components, consistent with national standards
established under subparagraph (B):
‘‘(i) ELECTRONIC
TRANSMITTAL
OF
PRESCRIPTIONS.—Prescriptions are only re-
ceived electronically, except in emergency
cases and other exceptional circumstances
recognized by the Administrator.
‘‘(ii) PROVISION OF INFORMATION TO
PRESCRIBING
HEALTH
CARE
PROFES-
SIONAL.—The 
program 
provides, 
upon
transmittal of a prescription by a pre-
scribing health care professional, for trans-
mittal by the pharmacist to the professional
of information that includes—
‘‘(I) information (to the extent
available and feasible) on the drugs
being prescribed for that patient and
other information relating to the med-
ical history or condition of the patient
that may be relevant to the appro-
priate prescription for that patient;
‘‘(II) cost-effective alternatives (if
any) for the use of the drug prescribed;
and
‘‘(III) information on the drugs
included in the applicable formulary.
To the extent feasible, such program shall
permit the prescribing health care profes-
sional to provide (and be provided) related
information on an interactive, real-time
basis.
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of
national standards relating to the electronic
prescription drug program described in sub-
paragraph (A). Such standards shall be
compatible with standards established under
part C of title XI.
‘‘(ii) ADVISORY TASK FORCE.—In de-
veloping such standards and the standards
described in subsection (c)(2)(B)(i) the Ad-
ministrator shall establish a task force that
includes representatives of physicians, hos-
pitals, pharmacists, and technology experts
and representatives of the Departments of
Veterans Affairs and Defense and other ap-
propriate Federal agencies to provide rec-
ommendations to the Administrator on such
standards, including recommendations re-
lating to the following:
‘‘(I) The range of available com-
puterized prescribing software and
hardware and their costs to develop
and implement.
‘‘(II) The extent to which such
systems reduce medication errors and
can be readily implemented by physi-
cians and hospitals.
‘‘(III) Efforts to develop a com-
mon software platform for computer-
ized prescribing.
‘‘(IV) The cost of implementing
such systems in the range of hospital
and physician office settings, including
hardware, software, and training costs.
‘‘(V) Implementation issues as
they relate to part C of title XI, and
current Federal and State prescribing
laws and regulations and their impact
on implementation of computerized
prescribing.
‘‘(iii) DEADLINES.—
‘‘(I) The Administrator shall con-
stitute the task force under clause (ii)
by not later than April 1, 2003.
‘‘(II) Such task force shall submit
recommendations to Administrator by
not later than January 1, 2004.
‘‘(III) The Administrator shall de-
velop and promulgate the national
standards referred to in clause (ii) by
not later than January 1, 2005.
‘‘(C) REFERENCE
TO
AVAILABILITY
OF
GRANT
FUNDS.—Grant funds are authorized
under section 399O of the Public Health Service
Act to provide assistance to health care providers
in implementing electronic prescription drug
programs.
‘‘(4) TREATMENT OF ACCREDITATION.—Section
1852(e)(4) (relating to treatment of accreditation)
shall apply to prescription drug plans under this part
with respect to the following requirements, in the
same manner as they apply to Medicare+Choice
plans under part C with respect to the requirements
described in a clause of section 1852(e)(4)(B):
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2).
‘‘(B) Subsection (c)(1) (relating to access to
covered benefits).
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL
PRICES FOR EQUIVALENT DRUGS.—Each PDP spon-
sor shall provide that each pharmacy or other dis-
penser that arranges for the dispensing of a covered
outpatient drug shall inform the beneficiary at the
time of purchase of the drug of any differential be-
tween the price of the prescribed drug to the enrollee
and the price of the lowest cost generic drug covered
under the plan that is therapeutically equivalent and
bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETERMINA-
TIONS, AND RECONSIDERATIONS.—
‘‘(1) IN
GENERAL.—Each PDP sponsor shall
provide meaningful procedures for hearing and resolv-
ing grievances between the organization (including
any entity or individual through which the sponsor
provides covered benefits) and enrollees with prescrip-
tion drug plans of the sponsor under this part in ac-
cordance with section 1852(f).
‘‘(2) APPLICATION
OF
COVERAGE
DETERMINA-
TION
AND
RECONSIDERATION
PROVISIONS.—A PDP
sponsor shall meet the requirements of paragraphs (1)
through (3) of section 1852(g) with respect to covered
benefits under the prescription drug plan it offers
under this part in the same manner as such require-
ments apply to a Medicare+Choice organization with
respect to benefits it offers under a Medicare+Choice
plan under part C.
‘‘(3) REQUEST
FOR
REVIEW
OF
TIERED
FOR-
MULARY DETERMINATIONS.—In the case of a prescrip-
tion drug plan offered by a PDP sponsor that pro-
vides for tiered cost-sharing for drugs included within
a formulary and provides lower cost-sharing for pre-
ferred drugs included within the formulary, an indi-
vidual who is enrolled in the plan may request cov-
erage of a nonpreferred drug under the terms applica-
ble for preferred drugs if the prescribing physician de-
termines that the preferred drug for treatment of the
same condition is not as effective for the individual
or has adverse effects for the individual.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a
PDP sponsor shall meet the requirements of para-
graphs (4) and (5) of section 1852(g) with respect to
drugs not included on any formulary in the same
manner 
as 
such 
requirements 
apply 
to 
a
Medicare+Choice organization with respect to bene-
fits it offers under a Medicare+Choice plan under
part C.
‘‘(2) FORMULARY
DETERMINATIONS.—An indi-
vidual who is enrolled in a prescription drug plan of-
fered by a PDP sponsor may appeal to obtain cov-
erage for a covered outpatient drug that is not on a
formulary of the sponsor if the prescribing physician
determines that the formulary drug for treatment of
the same condition is not as effective for the indi-
vidual or has adverse effects for the individual.
‘‘(g) CONFIDENTIALITY AND ACCURACY OF ENROLLEE
RECORDS.—A PDP sponsor shall meet the requirements of
section 1852(h) with respect to enrollees under this part in
the same manner as such requirements apply to a
Medicare+Choice organization with respect to enrollees
under part C.
‘‘SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG
PLAN (PDP) SPONSORS; CONTRACTS; ESTAB-
LISHMENT OF STANDARDS.
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor
of a prescription drug plan shall meet the following require-
ments:
‘‘(1) LICENSURE.—Subject to subsection (c), the
sponsor is organized and licensed under State law as
a risk-bearing entity eligible to offer health insurance
or health benefits coverage in each State in which it
offers a prescription drug plan.
‘‘(2) ASSUMPTION OF FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860E(d)(2), the entity
assumes full financial risk on a prospective basis
for qualified prescription drug coverage that it
offers under a prescription drug plan and that
is not covered under section 1860H.
‘‘(B) REINSURANCE PERMITTED.—The enti-
ty may obtain insurance or make other arrange-
ments for the cost of coverage provided to any
enrolled member under this part.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In
the case of a sponsor that is not described in para-
graph (1), the sponsor shall meet solvency standards
established by the Administrator under subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Administrator shall not
permit the election under section 1860A of a prescrip-
tion drug plan offered by a PDP sponsor under this
part, and the sponsor shall not be eligible for pay-
ments under section 1860G or 1860H, unless the Ad-
ministrator has entered into a contract under this
subsection with the sponsor with respect to the offer-
ing of such plan. Such a contract with a sponsor may
cover more than one prescription drug plan. Such
contract shall provide that the sponsor agrees to com-
ply with the applicable requirements and standards of
this part and the terms and conditions of payment as
provided for in this part.
‘‘(2) NEGOTIATION REGARDING TERMS AND CON-
DITIONS.—The Administrator shall have the same au-
thority to negotiate the terms and conditions of pre-
scription drug plans under this part as the Director
of the Office of Personnel Management has with re-
spect to health benefits plans under chapter 89 of title
5, United States Code. In negotiating the terms and
conditions regarding premiums for which information
is submitted under section 1860F(a)(2), the Adminis-
trator shall take into account the subsidy payments
under section 1860H and the adjusted community
rate (as defined in section 1854(f)(3)) for the benefits
covered.
‘‘(3) 
INCORPORATION
OF
CERTAIN
MEDICARE+CHOICE CONTRACT REQUIREMENTS.—The
following provisions of section 1857 shall apply, sub-
ject to subsection (c)(5), to contracts under this sec-
tion in the same manner as they apply to contracts
under section 1857(a):
‘‘(A) MINIMUM ENROLLMENT.—Paragraphs
(1) and (3) of section 1857(b).
‘‘(B) CONTRACT
PERIOD
AND
EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of
section 1857(c).
‘‘(C) PROTECTIONS
AGAINST
FRAUD
AND
BENEFICIARY PROTECTIONS.—Section 1857(d).
‘‘(D) ADDITIONAL CONTRACT TERMS.—Sec-
tion 1857(e); except that in applying section
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from
costs under part C);
‘‘(ii) in no case shall the amount of the
fee established under this subparagraph for
a plan exceed 20 percent of the maximum
amount of the fee that may be established
under subparagraph (B) of such section;
and
‘‘(iii) no fees shall be applied under
this 
subparagraph 
with 
respect 
to
Medicare+Choice plans.
‘‘(E) INTERMEDIATE
SANCTIONS.—Section
1857(g).
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h).
‘‘(4) RULES OF APPLICATION FOR INTERMEDIATE
SANCTIONS.—In applying paragraph (3)(E)—
‘‘(A) the reference in section 1857(g)(1)(B)
to section 1854 is deemed a reference to this
part; and
‘‘(B) the reference in section 1857(g)(1)(F)
to section 1852(k)(2)(A)(ii) shall not be applied.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND
CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity that
seeks to offer a prescription drug plan in a State, the
Administrator shall waive the requirement of sub-
section (a)(1) that the entity be licensed in that State
if the Administrator determines, based on the applica-
tion and other evidence presented to the Adminis-
trator, that any of the grounds for approval of the ap-
plication described in paragraph (2) has been met.
‘‘(2) GROUNDS FOR APPROVAL.—The grounds for
approval under this paragraph are the grounds for
approval described in subparagraph (B), (C), and
(D) of section 1855(a)(2), and also include the appli-
cation by a State of any grounds other than those re-
quired under Federal law.
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a
waiver granted) under this subsection, the provisions
of subparagraphs (E), (F), and (G) of section
1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR OR
CONSTITUTE CERTIFICATION.—The fact that an entity
is licensed in accordance with subsection (a)(1) does
not deem the entity to meet other requirements im-
posed under this part for a PDP sponsor.
‘‘(5) REFERENCES
TO
CERTAIN
PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application
under section 1855 shall be treated as a reference
and to carry out, this part. The Administrator shall publish
such regulations by October 1, 2003.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN
GENERAL.—The standards established
under this part shall supersede any State law or reg-
ulation (other than State licensing laws or State laws
relating to plan solvency, except as provided in sub-
section (d)) with respect to prescription drug plans
which are offered by PDP sponsors under this part.
‘‘(2) PROHIBITION
OF
STATE
IMPOSITION
OF
PREMIUM TAXES.—No State may impose a premium
tax or similar tax with respect to premiums paid to
PDP sponsors for prescription drug plans under this
part, or with respect to any payments made to such
a sponsor by the Administrator under this part.
‘‘SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) IN GENERAL.—The Administrator shall establish
a process for the selection of the prescription drug plan or
Medicare+Choice plan which offer qualified prescription
drug coverage through which eligible individuals elect quali-
fied prescription drug coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing:
‘‘(1) Annual, coordinated election periods, in
which such individuals can change the qualifying
plans through which they obtain coverage, in accord-
ance with section 1860A(b)(2).
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans
based upon price, quality, and other features, in the
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-Federal entities.
‘‘(3) Coordination of elections through filing
with a Medicare+Choice organization or a PDP
sponsor, in the manner described in (and in coordi-
nation with) section 1851(c)(2).
‘‘(c) MEDICARE+CHOICE ENROLLEE IN PLAN OFFER-
ING PRESCRIPTION DRUG COVERAGE MAY ONLY OBTAIN
BENEFITS THROUGH THE PLAN.—An individual who is
enrolled under a Medicare+Choice plan that offers qualified
prescription drug coverage may only elect to receive quali-
fied prescription drug coverage under this part through
such plan.
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH
AREA.—
‘‘(A) IN
GENERAL.—The Administrator
shall assure that each individual who is entitled
to benefits under part A or enrolled under part
B and who is residing in an area in the United
States has available, consistent with subpara-
graph (B), a choice of enrollment in at least two
qualifying plans (as defined in paragraph (5))
in the area in which the individual resides, at
least one of which is a prescription drug plan.
‘‘(B) REQUIREMENT FOR DIFFERENT PLAN
SPONSORS.—The requirement in subparagraph
(A) is not satisfied with respect to an area if
only one PDP sponsor or Medicare+Choice orga-
nization offers all the qualifying plans in the
area.
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—In
order to assure access under paragraph (1) and con-
sistent with paragraph (3), the Administrator may
provide financial incentives (including partial under-
writing of risk) for a PDP sponsor to expand the
service area under an existing prescription drug plan
to adjoining or additional areas or to establish such
a plan (including offering such a plan on a regional
or nationwide basis), but only so long as (and to the
extent) necessary to assure the access guaranteed
under paragraph (1).
‘‘(3) LIMITATION ON AUTHORITY.—In exercising
authority under this subsection, the Administrator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor;
‘‘(B) shall not provide for any underwriting
of financial risk for a public PDP sponsor with
respect to the offering of a nationwide prescrip-
tion drug plan; and
‘‘(C) shall seek to maximize the assumption
of 
financial 
risk 
by 
PDP 
sponsors 
or
Medicare+Choice organizations.
‘‘(4) REPORTS.—The Administrator shall, in
each annual report to Congress under section 1808(f),
include information on the exercise of authority under
this subsection. The Administrator also shall include
such recommendations as may be appropriate to min-
imize the exercise of such authority, including mini-
mizing the assumption of financial risk.
‘‘(5) QUALIFYING PLAN DEFINED.—For purposes
of this subsection, the term ‘qualifying plan’ means a
prescription drug plan or a Medicare+Choice plan
that includes qualified prescription drug coverage.
‘‘SEC. 1860F. SUBMISSION OF BIDS.
‘‘(a) SUBMISSION OF BIDS AND RELATED INFORMA-
TION.—
‘‘(1) IN
GENERAL.—Each PDP sponsor shall
submit to the Administrator information of the type
described in paragraph (2) in the same manner as in-
formation is submitted by a Medicare+Choice organi-
zation under section 1854(a)(1).
‘‘(2) TYPE OF INFORMATION.—The information
described in this paragraph is the following:
‘‘(A) Information on the qualified prescrip-
tion drug coverage to be provided.
‘‘(B) Information on the actuarial value of
the coverage.
‘‘(C) Information on the bid for the cov-
erage, including an actuarial certification of—
‘‘(i) the actuarial basis for such bid;
‘‘(ii) the portion of such bid attrib-
utable to benefits in excess of standard cov-
erage; and
‘‘(iii) the reduction in such bid result-
ing from the subsidy payments provided
under section 1860H.
‘‘(D) Such other information as the Admin-
istrator may require to carry out this part.
‘‘(3) REVIEW.—The Administrator shall review
the information filed under paragraph (2) for the
purpose of conducting negotiations under section
1860D(b)(2).
‘‘(b) UNIFORM BID.—
‘‘(1) IN GENERAL.—The bid for a prescription
drug plan under this section may not vary among in-
dividuals enrolled in the plan in the same service
area.
‘‘(2) CONSTRUCTION.—Nothing in paragraph (1)
shall be construed as preventing the imposition of a
late enrollment penalty under section 1860A(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) USE AT BENEFICIARY’S OPTION OF WITH-
HOLDING FROM SOCIAL SECURITY PAYMENT AND USE
OF ELECTRONIC FUNDS TRANSFER MECHANISM.—In
accordance with regulations, a PDP sponsor shall
permit each enrollee, at the enrollee’s option, to make
payment of premiums through withholding from ben-
efit payments in the manner provided under section
1840 with respect to monthly premiums under section
1839. In the case in which an enrollee does not elect
such option, a PDP sponsor may, in accordance with
regulations, encourage enrollees to make payment of
the premium established by the plan under this part
through an electronic funds transfer mechanism, such
as automatic charges of an account at a financial in-
stitution or a credit or debit card account. All such
amounts shall be credited to the Medicare Prescrip-
tion Drug Trust Fund.
‘‘(2) OFFSETTING.—Reductions in premiums for
coverage under parts A and B as a result of a selec-
tion of a Medicare+Choice plan may be used to re-
duce the premium otherwise imposed under para-
graph (1).
‘‘(3) PAYMENT OF PLANS.—PDP plans shall re-
ceive payment based on bid amounts in the same
manner as Medicare+Choice organizations receive
payment based on bid amounts under section
1853(a)(1)(A)(ii) except that such payment shall be
made from the Medicare Prescription Drug Trust
Fund.
‘‘(d) ACCEPTANCE OF BENCHMARK AMOUNT AS FULL
PREMIUM FOR SUBSIDIZED LOW-INCOME INDIVIDUALS IF
NO STANDARD (OR EQUIVALENT) COVERAGE IN AN AREA.—
‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph (2))
offered in an area, in the case of an individual who
is eligible for a premium subsidy under section 1860G
and resides in the area, the PDP sponsor of any pre-
scription drug plan offered in the area (and any
Medicare+Choice organization that offers qualified
prescription drug coverage in the area) shall accept
the 
benchmark 
bid 
amount 
(under 
section
1860G(b)(2)) as payment in full for the premium
charge for qualified prescription drug coverage.
‘‘(2) STANDARD PRESCRIPTION DRUG COVERAGE
DEFINED.—For purposes of this subsection, the term
‘standard prescription drug coverage’ means qualified
prescription drug coverage that is standard coverage
or that has an actuarial value equivalent to the actu-
arial value for standard coverage.
‘‘SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR
LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS
WITH INCOME BELOW 175 PERCENT OF FEDERAL POVERTY
LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION
OF
COST-SHARING
FOR
INDIVIDUALS
WITH
INCOME
BELOW 150 PERCENT OF FEDERAL POVERTY LEVEL.—
In the case of a subsidy eligible individual (as defined
in paragraph (4)) who is determined to have income
that does not exceed 150 percent of the Federal pov-
erty level, the individual is entitled under this
section—
‘‘(A) to an income-related premium subsidy
equal to 100 percent of the amount described in
subsection (b)(1); and
‘‘(B) subject to subsection (c), to the substi-
tution for the beneficiary cost-sharing described
in paragraphs (1) and (2) of section 1860B(b)
(up to the initial coverage limit specified in
paragraph (3) of such section) of amounts that
do not exceed $2 for a multiple source or generic
drug (as described in section 1927(k)(7)(A)) and
$5 for a non-preferred drug.
‘‘(2) SLIDING SCALE PREMIUM SUBSIDY AND RE-
DUCTION OF COST-SHARING FOR INDIVIDUALS WITH
INCOME
ABOVE
150, BUT
BELOW
175
PERCENT, OF
FEDERAL POVERTY LEVEL.—In the case of a subsidy
eligible individual who is determined to have income
that exceeds 150 percent, but does not exceed 175 per-
cent, of the Federal poverty level, the individual is en-
titled under this section to—
‘‘(A) an income-related premium subsidy
determined on a linear sliding scale ranging
from 100 percent of the amount described in sub-
section (b)(1) for individuals with incomes at
150 percent of such level to 0 percent of such
amount for individuals with incomes at 175 per-
cent of such level; and
‘‘(B) subject to subsection (c), to the substi-
tution for the beneficiary cost-sharing described
in paragraphs (1) and (2) of section 1860B(b)
(up to the initial coverage limit specified in
paragraph (3) of such section) of amounts that
do not exceed $2 for a multiple source or generic
drug (as described in section 1927(k)(7)(A)) and
$5 for a non-preferred drug.
‘‘(3) CONSTRUCTION.—Nothing in this section
shall be construed as preventing a PDP sponsor from
reducing to 0 the cost-sharing otherwise applicable to
generic drugs.
‘‘(4) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY
ELIGIBLE
INDIVIDUAL
DE-
FINED.—For purposes of this section, subject to
subparagraph (D), the term ‘subsidy eligible in-
dividual’ means an individual who—
‘‘(i) is eligible to elect, and has elected,
to obtain qualified prescription drug cov-
erage under this part;
‘‘(ii) has income below 175 percent of
the Federal poverty line; and
‘‘(iii) meets the resources requirement
described in section 1905(p)(1)(C).
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State
is a subsidy eligible individual and the amount
of such individual’s income shall be determined
under the State medicaid plan for the State
under section 1935(a) or by the Social Security
Administration. In the case of a State that does
not operate such a medicaid plan (either under
title XIX or under a statewide waiver granted
under section 1115), such determination shall be
made under arrangements made by the Adminis-
trator. There are authorized to be appropriated
to the Social Security Administration such sums
as may be necessary for the determination of eli-
gibility under this subparagraph.
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the
manner described in section 1905(p)(1)(B);
and
‘‘(ii) the term ‘Federal poverty line’
means the official poverty line (as defined
by the Office of Management and Budget,
and revised annually in accordance with
section 673(2) of the Omnibus Budget Rec-
onciliation Act of 1981) applicable to a
family of the size involved.
‘‘(D) TREATMENT
OF
TERRITORIAL
RESI-
DENTS.—In the case of an individual who is not
a resident of the 50 States or the District of Co-
lumbia, the individual is not eligible to be a sub-
sidy eligible individual but may be eligible for
financial assistance with prescription drug ex-
penses under section 1935(e).
‘‘(E) TREATMENT OF CONFORMING MEDIGAP
POLICIES.—For purposes of this section, the term
‘qualified prescription drug coverage’ includes a
medicare supplemental policy described in sec-
tion 1860H(b)(4).
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) FOR
2006.—The dollar amounts ap-
plied under paragraphs (1)(B) and (2)(B) for
2006 shall be the dollar amounts specified in
such paragraph increased by the annual percent-
age increase described in section 1860B(b)(5) for
2006.
‘‘(B) FOR SUBSEQUENT YEARS.—The dollar
amounts applied under paragraphs (1)(B) and
mined without regard to any subsidy under
this section or any late enrollment penalty
under section 1860A(c)(2)(B)); or
‘‘(ii) provides alternative prescription
drug coverage the actuarial value of which
is greater than that of standard coverage,
the bid amount described in clause (i) mul-
tiplied by the ratio of (I) the actuarial
value of standard coverage, to (II) the actu-
arial value of the alternative coverage; or
‘‘(B) a Medicare+Choice plan, the portion
of the bid amount that is attributable to statu-
tory 
drug 
benefits 
(described 
in 
section
1853(a)(1)(A)(ii)(II)).
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsections
(a)(1)(B) and (a)(2)(B), nothing in this part shall be
construed as preventing a plan or provider from
waiving or reducing the amount of cost-sharing other-
wise applicable.
‘‘(2) LIMITATION ON CHARGES.—In the case of
an individual receiving cost-sharing subsidies under
subsection (a)(1)(B) or (a)(2)(B), the PDP sponsor
may not charge more than $5 per prescription.
‘‘(3) APPLICATION
OF
INDEXING
RULES.—The
provisions of subsection (a)(4) shall apply to the dol-
lar amount specified in paragraph (2) in the same
manner as they apply to the dollar amounts specified
in subsections (a)(1)(B) and (a)(2)(B).
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The
Administrator shall provide a process whereby, in the case
of an individual who is determined to be a subsidy eligible
individual and who is enrolled in prescription drug plan
or is enrolled in a Medicare+Choice plan under which
qualified prescription drug coverage is provided—
‘‘(1) the Administrator provides for a notifica-
tion of the PDP sponsor or Medicare+Choice organi-
zation involved that the individual is eligible for a
subsidy and the amount of the subsidy under sub-
section (a);
‘‘(2) the sponsor or organization involved reduces
the premiums or cost-sharing otherwise imposed by
the amount of the applicable subsidy and submits to
the Administrator information on the amount of such
reduction; and
‘‘(3) the Administrator periodically and on a
timely basis reimburses the sponsor or organization
for the amount of such reductions.
The reimbursement under paragraph (3) with respect to
cost-sharing subsidies may be computed on a capitated
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved.
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN GENERAL.—For provisions providing for
eligibility determinations, and additional financing,
under the medicaid program, see section 1935.
‘‘(2) MEDICAID PROVIDING WRAP AROUND BENE-
FITS.—The coverage provided under this part is pri-
mary payor to benefits for prescribed drugs provided
under the medicaid program under title XIX.
‘‘(3) COORDINATION.—The Administrator shall
develop and implement a plan for the coordination of
prescription drug benefits under this part with the
benefits provided under the medicaid program under
title XIX, with particular attention to insuring co-
ordination of payments and prevention of fraud and
abuse. In developing and implementing such plan, the
Administrator shall involve the Secretary, the States,
the data processing industry, pharmacists, and phar-
maceutical manufacturers, and other experts.
‘‘SEC. 
1860H. 
SUBSIDIES 
FOR 
ALL 
MEDICARE 
BENE-
FICIARIES FOR QUALIFIED PRESCRIPTION
DRUG COVERAGE.
‘‘(a) SUBSIDY PAYMENT.—In order to reduce premium
levels applicable to qualified prescription drug coverage for
all medicare beneficiaries consistent with an overall subsidy
level of 65 percent, to reduce adverse selection among pre-
scription drug plans and Medicare+Choice plans that pro-
vide qualified prescription drug coverage, and to promote
the participation of PDP sponsors under this part, the Ad-
ministrator shall provide in accordance with this section
for payment to a qualifying entity (as defined in subsection
(b)) of the following subsidies:
‘‘(1) DIRECT SUBSIDY.—In the case of an indi-
vidual enrolled in a prescription drug plan,
Medicare+Choice plan that provides qualified pre-
scription drug coverage, or qualified retiree prescrip-
tion drug plan, a direct subsidy equal to 35 percent
of the total payments made by a qualifying entity for
standard coverage under the respective plan.
‘‘(2) SUBSIDY THROUGH REINSURANCE.—The re-
insurance payment amount (as defined in subsection
(c)), which in the aggregate is 30 percent of such total
payments, for excess costs incurred in providing
qualified prescription drug coverage—
‘‘(A) for individuals enrolled with a pre-
scription drug plan under this part;
‘‘(B) for individuals enrolled with a
Medicare+Choice plan that provides qualified
prescription drug coverage; and
‘‘(C) for individuals who are enrolled in a
qualified retiree prescription drug plan.
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts provided
under this section.
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes of
this section, the term ‘qualifying entity’ means any of the
following that has entered into an agreement with the Ad-
ministrator to provide the Administrator with such infor-
mation as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription drug
plan under this part.
‘‘(2) A Medicare+Choice organization that pro-
vides qualified prescription drug coverage under a
Medicare+Choice plan under part C.
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)).
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) 
IN
GENERAL.—Subject 
to 
subsection
(d)(1)(B) and paragraph (4), the reinsurance pay-
ment amount under this subsection for a qualifying
covered individual (as defined in subsection (g)(1))
for a coverage year (as defined in subsection (g)(2))
is equal to the sum of the following:
‘‘(A) For the portion of the individual’s
gross covered prescription drug costs (as defined
in paragraph (3)) for the year that exceeds the
initial copayment threshold specified in section
1860B(b)(2)(C), but does not exceed the initial
coverage limit specified in section 1860B(b)(3),
an amount equal to 30 percent of the allowable
costs (as defined in paragraph (2)) attributable
to such gross covered prescription drug costs.
‘‘(B) For the portion of the individual’s
gross covered prescription drug costs for the year
that exceeds the annual out-of-pocket threshold
specified in 1860B(b)(4)(B), an amount equal to
80 percent of the allowable costs attributable to
such gross covered prescription drug costs.
‘‘(2) ALLOWABLE COSTS.—For purposes of this
section, the term ‘allowable costs’ means, with respect
to gross covered prescription drug costs under a plan
described in subsection (b) offered by a qualifying en-
tity, the part of such costs that are actually paid (net
of average percentage rebates) under the plan, but in
no case more than the part of such costs that would
have been paid under the plan if the prescription
drug coverage under the plan were standard coverage.
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG
COSTS.—For purposes of this section, the term ‘gross
covered prescription drug costs’ means, with respect to
an enrollee with a qualifying entity under a plan de-
scribed in subsection (b) during a coverage year, the
costs incurred under the plan (including costs attrib-
utable to administrative costs) for covered prescrip-
tion drugs dispensed during the year, including costs
relating to the deductible, whether paid by the enrollee
or under the plan, regardless of whether the coverage
under the plan exceeds standard coverage and regard-
less of when the payment for such drugs is made.
‘‘(4) INDEXING DOLLAR AMOUNTS.—
‘‘(A) AMOUNTS
FOR
2005.—The dollar
amounts applied under paragraph (1) for 2005
shall be the dollar amounts specified in such
paragraph.
‘‘(B) FOR 2006.—The dollar amounts ap-
plied under paragraph (1) for 2006 shall be the
dollar amounts specified in such paragraph in-
creased by the annual percentage increase de-
scribed in section 1860B(b)(5) for 2006.
‘‘(C) FOR SUBSEQUENT YEARS.—The dollar
amounts applied under paragraph (1) for a year
after 2006 shall be the amounts (under this
paragraph) applied under paragraph (1) for the
preceding year increased by the annual percent-
age increase described in section 1860B(b)(5)
(relating to growth in medicare prescription
drug costs per beneficiary) for the year involved.
‘‘(D) ROUNDING.—Any amount, determined
under the preceding provisions of this paragraph
for a year, which is not a multiple of $10 shall
be rounded to the nearest multiple of $10.
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) ADJUSTMENT OF REINSURANCE PAYMENTS
TO ASSURE 30 PERCENT LEVEL OF SUBSIDY THROUGH
REINSURANCE.—
‘‘(A) ESTIMATION OF PAYMENTS.—The Ad-
ministrator shall estimate—
‘‘(i) the total payments to be made
(without regard to this subsection) during a
year under subsections (a)(2) and (c); and
‘‘(ii) the total payments to be made by
qualifying entities for standard coverage
under plans described in subsection (b) dur-
ing the year.
‘‘(B) 
ADJUSTMENT.—The 
Administrator
shall proportionally adjust the payments made
under subsections (a)(2) and (c) for a coverage
year in such manner so that the total of the pay-
ments made under such subsections for the year
is equal to 30 percent of the total payments de-
scribed in subparagraph (A)(ii).
‘‘(2) RISK
ADJUSTMENT
FOR
DIRECT
SUB-
SIDIES.—To the extent the Administrator determines
it appropriate to avoid risk selection, the payments
made for direct subsidies under subsection (a)(1) are
subject to adjustment based upon risk factors specified
by the Administrator. Any such risk adjustment shall
be designed in a manner as to not result in a change
in the aggregate payments made under such sub-
section.
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this section
shall be based on such a method as the Administrator
determines. The Administrator may establish a pay-
ment method by which interim payments of amounts
under this section are made during a year based on
the Administrator’s best estimate of amounts that will
be payable after obtaining all of the information.
‘‘(2) SOURCE OF PAYMENTS.—Payments under
this section shall be made from the Medicare Prescrip-
tion Drug Trust Fund.
‘‘(f) QUALIFIED RETIREE PRESCRIPTION DRUG PLAN
DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘qualified retiree prescription drug plan’
means employment-based retiree health coverage (as
defined in paragraph (3)(A)) if, with respect to an
individual enrolled (or eligible to be enrolled) under
this part who is covered under the plan, the following
requirements are met:
‘‘(A) ASSURANCE.—The sponsor of the plan
shall annually attest, and provide such assur-
ances as the Administrator may require, that the
coverage meets or exceeds the requirements for
qualified prescription drug coverage.
‘‘(B) AUDITS.—The sponsor (and the plan)
shall maintain, and afford the Administrator ac-
cess to, such records as the Administrator may
require for purposes of audits and other oversight
activities necessary to ensure the adequacy of
prescription drug coverage, and the accuracy of
payments made.
‘‘(C) PROVISION OF CERTIFICATION OF PRE-
SCRIPTION DRUG COVERAGE.—The sponsor of the
plan shall provide for issuance of certifications
of the type described in section 1860A(c)(2)(D).
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—No
payment shall be provided under this section with re-
spect to an individual who is enrolled under a quali-
fied retiree prescription drug plan unless the indi-
vidual is—
‘‘(A) enrolled under this part;
‘‘(B) is covered under the plan; and
‘‘(C) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860A but did
not elect such coverage under this part (either
through a prescription drug plan or through a
Medicare+Choice plan).
‘‘(3) DEFINITIONS.—As used in this section:
‘‘(A) 
EMPLOYMENT-BASED
RETIREE
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs for
individuals enrolled under this part (or for such
individuals and their spouses and dependents)
based on their status as former employees or
labor union members.
‘‘(B) SPONSOR.—The term ‘sponsor’ means
a plan sponsor, as defined in section 3(16)(B) of
the Employee Retirement Income Security Act of
1974.
‘‘(g) GENERAL DEFINITIONS.—For purposes of this
section:
‘‘(1) QUALIFYING
COVERED
INDIVIDUAL.—The
term ‘qualifying covered individual’ means an indi-
vidual who—
‘‘(A) is enrolled with a prescription drug
plan under this part;
‘‘(B) is enrolled with a Medicare+Choice
plan that provides qualified prescription drug
coverage under part C; or
‘‘(C) is enrolled for benefits under this title
and is covered under a qualified retiree prescrip-
tion drug plan.
‘‘(2) COVERAGE YEAR.—The term ‘coverage year’
means a calendar year in which covered outpatient
drugs are dispensed if a claim for payment is made
under the plan for such drugs, regardless of when the
claim is paid.
‘‘SEC. 1860I. MEDICARE PRESCRIPTION DRUG TRUST FUND.
‘‘(a) IN GENERAL.—There is created on the books of
the Treasury of the United States a trust fund to be known
as the ‘Medicare Prescription Drug Trust Fund’ (in this
section referred to as the ‘Trust Fund’). The Trust Fund
shall consist of such gifts and bequests as may be made as
provided in section 201(i)(1), and such amounts as may
be deposited in, or appropriated to, such fund as provided
in this part. Except as otherwise provided in this section,
the provisions of subsections (b) through (i) of section 1841
shall apply to the Trust Fund in the same manner as they
apply to the Federal Supplementary Medical Insurance
Trust Fund under such section.
‘‘(b) PAYMENTS FROM TRUST FUND.—
‘‘(1) IN GENERAL.—The Managing Trustee shall
pay from time to time from the Trust Fund such
amounts as the Administrator certifies are necessary
to make—
‘‘(A) payments under section 1860G (relat-
ing to low-income subsidy payments);
‘‘(B) payments under section 1860H (relat-
ing to subsidy payments); and
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with
section 201(g).
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR IN-
CREASED
ADMINISTRATIVE
COSTS.—The Managing
Trustee shall transfer from time to time from the
Trust Fund to the Grants to States for Medicaid ac-
count amounts the Administrator certifies are attrib-
utable to increases in payment resulting from the ap-
plication of a higher Federal matching percentage
under section 1935(b).
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is hereby
transferred to the Trust Fund, from amounts appro-
priated for Grants to States for Medicaid, amounts
equivalent to the aggregate amount of the reductions
in payments under section 1903(a)(1) attributable to
the application of section 1935(c).
‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT
CONTRIBUTIONS.—There are authorized to be appro-
priated from time to time, out of any moneys in the
Treasury not otherwise appropriated, to the Trust
Fund, an amount equivalent to the amount of pay-
ments made from the Trust Fund under subsection
(b), reduced by the amount transferred to the Trust
Fund under paragraph (1).
‘‘(d) RELATION TO SOLVENCY REQUIREMENTS.—Any
provision of law that relates to the solvency of the Trust
Fund under this part shall take into account the Trust
Fund and amounts receivable by, or payable from, the
Trust Fund.
‘‘SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES
TO PROVISIONS IN PART C.
‘‘(a) DEFINITIONS.—For purposes of this part:
‘‘(1) COVERED OUTPATIENT DRUGS.—The term
‘covered outpatient drugs’ is defined in section
1860B(f).
‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means such limit as established
under section 1860B(b)(3), or, in the case of coverage
that is not standard coverage, the comparable limit
(if any) established under the coverage.
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
TRUST
FUND.—The term ‘Medicare Prescription Drug Trust
Fund’ means the Trust Fund created under section
1860I(a).
‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’
means an entity that is certified under this part as
meeting the requirements and standards of this part
for such a sponsor.
‘‘(5) PRESCRIPTION DRUG PLAN.—The term ‘pre-
scription drug plan’ means health benefits coverage
that—
‘‘(A) is offered under a policy, contract, or
plan by a PDP sponsor pursuant to, and in ac-
cordance with, a contract between the Adminis-
trator and the sponsor under section 1860D(b);
‘‘(B) provides qualified prescription drug
coverage; and
‘‘(C) meets the applicable requirements of
the section 1860C for a prescription drug plan.
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860B(a).
‘‘(7) STANDARD COVERAGE.—The term ‘standard
coverage’ is defined in section 1860B(b).
‘‘(b) APPLICATION
OF MEDICARE+CHOICE PROVI-
SIONS UNDER THIS PART.—For purposes of applying pro-
visions of part C under this part with respect to a prescrip-
tion drug plan and a PDP sponsor, unless otherwise pro-
vided in this part such provisions shall be applied as if—
‘‘(1) any reference to a Medicare+Choice plan
included a reference to a prescription drug plan;
‘‘(2) any reference to a provider-sponsored orga-
nization included a reference to a PDP sponsor;
‘‘(3) any reference to a contract under section
1857 included a reference to a contract under section
1860D(b); and
‘‘(4) any reference to part C included a reference
to this part.’’.
(b) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART D.—Any reference in law (in effect before the
date of the enactment of this Act) to part D of title
XVIII of the Social Security Act is deemed a reference
to part E of such title (as in effect after such date).
(2) CONFORMING AMENDMENT PERMITTING WAIV-
ER
OF
COST-SHARING.—Section 1128B(b)(3) (42
U.S.C. 1320a–7b(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (E);
(B) by striking the period at the end of sub-
paragraph (F) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(G) the waiver or reduction of any cost-sharing
imposed under part D of title XVIII.’’.
(3) SUBMISSION OF LEGISLATIVE PROPOSAL.—
Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and Human
Services shall submit to the appropriate committees of
Congress a legislative proposal providing for such
technical and conforming amendments in the law as
are required by the provisions of this subtitle.
(c) STUDY ON TRANSITIONING PART B PRESCRIPTION
DRUG COVERAGE.—Not later than January 1, 2004, the
Medicare Benefits Administrator shall submit a report to
Congress that makes recommendations regarding methods
for providing benefits under part D of title XVIII of the
Social Security Act for outpatient prescription drugs for
which benefits are provided under part B of such title.
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG
COVERAGE UNDER THE MEDICARE+CHOICE
PROGRAM.
(a) IN GENERAL.—Section 1851 (42 U.S.C. 1395w–
21) is amended by adding at the end the following new sub-
section:
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS.—
‘‘(1) OFFER OF QUALIFIED PRESCRIPTION DRUG
COVERAGE.—
‘‘(A) IN GENERAL.—A Medicare+Choice or-
ganization may not offer prescription drug cov-
erage (other than that required under parts A
and B) to an enrollee under a Medicare+Choice
plan unless such drug coverage is at least quali-
fied prescription drug coverage and unless the re-
quirements of this subsection with respect to such
coverage are met.
‘‘(B) CONSTRUCTION.—Nothing in this sub-
section shall be construed as—
‘‘(i) requiring a Medicare+Choice plan
to include coverage of qualified prescription
drug coverage; or
‘‘(ii) permitting a Medicare+Choice
organization from providing such coverage
to an individual who has not elected such
coverage under section 1860A(b).
For purposes of this part, an individual who has
not elected qualified prescription drug coverage
under section 1860A(b) shall be treated as being
ineligible to enroll in a Medicare+Choice plan
under this part that offers such coverage.
‘‘(2) COMPLIANCE
WITH
ADDITIONAL
BENE-
FICIARY PROTECTIONS.—With respect to the offering
of 
qualified 
prescription 
drug 
coverage 
by 
a
Medicare+Choice 
organization 
under 
a
Medicare+Choice plan, the organization and plan
shall meet the requirements of section 1860C, includ-
ing requirements relating to information dissemina-
tion and grievance and appeals, in the same manner
as they apply to a PDP sponsor and a prescription
drug plan under part D and shall submit to the Ad-
ministrator the information described in section
1860F(a)(2). The Administrator shall waive such re-
quirements to the extent the Administrator determines
that such requirements duplicate requirements other-
wise applicable to the organization or plan under this
part.
‘‘(3) AVAILABILITY OF PREMIUM AND COST-SHAR-
ING SUBSIDIES FOR LOW-INCOME ENROLLEES AND DI-
RECT AND REINSURANCE SUBSIDY PAYMENTS FOR OR-
GANIZATIONS.—For provisions—
‘‘(A) providing premium and cost-sharing
subsidies to low-income individuals receiving
qualified prescription drug coverage through a
Medicare+Choice plan, see section 1860G; and
‘‘(B) providing a Medicare+Choice organi-
zation with direct and insurance subsidy pay-
ments for providing qualified prescription drug
coverage under this part, see section 1860H.
‘‘(4) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this
part, the annual, coordinated election period under
subsection (e)(3)(B) for 2005 shall be the 6-month pe-
riod beginning with November 2004.
‘‘(5) QUALIFIED PRESCRIPTION DRUG COVERAGE;
STANDARD COVERAGE.—For purposes of this part, the
terms ‘qualified prescription drug coverage’ and
‘standard coverage’ have the meanings given such
terms in section 1860B.’’.
(b) CONFORMING AMENDMENTS.—Section 1851 (42
U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’;
(B) by striking the period at the end of sub-
paragraph (B) and inserting a comma; and
(C) by adding after and below subpara-
graph (B) the following:
‘‘and may elect qualified prescription drug coverage
in accordance with section 1860A.’’; and
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860A(c)(2)(B)’’ after ‘‘in this subsection’’.
(c) EFFECTIVE DATE.—The amendments made by this
section apply to coverage provided on or after January 1,
2005.
SEC. 103. MEDICAID AMENDMENTS.
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) REQUIREMENT.—Section 1902(a) (42 U.S.C.
1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64);
(B) by striking the period at the end of
paragraph (65) and inserting ‘‘; and’’; and
(C) by inserting after paragraph (65) the
following new paragraph:
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’.
(2) 
NEW
SECTION.—Title 
XIX 
is 
further
amended—
(A) by redesignating section 1935 as section
1936; and
(B) by inserting after section 1934 the fol-
lowing new section:
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE
PRESCRIPTION DRUG BENEFIT
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY DETERMINATIONS FOR LOW-INCOME SUBSIDIES.—
As a condition of its State plan under this title under sec-
tion 1902(a)(66) and receipt of any Federal financial as-
sistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860G;
‘‘(2) inform the Administrator of the Medicare
Benefits Administration of such determinations in
cases in which such eligibility is established; and
‘‘(3) otherwise provide such Administrator with
such information as may be required to carry out
part D of title XVIII (including section 1860G).
‘‘(b) PAYMENTS
FOR ADDITIONAL ADMINISTRATIVE
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by a
State in carrying out subsection (a) are, subject to
paragraph (2), expenditures reimbursable under the
appropriate paragraph of section 1903(a); except
that, notwithstanding any other provision of such sec-
tion, the applicable Federal matching rates with re-
spect to such expenditures under such section shall be
increased as follows (but in no case shall the rate as
so increased exceed 100 percent):
‘‘(A) For expenditures attributable to costs
incurred during 2005, the otherwise applicable
Federal matching rate shall be increased by 10
percent of the percentage otherwise payable (but
for this subsection) by the State.
‘‘(B)(i) For expenditures attributable to
costs incurred during 2006 and each subsequent
year through 2013, the otherwise applicable Fed-
eral matching rate shall be increased by the ap-
plicable percent (as defined in clause (ii)) of the
percentage otherwise payable (but for this sub-
section) by the State.
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
‘‘(I) 2006 is 20 percent; or
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 10 percentage
points.
‘‘(C) For expenditures attributable to costs
incurred after 2013, the otherwise applicable
Federal matching rate shall be increased to 100
percent.
‘‘(2) COORDINATION.—The State shall provide
the Administrator with such information as may be
necessary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise
be made for similar eligibility determinations.’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN GENERAL.—Section 1903(a)(1) (42 U.S.C.
1396b(a)(1)) is amended by inserting before the semi-
colon the following: ‘‘, reduced by the amount com-
puted under section 1935(c)(1) for the State and the
quarter’’.
(2) AMOUNT DESCRIBED.—Section 1935, as in-
serted by subsection (a)(2), is amended by adding at
the end the following new subsection:
‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIP-
TION
DRUG
COSTS
FOR
DUALLY-ELIGIBLE
BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section
1903(a)(1), for a State that is one of the 50 States
or the District of Columbia for a calendar quarter in
a year (beginning with 2005) the amount computed
under this subsection is equal to the product of the
following:
‘‘(A) MEDICARE
SUBSIDIES.—The total
amount of payments made in the quarter under
section 1860G (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the
State and are entitled to benefits with respect to
prescribed drugs under the State plan under this
title (including such a plan operating under a
waiver under section 1115).
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent
the Federal medical assistance percentage (as de-
fined in section 1905(b)) applicable to the State
and the quarter.
‘‘(C) PHASE-OUT PROPORTION.—The phase-
out proportion (as defined in paragraph (2)) for
the quarter.
‘‘(2) PHASE-OUT PROPORTION.—For purposes of
paragraph (1)(C), the ‘phase-out proportion’ for a
calendar quarter in—
‘‘(A) 2005 is 90 percent;
‘‘(B) a subsequent year before 2014, is the
phase-out proportion for calendar quarters in the
previous year decreased by 10 percentage points;
or
‘‘(C) a year after 2013 is 0 percent.’’.
(c) MEDICAID
PROVIDING
WRAP-AROUND
BENE-
FITS.—Section 1935, as so inserted and amended, is further
amended by adding at the end the following new subsection:
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the
case of an individual who is entitled to qualified pre-
scription drug coverage under a prescription drug
plan under part D of title XVIII (or under a
Medicare+Choice plan under part C of such title)
and medical assistance for prescribed drugs under
this title, medical assistance shall continue to be pro-
vided under this title for prescribed drugs to the ex-
tent payment is not made under the prescription drug
plan or the Medicare+Choice plan selected by the in-
dividual.
‘‘(2) CONDITION.—A State may require, as a
condition for the receipt of medical assistance under
this title with respect to prescription drug benefits for
an individual eligible to obtain qualified prescription
drug coverage described in paragraph (1), that the in-
dividual elect qualified prescription drug coverage
under section 1860A.’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935, as so inserted
and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to
subsection (e)’’ after ‘‘section 1903(a)’’;
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and
(C) by adding at the end the following new
subsection:
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN GENERAL.—In the case of a State, other
than the 50 States and the District of Columbia—
‘‘(A) the previous provisions of this section
shall not apply to residents of such State; and
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the
amount otherwise determined under section
1108(f) (as increased under section 1108(g)) for
the State shall be increased by the amount speci-
fied in paragraph (3).
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient drugs
(as defined in section 1860B(f)) to low-income
medicare beneficiaries; and
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the
operation of this subsection are used only for
such assistance.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified
in this paragraph for a State for a year is equal
to the product of—
‘‘(i) the aggregate amount specified in
subparagraph (B); and
‘‘(ii) the amount specified in section
1108(g)(1) for that State, divided by the
sum of the amounts specified in such section
for all such States.
‘‘(B) AGGREGATE AMOUNT.—The aggregate
amount specified in this subparagraph for—
‘‘(i) 2005, is equal to $20,000,000; or
‘‘(ii) a subsequent year, is equal to the
aggregate amount specified in this subpara-
graph for the previous year increased by
annual percentage increase specified in sec-
tion 1860B(b)(5) for the year involved.
‘‘(4) REPORT.—The Administrator shall submit
to Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Administrator deems appro-
priate.’’.
(2) CONFORMING AMENDMENT.—Section 1108(f)
(42 U.S.C. 1308(f)) is amended by inserting ‘‘and sec-
tion 1935(e)(1)(B)’’ after ‘‘Subject to subsection (g)’’.
SEC. 104. MEDIGAP TRANSITION.
(a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is
amended by adding at the end the following new subsection:
‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, except as provided in paragraph (3)
no new medicare supplemental policy that provides
coverage of expenses for prescription drugs may be
issued under this section on or after January 1, 2005,
to an individual unless it replaces a medicare supple-
mental policy that was issued to that individual and
that provided some coverage of expenses for prescrip-
tion drugs.
‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES IF OB-
TAIN
PRESCRIPTION
DRUG
COVERAGE
UNDER
PART
D.—
‘‘(A) IN GENERAL.—The issuer of a medi-
care supplemental policy—
‘‘(i) may not deny or condition the
issuance or effectiveness of a medicare sup-
plemental policy that has a benefit package
classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, ‘F’, or ‘G’
(under the standards established under sub-
section (p)(2)) and that is offered and is
available for issuance to new enrollees by
such issuer;
‘‘(ii) may not discriminate in the pric-
ing of such policy, because of health status,
claims experience, receipt of health care, or
medical condition; and
‘‘(iii) may not impose an exclusion of
benefits based on a pre-existing condition
under such policy,
in the case of an individual described in sub-
paragraph (B) who seeks to enroll under the pol-
icy not later than 63 days after the date of the
termination of enrollment described in such
paragraph and who submits evidence of the date
of termination or disenrollment along with the
application for such medicare supplemental pol-
icy.
‘‘(B) INDIVIDUAL COVERED.—An individual
described in this subparagraph is an individual
who—
‘‘(i) enrolls in a prescription drug
plan under part D; and
‘‘(ii) at the time of such enrollment
was enrolled and terminates enrollment in
a medicare supplemental policy which has a
benefit package classified as ‘H’, ‘I’, or ‘J’
under the standards referred to in subpara-
graph (A)(i) or terminates enrollment in a
policy to which such standards do not apply
but which provides benefits for prescription
drugs.
‘‘(C) ENFORCEMENT.—The provisions of
paragraph (4) of subsection (s) shall apply with
respect to the requirements of this paragraph in
the same manner as they apply to the require-
ments of such subsection.
‘‘(3) NEW STANDARDS.—In applying subsection
(p)(1)(E) (including permitting the NAIC to revise
its model regulations in response to changes in law)
with respect to the change in benefits resulting from
title I of the Medicare Modernization and Prescrip-
tion Drug Act of 2002, with respect to policies issued
to individuals who are enrolled under part D, the
changes in standards shall only provide for sub-
stituting for the benefit packages that included cov-
erage for prescription drugs two benefit packages that
may provide for coverage of cost-sharing with respect
to qualified prescription drug coverage under such
part, except that such coverage may not cover the pre-
scription drug deductible under such part. The two
benefit packages shall be consistent with the following:
‘‘(A) FIRST NEW POLICY.—The policy de-
scribed in this subparagraph has the following
benefits, notwithstanding any other provision of
this section relating to a core benefit package:
‘‘(i) Coverage of 50 percent of the cost-
sharing otherwise applicable, except cov-
erage of 100 percent of any cost-sharing oth-
erwise applicable for preventive benefits.
‘‘(ii) No coverage of the part B deduct-
ible.
‘‘(iii) Coverage for all hospital coinsur-
ance for long stays (as in the current core
benefit package).
‘‘(iv) A limitation on annual out-of-
pocket expenditures to $4,000 in 2005 (or,
in a subsequent year, to such limitation for
the previous year increased by an appro-
priate inflation adjustment specified by the
Secretary).
‘‘(B) SECOND NEW POLICY.—The policy de-
scribed in this subparagraph has the same bene-
fits as the policy described in subparagraph (A),
except as follows:
‘‘(i) Substitute ‘75 percent’ for ‘50 per-
cent’ in clause (i) of such subparagraph.
‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ in
clause (iv) of such subparagraph.
‘‘(4) CONSTRUCTION.—Any provision in this sec-
tion or in a medicare supplemental policy relating to
guaranteed renewability of coverage shall be deemed
to have been met through the offering of other coverage
under this subsection.’’.
SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD
ENDORSEMENT PROGRAM.
Title XVIII is amended by inserting after section 1806
the following new section:
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD
ENDORSEMENT PROGRAM
‘‘SEC. 1807. (a) IN GENERAL.—The Secretary (or the
Medicare Benefits Administrator pursuant to section
1808(c)(3)(C)) shall establish a program—
‘‘(1) to endorse prescription drug discount card
programs that meet the requirements of this section;
and
‘‘(2) to make available to medicare beneficiaries
information regarding such endorsed programs.
‘‘(b) REQUIREMENTS FOR ENDORSEMENT.—The Sec-
retary may not endorse a prescription drug discount card
program under this section unless the program meets the
following requirements:
100
‘‘(1) SAVINGS TO MEDICARE BENEFICIARIES.—
The program passes on to medicare beneficiaries who
enroll in the program discounts on prescription
drugs, including discounts negotiated with manufac-
turers.
‘‘(2) PROHIBITION
ON
APPLICATION
ONLY
TO
MAIL ORDER.—The program applies to drugs that are
available other than solely through mail order.
‘‘(3) BENEFICIARY
SERVICES.—The program
provides pharmaceutical support services, such as
education and counseling, and services to prevent ad-
verse drug interactions.
‘‘(4) INFORMATION.—The program makes avail-
able to medicare beneficiaries through the Internet
and otherwise information, including information on
enrollment fees, prices charged to beneficiaries, and
services offered under the program, that the Secretary
identifies as being necessary to provide for informed
choice by beneficiaries among endorsed programs.
‘‘(5) DEMONSTRATED EXPERIENCE.—The entity
operating the program has demonstrated experience
and expertise in operating such a program or a simi-
lar program.
101
‘‘(6) QUALITY ASSURANCE.—The entity has in
place adequate procedures for assuring quality service
under the program.
‘‘(7) ADDITIONAL BENEFICIARY PROTECTIONS.—
The program meets such additional requirements as
the Secretary identifies to protect and promote the in-
terest of medicare beneficiaries, including require-
ments that ensure that beneficiaries are not charged
more than the lower of the negotiated retail price or
the usual and customary price.
‘‘(c) PROGRAM OPERATION.—The Secretary shall oper-
ate the program under this section consistent with the fol-
lowing:
‘‘(1) PROMOTION
OF
INFORMED
CHOICE.—In
order to promote informed choice among endorsed
prescription drug discount card programs, the Sec-
retary shall provide for the dissemination of informa-
tion which compares the costs and benefits of such
programs in a manner coordinated with the dissemi-
nation 
of 
educational 
information 
on
Medicare+Choice plans under part C.
‘‘(2) OVERSIGHT.—The Secretary shall provide
appropriate oversight to ensure compliance of en-
dorsed programs with the requirements of this section,
102
including verification of the discounts and services
provided.
‘‘(3) USE OF MEDICARE TOLL-FREE NUMBER.—
The Secretary shall provide through the 1-800-medi-
care toll free telephone number for the receipt and re-
sponse to inquiries and complaints concerning the
program and programs endorsed under this section.
‘‘(4) DISQUALIFICATION
FOR
ABUSIVE
PRAC-
TICES.—The Secretary shall revoke the endorsement of
a program that the Secretary determines no longer
meets the requirements of this section or that has en-
gaged in false or misleading marketing practices.
‘‘(5) ENROLLMENT PRACTICES.—A medicare ben-
eficiary may not be enrolled in more than one en-
dorsed program at any time.
‘‘(d) TRANSITION.—The Secretary shall provide for an
appropriate transition and discontinuation of the program
under this section at the time prescription drug benefits
first become available under part D.
‘‘(e) AUTHORIZATION OF APPROPRIATIONS.—There are
authorized to be appropriated such sums as may be nec-
essary to carry out the program under this section.’’.
103
TITLE 
II—MEDICARE+CHOICE
REVITALIZATION 
AND
MEDICARE+CHOICE COMPETI-
TION PROGRAM
Subtitle A—Medicare+Choice
Revitalization
SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.
(a) EQUALIZING
PAYMENTS
BETWEEN
FEE-FOR-
SERVICE AND MEDICARE+CHOICE.—
(1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C.
1395w–23(c)(1)) is amended by adding at the end the
following:
‘‘(D) BASED ON 100 PERCENT OF FEE-FOR-
SERVICE COSTS.—
‘‘(i) IN
GENERAL.—For 2003 and
2004, the adjusted average per capita cost
for the year involved, determined under sec-
tion 1876(a)(4) for the Medicare+Choice
payment area for services covered under
parts A and B for individuals entitled to
benefits under part A and enrolled under
part B who are not enrolled in a
Medicare+Choice plan under this part for
the year, but adjusted to exclude costs at-
104
tributable 
to 
payments 
under 
section
1886(h).
‘‘(ii) INCLUSION OF COSTS OF VA AND
DOD MILITARY FACILITY SERVICES TO MEDI-
CARE-ELIGIBLE BENEFICIARIES.—In deter-
mining the adjusted average per capita cost
under clause (i) for a year, such cost shall
be adjusted to include the Secretary’s esti-
mate, on a per capita basis, of the amount
of additional payments that would have
been made in the area involved under this
title if individuals entitled to benefits under
this title had not received services from fa-
cilities of the Department of Veterans Af-
fairs or the Department of Defense.’’.
(2) CONFORMING AMENDMENT.—Such section is
further amended, in the matter before subparagraph
(A), by striking ‘‘or (C)’’ and inserting ‘‘(C), or (D)’’.
(b) REVISION OF BLEND.—
(1) REVISION OF NATIONAL AVERAGE USED IN
CALCULATION
OF
BLEND.—Section
1853(c)(4)(B)(i)(II) 
(42 
U.S.C. 
1395w–
23(c)(4)(B)(i)(II)) is amended by inserting ‘‘who
(with respect to determinations for 2003 and for
105
2004) are enrolled in a Medicare+Choice plan’’ after
‘‘the average number of medicare beneficiaries’’.
(2) CHANGE IN BUDGET NEUTRALITY.—Section
1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(A) in paragraph (1)(A), by inserting ‘‘(for
a year before 2003)’’ after ‘‘multiplied’’; and
(B) in paragraph (5), by inserting ‘‘(before
2003)’’ after ‘‘for each year’’.
(c) REVISION IN MINIMUM PERCENTAGE INCREASE
FOR 2003 AND 2004.—Section 1853(c)(1)(C) (42 U.S.C.
1395w–23(c)(1)(C)) is amended by striking clause (iv) and
inserting the following:
‘‘(iv) For 2002, 102 percent of the an-
nual 
Medicare+Choice 
capitation 
rate
under this paragraph for the area for 2001.
‘‘(v) For 2003 and 2004, 103 percent
of the annual Medicare+Choice capitation
rate under this paragraph for the area for
the previous year.
‘‘(vi) For 2005 and each succeeding
year, 
102 
percent 
of 
the 
annual
Medicare+Choice capitation rate under this
paragraph for the area for the previous
year.’’.
106
(d) INCLUSION OF COSTS OF DOD AND VA MILITARY
FACILITY
SERVICES
TO
MEDICARE-ELIGIBLE
BENE-
FICIARIES IN CALCULATION OF MEDICARE+CHOICE PAY-
MENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–
23(c)(3)) is amended—
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and
(E)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) INCLUSION OF COSTS OF DOD AND VA
MILITARY FACILITY SERVICES TO MEDICARE-ELI-
GIBLE
BENEFICIARIES.—In 
determining 
the
area-specific Medicare+Choice capitation rate
under subparagraph (A) for a year (beginning
with 2003), the annual per capita rate of pay-
ment 
for 
1997 
determined 
under 
section
1876(a)(1)(C) shall be adjusted to include in the
rate the Secretary’s estimate, on a per capita
basis, of the amount of additional payments that
would have been made in the area involved
under this title if individuals entitled to benefits
under this title had not received services from fa-
cilities of the Department of Defense or the De-
partment of Veterans Affairs.’’.
107
(e) ANNOUNCEMENT OF REVISED MEDICARE+CHOICE
PAYMENT RATES.—Within 2 weeks after the date of the en-
actment of this Act, the Secretary shall determine, and shall
announce (in a manner intended to provide notice to inter-
ested parties) Medicare+Choice capitation rates under sec-
tion 1853 of the Social Security Act (42 U.S.C. 1395w–
23) for 2003, revised in accordance with the provisions of
this section.
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory
Commission shall conduct a study that assesses the
method used for determining the adjusted average per
capita cost (AAPCC) under section 1876(a)(4) of the
Social Security Act (42 U.S.C. 1395mm(a)(4)). Such
study shall examine—
(A) the bases for variation in such costs be-
tween different areas, including differences in
input prices, utilization, and practice patterns;
(B) the appropriate geographic area for
payment under the Medicare+Choice program
under part C of title XVIII of such Act; and
(C) the accuracy of risk adjustment methods
in reflecting differences in costs of providing care
to different groups of beneficiaries served under
such program.
108
(2) REPORT.—Not later than 9 months after the
date of the enactment of this Act, the Commission
shall submit to Congress a report on the study con-
ducted under paragraph (1). Such report shall in-
clude recommendations regarding changes in the
methods for computing the adjusted average per cap-
ita cost among different areas.
(g) REPORT ON IMPACT OF INCREASED FINANCIAL AS-
SISTANCE TO MEDICARE+CHOICE PLANS.—Not later than
July 1, 2003, the Secretary of Health and Human Services
shall submit to Congress a report that describes the impact
of additional financing provided under this Act and other
Acts (including the Medicare, Medicaid, and SCHIP Bal-
anced Budget Refinement Act of 1999 and BIPA) on the
availability of Medicare+Choice plans in different areas
and its impact on lowering premiums and increasing bene-
fits under such plans.
SEC. 
202. 
MAKING 
PERMANENT 
CHANGE 
IN
MEDICARE+CHOICE REPORTING DEADLINES
AND ANNUAL, COORDINATED ELECTION PE-
RIOD.
(a) CHANGE
IN
REPORTING
DEADLINE.—Section
1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by sec-
tion 532(b)(1) of the Public Health Security and Bioter-
rorism Preparedness and Response Act of 2002, is amended
109
by striking ‘‘2002, 2003, and 2004 (or July 1 of each other
year)’’ and inserting ‘‘2002 and each subsequent year (or
July 1 of each year before 2002)’’.
(b) DELAY IN ANNUAL, COORDINATED ELECTION PE-
RIOD.—Section 
1851(e)(3)(B) 
(42 
U.S.C. 
1395w–
21(e)(3)(B)), as amended by section 532(c)(1)(A) of the
Public Health Security and Bioterrorism Preparedness and
Response Act of 2002, is amended by striking ‘‘and after
2005, the month of November before such year and with re-
spect to 2003, 2004, and 2005’’ and inserting ‘‘, the month
of November before such year and with respect to 2003 and
any subsequent year’’.
(c) ANNUAL ANNOUNCEMENT OF PAYMENT RATES.—
Section 1853(b)(1) (42 U.S.C. 1395w–23(b)(1)), as amend-
ed by section 532(d)(1) of the Public Health Security and
Bioterrorism Preparedness and Response Act of 2002, is
amended by striking ‘‘and after 2005 not later than March
1 before the calendar year concerned and for 2004 and
2005’’ and inserting ‘‘not later than March 1 before the cal-
endar year concerned and for 2004 and each subsequent
year’’.
(d) REQUIRING PROVISION OF AVAILABLE INFORMA-
TION COMPARING PLAN OPTIONS.—The first sentence of sec-
tion 1851(d)(2)(A)(ii) (42 U.S.C. 1395w–21(d)(2)(A)(ii)) is
amended by inserting before the period the following: ‘‘to
110
the extent such information is available at the time of prep-
aration of materials for the mailing’’.
SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION.
(a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C.
1395w–26(b)(3)) is amended to read as follows:
‘‘(3) RELATION TO STATE LAWS.—The standards
established under this subsection shall supersede any
State law or regulation (other than State licensing
laws or State laws relating to plan solvency) with re-
spect to Medicare+Choice plans which are offered by
Medicare+Choice organizations under this part.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
SEC. 204. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPE-
CIAL NEEDS BENEFICIARIES.
(a) TREATMENT AS COORDINATED CARE PLAN.—Sec-
tion 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is
amended by adding at the end the following new sentence:
‘‘Specialized Medicare+Choice plans for special needs bene-
ficiaries (as defined in section 1859(b)(4)) may be any type
of coordinated care plan.’’.
(b) SPECIALIZED MEDICARE+CHOICE PLAN FOR SPE-
CIAL NEEDS BENEFICIARIES DEFINED.—Section 1859(b)
111
(42 U.S.C. 1395w–29(b)) is amended by adding at the end
the following new paragraph:
‘‘(4) SPECIALIZED
MEDICARE+CHOICE
PLANS
FOR SPECIAL NEEDS BENEFICIARIES.—
‘‘(A) IN GENERAL.—The term ‘specialized
Medicare+Choice plan for special needs bene-
ficiaries’ means a Medicare+Choice plan that
exclusively serves special needs beneficiaries (as
defined in subparagraph (B)).
‘‘(B) SPECIAL
NEEDS
BENEFICIARY.—The
term 
‘special 
needs 
beneficiary’ 
means 
a
Medicare+Choice eligible individual who—
‘‘(i) is institutionalized (as defined by
the Secretary);
‘‘(ii) is entitled to medical assistance
under a State plan under title XIX; or
‘‘(iii) meets such requirements as the
Secretary may determine would benefit
from enrollment in such a specialized
Medicare+Choice plan described in sub-
paragraph (A) for individuals with severe
or disabling chronic conditions.’’.
(c) RESTRICTION ON ENROLLMENT PERMITTED.—Sec-
tion 1859 (42 U.S.C. 1395w–29) is amended by adding at
the end the following new subsection:
112
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIALIZED
MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS BENE-
FICIARIES.—In the case of a specialized Medicare+Choice
plan (as defined in subsection (b)(4)), notwithstanding any
other provision of this part and in accordance with regula-
tions of the Secretary and for periods before January 1,
2007, the plan may restrict the enrollment of individuals
under the plan to individuals who are within one or more
classes of special needs beneficiaries.’’.
(d) REPORT TO CONGRESS.—Not later than December
31, 2005, the Medicare Benefits Administrator shall submit
to Congress a report that assesses the impact of specialized
Medicare+Choice plans for special needs beneficiaries on
the cost and quality of services provided to enrollees. Such
report shall include an assessment of the costs and savings
to the medicare program as a result of amendments made
by subsections (a), (b), and (c).
(e) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
subsections (a), (b), and (c) shall take effect upon the
date of the enactment of this Act.
(2) DEADLINE FOR ISSUANCE OF REQUIREMENTS
FOR SPECIAL NEEDS BENEFICIARIES; TRANSITION.—
No later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and Human
113
Services shall issue final regulations to establish re-
quirements for special needs beneficiaries under sec-
tion 1859(b)(4)(B)(iii) of the Social Security Act, as
added by subsection (b).
SEC. 205. MEDICARE MSAS.
(a) EXEMPTION
FROM REPORTING ENROLLEE EN-
COUNTER DATA.—
(1) IN GENERAL.—Section 1852(e)(1) (42 U.S.C.
1395w–22(e)(1)) is amended by inserting ‘‘(other than
MSA plans)’’ after ‘‘Medicare+Choice plans’’.
(2) CONFORMING
AMENDMENTS.—Section 1852
(42 U.S.C. 1395w–22) is amended—
(A) in subsection (c)(1)(I), by inserting be-
fore the period at the end the following: ‘‘if re-
quired under such section’’; and
(B) in subparagraphs (A) and (B) of sub-
section (e)(2), by striking ‘‘, a non-network MSA
plan,’’ and ‘‘, NON-NETWORK MSA PLANS,’’ each
place it appears.
(b) MAKING PROGRAM PERMANENT AND ELIMINATING
CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–21(b)(4)) is
amended—
(1) in the heading, by striking ‘‘ON
A
DEM-
ONSTRATION BASIS’’;
114
(2) by striking the first sentence of subparagraph
(A); and
(3) by striking the second sentence of subpara-
graph (C).
(c) APPLYING LIMITATIONS ON BALANCE BILLING.—
Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is amended
by inserting ‘‘or with an organization offering a MSA
plan’’ after ‘‘section 1851(a)(2)(A)’’.
(d) ADDITIONAL AMENDMENT.—Section 1851(e)(5)(A)
(42 U.S.C. 1395w–21(e)(5)(A)) is amended—
(1) by adding ‘‘or’’ at the end of clause (i);
(2) by striking ‘‘, or’’ at the end of clause (ii)
and inserting a semicolon; and
(3) by striking clause (iii).
SEC. 206. EXTENSION OF REASONABLE COST AND SHMO
CONTRACTS.
(a) REASONABLE COST CONTRACTS.—
(1) IN
GENERAL.—Section 1876(h)(5)(C) (42
U.S.C. 1395mm(h)(5)(C)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(C)’’;
(B) by inserting before the period the fol-
lowing: ‘‘, except (subject to clause (ii)) in the
case of a contract for an area which is not cov-
ered in the service area of 1 or more coordinated
care Medicare+Choice plans under part C’’; and
115
(C) by adding at the end the following new
clause:
‘‘(ii) In the case in which—
‘‘(I) a reasonable cost reimbursement contract
includes an area in its service area as of a date that
is after December 31, 2003;
‘‘(II) such area is no longer included in such
service area after such date by reason of the operation
of clause (i) because of the inclusion of such area
within the service area of a Medicare+Choice plan;
and
‘‘(III) all Medicare+Choice plans subsequently
terminate coverage in such area;
such reasonable cost reimbursement contract may be ex-
tended and renewed to cover such area (so long as it is not
included in the service area of any Medicare+Choice
plan).’’.
(2) STUDY.—The Medicare Benefits Adminis-
trator shall conduct a study of an appropriate transi-
tion for plans offered under reasonable cost contracts
under section 1876 of the Social Security Act on and
after January 1, 2005. Such a transition may take
into account whether there are one or more coordi-
nated care Medicare+Choice plans being offered in
the areas involved. Not later than February 1, 2004,
116
the Administrator shall submit to Congress a report
on such study and shall include recommendations re-
garding any changes in the amendment made by
paragraph (1) as the Administrator determines to be
appropriate.
(b) EXTENSION OF SOCIAL HEALTH MAINTENANCE
ORGANIZATION (SHMO) DEMONSTRATION PROJECT.—
(1) IN GENERAL.—Section 4018(b)(1) of the Om-
nibus Budget Reconciliation Act of 1987 is amended
by striking ‘‘the date that is 30 months after the date
that the Secretary submits to Congress the report de-
scribed in section 4014(c) of the Balanced Budget Act
of 1997’’ and inserting ‘‘December 31, 2004’’.
(2) 
SHMOS
OFFERING
MEDICARE+CHOICE
PLANS.—Nothing in such section 4018 shall be con-
strued as preventing a social health maintenance or-
ganization from offering a Medicare+Choice plan
under part C of title XVIII of the Social Security Act.
SEC. 207. EXTENSION OF MUNICIPAL HEALTH SERVICE
DEMONSTRATION PROJECTS.
The last sentence of section 9215(a) of the Consolidated
Omnibus Budget Reconciliation Act of 1985 (42 U.S.C.
1395b–1 note), as previously amended, is amended by strik-
ing ‘‘December 31, 2004, but only with respect to’’ and all
that follows and inserting ‘‘December 31, 2009, but only
117
with respect to individuals who reside in the city in which
the project is operated and so long as the total number of
individuals participating in the project does not exceed the
number of such individuals participating as of January 1,
1996.’’.
Subtitle B—Medicare+Choice
Competition Program
SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.
(a) SUBMISSION OF BID AMOUNTS.—Section 1854 (42
U.S.C. 1395w–24) is amended—
(1) in the heading by inserting ‘‘AND
BID
AMOUNTS’’ after ‘‘PREMIUMS’’;
(2) in subsection (a)(1)(A)—
(A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i)
if the following year is before 2005,’’; and
(B) by inserting before the semicolon at the
end the following: ‘‘or (ii) if the following year
is 2005 or later, the information described in
paragraph (6)(A)’’; and
(3) by adding at the end of subsection (a) the fol-
lowing:
‘‘(6) 
SUBMISSION
OF
BID
AMOUNTS
BY
MEDICARE+CHOICE ORGANIZATIONS.—
118
‘‘(A) INFORMATION
TO
BE
SUBMITTED.—
The information described in this subparagraph
is as follows:
‘‘(i) 
The 
monthly 
aggregate 
bid
amount for provision of all items and serv-
ices under this part and the actuarial basis
for determining such amount.
‘‘(ii) The proportions of such bid
amount that are attributable to—
‘‘(I) the provision of statutory
non-drug benefits (such portion re-
ferred 
to 
in 
this 
part 
as 
the
‘unadjusted 
non-drug 
monthly 
bid
amount’);
‘‘(II) the provision of statutory
prescription drug benefits; and
‘‘(III) the provision of non-statu-
tory benefits;
and the actuarial basis for determining
such proportions.
‘‘(iii) Such additional information as
the Administrator may require to verify the
actuarial bases described in clauses (i) and
(ii).
119
‘‘(B) STATUTORY BENEFITS DEFINED.—For
purposes of this part:
‘‘(i) The term ‘statutory non-drug ben-
efits’ means benefits under parts A and B.
‘‘(ii) The term ‘statutory prescription
drug benefits’ means benefits under part D.
‘‘(iii) The term ‘statutory benefits’
means statutory prescription drug benefits
and statutory non-drug benefits.
‘‘(C) ACCEPTANCE
AND
NEGOTIATION
OF
BID AMOUNTS.—The Administrator has the au-
thority to negotiate regarding monthly bid
amounts submitted under subparagraph (A)
(and the proportion described in subparagraph
(A)(ii)). The Administrator may reject such a
bid amount or proportion if the Administrator
determines that such amount or proportion is
not supported by the actuarial bases provided
under subparagraph (A).’’.
(b) PROVIDING FOR BENEFICIARY SAVINGS FOR CER-
TAIN PLANS.—
(1) IN GENERAL.—Section 1854(b) (42 U.S.C.
1395w–24(b)) is amended—
(A) by adding at the end of paragraph (1)
the following new subparagraph:
120
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) 
REQUIREMENT.—The
Medicare+Choice plan shall provide to the
enrollee a monthly rebate equal to 75 per-
cent of the average per capita savings (if
any) described in paragraph (3) applicable
to the plan and year involved.
‘‘(iii) FORM OF REBATE.—A rebate re-
quired under this subparagraph shall be
provided—
‘‘(I) through the crediting of the
amount of the rebate towards the
Medicare+Choice 
monthly 
supple-
mentary beneficiary premium or the
premium imposed for prescription
drug coverage under part D;
‘‘(II) through a direct monthly
payment 
(through 
electronic 
funds
transfer or otherwise); or
‘‘(III) through other means ap-
proved by the Medicare Benefits Ad-
ministrator,
or any combination thereof.’’; and
(B) by adding at the end the following new
paragraph:
121
‘‘(3) COMPUTATION
OF
AVERAGE
PER
CAPITA
MONTHLY
SAVINGS.—For purposes of paragraph
(1)(C)(i), the average per capita monthly savings re-
ferred to in such paragraph for a Medicare+Choice
plan and year is computed as follows:
‘‘(A) DETERMINATION OF STATE-WIDE AV-
ERAGE RISK ADJUSTMENT.—
‘‘(i) IN GENERAL.—The Medicare Ben-
efits Administrator shall determine, at the
same time rates are promulgated under sec-
tion 1853(b)(1) (beginning with 2005), for
each State the average of the risk adjust-
ment factors to be applied to enrollees under
section 1853(a)(1)(A) in that State. In the
case of a State in which a Medicare+Choice
plan was offered in the previous year, the
Administrator may compute such average
based upon risk adjustment factors applied
in that State in a previous year.
‘‘(ii) TREATMENT OF NEW STATES.—In
the 
case 
of 
a 
State 
in 
which 
no
Medicare+Choice plan was offered in the
previous year, the Administrator shall esti-
mate such average. In making such esti-
mate, the Administrator may use average
122
risk adjustment factors applied to com-
parable States or applied on a national
basis.
‘‘(B) DETERMINATION OF RISK ADJUSTED
BENCHMARK
AND
RISK-ADJUSTED
BID.—For
each Medicare+Choice plan offered in a State,
the Administrator shall—
‘‘(i) adjust the fee-for-service area-spe-
cific non-drug benchmark amount by the
applicable average risk adjustment factor
computed under subparagraph (A); and
‘‘(ii) adjust the unadjusted non-drug
monthly bid amount by such applicable av-
erage risk adjustment factor.
‘‘(C) DETERMINATION
OF
AVERAGE
PER
CAPITA
MONTHLY
SAVINGS.—The average per
capita monthly savings described in this sub-
paragraph is equal to the amount (if any) by
which—
‘‘(i) 
the 
risk-adjusted 
benchmark
amount 
computed 
under 
subparagraph
(B)(i), exceeds
‘‘(ii) the risk-adjusted bid computed
under subparagraph (B)(ii).
123
‘‘(D) AUTHORITY TO DETERMINE RISK AD-
JUSTMENT FOR AREAS OTHER THAN STATES.—
The Administrator may provide for the deter-
mination and application of risk adjustment fac-
tors under this paragraph on the basis of areas
other than States.’’.
(2) COMPUTATION OF FEE-FOR-SERVICE AREA-
SPECIFIC NON-DRUG BENCHMARK.—Section 1853 (42
U.S.C. 1395w–23) is amended by adding at the end
the following new subsection:
‘‘(j) COMPUTATION OF FEE-FOR-SERVICE AREA-SPE-
CIFIC NON-DRUG BENCHMARK AMOUNT.—For purposes of
this part, the term ‘fee-for-service area-specific non-drug
benchmark 
amount’ 
means, 
with 
respect 
to 
a
Medicare+Choice payment area for a month in a year, an
amount equal to the greater of the following (but in no case
less than 1⁄12 of the rate computed under subsection (c)(1),
without regard to subparagraph (A), for the year):
‘‘(1) BASED ON 100 PERCENT OF FEE-FOR-SERV-
ICE COSTS IN THE AREA.—An amount equal to 1⁄12
of 100 percent (for 2005 through 2007, or 95 percent
for 2008 and years thereafter) of the adjusted average
per capita cost for the year involved, determined
under section 1876(a)(4) for the Medicare+Choice
payment area, for the area and the year involved, for
124
services covered under parts A and B for individuals
entitled to benefits under part A and enrolled under
part B who are not enrolled in a Medicare+Choice
plan under this part for the year, and adjusted to ex-
clude from such cost the amount the Medicare Benefits
Administrator estimates is payable for costs described
in subclauses (I) and (II) of subsection (c)(3)(C)(i)
for the year involved and also adjusted in the manner
described in subsection (c)(1)(D)(ii) (relating to in-
clusion of costs of VA and DOD military facility serv-
ices to medicare-eligible beneficiaries).
‘‘(2) MINIMUM
MONTHLY
AMOUNT.—The min-
imum amount specified in this paragraph is the
amount specified in subsection (c)(1)(B)(iv) for the
year involved.’’.
(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
(1) IN
GENERAL.—Section 1853(a)(1)(A) (42
U.S.C. 1395w–23) is amended by striking ‘‘in an
amount’’ and all that follows and inserting the fol-
lowing: ‘‘in an amount determined as follows:
‘‘(i) 
PAYMENT
BEFORE
2005.—For
years before 2005, the payment amount
shall be equal to 
1⁄12
of the annual
Medicare+Choice capitation rate (as cal-
culated under subsection (c)) with respect to
125
that individual for that area, reduced by the
amount of any reduction elected under sec-
tion 1854(f )(1)(E) and adjusted under
clause (iii).
‘‘(ii) PAYMENT FOR STATUTORY NON-
DRUG
BENEFITS
BEGINNING
WITH
2005.—
For years beginning with 2005—
‘‘(I) PLANS
WITH
BIDS
BELOW
BENCHMARK.—In the case of a plan
for which there are average per capita
monthly savings described in section
1854(b)(3)(C), the payment under this
subsection is equal to the unadjusted
non-drug monthly bid amount, ad-
justed under clause (iii), plus the
amount of the monthly rebate com-
puted under section 1854(b)(1)(C)(i)
for that plan and year.
‘‘(II) PLANS
WITH
BIDS
AT
OR
ABOVE BENCHMARK.—In the case of a
plan for which there are no average
per capita monthly savings described
in section 1854(b)(3)(C), the payment
amount under this subsection is equal
to the fee-for-service area-specific non-
126
drug 
benchmark 
amount, 
adjusted
under clause (iii).
‘‘(iii) DEMOGRAPHIC ADJUSTMENT, IN-
CLUDING
ADJUSTMENT
FOR
HEALTH
STA-
TUS.—The Administrator shall adjust the
payment amount under clause (i), the
unadjusted non-drug monthly bid amount
under clause (ii)(I), and the fee-for-service
area-specific non-drug benchmark amount
under clause (ii)(II) for such risk factors as
age, disability status, gender, institutional
status, and such other factors as the Admin-
istrator determines to be appropriate, in-
cluding adjustment for health status under
paragraph (3), so as to ensure actuarial
equivalence. The Administrator may add to,
modify, or substitute for such adjustment
factors if such changes will improve the de-
termination of actuarial equivalence.
‘‘(iv) REFERENCE
TO
SUBSIDY
PAY-
MENT FOR STATUTORY DRUG BENEFITS.—
In the case in which an enrollee is enrolled
under part D, the Medicare+Choice organi-
zation also is entitled to a subsidy payment
amount under section 1860H.’’.
127
(d) CONFORMING AMENDMENTS.—
(1) PROTECTION AGAINST BENEFICIARY SELEC-
TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–
22(b)(1)(A)) is amended by adding at the end the fol-
lowing: ‘‘The Administrator shall not approve a plan
of an organization if the Administrator determines
that the benefits are designed to substantially discour-
age enrollment by certain Medicare+Choice eligible
individuals with the organization.’’.
(2) CONFORMING AMENDMENT TO PREMIUM TER-
MINOLOGY.—Subparagraphs (A) and (B) of section
1854(b)(2) (42 U.S.C. 1395w–24(b)(2)) are amended
to read as follows:
‘‘(A) MEDICARE+CHOICE MONTHLY BASIC
BENEFICIARY
PREMIUM.—The 
term
‘Medicare+Choice monthly basic beneficiary pre-
mium’ 
means, 
with 
respect 
to 
a
Medicare+Choice plan—
‘‘(i) 
described 
in 
section
1853(a)(1)(A)(ii)(I) (relating to plans pro-
viding rebates), zero; or
‘‘(ii) 
described 
in 
section
1853(a)(1)(A)(ii)(II), the amount (if any)
by which the unadjusted non-drug monthly
128
bid amount exceeds the fee-for-service area-
specific non-drug benchmark amount.
‘‘(B) MEDICARE+CHOICE
MONTHLY
SUP-
PLEMENTAL BENEFICIARY PREMIUM.—The term
‘Medicare+Choice monthly supplemental bene-
ficiary premium’ means, with respect to a
Medicare+Choice plan, the portion of the aggre-
gate monthly bid amount submitted under clause
(i) of subsection (a)(6)(A) for the year that is at-
tributable under such section to the provision of
nonstatutory benefits.’’.
(3) 
REQUIREMENT
FOR
UNIFORM
BID
AMOUNTS.—Section 1854(c) (42 U.S.C. 1395w–24(c))
is amended to read as follows:
‘‘(c) UNIFORM BID AMOUNTS.—The Medicare+Choice
monthly bid amount submitted under subsection (a)(6) of
a Medicare+Choice organization under this part may not
vary among individuals enrolled in the plan.’’.
(4) PERMITTING BENEFICIARY REBATES.—
(A) 
Section 
1851(h)(4)(A) 
(42 
U.S.C.
1395w–21(h)(4)(A)) is amended by inserting
‘‘except as provided under section 1854(b)(1)(C)’’
after ‘‘or otherwise’’.
(B) Section 1854(d) (42 U.S.C. 1395w–
24(d)) is amended by inserting ‘‘, except as pro-
129
vided under subsection (b)(1)(C),’’ after ‘‘and
may not provide’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and premiums for months
beginning with January 2005.
SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-
DEMONSTRATION AREAS.
(a) IDENTIFICATION
OF COMPETITIVE-DEMONSTRA-
TION AREAS FOR DEMONSTRATION PROGRAM; COMPUTA-
TION OF CHOICE NON-DRUG BENCHMARKS.—Section 1853,
as amended by section 211(b)(2), is amended by adding at
the end the following new subsection:
‘‘(k) ESTABLISHMENT OF COMPETITIVE DEMONSTRA-
TION PROGRAM.—
‘‘(1) DESIGNATION OF COMPETITIVE-DEMONSTRA-
TION AREAS AS PART OF PROGRAM.—
‘‘(A) IN
GENERAL.—For purposes of this
part, the Administrator shall establish a dem-
onstration program under which the Adminis-
trator designates Medicare+Choice areas as com-
petitive-demonstration areas consistent with the
following limitations:
‘‘(i) LIMITATION ON NUMBER OF AREAS
THAT MAY BE DESIGNATED.—The Adminis-
130
trator may not designate more than 4 areas
as competitive-demonstration areas.
‘‘(ii) LIMITATION ON PERIOD OF DES-
IGNATION
OF
ANY
AREA.—The Adminis-
trator may not designate any area as a
competitive-demonstration area for a period
of more than 2 years.
The Administrator has the discretion to decide
whether or not to designate as a competitive-
demonstration area an area that qualifies for
such designation.
‘‘(B) QUALIFICATIONS FOR DESIGNATION.—
For purposes of this title, a Medicare+Choice
area (which is a metropolitan statistical area or
other area with a substantial number of
Medicare+Choice enrollees) may not be des-
ignated as a ‘competitive-demonstration area’ for
a 2-year period beginning with a year unless the
Administrator determines, by such date before
the beginning of the year as the Administrator
determines appropriate, that—
‘‘(i) there will be offered during the
open enrollment period under this part be-
fore the beginning of the year at least 2
Medicare+Choice plans (in addition to the
131
fee-for-service program under parts A and
B), 
each 
offered 
by 
a 
different
Medicare+Choice organization; and
‘‘(ii) during March of the previous
year at least 50 percent of the number of
Medicare+Choice eligible individuals who
reside in the area were enrolled in a
Medicare+Choice plan.
‘‘(2) CHOICE NON-DRUG BENCHMARK AMOUNT.—
For purposes of this part, the term ‘choice non-drug
benchmark amount’ means, with respect to a
Medicare+Choice payment area for a month in a
year, the sum of the 2 components described in para-
graph (3) for the area and year. The Administrator
shall compute such benchmark amount for each com-
petitive-demonstration area before the beginning of
each annual, coordinated election period under sec-
tion 1851(e)(3)(B) for each year (beginning with
2005) in which it is designated as such an area.
‘‘(3) 2 COMPONENTS.—For purposes of para-
graph (2), the 2 components described in this para-
graph for an area and a year are the following:
‘‘(A) 
FEE-FOR-SERVICE
COMPONENT
WEIGHTED BY NATIONAL FEE-FOR-SERVICE MAR-
KET SHARE.—The product of the following:
132
‘‘(i) NATIONAL FEE-FOR-SERVICE MAR-
KET
SHARE.—The national fee-for-service
market share percentage (determined under
paragraph (5)) for the year.
‘‘(ii) FEE-FOR-SERVICE AREA-SPECIFIC
NON-DRUG
BID.—The fee-for-service area-
specific non-drug bid (as defined in para-
graph (6)) for the area and year.
‘‘(B) M+C COMPONENT WEIGHTED BY NA-
TIONAL
MEDICARE+CHOICE
MARKET
SHARE.—
The product of the following:
‘‘(i) 
NATIONAL
MEDICARE+CHOICE
MARKET SHARE.—1 minus the national fee-
for-service market share percentage for the
year.
‘‘(ii) WEIGHTED
AVERAGE
OF
PLAN
BIDS IN AREA.—The weighted average of the
plan bids for the area and year (as deter-
mined under paragraph (4)(A)).
‘‘(4) DETERMINATION
OF
WEIGHTED
AVERAGE
BIDS FOR AN AREA.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(B)(ii), the weighted average of plan
bids for an area and a year is the sum of the
following products for Medicare+Choice plans
133
described in subparagraph (C) in the area and
year:
‘‘(i) PROPORTION OF EACH PLAN’S EN-
ROLLEES IN THE AREA.—The number of in-
dividuals described in subparagraph (B),
divided by the total number of such individ-
uals for all Medicare+Choice plans de-
scribed in subparagraph (C) for that area
and year.
‘‘(ii) 
MONTHLY
NON-DRUG
BID
AMOUNT.—The unadjusted non-drug month-
ly bid amount.
‘‘(B) COUNTING OF INDIVIDUALS.—The Ad-
ministrator 
shall 
count, 
for 
each
Medicare+Choice plan described in subpara-
graph (C) for an area and year, the number of
individuals who reside in the area and who were
enrolled under such plan under this part during
March of the previous year.
‘‘(C) EXCLUSION OF PLANS NOT OFFERED
IN PREVIOUS YEAR.—For an area and year, the
Medicare+Choice plans described in this sub-
paragraph are plans that are offered in the area
and year and were offered in the area in March
of the previous year.
134
‘‘(5) COMPUTATION OF NATIONAL FEE-FOR-SERV-
ICE
MARKET
SHARE
PERCENTAGE.—The Adminis-
trator shall determine, for a year, the proportion (in
this subsection referred to as the ‘national fee-for-serv-
ice market share percentage’) of Medicare+Choice eli-
gible individuals who during March of the previous
year were not enrolled in a Medicare+Choice plan.
‘‘(6) FEE-FOR-SERVICE
AREA-SPECIFIC
NON-
DRUG BID.—For purposes of this part, the term ‘fee-
for-service area-specific non-drug bid’ means, for an
area and year, the amount described in section
1853(j)(1) for the area and year, except that any ref-
erence to a percent of less than 100 percent shall be
deemed a reference to 100 percent.’’.
(b) APPLICATION OF CHOICE NON-DRUG BENCHMARK
IN COMPETITIVE-DEMONSTRATION AREAS.—
(1) IN GENERAL.—Section 1854 is amended—
(A) in subsection (b)(1)(C)(i), as added by
section 211(b)(1)(A), by striking ‘‘(i) REQUIRE-
MENT.—The’’ and inserting ‘‘(i) REQUIREMENT
FOR
NON-COMPETITIVE-DEMONSTRATION
AREAS.—In the case of a Medicare+Choice pay-
ment area that is not a competitive-demonstra-
tion area designated under section 1853(k)(1),
the’’;
135
(B) in subsection (b)(1)(C), as so added, by
inserting after clause (i) the following new
clause:
‘‘(ii) REQUIREMENT FOR COMPETITIVE-
DEMONSTRATION AREAS.—In the case of a
Medicare+Choice payment area that is des-
ignated as a competitive-demonstration
area under section 1853(k)(1), if there are
average per capita monthly savings de-
scribed 
in 
paragraph 
(4) 
for 
a
Medicare+Choice 
plan 
and 
year, 
the
Medicare+Choice plan shall provide to the
enrollee a monthly rebate equal to 75 per-
cent of such savings.’’;
(C) by adding at the end of subsection (b),
as amended by section 211(b)(1), the following
new paragraph:
‘‘(4) COMPUTATION
OF
AVERAGE
PER
CAPITA
MONTHLY
SAVINGS
FOR
COMPETITIVE-DEMONSTRA-
TION AREAS.—For purposes of paragraph (1)(C)(ii),
the average per capita monthly savings referred to in
such paragraph for a Medicare+Choice plan and
year shall be computed in the same manner as the av-
erage per capita monthly savings is computed under
paragraph (3) except that the reference to the fee-for-
136
service area-specific non-drug benchmark amount in
paragraph (3)(B)(i) (or to the benchmark amount as
adjusted under paragraph (3)(C)(i)) is deemed to be
a reference to the choice non-drug benchmark amount
(or such amount as adjusted in the manner described
in paragraph (3)(B)(i)).’’; and
(D) in subsection (d), as amended by sec-
tion 211(d)(4), by inserting ‘‘and subsection
(b)(1)(D)’’ after ‘‘subsection (b)(1)(C)’’.
(2) CONFORMING AMENDMENTS.—
(A) 
PAYMENT
OF
PLANS.—Section
1853(a)(1)(A)(ii), 
as 
amended 
by 
section
211(c)(1), is amended—
(i) in subclause (I), by inserting ‘‘(or,
in the case of a competitive-demonstration
area, 
the 
choice 
non-drug 
benchmark
amount)’’ 
after 
‘‘unadjusted 
non-drug
monthly bid amount’’; and
(ii) in subclauses (I) and (II), by in-
serting ‘‘(or, in the case of a competitive-
demonstration area, described in section
1854(b)(4))’’ after ‘‘section 1854(b)(3)(C)’’.
(B) DEFINITION OF MONTHLY BASIC PRE-
MIUM.—Section 1854(b)(2)(A)(ii), as amended
by section 211(d)(2), is amended by inserting
137
‘‘(or, in the case of a competitive-demonstration
area, the choice non-drug benchmark amount)’’
after ‘‘benchmark amount’’.
(c) PREMIUM ADJUSTMENT.—Section 1839 (42 U.S.C.
1395r) is amended by adding at the end the following new
subsection:
‘‘(h)(1) In the case of an individual who resides in
a competitive-demonstration area designated under section
1851(k)(1) and who is not enrolled in a Medicare+Choice
plan under part C, the monthly premium otherwise applied
under this part (determined without regard to subsections
(b) and (f) or any adjustment under this subsection) shall
be adjusted as follows: If the fee-for-service area-specific
non-drug bid (as defined in section 1853(k)(6)) for the
Medicare+Choice area in which the individual resides for
a month—
‘‘(A) does not exceed the choice non-drug bench-
mark (as determined under section 1853(k)(2)) for
such area, the amount of the premium for the indi-
vidual for the month shall be reduced by an amount
equal to 75 percent of the amount by which such
benchmark exceeds such fee-for-service bid; or
‘‘(B) exceeds such choice non-drug benchmark,
the amount of the premium for the individual for the
month shall be adjusted to ensure that—
138
‘‘(i) the sum of the amount of the adjusted
premium and the choice non-drug benchmark for
the area, is equal to
‘‘(ii) the sum of the unadjusted premium
plus amount of the fee-for-service area-specific
non-drug bid for the area.
‘‘(2) Nothing in this subsection shall be construed as
preventing a reduction under paragraph (1)(A) in the pre-
mium otherwise applicable under this part to zero or from
requiring the provision of a rebate to the extent such pre-
mium would otherwise be required to be less than zero.
‘‘(3) The adjustment in the premium under this sub-
section shall be effected in such manner as the Medicare
Benefits Administrator determines appropriate.
‘‘(4) In order to carry out this subsection (insofar as
it is effected through the manner of collection of premiums
under 1840(a)), the Medicare Benefits Administrator shall
transmit to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the name, so-
cial security account number, and the amount of the
adjustment (if any) under this subsection for each in-
dividual enrolled under this part for each month dur-
ing the year; and
139
‘‘(B) periodically throughout the year, informa-
tion to update the information previously transmitted
under this paragraph for the year.’’.
(d) CONFORMING AMENDMENT.—Section 1844(c) (42
U.S.C. 1395w(c)) is amended by inserting ‘‘and without re-
gard to any premium adjustment effected under section
1839(h)’’ before the period at the end.
(e) REPORT
ON DEMONSTRATION PROGRAM.—Not
later than 6 months after the date on which the designation
of the 4th competitive-demonstration area under section
1851(k)(1) of the Social Security Act ends, the Medicare
Payment Advisory Commission shall submit to Congress a
report on the impact of the demonstration program under
the amendments made by this section, including such im-
pact on premiums of medicare beneficiaries, savings to the
medicare program, and on adverse selection.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and premiums for periods
beginning on or after January 1, 2005.
SEC. 213. CONFORMING AMENDMENTS.
(a) CONFORMING AMENDMENTS RELATING TO BIDS.—
(1) Section 1854 (42 U.S.C. 1395w–24) is
amended—
140
(A) in the heading of subsection (a), by in-
serting ‘‘AND BID AMOUNTS’’ after ‘‘PREMIUMS’’;
and
(B) in subsection (a)(5)(A), by inserting
‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed
under’’.
(b) ADDITIONAL CONFORMING AMENDMENTS.—
(1) ANNUAL
DETERMINATION
AND
ANNOUNCE-
MENT
OF
CERTAIN
FACTORS.—Section 1853(b) (42
U.S.C. 1395w–23(b)) is amended—
(A) in paragraph (1), by striking ‘‘the re-
spective calendar year’’ and all that follows and
inserting the following: ‘‘the calendar year con-
cerned with respect to each Medicare+Choice
payment area, the following:
‘‘(A) 
PRE-COMPETITION
INFORMATION.—
For years before 2005, the following:
‘‘(i) MEDICARE+CHOICE
CAPITATION
RATES.—The 
annual 
Medicare+Choice
capitation rate for each Medicare+Choice
payment area for the year.
‘‘(ii) ADJUSTMENT FACTORS.—The risk
and other factors to be used in adjusting
such rates under subsection (a)(1)(A) for
payments for months in that year.
141
‘‘(B) 
COMPETITION
INFORMATION.—For
years beginning with 2005, the following:
‘‘(i) BENCHMARKS.—The fee-for-service
area-specific non-drug benchmark under
section 1853(j) and, if applicable, the choice
non-drug 
benchmark 
under 
section
1853(k)(2), for the year involved and, if ap-
plicable, the national fee-for-service market
share percentage.
‘‘(ii) ADJUSTMENT FACTORS.—The ad-
justment factors applied under section
1853(a)(1)(A)(iii) (relating to demographic
adjustment), section 1853(a)(1)(B) (relating
to adjustment for end-stage renal disease),
and section 1853(a)(3) (relating to health
status adjustment).
‘‘(iii) PROJECTED
FEE-FOR-SERVICE
BID.—In the case of a competitive area, the
projected fee-for-service area-specific non-
drug bid (as determined under subsection
(k)(6)) for the area.
‘‘(iv) INDIVIDUALS.—The number of
individuals 
counted 
under 
subsection
(k)(4)(B) 
and 
enrolled 
in 
each
Medicare+Choice plan in the area.’’; and
142
(B) in paragraph (3), by striking ‘‘in suffi-
cient detail’’ and all that follows up to the pe-
riod at the end.
(2) REPEAL OF PROVISIONS RELATING TO AD-
JUSTED COMMUNITY RATE (ACR).—
(A) IN GENERAL.—Subsections (e) and (f)
of section 1854 (42 U.S.C. 1395w–24) are re-
pealed.
(B) 
CONFORMING
AMENDMENT.—Section
1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended
by striking ‘‘, and to reflect’’ and all that follows
and inserting a period.
(3) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL
COVERAGE
DETERMINATIONS.—Section
1852(a)(5) (42 U.S.C. 1395w–22(a)(5)) is amended to
read as follows:
‘‘(5) PROSPECTIVE
IMPLEMENTATION
OF
NA-
TIONAL COVERAGE DETERMINATIONS.—The Secretary
shall only implement a national coverage determina-
tion that will result in a significant change in the
costs to a Medicare+Choice organization in a pro-
spective manner that applies to announcements made
under section 1853(b) after the date of the implemen-
tation of the determination.’’.
143
(4) PERMITTING GEOGRAPHIC ADJUSTMENT TO
CONSOLIDATE
MULTIPLE
MEDICARE+CHOICE
PAY-
MENT AREAS IN A STATE INTO A SINGLE STATEWIDE
MEDICARE+CHOICE
PAYMENT
AREA.—Section
1853(d)(3) (42 U.S.C. 1395w–23(e)(3)) is amended—
(A) by amending clause (i) of subparagraph
(A) to read as follows:
‘‘(i) 
to 
a 
single 
statewide
Medicare+Choice payment area,’’; and
(B) by amending subparagraph (B) to read
as follows:
‘‘(B) BUDGET NEUTRALITY ADJUSTMENT.—
In the case of a State requesting an adjustment
under this paragraph, the Medicare Benefits Ad-
ministrator shall initially (and annually there-
after) adjust the payment rates otherwise estab-
lished under this section for Medicare+Choice
payment areas in the State in a manner so that
the aggregate of the payments under this section
in the State shall not exceed the aggregate pay-
ments that would have been made under this sec-
tion for Medicare+Choice payment areas in the
State in the absence of the adjustment under this
paragraph.’’.
144
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and premiums for periods
beginning on or after January 1, 2005.
TITLE III—RURAL HEALTH CARE
IMPROVEMENTS
SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE
FOR SOLE COMMUNITY HOSPITALS.
For provision eliminating any reduction from full
market basket in the update for inpatient hospital services
for sole community hospitals, see section 401.
SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) TREATMENT FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
(a) BLENDING OF PAYMENT AMOUNTS.—
(1) IN
GENERAL.—Section 1886(d)(5)(F) (42
U.S.C. 1395ww(d)(5)(F)) is amended by adding at
the end the following new clause:
‘‘(xiv)(I) In the case of discharges in a fiscal year be-
ginning on or after October 1, 2002, subject to subclause
(II), there shall be substituted for the disproportionate share
adjustment percentage otherwise determined under clause
(iv) (other than subclause (I)) or under clause (viii), (x),
(xi), (xii), or (xiii), the old blend proportion (specified
under subclause (III)) of the disproportionate share adjust-
145
ment percentage otherwise determined under the respective
clause and 100 percent minus such old blend proportion
of the disproportionate share adjustment percentage deter-
mined under clause (vii) (relating to large, urban hos-
pitals).
‘‘(II) Under subclause (I), the disproportionate share
adjustment percentage shall not exceed 10 percent for a hos-
pital that is not classified as a rural referral center under
subparagraph (C).
‘‘(III) For purposes of subclause (I), the old blend pro-
portion for fiscal year 2003 is 80 percent, for each subse-
quent year (through 2006) is the old blend proportion under
this subclause for the previous year minus 20 percentage
points, and for each year beginning with 2007 is 0 per-
cent.’’.
(2) 
CONFORMING
AMENDMENTS.—Section
1886(d)(5)(F) 
(42 
U.S.C. 
1395ww(d)(5)(F)) 
is
amended—
(A) in each of subclauses (II), (III), (IV),
(V), and (VI) of clause (iv), by inserting ‘‘subject
to clause (xiv) and’’ before ‘‘for discharges occur-
ring’’;
(B) in clause (viii), by striking ‘‘The for-
mula’’ and inserting ‘‘Subject to clause (xiv), the
formula’’; and
146
(C) in each of clauses (x), (xi), (xii), and
(xiii), by striking ‘‘For purposes’’ and inserting
‘‘Subject to clause (xiv), for purposes’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to discharges occurring on
or after October 1, 2002.
SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARD-
IZED AMOUNT IN RURAL AND SMALL URBAN
AREAS TO ACHIEVE A SINGLE, UNIFORM
STANDARDIZED AMOUNT.
Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C.
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and insert-
ing ‘‘(iv)(I) Subject to the succeeding provisions of
this clause, for discharges’’; and
(2) by adding at the end the following new sub-
clauses:
‘‘(II) For discharges occurring during fiscal year
2003, the average standardized amount for hospitals
located other than in a large urban area shall be in-
creased by 1⁄2 of the difference between the average
standardized amount determined under subclause (I)
for hospitals located in large urban areas for such fis-
cal year and such amount determined (without regard
147
to this subclause) for other hospitals for such fiscal
year.
‘‘(III) For discharges occurring in a fiscal year
beginning with fiscal year 2004, the Secretary shall
compute an average standardized amount for hos-
pitals located in any area within the United States
and within each region equal to the average standard-
ized amount computed for the previous fiscal year
under this subparagraph for hospitals located in a
large urban area (or, beginning with fiscal year 2005,
for hospitals located in any area) increased by the
applicable percentage increase under subsection
(b)(3)(B)(i).’’.
SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN
HOSPITAL MARKET BASKET.
(a) MORE FREQUENT UPDATES IN WEIGHTS.—After
revising the weights used in the hospital market basket
under section 1886(b)(3)(B)(iii) of the Social Security Act
(42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most current
data available, the Secretary shall establish a frequency for
revising such weights in such market basket to reflect the
most current data available more frequently than once every
5 years.
(b) REPORT.—Not later than October 1, 2003, the Sec-
retary shall submit a report to Congress on the frequency
148
established under subsection (a), including an explanation
of the reasons for, and options considered, in determining
such frequency.
SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL
PROGRAM.
(a) REINSTATEMENT OF PERIODIC INTERIM PAYMENT
(PIP).—Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is
amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (C);
(2) by adding ‘‘and’’ at the end of subparagraph
(D); and
(3) by inserting after subparagraph (D) the fol-
lowing new subparagraph:
‘‘(E) inpatient critical access hospital services;’’.
(b) CONDITION FOR APPLICATION OF SPECIAL PHYSI-
CIAN
PAYMENT
ADJUSTMENT.—Section 1834(g)(2) (42
U.S.C. 1395m(g)(2)) is amended by adding after and below
subparagraph (B) the following:
‘‘The Secretary may not require, as a condition for
applying subparagraph (B) with respect to a critical
access hospital, that each physician providing profes-
sional services in the hospital must assign billing
rights with respect to such services, except that such
149
subparagraph shall not apply to those physicians who
have not assigned such billing rights.’’.
(c) FLEXIBILITY IN BED LIMITATION FOR HOSPITALS
WITH STRONG SEASONAL CENSUS FLUCTUATIONS.—Sec-
tion 1820 (42 U.S.C. 1395i–4) is amended—
(1) in subsection (c)(2)(B)(iii), by inserting
‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’;
(2) by adding at the end of subsection (c) the fol-
lowing new paragraph:
‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS
FOR
HOSPITALS
WITH
STRONG
SEASONAL
CENSUS
FLUCTUATIONS.—
‘‘(A) IN GENERAL.—In the case of a hos-
pital that demonstrates that it meets the stand-
ards established under subparagraph (B), the bed
limitations otherwise applicable under para-
graph (2)(B)(iii) and subsection (f) shall be in-
creased by 5 beds.
‘‘(B) STANDARDS.—The Secretary shall
specify standards for determining whether a crit-
ical access hospital has sufficiently strong sea-
sonal variations in patient admissions to justify
the increase in bed limitation provided under
subparagraph (A).’’; and
150
(3) in subsection (f), by adding at the end the
following new sentence: ‘‘The limitations in numbers
of beds under the first sentence are subject to adjust-
ment under subsection (c)(3).’’.
(d) 5-YEAR EXTENSION OF THE AUTHORIZATION FOR
APPROPRIATIONS FOR GRANT PROGRAM.—Section 1820(j)
(42 U.S.C. 1395i–4(j)) is amended by striking ‘‘through
2002’’ and inserting ‘‘through 2007’’.
(e) PROHIBITION OF RETROACTIVE RECOUPMENT.—
The Secretary shall not recoup (or otherwise seek to recover)
overpayments made for outpatient critical access hospital
services under part B of title XVIII of the Social Security
Act, for services furnished in cost reporting periods that
began before October 1, 2002, insofar as such overpayments
are attributable to payment being based on 80 percent of
reasonable costs (instead of 100 percent of reasonable costs
minus 20 percent of charges).
(f) EFFECTIVE DATES.—
(1) REINSTATEMENT OF PIP.—The amendments
made by subsection (a) shall apply to payments made
on or after January 1, 2003.
(2) PHYSICIAN
PAYMENT
ADJUSTMENT
CONDI-
TION.—The amendment made by subsection (b) shall
be effective as if included in the enactment of section
403(d) of the Medicare, Medicaid, and SCHIP Bal-
151
anced Budget Refinement Act of 1999 (113 Stat.
1501A–371).
(3) FLEXIBILITY
IN
BED
LIMITATION.—The
amendments made by subsection (c) shall apply to
designations made on or after January 1, 2003, but
shall not apply to critical access hospitals that were
designated as of such date.
SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR HOME
HEALTH SERVICES FURNISHED IN A RURAL
AREA.
(a) IN GENERAL.—Section 508(a) BIPA (114 Stat.
2763A–533) is amended—
(1) by striking ‘‘24-MONTH INCREASE BEGIN-
NING APRIL 1, 2001’’ and inserting ‘‘IN GENERAL’’;
and
(2) by striking ‘‘April 1, 2003’’ and inserting
‘‘January 1, 2005’’.
(b) CONFORMING AMENDMENT.—Section 547(c)(2) of
BIPA (114 Stat. 2763A–553) is amended by striking ‘‘the
period beginning on April 1, 2001, and ending on Sep-
tember 30, 2002,’’ and inserting ‘‘a period under such sec-
tion’’.
152
SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAY-
MENT FOR HOSPICE CARE FURNISHED IN A
FRONTIER AREA AND RURAL HOSPICE DEM-
ONSTRATION PROJECT.
For—
(1) provision of 10 percent increase in payment
for hospice care furnished in a frontier area, see sec-
tion 422; and
(2) provision of a rural hospice demonstration
project, see section 423.
SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LO-
CATED IN RURAL OR SMALL URBAN AREAS IN
REDISTRIBUTION 
OF 
UNUSED 
GRADUATE
MEDICAL EDUCATION RESIDENCIES.
For provision providing priority for hospitals located
in rural or small urban areas in redistribution of unused
graduate medical education residencies, see section 612.
SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN
PAYMENTS FOR PHYSICIANS’ SERVICES.
(a) STUDY.—The Comptroller General of the United
States shall conduct a study of differences in payment
amounts under the physician fee schedule under section
1848 of the Social Security Act (42 U.S.C. 1395w–4) for
physicians’ services in different geographic areas. Such
study shall include—
153
(1) an assessment of the validity of the geo-
graphic adjustment factors used for each component of
the fee schedule;
(2) an evaluation of the measures used for such
adjustment, including the frequency of revisions; and
(3) an evaluation of the methods used to deter-
mine professional liability insurance costs used in
computing the malpractice component, including a
review of increases in professional liability insurance
premiums and variation in such increases by State
and physician specialty and methods used to update
the geographic cost of practice index and relative
weights for the malpractice component.
(b) REPORT.—Not later than 1 year after the date of
the enactment of this Act, the Comptroller General shall
submit to Congress a report on the study conducted under
subsection (a). The report shall include recommendations
regarding the use of more current data in computing geo-
graphic cost of practice indices as well as the use of data
directly representative of physicians’ costs (rather than
proxy measures of such costs).
154
SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COL-
LABORATIVE EFFORTS THAT BENEFIT MEDI-
CALLY UNDERSERVED POPULATIONS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.
1320a–7(b)(3)), as amended by section 101(b)(2), is
amended—
(1) in subparagraph (F), by striking ‘‘and’’ after
the semicolon at the end;
(2) in subparagraph (G), by striking the period
at the end and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(H) any remuneration between a public or
nonprofit private health center entity described
under clause (i) or (ii) of section 1905(l)(2)(B)
and any individual or entity providing goods,
items, services, donations or loans, or a combina-
tion thereof, to such health center entity pursu-
ant to a contract, lease, grant, loan, or other
agreement, if such agreement contributes to the
ability of the health center entity to maintain or
increase the availability, or enhance the quality,
of services provided to a medically underserved
population served by the health center entity.’’.
(b) RULEMAKING FOR EXCEPTION FOR HEALTH CEN-
TER ENTITY ARRANGEMENTS.—
155
(1) ESTABLISHMENT.—
(A) IN GENERAL.—The Secretary of Health
and Human Services (in this subsection referred
to as the ‘‘Secretary’’) shall establish, on an ex-
pedited basis, standards relating to the exception
described in section 1128B(b)(3)(H) of the Social
Security Act, as added by subsection (a), for
health 
center 
entity 
arrangements 
to 
the
antikickback penalties.
(B) FACTORS TO CONSIDER.—The Secretary
shall consider the following factors, among oth-
ers, in establishing standards relating to the ex-
ception for health center entity arrangements
under subparagraph (A):
(i) Whether the arrangement between
the health center entity and the other party
results in savings of Federal grant funds or
increased revenues to the health center enti-
ty.
(ii) Whether the arrangement between
the health center entity and the other party
restricts or limits a patient’s freedom of
choice.
(iii) Whether the arrangement between
the health center entity and the other party
156
protects a health care professional’s inde-
pendent medical judgment regarding medi-
cally appropriate treatment.
The Secretary may also include other standards
and criteria that are consistent with the intent
of Congress in enacting the exception established
under this section.
(2) INTERIM FINAL EFFECT.—No later than 180
days after the date of enactment of this Act, the Sec-
retary shall publish a rule in the Federal Register
consistent with the factors under paragraph (1)(B).
Such rule shall be effective and final immediately on
an interim basis, subject to such change and revision,
after public notice and opportunity (for a period of
not more than 60 days) for public comment, as is
consistent with this subsection.
SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.
(a) IN GENERAL.—In the case of a non-teaching hos-
pital that meets the condition of subsection (b), for its cost
reporting period beginning in each of fiscal years 2003,
2004, and 2005 the amount of payment made to the hos-
pital under section 1886(d) of the Social Security Act for
discharges occurring during such fiscal year only shall be
increased as though the applicable percentage increase (oth-
erwise applicable to discharges occurring during such fiscal
157
year under section 1886(b)(3)(B)(i) of the Social Security
Act (42 U.S.C. 1395ww(b)(3)(B)(i)) had been increased by
5 percentage points. The previous sentence shall be applied
for each such fiscal year separately without regard to its
application in a previous fiscal year and shall not affect
payment for discharges for any hospital occurring during
a fiscal year after fiscal year 2005.
(b) CONDITION.—A non-teaching hospital meets the
condition of this paragraph if—
(1) it is located in a rural area and the amount
of the aggregate payments under subsection (d) of
such section for hospitals located in rural areas in the
State for their cost reporting periods beginning dur-
ing fiscal year 1999 is less than the aggregate allow-
able operating costs of inpatient hospital services (as
defined in section 1886(a)(4) of such Act) for all sub-
section (d) hospitals in such areas in such State with
respect to such cost reporting periods; or
(2) it is located in an urban area and the
amount of the aggregate payments under subsection
(d) of such section for hospitals located in urban
areas in the State for their cost reporting periods be-
ginning during fiscal year 1999 is less than 103 per-
cent of the aggregate allowable operating costs of in-
patient hospital services (as defined in section
158
1886(a)(4) of such Act) for all subsection (d) hospitals
in such areas in such State with respect to such cost
reporting periods.
The amounts under paragraphs (1) and (2) shall be deter-
mined by the Secretary of Health and Human Services
based on data of the Medicare Payment Advisory Commis-
sion.
(c) DEFINITIONS.—For purposes of this section:
(1) NON-TEACHING HOSPITAL.—The term ‘‘non-
teaching hospital’’ means, for a cost reporting period,
a subsection (d) hospital (as defined in section
1886(d)(1)(B) of the Social Security Act, 42 U.S.C.
1395ww(d)(1)(B))) that is not receiving any addi-
tional payment under section 1886(d)(5)(B) of such
Act (42 U.S.C. 1395ww(d)(5)(B)) or a payment
under section 1886(h) of such Act (42 U.S.C.
1395ww(h)) for discharges occurring during the pe-
riod.
(2) RURAL; URBAN.—The terms ‘‘rural’’ and
‘‘urban’’ have the meanings given such terms for pur-
poses of section 1886(d) of the Social Security Act (42
U.S.C. 1395ww(d)).
159
TITLE IV—PROVISIONS
RELATING TO PART A
Subtitle A—Inpatient Hospital
Services
SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT
UPDATES.
Subclause (XVIII) of section 1886(b)(3)(B)(i) (42
U.S.C. 1395ww(b)(3)(B)(i)) is amended to read as follows:
‘‘(XVIII) for fiscal year 2003, the market basket
percentage increase for sole community hospitals and
such increase minus 0.25 percentage points for other
hospitals, and’’.
SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR
INDIRECT COSTS OF MEDICAL EDUCATION
(IME).
Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
(1) in subclause (VI) by striking ‘‘and’’ at the
end;
(2) by redesignating subclause (VII) as subclause
(IX);
(3) in subclause (IX) as so redesignated, by
striking ‘‘2002’’ and inserting ‘‘2004’’; and
(4) by inserting after subclause (VI) the fol-
lowing new subclause:
160
‘‘(VII) during fiscal year 2003, ‘c’ is equal
to 1.47;
‘‘(VIII) during fiscal year 2004, ‘c’ is equal
to 1.45; and’’.
SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES
UNDER INPATIENT HOSPITAL PPS.
(a) IMPROVING TIMELINESS OF DATA COLLECTION.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is
amended by adding at the end the following new clause:
‘‘(vii) Under the mechanism under this subparagraph,
the Secretary shall provide for the addition of new diagnosis
and procedure codes in April 1 of each year, but the addi-
tion of such codes shall not require the Secretary to adjust
the payment (or diagnosis-related group classification)
under this subsection until the fiscal year that begins after
such date.’’.
(b) ELIGIBILITY STANDARD.—
(1) MINIMUM PERIOD FOR RECOGNITION OF NEW
TECHNOLOGIES.—Section 
1886(d)(5)(K)(vi) 
(42
U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
(A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and
(B) by adding at the end the following new
subclause:
‘‘(II) Under such criteria, a service or technology shall
not be denied treatment as a new service or technology on
161
the basis of the period of time in which the service or tech-
nology has been in use if such period ends before the end
of the 2-to-3-year period that begins on the effective date
of implementation of a code under ICD–9–CM (or a suc-
cessor coding methodology) that enables the identification
of a significant sample of specific discharges in which the
service or technology has been used.’’.
(2) 
ADJUSTMENT
OF
THRESHOLD.—Section
1886(d)(5)(K)(ii)(I) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(I)) is amended by inserting
‘‘(applying a threshold specified by the Secretary that
is the lesser of 50 percent of the national average
standardized amount for operating costs of inpatient
hospital services for all hospitals and all diagnosis-re-
lated groups or one standard deviation for the diag-
nosis-related group involved)’’ after ‘‘is inadequate’’.
(3) CRITERION
FOR
SUBSTANTIAL
IMPROVE-
MENT.—Section 
1886(d)(5)(K)(vi) 
(42 
U.S.C.
1395ww(d)(5)(K)(vi)), as amended by paragraph (1),
is further amended by adding at the end the following
subclause:
‘‘(III) The Secretary shall by regulation provide for
further clarification of the criteria applied to determine
whether a new service or technology represents an advance
in medical technology that substantially improves the diag-
162
nosis or treatment of beneficiaries. Under such criteria, in
determining whether a new service or technology represents
an advance in medical technology that substantially im-
proves the diagnosis or treatment of beneficiaries, the Sec-
retary shall deem a service or technology as meeting such
requirement if the service or technology is a drug or biologi-
cal that is designated under section 506 or 526 of the Fed-
eral Food, Drug, and Cosmetic Act, approved under section
314.510 or 601.41 of title 21, Code of Federal Regulations,
or designated for priority review when the marketing appli-
cation for such drug or biological was filed or is a medical
device for which an exemption has been granted under sec-
tion 520(m) of such Act, or for which priority review has
been provided under section 515(d)(5) of such Act.’’.
(4) PROCESS
FOR
PUBLIC
INPUT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as
amended by paragraph (1), is amended—
(A) in clause (i), by adding at the end the
following: ‘‘Such mechanism shall be modified to
meet the requirements of clause (viii).’’; and
(B) by adding at the end the following new
clause:
‘‘(viii) The mechanism established pursuant to clause
(i) shall be adjusted to provide, before publication of a pro-
posed rule, for public input regarding whether a new service
163
or technology not described in the second sentence of clause
(vi)(III) represents an advance in medical technology that
substantially improves the diagnosis or treatment of bene-
ficiaries as follows:
‘‘(I) The Secretary shall make public and peri-
odically update a list of all the services and tech-
nologies for which an application for additional pay-
ment under this subparagraph is pending.
‘‘(II) The Secretary shall accept comments, rec-
ommendations, and data from the public regarding
whether the service or technology represents a substan-
tial improvement.
‘‘(III) The Secretary shall provide for a meeting
at which organizations representing hospitals, physi-
cians, medicare beneficiaries, manufacturers, and any
other interested party may present comments, rec-
ommendations, and data to the clinical staff of the
Centers for Medicare & Medicaid Services before pub-
lication of a notice of proposed rulemaking regarding
whether service or technology represents a substantial
improvement.’’.
(c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—
Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is fur-
ther amended by adding at the end the following new clause:
164
‘‘(ix) Before establishing any add-on payment under
this subparagraph with respect to a new technology, the
Secretary shall seek to identify one or more diagnosis-re-
lated groups associated with such technology, based on simi-
lar clinical or anatomical characteristics and the cost of
the technology. Within such groups the Secretary shall as-
sign an eligible new technology into a diagnosis-related
group where the average costs of care most closely approxi-
mate the costs of care of using the new technology. In such
case, no add-on payment under this subparagraph shall be
made with respect to such new technology and this clause
shall not affect the application of paragraph (4)(C)(iii).’’.
(d) IMPROVEMENT
IN PAYMENT
FOR NEW TECH-
NOLOGY.—Section 
1886(d)(5)(K)(ii)(III) 
(42 
U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by inserting after
‘‘the estimated average cost of such service or technology’’
the following: ‘‘(based on the marginal rate applied to costs
under subparagraph (A))’’.
(e) EFFECTIVE DATE.—
(1) IN
GENERAL.—The Secretary shall imple-
ment the amendments made by this section so that
they apply to classification for fiscal years beginning
with fiscal year 2004.
(2) RECONSIDERATIONS OF APPLICATIONS FOR
FISCAL YEAR 2003 THAT ARE DENIED.—In the case of
165
an application for a classification of a medical serv-
ice or technology as a new medical service or tech-
nology under section 1886(d)(5)(K) of the Social Se-
curity Act (42 U.S.C. 1395ww(d)(5)(K)) that was
filed for fiscal year 2003 and that is denied—
(A) the Secretary shall automatically recon-
sider the application as an application for fiscal
year 2004 under the amendments made by this
section; and
(B) the maximum time period otherwise
permitted for such classification of the service or
technology shall be extended by 12 months.
SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN
PUERTO RICO.
Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is
amended—
(1) in subparagraph (A)—
(A) in clause (i), by striking ‘‘for discharges
beginning on or after October 1, 1997, 50 percent
(and for discharges between October 1, 1987, and
September 30, 1997, 75 percent)’’ and inserting
‘‘the applicable Puerto Rico percentage (specified
in subparagraph (E))’’; and
(B) in clause (ii), by striking ‘‘for dis-
charges beginning in a fiscal year beginning on
166
or after October 1, 1997, 50 percent (and for dis-
charges between October 1, 1987, and September
30, 1997, 25 percent)’’ and inserting ‘‘the appli-
cable Federal percentage (specified in subpara-
graph (E))’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(E) For purposes of subparagraph (A), for discharges
occurring—
‘‘(i) between October 1, 1987, and September 30,
1997, the applicable Puerto Rico percentage is 75 per-
cent and the applicable Federal percentage is 25 per-
cent;
‘‘(ii) on or after October 1, 1997, and before Oc-
tober 1, 2003, the applicable Puerto Rico percentage
is 50 percent and the applicable Federal percentage is
50 percent;
‘‘(iii) during fiscal year 2004, the applicable
Puerto Rico percentage is 45 percent and the applica-
ble Federal percentage is 55 percent;
‘‘(iv) during fiscal year 2005, the applicable
Puerto Rico percentage is 40 percent and the applica-
ble Federal percentage is 60 percent;
167
‘‘(v) during fiscal year 2006, the applicable
Puerto Rico percentage is 35 percent and the applica-
ble Federal percentage is 65 percent;
‘‘(vi) during fiscal year 2007, the applicable
Puerto Rico percentage is 30 percent and the applica-
ble Federal percentage is 70 percent; and
‘‘(vii) on or after October 1, 2007, the applicable
Puerto Rico percentage is 25 percent and the applica-
ble Federal percentage is 75 percent.’’.
SEC. 405. REFERENCE TO PROVISION RELATING TO EN-
HANCED DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS FOR RURAL HOS-
PITALS AND URBAN HOSPITALS WITH FEWER
THAN 100 BEDS.
For provision enhancing disproportionate share hos-
pital (DSH) treatment for rural hospitals and urban hos-
pitals with fewer than 100 beds, see section 302.
SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR
PHASED-IN INCREASE IN THE STANDARDIZED
AMOUNT IN RURAL AND SMALL URBAN AREAS
TO ACHIEVE A SINGLE, UNIFORM STANDARD-
IZED AMOUNT.
For provision phasing in over a 2-year period an in-
crease in the standardized amount for rural and small
168
urban areas to achieve a single, uniform, standardized
amount, see section 303.
SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT
UPDATES IN THE WEIGHTS USED IN HOS-
PITAL MARKET BASKET.
For provision providing for more frequent updates in
the weights used in hospital market basket, see section 304.
SEC. 408. REFERENCE TO PROVISION MAKING IMPROVE-
MENTS TO CRITICAL ACCESS HOSPITAL PRO-
GRAM.
For provision providing making improvements to crit-
ical access hospital program, see section 305.
Subtitle B—Skilled Nursing
Facility Services
SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FA-
CILITY SERVICES.
(a) TEMPORARY INCREASE IN NURSING COMPONENT
OF PPS FEDERAL RATE.—Section 312(a) of BIPA is
amended by adding at the end the following new sentence:
‘‘The Secretary of Health and Human Services shall in-
crease by 12, 10, and 8 percent the nursing component of
the case-mix adjusted Federal prospective payment rate
specified in Tables 3 and 4 of the final rule published in
the Federal Register by the Health Care Financing Admin-
istration on July 31, 2000 (65 Fed. Reg. 46770) and as
169
subsequently updated under section 1888(e)(4)(E)(ii) of the
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effec-
tive for services furnished during fiscal years 2003, 2004,
and 2005, respectively.’’.
(b) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS.—
(1) IN
GENERAL.—Paragraph (12) of section
1888(e) (42 U.S.C. 1395yy(e)) is amended to read as
follows:
‘‘(12) 
ADJUSTMENT
FOR
RESIDENTS
WITH
AIDS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), in the case of a resident of a skilled
nursing facility who is afflicted with acquired
immune deficiency syndrome (AIDS), the per
diem amount of payment otherwise applicable
shall be increased by 128 percent to reflect in-
creased costs associated with such residents.
‘‘(B) SUNSET.—Subparagraph (A) shall not
apply on and after such date as the Secretary
certifies that there is an appropriate adjustment
in the case mix under paragraph (4)(G)(i) to
compensate for the increased costs associated
with residents described in such subparagraph.’’.
170
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to services furnished on or
after October 1, 2003.
Subtitle C—Hospice
SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERV-
ICES.
(a) COVERAGE
OF HOSPICE CONSULTATION SERV-
ICES.—Section 1812(a) (42 U.S.C. 1395d(a)) is amended—
(1) by striking ‘‘and’’ at the end of paragraph
(3);
(2) by striking the period at the end of para-
graph (4) and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the fol-
lowing new paragraph:
‘‘(5) for individuals who are terminally ill, have
not made an election under subsection (d)(1), and
have not previously received services under this para-
graph, services that are furnished by a physician who
is either the medical director or an employee of a hos-
pice program and that consist of—
‘‘(A) an evaluation of the individual’s need
for pain and symptom management;
‘‘(B) counseling the individual with respect
to end-of-life issues and care options; and
171
‘‘(C) advising the individual regarding ad-
vanced care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i)) is
amended by adding at the end the following new paragraph:
‘‘(4) The amount paid to a hospice program with re-
spect to the services under section 1812(a)(5) for which pay-
ment may be made under this part shall be equal to an
amount equivalent to the amount established for an office
or other outpatient visit for evaluation and management
associated with presenting problems of moderate severity
under the fee schedule established under section 1848(b),
other than the portion of such amount attributable to the
practice expense component.’’.
(c) 
CONFORMING
AMENDMENT.—Section
1861(dd)(2)(A)(i) 
(42 
U.S.C. 
1395x(dd)(2)(A)(i)) 
is
amended by inserting before the comma at the end the fol-
lowing: ‘‘and services described in section 1812(a)(5)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to services provided by a hospice pro-
gram on or after January 1, 2004.
SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE
CARE FURNISHED IN A FRONTIER AREA.
(a) IN GENERAL.—Section 1814(i)(1) (42 U.S.C.
1395f(i)(1)) is amended by adding at the end the following
new subparagraph:
172
‘‘(D) With respect to hospice care furnished in a fron-
tier area on or after January 1, 2003, and before January
1, 2008, the payment rates otherwise established for such
care shall be increased by 10 percent. For purposes of this
subparagraph, the term ‘frontier area’ means a county in
which the population density is less than 7 persons per
square mile.’’.
(b) REPORT ON COSTS.—Not later than January 1,
2007, the Comptroller General of the United States shall
submit to Congress a report on the costs of furnishing hos-
pice care in frontier areas. Such report shall include rec-
ommendations regarding the appropriateness of extending,
and modifying, the payment increase provided under the
amendment made by subsection (a).
SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a dem-
onstration project for the delivery of hospice care to medi-
care beneficiaries in rural areas. Under the project medi-
care beneficiaries who are unable to receive hospice care in
the home for lack of an appropriate caregiver are provided
such care in a facility of 20 or fewer beds which offers, with-
in its walls, the full range of services provided by hospice
programs under section 1861(dd) of the Social Security Act
(42 U.S.C. 1395x(dd)).
173
(b) SCOPE OF PROJECT.—The Secretary shall conduct
the project under this section with respect to no more than
3 hospice programs over a period of not longer than 5 years
each.
(c) COMPLIANCE WITH CONDITIONS.—Under the dem-
onstration project—
(1) the hospice program shall comply with other-
wise applicable requirements, except that it shall not
be required to offer services outside of the home or to
meet the requirements of section 1861(dd)(2)(A)(iii)
of the Social Security Act; and
(2) payments for hospice care shall be made at
the rates otherwise applicable to such care under title
XVIII of such Act.
The Secretary may require the program to comply with
such additional quality assurance standards for its provi-
sion of services in its facility as the Secretary deems appro-
priate.
(d) REPORT.—Upon completion of the project, the Sec-
retary shall submit a report to Congress on the project and
shall include in the report recommendations regarding ex-
tension of such project to hospice programs serving rural
areas.
174
Subtitle D—Other Provisions
SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOV-
ERY AUDIT CONTRACTORS.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the use of recovery audit contrac-
tors under the Medicare Integrity Program in identifying
and recouping overpayments under the medicare program
for services for which payment is made under part A of
title XVIII of the Social Security Act. Under the project—
(1) payment may be made to such a contractor
on a contingent basis;
(2) a percentage of the amount recovered may be
retained by the Secretary and shall be available to the
program management account of the Centers for
Medicare & Medicaid Services; and
(3) the Secretary shall examine the efficacy of
such use with respect to duplicative payments, accu-
racy of coding, and other payment policies in which
inaccurate payments arise.
(b) SCOPE AND DURATION.—The project shall cover at
least 2 States and at least 3 contractors and shall last for
not longer than 3 years.
175
(c) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for pay-
ment for services under the project in accordance with sub-
section (a).
(d) QUALIFICATIONS OF CONTRACTORS.—
(1) IN GENERAL.—The Secretary shall enter into
a recovery audit contract under this section with an
entity only if the entity has staff that has knowledge
of and experience with the payment rules and regula-
tions under the medicare program or the entity has
or will contract with another entity that has such
knowledgeable and experienced staff.
(2) INELIGIBILITY OF CERTAIN CONTRACTORS.—
The Secretary may not enter into a recovery audit
contract under this section with an entity to the ex-
tent that the entity is a fiscal intermediary under sec-
tion 1816 of the Social Security Act (42 U.S.C.
1395h), a carrier under section 1842 of such Act (42
U.S.C. 1395u), or a Medicare Administrative Con-
tractor under section 1874A of such Act.
(3) PREFERENCE
FOR
ENTITIES
WITH
DEM-
ONSTRATED PROFICIENCY WITH PRIVATE INSURERS.—
In awarding contracts to recovery audit contractors
under this section, the Secretary shall give preference
176
to those entities that the Secretary determines have
demonstrated proficiency in recovery audits with pri-
vate insurers or under the medicaid program under
title XIX of such Act.
(e) REPORT.—The Secretary of Health and Human
Services shall submit to Congress a report on the project
not later than 6 months after the date of its completion.
Such reports shall include information on the impact of the
project on savings to the medicare program and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE V—PROVISIONS RELATING
TO PART B
Subtitle A—Physicians’ Services
SEC. 501. REVISION OF UPDATES FOR PHYSICIANS’ SERV-
ICES.
(a) UPDATE FOR 2003 THROUGH 2005.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C.
1395w–4(d)) is amended by adding at the end the fol-
lowing new paragraphs:
‘‘(5) UPDATE FOR 2003.—The update to the sin-
gle conversion factor established in paragraph (1)(C)
for 2003 is 2 percent.
‘‘(6) SPECIAL RULES FOR UPDATE FOR 2004 AND
2005.—The following rules apply in determining the
177
update adjustment factors under paragraph (4)(B) for
2004 and 2005:
‘‘(A) USE OF 2002 DATA IN DETERMINING
ALLOWABLE COSTS.—
‘‘(i) The reference in clause (ii)(I) of
such paragraph to April 1, 1996, is deemed
to be a reference to January 1, 2002.
‘‘(ii) The allowed expenditures for 2002
is deemed to be equal to the actual expendi-
tures for physicians’ services furnished dur-
ing 2002, as estimated by the Secretary.
‘‘(B) 1 PERCENTAGE
POINT
INCREASE
IN
GDP UNDER SGR.—The annual average percent-
age growth in real gross domestic product per
capita under subsection (f)(2)(C) for each of
2003, 2004, and 2005 is deemed to be increased
by 1 percentage point.’’.
(2) 
CONFORMING
AMENDMENT.—Paragraph
(4)(B) of such section is amended, in the matter be-
fore clause (i), by inserting ‘‘and paragraph (6)’’
after ‘‘subparagraph (D)’’.
(3) NOT TREATED AS CHANGE IN LAW AND REG-
ULATION IN SUSTAINABLE GROWTH RATE DETERMINA-
TION.—The amendments made by this subsection shall
not be treated as a change in law for purposes of ap-
178
plying section 1848(f)(2)(D) of the Social Security
Act (42 U.S.C. 1395w–4(f)(2)(D)).
(b) USE OF 10-YEAR ROLLING AVERAGE IN COM-
PUTING GROSS DOMESTIC PRODUCT.—
(1) IN
GENERAL.—Section 1848(f)(2)(C) (42
U.S.C. 1395w–4(f)(2)(C)) is amended—
(A) by striking ‘‘projected’’ and inserting
‘‘annual average’’; and
(B) by striking ‘‘from the previous applica-
ble period to the applicable period involved’’ and
inserting ‘‘during the 10-year period ending with
the applicable period involved’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to computations of the sus-
tainable growth rate for years beginning with 2002.
(c) ELIMINATION OF TRANSITIONAL ADJUSTMENT.—
Section 1848(d)(4)(F) (42 U.S.C. 1395w–4(d)(4)(F)) is
amended by striking ‘‘subparagraph (A)’’ and all that fol-
lows and inserting ‘‘subparagraph (A), for each of 2001 and
2002, of ¥0.2 percent.’’
SEC. 502. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES.
(a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI-
CIANS’ SERVICES.—
(1) STUDY.—The Comptroller General of the
United States shall conduct a study on access of
179
medicare beneficiaries to physicians’ services under
the medicare program. The study shall include—
(A) an assessment of the use by beneficiaries
of such services through an analysis of claims
submitted by physicians for such services under
part B of the medicare program;
(B) an examination of changes in the use
by beneficiaries of physicians’ services over time;
(C) an examination of the extent to which
physicians are not accepting new medicare bene-
ficiaries as patients.
(2) REPORT.—Not later than 18 months after the
date of the enactment of this Act, the Comptroller
General shall submit to Congress a report on the
study conducted under paragraph (1). The report
shall include a determination whether—
(A) data from claims submitted by physi-
cians under part B of the medicare program in-
dicate potential access problems for medicare
beneficiaries in certain geographic areas; and
(B) access by medicare beneficiaries to phy-
sicians’ services may have improved, remained
constant, or deteriorated over time.
(b) STUDY AND REPORT ON SUPPLY OF PHYSICIANS.—
180
(1) STUDY.—The Secretary shall request the In-
stitute of Medicine of the National Academy of
Sciences to conduct a study on the adequacy of the
supply of physicians (including specialists) in the
United States and the factors that affect such supply.
(2) REPORT TO CONGRESS.—Not later than 2
years after the date of enactment of this section, the
Secretary shall submit to Congress a report on the re-
sults of the study described in paragraph (1), includ-
ing any recommendations for legislation.
SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’
SERVICES.
Not later than 1 year after the date of the enactment
of this Act, the Medicare Payment Advisory Commission
shall submit to Congress a report on the effect of refinements
to the practice expense component of payments for physi-
cians’ services in the case of services for which there are
no physician work relative value units, after the transition
to a full resource-based payment system in 2002, under sec-
tion 1848 of the Social Security Act (42 U.S.C. 1395w–
4). Such report shall examine the following matters by phy-
sician specialty:
(1) The effect of such refinements on payment for
physicians’ services.
181
(2) The interaction of the practice expense com-
ponent with other components of and adjustments to
payment for physicians’ services under such section.
(3) The appropriateness of the amount of com-
pensation by reason of such refinements.
(4) The effect of such refinements on access to
care by medicare beneficiaries to physicians’ services.
(5) The effect of such refinements on physician
participation under the medicare program.
SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN
PHYSICIAN PATHOLOGY SERVICES UNDER
MEDICARE.
Section 542(c) of BIPA is amended by striking ‘‘2-year
period’’ and inserting ‘‘3-year period’’.
Subtitle B—Other Services
SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN ITEMS
AND SERVICES.
(a) IN GENERAL.—Section 1847 (42 U.S.C. 1395w–
3) is amended to read as follows:
‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND
SERVICES
‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETITIVE
ACQUISITION PROGRAMS.—
‘‘(1) IMPLEMENTATION OF PROGRAMS.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish and implement programs under which
182
competitive acquisition areas are established
throughout the United States for contract award
purposes for the furnishing under this part of
competitively priced items and services (de-
scribed in paragraph (2)) for which payment is
made under this part. Such areas may differ for
different items and services.
‘‘(B) PHASED-IN
IMPLEMENTATION.—The
programs shall be phased-in among competitive
acquisition areas over a period of not longer
than 3 years in a manner so that the competi-
tion under the programs occurs in—
‘‘(i) at least 1⁄3 of such areas in 2004;
and
‘‘(ii) at least 2⁄3 of such areas in 2005.
‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In
carrying out the programs, the Secretary may
waive such provisions of the Federal Acquisition
Regulation as are necessary for the efficient im-
plementation of this section, other than provi-
sions relating to confidentiality of information
and such other provisions as the Secretary deter-
mines appropriate.
183
‘‘(2) ITEMS
AND
SERVICES
DESCRIBED.—The
items and services referred to in paragraph (1) are
the following:
‘‘(A) DURABLE MEDICAL EQUIPMENT AND
INHALATION DRUGS USED IN CONNECTION WITH
DURABLE MEDICAL EQUIPMENT.—Covered items
(as defined in section 1834(a)(13)) for which
payment is otherwise made under section
1834(a), other than items used in infusion, and
inhalation drugs used in conjunction with dura-
ble medical equipment.
‘‘(B) 
OFF-THE-SHELF
ORTHOTICS.—
Orthotics (described in section 1861(s)(9)) for
which payment is otherwise made under section
1834(h) which require minimal self-adjustment
for appropriate use and does not require exper-
tise in trimming, bending, molding, assembling,
or customizing to fit to the patient.
‘‘(3) EXEMPTION AUTHORITY.—In carrying out
the programs under this section, the Secretary may
exempt—
‘‘(A) areas that are not competitive due to
low population density; and
184
‘‘(B) items and services for which the appli-
cation of competitive acquisition is not likely to
result in significant savings.
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall conduct
a competition among entities supplying items and
services described in subsection (a)(2) for each com-
petitive acquisition area in which the program is im-
plemented under subsection (a) with respect to such
items and services.
‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—
‘‘(A) IN GENERAL.—The Secretary may not
award a contract to any entity under the com-
petition conducted in an competitive acquisition
area pursuant to paragraph (1) to furnish such
items or services unless the Secretary finds all of
the following:
‘‘(i) The entity meets quality and fi-
nancial standards specified by the Secretary
or developed by accreditation entities or or-
ganizations recognized by the Secretary.
‘‘(ii) The total amounts to be paid
under the contract (including costs associ-
ated with the administration of the con-
185
tract) are expected to be less than the total
amounts that would otherwise be paid.
‘‘(iii) Beneficiary access to a choice of
multiple suppliers in the area is main-
tained.
‘‘(iv) Beneficiary liability is limited to
the applicable percentage of contract award
price.
‘‘(B) QUALITY
STANDARDS.—The quality
standards specified under subparagraph (A)(i)
shall not be less than the quality standards that
would otherwise apply if this section did not
apply and shall include consumer services stand-
ards. The Secretary shall consult with an expert
outside advisory panel composed of an appro-
priate selection of representatives of physicians,
practitioners, and suppliers to review (and ad-
vise the Secretary concerning) such quality
standards.
‘‘(3) CONTENTS OF CONTRACT.—
‘‘(A) IN GENERAL.—A contract entered into
with an entity under the competition conducted
pursuant to paragraph (1) is subject to terms
and conditions that the Secretary may specify.
186
‘‘(B) TERM OF CONTRACTS.—The Secretary
shall rebid contracts under this section not less
often than once every 3 years.
‘‘(4) LIMIT ON NUMBER OF CONTRACTORS.—
‘‘(A) IN
GENERAL.—The Secretary may
limit the number of contractors in a competitive
acquisition area to the number needed to meet
projected demand for items and services covered
under the contracts. In awarding contracts, the
Secretary shall take into account the ability of
bidding entities to furnish items or services in
sufficient quantities to meet the anticipated
needs of beneficiaries for such items or services
in the geographic area covered under the contract
on a timely basis.
‘‘(B) MULTIPLE WINNERS.—The Secretary
shall award contracts to more than one entity
submitting a bid in each area for an item or
service.
‘‘(5) PARTICIPATING
CONTRACTORS.—Payment
shall not be made for items and services described in
subsection (a)(2) furnished by a contractor and for
which competition is conducted under this section
unless—
187
‘‘(A) the contractor has submitted a bid for
such items and services under this section; and
‘‘(B) the Secretary has awarded a contract
to the contractor for such items and services
under this section.
‘‘(6) AUTHORITY TO CONTRACT FOR EDUCATION,
OUTREACH
AND
COMPLAINT
SERVICES.—The Sec-
retary may enter into a contract with an appropriate
entity to address complaints from beneficiaries who
receive items and services from an entity with a con-
tract under this section and to conduct appropriate
education of and outreach to such beneficiaries with
respect to the program.
‘‘(c) ANNUAL REPORTS.—The Secretary shall submit
to Congress an annual management report on the programs
under this section. Each such report shall include informa-
tion on savings, reductions in cost-sharing, access to items
and services, and beneficiary satisfaction.
‘‘(d) DEMONSTRATION PROJECT FOR CLINICAL LAB-
ORATORY SERVICES.—
‘‘(1) IN GENERAL.—The Secretary shall conduct
a demonstration project on the application of com-
petitive acquisition under this section to clinical di-
agnostic laboratory tests—
188
‘‘(A) for which payment is otherwise made
under section 1833(h) or 1834(d)(1) (relating to
colorectal cancer screening tests); and
‘‘(B) which are furnished without a face-to-
face encounter between the individual and the
hospital or physician ordering the tests.
‘‘(2) TERMS
AND
CONDITIONS.—Such project
shall be under the same conditions as are applicable
to items and services described in subsection (a)(2).
‘‘(3) REPORT.—The Secretary shall submit to
Congress—
‘‘(A) an initial report on the project not
later than December 31, 2004; and
‘‘(B) such progress and final reports on the
project after such date as the Secretary deter-
mines appropriate.’’.
(b) CONTINUATION
OF
CERTAIN
DEMONSTRATION
PROJECTS.—Notwithstanding the amendment made by sub-
section (a), with respect to demonstration projects imple-
mented by the Secretary under section 1847 of the Social
Security Act (42 U.S.C. 1395w–3) (relating to the establish-
ment of competitive acquisition areas) that was in effect
on the day before the date of the enactment of this Act, each
such demonstration project may continue under the same
189
terms and conditions applicable under that section as in
effect on that date.
(c) REPORT ON DIFFERENCES IN PAYMENT FOR LAB-
ORATORY SERVICES.—Not later than 18 months after the
date of the enactment of this Act, the Comptroller General
of the United States shall submit to Congress a report that
analyzes differences in reimbursement between public and
private payors for clinical diagnostic laboratory services.
SEC. 512. PAYMENT FOR AMBULANCE SERVICES.
(a) PHASE-IN PROVIDING FLOOR USING BLEND OF
FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec-
tion 1834(l) (42 U.S.C. 1395m(l)) is amended—
(1) in paragraph (2)(E), by inserting ‘‘consistent
with paragraph (10)’’ after ‘‘in an efficient and fair
manner’’;
(2) by redesignating the paragraph (8) added by
section 221(a) of BIPA as paragraph (9); and
(3) by adding at the end the following new para-
graph:
‘‘(10) PHASE-IN PROVIDING FLOOR USING BLEND
OF
FEE
SCHEDULE
AND
REGIONAL
FEE
SCHED-
ULES.—In carrying out the phase-in under para-
graph (2)(E) for each level of service furnished in a
year before January 1, 2007, the portion of the pay-
ment amount that is based on the fee schedule shall
190
not be less than the following blended rate of the fee
schedule under paragraph (1) and of a regional fee
schedule for the region involved:
‘‘(A) For 2003, the blended rate shall be
based 20 percent on the fee schedule under para-
graph (1) and 80 percent on the regional fee
schedule.
‘‘(B) For 2004, the blended rate shall be
based 40 percent on the fee schedule under para-
graph (1) and 60 percent on the regional fee
schedule.
‘‘(C) For 2005, the blended rate shall be
based 60 percent on the fee schedule under para-
graph (1) and 40 percent on the regional fee
schedule.
‘‘(D) For 2006, the blended rate shall be
based 80 percent on the fee schedule under para-
graph (1) and 20 percent on the regional fee
schedule.
For purposes of this paragraph, the Secretary shall
establish a regional fee schedule for each of the 9 Cen-
sus divisions using the methodology (used in estab-
lishing the fee schedule under paragraph (1)) to cal-
culate a regional conversion factor and a regional
mileage payment rate and using the same payment
191
adjustments and the same relative value units as used
in the fee schedule under such paragraph.’’.
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG
TRIPS.—Section 1834(l), as amended by subsection (a), is
further amended by adding at the end the following new
paragraph:
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN
LONG TRIPS.—In the case of ground ambulance serv-
ices furnished on or after January 1, 2003, and before
January 1, 2008, regardless of where the transpor-
tation originates, the fee schedule established under
this subsection shall provide that, with respect to the
payment rate for mileage for a trip above 50 miles
the per mile rate otherwise established shall be in-
creased by 1⁄4 of the payment per mile otherwise ap-
plicable to such miles.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to ambulance services furnished on or
after January 1, 2003.
SEC. 513. 2-YEAR EXTENSION OF MORATORIUM ON THER-
APY CAPS; PROVISIONS RELATING TO RE-
PORTS.
(a) 2-YEAR EXTENSION OF MORATORIUM ON THERAPY
CAPS.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is
192
amended by striking ‘‘and 2002’’ and inserting ‘‘2002,
2003, and 2004’’.
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON
PAYMENT
AND UTILIZATION
OF OUTPATIENT THERAPY
SERVICES.—Not later than December 31, 2002, the Sec-
retary shall submit to Congress the reports required under
section 4541(d)(2) of the Balanced Budget Act of 1997 (re-
lating to alternatives to a single annual dollar cap on out-
patient therapy) and under section 221(d) of the Medicare,
Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (relating to utilization patterns for outpatient ther-
apy).
(c) IDENTIFICATION OF CONDITIONS AND DISEASES
JUSTIFYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Secretary shall request the In-
stitute of Medicine of the National Academy of
Sciences to identify conditions or diseases that should
justify conducting an assessment of the need to waive
the therapy caps under section 1833(g)(4) of the So-
cial Security Act (42 U.S.C. 1395l(g)(4)).
(2) REPORTS
TO
CONGRESS.—Not later than
July 1, 2003, the Secretary shall submit to Congress
a preliminary report on the conditions and diseases
identified under paragraph (1) and not later than
193
September 1, 2003, a final report on the conditions
and diseases so identified.
(d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL
THERAPIST SERVICES.—
(1) STUDY.—The Comptroller General of the
United States shall conduct a study on access to phys-
ical therapist services in States authorizing such serv-
ices without a physician referral and in States that
require such a physician referral. The study shall—
(A) examine the use of and referral patterns
for physical therapist services for patients age 50
and older in States that authorize such services
without a physician referral and in States that
require such a physician referral;
(B) examine the use of and referral patterns
for physical therapist services for patients who
are medicare beneficiaries;
(C) examine the potential effect of prohib-
iting a physician from referring patients to
physical therapy services owned by the physician
and provided in the physician’s office;
(D) examine the delivery of physical thera-
pists’ services within the facilities of Department
of Defense; and
194
(E) analyze the potential impact on medi-
care beneficiaries and on expenditures under the
medicare program of eliminating the need for a
physician referral and physician certification for
physical therapist services under the medicare
program.
(2) REPORT.—The Comptroller General shall
submit to Congress a report on the study conducted
under paragraph (1) by not later than 1 year after
the date of the enactment of this Act.
SEC. 514. ACCELERATED IMPLEMENTATION OF 20 PERCENT
COINSURANCE FOR HOSPITAL OUTPATIENT
DEPARTMENT (OPD) SERVICES; OTHER OPD
PROVISIONS.
(a) ACCELERATED IMPLEMENTATION OF COINSURANCE
REDUCTIONS.—Section 
1833(t)(8)(C)(ii) 
(42 
U.S.C.
1395l(t)(8)(C)(ii)) is amended by striking subclauses (III)
through (V) and inserting the following:
‘‘(III) For procedures performed
in 2004, 45 percent.
‘‘(IV) For procedures performed
in 2005, 40 percent.
‘‘(V) For procedures performed in
2006, 2007, 2008 and 2009, 35 per-
cent.
195
‘‘(VI) For procedures performed
in 2010, 30 percent.
‘‘(VII) For procedures performed
in 2011, 25 percent.
‘‘(VIII) For procedures performed
in 2012 and thereafter, 20 percent.’’.
(b) TREATMENT
OF
TEMPERATURE
MONITORED
CRYOABLATION.—
(1) IN GENERAL.—Section 1833(t)(6)(A)(ii) (42
U.S.C. 1395l(t)(6)(A)(ii)) is amended by striking ‘‘or
temperature monitored cryoablation’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) applies to payment for services fur-
nished on or after January 1, 2003.
SEC. 515. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL
EXAMINATION.
(a) 
COVERAGE.—Section 
1861(s)(2) 
(42 
U.S.C.
1395x(s)(2)), is amended—
(1) in subparagraph (U), by striking ‘‘and’’ at
the end;
(2) in subparagraph (V), by inserting ‘‘and’’ at
the end; and
(3) by adding at the end the following new sub-
paragraph:
196
‘‘(W) an initial preventive physical exam-
ination (as defined in subsection (ww));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C.
1395x) is amended by adding at the end the following new
subsection:
‘‘Initial Preventive Physical Examination
‘‘(ww) The term ‘initial preventive physical examina-
tion’ means physicians’ services consisting of a physical ex-
amination with the goal of health promotion and disease
detection and includes items and services specified by the
Secretary in regulations.’’.
(c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—
(1) DEDUCTIBLE.—The first sentence of section
1833(b) (42 U.S.C. 1395l(b)) is amended—
(A) by striking ‘‘and’’ before ‘‘(6)’’, and
(B) by inserting before the period at the end
the following: ‘‘, and (7) such deductible shall not
apply with respect to an initial preventive phys-
ical 
examination 
(as 
defined 
in 
section
1861(ww))’’.
(2) 
COINSURANCE.—Section 
1833(a)(1) 
(42
U.S.C. 1395l(a)(1)) is amended—
(A) in clause (N), by inserting ‘‘(or 100
percent in the case of an initial preventive phys-
197
ical 
examination, 
as 
defined 
in 
section
1861(ww))’’ after ‘‘80 percent’’; and
(B) in clause (O), by inserting ‘‘(or 100
percent in the case of an initial preventive phys-
ical 
examination, 
as 
defined 
in 
section
1861(ww))’’ after ‘‘80 percent’’.
(d) PAYMENT
AS PHYSICIANS’ SERVICES.—Section
1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by insert-
ing ‘‘(2)(W),’’ after ‘‘(2)(S),’’.
(e) OTHER
CONFORMING
AMENDMENTS.—Section
1862(a) (42 U.S.C. 1395y(a)) is amended—
(1) in paragraph (1)—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (H);
(B) by striking the semicolon at the end of
subparagraph (I) and inserting ‘‘, and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(J) in the case of an initial preventive physical
examination, which is performed not later than 6
months after the date the individual’s first coverage
period begins under part B;’’; and
(2) in paragraph (7), by striking ‘‘or (H)’’ and
inserting ‘‘(H), or (J)’’.
198
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after January
1, 2004, but only for individuals whose coverage period be-
gins on or after such date.
SEC. 516. RENAL DIALYSIS SERVICES.
(a) REPORT
ON DIFFERENCES
IN COSTS
IN DIF-
FERENT SETTINGS.—Not later than 1 year after the date
of the enactment of this Act, the Comptroller General of the
United States shall submit to Congress a report
containing—
(1) an analysis of the differences in costs of pro-
viding renal dialysis services under the medicare pro-
gram in home settings and in facility settings;
(2) an assessment of the percentage of overhead
costs in home settings and in facility settings; and
(3) an evaluation of whether the charges for
home dialysis supplies and equipment are reasonable
and necessary.
(b) RESTORING COMPOSITE RATE EXCEPTIONS FOR
PEDIATRIC FACILITIES.—
(1) IN GENERAL.—Section 422(a)(2) of BIPA is
amended—
(A) in subparagraph (A), by striking ‘‘and
(C)’’ and inserting ‘‘, (C), and (D)’’;
199
(B) in subparagraph (B), by striking ‘‘In
the case’’ and inserting ‘‘Subject to subpara-
graph (D), in the case’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(D) INAPPLICABILITY
TO
PEDIATRIC
FA-
CILITIES.—Subparagraphs (A) and (B) shall not
apply, as of October 1, 2002, to pediatric facili-
ties that do not have an exception rate described
in subparagraph (C) in effect on such date. For
purposes of this subparagraph, the term ‘pedi-
atric facility’ means a renal facility at least 50
percent of whose patients are individuals under
18 years of age.’’.
(2) CONFORMING AMENDMENT.—The fourth sen-
tence of section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is
amended by striking ‘‘The Secretary’’ and inserting
‘‘Subject to section 422(a)(2) of the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Protec-
tion Act of 2000, the Secretary’’.
(c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE
FOR SERVICES FURNISHED IN 2004.—Notwithstanding any
other provision of law, with respect to payment under part
B of title XVIII of the Social Security Act for renal dialysis
services furnished in 2004, the composite payment rate oth-
200
erwise established under section 1881(b)(7) of such Act (42
U.S.C. 1395rr(b)(7)) shall be increased by 1.2 percent.
SEC. 517. IMPROVED PAYMENT FOR CERTAIN MAMMOG-
RAPHY SERVICES.
(a) EXCLUSION FROM OPD FEE SCHEDULE.—Section
1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amend-
ed by inserting before the period at the end the following:
‘‘and does not include screening mammography (as defined
in section 1861(jj)) and unilateral and bilateral diagnostic
mammography’’.
(b) ADJUSTMENT TO TECHNICAL COMPONENT.—For
diagnostic mammography performed on or after January
1, 2004, for which payment is made under the physician
fee schedule under section 1848 of the Social Security Act
(42 U.S.C. 1395w–4), the Secretary, based on the most re-
cent cost data available, shall provide for an appropriate
adjustment in the payment amount for the technical compo-
nent of the diagnostic mammography.
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to mammography performed on or
after January 1, 2004.
SEC. 518. WAIVER OF PART B LATE ENROLLMENT PENALTY
FOR CERTAIN MILITARY RETIREES; SPECIAL
ENROLLMENT PERIOD.
(a) WAIVER OF PENALTY.—
201
(1) IN GENERAL.—Section 1839(b) (42 U.S.C.
1395r(b)) is amended by adding at the end the fol-
lowing new sentence: ‘‘No increase in the premium
shall be effected for a month in the case of an indi-
vidual who is 65 years of age or older, who enrolls
under this part during 2001, 2002, or 2003, and who
demonstrates to the Secretary before December 31,
2003, that the individual is a covered beneficiary (as
defined in section 1072(5) of title 10, United States
Code). The Secretary of Health and Human Services
shall consult with the Secretary of Defense in identi-
fying individuals described in the previous sentence.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to premiums for months
beginning with January 2003. The Secretary of
Health and Human Services shall establish a method
for providing rebates of premium penalties paid for
months on or after January 2003 for which a penalty
does not apply under such amendment but for which
a penalty was previously collected.
(b) MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD.—
(1) IN GENERAL.—In the case of any individual
who, as of the date of the enactment of this Act, is
65 years of age or older, is eligible to enroll but is not
202
enrolled under part B of title XVIII of the Social Se-
curity Act, and is a covered beneficiary (as defined
in section 1072(5) of title 10, United States Code), the
Secretary of Health and Human Services shall pro-
vide for a special enrollment period during which the
individual may enroll under such part. Such period
shall begin as soon as possible after the date of the en-
actment of this Act and shall end on December 31,
2003.
(2) COVERAGE PERIOD.—In the case of an indi-
vidual who enrolls during the special enrollment pe-
riod provided under paragraph (1), the coverage pe-
riod under part B of title XVIII of the Social Secu-
rity Act shall begin on the first day of the month fol-
lowing the month in which the individual enrolls.
SEC. 519. COVERAGE OF CHOLESTEROL AND BLOOD LIPID
SCREENING.
(a) 
COVERAGE.—Section 
1861(s)(2) 
(42 
U.S.C.
1395x(s)(2)), as amended by section 515(a), is amended—
(1) in subparagraph (V), by striking ‘‘and’’ at
the end;
(2) in subparagraph (W), by inserting ‘‘and’’ at
the end; and
(3) by adding at the end the following new sub-
paragraph:
203
‘‘(X) cholesterol and other blood lipid
screening tests (as defined in subsection (XX));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C.
1395x), as amended by section 515(b), is amended by add-
ing at the end the following new subsection:
‘‘Cholesterol and Other Blood Lipid Screening Test
‘‘(xx)(1) The term ‘cholesterol and other blood lipid
screening test’ means diagnostic testing of cholesterol and
other lipid levels of the blood for the purpose of early detec-
tion of abnormal cholesterol and other lipid levels.
‘‘(2) The Secretary shall establish standards, in con-
sultation with appropriate organizations, regarding the fre-
quency and type of cholesterol and other blood lipid screen-
ing tests, except that such frequency may not be more often
than once every 2 years.’’.
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C.
1395y(a)(1)), as amended by section 515(e), is amended
(1) by striking ‘‘and’’ at the end of subpara-
graph (I);
(2) by striking the semicolon at the end of sub-
paragraph (J) and inserting ‘‘; and’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(K) in the case of a cholesterol and other blood
lipid 
screening 
test 
(as 
defined 
in 
section
204
1861(xx)(1)), which is performed more frequently
than is covered under section 1861(xx)(2).’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to tests furnished on or after January
1, 2004.
TITLE VI—PROVISIONS
RELATING TO PARTS A AND B
Subtitle A—Home Health Services
SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN PAY-
MENT RATES UNDER THE PROSPECTIVE PAY-
MENT SYSTEM.
(a) IN GENERAL.—Section 1895(b)(3)(A) (42 U.S.C.
1395fff(b)(3)(A)) is amended to read as follows:
‘‘(A) INITIAL
BASIS.—Under such system
the Secretary shall provide for computation of a
standard 
prospective 
payment 
amount 
(or
amounts) as follows:
‘‘(i) Such amount (or amounts) shall
initially be based on the most current au-
dited cost report data available to the Sec-
retary and shall be computed in a manner
so that the total amounts payable under the
system for fiscal year 2001 shall be equal to
the total amount that would have been made
if the system had not been in effect and if
205
section 1861(v)(1)(L)(ix) had not been en-
acted.
‘‘(ii) For fiscal year 2002 and for the
first quarter of fiscal year 2003, such
amount (or amounts) shall be equal to the
amount (or amounts) determined under this
paragraph for the previous fiscal year, up-
dated under subparagraph (B).
‘‘(iii) For 2003, such amount (or
amounts) shall be equal to the amount (or
amounts) determined under this paragraph
for fiscal year 2002, updated under sub-
paragraph (B) for 2003.
‘‘(iv) For 2004 and each subsequent
year, such amount (or amounts) shall be
equal to the amount (or amounts) deter-
mined under this paragraph for the pre-
vious year, updated under subparagraph
(B).
Each such amount shall be standardized in a
manner that eliminates the effect of variations in
relative case mix and area wage adjustments
among different home health agencies in a budget
neutral manner consistent with the case mix and
wage level adjustments provided under para-
206
graph (4)(A). Under the system, the Secretary
may recognize regional differences or differences
based upon whether or not the services or agency
are in an urbanized area.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect as if included in the amendments
made by section 501 of the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (as en-
acted into law by section 1(a)(6) of Public Law 106–554).
SEC. 602. ESTABLISHMENT OF REDUCED COPAYMENT FOR A
HOME HEALTH SERVICE EPISODE OF CARE
FOR CERTAIN BENEFICIARIES.
(a) PART A.—
(1) IN GENERAL.—Section 1813(a) (42 U.S.C.
1395e(a)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(5)(A)(i) Subject to clause (ii), the amount payable
for home health services furnished to the individual under
this title for each episode of care beginning in a year (begin-
ning with 2003) shall be reduced by a copayment equal to
the copayment amount specified in subparagraph (B)(ii)
such year.
‘‘(ii) The copayment under clause (i) shall not apply—
‘‘(I) in the case of an individual who has been
determined to be a qualified medicare beneficiary (as
207
defined in section 1905(p)(1)) or otherwise to be enti-
tled 
to 
medical 
assistance 
under 
section
1902(a)(10)(A) or 1902(a)(10)(C); and
‘‘(II) in the case of an episode of care which con-
sists of 4 or fewer visits.
‘‘(B)(i) The Secretary shall estimate, before the begin-
ning of each year (beginning with 2003), the national aver-
age payment under this title per episode for home health
services projected for the year involved.
‘‘(ii) For each year the copayment amount under this
clause is equal to 1.5 percent of the national average pay-
ment estimated for the year involved under clause (i). Any
amount determined under the preceding sentence which is
not a multiple of $5 shall be rounded to the nearest multiple
of $5.
‘‘(iii) There shall be no administrative or judicial re-
view under section 1869, 1878, or otherwise of the esti-
mation of average payment under clause (i).’’.
(2) TIMELY IMPLEMENTATION.—Unless the Sec-
retary of Health and Human Services otherwise pro-
vides on a timely basis, the copayment amount speci-
fied under section 1813(a)(5)(B)(ii) of the Social Se-
curity Act (as added by paragraph (1)) for 2003 shall
be deemed to be $40.
(b) CONFORMING PROVISIONS.—
208
(1) 
Section 
1833(a)(2)(A) 
(42 
U.S.C.
1395l(a)(2)(A)) is amended by inserting ‘‘less the co-
payment 
amount 
applicable 
under 
section
1813(a)(5)’’ after ‘‘1895’’.
(2) 
Section 
1866(a)(2)(A)(i) 
(42 
U.S.C.
1395cc(a)(2)(A)(i)) is amended—
(A) by striking ‘‘or coinsurance’’ and in-
serting ‘‘, coinsurance, or copayment’’; and
(B) by striking ‘‘or (a)(4)’’ and inserting
‘‘(a)(4), or (a)(5)’’.
SEC. 603. UPDATE IN HOME HEALTH SERVICES.
(a) CHANGE TO CALENDAR YEAR UPDATE.—
(1) IN GENERAL.—Section 1895(b) (42 U.S.C.
1395fff(b)(3)) is amended—
(A) in paragraph (3)(B)(i)—
(i) by striking ‘‘each fiscal year (begin-
ning with fiscal year 2002)’’ and inserting
‘‘fiscal year 2002 and for each subsequent
year (beginning with 2003)’’; and
(ii) by inserting ‘‘or year’’ after ‘‘the
fiscal year’’;
(B) in paragraph (3)(B)(ii)—
(i) in subclause (II), by striking ‘‘fiscal
year’’ and inserting ‘‘year’’ and by redesig-
209
nating such subclause as subclause (III);
and
(ii) in subclause (I), by striking ‘‘each
of fiscal years 2002 and 2003’’ and insert-
ing the following: ‘‘fiscal year 2002, the
home health market basket percentage in-
crease (as defined in clause (iii)) minus 1.1
percentage points;
‘‘(II) 2003’’;
(C) in paragraph (3)(B)(iii), by inserting
‘‘or year’’ after ‘‘fiscal year’’ each place it ap-
pears;
(D) in paragraph (3)(B)(iv)—
(i) by inserting ‘‘or year’’ after ‘‘fiscal
year’’ each place it appears; and
(ii) by inserting ‘‘or years’’ after ‘‘fis-
cal years’’; and
(E) in paragraph (5), by inserting ‘‘or
year’’ after ‘‘fiscal year’’.
(2) TRANSITION RULE.—The standard prospec-
tive payment amount (or amounts) under section
1895(b)(3) of the Social Security Act for the calendar
quarter beginning on October 1, 2002, shall be such
amount (or amounts) for the previous calendar quar-
ter.
210
(b) CHANGES
IN UPDATES
FOR 2003, 2004, AND
2005.—Section 
1895(b)(3)(B)(ii) 
(42 
U.S.C.
1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B),
is amended—
(1) in subclause (II), by striking ‘‘the home
health market basket percentage increase (as defined
in clause (iii)) minus 1.1 percentage points’’ and in-
serting ‘‘2.0 percentage points’’;
(2) by striking ‘‘or’’ at the end of subclause (II);
(3) by redesignating subclause (III) as subclause
(V); and
(4) by inserting after subclause (II) the following
new subclause:
‘‘(III) 2004, 1.1 percentage points;
‘‘(IV) 2005, 2.7 percentage points;
or’’.
(c) PAYMENT ADJUSTMENT.—
(1) IN GENERAL.—Section 1895(b)(5) (42 U.S.C.
1395fff(b)(5)) is amended by striking ‘‘5 percent’’ and
inserting ‘‘3 percent’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to years beginning with
2003.
211
SEC. 604. OASIS TASK FORCE; SUSPENSION OF CERTAIN
OASIS DATA COLLECTION REQUIREMENTS
PENDING TASK FORCE SUBMITTAL OF RE-
PORT.
(a) ESTABLISHMENT.—The Secretary of Health and
Human Services shall establish and appoint a task force
(to be known as the ‘‘OASIS Task Force’’) to examine the
data collection and reporting requirements under OASIS.
For purposes of this section, the term ‘‘OASIS’’ means the
Outcome and Assessment Information Set required by rea-
son of section 4602(e) of Balanced Budget Act of 1997 (42
U.S.C. 1395fff note).
(b) COMPOSITION.—The OASIS Task Force shall be
composed of the following:
(1) Staff of the Centers for Medicare & Medicaid
Services with expertise in post-acute care.
(2) Representatives of home health agencies.
(3) Health care professionals and research and
health care quality experts outside the Federal Gov-
ernment with expertise in post-acute care.
(4) Advocates for individuals requiring home
health services.
(c) DUTIES.—
(1) 
REVIEW
AND
RECOMMENDATIONS.—The
OASIS Task Force shall review and make rec-
ommendations to the Secretary regarding changes in
212
OASIS to improve and simplify data collection for
purposes of—
(A) assessing the quality of home health
services; and
(B) providing consistency in classification
of patients into home health resource groups
(HHRGs) for payment under section 1895 of the
Social Security Act (42 U.S.C. 1395fff).
(2) SPECIFIC ITEMS.—In conducting the review
under paragraph (1), the OASIS Task Force shall
specifically examine—
(A) the 41 outcome measures currently in
use;
(B) the timing and frequency of data collec-
tion; and
(C) 
the 
collection 
of 
information 
on
comorbidities and clinical indicators.
(3) REPORT.—The OASIS Task Force shall sub-
mit a report to the Secretary containing its findings
and recommendations for changes in OASIS by not
later than 18 months after the date of the enactment
of this Act.
(d) SUNSET.—The OASIS Task Force shall terminate
60 days after the date on which the report is submitted
under subsection (c)(2).
213
(e) NONAPPLICATION OF FACA.—The provisions of the
Federal Advisory Committee Act shall not apply to the
OASIS Task Force.
(f) SUSPENSION OF OASIS REQUIREMENT FOR COL-
LECTION OF DATA ON NON-MEDICARE AND NON-MEDICAID
PATIENTS PENDING TASK FORCE REPORT.—
(1) IN GENERAL.—During the period described
in paragraph (2), the Secretary of Health and
Human Services may not require, under section
4602(e) of the Balanced Budget Act of 1997 or other-
wise under OASIS, a home health agency to gather
or submit information that relates to an individual
who is not eligible for benefits under either title XVIII
or title XIX of the Social Security Act.
(2) PERIOD
OF
SUSPENSION.—The period de-
scribed in this paragraph—
(A) begins on January 1, 2003, and
(B) ends on the last day of the 2nd month
beginning after the date the report is submitted
under subsection (c)(2).
SEC. 605. MEDPAC STUDY ON MEDICARE MARGINS OF HOME
HEALTH AGENCIES.
(a) STUDY.—The Medicare Payment Advisory Com-
mission shall conduct a study of payment margins of home
health agencies under the home health prospective payment
214
system under section 1895 of the Social Security Act (42
U.S.C. 1395fff). Such study shall examine whether system-
atic differences in payment margins are related to dif-
ferences in case mix (as measured by home health resource
groups (HHRGs)) among such agencies. The study shall use
the partial or full-year cost reports filed by home health
agencies.
(b) REPORT.—Not later than 2 years after the date
of the enactment of this Act, the Commission shall submit
to Congress a report on the study under subsection (a).
Subtitle B—Direct Graduate
Medical Education
SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH
COST PROGRAMS.
Section 
1886(h)(2)(D)(iv) 
(42 
U.S.C.
1395ww(h)(2)(D)(iv)) is amended—
(1) in subclause (I)—
(A) by striking ‘‘AND 2002’’ and inserting
‘‘THROUGH 2012’’;
(B) by striking ‘‘during fiscal year 2001 or
fiscal year 2002’’ and inserting ‘‘during the pe-
riod beginning with fiscal year 2001 and ending
with fiscal year 2012’’; and
(C) by striking ‘‘subject to subclause (III),’’;
(2) by striking subclause (II); and
215
(3) in subclause (III)—
(A) by redesignating such subclause as sub-
clause (II); and
(B) by striking ‘‘or (II)’’.
SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSI-
TIONS.
(a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C.
1395ww(h)(4)) is amended—
(1) in subparagraph (F)(i), by inserting ‘‘subject
to subparagraph (I),’’ after ‘‘October 1, 1997,’’;
(2) in subparagraph (H)(i), by inserting ‘‘subject
to subparagraph (I),’’ after ‘‘subparagraphs (F) and
(G),’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(I) REDISTRIBUTION
OF
UNUSED
RESI-
DENT POSITIONS.—
‘‘(i) REDUCTION IN LIMIT BASED ON
UNUSED POSITIONS.—
‘‘(I) IN GENERAL.—If a hospital’s
resident level (as defined in clause
(iii)(I)) is less than the otherwise ap-
plicable resident limit (as defined in
clause (iii)(II)) for each of the ref-
erence periods (as defined in subclause
216
(II)), effective for cost reporting peri-
ods beginning on or after January 1,
2003, the otherwise applicable resident
limit shall be reduced by 75 percent of
the difference between such limit and
the reference resident level specified in
subclause (III) (or subclause (IV) if
applicable).
‘‘(II) REFERENCE
PERIODS
DE-
FINED.—In this clause, the term ‘ref-
erence periods’ means, for a hospital,
the 3 most recent consecutive cost re-
porting periods of the hospital for
which cost reports have been settled (or,
if not, submitted) on or before Sep-
tember 30, 2001.
‘‘(III) 
REFERENCE
RESIDENT
LEVEL.—Subject to subclause (IV), the
reference resident level specified in this
subclause for a hospital is the highest
resident level for the hospital during
any of the reference periods.
‘‘(IV) ADJUSTMENT
PROCESS.—
Upon the timely request of a hospital,
the Secretary may adjust the reference
217
resident level for a hospital to be the
resident level for the hospital for the
cost reporting period that includes
July 1, 2002.
‘‘(ii) REDISTRIBUTION.—
‘‘(I) IN GENERAL.—The Secretary
is authorized to increase the otherwise
applicable resident limits for hospitals
by an aggregate number estimated by
the Secretary that does not exceed the
aggregate reduction in such limits at-
tributable to clause (i) (without taking
into account any adjustment under
subclause (IV) of such clause).
‘‘(II) EFFECTIVE
DATE.—No in-
crease under subclause (I) shall be per-
mitted or taken into account for a hos-
pital for any portion of a cost report-
ing period that occurs before July 1,
2003, or before the date of the hos-
pital’s application for an increase
under this clause. No such increase
shall be permitted for a hospital unless
the hospital has applied to the Sec-
218
retary for such increase by December
31, 2004.
‘‘(III) CONSIDERATIONS IN REDIS-
TRIBUTION.—In determining for which
hospitals the increase in the otherwise
applicable resident limit is provided
under subclause (I), the Secretary shall
take into account the need for such an
increase by specialty and location in-
volved, consistent with subclause (IV).
‘‘(IV) PRIORITY FOR RURAL AND
SMALL URBAN AREAS.—In determining
for which hospitals and residency
training programs an increase in the
otherwise applicable resident limit is
provided under subclause (I), the Sec-
retary shall first distribute the increase
to programs of hospitals located in
rural areas or in urban areas that are
not large urban areas (as defined for
purposes of subsection (d)) on a first-
come-first-served basis (as determined
by the Secretary) based on a dem-
onstration that the hospital will fill the
positions made available under this
219
clause and not to exceed an increase of
25 full-time equivalent positions with
respect to any hospital.
‘‘(V) APPLICATION
OF
LOCALITY
ADJUSTED
NATIONAL
AVERAGE
PER
RESIDENT
AMOUNT.—With respect to
additional residency positions in a
hospital attributable to the increase
provided under this clause, notwith-
standing any other provision of this
subsection, the approved FTE resident
amount is deemed to be equal to the lo-
cality adjusted national average per
resident amount computed under sub-
paragraph (E) for that hospital.
‘‘(VI) 
CONSTRUCTION.—Nothing
in this clause shall be construed as per-
mitting the redistribution of reductions
in residency positions attributable to
voluntary reduction programs under
paragraph (6) or as affecting the abil-
ity of a hospital to establish new med-
ical 
residency 
training 
programs
under subparagraph (H).
220
‘‘(iii) RESIDENT LEVEL AND LIMIT DE-
FINED.—In this subparagraph:
‘‘(I) RESIDENT LEVEL.—The term
‘resident level’ means, with respect to a
hospital, the total number of full-time
equivalent residents, before the applica-
tion of weighting factors (as deter-
mined under this paragraph), in the
fields of allopathic and osteopathic
medicine for the hospital.
‘‘(II) 
OTHERWISE
APPLICABLE
RESIDENT LIMIT.—The term ‘otherwise
applicable resident limit’ means, with
respect to a hospital, the limit other-
wise applicable under subparagraphs
(F)(i) and (H) on the resident level for
the hospital determined without regard
to this subparagraph.’’.
(b) NO APPLICATION OF INCREASE TO IME.—Section
1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is
amended by adding at the end the following: ‘‘The provi-
sions of clause (i) of subparagraph (I) of subsection (h)(4)
shall apply with respect to the first sentence of this clause
in the same manner as it applies with respect to subpara-
221
graph (F) of such subsection, but the provisions of clause
(ii) of such subparagraph shall not apply.’’.
(c) REPORT ON EXTENSION OF APPLICATIONS UNDER
REDISTRIBUTION PROGRAM.—Not later than July 1, 2004,
the Secretary shall submit to Congress a report containing
recommendations regarding whether to extend the deadline
for applications for an increase in resident limits under
section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as
added by subsection (a)).
Subtitle C—Other Provisions
SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVI-
SORY COMMISSION (MEDPAC).
(a) EXAMINATION OF BUDGET CONSEQUENCES.—Sec-
tion 1805(b) (42 U.S.C. 1395b–6(b)) is amended by adding
at the end the following new paragraph:
‘‘(8) 
EXAMINATION
OF
BUDGET
CON-
SEQUENCES.—Before making any recommendations,
the Commission shall examine the budget con-
sequences of such recommendations, directly or
through consultation with appropriate expert enti-
ties.’’.
(b) CONSIDERATION
OF EFFICIENT PROVISION
OF
SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi-
sion of’’ after ‘‘expenditures for’’.
222
(c) ADDITIONAL REPORTS.—
(1) DATA NEEDS AND SOURCES.—The Medicare
Payment Advisory Commission shall conduct a study,
and submit a report to Congress by not later than
June 1, 2003, on the need for current data, and
sources of current data available, to determine the sol-
vency and financial circumstances of hospitals and
other medicare providers of services. The Commission
shall examine data on uncompensated care, as well as
the sahre of uncompensated care accounted for by the
expenses for treating illegal aliens.
(2) USE OF TAX-RELATED RETURNS.—Using re-
turn information provided under Form 990 of the In-
ternal Revenue Service, the Commission shall submit
to Congress, by not later than June 1, 2003, a report
on the following:
(A) Investments and capital financing of
hospitals participating under the medicare pro-
gram and related foundations.
(B) Access to capital financing for private
and for not-for-profit hospitals.
223
SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR CERTAIN MEDICARE BENE-
FICIARIES WITH DIABETES.
(a) IN GENERAL.—The Secretary of Health and
Human Services shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the impact on costs and health
outcomes of applying disease management to certain medi-
care beneficiaries with diagnosed diabetes. In no case may
the number of participants in the project exceed 30,000 at
any time.
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are eli-
gible to participate in the project only if—
(A) they are Hispanic, as determined by the
Secretary;
(B) they meet specific medical criteria dem-
onstrating the appropriate diagnosis and the ad-
vanced nature of their disease;
(C) their physicians approve of participa-
tion in the project; and
(D) 
they 
are 
not 
enrolled 
in 
a
Medicare+Choice plan.
(2) BENEFITS.—A medicare beneficiary who is
enrolled in the project shall be eligible—
224
(A) for disease management services related
to their diabetes; and
(B) for payment for all costs for prescrip-
tion drugs without regard to whether or not they
relate to the diabetes, except that the project may
provide for modest cost-sharing with respect to
prescription drug coverage.
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGA-
NIZATIONS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services shall carry out the project through
contracts with up to three disease management orga-
nizations. The Secretary shall not enter into such a
contract with an organization unless the organization
demonstrates that it can produce improved health
outcomes and reduce aggregate medicare expenditures
consistent with paragraph (2).
(2) 
CONTRACT
PROVISIONS.—Under 
such
contracts—
(A) such an organization shall be required
to provide for prescription drug coverage de-
scribed in subsection (b)(2)(B);
(B) such an organization shall be paid a fee
negotiated and established by the Secretary in a
manner so that (taking into account savings in
225
expenditures under parts A and B of the medi-
care program under title XVIII of the Social Se-
curity Act) there will be no net increase, and to
the extent practicable, there will be a net reduc-
tion in expenditures under the medicare pro-
gram as a result of the project; and
(C) such an organization shall guarantee,
through an appropriate arrangement with a re-
insurance company or otherwise, the prohibition
on net increases in expenditures described in
subparagraph (B).
(3) PAYMENTS.—Payments to such organizations
shall be made in appropriate proportion from the
Trust Funds established under title XVIII of the So-
cial Security Act.
(d) APPLICATION OF MEDIGAP PROTECTIONS TO DEM-
ONSTRATION PROJECT ENROLLEES.—(1) Subject to para-
graph (2), the provisions of section 1882(s)(3) (other than
clauses (i) through (iv) of subparagraph (B)) and
1882(s)(4) of the Social Security Act shall apply to enroll-
ment (and termination of enrollment) in the demonstration
project under this section, in the same manner as they
apply to enrollment (and termination of enrollment) with
a Medicare+Choice organization in a Medicare+Choice
plan.
226
(2) In applying paragraph (1)—
(A) any reference in clause (v) or (vi) of section
1882(s)(3)(B) of such Act to 12 months is deemed a
reference to the period of the demonstration project;
and
(B) the notification required under section
1882(s)(3)(D) of such Act shall be provided in a man-
ner specified by the Secretary of Health and Human
Services.
(e) DURATION.—The project shall last for not longer
than 3 years.
(f) WAIVER.—The Secretary of Health and Human
Services shall waive such provisions of title XVIII of the
Social Security Act as may be necessary to provide for pay-
ment for services under the project in accordance with sub-
section (c)(3).
(g) REPORT.—The Secretary of Health and Human
Services shall submit to Congress an interim report on the
project not later than 2 years after the date it is first imple-
mented and a final report on the project not later than 6
months after the date of its completion. Such reports shall
include information on the impact of the project on costs
and health outcomes and recommendations on the cost-effec-
tiveness of extending or expanding the project.
227
(h) WORKING GROUP ON MEDICARE DISEASE MAN-
AGEMENT PROGRAMS.—The Secretary shall establish within
the Department of Health and Human Services a working
group consisting of employees of the Department to carry
out the following:
(1) To oversee the project.
(2) To establish policy and criteria for medicare
disease management programs within the Depart-
ment, including the establishment of policy and cri-
teria for such programs.
(3) To identify targeted medical conditions and
targeted individuals.
(4) To select areas in which such programs are
carried out.
(5) To monitor health outcomes under such pro-
grams.
(6) To measure the effectiveness of such programs
in meeting any budget neutrality requirements.
(7) Otherwise to serve as a central focal point
within the Department for dissemination of informa-
tion on medicare disease management programs.
(i) GAO STUDY
ON DISEASE MANAGEMENT PRO-
GRAMS.—The Comptroller General of the United States
shall conduct a study that compares disease management
programs under title XVIII of the Social Security Act with
228
such programs conducted in the private sector, including
the prevalence of such programs and programs for case
management. The study shall identify the cost-effectiveness
of such programs and any savings achieved by such pro-
grams. The Comptroller General shall submit a report on
such study to Congress by not later than 18 months after
the date of the enactment of this Act.
SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT
DAY CARE SERVICES.
(a) ESTABLISHMENT.—Subject to the succeeding provi-
sions of this section, the Secretary of Health and Human
Services shall establish a demonstration project (in this sec-
tion referred to as the ‘‘demonstration project’’) under
which the Secretary shall, as part of a plan of an episode
of care for home health services established for a medicare
beneficiary, permit a home health agency, directly or under
arrangements with a medical adult day care facility, to
provide medical adult day care services as a substitute for
a portion of home health services that would otherwise be
provided in the beneficiary’s home.
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment for
an episode of care for home health services, a portion
of which consists of substitute medical adult day care
services, under the demonstration project shall be
229
made at a rate equal to 95 percent of the amount that
would otherwise apply for such home health services
under section 1895 of the Social Security Act (42
u.s.c. 1395fff). In no case may a home health agency,
or a medical adult day care facility under arrange-
ments with a home health agency, separately charge
a beneficiary for medical adult day care services fur-
nished under the plan of care.
(2) BUDGET NEUTRALITY FOR DEMONSTRATION
PROJECT.—Notwithstanding any other provision of
law, the Secretary shall provide for an appropriate
reduction in the aggregate amount of additional pay-
ments made under section 1895 of the Social Security
Act (42 U.S.C. 1395fff) to reflect any increase in
amounts expended from the Trust Funds as a result
of the demonstration project conducted under this sec-
tion.
(c) DEMONSTRATION PROJECT SITES.—The project es-
tablished under this section shall be conducted in not more
than 5 sites in States selected by the Secretary that license
or certify providers of services that furnish medical adult
day care services.
(d) DURATION.—The Secretary shall conduct the dem-
onstration project for a period of 3 years.
230
(e) VOLUNTARY
PARTICIPATION.—Participation of
medicare beneficiaries in the demonstration project shall be
voluntary. The total number of such beneficiaries that may
participate in the project at any given time may not exceed
15,000.
(f) PREFERENCE IN SELECTING AGENCIES.—In select-
ing home health agencies to participate under the dem-
onstration project, the Secretary shall give preference to
those agencies that—
(1) are currently licensed or certified to furnish
medical adult day care services; and
(2) have furnished medical adult day care serv-
ices to medicare beneficiaries for a continuous 2-year
period before the beginning of the demonstration
project.
(g) WAIVER AUTHORITY.—The Secretary may waive
such requirements of title XVIII of the Social Security Act
as may be necessary for the purposes of carrying out the
demonstration project, other than waiving the requirement
that an individual be homebound in order to be eligible for
benefits for home health services.
(h) EVALUATION AND REPORT.—The Secretary shall
conduct an evaluation of the clinical and cost effectiveness
of the demonstration project. Not later 30 months after the
commencement of the project, the Secretary shall submit to