Bill summaries are authored by CRS.

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

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 - Title I: Medicare Prescription Drug Benefit (Sec. 101) Amends title XVIII (Medicare) of the Social Security Act (SSA) to add a new part D (Voluntary Prescription Drug Benefit Program). Establishes a new optional Medicare prescription drug benefit program augmenting with a comprehensive, flexible, and permanent voluntary prescription drug benefit program the limited coverage of certain outpatient prescription drugs, biologicals, and vaccines currently covered under the Medicare program under its original fee-for-service component under both Medicare parts A (Hospital Insurance) and B (Supplementary Medical Insurance) and under its managed care, medical savings account (MSA), and private fee-for-service component under Medicare part C (Medicare+Choice).

Provides under this new prescription drug benefit program for offering eligible Medicare beneficiaries, regardless of income or health status, access to more coverage options, options which provide enhanced benefits, with cost-sharing, and additional beneficiary protections and assistance, such as access to negotiated prices, catastrophic coverage limits, and premium subsidies for certain low-income beneficiaries.

Provides for these options to be offered through both: (1) a new Medicare part C Medicare Advantage (MA) program that integrates basic medical coverage with added prescription drug coverage, including coverage through specialized MA plans for special needs individuals; and (2) a new separate, stand-alone Medicare Prescription Drug plan (PDP) program under Medicare part D that relies on private plans to provide coverage and to bear a portion of the financial risk for drug costs.

Makes this new program effective January 1, 2006.

Provides that until this new permanent prescription drug benefit program is effective, the Secretary of Health and Human Services (HHS) shall establish a program to endorse prescription drug discount card programs in order to provide access to prescription drug discounts through prescription drug card sponsors for discount card eligible individuals throughout the United States and to provide for transitional assistance for transitional assistance eligible individuals enrolled in such endorsed programs. Provides that the program shall not apply to covered discount card drugs dispensed after December 31, 2005, and transitional assistance shall be available after such date to the extent the assistance relates to drugs dispensed on or before such date.

Allows beneficiaries entitled to benefits under Medicare part A or enrolled under Medicare part B (eligible beneficiaries) to elect to enroll under new Medicare part D, and: (1) provided that they are not enrolled in an MA plan, keep their current Medicare fee-for-service coverage and receive qualified prescription drug coverage (as described below) through enrollment in Medicare part D in a new PDP that is offered in the geographic area in which the beneficiary resides; or (2) enroll in the new Medicare part C MA program in an MA plan, give up their current Medicare fee-for-service coverage, and receive qualified prescription drug coverage under the plan along with basic and possibly enhanced medical coverage through health maintenance organization (HMO) or revised MSA coverage options under the new MA program established by this Act under Medicare part C (and as otherwise provided under Medicare+Choice under Medicare part C as discussed more fully below under title II (MedicareAdvantage) of this Act).

Provides an exception for MA enrollees: (1) enrolled in MSA plans to receive qualified coverage of prescription drugs through enrollment in a PDP; (2) enrolled in private-fee-for service plans that do not provide qualified prescription drug coverage to receive qualified coverage of prescription drugs through enrollment in PDP plans; and (3) enrolled in an MA prescription drug plan (MA-PD) to receive qualified prescription drug coverage under that plan.

Directs the Secretary to establish a process for the enrollment, disenrollment, termination, and change of enrollment of Medicare part D eligible individuals in prescription drug plans. Establishes an initial enrollment period beginning November 15, 2005 .

Directs the Secretary to conduct activities designed to broadly disseminate information to part D eligible individuals (and prospective part D eligible individuals) regarding the coverage under Medicare part D, including information comparing the plans offered by eligible entities under Medicare part D that are available to eligible beneficiaries in an area.

Divides qualified prescription drug coverage into either a standard coverage benefit package or an alternative prescription drug coverage with at least actuarially equivalent benefits, both with access to negotiated drug prices. Outlines the standard coverage package, which includes, for 2006, a $250 deductible, 25 percent cost-sharing for drug costs between $250 and the initial coverage limit of $2,250, then no coverage; except that the beneficiary shall have access to negotiated prices, regardless of the fact that no benefits may be payable under the coverage, until incurring out-of-pocket costs for covered drugs in a year equal $3,600, with the beneficiary thereafter to pay five percent of the cost of a prescription, or a copayment of $2 for a generic drug and $5 for any other drug, whichever is greater. Includes as negotiated prices all discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations. Increases these amounts in future years by the annual percentage increase in average per capita aggregate expenditures for covered drugs for the year ending the previous July.

Includes among the out-of-pocket costs counting toward the annual $3,600 limit any costs paid by the part D eligible individual (or by another person such as a family member) under the Medicaid program or under a State pharmaceutical assistance program for which the individual (or other person) is not reimbursed.

Allows a PDP or an MA plan to provide a different prescription drug benefit design from the standard prescription drug coverage as long as the Administrator of the Medicare Benefits Administration approves of such benefit design.

Directs the Secretary to ensure that each part D eligible individual has available a choice of enrollment in at least two qualifying plans in the area in which the individual resides, at least one of which is a prescription drug plan. Provides that in 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.

Establishes beneficiary protection requirements for qualified prescription drug plans, such as requiring each PDP sponsor offering a prescription drug plan to: (1) have a mechanism for providing specific information on a timely basis to enrollees upon request; (2) have in place with respect to covered part D drugs a cost-effective drug utilization management program and a medication therapy management program; and (3) provide that each pharmacy that dispenses 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.

Directs the Secretary to establish, and allows the Secretary to revise PDP regions in a manner that is consistent with the requirements below for the establishment and revision of MA regions, and to the extent practicable PDP regions shall be the same as MA regions. Requires a PDP sponsor to submit to the Secretary bid and other described information with respect to each prescription drug plan it offers for review by the Secretary for the purpose of conducting negotiations concerning the terms and conditions of the proposed bid submitted and other terms and conditions of a proposed plan in order for the Secretary to approve or disapprove the plan. Provides that in order to promote competition under new Medicare part D and in carrying out such part, the Secretary may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponosors and may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.

Establishes organizational requirements for PDP sponsors, such as licenses, and requires that they enter into a contract with the Secretary to be eligible to receive payments.

Provides for premium and cost-sharing subsidies for low-income subsidy-eligible individuals.

Provides: (1) for the establishment of risk corridors for each PDP that determines the amount of risk that the PDP shall be exposed to for drug spending, and the resultant adjustment in payment attributable to this risk; and (2) that 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. Prohibits adjustment in payments made by reason of this paragraph from affecting the monthly beneficiary premium or the MA monthly prescription drug beneficiary premium.

Creates within the Federal Supplementary Medical Insurance Trust Fund the Medicare Prescription Drug Account for payments for low-income subsidy payments, subsidy payments, payments to qualified retiree prescription drug plans, and administrative expenses. Authorizes appropriations. Requires transfers to be made to the Medicaid account for increased administrative costs. Requires amounts withheld for late penalties to be deposited into the Fund. Requires States to make payments to the Account for dual eligibles as provided for under Medicaid.

Directs the Secretary to establish requirements for PDPs to ensure the effective coordination between a part D plan and a State Pharmaceutical Assistance Program with respect to payment of premiums and coverage and payment for supplemental prescription drug benefits for part D eligible individuals enrolled under both types of plans. Requires the Secretary to apply such coordination requirements to described Rx plans, which include Medicaid programs and group health plans and the Federal Employees Health Benefit Program (FEHBP), in the same manner as such requirements apply to a State Pharmaceutical Assistance Program.

Requires the prescription drug discount program and the transitional assistance program to be implemented by the Secretary so that interim prescription drug discount cards and transitional assistance are first available by not later than six months after the enactment of this Act in 2004 and 2005 until coverage under the new part D program becomes effective on January 1, 2006. Requires each prescription drug card sponsor that offers an endorsed discount card program to provide each discount card eligible individual entitled to benefits, or enrolled, under Medicare part A (Hospital Insurance) or part B (Supplementary Medical Insurance) with access to negotiated prices and savings on prescription drugs through enrollment in an endorsed discount card program.

Allows card sponsors to charge annual enrollment fees, not to exceed $30. Requires the fee to be uniform for all discount eligible individuals enrolled in the program. Requires a prescription drug card sponsor offering an endorsed discount card program to 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.

Provides that a discount card eligible individual is an individual whose income is not more than 135 percent of the poverty line and who is entitled to have payment made of any annual enrollment fee and to have payment made, up to $600 in 2004, under such endorsed program of 90 percent of the costs incurred for covered discount card drugs.

Creates within the Federal Supplementary Medical Insurance Trust Fund the Transitional Assistance Account for payments for transitional assistance. Makes necessary appropriations.

(Sec. 103) Establishes certain requirements for States as a condition of receiving Federal Medicaid assistance, such as requiring States to provide the Secretary with Medicaid eligibility information necessary to carry out transitional prescription drug assistance verification.

Provides for: (1) Federal phase-in of the costs of premiums and cost-sharing and cost-sharing subsidies for dually eligible individuals; and (2) coordination of Medicaid with Medicare prescription drug benefits to provide that Medicare is the primary payer for covered drugs for dual eligibles.

Exempts prices negotiated from manufacturers for discount card drugs under an endorsement card program and prices negotiated by a PDP under part D, an MA-PD plan, or a qualified retiree prescription plan from the calculation of Medicaid "best price."

Extends the Qualifying-1 (Q-1) program through September 30, 2004, and expands outreach requirements for the Commissioner of Social Security to include outreach activities for transitional assistance and low-income subsidy individuals.

(Sec. 104) Prohibits, effective January 1, 2006, the selling, issuance, or renewal of Medigap Rx policies for part D enrollees, but permits the renewal of a Medigap Rx policy that was issued before January 1, 2006. Permits persons enrolling under part D during the initial enrollment period while covered under a Medigap Rx policy to enroll in a Medigap policy without prescription drug coverage or to continue the policy in effect as modified to exclude drugs. Provides that after the end of such period the individual may continue the policy in effect subject to such modification.

Guarantees issuance of a substitute Medigap policy for persons, enrolling in part D during the initial part D enrollment period, who at the time of such enrollment were enrolled in and terminated enrollment in a Medigap policy H, I, or J or a pre-standard policy that included drug coverage. Guarantees the enrollment for any policies A, B, C, and F within the same carrier of issue. Prevents the issuer from discriminating in the pricing of such policy on the basis of such individual's health status, claims experience, receipt of health care or medical condition. Prohibits the issuer from imposing an exclusion of benefits based on a pre-existing condition under such policy. Provides that the guarantee applies for enrollments occurring in the new Medigap plan within 63 days of termination of enrollment in a Medigap plan H, I, or J.

Directs the Secretary to request the National Association of Insurance Commissioners to review and revise standards for benefit packages taking into account the changes in benefits resulting from the enactment of this Act and to otherwise update standards to reflect other changes in law included in such Act.

(Sec. 105) Includes additional provisions related to Medicare prescription drug discount cards and transitional assistance program, such as the exclusion of program costs from the calculation of the part B premium. Applies Medicare confidentiality provisions to drug pricing data.

(Sec. 106) Establishes a State Pharmaceutical Assistance Transition Commission to develop a proposal for addressing the unique transitional issues facing State pharmaceutical assistance programs as a result of the enactment of this Act.

(Sec. 107) Requires the Secretary to study and report to Congress on variations in per capita spending for covered part D drugs among PDP regions to determine the amount of such variation that is attributable to price variations and the differences in per capita utilization that is not taken into account in the health status risk adjustment made to PDP bids.

Requires the Secretary to conduct a review of the current standards of practice, clinical services, and other service requirements generally used for pharmacy services in long-term care settings and evaluate the impact of those standards with respect to patient safety, reduction of medication errors and quality of care.

Directs the Secretary to enter into a contract with the Institutes of Medicine of the National Academy of Science to carry out a comprehensive study for a report to Congress on drug safety and quality issues in order to provide a blueprint for a system-wide change. Authorizes appropriations.

Directs the Secretary to provide for a study and report to Congress 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.

Requires the Comptroller General to conduct a study for a report to the Congress on the extent to which drug utilization and access to covered part D drugs by subsidy eligible individuals differs from such utilization and access for individuals who would qualify as such subsidy eligible individuals except for application of the assets test.

Directs the Secretary to undertake a study for a report to Congress of how to make prescription pharmaceutical information, including drug labels and usage instructions, accessible to blind and visually impaired individuals.

(Sec. 108) Authorizes the Secretary to make grants to physicians for the purpose of assisting them to implement electronic prescription drug programs that comply with appropriate standards. Authorizes appropriations.

(Sec. 109) Expands the work of quality improvement organizations to include part C and part D. Requires such organizations to offer providers, practitioners, MA organizations, and PDP sponsors quality improvement assistance pertaining to prescription drug therapy.

Directs the Secretary to request the Institute of Medicine of the National Academy of Sciences to conduct an evaluation of the peer review program under SSA title XI.

(Sec. 110) Directs the Federal Trade Commission to conduct a study for a report to Congress on differences in payment amounts for pharmacy services provided to enrollees in group health plans that utilize pharmacy benefit managers.

(Sec. 111) Directs the Comptroller General of the United States to conduct an initial and final study for a report to Congress on trends in employment-based retiree health coverage, including coverage under FEHBP, and the options and incentives available under this Act which may have an effect on the voluntary provision of such coverage.

Title II: Medicare Advantage - Subtitle A: Implementation of Medicare Advantage Program - (Sec. 201) Amends SSA title XVIII part C (Medicare+Choice) to replace the current Medicare+Choice program with the Medicare Advantage (MA) program.

Subtitle B: Immediate Improvements - (Sec. 211) Revises the payment system, requiring all plans to be paid at a rate at least as high as the rate for traditional Medicare fee-for-service plans. Makes change in budget neutrality for blend. Increases minimum percentage increase to national growth rate. Includes costs of Department of Defense and Department of Veterans Affairs military facility services to Medicare-eligible beneficiaries in calculation of payment rates.

Directs the Medicare Payment Advisory Commission (MEDPAC) to conduct a study that assesses the method used for determining the adjusted average per capita cost (AAPCC).

Requires the Secretary to submit to Congress a report that describes the impact of additional financing provided under this Act and other Acts on the availability on Medicare Advantage plans in different areas and its impact on lowering premiums and increasing benefits under such plans.

Requires a Medicare Payment Advisory Commission (MEDPAC) study and report to Congress with respect to authority regarding disapproval of unreasonable beneficiary cost-sharing.

Subtitle C: Offering of Medicare Advantage (MA) Regional Plans; Medicare Advantage Competition - (Sec. 221) Directs the Secretary to establish regional plans to encourage private plans to serve Medicare beneficiaries in from ten to 50 regions, including in rural areas, within the 50 States and the District of Columbia beginning not later than January 1, 2005.

Prohibits the Secretary from offering a local preferred provider organization plan under Medicare part C 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. Includes risk corridors for plans during the first two years of the program in 2006 and 2007; a stabilization fund to encourage plan entry and limit plan withdrawals; a blended benchmark that will allow plan bids to influence the benchmark amount; and network adequacy stabilization payments to assist plans in forming adequate networks, particularly in rural areas.

(Sec. 222) Provides that beginning in 2006, each MA organization shall submit to the Secretary for each MA plan for the service area in which it intends to be offered in the following year the monthly aggregate bid amount for the provision of all items and services under the plan for the type of plan and year involved.

Requires this monthly bid amount, with respect to which the Secretary has authority to negotiate, to be compared against respective benchmark amounts for MA local and MA regional plans, with plans that submit bids below the benchmark to be paid their bids, plus 75 percent of the difference between the benchmark and the bid which must be returned to beneficiaries in the form of additional benefits or reduced premiums. Provides that for plans that bid above the benchmark the government will pay the benchmark amount, and the beneficiary will pay the difference between the benchmark and the bid amount as a premium.

Requires the MA plan to provide an enrollee a monthly rebate equal to 75 percent of any average per capita savings as applicable to the plan and year involved. Allows the beneficiary rebate to be credited toward the provision of supplemental health care benefits, the prescription drug premium, or the Medicare part B premium. Requires the plan to disclose to the Secretary information on the form and amount of the rebate or the actuarial value in the case of supplemental health care benefits. Provides that for MA plans providing rebates the MA monthly basic beneficiary premium will be zero.

Provides that: (1) for MA plans with bids above the applicable benchmark, the MA monthly basic beneficiary premium will equal the amount by which the bid exceeds the benchmark; (2) the MA monthly prescription drug beneficiary premium is the base beneficiary premium less the amount of rebate credited toward such amount; and (3) the MA monthly supplemental beneficiary premium means the portion of the aggregate monthly bid amount for the year that is attributable to the provision of supplemental health benefits, less the amount of rebate credited toward such portion.

Allows enrollees to have their MA premiums deducted directly from their social security benefits, through an electronic funds transfer, or such other means as specified by the Secretary. Requires all premium payments withheld to be credited to the appropriate Trust Fund (or Account therof), as specified by the Secretary, and paid to the MA organization involved.

Subtitle D: Additional Reforms - (Sec. 231) Allows specialized MA plans for special needs individuals to be any type of coordinated care plan. Designates two specific segments of the Medicare population as special needs beneficiaries, but also provides the Secretary the authority to designate other chronically ill or disabled beneficiaries as special needs beneficiaries. Permits certain restriction on enrollment for specialized MA plans for special needs individuals. Provides authority to designate other plans as specialized MA plans.

(Sec. 232) Establishes that the MA program is a Federal program operated under Federal rules. Provides that State laws do not apply except State licensing laws or State laws relating to plan solvency.

(Sec. 233) Makes the Medicare Medical Savings Account (MSA) demonstration program a permanent program option and eliminates the capacity limit and the deadline for enrollment. Provides that non-contract providers furnishing services to enrollees of MSAs will be subject to the same balanced billing limitations as non-contract providers furnishing services to enrolleees of coordinated care plans. Eliminates requirements for the Secretary to submit to Congress periodic reports on the numbers of individuals enrolled in such plans and on the evaluation being conducted.

(Sec. 234) Allows a reasonable cost reimbursement contract to operate indefinitely unless two other plans of the same type enter the cost contract's service area. Requires these two other plans to meet the following minimum enrollment requirements: (1) at least 5,000 enrollees for the portion of the area that is within a metropolitan statistical area having more than 250,000 people and counties contiguous to such an area; and (2) at least 1,500 enrollees for any other portion of such area.

(Sec. 235) Amends the Consolidated Omnibus Budget Reconciliation Act of 1985 to extend Municipal Health Services Demonstration projects through December 31, 2006, for beneficiaries who reside in the city in which the project is operated.

(Sec. 236) Amends SSA title XVIII to provide that protections against balance billing apply to PACE providers and beneficiaries enrolled with such PACE providers in the same manner as such protections apply to any individual enrolled with a Medicare +Choice organization under part C or with an eligible organization.

Provides that MA provisions relating to limitations on balance billing against MA organizations for noncontract physicians and other entities with respect to services covered under Medicare 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 provisions apply to MA organizations, individuals enrolled with such organizations, and physicians and other entities referred to under such provisions.

Amends SSA title XIX (Medicaid) to provide that, with respect to services covered under the State plan but not under Medicare 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, 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.

(Sec. 237) Provides that Federally Qualified Heatlh Centers (FQHCs) will receive a wrap-around payment for the reasonable costs of care provided to Medicare managed care patients served at such centers. Raises reimbursements to FQHCs in order that when they are combined with MA payments and cost-sharing payments from beneficiaries they equal 100 percent of the reasonable costs of providing such services. Extends the safe harbor to include any remuneration between a FQHC (or entity controlled by an FQHC) and an MA organization.

(Sec. 238) Requires the Secretary to enter into an arrangement under which the Institute of Medicine of the National Academy of Sciences shall conduct an evaluation (for the Secretary and Congress) 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.

Subtitle E: Comparative Cost Adjustment (CCA) Program - (Sec. 241) Directs the Secretary to establish a program for the application of comparative cost adjustment in CCA areas, to begin January 1, 2010, and last six years, and to test whether direct competition between private plans and the original Medicare fee-for-service program will enhance competition in Medicare.

Title III: Combatting Waste, Fraud, and Abuse - (Sec. 301) Amends SSA title XVIII to allow the Secretary to make a conditional Medicare payment if a primary plan has not made or cannot reasonably be expected to make prompt payment. Requires the payment to be contingent on reimbursement by the primary plan to the appropriate Medicare trust fund. Requires a primary plan as well as an entity that receives payment from a primary plan to reimburse the Medicare Trust Funds for any payment made by the Secretary if the primary plan was obligated to make payment. Makes other changes with regard to Medicare as a secondary payer to address the Secretary's authority to recover payment from any and all responsible entities and to bring action, including the collection of double damages, to recover payment under the Medicare secondary payer provisions.

(Sec. 302) Directs the Secretary to establish and implement quality standards for suppliers of items and services of durable medical equipment, prosthetics and orthotics, and certain other items and services. Requires the Secretary to establish standards for clinical conditions for payment for items of durable medical equipment.

Replaces the current demonstration projects for competitive acquisition of items and services with a permanent program requiring the Secretary to establish and implement programs under which competitive acquisition areas are established throughout the United States for contract award purposes for the furnishing of competitively priced described items and services (including durable medical equipment and medical supplies) for which payment is made under Medicare part B. Allows such areas to differ for different items and services.Allows the Secretary to exempt from such programs 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 items and services for which the application of competitive acquisition is not likely to result in significant savings.Requires payment under Medicare part B for competitively priced items and services to be based on bids submitted and accepted for such items and services, and based on such bids the Secretary shall determine a single payment amount for each item or service in each competitive acquisition area. Requires Medicare payment to be equal to 80 percent of the payment amount determined, with beneficiaries paying the remaining 20 percent (after meeting the part B deductible).

Directs the Secretary to conduct a demonstration project on the application of competitive acquisition to clinical diagnostic laboratory tests.

Requires the Comptroller General to conduct a study for a report to Congress on the impact of competitive acquisition of durable medical equipment on suppliers and manufacturers of such equipment and on patients.

Provides that for durable medical equipment, prosthetic devices, prosthetics and orthotics, the update will be 0 points in 2004 through 2008, and that after 2008 for those items not included in competitive bidding the update will be the consumer price index.

Provides that for 2005 the payment amount for certain items, oxygen and oxygen equipment, standard wheelchairs, nebulizers, diabetic lancets and testing strips, hospital beds and air mattresses, will be reduced.

Provides that for prosthetic devices and orthotics and prosthetics in 2004, 2005, and 2006, the update will be 0 percentage points and for a subsequent year is equal to the percentage increase in the consumer price index for all urban customers for the 12-month period ending in June of the previous year.

Directs the Inspector General of the Department of Health and Human Services to conduct a study for a report to Congress 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 Medicare are soliciting physicians to prescribe certain brands or modes of delivery of covered items based on profitability.

(Sec. 303) Amends SSA title XVIII to: (1) require the Secretary, beginning in 2004, to make adjustments in practice expense relative value units for certain drug administration services when establishing the physician fee schedule; (2) require the Secretary to use the survey data submitted to the Secretary as of January 1, 2003, by a certain physician speciality organization; and (3) require the Secretary, beginning in 2005, to use supplemental survey data to adjust practice expense relative value units for certain drug administration services in the physician fee schedule if that supplemental survey data includes information on the expenses associated with administering drugs and biologicals the administration of drugs and biologicals, the survey meets criteria for acceptance, and the survey is submitted by March 1, 2004, for 2005, or March 1, 2005, for 2006. (States that this latter provision shall apply only to a speciality that receives 40 percent or more of its Medicare payments in 2002 from drugs and biologicals and shall not apply with respect to the survey submitted by a certain physician speciality organization.) Exempts the adjustments in practical expense relative value units for certain drug administration services from the budget neutrality requirements in 2004.

Requires the Secretary to: (1) promptly evaluate existing drug administration codes for physicians' services to ensure accurate reporting and billing for such services, taking into account levels of complexity of the administration and resource consumption; (2) make adjustments to the nonphysician work pool methodology for the determination of practice expense relative value units under the physician fee schedule so that 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; and (3) review and appropriately modify Medicare's payment policy in effect on October 1, 2003, for the administration of more than one drug or biological to an individual on a single day through the push technique. Makes the increase in expenditures resulting from this provision exempt from the budget-neutrality requirement in 2004.

Requires a transitional adjustment or additional payment for services furnished from January 1, 2004, through December 31, 2005, to be made for drug administration services. Requires the part B payment to be made to the physician and equal a percentage of the payment otherwise made.

Directs the MEDPAC to review the payment changes made under this section insofar as they affect payments under Medicare part B for items and services furnished by oncologists and for drug administration services furnished by other specialists. Requires MEDPAC to submit a report to the Secretary and Congress and for the Secretary to make appropriate payment adjustments on the basis of such report.

Provides that the following drugs and biologicals are to be paid at 95 percent of the average wholesale price (AWP): (1) a drug or biological furnished before January 1, 2004; (2) blood clotting factors furnished during 2004; (3) a drug or biological furnished during 2004 that was not available for part B payment as of April 1, 2003; (3) pneumoccal influenza and hepatitis B vaccines furnished on or after January 1, 2004; and (4) a drug or biological furnished during 2004 in connection with the furnishing of renal dialysis services if separately billed by renal dialysis facilities. Provides in general that payments for other drugs furnished in 2004 will equal 85 percent of the AWP (determined as of April 1, 2003). Provides that, beginning in 2005, drugs or biologicals, except for pneumococcal, influenza, and hepatitis B vaccines and those associated with certain renal dialysis services, will be paid using either the average sales price methodology or through the competitive acquisition program. Provides that infusion drugs furnished through covered durable medical equipment starting January 1, 2004, will be paid at 95 percent of the AWP in effect on October 1, 2003, and that those infusion drugs which may be furnished in a competitive area starting January 1, 2007, will be paid at the competitive price. Provides that intravenous immune globulin will be paid at 95 percent of the AWP in 2004 and paid according to the average sales price method in 2005.

Authorizes the Secretary to substitute a different percent of the April 1, 2003 AWP, but not less than 80 percent.

Establishes the use of the average sales price methodology for payment for drugs and biologicals (except for pneumococcal, influenza, and hepatitis B vaccines and those associated with certain renal dialysis services) that are furnished on or after January 1, 2005. Creates an exception to this methodology in the case of a physician who elects to participate in the newly established competition acquisition program.

Directs the Inspector General of the Department of Health and Human Services to conduct studies to determine the widely available market prices of drugs and biologicals.

Directs the Secretary to conduct a study for a report to Congress on sales of drugs and biologicals to large volume purchasers 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 investors.

Directs the Inspector General to conduct a study for a report to Congress on adequacy of reimbursement rate under average sales price methodology.

Directs the Secretary to establish and implement a competitive acquisition program to acquire and pay for competitively biddable drugs and biologicals through the establishment of competitive acquisition areas for the award of contracts. Gives each physician the opportunity annually to elect to obtain drugs and biologicals under the program, rather than the program above using average sales methodology. Directs the Secretary to begin to phase-in the program beginning in 2006.

(Sec. 304) Makes the amendments applicable above applicable 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) Amends SSA title XVIII to provide that in the case of inhalation drugs or biologicals furnished through covered durable medical equipment that are furnished in 2004, the payment amount will be at 85 percent of AWP, and in 2005 and subsequent years, the payment amount will be the amount provided under the average sales price methodology.

Directs the Comptroller General to conduct a study to examine the adequacy of current reimbursements for inhalation therapy under the Medicare program for a report to Congress.

(Sec. 306) Requires the Secretary to conduct a demonstration project to demonstrate the use of recovery audit contractors under the Medicare Integrity Program in identifying underpayments and overpayments and recoupoing overpayments under the Medicare program for services for which payment is made under Medicare part A or part B. Requires a report to Congress on the demonstration program.

(Sec. 307) Directs the Secretary to 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. Makes necessary appropriations.

Title IV: Rural Provisions - Subtitle A: Provisions Relating to Part A Only - (Sec. 401) Amends SSA title XVIII part A to require Medicare, for discharges during a fiscal year beginning with FY 2004, to direct the Secretary to 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 for hospitals located in a large urban area (or, beginning with FY 2005, for all hospitals in the previous year) increased by the applicable percentage increase. Directs the Secretary to compute, for discharges occuring in a fiscal year beginning with 2004, an average standardized amount for hospitals located in any area of Puerto Rico that is equal to the average standardized amount computed for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased by the applicable percentage increase for the year involved.

(Sec. 402) Provides that for discharges after April 1, 2004, a hospital that is not a large urban hospital that qualifies for a disproportionate share (DSH) adjustment will receive its DSH payments using the current DSH adjustment formula for large urban hospitals, subject to a limit. Caps the DSH adjustment formula at 12 percent for any of these hospitals except rural referral centers.

(Sec. 403) Provides that for discharges on or after October 1, 2004, the Secretary is required to decrease the labor-related share to 62 percent of the standardized amount when such change results in higher total payments to the hospital. Provides that for discharges occurring on or after October 1, 2004, the Secretary is also required to decrease the labor-related share to 62 percent of the standardized amount for hospitals in Puerto Rico when such change results in higher total payments to the hospital.

(Sec. 404) Directs the Secretary, after revising the market basket weights to reflect the most current data, to 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 five years. Requires the Secretary to include in the publication of the final rule for payment for inpatient hospital services for FY 2006, an explanation of the reasons for, and options considered, in determining such frequency.

(Sec. 405) Reimburses inpatient, outpatient, and covered skilled nursing facility services provided by a critical access hospital (CAH) at 101 percent of reasonable costs of services furnished to Medicare beneficiaries.

Expands reimbursement of on-call emergency room providers to include physician's assistants, nurse practitioners, and clinical nurse specialists for the costs associated with covered Medicare services provided on or after January 1, 2005.

Allows an eligible CAH to be able to receive payments made on a periodic interim payment (PIP) basis for its inpatient services. Requires the Secretary to develop alternative methods for the timing of PIP payments to the CAHs.

Prohibits the Secretary from requiring that all physicians or practitioners providing services in a CAH assign their billing rights to the entity in order for the CAH to be paid on the basis of 115 percent of the fee schedule for any individual physician or practitioner who did not assign billing rights to the CAH. Prohibits a CAH from receiving payment based on 115 percent of the fee schedule for any individual physician or practitioner who did not assign billing rights to the CAH.

Allows a CAH to operate up to 25 beds while deleting the requirement that only 15 of the 25 beds be used for acute care at any time.

Establishes an authorization to award rural hospital flexibility grants at $35 million each year from FY 2005 through FY 2008 and in subsequent years requires a State to consult with the hospital association and rural hospitals in the State on the most appropriate way to use such funds. Prohibits a State from spending more than the lesser of 15 percent of the grant amount for administrative expenses or the State's federally negotiated indirect rate for administering the grant. Provides that in FY 2005 up to five percent of the total amount appropriated for grants will be available to the Health Resources and Services Administration for administering such grants.

Permits a CAH to establish a distinct part psychiatric or rehabilitation unit that meets the applicable requirements that would otherwise apply to the distinct part if the distinct part were established by a "subsection (d) hospital." Limits the total number of beds that may be established for a distinct part unit to no more than ten. Provides that if a distinct part unit does not meet the applicable requirements during a cost reporting period then no Medicare payment will be made to the CAH for services furnished in such unit during such period. Requires Medicare payments to resume only after the CAH demonstrates that the requirements have been met. Requires Medicare payments for services provided in the distinct part units to equal the amount of the payments that would otherwise be made on a prospective payment basis to distinct part units of a CAH.

Allows certain milage standards to be waived in the case of a facility that was designated as a CAH before January 1, 2006 and was certified by the State as being a necessary provider of health care services.

(Sec. 406) Requires the Secretary to provide for an additional payment amount to each low-volume hospital for discharges occurring during a fiscal year beginning with FY 2005.

(Sec. 407) Provides that in no case will a hospital be denied treatment as a sole community hospital or payment 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 from at least one applicable base cost reporting period is available.

(Sec. 408) Expands the definition of attending physician in hospice to include a nurse practitioner.

(Sec. 409) Directs the Secretary to conduct a demonstration project for the delivery of hospice care to Medicare beneficiaries in rural areas. Provides that 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.

(Sec. 410) Excludes certain rural health clinic and Federally-qualified health center services from the prospective payment system for skilled nursing facilities.

(Sec. 410A) Directs the Secretary to establish a demonstration program to test the feasibility and advisability of the establishment of rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries.

Subtitle B: Provisions Relating to Part B Only - (Sec. 411) Extends until January 1, 2006 the hold harmless provisions governing hospital outpatient department (OPD) reimbursement for small rural hospitals and sole community hospitals.

Requires the Secretary to conduct a study to determine if the costs incurred by hospitals located in rural areas by ambulatory payment classification groups exceed those costs incurred by hospitals located in urban areas. Provides that if appropriate the Secretary is required to provide for a payment adjustment to reflect the higher costs of rural providers by January 1, 2006.

(Sec. 412) Directs the Secretary to increase the work geographic index to 1.00 for any locality for which such work geographic index is less than 1.00 for services furnished on or after January 1, 2004, and before January 1, 2007.

(Sec. 413) Establishes a new five percent incentive payment program designed to reward both primary care and specialist care physicians for furnishing physicians' services on or after January 1, 2005, and before January 1, 2008 in physician scarity areas.

Directs the Secretary to pay the current law ten percent Health Professional Shortage Area (HPSA) incentive payment for services furnished in full county primary care geographic area HPSAs automatically rather than having the physician identify the health professional shortage area involved.

Directs the Comptroller General to conduct a study for a report to Congress on the differences in payment amounts under the Medicare physician fee schedule for physicians' services in different geographic areas.

(Sec. 414) Revises payment for ambulance services to provide for, when phasing in the application of the payment rates under the fee schedule, for each level of ground service furnished in a year, for the portion of the payment amount that is based on the fee schedule to be the greater of the amount determined under such national fee schedule or a blended rate of the national fee schedule and the regional fee schedule for the region involved, whichever resulted in a larger payment, with the blended rate to be based 100 percent on the national fee schedule.

Requires the Secretary to establish a regional fee schedule for each of the nine census divisions. Provides for adjustment in payment for certain long trips. Directs the Secretary to provide for a percentage increase in the base rate of the fee schedule for ground ambulance services furnished on or after July 1, 2004, and before January 1, 2010 that originate in a qualified rural area. Increases by two percent the payments for ground ambulance services orginating in a rural area or a rural census tract for services furnished on or after July 1, 2004, and before January 1, 2007. Provides that the fee schedule for ambulances in other areas will by increased by one percent. Provides that these increased payments will not affect Medicare payments for covered ambulance services after 2007.

Requires the Comptroller General to submit to Congress a 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.

(Sec. 415) Provides that the regulations governing the use of ambulance services will provide that, to the extent that any ambulance service (whether ground or air) may be covered, that a rural air ambulance service will be reimbursed at the air ambulance rate if: (1) the air ambulance service 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 (2) the air ambulance service complies with the equipment and crew requirements established by the Secretary.

(Sec. 416) Provides that hospitals with fewer than 50 beds in qualified rural areas will receive 100 percent reasonable cost reimbursement for clinical diagnostic laboratory tests covered under Medicare part B that are provided as outpatient hospital services during a cost reporting period beginning during the two year period beginning on July 1, 2004.

(Sec. 417) Amends the Balanced Budget Act of 1997 to extend the telemedicine demonstration project by 4 years and to increase total funding for the project.

(Sec. 418) Directs the Secretary to evaluate demonstration projects conducted by the Secretary under which skilled nursing facilities are treated as originating sites for telehealth services for a report to Congress.

Subtitle C: Provisions Relating to Parts A and B - (Sec. 421) Provides that with respect to episodes and visits on or after April 1, 2004, and before April 1, 2005, in the case of home health services furnished in a rural area, the Secretary is required to increase the payment amount otherwise made for such services by five percent. Prevents such temporary additional payment increase from being used in calculating future home health payment amounts.

(Sec. 422) Provides that a teaching hospital's total number of Medicare-reimbursed resident positions will be reduced for cost reporting periods starting July 1, 2005, if its reference resident level is less than its applicable resident limit. Exempts rural rural hospitals with fewer than 250 acute care inpatient beds from such reduction. Provides that for such other hospitals the reduction will equal 75 percent of the difference between the hospital's limit and its reference resident level. Authorizes the Secretary to increase the applicable resident limit for each qualifying applicant hospital by such numbers as the Secretary may approve for portions of cost reporting periods occurring on or after July 1, 2005.

Subtitle D: Other Provisions - (Sec. 431) Amends SSA title XI to provide that any remuneration in the form of a contract, lease, grant, loan, or other agreement between a public or non-profit private health center and an individual or entity providing goods or services to health center would not be a violation of the anti-kickback statue if such agreement contributes to the ability of the health center to maintain or increase the availability or quality of services provided to a medically underserved population.

(Sec. 432) Amends SSA title VII to expand the functions of the Office of Rural Health Policy to include administering grants, cooperative agreements, and contracts to provide technical assistance and other necessary activities to support activities related to improving health care in rural areas.

(Sec. 433) Directs MEDPAC to conduct a study of specified rural provisions of this title for various reports to Congress.

(Sec. 434) Directs the Secretary to waive such provisions of the Medicare program as are necessary to conduct a demonstration project under which frontier extended stay clinics in isolated rural areas are treated as providers of items and services under the Medicare program. Authorizes appropriations.

Title V: Provisions Relating to Part A - Subtitle A: Inpatient Hospital Services - (Sec. 501) Amends SSA title XVIII with respect to hospital payment updates to provide that: (1) an acute hospital will receive an update of the market basket from FY 2005 through FY 2007 if it submits data on the ten quality indicators established by the Secretary as of November 1, 2003; and (2) an acute hospital that does not submit data to the Secretary will receive an update of the market basket percentage minus 0.4 percentage points for the fiscal year in question and that the Secretary will not take this reduction into account when computing the applicable percentage increase in subsequent years.

Directs the Comptroller General to conduct a study to determine: (1) the appropriate level and distribution of Medicare payments in relation to costs for short-term general hospitals under the inpatient prospective payment system; and (2) the need for geographic adjustments to reflect legitmate differences in hospital costs across different geographic areas, kinds of hospitals, and types of cases.

(Sec. 502) Expands the formula for determining the indirect medical education adjustment percentage to cover the period from April 1, 2004 to on and after October 1, 2007.

(Sec. 503) Requires the Secretary to add new diagnosis and procedure codes in April 1 of each year without requiring the Secretary to adjust the payment (or diagnosis-related group classification) until the fiscal year that begins after such date.

Requires the Secretary when establishing whether diagnosis related group (DRG) payment is adequate to apply a threshold that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between costs and charges) or 75 percent of one standard deviation for the diagnosis-related group involved. Requires the mechanism established to recognize the costs of new medical services and technologies under the appropriate Medicare payment system to be adjusted to provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of individuals entitled to benefits under Medicare part A (Hospital Insurance).

Directs the Secretary, before establishing any add-on payment with respect to a new technology, to seek to identify one or more diagnosis-related groups associated with such technology and, within such groups, the Secretary is required to assign an eligible new technology into a diagnosis-related group where the average costs of care most closely approximate the costs of care of using the new technology. Prohibits the making of an add-on payment in such case. Provides that funding for new technology will no longer be budget neutral.

(Sec. 504) Provides that hospitals in Puerto Rico will receive Medicare payments based on a 50-50 split between Federal and local amounts before April 1, 2004. Provides that starting April 1, 2004 through September 30, 2004, payment will be based on a 62.5 percent Federal amount and a 37.5 percent local amount, and that starting October 1, 2004, payment will be based on a 75 percent Federal amount and a 25 percent local amount.

(Sec. 505) Directs the Secretary to establish a process and payment adjustment to recognize commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.

(Sec. 506) Requires that hospitals that participate in Medicare and that provide Medicare covered inpatient hospital services under the contract health services program funded by the Indian Health Service and operated by the Indian Health Service, an Indian tribe, an Indian tribal organization, or an urban Indian organization be paid in accordance with regulations promulgated by the Secretary regarding admission practices, payment methodologies, and rates of payment. Requires that these rates of payment must be accepted as payment in full for the items and services provided.

(Sec. 507) Modifies the "whole hospital" exception to the prohibition against physicians referring Medicare patients to entities in which they or their immediate family members have financial interests to provide for a period of 18 months from the date of enactment of this Act during which there is excluded from such exception (and thereby subjected to the prohibition) those circumstances in which a physician's ownership interest is in a "subsection d hospital"devoted primarily or exclusively to cardiac, orthopedic, surgical, or other specialties designated by the Secretary. Exempts from such provision speciality hospitals in operation or under development as of November 18, 2003.

Requires that, in order to maintain the exception, the speciality hospital may not increase the number of physician investors as of November 18, 2003; change or expand the field of specialization it treats; expand beyond the main campus; or increase the total number of beds in its facilities by more than the greater of five beds or 50 percent of the number of beds in the hospital as of November 18, 2003.

Makes a similar modification with respect to the rural provider exception.

Directs the Secretary in determining whether a hospital is under development as of November 18, 2003 to consider whether architectural plans have been completed, funding has been received, zoning requirements have been met, and necessary approvals from appropriate State agencies have been received, and other evidence the Secretary determines would indicate whether a hospital is under development as of such date.

Directs MEDPAC to conduct a study to determine: (1) any differences in the costs of health care services furnished to patients by physician-owned specialty hospitals and the costs of such services furnished by local full-service community hospitals within specific diagnosis-related groups; (2) the extent to which speciality hospitals, relative to local full-service community hospitals, treat patients in certain diagnosis-related groups within a category, such as cardiology, and an analysis of the selection; (3) the financial impact of physician-owned specialty hospitals on local full-service community hospitals; (4) how the current diagnosis-related group system should be updated to better reflect the cost of delivering care in a hospital setting; and (5) the proportions of payments received, by type of payer, between the specialty hospitals and local full-service community hospitals.

Directs the Secretary to conduct a study of a representative sample of specialty hospitals to: (1) determine the percentage of patients admitted to physician-owned specialty hospitals who are referred by physicians with an ownership interest; (2) determine the referral patterns of physician owners; (3) compare the qualty of care furnished in physician-owned speciality hospitals and in local full-service community hospitals for similar conditions and patient satisfaction with such care; and (5) assess the differences in uncompensated care between the specialty hospital and local full-service community hospitals, and the value of any tax exemption availabble to such hospitals.

(Sec. 508) Directs the Secretary to establish not later than January 1, 2004, by instruction or otherwise a process under which a hospital may appeal the wage index classification otherwise applicable to the hospital and select another area within the State to which to be reclassified. Provides that a qualifying hospital (which must be a "subsection (d) hospital" is not eligible for a change in wage index classification on the basis of distance or commuting. Requires the qualifying hospital to meet such other criteria, such as quality, as the Secretary may specify by instruction or otherwise. Provides that if the Medicare Geographic Reclassification Review Board determines that the hospital is a qualifying hospital, the hospital shall be reclassified to the area selected. Requires such reclassification to apply with respect to discharges occurring during the three year period beginning with April 2, 2004. Limits the total aggregate amount of additional expenditures resulting from application of this paragraph to $900 million.

Subtitle B: Other Provisions - (Sec. 511) Increases the per diem RUG payment for a skilled nursing facility (SNF) resident with acquired immune deficiency syndrome (AIDS). Provides that such payment increase will not apply on and after such date when the Secretary certifies that the SNF case mix adjustment adequately compensates for the facility's increased costs associated with caring for a resident with AIDS.

(Sec. 512) Provides coverage of certain physician's services for certain terminally ill individuals who have not elected the hospice benefit and have not previously received these physician's services.

(Sec. 513) Directs the Comptroller General to conduct a study of portable diagnostic ultrasound services furnished to Medicare beneficiaries in SNFs for a report to Congress.

Title VI: Provisions Relating to Part B - Subtitle A: Provisions Relating to Physicians' Services - Amends SSA title XVIII with respect to payment for physicians' services to: (1) provide that the update to the conversion factor for 2004 and 2005 will not be less than 1.5 percent; (2) modify the formula for calculating the sustainable growth rate to provide that the gross domestic product factor will be based on the annual average change over the preceding 10 years (a 10-year rolling average); (3) provide that in calendar years 2004 and 2005, for physicians's services provided in Alaska, the Secretary is required to increase geographic practice cost indices to a level of 1.67 for each of the work, practice expense, and malpractice cost indices that would otherwise be less than 1.67; and (4) allow podiatrists, dentists, and optometrists to enter into private contracts with Medicare beneficiaries.

(Sec. 604) Directs the Comptroller General to conduct a study for a report to Congress on access of Medicare beneficiaries to physicians's services under the Medicare program.

(Sec. 605) Requires the Secretary to review and consider alternative data sources than those currently used to establsih the geographic index for the practice expense component under the Medicare physician fee schedule no later than January 1, 2005. Requires the Secretary to select two physician payment localties for such purposes, one to be a rural area and the other one will be a statewide locality that includes both urban and rural areas.

(Sec. 606) Directs MEDPAC to submit to Congress: (1) a report on the effect of refinements to the practice expense component of payments for physicians' services after the transition to a full resource-based payment system in 2002; and (2) a report on the extent to which increases in the volume of physicians' services under Medicare part B are a result of care that improves the health and well-being of Medicare beneficiaries.

Subtitle B: Preventive Services - (Sec. 611) Authorizes Medicare coverage of: (1) an initial preventive physical examination; (2) cardiovascular screening blood tests; and (3) diabetes screening tests.

(Sec. 614) Excludes screening mammography and diagnostic mammography from the outpatient prospective payment system (OPPS).

Subtitle C: Other Provisions - (Sec. 621) Provides that for specified covered OPD drugs and biologicals starting in 2004 payment would be made based on a percentage of the reference AWP for the drug or biological.

Directs the Comptroller General to conduct a survey in each of 2004 and 2005 to determine the hospital acquisition costs for each specified covered outpatient drug. Requires the amount of payment for an orphan drug designated by the Secretary that is furnished as part of a covered OPD service (or group of services) during 2004 and 2005 to equal such amount as the Secretary may specify. Requires the Comptroller General not later than April 1, 2005 to furnish data from such surveys to the Secretary for use in setting payment rates for 2006.

Requires the Comptroller General, no later than 30 days after the date the Secretary promulgates the proposed rules setting forth the payment rates for 2006, to evaluate such rates and submit a report to Congress on their appropriateness.

Directs MEDPAC to submit to the Secretary a report on adjustment of payment for ambulatory payment classifications for specified covered outpatient drugs to take into account overhead and related expenses, such as pharmacy services and handling costs. Authorizes the Secretary to adjust the weights for ambulatory payment classifications for specified covered outpatient drugs to take into account appropriate recommendations to such effect in the report.

Provides that the additional expenditures that result from the previous changes will not be taken into account in establishing the conversion, weighting and other adjustment factors for 2004 and 2005, but will be taken into account for subsequent years.

Provides that with respect to payment under Medicare part B for an outpatient drug or biological covered under such part that is furnished as part of covered OPD services for which an HCPCS code has not been assigned, the amount provided for payment for such drug or biological under such part shall be equal to 95 percent of the AWP for the drug or biological.

Provides that for drugs and biologicals furnished in 2005 and 2006, the Secretary is required to reduce the threshold for establishing a separate ambulatory payment classification (APC) group for drugs or biologicals from $150 to $50 per admission. Makes these separate drug and biological APC groups ineligible for outlier payments. Provides that starting in 2004, Medicare transitional pass-through payments for drugs and biologicals covered under a competitive acquisition contract will equal the average price for the drug or biological for all competitive acquisition areas calculated and adjusted by the Secretary for that year.

Requires the Secretary to make payment for each brachytherapy device furnished under the hospital outpatient prospective payment system equal to the hospital's charges for each device furnished, adjusted to costs for all brachytherapy devices furnished on or after January 1, 2004, and before January 1, 2007. Provides that charges for such devices will not be included in determining any outlier payment.

Directs the Secretary to create additional groups of covered OPD services that classify such devices separately from the other services (or group of services) paid for under the hospital outpatient prospective payment system in a manner reflecting the number, the radioactive isotope, and the radioactive intensity of the brachytherapy devices furnished to each patient, including the use of separate APCs for brachytherapy devices made from palladium-103 and iodine-125 devices.

Requires the Comptroller General to conduct a study for a report to Congress and the Secretary on the appropriate payment amounts needed for devices of brachytherapy. Requires the report to include specific recommendations for appropriate payments for such devices.

(Sec. 622) Prohibits the Secretary from publishing regulations that apply a functional equivalence standard to a drug or biological. Applies this prohibition to the application of a functional equivalence standard on or after the date of enactment of this Act, unless such application was made prior to enactment and the Secretary applies such standard to such drug or biological only for the purpose of determining eligibility of such drug or biological for transitional pass-through payments.

(Sec. 623) Increases the composite rate for renal dialysis by 1.6 percent for 2005.

Provides that provisions prohibiting the Secretary from providing for an exception under provisions for Medicare coverage for end stage renal disease patients that require the Secretary to provide by regulation for a method (or methods) for determining prospectively the amounts of payments to be made for dialysis services furnished by providers of services and renal dialysis facilities to individuals in a facility and to such individuals at home, and that provisions setting a deadline of July 1, 2001, for new applications for an exception rate in the case of a facility that during 2000 did not file for an exception rate under such former provisions, shall not apply as of October 1, 2002, to pediatric facilities that do not have an exception rate in effect on such date. Requires that for purposes of this paragraph the term pediatric facility means a renal facility at least 50 percent of whose patients are individuals under 18 years of age.

Directs the Inspector General of HHS to conduct two studies for reports to the Secretary with respect to drugs and biologicals (including erythropoietin) furnished to end-stage renal disease patients under the Medicare program which are separately billed by end stage reneal disease facilities.

Requires the Secretary to establish a basic case-mix adjusted prospective payment system for dialysis services. Requires the basic case-mix adjusted system to begin for services furnished on January 1, 2005. Requires the system to adjust for a limited number of patient characteristics.

Provides that payments for separately billed drugs and biologicals (other than erythropoietin) will be 95 percent of the AWP for 2004, the acquisition costs in 2005 (including for 2005), and, beginning in 2006, for such drugs and biologicals (including erythropoietin), such acquisition cost or the average sales price payment methodology for the drug or biological as the Secretary may specify.

Requires drugs and biologicals (including erythropoietin) which were separately billed on the day before the enactment of this Act to continue to be separately billed on and after such date.

Directs the Secretary to establish a demonstration project for the use of a fully case-mix adjusted, bundled payment system for end stage renal disease services, beginning January 1, 2006. Authorizes appropriations.

Requires the Secretary to submit a report to Congress detailing the elements and features for the design and implementation of a bundled prospective payment system for services furnished by end stage renal disease facilities including, to the maximum extent feasible, bundling of drugs, clinical laboratory tests, and other items that are separately billed by such facilities.

(Sec. 624) Provides for an additional two-year moratorium on therapy caps for 2004 and 2005.

Requires the Secretary to submit by March 31, 2004 overdue reports on payment and utilization of outpatient therapy services that are required by the Balanced Budget Act of 1997 and the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BIPA).

Requires the Comptroller General to identify for a report to Congress conditions or diseases that may justify waiving the application of the therapy caps with respect to such conditions or diseases.

(Sec. 625) Waives the late enrollment penalty for military retirees who did not enroll in Medicare part B upon becoming eligible for Medicare. Provides that the waiver applies to the late enrollment penalty for military retirees, 65 and over, who enrolled in the TRICARE for Life program from 2001 to 2004. Requires this waiver to apply to premiums for months beginning with January 2004. Directs the Secretary to establish a method for providing rebates of premium penalties paid for months on or after January 2004 for which a penalty does not apply under such waiver provision but for which a penalty was previously collected.

Directs the Secretary to provide for a special Medicare part B enrollment period for these military retirees beginning as soon as possible after enactment of this Act and ending December 31, 2004.

(Sec. 626) Provides that in FY 2004, starting April 1, 2004, the ambulatory surgery center (ASC) update will be the Consumer Price Index for all urban consumers (U.S. city average) as estimated as of March 31, 2003, minus 3.0 percentage points. Provides that in FY 2005, the last quarter of calendar year 2005, and each of calendar years 2006 through 2009, the ASC update will be zero percent.

Provides that upon implementation of the new ASC payment system, the Secretary will no longer be required to update ASC rates based on a survey of the actual audited costs incurred by a representative sample of ASCs every five years.

Provides that subject to recommendations by the General Accounting Office, the Secretary will implement a revised payment system for payment of surgical services furnished in ASCs. Requires the new system to be implemented so that it is first effective on or after January 1, 2006, and not later than January 1, 2008.

Requires the Comptroller General to conduct a study for a report to Congress that compares the relative costs of procedures furnished in ambulatory surgical centers to the relative costs of procedures furnished in hospital outpatient departments.

(Sec. 627) Limits payment for custom molded shoes with inserts or extra-depth shoes with inserts for an individual with severe diabetic foot disease by the amount that would be paid if they were considered to be a prosthetic or orthotic device. Allows the Secretary to establish lower payment limits than these amounts if shoes and inserts of an appropriate quality are readily available at lower amounts. Requires the Secretary to establish a payment amount for an individual substituting modifications to the covered shoe that would assure that there is no net increase in Medicare expenditures.

(Sec. 628) Provides that there will be no updates to the clinical diagnostic laboratory test fee schedule for 2004 through 2008.

(Sec. 629) Keeps the Medicare part B deductible at $100 through 2004, increasing it to $110 for 2005, and providing that in subsequent years the deductible will be increased by the same percentage as the Medicare part B premium increase.

(Sec. 630) Requires the Secretary to make payment under Medicare part B to a hospital or an ambulatory care clinic (whether provider-based or free standing) that is operated by the Indian Health Service or by an Indian tribe or tribal organization for all Medicare part B covered items and services furnished during the five year period beginning on January 1, 2005.

Subtitle D: Additional Demonstrations, Studies, and Other Provisions - (Sec. 641) Requires the Secretary to conduct a demonstration project under Medicare part B under which payment is made for drugs or biologicals that are prescribed as replacements for existing covered drugs and biologicals that are furnished incident to a physician's professional service which are not usually self-administered. Requires the project to provide for cost-sharing applicable with respect to such drugs or biologicals in the same manner as the cost-sharing applicable under part D for standard prescription drug coverage.

(Sec. 642) Includes intravenous immune globulin for the treatment in the home of primary immune deficiency diseases as a covered medical service under Medicare.

(Sec. 643) Directs MEDPAC to conduct a study for a report to Congress on the feasibility and advisability of providing for payment under Medicare part B for surgical first assisting services furnished by a certified registered nurse first assistant to Medicare beneficiaries.

(Sec. 644) Requires MEDPAC to conduct a study for a report to Congress on the practice expense relative values established by the Secretary under the Medicare physician fee schedule for physicians in the specialties of thoracic and cardiac surgery to determine whether such values adequately take into account the attendant costs that such physicians incur in providing clinical staff for patient care in hospitals.

(Sec. 645) Directs the Secretary to conduct a study for a report to Congress on the feasibility and advisability of providing for payment for vision rehabiliation services furnished by vision rehabilitation professionals.

Requires the Secretary to submit to Congress a report on the feasibility of establishing a two-year demonstration project under which the Secretary enters into arrangements with vision care preferred provider organization networks to furnish and pay for conventional eyeglasses subsequent to each cataract surgery with insertion of an intraocular lens on behalf of Medicare beneficiaries.

(Sec. 646) Amends SSA title XVIII to direct the Secretary to establish a 5-year demonstration program under which the Secretary is required to approve demonstration projects that examine health delivery factors that encourage the delivery of improved quality in patient care.

(Sec. 647) Directs MEDPAC to conduct a study for a report to Congress on the feasibility and advisability of allowing Medicare fee-for-service beneficiaries direct access to outpatient physical therapy services and physical therapy services furnished as a comprehensive rehabilitation facility service.

(Sec. 648) Directs the Secretary to establish demonstration projects under which the Secretary is required to evaluate methods that improve the quality of care provided to individuals with chronic conditions and that reduce expenditures that would otherwise be made under the Medicare program on behalf of such individuals for such chronic conditions. Requires the Secretary to conduct a demonstration project in at least one area that the Secretary determines has a population of individuals entitled to benefits under Medicare part A, and enrolled under Medicare part B, with a rate of incidence of diabetes that significantly exceeds the national average rate of all areas.

(Sec. 649) Directs the Secretary to establish a pay-for-performance demonstration program with physicians to meet the needs of eligible beneficiaries through the adoption and use of health information technology and evidence-based outcomes measures

(Sec. 650) Requires the Comptroller General to conduct a study for a report to the Congress on concierge care to determine the extent to which such care is used by Medicare beneficiaries and has impacted upon the access of Medicare beneficiaries to items and services for which reimbursement is provided under the Medicare program.

(Sec. 651) Directs the Secretary to establish demonstration projects for the purpose of evaluating the feasibility and advisability of covering chiropractic services under the Medicare program. Requires the Secretary to conduct an evaluation of the demonstration projects for a report to Congress along with such recommendations for legislation or administrative action as the Secretary determines appropriate.

Title VII: Provisions Relating to Parts A and B - Subtitle A: Home Health Services - (Sec. 701) Amends SSA title XVIII to change the time frame for the home health update from the Federal fiscal year to a calendar year basis beginning with 2004.

Increases home health agency payments by the full market basket percentage for the last quarter of 2003 (October, November, and September) and for the first quarter of 2004 (January, February, and March). Provides that the update for the remainder of 2004 and for 2005 and 2006 is the home health market basket percentage increase minus 0.8 percentage points.

(Sec. 702) Directs the Secretary to conduct a two-year demonstration project under Medicare part B under which Medicare beneficiaries with chronic conditions are deemed to be homebound for purposes of receiving home health services under the Medicare program. Authorizes appropriations.

(Sec. 703) Requires the Secretary to establish a demonstration project under which the Secretary is required, as part of a plan of an episode of care for home health services established for a Medicare beneficiary, to permit a home health agency, directly or under arrangements with a medical adult day-care facility, to provide medical adult day-care services as a substitute for a portion of home health services that would otherwise be provided in the beneficiary's home.

(Sec. 704) Prohibits the Secretary during a described period of suspension from requiring a home health agency to gather or submit OASIS (Outcomes and Assessment Information Set) information that relates to an individual who is not eligible for benefits under either Medicare or Medicaid (non-Medicare/Medicaid OASIS information).

Requires the Secretary to conduct a study for a report to Congress on how non-Medicare/Medicaid OASIS information is and can be used by large home health agencies.

(Sec. 705) Directs MEDPAC to conduct a study for a report to Congress on payment margins of home health agencies under the home health prospective payment system.

(Sec. 706) Allows a religious nonmedical health care institution to provide home health services to individuals meeting conditions for coverage of religious nonmedical health care institutional services.

Subtitle B: Graduate Medical Education - (Sec. 711) Provides that hospitals with per resident amounts above 140 percent of the geographically adjusted national average amount would not get an update from FY 2004 through FY 2013.

(Sec. 712) Provides that Congress intended to provide an exception to the initial residency period for geriatric residency or fellowship programs to accomodate programs that require two years of training to initially become board eligible in the geriatric speciality.

(Sec. 713) Provides that for one year from January 1, 2004, for purposes of applying provisions for the payment of indirect medical education and direct medical education costs, the Secretary is required to allow all hospitals to count residents in osteopathic and allopathic family practice programs in existence as of January 1, 2002, who are training at non-hospital sites, without regard to the financial arrangement between the hospital and the teaching physician practicing in the non-hospital site to which the resident has been assigned.

Requires the Inspector General of the Department of Health and Human Services to conduct a study for a report to Congress on the appropriateness of alternative payment methodologies for the costs of training residents in non-hospital settings.

Subtitle C: Chronic Care Improvement - (Sec. 721) Amends SSA title XVIII to require the Secretary to provide for the phased-in development, testing, evaluation, and implementation of chronic care improvement programs. Requires the programs to be designed to improve clinical quality and beneficiary satisfaction and achieve spending targets with respect to expenditures under Medicare for targeted beneficiaries with one or more threshold conditions. Makes necessary appropriations.

(Sec. 722) Requires each MA organization to have an ongoing quality improvement program for improving the quality of care provided to enrollees in each MA plan offered by such organization (other than an MA private fee-for-service plan or an MSA plan) effective for contract years beginning January 1, 2006. Requires as part of the quality improvement program for each MA organization to have a chronic care improvement program.

(Sec. 723) Directs the Secretary to develop a plan to improve quality of care and to reduce the cost of care for chronically ill Medicare beneficiaries. Authorizes appropriations.

Subtitle D: Other Provisions - (Sec. 731) Requires the Secretary to make available to the public the factors considered in making national coverage determinations of whether an item or service is reasonable and necessary. Allows for public comment in national coverage determinations. Directs the Secretary to develop a plan to evaluate new local coverage determinations to determine which determinations should be adopted nationally and to what extent greater consistency can be acheived among local coverage determinations. Prohibits the Secretary in the case of an individual entitled to benefits under Medicare part A, or enrolled under part B, or both who participates in a category A clinical trial, from excluding payment for coverage of routine costs of care furnished to such individual in the trial.

Directs the Secretary to implement revised procedures for the issuance of temporary national HCPCS codes under Medicare part B.

(Sec. 732) Amends BIPA to provide that direct payment for the technical component of pathology services provided to Medicare beneficiaries who are inpatients or outpatients of acute care hospitals will be made for services furnished during 2005 and 2006.

(Sec. 733) Directs the Secretary, acting through the National Institute of Diabetes and Digestive and Kidney Disorders, to conduct a clinical investigation of pancreatic islet cell transplantation which includes Medicare beneficiaries. Authorizes appropriations. Requires the Secretary to pay for the routine costs as well as transplantation and appropriate related items and services in the case of Medicare beneficiaries who are participating in such a clinical trial as if such transplantation were covered under Medicare.

(Sec. 734) Directs the Secretary to transfer to the Hospital Insurance Trust Fund an amount that would have been held by that fund if the clerical error had not occurred. Appropriates to the Trust Fund an amount determined by the Secretary of the Treasury to be equal to the interest income lost by the Trust Fund through the date on which the appropriation is being made as a result of the clerical error involved.

(Sec. 735) Requires MEDPAC to examine the budgetary consequences of a recommendation before making the recommendation and to review the factors affecting the efficient provision of expenditures for services in different health care sectors under Medicare fee-for-service.

Requires the Commission to conduct a study for a report to Congress on the need for current data and sources of current data available to determine the solvency and financial circumstances of hospitals and other Medicare providers of services. Requires the Commission to submit to Congress a report on investments and capital financing of hospitals participating under Medicare and access to capital financing for private and not-for-profit hospitals.

Requires the Comptroller General to appoint experts in the area of pharmaco-economics or prescription drug benefit programs to the Commission.

(Sec. 736) Makes technical corrections.

Title VIII: Cost Containment - Subtitle A: Cost Containment - Requires the Medicare Board of Trustees annual report to include information on: (1) projections of growth of general revenue Medicare spending as a percentage of the total Medicare outlays for the fiscal year and each of the succeeding six fiscal years, previous fiscal years, and 10, 50, and 75 years after such fiscal year; (2) comparisons with the growth trends for the gross domestic product, private health costs, national health expenditures, and other appropriate measures; (3) expenditures and trends in expenditures under Medicare part D; and (4) a financial analysis of the combined Medicare trust funds if general revenue funding for Medicare is limited to 45 percent of total Medicare outlays. Requires the trust fund reports to include a determination as to whether there is projected to be excess general revenue Medicare funding for any of the succeeding six fiscal years. Provides that an affirmative determination of excess general revenue funding of Medicare for two consecutive annual reports will be treated as a funding warning for Medicare in the second year for the purposes of requiring presidential submission of legislation to Congress.

(Sec. 802) Amends Federal money and finance law to provide in the event that a Medicare funding warning is made, the President is required to submit to Congress, within the 15-day period beginning on the date of the budget submission to Congress for the succeeding year, proposed legislation to respond to such warning. Provides that if during the year in which the warning is made, legislation is enacted which eliminates excess general revenue Medicare funding for the 7-fiscal-year period, then the President is not required to make a legislative proposal.

Expresses the sense of Congress that legislation submitted in this regard should be designed to eliminate excess general revenue Medicare funding for the seven-fiscal year period that begins in such year.

(Sec. 803) Sets out the procedures for House and Senate consideration of the President's legislative proposal.

Subtitle B: Income-Related Reduction in Part B Premium Subsidy - (Sec. 811) Provides that beginning in 2007, beneficiaries with incomes over $80,000 for an individual or $160,000 for a married couple will be asked to contribute more to the cost of their Medicare benefits through payment of a higher premium since the monthly amount of the premium subsidy applicable to the premium shall be reduced by a monthly adjustment amount that is based on the product of the sliding scale percentage and the unsubsidized part B premium amount and is phased-in beginning in 2007 through 2010.

Amends the Internal Revenue Code to direct the Secretary of the Treasury, upon written request from the Commissioner of Social Security, to make appropriate disclosure of tax return information to carry out the Medicare part B premium subsidy adjustment.

Title IX: Administrative Improvements, Regulatory Reduction, and Contracting Reform - (Sec. 900) Amends SSA title XVIII (Medicare) to establish within the Centers for Medicare & Medicaid Services (CMS) a center to administer Medicare parts C and D, provide notice of Medicare benefits and related information to beneficiaries, and perform such other duties as the Secretary may specify.

Amends SSA title XI to require that an actuary within the office of Chief Actuary of CMS have duties exclusively related to parts C and D of Medicare and related provisions.

Amends Federal civil service law to increase the pay grade for the Administrator of CMS to Executive Level III, beginning January 1, 2004.

Changes references from the Health Care Financing Administration to the Centers for Medicare and Medicaid Services.

Subtitle A: Regulatory Reform - (Sec. 901) Provides that the term "supplier" means, unless the context otherwise requires, a physician or other practitioner, a facility, or other entity (other than a provider of services) that furnishes items or services under this title.

(Sec. 902) Requires the Secretary, in consultation with the Director of the Office of Management and Budget, to establish and publish a regular timeline for the publication of final regulations based on the previous publication of a proposed regulation or an interim final regulation. Prohibits the timeframe established from being no longer than three years except under exceptional circumstances. Provides that if the Secretary publishes a final regulation that includes a provision that is not a logical outgrowth of a previously published notice of proposed rulemaking or interim final rule, such provision shall be treated as a proposed regulation and shall not take effect until there is the further opportunity for public comment and a publication of the provision again as a final regulation.

(Sec. 903) Bars retroactive application of any substantive changes in regulations, manual instructions, interpretative rules, statements of policy, or guidelines unless the Secretary determines such retroactive application is needed to comply with statutory requirements or is in the public interest. Provides that no substantive change may go into effect until 30 days after the change is issued or published unless it is needed to comply with statutory requirements or is in the public interest. Prohibits compliance action from being taken against a provider of services or supplier with respect to noncompliance with such a substantive change for items and services furnished before the effective date of such a change.

Provides that if a provider or supplier follows written guidance provided by the Secretary or by a Medicare contractor when furnishing items or services or submitting a claim and the guidance is inaccurate, the provider or supplier is not subject to any penalty or interest (including interest on a repayment plan).

(Sec. 904) Requires the Comptroller General to conduct a study for a report to Congress to determine the feasibility and appropriateness of establishing in the Secretary authority to provide legally binding advisory opinions on appropriate interpretation and application of regulations to carry out the Medicare program.

Requires the Secretary to periodically submit to Congress a report on the administration of Medicare and areas of inconsistency or conflict among various provisions under law and regulation.

Subtitle B: Contracting Reform - (Sec. 911) Amends SSA title XVIII to permit the Secretary to contract competitively with any eligible entity to serve as a Medicare contractor. Eliminates the distinction between Medicare part A contractors (fiscal intermediaries) and Medicare part B contractors (carriers), and merges separate authorities for fiscal intermediaries and carriers into a single authority for the new contractor. Authorizes these new contractors, called Medicare Administrative Contractors, to assume all the functions of the current fiscal intermediaries and carriers: determining payments; making payments; providing education and outreach to beneficiaries; communicating with providers and suppliers; and additional functions as are necessary.

(Sec. 912) Requires Medicare administrative contractors to implement a contractor-wide information security program to provide information security for the operation and assets of the contractor with respect to such functions under Medicare. Requires Medicare administrative contractors to undergo an annual independent evaluation of their information security programs.

Subtitle C: Education and Outreach - (Sec. 921) Amends SSA title XVIII to require the Secretary to: (1) coordinate the educational activities provided through Medicare administrative contractors to maximize the effectiveness of Federal education efforts for providers and suppliers; and (2) use specific claims payment error rates or similar methodology of Medicare administrative contractors in the processing or reviewing of Medicare develop and implement a methodology to measure the specific payment error rates in the processing or reviewing of Medicare claims to give such contractors an incentive to implement effective education and outreach programs for providers and suppliers.

Directs the Secretary to develop a strategy for communications with individuals entitled to benefits under Medicare part A or enrolled under Medicare part B, or both, and with providers of services and suppliers under Medicare. Requires Medicare administrative contractors, for those providers of services and suppliers which submit claims to the contractor for claims processing and for those individuals entitled to benefits under part A or enrolled under part B, or both, with respect to whom claims are submitted for claims processing, provide general written responses (which may be through electronic transmission) in a clear, concise, and accurate manner to inquiries of providers of services, suppliers, and individuals entitled to benefits under part A or enrolled under part B, or both, concerning the programs under Medicare within 45 business days.

Directs the Secretary to ensure that Medicare administrative contractors provide, for those providers of services and suppliers which submit claims to the contractor for claims processing and for those individuals entitled to benefits under part A or enrolled under part B, or both, with respect to whom claims are submitted for claims processing, a toll-free telephone number at which such individuals, providers of services, and suppliers may obtain information regarding billing, coding, claims, coverage, and other appropriate information under Medicare. Requires monitoring of contractor responses. Authorizes appropriations.

Authorizes appropriations to the Secretary for enhanced provider and supplier training which are to be tailored for small providers or suppliers.

Requires the Secretary, and each Medicare contractor insofar as it provides services (including claims processing) for providers of services or supppliers, to maintain an Internet website which provides answers in an easily accessible format to frequently asked questions, and includes other published materials of the contractractor, that relate to providers of services and suppliers under Medicare.

Prohibits a Medicare contractor from using a record of attendance at (or failutre to attend) educational activities or other information gathered during an educational program to select or track providers of services or suppliers for the purpose of conducting any type of audit or prepayment review.

(Sec. 922) Directs the Secretary to establish a demonstration program under which described technical assistance is made available, upon request and on a voluntary basis, to small providers of services or suppliers in order to improve compliance with the applicable requirements of the programs under Medicare. Authorizes appropriations.

(Sec. 923) Requires the Secretary to appoint within HHS a Medicare Beneficiary Ombudsman to receive complaints and provide assistance with respect to such complaints and who shall have expertise and experience in the fields of health care and education of (and assistance to) individuals entitled to benefits under Medicare. Authorizes appropriations.

Directs the Secretary to provide through the toll free telephone number 1-800-MEDICARE for a means by which individuals seeking information about, or assistance with, such programs who phone such toll-free numbers are transferred (without charge) to appropriate entities for the provision of such information or assistance.

Requires the Comptoller General to conduct a study for a report to Congress to monitor the accuracy and consistency of information provided to individuals entitled to benefits under part A or enrolled under part B, or both, through the toll-free telephone number.

(Sec. 924) Requires the Secretary to establish a demonstration program under which the Medicare specialists employed by HHS provide advice and assistance to individuals entitled to benefits under Medicare part A, or enrolled under part B, or both, regarding the Medicare program at the location of existing local offices of the Social Security Administration.

(Sec. 925) Directs the Secretary to provide information about the number of days of coverage remaining under the skilled nursing facility (SNF) benefit and the spell of illness involved in the explanation of Medicare benefits.

(Sec. 926) Requires the Secretary to publicly provide information that enables hospital discharge planners, Medicare beneficiaries, and the public to identify skilled nursing facilities (SNFs) that are participating in the Medicare program. Requires hospital discharge planning to evaluate a patient's need for SNF care.

Subtitle D: Appeals and Recovery - (Sec. 931) Directs the Commissioner of Social Security and the Secretary to develop and transmit to Congress and the Comptroller General a transition plan under which the functions of administrative law judges responsbile for hearing cases under the Medicare program are transferred from the responsibility of the Commissioner and Social Security Administration to the Secretary and HHS.

Directs the Commissioner and the Secretary to implement the transition plan and transfer the administrative law judge functions from the Social Security Administration to the Secretary. Requires the Secretary to: (1) assure the independence of administrative law judges performing the administrative law judge functions transferred from the Centers for Medicare & Medicaid Services and its contractors; and (2) provide for an appropriate geographic distribution of administrative law judges performing the administrative law judge functions transferred throughout the United States to ensure timely access to such judges.

Authorizes additional appropriations to increase the number of administrative law judges, improve education and training opportunities for administrative law judges, and increase the staff of the Departmental Appeals Board.

(Sec. 932) Directs the Secretary to establish a process where a provider, supplier, or a beneficiary who has filed an appeal may obtain access to judicial review when a review entity determines, within 60 days of a complete written request, that the Departmental Appeals Board does not have the authority to decide the question of law or regulation relevant to the matters in controversy and there is no material issue of fact in dispute. Provides that the determination by such review entity shall be considered a final decision and not be subject to review by the Secretary.

Permits expedited access to judicial review for cases where the Secretary does not enter into or renew provider agreements.

Requires the Secretary to develop and implement a process to expedite appeals of provider terminations and certain other remedies imposed on SNFs, including denial of payment for new admissions and temporary management, if imposed on an immediate basis. Allows an expedited appeal where a finding of substandard quality of care has resulted in the disapproval of a skilled nursing facility's nurse aide training program. Requires the Secretary to give priority to cases where termination has been imposed on a provider.

Allows the Secretary to waive disapproval of a nurse aide training program, upon application by a nursing facility if the imposition of the civil monetary penalty was not related to the quality of care provided to residents of the facility.

Provides that in addition to any amounts otherwise appropriated, such additional sums are authorized to be appropriated for FY 2004 and each subsequent fiscal year as may be necessary to reduce by 50 percent the average time for administrative determinations on appeals.

(Sec. 933) Revises the Medicare appeals process to: (1) require providers and suppliers to present all evidence for an appeal at the reconsideration level that is conducted by a qualified independent contractor (QTC) unless good cause precluded the introduction of the evidence; (2) provide for the use of beneficiaries' medical records in QIC reconsiderations; (3) require that notice of decisions or determinations, redeterminations, reconsiderations, and appeals be written in a manner calculated to be understood by a beneficiary and include reasons for the decision or determination or redetermination and the process for further appeal; (4) specify the eligibility requirements for QICs and their reviewer employees that relate to medical and legal expertise, independence, and prohibitions linked to decisions being rendered; and (5) reduce the required number of QICs from 12 to four.

(Sec. 934) Permits Medicare contractors to conduct random prepayment reviews only to develop a contractor-wide or program-wide claims payment error rate or under such additional circumstances as may be provided under regulations, developed in consultation with providers of services and suppliers. Establishes limitations on initiation of non-random prepayment review.

(Sec. 935) Provides that in situations where repaying a Medicare overpayment within 30 days creates a hardship for a provider or supplier, the Secretary is required, upon the request of the provider or supplier, to enter into an extended repayment plan of at least six months duration, but not longer than three years (or five years in the case of extreme hardship, as determined by the Secretary). Provides that if the Secretary has reason to suspect that the provider or supplier may file for bankruptcy or otherwise cease to do business or discontinue participation in Medicare or there is an indication of fraud or abuse, the Secretary is not obligated to enter into an extended repayment plan with the provider or supplier.

Provides that if a provider or supplier fails to make a payment in accordance with a repayment plan, the Secretary may immediately seek to offset or otherwise recover the total balance outstanding under the repayment plan.

Provides that if post-payment audits are conducted, the Medicare contractor is required to provide the provider or supplier with written notice of the itent to conduct the audit. Provides that if a Medicare contractor audits a provider or supplier, the contractor shall: (1) give the provider or supplier a full review and explanation of the findings of the audit in a manner that is understandable to the provider or supplier and permits the development of an appropriate corrective action plan; (2) inform the provider or supplier of the appeal rights under Medicare as well as consent settlement options; (3) give the provider of services or supplier an opportunity to provide additional information to the contractor; and (4) take into account such information provided, on a timely basis, by the provider of services or supplier. Provides that such provisions shall not apply if the provision of notice or findings would compromise pending law enforcement activities, whether civil or criminal, or reveal findings of law enforcement-related audits. Requires the Secretary to establish a standard methodology for Medicare contractors to use in selecting a sample of claims for review in the case of an abnormal billing pattern.

(Sec. 936) Requires the Secretary to establish by regulation a provider enrollment process with hearing rights in the case of a denial or non-renewal.

(Sec. 937) Requires the Secretary to develop a process so providers and suppliers can correct minor errors in claims that were submitted for payment without having to initiate an appeal.

(Sec. 938) Amends SSA title XVIII to direct the Secretary to establish a prior determination process where physicians and beneficiaries can request through the Medicare administrative contractor whether Medicare covers certain physicians' services before such services are provided only if the physician requestor is a participating physician, but only with respect to physicians' services to be furnished to an individual who is entitled to benefits under Medicare and who has consented to the physician making the request for those physician services and the beneficiary is an individual entitled to benefits under Medicare, but only with respect to a physicians' service for which the individual receives an advance beneficiary notice from a physician who receives direct payment for that service.

Requires the Secretary to establish a process for the collection of information on the instances in which an advance beneficiary notice has been provided and on instances in which a beneficiary indicates on such a notice that the beneficiary does not intend to seek to have the item or service that is the subject of the notice furnished. Directs the Secretary to establish a program of outreach and education for beneficiaries and providers of services and other persons on the appropriate use of advanced beneficiary notices and coverage policies under the Medicare program.

Requires the Comptroller General to submit to Congress a report on the use of advanced beneficiary notices under Medicare. Directs the Comptroller General to submit to Congress a report on the use of the prior determination process under such section.

(Sec. 939) Directs the Secretary to permit a provider of services or supplier to appeal any determination of the Secretary relating to services rendered under Medicare to an individual who subsequently dies if there is no other party available to appeal such determination.

(Sec. 940) Adds 30 days to the timeframe for deciding an appeal at the redetermination and reconsideration levels of appeal.

Indexes the amount in controversary for appeals to the consumer price index for all urban consumers, rounded to the nearest multiple of $10 beginning in 2005.

(Sec. 940A) Directs the Secretary to establish a mediation process for local coverage determinations using a physician trained in mediation and employed by the Centers for Medicare & Medicaid Services.

Requires the Secretary to include in the contract with Medicare administrative contractors the performance duties expected of a medical director of a Medicare administrative contractor.

Subtitle E: Miscellaneous Provisions - (Sec. 941) Prohibits the Secretary from implementing any new or modified documentation guidelines for evaluation and management physician services under Medicare on or after the enactment of this Act unless the Secretary: (1) has developed the guidelines in collaboration with practicing physicians (including both generalists and specialists) and provided for an assessment of the proposed guidelines by the physician community; (2) has established a plan that contains specific goals, including a schedule, for improving the use of such guidelines; (3) has conducted appropriate and representative pilot projects to test such guidelines; (4) finds, based on reports submitted with respect to pilot projects conducted for such or related guidelines, that described objectives for evaluation and management guidelines will be met in the implementation of such guidelines; and (5) has established, and is implementing, a program to educate physicians on the use of such guidelines and that includes appropriate outreach.

Directs the Secretary to carry out a study of the following for a report to Congress: (1) the development of a simpler, alternative system of requirements for documentation accompanying claims for evaluation and management physician services for which payment is made under Medicare; and (2) consideration of systems other than current coding and documentation requirements for payment for such physician services. Directs the MEDPAC to conduct an analysis of the results of the study included in the report for a report to Congress.

Requires the Secretary to conduct a study of the appropriateness of coding in cases of extended office visits in which there is no diagnosis made for a report to Congress.

(Sec. 942) Requires the Secretary to establish a Council for Technology and Innovation within the Centers for Medicare & Medicaid Services to coordinate the activities of coverage, coding, and payment processes under Medicare with respect to new technologies and procedures and to coordinate the exchange of information on new technologies between CMS and other entities that make similar decisions.

Directs the Secretary to establish by regulation procedures for determining the basis for, and amount of, payment for any clinical diagnostic laboratory test with respect to which a new or substantially revised HCPCS code is assigned on or after January 1, 2005.

Requires the Comptroller General to conduct a study for a report to Congress that analyzes which external data can be collected in a shorter timeframe by the Centers for Medicare & Medicaid Services for use in computing payments for inpatient hospital services.

(Sec. 943) Prohibits the Secretary from requiring a hospital (including a critical access hospital) to ask questions (or obtain information) relating to Medicare secondary payor provisions in the case of reference laboratory services if the Secretary does not impose such requirement in the case of such services furnished by an independent laboratory.

(Sec. 944) Requires emergency room services provided to screen and stabilize a Medicare beneficiary after January 1, 2004 to be evaluated for Medicare's "reasonable and necessary" requirement on the basis of the information available to the treating physician or practitioner at the time the services were ordered. Provides that except in the case where a delay would jeopardize the health or safety of individuals, the Secretary is required to request a peer review organization review before making a compliance determination that would terminate a hospital's Medicare participation because of Emergency Medical Treatment and Labor Act (EMTALA) violations.

(Sec. 945) Directs the Secretary to establish a Technical Advisory Group to review issues related to EMTALA and its implementation.

(Sec. 946) Permits a hospice to: (1) enter into arrangements with another hospice program to provide care in extraordinary, exigent or other non-routine circumstances, such as unanticipated high patient loads, staffing shortages due to illness or other events, or temporary travel by a patient outside the hospice's service area; and (2) bill and be paid for the hospice care provided under these arrangements.

(Sec. 947) Requires that public hospitals, not otherwise subject to the Occupational Safety and Health Act of 1970, comply with the Bloodborne Pathogens standard. Provides that a hospital that fails to comply with such requirement will be subject to a civil monetary penalty, but cannot be terminated from participating in Medicare.

(Sec. 948) Makes BIPA-related technical amendments and corrections.

(Sec. 949) Amends SSA title XI to permit the administrator of a Federal health care program to waive certain 5-year exclusions if the exclusion of a sole community physician or sole source of essential specialized services in a community will impose a hardship. Provides that the mandatory exclusions that can be waived are those related to convictions associated with program-related crimes; health care fraud; and controlled substances.

(Sec. 950) Amends SSA title XVIII to prohibit a group health plan providing supplemental or secondary coverage to Medicare beneficiaries from requiring dentists to obtain a claim denial from Medicare for dental benefits that are not covered by Medicare before paying the claim.

(Sec. 951) Requires the Secretary to arrange to furnish to "subsection (d)" hospitals the data necessary for such hospitals to compute the number of patient days used in computing the disproportionate patient percentage for that hospital for the current cost reporting year.

(Sec. 952) Allows physicians and non-physician practitioners to reassign payment for Medicare-covered services, regardless of where the service was provided so long as there is a contractual arrangement between the physician and the entity under which the entity submits the bill for such services. Allows the Secretary to provide for other enrollment qualifications to assure program integrity.

(Sec. 953) Requires the Comptroller General to report to Congress on: (1) the appropriateness of the updates in the conversion factor including the appropriateness of the sustainable growth rate formula for 2002 and subsequently; and (2) all aspects of physician compensation for services furnished under Medicare and how those aspects interact and the effect on appropriate compensation for physician services.

Directs the Secretary to provide, in an appropriate annual publication available to the public, a list of national coverage determinations made under Medicare in the previous year and information on how to get more information with respect to such determinations.

Requires the Comptroller General to submit to Congress a report on the implications if there were flexibility in the application of the Medicare conditions of participation for home health agencies with respect to groups or types of patients who are not Medicare beneficiaries.

Directs the Inspector General of HHS to submit a report to Congress on: (1) the extent to which hospitals provide notice to Medicare beneficiaries in accordance with applicable requirements before they use the 60 lifetime reserve days under the hospital benefit; and (2) the appropriateness and feasibility of hospitals providing a notice to such beneficiaries before the completely exhaust such lifetime reserve days.

Title X: Medicaid and Miscellaneous Provisions - Subtitle A: Medicaid Provisions - (Sec. 1001) Amends SSA title XIX to establish a temporary increase in DSH allotments for FY 2004 and for certain subsequent fiscal years.

Raises the temporary floor for extremely low DSH states for FY 2004 and subsequent fiscal years.

Provides for an appropriate DSH allotment adjustment for FY 2004 and 2005 for States with statewide "Section 1115" waivers which have been revoked or terminated before the end of either such fiscal year and for which there is no DSH allotment for the State. Requires the State whose waiver was revoked or terminated to submit an amendment to its State plan that would describe the methodology to be used by the State to identify and make payments to DSH hospitals, including children's hospitals and institutions for mental diseases or other mental health facilities (other than State-owned institutions or facilities), on the basis of the proportion of patients served by such hospitals that are low-income patients with special needs.

Directs the Secretary to require, with respect to FY 2004 and each fiscal year thereafter, a State as a condition of receiving Medicaid payments to submit to the Secretary an annual report identifying each DSH hospital that received a payment, the amount such hospital received, and such other information as the Secretary determines necessary to ensure the appropriateness of the DSH payments for the previous fiscal year.

Requires the State to annually submit to the Secretary an independent certified audit that verifies: (1) the extent to which hospitals have reduced their uncompensated care costs to reflect the total amount of claimed expenditures; (2) payment compliance; (3) only the uncompensated care costs of providing inpatient hospital and outpatient hospital services to described individuals are included in the calculation of the hospital-specific limits; (3) the State included all payments under Medicaid, including supplemental payments, in the calculation of such hospital-specific limits; and (4) the State has separately documented and retained a record of all of its costs and claimed expenditures under Medicare, uninsured costs in determining payment adjustments, and any payments made on behalf of the uninsured from payment adjustments.

(Sec. 1002) Permits certain high-volume DSH safety net providers to negotiate with pharmaceutical companies and to receive discounts on the prices of inpatient drugs for the lowest price they can get. (Currently such entities are only able to receive discounts on the prices of outpatient drugs because of a Center for Medicare and Medicaid Services interpretation of the best price exemption under the Medicaid drug rebate program). Provides for the application of specified auditing and recordkeeping requirements with respect to such high-volume DSH hospital safety net providers.

(Sec. 1003) Amends the Omnibus Budget Reconciliation Act of 1989, as amended by the Omnibus Budget Reconciliation Act of 1993 and the Balanced Budget Act of 1997, to permanently extend the moratorium on the determination of Saginaw Community Hospital as an institution for mental disease.

Subtitle B: Miscellaneous Provisions - (Sec. 1011) Appropriates for FY 2005 through 2008 specified funding out of any funds in the Treasury not otherwise appropriated to the Secretary for the purpose of making allotments to States for payments to eligible providers for unreimbursable costs incurred by providing emergency health care services to: (1) undocumented aliens; (2) aliens who have been parolded into the United States at a United States port of entry for the purpose of receiving eligible services; and (3) Mexican citizens permitted to enter the United States for not more than 72 hours under the authority of a biometric machine readable border crossing identification card.

(Sec. 1012) Directs the Secretary to establish the Commission on Systemic Interoperability to develop a comprehensive strategy for the adoption and implementation of health care information technology standards, that includes a timeline and prioritization for such adoption and implementation. Authorizes appropriations.

(Sec. 1013) Provides that in order to improve the quality, effectiveness, and efficiency of health care delivered pursuant to Medicare, Medicaid, and the State Children's Health Insurance Program, the Secretary is required to conduct and support research to meet the priorities and requests for scientific evidence and information identified by such programs with respect to: (1) the outcomes, comparative clinical effectiveness, and appropriateness of health care items and services; and (2) strategies for improving the efficiency and effectiveness of such programs, including the ways in which such items and services are organized, managed, and delivered under such programs. Requires the Secretary to establish a process to develop priorities that will guide the research, demonstrations, and evaluation activities undertaken pursuant to this section. Directs the Secretary to evaluate and synthesize available scientific evidence related to health care items and services identified as priorities and to disseminate such evaluations and syntheses to various prescription drug plans to enhance patient safety and quality of health care. Authorizes appropriations.

(Sec. 1014) Directs the Secretary to establish the Citizen's Health Care Working Group to hold hearings to examine: (1) the capacity of the public and private health care systems to expand coverage options; (2) the cost of health care and the effectiveness of care provided at all stages of the disease; (3) innovative State strategies used to expand health care coverage and lower health care costs; (4) local community solutions to accessing health care coverage; (5) efforts to enroll individuals currently eligible for public or private health care coverage; (6) the role of evidence-based medical practices that can be documented as restoring, maintaining, or improving a patient's health, and the use of technology in supporting providers in improving quality of care and lowering costs; and (7) strategies to assist purchasers of health care to become more aware of the impact of costs and to lower the costs of health care. Requires the Working Group to prepare and make available to health care consumers through the Internet and other appropriate public channels a report entitled "The Health Report to the American People." Directs the Working Group to initiate health care community meetings throughout the United States to address certain topics and to prepare and make available to the public initial recommendations on health care coverage and ways to improve and strengthen the health care system. Requires the Working Group to submit to Congress for appropriate action the final set of recommendations put together after the period of public comment. Authorizes appropriations.

(Sec. 1015) Makes appropriations to carry out this Act to be transferred from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund: (1) not to exceed $1,000,000,000 for the Centers for Medicare and Medicaid Services; and (2) not to exceed $500,000,000 for the Social Security Administration. Provides from these latter funds for the Social Security Administration to reimburse the Internal Revenue Service for expenses in carrying out this Act. Allows the President to transfer such amounts between the Centers for Medicare and Medicaid Services and the Social Security Administration.

(Sec. 1016) Amends SSA title XVIII to direct the Secretary to establish a loan program that provides loans to qualifying hospitals for payment of the capital costs of projects designed to improve the cancer-related health care infrastructure of the hospital, including construction, renovation, or other capital improvements. Makes appropriations.

Title XI: Access to Affordable Pharmaceuticals - Subtitle A: Access to Affordable Pharmaceuticals - (Sec. 1101) - Amends the Federal Food, Drug, and Cosmetic Act to revise provisions (Hatch-Waxman Act) with respect to abbreviated new drug applications (ANDAs) to require the ANDA applicant to submit a more detailed statement when filing a paragraph IV certification than currently mandated.

Requires the ANDA applicant to notify the patent holder and the brand name company (if different) of a paragraph IV certification within 20 days.

Prohibits the ANDA applicant from amending the application to include a drug different from that approved by the Food and Drug Administration (FDA), but allows the applicant to amend the application if seeking approval for a different strength of the same drug.

Authorizes the FDA to approve the ANDA on the date of an appeals court decision, the date of a settlement order or consent decree, or when a district court decision is not appealed.

Allows the paragraph IV ANDA applicant to request a declaratory judgment regarding the validity of the patent if an infringement suit is not filed within 45 days of the notification but provides however if sued that the patent holder and the brand name company (if different) may file a counter claim to require that changes be made to correct the patient information submitted.

Disallows damages from being awarded in either case.

Provides that: (1) if a declaratory judgment is pursued, the action is to be brought in the judicial district where the defendant has its principle place of business; and; (2) in a declaratory judgment the holder of an approved new drug application may obtain access to confidential information contained in the application; and (3) the 180-day exclusivity period is to begin on the date of the first commercial marketing of the generic drug by any first ANDA applicants.

Requires a first ANDA applicant to forfeit the 180-day exclusivity period under certain circumstances including failure to market within a specified time frame, withdrawal of the application, amendment of the certification and failure to obtain tentative marketing approval.

Prohibits other subsequent ANDA applicants from being permitted the 180-day exclusivity period if all first ANDA applicants forfeit.

(Sec. 1103) Defines "bioavailability" as the rate and extent to which the active ingredient or therapeutic ingredient is absorbed from a drug and becomes available at the site of drug action.

Subtitle B: Federal Trade Commission Review - (Sec. 1112) Requires that agreements between brand name companies and generic firms regarding the manufacture or sale of a generic drug that is equivalent to the pharmaceutical marketed by the patent owner must be filed with the Assistant Attorney General and the Federal Trade Commission (FTC) for review within ten days after the agreements are executed.

(Sec. 1114) Exempts from disclosure under the Freedom of Information Act any information or documentary material filed with the Assisstant Attorney General or FTC pursuant to this subtitle, and prohibits such information or documentary material from being made public, except as may be relevant to any administrative or judicial action or proceeding.

(Sec. 1115) Subjects parties which fail to file such agreements to civil penalties.

(Sec. 1116) Allows the FTC to engage in rulemaking to carry out this subtitle.

Subtitle C: Importation of Prescription Drugs - (Sec. 1121) Directs the Secretary to promulgate regulations permitting pharmacists and wholesalers to import prescription drugs from Canada into the United States. Sets forth specified provisions respecting: (1) importer and foreign seller recordkeeping and information requirements; (2) qualified laboratory drug testing; (3) registration with the Secretary of Canadian sellers; and (4) approved labeling.

Declares that the Secretary should: (1) focus enforcement on cases in which individual importation poses a significant public health threat; and (2) exercise discretion to permit individuals to make such importation for non-risk personal use.

Authorizes the Secretary to grant individuals a waiver of the prohibition of importation of a prescription drug or device. Directs the Secretary to grant individuals a waiver of such prohibition for an approved prescription drug imported from Canada that is: (1) imported from a licensed pharmacy for not more than 90-day personal use; (2) accompanied by a valid prescription; (3) in a final finished dosage that was manufactured in a registered establishment; and (4) imported under such other conditions as the Secretary determines necessary to ensure public safety.

(Sec. 1122) Directs the Secretary to conduct a study on the importation of drugs into the United States for submission in a report to the Congress.

Title XII: Tax Incentives For Health And Retirement Security - (Sec. 1201) Amends the IRC to permit eligible individuals who are covered by a high deductible health plan with a deductible of at least $1,000 up to $2,250 (subject to an annual cost of living adjustment) for self-only coverage with annual out of pocket expenses (deductibles, co-payments, not premiums) not exceeding $5,000, and a deductible of at least $2,000 up to $4,500 (subject to an annual cost of living adjustment) for family coverage with annual out of pocket expenses (deductibles, co-payments, not premiums) not exceeding $10,000, and not covered by any other other health plan that is not a high deductible health plan (except plans for any benefit provided by permitted insurance and plans for coverage for accidents, disability, dental care, vision care, or long-term care) to establish Health Savings Accounts (HSAs) for taxable years beginning with 2004 to pay for qualified medical expenses. Provides that: (1) contribution levels are to be determined monthly based on how many months of the year the individual is covered by a HDHP; and (2) a plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care. Prohibits Medicare-eligible individuals from participating in HSAs.

Includes as qualified medical expenses any expense for coverage under: (1) a COBRA continuation plan; (2) a qualified long-term care insurance contract; (3) a health plan during a period in which the individual is receiving unemployment compensation; and (4) health insurance premiums for individuals eligible for Medicare, other than premiums for Medigap policies program

Allows an eligible individual establishing an HSA to take a tax deduction for the taxable year of an amount equal to the aggregate contributions paid during the taxable year by or on behalf of such individual to an HSA of such individual, up to the limits specified above for self-only and family coverage. Allows the deduction whether or not the individual itemizes other deductions.

Allows contributions to remain in the HSA at the end of the year and to earn tax-exempt interest until they are withdrawn for uses other than for qualified medical expenses in which case they are to be included in the gross income of the account beneficiary and subjected to a ten percent penalty, except in cases of disability or death or where the contributions are distributed after the account beneficiary attains Medicare eligibility. Requires contributions to be in cash, except in the case of certain rollover contributions. Allows additional "catch up" contributions for eligible individuals age 55 or older.

Allows an HSA trustee to be a bank, an insurance company, or another person.

Permits rollovers from Archer MSAs.

Prohibits any payment or distribution out of an HSA for qualified medical expenses from being treated as an expense paid for medical care.

Allows employers to contribute to the HSAs of their employees and excludes amounts contributed from the employee's income and from employment taxes.

Imposes an excise tax on: (1) the failure of employer to make comparable HSA contributions; and (2) excess contributions.

Allows HSAs to be offered under cafeteria plans.

(Sec. 1202) Excludes from gross income any special subsidy payment received under employer-sponsored qualified retiree prescription drug plan programs.

(Sec. 1203) Creates an exception to information reporting requirements relating to information at the source for flexible spending arrangements and a health reimbursement arrangement that is treated as employer-provided coverage.