I
107TH CONGRESS
1ST SESSION
H. R. 1512
To amend title XVIII of the Social Security Act to provide a prescription
benefit program for all Medicare beneficiaries.
IN THE HOUSE OF REPRESENTATIVES
APRIL 4, 2001
Mr. SANDERS (for himself, Mr. KUCINICH, Mr. BONIOR, Mr. CONYERS, Mr.
HILLIARD, Ms. LEE, Mr. DEFAZIO, Mr. ABERCROMBIE, Mr. NADLER,
Ms. KAPTUR, Mr. HINCHEY, Mr. OLVER, Mr. SERRANO, Mr. THOMPSON
of Mississippi, Mr. CLAY, Ms. CARSON of Indiana, Ms. WOOLSEY, Mr.
PAYNE, Ms. MCKINNEY, Mr. PASTOR, Ms. NORTON, Mr. OWENS, Mr.
MCGOVERN, and Mr. FILNER) introduced the following bill; which was
referred to the Committee on Energy and Commerce, and in addition to
the Committee on Ways and Means, for a period to be subsequently de-
termined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
a prescription benefit program for all Medicare beneficiaries.
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 Extension of Drugs to Seniors (MEDS) Act of
2001’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Prescription medicine benefit program.
‘‘PART D—PRESCRIPTION MEDICINE BENEFIT FOR THE AGED AND
DISABLED
‘‘Sec. 1860. Establishment of prescription medicine benefit program for
the aged and disabled.
‘‘Sec. 1860A. Scope of benefits.
‘‘Sec. 1860B. Payment of benefits; benefit limits.
‘‘Sec. 1860C. Eligibility and enrollment.
‘‘Sec. 1860D. Premiums.
‘‘Sec. 1860E. Special eligibility, enrollment, and copayment rules for low-
income individuals.
‘‘Sec. 1860F. Prescription Medicine Insurance Account.
‘‘Sec. 1860G. Administration of benefits.
‘‘Sec. 1860H. Employer incentive program for employment-based retiree
medicine coverage.
‘‘Sec. 1860I. Promotion of pharmaceutical research on break-through
medicines while providing program cost containment.
‘‘Sec. 1860J. Appropriations to cover Government contributions.
‘‘Sec. 1860K. Prescription medicine defined.
Sec. 4. Substantial reductions in the price of prescription drugs for medicare
beneficiaries.
Sec. 5. Amendments to program for importation of certain prescription drugs
by pharmacists and wholesalers.
Sec. 6. Reasonable price agreement for federally funded research.
Sec. 7. GAO ongoing studies and reports on program; miscellaneous reports.
Sec. 8. Medigap transition provisions.
Sec. 9. Offset for catastrophic prescription medicine benefit.
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) All medicare beneficiaries should have ac-
cess to a voluntary, reliable, affordable, and defined
outpatient medicine benefit as part of the medicare
program that assists with the high cost of prescrip-
tion medicines and protects them against excessive
out-of-pocket costs.
SEC. 3. PRESCRIPTION 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 PRESCRIPTION MEDICINE BENEFIT
PROGRAM FOR THE AGED AND DISABLED
‘‘SEC. 1860. There is established a voluntary insur-
ance program to provide prescription medicine benefits,
including pharmacy services, in accordance with the provi-
sions of this part for individuals who are aged or disabled
or have end-stage renal disease and who elect to enroll
under such program, to be financed from premium pay-
ments by enrollees together with contributions from funds
appropriated by the Federal Government.
‘‘SCOPE OF BENEFITS
‘‘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
Secretary, by a nonparticipating pharmacy), includ-
ing any specifically named medicine prescribed for
the individual by a qualified health care professional
regardless of whether the medicine is included in any
formulary established under this part if such medi-
cine is certified as medically necessary by such
health care professional (except that the Secretary
shall encourage to the maximum extent possible the
substitution and use of lower-cost generics), up to
the benefit limits specified in section 1860B; and
‘‘(2) charging by pharmacies of the negotiated
price—
‘‘(A) for all covered prescription medicines,
without regard to such benefit limit; 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 1860K(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) EXCLUSION OF PRESCRIPTION MEDICINES
TO THE EXTENT COVERED UNDER PART A OR B.—
A medicine prescribed for an individual that would
otherwise 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 Extension of Drugs to Seniors
(MEDS) Act of 2001. 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 ex-
hausted.
‘‘(4) STUDY ON INCLUSION OF HOME INFUSION
THERAPY SERVICES.—Not later than one year after
the date of the enactment of the Medicare Extension
of Drugs to Seniors (MEDS) Act of 2001, the Sec-
retary 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 coordinates items and services
furnished under part B and under this part.
‘‘PAYMENT OF BENEFITS; BENEFIT LIMITS
‘‘SEC. 1860B. (a) PAYMENT OF BENEFITS.—
‘‘(1) IN GENERAL.—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—
‘‘(A) with respect to costs incurred for cov-
ered prescription medicine furnished during a
year, before the individual has incurred out-of-
pocket expenses under this subsection equal to
the catastrophic out-of-pocket limit specified in
subsection (b), an amount equal to the applica-
ble percentage (specified in paragraph (2)) of
the negotiated price for each such covered pre-
scription medicine or such higher percentage as
is proposed under section 1860G(b)(7); and
‘‘(B) with respect to costs incurred for cov-
ered prescription medicine furnished during a
year, after the individual has incurred out-of-
pocket expenses under this subsection equal to
the catastrophic out-of-pocket limit specified in
subsection (b), an amount equal to 100 percent
of the negotiated price for each such covered
prescription medicine.
‘‘(2) APPLICABLE PERCENTAGE.—The applica-
ble percentage specified in this paragraph is 80 per-
cent or such higher percentage as is proposed under
section 1860G(b)(7), if the Secretary finds that such
higher percentage will not increase aggregate costs
to the Prescription Medicine Insurance Account.
‘‘(b) CATASTROPHIC LIMIT ON OUT-OF-POCKET EX-
PENSES.—
‘‘(1) IN GENERAL.—The catastrophic limit on
out-of-pocket expenses specified in this subsection
for—
‘‘(A) for each of calendar years 2003 and
2004, $2,000; and
‘‘(B) subject to paragraph (2), for calendar
year 2005 and each subsequent calendar year is
equal the limit for the preceding year under this
paragraph adjusted by the sustainable growth
rate percentage (determined under section
1861I(b)) for the year involved.
‘‘(2) 
ROUNDING.—Any 
amount 
determined
under paragraph (1)(E) that is not a multiple of
$10 shall be rounded to the nearest multiple of $10.
‘‘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 accordance
with the provisions of this section, in the insurance pro-
gram 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, or 1860H(e), or as otherwise
explicitly provided, no individual shall be entitled to
enroll in the program under this part at any time
after the initial enrollment period without penalty,
and in the case of all other late enrollments, the Sec-
retary shall develop a late enrollment penalty for the
individual that fully recovers the additional actuarial
risk involved providing coverage for the individual.
‘‘(3) 
SPECIAL
ENROLLMENT
PERIOD
FOR
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.
‘‘(B) EFFECTIVE DATE OF COVERAGE.—
An individual who enrolls under the program
under this part pursuant to subparagraph (A)
shall be entitled to benefits under this part be-
ginning on the first day of the month following
the month in which such enrollment occurs.
‘‘(c) PERIOD OF COVERAGE.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this part, an individual’s coverage under the
program under this part shall be effective for the pe-
riod provided in section 1838, as if that section ap-
plied to the program under this part.
‘‘(2) PART D COVERAGE TERMINATED BY TER-
MINATION OF COVERAGE UNDER PARTS A AND B.—
In addition to the causes of termination specified in
section 1838, an individual’s coverage under this
part shall be terminated when the individual retains
coverage under neither the program under part A
nor the program under part B, effective on the effec-
tive date of termination of coverage under part A or
(if later) under part B.
‘‘PREMIUMS
‘‘SEC. 1860D. (a) ANNUAL ESTABLISHMENT
OF
MONTHLY PREMIUM RATES.—
‘‘(1) IN GENERAL.—The Secretary shall, during
September of 2002 and of each succeeding year, de-
termine and promulgate a monthly premium rate for
the succeeding year in accordance with the provi-
sions of this subsection.
‘‘(2) INITIAL PREMIUMS.—For months in 2003,
the monthly premium rate under this subsection
shall be—
‘‘(A) $24, in the case of premiums paid by
an individual enrolled in the program under this
part; and
‘‘(B) $32, in the case of premiums paid for
such an individual by a former employer (as de-
fined in section 1860H(f)(2)).
‘‘(3) SUBSEQUENT YEARS.—
‘‘(A) IN GENERAL.—For months in a year
after 2003, the monthly premium under this
subsection shall be (subject to subparagraph
(B)) the monthly premium (computed under
this subsection without regard to subparagraph
(B)) for the previous year increased by the an-
nual percentage increase in average per capita
aggregate expenditures for covered outpatient
medicines in the United States for medicare
beneficiaries, as estimated and published by the
Secretary in September before the year and for
the year involved.
‘‘(B) ROUNDING.—The monthly premium
determined under subparagraph (A) shall be
rounded to the nearest multiple of 10 cents if
it is not a multiple of 10 cents.
‘‘(C) PUBLICATION
OF
ASSUMPTIONS.—
The Secretary shall publish, together with the
promulgation of the monthly premium rates
under this paragraph, a statement setting forth
the actuarial assumptions and bases employed
in arriving at the monthly premium under sub-
paragraph (A).
‘‘(b) PAYMENT OF PREMIUMS.—
‘‘(1) PAYMENTS BY DEDUCTION FROM SOCIAL
SECURITY, RAILROAD
RETIREMENT
BENEFITS, OR
BENEFITS ADMINISTERED BY OPM.—
‘‘(A) DEDUCTION
FROM
BENEFITS.—In
the case of an individual who is entitled to or
receiving benefits as described in subsection (a),
(b), or (d) of section 1840, premiums payable
under this part shall be collected by deduction
from such benefits at the same time and in the
same manner as premiums payable under part
B are collected pursuant to section 1840.
‘‘(B) TRANSFERS TO PRESCRIPTION MEDI-
CINE INSURANCE ACCOUNT.—The Secretary of
the Treasury shall, from time to time, but not
less often than quarterly, 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 de-
scribed in such subsections. The amounts of
such transfers shall be appropriately adjusted
to the extent that prior transfers were too great
or too small.
‘‘(2) DIRECT PAYMENTS TO SECRETARY.—
‘‘(A) 
ADDITIONAL
PAYMENT
BY
EN-
ROLLEE.—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) PAYMENTS BY OTHER ENROLLEES.—
An individual enrolled in the insurance program
under this part with respect to whom none of
the preceding provisions of this subsection ap-
plies (or to whom section 1840(c) applies) shall
pay premiums to the Secretary at such times
and in such manner as the Secretary shall by
regulations prescribe.
‘‘(C) DEPOSIT
OF
PREMIUMS.—Amounts
paid to the Secretary under this paragraph
shall be deposited in the Treasury to the credit
of the Prescription Medicine Insurance Account
in the Supplementary Medical Insurance Trust
Fund.
‘‘(c) CERTAIN
LOW-INCOME
INDIVIDUALS.—For
rules concerning premiums for certain low-income individ-
uals, see section 1860E.
‘‘SPECIAL ELIGIBILITY, ENROLLMENT, AND COPAYMENT
RULES FOR LOW-INCOME INDIVIDUALS
‘‘SEC. 1860E. (a) STATE AGREEMENTS FOR COV-
ERAGE.—
‘‘(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)(i) eligible individuals within the
meaning of section 1843; and
‘‘(ii) 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 subsection (e)(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) ALTERNATIVE ENROLLMENT METHODS.—
In the process of enrolling low-income individuals
under this part, the Secretary shall use the system
provided under section 154 of the Social Security
Act Amendments of 1994 for newly eligible medicare
beneficiaries and shall apply a similar system for
other medicare beneficiaries. Such system shall use
existing Federal government databases to identify
eligibility. Such system shall not require that bene-
ficiaries apply for, or enroll through, State medicaid
systems in order to obtain low-income assistance de-
scribed in this section.
‘‘(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) STATE OPTION TO BUY-IN DUALLY ELIGIBLE
INDIVIDUALS.—
‘‘(1) COVERAGE OF PREMIUMS AS MEDICAL AS-
SISTANCE.—For purposes of applying the second
sentence of section 1905(a), any reference to pre-
miums under part B shall be considered to include
a reference to premiums under this part.
‘‘(2) STATE COMMITMENT TO CONTINUE PAR-
TICIPATION
IN
PART
D
AFTER
BENEFIT
LIMIT
REACHED.—As a condition of additional funding to
a State under subsection (d), the State, in its State
plan under title XIX, shall provide that in the case
of any individual whose eligibility for medical assist-
ance under title XIX is not limited to medicare cost-
sharing and for whom the State elects to pay pre-
miums under this part pursuant to this section, the
State will purchase all prescription medicines for
such individual in accordance with the provisions of
this part without regard to whether the benefit limit
for such individual under section 1860B(b) has been
reached.
‘‘(3) MEDICARE COST-SHARING REQUIRED FOR
QUALIFIED MEDICARE BENEFICIARIES.—In applying
title XIX, the term ‘medicare cost-sharing’ (as de-
fined in section 1905(p)(3)) is deemed to include—
‘‘(A) premiums under section 1860D; and
‘‘(B) 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 ‘80 percent’ in subsection
(a)(2) of such section 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).
‘‘(d) PAYMENT TO STATES FOR COVERAGE OF CER-
TAIN MEDICARE COST-SHARING.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for payment under this subsection to each State that
provides for—
‘‘(A) medicare cost-sharing described in
section 1905(p)(3)(A)(ii) for individuals who
would be qualified medicare beneficiaries de-
scribed in section 1905(p)(1) but for the fact
that their income exceeds the income level es-
tablished by the State under section 1905(p)(2)
and is at least 120 percent, but less than 135
percent, of the official poverty line (referred to
in such section) for a family of the size involved
and who are not otherwise eligible for medical
assistance under the State plan; and
‘‘(B) medicare medicine cost-sharing (as
defined in subsection (e)(2)) for qualified medi-
care medicine beneficiaries described in sub-
section (e)(1).
‘‘(2) AMOUNT OF PAYMENT.—The amount of
payment under paragraph (1) shall equal 100 per-
cent of the cost-sharing described in such paragraph,
except that, in the case of an individual whose eligi-
bility for medical assistance under title XIX is not
limited to medicare cost-sharing or medicare medi-
cine cost-sharing, the amount of payment under
paragraph (1)(B) shall be equal to the Federal med-
ical assistance percentage described in section
1905(b)) of amounts as expended for such cost-shar-
ing.
‘‘(3) METHOD
OF
PAYMENT; RELATION
TO
OTHER
PAYMENTS.—Amounts shall be paid to
States under this subsection in a manner similar to
that provided under section 1903(d). Payments
under this subsection shall be made in lieu of any
payments that otherwise may be made for medical
assistance 
provided 
under 
section
1902(a)(10)(E)(iv).
‘‘(4) TREATMENT OF TERRITORIES.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), this subsection shall not apply to
States other than the 50 States and the Dis-
trict of Columbia.
‘‘(B) PAYMENTS.—In the case of a State
(other than the 50 States and the District of
Columbia) that develops and implements a plan
of assistance for pharmaceuticals provided to
low-income medicare beneficiaries, the Secretary
shall provide for payment to the State in an
amount that is reasonable in relation to the
payment levels provided to other States under
paragraph (2).
‘‘(e) DEFINITIONS; SPECIAL RULES.—For purposes
of this section:
‘‘(1) QUALIFIED
MEDICARE
MEDICINE
BENE-
FICIARY.—The term ‘qualified medicare medicine
beneficiary’ means an individual—
‘‘(A) who is entitled to hospital insurance
benefits under part A (including an individual
entitled to such benefits pursuant to an enroll-
ment under section 1818, but not including an
individual entitled to such benefits only pursu-
ant to an enrollment under section 1818A);
‘‘(B) whose income (as determined under
section 1612 for purposes of the supplemental
security income program, except as provided in
section 1905(p)(2)(D)) is above 100 percent
but below 150 percent of the official poverty
line (as defined by the Office of Management
and Budget, and revised annually in accordance
with section 673(2) of the Omnibus Budget
Reconciliation Act of 1981) applicable to a fam-
ily of the size involved; and
‘‘(C) whose resources (as determined under
section 1613 for purposes of the supplemental
security income program) do not exceed twice
the maximum amount of resources that an indi-
vidual may have and obtain benefits under that
program.
‘‘(2) MEDICARE
MEDICINE
COST-SHARING.—
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 serv-
ices for which medical assistance is otherwise avail-
able under a State plan under title XIX:
‘‘(A) In the case of a qualified medicare
medicine beneficiary whose income (as deter-
mined under paragraph (1)) is less than 135
percent of the official 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 per-
cent’ 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
medicine beneficiary whose income (as deter-
mined under paragraph (1)) is at least 135 per-
cent 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 individuals
with incomes at 135 percent of such line to 0
percent for individuals with incomes at 150 per-
cent of such line.
‘‘(3) STATE.—The term ‘State’ has the mean-
ing given such term under section 1101(a) for pur-
poses of title XIX.
‘‘(4) TREATMENT OF DRUGS PURCHASED.—The
provisions of section 1927 shall not apply to pre-
scription drugs purchased under this part pursuant
to an agreement with the Secretary under this sec-
tion (including any drugs so purchased after the
limit under section 1860B(b) has been exceeded).
‘‘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.—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 expenses in accordance with
section 201(g).
‘‘ADMINISTRATION OF BENEFITS
‘‘SEC. 1860G. (a) THROUGH HCFA.—The Secretary
shall provide for administration of the benefits under this
part through the Health Care Financing Administration
in accordance with the provisions of this section. The Ad-
ministrator of such Administration may enter into con-
tracts with carriers to administer this part in the same
manner as the Administrator enters into such contracts
to administer part B. Any such contract shall be separate
from any contract under section 1842.
‘‘(b) ADMINISTRATION FUNCTIONS.—In carrying out
this part, the Administrator (or a carrier under a contract
with the Administrator) shall (or in the case of the func-
tion described in paragraph (9), may) perform the fol-
lowing functions:
‘‘(1) PARTICIPATION
AGREEMENTS, 
PRICES,
AND FEES.—
‘‘(A) 
NEGOTIATED
PRICES.—Establish,
through negotiations with medicine manufactur-
ers and wholesalers and pharmacies, a schedule
of prices for covered prescription medicines.
‘‘(B) AGREEMENTS WITH PHARMACIES.—
Enter into participation agreements under sub-
section (c) with pharmacies, that include 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
pharmacy in the service area that meets
the participation requirements described in
subsection (c); and
‘‘(iii) allow for reasonable dispensing
and consultation fees for pharmacies.
‘‘(C) LISTS OF PRICES AND PARTICIPATING
PHARMACIES.—Ensure 
that 
the 
negotiated
prices established under subparagraph (A) and
the list of pharmacies with agreements under
subsection (c) are regularly updated and readily
available to health care professionals authorized
to prescribe medicines, participating phar-
macies, and enrolled individuals.
‘‘(2) TRACKING OF COVERED ENROLLED INDI-
VIDUALS.—Maintain accurate, updated records of all
enrolled individuals (other than individuals enrolled
in a plan under part C).
‘‘(3) PAYMENT AND COORDINATION OF BENE-
FITS.—
‘‘(A) PAYMENT.—
‘‘(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.
‘‘(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.—Coordinate 
with
other private benefit providers, 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.—Fur-
nish to enrolled individuals an explanation of
benefits in accordance with section 1806(a),
and a notice of the balance of benefits remain-
ing 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) RULES RELATING TO PROVISION OF BENE-
FITS.—
‘‘(A) IN GENERAL.—In providing benefits
under this part, the Secretary (directly or
through contracts) shall employ mechanisms to
provide benefits economically, including the use
of—
‘‘(i) formularies (consistent with sub-
paragraph (B));
‘‘(ii) automatic generic medicine sub-
stitution (unless the physician specifies
otherwise, in which case a 30-day prescrip-
tion may be dispensed pending a consulta-
tion with the physician on whether a ge-
neric substitute can be dispensed in the fu-
ture);
‘‘(iii) tiered copayments (which may
include copayments at a rate lower than 20
percent) to encourage the use of the lowest
cost, on-formulary product in cases where
there is no restrictive prescription (de-
scribed in subparagraph (D)(i)); and
‘‘(iv) therapeutic interchange.
‘‘(B) REQUIREMENTS WITH RESPECT TO
FORMULARIES.—If a formulary is used to con-
tain costs under this part—
‘‘(i) use an advisory committee (or a
therapeutics committee) comprised of li-
censed practicing physicians, pharmacists,
and other health care practitioners to de-
velop and manage the formulary;
‘‘(ii) include in the formulary at least
1 medicine from each therapeutic class
and, if available, a generic equivalent
thereof; and
‘‘(iii) disclose to current and prospec-
tive enrollees and to participating providers
and pharmacies, the nature of the for-
mulary restrictions, including information
regarding the medicines included in the
formulary and any difference in cost-shar-
ing amounts.
‘‘(C) CONSTRUCTION.—Nothing in this
subsection shall be construed to prevent the
Secretary (directly or through contracts) from
using incentives (including a lower beneficiary
coinsurance) to encourage enrollees to select ge-
neric or other cost-effective medicines, so long
as—
‘‘(i) such incentives are designed not
to result in any increase in the aggregate
expenditures under the Federal Medicare
Prescription Medicine Trust Fund;
‘‘(ii) the average coinsurance charged
to all beneficiaries by the Secretary (di-
rectly or through contractors) shall seek to
approximate (but in no case exceed) 20
percent for on-formulary medicines;
‘‘(iii) a beneficiary’s coinsurance shall
be no greater than 20 percent if the pre-
scription is a restrictive prescription; and
‘‘(iv) the reimbursement for a pre-
scribed nonformulary medicine without a
restrictive prescription in no case shall be
more than the lowest reimbursement for a
formulary medicine in the therapeutic class
of the prescribed medicine.
‘‘(D) RESTRICTIVE
PRESCRIPTION.—For
purposes of this section:
‘‘(i) WRITTEN
PRESCRIPTIONS.—In
the case of a written prescription for a
medicine, it is a restrictive prescription
only if the prescription indicates, in the
writing of the physician or other qualified
person prescribing the medicine and with
an appropriate phrase (such as ‘brand
medically necessary’) recognized by the
Secretary, that a particular medicine prod-
uct must be dispensed based upon a belief
by the physician or person prescribing the
medicine that the particular medicine will
provide even marginally superior thera-
peutic benefits to the individual for whom
the medicine is prescribed or would have
marginally fewer adverse reactions with re-
spect to such individual.
‘‘(ii) TELEPHONE
PRESCRIPTIONS.—
In the case of a prescription issued by tele-
phone for a medicine, it is a restrictive
prescription only if the prescription cannot
be longer than 30 days and the physician
or other qualified person prescribing the
medicine (through use of such an appro-
priate phrase) states that a particular
medicine product must be dispensed, and
the physician or other qualified person sub-
mits to the pharmacy involved, within 30
days after the date of the telephone pre-
scription, a written confirmation from the
physician or other qualified person pre-
scribing the medicine and which indicates
with such appropriate phrase that the par-
ticular medicine product was required to
have been dispensed based upon a belief by
the physician or person prescribing the
medicine that the particular medicine will
provide even marginally superior thera-
peutic benefits to the individual for whom
the medicine is prescribed or would have
marginally fewer adverse reactions with re-
spect to such individual. Such written con-
firmation is required to refill the prescrip-
tion.
‘‘(iii) REVIEW OF RESTRICTIVE PRE-
SCRIPTIONS.—The advisory committee (es-
tablished under subparagraph (B)(i)) may
decide to review a restrictive prescription
and, if so, it may approve or disapprove
such restrictive prescription. It may not
disapprove such restrictive prescription un-
less it finds that there is no literature ap-
proved by the Food and Drug Administra-
tion that supports a determination that the
particular medicine provides even margin-
ally superior therapeutic benefits to the in-
dividual for whom the medicine is pre-
scribed or would have marginally fewer ad-
verse reactions with respect to such indi-
vidual. If it disapproves, upon request of
the prescribing physician or the enrollee,
the committee must provide for a review by
an independent contractor of such decision
within 48 hours of the time of submission
of the prescription, to determine whether
the prescription is an eligible benefit under
this part. The Secretary shall ensure that
independent contractors so used are com-
pletely independent of the contractor or its
advisory committee.
‘‘(5) COST
AND
UTILIZATION
MANAGEMENT;
QUALITY ASSURANCE.—Have in place effective cost
and utilization management, drug utilization review,
quality assurance measures, and systems to reduce
medical errors, including at least the following, to-
gether with such additional measures as the Admin-
istrator 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 Administrator finds
appropriate).
‘‘(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.—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.—There shall be taken into account,
in establishing fees for pharmacists and
others providing services under the medica-
tion therapy management program, the re-
sources and time used in implementing the
program.
‘‘(6) EDUCATION
AND
INFORMATION
ACTIVI-
TIES.—Have in place mechanisms for disseminating
educational and informational materials to enrolled
individuals and health care providers designed to en-
courage effective and cost-effective use of prescrip-
tion medicine benefits and to ensure that enrolled in-
dividuals understand their rights and obligations
under the program.
‘‘(7) BENEFICIARY PROTECTIONS.—
‘‘(A) CONFIDENTIALITY
OF
HEALTH
IN-
FORMATION.—Have in effect systems to safe-
guard the confidentiality of health care infor-
mation on enrolled individuals, which comply
with section 1106 and with section 552a of title
5, United States Code, and meet such addi-
tional standards as the Administrator may pre-
scribe.
‘‘(B) GRIEVANCE
AND
APPEAL
PROCE-
DURES.—Have in place such procedures as the
Administrator may specify for hearing and re-
solving grievances and appeals, including expe-
dited appeals, brought by enrolled individuals
against the Administrator or a pharmacy con-
cerning benefits under this part, which shall in-
clude procedures equivalent to those specified in
subsections (f) and (g) of section 1852.
‘‘(8) RECORDS, REPORTS, AND AUDITS.—
‘‘(A) RECORDS
AND
AUDITS.—Maintain
adequate records, and afford the Administrator
access to such records (including for audit pur-
poses).
‘‘(B) REPORTS.—Make such reports and
submissions of financial and utilization data as
the Administrator may require taking into ac-
count standard commercial practices.
‘‘(9) PROPOSAL
FOR
ALTERNATIVE
COINSUR-
ANCE AMOUNT.—
‘‘(A) 
SUBMISSION.—The 
Administrator
may provide for increased Government cost-
sharing for generic prescription medicines, pre-
scription medicines on a formulary, or prescrip-
tion medicines obtained through mail order
pharmacies.
‘‘(B) CONTENTS.—The proposal submitted
under subparagraph (A) shall contain evidence
that such increased 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.—Meet such
other requirements as the Secretary may specify.
The Administrator shall negotiate a schedule of prices
under paragraph (1)(A), except that nothing in this sen-
tence shall prevent a carrier under a contract with the Ad-
ministrator from negotiating a lower schedule of prices for
covered prescription medicines.
‘‘(c) PHARMACY PARTICIPATION AGREEMENTS.—
‘‘(1) IN GENERAL.—A pharmacy that meets the
requirements of this subsection shall be eligible to