I
107TH CONGRESS
2D SESSION
H. R. 5019
To amend titles XVIII and XIX of the Social Security Act to provide for
a voluntary Medicare prescription medicine benefit, to provide greater
access to affordable pharmaceuticals, to revise and improve payments
to providers of services under the Medicare Program, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 26, 2002
Mr. RANGEL (for himself, Mr. DINGELL, Mr. HOLDEN, Mr. MALONEY of Con-
necticut, Mr. ROSS, Mr. SHOWS, Mr. BROWN of Ohio, Mr. STARK, Mr.
WAXMAN, Mr. PALLONE, Mr. ABERCROMBIE, Mr. ACKERMAN, Mr.
ALLEN, Mr. ANDREWS, Mr. BACA, Mr. BAIRD, Mr. BALDACCI, Ms.
BALDWIN, Mr. BARCIA, Mr. BARRETT of Wisconsin, Mr. BECERRA, Ms.
BERKLEY, Mr. BERRY, Mr. BLUMENAUER, Mr. BONIOR, Mr. BORSKI,
Mr. BOSWELL, Mr. BOUCHER, Mrs. CAPPS, Mr. CAPUANO, Mr. CARDIN,
Ms. CARSON of Indiana, Mrs. CHRISTENSEN, Mr. CLAY, Mr. CONYERS,
Mr. COYNE, Mr. CROWLEY, Mr. CUMMINGS, Mr. DAVIS of Illinois, Ms.
DEGETTE, Mr. DELAHUNT, Ms. DELAURO, Mr. DEUTSCH, Mr. DOYLE,
Mr. ENGEL, Ms. ESHOO, Mr. EVANS, Mr. FILNER, Mr. FRANK, Mr.
FROST, Mr. GEPHARDT, Mr. GONZALEZ, Mr. GORDON, Mr. GREEN of
Texas, Mr. HASTINGS of Florida, Mr. HILLIARD, Mr. HINCHEY, Mr.
HINOJOSA, Mr. HONDA, Mr. HOYER, Mr. ISRAEL, Ms. JACKSON-LEE of
Texas, Mr. JEFFERSON, Mr. JOHN, Ms. EDDIE BERNICE JOHNSON of
Texas, Mr. KANJORSKI, Ms. KAPTUR, Mr. KENNEDY of Rhode Island,
Mr. KILDEE, Ms. KILPATRICK, Mr. KLECZKA, Mr. LAFALCE, Mr.
LAMPSON, Mr. LANGEVIN, Mr. LANTOS, Mr. LARSON of Connecticut, Ms.
LEE, Mr. LEVIN, Mr. LEWIS of Georgia, Mrs. LOWEY, Mr. LYNCH, Mrs.
MALONEY of New York, Mr. MARKEY, Mr. MASCARA, Mr. MATSUI, Mrs.
MCCARTHY of New York, Ms. MCCARTHY of Missouri, Ms. MCCOLLUM,
Mr. MCDERMOTT, Mr. MCGOVERN, Ms. MCKINNEY, Mr. MCNULTY, Mr.
MEEHAN, Mrs. MEEK of Florida, Mr. MEEKS of New York, Mr. GEORGE
MILLER of California, Mr. MURTHA, Mr. NADLER, Mr. NEAL of Massa-
chusetts, Ms. NORTON, Mr. OBERSTAR, Mr. OLVER, Mr. ORTIZ, Mr.
OWENS, Mr. PASTOR, Ms. PELOSI, Mr. PHELPS, Mr. RAHALL, Mr.
REYES, Ms. RIVERS, Mr. RODRIGUEZ, Ms. ROYBAL-ALLARD, Mr. RUSH,
Mr. SANDLIN, Mr. SAWYER, Ms. SCHAKOWSKY, Mr. SCHIFF, Mr. SCOTT,
Mr. SERRANO, Ms. SLAUGHTER, Ms. SOLIS, Mr. STRICKLAND, Mr. STU-
PAK, Mr. THOMPSON of Mississippi, Mrs. THURMAN, Mrs. JONES of
Ohio, Mr. TURNER, Mr. UDALL of New Mexico, Mr. UNDERWOOD, Mr.
VISCLOSKY, Ms. WATSON of California, Mr. WEINER, Mr. WEXLER, Ms.
WOOLSEY, Mr. WYNN, Mrs. NAPOLITANO, and Ms. MILLENDER-MCDON-
ALD) introduced the following bill; which was referred, pursuant to the
order of the House of June 17, 2002, jointly to the Committees on En-
ergy and Commerce and Ways and Means
A BILL
To amend titles XVIII and XIX of the Social Security Act
to provide for a voluntary Medicare prescription medicine
benefit, to provide greater access to affordable pharma-
ceuticals, to revise and improve payments to providers
of services under the Medicare Program, and for other
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES IN ACT; TABLE OF
CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Rx Drug Benefit and Discount Act of 2002’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in title
I of this Act an amendment is expressed in terms of an
amendment to or repeal of a section or other provision,
the reference shall be considered to be made to that sec-
tion or other provision of the Social Security Act.
(c) BIPA; SECRETARY.—In this Act:
(1) BIPA.—The term ‘‘BIPA’’ means the
Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000, as enacted into
law by section 1(a)(6) of Public Law 106–554.
(2) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(d) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
TITLE I—PRESCRIPTION DRUG PROVISIONS
SUBTITLE A—MEDICARE PRESCRIPTION MEDICINE BENEFIT
Sec. 101. Voluntary medicare outpatient prescription medicine program.
‘‘PART D—VOLUNTARY PRESCRIPTION MEDICINE BENEFIT FOR THE AGED
AND DISABLED
‘‘Sec. 1859. Medicare outpatient prescription medicine benefit.
‘‘Sec. 1859A. Negotiating fair prices with pharmaceutical manufacturers.
‘‘Sec. 1859B. Contract authority.
‘‘Sec. 1859C. Eligibility; voluntary enrollment; coverage.
‘‘Sec. 1859D. Provision of, and entitlement to, benefits.
‘‘Sec. 1859E. Administration; quality assurance.
‘‘Sec. 1859F. Federal Medicare Prescription Medicine Trust Fund.
‘‘Sec. 1859G. Compensation for employers covering retiree medicine costs.
‘‘Sec. 1859H. Medicare Prescription Medicine Advisory Committee.
Sec. 102. Provision of medicare outpatient prescription medicine coverage
under the Medicare+Choice program.
Sec. 103. Medigap revisions.
Sec. 104. Transitional assistance for low income beneficiaries.
Sec. 105. Expansion of membership and duties of Medicare Payment Advisory
Commission (MedPAC).
SUBTITLE B—AFFORDABLE PHARMACEUTICALS
PART I—GREATER ACCESS TO AFFORDABLE PHARMACEUTICALS
Sec. 111. Accelerated generic drug competition.
Sec. 112. Patent certification.
Sec. 113. Additional uses.
PART II—NOTIFICATION OF AGREEMENTS AFFECTING THE SALE OR
MARKETING OF GENERIC DRUGS
Sec. 121. Definitions.
Sec. 122. Notification of agreements affecting the sale or marketing of generic
drugs.
Sec. 123. Filing deadlines.
Sec. 124. Enforcement.
Sec. 125. Rulemaking.
Sec. 126. Effective dates.
TITLE II—MEDICARE+CHOICE REVITALIZATION AND
MEDICARE+CHOICE COMPETITION PROGRAM
Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting deadlines
and annual, coordinated election period.
Sec. 203. Specialized Medicare+Choice plans for special needs beneficiaries.
Sec. 204. Extension of reasonable cost and SHMO contracts.
Sec. 205. Continuous open enrollment and disenrollment.
Sec. 206. Limitation on Medicare+Choice cost-sharing.
Sec. 207. Extension of municipal health service demonstration projects.
TITLE III—RURAL HEALTH CARE IMPROVEMENTS
Sec. 301. Reference to full market basket increase for sole community hos-
pitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for rural
hospitals and urban hospitals with fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural and
small urban areas to achieve a single, uniform standardized
amount.
Sec. 304. More frequent update in weights used in hospital market basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services furnished
in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care fur-
nished in a frontier area and rural hospice demonstration
project.
Sec. 308. Reference to priority for hospitals located in rural or small urban
areas in redistribution of unused graduate medical education
residencies.
Sec. 309. GAO study of geographic differences in payments for physicians’
services.
Sec. 310. Providing safe harbor for certain collaborative efforts that benefit
medically underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.
TITLE IV—PROVISIONS RELATING TO PART A
Subtitle A—Inpatient Hospital Services
Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. Freeze in level of adjustment for indirect costs of medical education
(IME) through fiscal year 2007.
Sec. 403. Recognition of new medical technologies under inpatient hospital
PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate share
hospital (DSH) payments for rural hospitals and urban hos-
pitals with fewer than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase in the
standardized amount in rural and small urban areas to achieve
a single, uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the weights used
in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access hos-
pital program.
Subtitle B—Skilled Nursing Facility Services
Sec. 411. Payment for covered skilled nursing facility services.
Subtitle C—Hospice
Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in a fron-
tier area.
Sec. 423. Rural hospice demonstration project.
Subtitle D—Other Provisions
Sec. 431. Demonstration project for use of recovery audit contractors for part
A services.
TITLE V—PROVISIONS RELATING TO PART B
Subtitle A—Physicians’ Services
Sec. 501. Revision of updates for physicians’ services.
Sec. 502. Studies on access to physicians’ services.
Sec. 503. MedPAC report on payment for physicians’ services.
Sec. 504. 1-year extension of treatment of certain physician pathology services
under medicare.
Sec. 505. Physician fee schedule wage index revision.
Subtitle B—Other Services
Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 5-year extension of moratorium on therapy caps; provisions relating
to reports.
Sec. 514. Accelerated implementation of 20 percent coinsurance for hospital
outpatient department (OPD) services; other OPD provisions.
Sec. 515. Coverage of an initial preventive physical examination.
Sec. 516. Renal dialysis services.
Sec. 517. Improved payment for certain mammography services.
Sec. 518. Waiver of part B late enrollment penalty for certain military retirees;
special enrollment period.
Sec. 519. Coverage of cholesterol and blood lipid screening.
TITLE VI—PROVISIONS RELATING TO PARTS A AND B
Subtitle A—Home Health Services
Sec. 601. Elimination of 15 percent reduction in payment rates under the pro-
spective payment system.
Sec. 602. Update in home health services.
Sec. 603. OASIS Task Force; suspension of certain OASIS data collection re-
quirements pending Task Force submittal of report.
Sec. 604. MedPAC study on medicare margins of home health agencies.
Subtitle B—Direct Graduate Medical Education
Sec. 611. Redistribution of unused resident positions.
Sec. 612. Increasing for 5 years to 100 percent of the locality adjusted national
average per resident amount the payment floor for direct grad-
uate medical education payments under the medicare program.
Subtitle C—Other Provisions
Sec. 621. Modifications to Medicare Payment Advisory Commission (MedPAC).
Sec. 622. Demonstration project for disease management for certain medicare
beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
Sec. 624. Publication on final written guidance concerning prohibitions against
discrimination by national origin with respect to health care
services.
TITLE VII—MEDICAID PROVISIONS
Subtitle A—Medicaid Provisions
Sec. 701. DSH provisions.
Sec. 702. 1-year extension of Q–I1 program.
Subtitle B—Internet Pharmacies
Sec. 711. Internet sales of prescription drugs.Findings.
Sec. 712. Internet sales of prescription drugs; consideration by secretary of
practices and procedures for certification of legitimate busi-
nesses.
Sec. 713. Effective date.
Subtitle C—Treatment of Rare Diseases
Sec. 721. NIH Office of Rare Diseases at National Institutes of Health.
Sec. 722. Rare disease regional centers of excellence.
Subtitle D—Other Provisions Relating to Drugs
Sec. 731. GAO study regarding direct-to-consumer advertising of prescription
drugs.
Sec. 732. Certain health professions programs regarding practice of pharmacy.
‘‘SUBPART 3—PHARMACIST WORKFORCE PROGRAMS
‘‘Sec. 771. Public service announcements.
‘‘Sec. 772. Demonstration project.
‘‘Sec. 773. Information technology.
‘‘Sec. 774. Authorization of appropriations.
TITLE I—PRESCRIPTION
MEDICINE PROVISIONS
Subtitle 
A—MEDICARE 
PRE-
SCRIPTION 
MEDICINE 
BEN-
EFIT
SEC. 101. VOLUNTARY MEDICARE OUTPATIENT PRESCRIP-
TION MEDICINE PROGRAM.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.) is amended—
(1) by redesignating section 1859 and part D
as section 1858 and part E, respectively; and
(2) by inserting after part C the following new
part:
‘‘PART D—VOLUNTARY PRESCRIPTION MEDICINE
BENEFIT FOR THE AGED AND DISABLED
‘‘MEDICARE OUTPATIENT PRESCRIPTION MEDICINE
BENEFIT
‘‘SEC. 1859. Subject to the succeeding provisions of
this part, the voluntary prescription medicine benefit pro-
gram under this part provides the following:
‘‘(1) PREMIUM.—The monthly premium is $25.
‘‘(2) DEDUCTIBLE.—The annual deductible is
$100.
‘‘(3) COINSURANCE.—The coinsurance is 20
percent.
‘‘(4) OUT-OF-POCKET LIMIT.—The annual limit
on out-of-pocket spending on covered medicines is
$2,000.
‘‘NEGOTIATING FAIR PRICES WITH PHARMACEUTICAL
MANUFACTURERS
‘‘SEC. 1859A. (a) AUTHORITY
TO
NEGOTIATE
PRICES
WITH MANUFACTURERS.—The Secretary shall,
consistent with the requirements of this part and the goals
of providing quality care and containing costs under this
part, negotiate contracts with manufacturers of covered
outpatient prescription medicines that provide for the
maximum prices that may be charged to individuals en-
rolled under this part by participating pharmacies for dis-
pensing such medicines to such individuals.
‘‘(b) PROMOTION OF BREAKTHROUGH MEDICINES.—
In conducting negotiations with manufacturers under this
part, the Secretary shall take into account the goal of pro-
moting the development of breakthrough medicines (as de-
fined in section 1859H(b)).
‘‘CONTRACT AUTHORITY
‘‘SEC. 1859B. (a) CONTRACT AUTHORITY.—
‘‘(1) IN GENERAL.—The Secretary is respon-
sible for the administration of this part and shall
enter into contracts with appropriate pharmacy con-
tractors on a national or regional basis to administer
the benefits under this part.
‘‘(2) PROCEDURES.—The Secretary shall estab-
lish procedures under which the Secretary—
‘‘(A) accepts bids submitted by entities to
serve as pharmacy contractors under this part
in a region or on a national basis;
‘‘(B) awards contracts to such contractors
to administer benefits under this part to eligible
beneficiaries in the region or on a national
basis; and
‘‘(C) provides for the termination (and
nonrenewal) of a contract in the case of a con-
tractor’s failure to meet the requirements of the
contract and this part.
‘‘(3) COMPETITIVE PROCEDURES.—Competitive
procedures (as defined in section 4(5) of the Office
of Federal Procurement Policy Act (41 U.S.C.
403(5))) shall be used to enter into contracts under
this part.
‘‘(4) TERMS AND CONDITIONS.—Such contracts
shall have such terms and conditions as the Sec-
retary shall specify and shall be for such terms (of
at least 2 years, but not to exceed 5 years) as the
Secretary shall specify consistent with this part.
‘‘(5) USE
OF
PHARMACY
CONTRACTORS
IN
PRICE NEGOTIATIONS.—Such contracts shall require
determined appropriate by the Sec-
retary.
‘‘(II) 
REQUIREMENTS.—If 
the
Secretary permits administration pur-
suant to subclause (I), the Secretary
shall ensure that the partial region in
which administration is effected is no
smaller than a State and is at least
the size of the commercial service area
of the contractor for that area.
‘‘(B) DETERMINATION.—
‘‘(i) IN GENERAL.—In determining re-
gions for contracts under this part, the
Secretary shall—
‘‘(I) take into account the num-
ber of individuals enrolled under this
part in an area in order to encourage
participation by pharmacy contrac-
tors; and
‘‘(II) ensure that there are at
least 10 different regions in the
United States.
‘‘(ii) NO
ADMINISTRATIVE
OR
JUDI-
CIAL REVIEW.—The determination of ad-
ministrative areas under this paragraph
shall not be subject to administrative or ju-
dicial review.
‘‘(7) SUBMISSION OF BIDS.—
‘‘(A) SUBMISSION.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (B), each entity desiring to
serve as a pharmacy contractor under this
part in an area shall submit a bid with re-
spect to such area to the Secretary at such
time, in such manner, and accompanied by
such information as the Secretary may rea-
sonably require.
‘‘(ii) BID
THAT
COVERS
MULTIPLE
AREAS.—The Secretary shall permit an en-
tity to submit a single bid for multiple
areas if the bid is applicable to all such
areas.
‘‘(B) REQUIRED INFORMATION.—The bids
described in subparagraph (A) shall include—
‘‘(i) a proposal for the estimated
prices of covered outpatient prescription
medicines and the projected annual in-
creases in such prices, including the addi-
tional reduction in price negotiated below
the Secretary’s maximum price and dif-
ferentials between preferred and nonpre-
ferred prices, if applicable;
‘‘(ii) 
a 
statement 
regarding 
the
amount that the entity will charge the Sec-
retary for administering the benefits under
the contract;
‘‘(iii) a statement regarding whether
the entity will reduce the applicable coin-
surance percentage pursuant to section
1859E(a)(1)(A)(ii) and if so, the amount
of such reduction and how such reduction
is tied to the performance requirements de-
scribed in subsection (c)(4)(A)(ii);
‘‘(iv) a detailed description of the per-
formance requirements for which the ad-
ministrative fee of the entity will be subject
to risk pursuant to subsection (c)(4)(A)(ii);
‘‘(v) a detailed description of access to
pharmacy services provided by the entity,
including information regarding whether
the pharmacy contractor will use a pre-
ferred pharmacy network, and, if so, how
the pharmacy contractor will ensure access
to pharmacies that choose to be outside of
that network, and whether there will be in-
creased cost-sharing for beneficiaries if
they obtain medicines at such pharmacies;
‘‘(vi) a detailed description of the pro-
cedures and standards the entity will use
for—
‘‘(I) selecting preferred prescrip-
tion medicines; and
‘‘(II) determining when and how
often the list of preferred prescription
medicines should be modified;
‘‘(vii) a detailed description of any
ownership or shared financial interests
with pharmaceutical manufacturers, phar-
macies, and other entities involved in the
administration or delivery of benefits under
this part as proposed in the bid;
‘‘(viii) a detailed description of the en-
tity’s estimated marketing and advertising
expenditures related to enrolling and re-
taining eligible beneficiaries; and
‘‘(ix) such other information that the
Secretary determines is necessary in order
to carry out this part, including informa-
tion relating to the bidding process under
this part.
The procedures under clause (vi) shall include
the use of a pharmaceutical and therapeutics
committee the members of which include prac-
ticing pharmacists.
‘‘(8) AWARDING OF CONTRACTS.—
‘‘(A) NUMBER OF CONTRACTS.—The Sec-
retary shall, consistent with the requirements of
this part and the goals of providing quality care
and of containing costs under this part, award
in a competitive manner at least 2 contracts to
administer benefits under this part in each area
specified under paragraph (6), unless only 1
pharmacy contractor submitting a bid meets the
minimum standards specified under this part
and by the Secretary.
‘‘(B) DETERMINATION.—In determining
which of the pharmacy contractors that sub-
mitted bids that meet the minimum standards
specified under this part and by the Secretary
to award a contract, the Secretary shall con-
sider the comparative merits of each bid, as de-
termined on the basis of relevant factors, with
respect to—
‘‘(i) how well the contractor meets
such minimum standards;
‘‘(ii) the amount that the contractor
will charge the Secretary for administering
the benefits under the contract;
‘‘(iii) the performance standards es-
tablished under subsection (c)(2) and per-
formance requirements for which the ad-
ministrative fee of the entity will be subject
to risk pursuant to subsection (c)(4)(A)(ii);
‘‘(iv) the proposed negotiated prices of
covered outpatient medicines and annual
increases in such prices;
‘‘(v) factors relating to benefits, qual-
ity and performance, beneficiary cost-shar-
ing, and consumer satisfaction;
‘‘(vi) past performance and prior ex-
perience of the contractor in administering
a prescription medicine benefit program;
‘‘(vii) effectiveness of the contractor
in containing costs through pricing incen-
tives and utilization management; and
‘‘(viii) such other factors as the Sec-
retary deems necessary to evaluate the
merits of each bid.
‘‘(C) EXCEPTION TO CONFLICT OF INTER-
EST RULES.—In awarding contracts with phar-
macy contractors under this part, the Secretary
may waive conflict of interest laws generally ap-
plicable to Federal acquisitions (subject to such
safeguards as the Secretary may find necessary
to impose) in circumstances where the Sec-
retary finds that such waiver—
‘‘(i) is not inconsistent with the—
‘‘(I) purposes of the programs
under this part; or
‘‘(II) best interests of bene-
ficiaries enrolled under this part; and
‘‘(ii) permits a sufficient level of com-
petition for such contracts, promotes effi-
ciency of benefits administration, or other-
wise serves the objectives of the program
under this part.
‘‘(D) NO
ADMINISTRATIVE
OR
JUDICIAL
REVIEW.—The determination of the Secretary
to award or not award a contract to a phar-
macy contractor under this part shall not be
subject to administrative or judicial review.
‘‘(9) 
ACCESS
TO
BENEFITS
IN
CERTAIN
AREAS.—
‘‘(A) AREAS
NOT
COVERED
BY
CON-
TRACTS.—The Secretary shall develop proce-
dures for the provision of covered outpatient
prescription medicines under this part to each
eligible beneficiary enrolled under this part that
resides in an area that is not covered by any
contract under this part.
‘‘(B) BENEFICIARIES
RESIDING
IN
DIF-
FERENT LOCATIONS.—The Secretary shall de-
velop procedures to ensure that each eligible
beneficiary enrolled under this part that resides
in different areas in a year is provided the ben-
efits under this part throughout the entire year.
‘‘(b) QUALITY, FINANCIAL, AND OTHER STANDARDS
AND PROGRAMS.—In consultation with appropriate phar-
macy contractors, pharmacists, and health care profes-
sionals with expertise in prescribing, dispensing, and the
appropriate use of prescription medicines, the Secretary
shall establish standards and programs for the administra-
tion of this part to ensure appropriate prescribing, dis-
pensing, and utilization of outpatient medicines under this
part, to avoid adverse medicine reactions, and to contin-
ually reduce errors in the delivery of medically appropriate
covered benefits. The Secretary shall not award a contract
to a pharmacy contractor under this part unless the Sec-
retary finds that the contractor agrees to comply with
such standards and programs and other terms and condi-
tions as the Secretary shall specify. The standards and
programs under this subsection shall be applied to any ad-
ministrative agreements described in subsection (a) the
Secretary enters into. Such standards and programs shall
include the following:
‘‘(1) ACCESS.—
‘‘(A) IN
GENERAL.—The pharmacy con-
tractor shall ensure that covered outpatient pre-
scription medicines are accessible and conven-
ient to eligible beneficiaries enrolled under this
part for whom benefits are administered by the
pharmacy contractor, including by offering the
services 24 hours a day and 7 days a week for
emergencies.
‘‘(B) ON-LINE
REVIEW.—The pharmacy
contractor shall provide for on-line prospective
review available 24 hours a day and 7 days a
week in order to evaluate each prescription for
medicine therapy problems due to duplication,
interaction, or incorrect dosage or duration of
therapy.
‘‘(C) GUARANTEED ACCESS TO MEDICINES
IN RURAL AND HARD-TO-SERVE AREAS.—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 coun-
seling, 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 phar-
macy contractor for the cost of rapid delivery of
pharmaceuticals and any other actions nec-
essary.
‘‘(D) 
PREFERRED
PHARMACY
NET-
WORKS.—
‘‘(i) IN
GENERAL.—If a pharmacy
contractor uses a preferred pharmacy net-
work to deliver benefits under this part,
such network shall meet minimum access
standards established by the Secretary.
‘‘(ii) 
STANDARDS.—In 
establishing
standards under clause (i), the Secretary
shall take into account reasonable dis-
tances to pharmacy services in both urban
and rural areas.
‘‘(E) 
ADHERENCE
TO
NEGOTIATED
PRICES.—The pharmacy contractor shall have
in place procedures to assure compliance of
pharmacies with the requirements of subsection
(d)(3)(C) (relating to adherence to negotiated
prices).
‘‘(F) CONTINUITY OF CARE.—
‘‘(i) IN
GENERAL.—The pharmacy
contractor shall ensure that, in the case of
an eligible beneficiary who loses coverage
under this part with such entity under cir-
cumstances that would permit a special
election period (as established by the Sec-
retary under section 1859C(b)(3)), the
contractor will continue to provide cov-
erage under this part to such beneficiary
until the beneficiary enrolls and receives
such coverage with another pharmacy con-
tractor under this part or, if eligible, with
a Medicare+Choice organization.
‘‘(ii) LIMITED PERIOD.—In no event
shall a pharmacy contractor be required to
provide the extended coverage required
under clause (i) beyond the date which is
30 days after the coverage with such con-
tractor would have terminated but for this
subparagraph.
‘‘(2) ENROLLEE GUIDELINES.—The pharmacy
contractor shall, consistent with State law, apply
guidelines for counseling enrollees regarding—
‘‘(A) the proper use of covered outpatient
prescription medicine: and
‘‘(B) interactions and contra-indications.
‘‘(3) EDUCATION.—The pharmacy contractor
shall apply methods to identify and educate pro-
viders, pharmacists, and enrollees regarding—
‘‘(A) instances or patterns concerning the
unnecessary or inappropriate prescribing or dis-
pensing of covered outpatient prescription medi-
cines;
‘‘(B) instances or patterns of substandard
care;
‘‘(C) potential adverse reactions to covered
outpatient prescription medicines;
‘‘(D) inappropriate use of antibiotics;
‘‘(E) appropriate use of generic products;
and
‘‘(F) the importance of using covered out-
patient prescription medicines in accordance
with the instruction of prescribing providers.
‘‘(4) 
COORDINATION.—The 
pharmacy 
con-
tractor shall coordinate with State prescription med-
icine programs, other pharmacy contractors, phar-
macies, and other relevant entities as necessary to
ensure appropriate coordination of benefits with re-
spect to enrolled individuals when such individual is
traveling outside the home service area, and under
such other circumstances as the Secretary may
specify.
‘‘(5) COST DATA.—
‘‘(A) The pharmacy contractor shall make
data on prescription medicine negotiated prices
(including data on discounts) available to the
Secretary.
‘‘(B) The Secretary shall require, either di-
rectly or through a pharmacy contractor, that
participating 
pharmacists, 
physicians, 
and
manufacturers—
‘‘(i) maintain their prescription medi-
cine cost data (including data on dis-
counts) in a form and manner specified by
the Secretary;
‘‘(ii) make such prescription medicine
cost data available for review and audit by
the Secretary; and
‘‘(iii) certify that the prescription
medicine cost data are current, accurate,
and complete, and reflect all discounts ob-
tained by the pharmacist or physician in
the purchasing of covered outpatient pre-
scription medicines.
Discounts referred to in subparagraphs (A) and (B)
shall include all volume discounts, manufacturer re-
bates, prompt payment discounts, free goods, in-kind
services, or any other thing of financial value pro-
vided explicitly or implicitly in exchange for the pur-
chase of a covered outpatient prescription medicine.
‘‘(6) REPORTING.—The pharmacy contractor
shall provide the Secretary with periodic reports
on—
‘‘(A) the contractor’s costs of admin-
istering this part;
‘‘(B) utilization of benefits under this part;
‘‘(C) marketing and advertising expendi-
tures related to enrolling and retaining individ-
uals under this part; and
‘‘(D) grievances and appeals.
‘‘(7) RECORDS
AND
AUDITS.—The pharmacy
contractor shall maintain adequate records related to
the administration of benefits under this part and
afford the Secretary access to such records for au-
diting purposes.
‘‘(8) APPROVAL OF MARKETING MATERIAL AND
APPLICATION
FORMS.—The pharmacy contractor
shall comply with requirements of section 1851(h)
(relating to marketing material and application
forms) with respect to this part in the same manner
as such requirements apply under part C, except
that the provisions of paragraph (4)(A) of such sec-
tion shall not apply with respect to discounts or re-
bates provided in accordance with this part.
‘‘(c) INCENTIVES FOR COST AND UTILIZATION MAN-
AGEMENT AND QUALITY IMPROVEMENT.—
‘‘(1) IN GENERAL.—The Secretary shall include
in a contract awarded under subsection (b) with a
pharmacy contractor such incentives for cost and
utilization management and quality improvement as
the Secretary may deem appropriate. The contract
may provide financial or other incentives to encour-
age greater savings to the program under this part.
‘‘(2) PERFORMANCE
STANDARDS.—The Sec-
retary shall provide for performance standards
(which may include monetary bonuses if the stand-
ards are met and penalties if the standards are not
met), including standards relating to the time taken
to answer member and pharmacy inquiries (written
or by telephone), the accuracy of responses, claims
processing accuracy, online system availability, ap-
peal procedure turnaround time, system availability,
the accuracy and timeliness of reports, and level of
beneficiary satisfaction.
‘‘(3) OTHER
INCENTIVES.—Such incentives
under this subsection may also include—
‘‘(A) financial incentives under which sav-
ings derived from the substitution of generic
and other preferred multi-source medicines in
lieu of nongeneric and nonpreferred medicines
are made available to pharmacy contractors,
pharmacies, beneficiaries, and the Federal
Medicare Prescription Medicine Trust Fund;
and
‘‘(B) any other incentive that the Secretary
deems appropriate and likely to be effective in
managing costs or utilization or improving qual-
ity that does not reduce the access of bene-
ficiaries to medically necessary covered out-
patient medicines.
‘‘(4) REQUIREMENTS FOR PROCEDURES.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish procedures for making payments to
each pharmacy contractor with a contract under
this part for the administration of the benefits
under this part. The procedures shall provide
for the following:
‘‘(i) 
ADMINISTRATIVE
PAYMENT.—
Payment of administrative fees for such
administration.
‘‘(ii) RISK
REQUIREMENT.—An ad-
justment of a percentage (determined
under subparagraph (B)) of the adminis-
trative fee payments made to a pharmacy
contractor to ensure that the contractor, in
administering the benefits under this part,
pursues performance requirements estab-
lished by the Secretary, including the fol-
lowing:
‘‘(I) 
QUALITY
SERVICE.—The
contractor 
provides 
eligible 
bene-
ficiaries for whom it administers bene-
fits with quality services, as measured
by such factors as sustained pharmacy
network access, timeliness and accu-
racy of service delivery in claims proc-
essing and card production, pharmacy
and member service support access,
and timely action with regard to ap-
peals and current beneficiary service
surveys.
‘‘(II) QUALITY CLINICAL CARE.—
The contractor provides such bene-
ficiaries with quality clinical care, as
measured by such factors as providing
notification to such beneficiaries and
to providers in order to prevent ad-
verse drug reactions and reduce medi-
cation errors and specific clinical sug-
gestions to improve health and patient
and prescriber education as appro-
priate.
‘‘(III) CONTROL
OF
MEDICARE
COSTS.—The contractor contains costs
under this part to the Federal Medi-
care 
Prescription 
Medicine 
Trust
Fund and enrollees, as measured by
generic substitution rates, price dis-
counts, and other factors determined
appropriate by the Secretary that do
not reduce the access of beneficiaries
to medically necessary covered out-
patient prescription medicines.
‘‘(B) PERCENTAGE OF PAYMENT TIED TO
RISK.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary shall determine the per-
centage of the administrative payments to
a pharmacy contractor that will be tied to
the performance requirements described in
subparagraph (A)(ii).
‘‘(ii) LIMITATION ON RISK TO ENSURE
PROGRAM STABILITY.—In order to provide
for program stability, the Secretary may
not establish a percentage to be adjusted
under this paragraph at a level that jeop-
ardizes the ability of a pharmacy con-
tractor to administer the benefits under
this part or administer such benefits in a
quality manner.
‘‘(C) RISK
ADJUSTMENT
OF
PAYMENTS
BASED ON ENROLLEES IN PLAN.—To the extent
that a pharmacy contractor is at risk under this
paragraph, the procedures established under
this paragraph may include a methodology for
risk adjusting the payments made to such con-
tractor based on the differences in actuarial
risk of different enrollees being served if the
Secretary determines such adjustments to be
necessary and appropriate.
‘‘(d) AUTHORITY RELATING TO PHARMACY PARTICI-
PATION.—
‘‘(1) IN GENERAL.—Subject to the succeeding
provisions of this subsection, a pharmacy contractor
may establish consistent with this part conditions for
the participation of pharmacies, including conditions
relating to quality (including reduction of medical
errors) and technology.
‘‘(2) AGREEMENTS WITH PHARMACIES.—Each
pharmacy contractor shall enter into a participation
agreement with any pharmacy that meets the re-
quirements of this subsection and section 1859E to
furnish covered outpatient prescription medicines to
individuals enrolled under this part.
‘‘(3) TERMS OF AGREEMENT.—An agreement
under this subsection shall include the following
terms and conditions:
‘‘(A) APPLICABLE
REQUIREMENTS.—The
pharmacy shall meet (and throughout the con-
tract period continue to meet) all applicable
Federal requirements and State and local li-
censing requirements.
‘‘(B) ACCESS AND QUALITY STANDARDS.—
The pharmacy shall comply with such standards
as the Secretary (and such a pharmacy con-
tractor) shall establish concerning the quality
of, and enrolled individuals’ access to, phar-
macy services under this part. Such standards
shall require the pharmacy—
‘‘(i) not to refuse to dispense covered
outpatient prescription medicines to any
individual enrolled under this part;
‘‘(ii) to keep patient records (includ-
ing records on expenses) for all covered
outpatient prescription medicines dispensed
to such enrolled individuals;
‘‘(iii) to submit information (in a
manner specified by the Secretary to be
necessary to administer this part) on all
purchases of such medicines dispensed to
such enrolled individuals; and
‘‘(iv) to comply with periodic audits to
assure compliance with the requirements of
this part and the accuracy of information
submitted.
‘‘(C) 
ADHERENCE
TO
NEGOTIATED
PRICES.—(i) The total charge for each medicine
dispensed by the pharmacy to an enrolled indi-
vidual under this part, without regard to wheth-
er the individual is financially responsible for
any or all of such charge, shall not exceed the
price negotiated under section 1859A(a) or, if
lower, negotiated under subsection (a)(5) (or, if
less, the retail price for the medicine involved)
with respect to such medicine plus a reasonable
dispensing fee determined contractually with
the pharmacy contractor.
‘‘(ii) The pharmacy does not charge (or
collect from) an enrolled individual an amount
that exceeds the individual’s obligation (as de-
termined in accordance with the provisions of
this part) of the applicable price described in
clause (i).
‘‘(D) ADDITIONAL
REQUIREMENTS.—The
pharmacy shall meet such additional contract
requirements as the applicable pharmacy con-
tractor specifies under this section.
‘‘(4) APPLICABILITY
OF
FRAUD
AND
ABUSE
PROVISIONS.—The 
provisions 
of 
section 
1128
through 1128C (relating to fraud and abuse) apply
to pharmacies participating in the program under
this part.
‘‘ELIGIBILITY; VOLUNTARY ENROLLMENT; COVERAGE
‘‘SEC. 1859C. (a) ELIGIBILITY.—Each individual
who is entitled to hospital insurance benefits under part
A or is eligible to be enrolled in the medical insurance pro-
gram under part B is eligible to enroll in accordance with
this section for outpatient prescription medicine benefits
under this part.
‘‘(b) VOLUNTARY ENROLLMENT.—
‘‘(1) IN GENERAL.—An individual may enroll
under this part only in such manner and form as
may be prescribed by regulations, and only during
an enrollment period prescribed in or under this sub-
section.
‘‘(2) INITIAL ENROLLMENT PERIOD.—
‘‘(A) 
INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who satis-
fies subsection (a) as of November 1, 2004, the
initial general enrollment period shall begin on
August 1, 2004, and shall end on March 1,
2005.
‘‘(B) INDIVIDUAL COVERED IN FUTURE.—
In the case of an individual who first satisfies
subsection (a) on or after November 1, 2004,
the individual’s initial enrollment period shall
begin on the first day of the third month before
the month in which such individual first satis-
fies such paragraph and shall end seven months
later. The Secretary shall apply rules similar to
the rule described in the second sentence of sec-
tion 1837(d).
‘‘(3) SPECIAL ENROLLMENT PERIODS (WITHOUT
PREMIUM PENALTY).—
‘‘(A) EMPLOYER COVERAGE AT TIME OF
INITIAL
GENERAL
ENROLLMENT
PERIOD.—In
the case of an individual who—
‘‘(i) at the time the individual first
satisfies subsection (a) is enrolled in a
group health plan (including continuation
coverage) that provides outpatient pre-
scription medicine coverage by reason of
the 
individual’s 
(or 
the 
individual’s
spouse’s) current (or, in the case of con-
tinuation coverage, former) employment
status, and
‘‘(ii) has elected not to enroll (or to be
deemed enrolled) under this subsection
during the individual’s initial enrollment
period,
there shall be a special enrollment period of 6
months beginning with the first month that in-
cludes the date of the individual’s (or individ-
ual’s spouse’s) retirement from or termination
of current employment status with the employer
that sponsors the plan, or, in the case of con-
tinuation coverage, that includes the date of
termination of such coverage, or that includes
the date the plan substantially terminates out-
patient prescription medicine coverage.
‘‘(B) DROPPING
OF
RETIREE
PRESCRIP-
TION MEDICINE COVERAGE.—In the case of an
individual who—
‘‘(i) at the time the individual first
satisfies subsection (a) is enrolled in a
group health plan that provides outpatient
prescription medicine coverage other than
by reason of the individual’s (or the indi-
vidual’s spouse’s) current employment; and
‘‘(ii) has elected not to enroll (or to be
deemed enrolled) under this subsection
during the individual’s initial enrollment
period,
there shall be a special enrollment period of 6
months beginning with the first month that in-
cludes the date that the plan substantially ter-
minates outpatient prescription medicine cov-
erage and ending 6 months later.
‘‘(C) LOSS
OF
MEDICARE+CHOICE
PRE-
SCRIPTION MEDICINE COVERAGE.—In the case
of an individual who is enrolled under part C in
a Medicare+Choice plan that provides prescrip-
tion medicine benefits, if such enrollment is ter-
minated because of the termination or reduction
in service area of the plan, there shall be a spe-
cial enrollment period of 6 months beginning
with the first month that includes the date that
such plan is terminated or such reduction oc-
curs and ending 6 months later.
‘‘(D) LOSS
OF
MEDICAID
PRESCRIPTION
MEDICINE COVERAGE.—In the case of an indi-
vidual who—
‘‘(i) satisfies subsection (a);
‘‘(ii) loses eligibility for benefits (that
include benefits for prescription medicine)
under a State plan after having been en-
rolled (or determined to be eligible) for
such benefits under such plan; and
‘‘(iii) is not otherwise enrolled under
this subsection at the time of such loss of
eligibility,
there shall be a special enrollment period speci-
fied by the Secretary of not less than 6 months
beginning with the first month that includes the
date that the individual loses such eligibility.
‘‘(4) LATE ENROLLMENT WITH PREMIUM PEN-
ALTY.—The Secretary shall permit an individual
who satisfies subsection (a) to enroll other than dur-
ing the initial enrollment period under paragraph (2)
or a special enrollment period under paragraph (3).
But, in the case of such an enrollment, the amount
of the monthly premium of the individual is subject
to an increase under section 1859C(e)(1).
‘‘(5) INFORMATION.—
‘‘(A) IN
GENERAL.—The Secretary shall
broadly distribute information to individuals
who satisfy subsection (a) on the benefits pro-
vided under this part. The Secretary shall peri-
odically make available information on the cost
differentials to enrollees for the use of generic
medicines and other medicines.
‘‘(B) TOLL-FREE
HOTLINE.—The Sec-
retary shall maintain a toll-free telephone hot-
line (which may be a hotline already used by
the Secretary under this title) for purposes of
providing assistance to beneficiaries in the pro-
gram under this part, including responding to
questions concerning coverage, enrollment, ben-
efits, grievances and appeals procedures, and
other aspects of such program.
‘‘(6) ENROLLEE
DEFINED.—For purposes of
this part, the term ‘enrollee’ means an individual en-
rolled for benefits under this part.
‘‘(c) COVERAGE PERIOD.—
‘‘(1) IN GENERAL.—The period during which
an individual is entitled to benefits under this part
(in this subsection referred to as the individual’s
‘coverage period’) shall begin on such a date as the
Secretary shall establish consistent with the type of
coverage rules described in subsections (a) and (e)
of section 1838, except that in no case shall a cov-
erage period begin before January 1, 2005. No pay-
ments may be made under this part with respect to
the expenses of an individual unless such expenses
were incurred by such individual during a period
which, with respect to the individual, is a coverage
period.
‘‘(2) TERMINATION.—The Secretary shall pro-
vide for the application of provisions under this sub-
section similar to the provisions in section 1838(b).
‘‘(d) 
PROVISION
OF
BENEFITS
TO
MEDICARE+CHOICE ENROLLEES.—In the case of an indi-
vidual who is enrolled under this part and is enrolled in
a Medicare+Choice plan under part C, the individual shall
be provided the benefits under this part through such plan
and not through payment under this part.
‘‘(e) LATE ENROLLMENT PENALTIES; PAYMENT OF
PREMIUMS.—
‘‘(1) LATE ENROLLMENT PENALTY.—
‘‘(A) IN GENERAL.—In the case of a late
enrollment described in subsection (b)(4), sub-
ject to the succeeding provisions of this para-
graph, the Secretary shall establish procedures
for increasing the amount of the monthly pre-
mium under this part applicable to such en-
rollee by an amount that the Secretary deter-
mines is actuarially sound for each such period.
‘‘(B) PERIODS
TAKEN
INTO
ACCOUNT.—
For purposes of calculating any 12-month pe-
riod under subparagraph (A), there shall be
taken into account months of lapsed coverage in
a manner comparable to that applicable under
the second sentence of section 1839(b).
‘‘(C) PERIODS
NOT
TAKEN
INTO
AC-
COUNT.—
‘‘(i) IN
GENERAL.—For purposes of
calculating any 12-month period under
subparagraph (A), subject to clause (ii),
there shall not be taken into account
months for which the enrollee can dem-
onstrate that the enrollee was covered
under a group health plan that provides
coverage of the cost of prescription medi-
cines whose actuarial value (as defined by
the Secretary) to the enrollee equals or ex-
ceeds the actuarial value of the benefits
provided to an individual enrolled in the
outpatient prescription medicine benefit
program under this part.
‘‘(ii) APPLICATION.—This subpara-
graph shall only apply with respect to a
coverage period the enrollment for which
occurs before the end of the 60-day period
that begins on the first day of the month
which includes the date on which the plan
terminates or reduces its service area (in a
manner that results in termination of en-
rollment), ceases to provide, or reduces the
value of the prescription medicine coverage
under such plan to below the value of the
coverage provided under the program
under this part.
‘‘(2) INCORPORATION
OF
PREMIUM
PAYMENT
AND GOVERNMENT CONTRIBUTIONS PROVISIONS.—
The provisions of sections 1840 and 1844(a)(1) shall
apply to enrollees under this part in the same man-
ner as they apply to individuals 65 years of age or
older enrolled under part B. For purposes of this
subsection, any reference in a section referred to in
a previous subsection to the Federal Supplementary
Medical Insurance Trust Fund is deemed a reference
to the Federal Medicare Prescription Medicine Trust
Fund.
‘‘(f) ELECTION OF PHARMACY CONTRACTOR TO AD-
MINISTER BENEFITS.—The Secretary shall establish a
process whereby each individual enrolled under this part
and residing in a region may elect the pharmacy con-
tractor that will administer the benefits under this part
with respect to the individual. Such process shall permit
the individual to make an initial election and to change
such an election on at least an annual basis and under
such other circumstances as the Secretary shall specify.
‘‘PROVISION OF, AND ENTITLEMENT TO, BENEFITS
‘‘SEC. 1859D. (a) BENEFITS.—Subject to the suc-
ceeding provisions of this section, the benefits provided to
an enrollee by the program under this part shall consist
of the following:
‘‘(1) COVERED
OUTPATIENT
PRESCRIPTION
MEDICINE BENEFITS.—Entitlement to have payment
made on the individual’s behalf for covered out-
patient prescription medicines.
‘‘(2) LIMITATION ON COST-SHARING FOR PART
B OUTPATIENT PRESCRIPTION MEDICINES.—
‘‘(A) IN GENERAL.—Once an enrollee has
incurred aggregate countable cost-sharing (as
defined in subparagraph (B)) equal to the stop-
loss limit specified in subsection (c)(4) for ex-
penses in a year, entitlement to the elimination
of cost-sharing otherwise applicable under part
B for additional expenses incurred in the year
for 
outpatient 
prescription 
medicines 
or
biologicals for which payment is made under
part B.
‘‘(B) 
COUNTABLE
COST-SHARING
DE-
FINED.—For purposes of this part, the term
‘countable cost-sharing’ means—
‘‘(i) out-of-pocket expenses for out-
patient prescription medicines with respect
to which benefits are payable under part
B, and
‘‘(ii) cost-sharing under subsections
(c)(3)(B) and (c)(3)(C)(i).
‘‘(b) COVERED OUTPATIENT PRESCRIPTION MEDI-
CINE DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), for purposes of this part the term ‘cov-
ered outpatient prescription medicine’ means any of
the following products:
‘‘(A) A medicine which may be dispensed
only upon prescription, and—
‘‘(i) which is approved for safety and
effectiveness as a prescription medicine
under section 505 of the Federal Food,
Drug, and Cosmetic Act;
‘‘(ii)(I) which was commercially used
or sold in the United States before the
date of enactment of the Drug Amend-
ments of 1962 or which is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of
Federal Regulations) to such a medicine,
and (II) which has not been the subject of
a final determination by the Secretary that
it is a ‘new drug’ (within the meaning of
section 201(p) of the Federal Food, Drug,
and Cosmetic Act) or an action brought by
the Secretary under section 301, 302(a),
or 304(a) of such Act to enforce section
502(f) or 505(a) of such Act; or
‘‘(iii)(I) which is described in section
107(c)(3) of the Drug Amendments of
1962 and for which the Secretary has de-
termined there is a compelling justification
for its medical need, or is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of
Federal Regulations) to such a medicine,
and (II) for which the Secretary has not
issued a notice of an opportunity for a
hearing under section 505(e) of the Fed-
eral Food, Drug, and Cosmetic Act on a
proposed order of the Secretary to with-
draw approval of an application for such
medicine under such section because the
Secretary has determined that the medi-
cine is less than effective for all conditions
of use prescribed, recommended, or sug-
gested in its labeling.
‘‘(B) A biological product which—
‘‘(i) may only be dispensed upon pre-
scription;
‘‘(ii) is licensed under section 351 of
the Public Health Service Act; and
‘‘(iii) is produced at an establishment
licensed under such section to produce
such product.
‘‘(C) Insulin approved under appropriate
Federal law, and needles, syringes, and dispos-
able pumps for the administration of such insu-
lin.
‘‘(D) A prescribed medicine or biological
product that would meet the requirements of
subparagraph (A) or (B) but that is available
over-the-counter in addition to being available
upon prescription, but only if the particular
dosage form or strength prescribed and re-
quired for the individual is not available over-
the-counter.
‘‘(E) Smoking cessation agents (as speci-
fied by the Secretary).
‘‘(2) EXCLUSION.—The term ‘covered out-
patient prescription medicine’ does not include—
‘‘(A) medicines or classes of medicines, or
their medical uses, which may be excluded from
coverage or otherwise restricted under section
1927(d)(2), other than subparagraph (E) there-
of (relating to smoking cessation agents), as the
Secretary may specify and does not include
such other medicines, classes, and uses as the
Secretary may specify consistent with the goals
of providing quality care and containing costs
under this part;
‘‘(B) except as provided in paragraphs
(1)(D) and (1)(E), any product which may be
distributed to individuals without a prescrip-
tion;
‘‘(C) any product when furnished as part
of, or as incident to, a diagnostic service or any
other item or service for which payment may be
made under this title; or
‘‘(D) any product that is covered under
part B of this title.
‘‘(c) PAYMENT OF BENEFITS.—
‘‘(1) COVERED
OUTPATIENT
PRESCRIPTION
MEDICINES.—There shall be paid from the Federal
Medicare Prescription Medicine Trust Fund, in the
case of each enrollee who incurs expenses for medi-
cines with respect to which benefits are payable
under this part under subsection (a)(1), amounts
equal to the sum of—
‘‘(A) the price for which the medicine is
made available under this part (consistent with
sections 1859A and 1859B), reduced by any
applicable cost-sharing under paragraphs (2)
and (3); and
‘‘(B) a reasonable dispensing fee.
The price under subparagraph (A) shall in no case
exceed the retail price for the medicine involved.
‘‘(2) DEDUCTIBLE.—The amount of payment
under paragraph (1) for expenses incurred in a year,
beginning with 2005, shall be reduced by an annual
deductible equal to the amount specified in section
1859(2) (subject to adjustment under paragraph
(8)). Only expenses for countable cost-sharing (as
defined in subsection (a)(2)(B)) shall be taken into
account in applying this paragraph.
‘‘(3) COINSURANCE.—
‘‘(A) IN GENERAL.—The amount of pay-
ment under paragraph (1) for expenses in-
curred in a year shall be further reduced (sub-
ject to the stop-loss limit under paragraph (4))
by coinsurance as provided under this para-
graph.
‘‘(B) PREFERRED MEDICINES.—The coin-
surance under this paragraph in the case of a
preferred medicine (including a medicine treat-
ed as a preferred medicine under paragraph
(5)), is equal to 20 percent of the price applica-
ble under paragraph (1)(A) (or such lower per-
centage as may be provided for under section
1859E(a)(1)(A)(ii)). In this part, the term ‘pre-
ferred medicine’ means, with respect to medi-
cines classified within a therapeutic class, those
medicines which have been designated as a pre-
ferred medicine by the Secretary or the phar-
macy contractor involved with respect to that
class and (in the case of a nongeneric medicine)
with respect to which a contract has been nego-
tiated under this part.
‘‘(C) NONPREFERRED
MEDICINES.—The
coinsurance under this paragraph in the case of
a nonpreferred medicine that is not treated as
a preferred medicine under paragraph (5) is
equal to the sum of—
‘‘(i) 20 percent of the price for lowest
price preferred medicine that is within the
same therapeutic class; and
‘‘(ii) the amount by which—
‘‘(I) the price at which the non-
preferred medicine is made available
to the enrollee; exceeds
‘‘(II) the price of such lowest
price preferred medicine.
‘‘(4) NO COINSURANCE ONCE OUT-OF-POCKET
EXPENDITURES EQUAL STOP-LOSS LIMIT.—Once an
enrollee has incurred aggregate countable cost-shar-
ing under paragraph (3) (including cost-sharing
under part B attributable to outpatient prescription
drugs or biologicals) equal to the amount specified
in section 1859(4) (subject to adjustment under
paragraph (8)) for expenses in a year—
‘‘(A) there shall be no coinsurance under
paragraph (3) for additional expenses incurred
in the year involved; and
‘‘(B) there shall be no coinsurance under
part B for additional expenses incurred in the
year involved for outpatient prescription drugs
and biologicals.
‘‘(5) APPEALS RIGHTS RELATING TO COVERAGE
OF NONPREFERRED MEDICINES.—
‘‘(A) PROCEDURES
REGARDING
THE
DE-
TERMINATION OF MEDICINES THAT ARE MEDI-
CALLY NECESSARY.—Each pharmacy contractor
shall have in place procedures on a case-by-case
basis to treat a nonpreferred medicine as a pre-
ferred medicine under this part if the preferred
medicine is determined to be not as effective for
the enrollee or to have significant adverse effect
on the enrollee. Such procedures shall require
that such determinations are based on profes-
sional medical judgment, the medical condition
of the enrollee, and other medical evidence.
‘‘(B) PROCEDURES
REGARDING
DENIALS
OF CARE.—Such contractor shall have in place
procedures to ensure—
‘‘(i) a timely internal review for reso-
lution of denials of coverage (in whole or
in part and including those regarding the
coverage of nonpreferred medicines) in ac-
cordance with the medical exigencies of the
case and a timely resolution of complaints,
by enrollees in the plan, or by providers,
pharmacists, and other individuals acting
on behalf of each such enrollee (with the
enrollee’s consent) in accordance with re-
quirements (as established by the Sec-
retary) that are comparable to such re-
quirements for Medicare+Choice organiza-
tions under part C;
‘‘(ii) that the entity complies in a
timely manner with requirements estab-
lished by the Secretary that (I) provide for
an external review by an independent enti-
ty selected by the Secretary of denials of
coverage described in clause (i) not re-
solved in the favor of the beneficiary (or
other complainant) under the process de-
scribed in such clause and (II) are com-
parable to the external review requirements
established for Medicare+Choice organiza-
tions under part C; and
‘‘(iii) that enrollees are provided with
information regarding the appeals proce-
dures under this part at the time of enroll-
ment with a pharmacy contractor under
this part and upon request thereafter.
‘‘(6) TRANSFER OF FUNDS TO COVER COSTS OF
PART
B
PRESCRIPTION
MEDICINE
CATASTROPHIC
BENEFIT.—With respect to benefits described in
subsection (a)(2), there shall transferred from the
Federal Medicare Prescription Medicine Trust Fund
to the Federal Supplementary Medical Insurance
Trust Fund amounts equivalent to the elimination of
cost-sharing described in such subsection.
‘‘(7) PERMITTING APPLICATION UNDER PART B
OF NEGOTIATED PRICES.—For purposes of making
payment under part B for medicines that would be
covered outpatient prescription medicines but for the
exclusion under subparagraph (B) or (C) of sub-
section (b)(2), the Secretary may elect to apply the
payment basis used for payment of covered out-
patient prescription medicines under this part in-
stead of the payment basis otherwise used under
such part, if it results in a lower cost to the pro-
gram.
‘‘(8) INFLATION ADJUSTMENT.—
‘‘(A) IN GENERAL.—With respect to ex-
penses incurred in a year after 2005—
‘‘(i) the deductible under paragraph
(2) is equal to the deductible determined
under such paragraph (or this subpara-
graph) for the previous year increased by
the percentage increase in per capita pro-
gram expenditures (as estimated in ad-
vance for the year involved under subpara-
graph (B)); and
‘‘(ii) the stop-loss limit under para-
graph (3) is equal to the stop-loss limit de-
termined under such paragraph (or this
subparagraph) for the previous year in-
creased by such percentage increase.
The Secretary shall adjust such percentage in-
crease in subsequent years to take into account
misestimations made of the per capita program
expenditures under clauses (i) and (ii) in pre-
vious years. Any increase under this subpara-
graph that is not a multiple of $10 shall be
rounded to the nearest multiple of $10.
‘‘(B) ESTIMATION
OF
INCREASE
IN
PER
CAPITA
PROGRAM
EXPENDITURES.—The Sec-
retary shall before the beginning of each year
(beginning with 2006) estimate the percentage
increase in average per capita aggregate ex-
penditures from the Federal Medicare Prescrip-
tion Medicine Trust Fund for the year involved
compared to the previous year.
‘‘(C) 
RECONCILIATION.—The 
Secretary
shall also compute (beginning with 2007) the
actual percentage increase in such aggregate
expenditures in order to provide for reconcili-
ation of deductibles, stop-loss limits, and pre-
miums under the second sentence of subpara-
graph (A) and under section 1859D(d)(2).
‘‘(d) AMOUNT OF PREMIUMS.—
‘‘(1) MONTHLY PREMIUM RATE IN 2005.—The
monthly premium rate in 2005 for prescription med-
icine benefits under this part is the amount specified
in section 1859(1).
‘‘(2) INFLATION
ADJUSTMENT
FOR
SUBSE-
QUENT YEARS.—The monthly premium rate for a
year after 2005 for prescription medicine benefits
under this part is equal to the monthly premium
rate for the previous year under this subsection in-
creased by the percentage increase in per capita pro-
gram expenditures (as estimated in advance for the
year involved under subsection (c)(8)(B)). The Sec-
retary shall adjust such percentage in subsequent
years to take into account misestimations made of
the per capita program expenditures under the pre-
vious sentence in previous years. Any increase under
this paragraph that is not a multiple of $1 shall be
rounded to the nearest multiple of $1.
‘‘ADMINISTRATION; QUALITY ASSURANCE
‘‘SEC. 1859E. (a) RULES RELATING TO PROVISION
OF BENEFITS.—
‘‘(1) PROVISION OF BENEFITS.—
‘‘(A) IN GENERAL.—In providing benefits
under this part, the Secretary (directly or
through the contracts with pharmacy contrac-
tors) shall employ mechanisms to provide bene-
fits appropriately and efficiently, and those
mechanisms may include—
‘‘(i) the use of—
‘‘(I) 
price 
negotiations 
(con-
sistent with subsection (b));
‘‘(II) reduced coinsurance (below
20 percent) to encourage the utiliza-
tion of appropriate preferred medi-
cines; and
‘‘(III) methods to reduce medica-
tion errors and encourage appropriate
use of medications; and
‘‘(ii) permitting pharmacy contractors,
as approved by the Secretary, to make ex-
ceptions to section 1859D(c)(3)(C) (relat-
ing to cost-sharing for non-preferred medi-
cines) to secure best prices for enrollees so
long as the payment amount under section
1859D(c)(1) does not equal zero.
‘‘(B) CONSTRUCTION.—Nothing in this
subsection shall be construed to prevent the
Secretary (directly or through the contracts
with pharmacy contractors) from using incen-
tives to encourage enrollees to select generic 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; and
‘‘(ii) a beneficiary’s coinsurance shall
be no greater than 20 percent in the case
of a preferred medicine (including a non-
preferred medicine treated as a preferred
medicine under section 1859D(c)(5)).
‘‘(2) CONSTRUCTION.—Nothing in this part
shall preclude the Secretary or a pharmacy con-
tractor from—
‘‘(A) educating prescribing providers, phar-
macists, and enrollees about medical and cost
benefits of preferred medicines;
‘‘(B) requesting prescribing providers to
consider a preferred medicine prior to dis-
pensing of a nonpreferred medicine, as long as
such request does not unduly delay the provi-
sion of the medicine;
‘‘(C) using mechanisms to encourage en-
rollees under this part to select cost-effective
medicines or less costly means of receiving or
administering medicines, including the use of
therapeutic interchange programs, disease man-
agement programs, and notification to the bene-
ficiary that a more affordable generic medicine
equivalent was not selected by the prescribing
provider and a statement of the lost cost sav-
ings to the beneficiary;
‘‘(D) using price negotiations to achieve re-
duced prices on covered outpatient prescription
medicines, including new medicines, medicines
for which there are few therapeutic alternatives,
and medicines of particular clinical importance
to individuals enrolled under this part; and
‘‘(E) utilizing information on medicine
prices of OECD countries and of other payors
in the United States in the negotiation of prices
under this part.
‘‘(b) PRICE NEGOTIATIONS PROCESS.—
‘‘(1) REQUIREMENTS WITH RESPECT TO PRE-
FERRED MEDICINES.—Negotiations of contracts with
manufacturers with respect to covered outpatient
prescription medicines under this part shall be con-
ducted in a manner so that—
‘‘(A) there is at least a contract for a med-
icine within each therapeutic class (as defined
by the Secretary in consultation with such
Medicare Prescription Medicine Advisory Com-
mittee);
‘‘(B) if there is more than 1 medicine
available in a therapeutic class, there are con-
tracts for at least 2 medicines within such class
unless determined clinically inappropriate in ac-
cordance with standards established by the Sec-
retary; and
‘‘(C) if there are more than 2 medicines
available in a therapeutic class, there is a con-
tract for at least 2 medicines within such class
and a contract for generic medicine substitute
if available unless determined clinically inappro-
priate in accordance with standards established
by the Secretary.
‘‘(2) ESTABLISHMENT OF THERAPEUTIC CLASS-
ES.—The Secretary, in consultation with the Medi-
care Prescription Medicine Advisory Committee (es-
tablished under section 1859H), shall establish for
purposes of this part therapeutic classes and assign
to such classes covered outpatient prescription medi-
cines.
‘‘(3) DISCLOSURE
CONCERNING
PREFERRED
MEDICINES.—The Secretary shall provide, through
pharmacy contractors or otherwise, for—
‘‘(A) disclosure to current and prospective
enrollees and to participating providers and
pharmacies in each service area a list of the
preferred medicines and differences in applica-
ble cost-sharing between such medicines and
nonpreferred medicines; and
‘‘(B) advance disclosure to current enroll-
ees and to participating providers and phar-
macies in each service area of changes to any
such list of preferred medicines and differences
in applicable cost-sharing.
‘‘(4) NO REVIEW.—The Secretary’s establish-
ment of therapeutic classes and the assignment of
medicines to such classes and the Secretary’s deter-
mination of what is a breakthrough medicine are not
subject to administrative or judicial review.
‘‘(c) CONFIDENTIALITY.—The Secretary shall ensure
that the confidentiality of individually identifiable health
information relating to the provision of benefits under this
part is protected, consistent with the standards for the
privacy of such information promulgated by the Secretary
under the Health Insurance Portability and Accountability
Act of 1996, or any subsequent comprehensive and more
protective set of confidentiality standards enacted into law
or promulgated by the Secretary. Nothing in this sub-
section shall be construed as preventing the coordination
of data with a State prescription medicine program so long
as such program has in place confidentiality standards
that are equal to or exceed the standards used by the Sec-
retary.
‘‘(d) FRAUD AND ABUSE SAFEGUARDS.—The Sec-
retary, through the Office of the Inspector General, is au-
thorized and directed to issue regulations establishing ap-
propriate safeguards to prevent fraud and abuse under
this part. Such safeguards, at a minimum, should include
compliance programs, certification data, audits, and rec-
ordkeeping practices. In developing such regulations, the
Secretary shall consult with the Attorney General and
other law enforcement and regulatory agencies.
‘‘FEDERAL MEDICARE PRESCRIPTION MEDICINE TRUST
FUND
‘‘SEC. 1859F. (a) ESTABLISHMENT.—There is here-
by created on the books of the Treasury of the United
States a trust fund to be known as the ‘Federal Medicare
Prescription Medicine Trust Fund’ (in this section re-
ferred to as the ‘Trust Fund’). The Trust Fund shall con-
sist of such gifts and bequests as may be made as provided
in section 201(i)(1), and such amounts as may be depos-
ited in, or appropriated to, such fund as provided in this
part.
‘‘(b) APPLICATION OF SMI TRUST FUND PROVI-
SIONS.—The provisions of subsections (b) through (i) of
section 1841 shall apply to this part and the Trust Fund
in the same manner as they apply to part B and the Fed-
eral Supplementary Medical Insurance Trust Fund, re-
spectively.
‘‘COMPENSATION FOR EMPLOYERS COVERING RETIREE
MEDICINE COSTS
‘‘SEC. 1859G. (a) IN GENERAL.—In the case of an
individual who is eligible to be enrolled under this part
and is a participant or beneficiary under a group health
plan that provides outpatient prescription medicine cov-
erage to retirees the actuarial value of which is not less
than the actuarial value of the coverage provided under
this part, the Secretary shall make payments to such plan
subject to the provisions of this section. Such payments
shall be treated as payments under this part for purposes
of sections 1859F and 1859C(e)(2). In applying the pre-
vious sentence with respect to section 1859C(e)(2), the
amount of the Government contribution referred to in sec-
tion 1844(a)(1)(A) is deemed to be equal to the aggregate
amount of the payments made under this section.
‘‘(b) REQUIREMENTS.—To receive payment under
this section, a group health plan shall comply with the fol-
lowing requirements:
‘‘(1) COMPLIANCE WITH REQUIREMENTS.—The
group health plan shall comply with the require-
ments of this Act and other reasonable, necessary,
and related requirements that are needed to admin-
ister this section, as determined by the Secretary.
‘‘(2) ANNUAL
ASSURANCES
AND
NOTICE
BE-
FORE
TERMINATION.—The sponsor of the plan
shall—
‘‘(A) annually attest, and provide such as-
surances as the Secretary may require, that the
coverage offered under the group health plan
meets the requirements of this section and will
continue to meet such requirements for the du-
ration of the sponsor’s participation in the pro-
gram under this section; and
‘‘(B) guarantee that it will give notice to
the Secretary and covered enrollees—
‘‘(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 required under sub-
section (a).
‘‘(3) BENEFICIARY INFORMATION.—The spon-
sor of the plan shall report to the Secretary, for
each calendar quarter for which it seeks a payment
under this section, the names and social security
numbers of all enrollees described in subsection (a)
covered under such plan during such quarter and
the dates (if less than the full quarter) during which
each such individual was covered.
‘‘(4) AUDITS.—The sponsor or plan seeking
payment under this section shall agree to maintain,
and to afford the Secretary access to, such records
as the Secretary may require for purposes of audits
and other oversight activities necessary to ensure the
adequacy of prescription medicine coverage, the ac-
curacy of payments made, and such other matters as
may be appropriate.
‘‘(c) PAYMENT.—
‘‘(1) IN
GENERAL.—The sponsor of a group
health plan that meets the requirements of sub-
section (b) with respect to a quarter in a calendar
year shall be entitled to have payment made on a
quarterly basis of the amount specified in paragraph
(2) for each individual described in subsection (a)
who during the quarter is covered under the plan
and was not enrolled in the insurance program
under this part.
‘‘(2) AMOUNT OF PAYMENT.—
‘‘(A) IN
GENERAL.—The amount of the
payment for a quarter shall approximate, for
each such covered individual, 2⁄3 of the sum of
the monthly Government contribution amounts
(computed under subparagraph (B)) for each of
the 3 months in the quarter.
‘‘(B) COMPUTATION
OF
MONTHLY
GOV-
ERNMENT CONTRIBUTION AMOUNT.—For pur-
poses of subparagraph (A), the monthly Gov-
ernment contribution amount for a month in a
year is equal to the amount by which—
‘‘(i) 1⁄12 of the average per capita ag-
gregate expenditures, as estimated under
section 1859D(c)(8) for the year involved;
exceeds
‘‘(ii) the monthly premium rate under
section 1859D(d) for the month involved.
‘‘MEDICARE PRESCRIPTION MEDICINE ADVISORY
COMMITTEE
‘‘SEC. 1859H. (a) ESTABLISHMENT
OF
COM-
MITTEE.—There is established a Medicare Prescription
Medicine Advisory Committee (in this section referred to
as the ‘Committee’).
‘‘(b) FUNCTIONS OF COMMITTEE.—The Committee
shall advise the Secretary on policies related to—
‘‘(1) the development of guidelines for the im-
plementation and administration of the outpatient
prescription medicine benefit program under this
part; and
‘‘(2) the development of—
‘‘(A) standards required of pharmacy con-
tractors under section 1859D(c)(5) for deter-
mining if a medicine is as effective for an en-
rollee or has a significant adverse effect on an
enrollee under this part;
‘‘(B) standards for—
‘‘(i) defining therapeutic classes;
‘‘(ii) adding new therapeutic classes;
‘‘(iii) assigning to such classes covered
outpatient prescription medicines; and
‘‘(iv) identifying breakthrough medi-
cines;
‘‘(C) procedures to evaluate the bids sub-
mitted by pharmacy contractors under this
part;
‘‘(D) procedures for negotiations, and
standards for entering into contracts, with
manufacturers, including identifying medicines
or classes of medicines where Secretarial nego-
tiation is most likely to yield savings under this
part significantly above those that which could
be achieved by a pharmacy contractor; and
‘‘(E) procedures to ensure that pharmacy
contractors with a contract under this part are
in compliance with the requirements under this
part.
For purposes of this part, a medicine is a ‘breakthrough
medicine’ if the Secretary, in consultation with the Com-
mittee, determines it is a new product that will make a
significant and major improvement by reducing physical
or mental illness, reducing mortality, or reducing dis-
ability, and that no other product is available to bene-
ficiaries that achieves similar results for the same condi-
tion. The Committee may consider cost-effectiveness in es-
tablishing standards for defining therapeutic classes and
assigning drugs to such classes under subparagraph (B).
‘‘(c) STRUCTURE AND MEMBERSHIP OF THE COM-
MITTEE.—
‘‘(1) STRUCTURE.—The Committee shall be
composed of 19 members who shall be appointed by
the Secretary.
‘‘(2) MEMBERSHIP.—
‘‘(A) IN GENERAL.—The members of the
Committee shall be chosen on the basis of their
integrity, impartiality, and good judgment, and
shall be individuals who are, by reason of their
education, experience, and attainments, excep-
tionally qualified to perform the duties of mem-
bers of the Committee.
‘‘(B) SPECIFIC MEMBERS.—Of the mem-
bers appointed under paragraph (1)—
‘‘(i) 5 shall be chosen to represent
practicing physicians, 2 of whom shall be
gerontologists;
‘‘(ii) 2 shall be chosen to represent
practicing nurse practitioners;
‘‘(iii) 4 shall be chosen to represent
practicing pharmacists;
‘‘(iv) 1 shall be chosen to represent
the Centers for Medicare & Medicaid Serv-
ices;
‘‘(v) 4 shall be chosen to represent ac-
tuaries, pharmacoeconomists, researchers,
and other appropriate experts;
‘‘(vi) 1 shall be chosen to represent
emerging medicine technologies;
‘‘(vii) 1 shall be chosen to represent
the Food and Drug Administration; and
‘‘(viii) 1 shall be chosen to represent
individuals enrolled under this part.
‘‘(d) TERMS OF APPOINTMENT.—Each member of
the Committee shall serve for a term determined appro-
priate by the Secretary. The terms of service of the mem-
bers initially appointed shall begin on January 1, 2004.
‘‘(e) CHAIRPERSON.—The Secretary shall designate
a member of the Committee as Chairperson. The term as
Chairperson shall be for a 1-year period.
‘‘(f) COMMITTEE PERSONNEL MATTERS.—
‘‘(1) MEMBERS.—
‘‘(A) COMPENSATION.—Each member of
the Committee who is not an officer or em-
ployee of the Federal Government shall be com-
pensated at a rate equal to the daily equivalent
of the annual rate of basic pay prescribed for
level IV of the Executive Schedule under section
5315 of title 5, United States Code, for each
day (including travel time) during which such
member is engaged in the performance of the
duties of the Committee. All members of the
Committee who are officers or employees of the
United States shall serve without compensation
in addition to that received for their services as
officers or employees of the United States.
‘‘(B) TRAVEL
EXPENSES.—The members
of the Committee shall be allowed travel ex-
penses, including per diem in lieu of subsist-
ence, at rates authorized for employees of agen-
cies under subchapter I of chapter 57 of title 5,
United States Code, while away from their
homes or regular places of business in the per-
formance of services for the Committee.
‘‘(2) STAFF.—The Committee may appoint
such personnel as the Committee considers appro-
priate.
‘‘(g) OPERATION OF THE COMMITTEE.—
‘‘(1) MEETINGS.—The Committee shall meet at
the call of the Chairperson (after consultation with
the other members of the Committee) not less often
than quarterly to consider a specific agenda of
issues, as determined by the Chairperson after such
consultation.
‘‘(2) QUORUM.—Ten members of the Com-
mittee shall constitute a quorum for purposes of
conducting business.
‘‘(h) FEDERAL ADVISORY COMMITTEE ACT.—Section
14 of the Federal Advisory Committee Act (5 U.S.C.
App.) shall not apply to the Committee.
‘‘(i) TRANSFER OF PERSONNEL, RESOURCES, AND
ASSETS.—For purposes of carrying out its duties, the Sec-
retary and the Committee may provide for the transfer
to the Committee of such civil service personnel in the em-
ploy of the Department of Health and Human Services
(including the Centers for Medicare & Medicaid Services),
and such resources and assets of the Department used in
carrying out this title, as the Committee requires.
‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as may be
necessary to carry out the purposes of this section.’’.
(b) APPLICATION OF GENERAL EXCLUSIONS FROM
COVERAGE.—
(1) APPLICATION TO PART D.—Section 1862(a)
(42 U.S.C. 1395y(a)) is amended in the matter pre-
ceding paragraph (1) by striking ‘‘part A or part B’’
and inserting ‘‘part A, B, or D’’.
(2) PRESCRIPTION MEDICINES NOT EXCLUDED
FROM COVERAGE IF APPROPRIATELY PRESCRIBED.—
Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is
amended—
(A) in subparagraph (H), by striking
‘‘and’’ at the end;
(B) in subparagraph (I), by striking the
semicolon at the end and inserting ‘‘, and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(J) in the case of prescription medicines
covered under part D, which are not prescribed
in accordance with such part;’’.
(c) CONFORMING AMENDMENTS.—(1) Part C of title
XVIII is amended—
(A) in section 1851(a)(2)(B) (42 U.S.C.
1395w–21(a)(2)(B)), by striking ‘‘1859(b)(3)’’ and
inserting ‘‘1858(b)(3)’’;
(B) in section 1851(a)(2)(C) (42 U.S.C.
1395w–21(a)(2)(C)), by striking ‘‘1859(b)(2)’’ and
inserting ‘‘1858(b)(2)’’;
(C) in section 1852(a)(1) (42 U.S.C. 1395w–
22(a)(1)), by striking ‘‘1859(b)(3)’’ and inserting
‘‘1858(b)(3)’’;
(D) in section 1852(a)(3)(B)(ii) (42 U.S.C.
1395w–22(a)(3)(B)(ii)), 
by 
striking
‘‘1859(b)(2)(B)’’ and inserting ‘‘1858(b)(2)(B)’’;
(E) in section 1853(a)(1)(A) (42 U.S.C.
1395w–23(a)(1)(A)), by striking ‘‘1859(e)(4)’’ and
inserting ‘‘1858(e)(4)’’; and
(F) in section 1853(a)(3)(D) (42 U.S.C.
1395w–23(a)(3)(D)), by striking ‘‘1859(e)(4)’’ and
inserting ‘‘1858(e)(4)’’.
(2) 
Section 
1171(a)(5)(D) 
(42 
U.S.C.
1320d(a)(5)(D)) is amended by striking ‘‘or (C)’’ and in-
serting ‘‘(C), or (D)’’.
SEC. 102. PROVISION OF MEDICARE OUTPATIENT PRE-
SCRIPTION 
MEDICINE 
COVERAGE 
UNDER
THE MEDICARE+CHOICE PROGRAM.
(a) REQUIRING AVAILABILITY OF AN ACTUARIALLY
EQUIVALENT PRESCRIPTION MEDICINE BENEFIT.—Sec-
tion 1851 (42 U.S.C. 1395w–21) is amended by adding
at the end the following new subsection:
‘‘(j) AVAILABILITY
OF
PRESCRIPTION
MEDICINE
BENEFITS.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this part, each Medicare+Choice organi-
zation that makes available a Medicare+Choice plan
described in section 1851(a)(2)(A) shall make avail-
able such a plan that offers coverage of covered out-
patient prescription medicines that is at least actu-
arially equivalent to the benefits provided under part
D. Information respecting such benefits shall be
made available in the same manner as information
on other benefits provided under this part is made
available. Nothing in this paragraph shall be con-
strued as requiring the offering of such coverage
separate from coverage that includes benefits under
parts A and B.
‘‘(2) TREATMENT OF PRESCRIPTION MEDICINE
ENROLLEES.—In the case of a Medicare+Choice eli-
gible individual who is enrolled under part D, the
benefits described in paragraph (1) shall be treated
in the same manner as benefits described in part B
for purposes of coverage and payment and any ref-
erence in this part to the Federal Supplementary
Medical Insurance Trust Fund shall be deemed, with
respect to such benefits, to be a reference to the
Federal Medicare Prescription Medicine Trust
Fund.’’.
(b) APPLICATION OF QUALITY STANDARDS.—Section
1852(e)(2)(A) 
(42 
U.S.C. 
1395w–22(e)(2)(A)) 
is
amended—
(1) by striking ‘‘and’’ at the end of clause (xi);
(2) by striking the period at the end of clause
(xii) and inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(xiii) comply with the standards, and
apply 
the 
programs, 
under 
section
1859B(b) for covered outpatient prescrip-
tion medicines under the plan.’’.
(c) PAYMENT SEPARATE FROM PAYMENT FOR PART
A AND B BENEFITS.—Section 1853 (42 U.S.C. 1395w–
23) is amended—
(1) in subsection (a)(1)(A), by striking ‘‘and
(i)’’ and inserting ‘‘(i), and (j)’’; and
(2) by adding at the end the following new sub-
section:
‘‘(j) PAYMENT FOR PRESCRIPTION MEDICINE COV-
ERAGE OPTION.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a
Medicare+Choice plan that provides prescription
medicine benefits described in section 1851(j)(1),
the amount of payment otherwise made to the
Medicare+Choice organization offering the plan
shall be increased by the amount described in para-
graph (2). Such payments shall be made in the same
manner and time as the amount otherwise paid, but
such amount shall be payable from the Federal
Medicare Prescription Medicine Trust Fund.
‘‘(2) AMOUNT.—The amount described in this
paragraph is the monthly Government contribution
amount computed under section 1859G(c)(2)(B),
but subject to adjustment under paragraph (3).
Such amount shall be uniform geographically and
shall not vary based on the Medicare+Choice pay-
ment area involved.
‘‘(3) RISK ADJUSTMENT.—The Secretary shall
establish a methodology for the adjustment of the
payment amount under this subsection in a manner
that takes into account the relative risks for use of
outpatient 
prescription 
medicines 
by
Medicare+Choice enrollees. Such methodology shall
be designed in a manner so that the total payments
under this title (including part D) are not changed
as a result of the application of such methodology.’’.
(d) SEPARATE APPLICATION OF ADJUSTED COMMU-
NITY RATE (ACR).—Section 1854 (42 U.S.C. 1395w–24)
is amended by adding at the end the following:
‘‘(i) APPLICATION TO PRESCRIPTION MEDICINE COV-
ERAGE.—The Secretary shall apply the previous provisions
of this section (including the computation of the adjusted
community rate) separately with respect to prescription
medicine benefits described in section 1851(j)(1).’’.
(f) CONFORMING AMENDMENTS.—
(1) Section 1851 (42 U.S.C. 1395w–21) is
amended—
(A) in subsection (a)(1)(A), by striking
‘‘parts A and B’’ and inserting ‘‘parts A, B,
and D’’; and
(B) in subsection (i) by inserting ‘‘(and, if
applicable, part D)’’ after ‘‘parts A and B’’.
(2) Section 1852(a)(1)(A) (42 U.S.C. 1395w–
22(a)(1)(A)) is amended by inserting ‘‘(and under
part D to individuals also enrolled under such part)’’
after ‘‘parts A and B’’.
(3) Section 1852(d)(1) (42 U.S.C. 1395w–
22(d)(1)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (D);
(B) by striking the period at the end of
subparagraph (E) and inserting ‘‘; and’’; and
(C) by adding at the end the following:
‘‘(F) the plan for part D benefits guaran-
tees coverage of any specifically named pre-
scription medicine for an enrollee to the extent
that it would be required to be covered under
part D.
In 
carrying 
out 
subparagraph 
(F), 
a
Medicare+Choice organization has the same author-
ity to enter into contracts with respect to coverage
of preferred medicines as the Secretary has under
part D, but subject to an independent contractor ap-
peal or other appeal process that would be applicable
to determinations by such a pharmacy contractor
consistent with section 1859D(c)(5).’’.
(e) 
LIMITATION
ON
COST-SHARING.—Section
1854(e) (42 U.S.C. 1395w–24(e)) is amended by adding
at the end the following new paragraph:
‘‘(5) LIMITATION
ON
COST-SHARING.—In no
event may a Medicare+Choice organization include
a requirement that an enrollee pay cost-sharing in
excess of the cost-sharing otherwise permitted under
part D.’’.
SEC. 103. MEDIGAP REVISIONS.
(a) REQUIRED COVERAGE OF COVERED OUTPATIENT
PRESCRIPTION MEDICINES.—Section 1882(p)(2)(B) (42
U.S.C. 1395ss(p)(2)(B)) is amended by inserting before
‘‘and’’ at the end the following: ‘‘including a requirement
that an appropriate number of policies provide coverage
of medicines which complements but does not duplicate
the medicine benefits that beneficiaries are otherwise eligi-
ble for benefits under part D of this title (with the Sec-
retary and the National Association of Insurance Commis-
sioners determining the appropriate level of medicine ben-
efits that each benefit package must provide and ensuring
that policies providing such coverage are affordable for
beneficiaries;’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 2005.
(c) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health
and Human Services identifies a State as requiring
a change to its statutes or regulations to conform its
regulatory program to the amendments made by this
section, the State regulatory program shall not be
considered to be out of compliance with the require-
ments of section 1882 of the Social Security Act due
solely to failure to make such change until the date
specified in paragraph (4).
(2) NAIC STANDARDS.—If, within 9 months
after the date of enactment of this Act, the National
Association of Insurance Commissioners (in this
subsection referred to as the ‘‘NAIC’’) modifies its
NAIC Model Regulation relating to section 1882 of
the Social Security Act (referred to in such section
as the 1991 NAIC Model Regulation, as subse-
quently modified) to conform to the amendments
made by this section, such revised regulation incor-
porating the modifications shall be considered to be