)(3) has been exceed-
ed).’’.
(e) AMENDMENTS TO MEDICARE PART D.—Part D
of title XVIII of the Social Security Act (as added by sec-
tion 2) is amended by inserting after section 1860D the
following new section:
‘‘SPECIAL ELIGIBILITY, ENROLLMENT, AND COPAYMENT
RULES FOR LOW-INCOME INDIVIDUALS
‘‘SEC. 1860E. (a) STATE OPTIONS FOR COVERAGE:
CONTINUATION OF MEDICAID COVERAGE OR ENROLL-
MENT UNDER THIS PART.—
‘‘(1) IN GENERAL.—The Secretary shall, at the
request of a State, enter into an agreement with the
State under which all individuals described in para-
graph (2) are enrolled in the program under this
part, without regard to whether any such individual
has previously declined the opportunity to enroll in
such program.
‘‘(2) ELIGIBILITY GROUPS.—The individuals de-
scribed in this paragraph, for purposes of paragraph
(1), are individuals who satisfy section 1860C(a)
and who are—
‘‘(A) in a coverage group or groups per-
mitted under section 1843 (as selected by the
State and specified in the agreement); or
‘‘(B) qualified medicare medicine bene-
ficiaries (as defined in section 1905(x)(1)).
‘‘(3) COVERAGE PERIOD.—The period of cov-
erage under this part of an individual enrolled under
an agreement under this subsection shall be as fol-
lows:
‘‘(A) INDIVIDUALS
ELIGIBLE
(AT
STATE
OPTION) FOR PART B BUY-IN.—In the case of
an individual described in subsection (a)(2)(A),
the coverage period shall be the same period
that applies (or would apply) pursuant to sec-
tion 1843(d).
‘‘(B) QUALIFIED
MEDICARE
MEDICINE
BENEFICIARIES.—In the case of an individual
described in subsection (a)(2)(B)—
‘‘(i) the coverage period shall begin on
the latest of—
‘‘(I) January 1, 2003;
‘‘(II) the first day of the third
month following the month in which
the State agreement is entered into;
or
‘‘(III) the first day of the first
month following the month in which
the 
individual 
satisfies 
section
1860C(a); and
‘‘(ii) the coverage period shall end on
the last day of the month in which the in-
dividual is determined by the State to have
become ineligible for medicare medicine
cost-sharing.
‘‘(4) ENROLLMENT FOR LOW-INCOME SUBSIDY
THROUGH OTHER MEANS.—
‘‘(A) FLEXIBILITY IN ENROLLMENT PROC-
ESS.—With respect to low-income individuals
residing in a State enrolling under this part on
or after January 1, 2003, the Secretary shall
provide for determinations of whether the indi-
vidual is eligible for a subsidy and the amount
of such individual’s income to be made under
arrangements with appropriate entities other
than State medicaid agencies.
‘‘(B) USE
OF
CERTAIN
INFORMATION.—
Arrangements with entities under subparagraph
(A) shall provide for —
‘‘(i) the use of existing Federal gov-
ernment databases to identify eligibility;
and
‘‘(ii) the use of information obtained
under section 154 of the Social Security
Act Amendments of 1994 for newly eligible
medicare beneficiaries, and the application
of such information with respect to other
medicare beneficiaries.
‘‘(b) SPECIAL PART D ENROLLMENT OPPORTUNITY
FOR INDIVIDUALS LOSING MEDICAID ELIGIBILITY.—In
the case of an individual who—
‘‘(1) satisfies section 1860C(a); and
‘‘(2) loses eligibility for benefits under the State
plan under title XIX after having been enrolled
under such plan or having been determined eligible
for such benefits;
the Secretary shall provide an opportunity for enrollment
under the program under this part during the period that
begins on the date that such individual loses such eligi-
bility and ends on the date specified by the Secretary.
‘‘(c) DEFINITION.—For purposes of this section, the
term ‘State’ has the meaning given such term under sec-
tion 1101(a) for purposes of title XIX.’’.
(f) REMOVAL OF SUNSET DATE FOR COST-SHARING
IN MEDICARE PART B PREMIUMS FOR CERTAIN QUALI-
FYING INDIVIDUALS.—
(1) IN GENERAL.—Section 1902(a)(10)(E)(iv)
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1396a(a)(10)(E)(iv)) 
is 
amended 
to 
read 
as
follows—
‘‘(iv) subject to section 1905(p)(4),
for making medical assistance available for
medicare cost-sharing described in section
1905(p)(3)(A)(ii) 
for 
individuals 
who
would be qualified medicare beneficiaries
described in section 1905(p)(1) but for the
fact that their income exceeds the income
level established by the State under section
1905(p)(2) and is at least 120 percent, but
less than 135 percent, of the official pov-
erty 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) RELOCATION OF PROVISION REQUIRING 100
PERCENT FEDERAL MATCHING OF STATE MEDICAL
ASSISTANCE COSTS FOR CERTAIN QUALIFYING INDI-
VIDUALS.—Section 1903(a) of the Social Security
Act (42 U.S.C. 1396b(a)), as amended by subsection
(c)(3), is amended—
(A) by redesignating paragraph (8) as
paragraph (9); and
(B) by inserting after paragraph (7) the
following new paragraph:
‘‘(8) an amount equal to 100 percent of
amounts expended as medicare cost-sharing de-
scribed in section 1903(a)(10)(E)(iv) for individuals
described in such section; plus’’.
(3) REPEAL OF SECTION 1933.—Section 1933 is
repealed.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on January 1,
2003.
SEC. 103. OFFSET FOR CATASTROPHIC PRESCRIPTION
MEDICINE BENEFIT.
If the mid-summer 2000 budget estimate prepared by
the Director of the Congressional Budget Office results
in a higher level of projected on-budget surplus over the
ten fiscal year period beginning with fiscal year 2001 than
the projected on-budget surplus in the estimate prepared
by the Director in March, 2000, there shall be transferred
out of any moneys in the Treasury not otherwise appro-
priated in a fiscal year (beginning with fiscal year 2003)
to the Prescription Medicine Insurance Account (created
in the Federal Supplemental Medical Insurance Trust
Fund established by section 1841 of the Social Security
Act (42 U.S.C. 1395t)) such sums as are necessary to off-
set the costs attributable to the operation of section
1860B(a)(2) of the Social Security Act (as added by sec-
tion 3) (relating to catastrophic benefit payment amounts)
in that fiscal year.
SEC. 104. GAO ONGOING STUDIES AND REPORTS ON PRO-
GRAM; MISCELLANEOUS REPORTS.
(a) ONGOING STUDY.—The Comptroller General of
the United States shall conduct an ongoing study and
analysis of the prescription medicine benefit program
under part D of the Medicare program under title XVIII
of the Social Security Act (as added by section 3 of this
Act), including an analysis of each of the following:
(1) The extent to which the administering enti-
ties have –achieved volume-based discounts similar
to the favored –price paid by other large purchasers.
(2) Whether access to the benefits under such
program are in fact available to all beneficiaries,
with special attention given to access for bene-
ficiaries living in rural and hard-to-serve areas.
(3) The success of such program in reducing
medication error and adverse medicine reactions and
improving quality of care, and whether it is probable
that the program has resulted in savings through re-
duced hospitalizations and morbidity due to medica-
tion errors and adverse medicine reactions.
(4) Whether patient medical record confiden-
tiality is being maintained and safe-guarded.
(5) Such other issues as the Comptroller Gen-
eral may consider.
(b) REPORTS.—The Comptroller General shall issue
such reports on the results of the ongoing study described
in (a) as the Comptroller General shall deem appropriate
and shall notify Congress on a timely basis of significant
problems in the operation of the part D prescription medi-
cine program and the need for legislative adjustments and
improvements.
(c) MISCELLANEOUS STUDIES AND REPORTS.—
(1) STUDY ON METHODS TO ENCOURAGE ADDI-
TIONAL
RESEARCH
ON
BREAKTHROUGH
PHARMA-
CEUTICALS.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall seek the ad-
vice of the Secretary of the Treasury on pos-
sible tax and trade law changes to encourage
increased original research on new pharma-
ceutical breakthrough products designed to ad-
dress disease and illness.
(B) REPORT.—Not later than January 1,
2003, the Secretary shall submit to Congress a
report on such study. The report shall include
recommended methods to encourage the phar-
maceutical industry to devote more resources to
research and development of new covered prod-
ucts than it devotes to overhead expenses.
(2) STUDY ON PHARMACEUTICAL SALES PRAC-
TICES
AND
IMPACT
ON
COSTS
AND
QUALITY
OF
CARE.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall conduct a
study on the methods used by the pharma-
ceutical industry to advertise and sell to con-
sumers and educate and sell to providers.
(B) REPORT.—Not later than January 1,
2003, the Secretary shall submit to Congress a
report on such study. The report shall include
the estimated direct and indirect costs of the
sales methods used, the quality of the informa-
tion conveyed, and whether such sales efforts
leads (or could lead) to inappropriate pre-
scribing. Such report may include legislative
and regulatory recommendations to encourage
more appropriate education and prescribing
practices.
(3) STUDY ON COST OF PHARMACEUTICAL RE-
SEARCH.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall conduct a
study on the costs of, and needs for, the phar-
maceutical research and the role that the tax-
payer provides in encouraging such research.
(B) REPORT.—Not later than January 1,
2003, the Secretary shall submit to Congress a
report on such study. The report shall include
a description of the full-range of taxpayer-as-
sisted programs impacting pharmaceutical re-
search, including tax, trade, government re-
search, and regulatory assistance. The report
may also include legislative and regulatory rec-
ommendations that are designed to ensure that
the taxpayer’s investment in pharmaceutical re-
search results in the availability of pharma-
ceuticals at reasonable prices.
(4) REPORT ON PHARMACEUTICAL PRICES IN
MAJOR FOREIGN NATIONS.—Not later than January
1, 2003, the Secretary of Health and Human Serv-
ices shall submit to Congress a report on the retail
price of major pharmaceutical products in various
developed nations, compared to prices for the same
or similar products in the United States. The report
shall include a description of the principal reasons
for any price differences that may exist.
TITLE II—IMPROVEMENT IN
BENEFICIARY SERVICES
Subtitle A—Improvement of Medi-
care 
Coverage 
and 
Appeals
Process
SEC. 201. REVISIONS TO MEDICARE APPEALS PROCESS.
(a) CONDUCT OF RECONSIDERATIONS OF DETER-
MINATIONS
BY INDEPENDENT CONTRACTORS.—Section
1869 of the Social Security Act (42 U.S.C. 1395ff) is
amended to read as follows:
‘‘DETERMINATIONS; APPEALS
‘‘SEC. 1869. (a) INITIAL DETERMINATIONS.—The
Secretary shall promulgate regulations and make initial
determinations with respect to benefits under part A or
part B in accordance with those regulations for the fol-
lowing:
‘‘(1) The initial determination of whether an in-
dividual is entitled to benefits under such parts.
‘‘(2) The initial determination of the amount of
benefits available to the individual under such parts.
‘‘(3) Any other initial determination with re-
spect to a claim for benefits under such parts, in-
cluding an initial determination by the Secretary
that payment may not be made, or may no longer
be made, for an item or service under such parts, an
initial determination made by a utilization and qual-
ity control peer review organization under section
1154(a)(2), and an initial determination made by an
entity pursuant to a contract with the Secretary to
administer provisions of this title or title XI.
‘‘(b) APPEAL RIGHTS.—
‘‘(1) IN GENERAL.—
‘‘(A) RECONSIDERATION
OF
INITIAL
DE-
TERMINATION.—Subject to subparagraph (D),
any individual dissatisfied with any initial de-
termination under subsection (a) shall be enti-
tled to reconsideration of the determination,
and, subject to subparagraphs (D) and (E), a
hearing thereon by the Secretary to the same
extent as is provided in section 205(b) and to
judicial review of the Secretary’s final decision
after such hearing as is provided in section
205(g).
‘‘(B) REPRESENTATION BY PROVIDER OR
SUPPLIER.—
‘‘(i) IN
GENERAL.—Sections 206(a),
1102, and 1871 shall not be construed as
authorizing the Secretary to prohibit an in-
dividual from being represented under this
section by a person that furnishes or sup-
plies the individual, directly or indirectly,
with services or items, solely on the basis
that the person furnishes or supplies the
individual with such a service or item.
‘‘(ii) MANDATORY WAIVER OF RIGHT
TO
PAYMENT
FROM
BENEFICIARY.—Any
person that furnishes services or items to
an individual may not represent an indi-
vidual under this section with respect to
the issue described in section 1879(a)(2)
unless the person has waived any rights for
payment from the beneficiary with respect
to the services or items involved in the ap-
peal.
‘‘(iii) PROHIBITION ON PAYMENT FOR
REPRESENTATION.—If a person furnishes
services or items to an individual and rep-
resents the individual under this section,
the person may not impose any financial li-
ability on such individual in connection
with such representation.
‘‘(iv) 
REQUIREMENTS
FOR
REP-
RESENTATIVES OF A BENEFICIARY.—The
provisions of section 205(j) and section
206 (regarding representation of claim-
ants) shall apply to representation of an
individual with respect to appeals under
this section in the same manner as they
apply to representation of an individual
under those sections.
‘‘(C) SUCCESSION OF RIGHTS IN CASES OF
ASSIGNMENT.—The right of an individual to an
appeal under this section with respect to an
item or service may be assigned to the provider
of services or supplier of the item or service
upon the written consent of such individual
using a standard form established by the Sec-
retary for such an assignment.
‘‘(D) TIME LIMITS FOR APPEALS.—
‘‘(i) RECONSIDERATIONS.—Reconsid-
eration under subparagraph (A) shall be
available only if the individual described in
subparagraph (A) files notice with the Sec-
retary to request reconsideration by not
later than 180 days after the individual re-
ceives notice of the initial determination
under subsection (a) or within such addi-
tional time as the Secretary may allow.
‘‘(ii) HEARINGS CONDUCTED BY THE
SECRETARY.—The Secretary shall establish
in regulations time limits for the filing of
a request for a hearing by the Secretary in
accordance with provisions in sections 205
and 206.
‘‘(E) AMOUNTS IN CONTROVERSY.—
‘‘(i) IN GENERAL.—A hearing (by the
Secretary) shall not be available to an indi-
vidual under this section if the amount in
controversy is less than $100, and judicial
review shall not be available to the indi-
vidual if the amount in controversy is less
than $1,000.
‘‘(ii) AGGREGATION
OF
CLAIMS.—In
determining the amount in controversy, the
Secretary, under regulations, shall allow 2
or more appeals to be aggregated if the ap-
peals involve—
‘‘(I) the delivery of similar or re-
lated services to the same individual
by one or more providers of services
or suppliers, or
‘‘(II) common issues of law and
fact arising from services furnished to
2 or more individuals by one or more
providers of services or suppliers.
‘‘(F) EXPEDITED PROCEEDINGS.—
‘‘(i) EXPEDITED
DETERMINATION.—
In the case of an individual who—
‘‘(I) has received notice by a pro-
vider of services that the provider of
services plans to terminate services
provided to an individual and a physi-
cian certifies that failure to continue
the provision of such services is likely
to place the individual’s health at sig-
nificant risk, or
‘‘(II) has received notice by a
provider of services that the provider
of services plans to discharge the indi-
vidual from the provider of services,
the individual may request, in writing or
orally, an expedited determination or an
expedited reconsideration of an initial de-
termination made under subsection (a), as
the case may be, and the Secretary shall
provide such expedited determination or
expedited reconsideration.
‘‘(ii) EXPEDITED
HEARING.—In a
hearing by the Secretary under this sec-
tion, in which the moving party alleges
that no material issues of fact are in dis-
pute, the Secretary shall make an expe-
dited determination as to whether any such
facts are in dispute and, if not, shall
render a decision expeditiously.
‘‘(G) REOPENING AND REVISION OF DE-
TERMINATIONS.—The Secretary may reopen or
revise any initial determination or reconsidered
determination described in this subsection
under guidelines established by the Secretary in
regulations.
‘‘(2) 
REVIEW
OF
COVERAGE
DETERMINA-
TIONS.—
‘‘(A) NATIONAL
COVERAGE
DETERMINA-
TIONS.—
‘‘(i) IN GENERAL.—Review of any na-
tional coverage determination shall be sub-
ject to the following limitations:
‘‘(I) Such a determination shall
not be reviewed by any administrative
law judge.
‘‘(II) Such a determination shall
not be held unlawful or set aside on
the ground that a requirement of sec-
tion 553 of title 5, United States
Code, or section 1871(b) of this title,
relating to publication in the Federal
Register or opportunity for public
comment, was not satisfied.
‘‘(III) Upon the filing of a com-
plaint by an aggrieved party, such a
determination shall be reviewed by the
Departmental Appeals Board of the
Department of Health and Human
Services. In conducting such a review,
the Departmental Appeals Board shall
review the record and shall permit dis-
covery and the taking of evidence to
evaluate the reasonableness of the de-
termination. In reviewing such a de-
termination, the Departmental Ap-
peals Board shall defer only to the
reasonable findings of fact, reasonable
interpretations of law, and reasonable
applications of fact to law by the Sec-
retary.
‘‘(IV) A decision of the Depart-
mental Appeals Board constitutes a
final agency action and is subject to
judicial review.
‘‘(ii) DEFINITION OF NATIONAL COV-
ERAGE DETERMINATION.—For purposes of
this section, the term ‘national coverage
determination’ means a determination by
the Secretary respecting whether or not a
particular item or service is covered na-
tionally under this title, including such a
determination under 1862(a)(1).
‘‘(B) LOCAL
COVERAGE
DETERMINATION.—In
the case of a local coverage determination made by
a fiscal intermediary or a carrier under part A or
part B respecting whether a particular type or class
of items or services is covered under such parts, the
following limitations apply:
‘‘(i) Upon the filing of a complaint by an
aggrieved party, such a determination shall be
reviewed by an administrative law judge of the
Social Security Administration. The administra-
tive law judge shall review the record and shall
permit discovery and the taking of evidence to
evaluate the reasonableness of the determina-
tion. In reviewing such a determination, the ad-
ministrative law judge shall defer only to the
reasonable findings of fact, reasonable interpre-
tations of law, and reasonable applications of
fact to law by the Secretary.
‘‘(ii) Such a determination may be re-
viewed by the Departmental Appeals Board of
the Department of Health and Human Services.
‘‘(iii) A decision of the Departmental Ap-
peals Board constitutes a final agency action
and is subject to judicial review.
‘‘(C) NO MATERIAL ISSUES OF FACT IN DIS-
PUTE.—In the case of review of a determination
under subparagraph (A)(i)(III) or (B)(i) where the
moving party alleges that there are no material
issues of fact in dispute, and alleges that the only
issue is the constitutionality of a provision of this
title, or that a regulation, determination, or ruling
by the Secretary is invalid, the moving party may
seek review by a court of competent jurisdiction.
‘‘(D) PENDING
NATIONAL
COVERAGE
DETER-
MINATIONS.—
‘‘(i) IN GENERAL.—In the event the Sec-
retary has not issued a national coverage or
noncoverage determination with respect to a
particular type or class of items or services, an
affected party may submit to the Secretary a
request to make such a determination with re-
spect to such items or services. By not later
than the end of the 90-day period beginning on
the date the Secretary receives such a request,
the Secretary shall take one of the following ac-
tions:
‘‘(I) Issue a national coverage deter-
mination, with or without limitations.
‘‘(II) Issue a national noncoverage de-
termination.
‘‘(III) Issue a determination that no
national coverage or noncoverage deter-
mination is appropriate as of the end of
such 90-day period with respect to national
coverage of such items or services.
‘‘(IV) Issue a notice that states that
the Secretary has not completed a review
of the request for a national coverage de-
termination and that includes an identi-
fication of the remaining steps in the Sec-
retary’s review process and a deadline by
which the Secretary will complete the re-
view and take an action described in sub-
clause (I), (II), or (III).
‘‘(ii) In the case of an action described in
clause (i)(IV), if the Secretary fails to take an
action referred to in such clause by the deadline
specified by the Secretary under such clause,
then the Secretary is deemed to have taken an
action described in clause (i)(III) as of the
deadline.
‘‘(iii) When issuing a determination under
clause (i), the Secretary shall include an expla-
nation of the basis for the determination. An
action taken under clause (i) (other than sub-
clause (IV)) is deemed to be a national coverage
determination for purposes of review under sub-
paragraph (A).
‘‘(E) ANNUAL REPORT ON NATIONAL COVERAGE
DETERMINATIONS.—
‘‘(i) IN GENERAL.—Not later than Decem-
ber 1 of each year, beginning in 2001, the Sec-
retary shall submit to Congress a report that
sets forth a detailed compilation of the actual
time periods that were necessary to complete
and fully implement national coverage deter-
minations that were made in the previous fiscal
year for items, services, or medical devices not
previously covered as a benefit under this title,
including, with respect to each new item, serv-
ice, or medical device, a statement of the time
taken by the Secretary to make the necessary
coverage, coding, and payment determinations,
including the time taken to complete each sig-
nificant step in the process of making such de-
terminations.
‘‘(ii) PUBLICATION OF REPORTS ON THE
INTERNET.—The Secretary shall publish each
report submitted under clause (i) on the medi-
care Internet site of the Department of Health
and Human Services.
‘‘(3) PUBLICATION ON THE INTERNET OF DECI-
SIONS OF HEARINGS OF THE SECRETARY.—Each de-
cision of a hearing by the Secretary shall be made
public, and the Secretary shall publish each decision
on the Medicare Internet site of the Department of
Health and Human Services. The Secretary shall re-
move from such decision any information that would
identify any individual, provider of services, or sup-
plier.
‘‘(4) LIMITATION ON REVIEW OF CERTAIN REG-
ULATIONS.—A regulation or instruction which re-
lates to a method for determining the amount of
payment under part B and which was initially issued
before January 1, 1981, shall not be subject to judi-
cial review.
‘‘(5) STANDING.—An action under this section
seeking review of a coverage determination (with re-
spect to items and services under this title) may be
initiated only by one (or more) of the following ag-
grieved persons, or classes of persons:
‘‘(A) Individuals entitled to benefits under
part A, or enrolled under part B, or both, who
are in need of the items or services that are the
subject of the coverage determination.
‘‘(B) Persons, or classes of persons, who
make, manufacture, offer, supply, make avail-
able, or provide such items and services.
‘‘(c) CONDUCT
OF RECONSIDERATIONS
BY INDE-
PENDENT CONTRACTORS.—
‘‘(1) IN GENERAL.—The Secretary shall enter
into contracts with qualified independent contractors
to conduct reconsiderations of initial determinations
made under paragraphs (2) and (3) of subsection
(a). Contracts shall be for an initial term of three
years and shall be renewable on a triennial basis
thereafter.
‘‘(2) 
QUALIFIED
INDEPENDENT
CON-
TRACTOR.—For purposes of this subsection, the
term ‘qualified independent contractor’ means an en-
tity or organization that is independent of any orga-
nization under contract with the Secretary that
makes initial determinations under subsection (a),
and that meets the requirements established by the
Secretary consistent with paragraph (3).
‘‘(3) REQUIREMENTS.—Any 
qualified 
inde-
pendent contractor entering into a contract with the
Secretary under this subsection shall meet the fol-
lowing requirements:
‘‘(A) IN
GENERAL.—The qualified inde-
pendent contractor shall perform such duties
and functions and assume such responsibilities
as may be required under regulations of the
Secretary promulgated to carry out the provi-
sions of this subsection, and such additional du-
ties, functions, and responsibilities as provided
under the contract.
‘‘(B) 
DETERMINATIONS.—The 
qualified
independent contractor shall determine, on the
basis of such criteria, guidelines, and policies
established by the Secretary and published
under subsection (d)(2)(D), whether payment
shall be made for items or services under part
A or part B and the amount of such payment.
Such determination shall constitute the conclu-
sive determination on those issues for purposes
of payment under such parts for fiscal inter-
mediaries, carriers, and other entities whose de-
terminations are subject to review by the con-
tractor; except that payment may be made if—
‘‘(i) such payment is allowed by rea-
son of section 1879;
‘‘(ii) in the case of inpatient hospital
services or extended care services, the
qualified independent contractor deter-
mines that additional time is required in
order to arrange for postdischarge care,
but payment may be continued under this
clause for not more than 2 days, and only
in the case in which the provider of such
services did not know and could not rea-
sonably have been expected to know (as de-
termined under section 1879) that pay-
ment would not otherwise be made for
such services under part A or part B prior
to notification by the qualified independent
contractor under this subsection;
‘‘(iii) such determination is changed
as the result of any hearing by the Sec-
retary or judicial review of the decision
under this section; or
‘‘(iv) such payment is authorized
under section 1861(v)(1)(G).
‘‘(C) DEADLINES FOR DECISIONS.—
‘‘(i) DETERMINATIONS.—The quali-
fied independent contractor shall conduct
and conclude a determination under sub-
paragraph (B) or an appeal of an initial
determination, and mail the notice of the
decision by not later than the end of the
45-day period beginning on the date a re-
quest for reconsideration has been timely
filed.
‘‘(ii) CONSEQUENCES OF FAILURE TO
MEET DEADLINE.—In the case of a failure
by the qualified independent contractor to
mail the notice of the decision by the end
of the period described in clause (i), the
party requesting the reconsideration or ap-
peal may request a hearing before an ad-
ministrative law judge, notwithstanding
any requirements for a reconsidered deter-
mination for purposes of the party’s right
to such hearing.
‘‘(iii) 
EXPEDITED
RECONSIDER-
ATIONS.—The qualified independent con-
tractor shall perform an expedited recon-
sideration under subsection (b)(1)(F) of a
notice from a provider of services or sup-
plier that payment may not be made for an
item or service furnished by the provider of
services or supplier, of a decision by a pro-
vider of services to terminate services fur-
nished to an individual, or in accordance
with the following:
‘‘(I) DEADLINE FOR DECISION.—
Notwithstanding section 216(j), not
later than 1 day after the date the
qualified independent contractor has
received a request for such reconsider-
ation and has received such medical
or other records needed for such re-
consideration, 
the 
qualified 
inde-
pendent contractor shall provide no-
tice (by telephone and in writing) to
the individual and the provider of
services and attending physician of
the individual of the results of the re-
consideration. Such reconsideration
shall be conducted regardless of
whether the provider of services or
supplier will charge the individual for
continued services or whether the indi-
vidual will be liable for payment for
such continued services.
‘‘(II) CONSULTATION WITH BEN-
EFICIARY.—In such reconsideration,
the qualified independent contractor
shall solicit the views of the individual
involved.
‘‘(D) LIMITATION ON INDIVIDUAL REVIEW-
ING DETERMINATIONS.—
‘‘(i) 
PHYSICIANS.—No 
physician
under the employ of a qualified inde-
pendent contractor may review—
‘‘(I) 
determinations 
regarding
health care services furnished to a pa-
tient if the physician was directly re-
sponsible for furnishing such services;
or
‘‘(II) determinations regarding
health care services provided in or by
an institution, organization, or agen-
cy, if the physician or any member of
the physician’s family has, directly or
indirectly, a significant financial inter-
est in such institution, organization,
or agency.
‘‘(ii) 
PHYSICIAN’S
FAMILY
DE-
SCRIBED.—For purposes of this para-
graph, a physician’s family includes the
physician’s spouse (other than a spouse
who is legally separated from the physician
under a decree of divorce or separate
maintenance), children (including step-
children and legally adopted children),
grandchildren, parents, and grandparents.
‘‘(E) 
EXPLANATION
OF
DETERMINA-
TIONS.—Any determination of a qualified inde-
pendent contractor shall be in writing, and shall
include a detailed explanation of the determina-
tion as well as a discussion of the pertinent
facts and applicable regulations applied in mak-
ing such determination.
‘‘(F) NOTICE REQUIREMENTS.—Whenever
a qualified independent contractor makes a de-
termination under this subsection, the qualified
independent contractor shall promptly notify
such individual and the entity responsible for
the payment of claims under part A or part B
of such determination.
‘‘(G) DISSEMINATION OF INFORMATION.—
Each qualified independent contractor shall,
using the methodology established by the Sec-
retary under subsection (d)(4), make available
all determinations of such qualified independent
contractors to fiscal intermediaries (under sec-
tion 1816), carriers (under section 1842), peer
review organizations (under part B of title XI),
Medicare+Choice 
organizations 
offering
Medicare+Choice plans under part C, and
other entities under contract with the Secretary
to make initial determinations under part A or
part B or title XI.
‘‘(H) ENSURING CONSISTENCY IN DETER-
MINATIONS.—Each qualified independent con-
tractor shall monitor its determinations to en-
sure the consistency of its determinations with
respect to requests for reconsideration of simi-
lar or related matters.
‘‘(I) DATA COLLECTION.—
‘‘(i) IN
GENERAL.—Consistent with
the requirements of clause (ii), a qualified
independent contractor shall collect such
information relevant to its functions, and
keep and maintain such records in such
form and manner as the Secretary may re-
quire to carry out the purposes of this sec-
tion and shall permit access to and use of
any such information and records as the
Secretary may require for such purposes.
‘‘(ii) TYPE
OF
DATA
COLLECTED.—
Each 
qualified 
independent 
contractor
shall keep accurate records of each deci-
sion made, consistent with standards es-
tablished by the Secretary for such pur-
pose. Such records shall be maintained in
an electronic database in a manner that
provides for identification of the following:
‘‘(I) Specific claims that give rise
to appeals.
‘‘(II) Situations suggesting the
need for increased education for pro-
viders of services, physicians, or sup-
pliers.
‘‘(III) Situations suggesting the
need for changes in national or local
coverage policy.
‘‘(IV) Situations suggesting the
need for changes in local medical re-
view policies.
‘‘(iii) 
ANNUAL
REPORTING.—Each
qualified independent contractor shall sub-
mit annually to the Secretary (or otherwise
as the Secretary may request) records
maintained under this paragraph for the
previous year.
‘‘(J) HEARINGS BY THE SECRETARY.—The
qualified independent contractor shall (i) pre-
pare such information as is required for an ap-
peal of its reconsidered determination to the
Secretary for a hearing, including as necessary,
explanations of issues involved in the deter-
mination and relevant policies, and (ii) partici-
pate in such hearings as required by the Sec-
retary.
‘‘(4) NUMBER
OF
QUALIFIED
INDEPENDENT
CONTRACTORS.—The Secretary shall enter into con-
tracts with not fewer than 12 qualified independent
contractors under this subsection.
‘‘(5) LIMITATION ON QUALIFIED INDEPENDENT
CONTRACTOR LIABILITY.—No qualified independent
contractor having a contract with the Secretary
under this subsection and no person who is em-
ployed by, or who has a fiduciary relationship with,
any such qualified independent contractor or who
furnishes professional services to such qualified inde-
pendent contractor, shall be held by reason of the
performance of any duty, function, or activity re-
quired or authorized pursuant to this subsection or
to a valid contract entered into under this sub-
section, to have violated any criminal law, or to be
civilly liable under any law of the United States or
of any State (or political subdivision thereof) pro-
vided due care was exercised in the performance of
such duty, function, or activity.
‘‘(d) ADMINISTRATIVE PROVISIONS.—
‘‘(1) OUTREACH.—The Secretary shall perform
such outreach activities as are necessary to inform
individuals entitled to benefits under this title and
providers of services and suppliers with respect to
their rights of, and the process for, appeals made
under this section. The Secretary shall use the toll-
free telephone number maintained by the Secretary
(1–800–MEDICAR(E)) (1–800–633–4227) to pro-
vide information regarding appeal rights and re-
spond to inquiries regarding the status of appeals.
‘‘(2) GUIDANCE FOR RECONSIDERATIONS AND
HEARINGS.—
‘‘(A) REGULATIONS.—Not later than 1
year after the date of the enactment of this sec-
tion, the Secretary shall promulgate regulations
governing the processes of reconsiderations of
determinations by the Secretary and qualified
independent contractors and of hearings by the
Secretary. Such regulations shall include such
specific criteria and provide such guidance as
required to ensure the adequate functioning of
the reconsiderations and hearings processes and
to ensure consistency in such processes.
‘‘(B) DEADLINES
FOR
ADMINISTRATIVE
ACTION.—
‘‘(i) HEARING
BY
ADMINISTRATIVE
LAW JUDGE.—
‘‘(I) IN
GENERAL.—Except as
provided in subclause (II), an admin-
istrative law judge shall conduct and
conclude a hearing on a decision of a
qualified 
independent 
contractor
under subsection (c) and render a de-
cision on such hearing by not later
than the end of the 90-day period be-
ginning on the date a request for
hearing has been timely filed.
‘‘(II) WAIVER OF DEADLINE BY
PARTY SEEKING HEARING.—The 90-
day period under subclause (i) shall
not apply in the case of a motion or
stipulation by the party requesting the
hearing to waive such period.
‘‘(ii) DEPARTMENTAL APPEALS BOARD
REVIEW.—The 
Departmental 
Appeals
Board of the Department of Health and
Human Services shall conduct and con-
clude a review of the decision on a hearing
described in subparagraph (B) and make a
decision or remand the case to the admin-
istrative law judge for reconsideration by
not later than the end of the 90-day period
beginning on the date a request for review
has been timely filed.
‘‘(iii) CONSEQUENCES OF FAILURE TO
MEET DEADLINES.—In the case of a fail-
ure by an administrative law judge to
render a decision by the end of the period
described in clause (ii), the party request-
ing the hearing may request a review by
the Departmental Appeals Board of the
Department of Health and Human Serv-
ices, notwithstanding any requirements for
a hearing for purposes of the party’s right
to such a review.
‘‘(iv) DAB HEARING PROCEDURE.—In
the case of a request described in clause
(iii), the Departmental Appeals Board
shall review the case de novo.
‘‘(C) POLICIES.—The Secretary shall pro-
vide such specific criteria and guidance, includ-
ing all applicable national and local coverage
policies and rationale for such policies, as is
necessary to assist the qualified independent
contractors to make informed decisions in con-
sidering appeals under this section. The Sec-
retary shall furnish to the qualified independent
contractors the criteria and guidance described
in this paragraph in a published format, which
may be an electronic format.
100
‘‘(D) PUBLICATION
OF
MEDICARE
COV-
ERAGE POLICIES ON THE INTERNET.—The Sec-
retary shall publish national and local coverage
policies under this title on an Internet site
maintained by the Secretary.
‘‘(E) EFFECT
OF
FAILURE
TO
PUBLISH
POLICIES.—
‘‘(i) NATIONAL AND LOCAL COVERAGE
POLICIES.—Qualified independent contrac-
tors shall not be bound by any national or
local medicare coverage policy established
by the Secretary that is not published on
the Internet site under subparagraph (D).
‘‘(ii) OTHER POLICIES.—With respect
to policies established by the Secretary
other than the policies described in clause
(i), qualified independent contractors shall
not be bound by such policies if the Sec-
retary does not furnish to the qualified
independent contractor the policies in a
published format consistent with subpara-
graph (C).
‘‘(3) CONTINUING
EDUCATION
REQUIREMENT
FOR QUALIFIED INDEPENDENT CONTRACTORS AND
ADMINISTRATIVE LAW JUDGES.—
101
‘‘(A) IN
GENERAL.—The Secretary shall
provide to each qualified independent con-
tractor, and, in consultation with the Commis-
sioner of Social Security, to administrative law
judges that decide appeals of reconsiderations
of initial determinations or other decisions or
determinations under this section, such con-
tinuing education with respect to policies of the
Secretary under this title or part B of title XI
as is necessary for such qualified independent
contractors and administrative law judges to
make informed decisions with respect to ap-
peals.
‘‘(B) MONITORING
OF
DECISIONS
BY
QUALIFIED INDEPENDENT CONTRACTORS AND
ADMINISTRATIVE LAW JUDGES.—The Secretary
shall monitor determinations made by all quali-
fied independent contractors and administrative
law judges under this section and shall provide
continuing education and training to such quali-
fied independent contractors and administrative
law judges to ensure consistency of determina-
tions with respect to appeals on similar or re-
lated matters. To ensure such consistency, the
Secretary shall provide for administration and
102
oversight of qualified independent contractors
and, in consultation with the Commissioner of
Social Security, administrative law judges
through a central office of the Department of
Health and Human Services. Such administra-
tion and oversight may not be delegated to re-
gional offices of the Department.
‘‘(4) DISSEMINATION
OF
DETERMINATIONS.—
The Secretary shall establish a methodology under
which qualified independent contractors shall carry
out subsection (c)(3)(G).
‘‘(5) SURVEY.—Not less frequently than every 5
years, the Secretary shall conduct a survey of a valid
sample of individuals entitled to benefits under this
title, providers of services, and suppliers to deter-
mine the satisfaction of such individuals or entities
with the process for appeals of determinations pro-
vided for under this section and education and train-
ing provided by the Secretary with respect to that
process. The Secretary shall submit to Congress a
report describing the results of the survey, and shall
include any recommendations for administrative or
legislative actions that the Secretary determines ap-
propriate.
103
‘‘(6) REPORT
TO
CONGRESS.—The Secretary
shall submit to Congress an annual report describing
the number of appeals for the previous year, identi-
fying issues that require administrative or legislative
actions, and including any recommendations of the
Secretary with respect to such actions. The Sec-
retary shall include in such report an analysis of de-
terminations by qualified independent contractors
with respect to inconsistent decisions and an anal-
ysis of the causes of any such inconsistencies.’’.
(b) APPLICABILITY OF REQUIREMENTS AND LIMITA-
TIONS ON LIABILITY OF QUALIFIED INDEPENDENT CON-
TRACTORS
TO MEDICARE+CHOICE INDEPENDENT AP-
PEALS CONTRACTORS.—Section 1852(g)(4) of the Social
Security Act (42 U.S.C. 1395w–22(e)(3)) is amended by
adding at the end the following: ‘‘The provisions of section
1869(c)(5) shall apply to independent outside entities
under contract with the Secretary under this paragraph.’’.
(c) CONFORMING AMENDMENT TO REVIEW BY THE
PROVIDER REIMBURSEMENT REVIEW BOARD.—Section
1878(g) of the Social Security Act (42 U.S.C. 1395oo(g))
is amended by adding at the end the following new para-
graph:
104
‘‘(3) Findings described in paragraph (1) and deter-
minations and other decisions described in paragraph (2)
may be reviewed or appealed under section 1869.’’.
SEC. 202. PROVISIONS WITH RESPECT TO LIMITATIONS ON
LIABILITY OF BENEFICIARIES.
(a) EXPANSION OF LIMITATION OF LIABILITY PRO-
TECTION FOR BENEFICIARIES WITH RESPECT TO MEDI-
CARE CLAIMS NOT PAID OR PAID INCORRECTLY.—
(1) IN GENERAL.—Section 1879 of the Social
Security Act (42 U.S.C. 1395pp) is amended by
adding at the end the following new subsections:
‘‘(i) Notwithstanding any other provision of this Act,
an individual who is entitled to benefits under this title
and is furnished a service or item is not liable for repay-
ment to the Secretary of amounts with respect to such
benefits—
‘‘(1) subject to paragraph (2), in the case of a
claim for such item or service that is incorrectly paid
by the Secretary; and
‘‘(2) in the case of payments made to the indi-
vidual by the Secretary with respect to any claim
under paragraph (1), the individual shall be liable
for repayment of such amount only up to the
amount of payment received by the individual from
the Secretary.
105
‘‘(j)(1) An individual who is entitled to benefits under
this title and is furnished a service or item is not liable
for payment of amounts with respect to such benefits in
the following cases:
‘‘(A) In the case of a benefit for which an ini-
tial determination has not been made by the Sec-
retary under subsection (a) whether payment may be
made under this title for such benefit.
‘‘(B) In the case of a claim for such item or
service that is—
‘‘(i) improperly submitted by the provider
of services or supplier; or
‘‘(ii) rejected by an entity under contract
with the Secretary to review or pay claims for
services and items furnished under this title, in-
cluding an entity under contract with the Sec-
retary under section 1857.
‘‘(2) The limitation on liability under paragraph (1)
shall not apply if the individual signs a waiver provided
by the Secretary under subsection (l) of protections under
this paragraph, except that any such waiver shall not
apply in the case of a denial of a claim for noncompliance
with applicable regulations or procedures under this title
or title XI.
106
‘‘(k) An individual who is entitled to benefits under
this title and is furnished services by a provider of services
is not liable for payment of amounts with respect to such
services prior to noon of the first working day after the
date the individual receives the notice of determination to
discharge and notice of appeal rights under paragraph (1),
unless the following conditions are met:
‘‘(1) The provider of services shall furnish a no-
tice of discharge and appeal rights established by the
Secretary under subsection (l) to each individual en-
titled to benefits under this title to whom such pro-
vider of services furnishes services, upon admission
of the individual to the provider of services and upon
notice of determination to discharge the individual
from the provider of services, of the individual’s limi-
tations of liability under this section and rights of
appeal under section 1869.
‘‘(2) If the individual, prior to discharge from
the provider of services, appeals the determination to
discharge under section 1869 not later than noon of
the first working day after the date the individual
receives the notice of determination to discharge and
notice of appeal rights under paragraph (1), the pro-
vider of services shall, by the close of business of
such first working day, provide to the Secretary (or
107
qualified independent contractor under section 1869,
as determined by the Secretary) the records required
to review the determination.
‘‘(l) The Secretary shall develop appropriate standard
forms for individuals entitled to benefits under this title
to waive limitation of liability protections under subsection
(j) and to receive notice of discharge and appeal rights
under subsection (k). The forms developed by the Sec-
retary under this subsection shall clearly and in plain lan-
guage inform such individuals of their limitations on liabil-
ity, their rights under section 1869(a) to obtain an initial
determination by the Secretary of whether payment may
be made under part A or part B for such benefit, and
their rights of appeal under section 1869(b), and shall in-
form such individuals that they may obtain further infor-
mation or file an appeal of the determination by use of
the toll-free telephone number (1–800–MEDICAR(E))
(1–800–633–4227) maintained by the Secretary. The
forms developed by the Secretary under this subsection
shall be the only manner in which such individuals may
waive such protections under this title or title XI.
‘‘(m) An individual who is entitled to benefits under
this title and is furnished an item or service is not liable
for payment of cost sharing amounts of more than $50
with respect to such benefits unless the individual has
108
been informed in advance of being furnished the item or
service of the estimated amount of the cost sharing for
the item or service using a standard form established by
the Secretary.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1870(a) of the Social Security Act (42 U.S.C.
1395gg(a)) is amended by striking ‘‘Any payment
under this title’’ and inserting ‘‘Except as provided
in section 1879(i), any payment under this title’’.
(b) INCLUSION OF BENEFICIARY LIABILITY INFOR-
MATION IN EXPLANATION OF MEDICARE BENEFITS.—
Section 1806(a) of the Social Security Act (42 U.S.C.
1395b–7(a)) is amended—
(1) in paragraph (1), by striking ‘‘and’’ at the
end;
(2) by redesignating paragraph (2) as para-
graph (3); and
(3) by inserting after paragraph (1) the fol-
lowing new paragraph:
‘‘(2) lists with respect to each item or service
furnished the amount of the individual’s liability for
payment;’’;
(4) in paragraph (3), as so redesignated, by
striking the period at the end and inserting ‘‘; and’’;
and
109
(5) by adding at the end the following new
paragraph:
‘‘(4) includes the toll-free telephone number (1–
800–MEDICAR(E)) (1–800–633–4227) for infor-
mation and questions concerning the statement, li-
ability of the individual for payment, and appeal
rights.’’.
SEC. 203. WAIVERS OF LIABILITY FOR COST SHARING
AMOUNTS.
(a) IN GENERAL.—Section 1128A(i)(6)(A) of the So-
cial Security Act (42 U.S.C. 1320a–7a(i)(6)(A)) is amend-
ed by striking clauses (i) through (iii) and inserting the
following:
‘‘(i) the waiver is offered as a part of
a supplemental insurance policy or retiree
health plan;
‘‘(ii) the waiver is not offered as part
of any advertisement or solicitation, other
than in conjunction with a policy or plan
described in clause (i);
‘‘(iii) the person waives the coinsur-
ance and deductible amount after the bene-
ficiary informs the person that payment of
the coinsurance or deductible amount
110
would pose a financial hardship for the in-
dividual; or
‘‘(iv) the person determines that the
coinsurance and deductible amount would
not justify the costs of collection.’’.
(b) CONFORMING AMENDMENT.—Section 1128B(b)
of the Social Security Act (42 U.S.C. 1320a–7b(b)) is
amended by adding at the end the following new para-
graph:
‘‘(4) In this section, the term ‘remuneration’ in-
cludes the meaning given such term in section
1128A(i)(6).’’.
Subtitle B—Establishment of
Medicare Ombudsman
SEC. 211. ESTABLISHMENT OF MEDICARE OMBUDSMAN
FOR BENEFICIARY ASSISTANCE AND ADVO-
CACY.
(a) IN GENERAL.—Within the Health Care Financ-
ing Administration of the Department of Health and
Human Services, there shall be a Medicare Ombudsman,
appointed by the Secretary of Health and Human Services
from among individuals with expertise and experience in
the fields of health care and advocacy, to carry out the
duties described in subsection (b).
(b) DUTIES.—The Medicare Ombudsman shall—
111
(1) receive complaints, grievances, and requests
for information submitted by a medicare beneficiary,
with respect to any aspect of the medicare program;
(2) provide assistance with respect to com-
plaints, grievances, and requests referred to in
clause (i), including—
(A) assistance in collecting relevant infor-
mation for such beneficiaries, to seek an appeal
of a decision or determination made by a fiscal
intermediary, carrier, Medicare+Choice organi-
zation, a benefit administrator responsible for
administering the prescription medicine benefit
program under part D of title XVIII of the So-
cial Security Act, or the Secretary;
(B) assistance to such beneficiaries with
any problems arising from disenrollment from a
Medicare+Choice plan under part C of title
XVIII of such Act or a benefit administrator
responsible for administering such prescription
medicine benefit program; and
(C) submit annual reports to Congress and
the Secretary, and include in such reports rec-
ommendations for improvement in the adminis-
tration of this title as the Medicare Ombuds-
man determines appropriate.
112
(c) COORDINATION WITH STATE OMBUDSMAN PRO-
GRAMS AND CONSUMER ORGANIZATIONS.—The Medicare
Ombudsman shall, to the extent appropriate, coordinate
with State medical Ombudsman programs, and with
State- and community-based consumer organizations, to—
(1) provide information about the medicare pro-
gram; and
(2) conduct outreach to educate medicare bene-
ficiaries with respect to manners in which problems
under the medicare program may be resolved or
avoided.
(d) DEFINITIONS.—In this section:
(1) The term ‘‘medicare beneficiary’’ means an
individual entitled to benefits under part A of title
XVIII of the Social Security Act, or enrolled under
part B of such title, or both.
(2) The term ‘‘medicare program’’ means the
insurance program established under title XVIII of
the Social Security Act.
(3) The term ‘‘fiscal intermediary’’ has the
meaning given such term under section 1816(a) of
the Social Security Act (42 U.S.C. 1395h(a)).
(4) The term ‘‘carrier’’ has the meaning given
such term under section 1842(f) of the Social Secu-
rity Act (42 U.S.C. 1395u(f)).
113
(5) The term ‘‘Medicare+Choice organization’’
has the meaning given such term under section
1859(a)(1) of the Social Security Act (42 U.S.C.
1395w–29(a)(1)).
(6) The term ‘‘Secretary’’ means the Secretary
of Health and Human Services.
TITLE 
III—MEDICARE+CHOICE
REFORMS; PRESERVATION OF
MEDICARE 
PART 
B 
DRUG
BENEFIT
Subtitle A—Medicare+Choice
Reforms
SEC. 
301. 
INCREASE 
IN 
NATIONAL 
PER 
CAPITA
MEDICARE+CHOICE GROWTH PERCENTAGE
IN 2001 AND 2002.
Section 1853(c)(6)(B) of the Social Security Act (42
U.S.C. 1395w–23(c)(6)(B)) is amended—
(1) in clause (iv), by striking ‘‘for 2001, 0.5
percentage points’’ and inserting ‘‘for 2001, 0 per-
centage points’’; and
(2) in clause (v), by striking ‘‘for 2002, 0.3 per-
centage points’’ and inserting ‘‘for 2002, 0 percent-
age points’’.
114
SEC. 302. PERMANENTLY REMOVING APPLICATION OF
BUDGET NEUTRALITY BEGINNING IN 2002.
Section 1853(c) of the Social Security Act (42 U.S.C.
1395w–23(c)) is amended—
(1) in paragraph (1)(A), in the matter following
clause (ii), by inserting ‘‘(for years before 2002)’’
after ‘‘multiplied’’; and
(2) in paragraph (5), by inserting ‘‘(before
2002)’’ after ‘‘for each year’’.
SEC. 303. INCREASING MINIMUM PAYMENT AMOUNT.
(a) IN GENERAL.—Section 1853(c)(1)(B)(ii) of the
Social Security Act (42 U.S.C. 1395w–23(c)(1)(B)(ii)) is
amended—
(1) by striking ‘‘(ii) For a succeeding year’’ and
inserting ‘‘(ii)(I) Subject to subclause (II), for a suc-
ceeding year’’; and
(2) by adding at the end the following new sub-
clause:
‘‘(II) For 2002 for any of the 50
States and the District of Columbia,
$450.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to years beginning with 2002.
115
SEC. 304. ALLOWING MOVEMENT TO 50:50 PERCENT BLEND
IN 2002.
Section 1853(c)(2) of the Social Security Act (42
U.S.C. 1395w–23(c)(2)) is amended—
(1) by striking the period at the end of sub-
paragraph (F) and inserting a semicolon; and
(2) by adding after and below subparagraph
(F) the following:
‘‘except that a Medicare+Choice organization may
elect to apply subparagraph (F) (rather than sub-
paragraph (E)) for 2002.’’.
SEC. 305. INCREASED UPDATE FOR PAYMENT AREAS WITH
ONLY ONE OR NO MEDICARE+CHOICE CON-
TRACTS.
(a) IN GENERAL.—Section 1853(c)(1)(C)(ii) of the
Social Security Act (42 U.S.C. 1395w–23(c)(1)(C)(ii)) is
amended—
(1) by striking ‘‘(ii) For a subsequent year’’
and inserting ‘‘(ii)(I) Subject to subclause (II), for
a subsequent year’’; and
(2) by adding at the end the following new sub-
clause:
‘‘(II) During 2002, 2003, 2004, and
2005, in the case of a Medicare+Choice
payment area in which there is no more
than 1 contract entered into under this
116
part as of July 1 before the beginning of
the year, 102.5 percent of the annual
Medicare+Choice capitation rate under
this paragraph for the area for the pre-
vious year.’’.
(b) CONSTRUCTION.—The amendments made by sub-
section (a) do not affect the payment of a first time bonus
under section 1853(i) of the Social Security Act (42
U.S.C. 1395w–23(i)).
SEC. 306. PERMITTING HIGHER NEGOTIATED RATES IN
CERTAIN 
MEDICARE+CHOICE 
PAYMENT
AREAS BELOW NATIONAL AVERAGE.
Section 1853(c)(1) of the Social Security Act (42
U.S.C. 1395w–23(c)(1)) is amended—
(1) in the matter before subparagraph (A), by
striking ‘‘or (C)’’ and inserting ‘‘(C), or (D)’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) 
PERMITTING
HIGHER
RATES
THROUGH NEGOTIATION.—
‘‘(i) IN GENERAL.—For each year be-
ginning with 2004, in the case of a
Medicare+Choice payment area for which
the Medicare+Choice capitation rate under
this paragraph would otherwise be less
117
than the United States per capita cost
(USPCC), as calculated by the Secretary,
a Medicare+Choice organization may ne-
gotiate with the Medicare Benefits Admin-
istrator an annual per capita rate that—
‘‘(I) reflects an annual rate of in-
crease up to the rate of increase speci-
fied in clause (ii);
‘‘(II) takes into account audited
current data supplied by the organiza-
tion on its adjusted community rate
(as defined in section 1854(f)(3)); and
‘‘(III) does not exceed the United
States per capita cost, as projected by
the Secretary for the year involved.
‘‘(ii) MAXIMUM
RATE
DESCRIBED.—
The rate of increase specified in this clause
for a year is the rate of inflation in private
health insurance for the year involved, as
projected by the Medicare Benefits Admin-
istrator, and includes such adjustments as
may be necessary—
‘‘(I) to reflect the demographic
characteristics in the population under
this title; and
118
‘‘(II) to eliminate the costs of
prescription drugs.
‘‘(iii) ADJUSTMENTS
FOR
OVER
OR
UNDER PROJECTIONS.—If subparagraph is
applied to an organization and payment
area for a year, in applying this subpara-
graph for a subsequent year the provisions
of paragraph (6)(C) shall apply in the
same manner as such provisions apply
under this paragraph.’’.
SEC. 307. 10-YEAR PHASE IN OF RISK ADJUSTMENT BASED
ON DATA FROM ALL SETTINGS.
Section 1853(a)(3)(C)(ii) of the Social Security Act
(42 U.S.C. 1395w–23(c)(1)(C)(ii)) is amended—
(1) by striking the period at the end of sub-
clause (II) and inserting a semicolon; and
(2) by adding after and below subclause (II) the
following:
‘‘and, beginning in 2004, insofar as such
risk adjustment is based on data from all
settings, the methodology shall be phased
in equal increments over a 10 year period,
beginning with 2004 or (if later) the first
year in which such data is used.’’.
119
Subtitle B—Preservation of Medi-
care Coverage of Drugs and
Biologicals
SEC. 311. PRESERVATION OF COVERAGE OF DRUGS AND
BIOLOGICALS UNDER PART B OF THE MEDI-
CARE PROGRAM.
(a) IN GENERAL.—Section 1861(s)(2) of the Social
Security Act (42 U.S.C. 1395x(s)(2)) is amended, in each
of subparagraphs (A) and (B), by striking ‘‘(including
drugs and biologicals which cannot, as determined in ac-
cordance with regulations, be self-administered)’’ and in-
serting ‘‘(including injectable and infusable drugs and
biologicals which are not usually self-administered by the
patient)’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to drugs and biologicals adminis-
tered on or after October 1, 2000.
SEC. 312. COMPREHENSIVE IMMUNOSUPPRESSIVE DRUG
COVERAGE FOR TRANSPLANT PATIENTS.
(a) REVISION
OF MEDICARE COVERAGE
FOR IM-
MUNOSUPPRESSIVE DRUGS.—
(1) IN GENERAL.—Section 1861(s)(2)(J) of the
Social Security Act (42 U.S.C. 1395x(s)(2)(J)) (as
amended by section 227(a) of the Medicare, Med-
icaid, and SCHIP Balanced Budget Refinement Act
120
of 1999 (113 Stat. 1501A–354), as enacted into law
by section 1000(a)(6) of Public Law 106–113) is
amended by striking ‘‘, to an individual who re-
ceives’’ and all that follows before the semicolon at
the end and inserting ‘‘to an individual who has re-
ceived an organ transplant’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 1832 of the Social Security
Act (42 U.S.C. 1395k) (as amended by section
227(b) of the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999 (113
Stat. 1501A–354), as enacted into law by sec-
tion 1000(a)(6) of Public Law 106–113) is
amended—
(i) by striking subsection (b); and
(ii) by redesignating subsection (c) as
subsection (b).
(B) Subsections (c) and (d) of section 227
of the Medicare, Medicaid, and SCHIP Bal-
anced Budget Refinement Act of 1999 (113
Stat. 1501A–355), as enacted into law by sec-
tion 1000(a)(6) of Public Law 106–113, are re-
pealed.
121
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to drugs furnished on
or after the date of enactment of this Act.
(b) EXTENSION OF CERTAIN SECONDARY PAYER RE-
QUIREMENTS.—Section 1862(b)(1)(C) of the Social Secu-
rity Act (42 U.S.C. 1395y(b)(1)(C)) is amended by adding
at the end the following: ‘‘With regard to immuno-
suppressive drugs furnished on or after the date of enact-
ment of the Medicare Guaranteed and Defined Rx Benefit
and Health Provider Relief Act of 2000, this subpara-
graph shall be applied without regard to any time limita-
tion.’’.
(c) ESTABLISHMENT
OF PART D CATASTROPHIC
LIMIT
ON
PART
B 
COPAYMENTS
FOR
IMMUNO-
SUPPRESSIVE DRUGS.—Section 1833 of the Social Secu-
rity Act (42 U.S.C. 1395l) is amended by inserting after
subsection (o) the following new subsection:
‘‘(p) LIMITATION ON AMOUNT OF DEDUCTIBLES AND
COINSURANCE
FOR IMMUNOSUPPRESSIVE DRUGS
FOR
CERTAIN BENEFICIARIES.—With respect to 2003 and
each subsequent year, no deductibles and coinsurance ap-
plicable to immunosuppresive drugs (as described in sec-
tion 1861(s)(2)(J)) in a year under this part shall be im-
posed to the extent that the individual has incurred ex-
penditures in that year for out-of-pocket expenditures for
122
immunosuppressive drugs in excess of the catastrophic
benefit level provided for under section 1860B(c).’’.
Subtitle C—Improvement of
Certain Preventive Benefits
SEC. 321. COVERAGE OF ANNUAL SCREENING PAP SMEAR
AND PELVIC EXAMS.
(a) IN GENERAL.—
(1) ANNUAL SCREENING PAP SMEAR.—Section
1861(nn)(1) of the Social Security Act (42 U.S.C.
1395x(nn)(1)) is amended by striking ‘‘if the indi-
vidual involved has not had such a test during the
preceding 3 years, or during the preceding year in
the case of a woman described in paragraph (3).’’
and inserting ‘‘if the woman involved has not had
such a test during the preceding year.’’.
(2) ANNUAL SCREENING PELVIC EXAM.—Sec-
tion 
1861(nn)(2) 
of 
such 
Act 
(42 
U.S.C.
1395x(nn)(2)) is amended by striking ‘‘during the
preceding 3 years, or during the preceding year in
the case of a woman described in paragraph (3),’’
and inserting ‘‘during the preceding year,’’.
(3) 
CONFORMING
AMENDMENT.—Section
1861(nn) of such Act (42 U.S.C. 1395x(nn)) is
amended by striking paragraph (3).
123
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to items and services furnished on
or after January 1, 2001.
TITLE 
IV—ADJUSTMENTS 
TO
PAYMENT 
PROVISIONS 
OF
THE BALANCED BUDGET ACT
Subtitle A—Payments for Inpatient
Hospital Services
SEC. 401. ELIMINATING REDUCTION IN HOSPITAL MARKET
BASKET UPDATE FOR FISCAL YEAR 2001.
Section 1886(b)(3)(B)(i)(XVI) of the Social Security
Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XVI)) is amended by
striking ‘‘minus 1.1 percentage points for hospitals (other
than sole community hospitals) in all areas, and the mar-
ket basket percentage increase for sole community hos-
pitals,’’ and inserting ‘‘for hospitals in all areas,’’.
SEC. 402. ELIMINATING FURTHER REDUCTIONS IN INDI-
RECT MEDICAL EDUCATION (IME) FOR FIS-
CAL YEAR 2001.
Section 1886(d)(5)(B)(ii) of the Social Security Act
(42 U.S.C. 1395ww(d)(5)(B)(ii)(V)) is amended—
(1) in subclause (IV)—
(A) by striking ‘‘fiscal year 2000’’ and in-
serting ‘‘each of fiscal years 2000 and 2001’’;
and
124
(B) by adding ‘‘and’’ at the end;
(2) by striking subclause (V); and
(3) by redesignating subclause (VI) as sub-
clause (V).
SEC. 403. ELIMINATING FURTHER REDUCTIONS IN DIS-
PROPORTIONATE 
SHARE 
HOSPITAL 
(DSH)
PAYMENTS.
(a) 
MEDICARE
PAYMENTS.—Section
1886(d)(5)(F)(ix) of the Social Security Act (42 U.S.C.
1395ww(d)(5)(F)(ix)) is amended—
(1) in subclause (III), by striking ‘‘and 2001’’;
(2) by redesignating subclauses (IV) and (V) as
subclauses (V) and (VI), respectively; and
(3) by inserting after subclause (III) the fol-
lowing new subclause:
‘‘(IV) during fiscal year 2001, such additional
payment amount shall be reduced by 0 percent;’’.
(b) FREEZE IN MEDICAID DSH ALLOTMENTS FOR
FISCAL YEAR 2001.—Notwithstanding section 1923(f)(2)
of the Social Security Act (42 U.S.C. 1396r–4(f)(2)), the
DSH allotment under such section for a State for fiscal
year 2001 shall be the same as the DSH allotment under
such section for fiscal year 2000.
125
SEC. 404. INCREASE BASE PAYMENT TO PUERTO RICO HOS-
PITALS.
Section 1886(d)(9)(A) of the Social Security Act (42
U.S.C. 1395ww(d)(9)(A)) is amended—
(1) in clause (i), by striking ‘‘October 1, 1997,
50 percent (’’ and inserting ‘‘October 1, 2000, 25
percent (for discharges between October 1, 1997 and
September 30, 2000, 50 percent,’’; and
(2) in clause (ii), in the matter preceding sub-
clause (I), by striking ‘‘after October 1, 1997, 50
percent (’’ and inserting ‘‘after October 1, 2000, 75
percent (for discharges between October 1, 1997,
and September 30, 2000, 50 percent,’’.
Subtitle B—Payments for Skilled
Nursing Services
SEC. 411. ELIMINATING REDUCTION IN SNF MARKET BAS-
KET UPDATE FOR FISCAL YEAR 2001.
Section 1888(e)(4)(E) of the Social Security Act (42
U.S.C. 1395yy(e)(4)(E)) is amended—
(1) by redesignating subclauses (II) and (III)
as subclauses (III) and (IV) respectively;
(2) in subclause (III) as redesignated, by strik-
ing ‘‘for each of fiscal years 2001 and 2002,’’ and
inserting ‘‘for fiscal year 2002,’’; and
(3) by inserting after subclause (I) the fol-
lowing new subclause:
126
‘‘(II) for fiscal year 2001, the
rate computed for fiscal year 2000 in-
creased by the skilled nursing facility
market basket percentage increase for
fiscal year 2000.’’.
SEC. 412. EXTENSION OF MORATORIUM ON THERAPY CAPS.
Section 1833(g) of the Social Security Act (42 U.S.C.
1395l(g)) is amended in paragraph (4) by striking ‘‘2000
and 2001.’’ and inserting ‘‘2000 through 2002.’’.
Subtitle C—Payments for Home
Health Services
SEC. 421. 1-YEAR ADDITIONAL DELAY IN APPLICATION OF
15 PERCENT REDUCTION ON PAYMENT LIM-
ITS FOR HOME HEALTH SERVICES.
Section 1895(b)(3)(A)(i) of the Social Security Act
(42 U.S.C. 1395fff(b)(3)(A)(i)) is amended—
(1) by redesignating subparagraph (II) as sub-
paragraph (III);
(2) by inserting in subparagraph (III), as redes-
ignated, ‘‘24 months’’ following ‘‘periods beginning’’;
and
(3) by inserting after subclause (I) the fol-
lowing new subclause:
‘‘(II) For the 12-month period
beginning after the period described
127
in subclause (I), such amount (or
amounts) shall be equal to the amount
(or amounts) determined under sub-
clause (I), updated under subpara-
graph (B).’’.
SEC. 422. PROVISION OF FULL MARKET BASKET UPDATE
FOR HOME HEALTH SERVICES FOR FISCAL
YEAR 2001.
Section 1861(v)(1)(L)(x) of the Social Security Act
(42 U.S.C. 1395x(v)(1)(L)(x)) is amended—
(1) by striking ‘‘2001,’’; and
(2) by adding at the end the following: ‘‘With
respect to cost reporting periods beginning during
fiscal year 2001, the update to any limit under this
subparagraph shall be the home health market bas-
ket.’’.
Subtitle D—Rural Provider
Provisions
SEC. 431. ELIMINATION OF REDUCTION IN HOSPITAL OUT-
PATIENT MARKET BASKET INCREASE.
Section 1833(t)(3)(C)(iii) of the Social Security Act
(42 U.S.C. 1395l(t)(3)(C)(iii)) is amended by striking ‘‘re-
duced by 1 percentage point for such factor for services
furnished in each of 2000, 2001, and 2002’’ and inserting
‘‘reduced by 1 percentage point for such factor for services