I
107TH CONGRESS
2D SESSION
H. R. 4954
To amend title XVIII of the Social Security Act to provide for a voluntary
program for prescription drug coverage under the Medicare Program,
to modernize and reform payments and the regulatory structure of the
Medicare Program, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 18, 2002
Mrs. JOHNSON of Connecticut (for herself and Mr. BILIRAKIS) introduced the
following bill; which was referred to the Committee on Energy and Com-
merce, and in addition to the Committee on Ways and Means, for a pe-
riod to be subsequently determined by the Speaker, in each case for con-
sideration of such provisions as fall within the jurisdiction of the com-
mittee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
for a voluntary program for prescription drug coverage
under the Medicare Program, to modernize and reform
payments and the regulatory structure of the Medicare
Program, and for other purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SE-
CURITY ACT; REFERENCES TO BIPA AND
SECRETARY; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Medi-
care Modernization and Prescription Drug Act of 2002’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except as
otherwise specifically provided, whenever in this Act an amend-
ment is expressed in terms of an amendment to or repeal of
a section or other provision, the reference shall be considered
to be made to that section or other provision of the Social Se-
curity Act.
(c) BIPA; SECRETARY.—In this Act:
(1) BIPA.—The term ‘‘BIPA’’ means 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.
(2) SECRETARY.—The term ‘‘Secretary’’ means the
Secretary of Health and Human Services.
(d) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; references to BIPA
and Secretary; table of contents.
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT
Sec. 101. Establishment of a medicare prescription drug benefit.
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM
‘‘Sec. 1860A. Benefits; eligibility; enrollment; and coverage period.
‘‘Sec. 1860B. Requirements for qualified prescription drug coverage.
‘‘Sec. 1860C. Beneficiary protections for qualified prescription drug
coverage.
‘‘Sec. 1860D. Requirements for prescription drug plan (PDP) spon-
sors; contracts; establishment of standards.
‘‘Sec. 1860E. Process for beneficiaries to select qualified prescription
drug coverage.
‘‘Sec. 1860F. Submission of bids.
‘‘Sec. 1860G. Premium and cost-sharing subsidies for low-income indi-
viduals.
‘‘Sec. 1860H. Subsidies for all medicare beneficiaries for qualified pre-
scription drug coverage.
‘‘Sec. 1860I. Medicare Prescription Drug Trust Fund.
‘‘Sec. 1860J. Definitions; treatment of references to provisions in part
C.
Sec. 102. Offering of qualified prescription drug coverage under the
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.
TITLE II—MEDICARE+CHOICE REVITALIZATION AND
MEDICARE+CHOICE COMPETITION PROGRAM
Subtitle A—Medicare+Choice Revitalization
Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting dead-
lines and annual, coordinated election period.
Sec. 203. Avoiding duplicative State regulation.
Sec. 204. Specialized Medicare+Choice plans for special needs bene-
ficiaries.
Sec. 205. Medicare MSAs.
Sec. 206. Extension of reasonable cost and SHMO contracts.
Subtitle B—Medicare+Choice Competition Program
Sec. 211. Medicare+Choice competition program.
Sec. 212. Demonstration program for competitive-demonstration areas.
Sec. 213. Conforming amendments.
TITLE III—RURAL HEALTH CARE IMPROVEMENTS
Sec. 301. Reference to full market basket increase for sole community hos-
pitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for
rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural
and small urban areas to achieve a single, uniform standardized
amount.
Sec. 304. More frequent update in weights used in hospital market basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services fur-
nished in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care fur-
nished in a frontier area and rural hospice demonstration project.
Sec. 308. Reference to priority for hospitals located in rural or small urban
areas in redistribution of unused graduate medical education
residencies.
Sec. 309. GAO study of geographic differences in payments for physicians’
services.
Sec. 310. Providing safe harbor for certain collaborative efforts that benefit
medically underserved populations.
TITLE IV—PROVISIONS RELATING TO PART A
Subtitle A—Inpatient Hospital Services
Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. 2-year increase in level of adjustment for indirect costs of med-
ical education (IME).
Sec. 403. Recognition of new medical technologies under inpatient hospital
PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate
share hospital (DSH) payments for rural hospitals and urban hos-
pitals with fewer than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase in
the standardized amount in rural and small urban areas to
achieve a single, uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the weights
used in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access
hospital program.for more frequent updates in the weights used
in hospital market basket.
Subtitle B—Skilled Nursing Facility Services
Sec. 411. Payment for covered skilled nursing facility services.
Subtitle C—Hospice
Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in a
frontier area.
Sec. 423. Rural hospice demonstration project.
Subtitle D—Other Provisions
Sec. 431. Demonstration project for use of recovery audit contractors for
part A services.
TITLE V—PROVISIONS RELATING TO PART B
Subtitle A—Physicians’ Services
Sec. 501. Revision of updates for physicians’ services.
Sec. 502. Studies on access to physicians’ services.
Sec. 503. MedPAC report on payment for physicians’ services.
Subtitle B—Other Services
Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 1-year extension of moratorium on therapy caps; provisions relat-
ing to reports.
Sec. 514. Accelerated implementation of 20 percent coinsurance for hos-
pital outpatient department (OPD) services; other OPD provi-
sions.
Sec. 515. Coverage of an initial preventive physical examination.
Sec. 516. Renal dialysis services.
TITLE VI—PROVISIONS RELATING TO PARTS A AND B
Subtitle A—Home Health Services
Sec. 601. Elimination of 15 percent reduction in payment rates under the
prospective payment system.
Sec. 602. Establishment of reduced copayment for a home health service
episode of care for certain beneficiaries.
Sec. 603. Update in home health services.
Sec. 604. OASIS Task Force; suspension of certain OASIS data collection
requirements pending Task Force submittal of report.
Sec. 605. MedPAC study on medicare margins of home health agencies.
Subtitle B—Direct Graduate Medical Education
Sec. 611. Extension of update limitation on high cost programs.
Sec. 612. Redistribution of unused resident positions.
Subtitle C—Other Provisions
Sec. 621. Modifications to Medicare Payment Advisory Commission
(MedPAC).
Sec. 622. Demonstration project for disease management for certain medi-
care beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
TITLE VII—MEDICARE BENEFITS ADMINISTRATION
Sec. 701. Establishment of Medicare Benefits Administration.
TITLE VIII—REGULATORY REDUCTION AND CONTRACTING
REFORM
Subtitle A—Regulatory Reform
Sec. 801. Construction; definition of supplier.
Sec. 802. Issuance of regulations.
Sec. 803. Compliance with changes in regulations and policies.
Sec. 804. Reports and studies relating to regulatory reform.
Subtitle B—Contracting Reform
Sec. 811. Increased flexibility in medicare administration.
Sec. 812. Requirements for information security for medicare administra-
tive contractors.
Subtitle C—Education and Outreach
Sec. 821. Provider education and technical assistance.
Sec. 822. Small provider technical assistance demonstration program.
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 824. Beneficiary outreach demonstration program.
Subtitle D—Appeals and Recovery
Sec. 831. Transfer of responsibility for medicare appeals.
Sec. 832. Process for expedited access to review.
Sec. 833. Revisions to medicare appeals process.
Sec. 834. Prepayment review.
Sec. 835. Recovery of overpayments.
Sec. 836. Provider enrollment process; right of appeal.
Sec. 837. Process for correction of minor errors and omissions on claims
without pursuing appeals process.
Sec. 838. Prior determination process for certain items and services; ad-
vance beneficiary notices.
Subtitle E—Miscellaneous Provisions
Sec. 841. Policy development regarding evaluation and management (E &
M) documentation guidelines.
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare sec-
ondary payor (MSP) provisions.
Sec. 844. EMTALA improvements.
Sec. 845. Emergency Medical Treatment and Active Labor Act (EMTALA)
Technical Advisory Group.
Sec. 846. Authorizing use of arrangements with other hospice programs to
provide core hospice services in certain circumstances.
Sec. 847. Application of OSHA bloodborne pathogens standard to certain
hospitals.
Sec. 848. BIPA-related technical amendments and corrections.
Sec. 849. Conforming authority to waive a program exclusion.
Sec. 850. Treatment of certain dental claims.
Sec. 851. Annual publication of list of national coverage determinations.
TITLE IX—MEDICAID, PUBLIC HEALTH, AND OTHER HEALTH
PROVISIONS
Subtitle A—Medicaid Provisions
Sec. 901. National Bipartisan Commission on the Future of Medicaid.
Sec. 902. GAO study on medicaid drug payment system.
Subtitle B—Internet Pharmacies
Sec. 911. Findings.
Sec. 912. Amendment to Federal Food, Drug, and Cosmetic Act.
Sec. 913. Public education.
Sec. 914. Study regarding coordination of regulatory activities.
Sec. 915. Effective date.
Subtitle C—Promotion of Electronic Prescription
Sec. 921. Program of grants to health care providers to implement elec-
tronic prescription drug programs.
Subtitle D—Treatment of Rare Diseases
Sec. 931. NIH Office of Rare Diseases at National Institutes of Health.
Sec. 932. Rare disease regional centers of excellence.
Subtitle E—Other Provisions Relating to Drugs
Sec. 941. GAO study regarding direct-to-consumer advertising of prescrip-
tion drugs.
Sec. 942. Certain health professions programs regarding practice of phar-
macy.
‘‘SUBPART 3—PHARMACIST WORKFORCE PROGRAMS
‘‘Sec. 771. Public service announcements.
‘‘Sec. 772. Demonstration project.
‘‘Sec. 773. Information technology.
‘‘Sec. 774. Authorization of appropriations.
TITLE X—HEALTH-CARE RELATED TAX PROVISIONS
Sec. 1001. Eligibility for Archer MSA’s extended to account holders of
Medicare+Choice MSA’s.
Sec. 1002. Adjustment of employer contributions to Combined Benefit Fund
to reflect medicare prescription drug subsidy payments.
Sec. 1003. Expansion of human clinical trials qualifying for orphan drug
credit.
TITLE I—MEDICARE
PRESCRIPTION DRUG BENEFIT
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIP-
TION DRUG BENEFIT.
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT;
AND COVERAGE PERIOD.
‘‘(a) PROVISION
OF QUALIFIED PRESCRIPTION DRUG
COVERAGE THROUGH ENROLLMENT
IN PLANS.—Subject to
the succeeding provisions of this part, each individual who is
entitled to benefits under part A or is enrolled under part B
is entitled to obtain qualified prescription drug coverage (de-
scribed in section 1860B(a)) as follows:
‘‘(1) MEDICARE+CHOICE PLAN.—If the individual is
eligible to enroll in a Medicare+Choice plan that provides
qualified prescription drug coverage under section 1851(j),
the individual may enroll in the plan and obtain coverage
through such plan.
‘‘(2) PRESCRIPTION DRUG PLAN.—If the individual is
not enrolled in a Medicare+Choice plan that provides
qualified prescription drug coverage, the individual may en-
roll under this part in a prescription drug plan (as defined
in section 1860J(a)(5)).
Such individuals shall have a choice of such plans under section
1860E(d).
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN GENERAL.—An individual eligible to make an
election under subsection (a) may elect to enroll in a pre-
scription drug plan under this part, or elect the option of
qualified 
prescription 
drug 
coverage 
under 
a
Medicare+Choice plan under part C, and to change such
election only in such manner and form as may be pre-
scribed by regulations of the Administrator of the Medicare
Benefits Administration (appointed under section 1808(b))
(in this part referred to as the ‘Medicare Benefits Adminis-
trator’) and only during an election period prescribed in or
under this subsection.
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in this
paragraph, the election periods under this subsection
shall be the same as the coverage election periods
under the Medicare+Choice program under section
1851(e), including—
‘‘(i) annual coordinated election periods; and
‘‘(ii) special election periods.
In applying the last sentence of section 1851(e)(4) (re-
lating to discontinuance of a Medicare+Choice election
during the first year of eligibility) under this subpara-
graph, in the case of an election described in such sec-
tion in which the individual had elected or is provided
qualified prescription drug coverage at the time of such
first enrollment, the individual shall be permitted to en-
roll in a prescription drug plan under this part at the
time of the election of coverage under the original fee-
for-service plan.
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS CURRENTLY COVERED.—In
the case of an individual who is entitled to benefits
under part A or enrolled under part B as of No-
vember 1, 2004, there shall be an initial election
period of 6 months beginning on that date.
‘‘(ii) INDIVIDUAL
COVERED
IN
FUTURE.—In
the case of an individual who is first entitled to
benefits under part A or enrolled under part B
after such date, there shall be an initial election pe-
riod which is the same as the initial enrollment pe-
riod under section 1837(d).
‘‘(C) ADDITIONAL SPECIAL ELECTION PERIODS.—
The Administrator shall establish special election
periods—
‘‘(i) in cases of individuals who have and invol-
untarily lose prescription drug coverage described
in subsection (c)(2)(C);
‘‘(ii) in cases described in section 1837(h) (re-
lating to errors in enrollment), in the same manner
as such section applies to part B;
‘‘(iii) in the case of an individual who meets
such exceptional conditions (including conditions
provided under section 1851(e)(4)(D)) as the Ad-
ministrator may provide; and
‘‘(iv) in cases of individuals (as determined by
the Administrator) who become eligible for pre-
scription drug assistance under title XIX under
section 1935(d).
‘‘(c) GUARANTEED
ISSUE; COMMUNITY
RATING; AND
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual who is
eligible to elect qualified prescription drug coverage
under a prescription drug plan or Medicare+Choice
plan at a time during which elections are accepted
under this part with respect to the plan shall not be
denied enrollment based on any health status-related
factor (described in section 2702(a)(1) of the Public
Health Service Act) or any other factor.
‘‘(B) 
MEDICARE+CHOICE
LIMITATIONS
PER-
MITTED.—The provisions of paragraphs (2) and (3)
(other than subparagraph (C)(i), relating to default en-
rollment) of section 1851(g) (relating to priority and
limitation on termination of election) shall apply to
PDP sponsors under this subsection.
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an individual
who maintains (as determined under subparagraph (C))
continuous prescription drug coverage since the date
the individual first qualifies to elect prescription drug
coverage under this part, a PDP sponsor or
Medicare+Choice organization offering a prescription
drug plan or Medicare+Choice plan that provides
qualified prescription drug coverage and in which the
individual is enrolled may not deny, limit, or condition
the coverage or provision of covered prescription drug
benefits or increase the premium under the plan based
on any health status-related factor described in section
2702(a)(1) of the Public Health Service Act or any
other factor.
‘‘(B) LATE ENROLLMENT PENALTY.—In the case
of an individual who does not maintain such continuous
prescription drug coverage (as described in subpara-
graph (C)), a PDP sponsor or Medicare+Choice orga-
nization may (notwithstanding any provision in this
title) adjust the premium otherwise applicable or im-
pose a pre-existing condition exclusion with respect to
qualified prescription drug coverage in a manner that
reflects additional actuarial risk involved. Such a risk
shall be established through an appropriate actuarial