Text: H.R.1 — 108th Congress (2003-2004)All Information (Except Text)

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Public Law No: 108-173 (12/08/2003)

 
[108th Congress Public Law 173]
[From the U.S. Government Printing Office]


[DOCID: f:publ173.108]

[[Page 2065]]

 MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

[[Page 117 STAT. 2066]]

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 accounts and health savings 
 accounts, to provide for the disposition of unused health benefits in 
   cafeteria plans and flexible spending arrangements, and for other 
              purposes. <<NOTE: Dec. 8, 2003 -  [H.R. 1]>> 

    Be it enacted by the Senate and House of <<NOTE: Medicare 
Prescription Drug, Improvement, and Modernization Act of 
2003.>> 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 CONTENTS.

    (a) Short <<NOTE: 42 USC 1305 note.>> 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 otherwise 
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; <<NOTE: 42 USC 1301 note.>> Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
        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 Secretary; 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.

[[Page 117 STAT. 2067]]

                      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 
           furnished 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 certain 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 hospitals and urban hospitals with fewer than 100 beds.
Sec. 403. Adjustment to the medicare inpatient hospital prospective 
           payment system 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 
           hospitals.
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 center services from the prospective payment 
           system for skilled nursing facilities.
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 
           scarcity.

[[Page 117 STAT. 2068]]

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 hospital 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 medically 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 prospective 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 provided to Indians by medicare participating 
           hospitals.
Sec. 507. Clarifications to certain exceptions to medicare limits on 
           physician referrals.
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 contracting 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; special 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.

[[Page 117 STAT. 2069]]

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 furnished 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 strategy.

                      Subtitle D--Other Provisions

Sec. 731. Improvements in national and local coverage determination 
           process to respond 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 & 
           Medicaid Services (CMS).

[[Page 117 STAT. 2070]]

                      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 contractors.

                   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 discharge 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 appeals process.
Sec. 938. Prior determination process for certain items and services; 
           advance beneficiary 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) 
           documentation 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 
           Advisory Group.
Sec. 946. Authorizing use of arrangements to provide core hospice 
           services in certain 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 public 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 undocumented 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.

[[Page 117 STAT. 2071]]

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. <<NOTE: 42 USC 1395w-101.>> (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 
        paragraph (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 coverage 
                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 enrollment 
                in a prescription drug plan (as defined in section 
                1860D-41(a)(14)).
                    ``(B) Medicare advantage enrollees.--

[[Page 117 STAT. 2072]]

                          ``(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 qualified 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 coverage.

    ``(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 
                coordinated with) the rules for enrollment, 
                disenrollment, termination, 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 exercise 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 
                      paragraph (2) and the second sentence of paragraph 
                      (4)

[[Page 117 STAT. 2073]]

                      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 guaranteed issue and renewal.
                          ``(vi) Marketing material and application 
                      forms.--Section 1851(h), relating to approval of 
                      marketing 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 reference 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 
                individual (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 Secretary 
        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 prescription drug coverage (as defined 
                      in section 1860D-13(b)(4)).

[[Page 117 STAT. 2074]]

                          ``(ii) Notice.--In establishing special 
                      enrollment periods under clause (i), the Secretary 
                      shall take into account when the part D eligible 
                      individuals are provided 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 voluntary 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 
                provision 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 individuals as the Secretary determines to be 
                necessary to facilitate 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 
                      subparagraph.
                          ``(ii) Use of information.--Such information 
                      provided by the Secretary to a PDP sponsor or an 
                      MA organization may be used by such sponsor or 
                      organization 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 individuals 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--

[[Page 117 STAT. 2075]]

                    ``(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 
                Secretary 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 information.--
                The Secretary is not required to provide comparative 
                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. <<NOTE: 42 USC 1395w-102.>> (a) Requirements.--
            ``(1) In general.--For purposes of this part and part C, the 
        term `qualified prescription drug coverage' means either of the 
        following:

[[Page 117 STAT. 2076]]

                    ``(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 coverage.--
                    ``(A) In general.--Subject to subparagraph (B), 
                qualified 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 percentage, or an 
                                increase in the initial coverage limit 
                                with respect to covered part D drugs, or 
                                any combination 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 paragraph shall be construed as 
                                affecting the application of subsection 
                                (c)(3).
                          ``(ii) Optional drugs.--Coverage of any 
                      product that would be a covered part D drug but 
                      for the application of subsection (e)(2)(A).
                    ``(B) Requirement.--A PDP sponsor may not offer a 
                prescription drug plan that provides supplemental 
                prescription 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 
                paragraph (1)(A).
                    ``(B) Coverage that meets the requirements of 
                paragraph (1)(B) but does not have any supplemental 
                prescription 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 coverage' means 
coverage of covered part D drugs that meets the following requirements:

[[Page 117 STAT. 2077]]

            ``(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 paragraph (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 
                construed 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 subparagraph (A)(ii).
            ``(3) Initial coverage limit.--
                    ``(A) In general.--Except as provided in paragraph 
                (4), the coverage has an initial coverage limit on the 
                maximum 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 expenditures.--
                    ``(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)

[[Page 117 STAT. 2078]]

                      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 previous 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 
                reimbursement.--
                          ``(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 
                      Secretary 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-

[[Page 117 STAT. 2079]]

                      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 established 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 construed 
        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 percentage 
        increase specified in this paragraph for a year is equal to the 
        annual percentage increase in average per capita aggregate 
        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 Requirements.--A 
prescription drug plan or an MA-PD plan may provide a different 
prescription drug benefit design from standard prescription 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 coverage.--
                    ``(A) Assuring equivalent value of total coverage.--
                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 
                prescription 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 initial 
                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.

[[Page 117 STAT. 2080]]

            ``(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 
                negotiated 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 provision 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 
        organization 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 section 
        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 
                prescription 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

[[Page 117 STAT. 2081]]

                associated with the injection of insulin (as defined in 
                regulations 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 
                section 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. <<NOTE: 42 USC 1395w-103.>> (a) Assuring Access to a 
Choice of Coverage.--
            ``(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 enrollment 
        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 individual 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 
        section, 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 provides supplemental prescription drug 
                      coverage so long as there is no MA monthly 
                      supplemental beneficiary premium applied under the 
                      plan, due to the application

[[Page 117 STAT. 2082]]

                      of a credit against such premium of a rebate under 
                      section 1854(b)(1)(C).

    ``(b) Flexibility in Risk Assumed and Application of Fallback 
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. <<NOTE: 42 USC 1395w-104.>> (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 
                      formulary structure) used by the sponsor 
                      functions, including a description of how a part D 
                      eligible individual may obtain information on the 
                      formulary consistent with paragraph (3).
                          ``(iii) Beneficiary cost-sharing requirements 
                      and how a part D eligible individual may obtain 
                      information 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 Secretary) 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.

[[Page 117 STAT. 2083]]

                    ``(B) Availability of information on changes in 
                formulary 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 current 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 
                      prescription 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

[[Page 117 STAT. 2084]]

                      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 Improvement 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 appropriate 
                      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 appropriate 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 
                      developed and reviewed by a pharmacy and 
                      therapeutic committee. A majority of the members 
                      of such committee 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 
                      physician 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.

[[Page 117 STAT. 2085]]

                    ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall--
                          ``(i) base clinical decisions on the strength 
                      of scientific 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 
                categories 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 
                connection 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:

[[Page 117 STAT. 2086]]

                    ``(A) A cost-effective drug utilization management 
                program, 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 
        differential payments) under all methods of operation.
            ``(2) Medication therapy management program.--
                    ``(A) Description.--
                          ``(i) In general.--A medication therapy 
                      management 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 therapeutic 
                      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 settings.
                          ``(ii) Targeted beneficiaries described.--
                      Targeted 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, counseling, 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.

[[Page 117 STAT. 2087]]

                    ``(D) Coordination with care management plans.--The 
                Secretary shall establish guidelines for the 
                coordination 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 program 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 
                management 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) <<NOTE: Deadline.>> 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 transmitted only in accordance with such standards under an 
        electronic 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 program 
                shall provide for the electronic transmittal to the 
                prescribing health care professional and to the 
                dispensing pharmacy and pharmacist of the prescription 
                and information 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 interactions, 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

[[Page 117 STAT. 2088]]

                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 
                consistent 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 prescribed drug.
                          ``(ii) No change in benefits.--Clause (i) 
                      shall not be construed as affecting--
                                    ``(I) the access required to be 
                                provided to pharmacies by a prescription 
                                drug plan; or

[[Page 117 STAT. 2089]]

                                    ``(II) the application of any 
                                differences in benefits or payments 
                                under such a plan based on the pharmacy 
                                dispensing a covered part D drug.
            ``(4) Development, promulgation, and modification of 
        standards.--
                    ``(A) <<NOTE: Deadline.>> Initial standards.--Not 
                later than September 1, 2005, the Secretary shall 
                develop, adopt, recognize, or modify initial uniform 
                standards relating to the requirements for electronic 
                prescription drug programs described in paragraph (2) 
                taking into consideration the recommendations (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 adequate 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 <<NOTE: Contracts.>> In order 
                      to conduct the pilot project under clause (i), the 
                      Secretary shall enter into agreements with 
                      physicians, physician groups, pharmacies, 
                      hospitals, PDP sponsors, MA organizations, and 
                      other appropriate entities under which health care 
                      professionals electronically transmit 
                      prescriptions to dispensing 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).

[[Page 117 STAT. 2090]]

                                    ``(II) Report <<NOTE: Deadline.>> to 
                                congress.--Not later than April 1, 2007, 
                                the Secretary shall submit to Congress a 
                                report on the evaluation conducted under 
                                subclause (I).
                    ``(D) Final <<NOTE: Deadline.>> 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 
        regulation that--
                    ``(A) is contrary to the standards or restricts the 
                ability to carry out this part; and
                    ``(B) pertains to the electronic transmission of 
                medication 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 
        regulations 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 
                members 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 pharmacies 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 formulary, a 
        part D eligible individual who is enrolled in the

[[Page 117 STAT. 2091]]

        plan may request an exception to the tiered cost-sharing 
        structure. 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 
        individual 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 
        medicare 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 determinations.--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 formulary 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 section 
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 organization 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 
        assurance 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

[[Page 117 STAT. 2092]]

        a covered part D drug shall inform an enrollee of any 
        differential 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. <<NOTE: 42 USC 1395w-111.>> (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 
                practicable, 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 Information.--
            ``(1) In general.--A PDP sponsor shall submit to the 
        Secretary 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 
                coverage provided under the plan, including the 
                deductible and other cost-sharing.

[[Page 117 STAT. 2093]]

                    ``(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 
                actuarial 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 portion of such bid attributable 
                      to supplemental benefits;
                          ``(iii) assumptions regarding the reinsurance 
                      subsidy 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 specified in section 
                                1860D-15(e)(3)(C).
                    ``(F) Additional information.--Such other 
                information 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 Secretary 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 
        actuarial valuation of prescription drug coverage, including--

[[Page 117 STAT. 2094]]

                    ``(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 
                sponsors 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 
                conditions 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 
        subsection (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 requirements are 
        met:
                    ``(A) Compliance with requirements.--The plan and 
                the PDP sponsor offering the plan comply with the 
                requirements 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 
                determinations, including such requirements under 
                section 1860D-2(c).
                    ``(C) Application of fehbp standard.--

[[Page 117 STAT. 2095]]

                          ``(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 section 
                      1302(8)(C) of the Public Health Service Act) for 
                      benefits provided under that plan, less the sum 
                      (determined 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 Pharmacopeia.

    ``(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 
                minimum 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.

[[Page 117 STAT. 2096]]

            ``(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 
                subparagraph (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 subsection. 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 
                      fallback 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 
        section, the term `eligible fallback entity' means, with respect

[[Page 117 STAT. 2097]]

        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 
        subsection, 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 prescription 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 section 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 
                      Medicare 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.

[[Page 117 STAT. 2098]]

                          ``(iii) Customer service.--The entity provides 
                      timely and accurate delivery of services and 
                      pharmacy and beneficiary support services.
                          ``(iv) Benefit administration and claims 
                      adjudication.--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 assistance), 
        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 prescription 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 fallback 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 
                fallback 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 recommendations 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.

[[Page 117 STAT. 2099]]

    ``(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. <<NOTE: 42 USC 1395w-112.>> (a) General 
Requirements.--Each PDP sponsor of a prescription drug plan shall meet 
the following requirements:
            ``(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 
        coverage.--
                    ``(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 prescription 
        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.

[[Page 117 STAT. 2100]]

        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 <<NOTE: Applicability.>> of certain 
        medicare advantage contract requirements.--Except as otherwise 
        provided, the following 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.--

[[Page 117 STAT. 2101]]

                    ``(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 subparagraphs (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) <<NOTE: Deadline.>> 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 standards 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 accordance 
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

[[Page 117 STAT. 2102]]

        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 significant 
        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. <<NOTE: 42 USC 1395w-113.>> (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 paragraph.
                    ``(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 
                subparagraphs (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.

[[Page 117 STAT. 2103]]

            ``(2) Base beneficiary premium.--The base beneficiary 
        premium 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 
                (computed 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 
                      Secretary 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.--

[[Page 117 STAT. 2104]]

                          ``(i) Basic coverage.--In the case of a 
                      prescription drug plan that provides basic 
                      prescription drug coverage, 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 
        beneficiary 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 
        enrollment 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 uncovered 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):

[[Page 117 STAT. 2105]]

                    ``(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 section 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 standards for packages of benefits under 
                section 1882(p)(1)).
                    ``(G) Military coverage (including tricare).--
                Coverage 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 provide 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 
                procedures (including the form, manner, and time) for 
                the documentation of creditable prescription drug 
                coverage, including procedures to assist in determining 
                whether coverage meets the requirement of paragraph (5).
                    ``(B) Disclosure by entities offering creditable 
                prescription drug coverage.--
                          ``(i) In general.--Each entity that offers 
                      prescription drug coverage of the type described 
                      in subparagraphs (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 individuals under this subparagraph 
                      shall include information regarding the fact that 
                      because such coverage does not meet such 
                      requirement there are limitations on

[[Page 117 STAT. 2106]]

                      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 coverage 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 
                individual, 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 
                      preceding 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 terminates 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 attributable 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

[[Page 117 STAT. 2107]]

                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 
                enrollment penalty that is collected from a part D 
                eligible individual in a manner other than the manner 
                described in section 1854(d)(2)(A), the Secretary shall 
                establish procedures 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 collected 
        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. <<NOTE: 42 USC 1395w-114.>> (a) Income-Related 
Subsidies for Individuals With Income Up to 150 Percent of Poverty 
Line.--
            ``(1) Individuals with income below 135 percent of poverty 
        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 
                premium subsidy equal to--
                          ``(i) 100 percent of the amount described in 
                      subsection (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 individual and who is an 
                      institutionalized individual or

[[Page 117 STAT. 2108]]

                      couple (as defined in section 1902(q)(1)(B)), the 
                      elimination of any 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)).
                          ``(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 poverty 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 
                      individual 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

[[Page 117 STAT. 2109]]

                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 
                purposes of this part, subject to subparagraph (F), the 
                term `subsidy eligible individual' means a part D 
                eligible individual 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 Security. 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 determination that the individual is a subsidy 
                      eligible individual 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 
                      determinations 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 Commissioner; and
                                    ``(II) the Commissioner shall 
                                establish procedures for appeals of such 
                                determinations that are similar to the 
                                procedures described in the third 
                                sentence of section 1631(c)(1)(A).

[[Page 117 STAT. 2110]]

                          ``(v) Treatment of medicaid beneficiaries.--
                      Subject to subparagraph (F), the Secretary--
                                    ``(I) shall provide that part D 
                                eligible individuals who are full-
                                benefit dual eligible individuals (as 
                                defined in section 1935(c)(6)) or who 
                                are recipients 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 individuals not described in 
                                subclause (I) who are determined 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 assistance 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), without 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 
                application 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 
                determined 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

[[Page 117 STAT. 2111]]

                      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 
                                percentage 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 
                      Commissioner 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 
                                institutions 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 
                      determinations for premium and cost-sharing 
                      subsidies under this section to use the same asset 
                      or resource methodologies 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.--

[[Page 117 STAT. 2112]]

                    ``(A) Copayment for lowest income dual eligible 
                individuals.--The dollar amounts applied under paragraph 
                (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 
                multiple 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 prescription 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--

[[Page 117 STAT. 2113]]

                          ``(i) a prescription drug plan that is a basic 
                      prescription drug plan, the monthly beneficiary 
                      premium for such plan;
                          ``(ii) a prescription drug plan that provides 
                      alternative 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 reimbursement 
        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 adjustments 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. <<NOTE: 42 USC 1395w-115.>> (a) Subsidy Payment.--
In order to reduce premium levels applicable to qualified prescription 
drug coverage

[[Page 117 STAT. 2114]]

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 subsection (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 appropriations 
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 paragraph 
        (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 average 
        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 purposes 
        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.

[[Page 117 STAT. 2115]]

            ``(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 
                Secretary 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 prescription drug beneficiary 
                premiums.
                    ``(B) Considerations.--In establishing the 
                methodology 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 benefits 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 determines 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

[[Page 117 STAT. 2116]]

                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.--
                Information 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 provisions 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 Organization 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

[[Page 117 STAT. 2117]]

                prescription drug coverage taking into account the 
                adjustment 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 paragraph (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 adjustment shall be made under 
                this subsection.
                    ``(B) Increase in payment if adjusted allowable risk 
                corridor costs above upper limit of risk corridor.--
                          ``(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 conditions 
                      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 percent 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

[[Page 117 STAT. 2118]]

                                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 
                corridor.--
                          ``(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 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 the sum of--
                                    ``(I) 50 percent (or, for 2006 and 
                                2007, 75 percent) 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 
                                subparagraph (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 
                                subparagraph (B) for the plan; minus

[[Page 117 STAT. 2119]]

                                    ``(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 
                prescription 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.--
                      Subject 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 percents 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

[[Page 117 STAT. 2120]]

        the monthly beneficiary premium or the MA monthly prescription 
        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 
                provide 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 purposes 
        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. <<NOTE: 42 USC 1395w-116.>> (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 
        Prescription 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 investments 
        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 program under this 
        part, including--
                    ``(A) payments under section 1860D-14 (relating to 
                low-income subsidy payments);
                    ``(B) payments under section 1860D-15 (relating to 
                subsidy payments and payments for fallback plans);

[[Page 117 STAT. 2121]]

                    ``(C) payments to sponsors of qualified retiree 
                prescription 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 
        attributable 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 prescription 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 contributions.--
        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 subsection (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 appropriated to 
        the Account, out of any moneys in the Treasury not otherwise 
        appropriated, such amount as the Secretary certifies 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 transitional 
        assistance account.--Any balance in the Transitional Assistance 
        Account that is transferred under section 1860D-31(k)(5) shall 
        be deposited into the Account.

[[Page 117 STAT. 2122]]

``Subpart 3--Application to Medicare Advantage Program and Treatment of 
      Employer-Sponsored Programs and Other Prescription Drug Plans

  ``application to medicare advantage program and related managed care 
                                programs

    ``Sec. 1860D-21. <<NOTE: 42 USC 1395w-131.>> (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 
                      coverage under such other plan provides qualified 
                      prescription drug coverage and unless the 
                      requirements 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 
        benefits 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 section 
        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 providing 
        qualified prescription drug coverage.--In the case

[[Page 117 STAT. 2123]]

        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 termination of the MA plan described 
                      in subparagraph (B)(ii) of section 1882(s)(3) for 
                      purposes of applying such section.
        The information disclosed under section 1852(c)(1) for 
        individuals who are enrolled in such an MA plan shall include 
        information 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 
        provisions 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 
        determines 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 pharmacies.--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 prescription drug coverage, 
on and after January 1, 2006, the following rules apply:
            ``(1) Requirements regarding negotiated prices.--Subsections 
        (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 
        section), 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 additional 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

[[Page 117 STAT. 2124]]

        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 medication 
        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 
                subsection did not apply; and
                    ``(B) takes into account the average reinsurance 
                payments made under section 1860D-15(b) for populations 
                of similar risk under MA-PD plans described in such 
                section.
            ``(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 Contractors.--
            ``(1) In general.--Subject to paragraphs (2) and (3) and 
        rules established by the Secretary, in the case of an 
        organization 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 average 
        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.--

[[Page 117 STAT. 2125]]

            ``(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. <<NOTE: 42 USC 1395w-132.>> (a) Subsidy Payment.--
            ``(1) In general.--The Secretary shall provide in accordance 
        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 
        represents the obligation of the Secretary to provide for the 
        payment 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 
                Secretary 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 
                administrator 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.

[[Page 117 STAT. 2126]]

                    ``(C) Provision of disclosure regarding prescription 
                drug coverage.--The sponsor of the plan shall provide 
                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 subparagraph 
                (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 
                                subparagraph 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 
                      `allowable 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 
                      section, the term `gross covered retiree plan-
                      related prescription drug costs' means, with 
                      respect to a qualifying covered retiree enrolled 
                      in a qualified retiree prescription drug 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. 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

[[Page 117 STAT. 2127]]

        drug plan or an MA-PD plan but is covered under a qualified 
        retiree prescription drug plan.
            ``(5) Payment methods, including provision of necessary 
        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 coverage, 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 establishment 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 
        provided 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

[[Page 117 STAT. 2128]]

        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. <<NOTE: 42 USC 1395w-133.>> (a) Requirements for 
Benefit Coordination.--
            ``(1) In general.--Before July 1, 2005, the Secretary shall 
        establish consistent with this section requirements for 
        prescription drug plans to ensure the effective coordination 
        between a part D plan (as defined in paragraph (5)) and a State 
        Pharmaceutical Assistance Program (as defined in subsection (b)) 
        with respect to--
                    ``(A) payment of premiums and coverage; and
                    ``(B) payment for supplemental prescription drug 
                benefits,
        for part D eligible individuals enrolled under both types of 
        plans.
            ``(2) Coordination elements.--The requirements under 
        paragraph (1) shall include requirements relating to 
        coordination of each of the following:
                    ``(A) Enrollment file sharing.
                    ``(B) The processing of claims, including electronic 
                processing.
                    ``(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 
        beneficiary information.
            ``(3) Use of lump sum per capita method.--Such requirements 
        shall include a method for the application by a part D plan of 
        specified funding amounts from a State Pharmaceutical Assistance 
        Program for enrolled individuals for supplemental prescription 
        drug benefits.

[[Page 117 STAT. 2129]]

            ``(4) Consultation.--In establishing requirements under this 
        subsection, the Secretary shall consult with State 
        Pharmaceutical Assistance Programs, MA organizations, States, 
        pharmaceutical benefit managers, employers, representatives of 
        part D eligible individuals, the data processing experts, 
        pharmacists, 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 prescription 
        drug plan and an MA-PD plan.

    ``(b) State Pharmaceutical Assistance Program.--For purposes of this 
part, the term `State Pharmaceutical Assistance Program' means a State 
program--
            ``(1) which provides financial assistance for the purchase 
        or provision of supplemental prescription drug coverage or 
        benefits 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 connection.
            ``(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 
        construed 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.

[[Page 117 STAT. 2130]]

                    ``(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 
        otherwise 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. <<NOTE: 42 USC 1395w-134.>> (a) Application of 
Benefit Coordination Requirements to Additional Plans.--
            ``(1) In general.--The Secretary shall apply the 
        coordination 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 
        procedures 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 
                Pharmaceutical 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 financial 
        assistance for the purchase or provision of prescription

[[Page 117 STAT. 2131]]

        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 operation.
            ``(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 section 
        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. <<NOTE: 42 USC 1395w-141.>> (a) Establishment of 
Program.--
            ``(1) In general.--The Secretary shall establish a program 
        under this section--
                    ``(A) to endorse prescription drug discount card 
                programs 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 
                transitional 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 <<NOTE: Regulations.>> Secretary shall promulgate 
                regulations to carry out the program under this section 
                which may be effective and final immediately 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

[[Page 117 STAT. 2132]]

                      of December 31, 2005, during the individual's 
                      transition 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 available 
                                for drugs dispensed during the 
                                individual's transition period.
                          ``(iii) Transition period.--The transition 
                      period under this clause for an individual is the 
                      period beginning 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 section 
        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 `covered 
                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.--

[[Page 117 STAT. 2133]]

                    ``(A) In general.--The term `discount card eligible 
                individual' 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 
                subparagraph (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 outpatient 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 
                      coverage (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 individual.--
        The term `special transitional assistance eligible individual' 
        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 purposes 
        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

[[Page 117 STAT. 2134]]

        is enrolled and disenrolled in an endorsed discount card program 
        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 
                enrollment 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 
                      discount 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 special 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 
                      exceptional 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 program, 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).

[[Page 117 STAT. 2135]]

                          ``(ii) Involuntary.--An individual who is 
                      enrolled in an endorsed discount card program and 
                      not a transitional 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 
                reasonable 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 payment 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 
                      medicaid 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.

[[Page 117 STAT. 2136]]

                    ``(G) Rules in case of changes in program enrollment 
                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 
        individual 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 
                      programs; 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 
                      comparative prices for covered discount card 
                      drugs; and
                          ``(ii) includes educational materials on the 
                      variability 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 
                dissemination of educational information on other 
                medicare options.
                    ``(C) Special rule for initial enrollment date under 
                the program.--To the extent practicable, the Secretary 
                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 
                Secretary 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.--

[[Page 117 STAT. 2137]]

                    ``(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 individuals, including 
                information on enrollment fees and negotiated 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 
                transitional 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 bioequivalent 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.

[[Page 117 STAT. 2138]]

                          ``(ii) Negotiated prices.--For purposes of 
                      this section, negotiated prices shall take into 
                      account negotiated price concessions, such as 
                      discounts, direct or indirect subsidies, rebates, 
                      and direct or indirect remunerations, 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 
                program 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 negotiated prices (consistent with rules 
                established by the Secretary). The Secretary shall 
                establish convenient access rules under this clause that 
                are no less favorable to enrollees than the standards 
                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.
                    ``(C) Prohibition on charges for required 
                services.--
                          ``(i) In general.--Subject to clause (ii), a 
                      prescription 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 discount card drug, from 
                                imposing a charge (consistent with the 
                                negotiated price) for the covered 
                                discount card drug dispensed, reduced by 
                                the amount of any transitional 
                                assistance made available.
                    ``(D) Inapplicability of medicaid best price 
                rules.--The prices negotiated from drug manufacturers 
                for covered discount card drugs under an endorsed 
                discount card program 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.--

[[Page 117 STAT. 2139]]

                    ``(A) Procedures.--The determination of whether an 
                individual is a discount card eligible individual or a 
                transitional assistance eligible individual or a special 
                transitional assistance eligible individual (as defined 
                in subsection (b)) shall be determined under procedures 
                specified by the Secretary 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 
        assistance.--
                    ``(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 
                individual's behalf) shall certify on the enrollment 
                form under subsection (c)(1)(B) (or similar form 
                specified by the Secretary), through a simplified means 
                specified by the Secretary 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 coverage (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 
                Secretary 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.--
                      Information on eligibility under title XIX and 
                      provided to the Secretary under arrangements 
                      between the Secretary

[[Page 117 STAT. 2140]]

                      and States in order to verify the eligibility of 
                      individuals who seek to enroll in an endorsed 
                      program and of individuals who provide 
                      certification under paragraph (2).
                          ``(ii) Social security information.--Financial 
                      information made available to the Secretary under 
                      arrangements between the Secretary and the 
                      Commissioner 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 certain 
                      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 specified by 
                      the Secretary that permits the Secretary to 
                      identify individuals who are described in 
                      subsection (b)(1)(B) or are transitional 
                      assistance eligible individuals or special 
                      transitional assistance eligible individuals.
            ``(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 transitional assistance eligible individual or a 
                special transitional assistance eligible individual, may 
                request a reconsideration 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 prescription drug card sponsor involved.

    ``(g) Transitional Assistance.--
            ``(1) Provision of transitional assistance.--An individual 
        who is a transitional assistance eligible individual (as 
        determined under this section) and who is enrolled with an 
        endorsed program is entitled--

[[Page 117 STAT. 2141]]

                    ``(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 percent (or 95 percent in the case of a special 
                transitional assistance eligible individual) of the 
                costs incurred for covered 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 
                assistance 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 certification, 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 
                subsection (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 
                assistance eligible individual who voluntarily 
                disenrolls from

[[Page 117 STAT. 2142]]

                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 assistance 
        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 paragraph (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 
                      medicaid 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 american 
        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 assistance, 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 programs 
                in each of the 50 States and the District of Columbia 
                where such a pharmacy operates.

[[Page 117 STAT. 2143]]

            ``(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 
        assistance 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 qualifications.--
                    ``(A) Prescription drug card sponsor and sponsor 
                defined.--For purposes of this section, the terms 
                `prescription drug card sponsor' and `sponsor' mean any 
                nongovernmental entity that the Secretary determines to 
                be appropriate to offer an endorsed discount card 
                program under this section, which may include--
                          ``(i) a pharmaceutical benefit management 
                      company;
                          ``(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 
                demonstrated 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 Secretary, 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 
                requirements.--The Secretary shall review the 
                application submitted under subparagraph (A) and shall 
                determine whether to endorse the prescription drug 
                discount card

[[Page 117 STAT. 2144]]

                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 individual 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 
                      paragraph.
            ``(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 
        individuals 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 prescription 
        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 
                thereunder, including regulations (relating to privacy) 
                adopted pursuant to the authority of the Secretary under 
                section 264(c) of the Health Insurance Portability and 
                Accountability Act of 1996 (42 U.S.C. 1320d-2 note).
                    ``(B) Waiver authority.--In order to promote 
                participation 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

[[Page 117 STAT. 2145]]

                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 
                requirements), 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 discount 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 enrollment 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 
                      reimbursement contract involved and is not 
                      required nor permitted to enroll other individuals 
                      under such program.
                          ``(ii) Pharmacy access.--Pharmacy access 
                      requirements 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 Secretary.
                          ``(iii) Sponsor requirements.--The Secretary 
                      may waive the application of such requirements for 
                      a sponsor as the Secretary determines to be 
                      duplicative

[[Page 117 STAT. 2146]]

                      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) information 
        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 
        manufacturer 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 
        compliance 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 proceeding 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 providing 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

[[Page 117 STAT. 2147]]

                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) <<NOTE: Investments.>> Separate from rest of 
                trust fund.--Funds provided under this subsection 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 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.

[[Page 117 STAT. 2148]]

            ``(3) Appropriations to cover benefits.--There are 
        appropriated 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 <<NOTE: Appropriation 
        authorization.>> 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 
        construed as authorizing the Secretary to provide for payment 
        (other than payment of an enrollment fee on behalf of a 
        transitional 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. <<NOTE: 42 USC 1395w-151.>> (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 `fallback 
        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 
        prescription 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 performance-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).

[[Page 117 STAT. 2149]]

            ``(10) Medicare prescription drug account.--The term 
        `Medicare Prescription Drug Account' means the Account created 
        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. <<NOTE: 42 USC 1395w-152.>> (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 provisions of 
section 402 of the Social Security Amendments of 1967 (Public Law 90-
248) shall apply with respect to this part and

[[Page 117 STAT. 2150]]

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 reference to the Medicare 
Prescription Drug Account within the Federal Supplementary Medical 
Insurance Trust Fund.''.
    (b) Submission <<NOTE: 42 USC 1395w-101 note.>> 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 <<NOTE: Reports. 42 USC 1395w-101 
note.>> Part B Prescription Drug Coverage.--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 <<NOTE: 42 USC 1395w-101 note.>> 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 
recommendations regarding an appropriate transition from the program 
under section 1860D-31 of the Social Security Act to prescription drug 
benefits under subpart 1 of part D of title XVIII of such Act.

    (e) Additional Conforming Changes.--
            (1) Conforming <<NOTE: 42 USC 1395x note, 426, 1395i-4; 45 
        USC 231f.>> 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 
                subparagraph:
            ``(G) the waiver or reduction by pharmacies (including 
        pharmacies 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)), 
        section 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

[[Page 117 STAT. 2151]]

                      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 Insurance 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 following: ``, 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 payments 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 
                      following: ``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 
                disclosed 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 <<NOTE: 26 USC 6103.>> is amended by 
        inserting ``or subsidies

[[Page 117 STAT. 2152]]

        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 
        programs 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 
                election 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 Secretary shall provide for an 
                      educational and publicity

[[Page 117 STAT. 2153]]

                      campaign to inform MA eligible individuals about 
                      the availability of MA plans (including MA-PD 
                      plans) offered in different areas and the election 
                      process provided 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 subsection'' 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 ``, 
                subparagraph (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 individual 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 
                covered part D drugs in accordance with an electronic 
                prescription drug program that meets standards 
                established under section 1860D-4(e).

[[Page 117 STAT. 2154]]

                    ``(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 
                participating physicians who significantly increase--
                          ``(i) formulary compliance;
                          ``(ii) lower cost, therapeutically equivalent 
                      alternatives;
                          ``(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 
                structured 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 
        accordance with section 1860D-1.''.
            (2) Effective <<NOTE: 42 USC 1395w-21 note.>> date.--The 
        amendments made by this subsection shall apply on and after 
        January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
            (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 <<NOTE: 42 USC 
                1396v.>>  as section 1936; and
                    (B) by inserting after section 1934 the following 
                new section:

   ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. <<NOTE: 42 USC 1396u-5.>> (a) Requirements Relating to 
Medicare Prescription Drug Low-Income Subsidies and Medicare 
Transitional 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 Secretary 
        with information to carry out section 1860D-31(f)(3)(B)(i).

[[Page 117 STAT. 2155]]

            ``(2) Eligibility determinations for low-income subsidies.--
        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 Responsibility 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 subsection:
    ``(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 
                District 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 
                      paragraph (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 
                Secretary 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

[[Page 117 STAT. 2156]]

                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 
                individuals' 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 subparagraph (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 determines 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--

[[Page 117 STAT. 2157]]

                                    ``(I) use data from the Medicaid 
                                Statistical Information System (MSIS) 
                                and other available data;
                                    ``(II) exclude expenditures 
                                attributable to covered 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 
                      average 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 average number of full-benefit dual eligible 
                      individuals in such year who received in 2003 
                      medical assistance for covered outpatient drugs 
                      through a medicaid managed 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 
                expenditures (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 88\1/3\ percent;
                    ``(C) in 2008 is 86\2/3\ percent;
                    ``(D) in 2009 is 85 percent;
                    ``(E) in 2010 is 83\1/3\ percent;
                    ``(F) in 2011 is 81\2/3\ percent;
                    ``(G) in 2012 is 80 percent;
                    ``(H) in 2013 is 78\1/3\ percent;
                    ``(I) in 2014 is 76\2/3\ percent; or
                    ``(J) after December 2014, is 75 percent.
            ``(6) Full-benefit dual eligible individual defined.--

[[Page 117 STAT. 2158]]

                    ``(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 category of eligibility for 
                      medical assistance for full benefits 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 assistance 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 
                subsection (e)'' after ``1903(a)(1)''; and
                    (C) by adding at the end the following new 
                subsection:

    ``(e) Treatment of Territories.--

[[Page 117 STAT. 2159]]

            ``(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 
                Secretary a plan described in paragraph (2) (for 
                providing medical assistance with respect to the 
                provision of prescription drugs to part D eligible 
                individuals), the amount otherwise 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 
                paragraph for a State for a year is equal to the product 
                of--
                          ``(i) the aggregate amount specified in 
                      subparagraph (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 
                                available 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--

[[Page 117 STAT. 2160]]

                    (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 manufacturers 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 <<NOTE: Effective date. 42 USC 1396r-8 
        note.>> 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 Premium 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 <<NOTE: 42 USC 1396a note.>> date.--The 
        amendments made by this subsection 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 
                      eligibility'' and inserting ``eligibility for 
                      medicare cost-sharing under the medicaid 
                      program''; and

[[Page 117 STAT. 2161]]

            (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 section 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 
                provision 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 paragraph (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 modification.
                    ``(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 Secretary established in consultation with the 
                National Association of Insurance Commissioners) during 
                the 60-

[[Page 117 STAT. 2162]]

                day period immediately preceding the initial part D 
                enrollment 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 prescription drugs 
                                will be modified under subparagraph 
                                (C)(i); or
                                    ``(II) enrolling in another medicare 
                                supplemental 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 supplemental policy 
                                pursuant to paragraph (3); and
                                    ``(II) if the current plan does not 
                                provide creditable 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 
                      application of modification.--No medicare 
                      supplemental policy of an issuer shall be deemed 
                      to meet the standards in subsection (c) unless the 
                      issuer--
                                    ``(I) continues renewability of 
                                medigap Rx policies 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 benefit 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

[[Page 117 STAT. 2163]]

                      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 guaranteed 
        issue.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental 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 subsection (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 submits evidence of such termination along 
                      with the application for the policy under 
                      subparagraph (A).
                    ``(C) Special rule for waivered states.--For 
                purposes 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 
                requirements 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 renewability 
        of coverage shall be deemed to have been met with

[[Page 117 STAT. 2164]]

        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 renewability 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 subsection (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 
                      subsection (p)(6)) but which provides benefits for 
                      prescription 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 
                enrollment period described in section 1860D-
                1(b)(2)(A).''.

    (2) Conforming current guaranteed issue provisions.--
                    (A) Extending guaranteed issue policy for 
                individuals 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) Subject to subclause (II), only''; and
                          (ii) by adding at the end the following new 
                      subclause:

    ``(II) If the medicare supplemental policy referred to in 
subparagraph (B)(v) was a medigap Rx policy (as defined in subsection 
(v)(6)(A)), a medicare supplemental policy described in this 
subparagraph 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 Policies.--
            (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 Supplemental 
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

[[Page 117 STAT. 2165]]

        enactment of the Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003 and to otherwise update standards 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 subsequently 
        updated by the National Association of Insurance Commissioners 
        to reflect previous changes in law (and subsection (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 Modernization 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 benefits.
                          ``(ii) Coverage for all hospital inpatient 
                      coinsurance and 365 extra lifetime days of 
                      coverage of inpatient hospital services (as in the 
                      current core benefit package).
                          ``(iii) A limitation on annual out-of-pocket 
                      expenditures under parts A and B to $4,000 in 2006 
                      (or, in a subsequent year, to such limitation for 
                      the previous year increased by an appropriate 
                      inflation adjustment specified by the Secretary).
                    ``(B) Second new benefit package.--A benefit package 
                consisting of the benefit package described in 
                subparagraph (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 <<NOTE: 42 USC 1395ss note.>> 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

[[Page 117 STAT. 2166]]

        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 TRANSITIONAL 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 <<NOTE: Applicability. 42 USC 1395w-141 note.>> for 
Implementation.--The following rules shall apply to the medicare 
prescription drug discount card and transitional 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) <<NOTE: Applicability.>> 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 
        provision of this section), such order shall not affect any 
        other provision of such section (or of this section) and all 
        such provisions 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--

[[Page 117 STAT. 2167]]

            (1) in the last sentence of subsection (a), by inserting 
        after ``section 1860D-16'' the following: ``or the Transitional 
        Assistance 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 <<NOTE: 26 USC 6103.>>  (relating 
        to disclosure of returns and return information for purposes 
        other than tax administration) is amended by adding at the end 
        the following new paragraph:
            ``(19) Disclosure of return information for purposes of 
        providing transitional assistance under medicare discount 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 
                      modified 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 
                purposes of this subsection, the term `applicable year' 
                means the most recent taxable year for which information 
                is available 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 information.--
                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 disclosures.--
        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 <<NOTE: 26 USC 7213.>> is amended 
        by striking ``or (16)'' and inserting ``(16), or (19)''.

[[Page 117 STAT. 2168]]

SEC. 106. <<NOTE: 42 USC 1395w-101 note.>> STATE PHARMACEUTICAL 
            ASSISTANCE TRANSITION COMMISSION.

    (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 voluntary 
        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 
                program'' 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 program.

    (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 eligibility 
        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 
        assistance 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.

[[Page 117 STAT. 2169]]

    (d) <<NOTE: Deadline.>> Report.--By not later than January 1, 2005, 
the Commission 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 recommendations 
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 <<NOTE: 42 USC 1395w-111 note.>> 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 <<NOTE: Deadline.>> 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 
                variation 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 different 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 variation described in subparagraph (A).

    (b) Review and <<NOTE: 42 USC 1395i-3 note.>> Report on Current 
Standards of Practice for Pharmacy Services Provided to Patients in 
Nursing Facilities.--
            (1) Review.--
                    (A) In <<NOTE: Deadline.>> 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.--

[[Page 117 STAT. 2170]]

                    (A) In <<NOTE: Deadline.>> 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 
                subparagraph (A) shall contain--
                          (i) a description of the plans of the 
                      Secretary to implement the provisions of this Act 
                      in a manner consistent 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 <<NOTE: 42 USC 299 note.>> Study on Drug Safety and 
Quality.--
            (1) In <<NOTE: Contracts.>> 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 settings, clinicians, and 
                institutional cultures.
                    (B) The study shall attempt to develop credible 
                estimates 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 evidence 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 
                medication error reductions, and to provide guidance to 
                policy-makers and government agencies (including the 
                Food and Drug Administration, the Centers for Medicare & 
                Medicaid

[[Page 117 STAT. 2171]]

                Services, and the National Institutes of Health) in 
                promoting 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 interventions, 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 authorized 
        to be appropriated to carry out this section such sums as may be 
        necessary.

    (d) Study of <<NOTE: 42 USC 1395w-27 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-114 note.>> Study Regarding Impact of 
Assets Test for Subsidy 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 
        individuals 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 <<NOTE: Deadline.>> later than September 
        30, 2007, the Comptroller General shall submit a report to 
        Congress on the study conducted under paragraph (1) that 
        includes such recommendations for legislation as the Comptroller 
        General determines are appropriate.

    (f) Study <<NOTE: 21 USC 352 note.>> on Making Prescription 
Pharmaceutical Information Accessible for Blind and Visually-Impaired 
Individuals.--
            (1) Study.--
                    (A) In general.--The Secretary shall undertake a 
                study of how to make prescription pharmaceutical 
                information, including drug labels and usage 
                instructions, accessible to blind and visually-impaired 
                individuals.
                    (B) Study to include existing and emerging 
                technologies.--The study under subparagraph (A) shall 
                include a review of existing and emerging technologies, 
                including assistive technology, that makes essential

[[Page 117 STAT. 2172]]

                information on the content and prescribed use of 
                pharmaceutical medicines available in a usable format 
                for blind and visually-impaired individuals.
            (2) Report.--
                    (A) In <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395w-104 note.>> 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 implement 
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 Secretary.
            (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 practice 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 
                technologies.
                    (B) Making upgrades and other improvements to 
                existing computer software and hardware to enable e-
                prescribing.
                    (C) Providing education and training to eligible 
                physician staff on the use of technology to implement 
                the electronic 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

[[Page 117 STAT. 2173]]

                    (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 
        evaluated, 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 
        contributions.

    (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 IMPROVEMENT 
            ORGANIZATIONS TO INCLUDE PARTS C AND D.

    (a) Application to Medicare Managed Care and Prescription 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 sponsors pursuant to contracts 
under part D'' after ``under section 1876''.
    (b) Prescription Drug Therapy Quality Improvement.--Section 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 prescription 
        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 <<NOTE: 42 USC 1320c-3 note.>> Date.--The amendments 
made by this section shall apply on and after January 1, 2004.

    (d) IOM <<NOTE: 42 USC 1320c note.>> 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 
                organizations 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.

[[Page 117 STAT. 2174]]

                    (E) The effectiveness of reviews and other actions 
                conducted 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 <<NOTE: Deadline.>> 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 recommendations 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 <<NOTE: 42 USC 1395w-101 note.>> 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 managers 
        compared to mail-order pharmacies not owned by pharmaceutical 
        benefit managers, and community pharmacies.
            (2) Whether such plans are acting in a manner that maximizes 
        competition and results in lower prescription drug prices for 
        enrollees.

    (b) Report.--Not <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395w-132 note.>> STUDY ON EMPLOYMENT-BASED 
            RETIREE HEALTH COVERAGE.

    (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 Benefits 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

[[Page 117 STAT. 2175]]

        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 Advantage 
        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 medicare-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 
        employment-based retiree health coverage who receive the special 
        subsidy payments under section 1860D-22 of the Social Security 
        Act, as added by section 101, for the provision of prescription 
        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 
        retirement 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, 
        academics, and others on ways that the voluntary provision of 
        employment-based retiree health coverage may be improved and 
        expanded.

    (d) Reports.--The <<NOTE: Deadlines.>> 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

[[Page 117 STAT. 2176]]

            (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 consultants, 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. <<NOTE: 42 USC 1395w-21 note.>> 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 reference 
to the program under part C of title XVIII of the Social Security 
Act. <<NOTE: Effective date.>>  Such transition shall be fully completed 
for all materials 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 adjustment, 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).

[[Page 117 STAT. 2177]]

                          ``(iii) Inclusion of costs of va and dod 
                      military facility services to medicare-eligible 
                      beneficiaries.--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 payments that would have 
                      been made in the area involved under this title if 
                      individuals entitled to benefits under this title 
                      had not received services from facilities of the 
                      Department of Defense or the Department of 
                      Veterans 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 
                succeeding year'' and inserting ``, 2003, and 2004'';
                    (C) in subparagraph (C)(iv), by striking ``and each 
                succeeding 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:

[[Page 117 STAT. 2178]]

                    ``(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 individuals 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 Hospitals.--
            (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 <<NOTE: 42 USC 1395w-23 note.>> date.--The 
        amendments made by paragraph (1) shall apply to contract years 
        beginning on or after January 1, 2004.

    (f) MedPAC <<NOTE: 42 USC 1395w-23 note.>> Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)) 
        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 
                different areas, including differences in input prices, 
                utilization, 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 <<NOTE: Deadline.>> 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 <<NOTE: Deadline. 42 USC 1395w-21 note.>> 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

[[Page 117 STAT. 2179]]

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 <<NOTE: 42 USC 1395w-21 note.>> Study and Report on 
Clarification of Authority Regarding Disapproval of Unreasonable 
Beneficiary 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 <<NOTE: Deadline.>> 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 Commission considers appropriate.

    (i) Implementation of <<NOTE: 42 USC 1395w-23 note.>> Provisions.--
            (1) Announcement <<NOTE: Deadline.>> of revised medicare 
        advantage payment 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 <<NOTE: Applicability.>> to revised payment 
        rates.--The provisions 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 
                purposes of making payments under section 1853 of the 
                Social Security Act (42 U.S.C. 1395w-23) for January and 
                February 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 
                purposes 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 section 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 estimates 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.

[[Page 117 STAT. 2180]]

            (4) Plans <<NOTE: Deadline.>> 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 administrative 
        or judicial review under section 1869 or section 1878 of the 
        Social Security Act (42 U.S.C. 1395ff and 1395oo), or otherwise 
        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 covered services 
        under the terms of the plan''.

Subtitle C--Offering of Medicare Advantage (MA) Regional Plans; Medicare 
                          Advantage Competition

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

    (a) Offering of MA Regional Plans.--
            (1) In general.--Section 1851(a)(2)(A) <<NOTE: 42 USC 1395w-
        21.>> is amended--
                    (A) by striking ``Coordinated care plans.--
                Coordinated'' 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 <<NOTE: 42 USC 1395w-21 note.>> 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.--

[[Page 117 STAT. 2181]]

            (1) In general.--Section 1859(b) <<NOTE: 42 USC 1395w-28.>>  
        (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 <<NOTE: 42 USC 1395w-21 
        note.>> 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. <<NOTE: 42 USC 1395w-27a.>> (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 Secretary under this paragraph.
                    ``(B) Establishment.--
                          ``(i) 
                      Initial <<NOTE: Deadline.>> 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 
                      determines 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 
                establishing MA regions, the Secretary shall conduct a 
                market survey and analysis, including an examination of 
                current

[[Page 117 STAT. 2182]]

                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 
        differentially 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 administrative 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 subclause (I) of section 1854(b)(1)(C)(ii) 
                pursuant to a rebate under such section that the 
                Secretary determines are

[[Page 117 STAT. 2183]]

                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 
                      target 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 section 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.

[[Page 117 STAT. 2184]]

                    ``(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 beneficiary 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.--
                Information 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 Services 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 transition).
            ``(2) Selection of appropriate state.--In applying paragraph 
        (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

[[Page 117 STAT. 2185]]

        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 available 
        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 
                      Insurance Trust Fund and the Federal Supplementary 
                      Medical Insurance Trust Fund in the proportion 
                      specified in section 1853(f).
                    ``(B) Additional funding from savings.--
                          ``(i) In general.--There shall also be made 
                      available 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 specified 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 
                subparagraph (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 
                      payment 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

[[Page 117 STAT. 2186]]

                      not such a plan offered in each such region in the 
                      previous year. Funding under this clause is only 
                      available 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 available under paragraph (5), 
                                funding under this subparagraph shall be 
                                available for a period determined by the 
                                Secretary.
                                    ``(II) Report.--If the Secretary 
                                determines that funding will be provided 
                                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 
                                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.

[[Page 117 STAT. 2187]]

                          ``(iv) Limitation on availability of plan 
                      retention 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 benchmark 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 succeeding 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 organizations will be offering MA 
                      regional plans in the region in the year involved.

[[Page 117 STAT. 2188]]

                          ``(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 provided 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 
                Secretary 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 payments, 
                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 
                procedures.
            ``(6) Secretary <<NOTE: Deadline.>> 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--

[[Page 117 STAT. 2189]]

                          ``(i) the total amount expended as a result of 
                      the application of this subsection in the previous 
                      year compared 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 subsection 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 
                      limitation 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 
                Centers 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 <<NOTE: Deadline.>> 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 benefits under such a plan;
                          ``(iii) the costs to the medicare program for 
                      payments 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 
                administrative 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 benchmark 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:

[[Page 117 STAT. 2190]]

                    ``(A) Statutory component.--The product of the 
                following:
                          ``(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, 
                      determined under paragraph (4) for the year.
                    ``(B) Plan-bid component.--The product of the 
                following:
                          ``(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, 
                      determined under paragraph (4) for the year.
            ``(3) Statutory region-specific non-drug amount.--For 
        purposes of paragraph (2)(A)(i), the term `statutory region-
        specific 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 percentage.--
                    ``(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.--

[[Page 117 STAT. 2191]]

                          ``(i) In general.--Subject to the succeeding 
                      provisions 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 & Medicaid 
                                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 <<NOTE: Certification.>> general.--For purposes of 
        enabling MA organizations 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

[[Page 117 STAT. 2192]]

                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 
        subsection (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 
        payments 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 succeeding year.
        Payments under this subsection shall be made from the Federal 
        Hospital Insurance Trust Fund.
            ``(4) Essential <<NOTE: Definition.>> 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 Secretary, 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 
                paragraphs (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)'';

[[Page 117 STAT. 2193]]

                          (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 ``payments under this section''; 
                                and
                                    (III) by inserting ``for such 
                                plans'' after ``made under this 
                                section''.
            (2) MA local area defined.--Section 1859(c) <<NOTE: 42 
        USC 1395w-28.>>  (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 
                provided 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 paragraphs (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 Beginning 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 <<NOTE: Deadline.>> 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 
                subsection (b)(1)(C) for a year, the MA organization 
                offering the plan shall submit to the Secretary, in such 
                form and

[[Page 117 STAT. 2194]]

                manner and at such time as the Secretary specifies, 
                information on--
                          ``(i) the manner in which such rebate will be 
                      provided 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 <<NOTE: Guidelines.>> 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 promotes 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 actuarial value of such deductibles, 
                      coinsurance, and copayments, 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.--

[[Page 117 STAT. 2195]]

                          ``(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 
                      Personnel 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 requirements (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 
                      subparagraph (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 available 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

[[Page 117 STAT. 2196]]

                      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 
                      actuarially equivalent level of cost-sharing with 
                      respect to benefits under the original medicare 
                      fee-for-service program 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 actuarial 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 
                subparagraph:
                    ``(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 supplemental 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 benefits which 
                                are not benefits under the original 
                                medicare 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 subparagraph or the actuarial value in 
                      the case of supplemental health care benefits.

[[Page 117 STAT. 2197]]

                          ``(iv) Application of part b premium 
                      reduction.--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 
                ``Premium'';
                    (B) by redesignating subparagraph (C) as 
                subparagraph (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 subparagraph (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 
                beneficiary 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 premium.--
                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 
                attributable under clause (ii)(III) of such subsection 
                to the provision 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),

[[Page 117 STAT. 2198]]

        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 Secretary 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 
                      subparagraph (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 computed 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

[[Page 117 STAT. 2199]]

                      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 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 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 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 
                      subparagraph (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 
        ``Premiums.--
            ``(1) In general.--Each''; and
            (2) by adding at the end the following new paragraphs:
            ``(2) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds transfer 
        mechanism.--In accordance with regulations, 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 premiums 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

[[Page 117 STAT. 2200]]

        of the payment option described in subparagraph (A). The 
        Secretary shall consult with the Commissioner of Social Security 
        and the Secretary of the Treasury regarding methods for 
        allocating 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 
                premium (if any); and
                    ``(C) the MA monthly prescription drug beneficiary 
                premium (if any).''.

    (d) Computation of MA Area-Specific Non-Drug Benchmark.--Section 
1853 (42 U.S.C. 1395w-23) is amended by adding at the end the following 
new subsection:
    ``(j) Computation of 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 
                subparagraph (H); and

[[Page 117 STAT. 2201]]

                    (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 subparagraph is equal to the MA 
                      area-specific non-drug monthly benchmark amount, 
                      adjusted under subparagraph (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 
                      subparagraph is equal to the MA area-specific non-
                      drug monthly benchmark amount, adjusted under 
                      subparagraph (C).
                    ``(C) Demographic adjustment, including adjustment 
                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 substitute for such 
                adjustment factors if such changes will improve the 
                determination of actuarial equivalence.
                    ``(D) Separate payment for federal drug subsidies.--
                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

[[Page 117 STAT. 2202]]

                          ``(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 premium 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 <<NOTE: Deadline.>> 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 
                      capitation rate for each MA payment area for 2005.
                          ``(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 
                      2005.
                    ``(B) For 2006 and subsequent years.--For a year 
                after 2005--
                          ``(i) 
                      Initial <<NOTE: Deadline.>> announcement.--The 
                      Secretary shall determine, and shall announce (in 
                      a manner intended

[[Page 117 STAT. 2203]]

                      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 
                      parties), on a timely basis before the calendar 
                      year concerned, 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 
                      coordinated 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 
                ``paragraph (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 permitted under 
section 1857(i), the MA monthly bid amount submitted

[[Page 117 STAT. 2204]]

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 
                      beginning 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 
        satisfactory 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 provides'';
                    (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), <<NOTE: 42 USC 1395w-23.>>  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

[[Page 117 STAT. 2205]]

            (2) by adding at the end the following new sentence: ``The 
        Secretary may apply the competitive bidding methodology provided 
        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 benefits 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 individuals 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 
                ``information)'';
            (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 
                      subparagraph (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:

[[Page 117 STAT. 2206]]

                    ``(F) Applicable portion defined.--In this 
                paragraph, the term `applicable portion' means, for a 
                fiscal year--
                          ``(i) with respect to MA organizations, the 
                      Secretary'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 substantially 
        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 provided 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 ``benefits 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 deductible.--
                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

[[Page 117 STAT. 2207]]

                      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 <<NOTE: 42 USC 1395w-21 note.>> Date.--The amendments 
made by this subtitle shall apply with respect to plan years beginning 
on or after January 1, 2006.

    (b) Issuance <<NOTE: 42 USC 1395w-21 note.>> 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) <<NOTE: 42 USC 1395w-28.>> Specialized ma plans for 
        special needs individuals.--
                    ``(A) In general.--The term `specialized MA plan for 
                special needs individuals' means an MA plan that 
                exclusively 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 
                      Secretary);
                          ``(ii) is entitled to medical assistance under 
                      a State plan under title XIX; or
                          ``(iii) meets such requirements as the 
                      Secretary may determine would benefit from 
                      enrollment in such

[[Page 117 STAT. 2208]]

                      a specialized MA plan described in subparagraph 
                      (A) for individuals with severe or disabling 
                      chronic conditions.
                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) <<NOTE: 42 USC 1395w-28.>>  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 <<NOTE: 42 USC 1395w-21 note.>> 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 <<NOTE: Deadline. 42 USC 1395w-21 note.>> 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 <<NOTE: 42 USC 1395w-21 note.>> general.--The 
        amendments made by subsections (a), (b), and (c) shall take 
        effect upon the date of the enactment of this Act.
            (2) Deadline <<NOTE: Regulations. 42 USC 1395w-28 
        note.>> 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''.

[[Page 117 STAT. 2209]]

    (c) Effective <<NOTE: 42 USC 1395w-24 note.>> 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 <<NOTE: 42 USC 1395w-22 note.>> date.--The 
        amendments made by this subsection 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 indefinitely.
    ``(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 requirements:
            ``(I) With respect to any portion of the area involved that 
        is within a Metropolitan Statistical Area with a population

[[Page 117 STAT. 2210]]

        of more than 250,000 and counties contiguous to such 
        Metropolitan 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 Omnibus 
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 MEDICAID SERVICES 
            FURNISHED BY NONCONTRACT PROVIDERS.

    (a) Medicare Services.--
            (1) Medicare services furnished by providers of services.--
        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 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage requirement 
                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 physicians 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 noncontract 
                providers of services.--For the provision relating to 
                limitations on balance billing against PACE providers 
                for services covered under this title furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).

[[Page 117 STAT. 2211]]

            ``(4) Reference to related provision for services covered 
        under title xix but not under this title.--For provisions 
        relating to limitations on payments to providers participating 
        under the State plan under title XIX that do not have a contract 
        or other agreement with a PACE provider establishing 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 following new 
        paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage requirement 
                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 physicians 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 noncontract 
                providers of services.--For the provision relating to 
                limitations on balance billing against PACE providers 
                for services covered under title XVIII furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).
            ``(4) Reference to related provision for services covered 
        under this title but not under title xviii.--For provisions 
        relating to limitations on payments to providers participating 
        under the State plan under this title that do not have

[[Page 117 STAT. 2212]]

        a contract or other agreement with a PACE provider establishing 
        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 <<NOTE: 42 USC 1395cc note.>> 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 CENTERS 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 regulations, 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 individual 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 
                      otherwise been provided under subparagraph (A) 
                      (calculated as if `100 percent' were substituted 
                      for `80 percent' in such subparagraph) for such 
                      services if the individual 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 
                qualified 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.--

[[Page 117 STAT. 2213]]

                    (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) <<NOTE: 42 USC 1395w-23.>>  
                is amended by striking ``subsections (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 centers.--
                    ``(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 federally 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 
        semicolon at the end;
            (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new 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 <<NOTE: 42 USC 1320a-7b note.>> 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. <<NOTE: 42 USC 1395ll note.>> INSTITUTE OF MEDICINE EVALUATION 
            AND REPORT ON HEALTH CARE PERFORMANCE MEASURES.

    (a) Evaluation.--
            (1) In <<NOTE: Deadline. Contracts.>> 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

[[Page 117 STAT. 2214]]

        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 
                      performance; 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 matters 
        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 <<NOTE: Deadline.>> 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:

[[Page 117 STAT. 2215]]

               ``comparative cost adjustment (cca) program

    ``Sec. 1860C-1. <<NOTE: 42 USC 1395w-29.>> (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 requirements 
                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 reference 
                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 enrollment 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

[[Page 117 STAT. 2216]]

                    ``(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 subsection (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 
                population of MA eligible individuals.
                    ``(C) One of 4 areas with lowest population 
                density.--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 
                demonstration 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 subparagraph 
                (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.

[[Page 117 STAT. 2217]]

                    ``(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 <<NOTE: Applicability.>> 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 substituted 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 
                following:
                          ``(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 paragraph (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

[[Page 117 STAT. 2218]]

                following products for MA local plans described in 
                subparagraph (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 section 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 
        nationally.
            ``(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

[[Page 117 STAT. 2219]]

                the purpose of risk adjustment for benefits under the 
                original medicare fee-for-service program option for 
                individuals 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 
                determining 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 individuals 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 adjustment 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

[[Page 117 STAT. 2220]]

                          ``(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 
                without 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 calendar 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 Adjustment 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.

[[Page 117 STAT. 2221]]

            ``(2) No <<NOTE: Applicability.>> 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). Subsection (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 
                adjustment effected under sections 1839(h) and 1860C-
                1(f)'' before the period at the end.

    (c) No Change <<NOTE: 42 USC 1395w-29 note.>> 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 Primary 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 
        determined 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 reimbursement to the 
                      appropriate Trust Fund in accordance with the 
                      succeeding provisions of this subsection.''.

    (b) Clarifying Amendments to Conditional Payment Provisions.--
Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as amended by subsection 
(a), is amended--

[[Page 117 STAT. 2222]]

            (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 
                appropriate 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 conditioned 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 
        following: ``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 
        responsible (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 
        ``paragraphs''.

    (d) <<NOTE: 42 USC 1395y note.>> 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).

[[Page 117 STAT. 2223]]

SEC. 302. PAYMENT FOR DURABLE MEDICAL EQUIPMENT; COMPETITIVE ACQUISITION 
            OF CERTAIN ITEMS AND SERVICES.

    (a) Quality Enhancement and Fraud Reduction.--
            (1) Establishment of quality standards and accreditation 
        requirements for durable medical equipment suppliers.--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 subparagraph (D) to be applied by recognized 
                independent accreditation 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) <<NOTE: Deadline.>> 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), 
                notwithstanding section 1865(b), the Secretary shall 
                designate and approve one or more independent 
                accreditation organizations 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 appropriate:
                          ``(i) Covered items (as defined in paragraph 
                      (13)) for which payment may otherwise be made 
                      under this subsection.
                          ``(ii) Prosthetic devices and orthotics and 
                      prosthetics 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 
                representatives of relevant 
                parties. <<NOTE: Publication.>> Such standards shall be 
                applied prospectively and shall be published on the 
                Internet website of the Centers for Medicare & Medicaid 
                Services.''.

[[Page 117 STAT. 2224]]

            (2) Establishment of clinical conditions of coverage 
        standards for items of durable medical equipment.--Section 
        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 covered 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 examination 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) <<NOTE: Effective date.>> Standards for 
                      power wheelchairs.--Effective 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 
                      standards 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 <<NOTE: Contracts.>> 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--

[[Page 117 STAT. 2225]]

                          ``(i) shall be phased in among competitive 
                      acquisition 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 
                appropriate.
            ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                    ``(A) Durable medical equipment and medical 
                supplies.--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 
                services described in section 1842(s)(2)(D), other than 
                parenteral 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 arrangements 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

[[Page 117 STAT. 2226]]

        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 determined 
        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 competition 
        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 
                      standards 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 
                program 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 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.

[[Page 117 STAT. 2227]]

                    ``(B) Term of contracts.--The Secretary shall 
                recompete 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 contract 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 
                subsection (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 acquisition 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.--Payment 
                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 section.
                    ``(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.

[[Page 117 STAT. 2228]]

                    ``(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 thereunder.
                    ``(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 complaints 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 
        Program 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 
                      collection of data for the efficient management of 
                      the program.

[[Page 117 STAT. 2229]]

                          ``(iv) The development of proposals for 
                      efficient interaction among manufacturers, 
                      providers of services, suppliers (as defined in 
                      section 1861(d)), and individuals.
                          ``(v) The establishment of quality standards 
                      under section 1834(a)(20).
                    ``(B) Additional duties.--The Committee shall 
                perform 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 
        Federal Advisory Committee Act (5 U.S.C. App.) shall not apply.
            ``(5) Termination.--The Committee shall terminate on 
        December 31, 2009.

    ``(d) <<NOTE: Deadline.>> 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 Services.--
            ``(1) In general.--The Secretary shall conduct a 
        demonstration 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 
                section 353 of the Public Health Service Act for 
                clinical diagnostic 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) <<NOTE: Deadline.>> 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

[[Page 117 STAT. 2230]]

                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 
                      demonstration project under section 1847(e), the 
                      amount paid shall be equal to 100 percent of such 
                      rate,''.
            (3) <<NOTE: 42 USC 1395w-3 note.>> 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) <<NOTE: Deadline.>> 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 Comptroller 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 
                      subparagraphs:
                    ``(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 recommendations 
                      contained in the report of the Comptroller 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

[[Page 117 STAT. 2231]]

                    ``(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) <<NOTE: Deadline. 42 USC 1395m note.>> 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 
                supplies (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, MEDICAID, 
                      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 
                purposes 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).

[[Page 117 STAT. 2232]]

                    ``(C) Application of update to special payment 
                amount.--The covered item update under paragraph (14) 
                for specified items and supplies for 2006 and each 
                subsequent 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 prosthetics.--
        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 subsection'';
                    (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(F) Application of competitive acquisition; 
                limitation of inherent reasonableness authority.--In the 
                case of covered items furnished on or after January 1, 
                2009, that are included in a competitive acquisition 
                program 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 
                      competitive acquisition program; and
                          ``(ii) the Secretary may use information on 
                      the payment determined under such competitive 
                      acquisition 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)'';

[[Page 117 STAT. 2233]]

                    (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (H)(ii), this subsection''; 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 
                      acquisition 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 paragraph (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) <<NOTE: 42 USC 1395w-3 note.>> Report on Activities of 
Suppliers.--The Inspector General 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. <<NOTE: Deadline.>> 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.--

[[Page 117 STAT. 2234]]

            (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 
                subparagraphs:
                    ``(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 subsection, 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 Secretary 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 Secretary 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) 
                      furnished on or after January 1, 2004, the 
                      Secretary shall establish work relative value 
                      units equal to the work

[[Page 117 STAT. 2235]]

                      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 services; 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 established 
                                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 determined by the Secretary.
                                    ``(III) Application.--This clause 
                                shall not apply with respect to a survey 
                                to which subparagraph (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

[[Page 117 STAT. 2236]]

                      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 processes 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 
                      practice expense relative value units under (and 
                      consistent with) subparagraph (B) for years after 
                      2004, 2005, or 2006, respectively.''.
            (2) Treatment <<NOTE: 42 USC 1395w-4 note.>> of other 
        services currently in the nonphysician 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 determined under such methodology are not 
        affected relative to the practice expense relative value units 
        of services not determined under such methodology, as a result 
        of the amendments made by paragraph (1).
            (3) Payment <<NOTE: 42 USC 1395w-4 note.>> for multiple 
        chemotherapy agents furnished 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 Security 
                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).

[[Page 117 STAT. 2237]]

            (4) Transitional <<NOTE: 42 USC 1395w-4 
        note.>> 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 subparagraph (B) of such fee 
                schedule amount for the services so determined.
                    (B) Applicable percentage.--The applicable 
                percentage specified in this subparagraph for services 
                furnished--
                          (i) during 2004, is 32 percent; and
                          (ii) during 2005, is 3 percent.
            (5) Medpac <<NOTE: 42 USC 1395w-4 note.>> 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 <<NOTE: Deadlines.>> 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 rulemaking 
                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 
                submitted under such subparagraph (C)(i).

[[Page 117 STAT. 2238]]

    (b) Application of Market-Based Payment Systems.--Section 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 
        following:
            ``(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 
        intravenous 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 
        determined 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.

[[Page 117 STAT. 2239]]

    ``(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 information 
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 subparagraph 
(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. <<NOTE: 42 USC 1395w-3a.>> (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 furnished 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 determined 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 
                manufacturer 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,

[[Page 117 STAT. 2240]]

                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 manufacturer to report and 
                methods for counting units as the Secretary determines 
                appropriate to implement this section.
            ``(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 paragraph (2) sold; and
                    ``(B) dividing the sum determined under subparagraph 
                (A) by the sum of the total number of units under 
                subparagraph (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 
                paragraph (3) for all National Drug Codes assigned to 
                such drug or biological product.
                    ``(B) Wholesale acquisition cost (wac).--The 
                wholesale 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 
        calculating the manufacturer's average sales price under this 
        subsection, 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).

[[Page 117 STAT. 2241]]

                    ``(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 
                manufacturer'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 paragraph (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 
                Secretary 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 available.
                    ``(C) Use of contractors; implementation.--The 
                Secretary 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)).

[[Page 117 STAT. 2242]]

                    ``(B) Wholesale acquisition cost.--The term 
                `wholesale 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 bioequivalent, as 
                                determined under subparagraph (F) and as 
                                determined by the Food and Drug 
                                Administration, 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 
                bioequivalent, 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

[[Page 117 STAT. 2243]]

                      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 
                manufacturer 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 
                percentage' 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 subparagraph) 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

[[Page 117 STAT. 2244]]

                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 <<NOTE: Applicability.>> 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 <<NOTE: Definition.>> 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 physicians 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 
                      private 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;

[[Page 117 STAT. 2245]]

            ``(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 <<NOTE: 42 USC 1395w-3a note.>> 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 
                maintenance 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 <<NOTE: Deadline.>> later than 
                January 1, 2006, the Secretary shall submit to Congress 
                a report on the study conducted under paragraph (1), and 
                shall include recommendations on whether such sales to 
                large volume purchasers 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 <<NOTE: 42 USC 1395w-3a note.>> general report 
        on adequacy of reimbursement rate under average sales price 
        methodology.--
                    (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 
                hematology, hematology/oncology, and medical oncology of 
                different 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 General shall 
                conduct an audit of a representative sample of such 
                practices to determine the adequacy of reimbursement 
                under section 1847A of the Social Security Act, as added 
                by paragraph (1).
                    (B) Report.--Not <<NOTE: Deadline.>> later October 
                1, 2005, the Inspector General shall submit to Congress 
                a report on the study conducted under subparagraph (A), 
                and shall include recommendations 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. <<NOTE: 42 USC 1395w-3b.>> 1847B. (a) Implementation of 
Competitive Acquisition.--
            ``(1) Implementation of program.--
                    ``(A) In general.--The Secretary shall establish and 
                implement a competitive acquisition program under 
                which--

[[Page 117 STAT. 2246]]

                          ``(i) competitive acquisition areas are 
                      established for contract award purposes for 
                      acquisition of and payment 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 determines to be appropriate.
                    ``(C) Waiver of certain provisions.--In order to 
                promote competition, in carrying out the program 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 
                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 
                appropriate 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 
                biddable drugs and biologicals which are supplied under 
                the

[[Page 117 STAT. 2247]]

                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 
                                administration 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 <<NOTE: Procedures.>> for purposes 
                of cost-sharing.--The Secretary shall provide a process 
                by which physicians submit information to contractors 
                for purposes of the collection 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 
                contractor 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 Secretary 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 contractor 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 agreements entered into under section 
                      1842(h).
                    ``(B) Information <<NOTE: Internet.>> 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 section in 
                the different competitive acquisition areas.

[[Page 117 STAT. 2248]]

                    ``(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 acquisition 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 competitively 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 situations) 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.

[[Page 117 STAT. 2249]]

                    ``(C) Application of medicare provider ombudsman.--
                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 
                Prescription 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 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify consistent with this section.
                    ``(B) Period of contracts.--A contract under this 
                section 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 Secretary.
                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,

[[Page 117 STAT. 2250]]

                except under circumstances and settings where an 
                individual currently receives a drug or biological in 
                the individual'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 Secretary 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 
                anticipated 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 
        construed 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 
        subparagraph (D) of section 1927(b)(3) shall apply to periods 
        during which a bid is submitted with respect to a competitively 
        biddable drug or biological under this section in the same 
        manner as it applies to information disclosed under such 
        section, except that any reference--

[[Page 117 STAT. 2251]]

                    ``(A) in that subparagraph to a `manufacturer or 
                wholesaler' 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; disclosure 
        of costs.--Each contract awarded shall provide for--
                    ``(A) disclosure to the Secretary the contractor's 
                reasonable, net acquisition costs for periods specified 
                by the Secretary, 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 
        competitively 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 
        individual 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 coinsurance 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.

[[Page 117 STAT. 2252]]

    ``(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 
        biddable 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 subsection 
        (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 <<NOTE: Deadline. 42 USC 1395w-3b 
        note.>> 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 available to physicians, the 
        satisfaction of physicians and of individuals 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 Comptroller 
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 furnishing 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.

[[Page 117 STAT. 2253]]

            ``(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 Secretary) 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 
        previously 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 <<NOTE: 42 USC 1395u note.>> Revised Drug Payments 
and Increases for Drug Administration.--The Secretary shall not 
implement the revisions in payment amounts for drugs and biologicals 
administered by physicians as a result of the amendments made by 
subsection (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 
        previously 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 payment 
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 <<NOTE: 42 USC 1395w-4 note.>> chemotherapy 
        agents, other services currently on the non-physician work pool, 
        and transitional adjustment.--There shall be no administrative 
        or judicial review under section 1869, section 1878, or 
        otherwise, of determinations of payment amounts, methods, or 
        adjustments under paragraphs (2) through (4) of subsection (a).

    (h) Continuation <<NOTE: 42 USC 1395u note.>> of Payment Methodology 
for Radiopharmaceuticals.--Nothing in the amendments made by this 
section shall be construed as changing the payment methodology under

[[Page 117 STAT. 2254]]

part B of title XVIII of the Social Security Act for 
radiopharmaceuticals, including the use by carriers of invoice pricing 
methodology.

    (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 
                subparagraph (I) and inserting ``, and''; and
                    (iii) by adding at the end the following new 
                subparagraph:
            ``(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 section 1847A, the manufacturer's 
                                wholesale acquisition 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)--

[[Page 117 STAT. 2255]]

                          (i) in the heading, by inserting ``and 
                      manufacturer'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 
                      implementation of the payment amount), or to carry 
                      out section 1847B'' after ``this section''.
            (5) Implementation.--The <<NOTE: 42 USC 1395u 
        note.>> provisions of chapter 8 of title 5, United States Code, 
        shall not apply with respect to regulations 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 <<NOTE: 42 USC 1395u note.>> 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. <<NOTE: 42 USC 1395u note.>> EXTENSION OF APPLICATION OF 
            PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND BIOLOGICALS 
            TO OTHER PHYSICIAN SPECIALTIES.

    Notwithstanding section 303(j), the amendments made by section 303 
shall also apply to payments for drugs or biologicals and drug 
administration services furnished by physicians in specialties 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 
                provided under section 1847A for the drug or 
                biological.''.

    (b) GAO <<NOTE: 42 USC 1395l note.>> 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 
        program.
            (2) Report.--Not <<NOTE: Deadline.>> later than 1 year after 
        the date of the enactment of this Act, the Comptroller General 
        shall submit

[[Page 117 STAT. 2256]]

        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 overpayments 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 contingent 
        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 subsection 
(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 intermediary 
        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 proficiency.--
        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 proficiency 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.

[[Page 117 STAT. 2257]]

    (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 prosecuting, if appropriate, allegations of fraud 
or abuse arising from such overpayment.
    (f) Report.--The <<NOTE: Deadline.>> Secretary shall submit to 
Congress a report on the project not later than 6 months after the date 
of its completion. Such reports shall include information on the impact 
of the project on savings to the medicare program and 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. <<NOTE: 42 USC 1395aa note.>> 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 consultation 
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 information 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

[[Page 117 STAT. 2258]]

                      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 
                procedures 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 determines appropriate.
                          (ii) Special consideration for certain 
                      facilities 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 participating 
        State may establish procedures for facilitating the conduct 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 employment 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.--

[[Page 117 STAT. 2259]]

            (1) In general.--The <<NOTE: Contracts.>> 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 criteria 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 participate in the pilot program in 
                      accordance with the following:
                                    (I) At least one participating State 
                                should permit long-term care facilities 
                                or providers to provide 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

[[Page 117 STAT. 2260]]

                                agencies (including temporary employment 
                                agencies) 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 
                                facilities and providers as part of the 
                                pilot program conducted in that State.
                          (iii) Inclusion of states with existing 
                      programs.--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 subsection (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)  <<NOTE: Grants. Contracts.>> 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 
        participating States for long-term care facilities or providers 
        to conduct 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 background 
        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 background 
        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 
        conducted 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

[[Page 117 STAT. 2261]]

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 ``conviction 
        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 
                program 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 
                      section 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

[[Page 117 STAT. 2262]]

                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 requirements 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 
        standardized 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 subsection (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

[[Page 117 STAT. 2263]]

                          (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 
                      paragraph (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 
                      payment rate (determined under paragraph (3)(D)) 
                      for hospitals 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 
                payment rate determined under paragraph (3)(D)(iii) for 
                hospitals 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.''.

[[Page 117 STAT. 2264]]

            (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 
                      subclause:
            ``(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 HOSPITALS 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 determined 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).''.

[[Page 117 STAT. 2265]]

    (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 
                following: ``, or the enactment of section 402(a)(1) of 
                the Medicare 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 
                beginning 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 sentence 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 Modernization 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 
        application of this subclause would result in lower payments to 
        a hospital than would otherwise be made.''.

[[Page 117 STAT. 2266]]

SEC. 404. <<NOTE: 42 USC 1395ww note.>> 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 Secretary 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 explanation 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)  <<NOTE: 42 USC 1395f note.>> 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 
                      ``providers'';
                    (B) by striking ``emergency room physicians who are 
                on-call (as defined by the Secretary)'' and inserting 
                ``physicians, physician assistants, nurse practitioners, 
                and clinical nurse specialists who are on-call (as 
                defined by the Secretary) to provide emergency 
                services''; and
                    (C) by striking ``physicians' services'' and 
                inserting ``services covered under this title''.
            (2)  <<NOTE: 42 USC 1395m note.>> Effective date.--The 
        amendments made by paragraph (1) shall apply with respect to 
        costs incurred for services furnished 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;''.

[[Page 117 STAT. 2267]]

            (2)  <<NOTE: 42 USC 1395g note.>> 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 Security Act, as added by paragraph 
        (1), the Secretary shall develop alternative methods for the 
        timing of such payments.
            (3)  <<NOTE: Effective date. 42 USC 1395g 
        note.>> 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)  <<NOTE: 42 USC 1395m note.>> 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 paragraph (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)  <<NOTE: Applicability. 42 USC 1395i-4 note.>> Effective 
        date.--The amendments made by this subsection 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.--Section 
        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)

[[Page 117 STAT. 2268]]

        or (2) from funds appropriated for fiscal year 2005 and 
        subsequent fiscal years--
                    ``(A) Consultation with the state hospital 
                association 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 
                administrative 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 purposes 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 
                      provisions 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 established 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 hospital for 
                      services furnished in such unit during such 
                      period. Payment to the hospital for services 
                      furnished

[[Page 117 STAT. 2269]]

                      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, respectively, 
described in the matter following clause (v) of section 
1886(d)(1)(B).''.
            (3)  <<NOTE: 42 USC 1395f note.>> Effective date.--The 
        amendments made by this subsection 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)  <<NOTE: Applicability.>> 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 Modernization 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 
                calculated 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 hospital under this section for such 
                discharges (determined without regard to this 
                paragraph).

[[Page 117 STAT. 2270]]

                    ``(B) Applicable percentage increase.--The Secretary 
                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 incremental 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 subsection (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 regardless 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 available.''.
    (b)  <<NOTE: 42 USC 1395ww note.>> 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 Practitioners.--Section 
1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I))

[[Page 117 STAT. 2271]]

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 <<NOTE: 42 USC 1395d 
            note.>> 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 appropriate 
caregiver are provided such care in a facility of 20 or fewer beds which 
offers, within its walls, the full range of services provided by hospice 
programs under section 1861(dd) of the Social Security Act (42 U.S.C. 
1395x(dd)).
    (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 additional 
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 FEDERALLY 
            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)  <<NOTE: 42 USC 1395yy note.>> Effective Date.--The amendments 
made by subsection (a) shall apply to services furnished on or after 
January 1, 2005.

[[Page 117 STAT. 2272]]

SEC. 410A. <<NOTE: 42 USC 1395ww note.>> RURAL COMMUNITY HOSPITAL 
            DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) Demonstration 
Program.--
            (1) In general.--The Secretary shall establish a 
        demonstration 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 
        services (as defined in subsection (f)(2)) to medicare 
        beneficiaries.
            (2) Demonstration areas.--The program shall be conducted 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 demonstration 
        program under this section for a 5-year period.
            (6)  <<NOTE: Deadline.>> 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 
        demonstration program for covered inpatient hospital services 
        furnished 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

[[Page 117 STAT. 2273]]

        (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 demonstration 
        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)  <<NOTE: Deadline.>> 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 
                      services; 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 
                psychiatric 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).

[[Page 117 STAT. 2274]]

             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.

    (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)  <<NOTE: 42 USC 1395l note.>> Effective date.--The 
        amendment made by paragraph (1)(B) shall apply with respect to 
        cost reporting periods beginning 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 hospitals.--
                    ``(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 ADJUSTMENT.

    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.''.

[[Page 117 STAT. 2275]]

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 
        furnished 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 Secretary 
        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 
                      physicians.
                    ``(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 
                      paragraph 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

[[Page 117 STAT. 2276]]

                      of individuals determined under paragraph (2)(B), 
                      an aggregate total of 20 percent of the total of 
                      the individuals 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 
                      individuals determined under such paragraph.
                    ``(B) Periodic revisions.--The Secretary shall 
                periodically 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 available 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 
                administrative or judicial review under section 1869, 
                1878, or otherwise, 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 
        modification 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 
        physician who is identified in the available data as a general 
        practitioner, 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

[[Page 117 STAT. 2277]]

        the Internet website of the Centers for Medicare & Medicaid 
        Services.''.

    (b) Improvement to Medicare Incentive Payment Program.--
            (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 paragraph 
(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)  <<NOTE: 42 USC 1395l note.>> Effective date.--The 
        amendments made by paragraph (1) shall apply to physicians' 
        services furnished on or after January 1, 2005.

    (c)  <<NOTE: 42 USC 1395w-4 note.>> 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 
                adjustment, 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

[[Page 117 STAT. 2278]]

                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)  <<NOTE: Deadline.>> 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 practice 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 
        paragraph (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

[[Page 117 STAT. 2279]]

        in establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional mileage 
        payment 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.--Section 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 services 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 
                      decennial census for the year 2000, the Secretary 
                      shall determine, 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 subparagraph (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

[[Page 117 STAT. 2280]]

                      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 paragraph.
                          ``(v) Judicial review.--There shall be no 
                      administrative or judicial review under section 
                      1869, 1878, or otherwise, respecting the 
                      identification of an area under this 
                      subparagraph.''.
            (2)  <<NOTE: 42 USC 1395m note.>> 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 services.--
                    ``(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 established, after the 
                      application of any increase under paragraphs (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 provide 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)  <<NOTE: 42 USC 1395m note.>> 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)  <<NOTE: Deadlines. 42 USC 1395m note.>> 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 General 
shall submit to Congress a final report on such access and supply.

[[Page 117 STAT. 2281]]

    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 Stat. 
2763A-487) <<NOTE: 42 USC 1395m note.>> 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 AMBULANCE 
            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 
                      requirements established by the Secretary.
                    ``(B) Satisfaction of requirement of medically 
                necessary.--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 reasonably determines or certifies 
                      that the individual's condition 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 
                      protocol that is established by a State or 
                      regional emergency 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 furnishing 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

[[Page 117 STAT. 2282]]

                      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 remuneration (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 ambulance 
                      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)  <<NOTE: 42 USC 1395b-1.>> Effective Date.--The amendments made 
by this subsection shall apply to services furnished on or after January 
1, 2005.

SEC. 416. <<NOTE: 42 USC 1395l-4.>> TREATMENT OF CERTAIN CLINICAL 
            DIAGNOSTIC LABORATORY 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 outpatient 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)  <<NOTE: Applicability.>> 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 <<NOTE: 42 USC 1395b-1 note.>> 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''.

[[Page 117 STAT. 2283]]

SEC. 418. <<NOTE: 42 USC 1395m note.>> REPORT ON DEMONSTRATION PROJECT 
            PERMITTING SKILLED NURSING FACILITIES TO BE ORIGINATING 
            TELEHEALTH SITES; AUTHORITY TO IMPLEMENT.

    (a) Evaluation.--The Secretary, acting through the Administrator of 
the Health Resources and Services Administration in consultation 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)  <<NOTE: Deadline.>> 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 assistant, 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 practitioner 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. <<NOTE: 42 USC 1395fff note.>> ONE-YEAR INCREASE FOR HOME 
            HEALTH SERVICES FURNISHED 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--

[[Page 117 STAT. 2284]]

            (1) shall not apply to episodes and visits ending after such 
        period; and
            (2) shall not be taken into account in calculating the 
        payment 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 
                positions.--
                          ``(i) Programs subject to reduction.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), if a 
                                hospital's reference resident level 
                                (specified in clause (ii)) is less than 
                                the otherwise applicable resident limit 
                                (as defined in subparagraph (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 
                                hospitals.--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 provided 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 programs.--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

[[Page 117 STAT. 2285]]

                                the number of medical residents that 
                                were approved in an application for a 
                                medical residency training program that 
                                was approved by an appropriate 
                                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 application 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 aggregate number of increases in 
                      the otherwise applicable resident limits under 
                      this subparagraph may not exceed the Secretary's 
                      estimate of the aggregate reduction 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 positions 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 
                      residency 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 additional residency positions in a 
                      hospital attributable

[[Page 117 STAT. 2286]]

                      to the increase provided under this subparagraph, 
                      notwithstanding 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 
                      subparagraph shall be construed as permitting the 
                      redistribution 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 without regard to this 
                      paragraph.
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 1869, 
                1878, or otherwise, with respect to determinations made 
                under this paragraph.''.

    (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: <<NOTE: Applicability.>> ``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 subparagraph 
        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) <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: Deadline. 42 USC 1395ww note.>> Report on Extension of 
Applications Under Redistribution 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

[[Page 117 STAT. 2287]]

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) <<NOTE: 42 USC 1320a-7b.>> (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 
        semicolon at the end;
            (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new 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, services, 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)  <<NOTE: 42 USC 1320a-7b note.>> 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 
                consider 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 
                criteria that are consistent with the intent of Congress 
                in enacting the exception established under this 
                section.
            (2)  <<NOTE: Regulations.>> 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).

[[Page 117 STAT. 2288]]

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 
        paragraph:
            ``(5) administer grants, cooperative agreements, and 
        contracts to provide technical assistance and other activities 
        as necessary to support activities related to improving health 
        care in rural areas.''.

SEC. 433. <<NOTE: 42 USC 1395ww note.>> MEDPAC STUDY ON RURAL HOSPITAL 
            PAYMENT ADJUSTMENTS.

    (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)  <<NOTE: Deadlines.>> 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 subsection 
        (a).

SEC. 434. <<NOTE: 42 USC 1395x note.>> 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.--

[[Page 117 STAT. 2289]]

            (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 
        Supplementary Medical Insurance Trust Fund, such sums as are 
        necessary to conduct the demonstration project under this 
        section.
            (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 implemented.

    (e) Three-Year Period.--The Secretary shall conduct the 
demonstration under this section for a 3-year period.
    (f)  <<NOTE: Deadline.>> 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 
administrative action as the Secretary determines appropriate.

    (g) Definitions.--In this section, the terms ``hospital'' and 
``critical access hospital'' have the meanings given such terms in 
subsections (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 
        hospitals 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. <<NOTE: Applicability.>> 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

[[Page 117 STAT. 2290]]

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)  <<NOTE: 42 USC 1395ww note.>> GAO Study and Report on 
Appropriateness of Payments Under the Prospective Payment System for 
Inpatient Hospital 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 subsection (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, kind