that imposes a sustainable growth rate for such items and
services similar to the sustainable growth rate applied with
respect to payment for physicians services under section
1848(f) of the Social Security Act (42 U.S.C. 1395w–
4(f)).
(b) AUTHORITY TO VARY BY REGION.—Any sustain-
able growth rate recommended by the Secretary may pro-
vide for the determination of such rate on a uniform na-
tional basis, by Metropolitan Statistical Area, by State,
or by any other region that the Secretary determines ap-
propriate.
SEC. 125. AUTHORITY TO NEGOTIATE PAYMENT RATES IN
CERTAIN AREAS (MOST FAVORED CUSTOMER
AUTHORITY) AND EXPAND INHERENT REA-
SONABLENESS AUTHORITY.
(a) FINDINGS; PURPOSE.—
(1) FINDING.—The Congress finds as follows:
(A) The medicare program is the largest
single purchaser of health care services in the
United States.
(B) It is inappropriate for the medicare
program to in effect subsidize lower prices of-
fered by providers of services and suppliers to
smaller volume purchasers of health care serv-
ices.
(2) PURPOSE.—The purpose of this section is
to require the treatment of the medicare program as
a preferred or volume buyer of health care services
in the United States by requiring the Secretary of
Health and Human Services to negotiate a lower
rate for items and services for which reimbursement
is made under the program.
(b) MANDATE TO NEGOTIATE.—In the case of a
service area (as determined by the Secretary) where pay-
ment rates under the medicare program for items and
services furnished exceed the rates charged by such health
care provider for such items and services for which pay-
ment is made other than under the medicare program, the
Secretary shall negotiate a similar, lower customer rate
with such health care provider for such items and services
under the medicare program.
(c) ADJUSTMENT.—In negotiating such similar, lower
customer rate under subsection (a), the Secretary shall
take into account costs uniquely associated with the provi-
sion of items and services under the medicare program.
(d) WAIVER AUTHORITY.—The Secretary may waive
such requirements of title XVIII of the Social Security Act
as may be necessary for the purposes of carrying out this
Act.
(e) DEFINITIONS.—In this section:
(1) MEDICARE PROGRAM.—The term ‘‘medicare
program’’ means the program established under title
XVIII of the Social Security Act (42 U.S.C. 1395 et
seq.).
(2) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means a provider of services,
a physician, or a supplier who furnishes items or
services for which payment is made under the medi-
care program.
(3) PROVIDER OF SERVICES.—The term ‘‘pro-
vider of services’’ has the meaning given that term
under section 1861(u) of the Social Security Act (42
U.S.C. 1395x(u)).
(4) PHYSICIAN.—The term ‘‘physician’’ has the
meaning given that term under section 1861(r) of
such Act (42 U.S.C. 1395x(r)).
(f) Section 1842(b)(8) is amended to strike ‘‘15 per-
cent’’ each place it appears and substitute ‘‘30 percent’’.
SEC. 126. AUTHORIZATION OF BASING MEDICARE PAYMENT
FOR HOSPITAL OUTPATIENT DEPARTMENT
SERVICES ON PAYMENT RATES FOR SIMILAR
SERVICES PROVIDED OUTSIDE THE HOS-
PITAL SETTING.
(a) IN GENERAL.—Section 1833(t)(1) (42 U.S.C.
1395l(t)(1)) is amended—
(1) in subparagraph (A), by inserting
‘‘subject to subparagraph (C),’’ after ‘‘1999,’’,
and
(2) by adding at the end the following new
subparagraph:
‘‘(C) USE
OF
RATES
IN
NON-HOSPITAL
SETTINGS.—The Secretary shall review dif-
ferentials in total medicare payments for non-
inpatient services furnished in and outside hos-
pitals. With respect to covered OPD services
furnished on or after January 1, 2010, where
the Secretary determines that there is no dan-
ger to quality of care or outcomes, the Sec-
retary shall adjust payment rates for covered
OPD services (including any facility-related
component to such services) to pay no more
than the lowest rate in any setting for similar
services.’’.
(b) CONFORMING AMENDMENT.—The fifth sentence
of section 1866(a)(2)(A) (42 U.S.C. 1395cc(a)(2)(A)) is
amended by inserting ‘‘, or in the case described in section
1833(t)(1)(C), the coinsurance amount that would other-
wise apply with respect to the provision of the similar serv-
ices referred to in such section’’ before the period at the
end.
SEC. 127. MEDICARE SINGLE, UNIFIED PROSPECTIVE PAY-
MENT SYSTEM FOR POST-CARE HOSPITAL
SERVICES.
(a) DEVELOPMENT OF PAYMENT SYSTEM.—
(1) IN GENERAL.—By not later than January
1, 2010, the Secretary of Health and Human Serv-
ices shall develop and transmit to Congress a plan
to provide for a single, unified system for the pay-
ment under a prospective payment system for post-
acute care hospital services (including professional
services) within a course of treatment under the
Medicare Program under title XVIII of the Social
Security Act.
(2) ADJUSTMENTS FOR AREA VARIATIONS IN
COSTS AND OUTLIERS.—Such a system shall provide
for appropriate adjustments to take into account—
(A) appropriate variations in the costs of
wages and such other input costs as the Sec-
retary finds appropriate; and
(B) outliers that reflect bona fide vari-
ations in the case mix and severity of patients
being served.
(b) IMPLEMENTATION.—Unless Congress provides
otherwise, the Secretary shall implement the system devel-
oped under subsection (a) for items and services furnished
on or after January 1, 2012.
(c) RELATION TO CURRENT PAYMENT METHODOLO-
GIES.—The system under this section shall be designed
and implemented so as to supersede the various different
prospective payment system for such services, which use
different payment, risk adjustment, and other criteria,
under the Medicare Program.
SEC. 128. MEDICARE PAYMENT ADJUSTMENT TO REFLECT
DEVIATIONS FROM GENERALLY ACCEPTED
PRACTICE 
IN 
OVERSERVING 
OR 
UNDER-
SERVING MEDICARE BENEFICIARIES.
(a) FINDINGS.—The Congress finds as follows:
(1) The intensity and cost of the practice of
medicine varies by more than 200 percent across
various regions of the United States and, in the case
of certain medical procedures, by that percent or
more among some adjoining counties.
(2) Such variations in cost and intensity do not
appear to be related to the severity of illness or the
underlying health of the population of the United
States.
(3) If the pattern of practice of medicine in the
State of Minnesota (one of the States with the high-
est quality of health of residents) were adopted na-
tionwide, the financial stability of the medicare pro-
gram would be assured.
(4) For both quality of care and financial pur-
poses, it is the purpose of this section to encourage
best patterns of practice of medicine.
(b) ESTABLISHMENT OF PRACTICE PROFILES.—
(1) IN GENERAL.—By not later than January
1, 2010, the Secretary of Health and Human Serv-
ices shall establish clinical profiles of the practice
patterns of health care providers (including both in-
stitutional providers, health care professionals, and
Medicare+Choice organizations) providing items and
services under the Medicare program under title
XVIII of the Social Security Act in order to deter-
mine how their practice patterns compare to each
other, on a local, State, and national basis. In estab-
lishing such profiles, the Secretary shall take into
account differences in the case mix and severity of
patients served by such providers and shall take into
account, to the extent practicable, the medical out-
comes resulting from such practices.
(2) DISSEMINATION
OF
INFORMATION.—The
Secretary shall establish a method for disseminating
summary information to the public on the clinical
profiles established under paragraph (1). No infor-
mation that identifies (or permits the identification
of) an individual patient shall be disseminated.
100
(c) AUTHORITY
TO
MAKE
PAYMENT
ADJUST-
MENTS.—For items and services furnished on or after
January 1, 2020, the Secretary of Health and Human
Services may adjust the amount of the payments made
under the Medicare program to health care providers in
order to encourage their provision of services in a medi-
cally appropriate manner and to discourage significant de-
viations in underservice or overservice from generally ac-
cepted norms of best medical practice. Such adjustments
shall be made on the basis of provider profiles established
under subsection (b) and shall be made only after taking
into account variations among providers in the case mix
and severity of patients served.
(d) REQUIREMENT TO MAKE PAYMENT ADJUST-
MENTS.—
(1) IN GENERAL.—For items and services fur-
nished on or after January 1, 2025, the Secretary
of Health and Human Services shall reduce by 10
percent the amount of the payments made under the
Medicare program to health care providers described
in paragraph (2).
(2) HEALTH CARE PROVIDERS DESCRIBED.—
For purposes of paragraph (1), a health care pro-
vider described in this paragraph is a provider—
101
(A) that furnishes services in a hospital re-
ferral region (as defined by the latest deter-
mination of the Center for the Evaluative Clin-
ical Services of the Dartmouth Medical School
where the intensity of pattern of practice (as
represented by the number of services) and the
cost of services is determined by the Secretary
to be in the most expensive 20 percent of all
such services in the United States, as adjusted
for severity and such other factors as the Sec-
retary determines appropriate;
(B) with respect to which the Secretary is
unable to identify improved quality care or out-
comes as a result of such higher intensity serv-
ices or costs;
(C) that has a pattern of practice which is
among the top 20 percent of providers in the
region in terms of intensity and costs; and
(D) that does not serve a patient popu-
lation that is preponderately among the 20 per-
cent most severely ill in the region.
102
SEC. 129. PROMOTING THE USE OF COST EFFECTIVE MEDI-
CARE 
NONINSTITUTIONAL 
SERVICES
THROUGH 
WAIVER 
OF 
BENEFIT 
LIMITA-
TIONS.
(a) IN GENERAL.—If the Secretary of Health and
Human Services estimates that treatment in a non-hos-
pital or non-institutional setting under the medicare pro-
gram under title XVIII of the Social Security Act is likely
to provide similar or better quality care and outcomes at
a lower cost to the program, the Secretary of Health and
Human Services may waive requirements described in sub-
section (b) which discourage or prevent treatment in such
a setting.
(b) REQUIREMENTS WAIVABLE.—
(1) IN GENERAL.—Subject to paragraph (2),
the requirements that may be waived include the fol-
lowing:
(A) The requirement, for the receipt of
benefits for extended care services, that the
services be post-hospital extended care services.
(B) Cost sharing (including deductibles,
coinsurance, and copayments) that may be ap-
plicable.
(2) NONWAIVABLE PROVISIONS.—The Secretary
of Health and Human Services may not under this
section provide for coverage of services for which no
103
payment is otherwise provided under the medicare
program.
(c) LIMITATION.—The Secretary may not provide for
such a waiver in the case of an individual unless there
are satisfactory assurances that the medicare beneficiary
has not received (and is not likely to receive) medicare
benefits for hospital services for the treatment with re-
spect to which the waiver applies.
SEC. 130. INCREASED FLEXIBILITY IN CONTRACTING FOR
MEDICARE CLAIMS PROCESSING.
(a) CARRIERS TO INCLUDE ENTITIES THAT ARE
NOT INSURANCE COMPANIES.—
(1) The matter in section 1842(a) (42 U.S.C.
1395u(a)) preceding paragraph (1) is amended by
striking ‘‘with carriers’’ and inserting ‘‘with agencies
and organizations (referred to as carriers)’’.
(2) Section 1842(f) (42 U.S.C. 1395u(f)) is re-
pealed.
(b) SECRETARIAL FLEXIBILITY
IN CONTRACTING
FOR AND IN ASSIGNING FISCAL INTERMEDIARY AND CAR-
RIER FUNCTIONS.—
(1) Section 1816 (42 U.S.C. 1395h) is amended
by striking everything after the heading but before
subsection (b) and inserting the following:
104
‘‘SEC. 1816. (a)(1) The Secretary may enter into con-
tracts with agencies or organizations to perform any or
all of the following functions, or parts of those functions
(or, to the extent provided in a contract, to secure per-
formance thereof by other organizations):
‘‘(A) Determine (subject to the provisions of
section 1878 and to such review by the Secretary as
may be provided for by the contracts) the amount of
the payments required pursuant to this part to be
made to providers of services.
‘‘(B) Make payments described in subparagraph
(A).
‘‘(C) Provide consultative services to institu-
tions or agencies to enable them to establish and
maintain fiscal records necessary for purposes of
this part and otherwise to qualify as providers of
services.
‘‘(D) Serve as a center for, and communicate to
individuals entitled to benefits under this part and
to providers of services, any information or instruc-
tions furnished to the agency or organization by the
Secretary, and serve as a channel of communication
from individuals entitled to benefits under this part
and from providers of services to the Secretary.
105
‘‘(E) Make such audits of the records of pro-
viders of services as may be necessary to insure that
proper payments are made under this part.
‘‘(F) Perform the functions described in sub-
section (d).
‘‘(G) Perform such other functions as are nec-
essary to carry out the purposes of this part.
‘‘(2) As used in this title and title XI, the term ‘fiscal
intermediary’ means an agency or organization with a con-
tract under this section.’’.
(2) Subsections (d) and (e) of section 1816 (42
U.S.C. 1395h) are amended to read as follows:
‘‘(d) Each provider of services shall have a fiscal
intermediary that—
‘‘(1) acts as a single point of contact for the
provider of services under this part,
‘‘(2) makes its services sufficiently available to
meet the needs of the provider of services, and
‘‘(3) is responsible and accountable for arrang-
ing the resolution of issues raised under this part by
the provider of services.
‘‘(e) The Secretary, in evaluating the performance of
a fiscal intermediary, may solicit comments from providers
of services.’’.
107
performance requirements for contracts under sub-
section (a).’’.
(D) 
Section 
1842(b)(2)(A) 
(42 
U.S.C.
1395u(b)(2)(A)) is amended by striking the third
sentence.
(E) The matter in section 1842(b)(2)(B) (42
U.S.C. 1395u(b)(2)(B)) preceding clause (i) is
amended by striking ‘‘establish standards’’ and in-
serting ‘‘develop contract performance require-
ments’’.
(F) 
Section 
1842(b)(2)(D) 
(42 
U.S.C.
1395u(b)(2)(D)) is amended by striking ‘‘standards
and criteria’’ each place it occurs and inserting
‘‘contract performance requirements’’.
(4)(A) The matter in section 1816(b) (42
U.S.C. 1395h(b)) preceding paragraph (1) is amend-
ed by striking ‘‘an agreement’’ and inserting ‘‘a con-
tract’’.
(B) Paragraphs (1)(B) and (2)(A) of section
1816(b) (42 U.S.C. 1395h(b)) are each amended by
striking ‘‘agreement’’ and inserting ‘‘contract’’.
(C) The first sentence of section 1816(c)(1) (42
U.S.C. 1395h(c)(1)) is amended by striking ‘‘An
agreement’’ and inserting ‘‘A contract’’.
108
(D) The last sentence of section 1816(c)(1) (42
U.S.C. 1395h(c)(1)) is amended by striking ‘‘an
agreement’’ and inserting ‘‘a contract’’.
(E) The matter in section 1816(c)(2)(A) (42
U.S.C. 1395h(c)(2)(A)) preceding clause (i) is
amended by striking ‘‘agreement’’ and inserting
‘‘contract’’.
(F) 
Section 
1816(c)(3)(A) 
(42 
U.S.C.
1395h(c)(3)(A)) is amended by striking ‘‘agree-
ment’’ and inserting ‘‘contract’’.
(G) Section 1816(h) (42 U.S.C. 1395h(h)) is
amended—
(i) by striking ‘‘An agreement’’ and insert-
ing ‘‘A contract’’, and
(ii) by striking ‘‘the agreement’’ each place
it occurs and inserting ‘‘the contract’’.
(H) Section 1816(i)(1) (42 U.S.C. 1395h(i)(1))
is amended by striking ‘‘an agreement’’ and insert-
ing ‘‘a contract’’.
(I) Section 1816(j) (42 U.S.C. 1395h(j)) is
amended by striking ‘‘An agreement’’ and inserting
‘‘A contract’’.
(J) Section 1816(k) (42 U.S.C. 1395h(k)) is
amended by striking ‘‘An agreement’’ and inserting
‘‘A contract’’.
109
(K) Section 1816(l) (42 U.S.C. 1395h(l)) is
amended by striking ‘‘an agreement’’ and inserting
‘‘a contract’’.
(L) The matter in section 1842(a) (42 U.S.C.
1395u(a)) preceding paragraph (1) is amended by
striking ‘‘agreements’’ and inserting ‘‘contracts’’.
(M) 
Section 
1842(h)(3)(A) 
(42 
U.S.C.
1395u(h)(3)(A)) is amended by striking ‘‘an agree-
ment’’ and inserting ‘‘a contract’’.
(5)(A) The matter in section 1816(c)(2)(A) (42
U.S.C. 1395h(c)(2)(A)) preceding clause (i) is
amended by inserting ‘‘that provides for making
payments under this part’’ after ‘‘this section’’.
(B) 
Section 
1816(c)(3)(A) 
(42 
U.S.C.
1395h(c)(3)(A)) is amended by inserting ‘‘that pro-
vides for making payments under this part’’ after
‘‘this section’’.
(C) Section 1816(k) (42 U.S.C. 1395h(k)) is
amended by inserting ‘‘(as appropriate)’’ after ‘‘sub-
mit’’.
(D) The matter in section 1842(a) (42 U.S.C.
1395u(a)) preceding paragraph (1) is amended by
striking ‘‘some or all of the following functions’’ and
inserting ‘‘any or all of the following functions, or
parts of those functions’’.
110
(E) The first sentence of section 1842(b)(2)(C)
(42 U.S.C. 1395u(b)(2)(C)) is amended by inserting
‘‘(as appropriate)’’ after ‘‘carriers’’.
(F) The matter preceding subparagraph (A) in
the first sentence of section 1842(b)(3) (42 U.S.C.
1395u(b)(3)) is amended by inserting ‘‘(as appro-
priate)’’ after ‘‘contract’’.
(G) The matter in section 1842(b)(7)(A) (42
U.S.C. 1395u(b)(7)(A)) preceding clause (i) is
amended by striking ‘‘the carrier’’ and inserting ‘‘a
carrier’’.
(H) The matter in section 1842(b)(11)(A) (42
U.S.C. 1395u(b)(11)(A)) preceding clause (i) is
amended by inserting ‘‘(as appropriate)’’ after ‘‘each
carrier’’.
(I) The first sentence of section 1842(h)(2) (42
U.S.C. 1395u(h)(2)) is amended by inserting ‘‘(as
appropriate)’’ after ‘‘shall’’.
(J) 
Section 
1842(h)(5)(A) 
(42 
U.S.C.
1395u(h)(5)(A)) is amended by inserting ‘‘(as ap-
propriate)’’ after ‘‘carriers’’.
(6)(A) 
Section 
1816(c)(2)(C) 
(42 
U.S.C.
1395h(c)(2)(C)) is amended by striking ‘‘hospital,
rural primary care hospital, skilled nursing facility,
home health agency, hospice program, comprehen-
111
sive outpatient rehabilitation facility, or rehabilita-
tion agency’’ and inserting ‘‘provider of services’’.
(B) The matter in section 1816(j) (42 U.S.C.
1395h(j)) preceding paragraph (1) is amended by
striking ‘‘for home health services, extended care
services, or post-hospital extended care services’’.
(7) Section 1842(a)(3) (42 U.S.C. 1395u(a)(3))
is amended by inserting ‘‘(to and from individuals
enrolled under this part and to and from physicians
and other entities that furnish items and services)’’
after ‘‘communication’’.
(8) The matter in section 1842(a) (42 U.S.C.
1395u(a)) preceding paragraph (1), as amended by
subsection (b)(4)(L), is amended by striking ‘‘car-
riers with which contracts’’ and inserting ‘‘single
contracts under section 1816 and this section to-
gether, or separate contracts with eligible agencies
and organizations with which contracts’’.
(c) ELIMINATION OF SPECIAL PROVISIONS FOR TER-
MINATIONS OF CONTRACTS.—
(1) The matter in section 1816(b) (42 U.S.C.
1395h(b)) preceding paragraph (1) is amended by
striking ‘‘or renew’’.
112
(2) The last sentence of section 1816(c)(1) (42
U.S.C. 1395h(c)(1)) is amended by striking ‘‘or re-
newing’’.
(3) Section 1816(g) (42 U.S.C. 1395h(g)) is re-
pealed.
(4) The last sentence of section 1842(b)(2)(A)
(42 U.S.C. 1395u(b)(2)(A)) is amended by striking
‘‘or renewing’’.
(5) Section 1842(b) (42 U.S.C. 1395u(b)) is
amended by striking paragraph (5).
(d) REPEAL OF FISCAL INTERMEDIARY REQUIRE-
MENTS
THAT
ARE
NOT
COST-EFFECTIVE.—Section
1816(f)(2) (42 U.S.C. 1395h(f)(2)) is amended to read
as follows:
‘‘(2) The contract performance requirements de-
scribed in paragraph (1) shall include, with respect to
claims for services furnished under this part by any pro-
vider of services other than a hospital, whether such agen-
cy or organization is able to process 75 percent of recon-
siderations within 60 days and 90 percent of reconsider-
ations within 90 days.’’.
(e) REPEAL OF COST REIMBURSEMENT REQUIRE-
MENTS.—
(1) The first sentence of section 1816(c)(1) (42
U.S.C. 1395h(c)(1)) is amended—
113
(A) by striking the comma after ‘‘appro-
priate’’ and inserting ‘‘and’’, and
(B) by striking everything after ‘‘sub-
section (a)’’ up to the period.
(2) Section 1816(c)(1) (42 U.S.C. 1395h(c)(1))
is further amended by striking the second and third
sentences.
(3) The first sentence of section 1842(c)(1) (42
U.S.C. 1395h(c)(1)) is amended—
(A) by striking ‘‘shall provide’’ the first
place it occurs and inserting ‘‘may provide’’,
and
(B) by striking everything after ‘‘this
part’’ up to the period.
(4) Section 1842(c)(1) (42 U.S.C. 1395h(c)(1))
is further amended by striking the remaining sen-
tences.
(5) Section 2326(a) of the Deficit Reduction
Act of 1984 (42 U.S.C. 1395h note) is repealed.
(f) SECRETARIAL FLEXIBILITY WITH RESPECT TO
RENEWING
CONTRACTS
AND
TRANSFER
OF
FUNC-
TIONS.—
(1) Section 1816(c) (42 U.S.C. 1395h(c)) is
amended by adding at the end the following:
114
‘‘(4)(A) Except as provided in laws with general
applicability to Federal acquisition and procurement
or in subparagraph (B), the Secretary shall use com-
petitive procedures when entering into contracts
under this section.
‘‘(B)(i) The Secretary may renew a contract
with a fiscal intermediary under this section from
term to term without regard to section 5 of title 41,
United States Code, or any other provision of law
requiring competition, if the fiscal intermediary has
met or exceeded the performance requirements es-
tablished in the current contract.
‘‘(ii) Functions may be transferred among fiscal
intermediaries without regard to any provision of
law requiring competition. However, the Secretary
shall ensure that performance quality is considered
in such transfers.’’.
(2) Section 1842(b) (42 U.S.C. 1395u(b)) is
amended by striking everything before paragraph (2)
and inserting the following:
‘‘(b)(1)(A) Except as provided in laws with general
applicability to Federal acquisition and procurement or in
subparagraph (B), the Secretary shall use competitive pro-
cedures when entering into contracts under this section.
115
‘‘(B)(i) The Secretary may renew a contract with a
carrier under subsection (a) from term to term without
regard to section 5 of title 41, United States Code, or any
other provision of law requiring competition, if the carrier
has met or exceeded the performance requirements estab-
lished in the current contract.
‘‘(ii) Functions may be transferred among carriers
without regard to any provision of law requiring competi-
tion. However, the Secretary shall ensure that perform-
ance quality is considered in such transfers.’’.
(g) WAIVER OF COMPETITIVE REQUIREMENTS FOR
INITIAL CONTRACTS.—
(1) Contracts under section 1816(a) of the So-
cial Security Act (42 U.S.C. 1395h(a)) or 1842(a)
of such Act (42 U.S.C. 1395u(a)) whose periods
begin before or during the one year period that be-
gins on the first day of the fourth calendar month
that begins after the date of enactment of this sec-
tion may be entered into without regard to any pro-
vision of law requiring competition.
(2) The amendments made by subsection (f)
apply to contracts whose periods begin after the end
of the one year period specified in paragraph (1) of
this subsection.
(h) EFFECTIVE DATES.—
116
(1) The amendments made by subsection (c)
apply to contracts whose periods end at, or after, the
end of the sixth calendar month that begins after
the date of enactment of this section.
(2) The amendments made by subsections (a),
(b), (d), and (e) apply to contracts whose periods
begin after the sixth calendar month that begins
after the date of enactment of this section.
SEC. 131. SPECIAL PROVISIONS FOR FUNDING OF ACTIVI-
TIES RELATED TO CERTAIN OVERPAYMENT
RECOVERIES AND PROVIDER ENROLLMENT
AND REVERIFICATION OF ELIGIBILITY.
(a) FUNDING AVAILABLE UNDER THE MEDICARE IN-
TEGRITY PROGRAM (MIP) APPROPRIATION
FOR PRO-
VIDER ENROLLMENT ACTIVITIES PERFORMED BY FISCAL
INTERMEDIARIES
AND CARRIERS.—Section 1817(k)(4)
(42 U.S.C. 1395i(k)(4)) is amended—
(1) in subparagraph (A), by inserting ‘‘and the
activities specified in subparagraph (C)’’ after ‘‘the
Medicare Integrity Program under section 1893’’;
and
(2) by adding at the end the following new sub-
paragraph:
‘‘(C)(i) Of the amounts appropriated under
subparagraph (A), the amounts specified in
117
clause (iii) shall be available to the Secretary
for payment of the costs of the activities de-
scribed in clause (ii) which are performed by
entities with contracts under section 1816 or
1842.
‘‘(ii) For purposes of clause (i), the activi-
ties specified in this paragraph are—
‘‘(I) determinations as to whether
overpayments were made to an individual
or entity furnishing items or services for
which payment may be made under this
title and recovery of any such overpay-
ments; and
‘‘(II) activities related to enrolling
such individuals and entities under the
program under this title, including estab-
lishing billing privileges and records sys-
tems, processing applications, background
investigations, and related activities.
‘‘(iii) For purposes of clause (i), the
amount specified under this clause is the lesser
of the amounts necessary to perform the activi-
ties described in clause (ii) or—
‘‘(I) 
for 
fiscal 
year 
2003,
$14,000,000; and
118
‘‘(II) for fiscal years 2004 and 2005,
the amount for the preceding year, in-
creased by 30 percent of the difference be-
tween the maximum amount specified in
subparagraph (B) for such year and the
maximum amount so specified for the pre-
ceding year.
‘‘(iv) Amounts available under this sub-
paragraph for the activities described in clause
(ii) shall be in addition to any amounts that
may otherwise be available to carry out such ac-
tivities.’’.
(b) ADDITIONAL FUNCTIONS TO BE PERFORMED BY
MIP CONTRACTORS.—
(1) REVERIFICATION
OF
ELIGIBILITY
FUNC-
TION.—Section 1893(b) (42 U.S.C. 1395ddd(b)) is
amended by adding at the end the following new
paragraph:
‘‘(6) activities related to reverifying the eligi-
bility of individuals and entities described in para-
graph (1) to participate under the program under
this title, and related activities.’’.
(2) PROVIDER
ENROLLMENT
AND
OVERPAY-
MENT RECOVERY FUNCTIONS ADDED AS MIP CON-
TRACTOR
FUNCTIONS
AFTER
PHASE-IN
PERIOD.—
119
Section 1893(b) (42 U.S.C. 1395ddd(b)) is amended
by adding at the end the following new paragraphs:
‘‘(7) Activities related to enrolling individuals
and entities described in paragraph (1) under the
program under this title, including establishing bill-
ing privileges and records systems, processing appli-
cations, background investigations, and related ac-
tivities.
‘‘(8) Determinations with respect to overpay-
ments made under this title that are discovered pur-
suant to the performance of an activity described in
paragraph (1) or (2), and recovery of any such over-
payments.’’.
(3) EFFECTIVE DATES.—The amendment made
by paragraph (1) shall be effective on and after Oc-
tober 1, 2002. The amendment made by paragraph
(2) shall be effective on and after October 1, 2005.
SEC. 132. ESTABLISHMENT OF MEDICARE ADMINISTRATIVE
FEE FOR SUBMISSION OF PAPER CLAIMS.
(a) IMPOSITION
OF
FEE.—Notwithstanding any
other provision of law, the Secretary of Health and
Human Services shall establish (in the form of a separate
fee or reduction of payment otherwise made under the
medicare program under title XVIII of the Social Security
Act) an administrative fee of $1 for the submission of a
120
claim in a paper or non-electronic form for items or serv-
ices for which payment is sought under such title.
(b) EXCEPTION AUTHORITY.—The Secretary—
(1) shall waive the imposition of a fee under
subsection (a) in cases in which there is no method
available for the submission of claims other than in
a written form; and
(2) may waive the imposition of such a fee in
such unusual cases as the Secretary finds appro-
priate.
(c) EFFECTIVE DATE.—Subsection (a) applies to
claims submitted on or after January 1, 2005.
(d) The Secretary shall make available at no charge,
public domain software to facilitate the filing of electronic
forms and claims under title XVIII and XIX of the Social
Security Act.
Subtitle D—Long-Term Hospital
Provisions
SEC. 141. FINDINGS AND PURPOSES OF SUBTITLE.
(a) FINDINGS.—Congress finds the following:
(1) The use of inpatient hospital services has
been declining, and is likely to continue to decline,
with the advent of new pharmaceuticals, tech-
nologies, and outpatient services.
121
(2) In many areas hospitals are often half occu-
pied.
(3) The quality of care among hospitals may
vary significantly, with evidence that complicated
and difficult procedures carried out in a hospital
that does not perform a large volume of such proce-
dures may create problems with outcomes.
(4) Regions and communities expect a full
range of quality medical services in an area so as to
ensure that hospitalized individuals are near family
and friends—a goal which may compound the qual-
ity outcomes problem described in paragraph (3).
(5) Hospitals have been, and increasingly will
be, faced, with cost control pressures from public
and private programs.
(6) Hospital emergency rooms furnish essential
life-saving services and must be available in all
areas. But they frequently provide uncompensated
care, which increases financial pressure on hospitals.
(7) There are approximately 3 million rural
residents living more than 30 minutes from the
nearest emergency room, and it is increasingly clear
that the nation needs a coordinated emergency room
(ER) policy.
122
(8) There is a need for a major increase in
medical information technology investment so as to
improve quality, reduce paperwork, and ensure the
best patterns of practice.
(b) PURPOSE.—It is the purpose of this subtitle to
use medicare to encourage the development of a national
hospital policy that delivers more efficient and better qual-
ity care, ensures access to emergency room services to all
citizens in a timely manner, and provides necessary re-
gional quality hospital services.
SEC. 142. REDUCTIONS IN MEDICARE CAPITAL PAYMENTS
IN CASE OF EXCESS BED SUPPLY IN HOS-
PITALS WITHOUT A PLAN OF ADJUSTMENT.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, the Secretary of Health and Human Services
may, for cost reporting periods and discharges occurring
on or after October 1, 2005, reduce by 25 percent medi-
care capital payments for a hospital located in a hospital
catchment area if—
(1) the hospital bed ratio for the area for that
type of hospital is higher than the national average
hospital bed ratio for that type of hospital; and
(2) the average hospital occupancy rate for the
hospital is below the average hospital occupancy rate
for that type of hospital.
123
(b) LIMITATION ON AMOUNT OF REDUCTION.—The
reduction in payment under subsection (a) may not exceed
25 percent of the amount of the medicare capital pay-
ments.
(c) EXCEPTIONS.—The Secretary shall not make a
reduction under subsection (a) insofar as the Secretary de-
termines that such reduction would be inappropriate as—
(1) it would adversely effect an ongoing plan for
the hospital to reduce the number of acute care in-
patient hospital beds, whether directly or through
closure or merger with another hospital and such
plan has been developed through public hearings,
with community input, and has a schedule for imple-
mentation;
(2) additional capacity will be required to meet
the needs of an underserved population, such as a
growing suburban area and the governor of the
State attests to such requirement; or
(3) the hospital has been certified as a critical
access hospital under section 1820(e) of the Social
Security Act (42 U.S.C. 1395i–4(e)) and is part of
a State rural health care plan.
(d) DEFINITIONS.—For purposes of this section:
(1) PPS HOSPITAL; PPS-EXEMPT HOSPITAL.—
The term ‘‘PPS hospital’’ has the meaning given the
124
term 
‘‘subsection 
(d) 
hospital’’ 
in 
section
1886(d)(1)(B) of the Social Security Act (42 U.S.C.
1395ww(d)(1)(B)), and the term ‘‘PPS-exempt hos-
pital’’ means a hospital other than a PPS hospital.
(2) TYPE OF HOSPITAL.—The term ‘‘type of
hospital’’ means PPS hospitals and each type of hos-
pital described in a clause of section 1886(d)(1)(B)
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1395ww(d)(1)(B)).
(3) HOSPITAL
CATCHMENT
AREA.—The term
‘‘hospital catchment area’’ means a standard metro-
politan statistical area or such area as the Secretary
determines appropriate.
(4) HOSPITAL BED RATIO.—
(A) IN GENERAL.—The term ‘‘hospital bed
ratio’’ means, for an area and a type of hospital
and as determined by the Secretary, the ratio
of—
(i) the number of licensed inpatient
hospital beds for that type of hospital in
the area, to
(ii) the population of the area.
(B) CASE MIX ADJUSTMENT AUTHORITY.—
In determining a hospital bed ratio, the Sec-
retary may provide for such adjustment as may
125
be appropriate to take into account differences
in the case mix of the population served by the
hospital.
(5) HOSPITAL
OCCUPANCY
RATE.—The term
‘‘hospital occupancy rate’’ means, for a hospital and
period and as determined by the Secretary, the aver-
age number of inpatient beds in the hospital which
are occupied on any day in that period, divided by
the average total number of licensed inpatient beds
in the hospital on any day in that period.
(6) MEDICARE CAPITAL PAYMENTS.—The term
‘‘medicare capital payments’’ means payments to a
hospital under section 1886 of the Social Security
Act (42 U.S.C. 1395ww) for capital-related costs,
and includes payments under section 1886(g) of
such Act, but does not include payments for a re-
turn on equity capital.
(7) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
SEC. 143. SPECIAL PAYMENTS TO ESSENTIAL HOSPITALS
AND DEVELOPMENT OF ECONOMIC RECOV-
ERY PLAN.
(a) IN
GENERAL.—Section 1886(g) (42 U.S.C.
1395ww(g)) is amended by adding at the end the fol-
lowing:
126
‘‘(5)(A) Effective beginning October 1, 2003, in the
case of a deemed hospital (as defined in subparagraph
(B)), the Secretary shall increase all payments for all serv-
ices provided under this title by such deemed hospital (in-
cluding in-patient, out-patient, skilled nursing facility,
home health agency, hospice, and end-stage renal disease,
and other covered services provided by such deemed hos-
pital) by 10 percent for a period of 5 fiscal years, subject
to the conditions under paragraph (6).
‘‘(B) For purposes of this paragraph and paragraphs
(6) and (7), a ‘deemed hospital’ is a hospital in a hospital
referral region—
‘‘(i) that is defined by the The Center for the
Evaluative Clinical Sciences, Dartmouth Medical
School (popularly known as the ‘Dartmouth Atlas of
Health Care’), and as may be updated by such Cen-
ter, except that the Secretary may by regulation pro-
vide for criteria to adjust the hospitals to be in-
cluded or excluded from such a hospital referral re-
gion;
‘‘(ii) that has 75 percent of the hospitals in the
region, for the last completed cost report period,
having had negative medicare operating margins and
negative total operating margins; and
127
‘‘(iii) that has a medicare-eligible beneficiary
patient discharge percentage for hospitals in the re-
gion exceeding 40 percent;
but only if the hospital had agreed to participate in the
development of a cooperative economic recovery plan de-
scribed in paragraph (6).
Such hospitals in a referral region shall be deemed to be
essential hospitals necessary for the delivery of health care
to all medicare and other residents of the region.
‘‘(6)(A) Within one year of receiving deemed status
and higher medicare payments under paragraph (5), each
hospital in the referral region, either individually or (not-
withstanding any other provision of law) cooperatively,
shall submit an economic recovery plan to the Secretary
for long-range (post-deemed status) financial viability
after the end of increased payments under paragraph (5).
The Secretary shall offer assistance in the development
of such plan or plans.
‘‘(B) Such plan may include capital payments and op-
erating payments to—
‘‘(i) right-size capacity;
‘‘(ii) coordinate and share high cost services;
‘‘(iii) ensure a viable regional emergency room
network and access;
128
‘‘(iv) convert unused acute care beds to skilled
nursing facility, intermediate care facility, or as-
sisted living facility support facilities;
‘‘(v) assist in the conversion of unused acute
care beds to psychiatric, long-term care, or rehabili-
tation care hospital services as are determined to be
in short supply;
‘‘(vi) finance the development and implementa-
tion of medical information technology systems that
are compatible within the region and the nation and
which improve quality of care and reduce paperwork
cost and burdens; and
‘‘(vii) such other adjustments to the current
acute care hospital facility as shall ensure the long-
term economic viability of the facility and the con-
tinuation of essential health care services to the
community.
‘‘(C) The Secretary shall review such economic recov-
ery plans, provide assistance in the improvement and
modification of such plans, and within one year of receipt
of a plan which the Secretary determines has a reasonable
opportunity of ensuring the long term viability of the facil-
ity or facilities, the Secretary shall further increase the
Medicare payment increases described in paragraph (5) by
such additional amount as to ensure the successful com-
129
pletion of the economic recovery plan or plans under this
paragraph.
‘‘(7) Notwithstanding any other provision of law, the
additional payments made to deemed hospitals under
paragraphs (5) and (6) shall not result in payment reduc-
tions to any non-deemed hospital or provider under this
title.’’.
SEC. 144. UNIFORM HOSPITAL COST REPORTING.
Each hospital, as a requirement under a participation
agreement under section 1866(a) of the Social Security
Act (42 U.S.C. 1395cc(a)) for each cost reporting period
beginning during or after fiscal year 2003, shall provide
for the reporting of cost information to the Secretary of
Health and Human Services with respect to any hospital
care provided in a uniform manner consistent with stand-
ards established by the Secretary to carry out section
4007(c) of the Omnibus Budget Reconciliation Act of
1987 and in an electronic form consistent with standards
established by the Secretary.
SEC. 145. MEDICARE PAYMENTS FOR INPATIENT HOSPITAL
SERVICES INVOLVING EMERGENCY CARE; NA-
TIONAL CONFERENCE ON EMERGENCY CARE.
(a) MEDPAC REPORT ON DRG WEIGHTING FAC-
TORS.—The Medicare Payment Advisory Commission
shall submit a report to Congress and the Secretary of
130
Health and Human Services, by January 1, 2003, on
whether the DRG weighting factors under section
1886(d)(4)(B) of the Social Security Act for diagnosis-re-
lated groups associated with emergency care are adequate
to cover the costs of emergency room use within discharges
classified within such groups.
(b) ADJUSTMENT OF WEIGHTING FACTORS.—Taking
into account the report submitted under subsection (a),
the Secretary of Health and Human Services shall make
appropriate adjustments in the DRG weighting factors de-
scribed in subsection (a) for discharges occurring on or
after January 1, 2004, as may be appropriate to ensure
that hospital emergency room costs attributable to medi-
care patients are appropriately covered.
(c) NATIONAL CONFERENCE ON ER POLICY.—Not
later than 1 year after the date of the enactment of this
Act, the Secretary of Health and Human Services shall
convene a National Conference on the State of Emergency
Room Care and Access in the United States. Such con-
ference shall explore the current state of emergency room
care, future trends, and make recommendations on wheth-
er a national emergency room policy should be developed
to ensure timely access to emergency rooms for all resi-
dents of the United States. The conference shall be open
to the public and the Secretary shall appoint up to 30
131
members of the public, the provider community, and other
stakeholders to participate in the development of the con-
ference report and shall designate one to serve as chair-
man.
TITLE II—MODERNIZING
MEDICARE BENEFITS
Subtitle A—Prescription Drug
Benefit
SEC. 201. OPTIONAL MEDICARE OUTPATIENT PRESCRIP-
TION MEDICINE PROGRAM UNDER TITLE
XVIII.
(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—PRESCRIPTION MEDICINE BENEFIT FOR THE
AGED AND DISABLED
‘‘ELIGIBILITY; OPTIONAL ENROLLMENT; COVERAGE
‘‘SEC. 1859. (a) ELIGIBILITY.—Each individual who
is enrolled under this part is eligible to enroll in accord-
ance with this section for outpatient prescription medicine
benefits under this part.
‘‘(b) OPTIONAL ENROLLMENT.—
132
‘‘(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, 2003, the
initial general enrollment period shall begin on
August 1, 2003, and shall end on March 1,
2004.
‘‘(B) INDIVIDUAL COVERED IN FUTURE.—
In the case of an individual who first satisfies
subsection (a) on or after November 1, 2003,
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).—
133
‘‘(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 by reason of the individ-
ual’s (or the individual’s spouse’s) current
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.
‘‘(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
134
by reason of the individual’s (or the indi-
vidual’s spouse’s) current employee; 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 that are at least equiva-
lent to (or greater than) the benefits made
available under this part, if such enrollment is
terminated because of the termination of the
plan, there shall be a special enrollment period
of 6 months beginning with the first month that
includes the date that such plan is terminated
and ending 6 months later.
135
‘‘(D) LOSS
OF
MEDICAID
PRESCRIPTION
MEDICINE COVERAGE.—In the case of an indi-
vidual who—
‘‘(i) satisfies subsection (a);
‘‘(ii) loses eligibility for prescription
medicine benefits under a State plan after
having been enrolled (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 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 1859B(a)(2).
‘‘(5) INFORMATION.—
136
‘‘(A) IN
GENERAL.—The Secretary shall
broadly distribute information to eligible bene-
ficiaries on the benefits provided under this
part. The Secretary shall periodically 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
137
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, 2004. 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).
‘‘BENEFITS
‘‘SEC. 1859A. (a) IN GENERAL.—Subject to the suc-
ceeding provisions of this section, the benefits provided to
an enrollee by the program under this part shall consist
of entitlement to have payment made on the individual’s
behalf for covered outpatient prescription medicines.
‘‘(b) COVERED OUTPATIENT MEDICINE DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), for purposes of this part the term ‘cov-
ered outpatient 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
138
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,
139
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
140
subparagraph (A) or (B) but that is available
over-the-counter in addition to being available
upon prescription.
‘‘(E) Smoking cessation agents (as speci-
fied by the Secretary)
‘‘(2) EXCLUSION.—The term ‘covered out-
patient medicine’ does not include any product—
‘‘(A) except as provided in paragraphs
(1)(D) and (1)(E), which may be distributed to
individuals without a prescription;
‘‘(B) when furnished as part of, or as inci-
dent to, a diagnostic service or any other item
or service for which payment may be made
under this title;
‘‘(C) that was covered under this title on
the day before the date of the enactment of the
Medicare Modernization and Solvency Act of
2001; or
‘‘(D) that is a therapeutically equivalent
replacement for a product described in subpara-
graph (B) or (C), as determined by the Sec-
retary.
‘‘(c) PAYMENT OF BENEFITS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2)
and (3), there shall be paid from the Federal Medi-
141
care Prescription Medicine Trust Fund, in the case
of each enrollee who incurs expenses for medicines
with respect to which benefits are payable under this
part, amounts equal to the price for which the medi-
cine is made available under this part (consistent
with subsection (d) and including a reasonable dis-
pensing fee). In no case shall the reimbursement for
a prescribed nonformulary medicine without a re-
strictive prescription be more than the lowest reim-
bursement for a formulary medicine in the thera-
peutic class of the prescribed medicine.
‘‘(2) COST-SHARING.—
‘‘(A) DEDUCTIBLE.—The amount of pay-
ment under paragraph (1) for expenses in-
curred in a year, beginning with 2004, shall be
reduced by an annual deductible equal to $250.
‘‘(B) APPLICATION OF LIMITED COINSUR-
ANCE.—The amount of payment under para-
graph (1) for expenses incurred in a year shall
be reduced (subject to the stop-loss limit under
subparagraph (C)) by coinsurance equal to 20
percent of the price or other amount described
in paragraph (1) (except as the Secretary may
otherwise provide under section 1859D(c)).
142
‘‘(C) REDUCTION
IN
COINSURANCE
FOR
COSTS EXCEEDING AN AMOUNT.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), once an enrollee has incurred aggre-
gate cost-sharing under subparagraph (B)
(including cost-sharing under part B at-
tributable to outpatient prescription drugs
or biologicals) equal to $2,000 for expenses
in a year, the coinsurance under subpara-
graph (B) shall be reduced from 20 per-
cent to 5 percent.
‘‘(ii) CONTINUED APPLICATION OF CO-
INSURANCE FOR CERTAIN UNNECESSARILY
EXPENSIVE DRUGS.—The reduction in co-
insurance under clause (i) shall not apply
to a prescribed formulary medicine without
a restricted prescription that is more ex-
pensive than the lowest cost medicine in
the same therapeutic class.
‘‘(D) INFLATION ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any
year beginning after 2004, each of the dol-
lar amounts in subparagraphs (A) and (C)
shall be increased by an amount equal to—
143
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the percentage change esti-
mated by the Secretary for the period
beginning with 2004 and ending with
the year involved as provided under
section 1859F.
‘‘(ii) 
ROUNDING.—If 
any 
dollar
amount after being increased under clause
(i) is not a multiple of $10, such dollar
amount shall be rounded to the nearest
multiple of $10.
‘‘(3) APPLICATION OF CATASTROPHIC LIMIT TO
PART B COST-SHARING FOR OTHER DRUGS.—In ad-
dition to payments under paragraph (1), there shall
be paid from the Federal Medicare Prescription
Medicine Trust Fund, in the case of each enrollee
who incurs out-of-pocket expenses for outpatient
prescription medicines with respect to which benefits
are payable under part B, amounts equivalent to the
amount of the reduction in cost-sharing that would
have been made under subparagraph (B) of para-
graph (2) if the payment had been made for the
drug under this part rather than under part B.
144
‘‘(4) APPLICATION OF PRICING SYSTEM UNDER
PART B.—For purposes of making payment under
part B for medicines that would be covered out-
patient medicines but for the exclusion under sub-
paragraph (B) or (C) of subsection (b)(2), the Sec-
retary may elect to apply the payment basis used for
payment of covered outpatient medicines under this
part instead of the payment basis otherwise used
under such part, if it results in a lower cost to the
program.
‘‘(d) AVAILABILITY OF PRESCRIPTION MEDICINES AT
REASONABLE PRICES.—In order to establish reasonable
prices for covered prescription medicines under this part,
the Secretary may use a competitive bidding system, con-
tract with appropriate fiscal intermediaries or carriers (in
this section referred to as ‘contractors’), or use such other
private sector practices (including negotiations with medi-
cine manufacturers, wholesalers, and pharmacies) as may
be appropriate to assure adequate reimbursement in order
to have the participation of sufficient numbers of phar-
macies to ensure convenient access (including adequate
emergency access) to covered prescription medicines. The
prices established under this subsection shall not be sub-
ject to administrative or judicial review.
145
‘‘(e) AGREEMENTS
WITH
ANY
WILLING
PHAR-
MACY.—
‘‘(1) IN
GENERAL.—The Secretary (and any
contractor) shall enter into a participation agree-
ment with any willing pharmacy that meets the re-
quirements of this subsection and section 1859D to
furnish covered prescription medicines to individuals
enrolled under this part.
‘‘(2) TERMS OF AGREEMENT.—An agreement
under this subsection shall include the following
terms and conditions:
‘‘(A) LICENSING.—The pharmacy shall
meet (and throughout the contract period con-
tinue to meet) all applicable State and local li-
censing requirements.
‘‘(B) ACCESS AND QUALITY STANDARDS.—
The pharmacy shall comply with such standards
as the Secretary (and such a contractor) shall
establish concerning the quality of, and enrolled
individuals’ access to, pharmacy services under
this part.
‘‘(C) 
ADHERENCE
TO
ESTABLISHED
PRICES.—The total charge for each medicine
dispensed by the pharmacy to an enrolled indi-
vidual under this part, without regard to wheth-
146
er the individual is financially responsible for
any or all of such charge, shall not exceed the
price established under subsection (d) with re-
spect to such medicine plus a reasonable dis-
pensing fee determined contractually with the
Secretary (or contractor).
‘‘PREMIUMS
‘‘SEC. 1859B. (a) AMOUNT OF PREMIUM.—
(1) IN
GENERAL.—The provisions of sub-
sections (a)(1), (a)(2), (a)(3), (c), and (f) of section
1839 shall apply under this part to all enrollees in
the same manner as they apply under part B to in-
dividuals 65 years of age or older enrolled under
such part.
‘‘(2) LATE ENROLLMENT PENALTY.—
‘‘(A) IN GENERAL.—In the case of a late
enrollment described in section 1859A(b)(4),
subject to the succeeding provisions of this
paragraph, the Secretary shall establish proce-
dures for increasing the amount of the monthly
premium under this section applicable to such
enrollee—
‘‘(i) by an amount that is equal to 10
percent of such premium for each full 12-
month period (in the same continuous pe-
riod of eligibility) in which the enrollee
147
could have been enrolled under this part
but was not so enrolled; or
‘‘(ii) if determined appropriate by the
Secretary, by an amount that the Sec-
retary determines 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—
‘‘(i) the months which elapsed be-
tween the close of the enrollee’s initial en-
rollment period and the close of the enroll-
ment period in which the enrollee enrolled;
and
‘‘(ii) in the case of an enrollee who re-
enrolls under this part, the months which
elapsed between the date of termination of
a previous coverage period and the close of
the enrollment period in which the enrollee
reenrolled.
‘‘(C) PERIODS
NOT
TAKEN
INTO
AC-
COUNT.—
‘‘(i) IN
GENERAL.—For purposes of
calculating any 12-month period under
148
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 drugs
whose actuarial value (as defined by the
Secretary) to the enrollee equals or exceeds
the actuarial value of the benefits provided
to an individual enrolled in the outpatient
prescription drug 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, ceases to provide, or reduces
the value of the prescription drug coverage
under such plan to below the value of the
coverage provided under the program
under this part.
‘‘(D) PERIODS
TREATED
SEPARATELY.—
Any increase in an enrollee’s monthly premium
149
under subparagraph (A) with respect to a par-
ticular continuous period of eligibility shall not
be applicable with respect to any other contin-
uous period of eligibility which the enrollee may
have.
‘‘(E) CONTINUOUS
PERIOD
OF
ELIGI-
BILITY.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), for purposes of this paragraph, an en-
rollee’s ‘continuous period of eligibility’ is
the period that begins with the first day on
which the enrollee is eligible to enroll
under section 1859A and ends with the en-
rollee’s death.
‘‘(ii) SEPARATE PERIOD.—Any period
during all of which an enrollee satisfied
section 1859A(a) and which terminated in
or before the month preceding the month
in which the beneficiary attained age 65
shall be a separate ‘continuous period of
eligibility’ with respect to the enrollee (and
each such period which terminates shall be
deemed not to have existed for purposes of
subsequently applying this paragraph).
150
‘‘(b) PAYMENT OF PREMIUM.—The provisions of sec-
tion 1840 shall apply to enrollees in the same manner as
they apply to individuals enrolled under part B.
‘‘(c) GOVERNMENT CONTRIBUTION.—The provisions
of section 1844(a)(1) shall apply to enrollees under this
part in the same manner as they apply under part B to
individuals 65 years of age or older enrolled under part
B.
‘‘(d) REFERENCES.—For purposes of this section,
any reference in a section referred to in a previous sub-
section to the Federal Supplementary Medical Insurance
Trust Fund is deemed a reference to the Federal Medicare
Prescription Medicine Trust Fund.
‘‘FEDERAL MEDICARE PRESCRIPTION MEDICINE TRUST
FUND
‘‘SEC. 1859C. (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, including all manufacturer rebates as provided under
section 1859F(b).
151
‘‘(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.
‘‘ADMINISTRATION; QUALITY ASSURANCE
‘‘SEC. 1859D. (a) IN GENERAL.—The Secretary is
responsible for the administration of this part and may
enter into contracts with appropriate contractors (includ-
ing State and local governments and agencies of such gov-
ernments) on a national or regional basis to administer
the program under this part in a manner similar to the
administration under part B. The Secretary shall provide
for only one contractor for each region, but may allow
multiple specialty contractors in a region (such as a State
or unit of local government serving a low-income popu-
lation in an area) and may, in the case of multiple contrac-
tors in a region, require them to coordinate coverage and
services in that region. Such contracts shall have such
terms and conditions as the Secretary shall specify and
shall be for such terms (not to exceed 5 years) as the Sec-
retary shall specify consistent with this part.
‘‘(b) QUALITY
AND FINANCIAL STANDARDS
AND
PROGRAMS.—In consultation with appropriate contractors
with expertise in prescribing, dispensing, and the appro-
152
priate use of prescription medicines, the Secretary shall
establish standards and programs for the administration
of this part to ensure appropriate prescribing, dispensing,
and utilization of outpatient medicines under this part, to
avoid adverse medicine reactions, and to continually re-
duce errors in the delivery of medically appropriate cov-
ered benefits. Such standards and programs shall be ap-
plied to any administrative agreements described in sub-
section (a) the Secretary enters into. Such standards and
programs shall include the following:
‘‘(1) ON-LINE REVIEW.—A requirement 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 ther-
apy.
‘‘(2) ENROLLEE GUIDELINES.—Consistent with
State law, application of guidelines for counseling
enrollees regarding—
‘‘(A) the proper use of prescribed covered
outpatient medicines; and
‘‘(B) interactions and contra-indications.
‘‘(3) EDUCATION.—Application of methods to
identify and educate providers, pharmacists, and en-
rollees regarding—
153
‘‘(A) instances or patterns concerning the
unnecessary or inappropriate prescribing or dis-
pensing of covered outpatient medicines;
‘‘(B) instances or patterns of substandard
care;
‘‘(C) potential adverse reactions to covered
outpatient medicines;
‘‘(D) inappropriate use of antibiotics;
‘‘(E) appropriate use of generic products;
and
‘‘(F) the importance of using covered out-
patient medicines in accordance with the in-
struction of prescribing providers.
‘‘(4) COORDINATION.—Coordination with State
prescription drug programs, contractors, pharmacies,
and other relevant entities as necessary to ensure
appropriate coordination of benefits with respect to
enrolled individuals, including coordination of access
to and payment for covered prescription medicines
according to an individual’s in-service area plan pro-
visions, when such individual is traveling outside the
home service area, and under such other cir-
cumstances as the Secretary may specify.
‘‘(5) COST DATA.—
154
‘‘(A) Requiring contracted private carriers
administering a prescription medicine plan to
make prescription medicine cost data available
to the Secretary.
‘‘(B) With respect to section 1859A(d)(1),
requiring private contractors—
‘‘(i) to maintain its prescription medi-
cine cost data and certify the prescription
medicine cost data is current, accurate,
and complete, and reflects all discounts
that would affect the level of payments
from the Federal Medicare Prescription
Drug Trust Fund to the carrier,
‘‘(ii) to make such prescription medi-
cine cost data available for review and
audit by the Secretary, and
‘‘(iii) to certify that the carrier has
met the requirements of subsection (c).
‘‘(C) Requiring that all private administra-
tive contractors require participating phar-
macists, physicians, and manufacturers—
‘‘(i) to maintain their prescription
medicine cost data,
155
‘‘(ii) to make such prescription medi-
cine cost data available for review and
audit by the Secretary, and
‘‘(iii) to certify that the prescription
medicine cost data is current, accurate,
and complete, and reflects all discounts ob-
tained by the pharmacist or physician in
the purchasing of covered outpatient medi-
cines that were provided to the individual
enrolled under the prescription medicine
plan.
‘‘(D) The Secretary, either directly or
through a contractor, shall define, compile, and
make public on the Internet in an easily com-
parable form, the average manufacturer price of
all medicines covered under this title.
‘‘(E) Discounts referred to in subpara-
graphs (B) and (C) shall include all volume dis-
counts, manufacturer rebates, prompt payment
discounts, free goods, in-kind services, or any
other thing of financial value provided explicitly
or implicitly in exchange for the purchase of a
covered prescription medicine.
‘‘(6) PROCEDURES
TO
COMPENSATE
PHAR-
MACISTS
FOR
COUNSELING.—The Secretary shall
157
‘‘(iv) therapeutic interchange.
‘‘(B) CONSTRUCTION.—Nothing in this
subsection shall be construed to prevent the
Secretary (directly or through contracts) from
using incentives (including a lower or higher
beneficiary coinsurance) to encourage enrollees
to select generic or other cost-effective medi-
cines, 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 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
158
formulary medicine in the therapeutic class
of the prescribed medicine.
‘‘(C) 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 and a brief expla-
nation of why a restrictive prescription is
necessary. Such explanation may cite lit-
erature, approved by the Food and Drug
Administration, that references adverse re-
actions of the formulary drug.
‘‘(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
159
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 and a brief expla-
nation of why a restrictive prescription is
necessary. Such explanation may cite lit-
erature, approved by the Food and Drug
Administration, that references adverse re-
actions of the formulary drug. Such writ-
ten confirmation is required to refill the
prescription.
‘‘(iii) REVIEW OF RESTRICTIVE PRE-
SCRIPTIONS.—The advisory committee (es-
tablished under paragraph (2)(A)) may de-
cide to review a restrictive prescription
and, if so, it may approve or disapprove
such restrictive prescription and, if it dis-
160
approves, upon request of the prescribing
physician or the enrollee, must provide for
a review by an independent contractor of
such decision within 48 hours of the time
of submission of the prescription, to deter-
mine whether the prescription is an eligible
benefit under this part. The Secretary
shall ensure that independent contractors
so used are completely independent of the
contractor or its advisory committee.
‘‘(2) 
REQUIREMENTS
WITH
RESPECT
TO
FORMULARIES.—If the Secretary uses or permits the
use of a formulary by a contractor to contain costs
under this part, the Secretary or contractor shall—
‘‘(A) use an advisory committee (or a
therapeutics committee) comprised of licensed
practicing physicians, pharmacists, and other
health care practitioners to develop the for-
mulary, except that no person (or immediate
family member) who has a conflict of interest
with any pharmaceutical manufacturer (such as
any financial tie to a manufacturer of a covered
drug) shall serve on the advisory committee;
161
‘‘(B) include in the formulary at least 1
medicine from each therapeutic class and, if
available, a generic equivalent thereof; and
‘‘(C) disclose to current and prospective
enrollees and to participating providers and
pharmacies in the service area the nature of the
formulary restrictions, including information re-
garding the medicines included in the formulary
and any difference in cost-sharing amounts.
‘‘(3) CONSTRUCTION.—Nothing in this sub-
section shall preclude the Secretary (or an admin-
istering entity under a contract with the Secretary)
from—
‘‘(A) educating prescribing providers, phar-
macists, and enrollees about medical and cost
benefits of formulary products;
‘‘(B) requesting prescribing providers to
consider a formulary product prior to dis-
pensing of a nonformulary medicine, as long as
such request does not unduly delay the provi-
sion of the medicine;
‘‘(C) requiring pharmacists (or contrac-
tors) to substitute a generic medicine equivalent
for a prescribed medicine, except when the pre-
scribed medicine has a restrictive prescription;
162
‘‘(D) using mechanisms to encourage eligi-
ble beneficiaries to select cost-effective medi-
cines or less costly means of receiving or admin-
istering medicines, including the use of thera-
peutic interchange programs, disease manage-
ment 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;
‘‘(E) using a competitive bidding system
for each therapeutic medicine class in order to
include only the most cost-effective medicines
on the formulary;
‘‘(F) comparing medicine prices of OECD
countries in an effort to include the most cost-
effective medicines on the formulary and, in
compliance with laws governing the importation
and re-importation of pharmaceuticals, obtain-
ing pharmaceuticals from the lowest cost source
that is approved for safety by the Food and
Drug Administration; and
‘‘(G) establishing performance standards,
or monetary bonuses or penalties, or both, if
the specified performance standards are not
163
met, including the time taken to answer mem-
ber and pharmacy inquiries (written or by tele-
phone), the accuracy of responses, claims proc-
essing accuracy, online system availability, ap-
peal procedure turnaround time, system avail-
ability, and the accuracy and timeliness of re-
ports.
To encourage responsiveness to beneficiary concerns,
penalties or incentive bonuses, or both, may be used
based on the level of beneficiary satisfaction with
their services, as measured by beneficiary satisfac-
tion surveys and interviews.
‘‘(4) INCENTIVES FOR COST AND UTILIZATION
MANAGEMENT AND QUALITY IMPROVEMENT.—
‘‘(A) IN
GENERAL.—The Secretary shall
include in a contract awarded under subsection
(b) with a contractor such incentives for cost
and utilization management and quality im-
provement as the Secretary may deem appro-
priate.
‘‘(B) RISK CORRIDORS TIED TO PERFORM-
ANCE
MEASURES
AND
OTHER
INCENTIVES.—
The incentives under subparagraph (A) shall in-
clude a risk corridor under which—
164
‘‘(i) there is a 50 percent sharing of
all savings (as determined based on the
difference between the contract bid per
beneficiary and the costs per beneficiary)
greater than 5 percent; and
‘‘(ii) a 50 percent sharing of all losses
(as so determined) greater than 105 per-
cent of the contract bid per beneficiary.
‘‘(C) OTHER
INCENTIVES.—Such incen-
tives may also include—
‘‘(i) financial incentives under which
savings derived from the substitution of
generic medicines in lieu of nongeneric
medicines are made available to carriers,
pharmacies, beneficiaries, and the Federal
Medicare 
Prescription 
Medicine 
Trust
Fund; and
‘‘(ii) any other incentive that the Sec-
retary deems appropriate and likely to be
effective in managing costs or utilization.
‘‘(D) ADJUSTMENT BASED ON ACTUARIAL
RISK.—To the extent that incentives under this
paragraph are established, the Secretary may
include a methodology for adjusting the pay-
ments made based on differences in the actu-
165
arial risk of different enrollees being served if
the Secretary determines such adjustments to
be necessary and appropriate.
‘‘(d) CONFIDENTIALITY.—The Secretary shall ensure
that the confidentiality of individually identifiable health
information used under this part is protected, consistent
with the Secretary’s guidelines of September 11, 1997, the
Privacy Rule published in the Federal Register on Decem-
ber 28, 2000, 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 drug program so long
as such program has in place confidentiality standards
that are equal to or exceed the standards used by the Sec-
retary.
‘‘(e) PROCEDURES REGARDING DENIALS OF CARE.—
The Secretary shall establish guidelines for—
‘‘(1) the timely review and resolution of denials
of care and grievances (including those regarding
the use of formularies under subsection (c)) by en-
rollees, or providers, pharmacists, and other individ-
uals acting on behalf of such individual (with the in-
dividual’s consent) in accordance with requirements
(as established by the Secretary) that are com-
166
parable to such requirements for Medicare+Choice
organizations under part C, including expedited ap-
peals; and
‘‘(2) providing enrollees with information re-
garding such grievances and appeals procedures at
the time of enrollment under this part and annually
thereafter.
‘‘(f) 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. Such
safeguards, at a minimum, should include compliance pro-
grams, certification data, and recordkeeping practices. In
developing such regulations, the Secretary shall consult
with the Attorney General and other law enforcement and
regulatory agencies.
‘‘(g) GUARANTEED ACCESS TO MEDICINES IN RURAL
AND HARD-TO-SERVE AREAS.—The Secretary shall en-
sure that all beneficiaries have guaranteed access to the
full range of pharmaceuticals under this part, and shall
give special attention to access, pharmacist counseling,
and delivery in rural and hard-to-serve areas, including
through the use of incentives such as bonus payments to
retail pharmacists in rural areas and extra payments to
167
the benefit administrator for the cost of rapid delivery of
pharmaceuticals and any other actions necessary.
‘‘COMPENSATION FOR EMPLOYERS COVERING RETIREE
MEDICINE COSTS
‘‘SEC. 1859E. (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 the actuarial value of which is not less than the ac-
tuarial 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
1859C and 1859B(c). In applying the previous sentence
with respect to section 1859B(c), the amount of the Gov-
ernment contribution referred to in section 1844(a)(1)(A)
is deemed to be equal to the aggregate amount of the pay-
ments 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.
168
‘‘(2) MAINTENANCE OF CURRENT BENEFITS.—
In the case of a group health plan that is in exist-
ence prior to the date of the enactment of this sec-
tion and that provides medicine coverage to retirees
that is equal to or greater than the medicine cov-
erage provided under this part, the plan shall reim-
burse or otherwise arrange to compensate bene-
ficiaries for the portion of such premium for at least
1 year from the date that the group health plan be-
gins participation under this section.
‘‘(3) MAINTENANCE
OF
CURRENT
BENEFITS
UNDER CERTAIN COLLECTIVE BARGAINING AGREE-
MENTS.—In the case of a group health plan that, on
the date of the enactment of this section, was pro-
viding medicine coverage in excess of that provided
under this part to eligible beneficiaries under a col-
lective bargaining agreement (other than pursuant
to a labor management plan operating under the
Labor-Management Relations Act, 1947 (popularly
known as the Taft-Hartley Act)), the plan shall con-
tinue to provide such excess coverage to such eligible
beneficiaries until the later of 4 years after the date
of the enactment of this section or the expiration of
any contractual obligation to provide such excess
coverage that existed as of such date of enactment.
169
‘‘(4) 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).
‘‘(5) 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
170
the dates (if less than the full quarter) during which
each such individual was covered.
‘‘(6) 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.—The amount of
the payment for a quarter shall approximate, for
each such covered individual, 2⁄3 of the portion of the
premium under subsection (a) of section 1859B that
171
is not payable by the individual under such section
for months in the quarter.
‘‘PROMOTION
OF
PHARMACEUTICAL
RESEARCH
ON
BREAK-THROUGH
MEDICINES
WHILE
PROVIDING
PROGRAM COST CONTAINMENT
‘‘SEC. 1859F. (a) MONITORING EXPENDITURES.—
The Secretary shall monitor expenditures under this part.
On October 1, 2004, the Secretary shall estimate total ex-
penditures under this part for 2004.
‘‘(b) ESTABLISHMENT
OF SUSTAINABLE GROWTH
RATE.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a sustainable growth rate prescription medicine
target system for expenditures under this part for
each year after 2004.
‘‘(2) INITIAL COMPUTATION.—Such target shall
equal the amount of total expenditures estimated for
2004 adjusted by the Secretary’s estimate of a sus-
tainable growth rate (in this section referred to as
an ‘SGR’) percentage between 2004 and 2005. Such
SGR shall be estimated based on the following:
‘‘(A) Reasonable changes in the cost of
production or price of covered pharmaceuticals,
but in no event more than the rate of increase
in the consumer price index for all urban con-
sumers for the period involved.
172
‘‘(B) Population enrolled in this part, both
in numbers and in average age and severity of
chronic and acute illnesses.
‘‘(C) Appropriate changes in utilization of
pharmaceuticals, as determined by the Drug
Review Board (established under subsection
(c)(3)) and based on best estimates of utiliza-
tion change if there were no direct-to-consumer
advertising or promotions to providers.
‘‘(D) Productivity index of manufacturers
and distributors.
‘‘(E) Percentage of products with patent
and market exclusivity protection versus prod-
ucts without patent protection and changes in
the availability of generic substitutes.
‘‘(F) Such other factors as the Secretary
may determine are appropriate.
In no event may the sustainable growth rate exceed
120 percent of the estimated per capita growth in
total spending under this title.
‘‘(3) 
COMPUTATION
FOR
SUBSEQUENT
YEARS.—In October of 2005 and each year there-
after, for purposes of setting the SGRs for the suc-
ceeding year, the Secretary shall adjust each current
year’s estimated expenditures by the estimated SGR
173
for the succeeding year, further adjusted for correc-
tions in earlier estimates and the receipt of addi-
tional data on previous years spending as follows:
‘‘(A) ERROR ESTIMATES.—An adjustment
(up or down) for errors in the estimate of total
expenditures under this part for the previous
year.
‘‘(B) COSTS.—An adjustment (up or
down) for corrections in the cost of production
of prescriptions covered under this part between
the current calendar year and the previous year.
‘‘(C) TARGET.—An adjustment for any
amount (over or under) that expenditures in the
current year under this part are estimated to
differ from the target amount set for the year.
If expenditures in the current year are esti-
mated to be—
‘‘(i) less than the target amount, fu-
ture target amounts will be adjusted down-
ward; or
‘‘(ii) more than the target amount,
the Secretary shall notify all pharma-
ceutical manufacturers with sales of phar-
maceutical prescription medicine products
to medicare beneficiaries under this part,
174
of a rebate requirement (except as pro-
vided in this subparagraph) to be deposited
in the Federal Medicare Prescription Medi-
cine Trust Fund.
‘‘(D) 
REBATE
DETERMINATION.—The
amount of the rebate described in subparagraph
(C)(ii) may vary among manufacturers and
shall be based on the manufacturer’s estimated
contribution to the expenditure above the target
amount, taking into consideration such factors
as—
‘‘(i) above average increases in the
cost of the manufacturer’s product;
‘‘(ii) increases in utilization due to
promotion activities of the manufacturer,
wholesaler, or retailer;
‘‘(iii) launch prices of new drugs at
the same or higher prices as similar drugs
already in the marketplace (so-called ‘me
too’ or ‘copy-cat’ drugs);
‘‘(iv) the role of the manufacturer in
delaying the entry of generic products into
the market; and
‘‘(v) such other actions by the manu-
facturer that the Secretary may determine
175
has contributed to the failure to meet the
SGR target.
The rebates shall be established under such
subparagraph so that the total amount of the
rebates is estimated to ensure that the amount
the target for the current year is estimated to
be exceeded is recovered in lower spending in
the subsequent year; except that, no rebate
shall be made in any manufacturer’s product
which the Food and Drug Administration has
determined is a breakthrough medicine (as de-
termined under subsection (c)) or an orphan
medicine.
‘‘(c) BREAKTHROUGH MEDICINES.—
‘‘(1) DETERMINATION.—For purposes of this
section, a medicine is a ‘breakthrough medicine’ if
the Drug Review Board (established under para-
graph (3)) determines—
‘‘(A) it is a new product that will make a
significant and major improvement by reducing
physical or mental illness, reducing mortality,
or reducing disability; and
‘‘(B) that no other product is available to
beneficiaries that achieves similar results for
the same condition at a lower cost.
176
‘‘(2) CONDITION.—An exemption from rebates
under subsection (b)(3) for a breakthrough medicine
shall continue as long as the medicine is certified as
a breakthrough medicine but shall be limited to 7
calendar years from 2004 or 7 calendar years from
the date of the initial determination under para-
graph (1), whichever is later.
‘‘(3) DRUG REVIEW BOARD.—The Drug Review
Board under this paragraph shall consist of the
Commissioner of Food and Drugs, the Directors of
the National Institutes of Health, the Director of
the National Science Foundation, and 10 experts in
pharmaceuticals, medical research, and clinical care,
selected by the Commissioner of Food and Drugs
from the faculty of academic medical centers, except
that no person who has (or who has an immediate
family member that has) any conflict of interest with
any pharmaceutical manufacturer shall serve on the
Board.
‘‘(d) NO REVIEW.—The Secretary’s determination of
the rebate amounts under this section, and the Drug Re-
view Board’s determination of what is a breakthrough
drug, are not subject to administrative or judicial review.
177
‘‘COORDINATION WITH COMPREHENSIVE STATE
PRESCRIPTION DRUG PROGRAMS
‘‘SEC. 1859G. (a) IN GENERAL.—In the case of a
comprehensive State-funded prescription drug program
(in this section referred to as a ‘State program’) that is
in existence on the date of the enactment of this part, the
State shall have the option of electing to use the program
as a wrap-around program to supplement and coordinate
the benefits with the benefits provided under this part con-
sistent with this section. In the case of a State that makes
such an election, the Secretary shall require pharma-
ceutical benefit managers and other contracting entities
to coordinate with the State program in a manner to en-
sure that the State program supplements (and does not
supplant) the program under this part.
‘‘(b) DEEMING.—The State program may provide
that individuals who are enrolled in the State program and
who are eligible to enroll in the program under this part
but are not enrolled in the program under this part (or
in a Medicare+Choice plan) are deemed enrolled in the
program under this part.
‘‘(c) COORDINATION OF BENEFITS.—The State pro-
gram may coordinate benefits in a manner so that it is
a payor of last resort, including payment after payment
may be made under this part or under a Medicare+Choice
178
plan, including for individuals for whom the State elects
to buy-in to this part or such a plan.
‘‘(d) 
REQUIREMENT
FOR
EMERGENCY
DIS-
PENSING.—The State program may require a pharma-
ceutical benefit manager to authorize dispensing of a 72-
hour emergency supply of a medication for which a prior
authorization is otherwise required to a person enrolled
in a State program. The cost for such emergency supply
shall be treated as a benefit under this part.
‘‘(e) TREATMENT
AS PHARMACEUTICAL BENEFIT
MANAGER.—The State program may elect to treat itself
as a contracting entity under this part with respect to in-
dividuals enrolled (or eligible to be enrolled) under the
State program. In the case of such an election, the State
shall maintain its existing eligibility criteria as well as ex-
isting benefit structure so long as such criteria and struc-
ture provide a standard benefit equal to or greater than
the benefit provided under this part.
‘‘(f) CONFIDENTIALITY.—The Secretary shall waive
any confidentiality requirements relating to the sharing of
enrollment data between a State program and the Sec-
retary in order to implement this section.’’.
(b) CONFORMING AMENDMENTS.—(1) Part C of title
XVIII of such Act is amended—
179
(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 138(b)(4) of the Internal Revenue Code
of 1986 is amended by striking ‘‘1859(b)(3)’’ and insert-
ing ‘‘1858(b)(3)’’.
180
SEC. 202. PROVISION OF MEDICARE OUTPATIENT PRE-
SCRIPTION DRUG 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 medicines that is at least actuarially equiva-
lent to the benefits provided under part D. Informa-
tion 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 construed as requiring the
offering of such coverage separate from coverage
that includes benefits under parts A and B.
‘‘(2) TREATMENT OF PRESCRIPTION DRUG EN-
ROLLEES.—In the case of a Medicare+Choice eligi-
ble individual who is enrolled under part D, the ben-
efits described in paragraph (1) shall be treated in
181
the same manner as benefits described in part B for
purposes of coverage and payment and any reference
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
1859D(b) for covered outpatient 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:
182
‘‘(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 twice the actuarial rate computed
under section 1859B(a) (based upon the provisions
of section 1839(a)(1)), but subject to adjustment
under paragraph (3). Such amount shall be uniform
geographically and shall not vary based on the
Medicare+Choice payment 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
183
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).’’.
(e) 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—
185
(4) Section 1854(e) (42 U.S.C. 1395w–24(e)) is
amended by adding at the end the following new
paragraph:
‘‘(5) SPECIAL RULE FOR PART D BENEFITS.—
In no event may a Medicare+Choice organization in-
clude as part of a plan for part D benefits a require-
ment that an enrollee pay a deductible or a coinsur-
ance percentage that exceeds 20 percent, except as
provided in section 1859A(c).’’.
SEC. 203. TRANSITIONAL ASSISTANCE FOR LOW INCOME
BENEFICIARIES.
(a) QMB COVERAGE OF PREMIUMS AND COST-SHAR-
ING.—Section 1905(p)(3) (42 U.S.C. 1396d(p)(3)) is
amended—
(1) in subparagraph (A)—
(A) by striking ‘‘and’’ at the end of clause
(i),
(B) by adding ‘‘and’’ at the end of clause
(ii), and
(C) by adding at the end the following new
clause:
‘‘(iii) premiums under section 1859B(a).’’;
(2) in subparagraph (B), by inserting ‘‘and sec-
tion 1859A(b)(1)(B)’’ after ‘‘1813’’; and
186
(3) in subparagraph (C), by striking ‘‘and sec-
tion 1833(b)’’ and inserting ‘‘, section 1833(b), and
section 1859A(b)(1)(A)’’.
(b) 
EXPANDED
SLMB 
ELIGIBILITY.—Section
1902(a)(10)(E) 
(42 
U.S.C. 
1396a(a)(10)(E)) 
is
amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) by adding ‘‘and’’ at the end of clause (iv);
and
(2) by adding at the end the following new
clause:
‘‘(v)(I) for making medical assistance
available for medicare cost sharing described in
section 1905(p)(3)(A)(iii) and medicare cost-
sharing described in section 1905(p)(3)(B) but
only insofar as it relates to benefits provided
under part D of title XVIII, subject to section
1905(p)(4), for individuals who would be quali-
fied medicare beneficiaries described in section
1905(p)(1) but for the fact that their income
exceeds 100 percent, but is less than 135 per-
cent, of the official poverty line (referred to in
such section) for a family of the size involved;
and
187
‘‘(II) subject to section 1905(p)(4), for in-
dividuals who would be qualified medicare bene-
ficiaries described in section 1905(p)(1) but for
the fact that their income exceeds 135 percent,
but is less than 150 percent, of the official pov-
erty line (referred to in such section) for a fam-
ily of the size involved, for making medical as-
sistance available for a portion of the medicare
cost 
sharing 
described 
in 
section
1905(p)(3)(A)(iii), such portion determined on
a sliding scale related to income;’’.
(c) FEDERAL FINANCING.—The second sentence of
section 1905(b) (42 U.S.C. 1396d(b)) is amended by in-
serting before the period at the end the following: ‘‘and
with respect to amounts expended that are attributable to
section 1902(a)(10)(E)(v)’’.
(d) ALTERNATIVE ENROLLMENT METHODS.—Sec-
tion 1902 (42 U.S.C. 1396a) is amended by adding at the
end the following new subsection:
‘‘(aa) In the process of enrolling low-income individ-
uals for medicare cost-sharing under this title, the Sec-
retary 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
188
use existing Federal Government databases to identify eli-
gibility. Such system shall not require that beneficiaries
apply for, or enroll through, State medicaid systems in
order to obtain medical assistance for medicare cost-shar-
ing under this title.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section apply to medical assistance for premiums and
cost-sharing incurred on or after January 1, 2004, with
regard to whether regulations to implement such amend-
ments are promulgated by such date.
SEC. 204. MEDIGAP REVISIONS.
(a) REQUIRED COVERAGE OF COVERED OUTPATIENT
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 medi-
cines which complements but does not duplicate the medi-
cine benefits that beneficiaries are otherwise eligible for
benefits under part D of this title (with the Secretary and
the National Association of Insurance Commissioners de-
termining the appropriate level of medicine benefits that
each benefit package must provide and ensuring that poli-
cies providing such coverage are affordable for bene-
ficiaries and include at least a 5 percent copayment per
prescription);’’.
189
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 2004.
(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 re-
quirements 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
the applicable NAIC model regulation (including the
revised NAIC model regulation and the 1991 NAIC
Model Regulation) for the purposes of such section.
190
(3) SECRETARY
STANDARDS.—If the NAIC
does not make the modifications described in para-
graph (2) within the period specified in such para-
graph, the Secretary of Health and Human Services
shall make the modifications described in such para-
graph and such revised regulation incorporating the
modifications shall be considered to be the appro-
priate regulation for the purposes of such section.
(4) DATE SPECIFIED.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the date specified in this paragraph
for a State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regu-
latory program to the changes made by
this section; or
(ii) 1 year after the date the NAIC or
the Secretary first makes the modifications
under paragraph (2) or (3), respectively.
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other
than legislation appropriating funds) to
191
conform its regulatory program to the
changes made in this section; but
(ii) having a legislature which is not
scheduled to meet in 2002 in a legislative
session in which such legislation may be
considered;
the date specified in this paragraph is the first
day of the first calendar quarter beginning after
the close of the first legislative session of the
State legislature that begins on or after Janu-
ary 1, 2002. For purposes of the previous sen-
tence, in the case of a State that has a 2-year
legislative session, each year of such session
shall be deemed to be a separate regular session
of the State legislature.
SEC. 205. RATE REDUCTION FOR MEDICARE ELIGIBLE FED-
ERAL ANNUITANTS.
(a) IN GENERAL.—
(1) The Office of Personnel Management shall,
in consultation with carriers offering health benefits
plans contracted pursuant to section 8902 of title 5,
United States Code, reduce the rates charged medi-
care eligible individuals participating in such health
benefit plans, by the amount, prorated for each cov-
ered medicare eligible individual, of the estimated
192
cost of medical services and supplies which, but for
the amendments made by this subtitle, would have
been payable by such plans.
(2) The reduced rates as provided under para-
graph (1), shall apply as of the effective dates of the
respective amendments.
(b) AUTHORIZATION
OF
AVAILABILITY
OF
EM-
PLOYEE HEALTH BENEFITS FUND FOR RATE REDUC-
TION.—Funds in the Employees Health Benefits Fund es-
tablished under section 8909 of title 5, United States
Code, are available without fiscal year limitation for costs
incurred by the Office of Personnel Management in mak-
ing rate reductions provided under this section.
(c) DEFINITION.—For purposes of this section, The
term ‘‘medicare eligible individual’’ means any annuitant,
survivor of an annuitant, or former spouse of an
annuitant—
(1) who is—
(A) otherwise eligible for benefits under
chapter 89 of title 5, United States Code; and
(B) enrolled for benefits under part D of
title XVIII of the Social Security Act; and
(2) for whom benefits paid under title XVIII of
the Social Security Act are the primary source of
health care benefits.
193
SEC. 206. PART B PAYMENT FOR OUTPATIENT DRUGS
BASED ON ACTUAL ACQUISITION COST.
(a) IN GENERAL.—Section 1842(o)(1) (42 U.S.C.
1395u(o)(1)) is amended by striking ‘‘95 percent of the
average wholesale price’’ and inserting ‘‘the actual acquisi-
tion cost to the physician, supplier, or other person, plus
such dispensing fee as the Secretary determines is nec-
essary to cover the efficient administration of the drug by
the physician, supplier, or other person’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to drugs provided on or after Janu-
ary 1, 2002.
SEC. 207. COVERAGE OF HOME INFUSION DRUG THERAPY
SERVICES.
(a) IN GENERAL.—Section 1832(a)(2)(A) (42 U.S.C.
1395k(a)(2)(A)) is amended by inserting ‘‘and home infu-
sion drug therapy services’’ before the semicolon.
(b) HOME INFUSION DRUG THERAPY SERVICES DE-
FINED.—Section 1861 of such Act (42 U.S.C. 1395x), as
amended by sections 102(b) and 105(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protec-
tion Act of 2000, as enacted into law by section 1(a)(6)
of Public Law 106–554, is amended by adding at the end
the following new subsection:
194
‘‘Home Infusion Drug Therapy Services
‘‘(ww)(1) The term ‘home infusion drug therapy serv-
ices’ means the items and services described in paragraph
(2) furnished to an individual who is under the care of
a physician—
‘‘(A) in a setting described in paragraph
(4)(A)(ii),
‘‘(B) by a qualified home infusion drug therapy
provider (as defined in paragraph (3)) or by others
under arrangements with them made by that pro-
vider, and
‘‘(C) under a plan established and periodically
reviewed by a physician.
‘‘(2) The items and services described in this para-
graph are such nursing, pharmacy, and related services
(including medical supplies, intravenous fluids, delivery,
and equipment) as are necessary to conduct safely and ef-
fectively a drug regimen through use of a covered home
infusion drug (as defined in paragraph (4)), but do not
include such covered home infusion drugs.
‘‘(3) The term ‘qualified home infusion drug therapy
provider’ means any entity that the Secretary determines
meets the following requirements (or, in the case of a
home health agency or an entity with respect to which the
only items and services described in paragraph (2) fur-
195
nished by the entity are enteral nutrition therapy services,
meets any of the following requirements which the Sec-
retary considers appropriate):
‘‘(A) The entity is capable of providing or ar-
ranging for the items and services described in para-
graph (2) and covered home infusion drugs.
‘‘(B) The entity maintains clinical records on
all patients.
‘‘(C) The entity adheres to written protocols
and policies with respect to the provision of items
and services.
‘‘(D) The entity makes services available (as
needed) seven days a week on a 24-hour basis.
‘‘(E) The entity coordinates all service with the
patient’s physician.
‘‘(F) The entity conducts a quality assessment
and assurance program, including drug regimen re-
view and coordination of patient care.
‘‘(G) The entity assures that only trained per-
sonnel provide covered home infusion drugs (and any
other service for which training is required to pro-
vide the service safely).
‘‘(H) The entity assumes responsibility for the
quality of services provided by others under arrange-
ments with the entity.
196
‘‘(I) In the case of an entity in any State in
which State or applicable local law provides for the
licensing of entities of this nature, the entity (i) is
licensed pursuant to such law, or (ii) is approved, by
the agency of such State or locality responsible for
licensing entities of this nature, as meeting the
standards established for such licensing.
‘‘(J) The entity meets such other requirements
as the Secretary may determine are necessary to as-
sure the safe and effective provision of home infu-
sion drug therapy services and the efficient adminis-
tration of the home infusion drug therapy benefit.
‘‘(4)(A) The term ‘covered home infusion drug’
means a covered outpatient drug dispensed to an indi-
vidual that—
‘‘(i) 
is 
administered 
intravenously,
subcutaneously, or epidurally, using an access device
that is inserted into the body and an infusion device
to control the rate of flow of the drug (or through
other means of administration determined by the
Secretary);
‘‘(ii) is administered—
‘‘(I) in the individual’s home,
‘‘(II) an institution used as the individual’s
home, but only if the drug is administered dur-
197
ing an inpatient day for which payment is not
made to the institution under part A for inpa-
tient or extended care services furnished to the
individual, or
‘‘(III) in a facility other than the individ-
ual’s home if the administration of the drug at
the facility is determined by the Secretary to be
cost-effective (in accordance with such criteria
as the Secretary may establish); and
‘‘(iii) with respect to a drug furnished in a
home setting—
‘‘(I) is an antibiotic drug and the Sec-
retary has not determined, for the specific drug
or the indication to which the drug is applied,
that the drug cannot generally be administered
safely and effectively in such a setting, or
‘‘(II) is not an antibiotic drug and the Sec-
retary has determined, for the specific drug or
the indication to which the drug is applied, that
the drug can generally be administered safely
and effectively in such a setting.
‘‘(B) Not later than January 1, 2004, (and periodi-
cally thereafter), the Secretary shall publish a list of the
drugs, and indications for such drugs, that are covered
198
home infusion drugs, with respect to which home infusion
drug therapy may be provided under this title.’’.
(c) PAYMENT.—
(1) IN
GENERAL.—Section 1833 (42 U.S.C.
1395l) is amended—
(A) in subsection (a)(2)(B), by striking ‘‘or
(E)’’ and inserting ‘‘(E), or (F)’’,
(B) in subsection (a)(2)(F), by striking
‘‘and’’ at the end,
(C) in subsection (a)(2)(G), by striking the
semicolon and inserting ‘‘; and’’,
(D) by inserting after subsection (a)(2)(G)
the following new subparagraph:
‘‘(H) with respect to home infusion drug
therapy services, the amounts described in sec-
tion 1834(n);’’, and
(E) in the first sentence of subsection (b),
by striking ‘‘, (3)’’ and inserting ‘‘and home in-
fusion drug therapy services, (3)’’.
(2) AMOUNT
DESCRIBED.—Section 1834, as
amended by section 223(b) of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Pro-
tection Act of 2000, as enacted into law by section
1(a)(6) of Public Law 106–554, is amended by add-
ing at the end the following new subsection:
199
‘‘(n) HOME INFUSION DRUG THERAPY SERVICES.—
‘‘(1) IN GENERAL.—With respect to home infu-
sion drug therapy services, payment under this part
shall be made in an amount equal to the lesser of
the actual charges for such services or the fee sched-
ule established under paragraph (2). Payment for
drugs so infused shall be made based on actual ac-
quisition costs consistent with section 1842(o) (as
amended by section 206 of the Medicare Moderniza-
tion and Solvency Act of 2001).
‘‘(2) ESTABLISHMENT OF FEE SCHEDULE.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish by regulation before the beginning of
2004 and each succeeding year a fee schedule
for home infusion drug therapy services for
which payment is made under this part.
‘‘(B) ADJUSTMENT
FOR
SERVICES
FUR-
NISHED
BY
INSTITUTIONS.—The fee schedule
established by the Secretary under subpara-
graph (A) shall provide for adjustments in the
case of home infusion drug therapy services for
which payment is made under this part that are
furnished by a provider of services to avoid du-
plicative payments under this title for the serv-
ice costs associated with such services.’’.
200
(d) CERTIFICATION.—Section 1835(a)(2) (42 U.S.C.
1395n(a)(2)) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (E),
(2) by striking the period at the end of sub-
paragraph (F) and inserting ‘‘; and’’, and
(3) by inserting after subparagraph (F) the fol-
lowing:
‘‘(G) in the case of home infusion drug
therapy services, (i) such services are or were
required because the individual needed such
services for the administration of a covered
home infusion drug, (ii) a plan for furnishing
such services has been established and is re-
viewed periodically by a physician, and (iii)
such services are or were furnished while the in-
dividual is or was under the care of a physi-
cian.’’.
(e) CERTIFICATION
OF
HOME
INFUSION
DRUG
THERAPY PROVIDERS; INTERMEDIATE SANCTIONS FOR
NONCOMPLIANCE.—
(1) TREATMENT AS PROVIDER OF SERVICES.—
Section 1861(u) (42 U.S.C. 1395x(u)) is amended
by inserting ‘‘home infusion drug therapy provider,’’
after ‘‘hospice program,’’.
201
(2) CONSULTATION WITH STATE AGENCIES AND
OTHER ORGANIZATIONS.—Section 1863 (42 U.S.C.
1395z) is amended by striking ‘‘and (dd)(2)’’ and
inserting ‘‘(dd)(2), and (ww)(3)’’.
(3) USE OF STATE AGENCIES IN DETERMINING
COMPLIANCE.—Section 
1864(a) 
(42 
U.S.C.
1395aa(a)) is amended—
(A) in the first sentence, by striking ‘‘an
agency is a hospice program’’ and inserting ‘‘an
agency or entity is a hospice program or a
home infusion drug therapy provider,’’; and
(B) in the second sentence—
(i) by striking ‘‘institution or agency’’
and inserting ‘‘institution, agency, or enti-
ty’’, and
(ii) by striking ‘‘or hospice program’’
and inserting ‘‘hospice program, or home
infusion drug therapy provider’’.
(4) APPLICATION
OF
INTERMEDIATE
SANC-
TIONS.—Section 1846 (42 U.S.C. 1395w–2) is
amended—
(A) in the heading, by adding ‘‘AND FOR
QUALIFIED
HOME
INFUSION
DRUG
THERAPY
PROVIDERS’’ at the end,
202
(B) in subsection (a), by inserting ‘‘or that
a qualified home infusion drug therapy provider
that is certified for participation under this title
no longer substantially meets the requirements
of section 1861(ww)(3)’’ after ‘‘under this
part’’, and
(C) in subsection (b)(2)(A)(iv), by insert-
ing ‘‘or home infusion drug therapy services’’
after ‘‘clinical diagnostic laboratory tests’’.
(f) USE OF REGIONAL INTERMEDIARIES IN ADMINIS-
TRATION OF BENEFIT.—Section 1816 (42 U.S.C. 1395h)
is amended by adding at the end the following new sub-
section:
‘‘(m) With respect to carrying out functions relating
to payment for home infusion drug therapy services and
covered home infusion drugs, the Secretary shall enter into
contracts with agencies or organizations under this section
to perform such functions on a regional basis.’’.
(g) 
CONFORMING
AMENDMENTS.—(1) 
Section
1834(h)(4)(B) (42 U.S.C. 1395m(h)(4)(B)) is amended
by striking ‘‘parenteral’’ and all that follows through ‘‘and
does not include’’.
(2) Section 1861(n) (42 U.S.C. 1395x(n)) is amend-
ed by adding at the end the following: ‘‘Such term does
not include any home infusion drug therapy services de-
203
scribed in section 1861(ww) or any covered outpatient
drug used as a supply related to the furnishing of an item
of durable medical equipment.’’.
(3) Section 1861(s)(8) (42 U.S.C. 1395x(s)(8)) is
amended by inserting after ‘‘dental’’ the following: ‘‘de-
vices or enteral and parenteral nutrients, supplies, and
equipment’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 2004.
SEC. 208. EXPANSION OF MEMBERSHIP OF MEDPAC TO 19.
(a) IN
GENERAL.—Section 1805(c) (42 U.S.C.
1395b–6(c)) is amended—
(1) in paragraph (1), by striking ‘‘17’’ and in-
serting ‘‘19’’; and
(2) in paragraph (2)(B), by inserting ‘‘experts
in the area of pharmacology and prescription medi-
cine benefit programs,’’ after ‘‘other health profes-
sionals,’’.
(b) INITIAL TERMS OF ADDITIONAL MEMBERS.—
(1) IN GENERAL.—For purposes of staggering
the initial terms of members of the Medicare Pay-
ment Advisory Commission under section 1805(c)(3)
of the Social Security Act (42 U.S.C. 1395b–
6(c)(3)), the initial terms of the 2 additional mem-
204
bers of the Commission provided for by the amend-
ment under subsection (a)(1) are as follows:
(A) One member shall be appointed for 1
year.
(B) One member shall be appointed for 2
years.
(2) COMMENCEMENT OF TERMS.—Such terms
shall begin on January 1, 2002.
(c) DUTY
TO
REVIEW
SGR SYSTEM.—Section
1805(b)(2) of such Act (42 U.S.C. 1395b–6(b)(2)) is
amended by adding at the end the following new subpara-
graph:
‘‘(D) EXAMINATION
OF
SGR
SYSTEM.—
Specifically, the Commission shall review the
sustainable growth rate prescription medicine
target 
system 
established 
under 
section
1859F(b).’’.
SEC. 209. GAO ONGOING STUDIES AND REPORTS ON PRO-
GRAM; MISCELLANEOUS REPORTS.
(a) ONGOING STUDY.—The Comptroller General of
the United States shall conduct an ongoing study and
analysis of the prescription medicine benefit program
under part D of the Medicare Program under title XVIII
of the Social Security Act (as added by section 201 of this
subtitle), including an analysis of each of the following:
205
(1) The extent to which the administering enti-
ties have achieved volume-based discounts similar to
the favored price paid by other large purchasers.
(2) Whether access to the benefits under such
program are in fact available to all beneficiaries,
with special attention given to access for bene-
ficiaries living in rural and hard-to-serve areas.
(3) The success of such program in reducing
medication error and adverse medicine reactions and
improving quality of care, and whether it is probable
that the program has resulted in savings through re-
duced hospitalizations and morbidity due to fewer
(A) medication errors, (B) adverse medicine reac-
tions, and (C) illnesses and injuries caused by medi-
cations no longer foregone for financial reasons.
(4) Whether patient medical record confiden-
tiality is being maintained and safeguarded.
(5) Such other issues as the Comptroller Gen-
eral may consider.
(b) REPORTS.—The Comptroller General shall issue
such reports on the results of the ongoing study described
in subsection (a) as the Comptroller General shall deem
appropriate and shall notify Congress on a timely basis
of significant problems in the operation of the prescription
206
medicine program and the need for legislative adjustments
and improvements.
(c) MISCELLANEOUS STUDIES AND REPORTS.—
(1) STUDY ON METHODS TO ENCOURAGE ADDI-
TIONAL
RESEARCH
ON
BREAKTHROUGH
PHARMA-
CEUTICALS.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall seek the ad-
vice of the Secretary of the Treasury on pos-
sible tax and trade law changes to encourage
increased original research on new pharma-
ceutical breakthrough products designed to ad-
dress disease and illness.
(B) REPORT.—Not later than January 1,
2004, the Secretary shall submit to Congress a
report on such study. The report shall include
recommended methods to encourage the phar-
maceutical industry to devote more resources to
research and development of new covered prod-
ucts than it devotes to overhead expenses.
(2) STUDY ON PHARMACEUTICAL SALES PRAC-
TICES
AND
IMPACT
ON
COSTS
AND
QUALITY
OF
CARE.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall conduct a
207
study on the methods used by the pharma-
ceutical industry to advertise and sell to con-
sumers and educate and sell to providers.
(B) REPORT.—Not later than January 1,
2004, the Secretary shall submit to Congress a
report on such study. The report shall include
the estimated direct and indirect costs of the
sales methods used, the quality of the informa-
tion conveyed, and whether such sales efforts
lead (or could lead) to inappropriate pre-
scribing. Such report may include legislative
and regulatory recommendations to encourage
more appropriate education and prescribing
practices.
(3) STUDY ON COST OF PHARMACEUTICAL RE-
SEARCH.—
(A) 
IN
GENERAL.—The 
Secretary 
of
Health and Human Services shall conduct a
study on the costs of the pharmaceutical re-
search and the role that the taxpayer provides
in encouraging such research.
(B) REPORT.—Not later than January 1,
2004, the Secretary shall submit to Congress a
report on such study. The report shall include
a description of the full range of taxpayer-as-
208
sisted programs impacting pharmaceutical re-
search, including tax, trade, Government re-
search, and regulatory assistance. The report
may also include legislative and regulatory rec-
ommendations that are designed to ensure that
the taxpayer’s investment in pharmaceutical re-
search results in the availability of pharma-
ceuticals at reasonable prices.
(4) REPORT ON PHARMACEUTICAL PRICES IN
MAJOR FOREIGN NATIONS.—Not later than January
1, 2004, the Secretary of Health and Human Serv-
ices shall submit to Congress a report on the retail
price of major pharmaceutical products in various
developed nations, compared to prices for the same
or similar products in the United States. The report
shall include a description of the principal reasons
for any price differences that may exist.
(5) STUDY ON REDUCED ERROR AND PAPER-
WORK
THROUGH
PHYSICIAN
ELECTRONIC
SUBMIS-
SION OF PRESCRIPTIONS.—The Secretary shall study
and report within 2 years on what steps can be
taken to use electronic prescribing, hand-held com-
puters, and improved software resources to—
(A) reduce prescription errors, the pre-
scribing of inappropriate or contraindicated
209
medicines, and to make available a patient’s
prescription history;
(B) reduce paperwork;
(C) enable physicians to quickly and accu-
rately determine whether a particular patient’s
medicine is on or off-formulary; and
(D) what the approximate cost to medicare
and to patients is of various electronic and in-
formation technology options available to pro-
viders to improve the quality and safety of the
delivery of the prescription drug benefit under
this subtitle.
(6) STUDY
ON
WAYS
TO
REDUCE
COSTS
OF
PHARMACEUTICALS AND FINANCE A MEDICARE PRE-
SCRIPTION DRUG BENEFIT, WITHOUT REDUCING RE-
SEARCH ON INNOVATIVE PHARMACEUTICALS.—The
Secretary, in coordination with the Secretary of the
Treasury, shall study and report on how much rev-
enue could be raised for the financing of the medi-
care outpatient prescription medicine program, how
much medicine prices could be reduced for bene-
ficiaries and for such program, and what the impact
on the ability to conduct research on innovative
pharmaceuticals would be if—
210
(A) tax incentives and export incentives
were eliminated on the sale of United States
manufactured pharmaceuticals sold to developed
nations at a lower cost than offered for sale in
the United States;
(B) tax deductions for the cost of direct to
consumer advertising, gifts, and other direct
lobbying of physicians (generally know as de-
tailing) were denied;
(C) a tax at a 100 percent rate was im-
posed on any income received by a pharma-
ceutical company as payment for withholding a
generic pharmaceutical product approved by the
Food and Drug Administration from the mar-
ketplace; and
(D) tax deductions on amounts spent on
marketing and advertising in excess of research
were denied.
SUBTITLE B—IMPROVING BENEFITS AND PREVENTIVE
SERVICES
SEC. 221. AUTHORITY TO PROVIDE PREVENTIVE SERVICES
UNDER PART B OF THE MEDICARE PROGRAM.
(a) 
PREVENTIVE
SERVICES
BENEFIT.—Section
1861(s), as amended by sections 111 and 114, is further
amended—
211
(1) by striking ‘‘and’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘and’’; and
(3) by inserting after paragraph (17) the fol-
lowing new paragraph:
‘‘(18) qualified preventive services, as defined in
subsection (yy).’’.
(b) DEFINITION OF PREVENTIVE SERVICES.—Sec-
tion 1861 (42 U.S.C. 1395x), as amended by sections 112
and 122, is further amended by adding at the end the
following new subsection:
‘‘Qualified Preventive Services
‘‘(yy)(1) Subject to paragraph (2), the term ‘qualified
preventive services’ means items and services determined
by the Secretary to be reasonable and necessary for the
prevention or early detection of an illness or disability.
‘‘(2) An item or service described in paragraph (1)
shall be qualified as a preventive service if the Secretary
determines by authoritative evidence that the provision of
such item or service is cost effective. In determining if
such an item or service is cost effective, the Secretary shall
consider the following:
‘‘(A) Whether furnishing such an item or serv-
ice for an illness or disability results in reductions
212
in estimated expenditures under the Social Security
Act for the illness or disability, or avoids treatment
in a more expensive setting.
‘‘(B) Whether the item or service improves the
health of the individual for whom the item or service
is furnished.
‘‘(C) In the case of an individual entitled to
benefits under this title by reason of section 226(b),
whether the item or service facilitates the return to
work of the individual.’’.
(c) PAYMENT FOR PREVENTIVE SERVICES.—Section
1834 (42 U.S.C. 1395m) is amended by inserting after
subsection (d) the following new subsection:
‘‘(e) ALTERNATIVE
PAYMENT
FOR
PREVENTIVE
SERVICES.—
‘‘(1) GENERAL PAYMENT RULE.—
‘‘(A) QUALIFIED PREVENTIVE SERVICES.—
The Secretary shall establish by regulation a
payment amount for qualified preventive serv-
ices, as defined in section 1861(yy).
‘‘(B) OTHER PREVENTIVE SERVICES.—The
Secretary may establish by regulation a pay-
ment amount for each type of preventive service
described in subparagraphs (A) through (J) of
paragraph (5).
213
‘‘(2) PAYMENT AMOUNT.—In the case of a pre-
ventive service described in paragraph (5) that may
be performed as a diagnostic or therapeutic service
under this title, the payment amount under this sub-
section for a service performed as a preventive serv-
ice shall be the same as the payment amount estab-
lished under this title for such service performed as
a diagnostic or therapeutic service.
‘‘(3) MANNER OF PAYMENT.—In the case of a
preventive service described in paragraph (6) that
may be performed as a diagnostic or therapeutic
service under this title, the Secretary shall apply the
same method of payment under this subsection for
a service performed as a preventive service as the
Secretary applies under this title for such service
performed as a diagnostic or therapeutic service.
‘‘(4) PROHIBITION ON BALANCE BILLING.—The
provisions of subparagraphs (A) and (B) of section
1842(b)(18) shall apply to the furnishing of preven-
tive services described in paragraph (5) for which
payment is made under this subsection in the same
manner as such subparagraphs apply to services fur-
nished by a practitioner described in subparagraph
(C) of such section.
214
‘‘(5) PREVENTIVE SERVICES DESCRIBED.—For
purposes of this subsection, the preventive services
described in this paragraph are any of the following
services:
‘‘(A) 
Antigens 
(under 
section
1861(s)(2)(G)).
‘‘(B) Prostate cancer screening tests (as
defined in section 1861(oo)).
‘‘(C) Colorectal cancer screening tests (as
defined in section 1861(pp)).
‘‘(D) Diabetes outpatient self-management
training 
services 
(as 
defined 
in 
section
1861(qq)).
‘‘(E)(i) Pneumococcal vaccine and its ad-
ministration and influenza vaccine and its ad-
ministration (under section 1861(s)(10)(A)).
‘‘(ii) Hepatitis B vaccine and its adminis-
tration (under section 1861(s)(10)(B)).
‘‘(F) Screening mammography (as defined
in section 1861(jj)).
‘‘(G) Screening pap smear and screening
pelvic exam (as defined in paragraphs (1) and
(2), respectively, of section 1861(nn)).
‘‘(H) Bone mass measurement (as defined
in section 1861(rr)).
215
‘‘(I) Screening for glaucoma (as defined in
section 1861(uu).
‘‘(J) Qualified preventive services (as de-
fined in section 1861(yy)).’’.
(d) EXCLUSION
FROM
COVERAGE
CONFORMING
AMENDMENT.—Section 
1862(a)(1)(B) 
(42 
U.S.C.
1395y(a)(1)(B)) 
is 
amended 
by 
striking 
‘‘section
1861(s)(10)’’ and inserting ‘‘section 1834(e)(5)’’.
(e) WAIVER OF DEDUCTIBLE.—Section 1833(b) (42
U.S.C. 1395l(b)) is amended in clause (1) to read as fol-
lows: ‘‘(1) such deductible shall not apply with respect to
preventive service described in section 1834(e)(5)’’.
(f) 
WAIVER
OF
COST-SHARING.—Section
1833(a)(1)(B) (42 U.S.C. 1395l(a)(1)(B)) is amended by
inserting ‘‘subject to section 1834(e),’’ before ‘‘the
amounts paid shall be 100 percent of the reasonable
charges for such items and services,’’.
(g) ADDITIONAL CONFORMING AMENDMENTS.—(1)
Section 1833(a)(2)(G) (42 U.S.C. 1395l(a)(2)(G)) is
amended by inserting ‘‘subject to section 1834(e),’’ before
‘‘with respect to items and services’’.
(2) Section 1834(c)(1)(C) (42 U.S.C. 1395m(c)) is
amended by striking ‘‘the amount of the payment’’ and
inserting ‘‘except as provided by the Secretary under sub-
section (e), the amount of the payment’’.
216
(3) Section 1834(d) (42 U.S.C. 1395m(d)) is
amended—
(A) in paragraph (1)(A), by striking ‘‘The pay-
ment amount’’ and inserting ‘‘Except as provided by
the Secretary under subsection (e), the payment
amount’’; and
(B) in paragraphs (2)(A) and (3)(A), by strik-
ing ‘‘payment under section 1848’’ each place it ap-
pears and inserting ‘‘except as provided by the Sec-
retary under subsection (e), payment under section
1848’’.
(4) Section 1848(g)(2)(C) (42 U.S.C. 1395w–
4(g)(2)(C)) is amended—
(A) by striking ‘‘For’’ and inserting ‘‘(i) Sub-
ject to clause (ii), for’’; and
(B) by adding at the end the following new
clause:
‘‘(ii) For physicians’ services consisting of
preventive services (as described in section
1834(e)(5)) furnished on or after January 1,
2003, the ‘limiting charge’ shall be 100 percent
of the recognized payment amount under this
part for nonparticipating physicians or for non-
participating suppliers or other persons.’’.
217
(5) Section 1848(g)(2)(D) (42 U.S.C. 1395w–
4(g)(2)(D)) is amended by striking ‘‘the fee schedule
amount determined under subsection (a)’’ and all that fol-
lows and inserting ‘‘the fee schedule amount determined
under subsection (a), in the case of preventive services (as
described in section 1834(e)(5)) the amount determined
by the Secretary under section 1834(e), or, if payment
under this part is made on a basis other than the fee
schedule under this section or other than the amount es-
tablished under section 1834(e) with respect to such pre-
ventive services, 95 percent of the other payment basis.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 2004.
SEC. 222. SMOKING CESSATION DEMONSTRATION.
(a) IN GENERAL.—The Secretary of Health and
Human Services (hereinafter in this section referred to as
the ‘‘Secretary’’) shall, either directly or through grants,
contracts, or cooperative agreements, carry out a dem-
onstration project testing a variety of smoking cessation
services for medicare beneficiaries, for the purpose of iden-
tifying the most successful and cost-effective approaches.
(b) DESIGN OF DEMONSTRATION.—
(1) IN GENERAL.—The Secretary shall deter-
mine the design, implementation, and evaluation of
218
the demonstration under this section, subject to the
provisions of this section.
(2) SERVICES INCLUDED.—Services under the
demonstration may include an initial patient assess-
ment, counseling services, and any pharmacotherapy
for smoking cessation approved by the Food and
Drug Administration, and such other services as the
Secretary may authorize. Services may be furnished
by a person or entity that provides other services for
which payment may be made under title XVIII of
the Social Security Act (42 U.S.C. 1395 et seq.), as
well as by health educators and other professionals
in categories designated by the Secretary who meet
applicable certification and licensing requirements of
State and local law.
(3) SCOPE
AND
DURATION.—Demonstration
projects under this section shall be conducted at a
minimum of four sites and shall not exceed five
years in duration.
(c) Notwithstanding any provision of such title XVIII
or any other provision of law, in the case of smoking ces-
sation items and services furnished to a medicare bene-
ficiary under a demonstration conducted by the Secretary
under this section by an individual or entity authorized
by the Secretary to participate in such demonstration—
219
(1) such items and services shall be deemed to
be health care items and services covered under the
insurance programs under such title XVIII for pur-
poses of payment from the Federal Health Insur-
ance and Federal Supplementary Medical Insurance
Trust Funds;
(2) persons and entities furnishing smoking ces-
sation items and services under a demonstration
under this section shall be entitled to be paid from
such Trust Funds an amount equal to the lesser of
the actual cost of such items and services or the
payment amount prescribed for such items or serv-
ices under a fee schedule established by the Sec-
retary; and
(3) the Secretary shall waive all coinsurance
and deductibles under such title XVIII for smoking
cessation items and services furnished under such
demonstration.
(d) WAIVER AUTHORITY.—The Secretary is author-
ized to waive the requirements of such title XVIII to the
extent and for the period the Secretary finds necessary
to conduct the demonstration under this section.
(e) FUNDING.—The Secretary shall provide for the
transfer from the Federal Health Insurance and Federal
Supplementary Insurance Trust Fund of such funds as
220
are necessary for the costs of carrying out and evaluating
the demonstration projects under this section.
(f) EVALUATION; REPORT TO CONGRESS; IMPLEMEN-
TATION.—
(1) IN GENERAL.—Upon conclusion of the dem-
onstration, the Secretary shall cause the demonstra-
tion to be evaluated and shall submit to Congress a
report on the following:
(A) A description of the demonstration.
(B) An assessment of—
(i) patient outcomes, including smok-
ing ‘‘quit’’ rates;
(ii) the cost-effectiveness of the dem-
onstration; and
(iii) the quality of the services fur-
nished through the demonstration, includ-
ing measures of beneficiary and provider
satisfaction.
(C) Any other information that the Sec-
retary determines to be appropriate.
(2) IMPLEMENTATION.—The Secretary may im-
plement, on a permanent basis, the part or parts of
the demonstration project that the Secretary deter-
mines to be successful.
221
SEC. 223. OUTREACH TO PREVENT BLINDNESS.
(a) IN GENERAL.—Not later than July 1, 2003, the
Secretary of Health and Human Services shall establish
no fewer than 3 demonstrations of ophthalmic care out-
reach in underserved communities designed to reduce the
level of eye disease and to prevent blindness among medi-
care beneficiaries.
(b) DURATION.—The duration of the demonstrations
shall be for 3 years, except that the Secretary may extend
or expand the demonstrations if the Secretary determines
that the demonstrations have succeeded in reducing the
level of blindness and eye disease in the communities serv-
iced by 20 percent or more.
(c) COMMUNITIES TO BE SERVED.—The commu-
nities to be served under the demonstrations shall be medi-
cally underserved urban and rural areas (under section
330 of the Public Health Service Act (42 U.S.C. 254b))
with rates of preventable and treatable blindness 3 or
more times the average rate of such blindness.
(d) PROVIDER NETWORKS.—Providers selected to
participate in the demonstrations shall be a nonprofit net-
work institute or group practice of ophthalmic care profes-
sionals located in the areas to be served. Such profes-
sionals shall include a number of minority professionals
to reflect the population of the area served and shall offer
222
a substantial level (as defined by the Secretary) of uncom-
pensated care to others in the community.
(e) PAYMENTS.—Payment to providers under the
demonstrations shall include payment of the 20 percent
copayment in cases in which the provide waives collection
of the copayment from the beneficiary because of the in-
come status of the beneficiary. Payment amounts shall in-
clude reasonable costs (as determined by the Secretary)
for follow-up pharmaceuticals, eyeglasses, lenses (contract
and intraocular), specialized ophthalmic diagnostic and
therapeutic equipment, and telehealth equipment, insofar
as payment is not otherwise made by the beneficiary.
SEC. 224. COVERAGE OF SUBSTITUTE ADULT DAY CARE
SERVICES UNDER MEDICARE.
(a) SUBSTITUTE ADULT DAY CARE SERVICES BEN-
EFIT.—
(1) IN GENERAL.—Section 1861(m) (42 U.S.C.
1395x(m)) is amended—
(A) in the matter preceding paragraph (1),
by inserting ‘‘or paragraph (8)’’ after ‘‘para-
graph (7)’’;
(B) in paragraph (6), by striking ‘‘and’’ at
the end;
(C) in paragraph (7), by adding ‘‘and’’ at
the end; and
223
(D) by inserting after paragraph (7), the
following new paragraph:
‘‘(8) substitute adult day care services (as de-
fined in subsection (zz));’’.
(2) SUBSTITUTE ADULT DAY CARE SERVICES
DEFINED.—Section 1861 (42 U.S.C. 1395x), as
amended by sections 112, 122, and 221, is further
amended by adding at the end the following new
subsection:
‘‘Substitute Adult Day Care Services; Adult Day Care
Facility
‘‘(zz)(1)(A) The term ‘substitute adult day care serv-
ices’ means the items and services described in subpara-
graph (B) furnished to an individual by an adult day care
facility as a part of a plan under subsection (m) sub-
stituting such services for a portion of the items and serv-
ices described in subparagraph (B)(i) furnished by a home
health agency under the plan, as determined by the physi-
cian establishing the plan.
‘‘(B) The items and services described in this sub-
paragraph are the following items and services:
‘‘(i) Items and services described in paragraphs
(1) through (7) of subsection (m).
224
‘‘(ii) Transportation of the individual to and
from the adult day care facility in connection with
any such item or service.
‘‘(iii) Meals.
‘‘(iv) A program of supervised activities de-
signed to promote physical and mental health and
furnished to the individual by the adult day care fa-
cility in a group setting for a period of not fewer
than four and not greater than twelve hours per day.
‘‘(v) A medication management program (as de-
fined in subparagraph (C)).
‘‘(C) For purposes of subparagraph (B)(v), the term
‘medication management program’ means a program of
education and services (that meets such criteria as the
Secretary determines appropriate) to minimize—
‘‘(i) unnecessary or inappropriate use of pre-
scription drugs; and
‘‘(ii) adverse events due to unintended prescrip-
tion drug-to-drug interactions.
‘‘(2)(A) Except as provided in subparagraph (B), the
term ‘adult day care facility’ means a public agency or
private organization, or a subdivision of such an agency
or organization, that—
‘‘(i) is engaged in providing skilled nursing
services and other therapeutic services;
225
‘‘(ii) meets such standards established by the
Secretary to assure quality of care and such other
requirements as the Secretary finds necessary in the
interest of the health and safety of individuals who
are furnished services in the facility;
‘‘(iii) provides the items and services described
in paragraph (1)(B); and
‘‘(iv) meets the requirements of paragraphs (2)
through (8) of subsection (o).
‘‘(B) The Secretary may waive the requirement of a
surety bond under paragraph (7) of subsection (o) in the
case of an agency or organization that provides a com-
parable surety bond under State law.
‘‘(C) For purposes of payment for home health serv-
ices consisting of substitute adult day care services fur-
nished under this title, any reference to a home health
agency is deemed to be a reference to an adult day care
facility.’’.
(3) 
CONFORMING
AMENDMENTS.—Sections
1814(a)(2)(C) and 1835(a)(2)(A)(i) (42 U.S.C.
1395f(a)(2)(C) and 42 U.S.C. 1395f(a)(2)(C)) are
each amended by striking ‘‘section 1861(m)(7)’’ and
inserting ‘‘paragraph (7) or (8) of section 1861(m)’’.
(b) PAYMENT FOR SUBSTITUTE ADULT DAY CARE
SERVICES UNDER
THE HOME HEALTH PROSPECTIVE
226
PAYMENT SYSTEM.—Section 1895 (42 U.S.C. 1395fff),
as amended by section 504(a) of the Medicare, Medicaid,
and SCHIP Benefits Improvement and Protection Act of
2000 (as enacted into law by section 1(a)(6) of Public Law
106–554), is amended—
(1) in the first sentence of paragraph (b)(1), by
inserting after ‘‘home health services’’ the following:
‘‘or home health services consisting of substitute
adult day care services.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(f) LIMITATION
ON PAYMENT
FOR SUBSTITUTE
ADULT DAY CARE SERVICES.—
‘‘(1) GENERAL LIMITATION.—With respect to
home health services consisting of substitute adult
day care services, no payment may be made under
this section for home health services consisting of
substitute adult day care services described in
clauses (ii) through (v) of section 1861(zz)(1)(B).
‘‘(2) LIMITATION ON BALANCE BILLING.—An
adult day care facility shall accept as payment in full
for substitute adult day care services (including
those services described in clauses (ii) through (v) of
section 1861(zz)(1)(B)) furnished by the facility to
an individual entitled to benefits under this title the
227
amount of payment provided under this section for
home health services consisting of substitute adult
day care services.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 2003.
Subtitle 
C—Rationalizing 
Pay-
ments and Cost Sharing and
Medigap
SEC. 231. EXTENSION OF BUY-DOWN OF COPAYMENT ON
HOSPITAL OUTPATIENT SERVICES.
Section 
1833(t)(8)(C)(ii) 
(42 
U.S.C.
1395l(t)(8)(C)(ii)), as amended by section 111(a) of the
Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000, as enacted into law by section
1(a)(6) of Public Law 106–554, is amended by striking
subclause (V) and inserting the following:
‘‘(V) For procedures performed
in 2006, 40 percent.
‘‘(VI) For procedures performed
in 2007, 35 percent.
‘‘(VII) For procedures performed
in 2008, 30 percent.
‘‘(VIII) 
For 
procedures 
per-
formed in 2009, 25 percent; and.
228
‘‘(IX) For procedures performed
in 2010 and thereafter, 20 percent.’’.
SEC. 232. INDEXING DEDUCTIBLE TO INFLATION.
Section 1833(b) (42 U.S.C. 1395l(b)) is amended by
inserting after ‘‘1991 and subsequent years’’ the following:
‘‘, adjusted annually, effective January 1 of each year be-
ginning in 2004, by a percentage increase or decrease
equal to the percentage increase or decrease in the con-
sumer price index for all urban consumers (U.S. city aver-
age) for the 12-month period ending with June of the pre-
vious year, rounded to the nearest dollar’’.
SEC. 233. MEDICARE DIRECT SUPPLEMENTAL INSURANCE
OPTION.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1882 the following new section:
‘‘MEDICARE DIRECT SUPPLEMENTAL INSURANCE OPTION
‘‘SEC. 1882A. (a) IN GENERAL.—The Secretary shall
provide for the offering under this section of a voluntary
program to supplement the benefits provided to individ-
uals under parts A and B of this title.
‘‘(b) ELIGIBILITY; ENROLLMENT.—The Secretary
shall provide procedures for the enrollment under the pro-
gram under this section of individuals who are entitled to
benefits under part A and enrolled under part B, but who
are not enrolled in Medicare+Choice plan under part C
(or in a plan under section 1876). Such procedures shall
229
be similar in timing and manner to the procedures by
which 
individuals 
are 
permitted 
to 
enroll 
in
Medicare+Choice plans under part C, except that the Sec-
retary shall provide for an initial enrollment period during
2001 that permits benefits to be first made available
under the program for months beginning with January
2003.
‘‘(c) BENEFITS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
the benefits provided under the program under this
section shall consist of payment of the cost of
deductibles, copayments, and other cost-sharing
amounts (including amounts attributable to and per-
mitted as balance billing) otherwise imposed or per-
mitted under this title, subject to an annual deduct-
ible of $500.
‘‘(2) NOMINAL COPAYMENT.—
‘‘(A) IN GENERAL.—With respect to each
part B service furnished to an enrollee under
this section during 2003, the enrollee shall pay
a nominal copayment of $5.
‘‘(B) OUTYEARS.—For 2004 and each sub-
sequent year, the amount of nominal copayment
applicable for each part B service under this
paragraph is equal to the amount of copayment
230
for the previous year adjusted by a percentage
increase or decrease equal to the percentage in-
crease or decrease in the Consumer Price Index
for All Urban Consumers (United States city
average). Any amount determined under this
subparagraph that is not a multiple of $1 shall
be rounded to the nearest multiple of $1.
‘‘(C) COUNTING
NOMINAL
COPAYMENTS
TOWARD THE ANNUAL DEDUCTIBLE.—A nomi-
nal copayment payable by an enrollee under this
paragraph in a year shall count toward the an-
nual deductible applicable under paragraph (1)
for that year.
‘‘(3) ADMINISTRATION.—The Secretary shall
coordinate payment of benefits under this part with
those under parts A and B and may, for such pur-
pose, enter into appropriate arrangements with
qualified entities (which may include fiscal inter-
mediaries and carriers).
‘‘(d) PREMIUMS.—
‘‘(1) ACTUARIAL
COST.—The Secretary shall,
during September of each year beginning with 2002,
determine a monthly actuarial rate for all enrollees
under this section, which rate shall be applicable for
months in the succeeding calendar year. Such actu-
231
arial rate shall be the amount the Secretary esti-
mates to be necessary so that the aggregate amount
for such calendar year with respect to those enrollees
will equal the total amount which the Secretary esti-
mates will be payable under this section for benefits
accrued (including services performed and related
administrative costs incurred) in such calendar year
under the program under this section. In calculating
the monthly actuarial rate, the Secretary shall make
adjustments to take into account errors in esti-
mations under this paragraph for previous years and
shall include an appropriate amount for a contin-
gency margin.
‘‘(2) PREMIUM.—The monthly premium of each
individual enrolled under this section for a month in
a year shall be the monthly actuarial rate deter-
mined under paragraph (1) for months in such year.
Such premium shall not vary among enrollees based
upon the age, place of residence, or any other fac-
tors.
‘‘(3) COLLECTION.—The Secretary shall pro-
vide for the collection of premiums for enrollees
under this part in the same manner as premiums
under part B are collected under section 1840, ex-
cept that any reference in such section to the Fed-
232
eral Supplementary Medical Insurance Trust Fund
shall be deemed a reference to an account (to be
known as the ‘‘Direct Medicare Supplemental Insur-
ance Account’’) to be established in the Treasury by
the Secretary to carry out the program under this
section. Amounts in such account may be invested
and draw interest in the same manner as such Trust
Fund under section 1840(c).
‘‘(4) USE OF FUNDS.—Premium amounts de-
posited into the account established under paragraph
(3) shall be available without regard to appropria-
tions to the Secretary to make payment for benefits
and administrative costs incurred in carrying out
this section.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act and shall apply to benefits for months
beginning with January 2003.
Subtitle D—Improved Assistance to
Low-Income Beneficiaries
SEC. 241. INCREASE IN SLMB ELIGIBILITY TO 135 PERCENT
OF POVERTY; PRESUMPTIVE ENROLLMENT.
(a) INCREASE IN SLMB ELIGIBILITY TO 135 PER-
CENT
OF
POVERTY.—Section 1902(a)(10)(E)(iii) (42
U.S.C. 1396a(a)(10)(E)(iii)) is amended by striking ‘‘120
233
percent in 1995 and years thereafter’’ and inserting ‘‘120
percent in 1995 through 2003 and 135 percent in 2004
and years thereafter’’.
(b) PRESUMPTIVE ENROLLMENT.—Title XVIII is
amended by inserting after section 1806 the following new
section:
‘‘VOLUNTARY PROVISION OF INFORMATION TO ESTABLISH
PRESUMPTIVE
ELIGIBILITY; APPLICATION
OF
PRE-
SUMPTIVE ELIGIBILITY
‘‘SEC. 1807. (a) At the time an individual first ap-
plies for old-age and survivors insurance benefit payments
or disability insurance benefit payments under title II, the
Commissioner of Social Security shall ask the individual
to voluntarily disclose and attest to information on ex-
pected annual income and assets. If, on the basis of such
attestation, the Commissioner determines that the indi-
vidual qualifies for medical assistance for medicare cost-
sharing under title XIX (either as a qualified medicare
beneficiary, special low-income medicare beneficiary, or
otherwise), the Commissioner—
‘‘(1) shall transmit, to the State agency respon-
sible for administration of such title in the State in
which the individual resides, a certification of such
eligibility; and
234
‘‘(2) may, at the State’s option, conduct audits
to determine the individual’s eligibility for such as-
sistance.
‘‘(b) Unless otherwise determined under such an
audit, an individual certified under subsection (a)(1) (so
long as the individual is eligible for benefits under title
XVIII and notwithstanding any other provision of law)
shall be treated as having had an application approved for
the medical assistance under title XIX with respect to
medicare cost-sharing based on the levels of income and
assets certified by the Commissioner. Such an individual
need not apply separately for such benefit and the indi-
vidual is not required to reapply to qualify for such bene-
fits.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall be effective on and after January 1,
2004.
SEC. 242. MECHANISM PROMOTING PROVISION OF MEDI-
CARE COST-SHARING ASSISTANCE TO INDI-
VIDUALS WHO BECOME ELIGIBLE FOR SUCH
ASSISTANCE.
(a) IN GENERAL.—Part A of title XI is amended by
adding at the end the following new section:
235
‘‘PROMOTING
PROVISION
OF
MEDICARE
COST-SHARING
ASSISTANCE UNDER MEDICAID PROGRAM FOR IDEN-
TIFIED LOW-INCOME MEDICARE BENEFICIARIES
‘‘SEC. 1150A. (a) REQUIREMENT
FOR
DATA
MATCH.—
‘‘(1) REQUESTING MATCHING INFORMATION.—
The Commissioner of Social Security shall, not less
often than annually beginning with 2002, transmit
to the Secretary of the Treasury a list of the names
and taxpayer identification numbers (TIN) of medi-
care beneficiaries (as defined in section 6103(l)(18)
of the Internal Revenue Code of 1986) and request
that such Secretary disclose to the Secretary of
Health and Human Services the information de-
scribed in subparagraph (A) of such section.
‘‘(2) SPECIFICATION OF INCOME LEVELS.—The
Secretary shall specify—
‘‘(A) the items that will be included in de-
termination of income for purposes of applying
this section and section 6103(l)(18)(A)(i) of the
Internal Revenue Code of 1986; and
‘‘(B) the levels of such income (based upon
a percentage of the Federal poverty guidelines)
that individuals may have and qualify for med-
ical assistance under section 1902(a)(10)(E)(i)
236
of the Social Security Act (relating to assist-
ance for medicare cost-sharing benefits under
the Medicaid program).
‘‘(b) NOTICE TO INDIVIDUALS IDENTIFIED.—
‘‘(1) 
INITIAL
ELIGIBILITY.—The 
Secretary
promptly shall provide for an appropriate notice to
each individual identified under subsection (a) who
is described in section 6103(l)(18)(A)(i), of the fol-
lowing:
‘‘(A) Subject to subparagraph (B), the in-
dividual is deemed eligible for some form of
medical assistance for some medicare cost-shar-
ing under clause (i) or (iii) of section
1902(a)(10)(E), depending on the individual’s
level of income.
‘‘(B) By accepting such assistance the in-
dividual is obligated to notify the Secretary if
the individual is not eligible for such assistance
due to—
‘‘(i) the individual having tax-exempt
income;
‘‘(ii) the individual having countable
assets in excess of the maximum permis-
sible assets, if the individual resides in a
237
State that imposes an asset test for such
eligibility; or
‘‘(iii) the individual otherwise is not
eligible for such assistance.
‘‘(C) If the individual accepts such assist-
ance notwithstanding that the individual is not
eligible, the individual is liable to the State for
the amount of medical assistance provided (with
interest).
‘‘(2) CONTINUED ELIGIBILITY.—The Secretary
shall provide for an appropriate notice to each indi-
vidual identified under subsection (a) who is de-
scribed in section 6103(l)(18)(A)(ii), of the fol-
lowing: ‘Unless the individual declines coverage or
indicates otherwise, the individual will be enrolled
for the appropriate assistance with medicare cost-
sharing under the State plan operated under title
XIX for the State in which the individual resides.’
‘‘(c) NOTICE TO STATE.—In the case of an individual
who is identified under this section and resides in a State,
the Secretary shall provide for appropriate notice to the
State of the individual’s eligibility or termination of eligi-
bility (as the case may be) for medical assistance under
clause (i) or (iii) of section 1902(a)(10)(E), as the case
may be.’’.
238
(b) CONFORMING AMENDMENT TO MEDICAID PRO-
GRAM.—Section 1902 (42 U.S.C. 1396a), as amended by
section 702(b) of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000, as en-
acted into law by section 1(a)(6) of Public Law 106–554,
is amended by adding at the end the following:
‘‘(cc) A State shall treat an individual who is identi-
fied under section 1150A(b) as being eligible for medical
assistance under clause (i) or (ii) of subsection (a)(10)(E)
as being so eligible, until the Secretary notifies the State
otherwise, with respect to medical assistance for items and
services furnished on or after the date of the notice.’’.
(c) 
AUTHORIZATION
OF
DISCLOSURE.—Section
6103(l) of the Internal Revenue Code of 1986 (relating
to disclosure of returns and return information for pur-
poses other than tax administration) is amended by add-
ing at the end the following new paragraph:
‘‘(18) DISCLOSURE OF CERTAIN INFORMATION
IN ORDER TO QUALIFY FOR MEDICARE COST-SHAR-
ING ASSISTANCE.—
‘‘(A) IN GENERAL.—The Secretary shall,
upon written request from the Commissioner of
Social Security, disclose to the Secretary of
Health and Human Services, whether with re-
spect to any medicare beneficiary (as defined in
239
paragraph 
(12)(E)(i)) 
identified 
by 
the
Commissioner—
‘‘(i) there has not been filed an in-
come tax return for the most recent period
for which the Secretary has information; or
there has been such a return filed and the
amount of the gross income (or the sum of
such elements of gross income as the Sec-
retary of Health and Human Services may
specify) is below such level (or levels) as
such Secretary may specify to carry out
section 1150A(b) of the Social Security
Act, treating the number of dependents as
the size of the family involved; and
‘‘(ii) whether, for such an individual
who qualified for medicare cost-sharing as-
sistance described in section 1150A at any
time in the previous year, the individual is
still described in clause (i).
‘‘(B) DISCLOSURE BY HEALTH CARE FI-
NANCING
ADMINISTRATION.—With respect to
information disclosed under subparagraph (A),
the Administrator of the Health Care Financing
Administration may disclose to the appropriate
officials of a State responsible for administra-
240
tion of a State plan under title XIX of the So-
cial Security Act the name, address, and TIN
of the preliminary eligibility determination.
‘‘(C) SPECIAL RULES.—
‘‘(i) 
RESTRICTIONS
ON
DISCLO-
SURE.—Information 
may 
be 
disclosed
under this paragraph only for purposes of,
and to the extent necessary in, determining
the extent to which an individual bene-
ficiary is entitled to medical assistance
under a State plan under title XIX of the
Social Security Act for some or all medi-
care cost-sharing.
‘‘(ii) TIMELY
RESPONSES
TO
RE-
QUESTS.—Any request made under sub-
paragraph (A) shall be complied with as
soon as possible but in no event later than
60 days after the date the request was
made.’’.
241
Subtitle E—Medicare Early Access
and Tax Credits
PART I—ACCESS TO MEDICARE BENEFITS FOR
INDIVIDUALS 62-TO-65 YEARS OF AGE
SEC. 251. ACCESS TO MEDICARE BENEFITS FOR INDIVID-
UALS 62-TO-65 YEARS OF AGE.
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 201, is amended—
(1) by redesignating part E as part F; and
(2) by inserting after part D the following new
part:
‘‘PART E—PURCHASE OF MEDICARE BENEFITS BY
CERTAIN INDIVIDUALS AGE 62-TO-65 YEARS OF AGE
‘‘SEC. 1860. PROGRAM BENEFITS; ELIGIBILITY.
‘‘(a) ENTITLEMENT TO MEDICARE BENEFITS FOR
ENROLLED INDIVIDUALS.—
‘‘(1) IN
GENERAL.—An individual enrolled
under this part is entitled to the same benefits
under this title as an individual entitled to benefits
under part A and enrolled under part B.
‘‘(2) DEFINITIONS.—For purposes of this part:
‘‘(A) FEDERAL OR STATE COBRA CONTINU-
ATION PROVISION.—The term ‘Federal or State
COBRA continuation provision’ has the mean-
ing given the term ‘COBRA continuation provi-
242
sion’ in section 2791(d)(4) of the Public Health
Service Act and includes a comparable State
program, as determined by the Secretary.
‘‘(B) FEDERAL HEALTH INSURANCE PRO-
GRAM DEFINED.—The term ‘Federal health in-
surance program’ means any of the following:
‘‘(i) MEDICARE.—Part A or part B of
this title (other than by reason of this
part).
‘‘(ii) MEDICAID.—A State plan under
title XIX.
‘‘(iii) FEHBP.—The Federal employ-
ees health benefit program under chapter
89 of title 5, United States Code.
‘‘(iv) 
TRICARE.—The 
TRICARE
program (as defined in section 1072(7) of
title 10, United States Code).
‘‘(v) ACTIVE DUTY MILITARY.—Health
benefits under title 10, United States
Code, to an individual as a member of the
uniformed services of the United States.
‘‘(C) GROUP
HEALTH
PLAN.—The term
‘group health plan’ has the meaning given such
term in section 2791(a)(1) of the Public Health
Service Act.
243
‘‘(b) ELIGIBILITY OF INDIVIDUALS AGE 62-TO-65
YEARS OF AGE.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
an individual who meets the following requirements
with respect to a month is eligible to enroll under
this part with respect to such month:
‘‘(A) AGE.—As of the last day of the
month, the individual has attained 62 years of
age, but has not attained 65 years of age.
‘‘(B) MEDICARE
ELIGIBILITY
(BUT
FOR
AGE).—The individual would be eligible for ben-
efits under part A or part B for the month if
the individual were 65 years of age.
‘‘(C) 
NOT
ELIGIBLE
FOR
COVERAGE
UNDER
GROUP
HEALTH
PLANS
OR
FEDERAL
HEALTH
INSURANCE
PROGRAMS.—The indi-
vidual is not eligible for benefits or coverage
under a Federal health insurance program (as
defined in subsection (a)(2)(B)) or under a
group health plan (other than such eligibility
merely through a Federal or State COBRA con-
tinuation provision) as of the last day of the
month involved.
‘‘(2) LIMITATION
ON
ELIGIBILITY
IF
TERMI-
NATED ENROLLMENT.—If an individual described in
244
paragraph (1) enrolls under this part and coverage
of the individual is terminated under section
1860A(d) (other than because of age), the individual
is not again eligible to enroll under this subsection
unless the following requirements are met:
‘‘(A) NEW
COVERAGE
UNDER
GROUP
HEALTH
PLAN
OR
FEDERAL
HEALTH
INSUR-
ANCE PROGRAM.—After the date of termination
of coverage under such section, the individual
obtains coverage under a group health plan or
under a Federal health insurance program.
‘‘(B) SUBSEQUENT
LOSS
OF
NEW
COV-
ERAGE.—The individual subsequently loses eli-
gibility for the coverage described in subpara-
graph (A) and exhausts any eligibility the indi-
vidual may subsequently have for coverage
under a Federal or State COBRA continuation
provision.
‘‘(3) CHANGE
IN
HEALTH
PLAN
ELIGIBILITY
DOES NOT AFFECT COVERAGE.—In the case of an
individual who is eligible for and enrolls under this
part under this subsection, the individual’s continued
entitlement to benefits under this part shall not be
affected by the individual’s subsequent eligibility for
245
benefits or coverage described in paragraph (1)(C),
or entitlement to such benefits or coverage.
‘‘SEC. 1860A. ENROLLMENT PROCESS; COVERAGE.
‘‘(a) IN GENERAL.—An individual may enroll in the
program established under this part only in such manner
and form as may be prescribed by regulations, and only
during an enrollment period prescribed by the Secretary
consistent with the provisions of this section. Such regula-
tions shall provide a process under which—
‘‘(1) individuals eligible to enroll as of a month
are permitted to pre-enroll during a prior month
within an enrollment period described in subsection
(b); and
‘‘(2) each individual seeking to enroll under sec-
tion 1860(b) is notified, before enrolling, of the de-
ferred monthly premium amount the individual will
be liable for under section 1860C(b) upon attaining
65 years of age as determined under section
1860B(c)(3).
‘‘(b) ENROLLMENT PERIODS.—
‘‘(1) INDIVIDUALS 62-TO-65 YEARS OF AGE.—In
the case of individuals eligible to enroll under this
part under section 1860(b)—
‘‘(A) INITIAL
ENROLLMENT
PERIOD.—If
the individual is eligible to enroll under such
246
section for January 2002, the enrollment period
shall begin on November 1, 2001, and shall end
on February 28, 2002. Any such enrollment be-
fore January 1, 2002, is conditioned upon com-
pliance with the conditions of eligibility for Jan-
uary 2002.
‘‘(B) SUBSEQUENT PERIODS.—If the indi-
vidual is eligible to enroll under such section for
a month after January 2002, the enrollment pe-
riod shall begin on the first day of the second
month before the month in which the individual
first is eligible to so enroll and shall end four
months later. Any such enrollment before the
first day of the third month of such enrollment
period is conditioned upon compliance with the
conditions of eligibility for such third month.
‘‘(2) AUTHORITY
TO
CORRECT
FOR
GOVERN-
MENT ERRORS.—The provisions of section 1837(h)
apply with respect to enrollment under this part in
the same manner as they apply to enrollment under
part B.
‘‘(c) DATE COVERAGE BEGINS.—
‘‘(1) IN GENERAL.—The period during which
an individual is entitled to benefits under this part
247
shall begin as follows, but in no case earlier than
January 1, 2002:
‘‘(A) In the case of an individual who en-
rolls (including pre-enrolls) before the month in
which the individual satisfies eligibility for en-
rollment under section 1860, the first day of
such month of eligibility.
‘‘(B) In the case of an individual who en-
rolls during or after the month in which the in-
dividual first satisfies eligibility for enrollment
under such section, the first day of the fol-
lowing month.
‘‘(2) AUTHORITY
TO
PROVIDE
FOR
PARTIAL
MONTHS
OF
COVERAGE.—Under regulations, the
Secretary may, in the Secretary’s discretion, provide
for coverage periods that include portions of a
month in order to avoid lapses of coverage.
‘‘(3) LIMITATION ON PAYMENTS.—No payments
may be made under this title with respect to the ex-
penses of an individual enrolled under this part un-
less such expenses were incurred by such individual
during a period which, with respect to the individual,
is a coverage period under this section.
‘‘(d) TERMINATION OF COVERAGE.—
248
‘‘(1) IN
GENERAL.—An individual’s coverage
period under this part shall continue until the indi-
vidual’s enrollment has been terminated at the ear-
liest of the following:
‘‘(A) GENERAL PROVISIONS.—
‘‘(i) NOTICE.—The individual files no-
tice (in a form and manner prescribed by
the Secretary) that the individual no
longer wishes to participate in the insur-
ance program under this part.
‘‘(ii) NONPAYMENT OF PREMIUMS.—
The individual fails to make payment of
premiums required for enrollment under
this part.
‘‘(iii) MEDICARE
ELIGIBILITY.—The
individual becomes entitled to benefits
under part A or enrolled under part B
(other than by reason of this part).
‘‘(B) TERMINATION BASED ON AGE.—The
individual attains 65 years of age.
‘‘(2) EFFECTIVE DATE OF TERMINATION.—
‘‘(A) NOTICE.—The termination of a cov-
erage period under paragraph (1)(A)(i) shall
take effect at the close of the month following
for which the notice is filed.
249
‘‘(B) NONPAYMENT
OF
PREMIUM.—The
termination of a coverage period under para-
graph (1)(A)(ii) shall take effect on a date de-
termined under regulations, which may be de-
termined so as to provide a grace period in
which overdue premiums may be paid and cov-
erage continued. The grace period determined
under the preceding sentence shall not exceed
60 days; except that it may be extended for an
additional 30 days in any case where the Sec-
retary determines that there was good cause for
failure to pay the overdue premiums within
such 60-day period.
‘‘(C) AGE
OR
MEDICARE
ELIGIBILITY.—
The termination of a coverage period under
paragraph (1)(A)(iii) or (1)(B) shall take effect
as of the first day of the month in which the
individual attains 65 years of age or becomes
entitled to benefits under part A or enrolled for
benefits under part B (other than by reason of
this part).
‘‘SEC. 1860B. PREMIUMS.
‘‘(a) AMOUNT OF MONTHLY PREMIUMS.—
‘‘(1) BASE
MONTHLY
PREMIUMS.—The Sec-
retary shall, during September of each year (begin-
250
ning with 1998), determine the following premium
rates which shall apply with respect to coverage pro-
vided under this title for any month in the suc-
ceeding year:
‘‘(A) BASE MONTHLY PREMIUM FOR INDI-
VIDUALS 62 YEARS OF AGE OR OLDER.—A base
monthly premium for individuals 62 years of
age or older, equal to 1⁄12 of the base annual
premium rate computed under subsection (b)
for each premium area.
‘‘(2) DEFERRED MONTHLY PREMIUMS FOR IN-
DIVIDUALS 62 YEARS OF AGE OR OLDER.—The Sec-
retary shall, during September of each year (begin-
ning with 2001), determine under subsection (c) the
amount of deferred monthly premiums that shall
apply with respect to individuals who first obtain
coverage under this part under section 1860(b) in
the succeeding year.
‘‘(3) ESTABLISHMENT OF PREMIUM AREAS.—
For purposes of this part, the term ‘premium area’
means such an area as the Secretary shall specify to
carry out this part. The Secretary from time to time
may change the boundaries of such premium areas.
The Secretary shall seek to minimize the number of
such areas specified under this paragraph.
251
‘‘(b) BASE ANNUAL PREMIUM FOR INDIVIDUALS 62
YEARS OF AGE OR OLDER.—
‘‘(1) NATIONAL, PER
CAPITA
AVERAGE.—The
Secretary shall estimate the average, annual per
capita amount that would be payable under this title
with respect to individuals residing in the United
States who meet the requirement of section
1860(b)(1)(A) as if all such individuals were eligible
for (and enrolled) under this title during the entire
year (and assuming that section 1862(b)(2)(A)(i)
did not apply).
‘‘(2) GEOGRAPHIC
ADJUSTMENT.—The Sec-
retary shall adjust the amount determined under
paragraph (1) for each premium area (specified
under subsection (a)(3)) in order to take into ac-
count such factors as the Secretary deems appro-
priate and shall limit the maximum premium under
this paragraph in a premium area to assure partici-
pation in all areas throughout the United States.
‘‘(3) BASE ANNUAL PREMIUM.—The base an-
nual premium under this subsection for months in a
year for individuals 62 years of age or older residing
in a premium area is equal to the average, annual
per capita amount estimated under paragraph (1)
252
for the year, adjusted for such area under paragraph
(2).
‘‘(c) DEFERRED PREMIUM RATE FOR INDIVIDUALS
62 YEARS OF AGE OR OLDER.—The deferred premium
rate for individuals with a group of individuals who obtain
coverage under section 1860(b) in a year shall be com-
puted by the Secretary as follows:
‘‘(1) ESTIMATION OF NATIONAL, PER CAPITA
ANNUAL
AVERAGE
EXPENDITURES
FOR
ENROLL-
MENT GROUP.—The Secretary shall estimate the av-
erage, per capita annual amount that will be paid
under this part for individuals in such group during
the period of enrollment under section 1860(b). In
making such estimate for coverage beginning in a
year before 2005, the Secretary may base such esti-
mate on the average, per capita amount that would
be payable if the program had been in operation over
a previous period of at least 4 years.
‘‘(2) DIFFERENCE
BETWEEN
ESTIMATED
EX-
PENDITURES
AND
ESTIMATED
PREMIUMS.—Based
on the characteristics of individuals in such group,
the Secretary shall estimate during the period of
coverage of the group under this part under section
1860(b) the amount by which—
253
‘‘(A) the amount estimated under para-
graph (1); exceeds
‘‘(B) the average, annual per capita
amount of premiums that will be payable for
months during the year under section 1860C(a)
for individuals in such group (including pre-
miums that would be payable if there were no
terminations in enrollment under clause (i) or
(ii) of section 1860A(d)(1)(A)).
‘‘(3) ACTUARIAL COMPUTATION OF DEFERRED
MONTHLY
PREMIUM
RATES.—The Secretary shall
determine deferred monthly premium rates for indi-
viduals in such group in a manner so that—
‘‘(A) the estimated actuarial value of such
premiums payable under section 1860C(b), is
equal to
‘‘(B) the estimated actuarial present value
of the differences described in paragraph (2).
Such rate shall be computed for each individual in
the group in a manner so that the rate is based on
the number of months between the first month of
coverage based on enrollment under section 1860(b)
and the month in which the individual attains 65
years of age.
254
‘‘(4) DETERMINANTS OF ACTUARIAL PRESENT
VALUES.—The actuarial present values described in
paragraph (3) shall reflect—
‘‘(A) the estimated probabilities of survival
at ages 62 through 84 for individuals enrolled
during the year; and
‘‘(B) the estimated effective average inter-
est rates that would be earned on investments
held in the trust funds under this title during
the period in question.
‘‘SEC. 1860C. PAYMENT OF PREMIUMS.
‘‘(a) PAYMENT OF BASE MONTHLY PREMIUM.—
‘‘(1) IN GENERAL.—The Secretary shall provide
for payment and collection of the base monthly pre-
mium, determined under section 1860B(a)(1) for the
age (and age cohort, if applicable) of the individual
involved and the premium area in which the indi-
vidual principally resides, in the same manner as for
payment of monthly premiums under section 1840,
except that, for purposes of applying this section,
any reference in such section to the Federal Supple-
mentary Medical Insurance Trust Fund is deemed a
reference to the Trust Fund established under sec-
tion 1860D.
255
‘‘(2) PERIOD OF PAYMENT.—In the case of an
individual who participates in the program estab-
lished by this title, the base monthly premium shall
be payable for the period commencing with the first
month of the individual’s coverage period and ending
with the month in which the individual’s coverage
under this title terminates.
‘‘(b) PAYMENT OF DEFERRED PREMIUM FOR INDI-
VIDUALS COVERED AFTER ATTAINING AGE 62.—
‘‘(1) RATE OF PAYMENT.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is covered under this part for a
month pursuant to an enrollment under section
1860(b), subject to subparagraph (B), the indi-
vidual is liable for payment of a deferred pre-
mium in each month during the period de-
scribed in paragraph (2) in an amount equal to
the full deferred monthly premium rate deter-
mined 
for 
the 
individual 
under 
section
1860B(c).
‘‘(B) SPECIAL
RULES
FOR
THOSE
WHO
DISENROLL EARLY.—
‘‘(i) IN GENERAL.—If such an individ-
ual’s enrollment under such section is ter-
minated under clause (i) or (ii) of section
256
1860A(d)(1)(A), subject to clause (ii), the
amount of the deferred premium otherwise
established under this paragraph shall be
pro-rated to reflect the number of months
of coverage under this part under such en-
rollment compared to the maximum num-
ber of months of coverage that the indi-
vidual would have had if the enrollment
were not so terminated.
‘‘(ii) ROUNDING
TO
12-MONTH
MIN-
IMUM
COVERAGE
PERIODS.—In applying
clause (i), the number of months of cov-
erage (if not a multiple of 12) shall be
rounded to the next highest multiple of 12
months, except that in no case shall this
clause result in a number of months of
coverage exceeding the maximum number
of months of coverage that the individual
would have had if the enrollment were not
so terminated.
‘‘(2) PERIOD
OF
PAYMENT.—The period de-
scribed in this paragraph for an individual is the pe-
riod beginning with the first month in which the in-
dividual has attained 65 years of age and ending
257
with the month before the month in which the indi-
vidual attains 85 years of age.
‘‘(3) COLLECTION.—In the case of an individual
who is liable for a premium under this subsection,
the amount of the premium shall be collected in the
same manner as the premium for enrollment under
such part is collected under section 1840, except
that any reference in such section to the Federal
Supplementary Medical Insurance Trust Fund is
deemed to be a reference to the Medicare Early Ac-
cess Trust Fund established under section 1860D.
‘‘(c) APPLICATION OF CERTAIN PROVISIONS.—The
provisions of section 1840 (other than subsection (h))
shall apply to premiums collected under this section in the
same manner as they apply to premiums collected under
part B, except that any reference in such section to the
Federal Supplementary Medical Insurance Trust Fund is
deemed a reference to the Trust Fund established under
section 1860D.
‘‘SEC. 1860D. MEDICARE EARLY ACCESS TRUST FUND.
‘‘(a) ESTABLISHMENT OF TRUST FUND.—
‘‘(1) IN GENERAL.—There is hereby created on
the books of the Treasury of the United States a
trust fund to be known as the ‘Medicare Early Ac-
cess Trust Fund’ (in this section referred to as the
258
‘Trust Fund’). The Trust Fund shall consist of such
gifts and bequests as may be made as provided in
section 201(i)(1) and such amounts as may be de-
posited in, or appropriated to, such fund as provided
in this title.
‘‘(2) PREMIUMS.—Premiums collected under
section 1860B shall be transferred to the Trust
Fund.
‘‘(b) INCORPORATION OF PROVISIONS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
subsections (b) through (i) of section 1841 shall
apply with respect to the Trust Fund and this title
in the same manner as they apply with respect to
the Federal Supplementary Medical Insurance Trust
Fund and part B, respectively.
‘‘(2) MISCELLANEOUS REFERENCES.—In apply-
ing provisions of section 1841 under paragraph
(1)—
‘‘(A) any reference in such section to ‘this
part’ is construed to refer to this part E;
‘‘(B) any reference in section 1841(h) to
section 1840(d) and in section 1841(i) to sec-
tions 1840(b)(1) and 1842(g) are deemed ref-
erences to comparable authority exercised under
this part; and
259
‘‘(C) payments may be made under section
1841(g) to the Trust Funds under sections
1817 and 1841 as reimbursement to such funds
for payments they made for benefits provided
under this part.
‘‘SEC. 1860E. OVERSIGHT AND ACCOUNTABILITY.
‘‘(a) THROUGH ANNUAL REPORTS OF TRUSTEES.—
The Board of Trustees of the Medicare Early Access
Trust Fund under section 1860D(b)(1) shall report on an
annual basis to Congress concerning the status of the
Trust Fund and the need for adjustments in the program
under this part to maintain financial solvency of the pro-
gram under this part.
‘‘(b) PERIODIC GAO REPORTS.—The Comptroller
General of the United States shall periodically submit to
Congress reports on the adequacy of the financing of cov-
erage provided under this part. The Comptroller General
shall include in such report such recommendations for ad-
justments in such financing and coverage as the Comp-
troller General deems appropriate in order to maintain fi-
nancial solvency of the program under this part.
‘‘SEC. 1860F. ADMINISTRATION AND MISCELLANEOUS.
‘‘(a) TREATMENT FOR PURPOSES OF TITLE.—Ex-
cept as otherwise provided in this part—
260
‘‘(1) individuals enrolled under this part shall
be treated for purposes of this title as though the in-
dividual were entitled to benefits under part A and
enrolled under part B; and
‘‘(2) benefits described in section 1860 shall be
payable under this title to such individuals in the
same manner as if such individuals were so entitled
and enrolled.
‘‘(b) NOT TREATED AS MEDICARE PROGRAM FOR
PURPOSES OF MEDICAID PROGRAM.—For purposes of ap-
plying title XIX (including the provision of medicare cost-
sharing assistance under such title), an individual who is
enrolled under this part shall not be treated as being enti-
tled to benefits under this title.
‘‘(c) NOT TREATED AS MEDICARE PROGRAM FOR
PURPOSES OF COBRA CONTINUATION PROVISIONS.—In
applying a COBRA continuation provision (as defined in
section 2791(d)(4) of the Public Health Service Act), any
reference to an entitlement to benefits under this title
shall not be construed to include entitlement to benefits
under this title pursuant to the operation of this part.’’.
(b) CONFORMING AMENDMENTS TO SOCIAL SECU-
RITY ACT PROVISIONS.—
(1) Section 201(i)(1) of the Social Security Act
(42 U.S.C. 401(i)(1)) is amended by striking ‘‘or the
261
Federal Supplementary Medical Insurance Trust
Fund’’ and inserting ‘‘the Federal Supplementary
Medical Insurance Trust Fund, and the Medicare
Early Access Trust Fund’’.
(2) Section 201(g)(1)(A) of such Act (42
U.S.C. 401(g)(1)(A)) is amended by striking ‘‘and
the Federal Supplementary Medical Insurance Trust
Fund established by title XVIII’’ and inserting
‘‘, the Federal Supplementary Medical Insurance
Trust Fund, and the Medicare Early Access Trust
Fund established by title XVIII’’.
(3) Section 1820(i) of such Act (42 U.S.C.
1395i–4(i)) is amended by striking ‘‘part D’’ and in-
serting ‘‘part F’’.
(4) Section 1853(c) of such Act (42 U.S.C.
1395w–23(c)) is amended—
(A) in paragraph (1), by striking ‘‘or (7)’’
and inserting ‘‘, (7), or (8)’’, and
(B) by adding at the end the following:
‘‘(8) ADJUSTMENT FOR EARLY ACCESS.—In ap-
plying this subsection with respect to individuals en-
titled to benefits under part E, the Secretary shall
provide for an appropriate adjustment in the
Medicare+Choice capitation rate as may be appro-
priate to reflect differences between the population
262
served under such part and the population under
parts A and B.’’.
(c) OTHER CONFORMING AMENDMENTS.—
(2)(A) Section 602(2)(D)(ii) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1162(2)) is amended by inserting ‘‘(not including an
individual who is so entitled pursuant to enrollment
under section 1860A)’’ after ‘‘Social Security Act’’.
(B) Section 2202(2)(D)(ii) of the Public Health
Service Act (42 U.S.C. 300bb–2(2)(D)(ii)) is amend-
ed by inserting ‘‘(not including an individual who is
so entitled pursuant to enrollment under section
1860A)’’ after ‘‘Social Security Act’’.
(C) Section 4980B(f)(2)(B)(i)(V) of the Inter-
nal Revenue Code of 1986 is amended by inserting
‘‘(not including an individual who is so entitled pur-
suant to enrollment under section 1860A)’’ after
‘‘Social Security Act’’.
PART II—ACCESS TO MEDICARE BENEFITS FOR
DISPLACED WORKERS 55-TO-62 YEARS OF AGE
SEC. 252. ACCESS TO MEDICARE BENEFITS FOR DISPLACED
WORKERS 55-TO-62 YEARS OF AGE.
(a) ELIGIBILITY.—Section 1860, as inserted by sec-
tion 251(a)(2), is amended by adding at the end the fol-
lowing new subsection:
263
‘‘(c) DISPLACED WORKERS AND SPOUSES.—
‘‘(1) DISPLACED WORKERS.—Subject to para-
graph (3), an individual who meets the following re-
quirements with respect to a month is eligible to en-
roll under this part with respect to such month:
‘‘(A) AGE.—As of the last day of the
month, the individual has attained 55 years of
age, but has not attained 62 years of age.
‘‘(B) MEDICARE
ELIGIBILITY
(BUT
FOR
AGE).—The individual would be eligible for ben-
efits under part A or part B for the month if
the individual were 65 years of age.
‘‘(C) LOSS OF EMPLOYMENT-BASED COV-
ERAGE.—
‘‘(i) ELIGIBLE
FOR
UNEMPLOYMENT
COMPENSATION.—The individual meets the
requirements relating to period of covered
employment and conditions of separation
from employment to be eligible for unem-
ployment compensation (as defined in sec-
tion 85(b) of the Internal Revenue Code of
1986), based on a separation from employ-
ment occurring on or after July 1, 2001.
The previous sentence shall not be con-
264
strued as requiring the individual to be re-
ceiving such unemployment compensation.
‘‘(ii) LOSS
OF
EMPLOYMENT-BASED
COVERAGE.—Immediately before the time
of such separation of employment, the indi-
vidual was covered under a group health
plan on the basis of such employment, and,
because of such loss, is no longer eligible
for coverage under such plan (including
such eligibility based on the application of
a Federal or State COBRA continuation
provision) as of the last day of the month
involved.
‘‘(iii) PREVIOUS
CREDITABLE
COV-
ERAGE FOR AT LEAST 1 YEAR.—As of the
date on which the individual loses coverage
described in clause (ii), the aggregate of
the periods of creditable coverage (as de-
termined under section 2701(c) of the
Public Health Service Act) is 12 months or
longer.
‘‘(D) EXHAUSTION OF AVAILABLE COBRA
CONTINUATION BENEFITS.—
265
‘‘(i) IN GENERAL.—In the case of an
individual described in clause (ii) for a
month described in clause (iii)—
‘‘(I) the individual (or spouse)
elected coverage described in clause
(ii); and
‘‘(II) the individual (or spouse)
has continued such coverage for all
months described in clause (iii) in
which the individual (or spouse) is eli-
gible for such coverage.
‘‘(ii) INDIVIDUALS TO WHOM COBRA
CONTINUATION
COVERAGE
MADE
AVAIL-
ABLE.—An individual described in this
clause is an individual—
‘‘(I) who was offered coverage
under a Federal or State COBRA
continuation provision at the time of
loss of coverage eligibility described in
subparagraph (C)(ii); or
‘‘(II) whose spouse was offered
such coverage in a manner that per-
mitted coverage of the individual at
such time.
266
‘‘(iii) MONTHS
OF
POSSIBLE
COBRA
CONTINUATION COVERAGE.—A month de-
scribed in this clause is a month for which
an individual described in clause (ii) could
have had coverage described in such clause
as of the last day of the month if the indi-
vidual (or the spouse of the individual, as
the case may be) had elected such coverage
on a timely basis.
‘‘(E) 
NOT
ELIGIBLE
FOR
COVERAGE
UNDER
FEDERAL
HEALTH
INSURANCE
PRO-
GRAM OR GROUP HEALTH PLANS.—The indi-
vidual is not eligible for benefits or coverage
under a Federal health insurance program or
under a group health plan (whether on the
basis of the individual’s employment or employ-
ment of the individual’s spouse) as of the last
day of the month involved.
‘‘(2) SPOUSE OF DISPLACED WORKER.—Subject
to paragraph (3), an individual who meets the fol-
lowing requirements with respect to a month is eligi-
ble to enroll under this part with respect to such
month:
267
‘‘(A) AGE.—As of the last day of the
month, the individual has not attained 62 years
of age.
‘‘(B) MARRIED TO DISPLACED WORKER.—
The individual is the spouse of an individual at
the time the individual enrolls under this part
under paragraph (1) and loses coverage de-
scribed in paragraph (1)(C)(ii) because the in-
dividual’s spouse lost such coverage.
‘‘(C) MEDICARE
ELIGIBILITY
(BUT
FOR
AGE); EXHAUSTION OF ANY COBRA CONTINU-
ATION COVERAGE; AND NOT ELIGIBLE FOR COV-
ERAGE UNDER FEDERAL HEALTH INSURANCE
PROGRAM OR GROUP HEALTH PLAN.—The indi-
vidual meets the requirements of subparagraphs
(B), (D), and (E) of paragraph (1).
‘‘(3) CHANGE
IN
HEALTH
PLAN
ELIGIBILITY
AFFECTS
CONTINUED
ELIGIBILITY.—For provision
that terminates enrollment under this section in the
case of an individual who becomes eligible for cov-
erage under a group health plan or under a Federal
health 
insurance 
program, 
see 
section
1860A(d)(1)(C).
‘‘(4) REENROLLMENT PERMITTED.—Nothing in
this subsection shall be construed as preventing an
268
individual who, after enrolling under this subsection,
terminates such enrollment from subsequently re-
enrolling under this subsection if the individual is el-
igible to enroll under this subsection at that time.’’.
(b) ENROLLMENT.—Section 1860A, as so inserted, is
amended—
(1) in subsection (a), by striking ‘‘and’’ at the
end of paragraph (1), by striking the period at the
end of paragraph (2) and inserting ‘‘; and’’, and by
adding at the end the following new paragraph:
‘‘(3) individuals whose coverage under this part
would terminate because of subsection (d)(1)(B)(ii)
are provided notice and an opportunity to continue
enrollment 
in 
accordance 
with 
section
1860E(c)(1).’’;
(2) in subsection (b), by inserting after Not-
withstanding any other provision of law, (1) the fol-
lowing:
‘‘(2) DISPLACED WORKERS AND SPOUSES.—In
the case of individuals eligible to enroll under this
part under section 1860(c), the following rules
apply:
‘‘(A) INITIAL
ENROLLMENT
PERIOD.—If
the individual is first eligible to enroll under
such section for January 2002, the enrollment
269
period shall begin on November 1, 2001, and
shall end on February 28, 2002. Any such en-
rollment before January 1, 2002, is conditioned
upon compliance with the conditions of eligi-
bility for January 2002.
‘‘(B) SUBSEQUENT PERIODS.—If the indi-
vidual is eligible to enroll under such section for
a month after January 2002, the enrollment pe-
riod based on such eligibility shall begin on the
first day of the second month before the month
in which the individual first is eligible to so en-
roll (or reenroll) and shall end four months
later.’’;
(3) in subsection (d)(1), by amending subpara-
graph (B) to read as follows:
‘‘(B) TERMINATION BASED ON AGE.—
‘‘(i) AT
AGE
65.—Subject to clause
(ii), the individual attains 65 years of age.
‘‘(ii) AT
AGE
FOR
DISPLACED
WORKERS AND SPOUSES.—In the case of
an individual enrolled under this part pur-
suant to section 1860(c), subject to sub-
section (a)(1), the individual attains 62
years of age.’’;
270
(4) in subsection (d)(1), by adding at the end
the following new subparagraph:
‘‘(C) OBTAINING ACCESS TO EMPLOYMENT-
BASED COVERAGE OR FEDERAL HEALTH INSUR-
ANCE
PROGRAM
FOR
INDIVIDUALS
UNDER
YEARS OF AGE.—In the case of an individual
who has not attained 62 years of age, the indi-
vidual is covered (or eligible for coverage) as a
participant or beneficiary under a group health
plan or under a Federal health insurance pro-
gram.’’;
(5) in subsection (d)(2), by amending subpara-
graph (C) to read as follows:
‘‘(C) AGE OR MEDICARE ELIGIBILITY.—
‘‘(i) IN
GENERAL.—The termination
of a coverage period under paragraph
(1)(A)(iii) or (1)(B)(i) shall take effect as
of the first day of the month in which the
individual attains 65 years of age or be-
comes entitled to benefits under part A or
enrolled for benefits under part B.
‘‘(ii) DISPLACED WORKERS.—The ter-
mination of a coverage period under para-
graph (1)(B)(ii) shall take effect as of the
first day of the month in which the indi-
271
vidual attains 62 years of age, unless the
individual has enrolled under this part pur-
suant to section 1860(b) and section
1860E(c)(1).’’; and
(6) in subsection (d)(2), by adding at the end
the following new subparagraph:
‘‘(D) ACCESS TO COVERAGE.—The termi-
nation of a coverage period under paragraph
(1)(C) shall take effect on the date on which
the individual is eligible to begin a period of
creditable coverage (as defined in section
2701(c) of the Public Health Service Act)
under a group health plan or under a Federal
health insurance program.’’.
(c) PREMIUMS.—Section 1860B, as so inserted, is
amended—
(1) in subsection (a)(1), by adding at the end
the following:
‘‘(B) BASE MONTHLY PREMIUM FOR INDI-
VIDUALS UNDER 62 YEARS OF AGE.—A base
monthly premium for individuals under 62
years of age, equal to 1⁄12 of the base annual
premium rate computed under subsection (d)(3)
for each premium area and age cohort.’’; and
272
(2) by adding at the end the following new sub-
section:
‘‘(d) BASE MONTHLY PREMIUM FOR INDIVIDUALS
UNDER 62 YEARS OF AGE.—
‘‘(1) NATIONAL, PER CAPITA AVERAGE FOR AGE
GROUPS.—
‘‘(A) ESTIMATE
OF
AMOUNT.—The Sec-
retary shall estimate the average, annual per
capita amount that would be payable under this
title with respect to individuals residing in the
United States who meet the requirement of sec-
tion 1860(c)(1)(A) within each of the age co-
horts established under subparagraph (B) as if
all such individuals within such cohort were eli-
gible for (and enrolled) under this title during
the entire year (and assuming that section
1862(b)(2)(A)(i) did not apply).
‘‘(B) AGE
COHORTS.—For purposes of
subparagraph (A), the Secretary shall establish
separate age cohorts in 5 year age increments
for individuals who have not attained 60 years
of ages and a separate cohort for individuals
who have attained 60 years of age.
‘‘(2) GEOGRAPHIC
ADJUSTMENT.—The Sec-
retary shall adjust the amount determined under
273
paragraph (1)(A) for each premium area (specified
under subsection (a)(3)) in the same manner and to
the same extent as the Secretary provides for adjust-
ments under subsection (b)(2).
‘‘(3) BASE ANNUAL PREMIUM.—The base an-
nual premium under this subsection for months in a
year for individuals in an age cohort under para-
graph (1)(B) in a premium area is equal to 165 per-
cent of the average, annual per capita amount esti-
mated under paragraph (1) for the age cohort and
year, adjusted for such area under paragraph (2).
‘‘(4) PRO-RATION OF PREMIUMS TO REFLECT
COVERAGE DURING A PART OF A MONTH.—If the
Secretary provides for coverage of portions of a
month under section 1860A(c)(2), the Secretary
shall pro-rate the premiums attributable to such cov-
erage under this section to reflect the portion of the
month so covered.’’.
(d) ADMINISTRATIVE PROVISIONS.—Section 1860F,
as so inserted, is amended by adding at the end the fol-
lowing:
‘‘(d) ADDITIONAL ADMINISTRATIVE PROVISIONS.—
‘‘(1) PROCESS FOR CONTINUED ENROLLMENT
OF DISPLACED WORKERS WHO ATTAIN 62 YEARS OF
AGE.—The Secretary shall provide a process for the
274
continuation of enrollment of individuals whose en-
rollment under section 1860(c) would be terminated
upon attaining 62 years of age. Under such process
such individuals shall be provided appropriate and
timely notice before the date of such termination
and of the requirement to enroll under this part pur-
suant to section 1860(b) in order to continue entitle-
ment to benefits under this title after attaining 62
years of age.
‘‘(2) ARRANGEMENTS WITH STATES FOR DE-
TERMINATIONS RELATING TO UNEMPLOYMENT COM-
PENSATION ELIGIBILITY.—The Secretary may pro-
vide for appropriate arrangements with States for
the determination of whether individuals in the State
meet or would meet the requirements of section
1860(c)(1)(C)(i).’’.
(e) CONFORMING AMENDMENT
TO HEADING
TO
PART.—The heading of part E of title XVIII, as so in-
serted, is amended by striking ‘‘62’’ and inserting ‘‘55’’.
275
PART III—COBRA PROTECTION FOR EARLY
RETIREES
Subpart A—Amendments to the Employee
Retirement Income Security Act of 1974
SEC. 253. COBRA CONTINUATION BENEFITS FOR CERTAIN
RETIRED 
WORKERS 
WHO 
LOSE 
RETIREE
HEALTH COVERAGE.
(a) 
ESTABLISHMENT
OF
NEW
QUALIFYING
EVENT.—
(1) IN GENERAL.—Section 603 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1163) is amended by inserting after paragraph (6)
the following new paragraph:
‘‘(7) The termination or substantial reduction
in benefits (as defined in section 607(7)) of group
health plan coverage as a result of plan changes or
termination in the case of a covered employee who
is a qualified retiree.’’.
(2) QUALIFIED
RETIREE; QUALIFIED
BENE-
FICIARY; 
AND
SUBSTANTIAL
REDUCTION
DE-
FINED.—Section 607 of such Act (29 U.S.C. 1167)
is amended—
(A) in paragraph (3)—
(i) in subparagraph (A), by inserting
‘‘except as otherwise provided in this para-
graph,’’ after ‘‘means,’’; and
276
(ii) by adding at the end the following
new subparagraph:
‘‘(D) SPECIAL RULE FOR QUALIFYING RE-
TIREES AND DEPENDENTS.—In the case of a
qualifying event described in section 603(7), the
term ‘qualified beneficiary’ means a qualified
retiree and any other individual who, on the day
before such qualifying event, is a beneficiary
under the plan on the basis of the individual’s
relationship to such qualified retiree.’’; and
(B) by adding at the end the following new
paragraphs:
‘‘(6) QUALIFIED RETIREE.—The term ‘qualified
retiree’ means, with respect to a qualifying event de-
scribed in section 603(7), a covered employee who,
at the time of the event—
‘‘(A) has attained 55 years of age; and
‘‘(B) was receiving group health coverage
under the plan by reason of the retirement of
the covered employee.
‘‘(7) SUBSTANTIAL
REDUCTION.—The term
‘substantial reduction’—
‘‘(A) means, as determined under regula-
tions of the Secretary and with respect to a
qualified beneficiary, a reduction in the average
277
actuarial value of benefits under the plan
(through reduction or elimination of benefits,
an increase in premiums, deductibles, copay-
ments, and coinsurance, or any combination
thereof), since the date of commencement of
coverage of the beneficiary by reason of the re-
tirement of the covered employee (or, if later,
January 6, 2001), in an amount equal to at
least 50 percent of the total average actuarial
value of the benefits under the plan as of such
date (taking into account an appropriate ad-
justment to permit comparison of values over
time); and
‘‘(B) includes an increase in premiums re-
quired to an amount that exceeds the premium
level described in the fourth sentence of section
602(3).’’.
(b) DURATION OF COVERAGE THROUGH AGE 65.—
Section 602(2)(A) of such Act (29 U.S.C. 1162(2)(A)) is
amended—
(1) in clause (ii), by inserting ‘‘or 603(7)’’ after
‘‘603(6)’’;
(2) in clause (iv), by striking ‘‘or 603(6)’’ and
inserting ‘‘, 603(6), or 603(7)’’;
(3) by redesignating clause (iv) as clause (vi);
278
(4) by redesignating clause (v) as clause (iv)
and by moving such clause to immediately follow
clause (iii); and
(5) by inserting after such clause (iv) the fol-
lowing new clause:
‘‘(v) SPECIAL RULE FOR CERTAIN DE-
PENDENTS IN CASE OF TERMINATION OR
SUBSTANTIAL
REDUCTION
OF
RETIREE
HEALTH
COVERAGE.—In the case of a
qualifying 
event 
described 
in 
section
603(7), in the case of a qualified bene-
ficiary described in section 607(3)(D) who
is not the qualified retiree or spouse of
such retiree, the later of—
‘‘(I) the date that is 36 months
after the earlier of the date the quali-
fied retiree becomes entitled to bene-
fits under title XVIII of the Social Se-
curity Act, or the date of the death of
the qualified retiree; or
‘‘(II) the date that is 36 months
after the date of the qualifying
event.’’.
(c) TYPE OF COVERAGE IN CASE OF TERMINATION
OR SUBSTANTIAL REDUCTION OF RETIREE HEALTH COV-
279
ERAGE.—Section 602(1) of such Act (29 U.S.C. 1162(1))
is amended—
(1) by striking ‘‘The coverage’’ and inserting
the following:
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the coverage’’; and
(2) by adding at the end the following:
‘‘(B) CERTAIN RETIREES.—In the case of
a qualifying event described in section 603(7),
in applying the first sentence of subparagraph
(A) and the fourth sentence of paragraph (3),
the coverage offered that is the most prevalent
coverage option (as determined under regula-
tions of the Secretary) continued under the
group health plan (or, if none, under the most
prevalent other plan offered by the same plan
sponsor) shall be treated as the coverage de-
scribed in such sentence, or (at the option of
the plan and qualified beneficiary) such other
coverage option as may be offered and elected
by the qualified beneficiary involved.’’.
(d) INCREASED LEVEL OF PREMIUMS PERMITTED.—
Section 602(3) of such Act (29 U.S.C. 1162(3)) is amend-
ed by adding at the end the following new sentence: ‘‘In
the case of an individual provided continuation coverage
280
by reason of a qualifying event described in section
603(7), any reference in subparagraph (A) of this para-
graph to ‘102 percent of the applicable premium’ is
deemed a reference to ‘125 percent of the applicable pre-
mium for employed individuals (and their dependents, if
applicable) for the coverage option referred to in para-
graph (1)(B)’.’’.
(e) NOTICE.—Section 606(a) of such Act (29 U.S.C.
1166) is amended—
(1) in paragraph (4)(A), by striking ‘‘or (6)’’
and inserting ‘‘(6), or (7)’’; and
(2) by adding at the end the following:
‘‘The notice under paragraph (4) in the case of a quali-
fying event described in section 603(7) shall be provided
at least 90 days before the date of the qualifying event.’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (e)(2)) shall
apply to qualifying events occurring on or after Jan-
uary 6, 2001. In the case of a qualifying event oc-
curring on or after such date and before the date of
the enactment of this Act, such event shall be
deemed (for purposes of such amendments) to have
occurred on the date of the enactment of this Act.
294
PART IV—50 PERCENT CREDIT AGAINST INCOME
TAX FOR MEDICARE BUY-IN PREMIUMS AND
FOR CERTAIN COBRA CONTINUATION COV-
ERAGE PREMIUMS
SEC. 256. 50 PERCENT CREDIT FOR MEDICARE BUY-IN PRE-
MIUMS AND FOR CERTAIN COBRA CONTINU-
ATION COVERAGE PREMIUMS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable personal credits) is
amended by inserting after section 25A the following new
section:
‘‘SEC. 25B. MEDICARE BUY-IN PREMIUMS AND CERTAIN
COBRA 
CONTINUATION 
COVERAGE 
PRE-
MIUMS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to
50 percent of the amount paid during such year as—
‘‘(1) qualified continuation health coverage pre-
miums, and
‘‘(2) medicare buy-in coverage premiums.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED CONTINUATION HEALTH COV-
ERAGE
PREMIUMS.—The term ‘qualified continu-
ation health coverage premiums’ means, for any pe-