Medicare Prescription Drug, Improvement, and Modernization Act of 2003
PL 108-173 (H.R.1), enacted 12/08/2003

117 STAT. 2066
PUBLIC LAW 108–173—DEC. 8, 2003
Public Law 108–173
108th Congress
An Act
To amend title XVIII of the Social Security Act to provide for a voluntary program
for prescription drug coverage under the Medicare Program, to modernize the
Medicare Program, to amend the Internal Revenue Code of 1986 to allow a
deduction to individuals for amounts contributed to health savings security ac-
counts and health savings accounts, to provide for the disposition of unused
health benefits in cafeteria plans and flexible spending arrangements, and for
other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT;
REFERENCES TO BIPA AND SECRETARY; TABLE OF CON-
TENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Medicare
Prescription Drug, Improvement, and Modernization Act of 2003’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except as other-
wise specifically provided, whenever in division A of this Act an
amendment is expressed in terms of an amendment to or repeal
of a section or other provision, the reference shall be considered
to be made to that section or other provision of the Social Security
Act.
(c) BIPA; SECRETARY.—In this Act:
(1) BIPA.—The term ‘‘BIPA’’ means the Medicare, Med-
icaid, and SCHIP Benefits Improvement and Protection Act
of 2000, as enacted into law by section 1(a)(6) of Public Law
106–554.
(2) SECRETARY.—The term ‘‘Secretary’’ means the Secretary
of Health and Human Services.
(d) TABLE OF CONTENTS.—The table of contents for this Act
is as follows:
Sec. 1. Short title; amendments to Social Security Act; references to BIPA and Sec-
retary; table of contents.
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT
Sec. 101. Medicare prescription drug benefit.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug discount card
and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription drug programs.
Sec. 109. Expanding the work of medicare Quality Improvement Organizations to
include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.
42 USC 1301
note.
42 USC 1305
note.
Medicare
Prescription
Drug,
Improvement,
and
Modernization
Act of 2003.
Dec. 8, 2003
[H.R. 1]
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117 STAT. 2067
PUBLIC LAW 108–173—DEC. 8, 2003
TITLE II—MEDICARE ADVANTAGE
Subtitle A—Implementation of Medicare Advantage Program
Sec. 201. Implementation of Medicare Advantage program.
Subtitle B—Immediate Improvements
Sec. 211. Immediate improvements.
Subtitle C—Offering of Medicare Advantage (MA) Regional Plans; Medicare
Advantage Competition
Sec. 221. Establishment of MA regional plans.
Sec. 222. Competition program beginning in 2006.
Sec. 223. Effective date.
Subtitle D—Additional Reforms
Sec. 231. Specialized MA plans for special needs individuals.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Medicare MSAs.
Sec. 234. Extension of reasonable cost contracts.
Sec. 235. Two-year extension of municipal health service demonstration projects.
Sec. 236. Payment by PACE providers for medicare and medicaid services fur-
nished by noncontract providers.
Sec. 237. Reimbursement for federally qualified health centers providing services
under MA plans.
Sec. 238. Institute of Medicine evaluation and report on health care performance
measures.
Subtitle E—Comparative Cost Adjustment (CCA) Program
Sec. 241. Comparative Cost Adjustment (CCA) program.
TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE
Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Payment for durable medical equipment; competitive acquisition of cer-
tain items and services.
Sec. 303. Payment reform for covered outpatient drugs and biologicals.
Sec. 304. Extension of application of payment reform for covered outpatient drugs
and biologicals to other physician specialties.
Sec. 305. Payment for inhalation drugs.
Sec. 306. Demonstration project for use of recovery audit contractors.
Sec. 307. Pilot program for national and State background checks on direct patient
access employees of long-term care facilities or providers.
TITLE IV—RURAL PROVISIONS
Subtitle A—Provisions Relating to Part A Only
Sec. 401. Equalizing urban and rural standardized payment amounts under the
medicare inpatient hospital prospective payment system.
Sec. 402. Enhanced disproportionate share hospital (DSH) treatment for rural hos-
pitals and urban hospitals with fewer than 100 beds.
Sec. 403. Adjustment to the medicare inpatient hospital prospective payment sys-
tem wage index to revise the labor-related share of such index.
Sec. 404. More frequent update in weights used in hospital market basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Medicare inpatient hospital payment adjustment for low-volume hos-
pitals.
Sec. 407. Treatment of missing cost reporting periods for sole community hospitals.
Sec. 408. Recognition of attending nurse practitioners as attending physicians to
serve hospice patients.
Sec. 409. Rural hospice demonstration project.
Sec. 410. Exclusion of certain rural health clinic and federally qualified health cen-
ter services from the prospective payment system for skilled nursing fa-
cilities.
Sec. 410A. Rural community hospital demonstration program.
Subtitle B—Provisions Relating to Part B Only
Sec. 411. Two-year extension of hold harmless provisions for small rural hospitals
and sole community hospitals under the prospective payment system for
hospital outpatient department services.
Sec. 412. Establishment of floor on work geographic adjustment.
Sec. 413. Medicare incentive payment program improvements for physician scar-
city.
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117 STAT. 2068
PUBLIC LAW 108–173—DEC. 8, 2003
Sec. 414. Payment for rural and urban ambulance services.
Sec. 415. Providing appropriate coverage of rural air ambulance services.
Sec. 416. Treatment of certain clinical diagnostic laboratory tests furnished to hos-
pital outpatients in certain rural areas.
Sec. 417. Extension of telemedicine demonstration project.
Sec. 418. Report on demonstration project permitting skilled nursing facilities to be
originating telehealth sites; authority to implement.
Subtitle C—Provisions Relating to Parts A and B
Sec. 421. One-year increase for home health services furnished in a rural area.
Sec. 422. Redistribution of unused resident positions.
Subtitle D—Other Provisions
Sec. 431. Providing safe harbor for certain collaborative efforts that benefit medi-
cally underserved populations.
Sec. 432. Office of Rural Health Policy improvements.
Sec. 433. MedPAC study on rural hospital payment adjustments.
Sec. 434. Frontier extended stay clinic demonstration project.
TITLE V—PROVISIONS RELATING TO PART A
Subtitle A—Inpatient Hospital Services
Sec. 501. Revision of acute care hospital payment updates.
Sec. 502. Revision of the indirect medical education (IME) adjustment percentage.
Sec. 503. Recognition of new medical technologies under inpatient hospital prospec-
tive payment system.
Sec. 504. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 505. Wage index adjustment reclassification reform.
Sec. 506. Limitation on charges for inpatient hospital contract health services pro-
vided to Indians by medicare participating hospitals.
Sec. 507. Clarifications to certain exceptions to medicare limits on physician refer-
rals.
Sec. 508. One-time appeals process for hospital wage index classification.
Subtitle B—Other Provisions
Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.
Sec. 513. Study on portable diagnostic ultrasound services for beneficiaries in
skilled nursing facilities.
TITLE VI—PROVISIONS RELATING TO PART B
Subtitle A—Provisions Relating to Physicians’ Services
Sec. 601. Revision of updates for physicians’ services.
Sec. 602. Treatment of physicians’ services furnished in Alaska.
Sec. 603. Inclusion of podiatrists, dentists, and optometrists under private con-
tracting authority.
Sec. 604. GAO study on access to physicians’ services.
Sec. 605. Collaborative demonstration-based review of physician practice expense
geographic adjustment data.
Sec. 606. MedPAC report on payment for physicians’ services.
Subtitle B—Preventive Services
Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cardiovascular screening blood tests.
Sec. 613. Coverage of diabetes screening tests.
Sec. 614. Improved payment for certain mammography services.
Subtitle C—Other Provisions
Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Limitation of application of functional equivalence standard.
Sec. 623. Payment for renal dialysis services.
Sec. 624. Two-year moratorium on therapy caps; provisions relating to reports.
Sec. 625. Waiver of part B late enrollment penalty for certain military retirees; spe-
cial enrollment period.
Sec. 626. Payment for services furnished in ambulatory surgical centers.
Sec. 627. Payment for certain shoes and inserts under the fee schedule for orthotics
and prosthetics.
Sec. 628. Payment for clinical diagnostic laboratory tests.
Sec. 629. Indexing part B deductible to inflation.
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117 STAT. 2069
PUBLIC LAW 108–173—DEC. 8, 2003
Sec. 630. Five-year authorization of reimbursement for all medicare part B services
furnished by certain Indian hospitals and clinics.
Subtitle D—Additional Demonstrations, Studies, and Other Provisions
Sec. 641. Demonstration project for coverage of certain prescription drugs and
biologicals.
Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) for the
treatment of primary immune deficiency diseases in the home.
Sec. 643. MedPAC study of coverage of surgical first assisting services of certified
registered nurse first assistants.
Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.
Sec. 645. Studies relating to vision impairments.
Sec. 646. Medicare health care quality demonstration programs.
Sec. 647. MedPAC study on direct access to physical therapy services.
Sec. 648. Demonstration project for consumer-directed chronic outpatient services.
Sec. 649. Medicare care management performance demonstration.
Sec. 650. GAO study and report on the propagation of concierge care.
Sec. 651. Demonstration of coverage of chiropractic services under medicare.
TITLE VII—PROVISIONS RELATING TO PARTS A AND B
Subtitle A—Home Health Services
Sec. 701. Update in home health services.
Sec. 702. Demonstration project to clarify the definition of homebound.
Sec. 703. Demonstration project for medical adult day care services.
Sec. 704. Temporary suspension of OASIS requirement for collection of data on
non-medicare and non-medicaid patients.
Sec. 705. MedPAC study on medicare margins of home health agencies.
Sec. 706. Coverage of religious nonmedical health care institution services fur-
nished in the home.
Subtitle B—Graduate Medical Education
Sec. 711. Extension of update limitation on high cost programs.
Sec. 712. Exception to initial residency period for geriatric residency or fellowship
programs.
Sec. 713. Treatment of volunteer supervision.
Subtitle C—Chronic Care Improvement
Sec. 721. Voluntary chronic care improvement under traditional fee-for-service.
Sec. 722. Medicare Advantage quality improvement programs.
Sec. 723. Chronically ill medicare beneficiary research, data, demonstration strat-
egy.
Subtitle D—Other Provisions
Sec. 731. Improvements in national and local coverage determination process to re-
spond to changes in technology.
Sec. 732. Extension of treatment of certain physician pathology services under
medicare.
Sec. 733. Payment for pancreatic islet cell investigational transplants for medicare
beneficiaries in clinical trials.
Sec. 734. Restoration of medicare trust funds.
Sec. 735. Modifications to Medicare Payment Advisory Commission (MedPAC).
Sec. 736. Technical amendments.
TITLE VIII—COST CONTAINMENT
Subtitle A—Cost Containment
Sec. 801. Inclusion in annual report of medicare trustees of information on status
of medicare trust funds.
Sec. 802. Presidential submission of legislation.
Sec. 803. Procedures in the House of Representatives.
Sec. 804. Procedures in the Senate.
Subtitle B—Income-Related Reduction in Part B Premium Subsidy
Sec. 811. Income-related reduction in part B premium subsidy.
TITLE IX—ADMINISTRATIVE IMPROVEMENTS, REGULATORY
REDUCTION, AND CONTRACTING REFORM
Sec. 900. Administrative improvements within the Centers for Medicare & Med-
icaid Services (CMS).
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117 STAT. 2070
PUBLIC LAW 108–173—DEC. 8, 2003
Subtitle A—Regulatory Reform
Sec. 901. Construction; definition of supplier.
Sec. 902. Issuance of regulations.
Sec. 903. Compliance with changes in regulations and policies.
Sec. 904. Reports and studies relating to regulatory reform.
Subtitle B—Contracting Reform
Sec. 911. Increased flexibility in medicare administration.
Sec. 912. Requirements for information security for medicare administrative con-
tractors.
Subtitle C—Education and Outreach
Sec. 921. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare Beneficiary Ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to beneficiaries about skilled
nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities in hospital dis-
charge plans.
Subtitle D—Appeals and Recovery
Sec. 931. Transfer of responsibility for medicare appeals.
Sec. 932. Process for expedited access to review.
Sec. 933. Revisions to medicare appeals process.
Sec. 934. Prepayment review.
Sec. 935. Recovery of overpayments.
Sec. 936. Provider enrollment process; right of appeal.
Sec. 937. Process for correction of minor errors and omissions without pursuing ap-
peals process.
Sec. 938. Prior determination process for certain items and services; advance bene-
ficiary notices.
Sec. 939. Appeals by providers when there is no other party available.
Sec. 940. Revisions to appeals timeframes and amounts.
Sec. 940A. Mediation process for local coverage determinations.
Subtitle E—Miscellaneous Provisions
Sec. 941. Policy development regarding evaluation and management (E & M) docu-
mentation guidelines.
Sec. 942. Improvement in oversight of technology and coverage.
Sec. 943. Treatment of hospitals for certain services under medicare secondary
payor (MSP) provisions.
Sec. 944. EMTALA improvements.
Sec. 945. Emergency Medical Treatment and Labor Act (EMTALA) Technical Advi-
sory Group.
Sec. 946. Authorizing use of arrangements to provide core hospice services in cer-
tain circumstances.
Sec. 947. Application of OSHA bloodborne pathogens standard to certain hospitals.
Sec. 948. BIPA-related technical amendments and corrections.
Sec. 949. Conforming authority to waive a program exclusion.
Sec. 950. Treatment of certain dental claims.
Sec. 951. Furnishing hospitals with information to compute DSH formula.
Sec. 952. Revisions to reassignment provisions.
Sec. 953. Other provisions.
TITLE X—MEDICAID AND MISCELLANEOUS PROVISIONS
Subtitle A—Medicaid Provisions
Sec. 1001. Medicaid disproportionate share hospital (DSH) payments.
Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain pub-
lic hospitals in the best price exemptions for the medicaid drug rebate
program.
Sec. 1003. Extension of moratorium.
Subtitle B—Miscellaneous Provisions
Sec. 1011. Federal reimbursement of emergency health services furnished to un-
documented aliens.
Sec. 1012. Commission on Systemic Interoperability.
Sec. 1013. Research on outcomes of health care items and services.
Sec. 1014. Health care that works for all Americans: Citizens Health Care Working
Group.
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117 STAT. 2071
PUBLIC LAW 108–173—DEC. 8, 2003
Sec. 1015. Funding start-up administrative costs for medicare reform.
Sec. 1016. Health care infrastructure improvement program.
TITLE XI—ACCESS TO AFFORDABLE PHARMACEUTICALS
Subtitle A—Access to Affordable Pharmaceuticals
Sec. 1101. Thirty-month stay-of-effectiveness period.
Sec. 1102. Forfeiture of 180-day exclusivity period.
Sec. 1103. Bioavailability and bioequivalence.
Sec. 1104. Conforming amendments.
Subtitle B—Federal Trade Commission Review
Sec. 1111. Definitions.
Sec. 1112. Notification of agreements.
Sec. 1113. Filing deadlines.
Sec. 1114. Disclosure exemption.
Sec. 1115. Enforcement.
Sec. 1116. Rulemaking.
Sec. 1117. Savings clause.
Sec. 1118. Effective date.
Subtitle C—Importation of Prescription Drugs
Sec. 1121. Importation of prescription drugs.
Sec. 1122. Study and report on importation of drugs.
Sec. 1123. Study and report on trade in pharmaceuticals.
TITLE XII—TAX INCENTIVES FOR HEALTH AND RETIREMENT
SECURITY
Sec. 1201. Health savings accounts.
Sec. 1202. Exclusion from gross income of certain Federal subsidies for prescription
drug plans.
Sec. 1203. Exception to information reporting requirements related to certain
health arrangements.
TITLE I—MEDICARE PRESCRIPTION
DRUG BENEFIT
SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM
‘‘Subpart 1—Part D Eligible Individuals and Prescription Drug
Benefits
‘‘ELIGIBILITY, ENROLLMENT, AND INFORMATION
‘‘SEC. 1860D–1. (a) PROVISION
OF QUALIFIED PRESCRIPTION
DRUG COVERAGE THROUGH ENROLLMENT IN PLANS.—
‘‘(1) IN GENERAL.—Subject to the succeeding provisions of
this part, each part D eligible individual (as defined in para-
graph (3)(A)) is entitled to obtain qualified prescription drug
coverage (described in section 1860D–2(a)) as follows:
‘‘(A) FEE-FOR-SERVICE ENROLLEES MAY RECEIVE COV-
ERAGE THROUGH A PRESCRIPTION DRUG PLAN.—A part D
eligible individual who is not enrolled in an MA plan may
obtain qualified prescription drug coverage through enroll-
ment in a prescription drug plan (as defined in section
1860D–41(a)(14)).
‘‘(B) MEDICARE ADVANTAGE ENROLLEES.—
42 USC
1395w–101.
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117 STAT. 2072
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(i) ENROLLEES IN A PLAN PROVIDING QUALIFIED
PRESCRIPTION
DRUG
COVERAGE
RECEIVE
COVERAGE
THROUGH THE PLAN.—A part D eligible individual who
is enrolled in an MA–PD plan obtains such coverage
through such plan.
‘‘(ii) LIMITATION
ON
ENROLLMENT
OF
MA
PLAN
ENROLLEES IN PRESCRIPTION DRUG PLANS.—Except as
provided in clauses (iii) and (iv), a part D eligible
individual who is enrolled in an MA plan may not
enroll in a prescription drug plan under this part.
‘‘(iii) PRIVATE FEE-FOR-SERVICE ENROLLEES IN MA
PLANS NOT PROVIDING QUALIFIED PRESCRIPTION DRUG
COVERAGE PERMITTED TO ENROLL IN A PRESCRIPTION
DRUG
PLAN.—A part D eligible individual who is
enrolled in an MA private fee-for-service plan (as
defined in section 1859(b)(2)) that does not provide
qualified prescription drug coverage may obtain quali-
fied prescription drug coverage through enrollment in
a prescription drug plan.
‘‘(iv) ENROLLEES
IN
MSA
PLANS
PERMITTED
TO
ENROLL
IN
A
PRESCRIPTION
DRUG
PLAN.—A part D
eligible individual who is enrolled in an MSA plan
(as defined in section 1859(b)(3)) may obtain qualified
prescription drug coverage through enrollment in a
prescription drug plan.
‘‘(2) COVERAGE FIRST EFFECTIVE JANUARY 1, 2006.—Coverage
under prescription drug plans and MA–PD plans shall first
be effective on January 1, 2006.
‘‘(3) DEFINITIONS.—For purposes of this part:
‘‘(A) PART D ELIGIBLE INDIVIDUAL.—The term ‘part D
eligible individual’ means an individual who is entitled
to benefits under part A or enrolled under part B.
‘‘(B) MA PLAN.—The term ‘MA plan’ has the meaning
given such term in section 1859(b)(1).
‘‘(C) MA–PD PLAN.—The term ‘MA–PD plan’ means
an MA plan that provides qualified prescription drug cov-
erage.
‘‘(b) ENROLLMENT PROCESS FOR PRESCRIPTION DRUG PLANS.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall establish a
process for the enrollment, disenrollment, termination, and
change of enrollment of part D eligible individuals in
prescription drug plans consistent with this subsection.
‘‘(B) APPLICATION OF MA RULES.—In establishing such
process, the Secretary shall use rules similar to (and coordi-
nated with) the rules for enrollment, disenrollment, termi-
nation, and change of enrollment with an MA–PD plan
under the following provisions of section 1851:
‘‘(i) 
RESIDENCE
REQUIREMENTS.—Section
1851(b)(1)(A), relating to residence requirements.
‘‘(ii) EXERCISE OF CHOICE.—Section 1851(c) (other
than paragraph (3)(A) of such section), relating to exer-
cise of choice.
‘‘(iii) COVERAGE
ELECTION
PERIODS.—Subject to
paragraphs (2) and (3) of this subsection, section
1851(e) (other than subparagraphs (B) and (C) of para-
graph (2) and the second sentence of paragraph (4)
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117 STAT. 2073
PUBLIC LAW 108–173—DEC. 8, 2003
of such section), relating to coverage election periods,
including initial periods, annual coordinated election
periods, special election periods, and election periods
for exceptional circumstances.
‘‘(iv) COVERAGE PERIODS.—Section 1851(f), relating
to effectiveness of elections and changes of elections.
‘‘(v) GUARANTEED
ISSUE
AND
RENEWAL.—Section
1851(g) (other than paragraph (2) of such section and
clause (i) and the second sentence of clause (ii) of
paragraph (3)(C) of such section), relating to guaran-
teed issue and renewal.
‘‘(vi) 
MARKETING
MATERIAL
AND
APPLICATION
FORMS.—Section 1851(h), relating to approval of mar-
keting material and application forms.
In applying clauses (ii), (iv), and (v) of this subparagraph,
any reference to section 1851(e) shall be treated as a ref-
erence to such section as applied pursuant to clause (iii)
of this subparagraph.
‘‘(C) SPECIAL
RULE.—The process established under
subparagraph (A) shall include, in the case of a part D
eligible individual who is a full-benefit dual eligible indi-
vidual (as defined in section 1935(c)(6)) who has failed
to enroll in a prescription drug plan or an MA–PD plan,
for the enrollment in a prescription drug plan that has
a monthly beneficiary premium that does not exceed the
premium assistance available under section 1860D–
14(a)(1)(A)). If there is more than one such plan available,
the Secretary shall enroll such an individual on a random
basis among all such plans in the PDP region. Nothing
in the previous sentence shall prevent such an individual
from declining or changing such enrollment.
‘‘(2) INITIAL ENROLLMENT PERIOD.—
‘‘(A) PROGRAM INITIATION.—In the case of an individual
who is a part D eligible individual as of November 15,
2005, there shall be an initial enrollment period that shall
be the same as the annual, coordinated open election period
described in section 1851(e)(3)(B)(iii), as applied under
paragraph (1)(B)(iii).
‘‘(B) CONTINUING PERIODS.—In the case of an individual
who becomes a part D eligible individual after November
15, 2005, there shall be an initial enrollment period which
is the period under section 1851(e)(1), as applied under
paragraph (1)(B)(iii) of this section, as if ‘entitled to benefits
under part A or enrolled under part B’ were substituted
for ‘entitled to benefits under part A and enrolled under
part B’, but in no case shall such period end before the
period described in subparagraph (A).
‘‘(3) ADDITIONAL SPECIAL ENROLLMENT PERIODS.—The Sec-
retary shall establish special enrollment periods, including the
following:
‘‘(A) INVOLUNTARY LOSS OF CREDITABLE PRESCRIPTION
DRUG COVERAGE.—
‘‘(i) IN GENERAL.—In the case of a part D eligible
individual who involuntarily loses creditable prescrip-
tion drug coverage (as defined in section 1860D–
13(b)(4)).
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117 STAT. 2074
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) NOTICE.—In establishing special enrollment
periods under clause (i), the Secretary shall take into
account when the part D eligible individuals are pro-
vided notice of the loss of creditable prescription drug
coverage.
‘‘(iii) FAILURE TO PAY PREMIUM.—For purposes of
clause (i), a loss of coverage shall be treated as vol-
untary if the coverage is terminated because of failure
to pay a required beneficiary premium.
‘‘(iv) REDUCTION IN COVERAGE.—For purposes of
clause (i), a reduction in coverage so that the coverage
no longer meets the requirements under section
1860D–13(b)(5) (relating to actuarial equivalence) shall
be treated as an involuntary loss of coverage.
‘‘(B) ERRORS IN ENROLLMENT.—In the case described
in section 1837(h) (relating to errors in enrollment), in
the same manner as such section applies to part B.
‘‘(C) EXCEPTIONAL CIRCUMSTANCES.—In the case of part
D eligible individuals who meet such exceptional conditions
(in addition to those conditions applied under paragraph
(1)(B)(iii)) as the Secretary may provide.
‘‘(D) MEDICAID COVERAGE.—In the case of an individual
(as determined by the Secretary) who is a full-benefit dual
eligible individual (as defined in section 1935(c)(6)).
‘‘(E) DISCONTINUANCE
OF
MA–PD
ELECTION
DURING
FIRST YEAR OF ELIGIBILITY.—In the case of a part D eligible
individual who discontinues enrollment in an MA–PD plan
under the second sentence of section 1851(e)(4) at the time
of the election of coverage under such sentence under the
original medicare fee-for-service program.
‘‘(4) INFORMATION TO FACILITATE ENROLLMENT.—
‘‘(A) IN GENERAL.—Notwithstanding any other provi-
sion of law but subject to subparagraph (B), the Secretary
may provide to each PDP sponsor and MA organization
such identifying information about part D eligible individ-
uals as the Secretary determines to be necessary to facili-
tate efficient marketing of prescription drug plans and
MA–PD plans to such individuals and enrollment of such
individuals in such plans.
‘‘(B) LIMITATION.—
‘‘(i) PROVISION
OF
INFORMATION.—The Secretary
may provide the information under subparagraph (A)
only to the extent necessary to carry out such subpara-
graph.
‘‘(ii) USE OF INFORMATION.—Such information pro-
vided by the Secretary to a PDP sponsor or an MA
organization may be used by such sponsor or organiza-
tion only to facilitate marketing of, and enrollment
of part D eligible individuals in, prescription drug plans
and MA–PD plans.
‘‘(5) REFERENCE TO ENROLLMENT PROCEDURES FOR MA–PD
PLANS.—For rules applicable to enrollment, disenrollment,
termination, and change of enrollment of part D eligible individ-
uals in MA–PD plans, see section 1851.
‘‘(6) REFERENCE TO PENALTIES FOR LATE ENROLLMENT.—
Section 1860D–13(b) imposes a late enrollment penalty for part
D eligible individuals who—
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‘‘(A) enroll in a prescription drug plan or an MA–
PD plan after the initial enrollment period described in
paragraph (2); and
‘‘(B) fail to maintain continuous creditable prescription
drug coverage during the period of non-enrollment.
‘‘(c) PROVIDING INFORMATION TO BENEFICIARIES.—
‘‘(1) ACTIVITIES.—The Secretary shall conduct activities that
are designed to broadly disseminate information to part D
eligible individuals (and prospective part D eligible individuals)
regarding the coverage provided under this part. Such activities
shall ensure that such information is first made available at
least 30 days prior to the initial enrollment period described
in subsection (b)(2)(A).
‘‘(2) REQUIREMENTS.—The activities described in paragraph
(1) shall—
‘‘(A) be similar to the activities performed by the Sec-
retary under section 1851(d), including dissemination
(including through the toll-free telephone number 1–800–
MEDICARE) of comparative information for prescription
drug plans and MA–PD plans; and
‘‘(B) be coordinated with the activities performed by
the Secretary under such section and under section 1804.
‘‘(3) COMPARATIVE INFORMATION.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
comparative information referred to in paragraph (2)(A)
shall include a comparison of the following with respect
to qualified prescription drug coverage:
‘‘(i) BENEFITS.—The benefits provided under the
plan.
‘‘(ii) 
MONTHLY
BENEFICIARY
PREMIUM.—The
monthly beneficiary premium under the plan.
‘‘(iii) QUALITY
AND
PERFORMANCE.—The quality
and performance under the plan.
‘‘(iv) 
BENEFICIARY
COST-SHARING.—The 
cost-
sharing required of part D eligible individuals under
the plan.
‘‘(v) 
CONSUMER
SATISFACTION
SURVEYS.—The
results of consumer satisfaction surveys regarding the
plan conducted pursuant to section 1860D–4(d).
‘‘(B) EXCEPTION
FOR
UNAVAILABILITY
OF
INFORMA-
TION.—The Secretary is not required to provide compara-
tive information under clauses (iii) and (v) of subparagraph
(A) with respect to a plan—
‘‘(i) for the first plan year in which it is offered;
and
‘‘(ii) for the next plan year if it is impracticable
or the information is otherwise unavailable.
‘‘(4) INFORMATION
ON
LATE
ENROLLMENT
PENALTY.—The
information disseminated under paragraph (1) shall include
information concerning the methodology for determining the
late enrollment penalty under section 1860D–13(b).
‘‘PRESCRIPTION DRUG BENEFITS
‘‘SEC. 1860D–2. (a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part and part C,
the term ‘qualified prescription drug coverage’ means either
of the following:
42 USC
1395w–102.
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‘‘(A) STANDARD
PRESCRIPTION
DRUG
COVERAGE
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Standard prescription
drug coverage (as defined in subsection (b)) and access
to negotiated prices under subsection (d).
‘‘(B) ALTERNATIVE PRESCRIPTION DRUG COVERAGE WITH
AT LEAST ACTUARIALLY EQUIVALENT BENEFITS AND ACCESS
TO NEGOTIATED PRICES.—Coverage of covered part D drugs
which meets the alternative prescription drug coverage
requirements of subsection (c) and access to negotiated
prices under subsection (d), but only if the benefit design
of such coverage is approved by the Secretary, as provided
under subsection (c).
‘‘(2) PERMITTING SUPPLEMENTAL PRESCRIPTION DRUG COV-
ERAGE.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), quali-
fied prescription drug coverage may include supplemental
prescription drug coverage consisting of either or both of
the following:
‘‘(i) CERTAIN REDUCTIONS IN COST-SHARING.—
‘‘(I) IN GENERAL.—A reduction in the annual
deductible, a reduction in the coinsurance percent-
age, or an increase in the initial coverage limit
with respect to covered part D drugs, or any com-
bination thereof, insofar as such a reduction or
increase increases the actuarial value of benefits
above the actuarial value of basic prescription drug
coverage.
‘‘(II) CONSTRUCTION.—Nothing in this para-
graph shall be construed as affecting the applica-
tion of subsection (c)(3).
‘‘(ii) OPTIONAL DRUGS.—Coverage of any product
that would be a covered part D drug but for the applica-
tion of subsection (e)(2)(A).
‘‘(B) REQUIREMENT.—A PDP sponsor may not offer a
prescription drug plan that provides supplemental prescrip-
tion drug coverage pursuant to subparagraph (A) in an
area unless the sponsor also offers a prescription drug
plan in the area that only provides basic prescription drug
coverage.
‘‘(3) BASIC PRESCRIPTION DRUG COVERAGE.—For purposes
of this part and part C, the term ‘basic prescription drug
coverage’ means either of the following:
‘‘(A) Coverage that meets the requirements of para-
graph (1)(A).
‘‘(B) Coverage that meets the requirements of para-
graph (1)(B) but does not have any supplemental prescrip-
tion drug coverage described in paragraph (2)(A).
‘‘(4) APPLICATION OF SECONDARY PAYOR PROVISIONS.—The
provisions of section 1852(a)(4) shall apply under this part
in the same manner as they apply under part C.
‘‘(5) CONSTRUCTION.—Nothing in this subsection shall be
construed as changing the computation of incurred costs under
subsection (b)(4).
‘‘(b) STANDARD PRESCRIPTION DRUG COVERAGE.—For purposes
of this part and part C, the term ‘standard prescription drug cov-
erage’ means coverage of covered part D drugs that meets the
following requirements:
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‘‘(1) DEDUCTIBLE.—
‘‘(A) IN
GENERAL.—The coverage has an annual
deductible—
‘‘(i) for 2006, that is equal to $250; or
‘‘(ii) for a subsequent year, that is equal to the
amount specified under this paragraph for the previous
year increased by the percentage specified in para-
graph (6) for the year involved.
‘‘(B) 
ROUNDING.—Any 
amount 
determined 
under
subparagraph (A)(ii) that is not a multiple of $5 shall
be rounded to the nearest multiple of $5.
‘‘(2) BENEFIT STRUCTURE.—
‘‘(A) 25 PERCENT
COINSURANCE.—The coverage has
coinsurance (for costs above the annual deductible specified
in paragraph (1) and up to the initial coverage limit under
paragraph (3)) that is—
‘‘(i) equal to 25 percent; or
‘‘(ii) actuarially equivalent (using processes and
methods established under section 1860D–11(c)) to an
average expected payment of 25 percent of such costs.
‘‘(B) USE OF TIERS.—Nothing in this part shall be con-
strued as preventing a PDP sponsor or an MA organization
from applying tiered copayments under a plan, so long
as such tiered copayments are consistent with subpara-
graph (A)(ii).
‘‘(3) INITIAL COVERAGE LIMIT.—
‘‘(A) IN GENERAL.—Except as provided in paragraph
(4), the coverage has an initial coverage limit on the max-
imum costs that may be recognized for payment purposes
(including the annual deductible)—
‘‘(i) for 2006, that is equal to $2,250; or
‘‘(ii) for a subsequent year, that is equal to the
amount specified in this paragraph for the previous
year, increased by the annual percentage increase
described in paragraph (6) for the year involved.
‘‘(B) 
ROUNDING.—Any 
amount 
determined 
under
subparagraph (A)(ii) that is not a multiple of $10 shall
be rounded to the nearest multiple of $10.
‘‘(4) PROTECTION AGAINST HIGH OUT-OF-POCKET EXPENDI-
TURES.—
‘‘(A) IN GENERAL.—
‘‘(i) IN GENERAL.—The coverage provides benefits,
after the part D eligible individual has incurred costs
(as described in subparagraph (C)) for covered part
D drugs in a year equal to the annual out-of-pocket
threshold specified in subparagraph (B), with cost-
sharing that is equal to the greater of—
‘‘(I) a copayment of $2 for a generic drug or
a preferred drug that is a multiple source drug
(as defined in section 1927(k)(7)(A)(i)) and $5 for
any other drug; or
‘‘(II) coinsurance that is equal to 5 percent.
‘‘(ii) ADJUSTMENT OF AMOUNT.—For a year after
2006, the dollar amounts specified in clause (i)(I) shall
be equal to the dollar amounts specified in this
subparagraph for the previous year, increased by the
annual percentage increase described in paragraph (6)
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117 STAT. 2078
PUBLIC LAW 108–173—DEC. 8, 2003
for the year involved. Any amount established under
this clause that is not a multiple of a 5 cents shall
be rounded to the nearest multiple of 5 cents.
‘‘(B) ANNUAL OUT-OF-POCKET THRESHOLD.—
‘‘(i) IN GENERAL.—For purposes of this part, the
‘annual out-of-pocket threshold’ specified in this
subparagraph—
‘‘(I) for 2006, is equal to $3,600; or
‘‘(II) for a subsequent year, is equal to the
amount specified in this subparagraph for the pre-
vious year, increased by the annual percentage
increase described in paragraph (6) for the year
involved.
‘‘(ii) ROUNDING.—Any amount determined under
clause (i)(II) that is not a multiple of $50 shall be
rounded to the nearest multiple of $50.
‘‘(C) APPLICATION.—In applying subparagraph (A)—
‘‘(i) incurred costs shall only include costs incurred
with respect to covered part D drugs for the annual
deductible described in paragraph (1), for cost-sharing
described in paragraph (2), and for amounts for which
benefits are not provided because of the application
of the initial coverage limit described in paragraph
(3), but does not include any costs incurred for covered
part D drugs which are not included (or treated as
being included) in the plan’s formulary; and
‘‘(ii) such costs shall be treated as incurred only
if they are paid by the part D eligible individual (or
by another person, such as a family member, on behalf
of the individual), under section 1860D–14, or under
a State Pharmaceutical Assistance Program and the
part D eligible individual (or other person) is not
reimbursed through insurance or otherwise, a group
health plan, or other third-party payment arrangement
(other than under such section or such a Program)
for such costs.
‘‘(D) INFORMATION REGARDING THIRD-PARTY REIMBURSE-
MENT.—
‘‘(i) PROCEDURES FOR EXCHANGING INFORMATION.—
In order to accurately apply the requirements of
subparagraph (C)(ii), the Secretary is authorized to
establish procedures, in coordination with the Sec-
retary of the Treasury and the Secretary of Labor—
‘‘(I) for determining whether costs for part D
eligible individuals are being reimbursed through
insurance or otherwise, a group health plan, or
other third-party payment arrangement; and
‘‘(II) for alerting the PDP sponsors and MA
organizations that offer the prescription drug plans
and MA–PD plans in which such individuals are
enrolled about such reimbursement arrangements.
‘‘(ii) AUTHORITY TO REQUEST INFORMATION FROM
ENROLLEES.—A PDP sponsor or an MA organization
may periodically ask part D eligible individuals
enrolled in a prescription drug plan or an MA–PD
plan offered by the sponsor or organization whether
such individuals have or expect to receive such third-
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117 STAT. 2079
PUBLIC LAW 108–173—DEC. 8, 2003
party reimbursement. A material misrepresentation of
the information described in the preceding sentence
by an individual (as defined in standards set by the
Secretary and determined through a process estab-
lished by the Secretary) shall constitute grounds for
termination of enrollment in any plan under section
1851(g)(3)(B) (and as applied under this part under
section 1860D–1(b)(1)(B)(v)) for a period specified by
the Secretary.
‘‘(5) CONSTRUCTION.—Nothing in this part shall be con-
strued as preventing a PDP sponsor or an MA organization
offering an MA–PD plan from reducing to zero the cost-sharing
otherwise applicable to preferred or generic drugs.
‘‘(6) ANNUAL PERCENTAGE INCREASE.—The annual percent-
age increase specified in this paragraph for a year is equal
to the annual percentage increase in average per capita aggre-
gate expenditures for covered part D drugs in the United States
for part D eligible individuals, as determined by the Secretary
for the 12-month period ending in July of the previous year
using such methods as the Secretary shall specify.
‘‘(c) ALTERNATIVE PRESCRIPTION DRUG COVERAGE REQUIRE-
MENTS.—A prescription drug plan or an MA–PD plan may provide
a different prescription drug benefit design from standard prescrip-
tion drug coverage so long as the Secretary determines (consistent
with section 1860D–11(c)) that the following requirements are met
and the plan applies for, and receives, the approval of the Secretary
for such benefit design:
‘‘(1) ASSURING
AT
LEAST
ACTUARIALLY
EQUIVALENT
COV-
ERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF
TOTAL
COV-
ERAGE.—The actuarial value of the total coverage is at
least equal to the actuarial value of standard prescription
drug coverage.
‘‘(B) ASSURING
EQUIVALENT
UNSUBSIDIZED
VALUE
OF
COVERAGE.—The unsubsidized value of the coverage is at
least equal to the unsubsidized value of standard prescrip-
tion drug coverage. For purposes of this subparagraph,
the unsubsidized value of coverage is the amount by which
the actuarial value of the coverage exceeds the actuarial
value of the subsidy payments under section 1860D–15
with respect to such coverage.
‘‘(C) ASSURING STANDARD PAYMENT FOR COSTS AT INI-
TIAL
COVERAGE
LIMIT.—The coverage is designed, based
upon an actuarially representative pattern of utilization,
to provide for the payment, with respect to costs incurred
that are equal to the initial coverage limit under subsection
(b)(3) for the year, of an amount equal to at least the
product of—
‘‘(i) the amount by which the initial coverage limit
described in subsection (b)(3) for the year exceeds the
deductible described in subsection (b)(1) for the year;
and
‘‘(ii) 100 percent minus the coinsurance percentage
specified in subsection (b)(2)(A)(i).
‘‘(2) MAXIMUM
REQUIRED
DEDUCTIBLE.—The deductible
under the coverage shall not exceed the deductible amount
specified under subsection (b)(1) for the year.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(3) SAME
PROTECTION
AGAINST
HIGH
OUT-OF-POCKET
EXPENDITURES.—The coverage provides the coverage required
under subsection (b)(4).
‘‘(d) ACCESS TO NEGOTIATED PRICES.—
‘‘(1) ACCESS.—
‘‘(A) IN GENERAL.—Under qualified prescription drug
coverage offered by a PDP sponsor offering a prescription
drug plan or an MA organization offering an MA–PD plan,
the sponsor or organization shall provide enrollees with
access to negotiated prices used for payment for covered
part D drugs, regardless of the fact that no benefits may
be payable under the coverage with respect to such drugs
because of the application of a deductible or other cost-
sharing or an initial coverage limit (described in subsection
(b)(3)).
‘‘(B) NEGOTIATED PRICES.—For purposes of this part,
negotiated prices shall take into account negotiated price
concessions, such as discounts, direct or indirect subsidies,
rebates, and direct or indirect remunerations, for covered
part D drugs, and include any dispensing fees for such
drugs.
‘‘(C) MEDICAID-RELATED PROVISIONS.—The prices nego-
tiated by a prescription drug plan, by an MA–PD plan
with respect to covered part D drugs, or by a qualified
retiree prescription drug plan (as defined in section 1860D–
22(a)(2)) with respect to such drugs on behalf of part D
eligible individuals, shall (notwithstanding any other provi-
sion of law) not be taken into account for the purposes
of establishing the best price under section 1927(c)(1)(C).
‘‘(2) DISCLOSURE.—A PDP sponsor offering a prescription
drug plan or an MA organization offering an MA–PD plan
shall disclose to the Secretary (in a manner specified by the
Secretary) the aggregate negotiated price concessions described
in paragraph (1)(B) made available to the sponsor or organiza-
tion by a manufacturer which are passed through in the form
of lower subsidies, lower monthly beneficiary prescription drug
premiums, and lower prices through pharmacies and other
dispensers. The provisions of section 1927(b)(3)(D) apply to
information disclosed to the Secretary under this paragraph.
‘‘(3) AUDITS.—To protect against fraud and abuse and to
ensure proper disclosures and accounting under this part and
in accordance with section 1857(d)(2)(B) (as applied under sec-
tion 1860D–12(b)(3)(C)), the Secretary may conduct periodic
audits, directly or through contracts, of the financial statements
and records of PDP sponsors with respect to prescription drug
plans and MA organizations with respect to MA–PD plans.
‘‘(e) COVERED PART D DRUG DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this subsection,
for purposes of this part, the term ‘covered part D drug’
means—
‘‘(A) a drug that may be dispensed only upon a prescrip-
tion and that is described in subparagraph (A)(i), (A)(ii),
or (A)(iii) of section 1927(k)(2); or
‘‘(B) a biological product described in clauses (i) through
(iii) of subparagraph (B) of such section or insulin described
in subparagraph (C) of such section and medical supplies
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117 STAT. 2081
PUBLIC LAW 108–173—DEC. 8, 2003
associated with the injection of insulin (as defined in regu-
lations of the Secretary),
and such term includes a vaccine licensed under section 351
of the Public Health Service Act and any use of a covered
part D drug for a medically accepted indication (as defined
in section 1927(k)(6)).
‘‘(2) EXCLUSIONS.—
‘‘(A) IN GENERAL.—Such term does not include drugs
or classes of drugs, or their medical uses, which may be
excluded from coverage or otherwise restricted under sec-
tion 1927(d)(2), other than subparagraph (E) of such section
(relating to smoking cessation agents), or under section
1927(d)(3).
‘‘(B) MEDICARE
COVERED
DRUGS.—A drug prescribed
for a part D eligible individual that would otherwise be
a covered part D drug under this part shall not be so
considered if payment for such drug as so prescribed and
dispensed or administered with respect to that individual
is available (or would be available but for the application
of a deductible) under part A or B for that individual.
‘‘(3) APPLICATION OF GENERAL EXCLUSION PROVISIONS.—A
prescription drug plan or an MA–PD plan may exclude from
qualified prescription drug coverage any covered part D drug—
‘‘(A) for which payment would not be made if section
1862(a) applied to this part; or
‘‘(B) which is not prescribed in accordance with the
plan or this part.
Such exclusions are determinations subject to reconsideration
and appeal pursuant to subsections (g) and (h), respectively,
of section 1860D–4.
‘‘ACCESS TO A CHOICE OF QUALIFIED PRESCRIPTION DRUG COVERAGE
‘‘SEC. 1860D–3. (a) ASSURING ACCESS TO A CHOICE OF COV-
ERAGE.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH AREA.—The
Secretary shall ensure that each part D eligible individual
has available, consistent with paragraph (2), a choice of enroll-
ment in at least 2 qualifying plans (as defined in paragraph
(3)) in the area in which the individual resides, at least one
of which is a prescription drug plan. In any such case in
which such plans are not available, the part D eligible indi-
vidual shall be given the opportunity to enroll in a fallback
prescription drug plan.
‘‘(2) REQUIREMENT FOR DIFFERENT PLAN SPONSORS.—The
requirement in paragraph (1) is not satisfied with respect to
an area if only one entity offers all the qualifying plans in
the area.
‘‘(3) QUALIFYING PLAN DEFINED.—For purposes of this sec-
tion, the term ‘qualifying plan’ means—
‘‘(A) a prescription drug plan; or
‘‘(B) 
an 
MA–PD 
plan 
described 
in 
section
1851(a)(2)(A)(i) that provides—
‘‘(i) basic prescription drug coverage; or
‘‘(ii) qualified prescription drug coverage that pro-
vides supplemental prescription drug coverage so long
as there is no MA monthly supplemental beneficiary
premium applied under the plan, due to the application
42 USC
1395w–103.
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117 STAT. 2082
PUBLIC LAW 108–173—DEC. 8, 2003
of a credit against such premium of a rebate under
section 1854(b)(1)(C).
‘‘(b) FLEXIBILITY IN RISK ASSUMED AND APPLICATION OF FALL-
BACK PLAN.—In order to ensure access pursuant to subsection (a)
in an area—
‘‘(1) the Secretary may approve limited risk plans under
section 1860D–11(f) for the area; and
‘‘(2) only if such access is still not provided in the area
after applying paragraph (1), the Secretary shall provide for
the offering of a fallback prescription drug plan for that area
under section 1860D–11(g).
‘‘BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG
COVERAGE
‘‘SEC. 1860D–4. (a) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—
‘‘(A) APPLICATION OF MA INFORMATION.—A PDP sponsor
shall disclose, in a clear, accurate, and standardized form
to each enrollee with a prescription drug plan offered by
the sponsor under this part at the time of enrollment
and at least annually thereafter, the information described
in section 1852(c)(1) relating to such plan, insofar as the
Secretary determines appropriate with respect to benefits
provided under this part, and including the information
described in subparagraph (B).
‘‘(B) DRUG
SPECIFIC
INFORMATION.—The information
described in this subparagraph is information concerning
the following:
‘‘(i) Access to specific covered part D drugs,
including access through pharmacy networks.
‘‘(ii) How any formulary (including any tiered for-
mulary structure) used by the sponsor functions,
including a description of how a part D eligible indi-
vidual may obtain information on the formulary con-
sistent with paragraph (3).
‘‘(iii) Beneficiary cost-sharing requirements and
how a part D eligible individual may obtain informa-
tion on such requirements, including tiered or other
copayment level applicable to each drug (or class of
drugs), consistent with paragraph (3).
‘‘(iv) The medication therapy management program
required under subsection (c).
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL COVERAGE,
UTILIZATION, AND GRIEVANCE INFORMATION.—Upon request of
a part D eligible individual who is eligible to enroll in a
prescription drug plan, the PDP sponsor offering such plan
shall provide information similar (as determined by the Sec-
retary) to the information described in subparagraphs (A), (B),
and (C) of section 1852(c)(2) to such individual.
‘‘(3) PROVISION OF SPECIFIC INFORMATION.—
‘‘(A) RESPONSE TO BENEFICIARY QUESTIONS.—Each PDP
sponsor offering a prescription drug plan shall have a
mechanism for providing specific information on a timely
basis to enrollees upon request. Such mechanism shall
include access to information through the use of a toll-
free telephone number and, upon request, the provision
of such information in writing.
42 USC
1395w–104.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(B) AVAILABILITY OF INFORMATION ON CHANGES IN FOR-
MULARY THROUGH THE INTERNET.—A PDP sponsor offering
a prescription drug plan shall make available on a timely
basis through an Internet website information on specific
changes in the formulary under the plan (including changes
to tiered or preferred status of covered part D drugs).
‘‘(4) CLAIMS
INFORMATION.—A PDP sponsor offering a
prescription drug plan must furnish to each enrollee in a form
easily understandable to such enrollees—
‘‘(A) an explanation of benefits (in accordance with
section 1806(a) or in a comparable manner); and
‘‘(B) when prescription drug benefits are provided
under this part, a notice of the benefits in relation to—
‘‘(i) the initial coverage limit for the current year;
and
‘‘(ii) the annual out-of-pocket threshold for the cur-
rent year.
Notices under subparagraph (B) need not be provided more
often than as specified by the Secretary and notices under
subparagraph (B)(ii) shall take into account the application
of section 1860D–2(b)(4)(C) to the extent practicable, as
specified by the Secretary.
‘‘(b) ACCESS TO COVERED PART D DRUGS.—
‘‘(1) ASSURING PHARMACY ACCESS.—
‘‘(A) PARTICIPATION
OF
ANY
WILLING
PHARMACY.—A
prescription drug plan shall permit the participation of
any pharmacy that meets the terms and conditions under
the plan.
‘‘(B) DISCOUNTS ALLOWED FOR NETWORK PHARMACIES.—
For covered part D drugs dispensed through in-network
pharmacies, a prescription drug plan may, notwithstanding
subparagraph (A), reduce coinsurance or copayments for
part D eligible individuals enrolled in the plan below the
level otherwise required. In no case shall such a reduction
result in an increase in payments made by the Secretary
under section 1860D–15 to a plan.
‘‘(C) CONVENIENT ACCESS FOR NETWORK PHARMACIES.—
‘‘(i) IN GENERAL.—The PDP sponsor of the prescrip-
tion drug plan shall secure the participation in its
network of a sufficient number of pharmacies that
dispense (other than by mail order) drugs directly to
patients to ensure convenient access (consistent with
rules established by the Secretary).
‘‘(ii) APPLICATION
OF
TRICARE
STANDARDS.—The
Secretary shall establish rules for convenient access
to in-network pharmacies under this subparagraph
that are no less favorable to enrollees than the rules
for convenient access to pharmacies included in the
statement of work of solicitation (#MDA906–03–R–
0002) of the Department of Defense under the
TRICARE Retail Pharmacy (TRRx) as of March 13,
2003.
‘‘(iii) ADEQUATE EMERGENCY ACCESS.—Such rules
shall include adequate emergency access for enrollees.
‘‘(iv) CONVENIENT
ACCESS
IN
LONG-TERM
CARE
FACILITIES.—Such rules may include standards with
respect to access for enrollees who are residing in
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long-term care facilities and for pharmacies operated
by the Indian Health Service, Indian tribes and tribal
organizations, and urban Indian organizations (as
defined in section 4 of the Indian Health Care Improve-
ment Act).
‘‘(D) LEVEL
PLAYING
FIELD.—Such a sponsor shall
permit enrollees to receive benefits (which may include
a 90-day supply of drugs or biologicals) through a pharmacy
(other than a mail order pharmacy), with any differential
in charge paid by such enrollees.
‘‘(E) NOT REQUIRED TO ACCEPT INSURANCE RISK.—The
terms and conditions under subparagraph (A) may not
require participating pharmacies to accept insurance risk
as a condition of participation.
‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
‘‘(A) IN GENERAL.—The PDP sponsor of a prescription
drug plan shall issue (and reissue, as appropriate) such
a card (or other technology) that may be used by an enrollee
to assure access to negotiated prices under section 1860D–
2(d).
‘‘(B) STANDARDS.—
‘‘(i) IN GENERAL.—The Secretary shall provide for
the development, adoption, or recognition of standards
relating to a standardized format for the card or other
technology required under subparagraph (A). Such
standards shall be compatible with part C of title XI
and may be based on standards developed by an appro-
priate standard setting organization.
‘‘(ii) CONSULTATION.—In developing the standards
under clause (i), the Secretary shall consult with the
National Council for Prescription Drug Programs and
other standard setting organizations determined appro-
priate by the Secretary.
‘‘(iii) 
IMPLEMENTATION.—The 
Secretary 
shall
develop, adopt, or recognize the standards under clause
(i) by such date as the Secretary determines shall
be sufficient to ensure that PDP sponsors utilize such
standards beginning January 1, 2006.
‘‘(3) REQUIREMENTS ON DEVELOPMENT AND APPLICATION OF
FORMULARIES.—If a PDP sponsor of a prescription drug plan
uses a formulary (including the use of tiered cost-sharing),
the following requirements must be met:
‘‘(A) DEVELOPMENT AND REVISION BY A PHARMACY AND
THERAPEUTIC (P&T) COMMITTEE.—
‘‘(i) IN GENERAL.—The formulary must be devel-
oped and reviewed by a pharmacy and therapeutic
committee. A majority of the members of such com-
mittee shall consist of individuals who are practicing
physicians or practicing pharmacists (or both).
‘‘(ii) INCLUSION OF INDEPENDENT EXPERTS.—Such
committee shall include at least one practicing physi-
cian and at least one practicing pharmacist, each of
whom—
‘‘(I) is independent and free of conflict with
respect to the sponsor and plan; and
‘‘(II) has expertise in the care of elderly or
disabled persons.
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‘‘(B) FORMULARY
DEVELOPMENT.—In developing and
reviewing the formulary, the committee shall—
‘‘(i) base clinical decisions on the strength of sci-
entific evidence and standards of practice, including
assessing peer-reviewed medical literature, such as
randomized clinical trials, pharmacoeconomic studies,
outcomes research data, and on such other information
as the committee determines to be appropriate; and
‘‘(ii) take into account whether including in the
formulary (or in a tier in such formulary) particular
covered part D drugs has therapeutic advantages in
terms of safety and efficacy.
‘‘(C) INCLUSION OF DRUGS IN ALL THERAPEUTIC CAT-
EGORIES AND CLASSES.—
‘‘(i) IN
GENERAL.—The formulary must include
drugs within each therapeutic category and class of
covered part D drugs, although not necessarily all
drugs within such categories and classes.
‘‘(ii) MODEL
GUIDELINES.—The Secretary shall
request the United States Pharmacopeia to develop,
in consultation with pharmaceutical benefit managers
and other interested parties, a list of categories and
classes that may be used by prescription drug plans
under this paragraph and to revise such classification
from time to time to reflect changes in therapeutic
uses of covered part D drugs and the additions of
new covered part D drugs.
‘‘(iii) LIMITATION
ON
CHANGES
IN
THERAPEUTIC
CLASSIFICATION.—The PDP sponsor of a prescription
drug plan may not change the therapeutic categories
and classes in a formulary other than at the beginning
of each plan year except as the Secretary may permit
to take into account new therapeutic uses and newly
approved covered part D drugs.
‘‘(D) PROVIDER
AND
PATIENT
EDUCATION.—The PDP
sponsor shall establish policies and procedures to educate
and inform health care providers and enrollees concerning
the formulary.
‘‘(E) NOTICE BEFORE REMOVING DRUG FROM FORMULARY
OR CHANGING PREFERRED OR TIER STATUS OF DRUG.—Any
removal of a covered part D drug from a formulary and
any change in the preferred or tiered cost-sharing status
of such a drug shall take effect only after appropriate
notice is made available (such as under subsection (a)(3))
to the Secretary, affected enrollees, physicians, pharmacies,
and pharmacists.
‘‘(F) PERIODIC EVALUATION OF PROTOCOLS.—In connec-
tion with the formulary, the sponsor of a prescription drug
plan shall provide for the periodic evaluation and analysis
of treatment protocols and procedures.
The requirements of this paragraph may be met by a PDP
sponsor directly or through arrangements with another entity.
‘‘(c) COST AND UTILIZATION MANAGEMENT; QUALITY ASSURANCE;
MEDICATION THERAPY MANAGEMENT PROGRAM.—
‘‘(1) IN GENERAL.—The PDP sponsor shall have in place,
directly or through appropriate arrangements, with respect to
covered part D drugs, the following:
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117 STAT. 2086
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‘‘(A) A cost-effective drug utilization management pro-
gram, including incentives to reduce costs when medically
appropriate, such as through the use of multiple source
drugs (as defined in section 1927(k)(7)(A)(i)).
‘‘(B) Quality assurance measures and systems to reduce
medication errors and adverse drug interactions and
improve medication use.
‘‘(C) A medication therapy management program
described in paragraph (2).
‘‘(D) A program to control fraud, abuse, and waste.
Nothing in this section shall be construed as impairing a PDP
sponsor from utilizing cost management tools (including dif-
ferential payments) under all methods of operation.
‘‘(2) MEDICATION THERAPY MANAGEMENT PROGRAM.—
‘‘(A) DESCRIPTION.—
‘‘(i) IN GENERAL.—A medication therapy manage-
ment program described in this paragraph is a program
of drug therapy management that may be furnished
by a pharmacist and that is designed to assure, with
respect to targeted beneficiaries described in clause
(ii), that covered part D drugs under the prescription
drug plan are appropriately used to optimize thera-
peutic outcomes through improved medication use, and
to reduce the risk of adverse events, including adverse
drug interactions. Such a program may distinguish
between services in ambulatory and institutional set-
tings.
‘‘(ii) TARGETED
BENEFICIARIES
DESCRIBED.—Tar-
geted beneficiaries described in this clause are part
D eligible individuals who—
‘‘(I) have multiple chronic diseases (such as
diabetes, asthma, hypertension, hyperlipidemia,
and congestive heart failure);
‘‘(II) are taking multiple covered part D drugs;
and
‘‘(III) are identified as likely to incur annual
costs for covered part D drugs that exceed a level
specified by the Secretary.
‘‘(B) ELEMENTS.—Such program may include elements
that promote—
‘‘(i) enhanced enrollee understanding to promote
the appropriate use of medications by enrollees and
to reduce the risk of potential adverse events associated
with medications, through beneficiary education, coun-
seling, and other appropriate means;
‘‘(ii) increased enrollee adherence with prescription
medication 
regimens 
through 
medication 
refill
reminders, special packaging, and other compliance
programs and other appropriate means; and
‘‘(iii) detection of adverse drug events and patterns
of overuse and underuse of prescription drugs.
‘‘(C) DEVELOPMENT OF PROGRAM IN COOPERATION WITH
LICENSED PHARMACISTS.—Such program shall be developed
in cooperation with licensed and practicing pharmacists
and physicians.
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‘‘(D) COORDINATION WITH CARE MANAGEMENT PLANS.—
The Secretary shall establish guidelines for the coordina-
tion of any medication therapy management program under
this paragraph with respect to a targeted beneficiary with
any care management plan established with respect to
such beneficiary under a chronic care improvement pro-
gram under section 1807.
‘‘(E) CONSIDERATIONS IN PHARMACY FEES.—The PDP
sponsor of a prescription drug plan shall take into account,
in establishing fees for pharmacists and others providing
services under such plan, the resources used, and time
required to, implement the medication therapy manage-
ment program under this paragraph. Each such sponsor
shall disclose to the Secretary upon request the amount
of any such management or dispensing fees. The provisions
of section 1927(b)(3)(D) apply to information disclosed
under this subparagraph.
‘‘(d) CONSUMER SATISFACTION SURVEYS.—In order to provide
for comparative information under section 1860D–1(c)(3)(A)(v), the
Secretary shall conduct consumer satisfaction surveys with respect
to PDP sponsors and prescription drug plans in a manner similar
to the manner such surveys are conducted for MA organizations
and MA plans under part C.
‘‘(e) ELECTRONIC PRESCRIPTION PROGRAM.—
‘‘(1) APPLICATION OF STANDARDS.—As of such date as the
Secretary may specify, but not later than 1 year after the
date of promulgation of final standards under paragraph (4)(D),
prescriptions and other information described in paragraph
(2)(A) for covered part D drugs prescribed for part D eligible
individuals that are transmitted electronically shall be trans-
mitted only in accordance with such standards under an elec-
tronic prescription drug program that meets the requirements
of paragraph (2).
‘‘(2) PROGRAM
REQUIREMENTS.—Consistent with uniform
standards established under paragraph (3)—
‘‘(A) PROVISION
OF
INFORMATION
TO
PRESCRIBING
HEALTH CARE PROFESSIONAL AND DISPENSING PHARMACIES
AND
PHARMACISTS.—An electronic prescription drug pro-
gram shall provide for the electronic transmittal to the
prescribing health care professional and to the dispensing
pharmacy and pharmacist of the prescription and informa-
tion on eligibility and benefits (including the drugs included
in the applicable formulary, any tiered formulary structure,
and any requirements for prior authorization) and of the
following information with respect to the prescribing and
dispensing of a covered part D drug:
‘‘(i) Information on the drug being prescribed or
dispensed and other drugs listed on the medication
history, including information on drug-drug inter-
actions, warnings or cautions, and, when indicated,
dosage adjustments.
‘‘(ii) Information on the availability of lower cost,
therapeutically appropriate alternatives (if any) for the
drug prescribed.
‘‘(B) APPLICATION TO MEDICAL HISTORY INFORMATION.—
Effective on and after such date as the Secretary specifies
and after the establishment of appropriate standards to
Deadline.
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117 STAT. 2088
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carry out this subparagraph, the program shall provide
for the electronic transmittal in a manner similar to the
manner under subparagraph (A) of information that relates
to the medical history concerning the individual and related
to a covered part D drug being prescribed or dispensed,
upon request of the professional or pharmacist involved.
‘‘(C) LIMITATIONS.—Information shall only be disclosed
under subparagraph (A) or (B) if the disclosure of such
information is permitted under the Federal regulations
(concerning the privacy of individually identifiable health
information) promulgated under section 264(c) of the
Health Insurance Portability and Accountability Act of
1996.
‘‘(D) TIMING.—To the extent feasible, the information
exchanged under this paragraph shall be on an interactive,
real-time basis.
‘‘(3) STANDARDS.—
‘‘(A) IN GENERAL.—The Secretary shall provide con-
sistent with this subsection for the promulgation of uniform
standards relating to the requirements for electronic
prescription drug programs under paragraph (2).
‘‘(B) OBJECTIVES.—Such standards shall be consistent
with the objectives of improving—
‘‘(i) patient safety;
‘‘(ii) the quality of care provided to patients; and
‘‘(iii) efficiencies, including cost savings, in the
delivery of care.
‘‘(C) DESIGN CRITERIA.—Such standards shall—
‘‘(i) be designed so that, to the extent practicable,
the standards do not impose an undue administrative
burden on prescribing health care professionals and
dispensing pharmacies and pharmacists;
‘‘(ii) be compatible with standards established
under part C of title XI, standards established under
subsection 
(b)(2)(B)(i), 
and 
with 
general 
health
information technology standards; and
‘‘(iii) be designed so that they permit electronic
exchange of drug labeling and drug listing information
maintained by the Food and Drug Administration and
the National Library of Medicine.
‘‘(D) PERMITTING USE OF APPROPRIATE MESSAGING.—
Such standards shall allow for the messaging of information
only if it relates to the appropriate prescribing of drugs,
including quality assurance measures and systems referred
to in subsection (c)(1)(B).
‘‘(E) PERMITTING PATIENT DESIGNATION OF DISPENSING
PHARMACY.—
‘‘(i) IN GENERAL.—Consistent with clause (ii), such
standards shall permit a part D eligible individual
to designate a particular pharmacy to dispense a pre-
scribed drug.
‘‘(ii) NO CHANGE IN BENEFITS.—Clause (i) shall not
be construed as affecting—
‘‘(I) the access required to be provided to phar-
macies by a prescription drug plan; or
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117 STAT. 2089
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‘‘(II) the application of any differences in bene-
fits or payments under such a plan based on the
pharmacy dispensing a covered part D drug.
‘‘(4) DEVELOPMENT, PROMULGATION, AND MODIFICATION OF
STANDARDS.—
‘‘(A) INITIAL
STANDARDS.—Not later than September
1, 2005, the Secretary shall develop, adopt, recognize, or
modify initial uniform standards relating to the require-
ments for electronic prescription drug programs described
in paragraph (2) taking into consideration the recommenda-
tions (if any) from the National Committee on Vital and
Health Statistics (as established under section 306(k) of
the Public Health Service Act (42 U.S.C. 242k(k))) under
subparagraph (B).
‘‘(B) ROLE
OF
NCVHS.—The National Committee on
Vital and Health Statistics shall develop recommendations
for uniform standards relating to such requirements in
consultation with the following:
‘‘(i) Standard setting organizations (as defined in
section 1171(8))
‘‘(ii) Practicing physicians.
‘‘(iii) Hospitals.
‘‘(iv) Pharmacies.
‘‘(v) Practicing pharmacists.
‘‘(vi) Pharmacy benefit managers.
‘‘(vii) State boards of pharmacy.
‘‘(viii) State boards of medicine.
‘‘(ix) Experts on electronic prescribing.
‘‘(x) Other appropriate Federal agencies.
‘‘(C) PILOT PROJECT TO TEST INITIAL STANDARDS.—
‘‘(i) IN GENERAL.—During the 1-year period that
begins on January 1, 2006, the Secretary shall conduct
a pilot project to test the initial standards developed
under subparagraph (A) prior to the promulgation of
the final uniform standards under subparagraph (D)
in order to provide for the efficient implementation
of the requirements described in paragraph (2).
‘‘(ii) EXCEPTION.—Pilot testing of standards is not
required under clause (i) where there already is ade-
quate industry experience with such standards, as
determined by the Secretary after consultation with
effected standard setting organizations and industry
users.
‘‘(iii) VOLUNTARY PARTICIPATION OF PHYSICIANS AND
PHARMACIES.—In In order to conduct the pilot project
under clause (i), the Secretary shall enter into agree-
ments with physicians, physician groups, pharmacies,
hospitals, PDP sponsors, MA organizations, and other
appropriate entities under which health care profes-
sionals electronically transmit prescriptions to dis-
pensing pharmacies and pharmacists in accordance
with such standards.
‘‘(iv) EVALUATION AND REPORT.—
‘‘(I) EVALUATION.—The Secretary shall conduct
an evaluation of the pilot project conducted under
clause (i).
Contracts.
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(II) REPORT
TO
CONGRESS.—Not later than
April 1, 2007, the Secretary shall submit to Con-
gress a report on the evaluation conducted under
subclause (I).
‘‘(D) FINAL
STANDARDS.—Based upon the evaluation
of the pilot project under subparagraph (C)(iv)(I) and not
later than April 1, 2008, the Secretary shall promulgate
uniform standards relating to the requirements described
in paragraph (2).
‘‘(5) RELATION TO STATE LAWS.—The standards promulgated
under this subsection shall supersede any State law or regula-
tion that—
‘‘(A) is contrary to the standards or restricts the ability
to carry out this part; and
‘‘(B) pertains to the electronic transmission of medica-
tion history and of information on eligibility, benefits, and
prescriptions with respect to covered part D drugs under
this part.
‘‘(6) ESTABLISHMENT OF SAFE HARBOR.—The Secretary, in
consultation with the Attorney General, shall promulgate regu-
lations that provide for a safe harbor from sanctions under
paragraphs (1) and (2) of section 1128B(b) and an exception
to the prohibition under subsection (a)(1) of section 1877 with
respect to the provision of nonmonetary remuneration (in the
form of hardware, software, or information technology and
training services) necessary and used solely to receive and
transmit electronic prescription information in accordance with
the standards promulgated under this subsection—
‘‘(A) in the case of a hospital, by the hospital to mem-
bers of its medical staff;
‘‘(B) in the case of a group practice (as defined in
section 1877(h)(4)), by the practice to prescribing health
care professionals who are members of such practice; and
‘‘(C) in the case of a PDP sponsor or MA organization,
by the sponsor or organization to pharmacists and phar-
macies participating in the network of such sponsor or
organization, and to prescribing health care professionals.
‘‘(f) GRIEVANCE MECHANISM.—Each PDP sponsor shall provide
meaningful procedures for hearing and resolving grievances
between the sponsor (including any entity or individual through
which the sponsor provides covered benefits) and enrollees with
prescription drug plans of the sponsor under this part in accordance
with section 1852(f).
‘‘(g) COVERAGE DETERMINATIONS AND RECONSIDERATIONS.—
‘‘(1) APPLICATION
OF
COVERAGE
DETERMINATION
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
requirements apply to an MA organization with respect to
benefits it offers under an MA plan under part C.
‘‘(2) REQUEST FOR A DETERMINATION FOR THE TREATMENT
OF TIERED FORMULARY DRUG.—In the case of a prescription
drug plan offered by a PDP sponsor that provides for tiered
cost-sharing for drugs included within a formulary and provides
lower cost-sharing for preferred drugs included within the for-
mulary, a part D eligible individual who is enrolled in the
Deadline.
Deadline.
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plan may request an exception to the tiered cost-sharing struc-
ture. Under such an exception, a nonpreferred drug could be
covered under the terms applicable for preferred drugs if the
prescribing physician determines that the preferred drug for
treatment of the same condition either would not be as effective
for the individual or would have adverse effects for the indi-
vidual or both. A PDP sponsor shall have an exceptions process
under this paragraph consistent with guidelines established
by the Secretary for making a determination with respect to
such a request. Denial of such an exception shall be treated
as a coverage denial for purposes of applying subsection (h).
‘‘(h) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a PDP sponsor
shall meet the requirements of paragraphs (4) and (5) of section
1852(g) with respect to benefits (including a determination
related to the application of tiered cost-sharing described in
subsection (g)(2)) in a manner similar (as determined by the
Secretary) to the manner such requirements apply to an MA
organization with respect to benefits under the original medi-
care fee-for-service program option it offers under an MA plan
under part C. In applying this paragraph only the part D
eligible individual shall be entitled to bring such an appeal.
‘‘(2) LIMITATION IN CASES ON NONFORMULARY DETERMINA-
TIONS.—A part D eligible individual who is enrolled in a
prescription drug plan offered by a PDP sponsor may appeal
under paragraph (1) a determination not to provide for coverage
of a covered part D drug that is not on the formulary under
the plan only if the prescribing physician determines that all
covered part D drugs on any tier of the formulary for treatment
of the same condition would not be as effective for the individual
as the nonformulary drug, would have adverse effects for the
individual, or both.
‘‘(3) TREATMENT OF NONFORMULARY DETERMINATIONS.—If
a PDP sponsor determines that a plan provides coverage for
a covered part D drug that is not on the formulary of the
plan, the drug shall be treated as being included on the for-
mulary for purposes of section 1860D–2(b)(4)(C)(i).
‘‘(i) PRIVACY, CONFIDENTIALITY, AND ACCURACY OF ENROLLEE
RECORDS.—The provisions of section 1852(h) shall apply to a PDP
sponsor and prescription drug plan in the same manner as it
applies to an MA organization and an MA plan.
‘‘(j) TREATMENT OF ACCREDITATION.—Subparagraph (A) of sec-
tion 1852(e)(4) (relating to treatment of accreditation) shall apply
to a PDP sponsor under this part with respect to the following
requirements, in the same manner as it applies to an MA organiza-
tion with respect to the requirements in subparagraph (B) (other
than clause (vii) thereof) of such section:
‘‘(1) Subsection (b) of this section (relating to access to
covered part D drugs).
‘‘(2) Subsection (c) of this section (including quality assur-
ance and medication therapy management).
‘‘(3) Subsection (i) of this section (relating to confidentiality
and accuracy of enrollee records).
‘‘(k) PUBLIC
DISCLOSURE
OF
PHARMACEUTICAL
PRICES
FOR
EQUIVALENT DRUGS.—
‘‘(1) IN GENERAL.—A PDP sponsor offering a prescription
drug plan shall provide that each pharmacy that dispenses
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a covered part D drug shall inform an enrollee of any differen-
tial between the price of the drug to the enrollee and the
price of the lowest priced generic covered part D drug under
the plan that is therapeutically equivalent and bioequivalent
and available at such pharmacy.
‘‘(2) TIMING OF NOTICE.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
information under paragraph (1) shall be provided at the
time of purchase of the drug involved, or, in the case
of dispensing by mail order, at the time of delivery of
such drug.
‘‘(B) WAIVER.—The Secretary may waive subparagraph
(A) in such circumstances as the Secretary may specify.
‘‘Subpart 2—Prescription Drug Plans; PDP Sponsors; Financing
‘‘PDP REGIONS; SUBMISSION OF BIDS; PLAN APPROVAL
‘‘SEC. 1860D–11. (a) ESTABLISHMENT OF PDP REGIONS; SERVICE
AREAS.—
‘‘(1) COVERAGE OF ENTIRE PDP REGION.—The service area
for a prescription drug plan shall consist of an entire PDP
region established under paragraph (2).
‘‘(2) ESTABLISHMENT OF PDP REGIONS.—
‘‘(A) IN GENERAL.—The Secretary shall establish, and
may revise, PDP regions in a manner that is consistent
with the requirements for the establishment and revision
of MA regions under subparagraphs (B) and (C) of section
1858(a)(2).
‘‘(B) RELATION TO MA REGIONS.—To the extent prac-
ticable, PDP regions shall be the same as MA regions
under section 1858(a)(2). The Secretary may establish PDP
regions which are not the same as MA regions if the
Secretary determines that the establishment of different
regions under this part would improve access to benefits
under this part.
‘‘(C) AUTHORITY FOR TERRITORIES.—The Secretary shall
establish, and may revise, PDP regions for areas in States
that are not within the 50 States or the District of
Columbia.
‘‘(3) NATIONAL PLAN.—Nothing in this subsection shall be
construed as preventing a prescription drug plan from being
offered in more than one PDP region (including all PDP
regions).
‘‘(b) SUBMISSION OF BIDS, PREMIUMS, AND RELATED INFORMA-
TION.—
‘‘(1) IN GENERAL.—A PDP sponsor shall submit to the Sec-
retary information described in paragraph (2) with respect to
each prescription drug plan it offers. Such information shall
be submitted at the same time and in a similar manner to
the manner in which information described in paragraph (6)
of section 1854(a) is submitted by an MA organization under
paragraph (1) of such section.
‘‘(2) INFORMATION DESCRIBED.—The information described
in this paragraph is information on the following:
‘‘(A) COVERAGE PROVIDED.—The prescription drug cov-
erage provided under the plan, including the deductible
and other cost-sharing.
42 USC
1395w–111.
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‘‘(B) ACTUARIAL
VALUE.—The actuarial value of the
qualified prescription drug coverage in the region for a
part D eligible individual with a national average risk
profile for the factors described in section 1860D–15(c)(1)(A)
(as specified by the Secretary).
‘‘(C) BID.—Information on the bid, including an actu-
arial certification of—
‘‘(i) the basis for the actuarial value described in
subparagraph (B) assumed in such bid;
‘‘(ii) the portion of such bid attributable to basic
prescription drug coverage and, if applicable, the por-
tion of such bid attributable to supplemental benefits;
‘‘(iii) assumptions regarding the reinsurance sub-
sidy payments provided under section 1860D–15(b)
subtracted from the actuarial value to produce such
bid; and
‘‘(iv) administrative expenses assumed in the bid.
‘‘(D) SERVICE AREA.—The service area for the plan.
‘‘(E) LEVEL OF RISK ASSUMED.—
‘‘(i) IN
GENERAL.—Whether the PDP sponsor
requires a modification of risk level under clause (ii)
and, if so, the extent of such modification. Any such
modification shall apply with respect to all prescription
drug plans offered by a PDP sponsor in a PDP region.
This subparagraph shall not apply to an MA–PD plan.
‘‘(ii) RISK LEVELS DESCRIBED.—A modification of
risk level under this clause may consist of one or
more of the following:
‘‘(I) 
INCREASE
IN
FEDERAL
PERCENTAGE
ASSUMED
IN
INITIAL
RISK
CORRIDOR.—An equal
percentage point increase in the percents applied
under subparagraphs (B)(i), (B)(ii)(I), (C)(i), and
(C)(ii)(I) of section 1860D–15(e)(2). In no case shall
the application of previous sentence prevent the
application of a higher percentage under section
1869D–15(e)(2)(B)(iii).
‘‘(II) 
INCREASE
IN
FEDERAL
PERCENTAGE
ASSUMED
IN
SECOND
RISK
CORRIDOR.—An equal
percentage point increase in the percents applied
under subparagraphs (B)(ii)(II) and (C)(ii)(II) of
section 1860D–15(e)(2).
‘‘(III) DECREASE IN SIZE OF RISK CORRIDORS.—
A decrease in the threshold risk percentages speci-
fied in section 1860D–15(e)(3)(C).
‘‘(F) ADDITIONAL INFORMATION.—Such other informa-
tion as the Secretary may require to carry out this part.
‘‘(3) PAPERWORK REDUCTION FOR OFFERING OF PRESCRIPTION
DRUG PLANS NATIONALLY OR IN MULTI-REGION AREAS.—The Sec-
retary shall establish requirements for information submission
under this subsection in a manner that promotes the offering
of such plans in more than one PDP region (including all
regions) through the filing of consolidated information.
‘‘(c) ACTUARIAL VALUATION.—
‘‘(1) PROCESSES.—For purposes of this part, the Secretary
shall establish processes and methods for determining the actu-
arial valuation of prescription drug coverage, including—
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‘‘(A) an actuarial valuation of standard prescription
drug coverage under section 1860D–2(b);
‘‘(B) actuarial valuations relating to alternative
prescription drug coverage under section 1860D–2(c)(1);
‘‘(C) an actuarial valuation of the reinsurance subsidy
payments under section 1860D–15(b);
‘‘(D) the use of generally accepted actuarial principles
and methodologies; and
‘‘(E) applying the same methodology for determinations
of actuarial valuations under subparagraphs (A) and (B).
‘‘(2) ACCOUNTING FOR DRUG UTILIZATION.—Such processes
and methods for determining actuarial valuation shall take
into account the effect that providing alternative prescription
drug coverage (rather than standard prescription drug coverage)
has on drug utilization.
‘‘(3) RESPONSIBILITIES.—
‘‘(A) PLAN RESPONSIBILITIES.—PDP sponsors and MA
organizations are responsible for the preparation and
submission of actuarial valuations required under this part
for prescription drug plans and MA–PD plans they offer.
‘‘(B) USE OF OUTSIDE ACTUARIES.—Under the processes
and methods established under paragraph (1), PDP spon-
sors offering prescription drug plans and MA organizations
offering MA–PD plans may use actuarial opinions certified
by independent, qualified actuaries to establish actuarial
values.
‘‘(d) REVIEW OF INFORMATION AND NEGOTIATION.—
‘‘(1) REVIEW OF INFORMATION.—The Secretary shall review
the information filed under subsection (b) for the purpose of
conducting negotiations under paragraph (2).
‘‘(2) NEGOTIATION
REGARDING
TERMS
AND
CONDITIONS.—
Subject to subsection (i), in exercising the authority under
paragraph (1), the Secretary—
‘‘(A) has the authority to negotiate the terms and condi-
tions of the proposed bid submitted and other terms and
conditions of a proposed plan; and
‘‘(B) has authority similar to the authority of the
Director of the Office of Personnel Management with
respect to health benefits plans under chapter 89 of title
5, United States Code.
‘‘(e) APPROVAL OF PROPOSED PLANS.—
‘‘(1) IN GENERAL.—After review and negotiation under sub-
section (d), the Secretary shall approve or disapprove the
prescription drug plan.
‘‘(2) REQUIREMENTS
FOR
APPROVAL.—The Secretary may
approve a prescription drug plan only if the following require-
ments are met:
‘‘(A) COMPLIANCE WITH REQUIREMENTS.—The plan and
the PDP sponsor offering the plan comply with the require-
ments under this part, including the provision of qualified
prescription drug coverage.
‘‘(B) 
ACTUARIAL
DETERMINATIONS.—The 
Secretary
determines that the plan and PDP sponsor meet the
requirements under this part relating to actuarial deter-
minations, including such requirements under section
1860D–2(c).
‘‘(C) APPLICATION OF FEHBP STANDARD.—
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‘‘(i) IN GENERAL.—The Secretary determines that
the portion of the bid submitted under subsection (b)
that is attributable to basic prescription drug coverage
is supported by the actuarial bases provided under
such subsection and reasonably and equitably reflects
the revenue requirements (as used for purposes of sec-
tion 1302(8)(C) of the Public Health Service Act) for
benefits provided under that plan, less the sum (deter-
mined on a monthly per capita basis) of the actuarial
value of the reinsurance payments under section
1860D–15(b).
‘‘(ii) SUPPLEMENTAL
COVERAGE.—The Secretary
determines that the portion of the bid submitted under
subsection (b) that is attributable to supplemental
prescription drug coverage pursuant to section 1860D–
2(a)(2) is supported by the actuarial bases provided
under such subsection and reasonably and equitably
reflects the revenue requirements (as used for purposes
of section 1302(8)(C) of the Public Health Service Act)
for such coverage under the plan.
‘‘(D) PLAN DESIGN.—
‘‘(i) IN GENERAL.—The Secretary does not find that
the design of the plan and its benefits (including any
formulary and tiered formulary structure) are likely
to substantially discourage enrollment by certain part
D eligible individuals under the plan.
‘‘(ii) 
USE
OF
CATEGORIES
AND
CLASSES
IN
FORMULARIES.—The Secretary may not find that the
design of categories and classes within a formulary
violates clause (i) if such categories and classes are
consistent with guidelines (if any) for such categories
and classes established by the United States Pharma-
copeia.
‘‘(f) APPLICATION OF LIMITED RISK PLANS.—
‘‘(1) CONDITIONS FOR APPROVAL OF LIMITED RISK PLANS.—
The Secretary may only approve a limited risk plan (as defined
in paragraph (4)(A)) for a PDP region if the access requirements
under section 1860D–3(a) would not be met for the region
but for the approval of such a plan (or a fallback prescription
drug plan under subsection (g)).
‘‘(2) RULES.—The following rules shall apply with respect
to the approval of a limited risk plan in a PDP region:
‘‘(A) LIMITED EXERCISE OF AUTHORITY.—Only the min-
imum number of such plans may be approved in order
to meet the access requirements under section 1860D–
3(a).
‘‘(B) MAXIMIZING ASSUMPTION OF RISK.—The Secretary
shall provide priority in approval for those plans bearing
the highest level of risk (as computed by the Secretary),
but the Secretary may take into account the level of the
bids submitted by such plans.
‘‘(C) NO
FULL
UNDERWRITING
FOR
LIMITED
RISK
PLANS.—In no case may the Secretary approve a limited
risk plan under which the modification of risk level provides
for no (or a de minimis) level of financial risk.
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‘‘(3) ACCEPTANCE
OF
ALL
FULL
RISK
CONTRACTS.—There
shall be no limit on the number of full risk plans that are
approved under subsection (e).
‘‘(4) RISK-PLANS DEFINED.—For purposes of this subsection:
‘‘(A) LIMITED RISK PLAN.—The term ‘limited risk plan’
means a prescription drug plan that provides basic
prescription drug coverage and for which the PDP sponsor
includes a modification of risk level described in subpara-
graph (E) of subsection (b)(2) in its bid submitted for the
plan under such subsection. Such term does not include
a fallback prescription drug plan.
‘‘(B) FULL RISK PLAN.—The term ‘full risk plan’ means
a prescription drug plan that is not a limited risk plan
or a fallback prescription drug plan.
‘‘(g) GUARANTEEING ACCESS TO COVERAGE.—
‘‘(1) SOLICITATION OF BIDS.—
‘‘(A) IN GENERAL.—Separate from the bidding process
under subsection (b), the Secretary shall provide for a
process for the solicitation of bids from eligible fallback
entities (as defined in paragraph (2)) for the offering in
all fallback service areas (as defined in paragraph (3))
in one or more PDP regions of a fallback prescription
drug plan (as defined in paragraph (4)) during the contract
period specified in paragraph (5).
‘‘(B) ACCEPTANCE OF BIDS.—
‘‘(i) IN
GENERAL.—Except as provided in this
subparagraph, the provisions of subsection (e) shall
apply with respect to the approval or disapproval of
fallback prescription drug plans. The Secretary shall
enter into contracts under this subsection with eligible
fallback entities for the offering of fallback prescription
drug plans so approved in fallback service areas.
‘‘(ii) LIMITATION
OF
1
PLAN
FOR
ALL
FALLBACK
SERVICE AREAS IN A PDP REGION.—With respect to all
fallback service areas in any PDP region for a contract
period, the Secretary shall approve the offering of only
1 fallback prescription drug plan.
‘‘(iii) 
COMPETITIVE
PROCEDURES.—Competitive
procedures (as defined in section 4(5) of the Office
of Federal Procurement Policy Act (41 U.S.C. 403(5)))
shall be used to enter into a contract under this sub-
section. The provisions of subsection (d) of section
1874A shall apply to a contract under this section
in the same manner as they apply to a contract under
such section.
‘‘(iv) TIMING.—The Secretary shall approve a fall-
back prescription drug plan for a PDP region in a
manner so that, if there are any fallback service areas
in the region for a year, the fallback prescription drug
plan is offered at the same time as prescription drug
plans would otherwise be offered.
‘‘(V) NO NATIONAL FALLBACK PLAN.—The Secretary
shall not enter into a contract with a single fallback
entity for the offering of fallback plans throughout
the United States.
‘‘(2) ELIGIBLE FALLBACK ENTITY.—For purposes of this sec-
tion, the term ‘eligible fallback entity’ means, with respect
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to all fallback service areas in a PDP region for a contract
period, an entity that—
‘‘(A) meets the requirements to be a PDP sponsor (or
would meet such requirements but for the fact that the
entity is not a risk-bearing entity); and
‘‘(B) does not submit a bid under section 1860D–11(b)
for any prescription drug plan for any PDP region for
the first year of such contract period.
For purposes of subparagraph (B), an entity shall be treated
as submitting a bid with respect to a prescription drug plan
if the entity is acting as a subcontractor of a PDP sponsor
that is offering such a plan. The previous sentence shall not
apply to entities that are subcontractors of an MA organization
except insofar as such organization is acting as a PDP sponsor
with respect to a prescription drug plan.
‘‘(3) FALLBACK SERVICE AREA.—For purposes of this sub-
section, the term ‘fallback service area’ means, for a PDP region
with respect to a year, any area within such region for which
the Secretary determines before the beginning of the year that
the access requirements of the first sentence of section 1860D–
3(a) will not be met for part D eligible individuals residing
in the area for the year.
‘‘(4) FALLBACK PRESCRIPTION DRUG PLAN.—For purposes of
this part, the term ‘fallback prescription drug plan’ means
a prescription drug plan that—
‘‘(A) only offers the standard prescription drug coverage
and access to negotiated prices described in section 1860D–
2(a)(1)(A) and does not include any supplemental prescrip-
tion drug coverage; and
‘‘(B) meets such other requirements as the Secretary
may specify.
‘‘(5) PAYMENTS UNDER THE CONTRACT.—
‘‘(A) IN GENERAL.—A contract entered into under this
subsection shall provide for—
‘‘(i) payment for the actual costs (taking into
account negotiated price concessions described in sec-
tion 1860D–2(d)(1)(B)) of covered part D drugs provided
to part D eligible individuals enrolled in a fallback
prescription drug plan offered by the entity; and
‘‘(ii) payment of management fees that are tied
to performance measures established by the Secretary
for the management, administration, and delivery of
the benefits under the contract.
‘‘(B) 
PERFORMANCE
MEASURES.—The 
performance
measures established by the Secretary pursuant to
subparagraph (A)(ii) shall include at least measures for
each of the following:
‘‘(i) COSTS.—The entity contains costs to the Medi-
care Prescription Drug Account and to part D eligible
individuals enrolled in a fallback prescription drug
plan offered by the entity through mechanisms such
as generic substitution and price discounts.
‘‘(ii) QUALITY PROGRAMS.—The entity provides such
enrollees with quality programs that avoid adverse
drug reactions and overutilization and reduce medical
errors.
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‘‘(iii) CUSTOMER
SERVICE.—The entity provides
timely and accurate delivery of services and pharmacy
and beneficiary support services.
‘‘(iv) BENEFIT ADMINISTRATION AND CLAIMS ADJU-
DICATION.—The entity provides efficient and effective
benefit administration and claims adjudication.
‘‘(6) MONTHLY BENEFICIARY PREMIUM.—Except as provided
in section 1860D–13(b) (relating to late enrollment penalty)
and subject to section 1860D–14 (relating to low-income assist-
ance), the monthly beneficiary premium to be charged under
a fallback prescription drug plan offered in all fallback service
areas in a PDP region shall be uniform and shall be equal
to 25.5 percent of an amount equal to the Secretary’s estimate
of the average monthly per capita actuarial cost, including
administrative expenses, under the fallback prescription drug
plan of providing coverage in the region, as calculated by the
Chief Actuary of the Centers for Medicare & Medicaid Services.
In calculating such administrative expenses, the Chief Actuary
shall use a factor that is based on similar expenses of prescrip-
tion drug plans that are not fallback prescription drug plans.
‘‘(7) GENERAL CONTRACT TERMS AND CONDITIONS.—
‘‘(A) IN GENERAL.—Except as may be appropriate to
carry out this section, the terms and conditions of contracts
with eligible fallback entities offering fallback prescription
drug plans under this subsection shall be the same as
the terms and conditions of contracts under this part for
prescription drug plans.
‘‘(B) PERIOD OF CONTRACT.—
‘‘(i) IN GENERAL.—Subject to clause (ii), a contract
approved for a fallback prescription drug plan for fall-
back service areas for a PDP region under this section
shall be for a period of 3 years (except as may be
renewed after a subsequent bidding process).
‘‘(ii) LIMITATION.—A fallback prescription drug
plan may be offered under a contract in an area for
a year only if that area is a fallback service area
for that year.
‘‘(C) ENTITY NOT PERMITTED TO MARKET OR BRAND FALL-
BACK
PRESCRIPTION
DRUG
PLANS.—An eligible fallback
entity with a contract under this subsection may not engage
in any marketing or branding of a fallback prescription
drug plan.
‘‘(h) ANNUAL REPORT
ON USE
OF LIMITED RISK PLANS
AND
FALLBACK PLANS.—The Secretary shall submit to Congress an
annual report that describes instances in which limited risk plans
and fallback prescription drug plans were offered under subsections
(f) and (g). The Secretary shall include in such report such rec-
ommendations as may be appropriate to limit the need for the
provision of such plans and to maximize the assumption of financial
risk under section subsection (f).
‘‘(i) NONINTERFERENCE.—In order to promote competition under
this part and in carrying out this part, the Secretary—
‘‘(1) may not interfere with the negotiations between drug
manufacturers and pharmacies and PDP sponsors; and
‘‘(2) may not require a particular formulary or institute
a price structure for the reimbursement of covered part D
drugs.
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‘‘(j) COORDINATION OF BENEFITS.—A PDP sponsor offering a
prescription drug plan shall permit State Pharmaceutical Assistance
Programs and Rx plans under sections 1860D–23 and 1860D–24
to coordinate benefits with the plan and, in connection with such
coordination with such a Program, not to impose fees that are
unrelated to the cost of coordination.
‘‘REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG
PLAN (PDP) SPONSORS
‘‘SEC. 1860D–12. (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 FOR UNSUBSIDIZED COV-
ERAGE.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), to the
extent that the entity is at risk the entity assumes financial
risk on a prospective basis for benefits that it offers under
a prescription drug plan and that is not covered under
section 1860D–15(b).
‘‘(B) REINSURANCE PERMITTED.—The plan sponsor may
obtain insurance or make other arrangements for the cost
of coverage provided to any enrollee to the extent that
the sponsor is at risk for providing such coverage.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In the case
of a PDP sponsor that is not described in paragraph (1) and
for which a waiver has been approved under subsection (c),
such sponsor shall meet solvency standards established by the
Secretary under subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Secretary shall not permit the
enrollment under section 1860D–1 in a prescription drug plan
offered by a PDP sponsor under this part, and the sponsor
shall not be eligible for payments under section 1860D–14
or 1860D–15, unless the Secretary has entered into a contract
under this subsection with the sponsor with respect to the
offering 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 comply with the
applicable requirements and standards of this part and the
terms and conditions of payment as provided for in this part.
‘‘(2) LIMITATION ON ENTITIES OFFERING FALLBACK PRESCRIP-
TION DRUG PLANS.—The Secretary shall not enter into a contract
with a PDP sponsor for the offering of a prescription drug
plan (other than a fallback prescription drug plan) in a PDP
region for a year if the sponsor—
‘‘(A) submitted a bid under section 1860D–11(g) for
such year (as the first year of a contract period under
such section) to offer a fallback prescription drug plan
in any PDP region;
‘‘(B) offers a fallback prescription drug plan in any
PDP region during the year; or
‘‘(C) offered a fallback prescription drug plan in that
PDP region during the previous year.
42 USC
1395w–112.
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For purposes of this paragraph, an entity shall be treated
as submitting a bid with respect to a prescription drug plan
or offering a fallback prescription drug plan if the entity is
acting as a subcontractor of a PDP sponsor that is offering
such a plan. The previous sentence shall not apply to entities
that are subcontractors of an MA organization except insofar
as such organization is acting as a PDP sponsor with respect
to a prescription drug plan.
‘‘(3) INCORPORATION OF CERTAIN MEDICARE ADVANTAGE CON-
TRACT REQUIREMENTS.—Except as otherwise provided, the fol-
lowing provisions of section 1857 shall apply to contracts under
this section in the same manner as they apply to contracts
under section 1857(a):
‘‘(A) MINIMUM ENROLLMENT.—Paragraphs (1) and (3)
of section 1857(b), except that—
‘‘(i) the Secretary may increase the minimum
number of enrollees required under such paragraph
(1) as the Secretary determines appropriate; and
‘‘(ii) the requirement of such paragraph (1) shall
be waived during the first contract year with respect
to an organization in a region.
‘‘(B) CONTRACT PERIOD AND EFFECTIVENESS.—Section
1857(c), except that in applying paragraph (4)(B) of such
section any reference to payment amounts under section
1853 shall be deemed payment amounts under section
1860D–15.
‘‘(C) PROTECTIONS
AGAINST
FRAUD
AND
BENEFICIARY
PROTECTIONS.—Section 1857(d).
‘‘(D) ADDITIONAL CONTRACT TERMS.—Section 1857(e);
except that section 1857(e)(2) shall apply as specified to
PDP sponsors and payments under this part to an MA–
PD plan shall be treated as expenditures made under part
D.
‘‘(E) INTERMEDIATE SANCTIONS.—Section 1857(g) (other
than paragraph (1)(F) of such section), except that in
applying such section the reference in section 1857(g)(1)(B)
to section 1854 is deemed a reference to this part.
‘‘(F) PROCEDURES FOR TERMINATION.—Section 1857(h).
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND CHOICE.—
‘‘(1) AUTHORIZING WAIVER.—
‘‘(A) IN GENERAL.—In the case of an entity that seeks
to offer a prescription drug plan in a State, the Secretary
shall waive the requirement of subsection (a)(1) that the
entity be licensed in that State if the Secretary determines,
based on the application and other evidence presented to
the Secretary, that any of the grounds for approval of
the application described in paragraph (2) have been met.
‘‘(B) APPLICATION OF REGIONAL PLAN WAIVER RULE.—
In addition to the waiver available under subparagraph
(A), the provisions of section 1858(d) shall apply to PDP
sponsors under this part in a manner similar to the manner
in which such provisions apply to MA organizations under
part C, except that no application shall be required under
paragraph (1)(B) of such section in the case of a State
that does not provide a licensing process for such a sponsor.
‘‘(2) GROUNDS FOR APPROVAL.—
Applicability.
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‘‘(A) IN
GENERAL.—The grounds for approval under
this paragraph are—
‘‘(i) subject to subparagraph (B), the grounds for
approval described in subparagraphs (B), (C), and (D)
of section 1855(a)(2); and
‘‘(ii) the application by a State of any grounds
other than those required under Federal law.
‘‘(B) 
SPECIAL
RULES.—In 
applying 
subparagraph
(A)(i)—
‘‘(i) the ground of approval described in section
1855(a)(2)(B) is deemed to have been met if the State
does not have a licensing process in effect with respect
to the PDP sponsor; and
‘‘(ii) for plan years beginning before January 1,
2008, if the State does have such a licensing process
in effect, such ground for approval described in such
section is deemed to have been met upon submission
of an application described in such section.
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—With respect
to an application for a waiver (or a waiver granted) under
paragraph (1)(A) of this subsection, the provisions of subpara-
graphs (E), (F), and (G) of section 1855(a)(2) shall apply, except
that clauses (i) and (ii) of such subparagraph (E) shall not
apply in the case of a State that does not have a licensing
process described in paragraph (2)(B)(i) in effect.
‘‘(4) REFERENCES
TO
CERTAIN
PROVISIONS.—In applying
provisions of section 1855(a)(2) under paragraphs (2) and (3)
of 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 to a waiver application
under paragraph (1)(A) of this subsection; and
‘‘(B) any reference to solvency standards shall be
treated as a reference to solvency standards established
under subsection (d) of this section.
‘‘(d) SOLVENCY STANDARDS FOR NON-LICENSED ENTITIES.—
‘‘(1) ESTABLISHMENT AND PUBLICATION.—The Secretary, in
consultation with the National Association of Insurance
Commissioners, shall establish and publish, by not later than
January 1, 2005, financial solvency and capital adequacy stand-
ards for entities described in paragraph (2).
‘‘(2) COMPLIANCE WITH STANDARDS.—A PDP sponsor that
is not licensed by a State under subsection (a)(1) and for which
a waiver application has been approved under subsection (c)
shall meet solvency and capital adequacy standards established
under paragraph (1). The Secretary shall establish certification
procedures for such sponsors with respect to such solvency
standards in the manner described in section 1855(c)(2).
‘‘(e) LICENSURE DOES NOT SUBSTITUTE
FOR
OR CONSTITUTE
CERTIFICATION.—The fact that a PDP sponsor is licensed in accord-
ance with subsection (a)(1) or has a waiver application approved
under subsection (c) does not deem the sponsor to meet other
requirements imposed under this part for a sponsor.
‘‘(f) PERIODIC REVIEW AND REVISION OF STANDARDS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), the Secretary
may periodically review the standards established under this
Deadline.
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section and, based on such review, may revise such standards
if the Secretary determines such revision to be appropriate.
‘‘(2) PROHIBITION OF MIDYEAR IMPLEMENTATION OF SIGNIFI-
CANT
NEW
REGULATORY
REQUIREMENTS.—The Secretary may
not implement, other than at the beginning of a calendar year,
regulations under this section that impose new, significant
regulatory requirements on a PDP sponsor or a prescription
drug plan.
‘‘(g) PROHIBITION OF STATE IMPOSITION OF PREMIUM TAXES;
RELATION TO STATE LAWS.—The provisions of sections 1854(g) and
1856(b)(3) shall apply with respect to PDP sponsors and prescription
drug plans under this part in the same manner as such sections
apply to MA organizations and MA plans under part C.
‘‘PREMIUMS; LATE ENROLLMENT PENALTY
‘‘SEC. 1860D–13. (a) MONTHLY BENEFICIARY PREMIUM.—
‘‘(1) COMPUTATION.—
‘‘(A) IN GENERAL.—The monthly beneficiary premium
for a prescription drug plan is the base beneficiary premium
computed under paragraph (2) as adjusted under this para-
graph.
‘‘(B) ADJUSTMENT TO REFLECT DIFFERENCE BETWEEN
BID AND NATIONAL AVERAGE BID.—
‘‘(i) ABOVE
AVERAGE
BID.—If for a month the
amount of the standardized bid amount (as defined
in paragraph (5)) exceeds the amount of the adjusted
national average monthly bid amount (as defined in
clause (iii)), the base beneficiary premium for the
month shall be increased by the amount of such excess.
‘‘(ii) BELOW
AVERAGE
BID.—If for a month the
amount of the adjusted national average monthly bid
amount for the month exceeds the standardized bid
amount, the base beneficiary premium for the month
shall be decreased by the amount of such excess.
‘‘(iii) ADJUSTED NATIONAL AVERAGE MONTHLY BID
AMOUNT DEFINED.—For purposes of this subparagraph,
the term ‘adjusted national average monthly bid
amount’ means the national average monthly bid
amount computed under paragraph (4), as adjusted
under section 1860D–15(c)(2).
‘‘(C) INCREASE FOR SUPPLEMENTAL PRESCRIPTION DRUG
BENEFITS.—The 
base 
beneficiary 
premium 
shall 
be
increased by the portion of the PDP approved bid that
is attributable to supplemental prescription drug benefits.
‘‘(D) INCREASE FOR LATE ENROLLMENT PENALTY.—The
base beneficiary premium shall be increased by the amount
of any late enrollment penalty under subsection (b).
‘‘(E) DECREASE
FOR
LOW-INCOME
ASSISTANCE.—The
monthly beneficiary premium is subject to decrease in the
case of a subsidy eligible individual under section 1860D–
14.
‘‘(F) UNIFORM PREMIUM.—Except as provided in sub-
paragraphs (D) and (E), the monthly beneficiary premium
for a prescription drug plan in a PDP region is the same
for all part D eligible individuals enrolled in the plan.
42 USC
1395w–113.
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‘‘(2) BASE BENEFICIARY PREMIUM.—The base beneficiary pre-
mium under this paragraph for a prescription drug plan for
a month is equal to the product—
‘‘(A) the beneficiary premium percentage (as specified
in paragraph (3)); and
‘‘(B) the national average monthly bid amount (com-
puted under paragraph (4)) for the month.
‘‘(3) BENEFICIARY PREMIUM PERCENTAGE.—For purposes of
this subsection, the beneficiary premium percentage for any
year is the percentage equal to a fraction—
‘‘(A) the numerator of which is 25.5 percent; and
‘‘(B) the denominator of which is 100 percent minus
a percentage equal to—
‘‘(i) the total reinsurance payments which the Sec-
retary estimates are payable under section 1860D–
15(b) with respect to the coverage year; divided by
‘‘(ii) the sum of—
‘‘(I) the amount estimated under clause (i) for
the year; and
‘‘(II) the total payments which the Secretary
estimates will be paid to prescription drug plans
and MA–PD plans that are attributable to the
standardized bid amount during the year, taking
into account amounts paid by the Secretary and
enrollees.
‘‘(4) COMPUTATION
OF
NATIONAL
AVERAGE
MONTHLY
BID
AMOUNT.—
‘‘(A) IN GENERAL.—For each year (beginning with 2006)
the Secretary shall compute a national average monthly
bid amount equal to the average of the standardized bid
amounts (as defined in paragraph (5)) for each prescription
drug plan and for each MA–PD plan described in section
1851(a)(2)(A)(i). Such average does not take into account
the bids submitted for MSA plans, MA private fee-for-
service plan, and specialized MA plans for special needs
individuals, PACE programs under section 1894 (pursuant
to section 1860D–21(f)), and under reasonable cost
reimbursement contracts under section 1876(h) (pursuant
to section 1860D–21(e)).
‘‘(B) WEIGHTED AVERAGE.—
‘‘(i) IN GENERAL.—The monthly national average
monthly bid amount computed under subparagraph
(A) for a year shall be a weighted average, with the
weight for each plan being equal to the average number
of part D eligible individuals enrolled in such plan
in the reference month (as defined in section
1858(f)(4)).
‘‘(ii) SPECIAL
RULE
FOR
2006.—For purposes of
applying this paragraph for 2006, the Secretary shall
establish procedures for determining the weighted
average under clause (i) for 2005.
‘‘(5) STANDARDIZED BID AMOUNT DEFINED.—For purposes
of this subsection, the term ‘standardized bid amount’ means
the following:
‘‘(A) PRESCRIPTION DRUG PLANS.—
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‘‘(i) BASIC COVERAGE.—In the case of a prescription
drug plan that provides basic prescription drug cov-
erage, the PDP approved bid (as defined in paragraph
(6)).
‘‘(ii) SUPPLEMENTAL COVERAGE.—In the case of a
prescription drug plan that provides supplemental
prescription drug coverage, the portion of the PDP
approved bid that is attributable to basic prescription
drug coverage.
‘‘(B) MA–PD PLANS.—In the case of an MA–PD plan,
the portion of the accepted bid amount that is attributable
to basic prescription drug coverage.
‘‘(6) PDP APPROVED BID DEFINED.—For purposes of this
part, the term ‘PDP approved bid’ means, with respect to a
prescription drug plan, the bid amount approved for the plan
under this part.
‘‘(b) LATE ENROLLMENT PENALTY.—
‘‘(1) IN GENERAL.—Subject to the succeeding provisions of
this subsection, in the case of a part D eligible individual
described in paragraph (2) with respect to a continuous period
of eligibility, there shall be an increase in the monthly bene-
ficiary premium established under subsection (a) in an amount
determined under paragraph (3).
‘‘(2) INDIVIDUALS SUBJECT TO PENALTY.—A part D eligible
individual described in this paragraph is, with respect to a
continuous period of eligibility, an individual for whom there
is a continuous period of 63 days or longer (all of which in
such continuous period of eligibility) beginning on the day
after the last date of the individual’s initial enrollment period
under section 1860D–1(b)(2) and ending on the date of enroll-
ment under a prescription drug plan or MA–PD plan during
all of which the individual was not covered under any creditable
prescription drug coverage.
‘‘(3) AMOUNT OF PENALTY.—
‘‘(A) IN GENERAL.—The amount determined under this
paragraph for a part D eligible individual for a continuous
period of eligibility is the greater of—
‘‘(i) an amount that the Secretary determines is
actuarially sound for each uncovered month (as defined
in subparagraph (B)) in the same continuous period
of eligibility; or
‘‘(ii) 1 percent of the base beneficiary premium
(computed under subsection (a)(2)) for each such uncov-
ered month in such period.
‘‘(B) UNCOVERED
MONTH
DEFINED.—For purposes of
this subsection, the term ‘uncovered month’ means, with
respect to a part D eligible individual, any month beginning
after the end of the initial enrollment period under section
1860D–1(b)(2) unless the individual can demonstrate that
the individual had creditable prescription drug coverage
(as defined in paragraph (4)) for any portion of such month.
‘‘(4) CREDITABLE PRESCRIPTION DRUG COVERAGE DEFINED.—
For purposes of this part, the term ‘creditable prescription
drug coverage’ means any of the following coverage, but only
if the coverage meets the requirement of paragraph (5):
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‘‘(A) COVERAGE UNDER PRESCRIPTION DRUG PLAN OR
MA–PD
PLAN.—Coverage under a prescription drug plan
or under an MA–PD plan.
‘‘(B) MEDICAID.—Coverage under a medicaid plan
under title XIX or under a waiver under section 1115.
‘‘(C) GROUP HEALTH PLAN.—Coverage under a group
health plan, including a health benefits plan under chapter
89 of title 5, United States Code (commonly known as
the Federal employees health benefits program), and a
qualified retiree prescription drug plan (as defined in sec-
tion 1860D–22(a)(2)).
‘‘(D) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.—
Coverage under a State pharmaceutical assistance program
described in section 1860D–23(b)(1).
‘‘(E) VETERANS’ COVERAGE OF PRESCRIPTION DRUGS.—
Coverage for veterans, and survivors and dependents of
veterans, under chapter 17 of title 38, United States Code.
‘‘(F) PRESCRIPTION
DRUG
COVERAGE
UNDER
MEDIGAP
POLICIES.—Coverage under a medicare supplemental policy
under section 1882 that provides benefits for prescription
drugs (whether or not such coverage conforms to the stand-
ards for packages of benefits under section 1882(p)(1)).
‘‘(G) MILITARY COVERAGE (INCLUDING TRICARE).—Cov-
erage under chapter 55 of title 10, United States Code.
‘‘(H) OTHER COVERAGE.—Such other coverage as the
Secretary determines appropriate.
‘‘(5) ACTUARIAL
EQUIVALENCE
REQUIREMENT.—Coverage
meets the requirement of this paragraph only if the coverage
is determined (in a manner specified by the Secretary) to pro-
vide coverage of the cost of prescription drugs the actuarial
value of which (as defined by the Secretary) to the individual
equals or exceeds the actuarial value of standard prescription
drug coverage (as determined under section 1860D–11(c)).
‘‘(6) PROCEDURES TO DOCUMENT CREDITABLE PRESCRIPTION
DRUG COVERAGE.—
‘‘(A) IN GENERAL.—The Secretary shall establish proce-
dures (including the form, manner, and time) for the docu-
mentation 
of 
creditable 
prescription 
drug 
coverage,
including procedures to assist in determining whether cov-
erage meets the requirement of paragraph (5).
‘‘(B) DISCLOSURE
BY
ENTITIES
OFFERING
CREDITABLE
PRESCRIPTION DRUG COVERAGE.—
‘‘(i) IN GENERAL.—Each entity that offers prescrip-
tion drug coverage of the type described in subpara-
graphs (B) through (H) of paragraph (4) shall provide
for disclosure, in a form, manner, and time consistent
with standards established by the Secretary, to the
Secretary and part D eligible individuals of whether
the coverage meets the requirement of paragraph (5)
or whether such coverage is changed so it no longer
meets such requirement.
‘‘(ii) DISCLOSURE OF NON-CREDITABLE COVERAGE.—
In the case of such coverage that does not meet such
requirement, the disclosure to part D eligible individ-
uals under this subparagraph shall include information
regarding the fact that because such coverage does
not meet such requirement there are limitations on
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the periods in a year in which the individuals may
enroll under a prescription drug plan or an MA–PD
plan and that any such enrollment is subject to a
late enrollment penalty under this subsection.
‘‘(C) WAIVER OF REQUIREMENT.—In the case of a part
D eligible individual who was enrolled in prescription drug
coverage of the type described in subparagraphs (B)
through (H) of paragraph (4) which is not creditable
prescription drug coverage because it does not meet the
requirement of paragraph (5), the individual may apply
to the Secretary to have such coverage treated as creditable
prescription drug coverage if the individual establishes that
the individual was not adequately informed that such cov-
erage did not meet such requirement.
‘‘(7) CONTINUOUS PERIOD OF ELIGIBILITY.—
‘‘(A) IN
GENERAL.—Subject to subparagraph (B), for
purposes of this subsection, the term ‘continuous period
of eligibility’ means, with respect to a part D eligible indi-
vidual, the period that begins with the first day on which
the individual is eligible to enroll in a prescription drug
plan under this part and ends with the individual’s death.
‘‘(B) SEPARATE PERIOD.—Any period during all of which
a part D eligible individual is entitled to hospital insurance
benefits under part A and—
‘‘(i) which terminated in or before the month pre-
ceding the month in which the individual attained
age 65; or
‘‘(ii) for which the basis for eligibility for such
entitlement changed between section 226(b) and section
226(a), between 226(b) and section 226A, or between
section 226A and section 226(a),
shall be a separate continuous period of eligibility with
respect to the individual (and each such period which termi-
nates shall be deemed not to have existed for purposes
of subsequently applying this paragraph).
‘‘(c) COLLECTION OF MONTHLY BENEFICIARY PREMIUMS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3), the
provisions of section 1854(d) shall apply to PDP sponsors and
premiums (and any late enrollment penalty) under this part
in the same manner as they apply to MA organizations and
beneficiary premiums under part C, except that any reference
to a Trust Fund is deemed for this purpose a reference to
the Medicare Prescription Drug Account.
‘‘(2) CREDITING OF LATE ENROLLMENT PENALTY.—
‘‘(A) PORTION ATTRIBUTABLE TO INCREASED ACTUARIAL
COSTS.—With respect to late enrollment penalties imposed
under subsection (b), the Secretary shall specify the portion
of such a penalty that the Secretary estimates is attrib-
utable to increased actuarial costs assumed by the PDP
sponsor or MA organization (and not taken into account
through risk adjustment provided under section 1860D–
15(c)(1) or through reinsurance payments under section
1860D–15(b)) as a result of such late enrollment.
‘‘(B) COLLECTION THROUGH WITHHOLDING.—In the case
of a late enrollment penalty that is collected from a part
D eligible individual in the manner described in section
1854(d)(2)(A), the Secretary shall provide that only the
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117 STAT. 2107
PUBLIC LAW 108–173—DEC. 8, 2003
portion of such penalty estimated under subparagraph (A)
shall be paid to the PDP sponsor or MA organization
offering the part D plan in which the individual is enrolled.
‘‘(C) COLLECTION BY PLAN.—In the case of a late enroll-
ment penalty that is collected from a part D eligible indi-
vidual in a manner other than the manner described in
section 1854(d)(2)(A), the Secretary shall establish proce-
dures for reducing payments otherwise made to the PDP
sponsor or MA organization by an amount equal to the
amount of such penalty less the portion of such penalty
estimated under subparagraph (A).
‘‘(3) FALLBACK PLANS.—In applying this subsection in the
case of a fallback prescription drug plan, paragraph (2) shall
not apply and the monthly beneficiary premium shall be col-
lected in the manner specified in section 1854(d)(2)(A) (or such
other manner as may be provided under section 1840 in the
case of monthly premiums under section 1839).
‘‘PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME
INDIVIDUALS
‘‘SEC. 1860D–14. (a) INCOME-RELATED SUBSIDIES FOR INDIVID-
UALS WITH INCOME UP TO 150 PERCENT OF POVERTY LINE.—
‘‘(1) INDIVIDUALS WITH INCOME BELOW 135 PERCENT OF POV-
ERTY LINE.—In the case of a subsidy eligible individual (as
defined in paragraph (3)) who is determined to have income
that is below 135 percent of the poverty line applicable to
a family of the size involved and who meets the resources
requirement described in paragraph (3)(D) or who is covered
under this paragraph under paragraph (3)(B)(i), the individual
is entitled under this section to the following:
‘‘(A) FULL PREMIUM SUBSIDY.—An income-related pre-
mium subsidy equal to—
‘‘(i) 100 percent of the amount described in sub-
section (b)(1), but not to exceed the premium amount
specified in subsection (b)(2)(B); plus
‘‘(ii) 80 percent of any late enrollment penalties
imposed under section 1860D–13(b) for the first 60
months in which such penalties are imposed for that
individual, and 100 percent of any such penalties for
any subsequent month.
‘‘(B) ELIMINATION OF DEDUCTIBLE.—A reduction in the
annual deductible applicable under section 1860D–2(b)(1)
to $0.
‘‘(C) CONTINUATION OF COVERAGE ABOVE THE INITIAL
COVERAGE LIMIT.—The continuation of coverage from the
initial coverage limit (under paragraph (3) of section
1860D–2(b)) for expenditures incurred through the total
amount of expenditures at which benefits are available
under paragraph (4) of such section, subject to the reduced
cost-sharing described in subparagraph (D).
‘‘(D) REDUCTION
IN
COST-SHARING
BELOW
OUT-OF-
POCKET THRESHOLD.—
‘‘(i) INSTITUTIONALIZED INDIVIDUALS.—In the case
of an individual who is a full-benefit dual eligible indi-
vidual and who is an institutionalized individual or
42 USC
1395w–114.
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couple (as defined in section 1902(q)(1)(B)), the elimi-
nation of any beneficiary coinsurance described in sec-
tion 1860D–2(b)(2) (for all amounts through the total
amount of expenditures at which benefits are available
under section 1860D–2(b)(4)).
‘‘(ii) LOWEST INCOME DUAL ELIGIBLE INDIVIDUALS.—
In the case of an individual not described in clause
(i) who is a full-benefit dual eligible individual and
whose income does not exceed 100 percent of the pov-
erty line applicable to a family of the size involved,
the substitution for the beneficiary coinsurance
described in section 1860D–2(b)(2) (for all amounts
through the total amount of expenditures at which
benefits are available under section 1860D–2(b)(4)) of
a copayment amount that does not exceed $1 for a
generic drug or a preferred drug that is a multiple
source drug (as defined in section 1927(k)(7)(A)(i)) and
$3 for any other drug, or, if less, the copayment amount
applicable to an individual under clause (iii).
‘‘(iii) OTHER INDIVIDUALS.—In the case of an indi-
vidual not described in clause (i) or (ii), the substitution
for the beneficiary coinsurance described in section
1860D–2(b)(2) (for all amounts through the total
amount of expenditures at which benefits are available
under section 1860D–2(b)(4)) of a copayment amount
that does not exceed the copayment amount specified
under section 1860D–2(b)(4)(A)(i)(I) for the drug and
year involved.
‘‘(E) ELIMINATION
OF
COST-SHARING
ABOVE
ANNUAL
OUT-OF-POCKET THRESHOLD.—The elimination of any cost-
sharing imposed under section 1860D–2(b)(4)(A).
‘‘(2) OTHER INDIVIDUALS WITH INCOME BELOW 150 PERCENT
OF POVERTY LINE.—In the case of a subsidy eligible individual
who is not described in paragraph (1), the individual is entitled
under this section to the following:
‘‘(A) SLIDING
SCALE
PREMIUM
SUBSIDY.—An income-
related premium subsidy determined on a linear sliding
scale ranging from 100 percent of the amount described
in paragraph (1)(A) for individuals with incomes at or
below 135 percent of such level to 0 percent of such amount
for individuals with incomes at 150 percent of such level.
‘‘(B) REDUCTION OF DEDUCTIBLE.—A reduction in the
annual deductible applicable under section 1860D–2(b)(1)
to $50.
‘‘(C) CONTINUATION OF COVERAGE ABOVE THE INITIAL
COVERAGE LIMIT.—The continuation of coverage from the
initial coverage limit (under paragraph (3) of section
1860D–2(b)) for expenditures incurred through the total
amount of expenditures at which benefits are available
under paragraph (4) of such section, subject to the reduced
coinsurance described in subparagraph (D).
‘‘(D) REDUCTION
IN
COST-SHARING
BELOW
OUT-OF-
POCKET THRESHOLD.—The substitution for the beneficiary
coinsurance described in section 1860D–2(b)(2) (for all
amounts above the deductible under subparagraph (B)
through the total amount of expenditures at which benefits
are available under section 1860D–2(b)(4)) of coinsurance
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of ‘15 percent’ instead of coinsurance of ‘25 percent’ in
section 1860D–2(b)(2).
‘‘(E) REDUCTION OF COST-SHARING ABOVE ANNUAL OUT-
OF-POCKET
THRESHOLD.—Subject to subsection (c), the
substitution for the cost-sharing imposed under section
1860D–2(b)(4)(A) of a copayment or coinsurance not to
exceed the copayment or coinsurance amount specified
under section 1860D–2(b)(4)(A)(i)(I) for the drug and year
involved.
‘‘(3) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DEFINED.—For pur-
poses of this part, subject to subparagraph (F), the term
‘subsidy eligible individual’ means a part D eligible indi-
vidual who—
‘‘(i) is enrolled in a prescription drug plan or MA–
PD plan;
‘‘(ii) has income below 150 percent of the poverty
line applicable to a family of the size involved; and
‘‘(iii) meets the resources requirement described
in subparagraph (D) or (E).
‘‘(B) DETERMINATIONS.—
‘‘(i) IN GENERAL.—The determination of whether
a part D eligible individual residing in a State is a
subsidy eligible individual and whether the individual
is described in paragraph (1) shall be determined under
the State plan under title XIX for the State under
section 1935(a) or by the Commissioner of Social Secu-
rity. There are authorized to be appropriated to the
Social Security Administration such sums as may be
necessary for the determination of eligibility under
this subparagraph.
‘‘(ii) EFFECTIVE
PERIOD.—Determinations under
this subparagraph shall be effective beginning with
the month in which the individual applies for a deter-
mination that the individual is a subsidy eligible indi-
vidual and shall remain in effect for a period specified
by the Secretary, but not to exceed 1 year.
‘‘(iii) REDETERMINATIONS
AND
APPEALS
THROUGH
MEDICAID.—Redeterminations 
and 
appeals, 
with
respect to eligibility determinations under clause (i)
made under a State plan under title XIX, shall be
made in accordance with the frequency of, and manner
in which, redeterminations and appeals of eligibility
are made under such plan for purposes of medical
assistance under such title.
‘‘(iv) REDETERMINATIONS
AND
APPEALS
THROUGH
COMMISSIONER.—With respect to eligibility determina-
tions under clause (i) made by the Commissioner of
Social Security—
‘‘(I) redeterminations shall be made at such
time or times as may be provided by the Commis-
sioner; and
‘‘(II) the Commissioner shall establish proce-
dures for appeals of such determinations that are
similar to the procedures described in the third
sentence of section 1631(c)(1)(A).
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‘‘(v) TREATMENT
OF
MEDICAID
BENEFICIARIES.—
Subject to subparagraph (F), the Secretary—
‘‘(I) shall provide that part D eligible individ-
uals who are full-benefit dual eligible individuals
(as defined in section 1935(c)(6)) or who are recipi-
ents of supplemental security income benefits
under title XVI shall be treated as subsidy eligible
individuals described in paragraph (1); and
‘‘(II) may provide that part D eligible individ-
uals not described in subclause (I) who are deter-
mined for purposes of the State plan under title
XIX to be eligible for medical assistance under
clause (i), (iii), or (iv) of section 1902(a)(10)(E) are
treated as being determined to be subsidy eligible
individuals described in paragraph (1).
Insofar as the Secretary determines that the eligibility
requirements under the State plan for medical assist-
ance referred to in subclause (II) are substantially
the same as the requirements for being treated as
a subsidy eligible individual described in paragraph
(1), the Secretary shall provide for the treatment
described in such subclause.
‘‘(C) 
INCOME
DETERMINATIONS.—For 
purposes 
of
applying this section—
‘‘(i) in the case of a part D eligible individual
who is not treated as a subsidy eligible individual
under subparagraph (B)(v), income shall be determined
in the manner described in section 1905(p)(1)(B), with-
out regard to the application of section 1902(r)(2); and
‘‘(ii) the term ‘poverty line’ has the meaning given
such term in section 673(2) of the Community Services
Block Grant Act (42 U.S.C. 9902(2)), including any
revision required by such section.
Nothing in clause (i) shall be construed to affect the applica-
tion of section 1902(r)(2) for the determination of eligibility
for medical assistance under title XIX.
‘‘(D) RESOURCE
STANDARD
APPLIED
TO
FULL
LOW-
INCOME
SUBSIDY
TO
BE
BASED
ON
THREE
TIMES
SSI
RESOURCE STANDARD.—The resources requirement of this
subparagraph is that an individual’s resources (as deter-
mined under section 1613 for purposes of the supplemental
security income program) do not exceed—
‘‘(i) for 2006 three times the maximum amount
of resources that an individual may have and obtain
benefits under that program; and
‘‘(ii) for a subsequent year the resource limitation
established under this clause for the previous year
increased by the annual percentage increase in the
consumer price index (all items; U.S. city average)
as of September of such previous year.
Any resource limitation established under clause (ii) that
is not a multiple of $10 shall be rounded to the nearest
multiple of $10.
‘‘(E) ALTERNATIVE RESOURCE STANDARD.—
‘‘(i) IN
GENERAL.—The resources requirement of
this subparagraph is that an individual’s resources
(as determined under section 1613 for purposes of the
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PUBLIC LAW 108–173—DEC. 8, 2003
supplemental 
security 
income 
program) 
do 
not
exceed—
‘‘(I) for 2006, $10,000 (or $20,000 in the case
of the combined value of the individual’s assets
or resources and the assets or resources of the
individual’s spouse); and
‘‘(II) for a subsequent year the dollar amounts
specified in this subclause (or subclause (I)) for
the previous year increased by the annual percent-
age increase in the consumer price index (all items;
U.S. city average) as of September of such previous
year.
Any dollar amount established under subclause (II)
that is not a multiple of $10 shall be rounded to
the nearest multiple of $10.
‘‘(ii) USE
OF
SIMPLIFIED
APPLICATION
FORM
AND
PROCESS.—The Secretary, jointly with the Commis-
sioner of Social Security, shall—
‘‘(I) develop a model, simplified application
form and process consistent with clause (iii) for
the determination and verification of a part D
eligible individual’s assets or resources under this
subparagraph; and
‘‘(II) provide such form to States.
‘‘(iii) DOCUMENTATION
AND
SAFEGUARDS.—Under
such process—
‘‘(I) the application form shall consist of an
attestation under penalty of perjury regarding the
level of assets or resources (or combined assets
and resources in the case of a married part D
eligible individual) and valuations of general
classes of assets or resources;
‘‘(II) such form shall be accompanied by copies
of recent statements (if any) from financial institu-
tions in support of the application; and
‘‘(III) matters attested to in the application
shall be subject to appropriate methods of
verification.
‘‘(iv) METHODOLOGY
FLEXIBILITY.—The Secretary
may permit a State in making eligibility determina-
tions for premium and cost-sharing subsidies under
this section to use the same asset or resource meth-
odologies that are used with respect to eligibility for
medical assistance for medicare cost-sharing described
in section 1905(p) so long as the Secretary determines
that the use of such methodologies will not result in
any significant differences in the number of individuals
determined to be subsidy eligible individuals.
‘‘(F) TREATMENT OF TERRITORIAL RESIDENTS.—In the
case of a part D eligible individual who is not a resident
of the 50 States or the District of Columbia, the individual
is not eligible to be a subsidy eligible individual under
this section but may be eligible for financial assistance
with prescription drug expenses under section 1935(e).
‘‘(4) INDEXING DOLLAR AMOUNTS.—
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‘‘(A) COPAYMENT FOR LOWEST INCOME DUAL ELIGIBLE
INDIVIDUALS.—The dollar amounts applied under para-
graph (1)(D)(ii)—
‘‘(i) for 2007 shall be the dollar amounts specified
in such paragraph increased by the annual percentage
increase in the consumer price index (all items; U.S.
city average) as of September of such previous year;
or
‘‘(ii) for a subsequent year shall be the dollar
amounts specified in this clause (or clause (i)) for the
previous year increased by the annual percentage
increase in the consumer price index (all items; U.S.
city average) as of September of such previous year.
Any amount established under clause (i) or (ii), that is
based on an increase of $1 or $3, that is not a multiple
of 5 cents or 10 cents, respectively, shall be rounded to
the nearest multiple of 5 cents or 10 cents, respectively.
‘‘(B) 
REDUCED
DEDUCTIBLE.—The 
dollar 
amount
applied under paragraph (2)(B)—
‘‘(i) for 2007 shall be the dollar amount specified
in such paragraph increased by the annual percentage
increase described in section 1860D–2(b)(6) for 2007;
or
‘‘(ii) for a subsequent year shall be the dollar
amount specified in this clause (or clause (i)) for the
previous year increased by the annual percentage
increase described in section 1860D–2(b)(6) for the year
involved.
Any amount established under clause (i) or (ii) that is
not a multiple of $1 shall be rounded to the nearest mul-
tiple of $1.
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN GENERAL.—The premium subsidy amount described
in this subsection for a subsidy eligible individual residing
in a PDP region and enrolled in a prescription drug plan
or MA–PD plan is the low-income benchmark premium amount
(as defined in paragraph (2)) for the PDP region in which
the individual resides or, if greater, the amount specified in
paragraph (3).
‘‘(2) LOW-INCOME BENCHMARK PREMIUM AMOUNT DEFINED.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘low-income benchmark premium amount’ means,
with respect to a PDP region in which—
‘‘(i) all prescription drug plans are offered by the
same PDP sponsor, the weighted average of the
amounts described in subparagraph (B)(i) for such
plans; or
‘‘(ii) there are prescription drug plans offered by
more than one PDP sponsor, the weighted average
of amounts described in subparagraph (B) for prescrip-
tion drug plans and MA–PD plans described in section
1851(a)(2)(A)(i) offered in such region.
‘‘(B) PREMIUM
AMOUNTS
DESCRIBED.—The premium
amounts described in this subparagraph are, in the case
of—
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‘‘(i) a prescription drug plan that is a basic
prescription drug plan, the monthly beneficiary pre-
mium for such plan;
‘‘(ii) a prescription drug plan that provides alter-
native prescription drug coverage the actuarial value
of which is greater than that of standard prescription
drug coverage, the portion of the monthly beneficiary
premium that is attributable to basic prescription drug
coverage; and
‘‘(iii) an MA–PD plan, the portion of the MA
monthly prescription drug beneficiary premium that
is attributable to basic prescription drug benefits
(described in section 1852(a)(6)(B)(ii)).
The premium amounts described in this subparagraph do
not include any amounts attributable to late enrollment
penalties under section 1860D–13(b).
‘‘(3) ACCESS TO 0 PREMIUM PLAN.—In no case shall the
premium subsidy amount under this subsection for a PDP
region be less than the lowest monthly beneficiary premium
for a prescription drug plan that offers basic prescription drug
coverage in the region.
‘‘(c) ADMINISTRATION OF SUBSIDY PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary shall provide a process
whereby, in the case of a part D eligible individual who is
determined to be a subsidy eligible individual and who is
enrolled in a prescription drug plan or is enrolled in an MA–
PD plan—
‘‘(A) the Secretary provides for a notification of the
PDP sponsor or the MA organization offering the plan
involved that the individual is eligible for a subsidy and
the amount of the subsidy under subsection (a);
‘‘(B) the sponsor or organization involved reduces the
premiums or cost-sharing otherwise imposed by the amount
of the applicable subsidy and submits to the Secretary
information on the amount of such reduction;
‘‘(C) the Secretary periodically and on a timely basis
reimburses the sponsor or organization for the amount
of such reductions; and
‘‘(D) the Secretary ensures the confidentiality of
individually identifiable information.
In applying subparagraph (C), the Secretary shall compute
reductions based upon imposition under subsections (a)(1)(D)
and (a)(2)(E) of unreduced copayment amounts applied under
such subsections.
‘‘(2) USE OF CAPITATED FORM OF PAYMENT.—The reimburse-
ment under this section with respect to cost-sharing subsidies
may be computed on a capitated basis, taking into account
the actuarial value of the subsidies and with appropriate adjust-
ments to reflect differences in the risks actually involved.
‘‘(d) RELATION TO MEDICAID PROGRAM.—For special provisions
under the medicaid program relating to medicare prescription drug
benefits, see section 1935.
‘‘SUBSIDIES FOR PART D ELIGIBLE INDIVIDUALS FOR QUALIFIED
PRESCRIPTION DRUG COVERAGE
‘‘SEC. 1860D–15. (a) SUBSIDY PAYMENT.—In order to reduce
premium levels applicable to qualified prescription drug coverage
42 USC
1395w–115.
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for part D eligible individuals consistent with an overall subsidy
level of 74.5 percent for basic prescription drug coverage, to reduce
adverse selection among prescription drug plans and MA–PD plans,
and to promote the participation of PDP sponsors under this part
and MA organizations under part C, the Secretary shall provide
for payment to a PDP sponsor that offers a prescription drug
plan and an MA organization that offers an MA–PD plan of the
following subsidies in accordance with this section:
‘‘(1) DIRECT SUBSIDY.—A direct subsidy for each part D
eligible individual enrolled in a prescription drug plan or MA–
PD plan for a month equal to—
‘‘(A) the amount of the plan’s standardized bid amount
(as defined in section 1860D–13(a)(5)), adjusted under sub-
section (c)(1), reduced by
‘‘(B) the base beneficiary premium (as computed under
paragraph (2) of section 1860D–13(a) and as adjusted under
paragraph (1)(B) of such section).
‘‘(2) SUBSIDY
THROUGH
REINSURANCE.—The reinsurance
payment amount (as defined in subsection (b)).
This section constitutes budget authority in advance of appropria-
tions Acts and represents the obligation of the Secretary to provide
for the payment of amounts provided under this section.
‘‘(b) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN GENERAL.—The reinsurance payment amount under
this subsection for a part D eligible individual enrolled in
a prescription drug plan or MA–PD plan for a coverage year
is an amount equal to 80 percent of the allowable reinsurance
costs (as specified in paragraph (2)) attributable to that portion
of gross covered prescription drug costs as specified in para-
graph (3) incurred in the coverage year after such individual
has incurred costs that exceed the annual out-of-pocket
threshold specified in section 1860D–2(b)(4)(B).
‘‘(2) ALLOWABLE REINSURANCE COSTS.—For purposes of this
section, the term ‘allowable reinsurance costs’ means, with
respect to gross covered prescription drug costs under a
prescription drug plan offered by a PDP sponsor or an MA–
PD plan offered by an MA organization, the part of such costs
that are actually paid (net of discounts, chargebacks, and aver-
age percentage rebates) by the sponsor or organization or by
(or on behalf of) an enrollee 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 basic prescription drug coverage, or, in the case
of a plan providing supplemental prescription drug coverage,
if such coverage were standard prescription drug coverage.
‘‘(3) GROSS COVERED PRESCRIPTION DRUG COSTS.—For pur-
poses of this section, the term ‘gross covered prescription drug
costs’ means, with respect to a part D eligible individual
enrolled in a prescription drug plan or MA–PD plan during
a coverage year, the costs incurred under the plan, not including
administrative costs, but including costs directly related to
the dispensing of covered part D drugs during the year and
costs relating to the deductible. Such costs shall be determined
whether they are paid by the individual or under the plan,
regardless of whether the coverage under the plan exceeds
basic prescription drug coverage.
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‘‘(4) COVERAGE YEAR DEFINED.—For purposes of this section,
the term ‘coverage year’ means a calendar year in which covered
part D drugs are dispensed if the claim for such drugs (and
payment on such claim) is made not later than such period
after the end of such year as the Secretary specifies.
‘‘(c) ADJUSTMENTS RELATING TO BIDS.—
‘‘(1) HEALTH STATUS RISK ADJUSTMENT.—
‘‘(A) ESTABLISHMENT
OF
RISK
ADJUSTORS.—The Sec-
retary shall establish an appropriate methodology for
adjusting the standardized bid amount under subsection
(a)(1)(A) to take into account variation in costs for basic
prescription drug coverage among prescription drug plans
and MA–PD plans based on the differences in actuarial
risk of different enrollees being served. Any such risk
adjustment shall be designed in a manner so as not to
result in a change in the aggregate amounts payable to
such plans under subsection (a)(1) and through that portion
of the monthly beneficiary prescription drug premiums
described in subsection (a)(1)(B) and MA monthly prescrip-
tion drug beneficiary premiums.
‘‘(B) CONSIDERATIONS.—In establishing the method-
ology under subparagraph (A), the Secretary may take
into account the similar methodologies used under section
1853(a)(3) to adjust payments to MA organizations for bene-
fits under the original medicare fee-for-service program
option.
‘‘(C) DATA
COLLECTION.—In order to carry out this
paragraph, the Secretary shall require—
‘‘(i) PDP sponsors to submit data regarding drug
claims that can be linked at the individual level to
part A and part B data and such other information
as the Secretary determines necessary; and
‘‘(ii) MA organizations that offer MA–PD plans
to submit data regarding drug claims that can be
linked at the individual level to other data that such
organizations are required to submit to the Secretary
and such other information as the Secretary deter-
mines necessary.
‘‘(D) PUBLICATION.—At the time of publication of risk
adjustment factors under section 1853(b)(1)(B)(i)(II), the
Secretary shall publish the risk adjusters established under
this paragraph for the succeeding year.
‘‘(2) GEOGRAPHIC ADJUSTMENT.—
‘‘(A) IN
GENERAL.—Subject to subparagraph (B), for
purposes of section 1860D–13(a)(1)(B)(iii), the Secretary
shall establish an appropriate methodology for adjusting
the national average monthly bid amount (computed under
section 1860D–13(a)(4)) to take into account differences
in prices for covered part D drugs among PDP regions.
‘‘(B) DE MINIMIS RULE.—If the Secretary determines
that the price variations described in subparagraph (A)
among PDP regions are de minimis, the Secretary shall
not provide for adjustment under this paragraph.
‘‘(C) BUDGET NEUTRAL ADJUSTMENT.—Any adjustment
under this paragraph shall be applied in a manner so
as to not result in a change in the aggregate payments
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made under this part that would have been made if the
Secretary had not applied such adjustment.
‘‘(d) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this section shall be
based on such a method as the Secretary determines. The
Secretary may establish a payment method by which interim
payments of amounts under this section are made during a
year based on the Secretary’s best estimate of amounts that
will be payable after obtaining all of the information.
‘‘(2) REQUIREMENT FOR PROVISION OF INFORMATION.—
‘‘(A) REQUIREMENT.—Payments under this section to
a PDP sponsor or MA organization are conditioned upon
the furnishing to the Secretary, in a form and manner
specified by the Secretary, of such information as may
be required to carry out this section.
‘‘(B) RESTRICTION ON USE OF INFORMATION.—Informa-
tion disclosed or obtained pursuant to subparagraph (A)
may be used by officers, employees, and contractors of
the Department of Health and Human Services only for
the purposes of, and to the extent necessary in, carrying
out this section.
‘‘(3) SOURCE OF PAYMENTS.—Payments under this section
shall be made from the Medicare Prescription Drug Account.
‘‘(4) APPLICATION OF ENROLLEE ADJUSTMENT.—The provi-
sions of section 1853(a)(2) shall apply to payments to PDP
sponsors under this section in the same manner as they apply
to payments to MA organizations under section 1853(a).
‘‘(e) PORTION OF TOTAL PAYMENTS TO A SPONSOR OR ORGANIZA-
TION SUBJECT TO RISK (APPLICATION OF RISK CORRIDORS).—
‘‘(1) COMPUTATION OF ADJUSTED ALLOWABLE RISK CORRIDOR
COSTS.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘adjusted allowable risk corridor costs’ means, for
a plan for a coverage year (as defined in subsection (b)(4))—
‘‘(i) the allowable risk corridor costs (as defined
in subparagraph (B)) for the plan for the year, reduced
by
‘‘(ii) the sum of (I) the total reinsurance payments
made under subsection (b) to the sponsor of the plan
for the year, and (II) the total subsidy payments made
under section 1860D–14 to the sponsor of the plan
for the year.
‘‘(B) ALLOWABLE RISK CORRIDOR COSTS.—For purposes
of this subsection, the term ‘allowable risk corridor costs’
means, with respect to a prescription drug plan offered
by a PDP sponsor or an MA–PD plan offered by an MA
organization, the part of costs (not including administrative
costs, but including costs directly related to the dispensing
of covered part D drugs during the year) incurred by the
sponsor or organization under the plan that are actually
paid (net of discounts, chargebacks, and average percentage
rebates) by the sponsor or organization 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 basic prescription drug
coverage, or, in the case of a plan providing supplemental
prescription drug coverage, if such coverage were basic
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prescription drug coverage taking into account the adjust-
ment under section 1860D–11(c)(2). In computing allowable
costs under this paragraph, the Secretary shall compute
such costs based upon imposition under paragraphs (1)(D)
and (2)(E) of section 1860D–14(a) of the maximum amount
of copayments permitted under such paragraphs.
‘‘(2) ADJUSTMENT OF PAYMENT.—
‘‘(A) NO
ADJUSTMENT
IF
ADJUSTED
ALLOWABLE
RISK
CORRIDOR COSTS WITHIN RISK CORRIDOR.—If the adjusted
allowable risk corridor costs (as defined in paragraph (1))
for the plan for the year are at least equal to the first
threshold lower limit of the risk corridor (specified in para-
graph (3)(A)(i)), but not greater than the first threshold
upper limit of the risk corridor (specified in paragraph
(3)(A)(iii)) for the plan for the year, then no payment adjust-
ment shall be made under this subsection.
‘‘(B) INCREASE IN PAYMENT IF ADJUSTED ALLOWABLE
RISK CORRIDOR COSTS ABOVE UPPER LIMIT OF RISK COR-
RIDOR.—
‘‘(i) COSTS BETWEEN FIRST AND SECOND THRESHOLD
UPPER LIMITS.—If the adjusted allowable risk corridor
costs for the plan for the year are greater than the
first threshold upper limit, but not greater than the
second threshold upper limit, of the risk corridor for
the plan for the year, the Secretary shall increase
the total of the payments made to the sponsor or
organization offering the plan for the year under this
section by an amount equal to 50 percent (or, for
2006 and 2007, 75 percent or 90 percent if the condi-
tions described in clause (iii) are met for the year)
of the difference between such adjusted allowable risk
corridor costs and the first threshold upper limit of
the risk corridor.
‘‘(ii) COSTS
ABOVE
SECOND
THRESHOLD
UPPER
LIMITS.—If the adjusted allowable risk corridor costs
for the plan for the year are greater than the second
threshold upper limit of the risk corridor for the plan
for the year, the Secretary shall increase the total
of the payments made to the sponsor or organization
offering the plan for the year under this section by
an amount equal to the sum of—
‘‘(I) 50 percent (or, for 2006 and 2007, 75 per-
cent or 90 percent if the conditions described in
clause (iii) are met for the year) of the difference
between the second threshold upper limit and the
first threshold upper limit; and
‘‘(II) 80 percent of the difference between such
adjusted allowable risk corridor costs and the
second threshold upper limit of the risk corridor.
‘‘(iii) CONDITIONS
FOR
APPLICATION
OF
HIGHER
PERCENTAGE
FOR
2006
AND
2007.—The conditions
described in this clause are met for 2006 or 2007
if the Secretary determines with respect to such year
that—
‘‘(I) at least 60 percent of prescription drug
plans and MA–PD plans to which this subsection
applies have adjusted allowable risk corridor costs
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for the plan for the year that are more than the
first threshold upper limit of the risk corridor for
the plan for the year; and
‘‘(II) such plans represent at least 60 percent
of part D eligible individuals enrolled in any
prescription drug plan or MA–PD plan.
‘‘(C) REDUCTION IN PAYMENT IF ADJUSTED ALLOWABLE
RISK CORRIDOR COSTS BELOW LOWER LIMIT OF RISK COR-
RIDOR.—
‘‘(i) COSTS BETWEEN FIRST AND SECOND THRESHOLD
LOWER LIMITS.—If the adjusted allowable risk corridor
costs for the plan for the year are less than the first
threshold lower limit, but not less than the second
threshold lower limit, of the risk corridor for the plan
for the year, the Secretary shall reduce the total of
the payments made to the sponsor or organization
offering the plan for the year under this section by
an amount (or otherwise recover from the sponsor or
organization an amount) equal to 50 percent (or, for
2006 and 2007, 75 percent) of the difference between
the first threshold lower limit of the risk corridor and
such adjusted allowable risk corridor costs.
‘‘(ii) COSTS
BELOW
SECOND
THRESHOLD
LOWER
LIMIT.—If the adjusted allowable risk corridor costs
for the plan for the year are less the second threshold
lower limit of the risk corridor for the plan for the
year, the Secretary shall reduce the total of the pay-
ments made to the sponsor or organization offering
the plan for the year under this section by an amount
(or otherwise recover from the sponsor or organization
an amount) equal to the sum of—
‘‘(I) 50 percent (or, for 2006 and 2007, 75 per-
cent) of the difference between the first threshold
lower limit and the second threshold lower limit;
and
‘‘(II) 80 percent of the difference between the
second threshold upper limit of the risk corridor
and such adjusted allowable risk corridor costs.
‘‘(3) ESTABLISHMENT OF RISK CORRIDORS.—
‘‘(A) IN GENERAL.—For each plan year the Secretary
shall establish a risk corridor for each prescription drug
plan and each MA–PD plan. The risk corridor for a plan
for a year shall be equal to a range as follows:
‘‘(i) FIRST
THRESHOLD
LOWER
LIMIT.—The first
threshold lower limit of such corridor shall be equal
to—
‘‘(I) the target amount described in subpara-
graph (B) for the plan; minus
‘‘(II) an amount equal to the first threshold
risk percentage for the plan (as determined under
subparagraph (C)(i)) of such target amount.
‘‘(ii) SECOND THRESHOLD LOWER LIMIT.—The second
threshold lower limit of such corridor shall be equal
to—
‘‘(I) the target amount described in subpara-
graph (B) for the plan; minus
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‘‘(II) an amount equal to the second threshold
risk percentage for the plan (as determined under
subparagraph (C)(ii)) of such target amount.
‘‘(iii) FIRST
THRESHOLD
UPPER
LIMIT.—The first
threshold upper limit of such corridor shall be equal
to the sum of—
‘‘(I) such target amount; and
‘‘(II) the amount described in clause (i)(II).
‘‘(iv) SECOND THRESHOLD UPPER LIMIT.—The second
threshold upper limit of such corridor shall be equal
to the sum of—
‘‘(I) such target amount; and
‘‘(II) the amount described in clause (ii)(II).
‘‘(B) TARGET AMOUNT DESCRIBED.—The target amount
described in this paragraph is, with respect to a prescrip-
tion drug plan or an MA–PD plan in a year, the total
amount of payments paid to the PDP sponsor or MA–
PD organization for the plan for the year, taking into
account amounts paid by the Secretary and enrollees, based
upon the standardized bid amount (as defined in section
1860D–13(a)(5) and as risk adjusted under subsection
(c)(1)), reduced by the total amount of administrative
expenses for the year assumed in such standardized bid.
‘‘(C) FIRST AND SECOND THRESHOLD RISK PERCENTAGE
DEFINED.—
‘‘(i) FIRST THRESHOLD RISK PERCENTAGE.—Subject
to clause (iii), for purposes of this section, the first
threshold risk percentage is—
‘‘(I) for 2006 and 2007, and 2.5 percent;
‘‘(II) for 2008 through 2011, 5 percent; and
‘‘(III) for 2012 and subsequent years, a
percentage established by the Secretary, but in
no case less than 5 percent.
‘‘(ii) SECOND THRESHOLD RISK PERCENTAGE.—Sub-
ject to clause (iii), for purposes of this section, the
second threshold risk percentage is—
‘‘(I) for 2006 and 2007, 5 percent;
‘‘(II) for 2008 through 2011, 10 percent; and
‘‘(III) for 2012 and subsequent years, a
percentage established by the Secretary that is
greater than the percent established for the year
under clause (i)(III), but in no case less than 10
percent.
‘‘(iii) REDUCTION OF RISK PERCENTAGE TO ENSURE
2
PLANS
IN
AN
AREA.—Pursuant to section 1860D–
11(b)(2)(E)(ii), a PDP sponsor may submit a bid that
requests a decrease in the applicable first or second
threshold risk percentages or an increase in the per-
cents applied under paragraph (2).
‘‘(4) PLANS AT RISK FOR ENTIRE AMOUNT OF SUPPLEMENTAL
PRESCRIPTION
DRUG
COVERAGE.—A PDP sponsor and MA
organization that offers a plan that provides supplemental
prescription drug benefits shall be at full financial risk for
the provision of such supplemental benefits.
‘‘(5) NO EFFECT ON MONTHLY PREMIUM.—No adjustment
in payments made by reason of this subsection shall affect
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the monthly beneficiary premium or the MA monthly prescrip-
tion drug beneficiary premium.
‘‘(f) DISCLOSURE OF INFORMATION.—
‘‘(1) IN GENERAL.—Each contract under this part and under
part C shall provide that—
‘‘(A) the PDP sponsor offering a prescription drug plan
or an MA organization offering an MA–PD plan shall pro-
vide the Secretary with such information as the Secretary
determines is necessary to carry out this section; and
‘‘(B) the Secretary shall have the right in accordance
with section 1857(d)(2)(B) (as applied under section 1860D–
12(b)(3)(C)) to inspect and audit any books and records
of a PDP sponsor or MA organization that pertain to the
information regarding costs provided to the Secretary under
subparagraph (A).
‘‘(2) RESTRICTION ON USE OF INFORMATION.—Information
disclosed or obtained pursuant to the provisions of this section
may be used by officers, employees, and contractors of the
Department of Health and Human Services only for the pur-
poses of, and to the extent necessary in, carrying out this
section.
‘‘(g) PAYMENT FOR FALLBACK PRESCRIPTION DRUG PLANS.—In
lieu of the amounts otherwise payable under this section to a
PDP sponsor offering a fallback prescription drug plan (as defined
in section 1860D–3(c)(4)), the amount payable shall be the amounts
determined under the contract for such plan pursuant to section
1860D–11(g)(5).
‘‘MEDICARE PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL
SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND
‘‘SEC. 1860D–16. (a) ESTABLISHMENT
AND
OPERATION
OF
ACCOUNT.—
‘‘(1) ESTABLISHMENT.—There is created within the Federal
Supplementary Medical Insurance Trust Fund established by
section 1841 an account to be known as the ‘Medicare Prescrip-
tion Drug Account’ (in this section referred to as the ‘Account’).
‘‘(2) FUNDING.—The Account shall consist of such gifts and
bequests as may be made as provided in section 201(i)(1),
accrued interest on balances in the Account, and such amounts
as may be deposited in, or appropriated to, such Account as
provided in this part.
‘‘(3) SEPARATE FROM REST OF TRUST FUND.—Funds provided
under this part to the Account shall be kept separate from
all other funds within the Federal Supplementary Medical
Insurance Trust Fund, but shall be invested, and such invest-
ments redeemed, in the same manner as all other funds and
investments within such Trust Fund.
‘‘(b) PAYMENTS FROM ACCOUNT.—
‘‘(1) IN GENERAL.—The Managing Trustee shall pay from
time to time from the Account such amounts as the Secretary
certifies are necessary to make payments to operate the pro-
gram under this part, including—
‘‘(A) payments under section 1860D–14 (relating to low-
income subsidy payments);
‘‘(B) payments under section 1860D–15 (relating to sub-
sidy payments and payments for fallback plans);
42 USC
1395w–116.
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‘‘(C) payments to sponsors of qualified retiree prescrip-
tion drug plans under section 1860D–22(a); and
‘‘(D) payments with respect to administrative expenses
under this part in accordance with section 201(g).
‘‘(2) TRANSFERS
TO
MEDICAID
ACCOUNT
FOR
INCREASED
ADMINISTRATIVE COSTS.—The Managing Trustee shall transfer
from time to time from the Account to the Grants to States
for Medicaid account amounts the Secretary certifies are attrib-
utable to increases in payment resulting from the application
of section 1935(b).
‘‘(3) PAYMENTS OF PREMIUMS WITHHELD.—The Managing
Trustee shall make payment to the PDP sponsor or MA
organization involved of the premiums (and the portion of late
enrollment penalties) that are collected in the manner described
in section 1854(d)(2)(A) and that are payable under a prescrip-
tion drug plan or MA–PD plan offered by such sponsor or
organization.
‘‘(4) TREATMENT
IN
RELATION
TO
PART
B
PREMIUM.—
Amounts payable from the Account shall not be taken into
account in computing actuarial rates or premium amounts
under section 1839.
‘‘(c) DEPOSITS INTO ACCOUNT.—
‘‘(1) LOW-INCOME TRANSFER.—Amounts paid under section
1935(c) (and any amounts collected or offset under paragraph
(1)(C) of such section) are deposited into the Account.
‘‘(2) AMOUNTS
WITHHELD.—Pursuant to sections 1860D–
13(c) and 1854(d) (as applied under this part), amounts that
are withheld (and allocated) to the Account are deposited into
the Account.
‘‘(3) APPROPRIATIONS
TO
COVER
GOVERNMENT
CONTRIBU-
TIONS.—There are authorized to be appropriated from time
to time, out of any moneys in the Treasury not otherwise
appropriated, to the Account, an amount equivalent to the
amount of payments made from the Account under subsection
(b) plus such amounts as the Managing Trustee certifies is
necessary to maintain an appropriate contingency margin,
reduced by the amounts deposited under paragraph (1) or sub-
section (a)(2).
‘‘(4) INITIAL FUNDING AND RESERVE.—In order to assure
prompt payment of benefits provided under this part and the
administrative expenses thereunder during the early months
of the program established by this part and to provide an
initial contingency reserve, there are authorized to be appro-
priated to the Account, out of any moneys in the Treasury
not otherwise appropriated, such amount as the Secretary cer-
tifies are required, but not to exceed 10 percent of the estimated
total expenditures from such Account in 2006.
‘‘(5) TRANSFER OF ANY REMAINING BALANCE FROM TRANSI-
TIONAL ASSISTANCE ACCOUNT.—Any balance in the Transitional
Assistance Account that is transferred under section 1860D–
31(k)(5) shall be deposited into the Account.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘Subpart 3—Application to Medicare Advantage Program and
Treatment of Employer-Sponsored Programs and Other Prescrip-
tion Drug Plans
‘‘APPLICATION TO MEDICARE ADVANTAGE PROGRAM AND RELATED
MANAGED CARE PROGRAMS
‘‘SEC. 1860D–21. (a) SPECIAL RULES RELATING TO OFFERING
OF QUALIFIED PRESCRIPTION DRUG COVERAGE.—
‘‘(1) IN
GENERAL.—An MA organization on and after
January 1, 2006—
‘‘(A) may not offer an MA plan described in section
1851(a)(2)(A) in an area unless either that plan (or another
MA plan offered by the organization in that same service
area) includes required prescription drug coverage (as
defined in paragraph (2)); and
‘‘(B) may not offer prescription drug coverage (other
than that required under parts A and B) to an enrollee—
‘‘(i) under an MSA plan; or
‘‘(ii) under another MA plan unless such drug cov-
erage under such other plan provides qualified
prescription drug coverage and unless the require-
ments of this section with respect to such coverage
are met.
‘‘(2) QUALIFYING
COVERAGE.—For purposes of paragraph
(1)(A), the term ‘required coverage’ means with respect to an
MA–PD plan—
‘‘(A) basic prescription drug coverage; or
‘‘(B) qualified prescription drug coverage that provides
supplemental prescription drug coverage, so long as there
is no MA monthly supplemental beneficiary premium
applied under the plan (due to the application of a credit
against 
such 
premium 
of 
a 
rebate 
under 
section
1854(b)(1)(C)).
‘‘(b) APPLICATION OF DEFAULT ENROLLMENT RULES.—
‘‘(1) 
SEAMLESS
CONTINUATION.—In 
applying 
section
1851(c)(3)(A)(ii), an individual who is enrolled in a health bene-
fits plan shall not be considered to have been deemed to make
an election into an MA–PD plan unless such health benefits
plan provides any prescription drug coverage.
‘‘(2) MA CONTINUATION.—In applying section 1851(c)(3)(B),
an individual who is enrolled in an MA plan shall not be
considered to have been deemed to make an election into an
MA–PD plan unless—
‘‘(A) for purposes of the election as of January 1, 2006,
the MA plan provided as of December 31, 2005, any
prescription drug coverage; or
‘‘(B) for periods after January 1, 2006, such MA plan
is an MA–PD plan.
‘‘(3) DISCONTINUANCE OF MA–PD ELECTION DURING FIRST
YEAR OF ELIGIBILITY.—In applying the second sentence of sec-
tion 1851(e)(4) in the case of an individual who is electing
to discontinue enrollment in an MA–PD plan, the individual
shall be permitted to enroll in a prescription drug plan under
part D at the time of the election of coverage under the original
medicare fee-for-service program.
‘‘(4) RULES REGARDING ENROLLEES IN MA PLANS NOT PRO-
VIDING QUALIFIED PRESCRIPTION DRUG COVERAGE.—In the case
42 USC
1395w–131.
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117 STAT. 2123
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of an individual who is enrolled in an MA plan (other than
an MSA plan) that does not provide qualified prescription drug
coverage, if the organization offering such coverage discontinues
the offering with respect to the individual of all MA plans
that do not provide such coverage—
‘‘(i) the individual is deemed to have elected the
original medicare fee-for-service program option, unless
the individual affirmatively elects to enroll in an MA–
PD plan; and
‘‘(ii) in the case of such a deemed election, the
disenrollment shall be treated as an involuntary termi-
nation of the MA plan described in subparagraph (B)(ii)
of section 1882(s)(3) for purposes of applying such sec-
tion.
The information disclosed under section 1852(c)(1) for individ-
uals who are enrolled in such an MA plan shall include informa-
tion regarding such rules.
‘‘(c) APPLICATION OF PART D RULES FOR PRESCRIPTION DRUG
COVERAGE.—With respect to the offering of qualified prescription
drug coverage by an MA organization under this part on and
after January 1, 2006—
‘‘(1) IN GENERAL.—Except as otherwise provided, the provi-
sions of this part shall apply under part C with respect to
prescription drug coverage provided under MA–PD plans in
lieu of the other provisions of part C that would apply to
such coverage under such plans.
‘‘(2) WAIVER.—The Secretary shall waive the provisions
referred to in paragraph (1) to the extent the Secretary deter-
mines that such provisions duplicate, or are in conflict with,
provisions otherwise applicable to the organization or plan
under part C or as may be necessary in order to improve
coordination of this part with the benefits under this part.
‘‘(3) TREATMENT
OF
MA
OWNED
AND
OPERATED
PHAR-
MACIES.—The Secretary may waive the requirement of section
1860D–4(b)(1)(C) in the case of an MA–PD plan that provides
access (other than mail order) to qualified prescription drug
coverage through pharmacies owned and operated by the MA
organization, if the Secretary determines that the organization’s
pharmacy network is sufficient to provide comparable access
for enrollees under the plan.
‘‘(d) SPECIAL RULES FOR PRIVATE FEE-FOR-SERVICE PLANS THAT
OFFER PRESCRIPTION DRUG COVERAGE.—With respect to an MA
plan described in section 1851(a)(2)(C) that offers qualified prescrip-
tion drug coverage, on and after January 1, 2006, the following
rules apply:
‘‘(1) REQUIREMENTS REGARDING NEGOTIATED PRICES.—Sub-
sections (a)(1) and (d)(1) of section 1860D–2 and section 1860D–
4(b)(2)(A) shall not be construed to require the plan to provide
negotiated prices (described in subsection (d)(1)(B) of such sec-
tion), but shall apply to the extent the plan does so.
‘‘(2) MODIFICATION OF PHARMACY ACCESS STANDARD AND
DISCLOSURE REQUIREMENT.—If the plan provides coverage for
drugs purchased from all pharmacies, without charging addi-
tional cost-sharing, and without regard to whether they are
participating pharmacies in a network or have entered into
contracts or agreements with pharmacies to provide drugs to
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117 STAT. 2124
PUBLIC LAW 108–173—DEC. 8, 2003
enrollees covered by the plan, subsections (b)(1)(C) and (k)
of section 1860D–4 shall not apply to the plan.
‘‘(3) DRUG UTILIZATION MANAGEMENT PROGRAM AND MEDICA-
TION
THERAPY
MANAGEMENT
PROGRAM
NOT
REQUIRED.—The
requirements of subparagraphs (A) and (C) of section 1860D–
4(c)(1) shall not apply to the plan.
‘‘(4) APPLICATION OF REINSURANCE.—The Secretary shall
determine the amount of reinsurance payments under section
1860D–15(b) using a methodology that—
‘‘(A) bases such amount on the Secretary’s estimate
of the amount of such payments that would be payable
if the plan were an MA–PD plan described in section
1851(a)(2)(A)(i) and the previous provisions of this sub-
section did not apply; and
‘‘(B) takes into account the average reinsurance pay-
ments made under section 1860D–15(b) for populations
of similar risk under MA–PD plans described in such sec-
tion.
‘‘(5) EXEMPTION
FROM
RISK
CORRIDOR
PROVISIONS.—The
provisions of section 1860D–15(e) shall not apply.
‘‘(6) EXEMPTION FROM NEGOTIATIONS.—Subsections (d) and
(e)(2)(C) of section 1860D–11 shall not apply and the provisions
of section 1854(a)(5)(B) prohibiting the review, approval, or
disapproval of amounts described in such section shall apply
to the proposed bid and terms and conditions described in
section 1860D–11(d).
‘‘(7) TREATMENT OF INCURRED COSTS WITHOUT REGARD TO
FORMULARY.—The exclusion of costs incurred for covered part
D drugs which are not included (or treated as being included)
in a plan’s formulary under section 1860D–2(b)(4)(B)(i) shall
not apply insofar as the plan does not utilize a formulary.
‘‘(e) APPLICATION TO REASONABLE COST REIMBURSEMENT CON-
TRACTORS.—
‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3) and
rules established by the Secretary, in the case of an organiza-
tion that is providing benefits under a reasonable cost
reimbursement contract under section 1876(h) and that elects
to provide qualified prescription drug coverage to a part D
eligible individual who is enrolled under such a contract, the
provisions of this part (and related provisions of part C) shall
apply to the provision of such coverage to such enrollee in
the same manner as such provisions apply to the provision
of such coverage under an MA–PD local plan described in
section 1851(a)(2)(A)(i) and coverage under such a contract
that so provides qualified prescription drug coverage shall be
deemed to be an MA–PD local plan.
‘‘(2) LIMITATION ON ENROLLMENT.—In applying paragraph
(1), the organization may not enroll part D eligible individuals
who are not enrolled under the reasonable cost reimbursement
contract involved.
‘‘(3) BIDS NOT INCLUDED IN DETERMINING NATIONAL AVER-
AGE MONTHLY BID AMOUNT.—The bid of an organization offering
prescription drug coverage under this subsection shall not be
taken into account in computing the national average monthly
bid amount and low-income benchmark premium amount under
this part.
‘‘(f) APPLICATION TO PACE.—
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117 STAT. 2125
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3) and
rules established by the Secretary, in the case of a PACE
program under section 1894 that elects to provide qualified
prescription drug coverage to a part D eligible individual who
is enrolled under such program, the provisions of this part
(and related provisions of part C) shall apply to the provision
of such coverage to such enrollee in a manner that is similar
to the manner in which such provisions apply to the provision
of such coverage under an MA–PD local plan described in
section 1851(a)(2)(A)(ii) and a PACE program that so provides
such coverage may be deemed to be an MA–PD local plan.
‘‘(2) LIMITATION ON ENROLLMENT.—In applying paragraph
(1), the organization may not enroll part D eligible individuals
who are not enrolled under the PACE program involved.
‘‘(3) BIDS NOT INCLUDED IN DETERMINING STANDARDIZED
BID AMOUNT.—The bid of an organization offering prescription
drug coverage under this subsection is not be taken into account
in computing any average benchmark bid amount and low-
income benchmark premium amount under this part.
‘‘SPECIAL RULES FOR EMPLOYER-SPONSORED PROGRAMS
‘‘SEC. 1860D–22. (a) SUBSIDY PAYMENT.—
‘‘(1) IN GENERAL.—The Secretary shall provide in accord-
ance with this subsection for payment to the sponsor of a
qualified retiree prescription drug plan (as defined in paragraph
(2)) of a special subsidy payment equal to the amount specified
in paragraph (3) for each qualified covered retiree under the
plan (as defined in paragraph (4)). This subsection constitutes
budget authority in advance of appropriations Acts and rep-
resents the obligation of the Secretary to provide for the pay-
ment of amounts provided under this section.
‘‘(2) 
QUALIFIED
RETIREE
PRESCRIPTION
DRUG
PLAN
DEFINED.—For purposes of this subsection, the term ‘qualified
retiree prescription drug plan’ means employment-based retiree
health coverage (as defined in subsection (c)(1)) if, with respect
to a part D eligible individual who is a participant or beneficiary
under such coverage, the following requirements are met:
‘‘(A) ATTESTATION
OF
ACTUARIAL
EQUIVALENCE
TO
STANDARD COVERAGE.—The sponsor of the plan provides
the Secretary, annually or at such other time as the Sec-
retary may require, with an attestation that the actuarial
value of prescription drug coverage under the plan (as
determined using the processes and methods described in
section 1860D–11(c)) is at least equal to the actuarial value
of standard prescription drug coverage.
‘‘(B) AUDITS.—The sponsor of the plan, or an adminis-
trator of the plan designated by the sponsor, shall maintain
(and afford the Secretary access to) such records as the
Secretary may require for purposes of audits and other
oversight activities necessary to ensure the adequacy of
prescription drug coverage and the accuracy of payments
made under this section. The provisions of section 1860D–
2(d)(3) shall apply to such information under this section
(including such actuarial value and attestation) in a
manner similar to the manner in which they apply to
financial records of PDP sponsors and MA organizations.
42 USC
1395w–132.
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117 STAT. 2126
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‘‘(C) PROVISION OF DISCLOSURE REGARDING PRESCRIP-
TION DRUG COVERAGE.—The sponsor of the plan shall pro-
vide for disclosure of information regarding prescription
drug 
coverage 
in 
accordance 
with 
section 
1860D–
13(b)(6)(B).
‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
special subsidy payment amount under this paragraph for
a qualifying covered retiree for a coverage year enrolled
with the sponsor of a qualified retiree prescription drug
plan is, for the portion of the retiree’s gross covered retiree
plan-related prescription drug costs (as defined in subpara-
graph (C)(ii)) for such year that exceeds the cost threshold
amount specified in subparagraph (B) and does not exceed
the cost limit under such subparagraph, an amount equal
to 28 percent of the allowable retiree costs (as defined
in subparagraph (C)(i)) attributable to such gross covered
prescription drug costs.
‘‘(B) COST THRESHOLD AND COST LIMIT APPLICABLE.—
‘‘(i) IN GENERAL.—Subject to clause (ii)—
‘‘(I) the cost threshold under this subpara-
graph is equal to $250 for plan years that end
in 2006; and
‘‘(II) the cost limit under this subparagraph
is equal to $5,000 for plan years that end in 2006.
‘‘(ii) INDEXING.—The cost threshold and cost limit
amounts specified in subclauses (I) and (II) of clause
(i) for a plan year that ends after 2006 shall be adjusted
in the same manner as the annual deductible and
the annual out-of-pocket threshold, respectively, are
annually adjusted under paragraphs (1) and (4)(B) of
section 1860D–2(b).
‘‘(C) DEFINITIONS.—For purposes of this paragraph:
‘‘(i) ALLOWABLE RETIREE COSTS.—The term ‘allow-
able retiree costs’ means, with respect to gross covered
prescription drug costs under a qualified retiree
prescription drug plan by a plan sponsor, the part
of such costs that are actually paid (net of discounts,
chargebacks, and average percentage rebates) by the
sponsor or by or on behalf of a qualifying covered
retiree under the plan.
‘‘(ii) 
GROSS
COVERED
RETIREE
PLAN-RELATED
PRESCRIPTION DRUG COSTS.—For purposes of this sec-
tion, the term ‘gross covered retiree plan-related
prescription drug costs’ means, with respect to a quali-
fying covered retiree enrolled in a qualified retiree
prescription drug plan during a coverage year, the
costs incurred under the plan, not including adminis-
trative costs, but including costs directly related to
the dispensing of covered part D drugs during the
year. Such costs shall be determined whether they
are paid by the retiree or under the plan.
‘‘(iii) COVERAGE YEAR.—The term ‘coverage year’ has
the meaning given such term in section 1860D–15(b)(4).
‘‘(4) QUALIFYING COVERED RETIREE DEFINED.—For purposes
of this subsection, the term ‘qualifying covered retiree’ means
a part D eligible individual who is not enrolled in a prescription
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117 STAT. 2127
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drug plan or an MA–PD plan but is covered under a qualified
retiree prescription drug plan.
‘‘(5) PAYMENT
METHODS, INCLUDING
PROVISION
OF
NEC-
ESSARY INFORMATION.—The provisions of section 1860D–15(d)
(including paragraph (2), relating to requirement for provision
of information) shall apply to payments under this subsection
in a manner similar to the manner in which they apply to
payment under section 1860D–15(b).
‘‘(6) CONSTRUCTION.—Nothing in this subsection shall be
construed as—
‘‘(A) precluding a part D eligible individual who is
covered under employment-based retiree health coverage
from enrolling in a prescription drug plan or in an MA–
PD plan;
‘‘(B) precluding such employment-based retiree health
coverage or an employer or other person from paying all
or any portion of any premium required for coverage under
a prescription drug plan or MA–PD plan on behalf of such
an individual;
‘‘(C) preventing such employment-based retiree health
coverage from providing coverage—
‘‘(i) that is better than standard prescription drug
coverage to retirees who are covered under a qualified
retiree prescription drug plan; or
‘‘(ii) that is supplemental to the benefits provided
under a prescription drug plan or an MA–PD plan,
including benefits to retirees who are not covered under
a qualified retiree prescription drug plan but who are
enrolled in such a prescription drug plan or MA–PD
plan; or
‘‘(D) preventing employers to provide for flexibility in
benefit design and pharmacy access provisions, without
regard to the requirements for basic prescription drug cov-
erage, so long as the actuarial equivalence requirement
of paragraph (2)(A) is met.
‘‘(b) APPLICATION OF MA WAIVER AUTHORITY.—The provisions
of section 1857(i) shall apply with respect to prescription drug
plans in relation to employment-based retiree health coverage in
a manner similar to the manner in which they apply to an MA
plan in relation to employers, including authorizing the establish-
ment of separate premium amounts for enrollees in a prescription
drug plan by reason of such coverage and limitations on enrollment
to part D eligible individuals enrolled under such coverage.
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.—The
term ‘employment-based retiree health coverage’ means health
insurance or other coverage of health care costs (whether pro-
vided by voluntary insurance coverage or pursuant to statutory
or contractual obligation) for part D eligible individuals (or
for such individuals and their spouses and dependents) under
a group health plan based on their status as retired participants
in such plan.
‘‘(2) SPONSOR.—The term ‘sponsor’ means a plan sponsor,
as defined in section 3(16)(B) of the Employee Retirement
Income Security Act of 1974, in relation to a group health
plan, except that, in the case of a plan maintained jointly
by one employer and an employee organization and with respect
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117 STAT. 2128
PUBLIC LAW 108–173—DEC. 8, 2003
to which the employer is the primary source of financing, such
term means such employer.
‘‘(3) GROUP HEALTH PLAN.—The term ‘group health plan’
includes such a plan as defined in section 607(1) of the
Employee Retirement Income Security Act of 1974 and also
includes the following:
‘‘(A) FEDERAL AND STATE GOVERNMENTAL PLANS.—Such
a plan established or maintained for its employees by the
Government of the United States, by the government of
any State or political subdivision thereof, or by any agency
or instrumentality of any of the foregoing, including a
health benefits plan offered under chapter 89 of title 5,
United States Code.
‘‘(B) COLLECTIVELY
BARGAINED
PLANS.—Such a plan
established or maintained under or pursuant to one or
more collective bargaining agreements.
‘‘(C) CHURCH
PLANS.—Such a plan established and
maintained for its employees (or their beneficiaries) by
a church or by a convention or association of churches
which is exempt from tax under section 501 of the Internal
Revenue Code of 1986.
‘‘STATE PHARMACEUTICAL ASSISTANCE PROGRAMS
‘‘SEC. 1860D–23. (a) REQUIREMENTS FOR BENEFIT COORDINA-
TION.—
‘‘(1) IN GENERAL.—Before July 1, 2005, the Secretary shall
establish consistent with this section requirements for prescrip-
tion drug plans to ensure the effective coordination between
a part D plan (as defined in paragraph (5)) and a State Pharma-
ceutical Assistance Program (as defined in subsection (b)) with
respect to—
‘‘(A) payment of premiums and coverage; and
‘‘(B) payment for supplemental prescription drug bene-
fits,
for part D eligible individuals enrolled under both types of
plans.
‘‘(2) COORDINATION
ELEMENTS.—The requirements under
paragraph (1) shall include requirements relating to coordina-
tion of each of the following:
‘‘(A) Enrollment file sharing.
‘‘(B) The processing of claims, including electronic proc-
essing.
‘‘(C) Claims payment.
‘‘(D) Claims reconciliation reports.
‘‘(E) Application of the protection against high out-
of-pocket expenditures under section 1860D–2(b)(4).
‘‘(F) Other administrative processes specified by the
Secretary.
Such requirements shall be consistent with applicable law to
safeguard the privacy of any individually identifiable bene-
ficiary information.
‘‘(3) USE OF LUMP SUM PER CAPITA METHOD.—Such require-
ments shall include a method for the application by a part
D plan of specified funding amounts from a State Pharma-
ceutical Assistance Program for enrolled individuals for supple-
mental prescription drug benefits.
42 USC
1395w–133.
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‘‘(4) CONSULTATION.—In establishing requirements under
this subsection, the Secretary shall consult with State Pharma-
ceutical Assistance Programs, MA organizations, States,
pharmaceutical benefit managers, employers, representatives
of part D eligible individuals, the data processing experts, phar-
macists, pharmaceutical manufacturers, and other experts.
‘‘(5) PART D PLAN DEFINED.—For purposes of this section
and section 1860D–24, the term ‘part D plan’ means a prescrip-
tion drug plan and an MA–PD plan.
‘‘(b) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.—For pur-
poses of this part, the term ‘State Pharmaceutical Assistance Pro-
gram’ means a State program—
‘‘(1) which provides financial assistance for the purchase
or provision of supplemental prescription drug coverage or bene-
fits on behalf of part D eligible individuals;
‘‘(2) which, in determining eligibility and the amount of
assistance to part D eligible individuals under the Program,
provides assistance to such individuals in all part D plans
and does not discriminate based upon the part D plan in
which the individual is enrolled; and
‘‘(3) which satisfies the requirements of subsections (a)
and (c).
‘‘(c) RELATION TO OTHER PROVISIONS.—
‘‘(1) MEDICARE AS PRIMARY PAYOR.—The requirements of
this section shall not change or affect the primary payor status
of a part D plan.
‘‘(2) USE OF A SINGLE CARD.—A card that is issued under
section 1860D–4(b)(2)(A) for use under a part D plan may
also be used in connection with coverage of benefits provided
under a State Pharmaceutical Assistance Program and, in such
case, may contain an emblem or symbol indicating such connec-
tion.
‘‘(3) OTHER PROVISIONS.—The provisions of section 1860D–
24(c) shall apply to the requirements under this section.
‘‘(4) SPECIAL
TREATMENT
UNDER
OUT-OF-POCKET
RULE.—
In applying section 1860D–2(b)(4)(C)(ii), expenses incurred
under a State Pharmaceutical Assistance Program may be
counted toward the annual out-of-pocket threshold.
‘‘(5) CONSTRUCTION.—Nothing in this section shall be con-
strued as requiring a State Pharmaceutical Assistance Program
to coordinate or provide financial assistance with respect to
any part D plan.
‘‘(d) FACILITATION
OF TRANSITION
AND COORDINATION WITH
STATE PHARMACEUTICAL ASSISTANCE PROGRAMS.—
‘‘(1) TRANSITIONAL GRANT PROGRAM.—The Secretary shall
provide payments to State Pharmaceutical Assistance Programs
with an application approved under this subsection.
‘‘(2) USE
OF
FUNDS.—Payments under this section may
be used by a Program for any of the following:
‘‘(A) Educating part D eligible individuals enrolled in
the Program about the prescription drug coverage available
through part D plans under this part.
‘‘(B) Providing technical assistance, phone support, and
counseling for such enrollees to facilitate selection and
enrollment in such plans.
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‘‘(C) Other activities designed to promote the effective
coordination of enrollment, coverage, and payment between
such Program and such plans.
‘‘(3) ALLOCATION OF FUNDS.—Of the amount appropriated
to carry out this subsection for a fiscal year, the Secretary
shall allocate payments among Programs that have applications
approved under paragraph (4) for such fiscal year in proportion
to the number of enrollees enrolled in each such Program
as of October 1, 2003.
‘‘(4) APPLICATION.—No payments may be made under this
subsection except pursuant to an application that is submitted
and approved in a time, manner, and form specified by the
Secretary.
‘‘(5) FUNDING.—Out of any funds in the Treasury not other-
wise appropriated, there are appropriated for each of fiscal
years 2005 and 2006, $62,500,000 to carry out this subsection.
‘‘COORDINATION REQUIREMENTS FOR PLANS PROVIDING PRESCRIPTION
DRUG COVERAGE
‘‘SEC. 1860D–24. (a) APPLICATION OF BENEFIT COORDINATION
REQUIREMENTS TO ADDITIONAL PLANS.—
‘‘(1) IN GENERAL.—The Secretary shall apply the coordina-
tion requirements established under section 1860D–23(a) to
Rx plans described in subsection (b) in the same manner as
such requirements apply to a State Pharmaceutical Assistance
Program.
‘‘(2) APPLICATION TO TREATMENT OF CERTAIN OUT-OF-POCKET
EXPENDITURES.—To the extent specified by the Secretary, the
requirements referred to in paragraph (1) shall apply to proce-
dures established under section 1860D–2(b)(4)(D).
‘‘(3) USER FEES.—
‘‘(A) IN GENERAL.—The Secretary may impose user fees
for the transmittal of information necessary for benefit
coordination under section 1860D–2(b)(4)(D) in a manner
similar to the manner in which user fees are imposed
under section 1842(h)(3)(B), except that the Secretary may
retain a portion of such fees to defray the Secretary’s
costs in carrying out procedures under section 1860D–
2(b)(4)(D).
‘‘(B) APPLICATION.—A user fee may not be imposed
under subparagraph (A) with respect to a State Pharma-
ceutical Assistance Program.
‘‘(b) RX PLAN.—An Rx plan described in this subsection is
any of the following:
‘‘(1) MEDICAID PROGRAMS.—A State plan under title XIX,
including such a plan operating under a waiver under section
1115, if it meets the requirements of section 1860D–23(b)(2).
‘‘(2) GROUP
HEALTH
PLANS.—An employer group health
plan.
‘‘(3) FEHBP.—The Federal employees health benefits plan
under chapter 89 of title 5, United States Code.
‘‘(4) MILITARY COVERAGE (INCLUDING TRICARE).—Coverage
under chapter 55 of title 10, United States Code.
‘‘(5) OTHER
PRESCRIPTION
DRUG
COVERAGE.—Such other
health benefit plans or programs that provide coverage or finan-
cial assistance for the purchase or provision of prescription
42 USC
1395w–134.
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117 STAT. 2131
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drug coverage on behalf of part D eligible individuals as the
Secretary may specify.
‘‘(c) RELATION TO OTHER PROVISIONS.—
‘‘(1) USE OF COST MANAGEMENT TOOLS.—The requirements
of this section shall not impair or prevent a PDP sponsor
or MA organization from applying cost management tools
(including differential payments) under all methods of oper-
ation.
‘‘(2) NO AFFECT ON TREATMENT OF CERTAIN OUT-OF-POCKET
EXPENDITURES.—The requirements of this section shall not
affect the application of the procedures established under sec-
tion 1860D–2(b)(4)(D).
‘‘Subpart 4—Medicare Prescription Drug Discount Card and
Transitional Assistance Program
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND TRANSITIONAL
ASSISTANCE PROGRAM
‘‘SEC. 1860D–31. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary shall establish a program
under this section—
‘‘(A) to endorse prescription drug discount card pro-
grams that meet the requirements of this section in order
to provide access to prescription drug discounts through
prescription drug card sponsors for discount card eligible
individuals throughout the United States; and
‘‘(B) to provide for transitional assistance for transi-
tional assistance eligible individuals enrolled in such
endorsed programs.
‘‘(2) PERIOD OF OPERATION.—
‘‘(A) IMPLEMENTATION DEADLINE.—The Secretary shall
implement the program under this section so that discount
cards and transitional assistance are first available by
not later than 6 months after the date of the enactment
of this section.
‘‘(B) EXPEDITING
IMPLEMENTATION.—The Secretary
shall promulgate regulations to carry out the program
under this section which may be effective and final imme-
diately on an interim basis as of the date of publication
of the interim final regulation. If the Secretary provides
for an interim final regulation, the Secretary shall provide
for a period of public comments on such regulation after
the date of publication. The Secretary may change or revise
such regulation after completion of the period of public
comment.
‘‘(C) TERMINATION AND TRANSITION.—
‘‘(i) IN GENERAL.—Subject to clause (ii)—
‘‘(I) the program under this section shall not
apply to covered discount card drugs dispensed
after December 31, 2005; and
‘‘(II) transitional assistance shall be available
after such date to the extent the assistance relates
to drugs dispensed on or before such date.
‘‘(ii) TRANSITION.—In the case of an individual who
is enrolled in an endorsed discount card program as
Regulations.
42 USC
1395w–141.
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of December 31, 2005, during the individual’s transi-
tion period (if any) under clause (iii), in accordance
with transition rules specified by the Secretary—
‘‘(I) such endorsed program may continue to
apply to covered discount card drugs dispensed
to the individual under the program during such
transition period;
‘‘(II) no annual enrollment fee shall be
applicable during the transition period;
‘‘(III) during such period the individual may
not change the endorsed program plan in which
the individual is enrolled; and
‘‘(IV) the balance of any transitional assistance
remaining on January 1, 2006, shall remain avail-
able for drugs dispensed during the individual’s
transition period.
‘‘(iii) TRANSITION
PERIOD.—The transition period
under this clause for an individual is the period begin-
ning on January 1, 2006, and ending in the case of
an individual who—
‘‘(I) is enrolled in a prescription drug plan
or an MA–PD plan before the last date of the
initial enrollment period under section 1860D–
1(b)(2)(A), on the effective date of the individual’s
coverage under such part; or
‘‘(II) is not so enrolled, on the last day of
such initial period.
‘‘(3) VOLUNTARY NATURE OF PROGRAM.—Nothing in this sec-
tion shall be construed as requiring a discount card eligible
individual to enroll in an endorsed discount card program under
this section.
‘‘(4) GLOSSARY AND DEFINITIONS OF TERMS.—For purposes
of this section:
‘‘(A) COVERED DISCOUNT CARD DRUG.—The term ‘cov-
ered discount card drug’ has the meaning given the term
‘covered part D drug’ in section 1860D–2(e).
‘‘(B) DISCOUNT CARD ELIGIBLE INDIVIDUAL.—The term
‘discount card eligible individual’ is defined in subsection
(b)(1)(A).
‘‘(C) ENDORSED DISCOUNT CARD PROGRAM; ENDORSED
PROGRAM.—The terms ‘endorsed discount card program’
and ‘endorsed program’ mean a prescription drug discount
card program that is endorsed (and for which the sponsor
has a contract with the Secretary) under this section.
‘‘(D) 
NEGOTIATED
PRICE.—Negotiated 
prices 
are
described in subsection (e)(1)(A)(ii).
‘‘(E) PRESCRIPTION DRUG CARD SPONSOR; SPONSOR.—
The terms ‘prescription drug card sponsor’ and ‘sponsor’
are defined in subsection (h)(1)(A).
‘‘(F) STATE.—The term ‘State’ has the meaning given
such term for purposes of title XIX.
‘‘(G) TRANSITIONAL ASSISTANCE ELIGIBLE INDIVIDUAL.—
The term ‘transitional assistance eligible individual’ is
defined in subsection (b)(2).
‘‘(b) ELIGIBILITY FOR DISCOUNT CARD AND FOR TRANSITIONAL
ASSISTANCE.—For purposes of this section:
‘‘(1) DISCOUNT CARD ELIGIBLE INDIVIDUAL.—
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117 STAT. 2133
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‘‘(A) IN GENERAL.—The term ‘discount card eligible indi-
vidual’ means an individual who—
‘‘(i) is entitled to benefits, or enrolled, under part
A or enrolled under part B; and
‘‘(ii) subject to paragraph (4), is not an individual
described in subparagraph (B).
‘‘(B) INDIVIDUAL DESCRIBED.—An individual described
in this subparagraph is an individual described in subpara-
graph (A)(i) who is enrolled under title XIX (or under
a waiver under section 1115 of the requirements of such
title) and is entitled to any medical assistance for out-
patient prescribed drugs described in section 1905(a)(12).
‘‘(2) TRANSITIONAL ASSISTANCE ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
term ‘transitional assistance eligible individual’ means a
discount card eligible individual who resides in one of the
50 States or the District of Columbia and whose income
(as determined under subsection (f)(1)(B)) is not more than
135 percent of the poverty line (as defined in section 673(2)
of the Community Services Block Grant Act, 42 U.S.C.
9902(2), including any revision required by such section)
applicable to the family size involved (as determined under
subsection (f)(1)(B)).
‘‘(B) 
EXCLUSION
OF
INDIVIDUALS
WITH
CERTAIN
PRESCRIPTION
DRUG
COVERAGE.—Such term does not
include an individual who has coverage of, or assistance
for, covered discount card drugs under any of the following:
‘‘(i) A group health plan or health insurance cov-
erage (as such terms are defined in section 2791 of
the Public Health Service Act), other than coverage
under a plan under part C and other than coverage
consisting only of excepted benefits (as defined in such
section).
‘‘(ii) Chapter 55 of title 10, United States Code
(relating to medical and dental care for members of
the uniformed services).
‘‘(iii) A plan under chapter 89 of title 5, United
States Code (relating to the Federal employees’ health
benefits program).
‘‘(3) SPECIAL
TRANSITIONAL
ASSISTANCE
ELIGIBLE
INDI-
VIDUAL.—The term ‘special transitional assistance eligible indi-
vidual’ means a transitional assistance eligible individual whose
income (as determined under subsection (f)(1)(B)) is not more
than 100 percent of the poverty line (as defined in section
673(2) of the Community Services Block Grant Act, 42 U.S.C.
9902(2), including any revision required by such section)
applicable to the family size involved (as determined under
subsection (f)(1)(B)).
‘‘(4) TREATMENT OF MEDICAID MEDICALLY NEEDY.—For pur-
poses of this section, the Secretary shall provide for appropriate
rules for the treatment of medically needy individuals described
in section 1902(a)(10)(C) as discount card eligible individuals
and as transitional assistance eligible individuals.
‘‘(c) ENROLLMENT AND ENROLLMENT FEES.—
‘‘(1) ENROLLMENT PROCESS.—The Secretary shall establish
a process through which a discount card eligible individual
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is enrolled and disenrolled in an endorsed discount card pro-
gram under this section consistent with the following:
‘‘(A) CONTINUOUS OPEN ENROLLMENT.—Subject to the
succeeding provisions of this paragraph and subsection
(h)(9), a discount card eligible individual who is not enrolled
in an endorsed discount card program and is residing in
a State may enroll in any such endorsed program—
‘‘(i) that serves residents of the State; and
‘‘(ii) at any time beginning on the initial enrollment
date, specified by the Secretary, and before January
1, 2006.
‘‘(B) USE OF STANDARD ENROLLMENT FORM.—An enroll-
ment in an endorsed program shall only be effected through
completion of a standard enrollment form specified by the
Secretary. Each sponsor of an endorsed program shall
transmit to the Secretary (in a form and manner specified
by the Secretary) information on individuals who complete
such enrollment forms and, to the extent provided under
subsection (f), information regarding certification as a
transitional assistance eligible individual.
‘‘(C) ENROLLMENT ONLY IN ONE PROGRAM.—
‘‘(i) IN GENERAL.—Subject to clauses (ii) and (iii),
a discount card eligible individual may be enrolled
in only one endorsed discount card program under
this section.
‘‘(ii) CHANGE
IN
ENDORSED
PROGRAM
PERMITTED
FOR
2005.—The Secretary shall establish a process,
similar to (and coordinated with) the process for
annual, coordinated elections under section 1851(e)(3)
during 2004, under which an individual enrolled in
an endorsed discount card program may change the
endorsed program in which the individual is enrolled
for 2005.
‘‘(iii) 
ADDITIONAL
EXCEPTIONS.—The 
Secretary
shall permit an individual to change the endorsed dis-
count card program in which the individual is enrolled
in the case of an individual who changes residence
to be outside the service area of such program and
in such other exceptional cases as the Secretary may
provide (taking into account the circumstances for spe-
cial election periods under section 1851(e)(4)). Under
the previous sentence, the Secretary may consider a
change in residential setting (such as placement in
a nursing facility) or enrollment in or disenrollment
from a plan under part C through which the individual
was enrolled in an endorsed program to be an excep-
tional circumstance.
‘‘(D) DISENROLLMENT.—
‘‘(i) VOLUNTARY.—An individual may voluntarily
disenroll from an endorsed discount card program at
any time. In the case of such a voluntary disenrollment,
the individual may not enroll in another endorsed pro-
gram, except under such exceptional circumstances as
the Secretary may recognize under subparagraph
(C)(iii) or during the annual coordinated enrollment
period provided under subparagraph (C)(ii).
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‘‘(ii) INVOLUNTARY.—An individual who is enrolled
in an endorsed discount card program and not a transi-
tional assistance eligible individual may be disenrolled
by the sponsor of the program if the individual fails
to pay any annual enrollment fee required under the
program.
‘‘(E) APPLICATION TO CERTAIN ENROLLEES.—In the case
of a discount card eligible individual who is enrolled in
a plan described in section 1851(a)(2)(A) or under a reason-
able cost reimbursement contract under section 1876(h)
that is offered by an organization that also is a prescription
discount card sponsor that offers an endorsed discount
card program under which the individual may be enrolled
and that has made an election to apply the special rules
under subsection (h)(9)(B) for such an endorsed program,
the individual may only enroll in such an endorsed discount
card program offered by that sponsor.
‘‘(2) ENROLLMENT FEES.—
‘‘(A) IN GENERAL.—Subject to the succeeding provisions
of this paragraph, a prescription drug card sponsor may
charge an annual enrollment fee for each discount card
eligible individual enrolled in an endorsed discount card
program offered by such sponsor. The annual enrollment
fee for either 2004 or 2005 shall not be prorated for portions
of a year. There shall be no annual enrollment fee for
a year after 2005.
‘‘(B) AMOUNT.—No annual enrollment fee charged
under subparagraph (A) may exceed $30.
‘‘(C) UNIFORM ENROLLMENT FEE.—A prescription drug
card sponsor shall ensure that the annual enrollment fee
(if any) for an endorsed discount card program is the same
for all discount card eligible individuals enrolled in the
program and residing in the State.
‘‘(D) COLLECTION.—The annual enrollment fee (if any)
charged for enrollment in an endorsed program shall be
collected by the sponsor of the program.
‘‘(E) PAYMENT OF FEE FOR TRANSITIONAL ASSISTANCE
ELIGIBLE
INDIVIDUALS.—Under subsection (g)(1)(A), the
annual enrollment fee (if any) otherwise charged under
this paragraph with respect to a transitional assistance
eligible individual shall be paid by the Secretary on behalf
of such individual.
‘‘(F) OPTIONAL PAYMENT OF FEE BY STATE.—
‘‘(i) IN GENERAL.—The Secretary shall establish an
arrangement under which a State may provide for
payment of some or all of the enrollment fee for some
or all enrollees who are not transitional assistance
eligible individuals in the State, as specified by the
State under the arrangement. Insofar as such a pay-
ment arrangement is made with respect to an enrollee,
the amount of the enrollment fee shall be paid directly
by the State to the sponsor.
‘‘(ii) NO FEDERAL MATCHING AVAILABLE UNDER MED-
ICAID OR SCHIP.—Expenditures made by a State for
enrollment fees described in clause (i) shall not be
treated as State expenditures for purposes of Federal
matching payments under title XIX or XXI.
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‘‘(G) RULES IN CASE OF CHANGES IN PROGRAM ENROLL-
MENT DURING A YEAR.—The Secretary shall provide special
rules in the case of payment of an annual enrollment
fee for a discount card eligible individual who changes
the endorsed program in which the individual is enrolled
during a year.
‘‘(3) ISSUANCE OF DISCOUNT CARD.—Each prescription drug
card sponsor of an endorsed discount card program shall issue,
in a standard format specified by the Secretary, to each discount
card eligible individual enrolled in such program a card that
establishes proof of enrollment and that can be used in a
coordinated manner to identify the sponsor, program, and indi-
vidual for purposes of the program under this section.
‘‘(4) PERIOD OF ACCESS.—In the case of a discount card
eligible individual who enrolls in an endorsed program, access
to negotiated prices and transitional assistance, if any, under
such endorsed program shall take effect on such date as the
Secretary shall specify.
‘‘(d) PROVISION OF INFORMATION ON ENROLLMENT AND PROGRAM
FEATURES.—
‘‘(1) SECRETARIAL RESPONSIBILITIES.—
‘‘(A) IN
GENERAL.—The Secretary shall provide for
activities under this subsection to broadly disseminate
information to discount card eligible individuals (and
prospective eligible individuals) regarding—
‘‘(i) enrollment in endorsed discount card pro-
grams; and
‘‘(ii) the features of the program under this section,
including the availability of transitional assistance.
‘‘(B) PROMOTION
OF
INFORMED
CHOICE.—In order to
promote informed choice among endorsed prescription drug
discount card programs, the Secretary shall provide for
the dissemination of information which—
‘‘(i) compares the annual enrollment fee and other
features of such programs, which may include compara-
tive prices for covered discount card drugs; and
‘‘(ii) includes educational materials on the varia-
bility of discounts on prices of covered discount card
drugs under an endorsed program.
The dissemination of information under clause (i) shall,
to the extent practicable, be coordinated with the dissemi-
nation of educational information on other medicare
options.
‘‘(C) SPECIAL
RULE
FOR
INITIAL
ENROLLMENT
DATE
UNDER THE PROGRAM.—To the extent practicable, the Sec-
retary shall ensure, through the activities described in
subparagraphs (A) and (B), that discount card eligible
individuals are provided with such information at least
30 days prior to the initial enrollment date specified under
subsection (c)(1)(A)(ii).
‘‘(D) USE OF MEDICARE TOLL-FREE NUMBER.—The Sec-
retary shall provide through the toll-free telephone number
1–800–MEDICARE for the receipt and response to inquiries
and complaints concerning the program under this section
and endorsed programs.
‘‘(2) PRESCRIPTION DRUG CARD SPONSOR RESPONSIBILITIES.—
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‘‘(A) IN GENERAL.—Each prescription drug card sponsor
that offers an endorsed discount card program shall make
available to discount card eligible individuals (through the
Internet and otherwise) information that the Secretary
identifies as being necessary to promote informed choice
among endorsed discount card programs by such individ-
uals, including information on enrollment fees and nego-
tiated prices for covered discount card drugs charged to
such individuals.
‘‘(B) 
RESPONSE
TO
ENROLLEE
QUESTIONS.—Each
sponsor offering an endorsed discount card program shall
have a mechanism (including a toll-free telephone number)
for providing upon request specific information (such as
negotiated prices and the amount of transitional assistance
remaining available through the program) to discount card
eligible individuals enrolled in the program. The sponsor
shall inform transitional assistance eligible individuals
enrolled in the program of the availability of such toll-
free telephone number to provide information on the
amount of available transitional assistance.
‘‘(C) INFORMATION
ON
BALANCE
OF
TRANSITIONAL
ASSISTANCE
AVAILABLE
AT
POINT-OF-SALE.—Each sponsor
offering an endorsed discount card program shall have
a mechanism so that information on the amount of transi-
tional assistance remaining under subsection (g)(1)(B) is
available (electronically or by telephone) at the point-of-
sale of covered discount card drugs.
‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL PRICES FOR
EQUIVALENT DRUGS.—
‘‘(A) IN GENERAL.—A prescription drug card sponsor
offering an endorsed discount card program shall provide
that each pharmacy that dispenses a covered discount card
drug shall inform a discount card eligible individual
enrolled in the program of any differential between the
price of the drug to the enrollee and the price of the
lowest priced generic covered discount card drug under
the program that is therapeutically equivalent and bio-
equivalent and available at such pharmacy.
‘‘(B) TIMING OF NOTICE.—
‘‘(i) IN
GENERAL.—Subject to clause (ii), the
information under subparagraph (A) shall be provided
at the time of purchase of the drug involved, or, in
the case of dispensing by mail order, at the time of
delivery of such drug.
‘‘(ii) WAIVER.—The Secretary may waive clause (i)
in such circumstances as the Secretary may specify.
‘‘(e) DISCOUNT CARD FEATURES.—
‘‘(1) 
SAVINGS
TO
ENROLLEES
THROUGH
NEGOTIATED
PRICES.—
‘‘(A) ACCESS TO NEGOTIATED PRICES.—
‘‘(i) IN
GENERAL.—Each prescription drug card
sponsor that offers an endorsed discount card program
shall provide each discount card eligible individual
enrolled in the program with access to negotiated
prices.
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‘‘(ii) NEGOTIATED PRICES.—For purposes of this sec-
tion, negotiated prices shall take into account nego-
tiated price concessions, such as discounts, direct or
indirect subsidies, rebates, and direct or indirect remu-
nerations, for covered discount card drugs, and include
any dispensing fees for such drugs.
‘‘(B) ENSURING PHARMACY ACCESS.—Each prescription
drug card sponsor offering an endorsed discount card pro-
gram shall secure the participation in its network of a
sufficient number of pharmacies that dispense (other than
solely by mail order) drugs directly to enrollees to ensure
convenient access to covered discount card drugs at nego-
tiated prices (consistent with rules established by the Sec-
retary). The Secretary shall establish convenient access
rules under this clause that are no less favorable to
enrollees than the standards for convenient access to phar-
macies included in the statement of work of solicitation
(#MDA906–03–R–0002) of the Department of Defense
under the TRICARE Retail Pharmacy (TRRx) as of March
13, 2003.
‘‘(C) PROHIBITION
ON
CHARGES
FOR
REQUIRED
SERV-
ICES.—
‘‘(i) IN GENERAL.—Subject to clause (ii), a prescrip-
tion drug card sponsor (and any pharmacy contracting
with such sponsor for the provision of covered discount
card drugs to individuals enrolled in such sponsor’s
endorsed discount card program) may not charge an
enrollee any amount for any items and services
required to be provided by the sponsor under this
section.
‘‘(ii) CONSTRUCTION.—Nothing in clause (i) shall
be construed to prevent—
‘‘(I) the sponsor from charging the annual
enrollment fee (except in the case of a transitional
assistance eligible individual); and
‘‘(II) the pharmacy dispensing the covered dis-
count card drug, from imposing a charge (con-
sistent with the negotiated price) for the covered
discount card drug dispensed, reduced by the
amount of any transitional assistance made avail-
able.
‘‘(D) INAPPLICABILITY OF MEDICAID BEST PRICE RULES.—
The prices negotiated from drug manufacturers for covered
discount card drugs under an endorsed discount card pro-
gram under this section shall (notwithstanding any other
provision of law) not be taken into account for the purposes
of establishing the best price under section 1927(c)(1)(C).
‘‘(2) REDUCTION OF MEDICATION ERRORS AND ADVERSE DRUG
INTERACTIONS.—Each endorsed discount card program shall
implement a system to reduce the likelihood of medication
errors and adverse drug interactions and to improve medication
use.
‘‘(f) ELIGIBILITY PROCEDURES FOR ENDORSED PROGRAMS AND
TRANSITIONAL ASSISTANCE.—
‘‘(1) DETERMINATIONS.—
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‘‘(A) PROCEDURES.—The determination of whether an
individual is a discount card eligible individual or a transi-
tional assistance eligible individual or a special transitional
assistance eligible individual (as defined in subsection (b))
shall be determined under procedures specified by the Sec-
retary consistent with this subsection.
‘‘(B) INCOME AND FAMILY SIZE DETERMINATIONS.—For
purposes of this section, the Secretary shall define the
terms ‘income’ and ‘family size’ and shall specify the
methods and period for which they are determined. If under
such methods income or family size is determined based
on the income or family size for prior periods of time,
the Secretary shall permit (whether through a process of
reconsideration or otherwise) an individual whose income
or family size has changed to elect to have eligibility for
transitional assistance determined based on income or
family size for a more recent period.
‘‘(2) USE OF SELF-CERTIFICATION FOR TRANSITIONAL ASSIST-
ANCE.—
‘‘(A) IN
GENERAL.—Under the procedures specified
under paragraph (1)(A) an individual who wishes to be
treated as a transitional assistance eligible individual or
a special transitional assistance eligible individual under
this section (or another qualified person on such individ-
ual’s behalf) shall certify on the enrollment form under
subsection (c)(1)(B) (or similar form specified by the Sec-
retary), through a simplified means specified by the Sec-
retary and under penalty of perjury or similar sanction
for false statements, as to the amount of the individual’s
income, family size, and individual’s prescription drug cov-
erage (if any) insofar as they relate to eligibility to be
a transitional assistance eligible individual or a special
transitional assistance eligible individual. Such certification
shall be deemed as consent to verification of respective
eligibility under paragraph (3). A certification under this
paragraph may be provided before, on, or after the time
of enrollment under an endorsed program.
‘‘(B) TREATMENT
OF
SELF-CERTIFICATION.—The Sec-
retary shall treat a certification under subparagraph (A)
that is verified under paragraph (3) as a determination
that the individual involved is a transitional assistance
eligible individual or special transitional assistance eligible
individual (as the case may be) for the entire period of
the enrollment of the individual in any endorsed program.
‘‘(3) VERIFICATION.—
‘‘(A) IN
GENERAL.—The Secretary shall establish
methods (which may include the use of sampling and the
use of information described in subparagraph (B)) to verify
eligibility for individuals who seek to enroll in an endorsed
program and for individuals who provide a certification
under paragraph (2).
‘‘(B) 
INFORMATION
DESCRIBED.—The 
information
described in this subparagraph is as follows:
‘‘(i) MEDICAID-RELATED
INFORMATION.—Informa-
tion on eligibility under title XIX and provided to the
Secretary under arrangements between the Secretary
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and States in order to verify the eligibility of individ-
uals who seek to enroll in an endorsed program and
of individuals who provide certification under para-
graph (2).
‘‘(ii) SOCIAL
SECURITY
INFORMATION.—Financial
information made available to the Secretary under
arrangements between the Secretary and the Commis-
sioner of Social Security in order to verify the eligibility
of individuals who provide such certification.
‘‘(iii) INFORMATION
FROM
SECRETARY
OF
THE
TREASURY.—Financial information made available to
the Secretary under section 6103(l)(19) of the Internal
Revenue Code of 1986 in order to verify the eligibility
of individuals who provide such certification.
‘‘(C) VERIFICATION IN CASES OF MEDICAID ENROLLEES.—
‘‘(i) IN GENERAL.—Nothing in this section shall be
construed as preventing the Secretary from finding
that a discount card eligible individual meets the
income requirements under subsection (b)(2)(A) if the
individual is within a category of discount card eligible
individuals who are enrolled under title XIX (such
as qualified medicare beneficiaries (QMBs), specified
low-income medicare beneficiaries (SLMBs), and cer-
tain qualified individuals (QI–1s)).
‘‘(ii) 
AVAILABILITY
OF
INFORMATION
FOR
VERIFICATION PURPOSES.—As a condition of provision
of Federal financial participation to a State that is
one of the 50 States or the District of Columbia under
title XIX, for purposes of carrying out this section,
the State shall provide the information it submits to
the Secretary relating to such title in a manner speci-
fied by the Secretary that permits the Secretary to
identify individuals who are described in subsection
(b)(1)(B) or are transitional assistance eligible individ-
uals or special transitional assistance eligible individ-
uals.
‘‘(4) RECONSIDERATION.—
‘‘(A) IN
GENERAL.—The Secretary shall establish a
process under which a discount card eligible individual,
who is determined through the certification and verification
methods under paragraphs (2) and (3) not to be a transi-
tional assistance eligible individual or a special transitional
assistance eligible individual, may request a reconsider-
ation of the determination.
‘‘(B) CONTRACT AUTHORITY.—The Secretary may enter
into a contract to perform the reconsiderations requested
under subparagraph (A).
‘‘(C) COMMUNICATION OF RESULTS.—Under the process
under subparagraph (A) the results of such reconsideration
shall be communicated to the individual and the prescrip-
tion drug card sponsor involved.
‘‘(g) TRANSITIONAL ASSISTANCE.—
‘‘(1) PROVISION
OF
TRANSITIONAL
ASSISTANCE.—An indi-
vidual who is a transitional assistance eligible individual (as
determined under this section) and who is enrolled with an
endorsed program is entitled—
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‘‘(A) to have payment made of any annual enrollment
fee charged under subsection (c)(2) for enrollment under
the program; and
‘‘(B) to have payment made, up to the amount specified
in paragraph (2), under such endorsed program of 90 per-
cent (or 95 percent in the case of a special transitional
assistance eligible individual) of the costs incurred for cov-
ered discount card drugs obtained through the program
taking into account the negotiated price (if any) for the
drug under the program.
‘‘(2) LIMITATION ON DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
amount specified in this paragraph for a transitional assist-
ance eligible individual—
‘‘(i) for costs incurred during 2004, is $600; or
‘‘(ii) for costs incurred during 2005, is—
‘‘(I) $600, plus
‘‘(II) except as provided in subparagraph (E),
the amount by which the amount available under
this paragraph for 2004 for that individual exceeds
the amount of payment made under paragraph
(1)(B) for that individual for costs incurred during
2004.
‘‘(B) PRORATION.—
‘‘(i) IN GENERAL.—In the case of an individual not
described in clause (ii) with respect to a year, the
Secretary may prorate the amount specified in
subparagraph (A) for the balance of the year involved
in a manner specified by the Secretary.
‘‘(ii) 
INDIVIDUAL
DESCRIBED.—An 
individual
described in this clause is a transitional assistance
eligible individual who—
‘‘(I) with respect to 2004, enrolls in an
endorsed program, and provides a certification
under 
subsection 
(f)(2), 
before 
the 
initial
implementation date of the program under this
section; and
‘‘(II) with respect to 2005, is enrolled in an
endorsed program, and has provided such a certifi-
cation, before February 1, 2005.
‘‘(C) ACCOUNTING FOR AVAILABLE BALANCES IN CASES
OF
CHANGES
IN
PROGRAM
ENROLLMENT.—In the case of
a transitional assistance eligible individual who changes
the endorsed discount card program in which the individual
is enrolled under this section, the Secretary shall provide
a process under which the Secretary provides to the sponsor
of the endorsed program in which the individual enrolls
information concerning the balance of amounts available
on behalf of the individual under this paragraph.
‘‘(D) LIMITATION ON USE OF FUNDS.—Pursuant to sub-
section (a)(2)(C), no assistance shall be provided under
paragraph (1)(B) with respect to covered discount card
drugs dispensed after December 31, 2005.
‘‘(E) NO ROLLOVER PERMITTED IN CASE OF VOLUNTARY
DISENROLLMENT.—Except in such exceptional cases as the
Secretary may provide, in the case of a transitional assist-
ance eligible individual who voluntarily disenrolls from
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117 STAT. 2142
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an endorsed plan, the provisions of subclause (II) of
subparagraph (A)(ii) shall not apply.
‘‘(3) PAYMENT.—The Secretary shall provide a method for
the reimbursement of prescription drug card sponsors for assist-
ance provided under this subsection.
‘‘(4) COVERAGE OF COINSURANCE.—
‘‘(A) WAIVER
PERMITTED
BY
PHARMACY.—Nothing in
this section shall be construed as precluding a pharmacy
from reducing or waiving the application of coinsurance
imposed under paragraph (1)(B) in accordance with section
1128B(b)(3)(G).
‘‘(B) OPTIONAL PAYMENT OF COINSURANCE BY STATE.—
‘‘(i) IN GENERAL.—The Secretary shall establish an
arrangement under which a State may provide for
payment of some or all of the coinsurance under para-
graph (1)(B) for some or all enrollees in the State,
as specified by the State under the arrangement.
Insofar as such a payment arrangement is made with
respect to an enrollee, the amount of the coinsurance
shall be paid directly by the State to the pharmacy
involved.
‘‘(ii) NO FEDERAL MATCHING AVAILABLE UNDER MED-
ICAID OR SCHIP.—Expenditures made by a State for
coinsurance described in clause (i) shall not be treated
as State expenditures for purposes of Federal matching
payments under title XIX or XXI.
‘‘(iii) NOT TREATED AS MEDICARE COST-SHARING.—
Coinsurance described in paragraph (1)(B) shall not
be treated as coinsurance under this title for purposes
of section 1905(p)(3)(B).
‘‘(C) TREATMENT OF COINSURANCE.—The amount of any
coinsurance imposed under paragraph (1)(B), whether paid
or waived under this paragraph, shall not be taken into
account in applying the limitation in dollar amount under
paragraph (2).
‘‘(5) ENSURING ACCESS TO TRANSITIONAL ASSISTANCE FOR
QUALIFIED RESIDENTS OF LONG-TERM CARE FACILITIES AND AMER-
ICAN INDIANS.—
‘‘(A) RESIDENTS OF LONG-TERM CARE FACILITIES.—The
Secretary shall establish procedures and may waive
requirements of this section as necessary to negotiate
arrangements with sponsors to provide arrangements with
pharmacies that support long-term care facilities in order
to ensure access to transitional assistance for transitional
assistance eligible individuals who reside in long-term care
facilities.
‘‘(B) AMERICAN INDIANS.—The Secretary shall establish
procedures and may waive requirements of this section
to ensure that, for purposes of providing transitional assist-
ance, pharmacies operated by the Indian Health Service,
Indian tribes and tribal organizations, and urban Indian
organizations (as defined in section 4 of the Indian Health
Care Improvement Act) have the opportunity to participate
in the pharmacy networks of at least two endorsed pro-
grams in each of the 50 States and the District of Columbia
where such a pharmacy operates.
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‘‘(6) NO IMPACT ON BENEFITS UNDER OTHER PROGRAMS.—
The availability of negotiated prices or transitional assistance
under this section shall not be treated as benefits or otherwise
taken into account in determining an individual’s eligibility
for, or the amount of benefits under, any other Federal program.
‘‘(7) DISREGARD FOR PURPOSES OF PART C.—Nonuniformity
of benefits resulting from the implementation of this section
(including the provision or nonprovision of transitional assist-
ance and the payment or waiver of any enrollment fee under
this section) shall not be taken into account in applying section
1854(f).
‘‘(h) QUALIFICATION OF PRESCRIPTION DRUG CARD SPONSORS
AND ENDORSEMENT OF DISCOUNT CARD PROGRAMS; BENEFICIARY
PROTECTIONS.—
‘‘(1) PRESCRIPTION
DRUG
CARD
SPONSOR
AND
QUALIFICA-
TIONS.—
‘‘(A) PRESCRIPTION DRUG CARD SPONSOR AND SPONSOR
DEFINED.—For purposes of this section, the terms ‘prescrip-
tion drug card sponsor’ and ‘sponsor’ mean any nongovern-
mental entity that the Secretary determines to be appro-
priate to offer an endorsed discount card program under
this section, which may include—
‘‘(i) a pharmaceutical benefit management com-
pany;
‘‘(ii) a wholesale or retail pharmacy delivery
system;
‘‘(iii) an insurer (including an insurer that offers
medicare supplemental policies under section 1882);
‘‘(iv) an organization offering a plan under part
C; or
‘‘(v) any combination of the entities described in
clauses (i) through (iv).
‘‘(B) ADMINISTRATIVE QUALIFICATIONS.—Each endorsed
discount card program shall be operated directly, or
through arrangements with an affiliated organization (or
organizations), by one or more entities that have dem-
onstrated experience and expertise in operating such a
program or a similar program and that meets such business
stability and integrity requirements as the Secretary may
specify.
‘‘(C) ACCOUNTING FOR TRANSITIONAL ASSISTANCE.—The
sponsor of an endorsed discount card program shall have
arrangements satisfactory to the Secretary to account for
the assistance provided under subsection (g) on behalf of
transitional assistance eligible individuals.
‘‘(2) APPLICATIONS FOR PROGRAM ENDORSEMENT.—
‘‘(A) SUBMISSION.—Each prescription drug card sponsor
that seeks endorsement of a prescription drug discount
card program under this section shall submit to the Sec-
retary, at such time and in such manner as the Secretary
may specify, an application containing such information
as the Secretary may require.
‘‘(B) APPROVAL; COMPLIANCE WITH APPLICABLE REQUIRE-
MENTS.—The Secretary shall review the application sub-
mitted under subparagraph (A) and shall determine
whether to endorse the prescription drug discount card
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program. The Secretary may not endorse such a program
unless—
‘‘(i) the program and prescription drug card sponsor
offering the program comply with the applicable
requirements under this section; and
‘‘(ii) the sponsor has entered into a contract with
the Secretary to carry out such requirements.
‘‘(C) TERMINATION OF ENDORSEMENT AND CONTRACTS.—
An endorsement of an endorsed program and a contract
under subparagraph (B) shall be for the duration of the
program under this section (including any transition
applicable under subsection (a)(2)(C)(ii)), except that the
Secretary may, with notice and for cause (as defined by
the Secretary), terminate such endorsement and contract.
‘‘(D) ENSURING CHOICE OF PROGRAMS.—
‘‘(i) IN GENERAL.—The Secretary shall ensure that
there is available to each discount card eligible indi-
vidual a choice of at least 2 endorsed programs (each
offered by a different sponsor).
‘‘(ii) LIMITATION ON NUMBER.—The Secretary may
limit (but not below 2) the number of sponsors in
a State that are awarded contracts under this para-
graph.
‘‘(3) SERVICE AREA ENCOMPASSING ENTIRE STATES.—Except
as provided in paragraph (9), if a prescription drug card sponsor
that offers an endorsed program enrolls in the program individ-
uals residing in any part of a State, the sponsor must permit
any discount card eligible individual residing in any portion
of the State to enroll in the program.
‘‘(4) SAVINGS TO MEDICARE BENEFICIARIES.—Each prescrip-
tion drug card sponsor that offers an endorsed discount card
program shall pass on to discount card eligible individuals
enrolled in the program negotiated prices on covered discount
card drugs, including discounts negotiated with pharmacies
and manufacturers, to the extent disclosed under subsection
(i)(1).
‘‘(5) GRIEVANCE MECHANISM.—Each prescription drug card
sponsor shall provide meaningful procedures for hearing and
resolving grievances between the sponsor (including any entity
or individual through which the sponsor carries out the
endorsed discount card program) and enrollees in endorsed
discount card programs of the sponsor under this section in
a manner similar to that required under section 1852(f).
‘‘(6) CONFIDENTIALITY OF ENROLLEE RECORDS.—
‘‘(A) IN GENERAL.—For purposes of the program under
this section, the operations of an endorsed program are
covered functions and a prescription drug card sponsor
is a covered entity for purposes of applying part C of
title XI and all regulatory provisions promulgated there-
under, including regulations (relating to privacy) adopted
pursuant to the authority of the Secretary under section
264(c) of the Health Insurance Portability and Account-
ability Act of 1996 (42 U.S.C. 1320d–2 note).
‘‘(B) WAIVER AUTHORITY.—In order to promote partici-
pation of sponsors in the program under this section, the
Secretary may waive such relevant portions of regulations
relating to privacy referred to in subparagraph (A), for
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such appropriate, limited period of time, as the Secretary
specifies.
‘‘(7) LIMITATION ON PROVISION AND MARKETING OF PRODUCTS
AND
SERVICES.—The sponsor of an endorsed discount card
program—
‘‘(A) may provide under the program—
‘‘(i) a product or service only if the product or
service is directly related to a covered discount card
drug; or
‘‘(ii) a discount price for nonprescription drugs;
and
‘‘(B) may, to the extent otherwise permitted under
paragraph (6) (relating to application of HIPAA require-
ments), market a product or service under the program
only if the product or service is directly related to—
‘‘(i) a covered discount card drug; or
‘‘(ii) a drug described in subparagraph (A)(ii) and
the marketing consists of information on the discounted
price made available for the drug involved.
‘‘(8) ADDITIONAL
PROTECTIONS.—Each endorsed discount
card program shall meet such additional requirements as the
Secretary identifies to protect and promote the interest of dis-
count card eligible individuals, including requirements that
ensure that discount card eligible individuals enrolled in
endorsed discount card programs are not charged more than
the lower of the price based on negotiated prices or the usual
and customary price.
‘‘(9) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—
‘‘(A) IN GENERAL.—In the case of an organization that
is offering a plan under part C or enrollment under a
reasonable cost reimbursement contract under section
1876(h) that is seeking to be a prescription drug card
sponsor under this section, the organization may elect to
apply the special rules under subparagraph (B) with respect
to enrollees in any plan described in section 1851(a)(2)(A)
that it offers or under such contract and an endorsed
discount card program it offers, but only if it limits enroll-
ment under such program to individuals enrolled in such
plan or under such contract.
‘‘(B) SPECIAL
RULES.—The special rules under this
subparagraph are as follows:
‘‘(i) LIMITATION
ON
ENROLLMENT.—The sponsor
limits enrollment under this section under the
endorsed discount card program to discount card
eligible individuals who are enrolled in the part C
plan involved or under the reasonable cost reimburse-
ment contract involved and is not required nor per-
mitted to enroll other individuals under such program.
‘‘(ii) PHARMACY ACCESS.—Pharmacy access require-
ments under subsection (e)(1)(B) are deemed to be
met if the access is made available through a pharmacy
network (and not only through mail order) and the
network used by the sponsor is approved by the Sec-
retary.
‘‘(iii) SPONSOR REQUIREMENTS.—The Secretary may
waive the application of such requirements for a
sponsor as the Secretary determines to be duplicative
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or to conflict with a requirement of the organization
under part C or section 1876 (as the case may be)
or to be necessary in order to improve coordination
of this section with the benefits under such part or
section.
‘‘(i) DISCLOSURE AND OVERSIGHT.—
‘‘(1) DISCLOSURE.—Each prescription drug card sponsor
offering an endorsed discount card program shall disclose to
the Secretary (in a manner specified by the Secretary) informa-
tion relating to program performance, use of prescription drugs
by discount card eligible individuals enrolled in the program,
the extent to which negotiated price concessions described in
subsection (e)(1)(A)(ii) made available to the entity by a manu-
facturer are passed through to enrollees through pharmacies
or otherwise, and such other information as the Secretary may
specify. The provisions of section 1927(b)(3)(D) shall apply to
drug pricing data reported under the previous sentence (other
than data in aggregate form).
‘‘(2) OVERSIGHT; AUDIT AND INSPECTION AUTHORITY.—The
Secretary shall provide appropriate oversight to ensure compli-
ance of endorsed discount card programs and their sponsors
with the requirements of this section. The Secretary shall have
the right to audit and inspect any books and records of a
prescription discount card sponsor (and of any affiliated
organization referred to in subsection (h)(1)(B)) that pertain
to the endorsed discount card program under this section,
including amounts payable to the sponsor under this section.
‘‘(3) SANCTIONS
FOR
ABUSIVE
PRACTICES.—The Secretary
may implement intermediate sanctions or may revoke the
endorsement of a program offered by a sponsor under this
section if the Secretary determines that the sponsor or the
program no longer meets the applicable requirements of this
section or that the sponsor has engaged in false or misleading
marketing practices. The Secretary may impose a civil money
penalty in an amount not to exceed $10,000 for conduct that
a party knows or should know is a violation of this section.
The provisions of section 1128A (other than subsections (a)
and (b) and the second sentence of subsection (f)) shall apply
to a civil money penalty under the previous sentence in the
same manner as such provisions apply to a penalty or pro-
ceeding under section 1128A(a).
‘‘(j) TREATMENT OF TERRITORIES.—
‘‘(1) IN GENERAL.—The Secretary may waive any provision
of this section (including subsection (h)(2)(D)) in the case of
a resident of a State (other than the 50 States and the District
of Columbia) insofar as the Secretary determines it is necessary
to secure access to negotiated prices for discount card eligible
individuals (or, at the option of the Secretary, individuals
described in subsection (b)(1)(A)(i)).
‘‘(2) TRANSITIONAL ASSISTANCE.—
‘‘(A) IN GENERAL.—In the case of a State, other than
the 50 States and the District of Columbia, if the State
establishes a plan described in subparagraph (B) (for pro-
viding transitional assistance with respect to the provision
of prescription drugs to some or all individuals residing
in the State who are described in subparagraph (B)(i)),
the Secretary shall pay to the State for the entire period
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of the operation of this section an amount equal to the
amount allotted to the State under subparagraph (C).
‘‘(B) PLAN.—The plan described in this subparagraph
is a plan that—
‘‘(i) provides transitional assistance with respect
to the provision of covered discount card drugs to some
or all individuals who are entitled to benefits under
part A or enrolled under part B, who reside in the
State, and who have income below 135 percent of the
poverty line; and
‘‘(ii) assures that amounts received by the State
under this paragraph are used only for such assistance.
‘‘(C) ALLOTMENT LIMIT.—The amount described in this
subparagraph for a State is equal to $35,000,000 multiplied
by the ratio (as estimated by the Secretary) of—
‘‘(i) the number of individuals who are entitled
to benefits under part A or enrolled under part B
and who reside in the State (as determined by the
Secretary as of July 1, 2003), to
‘‘(ii) the sum of such numbers for all States to
which this paragraph applies.
‘‘(D) CONTINUED
AVAILABILITY
OF
FUNDS.—Amounts
made available to a State under this paragraph which
are not used under this paragraph shall be added to the
amount available to that State for purposes of carrying
out section 1935(e).
‘‘(k) FUNDING.—
‘‘(1) 
ESTABLISHMENT
OF
TRANSITIONAL
ASSISTANCE
ACCOUNT.—
‘‘(A) IN GENERAL.—There is created within the Federal
Supplementary Medical Insurance Trust Fund established
by section 1841 an account to be known as the ‘Transitional
Assistance Account’ (in this subsection referred to as the
‘Account’).
‘‘(B) FUNDS.—The Account shall consist of such gifts
and bequests as may be made as provided in section
201(i)(1), accrued interest on balances in the Account, and
such amounts as may be deposited in, or appropriated
to, the Account as provided in this subsection.
‘‘(C) SEPARATE FROM REST OF TRUST FUND.—Funds pro-
vided under this subsection to the Account shall be kept
separate from all other funds within the Federal Supple-
mentary Medical Insurance Trust Fund, but shall be
invested, and such investments redeemed, in the same
manner as all other funds and investments within such
Trust Fund.
‘‘(2) PAYMENTS FROM ACCOUNT.—
‘‘(A) IN GENERAL.—The Managing Trustee shall pay
from time to time from the Account such amounts as the
Secretary certifies are necessary to make payments for
transitional assistance provided under subsections (g) and
(j)(2).
‘‘(B) TREATMENT IN RELATION TO PART B PREMIUM.—
Amounts payable from the Account shall not be taken
into account in computing actuarial rates or premium
amounts under section 1839.
Investments.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(3) APPROPRIATIONS TO COVER BENEFITS.—There are appro-
priated to the Account in a fiscal year, out of any moneys
in the Treasury not otherwise appropriated, an amount equal
to the payments made from the Account in the year.
‘‘(4) FOR ADMINISTRATIVE EXPENSES.—There are authorized
to be appropriated to the Secretary such sums as may be
necessary to carry out the Secretary’s responsibilities under
this section.
‘‘(5) TRANSFER OF ANY REMAINING BALANCE TO MEDICARE
PRESCRIPTION DRUG ACCOUNT.—Any balance remaining in the
Account after the Secretary determines that funds in the
Account are no longer necessary to carry out the program
under this section shall be transferred and deposited into the
Medicare Prescription Drug Account under section 1860D–16.
‘‘(6) CONSTRUCTION.—Nothing in this section shall be con-
strued as authorizing the Secretary to provide for payment
(other than payment of an enrollment fee on behalf of a transi-
tional assistance eligible individual under subsection (g)(1)(A))
to a sponsor for administrative expenses incurred by the
sponsor in carrying out this section (including in administering
the transitional assistance provisions of subsections (f) and
(g)).
‘‘Subpart 5—Definitions and Miscellaneous Provisions
‘‘DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN PART C
‘‘SEC. 1860D–41. (a) DEFINITIONS.—For purposes of this part:
‘‘(1) BASIC PRESCRIPTION DRUG COVERAGE.—The term ‘basic
prescription drug coverage’ is defined in section 1860D–2(a)(3).
‘‘(2) COVERED PART D DRUG.—The term ‘covered part D
drug’ is defined in section 1860D–2(e).
‘‘(3) CREDITABLE PRESCRIPTION DRUG COVERAGE.—The term
‘creditable prescription drug coverage’ has the meaning given
such term in section 1860D–13(b)(4).
‘‘(4) PART D ELIGIBLE INDIVIDUAL.—The term ‘part D eligible
individual’ has the meaning given such term in section 1860D–
1(a)(4)(A).
‘‘(5) FALLBACK PRESCRIPTION DRUG PLAN.—The term ‘fall-
back prescription drug plan’ has the meaning given such term
in section 1860D–11(g)(4).
‘‘(6) INITIAL COVERAGE LIMIT.—The term ‘initial coverage
limit’ means such limit as established under section 1860D–
2(b)(3), or, in the case of coverage that is not standard prescrip-
tion drug coverage, the comparable limit (if any) established
under the coverage.
‘‘(7) INSURANCE RISK.—The term ‘insurance risk’ means,
with respect to a participating pharmacy, risk of the type
commonly assumed only by insurers licensed by a State and
does not include payment variations designed to reflect perform-
ance-based measures of activities within the control of the
pharmacy, such as formulary compliance and generic drug
substitution.
‘‘(8) MA PLAN.—The term ‘MA plan’ has the meaning given
such term in section 1860D–1(a)(4)(B).
‘‘(9) MA–PD PLAN.—The term ‘MA–PD plan’ has the
meaning given such term in section 1860D–1(a)(4)(C).
42 USC
1395w–151.
Appropriation
authorization.
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‘‘(10) MEDICARE PRESCRIPTION DRUG ACCOUNT.—The term
‘Medicare Prescription Drug Account’ means the Account cre-
ated under section 1860D–16(a).
‘‘(11) PDP APPROVED BID.—The term ‘PDP approved bid’
has the meaning given such term in section 1860D–13(a)(6).
‘‘(12) PDP REGION.—The term ‘PDP region’ means such
a region as provided under section 1860D–11(a)(2).
‘‘(13) PDP SPONSOR.—The term ‘PDP sponsor’ means a
nongovernmental entity that is certified under this part as
meeting the requirements and standards of this part for such
a sponsor.
‘‘(14) PRESCRIPTION
DRUG
PLAN.—The term ‘prescription
drug plan’ means prescription drug coverage that is offered—
‘‘(A) under a policy, contract, or plan that has been
approved under section 1860D–11(e); and
‘‘(B) by a PDP sponsor pursuant to, and in accordance
with, a contract between the Secretary and the sponsor
under section 1860D–12(b).
‘‘(15) QUALIFIED PRESCRIPTION DRUG COVERAGE.—The term
‘qualified prescription drug coverage’ is defined in section
1860D–2(a)(1).
‘‘(16) STANDARD PRESCRIPTION DRUG COVERAGE.—The term
‘standard prescription drug coverage’ is defined in section
1860D–2(b).
‘‘(17) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.—The
term ‘State Pharmaceutical Assistance Program’ has the
meaning given such term in section 1860D–23(b).
‘‘(18) SUBSIDY
ELIGIBLE
INDIVIDUAL.—The term ‘subsidy
eligible individual’ has the meaning given such term in section
1860D–14(a)(3)(A).
‘‘(b) APPLICATION OF PART C PROVISIONS UNDER THIS PART.—
For purposes of applying provisions of part C under this part
with respect to a prescription drug plan and a PDP sponsor, unless
otherwise provided in this part such provisions shall be applied
as if—
‘‘(1) any reference to an MA plan included a reference
to a prescription drug plan;
‘‘(2) any reference to an MA organization or a provider-
sponsored organization 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–12(b);
‘‘(4) any reference to part C included a reference to this
part; and
‘‘(5) any reference to an election period under section 1851
were a reference to an enrollment period under section 1860D–
1.
‘‘MISCELLANEOUS PROVISIONS
‘‘SEC. 1860D–42. (a) ACCESS TO COVERAGE IN TERRITORIES.—
The Secretary may waive such requirements of this part, including
section 1860D–3(a)(1), insofar as the Secretary determines it is
necessary to secure access to qualified prescription drug coverage
for part D eligible individuals residing in a State (other than
the 50 States and the District of Columbia).
‘‘(b) APPLICATION OF DEMONSTRATION AUTHORITY.—The provi-
sions of section 402 of the Social Security Amendments of 1967
(Public Law 90–248) shall apply with respect to this part and
42 USC
1395w–152.
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part C in the same manner it applies with respect to parts A
and B, except that any reference with respect to a Trust Fund
in relation to an experiment or demonstration project relating to
prescription drug coverage under this part shall be deemed a ref-
erence to the Medicare Prescription Drug Account within the Fed-
eral Supplementary Medical Insurance Trust Fund.’’.
(b) SUBMISSION OF LEGISLATIVE PROPOSAL.—Not later than 6
months after the date of the enactment of this Act, the Secretary
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 title and
title II.
(c) STUDY ON TRANSITIONING PART B PRESCRIPTION DRUG COV-
ERAGE.—Not later than January 1, 2005, the Secretary shall submit
a report to Congress that makes recommendations regarding
methods for providing benefits under subpart 1 of 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.
(d) REPORT ON PROGRESS IN IMPLEMENTATION OF PRESCRIPTION
DRUG BENEFIT.—Not later than March 1, 2005, the Secretary shall
submit a report to Congress on the progress that has been made
in implementing the prescription drug benefit under this title. The
Secretary shall include in the report specific steps that have been
taken, and that need to be taken, to ensure a timely start of
the program on January 1, 2006. The report shall include rec-
ommendations regarding an appropriate transition from the pro-
gram under section 1860D–31 of the Social Security Act to prescrip-
tion drug benefits under subpart 1 of part D of title XVIII of
such Act.
(e) 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 WAIVER 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 subparagraph (E);
(B) by striking the period at the end of subparagraph
(F) and inserting ‘‘; and’’; and
(C) by adding at the end the following new subpara-
graph:
‘‘(G) the waiver or reduction by pharmacies (including phar-
macies of the Indian Health Service, Indian tribes, tribal
organizations, and urban Indian organizations) of any cost-
sharing imposed under part D of title XVIII, if the conditions
described in clauses (i) through (iii) of section 1128A(i)(6)(A)
are met with respect to the waiver or reduction (except that,
in the case of such a waiver or reduction on behalf of a subsidy
eligible individual (as defined in section 1860D–14(a)(3)), sec-
tion 1128A(i)(6)(A) shall be applied without regard to clauses
(ii) and (iii) of that section).’’.
(3) MEDICARE PRESCRIPTION DRUG ACCOUNT.—
(A) Section 201(g) (42 U.S.C. 401(g)) is amended—
(i) in paragraph (1)(B)(i)(V), by inserting ‘‘(and,
of such portion, the portion of such costs which should
42 USC 1395x
note, 426,
1395i–4; 45 USC
231f.
42 USC
1395w–101 note.
Reports.
42 USC
1395w–101 note.
42 USC
1395w–101 note.
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have been borne by the Medicare Prescription Drug
Account in such Trust Fund)’’ after ‘‘Trust Fund’’; and
(ii) in paragraph (1)(B)(ii)(III), by inserting ‘‘(and,
of such portion, the portion of such costs which should
have been borne by the Medicare Prescription Drug
Account in such Trust Fund)’’ after ‘‘Trust Fund’’.
(B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) is amended
by inserting ‘‘(and for the Medicare Prescription Drug
Account and the Transitional Assistance Account in such
Trust Fund)’’ after ‘‘Federal Supplementary Medical Insur-
ance Trust Fund’’.
(C) Section 1841 (42 U.S.C. 1395t) is amended—
(i) in the last sentence of subsection (a)—
(I) by striking ‘‘and’’ before ‘‘such amounts’’;
and
(II) by inserting before the period the fol-
lowing: ‘‘, and such amounts as may be deposited
in, or appropriated to, the Medicare Prescription
Drug Account established by section 1860D–16’’;
(ii) in subsection (g), by adding at the end the
following: ‘‘The payments provided for under part D,
other than under section 1860D–31(k)(2), shall be made
from the Medicare Prescription Drug Account in the
Trust Fund.’’;
(iii) in subsection (h), by inserting ‘‘or pursuant
to section 1860D–13(c)(1) or 1854(d)(2)(A) (in which
case payments shall be made in appropriate part from
the Medicare Prescription Drug Account in the Trust
Fund)’’ after ‘‘1840(d)’’; and
(iv) in subsection (i), by inserting after ‘‘and section
1842(g)’’ the following: ‘‘and pursuant to sections
1860D–13(c)(1) and 1854(d)(2)(A) (in which case pay-
ments shall be made in appropriate part from the
Medicare Prescription Drug Account in the Trust
Fund)’’.
(D) 
Section 
1853(f) 
(42 
U.S.C. 
1395w–23(f)) 
is
amended—
(i) in the heading by striking ‘‘TRUST FUND’’ and
inserting ‘‘TRUST FUNDS’’; and
(ii) by inserting after the first sentence the fol-
lowing: ‘‘Payments to MA organizations for statutory
drug benefits provided under this title are made from
the Medicare Prescription Drug Account in the Federal
Supplementary Medical Insurance Trust Fund.’’.
(4) APPLICATION OF CONFIDENTIALITY FOR DRUG PRICING
DATA.—Section 1927(b)(3)(D) (42 U.S.C. 1396r–8(b)(3)(D)) is
amended by adding after and below clause (iii) the following:
‘‘The previous sentence shall also apply to information dis-
closed under section 1860D–2(d)(2) or 1860D–4(c)(2)(E).’’.
(5) CLARIFICATION OF TREATMENT OF PART A ENROLLEES.—
Section 1818(a) (42 U.S.C. 1395i–2(a)) is amended by adding
at the end the following: ‘‘Except as otherwise provided, any
reference to an individual entitled to benefits under this part
includes an individual entitled to benefits under this part
pursuant to an enrollment under this section or section 1818A.’’.
(6) DISCLOSURE.—Section 6103(l)(7)(D)(ii) of the Internal
Revenue Code of 1986 is amended by inserting ‘‘or subsidies
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provided under section 1860D–14 of such Act’’ after ‘‘Social
Security Act’’.
(7) EXTENSION OF STUDY AUTHORITY.—Section 1875(b) (42
U.S.C. 1395ll(b)) is amended by striking ‘‘the insurance pro-
grams under parts A and B’’ and inserting ‘‘this title’’.
(8) CONFORMING AMENDMENTS RELATING TO FACILITATION
OF ELECTRONIC PRESCRIBING.—
(A) 
Section 
1128B(b)(3)(C) 
(42 
U.S.C. 
1320a–
7b(b)(3)(C)) is amended by inserting ‘‘or in regulations
under section 1860D–3(e)(6)’’ after ‘‘1987’’.
(B) Section 1877(b) (42 U.S.C. 1395nn(b)) is amended
by adding at the end the following new paragraph:
‘‘(5) ELECTRONIC PRESCRIBING.—An exception established
by regulation under section 1860D–3(e)(6).’’.
(9) OTHER
CHANGES.—Section 1927(g)(1)(B)(i) (42 U.S.C.
1396r–8(g)(1)(B)(i)) is amended—
(A) by adding ‘‘and’’ at the end of subclause (II); and
(B) by striking subclause (IV).
SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.
(a) CONFORMING AMENDMENTS TO ENROLLMENT PROCESS.—
(1) 
EXTENDING
OPEN
ENROLLMENT
PERIODS.—Section
1851(e) (42 U.S.C. 1395w–21(e)) is amended—
(A) in paragraph (2), by striking ‘‘2004’’ and ‘‘2005’’
and inserting ‘‘2005’’ and ‘‘2006’’ each place it appears;
and
(B) in paragraph (4), by striking ‘‘2005’’ and inserting
‘‘2006’’ each place it appears.
(2) ESTABLISHMENT
OF
SPECIAL
ANNUAL, COORDINATED
ELECTION
PERIOD
FOR
6
MONTHS
BEGINNING
NOVEMBER
15,
2005.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–21(e)(3)(B)) is
amended to read as follows:
‘‘(B) ANNUAL, COORDINATED
ELECTION
PERIOD.—For
purposes of this section, the term ‘annual, coordinated elec-
tion period’ means—
‘‘(i) with respect to a year before 2002, the month
of November before such year;
‘‘(ii) with respect to 2002, 2003, 2004, and 2005,
the period beginning on November 15 and ending on
December 31 of the year before such year;
‘‘(iii) with respect to 2006, the period beginning
on November 15, 2005, and ending on May 15, 2006;
and
‘‘(iv) with respect to 2007 and succeeding years,
the period beginning on November 15 and ending on
December 31 of the year before such year.’’.
(3) SPECIAL
INFORMATION
CAMPAIGN.—Section 1851(e)(3)
(42 U.S.C. 1395w–21(e)(3)) is amended—
(A) in subparagraph (C), by inserting ‘‘and during the
period described in subparagraph (B)(iii)’’ after ‘‘(beginning
with 1999)’’; and
(B) in subparagraph (D)—
(i) in the heading by striking ‘‘CAMPAIGN IN 1998’’
and inserting ‘‘CAMPAIGNS’’; and
(ii) by adding at the end the following: ‘‘During
the period described in subparagraph (B)(iii), the Sec-
retary shall provide for an educational and publicity
26 USC 6103.
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campaign to inform MA eligible individuals about the
availability of MA plans (including MA–PD plans)
offered in different areas and the election process pro-
vided under this section.’’.
(4) COORDINATING INITIAL ENROLLMENT PERIODS.—Section
1851(e)(1) (42 U.S.C. 1395w–21(e)(1)) is amended by adding
at the end the following new sentence: ‘‘If any portion of an
individual’s initial enrollment period under part B occurs after
the end of the annual, coordinated election period described
in paragraph (3)(B)(iii), the initial enrollment period under
this part shall further extend through the end of the individual’s
initial enrollment period under part B.’’.
(5) COORDINATION OF EFFECTIVENESS OF ELECTIONS DURING
ANNUAL
COORDINATED
ELECTION
PERIOD
FOR
2006.—Section
1851(f)(3) (42 U.S.C. 1395w–21(f)(3)) is amended by inserting
‘‘, other than the period described in clause (iii) of such sub-
section’’ after ‘‘subsection (e)(3)(B)’’.
(6) LIMITATION ON ONE-CHANGE RULE TO SAME TYPE OF
PLAN.—Section 
1851(e)(2) 
(42 
U.S.C. 
1395w–21(e)(2)) 
is
amended—
(A) in subparagraph (B)(i), by inserting ‘‘, subpara-
graph (C)(iii),’’ after ‘‘clause (ii)’’;
(B) in subparagraph (C)(i), by striking ‘‘clause (ii)’’
and inserting ‘‘clauses (ii) and (iii)’’; and
(C) by adding at the end of subparagraph (C) the
following new clause:
‘‘(iii) LIMITATION
ON
EXERCISE
OF
RIGHT
WITH
RESPECT TO PRESCRIPTION DRUG COVERAGE.—Effective
for plan years beginning on or after January 1, 2006,
in applying clause (i) (and clause (i) of subparagraph
(B)) in the case of an individual who—
‘‘(I) is enrolled in an MA plan that does provide
qualified prescription drug coverage, the individual
may exercise the right under such clause only
with respect to coverage under the original fee-
for-service plan or coverage under another MA
plan that does not provide such coverage and may
not exercise such right to obtain coverage under
an MA–PD plan or under a prescription drug plan
under part D; or
‘‘(II) is enrolled in an MA–PD plan, the indi-
vidual may exercise the right under such clause
only with respect to coverage under another MA–
PD plan (and not an MA plan that does not provide
qualified prescription drug coverage) or under the
original fee-for-service plan and coverage under
a prescription drug plan under part D.’’.
(b) PROMOTION
OF E-PRESCRIBING
BY MA PLANS.—Section
1852(j) (42 U.S.C. 1395w–22(j)) is amended by adding at the end
the following new paragraph:
‘‘(7) PROMOTION OF E-PRESCRIBING BY MA PLANS.—
‘‘(A) IN GENERAL.—An MA–PD plan may provide for
a separate payment or otherwise provide for a differential
payment for a participating physician that prescribes cov-
ered part D drugs in accordance with an electronic prescrip-
tion drug program that meets standards established under
section 1860D–4(e).
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‘‘(B) CONSIDERATIONS.—Such payment may take into
consideration the costs of the physician in implementing
such a program and may also be increased for those partici-
pating physicians who significantly increase—
‘‘(i) formulary compliance;
‘‘(ii) lower cost, therapeutically equivalent alter-
natives;
‘‘(iii) reductions in adverse drug interactions; and
‘‘(iv) efficiencies in filing prescriptions through
reduced administrative costs.
‘‘(C) STRUCTURE.—Additional or increased payments
under this subsection may be structured in the same
manner as medication therapy management fees are struc-
tured under section 1860D–4(c)(2)(E).’’.
(c) OTHER CONFORMING AMENDMENTS.—
(1) Section 1851(a)(1) (42 U.S.C. 1395w–21(a)(1)) is
amended—
(A) by inserting ‘‘(other than qualified prescription drug
benefits)’’ after ‘‘benefits’’;
(B) by striking the period at the end of subparagraph
(B) and inserting a comma; and
(C) by adding after and below subparagraph (B) the
following:
‘‘and may elect qualified prescription drug coverage in accord-
ance with section 1860D–1.’’.
(2) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply on and after January 1, 2006.
SEC. 103. MEDICAID AMENDMENTS.
(a) DETERMINATIONS
OF ELIGIBILITY
FOR LOW-INCOME SUB-
SIDIES.—
(1) REQUIREMENT.—Section 1902(a) (42 U.S.C. 1396a(a))
is amended—
(A) by striking ‘‘and’’ at the end of paragraph (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 determinations 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 following new
section:
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG
BENEFIT
‘‘SEC. 1935. (a) REQUIREMENTS
RELATING
TO
MEDICARE
PRESCRIPTION DRUG LOW-INCOME SUBSIDIES AND MEDICARE TRANSI-
TIONAL PRESCRIPTION DRUG ASSISTANCE.—As a condition of its State
plan under this title under section 1902(a)(66) and receipt of any
Federal financial assistance under section 1903(a), a State shall
do the following:
‘‘(1) INFORMATION FOR TRANSITIONAL PRESCRIPTION DRUG
ASSISTANCE VERIFICATION.—The State shall provide the Sec-
retary 
with 
information 
to 
carry 
out 
section 
1860D–
31(f)(3)(B)(i).
42 USC 1396u–5.
42 USC 1396v.
42 USC
1395w–21 note.
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‘‘(2) ELIGIBILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—The State shall—
‘‘(A) make determinations of eligibility for premium
and cost-sharing subsidies under and in accordance with
section 1860D–14;
‘‘(B) inform the Secretary of such determinations in
cases in which such eligibility is established; and
‘‘(C) otherwise provide the Secretary with such
information as may be required to carry out part D, other
than subpart 4, of title XVIII (including section 1860D–
14).
‘‘(3) SCREENING
FOR
ELIGIBILITY, AND
ENROLLMENT
OF,
BENEFICIARIES
FOR
MEDICARE
COST-SHARING.—As part of
making an eligibility determination required under paragraph
(2) for an individual, the State shall make a determination
of the individual’s eligibility for medical assistance for any
medicare cost-sharing described in section 1905(p)(3) and, if
the individual is eligible for any such medicare cost-sharing,
offer enrollment to the individual under the State plan (or
under a waiver of such plan).
‘‘(b) REGULAR FEDERAL SUBSIDY OF ADMINISTRATIVE COSTS.—
The amounts expended by a State in carrying out subsection (a)
are expenditures reimbursable under the appropriate paragraph
of section 1903(a).’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID RESPONSI-
BILITY FOR PREMIUM AND COST-SHARING SUBSIDIES FOR DUALLY
ELIGIBLE INDIVIDUALS.—Section 1935, as inserted by subsection
(a)(2), is amended by adding at the end the following new sub-
section:
‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIPTION DRUG
COSTS FOR DUALLY ELIGIBLE INDIVIDUALS.—
‘‘(1) PHASED-DOWN STATE CONTRIBUTION.—
‘‘(A) IN GENERAL.—Each of the 50 States and the Dis-
trict of Columbia for each month beginning with January
2006 shall provide for payment under this subsection to
the Secretary of the product of—
‘‘(i) the amount computed under paragraph (2)(A)
for the State and month;
‘‘(ii) the total number of full-benefit dual eligible
individuals (as defined in paragraph (6)) for such State
and month; and
‘‘(iii) the factor for the month specified in para-
graph (5).
‘‘(B) FORM AND MANNER OF PAYMENT.—Payment under
subparagraph (A) shall be made in a manner specified
by the Secretary that is similar to the manner in which
State payments are made under an agreement entered
into under section 1843, except that all such payments
shall be deposited into the Medicare Prescription Drug
Account in the Federal Supplementary Medical Insurance
Trust Fund.
‘‘(C) COMPLIANCE.—If a State fails to pay to the Sec-
retary an amount required under subparagraph (A),
interest shall accrue on such amount at the rate provided
under section 1903(d)(5). The amount so owed and
applicable interest shall be immediately offset against
amounts otherwise payable to the State under section
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1903(a), in accordance with the Federal Claims Collection
Act of 1996 and applicable regulations.
‘‘(D) DATA MATCH.—The Secretary shall perform such
periodic data matches as may be necessary to identify
and compute the number of full-benefit dual eligible
individuals for purposes of computing the amount under
subparagraph (A).
‘‘(2) AMOUNT.—
‘‘(A) IN GENERAL.—The amount computed under this
paragraph for a State described in paragraph (1) and for
a month in a year is equal to—
‘‘(i) 1⁄12 of the product of—
‘‘(I) the base year State medicaid per capita
expenditures for covered part D drugs for full-
benefit dual eligible individuals (as computed
under paragraph (3)); and
‘‘(II) a proportion equal to 100 percent minus
the Federal medical assistance percentage (as
defined in section 1905(b)) applicable to the State
for the fiscal year in which the month occurs;
and
‘‘(ii) increased for each year (beginning with 2004
up to and including the year involved) by the applicable
growth factor specified in paragraph (4) for that year.
‘‘(B) NOTICE.—The Secretary shall notify each State
described in paragraph (1) not later than October 15 before
the beginning of each year (beginning with 2006) of the
amount computed under subparagraph (A) for the State
for that year.
‘‘(3) BASE YEAR STATE MEDICAID PER CAPITA EXPENDITURES
FOR COVERED PART D DRUGS FOR FULL-BENEFIT DUAL ELIGIBLE
INDIVIDUALS.—
‘‘(A) IN GENERAL.—For purposes of paragraph (2)(A),
the ‘base year State medicaid per capita expenditures for
covered part D drugs for full-benefit dual eligible individ-
uals’ for a State is equal to the weighted average (as
weighted under subparagraph (C)) of—
‘‘(i) the gross per capita medicaid expenditures for
prescription drugs for 2003, determined under subpara-
graph (B); and
‘‘(ii) the estimated actuarial value of prescription
drug benefits provided under a capitated managed care
plan per full-benefit dual eligible individual for 2003,
as determined using such data as the Secretary deter-
mines appropriate.
‘‘(B) GROSS PER CAPITA MEDICAID EXPENDITURES FOR
PRESCRIPTION DRUGS.—
‘‘(i) IN GENERAL.—The gross per capita medicaid
expenditures for prescription drugs for 2003 under this
subparagraph is equal to the expenditures, including
dispensing fees, for the State under this title during
2003 for covered outpatient drugs, determined per full-
benefit-dual-eligible-individual for such individuals not
receiving medical assistance for such drugs through
a medicaid managed care plan.
‘‘(ii) DETERMINATION.—In determining the amount
under clause (i), the Secretary shall—
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‘‘(I) use data from the Medicaid Statistical
Information System (MSIS) and other available
data;
‘‘(II) exclude expenditures attributable to cov-
ered outpatient prescription drugs that are not
covered part D drugs (as defined in section 1860D–
2(e)); and
‘‘(III) reduce such expenditures by the product
of such portion and the adjustment factor
(described in clause (iii)).
‘‘(iii) ADJUSTMENT FACTOR.—The adjustment factor
described in this clause for a State is equal to the
ratio for the State for 2003 of—
‘‘(I) aggregate payments under agreements
under section 1927; to
‘‘(II) the gross expenditures under this title
for covered outpatient drugs referred to in clause
(i).
Such factor shall be determined based on information
reported by the State in the medicaid financial
management reports (form CMS–64) for the 4 quarters
of calendar year 2003 and such other data as the
Secretary may require.
‘‘(C) WEIGHTED AVERAGE.—The weighted average under
subparagraph (A) shall be determined taking into account—
‘‘(i) with respect to subparagraph (A)(i), the aver-
age number of full-benefit dual eligible individuals in
2003 who are not described in clause (ii); and
‘‘(ii) with respect to subparagraph (A)(ii), the aver-
age number of full-benefit dual eligible individuals in
such year who received in 2003 medical assistance
for covered outpatient drugs through a medicaid man-
aged care plan.
‘‘(4) APPLICABLE GROWTH FACTOR.—The applicable growth
factor under this paragraph for—
‘‘(A) each of 2004, 2005, and 2006, is the average
annual percent change (to that year from the previous
year) of the per capita amount of prescription drug expendi-
tures (as determined based on the most recent National
Health Expenditure projections for the years involved); and
‘‘(B) a succeeding year, is the annual percentage
increase specified in section 1860D–2(b)(6) for the year.
‘‘(5) FACTOR.—The factor under this paragraph for a
month—
‘‘(A) in 2006 is 90 percent;
‘‘(B) in 2007 is 881⁄3 percent;
‘‘(C) in 2008 is 862⁄3 percent;
‘‘(D) in 2009 is 85 percent;
‘‘(E) in 2010 is 831⁄3 percent;
‘‘(F) in 2011 is 812⁄3 percent;
‘‘(G) in 2012 is 80 percent;
‘‘(H) in 2013 is 781⁄3 percent;
‘‘(I) in 2014 is 762⁄3 percent; or
‘‘(J) after December 2014, is 75 percent.
‘‘(6) FULL-BENEFIT DUAL ELIGIBLE INDIVIDUAL DEFINED.—
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‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘full-benefit dual eligible individual’ means for a State
for a month an individual who—
‘‘(i) has coverage for the month for covered part
D drugs under a prescription drug plan under part
D of title XVIII, or under an MA–PD plan under part
C of such title; and
‘‘(ii) is determined eligible by the State for medical
assistance for full benefits under this title for such
month under section 1902(a)(10)(A) or 1902(a)(10)(C),
by reason of section 1902(f), or under any other cat-
egory of eligibility for medical assistance for full bene-
fits under this title, as determined by the Secretary.
‘‘(B) TREATMENT
OF
MEDICALLY
NEEDY
AND
OTHER
INDIVIDUALS
REQUIRED
TO
SPEND
DOWN.—In applying
subparagraph (A) in the case of an individual determined
to be eligible by the State for medical assistance under
section 1902(a)(10)(C) or by reason of section 1902(f), the
individual shall be treated as meeting the requirement
of subparagraph (A)(ii) for any month if such medical assist-
ance is provided for in any part of the month.’’.
(c) MEDICAID COORDINATION WITH MEDICARE PRESCRIPTION
DRUG BENEFITS.—Section 1935, as so inserted and amended, is
further amended by adding at the end the following new subsection:
‘‘(d) COORDINATION OF PRESCRIPTION DRUG BENEFITS.—
‘‘(1) MEDICARE AS PRIMARY PAYOR.—In the case of a part
D eligible individual (as defined in section 1860D–1(a)(3)(A))
who is described in subsection (c)(6)(A)(ii), notwithstanding any
other provision of this title, medical assistance is not available
under this title for such drugs (or for any cost-sharing
respecting such drugs), and the rules under this title relating
to the provision of medical assistance for such drugs shall
not apply. The provision of benefits with respect to such drugs
shall not be considered as the provision of care or services
under the plan under this title. No payment may be made
under section 1903(a) for prescribed drugs for which medical
assistance is not available pursuant to this paragraph.
‘‘(2) COVERAGE
OF
CERTAIN
EXCLUDABLE
DRUGS.—In the
case of medical assistance under this title with respect to
a covered outpatient drug (other than a covered part D drug)
furnished to an individual who is enrolled in a prescription
drug plan under part D of title XVIII or an MA–PD plan
under part C of such title, the State may elect to provide
such medical assistance in the manner otherwise provided in
the case of individuals who are not full-benefit dual eligible
individuals or through an arrangement with such plan.’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935, as so inserted and amended,
is further amended—
(A) in subsection (a) in the matter preceding paragraph
(1), by inserting ‘‘subject to subsection (e)’’ after ‘‘section
1903(a)’’;
(B) in subsection (c)(1), by inserting ‘‘subject to sub-
section (e)’’ after ‘‘1903(a)(1)’’; and
(C) by adding at the end the following new subsection:
‘‘(e) TREATMENT OF TERRITORIES.—
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‘‘(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 and submits to the Sec-
retary a plan described in paragraph (2) (for providing
medical assistance with respect to the provision of prescrip-
tion drugs to part D eligible individuals), the amount other-
wise determined under section 1108(f) (as increased under
section 1108(g)) for the State shall be increased by the
amount for the fiscal period specified in paragraph (3).
‘‘(2) PLAN.—The Secretary shall determine that a plan is
described in this paragraph if the plan—
‘‘(A) provides medical assistance with respect to the
provision of covered part D drugs (as defined in section
1860D–2(e)) to low-income part D eligible individuals;
‘‘(B) provides assurances that additional amounts
received by the State that are attributable to the operation
of this subsection shall be used only for such assistance
and related administrative expenses and that no more than
10 percent of the amount specified in paragraph (3)(A)
for the State for any fiscal period shall be used for such
administrative expenses; and
‘‘(C) meets such other criteria as the Secretary may
establish.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified in this para-
graph for a State for a year is equal to the product of—
‘‘(i) the aggregate amount specified in subpara-
graph (B); and
‘‘(ii) the ratio (as estimated by the Secretary) of—
‘‘(I) the number of individuals who are entitled
to benefits under part A or enrolled under part
B and who reside in the State (as determined
by the Secretary based on the most recent avail-
able data before the beginning of the year); to
‘‘(II) the sum of such numbers for all States
that submit a plan described in paragraph (2).
‘‘(B) AGGREGATE
AMOUNT.—The aggregate amount
specified in this subparagraph for—
‘‘(i) the last 3 quarters of fiscal year 2006, is equal
to $28,125,000;
‘‘(ii) fiscal year 2007, is equal to $37,500,000; or
‘‘(iii) a subsequent year, is equal to the aggregate
amount specified in this subparagraph for the previous
year increased by annual percentage increase specified
in section 1860D–2(b)(6) for the year involved.
‘‘(4) REPORT.—The Secretary shall submit to Congress a
report on the application of this subsection and may include
in the report such recommendations as the Secretary deems
appropriate.’’.
(2) CONFORMING AMENDMENT.—Section 1108(f) (42 U.S.C.
1308(f)) is amended by inserting ‘‘and section 1935(e)(1)(B)’’
after ‘‘Subject to subsection (g)’’.
(e) AMENDMENT TO BEST PRICE.—
(1) IN GENERAL.—Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r–
8(c)(1)(C)(i)) is amended—
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(A) by striking ‘‘and’’ at the end of subclause (III);
(B) by striking the period at the end of subclause
(IV) and inserting a semicolon; and
(C) by adding at the end the following new subclauses:
‘‘(V) the prices negotiated from drug manufac-
turers for covered discount card drugs under an
endorsed discount card program under section
1860D–31; and
‘‘(VI) any prices charged which are negotiated
by a prescription drug plan under part D of title
XVIII, by an MA–PD plan under part C of such
title with respect to covered part D drugs or by
a qualified retiree prescription drug plan (as
defined in section 1860D–22(a)(2)) with respect to
such drugs on behalf of individuals entitled to
benefits under part A or enrolled under part B
of such title.’’.
(2) IN GENERAL.—Section 1927(c)(1)(C)(i)(VI) of the Social
Security Act, as added by paragraph (1), shall apply to prices
charged for drugs dispensed on or after January 1, 2006.
(f) EXTENSION OF MEDICARE COST-SHARING FOR PART B PRE-
MIUM FOR QUALIFYING INDIVIDUALS THROUGH SEPTEMBER 2004.—
(1) IN
GENERAL.—Section 1902(a)(10)(E)(iv) (42 U.S.C.
1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public
Law 108–89, is amended by striking ‘‘ending with March 2004’’
and inserting ‘‘ending with September 2004’’.
(2) TOTAL AMOUNT AVAILABLE FOR ALLOCATION.—Section
1933(g) (42 U.S.C. 1396u–3(g)), as added by section 401(c) of
Public Law 108–89, is amended—
(A) in the matter preceding paragraph (1), by striking
‘‘March 31, 2004’’ and inserting ‘‘September 30, 2004’’; and
(B) in paragraph (2), by striking ‘‘$100,000,000’’ and
inserting ‘‘$300,000,000’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to calendar quarters beginning on or after
April 1, 2004.
(g) OUTREACH BY THE COMMISSIONER OF SOCIAL SECURITY.—
Section 1144 (42 U.S.C. 1320b–14) is amended—
(1) in the section heading, by inserting ‘‘AND SUBSIDIES
FOR LOW-INCOME INDIVIDUALS UNDER TITLE XVIII’’ after ‘‘COST-
SHARING’’;
(2) in subsection (a)—
(A) in paragraph (1)—
(i) in subparagraph (A), by inserting ‘‘for the
transitional assistance under section 1860D–31(f), or
for premium and cost-sharing subsidies under section
1860D–14’’ before the semicolon; and
(ii) in subparagraph (B), by inserting ‘‘, program,
and subsidies’’ after ‘‘medical assistance’’; and
(B) in paragraph (2)—
(i) in the matter preceding subparagraph (A), by
inserting ‘‘, the transitional assistance under section
1860D–31(f), or premium and cost-sharing subsidies
under section 1860D–14’’ after ‘‘assistance’’; and
(ii) in subparagraph (A), by striking ‘‘such eligi-
bility’’ and inserting ‘‘eligibility for medicare cost-
sharing under the medicaid program’’; and
42 USC 1396a
note.
Effective date.
42 USC 1396r–8
note.
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(3) in subsection (b)—
(A) in paragraph (1)(A), by inserting ‘‘, for transitional
assistance under section 1860D–31(f), or for premium and
cost-sharing subsidies for low-income individuals under sec-
tion 1860D–14’’ after ‘‘1933’’; and
(B) in paragraph (2), by inserting ‘‘, program, and
subsidies’’ after ‘‘medical assistance’’.
SEC. 104. MEDIGAP AMENDMENTS.
(a) RULES RELATING
TO MEDIGAP POLICIES THAT PROVIDE
PRESCRIPTION DRUG COVERAGE.—
(1) IN
GENERAL.—Section 1882 (42 U.S.C. 1395ss) is
amended by adding at the end the following new subsection:
‘‘(v) RULES RELATING
TO MEDIGAP POLICIES THAT PROVIDE
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) PROHIBITION
ON
SALE, ISSUANCE, AND
RENEWAL
OF
NEW POLICIES THAT PROVIDE PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN GENERAL.—Notwithstanding any other provi-
sion of law, on or after January 1, 2006, a medigap Rx
policy (as defined in paragraph (6)(A)) may not be sold,
issued, or renewed under this section—
‘‘(i) to an individual who is a part D enrollee (as
defined in paragraph (6)(B)); or
‘‘(ii) except as provided in subparagraph (B), to
an individual who is not a part D enrollee.
‘‘(B) CONTINUATION
PERMITTED
FOR
NON-PART
D
ENROLLEES.—Subparagraph (A)(ii) shall not apply to the
renewal of a medigap Rx policy that was issued before
January 1, 2006.
‘‘(C) CONSTRUCTION.—Nothing in this subsection shall
be construed as preventing the offering on and after
January 1, 2006, of ‘H’, ‘I’, and ‘J’ policies described in
paragraph (2)(D)(i) if the benefit packages are modified
in accordance with paragraph (2)(C).
‘‘(2) ELIMINATION OF DUPLICATIVE COVERAGE UPON PART
D ENROLLMENT.—
‘‘(A) IN GENERAL.—In the case of an individual who
is covered under a medigap Rx policy and enrolls under
a part D plan—
‘‘(i) before the end of the initial part D enrollment
period, the individual may—
‘‘(I) enroll in a medicare supplemental policy
without prescription drug coverage under para-
graph (3); or
‘‘(II) continue the policy in effect subject to
the modification described in subparagraph (C)(i);
or
‘‘(ii) after the end of such period, the individual
may continue the policy in effect subject to such modi-
fication.
‘‘(B) NOTICE REQUIRED TO BE PROVIDED TO CURRENT
POLICYHOLDERS WITH MEDIGAP RX POLICY.—No medicare
supplemental policy of an issuer shall be deemed to meet
the standards in subsection (c) unless the issuer provides
written notice (in accordance with standards of the Sec-
retary established in consultation with the National
Association of Insurance Commissioners) during the 60-
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day period immediately preceding the initial part D enroll-
ment period, to each individual who is a policyholder or
certificate holder of a medigap Rx policy (at the most
recent available address of that individual) of the following:
‘‘(i) If the individual enrolls in a plan under part
D during the initial enrollment period under section
1860D–1(b)(2)(A), the individual has the option of—
‘‘(I) continuing enrollment in the individual’s
current plan, but the plan’s coverage of prescrip-
tion drugs will be modified under subparagraph
(C)(i); or
‘‘(II) enrolling in another medicare supple-
mental policy pursuant to paragraph (3).
‘‘(ii) If the individual does not enroll in a plan
under part D during such period, the individual may
continue enrollment in the individual’s current plan
without change, but—
‘‘(I) the individual will not be guaranteed the
option of enrollment in another medicare supple-
mental policy pursuant to paragraph (3); and
‘‘(II) if the current plan does not provide cred-
itable prescription drug coverage (as defined in
section 1860D–13(b)(4)), notice of such fact and
that there are limitations on the periods in a year
in which the individual may enroll under a part
D plan and any such enrollment is subject to a
late enrollment penalty.
‘‘(iii) Such other information as the Secretary may
specify (in consultation with the National Association
of Insurance Commissioners), including the potential
impact of such election on premiums for medicare
supplemental policies.
‘‘(C) MODIFICATION.—
‘‘(i) IN GENERAL.—The policy modification described
in this subparagraph is the elimination of prescription
coverage for expenses of prescription drugs incurred
after the effective date of the individual’s coverage
under a part D plan and the appropriate adjustment
of premiums to reflect such elimination of coverage.
‘‘(ii) CONTINUATION OF RENEWABILITY AND APPLICA-
TION
OF
MODIFICATION.—No medicare supplemental
policy of an issuer shall be deemed to meet the stand-
ards in subsection (c) unless the issuer—
‘‘(I) continues renewability of medigap Rx poli-
cies that it has issued, subject to subclause (II);
and
‘‘(II) applies the policy modification described
in clause (i) in the cases described in clauses (i)(II)
and (ii) of subparagraph (A).
‘‘(D) REFERENCES TO RX POLICIES.—
‘‘(i) H, I, AND J POLICIES.—Any reference to a ben-
efit package classified as ‘H’, ‘I’, or ‘J’ (including the
benefit package classified as ‘J’ with a high deductible
feature, as described in subsection (p)(11)) under the
standards established under subsection (p)(2) shall be
construed as including a reference to such a package
as modified under subparagraph (C) and such packages
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117 STAT. 2163
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as modified shall not be counted as a separate benefit
package under such subsection.
‘‘(ii) APPLICATION IN WAIVERED STATES.—Except for
the modification provided under subparagraph (C), the
waivers previously in effect under subsection (p)(2)
shall continue in effect.
‘‘(3) AVAILABILITY OF SUBSTITUTE POLICIES WITH GUARAN-
TEED ISSUE.—
‘‘(A) IN GENERAL.—The issuer of a medicare supple-
mental policy—
‘‘(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy that
has a benefit package classified as ‘A’, ‘B’, ‘C’, or ‘F’
(including the benefit package classified as ‘F’ with
a high deductible feature, as described in subsection
(p)(11)), under the standards established under sub-
section (p)(2), or a benefit package described in
subparagraph (A) or (B) of subsection (w)(2) and that
is offered and is available for issuance to new enrollees
by such issuer;
‘‘(ii) may not discriminate in the pricing 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 subparagraph
(B) who seeks to enroll under the policy not later than
63 days after the effective date of the individual’s coverage
under a part D plan.
‘‘(B) INDIVIDUAL COVERED.—An individual described in
this subparagraph with respect to the issuer of a medicare
supplemental policy is an individual who—
‘‘(i) enrolls in a part D plan during the initial
part D enrollment period;
‘‘(ii) at the time of such enrollment was enrolled
in a medigap Rx policy issued by such issuer; and
‘‘(iii) terminates enrollment in such policy and sub-
mits evidence of such termination along with the
application for the policy under subparagraph (A).
‘‘(C) SPECIAL RULE FOR WAIVERED STATES.—For pur-
poses of applying this paragraph in the case of a State
that provides for offering of benefit packages other than
under the classification referred to in subparagraph (A)(i),
the references to benefit packages in such subparagraph
are deemed references to comparable benefit packages
offered in such State.
‘‘(4) ENFORCEMENT.—
‘‘(A) PENALTIES
FOR
DUPLICATION.—The penalties
described in subsection (d)(3)(A)(ii) shall apply with respect
to a violation of paragraph (1)(A).
‘‘(B) GUARANTEED ISSUE.—The provisions of paragraph
(4) of subsection (s) shall apply with respect to the require-
ments of paragraph (3) in the same manner as they apply
to the requirements of such subsection.
‘‘(5) CONSTRUCTION.—Any provision in this section or in
a medicare supplemental policy relating to guaranteed renew-
ability of coverage shall be deemed to have been met with
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117 STAT. 2164
PUBLIC LAW 108–173—DEC. 8, 2003
respect to a part D enrollee through the continuation of the
policy subject to modification under paragraph (2)(C) or the
offering of a substitute policy under paragraph (3). The previous
sentence shall not be construed to affect the guaranteed renew-
ability of such a modified or substitute policy.
‘‘(6) DEFINITIONS.—For purposes of this subsection:
‘‘(A) MEDIGAP RX POLICY.—The term ‘medigap Rx policy’
means a medicare supplemental policy—
‘‘(i) which has a benefit package classified as ‘H’,
‘I’, or ‘J’ (including the benefit package classified as
‘J’ with a high deductible feature, as described in sub-
section (p)(11)) under the standards established under
subsection (p)(2), without regard to this subsection;
and
‘‘(ii) to which such standards do not apply (or to
which such standards have been waived under sub-
section (p)(6)) but which provides benefits for prescrip-
tion drugs.
Such term does not include a policy with a benefit package
as classified under clause (i) which has been modified under
paragraph (2)(C)(i).
‘‘(B) PART D ENROLLEE.—The term ‘part D enrollee’
means an individual who is enrolled in a part D plan.
‘‘(C) PART
D
PLAN.—The term ‘part D plan’ means
a prescription drug plan or an MA–PD plan (as defined
for purposes of part D).
‘‘(D) INITIAL PART D ENROLLMENT PERIOD.—The term
‘initial part D enrollment period’ means the initial enroll-
ment period described in section 1860D–1(b)(2)(A).’’.
(2) CONFORMING
CURRENT
GUARANTEED
ISSUE
PROVISIONS.—
(A) EXTENDING GUARANTEED ISSUE POLICY FOR INDIVID-
UALS ENROLLED IN MEDIGAP RX POLICIES WHO TRY MEDICARE
ADVANTAGE.—Subsection (s)(3)(C)(ii) of such section is
amended—
(i) by striking ‘‘(ii) Only’’ and inserting ‘‘(ii)(I) Sub-
ject to subclause (II), only’’; and
(ii) by adding at the end the following new sub-
clause:
‘‘(II) If the medicare supplemental policy referred to in subpara-
graph (B)(v) was a medigap Rx policy (as defined in subsection
(v)(6)(A)), a medicare supplemental policy described in this subpara-
graph is such policy in which the individual was most recently
enrolled as modified under subsection (v)(2)(C)(i) or, at the election
of the individual, a policy referred to in subsection (v)(3)(A)(i).’’.
(B) 
CONFORMING
AMENDMENT.—Section
1882(s)(3)(C)(iii) is amended by inserting ‘‘and subject to
subsection (v)(1)’’ after ‘‘subparagraph (B)(vi)’’.
(b) DEVELOPMENT
OF NEW STANDARDS
FOR MEDIGAP POLI-
CIES.—
(1) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is further
amended by adding at the end the following new subsection:
‘‘(w) DEVELOPMENT OF NEW STANDARDS FOR MEDICARE SUPPLE-
MENTAL POLICIES.—
‘‘(1) IN GENERAL.—The Secretary shall request the National
Association of Insurance Commissioners to review and revise
the standards for benefit packages under subsection (p)(1),
taking into account the changes in benefits resulting from
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enactment of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 and to otherwise update stand-
ards to reflect other changes in law included in such Act.
Such revision shall incorporate the inclusion of the 2 benefit
packages described in paragraph (2). Such revisions shall be
made consistent with the rules applicable under subsection
(p)(1)(E) with the reference to the ‘1991 NAIC Model Regulation’
deemed a reference to the NAIC Model Regulation as published
in the Federal Register on December 4, 1998, and as subse-
quently updated by the National Association of Insurance
Commissioners to reflect previous changes in law (and sub-
section (v)) and the reference to ‘date of enactment of this
subsection’ deemed a reference to the date of enactment of
the Medicare Prescription Drug, Improvement, and Moderniza-
tion Act of 2003. To the extent practicable, such revision shall
provide for the implementation of revised standards for benefit
packages as of January 1, 2006.
‘‘(2) NEW
BENEFIT
PACKAGES.—The benefit packages
described in this paragraph are the following (notwithstanding
any other provision of this section relating to a core benefit
package):
‘‘(A) FIRST NEW BENEFIT PACKAGE.—A benefit package
consisting of the following:
‘‘(i) Subject to clause (ii), coverage of 50 percent
of the cost-sharing otherwise applicable under parts
A and B, except there shall be no coverage of the
part B deductible and coverage of 100 percent of any
cost-sharing otherwise applicable for preventive bene-
fits.
‘‘(ii) Coverage for all hospital inpatient coinsurance
and 365 extra lifetime days of coverage of inpatient
hospital services (as in the current core benefit pack-
age).
‘‘(iii) A limitation on annual out-of-pocket expendi-
tures under parts A and B to $4,000 in 2006 (or,
in a subsequent year, to such limitation for the pre-
vious year increased by an appropriate inflation adjust-
ment specified by the Secretary).
‘‘(B) SECOND NEW BENEFIT PACKAGE.—A benefit pack-
age consisting of the benefit package described in subpara-
graph (A), except as follows:
‘‘(i) Substitute ‘75 percent’ for ‘50 percent’ in clause
(i) of such subparagraph.
‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ in clause (iii)
of such subparagraph.’’.
(2) CONFORMING AMENDMENTS.—Section 1882 (42 U.S.C.
1395ss) is amended—
(A) in subsection (g)(1), by inserting ‘‘a prescription
drug plan under part D or’’ after ‘‘but does not include’’;
and
(B) in subsection (o)(1), by striking ‘‘subsection (p)’’
and inserting ‘‘subsections (p), (v), and (w)’’.
(c) RULE OF CONSTRUCTION.—
(1) IN GENERAL.—Nothing in this Act shall be construed
to require an issuer of a medicare supplemental policy under
section 1882 of the Social Security Act (42 U.S.C. 1395rr) to
participate as a PDP sponsor under part D of title XVIII of
42 USC 1395ss
note.
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such Act, as added by section 101, as a condition for issuing
such policy.
(2) PROHIBITION
ON
STATE
REQUIREMENT.—A State may
not require an issuer of a medicare supplemental policy under
section 1882 of the Social Security Act (42 U.S.C. 1395rr) to
participate as a PDP sponsor under such part D as a condition
for issuing such policy.
SEC. 
105. 
ADDITIONAL 
PROVISIONS 
RELATING 
TO 
MEDICARE
PRESCRIPTION DRUG DISCOUNT CARD AND TRANSI-
TIONAL ASSISTANCE PROGRAM.
(a) EXCLUSION
OF COSTS FROM DETERMINATION
OF PART B
MONTHLY
PREMIUM.—Section 1839(g) (42 U.S.C. 1395r(g)) is
amended—
(1) by striking ‘‘attributable to the application of section’’
and inserting ‘‘attributable to—
‘‘(1) the application of section’’;
(2) by striking the period and inserting ‘‘; and’’; and
(3) by adding at the end the following new paragraph:
‘‘(2) the medicare prescription drug discount card and
transitional assistance program under section 1860D–31.’’.
(b) APPLICATION
OF
CONFIDENTIALITY
FOR
DRUG
PRICING
DATA.—The last sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r–
8(b)(3)(D)), as added by section 101(e)(4), is amended by inserting
‘‘and drug pricing data reported under the first sentence of section
1860D–31(i)(1)’’ after ‘‘section 1860D–4(c)(2)(E)’’.
(c) RULES
FOR IMPLEMENTATION.—The following rules shall
apply to the medicare prescription drug discount card and transi-
tional assistance program under section 1860D–31 of the Social
Security Act, as added by section 101(a):
(1) In promulgating regulations pursuant to subsection
(a)(2)(B) of such section 1860D–31—
(A) section 1871(a)(3) of the Social Security Act (42
U.S.C. 1395hh(a)(3)), as added by section 902(a)(1), shall
not apply;
(B) chapter 35 of title 44, United States Code, shall
not apply; and
(C) sections 553(d) and 801(a)(3)(A) of title 5, United
States Code, shall not apply.
(2) Section 1857(c)(5) of the Social Security Act (42 U.S.C.
1395w–27(c)(5)) shall apply with respect to section 1860D–
31 of such Act, as added by section 101(a), in the same manner
as it applies to part C of title XVIII of such Act.
(3) The administration of such program shall be made
without regard to chapter 35 of title 44, United States Code.
(4)(A) There shall be no judicial review of a determination
not to endorse, or enter into a contract, with a prescription
drug card sponsor under section 1860D–31 of the Social Security
Act.
(B) In the case of any order issued to enjoin any provision
of section 1860D–31 of the Social Security Act (or of any provi-
sion of this section), such order shall not affect any other
provision of such section (or of this section) and all such provi-
sions shall be treated as severable.
(d) CONFORMING AMENDMENTS TO FEDERAL SMI TRUST FUND
FOR TRANSITIONAL ASSISTANCE ACCOUNT.—Section 1841 (42 U.S.C.
1395t), as amended by section 101(e)(3)(C), is amended—
Applicability.
Applicability.
42 USC
1395w–141 note.
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(1) in the last sentence of subsection (a), by inserting after
‘‘section 1860D–16’’ the following: ‘‘or the Transitional Assist-
ance Account established by section 1860D–31(k)(1)’’; and
(2) in subsection (g), by adding at the end the following:
‘‘The payments provided for under section 1860D–31(k)(2) shall
be made from the Transitional Assistance Account in the Trust
Fund.’’.
(e) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF
PROVIDING TRANSITIONAL ASSISTANCE UNDER MEDICARE DISCOUNT
CARD PROGRAM.—
(1) IN
GENERAL.—Subsection (l) of section 6103 of the
Internal Revenue Code of 1986 (relating to disclosure of returns
and return information for purposes other than tax administra-
tion) is amended by adding at the end the following new para-
graph:
‘‘(19) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES
OF PROVIDING TRANSITIONAL ASSISTANCE UNDER MEDICARE DIS-
COUNT CARD PROGRAM.—
‘‘(A) IN GENERAL.—The Secretary, upon written request
from the Secretary of Health and Human Services pursuant
to carrying out section 1860D–31 of the Social Security
Act, shall disclose to officers, employees, and contractors
of the Department of Health and Human Services with
respect to a taxpayer for the applicable year—
‘‘(i)(I) whether the adjusted gross income, as modi-
fied in accordance with specifications of the Secretary
of Health and Human Services for purposes of carrying
out such section, of such taxpayer and, if applicable,
such taxpayer’s spouse, for the applicable year, exceeds
the amounts specified by the Secretary of Health and
Human Services in order to apply the 100 and 135
percent of the poverty lines under such section, (II)
whether the return was a joint return, and (III) the
applicable year, or
‘‘(ii) if applicable, the fact that there is no return
filed for such taxpayer for the applicable year.
‘‘(B) DEFINITION OF APPLICABLE YEAR.—For the pur-
poses of this subsection, the term ‘applicable year’ means
the most recent taxable year for which information is avail-
able in the Internal Revenue Service’s taxpayer data
information systems, or, if there is no return filed for
such taxpayer for such year, the prior taxable year.
‘‘(C) RESTRICTION
ON
USE
OF
DISCLOSED
INFORMA-
TION.—Return information disclosed under this paragraph
may be used only for the purposes of determining eligibility
for and administering transitional assistance under section
1860D–31 of the Social Security Act.’’.
(2) CONFIDENTIALITY.—Paragraph (3) of section 6103(a) of
such Code is amended by striking ‘‘or (16)’’ and inserting ‘‘(16),
or (19)’’.
(3) PROCEDURES AND RECORDKEEPING RELATED TO DISCLO-
SURES.—Subsection (p)(4) of section 6103 of such Code is
amended by striking ‘‘(l)(16) or (17)’’ each place it appears
and inserting ‘‘(l)(16), (17), or (19)’’.
(4) UNAUTHORIZED DISCLOSURE OR INSPECTION.—Paragraph
(2) of section 7213(a) of such Code is amended by striking
‘‘or (16)’’ and inserting ‘‘(16), or (19)’’.
26 USC 7213.
26 USC 6103.
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SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMIS-
SION.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—There is established, as of the first day
of the third month beginning after the date of the enactment
of this Act, a State Pharmaceutical Assistance Transition
Commission (in this section referred to as the ‘‘Commission’’)
to develop a proposal for addressing the unique transitional
issues facing State pharmaceutical assistance programs, and
program participants, due to the implementation of the vol-
untary prescription drug benefit program under part D of title
XVIII of the Social Security Act, as added by section 101.
(2) DEFINITIONS.—For purposes of this section:
(A) STATE
PHARMACEUTICAL
ASSISTANCE
PROGRAM
DEFINED.—The term ‘‘State pharmaceutical assistance pro-
gram’’ means a program (other than the medicaid program)
operated by a State (or under contract with a State) that
provides as of the date of the enactment of this Act financial
assistance to medicare beneficiaries for the purchase of
prescription drugs.
(B) 
PROGRAM
PARTICIPANT.—The 
term 
‘‘program
participant’’ means a low-income medicare beneficiary who
is a participant in a State pharmaceutical assistance pro-
gram.
(b) COMPOSITION.—The Commission shall include the following:
(1) A representative of each Governor of each State that
the Secretary identifies as operating on a statewide basis a
State pharmaceutical assistance program that provides for eligi-
bility and benefits that are comparable or more generous than
the low-income assistance eligibility and benefits offered under
section 1860D–14 of the Social Security Act.
(2) Representatives from other States that the Secretary
identifies have in operation other State pharmaceutical assist-
ance programs, as appointed by the Secretary.
(3) Representatives of organizations that have an inherent
interest in program participants or the program itself, as
appointed by the Secretary but not to exceed the number of
representatives under paragraphs (1) and (2).
(4) Representatives of Medicare Advantage organizations,
pharmaceutical benefit managers, and other private health
insurance plans, as appointed by the Secretary.
(5) The Secretary (or the Secretary’s designee) and such
other members as the Secretary may specify.
The Secretary shall designate a member to serve as Chair of the
Commission and the Commission shall meet at the call of the
Chair.
(c) DEVELOPMENT OF PROPOSAL.—The Commission shall develop
the proposal described in subsection (a) in a manner consistent
with the following principles:
(1) Protection of the interests of program participants in
a manner that is the least disruptive to such participants
and that includes a single point of contact for enrollment and
processing of benefits.
(2) Protection of the financial and flexibility interests of
States so that States are not financially worse off as a result
of the enactment of this title.
(3) Principles of medicare modernization under this Act.
42 USC
1395w–101 note.
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(d) REPORT.—By not later than January 1, 2005, the Commis-
sion shall submit to the President and Congress a report that
contains a detailed proposal (including specific legislative or
administrative recommendations, if any) and such other rec-
ommendations as the Commission deems appropriate.
(e) SUPPORT.—The Secretary shall provide the Commission with
the administrative support services necessary for the Commission
to carry out its responsibilities under this section.
(f) TERMINATION.—The Commission shall terminate 30 days
after the date of submission of the report under subsection (d).
SEC. 107. STUDIES AND REPORTS.
(a) STUDY REGARDING REGIONAL VARIATIONS IN PRESCRIPTION
DRUG SPENDING.—
(1) IN GENERAL.—The Secretary shall conduct a study that
examines variations in per capita spending for covered part
D drugs under part D of title XVIII of the Social Security
Act among PDP regions and, with respect to such spending,
the amount of such variation that is attributable to—
(A) price variations (described in section 1860D–
15(c)(2) of such Act); and
(B) differences in per capita utilization that is not
taken into account in the health status risk adjustment
provided under section 1860D–15(c)(1) of such Act.
(2) REPORT
AND
RECOMMENDATIONS.—Not later than
January 1, 2009, the Secretary shall submit to Congress a
report on the study conducted under paragraph (1). Such report
shall include—
(A) information regarding the extent of geographic vari-
ation described in paragraph (1)(B);
(B) an analysis of the impact on direct subsidies under
section 1860D–15(a)(1) of the Social Security Act in dif-
ferent PDP regions if such subsidies were adjusted to take
into account the variation described in subparagraph (A);
and
(C) recommendations regarding the appropriateness of
applying an additional geographic adjustment factor under
section 1860D–15(c)(2) that reflects some or all of the vari-
ation described in subparagraph (A).
(b) REVIEW AND REPORT ON CURRENT STANDARDS OF PRACTICE
FOR PHARMACY SERVICES PROVIDED
TO PATIENTS
IN NURSING
FACILITIES.—
(1) REVIEW.—
(A) IN GENERAL.—Not later than 12 months after the
date of the enactment of this Act, the Secretary shall
conduct a thorough review of the current standards of
practice for pharmacy services provided to patients in
nursing facilities.
(B) SPECIFIC MATTERS REVIEWED.—In conducting the
review under subparagraph (A), the Secretary shall—
(i) assess the current standards of practice, clinical
services, and other service requirements generally used
for pharmacy services in long-term care settings; and
(ii) evaluate the impact of those standards with
respect to patient safety, reduction of medication errors
and quality of care.
(2) REPORT.—
Deadline.
42 USC 1395i–3
note.
Deadline.
42 USC
1395w–111 note.
Deadline.
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117 STAT. 2170
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(A) IN GENERAL.—Not later than the date that is 18
months after the date of the enactment of this Act, the
Secretary shall submit a report to Congress on the study
conducted under paragraph (1)(A).
(B) CONTENTS.—The report submitted under subpara-
graph (A) shall contain—
(i) a description of the plans of the Secretary to
implement the provisions of this Act in a manner con-
sistent with applicable State and Federal laws designed
to protect the safety and quality of care of nursing
facility patients; and
(ii) recommendations regarding necessary actions
and appropriate reimbursement to ensure the provision
of prescription drugs to medicare beneficiaries residing
in nursing facilities in a manner consistent with
existing patient safety and quality of care standards
under applicable State and Federal laws.
(c) IOM STUDY ON DRUG SAFETY AND QUALITY.—
(1) IN GENERAL.—The Secretary shall enter into a contract
with the Institutes of Medicine of the National Academies of
Science (such Institutes referred to in this subsection as the
‘‘IOM’’) to carry out a comprehensive study (in this subsection
referred to as the ‘‘study’’) of drug safety and quality issues
in order to provide a blueprint for system-wide change.
(2) OBJECTIVES.—
(A) The study shall develop a full understanding of
drug safety and quality issues through an evidence-based
review of literature, case studies, and analysis. This review
will consider the nature and causes of medication errors,
their impact on patients, the differences in causation,
impact, and prevention across multiple dimensions of
health care delivery-including patient populations, care set-
tings, clinicians, and institutional cultures.
(B) The study shall attempt to develop credible esti-
mates of the incidence, severity, costs of medication errors
that can be useful in prioritizing resources for national
quality improvement efforts and influencing national
health care policy.
(C) The study shall evaluate alternative approaches
to reducing medication errors in terms of their efficacy,
cost-effectiveness, appropriateness in different settings and
circumstances, 
feasibility, 
institutional 
barriers 
to
implementation, associated risks, and the quality of evi-
dence supporting the approach.
(D) The study shall provide guidance to consumers,
providers, payers, and other key stakeholders on high-
priority strategies to achieve both short-term and long-
term drug safety goals, to elucidate the goals and expected
results of such initiatives and support the business case
for them, and to identify critical success factors and key
levers for achieving success.
(E) The study shall assess the opportunities and key
impediments to broad nationwide implementation of medi-
cation error reductions, and to provide guidance to policy-
makers and government agencies (including the Food and
Drug Administration, the Centers for Medicare & Medicaid
Contracts.
42 USC 299 note.
Deadline.
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117 STAT. 2171
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Services, and the National Institutes of Health) in pro-
moting a national agenda for medication error reduction.
(F) The study shall develop an applied research agenda
to evaluate the health and cost impacts of alternative inter-
ventions, and to assess collaborative public and private
strategies for implementing the research agenda through
AHRQ and other government agencies.
(3) CONDUCT OF STUDY.—
(A) EXPERT COMMITTEE.—In conducting the study, the
IOM shall convene a committee of leading experts and
key stakeholders in pharmaceutical management and drug
safety, including clinicians, health services researchers,
pharmacists, system administrators, payer representatives,
and others.
(B) COMPLETION.—The study shall be completed within
an 18-month period.
(4) REPORT.—A report on the study shall be submitted
to Congress upon the completion of the study.
(5) AUTHORIZATION OF APPROPRIATIONS.—There are author-
ized to be appropriated to carry out this section such sums
as may be necessary.
(d) STUDY OF MULTI-YEAR CONTRACTS.—
(1) IN GENERAL.—The Secretary shall provide for a study
on the feasibility and advisability of providing for contracting
with PDP sponsors and MA organizations under parts C and
D of title XVIII on a multi-year basis.
(2) REPORT.—Not later than January 1, 2007, the Secretary
shall submit to Congress a report on the study under paragraph
(1). The report shall include such recommendations as the
Secretary deems appropriate.
(e) GAO STUDY REGARDING IMPACT OF ASSETS TEST FOR SUB-
SIDY ELIGIBLE INDIVIDUALS.—
(1) STUDY.—The Comptroller General of the United States
shall conduct a study to determine the extent to which drug
utilization and access to covered part D drugs under part
D of title XVIII of the Social Security Act by subsidy eligible
individuals differs from such utilization and access for individ-
uals who would qualify as such subsidy eligible individuals
but for the application of section 1860D–14(a)(3)(A)(iii) of such
Act.
(2) REPORT.—Not later than September 30, 2007, the Comp-
troller General shall submit a report to Congress on the study
conducted under paragraph (1) that includes such recommenda-
tions for legislation as the Comptroller General determines
are appropriate.
(f) STUDY ON MAKING PRESCRIPTION PHARMACEUTICAL INFORMA-
TION ACCESSIBLE
FOR BLIND
AND VISUALLY-IMPAIRED INDIVID-
UALS.—
(1) STUDY.—
(A) IN
GENERAL.—The Secretary shall undertake a
study of how to make prescription pharmaceutical informa-
tion, including drug labels and usage instructions, acces-
sible to blind and visually-impaired individuals.
(B) STUDY TO INCLUDE EXISTING AND EMERGING TECH-
NOLOGIES.—The study under subparagraph (A) shall
include a review of existing and emerging technologies,
including assistive technology, that makes essential
21 USC 352 note.
Deadline.
42 USC
1395w–114 note.
Deadline.
42 USC
1395w–27 note.
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information on the content and prescribed use of pharma-
ceutical medicines available in a usable format for blind
and visually-impaired individuals.
(2) REPORT.—
(A) IN GENERAL.—Not later than 18 months after the
date of the enactment of this Act, the Secretary shall
submit a report to Congress on the study required under
paragraph (1).
(B) CONTENTS OF REPORT.—The report required under
paragraph (1) shall include recommendations for the
implementation of usable formats for making prescription
pharmaceutical information available to blind and visually-
impaired individuals and an estimate of the costs associated
with the implementation of each format.
SEC. 108. GRANTS TO PHYSICIANS TO IMPLEMENT ELECTRONIC
PRESCRIPTION DRUG PROGRAMS.
(a) IN GENERAL.—The Secretary is authorized to make grants
to physicians for the purpose of assisting such physicians to imple-
ment electronic prescription drug programs that comply with the
standards promulgated or modified under section 1860D–4(e) of
the Social Security Act, as inserted by section 101(a).
(b) AWARDING OF GRANTS.—
(1) APPLICATION.—No grant may be made under this section
except pursuant to a grant application that is submitted and
approved in a time, manner, and form specified by the Sec-
retary.
(2) CONSIDERATIONS
AND
PREFERENCES.—In awarding
grants under this section, the Secretary shall—
(A) give special consideration to physicians who serve
a disproportionate number of medicare patients; and
(B) give preference to physicians who serve a rural
or underserved area.
(3) LIMITATION ON GRANTS.—Only 1 grant may be awarded
under this section with respect to any physician or group prac-
tice of physicians.
(c) TERMS AND CONDITIONS.—
(1) IN GENERAL.—Grants under this section shall be made
under such terms and conditions as the Secretary specifies
consistent with this section.
(2) USE OF GRANT FUNDS.—Funds provided under grants
under this section may be used for any of the following:
(A) For purchasing, leasing, and installing computer
software and hardware, including handheld computer tech-
nologies.
(B) Making upgrades and other improvements to
existing computer software and hardware to enable e-pre-
scribing.
(C) Providing education and training to eligible physi-
cian staff on the use of technology to implement the elec-
tronic transmission of prescription and patient information.
(3) PROVISION OF INFORMATION.—As a condition for the
awarding of a grant under this section, an applicant shall
provide to the Secretary such information as the Secretary
may require in order to—
(A) evaluate the project for which the grant is made;
and
42 USC
1395w–104 note.
Deadline.
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(B) ensure that funding provided under the grant is
expended only for the purposes for which it is made.
(4) AUDIT.—The Secretary shall conduct appropriate audits
of grants under this section.
(5) MATCHING REQUIREMENT.—The applicant for a grant
under this section shall agree, with respect to the costs to
be incurred by the applicant in implementing an electronic
prescription drug program, to make available (directly or
through donations from public or private entities) non-Federal
contributions toward such costs in an amount that is not less
than 50 percent of such costs. Non-Federal contributions under
the previous sentence may be in cash or in kind, fairly evalu-
ated, including plant, equipment, or services. Amounts provided
by the Federal Government, or services assisted or subsidized
to any significant extent by the Federal Government, may
not be included in determining the amount of such contribu-
tions.
(d) AUTHORIZATION OF APPROPRIATIONS.—There are authorized
to be appropriated to carry out this section $50,000,000 for fiscal
year 2007 and such sums as may be necessary for each of fiscal
years 2008 and 2009.
SEC. 109. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVE-
MENT ORGANIZATIONS TO INCLUDE PARTS C AND D.
(a) APPLICATION TO MEDICARE MANAGED CARE AND PRESCRIP-
TION DRUG COVERAGE.—Section 1154(a)(1) (42 U.S.C. 1320c–3(a)(1))
is amended by inserting ‘‘, to Medicare Advantage organizations
pursuant to contracts under part C, and to prescription drug spon-
sors pursuant to contracts under part D’’ after ‘‘under section 1876’’.
(b) PRESCRIPTION DRUG THERAPY QUALITY IMPROVEMENT.—Sec-
tion 1154(a) (42 U.S.C. 1320c–3(a)) is amended by adding at the
end the following new paragraph:
‘‘(17) The organization shall execute its responsibilities
under subparagraphs (A) and (B) of paragraph (1) by offering
to providers, practitioners, Medicare Advantage organizations
offering Medicare Advantage plans under part C, and prescrip-
tion drug sponsors offering prescription drug plans under part
D quality improvement assistance pertaining to prescription
drug therapy. For purposes of this part and title XVIII, the
functions described in this paragraph shall be treated as a
review function.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply on and after January 1, 2004.
(d) IOM STUDY OF QIOS.—
(1) IN GENERAL.—The Secretary shall request the Institute
of Medicine of the National Academy of Sciences to conduct
an evaluation of the program under part B of title XI of the
Social Security Act. The study shall include a review of the
following:
(A) An overview of the program under such part.
(B) The duties of organizations with contracts with
the Secretary under such part.
(C) The extent to which quality improvement organiza-
tions improve the quality of care for medicare beneficiaries.
(D) The extent to which other entities could perform
such quality improvement functions as well as, or better
than, quality improvement organizations.
42 USC 1320c
note.
42 USC 1320c–3
note.
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(E) The effectiveness of reviews and other actions con-
ducted by such organizations in carrying out those duties.
(F) The source and amount of funding for such
organizations.
(G) The conduct of oversight of such organizations.
(2) REPORT TO CONGRESS.—Not later than June 1, 2006,
the Secretary shall submit to Congress a report on the results
of the study described in paragraph (1), including any rec-
ommendations for legislation.
(3) INCREASED COMPETITION.—If the Secretary finds based
on the study conducted under paragraph (1) that other entities
could improve quality in the medicare program as well as,
or better than, the current quality improvement organizations,
then the Secretary shall provide for such increased competition
through the addition of new types of entities which may perform
quality improvement functions.
SEC. 110. CONFLICT OF INTEREST STUDY.
(a) STUDY.—The Federal Trade Commission shall conduct a
study of differences in payment amounts for pharmacy services
provided to enrollees in group health plans that utilize pharmacy
benefit managers. Such study shall include the following:
(1) An assessment of the differences in costs incurred by
such enrollees and plans for prescription drugs dispensed by
mail-order pharmacies owned by pharmaceutical benefit man-
agers compared to mail-order pharmacies not owned by pharma-
ceutical benefit managers, and community pharmacies.
(2) Whether such plans are acting in a manner that maxi-
mizes competition and results in lower prescription drug prices
for enrollees.
(b) REPORT.—Not later than 18 months after the date of the
enactment of this Act, the Commission shall submit to Congress
a report on the study conducted under subsection (a). Such report
shall include recommendations regarding any need for legislation
to ensure the fiscal integrity of the voluntary prescription drug
benefit program under part D of title XVIII, as added by section
101, that may be appropriated as the result of such study.
(c) EXEMPTION FROM PAPERWORK REDUCTION ACT.—Chapter
35 of title 44, United States Code, shall not apply to the collection
of information under subsection (a).
SEC. 111. STUDY ON EMPLOYMENT-BASED RETIREE HEALTH COV-
ERAGE.
(a) STUDY.—The Comptroller General of the United States shall
conduct an initial and final study under this subsection to examine
trends in employment-based retiree health coverage (as defined
in 1860D–22(c)(1) of the Social Security Act, as added by section
101), including coverage under the Federal Employees Health Bene-
fits Program (FEHBP), and the options and incentives available
under this Act which may have an effect on the voluntary provision
of such coverage.
(b) CONTENT OF INITIAL STUDY.—The initial study under this
section shall consider the following:
(1) Trends in employment-based retiree health coverage
prior to the date of the enactment of this Act.
(2) The opinions of sponsors of employment-based retiree
health coverage concerning which of the options available under
this Act they are most likely to utilize for the provision of
42 USC
1395w–132 note.
Deadline.
42 USC
1395w–101 note.
Deadline.
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health coverage to their medicare-eligible retirees, including
an assessment of the administrative burdens associated with
the available options.
(3) The likelihood of sponsors of employment-based retiree
health coverage to maintain or adjust their levels of retiree
health benefits beyond coordination with medicare, including
for prescription drug coverage, provided to medicare-eligible
retirees after the date of the enactment of this Act.
(4) The factors that sponsors of employment-based retiree
health coverage expect to consider in making decisions about
any changes they may make in the health coverage provided
to medicare-eligible retirees.
(5) Whether the prescription drug plan options available,
or the health plan options available under the Medicare Advan-
tage program, are likely to cause employers and other entities
that did not provide health coverage to retirees prior to the
date of the enactment of this Act to provide supplemental
coverage or contributions toward premium expenses for medi-
care-eligible retirees who may enroll in such options in the
future.
(c) CONTENTS OF FINAL STUDY.—The final study under this
section shall consider the following:
(1) Changes in the trends in employment-based retiree
health coverage since the completion of the initial study by
the Comptroller General.
(2) Factors contributing to any changes in coverage levels.
(3) The number and characteristics of sponsors of employ-
ment-based retiree health coverage who receive the special
subsidy payments under section 1860D–22 of the Social Secu-
rity Act, as added by section 101, for the provision of prescrip-
tion drug coverage to their medicare-eligible retirees that is
the same or greater actuarial value as the prescription drug
coverage available to other medicare beneficiaries without
employment-based retiree health coverage.
(4) The extent to which sponsors of employment-based
retiree health coverage provide supplemental health coverage
or contribute to the premiums for medicare-eligible retirees
who enroll in a prescription drug plan or an MA–PD plan.
(5) Other coverage options, including tax-preferred retire-
ment or health savings accounts, consumer-directed health
plans, or other vehicles that sponsors of employment-based
retiree health coverage believe would assist retirees with their
future health care needs and their willingness to sponsor such
alternative plan designs.
(6) The extent to which employers or other entities that
did not provide employment-based retiree health coverage prior
to the date of the enactment of this Act provided some form
of coverage or financial assistance for retiree health care needs
after the date of the enactment of this Act.
(7) Recommendations by employers, benefits experts, aca-
demics, and others on ways that the voluntary provision of
employment-based retiree health coverage may be improved
and expanded.
(d) REPORTS.—The Comptroller General shall submit a report
to Congress on—
(1) the initial study under subsection (b) not later than
1 year after the date of the enactment of this Act; and
Deadlines.
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117 STAT. 2176
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(2) the final study under subsection (c) not later than
January 1, 2007.
(e) CONSULTATION.—The Comptroller General shall consult with
sponsors of employment-based retiree health coverage, benefits
experts, human resources professionals, employee benefits consult-
ants, and academics with experience in health benefits and survey
research in the development and design of the initial and final
studies under this section.
TITLE II—MEDICARE ADVANTAGE
Subtitle A—Implementation of Medicare
Advantage Program
SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.
(a) IN GENERAL.—There is hereby established the Medicare
Advantage program. The Medicare Advantage program shall consist
of the program under part C of title XVIII of the Social Security
Act (as amended by this Act).
(b) REFERENCES.—Subject to subsection (c), any reference to
the program under part C of title XVIII of the Social Security
Act shall be deemed a reference to the Medicare Advantage program
and, with respect to such part, any reference to ‘‘Medicare+Choice’’
is deemed a reference to ‘‘Medicare Advantage’’ and ‘‘MA’’.
(c) TRANSITION.—In order to provide for an orderly transition
and avoid beneficiary and provider confusion, the Secretary shall
provide for an appropriate transition in the use of the terms
‘‘Medicare+Choice’’ and ‘‘Medicare Advantage’’ (or ‘‘MA’’) in ref-
erence to the program under part C of title XVIII of the Social
Security Act. Such transition shall be fully completed for all mate-
rials for plan years beginning not later than January 1, 2006.
Before the completion of such transition, any reference to ‘‘Medicare
Advantage’’ or ‘‘MA’’ shall be deemed to include a reference to
‘‘Medicare+Choice’’.
Subtitle B—Immediate Improvements
SEC. 211. IMMEDIATE IMPROVEMENTS.
(a) EQUALIZING PAYMENTS WITH FEE-FOR-SERVICE.—
(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) 100 PERCENT OF FEE-FOR-SERVICE COSTS.—
‘‘(i) IN GENERAL.—For each year specified in clause
(ii), the adjusted average per capita cost for the year
involved, determined under section 1876(a)(4) and
adjusted as appropriate for the purpose of risk adjust-
ment, for the MA payment area for individuals who
are not enrolled in an MA plan under this part for
the year, but adjusted to exclude costs attributable
to payments under section 1886(h).
‘‘(ii) PERIODIC REBASING.—The provisions of clause
(i) shall apply for 2004 and for subsequent years as
the Secretary shall specify (but not less than once
every 3 years).
Effective date.
42 USC
1395w–21 note.
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117 STAT. 2177
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‘‘(iii) INCLUSION OF COSTS OF VA AND DOD MILITARY
FACILITY
SERVICES
TO
MEDICARE-ELIGIBLE
BENE-
FICIARIES.—In determining the adjusted average per
capita cost under clause (i) for a year, such cost shall
be adjusted to include the Secretary’s estimate, on
a per capita basis, of the amount of additional pay-
ments 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 facilities of
the Department of Defense or the Department of Vet-
erans Affairs.’’.
(2) CONFORMING
AMENDMENT.—Such section is further
amended, in the matter before subparagraph (A), by striking
‘‘or (C)’’ and inserting ‘‘(C), or (D)’’.
(b) CHANGE
IN
BUDGET
NEUTRALITY
FOR
BLEND.—Section
1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(1) in paragraph (1)(A), by inserting ‘‘(for a year other
than 2004)’’ after ‘‘multiplied’’; and
(2) in paragraph (5), by inserting ‘‘(other than 2004)’’ after
‘‘for each year’’.
(c) INCREASING MINIMUM PERCENTAGE INCREASE TO NATIONAL
GROWTH RATE.—
(1) IN
GENERAL.—Section 1853(c)(1) (42 U.S.C. 1395w–
23(c)(1)) is amended—
(A) in subparagraph (A), by striking ‘‘The sum’’ and
inserting ‘‘For a year before 2005, the sum’’;
(B) in subparagraph (B)(iv), by striking ‘‘and each suc-
ceeding year’’ and inserting ‘‘, 2003, and 2004’’;
(C) in subparagraph (C)(iv), by striking ‘‘and each suc-
ceeding year’’ and inserting ‘‘and 2003’’; and
(D) by adding at the end of subparagraph (C) the
following new clause:
‘‘(v) For 2004 and each succeeding year, the greater
of—
‘‘(I) 102 percent of the annual MA capitation
rate under this paragraph for the area for the
previous year; or
‘‘(II) the annual MA capitation rate under this
paragraph for the area for the previous year
increased by the national per capita MA growth
percentage, described in paragraph (6) for that
succeeding year, but not taking into account any
adjustment under paragraph (6)(C) for a year
before 2004.’’.
(2) CONFORMING
AMENDMENT.—Section 1853(c)(6)(C) (42
U.S.C. 1395w–23(c)(6)(C)) is amended by inserting before the
period at the end the following: ‘‘, except that for purposes
of paragraph (1)(C)(v)(II), no such adjustment shall be made
for a year before 2004’’.
(d) INCLUSION OF COSTS OF DOD AND VA MILITARY FACILITY
SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES IN CALCULATION
OF PAYMENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–23(c)(3))
is amended—
(1) in subparagraph (A), by striking ‘‘subparagraph (B)’’
and inserting ‘‘subparagraphs (B) and (E)’’; and
(2) by adding at the end the following new subparagraph:
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‘‘(E) INCLUSION OF COSTS OF DOD AND VA MILITARY
FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES.—
In determining the area-specific MA capitation rate under
subparagraph (A) for a year (beginning with 2004), the
annual per capita rate of payment 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 individ-
uals entitled to benefits under this title had not received
services from facilities of the Department of Defense or
the Department of Veterans Affairs.’’.
(e) EXTENDING SPECIAL RULE FOR CERTAIN INPATIENT HOSPITAL
STAYS TO REHABILITATION HOSPITALS AND LONG-TERM CARE HOS-
PITALS.—
(1) IN GENERAL.—Section 1853(g) (42 U.S.C. 1395w–23(g))
is amended—
(A) in the matter preceding paragraph (1), by inserting
‘‘, 
a 
rehabilitation 
hospital 
described 
in 
section
1886(d)(1)(B)(ii) or a distinct part rehabilitation unit
described in the matter following clause (v) of section
1886(d)(1)(B), or a long-term care hospital (described in
section 1886(d)(1)(B)(iv))’’ after ‘‘1886(d)(1)(B))’’; and
(B) in paragraph (2)(B), by inserting ‘‘or other payment
provision under this title for inpatient services for the
type of facility, hospital, or unit involved, described in
the matter preceding paragraph (1), as the case may be,’’
after ‘‘1886(d)’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to contract years beginning on or after January
1, 2004.
(f) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory Commission
shall conduct a study that assesses the method used for deter-
mining the adjusted average per capita cost (AAPCC) under
section 1876(a)(4) of the Social Security Act (42 U.S.C.
1395mm(a)(4)) as applied under section 1853(c)(1)(A) of such
Act (as amended by subsection (a)). Such study shall include
an examination of—
(A) the bases for variation in such costs between dif-
ferent areas, including differences in input prices, utiliza-
tion, and practice patterns;
(B) the appropriate geographic area for payment of
MA local plans under the Medicare Advantage 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.
(2) REPORT.—Not later than 18 months after the date of
the enactment of this Act, the Commission shall submit to
Congress a report on the study conducted under paragraph
(1).
(g) REPORT ON IMPACT OF INCREASED FINANCIAL ASSISTANCE
TO MEDICARE ADVANTAGE PLANS.—Not later than July 1, 2006,
the Secretary 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 Balanced
Deadline.
42 USC
1395w–21 note.
Deadline.
42 USC
1395w–23 note.
42 USC
1395w–23 note.
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Budget Refinement Act of 1999 and BIPA) on the availability of
Medicare Advantage plans in different areas and its impact on
lowering premiums and increasing benefits under such plans.
(h) MEDPAC STUDY
AND
REPORT
ON
CLARIFICATION
OF
AUTHORITY REGARDING DISAPPROVAL
OF UNREASONABLE BENE-
FICIARY COST-SHARING.—
(1) STUDY.—The Medicare Payment Advisory Commission,
in consultation with beneficiaries, consumer groups, employers,
and organizations offering plans under part C of title XVIII
of the Social Security Act, shall conduct a study to determine
the extent to which the cost-sharing structures under such
plans affect access to covered services or select enrollees based
on the health status of eligible individuals described in section
1851(a)(3) of the Social Security Act (42 U.S.C. 1395w–21(a)(3)).
(2) REPORT.—Not later than December 31, 2004, the
Commission shall submit a report to Congress on the study
conducted under paragraph (1) together with recommendations
for such legislation and administrative actions as the Commis-
sion considers appropriate.
(i) IMPLEMENTATION OF PROVISIONS.—
(1) ANNOUNCEMENT OF REVISED MEDICARE ADVANTAGE PAY-
MENT RATES.—Within 6 weeks after the date of the enactment
of this Act, the Secretary shall determine, and shall announce
(in a manner intended to provide notice to interested parties)
MA capitation rates under section 1853 of the Social Security
Act (42 U.S.C. 1395w–23) for 2004, revised in accordance with
the provisions of this section.
(2) TRANSITION TO REVISED PAYMENT RATES.—The provi-
sions of section 604 of BIPA (114 Stat. 2763A–555) (other
than subsection (a)) shall apply to the provisions of subsections
(a) through (d) of this section for 2004 in the same manner
as the provisions of such section 604 applied to the provisions
of BIPA for 2001.
(3) SPECIAL RULE FOR PAYMENT RATES IN 2004.—
(A) JANUARY
AND
FEBRUARY.—Notwithstanding the
amendments made by subsections (a) through (d), for pur-
poses of making payments under section 1853 of the Social
Security Act (42 U.S.C. 1395w–23) for January and Feb-
ruary 2004, the annual capitation rate for a payment area
shall be calculated and the excess amount under section
1854(f)(1)(B) of such Act (42 U.S.C. 1395w–24(f)(1)(B)) shall
be determined as if such amendments had not been
enacted.
(B) MARCH THROUGH DECEMBER.—Notwithstanding the
amendments made by subsections (a) through (d), for pur-
poses of making payments under section 1853 of the Social
Security Act (42 U.S.C. 1395w–23) for March through
December 2004, the annual capitation rate for a payment
area shall be calculated and the excess amount under sec-
tion 1854(f)(1)(B) of such Act (42 U.S.C. 1395w–24(f)(1)(B))
shall be determined, in such manner as the Secretary esti-
mates will ensure that the total of such payments with
respect to 2004 is the same as the amounts that would
have been if subparagraph (A) had not been enacted.
(C) CONSTRUCTION.—Subparagraphs (A) and (B) shall
not be taken into account in computing such capitation
rate for 2005 and subsequent years.
Applicability.
Deadline.
42 USC
1395w–23 note.
Deadline.
42 USC
1395w–21 note.
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(4) PLANS REQUIRED TO PROVIDE NOTICE OF CHANGES IN
PLAN BENEFITS.—In the case of an organization offering a plan
under part C of title XVIII of the Social Security Act that
revises its submission of the information described in section
1854(a)(1) of such Act (42 U.S.C. 1395w–23(a)(1)) for a plan
pursuant to the application of paragraph (2), if such revision
results in changes in beneficiary premiums, beneficiary cost-
sharing, or benefits under the plan, then by not later than
3 weeks after the date the Secretary approves such submission,
the organization offering the plan shall provide each beneficiary
enrolled in the plan with written notice of such changes.
(5) LIMITATION ON REVIEW.—There shall be no administra-
tive or judicial review under section 1869 or section 1878 of
the Social Security Act (42 U.S.C. 1395ff and 1395oo), or other-
wise of any determination made by the Secretary under this
subsection or the application of the payment rates determined
pursuant to this subsection.
(j) ADDITIONAL AMENDMENTS.—Section 1852(d)(4) (42 U.S.C.
1395w–22(d)(4)) is amended—
(1) in subparagraph (B), by inserting ‘‘(other than deemed
contracts or agreements under subsection (j)(6))’’ after ‘‘the
plan has contracts or agreements’’; and
(2) in the last sentence, by inserting before the period
at the end the following: ‘‘, except that, if a plan entirely
meets such requirement with respect to a category of health
care professional or provider on the basis of subparagraph
(B), it may provide for a higher beneficiary copayment in the
case of health care professionals and providers of that category
who do not have contracts or agreements (other than deemed
contracts or agreements under subsection (j)(6)) to provide cov-
ered services under the terms of the plan’’.
Subtitle C—Offering of Medicare Advan-
tage (MA) Regional Plans; Medicare Ad-
vantage Competition
SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.
(a) OFFERING OF MA REGIONAL PLANS.—
(1) IN GENERAL.—Section 1851(a)(2)(A) is amended—
(A) by striking ‘‘COORDINATED CARE PLANS.—Coordi-
nated’’ and inserting the following: ‘‘COORDINATED CARE
PLANS (INCLUDING REGIONAL PLANS).—
‘‘(i) IN GENERAL.—Coordinated’’;
(B) by inserting ‘‘regional or local’’ before ‘‘preferred
provider organization plans’’; and
(C) by inserting ‘‘ (including MA regional plans)’’ after
‘‘preferred provider organization plans’’.
(2) MORATORIUM
ON
NEW
LOCAL
PREFERRED
PROVIDER
ORGANIZATION
PLANS.—The Secretary shall not permit the
offering of a local preferred provider organization plan under
part C of title XVIII of the Social Security Act during 2006
or 2007 in a service area unless such plan was offered under
such part (including under a demonstration project under such
part) in such area as of December 31, 2005.
(b) DEFINITION OF MA REGIONAL PLAN; MA LOCAL PLAN.—
42 USC
1395w–21 note.
42 USC
1395w–21.
Deadline.
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(1) IN GENERAL.—Section 1859(b) (42 U.S.C. 1395w–29(b))
is amended by adding at the end the following new paragraphs:
‘‘(4) MA REGIONAL
PLAN.—The term ‘MA regional plan’
means an MA plan described in section 1851(a)(2)(A)(i)—
‘‘(A) that has a network of providers that have agreed
to a contractually specified reimbursement for covered
benefits with the organization offering the plan;
‘‘(B) that provides for reimbursement for all covered
benefits regardless of whether such benefits are provided
within such network of providers; and
‘‘(C) the service area of which is one or more entire
MA regions.
‘‘(5) MA LOCAL PLAN.—The term ‘MA local plan’ means
an MA plan that is not an MA regional plan.’’.
(2) CONSTRUCTION.—Nothing in part C of title XVIII of
the Social Security Act shall be construed as preventing an
MSA plan or MA private fee-for-service plan from having a
service area that covers one or more MA regions or the entire
nation.
(c) RULES FOR MA REGIONAL PLANS.—Part C of title XVIII
(42 U.S.C. 1395w–21 et seq.) is amended by inserting after section
1857 the following new section:
‘‘SPECIAL RULES FOR MA REGIONAL PLANS
‘‘SEC. 1858. (a) REGIONAL SERVICE AREA; ESTABLISHMENT OF
MA REGIONS.—
‘‘(1) COVERAGE OF ENTIRE MA REGION.—The service area
for an MA regional plan shall consist of an entire MA region
established under paragraph (2) and the provisions of section
1854(h) shall not apply to such a plan.
‘‘(2) ESTABLISHMENT OF MA REGIONS.—
‘‘(A) MA REGION.—For purposes of this title, the term
‘MA region’ means such a region within the 50 States
and the District of Columbia as established by the Sec-
retary under this paragraph.
‘‘(B) ESTABLISHMENT.—
‘‘(i) 
INITIAL
ESTABLISHMENT.—Not 
later 
than
January 1, 2005, the Secretary shall first establish
and publish MA regions.
‘‘(ii) PERIODIC REVIEW AND REVISION OF SERVICE
AREAS.—The Secretary may periodically review MA
regions under this paragraph and, based on such
review, may revise such regions if the Secretary deter-
mines such revision to be appropriate.
‘‘(C) REQUIREMENTS FOR MA REGIONS.—The Secretary
shall establish, and may revise, MA regions under this
paragraph in a manner consistent with the following:
‘‘(i) NUMBER OF REGIONS.—There shall be no fewer
than 10 regions, and no more than 50 regions.
‘‘(ii) MAXIMIZING
AVAILABILITY
OF
PLANS.—The
regions shall maximize the availability of MA regional
plans to all MA eligible individuals without regard
to health status, especially those residing in rural
areas.
‘‘(D) MARKET
SURVEY
AND
ANALYSIS.—Before estab-
lishing MA regions, the Secretary shall conduct a market
survey and analysis, including an examination of current
Deadline.
42 USC
1395w–27a.
42 USC
1395w–21 note.
42 USC
1395w–28.
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insurance markets, to determine how the regions should
be established.
‘‘(3) NATIONAL PLAN.—Nothing in this subsection shall be
construed as preventing an MA regional plan from being offered
in more than one MA region (including all regions).
‘‘(b) APPLICATION OF SINGLE DEDUCTIBLE AND CATASTROPHIC
LIMIT ON OUT-OF-POCKET EXPENSES.—An MA regional plan shall
include the following:
‘‘(1) SINGLE
DEDUCTIBLE.—Any deductible for benefits
under the original medicare fee-for-service program option shall
be a single deductible (instead of a separate inpatient hospital
deductible and a part B deductible) and may be applied differen-
tially for in-network services and may be waived for preventive
or other items and services.
‘‘(2) CATASTROPHIC LIMIT.—
‘‘(A) IN-NETWORK.—A catastrophic limit on out-of-
pocket expenditures for in-network benefits under the
original medicare fee-for-service program option.
‘‘(B) TOTAL.—A catastrophic limit on out-of-pocket
expenditures for all benefits under the original medicare
fee-for-service program option.
‘‘(c) PORTION OF TOTAL PAYMENTS TO AN ORGANIZATION SUBJECT
TO RISK FOR 2006 AND 2007.—
‘‘(1) APPLICATION OF RISK CORRIDORS.—
‘‘(A) IN
GENERAL.—This subsection shall only apply
to MA regional plans offered during 2006 or 2007.
‘‘(B) NOTIFICATION OF ALLOWABLE COSTS UNDER THE
PLAN.—In the case of an MA organization that offers an
MA regional plan in an MA region in 2006 or 2007, the
organization shall notify the Secretary, before such date
in the succeeding year as the Secretary specifies, of—
‘‘(i) its total amount of costs that the organization
incurred in providing benefits covered under the
original medicare fee-for-service program option for all
enrollees under the plan in the region in the year
and the portion of such costs that is attributable to
administrative expenses described in subparagraph
(C); and
‘‘(ii) its total amount of costs that the organization
incurred in providing rebatable integrated benefits (as
defined in subparagraph (D)) and with respect to such
benefits the portion of such costs that is attributable
to administrative expenses described in subparagraph
(C) and not described in clause (i) of this subparagraph.
‘‘(C) ALLOWABLE COSTS DEFINED.—For purposes of this
subsection, the term ‘allowable costs’ means, with respect
to an MA regional plan for a year, the total amount of
costs described in subparagraph (B) for the plan and year,
reduced by the portion of such costs attributable to adminis-
trative expenses incurred in providing the benefits
described in such subparagraph.
‘‘(D) REBATABLE INTEGRATED BENEFITS.—For purposes
of this subsection, the term ‘rebatable integrated benefits’
means such non-drug supplemental benefits under sub-
clause (I) of section 1854(b)(1)(C)(ii) pursuant to a rebate
under such section that the Secretary determines are
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integrated with the benefits described in subparagraph
(B)(i).
‘‘(2) ADJUSTMENT OF PAYMENT.—
‘‘(A) NO ADJUSTMENT IF ALLOWABLE COSTS WITHIN 3
PERCENT OF TARGET AMOUNT.—If the allowable costs for
the plan for the year are at least 97 percent, but do not
exceed 103 percent, of the target amount for the plan
and year, there shall be no payment adjustment under
this subsection for the plan and year.
‘‘(B) INCREASE IN PAYMENT IF ALLOWABLE COSTS ABOVE
103 PERCENT OF TARGET AMOUNT.—
‘‘(i) COSTS BETWEEN 103 AND 108 PERCENT OF TAR-
GET AMOUNT.—If the allowable costs for the plan for
the year are greater than 103 percent, but not greater
than 108 percent, of the target amount for the plan
and year, the Secretary shall increase the total of
the monthly payments made to the organization
offering the plan for the year under section 1853(a)
by an amount equal to 50 percent of the difference
between such allowable costs and 103 percent of such
target amount.
‘‘(ii) COSTS
ABOVE
108
PERCENT
OF
TARGET
AMOUNT.—If the allowable costs for the plan for the
year are greater than 108 percent of the target amount
for the plan and year, the Secretary shall increase
the total of the monthly payments made to the
organization offering the plan for the year under sec-
tion 1853(a) by an amount equal to the sum of—
‘‘(I) 2.5 percent of such target amount; and
‘‘(II) 80 percent of the difference between such
allowable costs and 108 percent of such target
amount.
‘‘(C) REDUCTION
IN
PAYMENT
IF
ALLOWABLE
COSTS
BELOW 97 PERCENT OF TARGET AMOUNT.—
‘‘(i) COSTS BETWEEN 92 AND 97 PERCENT OF TARGET
AMOUNT.—If the allowable costs for the plan for the
year are less than 97 percent, but greater than or
equal to 92 percent, of the target amount for the plan
and year, the Secretary shall reduce the total of the
monthly payments made to the organization offering
the plan for the year under section 1853(a) by an
amount (or otherwise recover from the plan an amount)
equal to 50 percent of the difference between 97 percent
of the target amount and such allowable costs.
‘‘(ii) 
COSTS
BELOW
92
PERCENT
OF
TARGET
AMOUNT.—If the allowable costs for the plan for the
year are less than 92 percent of the target amount
for the plan and year, the Secretary shall reduce the
total of the monthly payments made to the organization
offering the plan for the year under section 1853(a)
by an amount (or otherwise recover from the plan
an amount) equal to the sum of—
‘‘(I) 2.5 percent of such target amount; and
‘‘(II) 80 percent of the difference between 92
percent of such target amount and such allowable
costs.
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‘‘(D) TARGET AMOUNT DESCRIBED.—For purposes of this
paragraph, the term ‘target amount’ means, with respect
to an MA regional plan offered by an organization in a
year, an amount equal to—
‘‘(i) the sum of—
‘‘(I) the total monthly payments made to the
organization for enrollees in the plan for the year
that are attributable to benefits under the original
medicare fee-for-service program option (as defined
in section 1852(a)(1)(B));
‘‘(II) the total of the MA monthly basic bene-
ficiary premium collectable for such enrollees for
the year; and
‘‘(III) the total amount of the rebates under
section 1854(b)(1)(C)(ii) that are attributable to
rebatable integrated benefits; reduced by
‘‘(ii) the amount of administrative expenses
assumed in the bid insofar as the bid is attributable
to benefits described in clause (i)(I) or (i)(III).
‘‘(3) DISCLOSURE OF INFORMATION.—
‘‘(A) IN GENERAL.—Each contract under this part shall
provide—
‘‘(i) that an MA organization offering an MA
regional plan shall provide the Secretary with such
information as the Secretary determines is necessary
to carry out this subsection; and
‘‘(ii) that, pursuant to section 1857(d)(2)(B), the
Secretary has the right to inspect and audit any books
and records of the organization that pertain to the
information regarding costs provided to the Secretary
under paragraph (1)(B).
‘‘(B) RESTRICTION ON USE OF INFORMATION.—Informa-
tion disclosed or obtained pursuant to the provisions of
this subsection may be used by officers, employees, and
contractors of the Department of Health and Human Serv-
ices only for the purposes of, and to the extent necessary
in, carrying out this subsection.
‘‘(d) ORGANIZATIONAL AND FINANCIAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—In the case of an MA organization that
is offering an MA regional plan in an MA region and—
‘‘(A) meets the requirements of section 1855(a)(1) with
respect to at least one such State in such region; and
‘‘(B) with respect to each other State in such region
in which it does not meet requirements, it demonstrates
to the satisfaction of the Secretary that it has filed the
necessary application to meet such requirements,
the Secretary may waive such requirement with respect to
each State described in subparagraph (B) for such period of
time as the Secretary determines appropriate for the timely
processing of such an application by the State (and, if such
application is denied, through the end of such plan year as
the Secretary determines appropriate to provide for a transi-
tion).
‘‘(2) SELECTION OF APPROPRIATE STATE.—In applying para-
graph (1) in the case of an MA organization that meets the
requirements of section 1855(a)(1) with respect to more than
one State in a region, the organization shall select, in a manner
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117 STAT. 2185
PUBLIC LAW 108–173—DEC. 8, 2003
specified by the Secretary among such States, one State the
rules of which shall apply in the case of the States described
in paragraph (1)(B).
‘‘(e) STABILIZATION FUND.—
‘‘(1) ESTABLISHMENT.—The Secretary shall establish under
this subsection an MA Regional Plan Stabilization Fund (in
this subsection referred to as the ‘Fund’) which shall be avail-
able for two purposes:
‘‘(A) PLAN ENTRY.—To provide incentives to have MA
regional plans offered in each MA region under paragraph
(3).
‘‘(B) PLAN RETENTION.—To provide incentives to retain
MA regional plans in certain MA regions with below-
national-average MA market penetration under paragraph
(4).
‘‘(2) FUNDING.—
‘‘(A) INITIAL FUNDING.—
‘‘(i) IN GENERAL.—There shall be available to the
Fund, for expenditures from the Fund during the
period beginning on January 1, 2007, and ending on
December 31, 2013, a total of $10,000,000,000.
‘‘(ii) PAYMENT FROM TRUST FUNDS.—Such amount
shall be available to the Fund, as expenditures are
made from the Fund, from the Federal Hospital Insur-
ance Trust Fund and the Federal Supplementary Med-
ical Insurance Trust Fund in the proportion specified
in section 1853(f).
‘‘(B) ADDITIONAL FUNDING FROM SAVINGS.—
‘‘(i) IN GENERAL.—There shall also be made avail-
able to the Fund, 50 percent of savings described in
clause (ii).
‘‘(ii) SAVINGS.—The savings described in this clause
are 25 percent of the average per capita savings
described in section 1854(b)(4)(C) for which monthly
rebates are provided under section 1854(b)(1)(C) in
the fiscal year involved that are attributable to MA
regional plans.
‘‘(iii) AVAILABILITY.—Funds made available under
this subparagraph shall be transferred into a special
account in the Treasury from the Federal Hospital
Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund in the proportion speci-
fied in section 1853(f) on a monthly basis.
‘‘(C) OBLIGATIONS.—Amounts in the Fund shall be
available in advance of appropriations to MA regional plans
in qualifying MA regions only in accordance with paragraph
(5).
‘‘(D) ORDERING.—Expenditures from the Fund shall
first be made from amounts made available under subpara-
graph (A).
‘‘(3) PLAN ENTRY FUNDING.—
‘‘(A) IN
GENERAL.—Funding is available under this
paragraph for a year only as follows:
‘‘(i) NATIONAL PLAN.—For a national bonus pay-
ment described in subparagraph (B) for the offering
by a single MA organization of an MA regional plan
in each MA region in the year, but only if there was
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117 STAT. 2186
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not such a plan offered in each such region in the
previous year. Funding under this clause is only avail-
able with respect to any individual MA organization
for a single year, but may be made available to more
than one such organization in the same year.
‘‘(ii) REGIONAL PLANS.—Subject to clause (iii), for
an increased amount under subparagraph (C) for an
MA regional plan offered in an MA region which did
not have any MA regional plan offered in the prior
year.
‘‘(iii) LIMITATION ON REGIONAL PLAN FUNDING IN
CASE OF NATIONAL PLAN.—In no case shall there be
any payment adjustment under subparagraph (C) for
a year for which a national payment adjustment is
made under subparagraph (B).
‘‘(B) NATIONAL BONUS PAYMENT.—The national bonus
payment under this subparagraph shall—
‘‘(i) be available to an MA organization only if
the organization offers MA regional plans in every
MA region;
‘‘(ii) be available with respect to all MA regional
plans of the organization regardless of whether any
other MA regional plan is offered in any region; and
‘‘(iii) subject to amounts available under paragraph
(5) for a year, be equal to 3 percent of the benchmark
amount otherwise applicable for each MA regional plan
offered by the organization.
‘‘(C) REGIONAL PAYMENT ADJUSTMENT.—
‘‘(i) IN GENERAL.—The increased amount under this
subparagraph for an MA regional plan in an MA region
for a year shall be an amount, determined by the
Secretary, based on the bid submitted for such plan
(or plans) and shall be available to all MA regional
plans offered in such region and year. Such amount
may be based on the mean, mode, or median, or other
measure of such bids and may vary from region to
region. The Secretary may not limit the number of
plans or bids in a region.
‘‘(ii) MULTI-YEAR FUNDING.—
‘‘(I) IN GENERAL.—Subject to amounts avail-
able under paragraph (5), funding under this
subparagraph shall be available for a period deter-
mined by the Secretary.
‘‘(II) REPORT.—If the Secretary determines
that funding will be provided for a second consecu-
tive year with respect to an MA region, the Sec-
retary shall submit to the Congress a report that
describes the underlying market dynamics in the
region and that includes recommendations con-
cerning changes in the payment methodology
otherwise provided for MA regional plans under
this part.
‘‘(iii) APPLICATION TO ALL PLANS IN A REGION.—
Funding under this subparagraph with respect to an
MA region shall be made available with respect to
all MA regional plans offered in the region.
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‘‘(iv) LIMITATION ON AVAILABILITY OF PLAN RETEN-
TION FUNDING IN NEXT YEAR.—If an increased amount
is made available under this subparagraph with
respect to an MA region for a period determined by
the Secretary under clause (ii)(I), in no case shall
funding be available under paragraph (4) with respect
to MA regional plans offered in the region in the year
following such period.
‘‘(D) APPLICATION.—Any additional payment under this
paragraph provided for an MA regional plan for a year
shall be treated as if it were an addition to the benchmark
amount otherwise applicable to such plan and year, but
shall not be taken into account in the computation of
any benchmark amount for any subsequent year.
‘‘(4) PLAN RETENTION FUNDING.—
‘‘(A) IN
GENERAL.—Funding is available under this
paragraph for a year with respect to MA regional plans
offered in an MA region for the increased amount specified
in subparagraph (B) but only if the region meets the
requirements of subparagraphs (C) and (E).
‘‘(B) PAYMENT INCREASE.—The increased amount under
this subparagraph for an MA regional plan in an MA
region for a year shall be an amount, determined by the
Secretary, that does not exceed the greater of—
‘‘(i) 3 percent of the benchmark amount applicable
in the region; or
‘‘(ii) such amount as (when added to the benchmark
amount applicable to the region) will result in the
ratio of—
‘‘(I) such additional amount plus the bench-
mark 
amount 
computed 
under 
section
1854(b)(4)(B)(i) for the region and year, to the
adjusted average per capita cost for the region
and year, as estimated by the Secretary under
section 1876(a)(4) and adjusted as appropriate for
the purpose of risk adjustment; being equal to
‘‘(II) the weighted average of such benchmark
amounts for all the regions and such year, to the
average per capita cost for the United States and
such year, as estimated by the Secretary under
section 1876(a)(4) and adjusted as appropriate for
the purpose of risk adjustment.
‘‘(C) REGIONAL REQUIREMENTS.—The requirements of
this subparagraph for an MA region for a year are as
follows:
‘‘(i) NOTIFICATION OF PLAN EXIT.—The Secretary
has received notice (in such form and manner as the
Secretary specifies) before a year that one or more
MA regional plans that were offered in the region
in the previous year will not be offered in the suc-
ceeding year.
‘‘(ii) REGIONAL PLANS AVAILABLE FROM FEWER THAN
2 MA ORGANIZATIONS IN THE REGION.—The Secretary
determines that if the plans referred to in clause (i)
are not offered in the year, fewer than 2 MA organiza-
tions will be offering MA regional plans in the region
in the year involved.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(iii) PERCENTAGE ENROLLMENT IN MA REGIONAL
PLANS BELOW NATIONAL AVERAGE.—For the previous
year, the Secretary determines that the average
percentage of MA eligible individuals residing in the
region who are enrolled in MA regional plans is less
than the average percentage of such individuals in
the United States enrolled in such plans.
‘‘(D) APPLICATION.—Any additional payment under this
paragraph provided for an MA regional plan for a year
shall be treated as if it were an addition to the benchmark
amount otherwise applicable to such plan and year, but
shall not be taken into account in the computation of
any benchmark amount for any subsequent year.
‘‘(E) 2-CONSECUTIVE-YEAR LIMITATION.—
‘‘(i) IN GENERAL.—In no case shall any funding
be available under this paragraph in an MA region
in a period of consecutive years that exceeds 2 years.
‘‘(ii) REPORT.—If the Secretary determines that
funding will be provided under this paragraph for a
second consecutive year with respect to an MA region,
the Secretary shall submit to the Congress a report
that describes the underlying market dynamics in the
region and that includes recommendations concerning
changes in the payment methodology otherwise pro-
vided for MA regional plans under this part.
‘‘(5) FUNDING LIMITATION.—
‘‘(A) IN GENERAL.—The total amount expended from
the Fund as a result of the application of this subsection
through the end of a calendar year may not exceed the
amount available to the Fund as of the first day of such
year. For purposes of this subsection, amounts that are
expended under this title insofar as such amounts would
not have been expended but for the application of this
subsection shall be counted as amounts expended as a
result of such application.
‘‘(B) APPLICATION OF LIMITATION.—The Secretary may
obligate funds from the Fund for a year only if the Sec-
retary determines (and the Chief Actuary of the Centers
for Medicare & Medicaid Services and the appropriate
budget officer certify) that there are available in the Fund
at the beginning of the year sufficient amounts to cover
all such obligations incurred during the year consistent
with subparagraph (A). The Secretary shall take such steps,
in connection with computing additional payment amounts
under paragraphs (3) and (4) and including limitations
on enrollment in MA regional plans receiving such pay-
ments, as will ensure that sufficient funds are available
to make such payments for the entire year. Funds shall
only be made available from the Fund pursuant to an
apportionment made in accordance with applicable proce-
dures.
‘‘(6) SECRETARY REPORTS.—Not later than April 1 of each
year (beginning in 2008), the Secretary shall submit a report
to Congress and the Comptroller General of the United States
that includes—
‘‘(A) a detailed description of—
Deadline.
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‘‘(i) the total amount expended as a result of the
application of this subsection in the previous year com-
pared to the total amount that would have been
expended under this title in the year if this subsection
had not been enacted;
‘‘(ii) the projections of the total amount that will
be expended as a result of the application of this sub-
section in the year in which the report is submitted
compared to the total amount that would have been
expended under this title in the year if this subsection
had not been enacted;
‘‘(iii) amounts remaining within the funding limita-
tion specified in paragraph (5); and
‘‘(iv) the steps that the Secretary will take under
paragraph (5)(B) to ensure that the application of this
subsection will not cause expenditures to exceed the
amount available in the Fund; and
‘‘(B) a certification from the Chief Actuary of the Cen-
ters for Medicare & Medicaid Services that the description
provided under subparagraph (A) is reasonable, accurate,
and based on generally accepted actuarial principles and
methodologies.
‘‘(7) BIENNIAL GAO REPORTS.—Not later than January 1
of 2009, 2011, 2013, and 2015, the Comptroller General of
the United States shall submit to the Secretary and Congress
a report on the application of additional payments under this
subsection. Each report shall include—
‘‘(A) an evaluation of—
‘‘(i) the quality of care provided to individuals
enrolled in MA regional plans for which additional
payments were made under this subsection;
‘‘(ii) the satisfaction of such individuals with bene-
fits under such a plan;
‘‘(iii) the costs to the medicare program for pay-
ments made to such plans; and
‘‘(iv) any improvements in the delivery of health
care services under such a plan;
‘‘(B) a comparative analysis of the performance of MA
regional plans receiving payments under this subsection
with MA regional plans not receiving such payments; and
‘‘(C) recommendations for such legislation or adminis-
trative action as the Comptroller General determines to
be appropriate.
‘‘(f) COMPUTATION OF APPLICABLE MA REGION-SPECIFIC NON-
DRUG MONTHLY BENCHMARK AMOUNTS.—
‘‘(1) COMPUTATION FOR REGIONS.—For purposes of section
1853(j)(2) and this section, subject to subsection (e), the term
‘MA region-specific non-drug monthly benchmark amount’
means, with respect to an MA region for a month in a year,
the sum of the 2 components described in paragraph (2) for
the region and year. The Secretary shall compute such bench-
mark amount for each MA region before the beginning of each
annual, coordinated election period under section 1851(e)(3)(B)
for each year (beginning with 2006).
‘‘(2) 2 COMPONENTS.—For purposes of paragraph (1), the
2 components described in this paragraph for an MA region
and a year are the following:
Deadline.
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‘‘(A) STATUTORY COMPONENT.—The product of the fol-
lowing:
‘‘(i) 
STATUTORY
REGION-SPECIFIC
NON-DRUG
AMOUNT.—The 
statutory 
region-specific 
non-drug
amount (as defined in paragraph (3)) for the region
and year.
‘‘(ii) STATUTORY
NATIONAL
MARKET
SHARE.—The
statutory national market share percentage, deter-
mined under paragraph (4) for the year.
‘‘(B) PLAN-BID
COMPONENT.—The product of the fol-
lowing:
‘‘(i) WEIGHTED
AVERAGE
OF
MA
PLAN
BIDS
IN
REGION.—The weighted average of the plan bids for
the region and year (as determined under paragraph
(5)(A)).
‘‘(ii) NON-STATUTORY MARKET SHARE.—1 minus the
statutory national market share percentage, deter-
mined under paragraph (4) for the year.
‘‘(3) STATUTORY REGION-SPECIFIC NON-DRUG AMOUNT.—For
purposes of paragraph (2)(A)(i), the term ‘statutory region-spe-
cific non-drug amount’ means, for an MA region and year,
an amount equal the sum (for each MA local area within
the region) of the product of—
‘‘(A) MA area-specific non-drug monthly benchmark
amount under section 1853(j)(1)(A) for that area and year;
and
‘‘(B) the number of MA eligible individuals residing
in the local area, divided by the total number of MA eligible
individuals residing in the region.
‘‘(4) COMPUTATION OF STATUTORY MARKET SHARE PERCENT-
AGE.—
‘‘(A) IN GENERAL.—The Secretary shall determine for
each year a statutory national market share percentage
that is equal to the proportion of MA eligible individuals
nationally who were not enrolled in an MA plan during
the reference month.
‘‘(B) REFERENCE MONTH DEFINED.—For purposes of this
part, the term ‘reference month’ means, with respect to
a year, the most recent month during the previous year
for which the Secretary determines that data are available
to compute the percentage specified in subparagraph (A)
and other relevant percentages under this part.
‘‘(5) DETERMINATION OF WEIGHTED AVERAGE MA BIDS FOR
A REGION.—
‘‘(A) IN GENERAL.—For purposes of paragraph (2)(B)(i),
the weighted average of plan bids for an MA region and
a year is the sum, for MA regional plans described in
subparagraph (D) in the region and year, of the products
(for each such plan) of the following:
‘‘(i) MONTHLY
MA
STATUTORY
NON-DRUG
BID
AMOUNT.—The unadjusted MA statutory non-drug
monthly bid amount for the plan.
‘‘(ii) 
PLAN’S
SHARE
OF
MA
ENROLLMENT
IN
REGION.—The factor described in subparagraph (B) for
the plan.
‘‘(B) PLAN’S SHARE OF MA ENROLLMENT IN REGION.—
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‘‘(i) IN GENERAL.—Subject to the succeeding provi-
sions of this subparagraph, the factor described in
this subparagraph for a plan is equal to the number
of individuals described in subparagraph (C) for such
plan, divided by the total number of such individuals
for all MA regional plans described in subparagraph
(D) for that region and year.
‘‘(ii) SINGLE PLAN RULE.—In the case of an MA
region in which only a single MA regional plan is
being offered, the factor described in this subparagraph
shall be equal to 1.
‘‘(iii) EQUAL DIVISION AMONG MULTIPLE PLANS IN
YEAR IN WHICH PLANS ARE FIRST AVAILABLE.—In the
case of an MA region in the first year in which any
MA regional plan is offered, if more than one MA
regional plan is offered in such year, the factor
described in this subparagraph for a plan shall (as
specified by the Secretary) be equal to—
‘‘(I) 1 divided by the number of such plans
offered in such year; or
‘‘(II) a factor for such plan that is based upon
the organization’s estimate of projected enrollment,
as reviewed and adjusted by the Secretary to
ensure reasonableness and as is certified by the
Chief Actuary of the Centers for Medicare & Med-
icaid Services.
‘‘(C) COUNTING
OF
INDIVIDUALS.—For purposes of
subparagraph (B)(i), the Secretary shall count for each
MA regional plan described in subparagraph (D) for an
MA region and year, the number of individuals who reside
in the region and who were enrolled under such plan
under this part during the reference month.
‘‘(D) PLANS COVERED.—For an MA region and year,
an MA regional plan described in this subparagraph is
an MA regional plan that is offered in the region and
year and was offered in the region in the reference month.
‘‘(g) ELECTION
OF
UNIFORM
COVERAGE
DETERMINATION.—
Instead of applying section 1852(a)(2)(C) with respect to an MA
regional plan, the organization offering the plan may elect to have
a local coverage determination for the entire MA region be the
local coverage determination applied for any part of such region
(as selected by the organization).
‘‘(h) ASSURING NETWORK ADEQUACY.—
‘‘(1) IN GENERAL.—For purposes of enabling MA organiza-
tions that offer MA regional plans to meet applicable provider
access requirements under section 1852 with respect to such
plans, the Secretary may provide for payment under this section
to an essential hospital that provides inpatient hospital services
to enrollees in such a plan where the MA organization offering
the plan certifies to the Secretary that the organization was
unable to reach an agreement between the hospital and the
organization regarding provision of such services under the
plan. Such payment shall be available only if—
‘‘(A) the organization provides assurances satisfactory
to the Secretary that the organization will make payment
to the hospital for inpatient hospital services of an amount
that is not less than the amount that would be payable
Certification.
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PUBLIC LAW 108–173—DEC. 8, 2003
to the hospital under section 1886 with respect to such
services; and
‘‘(B) with respect to specific inpatient hospital services
provided to an enrollee, the hospital demonstrates to the
satisfaction of the Secretary that the hospital’s costs of
such services exceed the payment amount described in
subparagraph (A).
‘‘(2) PAYMENT AMOUNTS.—The payment amount under this
subsection for inpatient hospital services provided by a sub-
section (d) hospital to an enrollee in an MA regional plan
shall be, subject to the limitation of funds under paragraph
(3), the amount (if any) by which—
‘‘(A) the amount of payment that would have been
paid for such services under this title if the enrollees were
covered under the original medicare fee-for-service program
option and the hospital were a critical access hospital;
exceeds
‘‘(B) the amount of payment made for such services
under paragraph (1)(A).
‘‘(3) AVAILABLE AMOUNTS.—There shall be available for pay-
ments under this subsection—
‘‘(A) in 2006, $25,000,000; and
‘‘(B) in each succeeding year the amount specified in
this paragraph for the preceding year increased by the
market basket percentage increase (as defined in section
1886(b)(3)(B)(iii)) for the fiscal year ending in such suc-
ceeding year.
Payments under this subsection shall be made from the Federal
Hospital Insurance Trust Fund.
‘‘(4) ESSENTIAL
HOSPITAL.—In this subsection, the term
‘essential hospital’ means, with respect to an MA regional plan
offered by an MA organization, a subsection (d) hospital (as
defined in section 1886(d)) that the Secretary determines, based
upon an application filed by the organization with the Sec-
retary, is necessary to meet the requirements referred to in
paragraph (1) for such plan.’’.
(d) CONFORMING AMENDMENTS.—
(1) RELATING TO MA REGIONS.—Section 1853(d) (42 U.S.C.
1395w–23(d)) is amended—
(A) by amending the heading to read as follows: ‘‘MA
PAYMENT AREA; MA LOCAL AREA; MA REGION DEFINED’’;
(B) by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively;
(C) by amending paragraph (1) to read as follows:
‘‘(1) MA PAYMENT AREA.—In this part, except as provided
in this subsection, the term ‘MA payment area’ means—
‘‘(A) with respect to an MA local plan, an MA local
area (as defined in paragraph (2)); and
‘‘(B) with respect to an MA regional plan, an MA
region (as established under section 1858(a)(2)).’’;
(D) by inserting after paragraph (1) the following new
paragraph:
‘‘(2) MA LOCAL AREA.—The term ‘MA local area’ means
a county or equivalent area specified by the Secretary.’’; and
(E) in paragraph (4), as so redesignated—
(i) in subparagraph (A), by inserting ‘‘for MA local
plans’’ after ‘‘paragraph (1)’’;
Definition.
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(ii) in subparagraph (A)(iii), by striking ‘‘paragraph
(1)’’ and inserting ‘‘paragraph (1)(A)’’; and
(iii) in subparagraph (B)—
(I) by inserting ‘‘with respect to MA local
plans’’ after ‘‘established under this section’’;
(II) by inserting ‘‘for such plans’’ after ‘‘pay-
ments under this section’’; and
(III) by inserting ‘‘for such plans’’ after ‘‘made
under this section’’.
(2) MA LOCAL AREA DEFINED.—Section 1859(c) (42 U.S.C.
1395w–29(c)) is amended by adding at the end the following:
‘‘(5) MA LOCAL AREA.—The term ‘MA local area’ is defined
in section 1853(d)(2).’’.
(3) APPLICATION OF SPECIAL BENEFIT RULES TO PPOS AND
REGIONAL PLANS.—Section 1852(a) (42 U.S.C. 1395w–22(a)) is
amended—
(A) in paragraph (1), by inserting ‘‘and except as pro-
vided in paragraph (6) for MA regional plans’’ after ‘‘MSA
plans’’; and
(B) by adding at the end the following new paragraph:
‘‘(6) SPECIAL BENEFIT RULES FOR REGIONAL PLANS.—In the
case of an MA plan that is an MA regional plan, benefits
under the plan shall include the benefits described in para-
graphs (1) and (2) of section 1858(b).’’.
(4) APPLICATION OF CAPITATION RATES TO LOCAL AREAS.—
Section 1853(c)(1) (42 U.S.C. 1395w–23(c)(1)) is amended by
inserting 
‘‘that 
is 
an 
MA 
local 
area’’ 
after 
‘‘for 
a
Medicare+Choice payment area’’.
(5) NETWORK
ADEQUACY
HOSPITAL
PAYMENTS.—Section
1851(i)(2) (42 U.S.C. 1395w–21(i)(2)) is amended by inserting
‘‘1858(h),’’ after ‘‘1857(f)(2),’’.
SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.
(a) SUBMISSION OF BIDDING AND REBATE INFORMATION BEGIN-
NING IN 2006.—
(1) IN GENERAL.—Section 1854 (42 U.S.C. 1395w–24) is
amended—
(A) by amending paragraph (1) of subsection (a) to
read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) INITIAL SUBMISSION.—Not later than the second
Monday in September of 2002, 2003, and 2004 (or the
first Monday in June of each subsequent year), each MA
organization shall submit to the Secretary, in a form and
manner specified by the Secretary and for each MA plan
for the service area (or segment of such an area if permitted
under subsection (h)) in which it intends to be offered
in the following year the following:
‘‘(i) The information described in paragraph (2),
(3), (4), or (6)(A) for the type of plan and year involved.
‘‘(ii) The plan type for each plan.
‘‘(iii) The enrollment capacity (if any) in relation
to the plan and area.
‘‘(B) BENEFICIARY REBATE INFORMATION.—In the case
of a plan required to provide a monthly rebate under sub-
section (b)(1)(C) for a year, the MA organization offering
the plan shall submit to the Secretary, in such form and
Deadline.
42 USC
1395w–28.
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manner and at such time as the Secretary specifies,
information on—
‘‘(i) the manner in which such rebate will be pro-
vided under clause (ii) of such subsection; and
‘‘(ii) the MA monthly prescription drug beneficiary
premium (if any) and the MA monthly supplemental
beneficiary premium (if any).
‘‘(C) PAPERWORK
REDUCTION
FOR
OFFERING
OF
MA
REGIONAL PLANS NATIONALLY OR IN MULTI-REGION AREAS.—
The Secretary shall establish requirements for information
submission under this subsection in a manner that pro-
motes the offering of MA regional plans in more than
one region (including all regions) through the filing of
consolidated information.’’; and
(B) by adding at the end of subsection (a) the following:
‘‘(6) SUBMISSION OF BID AMOUNTS BY MA ORGANIZATIONS
BEGINNING IN 2006.—
‘‘(A) INFORMATION TO BE SUBMITTED.—For an MA plan
(other than an MSA plan) for a plan year beginning on
or after January 1, 2006, the information described in
this subparagraph is as follows:
‘‘(i) The monthly aggregate bid amount for the
provision of all items and services under the plan,
which amount shall be based on average revenue
requirements (as used for purposes of section 1302(8)
of the Public Health Service Act) in the payment area
for an enrollee with a national average risk profile
for the factors described in section 1853(a)(1)(C) (as
specified by the Secretary).
‘‘(ii) The proportions of such bid amount that are
attributable to—
‘‘(I) the provision of benefits under the original
medicare fee-for-service program option (as defined
in section 1852(a)(1)(B));
‘‘(II) the provision of basic prescription drug
coverage; and
‘‘(III) the provision of supplemental health care
benefits.
‘‘(iii) The actuarial basis for determining the
amount under clause (i) and the proportions described
in clause (ii) and such additional information as the
Secretary may require to verify such actuarial bases
and the projected number of enrollees in each MA
local area.
‘‘(iv) A description of deductibles, coinsurance, and
copayments applicable under the plan and the actu-
arial value of such deductibles, coinsurance, and copay-
ments, described in subsection (e)(4)(A).
‘‘(v) With respect to qualified prescription drug
coverage, the information required under section
1860D–4, as incorporated under section 1860D–
11(b)(2), with respect to such coverage.
In the case of a specialized MA plan for special needs
individuals, the information described in this subparagraph
is such information as the Secretary shall specify.
‘‘(B) ACCEPTANCE AND NEGOTIATION OF BID AMOUNTS.—
Guidelines.
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‘‘(i) AUTHORITY.—Subject to clauses (iii) and (iv),
the Secretary has the authority to negotiate regarding
monthly bid amounts submitted under subparagraph
(A) (and the proportions described in subparagraph
(A)(ii)), including supplemental benefits provided under
subsection (b)(1)(C)(ii)(I) and in exercising such
authority the Secretary shall have authority similar
to the authority of the Director of the Office of Per-
sonnel Management with respect to health benefits
plans under chapter 89 of title 5, United States Code.
‘‘(ii) APPLICATION OF FEHBP STANDARD.—Subject to
clause (iv), the Secretary may only accept such a bid
amount or proportion if the Secretary determines that
such amount and proportions are supported by the
actuarial bases provided under subparagraph (A) and
reasonably and equitably reflects the revenue require-
ments (as used for purposes of section 1302(8) of the
Public Health Service Act) of benefits provided under
that plan.
‘‘(iii) NONINTERFERENCE.—In order to promote
competition under this part and part D and in carrying
out such parts, the Secretary may not require any
MA organization to contract with a particular hospital,
physician, or other entity or individual to furnish items
and services under this title or require a particular
price structure for payment under such a contract to
the extent consistent with the Secretary’s authority
under this part.
‘‘(iv) EXCEPTION.—In the case of a plan described
in section 1851(a)(2)(C), the provisions of clauses (i)
and (ii) shall not apply and the provisions of paragraph
(5)(B), prohibiting the review, approval, or disapproval
of amounts described in such paragraph, shall apply
to the negotiation and rejection of the monthly bid
amounts and the proportions referred to in subpara-
graph (A).’’.
(2) DEFINITION OF BENEFITS UNDER THE ORIGINAL MEDICARE
FEE-FOR-SERVICE
PROGRAM
OPTION.—Section 1852(a)(1) (42
U.S.C. 1395w–22(a)(1)) is amended—
(A) by striking ‘‘IN GENERAL.—Except’’ and inserting
‘‘REQUIREMENT.—
‘‘(A) IN GENERAL.—Except’’; and
(B) by striking ‘‘title XI’’ and all that follows and
inserting the following: ‘‘title XI, benefits under the original
medicare fee-for-service program option (and, for plan years
before 2006, additional benefits required under section
1854(f)(1)(A)).
‘‘(B) BENEFITS
UNDER
THE
ORIGINAL
MEDICARE
FEE-
FOR-SERVICE PROGRAM OPTION DEFINED.—
‘‘(i) IN GENERAL.—For purposes of this part, the
term ‘benefits under the original medicare fee-for-
service program option’ means those items and services
(other than hospice care) for which benefits are avail-
able under parts A and B to individuals entitled to
benefits under part A and enrolled under part B, with
cost-sharing for those services as required under parts
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117 STAT. 2196
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A and B or an actuarially equivalent level of cost-
sharing as determined in this part.
‘‘(ii) SPECIAL RULE FOR REGIONAL PLANS.—In the
case of an MA regional plan in determining an actuari-
ally equivalent level of cost-sharing with respect to
benefits under the original medicare fee-for-service pro-
gram option, there shall only be taken into account,
with respect to the application of section 1858(b)(2),
such expenses only with respect to subparagraph (A)
of such section.’’.
(3) CONFORMING AMENDMENT RELATING TO SUPPLEMENTAL
HEALTH
BENEFITS.—Section 1852(a)(3) (42 U.S.C. 1395w–
22(a)(3)) is amended by adding at the end the following: ‘‘Such
benefits may include reductions in cost-sharing below the actu-
arial value specified in section 1854(e)(4)(B).’’.
(b) PROVIDING FOR BENEFICIARY SAVINGS FOR CERTAIN PLANS.—
(1) BENEFICIARY REBATES.—Section 1854(b)(1) (42 U.S.C.
1395w–24(b)(1)) is amended—
(A) in subparagraph (A), by striking ‘‘The monthly
amount’’ and inserting ‘‘Subject to the rebate under
subparagraph (C), the monthly amount (if any)’’; and
(B) by adding at the end the following new subpara-
graph:
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) REQUIREMENT.—The MA plan shall provide to
the enrollee a monthly rebate equal to 75 percent
of the average per capita savings (if any) described
in paragraph (3)(C) or (4)(C), as applicable to the plan
and year involved.
‘‘(ii) FORM OF REBATE.—A rebate required under
this subparagraph shall be provided through the
application of the amount of the rebate toward one
or more of the following:
‘‘(I) PROVISION OF SUPPLEMENTAL HEALTH CARE
BENEFITS AND PAYMENT FOR PREMIUM FOR SUPPLE-
MENTAL BENEFITS.—The provision of supplemental
health care benefits described in section 1852(a)(3)
in a manner specified under the plan, which may
include the reduction of cost-sharing otherwise
applicable as well as additional health care bene-
fits which are not benefits under the original medi-
care fee-for-service program option, or crediting
toward an MA monthly supplemental beneficiary
premium (if any).
‘‘(II) PAYMENT FOR PREMIUM FOR PRESCRIPTION
DRUG
COVERAGE.—Crediting 
toward 
the 
MA
monthly prescription drug beneficiary premium.
‘‘(III) PAYMENT
TOWARD
PART
B
PREMIUM.—
Crediting toward the premium imposed under part
B (determined without regard to the application
of subsections (b), (h), and (i) of section 1839).
‘‘(iii) DISCLOSURE RELATING TO REBATES.—The plan
shall disclose to the Secretary information on the form
and amount of the rebate provided under this subpara-
graph or the actuarial value in the case of supple-
mental health care benefits.
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‘‘(iv) APPLICATION
OF
PART
B
PREMIUM
REDUC-
TION.—Insofar as an MA organization elects to provide
a rebate under this subparagraph under a plan as
a credit toward the part B premium under clause
(ii)(III), the Secretary shall apply such credit to reduce
the premium under section 1839 of each enrollee in
such plan as provided in section 1840(i).’’.
(2) 
REVISION
OF
PREMIUM
TERMINOLOGY.—Section
1854(b)(2) (42 U.S.C. 1395w–24(b)(2)) is amended—
(A) in the heading, by inserting ‘‘AND BID’’ after ‘‘PRE-
MIUM’’;
(B) by redesignating subparagraph (C) as subpara-
graph (D);
(C) by striking subparagraphs (A) and (B) and inserting
the following:
‘‘(A) MA MONTHLY BASIC BENEFICIARY PREMIUM.—The
term ‘MA monthly basic beneficiary premium’ means, with
respect to an MA plan—
‘‘(i) described in section 1853(a)(1)(B)(i) (relating
to plans providing rebates), zero; or
‘‘(ii) described in section 1853(a)(1)(B)(ii), the
amount (if any) by which the unadjusted MA statutory
non-drug monthly bid amount (as defined in subpara-
graph (E)) exceeds the applicable unadjusted MA area-
specific non-drug monthly benchmark amount (as
defined in section 1853(j)).
‘‘(B) MA MONTHLY
PRESCRIPTION
DRUG
BENEFICIARY
PREMIUM.—The term ‘MA monthly prescription drug bene-
ficiary premium’ means, with respect to an MA plan, the
base beneficiary premium (as determined under section
1860D–13(a)(2) and as adjusted under section 1860D–
13(a)(1)(B)), less the amount of rebate credited toward such
amount under section 1854(b)(1)(C)(ii)(II).
‘‘(C) MA MONTHLY
SUPPLEMENTAL
BENEFICIARY
PRE-
MIUM.—The term ‘MA monthly supplemental beneficiary
premium’ means, with respect to an MA plan, the portion
of the aggregate monthly bid amount submitted under
clause (i) of subsection (a)(6)(A) for the year that is attrib-
utable under clause (ii)(III) of such subsection to the provi-
sion of supplemental health care benefits, less the amount
of rebate credited toward such portion under section
1854(b)(1)(C)(ii)(I).’’; and
(D) by adding at the end the following:
‘‘(E) UNADJUSTED MA STATUTORY NON-DRUG MONTHLY
BID
AMOUNT.—The term ‘unadjusted MA statutory non-
drug monthly bid amount’ means the portion of the bid
amount submitted under clause (i) of subsection (a)(6)(A)
for the year that is attributable under clause (ii)(I) of
such subsection to the provision of benefits under the
original medicare fee-for-service program option (as defined
in section 1852(a)(1)(B)).’’.
(3) COMPUTATION OF SAVINGS.—Section 1854(b) (42 U.S.C.
1395w–24(b)) is further amended by adding at the end the
following new paragraphs:
‘‘(3) COMPUTATION
OF
AVERAGE
PER
CAPITA
MONTHLY
SAVINGS FOR LOCAL PLANS.—For purposes of paragraph (1)(C)(i),
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the average per capita monthly savings referred to in such
paragraph for an MA local plan and year is computed as follows:
‘‘(A) DETERMINATION
OF
STATEWIDE
AVERAGE
RISK
ADJUSTMENT FOR LOCAL PLANS.—
‘‘(i) IN GENERAL.—Subject to clause (iii), the Sec-
retary shall determine, at the same time rates are
promulgated under section 1853(b)(1) (beginning with
2006) for each State, the average of the risk adjustment
factors to be applied under section 1853(a)(1)(C) to
payment for enrollees in that State for MA local plans.
‘‘(ii) TREATMENT
OF
STATES
FOR
FIRST
YEAR
IN
WHICH LOCAL PLAN OFFERED.—In the case of a State
in which no MA local plan was offered in the previous
year, the Secretary shall estimate such average. In
making such estimate, the Secretary may use average
risk adjustment factors applied to comparable States
or applied on a national basis.
‘‘(iii) AUTHORITY TO DETERMINE RISK ADJUSTMENT
FOR AREAS OTHER THAN STATES.—The Secretary may
provide for the determination and application of risk
adjustment factors under this subparagraph on the
basis of areas other than States or on a plan-specific
basis.
‘‘(B) DETERMINATION
OF
RISK
ADJUSTED
BENCHMARK
AND RISK-ADJUSTED BID FOR LOCAL PLANS.—For each MA
plan offered in a local area in a State, the Secretary shall—
‘‘(i) adjust the applicable MA area-specific non-
drug monthly benchmark amount (as defined in section
1853(j)(1)) for the area by the average risk adjustment
factor computed under subparagraph (A); and
‘‘(ii) adjust the unadjusted MA statutory non-drug
monthly bid amount by such applicable average risk
adjustment factor.
‘‘(C) DETERMINATION OF AVERAGE PER CAPITA MONTHLY
SAVINGS.—The 
average 
per 
capita 
monthly 
savings
described in this subparagraph for an MA local plan 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 subpara-
graph (B)(ii).
‘‘(4) COMPUTATION
OF
AVERAGE
PER
CAPITA
MONTHLY
SAVINGS
FOR
REGIONAL
PLANS.—For purposes of paragraph
(1)(C)(i), the average per capita monthly savings referred to
in such paragraph for an MA regional plan and year is com-
puted as follows:
‘‘(A) DETERMINATION
OF
REGIONWIDE
AVERAGE
RISK
ADJUSTMENT FOR REGIONAL PLANS.—
‘‘(i) IN GENERAL.—The Secretary shall determine,
at the same time rates are promulgated under section
1853(b)(1) (beginning with 2006) for each MA region
the average of the risk adjustment factors to be applied
under section 1853(a)(1)(C) to payment for enrollees
in that region for MA regional plans.
‘‘(ii) TREATMENT OF REGIONS FOR FIRST YEAR IN
WHICH REGIONAL PLAN OFFERED.—In the case of an
MA region in which no MA regional plan was offered
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in the previous year, the Secretary shall estimate such
average. In making such estimate, the Secretary may
use average risk adjustment factors applied to com-
parable regions or applied on a national basis.
‘‘(iii) AUTHORITY TO DETERMINE RISK ADJUSTMENT
FOR AREAS OTHER THAN REGIONS.—The Secretary may
provide for the determination and application of risk
adjustment factors under this subparagraph on the
basis of areas other than MA regions or on a plan-
specific basis.
‘‘(B) DETERMINATION
OF
RISK-ADJUSTED
BENCHMARK
AND RISK-ADJUSTED BID FOR REGIONAL PLANS.—For each
MA regional plan offered in a region, the Secretary shall—
‘‘(i) adjust the applicable MA area-specific non-
drug monthly benchmark amount (as defined in section
1853(j)(2)) for the region by the average risk adjust-
ment factor computed under subparagraph (A); and
‘‘(ii) adjust the unadjusted MA statutory non-drug
monthly bid amount by such applicable average risk
adjustment factor.
‘‘(C) DETERMINATION OF AVERAGE PER CAPITA MONTHLY
SAVINGS.—The 
average 
per 
capita 
monthly 
savings
described in this subparagraph for an MA regional plan
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 subpara-
graph (B)(ii).’’.
(c) COLLECTION
OF PREMIUMS.—Section 1854(d) (42 U.S.C.
1395w–24(d)) is amended—
(1) by striking ‘‘PREMIUMS.—Each’’ and inserting ‘‘PRE-
MIUMS.—
‘‘(1) IN GENERAL.—Each’’; and
(2) by adding at the end the following new paragraphs:
‘‘(2) BENEFICIARY’S
OPTION
OF
PAYMENT
THROUGH
WITH-
HOLDING FROM SOCIAL SECURITY PAYMENT OR USE OF ELEC-
TRONIC FUNDS TRANSFER MECHANISM.—In accordance with regu-
lations, an MA organization shall permit each enrollee, at the
enrollee’s option, to make payment of premiums (if any) under
this part to the organization through—
‘‘(A) withholding from benefit payments in the manner
provided under section 1840 with respect to monthly pre-
miums under section 1839;
‘‘(B) an electronic funds transfer mechanism (such as
automatic charges of an account at a financial institution
or a credit or debit card account); or
‘‘(C) such other means as the Secretary may specify,
including payment by an employer or under employment-
based retiree health coverage (as defined in section 1860D–
22(c)(1)) on behalf of an employee or former employee (or
dependent).
All premium payments that are withheld under subparagraph
(A) shall be credited to the appropriate Trust Fund (or Account
thereof), as specified by the Secretary, under this title and
shall be paid to the MA organization involved. No charge may
be imposed under an MA plan with respect to the election
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of the payment option described in subparagraph (A). The Sec-
retary shall consult with the Commissioner of Social Security
and the Secretary of the Treasury regarding methods for allo-
cating premiums withheld under subparagraph (A) among the
appropriate Trust Funds and Account.
‘‘(3) INFORMATION NECESSARY FOR COLLECTION.—In order
to carry out paragraph (2)(A) with respect to an enrollee who
has elected such paragraph to apply, the Secretary shall
transmit to the Commissioner of Social Security—
‘‘(A) by the beginning of each year, the name, social
security account number, consolidated monthly beneficiary
premium described in paragraph (4) owed by such enrollee
for each month during the year, and other information
determined appropriate by the Secretary, in consultation
with the Commissioner of Social Security; and
‘‘(B) periodically throughout the year, information to
update the information previously transmitted under this
paragraph for the year.
‘‘(4) CONSOLIDATED
MONTHLY
BENEFICIARY
PREMIUM.—In
the case of an enrollee in an MA plan, the Secretary shall
provide a mechanism for the consolidation of—
‘‘(A) the MA monthly basic beneficiary premium (if
any);
‘‘(B) the MA monthly supplemental beneficiary pre-
mium (if any); and
‘‘(C) the MA monthly prescription drug beneficiary pre-
mium (if any).’’.
(d) COMPUTATION
OF MA AREA-SPECIFIC NON-DRUG BENCH-
MARK.—Section 1853 (42 U.S.C. 1395w–23) is amended by adding
at the end the following new subsection:
‘‘(j) COMPUTATION OF BENCHMARK AMOUNTS.—For purposes of
this part, the term ‘MA area-specific non-drug monthly benchmark
amount’ means for a month in a year—
‘‘(1) with respect to—
‘‘(A) a service area that is entirely within an MA local
area, an amount equal to 1⁄12 of the annual MA capitation
rate under section 1853(c)(1) for the area for the year,
adjusted as appropriate for the purpose of risk adjustment;
or
‘‘(B) a service area that includes more than one MA
local area, an amount equal to the average of the amounts
described in subparagraph (A) for each such local MA area,
weighted by the projected number of enrollees in the plan
residing in the respective local MA areas (as used by the
plan for purposes of the bid and disclosed to the Secretary
under section 1854(a)(6)(A)(iii)), adjusted as appropriate
for the purpose of risk adjustment; or
‘‘(2) with respect to an MA region for a month in a year,
the MA region-specific non-drug monthly benchmark amount,
as defined in section 1858(f) for the region for the year.’’.
(e) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
(1) IN
GENERAL.—Section 1853(a)(1) (42 U.S.C. 1395w–
23(a)(1)) (42 U.S.C. 1395w–23) is amended—
(A) by redesignating subparagraph (B) as subpara-
graph (H); and
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(B) in subparagraph (A), by striking ‘‘in an amount’’
and all that follows and inserting the following: ‘‘in an
amount determined as follows:
‘‘(i) PAYMENT BEFORE 2006.—For years before 2006,
the payment amount shall be equal to 1⁄12 of the annual
MA capitation rate (as calculated under subsection
(c)(1)) with respect to that individual for that area,
adjusted under subparagraph (C) and reduced by the
amount of any reduction elected under section
1854(f )(1)(E).
‘‘(ii) PAYMENT
FOR
ORIGINAL
FEE-FOR-SERVICE
BENEFITS BEGINNING WITH 2006.—For years beginning
with 2006, the amount specified in subparagraph (B).
‘‘(B) PAYMENT AMOUNT FOR ORIGINAL FEE-FOR-SERVICE
BENEFITS BEGINNING WITH 2006.—
‘‘(i) PAYMENT OF BID FOR 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) or 1854(b)(4)(C), as the case may
be, the amount specified in this subparagraph is equal
to the unadjusted MA statutory non-drug monthly bid
amount, adjusted under subparagraph (C) and (if
applicable) under subparagraphs (F) and (G), plus the
amount (if any) of any rebate under subparagraph
(E).
‘‘(ii) PAYMENT OF BENCHMARK FOR 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) or 1854(b)(4)(C), as
the case may be, the amount specified in this subpara-
graph is equal to the MA area-specific non-drug
monthly benchmark amount, adjusted under subpara-
graph (C) and (if applicable) under subparagraphs (F)
and (G).
‘‘(iii) PAYMENT OF BENCHMARK FOR MSA PLANS.—
Notwithstanding clauses (i) and (ii), in the case of
an MSA plan, the amount specified in this subpara-
graph is equal to the MA area-specific non-drug
monthly benchmark amount, adjusted under subpara-
graph (C).
‘‘(C) DEMOGRAPHIC
ADJUSTMENT, INCLUDING
ADJUST-
MENT FOR HEALTH STATUS.—The Secretary shall adjust the
payment amount under subparagraph (A)(i) and the
amount specified under subparagraph (B)(i), (B)(ii), and
(B)(iii) for such risk factors as age, disability status, gender,
institutional status, and such other factors as the Secretary
determines to be appropriate, including adjustment for
health status under paragraph (3), so as to ensure actuarial
equivalence. The Secretary may add to, modify, or sub-
stitute for such adjustment factors if such changes will
improve the determination of actuarial equivalence.
‘‘(D) SEPARATE
PAYMENT
FOR
FEDERAL
DRUG
SUB-
SIDIES.—In the case of an enrollee in an MA–PD plan,
the MA organization offering such plan also receives—
‘‘(i) subsidies under section 1860D–15 (other than
under subsection (g)); and
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‘‘(ii) reimbursement for premium and cost-sharing
reductions for low-income individuals under section
1860D–14(c)(1)(C).
‘‘(E) PAYMENT OF REBATE FOR 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) or 1854(b)(4)(C), as the case may be, the
amount specified in this subparagraph is the amount of
the monthly rebate computed under section 1854(b)(1)(C)(i)
for that plan and year (as reduced by the amount of any
credit provided under section 1854(b)(1)(C)(iv)).
‘‘(F) ADJUSTMENT FOR INTRA-AREA VARIATIONS.—
‘‘(i) INTRA-REGIONAL VARIATIONS.—In the case of
payment with respect to an MA regional plan for an
MA region, the Secretary shall also adjust the amounts
specified under subparagraphs (B)(i) and (B)(ii) in a
manner to take into account variations in MA local
payment rates under this part among the different
MA local areas included in such region.
‘‘(ii) INTRA-SERVICE AREA VARIATIONS.—In the case
of payment with respect to an MA local plan for a
service area that covers more than one MA local area,
the Secretary shall also adjust the amounts specified
under subparagraphs (B)(i) and (B)(ii) in a manner
to take into account variations in MA local payment
rates under this part among the different MA local
areas included in such service area.
‘‘(G) ADJUSTMENT
RELATING
TO
RISK
ADJUSTMENT.—
The Secretary shall adjust payments with respect to MA
plans as necessary to ensure that—
‘‘(i) the sum of—
‘‘(I) 
the 
monthly 
payment 
made 
under
subparagraph (A)(ii); and
‘‘(II) the MA monthly basic beneficiary pre-
mium under section 1854(b)(2)(A); equals
‘‘(ii) the unadjusted MA statutory non-drug
monthly bid amount, adjusted in the manner described
in subparagraph (C) and, for an MA regional plan,
subparagraph (F).’’.
(f) 
CONFORMING
CHANGES
TO
ANNUAL
ANNOUNCEMENT
PROCESS.—Section 1853(b) (42 U.S.C. 1395w–23(b)(1)) is amended—
(1) by amending paragraph (1) to read as follows:
‘‘(1) ANNUAL ANNOUNCEMENTS.—
‘‘(A) FOR
2005.—The Secretary shall determine, and
shall announce (in a manner intended to provide notice
to interested parties), not later than the second Monday
in May of 2004, with respect to each MA payment area,
the following:
‘‘(i) MA CAPITATION RATES.—The annual MA capi-
tation rate for each MA payment area for 2005.
‘‘(ii) ADJUSTMENT FACTORS.—The risk and other
factors to be used in adjusting such rates under sub-
section (a)(1)(C) for payments for months in 2005.
‘‘(B) FOR 2006 AND SUBSEQUENT YEARS.—For a year
after 2005—
‘‘(i) INITIAL ANNOUNCEMENT.—The Secretary shall
determine, and shall announce (in a manner intended
Deadline.
Deadline.
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to provide notice to interested parties), not later than
the first Monday in April before the calendar year
concerned, with respect to each MA payment area,
the following:
‘‘(I) MA CAPITATION
RATES; MA
LOCAL
AREA
BENCHMARK.—The annual MA capitation rate for
each MA payment area for the year.
‘‘(II) ADJUSTMENT
FACTORS.—The risk and
other factors to be used in adjusting such rates
under subsection (a)(1)(C) for payments for months
in such year.
‘‘(ii) REGIONAL BENCHMARK ANNOUNCEMENT.—The
Secretary shall determine, and shall announce (in a
manner intended to provide notice to interested par-
ties), on a timely basis before the calendar year con-
cerned, with respect to each MA region and each MA
regional plan for which a bid was submitted under
section 1854, the MA region-specific non-drug monthly
benchmark amount for that region for the year
involved.’’; and
(2) in paragraph (3), by striking ‘‘in the announcement’’
and all that follows and inserting ‘‘in such announcement.’’.
(g) OTHER AMENDMENTS RELATING
TO PREMIUMS
AND BID
AMOUNTS.—
(1) IN GENERAL.—Section 1854 (42 U.S.C. 1395w–24) is
amended—
(A) by amending the section heading to read as follows:
‘‘PREMIUMS AND BID AMOUNTS’’;
(B) in the heading of subsection (a), by inserting ‘‘,
BID AMOUNTS,’’ after ‘‘PREMIUMS’’;
(C) in subsection (a)(2)—
(i) by inserting ‘‘BEFORE 2006’’ after ‘‘FOR COORDI-
NATED CARE PLANS’’; and
(ii) by inserting ‘‘for a year before 2006’’ after
‘‘section 1851(a)(2)(A)’’;
(D) in subsection (a)(3), by striking ‘‘described’’ and
inserting ‘‘for any year’’;
(E) in subsection (a)(4)—
(i) by inserting ‘‘BEFORE 2006’’ after ‘‘FOR PRIVATE
FEE-FOR-SERVICE PLANS’’; and
(ii) by inserting ‘‘for a year before 2006’’ after
‘‘section 1852(a)(1)(A)’’;
(F) in subsection (a)(5)(A), by inserting ‘‘paragraphs
(2) and (4) of’’ after ‘‘filed under’’;
(G) in subsection (a)(5)(B), by inserting after ‘‘para-
graph (3) or’’ the following: ‘‘, in the case of an MA private
fee-for-service plan,’’; and
(H) in subsection (b)(1)(A) by striking ‘‘and’’ and
inserting a comma and by inserting before the period at
the end the following: ‘‘, and, if the plan provides qualified
prescription drug coverage, the MA monthly prescription
drug beneficiary premium’’.
(2) UNIFORMITY.—Section 1854(c) (42 U.S.C. 1395w–24(c))
is amended to read as follows:
‘‘(c) UNIFORM PREMIUM
AND BID AMOUNTS.—Except as per-
mitted under section 1857(i), the MA monthly bid amount submitted
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under subsection (a)(6), the amounts of the MA monthly basic,
prescription drug, and supplemental beneficiary premiums, and
the MA monthly MSA premium charged under subsection (b) of
an MA organization under this part may not vary among individuals
enrolled in the plan.’’.
(3) PREMIUMS.—Section 1854(d)(1) (42 U.S.C. 1395w–
24(d)(1)), as amended by subsection (c)(1), is amended by
inserting ‘‘, prescription drug,’’ after ‘‘basic’’.
(4) LIMITATION ON ENROLLEE LIABILITY.—Section 1854(e)
(42 U.S.C. 1395w–24(e)) is amended—
(A) in paragraph (1), by striking ‘‘.—In’’ and inserting
‘‘BEFORE 2006.—For periods before 2006, in’’;
(B) in paragraph (2), by striking ‘‘.—If’’ and insert
‘‘BEFORE 2006.—For periods before 2006, if’’;
(C) in paragraph (3), by striking ‘‘or (2)’’ and inserting
‘‘, (2), or (4)’’; and
(D) in paragraph (4)—
(i) by inserting ‘‘AND FOR BASIC BENEFITS BEGIN-
NING IN 2006’’ after ‘‘PLANS’’;
(ii) in the matter before subparagraph (A), by
inserting ‘‘and for periods beginning with 2006, with
respect 
to 
an 
MA 
plan 
described 
in 
section
1851(a)(2)(A)’’ after ‘‘MSA plan)’’;
(iii) in subparagraph (A), by striking ‘‘required
benefits described in section 1852(a)(1)’’ and inserting
‘‘benefits under the original medicare fee-for-service
program option’’; and
(iv) in subparagraph (B), by inserting ‘‘with respect
to such benefits’’ after ‘‘would be applicable’’.
(5) MODIFICATION
OF
ACR
PROCESS.—Section 1854(f) (42
U.S.C. 1395w–24(f)) is amended—
(A) in the heading, by inserting ‘‘BEFORE 2006’’ after
‘‘ADDITIONAL BENEFITS’’; and
(B) in paragraph (1)(A), by striking ‘‘Each’’ and
inserting ‘‘For years before 2006, each’’.
(h) PLAN INCENTIVES.—Section 1852(j)(4) (42 U.S.C. 1395w–
22(j)(4)) is amended—
(1) by inserting ‘‘the organization provides assurances satis-
factory to the Secretary that’’ after ‘‘unless’’;
(2) in clause (ii)—
(A) by striking ‘‘the organization—’’ and all that follows
through ‘‘(I) provides’’ and inserting ‘‘the organization pro-
vides’’;
(B) by striking ‘‘, and’’ and inserting a period; and
(C) by striking subclause (II); and
(3) by striking clause (iii).
(i) CONTINUATION OF TREATMENT OF ENROLLEES WITH END-
STAGE RENAL DISEASE.—Section 1853(a)(1)(H), as redesignated
under subsection (d)(1)(A), is amended—
(1) by amending the second sentence to read as follows:
‘‘Such rates of payment shall be actuarially equivalent to rates
that would have been paid with respect to other enrollees
in the MA payment area (or such other area as specified by
the Secretary) under the provisions of this section as in effect
before the date of the enactment of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003.’’; and
42 USC
1395w–23.
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(2) by adding at the end the following new sentence: ‘‘The
Secretary may apply the competitive bidding methodology pro-
vided for in this section, with appropriate adjustments to
account for the risk adjustment methodology applied to end
stage renal disease payments.’’.
(j) FACILITATION OF EMPLOYER SPONSORSHIP OF MA PLANS.—
Section 1857(i) (42 U.S.C. 1395w–27(i)) is amended—
(1) by designating the matter following the heading as
a paragraph (1) with the heading ‘‘CONTRACTS
WITH
MA
ORGANIZATIONS.—’’ and appropriate indentation; and
(2) by adding at the end the following new paragraph:
‘‘(2) EMPLOYER
SPONSORED
MA
PLANS.—To facilitate the
offering of MA plans by employers, labor organizations, or
the trustees of a fund established by one or more employers
or labor organizations (or combination thereof ) to furnish bene-
fits to the entity’s employees, former employees (or combination
thereof ) or members or former members (or combination
thereof ) of the labor organizations, the Secretary may waive
or modify requirements that hinder the design of, the offering
of, or the enrollment in such MA plans. Notwithstanding section
1851(g), an MA plan described in the previous sentence may
restrict the enrollment of individuals under this part to individ-
uals who are beneficiaries and participants in such plan.’’.
(k) EXPANSION
OF MEDICARE BENEFICIARY EDUCATION
AND
INFORMATION CAMPAIGN.—Section 1857(e)(2) (42 U.S.C. 1395w–
27(e)(2)) is amended—
(1) in subparagraph (A) by inserting ‘‘and a PDP sponsor
under part D’’ after ‘‘organization’’;
(2) in subparagraph (B)—
(A) by inserting ‘‘and each PDP sponsor with a contract
under part D’’ after ‘‘contract under this part’’;
(B) by inserting ‘‘or sponsor’s’’ after ‘‘organization’s’’;
and
(C) by inserting ‘‘, section 1860D–1(c),’’ after ‘‘informa-
tion)’’;
(3) in subparagraph (C)—
(A) by inserting ‘‘and ending with fiscal year 2005’’
after ‘‘beginning with fiscal year 2001’’;
(B) by inserting ‘‘and for each fiscal year beginning
with fiscal year 2006 an amount equal to $200,000,000,’’
after ‘‘$100,000,000,’’; and
(C) by inserting ‘‘and section 1860D–12(b)(3)(D)’’ after
‘‘under this paragraph’’;
(4) in subparagraph (D)—
(A) in clause (i) by inserting ‘‘and section 1860D–1(c)’’
after ‘‘section 1851’’;
(B) in clause (ii)(III), by striking ‘‘and’’ at the end
of subclause (III);
(C) in clause (ii)(IV), by striking ‘‘each succeeding fiscal
year.’’ and inserting ‘‘each succeeding fiscal year before
fiscal year 2006; and’’; and
(D) in clause (ii), by adding at the end the following
new subclause:
‘‘(V) the applicable portion (as defined in subpara-
graph (F)) of $200,000,000 in fiscal year 2006 and
each succeeding fiscal year.’’; and
(5) by adding at the end the following new subparagraph:
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‘‘(F) APPLICABLE PORTION DEFINED.—In this paragraph,
the term ‘applicable portion’ means, for a fiscal year—
‘‘(i) with respect to MA organizations, the Sec-
retary’s estimate of the total proportion of expenditures
under this title that are attributable to expenditures
made under this part (including payments under part
D that are made to such organizations); or
‘‘(ii) with respect to PDP sponsors, the Secretary’s
estimate of the total proportion of expenditures under
this title that are attributable to expenditures made
to such sponsors under part D.’’.
(l) CONFORMING AMENDMENTS.—
(1) PROTECTION AGAINST BENEFICIARY SELECTION.—Section
1852(b)(1)(A) (42 U.S.C. 1395w–22(b)(1)(A)) is amended by
adding at the end the following: ‘‘The Secretary shall not
approve a plan of an organization if the Secretary determines
that the design of the plan and its benefits are likely to substan-
tially discourage enrollment by certain MA eligible individuals
with the organization.’’.
(2) RELATING TO REBATES.—
(A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is
amended by striking ‘‘80 percent of any reduction elected
under section 1854(f )(1)(E)’’ and inserting ‘‘any credit pro-
vided under section 1854(b)(1)(C)(ii)(III)’’.
(B) The first sentence of section 1840(i) (42 U.S.C.
1395s(i)) is amended by inserting ‘‘and to reflect any credit
provided under section 1854(b)(1)(C)(iv)’’ after ‘‘section
1854(f )(1)(E)’’.
(C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended
by inserting ‘‘or any credits provided under section
1854(b)(1)(C)(iv)’’ after ‘‘section 1854(f )(1)(E)’’.
(3) OTHER
CONFORMING
AND
TECHNICAL
AMENDMENTS.—
(A) Section 1851(b)(1) (42 U.S.C. 1395w–21(b)(1)) is
amended—
(i) in subparagraph (B), by striking ‘‘a plan’’ and
inserting ‘‘an MA local plan’’;
(ii) in subparagraph (B), by striking ‘‘basic benefits
described in section 1852(a)(1)(A)’’ and inserting ‘‘bene-
fits under the original medicare fee-for-service program
option’’; and
(iii) in subparagraph (C), by striking ‘‘in a
Medicare+Choice plan’’ and inserting ‘‘in an MA local
plan’’.
(B) Section 1851(d) (42 U.S.C. 1395w–21(d)) is
amended—
(i) in paragraph (3), by adding at the end the
following new subparagraph:
‘‘(F) CATASTROPHIC
COVERAGE
AND
SINGLE
DEDUCT-
IBLE.—In the case of an MA regional plan, a description
of 
the 
catastrophic 
coverage 
and 
single 
deductible
applicable under the plan.’’;
(ii) in paragraph (4)(A)(ii), by inserting ‘‘, including
information on the single deductible (if applicable)
under section 1858(b)(1)’’ after ‘‘cost sharing’’;
(iii) 
in 
paragraph 
(4)(B)(i), 
by 
striking
‘‘Medicare+Choice monthly basic’’ and all that follows
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and inserting ‘‘monthly amount of the premium
charged to an individual.’’; and
(iv) by amending subparagraph (E) of subsection
(d)(4) to read as follows:
‘‘(E) SUPPLEMENTAL
BENEFITS.—Supplemental health
care benefits, including any reductions in cost-sharing
under section 1852(a)(3) and the terms and conditions
(including premiums) for such benefits.’’.
(C) Section 1857(d)(1) (42 U.S.C. 1395w–27(d)(1)) is
amended by striking ‘‘, costs, and computation of the
adjusted community rate’’ and inserting ‘‘and costs,
including allowable costs under section 1858(c)’’.
(D) 
Section 
1851(a)(3)(B)(ii) 
(42 
U.S.C. 
1395w–
21(a)(3)(B)(ii)) 
is 
amended 
by 
striking 
‘‘section
1851(e)(4)(A)’’ and inserting ‘‘subsection (e)(4)(A)’’.
(E) Section 1851(f)(1) (42 U.S.C. 1395w–21(f)(1)) is
amended by striking ‘‘subsection (e)(1)(A)’’ and inserting
‘‘subsection (e)(1)’’.
SEC. 223. EFFECTIVE DATE.
(a) EFFECTIVE DATE.—The amendments made by this subtitle
shall apply with respect to plan years beginning on or after January
1, 2006.
(b) ISSUANCE OF REGULATIONS.—The Secretary shall revise the
regulations previously promulgated to carry out part C of title
XVIII of the Social Security Act to carry out the provisions of
this Act.
Subtitle D—Additional Reforms
SEC. 231. SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.
(a) 
TREATMENT
AS
COORDINATED
CARE
PLAN.—Section
1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)), as amended by section
221(a), is amended by adding at the end the following new clause:
‘‘(ii) SPECIALIZED
MA
PLANS
FOR
SPECIAL
NEEDS
INDIVIDUALS.—Specialized MA plans for special needs
individuals (as defined in section 1859(b)(6)) may be
any type of coordinated care plan.’’.
(b) SPECIALIZED MA PLAN FOR SPECIAL NEEDS INDIVIDUALS
DEFINED.—Section 1859(b) (42 U.S.C. 1395w–29(b)), as amended
by section 221(b), is amended by adding at the end the following
new paragraph:
‘‘(6) SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVID-
UALS.—
‘‘(A) IN GENERAL.—The term ‘specialized MA plan for
special needs individuals’ means an MA plan that exclu-
sively serves special needs individuals (as defined in
subparagraph (B)).
‘‘(B) SPECIAL
NEEDS
INDIVIDUAL.—The term ‘special
needs individual’ means an MA eligible individual who—
‘‘(i) is institutionalized (as defined by the Sec-
retary);
‘‘(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
42 USC
1395w–28.
42 USC
1395w–21 note.
42 USC
1395w–21 note.
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a specialized MA plan described in subparagraph (A)
for individuals with severe or disabling chronic condi-
tions.
The 
Secretary 
may 
waive 
application 
of 
section
1851(a)(3)(B) in the case of an individual described in
clause (i), (ii), or (iii) of this subparagraph and may apply
rules similar to the rules of section 1894(c)(4) for continued
eligibility of special needs individuals.’’.
(c) RESTRICTION
ON ENROLLMENT PERMITTED.—Section 1859
(42 U.S.C. 1395w–29) is amended by adding at the end the following
new subsection:
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIALIZED MA PLANS
FOR SPECIAL NEEDS INDIVIDUALS.—In the case of a specialized
MA plan for special needs individuals (as defined in subsection
(b)(6)), notwithstanding any other provision of this part and in
accordance with regulations of the Secretary and for periods before
January 1, 2009, the plan may restrict the enrollment of individuals
under the plan to individuals who are within one or more classes
of special needs individuals.’’.
(d) AUTHORITY TO DESIGNATE OTHER PLANS AS SPECIALIZED
MA PLANS.—In promulgating regulations to carry out section
1851(a)(2)(A)(ii) of the Social Security Act (as added by subsection
(a)) and section 1859(b)(6) of such Act (as added by subsection
(b)), 
the 
Secretary 
may 
provide 
(notwithstanding 
section
1859(b)(6)(A) of such Act) for the offering of specialized MA plans
for special needs individuals by MA plans that disproportionately
serve special needs individuals.
(e) REPORT TO CONGRESS.—Not later than December 31, 2007,
the Secretary shall submit to Congress a report that assesses the
impact of specialized MA plans for special needs individuals 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).
(f) 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 INDIVIDUALS; TRANSITION.—No later than 1 year after
the date of the enactment of this Act, the Secretary shall
issue final regulations to establish requirements for special
needs individuals under section 1859(b)(6)(B)(iii) of the Social
Security Act, as added by subsection (b).
SEC. 232. 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 part shall supersede any State law or regulation
(other than State licensing laws or State laws relating to plan
solvency) with respect to MA plans which are offered by MA
organizations under this part.’’.
(b) CONFORMING
AMENDMENT.—Section 1854(g) (42 U.S.C.
1395w–24(g)) is amended by inserting ‘‘or premiums paid to such
organizations under this part’’ after ‘‘section 1853’’.
Regulations.
42 USC
1395w–28 note.
42 USC
1395w–21 note.
Deadline.
42 USC
1395w–21 note.
42 USC
1395w–21 note.
42 USC
1395w–28.
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(c) EFFECTIVE DATE.—The amendments made by this subsection
shall take effect on the date of the enactment of this Act.
SEC. 233. MEDICARE MSAS.
(a) EXEMPTION FROM REPORTING REQUIREMENT.—
(1) IN
GENERAL.—Section 1852(e)(1) (42 U.S.C. 1395w–
22(e)(1)) is amended by inserting ‘‘(other than MSA plans)’’
after ‘‘plans’’.
(2) CONFORMING AMENDMENTS.—Section 1852 (42 U.S.C.
1395w–22) is amended—
(A) in subsection (c)(1)(I), by inserting before the period
at the end the following: ‘‘, if required under such section’’;
(B) in subsection (e)(2)(A), by striking ‘‘, a non-network
MSA plan,’’; and
(C) in subsection (e)(2)(B), by striking ‘‘, NON-NETWORK
MSA PLANS,’’ and ‘‘, a non-network MSA plan,’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply on and after the date of the enactment
of this Act but shall not apply to contract years beginning
on or after January 1, 2006.
(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
DEMONSTRATION
BASIS’’;
(2) by striking the first sentence of subparagraph (A); and
(3) by striking the second sentence of subparagraph (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 an 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. 234. EXTENSION OF REASONABLE COST CONTRACTS.
Subparagraph 
(C) 
of 
section 
1876(h)(5) 
(42 
U.S.C.
1395mm(h)(5)) is amended to read as follows:
‘‘(C)(i) Subject to clause (ii), a reasonable cost reimbursement
contract under this subsection may be extended or renewed indefi-
nitely.
‘‘(ii) For any period beginning on or after January 1, 2008,
a reasonable cost reimbursement contract under this subsection
may not be extended or renewed for a service area insofar as
such area during the entire previous year was within the service
area of—
‘‘(I) 2 or more MA regional plans described in clause (iii);
or
‘‘(II) 2 or more MA local plans described in clause (iii).
‘‘(iii) A plan described in this clause for a year for a service
area is a plan described in section 1851(a)(2)(A)(i) if the service
area for the year meets the following minimum enrollment require-
ments:
‘‘(I) With respect to any portion of the area involved that
is within a Metropolitan Statistical Area with a population
42 USC
1395w–22 note.
42 USC
1395w–24 note.
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117 STAT. 2210
PUBLIC LAW 108–173—DEC. 8, 2003
of more than 250,000 and counties contiguous to such Metropoli-
tan Statistical Area, 5,000 individuals.
‘‘(II) With respect to any other portion of such area, 1,500
individuals.’’.
SEC. 235. TWO-YEAR EXTENSION OF MUNICIPAL HEALTH SERVICE
DEMONSTRATION PROJECTS.
The last sentence of section 9215(a) of the Consolidated Omni-
bus Budget Reconciliation Act of 1985 (42 U.S.C. 1395b–1 note),
as amended by section 6135 of the Omnibus Budget Reconciliation
Act of 1989, section 13557 of the Omnibus Budget Reconciliation
Act of 1993, section 4017 of BBA, section 534 of BBRA (113 Stat.
1501A–390), and section 633 of BIPA, is amended by striking
‘‘December 31, 2004’’ and inserting ‘‘December 31, 2006’’.
SEC. 236. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MED-
ICAID SERVICES FURNISHED BY NONCONTRACT PRO-
VIDERS.
(a) MEDICARE SERVICES.—
(1) MEDICARE SERVICES FURNISHED BY PROVIDERS OF SERV-
ICES.—Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is
amended—
(A) by striking ‘‘part C or’’ and inserting ‘‘part C,
with a PACE provider under section 1894 or 1934, or’’;
(B) by striking ‘‘(i)’’;
(C) by striking ‘‘and (ii)’’;
(D) by inserting ‘‘(or, in the case of a PACE provider,
contract or other agreement)’’ after ‘‘have a contract’’; and
(E) by striking ‘‘members of the organization’’ and
inserting ‘‘members of the organization or PACE program
eligible individuals enrolled with the PACE provider,’’.
(2) MEDICARE
SERVICES
FURNISHED
BY
PHYSICIANS
AND
OTHER
ENTITIES.—Section 1894(b) (42 U.S.C. 1395eee(b)) is
amended by adding at the end the following new paragraphs:
‘‘(3) TREATMENT OF MEDICARE SERVICES FURNISHED BY NON-
CONTRACT PHYSICIANS AND OTHER ENTITIES.—
‘‘(A) APPLICATION OF MEDICARE ADVANTAGE REQUIRE-
MENT WITH RESPECT TO MEDICARE SERVICES FURNISHED BY
NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—Section
1852(k)(1) (relating to limitations on balance billing against
MA organizations for noncontract physicians and other
entities with respect to services covered under this title)
shall apply to PACE providers, PACE program eligible
individuals enrolled with such PACE providers, and physi-
cians and other entities that do not have a contract or
other agreement establishing payment amounts for services
furnished to such an individual in the same manner as
such section applies to MA organizations, individuals
enrolled with such organizations, and physicians and other
entities referred to in such section.
‘‘(B) REFERENCE TO RELATED PROVISION FOR NONCON-
TRACT PROVIDERS OF SERVICES.—For the provision relating
to limitations on balance billing against PACE providers
for services covered under this title furnished by noncon-
tract providers of services, see section 1866(a)(1)(O).
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117 STAT. 2211
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(4) REFERENCE TO RELATED PROVISION FOR SERVICES COV-
ERED UNDER TITLE XIX BUT NOT UNDER THIS TITLE.—For provi-
sions relating to limitations on payments to providers partici-
pating under the State plan under title XIX that do not have
a contract or other agreement with a PACE provider estab-
lishing payment amounts for services covered under such plan
(but not under this title) when such services are furnished
to enrollees of that PACE provider, see section 1902(a)(66).’’.
(b) MEDICAID SERVICES.—
(1) REQUIREMENT UNDER STATE PLAN.—Section 1902(a) (42
U.S.C. 1396a(a)), as amended by section 103(a), is amended—
(A) in paragraph (65), by striking ‘‘and’’ at the end;
(B) in paragraph (66), by striking the period at the
end and inserting ‘‘; and’’; and
(C) by inserting after paragraph (66) the following
new paragraph:
‘‘(67) provide, with respect to services covered under the
State plan (but not under title XVIII) that are furnished to
a PACE program eligible individual enrolled with a PACE
provider by a provider participating under the State plan that
does not have a contract or other agreement with the PACE
provider that establishes payment amounts for such services,
that such participating provider may not require the PACE
provider to pay the participating provider an amount greater
than the amount that would otherwise be payable for the
service to the participating provider under the State plan for
the State where the PACE provider is located (in accordance
with regulations issued by the Secretary).’’.
(2) APPLICATION
UNDER
MEDICAID.—Section 1934(b) (42
U.S.C. 1396u–4(b)) is amended by adding at the end the fol-
lowing new paragraphs:
‘‘(3) TREATMENT OF MEDICARE SERVICES FURNISHED BY NON-
CONTRACT PHYSICIANS AND OTHER ENTITIES.—
‘‘(A) APPLICATION OF MEDICARE ADVANTAGE REQUIRE-
MENT WITH RESPECT TO MEDICARE SERVICES FURNISHED BY
NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—Section
1852(k)(1) (relating to limitations on balance billing against
MA organizations for noncontract physicians and other
entities with respect to services covered under title XVIII)
shall apply to PACE providers, PACE program eligible
individuals enrolled with such PACE providers, and physi-
cians and other entities that do not have a contract or
other agreement establishing payment amounts for services
furnished to such an individual in the same manner as
such section applies to MA organizations, individuals
enrolled with such organizations, and physicians and other
entities referred to in such section.
‘‘(B) REFERENCE TO RELATED PROVISION FOR NONCON-
TRACT PROVIDERS OF SERVICES.—For the provision relating
to limitations on balance billing against PACE providers
for services covered under title XVIII furnished by noncon-
tract providers of services, see section 1866(a)(1)(O).
‘‘(4) REFERENCE TO RELATED PROVISION FOR SERVICES COV-
ERED UNDER THIS TITLE BUT NOT UNDER TITLE XVIII.—For provi-
sions relating to limitations on payments to providers partici-
pating under the State plan under this title that do not have
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117 STAT. 2212
PUBLIC LAW 108–173—DEC. 8, 2003
a contract or other agreement with a PACE provider estab-
lishing payment amounts for services covered under such plan
(but not under title XVIII) when such services are furnished
to enrollees of that PACE provider, see section 1902(a)(67).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to services furnished on or after January 1, 2004.
SEC. 237. REIMBURSEMENT FOR FEDERALLY QUALIFIED HEALTH CEN-
TERS PROVIDING SERVICES UNDER MA PLANS.
(a) REIMBURSEMENT.—Section 1833(a)(3) (42 U.S.C. 1395l(a)(3))
is amended to read as follows:
‘‘(3) 
in 
the 
case 
of 
services 
described 
in 
section
1832(a)(2)(D)—
‘‘(A) except as provided in subparagraph (B), the costs
which are reasonable and related to the cost of furnishing
such services or which are based on such other tests of
reasonableness as the Secretary may prescribe in regula-
tions, 
including 
those 
authorized 
under 
section
1861(v)(1)(A), less the amount a provider may charge as
described in clause (ii) of section 1866(a)(2)(A), but in no
case may the payment for such services (other than for
items and services described in section 1861(s)(10)(A))
exceed 80 percent of such costs; or
‘‘(B) with respect to the services described in clause
(ii) of section 1832(a)(2)(D) that are furnished to an indi-
vidual enrolled with a MA plan under part C pursuant
to a written agreement described in section 1853(a)(4),
the amount (if any) by which—
‘‘(i) the amount of payment that would have other-
wise been provided under subparagraph (A) (calculated
as if ‘100 percent’ were substituted for ‘80 percent’
in such subparagraph) for such services if the indi-
vidual had not been so enrolled; exceeds
‘‘(ii) the amount of the payments received under
such written agreement for such services (not including
any financial incentives provided for in such agreement
such as risk pool payments, bonuses, or withholds),
less the amount the federally qualified health center may
charge as described in section 1857(e)(3)(B);’’.
(b) CONTINUATION OF MONTHLY PAYMENTS.—
(1) IN GENERAL.—Section 1853(a) (42 U.S.C. 1395w–23(a))
is amended by adding at the end the following new paragraph:
‘‘(4) PAYMENT
RULE
FOR
FEDERALLY
QUALIFIED
HEALTH
CENTER SERVICES.—If an individual who is enrolled with an
MA plan under this part receives a service from a federally
qualified health center that has a written agreement with the
MA organization that offers such plan for providing such a
service (including any agreement required under section
1857(e)(3))—
‘‘(A) the Secretary shall pay the amount determined
under section 1833(a)(3)(B) directly to the federally quali-
fied health center not less frequently than quarterly; and
‘‘(B) the Secretary shall not reduce the amount of the
monthly payments under this subsection as a result of
the application of subparagraph (A).’’.
(2) CONFORMING AMENDMENTS.—
42 USC 1395cc
note.
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117 STAT. 2213
PUBLIC LAW 108–173—DEC. 8, 2003
(A) 
Section 
1851(i) 
(42 
U.S.C. 
1395w–21(i)) 
is
amended—
(i) in paragraph (1), by inserting ‘‘1853(a)(4),’’ after
‘‘Subject to sections 1852(a)(5),’’; and
(ii) in paragraph (2), by inserting ‘‘1853(a)(4),’’ after
‘‘Subject to sections’’.
(B) Section 1853(c)(5) is amended by striking ‘‘sub-
sections (a)(3)(C)(iii) and (i)’’ and inserting ‘‘subsections
(a)(3)(C)(iii), (a)(4), and (i)’’.
(c) ADDITIONAL CONTRACT REQUIREMENTS.—Section 1857(e) (42
U.S.C. 1395w–27(e)) is amended by adding at the end the following
new paragraph:
‘‘(3) AGREEMENTS WITH FEDERALLY QUALIFIED HEALTH CEN-
TERS.—
‘‘(A) PAYMENT LEVELS AND AMOUNTS.—A contract under
this section with an MA organization shall require the
organization to provide, in any written agreement described
in section 1853(a)(4) between the organization and a feder-
ally qualified health center, for a level and amount of
payment to the federally qualified health center for services
provided by such health center that is not less than the
level and amount of payment that the plan would make
for such services if the services had been furnished by
a entity providing similar services that was not a federally
qualified health center.
‘‘(B) COST-SHARING.—Under the written agreement
referred to in subparagraph (A), a federally qualified health
center must accept the payment amount referred to in
such subparagraph plus the Federal payment provided for
in section 1833(a)(3)(B) as payment in full for services
covered by the agreement, except that such a health center
may collect any amount of cost-sharing permitted under
the contract under this section, so long as the amounts
of any deductible, coinsurance, or copayment comply with
the requirements under section 1854(e).’’.
(d) SAFE HARBOR.—Section 1128B(b)(3) (42 U.S.C. 1320a–
7b(b)(3)), as amended by section 101(f)(2), is amended—
(1) in subparagraph (F), by striking ‘‘and’’ after the semi-
colon 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 subparagraph:
‘‘(H) any remuneration between a federally qualified
health center (or an entity controlled by such a health
center) and an MA organization pursuant to a written
agreement described in section 1853(a)(4).’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to services provided on or after January 1, 2006, and
contract years beginning on or after such date.
SEC. 238. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON
HEALTH CARE PERFORMANCE MEASURES.
(a) EVALUATION.—
(1) IN GENERAL.—Not later than the date that is 2 months
after the date of the enactment of this Act, the Secretary
shall enter into an arrangement under which the Institute
of Medicine of the National Academy of Sciences (in this section
Deadline.
Contracts.
42 USC 1395ll
note.
42 USC
1320a–7b note.
42 USC
1395w–23.
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117 STAT. 2214
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referred to as the ‘‘Institute’’) shall conduct an evaluation of
leading health care performance measures in the public and
private sectors and options to implement policies that align
performance with payment under the medicare program under
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.).
(2) SPECIFIC
MATTERS
EVALUATED.—In conducting the
evaluation under paragraph (1), the Institute shall—
(A) catalogue, review, and evaluate the validity of
leading health care performance measures;
(B) catalogue and evaluate the success and utility of
alternative performance incentive programs in public or
private sector settings; and
(C) identify and prioritize options to implement policies
that align performance with payment under the medicare
program that indicate—
(i) the performance measurement set to be used
and how that measurement set will be updated;
(ii) the payment policy that will reward perform-
ance; and
(iii) the key implementation issues (such as data
and information technology requirements) that must
be addressed.
(3) SCOPE OF HEALTH CARE PERFORMANCE MEASURES.—The
health care performance measures described in paragraph
(2)(A) shall encompass a variety of perspectives, including
physicians, hospitals, other health care providers, health plans,
purchasers, and patients.
(4) CONSULTATION WITH MEDPAC.—In evaluating the mat-
ters described in paragraph (2)(C), the Institute shall consult
with the Medicare Payment Advisory Commission established
under section 1805 of the Social Security Act (42 U.S.C. 1395b–
6).
(b) REPORT.—Not later than the date that is 18 months after
the date of enactment of this Act, the Institute shall submit to
the Secretary and appropriate committees of jurisdiction of the
Senate and House of Representatives a report on the evaluation
conducted under subsection (a)(1) describing the findings of such
evaluation and recommendations for an overall strategy and
approach for aligning payment with performance, including options
for updating performance measures, in the original medicare fee-
for-service program under parts A and B of title XVIII of the
Social Security Act, the Medicare Advantage program under part
C of such title, and any other programs under such title XVIII.
(c) AUTHORIZATION OF APPROPRIATIONS.—There are authorized
to be appropriated such sums as may be necessary for purposes
of conducting the evaluation and preparing the report required
by this section.
Subtitle E—Comparative Cost Adjustment
(CCA) Program
SEC. 241. COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM.
(a) IN GENERAL.—Part C of title XVIII is amended by adding
at the end the following new section:
Deadline.
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‘‘COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM
‘‘SEC. 1860C–1. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary shall establish a program
under this section (in this section referred to as the ‘CCA
program’) for the application of comparative cost adjustment
in CCA areas selected under this section.
‘‘(2) DURATION.—The CCA program shall begin January
1, 2010, and shall extend over a period of 6 years, and end
on December 31, 2015.
‘‘(3) REPORT.—Upon the completion of the CCA program,
the Secretary shall submit a report to Congress. Such report
shall include the following, with respect to both this part and
the original medicare fee-for-service program:
‘‘(A) An evaluation of the financial impact of the CCA
program.
‘‘(B) An evaluation of changes in access to physicians
and other health care providers.
‘‘(C) Beneficiary satisfaction.
‘‘(D) Recommendations regarding any extension or
expansion of the CCA program.
‘‘(b) REQUIREMENTS FOR SELECTION OF CCA AREAS.—
‘‘(1) CCA AREA DEFINED.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘CCA area’ means an MSA that meets the require-
ments of paragraph (2) and is selected by the Secretary
under subsection (c).
‘‘(B) MSA DEFINED.—For purposes of this section, the
term ‘MSA’ means a Metropolitan Statistical Area (or such
similar area as the Secretary recognizes).
‘‘(2) REQUIREMENTS FOR CCA AREAS.—The requirements of
this paragraph for an MSA to be a CCA area are as follows:
‘‘(A) MA ENROLLMENT
REQUIREMENT.—For the ref-
erence month (as defined under section 1858(f)(4)(B)) with
respect to 2010, at least 25 percent of the total number
of MA eligible individuals who reside in the MSA were
enrolled in an MA local plan described in section
1851(a)(2)(A)(i).
‘‘(B) 2 PLAN REQUIREMENT.—There will be offered in
the MSA during the annual, coordinated election period
under section 1851(e)(3)(B) before the beginning of 2010
at 
least 
2 
MA 
local 
plans 
described 
in 
section
1851(a)(2)(A)(i) (in addition to the fee-for-service program
under parts A and B), each offered by a different MA
organization and each of which met the minimum enroll-
ment requirements of paragraph (1) of section 1857(b) (as
applied without regard to paragraph (3) thereof) as of the
reference month.
‘‘(c) SELECTION OF CCA AREAS.—
‘‘(1) GENERAL
SELECTION
CRITERIA.—The Secretary shall
select CCA areas from among those MSAs qualifying under
subsection (b) in a manner that—
‘‘(A) seeks to maximize the opportunity to test the
application of comparative cost adjustment under this title;
‘‘(B) does not seek to maximize the number of MA
eligible individuals who reside in such areas; and
42 USC
1395w–29.
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‘‘(C) provides for geographic diversity consistent with
the criteria specified in paragraph (2).
‘‘(2) SELECTION CRITERIA.—With respect to the selection
of MSAs that qualify to be CCA areas under subsection (b),
the following rules apply, to the maximum extent feasible:
‘‘(A) MAXIMUM NUMBER.—The number of such MSAs
selected may not exceed the lesser of (i) 6, or (ii) 25 percent
of the number of MSAs that meet the requirement of sub-
section (b)(2)(A).
‘‘(B) ONE
OF
4
LARGEST
AREAS
BY
POPULATION.—At
least one such qualifying MSA shall be selected from among
the 4 such qualifying MSAs with the largest total popu-
lation of MA eligible individuals.
‘‘(C) ONE OF 4 AREAS WITH LOWEST POPULATION DEN-
SITY.—At least one such qualifying MSA shall be selected
from among the 4 such qualifying MSAs with the lowest
population density (as measured by residents per square
mile or similar measure of density).
‘‘(D) MULTISTATE AREA.—At least one such qualifying
MSA shall be selected that includes a multi-State area.
Such an MSA may be an MSA described in subparagraph
(B) or (C).
‘‘(E) LIMITATION WITHIN SAME GEOGRAPHIC REGION.—
No more than 2 such MSAs shall be selected that are,
in whole or in part, within the same geographic region
(as specified by the Secretary) of the United States.
‘‘(F) PRIORITY
TO
AREAS
NOT
WITHIN
CERTAIN
DEM-
ONSTRATION PROJECTS.—Priority shall be provided for those
qualifying MSAs that do not have a demonstration project
in effect as of the date of the enactment of this section
for medicare preferred provider organization plans under
this part.
‘‘(d) APPLICATION OF COMPARATIVE COST ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of a CCA area for a year—
‘‘(A) for purposes of applying this part with respect
to payment for MA local plans, any reference to an MA
area-specific non-drug monthly benchmark amount shall
be treated as a reference to such benchmark computed
as if the CCA area-specific non-drug monthly benchmark
amount (as defined in subsection (e)(1)) were substituted
for the amount described in section 1853(j)(1)(A) for the
CCA area and year involved, as phased in under paragraph
(3); and
‘‘(B) with respect to months in the year for individuals
residing in the CCA area who are not enrolled in an MA
plan, the amount of the monthly premium under section
1839 is subject to adjustment under subsection (f).
‘‘(2) EXCLUSION
OF
MA
LOCAL
AREAS
WITH
FEWER
THAN
2 ORGANIZATIONS OFFERING MA PLANS.—
‘‘(A) IN GENERAL.—In no case shall an MA local area
that is within an MSA be included as part of a CCA
area unless for 2010 (and, except as provided in subpara-
graph (B), for a subsequent year) there is offered in each
part of such MA local area at least 2 MA local plans
described in section 1851(a)(2)(A)(i) each of which is offered
by a different MA organization.
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‘‘(B) CONTINUATION.—If an MA local area meets the
requirement of subparagraph (A) and is included in a CCA
area for 2010, such local area shall continue to be included
in such CCA area for a subsequent year notwithstanding
that it no longer meets such requirement so long as there
is at least one MA local plan described in section
1851(a)(2)(A)(i) that is offered in such local area.
‘‘(3) PHASE-IN OF CCA BENCHMARK.—
‘‘(A) IN GENERAL.—In applying this section for a year
before 2013, paragraph (1)(A) shall be applied as if the
phase-in fraction under subparagraph (B) of the CCA non-
drug monthly benchmark amount for the year were sub-
stituted for such fraction of the MA area-specific non-drug
monthly benchmark amount.
‘‘(B) PHASE-IN FRACTION.—The phase-in fraction under
this subparagraph is—
‘‘(i) for 2010 1⁄4; and
‘‘(ii) for a subsequent year is the phase-in fraction
under this subparagraph for the previous year
increased by 1⁄4, but in no case more than 1.
‘‘(e) COMPUTATION OF CCA BENCHMARK AMOUNT.—
‘‘(1) CCA NON-DRUG MONTHLY BENCHMARK AMOUNT.—For
purposes of this section, the term ‘CCA non-drug monthly
benchmark amount’ means, with respect to a CCA area for
a month in a year, the sum of the 2 components described
in paragraph (2) for the area and year. The Secretary shall
compute such benchmark amount for each such CCA area
before the beginning of each annual, coordinated election period
under section 1851(e)(3)(B) for each year (beginning with 2010)
in which the CCA area is so selected.
‘‘(2) 2 COMPONENTS.—For purposes of paragraph (1), the
2 components described in this paragraph for a CCA area
and a year are the following:
‘‘(A) MA LOCAL COMPONENT.—The product of the fol-
lowing:
‘‘(i) WEIGHTED AVERAGE OF MEDICARE ADVANTAGE
PLAN BIDS IN AREA.—The weighted average of the plan
bids for the area and year (as determined under para-
graph (3)(A)).
‘‘(ii) NON-FFS MARKET SHARE.—One minus the fee-
for-service market share percentage, determined under
paragraph (4) for the area and year.
‘‘(B) FEE-FOR-SERVICE COMPONENT.—The product of the
following:
‘‘(i) FEE-FOR-SERVICE
AREA-SPECIFIC
NON-DRUG
AMOUNT.—The fee-for-service area-specific non-drug
amount (as defined in paragraph (5)) for the area and
year.
‘‘(ii) FEE-FOR-SERVICE MARKET SHARE.—The fee-for-
service market share percentage, determined under
paragraph (4) for the area and year.
‘‘(3) DETERMINATION OF WEIGHTED AVERAGE MA BIDS FOR
A CCA AREA.—
‘‘(A) IN GENERAL.—For purposes of paragraph (2)(A)(i),
the weighted average of plan bids for a CCA area and
a year is, subject to subparagraph (D), the sum of the
Applicability.
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following products for MA local plans described in subpara-
graph (C) in the area and year:
‘‘(i) MONTHLY
MEDICARE
ADVANTAGE
STATUTORY
NON-DRUG BID AMOUNT.—The accepted unadjusted MA
statutory non-drug monthly bid amount.
‘‘(ii) PLAN’S
SHARE
OF
MEDICARE
ADVANTAGE
ENROLLMENT
IN
AREA.—The number of individuals
described in subparagraph (B), divided by the total
number of such individuals for all MA plans described
in subparagraph (C) for that area and year.
‘‘(B) COUNTING OF INDIVIDUALS.—The Secretary shall
count, for each MA local plan described in subparagraph
(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 the reference month for that year.
‘‘(C) EXCLUSION OF PLANS NOT OFFERED IN PREVIOUS
YEAR.—For an area and year, the MA local plans described
in this subparagraph are MA local plans described in sec-
tion 1851(a)(2)(A)(i) that are offered in the area and year
and were offered in the CCA area in the reference month.
‘‘(D) COMPUTATION
OF
WEIGHTED
AVERAGE
OF
PLAN
BIDS.—In calculating the weighted average of plan bids
for a CCA area under subparagraph (A)—
‘‘(i) in the case of an MA local plan that has
a service area only part of which is within such CCA
area, the MA organization offering such plan shall
submit a separate bid for such plan for the portion
within such CCA area; and
‘‘(ii) the Secretary shall adjust such separate bid
(or, in the case of an MA local plan that has a service
area entirely within such CCA area, the plan bid)
as may be necessary to take into account differences
between the service area of such plan within the CCA
area and the entire CCA area and the distribution
of plan enrollees of all MA local plans offered within
the CCA area.
‘‘(4) COMPUTATION
OF
FEE-FOR-SERVICE
MARKET
SHARE
PERCENTAGE.—The Secretary shall determine, for a year and
a CCA area, the proportion (in this subsection referred to
as the ‘fee-for-service market share percentage’) equal to—
‘‘(A) the total number of MA eligible individuals
residing in such area who during the reference month
for the year were not enrolled in any MA plan; divided
by
‘‘(B) the sum of such number and the total number
of MA eligible individuals residing in such area who during
such reference month were enrolled in an MA local plan
described in section 1851(a)(2)(A)(i),
or, if greater, such proportion determined for individuals nation-
ally.
‘‘(5) FEE-FOR-SERVICE AREA-SPECIFIC NON-DRUG AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of paragraph (2)(B)(i)
and subsection (f)(2)(A), subject to subparagraph (C), the
term ‘fee-for-service area-specific non-drug amount’ means,
for a CCA area and a year, the adjusted average per
capita cost for such area and year involved, determined
under section 1876(a)(4) and adjusted as appropriate for
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117 STAT. 2219
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the purpose of risk adjustment for benefits under the
original medicare fee-for-service program option for individ-
uals entitled to benefits under part A and enrolled under
part B who are not enrolled in an MA plan for the year,
but adjusted to exclude costs attributable to payments
under section 1886(h).
‘‘(B) USE OF FULL RISK ADJUSTMENT TO STANDARDIZE
FEE-FOR-SERVICE COSTS TO TYPICAL BENEFICIARY.—In deter-
mining the adjusted average per capita cost for an area
and year under subparagraph (A), such costs shall be
adjusted to fully take into account the demographic and
health status risk factors established under section
1853(a)(1)(A)(iv) so that such per capita costs reflect the
average costs for a typical beneficiary residing in the CCA
area.
‘‘(C) INCLUSION OF COSTS OF VA AND DOD MILITARY
FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES.—
In determining the adjusted average per capita cost under
subparagraph (A) for a year, such cost shall be adjusted
to include 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 individ-
uals entitled to benefits under this title had not received
services from facilities of the Department of Veterans
Affairs or the Department of Defense.
‘‘(f) PREMIUM ADJUSTMENT.—
‘‘(1) APPLICATION.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), in the case of an individual who is enrolled under
part B, who resides in a CCA area, and who is not enrolled
in an MA plan under this part, the monthly premium
otherwise applied under part B (determined without regard
to subsections (b), (f), and (i) of section 1839 or any adjust-
ment under this subsection) shall be adjusted in accordance
with paragraph (2), but only in the case of premiums
for months during the period in which the CCA program
under this section for such area is in effect.
‘‘(B) NO PREMIUM ADJUSTMENT FOR SUBSIDY ELIGIBLE
BENEFICIARIES.—No premium adjustment shall be made
under this subsection for a premium for a month if the
individual is determined to be a subsidy eligible individual
(as defined in section 1860D–14(a)(3)(A)) for the month.
‘‘(2) AMOUNT OF ADJUSTMENT.—
‘‘(A) IN GENERAL.—Under this paragraph, subject to
the exemption under paragraph (1)(B) and the limitation
under subparagraph (B), if the fee-for-service area-specific
non-drug amount (as defined in section (e)(5)) for a CCA
area in which an individual resides for a month—
‘‘(i) does not exceed the CCA non-drug monthly
benchmark amount (as determined under subsection
(e)(1)) for such area and month, the amount of the
premium for the individual for the month shall be
reduced, by an amount equal to 75 percent of the
amount by which such CCA benchmark exceeds such
fee-for-service area-specific non-drug amount; or
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117 STAT. 2220
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) exceeds such CCA non-drug benchmark, the
amount of the premium for the individual for the
month shall be adjusted to ensure, that—
‘‘(I) the sum of the amount of the adjusted
premium and the CCA non-drug benchmark for
the area; is equal to
‘‘(II) the sum of the unadjusted premium plus
the amount of such fee-for-service area-specific
non-drug amount for the area.
‘‘(B) LIMITATION.—In no case shall the actual amount
of an adjustment under subparagraph (A) for an area and
month in a year result in an adjustment that exceeds
the maximum adjustment permitted under subparagraph
(C) for the area and year, or, if less, the maximum annual
adjustment permitted under subparagraph (D) for the area
and year.
‘‘(C) PHASE-IN
OF
ADJUSTMENT.—The amount of an
adjustment under subparagraph (A) for a CCA area and
year may not exceed the product of the phase-in fraction
for the year under subsection (d)(3)(B) multiplied by the
amount of the adjustment otherwise computed under
subparagraph (A) for the area and year, determined with-
out regard to this subparagraph and subparagraph (D).
‘‘(D) 5-PERCENT
LIMITATION
ON
ADJUSTMENT.—The
amount of the adjustment under this subsection for months
in a year shall not exceed 5 percent of the amount of
the monthly premium amount determined for months in
the year under section 1839 without regard to subsections
(b), (f), and (i) of such section and this subsection.’’.
(b) CONFORMING AMENDMENTS.—
(1) MA LOCAL PLANS.—
(A) Section 1853(j)(1)(A) (42 U.S.C. 1395w–23(j)(1)(A)),
as added by section 222(d), is amended by inserting ‘‘subject
to section 1860C–1(d)(2)(A),’’ after ‘‘within an MA local
area,’’.
(B) Section 1853(b)(1)(B), as amended by section
222(f)(1), is amended by adding at the end the following
new clause:
‘‘(iii) BENCHMARK ANNOUNCEMENT FOR CCA LOCAL
AREAS.—The Secretary shall determine, and shall
announce (in a manner intended to provide notice to
interested parties), on a timely basis before the cal-
endar year concerned, with respect to each CCA area
(as defined in section 1860C–1(b)(1)(A)), the CCA non-
drug monthly benchmark amount under section
1860C–1(e)(1) for that area for the year involved.’’.
(2) PREMIUM ADJUSTMENT.—
(A) Section 1839 (42 U.S.C. 1395r) is amended by
adding at the end the following new subsection:
‘‘(h) POTENTIAL APPLICATION OF COMPARATIVE COST ADJUST-
MENT IN CCA AREAS.—
‘‘(1) IN
GENERAL.—Certain individuals who are residing
in a CCA area under section 1860C–1 who are not enrolled
in an MA plan under part C may be subject to a premium
adjustment under subsection (f) of such section for months
in which the CCA program under such section is in effect
in such area.
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117 STAT. 2221
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(2) NO EFFECT ON LATE ENROLLMENT PENALTY OR INCOME-
RELATED ADJUSTMENT IN SUBSIDIES.—Nothing in this subsection
or section 1860C–1(f) shall be construed as affecting the amount
of any premium adjustment under subsection (b) or (i). Sub-
section (f) shall be applied without regard to any premium
adjustment referred to in paragraph (1).
‘‘(3) IMPLEMENTATION.—In order to carry out a premium
adjustment under this subsection and section 1860C–1(f)
(insofar as it is effected through the manner of collection of
premiums under section 1840(a)), the Secretary shall transmit
to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the name, social
security account number, and the amount of the premium
adjustment (if any) for each individual enrolled under this
part for each month during the year; and
‘‘(B) periodically throughout the year, information to
update the information previously transmitted under this
paragraph for the year.’’.
(B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended
by inserting ‘‘and without regard to any premium adjust-
ment effected under sections 1839(h) and 1860C–1(f)’’
before the period at the end.
(c) NO CHANGE IN MEDICARE’S DEFINED BENEFIT PACKAGE.—
Nothing in this part (or the amendments made by this part) shall
be construed as changing the entitlement to defined benefits under
parts A and B of title XVIII of the Social Security Act.
TITLE III—COMBATTING WASTE,
FRAUD, AND ABUSE
SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.
(a) 
TECHNICAL
AMENDMENT
CONCERNING
SECRETARY’S
AUTHORITY TO MAKE CONDITIONAL PAYMENT WHEN CERTAIN PRI-
MARY PLANS DO NOT PAY PROMPTLY.—Section 1862(b)(2) (42 U.S.C.
1395y(b)(2)) is amended—
(1) in subparagraph (A)(ii), by striking ‘‘promptly (as deter-
mined in accordance with regulations)’’; and
(2) in subparagraph (B)—
(A) by redesignating clauses (i) through (v) as clauses
(ii) through (vi), respectively; and
(B) by inserting before clause (ii), as so redesignated,
the following new clause:
‘‘(i) AUTHORITY TO MAKE CONDITIONAL PAYMENT.—
The Secretary may make payment under this title
with respect to an item or service if a primary plan
described in subparagraph (A)(ii) has not made or
cannot reasonably be expected to make payment with
respect to such item or service promptly (as determined
in accordance with regulations). Any such payment
by the Secretary shall be conditioned on reimburse-
ment to the appropriate Trust Fund in accordance
with the succeeding provisions of this subsection.’’.
(b) CLARIFYING AMENDMENTS TO CONDITIONAL PAYMENT PROVI-
SIONS.—Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as amended by
subsection (a), is amended—
42 USC
1395w–29 note.
Applicability.
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117 STAT. 2222
PUBLIC LAW 108–173—DEC. 8, 2003
(1) in subparagraph (A), in the matter following clause
(ii), by inserting the following sentence at the end: ‘‘An entity
that engages in a business, trade, or profession shall be deemed
to have a self-insured plan if it carries its own risk (whether
by a failure to obtain insurance, or otherwise) in whole or
in part.’’;
(2) in subparagraph (B)(ii), as redesignated by subsection
(a)(2)(A)—
(A) by striking the first sentence and inserting the
following: ‘‘A primary plan, and an entity that receives
payment from a primary plan, shall reimburse the appro-
priate Trust Fund for any payment made by the Secretary
under this title with respect to an item or service if it
is demonstrated that such primary plan has or had a
responsibility to make payment with respect to such item
or service. A primary plan’s responsibility for such payment
may be demonstrated by a judgment, a payment condi-
tioned upon the recipient’s compromise, waiver, or release
(whether or not there is a determination or admission
of liability) of payment for items or services included in
a claim against the primary plan or the primary plan’s
insured, or by other means.’’; and
(B) in the final sentence, by striking ‘‘on the date
such notice or other information is received’’ and inserting
‘‘on the date notice of, or information related to, a primary
plan’s responsibility for such payment or other information
is received’’; and
(3) in subparagraph (B)(iii), as redesignated by subsection
(a)(2)(A), by striking the first sentence and inserting the fol-
lowing: ‘‘In order to recover payment made under this title
for an item or service, the United States may bring an action
against any or all entities that are or were required or respon-
sible (directly, as an insurer or self-insurer, as a third-party
administrator, as an employer that sponsors or contributes
to a group health plan, or large group health plan, or otherwise)
to make payment with respect to the same item or service
(or any portion thereof) under a primary plan. The United
States may, in accordance with paragraph (3)(A) collect double
damages against any such entity. In addition, the United States
may recover under this clause from any entity that has received
payment from a primary plan or from the proceeds of a primary
plan’s payment to any entity.’’.
(c) CLERICAL
AMENDMENTS.—Section 1862(b) (42 U.S.C.
1395y(b)) is amended—
(1) in paragraph (1)(A), by moving the indentation of
clauses (ii) through (v) 2 ems to the left; and
(2) in paragraph (3)(A), by striking ‘‘such’’ before ‘‘para-
graphs’’.
(d) EFFECTIVE DATES.—The amendments made by this section
shall be effective—
(1) in the case of subsection (a), as if included in the
enactment of title III of the Medicare and Medicaid Budget
Reconciliation Amendments of 1984 (Public Law 98–369); and
(2) in the case of subsections (b) and (c), as if included
in the enactment of section 953 of the Omnibus Reconciliation
Act of 1980 (Public Law 96–499; 94 Stat. 2647).
42 USC 1395y
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 302. PAYMENT FOR DURABLE MEDICAL EQUIPMENT; COMPETI-
TIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.
(a) QUALITY ENHANCEMENT AND FRAUD REDUCTION.—
(1) ESTABLISHMENT OF QUALITY STANDARDS AND ACCREDITA-
TION REQUIREMENTS FOR DURABLE MEDICAL EQUIPMENT SUP-
PLIERS.—Section 1834(a) (42 U.S.C. 1395m(a)) is amended—
(A) by transferring paragraph (17), as added by section
4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat.
458), to the end of such section and redesignating such
paragraph as paragraph (19); and
(B) by adding at the end the following new paragraph:
‘‘(20) IDENTIFICATION OF QUALITY STANDARDS.—
‘‘(A) IN GENERAL.—Subject to subparagraph (C), the
Secretary shall establish and implement quality standards
for suppliers of items and services described in subpara-
graph (D) to be applied by recognized independent accredi-
tation organizations (as designated under subparagraph
(B)) and with which such suppliers shall be required to
comply in order to—
‘‘(i) furnish any such item or service for which
payment is made under this part; and
‘‘(ii) receive or retain a provider or supplier number
used to submit claims for reimbursement for any such
item or service for which payment may be made under
this title.
‘‘(B) DESIGNATION
OF
INDEPENDENT
ACCREDITATION
ORGANIZATIONS.—Not later than the date that is 1 year
after the date on which the Secretary implements the
quality standards under subparagraph (A), notwith-
standing section 1865(b), the Secretary shall designate and
approve one or more independent accreditation organiza-
tions for purposes of such subparagraph.
‘‘(C) QUALITY
STANDARDS.—The quality standards
described in subparagraph (A) may not be less stringent
than the quality standards that would otherwise apply
if this paragraph did not apply and shall include consumer
services standards.
‘‘(D) ITEMS AND SERVICES DESCRIBED.—The items and
services described in this subparagraph are the following
items and services, as the Secretary determines appro-
priate:
‘‘(i) Covered items (as defined in paragraph (13))
for which payment may otherwise be made under this
subsection.
‘‘(ii) Prosthetic devices and orthotics and pros-
thetics described in section 1834(h)(4).
‘‘(iii) Items and services described in section
1842(s)(2).
‘‘(E) IMPLEMENTATION.—The Secretary may establish
by program instruction or otherwise the quality standards
under this paragraph, after consultation with representa-
tives of relevant parties. Such standards shall be applied
prospectively and shall be published on the Internet
website of the Centers for Medicare & Medicaid Services.’’.
Publication.
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
(2) ESTABLISHMENT OF CLINICAL CONDITIONS OF COVERAGE
STANDARDS FOR ITEMS OF DURABLE MEDICAL EQUIPMENT.—Sec-
tion 1834(a)(1) (42 U.S.C. 1395m(a)(1)) is amended by adding
at the end the following new subparagraph:
‘‘(E) CLINICAL CONDITIONS FOR COVERAGE.—
‘‘(i) IN
GENERAL.—The Secretary shall establish
standards for clinical conditions for payment for cov-
ered items under this subsection.
‘‘(ii) REQUIREMENTS.—The standards established
under clause (i) shall include the specification of types
or classes of covered items that require, as a condition
of payment under this subsection, a face-to-face exam-
ination of the individual by a physician (as defined
in section 1861(r)(1)), a physician assistant, nurse
practitioner, or a clinical nurse specialist (as those
terms are defined in section 1861(aa)(5)) and a
prescription for the item.
‘‘(iii) PRIORITY OF ESTABLISHMENT OF STANDARDS.—
In establishing the standards under this subparagraph,
the Secretary shall first establish standards for those
covered items for which the Secretary determines there
has been a proliferation of use, consistent findings
of charges for covered items that are not delivered,
or consistent findings of falsification of documentation
to provide for payment of such covered items under
this part.
‘‘(iv) STANDARDS FOR POWER WHEELCHAIRS.—Effec-
tive on the date of the enactment of this subparagraph,
in the case of a covered item consisting of a motorized
or power wheelchair for an individual, payment may
not be made for such covered item unless a physician
(as defined in section 1861(r)(1)), a physician assistant,
nurse practitioner, or a clinical nurse specialist (as
those terms are defined in section 1861(aa)(5)) has
conducted a face-to-face examination of the individual
and written a prescription for the item.
‘‘(v) 
LIMITATION
ON
PAYMENT
FOR
COVERED
ITEMS.—Payment may not be made for a covered item
under this subsection unless the item meets any stand-
ards established under this subparagraph for clinical
condition of coverage.’’.
(b) COMPETITIVE ACQUISITION.—
(1) 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 establish and
implement programs under which 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 (described 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—
Contracts.
Effective date.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(i) shall be phased in among competitive acquisi-
tion areas in a manner so that the competition under
the programs occurs in—
‘‘(I) 10 of the largest metropolitan statistical
areas in 2007;
‘‘(II) 80 of the largest metropolitan statistical
areas in 2009; and
‘‘(III) additional areas after 2009; and
‘‘(ii) may be phased in first among the highest
cost and highest volume items and services or those
items and services that the Secretary determines have
the largest savings potential.
‘‘(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 implementation of this section, other than
provisions relating to confidentiality of information and
such other provisions as the Secretary determines appro-
priate.
‘‘(2) ITEMS AND SERVICES DESCRIBED.—The items and serv-
ices referred to in paragraph (1) are the following:
‘‘(A) DURABLE MEDICAL EQUIPMENT AND MEDICAL SUP-
PLIES.—Covered items (as defined in section 1834(a)(13))
for which payment would otherwise be made under section
1834(a), including items used in infusion and drugs (other
than inhalation drugs) and supplies used in conjunction
with durable medical equipment, but excluding class III
devices under the Federal Food, Drug, and Cosmetic Act.
‘‘(B) OTHER EQUIPMENT AND SUPPLIES.—Items and serv-
ices described in section 1842(s)(2)(D), other than paren-
teral nutrients, equipment, and supplies.
‘‘(C) OFF-THE-SHELF
ORTHOTICS.—Orthotics described
in section 1861(s)(9) for which payment would otherwise
be made under section 1834(h) which require minimal self-
adjustment for appropriate use and do not require expertise
in trimming, bending, molding, assembling, or customizing
to fit to the individual.
‘‘(3) EXCEPTION AUTHORITY.—In carrying out the programs
under this section, the Secretary may exempt—
‘‘(A) rural areas and areas with low population density
within urban areas that are not competitive, unless there
is a significant national market through mail order for
a particular item or service; and
‘‘(B) items and services for which the application of
competitive acquisition is not likely to result in significant
savings.
‘‘(4) SPECIAL RULE FOR CERTAIN RENTED ITEMS OF DURABLE
MEDICAL EQUIPMENT AND OXYGEN.—In the case of a covered
item for which payment is made on a rental basis under section
1834(a) and in the case of payment for oxygen under section
1834(a)(5), the Secretary shall establish a process by which
rental agreements for the covered items and supply arrange-
ments with oxygen suppliers entered into before the application
of the competitive acquisition program under this section for
the item may be continued notwithstanding this section. In
the case of any such continuation, the supplier involved shall
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117 STAT. 2226
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provide for appropriate servicing and replacement, as required
under section 1834(a).
‘‘(5) PHYSICIAN AUTHORIZATION.—
‘‘(A) IN GENERAL.—With respect to items or services
included within a particular HCPCS code, the Secretary
may establish a process for certain items and services
under which a physician may prescribe a particular brand
or mode of delivery of an item or service within such
code if the physician determines that use of the particular
item or service would avoid an adverse medical outcome
on the individual, as determined by the Secretary.
‘‘(B) NO EFFECT ON PAYMENT AMOUNT.—A prescription
under subparagraph (A) shall not affect the amount of
payment otherwise applicable for the item or service under
the code involved.
‘‘(6) APPLICATION.—For each competitive acquisition area
in which the program is implemented under this subsection
with respect to items and services, the payment basis deter-
mined under the competition conducted under subsection (b)
shall be substituted for the payment basis otherwise applied
under section 1834(a), section 1834(h), or section 1842(s), as
appropriate.
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall conduct a competi-
tion among entities supplying items and services described
in subsection (a)(2) for each competitive acquisition area in
which the program is implemented 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 competition 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 applicable quality standards
specified by the Secretary under section 1834(a)(20).
‘‘(ii) The entity meets applicable financial stand-
ards specified by the Secretary, taking into account
the needs of small providers.
‘‘(iii) The total amounts to be paid to contractors
in a competitive acquisition area are expected to be
less than the total amounts that would otherwise be
paid.
‘‘(iv) Access of individuals to a choice of multiple
suppliers in the area is maintained.
‘‘(B) TIMELY IMPLEMENTATION OF PROGRAM.—Any delay
in the implementation of quality standards under section
1834(a)(20) or delay in the receipt of advice from the pro-
gram oversight committee established under subsection (c)
shall not delay the implementation of the competitive
acquisition program under this section.
‘‘(3) CONTENTS OF CONTRACT.—
‘‘(A) IN
GENERAL.—A contract entered into with an
entity under the competition conducted pursuant to para-
graph (1) is subject to terms and conditions that the Sec-
retary may specify.
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‘‘(B) TERM OF CONTRACTS.—The Secretary shall recom-
pete 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 individuals for such items
or services in the geographic area covered under the con-
tract on a timely basis.
‘‘(B) MULTIPLE WINNERS.—The Secretary shall award
contracts to multiple entities submitting bids in each area
for an item or service.
‘‘(5) PAYMENT.—
‘‘(A) IN
GENERAL.—Payment under this part for
competitively priced items and services described in sub-
section (a)(2) shall be based on bids submitted and accepted
under this section for such items and services. Based on
such bids the Secretary shall determine a single payment
amount for each item or service in each competitive acquisi-
tion area.
‘‘(B) REDUCED BENEFICIARY COST-SHARING.—
‘‘(i) 
APPLICATION
OF
COINSURANCE.—Payment
under this section for items and services shall be in
an amount equal to 80 percent of the payment basis
described in subparagraph (A).
‘‘(ii) APPLICATION OF DEDUCTIBLE.—Before applying
clause (i), the individual shall be required to meet
the deductible described in section 1833(b).
‘‘(C) PAYMENT
ON
ASSIGNMENT-RELATED
BASIS.—Pay-
ment for any item or service furnished by the entity may
only be made under this section on an assignment-related
basis.
‘‘(D) CONSTRUCTION.—Nothing in this section shall be
construed as precluding the use of an advanced beneficiary
notice with respect to a competitively priced item and
service.
‘‘(6) PARTICIPATING CONTRACTORS.—
‘‘(A) IN GENERAL.—Except as provided in subsection
(a)(4), 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—
‘‘(i) the contractor has submitted a bid for such
items and services under this section; and
‘‘(ii) the Secretary has awarded a contract to the
contractor for such items and services under this sec-
tion.
‘‘(B) BID DEFINED.—In this section, the term ‘bid’ means
an offer to furnish an item or service for a particular
price and time period that includes, where appropriate,
any services that are attendant to the furnishing of the
item or service.
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‘‘(C) RULES
FOR
MERGERS
AND
ACQUISITIONS.—In
applying subparagraph (A) to a contractor, the contractor
shall include a successor entity in the case of a merger
or acquisition, if the successor entity assumes such contract
along with any liabilities that may have occurred there-
under.
‘‘(D) PROTECTION OF SMALL SUPPLIERS.—In developing
procedures relating to bids and the awarding of contracts
under this section, the Secretary shall take appropriate
steps to ensure that small suppliers of items and services
have an opportunity to be considered for participation in
the program under this section.
‘‘(7) CONSIDERATION
IN
DETERMINING
CATEGORIES
FOR
BIDS.—The Secretary may consider the clinical efficiency and
value of specific items within codes, including whether some
items have a greater therapeutic advantage to individuals.
‘‘(8) AUTHORITY TO CONTRACT FOR EDUCATION, MONITORING,
OUTREACH, AND
COMPLAINT
SERVICES.—The Secretary may
enter into contracts with appropriate entities to address com-
plaints from individuals who receive items and services from
an entity with a contract under this section and to conduct
appropriate education of and outreach to such individuals and
monitoring quality of services with respect to the program.
‘‘(9) AUTHORITY TO CONTRACT FOR IMPLEMENTATION.—The
Secretary may contract with appropriate entities to implement
the competitive bidding program under this section.
‘‘(10) NO ADMINISTRATIVE OR JUDICIAL REVIEW.—There shall
be no administrative or judicial review under section 1869,
section 1878, or otherwise, of—
‘‘(A) the establishment of payment amounts under
paragraph (5);
‘‘(B) the awarding of contracts under this section;
‘‘(C) the designation of competitive acquisition areas
under subsection (a)(1)(A);
‘‘(D) the phased-in implementation under subsection
(a)(1)(B);
‘‘(E) the selection of items and services for competitive
acquisition under subsection (a)(2); or
‘‘(F) the bidding structure and number of contractors
selected under this section.
‘‘(c) PROGRAM ADVISORY AND OVERSIGHT COMMITTEE.—
‘‘(1) ESTABLISHMENT.—The Secretary shall establish a Pro-
gram Advisory and Oversight Committee (hereinafter in this
section referred to as the ‘Committee’).
‘‘(2) MEMBERSHIP; TERMS.—The Committee shall consist of
such members as the Secretary may appoint who shall serve
for such term as the Secretary may specify.
‘‘(3) DUTIES.—
‘‘(A) ADVICE.—The Committee shall provide advice to
the Secretary with respect to the following functions:
‘‘(i) The implementation of the program under this
section.
‘‘(ii) The establishment of financial standards for
purposes of subsection (b)(2)(A)(ii).
‘‘(iii) The establishment of requirements for collec-
tion of data for the efficient management of the pro-
gram.
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117 STAT. 2229
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(iv) The development of proposals for efficient
interaction among manufacturers, providers of services,
suppliers (as defined in section 1861(d)), and individ-
uals.
‘‘(v) The establishment of quality standards under
section 1834(a)(20).
‘‘(B) ADDITIONAL DUTIES.—The Committee shall per-
form such additional functions to assist the Secretary in
carrying out this section as the Secretary may specify.
‘‘(4) INAPPLICABILITY OF FACA.—The provisions of the Fed-
eral Advisory Committee Act (5 U.S.C. App.) shall not apply.
‘‘(5) TERMINATION.—The Committee shall terminate on
December 31, 2009.
‘‘(d) REPORT.—Not later than July 1, 2009, the Secretary shall
submit to Congress a report on the programs under this section.
The report shall include information on savings, reductions in cost-
sharing, access to and quality of items and services, and satisfaction
of individuals.
‘‘(e) DEMONSTRATION PROJECT FOR CLINICAL LABORATORY SERV-
ICES.—
‘‘(1) IN
GENERAL.—The Secretary shall conduct a dem-
onstration project on the application of competitive acquisition
under this section to clinical diagnostic laboratory tests—
‘‘(A) for which payment would otherwise be made under
section 1833(h) (other than for pap smear laboratory tests
under paragraph (7) of such section) or section 1834(d)(1)
(relating to colorectal cancer screening tests); and
‘‘(B) which are furnished by entities that did not have
a face-to-face encounter with the individual.
‘‘(2) TERMS AND CONDITIONS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), such project shall be under the same conditions as
are applicable to items and services described in subsection
(a)(2), excluding subsection (b)(5)(B) and other conditions
as the Secretary determines to be appropriate.
‘‘(B) APPLICATION OF CLIA QUALITY STANDARDS.—The
quality standards established by the Secretary under sec-
tion 353 of the Public Health Service Act for clinical diag-
nostic laboratory tests shall apply to such tests under the
demonstration project under this section in lieu of quality
standards described in subsection (b)(2)(A)(i).
‘‘(3) REPORT.—The Secretary shall submit to Congress—
‘‘(A) an initial report on the project not later than
December 31, 2005; and
‘‘(B) such progress and final reports on the project
after such date as the Secretary determines appropriate.’’.
(2) CONFORMING
AMENDMENTS.—Section 1833(a)(1) (42
U.S.C. 1395l(a)(1)) is amended—
(A) by striking ‘‘and (U)’’ and inserting ‘‘(U)’’;
(B) by inserting before the semicolon at the end the
following: ‘‘, and (V) notwithstanding subparagraphs (I)
(relating to durable medical equipment), (M) (relating to
prosthetic devices and orthotics and prosthetics), and (Q)
(relating to 1842(s) items), with respect to competitively
priced items and services (described in section 1847(a)(2))
that are furnished in a competitive area, the amounts
Deadline.
Deadline.
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117 STAT. 2230
PUBLIC LAW 108–173—DEC. 8, 2003
paid shall be the amounts described in section 1847(b)(5)’’;
and
(C) in clause (D)—
(i) by striking ‘‘or (ii)’’ and inserting ‘‘(ii)’’; and
(ii) by adding at the end the following: ‘‘or (iii)
on the basis of a rate established under a demonstra-
tion project under section 1847(e), the amount paid
shall be equal to 100 percent of such rate,’’.
(3) GAO REPORT ON IMPACT OF COMPETITIVE ACQUISITION
ON SUPPLIERS.—
(A) STUDY.—The Comptroller General of the United
States shall conduct a study on the impact of competitive
acquisition of durable medical equipment under section
1847 of the Social Security Act, as amended by paragraph
(1), on suppliers and manufacturers of such equipment
and on patients. Such study shall specifically examine the
impact of such competitive acquisition on access to, and
quality of, such equipment and service related to such
equipment.
(B) REPORT.—Not later than January 1, 2009, the
Comptroller General shall submit to Congress a report
on the study conducted under subparagraph (A) and shall
include in the report such recommendations as the Comp-
troller General determines appropriate.
(c) TRANSITIONAL FREEZE.—
(1) DME.—
(A) IN
GENERAL.—Section 1834(a)(14) (42 U.S.C.
1395m(a)(14)) is amended—
(i) in subparagraph (E), by striking ‘‘and’’ at the
end;
(ii) in subparagraph (F)—
(I) by striking ‘‘a subsequent year’’ and
inserting ‘‘2003’’; and
(II) by striking ‘‘the previous year.’’ and
inserting ‘‘2002;’’; and
(iii) by adding at the end the following new sub-
paragraphs:
‘‘(G) for 2004 through 2006—
‘‘(i) subject to clause (ii), in the case of class III
medical devices described in section 513(a)(1)(C) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
360(c)(1)(C)), the percentage increase described in
subparagraph (B) for the year involved; and
‘‘(ii) in the case of covered items not described
in clause (i), 0 percentage points;
‘‘(H) for 2007—
‘‘(i) subject to clause (ii), in the case of class III
medical devices described in section 513(a)(1)(C) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
360(c)(1)(C)), the percentage change determined by the
Secretary to be appropriate taking into account rec-
ommendations contained in the report of the Comp-
troller General of the United States under section
302(c)(1)(B) 
of 
the 
Medicare 
Prescription 
Drug,
Improvement, and Modernization Act of 2003; and
‘‘(ii) in the case of covered items not described
in clause (i), 0 percentage points; and
Deadline.
42 USC 1395w–3
note.
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117 STAT. 2231
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(I) for 2008—
‘‘(i) subject to clause (ii), in the case of class III
medical devices described in section 513(a)(1)(C) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
360(c)(1)(C)), the percentage increase described in
subparagraph (B) (as applied to the payment amount
for 2007 determined after the application of the
percentage change under subparagraph (H)(i)); and
‘‘(ii) in the case of covered items not described
in clause (i), 0 percentage points; and
‘‘(J) for a subsequent year, the percentage increase
in the consumer price index for all urban consumers (U.S.
urban average) for the 12-month period ending with June
of the previous year.’’.
(B) GAO REPORT ON CLASS III MEDICAL DEVICES.—Not
later than March 1, 2006, the Comptroller General of the
United States shall submit to Congress, and transmit to
the Secretary, a report containing recommendations on the
appropriate update percentage under section 1834(a)(14)
of the Social Security Act (42 U.S.C. 1395m(a)(14)) for
class III medical devices described in section 513(a)(1)(C)
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
360(a)(1)(C)) furnished to medicare beneficiaries during
2007 and 2008.
(2) PAYMENT RULE FOR SPECIFIED ITEMS.—Section 1834(a)
(42 U.S.C. 1395m(a)), as amended by subsection (a), is further
amended by adding at the end the following new paragraph:
‘‘(21) SPECIAL
PAYMENT
RULE
FOR
SPECIFIED
ITEMS
AND
SUPPLIES.—
‘‘(A) IN
GENERAL.—Notwithstanding the preceding
provisions of this subsection, for specified items and sup-
plies (described in subparagraph (B)) furnished during
2005, the payment amount otherwise determined under
this subsection for such specified items and supplies shall
be reduced by the percentage difference between—
‘‘(i) the amount of payment otherwise determined
for the specified item or supply under this subsection
for 2002, and
‘‘(ii) the amount of payment for the specified item
or supply under chapter 89 of title 5, United States
Code, as identified in the column entitled ‘Median
FEHP Price’ in the table entitled ‘SUMMARY OF
MEDICARE PRICES COMPARED TO VA, MED-
ICAID, RETAIL, AND FEHP PRICES FOR 16 ITEMS’
included in the Testimony of the Inspector General
before the Senate Committee on Appropriations, June
12, 2002, or any subsequent report by the Inspector
General.
‘‘(B) SPECIFIED ITEM OR SUPPLY DESCRIBED.—For pur-
poses of subparagraph (A), a specified item or supply means
oxygen and oxygen equipment, standard wheelchairs
(including 
standard 
power 
wheelchairs), 
nebulizers,
diabetic supplies consisting of lancets and testing strips,
hospital beds, and air mattresses, but only if the HCPCS
code for the item or supply is identified in a table referred
to in subparagraph (A)(ii).
Deadline.
42 USC 1395m
note.
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117 STAT. 2232
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(C) APPLICATION
OF
UPDATE
TO
SPECIAL
PAYMENT
AMOUNT.—The covered item update under paragraph (14)
for specified items and supplies for 2006 and each subse-
quent year shall be applied to the payment amount under
subparagraph (A) unless payment is made for such items
and supplies under section 1847.’’.
(3) PROSTHETIC
DEVICES
AND
ORTHOTICS
AND
PROS-
THETICS.—Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is
amended—
(A) in clause (vii), by striking ‘‘and’’ at the end;
(B) in clause (viii), by striking ‘‘a subsequent year’’
and inserting ‘‘2003’’; and
(C) by adding at the end the following new clauses:
‘‘(ix) for 2004, 2005, and 2006, 0 percent; and
‘‘(x) for a subsequent year, the percentage increase
in the consumer price index for all urban consumers
(United States city average) for the 12-month period
ending with June of the previous year;’’.
(d) CONFORMING AMENDMENTS.—
(1) DURABLE MEDICAL EQUIPMENT; LIMITATION OF INHERENT
REASONABLENESS
AUTHORITY.—Section 1834(a) (42 U.S.C.
1395m(a)) is amended—
(A) in paragraph (1)(B), by striking ‘‘The payment
basis’’ and inserting ‘‘Subject to subparagraph (F)(i), the
payment basis’’;
(B) in paragraph (1)(C), by striking ‘‘This subsection’’
and inserting ‘‘Subject to subparagraph (F)(ii), this sub-
section’’;
(C) by adding at the end of paragraph (1) the following
new subparagraph:
‘‘(F) APPLICATION OF COMPETITIVE ACQUISITION; LIMITA-
TION OF INHERENT REASONABLENESS AUTHORITY.—In the
case of covered items furnished on or after January 1,
2009, that are included in a competitive acquisition pro-
gram in a competitive acquisition area under section
1847(a)—
‘‘(i) the payment basis under this subsection for
such items and services furnished in such area shall
be the payment basis determined under such competi-
tive acquisition program; and
‘‘(ii) the Secretary may use information on the
payment determined under such competitive acquisi-
tion programs to adjust the payment amount otherwise
recognized under subparagraph (B)(ii) for an area that
is not a competitive acquisition area under section
1847 and in the case of such adjustment, paragraph
(10)(B) shall not be applied.’’; and
(D) in paragraph (10)(B), by inserting ‘‘in an area and
with respect to covered items and services for which the
Secretary does not make a payment amount adjustment
under paragraph (1)(F)’’ after ‘‘under this subsection’’.
(2) OFF-THE-SHELF
ORTHOTICS; LIMITATION
OF
INHERENT
REASONABLENESS
AUTHORITY.—Section 1834(h) (42 U.S.C.
1395m(h)) is amended—
(A) in paragraph (1)(B), by striking ‘‘and (E)’’ and
inserting ‘‘, (E), and (H)(i)’’;
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117 STAT. 2233
PUBLIC LAW 108–173—DEC. 8, 2003
(B) in paragraph (1)(D), by striking ‘‘This subsection’’
and inserting ‘‘Subject to subparagraph (H)(ii), this sub-
section’’; and
(C) by adding at the end of paragraph (1) the following
new subparagraph:
‘‘(H) APPLICATION
OF
COMPETITIVE
ACQUISITION
TO
ORTHOTICS; 
LIMITATION
OF
INHERENT
REASONABLENESS
AUTHORITY.—In the case of orthotics described in paragraph
(2)(C) of section 1847(a) furnished on or after January
1, 2009, that are included in a competitive acquisition
program in a competitive acquisition area under such
section—
‘‘(i) the payment basis under this subsection for
such orthotics furnished in such area shall be the
payment basis determined under such competitive
acquisition program; and
‘‘(ii) the Secretary may use information on the
payment determined under such competitive acquisi-
tion programs to adjust the payment amount otherwise
recognized under subparagraph (B)(ii) for an area that
is not a competitive acquisition area under section
1847, and in the case of such adjustment, paragraphs
(8) and (9) of section 1842(b) shall not be applied.’’.
(3) OTHER ITEMS AND SERVICES; LIMITATION OF INHERENT
REASONABLENESS
AUTHORITY.—Section 1842(s) (42 U.S.C.
1395u(s)) is amended—
(A) in the first sentence of paragraph (1), by striking
‘‘The Secretary’’ and inserting ‘‘Subject to paragraph (3),
the Secretary’’; and
(B) by adding at the end the following new paragraph:
‘‘(3) In the case of items and services described in paragraph
(2)(D) that are included in a competitive acquisition program in
a competitive acquisition area under section 1847(a)—
‘‘(A) the payment basis under this subsection for such items
and services furnished in such area shall be the payment basis
determined under such competitive acquisition program; and
‘‘(B) the Secretary may use information on the payment
determined under such competitive acquisition programs to
adjust the payment amount otherwise applicable under para-
graph (1) for an area that is not a competitive acquisition
area under section 1847, and in the case of such adjustment,
paragraphs (8) and (9) of section 1842(b) shall not be applied.’’.
(e) REPORT ON ACTIVITIES OF SUPPLIERS.—The Inspector Gen-
eral of the Department of Health and Human Services shall conduct
a study to determine the extent to which (if any) suppliers of
covered items of durable medical equipment that are subject to
the competitive acquisition program under section 1847 of the Social
Security Act, as amended by subsection (a), are soliciting physicians
to prescribe certain brands or modes of delivery of covered items
based on profitability. Not later than July 1, 2009, the Inspector
General shall submit to Congress a report on such study.
SEC. 303. PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND
BIOLOGICALS.
(a) ADJUSTMENT TO PHYSICIAN FEE SCHEDULE.—
Deadline.
42 USC 1395w–3
note.
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(1) ADJUSTMENT
IN
PRACTICE
EXPENSE
RELATIVE
VALUE
UNITS.—Section 
1848(c)(2) 
(42 
U.S.C. 
1395w–4(c)(2)) 
is
amended—
(A) in subparagraph (B)—
(i) in clause (ii)(II), by striking ‘‘The adjustments’’
and inserting ‘‘Subject to clause (iv), the adjustments’’;
and
(ii) by adding at the end of subparagraph (B),
the following new clause:
‘‘(iv) EXEMPTION FROM BUDGET NEUTRALITY.—The
additional expenditures attributable to—
‘‘(I) subparagraph (H) shall not be taken into
account in applying clause (ii)(II) for 2004;
‘‘(II) subparagraph (I) insofar as it relates to
a physician fee schedule for 2005 or 2006 shall
not be taken into account in applying clause (ii)(II)
for drug administration services under the fee
schedule for such year for a specialty described
in subparagraph (I)(ii)(II); and
‘‘(III) subparagraph (J) insofar as it relates
to a physician fee schedule for 2005 or 2006 shall
not be taken into account in applying clause (ii)(II)
for drug administration services under the fee
schedule for such year.’’; and
(B) by adding at the end the following new subpara-
graphs:
‘‘(H) ADJUSTMENTS
IN
PRACTICE
EXPENSE
RELATIVE
VALUE UNITS FOR CERTAIN DRUG ADMINISTRATION SERVICES
BEGINNING IN 2004.—
‘‘(i) USE
OF
SURVEY
DATA.—In establishing the
physician fee schedule under subsection (b) with
respect to payments for services furnished on or after
January 1, 2004, the Secretary shall, in determining
practice expense relative value units under this sub-
section, utilize a survey submitted to the Secretary
as of January 1, 2003, by a physician specialty
organization pursuant to section 212 of the Medicare,
Medicaid, and SCHIP Balanced Budget Refinement Act
of 1999 if the survey—
‘‘(I) covers practice expenses for oncology drug
administration services; and
‘‘(II) meets criteria established by the Sec-
retary for acceptance of such surveys.
‘‘(ii) PRICING
OF
CLINICAL
ONCOLOGY
NURSES
IN
PRACTICE
EXPENSE
METHODOLOGY.—If the survey
described in clause (i) includes data on wages, salaries,
and compensation of clinical oncology nurses, the Sec-
retary shall utilize such data in the methodology for
determining practice expense relative value units
under subsection (c).
‘‘(iii) WORK RELATIVE VALUE UNITS FOR CERTAIN
DRUG ADMINISTRATION SERVICES.—In establishing the
relative value units under this paragraph for drug
administration services described in clause (iv) fur-
nished on or after January 1, 2004, the Secretary shall
establish work relative value units equal to the work
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relative value units for a level 1 office medical visit
for an established patient.
‘‘(iv) DRUG ADMINISTRATION SERVICES DESCRIBED.—
The drug administration services described in this
clause are physicians’ services—
‘‘(I) which are classified as of October 1, 2003,
within any of the following groups of procedures:
therapeutic or diagnostic infusions (excluding
chemotherapy); chemotherapy administration serv-
ices; and therapeutic, prophylactic, or diagnostic
injections;
‘‘(II) for which there are no work relative value
units assigned under this subsection as of such
date; and
‘‘(III) for which national relative value units
have been assigned under this subsection as of
such date.
‘‘(I) ADJUSTMENTS
IN
PRACTICE
EXPENSE
RELATIVE
VALUE UNITS FOR CERTAIN DRUG ADMINISTRATION SERVICES
BEGINNING WITH 2005.—
‘‘(i) IN GENERAL.—In establishing the physician fee
schedule under subsection (b) with respect to payments
for services furnished on or after January 1, 2005
or 2006, the Secretary shall adjust the practice expense
relative value units for such year consistent with clause
(ii).
‘‘(ii) USE OF SUPPLEMENTAL SURVEY DATA.—
‘‘(I) IN
GENERAL.—Subject to subclause (II),
if a specialty submits to the Secretary by not later
than March 1, 2004, for 2005, or March 1, 2005,
for 2006, data that includes expenses for the
administration of drugs and biologicals for which
the payment amount is determined pursuant to
section 1842(o), the Secretary shall use such
supplemental survey data in carrying out this
subparagraph for the years involved insofar as
they are collected and provided by entities and
organizations consistent with the criteria estab-
lished by the Secretary pursuant to section 212(a)
of the Medicare, Medicaid, and SCHIP Balanced
Budget Refinement Act of 1999.
‘‘(II) LIMITATION ON SPECIALTY.—Subclause (I)
shall apply to a specialty only insofar as not less
than 40 percent of payments for the specialty
under this title in 2002 are attributable to the
administration of drugs and biologicals, as deter-
mined by the Secretary.
‘‘(III) APPLICATION.—This clause shall not
apply with respect to a survey to which subpara-
graph (H)(i) applies.
‘‘(J) PROVISIONS
FOR
APPROPRIATE
REPORTING
AND
BILLING FOR PHYSICIANS’ SERVICES ASSOCIATED WITH THE
ADMINISTRATION
OF
COVERED
OUTPATIENT
DRUGS
AND
BIOLOGICALS.—
‘‘(i) EVALUATION OF CODES.—The Secretary shall
promptly evaluate existing drug administration codes
for physicians’ services to ensure accurate reporting
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117 STAT. 2236
PUBLIC LAW 108–173—DEC. 8, 2003
and billing for such services, taking into account levels
of complexity of the administration and resource
consumption.
‘‘(ii) USE OF EXISTING PROCESSES.—In carrying out
clause (i), the Secretary shall use existing processes
for the consideration of coding changes and, to the
extent coding changes are made, shall use such proc-
esses in establishing relative values for such services.
‘‘(iii) IMPLEMENTATION.—In carrying out clause (i),
the Secretary shall consult with representatives of
physician specialties affected by the implementation
of section 1847A or section 1847B, and shall take such
steps within the Secretary’s authority to expedite such
considerations under clause (ii).
‘‘(iv) SUBSEQUENT, BUDGET NEUTRAL ADJUSTMENTS
PERMITTED.—Nothing in subparagraph (H) or (I) or
this subparagraph shall be construed as preventing
the Secretary from providing for adjustments in prac-
tice expense relative value units under (and consistent
with) subparagraph (B) for years after 2004, 2005,
or 2006, respectively.’’.
(2) TREATMENT OF OTHER SERVICES CURRENTLY IN THE NON-
PHYSICIAN WORK POOL.—The Secretary shall make adjustments
to the nonphysician work pool methodology (as such term is
used in the final rule promulgated by the Secretary in the
Federal Register on December 31, 2002 (67 Fed. Reg. 251)),
for the determination of practice expense relative value units
under the physician fee schedule under section 1848(c)(2)(C)(ii)
of the Social Security Act (42 U.S.C. 1395w–4(c)(2)(C)(ii)), so
that the practice expense relative value units for services deter-
mined under such methodology are not affected relative to
the practice expense relative value units of services not deter-
mined under such methodology, as a result of the amendments
made by paragraph (1).
(3) PAYMENT FOR MULTIPLE CHEMOTHERAPY AGENTS FUR-
NISHED ON A SINGLE DAY THROUGH THE PUSH TECHNIQUE.—
(A) REVIEW OF POLICY.—The Secretary shall review
the policy, as in effect on October 1, 2003, with respect
to payment under section 1848 of the Social Security Act
(42 U.S.C. 1395w–4) for the administration of more than
1 drug or biological to an individual on a single day through
the push technique.
(B) MODIFICATION
OF
POLICY.—After conducting the
review under subparagraph (A), the Secretary shall modify
such payment policy as the Secretary determines to be
appropriate.
(C) EXEMPTION
FROM
BUDGET
NEUTRALITY
UNDER
PHYSICIAN FEE SCHEDULE.—If the Secretary modifies such
payment policy pursuant to subparagraph (B), any
increased expenditures under title XVIII of the Social Secu-
rity Act resulting from such modification shall be treated
as additional expenditures attributable to subparagraph
(H) of section 1848(c)(2) of the Social Security Act (42
U.S.C. 1395w–4(c)(2)), as added by paragraph (1)(B), for
purposes of applying the exemption to budget neutrality
under subparagraph (B)(iv) of such section, as added by
paragraph (1)(A).
42 USC 1395w–4
note.
42 USC 1395w–4
note.
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(4) TRANSITIONAL ADJUSTMENT.—
(A) IN GENERAL.—In order to provide for a transition
during 2004 and 2005 to the payment system established
under the amendments made by this section, in the case
of physicians’ services consisting of drug administration
services described in subparagraph (H)(iv) of section
1848(c)(2) of the Social Security Act (42 U.S.C. 1395w–
4(c)(2)), as added by paragraph (1)(B), furnished on or
after January 1, 2004, and before January 1, 2006, in
addition to the amount determined under the fee schedule
under section 1848(b) of such Act (42 U.S.C. 1395w–4(b))
there also shall be paid to the physician from the Federal
Supplementary Medical Insurance Trust Fund an amount
equal to the applicable percentage specified in subpara-
graph (B) of such fee schedule amount for the services
so determined.
(B) APPLICABLE PERCENTAGE.—The applicable percent-
age specified in this subparagraph for services furnished—
(i) during 2004, is 32 percent; and
(ii) during 2005, is 3 percent.
(5) 
MEDPAC
REVIEW
AND
REPORTS; 
SECRETARIAL
RESPONSE.—
(A) 
REVIEW.—The 
Medicare 
Payment 
Advisory
Commission shall review the payment changes made under
this section insofar as they affect payment under part
B of title XVIII of the Social Security Act—
(i) for items and services furnished by oncologists;
and
(ii) for drug administration services furnished by
other specialists.
(B) OTHER
MATTERS
STUDIED.—In conducting the
review under subparagraph (A), the Commission shall also
review such changes as they affect—
(i) the quality of care furnished to individuals
enrolled under part B and the satisfaction of such
individuals with that care;
(ii) the adequacy of reimbursement as applied in,
and the availability in, different geographic areas and
to different physician practice sizes; and
(iii) the impact on physician practices.
(C) REPORTS.—The Commission shall submit to the
Secretary and Congress—
(i) not later than January 1, 2006, a report on
the review conducted under subparagraph (A)(i); and
(ii) not later than January 1, 2007, a report on
the review conducted under subparagraph (A)(ii).
Each such report may include such recommendations
regarding further adjustments in such payments as the
Commission deems appropriate.
(D) SECRETARIAL
RESPONSE.—As part of the rule-
making with respect to payment for physicians services
under section 1848 of the Social Security Act (42 U.S.C.
1395w–4) for 2007, the Secretary may make appropriate
adjustments to payment for items and services described
in subparagraph (A)(i), taking into account the report sub-
mitted under such subparagraph (C)(i).
Deadlines.
42 USC 1395w–4
note.
42 USC 1395w–4
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
(b) APPLICATION OF MARKET-BASED PAYMENT SYSTEMS.—Sec-
tion 1842(o) (42 U.S.C. 1395u(o)) is amended—
(1) in paragraph (1), by striking ‘‘equal to 95 percent of
the average wholesale price.’’ and inserting ‘‘equal to the fol-
lowing:
‘‘(A) In the case of any of the following drugs or biologicals,
95 percent of the average wholesale price:
‘‘(i) A drug or biological furnished before January 1,
2004.
‘‘(ii) Blood clotting factors furnished during 2004.
‘‘(iii) A drug or biological furnished during 2004 that
was not available for payment under this part as of April
1, 2003.
‘‘(iv) A vaccine described in subparagraph (A) or (B)
of section 1861(s)(10) furnished on or after January 1,
2004.
‘‘(v) A drug or biological furnished during 2004 in
connection with the furnishing of renal dialysis services
if separately billed by renal dialysis facilities.
‘‘(B) In the case of a drug or biological furnished during
2004 that is not described in—
‘‘(i) clause (ii), (iii), (iv), or (v) of subparagraph (A),
‘‘(ii) subparagraph (D)(i), or
‘‘(iii) subparagraph (F),
the amount determined under paragraph (4).
‘‘(C) In the case of a drug or biological that is not described
in subparagraph (A)(iv), (D)(i), or (F) furnished on or after
January 1, 2005, the amount provided under section 1847,
section 1847A, section 1847B, or section 1881(b)(13), as the
case may be for the drug or biological.
‘‘(D)(i) Except as provided in clause (ii), in the case of
infusion drugs furnished through an item of durable medical
equipment covered under section 1861(n) on or after January
1, 2004, 95 percent of the average wholesale price for such
drug in effect on October 1, 2003.
‘‘(ii) In the case of such infusion drugs furnished in a
competitive acquisition area under section 1847 on or after
January 1, 2007, the amount provided under section 1847.
‘‘(E) In the case of a drug or biological, consisting of intra-
venous immune globulin, furnished—
‘‘(i) in 2004, the amount of payment provided under
paragraph (4); and
‘‘(ii) in 2005 and subsequent years, the amount of
payment provided under section 1847A.
‘‘(F) In the case of blood and blood products (other than
blood clotting factors), the amount of payment shall be deter-
mined in the same manner as such amount of payment was
determined on October 1, 2003.
‘‘(G) The provisions of subparagraphs (A) through (F) of
this paragraph shall not apply to an inhalation drug or
biological furnished through durable medical equipment covered
under section 1861(n).’’; and
(2) by adding at the end the following new paragraph:
‘‘(4)(A) Subject to the succeeding provisions of this paragraph,
the amount of payment for a drug or biological under this paragraph
furnished in 2004 is equal to 85 percent of the average wholesale
price (determined as of April 1, 2003) for the drug or biological.
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‘‘(B) The Secretary shall substitute for the percentage under
subparagraph (A) for a drug or biological the percentage that would
apply to the drug or biological under the column entitled ‘Average
of GAO and OIG data (percent)’ in the table entitled ‘Table 3.—
Medicare Part B Drugs in the Most Recent GAO and OIG Studies’
published on August 20, 2003, in the Federal Register (68 Fed.
Reg. 50445).
‘‘(C)(i) The Secretary may substitute for the percentage under
subparagraph (A) a percentage that is based on data and informa-
tion submitted by the manufacturer of the drug or biological by
October 15, 2003.
‘‘(ii) The Secretary may substitute for the percentage under
subparagraph (A) with respect to drugs and biologicals furnished
during 2004 on or after April 1, 2004, a percentage that is based
on data and information submitted by the manufacturer of the
drug or biological after October 15, 2003, and before January 1,
2004.
‘‘(D) In no case may the percentage substituted under subpara-
graph (B) or (C) be less than 80 percent.’’.
(c) APPLICATION OF AVERAGE SALES PRICE METHODS BEGINNING
IN 2005.—
(1) IN GENERAL.—Title XVIII is amended by inserting after
section 1847 (42 U.S.C. 1395w–3), as amended by section 302(b),
the following new section:
‘‘USE OF AVERAGE SALES PRICE PAYMENT METHODOLOGY
‘‘SEC. 1847A. (a) APPLICATION.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
this section shall apply to payment for drugs and biologicals
that are described in section 1842(o)(1)(C) and that are fur-
nished on or after January 1, 2005.
‘‘(2) ELECTION.—This section shall not apply in the case
of a physician who elects under subsection (a)(1)(A)(ii) of section
1847B for that section to apply instead of this section for
the payment for drugs and biologicals.
‘‘(b) PAYMENT AMOUNT.—
‘‘(1) IN GENERAL.—Subject to subsections (d)(3)(C) and (e),
the amount of payment determined under this section for the
billing and payment code for a drug or biological (based on
a minimum dosage unit) is, subject to applicable deductible
and coinsurance—
‘‘(A) in the case of a multiple source drug (as defined
in subsection (c)(6)(C)), 106 percent of the amount deter-
mined under paragraph (3); or
‘‘(B) in the case of a single source drug or biological
(as defined in subsection (c)(6)(D)), 106 percent of the
amount determined under paragraph (4).
‘‘(2) SPECIFICATION OF UNIT.—
‘‘(A) SPECIFICATION BY MANUFACTURER.—The manufac-
turer of a drug or biological shall specify the unit associated
with each National Drug Code (including package size)
as part of the submission of data under section
1927(b)(3)(A)(iii).
‘‘(B) UNIT DEFINED.—In this section, the term ‘unit’
means, with respect to each National Drug Code (including
package size) associated with a drug or biological, the
lowest identifiable quantity (such as a capsule or tablet,
42 USC
1395w–3a.
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117 STAT. 2240
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milligram of molecules, or grams) of the drug or biological
that is dispensed, exclusive of any diluent without reference
to volume measures pertaining to liquids. For years after
2004, the Secretary may establish the unit for a manufac-
turer to report and methods for counting units as the
Secretary determines appropriate to implement this sec-
tion.
‘‘(3) MULTIPLE
SOURCE
DRUG.—For all drug products
included within the same multiple source drug billing and
payment code, the amount specified in this paragraph is the
volume-weighted average of the average sales prices reported
under section 1927(b)(3)(A)(iii) determined by—
‘‘(A) computing the sum of the products (for each
National Drug Code assigned to such drug products) of—
‘‘(i) the manufacturer’s average sales price (as
defined in subsection (c)); and
‘‘(ii) the total number of units specified under para-
graph (2) sold; and
‘‘(B) dividing the sum determined under subparagraph
(A) by the sum of the total number of units under subpara-
graph (A)(ii) for all National Drug Codes assigned to such
drug products.
‘‘(4) SINGLE SOURCE DRUG OR BIOLOGICAL.—The amount
specified in this paragraph for a single source drug or biological
is the lesser of the following:
‘‘(A) AVERAGE SALES PRICE.—The average sales price
as determined using the methodology applied under para-
graph (3) for all National Drug Codes assigned to such
drug or biological product.
‘‘(B) WHOLESALE ACQUISITION COST (WAC).—The whole-
sale acquisition cost (as defined in subsection (c)(6)(B))
using the methodology applied under paragraph (3) for
all National Drug Codes assigned to such drug or biological
product.
‘‘(5) BASIS FOR PAYMENT AMOUNT.—The payment amount
shall be determined under this subsection based on information
reported under subsection (f) and without regard to any special
packaging, labeling, or identifiers on the dosage form or product
or package.
‘‘(c) MANUFACTURER’S AVERAGE SALES PRICE.—
‘‘(1) IN
GENERAL.—For purposes of this section, subject
to paragraphs (2) and (3), the manufacturer’s ‘average sales
price’ means, of a drug or biological for a National Drug Code
for a calendar quarter for a manufacturer for a unit—
‘‘(A) the manufacturer’s sales to all purchasers
(excluding sales exempted in paragraph (2)) in the United
States for such drug or biological in the calendar quarter;
divided by
‘‘(B) the total number of such units of such drug or
biological sold by the manufacturer in such quarter.
‘‘(2) CERTAIN SALES EXEMPTED FROM COMPUTATION.—In cal-
culating the manufacturer’s average sales price under this sub-
section, the following sales shall be excluded:
‘‘(A) SALES EXEMPT FROM BEST PRICE.—Sales exempt
from the inclusion in the determination of ‘best price’ under
section 1927(c)(1)(C)(i).
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117 STAT. 2241
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(B) SALES AT NOMINAL CHARGE.—Such other sales as
the Secretary identifies as sales to an entity that are merely
nominal in amount (as applied for purposes of section
1927(c)(1)(C)(ii)(III), except as the Secretary may otherwise
provide).
‘‘(3) SALE
PRICE
NET
OF
DISCOUNTS.—In calculating the
manufacturer’s average sales price under this subsection, such
price shall include volume discounts, prompt pay discounts,
cash discounts, free goods that are contingent on any purchase
requirement, chargebacks, and rebates (other than rebates
under section 1927). For years after 2004, the Secretary may
include in such price other price concessions, which may be
based on recommendations of the Inspector General, that would
result in a reduction of the cost to the purchaser.
‘‘(4) PAYMENT
METHODOLOGY
IN
CASES
WHERE
AVERAGE
SALES PRICE DURING FIRST QUARTER OF SALES IS UNAVAILABLE.—
In the case of a drug or biological during an initial period
(not to exceed a full calendar quarter) in which data on the
prices for sales for the drug or biological is not sufficiently
available from the manufacturer to compute an average sales
price for the drug or biological, the Secretary may determine
the amount payable under this section for the drug or biological
based on—
‘‘(A) the wholesale acquisition cost; or
‘‘(B) the methodologies in effect under this part on
November 1, 2003, to determine payment amounts for
drugs or biologicals.
‘‘(5) FREQUENCY OF DETERMINATIONS.—
‘‘(A) IN GENERAL ON A QUARTERLY BASIS.—The manu-
facturer’s average sales price, for a drug or biological of
a manufacturer, shall be calculated by such manufacturer
under this subsection on a quarterly basis. In making
such calculation insofar as there is a lag in the reporting
of the information on rebates and chargebacks under para-
graph (3) so that adequate data are not available on a
timely basis, the manufacturer shall apply a methodology
based on a 12-month rolling average for the manufacturer
to estimate costs attributable to rebates and chargebacks.
For years after 2004, the Secretary may establish a uniform
methodology under this subparagraph to estimate and
apply such costs.
‘‘(B) UPDATES
IN
PAYMENT
AMOUNTS.—The payment
amounts under subsection (b) shall be updated by the Sec-
retary on a quarterly basis and shall be applied based
upon the manufacturer’s average sales price calculated for
the most recent calendar quarter for which data is avail-
able.
‘‘(C) USE OF CONTRACTORS; IMPLEMENTATION.—The Sec-
retary may contract with appropriate entities to calculate
the payment amount under subsection (b). Notwithstanding
any other provision of law, the Secretary may implement,
by program instruction or otherwise, any of the provisions
of this section.
‘‘(6) DEFINITIONS AND OTHER RULES.—In this section:
‘‘(A) MANUFACTURER.—The term ‘manufacturer’ means,
with respect to a drug or biological, the manufacturer (as
defined in section 1927(k)(5)).
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‘‘(B) WHOLESALE ACQUISITION COST.—The term ‘whole-
sale acquisition cost’ means, with respect to a drug or
biological, the manufacturer’s list price for the drug or
biological to wholesalers or direct purchasers in the United
States, not including prompt pay or other discounts, rebates
or reductions in price, for the most recent month for which
the information is available, as reported in wholesale price
guides or other publications of drug or biological pricing
data.
‘‘(C) MULTIPLE SOURCE DRUG.—
‘‘(i) IN GENERAL.—The term ‘multiple source drug’
means, for a calendar quarter, a drug for which there
are 2 or more drug products which—
‘‘(I) are rated as therapeutically equivalent
(under the Food and Drug Administration’s most
recent publication of ‘Approved Drug Products with
Therapeutic Equivalence Evaluations’),
‘‘(II) except as provided in subparagraph (E),
are pharmaceutically equivalent and bioequiva-
lent, as determined under subparagraph (F) and
as determined by the Food and Drug Administra-
tion, and
‘‘(III) are sold or marketed in the United States
during the quarter.
‘‘(ii) EXCEPTION.—With respect to single source
drugs or biologicals that are within the same billing
and payment code as of October 1, 2003, the Secretary
shall treat such single source drugs or biologicals as
if the single source drugs or biologicals were multiple
source drugs.
‘‘(D) SINGLE SOURCE DRUG OR BIOLOGICAL.—The term
‘single source drug or biological’ means—
‘‘(i) a biological; or
‘‘(ii) a drug which is not a multiple source drug
and which is produced or distributed under a new
drug application approved by the Food and Drug
Administration, including a drug product marketed by
any cross-licensed producers or distributors operating
under the new drug application.
‘‘(E) EXCEPTION FROM PHARMACEUTICAL EQUIVALENCE
AND BIOEQUIVALENCE REQUIREMENT.—Subparagraph (C)(ii)
shall not apply if the Food and Drug Administration
changes by regulation the requirement that, for purposes
of the publication described in subparagraph (C)(i), in order
for drug products to be rated as therapeutically equivalent,
they must be pharmaceutically equivalent and bioequiva-
lent, as defined in subparagraph (F).
‘‘(F) DETERMINATION OF PHARMACEUTICAL EQUIVALENCE
AND BIOEQUIVALENCE.—For purposes of this paragraph—
‘‘(i) drug products are pharmaceutically equivalent
if the products contain identical amounts of the same
active drug ingredient in the same dosage form and
meet compendial or other applicable standards of
strength, quality, purity, and identity; and
‘‘(ii) drugs are bioequivalent if they do not present
a known or potential bioequivalence problem, or, if
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117 STAT. 2243
PUBLIC LAW 108–173—DEC. 8, 2003
they do present such a problem, they are shown to
meet an appropriate standard of bioequivalence.
‘‘(G) INCLUSION OF VACCINES.—In applying provisions
of section 1927 under this section, ‘other than a vaccine’
is deemed deleted from section 1927(k)(2)(B).
‘‘(d) MONITORING OF MARKET PRICES.—
‘‘(1) IN GENERAL.—The Inspector General of the Department
of Health and Human Services shall conduct studies, which
may include surveys, to determine the widely available market
prices of drugs and biologicals to which this section applies,
as the Inspector General, in consultation with the Secretary,
determines to be appropriate.
‘‘(2) COMPARISON OF PRICES.—Based upon such studies and
other data for drugs and biologicals, the Inspector General
shall compare the average sales price under this section for
drugs and biologicals with—
‘‘(A) the widely available market price for such drugs
and biologicals (if any); and
‘‘(B) the average manufacturer price (as determined
under section 1927(k)(1)) for such drugs and biologicals.
‘‘(3) LIMITATION ON AVERAGE SALES PRICE.—
‘‘(A) IN GENERAL.—The Secretary may disregard the
average sales price for a drug or biological that exceeds
the widely available market price or the average manufac-
turer price for such drug or biological by the applicable
threshold percentage (as defined in subparagraph (B)).
‘‘(B) APPLICABLE THRESHOLD PERCENTAGE DEFINED.—
In this paragraph, the term ‘applicable threshold percent-
age’ means—
‘‘(i) in 2005, in the case of an average sales price
for a drug or biological that exceeds widely available
market price or the average manufacturer price, 5
percent; and
‘‘(ii) in 2006 and subsequent years, the percentage
applied under this subparagraph subject to such
adjustment as the Secretary may specify for the widely
available market price or the average manufacturer
price, or both.
‘‘(C) AUTHORITY TO ADJUST AVERAGE SALES PRICE.—
If the Inspector General finds that the average sales price
for a drug or biological exceeds such widely available
market price or average manufacturer price for such drug
or biological by the applicable threshold percentage, the
Inspector General shall inform the Secretary (at such times
as the Secretary may specify to carry out this subpara-
graph) and the Secretary shall, effective as of the next
quarter, substitute for the amount of payment otherwise
determined under this section for such drug or biological
the lesser of—
‘‘(i) the widely available market price for the drug
or biological (if any); or
‘‘(ii) 103 percent of the average manufacturer price
(as determined under section 1927(k)(1)) for the drug
or biological.
‘‘(4) CIVIL MONEY PENALTY.—
‘‘(A) IN GENERAL.—If the Secretary determines that
a manufacturer has made a misrepresentation in the
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reporting of the manufacturer’s average sales price for a
drug or biological, the Secretary may apply a civil money
penalty in an amount of up to $10,000 for each such price
misrepresentation and for each day in which such price
misrepresentation was applied.
‘‘(B) PROCEDURES.—The provisions of section 1128A
(other than subsections (a) and (b)) shall apply to civil
money penalties under subparagraph (B) in the same
manner as they apply to a penalty or proceeding under
section 1128A(a).
‘‘(5) WIDELY AVAILABLE MARKET PRICE.—
‘‘(A) IN GENERAL.—In this subsection, the term ‘widely
available market price’ means the price that a prudent
physician or supplier would pay for the drug or biological.
In determining such price, the Inspector General shall
take into account the discounts, rebates, and other price
concessions routinely made available to such prudent physi-
cians or suppliers for such drugs or biologicals.
‘‘(B) CONSIDERATIONS.—In determining the price under
subparagraph (A), the Inspector General shall consider
information from one or more of the following sources:
‘‘(i) Manufacturers.
‘‘(ii) Wholesalers.
‘‘(iii) Distributors.
‘‘(iv) Physician supply houses.
‘‘(v) Specialty pharmacies.
‘‘(vi) Group purchasing arrangements.
‘‘(vii) Surveys of physicians.
‘‘(viii) Surveys of suppliers.
‘‘(ix) Information on such market prices from
insurers.
‘‘(x) Information on such market prices from pri-
vate health plans.
‘‘(e) AUTHORITY TO USE ALTERNATIVE PAYMENT IN RESPONSE
TO PUBLIC HEALTH EMERGENCY.—In the case of a public health
emergency under section 319 of the Public Health Service Act
in which there is a documented inability to access drugs and
biologicals, and a concomitant increase in the price, of a drug
or biological which is not reflected in the manufacturer’s average
sales price for one or more quarters, the Secretary may use the
wholesale acquisition cost (or other reasonable measure of drug
or biological price) instead of the manufacturer’s average sales
price for such quarters and for subsequent quarters until the price
and availability of the drug or biological has stabilized and is
substantially reflected in the applicable manufacturer’s average
sales price.
‘‘(f) QUARTERLY
REPORT
ON
AVERAGE
SALES
PRICE.—For
requirements for reporting the manufacturer’s average sales price
(and, if required to make payment, the manufacturer’s wholesale
acquisition cost) for the drug or biological under this section, see
section 1927(b)(3).
‘‘(g) JUDICIAL REVIEW.—There shall be no administrative or
judicial review under section 1869, section 1878, or otherwise, of—
‘‘(1) determinations of payment amounts under this section,
including the assignment of National Drug Codes to billing
and payment codes;
Definition.
Applicability.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(2) the identification of units (and package size) under
subsection (b)(2);
‘‘(3) the method to allocate rebates, chargebacks, and other
price concessions to a quarter if specified by the Secretary;
‘‘(4) the manufacturer’s average sales price when it is used
for the determination of a payment amount under this section;
and
‘‘(5) the disclosure of the average manufacturer price by
reason of an adjustment under subsection (d)(3)(C) or (e).’’.
(2) REPORT ON SALES TO PHARMACY BENEFIT MANAGERS.—
(A) STUDY.—The Secretary shall conduct a study on
sales of drugs and biologicals to large volume purchasers,
such as pharmacy benefit managers and health mainte-
nance organizations, for purposes of determining whether
the price at which such drugs and biologicals are sold
to such purchasers does not represent the price such drugs
and biologicals are made available for purchase to prudent
physicians.
(B) REPORT.—Not later than January 1, 2006, the Sec-
retary shall submit to Congress a report on the study
conducted under paragraph (1), and shall include rec-
ommendations on whether such sales to large volume pur-
chasers should be excluded from the computation of a
manufacturer’s average sales price under section 1847A
of the Social Security Act, as added by paragraph (1).
(3) 
INSPECTOR
GENERAL
REPORT
ON
ADEQUACY
OF
REIMBURSEMENT RATE UNDER AVERAGE SALES PRICE METHOD-
OLOGY.—
(A) STUDY.—The Inspector General of the Department
of Health and Human Services shall conduct a study on
the ability of physician practices in the specialties of hema-
tology, hematology/oncology, and medical oncology of dif-
ferent sizes, especially particularly large practices, to obtain
drugs and biologicals for the treatment of cancer patients
at 106 percent of the average sales price for the drugs
and biologicals. In conducting the study, the Inspector Gen-
eral shall conduct an audit of a representative sample
of such practices to determine the adequacy of reimburse-
ment under section 1847A of the Social Security Act, as
added by paragraph (1).
(B) REPORT.—Not later October 1, 2005, the Inspector
General shall submit to Congress a report on the study
conducted under subparagraph (A), and shall include rec-
ommendations on the adequacy of reimbursement for such
drugs and biologicals under such section 1847A.
(d) PAYMENT BASED ON COMPETITION.—
(1) IN GENERAL.—Title XVIII is amended by inserting after
section 1847A, as added by subsection (c), the following new
section:
‘‘COMPETITIVE ACQUISITION OF OUTPATIENT DRUGS AND BIOLOGICALS
‘‘SEC. 1847B. (a) IMPLEMENTATION OF COMPETITIVE ACQUISI-
TION.—
‘‘(1) IMPLEMENTATION OF PROGRAM.—
‘‘(A) IN GENERAL.—The Secretary shall establish and
implement a competitive acquisition program under
which—
42 USC
1395w–3b.
Deadline.
42 USC
1395w–3a note.
Deadline.
42 USC
1395w–3a note.
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117 STAT. 2246
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(i) competitive acquisition areas are established
for contract award purposes for acquisition of and pay-
ment for categories of competitively biddable drugs
and biologicals (as defined in paragraph (2)) under
this part;
‘‘(ii) each physician is given the opportunity
annually to elect to obtain drugs and biologicals under
the program, rather than under section 1847A; and
‘‘(iii) each physician who elects to obtain drugs
and biologicals under the program makes an annual
selection under paragraph (5) of the contractor through
which drugs and biologicals within a category of drugs
and biologicals will be acquired and delivered to the
physician under this part.
This section shall not apply in the case of a physician
who elects section 1847A to apply.
‘‘(B) IMPLEMENTATION.—For purposes of implementing
the program, the Secretary shall establish categories of
competitively biddable drugs and biologicals. The Secretary
shall phase in the program with respect to those categories
beginning in 2006 in such manner as the Secretary deter-
mines to be appropriate.
‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In order to pro-
mote competition, in carrying out the program the Sec-
retary may waive such provisions of the Federal Acquisition
Regulation as are necessary for the efficient implementa-
tion of this section, other than provisions relating to con-
fidentiality of information and such other provisions as
the Secretary determines appropriate.
‘‘(D) EXCLUSION
AUTHORITY.—The Secretary may
exclude competitively biddable drugs and biologicals
(including a class of such drugs and biologicals) from the
competitive bidding system under this section if the
application of competitive bidding to such drugs or
biologicals—
‘‘(i) is not likely to result in significant savings;
or
‘‘(ii) is likely to have an adverse impact on access
to such drugs or biologicals.
‘‘(2) COMPETITIVELY BIDDABLE DRUGS AND BIOLOGICALS AND
PROGRAM DEFINED.—For purposes of this section—
‘‘(A) COMPETITIVELY BIDDABLE DRUGS AND BIOLOGICALS
DEFINED.—The term ‘competitively biddable drugs and
biologicals’ means a drug or biological described in section
1842(o)(1)(C) and furnished on or after January 1, 2006.
‘‘(B) 
PROGRAM.—The 
term 
‘program’ 
means 
the
competitive acquisition program under this section.
‘‘(C) COMPETITIVE ACQUISITION AREA; AREA.—The terms
‘competitive acquisition area’ and ‘area’ mean an appro-
priate geographic region established by the Secretary under
the program.
‘‘(D) CONTRACTOR.—The term ‘contractor’ means an
entity that has entered into a contract with the Secretary
under this section.
‘‘(3) APPLICATION OF PROGRAM PAYMENT METHODOLOGY.—
‘‘(A) IN GENERAL.—With respect to competitively bid-
dable drugs and biologicals which are supplied under the
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117 STAT. 2247
PUBLIC LAW 108–173—DEC. 8, 2003
program in an area and which are prescribed by a physician
who has elected this section to apply—
‘‘(i) the claim for such drugs and biologicals shall
be submitted by the contractor that supplied the drugs
and biologicals;
‘‘(ii) collection of amounts of any deductible and
coinsurance applicable with respect to such drugs and
biologicals shall be the responsibility of such contractor
and shall not be collected unless the drug or biological
is administered to the individual involved; and
‘‘(iii) the payment under this section (and related
amounts of any applicable deductible and coinsurance)
for such drugs and biologicals—
‘‘(I) shall be made only to such contractor;
and
‘‘(II) shall be conditioned upon the administra-
tion of such drugs and biologicals.
‘‘(B) PROCESS FOR ADJUSTMENTS.—The Secretary shall
provide a process for adjustments to payments in the case
in which payment is made for drugs and biologicals which
were billed at the time of dispensing but which were not
actually administered.
‘‘(C) INFORMATION FOR PURPOSES OF COST-SHARING.—
The Secretary shall provide a process by which physicians
submit information to contractors for purposes of the collec-
tion of any applicable deductible or coinsurance amounts
under subparagraph (A)(ii).
‘‘(4) CONTRACT
REQUIRED.—Payment may not be made
under this part for competitively biddable drugs and biologicals
prescribed by a physician who has elected this section to apply
within a category and a competitive acquisition area with
respect to which the program applies unless—
‘‘(A) the drugs or biologicals are supplied by a con-
tractor with a contract under this section for such category
of drugs and biologicals and area; and
‘‘(B) the physician has elected such contractor under
paragraph (5) for such category and area.
‘‘(5) CONTRACTOR SELECTION PROCESS.—
‘‘(A) ANNUAL SELECTION.—
‘‘(i) IN GENERAL.—The Secretary shall provide a
process for the selection of a contractor, on an annual
basis and in such exigent circumstances as the Sec-
retary may provide and with respect to each category
of competitively biddable drugs and biologicals for an
area by selecting physicians.
‘‘(ii) TIMING OF SELECTION.—The selection of a con-
tractor under clause (i) shall be made at the time
of the election described in section 1847A(a) for this
section to apply and shall be coordinated with agree-
ments entered into under section 1842(h).
‘‘(B) INFORMATION
ON
CONTRACTORS.—The Secretary
shall make available to physicians on an ongoing basis,
through a directory posted on the Internet website of the
Centers for Medicare & Medicaid Services or otherwise
and upon request, a list of the contractors under this sec-
tion in the different competitive acquisition areas.
Internet.
Procedures.
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117 STAT. 2248
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(C) SELECTING PHYSICIAN DEFINED.—For purposes of
this section, the term ‘selecting physician’ means, with
respect to a contractor and category and competitive
acquisition area, a physician who has elected this section
to apply and has selected to apply under this section such
contractor for such category and area.
‘‘(b) PROGRAM REQUIREMENTS.—
‘‘(1) CONTRACT FOR COMPETITIVELY BIDDABLE DRUGS AND
BIOLOGICALS.—The Secretary shall conduct a competition
among entities for the acquisition of competitively biddable
drugs and biologicals. Notwithstanding any other provision of
this title, in the case of a multiple source drug, the Secretary
shall conduct such competition among entities for the acquisi-
tion of at least one competitively biddable drug and biological
within each billing and payment code within each category
for each competitive acquisition area.
‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—
‘‘(A) IN GENERAL.—The Secretary may not award a
contract to any entity under the competition conducted
in a competitive acquisition area pursuant to paragraph
(1) with respect to the acquisition of competitively biddable
drugs and biologicals within a category unless the Secretary
finds that the entity meets all of the following with respect
to the contract period involved:
‘‘(i) CAPACITY TO SUPPLY COMPETITIVELY BIDDABLE
DRUG OR BIOLOGICAL WITHIN CATEGORY.—
‘‘(I) IN
GENERAL.—The entity has sufficient
arrangements to acquire and to deliver competi-
tively biddable drugs and biologicals within such
category in the area specified in the contract.
‘‘(II) SHIPMENT
METHODOLOGY.—The entity
has arrangements in effect for the shipment at
least 5 days each week of competitively biddable
drugs and biologicals under the contract and for
the timely delivery (including for emergency situa-
tions) of such drugs and biologicals in the area
under the contract.
‘‘(ii) QUALITY, SERVICE, FINANCIAL
PERFORMANCE
AND SOLVENCY STANDARDS.—The entity meets quality,
service, financial performance, and solvency standards
specified by the Secretary, including—
‘‘(I) the establishment of procedures for the
prompt response and resolution of complaints of
physicians and individuals and of inquiries
regarding the shipment of competitively biddable
drugs and biologicals; and
‘‘(II) a grievance and appeals process for the
resolution of disputes.
‘‘(B) ADDITIONAL CONSIDERATIONS.—The Secretary may
refuse to award a contract under this section, and may
terminate such a contract, with an entity based upon—
‘‘(i) the suspension or revocation, by the Federal
Government or a State government, of the entity’s
license for the distribution of drugs or biologicals
(including controlled substances); or
‘‘(ii) the exclusion of the entity under section 1128
from participation under this title.
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117 STAT. 2249
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(C) APPLICATION
OF
MEDICARE
PROVIDER
OMBUDS-
MAN.—For provision providing for a program-wide Medicare
Provider Ombudsman to review complaints, see section
1868(b), as added by section 923 of the Medicare Prescrip-
tion Drug, Improvement, and Modernization Act of 2003.
‘‘(3) AWARDING MULTIPLE CONTRACTS FOR A CATEGORY AND
AREA.—The Secretary may limit (but not below 2) the number
of qualified entities that are awarded such contracts for any
category and area. The Secretary shall select among qualified
entities based on the following:
‘‘(A) The bid prices for competitively biddable drugs
and biologicals within the category and area.
‘‘(B) Bid price for distribution of such drugs and
biologicals.
‘‘(C) Ability to ensure product integrity.
‘‘(D) Customer service.
‘‘(E) Past experience in the distribution of drugs and
biologicals, including controlled substances.
‘‘(F) Such other factors as the Secretary may specify.
‘‘(4) TERMS OF CONTRACTS.—
‘‘(A) IN
GENERAL.—A contract entered into with an
entity under the competition conducted pursuant to para-
graph (1) is subject to terms and conditions that the Sec-
retary may specify consistent with this section.
‘‘(B) PERIOD OF CONTRACTS.—A contract under this sec-
tion shall be for a term of 3 years, but may be terminated
by the Secretary or the entity with appropriate, advance
notice.
‘‘(C) INTEGRITY OF DRUG AND BIOLOGICAL DISTRIBUTION
SYSTEM.—A contractor (as defined in subsection (a)(2)(D))
shall—
‘‘(i) acquire all drug and biological products it
distributes directly from the manufacturer or from a
distributor that has acquired the products directly from
the manufacturer; and
‘‘(ii) comply with any product integrity safeguards
as may be determined to be appropriate by the Sec-
retary.
Nothing in this subparagraph shall be construed to relieve
or exempt any contractor from the provisions of the Federal
Food, Drug, and Cosmetic Act that relate to the wholesale
distribution of prescription drugs or biologicals.
‘‘(D) COMPLIANCE WITH CODE OF CONDUCT AND FRAUD
AND ABUSE RULES.—Under the contract—
‘‘(i) the contractor shall comply with a code of
conduct, specified or recognized by the Secretary, that
includes standards relating to conflicts of interest; and
‘‘(ii) the contractor shall comply with all applicable
provisions relating to prevention of fraud and abuse,
including compliance with applicable guidelines of the
Department of Justice and the Inspector General of
the Department of Health and Human Services.
‘‘(E) DIRECT DELIVERY OF DRUGS AND BIOLOGICALS TO
PHYSICIANS.—Under the contract the contractor shall only
supply competitively biddable drugs and biologicals directly
to the selecting physicians and not directly to individuals,
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PUBLIC LAW 108–173—DEC. 8, 2003
except under circumstances and settings where an indi-
vidual currently receives a drug or biological in the individ-
ual’s home or other non-physician office setting as the
Secretary may provide. The contractor shall not deliver
drugs and biologicals to a selecting physician except upon
receipt of a prescription for such drugs and biologicals,
and such necessary data as may be required by the Sec-
retary to carry out this section. This section does not—
‘‘(i) require a physician to submit a prescription
for each individual treatment; or
‘‘(ii) change a physician’s flexibility in terms of
writing a prescription for drugs or biologicals for a
single treatment or a course of treatment.
‘‘(5) PERMITTING ACCESS TO DRUGS AND BIOLOGICALS.—The
Secretary shall establish rules under this section under which
drugs and biologicals which are acquired through a contractor
under this section may be used to resupply inventories of such
drugs and biologicals which are administered consistent with
safe drug practices and with adequate safeguards against fraud
and abuse. The previous sentence shall apply if the physicians
can demonstrate to the Secretary all of the following:
‘‘(A) The drugs or biologicals are required immediately.
‘‘(B) The physician could not have reasonably antici-
pated the immediate requirement for the drugs or
biologicals.
‘‘(C) The contractor could not deliver to the physician
the drugs or biologicals in a timely manner.
‘‘(D) The drugs or biologicals were administered in
an emergency situation.
‘‘(6) CONSTRUCTION.—Nothing in this section shall be con-
strued as waiving applicable State requirements relating to
licensing of pharmacies.
‘‘(c) BIDDING PROCESS.—
‘‘(1) IN GENERAL.—In awarding a contract for a category
of drugs and biologicals in an area under the program, the
Secretary shall consider with respect to each entity seeking
to be awarded a contract the bid price and the other factors
referred to in subsection (b)(3).
‘‘(2) BID DEFINED.—In this section, the term ‘bid’ means
an offer to furnish a competitively biddable drug or biological
for a particular price and time period.
‘‘(3) BIDDING ON A NATIONAL OR REGIONAL BASIS.—Nothing
in this section shall be construed as precluding a bidder from
bidding for contracts in all areas of the United States or as
requiring a bidder to submit a bid for all areas of the United
States.
‘‘(4) UNIFORMITY OF BIDS WITHIN AREA.—The amount of
the bid submitted under a contract offer for any competitively
biddable drug or biological for an area shall be the same for
that drug or biological for all portions of that area.
‘‘(5) CONFIDENTIALITY OF BIDS.—The provisions of subpara-
graph (D) of section 1927(b)(3) shall apply to periods during
which a bid is submitted with respect to a competitively bid-
dable drug or biological under this section in the same manner
as it applies to information disclosed under such section, except
that any reference—
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117 STAT. 2251
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(A) in that subparagraph to a ‘manufacturer or whole-
saler’ is deemed a reference to a ‘bidder’ under this section;
‘‘(B) in that section to ‘prices charged for drugs’ is
deemed a reference to a ‘bid’ submitted under this section;
and
‘‘(C) in clause (i) of that section to ‘this section’, is
deemed a reference to ‘part B of title XVIII’.
‘‘(6) INCLUSION OF COSTS.—The bid price submitted in a
contract offer for a competitively biddable drug or biological
shall—
‘‘(A) include all costs related to the delivery of the
drug or biological to the selecting physician (or other point
of delivery); and
‘‘(B) include the costs of dispensing (including shipping)
of such drug or biological and management fees, but shall
not include any costs related to the administration of the
drug or biological, or wastage, spillage, or spoilage.
‘‘(7) PRICE ADJUSTMENTS DURING CONTRACT PERIOD; DISCLO-
SURE OF COSTS.—Each contract awarded shall provide for—
‘‘(A) disclosure to the Secretary the contractor’s reason-
able, net acquisition costs for periods specified by the Sec-
retary, not more often than quarterly, of the contract; and
‘‘(B) appropriate price adjustments over the period of
the contract to reflect significant increases or decreases
in a contractor’s reasonable, net acquisition costs, as so
disclosed.
‘‘(d) COMPUTATION OF PAYMENT AMOUNTS.—
‘‘(1) IN GENERAL.—Payment under this section for competi-
tively biddable drugs or biologicals shall be based on bids
submitted and accepted under this section for such drugs or
biologicals in an area. Based on such bids the Secretary shall
determine a single payment amount for each competitively
biddable drug or biological in the area.
‘‘(2) SPECIAL RULES.—The Secretary shall establish rules
regarding the use under this section of the alternative payment
amount provided under section 1847A to the use of a price
for specific competitively biddable drugs and biologicals in the
following cases:
‘‘(A) NEW DRUGS AND BIOLOGICALS.—A competitively
biddable drug or biological for which a payment and billing
code has not been established.
‘‘(B) OTHER CASES.—Such other exceptional cases as
the Secretary may specify in regulations.
‘‘(e) COST-SHARING.—
‘‘(1) APPLICATION OF COINSURANCE.—Payment under this
section for competitively biddable drugs and biologicals shall
be in an amount equal to 80 percent of the payment basis
described in subsection (d)(1).
‘‘(2) DEDUCTIBLE.—Before applying paragraph (1), the indi-
vidual shall be required to meet the deductible described in
section 1833(b).
‘‘(3) COLLECTION.—Such coinsurance and deductible shall
be collected by the contractor that supplies the drug or
biological involved. Subject to subsection (a)(3)(B), such coinsur-
ance and deductible may be collected in a manner similar
to the manner in which the coinsurance and deductible are
collected for durable medical equipment under this part.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(f) SPECIAL PAYMENT RULES.—
‘‘(1) USE IN EXCLUSION CASES.—If the Secretary excludes
a drug or biological (or class of drugs or biologicals) under
subsection (a)(1)(D), the Secretary may provide for payment
to be made under this part for such drugs and biologicals
(or class) using the payment methodology under section 1847A.
‘‘(2) APPLICATION OF REQUIREMENT FOR ASSIGNMENT.—For
provision requiring assignment of claims for competitively bid-
dable drugs and biologicals, see section 1842(o)(3).
‘‘(3) PROTECTION
FOR
BENEFICIARY
IN
CASE
OF
MEDICAL
NECESSITY
DENIAL.—For protection of individuals against
liability in the case of medical necessity determinations, see
section 1842(b)(3)(B)(ii)(III).
‘‘(g) JUDICIAL REVIEW.—There shall be no administrative or
judicial review under section 1869, section 1878, or otherwise, of—
‘‘(1) the establishment of payment amounts under sub-
section (d)(1);
‘‘(2) the awarding of contracts under this section;
‘‘(3) the establishment of competitive acquisition areas
under subsection (a)(2)(C);
‘‘(4) the phased-in implementation under subsection
(a)(1)(B);
‘‘(5) the selection of categories of competitively biddable
drugs and biologicals for competitive acquisition under such
subsection or the selection of a drug in the case of multiple
source drugs; or
‘‘(6) the bidding structure and number of contractors
selected under this section.’’.
(2) REPORT.—Not later than July 1, 2008, the Secretary
shall submit to Congress a report on the program conducted
under section 1847B of the Social Security Act, as added by
paragraph (1). Such report shall include information on savings,
reductions in cost-sharing, access to competitively biddable
drugs and biologicals, the range of choices of contractors avail-
able to physicians, the satisfaction of physicians and of individ-
uals enrolled under this part, and information comparing prices
for drugs and biologicals under such section and section 1847A
of such Act, as added by subsection (c).
(e) ADJUSTMENTS TO PAYMENT AMOUNTS FOR ADMINISTRATION
OF DRUGS AND BIOLOGICALS.—
(1) ITEMS AND SERVICES RELATING TO FURNISHING OF BLOOD
CLOTTING FACTORS.—Section 1842(o) (42 U.S.C. 1395u(o)), as
amended by subsection (b)(2), is amended by adding at the
end the following new paragraph:
‘‘(5)(A) Subject to subparagraph (B), in the case of clotting
factors furnished on or after January 1, 2005, the Secretary shall,
after reviewing the January 2003 report to Congress by the Comp-
troller General of the United States entitled ‘Payment for Blood
Clotting Factor Exceeds Providers Acquisition Cost’, provide for
a separate payment, to the entity which furnishes to the patient
blood clotting factors, for items and services related to the fur-
nishing of such factors in an amount that the Secretary determines
to be appropriate. Such payment amount may take into account
any or all of the following:
‘‘(i) The mixing (if appropriate) and delivery of factors
to an individual, including special inventory management and
storage requirements.
Deadline.
42 USC
1395w–3b note.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) Ancillary supplies and patient training necessary for
the self-administration of such factors.
‘‘(B) In determining the separate payment amount under
subparagraph (A) for blood clotting factors furnished in 2005, the
Secretary shall ensure that the total amount of payments under
this part (as estimated by the Secretary) for such factors under
paragraph (1)(C) and such separate payments for such factors does
not exceed the total amount of payments that would have been
made for such factors under this part (as estimated by the Sec-
retary) if the amendments made by section 303 of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003
had not been enacted.
‘‘(C) The separate payment amount under this subparagraph
for blood clotting factors furnished in 2006 or a subsequent year
shall be equal to the separate payment amount determined under
this paragraph for the previous year increased by the percentage
increase in the consumer price index for medical care for the 12-
month period ending with June of the previous year.’’.
(2) PHARMACY
SUPPLYING
FEE
FOR
CERTAIN
DRUGS
AND
BIOLOGICALS.—Section 1842(o) (42 U.S.C. 1395u(o)), as pre-
viously amended, is amended by adding at the end the following
new paragraph:
‘‘(6) In the case of an immunosuppressive drug described in
subparagraph (J) of section 1861(s)(2) and an oral drug described
in subparagraph (Q) or (T) of such section, the Secretary shall
pay to the pharmacy a supplying fee for such a drug determined
appropriate by the Secretary (less the applicable deductible and
coinsurance amounts).’’.
(f) LINKAGE OF REVISED DRUG PAYMENTS AND INCREASES FOR
DRUG ADMINISTRATION.—The Secretary shall not implement the
revisions in payment amounts for drugs and biologicals adminis-
tered by physicians as a result of the amendments made by sub-
section (b) with respect to 2004 unless the Secretary concurrently
makes adjustments to the practice expense payment adjustment
under the amendments made by subsection (a).
(g) PROHIBITION OF ADMINISTRATIVE AND JUDICIAL REVIEW.—
(1) DRUGS.—Section 1842(o) (42 U.S.C. 1395u(o)), as pre-
viously amended, is amended by adding at the end the following
new paragraph:
‘‘(7) There shall be no administrative or judicial review under
section 1869, section 1878, or otherwise, of determinations of pay-
ment amounts, methods, or adjustments under paragraphs (4)
through (6).’’.
(2) PHYSICIAN
FEE
SCHEDULE.—Section 1848(i)(1)(B) (42
U.S.C. 1395w–4(i)(1)(B)) is amended by striking ‘‘subsection
(c)(2)(F)’’ and inserting ‘‘subsections (c)(2)(F), (c)(2)(H), and
(c)(2)(I)’’.
(3) MULTIPLE
CHEMOTHERAPY
AGENTS, OTHER
SERVICES
CURRENTLY ON THE NON-PHYSICIAN WORK POOL, AND TRANSI-
TIONAL
ADJUSTMENT.—There shall be no administrative or
judicial review under section 1869, section 1878, or otherwise,
of determinations of payment amounts, methods, or adjust-
ments under paragraphs (2) through (4) of subsection (a).
(h) CONTINUATION
OF PAYMENT METHODOLOGY
FOR RADIO-
PHARMACEUTICALS.—Nothing in the amendments made by this sec-
tion shall be construed as changing the payment methodology under
42 USC 1395u
note.
42 USC 1395w–4
note.
42 USC 1395u
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
part B of title XVIII of the Social Security Act for radiopharma-
ceuticals, including the use by carriers of invoice pricing method-
ology.
(i) CONFORMING AMENDMENTS.—
(1) APPLICATION OF ASP AND COMPETITIVE BIDDING.—Section
1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended by adding at
the end the following: ‘‘This paragraph shall not apply in the
case of payment under paragraph (1)(C).’’.
(2) NO CHANGE IN COVERAGE BASIS.—Section 1861(s)(2)(A)
(42 U.S.C. 1395x(s)(2)(A)) is amended by inserting ‘‘(or would
have been so included but for the application of section 1847B)’’
after ‘‘included in the physicians’ bills’’.
(3) 
PAYMENT.—(A) 
Section 
1833(a)(1)(S) 
(42 
U.S.C.
1395l(a)(1)(S)) is amended by inserting ‘‘(or, if applicable, under
section 1847, 1847A, or 1847B)’’ after ‘‘1842(o)’’.
(B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is amended—
(i) by striking ‘‘and’’ at the end of subparagraph (H);
(ii) by striking the semicolon at the end of subpara-
graph (I) and inserting ‘‘, and’’; and
(iii) by adding at the end the following new subpara-
graph:
‘‘(J) in the case of a drug or biological specified in section
1847A(c)(6)(C) for which payment is made under part B that
is furnished in a competitive area under section 1847B, that
is not furnished by an entity under a contract under such
section;’’.
(4) CONSOLIDATED REPORTING OF PRICING INFORMATION.—
Section 1927 (42 U.S.C. 1396r–8) is amended—
(A) in subsection (a)(1), by inserting ‘‘or under part
B of title XVIII’’ after ‘‘section 1903(a)’’;
(B) in subsection (b)(3)(A)—
(i) in clause (i), by striking ‘‘and’’ at the end and
inserting a semicolon;
(ii) in clause (ii), by striking the period and
inserting ‘‘; and’’; and
(iii) by adding at the end the following:
‘‘(iii) for calendar quarters beginning on or after
January 1, 2004, in conjunction with reporting required
under clause (i) and by National Drug Code (including
package size)—
‘‘(I) the manufacturer’s average sales price (as
defined in section 1847A(c)) and the total number
of units specified under section 1847A(b)(2)(A);
‘‘(II) if required to make payment under sec-
tion 1847A, the manufacturer’s wholesale acquisi-
tion cost, as defined in subsection (c)(6) of such
section; and
‘‘(III) information on those sales that were
made at a nominal price or otherwise described
in section 1847A(c)(2)(B);
for a drug or biological described in subparagraph (C),
(D), (E), or (G) of section 1842(o)(1) or section
1881(b)(13)(A)(ii).
Information reported under this subparagraph is subject
to audit by the Inspector General of the Department of
Health and Human Services.’’;
(C) in subsection (b)(3)(B)—
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PUBLIC LAW 108–173—DEC. 8, 2003
(i) in the heading, by inserting ‘‘AND MANUFACTUR-
ER’S AVERAGE SALES PRICE’’ after ‘‘PRICE’’; and
(ii) by inserting ‘‘and manufacturer’s average sales
prices (including wholesale acquisition cost) if required
to make payment’’ after ‘‘manufacturer prices’’; and
(D) in subsection (b)(3)(D)—
(i) in the matter preceding clause (i), by inserting
‘‘(other than the wholesale acquisition cost for purposes
of carrying out section 1847A)’’ after ‘‘subsection
(a)(6)(A)(ii)’’; and
(ii) in clause (i), by inserting ‘‘, to carry out section
1847A (including the determination and implementa-
tion of the payment amount), or to carry out section
1847B’’ after ‘‘this section’’.
(5) IMPLEMENTATION.—The provisions of chapter 8 of title
5, United States Code, shall not apply with respect to regula-
tions implementing the amendments made by subsections (a),
(b), and (e)(3), to regulations implementing section 304, and
to regulations implementing the amendment made by section
305(a), insofar as such regulations apply in 2004.
(6) REPEAL OF STUDY.—Section 4556 of the Balanced Budget
Act of 1997 (42 U.S.C. 1395u note) is amended by striking
subsection (c).
(j) APPLICATION TO CERTAIN PHYSICIAN SPECIALTIES.—Insofar
as the amendments made by this section apply to payments for
drugs or biologicals and drug administration services furnished
by physicians, such amendments shall only apply to physicians
in the specialties of hematology, hematology/oncology, and medical
oncology under title XVIII of the Social Security Act.
SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR
COVERED OUTPATIENT DRUGS AND BIOLOGICALS TO
OTHER PHYSICIAN SPECIALTIES.
Notwithstanding section 303(j), the amendments made by sec-
tion 303 shall also apply to payments for drugs or biologicals
and drug administration services furnished by physicians in special-
ties other than the specialties of hematology, hematology/oncology,
and medical oncology.
SEC. 305. PAYMENT FOR INHALATION DRUGS.
(a) 
IN
GENERAL.—Section 
1842(o)(1)(G) 
(42 
U.S.C.
1395u(o)(1)(G)), as added by section 303(b), is amended to read
as follows:
‘‘(G) In the case of inhalation drugs or biologicals furnished
through durable medical equipment covered under section
1861(n) that are furnished—
‘‘(i) in 2004, the amount provided under paragraph
(4) for the drug or biological; and
‘‘(ii) in 2005 and subsequent years, the amount pro-
vided under section 1847A for the drug or biological.’’.
(b) GAO STUDY
OF
MEDICARE
PAYMENT
FOR
INHALATION
THERAPY.—
(1) STUDY.—The Comptroller General of the United States
shall conduct a study to examine the adequacy of current
reimbursements for inhalation therapy under the medicare pro-
gram.
(2) REPORT.—Not later than 1 year after the date of the
enactment of this Act, the Comptroller General shall submit
Deadline.
42 USC 1395l
note.
42 USC 1395u
note.
42 USC 1395u
note.
42 USC 1395u
note.
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117 STAT. 2256
PUBLIC LAW 108–173—DEC. 8, 2003
to Congress a report on the study conducted under paragraph
(1).
SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT
CONTRACTORS.
(a) IN GENERAL.—The Secretary shall conduct a demonstration
project under this section (in this section referred to as the ‘‘project’’)
to demonstrate the use of recovery audit contractors under the
Medicare Integrity Program in identifying underpayments and over-
payments and recouping overpayments under the medicare program
for services for which payment is made under part A or B of
title XVIII of the Social Security Act. Under the project—
(1) payment may be made to such a contractor on a contin-
gent basis;
(2) such percentage as the Secretary may specify of the
amount recovered shall 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, accuracy of coding, and
other payment policies in which inaccurate payments arise.
(b) SCOPE AND DURATION.—
(1) SCOPE.—The project shall cover at least 2 States that
are among the States with—
(A) the highest per capita utilization rates of medicare
services, and
(B) at least 3 contractors.
(2) DURATION.—The project shall last for not longer than
3 years.
(c) WAIVER.—The Secretary shall waive such provisions of title
XVIII of the Social Security Act as may be necessary to provide
for payment 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 the appropriate clinical knowledge
of and experience with the payment rules and regulations 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 extent that the entity is a fiscal inter-
mediary under section 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 Contractor under
section 1874A of such Act.
(3) PREFERENCE FOR ENTITIES WITH DEMONSTRATED PRO-
FICIENCY.—In awarding contracts to recovery audit contractors
under this section, the Secretary shall give preference to those
risk entities that the Secretary determines have demonstrated
more than 3 years direct management experience and a pro-
ficiency for cost control or recovery audits with private insurers,
health care providers, health plans, or under the medicaid
program under title XIX of the Social Security Act.
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PUBLIC LAW 108–173—DEC. 8, 2003
(e) CONSTRUCTION RELATING TO CONDUCT OF INVESTIGATION
OF FRAUD.—A recovery of an overpayment to a provider by a
recovery audit contractor shall not be construed to prohibit the
Secretary or the Attorney General from investigating and pros-
ecuting, if appropriate, allegations of fraud or abuse arising from
such overpayment.
(f) REPORT.—The Secretary shall submit to Congress a report
on the project not later than 6 months after the date of its comple-
tion. Such reports shall include information on the impact of the
project on savings to the medicare program and recommendations
on 
the 
cost-effectiveness 
of 
extending 
or 
expanding 
the
project.information’ means information about a conviction for a
relevant crime or a finding of patient or resident abuse.
SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND
CHECKS ON DIRECT PATIENT ACCESS EMPLOYEES OF
LONG-TERM CARE FACILITIES OR PROVIDERS.
(a) AUTHORITY TO CONDUCT PROGRAM.—The Secretary, in con-
sultation with the Attorney General, shall establish a pilot program
to identify efficient, effective, and economical procedures for long
term care facilities or providers to conduct background checks on
prospective direct patient access employees.
(b) REQUIREMENTS.—
(1) IN GENERAL.—Under the pilot program, a long-term
care facility or provider in a participating State, prior to
employing a direct patient access employee that is first hired
on or after the commencement date of the pilot program in
the State, shall conduct a background check on the employee
in accordance with such procedures as the participating State
shall establish.
(2) PROCEDURES.—
(A) IN
GENERAL.—The procedures established by a
participating State under paragraph (1) should be designed
to—
(i) give a prospective direct access patient employee
notice that the long-term care facility or provider is
required to perform background checks with respect
to new employees;
(ii) require, as a condition of employment, that
the employee—
(I) provide a written statement disclosing any
disqualifying information;
(II) provide a statement signed by the
employee authorizing the facility to request
national and State criminal history background
checks;
(III) provide the facility with a rolled set of
the employee’s fingerprints; and
(IV) provide any other identification informa-
tion the participating State may require;
(iii) require the facility or provider to check any
available registries that would be likely to contain
disqualifying information about a prospective employee
of a long-term care facility or provider; and
(iv) permit the facility or provider to obtain State
and national criminal history background checks on
the prospective employee through a 10-fingerprint
42 USC 1395aa
note.
Deadline.
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117 STAT. 2258
PUBLIC LAW 108–173—DEC. 8, 2003
check that utilizes State criminal records and the
Integrated 
Automated 
Fingerprint 
Identification
System of the Federal Bureau of Investigation.
(B) ELIMINATION OF UNNECESSARY CHECKS.—The proce-
dures established by a participating State under paragraph
(1) shall permit a long-term care facility or provider to
terminate the background check at any stage at which
the facility or provider obtains disqualifying information
regarding a prospective direct patient access employee.
(3) PROHIBITION ON HIRING OF ABUSIVE WORKERS.—
(A) IN GENERAL.—A long-term care facility or provider
may not knowingly employ any direct patient access
employee who has any disqualifying information.
(B) PROVISIONAL EMPLOYMENT.—
(i) IN
GENERAL.—Under the pilot program, a
participating State may permit a long-term care facility
or provider to provide for a provisional period of
employment for a direct patient access employee
pending completion of a background check, subject to
such supervision during the employee’s provisional
period of employment as the participating State deter-
mines appropriate.
(ii) SPECIAL CONSIDERATION FOR CERTAIN FACILI-
TIES AND PROVIDERS.—In determining what constitutes
appropriate supervision of a provisional employee, a
participating State shall take into account cost or other
burdens that would be imposed on small rural long-
term care facilities or providers, as well as the nature
of care delivered by such facilities or providers that
are home health agencies or providers of hospice care.
(4) USE OF INFORMATION; IMMUNITY FROM LIABILITY.—
(A) USE OF INFORMATION.—A participating State shall
ensure that a long-term care facility or provider that
obtains information about a direct patient access employee
pursuant to a background check uses such information
only for the purpose of determining the suitability of the
employee for employment.
(B) IMMUNITY FROM LIABILITY.—A participating State
shall ensure that a long-term care facility or provider that,
in denying employment for an individual selected for hire
as a direct patient access employee (including during any
period of provisional employment), reasonably relies upon
information obtained through a background check of the
individual, shall not be liable in any action brought by
the individual based on the employment determination
resulting from the information.
(5) AGREEMENTS WITH EMPLOYMENT AGENCIES.—A partici-
pating State may establish procedures for facilitating the con-
duct of background checks on prospective direct patient access
employees that are hired by a long-term care facility or provider
through an employment agency (including a temporary employ-
ment agency).
(6) PENALTIES.—A participating State may impose such
penalties as the State determines appropriate to enforce the
requirements of the pilot program conducted in that State.
(c) PARTICIPATING STATES.—
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117 STAT. 2259
PUBLIC LAW 108–173—DEC. 8, 2003
(1) IN GENERAL.—The Secretary shall enter into agreements
with not more than 10 States to conduct the pilot program
under this section in such States.
(2) REQUIREMENTS FOR STATES.—An agreement entered into
under paragraph (1) shall require that a participating State—
(A) be responsible for monitoring compliance with the
requirements of the pilot program;
(B) have procedures by which a provisional employee
or an employee may appeal or dispute the accuracy of
the information obtained in a background check performed
under the pilot program; and
(C) agree to—
(i) review the results of any State or national
criminal 
history 
background 
checks 
conducted
regarding a prospective direct patient access employee
to determine whether the employee has any conviction
for a relevant crime;
(ii) immediately report to the entity that requested
the criminal history background checks the results of
such review; and
(iii) in the case of an employee with a conviction
for a relevant crime that is subject to reporting under
section 1128E of the Social Security Act (42 U.S.C.
1320a–7e), report the existence of such conviction to
the database established under that section.
(3) APPLICATION AND SELECTION CRITERIA.—
(A) APPLICATION.—A State seeking to participate in
the pilot program established under this section, shall
submit an application to the Secretary containing such
information and at such time as the Secretary may specify.
(B) SELECTION CRITERIA.—
(i) IN GENERAL.—In selecting States to participate
in the pilot program, the Secretary shall establish cri-
teria to ensure—
(I) geographic diversity;
(II) the inclusion of a variety of long-term
care facilities or providers;
(III) the evaluation of a variety of payment
mechanisms for covering the costs of conducting
the background checks required under the pilot
program; and
(IV) the evaluation of a variety of penalties
(monetary and otherwise) used by participating
States to enforce the requirements of the pilot
program in such States.
(ii) ADDITIONAL CRITERIA.—The Secretary shall, to
the greatest extent practicable, select States to partici-
pate in the pilot program in accordance with the fol-
lowing:
(I) At least one participating State should
permit long-term care facilities or providers to pro-
vide for a provisional period of employment
pending completion of a background check and
at least one such State should not permit such
a period of employment.
(II) At least one participating State should
establish procedures under which employment
Contracts.
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117 STAT. 2260
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agencies (including temporary employment agen-
cies) may contact the State directly to conduct
background checks on prospective direct patient
access employees.
(III) At least one participating State should
include 
patient 
abuse 
prevention 
training
(including behavior training and interventions) for
managers and employees of long-term care facili-
ties and providers as part of the pilot program
conducted in that State.
(iii) INCLUSION
OF
STATES
WITH
EXISTING
PRO-
GRAMS.—Nothing in this section shall be construed
as prohibiting any State which, as of the date of the
enactment of this Act, has procedures for conducting
background checks on behalf of any entity described
in subsection (g)(5) from being selected to participate
in the pilot program conducted under this section.
(d) PAYMENTS.—Of the amounts made available under sub-
section (f) to conduct the pilot program under this section, the
Secretary shall—
(1) make payments to participating States for the costs
of conducting the pilot program in such States; and
(2) reserve up to 4 percent of such amounts to conduct
the evaluation required under subsection (e).
(e) EVALUATION.—The Secretary, in consultation with the
Attorney General, shall conduct by grant, contract, or interagency
agreement an evaluation of the pilot program conducted under
this section. Such evaluation shall—
(1) review the various procedures implemented by partici-
pating States for long-term care facilities or providers to con-
duct background checks of direct patient access employees and
identify the most efficient, effective, and economical procedures
for conducting such background checks;
(2) assess the costs of conducting such background checks
(including start-up and administrative costs);
(3) consider the benefits and problems associated with
requiring employees or facilities or providers to pay the costs
of conducting such background checks;
(4) consider whether the costs of conducting such back-
ground checks should be allocated between the medicare and
medicaid programs and if so, identify an equitable methodology
for doing so;
(5) determine the extent to which conducting such back-
ground checks leads to any unintended consequences, including
a reduction in the available workforce for such facilities or
providers;
(6) review forms used by participating States in order to
develop, in consultation with the Attorney General, a model
form for such background checks;
(7) determine the effectiveness of background checks con-
ducted by employment agencies; and
(8) recommend appropriate procedures and payment
mechanisms for implementing a national criminal background
check program for such facilities and providers.
(f) FUNDING.—Out of any funds in the Treasury not otherwise
appropriated, there are appropriated to the Secretary to carry out
Grants.
Contracts.
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the pilot program under this section for the period of fiscal years
2004 through 2007, $25,000,000.
(g) DEFINITIONS.—In this section:
(1) CONVICTION FOR A RELEVANT CRIME.—The term ‘‘convic-
tion for a relevant crime’’ means any Federal or State criminal
conviction for—
(A) any offense described in section 1128(a) of the
Social Security Act (42 U.S.C. 1320a–7); and
(B) such other types of offenses as a participating
State may specify for purposes of conducting the pilot pro-
gram in such State.
(2) DISQUALIFYING INFORMATION.—The term ‘‘disqualifying
information’’ means a conviction for a relevant crime or a
finding of patient or resident abuse.
(3) FINDING OF PATIENT OR RESIDENT ABUSE.—The term
‘‘finding of patient or resident abuse’’ means any substantiated
finding by a State agency under section 1819(g)(1)(C) or
1919(g)(1)(C) of the Social Security Act (42 U.S.C. 1395i–
3(g)(1)(C), 1396r(g)(1)(C)) or a Federal agency that a direct
patient access employee has committed—
(A) an act of patient or resident abuse or neglect or
a misappropriation of patient or resident property; or
(B) such other types of acts as a participating State
may specify for purposes of conducting the pilot program
in such State.
(4) DIRECT PATIENT ACCESS EMPLOYEE.—The term ‘‘direct
patient access employee’’ means any individual (other than
a volunteer) that has access to a patient or resident of a
long-term care facility or provider through employment or
through a contract with such facility or provider, as determined
by a participating State for purposes of conducting the pilot
program in such State.
(5) LONG-TERM CARE FACILITY OR PROVIDER.—
(A) IN
GENERAL.—The term ‘‘long-term care facility
or provider’’ means the following facilities or providers
which receive payment for services under title XVIII or
XIX of the Social Security Act:
(i) A skilled nursing facility (as defined in section
1819(a) of the Social Security Act) (42 U.S.C. 1395i–
3(a)).
(ii) A nursing facility (as defined in section 1919(a)
in such Act) (42 U.S.C. 1396r(a)).
(iii) A home health agency.
(iv) A provider of hospice care (as defined in section
1861(dd)(1) of such Act) (42 U.S.C. 1395x(dd)(1)).
(v) A long-term care hospital (as described in sec-
tion 
1886(d)(1)(B)(iv) 
of 
such 
Act) 
(42 
U.S.C.
1395ww(d)(1)(B)(iv)).
(vi) A provider of personal care services.
(vii) A residential care provider that arranges for,
or directly provides, long-term care services.
(viii) An intermediate care facility for the mentally
retarded (as defined in section 1905(d) of such Act)
42 U.S.C. 1396d(d)).
(B) ADDITIONAL FACILITIES OR PROVIDERS.—During the
first year in which a pilot program under this section
is conducted in a participating State, the State may expand
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the list of facilities or providers under subparagraph (A)
(on a phased-in basis or otherwise) to include such other
facilities or providers of long-term care services under such
titles as the participating State determines appropriate.
(C) EXCEPTIONS.—Such term does not include—
(i) any facility or entity that provides, or is a
provider of, services described in subparagraph (A) that
are exclusively provided to an individual pursuant to
a self-directed arrangement that meets such require-
ments as the participating State may establish in
accordance with guidance from the Secretary; or
(ii) any such arrangement that is obtained by a
patient or resident functioning as an employer.
(6) PARTICIPATING STATE.—The term ‘‘participating State’’
means a State with an agreement under subsection (c)(1).
TITLE IV—RURAL PROVISIONS
Subtitle A—Provisions Relating to Part A
Only
SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT
AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL
PROSPECTIVE PAYMENT SYSTEM.
(a) 
IN
GENERAL.—Section 
1886(d)(3)(A)(iv) 
(42 
U.S.C.
1395ww(d)(3)(A)(iv)) is amended—
(1) by striking ‘‘(iv) For discharges’’ and inserting ‘‘(iv)(I)
Subject to subclause (II), for discharges’’; and
(2) by adding at the end the following new subclause:
‘‘(II) For discharges occurring in a fiscal year (beginning
with fiscal year 2004), the Secretary shall compute a standard-
ized amount for hospitals located in any area within the United
States and within each region equal to the standardized 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 all hospitals in the previous fiscal year)
increased by the applicable percentage increase under sub-
section (b)(3)(B)(i) for the fiscal year involved.’’.
(b) CONFORMING AMENDMENTS.—
(1) COMPUTING DRG-SPECIFIC RATES.—Section 1886(d)(3)(D)
(42 U.S.C. 1395ww(d)(3)(D)) is amended—
(A) in the heading, by striking ‘‘IN DIFFERENT AREAS’’;
(B) in the matter preceding clause (i), by striking ‘‘,
each of’’;
(C) in clause (i)—
(i) in the matter preceding subclause (I), by
inserting ‘‘for fiscal years before fiscal year 2004,’’
before ‘‘for hospitals’’; and
(ii) in subclause (II), by striking ‘‘and’’ after the
semicolon at the end;
(D) in clause (ii)—
(i) in the matter preceding subclause (I), by
inserting ‘‘for fiscal years before fiscal year 2004,’’
before ‘‘for hospitals’’; and
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(ii) in subclause (II), by striking the period at
the end and inserting ‘‘; and’’; and
(E) by adding at the end the following new clause:
‘‘(iii) for a fiscal year beginning after fiscal year 2003,
for hospitals located in all areas, to the product of—
‘‘(I) the applicable standardized amount (computed
under subparagraph (A)), reduced under subparagraph
(B), and adjusted or reduced under subparagraph (C)
for the fiscal year; and
‘‘(II) the weighting factor (determined under para-
graph (4)(B)) for that diagnosis-related group.’’.
(2) TECHNICAL
CONFORMING
SUNSET.—Section 1886(d)(3)
(42 U.S.C. 1395ww(d)(3)) is amended—
(A) in the matter preceding subparagraph (A), by
inserting ‘‘, for fiscal years before fiscal year 1997,’’ before
‘‘a regional adjusted DRG prospective payment rate’’; and
(B) in subparagraph (D), in the matter preceding clause
(i), by inserting ‘‘, for fiscal years before fiscal year 1997,’’
before ‘‘a regional DRG prospective payment rate for each
region,’’.
(3) 
ADDITIONAL
TECHNICAL
AMENDMENT.—Section
1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended
by striking ‘‘in an other urban area’’ and inserting ‘‘in an
urban area’’.
(c) EQUALIZING URBAN
AND RURAL STANDARDIZED PAYMENT
AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE
PAYMENT SYSTEM FOR HOSPITALS IN PUERTO RICO.—
(1) 
IN
GENERAL.—Section 
1886(d)(9)(A) 
(42 
U.S.C.
1395ww(d)(9)(A)), as amended by section 504, is amended—
(A) in clause (i), by striking ‘‘and’’ after the comma
at the end; and
(B) by striking clause (ii) and inserting the following
new clause:
‘‘(ii) the applicable Federal percentage (specified in
subparagraph (E)) of—
‘‘(I) for discharges beginning in a fiscal year beginning
on or after October 1, 1997, and before October 1, 2003,
the discharge-weighted average of—
‘‘(aa) the national adjusted DRG prospective pay-
ment rate (determined under paragraph (3)(D)) for hos-
pitals located in a large urban area,
‘‘(bb) such rate for hospitals located in other urban
areas, and
‘‘(cc) such rate for hospitals located in a rural
area,
for such discharges, adjusted in the manner provided in
paragraph (3)(E) for different area wage levels; and
‘‘(II) for discharges in a fiscal year beginning on or
after October 1, 2003, the national DRG prospective pay-
ment rate determined under paragraph (3)(D)(iii) for hos-
pitals located in any area for such discharges, adjusted
in the manner provided in paragraph (3)(E) for different
area wage levels.
As used in this section, the term ‘subsection (d) Puerto Rico hospital’
means a hospital that is located in Puerto Rico and that would
be a subsection (d) hospital (as defined in paragraph (1)(B)) if
it were located in one of the 50 States.’’.
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(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT
BASED
ON
LARGE
URBAN
AREAS.—Section 1886(d)(9)(C) (42
U.S.C. 1395ww(d)(9)(C)) is amended—
(A) in clause (i)—
(i) by striking ‘‘(i) The Secretary’’ and inserting
‘‘(i)(I) For discharges in a fiscal year after fiscal year
1988 and before fiscal year 2004, the Secretary’’; and
(ii) by adding at the end the following new sub-
clause:
‘‘(II) For discharges occurring in a fiscal year (beginning
with fiscal year 2004), the Secretary shall compute an average
standardized amount for hospitals located in any area of Puerto
Rico that is equal to the average standardized amount computed
under subclause (I) for fiscal year 2003 for hospitals in a
large urban area (or, beginning with fiscal year 2005, for all
hospitals in the previous fiscal year) increased by the applicable
percentage increase under subsection (b)(3)(B) for the fiscal
year involved.’’;
(B) in clause (ii), by inserting ‘‘(or for fiscal year 2004
and thereafter, the average standardized amount)’’ after
‘‘each of the average standardized amounts’’; and
(C) in clause (iii)(I), by striking ‘‘for hospitals located
in an urban or rural area, respectively’’.
(d) IMPLEMENTATION.—
(1) IN GENERAL.—The amendments made by subsections
(a), (b), and (c)(1) of this section shall have no effect on the
authority of the Secretary, under subsection (b)(2) of section
402 of Public Law 108–89, to delay implementation of the
extension of provisions equalizing urban and rural standardized
inpatient hospital payments under subsection (a) of such section
402.
(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT
BASED ON LARGE URBAN AREAS.—The authority of the Secretary
referred to in paragraph (1) shall apply with respect to the
amendments made by subsection (c)(2) of this section in the
same manner as that authority applies with respect to the
extension of provisions equalizing urban and rural standardized
inpatient hospital payments under subsection (a) of such section
402, except that any reference in subsection (b)(2)(A) of such
section 402 is deemed to be a reference to April 1, 2004.
SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH)
TREATMENT FOR RURAL HOSPITALS AND URBAN HOS-
PITALS WITH FEWER THAN 100 BEDS.
(a) DOUBLING
THE
CAP.—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 occurring on or after April
1, 2004, subject to subclause (II), there shall be substituted for
the disproportionate share adjustment percentage otherwise deter-
mined under clause (iv) (other than subclause (I)) or under clause
(viii), (x), (xi), (xii), or (xiii), the disproportionate share adjustment
percentage determined under clause (vii) (relating to large, urban
hospitals).
‘‘(II) Under subclause (I), the disproportionate share adjustment
percentage shall not exceed 12 percent for a hospital that is not
classified as a rural referral center under subparagraph (C).’’.
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(b) CONFORMING AMENDMENTS.—Section 1886(d) (42 U.S.C.
1395ww(d)) is amended—
(1) in paragraph (5)(F)—
(A) in each of subclauses (II), (III), (IV), (V), and (VI)
of clause (iv), by inserting ‘‘subject to clause (xiv) and’’
before ‘‘for discharges occurring’’;
(B) in clause (viii), by striking ‘‘The formula’’ and
inserting ‘‘Subject to clause (xiv), the formula’’; and
(C) in each of clauses (x), (xi), (xii), and (xiii), by
striking ‘‘For purposes’’ and inserting ‘‘Subject to clause
(xiv), for purposes’’; and
(2) in paragraph (2)(C)(iv)—
(A) by striking ‘‘or’’ before ‘‘the enactment of section
303’’; and
(B) by inserting before the period at the end the fol-
lowing: ‘‘, or the enactment of section 402(a)(1) of the Medi-
care Prescription Drug, Improvement, and Modernization
Act of 2003’’.
SEC. 403. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL
PROSPECTIVE 
PAYMENT 
SYSTEM 
WAGE 
INDEX 
TO
REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.
(a) ADJUSTMENT.—
(1) 
IN
GENERAL.—Section 
1886(d)(3)(E) 
(42 
U.S.C.
1395ww(d)(3)(E)) is amended—
(A) by striking ‘‘WAGE LEVELS.—The Secretary’’ and
inserting ‘‘WAGE LEVELS.—
‘‘(i) IN GENERAL.—Except as provided in clause (ii),
the Secretary’’; and
(B) by adding at the end the following new clause:
‘‘(ii) ALTERNATIVE PROPORTION TO BE ADJUSTED BEGIN-
NING IN FISCAL YEAR 2005.—For discharges occurring on
or after October 1, 2004, the Secretary shall substitute
‘62 percent’ for the proportion described in the first sen-
tence of clause (i), unless the application of this clause
would result in lower payments to a hospital than would
otherwise be made.’’.
(2) WAIVING
BUDGET
NEUTRALITY.—Section 1886(d)(3)(E)
(42 U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a),
is amended by adding at the end of clause (i) the following
new sentence: ‘‘The Secretary shall apply the previous sentence
for any period as if the amendments made by section 403(a)(1)
of the Medicare Prescription Drug, Improvement, and Mod-
ernization Act of 2003 had not been enacted.’’.
(b) 
APPLICATION
TO
PUERTO
RICO
HOSPITALS.—Section
1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended—
(1) by inserting ‘‘(I)’’ after ‘‘(iv)’’;
(2) by striking ‘‘paragraph (3)(E)’’ and inserting ‘‘paragraph
(3)(E)(i)’’; and
(3) by adding at the end the following new subclause:
‘‘(II) For discharges occurring on or after October 1, 2004,
the Secretary shall substitute ‘62 percent’ for the proportion
described in the first sentence of clause (i), unless the applica-
tion of this subclause would result in lower payments to a
hospital than would otherwise be made.’’.
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SEC. 404. 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,
including the labor share, in such market basket to reflect the
most current data available more frequently than once every 5
years.
(b) INCORPORATION OF EXPLANATION IN RULEMAKING.—The Sec-
retary shall include in the publication of the final rule for payment
for inpatient hospital services under section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an expla-
nation of the reasons for, and options considered, in determining
frequency established under subsection (a).
SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.
(a) INCREASE IN PAYMENT AMOUNTS.—
(1) 
IN
GENERAL.—Sections 
1814(l), 
1834(g)(1), 
and
1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3))
are each amended by inserting ‘‘equal to 101 percent of’’ before
‘‘the reasonable costs’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to payments for services furnished during cost
reporting periods beginning on or after January 1, 2004.
(b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY ROOM ON-
CALL PROVIDERS.—
(1) IN GENERAL.—Section 1834(g)(5) (42 U.S.C. 1395m(g)(5))
is amended—
(A) in the heading—
(i) by inserting ‘‘CERTAIN’’ before ‘‘EMERGENCY’’; and
(ii) by striking ‘‘PHYSICIANS’’ and inserting ‘‘PRO-
VIDERS’’;
(B) by striking ‘‘emergency room physicians who are
on-call (as defined by the Secretary)’’ and inserting ‘‘physi-
cians, physician assistants, nurse practitioners, and clinical
nurse specialists who are on-call (as defined by the Sec-
retary) to provide emergency services’’; and
(C) by striking ‘‘physicians’ services’’ and inserting
‘‘services covered under this title’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply with respect to costs incurred for services fur-
nished on or after January 1, 2005.
(c) AUTHORIZATION OF PERIODIC INTERIM PAYMENT (PIP).—
(1) IN GENERAL.—Section 1815(e)(2) (42 U.S.C. 1395g(e)(2))
is amended—
(A) in the matter before subparagraph (A), by inserting
‘‘, in the cases described in subparagraphs (A) through
(D)’’ after ‘‘1986’’;
(B) by striking ‘‘and’’ at the end of subparagraph (C);
(C) by adding ‘‘and’’ at the end of subparagraph (D);
and
(D) by inserting after subparagraph (D) the following
new subparagraph:
‘‘(E) inpatient critical access hospital services;’’.
42 USC 1395m
note.
42 USC 1395f
note.
42 USC 1395ww
note.
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(2) DEVELOPMENT
OF
ALTERNATIVE
TIMING
METHODS
OF
PERIODIC INTERIM PAYMENTS.—With respect to periodic interim
payments to critical access hospitals for inpatient critical access
hospital services under section 1815(e)(2)(E) of the Social Secu-
rity Act, as added by paragraph (1), the Secretary shall develop
alternative methods for the timing of such payments.
(3) AUTHORIZATION
OF
PIP.—The amendments made by
paragraph (1) shall apply to payments made on or after July
1, 2004.
(d) CONDITION
FOR APPLICATION
OF SPECIAL PROFESSIONAL
SERVICE PAYMENT ADJUSTMENT.—
(1) IN GENERAL.—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 or other practitioner providing professional
services in the hospital must assign billing rights with respect
to such services, except that such subparagraph shall not apply
to those physicians and practitioners who have not assigned
such billing rights.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as provided in subparagraph
(B), the amendment made by paragraph (1) shall apply
to cost reporting periods beginning on or after July 1,
2004.
(B) RULE OF APPLICATION.—In the case of a critical
access hospital that made an election under section
1834(g)(2) of the Social Security Act (42 U.S.C. 1395m(g)(2))
before November 1, 2003, the amendment made by para-
graph (1) shall apply to cost reporting periods beginning
on or after July 1, 2001.
(e) REVISION OF BED LIMITATION FOR HOSPITALS.—
(1) IN
GENERAL.—Section 1820(c)(2)(B)(iii) (42 U.S.C.
1395i–4(c)(2)(B)(iii)) is amended by striking ‘‘15 (or, in the
case of a facility under an agreement described in subsection
(f), 25)’’ and inserting ‘‘25’’.
(2) CONFORMING AMENDMENT.—Section 1820(f) (42 U.S.C.
1395i–4(f)) is amended by striking ‘‘and the number of beds
used at any time for acute care inpatient services does not
exceed 15 beds’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to designations made before, on, or after
January 1, 2004, but any election made pursuant to regulations
promulgated to carry out such amendments shall only apply
prospectively.
(f) PROVISIONS RELATING TO FLEX GRANTS.—
(1) ADDITIONAL
4-YEAR
PERIOD
OF
FUNDING.—Section
1820(j) (42 U.S.C. 1395i–4(j)) is amended by inserting before
the period at the end the following: ‘‘, and for making grants
to all States under paragraphs (1) and (2) of subsection (g),
$35,000,000 in each of fiscal years 2005 through 2008’’.
(2) ADDITIONAL REQUIREMENTS AND ADMINISTRATION.—Sec-
tion 1820(g) (42 U.S.C. 1395i–4(g)) is amended by adding at
the end the following new paragraphs:
‘‘(4) ADDITIONAL
REQUIREMENTS
WITH
RESPECT
TO
FLEX
GRANTS.—With respect to grants awarded under paragraph (1)
Applicability.
42 USC 1395i–4
note.
42 USC 1395m
note.
Effective date.
42 USC 1395g
note.
42 USC 1395g
note.
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or (2) from funds appropriated for fiscal year 2005 and subse-
quent fiscal years—
‘‘(A) CONSULTATION WITH THE STATE HOSPITAL ASSOCIA-
TION AND RURAL HOSPITALS ON THE MOST APPROPRIATE WAYS
TO USE GRANTS.—A State shall consult with the hospital
association of such State and rural hospitals located in
such State on the most appropriate ways to use the funds
under such grant.
‘‘(B) LIMITATION ON USE OF GRANT FUNDS FOR ADMINIS-
TRATIVE EXPENSES.—A State may not expend more than
the lesser of—
‘‘(i) 15 percent of the amount of the grant for
administrative expenses; or
‘‘(ii) the State’s federally negotiated indirect rate
for administering the grant.
‘‘(5) 
USE
OF
FUNDS
FOR
FEDERAL
ADMINISTRATIVE
EXPENSES.—Of the total amount appropriated for grants under
paragraphs (1) and (2) for a fiscal year (beginning with fiscal
year 2005), up to 5 percent of such amount shall be available
to the Health Resources and Services Administration for pur-
poses of administering such grants.’’.
(g) AUTHORITY TO ESTABLISH PSYCHIATRIC AND REHABILITATION
DISTINCT PART UNITS.—
(1) IN
GENERAL.—Section 1820(c)(2) (42 U.S.C. 1395i–
4(c)(2)) is amended by adding at the end the following:
‘‘(E) AUTHORITY
TO
ESTABLISH
PSYCHIATRIC
AND
REHABILITATION DISTINCT PART UNITS.—
‘‘(i) IN GENERAL.—Subject to the succeeding provi-
sions of this subparagraph, a critical access hospital
may establish—
‘‘(I) a psychiatric unit of the hospital that is
a distinct part of the hospital; and
‘‘(II) a rehabilitation unit of the hospital that
is a distinct part of the hospital,
if the distinct part meets the requirements (including
conditions of participation) that would otherwise apply
to the distinct part if the distinct part were established
by a subsection (d) hospital in accordance with the
matter following clause (v) of section 1886(d)(1)(B),
including any regulations adopted by the Secretary
under such section.
‘‘(ii) LIMITATION ON NUMBER OF BEDS.—The total
number of beds that may be established under clause
(i) for a distinct part unit may not exceed 10.
‘‘(iii) EXCLUSION OF BEDS FROM BED COUNT.—In
determining the number of beds of a critical access
hospital for purposes of applying the bed limitations
referred to in subparagraph (B)(iii) and subsection (f),
the Secretary shall not take into account any bed estab-
lished under clause (i).
‘‘(iv) EFFECT OF FAILURE TO MEET REQUIREMENTS.—
If a psychiatric or rehabilitation unit established under
clause (i) does not meet the requirements described
in such clause with respect to a cost reporting period,
no payment may be made under this title to the hos-
pital for services furnished in such unit during such
period. Payment to the hospital for services furnished
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in the unit may resume only after the hospital has
demonstrated to the Secretary that the unit meets
such requirements.’’.
(2) PAYMENT ON A PROSPECTIVE PAYMENT BASIS.—Section
1814(l) (42 U.S.C. 1395f(l)) is amended—
(A) by striking ‘‘(l) The amount’’ and inserting ‘‘(l)(1)
Except as provided in paragraph (2), the amount’’; and
(B) by adding at the end the following new paragraph:
‘‘(2) In the case of a distinct part psychiatric or rehabilitation
unit of a critical access hospital described in section 1820(c)(2)(E),
the amount of payment for inpatient critical access hospital services
of such unit shall be equal to the amount of the payment that
would otherwise be made if such services were inpatient hospital
services of a distinct part psychiatric or rehabilitation unit, respec-
tively, described in the matter following clause (v) of section
1886(d)(1)(B).’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to cost reporting periods beginning on or
after October 1, 2004.
(h) WAIVER AUTHORITY.—
(1) IN
GENERAL.—Section 1820(c)(2)(B)(i)(II) (42 U.S.C.
1395i–4(c)(2)(B)(i)(II)) is amended by inserting ‘‘before January
1, 2006,’’ after ‘‘is certified’’.
(2) GRANDFATHERING
WAIVER
AUTHORITY
FOR
CERTAIN
FACILITIES.—Section 
1820(h) 
(42 
U.S.C. 
1395i–4(h)) 
is
amended—
(A) in the heading preceding paragraph (1), by striking
‘‘OF CERTAIN FACILITIES’’ and inserting ‘‘PROVISIONS’’; and
(B) by adding at the end the following new paragraph:
‘‘(3) STATE AUTHORITY TO WAIVE 35-MILE RULE.—In the case
of a facility that was designated as a critical access hospital
before January 1, 2006, and was certified by the State as
being a necessary provider of health care services to residents
in the area under subsection (c)(2)(B)(i)(II), as in effect before
such date, the authority under such subsection with respect
to any redesignation of such facility shall continue to apply
notwithstanding the amendment made by section 405(h)(1) of
the Medicare Prescription Drug, Improvement, and Moderniza-
tion Act of 2003.’’.
SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT
FOR LOW-VOLUME HOSPITALS.
(a) IN GENERAL.—Section 1886(d) (42 U.S.C. 1395ww(d)) is
amended by adding at the end the following new paragraph:
‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS.—
‘‘(A) IN GENERAL.—In addition to any payments cal-
culated under this section for a subsection (d) hospital,
for discharges occurring during a fiscal year (beginning
with fiscal year 2005), the Secretary shall provide for an
additional payment amount to each low-volume hospital
(as defined in subparagraph (C)(i)) for discharges occurring
during that fiscal year that is equal to the applicable
percentage increase (determined under subparagraph (B)
for the hospital involved) in the amount paid to such hos-
pital under this section for such discharges (determined
without regard to this paragraph).
Applicability.
42 USC 1395f
note.
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‘‘(B) APPLICABLE
PERCENTAGE
INCREASE.—The Sec-
retary shall determine an applicable percentage increase
for purposes of subparagraph (A) as follows:
‘‘(i) The Secretary shall determine the empirical
relationship for subsection (d) hospitals between the
standardized cost-per-case for such hospitals and the
total number of discharges of such hospitals and the
amount of the additional incremental costs (if any)
that are associated with such number of discharges.
‘‘(ii) The applicable percentage increase shall be
determined based upon such relationship in a manner
that reflects, based upon the number of such discharges
for a subsection (d) hospital, such additional incre-
mental costs.
‘‘(iii) In no case shall the applicable percentage
increase exceed 25 percent.
‘‘(C) DEFINITIONS.—
‘‘(i) LOW-VOLUME HOSPITAL.—For purposes of this
paragraph, the term ‘low-volume hospital’ means, for
a fiscal year, a subsection (d) hospital (as defined in
paragraph (1)(B)) that the Secretary determines is
located more than 25 road miles from another sub-
section (d) hospital and has less than 800 discharges
during the fiscal year.
‘‘(ii) DISCHARGE.—For purposes of subparagraph
(B) and clause (i), the term ‘discharge’ means an
inpatient acute care discharge of an individual regard-
less of whether the individual is entitled to benefits
under part A.’’.
(b) 
JUDICIAL
REVIEW.—Section 
1886(d)(7)(A) 
(42 
U.S.C.
1395ww(d)(7)(A)) is amended by inserting after ‘‘to subsection (e)(1)’’
the following: ‘‘or the determination of the applicable percentage
increase under paragraph (12)(A)(ii)’’.
SEC. 407. TREATMENT OF MISSING COST REPORTING PERIODS FOR
SOLE COMMUNITY HOSPITALS.
(a) 
IN
GENERAL.—Section 
1886(b)(3)(I) 
(42 
U.S.C.
1395ww(b)(3)(I)) is amended by adding at the end the following
new clause:
‘‘(iii) In no case shall a hospital be denied treatment as a
sole community hospital or payment (on the basis of a target rate
as such as a hospital) because data are unavailable for any cost
reporting period due to changes in ownership, changes in fiscal
intermediaries, or other extraordinary circumstances, so long as
data for at least one applicable base cost reporting period is avail-
able.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to cost reporting periods beginning on or after January
1, 2004.
SEC. 408. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS
ATTENDING PHYSICIANS TO SERVE HOSPICE PATIENTS.
(a) 
IN
GENERAL.—Section 
1861(dd)(3)(B) 
(42 
U.S.C.
1395x(dd)(3)(B)) is amended by inserting ‘‘or nurse practitioner
(as defined in subsection (aa)(5))’’ after ‘‘the physician (as defined
in subsection (r)(1))’’.
(b) CLARIFICATION
OF
HOSPICE
ROLE
OF
NURSE
PRACTI-
TIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I))
42 USC 1395ww
note.
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117 STAT. 2271
PUBLIC LAW 108–173—DEC. 8, 2003
is amended by inserting ‘‘(which for purposes of this subparagraph
does not include a nurse practitioner)’’ after ‘‘attending physician
(as defined in section 1861(dd)(3)(B))’’.
SEC. 409. RURAL HOSPICE DEMONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary shall conduct a demonstration
project for the delivery of hospice care to medicare beneficiaries
in rural areas. Under the project medicare beneficiaries who are
unable to receive hospice care in the facility for lack of an appro-
priate caregiver are provided such care in a facility of 20 or fewer
beds which offers, within its walls, the full range of services pro-
vided by hospice programs under section 1861(dd) of the Social
Security Act (42 U.S.C. 1395x(dd)).
(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 demonstration
project—
(1) the hospice program shall comply with otherwise
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 addi-
tional quality assurance standards for its provision of services in
its facility as the Secretary deems appropriate.
(d) REPORT.—Upon completion of the project, the Secretary
shall submit a report to Congress on the project and shall include
in the report recommendations regarding extension of such project
to hospice programs serving rural areas.
SEC. 410. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDER-
ALLY QUALIFIED HEALTH CENTER SERVICES FROM THE
PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING
FACILITIES.
(a) 
IN
GENERAL.—Section 
1888(e)(2)(A) 
(42 
U.S.C.
1395yy(e)(2)(A)) is amended—
(1) in clause (i)(II), by striking ‘‘clauses (ii) and (iii)’’ and
inserting ‘‘clauses (ii), (iii), and (iv)’’; and
(2) by adding at the end the following new clause:
‘‘(iv) EXCLUSION OF CERTAIN RURAL HEALTH CLINIC
AND FEDERALLY QUALIFIED HEALTH CENTER SERVICES.—
Services described in this clause are—
‘‘(I) rural health clinic services (as defined in
paragraph (1) of section 1861(aa)); and
‘‘(II) federally qualified health center services
(as defined in paragraph (3) of such section);
that would be described in clause (ii) if such services
were furnished by an individual not affiliated with
a rural health clinic or a federally qualified health
center.’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to services furnished on or after January 1, 2005.
42 USC 1395yy
note.
42 USC 1395d
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PRO-
GRAM.
(a) ESTABLISHMENT
OF RURAL COMMUNITY HOSPITAL (RCH)
DEMONSTRATION PROGRAM.—
(1) IN
GENERAL.—The Secretary shall establish a dem-
onstration program to test the feasibility and advisability of
the establishment of rural community hospitals (as defined
in subsection (f)(1)) to furnish covered inpatient hospital serv-
ices (as defined in subsection (f)(2)) to medicare beneficiaries.
(2) DEMONSTRATION
AREAS.—The program shall be con-
ducted in rural areas selected by the Secretary in States with
low population densities, as determined by the Secretary.
(3) APPLICATION.—Each rural community hospital that is
located in a demonstration area selected under paragraph (2)
that desires to participate in the demonstration program under
this section shall submit an application to the Secretary at
such time, in such manner, and containing such information
as the Secretary may require.
(4) SELECTION OF HOSPITALS.—The Secretary shall select
from among rural community hospitals submitting applications
under paragraph (3) not more than 15 of such hospitals to
participate in the demonstration program under this section.
(5) DURATION.—The Secretary shall conduct the demonstra-
tion program under this section for a 5-year period.
(6) IMPLEMENTATION.—The Secretary shall implement the
demonstration program not later than January 1, 2005, but
may not implement the program before October 1, 2004.
(b) PAYMENT.—
(1) IN GENERAL.—The amount of payment under the dem-
onstration program for covered inpatient hospital services fur-
nished in a rural community hospital, other than such services
furnished in a psychiatric or rehabilitation unit of the hospital
which is a distinct part, is—
(A) for discharges occurring in the first cost reporting
period beginning on or after the implementation of the
demonstration program, the reasonable costs of providing
such services; and
(B) for discharges occurring in a subsequent cost
reporting period under the demonstration program, the
lesser of—
(i) the reasonable costs of providing such services
in the cost reporting period involved; or
(ii) the target amount (as defined in paragraph
(2), applicable to the cost reporting period involved.
(2) TARGET AMOUNT.—For purposes of paragraph (1)(B)(ii),
the term ‘‘target amount’’ means, with respect to a rural
community hospital for a particular 12-month cost reporting
period—
(A) in the case of the second such reporting period
for which this subsection is in effect, the reasonable costs
of providing such covered inpatient hospital services as
determined under paragraph (1)(A), and
(B) in the case of a later reporting period, the target
amount for the preceding 12-month cost reporting period,
increased by the applicable percentage increase (under clause
(i) of section 1886(b)(3)(B) of the Social Security Act (42 U.S.C.
1395ww(b)(3)(B))) in the market basket percentage increase
Deadline.
42 USC 1395ww
note.
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117 STAT. 2273
PUBLIC LAW 108–173—DEC. 8, 2003
(as defined in clause (iii) of such section) for that particular
cost reporting period.
(c) FUNDING.—
(1) IN
GENERAL.—The Secretary shall provide for the
transfer from the Federal Hospital Insurance Trust Fund under
section 1817 of the Social Security Act (42 U.S.C. 1395i) of
such funds as are necessary for the costs of carrying out the
demonstration program under this section.
(2) BUDGET NEUTRALITY.—In conducting the demonstration
program under this section, the Secretary shall ensure that
the aggregate payments made by the Secretary do not exceed
the amount which the Secretary would have paid if the dem-
onstration program under this section was not implemented.
(d) WAIVER
AUTHORITY.—The Secretary may waive such
requirements of title XVIII of the Social Security Act (42 U.S.C.
1395 et seq.) as may be necessary for the purpose of carrying
out the demonstration program under this section.
(e) REPORT.—Not later than 6 months after the completion
of the demonstration program under this section, the Secretary
shall submit to Congress a report on such program, together with
recommendations for such legislation and administrative action as
the Secretary determines to be appropriate.
(f) DEFINITIONS.—In this section:
(1) RURAL COMMUNITY HOSPITAL DEFINED.—
(A) IN GENERAL.—The term ‘‘rural community hospital’’
means a hospital (as defined in section 1861(e) of the
Social Security Act (42 U.S.C. 1395x(e))) that—
(i) is located in a rural area (as defined in section
1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)))
or treated as being so located pursuant to section
1886(d)(8)(E) of such Act (42 U.S.C. 1395ww(d)(8)(E));
(ii) subject to paragraph (2), has fewer than 51
acute care inpatient beds, as reported in its most recent
cost report;
(iii) makes available 24-hour emergency care serv-
ices; and
(iv) is not eligible for designation, or has not been
designated, as a critical access hospital under section
1820.
(B) TREATMENT OF PSYCHIATRIC AND REHABILITATION
UNITS.—For purposes of paragraph (1)(B), beds in a psy-
chiatric or rehabilitation unit of the hospital which is a
distinct part of the hospital shall not be counted.
(2) COVERED
INPATIENT
HOSPITAL
SERVICES.—The term
‘‘covered inpatient hospital services’’ means inpatient hospital
services, and includes extended care services furnished under
an agreement under section 1883 of the Social Security Act
(42 U.S.C. 1395tt).
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
Subtitle B—Provisions Relating to Part B
Only
SEC. 411. TWO-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR
SMALL RURAL HOSPITALS AND SOLE COMMUNITY HOS-
PITALS UNDER THE PROSPECTIVE PAYMENT SYSTEM
FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES.
(a) HOLD HARMLESS PROVISIONS.—
(1) IN
GENERAL.—Section 1833(t)(7)(D)(i) (42 U.S.C.
1395l(t)(7)(D)(i)) is amended—
(A) in the heading, by striking ‘‘SMALL’’ and inserting
‘‘CERTAIN’’;
(B) by inserting ‘‘or a sole community hospital (as
defined in section 1886(d)(5)(D)(iii)) located in a rural area’’
after ‘‘100 beds’’; and
(C) by striking ‘‘2004’’ and inserting ‘‘2006’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1)(B) shall apply with respect to cost reporting periods begin-
ning on and after January 1, 2004.
(b) STUDY; AUTHORIZATION OF ADJUSTMENT.—Section 1833(t)
(42 U.S.C. 1395l(t)) is amended—
(1) by redesignating paragraph (13) as paragraph (16);
and
(2) by inserting after paragraph (12) the following new
paragraph:
‘‘(13) AUTHORIZATION
OF
ADJUSTMENT
FOR
RURAL
HOS-
PITALS.—
‘‘(A) STUDY.—The Secretary shall conduct a study to
determine if, under the system under this subsection, costs
incurred by hospitals located in rural areas by ambulatory
payment classification groups (APCs) exceed those costs
incurred by hospitals located in urban areas.
‘‘(B) AUTHORIZATION OF ADJUSTMENT.—Insofar as the
Secretary determines under subparagraph (A) that costs
incurred by hospitals located in rural areas exceed those
costs incurred by hospitals located in urban areas, the
Secretary shall provide for an appropriate adjustment
under paragraph (2)(E) to reflect those higher costs by
January 1, 2006.’’.
SEC. 412. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUST-
MENT.
Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is amended—
(1) in subparagraph (A), by striking ‘‘subparagraphs (B)
and (C)’’ and inserting ‘‘subparagraphs (B), (C), and (E)’’; and
(2) by adding at the end the following new subparagraph:
‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC INDEX.—After
calculating the work geographic index in subparagraph
(A)(iii), for purposes of payment for services furnished on
or after January 1, 2004, and before January 1, 2007,
the Secretary shall increase the work geographic index
to 1.00 for any locality for which such work geographic
index is less than 1.00.’’.
42 USC 1395l
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 413. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS
FOR PHYSICIAN SCARCITY.
(a) ADDITIONAL INCENTIVE PAYMENT FOR CERTAIN PHYSICIAN
SCARCITY AREAS.—Section 1833 (42 U.S.C. 1395l) is amended by
adding at the end the following new subsection:
‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN SCARCITY AREAS.—
‘‘(1) IN GENERAL.—In the case of physicians’ services fur-
nished on or after January 1, 2005, and before January 1,
2008—
‘‘(A) by a primary care physician in a primary care
scarcity county (identified under paragraph (4)); or
‘‘(B) by a physician who is not a primary care physician
in a specialist care scarcity county (as so identified),
in addition to the amount of payment that would otherwise
be made for such services under this part, there also shall
be paid an amount equal to 5 percent of the payment amount
for the service under this part.
‘‘(2) DETERMINATION OF RATIOS OF PHYSICIANS TO MEDICARE
BENEFICIARIES IN AREA.—Based upon available data, the Sec-
retary shall establish for each county or equivalent area in
the United States, the following:
‘‘(A) NUMBER OF PHYSICIANS PRACTICING IN THE AREA.—
The number of physicians who furnish physicians’ services
in the active practice of medicine or osteopathy in that
county or area, other than physicians whose practice is
exclusively for the Federal Government, physicians who
are retired, or physicians who only provide administrative
services. Of such number, the number of such physicians
who are—
‘‘(i) primary care physicians; or
‘‘(ii) physicians who are not primary care physi-
cians.
‘‘(B) NUMBER OF MEDICARE BENEFICIARIES RESIDING IN
THE AREA.—The number of individuals who are residing
in the county and are entitled to benefits under part A
or enrolled under this part, or both (in this subsection
referred to as ‘individuals’).
‘‘(C) DETERMINATION OF RATIOS.—
‘‘(i) PRIMARY CARE RATIO.—The ratio (in this para-
graph referred to as the ‘primary care ratio’) of the
number of primary care physicians (determined under
subparagraph (A)(i)), to the number of individuals
determined under subparagraph (B).
‘‘(ii) SPECIALIST CARE RATIO.—The ratio (in this
paragraph referred to as the ‘specialist care ratio’)
of the number of other physicians (determined under
subparagraph (A)(ii)), to the number of individuals
determined under subparagraph (B).
‘‘(3) RANKING OF COUNTIES.—The Secretary shall rank each
such county or area based separately on its primary care ratio
and its specialist care ratio.
‘‘(4) IDENTIFICATION OF COUNTIES.—
‘‘(A) IN GENERAL.—The Secretary shall identify—
‘‘(i) those counties and areas (in this paragraph
referred to as ‘primary care scarcity counties’) with
the lowest primary care ratios that represent, if each
such county or area were weighted by the number
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117 STAT. 2276
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of individuals determined under paragraph (2)(B), an
aggregate total of 20 percent of the total of the individ-
uals determined under such paragraph; and
‘‘(ii) those counties and areas (in this subsection
referred to as ‘specialist care scarcity counties’) with
the lowest specialist care ratios that represent, if each
such county or area were weighted by the number
of individuals determined under paragraph (2)(B), an
aggregate total of 20 percent of the total of the individ-
uals determined under such paragraph.
‘‘(B) PERIODIC REVISIONS.—The Secretary shall periodi-
cally revise the counties or areas identified in subparagraph
(A) (but not less often than once every three years) unless
the Secretary determines that there is no new data avail-
able on the number of physicians practicing in the county
or area or the number of individuals residing in the county
or area, as identified in paragraph (2).
‘‘(C) IDENTIFICATION OF COUNTIES WHERE SERVICE IS
FURNISHED.—For purposes of paying the additional amount
specified in paragraph (1), if the Secretary uses the 5-
digit postal ZIP Code where the service is furnished, the
dominant county of the postal ZIP Code (as determined
by the United States Postal Service, or otherwise) shall
be used to determine whether the postal ZIP Code is in
a scarcity county identified in subparagraph (A) or revised
in subparagraph (B).
‘‘(D) JUDICIAL REVIEW.—There shall be no administra-
tive or judicial review under section 1869, 1878, or other-
wise, respecting—
‘‘(i) the identification of a county or area;
‘‘(ii) the assignment of a specialty of any physician
under this paragraph;
‘‘(iii) the assignment of a physician to a county
under paragraph (2); or
‘‘(iv) the assignment of a postal ZIP Code to a
county or other area under this subsection.
‘‘(5) RURAL CENSUS TRACTS.—To the extent feasible, the
Secretary shall treat a rural census tract of a metropolitan
statistical area (as determined under the most recent modifica-
tion of the Goldsmith Modification, originally published in the
Federal Register on February 27, 1992 (57 Fed. Reg. 6725)),
as an equivalent area for purposes of qualifying as a primary
care scarcity county or specialist care scarcity county under
this subsection.
‘‘(6) PHYSICIAN DEFINED.—For purposes of this paragraph,
the term ‘physician’ means a physician described in section
1861(r)(1) and the term ‘primary care physician’ means a physi-
cian who is identified in the available data as a general practi-
tioner, family practice practitioner, general internist, or
obstetrician or gynecologist.
‘‘(7) PUBLICATION
OF
LIST
OF
COUNTIES; POSTING
ON
WEBSITE.—With respect to a year for which a county or area
is identified or revised under paragraph (4), the Secretary shall
identify such counties or areas as part of the proposed and
final rule to implement the physician fee schedule under section
1848 for the applicable year. The Secretary shall post the
list of counties identified or revised under paragraph (4) on
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117 STAT. 2277
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the Internet website of the Centers for Medicare & Medicaid
Services.’’.
(b) IMPROVEMENT
TO MEDICARE INCENTIVE PAYMENT PRO-
GRAM.—
(1) IN GENERAL.—Section 1833(m) (42 U.S.C. 1395l(m)) is
amended—
(A) by inserting ‘‘(1)’’ after ‘‘(m)’’;
(B) in paragraph (1), as designated by subparagraph
(A)—
(i) by inserting ‘‘in a year’’ after ‘‘In the case of
physicians’ services furnished’’; and
(ii) by inserting ‘‘as identified by the Secretary
prior to the beginning of such year’’ after ‘‘as a health
professional shortage area’’; and
(C) by adding at the end the following new paragraphs:
‘‘(2) For each health professional shortage area identified in
paragraph (1) that consists of an entire county, the Secretary shall
provide for the additional payment under paragraph (1) without
any requirement on the physician to identify the health professional
shortage area involved. The Secretary may implement the previous
sentence using the method specified in subsection (u)(4)(C).
‘‘(3) The Secretary shall post on the Internet website of the
Centers for Medicare & Medicaid Services a list of the health
professional shortage areas identified in paragraph (1) that consist
of a partial county to facilitate the additional payment under para-
graph (1) in such areas.
‘‘(4) There shall be no administrative or judicial review under
section 1869, section 1878, or otherwise, respecting—
‘‘(A) the identification of a county or area;
‘‘(B) the assignment of a specialty of any physician under
this paragraph;
‘‘(C) the assignment of a physician to a county under this
subsection; or
‘‘(D) the assignment of a postal ZIP Code to a county
or other area under this subsection.’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to physicians’ services furnished on or after
January 1, 2005.
(c) GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS
FOR PHYSICIANS’ SERVICES.—
(1) 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—
(A) an assessment of the validity of the geographic
adjustment factors used for each component of the fee
schedule;
(B) an evaluation of the measures used for such adjust-
ment, including the frequency of revisions;
(C) an evaluation of the methods used to determine
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
42 USC 1395w–4
note.
42 USC 1395l
note.
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index and relative weights for the malpractice component;
and
(D) an evaluation of the effect of the adjustment to
the physician work geographic index under section
1848(e)(1)(E) of the Social Security Act, as added by section
412, on physician location and retention in areas affected
by such adjustment, taking into account—
(i) differences in recruitment costs and retention
rates for physicians, including specialists, between
large urban areas and other areas; and
(ii) the mobility of physicians, including specialists,
over the last decade.
(2) 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 paragraph
(1). The report shall include recommendations regarding the
use of more current data in computing geographic cost of prac-
tice indices as well as the use of data directly representative
of physicians’ costs (rather than proxy measures of such costs).
SEC. 414. PAYMENT FOR RURAL AND URBAN AMBULANCE SERVICES.
(a) PHASE-IN PROVIDING FLOOR USING BLEND OF FEE SCHEDULE
AND
REGIONAL
FEE
SCHEDULES.—Section 1834(l) (42 U.S.C.
1395m(l)) is amended—
(1) in paragraph (2)(E), by inserting ‘‘consistent with para-
graph (11)’’ after ‘‘in an efficient and fair manner’’; and
(2) by redesignating paragraph (8), as added by section
221(a) of BIPA (114 Stat. 2763A–486), as paragraph (9); and
(3) by adding at the end the following new paragraph:
‘‘(10) PHASE-IN
PROVIDING
FLOOR
USING
BLEND
OF
FEE
SCHEDULE AND REGIONAL FEE SCHEDULES.—In carrying out the
phase-in under paragraph (2)(E) for each level of ground service
furnished in a year, the portion of the payment amount that
is based on the fee schedule shall be the greater of the amount
determined under such fee schedule (without regard to this
paragraph) or the following blended rate of the fee schedule
under paragraph (1) and of a regional fee schedule for the
region involved:
‘‘(A) For 2004 (for services furnished on or after July
1, 2004), the blended rate shall be based 20 percent on
the fee schedule under paragraph (1) and 80 percent on
the regional fee schedule.
‘‘(B) For 2005, the blended rate shall be based 40
percent on the fee schedule under paragraph (1) and 60
percent on the regional fee schedule.
‘‘(C) For 2006, the blended rate shall be based 60
percent on the fee schedule under paragraph (1) and 40
percent on the regional fee schedule.
‘‘(D) For 2007, 2008, and 2009, the blended rate shall
be based 80 percent on the fee schedule under paragraph
(1) and 20 percent on the regional fee schedule.
‘‘(E) For 2010 and each succeeding year, the blended
rate shall be based 100 percent on the fee schedule under
paragraph (1).
For purposes of this paragraph, the Secretary shall establish
a regional fee schedule for each of the nine census divisions
(referred to in section 1886(d)(2)) using the methodology (used
Deadline.
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in establishing the fee schedule under paragraph (1)) to cal-
culate a regional conversion factor and a regional mileage pay-
ment rate and using the same payment adjustments and the
same relative value units as used in the fee schedule under
such paragraph.’’.
(b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG TRIPS.—Sec-
tion 1834(l), as amended by subsection (a), is amended by adding
at the end the following new paragraph:
‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG TRIPS.—
In the case of ground ambulance services furnished on or after
July 1, 2004, and before January 1, 2009, regardless of where
the transportation 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 increased by 1⁄4 of
the payment per mile otherwise applicable to miles in excess
of 50 miles in such trip.’’.
(c) IMPROVEMENT
IN
PAYMENTS
TO
RETAIN
EMERGENCY
CAPACITY FOR AMBULANCE SERVICES IN RURAL AREAS.—
(1) IN GENERAL.—Section 1834(l) (42 U.S.C. 1395m(l)), as
amended by subsections (a) and (b), is amended by adding
at the end the following new paragraph:
‘‘(12) ASSISTANCE FOR RURAL PROVIDERS FURNISHING SERV-
ICES IN LOW POPULATION DENSITY AREAS.—
‘‘(A) IN GENERAL.—In the case of ground ambulance
services furnished on or after July 1, 2004, and before
January 1, 2010, for which the transportation originates
in a qualified rural area (identified under subparagraph
(B)(iii)), the Secretary shall provide for a percent increase
in the base rate of the fee schedule for a trip established
under this subsection. In establishing such percent
increase, the Secretary shall estimate the average cost
per trip for such services (not taking into account mileage)
in the lowest quartile as compared to the average cost
per trip for such services (not taking into account mileage)
in the highest quartile of all rural county populations.
‘‘(B) IDENTIFICATION OF QUALIFIED RURAL AREAS.—
‘‘(i) DETERMINATION
OF
POPULATION
DENSITY
IN
AREA.—Based upon data from the United States decen-
nial census for the year 2000, the Secretary shall deter-
mine, for each rural area, the population density for
that area.
‘‘(ii) RANKING OF AREAS.—The Secretary shall rank
each such area based on such population density.
‘‘(iii) IDENTIFICATION OF QUALIFIED RURAL AREAS.—
The Secretary shall identify those areas (in subpara-
graph (A) referred to as ‘qualified rural areas’) with
the lowest population densities that represent, if each
such area were weighted by the population of such
area (as used in computing such population densities),
an aggregate total of 25 percent of the total of the
population of all such areas.
‘‘(iv) RURAL AREA.—For purposes of this paragraph,
the term ‘rural area’ has the meaning given such term
in section 1886(d)(2)(D). If feasible, the Secretary shall
treat a rural census tract of a metropolitan statistical
area (as determined under the most recent modification
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PUBLIC LAW 108–173—DEC. 8, 2003
of the Goldsmith Modification, originally published in
the Federal Register on February 27, 1992 (57 Fed.
Reg. 6725) as a rural area for purposes of this para-
graph.
‘‘(v) JUDICIAL REVIEW.—There shall be no adminis-
trative or judicial review under section 1869, 1878,
or otherwise, respecting the identification of an area
under this subparagraph.’’.
(2) USE OF DATA.—In order to promptly implement section
1834(l)(12) of the Social Security Act, as added by paragraph
(1), the Secretary may use data furnished by the Comptroller
General of the United States.
(d) TEMPORARY INCREASE FOR GROUND AMBULANCE SERVICES.—
Section 1834(l) (42 U.S.C. 1395m(l)), as amended by subsections
(a), (b), and (c), is amended by adding at the end the following
new paragraph:
‘‘(13) TEMPORARY INCREASE FOR GROUND AMBULANCE SERV-
ICES.—
‘‘(A) IN
GENERAL.—After computing the rates with
respect to ground ambulance services under the other
applicable provisions of this subsection, in the case of such
services furnished on or after July 1, 2004, and before
January 1, 2007, for which the transportation originates
in—
‘‘(i) a rural area described in paragraph (9) or
in a rural census tract described in such paragraph,
the fee schedule established under this section shall
provide that the rate for the service otherwise estab-
lished, after the application of any increase under para-
graphs (11) and (12), shall be increased by 2 percent;
and
‘‘(ii) an area not described in clause (i), the fee
schedule established under this subsection shall pro-
vide that the rate for the service otherwise established,
after the application of any increase under paragraph
(11), shall be increased by 1 percent.
‘‘(B) APPLICATION
OF
INCREASED
PAYMENTS
AFTER
2006.—The increased payments under subparagraph (A)
shall not be taken into account in calculating payments
for services furnished after the period specified in such
subparagraph.’’.
(e) IMPLEMENTATION.—The Secretary may implement the
amendments made by this section, and revise the conversion factor
applicable under section 1834(l) of the Social Security Act (42 U.S.C.
1395m(l)) for purposes of implementing such amendments, on an
interim final basis, or by program instruction.
(f) GAO REPORT
ON COSTS
AND ACCESS.—Not later than
December 31, 2005, the Comptroller General of the United States
shall submit to Congress an initial report on how costs differ among
the types of ambulance providers and on access, supply, and quality
of ambulance services in those regions and States that have a
reduction in payment under the medicare ambulance fee schedule
(under section 1834(l) of the Social Security Act, as amended by
this Act). Not later than December 31, 2007, the Comptroller Gen-
eral shall submit to Congress a final report on such access and
supply.
Deadlines.
42 USC 1395m
note.
42 USC 1395m
note.
42 USC 1395m
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
(g) TECHNICAL AMENDMENTS.—(1) Section 221(c) of BIPA (114
Stat. 2763A–487) is amended by striking ‘‘subsection (b)(2)’’ and
inserting ‘‘subsection (b)(3)’’.
(2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by
moving subparagraph (U) 4 ems to the left.
SEC. 415. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR AMBU-
LANCE SERVICES.
(a) COVERAGE.—Section 1834(l) (42 U.S.C. 1395m(l)), as
amended by subsections (a), (b), (c), and (d) of section 414, is
amended by adding at the end the following new paragraph:
‘‘(14) PROVIDING
APPROPRIATE
COVERAGE
OF
RURAL
AIR
AMBULANCE SERVICES.—
‘‘(A) IN GENERAL.—The regulations described in section
1861(s)(7) shall provide, to the extent that any ambulance
services (whether ground or air) may be covered under
such section, that a rural air ambulance service (as defined
in subparagraph (C)) is reimbursed under this subsection
at the air ambulance rate if the air ambulance service—
‘‘(i) is reasonable and necessary based on the
health condition of the individual being transported
at or immediately prior to the time of the transport;
and
‘‘(ii) complies with equipment and crew require-
ments established by the Secretary.
‘‘(B) SATISFACTION OF REQUIREMENT OF MEDICALLY NEC-
ESSARY.—The requirement of subparagraph (A)(i) is deemed
to be met for a rural air ambulance service if—
‘‘(i) subject to subparagraph (D), such service is
requested by a physician or other qualified medical
personnel (as specified by the Secretary) who reason-
ably determines or certifies that the individual’s condi-
tion is such that the time needed to transport the
individual by land or the instability of transportation
by land poses a threat to the individual’s survival
or seriously endangers the individual’s health; or
‘‘(ii) such service is furnished pursuant to a pro-
tocol that is established by a State or regional emer-
gency medical service (EMS) agency and recognized
or approved by the Secretary under which the use
of an air ambulance is recommended, if such agency
does not have an ownership interest in the entity fur-
nishing such service.
‘‘(C) RURAL
AIR
AMBULANCE
SERVICE
DEFINED.—For
purposes of this paragraph, the term ‘rural air ambulance
service’ means fixed wing and rotary wing air ambulance
service in which the point of pick up of the individual
occurs in a rural area (as defined in section 1886(d)(2)(D))
or in a rural census tract of a metropolitan statistical
area (as determined under the most recent modification
of the Goldsmith Modification, originally published in the
Federal Register on February 27, 1992 (57 Fed. Reg. 6725)).
‘‘(D) LIMITATION.—
‘‘(i) IN
GENERAL.—Subparagraph (B)(i) shall not
apply if there is a financial or employment relationship
between the person requesting the rural air ambulance
service and the entity furnishing the ambulance
42 USC 1395m
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
service, or an entity under common ownership with
the entity furnishing the air ambulance service, or
a financial relationship between an immediate family
member of such requester and such an entity.
‘‘(ii) EXCEPTION.—Where a hospital and the entity
furnishing rural air ambulance services are under
common ownership, clause (i) shall not apply to remu-
neration (through employment or other relationship)
by the hospital of the requester or immediate family
member if the remuneration is for provider-based
physician services furnished in a hospital (as described
in section 1887) which are reimbursed under part A
and the amount of the remuneration is unrelated
directly or indirectly to the provision of rural air ambu-
lance services.’’.
(b) CONFORMING AMENDMENT.—Section 1861(s)(7) (42 U.S.C.
1395x(s)(7)) is amended by inserting ‘‘, subject to section
1834(l)(14),’’ after ‘‘but’’.
(c) EFFECTIVE DATE.—The amendments made by this subsection
shall apply to services furnished on or after January 1, 2005.
SEC. 416. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORA-
TORY TESTS FURNISHED TO HOSPITAL OUTPATIENTS IN
CERTAIN RURAL AREAS.
(a) IN GENERAL.—Notwithstanding subsections (a), (b), and (h)
of section 1833 of the Social Security Act (42 U.S.C. 1395l) and
section 1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case
of a clinical diagnostic laboratory test covered under part B of
title XVIII of such Act that is furnished during a cost reporting
period described in subsection (b) by a hospital with fewer than
50 beds that is located in a qualified rural area (identified under
paragraph (12)(B)(iii) of section 1834(l) of the Social Security Act
(42 U.S.C. 1395m(l)), as added by section 414(c)) as part of out-
patient services of the hospital, the amount of payment for such
test shall be 100 percent of the reasonable costs of the hospital
in furnishing such test.
(b) APPLICATION.—A cost reporting period described in this
subsection is a cost reporting period beginning during the 2-year
period beginning on July 1, 2004.
(c) PROVISION AS PART OF OUTPATIENT HOSPITAL SERVICES.—
For purposes of subsection (a), in determining whether clinical
diagnostic laboratory services are furnished as part of outpatient
services of a hospital, the Secretary shall apply the same rules
that are used to determine whether clinical diagnostic laboratory
services are furnished as an outpatient critical access hospital
service under section 1834(g)(4) of the Social Security Act (42 U.S.C.
1395m(g)(4)).
SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.
Section 4207 of the Balanced Budget Act of 1997 (Public Law
105–33) is amended—
(1) in subsection (a)(4), by striking ‘‘4-year’’ and inserting
‘‘8-year’’; and
(2) in subsection (d)(3), by striking ‘‘$30,000,000’’ and
inserting ‘‘$60,000,000’’.
42 USC 1395b–1
note.
Applicability.
42 USC 1395l–4.
42 USC 1395b–1.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 418. REPORT ON DEMONSTRATION PROJECT PERMITTING
SKILLED NURSING FACILITIES TO BE ORIGINATING
TELEHEALTH SITES; AUTHORITY TO IMPLEMENT.
(a) EVALUATION.—The Secretary, acting through the Adminis-
trator of the Health Resources and Services Administration in con-
sultation with the Administrator of the Centers for Medicare &
Medicaid Services, shall evaluate demonstration projects conducted
by the Secretary under which skilled nursing facilities (as defined
in section 1819(a) of the Social Security Act (42 U.S.C. 1395i–
3(a)) are treated as originating sites for telehealth services.
(b) REPORT.—Not later than January 1, 2005, the Secretary
shall submit to Congress a report on the evaluation conducted
under subsection (a). Such report shall include recommendations
on mechanisms to ensure that permitting a skilled nursing facility
to serve as an originating site for the use of telehealth services
or any other service delivered via a telecommunications system
does not serve as a substitute for in-person visits furnished by
a physician, or for in-person visits furnished by a physician assist-
ant, nurse practitioner or clinical nurse specialist, as is otherwise
required by the Secretary.
(c) AUTHORITY TO EXPAND ORIGINATING TELEHEALTH SITES TO
INCLUDE SKILLED NURSING FACILITIES.—Insofar as the Secretary
concludes in the report required under subsection (b) that it is
advisable to permit a skilled nursing facility to be an originating
site for telehealth services under section 1834(m) of the Social
Security Act (42 U.S.C. 1395m(m)), and that the Secretary can
establish the mechanisms to ensure such permission does not serve
as a substitute for in-person visits furnished by a physician, or
for in-person visits furnished by a physician assistant, nurse practi-
tioner or clinical nurse specialist, the Secretary may deem a skilled
nursing facility to be an originating site under paragraph (4)(C)(ii)
of such section beginning on January 1, 2006.
Subtitle C—Provisions Relating to Parts A
and B
SEC. 421. ONE-YEAR INCREASE FOR HOME HEALTH SERVICES FUR-
NISHED IN A RURAL AREA.
(a) IN GENERAL.—With respect to episodes and visits ending
on or after April 1, 2004, and before April 1, 2005, in the case
of home health services furnished in a rural area (as defined in
section 1886(d)(2)(D) of the Social Security Act (42 U.S.C.
1395ww(d)(2)(D))), the Secretary shall increase the payment amount
otherwise made under section 1895 of such Act (42 U.S.C. 1395fff )
for such services by 5 percent.
(b) WAIVING BUDGET NEUTRALITY.—The Secretary shall not
reduce the standard prospective payment amount (or amounts)
under section 1895 of the Social Security Act (42 U.S.C. 1395fff )
applicable to home health services furnished during a period to
offset the increase in payments resulting from the application of
subsection (a).
(c) NO
EFFECT
ON
SUBSEQUENT
PERIODS.—The payment
increase provided under subsection (a) for a period under such
subsection—
42 USC 1395fff
note.
Deadline.
42 USC 1395m
note.
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117 STAT. 2284
PUBLIC LAW 108–173—DEC. 8, 2003
(1) shall not apply to episodes and visits ending after
such period; and
(2) shall not be taken into account in calculating the pay-
ment amounts applicable for episodes and visits occurring after
such period.
SEC. 422. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.
(a) IN GENERAL.—Section 1886(h) (42 U.S.C. 1395ww(h)(4)) is
amended—
(1) in paragraph (4)(F)(i), by inserting ‘‘subject to paragraph
(7),’’ after ‘‘October 1, 1997,’’;
(2) in paragraph (4)(H)(i), by inserting ‘‘and subject to
paragraph (7)’’ after ‘‘subparagraphs (F) and (G)’’; and
(3) by adding at the end the following new paragraph:
‘‘(7) REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.—
‘‘(A) REDUCTION
IN
LIMIT
BASED
ON
UNUSED
POSI-
TIONS.—
‘‘(i) PROGRAMS SUBJECT TO REDUCTION.—
‘‘(I) IN GENERAL.—Except as provided in sub-
clause (II), if a hospital’s reference resident level
(specified in clause (ii)) is less than the otherwise
applicable resident limit (as defined in subpara-
graph (C)(ii)), effective for portions of cost reporting
periods occurring on or after July 1, 2005, the
otherwise applicable resident limit shall be
reduced by 75 percent of the difference between
such otherwise applicable resident limit and such
reference resident level.
‘‘(II) EXCEPTION
FOR
SMALL
RURAL
HOS-
PITALS.—This subparagraph shall not apply to a
hospital located in a rural area (as defined in
subsection (d)(2)(D)(ii)) with fewer than 250 acute
care inpatient beds.
‘‘(ii) REFERENCE RESIDENT LEVEL.—
‘‘(I) IN
GENERAL.—Except as otherwise pro-
vided in subclauses (II) and (III), the reference
resident level specified in this clause for a hospital
is the resident level for the most recent cost
reporting period of the hospital ending on or before
September 30, 2002, for which a cost report has
been settled (or, if not, submitted (subject to
audit)), as determined by the Secretary.
‘‘(II) USE OF MOST RECENT ACCOUNTING PERIOD
TO
RECOGNIZE
EXPANSION
OF
EXISTING
PRO-
GRAMS.—If a hospital submits a timely request
to increase its resident level due to an expansion
of an existing residency training program that is
not reflected on the most recent settled cost report,
after audit and subject to the discretion of the
Secretary, the reference resident level for such
hospital is the resident level for the cost reporting
period that includes July 1, 2003, as determined
by the Secretary.
‘‘(III) EXPANSIONS
UNDER
NEWLY
APPROVED
PROGRAMS.—Upon the timely request of a hospital,
the Secretary shall adjust the reference resident
level specified under subclause (I) or (II) to include
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117 STAT. 2285
PUBLIC LAW 108–173—DEC. 8, 2003
the number of medical residents that were
approved in an application for a medical residency
training program that was approved by an appro-
priate accrediting organization (as determined by
the Secretary) before January 1, 2002, but which
was not in operation during the cost reporting
period used under subclause (I) or (II), as the
case may be, as determined by the Secretary.
‘‘(iii) AFFILIATION.—The provisions of clause (i)
shall be applied to hospitals which are members of
the same affiliated group (as defined by the Secretary
under paragraph (4)(H)(ii)) as of July 1, 2003.
‘‘(B) REDISTRIBUTION.—
‘‘(i) IN GENERAL.—The Secretary is authorized to
increase the otherwise applicable resident limit for
each qualifying hospital that submits a timely applica-
tion under this subparagraph by such number as the
Secretary may approve for portions of cost reporting
periods occurring on or after July 1, 2005. The aggre-
gate number of increases in the otherwise applicable
resident limits under this subparagraph may not
exceed the Secretary’s estimate of the aggregate reduc-
tion in such limits attributable to subparagraph (A).
‘‘(ii) 
CONSIDERATIONS
IN
REDISTRIBUTION.—In
determining for which hospitals the increase in the
otherwise applicable resident limit is provided under
clause (i), the Secretary shall take into account the
demonstrated likelihood of the hospital filling the posi-
tions within the first 3 cost reporting periods beginning
on or after July 1, 2005, made available under this
subparagraph, as determined by the Secretary.
‘‘(iii) PRIORITY
FOR
RURAL
AND
SMALL
URBAN
AREAS.—In determining for which hospitals and resi-
dency training programs an increase in the otherwise
applicable resident limit is provided under clause (i),
the Secretary shall distribute the increase to programs
of hospitals located in the following priority order:
‘‘(I) First, to hospitals located in rural areas
(as defined in subsection (d)(2)(D)(ii)).
‘‘(II) Second, to hospitals located in urban
areas that are not large urban areas (as defined
for purposes of subsection (d)).
‘‘(III) Third, to other hospitals in a State if
the residency training program involved is in a
specialty for which there are not other residency
training programs in the State.
Increases of residency limits within the same priority
category under this clause shall be determined by the
Secretary.
‘‘(iv) LIMITATION.—In no case shall more than 25
full-time equivalent additional residency positions be
made available under this subparagraph with respect
to any hospital.
‘‘(v) APPLICATION OF LOCALITY ADJUSTED NATIONAL
AVERAGE PER RESIDENT AMOUNT.—With respect to addi-
tional residency positions in a hospital attributable
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117 STAT. 2286
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to the increase provided under this subparagraph, not-
withstanding any other provision of this subsection,
the approved FTE resident amount is deemed to be
equal to the locality adjusted national average per
resident amount computed under paragraph (4)(E) for
that hospital.
‘‘(vi) CONSTRUCTION.—Nothing in this subpara-
graph shall be construed as permitting the redistribu-
tion of reductions in residency positions attributable
to voluntary reduction programs under paragraph (6),
under a demonstration project approved as of October
31, 2003, under the authority of section 402 of Public
Law 90–248, or as affecting the ability of a hospital
to establish new medical residency training programs
under paragraph (4)(H).
‘‘(C) RESIDENT
LEVEL
AND
LIMIT
DEFINED.—In this
paragraph:
‘‘(i) RESIDENT
LEVEL.—The term ‘resident level’
means, with respect to a hospital, the total number
of full-time equivalent residents, before the application
of weighting factors (as determined under paragraph
(4)), 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 otherwise applicable
under subparagraphs (F)(i) and (H) of paragraph (4)
on the resident level for the hospital determined with-
out regard to this paragraph.
‘‘(D) JUDICIAL REVIEW.—There shall be no administra-
tive or judicial review under section 1869, 1878, or other-
wise, with respect to determinations made under this para-
graph.’’.
(b) CONFORMING PROVISIONS.—(1) Section 1886(d)(5)(B) (42
U.S.C. 1395ww(d)(5)(B)) is amended—
(A) in the second sentence of clause (ii), by striking ‘‘For
discharges’’ and inserting ‘‘Subject to clause (ix), for discharges’’;
(B) in clause (v), by adding at the end the following: ‘‘The
provisions of subsection (h)(7) shall apply with respect to the
first sentence of this clause in the same manner as it applies
with respect to subsection (h)(4)(F)(i).’’; and
(C) by adding at the end the following new clause:
‘‘(ix) For discharges occurring on or after July 1, 2005,
insofar as an additional payment amount under this subpara-
graph is attributable to resident positions redistributed to a
hospital under subsection (h)(7)(B), in computing the indirect
teaching adjustment factor under clause (ii) the adjustment
shall be computed in a manner as if ‘c’ were equal to 0.66
with respect to such resident positions.’’.
(2) Chapter 35 of title 44, United States Code, shall not apply
with respect to applications under section 1886(h)(7) of the Social
Security Act, as added by subsection (a)(3).
(c) REPORT ON EXTENSION OF APPLICATIONS UNDER REDISTRIBU-
TION PROGRAM.—Not later than July 1, 2005, the Secretary shall
submit to Congress a report containing recommendations regarding
whether to extend the deadline for applications for an increase
Deadline.
42 USC 1395ww
note.
42 USC 1395ww
note.
Applicability.
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117 STAT. 2287
PUBLIC LAW 108–173—DEC. 8, 2003
in resident limits under section 1886(h)(4)(I)(ii)(II) of the Social
Security Act (as added by subsection (a)).
Subtitle D—Other Provisions
SEC. 431. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE
EFFORTS THAT BENEFIT MEDICALLY UNDERSERVED
POPULATIONS.
(a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 1320a–7(b)(3)),
as amended by section 101(e)(2), is amended—
(1) in subparagraph (F), by striking ‘‘and’’ after the semi-
colon 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 subparagraph:
‘‘(H) any remuneration between a health center entity
described under clause (i) or (ii) of section 1905(l)(2)(B)
and any individual or entity providing goods, items, serv-
ices, donations, loans, or a combination thereof, to such
health center entity pursuant 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 CENTER ENTITY
ARRANGEMENTS.—
(1) ESTABLISHMENT.—
(A) IN
GENERAL.—The Secretary shall establish, on
an expedited 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 con-
sider the following factors, among others, in establishing
standards relating to the exception 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 entity.
(ii) Whether the arrangement between the health
center entity and the other party restricts or limits
an individual’s freedom of choice.
(iii) Whether the arrangement between the health
center entity and the other party protects a health
care professional’s independent medical judgment
regarding medically appropriate treatment.
The Secretary may also include other standards and cri-
teria that are consistent with the intent of Congress in
enacting the exception established under this section.
(2) DEADLINE.—Not later than 1 year after the date of
the enactment of this Act the Secretary shall publish final
regulations establishing the standards described in paragraph
(1).
Regulations.
42 USC
1320a–7b note.
42 USC
1320a–7b.
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SEC. 432. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.
Section 711(b) (42 U.S.C. 912(b)) is amended—
(1) in paragraph (3), by striking ‘‘and’’ after the comma
at the end;
(2) in paragraph (4), by striking the period at the end
and inserting ‘‘, and’’; and
(3) by inserting after paragraph (4) the following new para-
graph:
‘‘(5) administer grants, cooperative agreements, and con-
tracts to provide technical assistance and other activities as
necessary to support activities related to improving health care
in rural areas.’’.
SEC. 433. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT ADJUST-
MENTS.
(a) IN GENERAL.—The Medicare Payment Advisory Commission
shall conduct a study of the impact of sections 401 through 406,
411, 416, and 505. The Commission shall analyze the effect on
total payments, growth in costs, capital spending, and such other
payment effects under those sections.
(b) REPORTS.—
(1) INTERIM REPORT.—Not later than 18 months after the
date of the enactment of this Act, the Commission shall submit
to Congress an interim report on the matters studied under
subsection (a) with respect only to changes to the critical access
hospital provisions under section 405.
(2) FINAL REPORT.—Not later than 3 years after the date
of the enactment of this Act, the Commission shall submit
to Congress a final report on all matters studied under sub-
section (a).
SEC. 434. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION
PROJECT.
(a) AUTHORITY TO CONDUCT DEMONSTRATION PROJECT.—The
Secretary shall waive such provisions of the medicare program
established under title XVIII of the Social Security Act (42 U.S.C.
1395 et seq.) as are necessary to conduct a demonstration project
under which frontier extended stay clinics described in subsection
(b) in isolated rural areas are treated as providers of items and
services under the medicare program.
(b) CLINICS DESCRIBED.—A frontier extended stay clinic is
described in this subsection if the clinic—
(1) is located in a community where the closest short-
term acute care hospital or critical access hospital is at least
75 miles away from the community or is inaccessible by public
road; and
(2) is designed to address the needs of—
(A) seriously or critically ill or injured patients who,
due to adverse weather conditions or other reasons, cannot
be transferred quickly to acute care referral centers; or
(B) patients who need monitoring and observation for
a limited period of time.
(c) SPECIFICATION OF CODES.—The Secretary shall determine
the appropriate life-safety codes for such clinics that treat patients
for needs referred to in subsection (b)(2).
(d) FUNDING.—
42 USC 1395x
note.
Deadlines.
42 USC 1395ww
note.
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(1) IN
GENERAL.—Subject to paragraph (2), there are
authorized to be appropriated, in appropriate part from the
Federal Hospital Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund, such sums as are
necessary to conduct the demonstration project under this sec-
tion.
(2) BUDGET NEUTRAL IMPLEMENTATION.—In conducting the
demonstration project under this section, the Secretary shall
ensure that the aggregate payments made by the Secretary
under the medicare program do not exceed the amount which
the Secretary would have paid under the medicare program
if the demonstration project under this section was not imple-
mented.
(e) THREE-YEAR PERIOD.—The Secretary shall conduct the dem-
onstration under this section for a 3-year period.
(f) REPORT.—Not later than the date that is 1 year after the
date on which the demonstration project concludes, the Secretary
shall submit to Congress a report on the demonstration project,
together with such recommendations for legislation or administra-
tive action as the Secretary determines appropriate.
(g) DEFINITIONS.—In this section, the terms ‘‘hospital’’ and ‘‘crit-
ical access hospital’’ have the meanings given such terms in sub-
sections (e) and (mm), respectively, of section 1861 of the Social
Security Act (42 U.S.C. 1395x).
TITLE V—PROVISIONS RELATING TO
PART A
Subtitle A—Inpatient Hospital Services
SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.
(a) 
IN
GENERAL.—Section 
1886(b)(3)(B)(i) 
(42 
U.S.C.
1395ww(b)(3)(B)(i)) is amended—
(1) by striking ‘‘and’’ at the end of subclause (XVIII);
(2) by striking subclause (XIX); and
(3) by inserting after subclause (XVIII) the following new
subclauses:
‘‘(XIX) for each of fiscal years 2004 through 2007, subject
to clause (vii), the market basket percentage increase for hos-
pitals in all areas; and
‘‘(XX) for fiscal year 2008 and each subsequent fiscal year,
the market basket percentage increase for hospitals in all
areas.’’.
(b) 
SUBMISSION
OF
HOSPITAL
QUALITY
DATA.—Section
1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) is amended by adding
at the end the following new clause:
‘‘(vii)(I) For purposes of clause (i)(XIX) for each of fiscal years
2005 through 2007, in a case of a subsection (d) hospital that
does not submit data to the Secretary in accordance with subclause
(II) with respect to such a fiscal year, the applicable percentage
increase under such clause for such fiscal year shall be reduced
by 0.4 percentage points. Such reduction shall apply only with
respect to the fiscal year involved, and the Secretary shall not
take into account such reduction in computing the applicable
Applicability.
Deadline.
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117 STAT. 2290
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percentage increase under clause (i)(XIX) for a subsequent fiscal
year.
‘‘(II) Each subsection (d) hospital shall submit to the Secretary
quality data (for a set of 10 indicators established by the Secretary
as of November 1, 2003) that relate to the quality of care furnished
by the hospital in inpatient settings in a form and manner, and
at a time, specified by the Secretary for purposes of this clause,
but with respect to fiscal year 2005, the Secretary shall provide
for a 30-day grace period for the submission of data by a hospital.’’.
(c) GAO STUDY AND REPORT ON APPROPRIATENESS OF PAYMENTS
UNDER THE PROSPECTIVE PAYMENT SYSTEM FOR INPATIENT HOS-
PITAL SERVICES.—
(1) STUDY.—The Comptroller General of the United States,
using the most current data available, shall conduct a study
to determine—
(A) the appropriate level and distribution of payments
in relation to costs under the prospective payment system
under section 1886 of the Social Security Act (42 U.S.C.
1395ww) for inpatient hospital services furnished by sub-
section (d) hospitals (as defined in subsection (d)(1)(B) of
such section); and
(B) whether there is a need to adjust such payments
under such system to reflect legitimate differences in costs
across different geographic areas, kinds of hospitals, and
types of cases.
(2) REPORT.—Not later than 24 months after the date of
the enactment of this Act, the Comptroller General of the
United States shall submit to Congress a report on the study
conducted under paragraph (1) together with such recommenda-
tions for legislative and administrative action as the Comp-
troller General determines appropriate.
SEC. 502. REVISION OF THE INDIRECT MEDICAL EDUCATION (IME)
ADJUSTMENT PERCENTAGE.
(a) 
IN
GENERAL.—Section 
1886(d)(5)(B)(ii) 
(42 
U.S.C.
1395ww(d)(5)(B)(ii)) is amended—
(1) in subclause (VI), by striking ‘‘and’’ after the semicolon
at the end;
(2) in subclause (VII)—
(A) by inserting ‘‘and before April 1, 2004,’’ after ‘‘on
or after October 1, 2002,’’; and
(B) by striking the period at the end and inserting
a semicolon; and
(3) by adding at the end the following new subclauses:
‘‘(VIII) on or after April 1, 2004, and before October
1, 2004, ‘c’ is equal to 1.47;
‘‘(IX) during fiscal year 2005, ‘c’ is equal to 1.42;
‘‘(X) during fiscal year 2006, ‘c’ is equal to 1.37;
‘‘(XI) during fiscal year 2007, ‘c’ is equal to 1.32; and
‘‘(XII) on or after October 1, 2007, ‘c’ is equal to 1.35.’’.
(b) CONFORMING AMENDMENT RELATING TO DETERMINATION OF
STANDARDIZED
AMOUNT.—Section 
1886(d)(2)(C)(i) 
(42 
U.S.C.
1395ww(d)(2)(C)(i)) is amended—
(1) by striking ‘‘1999 or’’ and inserting ‘‘1999,’’; and
(2) by inserting ‘‘, or the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003’’ after ‘‘2000’’.
Deadline.
42 USC 1395ww
note.
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(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to discharges occurring on or after April 1, 2004.
SEC. 503. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER
INPATIENT HOSPITAL PROSPECTIVE PAYMENT SYSTEM.
(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 Sec-
retary shall provide for the addition of new diagnosis and procedure
codes in April 1 of each year, but the addition 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 FOR TECHNOLOGY OUTLIERS.—
(1) 
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 75 percent of the standardized amount
(increased to reflect the difference between cost and charges)
or 75 percent of one standard deviation for the diagnosis-
related group involved)’’ after ‘‘is inadequate’’.
(2) PROCESS FOR PUBLIC INPUT.—Section 1886(d)(5)(K) (42
U.S.C. 1395ww(d)(5)(K)), as amended by subsection (a), is
amended—
(A) in clause (i), by adding at the end the following:
‘‘Such mechanism shall be modified to meet the require-
ments 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 proposed rule, for
public input regarding whether a new service or technology rep-
resents an advance in medical technology that substantially
improves the diagnosis or treatment of individuals entitled to bene-
fits under part A as follows:
‘‘(I) The Secretary shall make public and periodically
update a list of all the services and technologies for which
an application for additional payment under this subparagraph
is pending.
‘‘(II) The Secretary shall accept comments, recommenda-
tions, and data from the public regarding whether the service
or technology represents a substantial improvement.
‘‘(III) The Secretary shall provide for a meeting at which
organizations representing hospitals, physicians, such individ-
uals, manufacturers, and any other interested party may
present comments, recommendations, and data to the clinical
staff of the Centers for Medicare & Medicaid Services before
publication of a notice of proposed rulemaking regarding
whether service or technology represents a substantial improve-
ment.’’.
(c) PREFERENCE
FOR
USE
OF
DRG ADJUSTMENT.—Section
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as amended by sub-
sections (a) and (b), is amended by adding at the end the following
new clause:
‘‘(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-related groups associated
Public
information.
Records.
42 USC 1395ww
note.
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117 STAT. 2292
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with such technology, based on similar clinical or anatomical
characteristics and the cost of the technology. Within such groups
the Secretary shall assign an eligible new technology into a diag-
nosis-related group where the average costs of care most closely
approximate the costs of care of using the new technology. 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) ESTABLISHMENT OF NEW FUNDING FOR HOSPITAL INPATIENT
TECHNOLOGY.—
(1) IN GENERAL.—Section 1886(d)(5)(K)(ii)(III) (42 U.S.C.
1395ww(d)(5)(K)(ii)(III)) is amended by striking ‘‘subject to
paragraph (4)(C)(iii),’’.
(2) NOT BUDGET NEUTRAL.—There shall be no reduction
or other adjustment in payments under section 1886 of the
Social Security Act because an additional payment is provided
under subsection (d)(5)(K)(ii)(III) of such section.
(e) EFFECTIVE DATE.—
(1) IN
GENERAL.—The Secretary shall implement the
amendments made by this section so that they apply to classi-
fication for fiscal years beginning with fiscal year 2005.
(2) RECONSIDERATIONS OF APPLICATIONS FOR FISCAL YEAR
2004 THAT ARE DENIED.—In the case of an application for a
classification of a medical service or technology as a new med-
ical service or technology under section 1886(d)(5)(K) of the
Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was filed
for fiscal year 2004 and that is denied—
(A) the Secretary shall automatically reconsider the
application as an application for fiscal year 2005 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. 504. INCREASE IN 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 per-
cent)’’ and inserting ‘‘the applicable Puerto Rico percentage
(specified in subparagraph (E))’’; and
(B) in clause (ii), by striking ‘‘for discharges beginning
in a fiscal year beginning on or after October 1, 1997,
50 percent (and for discharges between October 1, 1987,
and September 30, 1997, 25 percent)’’ and inserting ‘‘the
applicable Federal percentage (specified in subparagraph
(E))’’; and
(2) by adding at the end the following new subparagraph:
‘‘(E) For purposes of subparagraph (A), for discharges
occurring—
‘‘(i) on or after October 1, 1987, and before October 1,
1997, the applicable Puerto Rico percentage is 75 percent and
the applicable Federal percentage is 25 percent;
Extension date.
42 USC 1395ww
note.
42 USC 1395ww
note.
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117 STAT. 2293
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‘‘(ii) on or after October 1, 1997, and before April 1, 2004,
the applicable Puerto Rico percentage is 50 percent and the
applicable Federal percentage is 50 percent;
‘‘(iii) on or after April 1, 2004, and before October 1, 2004,
the applicable Puerto Rico percentage is 37.5 percent and the
applicable Federal percentage is 62.5 percent; and
‘‘(iv) on or after October 1, 2004, the applicable Puerto
Rico percentage is 25 percent and the applicable Federal
percentage is 75 percent.’’.
SEC. 505. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.
(a) IN GENERAL.—Section 1886(d) (42 U.S.C. 1395ww(d)), as
amended by section 406, is amended by adding at the end the
following new paragraph:
‘‘(13)(A) In order to recognize commuting patterns among
geographic areas, the Secretary shall establish a process through
application or otherwise for an increase of the wage index applied
under paragraph (3)(E) for subsection (d) hospitals located in a
qualifying county described in subparagraph (B) in the amount
computed under subparagraph (D) based on out-migration of hos-
pital employees who reside in that county to any higher wage
index area.
‘‘(B) The Secretary shall establish criteria for a qualifying
county under this subparagraph based on the out-migration referred
to in subparagraph (A) and differences in the area wage indices.
Under such criteria the Secretary shall, utilizing such data as
the Secretary determines to be appropriate, establish—
‘‘(i) a threshold percentage, established by the Secretary,
of the weighted average of the area wage index or indices
for the higher wage index areas involved;
‘‘(ii) a threshold (of not less than 10 percent) for minimum
out-migration to a higher wage index area or areas; and
‘‘(iii) a requirement that the average hourly wage of the
hospitals in the qualifying county equals or exceeds the average
hourly wage of all the hospitals in the area in which the
qualifying county is located.
‘‘(C) For purposes of this paragraph, the term ‘higher wage
index area’ means, with respect to a county, an area with a wage
index that exceeds that of the county.
‘‘(D) The increase in the wage index under subparagraph (A)
for a qualifying county shall be equal to the percentage of the
hospital employees residing in the qualifying county who are
employed in any higher wage index area multiplied by the sum
of the products, for each higher wage index area of—
‘‘(i) the difference between—
‘‘(I) the wage index for such higher wage index area,
and
‘‘(II) the wage index of the qualifying county; and
‘‘(ii) the number of hospital employees residing in the quali-
fying county who are employed in such higher wage index
area divided by the total number of hospital employees residing
in the qualifying county who are employed in any higher wage
index area.
‘‘(E) The process under this paragraph may be based upon
the process used by the Medicare Geographic Classification Review
Board under paragraph (10). As the Secretary determines to be
appropriate to carry out such process, the Secretary may require
Guidelines.
Procedures.
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117 STAT. 2294
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hospitals (including subsection (d) hospitals and other hospitals)
and critical access hospitals, as required under section 1866(a)(1)(T),
to submit data regarding the location of residence, or the Secretary
may use data from other sources.
‘‘(F) A wage index increase under this paragraph shall be
effective for a period of 3 fiscal years, except that the Secretary
shall establish procedures under which a subsection (d) hospital
may elect to waive the application of such wage index increase.
‘‘(G) A hospital in a county that has a wage index increase
under this paragraph for a period and that has not waived the
application of such an increase under subparagraph (F) is not
eligible for reclassification under paragraph (8) or (10) during that
period.
‘‘(H) Any increase in a wage index under this paragraph for
a county shall not be taken into account for purposes of—
‘‘(i) computing the wage index for portions of the wage
index area (not including the county) in which the county
is located; or
‘‘(ii) applying any budget neutrality adjustment with
respect to such index under paragraph (8)(D).
‘‘(I) The thresholds described in subparagraph (B), data on
hospital employees used under this paragraph, and any determina-
tion of the Secretary under the process described in subparagraph
(E) shall be final and shall not be subject to judicial review.’’.
(b) CONFORMING AMENDMENTS.—Section 1866(a)(1) (42 U.S.C.
1395cc(a)(1)) is amended—
(1) in subparagraph (R), by striking ‘‘and’’ at the end;
(2) in subparagraph (S), by striking the period at the end
and inserting ‘‘, and’’; and
(3) by inserting after subparagraph (S) the following new
subparagraph:
‘‘(T) in the case of hospitals and critical access hospitals,
to furnish to the Secretary such data as the Secretary deter-
mines appropriate pursuant to subparagraph (E) of section
1886(d)(12) to carry out such section.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall first apply to the wage index for discharges occurring on
or after October 1, 2004. In initially implementing such amend-
ments, the Secretary may modify the deadlines otherwise applicable
under clauses (ii) and (iii)(I) of section 1886(d)(10)(C) of the Social
Security Act (42 U.S.C. 1395ww(d)(10)(C)), for submission of, and
actions on, applications relating to changes in hospital geographic
reclassification.
SEC. 506. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL CON-
TRACT HEALTH SERVICES PROVIDED TO INDIANS BY
MEDICARE PARTICIPATING HOSPITALS.
(a) IN GENERAL.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)),
as amended by section 505(b), is amended—
(1) in subparagraph (S), by striking ‘‘and’’ at the end;
(2) in subparagraph (T), by striking the period and inserting
‘‘, and’’; and
(3) by inserting after subparagraph (T) the following new
subparagraph:
‘‘(U) in the case of hospitals which furnish inpatient hos-
pital services for which payment may be made under this
title, to be a participating provider of medical care both—
42 USC 1395ww
note.
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‘‘(i) under the contract health services program funded
by the Indian Health Service and operated by the Indian
Health Service, an Indian tribe, or tribal organization (as
those terms are defined in section 4 of the Indian Health
Care Improvement Act), with respect to items and services
that are covered under such program and furnished to
an individual eligible for such items and services under
such program; and
‘‘(ii) under any program funded by the Indian Health
Service and operated by an urban Indian organization with
respect to the purchase of items and services for an eligible
urban Indian (as those terms are defined in such section
4),
in accordance with regulations promulgated by the Secretary
regarding admission practices, payment methodology, and rates
of payment (including the acceptance of no more than such
payment rate as payment in full for such items and services.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply as of a date specified by the Secretary of Health and
Human Services (but in no case later than 1 year after the date
of enactment of this Act) to medicare participation agreements
in effect (or entered into) on or after such date.
(c) PROMULGATION
OF
REGULATIONS.—The Secretary shall
promulgate regulations to carry out the amendments made by sub-
section (a).
SEC. 507. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE
LIMITS ON PHYSICIAN REFERRALS.
(a) LIMITS ON PHYSICIAN REFERRALS.—
(1) OWNERSHIP AND INVESTMENT INTERESTS IN WHOLE HOS-
PITALS.—
(A) 
IN
GENERAL.—Section 
1877(d)(3) 
(42 
U.S.C.
1395nn(d)(3)) is amended—
(i) by striking ‘‘, and’’ at the end of subparagraph
(A) and inserting a semicolon; and
(ii) by redesignating subparagraph (B) as subpara-
graph (C) and inserting after subparagraph (A) the
following new subparagraph:
‘‘(B) effective for the 18-month period beginning on
the date of the enactment of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, the
hospital is not a specialty hospital (as defined in subsection
(h)(7)); and’’.
(B) DEFINITION.—Section 1877(h) (42 U.S.C. 1395nn(h))
is amended by adding at the end the following:
‘‘(7) SPECIALTY HOSPITAL.—
‘‘(A) IN GENERAL.—For purposes of this section, except
as provided in subparagraph (B), the term ‘specialty hos-
pital’ means a subsection (d) hospital (as defined in section
1886(d)(1)(B)) that is primarily or exclusively engaged in
the care and treatment of one of the following categories:
‘‘(i) Patients with a cardiac condition.
‘‘(ii) Patients with an orthopedic condition.
‘‘(iii) Patients receiving a surgical procedure.
Effective date.
42 USC 1395cc
note.
42 USC 1395cc
note.
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‘‘(iv) Any other specialized category of services that
the Secretary designates as inconsistent with the pur-
pose of permitting physician ownership and investment
interests in a hospital under this section.
‘‘(B) EXCEPTION.—For purposes of this section, the term
‘specialty hospital’ does not include any hospital—
‘‘(i) determined by the Secretary—
‘‘(I) to be in operation before November 18,
2003; or
‘‘(II) under development as of such date;
‘‘(ii) for which the number of physician investors
at any time on or after such date is no greater than
the number of such investors as of such date;
‘‘(iii) for which the type of categories described
in subparagraph (A) at any time on or after such
date is no different than the type of such categories
as of such date;
‘‘(iv) for which any increase in the number of beds
occurs only in the facilities on the main campus of
the hospital and does not exceed 50 percent of the
number of beds in the hospital as of November 18,
2003, or 5 beds, whichever is greater; and
‘‘(v) that meets such other requirements as the
Secretary may specify.’’.
(2) OWNERSHIP AND INVESTMENT INTERESTS IN A RURAL
PROVIDER.—Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is
amended to read as follows:
‘‘(2) RURAL PROVIDERS.—In the case of designated health
services furnished in a rural area (as defined in section
1886(d)(2)(D)) by an entity, if—
‘‘(A) substantially all of the designated health services
furnished by the entity are furnished to individuals residing
in such a rural area; and
‘‘(B) effective for the 18-month period beginning on
the date of the enactment of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, the
entity is not a specialty hospital (as defined in subsection
(h)(7)).’’.
(b) APPLICATION
OF
EXCEPTION
FOR
HOSPITALS
UNDER
DEVELOPMENT.—For purposes of section 1877(h)(7)(B)(i)(II) of the
Social Security Act, as added by subsection (a)(1)(B), in determining
whether a hospital is under development as of November 18, 2003,
the Secretary shall consider—
(1) whether architectural plans have been completed,
funding has been received, zoning requirements have been met,
and necessary approvals from appropriate State agencies have
been received; and
(2) any other evidence the Secretary determines would
indicate whether a hospital is under development as of such
date.
(c) STUDIES.—
(1) MEDPAC STUDY.—The Medicare Payment Advisory
Commission, in consultation with the Comptroller General of
the United States, shall conduct a study to determine—
(A) any differences in the costs of health care services
furnished to patients by physician-owned specialty hos-
pitals and the costs of such services furnished by local
42 USC 1395nn
note.
Effective date.
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full-service community hospitals within specific diagnosis-
related groups;
(B) the extent to which specialty hospitals, relative
to local full-service community hospitals, treat patients
in certain diagnosis-related groups within a category, such
as cardiology, and an analysis of the selection;
(C) the financial impact of physician-owned specialty
hospitals on local full-service community hospitals;
(D) how the current diagnosis-related group system
should be updated to better reflect the cost of delivering
care in a hospital setting; and
(E) the proportions of payments received, by type of
payer, between the specialty hospitals and local full-service
community hospitals.
(2) HHS STUDY.—The Secretary shall conduct a study of
a representative sample of specialty hospitals—
(A) to determine the percentage of patients admitted
to physician-owned specialty hospitals who are referred
by physicians with an ownership interest;
(B) to determine the referral patterns of physician
owners, including the percentage of patients they referred
to physician-owned specialty hospitals and the percentage
of patients they referred to local full-service community
hospitals for the same condition;
(C) to compare the quality of care furnished in physi-
cian-owned specialty hospitals and in local full-service
community hospitals for similar conditions and patient
satisfaction with such care; and
(D) to assess the differences in uncompensated care,
as defined by the Secretary, between the specialty hospital
and local full-service community hospitals, and the relative
value of any tax exemption available to such hospitals.
(3) REPORTS.—Not later than 15 months after the date
of the enactment of this Act, the Commission and the Secretary,
respectively, shall each submit to Congress a report on the
studies conducted under paragraphs (1) and (2), respectively,
and shall include any recommendations for legislation or
administrative changes.
SEC. 508. ONE-TIME APPEALS PROCESS FOR HOSPITAL WAGE INDEX
CLASSIFICATION.
(a) ESTABLISHMENT OF PROCESS.—
(1) IN GENERAL.—The Secretary shall establish not later
than January 1, 2004, by instruction or otherwise a process
under which a hospital may appeal the wage index classification
otherwise applicable to the hospital and select another area
within the State (or, at the discretion of the Secretary, within
a contiguous State) to which to be reclassified.
(2) PROCESS
REQUIREMENTS.—The process established
under paragraph (1) shall be consistent with the following:
(A) Such an appeal may be filed as soon as possible
after the date of the enactment of this Act but shall be
filed by not later than February 15, 2004.
(B) Such an appeal shall be heard by the Medicare
Geographic Reclassification Review Board.
(C) There shall be no further administrative or judicial
review of a decision of such Board.
Deadline.
Deadline.
42 USC 1395ww
note.
Deadline.
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(3) RECLASSIFICATION
UPON
SUCCESSFUL
APPEAL.—If the
Medicare Geographic Reclassification Review Board determines
that the hospital is a qualifying hospital (as defined in sub-
section (c)), the hospital shall be reclassified to the area selected
under paragraph (1). Such reclassification shall apply with
respect to discharges occurring during the 3-year period begin-
ning with April 1, 2004.
(4) INAPPLICABILITY OF CERTAIN PROVISIONS.—Except as the
Secretary may provide, the provisions of paragraphs (8) and
(10) of section 1886(d) of the Social Security Act (42 U.S.C.
1395ww(d)) shall not apply to an appeal under this section.
(b) APPLICATION
OF RECLASSIFICATION.—In the case of an
appeal decided in favor of a qualifying hospital under subsection
(a), the wage index reclassification shall not affect the wage index
computation for any area or for any other hospital and shall not
be effected in a budget neutral manner. The provisions of this
section shall not affect payment for discharges occurring after the
end of the 3-year-period referred to in subsection (a).
(c) QUALIFYING HOSPITAL DEFINED.—For purposes of this sec-
tion, the term ‘‘qualifying hospital’’ means 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—
(1) does not qualify for a change in wage index classification
under paragraph (8) or (10) of section 1886(d) of the Social
Security Act (42 U.S.C. 1395ww(d)) on the basis of requirements
relating to distance or commuting; and
(2) meets such other criteria, such as quality, as the Sec-
retary may specify by instruction or otherwise.
The Secretary may modify the wage comparison guidelines promul-
gated under section 1886(d)(10)(D) of such Act (42 U.S.C.
1395ww(d)(10)(D)) in carrying out this section.
(d) WAGE INDEX CLASSIFICATION.—For purposes of this section,
the term ‘‘wage index classification’’ means the geographic area
in which it is classified for purposes of determining for a fiscal
year the factor used to adjust the DRG prospective payment rate
under section 1886(d) of the Social Security Act (42 U.S.C.
1395ww(d)) for area differences in hospital wage levels that applies
to such hospital under paragraph (3)(E) of such section.
(e) LIMITATION ON EXPENDITURES.—The aggregate amount of
additional expenditures resulting from the application of this section
shall not exceed $900,000,000.
(f) TRANSITIONAL EXTENSION.—Any reclassification of a county
or other area made by Act of Congress for purposes of making
payments under section 1886(d) of the Social Security Act (42
U.S.C. 1395ww(d)) that expired on September 30, 2003, shall be
deemed to be in effect during the period beginning on January
1, 2004, and ending on September 30, 2004.
Subtitle B—Other Provisions
SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERV-
ICES.
(a) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS.—Paragraph
(12) of section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read
as follows:
‘‘(12) ADJUSTMENT FOR RESIDENTS WITH AIDS.—
Effective date.
Termination
date.
Effective date.
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‘‘(A) IN GENERAL.—Subject to subparagraph (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 (determined without regard to any increase
under section 101 of the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999, or under section
314(a) of Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000), shall be increased by
128 percent to reflect increased 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 para-
graph (4)(G)(i) to compensate for the increased costs associ-
ated with residents described in such subparagraph.’’.
(b) EFFECTIVE DATE.—The amendment made by paragraph (1)
shall apply to services furnished on or after October 1, 2004.
SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.
(a) COVERAGE OF HOSPICE CONSULTATION SERVICES.—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 paragraph (4)
and inserting ‘‘; and’’; and
(3) by inserting after paragraph (4) the following new para-
graph:
‘‘(5) for individuals who are terminally ill, have not made
an election under subsection (d)(1), and have not previously
received services under this paragraph, services that are fur-
nished by a physician (as defined in section 1861(r)(1)) who
is either the medical director or an employee of a hospice
program and that—
‘‘(A) consist of—
‘‘(i) an evaluation of the individual’s need for pain
and symptom management, including the individual’s
need for hospice care; and
‘‘(ii) counseling the individual with respect to hos-
pice care and other care options; and
‘‘(B) may include advising the individual regarding
advanced care planning.’’.
(b) PAYMENT.—Section 1814(i) (42 U.S.C. 1395f(i)) is amended
by adding at the end the following new paragraph:
‘‘(4) The amount paid to a hospice program with respect to
the services under section 1812(a)(5) for which payment may be
made under this part shall be equal to an amount established
for an office or other outpatient visit for evaluation and management
associated with presenting problems of moderate severity and
requiring medical decisionmaking of low complexity 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 following: ‘‘and services described in section
1812(a)(5)’’.
42 USC 1395yy
note.
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(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to services provided by a hospice program on or after
January 1, 2005.
SEC. 513. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND SERVICES
FOR BENEFICIARIES IN SKILLED NURSING FACILITIES.
(a) STUDY.—The Comptroller General of the United States shall
conduct a study of portable diagnostic ultrasound services furnished
to medicare beneficiaries in skilled nursing facilities. Such study
shall consider the following:
(1) TYPES OF EQUIPMENT; TRAINING.—The types of portable
diagnostic ultrasound services furnished to such beneficiaries,
the types of portable ultrasound equipment used to furnish
such services, and the technical skills, or training, or both,
required for technicians to furnish such services.
(2) CLINICAL APPROPRIATENESS.—The clinical appropriate-
ness of transporting portable diagnostic ultrasound diagnostic
and technicians to patients in skilled nursing facilities as
opposed to transporting such patients to a hospital or other
facility that furnishes diagnostic ultrasound services.
(3) FINANCIAL IMPACT.—The financial impact if Medicare
were make a separate payment for portable ultrasound diag-
nostic services, including the impact of separate payments—
(A) for transportation and technician services for resi-
dents during a resident in a part A stay, that would other-
wise be paid for under the prospective payment system
for covered skilled nursing facility services (under section
1888(e) of the Social Security Act (42 U.S.C. 1395yy(e));
and
(B) for such services for residents in a skilled nursing
facility after a part A stay.
(4) CREDENTIALING
REQUIREMENTS.—Whether the Sec-
retary should establish credentialing or other requirements for
technicians that furnish diagnostic ultrasound services to medi-
care beneficiaries.
(b) REPORT.—Not later than 2 years 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),
and shall include any recommendations for legislation or adminis-
trative change as the Comptroller General determines appropriate.
TITLE VI—PROVISIONS RELATING TO
PART B
Subtitle A—Provisions Relating to
Physicians’ Services
SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERVICES.
(a) UPDATE FOR 2004 AND 2005.—
(1) IN GENERAL.—Section 1848(d) (42 U.S.C. 1395w–4(d))
is amended by adding at the end the following new paragraph:
‘‘(5) UPDATE FOR 2004 AND 2005.—The update to the single
conversion factor established in paragraph (1)(C) for each of
2004 and 2005 shall be not less than 1.5 percent.’’.
Deadline.
42 USC 1395yy
note.
42 USC 1395d
note.
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(2) CONFORMING AMENDMENT.—Paragraph (4)(B) of such
section is amended, in the matter before clause (i), by inserting
‘‘and paragraph (5)’’ after ‘‘subparagraph (D)’’.
(3) NOT TREATED AS CHANGE IN LAW AND REGULATION IN
SUSTAINABLE GROWTH RATE DETERMINATION.—The amendments
made by this subsection shall not be treated as a change
in law for purposes of applying 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 COMPUTING 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 aver-
age’’; and
(B) by striking ‘‘from the previous applicable period
to the applicable period involved’’ and inserting ‘‘during
the 10-year period ending with the applicable period
involved’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to computations of the sustainable growth rate
for years beginning with 2003.
SEC. 602. TREATMENT OF PHYSICIANS’ SERVICES FURNISHED IN
ALASKA.
Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)), as amended by
section 421, is amended—
(1) in subparagraph (A), by striking ‘‘subparagraphs (B),
(C), (E), and (F)’’ and inserting ‘‘subparagraphs (B), (C), (E),
(F) and (G)’’; and
(2) by adding at the end the following new subparagraph:
‘‘(G) FLOOR FOR PRACTICE EXPENSE, MALPRACTICE, AND
WORK
GEOGRAPHIC
INDICES
FOR
SERVICES
FURNISHED
IN
ALASKA.—For purposes of payment for services furnished
in Alaska on or after January 1, 2004, and before January
1, 2006, after calculating the practice expense, malpractice,
and work geographic indices in clauses (i), (ii), and (iii)
of subparagraph (A) and in subparagraph (B), the Secretary
shall increase any such index to 1.67 if such index would
otherwise be less than 1.67.’’.
SEC. 603. INCLUSION OF PODIATRISTS, DENTISTS, AND OPTOMETRISTS
UNDER PRIVATE CONTRACTING AUTHORITY.
Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is amended by
striking ‘‘section 1861(r)(1)’’ and inserting ‘‘paragraphs (1), (2), (3),
and (4) of section 1861(r)’’.
SEC. 604. GAO STUDY ON ACCESS TO PHYSICIANS’ SERVICES.
(a) STUDY.—The Comptroller General of the United States shall
conduct a study on access of medicare beneficiaries to physicians’
services under the medicare program. The study shall include—
(1) an assessment of the use by beneficiaries of such serv-
ices through an analysis of claims submitted by physicians
for such services under part B of the medicare program;
(2) an examination of changes in the use by beneficiaries
of physicians’ services over time; and
(3) an examination of the extent to which physicians are
not accepting new medicare beneficiaries as patients.
42 USC 1395ll
note.
42 USC 1395w–4
note.
42 USC 1395w–4
note.
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(b) 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 subsection (a).
The report shall include a determination whether—
(1) data from claims submitted by physicians under part
B of the medicare program indicate potential access problems
for medicare beneficiaries in certain geographic areas; and
(2) access by medicare beneficiaries to physicians’ services
may have improved, remained constant, or deteriorated over
time.
SEC. 605. COLLABORATIVE DEMONSTRATION-BASED REVIEW OF
PHYSICIAN PRACTICE EXPENSE GEOGRAPHIC ADJUST-
MENT DATA.
(a) IN GENERAL.—Not later than January 1, 2005, the Secretary
shall, in collaboration with State and other appropriate organiza-
tions representing physicians, and other appropriate persons, review
and consider alternative data sources than those currently used
in establishing the geographic index for the practice expense compo-
nent under the medicare physician fee schedule under section
1848(e)(1)(A)(i) of the Social Security Act (42 U.S.C. 1395w–
4(e)(1)(A)(i)).
(b) SITES.—The Secretary shall select two physician payment
localities in which to carry out subsection (a). One locality shall
include rural areas and at least one locality shall be a statewide
locality that includes both urban and rural areas.
(c) REPORT AND RECOMMENDATIONS.—
(1) REPORT.—Not later than January 1, 2006, the Secretary
shall submit to Congress a report on the review and consider-
ation conducted under subsection (a). Such report shall include
information on the alternative developed data sources consid-
ered by the Secretary under subsection (a), including the
accuracy and validity of the data as measures of the elements
of the geographic index for practice expenses under the medi-
care physician fee schedule as well as the feasibility of using
such alternative data nationwide in lieu of current proxy data
used in such index, and the estimated impacts of using such
alternative data.
(2) RECOMMENDATIONS.—The report submitted under para-
graph (1) shall contain recommendations on which data sources
reviewed and considered under subsection (a) are appropriate
for use in calculating the geographic index for practice expenses
under the medicare physician fee schedule.
SEC. 606. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’ SERVICES.
(a) PRACTICE EXPENSE COMPONENT.—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 physicians’ services, after the transition to a full resource-
based payment system in 2002, under section 1848 of the Social
Security Act (42 U.S.C. 1395w–4). Such report shall examine the
following matters by physician specialty:
(1) The effect of such refinements on payment for physi-
cians’ services.
(2) The interaction of the practice expense component with
other components of and adjustments to payment for physicians’
services under such section.
Deadlines.
42 USC 1395w–4
note.
Deadlines.
42 USC 1395w–4
note.
Deadline.
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117 STAT. 2303
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(3) The appropriateness of the amount of compensation
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.
(b) VOLUME OF 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
extent to which increases in the volume of physicians’ services
under part B of the medicare program are a result of care that
improves the health and well-being of medicare beneficiaries. The
study shall include the following:
(1) An analysis of recent and historic growth in the compo-
nents that the Secretary includes under the sustainable growth
rate (under section 1848(f) of the Social Security Act (42 U.S.C.
1395w–4(f))).
(2) An examination of the relative growth of volume in
physicians’ services between medicare beneficiaries and other
populations.
(3) An analysis of the degree to which new technology,
including coverage determinations of the Centers for Medicare
& Medicaid Services, has affected the volume of physicians’
services.
(4) An examination of the impact on volume of demographic
changes.
(5) An examination of shifts in the site of service or services
that influence the number and intensity of services furnished
in physicians’ offices and the extent to which changes in
reimbursement rates to other providers have effected these
changes.
(6) An evaluation of the extent to which the Centers for
Medicare & Medicaid Services takes into account the impact
of law and regulations on the sustainable growth rate.
Subtitle B—Preventive Services
SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINA-
TION.
(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)(iii), by inserting ‘‘and’’ at the end;
and
(3) by adding at the end the following new subparagraph:
‘‘(W) an initial preventive physical examination (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)(1) The term ‘initial preventive physical examination’
means physicians’ services consisting of a physical examination
(including measurement of height, weight, and blood pressure, and
an electrocardiogram) with the goal of health promotion and disease
Deadline.
Reports.
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detection and includes education, counseling, and referral with
respect to screening and other preventive services described in
paragraph (2), but does not include clinical laboratory tests.
‘‘(2) The screening and other preventive services described in
this paragraph include the following:
‘‘(A) Pneumococcal, influenza, and hepatitis B vaccine and
administration under subsection (s)(10).
‘‘(B) Screening mammography as defined in subsection (jj).
‘‘(C) Screening pap smear and screening pelvic exam as
defined in subsection (nn).
‘‘(D) Prostate cancer screening tests as defined in subsection
(oo).
‘‘(E) Colorectal cancer screening tests as defined in sub-
section (pp).
‘‘(F) Diabetes outpatient self-management training services
as defined in subsection (qq)(1).
‘‘(G) Bone mass measurement as defined in subsection (rr).
‘‘(H) Screening for glaucoma as defined in subsection (uu).
‘‘(I) Medical nutrition therapy services as defined in sub-
section (vv).
‘‘(J) Cardiovascular screening blood tests as defined in sub-
section (xx)(1).
‘‘(K) Diabetes screening tests as defined in subsection (yy).’’.
(c) PAYMENT AS PHYSICIANS’ SERVICES.—Section 1848(j)(3) (42
U.S.C. 1395w–4(j)(3)) is amended by inserting ‘‘(2)(W),’’ after
‘‘(2)(S),’’.
(d) OTHER CONFORMING AMENDMENTS.—(1) Section 1862(a) (42
U.S.C. 1395y(a)), as amended by section 303(i)(3)(B), is amended—
(A) in paragraph (1)—
(i) by striking ‘‘and’’ at the end of subparagraph (I);
(ii) by striking the semicolon at the end of subpara-
graph (J) and inserting ‘‘, and’’; and
(iii) by adding at the end the following new subpara-
graph:
‘‘(K) in the case of an initial preventive physical examina-
tion, which is performed not later than 6 months after the
date the individual’s first coverage period begins under part
B;’’; and
(B) in paragraph (7), by striking ‘‘or (H)’’ and inserting
‘‘(H), or (K)’’.
(2) Clauses (i) and (ii) of section 1861(s)(2)(K) (42 U.S.C.
1395x(s)(2)(K)) are each amended by inserting ‘‘and services
described in subsection (ww)(1)’’ after ‘‘services which would be
physicians’ services’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to services furnished on or after January 1, 2005,
but only for individuals whose coverage period under part B begins
on or after such date.
SEC. 612. COVERAGE OF CARDIOVASCULAR SCREENING BLOOD TESTS.
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as
amended by section 611(a), is amended—
(1) in subparagraph (V)(iii), 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 subparagraph:
Applicability.
42 USC 1395w–4
note.
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‘‘(X) cardiovascular screening blood tests (as defined in
subsection (xx)(1));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x) is
amended by adding at the end the following new subsection:
‘‘Cardiovascular Screening Blood Test
‘‘(xx)(1) The term ‘cardiovascular screening blood test’ means
a blood test for the early detection of cardiovascular disease (or
abnormalities associated with an elevated risk of cardiovascular
disease) that tests for the following:
‘‘(A) Cholesterol levels and other lipid or triglyceride levels.
‘‘(B) Such other indications associated with the presence
of, or an elevated risk for, cardiovascular disease as the Sec-
retary may approve for all individuals (or for some individuals
determined by the Secretary to be at risk for cardiovascular
disease), including indications measured by noninvasive testing.
The Secretary may not approve an indication under subparagraph
(B) for any individual unless a blood test for such is recommended
by the United States Preventive Services Task Force.
‘‘(2) The Secretary shall establish standards, in consultation
with appropriate organizations, regarding the frequency for each
type of cardiovascular screening blood tests, except that such fre-
quency 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 611(d), is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (J);
(2) by striking the semicolon at the end of subparagraph
(K) and inserting ‘‘, and’’; and
(3) by adding at the end the following new subparagraph:
‘‘(L) in the case of cardiovascular screening blood tests
(as defined in section 1861(xx)(1)), which are 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, 2005.
SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.
(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as
amended by section 612(a), is amended—
(1) in subparagraph (W), by striking ‘‘and’’ at the end;
(2) in subparagraph (X), by adding ‘‘and’’ at the end; and
(3) by adding at the end the following new subparagraph:
‘‘(Y) diabetes screening tests (as defined in subsection
(yy));’’.
(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x), as
amended by section 612(b), is amended by adding at the end the
following new subsection:
‘‘Diabetes Screening Tests
‘‘(yy)(1) The term ‘diabetes screening tests’ means testing fur-
nished to an individual at risk for diabetes (as defined in paragraph
(2)) for the purpose of early detection of diabetes, including—
‘‘(A) a fasting plasma glucose test; and
‘‘(B) such other tests, and modifications to tests, as the
Secretary determines appropriate, in consultation with appro-
priate organizations.
42 USC 1395x
note.
Standards.
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‘‘(2) For purposes of paragraph (1), the term ‘individual at
risk for diabetes’ means an individual who has any of the following
risk factors for diabetes:
‘‘(A) Hypertension.
‘‘(B) Dyslipidemia.
‘‘(C) Obesity, defined as a body mass index greater than
or equal to 30 kg/m2.
‘‘(D) Previous identification of an elevated impaired fasting
glucose.
‘‘(E) Previous identification of impaired glucose tolerance.
‘‘(F) A risk factor consisting of at least 2 of the following
characteristics:
‘‘(i) Overweight, defined as a body mass index greater
than 25, but less than 30, kg/m2.
‘‘(ii) A family history of diabetes.
‘‘(iii) A history of gestational diabetes mellitus or
delivery of a baby weighing greater than 9 pounds.
‘‘(iv) 65 years of age or older.
‘‘(3) The Secretary shall establish standards, in consultation
with appropriate organizations, regarding the frequency of diabetes
screening tests, except that such frequency may not be more often
than twice within the 12-month period following the date of the
most recent diabetes screening test of that individual.’’.
(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as
amended by section 612(c), is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (K);
(2) by striking the semicolon at the end of subparagraph
(L) and inserting ‘‘, and’’; and
(3) by adding at the end the following new subparagraph:
‘‘(M) in the case of a diabetes screening test (as defined
in section 1861(yy)(1)), which is performed more frequently
than is covered under section 1861(yy)(3);’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to tests furnished on or after January 1, 2005.
SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERV-
ICES.
(a) 
EXCLUSION
FROM
OPD 
FEE
SCHEDULE.—Section
1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended by
inserting before the period at the end the following: ‘‘and does
not include screening mammography (as defined in section 1861(jj))
and diagnostic mammography’’.
(b) CONFORMING
AMENDMENT.—Section 1833(a)(2)(E)(i) (42
U.S.C. 1395l(a)(2)(E)(i)) is amended by inserting ‘‘and, for services
furnished on or after January 1, 2005, diagnostic mammography’’
after ‘‘screening mammography’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply—
(1) in the case of screening mammography, to services
furnished on or after the date of the enactment of this Act;
and
(2) in the case of diagnostic mammography, to services
furnished on or after January 1, 2005.
Applicability.
42 USC 1395l
note.
42 USC 1395x
note.
Standards.
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Subtitle C—Other Provisions
SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) PAYMENT
REFORM.
(a) PAYMENT FOR DRUGS.—
(1) SPECIAL RULES FOR CERTAIN DRUGS AND BIOLOGICALS.—
Section 1833(t) (42 U.S.C. 1395l(t)), as amended by section
411(b), is amended by inserting after paragraph (13) the fol-
lowing new paragraphs:
‘‘(14) DRUG APC PAYMENT RATES.—
‘‘(A) IN GENERAL.—The amount of payment under this
subsection for a specified covered outpatient drug (defined
in subparagraph (B)) that is furnished as part of a covered
OPD service (or group of services)—
‘‘(i) in 2004, in the case of—
‘‘(I) a sole source drug shall in no case be
less than 88 percent, or exceed 95 percent, of the
reference average wholesale price for the drug;
‘‘(II) an innovator multiple source drug shall
in no case exceed 68 percent of the reference aver-
age wholesale price for the drug; or
‘‘(III) a noninnovator multiple source drug
shall in no case exceed 46 percent of the reference
average wholesale price for the drug;
‘‘(ii) in 2005, in the case of—
‘‘(I) a sole source drug shall in no case be
less than 83 percent, or exceed 95 percent, of the
reference average wholesale price for the drug;
‘‘(II) an innovator multiple source drug shall
in no case exceed 68 percent of the reference aver-
age wholesale price for the drug; or
‘‘(III) a noninnovator multiple source drug
shall in no case exceed 46 percent of the reference
average wholesale price for the drug; or
‘‘(iii) in a subsequent year, shall be equal, subject
to subparagraph (E)—
‘‘(I) to the average acquisition cost for the drug
for that year (which, at the option of the Secretary,
may vary by hospital group (as defined by the
Secretary based on volume of covered OPD services
or other relevant characteristics)), as determined
by the Secretary taking into account the hospital
acquisition cost survey data under subparagraph
(D); or
‘‘(II) if hospital acquisition cost data are not
available, the average price for the drug in the
year established under section 1842(o), section
1847A, or section 1847B, as the case may be, as
calculated and adjusted by the Secretary as nec-
essary for purposes of this paragraph.
‘‘(B) SPECIFIED COVERED OUTPATIENT DRUG DEFINED.—
‘‘(i) IN
GENERAL.—In this paragraph, the term
‘specified covered outpatient drug’ means, subject to
clause (ii), a covered outpatient drug (as defined in
section 1927(k)(2)) for which a separate ambulatory
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PUBLIC LAW 108–173—DEC. 8, 2003
payment classification group (APC) has been estab-
lished and that is—
‘‘(I) a radiopharmaceutical; or
‘‘(II) a drug or biological for which payment
was made under paragraph (6) (relating to pass-
through payments) on or before December 31,
2002.
‘‘(ii) EXCEPTION.—Such term does not include—
‘‘(I) a drug or biological for which payment
is first made on or after January 1, 2003, under
paragraph (6);
‘‘(II) a drug or biological for which a temporary
HCPCS code has not been assigned; or
‘‘(III) during 2004 and 2005, an orphan drug
(as designated by the Secretary).
‘‘(C) PAYMENT FOR DESIGNATED ORPHAN DRUGS DURING
2004 AND 2005.—The amount of payment under this sub-
section for an orphan drug designated by the Secretary
under subparagraph (B)(ii)(III) that is furnished as part
of a covered OPD service (or group of services) during
2004 and 2005 shall equal such amount as the Secretary
may specify.
‘‘(D) ACQUISITION
COST
SURVEY
FOR
HOSPITAL
OUT-
PATIENT DRUGS.—
‘‘(i) ANNUAL GAO SURVEYS IN 2004 AND 2005.—
‘‘(I) IN GENERAL.—The Comptroller General of
the United States shall conduct a survey in each
of 2004 and 2005 to determine the hospital acquisi-
tion cost for each specified covered outpatient drug.
Not later than April 1, 2005, the Comptroller Gen-
eral shall furnish data from such surveys to the
Secretary for use in setting the payment rates
under subparagraph (A) for 2006.
‘‘(II) RECOMMENDATIONS.—Upon the comple-
tion of such surveys, the Comptroller General shall
recommend to the Secretary the frequency and
methodology of subsequent surveys to be conducted
by the Secretary under clause (ii).
‘‘(ii) SUBSEQUENT SECRETARIAL SURVEYS.—The Sec-
retary, taking into account such recommendations,
shall conduct periodic subsequent surveys to determine
the hospital acquisition cost for each specified covered
outpatient drug for use in setting the payment rates
under subparagraph (A).
‘‘(iii) SURVEY
REQUIREMENTS.—The surveys con-
ducted under clauses (i) and (ii) shall have a large
sample of hospitals that is sufficient to generate a
statistically significant estimate of the average hospital
acquisition cost for each specified covered outpatient
drug. With respect to the surveys conducted under
clause (i), the Comptroller General shall report to Con-
gress on the justification for the size of the sample
used in order to assure the validity of such estimates.
‘‘(iv) DIFFERENTIATION
IN
COST.—In conducting
surveys under clause (i), the Comptroller General shall
determine and report to Congress if there is (and the
extent of any) variation in hospital acquisition costs
Reports.
Reports.
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
for drugs among hospitals based on the volume of
covered OPD services performed by such hospitals or
other relevant characteristics of such hospitals (as
defined by the Comptroller General).
‘‘(v) COMMENT
ON
PROPOSED
RATES.—Not later
than 30 days after the date the Secretary promulgated
proposed rules setting forth the payment rates under
subparagraph (A) for 2006, the Comptroller General
shall evaluate such proposed rates and submit to Con-
gress a report regarding the appropriateness of such
rates based on the surveys the Comptroller General
has conducted under clause (i).
‘‘(E) ADJUSTMENT IN PAYMENT RATES FOR OVERHEAD
COSTS.—
‘‘(i) MEDPAC REPORT ON DRUG APC DESIGN.—The
Medicare Payment Advisory Commission shall submit
to the Secretary, not later than July 1, 2005, a report
on adjustment of payment for ambulatory payment
classifications for specified covered outpatient drugs
to take into account overhead and related expenses,
such as pharmacy services and handling costs. Such
report shall include—
‘‘(I) a description and analysis of the data
available with regard to such expenses;
‘‘(II) a recommendation as to whether such
a payment adjustment should be made; and
‘‘(III) if such adjustment should be made, a
recommendation regarding the methodology for
making such an adjustment.
‘‘(ii) ADJUSTMENT
AUTHORIZED.—The Secretary
may adjust the weights for ambulatory payment classi-
fications for specified covered outpatient drugs to take
into account the recommendations contained in the
report submitted under clause (i).
‘‘(F) CLASSES OF DRUGS.—For purposes of this para-
graph:
‘‘(i) SOLE SOURCE DRUGS.—The term ‘sole source
drug’ means—
‘‘(I) a biological product (as defined under sec-
tion 1861(t)(1)); or
‘‘(II) a single source drug (as defined in section
1927(k)(7)(A)(iv)).
‘‘(ii) INNOVATOR
MULTIPLE
SOURCE
DRUGS.—The
term ‘innovator multiple source drug’ has the meaning
given such term in section 1927(k)(7)(A)(ii).
‘‘(iii) NONINNOVATOR MULTIPLE SOURCE DRUGS.—
The term ‘noninnovator multiple source drug’ has the
meaning given such term in section 1927(k)(7)(A)(iii).
‘‘(G) REFERENCE
AVERAGE
WHOLESALE
PRICE.—The
term ‘reference average wholesale price’ means, with
respect to a specified covered outpatient drug, the average
wholesale price for the drug as determined under section
1842(o) as of May 1, 2003.
‘‘(H) INAPPLICABILITY
OF
EXPENDITURES
IN
DETER-
MINING CONVERSION, WEIGHTING, AND OTHER ADJUSTMENT
FACTORS.—Additional expenditures resulting from this
paragraph shall not be taken into account in establishing
Deadline.
Deadline.
Reports.
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the conversion, weighting, and other adjustment factors
for 2004 and 2005 under paragraph (9), but shall be taken
into account for subsequent years.
‘‘(15) PAYMENT FOR NEW DRUGS AND BIOLOGICALS UNTIL
HCPCS CODE ASSIGNED.—With respect to payment under this
part for an outpatient drug or biological that is covered under
this part and is furnished as part of covered OPD services
for which a HCPCS code has not been assigned, the amount
provided for payment for such drug or biological under this
part shall be equal to 95 percent of the average wholesale
price for the drug or biological.’’.
(2) REDUCTION
IN
THRESHOLD
FOR
SEPARATE
APCS
FOR
DRUGS.—Section 1833(t)(16), as redesignated section 411(b), is
amended by adding at the end the following new subparagraph:
‘‘(B) THRESHOLD FOR ESTABLISHMENT OF SEPARATE APCS
FOR DRUGS.—The Secretary shall reduce the threshold for
the establishment of separate ambulatory payment classi-
fication groups (APCs) with respect to drugs or biologicals
to $50 per administration for drugs and biologicals fur-
nished in 2005 and 2006.’’.
(3) EXCLUSION OF SEPARATE DRUG APCS FROM OUTLIER PAY-
MENTS.—Section 1833(t)(5) is amended by adding at the end
the following new subparagraph:
‘‘(E) EXCLUSION OF SEPARATE DRUG AND BIOLOGICAL
APCS
FROM
OUTLIER
PAYMENTS.—No additional payment
shall be made under subparagraph (A) in the case of
ambulatory payment classification groups established sepa-
rately for drugs or biologicals.’’.
(4) 
PAYMENT
FOR
PASS
THROUGH
DRUGS.—Section
1833(t)(6)(D)(i) (42 U.S.C. 1395l(t)(6)(D)(i)) is amended by
inserting after ‘‘under section 1842(o)’’ the following: ‘‘(or if
the drug or biological is covered under a competitive acquisition
contract under section 1847B, an amount determined by the
Secretary equal to the average price for the drug or biological
for all competitive acquisition areas and year established under
such section as calculated and adjusted by the Secretary for
purposes of this paragraph)’’.
(5) CONFORMING
AMENDMENT
TO
BUDGET
NEUTRALITY
REQUIREMENT.—Section 1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B))
is amended by adding at the end the following: ‘‘In determining
adjustments under the preceding sentence for 2004 and 2005,
the Secretary shall not take into account under this subpara-
graph or paragraph (2)(E) any expenditures that would not
have been made but for the application of paragraph (14).’’.
(6) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to items and services furnished on or after
January 1, 2004.
(b) SPECIAL PAYMENT FOR BRACHYTHERAPY.—
(1) IN GENERAL.—Section 1833(t)(16), as redesignated by
section 411(b) and as amended by subsection (a)(2), is amended
by adding at the end the following new subparagraph:
‘‘(C) PAYMENT
FOR
DEVICES
OF
BRACHYTHERAPY
AT
CHARGES
ADJUSTED
TO
COST.—Notwithstanding the pre-
ceding provisions of this subsection, for a device of
brachytherapy consisting of a seed or seeds (or radioactive
source) furnished on or after January 1, 2004, and before
January 1, 2007, the payment basis for the device under
42 USC 1395l
note.
42 USC 1935l.
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117 STAT. 2311
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this subsection shall be equal to the hospital’s charges
for each device furnished, adjusted to cost. Charges for
such devices shall not be included in determining any
outlier payment under this subsection.’’.
(2) 
SPECIFICATION
OF
GROUPS
FOR
BRACHYTHERAPY
DEVICES.—Section 
1833(t)(2) 
(42 
U.S.C. 
1395l(t)(2)) 
is
amended—
(A) in subparagraph (F), by striking ‘‘and’’ at the end;
(B) in subparagraph (G), by striking the period at
the end and inserting ‘‘; and’’; and
(C) by adding at the end the following new subpara-
graph:
‘‘(H) with respect to devices of brachytherapy consisting
of a seed or seeds (or radioactive source), the Secretary
shall create additional groups of covered OPD services that
classify such devices separately from the other services
(or group of services) paid for under this subsection in
a manner reflecting the number, isotope, and radioactive
intensity of such devices furnished, including separate
groups for palladium-103 and iodine-125 devices.’’.
(3) GAO REPORT.—The Comptroller General of the United
States shall conduct a study to determine appropriate payment
amounts under section 1833(t)(16)(C) of the Social Security
Act, as added by paragraph (1), for devices of brachytherapy.
Not later than January 1, 2005, the Comptroller General shall
submit to Congress and the Secretary a report on the study
conducted under this paragraph, and shall include specific rec-
ommendations for appropriate payments for such devices.
SEC. 622. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVA-
LENCE STANDARD.
Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by adding
at the end the following new subparagraph:
‘‘(F) LIMITATION
OF
APPLICATION
OF
FUNCTIONAL
EQUIVALENCE STANDARD.—
‘‘(i) IN GENERAL.—The Secretary may not publish
regulations that apply a functional equivalence
standard to a drug or biological under this paragraph.
‘‘(ii) APPLICATION.—Clause (i) shall apply to the
application of a functional equivalence standard to a
drug or biological on or after the date of enactment
of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 unless—
‘‘(I) such application was being made to such
drug or biological prior to such date of enactment;
and
‘‘(II) the Secretary applies such standard to
such drug or biological only for the purpose of
determining eligibility of such drug or biological
for additional payments under this paragraph and
not for the purpose of any other payments under
this title.
‘‘(iii) RULE
OF
CONSTRUCTION.—Nothing in this
subparagraph shall be construed to effect the Sec-
retary’s authority to deem a particular drug to be
Deadline.
42 USC 1395l
note.
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identical to another drug if the 2 products are pharma-
ceutically equivalent and bioequivalent, as determined
by the Commissioner of Food and Drugs.’’.
SEC. 623. PAYMENT FOR RENAL DIALYSIS SERVICES.
(a) INCREASE IN RENAL DIALYSIS COMPOSITE RATE FOR SERVICES
FURNISHED.—The last sentence of section 1881(b)(7) (42 U.S.C.
1395rr(b)(7)) is amended—
(1) by striking ‘‘and’’ before ‘‘for such services’’ the second
place it appears;
(2) by inserting ‘‘and before January 1, 2005,’’ after
‘‘January 1, 2001,’’; and
(3) by inserting before the period at the end the following:
‘‘, and for such services furnished on or after January 1, 2005,
by 1.6 percent above such composite rate payment amounts
for such services furnished on December 31, 2004’’.
(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)’’;
(B) in subparagraph (B), by striking ‘‘In the case’’ and
inserting ‘‘Subject to subparagraph (D), in the case’’; and
(C) by adding at the end the following new subpara-
graph:
‘‘(D) INAPPLICABILITY TO PEDIATRIC FACILITIES.—Sub-
paragraphs (A) and (B) shall not apply, as of October
1, 2002, to pediatric facilities that do not have an exception
rate described in subparagraph (C) in effect on such date.
For purposes of this subparagraph, the term ‘pediatric
facility’ means a renal facility at least 50 percent of whose
patients are individuals under 18 years of age.’’.
(2) CONFORMING AMENDMENT.—The fourth sentence of sec-
tion 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, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000, the Secretary’’.
(c) INSPECTOR GENERAL STUDIES ON ESRD DRUGS.—
(1) IN GENERAL.—The Inspector General of the Department
of Health and Human Services shall conduct two studies with
respect to drugs and biologicals (including erythropoietin) fur-
nished to end-stage renal disease patients under the medicare
program which are separately billed by end stage renal disease
facilities.
(2) STUDIES ON ESRD DRUGS.—
(A) EXISTING DRUGS.—The first study under paragraph
(1) shall be conducted with respect to such drugs and
biologicals for which a billing code exists prior to January
1, 2004.
(B) NEW DRUGS.—The second study under paragraph
(1) shall be conducted with respect to such drugs and
biologicals for which a billing code does not exist prior
to January 1, 2004.
(3) MATTERS STUDIED.—Under each study conducted under
paragraph (1), the Inspector General shall—
(A) determine the difference between the amount of
payment made to end stage renal disease facilities under
42 USC 1395rr
note.
42 USC 1395rr
note.
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title XVIII of the Social Security Act for such drugs and
biologicals and the acquisition costs of such facilities for
such drugs and biologicals and which are separately billed
by end stage renal disease facilities, and
(B) estimate the rates of growth of expenditures for
such drugs and biologicals billed by such facilities.
(4) REPORTS.—
(A) EXISTING ESRD DRUGS.—Not later than April 1,
2004, the Inspector General shall report to the Secretary
on the study described in paragraph (2)(A).
(B) NEW ESRD DRUGS.—Not later than April 1, 2006,
the Inspector General shall report to the Secretary on
the study described in paragraph (2)(B).
(d) BASIC CASE-MIX ADJUSTED COMPOSITE RATE FOR RENAL
DIALYSIS
FACILITY
SERVICES.—(1) Section 1881(b) (42 U.S.C.
1395rr(b)) is amended by adding at the end the following new
paragraphs:
‘‘(12)(A) In lieu of payment under paragraph (7) beginning
with services furnished on January 1, 2005, the Secretary shall
establish a basic case-mix adjusted prospective payment system
for dialysis services furnished by providers of services and renal
dialysis facilities in a year to individuals in a facility and to such
individuals at home. The case-mix under such system shall be
for a limited number of patient characteristics.
‘‘(B) The system described in subparagraph (A) shall include—
‘‘(i) the services comprising the composite rate established
under paragraph (7); and
‘‘(ii) the difference between payment amounts under this
title for separately billed drugs and biologicals (including
erythropoietin) and acquisition costs of such drugs and
biologicals, as determined by the Inspector General reports
to the Secretary as required by section 623(c) of the Medicare
Prescription Drug, Improvement, and Modernization Act of
2003—
‘‘(I) beginning with 2005, for such drugs and biologicals
for which a billing code exists prior to January 1, 2004;
and
‘‘(II) beginning with 2007, for such drugs and
biologicals for which a billing code does not exist prior
to January 1, 2004,
adjusted to 2005, or 2007, respectively, as determined to be
appropriate by the Secretary.
‘‘(C)(i) In applying subparagraph (B)(ii) for 2005, such payment
amounts under this title shall be determined using the methodology
specified in paragraph (13)(A)(i).
‘‘(ii) For 2006, the Secretary shall provide for an adjustment
to the payments under clause (i) to reflect the difference between
the payment amounts using the methodology under paragraph
(13)(A)(i) and the payment amount determined using the method-
ology applied by the Secretary under paragraph (13)(A)(iii) of such
paragraph, as estimated by the Secretary.
‘‘(D) The Secretary shall adjust the payment rates under such
system by a geographic index as the Secretary determines to be
appropriate. If the Secretary applies a geographic index under
this paragraph that differs from the index applied under paragraph
(7) the Secretary shall phase-in the application of the index under
this paragraph over a multiyear period.
Applicability.
Effective dates.
Deadlines.
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‘‘(E)(i) Such system shall be designed to result in the same
aggregate amount of expenditures for such services, as estimated
by the Secretary, as would have been made for 2005 if this para-
graph did not apply.
‘‘(ii) The adjustment made under subparagraph (B)(ii)(II) shall
be done in a manner to result in the same aggregate amount
of expenditures after such adjustment as would otherwise have
been made for such services for 2006 or 2007, respectively, as
estimated by the Secretary, if this paragraph did not apply.
‘‘(F) Beginning with 2006, the Secretary shall annually increase
the basic case-mix adjusted payment amounts established under
this paragraph, by an amount determined by—
‘‘(i) applying the estimated growth in expenditures for drugs
and biologicals (including erythropoietin) that are separately
billable to the component of the basic case-mix adjusted system
described in subparagraph (B)(ii); and
‘‘(ii) converting the amount determined in clause (i) to
an increase applicable to the basic case-mix adjusted payment
amounts established under subparagraph (B).
Nothing in this paragraph shall be construed as providing for
an update to the composite rate component of the basic case-
mix adjusted system under subparagraph (B).
‘‘(G) There shall be no administrative or judicial review under
section 1869, section 1878, or otherwise, of the case-mix system,
relative weights, payment amounts, the geographic adjustment
factor, or the update for the system established under this para-
graph, or the determination of the difference between medicare
payment amounts and acquisition costs for separately billed drugs
and biologicals (including erythropoietin) under this paragraph and
paragraph (13).
‘‘(13)(A) The payment amounts under this title for separately
billed drugs and biologicals furnished in a year, beginning with
2004, are as follows:
‘‘(i) For such drugs and biologicals (other than erythro-
poietin) furnished in 2004, the amount determined under sec-
tion 1842(o)(1)(A)(v) for the drug or biological.
‘‘(ii) For such drugs and biologicals (including erythro-
poietin) furnished in 2005, the acquisition cost of the drug
or biological, as determined by the Inspector General reports
to the Secretary as required by section 623(c) of the Medicare
Prescription Drug, Improvement, and Modernization Act of
2003. Insofar as the Inspector General has not determined
the acquisition cost with respect to a drug or biological, the
Secretary shall determine the payment amount for such drug
or biological.
‘‘(iii) For such drugs and biologicals (including erythro-
poietin) furnished in 2006 and subsequent years, such acquisi-
tion cost or the amount determined under section 1847A for
the drug or biological, as the Secretary may specify.
‘‘(B)(i) Drugs and biologicals (including erythropoietin) which
were separately billed under this subsection on the day before
the date of the enactment of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 shall continue to
be separately billed on and after such date.
‘‘(ii) Nothing in this paragraph, section 1842(o), section 1847A,
or section 1847B shall be construed as requiring or authorizing
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the bundling of payment for drugs and biologicals into the basic
case-mix adjusted payment system under this paragraph.’’.
(2) Paragraph (7) of such section is amended in the first sen-
tence by striking ‘‘The Secretary’’ and inserting ‘‘Subject to para-
graph (12), the Secretary’’.
(3) Paragraph (11)(B) of such section is amended by inserting
‘‘subject to paragraphs (12) and (13)’’ before ‘‘payment for such
item’’.
(e) DEMONSTRATION OF BUNDLED CASE-MIX ADJUSTED PAYMENT
SYSTEM FOR ESRD SERVICES.—
(1) IN
GENERAL.—The Secretary shall establish a dem-
onstration project of the use of a fully case-mix adjusted pay-
ment system for end stage renal disease services under section
1881 of the Social Security Act (42 U.S.C. 1395rr) for patient
characteristics identified in the report under subsection (f) that
bundles into such payment rates amounts for—
(A) drugs and biologicals (including erythropoietin) fur-
nished to end stage renal disease patients under the medi-
care program which are separately billed by end stage
renal disease facilities (as of the date of the enactment
of this Act); and
(B) clinical laboratory tests related to such drugs and
biologicals.
(2) FACILITIES INCLUDED IN THE DEMONSTRATION.—In con-
ducting the demonstration under this subsection, the Secretary
shall ensure the participation of a sufficient number of pro-
viders of dialysis services and renal dialysis facilities, but in
no case to exceed 500. In selecting such providers and facilities,
the Secretary shall ensure that the following types of providers
are included in the demonstration:
(A) Urban providers and facilities.
(B) Rural providers and facilities.
(C) Not-for-profit providers and facilities.
(D) For-profit providers and facilities.
(E) Independent providers and facilities.
(F) Specialty providers and facilities, including pedi-
atric providers and facilities and small providers and facili-
ties.
(3) TEMPORARY ADD-ON PAYMENT FOR DIALYSIS SERVICES
FURNISHED UNDER THE DEMONSTRATION.—
(A) IN GENERAL.—During the period of the demonstra-
tion project, the Secretary shall increase payment rates
that would otherwise apply under section 1881(b) of such
Act (42 U.S.C. 1395rr(b)) by 1.6 percent for dialysis services
furnished in facilities in the demonstration site.
(B) RULES OF CONSTRUCTION.—Nothing in this sub-
section shall be construed as—
(i) as an annual update under section 1881(b) of
the Social Security Act (42 U.S.C. 1395rr(b));
(ii) as increasing the baseline for payments under
such section; or
(iii) requiring the budget neutral implementation
of the demonstration project under this subsection.
(4) 3-YEAR PERIOD.—The Secretary shall conduct the dem-
onstration under this subsection for the 3-year period beginning
on January 1, 2006.
(5) USE OF ADVISORY BOARD.—
Effective date.
42 USC 1395rr
note.
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(A) IN GENERAL.—In carrying out the demonstration
under this subsection, the Secretary shall establish an
advisory board comprised of representatives described in
subparagraph (B) to provide advice and recommendations
with respect to the establishment and operation of such
demonstration.
(B) REPRESENTATIVES.—Representatives referred to in
subparagraph (A) include representatives of the following:
(i) Patient organizations.
(ii) Individuals with expertise in end stage renal
dialysis services, such as clinicians, economists, and
researchers.
(iii) The Medicare Payment Advisory Commission,
established under section 1805 of the Social Security
Act (42 U.S.C. 1395b–6).
(iv) The National Institutes of Health.
(v) Network organizations under section 1881(c)
of the Social Security Act (42 U.S.C. 1395rr(c)).
(vi) Medicare contractors to monitor quality of care.
(vii) Providers of services and renal dialysis facili-
ties furnishing end stage renal disease services.
(C) TERMINATION OF ADVISORY PANEL.—The advisory
panel shall terminate on December 31, 2008.
(6) AUTHORIZATION OF APPROPRIATIONS.—There are author-
ized to be appropriated, in appropriate part from the Federal
Hospital Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund, $5,000,000 in fiscal year 2006
to conduct the demonstration under this subsection.
(f) REPORT ON A BUNDLED PROSPECTIVE PAYMENT SYSTEM FOR
END STAGE RENAL DISEASE SERVICES.—
(1) REPORT.—
(A) IN GENERAL.—Not later than October 1, 2005, the
Secretary shall submit to Congress a report detailing the
elements and features for the design and implementation
of a bundled prospective payment system for services fur-
nished by end stage renal disease facilities including, to
the maximum extent feasible, bundling of drugs, clinical
laboratory tests, and other items that are separately billed
by such facilities. The report shall include a description
of the methodology to be used for the establishment of
payment rates, including components of the new system
described in paragraph (2).
(B) RECOMMENDATIONS.—The Secretary shall include
in such report recommendations on elements, features, and
methodology for a bundled prospective payment system
or other issues related to such system as the Secretary
determines to be appropriate.
(2) ELEMENTS AND FEATURES OF A BUNDLED PROSPECTIVE
PAYMENT SYSTEM.—The report required under paragraph (1)
shall include the following elements and features of a bundled
prospective payment system:
(A) BUNDLE OF ITEMS AND SERVICES.—A description
of the bundle of items and services to be included under
the prospective payment system.
(B) CASE MIX.—A description of the case-mix adjust-
ment to account for the relative resource use of different
types of patients.
Deadline.
42 USC 1395rr
note.
Establishment.
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117 STAT. 2317
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(C) WAGE INDEX.—A description of an adjustment to
account for geographic differences in wages.
(D) RURAL AREAS.—The appropriateness of establishing
a specific payment adjustment to account for additional
costs incurred by rural facilities.
(E) OTHER ADJUSTMENTS.—Such other adjustments as
may be necessary to reflect the variation in costs incurred
by facilities in caring for patients with end stage renal
disease.
(F) UPDATE FRAMEWORK.—A methodology for appro-
priate updates under the prospective payment system.
(G) ADDITIONAL RECOMMENDATIONS.—Such other mat-
ters as the Secretary determines to be appropriate.
SEC. 624. TWO-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS
RELATING TO REPORTS.
(a) ADDITIONAL MORATORIUM ON THERAPY CAPS.—
(1) 2004 AND 2005.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4))
is amended by striking ‘‘and 2002’’ and inserting ‘‘2002, 2004,
and 2005’’.
(2) REMAINDER OF 2003.—For the period beginning on the
date of the enactment of this Act and ending of December
31, 2003, the Secretary shall not apply the provisions of para-
graphs (1), (2), and (3) of section 1833(g) to expenses incurred
with respect to services described in such paragraphs during
such period. Nothing in the preceding sentence shall be con-
strued as affecting the application of such paragraphs by the
Secretary before the date of the enactment of this Act.
(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON PAYMENT
AND UTILIZATION OF OUTPATIENT THERAPY SERVICES.—Not later
than March 31, 2004, the Secretary shall submit to Congress the
reports required under section 4541(d)(2) of the Balanced Budget
Act of 1997 (Public Law 105–33; 111 Stat. 457) (relating to alter-
natives to a single annual dollar cap on outpatient therapy) and
under section 221(d) of the Medicare, Medicaid, and SCHIP Bal-
anced Budget Refinement Act of 1999 (Appendix F, 113 Stat.
1501A–352), as enacted into law by section 1000(a)(6) of Public
Law 106–113 (relating to utilization patterns for outpatient
therapy).
(c) GAO REPORT IDENTIFYING CONDITIONS AND DISEASES JUSTI-
FYING WAIVER OF THERAPY CAP.—
(1) STUDY.—The Comptroller General of the United States
shall identify conditions or diseases that may justify waiving
the application of the therapy caps under section 1833(g) of
the Social Security Act (42 U.S.C. 1395l(g)) with respect to
such conditions or diseases.
(2) REPORT TO CONGRESS.—Not later than October 1, 2004,
the Comptroller General shall submit to Congress a report
on the conditions and diseases identified under paragraph (1),
and shall include a recommendation of criteria, with respect
to such conditions and disease, under which a waiver of the
therapy caps would apply.
SEC. 625. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CER-
TAIN 
MILITARY 
RETIREES; 
SPECIAL 
ENROLLMENT
PERIOD.
(a) WAIVER OF PENALTY.—
Deadline.
Deadline.
42 USC 1395l
note.
42 USC 1395l
note.
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(1) IN GENERAL.—Section 1839(b) (42 U.S.C. 1395r(b)) is
amended by adding at the end the following new sentence:
‘‘No increase in the premium shall be effected for a month
in the case of an individual who enrolls under this part during
2001, 2002, 2003, or 2004 and who demonstrates to the Sec-
retary before December 31, 2004, that the individual is a cov-
ered 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 identifying
individuals described in the previous sentence.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to premiums for months beginning with January
2004. The Secretary shall establish a method for providing
rebates of premium penalties paid for months on or after
January 2004 for which a penalty does not apply under such
amendment but for which a penalty was previously collected.
(b) MEDICARE PART B SPECIAL ENROLLMENT PERIOD.—
(1) IN GENERAL.—In the case of any individual who, as
of the date of the enactment of this Act, is eligible to enroll
but is not enrolled under part B of title XVIII of the Social
Security 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 provide 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 enactment of this Act and shall end on December 31,
2004.
(2) COVERAGE PERIOD.—In the case of an individual who
enrolls during the special enrollment period provided under
paragraph (1), the coverage period under part B of title XVIII
of the Social Security Act shall begin on the first day of the
month following the month in which the individual enrolls.
SEC. 626. PAYMENT FOR SERVICES FURNISHED IN AMBULATORY SUR-
GICAL CENTERS.
(a) REDUCTIONS IN PAYMENT UPDATES.—Section 1833(i)(2)(C)
(42 U.S.C. 1395l(i)(2)(C)) is amended to read as follows:
‘‘(C)(i) Notwithstanding the second sentence of each of subpara-
graphs (A) and (B), except as otherwise specified in clauses (ii),
(iii), and (iv), if the Secretary has not updated amounts established
under such subparagraphs or under subparagraph (D), with respect
to facility services furnished during a fiscal year (beginning with
fiscal year 1986 or a calendar year (beginning with 2006)), such
amounts shall be increased by the percentage increase in the Con-
sumer Price Index for all urban consumers (U.S. city average)
as estimated by the Secretary for the 12-month period ending
with the midpoint of the year involved.
‘‘(ii) In each of the fiscal years 1998 through 2002, the increase
under this subparagraph shall be reduced (but not below zero)
by 2.0 percentage points.
‘‘(iii) In fiscal year 2004, beginning with April 1, 2004, the
increase under this subparagraph shall be the Consumer Price
Index for all urban consumers (U.S. city average) as estimated
by the Secretary for the 12-month period ending with March 31,
2003, minus 3.0 percentage points.
Effective date.
Effective date.
Termination
date.
42 USC 1395p
note.
Procedures.
42 USC 1395r
note.
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117 STAT. 2319
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‘‘(iv) In fiscal year 2005, the last quarter of calendar year
2005, and each of calendar years 2006 through 2009, the increase
under this subparagraph shall be 0 percent.’’.
(b) REPEAL
OF SURVEY REQUIREMENT
AND IMPLEMENTATION
OF NEW SYSTEM.—Section 1833(i)(2) (42 U.S.C. 1395l(i)(2)) is
amended—
(1) in subparagraph (A)—
(A) in the matter preceding clause (i), by striking ‘‘The’’
and inserting ‘‘For services furnished prior to the
implementation of the system described in subparagraph
(D), the’’; and
(B) in clause (i), by striking ‘‘taken not later than
January 1, 1995, and every 5 years thereafter,’’; and
(2) by adding at the end the following new subparagraph:
‘‘(D)(i) Taking into account the recommendations in the report
under section 626(d) of Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, the Secretary shall implement
a revised payment system for payment of surgical services furnished
in ambulatory surgical centers.
‘‘(ii) In the year the system described in clause (i) is imple-
mented, such system shall be designed to result in the same aggre-
gate amount of expenditures for such services as would be made
if this subparagraph did not apply, as estimated by the Secretary.
‘‘(iii) The Secretary shall implement the system described in
clause (i) for periods in a manner so that it is first effective begin-
ning on or after January 1, 2006, and not later than January
1, 2008.
‘‘(iv) There shall be no administrative or judicial review under
section 1869, 1878, or otherwise, of the classification system, the
relative weights, payment amounts, and the geographic adjustment
factor, if any, under this subparagraph.’’.
(c) CONFORMING AMENDMENT.—Section 1833(a)(1) (42 U.S.C.
1395l(a)(1)) is amended by adding the following new subparagraph:
‘‘(G) with respect to facility services furnished in
connection with a surgical procedure specified pursuant
to subsection (i)(1)(A) and furnished to an individual in
an ambulatory surgical center described in such subsection,
for services furnished beginning with the implementation
date of a revised payment system for such services in
such facilities specified in subsection (i)(2)(D), the amounts
paid shall be 80 percent of the lesser of the actual charge
for the services or the amount determined by the Secretary
under such revised payment system,’’.
(d) GAO STUDY
OF
AMBULATORY
SURGICAL
CENTER
PAY-
MENTS.—
(1) STUDY.—
(A) IN
GENERAL.—The Comptroller General of the
United States shall conduct a study that compares the
relative costs of procedures furnished in ambulatory sur-
gical centers to the relative costs of procedures furnished
in hospital outpatient departments under section 1833(t)
of the Social Security Act (42 U.S.C. 1395l(t)). The study
shall also examine how accurately ambulatory payment
categories reflect procedures furnished in ambulatory sur-
gical centers.
(B) CONSIDERATION OF ASC DATA.—In conducting the
study under paragraph (1), the Comptroller General shall
42 USC 1395l
note.
Effective date.
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117 STAT. 2320
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consider data submitted by ambulatory surgical centers
regarding the matters described in clauses (i) through (iii)
of paragraph (2)(B).
(2) REPORT AND RECOMMENDATIONS.—
(A) REPORT.—Not later than January 1, 2005, the
Comptroller General shall submit to Congress a report
on the study conducted under paragraph (1).
(B) RECOMMENDATIONS.—The report submitted under
subparagraph (A) shall include recommendations on the
following matters:
(i) The appropriateness of using the groups of cov-
ered services and relative weights established under
the outpatient prospective payment system as the basis
of payment for ambulatory surgical centers.
(ii) If the relative weights under such hospital
outpatient prospective payment system are appropriate
for such purpose—
(I) whether the payment rates for ambulatory
surgical centers should be based on a uniform
percentage of the payment rates or weights under
such outpatient system; or
(II) whether the payment rates for ambulatory
surgical centers should vary, or the weights should
be revised, based on specific procedures or types
of services (such as ophthalmology and pain
management services).
(iii) Whether a geographic adjustment should be
used for payment of services furnished in ambulatory
surgical centers, and if so, the labor and nonlabor
shares of such payment.
SEC. 627. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE
FEE SCHEDULE FOR ORTHOTICS AND PROSTHETICS.
(a) IN
GENERAL.—Section 1833(o) (42 U.S.C. 1395l(o)) is
amended—
(1) in paragraph (1)(B), by striking ‘‘no more than the
limits established under paragraph (2)’’ and inserting ‘‘no more
than the amount of payment applicable under paragraph (2)’’;
and
(2) in paragraph (2), to read as follows:
‘‘(2)(A) Except as provided by the Secretary under subpara-
graphs (B) and (C), the amount of payment under this paragraph
for custom molded shoes, extra-depth shoes, and inserts shall be
the amount determined for such items by the Secretary under
section 1834(h).
‘‘(B) The Secretary may establish payment amounts for shoes
and inserts that are lower than the amount established under
section 1834(h) if the Secretary finds that shoes and inserts of
an appropriate quality are readily available at or below the amount
established under such section.
‘‘(C) In accordance with procedures established by the Secretary,
an individual entitled to benefits with respect to shoes described
in section 1861(s)(12) may substitute modification of such shoes
instead of obtaining one (or more, as specified by the Secretary)
pair of inserts (other than the original pair of inserts with respect
to such shoes). In such case, the Secretary shall substitute, for
the payment amount established under section 1834(h), a payment
Deadline.
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117 STAT. 2321
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amount that the Secretary estimates will assure that there is no
net increase in expenditures under this subsection as a result
of this subparagraph.’’.
(b) CONFORMING AMENDMENTS.—(1) Section 1834(h)(4)(C) (42
U.S.C. 1395m(h)(4)(C)) is amended by inserting ‘‘(and includes shoes
described in section 1861(s)(12))’’ after ‘‘in section 1861(s)(9)’’.
(2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended by
striking subparagraph (C).
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to items furnished on or after January 1, 2005.
SEC. 628. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.
Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV)) is
amended by striking ‘‘and 1998 through 2002’’ and inserting ‘‘,
1998 through 2002, and 2004 through 2008’’.
SEC. 629. INDEXING PART B DEDUCTIBLE TO INFLATION.
The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) is
amended by striking ‘‘and $100 for 1991 and subsequent years’’
and inserting the following: ‘‘, $100 for 1991 through 2004, $110
for 2005, and for a subsequent year the amount of such deductible
for the previous year increased by the annual percentage increase
in the monthly actuarial rate under section 1839(a)(1) ending with
such subsequent year (rounded to the nearest $1)’’.
SEC. 630. FIVE-YEAR AUTHORIZATION OF REIMBURSEMENT FOR ALL
MEDICARE PART B SERVICES FURNISHED BY CERTAIN
INDIAN HOSPITALS AND CLINICS.
Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) is amended
by inserting ‘‘(and for items and services furnished during the
5-year period beginning on January 1, 2005, all items and services
for which payment may be made under part B)’’ after ‘‘for services
described in paragraph (2)’’.
Subtitle D—Additional Demonstrations,
Studies, and Other Provisions
SEC. 641. DEMONSTRATION PROJECT FOR COVERAGE OF CERTAIN
PRESCRIPTION DRUGS AND BIOLOGICALS.
(a) DEMONSTRATION PROJECT.—The Secretary shall conduct a
demonstration project under part B of title XVIII of the Social
Security Act under which payment is made for drugs or biologicals
that are prescribed as replacements for drugs and biologicals
described in section 1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42
U.S.C. 1395x(s)(2)(A), 1395x(s)(2)(Q)), or both, for which payment
is made under such part. Such project shall provide for cost-sharing
applicable with respect to such drugs or biologicals in the same
manner as cost-sharing applies with respect to part D drugs under
standard prescription drug coverage (as defined in section 1860D–
2(b) of the Social Security Act, as added by section 101(a)).
(b) DEMONSTRATION PROJECT SITES.—The project established
under this section shall be conducted in sites selected by the Sec-
retary.
(c) DURATION.—The Secretary shall conduct the demonstration
project for the 2-year period beginning on the date that is 90
Effective date.
42 USC 1395l
note.
42 USC 1395l
note.
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days after the date of the enactment of this Act, but in no case
may the project extend beyond December 31, 2005.
(d) LIMITATION.—Under the demonstration project over the
duration of the project, the Secretary may not provide—
(1) coverage for more than 50,000 patients; and
(2) more than $500,000,000 in funding.
(e) REPORT.—Not later than July 1, 2006, the Secretary shall
submit to Congress a report on the project. The report shall include
an evaluation of patient access to care and patient outcomes under
the project, as well as an analysis of the cost effectiveness of
the project, including an evaluation of the costs savings (if any)
to the medicare program attributable to reduced physicians’ services
and hospital outpatient departments services for administration
of the biological.
SEC. 642. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE GLOB-
ULIN (IVIG) FOR THE TREATMENT OF PRIMARY IMMUNE
DEFICIENCY DISEASES IN THE HOME.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x), as amended
by sections 611(a) and 612(a) is amended—
(1) in subsection (s)(2)—
(A) by striking ‘‘and’’ at the end of subparagraph (X);
(B) by adding ‘‘and’’ at the end of subparagraph (Y);
and
(C) by adding at the end the following new subpara-
graph:
‘‘(Z) intravenous immune globulin for the treatment
of primary immune deficiency diseases in the home (as
defined in subsection (zz));’’; and
(2) by adding at the end the following new subsection:
‘‘Intravenous Immune Globulin
‘‘(zz) The term ‘intravenous immune globulin’ means an
approved pooled plasma derivative for the treatment in the patient’s
home of a patient with a diagnosed primary immune deficiency
disease, but not including items or services related to the adminis-
tration of the derivative, if a physician determines administration
of the derivative in the patient’s home is medically appropriate.’’.
(b) PAYMENT AS A DRUG OR BIOLOGICAL.—Section 1833(a)(1)(S)
(42 U.S.C. 1395l(a)(1)(S)) is amended by inserting ‘‘(including intra-
venous immune globulin (as defined in section 1861(zz)))’’ after
‘‘with respect to drugs and biologicals’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to items furnished administered on or after January
1, 2004.
SEC. 643. MEDPAC STUDY OF COVERAGE OF SURGICAL FIRST
ASSISTING SERVICES OF CERTIFIED REGISTERED NURSE
FIRST ASSISTANTS.
(a) STUDY.—The Medicare Payment Advisory Commission (in
this section referred to as the ‘‘Commission’’) shall conduct a study
on the feasibility and advisability of providing for payment under
part B of title XVIII of the Social Security Act for surgical first
assisting services furnished by a certified registered nurse first
assistant to medicare beneficiaries.
(b) REPORT.—Not later than January 1, 2005, the Commission
shall submit to Congress a report on the study conducted under
Deadline.
42 USC 1395x
note.
42 USC 1395l
note.
Deadline.
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117 STAT. 2323
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subsection (a) together with recommendations for such legislation
or administrative action as the Commission determines to be appro-
priate.
(c) DEFINITIONS.—In this section:
(1) SURGICAL FIRST ASSISTING SERVICES.—The term ‘‘sur-
gical first assisting services’’ means services consisting of first
assisting a physician with surgery and related preoperative,
intraoperative, and postoperative care (as determined by the
Secretary) furnished by a certified registered nurse first assist-
ant (as defined in paragraph (2)) which the certified registered
nurse first assistant is legally authorized to perform by the
State in which the services are performed.
(2) CERTIFIED REGISTERED NURSE FIRST ASSISTANT.—The
term ‘‘certified registered nurse first assistant’’ means an indi-
vidual who—
(A) is a registered nurse and is licensed to practice
nursing in the State in which the surgical first assisting
services are performed;
(B) has completed a minimum of 2,000 hours of first
assisting a physician with surgery and related preoperative,
intraoperative, and postoperative care; and
(C) is certified as a registered nurse first assistant
by an organization recognized by the Secretary.
SEC. 644. MEDPAC STUDY OF PAYMENT FOR CARDIO-THORACIC SUR-
GEONS.
(a) STUDY.—The Medicare Payment Advisory Commission (in
this section referred to as the ‘‘Commission’’) shall conduct a study
on the practice expense relative values established by the Secretary
of Health and Human Services under the medicare physician fee
schedule under section 1848 of the Social Security Act (42 U.S.C.
1395w–4) for physicians in the specialties of thoracic and cardiac
surgery to determine whether such values adequately take into
account the attendant costs that such physicians incur in providing
clinical staff for patient care in hospitals.
(b) REPORT.—Not later than January 1, 2005, the Commission
shall submit to Congress a report on the study conducted under
subsection (a) together with recommendations for such legislation
or administrative action as the Commission determines to be appro-
priate.
SEC. 645. STUDIES RELATING TO VISION IMPAIRMENTS.
(a) COVERAGE OF OUTPATIENT VISION SERVICES FURNISHED BY
VISION REHABILITATION PROFESSIONALS UNDER PART B.—
(1) STUDY.—The Secretary shall conduct a study to deter-
mine the feasibility and advisability of providing for payment
for vision rehabilitation services furnished by vision rehabilita-
tion professionals.
(2) REPORT.—Not later than January 1, 2005, the Secretary
shall submit to Congress a report on the study conducted under
paragraph (1) together with recommendations for such legisla-
tion or administrative action as the Secretary determines to
be appropriate.
(3) VISION REHABILITATION PROFESSIONAL DEFINED.—In this
subsection, the term ‘‘vision rehabilitation professional’’ means
an orientation and mobility specialist, a rehabilitation teacher,
or a low vision therapist.
Deadline.
42 USC 1395x
note.
Deadline.
42 USC 1395w–4
note.
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(b) REPORT ON APPROPRIATENESS OF A DEMONSTRATION PROJECT
TO TEST FEASIBILITY OF USING PPO NETWORKS TO REDUCE COSTS
OF ACQUIRING EYEGLASSES FOR MEDICARE BENEFICIARIES AFTER
CATARACT SURGERY.—Not later than 1 year after the date of the
enactment of this Act, the Secretary shall submit to Congress
a report on the feasibility of establishing a two-year demonstration
project under which the Secretary enters into arrangements with
vision care preferred provider organization networks to furnish
and pay for conventional eyeglasses subsequent to each cataract
surgery with insertion of an intraocular lens on behalf of Medicare
beneficiaries. In such report, the Secretary shall include an estimate
of potential cost savings to the Medicare program through the
use of such networks, taking into consideration quality of service
and beneficiary access to services offered by vision care preferred
provider organization networks.
SEC. 646. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PRO-
GRAMS.
Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting
after section 1866B the following new section:
‘‘HEALTH CARE QUALITY DEMONSTRATION PROGRAM
‘‘SEC. 1866C. (a) DEFINITIONS.—In this section:
‘‘(1) BENEFICIARY.—The term ‘beneficiary’ means an indi-
vidual who is entitled to benefits under part A and enrolled
under part B, including any individual who is enrolled in a
Medicare Advantage plan under part C.
‘‘(2) HEALTH CARE GROUP.—
‘‘(A) IN
GENERAL.—The term ‘health care group’
means—
‘‘(i) a group of physicians that is organized at least
in part for the purpose of providing physician’s services
under this title;
‘‘(ii) an integrated health care delivery system that
delivers care through coordinated hospitals, clinics,
home health agencies, ambulatory surgery centers,
skilled nursing facilities, rehabilitation facilities and
clinics, and employed, independent, or contracted
physicians; or
‘‘(iii) an organization representing regional coali-
tions of groups or systems described in clause (i) or
(ii).
‘‘(B) INCLUSION.—As the Secretary determines appro-
priate, a health care group may include a hospital or any
other individual or entity furnishing items or services for
which payment may be made under this title that is affili-
ated with the health care group under an arrangement
structured so that such hospital, individual, or entity
participates in a demonstration project under this section.
‘‘(3) PHYSICIAN.—Except as otherwise provided for by the
Secretary, the term ‘physician’ means any individual who fur-
nishes services that may be paid for as physicians’ services
under this title.
‘‘(b) DEMONSTRATION PROJECTS.—The Secretary shall establish
a 5-year demonstration program under which the Secretary shall
approve demonstration projects that examine health delivery factors
42 USC
1395cc–3.
Deadline.
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117 STAT. 2325
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that encourage the delivery of improved quality in patient care,
including—
‘‘(1) the provision of incentives to improve the safety of
care provided to beneficiaries;
‘‘(2) the appropriate use of best practice guidelines by pro-
viders and services by beneficiaries;
‘‘(3) reduced scientific uncertainty in the delivery of care
through the examination of variations in the utilization and
allocation of services, and outcomes measurement and research;
‘‘(4) encourage shared decision making between providers
and patients;
‘‘(5) the provision of incentives for improving the quality
and safety of care and achieving the efficient allocation of
resources;
‘‘(6) the appropriate use of culturally and ethnically sen-
sitive health care delivery; and
‘‘(7) the financial effects on the health care marketplace
of altering the incentives for care delivery and changing the
allocation of resources.
‘‘(c) ADMINISTRATION BY CONTRACT.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
section, the Secretary may administer the demonstration pro-
gram established under this section in a manner that is similar
to the manner in which the demonstration program established
under section 1866A is administered in accordance with section
1866B.
‘‘(2) ALTERNATIVE PAYMENT SYSTEMS.—A health care group
that receives assistance under this section may, with respect
to the demonstration project to be carried out with such assist-
ance, include proposals for the use of alternative payment sys-
tems for items and services provided to beneficiaries by the
group that are designed to—
‘‘(A) encourage the delivery of high quality care while
accomplishing the objectives described in subsection (b);
and
‘‘(B) streamline documentation and reporting require-
ments otherwise required under this title.
‘‘(3) BENEFITS.—A health care group that receives assist-
ance under this section may, with respect to the demonstration
project to be carried out with such assistance, include modifica-
tions to the package of benefits available under the original
medicare fee-for-service program under parts A and B or the
package of benefits available through a Medicare Advantage
plan under part C. The criteria employed under the demonstra-
tion program under this section to evaluate outcomes and deter-
mine best practice guidelines and incentives shall not be used
as a basis for the denial of medicare benefits under the dem-
onstration program to patients against their wishes (or if the
patient is incompetent, against the wishes of the patient’s surro-
gate) on the basis of the patient’s age or expected length of
life or of the patient’s present or predicted disability, degree
of medical dependency, or quality of life.
‘‘(d) ELIGIBILITY CRITERIA.—To be eligible to receive assistance
under this section, an entity shall—
‘‘(1) be a health care group;
‘‘(2) meet quality standards established by the Secretary,
including—
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117 STAT. 2326
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(A) the implementation of continuous quality improve-
ment mechanisms that are aimed at integrating commu-
nity-based support services, primary care, and referral care;
‘‘(B) the implementation of activities to increase the
delivery of effective care to beneficiaries;
‘‘(C) encouraging patient participation in preference-
based decisions;
‘‘(D) the implementation of activities to encourage the
coordination and integration of medical service delivery;
and
‘‘(E) the implementation of activities to measure and
document the financial impact on the health care market-
place of altering the incentives of health care delivery
and changing the allocation of resources; and
‘‘(3) meet such other requirements as the Secretary may
establish.
‘‘(e) WAIVER
AUTHORITY.—The Secretary may waive such
requirements of titles XI and XVIII as may be necessary to carry
out the purposes of the demonstration program established under
this section.
‘‘(f) BUDGET NEUTRALITY.—With respect to the 5-year period
of the demonstration program under subsection (b), the aggregate
expenditures under this title for such period shall not exceed the
aggregate expenditures that would have been expended under this
title if the program established under this section had not been
implemented.
‘‘(g) NOTICE REQUIREMENTS.—In the case of an individual that
receives health care items or services under a demonstration pro-
gram carried out under this section, the Secretary shall ensure
that such individual is notified of any waivers of coverage or pay-
ment rules that are applicable to such individual under this title
as a result of the participation of the individual in such program.
‘‘(h) PARTICIPATION AND SUPPORT BY FEDERAL AGENCIES.—In
carrying out the demonstration program under this section, the
Secretary may direct—
‘‘(1) the Director of the National Institutes of Health to
expand the efforts of the Institutes to evaluate current medical
technologies and improve the foundation for evidence-based
practice;
‘‘(2) the Administrator of the Agency for Healthcare
Research and Quality to, where possible and appropriate, use
the program under this section as a laboratory for the study
of quality improvement strategies and to evaluate, monitor,
and disseminate information relevant to such program; and
‘‘(3) the Administrator of the Centers for Medicare & Med-
icaid Services and the Administrator of the Center for Medicare
Choices to support linkages of relevant medicare data to reg-
istry information from participating health care groups for the
beneficiary populations served by the participating groups, for
analysis supporting the purposes of the demonstration program,
consistent with the applicable provisions of the Health Insur-
ance Portability and Accountability Act of 1996.’’.
SEC. 647. MEDPAC STUDY ON DIRECT ACCESS TO PHYSICAL THERAPY
SERVICES.
(a) STUDY.—The Medicare Payment Advisory Commission (in
this section referred to as the ‘‘Commission’’) shall conduct a study
42 USC 1395n
note.
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117 STAT. 2327
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on the feasibility and advisability of allowing medicare fee-for-
service beneficiaries direct access to outpatient physical therapy
services and physical therapy services furnished as comprehensive
rehabilitation facility services.
(b) REPORT.—Not later than January 1, 2005, the Commission
shall submit to Congress a report on the study conducted under
subsection (a) together with recommendations for such legislation
or administrative action as the Commission determines to be appro-
priate.
(c) DIRECT ACCESS DEFINED.—The term ‘‘direct access’’ means,
with respect to outpatient physical therapy services and physical
therapy services furnished as comprehensive outpatient rehabilita-
tion facility services, coverage of and payment for such services
in accordance with the provisions of title XVIII of the Social Security
Act, except that sections 1835(a)(2), 1861(p), and 1861(cc) of such
Act (42 U.S.C. 1395n(a)(2), 1395x(p), and 1395x(cc), respectively)
shall be applied—
(1) without regard to any requirement that—
(A) an individual be under the care of (or referred
by) a physician; or
(B) services be provided under the supervision of a
physician; and
(2) by allowing a physician or a qualified physical therapist
to satisfy any requirement for—
(A) certification and recertification; and
(B) establishment and periodic review of a plan of
care.
SEC. 648. DEMONSTRATION PROJECT FOR CONSUMER-DIRECTED
CHRONIC OUTPATIENT SERVICES.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—Subject to the succeeding provisions of
this section, the Secretary shall establish demonstration
projects (in this section referred to as ‘‘demonstration projects’’)
under which the Secretary shall evaluate methods that improve
the quality of care provided to individuals with chronic condi-
tions and that reduce expenditures that would otherwise be
made under the medicare program on behalf of such individuals
for such chronic conditions, such methods to include permitting
those beneficiaries to direct their own health care needs and
services.
(2) INDIVIDUALS WITH CHRONIC CONDITIONS DEFINED.—In
this section, the term ‘‘individuals with chronic conditions’’
means an individual entitled to benefits under part A of title
XVIII of the Social Security Act, and enrolled under part B
of such title, but who is not enrolled under part C of such
title who is diagnosed as having one or more chronic conditions
(as defined by the Secretary), such as diabetes.
(b) DESIGN OF PROJECTS.—
(1) EVALUATION BEFORE IMPLEMENTATION OF PROJECT.—
(A) IN GENERAL.—In establishing the demonstration
projects under this section, the Secretary shall evaluate
best practices employed by group health plans and practices
under State plans for medical assistance under the med-
icaid program under title XIX of the Social Security Act,
as well as best practices in the private sector or other
areas, of methods that permit patients to self-direct the
42 USC 1395b–8
note.
Deadline.
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provision of personal care services. The Secretary shall
evaluate such practices for a 1-year period and, based
on such evaluation, shall design the demonstration project.
(B) REQUIREMENT FOR ESTIMATE OF BUDGET NEUTRAL
COSTS.—As part of the evaluation under subparagraph (A),
the Secretary shall evaluate the costs of furnishing care
under the projects. The Secretary may not implement the
demonstration projects under this section unless the Sec-
retary determines that the costs of providing care to
individuals with chronic conditions under the project will
not exceed the costs, in the aggregate, of furnishing care
to such individuals under title XVIII of the Social Security
Act, that would otherwise be paid without regard to the
demonstration projects for the period of the project.
(2) SCOPE
OF
SERVICES.—The Secretary shall determine
the appropriate scope of personal care services that would
apply under the demonstration projects.
(c) VOLUNTARY PARTICIPATION.—Participation of providers of
services and suppliers, and of individuals with chronic conditions,
in the demonstration projects shall be voluntary.
(d) DEMONSTRATION PROJECTS SITES.—Not later than 2 years
after the date of the enactment of this Act, the Secretary shall
conduct a demonstration project in at least one area that the
Secretary determines has a population of individuals entitled to
benefits under part A of title XVIII of the Social Security Act,
and enrolled under part B of such title, with a rate of incidence
of diabetes that significantly exceeds the national average rate
of all areas.
(e) EVALUATION AND REPORT.—
(1) EVALUATIONS.—The Secretary shall conduct evaluations
of the clinical and cost effectiveness of the demonstration
projects.
(2) REPORTS.—Not later than 2 years after the commence-
ment of the demonstration projects, and biannually thereafter,
the Secretary shall submit to Congress a report on the evalua-
tion, and shall include in the report the following:
(A) An analysis of the patient outcomes and costs of
furnishing care to the individuals with chronic conditions
participating in the projects as compared to such outcomes
and costs to other individuals for the same health condi-
tions.
(B) Evaluation of patient satisfaction under the dem-
onstration projects.
(C) Such recommendations regarding the extension,
expansion, or termination of the projects as the Secretary
determines appropriate.
(f) WAIVER AUTHORITY.—The Secretary shall waive compliance
with the requirements of title XVIII of the Social Security Act
(42 U.S.C. 1395 et seq.) to such extent and for such period as
the Secretary determines is necessary to conduct demonstration
projects.
(g) AUTHORIZATION OF APPROPRIATIONS.—(1) Payments for the
costs of carrying out the demonstration project under this section
shall be made from the Federal Supplementary Medical Insurance
Trust Fund under section 1841 of such Act (42 U.S.C. 1395t).
(2) There are authorized to be appropriated from such Trust
Fund such sums as may be necessary for the Secretary to enter
Deadlines.
Deadline.
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117 STAT. 2329
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into contracts with appropriate organizations for the deign,
implementation, and evaluation of the demonstration project.
(3) In no case may expenditures under this section exceed
the aggregate expenditures that would otherwise have been made
for the provision of personal care services.
SEC. 649. MEDICARE CARE MANAGEMENT PERFORMANCE DEM-
ONSTRATION.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—The Secretary shall establish a pay-for-
performance demonstration program with physicians to meet
the needs of eligible beneficiaries through the adoption and
use of health information technology and evidence-based out-
comes measures for—
(A) promoting continuity of care;
(B) helping stabilize medical conditions;
(C) preventing or minimizing acute exacerbations of
chronic conditions; and
(D) reducing adverse health outcomes, such as adverse
drug interactions related to polypharmacy.
(2) SITES.—The Secretary shall designate no more than
4 sites at which to conduct the demonstration program under
this section, of which—
(A) two shall be in an urban area;
(B) one shall be in a rural area; and
(C) one shall be in a State with a medical school
with a Department of Geriatrics that manages rural out-
reach sites and is capable of managing patients with mul-
tiple chronic conditions, one of which is dementia.
(3) DURATION.—The Secretary shall conduct the demonstra-
tion program under this section for a 3-year period.
(4) CONSULTATION.—In carrying out the demonstration pro-
gram under this section, the Secretary shall consult with pri-
vate sector and non-profit groups that are undertaking similar
efforts to improve quality and reduce avoidable hospitalizations
for chronically ill patients.
(b) PARTICIPATION.—
(1) IN GENERAL.—A physician who provides care for a min-
imum number of eligible beneficiaries (as specified by the Sec-
retary) may participate in the demonstration program under
this section if such physician agrees, to phase-in over the course
of the 3-year demonstration period and with the assistance
provided under subsection (d)(2)—
(A) the use of health information technology to manage
the clinical care of eligible beneficiaries consistent with
paragraph (3); and
(B) the electronic reporting of clinical quality and out-
comes measures in accordance with requirements estab-
lished by the Secretary under the demonstration program.
(2) SPECIAL RULE.—In the case of the sites referred to
in subparagraphs (B) and (C) of subsection (a)(2), a physician
who provides care for a minimum number of beneficiaries with
two or more chronic conditions, including dementia (as specified
by the Secretary), may participate in the program under this
section if such physician agrees to the requirements in subpara-
graphs (A) and (B) of paragraph (1).
42 USC 1395b–1
note.
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117 STAT. 2330
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(3) PRACTICE STANDARDS.—Each physician participating in
the demonstration program under this section must dem-
onstrate the ability—
(A) to assess each eligible beneficiary for conditions
other than chronic conditions, such as impaired cognitive
ability and co-morbidities, for the purposes of developing
care management requirements;
(B) to serve as the primary contact of eligible bene-
ficiaries in accessing items and services for which payment
may be made under the medicare program;
(C) to establish and maintain health care information
system for such beneficiaries;
(D) to promote continuity of care across providers and
settings;
(E) to use evidence-based guidelines and meet such
clinical quality and outcome measures as the Secretary
shall require;
(F) to promote self-care through the provision of patient
education and support for patients or, where appropriate,
family caregivers;
(G) when appropriate, to refer such beneficiaries to
community service organizations; and
(H) to meet such other complex care management
requirements as the Secretary may specify.
The guidelines and measures required under subparagraph
(E) shall be designed to take into account beneficiaries with
multiple chronic conditions.
(c) PAYMENT METHODOLOGY.—Under the demonstration pro-
gram under this section the Secretary shall pay a per beneficiary
amount to each participating physician who meets or exceeds spe-
cific performance standards established by the Secretary with
respect to the clinical quality and outcome measures reported under
subsection (b)(1)(B). Such amount may vary based on different
levels of performance or improvement.
(d) ADMINISTRATION.—
(1) USE OF QUALITY IMPROVEMENT ORGANIZATIONS.—The
Secretary shall contract with quality improvement organiza-
tions or such other entities as the Secretary deems appropriate
to enroll physicians and evaluate their performance under the
demonstration program under this section.
(2) TECHNICAL ASSISTANCE.—The Secretary shall require
in such contracts that the contractor be responsible for technical
assistance and education as needed to physicians enrolled in
the demonstration program under this section for the purpose
of aiding their adoption of health information technology,
meeting practice standards, and implementing required clinical
and outcomes measures.
(e) FUNDING.—
(1) IN
GENERAL.—The Secretary shall provide for the
transfer from the Federal Supplementary Medical Insurance
Trust Fund established under section 1841 of the Social Secu-
rity Act (42 U.S.C. 1395t) of such funds as are necessary
for the costs of carrying out the demonstration program under
this section.
(2) BUDGET NEUTRALITY.—In conducting the demonstration
program under this section, the Secretary shall ensure that
the aggregate payments made by the Secretary do not exceed
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117 STAT. 2331
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the amount which the Secretary estimates would have been
paid if the demonstration program under this section was not
implemented.
(f) WAIVER AUTHORITY.—The Secretary may waive such require-
ments of titles XI and XVIII of the Social Security Act (42 U.S.C.
1301 et seq. and 1395 et seq.) as may be necessary for the purpose
of carrying out the demonstration program under this section.
(g) REPORT.—Not later than 12 months after the date of comple-
tion of the demonstration program under this section, the Secretary
shall submit to Congress a report on such program, together with
recommendations for such legislation and administrative action as
the Secretary determines to be appropriate.
(h) DEFINITIONS.—In this section:
(1) ELIGIBLE BENEFICIARY.—The term ‘‘eligible beneficiary’’
means any individual who—
(A) is entitled to benefits under part A and enrolled
for benefits under part B of title XVIII of the Social Security
Act and is not enrolled in a plan under part C of such
title; and
(B) has one or more chronic medical conditions specified
by the Secretary (one of which may be cognitive impair-
ment).
(2) HEALTH INFORMATION TECHNOLOGY.—The term ‘‘health
information technology’’ means email communication, clinical
alerts and reminders, and other information technology that
meets such functionality, interoperability, and other standards
as prescribed by the Secretary.
SEC. 650. GAO STUDY AND REPORT ON THE PROPAGATION OF CON-
CIERGE CARE.
(a) STUDY.—
(1) IN GENERAL.—The Comptroller General of the United
States shall conduct a study on concierge care (as defined
in paragraph (2)) to determine the extent to which such care—
(A) is used by medicare beneficiaries (as defined in
section 1802(b)(5)(A) of the Social Security Act (42 U.S.C.
1395a(b)(5)(A))); and
(B) has impacted upon the access of medicare bene-
ficiaries (as so defined) to items and services for which
reimbursement is provided under the medicare program
under title XVIII of the Social Security Act (42 U.S.C.
1395 et seq.).
(2) CONCIERGE CARE.—In this section, the term ‘‘concierge
care’’ means an arrangement under which, as a prerequisite
for the provision of a health care item or service to an indi-
vidual, a physician, practitioner (as described in section
1842(b)(18)(C) 
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1395u(b)(18)(C))), or other individual—
(A) charges a membership fee or another incidental
fee to an individual desiring to receive the health care
item or service from such physician, practitioner, or other
individual; or
(B) requires the individual desiring to receive the
health care item or service from such physician, practi-
tioner, or other individual to purchase an item or service.
(b) REPORT.—Not later than the date that is 12 months after
the date of enactment of this Act, the Comptroller General of
Deadline.
42 USC 1395cc
note.
Deadline.
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the United States shall submit to Congress a report on the study
conducted under subsection (a)(1) together with such recommenda-
tions for legislative or administrative action as the Comptroller
General determines to be appropriate.
SEC. 651. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERV-
ICES UNDER MEDICARE.
(a) DEFINITIONS.—In this section:
(1) CHIROPRACTIC SERVICES.—The term ‘‘chiropractic serv-
ices’’ has the meaning given that term by the Secretary for
purposes of the demonstration projects, but shall include, at
a minimum—
(A) care for neuromusculoskeletal conditions typical
among eligible beneficiaries; and
(B) diagnostic and other services that a chiropractor
is legally authorized to perform by the State or jurisdiction
in which such treatment is provided.
(2) DEMONSTRATION
PROJECT.—The term ‘‘demonstration
project’’ means a demonstration project established by the Sec-
retary under subsection (b)(1).
(3) ELIGIBLE BENEFICIARY.—The term ‘‘eligible beneficiary’’
means an individual who is enrolled under part B of the medi-
care program.
(4) MEDICARE
PROGRAM.—The term ‘‘medicare program’’
means the health benefits program under title XVIII of the
Social Security Act (42 U.S.C. 1395 et seq.).
(b) DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES
UNDER MEDICARE.—
(1) ESTABLISHMENT.—The Secretary shall establish dem-
onstration projects in accordance with the provisions of this
section for the purpose of evaluating the feasibility and advis-
ability of covering chiropractic services under the medicare
program (in addition to the coverage provided for services con-
sisting of treatment by means of manual manipulation of the
spine to correct a subluxation described in section 1861(r)(5)
of the Social Security Act (42 U.S.C. 1395x(r)(5))).
(2) NO PHYSICIAN APPROVAL REQUIRED.—In establishing the
demonstration projects, the Secretary shall ensure that an
eligible beneficiary who participates in a demonstration project,
including an eligible beneficiary who is enrolled for coverage
under a Medicare+Choice plan (or, on and after January 1,
2006, under a Medicare Advantage plan), is not required to
receive approval from a physician or other health care provider
in order to receive a chiropractic service under a demonstration
project.
(3) CONSULTATION.—In establishing the demonstration
projects, the Secretary shall consult with chiropractors,
organizations representing chiropractors, eligible beneficiaries,
and organizations representing eligible beneficiaries.
(4) PARTICIPATION.—Any eligible beneficiary may partici-
pate in the demonstration projects on a voluntary basis.
(c) CONDUCT OF DEMONSTRATION PROJECTS.—
(1) DEMONSTRATION SITES.—
(A) SELECTION
OF
DEMONSTRATION
SITES.—The Sec-
retary shall conduct demonstration projects at 4 demonstra-
tion sites.
42 USC 1395x
note.
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(B) GEOGRAPHIC DIVERSITY.—Of the sites described in
subparagraph (A)—
(i) two shall be in rural areas; and
(ii) two shall be in urban areas.
(C) SITES LOCATED IN HPSAS.—At least 1 site described
in clause (i) of subparagraph (B) and at least 1 site
described in clause (ii) of such subparagraph shall be
located in an area that is designated under section
332(a)(1)(A) of the Public Health Service Act (42 U.S.C.
254e(a)(1)(A)) as a health professional shortage area.
(2) IMPLEMENTATION; DURATION.—
(A) IMPLEMENTATION.—The Secretary shall not imple-
ment the demonstration projects before October 1, 2004.
(B) DURATION.—The Secretary shall complete the dem-
onstration projects by the date that is 2 years after the
date on which the first demonstration project is imple-
mented.
(d) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall conduct an evalua-
tion of the demonstration projects—
(A) to determine whether eligible beneficiaries who
use chiropractic services use a lesser overall amount of
items and services for which payment is made under the
medicare program than eligible beneficiaries who do not
use such services;
(B) to determine the cost of providing payment for
chiropractic services under the medicare program;
(C) to determine the satisfaction of eligible beneficiaries
participating in the demonstration projects and the quality
of care received by such beneficiaries; and
(D) to evaluate such other matters as the Secretary
determines is appropriate.
(2) REPORT.—Not later than the date that is 1 year after
the date on which the demonstration projects conclude, the
Secretary shall submit to Congress a report on the evaluation
conducted under paragraph (1) together with such recommenda-
tions for legislation or administrative action as the Secretary
determines is appropriate.
(e) WAIVER OF MEDICARE REQUIREMENTS.—The Secretary shall
waive compliance with such requirements of the medicare program
to the extent and for the period the Secretary finds necessary
to conduct the demonstration projects.
(f) FUNDING.—
(1) DEMONSTRATION PROJECTS.—
(A) IN
GENERAL.—Subject to subparagraph (B) and
paragraph (2), the Secretary shall provide for the transfer
from the Federal Supplementary Insurance Trust Fund
under section 1841 of the Social Security Act (42 U.S.C.
1395t) of such funds as are necessary for the costs of
carrying out the demonstration projects under this section.
(B) LIMITATION.—In conducting the demonstration
projects under this section, the Secretary shall ensure that
the aggregate payments made by the Secretary under the
medicare program do not exceed the amount which the
Secretary would have paid under the medicare program
if the demonstration projects under this section were not
implemented.
Deadline.
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(2) EVALUATION AND REPORT.—There are authorized to be
appropriated such sums as are necessary for the purpose of
developing and submitting the report to Congress under sub-
section (d).
TITLE VII—PROVISIONS RELATING TO
PARTS A AND B
Subtitle A—Home Health Services
SEC. 701. UPDATE IN HOME HEALTH SERVICES.
(a) CHANGE TO CALENDAR YEAR UPDATE.—Section 1895(b) (42
U.S.C. 1395fff(b)(3)) is amended—
(1) in paragraph (3)(B)(i)—
(A) by striking ‘‘each fiscal year (beginning with fiscal
year 2002)’’ and inserting ‘‘fiscal year 2002 and for fiscal
year 2003 and for each subsequent year (beginning with
2004)’’; and
(B) by inserting ‘‘or year’’ after ‘‘the fiscal year’’;
(2) in paragraph (3)(B)(ii)—
(A) in subclause (I), by striking ‘‘or’’ at the end;
(B) by redesignating subclause (II) as subclause (III);
(C) in subclause (III), as so redesignated, by striking
‘‘any subsequent fiscal year’’ and inserting ‘‘2004 and any
subsequent year’’; and
(D) by inserting after subclause (I) the following new
subclause:
‘‘(II) for the last calendar quarter of 2003 and
the first calendar quarter of 2004, the home health
market basket percentage increase; or’’;
(3) in paragraph (3)(B)(iii), by inserting ‘‘or year’’ after
‘‘fiscal year’’ each place it appears; and
(4) in paragraph (3)(B)(iv)—
(A) by inserting ‘‘or year’’ after ‘‘fiscal year’’ each place
it appears; and
(B) by inserting ‘‘or years’’ after ‘‘fiscal years’’; and
(5) in paragraph (5), by inserting ‘‘or year’’ after ‘‘fiscal
year’’.
(b) ADJUSTMENT
TO UPDATES
FOR 2004, 2005, AND 2006.—
Section 1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended
by subsection (a)(2), is amended—
(1) by striking ‘‘or’’ at the end of subclause (II);
(2) by redesignating subclause (III) as subclause (IV);
(3) in subclause (IV), as so redesignated, by striking ‘‘2004’’
and inserting ‘‘2007’’; and
(4) by inserting after subclause (II) the following new sub-
clause:
‘‘(III) the last 3 calendar quarters of 2004,
and each of 2005 and 2006 the home health market
basket percentage increase minus 0.8 percentage
points; or’’.
Appropriation
authorization.
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SEC. 702. DEMONSTRATION PROJECT TO CLARIFY THE DEFINITION
OF HOMEBOUND.
(a) DEMONSTRATION PROJECT.—Not later than 180 days after
the date of the enactment of this Act, the Secretary shall conduct
a 2-year demonstration project under part B of title XVIII of the
Social Security Act under which medicare beneficiaries with chronic
conditions described in subsection (b) are deemed to be homebound
for purposes of receiving home health services under the medicare
program.
(b) MEDICARE BENEFICIARY DESCRIBED.—For purposes of sub-
section (a), a medicare beneficiary is eligible to be deemed to be
homebound, without regard to the purpose, frequency, or duration
of absences from the home, if—
(1) the beneficiary has been certified by one physician
as an individual who has a permanent and severe, disabling
condition that is not expected to improve;
(2) the beneficiary is dependent upon assistance from
another individual with at least 3 out of the 5 activities of
daily living for the rest of the beneficiary’s life;
(3) the beneficiary requires skilled nursing services for
the rest of the beneficiary’s life and the skilled nursing is
more than medication management;
(4) an attendant is required to visit the beneficiary on
a daily basis to monitor and treat the beneficiary’s medical
condition or to assist the beneficiary with activities of daily
living;
(5) the beneficiary requires technological assistance or the
assistance of another person to leave the home; and
(6) the beneficiary does not regularly work in a paid posi-
tion full-time or part-time outside the home.
(c) DEMONSTRATION PROJECT SITES.—The demonstration project
established under this section shall be conducted in 3 States selected
by the Secretary to represent the Northeast, Midwest, and Western
regions of the United States.
(d) LIMITATION ON NUMBER OF PARTICIPANTS.—The aggregate
number of such beneficiaries that may participate in the project
may not exceed 15,000.
(e) DATA.—The Secretary shall collect such data on the dem-
onstration project with respect to the provision of home health
services to medicare beneficiaries that relates to quality of care,
patient outcomes, and additional costs, if any, to the medicare
program.
(f) REPORT TO CONGRESS.—Not later than 1 year after the
date of the completion of the demonstration project under this
section, the Secretary shall submit to Congress a report on the
project using the data collected under subsection (e). The report
shall include the following:
(1) An examination of whether the provision of home health
services to medicare beneficiaries under the project has had
any of the following effects:
(A) Has adversely affected the provision of home health
services under the medicare program.
(B) Has directly caused an increase of expenditures
under the medicare program for the provision of such serv-
ices that is directly attributable to such clarification.
Deadline.
Deadline.
42 USC 1395x
note.
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(2) The specific data evidencing the amount of any increase
in expenditures that is directly attributable to the demonstra-
tion project (expressed both in absolute dollar terms and as
a percentage) above expenditures that would otherwise have
been incurred for home health services under the medicare
program.
(3) Specific recommendations to exempt permanently and
severely disabled homebound beneficiaries from restrictions on
the length, frequency, and purpose of their absences from the
home to qualify for home health services without incurring
additional costs to the medicare program.
(g) WAIVER AUTHORITY.—The Secretary shall waive compliance
with the requirements of title XVIII of the Social Security Act
(42 U.S.C. 1395 et seq.) to such extent and for such period as
the Secretary determines is necessary to conduct demonstration
projects.
(h) CONSTRUCTION.—Nothing in this section shall be construed
as waiving any applicable civil monetary penalty, criminal penalty,
or other remedy available to the Secretary under title XI or title
XVIII of the Social Security Act for acts prohibited under such
titles, including penalties for false certifications for purposes of
receipt of items or services under the medicare program.
(i) AUTHORIZATION OF APPROPRIATIONS.—Payments for the costs
of carrying out the demonstration project under this section shall
be made from the Federal Supplementary Medical Insurance Trust
Fund under section 1841 of such Act (42 U.S.C. 1395t).
(j) DEFINITIONS.—In this section:
(1) MEDICARE
BENEFICIARY.—The term ‘‘medicare bene-
ficiary’’ means an individual who is enrolled under part B
of title XVIII of the Social Security Act.
(2) HOME HEALTH SERVICES.—The term ‘‘home health serv-
ices’’ has the meaning given such term in section 1861(m)
of the Social Security Act (42 U.S.C. 1395x(m)).
(3) ACTIVITIES OF DAILY LIVING DEFINED.—The term ‘‘activi-
ties of daily living’’ means eating, toileting, transferring,
bathing, and dressing.
SEC. 703. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY-CARE
SERVICES.
(a) ESTABLISHMENT.—Subject to the succeeding provisions of
this section, the Secretary shall establish a demonstration project
(in this section 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.—Subject to paragraph (2), 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 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
42 USC 1395fff
note.
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under arrangements with a home health agency, separately
charge a beneficiary for medical adult day-care services fur-
nished under the plan of care.
(2) ADJUSTMENT
IN
CASE
OF
OVERUTILIZATION
OF
SUB-
STITUTE ADULT DAY-CARE SERVICES TO ENSURE BUDGET NEU-
TRALITY.—The Secretary shall monitor the expenditures under
the demonstration project and under title XVIII of the Social
Security Act for home health services. If the Secretary estimates
that the total expenditures under the demonstration project
and under such title XVIII for home health services for a
period determined by the Secretary exceed expenditures that
would have been made under such title XVIII for home health
services for such period if the demonstration project had not
been conducted, the Secretary shall adjust the rate of payment
to medical adult day-care facilities under paragraph (1) in
order to eliminate such excess.
(c) DEMONSTRATION PROJECT SITES.—The demonstration project
established 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 demonstration
project for a period of 3 years.
(e) VOLUNTARY PARTICIPATION.—Participation of medicare bene-
ficiaries 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 selecting home
health agencies to participate under the demonstration project,
the Secretary shall give preference to those agencies that are cur-
rently licensed or certified through common ownership and control
to furnish medical adult day-care services.
(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 home-
bound 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 than 6 months after the completion of the project,
the Secretary shall submit to Congress a report on the evaluation,
and shall include in the report the following:
(1) An analysis of the patient outcomes and costs of fur-
nishing care to the medicare beneficiaries participating in the
project as compared to such outcomes and costs to beneficiaries
receiving only home health services for the same health condi-
tions.
(2) Such recommendations regarding the extension, expan-
sion, or termination of the project as the Secretary determines
appropriate.
(i) DEFINITIONS.—In this section:
(1) HOME
HEALTH
AGENCY.—The term ‘‘home health
agency’’ has the meaning given such term in section 1861(o)
of the Social Security Act (42 U.S.C. 1395x(o)).
(2) MEDICAL ADULT DAY-CARE FACILITY.—The term ‘‘medical
adult day-care facility’’ means a facility that—
Deadline.
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117 STAT. 2338
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(A) has been licensed or certified by a State to furnish
medical adult day-care services in the State for a contin-
uous 2-year period;
(B) is engaged in providing skilled nursing services
and other therapeutic services directly or under arrange-
ment with a home health agency;
(C) is licensed and certified by the State in which
it operates or meets such standards established by the
Secretary to assure quality of care and such other require-
ments as the Secretary finds necessary in the interest
of the health and safety of individuals who are furnished
services in the facility; and
(D) provides medical adult day-care services.
(3) MEDICAL ADULT DAY-CARE SERVICES.—The term ‘‘med-
ical adult day-care services’’ means—
(A) home health service items and services described
in paragraphs (1) through (7) of section 1861(m) furnished
in a medical adult day-care facility;
(B) a program of supervised activities furnished in
a group setting in the facility that—
(i) meet such criteria as the Secretary determines
appropriate; and
(ii) is designed to promote physical and mental
health of the individuals; and
(C) such other services as the Secretary may specify.
(4) MEDICARE
BENEFICIARY.—The term ‘‘medicare bene-
ficiary’’ means an individual entitled to benefits under part
A of this title, enrolled under part B of this title, or both.
SEC. 704. TEMPORARY SUSPENSION OF OASIS REQUIREMENT FOR
COLLECTION OF DATA ON NON-MEDICARE AND NON-
MEDICAID PATIENTS.
(a) IN GENERAL.—During the period described in subsection
(b), the Secretary may not require, under section 4602(e) of the
Balanced Budget Act of 1997 (Public Law 105–33; 111 Stat. 467)
or otherwise 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 (such information in this section referred to as ‘‘non-
medicare/medicaid OASIS information’’).
(b) PERIOD
OF SUSPENSION.—The period described in this
subsection—
(1) begins on the date of the enactment of this Act; and
(2) ends on the last day of the second month beginning
after the date as of which the Secretary has published final
regulations regarding the collection and use by the Centers
for Medicare & Medicaid Services of non-medicare/medicaid
OASIS information following the submission of the report
required under subsection (c).
(c) REPORT.—
(1) STUDY.—The Secretary shall conduct a study on how
non-medicare/medicaid OASIS information is and can be used
by large home health agencies. Such study shall examine—
(A) whether there are unique benefits from the analysis
of such information that cannot be derived from other
information available to, or collected by, such agencies;
and
42 USC 1395fff
note.
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(B) the value of collecting such information by small
home health agencies compared to the administrative bur-
den related to such collection.
In conducting the study the Secretary shall obtain recommenda-
tions from quality assessment experts in the use of such
information and the necessity of small, as well as large, home
health agencies collecting such information.
(2) REPORT.—The Secretary shall submit to Congress a
report on the study conducted under paragraph (1) by not
later than 18 months after the date of the enactment of this
Act.
(d) CONSTRUCTION.—Nothing in this section shall be construed
as preventing home health agencies from collecting non-medicare/
medicaid OASIS information for their own use.
SEC. 705. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH
AGENCIES.
(a) STUDY.—The Medicare Payment Advisory Commission shall
conduct a study of payment margins of home health agencies under
the home health prospective payment system under section 1895
of the Social Security Act (42 U.S.C. 1395fff). Such study shall
examine whether systematic differences in payment margins are
related to differences 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 agen-
cies.
(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).
SEC. 706. COVERAGE OF RELIGIOUS NONMEDICAL HEALTH CARE
INSTITUTION SERVICES FURNISHED IN THE HOME.
(a) IN GENERAL.—Section 1821(a) (42 U.S.C. 1395i–5(a)) is
amended—
(1) in the matter preceding paragraph (1), by inserting
‘‘and for home health services furnished an individual by a
religious nonmedical health care institution’’ after ‘‘religious
nonmedical health care institution’’; and
(2) in paragraph (2)—
(A) by striking ‘‘or extended care services’’ and
inserting ‘‘, extended care services, or home health serv-
ices’’; and
(B) by inserting ‘‘, or receiving services from a home
health agency,’’ after ‘‘skilled nursing facility’’.
(b) DEFINITION.—Section 1861 (42 U.S.C. 1395x), as amended
by section 642, is amended by adding at the end the following
new section:
‘‘Extended Care in Religious Nonmedical Health Care Institutions
‘‘(aaa)(1) The term ‘home health agency’ also includes a religious
nonmedical health care institution (as defined in subsection (ss)(1)),
but only with respect to items and services ordinarily furnished
by such an institution to individuals in their homes, and that
are comparable to items and services furnished to individuals by
a home health agency that is not religious nonmedical health care
institution.
Deadline.
42 USC 1395fff
note.
Deadline.
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‘‘(2)(A) Subject to subparagraphs (B), payment may be made
with respect to services provided by such an institution only to
such extent and under such conditions, limitations, and require-
ments (in addition to or in lieu of the conditions, limitations, and
requirements otherwise applicable) as may be provided in regula-
tions consistent with section 1821.
‘‘(B) Notwithstanding any other provision of this title, payment
may not be made under subparagraph (A)—
‘‘(i) in a year insofar as such payments exceed $700,000;
and
‘‘(ii) after December 31, 2006.’’.
Subtitle B—Graduate Medical Education
SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH COST PRO-
GRAMS.
Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) is
amended—
(1) in subclause (I)—
(A) by inserting ‘‘AND 2004 THROUGH 2013’’ after ‘‘AND
2002’’; and
(B) by inserting ‘‘or during the period beginning with
fiscal year 2004 and ending with fiscal year 2013’’ after
‘‘during fiscal year 2001 or fiscal year 2002’’; and
(2) in subclause (II)—
(A) by striking ‘‘fiscal year 2004, or fiscal year 2005,’’
and
(B) by striking ‘‘For a’’ and inserting ‘‘For the’’.
SEC. 712. EXCEPTION TO INITIAL RESIDENCY PERIOD FOR GERIATRIC
RESIDENCY OR FELLOWSHIP PROGRAMS.
(a) CLARIFICATION
OF
CONGRESSIONAL
INTENT.—Congress
intended section 1886(h)(5)(F)(ii) of the Social Security Act (42
U.S.C. 1395ww(h)(5)(F)(ii)), as added by section 9202 of the Consoli-
dated Omnibus Budget Reconciliation Act of 1985 (Public Law
99–272), to provide an exception to the initial residency period
for geriatric residency or fellowship programs such that, where
a particular approved geriatric training program requires a resident
to complete 2 years of training to initially become board eligible
in the geriatric specialty, the 2 years spent in the geriatric training
program are treated as part of the resident’s initial residency period,
but are not counted against any limitation on the initial residency
period.
(b) INTERIM FINAL REGULATORY AUTHORITY
AND EFFECTIVE
DATE.—The Secretary shall promulgate interim final regulations
consistent with the congressional intent expressed in this section
after notice and pending opportunity for public comment to be
effective for cost reporting periods beginning on or after October
1, 2003.
SEC. 713. TREATMENT OF VOLUNTEER SUPERVISION.
(a) MORATORIUM ON CHANGES IN TREATMENT.—During the 1-
year period beginning on January 1, 2004, for purposes of applying
subsections (d)(5)(B) and (h) of section 1886 of the Social Security
Act (42 U.S.C. 1395ww), the Secretary shall allow all hospitals
to count residents in osteopathic and allopathic family practice
programs in existence as of January 1, 2002, who are training
Effective date.
Applicability.
42 USC 1395ww
note.
42 USC 1395ww
note.
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at non-hospital sites, without regard to the financial arrangement
between the hospital and the teaching physician practicing in the
non-hospital site to which the resident has been assigned.
(b) STUDY AND REPORT.—
(1) STUDY.—The Inspector General of the Department of
Health and Human Services shall conduct a study of the appro-
priateness of alternative payment methodologies under such
sections for the costs of training residents in non-hospital set-
tings.
(2) REPORT.—Not later than 1 year after the date of the
enactment of this Act, the Inspector General shall submit to
Congress a report on the study conducted under paragraph
(1), together with such recommendations as the Inspector Gen-
eral determines appropriate.
Subtitle C—Chronic Care Improvement
SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT UNDER TRADI-
TIONAL FEE-FOR-SERVICE.
(a) IN GENERAL.—Title XVIII is amended by inserting after
section 1806 the following new section:
‘‘CHRONIC CARE IMPROVEMENT
‘‘SEC. 1807. (a) IMPLEMENTATION OF CHRONIC CARE IMPROVE-
MENT PROGRAMS.—
‘‘(1) IN
GENERAL.—The Secretary shall provide for the
phased-in development, testing, evaluation, and implementa-
tion of chronic care improvement programs in accordance with
this section. Each such program shall be designed to improve
clinical quality and beneficiary satisfaction and achieve
spending targets with respect to expenditures under this title
for targeted beneficiaries with one or more threshold conditions.
‘‘(2) DEFINITIONS.—For purposes of this section:
‘‘(A) CHRONIC CARE IMPROVEMENT PROGRAM.—The term
‘chronic care improvement program’ means a program
described in paragraph (1) that is offered under an agree-
ment under subsection (b) or (c).
‘‘(B) CHRONIC CARE IMPROVEMENT ORGANIZATION.—The
term ‘chronic care improvement organization’ means an
entity that has entered into an agreement under subsection
(b) or (c) to provide, directly or through contracts with
subcontractors, a chronic care improvement program under
this section. Such an entity may be a disease management
organization, health insurer, integrated delivery system,
physician group practice, a consortium of such entities,
or any other legal entity that the Secretary determines
appropriate to carry out a chronic care improvement pro-
gram under this section.
‘‘(C) 
CARE
MANAGEMENT
PLAN.—The 
term 
‘care
management plan’ means a plan established under sub-
section (d) for a participant in a chronic care improvement
program.
‘‘(D) THRESHOLD
CONDITION.—The term ‘threshold
condition’ means a chronic condition, such as congestive
heart failure, diabetes, chronic obstructive pulmonary dis-
ease (COPD), or other diseases or conditions, as selected
42 USC 1395b–8.
Deadline.
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by the Secretary as appropriate for the establishment of
a chronic care improvement program.
‘‘(E) TARGETED BENEFICIARY.—The term ‘targeted bene-
ficiary’ means, with respect to a chronic care improvement
program, an individual who—
‘‘(i) is entitled to benefits under part A and enrolled
under part B, but not enrolled in a plan under part
C;
‘‘(ii) has one or more threshold conditions covered
under such program; and
‘‘(iii) has been identified under subsection (d)(1)
as a potential participant in such program.
‘‘(3) CONSTRUCTION.—Nothing in this section shall be con-
strued as—
‘‘(A) expanding the amount, duration, or scope of bene-
fits under this title;
‘‘(B) providing an entitlement to participate in a chronic
care improvement program under this section;
‘‘(C) providing for any hearing or appeal rights under
section 1869, 1878, or otherwise, with respect to a chronic
care improvement program under this section; or
‘‘(D) providing benefits under a chronic care improve-
ment program for which a claim may be submitted to
the Secretary by any provider of services or supplier (as
defined in section 1861(d)).
‘‘(b) DEVELOPMENTAL PHASE (PHASE I).—
‘‘(1) IN GENERAL.—In carrying out this section, the Sec-
retary shall enter into agreements consistent with subsection
(f) with chronic care improvement organizations for the develop-
ment, testing, and evaluation of chronic care improvement pro-
grams using randomized controlled trials. The first such agree-
ment shall be entered into not later than 12 months after
the date of the enactment of this section.
‘‘(2) AGREEMENT
PERIOD.—The period of an agreement
under this subsection shall be for 3 years.
‘‘(3) MINIMUM PARTICIPATION.—
‘‘(A) IN GENERAL.—The Secretary shall enter into agree-
ments under this subsection in a manner so that chronic
care improvement programs offered under this section are
offered in geographic areas that, in the aggregate, consist
of areas in which at least 10 percent of the aggregate
number of medicare beneficiaries reside.
‘‘(B) MEDICARE BENEFICIARY DEFINED.—In this para-
graph, the term ‘medicare beneficiary’ means an individual
who is entitled to benefits under part A, enrolled under
part B, or both, and who resides in the United States.
‘‘(4) SITE
SELECTION.—In selecting geographic areas in
which agreements are entered into under this subsection, the
Secretary shall ensure that each chronic care improvement
program is conducted in a geographic area in which at least
10,000 targeted beneficiaries reside among other individuals
entitled to benefits under part A, enrolled under part B, or
both to serve as a control population.
‘‘(5) INDEPENDENT EVALUATIONS OF PHASE I PROGRAMS.—
The Secretary shall contract for an independent evaluation
of the programs conducted under this subsection. Such evalua-
tion shall be done by a contractor with knowledge of chronic
Deadline.
Contracts.
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care management programs and demonstrated experience in
the evaluation of such programs. Each evaluation shall include
an assessment of the following factors of the programs:
‘‘(A) Quality improvement measures, such as adherence
to evidence-based guidelines and rehospitalization rates.
‘‘(B) Beneficiary and provider satisfaction.
‘‘(C) Health outcomes.
‘‘(D) Financial outcomes, including any cost savings
to the program under this title.
‘‘(c) EXPANDED IMPLEMENTATION PHASE (PHASE II).—
‘‘(1) IN GENERAL.—With respect to chronic care improve-
ment programs conducted under subsection (b), if the Secretary
finds that the results of the independent evaluation conducted
under subsection (b)(6) indicate that the conditions specified
in paragraph (2) have been met by a program (or components
of such program), the Secretary shall enter into agreements
consistent with subsection (f) to expand the implementation
of the program (or components) to additional geographic areas
not covered under the program as conducted under subsection
(b), which may include the implementation of the program
on a national basis. Such expansion shall begin not earlier
than 2 years after the program is implemented under subsection
(b) and not later than 6 months after the date of completion
of such program.
‘‘(2) CONDITIONS FOR EXPANSION OF PROGRAMS.—The condi-
tions specified in this paragraph are, with respect to a chronic
care improvement program conducted under subsection (b) for
a threshold condition, that the program is expected to—
‘‘(A) improve the clinical quality of care;
‘‘(B) improve beneficiary satisfaction; and
‘‘(C) achieve targets for savings to the program under
this title specified by the Secretary in the agreement within
a range determined to be appropriate by the Secretary,
subject to the application of budget neutrality with respect
to the program and not taking into account any payments
by the organization under the agreement under the pro-
gram for risk under subsection (f)(3)(B).
‘‘(3) INDEPENDENT EVALUATIONS OF PHASE II PROGRAMS.—
The Secretary shall carry out evaluations of programs expanded
under this subsection as the Secretary determines appropriate.
Such evaluations shall be carried out in the similar manner
as is provided under subsection (b)(5).
‘‘(d) IDENTIFICATION AND ENROLLMENT OF PROSPECTIVE PRO-
GRAM PARTICIPANTS.—
‘‘(1) IDENTIFICATION
OF
PROSPECTIVE
PROGRAM
PARTICI-
PANTS.—The Secretary shall establish a method for identifying
targeted beneficiaries who may benefit from participation in
a chronic care improvement program.
‘‘(2) INITIAL CONTACT BY SECRETARY.—The Secretary shall
communicate with each targeted beneficiary concerning partici-
pation in a chronic care improvement program. Such commu-
nication may be made by the Secretary and shall include
information on the following:
‘‘(A) A description of the advantages to the beneficiary
in participating in a program.
Procedures.
Effective date.
Contracts.
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‘‘(B) Notification that the organization offering a pro-
gram may contact the beneficiary directly concerning such
participation.
‘‘(C) Notification that participation in a program is
voluntary.
‘‘(D) A description of the method for the beneficiary
to participate or for declining to participate and the method
for obtaining additional information concerning such
participation.
‘‘(3) VOLUNTARY
PARTICIPATION.—A targeted beneficiary
may participate in a chronic care improvement program on
a voluntary basis and may terminate participation at any time.
‘‘(e) CHRONIC CARE IMPROVEMENT PROGRAMS.—
‘‘(1) IN GENERAL.—Each chronic care improvement program
shall—
‘‘(A) have a process to screen each targeted beneficiary
for conditions other than threshold conditions, such as
impaired cognitive ability and co-morbidities, for the pur-
poses of developing an individualized, goal-oriented care
management plan under paragraph (2);
‘‘(B) provide each targeted beneficiary participating in
the program with such plan; and
‘‘(C) carry out such plan and other chronic care
improvement activities in accordance with paragraph (3).
‘‘(2) ELEMENTS
OF
CARE
MANAGEMENT
PLANS.—A care
management plan for a targeted beneficiary shall be developed
with the beneficiary and shall, to the extent appropriate,
include the following:
‘‘(A) A designated point of contact responsible for
communications with the beneficiary and for facilitating
communications with other health care providers under
the plan.
‘‘(B) Self-care education for the beneficiary (through
approaches such as disease management or medical nutri-
tion therapy) and education for primary caregivers and
family members.
‘‘(C) Education for physicians and other providers and
collaboration to enhance communication of relevant clinical
information.
‘‘(D) The use of monitoring technologies that enable
patient guidance through the exchange of pertinent clinical
information, such as vital signs, symptomatic information,
and health self-assessment.
‘‘(E) The provision of information about hospice care,
pain and palliative care, and end-of-life care.
‘‘(3) CONDUCT OF PROGRAMS.—In carrying out paragraph
(1)(C) with respect to a participant, the chronic care improve-
ment organization shall—
‘‘(A) guide the participant in managing the participant’s
health (including all co-morbidities, relevant health care
services, and pharmaceutical needs) and in performing
activities as specified under the elements of the care
management plan of the participant;
‘‘(B) use decision-support tools such as evidence-based
practice guidelines or other criteria as determined by the
Secretary; and
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117 STAT. 2345
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‘‘(C) develop a clinical information database to track
and monitor each participant across settings and to
evaluate outcomes.
‘‘(4) ADDITIONAL RESPONSIBILITIES.—
‘‘(A) OUTCOMES REPORT.—Each chronic care improve-
ment organization offering a chronic care improvement pro-
gram shall monitor and report to the Secretary, in a
manner specified by the Secretary, on health care quality,
cost, and outcomes.
‘‘(B) ADDITIONAL REQUIREMENTS.—Each such organiza-
tion and program shall comply with such additional
requirements as the Secretary may specify.
‘‘(5) ACCREDITATION.—The Secretary may provide that
chronic care improvement programs and chronic care improve-
ment organizations that are accredited by qualified organiza-
tions (as defined by the Secretary) may be deemed to meet
such requirements under this section as the Secretary may
specify.
‘‘(f) TERMS OF AGREEMENTS.—
‘‘(1) TERMS AND CONDITIONS.—
‘‘(A) IN GENERAL.—An agreement under this section
with a chronic care improvement organization shall contain
such terms and conditions as the Secretary may specify
consistent with this section.
‘‘(B) CLINICAL, QUALITY IMPROVEMENT, AND FINANCIAL
REQUIREMENTS.—The Secretary may not enter into an
agreement with such an organization under this section
for the operation of a chronic care improvement program
unless—
‘‘(i) the program and organization meet the require-
ments of subsection (e) and such clinical, quality
improvement, financial, and other requirements as the
Secretary deems to be appropriate for the targeted
beneficiaries to be served; and
‘‘(ii) the organization demonstrates to the satisfac-
tion of the Secretary that the organization is able
to assume financial risk for performance under the
agreement (as applied under paragraph (3)(B)) with
respect to payments made to the organization under
such agreement through available reserves, reinsur-
ance, withholds, or such other means as the Secretary
determines appropriate.
‘‘(2) MANNER OF PAYMENT.—Subject to paragraph (3)(B),
the payment under an agreement under—
‘‘(A) subsection (b) shall be computed on a per-member
per-month basis; or
‘‘(B) subsection (c) may be on a per-member per-month
basis or such other basis as the Secretary and organization
may agree.
‘‘(3) APPLICATION OF PERFORMANCE STANDARDS.—
‘‘(A) SPECIFICATION
OF
PERFORMANCE
STANDARDS.—
Each agreement under this section with a chronic care
improvement organization shall specify performance stand-
ards for each of the factors specified in subsection (c)(2),
including clinical quality and spending targets under this
title, against which the performance of the chronic care
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improvement organization under the agreement is meas-
ured.
‘‘(B) ADJUSTMENT
OF
PAYMENT
BASED
ON
PERFORM-
ANCE.—
‘‘(i) IN GENERAL.—Each such agreement shall pro-
vide for adjustments in payment rates to an organiza-
tion under the agreement insofar as the Secretary
determines that the organization failed to meet the
performance standards specified in the agreement
under subparagraph (A).
‘‘(ii) FINANCIAL RISK FOR PERFORMANCE.—In the
case of an agreement under subsection (b) or (c), the
agreement shall provide for a full recovery for any
amount by which the fees paid to the organization
under the agreement exceed the estimated savings to
the 
programs 
under 
this 
title 
attributable 
to
implementation of such agreement.
‘‘(4) BUDGET
NEUTRAL
PAYMENT
CONDITION.—Under this
section, the Secretary shall ensure that the aggregate sum
of medicare program benefit expenditures for beneficiaries
participating in chronic care improvement programs and funds
paid to chronic care improvement organizations under this sec-
tion, shall not exceed the medicare program benefit expendi-
tures that the Secretary estimates would have been made for
such targeted beneficiaries in the absence of such programs.
‘‘(g) FUNDING.—(1) Subject to paragraph (2), there are appro-
priated to the Secretary, in appropriate part from the Federal
Hospital Insurance Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund, such sums as may be necessary
to provide for agreements with chronic care improvement programs
under this section.
‘‘(2) In no case shall the funding under this section exceed
$100,000,000 in aggregate increased expenditures under this title
(after taking into account any savings attributable to the operation
of this section) over the 3-fiscal-year period beginning on October
1, 2003.’’.
(b) REPORTS.—The Secretary shall submit to Congress reports
on the operation of section 1807 of the Social Security Act, as
added by subsection (a), as follows:
(1) Not later than 2 years after the date of the implementa-
tion of such section, the Secretary shall submit to Congress
an interim report on the scope of implementation of the pro-
grams under subsection (b) of such section, the design of the
programs, and preliminary cost and quality findings with
respect to those programs based on the following measures
of the programs:
(A) Quality improvement measures, such as adherence
to evidence-based guidelines and rehospitalization rates.
(B) Beneficiary and provider satisfaction.
(C) Health outcomes.
(D) Financial outcomes.
(2) Not later than 3 years and 6 months after the date
of the implementation of such section the Secretary shall submit
to Congress an update to the report required under paragraph
(1) on the results of such programs.
(3) The Secretary shall submit to Congress 2 additional
biennial reports on the chronic care improvement programs
Deadlines.
42 USC 1395b–8
note.
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117 STAT. 2347
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conducted under such section. The first such report shall be
submitted not later than 2 years after the report is submitted
under paragraph (2). Each such report shall include information
on—
(A) the scope of implementation (in terms of both
regions and chronic conditions) of the chronic care improve-
ment programs;
(B) the design of the programs; and
(C) the improvements in health outcomes and financial
efficiencies that result from such implementation.
SEC. 722. MEDICARE ADVANTAGE QUALITY IMPROVEMENT PROGRAMS.
(a) IN GENERAL.—Section 1852(e) (42 U.S.C. 1395w–22(e)) is
amended—
(1) in the heading, by striking ‘‘ASSURANCE’’ and inserting
‘‘IMPROVEMENT’’;
(2) by amending paragraphs (1) through (3) to read as
follows:
‘‘(1) IN GENERAL.—Each MA organization shall have an
ongoing quality improvement program for the purpose of
improving the quality of care provided to enrollees in each
MA plan offered by such organization (other than an MA private
fee-for-service plan or an MSA plan).
‘‘(2) CHRONIC CARE IMPROVEMENT PROGRAMS.—As part of
the quality improvement program under paragraph (1), each
MA organization shall have a chronic care improvement pro-
gram. Each chronic care improvement program shall have a
method for monitoring and identifying enrollees with multiple
or sufficiently severe chronic conditions that meet criteria estab-
lished by the organization for participation under the program.
‘‘(3) DATA.—
‘‘(A) COLLECTION, ANALYSIS, AND REPORTING.—
‘‘(i) IN GENERAL.—Except as provided in clauses
(ii) and (iii) with respect to plans described in such
clauses and subject to subparagraph (B), as part of
the quality improvement program under paragraph (1),
each MA organization shall provide for the collection,
analysis, and reporting of data that permits the
measurement of health outcomes and other indices
of quality.
‘‘(ii) APPLICATION
TO
MA
REGIONAL
PLANS.—The
Secretary shall establish as appropriate by regulation
requirements for the collection, analysis, and reporting
of data that permits the measurement of health out-
comes and other indices of quality for MA organizations
with respect to MA regional plans. Such requirements
may not exceed the requirements under this subpara-
graph with respect to MA local plans that are preferred
provider organization plans.
‘‘(iii) 
APPLICATION
TO
PREFERRED
PROVIDER
ORGANIZATIONS.—Clause 
(i) 
shall 
apply 
to 
MA
organizations with respect to MA local plans that are
preferred provider organization plans only insofar as
services are furnished by providers or services, physi-
cians, and other health care practitioners and suppliers
that have contracts with such organization to furnish
services under such plans.
Regulations.
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117 STAT. 2348
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‘‘(iv) 
DEFINITION
OF
PREFERRED
PROVIDER
ORGANIZATION PLAN.—In this subparagraph, the term
‘preferred provider organization plan’ means an MA
plan that—
‘‘(I) has a network of providers that have
agreed to a contractually specified reimbursement
for covered benefits with the organization offering
the plan;
‘‘(II) provides for reimbursement for all covered
benefits regardless of whether such benefits are
provided within such network of providers; and
‘‘(III) is offered by an organization that is not
licensed or organized under State law as a health
maintenance organization.
‘‘(B) LIMITATIONS.—
‘‘(i) TYPES OF DATA.—The Secretary shall not collect
under subparagraph (A) data on quality, outcomes,
and beneficiary satisfaction to facilitate consumer
choice and program administration other than the
types of data that were collected by the Secretary
as of November 1, 2003.
‘‘(ii) CHANGES IN TYPES OF DATA.—Subject to sub-
clause (iii), the Secretary may only change the types
of data that are required to be submitted under
subparagraph (A) after submitting to Congress a report
on the reasons for such changes that was prepared
in consultation with MA organizations and private
accrediting bodies.
‘‘(iii) CONSTRUCTION.—Nothing in the subsection
shall be construed as restricting the ability of the
Secretary to carry out the duties under section
1851(d)(4)(D).’’;
(3) in paragraph (4)(B)—
(A) by amending clause (i) to read as follows:
‘‘(i) Paragraphs (1) through (3) of this subsection
(relating to quality improvement programs).’’; and
(B) by adding at the end the following new clause:
‘‘(vii) The requirements described in section
1860D–4(j), to the extent such requirements apply
under section 1860D–21(c).’’; and
(4) by striking paragraph (5).
(b) CONFORMING AMENDMENT.—Section 1852(c)(1)(I) (42 U.S.C.
1395w–22(c)(1)(I)) is amended to read as follows:
‘‘(I) QUALITY IMPROVEMENT PROGRAM.—A description
of the organization’s quality improvement program under
subsection (e).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to contract years beginning on and after
January 1, 2006.
SEC. 723. CHRONICALLY ILL MEDICARE BENEFICIARY RESEARCH,
DATA, DEMONSTRATION STRATEGY.
(a) DEVELOPMENT OF PLAN.—Not later than 6 months after
the date of the enactment of this Act, the Secretary shall develop
a plan to improve quality of care and reduce the cost of care
for chronically ill medicare beneficiaries.
Deadline.
42 USC 1395b–8
note.
42 USC
1395w–22 note.
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(b) PLAN REQUIREMENTS.—The plan will utilize existing data
and identify data gaps, develop research initiatives, and propose
intervention demonstration programs to provide better health care
for chronically ill medicare beneficiaries. The plan shall—
(1) integrate existing data sets including, the Medicare
Current Beneficiary Survey (MCBS), Minimum Data Set (MDS),
Outcome and Assessment Information Set (OASIS), data from
Quality Improvement Organizations (QIO), and claims data;
(2) identify any new data needs and a methodology to
address new data needs;
(3) plan for the collection of such data in a data warehouse;
and
(4) develop a research agenda using such data.
(c) CONSULTATION.—In developing the plan under this section,
the Secretary shall consult with experts in the fields of care for
the chronically ill (including clinicians).
(d) IMPLEMENTATION.—Not later than 2 years after the date
of the enactment of this Act, the Secretary shall implement the
plan developed under this section. The Secretary may contract
with appropriate entities to implement such plan.
(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized
to be appropriated to the Secretary such sums as may be necessary
in fiscal years 2004 and 2005 to carry out this section.
Subtitle D—Other Provisions
SEC. 731. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE
DETERMINATION PROCESS TO RESPOND TO CHANGES
IN TECHNOLOGY.
(a) 
NATIONAL
AND
LOCAL
COVERAGE
DETERMINATION
PROCESS.—
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 1395y), as
amended by sections 948 and 950, is amended—
(A) in the third sentence of subsection (a), by inserting
‘‘consistent with subsection (l)’’ after ‘‘the Secretary shall
ensure’’; and
(B) by adding at the end the following new subsection:
‘‘(l) 
NATIONAL
AND
LOCAL
COVERAGE
DETERMINATION
PROCESS.—
‘‘(1) FACTORS
AND
EVIDENCE
USED
IN
MAKING
NATIONAL
COVERAGE DETERMINATIONS.—The Secretary shall make avail-
able to the public the factors considered in making national
coverage determinations of whether an item or service is reason-
able and necessary. The Secretary shall develop guidance docu-
ments to carry out this paragraph in a manner similar to
the development of guidance documents under section 701(h)
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 371(h)).
‘‘(2) TIMEFRAME FOR DECISIONS ON REQUESTS FOR NATIONAL
COVERAGE DETERMINATIONS.—In the case of a request for a
national coverage determination that—
‘‘(A) does not require a technology assessment from
an outside entity or deliberation from the Medicare Cov-
erage Advisory Committee, the decision on the request
shall be made not later than 6 months after the date
of the request; or
Deadlines.
Guidelines.
Public
information.
Deadline.
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117 STAT. 2350
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(B) requires such an assessment or deliberation and
in which a clinical trial is not requested, the decision
on the request shall be made not later than 9 months
after the date of the request.
‘‘(3) PROCESS FOR PUBLIC COMMENT IN NATIONAL COVERAGE
DETERMINATIONS.—
‘‘(A) PERIOD FOR PROPOSED DECISION.—Not later than
the end of the 6-month period (or 9-month period for
requests described in paragraph (2)(B)) that begins on the
date a request for a national coverage determination is
made, the Secretary shall make a draft of proposed decision
on the request available to the public through the Internet
website of the Centers for Medicare & Medicaid Services
or other appropriate means.
‘‘(B) 30-DAY PERIOD FOR PUBLIC COMMENT.—Beginning
on the date the Secretary makes a draft of the proposed
decision available under subparagraph (A), the Secretary
shall provide a 30-day period for public comment on such
draft.
‘‘(C) 60-DAY
PERIOD
FOR
FINAL
DECISION.—Not later
than 60 days after the conclusion of the 30-day period
referred to under subparagraph (B), the Secretary shall—
‘‘(i) make a final decision on the request;
‘‘(ii) include in such final decision summaries of
the public comments received and responses to such
comments;
‘‘(iii) make available to the public the clinical evi-
dence and other data used in making such a decision
when the decision differs from the recommendations
of the Medicare Coverage Advisory Committee; and
‘‘(iv) in the case of a final decision under clause
(i) to grant the request for the national coverage deter-
mination, the Secretary shall assign a temporary or
permanent code (whether existing or unclassified) and
implement the coding change.
‘‘(4) CONSULTATION
WITH
OUTSIDE
EXPERTS
IN
CERTAIN
NATIONAL
COVERAGE
DETERMINATIONS.—With respect to a
request for a national coverage determination for which there
is not a review by the Medicare Coverage Advisory Committee,
the Secretary shall consult with appropriate outside clinical
experts.
‘‘(5) LOCAL COVERAGE DETERMINATION PROCESS.—
‘‘(A) PLAN
TO
PROMOTE
CONSISTENCY
OF
COVERAGE
DETERMINATIONS.—The Secretary shall develop a plan to
evaluate new local coverage determinations to determine
which determinations should be adopted nationally and
to what extent greater consistency can be achieved among
local coverage determinations.
‘‘(B) CONSULTATION.—The Secretary shall require the
fiscal intermediaries or carriers providing services within
the same area to consult on all new local coverage deter-
minations within the area.
‘‘(C) DISSEMINATION OF INFORMATION.—The Secretary
should serve as a center to disseminate information on
local coverage determinations among fiscal intermediaries
and carriers to reduce duplication of effort.
Deadlines.
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117 STAT. 2351
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(6) NATIONAL
AND
LOCAL
COVERAGE
DETERMINATION
DEFINED.—For purposes of this subsection—
‘‘(A) NATIONAL COVERAGE DETERMINATION.—The term
‘national coverage determination’ means a determination
by the Secretary with respect to whether or not a particular
item or service is covered nationally under this title.
‘‘(B) LOCAL
COVERAGE
DETERMINATION.—The term
‘local coverage determination’ has the meaning given that
in section 1869(f)(2)(B).’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to national coverage determinations as of
January 1, 2004, and section 1862(l)(5) of the Social Security
Act, as added by such paragraph, shall apply to local coverage
determinations made on or after July 1, 2004.
(b) MEDICARE COVERAGE OF ROUTINE COSTS ASSOCIATED WITH
CERTAIN CLINICAL TRIALS OF CATEGORY A DEVICES.—
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 1395y), as
amended by subsection (a), is amended by adding at the end
the following new subsection:
‘‘(m) COVERAGE OF ROUTINE COSTS ASSOCIATED WITH CERTAIN
CLINICAL TRIALS OF CATEGORY A DEVICES.—
‘‘(1) IN GENERAL.—In the case of an individual entitled
to benefits under part A, or enrolled under part B, or both
who participates in a category A clinical trial, the Secretary
shall not exclude under subsection (a)(1) payment for coverage
of routine costs of care (as defined by the Secretary) furnished
to such individual in the trial.
‘‘(2) CATEGORY A CLINICAL TRIAL.—For purposes of para-
graph (1), a ‘category A clinical trial’ means a trial of a medical
device if—
‘‘(A) the trial is of an experimental/investigational (cat-
egory A) medical device (as defined in regulations under
section 405.201(b) of title 42, Code of Federal Regulations
(as in effect as of September 1, 2003));
‘‘(B) the trial meets criteria established by the Sec-
retary to ensure that the trial conforms to appropriate
scientific and ethical standards; and
‘‘(C) in the case of a trial initiated before January
1, 2010, the device involved in the trial has been deter-
mined by the Secretary to be intended for use in the
diagnosis, monitoring, or treatment of an immediately life-
threatening disease or condition.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to routine costs incurred on and after January
1, 2005, and, as of such date, section 411.15(o) of title 42,
Code of Federal Regulations, is superseded to the extent incon-
sistent with section 1862(m) of the Social Security Act, as
added by such paragraph.
(3) RULE OF CONSTRUCTION.—Nothing in the amendment
made by paragraph (1) shall be construed as applying to, or
affecting, coverage or payment for a nonexperimental/investiga-
tional (category B) device.
(c) ISSUANCE OF TEMPORARY NATIONAL CODES.—Not later than
July 1, 2004, the Secretary shall implement revised procedures
for the issuance of temporary national HCPCS codes under part
B of title XVIII of the Social Security Act.
Deadlines.
Procedures.
42 USC 1395u
note.
42 USC 1395y
note.
42 USC 1395y
note.
42 USC 1395y
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 732. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN
PATHOLOGY SERVICES UNDER MEDICARE.
Section 542(c) of BIPA (114 Stat. 2763A–551) is amended by
inserting ‘‘, and for services furnished during 2005 and 2006’’ before
the period at the end.
SEC. 733. PAYMENT FOR PANCREATIC ISLET CELL INVESTIGATIONAL
TRANSPLANTS FOR MEDICARE BENEFICIARIES IN CLIN-
ICAL TRIALS.
(a) CLINICAL TRIAL.—
(1) IN
GENERAL.—The Secretary, acting through the
National Institute of Diabetes and Digestive and Kidney Dis-
orders, shall conduct a clinical investigation of pancreatic islet
cell transplantation which includes medicare beneficiaries.
(2) AUTHORIZATION OF APPROPRIATIONS.—There are author-
ized to be appropriated to the Secretary such sums as may
be necessary to conduct the clinical investigation under para-
graph (1).
(b) MEDICARE PAYMENT.—Not earlier than October 1, 2004,
the Secretary shall pay for the routine costs as well as transplan-
tation and appropriate related items and services (as described
in subsection (c)) in the case of medicare beneficiaries who are
participating in a clinical trial described in subsection (a) as if
such transplantation were covered under title XVIII of such Act
and as would be paid under part A or part B of such title for
such beneficiary.
(c) SCOPE OF PAYMENT.—For purposes of subsection (b):
(1) The term ‘‘routine costs’’ means reasonable and nec-
essary routine patient care costs (as defined in the Centers
for Medicare & Medicaid Services Coverage Issues Manual,
section 30–1), including immunosuppressive drugs and other
followup care.
(2) The term ‘‘transplantation and appropriate related
items and services’’ means items and services related to the
acquisition and delivery of the pancreatic islet cell transplan-
tation, notwithstanding any national noncoverage determina-
tion contained in the Centers for Medicare & Medicaid Services
Coverage Issues Manual.
(3) The term ‘‘medicare beneficiary’’ means an individual
who is entitled to benefits under part A of title XVIII of the
Social Security Act, or enrolled under part B of such title,
or both.
(d) CONSTRUCTION.—The provisions of this section shall not
be construed—
(1) to permit payment for partial pancreatic tissue or islet
cell transplantation under title XVIII of the Social Security
Act other than payment as described in subsection (b); or
(2) as authorizing or requiring coverage or payment
conveying—
(A) benefits under part A of such title to a beneficiary
not entitled to such part A; or
(B) benefits under part B of such title to a beneficiary
not enrolled in such part B.
SEC. 734. RESTORATION OF MEDICARE TRUST FUNDS.
(a) DEFINITIONS.—In this section:
42 USC 1395i
note.
Effective date.
42 USC 1395l
note.
42 USC 1395w–4
note.
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(1) CLERICAL ERROR.—The term ‘‘clerical error’’ means a
failure that occurs on or after April 15, 2001, to have trans-
ferred the correct amount from the general fund of the Treasury
to a Trust Fund.
(2) TRUST FUND.—The term ‘‘Trust Fund’’ means the Fed-
eral Hospital Insurance Trust Fund established under section
1817 of the Social Security Act (42 U.S.C. 1395i) and the
Federal Supplementary Medical Insurance Trust Fund estab-
lished under section 1841 of such Act (42 U.S.C. 1395t).
(b) CORRECTION OF TRUST FUND HOLDINGS.—
(1) IN GENERAL.—The Secretary of the Treasury shall take
the actions described in paragraph (2) with respect to the
Trust Fund with the goal being that, after such actions are
taken, the holdings of the Trust Fund will replicate, to the
extent practicable in the judgment of the Secretary of the
Treasury, in consultation with the Secretary, the holdings that
would have been held by the Trust Fund if the clerical error
involved had not occurred.
(2) OBLIGATIONS ISSUED AND REDEEMED.—The Secretary
of the Treasury shall—
(A) issue to the Trust Fund obligations under chapter
31 of title 31, United States Code, that bear issue dates,
interest rates, and maturity dates that are the same as
those for the obligations that—
(i) would have been issued to the Trust Fund if
the clerical error involved had not occurred; or
(ii) were issued to the Trust Fund and were
redeemed by reason of the clerical error involved; and
(B) redeem from the Trust Fund obligations that would
have been redeemed from the Trust Fund if the clerical
error involved had not occurred.
(c) APPROPRIATION.—There is appropriated to the Trust Fund,
out of any money in the Treasury not otherwise appropriated,
an amount determined by the Secretary of the Treasury, in consulta-
tion with the Secretary, to be equal to the interest income lost
by the Trust Fund through the date on which the appropriation
is being made as a result of the clerical error involved.
(d) CONGRESSIONAL NOTICE.—In the case of a clerical error
that occurs after April 15, 2001, the Secretary of the Treasury,
before taking action to correct the error under this section, shall
notify the appropriate committees of Congress concerning such error
and the actions to be taken under this section in response to
such error.
(e) DEADLINE.—With respect to the clerical error that occurred
on April 15, 2001, not later than 120 days after the date of the
enactment of this Act—
(1) the Secretary of the Treasury shall take the actions
under subsection (b)(1); and
(2) the appropriation under subsection (c) shall be made.
SEC. 
735. 
MODIFICATIONS 
TO 
MEDICARE 
PAYMENT 
ADVISORY
COMMISSION (MEDPAC).
(a) EXAMINATION OF BUDGET CONSEQUENCES.—Section 1805(b)
(42 U.S.C. 1395b–6(b)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(8) EXAMINATION
OF
BUDGET
CONSEQUENCES.—Before
making any recommendations, the Commission shall examine
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PUBLIC LAW 108–173—DEC. 8, 2003
the budget consequences of such recommendations, directly or
through consultation with appropriate expert entities.’’.
(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 provision of’’ after ‘‘expenditures for’’.
(c) APPLICATION OF DISCLOSURE REQUIREMENTS.—
(1) IN GENERAL.—Section 1805(c)(2)(D) (42 U.S.C. 1395b–
6(c)(2)(D)) is amended by adding at the end the following:
‘‘Members of the Commission shall be treated as employees
of Congress for purposes of applying title I of the Ethics in
Government Act of 1978 (Public Law 95–521).’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on January 1, 2004.
(d) 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, 2004, on the
need for current data, and sources of current data available,
to determine the solvency and financial circumstances of hos-
pitals and other medicare providers of services.
(2) USE OF TAX-RELATED RETURNS.—Using return informa-
tion provided under Form 990 of the Internal Revenue Service,
the Commission shall submit to Congress, by not later than
June 1, 2004, a report on the following:
(A) Investments, endowments, and fundraising of hos-
pitals participating under the medicare program and
related foundations.
(B) Access to capital financing for private and for not-
for-profit hospitals.
(e) REPRESENTATION OF EXPERTS IN PRESCRIPTION DRUGS.—
(1) IN GENERAL.—Section 1805(c)(2)(B) (42 U.S.C. 1395b–
6(c)(2)(B)) is amended by inserting ‘‘experts in the area of
pharmaco-economics or prescription drug benefit programs,’’
after ‘‘other health professionals,’’.
(2) APPOINTMENT.—The Comptroller General of the United
States shall ensure that the membership of the Commission
complies with the amendment made by paragraph (1) with
respect to appointments made on or after the date of the
enactment of this Act.
SEC. 736. TECHNICAL AMENDMENTS.
(a) PART
A.—(1) Section 1814(a) (42 U.S.C. 1395f(a)) is
amended—
(A) by striking the seventh sentence, as added by section
322(a)(1) of BIPA (114 Stat. 2763A–501); and
(B) in paragraph (7)(A)—
(i) in clause (i), by inserting before the comma at
the end the following: ‘‘based on the physician’s or medical
director’s clinical judgment regarding the normal course
of the individual’s illness’’; and
(ii) in clause (ii), by inserting before the semicolon
at the end the following: ‘‘based on such clinical judgment’’.
(2) Section 1814(b) (42 U.S.C. 1395f(b)), in the matter preceding
paragraph (1), is amended by inserting a comma after ‘‘1813’’.
(3) Section 1815(e)(1)(B) (42 U.S.C. 1395g(e)(1)(B)), in the
matter preceding clause (i), is amended by striking ‘‘of hospital’’
and inserting ‘‘of a hospital’’.
42 USC 1395b–6
note.
Deadlines.
42 USC 1395b–6
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
(4) Section 1816(c)(2)(B)(ii) (42 U.S.C. 1395h(c)(2)(B)(ii)) is
amended—
(A) by striking ‘‘and’’ at the end of subclause (III); and
(B) by striking the period at the end of subclause (IV)
and inserting ‘‘, and’’.
(5) Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is amended—
(A) in clause (i)(I), by striking the comma at the end and
inserting a semicolon; and
(B) in clause (ii), by striking ‘‘the Medicare and medicaid
programs’’ and inserting ‘‘the programs under this title and
title XIX’’.
(6) Section 1817(k)(6)(B) (42 U.S.C. 1395i(k)(6)(B)) is amended
by striking ‘‘Medicare program under title XVIII’’ and inserting
‘‘program under this title’’.
(7) Section 1818 (42 U.S.C. 1395i–2) is amended—
(A) in subsection (d)(6)(A) is amended by inserting ‘‘of such
Code’’ after ‘‘3111(b)’’; and
(B) in subsection (g)(2)(B) is amended by striking ‘‘sub-
section (b).’’ and inserting ‘‘subsection (b)’’.
(8) Section 1819 (42 U.S.C. 1395i–3) is amended—
(A) in subsection (b)(4)(C)(i), by striking ‘‘at least at least’’
and inserting ‘‘at least’’;
(B) in subsection (d)(1)(A), by striking ‘‘physical mental’’
and inserting ‘‘physical, mental’’; and
(C) in subsection (f)(2)(B)(iii), by moving the last sentence
2 ems to the left.
(9) Section 1886(b)(3)(I)(i)(I) (42 U.S.C. 1395ww(b)(3)(I)(i)(I))
is amended by striking ‘‘the the’’ and inserting ‘‘the’’.
(10) The heading of subsection (mm) of section 1861 (42 U.S.C.
1395x) is amended to read as follows:
‘‘Critical Access Hospital; Critical Access Hospital Services’’.
(11) Paragraphs (1) and (2) of section 1861(tt) (42 U.S.C.
1395x(tt)) are each amended by striking ‘‘rural primary care’’ and
inserting ‘‘critical access’’.
(12) Section 1865(b)(3)(B) (42 U.S.C. 1395bb(b)(3)(B)) is
amended by striking ‘‘section 1819 and 1861(j)’’ and inserting ‘‘sec-
tions 1819 and 1861(j)’’.
(13) Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) is amended by
moving subparagraph (D) 2 ems to the left.
(14) Section 1867 (42 U.S.C. 1395dd) is amended—
(A) in the matter following clause (ii) of subsection (d)(1)(B),
by striking ‘‘is is’’ and inserting ‘‘is’’;
(B) in subsection (e)(1)(B), by striking ‘‘a pregnant women’’
and inserting ‘‘a pregnant woman’’; and
(C) in subsection (e)(2), by striking ‘‘means hospital’’ and
inserting ‘‘means a hospital’’.
(15) Section 1886(g)(3)(B) (42 U.S.C. 1395ww(g)(3)(B)) is
amended by striking ‘‘(as defined in subsection (d)(5)(D)(iii)’’ and
inserting ‘‘(as defined in subsection (d)(5)(D)(iii))’’.
(b) PART B.—(1) Section 1833(h)(5)(D) (42 U.S.C. 1395l(h)(5)(D))
is amended by striking ‘‘clinic,,’’ and inserting ‘‘clinic,’’.
(2) Section 1833(t)(3)(C)(ii) (42 U.S.C. 1395l(t)(3)(C)(ii)) is
amended by striking ‘‘clause (iii)’’ and inserting ‘‘clause (iv)’’.
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PUBLIC LAW 108–173—DEC. 8, 2003
(3) Section 1861(v)(1)(S)(ii)(III) (42 U.S.C. 1395x(v)(1)(S)(ii)(III))
is amended by striking ‘‘(as defined in section 1886(d)(5)(D)(iii)’’
and inserting ‘‘(as defined in section 1886(d)(5)(D)(iii))’’.
(4) Section 1834(b)(4)(D)(iv) (42 U.S.C. 1395m(b)(4)(D)(iv)) is
amended by striking ‘‘clauses (vi)’’ and inserting ‘‘clause (vi)’’.
(5) 
Section 
1834(m)(4)(C)(ii)(III) 
(42 
U.S.C.
1395m(m)(4)(C)(ii)(III)) is amended by striking ‘‘1861(aa)(s)’’ and
inserting ‘‘1861(aa)(2)’’.
(6) Section 1838(a)(1) (42 U.S.C. 1395q(a)(1)) is amended by
inserting a comma after ‘‘1966’’.
(7) The second sentence of section 1839(a)(4) (42 U.S.C.
1395r(a)(4)) is amended by striking ‘‘which will’’ and inserting ‘‘will’’.
(8) Section 1842(c)(2)(B)(ii) (42 U.S.C. 1395u(c)(2)(B)(ii)) is
amended—
(A) by striking ‘‘and’’ at the end of subclause (III); and
(B) by striking the period at the end of subclause (IV)
and inserting ‘‘, and’’.
(9) Section 1842(i)(2) (42 U.S.C. 1395u(i)(2)) is amended by
striking ‘‘services, a physician’’ and inserting ‘‘services, to a physi-
cian’’.
(10) Section 1848(i)(3)(A) (42 U.S.C. 1395w–4(i)(3)(A)) is
amended by striking ‘‘a comparable services’’ and inserting ‘‘com-
parable services’’.
(11) Section 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is
amended by striking ‘‘; and but’’ and inserting ‘‘, but’’.
(12) Section 1861(aa)(1)(B) (42 U.S.C. 1395x(aa)(1)(B)) is
amended by striking ‘‘,,’’ and inserting a comma.
(13) Section 128(b)(2) of BIPA (114 Stat. 2763A–480) is
amended by striking ‘‘Not later that’’ and inserting ‘‘Not later
than’’ each place it appears.
(c) PARTS
A 
AND
B.—(1) Section 1812(a)(3) (42 U.S.C.
1395d(a)(3)) is amended—
(A) by striking ‘‘for individuals not’’ and inserting ‘‘in the
case of individuals not’’; and
(B) by striking ‘‘for individuals so’’ and inserting ‘‘in the
case of individuals so’’.
(2)(A) Section 1814(a) (42 U.S.C. 1395f(a)) is amended in the
sixth sentence by striking ‘‘leave home,’’ and inserting ‘‘leave home
and’’.
(B) Section 1835(a) (42 U.S.C. 1395n(a)) is amended in the
seventh sentence by striking ‘‘leave home,’’ and inserting ‘‘leave
home and’’.
(3) Section 1891(d)(1) (42 U.S.C. 1395bbb(d)(1)) is amended
by striking ‘‘subsection (c)(2)(C)(I)’’ and inserting ‘‘subsection
(c)(2)(C)(i)(I)’’.
(4) Section 1861(v) (42 U.S.C. 1395x(v)) is amended by moving
paragraph (8) (including clauses (i) through (v) of such paragraph)
2 ems to the left.
(5) Section 1866B(b)(7)(D) (42 U.S.C. 1395cc–2(b)(7)(D)) is
amended by striking ‘‘(c)(2)(A)(ii)’’ and inserting ‘‘(c)(2)(B)’’.
(6) 
Section 
1886(h)(3)(D)(ii)(III) 
(42 
U.S.C.
1395ww(h)(3)(D)(ii)(III)) is amended by striking ‘‘and’’ after the
comma at the end.
(7) Section 1893(a) (42 U.S.C. 1395ddd(a)) is amended by
striking ‘‘Medicare program’’ and inserting ‘‘medicare program’’.
(8) Section 1896(b)(4) (42 U.S.C. 1395ggg(b)(4)) is amended
by striking ‘‘701(f)’’ and inserting ‘‘712(f)’’.
42 USC 1395b–1
note.
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(d) PART
C.—(1) Section 1853 (42 U.S.C. 1395w–23), as
amended by section 607 of BIPA (114 Stat. 2763A–558), is
amended—
(A) in subsection (a)(3)(C)(ii), by striking ‘‘clause (iii)’’ and
inserting ‘‘clause (iv)’’;
(B) in subsection (a)(3)(C), by redesignating the clause (iii)
added by such section 607 as clause (iv); and
(C) in subsection (c)(5), by striking ‘‘(a)(3)(C)(iii)’’ and
inserting ‘‘(a)(3)(C)(iv)’’.
(2) Section 1876 (42 U.S.C. 1395mm) is amended—
(A) in subsection (c)(2)(B), by striking ‘‘signifcant’’ and
inserting ‘‘significant’’; and
(B) in subsection (j)(2), by striking ‘‘this setion’’ and
inserting ‘‘this section’’.
(e) MEDIGAP.—Section 1882 (42 U.S.C. 1395ss) is amended—
(1) in subsection (d)(3)(A)(i)(II), by striking ‘‘plan a medicare
supplemental policy’’ and inserting ‘‘plan, a medicare supple-
mental policy’’;
(2) in subsection (d)(3)(B)(iii)(II), by striking ‘‘to the best
of the issuer or seller’s knowledge’’ and inserting ‘‘to the best
of the issuer’s or seller’s knowledge’’;
(3) in subsection (g)(2)(A), by striking ‘‘medicare supple-
ment policies’’ and inserting ‘‘medicare supplemental policies’’;
(4) in subsection (p)(2)(B), by striking ‘‘, and’’ and inserting
‘‘; and’’; and
(5) in subsection (s)(3)(A)(iii), by striking ‘‘pre-existing’’ and
inserting ‘‘preexisting’’.
TITLE VIII—COST CONTAINMENT
Subtitle A—Cost Containment
SEC. 801. INCLUSION IN ANNUAL REPORT OF MEDICARE TRUSTEES
OF INFORMATION ON STATUS OF MEDICARE TRUST
FUNDS.
(a) DETERMINATIONS OF EXCESS GENERAL REVENUE MEDICARE
FUNDING.—
(1) IN GENERAL.—The Board of Trustees of each medicare
trust fund shall include in the annual reports submitted under
subsection (b)(2) of sections 1817 and 1841 of the Social Security
Act (42 U.S.C. 1395i and 1395t)—
(A) the information described in subsection (b); and
(B) a determination as to whether there is projected
to be excess general revenue medicare funding (as defined
in subsection (c)) for the fiscal year in which the report
is submitted or for any of the succeeding 6 fiscal years.
(2) MEDICARE FUNDING WARNING.—For purposes of section
1105(h) of title 31, United States Code, and this subtitle, an
affirmative determination under paragraph (1)(B) in 2 consecu-
tive annual reports shall be treated as a medicare funding
warning in the year in which the second such report is made.
(3) 7-FISCAL-YEAR REPORTING PERIOD.—For purposes of this
subtitle, the term ‘‘7-fiscal-year reporting period’’ means, with
respect to a year in which an annual report described in para-
graph (1) is made, the period of 7 consecutive fiscal years
beginning with the fiscal year in which the report is submitted.
42 USC 1395i
note.
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(b) INFORMATION.—The information described in this subsection
for an annual report in a year is as follows:
(1) PROJECTIONS
OF
GROWTH
OF
GENERAL
REVENUE
SPENDING.—A statement of the general revenue medicare
funding as a percentage of the total medicare outlays for each
of the following:
(A) Each fiscal year within the 7-fiscal-year reporting
period.
(B) Previous fiscal years and as of 10, 50, and 75
years after such year.
(2) COMPARISON WITH OTHER GROWTH TRENDS.—A compari-
son of the trend of such percentages with the annual growth
rate in the following:
(A) The gross domestic product.
(B) Private health costs.
(C) National health expenditures.
(D) Other appropriate measures.
(3) PART D SPENDING.—Expenditures, including trends in
expenditures, under part D of title XVIII of the Social Security
Act, as added by section 101.
(4) COMBINED MEDICARE TRUST FUND ANALYSIS.—A finan-
cial analysis of the combined medicare trust funds if general
revenue medicare funding were limited to the percentage speci-
fied in subsection (c)(1)(B) of total medicare outlays.
(c) DEFINITIONS.—For purposes of this section:
(1) EXCESS GENERAL REVENUE MEDICARE FUNDING.—The
term ‘‘excess general revenue medicare funding’’ means, with
respect to a fiscal year, that—
(A) general revenue medicare funding (as defined in
paragraph (2)), expressed as a percentage of total medicare
outlays (as defined in paragraph (4)) for the fiscal year;
exceeds
(B) 45 percent.
(2) GENERAL REVENUE MEDICARE FUNDING.—The term ‘‘gen-
eral revenue medicare funding’’ means for a year—
(A) the total medicare outlays (as defined in paragraph
(4)) for the year; minus
(B) the dedicated medicare financing sources (as
defined in paragraph (3)) for the year.
(3) DEDICATED MEDICARE FINANCING SOURCES.—The term
‘‘dedicated medicare financing sources’’ means the following:
(A) HOSPITAL INSURANCE TAX.—Amounts appropriated
to the Hospital Insurance Trust Fund under the third
sentence of section 1817(a) of the Social Security Act (42
U.S.C. 1395i(a)) and amounts transferred to such Trust
Fund under section 7(c)(2) of the Railroad Retirement Act
of 1974 (45 U.S.C. 231f(c)(2)).
(B) TAXATION OF CERTAIN OASDI BENEFITS.—Amounts
appropriated to the Hospital Insurance Trust Fund under
section 121(e)(1)(B) of the Social Security Amendments of
1983 (Public Law 98–21), as inserted by section 13215(c)
of the Omnibus Budget Reconciliation Act of 1993 (Public
Law 103–66).
(C) STATE TRANSFERS.—The State share of amounts
paid to the Federal Government by a State under section
1843 of the Social Security Act (42 U.S.C. 1395v) or pursu-
ant to section 1935(c) of such Act.
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(D) PREMIUMS.—The following premiums:
(i) PART A.—Premiums paid by non-Federal sources
under sections 1818 and section 1818A (42 U.S.C.
1395i–2 and 1395i–2a) of such Act.
(ii) PART
B.—Premiums paid by non-Federal
sources under section 1839 of such Act (42 U.S.C.
1395r), including any adjustments in premiums under
such section.
(iii) PART D.—Monthly beneficiary premiums paid
under part D of title XVIII of such Act, as added
by section 101, and MA monthly prescription drug
beneficiary premiums paid under part C of such title
insofar as they are attributable to basic prescription
drug coverage.
Premiums under clauses (ii) and (iii) shall be determined with-
out regard to any reduction in such premiums attributable
to a beneficiary rebate under section 1854(b)(1)(C) of such title,
as amended by section 222(b)(1), and premiums under clause
(iii) are deemed to include any amounts paid under section
1860D–13(b) of such title, as added by section 101.
(E) GIFTS.—Amounts received by the medicare trust
funds under section 201(i) of the Social Security Act (42
U.S.C. 401(i)).
(4) TOTAL MEDICARE OUTLAYS.—The term ‘‘total medicare
outlays’’ means total outlays from the medicare trust funds
and shall—
(A) include payments made to plans under part C
of title XVIII of the Social Security Act that are attributable
to any rebates under section 1854(b)(1)(C) of such Act
(42 U.S.C. 1395w–24(b)(1)(C)), as amended by section
222(b)(1);
(B) include administrative expenditures made in car-
rying out title XVIII of such Act and Federal outlays under
section 1935(b) of such Act, as added by section 103(a)(2);
and
(C) offset outlays by the amount of fraud and abuse
collections insofar as they are applied or deposited into
a medicare trust fund.
(5) MEDICARE
TRUST
FUND.—The term ‘‘medicare trust
fund’’ means—
(A) the Federal Hospital Insurance Trust Fund estab-
lished under section 1817 of the Social Security Act (42
U.S.C. 1395i); and
(B) the Federal Supplementary Medical Insurance
Trust Fund established under section 1841 of such Act
(42 U.S.C. 1395t), including the Medicare Prescription Drug
Account under such Trust Fund.
(d) CONFORMING AMENDMENTS.—
(1) FEDERAL HOSPITAL INSURANCE TRUST FUND.—Section
1817(b)(2) (42 U.S.C. 1395i(b)(2)) is amended by adding at
the end the following: ‘‘Each report provided under paragraph
(2) beginning with the report in 2005 shall include the informa-
tion specified in section 801(a) of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003.’’.
(2) FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST
FUND.—Section 1841(b)(2) (42 U.S.C. 1395t(b)(2)) is amended
by adding at the end the following: ‘‘Each report provided
Reports.
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PUBLIC LAW 108–173—DEC. 8, 2003
under paragraph (2) beginning with the report in 2005 shall
include the information specified in section 801(a) of the Medi-
care Prescription Drug, Improvement, and Modernization Act
of 2003.’’.
(e) NOTICE OF MEDICARE FUNDING WARNING.—Whenever any
report described in subsection (a) contains a determination that
for any fiscal year within the 7-fiscal-year reporting period there
will be excess general revenue medicare funding, Congress and
the President should address the matter under existing rules and
procedures.
SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.
(a) IN GENERAL.—Section 1105 of title 31, United States Code,
is amended by adding at the end the following new subsection:
‘‘(h)(1) If there is a medicare funding warning under section
801(a)(2) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 made in a year, the President shall
submit to Congress, within the 15-day period beginning on the
date of the budget submission to Congress under subsection (a)
for the succeeding year, proposed legislation to respond to such
warning.
‘‘(2) Paragraph (1) does not apply if, during the year in which
the warning is made, legislation is enacted which eliminates excess
general revenue medicare funding (as defined in section 801(c)
of the Medicare Prescription Drug, Improvement, and Moderniza-
tion Act of 2003) for the 7-fiscal-year reporting period, as certified
by the Board of Trustees of each medicare trust fund (as defined
in section 801(c)(5) of such Act) not later than 30 days after the
date of the enactment of such legislation.’’.
(b) SENSE
OF CONGRESS.—It is the sense of Congress that
legislation submitted pursuant to section 1105(h) of title 31, United
States Code, in a year should be designed to eliminate excess
general revenue medicare funding (as defined in section 801(c))
for the 7-fiscal-year period that begins in such year.
SEC. 803. PROCEDURES IN THE HOUSE OF REPRESENTATIVES.
(a) INTRODUCTION AND REFERRAL OF PRESIDENT’S LEGISLATIVE
PROPOSAL.—
(1) INTRODUCTION.—In the case of a legislative proposal
submitted by the President pursuant to section 1105(h) of title
31, United States Code, within the 15-day period specified
in paragraph (1) of such section, the Majority Leader of the
House of Representatives (or his designee) and the Minority
Leader of the House of Representatives (or his designee) shall
introduce such proposal (by request), the title of which is as
follows: ‘‘A bill to respond to a medicare funding warning.’’
Such bill shall be introduced within 3 legislative days after
Congress receives such proposal.
(2) REFERRAL.—Any legislation introduced pursuant to
paragraph (1) shall be referred to the appropriate committees
of the House of Representatives.
(b) DIRECTION TO THE APPROPRIATE HOUSE COMMITTEES.—
(1) IN GENERAL.—In the House, in any year during which
the President is required to submit proposed legislation to
Congress under section 1105(h) of title 31, United States Code,
the appropriate committees shall report medicare funding legis-
lation by not later than June 30 of such year.
Reports.
Deadline.
Deadline.
31 USC 1105
note.
Deadline.
President.
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(2) MEDICARE FUNDING LEGISLATION.—For purposes of this
section, the term ‘‘medicare funding legislation’’ means—
(A) legislation introduced pursuant to subsection (a)(1),
but only if the legislative proposal upon which the legisla-
tion is based was submitted within the 15-day period
referred to in such subsection; or
(B) any bill the title of which is as follows: ‘‘A bill
to respond to a medicare funding warning.’’.
(3) CERTIFICATION.—With respect to any medicare funding
legislation or any amendment to such legislation to respond
to a medicare funding warning, the chairman of the Committee
on the Budget of the House shall certify—
(A) whether or not such legislation eliminates excess
general revenue medicare funding (as defined in section
801(c)) for each fiscal year in the 7-fiscal-year reporting
period; and
(B) with respect to such an amendment, whether the
legislation, as amended, would eliminate excess general
revenue medicare funding (as defined in section 801(c))
for each fiscal year in such 7-fiscal-year reporting period.
(c) FALLBACK PROCEDURE FOR FLOOR CONSIDERATION IF THE
HOUSE FAILS TO VOTE ON FINAL PASSAGE BY JULY 30.—
(1) After July 30 of any year during which the President
is required to submit proposed legislation to Congress under
section 1105(h) of title 31, United States Code, unless the
House of Representatives has voted on final passage of any
medicare funding legislation for which there is an affirmative
certification under subsection (b)(3)(A), then, after the expira-
tion of not less than 30 calendar days (and concurrently 5
legislative days), it is in order to move to discharge any com-
mittee to which medicare funding legislation which has such
a certification and which has been referred to such committee
for 30 calendar days from further consideration of the legisla-
tion.
(2) A motion to discharge may be made only by an indi-
vidual favoring the legislation, may be made only if supported
by one-fifth of the total membership of the House (a quorum
being present), and is highly privileged in the House. Debate
thereon shall be limited to not more than one hour, the time
to be divided in the House equally between those favoring
and those opposing the motion. An amendment to the motion
is not in order, and it is not in order to move to reconsider
the vote by which the motion is agreed to or disagreed to.
(3) Only one motion to discharge a particular committee
may be adopted under this subsection in any session of a
Congress.
(4) Notwithstanding paragraph (1), it shall not be in order
to move to discharge a committee from further consideration
of medicare funding legislation pursuant to this subsection
during a session of a Congress if, during the previous session
of the Congress, the House passed medicare funding legislation
for which there is an affirmative certification under subsection
(b)(3)(A).
(d) FLOOR CONSIDERATION IN THE HOUSE OF DISCHARGED LEGIS-
LATION.—
(1) In the House, not later than 3 legislative days after
any committee has been discharged from further consideration
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
of legislation under subsection (c), the Speaker shall resolve
the House into the Committee of the Whole for consideration
of the legislation.
(2) The first reading of the legislation shall be dispensed
with. All points of order against consideration of the legislation
are waived. General debate shall be confined to the legislation
and shall not exceed five hours, which shall be divided equally
between those favoring and those opposing the legislation. After
general debate the legislation shall be considered for amend-
ment under the five-minute rule. During consideration of the
legislation, no amendments shall be in order in the House
or in the Committee of the Whole except those for which there
has been an affirmative certification under subsection (b)(3)(B).
All points of order against consideration of any such amendment
in the Committee of the Whole are waived. The legislation,
together with any amendments which shall be in order, shall
be considered as read. During the consideration of the bill
for amendment, the Chairman of the Committee of the Whole
may accord priority in recognition on the basis of whether
the Member offering an amendment has caused it to be printed
in the portion of the Congressional Record designated for that
purpose in clause 8 of Rule XVIII of the Rules of the House
of Representatives. Debate on any amendment shall not exceed
one hour, which shall be divided equally between those favoring
and those opposing the amendment, and no pro forma amend-
ments shall be offered during the debate. The total time for
debate on all amendments shall not exceed 10 hours. At the
conclusion of consideration of the legislation for amendment,
the Committee shall rise and report the legislation to the
House with such amendments as may have been adopted. The
previous question shall be considered as ordered on the legisla-
tion and amendments thereto to final passage without inter-
vening motion except one motion to recommit with or without
instructions. If the Committee of the Whole rises and reports
that it has come to no resolution on the bill, then on the
next legislative day the House shall, immediately after the
third daily order of business under clause 1 of Rule XIV of
the Rules of the House of Representatives, resolve into the
Committee of the Whole for further consideration of the bill.
(3) All appeals from the decisions of the Chair relating
to the application of the Rules of the House of Representatives
to the procedure relating to any such legislation shall be decided
without debate.
(4) Except to the extent specifically provided in the pre-
ceding provisions of this subsection, consideration of any such
legislation and amendments thereto (or any conference report
thereon) shall be governed by the Rules of the House of Rep-
resentatives applicable to other bills and resolutions, amend-
ments, and conference reports in similar circumstances.
(e) LEGISLATIVE DAY DEFINED.—As used in this section, the
term ‘‘legislative day’’ means a day on which the House of Rep-
resentatives is in session.
(f) RESTRICTION ON WAIVER.—In the House, the provisions of
this section may be waived only by a rule or order proposing
only to waive such provisions.
(g) RULEMAKING POWER.—The provisions of this section are
enacted by the Congress—
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117 STAT. 2363
PUBLIC LAW 108–173—DEC. 8, 2003
(1) as an exercise of the rulemaking power of the House
of Representatives and, as such, shall be considered as part
of the rules of that House and shall supersede other rules
only to the extent that they are inconsistent therewith; and
(2) with full recognition of the constitutional right of that
House to change the rules (so far as they relate to the proce-
dures of that House) at any time, in the same manner, and
to the same extent as in the case of any other rule of that
House.
SEC. 804. PROCEDURES IN THE SENATE.
(a) INTRODUCTION AND REFERRAL OF PRESIDENT’S LEGISLATIVE
PROPOSAL.—
(1) INTRODUCTION.—In the case of a legislative proposal
submitted by the President pursuant to section 1105(h) of title
31, United States Code, within the 15-day period specified
in paragraph (1) of such section, the Majority Leader and
Minority Leader of the Senate (or their designees) shall intro-
duce such proposal (by request), the title of which is as follows:
‘‘A bill to respond to a medicare funding warning.’’ Such bill
shall be introduced within 3 days of session after Congress
receives such proposal.
(2) REFERRAL.—Any legislation introduced pursuant to
paragraph (1) shall be referred to the Committee on Finance.
(b) MEDICARE FUNDING LEGISLATION.—For purposes of this sec-
tion, the term ‘‘medicare funding legislation’’ means—
(1) legislation introduced pursuant to subsection (a)(1), but
only if the legislative proposal upon which the legislation is
based was submitted within the 15-day period referred to in
such subsection; or
(2) any bill the title of which is as follows: ‘‘A bill to
respond to a medicare funding warning.’’.
(c) QUALIFICATION FOR SPECIAL PROCEDURES.—
(1) IN GENERAL.—The special procedures set forth in sub-
sections (d) and (e) shall apply to medicare funding legislation,
as described in subsection (b), only if the legislation—
(A) is medicare funding legislation that is passed by
the House of Representatives; or
(B) contains matter within the jurisdiction of the Com-
mittee on Finance in the Senate.
(2) FAILURE TO QUALIFY FOR SPECIAL PROCEDURES.—If the
medicare funding legislation does not satisfy paragraph (1),
then the legislation shall be considered under the ordinary
procedures of the Standing Rules of the Senate.
(d) DISCHARGE.—
(1) IN GENERAL.—If the Committee on Finance has not
reported medicare funding legislation described in subsection
(c)(1) by June 30 of a year in which the President is required
to submit medicare funding legislation to Congress under sec-
tion 1105(h) of title 31, United States Code, then any Senator
may move to discharge the Committee of any single medicare
funding legislation measure. Only one such motion shall be
in order in any session of Congress.
(2) DEBATE LIMITS.—Debate in the Senate on any such
motion to discharge, and all appeals in connection therewith,
shall be limited to not more than 2 hours. The time shall
be equally divided between, and controlled by, the maker of
Applicability.
31 USC 1105
note.
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117 STAT. 2364
PUBLIC LAW 108–173—DEC. 8, 2003
the motion and the Majority Leader, or their designees, except
that in the event the Majority Leader is in favor of such
motion, the time in opposition thereto shall be controlled by
the Minority Leader or the Minority Leader’s designee. A point
of order under this subsection may be made at any time.
It is not in order to move to proceed to another measure
or matter while such motion (or the motion to reconsider such
motion) is pending.
(3) AMENDMENTS.—No amendment to the motion to dis-
charge shall be in order.
(4) EXCEPTION IF CERTIFIED LEGISLATION ENACTED.—Not-
withstanding paragraph (1), it shall not be in order to discharge
the Committee from further consideration of medicare funding
legislation pursuant to this subsection during a session of a
Congress if the chairman of the Committee on the Budget
of the Senate certifies that medicare funding legislation has
been enacted that eliminates excess general revenue medicare
funding (as defined in section 801(c)) for each fiscal year in
the 7-fiscal-year reporting period.
(e) CONSIDERATION.—After the date on which the Committee
on Finance has reported medicare funding legislation described
in subsection (c)(1), or has been discharged (under subsection (d))
from further consideration of, such legislation, it is in order (even
though a previous motion to the same effect has been disagreed
to) for any Member of the Senate to move to proceed to the consider-
ation of such legislation.
(f) RULES
OF
THE SENATE.—This section is enacted by the
Senate—
(1) as an exercise of the rulemaking power of the Senate
and as such it is deemed a part of the rules of the Senate,
but applicable only with respect to the procedure to be followed
in the Senate in the case of a bill described in this paragraph,
and it supersedes other rules only to the extent that it is
inconsistent with such rules; and
(2) with full recognition of the constitutional right of the
Senate to change the rules (so far as relating to the procedure
of the Senate) at any time, in the same manner, and to the
same extent as in the case of any other rule of the Senate.
Subtitle B—Income-Related Reduction in
Part B Premium Subsidy
SEC. 811. INCOME-RELATED REDUCTION IN PART B PREMIUM SUB-
SIDY.
(a) IN GENERAL.—Section 1839 (42 U.S.C. 1395r), as amended
by section 241(c), is amended by adding at the end the following:
‘‘(i) REDUCTION IN PREMIUM SUBSIDY BASED ON INCOME.—
‘‘(1) IN GENERAL.—In the case of an individual whose modi-
fied adjusted gross income exceeds the threshold amount under
paragraph (2), the monthly amount of the premium subsidy
applicable to the premium under this section for a month
after December 2006 shall be reduced (and the monthly pre-
mium shall be increased) by the monthly adjustment amount
specified in paragraph (3).
‘‘(2) THRESHOLD AMOUNT.—For purposes of this subsection,
the threshold amount is—
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‘‘(A) except as provided in subparagraph (B), $80,000,
and
‘‘(B) in the case of a joint return, twice the amount
applicable under subparagraph (A) for the calendar year.
‘‘(3) MONTHLY ADJUSTMENT AMOUNT.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
monthly adjustment amount specified in this paragraph
for an individual for a month in a year is equal to the
product of the following:
‘‘(i) SLIDING SCALE PERCENTAGE.—The applicable
percentage specified in the table in subparagraph (C)
for the individual minus 25 percentage points.
‘‘(ii) UNSUBSIDIZED PART B PREMIUM AMOUNT.—200
percent of the monthly actuarial rate for enrollees age
65 and over (as determined under subsection (a)(1)
for the year).
‘‘(B) 5-YEAR
PHASE
IN.—The monthly adjustment
amount specified in this paragraph for an individual for
a month in a year before 2011 is equal to the following
percentage of the monthly adjustment amount specified
in subparagraph (A):
‘‘(i) For 2007, 20 percent.
‘‘(ii) For 2008, 40 percent.
‘‘(iii) For 2009, 60 percent.
‘‘(iv) for 2010, 80 percent.
‘‘(C) APPLICABLE PERCENTAGE.—
‘‘(i) IN GENERAL.—
‘‘If the modified adjusted gross income is:
The
applicable
percentage is:
More than $80,000 but not more than $100,000 ...........................
35 percent
More than $100,000 but not more than $150,000 .........................
50 percent
More than $150,000 but not more than $200,000 .........................
65 percent
More than $200,000 .........................................................................
80 percent.
‘‘(ii) JOINT RETURNS.—In the case of a joint return,
clause (i) shall be applied by substituting dollar
amounts which are twice the dollar amounts otherwise
applicable under clause (i) for the calendar year.
‘‘(iii) 
MARRIED
INDIVIDUALS
FILING
SEPARATE
RETURNS.—In the case of an individual who—
‘‘(I) is married as of the close of the taxable
year (within the meaning of section 7703 of the
Internal Revenue Code of 1986) but does not file
a joint return for such year, and
‘‘(II) does not live apart from such individual’s
spouse at all times during the taxable year,
clause (i) shall be applied by reducing each of the
dollar amounts otherwise applicable under such clause
for the calendar year by the threshold amount for
such year applicable to an unmarried individual.
‘‘(4) MODIFIED ADJUSTED GROSS INCOME.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘modified adjusted gross income’ means adjusted gross
income (as defined in section 62 of the Internal Revenue
Code of 1986)—
‘‘(i) determined without regard to sections 135,
911, 931, and 933 of such Code; and
Applicability.
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117 STAT. 2366
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) increased by the amount of interest received
or accrued during the taxable year which is exempt
from tax under such Code.
In the case of an individual filing a joint return, any
reference in this subsection to the modified adjusted gross
income of such individual shall be to such return’s modified
adjusted gross income.
‘‘(B) TAXABLE YEAR TO BE USED IN DETERMINING MODI-
FIED ADJUSTED GROSS INCOME.—
‘‘(i) IN GENERAL.—In applying this subsection for
an individual’s premiums in a month in a year, subject
to clause (ii) and subparagraph (C), the individual’s
modified adjusted gross income shall be such income
determined for the individual’s last taxable year begin-
ning in the second calendar year preceding the year
involved.
‘‘(ii) TEMPORARY USE OF OTHER DATA.—If, as of
October 15 before a calendar year, the Secretary of
the Treasury does not have adequate data for an indi-
vidual in appropriate electronic form for the taxable
year referred to in clause (i), the individual’s modified
adjusted gross income shall be determined using the
data in such form from the previous taxable year.
Except as provided in regulations prescribed by the
Commissioner of Social Security in consultation with
the Secretary, the preceding sentence shall cease to
apply when adequate data in appropriate electronic
form are available for the individual for the taxable
year referred to in clause (i), and proper adjustments
shall be made to the extent that the premium adjust-
ments determined under the preceding sentence were
inconsistent with those determined using such taxable
year.
‘‘(iii) NON-FILERS.—In the case of individuals with
respect to whom the Secretary of the Treasury does
not have adequate data in appropriate electronic form
for either taxable year referred to in clause (i) or clause
(ii), the Commissioner of Social Security, in consulta-
tion with the Secretary, shall prescribe regulations
which provide for the treatment of the premium adjust-
ment with respect to such individual under this sub-
section, including regulations which provide for—
‘‘(I) the application of the highest applicable
percentage under paragraph (3)(C) to such indi-
vidual if the Commissioner has information which
indicates that such individual’s modified adjusted
gross income might exceed the threshold amount
for the taxable year referred to in clause (i), and
‘‘(II) proper adjustments in the case of the
application of an applicable percentage under sub-
clause (I) to such individual which is inconsistent
with such individual’s modified adjusted gross
income for such taxable year.
‘‘(C) USE OF MORE RECENT TAXABLE YEAR.—
‘‘(i) IN
GENERAL.—The Commissioner of Social
Security in consultation with the Secretary of the
Treasury shall establish a procedures under which an
Regulations.
Termination
date.
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individual’s modified adjusted gross income shall, at
the request of such individual, be determined under
this subsection—
‘‘(I) for a more recent taxable year than the
taxable year otherwise used under subparagraph
(B), or
‘‘(II) by such methodology as the Commis-
sioner, in consultation with such Secretary, deter-
mines to be appropriate, which may include a
methodology for aggregating or disaggregating
information from tax returns in the case of mar-
riage or divorce.
‘‘(ii) 
STANDARD
FOR
GRANTING
REQUESTS.—A
request under clause (i)(I) to use a more recent taxable
year may be granted only if—
‘‘(I) the individual furnishes to such Commis-
sioner with respect to such year such documenta-
tion, such as a copy of a filed Federal income
tax return or an equivalent document, as the
Commissioner specifies for purposes of deter-
mining the premium adjustment (if any) under
this subsection; and
‘‘(II) the individual’s modified adjusted gross
income for such year is significantly less than such
income for the taxable year determined under
subparagraph (B) by reason of the death of such
individual’s spouse, the marriage or divorce of such
individual, or other major life changing events
specified in regulations prescribed by the Commis-
sioner in consultation with the Secretary.
‘‘(5) INFLATION ADJUSTMENT.—
‘‘(A) IN GENERAL.—In the case of any calendar year
beginning after 2007, each dollar amount in paragraph
(2) or (3) shall be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the percentage (if any) by which the average
of the Consumer Price Index for all urban consumers
(United States city average) for the 12-month period
ending with August of the preceding calendar year
exceeds such average for the 12-month period ending
with August 2006.
‘‘(B) ROUNDING.—If any dollar amount after being
increased under subparagraph (A) is not a multiple of
$1,000, such dollar amount shall be rounded to the nearest
multiple of $1,000.
‘‘(6) JOINT
RETURN
DEFINED.—For purposes of this sub-
section, the term ‘joint return’ has the meaning given to such
term by section 7701(a)(38) of the Internal Revenue Code of
1986.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1839 (42 U.S.C. 1395r) is amended—
(A) in subsection (a)(2), by striking ‘‘and (f)’’ and
inserting ‘‘(f), and (i)’’;
(B) in subsection (b), inserting ‘‘(without regard to any
adjustment under subsection (i))’’ after ‘‘subsection (a)’’;
and
(C) in subsection (f)—
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(i) by striking ‘‘and if’’ and inserting ‘‘if’’; and
(ii) by inserting ‘‘and if the amount of the individ-
ual’s premium is not adjusted for such January under
subsection (i),’’ after ‘‘section 1840(b)(1),’’.
(2) Section 1844 (42 U.S.C. 1395w) is amended—
(A) in subsection (a)(1)—
(i) in subparagraph (B), by striking ‘‘plus’’ at the
end and inserting ‘‘minus’’; and
(ii) by adding at the end the following new
subparagraph:
‘‘(C) the aggregate amount of additional premium payments
attributable to the application of section 1839(i); plus’’; and
(B) in subsection (c), by inserting before the period
at the end the following: ‘‘and without regard to any pre-
mium adjustment under section 1839(i)’’.
(c) 
REPORTING
REQUIREMENTS
FOR
SECRETARY
OF
THE
TREASURY.—
(1) IN
GENERAL.—Subsection (l) of section 6103 of the
Internal Revenue Code of 1986 (relating to disclosure of returns
and return information for purposes other than tax administra-
tion), as amended by section 105(e), is amended by adding
at the end the following new paragraph:
‘‘(20) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT
MEDICARE PART B PREMIUM SUBSIDY ADJUSTMENT.—
‘‘(A) IN GENERAL.—The Secretary shall, upon written
request from the Commissioner of Social Security, disclose
to officers, employees, and contractors of the Social Security
Administration return information of a taxpayer whose
premium (according to the records of the Secretary) may
be subject to adjustment under section 1839(i) of the Social
Security Act. Such return information shall be limited to—
‘‘(i) taxpayer identity information with respect to
such taxpayer,
‘‘(ii) the filing status of such taxpayer,
‘‘(iii) the adjusted gross income of such taxpayer,
‘‘(iv) the amounts excluded from such taxpayer’s
gross income under sections 135 and 911 to the extent
such information is available,
‘‘(v) the interest received or accrued during the
taxable year which is exempt from the tax imposed
by chapter 1 to the extent such information is available,
‘‘(vi) the amounts excluded from such taxpayer’s
gross income by sections 931 and 933 to the extent
such information is available,
‘‘(vii) such other information relating to the
liability of the taxpayer as is prescribed by the Sec-
retary by regulation as might indicate in the case
of a taxpayer who is an individual described in sub-
section (i)(4)(B)(iii) of section 1839 of the Social Secu-
rity Act that the amount of the premium of the tax-
payer under such section may be subject to adjustment
under subsection (i) of such section and the amount
of such adjustment, and
‘‘(viii) the taxable year with respect to which the
preceding information relates.
‘‘(B) RESTRICTION
ON
USE
OF
DISCLOSED
INFORMA-
TION.—Return information disclosed under subparagraph
26 USC 6103.
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(A) may be used by officers, employees, and contractors
of the Social Security Administration only for the purposes
of, and to the extent necessary in, establishing the appro-
priate amount of any premium adjustment under such
section 1839(i).’’
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (3) of section 6103(a) of such Code,
as amended by section 105(e)(1), is amended by striking
‘‘or (19)’’ and inserting ‘‘(19), or (20)’’.
(B) Paragraph (4) of section 6103(p) of such Code,
as amended by section 105(e)(3), is amended by striking
‘‘(l)(16), (17), or (19)’’ each place it appears and inserting
‘‘(l)(16), (17), (19), or (20)’’.
(C) Paragraph (2) of section 7213(a) of such Code,
as amended by section 105(e)(4), is amended by striking
‘‘or (19)’’ and inserting ‘‘(19), or (20)’’.
TITLE IX—ADMINISTRATIVE IMPROVE-
MENTS, 
REGULATORY 
REDUCTION,
AND CONTRACTING REFORM
SEC. 900. ADMINISTRATIVE IMPROVEMENTS WITHIN THE CENTERS
FOR MEDICARE & MEDICAID SERVICES (CMS).
(a) COORDINATED ADMINISTRATION OF MEDICARE PRESCRIPTION
DRUG
AND MEDICARE ADVANTAGE PROGRAMS.—Title XVIII (42
U.S.C. 1395 et seq.), as amended by section 721, is amended by
inserting after 1807 the following new section:
‘‘PROVISIONS RELATING TO ADMINISTRATION
‘‘SEC. 1808. (a) COORDINATED ADMINISTRATION OF MEDICARE
PRESCRIPTION DRUG AND MEDICARE ADVANTAGE PROGRAMS.—
‘‘(1) IN GENERAL.—There is within the Centers for Medicare
& Medicaid Services a center to carry out the duties described
in paragraph (3).
‘‘(2) DIRECTOR.—Such center shall be headed by a director
who shall report directly to the Administrator of the Centers
for Medicare & Medicaid Services.
‘‘(3) DUTIES.—The duties described in this paragraph are
the following:
‘‘(A) The administration of parts C and D.
‘‘(B) The provision of notice and information under
section 1804.
‘‘(C) Such other duties as the Secretary may specify.
‘‘(4) DEADLINE.—The Secretary shall ensure that the center
is carrying out the duties described in paragraph (3) by not
later than January 1, 2008.’’.
(b) MANAGEMENT STAFF FOR THE CENTERS FOR MEDICARE &
MEDICAID SERVICES.—Such section is further amended by adding
at the end the following new subsection:
‘‘(b) EMPLOYMENT OF MANAGEMENT STAFF.—
‘‘(1) IN GENERAL.—The Secretary may employ, within the
Centers for Medicare & Medicaid Services, such individuals
as management staff as the Secretary determines to be appro-
priate. With respect to the administration of parts C and D,
42 USC 1395b–9.
Establishment.
26 USC 7213.
26 USC 6103.
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such individuals shall include individuals with private sector
expertise in negotiations with health benefits plans.
‘‘(2) ELIGIBILITY.—To be eligible for employment under
paragraph (1) an individual shall be required to have dem-
onstrated, by their education and experience (either in the
public or private sector), superior expertise in at least one
of the following areas:
‘‘(A) The review, negotiation, and administration of health
care contracts.
‘‘(B) The design of health care benefit plans.
‘‘(C) Actuarial sciences.
‘‘(D) Compliance with health plan contracts.
‘‘(E) Consumer education and decision making.
‘‘(F) Any other area specified by the Secretary that requires
specialized management or other expertise.
‘‘(3) RATES OF PAYMENT.—
‘‘(A) PERFORMANCE-RELATED PAY.—Subject to subpara-
graph (B), the Secretary shall establish the rate of pay
for an individual employed under paragraph (1). Such rate
shall take into account expertise, experience, and perform-
ance.
‘‘(B) LIMITATION.—In no case may the rate of compensa-
tion determined under subparagraph (A) exceed the highest
rate of basic pay for the Senior Executive Service under
section 5382(b) of title 5, United States Code.’’.
(c) REQUIREMENT
FOR
DEDICATED
ACTUARY
FOR
PRIVATE
HEALTH PLANS.—Section 1117(b) (42 U.S.C. 1317(b)) is amended
by adding at the end the following new paragraph:
‘‘(3) In the office of the Chief Actuary there shall be an actuary
whose duties relate exclusively to the programs under parts C
and D of title XVIII and related provisions of such title.’’.
(d) INCREASE
IN GRADE
TO EXECUTIVE LEVEL III FOR
THE
ADMINISTRATOR OF THE CENTERS FOR MEDICARE & MEDICAID SERV-
ICES.—
(1) IN GENERAL.—Section 5314 of title 5, United States
Code, is amended by adding at the end the following:
‘‘Administrator of the Centers for Medicare & Medicaid
Services.’’.
(2) CONFORMING AMENDMENT.—Section 5315 of such title
is amended by striking ‘‘Administrator of the Health Care
Financing Administration.’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section take effect on January 1, 2004.
(e) CONFORMING AMENDMENTS RELATING
TO HEALTH CARE
FINANCING ADMINISTRATION.—
(1) AMENDMENTS TO THE SOCIAL SECURITY ACT.—The Social
Security Act is amended—
(A) in section 1117 (42 U.S.C. 1317)—
(i) in the heading to read as follows:
‘‘APPOINTMENT OF THE ADMINISTRATOR AND CHIEF ACTUARY OF THE
CENTERS FOR MEDICARE & MEDICAID SERVICES’’;
(ii) in subsection (a), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(iii) in subsection (b)(1)—
5 USC 5314 note.
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(I) 
by 
striking 
‘‘Health 
Care 
Financing
Administration’’ and inserting ‘‘Centers for Medi-
care & Medicaid Services’’; and
(II) by striking ‘‘Administration’’ and inserting
‘‘Centers’’;
(B) in section 1140(a) (42 U.S.C. 1320b–10(a))—
(i) in paragraph (1), by striking ‘‘Health Care
Financing Administration’’ both places it appears in
the matter following subparagraph (B) and inserting
‘‘Centers for Medicare & Medicaid Services’’;
(ii) in paragraph (1)(A)—
(I) 
by 
striking 
‘‘Health 
Care 
Financing
Administration’’ and inserting ‘‘Centers for Medi-
care & Medicaid Services’’; and
(II) by striking ‘‘HCFA’’ and inserting ‘‘CMS’’;
and
(iii) in paragraph (1)(B), by striking ‘‘Health Care
Financing Administration’’ both places it appears and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(C) in section 1142(b)(3) (42 U.S.C. 1320b–12(b)(3)),
by striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(D) in section 1817(b) (42 U.S.C. 1395i(b))—
(i) by striking ‘‘Health Care Financing Administra-
tion’’, both in the fifth sentence of the matter preceding
paragraph (1) and in the second sentence of the matter
following paragraph (4), and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(ii) by striking ‘‘Chief Actuarial Officer’’ in the
second sentence of the matter following paragraph (4)
and inserting ‘‘Chief Actuary’’;
(E) in section 1841(b) (42 U.S.C. 1395t(b))—
(i) by striking ‘‘Health Care Financing Administra-
tion’’, both in the fifth sentence of the matter preceding
paragraph (1) and in the second sentence of the matter
following paragraph (4), and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(ii) by striking ‘‘Chief Actuarial Officer’’ in the
second sentence of the matter following paragraph (4)
and inserting ‘‘Chief Actuary’’;
(F) in section 1852(a)(5) (42 U.S.C. 1395w–22(a)(5)),
by striking ‘‘Health Care Financing Administration’’ in the
matter following subparagraph (B) and inserting ‘‘Centers
for Medicare & Medicaid Services’’;
(G) in section 1853 (42 U.S.C. 1395w–23)—
(i) in subsection (b)(4), by striking ‘‘Health Care
Financing Administration’’ in the first sentence and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
and
(ii) in subsection (c)(7), by striking ‘‘Health Care
Financing Administration’’ in the last sentence and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(H) in section 1854(a)(5)(A) (42 U.S.C. 1395w–
24(a)(5)(A)), 
by 
striking 
‘‘Health 
Care 
Financing
Administration’’and inserting ‘‘Centers for Medicare &
Medicaid Services’’;
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117 STAT. 2372
PUBLIC LAW 108–173—DEC. 8, 2003
(I) in section 1857(d)(4)(A)(ii) (42 U.S.C. 1395w–
27(d)(4)(A)(ii)), 
by 
striking 
‘‘Health 
Care 
Financing
Administration’’ and inserting ‘‘Secretary’’;
(J) 
in 
section 
1862(b)(5)(A)(ii) 
(42 
U.S.C.
1395y(b)(5)(A)(ii)), by striking ‘‘Health Care Financing
Administration’’ and inserting ‘‘Centers for Medicare &
Medicaid Services’’;
(K) in section 1927(e)(4) (42 U.S.C. 1396r–8(e)(4)), by
striking ‘‘HCFA’’ and inserting ‘‘The Secretary’’;
(L) in section 1927(f)(2) (42 U.S.C. 1396r–8(f)(2)), by
striking ‘‘HCFA’’ and inserting ‘‘The Secretary’’; and
(M) in section 2104(g)(3) (42 U.S.C. 1397dd(g)(3)) by
inserting ‘‘or CMS Form 64 or CMS Form 21, as the case
may be,’’ after ‘‘HCFA Form 64 or HCFA Form 21’’.
(2) AMENDMENTS TO THE PUBLIC HEALTH SERVICE ACT.—
The Public Health Service Act is amended—
(A) in section 501(d)(18) (42 U.S.C. 290aa(d)(18)), by
striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(B) in section 507(b)(6) (42 U.S.C. 290bb(b)(6)), by
striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(C) in section 916 (42 U.S.C. 299b–5)—
(i) in subsection (b)(2), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(ii) in subsection (c)(2), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’;
(D) in section 921(c)(3)(A) (42 U.S.C. 299c(c)(3)(A)),
by striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(E) in section 1318(a)(2) (42 U.S.C. 300e–17(a)(2)), by
striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’;
(F) in section 2102(a)(7) (42 U.S.C. 300aa–2(a)(7)), by
striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’; and
(G) in section 2675(a) (42 U.S.C. 300ff–75(a)), by
striking ‘‘Health Care Financing Administration’’ in the
first sentence and inserting ‘‘Centers for Medicare & Med-
icaid Services’’.
(3) AMENDMENTS
TO
THE
INTERNAL
REVENUE
CODE
OF
1986.—Section 6103(l)(12) of the Internal Revenue Code of 1986
is amended—
(A) in subparagraph (B), by striking ‘‘Health Care
Financing Administration’’ in the matter preceding clause
(i) and inserting ‘‘Centers for Medicare & Medicaid Serv-
ices’’; and
(B) in subparagraph (C)—
(i) by striking ‘‘HEALTH CARE FINANCING ADMINIS-
TRATION’’ in the heading and inserting ‘‘CENTERS FOR
MEDICARE & MEDICAID SERVICES’’; and
(ii) by striking ‘‘Health Care Financing Adminis-
tration’’ in the matter preceding clause (i) and inserting
‘‘Centers for Medicare & Medicaid Services’’.
26 USC 6103.
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PUBLIC LAW 108–173—DEC. 8, 2003
(4) AMENDMENTS TO TITLE 10, UNITED STATES CODE.—Title
10, United States Code, is amended—
(A) in section 1086(d)(4), by striking ‘‘administrator
of the Health Care Financing Administration’’ in the last
sentence and inserting ‘‘Administrator of the Centers for
Medicare & Medicaid Services’’; and
(B) in section 1095(k)(2), by striking ‘‘Health Care
Financing Administration’’ in the second sentence and
inserting ‘‘Centers for Medicare & Medicaid Services’’.
(5) AMENDMENTS TO THE ALZHEIMER’S DISEASE AND RELATED
DEMENTIAS SERVICES RESEARCH ACT OF 1992.—The Alzheimer’s
Disease and Related Dementias Research Act of 1992 (42 U.S.C.
11271 et seq.) is amended—
(A) in the heading of subpart 3 of part D to read
as follows:
‘‘Subpart 3—Responsibilities of the Centers for Medicare &
Medicaid Services’’;
(B) in section 937 (42 U.S.C. 11271)—
(i) in subsection (a), by striking ‘‘National Health
Care Financing Administration’’ and inserting ‘‘Centers
for Medicare & Medicaid Services’’;
(ii) in subsection (b)(1), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’;
(iii) in subsection (b)(2), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(iv) in subsection (c), by striking ‘‘Health Care
Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’; and
(C) in section 938 (42 U.S.C. 11272), by striking
‘‘Health Care Financing Administration’’ and inserting
‘‘Centers for Medicare & Medicaid Services’’.
(6) MISCELLANEOUS AMENDMENTS.—
(A) REHABILITATION ACT OF 1973.—Section 202(b)(8) of
the Rehabilitation Act of 1973 (29 U.S.C. 762(b)(8)) is
amended by striking ‘‘Health Care Financing Administra-
tion’’ and inserting ‘‘Centers for Medicare & Medicaid Serv-
ices’’.
(B) INDIAN HEALTH CARE IMPROVEMENT ACT.—Section
405(d)(1) of the Indian Health Care Improvement Act (25
U.S.C. 1645(d)(1)) is amended by striking ‘‘Health Care
Financing 
Administration’’ 
in 
the 
matter 
preceding
subparagraph (A) and inserting ‘‘Centers for Medicare &
Medicaid Services’’.
(C) INDIVIDUALS WITH DISABILITIES EDUCATION ACT.—
Section 644(b)(5) of the Individuals with Disabilities Edu-
cation Act (20 U.S.C. 1444(b)(5)) is amended by striking
‘‘Health Care Financing Administration’’ and inserting
‘‘Centers for Medicare & Medicaid Services’’.
(D) THE HOME HEALTH CARE AND ALZHEIMER’S DISEASE
AMENDMENTS
OF
1990.—Section 302(a)(9) of the Home
Health Care and Alzheimer’s Disease Amendments of 1990
(42 U.S.C. 242q–1(a)(9)) is amended by striking ‘‘Health
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Care Financing Administration’’ and inserting ‘‘Centers for
Medicare & Medicaid Services’’.
(E) THE
CHILDREN’S
HEALTH
ACT
OF
2000.—Section
2503(a) of the Children’s Health Act of 2000 (42 U.S.C.
247b–3a(a)) is amended by striking ‘‘Health Care Financing
Administration’’ and inserting ‘‘Centers for Medicare &
Medicaid Services’’.
(F) THE NATIONAL INSTITUTES OF HEALTH REVITALIZA-
TION ACT OF 1993.—Section 1909 of the National Institutes
of Health Revitalization Act of 1993 (42 U.S.C. 299a note)
is amended by striking ‘‘Health Care Financing Administra-
tion’’ and inserting ‘‘Centers for Medicare & Medicaid Serv-
ices’’.
(G) THE
OMNIBUS
BUDGET
RECONCILIATION
ACT
OF
1990.—Section 4359(d) of the Omnibus Budget Reconcili-
ation Act of 1990 (42 U.S.C. 1395b–3(d)) is amended by
striking ‘‘Health Care Financing Administration’’ and
inserting ‘‘Centers for Medicare & Medicaid Services’’.
(H) THE
MEDICARE, MEDICAID, AND
SCHIP
BENEFITS
IMPROVEMENT
AND
PROTECTION
ACT
OF
2000.—Section
104(d)(4) of the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (42 U.S.C. 1395m
note) is amended by striking ‘‘Health Care Financing
Administration’’ and inserting ‘‘Health Care’’.
(7) ADDITIONAL AMENDMENT.—Section 403 of the Act enti-
tled, ‘‘An Act to authorize certain appropriations for the terri-
tories of the United States, to amend certain Acts relating
thereto, and for other purposes’’, enacted October 15, 1977
(48 U.S.C. 1574–1; 48 U.S.C. 1421q–1), is amended by striking
‘‘Health Care Financing Administration’’ and inserting ‘‘Centers
for Medicare & Medicaid Services’’.
Subtitle A—Regulatory Reform
SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.
(a) CONSTRUCTION.—Nothing in this title shall be construed—
(1) to compromise or affect existing legal remedies for
addressing fraud or abuse, whether it be criminal prosecution,
civil enforcement, or administrative remedies, including under
sections 3729 through 3733 of title 31, United States Code
(commonly known as the ‘‘False Claims Act’’); or
(2) to prevent or impede the Department of Health and
Human Services in any way from its ongoing efforts to eliminate
waste, fraud, and abuse in the medicare program.
Furthermore, the consolidation of medicare administrative con-
tracting set forth in this division does not constitute consolidation
of the Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund or reflect any posi-
tion on that issue.
(b) DEFINITION OF SUPPLIER.—Section 1861 (42 U.S.C. 1395x)
is amended by inserting after subsection (c) the following new
subsection:
Fraud.
42 USC
1395kk–1 note.
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‘‘Supplier
‘‘(d) The term ‘supplier’ means, unless the context otherwise
requires, a physician or other practitioner, a facility, or other entity
(other than a provider of services) that furnishes items or services
under this title.’’.
SEC. 902. ISSUANCE OF REGULATIONS.
(a) REGULAR TIMELINE FOR PUBLICATION OF FINAL RULES.—
(1) IN
GENERAL.—Section 1871(a) (42 U.S.C. 1395hh(a))
is amended by adding at the end the following new paragraph:
‘‘(3)(A) The Secretary, in consultation with the Director of the
Office of Management and Budget, shall establish and publish
a regular timeline for the publication of final regulations based
on the previous publication of a proposed regulation or an interim
final regulation.
‘‘(B) Such timeline may vary among different regulations based
on differences in the complexity of the regulation, the number
and scope of comments received, and other relevant factors, but
shall not be longer than 3 years except under exceptional cir-
cumstances. If the Secretary intends to vary such timeline with
respect to the publication of a final regulation, the Secretary shall
cause to have published in the Federal Register notice of the dif-
ferent timeline by not later than the timeline previously established
with respect to such regulation. Such notice shall include a brief
explanation of the justification for such variation.
‘‘(C) In the case of interim final regulations, upon the expiration
of the regular timeline established under this paragraph for the
publication of a final regulation after opportunity for public com-
ment, the interim final regulation shall not continue in effect unless
the Secretary publishes (at the end of the regular timeline and,
if applicable, at the end of each succeeding 1-year period) a notice
of continuation of the regulation that includes an explanation of
why the regular timeline (and any subsequent 1-year extension)
was not complied with. If such a notice is published, the regular
timeline (or such timeline as previously extended under this para-
graph) for publication of the final regulation shall be treated as
having been extended for 1 additional year.
‘‘(D) The Secretary shall annually submit to Congress a report
that describes the instances in which the Secretary failed to publish
a final regulation within the applicable regular timeline under
this paragraph and that provides an explanation for such failures.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on the date of the enactment of this Act.
The Secretary shall provide for an appropriate transition to
take into account the backlog of previously published interim
final regulations.
(b) LIMITATIONS ON NEW MATTER IN FINAL REGULATIONS.—
(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 1395hh(a)),
as amended by subsection (a), is amended by adding at the
end the following new paragraph:
‘‘(4) If the Secretary publishes a final regulation that includes
a provision that is not a logical outgrowth of a previously published
notice of proposed rulemaking or interim final rule, such provision
shall be treated as a proposed regulation and shall not take effect
until there is the further opportunity for public comment and a
publication of the provision again as a final regulation.’’.
42 USC 1395hh
note.
Reports.
Federal Register,
publication.
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(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to final regulations published on or after the
date of the enactment of this Act.
SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLI-
CIES.
(a) NO RETROACTIVE APPLICATION OF SUBSTANTIVE CHANGES.—
(1) IN
GENERAL.—Section 1871 (42 U.S.C. 1395hh), as
amended by section 902(a), is amended by adding at the end
the following new subsection:
‘‘(e)(1)(A) A substantive change in regulations, manual instruc-
tions, interpretative rules, statements of policy, or guidelines of
general applicability under this title shall not be applied (by
extrapolation or otherwise) retroactively to items and services fur-
nished before the effective date of the change, unless the Secretary
determines that—
‘‘(i) such retroactive application is necessary to comply with
statutory requirements; or
‘‘(ii) failure to apply the change retroactively would be
contrary to the public interest.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to substantive changes issued on or after the
date of the enactment of this Act.
(b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE CHANGES
AFTER NOTICE.—
(1) IN GENERAL.—Section 1871(e)(1), as added by subsection
(a), is amended by adding at the end the following:
‘‘(B)(i) Except as provided in clause (ii), a substantive change
referred to in subparagraph (A) shall not become effective before
the end of the 30-day period that begins on the date that the
Secretary has issued or published, as the case may be, the sub-
stantive change.
‘‘(ii) The Secretary may provide for such a substantive change
to take effect on a date that precedes the end of the 30-day period
under clause (i) if the Secretary finds that waiver of such 30-
day period is necessary to comply with statutory requirements
or that the application of such 30-day period is contrary to the
public interest. If the Secretary provides for an earlier effective
date pursuant to this clause, the Secretary shall include in the
issuance or publication of the substantive change a finding described
in the first sentence, and a brief statement of the reasons for
such finding.
‘‘(C) No action shall be taken against a provider of services
or supplier with respect to noncompliance with such a substantive
change for items and services furnished before the effective date
of such a change.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to compliance actions undertaken on or after
the date of the enactment of this Act.
(c) RELIANCE ON GUIDANCE.—
(1) IN GENERAL.—Section 1871(e), as added by subsection
(a), is further amended by adding at the end the following
new paragraph:
‘‘(2)(A) If—
‘‘(i) a provider of services or supplier follows the written
guidance (which may be transmitted electronically) provided
by the Secretary or by a medicare contractor (as defined in
42 USC 1395hh
note.
42 USC 1395hh
note.
42 USC 1395hh
note.
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section 1889(g)) acting within the scope of the contractor’s
contract authority, with respect to the furnishing of items or
services and submission of a claim for benefits for such items
or services with respect to such provider or supplier;
‘‘(ii) the Secretary determines that the provider of services
or supplier has accurately presented the circumstances relating
to such items, services, and claim to the contractor in writing;
and
‘‘(iii) the guidance was in error;
the provider of services or supplier shall not be subject to any
penalty or interest under this title or the provisions of title XI
insofar as they relate to this title (including interest under a repay-
ment plan under section 1893 or otherwise) relating to the provision
of such items or service or such claim if the provider of services
or supplier reasonably relied on such guidance.
‘‘(B) Subparagraph (A) shall not be construed as preventing
the recoupment or repayment (without any additional penalty)
relating to an overpayment insofar as the overpayment was solely
the result of a clerical or technical operational error.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on the date of the enactment of this Act
and shall only apply to a penalty or interest imposed with
respect to guidance provided on or after July 24, 2003.
SEC. 904. REPORTS AND STUDIES RELATING TO REGULATORY
REFORM.
(a) GAO STUDY ON ADVISORY OPINION AUTHORITY.—
(1) STUDY.—The Comptroller General of the United States
shall conduct a study to determine the feasibility and appro-
priateness of establishing in the Secretary authority to provide
legally binding advisory opinions on appropriate interpretation
and application of regulations to carry out the medicare pro-
gram under title XVIII of the Social Security Act. Such study
shall examine the appropriate timeframe for issuing such
advisory opinions, as well as the need for additional staff and
funding to provide such opinions.
(2) REPORT.—The Comptroller General shall submit to Con-
gress a report on the study conducted under paragraph (1)
by not later than 1 year after the date of the enactment of
this Act.
(b) REPORT ON LEGAL AND REGULATORY INCONSISTENCIES.—
Section 1871 (42 U.S.C. 1395hh), as amended by section 903(a)(1),
is amended by adding at the end the following new subsection:
‘‘(f)(1) Not later than 2 years after the date of the enactment
of this subsection, and every 3 years thereafter, the Secretary
shall submit to Congress a report with respect to the administration
of this title and areas of inconsistency or conflict among the various
provisions under law and regulation.
‘‘(2) In preparing a report under paragraph (1), the Secretary
shall collect—
‘‘(A) information from individuals entitled to benefits under
part A or enrolled under part B, or both, providers of services,
and suppliers and from the Medicare Beneficiary Ombudsman
with respect to such areas of inconsistency and conflict; and
‘‘(B) information from medicare contractors that tracks the
nature of written and telephone inquiries.
42 USC 1395hh
note.
42 USC 1395hh
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(3) A report under paragraph (1) shall include a description
of efforts by the Secretary to reduce such inconsistency or conflicts,
and recommendations for legislation or administrative action that
the Secretary determines appropriate to further reduce such
inconsistency or conflicts.’’.
Subtitle B—Contracting Reform
SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.
(a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE ADMINISTRA-
TION.—
(1) IN GENERAL.—Title XVIII is amended by inserting after
section 1874 the following new section:
‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE CONTRACTORS
‘‘SEC. 1874A. (a) AUTHORITY.—
‘‘(1) AUTHORITY TO ENTER INTO CONTRACTS.—The Secretary
may enter into contracts with any eligible entity to serve as
a medicare administrative contractor with respect to the
performance of any or all of the functions described in para-
graph (4) or parts of those functions (or, to the extent provided
in a contract, to secure performance thereof by other entities).
‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is eligible to enter
into a contract with respect to the performance of a particular
function described in paragraph (4) only if—
‘‘(A) the entity has demonstrated capability to carry
out such function;
‘‘(B) the entity complies with such conflict of interest
standards as are generally applicable to Federal acquisition
and procurement;
‘‘(C) the entity has sufficient assets to financially sup-
port the performance of such function; and
‘‘(D) the entity meets such other requirements as the
Secretary may impose.
‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR DEFINED.—For
purposes of this title and title XI—
‘‘(A) IN GENERAL.—The term ‘medicare administrative
contractor’ means an agency, organization, or other person
with a contract under this section.
‘‘(B) APPROPRIATE
MEDICARE
ADMINISTRATIVE
CON-
TRACTOR.—With respect to the performance of a particular
function in relation to an individual entitled to benefits
under part A or enrolled under part B, or both, a specific
provider of services or supplier (or class of such providers
of services or suppliers), the ‘appropriate’ medicare
administrative contractor is the medicare administrative
contractor that has a contract under this section with
respect to the performance of that function in relation
to that individual, provider of services or supplier or class
of provider of services or supplier.
‘‘(4) FUNCTIONS DESCRIBED.—The functions referred to in
paragraphs (1) and (2) are payment functions (including the
function of developing local coverage determinations, as defined
in section 1869(f)(2)(B)), provider services functions, and func-
tions relating to services furnished to individuals entitled to
42 USC
1395kk–1 note.
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117 STAT. 2379
PUBLIC LAW 108–173—DEC. 8, 2003
benefits under part A or enrolled under part B, or both, as
follows:
‘‘(A) DETERMINATION
OF
PAYMENT
AMOUNTS.—Deter-
mining (subject to the provisions of section 1878 and to
such review by the Secretary as may be provided for by
the contracts) the amount of the payments required pursu-
ant to this title to be made to providers of services, sup-
pliers and individuals.
‘‘(B) MAKING PAYMENTS.—Making payments described
in subparagraph (A) (including receipt, disbursement, and
accounting for funds in making such payments).
‘‘(C) BENEFICIARY EDUCATION AND ASSISTANCE.—Pro-
viding education and outreach to individuals entitled to
benefits under part A or enrolled under part B, or both,
and providing assistance to those individuals with specific
issues, concerns, or problems.
‘‘(D) PROVIDER
CONSULTATIVE
SERVICES.—Providing
consultative services to institutions, agencies, and other
persons to enable them to establish and maintain fiscal
records necessary for purposes of this title and otherwise
to qualify as providers of services or suppliers.
‘‘(E) 
COMMUNICATION
WITH
PROVIDERS.—Commu-
nicating to providers of services and suppliers any informa-
tion or instructions furnished to the medicare administra-
tive contractor by the Secretary, and facilitating commu-
nication between such providers and suppliers and the
Secretary.
‘‘(F) PROVIDER
EDUCATION
AND
TECHNICAL
ASSIST-
ANCE.—Performing the functions relating to provider edu-
cation, training, and technical assistance.
‘‘(G) ADDITIONAL FUNCTIONS.—Performing such other
functions, including (subject to paragraph (5)) functions
under the Medicare Integrity Program under section 1893,
as are necessary to carry out the purposes of this title.
‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
‘‘(A) NONDUPLICATION OF DUTIES.—In entering into con-
tracts under this section, the Secretary shall assure that
functions of medicare administrative contractors in car-
rying out activities under parts A and B do not duplicate
activities carried out under a contract entered into under
the Medicare Integrity Program under section 1893. The
previous sentence shall not apply with respect to the
activity described in section 1893(b)(5) (relating to prior
authorization of certain items of durable medical equipment
under section 1834(a)(15)).
‘‘(B) CONSTRUCTION.—An entity shall not be treated
as a medicare administrative contractor merely by reason
of having entered into a contract with the Secretary under
section 1893.
‘‘(6) APPLICATION OF FEDERAL ACQUISITION REGULATION.—
Except to the extent inconsistent with a specific requirement
of this section, the Federal Acquisition Regulation applies to
contracts under this section.
‘‘(b) CONTRACTING REQUIREMENTS.—
‘‘(1) USE OF COMPETITIVE PROCEDURES.—
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117 STAT. 2380
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(A) IN GENERAL.—Except as provided in laws with
general applicability to Federal acquisition and procure-
ment or in subparagraph (B), the Secretary shall use
competitive procedures when entering into contracts with
medicare administrative contractors under this section,
taking into account performance quality as well as price
and other factors.
‘‘(B) RENEWAL
OF
CONTRACTS.—The Secretary may
renew a contract with a medicare administrative contractor
under this section from term to term without regard to
section 5 of title 41, United States Code, or any other
provision of law requiring competition, if the medicare
administrative contractor has met or exceeded the perform-
ance requirements applicable with respect to the contract
and contractor, except that the Secretary shall provide
for the application of competitive procedures under such
a contract not less frequently than once every 5 years.
‘‘(C) TRANSFER
OF
FUNCTIONS.—The Secretary may
transfer functions among medicare administrative contrac-
tors consistent with the provisions of this paragraph. The
Secretary shall ensure that performance quality is consid-
ered in such transfers. The Secretary shall provide public
notice (whether in the Federal Register or otherwise) of
any such transfer (including a description of the functions
so transferred, a description of the providers of services
and suppliers affected by such transfer, and contact
information for the contractors involved).
‘‘(D) INCENTIVES
FOR
QUALITY.—The Secretary shall
provide incentives for medicare administrative contractors
to provide quality service and to promote efficiency.
‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No contract under
this section shall be entered into with any medicare administra-
tive contractor unless the Secretary finds that such medicare
administrative contractor will perform its obligations under
the contract efficiently and effectively and will meet such
requirements as to financial responsibility, legal authority,
quality of services provided, and other matters as the Secretary
finds pertinent.
‘‘(3) PERFORMANCE REQUIREMENTS.—
‘‘(A) 
DEVELOPMENT
OF
SPECIFIC
PERFORMANCE
REQUIREMENTS.—
‘‘(i) IN GENERAL.—The Secretary shall develop con-
tract performance requirements to carry out the spe-
cific requirements applicable under this title to a func-
tion described in subsection (a)(4) and shall develop
standards for measuring the extent to which a con-
tractor has met such requirements.
‘‘(ii) CONSULTATION.—In developing such perform-
ance requirements and standards for measurement,
the Secretary shall consult with providers of services,
organizations representative of beneficiaries under this
title, and organizations and agencies performing func-
tions necessary to carry out the purposes of this section
with respect to such performance requirements.
‘‘(iii) PUBLICATION OF STANDARDS.—The Secretary
shall make such performance requirements and
measurement standards available to the public.
Notification.
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117 STAT. 2381
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(B) CONSIDERATIONS.—The Secretary shall include, as
one of the standards developed under subparagraph (A),
provider and beneficiary satisfaction levels.
‘‘(C) INCLUSION IN CONTRACTS.—All contractor perform-
ance requirements shall be set forth in the contract between
the Secretary and the appropriate medicare administrative
contractor. Such performance requirements—
‘‘(i) shall reflect the performance requirements
published under subparagraph (A), but may include
additional performance requirements;
‘‘(ii) shall be used for evaluating contractor
performance under the contract; and
‘‘(iii) shall be consistent with the written statement
of work provided under the contract.
‘‘(4) INFORMATION REQUIREMENTS.—The Secretary shall not
enter into a contract with a medicare administrative contractor
under this section unless the contractor agrees—
‘‘(A) to furnish to the Secretary such timely information
and reports as the Secretary may find necessary in per-
forming his functions under this title; and
‘‘(B) to maintain such records and afford such access
thereto as the Secretary finds necessary to assure the
correctness and verification of the information and reports
under subparagraph (A) and otherwise to carry out the
purposes of this title.
‘‘(5) SURETY BOND.—A contract with a medicare administra-
tive contractor under this section may require the medicare
administrative contractor, and any of its officers or employees
certifying payments or disbursing funds pursuant to the con-
tract, or otherwise participating in carrying out the contract,
to give surety bond to the United States in such amount as
the Secretary may deem appropriate.
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any medicare adminis-
trative contractor under this section may contain such terms
and conditions as the Secretary finds necessary or appropriate
and may provide for advances of funds to the medicare adminis-
trative contractor for the making of payments by it under
subsection (a)(4)(B).
‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN DATA COLLEC-
TION.—The Secretary may not require, as a condition of entering
into, or renewing, a contract under this section, that the medi-
care administrative contractor match data obtained other than
in its activities under this title with data used in the adminis-
tration of this title for purposes of identifying situations in
which the provisions of section 1862(b) may apply.
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE ADMINISTRATIVE
CONTRACTORS AND CERTAIN OFFICERS.—
‘‘(1) CERTIFYING OFFICER.—No individual designated pursu-
ant to a contract under this section as a certifying officer
shall, in the absence of the reckless disregard of the individual’s
obligations or the intent by that individual to defraud the
United States, be liable with respect to any payments certified
by the individual under this section.
‘‘(2) DISBURSING OFFICER.—No disbursing officer shall, in
the absence of the reckless disregard of the officer’s obligations
or the intent by that officer to defraud the United States,
Records.
Reports.
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117 STAT. 2382
PUBLIC LAW 108–173—DEC. 8, 2003
be liable with respect to any payment by such officer under
this section if it was based upon an authorization (which meets
the applicable requirements for such internal controls estab-
lished by the Comptroller General of the United States) of
a certifying officer designated as provided in paragraph (1)
of this subsection.
‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE CONTRACTOR.—
‘‘(A) IN
GENERAL.—No medicare administrative con-
tractor shall be liable to the United States for a payment
by a certifying or disbursing officer unless, in connection
with such payment, the medicare administrative contractor
acted with reckless disregard of its obligations under its
medicare administrative contract or with intent to defraud
the United States.
‘‘(B) RELATIONSHIP TO FALSE CLAIMS ACT.—Nothing in
this subsection shall be construed to limit liability for con-
duct that would constitute a violation of sections 3729
through 3731 of title 31, United States Code.
‘‘(4) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN GENERAL.—Subject to subparagraphs (B) and
(D), in the case of a medicare administrative contractor
(or a person who is a director, officer, or employee of
such a contractor or who is engaged by the contractor
to participate directly in the claims administration process)
who is made a party to any judicial or administrative
proceeding arising from or relating directly to the claims
administration process under this title, the Secretary may,
to the extent the Secretary determines to be appropriate
and as specified in the contract with the contractor, indem-
nify the contractor and such persons.
‘‘(B) CONDITIONS.—The Secretary may not provide
indemnification under subparagraph (A) insofar as the
liability for such costs arises directly from conduct that
is determined by the judicial proceeding or by the Secretary
to be criminal in nature, fraudulent, or grossly negligent.
If indemnification is provided by the Secretary with respect
to a contractor before a determination that such costs arose
directly from such conduct, the contractor shall reimburse
the Secretary for costs of indemnification.
‘‘(C) SCOPE OF INDEMNIFICATION.—Indemnification by
the Secretary under subparagraph (A) may include pay-
ment of judgments, settlements (subject to subparagraph
(D)), awards, and costs (including reasonable legal
expenses).
‘‘(D) WRITTEN APPROVAL FOR SETTLEMENTS OR COM-
PROMISES.—A contractor or other person described in
subparagraph (A) may not propose to negotiate a settlement
or compromise of a proceeding described in such subpara-
graph without the prior written approval of the Secretary
to negotiate such settlement or compromise. Any indem-
nification under subparagraph (A) with respect to amounts
paid under a settlement or compromise of a proceeding
described in such subparagraph are conditioned upon prior
written approval by the Secretary of the final settlement
or compromise.
‘‘(E) CONSTRUCTION.—Nothing in this paragraph shall
be construed—
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117 STAT. 2383
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(i) to change any common law immunity that
may be available to a medicare administrative con-
tractor or person described in subparagraph (A); or
‘‘(ii) to permit the payment of costs not otherwise
allowable, reasonable, or allocable under the Federal
Acquisition Regulation.’’.
(2) CONSIDERATION OF INCORPORATION OF CURRENT LAW
STANDARDS.—In developing contract performance requirements
under section 1874A(b) of the Social Security Act, as inserted
by paragraph (1), the Secretary shall consider inclusion of the
performance standards described in sections 1816(f)(2) of such
Act (relating to timely processing of reconsiderations and
applications for exemptions) and section 1842(b)(2)(B) of such
Act (relating to timely review of determinations and fair hearing
requests), as such sections were in effect before the date of
the enactment of this Act.
(b) CONFORMING AMENDMENTS TO SECTION 1816 (RELATING TO
FISCAL
INTERMEDIARIES).—Section 1816 (42 U.S.C. 1395h) is
amended as follows:
(1) The heading is amended to read as follows:
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART A’’.
(2) Subsection (a) is amended to read as follows:
‘‘(a) The administration of this part shall be conducted through
contracts with medicare administrative contractors under section
1874A.’’.
(3) Subsection (b) is repealed.
(4) Subsection (c) is amended—
(A) by striking paragraph (1); and
(B) in each of paragraphs (2)(A) and (3)(A), by striking
‘‘agreement under this section’’ and inserting ‘‘contract
under section 1874A that provides for making payments
under this part’’.
(5) Subsections (d) through (i) are repealed.
(6) Subsections (j) and (k) are each amended—
(A) by striking ‘‘An agreement with an agency or
organization under this section’’ and inserting ‘‘A contract
with a medicare administrative contractor under section
1874A with respect to the administration of this part’’;
and
(B) by striking ‘‘such agency or organization’’ and
inserting ‘‘such medicare administrative contractor’’ each
place it appears.
(7) Subsection (l) is repealed.
(c) CONFORMING AMENDMENTS TO SECTION 1842 (RELATING TO
CARRIERS).—Section 1842 (42 U.S.C. 1395u) is amended as follows:
(1) The heading is amended to read as follows:
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART B’’.
(2) Subsection (a) is amended to read as follows:
‘‘(a) The administration of this part shall be conducted through
contracts with medicare administrative contractors under section
1874A.’’.
(3) Subsection (b) is amended—
(A) by striking paragraph (1);
(B) in paragraph (2)—
42 USC
1395kk–1 note.
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117 STAT. 2384
PUBLIC LAW 108–173—DEC. 8, 2003
(i) by striking subparagraphs (A) and (B);
(ii) in subparagraph (C), by striking ‘‘carriers’’ and
inserting ‘‘medicare administrative contractors’’; and
(iii) by striking subparagraphs (D) and (E);
(C) in paragraph (3)—
(i) in the matter before subparagraph (A), by
striking ‘‘Each such contract shall provide that the
carrier’’ and inserting ‘‘The Secretary’’;
(ii) by striking ‘‘will’’ the first place it appears
in each of subparagraphs (A), (B), (F), (G), (H), and
(L) and inserting ‘‘shall’’;
(iii) in subparagraph (B), in the matter before
clause (i), by striking ‘‘to the policyholders and sub-
scribers of the carrier’’ and inserting ‘‘to the policy-
holders and subscribers of the medicare administrative
contractor’’;
(iv) by striking subparagraphs (C), (D), and (E);
(v) in subparagraph (H)—
(I) by striking ‘‘if it makes determinations or
payments with respect to physicians’ services,’’ in
the matter preceding clause (i); and
(II) by striking ‘‘carrier’’ and inserting ‘‘medi-
care administrative contractor’’ in clause (i);
(vi) by striking subparagraph (I);
(vii) in subparagraph (L), by striking the semicolon
and inserting a period;
(viii) in the first sentence, after subparagraph (L),
by striking ‘‘and shall contain’’ and all that follows
through the period; and
(ix) in the seventh sentence, by inserting ‘‘medicare
administrative contractor,’’ after ‘‘carrier,’’;
(D) by striking paragraph (5);
(E) in paragraph (6)(D)(iv), by striking ‘‘carrier’’ and
inserting ‘‘medicare administrative contractor’’; and
(F) in paragraph (7), by striking ‘‘the carrier’’ and
inserting ‘‘the Secretary’’ each place it appears.
(4) Subsection (c) is amended—
(A) by striking paragraph (1);
(B) in paragraph (2)(A), by striking ‘‘contract under
this section which provides for the disbursement of funds,
as described in subsection (a)(1)(B),’’ and inserting ‘‘contract
under section 1874A that provides for making payments
under this part’’;
(C) in paragraph (3)(A), by striking ‘‘subsection
(a)(1)(B)’’ and inserting ‘‘section 1874A(a)(3)(B)’’;
(D) in paragraph (4), in the matter preceding subpara-
graph (A), by striking ‘‘carrier’’ and inserting ‘‘medicare
administrative contractor’’; and
(E) by striking paragraphs (5) and (6).
(5) Subsections (d), (e), and (f) are repealed.
(6) Subsection (g) is amended by striking ‘‘carrier or car-
riers’’ and inserting ‘‘medicare administrative contractor or con-
tractors’’.
(7) Subsection (h) is amended—
(A) in paragraph (2)—
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117 STAT. 2385
PUBLIC LAW 108–173—DEC. 8, 2003
(i) by striking ‘‘Each carrier having an agreement
with the Secretary under subsection (a)’’ and inserting
‘‘The Secretary’’; and
(ii) by striking ‘‘Each such carrier’’ and inserting
‘‘The Secretary’’;
(B) in paragraph (3)(A)—
(i) by striking ‘‘a carrier having an agreement with
the Secretary under subsection (a)’’ and inserting
‘‘medicare administrative contractor having a contract
under section 1874A that provides for making pay-
ments under this part’’; and
(ii) by striking ‘‘such carrier’’ and inserting ‘‘such
contractor’’;
(C) in paragraph (3)(B)—
(i) by striking ‘‘a carrier’’ and inserting ‘‘a medicare
administrative contractor’’ each place it appears; and
(ii) by striking ‘‘the carrier’’ and inserting ‘‘the
contractor’’ each place it appears; and
(D) in paragraphs (5)(A) and (5)(B)(iii), by striking
‘‘carriers’’ and inserting ‘‘medicare administrative contrac-
tors’’ each place it appears.
(8) Subsection (l) is amended—
(A) in paragraph (1)(A)(iii), by striking ‘‘carrier’’ and
inserting ‘‘medicare administrative contractor’’; and
(B) in paragraph (2), by striking ‘‘carrier’’ and inserting
‘‘medicare administrative contractor’’.
(9) Subsection (p)(3)(A) is amended by striking ‘‘carrier’’
and inserting ‘‘medicare administrative contractor’’.
(10) Subsection (q)(1)(A) is amended by striking ‘‘carrier’’.
(d) EFFECTIVE DATE; TRANSITION RULE.—
(1) EFFECTIVE DATE.—
(A) IN GENERAL.—Except as otherwise provided in this
subsection, the amendments made by this section shall
take effect on October 1, 2005, and the Secretary is author-
ized to take such steps before such date as may be nec-
essary to implement such amendments on a timely basis.
(B) CONSTRUCTION
FOR
CURRENT
CONTRACTS.—Such
amendments shall not apply to contracts in effect before
the date specified under subparagraph (A) that continue
to retain the terms and conditions in effect on such date
(except as otherwise provided under this Act, other than
under this section) until such date as the contract is let
out for competitive bidding under such amendments.
(C) DEADLINE
FOR
COMPETITIVE
BIDDING.—The Sec-
retary shall provide for the letting by competitive bidding
of all contracts for functions of medicare administrative
contractors for annual contract periods that begin on or
after October 1, 2011.
(2) GENERAL TRANSITION RULES.—
(A) AUTHORITY
TO
CONTINUE
TO
ENTER
INTO
NEW
AGREEMENTS
AND
CONTRACTS
AND
WAIVER
OF
PROVIDER
NOMINATION
PROVISIONS
DURING
TRANSITION.—Prior to
October 1, 2005, the Secretary may, consistent with
subparagraph (B), continue to enter into agreements under
section 1816 and contracts under section 1842 of the Social
Security Act (42 U.S.C. 1395h, 1395u). The Secretary may
enter into new agreements under section 1816 prior to
42 USC
1395kk–1 note.
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October 1, 2005, without regard to any of the provider
nomination provisions of such section.
(B) APPROPRIATE
TRANSITION.—The Secretary shall
take such steps as are necessary to provide for an appro-
priate transition from agreements under section 1816 and
contracts under section 1842 of the Social Security Act
(42 U.S.C. 1395h, 1395u) to contracts under section 1874A,
as added by subsection (a)(1).
(3) AUTHORIZING CONTINUATION OF MIP FUNCTIONS UNDER
CURRENT CONTRACTS AND AGREEMENTS AND UNDER TRANSITION
CONTRACTS.—Notwithstanding the amendments made by this
section, the provisions contained in the exception in section
1893(d)(2) of the Social Security Act (42 U.S.C. 1395ddd(d)(2))
shall continue to apply during the period that begins on the
date of the enactment of this Act and ends on October 1,
2011, and any reference in such provisions to an agreement
or contract shall be deemed to include a contract under section
1874A of such Act, as inserted by subsection (a)(1), that con-
tinues the activities referred to in such provisions.
(e) REFERENCES.—On and after the effective date provided
under subsection (d)(1), any reference to a fiscal intermediary or
carrier under title XI or XVIII of the Social Security Act (or any
regulation, manual instruction, interpretative rule, statement of
policy, or guideline issued to carry out such titles) shall be deemed
a reference to a medicare administrative contractor (as provided
under section 1874A of the Social Security Act).
(f) SECRETARIAL SUBMISSION OF LEGISLATIVE PROPOSAL.—Not
later than 6 months after the date of the enactment of this Act,
the Secretary shall submit to the appropriate committees of Con-
gress a legislative proposal providing for such technical and con-
forming amendments in the law as are required by the provisions
of this section.
(g) REPORTS ON IMPLEMENTATION.—
(1) PLAN FOR IMPLEMENTATION.—By not later than October
1, 2004, the Secretary shall submit a report to Congress and
the Comptroller General of the United States that describes
the plan for implementation of the amendments made by this
section. The Comptroller General shall conduct an evaluation
of such plan and shall submit to Congress, not later than
6 months after the date the report is received, a report on
such evaluation and shall include in such report such rec-
ommendations as the Comptroller General deems appropriate.
(2) STATUS
OF
IMPLEMENTATION.—The Secretary shall
submit a report to Congress not later than October 1, 2008,
that describes the status of implementation of such amend-
ments and that includes a description of the following:
(A) The number of contracts that have been competi-
tively bid as of such date.
(B) The distribution of functions among contracts and
contractors.
(C) A timeline for complete transition to full competi-
tion.
(D) A detailed description of how the Secretary has
modified oversight and management of medicare contrac-
tors to adapt to full competition.
Deadline.
42 USC
1395kk–1 note.
42 USC
1395kk–1 note.
42 USC
1395kk–1 note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDI-
CARE ADMINISTRATIVE CONTRACTORS.
(a) IN GENERAL.—Section 1874A, as added by section 911(a)(1),
is amended by adding at the end the following new subsection:
‘‘(e) REQUIREMENTS FOR INFORMATION SECURITY.—
‘‘(1) DEVELOPMENT OF INFORMATION SECURITY PROGRAM.—
A medicare administrative contractor that performs the func-
tions referred to in subparagraphs (A) and (B) of subsection
(a)(4) (relating to determining and making payments) shall
implement a contractor-wide information security program to
provide information security for the operation and assets of
the contractor with respect to such functions under this title.
An information security program under this paragraph shall
meet the requirements for information security programs
imposed on Federal agencies under paragraphs (1) through
(8) of section 3544(b) of title 44, United States Code (other
than the requirements under paragraphs (2)(D)(i), (5)(A), and
(5)(B) of such section).
‘‘(2) INDEPENDENT AUDITS.—
‘‘(A) PERFORMANCE
OF
ANNUAL
EVALUATIONS.—Each
year a medicare administrative contractor that performs
the functions referred to in subparagraphs (A) and (B)
of subsection (a)(4) (relating to determining and making
payments) shall undergo an evaluation of the information
security of the contractor with respect to such functions
under this title. The evaluation shall—
‘‘(i) be performed by an entity that meets such
requirements for independence as the Inspector Gen-
eral of the Department of Health and Human Services
may establish; and
‘‘(ii) test the effectiveness of information security
control techniques of an appropriate subset of the con-
tractor’s information systems (as defined in section
3502(8) of title 44, United States Code) relating to
such functions under this title and an assessment of
compliance with the requirements of this subsection
and related information security policies, procedures,
standards and guidelines, including policies and proce-
dures as may be prescribed by the Director of the
Office of Management and Budget and applicable
information security standards promulgated under sec-
tion 11331 of title 40, United States Code.
‘‘(B) DEADLINE FOR INITIAL EVALUATION.—
‘‘(i) NEW CONTRACTORS.—In the case of a medicare
administrative contractor covered by this subsection
that has not previously performed the functions
referred to in subparagraphs (A) and (B) of subsection
(a)(4) (relating to determining and making payments)
as a fiscal intermediary or carrier under section 1816
or 1842, the first independent evaluation conducted
pursuant to subparagraph (A) shall be completed prior
to commencing such functions.
‘‘(ii) OTHER CONTRACTORS.—In the case of a medi-
care administrative contractor covered by this sub-
section that is not described in clause (i), the first
independent 
evaluation 
conducted 
pursuant 
to
subparagraph (A) shall be completed within 1 year
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117 STAT. 2388
PUBLIC LAW 108–173—DEC. 8, 2003
after the date the contractor commences functions
referred to in clause (i) under this section.
‘‘(C) REPORTS ON EVALUATIONS.—
‘‘(i) TO THE DEPARTMENT OF HEALTH AND HUMAN
SERVICES.—The results of independent evaluations
under subparagraph (A) shall be submitted promptly
to the Inspector General of the Department of Health
and Human Services and to the Secretary.
‘‘(ii) TO CONGRESS.—The Inspector General of the
Department of Health and Human Services shall
submit to Congress annual reports on the results of
such evaluations, including assessments of the scope
and sufficiency of such evaluations.
‘‘(iii) AGENCY
REPORTING.—The Secretary shall
address the results of such evaluations in reports
required under section 3544(c) of title 44, United States
Code.’’.
(b) APPLICATION OF REQUIREMENTS TO FISCAL INTERMEDIARIES
AND CARRIERS.—
(1) IN GENERAL.—The provisions of section 1874A(e)(2) of
the Social Security Act (other than subparagraph (B)), as added
by subsection (a), shall apply to each fiscal intermediary under
section 1816 of the Social Security Act (42 U.S.C. 1395h) and
each carrier under section 1842 of such Act (42 U.S.C. 1395u)
in the same manner as they apply to medicare administrative
contractors under such provisions.
(2) DEADLINE FOR INITIAL EVALUATION.—In the case of such
a fiscal intermediary or carrier with an agreement or contract
under such respective section in effect as of the date of the
enactment of this Act, the first evaluation under section
1874A(e)(2)(A) of the Social Security Act (as added by subsection
(a)), pursuant to paragraph (1), shall be completed (and a
report on the evaluation submitted to the Secretary) by not
later than 1 year after such date.
Subtitle C—Education and Outreach
SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.
(a) COORDINATION OF EDUCATION FUNDING.—
(1) IN GENERAL.—Title XVIII is amended by inserting after
section 1888 the following new section:
‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE
‘‘SEC. 1889. (a) COORDINATION OF EDUCATION FUNDING.—The
Secretary shall coordinate the educational activities provided
through medicare contractors (as defined in subsection (g), including
under section 1893) in order to maximize the effectiveness of Federal
education efforts for providers of services and suppliers.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on the date of the enactment of this Act.
(3) REPORT.—Not later than October 1, 2004, the Secretary
shall submit to Congress a report that includes a description
and evaluation of the steps taken to coordinate the funding
of provider education under section 1889(a) of the Social Secu-
rity Act, as added by paragraph (1).
(b) INCENTIVES TO IMPROVE CONTRACTOR PERFORMANCE.—
42 USC 1395zz
note.
42 USC 1395zz.
42 USC
1395kk–1 note.
Reports.
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PUBLIC LAW 108–173—DEC. 8, 2003
(1) IN
GENERAL.—Section 1874A, as added by section
911(a)(1) and as amended by section 912(a), is amended by
adding at the end the following new subsection:
‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PERFORMANCE
IN
PROVIDER EDUCATION
AND OUTREACH.—The Secretary shall use
specific claims payment error rates or similar methodology of medi-
care administrative contractors in the processing or reviewing of
medicare claims in order to give such contractors an incentive
to implement effective education and outreach programs for pro-
viders of services and suppliers.’’.
(2) APPLICATION
TO
FISCAL
INTERMEDIARIES
AND
CAR-
RIERS.—The provisions of section 1874A(f) of the Social Security
Act, as added by paragraph (1), shall apply to each fiscal
intermediary under section 1816 of the Social Security Act
(42 U.S.C. 1395h) and each carrier under section 1842 of such
Act (42 U.S.C. 1395u) in the same manner as they apply
to medicare administrative contractors under such provisions.
(3) GAO REPORT
ON
ADEQUACY
OF
METHODOLOGY.—Not
later than October 1, 2004, the Comptroller General of the
United States shall submit to Congress and to the Secretary
a report on the adequacy of the methodology under section
1874A(f) of the Social Security Act, as added by paragraph
(1), and shall include in the report such recommendations as
the Comptroller General determines appropriate with respect
to the methodology.
(4) REPORT ON USE OF METHODOLOGY IN ASSESSING CON-
TRACTOR PERFORMANCE.—Not later than October 1, 2004, the
Secretary shall submit to Congress a report that describes
how the Secretary intends to use such methodology in assessing
medicare contractor performance in implementing effective edu-
cation and outreach programs, including whether to use such
methodology as a basis for performance bonuses. The report
shall include an analysis of the sources of identified errors
and potential changes in systems of contractors and rules of
the Secretary that could reduce claims error rates.
(c) PROVISION OF ACCESS TO AND PROMPT RESPONSES FROM
MEDICARE ADMINISTRATIVE CONTRACTORS.—
(1) IN
GENERAL.—Section 1874A, as added by section
911(a)(1) and as amended by section 912(a) and subsection
(b), is further amended by adding at the end the following
new subsection:
‘‘(g) COMMUNICATIONS
WITH
BENEFICIARIES, PROVIDERS
OF
SERVICES AND SUPPLIERS.—
‘‘(1) COMMUNICATION
STRATEGY.—The Secretary shall
develop a strategy for communications with individuals entitled
to benefits under part A or enrolled under part B, or both,
and with providers of services and suppliers under this title.
‘‘(2) RESPONSE
TO
WRITTEN
INQUIRIES.—Each medicare
administrative contractor shall, for those providers of services
and suppliers which submit claims to the contractor for claims
processing and for those individuals entitled to benefits under
part A or enrolled under part B, or both, with respect to
whom claims are submitted for claims processing, provide gen-
eral written responses (which may be through electronic trans-
mission) in a clear, concise, and accurate manner to inquiries
of providers of services, suppliers, and individuals entitled to
42 USC
1395kk–1 note.
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benefits under part A or enrolled under part B, or both, con-
cerning the programs under this title within 45 business days
of the date of receipt of such inquiries.
‘‘(3) RESPONSE TO TOLL-FREE LINES.—The Secretary shall
ensure that each medicare administrative contractor shall pro-
vide, for those providers of services and suppliers which submit
claims to the contractor for claims processing and for those
individuals entitled to benefits under part A or enrolled under
part B, or both, with respect to whom claims are submitted
for claims processing, a toll-free telephone number at which
such individuals, providers of services, and suppliers may
obtain information regarding billing, coding, claims, coverage,
and other appropriate information under this title.
‘‘(4) MONITORING OF CONTRACTOR RESPONSES.—
‘‘(A) IN GENERAL.—Each medicare administrative con-
tractor shall, consistent with standards developed by the
Secretary under subparagraph (B)—
‘‘(i) maintain a system for identifying who provides
the information referred to in paragraphs (2) and (3);
and
‘‘(ii) monitor the accuracy, consistency, and timeli-
ness of the information so provided.
‘‘(B) DEVELOPMENT OF STANDARDS.—
‘‘(i) IN
GENERAL.—The Secretary shall establish
and make public standards to monitor the accuracy,
consistency, and timeliness of the information provided
in response to written and telephone inquiries under
this subsection. Such standards shall be consistent
with the performance requirements established under
subsection (b)(3).
‘‘(ii) EVALUATION.—In conducting evaluations of
individual medicare administrative contractors, the
Secretary shall take into account the results of the
monitoring conducted under subparagraph (A) taking
into account as performance requirements the stand-
ards established under clause (i). The Secretary shall,
in consultation with organizations representing pro-
viders of services, suppliers, and individuals entitled
to benefits under part A or enrolled under part B,
or both, establish standards relating to the accuracy,
consistency, and timeliness of the information so pro-
vided.
‘‘(C) DIRECT MONITORING.—Nothing in this paragraph
shall be construed as preventing the Secretary from directly
monitoring the accuracy, consistency, and timeliness of the
information so provided.
‘‘(5) 
AUTHORIZATION
OF
APPROPRIATIONS.—There 
are
authorized to be appropriated such sums as are necessary to
carry out this subsection.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect October 1, 2004.
(3) APPLICATION
TO
FISCAL
INTERMEDIARIES
AND
CAR-
RIERS.—The provisions of section 1874A(g) of the Social Security
Act, as added by paragraph (1), shall apply to each fiscal
intermediary under section 1816 of the Social Security Act
(42 U.S.C. 1395h) and each carrier under section 1842 of such
42 USC
1395kk–1 note.
42 USC
1395kk–1 note.
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Act (42 U.S.C. 1395u) in the same manner as they apply
to medicare administrative contractors under such provisions.
(d) IMPROVED PROVIDER EDUCATION AND TRAINING.—
(1) IN
GENERAL.—Section 1889, as added by subsection
(a), is amended by adding at the end the following new sub-
sections:
‘‘(b) ENHANCED EDUCATION AND TRAINING.—
‘‘(1) ADDITIONAL RESOURCES.—There are authorized to be
appropriated to the Secretary (in appropriate part from the
Federal Hospital Insurance Trust Fund and the Federal Supple-
mentary Medical Insurance Trust Fund) such sums as may
be necessary for fiscal years beginning with fiscal year 2005.
‘‘(2) USE.—The funds made available under paragraph (1)
shall be used to increase the conduct by medicare contractors
of education and training of providers of services and suppliers
regarding billing, coding, and other appropriate items and may
also be used to improve the accuracy, consistency, and timeli-
ness of contractor responses.
‘‘(c) TAILORING EDUCATION AND TRAINING ACTIVITIES FOR SMALL
PROVIDERS OR SUPPLIERS.—
‘‘(1) IN GENERAL.—Insofar as a medicare contractor con-
ducts education and training activities, it shall tailor such
activities to meet the special needs of small providers of services
or suppliers (as defined in paragraph (2)). Such education and
training activities for small providers of services and suppliers
may include the provision of technical assistance (such as
review of billing systems and internal controls to determine
program compliance and to suggest more efficient and effective
means of achieving such compliance).
‘‘(2) SMALL PROVIDER OF SERVICES OR SUPPLIER.—In this
subsection, the term ‘small provider of services or supplier’
means—
‘‘(A) a provider of services with fewer than 25 full-
time-equivalent employees; or
‘‘(B) a supplier with fewer than 10 full-time-equivalent
employees.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on October 1, 2004.
(e) REQUIREMENT TO MAINTAIN INTERNET WEBSITES.—
(1) IN
GENERAL.—Section 1889, as added by subsection
(a) and as amended by subsection (d), is further amended
by adding at the end the following new subsection:
‘‘(d) INTERNET WEBSITES; FAQS.—The Secretary, and each
medicare contractor insofar as it provides services (including claims
processing) for providers of services or suppliers, shall maintain
an Internet website which—
‘‘(1) provides answers in an easily accessible format to
frequently asked questions, and
‘‘(2) includes other published materials of the contractor,
that relate to providers of services and suppliers under the programs
under this title (and title XI insofar as it relates to such programs).’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on October 1, 2004.
(f) ADDITIONAL PROVIDER EDUCATION PROVISIONS.—
(1) IN
GENERAL.—Section 1889, as added by subsection
(a) and as amended by subsections (d) and (e), is further
amended by adding at the end the following new subsections:
42 USC 1395zz
note.
42 USC 1395zz
note.
Appropriation
authorization.
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‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN EDUCATION PRO-
GRAM ACTIVITIES.—A medicare contractor may not use a record
of attendance at (or failure to attend) educational activities or
other information gathered during an educational program con-
ducted under this section or otherwise by the Secretary to select
or track providers of services or suppliers for the purpose of con-
ducting any type of audit or prepayment review.
‘‘(f) CONSTRUCTION.—Nothing in this section or section 1893(g)
shall be construed as providing for disclosure by a medicare
contractor—
‘‘(1) of the screens used for identifying claims that will
be subject to medical review; or
‘‘(2) of information that would compromise pending law
enforcement activities or reveal findings of law enforcement-
related audits.
‘‘(g) DEFINITIONS.—For purposes of this section, the term ‘medi-
care contractor’ includes the following:
‘‘(1) A medicare administrative contractor with a contract
under section 1874A, including a fiscal intermediary with a
contract under section 1816 and a carrier with a contract under
section 1842.
‘‘(2) An eligible entity with a contract under section 1893.
Such term does not include, with respect to activities of a specific
provider of services or supplier an entity that has no authority
under this title or title IX with respect to such activities and
such provider of services or supplier.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on the date of the enactment of this Act.
SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION
PROGRAM.
(a) ESTABLISHMENT.—
(1) IN
GENERAL.—The Secretary shall establish a dem-
onstration program (in this section referred to as the ‘‘dem-
onstration 
program’’) 
under 
which 
technical 
assistance
described in paragraph (2) is made available, upon request
and on a voluntary basis, to small providers of services or
suppliers in order to improve compliance with the applicable
requirements of the programs under medicare program under
title XVIII of the Social Security Act (including provisions of
title XI of such Act insofar as they relate to such title and
are not administered by the Office of the Inspector General
of the Department of Health and Human Services).
(2) FORMS OF TECHNICAL ASSISTANCE.—The technical assist-
ance described in this paragraph is—
(A) evaluation and recommendations regarding billing
and related systems; and
(B) information and assistance regarding policies and
procedures under the medicare program, including coding
and reimbursement.
(3) SMALL PROVIDERS OF SERVICES OR SUPPLIERS.—In this
section, the term ‘‘small providers of services or suppliers’’
means—
(A) a provider of services with fewer than 25 full-
time-equivalent employees; or
(B) a supplier with fewer than 10 full-time-equivalent
employees.
42 USC 1395zz
note.
42 USC 1395zz
note.
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(b) QUALIFICATION OF CONTRACTORS.—In conducting the dem-
onstration program, the Secretary shall enter into contracts with
qualified organizations (such as peer review organizations or enti-
ties described in section 1889(g)(2) of the Social Security Act, as
inserted by section 921(f)(1)) with appropriate expertise with billing
systems of the full range of providers of services and suppliers
to provide the technical assistance. In awarding such contracts,
the Secretary shall consider any prior investigations of the entity’s
work by the Inspector General of Department of Health and Human
Services or the Comptroller General of the United States.
(c) DESCRIPTION
OF TECHNICAL ASSISTANCE.—The technical
assistance provided under the demonstration program shall include
a direct and in-person examination of billing systems and internal
controls of small providers of services or suppliers to determine
program compliance and to suggest more efficient or effective means
of achieving such compliance.
(d) GAO EVALUATION.—Not later than 2 years after the date
the demonstration program is first implemented, the Comptroller
General, in consultation with the Inspector General of the Depart-
ment of Health and Human Services, shall conduct an evaluation
of the demonstration program. The evaluation shall include a deter-
mination of whether claims error rates are reduced for small pro-
viders of services or suppliers who participated in the program
and the extent of improper payments made as a result of the
demonstration program. The Comptroller General shall submit a
report to the Secretary and the Congress on such evaluation and
shall include in such report recommendations regarding the continu-
ation or extension of the demonstration program.
(e) FINANCIAL PARTICIPATION BY PROVIDERS.—The provision of
technical assistance to a small provider of services or supplier
under the demonstration program is conditioned upon the small
provider of services or supplier paying an amount estimated (and
disclosed in advance of a provider’s or supplier’s participation in
the program) to be equal to 25 percent of the cost of the technical
assistance.
(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized
to be appropriated, from amounts not otherwise appropriated in
the Treasury, such sums as may be necessary to carry out this
section.
SEC. 923. MEDICARE BENEFICIARY OMBUDSMAN.
(a) IN GENERAL.—Section 1808, as added and amended by
section 900, is amended by adding at the end the following new
subsection:
‘‘(c) MEDICARE BENEFICIARY OMBUDSMAN.—
‘‘(1) IN GENERAL.—The Secretary shall appoint within the
Department of Health and Human Services a Medicare Bene-
ficiary Ombudsman who shall have expertise and experience
in the fields of health care and education of (and assistance
to) individuals entitled to benefits under this title.
‘‘(2) DUTIES.—The Medicare Beneficiary Ombudsman
shall—
‘‘(A) receive complaints, grievances, and requests for
information submitted by individuals entitled to benefits
under part A or enrolled under part B, or both, with respect
to any aspect of the medicare program;
Reports.
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‘‘(B) provide assistance with respect to complaints,
grievances, and requests referred to in subparagraph (A),
including—
‘‘(i) assistance in collecting relevant information
for such individuals, to seek an appeal of a decision
or determination made by a fiscal intermediary, car-
rier, MA organization, or the Secretary;
‘‘(ii) assistance to such individuals with any prob-
lems arising from disenrollment from an MA plan
under part C; and
‘‘(iii) assistance to such individuals in presenting
information under section 1839(i)(4)(C) (relating to
income-related premium adjustment; and
‘‘(C) submit annual reports to Congress and the Sec-
retary that describe the activities of the Office and that
include such recommendations for improvement in the
administration of this title as the Ombudsman determines
appropriate.
The Ombudsman shall not serve as an advocate for any
increases in payments or new coverage of services, but may
identify issues and problems in payment or coverage policies.
‘‘(3) WORKING WITH HEALTH INSURANCE COUNSELING PRO-
GRAMS.—To the extent possible, the Ombudsman shall work
with health insurance counseling programs (receiving funding
under section 4360 of Omnibus Budget Reconciliation Act of
1990) to facilitate the provision of information to individuals
entitled to benefits under part A or enrolled under part B,
or both regarding MA plans and changes to those plans.
Nothing in this paragraph shall preclude further collaboration
between the Ombudsman and such programs.’’.
(b) DEADLINE FOR APPOINTMENT.—By not later than 1 year
after the date of the enactment of this Act, the Secretary shall
appoint the Medicare Beneficiary Ombudsman under section 1808(c)
of the Social Security Act, as added by subsection (a).
(c) FUNDING.—There are authorized to be appropriated to the
Secretary (in appropriate part from the Federal Hospital Insurance
Trust Fund, established under section 1817 of the Social Security
Act (42 U.S.C. 1395i), and the Federal Supplementary Medical
Insurance Trust Fund, established under section 1841 of such Act
(42 U.S.C. 1395t)) to carry out section 1808(c) of such Act (relating
to the Medicare Beneficiary Ombudsman), as added by subsection
(a), such sums as are necessary for fiscal year 2004 and each
succeeding fiscal year.
(d) USE
OF
CENTRAL, TOLL-FREE
NUMBER
(1–800–MEDI-
CARE).—
(1) PHONE TRIAGE SYSTEM; LISTING IN MEDICARE HANDBOOK
INSTEAD OF OTHER TOLL-FREE NUMBERS.—Section 1804(b) (42
U.S.C. 1395b–2(b)) is amended by adding at the end the fol-
lowing: ‘‘The Secretary shall provide, through the toll-free tele-
phone number 1–800–MEDICARE, for a means by which
individuals seeking information about, or assistance with, such
programs who phone such toll-free number are transferred
(without charge) to appropriate entities for the provision of
such information or assistance. Such toll-free number shall
be the toll-free number listed for general information and assist-
ance in the annual notice under subsection (a) instead of the
listing of numbers of individual contractors.’’.
42 USC 1395b–9
note.
Reports.
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(2) MONITORING ACCURACY.—
(A) STUDY.—The Comptroller General of the United
States shall conduct a study to monitor the accuracy and
consistency of information provided to individuals entitled
to benefits under part A or enrolled under part B, or
both, through the toll-free telephone number 1–800–MEDI-
CARE, including an assessment of whether the information
provided is sufficient to answer questions of such individ-
uals. In conducting the study, the Comptroller General
shall examine the education and training of the individuals
providing information through such number.
(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
subparagraph (A).
SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.
(a) IN GENERAL.—The Secretary shall establish a demonstration
program (in this section referred to as the ‘‘demonstration program’’)
under which medicare specialists employed by the Department of
Health and Human Services provide advice and assistance to
individuals entitled to benefits under part A of title XVIII of the
Social Security Act, or enrolled under part B of such title, or
both, regarding the medicare program at the location of existing
local offices of the Social Security Administration.
(b) LOCATIONS.—
(1) IN GENERAL.—The demonstration program shall be con-
ducted in at least 6 offices or areas. Subject to paragraph
(2), in selecting such offices and areas, the Secretary shall
provide preference for offices with a high volume of visits by
individuals referred to in subsection (a).
(2) ASSISTANCE FOR RURAL BENEFICIARIES.—The Secretary
shall provide for the selection of at least 2 rural areas to
participate in the demonstration program. In conducting the
demonstration program in such rural areas, the Secretary shall
provide for medicare specialists to travel among local offices
in a rural area on a scheduled basis.
(c) DURATION.—The demonstration program shall be conducted
over a 3-year period.
(d) EVALUATION AND REPORT.—
(1) EVALUATION.—The Secretary shall provide for an
evaluation of the demonstration program. Such evaluation shall
include an analysis of—
(A) utilization of, and satisfaction of those individuals
referred to in subsection (a) with, the assistance provided
under the program; and
(B) the cost-effectiveness of providing beneficiary
assistance through out-stationing medicare specialists at
local offices of the Social Security Administration.
(2) REPORT.—The Secretary shall submit to Congress a
report on such evaluation and shall include in such report
recommendations regarding the feasibility of permanently out-
stationing medicare specialists at local offices of the Social
Security Administration.
42 USC 1395b–3
note.
42 USC 1395b–2
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NOTICES TO
BENEFICIARIES ABOUT SKILLED NURSING FACILITY
BENEFITS.
(a) IN GENERAL.—The Secretary shall provide that in medicare
beneficiary notices provided (under section 1806(a) of the Social
Security Act, 42 U.S.C. 1395b–7(a)) with respect to the provision
of post-hospital extended care services under part A of title XVIII
of the Social Security Act, there shall be included information
on the number of days of coverage of such services remaining
under such part for the medicare beneficiary and spell of illness
involved.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to notices pro-
vided during calendar quarters beginning more than 6 months
after the date of the enactment of this Act.
SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED NURSING
FACILITIES IN HOSPITAL DISCHARGE PLANS.
(a) AVAILABILITY OF DATA.—The Secretary shall publicly pro-
vide information that enables hospital discharge planners, medicare
beneficiaries, and the public to identify skilled nursing facilities
that are participating in the medicare program.
(b) INCLUSION
OF INFORMATION
IN CERTAIN HOSPITAL DIS-
CHARGE PLANS.—
(1) 
IN
GENERAL.—Section 
1861(ee)(2)(D) 
(42 
U.S.C.
1395x(ee)(2)(D)) is amended—
(A) by striking ‘‘hospice services’’ and inserting ‘‘hospice
care and post-hospital extended care services’’; and
(B) by inserting before the period at the end the fol-
lowing: ‘‘and, in the case of individuals who are likely
to need post-hospital extended care services, the avail-
ability of such services through facilities that participate
in the program under this title and that serve the area
in which the patient resides’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to discharge plans made on or after such date
as the Secretary shall specify, but not later than 6 months
after the date the Secretary provides for availability of informa-
tion under subsection (a).
Subtitle D—Appeals and Recovery
SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.
(a) TRANSITION PLAN.—
(1) IN GENERAL.—Not later than April 1, 2004, the Commis-
sioner of Social Security and the Secretary shall develop and
transmit to Congress and the Comptroller General of the United
States a plan under which the functions of administrative law
judges responsible for hearing cases under title XVIII of the
Social Security Act (and related provisions in title XI of such
Act) are transferred from the responsibility of the Commissioner
and the Social Security Administration to the Secretary and
the Department of Health and Human Services.
(2) CONTENTS.—The plan shall include information on the
following:
(A) WORKLOAD.—The number of such administrative
law judges and support staff required now and in the
42 USC 1395ff
note.
42 USC 1395x
note.
42 USC 1395x
note.
42 USC 1395b–7
note.
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117 STAT. 2397
PUBLIC LAW 108–173—DEC. 8, 2003
future to hear and decide such cases in a timely manner,
taking into account the current and anticipated claims
volume, appeals, number of beneficiaries, and statutory
changes.
(B) COST PROJECTIONS AND FINANCING.—Funding levels
required for fiscal year 2005 and subsequent fiscal years
to carry out the functions transferred under the plan.
(C) TRANSITION TIMETABLE.—A timetable for the transi-
tion.
(D) REGULATIONS.—The establishment of specific regu-
lations to govern the appeals process.
(E) CASE
TRACKING.—The development of a unified
case tracking system that will facilitate the maintenance
and transfer of case specific data across both the fee-for-
service and managed care components of the medicare pro-
gram.
(F) FEASIBILITY
OF
PRECEDENTIAL
AUTHORITY.—The
feasibility of developing a process to give decisions of the
Departmental Appeals Board in the Department of Health
and Human Services addressing broad legal issues binding,
precedential authority.
(G) ACCESS TO ADMINISTRATIVE LAW JUDGES.—The fea-
sibility of—
(i) filing appeals with administrative law judges
electronically; and
(ii) conducting hearings using tele- or video-con-
ference technologies.
(H) INDEPENDENCE OF ADMINISTRATIVE LAW JUDGES.—
The steps that should be taken to ensure the independence
of administrative law judges consistent with the require-
ments of subsection (b)(2).
(I) GEOGRAPHIC DISTRIBUTION.—The steps that should
be taken to provide for an appropriate geographic distribu-
tion of administrative law judges throughout the United
States to carry out subsection (b)(3).
(J) HIRING.—The steps that should be taken to hire
administrative law judges (and support staff) to carry out
subsection (b)(4).
(K) PERFORMANCE
STANDARDS.—The appropriateness
of establishing performance standards for administrative
law judges with respect to timelines for decisions in cases
under title XVIII of the Social Security Act taking into
account requirements under subsection (b)(2) for the
independence of such judges and consistent with the
applicable provisions of title 5, United States Code relating
to impartiality.
(L) SHARED
RESOURCES.—The steps that should be
taken to carry out subsection (b)(6) (relating to the arrange-
ments with the Commissioner of Social Security to share
office space, support staff, and other resources, with appro-
priate reimbursement).
(M) TRAINING.—The training that should be provided
to administrative law judges with respect to laws and regu-
lations under title XVIII of the Social Security Act.
(3) ADDITIONAL INFORMATION.—The plan may also include
recommendations for further congressional action, including
modifications to the requirements and deadlines established
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117 STAT. 2398
PUBLIC LAW 108–173—DEC. 8, 2003
under section 1869 of the Social Security Act (42 U.S.C. 1395ff)
(as amended by this Act).
(4) GAO EVALUATION.—The Comptroller General of the
United States shall evaluate the plan and, not later than the
date that is 6 months after the date on which the plan is
received by the Comptroller General, shall submit to Congress
a report on such evaluation.
(b) TRANSFER OF ADJUDICATION AUTHORITY.—
(1) IN GENERAL.—Not earlier than July 1, 2005, and not
later than October 1, 2005, the Commissioner of Social Security
and the Secretary shall implement the transition plan under
subsection (a) and transfer the administrative law judge func-
tions described in such subsection from the Social Security
Administration to the Secretary.
(2) ASSURING INDEPENDENCE OF JUDGES.—The Secretary
shall assure the independence of administrative law judges
performing the administrative law judge functions transferred
under paragraph (1) from the Centers for Medicare & Medicaid
Services and its contractors. In order to assure such independ-
ence, the Secretary shall place such judges in an administrative
office that is organizationally and functionally separate from
such Centers. Such judges shall report to, and be under the
general supervision of, the Secretary, but shall not report to,
or be subject to supervision by, another officer of the Depart-
ment of Health and Human Services.
(3) GEOGRAPHIC DISTRIBUTION.—The Secretary shall pro-
vide for an appropriate geographic distribution of administra-
tive law judges performing the administrative law judge func-
tions transferred under paragraph (1) throughout the United
States to ensure timely access to such judges.
(4) HIRING AUTHORITY.—Subject to the amounts provided
in advance in appropriations Acts, the Secretary shall have
authority to hire administrative law judges to hear such cases,
taking into consideration those judges with expertise in han-
dling medicare appeals and in a manner consistent with para-
graph (3), and to hire support staff for such judges.
(5) FINANCING.—Amounts payable under law to the
Commissioner for administrative law judges performing the
administrative law judge functions transferred under paragraph
(1) from the Federal Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance Trust Fund shall
become payable to the Secretary for the functions so trans-
ferred.
(6) SHARED RESOURCES.—The Secretary shall enter into
such arrangements with the Commissioner as may be appro-
priate with respect to transferred functions of administrative
law judges to share office space, support staff, and other
resources, with appropriate reimbursement from the Trust
Funds described in paragraph (5).
(c) INCREASED
FINANCIAL
SUPPORT.—In addition to any
amounts otherwise appropriated, to ensure timely action on appeals
before administrative law judges and the Departmental Appeals
Board consistent with section 1869 of the Social Security Act (42
U.S.C. 1395ff) (as amended by this Act), there are authorized to
be appropriated (in appropriate part from the Federal Hospital
Insurance Trust Fund, established under section 1817 of the Social
Security Act (42 U.S.C. 1395i), and the Federal Supplementary
Appropriation
authorization.
Reports.
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117 STAT. 2399
PUBLIC LAW 108–173—DEC. 8, 2003
Medical Insurance Trust Fund, established under section 1841 of
such Act (42 U.S.C. 1395t)) to the Secretary such sums as are
necessary for fiscal year 2005 and each subsequent fiscal year
to—
(1) increase the number of administrative law judges (and
their staffs) under subsection (b)(4);
(2) improve education and training opportunities for
administrative law judges (and their staffs); and
(3) increase the staff of the Departmental Appeals Board.
(d) CONFORMING
AMENDMENT.—Section 1869(f)(2)(A)(i) (42
U.S.C. 1395ff(f)(2)(A)(i)) is amended by striking ‘‘of the Social Secu-
rity Administration’’.
SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.
(a) EXPEDITED ACCESS TO JUDICIAL REVIEW.—
(1) IN GENERAL.—Section 1869(b) (42 U.S.C. 1395ff(b)) is
amended—
(A) in paragraph (1)(A), by inserting ‘‘, subject to para-
graph (2),’’ before ‘‘to judicial review of the Secretary’s
final decision’’; and
(B) by adding at the end the following new paragraph:
‘‘(2) EXPEDITED ACCESS TO JUDICIAL REVIEW.—
‘‘(A) IN
GENERAL.—The Secretary shall establish a
process under which a provider of services or supplier
that furnishes an item or service or an individual entitled
to benefits under part A or enrolled under part B, or
both, who has filed an appeal under paragraph (1) (other
than an appeal filed under paragraph (1)(F)(i)) may obtain
access to judicial review when a review entity (described
in subparagraph (D)), on its own motion or at the request
of the appellant, determines that the Departmental Appeals
Board does not have the authority to decide the question
of law or regulation relevant to the matters in controversy
and that there is no material issue of fact in dispute.
The appellant may make such request only once with
respect to a question of law or regulation for a specific
matter in dispute in a case of an appeal.
‘‘(B) PROMPT DETERMINATIONS.—If, after or coincident
with appropriately filing a request for an administrative
hearing, the appellant requests a determination by the
appropriate review entity that the Departmental Appeals
Board does not have the authority to decide the question
of law or regulations relevant to the matters in controversy
and that there is no material issue of fact in dispute,
and if such request is accompanied by the documents and
materials as the appropriate review entity shall require
for purposes of making such determination, such review
entity shall make a determination on the request in writing
within 60 days after the date such review entity receives
the request and such accompanying documents and mate-
rials. Such a determination by such review entity shall
be considered a final decision and not subject to review
by the Secretary.
‘‘(C) ACCESS TO JUDICIAL REVIEW.—
‘‘(i) IN
GENERAL.—If the appropriate review
entity—
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‘‘(I) determines that there are no material
issues of fact in dispute and that the only issues
to be adjudicated are ones of law or regulation
that the Departmental Appeals Board does not
have authority to decide; or
‘‘(II) fails to make such determination within
the period provided under subparagraph (B),
then the appellant may bring a civil action as described
in this subparagraph.
‘‘(ii) DEADLINE FOR FILING.—Such action shall be
filed, in the case described in—
‘‘(I) clause (i)(I), within 60 days of the date
of the determination described in such clause; or
‘‘(II) clause (i)(II), within 60 days of the end
of the period provided under subparagraph (B)
for the determination.
‘‘(iii) VENUE.—Such action shall be brought in the
district court of the United States for the judicial dis-
trict in which the appellant is located (or, in the case
of an action brought jointly by more than one applicant,
the judicial district in which the greatest number of
applicants are located) or in the District Court for
the District of Columbia.
‘‘(iv) 
INTEREST
ON
ANY
AMOUNTS
IN
CON-
TROVERSY.—Where a provider of services or supplier
is granted judicial review pursuant to this paragraph,
the amount in controversy (if any) shall be subject
to annual interest beginning on the first day of the
first month beginning after the 60-day period as deter-
mined pursuant to clause (ii) and equal to the rate
of interest on obligations issued for purchase by the
Federal Supplementary Medical Insurance Trust Fund
for the month in which the civil action authorized
under this paragraph is commenced, to be awarded
by the reviewing court in favor of the prevailing party.
No interest awarded pursuant to the preceding sen-
tence shall be deemed income or cost for the purposes
of determining reimbursement due providers of serv-
ices or suppliers under this title.
‘‘(D) REVIEW ENTITY DEFINED.—For purposes of this
subsection, the term ‘review entity’ means an entity of
up to three reviewers who are administrative law judges
or members of the Departmental Appeals Board selected
for purposes of making determinations under this para-
graph.’’.
(2) CONFORMING AMENDMENT.—Section 1869(b)(1)(F)(ii) (42
U.S.C. 1395ff(b)(1)(F)(ii)) is amended to read as follows:
‘‘(ii) REFERENCE TO EXPEDITED ACCESS TO JUDICIAL
REVIEW.—For the provision relating to expedited access
to judicial review, see paragraph (2).’’.
(b) APPLICATION TO PROVIDER AGREEMENT DETERMINATIONS.—
Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and
(2) by adding at the end the following new subparagraph:
‘‘(B) An institution or agency described in subparagraph (A)
that has filed for a hearing under subparagraph (A) shall have
expedited access to judicial review under this subparagraph in
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117 STAT. 2401
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the same manner as providers of services, suppliers, and individuals
entitled to benefits under part A or enrolled under part B, or
both, may obtain expedited access to judicial review under the
process established under section 1869(b)(2). Nothing in this
subparagraph shall be construed to affect the application of any
remedy imposed under section 1819 during the pendency of an
appeal under this subparagraph.’’.
(c) EXPEDITED REVIEW
OF CERTAIN PROVIDER AGREEMENT
DETERMINATIONS.—
(1) TERMINATION
AND
CERTAIN
OTHER
IMMEDIATE
REM-
EDIES.—Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)), as amended
by subsection (b), is amended by adding at the end the following
new subparagraph:
‘‘(C)(i) The Secretary shall develop and implement a process
to expedite proceedings under this subsection in which—
‘‘(I) the remedy of termination of participation has been
imposed;
‘‘(II) a remedy described in clause (i) or (iii) of section
1819(h)(2)(B) has been imposed, but only if such remedy has
been imposed on an immediate basis; or
‘‘(III) a determination has been made as to a finding of
substandard quality of care that results in the loss of approval
of a skilled nursing facility’s nurse aide training program.
‘‘(ii) Under such process under clause (i), priority shall be
provided in cases of termination described in clause (i)(I).
‘‘(iii) Nothing in this subparagraph shall be construed to affect
the application of any remedy imposed under section 1819 during
the pendency of an appeal under this subparagraph.’’.
(2) WAIVER OF DISAPPROVAL OF NURSE-AIDE TRAINING PRO-
GRAMS.—Sections 1819(f)(2) and section 1919(f)(2) (42 U.S.C.
1395i–3(f)(2) and 1396r(f)(2)) are each amended—
(A) in subparagraph (B)(iii), by striking ‘‘subparagraph
(C)’’ and inserting ‘‘subparagraphs (C) and (D)’’; and
(B) by adding at the end the following new subpara-
graph:
‘‘(D) WAIVER OF DISAPPROVAL OF NURSE-AIDE TRAINING
PROGRAMS.—Upon application of a nursing facility, the Sec-
retary may waive the application of subparagraph
(B)(iii)(I)(c) if the imposition of the civil monetary penalty
was not related to the quality of care provided to residents
of the facility. Nothing in this subparagraph shall be con-
strued as eliminating any requirement upon a facility to
pay a civil monetary penalty described in the preceding
sentence.’’.
(3) INCREASED
FINANCIAL
SUPPORT.—In addition to any
amounts otherwise appropriated, to reduce by 50 percent the
average time for administrative determinations on appeals
under section 1866(h) of the Social Security Act (42 U.S.C.
1395cc(h)), there are authorized to be appropriated (in appro-
priate part from the Federal Hospital Insurance Trust Fund,
established under section 1817 of the Social Security Act (42
U.S.C. 1395i), and the Federal Supplementary Medical Insur-
ance Trust Fund, established under section 1841 of such Act
(42 U.S.C. 1395t)) to the Secretary such additional sums for
fiscal year 2004 and each subsequent fiscal year as may be
necessary. The purposes for which such amounts are available
include increasing the number of administrative law judges
Appropriation
authorization.
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117 STAT. 2402
PUBLIC LAW 108–173—DEC. 8, 2003
(and their staffs) and the appellate level staff at the Depart-
mental Appeals Board of the Department of Health and Human
Services and educating such judges and staffs on long-term
care issues.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to appeals filed on or after October 1, 2004.
SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.
(a) REQUIRING FULL AND EARLY PRESENTATION OF EVIDENCE.—
(1) IN GENERAL.—Section 1869(b) (42 U.S.C. 1395ff(b)), as
amended by section 932(a), is further amended by adding at
the end the following new paragraph:
‘‘(3) REQUIRING
FULL
AND
EARLY
PRESENTATION
OF
EVI-
DENCE BY PROVIDERS.—A provider of services or supplier may
not introduce evidence in any appeal under this section that
was not presented at the reconsideration conducted by the
qualified independent contractor under subsection (c), unless
there is good cause which precluded the introduction of such
evidence at or before that reconsideration.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall take effect on October 1, 2004.
(b) 
USE
OF
PATIENTS’ 
MEDICAL
RECORDS.—Section
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amended by inserting
‘‘(including the medical records of the individual involved)’’ after
‘‘clinical experience’’.
(c) NOTICE REQUIREMENTS FOR MEDICARE APPEALS.—
(1) INITIAL DETERMINATIONS AND REDETERMINATIONS.—Sec-
tion 1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at
the end the following new paragraphs:
‘‘(4) REQUIREMENTS OF NOTICE OF DETERMINATIONS.—With
respect to an initial determination insofar as it results in a
denial of a claim for benefits—
‘‘(A) the written notice on the determination shall
include—
‘‘(i) the reasons for the determination, including
whether a local medical review policy or a local cov-
erage determination was used;
‘‘(ii) the procedures for obtaining additional
information concerning the determination, including
the information described in subparagraph (B); and
‘‘(iii) notification of the right to seek a redetermina-
tion or otherwise appeal the determination and instruc-
tions on how to initiate such a redetermination under
this section;
‘‘(B) such written notice shall be provided in printed
form and written in a manner calculated to be understood
by the individual entitled to benefits under part A or
enrolled under part B, or both; and
‘‘(C) the individual provided such written notice may
obtain, upon request, information on the specific provision
of the policy, manual, or regulation used in making the
redetermination.
‘‘(5) REQUIREMENTS
OF
NOTICE
OF
REDETERMINATIONS.—
With respect to a redetermination insofar as it results in a
denial of a claim for benefits—
‘‘(A) the written notice on the redetermination shall
include—
42 USC 1395ff
note.
42 USC 1395i–3
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(i) the specific reasons for the redetermination;
‘‘(ii) as appropriate, a summary of the clinical or
scientific evidence used in making the redetermination;
‘‘(iii) a description of the procedures for obtaining
additional information concerning the redetermination;
and
‘‘(iv) notification of the right to appeal the redeter-
mination and instructions on how to initiate such an
appeal under this section;
‘‘(B) such written notice shall be provided in printed
form and written in a manner calculated to be understood
by the individual entitled to benefits under part A or
enrolled under part B, or both; and
‘‘(C) the individual provided such written notice may
obtain, upon request, information on the specific provision
of the policy, manual, or regulation used in making the
redetermination.’’.
(2) RECONSIDERATIONS.—Section 1869(c)(3)(E) (42 U.S.C.
1395ff(c)(3)(E)) is amended—
(A) by inserting ‘‘be written in a manner calculated
to be understood by the individual entitled to benefits
under part A or enrolled under part B, or both, and shall
include (to the extent appropriate)’’ after ‘‘in writing,’’; and
(B) by inserting ‘‘and a notification of the right to
appeal such determination and instructions on how to ini-
tiate such appeal under this section’’ after ‘‘such decision,’’.
(3) APPEALS.—Section 1869(d) (42 U.S.C. 1395ff(d)) is
amended—
(A) in the heading, by inserting ‘‘; NOTICE’’ after ‘‘SEC-
RETARY’’; and
(B) by adding at the end the following new paragraph:
‘‘(4) NOTICE.—Notice of the decision of an administrative
law judge shall be in writing in a manner calculated to be
understood by the individual entitled to benefits under part
A or enrolled under part B, or both, and shall include—
‘‘(A) the specific reasons for the determination
(including, to the extent appropriate, a summary of the
clinical or scientific evidence used in making the determina-
tion);
‘‘(B) the procedures for obtaining additional informa-
tion concerning the decision; and
‘‘(C) notification of the right to appeal the decision
and instructions on how to initiate such an appeal under
this section.’’.
(4) 
SUBMISSION
OF
RECORD
FOR
APPEAL.—Section
1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) is amended by
striking ‘‘prepare’’ and inserting ‘‘submit’’ and by striking ‘‘with
respect to’’ and all that follows through ‘‘and relevant policies’’.
(d) QUALIFIED INDEPENDENT CONTRACTORS.—
(1) ELIGIBILITY REQUIREMENTS OF QUALIFIED INDEPENDENT
CONTRACTORS.—Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)) is
amended—
(A) in subparagraph (A), by striking ‘‘sufficient training
and expertise in medical science and legal matters’’ and
inserting ‘‘sufficient medical, legal, and other expertise
(including knowledge of the program under this title) and
sufficient staffing’’; and
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(B) by adding at the end the following new subpara-
graph:
‘‘(K) INDEPENDENCE REQUIREMENTS.—
‘‘(i) IN GENERAL.—Subject to clause (ii), a qualified
independent contractor shall not conduct any activities
in a case unless the entity—
‘‘(I) is not a related party (as defined in sub-
section (g)(5));
‘‘(II) does not have a material familial, finan-
cial, or professional relationship with such a party
in relation to such case; and
‘‘(III) does not otherwise have a conflict of
interest with such a party.
‘‘(ii) EXCEPTION FOR REASONABLE COMPENSATION.—
Nothing in clause (i) shall be construed to prohibit
receipt by a qualified independent contractor of com-
pensation from the Secretary for the conduct of activi-
ties under this section if the compensation is provided
consistent with clause (iii).
‘‘(iii) LIMITATIONS
ON
ENTITY
COMPENSATION.—
Compensation provided by the Secretary to a qualified
independent contractor in connection with reviews
under this section shall not be contingent on any deci-
sion rendered by the contractor or by any reviewing
professional.’’.
(2) ELIGIBILITY
REQUIREMENTS
FOR
REVIEWERS.—Section
1869 (42 U.S.C. 1395ff) is amended—
(A) by amending subsection (c)(3)(D) to read as follows:
‘‘(D) QUALIFICATIONS
FOR
REVIEWERS.—The require-
ments of subsection (g) shall be met (relating to qualifica-
tions of reviewing professionals).’’; and
(B) by adding at the end the following new subsection:
‘‘(g) QUALIFICATIONS OF REVIEWERS.—
‘‘(1) IN GENERAL.—In reviewing determinations under this
section, a qualified independent contractor shall assure that—
‘‘(A) each individual conducting a review shall meet
the qualifications of paragraph (2);
‘‘(B) compensation provided by the contractor to each
such reviewer is consistent with paragraph (3); and
‘‘(C) in the case of a review by a panel described
in subsection (c)(3)(B) composed of physicians or other
health care professionals (each in this subsection referred
to as a ‘reviewing professional’), a reviewing professional
meets the qualifications described in paragraph (4) and,
where a claim is regarding the furnishing of treatment
by a physician (allopathic or osteopathic) or the provision
of items or services by a physician (allopathic or osteo-
pathic), a reviewing professional shall be a physician
(allopathic or osteopathic).
‘‘(2) INDEPENDENCE.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), each
individual conducting a review in a case shall—
‘‘(i) not be a related party (as defined in paragraph
(5));
‘‘(ii) not have a material familial, financial, or
professional relationship with such a party in the case
under review; and
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117 STAT. 2405
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(iii) not otherwise have a conflict of interest with
such a party.
‘‘(B) EXCEPTION.—Nothing in subparagraph (A) shall
be construed to—
‘‘(i) prohibit an individual, solely on the basis of
a participation agreement with a fiscal intermediary,
carrier, or other contractor, from serving as a reviewing
professional if—
‘‘(I) the individual is not involved in the provi-
sion of items or services in the case under review;
‘‘(II) the fact of such an agreement is disclosed
to the Secretary and the individual entitled to
benefits under part A or enrolled under part B,
or both, or such individual’s authorized representa-
tive, and neither party objects; and
‘‘(III) the individual is not an employee of the
intermediary, carrier, or contractor and does not
provide services exclusively or primarily to or on
behalf of such intermediary, carrier, or contractor;
‘‘(ii) prohibit an individual who has staff privileges
at the institution where the treatment involved takes
place from serving as a reviewer merely on the basis
of having such staff privileges if the existence of such
privileges is disclosed to the Secretary and such indi-
vidual (or authorized representative), and neither party
objects; or
‘‘(iii) prohibit receipt of compensation by a
reviewing professional from a contractor if the com-
pensation is provided consistent with paragraph (3).
For purposes of this paragraph, the term ‘participation
agreement’ means an agreement relating to the provision
of health care services by the individual and does not
include the provision of services as a reviewer under this
subsection.
‘‘(3) LIMITATIONS ON REVIEWER COMPENSATION.—Compensa-
tion provided by a qualified independent contractor to a
reviewer in connection with a review under this section shall
not be contingent on the decision rendered by the reviewer.
‘‘(4) LICENSURE
AND
EXPERTISE.—Each reviewing profes-
sional shall be—
‘‘(A) a physician (allopathic or osteopathic) who is
appropriately credentialed or licensed in one or more States
to deliver health care services and has medical expertise
in the field of practice that is appropriate for the items
or services at issue; or
‘‘(B) a health care professional who is legally authorized
in one or more States (in accordance with State law or
the State regulatory mechanism provided by State law)
to furnish the health care items or services at issue and
has medical expertise in the field of practice that is appro-
priate for such items or services.
‘‘(5) RELATED PARTY DEFINED.—For purposes of this section,
the term ‘related party’ means, with respect to a case under
this title involving a specific individual entitled to benefits
under part A or enrolled under part B, or both, any of the
following:
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117 STAT. 2406
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‘‘(A) The Secretary, the medicare administrative con-
tractor involved, or any fiduciary, officer, director, or
employee of the Department of Health and Human Serv-
ices, or of such contractor.
‘‘(B) The individual (or authorized representative).
‘‘(C) The health care professional that provides the
items or services involved in the case.
‘‘(D) The institution at which the items or services
(or treatment) involved in the case are provided.
‘‘(E) The manufacturer of any drug or other item that
is included in the items or services involved in the case.
‘‘(F) Any other party determined under any regulations
to have a substantial interest in the case involved.’’.
(3) REDUCING
MINIMUM
NUMBER
OF
QUALIFIED
INDE-
PENDENT
CONTRACTORS.—Section 
1869(c)(4) 
(42 
U.S.C.
1395ff(c)(4)) is amended by striking ‘‘not fewer than 12 qualified
independent contractors under this subsection’’ and inserting
‘‘a sufficient number of qualified independent contractors (but
not fewer than 4 such contractors) to conduct reconsiderations
consistent with the timeframes applicable under this sub-
section’’.
(4) EFFECTIVE
DATE.—The amendments made by para-
graphs (1) and (2) shall be effective as if included in the
enactment of the respective provisions of subtitle C of title
V of BIPA (114 Stat. 2763A–534).
(5) TRANSITION.—In applying section 1869(g) of the Social
Security Act (as added by paragraph (2)), any reference to
a medicare administrative contractor shall be deemed to include
a reference to a fiscal intermediary under section 1816 of the
Social Security Act (42 U.S.C. 1395h) and a carrier under
section 1842 of such Act (42 U.S.C. 1395u).
SEC. 934. PREPAYMENT REVIEW.
(a) IN GENERAL.—Section 1874A, as added by section 911(a)(1)
and as amended by sections 912(b), 921(b)(1), and 921(c)(1), is
further amended by adding at the end the following new subsection:
‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—
‘‘(1) CONDUCT OF RANDOM PREPAYMENT REVIEW.—
‘‘(A) IN
GENERAL.—A medicare administrative con-
tractor may conduct random prepayment review only to
develop a contractor-wide or program-wide claims payment
error rates or under such additional circumstances as may
be provided under regulations, developed in consultation
with providers of services and suppliers.
‘‘(B) USE OF STANDARD PROTOCOLS WHEN CONDUCTING
PREPAYMENT REVIEWS.—When a medicare administrative
contractor conducts a random prepayment review, the con-
tractor may conduct such review only in accordance with
a standard protocol for random prepayment audits devel-
oped by the Secretary.
‘‘(C) CONSTRUCTION.—Nothing in this paragraph shall
be construed as preventing the denial of payments for
claims actually reviewed under a random prepayment
review.
‘‘(D) RANDOM PREPAYMENT REVIEW.—For purposes of
this subsection, the term ‘random prepayment review’
42 USC 1395ff
note.
42 USC 1395ff
note.
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117 STAT. 2407
PUBLIC LAW 108–173—DEC. 8, 2003
means a demand for the production of records or docu-
mentation absent cause with respect to a claim.
‘‘(2) LIMITATIONS ON NON-RANDOM PREPAYMENT REVIEW.—
‘‘(A) LIMITATIONS
ON
INITIATION
OF
NON-RANDOM
PREPAYMENT
REVIEW.—A medicare administrative con-
tractor may not initiate non-random prepayment review
of a provider of services or supplier based on the initial
identification by that provider of services or supplier of
an improper billing practice unless there is a likelihood
of sustained or high level of payment error under section
1893(f)(3)(A).
‘‘(B) 
TERMINATION
OF
NON-RANDOM
PREPAYMENT
REVIEW.—The Secretary shall issue regulations relating to
the termination, including termination dates, of non-
random prepayment review. Such regulations may vary
such a termination date based upon the differences in
the circumstances triggering prepayment review.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this subsection,
the amendment made by subsection (a) shall take effect 1
year after the date of the enactment of this Act.
(2) DEADLINE
FOR
PROMULGATION
OF
CERTAIN
REGULA-
TIONS.—The Secretary shall first issue regulations under sec-
tion 1874A(h) of the Social Security Act, as added by subsection
(a), by not later than 1 year after the date of the enactment
of this Act.
(3) APPLICATION
OF
STANDARD
PROTOCOLS
FOR
RANDOM
PREPAYMENT
REVIEW.—Section 1874A(h)(1)(B) of the Social
Security Act, as added by subsection (a), shall apply to random
prepayment reviews conducted on or after such date (not later
than 1 year after the date of the enactment of this Act) as
the Secretary shall specify.
(c) APPLICATION TO FISCAL INTERMEDIARIES AND CARRIERS.—
The provisions of section 1874A(h) of the Social Security Act, as
added by subsection (a), shall apply to each fiscal intermediary
under section 1816 of the Social Security Act (42 U.S.C. 1395h)
and each carrier under section 1842 of such Act (42 U.S.C. 1395u)
in the same manner as they apply to medicare administrative
contractors under such provisions.
SEC. 935. RECOVERY OF OVERPAYMENTS.
(a) IN GENERAL.—Section 1893 (42 U.S.C. 1395ddd) is amended
by adding at the end the following new subsection:
‘‘(f) RECOVERY OF OVERPAYMENTS.—
‘‘(1) USE OF REPAYMENT PLANS.—
‘‘(A) IN GENERAL.—If the repayment, within 30 days
by a provider of services or supplier, of an overpayment
under this title would constitute a hardship (as described
in subparagraph (B)), subject to subparagraph (C), upon
request of the provider of services or supplier the Secretary
shall enter into a plan with the provider of services or
supplier for the repayment (through offset or otherwise)
of such overpayment over a period of at least 6 months
but not longer than 3 years (or not longer than 5 years
in the case of extreme hardship, as determined by the
Secretary). Interest shall accrue on the balance through
42 USC
1395kk–1 note.
42 USC
1395kk–1 note.
Regulations.
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117 STAT. 2408
PUBLIC LAW 108–173—DEC. 8, 2003
the period of repayment. Such plan shall meet terms and
conditions determined to be appropriate by the Secretary.
‘‘(B) HARDSHIP.—
‘‘(i) IN GENERAL.—For purposes of subparagraph
(A), the repayment of an overpayment (or overpay-
ments) within 30 days is deemed to constitute a hard-
ship if—
‘‘(I) in the case of a provider of services that
files cost reports, the aggregate amount of the
overpayments exceeds 10 percent of the amount
paid under this title to the provider of services
for the cost reporting period covered by the most
recently submitted cost report; or
‘‘(II) in the case of another provider of services
or supplier, the aggregate amount of the overpay-
ments exceeds 10 percent of the amount paid under
this title to the provider of services or supplier
for the previous calendar year.
‘‘(ii) RULE OF APPLICATION.—The Secretary shall
establish rules for the application of this subparagraph
in the case of a provider of services or supplier that
was not paid under this title during the previous year
or was paid under this title only during a portion
of that year.
‘‘(iii) TREATMENT OF PREVIOUS OVERPAYMENTS.—
If a provider of services or supplier has entered into
a repayment plan under subparagraph (A) with respect
to a specific overpayment amount, such payment
amount under the repayment plan shall not be taken
into account under clause (i) with respect to subsequent
overpayment amounts.
‘‘(C) EXCEPTIONS.—Subparagraph (A) shall not apply
if—
‘‘(i) the Secretary has reason to suspect that the
provider of services or supplier may file for bankruptcy
or otherwise cease to do business or discontinue partici-
pation in the program under this title; or
‘‘(ii) there is an indication of fraud or abuse com-
mitted against the program.
‘‘(D) IMMEDIATE COLLECTION IF VIOLATION OF REPAY-
MENT PLAN.—If a provider of services or supplier fails to
make a payment in accordance with a repayment plan
under this paragraph, the Secretary may immediately seek
to offset or otherwise recover the total balance outstanding
(including applicable interest) under the repayment plan.
‘‘(E) RELATION TO NO FAULT PROVISION.—Nothing in
this paragraph shall be construed as affecting the applica-
tion of section 1870(c) (relating to no adjustment in the
cases of certain overpayments).
‘‘(2) LIMITATION ON RECOUPMENT.—
‘‘(A) IN GENERAL.—In the case of a provider of services
or supplier that is determined to have received an overpay-
ment under this title and that seeks a reconsideration
by a qualified independent contractor on such determina-
tion under section 1869(b)(1), the Secretary may not take
any action (or authorize any other person, including any
medicare contractor, as defined in subparagraph (C)) to
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117 STAT. 2409
PUBLIC LAW 108–173—DEC. 8, 2003
recoup the overpayment until the date the decision on
the reconsideration has been rendered. If the provisions
of section 1869(b)(1) (providing for such a reconsideration
by a qualified independent contractor) are not in effect,
in applying the previous sentence any reference to such
a reconsideration shall be treated as a reference to a
redetermination by the fiscal intermediary or carrier
involved.
‘‘(B) COLLECTION WITH INTEREST.—Insofar as the deter-
mination on such appeal is against the provider of services
or supplier, interest on the overpayment shall accrue on
and after the date of the original notice of overpayment.
Insofar as such determination against the provider of serv-
ices or supplier is later reversed, the Secretary shall provide
for repayment of the amount recouped plus interest at
the same rate as would apply under the previous sentence
for the period in which the amount was recouped.
‘‘(C) MEDICARE CONTRACTOR DEFINED.—For purposes
of this subsection, the term ‘medicare contractor’ has the
meaning given such term in section 1889(g).
‘‘(3) LIMITATION ON USE OF EXTRAPOLATION.—A medicare
contractor may not use extrapolation to determine overpayment
amounts to be recovered by recoupment, offset, or otherwise
unless the Secretary determines that—
‘‘(A) there is a sustained or high level of payment
error; or
‘‘(B) documented educational intervention has failed
to correct the payment error.
There shall be no administrative or judicial review under section
1869, section 1878, or otherwise, of determinations by the Secretary
of sustained or high levels of payment errors under this paragraph.
‘‘(4) PROVISION OF SUPPORTING DOCUMENTATION.—In the
case of a provider of services or supplier with respect to which
amounts were previously overpaid, a medicare contractor may
request the periodic production of records or supporting docu-
mentation for a limited sample of submitted claims to ensure
that the previous practice is not continuing.
‘‘(5) CONSENT SETTLEMENT REFORMS.—
‘‘(A) IN GENERAL.—The Secretary may use a consent
settlement (as defined in subparagraph (D)) to settle a
projected overpayment.
‘‘(B) OPPORTUNITY TO SUBMIT ADDITIONAL INFORMATION
BEFORE
CONSENT
SETTLEMENT
OFFER.—Before offering a
provider of services or supplier a consent settlement, the
Secretary shall—
‘‘(i) communicate to the provider of services or
supplier—
‘‘(I) that, based on a review of the medical
records requested by the Secretary, a preliminary
evaluation of those records indicates that there
would be an overpayment;
‘‘(II) the nature of the problems identified in
such evaluation; and
‘‘(III) the steps that the provider of services
or supplier should take to address the problems;
and
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117 STAT. 2410
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) provide for a 45-day period during which the
provider of services or supplier may furnish additional
information concerning the medical records for the
claims that had been reviewed.
‘‘(C) CONSENT
SETTLEMENT
OFFER.—The Secretary
shall review any additional information furnished by the
provider of services or supplier under subparagraph (B)(ii).
Taking into consideration such information, the Secretary
shall determine if there still appears to be an overpayment.
If so, the Secretary—
‘‘(i) shall provide notice of such determination to
the provider of services or supplier, including an expla-
nation of the reason for such determination; and
‘‘(ii) in order to resolve the overpayment, may offer
the provider of services or supplier—
‘‘(I) the opportunity for a statistically valid
random sample; or
‘‘(II) a consent settlement.
The opportunity provided under clause (ii)(I) does not waive
any appeal rights with respect to the alleged overpayment
involved.
‘‘(D) CONSENT SETTLEMENT DEFINED.—For purposes of
this paragraph, the term ‘consent settlement’ means an
agreement between the Secretary and a provider of services
or supplier whereby both parties agree to settle a projected
overpayment based on less than a statistically valid sample
of claims and the provider of services or supplier agrees
not to appeal the claims involved.
‘‘(6) NOTICE OF OVER-UTILIZATION OF CODES.—The Secretary
shall establish, in consultation with organizations representing
the classes of providers of services and suppliers, a process
under which the Secretary provides for notice to classes of
providers of services and suppliers served by the contractor
in cases in which the contractor has identified that particular
billing codes may be overutilized by that class of providers
of services or suppliers under the programs under this title
(or provisions of title XI insofar as they relate to such pro-
grams).
‘‘(7) PAYMENT AUDITS.—
‘‘(A) WRITTEN NOTICE FOR POST-PAYMENT AUDITS.—Sub-
ject to subparagraph (C), if a medicare contractor decides
to conduct a post-payment audit of a provider of services
or supplier under this title, the contractor shall provide
the provider of services or supplier with written notice
(which may be in electronic form) of the intent to conduct
such an audit.
‘‘(B) EXPLANATION OF FINDINGS FOR ALL AUDITS.—Sub-
ject to subparagraph (C), if a medicare contractor audits
a provider of services or supplier under this title, the
contractor shall—
‘‘(i) give the provider of services or supplier a full
review and explanation of the findings of the audit
in a manner that is understandable to the provider
of services or supplier and permits the development
of an appropriate corrective action plan;
‘‘(ii) inform the provider of services or supplier
of the appeal rights under this title as well as consent
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117 STAT. 2411
PUBLIC LAW 108–173—DEC. 8, 2003
settlement options (which are at the discretion of the
Secretary);
‘‘(iii) give the provider of services or supplier an
opportunity to provide additional information to the
contractor; and
‘‘(iv) take into account information provided, on
a timely basis, by the provider of services or supplier
under clause (iii).
‘‘(C) EXCEPTION.—Subparagraphs (A) and (B) shall not
apply if the provision of notice or findings would com-
promise pending law enforcement activities, whether civil
or criminal, or reveal findings of law enforcement-related
audits.
‘‘(8) STANDARD METHODOLOGY FOR PROBE SAMPLING.—The
Secretary shall establish a standard methodology for medicare
contractors to use in selecting a sample of claims for review
in the case of an abnormal billing pattern.’’.
(b) EFFECTIVE DATES AND DEADLINES.—
(1) USE OF REPAYMENT PLANS.—Section 1893(f)(1) of the
Social Security Act, as added by subsection (a), shall apply
to requests for repayment plans made after the date of the
enactment of this Act.
(2) LIMITATION ON RECOUPMENT.—Section 1893(f)(2) of the
Social Security Act, as added by subsection (a), shall apply
to actions taken after the date of the enactment of this Act.
(3) USE OF EXTRAPOLATION.—Section 1893(f)(3) of the Social
Security Act, as added by subsection (a), shall apply to statis-
tically valid random samples initiated after the date that is
1 year after the date of the enactment of this Act.
(4) PROVISION
OF
SUPPORTING
DOCUMENTATION.—Section
1893(f)(4) of the Social Security Act, as added by subsection
(a), shall take effect on the date of the enactment of this
Act.
(5) CONSENT SETTLEMENT.—Section 1893(f)(5) of the Social
Security Act, as added by subsection (a), shall apply to consent
settlements entered into after the date of the enactment of
this Act.
(6) NOTICE OF OVERUTILIZATION.—Not later than 1 year
after the date of the enactment of this Act, the Secretary
shall first establish the process for notice of overutilization
of billing codes under section 1893A(f)(6) of the Social Security
Act, as added by subsection (a).
(7) PAYMENT
AUDITS.—Section 1893A(f)(7) of the Social
Security Act, as added by subsection (a), shall apply to audits
initiated after the date of the enactment of this Act.
(8) STANDARD FOR ABNORMAL BILLING PATTERNS.—Not later
than 1 year after the date of the enactment of this Act, the
Secretary shall first establish a standard methodology for selec-
tion of sample claims for abnormal billing patterns under sec-
tion 1893(f)(8) of the Social Security Act, as added by subsection
(a).
SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.
(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) is amended—
(1) by adding at the end of the heading the following:
‘‘; ENROLLMENT PROCESSES’’; and
(2) by adding at the end the following new subsection:
42 USC 1395ddd
note.
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‘‘(j) ENROLLMENT PROCESS FOR PROVIDERS OF SERVICES AND
SUPPLIERS.—
‘‘(1) ENROLLMENT PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall establish by
regulation a process for the enrollment of providers of
services and suppliers under this title.
‘‘(B) DEADLINES.—The Secretary shall establish by
regulation procedures under which there are deadlines for
actions on applications for enrollment (and, if applicable,
renewal of enrollment). The Secretary shall monitor the
performance of medicare administrative contractors in
meeting the deadlines established under this subpara-
graph.
‘‘(C) 
CONSULTATION
BEFORE
CHANGING
PROVIDER
ENROLLMENT FORMS.—The Secretary shall consult with pro-
viders of services and suppliers before making changes
in the provider enrollment forms required of such providers
and suppliers to be eligible to submit claims for which
payment may be made under this title.
‘‘(2) HEARING
RIGHTS
IN
CASES
OF
DENIAL
OR
NON-
RENEWAL.—A provider of services or supplier whose application
to enroll (or, if applicable, to renew enrollment) under this
title is denied may have a hearing and judicial review of such
denial under the procedures that apply under subsection
(h)(1)(A) to a provider of services that is dissatisfied with a
determination by the Secretary.’’.
(b) EFFECTIVE DATES.—
(1) ENROLLMENT PROCESS.—The Secretary shall provide for
the establishment of the enrollment process under section
1866(j)(1) of the Social Security Act, as added by subsection
(a)(2), within 6 months after the date of the enactment of
this Act.
(2) CONSULTATION.—Section 1866(j)(1)(C) of the Social
Security Act, as added by subsection (a)(2), shall apply with
respect to changes in provider enrollment forms made on or
after January 1, 2004.
(3) HEARING RIGHTS.—Section 1866(j)(2) of the Social Secu-
rity Act, as added by subsection (a)(2), shall apply to denials
occurring on or after such date (not later than 1 year after
the date of the enactment of this Act) as the Secretary specifies.
SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMIS-
SIONS WITHOUT PURSUING APPEALS PROCESS.
(a) CLAIMS.—The Secretary shall develop, in consultation with
appropriate medicare contractors (as defined in section 1889(g) of
the Social Security Act, as inserted by section 301(a)(1)) and rep-
resentatives of providers of services and suppliers, a process
whereby, in the case of minor errors or omissions (as defined by
the Secretary) that are detected in the submission of claims under
the programs under title XVIII of such Act, a provider of services
or supplier is given an opportunity to correct such an error or
omission without the need to initiate an appeal. Such process shall
include the ability to resubmit corrected claims.
(b) DEADLINE.—Not later than 1 year after the date of the
enactment of this Act, the Secretary shall first develop the process
under subsection (a).
42 USC 1395ff
note.
42 USC 1395cc
note.
Regulations.
Regulations.
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SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND
SERVICES; ADVANCE BENEFICIARY NOTICES.
(a) IN
GENERAL.—Section 1869 (42 U.S.C. 1395ff(b)), as
amended by section 933(d)(2)(B), is further amended by adding
at the end the following new subsection:
‘‘(h) PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND
SERVICES.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN GENERAL.—With respect to a medicare adminis-
trative contractor that has a contract under section 1874A
that provides for making payments under this title with
respect to physicians’ services (as defined in section
1848(j)(3)), the Secretary shall establish a prior determina-
tion process that meets the requirements of this subsection
and that shall be applied by such contractor in the case
of eligible requesters.
‘‘(B) ELIGIBLE REQUESTER.—For purposes of this sub-
section, each of the following shall be an eligible requester:
‘‘(i) A participating physician, but only with respect
to physicians’ services to be furnished to an individual
who is entitled to benefits under this title and who
has consented to the physician making the request
under this subsection for those physicians’ services.
‘‘(ii) An individual entitled to benefits under this
title, but only with respect to a physicians’ service
for which the individual receives, from a physician,
an advance beneficiary notice under section 1879(a).
‘‘(2) SECRETARIAL FLEXIBILITY.—The Secretary shall estab-
lish by regulation reasonable limits on the physicians’ services
for which a prior determination of coverage may be requested
under this subsection. In establishing such limits, the Secretary
may consider the dollar amount involved with respect to the
physicians’ service, administrative costs and burdens, and other
relevant factors.
‘‘(3) REQUEST FOR PRIOR DETERMINATION.—
‘‘(A) IN GENERAL.—Subject to paragraph (2), under the
process established under this subsection an eligible
requester may submit to the contractor a request for a
determination, before the furnishing of a physicians’
service, as to whether the physicians’ service is covered
under this title consistent with the applicable requirements
of section 1862(a)(1)(A) (relating to medical necessity).
‘‘(B) ACCOMPANYING DOCUMENTATION.—The Secretary
may require that the request be accompanied by a descrip-
tion of the physicians’ service, supporting documentation
relating to the medical necessity for the physicians’ service,
and any other appropriate documentation. In the case of
a request submitted by an eligible requester who is
described in paragraph (1)(B)(ii), the Secretary may require
that the request also be accompanied by a copy of the
advance beneficiary notice involved.
‘‘(4) RESPONSE TO REQUEST.—
‘‘(A) IN GENERAL.—Under such process, the contractor
shall provide the eligible requester with written notice
of a determination as to whether—
‘‘(i) the physicians’ service is so covered;
‘‘(ii) the physicians’ service is not so covered; or
Notification.
Regulations.
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‘‘(iii) the contractor lacks sufficient information to
make a coverage determination with respect to the
physicians’ service.
‘‘(B) CONTENTS OF NOTICE FOR CERTAIN DETERMINA-
TIONS.—
‘‘(i) NONCOVERAGE.—If the contractor makes the
determination described in subparagraph (A)(ii), the
contractor shall include in the notice a brief expla-
nation of the basis for the determination, including
on what national or local coverage or noncoverage
determination (if any) the determination is based, and
a description of any applicable rights under subsection
(a).
‘‘(ii) INSUFFICIENT INFORMATION.—If the contractor
makes the determination described in subparagraph
(A)(iii), the contractor shall include in the notice a
description of the additional information required to
make the coverage determination.
‘‘(C) DEADLINE TO RESPOND.—Such notice shall be pro-
vided within the same time period as the time period
applicable to the contractor providing notice of initial deter-
minations on a claim for benefits under subsection (a)(2)(A).
‘‘(D) INFORMING
BENEFICIARY
IN
CASE
OF
PHYSICIAN
REQUEST.—In the case of a request by a participating physi-
cian under paragraph (1)(B)(i), the process shall provide
that the individual to whom the physicians’ service is pro-
posed to be furnished shall be informed of any determina-
tion described in subparagraph (A)(ii) (relating to a deter-
mination of non-coverage) and the right (referred to in
paragraph (6)(B)) to obtain the physicians’ service and have
a claim submitted for the physicians’ service.
‘‘(5) BINDING NATURE OF POSITIVE DETERMINATION.—If the
contractor makes the determination described in paragraph
(4)(A)(i), such determination shall be binding on the contractor
in the absence of fraud or evidence of misrepresentation of
facts presented to the contractor.
‘‘(6) LIMITATION ON FURTHER REVIEW.—
‘‘(A) IN GENERAL.—Contractor determinations described
in paragraph (4)(A)(ii) or (4)(A)(iii) (relating to pre-service
claims) are not subject to further administrative appeal
or judicial review under this section or otherwise.
‘‘(B) DECISION NOT TO SEEK PRIOR DETERMINATION OR
NEGATIVE
DETERMINATION
DOES
NOT
IMPACT
RIGHT
TO
OBTAIN
SERVICES, 
SEEK
REIMBURSEMENT, 
OR
APPEAL
RIGHTS.—Nothing in this subsection shall be construed as
affecting the right of an individual who—
‘‘(i) decides not to seek a prior determination under
this subsection with respect to physicians’ services;
or
‘‘(ii) seeks such a determination and has received
a determination described in paragraph (4)(A)(ii),
from receiving (and submitting a claim for) such physicians’
services and from obtaining administrative or judicial
review respecting such claim under the other applicable
provisions of this section. Failure to seek a prior determina-
tion under this subsection with respect to physicians’
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117 STAT. 2415
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service shall not be taken into account in such administra-
tive or judicial review.
‘‘(C) NO PRIOR DETERMINATION AFTER RECEIPT OF SERV-
ICES.—Once an individual is provided physicians’ services,
there shall be no prior determination under this subsection
with respect to such physicians’ services.’’.
(b) EFFECTIVE DATE; SUNSET; TRANSITION.—
(1) EFFECTIVE
DATE.—The Secretary shall establish the
prior determination process under the amendment made by
subsection (a) in such a manner as to provide for the acceptance
of requests for determinations under such process filed not
later than 18 months after the date of the enactment of this
Act.
(2) SUNSET.—Such prior determination process shall not
apply to requests filed after the end of the 5-year period begin-
ning on the first date on which requests for determinations
under such process are accepted.
(3) TRANSITION.—During the period in which the amend-
ment made by subsection (a) has become effective but contracts
are not provided under section 1874A of the Social Security
Act with medicare administrative contractors, any reference
in section 1869(g) of such Act (as added by such amendment)
to such a contractor is deemed a reference to a fiscal inter-
mediary or carrier with an agreement under section 1816,
or contract under section 1842, respectively, of such Act.
(4) LIMITATION ON APPLICATION TO SGR.—For purposes of
applying section 1848(f)(2)(D) of the Social Security Act (42
U.S.C. 1395w–4(f)(2)(D)), the amendment made by subsection
(a) shall not be considered to be a change in law or regulation.
(c) PROVISIONS RELATING TO ADVANCE BENEFICIARY NOTICES;
REPORT ON PRIOR DETERMINATION PROCESS.—
(1) DATA
COLLECTION.—The Secretary shall establish a
process for the collection of information on the instances in
which an advance beneficiary notice (as defined in paragraph
(5)) has been provided and on instances in which a beneficiary
indicates on such a notice that the beneficiary does not intend
to seek to have the item or service that is the subject of
the notice furnished.
(2) OUTREACH AND EDUCATION.—The Secretary shall estab-
lish a program of outreach and education for beneficiaries and
providers of services and other persons on the appropriate
use of advance beneficiary notices and coverage policies under
the medicare program.
(3) GAO 
REPORT
ON
USE
OF
ADVANCE
BENEFICIARY
NOTICES.—Not later than 18 months after the date on which
section 1869(h) of the Social Security Act (as added by sub-
section (a)) takes effect, the Comptroller General of the United
States shall submit to Congress a report on the use of advance
beneficiary notices under title XVIII of such Act. Such report
shall include information concerning the providers of services
and other persons that have provided such notices and the
response of beneficiaries to such notices.
(4) GAO 
REPORT
ON
USE
OF
PRIOR
DETERMINATION
PROCESS.—Not later than 36 months after the date on which
section 1869(h) of the Social Security Act (as added by sub-
section (a)) takes effect, the Comptroller General of the United
States shall submit to Congress a report on the use of the
42 USC 1395pp
note.
42 USC 1395ff
note.
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117 STAT. 2416
PUBLIC LAW 108–173—DEC. 8, 2003
prior determination process under such section. Such report
shall include—
(A) information concerning—
(i) the number and types of procedures for which
a prior determination has been sought;
(ii) determinations made under the process;
(iii) the percentage of beneficiaries prevailing;
(iv) in those cases in which the beneficiaries do
not prevail, the reasons why such beneficiaries did
not prevail; and
(v) changes in receipt of services resulting from
the application of such process;
(B) an evaluation of whether the process was useful
for physicians (and other suppliers) and beneficiaries,
whether it was timely, and whether the amount of informa-
tion required was burdensome to physicians and bene-
ficiaries; and
(C) recommendations for improvements or continuation
of such process.
(5) ADVANCE BENEFICIARY NOTICE DEFINED.—In this sub-
section, the term ‘‘advance beneficiary notice’’ means a written
notice provided under section 1879(a) of the Social Security
Act (42 U.S.C. 1395pp(a)) to an individual entitled to benefits
under part A or enrolled under part B of title XVIII of such
Act before items or services are furnished under such part
in cases where a provider of services or other person that
would furnish the item or service believes that payment will
not be made for some or all of such items or services under
such title.
SEC. 939. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY
AVAILABLE.
(a) IN GENERAL.—Section 1870 (42 U.S.C. 1395gg) is amended
by adding at the end the following new subsection:
‘‘(h) Notwithstanding subsection (f) or any other provision of
law, the Secretary shall permit a provider of services or supplier
to appeal any determination of the Secretary under this title
relating to services rendered under this title to an individual who
subsequently dies if there is no other party available to appeal
such determination.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act and
shall apply to items and services furnished on or after such date.
SEC. 940. REVISIONS TO APPEALS TIMEFRAMES AND AMOUNTS.
(a) TIMEFRAMES.—Section 1869 (42 U.S.C. 1395ff) is amended—
(1) in subsection (a)(3)(C)(ii), by striking ‘‘30-day period’’
each place it appears and inserting ‘‘60-day period’’; and
(2) in subsection (c)(3)(C)(i), by striking ‘‘30-day period’’
and inserting ‘‘60-day period’’.
(b) AMOUNTS.—
(1) 
IN
GENERAL.—Section 
1869(b)(1)(E) 
(42 
U.S.C.
1395ff(b)(1)(E)) is amended by adding at the end the following
new clause:
‘‘(iii) ADJUSTMENT
OF
DOLLAR
AMOUNTS.—For
requests for hearings or judicial review made in a
year after 2004, the dollar amounts specified in clause
(i) shall be equal to such dollar amounts increased
42 USC 1395gg
note.
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117 STAT. 2417
PUBLIC LAW 108–173—DEC. 8, 2003
by the percentage increase in the medical care compo-
nent of the consumer price index for all urban con-
sumers (U.S. city average) for July 2003 to the July
preceding the year involved. Any amount determined
under the previous sentence that is not a multiple
of $10 shall be rounded to the nearest multiple of
$10.’’.
(2) CONFORMING AMENDMENTS.—(A) Section 1852(g)(5) (42
U.S.C. 1395w–22(g)(5)) is amended by adding at the end the
following: ‘‘The provisions of section 1869(b)(1)(E)(iii) shall
apply with respect to dollar amounts specified in the first
2 sentences of this paragraph in the same manner as they
apply 
to 
the 
dollar 
amounts 
specified 
in 
section
1869(b)(1)(E)(i).’’.
(B) Section 1876(b)(5)(B) (42 U.S.C. 1395mm(b)(5)(B)) is
amended by adding at the end the following: ‘‘The provisions of
section 1869(b)(1)(E)(iii) shall apply with respect to dollar amounts
specified in the first 2 sentences of this subparagraph in the same
manner as they apply to the dollar amounts specified in section
1869(b)(1)(E)(i).’’.
SEC. 940A. MEDIATION PROCESS FOR LOCAL COVERAGE DETERMINA-
TIONS.
(a) IN GENERAL.—Section 1869 (42 U.S.C. 1395ff), as amended
by section 938(a), is amended by adding at the end the following
new subsection:
‘‘(i) MEDIATION PROCESS
FOR LOCAL COVERAGE DETERMINA-
TIONS.—
‘‘(1) ESTABLISHMENT
OF
PROCESS.—The Secretary shall
establish a mediation process under this subsection through
the use of a physician trained in mediation and employed
by the Centers for Medicare & Medicaid Services.
‘‘(2) RESPONSIBILITY
OF
MEDIATOR.—Under the process
established in paragraph (1), such a mediator shall mediate
in disputes between groups representing providers of services,
suppliers (as defined in section 1861(d)), and the medical
director for a medicare administrative contractor whenever the
regional administrator (as defined by the Secretary) involved
determines that there was a systematic pattern and a large
volume of complaints from such groups regarding decisions
of such director or there is a complaint from the co-chair of
the advisory committee for that contractor to such regional
administrator regarding such dispute.’’.
(b) INCLUSION IN MAC CONTRACTS.—Section 1874A(b)(3)(A)(i),
as added by section 911(a)(1), is amended by adding at the end
the following: ‘‘Such requirements shall include specific performance
duties expected of a medical director of a medicare administrative
contractor, including requirements relating to professional relations
and the availability of such director to conduct medical determina-
tion activities within the jurisdiction of such a contractor.’’.
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117 STAT. 2418
PUBLIC LAW 108–173—DEC. 8, 2003
Subtitle E—Miscellaneous Provisions
SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION AND
MANAGEMENT (E & M) DOCUMENTATION GUIDELINES.
(a) IN GENERAL.—The Secretary may not implement any new
or modified documentation guidelines (which for purposes of this
section includes clinical examples) for evaluation and management
physician services under the title XVIII of the Social Security Act
on or after the date of the enactment of this Act unless the
Secretary—
(1) has developed the guidelines in collaboration with prac-
ticing physicians (including both generalists and specialists)
and provided for an assessment of the proposed guidelines
by the physician community;
(2) has established a plan that contains specific goals,
including a schedule, for improving the use of such guidelines;
(3) has conducted appropriate and representative pilot
projects under subsection (b) to test such guidelines;
(4) finds, based on reports submitted under subsection (b)(5)
with respect to pilot projects conducted for such or related
guidelines, that the objectives described in subsection (c) will
be met in the implementation of such guidelines; and
(5) has established, and is implementing, a program to
educate physicians on the use of such guidelines and that
includes appropriate outreach.
The Secretary shall make changes to the manner in which existing
evaluation and management documentation guidelines are imple-
mented to reduce paperwork burdens on physicians.
(b) PILOT PROJECTS TO TEST MODIFIED OR NEW EVALUATION
AND MANAGEMENT DOCUMENTATION GUIDELINES.—
(1) IN GENERAL.—With respect to proposed new or modified
documentation guidelines referred to in subsection (a), the Sec-
retary shall conduct under this subsection appropriate and
representative pilot projects to test the proposed guidelines.
(2) LENGTH AND CONSULTATION.—Each pilot project under
this subsection shall—
(A) be voluntary;
(B) be of sufficient length as determined by the Sec-
retary (but in no case to exceed 1 year) to allow for pre-
paratory physician and medicare contractor education,
analysis, and use and assessment of potential evaluation
and management guidelines; and
(C) be conducted, in development and throughout the
planning and operational stages of the project, in consulta-
tion with practicing physicians (including both generalists
and specialists).
(3) RANGE OF PILOT PROJECTS.—Of the pilot projects con-
ducted under this subsection with respect to proposed new
or modified documentation guidelines—
(A) at least one shall focus on a peer review method
by physicians (not employed by a medicare contractor)
which evaluates medical record information for claims sub-
mitted by physicians identified as statistical outliers rel-
ative to codes used for billing purposes for such services;
Paperwork
reduction.
42 USC
1395kk–1 note.
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117 STAT. 2419
PUBLIC LAW 108–173—DEC. 8, 2003
(B) at least one shall focus on an alternative method
to detailed guidelines based on physician documentation
of face to face encounter time with a patient;
(C) at least one shall be conducted for services fur-
nished in a rural area and at least one for services fur-
nished outside such an area; and
(D) at least one shall be conducted in a setting where
physicians bill under physicians’ services in teaching set-
tings and at least one shall be conducted in a setting
other than a teaching setting.
(4) STUDY OF IMPACT.—Each pilot project shall examine
the effect of the proposed guidelines on—
(A) different types of physician practices, including
those with fewer than 10 full-time-equivalent employees
(including physicians); and
(B) the costs of physician compliance, including edu-
cation, implementation, auditing, and monitoring.
(5) REPORT ON PILOT PROJECTS.—Not later than 6 months
after the date of completion of pilot projects carried out under
this subsection with respect to a proposed guideline described
in paragraph (1), the Secretary shall submit to Congress a
report on the pilot projects. Each such report shall include
a finding by the Secretary of whether the objectives described
in subsection (c) will be met in the implementation of such
proposed guideline.
(c) OBJECTIVES
FOR EVALUATION
AND MANAGEMENT GUIDE-
LINES.—The objectives for modified evaluation and management
documentation guidelines developed by the Secretary shall be to—
(1) identify clinically relevant documentation needed to
code accurately and assess coding levels accurately;
(2) decrease the level of non-clinically pertinent and
burdensome documentation time and content in the physician’s
medical record;
(3) increase accuracy by reviewers; and
(4) educate both physicians and reviewers.
(d) STUDY OF SIMPLER, ALTERNATIVE SYSTEMS OF DOCUMENTA-
TION FOR PHYSICIAN CLAIMS.—
(1) STUDY.—The Secretary shall carry out a study of the
matters described in paragraph (2).
(2) MATTERS DESCRIBED.—The matters referred to in para-
graph (1) are—
(A) the development of a simpler, alternative system
of requirements for documentation accompanying claims
for evaluation and management physician services for
which payment is made under title XVIII of the Social
Security Act; and
(B) consideration of systems other than current coding
and documentation requirements for payment for such
physician services.
(3) 
CONSULTATION
WITH
PRACTICING
PHYSICIANS.—In
designing and carrying out the study under paragraph (1),
the Secretary shall consult with practicing physicians, including
physicians who are part of group practices and including both
generalists and specialists.
(4) APPLICATION
OF
HIPAA
UNIFORM
CODING
REQUIRE-
MENTS.—In developing an alternative system under paragraph
(2), the Secretary shall consider requirements of administrative
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117 STAT. 2420
PUBLIC LAW 108–173—DEC. 8, 2003
simplification under part C of title XI of the Social Security
Act.
(5) REPORT TO CONGRESS.—(A) Not later than October 1,
2005, the Secretary shall submit to Congress a report on the
results of the study conducted under paragraph (1).
(B) The Medicare Payment Advisory Commission shall con-
duct an analysis of the results of the study included in the
report under subparagraph (A) and shall submit a report on
such analysis to Congress.
(e) STUDY
ON APPROPRIATE CODING
OF CERTAIN EXTENDED
OFFICE VISITS.—The Secretary shall conduct a study of the appro-
priateness of coding in cases of extended office visits in which
there is no diagnosis made. Not later than October 1, 2005, the
Secretary shall submit a report to Congress on such study and
shall include recommendations on how to code appropriately for
such visits in a manner that takes into account the amount of
time the physician spent with the patient.
(f) DEFINITIONS.—In this section—
(1) the term ‘‘rural area’’ has the meaning given that term
in section 1886(d)(2)(D) of the Social Security Act (42 U.S.C.
1395ww(d)(2)(D)); and
(2) the term ‘‘teaching settings’’ are those settings described
in section 415.150 of title 42, Code of Federal Regulations.
SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COV-
ERAGE.
(a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—Section 1868
(42 U.S.C. 1395ee) is amended—
(1) by adding at the end of the heading the following:
‘‘; COUNCIL FOR TECHNOLOGY AND INNOVATION’’;
(2) 
by 
inserting 
‘‘PRACTICING
PHYSICIANS
ADVISORY
COUNCIL.—(1)’’ after ‘‘(a)’’;
(3) in paragraph (1), as so redesignated under paragraph
(2), by striking ‘‘in this section’’ and inserting ‘‘in this sub-
section’’;
(4) by redesignating subsections (b) and (c) as paragraphs
(2) and (3), respectively; and
(5) by adding at the end the following new subsection:
‘‘(b) COUNCIL FOR TECHNOLOGY AND INNOVATION.—
‘‘(1) ESTABLISHMENT.—The Secretary shall establish a
Council for Technology and Innovation within the Centers for
Medicare & Medicaid Services (in this section referred to as
‘CMS’).
‘‘(2) COMPOSITION.—The Council shall be composed of senior
CMS staff and clinicians and shall be chaired by the Executive
Coordinator for Technology and Innovation (appointed or des-
ignated under paragraph (4)).
‘‘(3) DUTIES.—The Council shall coordinate the activities
of coverage, coding, and payment processes under this title
with respect to new technologies and procedures, including
new drug therapies, and shall coordinate the exchange of
information on new technologies between CMS and other enti-
ties that make similar decisions.
‘‘(4) EXECUTIVE
COORDINATOR
FOR
TECHNOLOGY
AND
INNOVATION.—The Secretary shall appoint (or designate) a non-
career appointee (as defined in section 3132(a)(7) of title 5,
Reports.
Deadline.
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117 STAT. 2421
PUBLIC LAW 108–173—DEC. 8, 2003
United States Code) who shall serve as the Executive Coordi-
nator for Technology and Innovation. Such executive coordi-
nator shall report to the Administrator of CMS, shall chair
the Council, shall oversee the execution of its duties, and shall
serve as a single point of contact for outside groups and entities
regarding the coverage, coding, and payment processes under
this title.’’.
(b) METHODS FOR DETERMINING PAYMENT BASIS FOR NEW LAB
TESTS.—Section 1833(h) (42 U.S.C. 1395l(h)) is amended by adding
at the end the following:
‘‘(8)(A) The Secretary shall establish by regulation procedures
for determining the basis for, and amount of, payment under this
subsection for any clinical diagnostic laboratory test with respect
to which a new or substantially revised HCPCS code is assigned
on or after January 1, 2005 (in this paragraph referred to as
‘new tests’).
‘‘(B) Determinations under subparagraph (A) shall be made
only after the Secretary—
‘‘(i) makes available to the public (through an Internet
website and other appropriate mechanisms) a list that includes
any such test for which establishment of a payment amount
under this subsection is being considered for a year;
‘‘(ii) on the same day such list is made available, causes
to have published in the Federal Register notice of a meeting
to receive comments and recommendations (and data on which
recommendations are based) from the public on the appropriate
basis under this subsection for establishing payment amounts
for the tests on such list;
‘‘(iii) not less than 30 days after publication of such notice
convenes a meeting, that includes representatives of officials
of the Centers for Medicare & Medicaid Services involved in
determining payment amounts, to receive such comments and
recommendations (and data on which the recommendations
are based);
‘‘(iv) taking into account the comments and recommenda-
tions (and accompanying data) received at such meeting,
develops and makes available to the public (through an Internet
website and other appropriate mechanisms) a list of proposed
determinations with respect to the appropriate basis for estab-
lishing a payment amount under this subsection for each such
code, together with an explanation of the reasons for each
such determination, the data on which the determinations are
based, and a request for public written comments on the pro-
posed determination; and
‘‘(v) taking into account the comments received during the
public comment period, develops and makes available to the
public (through an Internet website and other appropriate
mechanisms) a list of final determinations of the payment
amounts for such tests under this subsection, together with
the rationale for each such determination, the data on which
the determinations are based, and responses to comments and
suggestions received from the public.
‘‘(C) Under the procedures established pursuant to subpara-
graph (A), the Secretary shall—
‘‘(i) set forth the criteria for making determinations under
subparagraph (A); and
Federal Register,
publication.
Public
information.
Records.
Regulations.
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117 STAT. 2422
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) make available to the public the data (other than
proprietary data) considered in making such determinations.
‘‘(D) The Secretary may convene such further public meetings
to receive public comments on payment amounts for new tests
under this subsection as the Secretary deems appropriate.
‘‘(E) For purposes of this paragraph:
‘‘(i) The term ‘HCPCS’ refers to the Health Care Procedure
Coding System.
‘‘(ii) A code shall be considered to be ‘substantially revised’
if there is a substantive change to the definition of the test
or procedure to which the code applies (such as a new analyte
or a new methodology for measuring an existing analyte-specific
test).’’.
(c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL DATA COLLEC-
TION FOR USE IN THE MEDICARE INPATIENT PAYMENT SYSTEM.—
(1) STUDY.—The Comptroller General of the United States
shall conduct a study that analyzes which external data can
be collected in a shorter timeframe by the Centers for Medicare
& Medicaid Services for use in computing payments for
inpatient hospital services. The study may include an evalua-
tion of the feasibility and appropriateness of using quarterly
samples or special surveys or any other methods. The study
shall include an analysis of whether other executive agencies,
such as the Bureau of Labor Statistics in the Department
of Commerce, are best suited to collect this information.
(2) REPORT.—By not later than October 1, 2004, the Comp-
troller General shall submit a report to Congress on the study
under paragraph (1).
SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER
MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.
(a) IN GENERAL.—The Secretary shall not require a hospital
(including a critical access hospital) to ask questions (or obtain
information) relating to the application of section 1862(b) of the
Social Security Act (relating to medicare secondary payor provisions)
in the case of reference laboratory services described in subsection
(b), if the Secretary does not impose such requirement in the case
of such services furnished by an independent laboratory.
(b) REFERENCE LABORATORY SERVICES DESCRIBED.—Reference
laboratory services described in this subsection are clinical labora-
tory diagnostic tests (or the interpretation of such tests, or both)
furnished without a face-to-face encounter between the individual
entitled to benefits under part A or enrolled under part B, or
both, and the hospital involved and in which the hospital submits
a claim only for such test or interpretation.
SEC. 944. EMTALA IMPROVEMENTS.
(a) PAYMENT FOR EMTALA-MANDATED SCREENING AND STA-
BILIZATION SERVICES.—
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 1395y) is
amended by inserting after subsection (c) the following new
subsection:
‘‘(d) For purposes of subsection (a)(1)(A), in the case of any
item or service that is required to be provided pursuant to section
1867 to an individual who is entitled to benefits under this title,
determinations as to whether the item or service is reasonable
and necessary shall be made on the basis of the information avail-
able to the treating physician or practitioner (including the patient’s
42 USC 1395y
note.
Deadline.
Public
information.
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117 STAT. 2423
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presenting symptoms or complaint) at the time the item or service
was ordered or furnished by the physician or practitioner (and
not on the patient’s principal diagnosis). When making such deter-
minations with respect to such an item or service, the Secretary
shall not consider the frequency with which the item or service
was provided to the patient before or after the time of the admission
or visit.’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to items and services furnished on or after
January 1, 2004.
(b) NOTIFICATION OF PROVIDERS WHEN EMTALA INVESTIGATION
CLOSED.—Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is
amended by adding at the end the following new paragraph:
‘‘(4) NOTICE UPON CLOSING AN INVESTIGATION.—The Sec-
retary shall establish a procedure to notify hospitals and physi-
cians when an investigation under this section is closed.’’.
(c) PRIOR REVIEW BY PEER REVIEW ORGANIZATIONS IN EMTALA
CASES INVOLVING TERMINATION OF PARTICIPATION.—
(1) 
IN
GENERAL.—Section 
1867(d)(3) 
(42 
U.S.C.
1395dd(d)(3)) is amended—
(A) in the first sentence, by inserting ‘‘or in terminating
a hospital’s participation under this title’’ after ‘‘in imposing
sanctions under paragraph (1)’’; and
(B) by adding at the end the following new sentences:
‘‘Except in the case in which a delay would jeopardize
the health or safety of individuals, the Secretary shall
also request such a review before making a compliance
determination as part of the process of terminating a hos-
pital’s participation under this title for violations related
to the appropriateness of a medical screening examination,
stabilizing treatment, or an appropriate transfer as
required by this section, and shall provide a period of
5 days for such review. The Secretary shall provide a
copy of the organization’s report to the hospital or physician
consistent with confidentiality requirements imposed on
the organization under such part B.’’.
(2) EFFECTIVE DATE.—The amendments made by paragraph
(1) shall apply to terminations of participation initiated on
or after the date of the enactment of this Act.
SEC. 945. EMERGENCY MEDICAL TREATMENT AND LABOR ACT
(EMTALA) TECHNICAL ADVISORY GROUP.
(a) ESTABLISHMENT.—The Secretary shall establish a Technical
Advisory Group (in this section referred to as the ‘‘Advisory Group’’)
to review issues related to the Emergency Medical Treatment and
Labor Act (EMTALA) and its implementation. In this section, the
term ‘‘EMTALA’’ refers to the provisions of section 1867 of the
Social Security Act (42 U.S.C. 1395dd).
(b) MEMBERSHIP.—The Advisory Group shall be composed of
19 members, including the Administrator of the Centers for Medi-
care & Medicaid Services and the Inspector General of the Depart-
ment of Health and Human Services and of which—
(1) 4 shall be representatives of hospitals, including at
least one public hospital, that have experience with the applica-
tion of EMTALA and at least 2 of which have not been cited
for EMTALA violations;
42 USC 1395dd
note.
42 USC 1395dd
note.
42 USC 1395y
note.
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117 STAT. 2424
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(2) 7 shall be practicing physicians drawn from the fields
of emergency medicine, cardiology or cardiothoracic surgery,
orthopedic surgery, neurosurgery, pediatrics or a pediatric sub-
specialty, obstetrics-gynecology, and psychiatry, with not more
than one physician from any particular field;
(3) 2 shall represent patients;
(4) 2 shall be staff involved in EMTALA investigations
from different regional offices of the Centers for Medicare &
Medicaid Services; and
(5) 1 shall be from a State survey office involved in
EMTALA investigations and 1 shall be from a peer review
organization, both of whom shall be from areas other than
the regions represented under paragraph (4).
In selecting members described in paragraphs (1) through (3), the
Secretary shall consider qualified individuals nominated by
organizations representing providers and patients.
(c) GENERAL RESPONSIBILITIES.—The Advisory Group—
(1) shall review EMTALA regulations;
(2) may provide advice and recommendations to the Sec-
retary with respect to those regulations and their application
to hospitals and physicians;
(3) shall solicit comments and recommendations from hos-
pitals, physicians, and the public regarding the implementation
of such regulations; and
(4) may disseminate information on the application of such
regulations to hospitals, physicians, and the public.
(d) ADMINISTRATIVE MATTERS.—
(1) CHAIRPERSON.—The members of the Advisory Group
shall elect a member to serve as chairperson of the Advisory
Group for the life of the Advisory Group.
(2) MEETINGS.—The Advisory Group shall first meet at
the direction of the Secretary. The Advisory Group shall then
meet twice per year and at such other times as the Advisory
Group may provide.
(e) TERMINATION.—The Advisory Group shall terminate 30
months after the date of its first meeting.
(f) WAIVER
OF ADMINISTRATIVE LIMITATION.—The Secretary
shall establish the Advisory Group notwithstanding any limitation
that may apply to the number of advisory committees that may
be established (within the Department of Health and Human Serv-
ices or otherwise).
SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE
HOSPICE SERVICES IN CERTAIN CIRCUMSTANCES.
(a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5))
is amended by adding at the end the following:
‘‘(D) In extraordinary, exigent, or other non-routine cir-
cumstances, such as unanticipated periods of high patient loads,
staffing shortages due to illness or other events, or temporary
travel of a patient outside a hospice program’s service area, a
hospice program may enter into arrangements with another hospice
program for the provision by that other program of services
described in paragraph (2)(A)(ii)(I). The provisions of paragraph
(2)(A)(ii)(II) shall apply with respect to the services provided under
such arrangements.
‘‘(E) A hospice program may provide services described in para-
graph (1)(A) other than directly by the program if the services
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117 STAT. 2425
PUBLIC LAW 108–173—DEC. 8, 2003
are highly specialized services of a registered professional nurse
and are provided non-routinely and so infrequently so that the
provision of such services directly would be impracticable and
prohibitively expensive.’’.
(b) CONFORMING PAYMENT PROVISION.—Section 1814(i) (42
U.S.C. 1395f(i)), as amended by section 512(b), is amended by
adding at the end the following new paragraph:
‘‘(5) In the case of hospice care provided by a hospice program
under arrangements under section 1861(dd)(5)(D) made by another
hospice program, the hospice program that made the arrangements
shall bill and be paid for the hospice care.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to hospice care provided on or after the date of the
enactment of this Act.
SEC. 
947. 
APPLICATION 
OF 
OSHA 
BLOODBORNE 
PATHOGENS
STANDARD TO CERTAIN HOSPITALS.
(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc), as amended
by section 506, is amended—
(1) in subsection (a)(1)—
(A) in subparagraph (T), by striking ‘‘and’’ at the end;
(B) in subparagraph (U), by striking the period at
the end and inserting ‘‘, and’’; and
(C) by inserting after subparagraph (U) the following
new subparagraph:
‘‘(V) in the case of hospitals that are not otherwise subject
to the Occupational Safety and Health Act of 1970 (or a State
occupational safety and health plan that is approved under
18(b) of such Act), to comply with the Bloodborne Pathogens
standard under section 1910.1030 of title 29 of the Code of
Federal Regulations (or as subsequently redesignated).’’; and
(2) by adding at the end of subsection (b) the following
new paragraph:
‘‘(4)(A) A hospital that fails to comply with the requirement
of subsection (a)(1)(V) (relating to the Bloodborne Pathogens
standard) is subject to a civil money penalty in an amount described
in subparagraph (B), but is not subject to termination of an agree-
ment under this section.
‘‘(B) The amount referred to in subparagraph (A) is an amount
that is similar to the amount of civil penalties that may be imposed
under section 17 of the Occupational Safety and Health Act of
1970 for a violation of the Bloodborne Pathogens standard referred
to in subsection (a)(1)(U) by a hospital that is subject to the provi-
sions of such Act.
‘‘(C) A civil money penalty under this paragraph shall be
imposed and collected in the same manner as civil money penalties
under subsection (a) of section 1128A are imposed and collected
under that section.’’.
(b) EFFECTIVE DATE.—The amendments made by this sub-
section (a) shall apply to hospitals as of July 1, 2004.
SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND CORREC-
TIONS.
(a) TECHNICAL AMENDMENTS RELATING
TO ADVISORY COM-
MITTEE UNDER BIPA SECTION 522.—(1) Subsection (i) of section
1114 (42 U.S.C. 1314)—
(A) is transferred to section 1862 and added at the end
of such section; and
42 USC 1395y.
42 USC 1395cc
note.
42 USC 1395f
note.
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117 STAT. 2426
PUBLIC LAW 108–173—DEC. 8, 2003
(B) is redesignated as subsection (j).
(2) Section 1862 (42 U.S.C. 1395y) is amended—
(A) in the last sentence of subsection (a), by striking ‘‘estab-
lished under section 1114(f)’’; and
(B) in subsection (j), as so transferred and redesignated—
(i) by striking ‘‘under subsection (f)’’; and
(ii) by striking ‘‘section 1862(a)(1)’’ and inserting ‘‘sub-
section (a)(1)’’.
(b) TERMINOLOGY CORRECTIONS.—(1) Section 1869(c)(3)(I)(ii) (42
U.S.C. 1395ff(c)(3)(I)(ii)) is amended—
(A) in subclause (III), by striking ‘‘policy’’ and inserting
‘‘determination’’; and
(B) in subclause (IV), by striking ‘‘medical review policies’’
and inserting ‘‘coverage determinations’’.
(2) Section 1852(a)(2)(C) (42 U.S.C. 1395w–22(a)(2)(C)) is
amended by striking ‘‘policy’’ and ‘‘POLICY’’ and inserting ‘‘deter-
mination’’ each place it appears and ‘‘DETERMINATION’’, respectively.
(c) REFERENCE CORRECTIONS.—Section 1869(f)(4) (42 U.S.C.
1395ff(f)(4)) is amended—
(1) in subparagraph (A)(iv), by striking ‘‘subclause (I), (II),
or (III)’’ and inserting ‘‘clause (i), (ii), or (iii)’’;
(2) in subparagraph (B), by striking ‘‘clause (i)(IV)’’ and
‘‘clause (i)(III)’’ and inserting ‘‘subparagraph (A)(iv)’’ and
‘‘subparagraph (A)(iii)’’, respectively; and
(3) in subparagraph (C), by striking ‘‘clause (i)’’, ‘‘subclause
(IV)’’ and ‘‘subparagraph (A)’’ and inserting ‘‘subparagraph (A)’’,
‘‘clause (iv)’’ and ‘‘paragraph (1)(A)’’, respectively each place
it appears.
(d) OTHER CORRECTIONS.—Effective as if included in the enact-
ment of section 521(c) of BIPA, section 1154(e) (42 U.S.C. 1320c–
3(e)) is amended by striking paragraph (5).
(e) EFFECTIVE DATE.—Except as otherwise provided, the amend-
ments made by this section shall be effective as if included in
the enactment of BIPA.
SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLU-
SION.
The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a–
7(c)(3)(B)) is amended to read as follows: ‘‘Subject to subparagraph
(G), in the case of an exclusion under subsection (a), the minimum
period of exclusion shall be not less than five years, except that,
upon the request of the administrator of a Federal health care
program (as defined in section 1128B(f)) who determines that the
exclusion would impose a hardship on individuals entitled to bene-
fits under part A of title XVIII or enrolled under part B of such
title, or both, the Secretary may, after consulting with the Inspector
General of the Department of Health and Human Services, waive
the exclusion under subsection (a)(1), (a)(3), or (a)(4) with respect
to that program in the case of an individual or entity that is
the sole community physician or sole source of essential specialized
services in a community.’’.
SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.
(a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) is amended
by adding at the end, after the subsection transferred and redesig-
nated by section 948(a), the following new subsection:
42 USC 1314
note.
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117 STAT. 2427
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(k)(1) Subject to paragraph (2), a group health plan (as defined
in subsection (a)(1)(A)(v)) providing supplemental or secondary cov-
erage to individuals also entitled to services under this title shall
not require a medicare claims determination under this title for
dental benefits specifically excluded under subsection (a)(12) as
a condition of making a claims determination for such benefits
under the group health plan.
‘‘(2) A group health plan may require a claims determination
under this title in cases involving or appearing to involve inpatient
dental hospital services or dental services expressly covered under
this title pursuant to actions taken by the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the date that is 60 days after the date of
the enactment of this Act.
SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE
DSH FORMULA.
Beginning not later than 1 year after the date of the enactment
of this Act, the Secretary shall arrange to furnish to subsection
(d) hospitals (as defined in section 1886(d)(1)(B) of the Social Secu-
rity Act, 42 U.S.C. 1395ww(d)(1)(B)) the data necessary for such
hospitals to compute the number of patient days used in computing
the disproportionate patient percentage under such section for that
hospital for the current cost reporting year. Such data shall also
be furnished to other hospitals which would qualify for additional
payments under part A of title XVIII of the Social Security Act
on the basis of such data.
SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.
(a) 
IN
GENERAL.—Section 
1842(b)(6)(A) 
(42 
U.S.C.
1395u(b)(6)(A)) is amended by striking ‘‘or (ii) (where the service
was provided in a hospital, critical access hospital, clinic, or other
facility) to the facility in which the service was provided if there
is a contractual arrangement between such physician or other per-
son and such facility under which such facility submits the bill
for such service,’’ and inserting ‘‘or (ii) where the service was pro-
vided under a contractual arrangement between such physician
or other person and an entity, to the entity if, under the contractual
arrangement, the entity submits the bill for the service and the
contractual arrangement meets such program integrity and other
safeguards as the Secretary may determine to be appropriate,’’.
(b) CONFORMING AMENDMENT.—The second sentence of section
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by striking ‘‘except
to an employer or facility as described in clause (A)’’ and inserting
‘‘except to an employer or entity as described in subparagraph
(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments made on or after the date of the enactment
of this Act.
SEC. 953. OTHER PROVISIONS.
(a) GAO REPORTS ON THE PHYSICIAN COMPENSATION.—
(1) SUSTAINABLE GROWTH RATE AND UPDATES.—Not later
than 6 months after the date of the enactment of this Act,
the Comptroller General of the United States shall submit
to Congress a report on the appropriateness of the updates
in the conversion factor under subsection (d)(3) of section 1848
of the Social Security Act (42 U.S.C. 1395w–4), including the
42 USC 1395u
note.
42 USC 1395ww
note.
42 USC 1395y
note.
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117 STAT. 2428
PUBLIC LAW 108–173—DEC. 8, 2003
appropriateness of the sustainable growth rate formula under
subsection (f) of such section for 2002 and succeeding years.
Such report shall examine the stability and predictability of
such updates and rate and alternatives for the use of such
rate in the updates.
(2) PHYSICIAN COMPENSATION GENERALLY.—Not later than
12 months after the date of the enactment of this Act, the
Comptroller General shall submit to Congress a report on all
aspects of physician compensation for services furnished under
title XVIII of the Social Security Act, and how those aspects
interact and the effect on appropriate compensation for physi-
cian services. Such report shall review alternatives for the
physician fee schedule under section 1848 of such title (42
U.S.C. 1395w–4).
(b) ANNUAL PUBLICATION
OF LIST
OF NATIONAL COVERAGE
DETERMINATIONS.—The Secretary shall provide, in an appropriate
annual publication available to the public, a list of national coverage
determinations made under title XVIII of the Social Security Act
in the previous year and information on how to get more information
with respect to such determinations.
(c) GAO REPORT ON FLEXIBILITY IN APPLYING HOME HEALTH
CONDITIONS OF PARTICIPATION TO PATIENTS WHO ARE NOT MEDI-
CARE BENEFICIARIES.—Not later than 6 months after the date of
the enactment of this Act, the Comptroller General of the United
States shall submit to Congress a report on the implications if
there were flexibility in the application of the medicare conditions
of participation for home health agencies with respect to groups
or types of patients who are not medicare beneficiaries. The report
shall include an analysis of the potential impact of such flexible
application on clinical operations and the recipients of such services
and an analysis of methods for monitoring the quality of care
provided to such recipients.
(d) OIG REPORT ON NOTICES RELATING TO USE OF HOSPITAL
LIFETIME RESERVE DAYS.—Not later than 1 year after the date
of the enactment of this Act, the Inspector General of the Depart-
ment of Health and Human Services shall submit a report to
Congress on—
(1) the extent to which hospitals provide notice to medicare
beneficiaries in accordance with applicable requirements before
they use the 60 lifetime reserve days described in section
1812(a)(1) of the Social Security Act (42 U.S.C. 1395d(a)(1));
and
(2) the appropriateness and feasibility of hospitals pro-
viding a notice to such beneficiaries before they completely
exhaust such lifetime reserve days.
TITLE X—MEDICAID AND
MISCELLANEOUS PROVISIONS
Subtitle A—Medicaid Provisions
SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH)
PAYMENTS.
(a) TEMPORARY INCREASE.—Section 1923(f)(3) (42 U.S.C. 1396r–
4(f)(3)) is amended—
42 USC 1395d
note.
42 USC 1395y
note.
42 USC 1395w–4
note.
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117 STAT. 2429
PUBLIC LAW 108–173—DEC. 8, 2003
(1) in subparagraph (A), by striking ‘‘subparagraph (B)’’
and inserting ‘‘subparagraphs (B) and (C)’’; and
(2) by adding at the end the following new subparagraphs:
‘‘(C) SPECIAL, TEMPORARY INCREASE IN ALLOTMENTS ON
A ONE-TIME, NON-CUMULATIVE BASIS.—The DSH allotment
for any State (other than a State with a DSH allotment
determined under paragraph (5))—
‘‘(i) for fiscal year 2004 is equal to 116 percent
of the DSH allotment for the State for fiscal year
2003 under this paragraph, notwithstanding subpara-
graph (B); and
‘‘(ii) for each succeeding fiscal year is equal to
the DSH allotment for the State for fiscal year 2004
or, in the case of fiscal years beginning with the fiscal
year specified in subparagraph (D) for that State, the
DSH allotment for the State for the previous fiscal
year increased by the percentage change in the con-
sumer price index for all urban consumers (all items;
U.S. city average), for the previous fiscal year.
‘‘(D) FISCAL YEAR SPECIFIED.—For purposes of subpara-
graph (C)(ii), the fiscal year specified in this subparagraph
for a State is the first fiscal year for which the Secretary
estimates that the DSH allotment for that State will equal
(or no longer exceed) the DSH allotment for that State
under the law as in effect before the date of the enactment
of this subparagraph.’’.
(b) INCREASE IN FLOOR FOR TREATMENT AS A LOW DSH STATE.—
Section 1923(f)(5) (42 U.S.C. 1396r–4(f)(5)) is amended—
(1) in the paragraph heading, by striking ‘‘EXTREMELY’’;
(2) by striking ‘‘In the case of’’ and inserting the following:
‘‘(A) FOR
FISCAL
YEARS
2001
THROUGH
2003
FOR
EXTREMELY LOW DSH STATES.—In the case of’’;
(3) by inserting ‘‘before fiscal year 2004’’ after ‘‘In subse-
quent years’’; and
(4) by adding at the end the following:
‘‘(B) FOR FISCAL YEAR 2004 AND SUBSEQUENT FISCAL
YEARS.—In the case of a State in which the total expendi-
tures under the State plan (including Federal and State
shares) for disproportionate share hospital adjustments
under this section for fiscal year 2000, as reported to the
Administrator of the Centers for Medicare & Medicaid Serv-
ices as of August 31, 2003, is greater than 0 but less
than 3 percent of the State’s total amount of expenditures
under the State plan for medical assistance during the
fiscal year, the DSH allotment for the State with respect
to—
‘‘(i) fiscal year 2004 shall be the DSH allotment
for the State for fiscal year 2003 increased by 16 per-
cent;
‘‘(ii) each succeeding fiscal year before fiscal year
2009 shall be the DSH allotment for the State for
the previous fiscal year increased by 16 percent; and
‘‘(iii) fiscal year 2009 and any subsequent fiscal
year, shall be the DSH allotment for the State for
the previous year subject to an increase for inflation
as provided in paragraph (3)(A).’’.
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(c) ALLOTMENT ADJUSTMENT.—Section 1923(f) (42 U.S.C. 1396r–
4(f)) is amended—
(1) in paragraph (3)(A), by striking ‘‘The DSH’’ and
inserting ‘‘Except as provided in paragraph (6), the DSH’’;
(2) by redesignating paragraph (6) as paragraph (7); and
(3) by inserting after paragraph (5) the following:
‘‘(6) ALLOTMENT ADJUSTMENT.—Only with respect to fiscal
year 2004 or 2005, if a statewide waiver under section 1115
is revoked or terminated before the end of either such fiscal
year and there is no DSH allotment for the State, the Secretary
shall—
‘‘(A) permit the State whose waiver was revoked or
terminated to submit an amendment to its State plan
that would describe the methodology to be used by the
State (after the effective date of such revocation or termi-
nation) to identify and make payments to disproportionate
share hospitals, including children’s hospitals and institu-
tions for mental diseases or other mental health facilities
(other than State-owned institutions or facilities), on the
basis of the proportion of patients served by such hospitals
that are low-income patients with special needs; and
‘‘(B) provide for purposes of this subsection for com-
putation of an appropriate DSH allotment for the State
for fiscal year 2004 or 2005 (or both) that would not exceed
the amount allowed under paragraph (3)(B)(ii) and that
does not result in greater expenditures under this title
than would have been made if such waiver had not been
revoked or terminated.
In determining the amount of an appropriate DSH allotment
under subparagraph (B) for a State, the Secretary shall take
into account the level of DSH expenditures for the State for
the fiscal year preceding the fiscal year in which the waiver
commenced.’’.
(d) INCREASED
REPORTING
AND
OTHER
REQUIREMENTS
TO
ENSURE THE APPROPRIATE USE OF MEDICAID DSH PAYMENT ADJUST-
MENTS.—Section 1923 (42 U.S.C. 1396r–4) is amended by adding
at the end the following new subsection:
‘‘(j) ANNUAL REPORTS AND OTHER REQUIREMENTS REGARDING
PAYMENT ADJUSTMENTS.—With respect to fiscal year 2004 and each
fiscal year thereafter, the Secretary shall require a State, as a
condition of receiving a payment under section 1903(a)(1) with
respect to a payment adjustment made under this section, to do
the following:
‘‘(1) REPORT.—The State shall submit an annual report
that includes the following:
‘‘(A) An identification of each disproportionate share
hospital that received a payment adjustment under this
section for the preceding fiscal year and the amount of
the payment adjustment made to such hospital for the
preceding fiscal year.
‘‘(B) Such other information as the Secretary deter-
mines necessary to ensure the appropriateness of the pay-
ment adjustments made under this section for the pre-
ceding fiscal year.
‘‘(2) INDEPENDENT
CERTIFIED
AUDIT.—The State shall
annually submit to the Secretary an independent certified audit
that verifies each of the following:
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117 STAT. 2431
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(A) The extent to which hospitals in the State have
reduced their uncompensated care costs to reflect the total
amount of claimed expenditures made under this section.
‘‘(B) Payments under this section to hospitals that
comply with the requirements of subsection (g).
‘‘(C) Only the uncompensated care costs of providing
inpatient hospital and outpatient hospital services to
individuals described in paragraph (1)(A) of such subsection
are included in the calculation of the hospital-specific limits
under such subsection.
‘‘(D) The State included all payments under this title,
including supplemental payments, in the calculation of such
hospital-specific limits.
‘‘(E) The State has separately documented and retained
a record of all of its costs under this title, claimed expendi-
tures under this title, uninsured costs in determining pay-
ment adjustments under this section, and any payments
made on behalf of the uninsured from payment adjustments
under this section.’’.
(e) CLARIFICATION REGARDING NON-REGULATION
OF TRANS-
FERS.—
(1) IN GENERAL.—Nothing in section 1903(w) of the Social
Security Act (42 U.S.C. 1396b(w)) shall be construed by the
Secretary as prohibiting a State’s use of funds as the non-
Federal share of expenditures under title XIX of such Act
where such funds are transferred from or certified by a publicly-
owned regional medical center located in another State and
described in paragraph (2), so long as the Secretary determines
that such use of funds is proper and in the interest of the
program under title XIX.
(2) CENTER DESCRIBED.—A center described in this para-
graph is a publicly-owned regional medical center that—
(A) provides level 1 trauma and burn care services;
(B) provides level 3 neonatal care services;
(C) is obligated to serve all patients, regardless of
State of origin;
(D) is located within a Standard Metropolitan Statis-
tical Area (SMSA) that includes at least 3 States, including
the States described in paragraph (1);
(E) serves as a tertiary care provider for patients
residing within a 125 mile radius; and
(F) meets the criteria for a disproportionate share hos-
pital under section 1923 of such Act in at least one State
other than the one in which the center is located.
(3) EFFECTIVE PERIOD.—This subsection shall apply through
December 31, 2005.
SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES
CHARGED TO CERTAIN PUBLIC HOSPITALS IN THE BEST
PRICE EXEMPTIONS FOR THE MEDICAID DRUG REBATE
PROGRAM.
(a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 U.S.C. 1396r–
8(c)(1)(C)(i)(I)) is amended by inserting before the semicolon the
following: ‘‘(including inpatient prices charged to hospitals described
in section 340B(a)(4)(L) of the Public Health Service Act)’’.
42 USC 1396b
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
(b) ANTI-DIVERSION
PROTECTION.—Section 1927(c)(1)(C) (42
U.S.C. 1396r–8(c)(1)(C)) is amended by adding at the end the fol-
lowing:
‘‘(iii) APPLICATION
OF
AUDITING
AND
RECORD-
KEEPING REQUIREMENTS.—With respect to a covered
entity described in section 340B(a)(4)(L) of the Public
Health Service Act, any drug purchased for inpatient
use shall be subject to the auditing and recordkeeping
requirements described in section 340B(a)(5)(C) of the
Public Health Service Act.’’.
SEC. 1003. EXTENSION OF MORATORIUM.
(a) IN GENERAL.—Section 6408(a)(3) of the Omnibus Budget
Reconciliation Act of 1989, as amended by section 13642 of the
Omnibus Budget Reconciliation Act of 1993 and section 4758 of
the Balanced Budget Act of 1997, is amended—
(1) by striking ‘‘until December 31, 2002’’, and
(2) by striking ‘‘Kent Community Hospital Complex in
Michigan or.’’
(b) EFFECTIVE DATES.—
(1) PERMANENT EXTENSION.—The amendment made by sub-
section (a)(1) shall take effect as if included in the amendment
made by section 4758 of the Balanced Budget Act of 1997.
(2) MODIFICATION.—The amendment made by subsection
(a)(2) shall take effect on the date of enactment of this Act.
Subtitle B—Miscellaneous Provisions
SEC. 1011. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERV-
ICES FURNISHED TO UNDOCUMENTED ALIENS.
(a) TOTAL AMOUNT AVAILABLE FOR ALLOTMENT.—
(1) IN GENERAL.—Out of any funds in the Treasury not
otherwise appropriated, there are appropriated to the Secretary
$250,000,000 for each of fiscal years 2005 through 2008 for
the purpose of making allotments under this section for pay-
ments to eligible providers in States described in paragraph
(1) or (2) of subsection (b).
(2) AVAILABILITY.—Funds appropriated under paragraph
(1) shall remain available until expended.
(b) STATE ALLOTMENTS.—
(1) BASED ON PERCENTAGE OF UNDOCUMENTED ALIENS.—
(A) IN
GENERAL.—Out of the amount appropriated
under subsection (a) for a fiscal year, the Secretary shall
use $167,000,000 of such amount to make allotments for
such fiscal year in accordance with subparagraph (B).
(B) FORMULA.—The amount of the allotment for pay-
ments to eligible providers in each State for a fiscal year
shall be equal to the product of—
(i) the total amount available for allotments under
this paragraph for the fiscal year; and
(ii) the percentage of undocumented aliens residing
in the State as compared to the total number of such
aliens residing in all States, as determined by the
Statistics Division of the Immigration and Naturaliza-
tion Service, as of January 2003, based on the 2000
decennial census.
42 USC 1395dd
note.
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PUBLIC LAW 108–173—DEC. 8, 2003
(2) BASED ON NUMBER OF UNDOCUMENTED ALIEN APPREHEN-
SION STATES.—
(A) IN
GENERAL.—Out of the amount appropriated
under subsection (a) for a fiscal year, the Secretary shall
use $83,000,000 of such amount to make allotments, in
addition to amounts allotted under paragraph (1), for such
fiscal year for each of the 6 States with the highest number
of undocumented alien apprehensions for such fiscal year.
(B) DETERMINATION OF ALLOTMENTS.—The amount of
the allotment for each State described in subparagraph
(A) for a fiscal year shall be equal to the product of—
(i) the total amount available for allotments under
this paragraph for the fiscal year; and
(ii) 
the 
percentage 
of 
undocumented 
alien
apprehensions in the State in that fiscal year as com-
pared to the total of such apprehensions for all such
States for the preceding fiscal year.
(C) DATA.—For purposes of this paragraph, the highest
number of undocumented alien apprehensions for a fiscal
year shall be based on the apprehension rates for the
4-consecutive-quarter period ending before the beginning
of the fiscal year for which information is available for
undocumented aliens in such States, as reported by the
Department of Homeland Security.
(c) USE OF FUNDS.—
(1) AUTHORITY TO MAKE PAYMENTS.—From the allotments
made for a State under subsection (b) for a fiscal year, the
Secretary shall pay the amount (subject to the total amount
available from such allotments) determined under paragraph
(2) directly to eligible providers located in the State for the
provision of eligible services to aliens described in paragraph
(5) to the extent that the eligible provider was not otherwise
reimbursed (through insurance or otherwise) for such services
during that fiscal year.
(2) DETERMINATION OF PAYMENT AMOUNTS.—
(A) IN GENERAL.—Subject to subparagraph (B), the pay-
ment amount determined under this paragraph shall be
an amount determined by the Secretary that is equal to
the lesser of—
(i) the amount that the provider demonstrates was
incurred for the provision of such services; or
(ii) amounts determined under a methodology
established by the Secretary for purposes of this sub-
section.
(B) PRO-RATA
REDUCTION.—If the amount of funds
allotted to a State under subsection (b) for a fiscal year
is insufficient to ensure that each eligible provider in that
State receives the amount of payment calculated under
subparagraph (A), the Secretary shall reduce that amount
of payment with respect to each eligible provider to ensure
that the entire amount allotted to the State for that fiscal
year is paid to such eligible providers.
(3) METHODOLOGY.—In establishing a methodology under
paragraph (2)(A)(ii), the Secretary—
(A) may establish different methodologies for types
of eligible providers;
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117 STAT. 2434
PUBLIC LAW 108–173—DEC. 8, 2003
(B) may base payments for hospital services on esti-
mated hospital charges, adjusted to estimated cost, through
the application of hospital-specific cost-to-charge ratios;
(C) shall provide for the election by a hospital to receive
either payments to the hospital for—
(i) hospital and physician services; or
(ii) hospital services and for a portion of the on-
call payments made by the hospital to physicians; and
(D) shall make quarterly payments under this section
to eligible providers.
If a hospital makes the election under subparagraph (C)(i),
the hospital shall pass on payments for services of a physician
to the physician and may not charge any administrative or
other fee with respect to such payments.
(4) LIMITATION
ON
USE
OF
FUNDS.—Payments made to
eligible providers in a State from allotments made under sub-
section (b) for a fiscal year may only be used for costs incurred
in providing eligible services to aliens described in paragraph
(5).
(5) ALIENS
DESCRIBED.—For purposes of paragraphs (1)
and (2), aliens described in this paragraph are any of the
following:
(A) Undocumented aliens.
(B) Aliens who have been paroled into the United
States at a United States port of entry for the purpose
of receiving eligible services.
(C) Mexican citizens permitted to enter the United
States for not more than 72 hours under the authority
of a biometric machine readable border crossing identifica-
tion card (also referred to as a ‘‘laser visa’’) issued in
accordance with the requirements of regulations prescribed
under section 101(a)(6) of the Immigration and Nationality
Act (8 U.S.C. 1101(a)(6)).
(d) APPLICATIONS; ADVANCE PAYMENTS.—
(1) 
DEADLINE
FOR
ESTABLISHMENT
OF
APPLICATION
PROCESS.—
(A) IN GENERAL.—Not later than September 1, 2004,
the Secretary shall establish a process under which eligible
providers located in a State may request payments under
subsection (c).
(B) INCLUSION OF MEASURES TO COMBAT FRAUD AND
ABUSE.—The Secretary shall include in the process estab-
lished under subparagraph (A) measures to ensure that
inappropriate, excessive, or fraudulent payments are not
made from the allotments determined under subsection
(b), including certification by the eligible provider of the
veracity of the payment request.
(2) ADVANCE PAYMENT; RETROSPECTIVE ADJUSTMENT.—The
process established under paragraph (1) may provide for
making payments under this section for each quarter of a
fiscal year on the basis of advance estimates of expenditures
submitted by applicants for such payments and such other
investigation as the Secretary may find necessary, and for
making reductions or increases in the payments as necessary
to adjust for any overpayment or underpayment for prior quar-
ters of such fiscal year.
(e) DEFINITIONS.—In this section:
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117 STAT. 2435
PUBLIC LAW 108–173—DEC. 8, 2003
(1) ELIGIBLE
PROVIDER.—The term ‘‘eligible provider’’
means a hospital, physician, or provider of ambulance services
(including an Indian Health Service facility whether operated
by the Indian Health Service or by an Indian tribe or tribal
organization).
(2) ELIGIBLE SERVICES.—The term ‘‘eligible services’’ means
health care services required by the application of section 1867
of the Social Security Act (42 U.S.C. 1395dd), and related
hospital inpatient and outpatient services and ambulance serv-
ices (as defined by the Secretary).
(3) HOSPITAL.—The term ‘‘hospital’’ has the meaning given
such term in section 1861(e) of the Social Security Act (42
U.S.C. 1395x(e)), except that such term shall include a critical
access hospital (as defined in section 1861(mm)(1) of such Act
(42 U.S.C. 1395x(mm)(1)).
(4) PHYSICIAN.—The term ‘‘physician’’ has the meaning
given that term in section 1861(r) of the Social Security Act
(42 U.S.C. 1395x(r)).
(5) INDIAN
TRIBE; 
TRIBAL
ORGANIZATION.—The terms
‘‘Indian tribe’’ and ‘‘tribal organization’’ have the meanings
given such terms in section 4 of the Indian Health Care
Improvement Act (25 U.S.C. 1603).
(6) STATE.—The term ‘‘State’’ means the 50 States and
the District of Columbia.
SEC. 1012. COMMISSION ON SYSTEMIC INTEROPERABILITY.
(a) ESTABLISHMENT.—The Secretary shall establish a commis-
sion to be known as the ‘‘Commission on Systemic Interoperability’’
(in this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall develop a com-
prehensive strategy for the adoption and implementation of
health care information technology standards, that includes
a timeline and prioritization for such adoption and implementa-
tion.
(2) CONSIDERATIONS.—In developing the comprehensive
health care information technology strategy under paragraph
(1), the Commission shall consider—
(A) the costs and benefits of the standards, both finan-
cial impact and quality improvement;
(B) the current demand on industry resources to imple-
ment this Act and other electronic standards, including
HIPAA standards; and
(C) the most cost-effective and efficient means for
industry to implement the standards.
(3) NONINTERFERENCE.—In carrying out this section, the
Commission shall not interfere with any standards development
of adoption processes underway in the private or public sector
and shall not replicate activities related to such standards
or the national health information infrastructure underway
within the Department of Health and Human Services.
(4) REPORT.—Not later than October 31, 2005, the Commis-
sion shall submit to the Secretary and to Congress a report
describing the strategy developed under paragraph (1),
including an analysis of the matters considered under para-
graph (2).
(c) MEMBERSHIP.—
42 USC 242b
note.
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117 STAT. 2436
PUBLIC LAW 108–173—DEC. 8, 2003
(1) NUMBER AND APPOINTMENT.—The Commission shall be
composed of 11 members appointed as follows:
(A) The President shall appoint three members, one
of whom the President shall designate as Chairperson.
(B) The Majority Leader of the Senate shall appoint
two members.
(C) The Minority Leader of the Senate shall appoint
two members.
(D) The Speaker of the House of Representatives shall
appoint two members.
(E) The Minority Leader of the House of Representa-
tives shall appoint two members.
(2) QUALIFICATIONS.—The membership of the Commission
shall include individuals with national recognition for their
expertise in health finance and economics, health plans and
integrated delivery systems, reimbursement of health facilities,
practicing physicians, practicing pharmacists, and other pro-
viders of health services, health care technology and informa-
tion systems, and other related fields, who provide a mix of
different professionals, broad geographic representation, and
a balance between urban and rural representatives.
(d) TERMS.—Each member shall be appointed for the life of
the Commission.
(e) COMPENSATION.—
(1) RATES OF PAY.—Members shall each be paid at a rate
not to exceed the daily equivalent of the rate of basic pay
for level IV of the Executive Schedule for each day (including
travel time) during which they are engaged in the actual
performance of duties vested in the Commission.
(2) 
PROHIBITION
OF
COMPENSATION
OF
FEDERAL
EMPLOYEES.—Members of the Commission who are full-time
officers or employees of the United States or Members of Con-
gress may not receive additional pay, allowances, or benefits
by reason of their service on the Commission.
(3) TRAVEL EXPENSES.—Each member shall receive travel
expenses, including per diem in lieu of subsistence, in accord-
ance with applicable provisions under subchapter I of chapter
57 of title 5, United States Code.
(f) QUORUM.—A majority of the members of the Commission
shall constitute a quorum but a lesser number may hold hearings.
(g) DIRECTOR
AND
STAFF
OF
COMMISSION; EXPERTS
AND
CONSULTANTS.—
(1) DIRECTOR.—The Commission shall have a Director who
shall be appointed by the Chairperson. The Director shall be
paid at a rate not to exceed the rate of basic pay for level
IV of the Executive Schedule.
(2) STAFF.—With the approval of the Commission, the
Director may appoint and fix the pay of such additional per-
sonnel as the Director considers appropriate.
(3) APPLICABILITY OF CERTAIN CIVIL SERVICE LAWS.—The
Director and staff of the Commission may be appointed without
regard to the provisions of title 5, United States Code, governing
appointments in the competitive service, and may be paid with-
out regard to the provisions of chapter 51 and subchapter
III of chapter 53 of that title relating to classification and
General Schedule pay rates, except that an individual so
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117 STAT. 2437
PUBLIC LAW 108–173—DEC. 8, 2003
appointed may not receive pay in excess of level IV of the
Executive Schedule.
(4) EXPERTS AND CONSULTANTS.—With the approval of the
Commission, the Director may procure temporary and intermit-
tent services under section 3109(b) of title 5, United States
Code.
(5) STAFF
OF
FEDERAL
AGENCIES.—Upon request of the
Chairperson, the head of any Federal department or agency
may detail, on a reimbursable basis, any of the personnel
of that department or agency to the Commission to assist
it in carrying out its duties under this Act.
(h) POWERS OF COMMISSION.—
(1) HEARINGS AND SESSIONS.—The Commission may, for
the purpose of carrying out this Act, hold hearings, sit and
act at times and places, take testimony, and receive evidence
as the Commission considers appropriate.
(2) POWERS OF MEMBERS AND AGENTS.—Any member or
agent of the Commission may, if authorized by the Commission,
take any action which the Commission is authorized to take
by this section.
(3) OBTAINING
OFFICIAL
DATA.—The Commission may
secure directly from any department or agency of the United
States information necessary to enable it to carry out this
Act. Upon request of the Chairperson of the Commission, the
head of that department or agency shall furnish that informa-
tion to the Commission.
(4) GIFTS, BEQUESTS, AND DEVISES.—The Commission may
accept, use, and dispose of gifts, bequests, or devises of services
or property, both real and personal, for the purpose of aiding
or facilitating the work of the Commission. Gifts, bequests,
or devises of money and proceeds from sales of other property
received as gifts, bequests, or devises shall be deposited in
the Treasury and shall be available for disbursement upon
order of the Commission. For purposes of Federal income,
estate, and gift taxes, property accepted under this subsection
shall be considered as a gift, bequest, or devise to the United
States.
(5) MAILS.—The Commission may use the United States
mails in the same manner and under the same conditions
as other departments and agencies of the United States.
(6) ADMINISTRATIVE SUPPORT SERVICES.—Upon the request
of the Commission, the Administrator of General Services shall
provide to the Commission, on a reimbursable basis, the
administrative support services necessary for the Commission
to carry out its responsibilities under this Act.
(7) CONTRACT AUTHORITY.—The Commission may enter into
contracts or make other arrangements, as may be necessary
for the conduct of the work of the Commission (without regard
to section 3709 of the Revised Statutes (41 U.S.C. 5)).
(i) TERMINATION.—The Commission shall terminate on 30 days
after submitting its report pursuant to subsection (b)(3).
(j) AUTHORIZATION OF APPROPRIATIONS.—There is authorized
to be appropriated such sums as may be necessary to carry out
this section.
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117 STAT. 2438
PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 1013. RESEARCH ON OUTCOMES OF HEALTH CARE ITEMS AND
SERVICES.
(a) RESEARCH, DEMONSTRATIONS, AND EVALUATIONS.—
(1) IMPROVEMENT OF EFFECTIVENESS AND EFFICIENCY.—
(A) IN GENERAL.—To improve the quality, effectiveness,
and efficiency of health care delivered pursuant to the
programs established under titles XVIII, XIX, and XXI
of the Social Security Act, the Secretary acting through
the Director of the Agency for Healthcare Research and
Quality (in this section referred to as the ‘‘Director’’), shall
conduct and support research to meet the priorities and
requests for scientific evidence and information identified
by such programs with respect to—
(i) the outcomes, comparative clinical effectiveness,
and appropriateness of health care items and services
(including prescription drugs); and
(ii) strategies for improving the efficiency and
effectiveness of such programs, including the ways in
which such items and services are organized, managed,
and delivered under such programs.
(B) SPECIFICATION.—To respond to priorities and
information requests in subparagraph (A), the Secretary
may conduct or support, by grant, contract, or interagency
agreement, research, demonstrations, evaluations, tech-
nology assessments, or other activities, including the provi-
sion of technical assistance, scientific expertise, or methodo-
logical assistance.
(2) PRIORITIES.—
(A) IN
GENERAL.—The Secretary shall establish a
process to develop priorities that will guide the research,
demonstrations, and evaluation activities undertaken
pursuant to this section.
(B) INITIAL LIST.—Not later than 6 months after the
date of the enactment of this Act, the Secretary shall
establish an initial list of priorities for research related
to health care items and services (including prescription
drugs).
(C) PROCESS.—In carrying out subparagraph (A), the
Secretary—
(i) shall ensure that there is broad and ongoing
consultation with relevant stakeholders in identifying
the highest priorities for research, demonstrations, and
evaluations to support and improve the programs
established under titles XVIII, XIX, and XXI of the
Social Security Act;
(ii) may include health care items and services
which impose a high cost on such programs, as well
as those which may be underutilized or overutilized
and which may significantly improve the prevention,
treatment, or cure of diseases and conditions (including
chronic conditions) which impose high direct or indirect
costs on patients or society; and
(iii) shall ensure that the research and activities
undertaken pursuant to this section are responsive
to the specified priorities and are conducted in a timely
manner.
(3) EVALUATION AND SYNTHESIS OF SCIENTIFIC EVIDENCE.—
42 USC 299b–7.
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117 STAT. 2439
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(A) IN GENERAL.—The Secretary shall—
(i) evaluate and synthesize available scientific evi-
dence related to health care items and services
(including prescription drugs) identified as priorities
in accordance with paragraph (2) with respect to the
comparative clinical effectiveness, outcomes, appro-
priateness, and provision of such items and services
(including prescription drugs);
(ii) identify issues for which existing scientific evi-
dence is insufficient with respect to such health care
items and services (including prescription drugs);
(iii) disseminate to prescription drug plans and
MA–PD plans under part D of title XVIII of the Social
Security Act, other health plans, and the public the
findings made under clauses (i) and (ii); and
(iv) work in voluntary collaboration with public
and private sector entities to facilitate the development
of new scientific knowledge regarding health care items
and services (including prescription drugs).
(B) INITIAL RESEARCH.—The Secretary shall complete
the evaluation and synthesis of the initial research required
by the priority list developed under paragraph (2)(B) not
later than 18 months after the development of such list.
(C) DISSEMINATION.—
(i) IN GENERAL.—To enhance patient safety and
the quality of health care, the Secretary shall make
available and disseminate in appropriate formats to
prescription drugs plans under part D, and MA–PD
plans under part C, of title XVIII of the Social Security
Act, other health plans, and the public the evaluations
and syntheses prepared pursuant to subparagraph (A)
and the findings of research conducted pursuant to
paragraph (1). In carrying out this clause the Sec-
retary, in order to facilitate the availability of such
evaluations and syntheses or findings at every decision
point in the health care system, shall—
(I) present such evaluations and syntheses or
findings in a form that is easily understood by
the individuals receiving health care items and
services (including prescription drugs) under such
plans and periodically assess that the require-
ments of this subclause have been met; and
(II) provide such evaluations and syntheses
or findings and other relevant information through
easily accessible and searchable electronic mecha-
nisms, and in hard copy formats as appropriate.
(ii) RULE OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed as—
(I) affecting the authority of the Secretary or
the Commissioner of Food and Drugs under the
Federal Food, Drug, and Cosmetic Act or the Public
Health Service Act; or
(II) conferring any authority referred to in sub-
clause (I) to the Director.
(D) ACCOUNTABILITY.—In carrying out this paragraph,
the Secretary shall implement activities in a manner that—
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117 STAT. 2440
PUBLIC LAW 108–173—DEC. 8, 2003
(i) makes publicly available all scientific evidence
relied upon and the methodologies employed, provided
such evidence and method are not protected from public
disclosure by section 1905 of title 18, United States
Code, or other applicable law so that the results of
the research, analyses, or syntheses can be evaluated
or replicated; and
(ii) ensures that any information needs and unre-
solved issues identified in subparagraph (A)(ii) are
taken into account in priority-setting for future
research conducted by the Secretary.
(4) CONFIDENTIALITY.—
(A) IN
GENERAL.—In making use of administrative,
clinical, and program data and information developed or
collected with respect to the programs established under
titles XVIII, XIX, and XXI of the Social Security Act, for
purposes of carrying out the requirements of this section
or the activities authorized under title IX of the Public
Health Service Act (42 U.S.C. 299 et seq.), such data and
information shall be protected in accordance with the con-
fidentiality requirements of title IX of the Public Health
Service Act.
(B) RULE OF CONSTRUCTION.—Nothing in this section
shall be construed to require or permit the disclosure of
data provided to the Secretary that is otherwise protected
from disclosure under the Federal Food, Drug, and Cos-
metic Act, section 1905 of title 18, United States Code,
or other applicable law.
(5) EVALUATIONS.—The Secretary shall conduct and support
evaluations of the activities carried out under this section to
determine the extent to which such activities have had an
effect on outcomes and utilization of health care items and
services.
(6) IMPROVING INFORMATION AVAILABLE TO HEALTH CARE
PROVIDERS, PATIENTS, AND POLICYMAKERS.—Not later than 18
months after the date of enactment of this Act, the Secretary
shall identify options that could be undertaken in voluntary
collaboration with private and public entities (as appropriate)
for the—
(A) provision of more timely information through the
programs established under titles XVIII, XIX, and XXI
of the Social Security Act, regarding the outcomes and
quality of patient care, including clinical and patient-
reported outcomes, especially with respect to interventions
and conditions for which clinical trials would not be feasible
or raise ethical concerns that are difficult to address;
(B) acceleration of the adoption of innovation and
quality improvement under such programs; and
(C) development of management tools for the programs
established under titles XIX and XXI of the Social Security
Act, and with respect to the programs established under
such titles, assess the feasibility of using administrative
or claims data, to—
(i) improve oversight by State officials;
(ii) support Federal and State initiatives to
improve the quality, safety, and efficiency of services
provided under such programs; and
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117 STAT. 2441
PUBLIC LAW 108–173—DEC. 8, 2003
(iii) provide a basis for estimating the fiscal and
coverage impact of Federal or State program and policy
changes.
(b) RECOMMENDATIONS.—
(1) DISCLAIMER.—In carrying out this section, the Director
shall—
(A) not mandate national standards of clinical practice
or quality health care standards; and
(B) include in any recommendations resulting from
projects funded and published by the Director, a cor-
responding reference to the prohibition described in
subparagraph (A).
(2) REQUIREMENT FOR IMPLEMENTATION.—Research, evalua-
tion, and communication activities performed pursuant to this
section shall reflect the principle that clinicians and patients
should have the best available evidence upon which to make
choices in health care items and services, in providers, and
in health care delivery systems, recognizing that patient sub-
populations and patient and physician preferences may vary.
(3) RULE OF CONSTRUCTION.—Nothing in this section shall
be construed to provide the Director with authority to mandate
a national standard or require a specific approach to quality
measurement and reporting.
(c) RESEARCH WITH RESPECT
TO DISSEMINATION.—The Sec-
retary, acting through the Director, may conduct or support research
with respect to improving methods of disseminating information
in accordance with subsection (a)(3)(C).
(d) LIMITATION ON CMS.—The Administrator of the Centers
for Medicare & Medicaid Services may not use data obtained in
accordance with this section to withhold coverage of a prescription
drug.
(e) AUTHORIZATION OF APPROPRIATIONS.—There is authorized
to be appropriated to carry out this section, $50,000,000 for fiscal
year 2004, and such sums as may be necessary for each fiscal
year thereafter.
SEC. 1014. HEALTH CARE THAT WORKS FOR ALL AMERICANS: CITIZENS
HEALTH CARE WORKING GROUP.
(a) FINDINGS.—Congress finds the following:
(1) In order to improve the health care system, the Amer-
ican public must engage in an informed national public debate
to make choices about the services they want covered, what
health care coverage they want, and how they are willing
to pay for coverage.
(2) More than a trillion dollars annually is spent on the
health care system, yet—
(A) 41,000,000 Americans are uninsured;
(B) insured individuals do not always have access to
essential, effective services to improve and maintain their
health; and
(C) employers, who cover over 170,000,000 Americans,
find providing coverage increasingly difficult because of
rising costs and double digit premium increases.
(3) Despite increases in medical care spending that are
greater than the rate of inflation, population growth, and Gross
Domestic Product growth, there has not been a commensurate
improvement in our health status as a nation.
42 USC 299 note.
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(4) Health care costs for even just 1 member of a family
can be catastrophic, resulting in medical bills potentially
harming the economic stability of the entire family.
(5) Common life occurrences can jeopardize the ability of
a family to retain private coverage or jeopardize access to
public coverage.
(6) Innovations in health care access, coverage, and quality
of care, including the use of technology, have often come from
States, local communities, and private sector organizations,
but more creative policies could tap this potential.
(7) Despite our Nation’s wealth, the health care system
does not provide coverage to all Americans who want it.
(b) PURPOSES.—The purposes of this section are—
(1) to provide for a nationwide public debate about
improving the health care system to provide every American
with the ability to obtain quality, affordable health care cov-
erage; and
(2) to provide for a vote by Congress on the recommenda-
tions that result from the debate.
(c) ESTABLISHMENT.—The Secretary, acting through the Agency
for Healthcare Research and Quality, shall establish an entity to
be known as the Citizens’ Health Care Working Group (referred
to in this section as the ‘‘Working Group’’).
(d) MEMBERSHIP.—
(1) NUMBER AND APPOINTMENT.—The Working Group shall
be composed of 15 members. One member shall be the Sec-
retary. The Comptroller General of the United States shall
appoint 14 members.
(2) QUALIFICATIONS.—
(A) IN
GENERAL.—The membership of the Working
Group shall include—
(i) consumers of health services that represent
those individuals who have not had insurance within
2 years of appointment, that have had chronic illnesses,
including mental illness, are disabled, and those who
receive insurance coverage through medicare and med-
icaid; and
(ii) individuals with expertise in financing and
paying for benefits and access to care, business and
labor perspectives, and providers of health care.
The membership shall reflect a broad geographic represen-
tation and a balance between urban and rural representa-
tives.
(B) PROHIBITED
APPOINTMENTS.—Members of the
Working Group shall not include Members of Congress
or other elected government officials (Federal, State, or
local). Individuals appointed to the Working Group shall
not be paid employees or representatives of associations
or advocacy organizations involved in the health care
system.
(e) PERIOD OF APPOINTMENT.—Members of the Working Group
shall be appointed for a life of the Working Group. Any vacancies
shall not affect the power and duties of the Working Group but
shall be filled in the same manner as the original appointment.
(f) DESIGNATION OF THE CHAIRPERSON.—Not later than 15 days
after the date on which all members of the Working Group have
Deadline.
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been appointed under subsection (d)(1), the Comptroller General
shall designate the chairperson of the Working Group.
(g) SUBCOMMITTEES.—The Working Group may establish sub-
committees if doing so increases the efficiency of the Working
Group in completing its tasks.
(h) DUTIES.—
(1) HEARINGS.—Not later than 90 days after the date of
the designation of the chairperson under subsection (f), the
Working Group shall hold hearings to examine—
(A) the capacity of the public and private health care
systems to expand coverage options;
(B) the cost of health care and the effectiveness of
care provided at all stages of disease;
(C) innovative State strategies used to expand health
care coverage and lower health care costs;
(D) local community solutions to accessing health care
coverage;
(E) efforts to enroll individuals currently eligible for
public or private health care coverage;
(F) the role of evidence-based medical practices that
can be documented as restoring, maintaining, or improving
a patient’s health, and the use of technology in supporting
providers in improving quality of care and lowering costs;
and
(G) strategies to assist purchasers of health care,
including consumers, to become more aware of the impact
of costs, and to lower the costs of health care.
(2) ADDITIONAL HEARINGS.—The Working Group may hold
additional hearings on subjects other than those listed in para-
graph (1) so long as such hearings are determined to be nec-
essary by the Working Group in carrying out the purposes
of this section. Such additional hearings do not have to be
completed within the time period specified in paragraph (1)
but shall not delay the other activities of the Working Group
under this section.
(3) THE HEALTH REPORT TO THE AMERICAN PEOPLE.—Not
later than 90 days after the hearings described in paragraphs
(1) and (2) are completed, the Working Group shall prepare
and make available to health care consumers through the Inter-
net and other appropriate public channels, a report to be enti-
tled, ‘‘The Health Report to the American People’’. Such report
shall be understandable to the general public and include—
(A) a summary of—
(i) health care and related services that may be
used by individuals throughout their life span;
(ii) the cost of health care services and their med-
ical effectiveness in providing better quality of care
for different age groups;
(iii) the source of coverage and payment, including
reimbursement, for health care services;
(iv) the reasons people are uninsured or under-
insured and the cost to taxpayers, purchasers of health
services, and communities when Americans are unin-
sured or underinsured;
(v) the impact on health care outcomes and costs
when individuals are treated in all stages of disease;
(vi) health care cost containment strategies; and
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(vii) information on health care needs that need
to be addressed;
(B) examples of community strategies to provide health
care coverage or access;
(C) information on geographic-specific issues relating
to health care;
(D) information concerning the cost of care in different
settings, including institutional-based care and home and
community-based care;
(E) a summary of ways to finance health care coverage;
and
(F) the role of technology in providing future health
care including ways to support the information needs of
patients and providers.
(4) COMMUNITY MEETINGS.—
(A) IN GENERAL.—Not later than 1 year after the date
on which all the members of the Working Group have
been appointed under subsection (d)(1) and appropriations
are first made available to carry out this section, the
Working Group shall initiate health care community
meetings throughout the United States (in this paragraph
referred to as ‘‘community meetings’’). Such community
meetings may be geographically or regionally based and
shall be completed within 180 days after the initiation
of the first meeting.
(B) NUMBER OF MEETINGS.—The Working Group shall
hold a sufficient number of community meetings in order
to receive information that reflects—
(i) the geographic differences throughout the
United States;
(ii) diverse populations; and
(iii) a balance among urban and rural populations.
(C) MEETING REQUIREMENTS.—
(i) FACILITATOR.—A State health officer may be
the facilitator at the community meetings.
(ii) ATTENDANCE.—At least 1 member of the
Working Group shall attend and serve as chair of
each community meeting. Other members may partici-
pate through interactive technology.
(iii) TOPICS.—The community meetings shall, at
a minimum, address the following questions:
(I) What health care benefits and services
should be provided?
(II) How does the American public want health
care delivered?
(III) How should health care coverage be
financed?
(IV) What trade-offs are the American public
willing to make in either benefits or financing
to ensure access to affordable, high quality health
care coverage and services?
(iv) 
INTERACTIVE
TECHNOLOGY.—The 
Working
Group may encourage public participation in commu-
nity meetings through interactive technology and other
means as determined appropriate by the Working
Group.
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(D) INTERIM REQUIREMENTS.—Not later than 180 days
after the date of completion of the community meetings,
the Working Group shall prepare and make available to
the public through the Internet and other appropriate
public channels, an interim set of recommendations on
health care coverage and ways to improve and strengthen
the health care system based on the information and pref-
erences expressed at the community meetings. There shall
be a 90-day public comment period on such recommenda-
tions.
(i) RECOMMENDATIONS.—Not later than 120 days after the
expiration of the public comment period described in subsection
(h)(4)(D), the Working Group shall submit to Congress and the
President a final set of recommendations.
(j) ADMINISTRATION.—
(1) EXECUTIVE
DIRECTOR.—There shall be an Executive
Director of the Working Group who shall be appointed by
the chairperson of the Working Group in consultation with
the members of the Working Group.
(2) COMPENSATION.—While serving on the business of the
Working Group (including travel time), a member of the
Working Group shall be entitled to compensation at the per
diem equivalent of the rate provided for level IV of the Execu-
tive Schedule under section 5315 of title 5, United States Code,
and while so serving away from home and the member’s regular
place of business, a member may be allowed travel expenses,
as authorized by the chairperson of the Working Group. For
purposes of pay and employment benefits, rights, and privileges,
all personnel of the Working Group shall be treated as if
they were employees of the Senate.
(3) INFORMATION FROM FEDERAL AGENCIES.—The Working
Group may secure directly from any Federal department or
agency such information as the Working Group considers nec-
essary to carry out this section. Upon request of the Working
Group, the head of such department or agency shall furnish
such information.
(4) POSTAL SERVICES.—The Working Group may use the
United States mails in the same manner and under the same
conditions as other departments and agencies of the Federal
Government.
(k) DETAIL.—Not more than 10 Federal Government employees
employed by the Department of Labor and 10 Federal Government
employees employed by the Department of Health and Human
Services may be detailed to the Working Group under this section
without further reimbursement. Any detail of an employee shall
be without interruption or loss of civil service status or privilege.
(l) TEMPORARY AND INTERMITTENT SERVICES.—The chairperson
of the Working Group may procure temporary and intermittent
services under section 3109(b) of title 5, United States Code, at
rates for individuals which do not exceed the daily equivalent
of the annual rate of basic pay prescribed for level V of the Executive
Schedule under section 5316 of such title.
(m) ANNUAL REPORT.—Not later than 1 year after the date
of enactment of this Act, and annually thereafter during the exist-
ence of the Working Group, the Working Group shall report to
Congress and make public a detailed description of the expenditures
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117 STAT. 2446
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of the Working Group used to carry out its duties under this
section.
(n) SUNSET OF WORKING GROUP.—The Working Group shall
terminate on the date that is 2 years after the date on which
all the members of the Working Group have been appointed under
subsection (d)(1) and appropriations are first made available to
carry out this section.
(o) ADMINISTRATION REVIEW AND COMMENTS.—Not later than
45 days after receiving the final recommendations of the Working
Group under subsection (i), the President shall submit a report
to Congress which shall contain—
(1) additional views and comments on such recommenda-
tions; and
(2) recommendations for such legislation and administra-
tive actions as the President considers appropriate.
(p) REQUIRED CONGRESSIONAL ACTION.—Not later than 45 days
after receiving the report submitted by the President under sub-
section (o), each committee of jurisdiction of Congress, the Com-
mittee on Finance of the Senate, the Committee on Health, Edu-
cation, Labor, and Pensions of the Senate, the Committee on Ways
and Means of the House of Representatives, the Committee on
Energy and Commerce of the House of Representatives, Committee
on Education and the Workforce of the House of Representatives,
shall hold at least 1 hearing on such report and on the final
recommendations of the Working Group submitted under subsection
(i).
(q) AUTHORIZATION OF APPROPRIATIONS.—
(1) IN GENERAL.—There are authorized to be appropriated
to carry out this section, other than subsection (h)(3), $3,000,000
for each of fiscal years 2005 and 2006.
(2) HEALTH REPORT TO THE AMERICAN PEOPLE.—There are
authorized to be appropriated for the preparation and dissemi-
nation of the Health Report to the American People described
in subsection (h)(3), such sums as may be necessary for the
fiscal year in which the report is required to be submitted.
SEC. 1015. FUNDING START-UP ADMINISTRATIVE COSTS FOR MEDI-
CARE REFORM.
(a) IN GENERAL.—There are appropriated to carry out this
Act (including the amendments made by this Act), to be transferred
from the Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund—
(1) not to exceed $1,000,000,000 for the Centers for Medi-
care & Medicaid Services; and
(2) not to exceed $500,000,000 for the Social Security
Administration.
(b) AVAILABILITY.—Amounts provided under subsection (a) shall
remain available until September 30, 2005.
(c) APPLICATION.—From amounts provided under subsection
(a)(2), the Social Security Administration may reimburse the
Internal Revenue Service for expenses in carrying out this Act
(and the amendments made by this Act).
(d) TRANSFER.—The President may transfer amounts provided
under subsection (a) between the Centers for Medicare & Medicaid
Services and the Social Security Administration. Notice of such
transfers shall be transmitted within 15 days to the authorizing
committees of the House of Representatives and of the Senate.
Reports.
Deadline.
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PUBLIC LAW 108–173—DEC. 8, 2003
SEC. 1016. HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM.
Title XVIII is amended by adding at the end the following
new section:
‘‘HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM
‘‘SEC. 1897. (a) ESTABLISHMENT.—The Secretary shall establish
a loan program that provides loans to qualifying hospitals for pay-
ment of the capital costs of projects described in subsection (d).
‘‘(b) APPLICATION.—No loan may be provided under this section
to a qualifying hospital except pursuant to an application that
is submitted and approved in a time, manner, and form specified
by the Secretary. A loan under this section shall be on such terms
and conditions and meet such requirements as the Secretary deter-
mines appropriate.
‘‘(c) SELECTION CRITERIA.—
‘‘(1) IN GENERAL.—The Secretary shall establish criteria
for selecting among qualifying hospitals that apply for a loan
under this section. Such criteria shall consider the extent to
which the project for which loan is sought is nationally or
regionally significant, in terms of expanding or improving the
health care infrastructure of the United States or the region
or in terms of the medical benefit that the project will have.
‘‘(2) QUALIFYING HOSPITAL DEFINED.—For purposes of this
section, the term ‘qualifying hospital’ means a hospital that—
‘‘(A) is engaged in research in the causes, prevention,
and treatment of cancer; and
‘‘(B) is designated as a cancer center for the National
Cancer Institute or is designated by the State as the official
cancer institute of the State.
‘‘(d) PROJECTS.—A project described in this subsection is a
project of a qualifying hospital that is designed to improve the
health care infrastructure of the hospital, including construction,
renovation, or other capital improvements.
‘‘(e) STATE AND LOCAL PERMITS.—The provision of a loan under
this section with respect to a project shall not—
‘‘(1) relieve any recipient of the loan of any obligation
to obtain any required State or local permit or approval with
respect to the project;
‘‘(2) limit the right of any unit of State or local government
to approve or regulate any rate of return on private equity
invested in the project; or
‘‘(3) otherwise supersede any State or local law (including
any regulation) applicable to the construction or operation of
the project.
‘‘(f) FORGIVENESS OF INDEBTEDNESS.—The Secretary may for-
give a loan provided to a qualifying hospital under this section
under terms and conditions that are analogous to the loan forgive-
ness provision for student loans under part D of title IV of the
Higher Education Act of 1965 (20 U.S.C. 1087a et seq.), except
that the Secretary shall condition such forgiveness on the establish-
ment by the hospital of—
‘‘(A) an outreach program for cancer prevention, early
diagnosis, and treatment that provides services to a
substantial majority of the residents of a State or region,
including residents of rural areas;
42 USC 1395hhh.
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117 STAT. 2448
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(B) an outreach program for cancer prevention, early
diagnosis, and treatment that provides services to multiple
Indian tribes; and
‘‘(C)(i) unique research resources (such as population
databases); or
‘‘(ii) an affiliation with an entity that has unique
research resources.
‘‘(g) FUNDING.—
‘‘(1) IN GENERAL.—There are appropriated, out of amounts
in the Treasury not otherwise appropriated, to carry out this
section, $200,000,000, to remain available during the period
beginning on July 1, 2004, and ending on September 30, 2008.
‘‘(2) ADMINISTRATIVE COSTS.—From funds made available
under paragraph (1), the Secretary may use, for the administra-
tion of this section, not more than $2,000,000 for each of fiscal
years 2004 through 2008.
‘‘(3) AVAILABILITY.—Amounts appropriated under this sec-
tion shall be available for obligation on July 1, 2004.
‘‘(h) REPORT TO CONGRESS.—Not later than 4 years after the
date of the enactment of this section, the Secretary shall submit
to Congress a report on the projects for which loans are provided
under this section and a recommendation as to whether the Con-
gress should authorize the Secretary to continue loans under this
section beyond fiscal year 2008.’’.
TITLE XI—ACCESS TO AFFORDABLE
PHARMACEUTICALS
Subtitle A—Access to Affordable
Pharmaceuticals
SEC. 1101. THIRTY-MONTH STAY-OF-EFFECTIVENESS PERIOD.
(a) ABBREVIATED NEW DRUG APPLICATIONS.—Section 505(j) of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is
amended—
(1) in paragraph (2)—
(A) by striking subparagraph (B) and inserting the
following:
‘‘(B) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL NOT
BE INFRINGED.—
‘‘(i) AGREEMENT TO GIVE NOTICE.—An applicant that makes
a certification described in subparagraph (A)(vii)(IV) shall
include in the application a statement that the applicant will
give notice as required by this subparagraph.
‘‘(ii) TIMING OF NOTICE.—An applicant that makes a certifi-
cation described in subparagraph (A)(vii)(IV) shall give notice
as required under this subparagraph—
‘‘(I) if the certification is in the application, not later
than 20 days after the date of the postmark on the notice
with which the Secretary informs the applicant that the
application has been filed; or
‘‘(II) if the certification is in an amendment or supple-
ment to the application, at the time at which the applicant
submits the amendment or supplement, regardless of
whether the applicant has already given notice with respect
Loans.
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to another such certification contained in the application
or in an amendment or supplement to the application.
‘‘(iii) RECIPIENTS OF NOTICE.—An applicant required under
this subparagraph to give notice shall give notice to—
‘‘(I) each owner of the patent that is the subject of
the certification (or a representative of the owner des-
ignated to receive such a notice); and
‘‘(II) the holder of the approved application under sub-
section (b) for the drug that is claimed by the patent
or a use of which is claimed by the patent (or a representa-
tive of the holder designated to receive such a notice).
‘‘(iv) CONTENTS OF NOTICE.—A notice required under this
subparagraph shall—
‘‘(I) state that an application that contains data from
bioavailability or bioequivalence studies has been sub-
mitted under this subsection for the drug with respect
to which the certification is made to obtain approval to
engage in the commercial manufacture, use, or sale of
the drug before the expiration of the patent referred to
in the certification; and
‘‘(II) include a detailed statement of the factual and
legal basis of the opinion of the applicant that the patent
is invalid or will not be infringed.’’; and
(B) by adding at the end the following subparagraph:
‘‘(D)(i) An applicant may not amend or supplement an applica-
tion to seek approval of a drug referring to a different listed drug
from the listed drug identified in the application as submitted
to the Secretary.
‘‘(ii) With respect to the drug for which an application is sub-
mitted, nothing in this subsection prohibits an applicant from
amending or supplementing the application to seek approval of
a different strength.
‘‘(iii) Within 60 days after the date of the enactment of the
Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, the Secretary shall issue guidance defining the term ‘listed
drug’ for purposes of this subparagraph.’’; and
(2) in paragraph (5)—
(A) in subparagraph (B)—
(i) by striking ‘‘under the following’’ and inserting
‘‘by applying the following to each certification made
under paragraph (2)(A)(vii)’’; and
(ii) in clause (iii)—
(I) in the first sentence, by striking ‘‘unless’’
and all that follows and inserting ‘‘unless, before
the expiration of 45 days after the date on which
the notice described in paragraph (2)(B) is
received, an action is brought for infringement of
the patent that is the subject of the certification
and for which information was submitted to the
Secretary under subsection (b)(1) or (c)(2) before
the date on which the application (excluding an
amendment or supplement to the application),
which the Secretary later determines to be
substantially complete, was submitted.’’; and
(II) in the second sentence—
(aa) by striking subclause (I) and inserting
the following:
Deadline.
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‘‘(I) if before the expiration of such period the district
court decides that the patent is invalid or not infringed
(including any substantive determination that there is no
cause of action for patent infringement or invalidity), the
approval shall be made effective on—
‘‘(aa) the date on which the court enters judgment
reflecting the decision; or
‘‘(bb) the date of a settlement order or consent
decree signed and entered by the court stating that
the patent that is the subject of the certification is
invalid or not infringed;’’;
(bb) 
by 
striking 
subclause 
(II) 
and
inserting the following:
‘‘(II) if before the expiration of such period the district
court decides that the patent has been infringed—
‘‘(aa) if the judgment of the district court is
appealed, the approval shall be made effective on—
‘‘(AA) the date on which the court of appeals
decides that the patent is invalid or not infringed
(including any substantive determination that
there is no cause of action for patent infringement
or invalidity); or
‘‘(BB) the date of a settlement order or consent
decree signed and entered by the court of appeals
stating that the patent that is the subject of the
certification is invalid or not infringed; or
‘‘(bb) if the judgment of the district court is not
appealed or is affirmed, the approval shall be made
effective on the date specified by the district court
in a court order under section 271(e)(4)(A) of title 35,
United States Code;’’;
(cc) in subclause (III), by striking ‘‘on the
date of such court decision.’’ and inserting ‘‘as
provided in subclause (I); or’’;
(dd) by inserting after subclause (III) the
following:
‘‘(IV) if before the expiration of such period the court
grants a preliminary injunction prohibiting the applicant
from engaging in the commercial manufacture or sale of
the drug until the court decides the issues of patent validity
and infringement and if the court decides that such patent
has been infringed, the approval shall be made effective
as provided in subclause (II).’’; and
(ee) in the matter after and below sub-
clause (IV) (as added by item (dd)), by striking
‘‘Until the expiration’’ and all that follows;
(B) by redesignating subparagraphs (C) and (D) as
subparagraphs (E) and (F), respectively; and
(C) by inserting after subparagraph (B) the following:
‘‘(C) CIVIL ACTION TO OBTAIN PATENT CERTAINTY.—
‘‘(i) DECLARATORY
JUDGMENT
ABSENT
INFRINGE-
MENT ACTION.—
‘‘(I) IN GENERAL.—No action may be brought
under section 2201 of title 28, United States Code,
by an applicant under paragraph (2) for a declara-
tory judgment with respect to a patent which is
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the subject of the certification referred to in
subparagraph (B)(iii) unless—
‘‘(aa) the 45-day period referred to in such
subparagraph has expired;
‘‘(bb) neither the owner of such patent
nor the holder of the approved application
under subsection (b) for the drug that is
claimed by the patent or a use of which is
claimed by the patent brought a civil action
against the applicant for infringement of the
patent before the expiration of such period;
and
‘‘(cc) in any case in which the notice pro-
vided under paragraph (2)(B) relates to non-
infringement, the notice was accompanied by
a document described in subclause (III).
‘‘(II) FILING OF CIVIL ACTION.—If the conditions
described in items (aa), (bb), and as applicable,
(cc) of subclause (I) have been met, the applicant
referred to in such subclause may, in accordance
with section 2201 of title 28, United States Code,
bring a civil action under such section against
the owner or holder referred to in such subclause
(but not against any owner or holder that has
brought such a civil action against the applicant,
unless that civil action was dismissed without
prejudice) for a declaratory judgment that the
patent is invalid or will not be infringed by the
drug for which the applicant seeks approval, except
that such civil action may be brought for a declara-
tory judgment that the patent will not be infringed
only in a case in which the condition described
in subclause (I)(cc) is applicable. A civil action
referred to in this subclause shall be brought in
the judicial district where the defendant has its
principal place of business or a regular and estab-
lished place of business.
‘‘(III) OFFER
OF
CONFIDENTIAL
ACCESS
TO
APPLICATION.—For purposes of subclause (I)(cc),
the document described in this subclause is a docu-
ment providing an offer of confidential access to
the application that is in the custody of the
applicant under paragraph (2) for the purpose of
determining whether an action referred to in
subparagraph (B)(iii) should be brought. The docu-
ment providing the offer of confidential access shall
contain such restrictions as to persons entitled
to access, and on the use and disposition of any
information accessed, as would apply had a protec-
tive order been entered for the purpose of pro-
tecting trade secrets and other confidential busi-
ness information. A request for access to an
application under an offer of confidential access
shall be considered acceptance of the offer of con-
fidential access with the restrictions as to persons
entitled to access, and on the use and disposition
of any information accessed, contained in the offer
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of confidential access, and those restrictions and
other terms of the offer of confidential access shall
be considered terms of an enforceable contract.
Any person provided an offer of confidential access
shall review the application for the sole and limited
purpose of evaluating possible infringement of the
patent that is the subject of the certification under
paragraph (2)(A)(vii)(IV) and for no other purpose,
and may not disclose information of no relevance
to any issue of patent infringement to any person
other than a person provided an offer of confiden-
tial access. Further, the application may be
redacted by the applicant to remove any informa-
tion of no relevance to any issue of patent infringe-
ment.
‘‘(ii) COUNTERCLAIM TO INFRINGEMENT ACTION.—
‘‘(I) IN GENERAL.—If an owner of the patent
or the holder of the approved application under
subsection (b) for the drug that is claimed by the
patent or a use of which is claimed by the patent
brings a patent infringement action against the
applicant, the applicant may assert a counterclaim
seeking an order requiring the holder to correct
or delete the patent information submitted by the
holder under subsection (b) or (c) on the ground
that the patent does not claim either—
‘‘(aa) the drug for which the application
was approved; or
‘‘(bb) an approved method of using the
drug.
‘‘(II) NO INDEPENDENT CAUSE OF ACTION.—Sub-
clause (I) does not authorize the assertion of a
claim described in subclause (I) in any civil action
or proceeding other than a counterclaim described
in subclause (I).
‘‘(iii) NO DAMAGES.—An applicant shall not be enti-
tled to damages in a civil action under clause (i) or
a counterclaim under clause (ii).’’.
(b) APPLICATIONS GENERALLY.—Section 505 of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 355) is amended—
(1) in subsection (b)—
(A) by striking paragraph (3) and inserting the fol-
lowing:
‘‘(3) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL NOT
BE INFRINGED.—
‘‘(A) AGREEMENT TO GIVE NOTICE.—An applicant that makes
a certification described in paragraph (2)(A)(iv) shall include
in the application a statement that the applicant will give
notice as required by this paragraph.
‘‘(B) TIMING OF NOTICE.—An applicant that makes a certifi-
cation described in paragraph (2)(A)(iv) shall give notice as
required under this paragraph—
‘‘(i) if the certification is in the application, not later
than 20 days after the date of the postmark on the notice
with which the Secretary informs the applicant that the
application has been filed; or
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‘‘(ii) if the certification is in an amendment or supple-
ment to the application, at the time at which the applicant
submits the amendment or supplement, regardless of
whether the applicant has already given notice with respect
to another such certification contained in the application
or in an amendment or supplement to the application.
‘‘(C) RECIPIENTS OF NOTICE.—An applicant required under
this paragraph to give notice shall give notice to—
‘‘(i) each owner of the patent that is the subject of
the certification (or a representative of the owner des-
ignated to receive such a notice); and
‘‘(ii) the holder of the approved application under this
subsection for the drug that is claimed by the patent or
a use of which is claimed by the patent (or a representative
of the holder designated to receive such a notice).
‘‘(D) CONTENTS OF NOTICE.—A notice required under this
paragraph shall—
‘‘(i) state that an application that contains data from
bioavailability or bioequivalence studies has been sub-
mitted under this subsection for the drug with respect
to which the certification is made to obtain approval to
engage in the commercial manufacture, use, or sale of
the drug before the expiration of the patent referred to
in the certification; and
‘‘(ii) include a detailed statement of the factual and
legal basis of the opinion of the applicant that the patent
is invalid or will not be infringed.’’; and
(B)(i) by redesignating paragraph (4) as paragraph (5);
and
(ii) by inserting after paragraph (3) the following para-
graph:
‘‘(4)(A) An applicant may not amend or supplement an applica-
tion referred to in paragraph (2) to seek approval of a drug that
is a different drug than the drug identified in the application
as submitted to the Secretary.
‘‘(B) With respect to the drug for which such an application
is submitted, nothing in this subsection or subsection (c)(3) prohibits
an applicant from amending or supplementing the application to
seek approval of a different strength.’’; and
(2) in subsection (c)(3)—
(A) in the first sentence, by striking ‘‘under the fol-
lowing’’ and inserting ‘‘by applying the following to each
certification made under subsection (b)(2)(A)’’;
(B) in subparagraph (C)—
(i) in the first sentence, by striking ‘‘unless’’ and
all that follows and inserting ‘‘unless, before the expira-
tion of 45 days after the date on which the notice
described in subsection (b)(3) is received, an action
is brought for infringement of the patent that is the
subject of the certification and for which information
was submitted to the Secretary under paragraph (2)
or subsection (b)(1) before the date on which the
application (excluding an amendment or supplement
to the application) was submitted.’’;
(ii) in the second sentence—
(I) by striking ‘‘paragraph (3)(B)’’ and inserting
‘‘subsection (b)(3)’’;
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PUBLIC LAW 108–173—DEC. 8, 2003
(II) by striking clause (i) and inserting the
following:
‘‘(i) if before the expiration of such period the district
court decides that the patent is invalid or not infringed
(including any substantive determination that there is no
cause of action for patent infringement or invalidity), the
approval shall be made effective on—
‘‘(I) the date on which the court enters judgment
reflecting the decision; or
‘‘(II) the date of a settlement order or consent
decree signed and entered by the court stating that
the patent that is the subject of the certification is
invalid or not infringed;’’;
(III) by striking clause (ii) and inserting the
following:
‘‘(ii) if before the expiration of such period the district
court decides that the patent has been infringed—
‘‘(I) if the judgment of the district court is appealed,
the approval shall be made effective on—
‘‘(aa) the date on which the court of appeals
decides that the patent is invalid or not infringed
(including any substantive determination that
there is no cause of action for patent infringement
or invalidity); or
‘‘(bb) the date of a settlement order or consent
decree signed and entered by the court of appeals
stating that the patent that is the subject of the
certification is invalid or not infringed; or
‘‘(II) if the judgment of the district court is not
appealed or is affirmed, the approval shall be made
effective on the date specified by the district court
in a court order under section 271(e)(4)(A) of title 35,
United States Code;’’;
(IV) in clause (iii), by striking ‘‘on the date
of such court decision.’’ and inserting ‘‘as provided
in clause (i); or’’;
(V) by inserting after clause (iii), the following:
‘‘(iv) if before the expiration of such period the court
grants a preliminary injunction prohibiting the applicant
from engaging in the commercial manufacture or sale of
the drug until the court decides the issues of patent validity
and infringement and if the court decides that such patent
has been infringed, the approval shall be made effective
as provided in clause (ii).’’; and
(VI) in the matter after and below clause (iv)
(as added by subclause (V)), by striking ‘‘Until
the expiration’’ and all that follows; and
(iii) in the third sentence, by striking ‘‘paragraph
(3)(B)’’ and inserting ‘‘subsection (b)(3)’’;
(C) by redesignating subparagraph (D) as subpara-
graph (E); and
(D) by inserting after subparagraph (C) the following:
‘‘(D) CIVIL ACTION TO OBTAIN PATENT CERTAINTY.—
‘‘(i) DECLARATORY
JUDGMENT
ABSENT
INFRINGE-
MENT ACTION.—
‘‘(I) IN GENERAL.—No action may be brought
under section 2201 of title 28, United States Code,
Effective date.
Effective date.
Effective date.
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117 STAT. 2455
PUBLIC LAW 108–173—DEC. 8, 2003
by an applicant referred to in subsection (b)(2)
for a declaratory judgment with respect to a patent
which is the subject of the certification referred
to in subparagraph (C) unless—
‘‘(aa) the 45-day period referred to in such
subparagraph has expired;
‘‘(bb) neither the owner of such patent
nor the holder of the approved application
under subsection (b) for the drug that is
claimed by the patent or a use of which is
claimed by the patent brought a civil action
against the applicant for infringement of the
patent before the expiration of such period;
and
‘‘(cc) in any case in which the notice pro-
vided under paragraph (2)(B) relates to non-
infringement, the notice was accompanied by
a document described in subclause (III).
‘‘(II) FILING OF CIVIL ACTION.—If the conditions
described in items (aa), (bb), and as applicable,
(cc) of subclause (I) have been met, the applicant
referred to in such subclause may, in accordance
with section 2201 of title 28, United States Code,
bring a civil action under such section against
the owner or holder referred to in such subclause
(but not against any owner or holder that has
brought such a civil action against the applicant,
unless that civil action was dismissed without
prejudice) for a declaratory judgment that the
patent is invalid or will not be infringed by the
drug for which the applicant seeks approval, except
that such civil action may be brought for a declara-
tory judgment that the patent will not be infringed
only in a case in which the condition described
in subclause (I)(cc) is applicable. A civil action
referred to in this subclause shall be brought in
the judicial district where the defendant has its
principal place of business or a regular and estab-
lished place of business.
‘‘(III) OFFER
OF
CONFIDENTIAL
ACCESS
TO
APPLICATION.—For purposes of subclause (I)(cc),
the document described in this subclause is a docu-
ment providing an offer of confidential access to
the application that is in the custody of the
applicant referred to in subsection (b)(2) for the
purpose of determining whether an action referred
to in subparagraph (C) should be brought. The
document providing the offer of confidential access
shall contain such restrictions as to persons enti-
tled to access, and on the use and disposition of
any information accessed, as would apply had a
protective order been entered for the purpose of
protecting trade secrets and other confidential
business information. A request for access to an
application under an offer of confidential access
shall be considered acceptance of the offer of con-
fidential access with the restrictions as to persons
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entitled to access, and on the use and disposition
of any information accessed, contained in the offer
of confidential access, and those restrictions and
other terms of the offer of confidential access shall
be considered terms of an enforceable contract.
Any person provided an offer of confidential access
shall review the application for the sole and limited
purpose of evaluating possible infringement of the
patent that is the subject of the certification under
subsection (b)(2)(A)(iv) and for no other purpose,
and may not disclose information of no relevance
to any issue of patent infringement to any person
other than a person provided an offer of confiden-
tial access. Further, the application may be
redacted by the applicant to remove any informa-
tion of no relevance to any issue of patent infringe-
ment.
‘‘(ii) COUNTERCLAIM TO INFRINGEMENT ACTION.—
‘‘(I) IN GENERAL.—If an owner of the patent
or the holder of the approved application under
subsection (b) for the drug that is claimed by the
patent or a use of which is claimed by the patent
brings a patent infringement action against the
applicant, the applicant may assert a counterclaim
seeking an order requiring the holder to correct
or delete the patent information submitted by the
holder under subsection (b) or this subsection on
the ground that the patent does not claim either—
‘‘(aa) the drug for which the application
was approved; or
‘‘(bb) an approved method of using the
drug.
‘‘(II) NO INDEPENDENT CAUSE OF ACTION.—Sub-
clause (I) does not authorize the assertion of a
claim described in subclause (I) in any civil action
or proceeding other than a counterclaim described
in subclause (I).
‘‘(iii) NO DAMAGES.—An applicant shall not be enti-
tled to damages in a civil action under clause (i) or
a counterclaim under clause (ii).’’.
(c) APPLICABILITY.—
(1) IN
GENERAL.—Except as provided in paragraphs (2)
and (3), the amendments made by subsections (a) and (b) apply
to any proceeding under section 505 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355) that is pending on or after
the date of the enactment of this Act regardless of the date
on which the proceeding was commenced or is commenced.
(2) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL
NOT
BE
INFRINGED.—The amendments made by subsections
(a)(1) and (b)(1) apply with respect to any certification under
subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) sub-
mitted on or after August 18, 2003, in an application filed
under subsection (b) or (j) of that section or in an amendment
or supplement to an application filed under subsection (b) or
(j) of that section.
21 USC 355 note.
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(3) EFFECTIVE DATE OF APPROVAL.—The amendments made
by subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply with respect
to any patent information submitted under subsection (b)(1)
or (c)(2) of section 505 of the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 355) on or after August 18, 2003.
(d) INFRINGEMENT ACTIONS.—Section 271(e) of title 35, United
States Code, is amended by adding at the end the following:
‘‘(5) Where a person has filed an application described in para-
graph (2) that includes a certification under subsection (b)(2)(A)(iv)
or (j)(2)(A)(vii)(IV) of section 505 of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 355), and neither the owner of the patent
that is the subject of the certification nor the holder of the approved
application under subsection (b) of such section for the drug that
is claimed by the patent or a use of which is claimed by the
patent brought an action for infringement of such patent before
the expiration of 45 days after the date on which the notice given
under subsection (b)(3) or (j)(2)(B) of such section was received,
the courts of the United States shall, to the extent consistent
with the Constitution, have subject matter jurisdiction in any action
brought by such person under section 2201 of title 28 for a declara-
tory judgment that such patent is invalid or not infringed.’’.
SEC. 1102. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.
(a) IN GENERAL.—Section 505(j)(5) of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by section
1101) is amended—
(1) in subparagraph (B), by striking clause (iv) and
inserting the following:
‘‘(iv) 180-DAY EXCLUSIVITY PERIOD.—
‘‘(I) 
EFFECTIVENESS
OF
APPLICATION.—Subject 
to
subparagraph (D), if the application contains a certification
described in paragraph (2)(A)(vii)(IV) and is for a drug
for which a first applicant has submitted an application
containing such a certification, the application shall be
made effective on the date that is 180 days after the
date of the first commercial marketing of the drug
(including the commercial marketing of the listed drug)
by any first applicant.
‘‘(II) DEFINITIONS.—In this paragraph:
‘‘(aa) 180-DAY EXCLUSIVITY PERIOD.—The term ‘180-
day exclusivity period’ means the 180-day period
ending on the day before the date on which an applica-
tion submitted by an applicant other than a first
applicant could become effective under this clause.
‘‘(bb) FIRST APPLICANT.—As used in this subsection,
the term ‘first applicant’ means an applicant that, on
the first day on which a substantially complete applica-
tion containing a certification described in paragraph
(2)(A)(vii)(IV) is submitted for approval of a drug, sub-
mits a substantially complete application that contains
and lawfully maintains a certification described in
paragraph (2)(A)(vii)(IV) for the drug.
‘‘(cc) SUBSTANTIALLY COMPLETE APPLICATION.—As
used in this subsection, the term ‘substantially com-
plete application’ means an application under this sub-
section that on its face is sufficiently complete to permit
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PUBLIC LAW 108–173—DEC. 8, 2003
a substantive review and contains all the information
required by paragraph (2)(A).
‘‘(dd) TENTATIVE APPROVAL.—
‘‘(AA) 
IN
GENERAL.—The 
term 
‘tentative
approval’ means notification to an applicant by
the Secretary that an application under this sub-
section meets the requirements of paragraph
(2)(A), but cannot receive effective approval
because the application does not meet the require-
ments of this subparagraph, there is a period of
exclusivity for the listed drug under subparagraph
(F) or section 505A, or there is a 7-year period
of exclusivity for the listed drug under section
527.
‘‘(BB) LIMITATION.—A drug that is granted
tentative approval by the Secretary is not an
approved drug and shall not have an effective
approval until the Secretary issues an approval
after any necessary additional review of the
application.’’; and
(2) by inserting after subparagraph (C) the following:
‘‘(D) FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.—
‘‘(i) DEFINITION
OF
FORFEITURE
EVENT.—In this
subparagraph, the term ‘forfeiture event’, with respect
to an application under this subsection, means the
occurrence of any of the following:
‘‘(I) FAILURE TO MARKET.—The first applicant
fails to market the drug by the later of—
‘‘(aa) the earlier of the date that is—
‘‘(AA) 75 days after the date on which
the approval of the application of the first
applicant is made effective under subpara-
graph (B)(iii); or
‘‘(BB) 30 months after the date of submis-
sion of the application of the first applicant;
or
‘‘(bb) with respect to the first applicant
or any other applicant (which other applicant
has received tentative approval), the date that
is 75 days after the date as of which, as to
each of the patents with respect to which the
first applicant submitted and lawfully main-
tained a certification qualifying the first
applicant for the 180-day exclusivity period
under subparagraph (B)(iv), at least 1 of the
following has occurred:
‘‘(AA) In an infringement action brought
against that applicant with respect to the
patent or in a declaratory judgment action
brought by that applicant with respect to the
patent, a court enters a final decision from
which no appeal (other than a petition to the
Supreme Court for a writ of certiorari) has
been or can be taken that the patent is invalid
or not infringed.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(BB) In an infringement action or a
declaratory judgment action described in
subitem (AA), a court signs a settlement order
or consent decree that enters a final judgment
that includes a finding that the patent is
invalid or not infringed.
‘‘(CC) The patent information submitted
under subsection (b) or (c) is withdrawn by
the holder of the application approved under
subsection (b).
‘‘(II) WITHDRAWAL OF APPLICATION.—The first
applicant withdraws the application or the Sec-
retary considers the application to have been with-
drawn as a result of a determination by the Sec-
retary that the application does not meet the
requirements for approval under paragraph (4).
‘‘(III) AMENDMENT
OF
CERTIFICATION.—The
first applicant amends or withdraws the certifi-
cation for all of the patents with respect to which
that applicant submitted a certification qualifying
the applicant for the 180-day exclusivity period.
‘‘(IV) 
FAILURE
TO
OBTAIN
TENTATIVE
APPROVAL.—The first applicant fails to obtain ten-
tative approval of the application within 30 months
after the date on which the application is filed,
unless the failure is caused by a change in or
a review of the requirements for approval of the
application imposed after the date on which the
application is filed.
‘‘(V) AGREEMENT
WITH
ANOTHER
APPLICANT,
THE
LISTED
DRUG
APPLICATION
HOLDER, OR
A
PATENT OWNER.—The first applicant enters into
an agreement with another applicant under this
subsection for the drug, the holder of the applica-
tion for the listed drug, or an owner of the patent
that is the subject of the certification under para-
graph (2)(A)(vii)(IV), the Federal Trade Commis-
sion or the Attorney General files a complaint,
and there is a final decision of the Federal Trade
Commission or the court with regard to the com-
plaint from which no appeal (other than a petition
to the Supreme Court for a writ of certiorari) has
been or can be taken that the agreement has vio-
lated the antitrust laws (as defined in section 1
of the Clayton Act (15 U.S.C. 12), except that
the term includes section 5 of the Federal Trade
Commission Act (15 U.S.C. 45) to the extent that
that section applies to unfair methods of competi-
tion).
‘‘(VI) EXPIRATION OF ALL PATENTS.—All of the
patents as to which the applicant submitted a
certification qualifying it for the 180-day exclu-
sivity period have expired.
‘‘(ii) FORFEITURE.—The 180-day exclusivity period
described in subparagraph (B)(iv) shall be forfeited
by a first applicant if a forfeiture event occurs with
respect to that first applicant.
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(iii) 
SUBSEQUENT
APPLICANT.—If 
all 
first
applicants forfeit the 180-day exclusivity period under
clause (ii)—
‘‘(I) approval of any application containing a
certification described in paragraph (2)(A)(vii)(IV)
shall be made effective in accordance with subpara-
graph (B)(iii); and
‘‘(II) no applicant shall be eligible for a 180-
day exclusivity period.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendment made by subsection (a) shall be effective only with
respect to an application filed under section 505(j) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the date
of the enactment of this Act for a listed drug for which no
certification under section 505(j)(2)(A)(vii)(IV) of that Act was
made before the date of the enactment of this Act.
(2) COLLUSIVE AGREEMENTS.—If a forfeiture event described
in section 505(j)(5)(D)(i)(V) of that Act occurs in the case of
an applicant, the applicant shall forfeit the 180-day period
under section 505(j)(5)(B)(iv) of that Act without regard to
when the first certification under section 505(j)(2)(A)(vii)(IV)
of that Act for the listed drug was made.
(3) DECISION OF A COURT WHEN THE 180-DAY EXCLUSIVITY
PERIOD HAS NOT BEEN TRIGGERED.—With respect to an applica-
tion filed before, on, or after the date of the enactment of
this Act for a listed drug for which a certification under section
505(j)(2)(A)(vii)(IV) of that Act was made before the date of
the enactment of this Act and for which neither of the events
described in subclause (I) or (II) of section 505(j)(5)(B)(iv) of
that Act (as in effect on the day before the date of the enactment
of this Act) has occurred on or before the date of the enactment
of this Act, the term ‘‘decision of a court’’ as used in clause
(iv) of section 505(j)(5)(B) of that Act means a final decision
of a court from which no appeal (other than a petition to
the Supreme Court for a writ of certiorari) has been or can
be taken.
SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE.
(a) IN GENERAL.—Section 505(j)(8) of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 355(j)(8)) is amended—
(1) by striking subparagraph (A) and inserting the fol-
lowing:
‘‘(A)(i) The term ‘bioavailability’ means the rate and extent
to which the active ingredient or therapeutic ingredient is
absorbed from a drug and becomes available at the site of
drug action.
‘‘(ii) For a drug that is not intended to be absorbed into
the bloodstream, the Secretary may assess bioavailability by
scientifically valid measurements intended to reflect the rate
and extent to which the active ingredient or therapeutic ingre-
dient becomes available at the site of drug action.’’; and
(2) by adding at the end the following:
‘‘(C) For a drug that is not intended to be absorbed into
the bloodstream, the Secretary may establish alternative, sci-
entifically valid methods to show bioequivalence if the alter-
native methods are expected to detect a significant difference
21 USC 355 note.
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between the drug and the listed drug in safety and therapeutic
effect.’’.
(b) EFFECT OF AMENDMENT.—The amendment made by sub-
section (a) does not alter the standards for approval of drugs under
section 505(j) of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 355(j)).
SEC. 1104. CONFORMING AMENDMENTS.
Section 505A of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 355a) is amended—
(1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), by striking
‘‘(j)(5)(D)(ii)’’ each place it appears and inserting ‘‘(j)(5)(F)(ii)’’;
(2) in subsections (b)(1)(A)(ii) and (c)(1)(A)(ii), by striking
‘‘(j)(5)(D)’’ each place it appears and inserting ‘‘(j)(5)(F)’’; and
(3) in subsections (e) and (l), by striking ‘‘505(j)(5)(D)’’ each
place it appears and inserting ‘‘505(j)(5)(F)’’.
Subtitle B—Federal Trade Commission
Review
SEC. 1111. DEFINITIONS.
In this subtitle:
(1) ANDA.—The term ‘‘ANDA’’ means an abbreviated drug
application, as defined under section 201(aa) of the Federal
Food, Drug, and Cosmetic Act.
(2) ASSISTANT ATTORNEY GENERAL.—The term ‘‘Assistant
Attorney General’’ means the Assistant Attorney General in
charge of the Antitrust Division of the Department of Justice.
(3) BRAND
NAME
DRUG.—The term ‘‘brand name drug’’
means a drug for which an application is approved under
section 505(c) of the Federal Food, Drug, and Cosmetic Act,
including an application referred to in section 505(b)(2) of such
Act.
(4) BRAND NAME DRUG COMPANY.—The term ‘‘brand name
drug company’’ means the party that holds the approved
application referred to in paragraph (3) for a brand name
drug that is a listed drug in an ANDA, or a party that is
the owner of a patent for which information is submitted for
such drug under subsection (b) or (c) of section 505 of the
Federal Food, Drug, and Cosmetic Act.
(5) COMMISSION.—The term ‘‘Commission’’ means the Fed-
eral Trade Commission.
(6) GENERIC DRUG.—The term ‘‘generic drug’’ means a drug
for which an application under section 505(j) of the Federal
Food, Drug, and Cosmetic Act is approved.
(7) GENERIC
DRUG
APPLICANT.—The term ‘‘generic drug
applicant’’ means a person who has filed or received approval
for an ANDA under section 505(j) of the Federal Food, Drug,
and Cosmetic Act.
(8) LISTED DRUG.—The term ‘‘listed drug’’ means a brand
name drug that is listed under section 505(j)(7) of the Federal
Food, Drug, and Cosmetic Act.
SEC. 1112. NOTIFICATION OF AGREEMENTS.
(a) AGREEMENT WITH BRAND NAME DRUG COMPANY.—
21 USC 355 note.
21 USC 355 note.
21 USC 355 note.
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(1) REQUIREMENT.—A generic drug applicant that has sub-
mitted an ANDA containing a certification under section
505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic
Act and a brand name drug company that enter into an agree-
ment described in paragraph (2) shall each file the agreement
in accordance with subsection (c). The agreement shall be filed
prior to the date of the first commercial marketing of the
generic drug that is the subject of the ANDA.
(2) SUBJECT
MATTER
OF
AGREEMENT.—An agreement
described in this paragraph between a generic drug applicant
and a brand name drug company is an agreement regarding—
(A) the manufacture, marketing or sale of the brand
name drug that is the listed drug in the ANDA involved;
(B) the manufacture, marketing, or sale of the generic
drug for which the ANDA was submitted; or
(C) 
the 
180-day 
period 
referred 
to 
in 
section
505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic
Act as it applies to such ANDA or to any other ANDA
based on the same brand name drug.
(b) AGREEMENT WITH ANOTHER GENERIC DRUG APPLICANT.—
(1) REQUIREMENT.—A generic drug applicant that has sub-
mitted an ANDA containing a certification under section
505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic
Act with respect to a listed drug and another generic drug
applicant that has submitted an ANDA containing such a cer-
tification for the same listed drug shall each file the agreement
in accordance with subsection (c). The agreement shall be filed
prior to the date of the first commercial marketing of either
of the generic drugs for which such ANDAs were submitted.
(2) SUBJECT
MATTER
OF
AGREEMENT.—An agreement
described in this paragraph between two generic drug
applicants is an agreement regarding the 180-day period
referred to in section 505(j)(5)(B)(iv) of the Federal Food, Drug,
and Cosmetic Act as it applies to the ANDAs with which
the agreement is concerned.
(c) FILING.—
(1) AGREEMENT.—The parties that are required in sub-
section (a) or (b) to file an agreement in accordance with this
subsection shall file with the Assistant Attorney General and
the Commission the text of any such agreement, except that
such parties are not required to file an agreement that solely
concerns—
(A) purchase orders for raw material supplies;
(B) equipment and facility contracts;
(C) employment or consulting contracts; or
(D) packaging and labeling contracts.
(2) OTHER
AGREEMENTS.—The parties that are required
in subsection (a) or (b) to file an agreement in accordance
with this subsection shall file with the Assistant Attorney Gen-
eral and the Commission the text of any agreements between
the parties that are not described in such subsections and
are contingent upon, provide a contingent condition for, or
are otherwise related to an agreement that is required in sub-
section (a) or (b) to be filed in accordance with this subsection.
(3) DESCRIPTION.—In the event that any agreement
required in subsection (a) or (b) to be filed in accordance with
this subsection has not been reduced to text, each of the parties
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involved shall file written descriptions of such agreement that
are sufficient to disclose all the terms and conditions of the
agreement.
SEC. 1113. FILING DEADLINES.
Any filing required under section 1112 shall be filed with
the Assistant Attorney General and the Commission not later than
10 business days after the date the agreements are executed.
SEC. 1114. DISCLOSURE EXEMPTION.
Any information or documentary material filed with the Assist-
ant Attorney General or the Commission pursuant to this subtitle
shall be exempt from disclosure under section 552 of title 5, United
States Code, and no such information or documentary material
may be made public, except as may be relevant to any administra-
tive or judicial action or proceeding. Nothing in this section is
intended to prevent disclosure to either body of the Congress or
to any duly authorized committee or subcommittee of the Congress.
SEC. 1115. ENFORCEMENT.
(a) CIVIL PENALTY.—Any brand name drug company or generic
drug applicant which fails to comply with any provision of this
subtitle shall be liable for a civil penalty of not more than $11,000,
for each day during which such entity is in violation of this subtitle.
Such penalty may be recovered in a civil action brought by the
United States, or brought by the Commission in accordance with
the procedures established in section 16(a)(1) of the Federal Trade
Commission Act (15 U.S.C. 56(a)).
(b) COMPLIANCE AND EQUITABLE RELIEF.—If any brand name
drug company or generic drug applicant fails to comply with any
provision of this subtitle, the United States district court may
order compliance, and may grant such other equitable relief as
the court in its discretion determines necessary or appropriate,
upon application of the Assistant Attorney General or the Commis-
sion.
SEC. 1116. RULEMAKING.
The Commission, with the concurrence of the Assistant
Attorney General and by rule in accordance with section 553 of
title 5, United States Code, consistent with the purposes of this
subtitle—
(1) may define the terms used in this subtitle;
(2) may exempt classes of persons or agreements from
the requirements of this subtitle; and
(3) may prescribe such other rules as may be necessary
and appropriate to carry out the purposes of this subtitle.
SEC. 1117. SAVINGS CLAUSE.
Any action taken by the Assistant Attorney General or the
Commission, or any failure of the Assistant Attorney General or
the Commission to take action, under this subtitle shall not at
any time bar any proceeding or any action with respect to any
agreement between a brand name drug company and a generic
drug applicant, or any agreement between generic drug applicants,
under any other provision of law, nor shall any filing under this
subtitle constitute or create a presumption of any violation of any
competition laws.
21 USC 355 note.
21 USC 355 note.
21 USC 355 note.
21 USC 355 note.
21 USC 355 note.
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SEC. 1118. EFFECTIVE DATE.
This subtitle shall—
(1) take effect 30 days after the date of the enactment
of this Act; and
(2) shall apply to agreements described in section 1112
that are entered into 30 days after the date of the enactment
of this Act.
Subtitle C—Importation of Prescription
Drugs
SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.
(a) IN GENERAL.—Chapter VIII of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 381 et seq.) is amended by striking
section 804 and inserting the following:
‘‘SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.
‘‘(a) DEFINITIONS.—In this section:
‘‘(1) IMPORTER.—The term ‘importer’ means a pharmacist
or wholesaler.
‘‘(2) PHARMACIST.—The term ‘pharmacist’ means a person
licensed by a State to practice pharmacy, including the dis-
pensing and selling of prescription drugs.
‘‘(3) PRESCRIPTION
DRUG.—The term ‘prescription drug’
means a drug subject to section 503(b), other than—
‘‘(A) a controlled substance (as defined in section 102
of the Controlled Substances Act (21 U.S.C. 802));
‘‘(B) a biological product (as defined in section 351
of the Public Health Service Act (42 U.S.C. 262));
‘‘(C) an infused drug (including a peritoneal dialysis
solution);
‘‘(D) an intravenously injected drug;
‘‘(E) a drug that is inhaled during surgery; or
‘‘(F) a drug which is a parenteral drug, the importation
of which pursuant to subsection (b) is determined by the
Secretary to pose a threat to the public health, in which
case section 801(d)(1) shall continue to apply.
‘‘(4) QUALIFYING LABORATORY.—The term ‘qualifying labora-
tory’ means a laboratory in the United States that has been
approved by the Secretary for the purposes of this section.
‘‘(5) WHOLESALER.—
‘‘(A) IN GENERAL.—The term ‘wholesaler’ means a per-
son licensed as a wholesaler or distributor of prescription
drugs in the United States under section 503(e)(2)(A).
‘‘(B) EXCLUSION.—The term ‘wholesaler’ does not
include a person authorized to import drugs under section
801(d)(1).
‘‘(b) REGULATIONS.—The Secretary, after consultation with the
United States Trade Representative and the Commissioner of Cus-
toms, shall promulgate regulations permitting pharmacists and
wholesalers to import prescription drugs from Canada into the
United States.
‘‘(c) LIMITATION.—The regulations under subsection (b) shall—
‘‘(1) require that safeguards be in place to ensure that
each prescription drug imported under the regulations complies
with section 505 (including with respect to being safe and
21 USC 384.
21 USC 355 note.
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117 STAT. 2465
PUBLIC LAW 108–173—DEC. 8, 2003
effective for the intended use of the prescription drug), with
sections 501 and 502, and with other applicable requirements
of this Act;
‘‘(2) require that an importer of a prescription drug under
the regulations comply with subsections (d)(1) and (e); and
‘‘(3) contain any additional provisions determined by the
Secretary to be appropriate as a safeguard to protect the public
health or as a means to facilitate the importation of prescription
drugs.
‘‘(d) INFORMATION AND RECORDS.—
‘‘(1) IN
GENERAL.—The regulations under subsection (b)
shall require an importer of a prescription drug under sub-
section (b) to submit to the Secretary the following information
and documentation:
‘‘(A) The name and quantity of the active ingredient
of the prescription drug.
‘‘(B) A description of the dosage form of the prescription
drug.
‘‘(C) The date on which the prescription drug is
shipped.
‘‘(D) The quantity of the prescription drug that is
shipped.
‘‘(E) The point of origin and destination of the prescrip-
tion drug.
‘‘(F) The price paid by the importer for the prescription
drug.
‘‘(G) Documentation from the foreign seller specifying—
‘‘(i) the original source of the prescription drug;
and
‘‘(ii) the quantity of each lot of the prescription
drug originally received by the seller from that source.
‘‘(H) The lot or control number assigned to the prescrip-
tion drug by the manufacturer of the prescription drug.
‘‘(I) The name, address, telephone number, and profes-
sional license number (if any) of the importer.
‘‘(J)(i) In the case of a prescription drug that is shipped
directly from the first foreign recipient of the prescription
drug from the manufacturer:
‘‘(I) 
Documentation 
demonstrating 
that 
the
prescription drug was received by the recipient from
the manufacturer and subsequently shipped by the
first foreign recipient to the importer.
‘‘(II) Documentation of the quantity of each lot
of the prescription drug received by the first foreign
recipient demonstrating that the quantity being
imported into the United States is not more than the
quantity that was received by the first foreign
recipient.
‘‘(III)(aa) In the case of an initial imported ship-
ment, documentation demonstrating that each batch
of the prescription drug in the shipment was statis-
tically sampled and tested for authenticity and deg-
radation.
‘‘(bb) In the case of any subsequent shipment, docu-
mentation demonstrating that a statistically valid
sample of the shipment was tested for authenticity
and degradation.
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117 STAT. 2466
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(ii) In the case of a prescription drug that is not
shipped directly from the first foreign recipient of the
prescription drug from the manufacturer, documentation
demonstrating that each batch in each shipment offered
for importation into the United States was statistically
sampled and tested for authenticity and degradation.
‘‘(K) Certification from the importer or manufacturer
of the prescription drug that the prescription drug—
‘‘(i) is approved for marketing in the United States
and is not adulterated or misbranded; and
‘‘(ii) meets all labeling requirements under this
Act.
‘‘(L) Laboratory records, including complete data
derived from all tests necessary to ensure that the prescrip-
tion drug is in compliance with established specifications
and standards.
‘‘(M) Documentation demonstrating that the testing
required by subparagraphs (J) and (L) was conducted at
a qualifying laboratory.
‘‘(N) Any other information that the Secretary deter-
mines is necessary to ensure the protection of the public
health.
‘‘(2) MAINTENANCE BY THE SECRETARY.—The Secretary shall
maintain information and documentation submitted under
paragraph (1) for such period of time as the Secretary deter-
mines to be necessary.
‘‘(e) TESTING.—The regulations under subsection (b) shall
require—
‘‘(1) that testing described in subparagraphs (J) and (L)
of subsection (d)(1) be conducted by the importer or by the
manufacturer of the prescription drug at a qualified laboratory;
‘‘(2) if the tests are conducted by the importer—
‘‘(A) that information needed to—
‘‘(i) authenticate the prescription drug being tested;
and
‘‘(ii) confirm that the labeling of the prescription
drug complies with labeling requirements under this
Act;
be supplied by the manufacturer of the prescription drug
to the pharmacist or wholesaler; and
‘‘(B) that the information supplied under subparagraph
(A) be kept in strict confidence and used only for purposes
of testing or otherwise complying with this Act; and
‘‘(3) may include such additional provisions as the Secretary
determines to be appropriate to provide for the protection of
trade secrets and commercial or financial information that is
privileged or confidential.
‘‘(f) REGISTRATION OF FOREIGN SELLERS.—Any establishment
within Canada engaged in the distribution of a prescription drug
that is imported or offered for importation into the United States
shall register with the Secretary the name and place of business
of the establishment and the name of the United States agent
for the establishment.
‘‘(g) SUSPENSION OF IMPORTATION.—The Secretary shall require
that importations of a specific prescription drug or importations
by a specific importer under subsection (b) be immediately sus-
pended on discovery of a pattern of importation of that specific
Confidentiality.
Records.
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117 STAT. 2467
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prescription drug or by that specific importer of drugs that are
counterfeit or in violation of any requirement under this section,
until an investigation is completed and the Secretary determines
that the public is adequately protected from counterfeit and viola-
tive prescription drugs being imported under subsection (b).
‘‘(h) APPROVED LABELING.—The manufacturer of a prescription
drug shall provide an importer written authorization for the
importer to use, at no cost, the approved labeling for the prescription
drug.
‘‘(i) CHARITABLE CONTRIBUTIONS.—Notwithstanding any other
provision of this section, section 801(d)(1) continues to apply to
a prescription drug that is donated or otherwise supplied at no
charge by the manufacturer of the drug to a charitable or humani-
tarian organization (including the United Nations and affiliates)
or to a government of a foreign country.
‘‘(j) WAIVER AUTHORITY FOR IMPORTATION BY INDIVIDUALS.—
‘‘(1) DECLARATIONS.—Congress declares that in the enforce-
ment against individuals of the prohibition of importation of
prescription drugs and devices, the Secretary should—
‘‘(A) focus enforcement on cases in which the importa-
tion by an individual poses a significant threat to public
health; and
‘‘(B) exercise discretion to permit individuals to make
such importations in circumstances in which—
‘‘(i) the importation is clearly for personal use;
and
‘‘(ii) the prescription drug or device imported does
not appear to present an unreasonable risk to the
individual.
‘‘(2) WAIVER AUTHORITY.—
‘‘(A) IN GENERAL.—The Secretary may grant to individ-
uals, by regulation or on a case-by-case basis, a waiver
of the prohibition of importation of a prescription drug
or device or class of prescription drugs or devices, under
such conditions as the Secretary determines to be appro-
priate.
‘‘(B) GUIDANCE ON CASE-BY-CASE WAIVERS.—The Sec-
retary shall publish, and update as necessary, guidance
that accurately describes circumstances in which the Sec-
retary will consistently grant waivers on a case-by-case
basis under subparagraph (A), so that individuals may
know with the greatest practicable degree of certainty
whether a particular importation for personal use will be
permitted.
‘‘(3) DRUGS IMPORTED FROM CANADA.—In particular, the
Secretary shall by regulation grant individuals a waiver to
permit individuals to import into the United States a prescrip-
tion drug that—
‘‘(A) is imported from a licensed pharmacy for personal
use by an individual, not for resale, in quantities that
do not exceed a 90-day supply;
‘‘(B) is accompanied by a copy of a valid prescription;
‘‘(C) is imported from Canada, from a seller registered
with the Secretary;
‘‘(D) is a prescription drug approved by the Secretary
under chapter V;
Regulations.
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117 STAT. 2468
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‘‘(E) is in the form of a final finished dosage that
was manufactured in an establishment registered under
section 510; and
‘‘(F) is imported under such other conditions as the
Secretary determines to be necessary to ensure public
safety.
‘‘(k) CONSTRUCTION.—Nothing in this section limits the
authority of the Secretary relating to the importation of prescription
drugs, other than with respect to section 801(d)(1) as provided
in this section.
‘‘(l) EFFECTIVENESS OF SECTION.—
‘‘(1) COMMENCEMENT
OF
PROGRAM.—This section shall
become effective only if the Secretary certifies to the Congress
that the implementation of this section will—
(A) pose no additional risk to the public’s health and
safety; and
(B) result in a significant reduction in the cost of
covered products to the American consumer.
‘‘(2) TERMINATION OF PROGRAM.—
‘‘(A) IN GENERAL.—If, after the date that is 1 year
after the effective date of the regulations under subsection
(b) and before the date that is 18 months after the effective
date, the Secretary submits to Congress a certification that,
in the opinion of the Secretary, based on substantial evi-
dence obtained after the effective date, the benefits of
implementation of this section do not outweigh any det-
riment of implementation of this section, this section shall
cease to be effective as of the date that is 30 days after
the date on which the Secretary submits the certification.
‘‘(B) PROCEDURE.—The Secretary shall not submit a
certification under subparagraph (A) unless, after a hearing
on the record under sections 556 and 557 of title 5, United
States Code, the Secretary—
‘‘(i)(I) determines that it is more likely than not
that implementation of this section would result in
an increase in the risk to the public health and safety;
‘‘(II) identifies specifically, in qualitative and quan-
titative terms, the nature of the increased risk;
‘‘(III) identifies specifically the causes of the
increased risk; and
‘‘(IV)(aa) considers whether any measures can be
taken to avoid, reduce, or mitigate the increased risk;
and
‘‘(bb) if the Secretary determines that any meas-
ures described in item (aa) would require additional
statutory authority, submits to Congress a report
describing the legislation that would be required;
‘‘(ii) identifies specifically, in qualitative and quan-
titative terms, the benefits that would result from
implementation of this section (including the benefit
of reductions in the cost of covered products to con-
sumers in the United States, allowing consumers to
procure needed medication that consumers might not
otherwise be able to procure without foregoing other
necessities of life); and
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117 STAT. 2469
PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(iii)(I) compares in specific terms the detriment
identified under clause (i) with the benefits identified
under clause (ii); and
‘‘(II) determines that the benefits do not outweigh
the detriment.
‘‘(m) AUTHORIZATION OF APPROPRIATIONS.—There are author-
ized to be appropriated such sums as are necessary to carry out
this section.’’.
(b) CONFORMING AMENDMENTS.—The Federal Food, Drug, and
Cosmetic Act is amended—
(1) in section 301(aa) (21 U.S.C. 331(aa)), by striking ‘‘cov-
ered product in violation of section 804’’ and inserting ‘‘prescrip-
tion drug in violation of section 804’’; and
(2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by striking
‘‘covered product pursuant to section 804(a)’’ and inserting
‘‘prescription drug under section 804(b)’’.
SEC. 1122. STUDY AND REPORT ON IMPORTATION OF DRUGS.
The Secretary, in consultation with appropriate government
agencies, shall conduct a study on the importation of drugs into
the United States pursuant to section 804 of the Federal Food,
Drug, and Cosmetic Act (as added by section 1121 of this Act).
Not later than 12 months after the date of the enactment of this
Act, the Secretary shall submit to the appropriate committees of
the Congress a report providing the findings of such study.
SEC. 1123. STUDY AND REPORT ON TRADE IN PHARMACEUTICALS.
The President’s designees shall conduct a study and report
on issues related to trade and pharmaceuticals.
TITLE XII—TAX INCENTIVES FOR
HEALTH AND RETIREMENT SECURITY
SEC. 1201. HEALTH SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 of
the Internal Revenue Code of 1986 (relating to additional itemized
deductions for individuals) is amended by redesignating section
223 as section 224 and by inserting after section 222 the following
new section:
‘‘SEC. 223. HEALTH SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an individual who
is an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health savings
account of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a deduction
under subsection (a) to an individual for the taxable year shall
not exceed the sum of the monthly limitations for months
during such taxable year that the individual is an eligible
individual.
‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any
month is 1⁄12 of—
26 USC 223.
26 USC 223, 224.
21 USC 381 note.
21 USC 384 note.
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‘‘(A) in the case of an eligible individual who has self-
only coverage under a high deductible health plan as of
the first day of such month, the lesser of—
‘‘(i) the annual deductible under such coverage,
or
‘‘(ii) $2,250, or
‘‘(B) in the case of an eligible individual who has family
coverage under a high deductible health plan as of the
first day of such month, the lesser of—
‘‘(i) the annual deductible under such coverage,
or
‘‘(ii) $4,500.
‘‘(3) ADDITIONAL
CONTRIBUTIONS
FOR
INDIVIDUALS
55
OR
OLDER.—
‘‘(A) IN GENERAL.—In the case of an individual who
has attained age 55 before the close of the taxable year,
the applicable limitation under subparagraphs (A) and (B)
of paragraph (2) shall be increased by the additional con-
tribution amount.
‘‘(B) ADDITIONAL
CONTRIBUTION
AMOUNT.—For pur-
poses of this section, the additional contribution amount
is the amount determined in accordance with the following
table:
‘‘For taxable years beginning in:
The
additional
contribution
amount is:
2004 ...................................................................................................
$500
2005 ...................................................................................................
$600
2006 ...................................................................................................
$700
2007 ...................................................................................................
$800
2008 ...................................................................................................
$900
2009 and thereafter ..........................................................................
$1,000.
‘‘(4) COORDINATION
WITH
OTHER
CONTRIBUTIONS.—The
limitation which would (but for this paragraph) apply under
this subsection to an individual for any taxable year shall
be reduced (but not below zero) by the sum of—
‘‘(A) the aggregate amount paid for such taxable year
to Archer MSAs of such individual, and
‘‘(B) the aggregate amount contributed to health
savings accounts of such individual which is excludable
from the taxpayer’s gross income for such taxable year
under section 106(d) (and such amount shall not be allowed
as a deduction under subsection (a)).
Subparagraph (A) shall not apply with respect to any individual
to whom paragraph (5) applies.
‘‘(5) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case
of individuals who are married to each other, if either spouse
has family coverage—
‘‘(A) both spouses shall be treated as having only such
family coverage (and if such spouses each have family
coverage under different plans, as having the family cov-
erage with the lowest annual deductible), and
‘‘(B) the limitation under paragraph (1) (after the
application of subparagraph (A) and without regard to any
additional contribution amount under paragraph (3))—
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‘‘(i) shall be reduced by the aggregate amount paid
to Archer MSAs of such spouses for the taxable year,
and
‘‘(ii) after such reduction, shall be divided equally
between them unless they agree on a different division.
‘‘(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction
shall be allowed under this section to any individual with
respect to whom a deduction under section 151 is allowable
to another taxpayer for a taxable year beginning in the calendar
year in which such individual’s taxable year begins.
‘‘(7) MEDICARE
ELIGIBLE
INDIVIDUALS.—The limitation
under this subsection for any month with respect to an indi-
vidual shall be zero for the first month such individual is
entitled to benefits under title XVIII of the Social Security
Act and for each month thereafter.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible individual’ means,
with respect to any month, any individual if—
‘‘(i) such individual is covered under a high deduct-
ible health plan as of the 1st day of such month,
and
‘‘(ii) such individual is not, while covered under
a high deductible health plan, covered under any
health plan—
‘‘(I) which is not a high deductible health plan,
and
‘‘(II) which provides coverage for any benefit
which is covered under the high deductible health
plan.
‘‘(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph
(A)(ii) shall be applied without regard to—
‘‘(i) coverage for any benefit provided by permitted
insurance, and
‘‘(ii) coverage (whether through insurance or other-
wise) for accidents, disability, dental care, vision care,
or long-term care.
‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—
‘‘(A) IN GENERAL.—The term ‘high deductible health
plan’ means a health plan—
‘‘(i) which has an annual deductible which is not
less than—
‘‘(I) $1,000 for self-only coverage, and
‘‘(II) twice the dollar amount in subclause (I)
for family coverage, and
‘‘(ii) the sum of the annual deductible and the
other annual out-of-pocket expenses required to be paid
under the plan (other than for premiums) for covered
benefits does not exceed—
‘‘(I) $5,000 for self-only coverage, and
‘‘(II) twice the dollar amount in subclause (I)
for family coverage.
‘‘(B) EXCLUSION OF CERTAIN PLANS.—Such term does
not include a health plan if substantially all of its coverage
is coverage described in paragraph (1)(B).
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PUBLIC LAW 108–173—DEC. 8, 2003
‘‘(C) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE
DEDUCTIBLE.—A plan shall not fail to be treated as a high
deductible health plan by reason of failing to have a deduct-
ible for preventive care (within the meaning of section
1871 of the Social Security Act, except as otherwise pro-
vided by the Secretary).
‘‘(D) SPECIAL RULES FOR NETWORK PLANS.—In the case
of a plan using a network of providers—
‘‘(i) ANNUAL
OUT-OF-POCKET
LIMITATION.—Such
plan shall not fail to be treated as a high deductible
health plan by reason of having an out-of-pocket limita-
tion for services provided outside of such network
which exceeds the applicable limitation under subpara-
graph (A)(ii).
‘‘(ii) ANNUAL
DEDUCTIBLE.—Such plan’s annual
deductible for services provided outside of such network
shall not be taken into account for purposes of sub-
section (b)(2).
‘‘(3) PERMITTED INSURANCE.—The term ‘permitted insur-
ance’ means—
‘‘(A) insurance if substantially all of the coverage pro-
vided under such insurance relates to—
‘‘(i) liabilities incurred under workers’ compensa-
tion laws,
‘‘(ii) tort liabilities,
‘‘(iii) liabilities relating to ownership or use of prop-
erty, or
‘‘(iv) such other similar liabilities as the Secretary
may specify by regulations,
‘‘(B) insurance for a specified disease or illness, and
‘‘(C) insurance paying a fixed amount per day (or other
period) of hospitalization.
‘‘(4) FAMILY COVERAGE.—The term ‘family coverage’ means
any coverage other than self-only coverage.
‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ has the meaning
given such term in section 220(d).
‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘health savings account’ means
a trust created or organized in the United States as a health
savings account exclusively for the purpose of paying the quali-
fied medical expenses of the account beneficiary, but only if
the written governing instrument creating the trust meets the
following requirements:
‘‘(A) Except in the case of a rollover contribution
described in subsection (f)(5) or section 220(f)(5), no con-
tribution will be accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) to the extent such contribution, when added
to previous contributions to the trust for the calendar
year, exceeds the sum of—
‘‘(I) the dollar amount in effect under sub-
section (b)(2)(B)(ii), and
‘‘(II) the dollar amount in effect under sub-
section (b)(3)(B).
‘‘(B) The trustee is a bank (as defined in section 408(n)),
an insurance company (as defined in section 816), or
another person who demonstrates to the satisfaction of
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the Secretary that the manner in which such person will
administer the trust will be consistent with the require-
ments of this section.
‘‘(C) No part of the trust assets will be invested in
life insurance contracts.
‘‘(D) The assets of the trust will not be commingled
with other property except in a common trust fund or
common investment fund.
‘‘(E) The interest of an individual in the balance in
his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) 
IN
GENERAL.—The 
term 
‘qualified 
medical
expenses’ means, with respect to an account beneficiary,
amounts paid by such beneficiary for medical care (as
defined in section 213(d) for such individual, the spouse
of such individual, and any dependent (as defined in section
152) of such individual, but only to the extent such amounts
are not compensated for by insurance or otherwise.
‘‘(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM
ACCOUNT.—Subparagraph (A) shall not apply to any pay-
ment for insurance.
‘‘(C) EXCEPTIONS.—Subparagraph (B) shall not apply
to any expense for coverage under—
‘‘(i) a health plan during any period of continuation
coverage required under any Federal law,
‘‘(ii) a qualified long-term care insurance contract
(as defined in section 7702B(b)),
‘‘(iii) a health plan during a period in which the
individual is receiving unemployment compensation
under any Federal or State law, or
‘‘(iv) in the case of an account beneficiary who
has attained the age specified in section 1811 of the
Social Security Act, any health insurance other than
a medicare supplemental policy (as defined in section
1882 of the Social Security Act).
‘‘(3) ACCOUNT BENEFICIARY.—The term ‘account beneficiary’
means the individual on whose behalf the health savings
account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the fol-
lowing rules shall apply for purposes of this section:
‘‘(A) Section 219(d)(2) (relating to no deduction for roll-
overs).
‘‘(B) Section 219(f)(3) (relating to time when contribu-
tions deemed made).
‘‘(C) Except as provided in section 106(d), section
219(f)(5) (relating to employer payments).
‘‘(D) Section 408(g) (relating to community property
laws).
‘‘(E) Section 408(h) (relating to custodial accounts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A health savings account is exempt from
taxation under this subtitle unless such account has ceased
to be a health savings account. Notwithstanding the preceding
sentence, any such account is subject to the taxes imposed
by section 511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations).
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‘‘(2) ACCOUNT TERMINATIONS.—Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply to health
savings accounts, and any amount treated as distributed under
such rules shall be treated as not used to pay qualified medical
expenses.
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—
Any amount paid or distributed out of a health savings account
which is used exclusively to pay qualified medical expenses
of any account beneficiary shall not be includible in gross
income.
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MED-
ICAL EXPENSES.—Any amount paid or distributed out of a health
savings account which is not used exclusively to pay the quali-
fied medical expenses of the account beneficiary shall be
included in the gross income of such beneficiary.
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE
OF RETURN.—
‘‘(A) IN GENERAL.—If any excess contribution is contrib-
uted for a taxable year to any health savings account
of an individual, paragraph (2) shall not apply to distribu-
tions from the health savings accounts of such individual
(to the extent such distributions do not exceed the aggre-
gate excess contributions to all such accounts of such indi-
vidual for such year) if—
‘‘(i) such distribution is received by the individual
on or before the last day prescribed by law (including
extensions of time) for filing such individual’s return
for such taxable year, and
‘‘(ii) such distribution is accompanied by the
amount of net income attributable to such excess con-
tribution.
Any net income described in clause (ii) shall be included
in the gross income of the individual for the taxable year
in which it is received.
‘‘(B) EXCESS CONTRIBUTION.—For purposes of subpara-
graph (A), the term ‘excess contribution’ means any con-
tribution (other than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is neither exclud-
able from gross income under section 106(d) nor deductible
under this section.
‘‘(4) ADDITIONAL
TAX
ON
DISTRIBUTIONS
NOT
USED
FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by this chapter
on the account beneficiary for any taxable year in which
there is a payment or distribution from a health savings
account of such beneficiary which is includible in gross
income under paragraph (2) shall be increased by 10 per-
cent of the amount which is so includible.
‘‘(B) EXCEPTION FOR DISABILITY OR DEATH.—Subpara-
graph (A) shall not apply if the payment or distribution
is made after the account beneficiary becomes disabled
within the meaning of section 72(m)(7) or dies.
‘‘(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE
ELIGIBILITY.—Subparagraph (A) shall not apply to any pay-
ment or distribution after the date on which the account
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117 STAT. 2475
PUBLIC LAW 108–173—DEC. 8, 2003
beneficiary attains the age specified in section 1811 of
the Social Security Act.
‘‘(5) ROLLOVER CONTRIBUTION.—An amount is described in
this paragraph as a rollover contribution if it meets the require-
ments of subparagraphs (A) and (B).
‘‘(A) IN GENERAL.—Paragraph (2) shall not apply to
any amount paid or distributed from a health savings
account to the account beneficiary to the extent the amount
received is paid into a health savings account for the benefit
of such beneficiary not later than the 60th day after the
day on which the beneficiary receives the payment or dis-
tribution.
‘‘(B) LIMITATION.—This paragraph shall not apply to
any amount described in subparagraph (A) received by
an individual from a health savings account if, at any
time during the 1-year period ending on the day of such
receipt, such individual received any other amount
described in subparagraph (A) from a health savings
account which was not includible in the individual’s gross
income because of the application of this paragraph.
‘‘(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—
For purposes of determining the amount of the deduction under
section 213, any payment or distribution out of a health savings
account for qualified medical expenses shall not be treated
as an expense paid for medical care.
‘‘(7) TRANSFER
OF
ACCOUNT
INCIDENT
TO
DIVORCE.—The
transfer of an individual’s interest in a health savings account
to an individual’s spouse or former spouse under a divorce
or separation instrument described in subparagraph (A) of sec-
tion 71(b)(2) shall not be considered a taxable transfer made
by such individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer, be treated
as a health savings account with respect to which such spouse
is the account beneficiary.
‘‘(8) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY.—
‘‘(A) TREATMENT
IF
DESIGNATED
BENEFICIARY
IS
SPOUSE.—If the account beneficiary’s surviving spouse
acquires such beneficiary’s interest in a health savings
account by reason of being the designated beneficiary of
such account at the death of the account beneficiary, such
health savings account shall be treated as if the spouse
were the account beneficiary.
‘‘(B) OTHER CASES.—
‘‘(i) IN GENERAL.—If, by reason of the death of
the account beneficiary, any person acquires the
account beneficiary’s interest in a health savings
account in a case to which subparagraph (A) does
not apply—
‘‘(I) such account shall cease to be a health
savings account as of the date of death, and
‘‘(II) an amount equal to the fair market value
of the assets in such account on such date shall
be includible if such person is not the estate of
such beneficiary, in such person’s gross income
for the taxable year which includes such date,
or if such person is the estate of such beneficiary,
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117 STAT. 2476
PUBLIC LAW 108–173—DEC. 8, 2003
in such beneficiary’s gross income for the last tax-
able year of such beneficiary.
‘‘(ii) SPECIAL RULES.—
‘‘(I) REDUCTION OF INCLUSION FOR PREDEATH
EXPENSES.—The amount includible in gross income
under clause (i) by any person (other than the
estate) shall be reduced by the amount of qualified
medical expenses which were incurred by the
decedent before the date of the decedent’s death
and paid by such person within 1 year after such
date.
‘‘(II) DEDUCTION
FOR
ESTATE
TAXES.—An
appropriate deduction shall be allowed under sec-
tion 691(c) to any person (other than the decedent
or the decedent’s spouse) with respect to amounts
included in gross income under clause (i) by such
person.
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—Each dollar amount in subsections (b)(2)
and (c)(2)(A) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which such taxable
year begins determined by substituting for ‘calendar year
1992’ in subparagraph (B) thereof—
‘‘(i) except as provided in clause (ii), ‘calendar year
1997’, and
‘‘(ii) in the case of each dollar amount in subsection
(c)(2)(A), ‘calendar year 2003’.
‘‘(2) ROUNDING.—If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded to the
nearest multiple of $50.
‘‘(h) REPORTS.—The Secretary may require—
‘‘(1) the trustee of a health savings account to make such
reports regarding such account to the Secretary and to the
account beneficiary with respect to contributions, distributions,
the return of excess contributions, and such other matters
as the Secretary determines appropriate, and
‘‘(2) any person who provides an individual with a high
deductible health plan to make such reports to the Secretary
and to the account beneficiary with respect to such plan as
the Secretary determines appropriate.
The reports required by this subsection shall be filed at such time
and in such manner and furnished to such individuals at such
time and in such manner as may be required by the Secretary.’’.
(b) DEDUCTION
ALLOWED
WHETHER
OR
NOT
INDIVIDUAL
ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 of such
Code is amended by inserting after paragraph (18) the following
new paragraph:
‘‘(19) HEALTH SAVINGS ACCOUNTS.—The deduction allowed
by section 223.’’.
(c) ROLLOVERS
FROM ARCHER MSAS PERMITTED.—Subpara-
graph (A) of section 220(f)(5) of such Code (relating to rollover
contribution) is amended by inserting ‘‘or a health savings account
(as defined in section 223(d))’’ after ‘‘paid into an Archer MSA’’.
(d) EXCLUSIONS
FOR EMPLOYER CONTRIBUTIONS
TO HEALTH
SAVINGS ACCOUNTS.—
26 USC 220.
26 USC 62.
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117 STAT. 2477
PUBLIC LAW 108–173—DEC. 8, 2003
(1) EXCLUSION
FROM
INCOME
TAX.—Section 106 of such
Code (relating to contributions by employer to accident and
health plans) is amended by adding at the end the following
new subsection:
‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—
‘‘(1) IN GENERAL.—In the case of an employee who is an
eligible individual (as defined in section 223(c)(1)), amounts
contributed by such employee’s employer to any health savings
account (as defined in section 223(d)) of such employee shall
be treated as employer-provided coverage for medical expenses
under an accident or health plan to the extent such amounts
do not exceed the limitation under section 223(b) (determined
without regard to this subsection) which is applicable to such
employee for such taxable year.
‘‘(2) SPECIAL RULES.—Rules similar to the rules of para-
graphs (2), (3), (4), and (5) of subsection (b) shall apply for
purposes of this subsection.
‘‘(3) CROSS REFERENCE.—
‘‘For penalty on failure by employer to make comparable con-
tributions to the health savings accounts of comparable employees,
see section 4980G.’’.
(2) EXCLUSION FROM EMPLOYMENT TAXES.—
(A) RAILROAD RETIREMENT TAX.—Subsection (e) of sec-
tion 3231 of such Code is amended by adding at the end
the following new paragraph:
‘‘(11) HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—The term
‘compensation’ shall not include any payment made to or for
the benefit of an employee if at the time of such payment
it is reasonable to believe that the employee will be able to
exclude such payment from income under section 106(d).’’.
(B) UNEMPLOYMENT
TAX.—Subsection (b) of section
3306 of such Code is amended by striking ‘‘or’’ at the
end of paragraph (16), by striking the period at the end
of paragraph (17) and inserting ‘‘; or’’, and by inserting
after paragraph (17) the following new paragraph:
‘‘(18) any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe
that the employee will be able to exclude such payment from
income under section 106(d).’’.
(C) WITHHOLDING TAX.—Subsection (a) of section 3401
of such Code is amended by striking ‘‘or’’ at the end of
paragraph (20), by striking the period at the end of para-
graph (21) and inserting ‘‘; or’’, and by inserting after
paragraph (21) the following new paragraph:
‘‘(22) any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe
that the employee will be able to exclude such payment from
income under section 106(d).’’.
(3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON
W–2.—Subsection (a) of section 6051 of such Code is amended
by striking ‘‘and’’ at the end of paragraph (10), by striking
the period at the end of paragraph (11) and inserting ‘‘, and’’,
and by inserting after paragraph (11) the following new para-
graph:
26 USC 6051.
26 USC 3401.
26 USC 3306.
26 USC 3231.
26 USC 106.
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‘‘(12) the amount contributed to any health savings account
(as defined in section 223(d)) of such employee or such
employee’s spouse.’’.
(4) PENALTY
FOR
FAILURE
OF
EMPLOYER
TO
MAKE
COM-
PARABLE HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—
(A) IN GENERAL.—Chapter 43 of such Code is amended
by adding after section 4980F the following new section:
‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH
SAVINGS ACCOUNT CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—In the case of an employer who makes
a contribution to the health savings account of any employee during
a calendar year, there is hereby imposed a tax on the failure
of such employer to meet the requirements of subsection (b) for
such calendar year.
‘‘(b) RULES
AND
REQUIREMENTS.—Rules and requirements
similar to the rules and requirements of section 4980E shall apply
for purposes of this section.
‘‘(c) REGULATIONS.—The Secretary shall issue regulations to
carry out the purposes of this section, including regulations pro-
viding special rules for employers who make contributions to Archer
MSAs and health savings accounts during the calendar year.’’.
(B) CLERICAL AMENDMENT.—The table of sections for
chapter 43 of such Code is amended by adding after the
item relating to section 4980F the following new item:
‘‘Sec. 4980G. Failure of employer to make comparable health savings account con-
tributions.’’.
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 of such Code
(relating to tax on excess contributions to certain tax-favored
accounts and annuities) is amended—
(1) by striking ‘‘or’’ at the end of subsection (a)(3), by
inserting ‘‘or’’ at the end of subsection (a)(4), and by inserting
after subsection (a)(4) the following new paragraph:
‘‘(5) a health savings account (within the meaning of section
223(d)),’’, and
(2) by adding at the end the following new subsection:
‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—
For purposes of this section, in the case of health savings accounts
(within the meaning of section 223(d)), the term ‘excess contribu-
tions’ means the sum of—
‘‘(1) the aggregate amount contributed for the taxable year
to the accounts (other than a rollover contribution described
in section 220(f)(5) or 223(f)(5)) which is neither excludable
from gross income under section 106(d) nor allowable as a
deduction under section 223 for such year, and
‘‘(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of—
‘‘(A) the distributions out of the accounts which were
included in gross income under section 223(f)(2), and
‘‘(B) the excess (if any) of—
‘‘(i) the maximum amount allowable as a deduction
under section 223(b) (determined without regard to
section 106(d)) for the taxable year, over
‘‘(ii) the amount contributed to the accounts for
the taxable year.
26 USC 4973.
26 USC 4980G.
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PUBLIC LAW 108–173—DEC. 8, 2003
For purposes of this subsection, any contribution which is distrib-
uted out of the health savings account in a distribution to which
section 223(f)(3) applies shall be treated as an amount not contrib-
uted.’’.
(f) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax on prohibited
transactions) is amended by adding at the end of subsection
(c) the following new paragraph:
‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS ACCOUNTS.—An
individual for whose benefit a health savings account (within
the meaning of section 223(d)) is established shall be exempt
from the tax imposed by this section with respect to any trans-
action concerning such account (which would otherwise be tax-
able under this section) if, with respect to such transaction,
the account ceases to be a health savings account by reason
of the application of section 223(e)(2) to such account.’’.
(2) Paragraph (1) of section 4975(e) of such Code is
amended by redesignating subparagraphs (E) and (F) as sub-
paragraphs (F) and (G), respectively, and by inserting after
subparagraph (D) the following new subparagraph:
‘‘(E) a health savings account described in section
223(d),’’.
(g) FAILURE
TO
PROVIDE
REPORTS
ON
HEALTH
SAVINGS
ACCOUNTS.—Paragraph (2) of section 6693(a) of such Code (relating
to reports) is amended by redesignating subparagraphs (C) and
(D) as subparagraphs (D) and (E), respectively, and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) 
section 
223(h) 
(relating 
to 
health 
savings
accounts),’’.
(h) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION
EXPENSES.—Subparagraph (B) of section 848(e)(1) of such Code
(defining specified insurance contract) is amended by striking ‘‘and’’
at the end of clause (iii), by striking the period at the end of
clause (iv) and inserting ‘‘, and’’, and by adding at the end the
following new clause:
‘‘(v) any contract which is a health savings account
(as defined in section 223(d)).’’.
(i) HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER CAFE-
TERIA PLANS.—Paragraph (2) of section 125(d) (relating to cafeteria
plan defined) is amended by adding at the end the following new
subparagraph:
‘‘(D) EXCEPTION
FOR
HEALTH
SAVINGS
ACCOUNTS.—
Subparagraph (A) shall not apply to a plan to the extent
of amounts which a covered employee may elect to have
the employer pay as contributions to a health savings
account established on behalf of the employee.’’.
(j) CLERICAL AMENDMENT.—The table of sections for part VII
of subchapter B of chapter 1 of such Code is amended by striking
the last item and inserting the following:
‘‘Sec. 223. Health savings accounts.
‘‘Sec. 224. Cross reference.’’.
(k) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2003.
26 USC 62 note.
26 USC 125.
26 USC 848.
26 USC 6693.
26 USC 4975.
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117 STAT. 2480
PUBLIC LAW 108–173—DEC. 8, 2003
LEGISLATIVE HISTORY—H.R. 1 (S. 1):
HOUSE REPORTS: No. 108–391 (Comm. of Conference).
CONGRESSIONAL RECORD, Vol. 149 (2003):
June 26, considered and passed House.
July 7, considered and passed Senate, amended, in lieu of S. 1.
Nov. 21, House agreed to conference report.
Nov. 25, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
Dec. 8, Presidential remarks and statement.
SEC. 1202. EXCLUSION FROM GROSS INCOME OF CERTAIN FEDERAL
SUBSIDIES FOR PRESCRIPTION DRUG PLANS.
(a) IN GENERAL.—Part III of subchapter B of chapter 1 of
the Internal Revenue Code of 1986 is amended by inserting after
section 139 the following new section:
‘‘SEC. 139A. FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG PLANS.
‘‘Gross income shall not include any special subsidy payment
received under section 1860D–22 of the Social Security Act. This
section shall not be taken into account for purposes of determining
whether any deduction is allowable with respect to any cost taken
into account in determining such payment.’’.
(b) ALTERNATIVE MINIMUM TAX RELIEF.—Section 56(g)(4)(B) of
such Code is amended by inserting ‘‘or 139A’’ after ‘‘section 114’’.
(c) CONFORMING AMENDMENT.—The table of sections for part
III of subchapter B of chapter 1 of such Code is amended by
inserting after the item relating to section 139 the following new
item:
‘‘Sec. 139A. Federal subsidies for prescription drug plans.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
SEC. 1203. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS
RELATED TO CERTAIN HEALTH ARRANGEMENTS.
(a) IN GENERAL.—Section 6041 of the Internal Revenue Code
of 1986 (relating to information at source) is amended by adding
at the end the following new subsection:
‘‘(f) SECTION DOES NOT APPLY TO CERTAIN HEALTH ARRANGE-
MENTS.—This section shall not apply to any payment for medical
care (as defined in section 213(d)) made under—
‘‘(1) a flexible spending arrangement (as defined in section
106(c)(2)), or
‘‘(2) a health reimbursement arrangement which is treated
as employer-provided coverage under an accident or health
plan for purposes of section 106.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to payments made after December 31, 2002.
Approved December 8, 2003.
26 USC 6041
note.
26 USC 6041.
26 USC 56 note.
26 USC 56.
26 USC 139A.
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