602
termination is based, and the right to 
such a redetermination. 
‘‘(ii) DEADLINE
FOR
REDETERMINA-
TIONS.—The contractor shall complete and 
provide notice of such redetermination 
within the same time period as the time 
period applicable to the contractor pro-
viding notice of redeterminations relating 
to a claim for benefits under subsection 
(a)(3)(C)(ii). 
‘‘(6) LIMITATION ON FURTHER REVIEW.—
‘‘(A) IN GENERAL.—Contractor determina-
tions described in paragraph (4)(A)(ii) or 
(4)(A)(iii) (and redeterminations made under 
paragraph (5)(B)), relating to pre-service 
claims are not subject to further administrative 
appeal or judicial review under this section or 
otherwise. 
‘‘(B) DECISION NOT TO SEEK PRIOR DE-
TERMINATION
OR
NEGATIVE
DETERMINATION 
DOES NOT IMPACT RIGHT TO OBTAIN SERVICES, 
SEEK REIMBURSEMENT, OR APPEAL RIGHTS.—
Nothing in this subsection shall be construed as 
affecting the right of an individual who—
603
‘‘(i) decides not to seek a prior deter-
mination under this subsection with re-
spect to items or services; or 
‘‘(ii) seeks such a determination and 
has received a determination described in 
paragraph (4)(A)(ii), 
from receiving (and submitting a claim for) 
such items services and from obtaining adminis-
trative or judicial review respecting such claim 
under the other applicable provisions of this 
section. Failure to seek a prior determination 
under this subsection with respect to items and 
services shall not be taken into account in such 
administrative or judicial review. 
‘‘(C) NO
PRIOR
DETERMINATION
AFTER 
RECEIPT OF SERVICES.—Once an individual is 
provided items and services, there shall be no 
prior determination under this subsection with 
respect to such items or services.’’. 
(b) EFFECTIVE DATE; TRANSITION.—
(1) EFFECTIVE DATE.—The Secretary shall es-
tablish the prior determination process under the 
amendment made by subsection (a) in such a man-
ner as to provide for the acceptance of requests for 
determinations under such process filed not later
604
than 18 months after the date of the enactment of 
this Act. 
(2) TRANSITION.—During the period in which 
the amendment made by subsection (a) has become 
effective but contracts are not provided under sec-
tion 1874A of the Social Security Act with medicare 
administrative contractors, any reference in section 
1869(g) of such Act (as added by such amendment) 
to such a contractor is deemed a reference to a fiscal 
intermediary or carrier with an agreement under 
section 1816, or contract under section 1842, re-
spectively, of such Act. 
(3) LIMITATION ON APPLICATION TO SGR.—For 
purposes of applying section 1848(f)(2)(D) of the 
Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)), 
the amendment made by subsection (a) shall not be 
considered to be a change in law or regulation. 
(c) PROVISIONS RELATING
TO ADVANCE BENE-
FICIARY NOTICES; REPORT ON PRIOR DETERMINATION 
PROCESS.—
(1) DATA
COLLECTION.—The Secretary shall 
establish a process for the collection of information 
on the instances in which an advance beneficiary no-
tice (as defined in paragraph (5)) has been provided 
and on instances in which a beneficiary indicates on
605
such a notice that the beneficiary does not intend to 
seek to have the item or service that is the subject 
of the notice furnished. 
(2) OUTREACH
AND
EDUCATION.—The Sec-
retary shall establish a program of outreach and 
education for beneficiaries and providers of services 
and other persons on the appropriate use of advance 
beneficiary notices and coverage policies under the 
medicare program. 
(3) GAO REPORT REPORT ON USE OF ADVANCE 
BENEFICIARY NOTICES.—Not later than 18 months 
after the date on which section 1869(g) of the Social 
Security Act (as added by subsection (a)) takes ef-
fect, the Comptroller General of the United States 
shall submit to Congress a report on the use of ad-
vance beneficiary notices under title XVIII of such 
Act. Such report shall include information con-
cerning the providers of services and other persons 
that have provided such notices and the response of 
beneficiaries to such notices. 
(4) GAO REPORT ON USE OF PRIOR DETER-
MINATION
PROCESS.—Not later than 18 months 
after the date on which section 1869(g) of the Social 
Security Act (as added by subsection (a)) takes ef-
fect, the Comptroller General of the United States
606
shall submit to Congress a report on the use of the 
prior determination process under such section. Such 
report shall include—
(A) information concerning the types of 
procedures for which a prior determination has 
been sought, determinations made under the 
process, and changes in receipt of services re-
sulting from the application of such process; 
and 
(B) an evaluation of whether the process 
was useful for physicians (and other suppliers) 
and beneficiaries, whether it was timely, and 
whether the amount of information required 
was burdensome to physicians and beneficiaries. 
(5) 
ADVANCE
BENEFICIARY
NOTICE
DE-
FINED.—In this subsection, the term ‘‘advance bene-
ficiary notice’’ means a written notice provided 
under section 1879(a) of the Social Security Act (42 
U.S.C. 1395pp(a)) to an individual entitled to bene-
fits under part A or B of title XVIII of such Act 
before items or services are furnished under such 
part in cases where a provider of services or other 
person that would furnish the item or service be-
lieves that payment will not be made for some or all 
of such items or services under such title.
607
Subtitle V—Miscellaneous 
Provisions 
SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION 
AND MANAGEMENT (E & M) DOCUMENTATION 
GUIDELINES. 
(a) IN GENERAL.—The Secretary may not implement 
any new documentation guidelines for, or clinical examples 
of, evaluation and management physician services under 
the title XVIII of the Social Security Act on or after the 
date of the enactment of this Act unless the Secretary—
(1) has developed the guidelines in collaboration 
with practicing physicians (including both generalists 
and specialists) and provided for an assessment of 
the proposed guidelines by the physician community; 
(2) has established a plan that contains specific 
goals, including a schedule, for improving the use of 
such guidelines; 
(3) has conducted appropriate and representa-
tive pilot projects under subsection (b) to test modi-
fications to the evaluation and management docu-
mentation guidelines; 
(4) finds that the objectives described in sub-
section (c) will be met in the implementation of such 
guidelines; and
608
(5) has established, and is implementing, a pro-
gram to educate physicians on the use of such guide-
lines and that includes appropriate outreach. 
The Secretary shall make changes to the manner in which 
existing evaluation and management documentation guide-
lines are implemented to reduce paperwork burdens on 
physicians. 
(b) PILOT PROJECTS TO TEST EVALUATION AND 
MANAGEMENT DOCUMENTATION GUIDELINES.—
(1) IN GENERAL.—The Secretary shall conduct 
under this subsection appropriate and representative 
pilot projects to test new evaluation and manage-
ment documentation guidelines referred to in sub-
section (a). 
(2) LENGTH AND CONSULTATION.—Each pilot 
project under this subsection shall—
(A) be voluntary; 
(B) be of sufficient length as determined 
by the Secretary to allow for preparatory physi-
cian and medicare contractor education, anal-
ysis, and use and assessment of potential eval-
uation and management guidelines; and 
(C) be conducted, in development and 
throughout the planning and operational stages 
of the project, in consultation with practicing
609
physicians (including both generalists and spe-
cialists). 
(3) RANGE OF PILOT PROJECTS.—Of the pilot 
projects conducted under this subsection—
(A) at least one shall focus on a peer re-
view method by physicians (not employed by a 
medicare contractor) which evaluates medical 
record information for claims submitted by phy-
sicians identified as statistical outliers relative 
to definitions published in the Current Proce-
dures Terminology (CPT) code book of the 
American Medical Association; 
(B) at least one shall focus on an alter-
native method to detailed guidelines based on 
physician documentation of face to face encoun-
ter time with a patient; 
(C) at least one shall be conducted for 
services furnished in a rural area and at least 
one for services furnished outside such an area; 
and 
(D) at least one shall be conducted in a 
setting where physicians bill under physicians’ 
services in teaching settings and at least one 
shall be conducted in a setting other than a 
teaching setting.
610
(4) 
BANNING
OF
TARGETING
OF
PILOT 
PROJECT PARTICIPANTS.—Data collected under this 
subsection shall not be used as the basis for overpay-
ment demands or post-payment audits. Such limita-
tion applies only to claims filed as part of the pilot 
project and lasts only for the duration of the pilot 
project and only as long as the provider is a partici-
pant in the pilot project. 
(5) STUDY
OF
IMPACT.—Each pilot project 
shall examine the effect of the new evaluation and 
management documentation guidelines on—
(A) different types of physician practices, 
including those with fewer than 10 full-time-
equivalent employees (including physicians); 
and 
(B) the costs of physician compliance, in-
cluding education, implementation, auditing, 
and monitoring. 
(6) PERIODIC REPORTS.—The Secretary shall 
submit to Congress periodic reports on the pilot 
projects under this subsection. 
(c) OBJECTIVES FOR EVALUATION AND MANAGE-
MENT GUIDELINES.—The objectives for modified evalua-
tion and management documentation guidelines developed 
by the Secretary shall be to—
611
(1) identify clinically relevant documentation 
needed to code accurately and assess coding levels 
accurately; 
(2) decrease the level of non-clinically pertinent 
and burdensome documentation time and content in 
the physician’s medical record; 
(3) increase accuracy by reviewers; and 
(4) educate both physicians and reviewers. 
(d) STUDY OF SIMPLER, ALTERNATIVE SYSTEMS OF 
DOCUMENTATION FOR PHYSICIAN CLAIMS.—
(1) STUDY.—The Secretary shall carry out a 
study of the matters described in paragraph (2). 
(2) MATTERS
DESCRIBED.—The matters re-
ferred to in paragraph (1) are—
(A) the development of a simpler, alter-
native system of requirements for documenta-
tion accompanying claims for evaluation and 
management physician services for which pay-
ment is made under title XVIII of the Social 
Security Act; and 
(B) consideration of systems other than 
current coding and documentation requirements 
for payment for such physician services. 
(3) CONSULTATION
WITH
PRACTICING
PHYSI-
CIANS.—In designing and carrying out the study
612
under paragraph (1), the Secretary shall consult 
with practicing physicians, including physicians who 
are part of group practices and including both gen-
eralists and specialists. 
(4) APPLICATION OF HIPAA UNIFORM CODING 
REQUIREMENTS.—In developing an alternative sys-
tem under paragraph (2), the Secretary shall con-
sider requirements of administrative simplification 
under part C of title XI of the Social Security Act. 
(5) REPORT TO CONGRESS.—(A) Not later than 
October 1, 2005, the Secretary shall submit to Con-
gress a report on the results of the study conducted 
under paragraph (1). 
(B) The Medicare Payment Advisory Commis-
sion shall conduct an analysis of the results of the 
study included in the report under subparagraph (A) 
and shall submit a report on such analysis to Con-
gress. 
(e) STUDY ON APPROPRIATE CODING OF CERTAIN 
EXTENDED OFFICE VISITS.—The Secretary shall conduct 
a study of the appropriateness of coding in cases of ex-
tended office visits in which there is no diagnosis made. 
Not later than October 1, 2005, the Secretary shall submit 
a report to Congress on such study and shall include rec-
ommendations on how to code appropriately for such visits
613
in a manner that takes into account the amount of time 
the physician spent with the patient. 
(f) DEFINITIONS.—In this section—
(1) the term ‘‘rural area’’ has the meaning 
given that term in section 1886(d)(2)(D) of the So-
cial Security Act, 42 U.S.C. 1395ww(d)(2)(D); and 
(2) the term ‘‘teaching settings’’ are those set-
tings described in section 415.150 of title 42, Code 
of Federal Regulations. 
SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY 
AND COVERAGE. 
(a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—
Section 1868 (42 U.S.C. 1395ee), as amended by section 
921(a), is amended by adding at the end the following new 
subsection: 
‘‘(c) COUNCIL
FOR
TECHNOLOGY
AND
INNOVA-
TION.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a Council for Technology and Innovation 
within the Centers for Medicare & Medicaid Services 
(in this section referred to as ‘CMS’). 
‘‘(2) COMPOSITION.—The Council shall be com-
posed of senior CMS staff and clinicians and shall 
be chaired by the Executive Coordinator for Tech-
614
nology and Innovation (appointed or designated 
under paragraph (4)). 
‘‘(3) DUTIES.—The Council shall coordinate the 
activities of coverage, coding, and payment processes 
under this title with respect to new technologies and 
procedures, including new drug therapies, and shall 
coordinate the exchange of information on new tech-
nologies between CMS and other entities that make 
similar decisions. 
‘‘(4) EXECUTIVE
COORDINATOR
FOR
TECH-
NOLOGY AND INNOVATION.—The Secretary shall ap-
point (or designate) a noncareer appointee (as de-
fined in section 3132(a)(7) of title 5, United States 
Code) who shall serve as the Executive Coordinator 
for Technology and Innovation. Such executive coor-
dinator shall report to the Administrator of CMS, 
shall chair the Council, shall oversee the execution of 
its duties, and shall serve as a single point of con-
tact for outside groups and entities regarding the 
coverage, coding, and payment processes under this 
title.’’. 
(b) METHODS FOR DETERMINING PAYMENT BASIS 
FOR NEW LAB TESTS.—Section 1833(h) (42 U.S.C. 
1395l(h)) is amended by adding at the end the following:
615
‘‘(8)(A) The Secretary shall establish by regulation 
procedures for determining the basis for, and amount of, 
payment under this subsection for any clinical diagnostic 
laboratory test with respect to which a new or substan-
tially revised HCPCS code is assigned on or after January 
1, 2005 (in this paragraph referred to as ‘new tests’). 
‘‘(B) Determinations under subparagraph (A) shall 
be made only after the Secretary—
‘‘(i) makes available to the public (through an 
Internet site and other appropriate mechanisms) a 
list that includes any such test for which establish-
ment of a payment amount under this subsection is 
being considered for a year; 
‘‘(ii) on the same day such list is made avail-
able, causes to have published in the Federal Reg-
ister notice of a meeting to receive comments and 
recommendations (and data on which recommenda-
tions are based) from the public on the appropriate 
basis under this subsection for establishing payment 
amounts for the tests on such list; 
‘‘(iii) not less than 30 days after publication of 
such notice convenes a meeting, that includes rep-
resentatives of officials of the Centers for Medicare 
& Medicaid Services involved in determining pay-
ment amounts, to receive such comments and rec-
616
ommendations (and data on which the recommenda-
tions are based); 
‘‘(iv) taking into account the comments and rec-
ommendations (and accompanying data) received at 
such meeting, develops and makes available to the 
public (through an Internet site and other appro-
priate mechanisms) a list of proposed determinations 
with respect to the appropriate basis for establishing 
a payment amount under this subsection for each 
such code, together with an explanation of the rea-
sons for each such determination, the data on which 
the determinations are based, and a request for pub-
lic written comments on the proposed determination; 
and 
‘‘(v) taking into account the comments received 
during the public comment period, develops and 
makes available to the public (through an Internet 
site and other appropriate mechanisms) a list of 
final determinations of the payment amounts for 
such tests under this subsection, together with the 
rationale for each such determination, the data on 
which the determinations are based, and responses 
to comments and suggestions received from the pub-
lic.
617
‘‘(C) Under the procedures established pursuant to 
subparagraph (A), the Secretary shall—
‘‘(i) set forth the criteria for making determina-
tions under subparagraph (A); and 
‘‘(ii) make available to the public the data 
(other than proprietary data) considered in making 
such determinations. 
‘‘(D) The Secretary may convene such further public 
meetings to receive public comments on payment amounts 
for new tests under this subsection as the Secretary deems 
appropriate. 
‘‘(E) For purposes of this paragraph: 
‘‘(i) The term ‘HCPCS’ refers to the Health 
Care Procedure Coding System. 
‘‘(ii) A code shall be considered to be ‘substan-
tially revised’ if there is a substantive change to the 
definition of the test or procedure to which the code 
applies (such as a new analyte or a new methodology 
for measuring an existing analyte-specific test).’’. 
(c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL 
DATA COLLECTION FOR USE IN THE MEDICARE INPA-
TIENT PAYMENT SYSTEM.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study that analyzes 
which external data can be collected in a shorter
618
time frame by the Centers for Medicare & Medicaid 
Services for use in computing payments for inpatient 
hospital services. The study may include an evalua-
tion of the feasibility and appropriateness of using 
of quarterly samples or special surveys or any other 
methods. The study shall include an analysis of 
whether other executive agencies, such as the Bu-
reau of Labor Statistics in the Department of Com-
merce, are best suited to collect this information. 
(2) REPORT.—By not later than October 1, 
2004, the Comptroller General shall submit a report 
to Congress on the study under paragraph (1). 
(d) PROCESS
FOR ADOPTION
OF ICD CODES
AS 
DATA STANDARD.—Section 1172(f) (42 U.S.C. 1320d–
1(f)) is amended by inserting after the first sentence the 
following: ‘‘Notwithstanding the first sentence of this sub-
section, if the National Committee on Vital and Health 
Statistics has not made a recommendation to the Sec-
retary, within 1 year after the date of the enactment of 
this sentence, with respect to the adoption of the Inter-
national Classification of Diseases, 10th Revision, Proce-
dure Coding System (‘ICD–10–PCS’) and the Inter-
national Classification of Diseases, 10th Revision, Clinical 
Modification (‘ICD–10–CM’) as a standard under this
619
part, then the Secretary may adopt ICD–10–PCS and 
ICD–10–CM as such a standard.’’. 
SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERV-
ICES UNDER MEDICARE SECONDARY PAYOR 
(MSP) PROVISIONS. 
(a) IN GENERAL.—The Secretary shall not require 
a hospital (including a critical access hospital) to ask ques-
tions (or obtain information) relating to the application 
of section 1862(b) of the Social Security Act (relating to 
medicare secondary payor provisions) in the case of ref-
erence laboratory services described in subsection (b), if 
the Secretary does not impose such requirement in the 
case of such services furnished by an independent labora-
tory. 
(b) 
REFERENCE
LABORATORY
SERVICES
DE-
SCRIBED.—Reference laboratory services described in this 
subsection are clinical laboratory diagnostic tests (or the 
interpretation of such tests, or both) furnished without a 
face-to-face encounter between the individual entitled to 
benefits under part A or enrolled under part B, or both, 
and the hospital involved and in which the hospital sub-
mits a claim only for such test or interpretation. 
SEC. 944. EMTALA IMPROVEMENTS. 
(a) PAYMENT FOR EMTALA-MANDATED SCREEN-
ING AND STABILIZATION SERVICES.—
620
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 
1395y) is amended by inserting after subsection (c) 
the following new subsection: 
‘‘(d) For purposes of subsection (a)(1)(A), in the case 
of any item or service that is required to be provided pur-
suant to section 1867 to an individual who is entitled to 
benefits under this title, determinations as to whether the 
item or service is reasonable and necessary shall be made 
on the basis of the information available to the treating 
physician or practitioner (including the patient’s pre-
senting symptoms or complaint) at the time the item or 
service was ordered or furnished by the physician or prac-
titioner (and not on the patient’s principal diagnosis). 
When making such determinations with respect to such 
an item or service, the Secretary shall not consider the 
frequency with which the item or service was provided to 
the patient before or after the time of the admission or 
visit.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply to items and services 
furnished on or after January 1, 2004. 
(b) NOTIFICATION OF PROVIDERS WHEN EMTALA 
INVESTIGATION CLOSED.—Section 1867(d) (42 U.S.C. 42 
U.S.C. 1395dd(d)) is amended by adding at the end the 
following new paragraph:
621
‘‘(4) NOTICE
UPON
CLOSING
AN
INVESTIGA-
TION.—The Secretary shall establish a procedure to 
notify hospitals and physicians when an investigation 
under this section is closed.’’. 
(c) PRIOR REVIEW BY PEER REVIEW ORGANIZA-
TIONS IN EMTALA CASES INVOLVING TERMINATION OF 
PARTICIPATION.—
(1) IN
GENERAL.—Section 1867(d)(3) (42 
U.S.C. 1395dd(d)(3)) is amended—
(A) in the first sentence, by inserting ‘‘or 
in terminating a hospital’s participation under 
this title’’ after ‘‘in imposing sanctions under 
paragraph (1)’’; and 
(B) by adding at the end the following new 
sentences: ‘‘Except in the case in which a delay 
would jeopardize the health or safety of individ-
uals, the Secretary shall also request such a re-
view before making a compliance determination 
as part of the process of terminating a hos-
pital’s participation under this title for viola-
tions related to the appropriateness of a med-
ical screening examination, stabilizing treat-
ment, or an appropriate transfer as required by 
this section, and shall provide a period of 5 
days for such review. The Secretary shall pro-
622
vide a copy of the organization’s report to the 
hospital or physician consistent with confiden-
tiality requirements imposed on the organiza-
tion under such part B.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to terminations of par-
ticipation initiated on or after the date of the enact-
ment of this Act.
(d) MODIFICATION OF REQUIRMENT FOR MEDICAL 
SCREENING EXAMINATIONS
FOR PATIENTS NOT RE-
QUESTING EMERGENCY DEPARTMENT SERVICES.—
(1) IN GENERAL.—Section 1867(a) (42 U.S.C. 
1395dd(a)) is amended—
(A) by designating all that follows ‘‘(a) 
MEDICAL
SCREENING
REQUIREMENT.—’’ as 
paragraph (1) with the heading ‘‘IN
GEN-
ERAL.—’’; 
(B) by aligning such paragraph with the 
paragraph added by paragraph (3); and 
(C) by adding at the end the following new 
paragraph: 
‘‘(2) EXCEPTION FOR CERTAIN CASES.—The re-
quirement for an appropriate medical screening ex-
amination under paragraph (1) shall not apply in 
the case of an individual who comes to the emer-
623
gency department and neither the individual, nor an-
other person on the individual’s behalf, requests ex-
amination or treatment for an emergency medical 
condition (such as a request solely for preventive 
services, such as blood pressure screening or non-
emergency laboratory and diagnostic tests).’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to terminations of par-
ticipation initiated on or after the date of the enact-
ment of this Act. 
SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE 
LABOR ACT (EMTALA) TECHNICAL ADVISORY 
GROUP. 
(a) ESTABLISHMENT.—The Secretary shall establish 
a Technical Advisory Group (in this section referred to 
as the ‘‘Advisory Group’’) to review issues related to the 
Emergency 
Medical 
Treatment 
and 
Labor 
Act 
(EMTALA) and its implementation. In this section, the 
term ‘‘EMTALA’’ refers to the provisions of section 1867 
of the Social Security Act (42 U.S.C. 1395dd). 
(b) MEMBERSHIP.—The Advisory Group shall be 
composed of 19 members, including the Administrator of 
the Centers for Medicare & Medicaid Services and the In-
spector General of the Department of Health and Human 
Services and of which—
624
(1) 4 shall be representatives of hospitals, in-
cluding at least one public hospital, that have experi-
ence with the application of EMTALA and at least 
2 of which have not been cited for EMTALA viola-
tions; 
(2) 7 shall be practicing physicians drawn from 
the fields of emergency medicine, cardiology or 
cardiothoracic surgery, orthopedic surgery, neuro-
surgery, pediatrics or a pediatric subspecialty, ob-
stetrics-gynecology, and psychiatry, with not more 
than one physician from any particular field; 
(3) 2 shall represent patients; 
(4) 2 shall be staff involved in EMTALA inves-
tigations from different regional offices of the Cen-
ters for Medicare & Medicaid Services; and 
(5) 1 shall be from a State survey office in-
volved in EMTALA investigations and 1 shall be 
from a peer review organization, both of whom shall 
be from areas other than the regions represented 
under paragraph (4). 
In selecting members described in paragraphs (1) through 
(3), the Secretary shall consider qualified individuals nom-
inated by organizations representing providers and pa-
tients.
626
standing any limitation that may apply to the number of 
advisory committees that may be established (within the 
Department of Health and Human Services or otherwise). 
SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PRO-
VIDE CORE HOSPICE SERVICES IN CERTAIN 
CIRCUMSTANCES. 
(a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 
1395x(dd)(5)) is amended by adding at the end the fol-
lowing: 
‘‘(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high pa-
tient loads, staffing shortages due to illness or other 
events, or temporary travel of a patient outside a hospice 
program’s service area, a hospice program may enter into 
arrangements with another hospice program for the provi-
sion by that other program of services described in para-
graph 
(2)(A)(ii)(I). 
The 
provisions 
of 
paragraph 
(2)(A)(ii)(II) shall apply with respect to the services pro-
vided under such arrangements. 
‘‘(E) A hospice program may provide services de-
scribed in paragraph (1)(A) other than directly by the pro-
gram if the services are highly specialized services of a 
registered professional nurse and are provided non-rou-
tinely and so infrequently so that the provision of such
627
services directly would be impracticable and prohibitively 
expensive.’’. 
(b) CONFORMING
PAYMENT
PROVISION.—Section 
1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 
end the following new paragraph: 
‘‘(4) In the case of hospice care provided by a hospice 
program 
under 
arrangements 
under 
section 
1861(dd)(5)(D) made by another hospice program, the 
hospice program that made the arrangements shall bill 
and be paid for the hospice care.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to hospice care provided on or after 
the date of the enactment of this Act. 
SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHO-
GENS STANDARD TO CERTAIN HOSPITALS. 
(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 
is amended—
(1) in subsection (a)(1)—
(A) in subparagraph (R), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (S), by striking the 
period at the end and inserting ‘‘, and’’; and 
(C) by inserting after subparagraph (S) 
the following new subparagraph:
628
‘‘(T) in the case of hospitals that are not other-
wise subject to the Occupational Safety and Health 
Act of 1970, to comply with the Bloodborne Patho-
gens standard under section 1910.1030 of title 29 of 
the Code of Federal Regulations (or as subsequently 
redesignated).’’; and 
(2) by adding at the end of subsection (b) the 
following new paragraph: 
‘‘(4)(A) A hospital that fails to comply with the re-
quirement of subsection (a)(1)(T) (relating to the 
Bloodborne Pathogens standard) is subject to a civil 
money penalty in an amount described in subparagraph 
(B), but is not subject to termination of an agreement 
under this section. 
‘‘(B) The amount referred to in subparagraph (A) is 
an amount that is similar to the amount of civil penalties 
that may be imposed under section 17 of the Occupational 
Safety and Health Act of 1970 for a violation of the 
Bloodborne Pathogens standard referred to in subsection 
(a)(1)(T) by a hospital that is subject to the provisions 
of such Act. 
‘‘(C) A civil money penalty under this paragraph shall 
be imposed and collected in the same manner as civil 
money penalties under subsection (a) of section 1128A are 
imposed and collected under that section.’’.
629
(b) EFFECTIVE DATE.—The amendments made by 
this subsection (a) shall apply to hospitals as of July 1, 
2004. 
SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND 
CORRECTIONS. 
(a) TECHNICAL AMENDMENTS RELATING TO ADVI-
SORY COMMITTEE UNDER BIPA SECTION 522.—(1) Sub-
section (i) of section 1114 (42 U.S.C. 1314)—
(A) is transferred to section 1862 and added at 
the end of such section; and 
(B) is redesignated as subsection (j). 
(2) Section 1862 (42 U.S.C. 1395y) is amended—
(A) in the last sentence of subsection (a), by 
striking ‘‘established under section 1114(f)’’; and 
(B) in subsection (j), as so transferred and re-
designated—
(i) by striking ‘‘under subsection (f)’’; and 
(ii) by striking ‘‘section 1862(a)(1)’’ and 
inserting ‘‘subsection (a)(1)’’. 
(b) 
TERMINOLOGY
CORRECTIONS.—(1) 
Section 
1869(c)(3)(I)(ii) (42 U.S.C. 1395ff(c)(3)(I)(ii)), as 
amended by section 521 of BIPA, is amended—
(A) in subclause (III), by striking ‘‘policy’’ and 
inserting ‘‘determination’’; and
630
(B) in subclause (IV), by striking ‘‘medical re-
view policies’’ and inserting ‘‘coverage determina-
tions’’. 
(2) Section 1852(a)(2)(C) (42 U.S.C. 1395w–
22(a)(2)(C)) is amended by striking ‘‘policy’’ and ‘‘POL-
ICY’’ and inserting ‘‘determination’’ each place it appears 
and ‘‘DETERMINATION’’, respectively. 
(c) REFERENCE CORRECTIONS.—Section 1869(f)(4) 
(42 U.S.C. 1395ff(f)(4)), as added by section 522 of 
BIPA, is amended—
(1) in subparagraph (A)(iv), by striking ‘‘sub-
clause (I), (II), or (III)’’ and inserting ‘‘clause (i), 
(ii), or (iii)’’; 
(2) in subparagraph (B), by striking ‘‘clause 
(i)(IV)’’ and ‘‘clause (i)(III)’’ and inserting ‘‘sub-
paragraph (A)(iv)’’ and ‘‘subparagraph (A)(iii)’’, re-
spectively; and 
(3) in subparagraph (C), by striking ‘‘clause 
(i)’’, ‘‘subclause (IV)’’ and ‘‘subparagraph (A)’’ and 
inserting ‘‘subparagraph (A)’’, ‘‘clause (iv)’’ and 
‘‘paragraph (1)(A)’’, respectively each place it ap-
pears. 
(d) OTHER CORRECTIONS.—Effective as if included 
in the enactment of section 521(c) of BIPA, section
631
1154(e) (42 U.S.C. 1320c–3(e)) is amended by striking 
paragraph (5). 
(e) EFFECTIVE DATE.—Except as otherwise pro-
vided, the amendments made by this section shall be effec-
tive as if included in the enactment of BIPA. 
SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM 
EXCLUSION. 
The first sentence of section 1128(c)(3)(B) (42 
U.S.C. 1320a–7(c)(3)(B)) is amended to read as follows: 
‘‘Subject to subparagraph (G), in the case of an exclusion 
under subsection (a), the minimum period of exclusion 
shall be not less than five years, except that, upon the 
request of the administrator of a Federal health care pro-
gram (as defined in section 1128B(f)) who determines 
that the exclusion would impose a hardship on individuals 
entitled to benefits under part A of title XVIII or enrolled 
under part B of such title, or both, the Secretary may 
waive the exclusion under subsection (a)(1), (a)(3), or 
(a)(4) with respect to that program in the case of an indi-
vidual or entity that is the sole community physician or 
sole source of essential specialized services in a commu-
nity.’’.
632
SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS. 
(a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) 
is amended by adding after subsection (g) the following 
new subsection: 
‘‘(h)(1) Subject to paragraph (2), a group health plan 
(as defined in subsection (a)(1)(A)(v)) providing supple-
mental or secondary coverage to individuals also entitled 
to services under this title shall not require a medicare 
claims determination under this title for dental benefits 
specifically excluded under subsection (a)(12) as a condi-
tion of making a claims determination for such benefits 
under the group health plan. 
‘‘(2) A group health plan may require a claims deter-
mination under this title in cases involving or appearing 
to involve inpatient dental hospital services or dental serv-
ices expressly covered under this title pursuant to actions 
taken by the Secretary.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date that is 60 days 
after the date of the enactment of this Act. 
SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO 
COMPUTE DSH FORMULA. 
Beginning not later than 1 year after the date of the 
enactment of this Act, the Secretary shall arrange to fur-
nish to subsection (d) hospitals (as defined in section 
1886(d)(1)(B) of the Social Security Act, 42 U.S.C.
633
1395ww(d)(1)(B)) the data necessary for such hospitals 
to compute the number of patient days used in computing 
the disproportionate patient percentage under such section 
for that hospital for the current cost reporting year. Such 
data shall also be furnished to other hospitals which would 
qualify for additional payments under part A of title 
XVIII of the Social Security Act on the basis of such data. 
SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS. 
(a) IN GENERAL.—Section 1842(b)(6)(A) (42 U.S.C. 
1395u(b)(6)(A)) is amended by striking ‘‘or (ii) (where 
the service was provided in a hospital, critical access hos-
pital, clinic, or other facility) to the facility in which the 
service was provided if there is a contractual arrangement 
between such physician or other person and such facility 
under which such facility submits the bill for such serv-
ice,’’ and inserting ‘‘or (ii) where the service was provided 
under a contractual arrangement between such physician 
or other person and an entity (as defined by the Sec-
retary), to the entity if, under the contractual arrange-
ment, the entity submits the bill for the service and the 
contractual arrangement meets such other program integ-
rity and other safeguards as the Secretary may determine 
to be appropriate,’’. 
(b) CONFORMING AMENDMENT.—The second sen-
tence of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is
634
amended by striking ‘‘except to an employer or facility’’ 
and inserting ‘‘except to an employer, entity, or other per-
son’’. 
(c) EFFECTIVE DATE.—The amendments made by 
section shall apply to payments made on or after the date 
of the enactment of this Act. 
SEC. 953. OTHER PROVISIONS. 
(a) GAO REPORTS ON THE PHYSICIAN COMPENSA-
TION.—
(1) SUSTAINABLE GROWTH RATE
AND UP-
DATES.—Not later than 6 months after the date of 
the enactment of this Act, the Comptroller General 
of the United States shall submit to Congress a re-
port on the appropriateness of the updates in the 
conversion factor under subsection (d)(3) of section 
1848 of the Social Security Act (42 U.S.C. 1395w–
4), including the appropriateness of the sustainable 
growth rate formula under subsection (f) of such 
section for 2002 and succeeding years. Such report 
shall examine the stability and predictability of such 
updates and rate and alternatives for the use of such 
rate in the updates. 
(2) PHYSICIAN COMPENSATION GENERALLY.—
Not later than 12 months after the date of the en-
actment of this Act, the Comptroller General shall
635
submit to Congress a report on all aspects of physi-
cian compensation for services furnished under title 
XVIII of the Social Security Act, and how those as-
pects interact and the effect on appropriate com-
pensation for physician services. Such report shall 
review alternatives for the physician fee schedule 
under section 1848 of such title (42 U.S.C. 1395w–
4). 
(b) ANNUAL PUBLICATION OF LIST OF NATIONAL 
COVERAGE DETERMINATIONS.—The Secretary shall pro-
vide, in an appropriate annual publication available to the 
public, a list of national coverage determinations made 
under title XVIII of the Social Security Act in the pre-
vious year and information on how to get more informa-
tion with respect to such determinations. 
(c) GAO REPORT
ON FLEXIBILITY
IN APPLYING 
HOME HEALTH CONDITIONS OF PARTICIPATION TO PA-
TIENTS WHO ARE NOT MEDICARE BENEFICIARIES.—Not 
later than 6 months after the date of the enactment of 
this Act, the Comptroller General of the United States 
shall submit to Congress a report on the implications if 
there were flexibility in the application of the medicare 
conditions of participation for home health agencies with 
respect to groups or types of patients who are not medi-
care beneficiaries. The report shall include an analysis of
636
the potential impact of such flexible application on clinical 
operations and the recipients of such services and an anal-
ysis of methods for monitoring the quality of care provided 
to such recipients. 
(d) OIG REPORT ON NOTICES RELATING TO USE OF 
HOSPITAL LIFETIME RESERVE DAYS.—Not later than 1 
year after the date of the enactment of this Act, the In-
spector General of the Department of Health and Human 
Services shall submit a report to Congress on—
(1) the extent to which hospitals provide notice 
to medicare beneficiaries in accordance with applica-
ble requirements before they use the 60 lifetime re-
serve days described in section 1812(a)(1) of the So-
cial Security Act (42 U.S.C. 1395d(a)(1)); and 
(2) the appropriateness and feasibility of hos-
pitals providing a notice to such beneficiaries before 
they completely exhaust such lifetime reserve days. 
SEC. 954. TEMPORARY SUSPENSION OF OASIS REQUIRE-
MENT FOR COLLECTION OF DATA ON NON-
MEDICARE AND NON-MEDICAID PATIENTS. 
(a) IN GENERAL.—During the period described in 
subsection (b), the Secretary may not require, under sec-
tion 4602(e) of the Balanced Budget Act of 1997 or other-
wise under OASIS, a home health agency to gather or sub-
mit information that relates to an individual who is not
637
eligible for benefits under either title XVIII or title XIX 
of the Social Security Act (such information in this section 
referred to as ‘‘non-medicare/medicaid OASIS informa-
tion’’). 
(b) PERIOD OF SUSPENSION.—The period described 
in this subsection—
(1) begins on the date of the enactment of this 
Act; and 
(2) ends on the last day of the 2nd month be-
ginning after the date as of which the Secretary has 
published final regulations regarding the collection 
and use by the Centers for Medicare & Medicaid 
Services of non-medicare/medicaid OASIS informa-
tion following the submission of the report required 
under subsection (c). 
(c) REPORT.—
(1) STUDY.—The Secretary shall conduct a 
study on how non-medicare/medicaid OASIS infor-
mation is and can be used by large home health 
agencies. Such study shall examine—
(A) whether there are unique benefits from 
the analysis of such information that cannot be 
derived from other information available to, or 
collected by, such agencies; and
638
(B) the value of collecting such informa-
tion by small home health agencies compared to 
the administrative burden related to such collec-
tion. 
In conducting the study the Secretary shall obtain 
recommendations from quality assessment experts in 
the use of such information and the necessity of 
small, as well as large, home health agencies col-
lecting such information. 
(2) REPORT.—The Secretary shall submit to 
Congress a report on the study conducted under 
paragraph (1) by not later than 18 months after the 
date of the enactment of this Act. 
(d) CONSTRUCTION.—Nothing in this section shall be 
construed as preventing home health agencies from col-
lecting non-medicare/medicaid OASIS information for 
their own use. 
TITLE X—MEDICAID 
SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS. 
Section 1923(f)(3) (42 U.S.C. 1396r–4(f)(3)) is 
amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and 
(C)’’; and
639
(2) by adding at the end the following new sub-
paragraphs: 
‘‘(C) SPECIAL, TEMPORARY INCREASE IN 
ALLOTMENTS
ON
A
ONE-TIME, NON-CUMU-
LATIVE
BASIS.—The DSH allotment for any 
State—
‘‘(i) for fiscal year 2004 is equal to 
120 percent of the DSH allotment for the 
State for fiscal year 2003 under this para-
graph, notwithstanding subparagraph (B); 
and 
‘‘(ii) for each succeeding fiscal year is 
equal to the DSH allotment for the State 
for fiscal year 2004 or, in the case of fiscal 
years beginning with the fiscal year speci-
fied in subparagraph (D) for that State, 
the percentage change in the consumer 
price index for all urban consumers (all 
items; U.S. city average), for the previous 
fiscal year. 
‘‘(D) FISCAL YEAR SPECIFIED.—For pur-
poses of subparagraph (C)(ii), the fiscal year 
specified in this subparagraph for a State is the 
first fiscal year for which the Secretary esti-
mates that the DSH allotment for that State
640
will equal (or no longer exceed) the DSH allot-
ment for that State under the law as in effect 
before the date of the enactment of this sub-
paragraph.’’. 
SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT 
DRUG PRICES CHARGED TO CERTAIN PUBLIC 
HOSPITALS IN THE BEST PRICE EXEMPTIONS 
FOR THE MEDICAID DRUG REBATE PRO-
GRAM. 
(a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 
U.S.C. 1396r–8(c)(1)(C)(i)(I)) is amended by inserting 
before the semicolon the following: ‘‘(including inpatient 
prices 
charged 
to 
hospitals 
described 
in 
section 
340B(a)(4)(L) of the Public Health Service Act)’’. 
(b) 
ANTI-DIVERSION
PROTECTION.—Section 
1927(c)(1)(C) (42 U.S.C. 1396r–8(c)(1)(C)) is amended 
by adding at the end the following: 
‘‘(iii) APPLICATION OF AUDITING AND 
RECORDKEEPING
REQUIREMENTS.—With 
respect to a covered entity described in 
section 340B(a)(4)(L) of the Public Health 
Service Act, any drug purchased for inpa-
tient use shall be subject to the auditing 
and recordkeeping requirements described
641
in section 340B(a)(5)(C) of the Public 
Health Service Act.’’.
TITLE XI—ACCESS TO AFFORD-
ABLE PHARMACEUTICALS 
Subtitle A—Access to Affordable 
Pharmaceuticals 
SEC. 1101. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD. 
(a) ABBREVIATED NEW DRUG APPLICATIONS.—Sec-
tion 505(j) of the Federal Food, Drug, and Cosmetic Act 
(21 U.S.C. 355(j)) is amended— 
(1) in paragraph (2)—
(A) by striking subparagraph (B) and in-
serting the following: 
‘‘(B) NOTICE OF OPINION THAT PATENT IS INVALID 
OR WILL NOT BE INFRINGED.—
‘‘(i) AGREEMENT TO GIVE NOTICE.—An appli-
cant that makes a certification described in subpara-
graph (A)(vii)(IV) shall include in the application a 
statement that the applicant will give notice as re-
quired by this subparagraph. 
‘‘(ii) TIMING OF NOTICE.—An applicant that 
makes a certification described in subparagraph 
(A)(vii)(IV) shall give notice as required under this 
subparagraph—
642
‘‘(I) if the certification is in the applica-
tion, not later than 20 days after the date of 
the postmark on the notice with which the Sec-
retary informs the applicant that the applica-
tion has been filed; or 
‘‘(II) if the certification is in an amend-
ment or supplement to the application, at the 
time at which the applicant submits the amend-
ment or supplement, regardless of whether the 
applicant has already given notice with respect 
to another such certification contained in the 
application or in an amendment or supplement 
to the application. 
‘‘(iii) RECIPIENTS
OF
NOTICE.—An applicant 
required under this subparagraph to give notice shall 
give notice to—
‘‘(I) each owner of the patent that is the 
subject of the certification (or a representative 
of the owner designated to receive such a no-
tice); and 
‘‘(II) the holder of the approved applica-
tion under subsection (b) for the drug that is 
claimed by the patent or a use of which is 
claimed by the patent (or a representative of 
the holder designated to receive such a notice).
643
‘‘(iv) CONTENTS OF NOTICE.—A notice required 
under this subparagraph shall—
‘‘(I) state that an application that contains 
data from bioavailability or bioequivalence stud-
ies has been submitted under this subsection for 
the drug with respect to which the certification 
is made to obtain approval to engage in the 
commercial manufacture, use, or sale of the 
drug before the expiration of the patent re-
ferred to in the certification; and 
‘‘(II) include a detailed statement of the 
factual and legal basis of the opinion of the ap-
plicant that the patent is invalid or will not be 
infringed.’’; and 
(B) by adding at the end the following sub-
paragraph: 
‘‘(D)(i) An applicant may not amend or supplement 
an application to seek approval of a drug referring to a 
different listed drug from the listed drug identified in the 
application as submitted to the Secretary. 
‘‘(ii) With respect to the drug for which an applica-
tion is submitted, nothing in this subsection prohibits an 
applicant from amending or supplementing the application 
to seek approval of a different strength.’’; and 
(2) in paragraph (5)—
644
(A) in subparagraph (B)—
(i) by striking ‘‘under the following’’ 
and inserting ‘‘by applying the following to 
each certification made under paragraph 
(2)(A)(vii)’’; and 
(ii) in clause (iii)—
(I) in the first sentence, by strik-
ing ‘‘unless’’ and all that follows and 
inserting ‘‘unless, before the expira-
tion of 45 days after the date on 
which the notice described in para-
graph (2)(B) is received, an action is 
brought for infringement of the patent 
that is the subject of the certification 
and for which information was sub-
mitted to the Secretary under sub-
section (b)(1) or (c)(2) before the date 
on which the application (excluding an 
amendment or supplement to the ap-
plication), which the Secretary later 
determines to be substantially com-
plete, was submitted.’’; and 
(II) in the second sentence—
(aa) by striking subclause 
(I) and inserting the following:
645
‘‘(I) if before the expiration of such period 
the district court decides that the patent is in-
valid or not infringed (including any substantive 
determination that there is no cause of action 
for patent infringement or invalidity), the ap-
proval shall be made effective on—
‘‘(aa) the date on which the court en-
ters judgment reflecting the decision; or 
‘‘(bb) the date of a settlement order 
or consent decree signed and entered by 
the court stating that the patent that is 
the subject of the certification is invalid or 
not infringed;’’; 
(bb) by striking subclause 
(II) and inserting the following: 
‘‘(II) if before the expiration of such period 
the district court decides that the patent has 
been infringed—
‘‘(aa) if the judgment of the district 
court is appealed, the approval shall be 
made effective on—
‘‘(AA) the date on which the 
court of appeals decides that the pat-
ent is invalid or not infringed (includ-
ing any substantive determination
646
that there is no cause of action for 
patent infringement or invalidity); or 
‘‘(BB) the date of a settlement 
order or consent decree signed and 
entered by the court of appeals stat-
ing that the patent that is the subject 
of the certification is invalid or not in-
fringed; or 
‘‘(bb) if the judgment of the district 
court is not appealed or is affirmed, the 
approval shall be made effective on the 
date specified by the district court in a 
court order under section 271(e)(4)(A) of 
title 35, United States Code;’’; 
(cc) in subclause (III), by 
striking ‘‘on the date of such 
court decision.’’ and inserting ‘‘as 
provided in subclause (I); or’’; 
(dd) by inserting after sub-
clause (III) the following: 
‘‘(IV) if before the expiration of such pe-
riod the court grants a preliminary injunction 
prohibiting the applicant from engaging in the 
commercial manufacture or sale of the drug 
until the court decides the issues of patent va-
647
lidity and infringement and if the court decides 
that such patent has been infringed, the ap-
proval shall be made effective as provided in 
subclause (II).’’; and 
(ee) in the matter after and 
below subclause (IV) (as added 
by item (dd)), by striking ‘‘Until 
the expiration’’ and all that fol-
lows; 
(B) by redesignating subparagraphs (C) 
and (D) as subparagraphs (E) and (F), respec-
tively; and 
(C) by inserting after subparagraph (B) 
the following: 
‘‘(C) CIVIL
ACTION
TO
OBTAIN
PATENT 
CERTAINTY.—
‘‘(i) DECLARATORY
JUDGMENT
AB-
SENT INFRINGEMENT ACTION.—
‘‘(I) IN
GENERAL.—No action 
may be brought under section 2201 of 
title 28, United States Code, by an 
applicant under paragraph (2) for a 
declaratory judgment with respect to 
a patent which is the subject of the 
certification referred to in subpara-
648
graph (B)(iii) unless the forty-five day 
period referred to in such subpara-
graph has expired, and unless, if the 
notice 
provided 
under 
paragraph 
(2)(B) relates to noninfringement, the 
notice was accompanied by a docu-
ment described in subclause (II). Any 
such action shall be brought in the ju-
dicial district where the defendant has 
its principal place of business or a 
regular and established place of busi-
ness. 
‘‘(II) RIGHT
OF
CONFIDENTIAL 
ACCESS
TO
APPLICATION.—For pur-
poses of subclause (I), the document 
described in this subclause is a docu-
ment providing a right of confidential 
access to the application of the appli-
cant under paragraph (2) for the pur-
pose of determining whether an action 
referred to in subparagraph (B)(iii) 
should be brought. The document pro-
viding the right of confidential access 
shall contain such restrictions as to 
persons entitled to access, and on the
649
use and disposition of any information 
accessed, as would apply had a protec-
tive order been entered for the pur-
pose of protecting trade secrets and 
other confidential business informa-
tion. Any person provided a right of 
confidential access shall review the ap-
plication for the sole and limited pur-
pose of evaluating possible infringe-
ment of the patent that is the subject 
of the certification under paragraph 
(2)(A)(vii)(IV) and for no other pur-
pose, and may not disclose informa-
tion of no relevance to any issue of 
patent infringement to any person 
other than a person provided a right 
of confidential access. Further, the 
application may be redacted by the 
applicant to remove any information 
of no relevance to any issue of patent 
infringement. 
‘‘(ii) COUNTERCLAIM
TO
INFRINGE-
MENT ACTION.—
‘‘(I) IN GENERAL.—If an owner 
of the patent or the holder of the ap-
650
proved application under subsection 
(b) for the drug that is claimed by the 
patent or a use of which is claimed by 
the patent brings a patent infringe-
ment action against the applicant, the 
applicant may assert a counterclaim 
seeking an order requiring the holder 
to correct or delete the patent infor-
mation submitted by the holder under 
subsection (b) or (c) on the ground 
that the patent does not claim ei-
ther—
‘‘(aa) the drug for which the 
application was approved; or 
‘‘(bb) an approved method 
of using the drug. 
‘‘(II) NO
INDEPENDENT
CAUSE 
OF ACTION.—Subclause (I) does not 
authorize the assertion of a claim de-
scribed in subclause (I) in any civil 
action or proceeding other than a 
counterclaim described in subclause 
(I). 
‘‘(iii) NO
DAMAGES.—An applicant 
shall not be entitled to damages in a civil
651
action under subparagraph (i) or a coun-
terclaim under subparagraph (ii).’’. 
(b) APPLICATIONS GENERALLY.—Section 505 of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 
is amended—
(1) in subsection (b)—
(A) by striking paragraph (3) and insert-
ing the following: 
‘‘(3) NOTICE OF OPINION THAT PATENT IS INVALID 
OR WILL NOT BE INFRINGED.—
‘‘(A) AGREEMENT TO GIVE NOTICE.—An appli-
cant that makes a certification described in para-
graph (2)(A)(iv) shall include in the application a 
statement that the applicant will give notice as re-
quired by this paragraph. 
‘‘(B) TIMING OF NOTICE.—An applicant that 
makes a certification described in paragraph 
(2)(A)(iv) shall give notice as required under this 
paragraph—
‘‘(i) if the certification is in the applica-
tion, not later than 20 days after the date of 
the postmark on the notice with which the Sec-
retary informs the applicant that the applica-
tion has been filed; or
652
‘‘(ii) if the certification is in an amend-
ment or supplement to the application, at the 
time at which the applicant submits the amend-
ment or supplement, regardless of whether the 
applicant has already given notice with respect 
to another such certification contained in the 
application or in an amendment or supplement 
to the application. 
‘‘(C) RECIPIENTS
OF
NOTICE.—An applicant 
required under this paragraph to give notice shall 
give notice to—
‘‘(i) each owner of the patent that is the 
subject of the certification (or a representative 
of the owner designated to receive such a no-
tice); and 
‘‘(ii) the holder of the approved application 
under this subsection for the drug that is 
claimed by the patent or a use of which is 
claimed by the patent (or a representative of 
the holder designated to receive such a notice). 
‘‘(D) CONTENTS
OF
NOTICE.—A notice re-
quired under this paragraph shall—
‘‘(i) state that an application that contains 
data from bioavailability or bioequivalence stud-
ies has been submitted under this subsection for
653
the drug with respect to which the certification 
is made to obtain approval to engage in the 
commercial manufacture, use, or sale of the 
drug before the expiration of the patent re-
ferred to in the certification; and 
‘‘(ii) include a detailed statement of the 
factual and legal basis of the opinion of the ap-
plicant that the patent is invalid or will not be 
infringed.’’; and 
(B)(i) by redesignating paragraph (4) as 
paragraph (5); and 
(ii) by inserting after paragraph (3) the 
following paragraph: 
‘‘(4)(A) An applicant may not amend or supplement 
an application referred to in paragraph (2) to seek ap-
proval of a drug that is a different drug than the drug 
identified in the application as submitted to the Secretary. 
‘‘(B) With respect to the drug for which such an ap-
plication is submitted, nothing in this subsection or sub-
section (c)(3) prohibits an applicant from amending or 
supplementing the application to seek approval of a dif-
ferent strength.’’; and 
(2) in subsection (c)(3)—
(A) in the first sentence, by striking 
‘‘under the following’’ and inserting ‘‘by apply-
654
ing the following to each certification made 
under subsection (b)(2)(A)(iv)’’; 
(B) in subparagraph (C)—
(i) in the first sentence, by striking 
‘‘unless’’ and all that follows and inserting 
‘‘unless, before the expiration of 45 days 
after the date on which the notice de-
scribed in subsection (b)(3) is received, an 
action is brought for infringement of the 
patent that is the subject of the certifi-
cation and for which information was sub-
mitted to the Secretary under paragraph 
(2) or subsection (b)(1) before the date on 
which the application (excluding an amend-
ment or supplement to the application) was 
submitted.’’; 
(ii) in the second sentence—
(I) 
by 
striking 
‘‘paragraph 
(3)(B)’’ and inserting ‘‘subsection 
(b)(3)’’; 
(II) by striking clause (i) and in-
serting the following: 
‘‘(i) if before the expiration of such period 
the district court decides that the patent is in-
valid or not infringed (including any substantive
655
determination that there is no cause of action 
for patent infringement or invalidity), the ap-
proval shall be made effective on—
‘‘(I) the date on which the court en-
ters judgment reflecting the decision; or 
‘‘(II) the date of a settlement order or 
consent decree signed and entered by the 
court stating that the patent that is the 
subject of the certification is invalid or not 
infringed;’’; 
(III) by striking clause (ii) and 
inserting the following: 
‘‘(ii) if before the expiration of such period 
the district court decides that the patent has 
been infringed—
‘‘(I) if the judgment of the district 
court is appealed, the approval shall be 
made effective on—
‘‘(aa) the date on which the court 
of appeals decides that the patent is 
invalid or not infringed (including any 
substantive determination that there 
is no cause of action for patent in-
fringement or invalidity); or
656
‘‘(bb) the date of a settlement 
order or consent decree signed and 
entered by the court of appeals stat-
ing that the patent that is the subject 
of the certification is invalid or not in-
fringed; or 
‘‘(II) if the judgment of the district 
court is not appealed or is affirmed, the 
approval shall be made effective on the 
date specified by the district court in a 
court order under section 271(e)(4)(A) of 
title 35, United States Code;’’; 
(IV) in clause (iii), by striking 
‘‘on the date of such court decision.’’ 
and inserting ‘‘as provided in clause 
(i); or’’; 
(V) by inserting after clause (iii), 
the following: 
‘‘(iv) if before the expiration of such period 
the court grants a preliminary injunction pro-
hibiting the applicant from engaging in the 
commercial manufacture or sale of the drug 
until the court decides the issues of patent va-
lidity and infringement and if the court decides 
that such patent has been infringed, the ap-
657
proval shall be made effective as provided in 
clause (ii).’’; and 
(VI) in the matter after and 
below clause (iv) (as added by sub-
clause (V)), by striking ‘‘Until the ex-
piration’’ and all that follows; and 
(iii) in the third sentence, by striking 
‘‘paragraph (3)(B)’’ and inserting ‘‘sub-
section (b)(3)’’; 
(C) by redesignating subparagraph (D) as 
subparagraph (E); and 
(D) by inserting after subparagraph (C) 
the following: 
‘‘(D) CIVIL
ACTION
TO
OBTAIN
PATENT 
CERTAINTY.—
‘‘(i) DECLARATORY
JUDGMENT
AB-
SENT INFRINGEMENT ACTION.—
‘‘(I) IN
GENERAL.—No action 
may be brought under section 2201 of 
title 28, United States Code, by an 
applicant referred to in subsection 
(b)(2) for a declaratory judgment with 
respect to a patent which is the sub-
ject of the certification referred to in 
subparagraph (C) unless the forty-five
658
day period referred to in such sub-
paragraph has expired, and unless, if 
the notice the applicant provided 
under subsection (b)(3) relates to 
noninfringement, the notice was ac-
companied by a document described in 
subclause (II). Any such action shall 
be brought in the judicial district 
where the defendant has its principal 
place of business or a regular and es-
tablished place of business. 
‘‘(II) RIGHT
OF
CONFIDENTIAL 
ACCESS
TO
APPLICATION.—For pur-
poses of subclause (I), the document 
described in this subclause is a docu-
ment providing a right of confidential 
access to the application of the appli-
cant referred to in subsection (b)(2) 
for the purpose of determining wheth-
er an action referred to in subpara-
graph (C) should be brought. The 
document providing the right of con-
fidential access shall contain such re-
strictions as to persons entitled to ac-
cess, and on the use and disposition of
659
any information accessed, as would 
apply had a protective order been en-
tered for the purpose of protecting 
trade secrets and other confidential 
business information. Any person pro-
vided a right of confidential access 
shall review the application for the 
sole and limited purpose of evaluating 
possible infringement of the patent 
that is the subject of the certification 
under subsection (b)(2)(A)(iv) and for 
no other purpose, and may not dis-
close information of no relevance to 
any issue of patent infringement to 
any person other than a person pro-
vided a right of confidential access. 
Further, the application may be re-
dacted by the applicant to remove any 
information of no relevance to any 
issue of patent infringement. 
‘‘(ii) COUNTERCLAIM
TO
INFRINGE-
MENT ACTION.—
‘‘(I) IN GENERAL.—If an owner 
of the patent or the holder of the ap-
proved application under subsection
660
(b) for the drug that is claimed by the 
patent or a use of which is claimed by 
the patent brings a patent infringe-
ment action against the applicant, the 
applicant may assert a counterclaim 
seeking an order requiring the holder 
to correct or delete the patent infor-
mation submitted by the holder under 
subsection (b) or this subsection on 
the ground that the patent does not 
claim either—
‘‘(aa) the drug for which the 
application was approved; or 
‘‘(bb) an approved method 
of using the drug. 
‘‘(II) NO
INDEPENDENT
CAUSE 
OF ACTION.—Subclause (I) does not 
authorize the assertion of a claim de-
scribed in subclause (I) in any civil 
action or proceeding other than a 
counterclaim described in subclause 
(I). 
‘‘(iii) NO
DAMAGES.—An applicant 
shall not be entitled to damages in a civil
661
action under clause (i) or a counterclaim 
under clause (ii).’’. 
(c) APPLICABILITY.—
(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amendments made by sub-
sections (a), (b), and (c) apply to any proceeding 
under section 505 of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355) that is pending on or 
after the date of enactment of this Act regardless of 
the date on which the proceeding was commenced or 
is commenced. 
(2) NOTICE OF OPINION THAT PATENT IS IN-
VALID OR WILL NOT BE INFRINGED.—The amend-
ments made by subsections (a)(1) and (b)(1) apply 
with respect to any certification under subsection 
(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of 
the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355) after the date of enactment of this Act 
in an application filed under subsection (b)(2) or (j) 
of that section or in an amendment or supplement 
to an application filed under subsection (b)(2) or (j) 
of that section. 
(3) EFFECTIVE
DATE
OF
APPROVAL.—The 
amendments made by subsections (a)(2)(A)(ii)(I) 
and (b)(2)(B)(i) apply with respect to any patent in-
662
formation submitted under subsection (b)(1) or 
(c)(2) of section 505 of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355) made after the date 
of enactment of this Act. 
SEC. 1102. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD. 
(a) IN GENERAL.—Section 505(j)(5) of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as 
amended by section 1101) is amended—
(1) in subparagraph (B), by striking clause (iv) 
and inserting the following: 
‘‘(iv) 180-DAY EXCLUSIVITY PERIOD.—
‘‘(I) DEFINITIONS.—In this paragraph: 
‘‘(aa) 
180-DAY
EXCLUSIVITY
PE-
RIOD.—The term ‘180-day exclusivity pe-
riod’ means the 180-day period ending on 
the day before the date on which an appli-
cation submitted by an applicant other 
than a first applicant could become effec-
tive under this clause. 
‘‘(bb) FIRST APPLICANT.—As used in 
this subsection, the term ‘first applicant’ 
means an applicant that, on the first day 
on which a substantially complete applica-
tion containing a certification described in 
paragraph (2)(A)(vii)(IV) is submitted for
663
approval of a drug, submits a substantially 
complete application containing a certifi-
cation 
described 
in 
paragraph 
(2)(A)(vii)(IV) for the drug. 
‘‘(cc) SUBSTANTIALLY COMPLETE AP-
PLICATION.—As used in this subsection, 
the term ‘substantially complete applica-
tion’ means an application under this sub-
section that on its face is sufficiently com-
plete to permit a substantive review and 
contains all the information required by 
paragraph (2)(A). 
‘‘(dd) TENTATIVE APPROVAL.—
‘‘(AA) IN GENERAL.—The term 
‘tentative approval’ means notification 
to an applicant by the Secretary that 
an application under this subsection 
meets the requirements of paragraph 
(2)(A), but cannot receive effective 
approval because the application does 
not meet the requirements of this sub-
paragraph, there is a period of exclu-
sivity for the listed drug under sub-
paragraph (E) or section 505A, or
664
there is a 7-year period of exclusivity 
for the listed drug under section 527. 
‘‘(BB) 
LIMITATION.—A 
drug 
that is granted tentative approval by 
the Secretary is not an approved drug 
and shall not have an effective ap-
proval until the Secretary issues an 
approval after any necessary addi-
tional review of the application. 
‘‘(II) EFFECTIVENESS OF APPLICATION.—
Subject to subparagraph (D), if the application 
contains a certification described in paragraph 
(2)(A)(vii)(IV) and is for a drug for which a 
first applicant has submitted an application 
containing such a certification, the application 
shall be made effective on the date that is 180 
days after the date of the first commercial mar-
keting of the drug (including the commercial 
marketing of the listed drug) by any first appli-
cant.’’; and 
(2) by inserting after subparagraph (C) the fol-
lowing: 
‘‘(D) FORFEITURE
OF
180-DAY
EXCLU-
SIVITY PERIOD.—
665
‘‘(i) DEFINITION
OF
FORFEITURE 
EVENT.—In this subparagraph, the term 
‘forfeiture event’, with respect to an appli-
cation under this subsection, means the oc-
currence of any of the following: 
‘‘(I) FAILURE TO MARKET.—The 
first applicant fails to market the 
drug by the later of—
‘‘(aa) the earlier of the date 
that is— 
‘‘(AA) 75 days after the 
date on which the approval 
of the application of the first 
applicant is made effective 
under subparagraph (B)(iii); 
or 
‘‘(BB) 30 months after 
the date of submission of 
the application of the first 
applicant; or 
‘‘(bb) with respect to the 
first applicant or any other appli-
cant (which other applicant has 
received tentative approval), the 
date that is 75 days after the
666
date as of which, as to each of 
the patents with respect to which 
the first applicant submitted a 
certification qualifying the first 
applicant for the 180-day exclu-
sivity period under subparagraph 
(B)(iv), at least 1 of the fol-
lowing has occurred: 
‘‘(AA) In an infringe-
ment action brought against 
that applicant with respect 
to the patent or in a declar-
atory 
judgment 
action 
brought by that applicant 
with respect to the patent, a 
court enters a final decision 
from which no appeal (other 
than a petition to the Su-
preme Court for a writ of 
certiorari) has been or can 
be taken that the patent is 
invalid or not infringed. 
‘‘(BB) In an infringe-
ment action or a declaratory 
judgment action described in
667
subitem (AA), a court signs 
a settlement order or con-
sent decree that enters a 
final judgment that includes 
a finding that the patent is 
invalid or not infringed. 
‘‘(CC) The patent ex-
pires. 
‘‘(DD) The patent is 
withdrawn by the holder of 
the 
application 
approved 
under subsection (b). 
‘‘(II) WITHDRAWAL OF APPLICA-
TION.—The first applicant withdraws 
the application or the Secretary con-
siders the application to have been 
withdrawn as a result of a determina-
tion by the Secretary that the applica-
tion does not meet the requirements 
for approval under paragraph (4). 
‘‘(III) AMENDMENT OF CERTIFI-
CATION.—The first applicant amends 
or withdraws the certification for all 
of the patents with respect to which 
that applicant submitted a certifi-
668
cation qualifying the applicant for the 
180-day exclusivity period. 
‘‘(IV) FAILURE TO OBTAIN TEN-
TATIVE
APPROVAL.—The first appli-
cant fails to obtain tentative approval 
of the application within 30 months 
after the date on which the applica-
tion is filed, unless the failure is 
caused by a change in or a review of 
the requirements for approval of the 
application imposed after the date on 
which the application is filed. 
‘‘(V) 
AGREEMENT
WITH
AN-
OTHER APPLICANT, THE LISTED DRUG 
APPLICATION HOLDER, OR A PATENT 
OWNER.—The first applicant enters 
into an agreement with another appli-
cant under this subsection for the 
drug, the holder of the application for 
the listed drug, or an owner of the 
patent that is the subject of the cer-
tification 
under 
paragraph 
(2)(A)(vii)(IV), the Federal Trade 
Commission or the Attorney General 
files a complaint, and there is a final
669
decision of the Federal Trade Com-
mission or the court with regard to 
the complaint from which no appeal 
(other than a petition to the Supreme 
Court for a writ of certiorari) has 
been or can be taken that the agree-
ment has violated the antitrust laws 
(as defined in section 1 of the Clayton 
Act (15 U.S.C. 12), except that the 
term includes section 5 of the Federal 
Trade Commission Act (15 U.S.C. 45) 
to the extent that that section applies 
to unfair methods of competition). 
‘‘(VI) EXPIRATION OF ALL PAT-
ENTS.—All of the patents as to which 
the applicant submitted a certification 
qualifying it for the 180-day exclu-
sivity period have expired. 
‘‘(ii) FORFEITURE.—The 180-day ex-
clusivity period described in subparagraph 
(B)(iv) shall be forfeited by a first appli-
cant if a forfeiture event occurs with re-
spect to that first applicant.
670
‘‘(iii) SUBSEQUENT
APPLICANT.—If 
all first applicants forfeit the 180-day ex-
clusivity period under clause (ii)—
‘‘(I) approval of any application 
containing a certification described in 
paragraph (2)(A)(vii)(IV) shall be 
made effective in accordance with sub-
paragraph (B)(iii); and 
‘‘(II) no applicant shall be eligi-
ble for a 180-day exclusivity period.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendment made by subsection (a) 
shall be effective only with respect to an application 
filed under section 505(j) of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the 
date of enactment of this Act for a listed drug for 
which 
no 
certification 
under 
section 
505(j)(2)(A)(vii)(IV) of that Act was made before 
the date of enactment of this Act. 
(2) COLLUSIVE AGREEMENTS.—If a forfeiture 
event described in section 505(j)(5)(D)(i)(V) of that 
Act occurs in the case of an applicant, the applicant 
shall forfeit the 180-day period under section 
505(j)(5)(B)(iv) of that Act without regard to when
671
the 
first 
certification 
under 
section 
505(j)(2)(A)(vii)(IV) of that Act for the listed drug 
was made. 
(3) DECISION OF A COURT WHEN THE 180-DAY 
EXCLUSIVITY PERIOD HAS NOT BEEN TRIGGERED.—
With respect to an application filed before, on, or 
after the date of enactment of this Act for a listed 
drug for which a certification under section 
505(j)(2)(A)(vii)(IV) of that Act was made before 
the date of enactment of this Act and for which nei-
ther of the events described in subclause (I) or (II) 
of section 505(j)(5)(B)(iv) of that Act (as in effect 
on the day before the date of enactment of this Act) 
has occurred on or before the date of enactment of 
this Act, the term ‘‘decision of a court’’ as used in 
clause (iv) of section 505(j)(5)(B) of that Act means 
a final decision of a court from which no appeal 
(other than a petition to the Supreme Court for a 
writ of certiorari) has been or can be taken. 
SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE. 
(a) IN GENERAL.—Section 505(j)(8) of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(8)) is 
amended—
(1) by striking subparagraph (A) and inserting 
the following:
672
‘‘(A)(i) The term ‘bioavailability’ means the 
rate and extent to which the active ingredient or 
therapeutic ingredient is absorbed from a drug and 
becomes available at the site of drug action. 
‘‘(ii) For a drug that is not intended to be ab-
sorbed into the bloodstream, the Secretary may as-
sess bioavailability by scientifically valid measure-
ments intended to reflect the rate and extent to 
which the active ingredient or therapeutic ingredient 
becomes available at the site of drug action.’’; and 
(2) by adding at the end the following: 
‘‘(C) For a drug that is not intended to be ab-
sorbed into the bloodstream, the Secretary may es-
tablish alternative, scientifically valid methods to 
show bioequivalence if the alternative methods are 
expected to detect a significant difference between 
the drug and the listed drug in safety and thera-
peutic effect.’’. 
(b) EFFECT
OF
AMENDMENT.—The amendment 
made by subsection (a) does not alter the standards for 
approval of drugs under section 505(j) of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)). 
SEC. 1104. CONFORMING AMENDMENTS. 
Section 505A of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 355a) is amended—
673
(1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), 
by striking ‘‘(j)(5)(D)(ii)’’ each place it appears and 
inserting ‘‘(j)(5)(F)(ii)’’; 
(2) 
in 
subsections 
(b)(1)(A)(ii) 
and 
(c)(1)(A)(ii), by striking ‘‘(j)(5)(D)’’ each place it 
appears and inserting ‘‘(j)(5)(F)’’; and 
(3) in subsections (e) and (l), by striking 
‘‘505(j)(5)(D)’’ each place it appears and inserting 
‘‘505(j)(5)(F)’’. 
Subtitle B—Federal Trade 
Commission Review 
SEC. 1111. DEFINITIONS. 
In this subtitle: 
(1) ANDA.—The term ‘‘ANDA’’ means an ab-
breviated drug application, as defined under section 
201(aa) of the Federal Food, Drug, and Cosmetic 
Act. 
(2) BRAND
NAME
DRUG.—The term ‘‘brand 
name drug’’ means a drug for which an application 
is approved under section 505(c) of the Federal 
Food, Drug, and Cosmetic Act, including an applica-
tion referred to in section 505(b)(2) of such Act. 
(3) BRAND NAME DRUG COMPANY.—The term 
‘‘brand name drug company’’ means the party that 
holds the approved application referred to in para-
674
graph (2) for a brand name drug that is a listed 
drug in an ANDA, or a party that is the owner of 
a patent for which information is submitted for such 
drug under subsection (b) or (c) of section 505 of 
the Federal Food, Drug, and Cosmetic Act. 
(4) COMMISSION.—The term ‘‘Commission’’ 
means the Federal Trade Commission. 
(5) GENERIC DRUG.—The term ‘‘generic drug’’ 
means a drug for which an application under section 
505(j) of the Federal Food, Drug, and Cosmetic Act 
is approved. 
(6) GENERIC
DRUG
APPLICANT.—The term 
‘‘generic drug applicant’’ means a person who has 
filed or received approval for an ANDA under sec-
tion 505(j) of the Federal Food, Drug, and Cosmetic 
Act. 
(7) LISTED
DRUG.—The term ‘‘listed drug’’ 
means a brand name drug that is listed under sec-
tion 505(j)(7) of the Federal Food, Drug, and Cos-
metic Act. 
SEC. 1112. NOTIFICATION OF AGREEMENTS. 
(a) AGREEMENT WITH BRAND NAME DRUG COM-
PANY.—
(1) REQUIREMENT.—A generic drug applicant 
that has submitted an ANDA containing a certifi-
675
cation under section 505(j)(2)(A)(vii)(IV) of the 
Federal Food, Drug, and Cosmetic Act and a brand 
name drug company that enter into an agreement 
described in paragraph (2) shall each file the agree-
ment in accordance with subsection (c). The agree-
ment shall be filed prior to the date of the first com-
mercial marketing of the generic drug that is the 
subject of the ANDA. 
(2) SUBJECT
MATTER
OF
AGREEMENT.—An 
agreement described in this paragraph between a ge-
neric drug applicant and a brand name drug com-
pany is an agreement regarding—
(A) the manufacture, marketing or sale of 
the brand name drug that is the listed drug in 
the ANDA involved; 
(B) the manufacture, marketing, or sale of 
the generic drug for which the ANDA was sub-
mitted; or 
(C) the 180-day period referred to in sec-
tion 505(j)(5)(B)(iv) of the Federal Food, 
Drug, and Cosmetic Act as it applies to such 
ANDA or to any other ANDA based on the 
same brand name drug. 
(b) AGREEMENT WITH ANOTHER GENERIC DRUG 
APPLICANT.—
676
(1) REQUIREMENT.—A generic drug applicant 
that has submitted an ANDA containing a certifi-
cation under section 505(j)(2)(A)(vii)(IV) of the 
Federal Food, Drug, and Cosmetic Act with respect 
to a listed drug and another generic drug applicant 
that has submitted an ANDA containing such a cer-
tification for the same listed drug shall each file the 
agreement in accordance with subsection (c). The 
agreement shall be filed prior to the date of the first 
commercial marketing of either of the generic drugs 
for which such ANDAs were submitted. 
(2) SUBJECT
MATTER
OF
AGREEMENT.—An 
agreement described in this paragraph between two 
generic drug applicants is an agreement regarding 
the 
180-day 
period 
referred 
to 
in 
section 
505(j)(5)(B)(iv) of the Federal Food, Drug, and 
Cosmetic Act as it applies to the ANDAs with which 
the agreement is concerned. 
(c) FILING.—
(1) AGREEMENT.—The parties that are re-
quired in subsection (a) or (b) to file an agreement 
in accordance with this subsection shall file with the 
Commission the text of any such agreement, except 
that such parties are not required to file an agree-
ment that solely concerns—
677
(A) purchase orders for raw material sup-
plies; 
(B) equipment and facility contracts; 
(C) employment or consulting contracts; or 
(D) packaging and labeling contracts. 
(2) OTHER
AGREEMENTS.—The parties that 
are required in subsection (a) or (b) to file an agree-
ment in accordance with this subsection shall file 
with the Commission the text of any agreements be-
tween the parties that are not described in such sub-
sections and are contingent upon, provide a contin-
gent condition for, or are otherwise related to an 
agreement that is required in subsection (a) or (b) 
to be filed in accordance with this subsection. 
(3) DESCRIPTION.—In the event that any 
agreement required in subsection (a) or (b) to be 
filed in accordance with this subsection has not been 
reduced to text, each of the parties involved shall file 
written descriptions of such agreement that are suf-
ficient to disclose all the terms and conditions of the 
agreement. 
SEC. 1113. FILING DEADLINES. 
Any filing required under section 1112 shall be filed 
with the Commission not later than 10 business days after 
the date the agreements are executed.
678
SEC. 1114. DISCLOSURE EXEMPTION. 
Any information or documentary material filed with 
the Commission pursuant to this subtitle shall be exempt 
from disclosure under section 552 of title 5, United States 
Code, and no such information or documentary material 
may be made public, except as may be relevant to any 
administrative or judicial action or proceeding. Nothing in 
this section is intended to prevent disclosure to either body 
of Congress or to any duly authorized committee or sub-
committee of the Congress. 
SEC. 1115. ENFORCEMENT. 
(a) CIVIL PENALTY.—Any brand name drug com-
pany or generic drug applicant which fails to comply with 
any provision of this subtitle shall be liable for a civil pen-
alty of not more than $11,000, for each day during which 
such entity is in violation of this subtitle. Such penalty 
may be recovered in a civil action brought by the United 
States, or brought by the Commission in accordance with 
the procedures established in section 16(a)(1) of the Fed-
eral Trade Commission Act (15 U.S.C. 56(a)). 
(b) COMPLIANCE AND EQUITABLE RELIEF.—If any 
brand name drug company or generic drug applicant fails 
to comply with any provision of this subtitle, the United 
States district court may order compliance, and may grant 
such other equitable relief as the court in its discretion
679
determines necessary or appropriate, upon application of 
the Commission. 
SEC. 1116. RULEMAKING. 
The Commission, by rule in accordance with section 
553 of title 5, United States Code, consistent with the pur-
poses of this subtitle—
(1) may define the terms used in this subtitle; 
(2) may exempt classes of persons or agree-
ments from the requirements of this subtitle; and 
(3) may prescribe such other rules as may be 
necessary and appropriate to carry out the purposes 
of this subtitle. 
SEC. 1117. SAVINGS CLAUSE. 
Any action taken by the Commission, or any failure 
of the Commission to take action, under this subtitle shall 
not at any time bar any proceeding or any action with 
respect to any agreement between a brand name drug 
company and a generic drug applicant, or any agreement 
between generic drug applicants, under any other provi-
sion of law, nor shall any filing under this subtitle con-
stitute or create a presumption of any violation of any 
competition laws. 
SEC. 1118. EFFECTIVE DATE. 
This subtitle shall—
680
(1) take effect 30 days after the date of enact-
ment of this Act; and 
(2) shall apply to agreements described in sec-
tion 1112 that are entered into 30 days after the 
date of enactment of this Act. 
Subtitle C—Importation of 
Prescription Drugs 
SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS. 
(a) IN GENERAL.—Chapter VIII of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 381 et seq.) 
is amended by striking section 804 and inserting the fol-
lowing: 
‘‘SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS. 
‘‘(a) DEFINITIONS.—In this section: 
‘‘(1) IMPORTER.—The term ‘importer’ means a 
pharmacist or wholesaler. 
‘‘(2) PHARMACIST.—The term ‘pharmacist’ 
means a person licensed by a State to practice phar-
macy, including the dispensing and selling of pre-
scription drugs. 
‘‘(3) PRESCRIPTION
DRUG.—The term ‘pre-
scription drug’ means a drug subject to section 
503(b), other than—
681
‘‘(A) a controlled substance (as defined in 
section 102 of the Controlled Substances Act 
(21 U.S.C. 802)); 
‘‘(B) a biological product (as defined in 
section 351 of the Public Health Service Act 
(42 U.S.C. 262)); 
‘‘(C) an infused drug (including a peri-
toneal dialysis solution); 
‘‘(D) an intravenously injected drug; 
‘‘(E) a drug that is inhaled during surgery; 
or 
‘‘(F) a drug which is a parenteral drug, 
the importation of which pursuant to subsection 
(b) is determined by the Secretary to pose a 
threat to the public health, in which case sec-
tion 801(d)(1) shall continue to apply. 
‘‘(4) QUALIFYING
LABORATORY.—The term 
‘qualifying laboratory’ means a laboratory in the 
United States that has been approved by the Sec-
retary for the purposes of this section. 
‘‘(5) WHOLESALER.—
‘‘(A) IN GENERAL.—The term ‘wholesaler’ 
means a person licensed as a wholesaler or dis-
tributor of prescription drugs in the United 
States under section 503(e)(2)(A).
682
‘‘(B) EXCLUSION.—The term ‘wholesaler’ 
does not include a person authorized to import 
drugs under section 801(d)(1). 
‘‘(b) REGULATIONS.—The Secretary shall promul-
gate regulations permitting pharmacists and wholesalers 
to import prescription drugs from Canada into the United 
States. 
‘‘(c) LIMITATION.—The regulations under subsection 
(b) shall—
‘‘(1) require that each prescription drug im-
ported under the regulations complies with section 
505 (including with respect to being safe and effec-
tive for the intended use of the prescription drug), 
with sections 501 and 502, and with all other appli-
cable requirements of this Act; 
‘‘(2) require that an importer of a prescription 
drug under the regulations comply with subsections 
(d)(1) and (e); 
‘‘(3) require that any prescription drug from 
Canada imported by a domestic pharmacist or 
wholesaler under this section be contained in pack-
aging which the Secretary has determined to be rea-
sonably certain to be tamper-resistant and not capa-
ble of counterfeiting;
683
‘‘(4) require that all prescription drugs from 
Canada imported by a domestic pharmacist or a 
wholesaler under this section contain a statement 
designed to inform the end-user of such drug that 
such drug has been imported from a foreign seller 
other than a manufacturer; 
‘‘(5) require that only prescription drugs which 
have not left the possession of the first Canadian re-
cipient of such prescription drugs after receipt from 
the manufacturer of such prescription drugs be eligi-
ble for importation into the United States under this 
section; 
‘‘(6) require, if determined appropriate by the 
Secretary, that all prescription drugs imported from 
Canada under this section by domestic pharmacists 
and wholesalers enter the United States through 
ports of entry designated by the Secretary for pur-
poses of this section; 
‘‘(7) contain any additional provisions deter-
mined by the Secretary to be appropriate to protect 
the public health; and 
‘‘(8) contain any additional provisions deter-
mined by the Secretary to be appropriate to facili-
tate the importation of prescription drugs that do 
not jeopardize the public health.
684
‘‘(d) INFORMATION AND RECORDS.—
‘‘(1) IN GENERAL.—The regulations under sub-
section (b) shall require an importer of a prescrip-
tion drug under subsection (b) to submit to the Sec-
retary the following information and documentation: 
‘‘(A) The name and quantity of the active 
ingredient of the prescription drug. 
‘‘(B) A description of the dosage form of 
the prescription drug. 
‘‘(C) The date on which the prescription 
drug is shipped. 
‘‘(D) The quantity of the prescription drug 
that is shipped. 
‘‘(E) The point of origin and destination of 
the prescription drug. 
‘‘(F) The price paid and the price charged 
by the importer for the prescription drug. 
‘‘(G) Documentation from the foreign sell-
er specifying—
‘‘(i) the original source of the pre-
scription drug; and 
‘‘(ii) the quantity of each lot of the 
prescription drug originally received by the 
seller from that source.
685
‘‘(H) The lot or control number assigned 
to the prescription drug by the manufacturer of 
the prescription drug. 
‘‘(I) The name, address, telephone number, 
and professional license number (if any) of the 
importer. 
‘‘(J)(i) Documentation demonstrating that 
the prescription drug was received by the recipi-
ent from the manufacturer and subsequently 
shipped by the first foreign recipient to the im-
porter. 
‘‘(ii) Documentation of the quantity of 
each lot of the prescription drug received by the 
first foreign recipient demonstrating that the 
quantity being imported into the United States 
is not more than the quantity that was received 
by the first foreign recipient. 
‘‘(iii) In the case of an initial imported 
shipment, documentation demonstrating that 
each batch of the prescription drug in the ship-
ment was statistically sampled and tested for 
authenticity and degradation. 
‘‘(K) Certification from the importer or 
manufacturer of the prescription drug that the 
prescription drug—
686
‘‘(i) is approved for marketing in the 
United States and is not adulterated or 
misbranded; and 
‘‘(ii) meets all labeling requirements 
under this Act. 
‘‘(L) Laboratory records, including com-
plete data derived from all tests necessary to 
ensure that the prescription drug is in compli-
ance with established specifications and stand-
ards. 
‘‘(M) Documentation demonstrating that 
the testing required by subparagraphs (J) and 
(L) was conducted at a qualifying laboratory. 
‘‘(N) Any other information that the Sec-
retary determines is necessary to ensure the 
protection of the public health. 
‘‘(2) MAINTENANCE BY THE SECRETARY.—The 
Secretary shall maintain information and docu-
mentation submitted under paragraph (1) for such 
period of time as the Secretary determines to be nec-
essary. 
‘‘(e) TESTING.—The regulations under subsection (b) 
shall require—
‘‘(1) that testing described in subparagraphs 
(J) and (L) of subsection (d)(1) be conducted by the
687
importer or by the manufacturer of the prescription 
drug at a qualified laboratory; 
‘‘(2) if the tests are conducted by the im-
porter—
‘‘(A) that information needed to—
‘‘(i) authenticate the prescription drug 
being tested; and 
‘‘(ii) confirm that the labeling of the 
prescription drug complies with labeling re-
quirements under this Act; 
be supplied by the manufacturer of the pre-
scription drug to the pharmacist or wholesaler; 
and 
‘‘(B) that the information supplied under 
subparagraph (A) be kept in strict confidence 
and used only for purposes of testing under this 
section; and 
‘‘(3) may include such additional provisions as 
the Secretary determines to be appropriate to pro-
vide for the protection of trade secrets and commer-
cial or financial information that is privileged or 
confidential. 
‘‘(f) REGISTRATION OF FOREIGN SELLERS.—Any es-
tablishment within Canada engaged in the distribution of 
a prescription drug that is imported or offered for impor-
688
tation into the United States shall register with the Sec-
retary the name and place of business of the establishment 
and the name of the United States agent for the establish-
ment. 
‘‘(g) SUSPENSION OF IMPORTATION.—The Secretary 
shall require that importations of a specific prescription 
drug or importations by a specific importer under sub-
section (b) be immediately suspended on discovery of a 
pattern of importation of that specific prescription drug 
or by that specific importer of drugs that are counterfeit 
or in violation of any requirement under this section, until 
an investigation is completed and the Secretary deter-
mines that the public is adequately protected from coun-
terfeit and violative prescription drugs being imported 
under subsection (b). 
‘‘(h) APPROVED LABELING.—The manufacturer of a 
prescription drug shall provide an importer written au-
thorization for the importer to use, at no cost, the ap-
proved labeling for the prescription drug. 
‘‘(i) 
CHARITABLE
CONTRIBUTIONS.—Notwith-
standing any other provision of this section, section 
801(d)(1) continues to apply to a prescription drug that 
is donated or otherwise supplied at no charge by the man-
ufacturer of the drug to a charitable or humanitarian or-
689
ganization (including the United Nations and affiliates) 
or to a government of a foreign country. 
‘‘(j) WAIVER AUTHORITY FOR IMPORTATION BY IN-
DIVIDUALS.—The Secretary may, for drugs being im-
ported from a licensed Canadian pharmacy, grant to indi-
viduals, by regulation or on a case-by-case basis, a waiver 
of the prohibition of importation of a prescription drug 
or device or class of prescription drugs or devices, under 
such conditions as the Secretary determines to be appro-
priate. Such conditions shall include conditions that such 
drug or device be—
‘‘(1) in the possession of an individual when the 
individual enters the United States; 
‘‘(2) imported by such individual from a li-
censed pharmacy for personal use by the individual, 
not for resale, in quantities that do not exceed a 90-
day supply, which individual will use the drug or de-
vice (or for a family member of such individual); 
‘‘(3) accompanied by a copy of a valid prescrip-
tion; 
‘‘(4) imported from Canada, from a seller reg-
istered with the Secretary; 
‘‘(5) a prescription drug approved by the Sec-
retary under chapter V that is not adulterated or 
misbranded;
690
‘‘(6) in the form of a final finished dosage that 
was manufactured in an establishment registered 
under section 510; and 
‘‘(7) imported under such other conditions as 
the Secretary determines to be necessary to ensure 
public safety. 
‘‘(k) STUDIES; REPORTS.—
‘‘(1) BY THE INSTITUTE OF MEDICINE OF THE 
NATIONAL ACADEMY OF SCIENCES.—
‘‘(A) STUDY.—
‘‘(i) IN
GENERAL.—The Secretary 
shall request that the Institute of Medicine 
of the National Academy of Sciences con-
duct a study of—
‘‘(I) importations of prescription 
drugs made under the regulations 
under subsection (b); and 
‘‘(II) 
information 
and 
docu-
mentation submitted under subsection 
(d). 
‘‘(ii) REQUIREMENTS.—In conducting 
the study, the Institute of Medicine shall—
‘‘(I) evaluate the compliance of 
importers with the regulations under 
subsection (b);
691
‘‘(II) compare the number of 
shipments 
under 
the 
regulations 
under subsection (b) during the study 
period that are determined to be 
counterfeit, misbranded, or adulter-
ated, and compare that number with 
the number of shipments made during 
the study period within the United 
States that are determined to be 
counterfeit, misbranded, or adulter-
ated; and 
‘‘(III) consult with the Secretary 
to evaluate the effect of importations 
under the regulations under sub-
section (b) on trade and patent rights 
under Federal law. 
‘‘(B) REPORT.—Not later than 2 years 
after the effective date of the regulations under 
subsection (b), the Institute of Medicine shall 
submit to Congress a report describing the find-
ings of the study under subparagraph (A). 
‘‘(2) BY THE COMPTROLLER GENERAL.—
‘‘(A) STUDY.—The Comptroller General of 
the United States shall conduct a study to de-
692
termine the effect of this section on the price of 
prescription drugs sold to consumers at retail. 
‘‘(B) REPORT.—Not later than 18 months 
after the effective date of the regulations under 
subsection (b), the Comptroller General of the 
United States shall submit to Congress a report 
describing the findings of the study under sub-
paragraph (A). 
‘‘(l) CONSTRUCTION.—Nothing in this section limits 
the authority of the Secretary relating to the importation 
of prescription drugs, other than with respect to section 
801(d)(1) as provided in this section. 
‘‘(m) AUTHORIZATION OF APPROPRIATIONS.—There 
are authorized to be appropriated such sums as are nec-
essary to carry out this section. 
‘‘(n) CONDITIONS.—This section shall become effec-
tive only if the Secretary demonstrates to the Congress 
that the implementation of this section will—
‘‘(1) pose no additional risk to the public’s 
health and safety; and 
‘‘(2) result in a significant reduction in the cost 
of prescription drugs to the American consumer.’’. 
(b) 
CONFORMING
AMENDMENTS.—The 
Federal 
Food, Drug, and Cosmetic Act is amended—
693
(1) in section 301(aa) (21 U.S.C. 331(aa)), by 
striking ‘‘covered product in violation of section 
804’’ and inserting ‘‘prescription drug in violation of 
section 804’’; and 
(2) in section 303(a)(6) (21 U.S.C. 333(a)(6), 
by striking ‘‘covered product pursuant to section 
804(a)’’ and inserting ‘‘prescription drug under sec-
tion 804(b)’’. 
DIVISION B—HEALTH SAVINGS 
AND AFFORDABILITY ACT OF 
2003
TITLE XII—HEALTH SAVINGS SE-
CURITY 
ACCOUNTS 
AND 
HEALTH SAVINGS ACCOUNTS 
SEC. 1201. SHORT TITLE. 
This division may be cited as the ‘‘Health Savings 
and Affordability Act of 2003’’. 
SEC. 1202. HEALTH SAVINGS SECURITY ACCOUNTS AND 
HEALTH SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions for individuals) is amended 
by redesignating section 223 as section 225 and by insert-
ing after section 222 the following new sections:
694
‘‘SEC. 223. HEALTH SAVINGS SECURITY ACCOUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during 
the taxable year, there shall be allowed as a deduction for 
the taxable year an amount equal to the aggregate amount 
paid in cash during such taxable year by such individual 
to a health savings security account of such individual. 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to an individual for 
the taxable year shall not exceed the sum of the 
monthly limitations for months during such taxable 
year that the individual is an eligible individual. 
‘‘(2) MONTHLY LIMITATION.—The monthly lim-
itation for any month is 1⁄12 of—
‘‘(A) $2,000, in the case of an eligible indi-
vidual who—
‘‘(i) has self-only coverage under a 
minimum deductible plan as of the first 
day of such month, or 
‘‘(ii) is uninsured as of the first day 
of such month and is not described in sub-
paragraph (B)(ii) with respect to the tax-
able year which includes such month, 
‘‘(B) $4,000, in the case of an eligible indi-
vidual who—
695
‘‘(i) has family coverage under a min-
imum deductible plan as of the first day of 
such month, or 
‘‘(ii) is uninsured as of the first day 
of such month and, with respect to the tax-
able year which includes such month— 
‘‘(I) is entitled to a deduction for 
a dependent under section 151(c) (or 
would be so entitled but for paragraph 
(2) or (4) of section 152(e)), or 
‘‘(II) files a joint return, and 
‘‘(C) zero in any other case. 
‘‘(3) ADDITIONAL
CONTRIBUTIONS
FOR
INDI-
VIDUALS 55 OR OLDER.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who has attained the age of 55 before 
the close of the taxable year, paragraph (2) 
shall be applied by increasing the $2,000 
amount in paragraph (2)(A) and the $4,000 
amount in paragraph (2)(B) by the additional 
contribution amount. 
‘‘(B) 
ADDITIONAL
CONTRIBUTION 
AMOUNT.—For purposes of this section, the ad-
ditional contribution amount is the amount de-
termined in accordance with the following table:
696
‘‘For taxable years 
The additional 
beginning in: 
contribution amount is: 
2004 .........................................................................................
$500
2005 .........................................................................................
$600
2006 .........................................................................................
$700
2007 .........................................................................................
$800
2008 .........................................................................................
$900
2009 and thereafter .................................................................
$1,000.
‘‘(4) LIMITATION BASED ON ADJUSTED GROSS 
INCOME.—
‘‘(A) SELF-ONLY
COVERAGE.—The dollar 
amount in paragraph (2)(A) (as increased 
under paragraph (3)) shall be reduced (but not 
below zero) by an amount which bears the same 
ratio to such dollar amount as—
‘‘(i) the amount (if any) by which the 
taxpayer’s adjusted gross income for such 
taxable year exceeds $75,000 ($150,000 in 
the case of a joint return), bears to 
‘‘(ii) $10,000 ($20,000 in the case of 
a joint return). 
‘‘(B) 
FAMILY
COVERAGE.—The 
dollar 
amount in paragraph (2)(B) (as increased 
under paragraph (3)) shall be reduced (but not 
below zero) by an amount which bears the same 
ratio to such dollar amount as—
‘‘(i) the amount (if any) by which the 
taxpayer’s adjusted gross income for such 
taxable year exceeds $150,000, bears to
697
‘‘(ii) $20,000. 
‘‘(C) NO REDUCTION BELOW $200 UNTIL 
COMPLETE
PHASE-OUT.—No dollar amount 
shall be reduced below $200 under subpara-
graph (A) or (B) unless (without regard to this 
subparagraph) such limitation is reduced to 
zero. 
‘‘(D) ROUNDING.—Any amount deter-
mined under this paragraph which is not a mul-
tiple of $10 shall be rounded to the next lowest 
$10. 
‘‘(E) ADJUSTED GROSS INCOME.—For pur-
poses of this paragraph, adjusted gross income 
shall be determined—
‘‘(i) without regard to this section or 
section 911, and 
‘‘(ii) after application of sections 86, 
135, 137, 219, 221, 222, and 469. 
‘‘(5) COORDINATION WITH OTHER CONTRIBU-
TIONS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of—
698
‘‘(A) the aggregate amount paid during 
such taxable year to Archer MSAs of such indi-
vidual, 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings accounts of 
such individual, and 
‘‘(C) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual by persons other than 
such individual. 
‘‘(6) SPECIAL RULES FOR MARRIED INDIVID-
UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI-
VIDUALS.—Rules similar to the rules of paragraphs 
(3), (6), and (7) of section 220(b) shall apply for 
purposes of this section. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any 
individual unless such individual is covered, as 
of the first day of such month, under any 
health plan which is not a minimum deductible 
plan.
699
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A) shall be ap-
plied without regard to— 
‘‘(i) coverage for any benefit provided 
by permitted insurance, and 
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability, 
dental care, vision care, or long-term care. 
‘‘(2) MINIMUM DEDUCTIBLE PLAN.—
‘‘(A) IN GENERAL.—The term ‘minimum 
deductible plan’ means a health plan— 
‘‘(i) in the case of self-only coverage, 
which has an annual deductible which is 
not less than $500, and 
‘‘(ii) in the case of family coverage, 
which has an annual deductible which is 
not less than twice the dollar amount in 
clause (i) (as increased under subpara-
graph (B)). 
‘‘(B) COST-OF-LIVING
ADJUSTMENT
FOR 
ANNUAL DEDUCTIBLES.—
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2004, the $500 amount in subpara-
700
graph (A)(i) shall be increased by an 
amount equal to—
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which such 
taxable year begins by substituting 
‘calendar year 2003’ for ‘calendar 
year 1992’ in subparagraph (B) there-
of. 
‘‘(ii) ROUNDING.—If any increase 
under clause (i) is not a multiple of $50, 
such increase shall be rounded to the near-
est multiple of $50. 
‘‘(C) SPECIAL RULES.— 
‘‘(i) 
EXCLUSION
OF
CERTAIN 
PLANS.—Such term does not include a 
health plan if substantially all of its cov-
erage is coverage described in paragraph 
(1)(B). 
‘‘(ii) SAFE HARBOR FOR ABSENCE OF 
PREVENTIVE CARE DEDUCTIBLE.—A plan 
shall not fail to be treated as a minimum
701
deductible plan by reason of failing to have 
a deductible for preventive care. 
‘‘(3) UNINSURED.—An individual shall be treat-
ed as uninsured if such individual is not covered by 
insurance which constitutes medical care. The pre-
ceding sentence shall be applied without regard to 
the coverage described in paragraph (1)(B). 
‘‘(4) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ has the meaning given such term 
in section 220(c)(3). 
‘‘(5) FAMILY
COVERAGE.—The term ‘family 
coverage’ has the meaning given such term in sec-
tion 220(c)(5). 
‘‘(6) ARCHER MSA.—The term ‘Archer MSA’ 
has the meaning given such term in section 220(d). 
‘‘(7) HEALTH SAVINGS ACCOUNT.—The term 
‘health savings account’ has the meaning given such 
term in section 224(d). 
‘‘(d) HEALTH SAVINGS SECURITY ACCOUNT.—For 
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘health savings 
security account’ means a trust created or organized 
in the United States as a health savings security ac-
count exclusively for the purpose of paying the quali-
fied medical expenses of the account beneficiary, but
702
only if the written governing instrument creating the 
trust meets the following requirements: 
‘‘(A) Except in the case of a rollover con-
tribution from an Archer MSA, or a health sav-
ings security account, which is not includible in 
gross income, no contribution will be accepted— 
‘‘(i) unless it is in cash and is contrib-
uted by—
‘‘(I) the account beneficiary, 
‘‘(II) a member of the family of 
the account beneficiary, or 
‘‘(III) an employer of the account 
beneficiary, and 
‘‘(ii) to the extent such contribution, 
when added to previous contributions to 
the trust for the calendar year, exceeds the 
highest annual limitation which could 
apply to an individual under subsection (b) 
for a taxable year beginning in such cal-
endar year. 
‘‘(B) The trustee is a bank (as defined in 
section 408(n)), an insurance company (as de-
fined in section 816), or another person who 
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person
703
will administer the trust will be consistent with 
the requirements of this section. 
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts. 
‘‘(D) The assets of the trust will not be 
commingled with other property except in a 
common trust fund or common investment 
fund. 
‘‘(E) The interest of an individual in the 
balance in his account is nonforfeitable. 
‘‘(2) MEMBER
OF
THE
FAMILY.—The term 
‘member of the family’ has the meaning given such 
term in section 2032A(e)(2). 
‘‘(3) QUALIFIED
MEDICAL
EXPENSES.—The 
term ‘qualified medical expenses’ has the meaning 
given such term in section 220(d)(2), except that—
‘‘(A) subparagraph (B)(i) thereof shall not 
apply to—
‘‘(i) insurance which constitutes a 
minimum deductible plan if no portion of 
the cost of such insurance is paid by an 
employer or former employer of the ac-
count beneficiary or the spouse of such 
beneficiary, and
704
‘‘(ii) any health insurance (other than 
health insurance substantially all of its 
coverage is coverage described in sub-
section (c)(1)(B)) if the account bene-
ficiary has attained age 65, and 
‘‘(B) subparagraph (C) thereof shall not 
apply for purposes of this section. 
‘‘(4) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual on whose be-
half the health savings security account was estab-
lished. 
‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 
to the following rules shall apply for purposes of this 
section: 
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers). 
‘‘(B) Section 219(f)(3) (relating to time 
when contributions deemed made). 
‘‘(C) Except as provided in section 106(d), 
section 219(f)(5) (relating to employer pay-
ments). 
‘‘(D) Section 408(g) (relating to commu-
nity property laws). 
‘‘(E) Section 408(h) (relating to custodial 
accounts).
705
‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND-
ING
ACCOUNTS
TREATED
AS
MADE
BY
THE
EM-
PLOYER.—Any contribution from a flexible spending 
account to a health savings security account which 
is not includible in the gross income of the employee 
by reason of section 125(h) shall be treated as a 
contribution made by the employer for purposes of 
this section. 
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A health savings security 
account is exempt from taxation under this subtitle 
unless such account has ceased to be a health sav-
ings security account. Notwithstanding the preceding 
sentence, any such account is subject to the taxes 
imposed by section 511 (relating to imposition of tax 
on unrelated business income of charitable, etc. or-
ganizations). 
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 
to the rules of paragraphs (2) and (4) of section 
408(e) shall apply to health savings security ac-
counts, and any amount treated as distributed under 
such similar rules shall be treated as not used to pay 
qualified medical expenses. 
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
706
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL 
EXPENSES.—Any amount paid or distributed out of 
a health savings security account which is used ex-
clusively to pay qualified medical expenses of any ac-
count beneficiary shall not be includible in gross in-
come. 
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR 
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or 
distributed out of a health savings security ac-
count which is not used exclusively to pay the 
qualified medical expenses of the account bene-
ficiary shall be included in the gross income of 
such beneficiary in the manner provided under 
section 72. 
‘‘(B) SPECIAL RULES FOR APPLYING SEC-
TION 72.—For purposes of applying section 72 
to any amount described in subparagraph (A)—
‘‘(i) all health savings security ac-
counts shall be treated as 1 contract, 
‘‘(ii) all distributions during any tax-
able year shall be treated as 1 distribution, 
‘‘(iii) the value of the contract, income 
on the contract, and investment in the con-
tract shall be computed as of the close of
707
the calendar year in which the taxable year 
begins, and 
‘‘(iv) such distributions shall be treat-
ed as made from contributions from mem-
bers of the family of the account bene-
ficiary to the extent that such distribution, 
when added to all previous distributions 
from the health savings security account 
taken into account under this clause, do 
not exceed the aggregate contributions 
from members of such family. 
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.— 
‘‘(A) IN
GENERAL.—If any excess con-
tribution is contributed for a taxable year to 
any health savings security account of an indi-
vidual, paragraph (2) shall not apply to dis-
tributions from the health savings security ac-
counts of such individual (to the extent such 
distributions do not exceed the aggregate excess 
contributions to all such accounts of such indi-
vidual for such year) if—
‘‘(i) such distribution is made on or 
before the last day prescribed by law (in-
cluding extensions of time) for filing the
708
account beneficiary’s return for such tax-
able year, 
‘‘(ii) no deduction is allowed under 
this section with respect to such contribu-
tion, 
‘‘(iii) such distribution is accompanied 
by the amount of net income attributable 
to such excess contribution, and 
‘‘(iv) such distribution satisfies the re-
quirements of subparagraph (B). 
‘‘(B) RULES RELATED TO ORDERING.—
‘‘(i) DISTRIBUTIONS LIMITED TO CON-
TRIBUTIONS.—Subparagraph 
(A) 
shall 
apply to distributions to a person only to 
the extent of the contributions of such per-
son to such accounts during such taxable 
year. 
‘‘(ii) CLASSES
OF
CONTRIBUTORS.—
Subparagraph (A) shall apply only to dis-
tributions of such contributions which are 
made in the following order: 
‘‘(I) first, to members of the fam-
ily of the account beneficiary, 
‘‘(II) second, to the account ben-
eficiary,
709
‘‘(III) third, to employers of the 
account beneficiary with respect to 
contributions under section 125(h), 
and 
‘‘(IV) fourth, to employers of the 
account beneficiary with respect to 
contributions under section 106(d). 
‘‘(iii) LAST-IN
FIRST-OUT.—If dis-
tributions could be made to more than one 
person under any subclause of clause (ii), 
subparagraph (A) shall not apply to any 
such distribution unless such distribution 
is of the most recent excess contribution 
which has not been distributed to the con-
tributor. 
‘‘(C) TREATMENT OF NET INCOME.—Any 
net income described in subparagraph (A)(iii) 
shall be included in the gross income of the per-
son receiving the distribution for the taxable 
year in which received. 
‘‘(D) EXCESS
CONTRIBUTION.—For pur-
poses of subparagraph (A), the term ‘excess 
contribution’ means any contribution (other 
than a rollover contribution from another health 
savings security account, or from an Archer
710
MSA, which is not includible in gross income) 
to the extent such contribution results in the 
aggregate contributions to health savings secu-
rity accounts of the account beneficiary for the 
taxable year to be in excess of the limitation 
under subsection (b) (determined without re-
gard to paragraph (5)(C) thereof) which applies 
to such beneficiary for such year. 
‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT 
USED FOR QUALIFIED MEDICAL EXPENSES.— 
‘‘(A) IN GENERAL.—The tax imposed by 
this chapter on the account beneficiary for any 
taxable year in which there is a payment or dis-
tribution from a health savings security account 
of such beneficiary which is includible in gross 
income under paragraph (2) shall be increased 
by 15 percent of the amount which is so includ-
ible. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if 
the payment or distribution is made after the 
account beneficiary becomes disabled within the 
meaning of section 72(m)(7) or dies. 
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS 
AFTER MEDICARE ELIGIBILITY.—Subparagraph
711
(A) shall not apply to any payment or distribu-
tion after the date on which the account bene-
ficiary attains the age specified in section 1811 
of the Social Security Act. 
‘‘(5) ROLLOVER CONTRIBUTION.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall 
not apply to any amount paid or distributed 
from a health savings security account to the 
account beneficiary to the extent the amount 
received is paid into a health savings security 
account, or a health savings account, for the 
benefit of such beneficiary not later than the 
60th day after the day on which the beneficiary 
receives the payment or distribution. 
‘‘(B) LIMITATION.—This paragraph shall 
not apply to any amount described in subpara-
graph (A) received by an individual from a 
health savings security account if, at any time 
during the 1-year period ending on the day of 
such receipt, such individual received any other 
amount described in subparagraph (A) from a 
health savings security account which was not 
includible in the individual’s gross income be-
cause of the application of this paragraph.
712
‘‘(6) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (6), (7), and (8) of section 
220(f) shall apply for purposes of this section. 
‘‘(g) REPORTS.—The Secretary may require the 
trustee of a health savings security account to make such 
reports regarding such account to the Secretary and to 
the account beneficiary with respect to contributions, dis-
tributions, and such other matters as the Secretary deter-
mines appropriate. The reports required by this subsection 
shall be filed at such time and in such manner and fur-
nished to such individuals at such time and in such man-
ner as may be required by the Secretary. 
‘‘(h) REGULATIONS.—The Secretary may issue regu-
lations to carry out the purposes of this section, including 
regulations regarding the proper treatment of distribu-
tions described in subsection (f)(3) and nondeductible con-
tributions by members of the family of the account bene-
ficiary. 
‘‘SEC. 224. HEALTH SAVINGS ACCOUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during 
the taxable year, there shall be allowed as a deduction for 
the taxable year an amount equal to the aggregate amount 
paid in cash during such taxable year by such individual 
to a health savings account of such individual.
713
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to an individual for 
the taxable year shall not exceed the sum of the 
monthly limitations for months during such taxable 
year that the individual is an eligible individual. 
‘‘(2) MONTHLY LIMITATION.—The monthly lim-
itation for any month is the amount equal to 1⁄12 of 
the annual deductible (as of the first day of such 
month) of the individual’s coverage under the high 
deductible health plan. 
‘‘(3) COORDINATION WITH OTHER CONTRIBU-
TIONS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of—
‘‘(A) the aggregate amount paid during 
such taxable year to Archer MSAs of such indi-
vidual, 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual, and 
‘‘(C) the aggregate amount paid during 
such taxable year to health savings accounts of
714
such individual by persons other than such indi-
vidual. 
‘‘(4) SPECIAL RULES FOR MARRIED INDIVID-
UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI-
VIDUALS.—Rules similar to the rules of paragraphs 
(3), (6), and (7) of section 220(b) shall apply for 
purposes of this section. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any 
individual if—
‘‘(i) such individual is covered under a 
high deductible health plan as of the 1st 
day of such month, and 
‘‘(ii) such individual is not, while cov-
ered under a high deductible health plan, 
covered under any health plan—
‘‘(I) which is not a high deduct-
ible health plan, and 
‘‘(II) which provides coverage for 
any benefit which is covered under the 
high deductible health plan.
715
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A)(ii) shall be ap-
plied without regard to— 
‘‘(i) coverage for any benefit provided 
by permitted insurance, and 
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability, 
dental care, vision care, or long-term care. 
‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—
‘‘(A) IN
GENERAL.—The term ‘high de-
ductible health plan’ means a health plan— 
‘‘(i) in the case of self-only coverage, 
which has an annual deductible which is 
not less than $1,000 and not more than 
$2,250, 
‘‘(ii) in the case of family coverage, 
which has an annual deductible which is 
not less than $2,000 and not more than 
$4,500, and 
‘‘(iii) the annual out-of-pocket ex-
penses required to be paid under the plan 
(other than for premiums) for covered ben-
efits does not exceed— 
‘‘(I) $3,000 for self-only cov-
erage, and
716
‘‘(II) $5,500 for family coverage. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 1998, each dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to—
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which such 
taxable year begins by substituting 
‘calendar year 1997’ for ‘calendar 
year 1992’ in subparagraph (B) there-
of. 
‘‘(ii) SPECIAL RULES.—In the case of 
the $1,000 amount in subparagraph (A)(i) 
and the $2,000 amount in subparagraph 
(A)(ii), subclause (i)(II) shall be applied by 
substituting ‘calendar year 2002’ for ‘cal-
endar year 1997’. 
‘‘(iii) ROUNDING.—If any increase 
under clause (i) or (ii) is not a multiple of
717
$50, such increase shall be rounded to the 
nearest multiple of $50. 
‘‘(C) SPECIAL RULES.— 
‘‘(i) 
EXCLUSION
OF
CERTAIN 
PLANS.—Such term does not include a 
health plan if substantially all of its cov-
erage is coverage described in paragraph 
(1)(B). 
‘‘(ii) SAFE HARBOR FOR ABSENCE OF 
PREVENTIVE CARE DEDUCTIBLE.— A plan 
shall not fail to be treated as a high de-
ductible health plan by reason of failing to 
have a deductible for preventive care. 
‘‘(D) TREATMENT
OF
NETWORK
SERV-
ICES.—
‘‘(i) IN GENERAL.—In the case of a 
health plan which is a preferred provider 
organization plan and which would (with-
out regard to services provided outside 
such organization’s network of providers 
described in clause (iii)(I)) be a high de-
ductible health plan, such plan shall not 
fail to be a high deductible health plan be-
cause—
718
‘‘(I) the annual deductible for 
services provided outside such network 
exceeds the applicable maximum dol-
lar amount in clause (i) or (ii) of sub-
paragraph (A), or 
‘‘(II) the annual out-of-pocket ex-
penses required to be paid for services 
provided outside such network exceeds 
the applicable dollar amount in sub-
paragraph (A)(iii). 
‘‘(ii) ANNUAL DEDUCTIBLE.—The an-
nual deductible taken into account under 
subsection (b)(2) with respect to a plan 
which is a high deductible health plan by 
reason of clause (i) shall be the annual de-
ductible for services provided within such 
network. 
‘‘(iii) PREFERRED PROVIDER ORGANI-
ZATION PLAN DEFINED.—In this subpara-
graph, the term ‘preferred provider organi-
zation plan’ means a health plan that—
‘‘(I) has a network of providers 
that have agreed to a contractually 
specified reimbursement for covered
719
benefits with the organization offering 
the plan, 
‘‘(II) provides for reimbursement 
for all covered benefits regardless of 
whether such benefits are provided 
within such network of providers, and 
‘‘(III) is offered by an organiza-
tion that is not licensed or organized 
under State law as a health mainte-
nance organization. 
‘‘(3) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ has the meaning given such term 
in section 220(c)(3). 
‘‘(4) FAMILY
COVERAGE.—The term ‘family 
coverage’ has the meaning given such term in sec-
tion 220(c)(5). 
‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ 
has the meaning given such term in section 220(d). 
‘‘(6) HEALTH SAVINGS SECURITY ACCOUNT.—
The term ‘health savings security account’ has the 
meaning given such term in section 223(d). 
‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of 
this section—
‘‘(1) IN GENERAL.—The term ‘health savings 
account’ means a trust created or organized in the
720
United States as a health savings account exclusively 
for the purpose of paying the qualified medical ex-
penses of the account beneficiary, but only if the 
written governing instrument creating the trust 
meets the following requirements: 
‘‘(A) Except in the case of a rollover con-
tribution from an Archer MSA, a health savings 
security account, or a health savings account, 
which is not includible in gross income, no con-
tribution will be accepted— 
‘‘(i) unless it is in cash and is contrib-
uted by—
‘‘(I) the account beneficiary, or 
‘‘(II) an employer of the account 
beneficiary, and 
‘‘(ii) to the extent such contribution, 
when added to previous contributions to 
the trust for the calendar year, exceeds the 
highest annual limitation which could 
apply to an individual under subsection (b) 
for a taxable year beginning in such cal-
endar year. 
‘‘(B) The trustee is a bank (as defined in 
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
721
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person 
will administer the trust will be consistent with 
the requirements of this section. 
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts. 
‘‘(D) The assets of the trust will not be 
commingled with other property except in a 
common trust fund or common investment 
fund. 
‘‘(E) The interest of an individual in the 
balance in his account is nonforfeitable. 
‘‘(2) QUALIFIED
MEDICAL
EXPENSES.—The 
term ‘qualified medical expenses’ has the meaning 
given such term in section 220(d)(2). 
‘‘(3) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual on whose be-
half the health savings account was established. 
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 
to the following rules shall apply for purposes of this 
section: 
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers). 
‘‘(B) Section 219(f)(3) (relating to time 
when contributions deemed made).
722
‘‘(C) Except as provided in section 106(d), 
section 219(f)(5) (relating to employer pay-
ments). 
‘‘(D) Section 408(g) (relating to commu-
nity property laws). 
‘‘(E) Section 408(h) (relating to custodial 
accounts). 
‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND-
ING
ACCOUNTS
TREATED
AS
MADE
BY
THE
EM-
PLOYER.—Any contribution from a flexible spending 
account to a health savings account which is not in-
cludible in the gross income of the employee by rea-
son of section 125(h) shall be treated as a contribu-
tion made by the employer for purposes of this sec-
tion. 
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A health savings account is 
exempt from taxation under this subtitle unless such 
account has ceased to be a health savings account. 
Notwithstanding the preceding sentence, any such 
account is subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations). 
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 
to the rules of paragraphs (2) and (4) of section
723
408(e) shall apply to health savings accounts, and 
any amount treated as distributed under such rules 
shall be treated as not used to pay qualified medical 
expenses. 
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL 
EXPENSES.—Any amount paid or distributed out of 
a health savings account which is used exclusively to 
pay qualified medical expenses of any account bene-
ficiary shall not be includible in gross income. 
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR 
QUALIFIED MEDICAL EXPENSES.—Any amount paid 
or distributed out of a health savings account which 
is not used exclusively to pay the qualified medical 
expenses of the account beneficiary shall be included 
in the gross income of such beneficiary. 
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.— 
‘‘(A) IN
GENERAL.—If any excess con-
tribution is contributed for a taxable year to 
any health savings account of an individual, 
paragraph (2) shall not apply to distributions 
from the health savings accounts of such indi-
vidual (to the extent such distributions do not 
exceed the aggregate excess contributions to all
724
such accounts of such individual for such year) 
if— 
‘‘(i) such distribution is made on or 
before the last day prescribed by law (in-
cluding extensions of time) for filing the 
account beneficiary’s return for such tax-
able year, 
‘‘(ii) no deduction is allowed under 
this section with respect to such contribu-
tion, 
‘‘(iii) such distribution is accompanied 
by the amount of net income attributable 
to such excess contribution, and 
‘‘(iv) such distribution satisfies the re-
quirements of subparagraph (B). 
‘‘(B) RULES RELATED TO ORDERING.—
‘‘(i) DISTRIBUTIONS LIMITED TO CON-
TRIBUTIONS.—Subparagraph 
(A) 
shall 
apply to distributions to a person only to 
the extent of the contributions of such per-
son to such accounts during such taxable 
year. 
‘‘(ii) CLASSES
OF
CONTRIBUTORS.—
Subparagraph (A) shall apply only to dis-
725
tributions of such contributions which are 
made in the following order: 
‘‘(I) first, to the account bene-
ficiary, 
‘‘(II) second, to employers of the 
account beneficiary with respect to 
contributions under section 125(h), 
and 
‘‘(III) third, to employers of the 
account beneficiary with respect to 
contributions under section 106(d). 
‘‘(iii) LAST-IN
FIRST-OUT.—If dis-
tributions could be made to more than one 
person under any subclause of clause (ii), 
subparagraph (A) shall not apply to any 
such distribution unless such distribution 
is of the most recent excess contribution 
which has not been distributed to the con-
tributor. 
‘‘(C) TREATMENT OF NET INCOME.—Any 
net income described in subparagraph (A)(iii) 
shall be included in the gross income of the per-
son receiving the distribution for the taxable 
year in which received.
726
‘‘(D) EXCESS
CONTRIBUTION.—For pur-
poses of subparagraph (A), the term ‘excess 
contribution’ means any contribution (other 
than a rollover contribution from another health 
savings account, from a health savings security 
account, or from an Archer MSA, which is not 
includible in gross income) to the extent such 
contribution results in the aggregate contribu-
tions to health savings accounts of the account 
beneficiary for the taxable year to be in excess 
of the limitation under subsection (b) (deter-
mined without regard to paragraph (3)(C) 
thereof) which applies to such beneficiary for 
such year. 
‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT 
USED FOR QUALIFIED MEDICAL EXPENSES.— 
‘‘(A) IN GENERAL.—The tax imposed by 
this chapter on the account beneficiary for any 
taxable year in which there is a payment or dis-
tribution from a health savings account of such 
beneficiary which is includible in gross income 
under paragraph (2) shall be increased by 15 
percent of the amount which is so includible. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if
727
the payment or distribution is made after the 
account beneficiary becomes disabled within the 
meaning of section 72(m)(7) or dies. 
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS 
AFTER MEDICARE ELIGIBILITY.—Subparagraph 
(A) shall not apply to any payment or distribu-
tion after the date on which the account bene-
ficiary attains the age specified in section 1811 
of the Social Security Act. 
‘‘(5) ROLLOVER CONTRIBUTION.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall 
not apply to any amount paid or distributed 
from a health savings account to the account 
beneficiary to the extent the amount received is 
paid into a health savings account for the ben-
efit of such beneficiary not later than the 60th 
day after the day on which the beneficiary re-
ceives the payment or distribution. 
‘‘(B) LIMITATION.—This paragraph shall 
not apply to any amount described in subpara-
graph (A) received by an individual from a 
health savings account if, at any time during 
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount 
described in subparagraph (A) from a health
728
savings account which was not includible in the 
individual’s gross income because of the appli-
cation of this paragraph. 
‘‘(6) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (6), (7), and (8) of section 
220(f) shall apply for purposes of this section. 
‘‘(g) REPORTS.—The Secretary may require the 
trustee of a health savings account to make such reports 
regarding such account to the Secretary and to the ac-
count beneficiary with respect to contributions, distribu-
tions, and such other matters as the Secretary determines 
appropriate. The reports required by this subsection shall 
be filed at such time and in such manner and furnished 
to such individuals at such time and in such manner as 
may be required by the Secretary.’’. 
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 
of section 62 of such Code is amended by inserting after 
paragraph (18) the following new paragraphs: 
‘‘(19) 
HEALTH
SAVINGS
SECURITY
AC-
COUNTS.—The deduction allowed by section 223. 
‘‘(20) HEALTH SAVINGS ACCOUNTS.—The de-
duction allowed by section 224.’’. 
(c) COORDINATION WITH ARCHER MSAS.—
729
(1) ROLLOVERS
FROM
ARCHER
MSAS
PER-
MITTED.—Subparagraph (A) of section 220(f)(5) of 
such Code (relating to rollover contribution) is 
amended by inserting ‘‘, a health savings security 
account (as defined in section 223(d)), or a health 
savings account (as defined in section 224(d)),’’ 
after ‘‘paid into an Archer MSA’’. 
(2) REDUCTION IN ARCHER MSA LIMITATION 
FOR CONTRIBUTIONS TO HEALTH SAVINGS SECURITY 
ACCOUNTS AND HEALTH SAVINGS ACCOUNTS.—Sub-
section (b) of section 220 of such Code (relating to 
limitations) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) COORDINATION
WITH
HEALTH
SAVINGS 
SECURITY
ACCOUNTS
AND
HEALTH
SAVINGS
AC-
COUNTS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of—
‘‘(A) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual, and 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings accounts of 
such individual.’’.
730
(d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO 
HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH 
SAVINGS ACCOUNTS.—
(1) EXCLUSION
FROM
INCOME
TAX.—Section 
106 of such Code (relating to contributions by em-
ployer to accident and health plans) is amended by 
adding at the end the following new subsections: 
‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS SECU-
RITY ACCOUNTS.— 
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible individual, amounts contributed by 
such employee’s employer to any health savings se-
curity account of such employee shall be treated as 
employer-provided coverage for medical expenses 
under an accident or health plan to the extent such 
amounts do not exceed the limitation under section 
223(b) (determined without regard to this sub-
section) which is applicable to such employee for 
such taxable year. 
‘‘(2) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (2), (3), (4), and (5) of sub-
section (b) shall apply for purposes of this sub-
section. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘health
731
savings security account’ have the respective mean-
ings given to such terms by section 223. 
‘‘(4) CROSS REFERENCE.—
‘‘For penalty on failure by employer to make com-
parable contributions to the health savings security 
accounts of comparable employees, see section 
4980G.
‘‘(e) CONTRIBUTIONS
TO HEALTH SAVINGS AC-
COUNTS.— 
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible individual, amounts contributed by 
such employee’s employer to any health savings ac-
count of such employee shall be treated as employer-
provided coverage for medical expenses under an ac-
cident or health plan to the extent such amounts do 
not exceed the limitation under section 224(b) (de-
termined without regard to this subsection) which is 
applicable to such employee for such taxable year. 
‘‘(2) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (2), (3), (4), and (5) of sub-
section (b) shall apply for purposes of this sub-
section. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘health 
savings account’ have the respective meanings given 
to such terms by section 224.
732
‘‘(4) CROSS REFERENCE.—
‘‘For penalty on failure by employer to make com-
parable contributions to the health savings ac-
counts 
of 
comparable 
employees, 
see 
section 
4980G.’’.
(2) EXCLUSION FROM EMPLOYMENT TAXES.—
(A) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is 
amended by adding at the end the following 
new paragraph: 
‘‘(11) HEALTH
SAVINGS
SECURITY
ACCOUNT 
AND HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—
The term ‘compensation’ shall not include any pay-
ment made to or for the benefit of an employee if 
at the time of such payment it is reasonable to be-
lieve that the employee will be able to exclude such 
payment from income under subsection (d) or (e) of 
section 106.’’. 
(B) UNEMPLOYMENT TAX.—Subsection (b) 
of section 3306 of such Code is amended by 
striking ‘‘or’’ at the end of paragraph (16), by 
striking the period at the end of paragraph (17) 
and inserting ‘‘; or’’, and by inserting after 
paragraph (17) the following new paragraph: 
‘‘(18) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able
733
to exclude such payment from income under sub-
section (d) or (e) of section 106.’’. 
(C) WITHHOLDING
TAX.—Subsection (a) 
of section 3401 of such Code is amended by 
striking ‘‘or’’ at the end of paragraph (20), by 
striking the period at the end of paragraph (21) 
and inserting ‘‘; or’’, and by inserting after 
paragraph (21) the following new paragraph: 
‘‘(22) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
to exclude such payment from income under sub-
section (d) or (e) of section 106.’’. 
(3) EMPLOYER CONTRIBUTIONS REQUIRED TO 
BE SHOWN ON W–2.—Subsection (a) of section 6051 
of such Code is amended by striking ‘‘and’’ at the 
end of paragraph (10), by striking the period at the 
end of paragraph (11) and inserting a comma, and 
by inserting after paragraph (11) the following new 
paragraphs: 
‘‘(12) the amount contributed to any health 
savings security account (as defined in section 
223(d)) of such employee or such employee’s spouse, 
and
734
‘‘(13) the amount contributed to any health 
savings account (as defined in section 224(d)) of 
such employee or such employee’s spouse.’’. 
(4) PENALTY FOR FAILURE OF EMPLOYER TO 
MAKE
COMPARABLE
HEALTH
SAVINGS
ACCOUNT 
CONTRIBUTIONS.—
(A) IN
GENERAL.—Chapter 43 of such 
Code is amended by adding after section 4980F 
the following new section: 
‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM-
PARABLE HEALTH SAVINGS ACCOUNT CON-
TRIBUTIONS. 
‘‘(a) GENERAL RULE.—In the case of an employer 
who makes a contribution to the health savings security 
account or the health savings account of any employee 
during a calendar year, there is hereby imposed a tax on 
the failure of such employer to meet the requirements of 
subsection (b) for such calendar year. 
‘‘(b) RULES AND REQUIREMENTS.—Rules and re-
quirements similar to the rules and requirements of sec-
tion 4980E shall apply for purposes of this section. 
‘‘(c) REGULATIONS.—The Secretary shall issue regu-
lations to carry out the purposes of this section, including 
regulations providing special rules for employers who
735
make contributions to more than one of the following types 
of accounts during the calendar year: 
‘‘(1) An Archer MSA. 
‘‘(2) A health savings security account. 
‘‘(3) A health savings account.’’. 
(B) CLERICAL AMENDMENT.—The table of 
sections for chapter 43 of such Code is amend-
ed by adding after the item relating to section 
4980F the following new item:
‘‘Sec. 4980G. Failure of employer to make comparable health savings account 
contributions.’’.
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 
of such Code (relating to tax on excess contributions to 
certain tax-favored accounts and annuities) is amended—
(1) by striking ‘‘or’’ at the end of paragraph 
(3) of subsection (a), 
(2) by inserting after paragraph (4) of sub-
section (a) the following new paragraphs: 
‘‘(5) a health savings security account (within 
the meaning of section 223(d)), or 
‘‘(6) a health savings account (within the mean-
ing of section 224(d))’’, and 
(4) by adding at the end the following new sub-
sections: 
‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS 
SECURITY ACCOUNTS.—For purposes of this section, in
736
the case of health savings security accounts (within the 
meaning of section 223(d)), the term ‘excess contribu-
tions’ means the sum of—
‘‘(1) the aggregate amount contributed for the 
taxable year to the accounts (other than a rollover 
contribution from another health savings security ac-
count, or from an Archer MSA, which is not includ-
ible in gross income) which is in excess of the limita-
tion under section 223(b) (determined without re-
gard to paragraph (5)(C) thereof), and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by 
the sum of—
‘‘(A) the distributions out of the accounts 
which were included in gross income under sec-
tion 223(f)(2), and 
‘‘(B) the excess (if any) of—
‘‘(i) the sum of limitations described 
in paragraph (1), over 
‘‘(ii) the amount contributed to the 
accounts for the taxable year. 
For purposes of this subsection, any contribution which 
is distributed out of the health savings security account 
in a distribution to which section 223(f)(3) applies shall 
be treated as an amount not contributed.
737
‘‘(h) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS 
ACCOUNTS.—For purposes of this section, in the case of 
health savings accounts (within the meaning of section 
224(d)), the term ‘excess contributions’ means the sum 
of—
‘‘(1) the aggregate amount contributed for the 
taxable year to the accounts (other than a rollover 
contribution from another health savings account, a 
health savings security account, or from an Archer 
MSA, which is not includible in gross income) which 
is in excess of the limitation under section 224(b) 
(determined without regard to paragraph (3)(C) 
thereof), and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by 
the sum of—
‘‘(A) the distributions out of the accounts 
which were included in gross income under sec-
tion 224(f)(2), and 
‘‘(B) the excess (if any) of—
‘‘(i) the sum of limitations described 
in paragraph (1), over 
‘‘(ii) the amount contributed to the 
accounts for the taxable year.
738
For purposes of this subsection, any contribution which 
is distributed out of the health savings account in a dis-
tribution to which section 224(f)(3) applies shall be treat-
ed as an amount not contributed.’’. 
(f) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax 
on prohibited transactions) is amended by adding at 
the end of subsection (c) the following new para-
graphs: 
‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS SE-
CURITY ACCOUNTS.—An individual for whose benefit 
a health savings security account (within the mean-
ing of section 223(d)) is established shall be exempt 
from the tax imposed by this section with respect to 
any transaction concerning such account (which 
would otherwise be taxable under this section) if, 
with respect to such transaction, the account ceases 
to be a health savings security account by reason of 
the application of section 223(e)(2) to such account. 
‘‘(7) SPECIAL RULE FOR HEALTH SAVINGS AC-
COUNTS.—An individual for whose benefit a health 
savings account (within the meaning of section 
224(d)) is established shall be exempt from the tax 
imposed by this section with respect to any trans-
action concerning such account (which would other-
739
wise be taxable under this section) if, with respect 
to such transaction, the account ceases to be a 
health savings account by reason of the application 
of section 224(e)(2) to such account.’’. 
(2) Paragraph (1) of section 4975(e) of such 
Code is amended by redesignating subparagraphs 
(E) and (F) as subparagraphs (G) and (H), respec-
tively, and by inserting after subparagraph (D) the 
following new subparagraphs: 
‘‘(E) a health savings security account de-
scribed in section 223(d), 
‘‘(F) a health savings account described in 
section 224(d),’’. 
(g) FAILURE TO PROVIDE REPORTS ON HEALTH 
SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 
of such Code (relating to reports) is amended by redesig-
nating subparagraphs (C) and (D) as subparagraphs (E) 
and (F), respectively, and by inserting after subparagraph 
(B) the following new subparagraphs: 
‘‘(C) section 223(g) (relating to health sav-
ings security accounts), 
‘‘(D) section 224(g) (relating to health 
savings accounts),’’. 
(h) EXCEPTION FROM CAPITALIZATION OF POLICY 
ACQUISITION EXPENSES.—Subparagraph (B) of section
740
848(e)(1) of such Code (defining specified insurance con-
tract) is amended by striking ‘‘and’’ at the end of clause 
(iii), by striking the period at the end of clause (iv) and 
inserting a comma, and by adding at the end the following 
new clauses: 
‘‘(v) any contract which is a health 
savings security account (as defined in sec-
tion 223(d)), and’’. 
‘‘(vi) any contract which is a health 
savings account (as defined in section 
224(d)).’’. 
(i) HEALTH SAVINGS SECURITY ACCOUNTS
AND 
HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER 
CAFETERIA PLANS.—Paragraph (2) of section 125(d) (re-
lating to cafeteria plan defined) is amended by adding at 
the end the following new subparagraph: 
‘‘(D) EXCEPTION
FOR
HEALTH
SAVINGS 
ACCOUNTS.—Subparagraph (A) shall not apply 
to a plan to the extent of amounts which a cov-
ered employee may elect to have the employer 
pay as contributions to a health savings secu-
rity account, or a health savings account, estab-
lished on behalf of the employee.’’. 
(j) INFORMATION REPORTING
BY PROVIDERS
OF 
HEALTH INSURANCE.—Subpart B of part III of sub-
741
chapter A of chapter 61 of such Code is amended by add-
ing at the end the following new section: 
‘‘SEC. 6050U. RETURNS RELATING TO PROVIDERS OF 
HEALTH INSURANCE. 
‘‘(a) REQUIREMENT OF REPORTING.—Under regula-
tions prescribed by the Secretary, every person who pro-
vides any individual with coverage under a plan which con-
stitutes medical care shall, at such time as the Secretary 
may prescribe, make the return described in subsection (b) 
with respect to such individual. 
‘‘(b) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe, and 
‘‘(2) contains such information as the Secretary 
prescribes. 
‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under 
subsection (a) shall furnish to each individual whose name 
is required to be set forth in such return a written state-
ment showing— 
‘‘(1) the name and address of the person re-
quired to make such return and the phone number 
of the information contact for such person, and
742
‘‘(2) the information required to be shown on 
the return with respect to such individual. 
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the 
year following the calendar year for which the return 
under subsection (a) is required to be made.’’. 
(k) CONFORMING AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by 
striking the last item and inserting the following:
‘‘Sec. 223. Health savings security accounts. 
‘‘Sec. 224. Health savings accounts. 
‘‘Sec. 225. Cross reference.’’.
(2)(A) 
Sections 
86(b)(2)(A), 
135(c)(4)(A), 
137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) 
are each amended by inserting ‘‘223,’’ after ‘‘222,’’. 
(B) Section 222(b)(2)(C)(i) is amended by in-
serting ‘‘223,’’ before ‘‘911’’. 
(C) Section 469(i)(3)(F)(iii) is amended by 
striking ‘‘and 222’’ and inserting ‘‘222, and 223’’. 
(l) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
743
SEC. 1203. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
CAFETERIA PLANS AND FLEXIBLE SPENDING 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 (relating to cafeteria plans) is amended 
by redesignating subsections (h) and (i) as subsections (i) 
and (j), respectively, and by inserting after subsection (g) 
the following: 
‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH 
BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan solely because qualified 
benefits under such plan include a health flexible 
spending arrangement under which not more than 
$500 of unused health benefits may be—
‘‘(A) carried forward to the succeeding 
plan year of such health flexible spending ar-
rangement, 
‘‘(B) to the extent permitted by sections 
223 and 224, contributed on behalf of the em-
ployee to a health savings security account (as 
defined in section 223(d)), or a health savings 
account (as defined in section 224(d)), main-
tained for the benefit of such employee, or
744
‘‘(C) contributed to a qualified retirement 
plan (as defined in section 4974(c)), or an eligi-
ble deferred compensation plan (as defined in 
section 457(b)) of an eligible employer de-
scribed in section 457(e)(1)(A), but only to the 
extent such amount would not be allowed as a 
deduction under—
‘‘(i) section 223 if made directly by 
the employee to a health savings security 
account of the employee (determined with-
out regard to any other contributions made 
by the employee), and 
‘‘(ii) section 224 if made directly by 
the employee to a health savings account 
of the employee (determined without re-
gard to any other contributions made by 
the employee). 
‘‘(2) SPECIAL RULES FOR TREATMENT OF CON-
TRIBUTIONS TO RETIREMENT PLANS.—For purposes 
of this title, contributions under paragraph (1)(C)—
‘‘(A) shall be treated as elective deferrals 
(as defined in section 402(g)(3)) in the case of 
contributions to a qualified cash or deferred ar-
rangement (as defined in section 401(k)) or to 
an annuity contract described in section 403(b),
745
‘‘(B) shall be treated as employer contribu-
tions to which the employee has a nonforfeitable 
right in the case of a plan (other than a plan 
described in subparagraph (A)) which is de-
scribed in section 401(a) which includes a trust 
exempt from tax under section 501(a), 
‘‘(C) shall be treated as deferred com-
pensation in the case of contributions to an eli-
gible deferred compensation plan (as defined in 
section 457(b)), and 
‘‘(D) shall be treated in the manner des-
ignated for purposes of section 408 or 408A in 
the case of contributions to an individual retire-
ment plan. 
‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term 
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) that is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) (without regard to sub-
paragraphs (C) and (D) thereof). 
‘‘(4) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, with respect to an em-
746
ployee, the term ‘unused health benefits’ means the 
excess of—
‘‘(A) the maximum amount of reimburse-
ment allowable to the employee during a plan 
year under a health flexible spending arrange-
ment, taking into account any election by the 
employee, over 
‘‘(B) the actual amount of reimbursement 
during such year under such arrangement.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 1204. EXCEPTION TO INFORMATION REPORTING RE-
QUIREMENTS RELATED TO CERTAIN HEALTH 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 6041 (relating to infor-
mation at source) is amended by adding at the end the 
following new subsection: 
‘‘(f) SECTION
DOES
NOT
APPLY
TO
CERTAIN 
HEALTH ARRANGEMENTS.—This section shall not apply 
to any payment for medical care (as defined in section 
213(d)) made under—
‘‘(1) a flexible spending arrangement (as de-
fined in section 106(c)(2)), or
747
‘‘(2) a health reimbursement arrangement 
which is treated as employer-provided coverage 
under an accident or health plan for purposes of sec-
tion 106.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after December 
31, 2002.
Passed the House of Representatives June 27 (legis-
lative day, June 26), 2003. 
Attest:
Clerk.