‘‘(2) quality assurance measures and systems to
reduce medical errors and adverse drug interactions,
including a medication therapy management pro-
gram; and
‘‘(3) a program to control fraud, abuse, and
waste.
‘‘(g) NONDISCRIMINATION.—The payments made to
pharmacy providers under this section for covered out-
patient drugs shall not vary based upon the identity or
class of trade of the pharmacy provider or the method of
delivering the covered outpatient drugs.
‘‘PHARMACY BENEFIT ADMINISTRATOR
‘‘SEC. 1860D. (a) SELECTION.—
‘‘(1) ESTABLISHMENT OF BIDDING PROCESS.—
The Secretary shall establish a process under which
the Secretary accepts bids and awards a contract to
one or more Pharmacy Benefit Administrators to
administer the benefits under this part for eligible
beneficiaries. Each entity desiring to enter into the
contract under this part shall submit a bid to the
Secretary at such time, in such manner, and accom-
panied by such information as the Secretary may
reasonably require.
‘‘(2) AWARDING OF CONTRACT.—The Secretary
shall, consistent with the requirements of this part
and the goal of containing program costs, award
contracts to one or more entities to serve as Phar-
macy Benefit Administrators.
‘‘(3) ELIGIBLE
ENTITIES.—An entity eligible
for consideration by the Secretary as the Pharmacy
Benefit Administrator shall meet at least the fol-
lowing criteria:
‘‘(A) PERFORMANCE.—The entity shall
have sufficient expertise, personnel, and re-
sources to perform the contracted benefit ad-
ministrations. The entity shall be subject to
such review as required by the Secretary, both
prior to issuing a contract under this part and
in review of performance administering con-
tracts under this part, including audits as ap-
propriate.
‘‘(B) FINANCIAL INTEGRITY.—The entity
and its officers, directors, agents, and man-
aging employees shall have a satisfactory record
of professional competence and professional and
financial integrity, and the entity shall have
adequate financial resources to perform services
under the contract without risk of insolvency.
‘‘(C) 
CAPABILITY
TO
MAINTAIN
RECORDS.—The entity shall have systems to
maintain adequate records, and afford the Sec-
retary access to such records (including for
audit purposes).
‘‘(D) COST AND PRICING DATA.—The enti-
ty shall submit to the Secretary as part of its
bid submission all relevant cost and pricing
data which shall include all fees charged by the
entity for performing the administrative func-
tions pursuant to any competitively bid contract
awarded to the Pharmacy Benefit Adminis-
trator under this section, plus any and all ad-
ministrative fees or other payments received by
the entity from any entity for any goods or
services that relate directly or indirectly to the
program.
‘‘(E) CAPABILITY
TO
GENERATE
RE-
PORTS.—The entity shall have systems to make
such reports and submissions of financial and
utilization data as the Secretary may require,
including but not limited to, reports describing
the nature and type of manufacturers’ pay-
ments received by the Pharmacy Benefit Fund.
‘‘(F) CONFLICT OF INTEREST.—The entity
shall have no conflict of interest in performing
the duties of a Pharmacy Benefit Administrator
under this part, such as a conflict of interest
may arise if the entity owns or controls, or is
owned or controlled by, a manufacturer or
pharmacy provider that participates in the pro-
gram.
‘‘(b) DUTIES.—The Pharmacy Benefit Administrator
shall perform the following administrative functions—
‘‘(1) receive, disburse, and account for funds in
making payments to participating pharmacy pro-
viders under this part;
‘‘(2) assure that proper payments are made
under this part;
‘‘(3) serve as a channel of communication of eli-
gibility and coverage information to beneficiaries and
pharmacy providers;
‘‘(4) provide the information and computer sys-
tem support, either directly or through a contract
with an outside entity, for participating pharmacy
providers to conduct a drug utilization review pro-
gram conforming to the standards established by
section 1927(g)(2), with modifications as the Sec-
retary determines by regulation to be appropriate;
‘‘(5) conduct activities to prevent fraud, abuse,
and waste, in accordance with existing law or regula-
tions promulgated by the Secretary;
‘‘(6) monitor and collect payments from partici-
pating manufacturers as required by this part;
‘‘(7) process applications, determine eligibility,
and maintain eligibility files for beneficiaries as di-
rected by the Secretary;
‘‘(8) facilitate and support contracts between
pharmacy providers and manufacturers pursuant to
sections 1860B and 1860C;
‘‘(9) issue Standard Pharmacy Benefits Cards
to enrolled beneficiaries upon approved enrollment
and thereafter as necessary;
‘‘(10) execute agreements with manufacturers
and pharmacy providers;
‘‘(11) comply with all standards applicable to
covered entities under the administrative simplifica-
tion provisions of the Health Insurance Portability
and Accountability Act of 1996;
‘‘(12) operate a service center available all day
every day to answer questions and resolve problems
presented by beneficiaries and pharmacy providers;
and
‘‘(13) resolve coordination of benefits issues to
facilitate the secondary payer status of the program,
pursuant to rules and procedures established by the
Secretary.
‘‘(c) LIMITED FUNCTIONS OF PHARMACY BENEFIT
ADMINISTRATOR.—The role of the Pharmacy Benefit Ad-
ministrator shall be purely administrative. The Secretary
may receive, review, and resolve complaints from bene-
ficiaries, pharmacy providers, and manufacturers alleging
that the Pharmacy Benefit Administrator has exceeded or
abused its authority. The Secretary shall not contract with
the Pharmacy Benefit Administrator to—
‘‘(1) negotiate or make determinations of the
rates and amounts of payments to be made to phar-
macy providers under this part;
‘‘(2) make determinations of any limitations on
covered benefits, such as the nature, scope, choice,
or amount of benefits available, including but not
limited to, prior authorization or limitations on the
quantity or days supply of covered outpatient drugs
dispensed by pharmacy providers; or
‘‘(3) manage patient care or clinical aspects of
the program, or to otherwise practice medicine or
pharmacy.
‘‘(d) CONFIDENTIALITY.—The Pharmacy Benefit Ad-
ministrator shall not own, use, or disclose patient informa-
tion or the business or proprietary information of manu-
facturers or pharmacy providers, and shall not contact or
communicate with beneficiaries, other than as necessary
to perform the duties enumerated in this part, except as
otherwise required by law.
‘‘(e) ADMINISTRATIVE FEES.—
‘‘(1) PAYMENT TO PHARMACY BENEFIT ADMIN-
ISTRATOR.—The Secretary shall establish procedures
for paying administrative fees to the Pharmacy Ben-
efit Administrator under a contract entered into
under this part for costs associated with processing
enrollment 
applications, 
determining 
eligibility,
issuing Standard Pharmacy Benefits Cards, col-
lecting subsidies and payments from manufacturers
and disbursing them to pharmacy providers, proc-
essing individual prescription claims, administering
the catastrophic benefit under this part, and per-
forming the other administrative functions required
by this part. The administrative fees shall be nego-
tiated by the Secretary.
‘‘(2) NO
ENTITLEMENT
TO
MANUFACTURER
SUBSIDIES.—The payments made by manufacturers
under this part are intended to reduce the costs in-
curred by enrolled beneficiaries, and the Pharmacy
Benefit Administrator is not entitled to a portion of
those payments. The Pharmacy Benefit Adminis-
trator shall be prohibited from accepting any remu-
neration from a manufacturer for any services di-
rectly or indirectly related to the program.
‘‘PHARMACY BENEFITS FUND
‘‘SEC. 1860E.
‘‘(a) PHARMACY BENEFIT FUND.—There is estab-
lished within the Federal Supplementary Medical Insur-
ance Trust Fund established under section 1841 an ac-
count to be known as the ‘‘Pharmacy Benefit Fund’’.
‘‘(b) DEPOSITS.—There shall be deposited into the
Pharmacy Benefit Fund—
‘‘(1) subsidy or discounts payments from manu-
facturers under this part,
‘‘(2) amounts appropriated to the Pharmacy
Benefit Fund.
Interest on Fund balances shall accrue to the fund.
‘‘(c) PAYMENT OF BENEFITS.—Surplus assets of the
Pharmacy Benefit Fund shall be used for the benefit of
the program. The assets of the Fund shall be used to—
‘‘(1) reimburse pharmacy providers for price
subsidies, medication review and medication therapy
management services, and catastrophic coverage
benefits provided to enrolled beneficiaries under this
part; and
‘‘(2) reimburse the Pharmacy Benefits Adminis-
trator for its administrative costs as provided in sec-
tion 1860D.
‘‘(d) FINANCING AND APPROPRIATIONS.—
‘‘(1) FINANCING.—The costs of providing bene-
fits under this part shall be payable primarily from
the Pharmacy Benefit Fund, and secondarily from
the Federal Supplementary Medical Insurance Trust
Fund established under section 1841.
‘‘(2) ONGOING
APPROPRIATIONS.—There are
authorized to be appropriated to the Pharmacy Ben-
efit Fund from time to time, out of any moneys in
the Treasury not otherwise appropriated, amounts
equal to the amount by which the costs of providing
the payments and benefits under this part exceed
the enrollment fees and manufacturer payments col-
lected under this part.
‘‘(e) SECONDARY PAYER PROVISIONS.—The provi-
sions of section 1862(b) shall apply to the benefits pro-
vided under this part.
‘‘(f) EXCLUSION
OF DRUG PRICES FROM BEST
PRICE DETERMINATIONS.—
‘‘(1) STATE MEDICAID PROGRAMS.—Prices for
covered outpatient drugs established or offered
under this part shall not be considered for purposes
of calculating reimbursement from States to phar-
macy providers for outpatient drugs or services fur-
nished to individuals under title XIX of this Act.
‘‘(2) MEDICAID DRUG REBATE PROGRAM.—Any
prices for covered outpatient drugs established or of-
fered under this part shall be excluded from the defi-
nition 
of 
‘best 
price’ 
contained 
in 
section
1927(c)(1)(C).
‘‘DEFINITIONS
‘‘SEC. 1860F. In this part:
‘‘(1) AVERAGE MANUFACTURERS’ PRICE.—The
term ‘average manufacturers’ price’ means, with re-
spect to a prescription drug of a manufacturer pro-
vided under this part for a calendar quarter, the av-
erage unit price paid to the manufacturer by whole-
salers for drugs distributed to the retail pharmacy
class of trade (excluding direct sales to hospitals,
health maintenance organizations, and wholesalers
where the drug is relabeled under the distributor’s
national drug code). Average manufacturers’ price
includes cash discounts allowed and all other price
reductions that reduce the actual price paid.
‘‘(2) COVERED OUTPATIENT DRUG.—
‘‘(A) IN GENERAL.—Subject to paragraph
(2), the term ‘covered outpatient prescription
drug’ means—
‘‘(i) a drug or biological that may be
dispensed only upon a prescription;
‘‘(ii) insulin certified under section
506 of the Federal Food, Drug, and Cos-
metic Act, and needles, syringes, and dis-
posable pumps for the administration of
such insulin; and
‘‘(iii) such nonprescription drugs as
defined under section 503 of the Federal
Food, Drug, and Cosmetic Act that are
prescribed and determined medically nec-
essary by a physician or other health care
provider licensed by the State to prescribe
medications.
‘‘(B) EXCLUSION
OF
COSMETIC
AGENTS
AND FERTILITY AGENTS.—For purposes of cat-
astrophic coverage under section 1860D, the
term ‘covered outpatient drugs’ does not include
medications or classes of outpatient prescription
drugs described in subparagraphs (B) and (C)
of section 1927(d)(2).
‘‘(3) MANUFACTURER.—the term ‘manufac-
turer’ means any entity which is engaged in the pro-
duction, preparation, propagation, conversion, or
processing of prescription drug products, but such
term does not include a wholesale distributor or a
pharmacy provider that compounds, repackages, re-
labels, dispenses, or distributes prescription drug
products.
‘‘(4) PHARMACY PROVIDER.—The term ‘phar-
macy provider’ means any private sector pharmacist
or pharmacy that is authorized by applicable State
agencies to engage in the practice of pharmacy or
operate a pharmacy.’’.
(b) EXCLUSION OF PART D COSTS FROM DETER-
MINATION OF PART B MONTHLY PREMIUM.—
Section 1839(g) of the Social Security Act (42 U.S.C.
1395r(g)) is amended by inserting before the period the
following: ‘‘, or attributable to the Medicare Pharmacy
Benefit Program under part D’’.
(c) CONFORMING REFERENCES TO PREVIOUS PART
D.—Any reference in law (in effect before the date of en-
actment of this Act) to part D of title XVIII of the Social
Security Act is deemed to be a reference to part E of such
title (as in effect after such date).
(d) EFFECTIVE DATE.—The amendments made by
this section shall first apply on January 2003.
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