H. Rept. 106-703 - 106th Congress (1999-2000)
June 27, 2000, As Reported by the Ways and Means Committee

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House Report 106-703 - MEDICARE RX 2000 ACT




[House Report 106-703]
[From the U.S. Government Printing Office]



                                                                       
106th Congress                                            Rept. 106-703
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
                          MEDICARE RX 2000 ACT

                                _______
                                

 June 27, 2000.--Committed to the Committee of the Whole House on the 
              state of the Union and ordered to be printed

                                _______
                                

    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4680]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4680) to amend title XVIII of the Social Security 
Act to provide for a voluntary program for prescription drug 
coverage under the Medicare Program, to modernize the Medicare 
Program, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

                           TABLE OF CONTENTS

                                                                   Page
  I. Introduction....................................................40
          A. Purpose and Summary.................................    40
          B. Background and Need for Legislation.................    41
          C. Legislative History.................................    41
 II. Explanation of Provisions.......................................42
III. Votes of the Committee..........................................81
 IV. Budget Effects of the Bill......................................84
          A. Committee Estimate of Budgetary Effects.............    84
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................    85
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    85
  V. Other Matters to be Discussed under the Rules of the House......88
          A. Committee Oversight Findings and Recommendations....    88
          B. Summary of Findings and Recommendations of the 
              Government Reform Committee........................    88
          C. Constitutional Authority Statement..................    89
 VI. Changes in Existing Law Made by the Bill as Reported............89
VII. Dissenting Views...............................................148

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Medicare Rx 2000 
Act''.
  (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Establishment of a medicare prescription drug benefit.

         ``Part D--Voluntary Prescription Drug Benefit Program

        ``Sec. 1860A. Benefits; eligibility; enrollment; and coverage 
                        period.
        ``Sec. 1860B. Requirements for qualified prescription drug 
                        coverage.
        ``Sec. 1860C. Beneficiary protections for qualified 
                        prescription drug coverage.
        ``Sec. 1860D. Requirements for prescription drug plan (PDP) 
                        sponsors; contracts; establishment of 
                        standards.
        ``Sec. 1860E. Process for beneficiaries to select qualified 
                        prescription drug coverage.
        ``Sec. 1860F. Premiums.
        ``Sec. 1860G. Premium and cost-sharing subsidies for low-income 
                        individuals.
        ``Sec. 1860H. Subsidies for all medicare beneficiaries through 
                        reinsurance for qualified prescription drug 
                        coverage.
        ``Sec. 1860I. Medicare Prescription Drug Account in Federal 
                        Supplementary Medical Insurance Trust Fund.
        ``Sec. 1860J. Definitions; treatment of references to 
                        provisions in part C.''
Sec. 102. Offering of qualified prescription drug coverage under the 
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition provisions.
Sec. 105. Demonstration project for disease management for severely 
chronically ill medicare beneficiaries.

         TITLE II--MODERNIZATION OF ADMINISTRATION OF MEDICARE

              Subtitle A--Medicare Benefits Administration

Sec. 201. Establishment of administration.
        ``Sec. 1807. Medicare Benefits Administration.''
Sec. 202. Miscellaneous administrative provisions.

   Subtitle B--Oversight of Financial Sustainability of the Medicare 
                                Program

Sec. 211. Additional requirements for annual financial report and 
oversight on medicare program.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

Sec. 221. Revisions to medicare appeals process.
Sec. 222. Provisions with respect to limitations on liability of 
beneficiaries.
Sec. 223. Waivers of liability for cost sharing amounts.
Sec. 224. Elimination of motions by the Secretary on decisions of the 
Provider Reimbursement Review Board.

  TITLE III--MEDICARE+CHOICE REFORMS; PRESERVATION OF MEDICARE PART B 
                              DRUG BENEFIT

                  Subtitle A--Medicare+Choice Reforms

Sec. 301. Increase in national per capita Medicare+Choice growth 
percentage in 2001 and 2002.
Sec. 302. Permanently removing application of budget neutrality 
beginning in 2002.
Sec. 303. Increasing minimum payment amount.
Sec. 304. Allowing movement to 50:50 percent blend in 2002.
Sec. 305. Increased update for payment areas with only one or no 
Medicare+Choice contracts.
Sec. 306. Permitting higher negotiated rates in certain Medicare+Choice 
payment areas below national average.
Sec. 307. 10-year phase in of risk adjustment based on data from all 
settings.

 Subtitle B--Preservation of Medicare Coverage of Drugs and Biologicals

Sec. 311. Preservation of coverage of drugs and biologicals under part 
B of the medicare program.
Sec. 312. GAO report on part B payment for drugs and biologicals and 
related services.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

  (a) In General.--Title XVIII of the Social Security Act is amended--
          (1) by redesignating part D as part E; and
          (2) by inserting after part C the following new part:

         ``Part D--Voluntary Prescription Drug Benefit Program

``SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

  ``(a) Provision of Qualified Prescription Drug Coverage Through 
Enrollment in Plans.--Subject to the succeeding provisions of this 
part, each individual who is enrolled under part B is entitled to 
obtain qualified prescription drug coverage (described in section 
1860B(a)) as follows:
          ``(1) Medicare+choice plan.--If the individual is eligible to 
        enroll in a Medicare+Choice plan that provides qualified 
        prescription drug coverage under section 1851(j), the 
        individual may enroll in the plan and obtain coverage through 
        such plan.
          ``(2) Prescription drug plan.--If the individual is not 
        enrolled in a Medicare+Choice plan that provides qualified 
        prescription drug coverage, the individual may enroll under 
        this part in a prescription drug plan (as defined in section 
        1860C(a)).
Such individuals shall have a choice of such plans under section 
1860E(d).
  ``(b) General Election Procedures.--
          ``(1) In general.--An individual may elect to enroll in a 
        prescription drug plan under this part, or elect the option of 
        qualified prescription drug coverage under a Medicare+Choice 
        plan under part C, and change such election only in such manner 
        and form as may be prescribed by regulations of the 
        Administrator of the Medicare Benefits Administration 
        (appointed under section 1807(b)) (in this part referred to as 
        the `Medicare Benefits Administrator') and only during an 
        election period prescribed in or under this subsection.
          ``(2) Election periods.--
                  ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this subsection 
                shall be the same as the coverage election periods 
                under the Medicare+Choice program under section 
                1851(e), including--
                          ``(i) annual coordinated election periods; 
                        and
                          ``(ii) special election periods.
                In applying the last sentence of section 1851(e)(4) 
                (relating to discontinuance of a Medicare+Choice 
                election during the first year of eligibility) under 
                this subparagraph, in the case of an election described 
                in such section in which the individual had elected or 
                is provided qualified prescription drug coverage at the 
                time of such first enrollment, the individual shall be 
                permitted to enroll in a prescription drug plan under 
                this part at the time of the election of coverage under 
                the original fee-for-service plan.
                  ``(B) Initial election periods.--
                          ``(i) Individuals currently covered.--In the 
                        case of an individual who is enrolled under 
                        part B as of November 1, 2002, there shall be 
                        an initial election period of 6 months 
                        beginning on that date.
                          ``(ii) Individual covered in future.--In the 
                        case of an individual who is first enrolled 
                        under part B after November 1, 2002, there 
                        shall be an initial election period which is 
                        the same as the initial enrollment period under 
                        section 1837(d).
                  ``(C) Additional special election periods.--The 
                Medicare Benefits Administrator shall establish special 
                election periods--
                          ``(i) in cases of individuals who have and 
                        involuntarily lose prescription drug coverage 
                        described in subsection (c)(2)(C);
                          ``(ii) in cases described in section 1837(h) 
                        (relating to errors in enrollment), in the same 
                        manner as such section applies to part B; and
                          ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions recognized under section 
                        1851(d)(4)(D)) as the Administrator may 
                        provide.
                  ``(D) One-time enrollment permitted for current part 
                a only beneficiaries.--In the case of an individual who 
                as of November 1, 2002--
                          ``(i) is entitled to benefits under part A; 
                        and
                          ``(ii) is not (and has not previously been) 
                        enrolled under part B;
                the individual shall be eligible to enroll in a 
                prescription drug plan under this part but only during 
                the period described in subparagraph (B)(i). If the 
                individual enrolls in such a plan, the individual may 
                change such enrollment under this part, but the 
                individual may not enroll in a Medicare+Choice plan 
                under part C unless the individual enrolls under part 
                B. Nothing in this subparagraph shall be construed as 
                providing for coverage under a prescription drug plan 
                of benefits that are excluded because of the 
                application of section 1860B(f)(2)(B).
  ``(c) Guaranteed Issue; Community Rating; and Nondiscrimination.--
          ``(1) Guaranteed issue.--
                  ``(A) In general.--An eligible individual who is 
                eligible to elect qualified prescription drug coverage 
                under a prescription drug plan or Medicare+Choice plan 
                at a time during which elections are accepted under 
                this part with respect to the plan shall not be denied 
                enrollment based on any health status-related factor 
                (described in section 2702(a)(1) of the Public Health 
                Service Act) or any other factor.
                  ``(B) Medicare+choice limitations permitted.--The 
                provisions of paragraphs (2) and (3) (other than 
                subparagraph (C)(i), relating to default enrollment) of 
                section 1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP sponsors 
                under this subsection.
          ``(2) Community-rated premium.--
                  ``(A) In general.--In the case of an individual who 
                maintains (as determined under subparagraph (C)) 
                continuous prescription drug coverage since first 
                qualifying to elect prescription drug coverage under 
                this part, a PDP sponsor or Medicare+Choice 
                organization offering a prescription drug plan or 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage and in which the individual 
                is enrolled may not deny, limit, or condition the 
                coverage or provision of covered prescription drug 
                benefits or increase the premium under the plan based 
                on any health status-related factor described in 
                section 2702(a)(1) of the Public Health Service Act or 
                any other factor.
                  ``(B) Late enrollment penalty.--In the case of an 
                individual who does not maintain such continuous 
                prescription drug coverage, a PDP sponsor or 
                Medicare+Choice organization may (notwithstanding any 
                provision in this title) increase the premium otherwise 
                applicable or impose a pre-existing condition exclusion 
                with respect to qualified prescription drug coverage in 
                a manner that reflects additional actuarial risk 
                involved. Such a risk shall be established through an 
                appropriate actuarial opinion of the type described in 
                subparagraphs (A) through (C) of section 2103(c)(4).
                  ``(C) Continuous prescription drug coverage.--An 
                individual is considered for purposes of this part to 
                be maintaining continuous prescription drug coverage on 
                and after a date if the individual establishes that 
                there is no period of 63 days or longer on and after 
                such date (beginning not earlier than January 1, 2003) 
                during all of which the individual did not have any of 
                the following prescription drug coverage:
                          ``(i) Coverage under prescription drug plan 
                        or medicare+choice plan.--Qualified 
                        prescription drug coverage under a prescription 
                        drug plan or under a Medicare+Choice plan.
                          ``(ii) Medicaid prescription drug coverage.--
                        Prescription drug coverage under a medicaid 
                        plan under title XIX, including through the 
                        Program of All-inclusive Care for the Elderly 
                        (PACE) under section 1934, through a social 
                        health maintenance organization (referred to in 
                        section 4104(c) of the Balanced Budget Act of 
                        1997), or through a Medicare+Choice project 
                        that demonstrates the application of capitation 
                        payment rates for frail elderly medicare 
                        beneficiaries through the use of a 
                        interdisciplinary team and through the 
                        provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                          ``(iii) Prescription drug coverage under 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under the 
                        Federal Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States Code, and 
                        a qualified retiree prescription drug plan as 
                        defined in section 1860H(f)(1).
                          ``(iv) Prescription drug coverage under 
                        certain medigap policies.--Coverage under a 
                        medicare supplemental policy under section 1882 
                        that provides benefits for prescription drugs 
                        (whether or not such coverage conforms to the 
                        standards for packages of benefits under 
                        section 1882(p)(1)), but only if the policy was 
                        in effect on January 1, 2003, and only until 
                        the date such coverage is terminated.
                          ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program.
                          ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans under chapter 17 of title 38, United 
                        States Code.
                  ``(D) Certification.--For purposes of carrying out 
                this paragraph, the certifications of the type 
                described in sections 2701(e) of the Public Health 
                Service Act and in section 9801(e) of the Internal 
                Revenue Code shall also include a statement for the 
                period of coverage of whether the individual involved 
                had prescription drug coverage described in 
                subparagraph (C).
                  ``(E) Construction.--Nothing in this section shall be 
                construed as preventing the disenrollment of an 
                individual from a prescription drug plan or a 
                Medicare+Choice plan based on the termination of an 
                election described in section 1851(g)(3), including for 
                non-payment of premiums or for other reasons specified 
                in subsection (d)(3), which takes into account a grace 
                period described in section 1851(g)(3)(B)(i).
          ``(3) Nondiscrimination.--A PDP sponsor offering a 
        prescription drug plan shall not establish a service area in a 
        manner that would discriminate based on health or economic 
        status of potential enrollees.
  ``(d) Effective Date of Elections.--
          ``(1) In general.--Except as provided in this section, the 
        Medicare Benefits Administrator shall provide that elections 
        under subsection (b) take effect at the same time as the 
        Secretary provides that similar elections under section 1851(e) 
        take effect under section 1851(f).
          ``(2) No election effective before 2003.--In no case shall 
        any election take effect before January 1, 2003.
          ``(3) Termination.--The Medicare Benefits Administrator shall 
        provide for the termination of an election in the case of--
                  ``(A) termination of coverage under part B (other 
                than the case of an individual described in subsection 
                (b)(2)(D) (relating to part A only individuals)); and
                  ``(B) termination of elections described in section 
                1851(g)(3) (including failure to pay required 
                premiums).

``SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

  ``(a) Requirements.--
          ``(1) In general.--For purposes of this part and part C, the 
        term `qualified prescription drug coverage' means either of the 
        following:
                  ``(A) Standard coverage with access to negotiated 
                prices.--Standard coverage (as defined in subsection 
                (b)) and access to negotiated prices under subsection 
                (d).
                  ``(B) Actuarially equivalent coverage with access to 
                negotiated prices.--Coverage of covered outpatient 
                drugs which meets the alternative coverage requirements 
                of subsection (c) and access to negotiated prices under 
                subsection (d).
          ``(2) Permitting additional outpatient prescription drug 
        coverage.--
                  ``(A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as preventing 
                qualified prescription drug coverage from including 
                coverage of covered outpatient drugs that exceeds the 
                coverage required under paragraph (1), but any such 
                additional coverage shall be limited to coverage of 
                covered outpatient drugs.
                  ``(B) Disapproval authority.--The Medicare Benefits 
                Administrator shall review the offering of qualified 
                prescription drug coverage under this part or part C. 
                If the Administrator finds that, in the case of a 
                qualified prescription drug coverage under a 
                prescription drug plan or a Medicare+Choice plan, that 
                the organization or sponsor offering the coverage is 
                purposefully engaged in activities intended to result 
                in favorable selection of those eligible medicare 
                beneficiaries obtaining coverage through the plan, the 
                Administrator may terminate the contract with the 
                sponsor or organization under this part or part C.
          ``(3) Application of secondary payor provisions.--The 
        provisions of section 1852(a)(4) shall apply under this part in 
        the same manner as they apply under part C.
  ``(b) Standard Coverage.--For purposes of this part, the `standard 
coverage' is coverage of covered outpatient drugs (as defined in 
subsection (f)) that meets the following requirements:
          ``(1) Deductible.--The coverage has an annual deductible--
                  ``(A) for 2003, that is equal to $250; or
                  ``(B) for a subsequent year, that is equal to the 
                amount specified under this paragraph for the previous 
                year increased by the percentage specified in paragraph 
                (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $5 shall be rounded to the nearest multiple of $5.
          ``(2) Limits on cost-sharing.--The coverage has cost-sharing 
        (for costs above the annual deductible specified in paragraph 
        (1) and up to the initial coverage limit under paragraph (3)) 
        that is equal to 50 percent or that is actuarially consistent 
        (using processes established under subsection (e)) with an 
        average expected payment of 50 percent of such costs.
          ``(3) Initial coverage limit.--Subject to paragraph (4), the 
        coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes (above the annual 
        deductible)--
                  ``(A) for 2003, that is equal to $2,100; or
                  ``(B) for a subsequent year, that is equal to the 
                amount specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $25 shall be rounded to the nearest multiple of 
        $25.
          ``(4) Limitation on out-of-pocket expenditures by 
        beneficiary.--
                  ``(A) In general.--Notwithstanding paragraph (3), the 
                coverage provides benefits without any cost-sharing 
                after the individual has incurred costs (as described 
                in subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket limit specified 
                in subparagraph (B).
                  ``(B) Annual out-of-pocket limit.--For purposes of 
                this part, the `annual out-of-pocket limit' specified 
                in this subparagraph--
                          ``(i) for 2003, is equal to $6,000; or
                          ``(ii) for a subsequent year, is equal to the 
                        amount specified in this subparagraph for the 
                        previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                Any amount determined under clause (ii) that is not a 
                multiple of $100 shall be rounded to the nearest 
                multiple of $100.
                  ``(C) Application.--In applying subparagraph (A)--
                          ``(i) incurred costs shall only include costs 
                        incurred for the annual deductible (described 
                        in paragraph (1)), cost-sharing (described in 
                        paragraph (2)), and amounts for which benefits 
                        are not provided because of the application of 
                        the initial coverage limit described in 
                        paragraph (3); and
                          ``(ii) such costs shall be treated as 
                        incurred without regard to whether the 
                        individual or another person, including a State 
                        program or other third-party coverage, has paid 
                        for such costs.
          ``(5) Annual percentage increase.--For purposes of this part, 
        the annual percentage increase specified in this paragraph for 
        a year is equal to the annual percentage increase in average 
        per capita aggregate expenditures for covered outpatient drugs 
        in the United States for medicare beneficiaries, as determined 
        by the Medicare Benefits Administrator for the 12-month period 
        ending in July of the previous year.
  ``(c) Alternative Coverage Requirements.--A prescription drug plan or 
Medicare+Choice plan may provide a different prescription drug benefit 
design from the standard coverage described in subsection (b) so long 
as the following requirements are met:
          ``(1) Assuring at least actuarially equivalent coverage.--
                  ``(A) Assuring equivalent value of total coverage.--
                The actuarial value of the total coverage (as 
                determined under subsection (e)) is at least equal to 
                the actuarial value (as so determined) of standard 
                coverage.
                  ``(B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                coverage. For purposes of this subparagraph, the 
                unsubsidized value of coverage is the amount by which 
                the actuarial value of the coverage (as determined 
                under subsection (e)) exceeds the actuarial value of 
                the reinsurance subsidy payments under section 1860H 
                with respect to such coverage.
                  ``(C) Assuring standard payment for costs at initial 
                coverage limit.--The coverage is designed, based upon 
                an actuarially representative pattern of utilization 
                (as determined under subsection (e)), to provide for 
                the payment, with respect to costs incurred that are 
                equal to the sum of the deductible under subsection 
                (b)(1) and the initial coverage limit under subsection 
                (b)(3), of an amount equal to at least such initial 
                coverage limit multiplied by the percentage specified 
                in subsection (b)(2).
          ``(2) Limitation on out-of-pocket expenditures by 
        beneficiaries.--The coverage provides the limitation on out-of-
        pocket expenditures by beneficiaries described in subsection 
        (b)(4).
  ``(d) Access to Negotiated Prices.--Under qualified prescription drug 
coverage offered by a PDP sponsor or a Medicare+Choice organization, 
the sponsor or organization shall provide beneficiaries with access to 
negotiated prices (including applicable discounts) used for payment for 
covered outpatient drugs, regardless of the fact that no benefits may 
be payable under the coverage with respect to such drugs because of the 
application of cost-sharing or an initial coverage limit (described in 
subsection (b)(3)). Insofar as a State elects to provide medical 
assistance under title XIX for a drug based on the prices negotiated by 
a prescription drug plan under this part, the requirements of section 
1927 shall not apply to such drugs.
  ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
          ``(1) Processes.--For purposes of this section, the Medicare 
        Benefits Administrator shall establish processes and methods--
                  ``(A) for determining the actuarial valuation of 
                prescription drug coverage, including--
                          ``(i) an actuarial valuation of standard 
                        coverage and of the reinsurance subsidy 
                        payments under section 1860H;
                          ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                          ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (c) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (b); and
                  ``(B) for determining annual percentage increases 
                described in subsection (b)(5).
          ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), PDP sponsors and Medicare+Choice 
        organizations may use actuarial opinions certified by 
        independent, qualified actuaries to establish actuarial values.
  ``(f) Covered Outpatient Drugs Defined.--
          ``(1) In general.--Except as provided in this subsection, for 
        purposes of this part, the term `covered outpatient drug' 
        means--
                  ``(A) a drug that may be dispensed only upon a 
                prescription and that is described in subparagraph 
                (A)(i) or (A)(ii) of section 1927(k)(2); or
                  ``(B) a biological product or insulin described in 
                subparagraph (B) or (C) of such section;
        and such term includes any use of a covered outpatient drug for 
        a medically accepted indication (as defined in section 
        1927(k)(6)).
          ``(2) Exclusions.--
                  ``(A) In general.--Such term does not include drugs 
                or classes of drugs, or their medical uses, which may 
                be excluded from coverage or otherwise restricted under 
                section 1927(d)(2), other than subparagraph (E) thereof 
                (relating to smoking cessation agents).
                  ``(B) Avoidance of duplicate coverage.--A drug 
                prescribed for an individual that would otherwise be a 
                covered outpatient drug under this part shall not be so 
                considered if payment for such drug is available under 
                part A or B (but shall be so considered if such payment 
                is not available because benefits under part A or B 
                have been exhausted), without regard to whether the 
                individual is entitled to benefits under part A or 
                enrolled under part B.
          ``(3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a covered 
        outpatient drug under this part shall not be so considered 
        under a plan if the plan excludes the drug under a formulary 
        that meets the requirements of section 1860C(f)(2) (including 
        providing an appeal process).
          ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or Medicare+Choice plan may exclude from 
        qualified prescription drug coverage any covered outpatient 
        drug--
                  ``(A) for which payment would not be made if section 
                1862(a) applied to part D; or
                  ``(B) which are not prescribed in accordance with the 
                plan or this part.
        Such exclusions are determinations subject to reconsideration 
        and appeal pursuant to section 1860C(f).
          ``(5) Study on inclusion of drugs treating morbid obesity.--
        The Medicare Policy Advisory Board shall provide for a study on 
        removing the exclusion under paragraph (2)(A) for coverage of 
        agents used for weight loss in the case of morbidly obese 
        individuals. The Board shall report to Congress on the results 
        of the study not later than March 1, 2002.

``SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  ``(a) Guaranteed Issue Community-Related Premiums and 
Nondiscrimination.--For provisions requiring guaranteed issue, 
community-rated premiums, and nondiscrimination, see sections 
1860A(c)(1), 1860A(c)(2), and 1860F(b).
  ``(b) Dissemination of Information.--
          ``(1) General information.--A PDP sponsor shall disclose, in 
        a clear, accurate, and standardized form to each enrollee with 
        a prescription drug plan offered by the sponsor under this part 
        at the time of enrollment and at least annually thereafter, the 
        information described in section 1852(c)(1) relating to such 
        plan. Such information includes the following:
                  ``(A) Access to covered outpatient drugs, including 
                access through pharmacy networks.
                  ``(B) How any formulary used by the sponsor 
                functions.
                  ``(C) Co-payments and deductible requirements.
                  ``(D) Grievance and appeals procedures.
          ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll under a prescription drug plan, 
        the PDP sponsor shall provide the information described in 
        section 1852(c)(2) (other than subparagraph (D)) to such 
        individual.
          ``(3) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information to enrollees upon request. The 
        sponsor shall make available, through an Internet website and 
        in writing upon request, information on specific changes in its 
        formulary.
          ``(4) Claims information.--Each PDP sponsor offering a 
        prescription drug plan must furnish to enrolled individuals in 
        a form easily understandable to such individuals an explanation 
        of benefits (in accordance with section 1806(a) or in a 
        comparable manner) and a notice of the benefits in relation to 
        initial coverage limit and annual out-of-pocket limit for the 
        current year, whenever prescription drug benefits are provided 
        under this part (except that such notice need not be provided 
        more often than monthly).
  ``(c) Access to Covered Benefits.--
          ``(1) Assuring pharmacy access.--The PDP sponsor of the 
        prescription drug plan shall secure the participation of 
        sufficient numbers of pharmacies (which may include mail order 
        pharmacies) to ensure convenient access (including adequate 
        emergency access) for enrolled beneficiaries, in accordance 
        with standards established under section 1860D(e) that ensure 
        such convenient access. Nothing in this paragraph shall be 
        construed as requiring the participation of (or permitting the 
        exclusion of) all pharmacies in any area under a plan.
          ``(2) Access to negotiated prices for prescription drugs.--
        The PDP sponsor of a prescription drug plan shall issue such a 
        card that may be used by an enrolled beneficiary to assure 
        access to negotiated prices under section 1860B(d) for the 
        purchase of prescription drugs for which coverage is not 
        otherwise provided under the prescription drug plan.
          ``(3) Requirements on development and application of 
        formularies.--Insofar as a PDP sponsor of a prescription drug 
        plan uses a formulary, the following requirements must be met:
                  ``(A) Formulary committee.--The sponsor must 
                establish a pharmaceutical and therapeutic committee 
                that develops the formulary. Such committee shall 
                include at least one physician and at least one 
                pharmacist.
                  ``(B) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                all therapeutic categories and classes of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes).
                  ``(C) Appeals and exceptions to application.--The PDP 
                sponsor must have, as part of the appeals process under 
                subsection (f)(2), a process for appeals for denials of 
                coverage based on such application of the formulary.
  ``(d) Cost and Utilization Management; Quality Assurance; Medication 
Therapy Management Program.--
          ``(1) In general.--The PDP sponsor shall have in place--
                  ``(A) an effective cost and drug utilization 
                management program, including appropriate incentives to 
                use generic drugs, when appropriate;
                  ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
                including a medication therapy management program 
                described in paragraph (2); and
                  ``(C) a program to control fraud, abuse, and waste.
          ``(2) Medication therapy management program.--
                  ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that is designed to assure that covered outpatient 
                drugs under the prescription drug plan are 
                appropriately used to achieve therapeutic goals and 
                reduce the risk of adverse events, including adverse 
                drug interactions.
                  ``(B) Elements.--Such program may include--
                          ``(i) enhanced beneficiary understanding of 
                        such appropriate use through beneficiary 
                        education, counseling, and other appropriate 
                        means; and
                          ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means.
                  ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed pharmacists and 
                physicians.
                  ``(D) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug program shall take into 
                account, in establishing fees for pharmacists and 
                others providing services under the medication therapy 
                management program, the resources and time used in 
                implementing the program.
          ``(3) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to the 
        following requirements, in the same manner as they apply to 
        Medicare+Choice plans under part C with respect to the 
        requirements described in a clause of section 1852(e)(4)(B):
                  ``(A) Paragraph (1) (including quality assurance), 
                including medication therapy management program under 
                paragraph (2).
                  ``(B) Subsection (c)(1) (relating to access to 
                covered benefits).
                  ``(C) Subsection (g) (relating to confidentiality and 
                accuracy of enrollee records).
          ``(4) Public disclosure of pharmaceutical prices for generic 
        equivalent drugs.--Each PDP sponsor shall provide that each 
        pharmacy or other dispenser that arranges for the dispensing of 
        a covered outpatient drug shall inform the beneficiary at the 
        time of purchase of the drug of any differential between the 
        price of the prescribed drug to the enrollee and the price of 
        the lowest cost generic drug that is therapeutically and 
        pharmaceutically equivalent and bioequivalent.
  ``(e) Grievance Mechanism.--Each PDP sponsor shall provide meaningful 
procedures for hearing and resolving grievances between the 
organization (including any entity or individual through which the 
sponsor provides covered benefits) and enrollees with prescription drug 
plans of the sponsor under this part in accordance with section 
1852(f).
  ``(f) Coverage Determinations, Reconsiderations, and Appeals.--
          ``(1) In general.--A PDP sponsor shall meet the requirements 
        of section 1852(g) with respect to covered benefits under the 
        prescription drug plan it offers under this part in the same 
        manner as such requirements apply to a Medicare+Choice 
        organization with respect to benefits it offers under a 
        Medicare+Choice plan under part C.
          ``(2) Appeals of formulary determinations.--Under the appeals 
        process under paragraph (1) an individual who is enrolled in a 
        prescription drug plan offered by a PDP sponsor may appeal to 
        obtain coverage for a covered outpatient drug that is not on 
        the formulary of the sponsor (established under subsection (c)) 
        if the prescribing physician determines that the 
        therapeutically similar drug that is on the formulary is not as 
        effective for the enrollee or has significant adverse effects 
        for the enrollee.
  ``(g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor shall meet the requirements of section 1852(h) with respect to 
enrollees under this part in the same manner as such requirements apply 
to a Medicare+Choice organization with respect to enrollees under part 
C.

``SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG PLAN (PDP) SPONSORS; 
                    CONTRACTS; ESTABLISHMENT OF STANDARDS.

  ``(a) General Requirements.--Each PDP sponsor of a prescription drug 
plan shall meet the following requirements:
          ``(1) Licensure.--Subject to subsection (c), the sponsor is 
        organized and licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits coverage 
        in each State in which it offers a prescription drug plan.
          ``(2) Assumption of full financial risk.--
                  ``(A) In general.--Subject to subparagraph (B) and 
                section 1860E(d)(2), the entity assumes full financial 
                risk on a prospective basis for qualified prescription 
                drug coverage that it offers under a prescription drug 
                plan and that is not covered under reinsurance under 
                section 1860H.
                  ``(B) Reinsurance permitted.--The entity may obtain 
                insurance or make other arrangements for the cost of 
                coverage provided to any enrolled member under this 
                part.
          ``(3) Solvency for unlicensed sponsors.--In the case of a 
        sponsor that is not described in paragraph (1), the sponsor 
        shall meet solvency standards established by the Medicare 
        Benefits Administrator under subsection (d).
  ``(b) Contract Requirements.--
          ``(1) In general.--The Medicare Benefits Administrator shall 
        not permit the election under section 1860A of a prescription 
        drug plan offered by a PDP sponsor under this part, and the 
        sponsor shall not be eligible for payments under section 1860G 
        or 1860H, unless the Administrator has entered into a contract 
        under this subsection with the sponsor with respect to the 
        offering of such plan. Such a contract with a sponsor may cover 
        more than 1 prescription drug plan. Such contract shall provide 
        that the sponsor agrees to comply with the applicable 
        requirements and standards of this part and the terms and 
        conditions of payment as provided for in this part.
          ``(2) Negotiation regarding terms and conditions.--The 
        Medicare Benefits Administrator shall have the same authority 
        to negotiate the terms and conditions of prescription drug 
        plans under this part as the Director of the Office of 
        Personnel Management has with respect to health benefits plans 
        under chapter 89 of title 5, United States Code. In negotiating 
        the terms and conditions regarding premiums for which 
        information is submitted under section 1860F(a)(2), the 
        Administrator shall take into account the reinsurance subsidy 
        payments under section 1860H and the adjusted community rate 
        (as defined in section 1854(f)(3)) for the benefits covered.
          ``(3) Incorporation of certain medicare+choice contract 
        requirements.--The following provisions of section 1857 shall 
        apply, subject to subsection (c)(5), to contracts under this 
        section in the same manner as they apply to contracts under 
        section 1857(a):
                  ``(A) Minimum enrollment.--Paragraphs (1) and (3) of 
                section 1857(b).
                  ``(B) Contract period and effectiveness.--Paragraphs 
                (1) through (3) and (5) of section 1857(c).
                  ``(C) Protections against fraud and beneficiary 
                protections.--Section 1857(d).
                  ``(D) Additional contract terms.--Section 1857(e); 
                except that in applying section 1857(e)(2) under this 
                part--
                          ``(i) such section shall be applied 
                        separately to costs relating to this part (from 
                        costs under part C);
                          ``(ii) in no case shall the amount of the fee 
                        established under this subparagraph for a plan 
                        exceed 20 percent of the maximum amount of the 
                        fee that may be established under subparagraph 
                        (B) of such section; and
                          ``(iii) no fees shall be applied under this 
                        subparagraph with respect to Medicare+Choice 
                        plans.
                  ``(E) Intermediate sanctions.--Section 1857(g).
                  ``(F) Procedures for termination.--Section 1857(h).
          ``(4) Rules of application for intermediate sanctions.--In 
        applying paragraph (3)(E)--
                  ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this part; and
                  ``(B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
  ``(c) Waiver of Certain Requirements to Expand Choice.--
          ``(1) In general.--In the case of an entity that seeks to 
        offer a prescription drug plan in a State, the Medicare 
        Benefits Administrator shall waive the requirement of 
        subsection (a)(1) that the entity be licensed in that State if 
        the Administrator determines, based on the application and 
        other evidence presented to the Administrator, that any of the 
        grounds for approval of the application described in paragraph 
        (2) has been met.
          ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraph (B), (C), and (D) of section 1855(a)(2), and also 
        include the application by a State of any grounds other than 
        those required under Federal law.
          ``(3) Application of waiver procedures.--With respect to an 
        application for a waiver (or a waiver granted) under this 
        subsection, the provisions of subparagraphs (E), (F), and (G) 
        of section 1855(a)(2) shall apply.
          ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the entity to 
        meet other requirements imposed under this part for a PDP 
        sponsor.
          ``(5) References to certain provisions.--For purposes of this 
        subsection, in applying provisions of section 1855(a)(2) under 
        this subsection to prescription drug plans and PDP sponsors--
                  ``(A) any reference to a waiver application under 
                section 1855 shall be treated as a reference to a 
                waiver application under paragraph (1); and
                  ``(B) any reference to solvency standards shall be 
                treated as a reference to solvency standards 
                established under subsection (d).
  ``(d) Solvency Standards for Non-Licensed Sponsors.--
          ``(1) Establishment.--The Medicare Benefits Administrator 
        shall establish, by not later than October 1, 2001, financial 
        solvency and capital adequacy standards that an entity that 
        does not meet the requirements of subsection (a)(1) must meet 
        to qualify as a PDP sponsor under this part.
          ``(2) Compliance with standards.--Each PDP sponsor that is 
        not licensed by a State under subsection (a)(1) and for which a 
        waiver application has been approved under subsection (c) shall 
        meet solvency and capital adequacy standards established under 
        paragraph (1). The Medicare Benefits Administrator shall 
        establish certification procedures for such PDP sponsors with 
        respect to such solvency standards in the manner described in 
        section 1855(c)(2).
  ``(e) Other Standards.--The Medicare Benefits Administrator shall 
establish by regulation other standards (not described in subsection 
(d)) for PDP sponsors and plans consistent with, and to carry out, this 
part. The Administrator shall publish such regulations by October 1, 
2001. In order to carry out this requirement in a timely manner, the 
Administrator may promulgate regulations that take effect on an interim 
basis, after notice and pending opportunity for public comment.
  ``(f) Relation to State Laws.--
          ``(1) In general.--The standards established under this 
        section shall supersede any State law or regulation (including 
        standards described in paragraph (2)) with respect to 
        prescription drug plans which are offered by PDP sponsors under 
        this part to the extent such law or regulation is inconsistent 
        with such standards.
          ``(2) Standards specifically superseded.--State standards 
        relating to the following are superseded under this subsection:
                  ``(A) Benefit requirements.
                  ``(B) Requirements relating to inclusion or treatment 
                of providers.
                  ``(C) Coverage determinations (including related 
                appeals and grievance processes).
                  ``(D) Establishment and regulation of premiums.
          ``(3) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to 
        premiums paid to PDP sponsors for prescription drug plans under 
        this part, or with respect to any payments made to such a 
        sponsor by the Medicare Benefits Administrator under this part.

``SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
                    PRESCRIPTION DRUG COVERAGE.

  ``(a) In General.--The Medicare Benefits Administrator, through the 
Office of Beneficiary Assistance, shall establish, based upon and 
consistent with the procedures used under part C (including section 
1851), a process for the selection of the prescription drug plan or 
Medicare+Choice plan which offer qualified prescription drug coverage 
through which eligible individuals elect qualified prescription drug 
coverage under this part.
  ``(b) Elements.--Such process shall include the following:
          ``(1) Annual, coordinated election periods, in which such 
        individuals can change the qualifying plans through which they 
        obtain coverage, in accordance with section 1860A(b)(2).
          ``(2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon price, 
        quality, and other features, in the manner described in (and in 
        coordination with) section 1851(d), including the provision of 
        annual comparative information, maintenance of a toll-free 
        hotline, and the use of non-federal entities.
          ``(3) Coordination of elections through filing with a 
        Medicare+Choice organization or a PDP sponsor, in the manner 
        described in (and in coordination with) section 1851(c)(2).
  ``(c) Medicare+Choice Enrollee In Plan Offering Prescription Drug 
Coverage May Only Obtain Benefits Through the Plan.--An individual who 
is enrolled under a Medicare+Choice plan that offers qualified 
prescription drug coverage may only elect to receive qualified 
prescription drug coverage under this part through such plan.
  ``(d) Assuring Access to a Choice of Qualified Prescription Drug 
Coverage.--
          ``(1) Choice of at least 2 plans in each area.--
                  ``(A) In general.--The Medicare Benefits 
                Administrator shall assure that each individual who is 
                enrolled under part B and who is residing in an area 
                has available, consistent with subparagraph (B), a 
                choice of enrollment in at least 2 qualifying plans (as 
                defined in paragraph (5)) in the area in which the 
                individual resides, at least one of which is a 
                prescription drug plan.
                  ``(B) Requirement for different plan sponsors.--The 
                requirement in subparagraph (A) is not satisfied with 
                respect to an area if only one PDP sponsor or 
                Medicare+Choice organization offers all the qualifying 
                plans in the area.
          ``(2) Guaranteeing access to coverage.--In order to assure 
        access under paragraph (1) and consistent with paragraph (3), 
        the Medicare Benefits Administrator may provide financial 
        incentives (including partial underwriting of risk) for a PDP 
        sponsor to expand the service area under an existing 
        prescription drug plan to adjoining or additional areas or to 
        establish such a plan (including offering such a plan on a 
        regional or nationwide basis), but only so long as (and to the 
        extent) necessary to assure the access guaranteed under 
        paragraph (1).
          ``(3) Limitation on authority.--In exercising authority under 
        this subsection, the Medicare Benefits Administrator--
                  ``(A) shall not provide for the full underwriting of 
                financial risk for any PDP sponsor;
                  ``(B) shall not provide for any underwriting of 
                financial risk for a public PDP sponsor with respect to 
                the offering of a nationwide prescription drug plan; 
                and
                  ``(C) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or Medicare+Choice 
                organizations.
          ``(4) Reports.--The Medicare Benefits Administrator shall, in 
        each annual report to Congress under section 1807(f), include 
        information on the exercise of authority under this subsection. 
        The Administrator also shall include such recommendations as 
        may be appropriate to minimize the exercise of such authority, 
        including minimizing the assumption of financial risk.
          ``(5) Qualifying plan defined.--For purposes of this 
        subsection, the term `qualifying plan' means a prescription 
        drug plan or a Medicare+Choice plan that includes qualified 
        prescription drug coverage.

``SEC. 1860F. PREMIUMS.

  ``(a) Submission of Premiums and Related Information.--
          ``(1) In general.--Each PDP sponsor shall submit to the 
        Medicare Benefits Administrator information of the type 
        described in paragraph (2) in the same manner as information is 
        submitted by a Medicare+Choice organization under section 
        1854(a)(1).
          ``(2) Type of information.--The information described in this 
        paragraph is the following:
                  ``(A) Information on the qualified prescription drug 
                coverage to be provided.
                  ``(B) Information on the actuarial value of the 
                coverage.
                  ``(C) Information on the monthly premium to be 
                charged for the coverage, including an actuarial 
                certification of--
                          ``(i) the actuarial basis for such premium;
                          ``(ii) the portion of such premium 
                        attributable to benefits in excess of standard 
                        coverage; and
                          ``(iii) the reduction in such premium 
                        resulting from the reinsurance subsidy payments 
                        provided under section 1860H.
                  ``(D) Such other information as the Medicare Benefits 
                Administrator may require to carry out this part.
          ``(3) Review.--The Medicare Benefits Administrator shall 
        review the information filed under paragraph (2) for the 
        purpose of conducting negotiations under section 1860D(b)(2).
  ``(b) Uniform Premium.--The premium for a prescription drug plan 
charged under this section may not vary among individuals enrolled in 
the plan in the same service area, except as is permitted under section 
1860A(c)(2)(B) (relating to late enrollment penalties).
  ``(c) Terms and Conditions for Imposing Premiums.--The provisions of 
section 1854(d) shall apply under this part in the same manner as they 
apply under part C, and, for this purpose, the reference in such 
section to section 1851(g)(3)(B)(i) is deemed a reference to section 
1860A(d)(3)(B) (relating to failure to pay premiums required under this 
part).
  ``(d) Acceptance of Reference Premium as Full Premium if No Standard 
(or Equivalent) Coverage in an Area.--
          ``(1) In general.--If there is no standard prescription drug 
        coverage (as defined in paragraph (2)) offered in an area, in 
        the case of an individual who is eligible for a premium subsidy 
        under section 1860G and resides in the area, the PDP sponsor of 
        any prescription drug plan offered in the area (and any 
        Medicare+Choice organization that offers qualified prescription 
        drug coverage in the area) shall accept the reference premium 
        under section 1860G(b)(2) as payment in full for the premium 
        charge for qualified prescription drug coverage.
          ``(2) Standard prescription drug coverage defined.--For 
        purposes of this subsection, the term `standard prescription 
        drug coverage' means qualified prescription drug coverage that 
        is standard coverage or that has an actuarial value equivalent 
        to the actuarial value for standard coverage.

``SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
                    INDIVIDUALS.

  ``(a) In General.--
          ``(1) Full premium subsidy and reduction of cost-sharing for 
        individuals with income below 135 percent of federal poverty 
        level.--In the case of a subsidy eligible individual (as 
        defined in paragraph (3)) who is determined to have income that 
        does not exceed 135 percent of the Federal poverty level, the 
        individual is entitled under this section--
                  ``(A) to a premium subsidy equal to 100 percent of 
                the amount described in subsection (b)(1); and
                  ``(B) subject to subsection (c), to the substitution 
                for the beneficiary cost-sharing described in 
                paragraphs (1) and (2) of section 1860B(b) (up to the 
                initial coverage limit specified in paragraph (3) of 
                such section) of amounts that are nominal.
          ``(2) Sliding scale premium subsidy for individuals with 
        income above 135, but below 150 percent, of federal poverty 
        level.--In the case of a subsidy eligible individual who is 
        determined to have income that exceeds 135 percent, but does 
        not exceed 150 percent, of the Federal poverty level, the 
        individual is entitled under this section to a premium subsidy 
        determined on a linear sliding scale ranging from 100 percent 
        of the amount described in subsection (b)(1) for individuals 
        with incomes at 135 percent of such level to 0 percent of such 
        amount for individuals with incomes at 150 percent of such 
        level.
          ``(3) Determination of eligibility.--
                  ``(A) Subsidy eligible individual defined.--For 
                purposes of this section, subject to subparagraph (D), 
                the term `subsidy eligible individual' means an 
                individual who--
                          ``(i) is eligible to elect, and has elected, 
                        to obtain qualified prescription drug coverage 
                        under this part;
                          ``(ii) has income below 150 percent of the 
                        Federal poverty line; and
                          ``(iii) meets the resources requirement 
                        described in section 1905(p)(1)(C).
                  ``(B) Determinations.--The determination of whether 
                an individual residing in a State is a subsidy eligible 
                individual and the amount of such individual's income 
                shall be determined under the State medicaid plan for 
                the State under section 1935(a). In the case of a State 
                that does not operate such a medicaid plan (either 
                under title XIX or under a statewide waiver granted 
                under section 1115), such determination shall be made 
                under arrangements made by the Medicare Benefits 
                Administrator.
                  ``(C) Income determinations.--For purposes of 
                applying this section--
                          ``(i) income shall be determined in the 
                        manner described in section 1905(p)(1)(B); and
                          ``(ii) the term `Federal poverty line' means 
                        the official poverty line (as defined by the 
                        Office of Management and Budget, and revised 
                        annually in accordance with section 673(2) of 
                        the Omnibus Budget Reconciliation Act of 1981) 
                        applicable to a family of the size involved.
                  ``(D) Treatment of territorial residents.--In the 
                case of an individual who is not a resident of the 50 
                States or the District of Columbia, the individual is 
                not eligible to be a subsidy eligible individual but 
                may be eligible for financial assistance with 
                prescription drug expenses under section 1935(e).
  ``(b) Premium Subsidy Amount.--
          ``(1) In general.--The premium subsidy amount described in 
        this subsection for an individual residing in an area is the 
        reference premium (as defined in paragraph (2)) for qualified 
        prescription drug coverage offered by the prescription drug 
        plan or the Medicare+Choice plan in which the individual is 
        enrolled.
          ``(2) Reference premium defined.--For purposes of this 
        subsection, the term `reference premium' means, with respect to 
        qualified prescription drug coverage offered under--
                  ``(A) a prescription drug plan that--
                          ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value is equivalent to that of 
                        standard coverage), the premium imposed for 
                        enrollment under the plan under this part 
                        (determined without regard to any subsidy under 
                        this section or any late enrollment penalty 
                        under section 1860A(c)(2)(B)); or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        premium described in clause (i) multiplied by 
                        the ratio of (I) the actuarial value of 
                        standard coverage, to (II) the actuarial value 
                        of the alternative coverage; or
                  ``(B) a Medicare+Choice plan, the standard premium 
                computed under section 1851(j)(4)(A)(iii), determined 
                without regard to any reduction effected under section 
                1851(j)(4)(B).
  ``(c) Rules in Applying Cost-Sharing Subsidies.--
          ``(1) In general.--In applying subsection (a)(1)(B)--
                  ``(A) the maximum amount of subsidy that may be 
                provided with respect to an enrollee for a year may not 
                exceed 95 percent of the maximum cost-sharing described 
                in such subsection that may be incurred for standard 
                coverage;
                  ``(B) the Medicare Benefits Administrator shall 
                determine what is `nominal' taking into account the 
                rules applied under section 1916(a)(3); and
                  ``(C) nothing in this part shall be construed as 
                preventing a plan or provider from waiving or reducing 
                the amount of cost-sharing otherwise applicable.
          ``(2) Limitation on charges.--In the case of an individual 
        receiving cost-sharing subsidies under subsection (a)(1)(B), 
        the PDP sponsor may not charge more than a nominal amount in 
        cases in which the cost-sharing subsidy is provided under such 
        subsection.
  ``(d) Administration of Subsidy Program.--The Medicare Benefits 
Administrator shall provide a process whereby, in the case of an 
individual who is determined to be a subsidy eligible individual and 
who is enrolled in prescription drug plan or is enrolled in a 
Medicare+Choice plan under which qualified prescription drug coverage 
is provided--
          ``(1) the Administrator provides for a notification of the 
        PDP sponsor or Medicare+Choice organization involved that the 
        individual is eligible for a subsidy and the amount of the 
        subsidy under subsection (a);
          ``(2) the sponsor or organization involved reduces the 
        premiums or cost-sharing otherwise imposed by the amount of the 
        applicable subsidy and submits to the Administrator information 
        on the amount of such reduction; and
          ``(3) the Administrator periodically and on a timely basis 
        reimburses the sponsor or organization for the amount of such 
        reductions.
The reimbursement under paragraph (3) with respect to cost-sharing 
subsidies may be computed on a capitated basis, taking into account the 
actuarial value of the subsidies and with appropriate adjustments to 
reflect differences in the risks actually involved.
  ``(e) Relation to Medicaid Program.--
          ``(1) In general.--For provisions providing for eligibility 
        determinations, and additional financing, under the medicaid 
        program, see section 1935.
          ``(2) Medicaid providing wrap around benefits.--The coverage 
        provided under this part is primary payor to benefits for 
        prescribed drugs provided under the medicaid program under 
        title XIX.

``SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES THROUGH 
                    REINSURANCE FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  ``(a) Reinsurance Subsidy Payment.--In order to reduce premium levels 
applicable to qualified prescription drug coverage for all medicare 
beneficiaries, to reduce adverse selection among prescription drug 
plans and Medicare+Choice plans that provide qualified prescription 
drug coverage, and to promote the participation of PDP sponsors under 
this part, the Medicare Benefits Administrator shall provide in 
accordance with this section for payment to a qualifying entity (as 
defined in subsection (b)) of the reinsurance payment amount (as 
defined in subsection (c)) for excess costs incurred in providing 
qualified prescription drug coverage--
          ``(1) for individuals enrolled with a prescription drug plan 
        under this part;
          ``(2) for individuals enrolled with a Medicare+Choice plan 
        that provides qualified prescription drug coverage under part 
        C; and
          ``(3) for medicare primary individuals (described in 
        subsection (f)(3)(D)) who are enrolled in a qualified retiree 
        prescription drug plan.
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Administrator to provide for 
the payment of amounts provided under this section.
  ``(b) Qualifying Entity Defined.--For purposes of this section, the 
term `qualifying entity' means any of the following that has entered 
into an agreement with the Administrator to provide the Administrator 
with such information as may be required to carry out this section:
          ``(1) A PDP sponsor offering a prescription drug plan under 
        this part.
          ``(2) A Medicare+Choice organization that provides qualified 
        prescription drug coverage under a Medicare+Choice plan under 
        part C.
          ``(3) The sponsor of a qualified retiree prescription drug 
        plan (as defined in subsection (f)).
  ``(c) Reinsurance Payment Amount.--
          ``(1) In general.--Subject to subsection (d)(2) and paragraph 
        (4), the reinsurance payment amount under this subsection for a 
        qualifying covered individual (as defined in subsection (g)(1)) 
        for a coverage year (as defined in subsection (g)(2)) is equal 
        to the sum of the following:
                  ``(A) For the portion of the individual's gross 
                covered prescription drug costs (as defined in 
                paragraph (3)) for the year that exceeds $1,250, but 
                does not exceed $1,350, an amount equal to 30 percent 
                of the allowable costs (as defined in paragraph (2)) 
                attributable to such gross covered prescription drug 
                costs.
                  ``(B) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds $1,350, but does not exceed $1,450, an amount 
                equal to 50 percent of the allowable costs attributable 
                to such gross covered prescription drug costs.
                  ``(C) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds $1,450, but does not exceed $1,550, an amount 
                equal to 70 percent of the allowable costs attributable 
                to such gross covered prescription drug costs.
                  ``(D) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds $1,550, but does not exceed $2,350, an amount 
                equal to 90 percent of the allowable costs attributable 
                to such gross covered prescription drug costs.
                  ``(E) For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds $7,050, an amount equal to 90 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs.
          ``(2) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        prescription drug costs under a plan described in subsection 
        (b) offered by a qualifying entity, the part of such costs that 
        are actually paid under the plan, but in no case more than the 
        part of such costs that would have been paid under the plan if 
        the prescription drug coverage under the plan were standard 
        coverage.
          ``(3) Gross covered prescription drug costs.--For purposes of 
        this section, the term `gross covered prescription drug costs' 
        means, with respect to an enrollee with a qualifying entity 
        under a plan described in subsection (b) during a coverage 
        year, the costs incurred under the plan for covered 
        prescription drugs dispensed during the year, including costs 
        relating to the deductible, whether paid by the enrollee or 
        under the plan, regardless of whether the coverage under the 
        plan exceeds standard coverage and regardless of when the 
        payment for such drugs is made.
          ``(4) Indexing dollar amounts.--
                  ``(A) Amounts for 2003.--The dollar amounts applied 
                under paragraph (1) for 2003 shall be the dollar 
                amounts specified in such paragraph.
                  ``(B) For 2004.--The dollar amounts applied under 
                paragraph (1) for 2004 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860B(b)(5) 
                for 2004.
                  ``(C) For subsequent years.--The dollar amounts 
                applied under paragraph (1) for a year after 2004 shall 
                be the amounts (under this paragraph) applied under 
                paragraph (1) for the preceding year increased by the 
                annual percentage increase described in section 
                1860B(b)(5) for the year involved.
                  ``(D) Rounding.--Any amount, determined under the 
                preceding provisions of this paragraph for a year, 
                which is not a multiple of $5 shall be rounded to the 
                nearest multiple of $5.
  ``(d) Adjustment of Payments.--
          ``(1) In general.--The Medicare Benefits Administrator shall 
        estimate--
                  ``(A) the total payments to be made (without regard 
                to this subsection) during a year under this section; 
                and
                  ``(B) the total payments to be made by qualifying 
                entities for standard coverage under plans described in 
                subsection (b) during the year.
          ``(2) Adjustment of payments.--The Administrator shall 
        proportionally adjust the payments made under this section for 
        a coverage year in such manner so that the total of the 
        payments made for the year under this section is equal to 35 
        percent of the total payments described in paragraph (1)(B) 
        during the year.
  ``(e) Payment Methods.--
          ``(1) In general.--Payments under this section shall be based 
        on such a method as the Medicare Benefits Administrator 
        determines. The Administrator may establish a payment method by 
        which interim payments of amounts under this section are made 
        during a year based on the Administrator's best estimate of 
        amounts that will be payable after obtaining all of the 
        information.
          ``(2) Source of payments.--Payments under this section shall 
        be made from the Medicare Prescription Drug Account.
  ``(f) Qualified Retiree Prescription Drug Plan Defined.--
          ``(1) In general.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (3)(A)) 
        if, with respect to an individual enrolled (or eligible to be 
        enrolled) under this part who is covered under the plan, the 
        following requirements are met:
                  ``(A) Assurance.--The sponsor of the plan shall 
                annually attest, and provide such assurances as the 
                Medicare Benefits Administrator may require, that the 
                coverage meets the requirements for qualified 
                prescription drug coverage.
                  ``(B) Audits.--The sponsor (and the plan) shall 
                maintain, and afford the Medicare Benefits 
                Administrator access to, such records as the 
                Administrator may require for purposes of audits and 
                other oversight activities necessary to ensure the 
                adequacy of prescription drug coverage, the accuracy of 
                payments made, and such other matters as may be 
                appropriate.
                  ``(C) Provision of certification of prescription drug 
                coverage.--The sponsor of the plan shall provide for 
                issuance of certifications of the type described in 
                section 1860A(c)(2)(D).
                  ``(D) Other requirements.--The sponsor of the plan 
                shall comply with such other requirements as the 
                Medicare Benefits Administrator finds necessary to 
                administer the program under this section.
          ``(2) Limitation on benefit eligibility.--No payment shall be 
        provided under this section with respect to an individual who 
        is enrolled under a qualified retiree prescription drug plan 
        unless the individual is a medicare primary individual who--
                  ``(A) is covered under the plan; and
                  ``(B) is eligible to obtain qualified prescription 
                drug coverage under section 1860A but did not elect 
                such coverage under this part (either through a 
                prescription drug plan or through a Medicare+Choice 
                plan).
          ``(3) Definitions.--As used in this section:
                  ``(A) Employment-based retiree health coverage.--The 
                term `employment-based retiree health coverage' means 
                health insurance or other coverage of health care costs 
                for medicare primary individuals (or for such 
                individuals and their spouses and dependents) based on 
                their status as former employees or labor union 
                members.
                  ``(B) Employer.--The term `employer' has the meaning 
                given such term by section 3(5) of the Employee 
                Retirement Income Security Act of 1974 (except that 
                such term shall include only employers of two or more 
                employees).
                  ``(C) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974.
                  ``(D) Medicare primary individual.--The term 
                `medicare primary individual' means, with respect to a 
                plan, an individual who is covered under the plan and 
                with respect to whom the plan is not a primary plan (as 
                defined in section 1862(b)(2)(A)).
  ``(g) General Definitions.--For purposes of this section:
          ``(1) Qualifying covered individual.--The term `qualifying 
        covered individual' means an individual who--
                  ``(A) is enrolled with a prescription drug plan under 
                this part;
                  ``(B) is enrolled with a Medicare+Choice plan that 
                provides qualified prescription drug coverage under 
                part C; or
                  ``(C) is covered as a medicare primary individual 
                under a qualified retiree prescription drug plan.
          ``(2) Coverage year.--The term `coverage year' means a 
        calendar year in which covered outpatient drugs are dispensed 
        if a claim for payment is made under the plan for such drugs, 
        regardless of when the claim is paid.

``SEC. 1860I. MEDICARE PRESCRIPTION DRUG ACCOUNT IN FEDERAL 
                    SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND.

  ``(a) In General.--There is created within the Federal Supplementary 
Medical Insurance Trust Fund established by section 1841 an account to 
be known as the `Medicare Prescription Drug Account' (in this section 
referred to as the `Account'). The Account shall consist of such gifts 
and bequests as may be made as provided in section 201(i)(1), and such 
amounts as may be deposited in, or appropriated to, such fund as 
provided in this part. Funds provided under this part to the Account 
shall be kept separate from all other funds within the Federal 
Supplementary Medical Insurance Trust Fund.
  ``(b) Payments From Account.--
          ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Medicare Benefits 
        Administrator certifies are necessary to make--
                  ``(A) payments under section 1860G (relating to low-
                income subsidy payments);
                  ``(B) payments under section 1860H (relating to 
                reinsurance subsidy payments); and
                  ``(C) payments with respect to administrative 
                expenses under this part in accordance with section 
                201(g).
          ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall transfer from 
        time to time from the Account to the Grants to States for 
        Medicaid account amounts the Secretary certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
          ``(3) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
  ``(c) Deposits Into Account.--
          ``(1) Medicaid transfer.--There is hereby transferred to the 
        Account, from amounts appropriated for Grants to States for 
        Medicaid, amounts equivalent to the aggregate amount of the 
        reductions in payments under section 1903(a)(1) attributable to 
        the application of section 1935(c).
          ``(2) Appropriations to cover government contributions.--
        There are authorized to be appropriated from time to time, out 
        of any moneys in the Treasury not otherwise appropriated, to 
        the Account, an amount equivalent to the amount of payments 
        made from the Account under subsection (b), reduced by the 
        amount transferred to the Account under paragraph (1).

``SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN 
                    PART C.

  ``(a) Definitions.--For purposes of this part:
          ``(1) Covered outpatient drugs.--The term `covered outpatient 
        drugs' is defined in section 1860B(f).
          ``(2) Initial coverage limit.--The term `initial coverage 
        limit' means the such limit as established under section 
        1860B(b)(3), or, in the case of coverage that is not standard 
        coverage, the comparable limit (if any) established under the 
        coverage.
          ``(3) Medicare prescription drug account.--The term `Medicare 
        Prescription Drug Account' means the Account in the Federal 
        Supplementary Medical Insurance Trust Fund created under 
        section 1860I(a).
          ``(4) PDP sponsor.--The term `PDP sponsor' means an entity 
        that is certified under this part as meeting the requirements 
        and standards of this part for such a sponsor.
          ``(5) Prescription drug plan.--The term `prescription drug 
        plan' means health benefits coverage that--
                  ``(A) is offered under a policy, contract, or plan by 
                a PDP sponsor pursuant to, and in accordance with, a 
                contract between the Medicare Benefits Administrator 
                and the sponsor under section 1860D(b);
                  ``(B) provides qualified prescription drug coverage; 
                and
                  ``(C) meets the applicable requirements of the 
                section 1860C for a prescription drug plan.
          ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860B(a).
          ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860B(b).
  ``(b) Application of Medicare+Choice Provisions Under This Part.--For 
purposes of applying provisions of part C under this part with respect 
to a prescription drug plan and a PDP sponsor, unless otherwise 
provided in this part such provisions shall be applied as if--
          ``(1) any reference to a Medicare+Choice plan included a 
        reference to a prescription drug plan;
          ``(2) any reference to a provider-sponsored organization 
        included a reference to a PDP sponsor;
          ``(3) any reference to a contract under section 1857 included 
        a reference to a contract under section 1860D(b); and
          ``(4) any reference to part C included a reference to this 
        part.''.
  (b) Conforming Amendments to Federal Supplementary Medical Insurance 
Trust Fund.--Section 1841 of the Social Security Act (42 U.S.C. 1395t) 
is amended--
          (1) in the last sentence of subsection (a)--
                  (A) by striking ``and'' before ``such amounts'', and
                  (B) by inserting before the period the following: 
                ``and such amounts as may be deposited in, or 
                appropriated to, the Medicare Prescription Drug Account 
                established by section 1860I''; and
          (2) in subsection (g), by inserting after ``by this part,'' 
        the following: ``the payments provided for under part D (in 
        which case the payments shall come from the Medicare 
        Prescription Drug Account in the Trust Fund),''.
  (c) Additional Conforming Changes.--
          (1) Conforming references to previous part d.--Any reference 
        in law (in effect before the date of the enactment of this Act) 
        to part D of title XVIII of the Social Security Act is deemed a 
        reference to part E of such title (as in effect after such 
        date).
          (2) Secretarial submission of legislative proposal.--Not 
        later than 6 months after the date of the enactment of this 
        Act, the Secretary of Health and Human Services shall submit to 
        the appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this subtitle.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
                    MEDICARE+CHOICE PROGRAM.

  (a) In General.--Section 1851 of the Social Security Act (42 U.S.C. 
1395w-21) is amended by adding at the end the following new subsection:
  ``(j) Availability of Prescription Drug Benefits.--
          ``(1) In general.--A Medicare+Choice organization may not 
        offer prescription drug coverage (other than that required 
        under parts A and B) to an enrollee under a Medicare+Choice 
        plan unless such drug coverage is at least qualified 
        prescription drug coverage and unless the requirements of this 
        subsection with respect to such coverage are met.
          ``(2) Compliance with additional beneficiary protections.--
        With respect to the offering of qualified prescription drug 
        coverage by a Medicare+Choice organization under a 
        Medicare+Choice plan, the organization and plan shall meet the 
        requirements of section 1860C, including requirements relating 
        to information dissemination and grievance and appeals, in the 
        same manner as they apply to a PDP sponsor and a prescription 
        drug plan under part D. The Medicare Benefits Administrator 
        shall waive such requirements to the extent the Administrator 
        determines that such requirements duplicate requirements 
        otherwise applicable to the organization or plan under this 
        part.
          ``(3) Treatment of coverage.--Except as provided in this 
        subsection, qualified prescription drug coverage offered under 
        this subsection shall be treated under this part in the same 
        manner as supplemental health care benefits described in 
        section 1852(a)(3)(A).
          ``(4) Availability of premium and cost-sharing subsidies for 
        low-income enrollees and reinsurance subsidy payments for 
        organizations.--For provisions--
                  ``(A) providing premium and cost-sharing subsidies to 
                low-income individuals receiving qualified prescription 
                drug coverage through a Medicare+Choice plan, see 
                section 1860G; and
                  ``(B) providing a Medicare+Choice organization with 
                reinsurance subsidy payments for providing qualified 
                prescription drug coverage under this part, see section 
                1860H.
          ``(5) Specification of separate and standard premium.--
                  ``(A) In general.--For purposes of applying section 
                1854 and section 1860G(b)(2)(B) with respect to 
                qualified prescription drug coverage offered under this 
                subsection under a plan, the Medicare+Choice 
                organization shall compute and publish the following:
                          ``(i) Separate prescription drug premium.--A 
                        premium for prescription drug benefits that 
                        constitute qualified prescription drug coverage 
                        that is separate from other coverage under the 
                        plan.
                          ``(ii) Portion of coverage attributable to 
                        standard benefits.--The ratio of the actuarial 
                        value of standard coverage to the actuarial 
                        value of the qualified prescription drug 
                        coverage offered under the plan.
                          ``(iii) Portion of premium attributable to 
                        standard benefits.--A standard premium equal to 
                        the product of the premium described in clause 
                        (i) and the ratio under clause (ii).
                The premium under clause (i) shall be compute without 
                regard to any reduction in the premium permitted under 
                subparagraph (B).
                  ``(B) Reduction of premiums allowed.--Nothing in this 
                subsection shall be construed as preventing a 
                Medicare+Choice organization from reducing the amount 
                of a premium charged for prescription drug coverage 
                because of the application of section 1854(f)(1)(A) to 
                other coverage.
                  ``(C) Acceptance of reference premium as full premium 
                if no standard (or equivalent) coverage in an area.--
                For requirement to accept reference premium as full 
                premium if there is no standard (or equivalent) 
                coverage in the area of a Medicare+Choice plan, see 
                section 1860F(d).
          ``(6) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the annual, 
        coordinated election period under subsection (e)(3)(B) for 2003 
        shall be the 6-month period beginning with November 2002.
          ``(7) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860B.''.
  (b) Conforming Amendments.--Section 1851 of such Act (42 U.S.C. 
1395w-21) is amended--
          (1) in subsection (a)(1)--
                  (A) by inserting ``(other than qualified prescription 
                drug benefits)'' after ``benefits'';
                  (B) by striking the period at the end of subparagraph 
                (B) and inserting a comma; and
                  (C) by adding after and below subparagraph (B) the 
                following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860A.''; and
          (2) in subsection (g)(1), by inserting ``and section 
        1860A(c)(2)(B)'' after ``in this subsection''.
  (c) Effective Date.--The amendments made by this section apply to 
coverage provided on or after January 1, 2003.

SEC. 103. MEDICAID AMENDMENTS.

  (a) Determinations of Eligibility for Low-Income Subsidies.--
          (1) Requirement.--Section 1902 of the Social Security Act (42 
        U.S.C. 1396a) is amended--
                  (A) in subsection (a)--
                          (i) by striking ``and'' at the end of 
                        paragraph (64);
                          (ii) by striking the period at the end of 
                        paragraph (65) and inserting ``; and''; and
                          (iii) by inserting after paragraph (65) the 
                        following new paragraph:
          ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
          (2) New section.--Title XIX of such Act is further amended--
                  (A) by redesignating section 1935 as section 1936; 
                and
                  (B) by inserting after section 1934 the following new 
                section:
  ``special provisions relating to medicare prescription drug benefit
  ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall--
          ``(1) make determinations of eligibility for premium and 
        cost-sharing subsidies under (and in accordance with) section 
        1860G;
          ``(2) inform the Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which such 
        eligibility is established; and
          ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 1860G).
  ``(b) Payments for Additional Administrative Costs.--
          ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows:
                  ``(A) For expenditures attributable to costs incurred 
                during 2003, the otherwise applicable Federal matching 
                rate shall be increased by 20 percent of the percentage 
                otherwise payable (but for this subsection) by the 
                State.
                  ``(B) For expenditures attributable to costs incurred 
                during 2004, the otherwise applicable Federal matching 
                rate shall be increased by 40 percent of the percentage 
                otherwise payable (but for this subsection) by the 
                State.
                  ``(C) For expenditures attributable to costs incurred 
                during 2005, the otherwise applicable Federal matching 
                rate shall be increased by 60 percent of the percentage 
                otherwise payable (but for this subsection) by the 
                State.
                  ``(D) For expenditures attributable to costs incurred 
                during 2006, the otherwise applicable Federal matching 
                rate shall be increased by 80 percent of the percentage 
                otherwise payable (but for this subsection) by the 
                State.
                  ``(E) For expenditures attributable to costs incurred 
                after 2006, the otherwise applicable Federal matching 
                rate shall be increased to 100 percent.
          ``(2) Coordination.--The State shall provide the Secretary 
        with such information as may be necessary to properly allocate 
        administrative expenditures described in paragraph (1) that may 
        otherwise be made for similar eligibility determinations.''.
  (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
          (1) In general.--Section 1903(a)(1) of the Social Security 
        Act (42 U.S.C. 1396b(a)(1)) is amended by inserting before the 
        semicolon the following: ``, reduced by the amount computed 
        under section 1935(c)(1) for the State and the quarter''.
          (2) Amount described.--Section 1935 of such Act, as inserted 
        by subsection (a)(2), is amended by adding at the end the 
        following new subsection:
  ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
          ``(1) In general.--For purposes of section 1903(a)(1), for a 
        State that is one of the 50 States or the District of Columbia 
        for a calendar quarter in a year (beginning with 2003) the 
        amount computed under this subsection is equal to the product 
        of the following:
                  ``(A) Medicare subsidies.--The total amount of 
                payments made in the quarter under section 1860G 
                (relating to premium and cost-sharing prescription drug 
                subsidies for low-income medicare beneficiaries) that 
                are attributable to individuals who are residents of 
                the State and are entitled to benefits with respect to 
                prescribed drugs under the State plan under this title 
                (including such a plan operating under a waiver under 
                section 1115).
                  ``(B) State matching rate.--A proportion computed by 
                subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
                  ``(C) Phase-out proportion.--The phase-out proportion 
                (as defined in paragraph (2)) for the quarter.
          ``(2) Phase-out proportion.--For purposes of paragraph 
        (1)(C), the `phase-out proportion' for a calendar quarter in--
                  ``(A) 2003 is 80 percent;
                  ``(B) 2004 is 60 percent;
                  ``(C) 2005 is 40 percent;
                  ``(D) 2006 is 20 percent; or
                  ``(E) a year after 2006 is 0 percent.''.
  (c) Medicaid Providing Wrap-Around Benefits.--Section 1935 of such 
Act, as so inserted and amended, is further amended by adding at the 
end the following new subsection:
  ``(d) Additional Provisions.--
          ``(1) Medicaid as secondary payor.--In the case of an 
        individual dually entitled to qualified prescription drug 
        coverage under a prescription drug plan under part D of title 
        XVIII (or under a Medicare+Choice plan under part C of such 
        title) and medical assistance for prescribed drugs under this 
        title, medical assistance shall continue to be provided under 
        this title for prescribed drugs to the extent payment is not 
        made under the prescription drug plan or the Medicare+Choice 
        plan selected by the individual.
          ``(2) Condition.--A State may require, as a condition for the 
        receipt of medical assistance under this title with respect to 
        prescription drug benefits for an individual eligible to obtain 
        qualified prescription drug coverage described in paragraph (1), 
        that the individual elect qualified prescription drug coverage 
        under section 1860A.''.
  (d) Treatment of Territories.--
          (1) In general.--Section 1935 of such Act, as so inserted and 
        amended, is further amended--
                  (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                  (B) in subsection (c)(1), by inserting ``subject to 
                subsection (e)'' after ``1903(a)(1)''; and
                  (C) by adding at the end the following new 
                subsection:
  ``(e) Treatment of Territories.--
          ``(1) In general.--In the case of a State, other than the 50 
        States and the District of Columbia--
                  ``(A) the previous provisions of this section shall 
                not apply to residents of such State; and
                  ``(B) if the State establishes a plan described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription drugs to 
                medicare beneficiaries), the amount otherwise 
                determined under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be increased by 
                the amount specified in paragraph (3).
          ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                  ``(A) provides medical assistance with respect to the 
                provision of covered outpatient drugs (as defined in 
                section 1860B(f)) to low-income medicare beneficiaries; 
                and
                  ``(B) assures that additional amounts received by the 
                State that are attributable to the operation of this 
                subsection are used only for such assistance.
          ``(3) Increased amount.--
                  ``(A) In general.--The amount specified in this 
                paragraph for a State for a year is equal to the 
                product of--
                          ``(i) the aggregate amount specified in 
                        subparagraph (B); and
                          ``(ii) the amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                  ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                          ``(i) 2003, is equal to $20,000,000; or
                          ``(ii) a subsequent year, is equal to the 
                        aggregate amount specified in this subparagraph 
                        for the previous year increased by annual 
                        percentage increase specified in section 
                        1860(b)(5) for the year involved.
          ``(4) Report.--The Secretary shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Secretary deems 
        appropriate.''.
          (2) Conforming amendment.--Section 1108(f) of such Act is 
        amended by inserting ``and section 1935(e)(1)(B)'' after 
        ``Subject to subsection (g)''.

SEC. 104. MEDIGAP TRANSITION PROVISIONS.

  (a) In General.--Notwithstanding any other provision of law, no new 
medicare supplemental policy that provides coverage of expenses for 
prescription drugs may be issued under section 1882 of the Social 
Security Act on or after January 1, 2003, to an individual unless it 
replaces a medicare supplemental policy that was issued to that 
individual and that provided some coverage of expenses for prescription 
drugs.
  (b) Issuance of Substitute Policies if Obtain Prescription Drug 
Coverage Through Medicare.--
          (1) In general.--The issuer of a medicare supplemental 
        policy--
                  (A) may not deny or condition the issuance or 
                effectiveness of a medicare supplemental policy that 
                has a benefit package classified as ``A'', ``B'', 
                ``C'', ``D'', ``E'', ``F'', or ``G'' (under the 
                standards established under subsection (p)(2) of 
                section 1882 of the Social Security Act, 42 U.S.C. 
                1395ss) and that is offered and is available for 
                issuance to new enrollees by such issuer;
                  (B) may not discriminate in the pricing of such 
                policy, because of health status, claims experience, 
                receipt of health care, or medical condition; and
                  (C) may not impose an exclusion of benefits based on 
                a pre-existing condition under such policy,
        in the case of an individual described in paragraph (2) who 
        seeks to enroll under the policy not later than 63 days after 
        the date of the termination of enrollment described in such 
        paragraph and who submits evidence of the date of termination 
        or disenrollment along with the application for such medicare 
        supplemental policy.
          (2) Individual covered.--An individual described in this 
        paragraph is an individual who--
                  (A) enrolls in a prescription drug plan under part D 
                of title XVIII of the Social Security Act; and
                  (B) at the time of such enrollment was enrolled and 
                terminates enrollment in a medicare supplemental policy 
                which has a benefit package classified as ``H'', ``I'', 
                or ``J'' under the standards referred to in paragraph 
                (1)(A) or terminates enrollment in a policy to which 
                such standards do not apply but which provides benefits 
                for prescription drugs.
          (3) Enforcement.--The provisions of paragraph (1) shall be 
        enforced as though they were included in section 1882(s) of the 
        Social Security Act (42 U.S.C. 1395ss(s)).
          (4) Definitions.--For purposes of this subsection, the term 
        ``medicare supplemental policy'' has the meaning given such 
        term in section 1882(g) of the Social Security Act (42 U.S.C. 
        1395ss(g)).

SEC. 105. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR SEVERELY 
                    CHRONICALLY ILL MEDICARE BENEFICIARIES.

  (a) In General.--The Administrator of the Medicare Benefits 
Administration (in this section referred to as the ``Administrator'') 
shall conduct a demonstration project under this section (in this 
section referred to as the ``project'') to demonstrate the impact on 
costs and health outcomes of applying disease management to medicare 
beneficiaries with diagnosed, advanced-stage congestive heart failure, 
diabetes, or coronary heart disease.
  (b) Voluntary Participation.--
          (1) Eligibility.--Medicare beneficiaries are eligible to 
        participate in the project only if--
                  (A) they meet specific medical criteria demonstrating 
                the appropriate diagnosis and the advanced nature of 
                their disease;
                  (B) their physicians approve of participation in the 
                project; and
                  (C) they are not enrolled in a Medicare+Choice plan.
          (2) Benefits.--A beneficiary who is enrolled in the project 
        shall be eligible--
                  (A) for disease management services related to their 
                chronic health condition; and
                  (B) if the beneficiary--
                          (i) is enrolled in a prescription drug plan 
                        under part D of title XVIII of the Social 
                        Security Act, for payment of any premiums for 
                        such plan, any deductible or cost-sharing, and 
                        any amounts not covered under the plan because 
                        of the application of an initial coverage 
                        limit; or
                          (ii) is not enrolled in such a plan, for 
                        payment for all costs for prescription drugs 
                        without regard to whether or not they relate to 
                        the chronic health condition;
                except that the project may provide for modest cost-
                sharing with respect to prescription drug coverage.
          (3) Treatment as qualifying coverage for purposes of 
        continuous coverage.--For purposes of applying section 
        1860A(c)(2)(C) of the Social Security Act, coverage under the 
        project shall be treated as coverage under a prescription drug 
        plan under part D of title XVIII of such Act.
  (c) Contracts with Disease Management Organizations.--
          (1) In general.--The Administrator shall carry out the 
        project through contracts with up to 3 disease management 
        organizations. The Administrator shall not enter into such a 
        contract with an organization unless the organization 
        demonstrates that it can produce improved health outcomes and 
        reduce aggregate medicare expenditures consistent with 
        paragraph (2).
          (2) Contract provisions.--Under such contracts--
                  (A) such an organization shall be required to provide 
                for prescription drug coverage described in subsection 
                (b)(2)(B);
                  (B) such an organization shall be paid a fee 
                negotiated and established by the Administrator in a 
                manner so that (taking into account savings in 
                expenditures under parts A and B of the medicare 
                program) there will be a net reduction in expenditures 
                under the medicare program as a result of the project; 
                and
                  (C) such an organization shall guarantee, through an 
                appropriate arrangement with a reinsurance company or 
                otherwise, the net reduction in expenditures described 
                in subparagraph (B).
          (3) Payments.--Payments to such organizations shall be made 
        in appropriate proportion from the Trust Funds established 
        under title XVIII of the Social Security Act.
  (d) Duration.--The project shall last for not longer than 3 years.
  (e) Report.--The Administrator shall submit to Congress an interim 
report on the project not later than 2 years after the date it is first 
implemented and a final report on the project not later than 6 months 
after the date of its completion. Such reports shall include 
information on the impact of the project on costs and health outcomes 
and recommendations on the cost-effectiveness of extending or expanding 
the project.

         TITLE II--MODERNIZATION OF ADMINISTRATION OF MEDICARE

              Subtitle A--Medicare Benefits Administration

SEC. 201. ESTABLISHMENT OF ADMINISTRATION.

  (a) In General.--Title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) is amended by inserting after section 1806 the following 
new section:
                   ``medicare benefits administration
  ``Sec. 1807. (a) Establishment.--There is established within the 
Department of Health and Human Services an agency to be known as the 
Medicare Benefits Administration.
  ``(b) Administrator and Deputy Administrator.--
          ``(1) Administrator.--
                  ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an Administrator (in 
                this section referred to as the `Administrator') who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate. The Administrator 
                shall be in direct line of authority to the Secretary.
                  ``(B) Compensation.--The Administrator shall be paid 
                at the rate of basic pay payable for level III of the 
                Executive Schedule under section 5314 of title 5, 
                United States Code.
                  ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 5 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                  ``(D) General authority.--The Administrator shall be 
                responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                  ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code.
                  ``(F) Authority to establish organizational units.--
                The Administrator may establish, alter, consolidate, or 
                discontinue such organizational units or components 
                within the Administration as the Administrator 
                considers necessary or appropriate, except that this 
                subparagraph shall not apply with respect to any unit, 
                component, or provision provided for by this section.
                  ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
          ``(2) Deputy administrator.--
                  ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits Administration 
                who shall be appointed by the President, by and with 
                the advice and consent of the Senate.
                  ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                  ``(C) Term of office.--The Deputy Administrator shall 
                be appointed for a term of 5 years. In any case in 
                which a successor does not take office at the end of a 
                Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                  ``(D) Duties.--The Deputy Administrator shall perform 
                such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
          ``(3) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Health Care 
        Financing Administration in carrying out the programs under 
        this title.
  ``(c) Duties; Administrative Provisions.--
          ``(1) Duties.--
                  ``(A) General duties.--The Administrator shall carry 
                out parts C and D, including--
                          ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under part C, 
                        including the offering of qualified 
                        prescription drug coverage under such plans; 
                        and
                          ``(ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors for the 
                        offering of prescription drug plans under part 
                        D.
                  ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C or part D, 
                including demonstration projects carried out in part or 
                in whole under such parts, the programs of all-
                inclusive care for the elderly (PACE program) under 
                section 1894, the social health maintenance 
                organization (SHMO) demonstration projects (referred to 
                in section 4104(c) of the Balanced Budget Act of 1997), 
                and through a Medicare+Choice project that demonstrates 
                the application of capitation payment rates for frail 
                elderly medicare beneficiaries through the use of a 
                interdisciplinary team and through the provision of 
                primary care services to such beneficiaries by means of 
                such a team at the nursing facility involved).
                  ``(C) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                          ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient drugs;
                          ``(ii) interfere in any way with negotiations 
                        between PDP sponsors and Medicare+Choice 
                        organizations and drug manufacturers, 
                        wholesalers, or other suppliers of covered 
                        outpatient drugs; and
                          ``(iii) otherwise interfere with the 
                        competitive nature of providing such coverage 
                        through such sponsors and organizations.
                  ``(D) Annual reports.--Not later March 31 of each 
                year, the Administrator shall submit to Congress and 
                the President a report on the administration of parts C 
                and D during the previous fiscal year.
          ``(2) Staff.--
                  ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, such 
                officers and employees as are necessary to administer 
                the activities to be carried out through the Medicare 
                Benefits Administration.
                  ``(B) Flexibility with respect to compensation.--
                          ``(i) In general.--The staff of the Medicare 
                        Benefits Administration shall, subject to 
                        clause (ii), be paid without regard to the 
                        provisions of chapter 51 and chapter 53 of such 
                        title (relating to classification and schedule 
                        pay rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(C) Limitation on full-time equivalent staffing for 
                current hcfa functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Health 
                Care Financing Administration and that are conducted by 
                the Administrator by reason of this section, that 
                exceeds the number of such full-time equivalent 
                employees authorized to be employed by the Health Care 
                Financing Administration to conduct such functions as 
                of the date of the enactment of this Act.
          ``(3) Redelegation of certain functions of the health care 
        financing administration.--
                  ``(A) In general.--The Secretary, the Administrator, 
                and the Administrator of the Health Care Financing 
                Administration shall establish an appropriate 
                transition of responsibility in order to redelegate the 
                administration of part C from the Secretary and the 
                Administrator of the Health Care Financing 
                Administration to the Administrator as is appropriate 
                to carry out the purposes of this section.
                  ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Health Care Financing Administration transfers to the 
                Administrator of the Medicare Benefits Administration 
                such information and data in the possession of the 
                Administrator of the Health Care Financing 
                Administration as the Administrator of the Medicare 
                Benefits Administration requires to carry out the 
                duties described in paragraph (1).
                  ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Health Care 
                Financing Administration is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Health Care 
                Financing Administration in this title or title XI with 
                respect to such responsibility is deemed to be a 
                reference to the Administrator.
  ``(d) Office of Beneficiary Assistance.--
          ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Benefits Administration an Office of Beneficiary 
        Assistance to carry out functions relating to medicare 
        beneficiaries under this title, including making determinations 
        of eligibility of individuals for benefits under this title, 
        providing for enrollment of medicare beneficiaries under this 
        title, and the functions described in paragraph (2). The Office 
        shall be separate operating division within the Administration.
          ``(2) Dissemination of information on benefits and appeals 
        rights.--
                  ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate to 
                medicare beneficiaries, by mail, by posting on the 
                Internet site of the Medicare Benefits Administration 
                and through the toll-free telephone number provided for 
                under section 1804(b), information with respect to the 
                following:
                          ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C and 
                        D.
                          ``(ii) Benefits, and limitations on payment 
                        under parts A and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and medicare supplemental policies with 
                benefits under Medicare+Choice plans under part C.
                  ``(B) Dissemination of appeals rights information.--
                The Office of Beneficiary Assistance shall disseminate 
                to medicare beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural rights 
                (including grievance and appeals procedures) of 
                beneficiaries under the original medicare fee-for-
                service program under parts A and B, the 
                Medicare+Choice program under part C, and the Voluntary 
                Prescription Drug Benefit Program under part D.
          ``(3) Medicare ombudsman.--
                  ``(A) In general.--Within the Office of Beneficiary 
                Assistance, there shall be a Medicare Ombudsman, 
                appointed by the Secretary from among individuals with 
                expertise and experience in the fields of health care 
                and advocacy, to carry out the duties described in 
                subparagraph (B).
                  ``(B) Duties.--The Medicare Ombudsman shall--
                          ``(i) receive complaints, grievances, and 
                        requests for information submitted by a 
                        medicare beneficiary, with respect to any 
                        aspect of the medicare program;
                          ``(ii) provide assistance with respect to 
                        complaints, grievances, and requests referred 
                        to in clause (i), including--
                                  ``(I) assistance in collecting 
                                relevant information for such 
                                beneficiaries, to seek an appeal of a 
                                decision or determination made by a 
                                fiscal intermediary, carrier, 
                                Medicare+Choice organization, a PDP 
                                sponsor under part D, or the Secretary; 
                                and
                                  ``(II) assistance to such 
                                beneficiaries with any problems arising 
                                from disenrollment from a 
                                Medicare+Choice plan under part C or a 
                                prescription drug plan under part D; 
                                and
                          ``(iii) submit annual reports to Congress, 
                        the Secretary, and the Medicare Policy Advisory 
                        Board describing the activities of the Office, 
                        and including such recommendations for 
                        improvement in the administration of this title 
                        as the Ombudsman determines appropriate.
                  ``(C) Coordination with state ombudsman programs and 
                consumer organizations.--The Medicare Ombudsman shall, 
                to the extent appropriate, coordinate with State 
                medical Ombudsman programs, and with State- and 
                community-based consumer organizations, to--
                          ``(i) provide information about the medicare 
                        program; and
                          ``(ii) conduct outreach to educate medicare 
                        beneficiaries with respect to manners in which 
                        problems under the medicare program may be 
                        resolved or avoided.
  ``(e) Medicare Policy Advisory Board.--
          ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy Advisory 
        Board (in this section referred to the `Board'). The Board 
        shall advise, consult with, and make recommendations to the 
        Administrator of the Medicare Benefits Administration with 
        respect to the administration of parts C and D, including the 
        review of payment policies under such parts.
          ``(2) Reports.--
                  ``(A) In general.--With respect to matters of the 
                administration of parts C and D, the Board shall submit 
                to Congress and to the Administrator of the Medicare 
                Benefits Administration such reports as the Board 
                determines appropriate. Each such report may contain 
                such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the topics described in subparagraph (B). Each such 
                report shall be published in the Federal Register.
                  ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                          ``(i) Fostering competition.--Recommendations 
                        or proposals to increase competition under 
                        parts C and D for services furnished to 
                        medicare beneficiaries.
                          ``(ii) Education and enrollment.--
                        Recommendations for the improvement to efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C and D, and the program 
                        for enrollment under the title.
                          ``(iii) Implementation of risk-adjustment.--
                        Evaluation of the implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that section 
                        to Medicare+Choice organizations offering 
                        Medicare+Choice plans that accounts for 
                        variations in per capita costs based on health 
                        status and other demographic factors.
                          ``(iv) Disease management programs.--
                        Recommendations on the incorporation of disease 
                        management programs under parts C and D.
                          ``(v) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C and D in rural areas.
                  ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
          ``(3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted by the 
        Board under paragraph (2)(A), not later than 90 days after the 
        report is submitted, the Administrator of the Medicare Benefits 
        Administration shall submit to Congress and the President 
        an analysis of recommendations made by the Board in such 
        report. Each such analysis shall be published in the Federal 
        Register.
          ``(4) Membership.--
                  ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of 7 members to be appointed as follows:
                          ``(i) 3 members shall be appointed by the 
                        President.
                          ``(ii) 2 members shall be appointed by the 
                        Speaker of the House of Representatives, with 
                        the advice of the chairman and the ranking 
                        minority member of the Committees on Ways and 
                        Means and on Commerce of the House of 
                        Representatives.
                          ``(iii) 2 members shall be appointed by the 
                        President pro tempore of the Senate with the 
                        advice of the chairman and the ranking minority 
                        member of the Senate Committee on Finance.
                  ``(B) Qualifications.--The members shall be chosen on 
                the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                  ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
          ``(5) Compensation.--Members of the Board shall receive, for 
        each day (including travel time) they are engaged in the 
        performance of the functions of the board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
          ``(6) Terms of office.--
                  ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                  ``(B) Terms of initial appointees.--As designated by 
                the President at the time of appointment, of the 
                members first appointed--
                          ``(i) 1 shall be appointed for a term of 1 
                        year;
                          ``(ii) 3 shall be appointed for terms of 2 
                        years; and
                          ``(iii) 3 shall be appointed for terms of 3 
                        years.
                  ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                  ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
          ``(7) Chair.--The Chair of the Board shall be elected by the 
        members. The term of office of the Chair shall be 3 years.
          ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than 3 times during each fiscal 
        year.
          ``(9) Director and staff.--
                  ``(A) Appointment of director.--The Board shall have 
                a Director who shall be appointed by the Chair.
                  ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                  ``(C) Flexibility with respect to compensation.--
                          ``(i) In general.--The Director and staff of 
                        the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 53 of such title 
                        (relating to classification and schedule pay 
                        rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(D) Assistance from the administrator of the 
                medicare benefits administration.--The Administrator of 
                the Medicare Benefits Administration shall make 
                available to the Board such information and other 
                assistance as it may require to carry out its 
                functions.
          ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
  ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Medicare Prescription Drug Account), such sums as are necessary to 
carry out this section.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of the enactment of this Act.
          (2) Timing of initial appointments.--The Administrator and 
        Deputy Administrator of the Medicare Benefits Administration 
        may not be appointed before March 1, 2001.
          (3) Duties with respect to eligibility determinations and 
        enrollment.--The Administrator of the Medicare Benefits 
        Administration shall carry out enrollment under title XVIII of 
        the Social Security Act, make eligibility determinations under 
        such title, and carry out part C of such title for years 
        beginning or after January 1, 2003.

SEC. 202. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

  (a) Administrator as Member of the Board of Trustees of the Medicare 
Trust Funds.--Section 1817(b) and section 1841(b) of the Social 
Security Act (42 U.S.C. 1395i(b), 1395t(b)) are each amended by 
striking ``and the Secretary of Health and Human Services, all ex 
officio,'' and inserting ``the Secretary of Health and Human Services, 
and the Administrator of the Medicare Benefits Administration, all ex 
officio,''.
  (b) Increase in Grade to Executive Level III for the Administrator of 
the Health Care Financing Administration.--
          (1) In general.--Section 5314 of title 5, United States Code, 
        by adding at the end the following:
          ``Administrator of the Health Care Financing 
        Administration.''.
          (2) Conforming amendment.--Section 5315 of such title is 
        amended by striking ``Administrator of the Health Care 
        Financing Administration.''.
          (3) Effective date.--The amendments made by this subsection 
        take effect on March 1, 2001.

   Subtitle B--Oversight of Financial Sustainability of the Medicare 
                                Program

SEC. 211. ADDITIONAL REQUIREMENTS FOR ANNUAL FINANCIAL REPORT AND 
                    OVERSIGHT ON MEDICARE PROGRAM.

  (a) In General.--Section 1817 of the Social Security Act (42 U.S.C. 
1395i) is amended by adding at the end the following new subsection:
  ``(l) Combined Report on Operation and Status of the Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund.--
          ``(1) In general.--In addition to the duty of the Board of 
        Trustees to report to Congress under subsection (b), on the 
        date the Board submits the report required under subsection 
        (b)(2), the Board shall submit to Congress a report on the 
        operation and status of the Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund established under 
        section 1841 (in this subsection referred to as the `Trust 
        Funds'). Such report shall included the following information:
                  ``(A) Overall spending from the general fund of the 
                treasury.--A statement of total amounts obligated 
                during the preceding fiscal year from the General 
                Revenues of the Treasury to the Trust Funds for payment 
                for benefits covered under this title, stated in terms 
                of the total amount and in terms of the percentage such 
                amount bears to all other amounts obligated from such 
                General Revenues during such fiscal year.
                  ``(B) Historical overview of spending.--From the date 
                of the inception of the program of insurance under this 
                title through the fiscal year involved, a statement of 
                the total amounts referred to in subparagraph (A).
                  ``(C) 10-year and 50-year projections.--An estimate 
                of total amounts referred to in subparagraph (A) 
                required to be obligated for payment for benefits 
                covered under this title for each of the 10 fiscal 
                years succeeding the fiscal year involved and for the 
                50-year period beginning with the succeeding fiscal 
                year.
                  ``(D) Relation to gdp growth.--A comparison of the 
                rate of growth of the total amounts referred to in 
                subparagraph (A) to the rate of growth in the gross 
                domestic product for the same period.
          ``(2) Publication.--Each report submitted under paragraph (1) 
        shall be published by the Committee on Ways and Means as a 
        public document and shall be made available by such Committee 
        on the Internet.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
with respect to fiscal years beginning on or after the date of the 
enactment of this Act.
  (c) Congressional Hearings.--It is the sense of Congress that the 
committees of jurisdiction shall hold hearings on the reports submitted 
under section 1817(l) of the Social Security Act.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

SEC. 221. REVISIONS TO MEDICARE APPEALS PROCESS.

  (a) Conduct of Reconsiderations of Determinations by Independent 
Contractors.--Section 1869 of the Social Security Act (42 U.S.C. 
1395ff) is amended to read as follows:
                       ``determinations; appeals
  ``Sec. 1869. (a) Initial Determinations.--The Secretary shall 
promulgate regulations and make initial determinations with respect to 
benefits under part A or part B in accordance with those regulations 
for the following:
          ``(1) The initial determination of whether an individual is 
        entitled to benefits under such parts.
          ``(2) The initial determination of the amount of benefits 
        available to the individual under such parts.
          ``(3) Any other initial determination with respect to a claim 
        for benefits under such parts, including an initial 
        determination by the Secretary that payment may not be made, or 
        may no longer be made, for an item or service under such parts, 
        an initial determination made by a utilization and quality 
        control peer review organization under section 1154(a)(2), and 
        an initial determination made by an entity pursuant to a 
        contract with the Secretary to administer provisions of this 
        title or title XI.
  ``(b) Appeal Rights.--
          ``(1) In general.--
                  ``(A) Reconsideration of initial determination.--
                Subject to subparagraph (D), any individual 
                dissatisfied with any initial determination under 
                subsection (a) shall be entitled to reconsideration of 
                the determination, and, subject to subparagraphs (D) 
                and (E), a hearing thereon by the Secretary to the same 
                extent as is provided in section 205(b) and to judicial 
                review of the Secretary's final decision after such 
                hearing as is provided in section 205(g).
                  ``(B) Representation by provider or supplier.--
                          ``(i) In general.--Sections 206(a), 1102, and 
                        1871 shall not be construed as authorizing the 
                        Secretary to prohibit an individual from being 
                        represented under this section by a person that 
                        furnishes or supplies the individual, directly 
                        or indirectly, with services or items, solely 
                        on the basis that the person furnishes or 
                        supplies the individual with such a service or 
                        item.
                          ``(ii) Mandatory waiver of right to payment 
                        from beneficiary.--Any person that furnishes 
                        services or items to an individual may not 
                        represent an individual under this section with 
                        respect to the issue described in section 
                        1879(a)(2) unless the person has waived any 
                        rights for payment from the beneficiary with 
                        respect to the services or items involved in 
                        the appeal.
                          ``(iii) Prohibition on payment for 
                        representation.--If a person furnishes services 
                        or items to an individual and represents the 
                        individual under this section, the person may 
                        not impose any financial liability on such 
                        individual in connection with such 
                        representation.
                          ``(iv) Requirements for representatives of a 
                        beneficiary.--The provisions of section 205(j) 
                        and section 206 (regarding representation of 
                        claimants) shall apply to representation of an 
                        individual with respect to appeals under this 
                        section in the same manner as they apply to 
                        representation of an individual under those 
                        sections.
                  ``(C) Succession of rights in cases of assignment.--
                The right of an individual to an appeal under this 
                section with respect to an item or service may be 
                assigned to the provider of services or supplier of the 
                item or service upon the written consent of such 
                individual using a standard form established by the 
                Secretary for such an assignment.
                  ``(D) Time limits for appeals.--
                          ``(i) Reconsiderations.--Reconsideration 
                        under subparagraph (A) shall be available only 
                        if the individual described subparagraph (A) 
                        files notice with the Secretary to request 
                        reconsideration by not later than 180 days 
                        after the individual receives notice of the 
                        initial determination under subsection (a) or 
                        within such additional time as the Secretary 
                        may allow.
                          ``(ii) Hearings conducted by the secretary.--
                        The Secretary shall establish in regulations 
                        time limits for the filing of a request for a 
                        hearing by the Secretary in accordance with 
                        provisions in sections 205 and 206.
                  ``(E) Amounts in controversy.--
                          ``(i) In general.--A hearing (by the 
                        Secretary) shall not be available to an 
                        individual under this section if the amount in 
                        controversy is less than $100, and judicial 
                        review shall not be available to the individual 
                        if the amount in controversy is less than 
                        $1,000.
                          ``(ii) Aggregation of claims.--In determining 
                        the amount in controversy, the Secretary, under 
                        regulations, shall allow 2 or more appeals to 
                        be aggregated if the appeals involve--
                                  ``(I) the delivery of similar or 
                                related services to the same individual 
                                by one or more providers of services or 
                                suppliers, or
                                  ``(II) common issues of law and fact 
                                arising from services furnished to 2 or 
                                more individuals by one or more 
                                providers of services or suppliers.
                  ``(F) Expedited proceedings.--
                          ``(i) Expedited determination.--In the case 
                        of an individual who--
                                  ``(I) has received notice by a 
                                provider of services that the provider 
                                of services plans to terminate services 
                                provided to an individual and a 
                                physician certifies that failure to 
                                continue the provision of such services 
                                is likely to place the individual's 
                                health at significant risk, or
                                  ``(II) has received notice by a 
                                provider of services that the provider 
                                of services plans to discharge the 
                                individual from the provider of 
                                services,
                        the individual may request, in writing or 
                        orally, an expedited determination or an 
                        expedited reconsideration of an initial 
                        determination made under subsection (a), as the 
                        case may be, and the Secretary shall provide 
                        such expedited determination or expedited 
                        reconsideration.
                          ``(ii) Expedited hearing.--In a hearing by 
                        the Secretary under this section, in which the 
                        moving party alleges that no material issues of 
                        fact are in dispute, the Secretary shall make 
                        an expedited determination as to whether any 
                        such facts are in dispute and, if not, shall 
                        render a decision expeditiously.
                  ``(G) Reopening and revision of determinations.--The 
                Secretary may reopen or revise any initial 
                determination or reconsidered determination described 
                in this subsection under guidelines established by the 
                Secretary in regulations.
          ``(2) Review of coverage determinations.--
                  ``(A) National coverage determinations.--
                          ``(i) In general.--Review of any national 
                        coverage determination shall be subject to the 
                        following limitations:
                                  ``(I) Such a determination shall not 
                                be reviewed by any administrative law 
                                judge.
                                  ``(II) Such a determination shall not 
                                be held unlawful or set aside on the 
                                ground that a requirement of section 
                                553 of title 5, United States Code, or 
                                section 1871(b) of this title, relating 
                                to publication in the Federal Register 
                                or opportunity for public comment, was 
                                not satisfied.
                                  ``(III) Upon the filing of a 
                                complaint by an aggrieved party, such a 
                                determination shall be reviewed by the 
                                Departmental Appeals Board of the 
                                Department of Health and Human 
                                Services. In conducting such a review, 
                                the Departmental Appeals Board shall 
                                review the record and shall permit 
                                discovery and the taking of evidence to 
                                evaluate the reasonableness of the 
                                determination. In reviewing such a 
                                determination, the Departmental 
                                Appeals Board shall defer only to the 
                                reasonable findings of fact, reasonable 
                                interpretations of law, and reasonable 
                                applications of fact to law by the 
                                Secretary.
                                  ``(IV) A decision of the Departmental 
                                Appeals Board constitutes a final 
                                agency action and is subject to 
                                judicial review.
                          ``(ii) Definition of national coverage 
                        determination.--For purposes of this section, 
                        the term `national coverage determination' 
                        means a determination by the Secretary 
                        respecting whether or not a particular item or 
                        service is covered nationally under this title, 
                        including such a determination under 
                        1862(a)(1).
          ``(B) Local coverage determination.--In the case of a local 
        coverage determination made by a fiscal intermediary or a 
        carrier under part A or part B respecting whether a particular 
        type or class of items or services is covered under such parts, 
        the following limitations apply:
                  ``(i) Upon the filing of a complaint by an aggrieved 
                party, such a determination shall be reviewed by an 
                administrative law judge of the Social Security 
                Administration. The administrative law judge shall 
                review the record and shall permit discovery and the 
                taking of evidence to evaluate the reasonableness of 
                the determination. In reviewing such a determination, 
                the administrative law judge shall defer only to the 
                reasonable findings of fact, reasonable interpretations 
                of law, and reasonable applications of fact to law by 
                the Secretary.
                  ``(ii) Such a determination may be reviewed by the 
                Departmental Appeals Board of the Department of Health 
                and Human Services.
                  ``(iii) A decision of the Departmental Appeals Board 
                constitutes a final agency action and is subject to 
                judicial review.
          ``(C) No material issues of fact in dispute.--In the case of 
        review of a determination under subparagraph (A)(i)(III) or 
        (B)(i) where the moving party alleges that there are no 
        material issues of fact in dispute, and alleges that the only 
        issue is the constitutionality of a provision of this title, or 
        that a regulation, determination, or ruling by the Secretary is 
        invalid, the moving party may seek review by a court of 
        competent jurisdiction.
          ``(D) Pending national coverage determinations.--
                  ``(i) In general.--In the event the Secretary has not 
                issued a national coverage or noncoverage determination 
                with respect to a particular type or class of items or 
                services, an affected party may submit to the Secretary 
                a request to make such a determination with respect to 
                such items or services. By not later than the end of 
                the 90-day period beginning on the date the Secretary 
                receives such a request, the Secretary shall take one 
                of the following actions:
                          ``(I) Issue a national coverage 
                        determination, with or without limitations.
                          ``(II) Issue a national noncoverage 
                        determination.
                          ``(III) Issue a determination that no 
                        national coverage or noncoverage determination 
                        is appropriate as of the end of such 90-day 
                        period with respect to national coverage of 
                        such items or services.
                          ``(IV) Issue a notice that states that the 
                        Secretary has not completed a review of the 
                        request for a national coverage determination 
                        and that includes an identification of the 
                        remaining steps in the Secretary's review 
                        process and a deadline by which the Secretary 
                        will complete the review and take an action 
                        described in subclause (I), (II), or (III).
                  ``(ii) In the case of an action described in clause 
                (i)(IV), if the Secretary fails to take an action 
                referred to in such clause by the deadline specified by 
                the Secretary under such clause, then the Secretary is 
                deemed to have taken an action described in clause 
                (i)(III) as of the deadline.
                  ``(iii) When issuing a determination under clause 
                (i), the Secretary shall include an explanation of the 
                basis for the determination. An action taken under 
                clause (i) (other than subclause (IV)) is deemed to be 
                a national coverage determination for purposes of 
                review under subparagraph (A).
          ``(E) Annual report on national coverage determinations.--
                  ``(i) In general.--Not later than December 1 of each 
                year, beginning in 2001, the Secretary shall submit to 
                Congress a report that sets forth a detailed 
                compilation of the actual time periods that were 
                necessary to complete and fully implement national 
                coverage determinations that were made in the previous 
                fiscal year for items, services, or medical devices not 
                previously covered as a benefit under this title, 
                including, with respect to each new item, service, or 
                medical device, a statement of the time taken by the 
                Secretary to make the necessary coverage, coding, and 
                payment determinations, including the time taken to 
                complete each significant step in the process of making 
                such determinations.
                  ``(ii) Publication of reports on the internet.--The 
                Secretary shall publish each report submitted under 
                clause (i) on the medicare Internet site of the 
                Department of Health and Human Services.
          ``(3) Publication on the internet of decisions of hearings of 
        the secretary.--Each decision of a hearing by the Secretary 
        shall be made public, and the Secretary shall publish each 
        decision on the Medicare Internet site of the Department of 
        Health and Human Services. The Secretary shall remove from such 
        decision any information that would identify any individual, 
        provider of services, or supplier.
          ``(4) Limitation on review of certain regulations.--A 
        regulation or instruction which relates to a method for 
        determining the amount of payment under part B and which was 
        initially issued before January 1, 1981, shall not be subject 
        to judicial review.
          ``(5) Standing.--An action under this section seeking review 
        of a coverage determination (with respect to items and services 
        under this title) may be initiated only by one (or more) of the 
        following aggrieved persons, or classes of persons:
                  ``(A) Individuals entitled to benefits under part A, 
                or enrolled under part B, or both, who are in need of 
                the items or services that are the subject of the 
                coverage determination.
                  ``(B) Persons, or classes of persons, who make, 
                manufacture, offer, supply, make available, or provide 
                such items and services.
  ``(c) Conduct of Reconsiderations by Independent Contractors.--
          ``(1) In general.--The Secretary shall enter into contracts 
        with qualified independent contractors to conduct 
        reconsiderations of initial determinations made under 
        paragraphs (2) and (3) of subsection (a). Contracts shall be 
        for an initial term of three years and shall be renewable on a 
        triennial basis thereafter.
          ``(2) Qualified independent contractor.--For purposes of this 
        subsection, the term `qualified independent contractor' means 
        an entity or organization that is independent of any 
        organization under contract with the Secretary that makes 
        initial determinations under subsection (a), and that meets the 
        requirements established by the Secretary consistent with 
        paragraph (3).
          ``(3) Requirements.--Any qualified independent contractor 
        entering into a contract with the Secretary under this 
        subsection shall meet the following requirements:
                  ``(A) In general.--The qualified independent 
                contractor shall perform such duties and functions and 
                assume such responsibilities as may be required under 
                regulations of the Secretary promulgated to carry out 
                the provisions of this subsection, and such additional 
                duties, functions, and responsibilities as provided 
                under the contract.
                  ``(B) Determinations.--The qualified independent 
                contractor shall determine, on the basis of such 
                criteria, guidelines, and policies established by the 
                Secretary and published under subsection (d)(2)(D), 
                whether payment shall be made for items or services 
                under part A or part B and the amount of such payment. 
                Such determination shall constitute the conclusive 
                determination on those issues for purposes of payment 
                under such parts for fiscal intermediaries, carriers, 
                and other entities whose determinations are subject to 
                review by the contractor; except that payment may be 
                made if--
                          ``(i) such payment is allowed by reason of 
                        section 1879;
                          ``(ii) in the case of inpatient hospital 
                        services or extended care services, the 
                        qualified independent contractor determines 
                        that additional time is required in order to 
                        arrange for postdischarge care, but payment may 
                        be continued under this clause for not more 
                        than 2 days, and only in the case in which the 
                        provider of such services did not know and 
                        could not reasonably have been expected to know 
                        (as determined under section 1879) that payment 
                        would not otherwise be made for such services 
                        under part A or part B prior to notification by 
                        the qualified independent contractor under this 
                        subsection;
                          ``(iii) such determination is changed as the 
                        result of any hearing by the Secretary or 
                        judicial review of the decision under this 
                        section; or
                          ``(iv) such payment is authorized under 
                        section 1861(v)(1)(G).
                  ``(C) Deadlines for decisions.--
                          ``(i) Determinations.--The qualified 
                        independent contractor shall conduct and 
                        conclude a determination under subparagraph (B) 
                        or an appeal of an initial determination, and 
                        mail the notice of the decision by not later 
                        than the end of the 45-day period beginning on 
                        the date a request for reconsideration has been 
                        timely filed.
                          ``(ii) Consequences of failure to meet 
                        deadline.--In the case of a failure by the 
                        qualified independent contractor to mail the 
                        notice of the decision by the end of the period 
                        described in clause (i), the party requesting 
                        the reconsideration or appeal may request a 
                        hearing before an administrative law judge, 
                        notwithstanding any requirements for a 
                        reconsidered determination for purposes of the 
                        party's right to such hearing.
                          ``(iii) Expedited reconsiderations.--The 
                        qualified independent contractor shall perform 
                        an expedited reconsideration under subsection 
                        (b)(1)(F) of a notice from a provider of 
                        services or supplier that payment may not be 
                        made for an item or service furnished by the 
                        provider of services or supplier, of a decision 
                        by a provider of services to terminate services 
                        furnished to an individual, or in accordance 
                        with the following:
                                  ``(I) Deadline for decision.--
                                Notwithstanding section 216(j), not 
                                later than 1 day after the date the 
                                qualified independent contractor has 
                                received a request for such 
                                reconsideration and has received such 
                                medical or other records needed for 
                                such reconsideration, the qualified 
                                independent contractor shall provide 
                                notice (by telephone and in writing) to 
                                the individual and the provider of 
                                services and attending physician of the 
                                individual of the results of the 
                                reconsideration. Such reconsideration 
                                shall be conducted regardless of 
                                whether the provider of services or 
                                supplier will charge the individual for 
                                continued services or whether the 
                                individual will be liable for payment 
                                for such continued services.
                                  ``(II) Consultation with 
                                beneficiary.--In such reconsideration, 
                                the qualified independent contractor 
                                shall solicit the views of the 
                                individual involved.
                  ``(D) Limitation on individual reviewing 
                determinations.--
                          ``(i) Physicians.--No physician under the 
                        employ of a qualified independent contractor 
                        may review--
                                  ``(I) determinations regarding health 
                                care services furnished to a patient if 
                                the physician was directly responsible 
                                for furnishing such services; or
                                  ``(II) determinations regarding 
                                health care services provided in or by 
                                an institution, organization, or 
                                agency, if the physician or any member 
                                of the physician's family has, directly 
                                or indirectly, a significant financial 
                                interest in such institution, 
                                organization, or agency.
                          ``(ii) Physician's family described.--For 
                        purposes of this paragraph, a physician's 
                        family includes the physician's spouse (other 
                        than a spouse who is legally separated from the 
                        physician under a decree of divorce or separate 
                        maintenance), children (including stepchildren 
                        and legally adopted children), grandchildren, 
                        parents, and grandparents.
                  ``(E) Explanation of determinations.--Any 
                determination of a qualified independent contractor 
                shall be in writing, and shall include a detailed 
                explanation of the determination as well as a 
                discussion of the pertinent facts and applicable 
                regulations applied in making such determination.
                  ``(F) Notice requirements.--Whenever a qualified 
                independent contractor makes a determination under this 
                subsection, the qualified independent contractor shall 
                promptly notify such individual and the entity 
                responsible for the payment of claims under part A or 
                part B of such determination.
                  ``(G) Dissemination of information.--Each qualified 
                independent contractor shall, using the methodology 
                established by the Secretary under subsection (d)(4), 
                make available all determinations of such qualified 
                independent contractors to fiscal intermediaries (under 
                section 1816), carriers (under section 1842), peer 
                review organizations (under part B of title XI), 
                Medicare+Choice organizations offering Medicare+Choice 
                plans under part C, and other entities under contract 
                with the Secretary to make initial determinations under 
                part A or part B or title XI.
                  ``(H) Ensuring consistency in determinations.--Each 
                qualified independent contractor shall monitor its 
                determinations to ensure the consistency of its 
                determinations with respect to requests for 
                reconsideration of similar or related matters.
                  ``(I) Data collection.--
                          ``(i) In general.--Consistent with the 
                        requirements of clause (ii), a qualified 
                        independent contractor shall collect such 
                        information relevant to its functions, and keep 
                        and maintain such records in such form and 
                        manner as the Secretary may require to carry 
                        out the purposes of this section and shall 
                        permit access to and use of any such 
                        information and records as the Secretary may 
                        require for such purposes.
                          ``(ii) Type of data collected.--Each 
                        qualified independent contractor shall keep 
                        accurate records of each decision made, 
                        consistent with standards established by the 
                        Secretary for such purpose. Such records shall 
                        be maintained in an electronic database in a 
                        manner that provides for identification of the 
                        following:
                                  ``(I) Specific claims that give rise 
                                to appeals.
                                  ``(II) Situations suggesting the need 
                                for increased education for providers 
                                of services, physicians, or suppliers.
                                  ``(III) Situations suggesting the 
                                need for changes in national or local 
                                coverage policy.
                                  ``(IV) Situations suggesting the need 
                                for changes in local medical review 
                                policies.
                          ``(iii) Annual reporting.--Each qualified 
                        independent contractor shall submit annually to 
                        the Secretary (or otherwise as the Secretary 
                        may request) records maintained under this 
                        paragraph for the previous year.
                  ``(J) Hearings by the secretary.--The qualified 
                independent contractor shall (i) prepare such 
                information as is required for an appeal of its 
                reconsidered determination to the Secretary for a 
                hearing, including as necessary, explanations of issues 
                involved in the determination and relevant policies, 
                and (ii) participate in such hearings as required by 
                the Secretary.
          ``(4) Number of qualified independent contractors.--The 
        Secretary shall enter into contracts with not fewer than 12 
        qualified independent contractors under this subsection.
          ``(5) Limitation on qualified independent contractor 
        liability.--No qualified independent contractor having a 
        contract with the Secretary under this subsection and no person 
        who is employed by, or who has a fiduciary relationship with, 
        any such qualified independent contractor or who furnishes 
        professional services to such qualified independent contractor, 
        shall be held by reason of the performance of any duty, 
        function, or activity required or authorized pursuant to this 
        subsection or to a valid contract entered into under this 
        subsection, to have violated any criminal law, or to be civilly 
        liable under any law of the United States or of any State (or 
        political subdivision thereof) provided due care was exercised 
        in the performance of such duty, function, or activity.
  ``(d) Administrative Provisions.--
          ``(1) Outreach.--The Secretary shall perform such outreach 
        activities as are necessary to inform individuals entitled to 
        benefits under this title and providers of services and 
        suppliers with respect to their rights of, and the process for, 
        appeals made under this section. The Secretary shall use the 
        toll-free telephone number maintained by the Secretary (1-800-
        MEDICAR(E)) (1-800-633-4227) to provide information regarding 
        appeal rights and respond to inquiries regarding the status of 
        appeals.
          ``(2) Guidance for reconsiderations and hearings.--
                  ``(A) Regulations.--Not later than 1 year after the 
                date of the enactment of this section, the Secretary 
                shall promulgate regulations governing the processes of 
                reconsiderations of determinations by the Secretary and 
                qualified independent contractors and of hearings by 
                the Secretary. Such regulations shall include such 
                specific criteria and provide such guidance as required 
                to ensure the adequate functioning of the 
                reconsiderations and hearings processes and to ensure 
                consistency in such processes.
                  ``(B) Deadlines for administrative action.--
                          ``(i) Hearing by administrative law judge.--
                                  ``(II) In general.--Except as 
                                provided in subclause (II), an 
                                administrative law judge shall conduct 
                                and conclude a hearing on a decision of 
                                a qualified independent contractor 
                                under subsection (c) and render a 
                                decision on such hearing by not later 
                                than the end of the 90-day period 
                                beginning on the date a request for 
                                hearing has been timely filed.
                                  ``(II) Waiver of deadline by party 
                                seeking hearing.--The 90-day period 
                                under subclause (i) shall not apply in 
                                the case of a motion or stipulation by 
                                the party requesting the hearing to 
                                waive such period.
                          ``(ii) Departmental appeals board review.--
                        The Departmental Appeals Board of the 
                        Department of Health and Human Services shall 
                        conduct and conclude a review of the decision 
                        on a hearing described in subparagraph (B) and 
                        make a decision or remand the case to the 
                        administrative law judge for reconsideration by 
                        not later than the end of the 90-day period 
                        beginning on the date a request for review has 
                        been timely filed.
                          ``(iii) Consequences of failure to meet 
                        deadlines.--In the case of a failure by an 
                        administrative law judge to render a decision 
                        by the end of the period described in clause 
                        (ii), the party requesting the hearing may 
                        request a review by the Departmental Appeals 
                        Board of the Department of Health and Human 
                        Services, notwithstanding any requirements for 
                        a hearing for purposes of the party's right to 
                        such a review.
                          ``(iv) DAB hearing procedure.--In the case of 
                        a request described in clause (iii), the 
                        Departmental Appeals Board shall review the 
                        case de novo.
                  ``(C) Policies.--The Secretary shall provide such 
                specific criteria and guidance, including all 
                applicable national and local coverage policies and 
                rationale for such policies, as is necessary to assist 
                the qualified independent contractors to make informed 
                decisions in considering appeals under this section. 
                The Secretary shall furnish to the qualified 
                independent contractors the criteria and guidance 
                described in this paragraph in a published format, 
                which may be an electronic format.
                  ``(D) Publication of medicare coverage policies on 
                the internet.--The Secretary shall publish national and 
                local coverage policies under this title on an Internet 
                site maintained by the Secretary.
                  ``(E) Effect of failure to publish policies.--
                          ``(i) National and local coverage policies.--
                        Qualified independent contractors shall not be 
                        bound by any national or local medicare 
                        coverage policy established by the Secretary 
                        that is not published on the Internet site 
                        under subparagraph (D).
                          ``(ii) Other policies.--With respect to 
                        policies established by the Secretary other 
                        than the policies described in clause (i), 
                        qualified independent contractors shall not be 
                        bound by such policies if the Secretary does 
                        not furnish to the qualified independent 
                        contractor the policies in a published format 
                        consistent with subparagraph (C).
          ``(3) Continuing education requirement for qualified 
        independent contractors and administrative law judges.--
                  ``(A) In general.--The Secretary shall provide to 
                each qualified independent contractor, and, in 
                consultation with the Commissioner of Social Security, 
                to administrative law judges that decide appeals of 
                reconsiderations of initial determinations or other 
                decisions or determinations under this section, such 
                continuing education with respect to policies of the 
                Secretary under this title or part B of title XI as is 
                necessary for such qualified independent contractors 
                and administrative law judges to make informed 
                decisions with respect to appeals.
                  ``(B) Monitoring of decisions by qualified 
                independent contractors and administrative law 
                judges.--The Secretary shall monitor determinations 
                made by all qualified independent contractors and 
                administrative law judges under this section and shall 
                provide continuing education and training to such 
                qualified independent contractors and administrative 
                law judges to ensure consistency of determinations with 
                respect to appeals on similar or related matters. To 
                ensure such consistency, the Secretary shall provide 
                for administration and oversight of qualified 
                independent contractors and, in consultation with the 
                Commissioner of Social Security, administrative law 
                judges through a central office of the Department of 
                Health and Human Services. Such administration and 
                oversight may not be delegated to regional offices of 
                the Department.
          ``(4) Dissemination of determinations.--The Secretary shall 
        establish a methodology under which qualified independent 
        contractors shall carry out subsection (c)(3)(G).
          ``(5) Survey.--Not less frequently than every 5 years, the 
        Secretary shall conduct a survey of a valid sample of 
        individuals entitled to benefits under this title, providers of 
        services, and suppliers to determine the satisfaction of such 
        individuals or entities with the process for appeals of 
        determinations provided for under this section and education 
        and training provided by the Secretary with respect to that 
        process. The Secretary shall submit to Congress a report 
        describing the results of the survey, and shall include any 
        recommendations for administrative or legislative actions that 
        the Secretary determines appropriate.
          ``(6) Report to congress.--The Secretary shall submit to 
        Congress an annual report describing the number of appeals for 
        the previous year, identifying issues that require 
        administrative or legislative actions, and including any 
        recommendations of the Secretary with respect to such actions. 
        The Secretary shall include in such report an analysis of 
        determinations by qualified independent contractors with 
        respect to inconsistent decisions and an analysis of the causes 
        of any such inconsistencies.''.
  (b) Applicability of Requirements and Limitations on Liability of 
Qualified Independent Contractors to Medicare+Choice Independent 
Appeals Contractors.--Section 1852(g)(4) of the Social Security Act (42 
U.S.C. 1395w-22(e)(3)) is amended by adding at the end the following: 
``The provisions of section 1869(c)(5) shall apply to independent 
outside entities under contract with the Secretary under this 
paragraph.''.
  (c) Conforming Amendment to Review by the Provider Reimbursement 
Review Board.--Section 1878(g) of the Social Security Act (42 U.S.C. 
1395oo(g)) is amended by adding at the end the following new paragraph:
  ``(3) Findings described in paragraph (1) and determinations and 
other decisions described in paragraph (2) may be reviewed or appealed 
under section 1869.''.

SEC. 222. PROVISIONS WITH RESPECT TO LIMITATIONS ON LIABILITY OF 
                    BENEFICIARIES.

  (a) Expansion of Limitation of Liability Protection for Beneficiaries 
With Respect to Medicare Claims Not Paid or Paid Incorrectly.--
          (1) In general.--Section 1879 of the Social Security Act (42 
        U.S.C. 1395pp) is amended by adding at the end the following 
        new subsections:
  ``(i) Notwithstanding any other provision of this Act, an individual 
who is entitled to benefits under this title and is furnished a service 
or item is not liable for repayment to the Secretary of amounts with 
respect to such benefits--
          ``(1) subject to paragraph (2), in the case of a claim for 
        such item or service that is incorrectly paid by the Secretary; 
        and
          ``(2) in the case of payments made to the individual by the 
        Secretary with respect to any claim under paragraph (1), the 
        individual shall be liable for repayment of such amount only up 
        to the amount of payment received by the individual from the 
        Secretary.
  ``(j)(1) An individual who is entitled to benefits under this title 
and is furnished a service or item is not liable for payment of amounts 
with respect to such benefits in the following cases:
          ``(A) In the case of a benefit for which an initial 
        determination has not been made by the Secretary under 
        subsection (a) whether payment may be made under this title for 
        such benefit.
          ``(B) In the case of a claim for such item or service that 
        is--
                  ``(i) improperly submitted by the provider of 
                services or supplier; or
                  ``(ii) rejected by an entity under contract with the 
                Secretary to review or pay claims for services and 
                items furnished under this title, including an entity 
                under contract with the Secretary under section 1857.
  ``(2) The limitation on liability under paragraph (1) shall not apply 
if the individual signs a waiver provided by the Secretary under 
subsection (l) of protections under this paragraph, except that any 
such waiver shall not apply in the case of a denial of a claim for 
noncompliance with applicable regulations or procedures under this 
title or title XI.
  ``(k) An individual who is entitled to benefits under this title and 
is furnished services by a provider of services is not liable for 
payment of amounts with respect to such services prior to noon of the 
first working day after the date the individual receives the notice of 
determination to discharge and notice of appeal rights under paragraph 
(1), unless the following conditions are met:
          ``(1) The provider of services shall furnish a notice of 
        discharge and appeal rights established by the Secretary under 
        subsection (l) to each individual entitled to benefits under 
        this title to whom such provider of services furnishes 
        services, upon admission of the individual to the provider of 
        services and upon notice of determination to discharge the 
        individual from the provider of services, of the individual's 
        limitations of liability under this section and rights of 
        appeal under section 1869.
          ``(2) If the individual, prior to discharge from the provider 
        of services, appeals the determination to discharge under 
        section 1869 not later than noon of the first working day after 
        the date the individual receives the notice of determination to 
        discharge and notice of appeal rights under paragraph (1), the 
        provider of services shall, by the close of business of such 
        first working day, provide to the Secretary (or qualified 
        independent contractor under section 1869, as determined by the 
        Secretary) the records required to review the determination.
  ``(l) The Secretary shall develop appropriate standard forms for 
individuals entitled to benefits under this title to waive limitation 
of liability protections under subsection (j) and to receive notice of 
discharge and appeal rights under subsection (k). The forms developed 
by the Secretary under this subsection shall clearly and in plain 
language inform such individuals of their limitations on liability, 
their rights under section 1869(a) to obtain an initial determination 
by the Secretary of whether payment may be made under part A or part B 
for such benefit, and their rights of appeal under section 1869(b), and 
shall inform such individuals that they may obtain further information 
or file an appeal of the determination by use of the toll-free 
telephone number (1-800-MEDICAR(E)) (1-800-633-4227) maintained by the 
Secretary. The forms developed by the Secretary under this subsection 
shall be the only manner in which such individuals may waive such 
protections under this title or title XI.
  ``(m) An individual who is entitled to benefits under this title and 
is furnished an item or service is not liable for payment of cost 
sharing amounts of more than $50 with respect to such benefits unless 
the individual has been informed in advance of being furnished the item 
or service of the estimated amount of the cost sharing for the item or 
service using a standard form established by the Secretary.''.
          (2) Conforming amendment.--Section 1870(a) of the Social 
        Security Act (42 U.S.C. 1395gg(a)) is amended by striking ``Any 
        payment under this title'' and inserting ``Except as provided 
        in section 1879(i), any payment under this title''.
  (b) Inclusion of Beneficiary Liability Information in Explanation of 
Medicare Benefits.--Section 1806(a) of the Social Security Act (42 
U.S.C. 1395b-7(a)) is amended--
          (1) in paragraph (1), by striking ``and'' at the end;
          (2) by redesignating paragraph (2) as paragraph (3); and
          (3) by inserting after paragraph (1) the following new 
        paragraph:
          ``(2) lists with respect to each item or service furnished 
        the amount of the individual's liability for payment;'';
          (4) in paragraph (3), as so redesignated, by striking the 
        period at the end and inserting ``; and''; and
          (5) by adding at the end the following new paragraph:
          ``(4) includes the toll-free telephone number (1-800-
        MEDICAR(E)) (1-800-633-4227) for information and questions 
        concerning the statement, liability of the individual for 
        payment, and appeal rights.''.

SEC. 223. WAIVERS OF LIABILITY FOR COST SHARING AMOUNTS.

  (a) In General.--Section 1128A(i)(6)(A) of the Social Security Act 
(42 U.S.C. 1320a-7a(i)(6)(A)) is amended by striking clauses (i) 
through (iii) and inserting the following:
                          ``(i) the waiver is offered as a part of a 
                        supplemental insurance policy or retiree health 
                        plan;
                          ``(ii) the waiver is not offered as part of 
                        any advertisement or solicitation, other than 
                        in conjunction with a policy or plan described 
                        in clause (i);
                          ``(iii) the person waives the coinsurance and 
                        deductible amount after the beneficiary informs 
                        the person that payment of the coinsurance or 
                        deductible amount would pose a financial 
                        hardship for the individual; or
                          ``(iv) the person determines that the 
                        coinsurance and deductible amount would not 
                        justify the costs of collection.''.
  (b) Conforming Amendment.--Section 1128B(b) of the Social Security 
Act (42 U.S.C. 1320a-7b(b)) is amended by adding at the end the 
following new paragraph:
          ``(4) In this section, the term `remuneration' includes the 
        meaning given such term in section 1128A(i)(6).''.

SEC. 224. ELIMINATION OF MOTIONS BY THE SECRETARY ON DECISIONS OF THE 
                    PROVIDER REIMBURSEMENT REVIEW BOARD.

  Section 1878(f)(1) of such Act (42 U.S.C. 1395oo(f)(1)) is amended--
          (1) in the first sentence, by striking ``unless the 
        Secretary, on his own motion, and within 60 days after the 
        provider of services is notified of the Board's decision, 
        reverses, affirms, or modifies the Board's decision'';
          (2) in the second sentence, by striking ``, or of any 
        reversal, affirmance, or modification by the Secretary,'' and 
        ``or of any reversal, affirmance, or modification by the 
        Secretary''; and
          (3) in the fifth sentence, by striking ``and not subject to 
        review by the Secretary''.

  TITLE III--MEDICARE+CHOICE REFORMS; PRESERVATION OF MEDICARE PART B 
                              DRUG BENEFIT

                  Subtitle A--Medicare+Choice Reforms

SEC. 301. INCREASE IN NATIONAL PER CAPITA MEDICARE+CHOICE GROWTH 
                    PERCENTAGE IN 2001 AND 2002.

  Section 1853(c)(6)(B) of the Social Security Act (42 U.S.C. 1395w-
23(c)(6)(B)) is amended--
          (1) in clause (iv), by striking ``for 2001, 0.5 percentage 
        points'' and inserting ``for 2001, 0 percentage points''; and
          (2) in clause (v), by striking ``for 2002, 0.3 percentage 
        points'' and inserting ``for 2002, 0 percentage points''.

SEC. 302. PERMANENTLY REMOVING APPLICATION OF BUDGET NEUTRALITY 
                    BEGINNING IN 2002.

  Section 1853(c) of the Social Security Act (42 U.S.C. 1395w-23(c)) is 
amended--
          (1) in paragraph (1)(A), in the matter following clause (ii), 
        by inserting ``(for years before 2002)'' after ``multiplied''; 
        and
          (2) in paragraph (5), by inserting ``(before 2002)'' after 
        ``for each year''.

SEC. 303. INCREASING MINIMUM PAYMENT AMOUNT.

  (a) In General.--Section 1853(c)(1)(B)(ii) of the Social Security Act 
(42 U.S.C. 1395w-23(c)(1)(B)(ii)) is amended--
          (1) by striking ``(ii) For a succeeding year'' and inserting 
        ``(ii)(I) Subject to subclause (II), for a succeeding year''; 
        and
          (2) by adding at the end the following new subclause:
                          ``(II) For 2002 for any of the 50 States and 
                        the District of Columbia, $450.''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
years beginning with 2002.

SEC. 304. ALLOWING MOVEMENT TO 50:50 PERCENT BLEND IN 2002.

  Section 1853(c)(2) of the Social Security Act (42 U.S.C. 1395w-
23(c)(2)) is amended--
          (1) by striking the period at the end of subparagraph (F) and 
        inserting a semicolon; and
          (2) by adding after and below subparagraph (F) the following:
        ``except that a Medicare+Choice organization may elect to apply 
        subparagraph (F) (rather than subparagraph (E)) for 2002.''.

SEC. 305. INCREASED UPDATE FOR PAYMENT AREAS WITH ONLY ONE OR NO 
                    MEDICARE+CHOICE CONTRACTS.

  (a) In General.--Section 1853(c)(1)(C)(ii) of the Social Security Act 
(42 U.S.C. 1395w-23(c)(1)(C)(ii)) is amended--
          (1) by striking ``(ii) For a subsequent year'' and inserting 
        ``(ii)(I) Subject to subclause (II), for a subsequent year''; 
        and
          (2) by adding at the end the following new subclause:
                          ``(II) During 2002, 2003, 2004, and 2005, in 
                        the case of a Medicare+Choice payment area in 
                        which there is no more than 1 contract entered 
                        into under this part as of July 1 before the 
                        beginning of the year, 102.5 percent of the 
                        annual Medicare+Choice capitation rate under 
                        this paragraph for the area for the previous 
                        year.''.
  (b) Construction.--The amendments made by subsection (a) do not 
affect the payment of a first time bonus under section 1853(i) of the 
Social Security Act (42 U.S.C. 1395w-23(i)).

SEC. 306. PERMITTING HIGHER NEGOTIATED RATES IN CERTAIN MEDICARE+CHOICE 
                    PAYMENT AREAS BELOW NATIONAL AVERAGE.

  Section 1853(c)(1) of the Social Security Act (42 U.S.C. 1395w-
23(c)(1)) is amended--
          (1) in the matter before subparagraph (A), by striking ``or 
        (C)'' and inserting ``(C), or (D)''; and
          (2) by adding at the end the following new subparagraph:
                  ``(D) Permitting higher rates through negotiation.--
                          ``(i) In general.--For each year beginning 
                        with 2004, in the case of a Medicare+Choice 
                        payment area for which the Medicare+Choice 
                        capitation rate under this paragraph would 
                        otherwise be less than the United States per 
                        capita cost (USPCC), as calculated by the 
                        Secretary, a Medicare+Choice organization may 
                        negotiate with the Medicare Benefits 
                        Administrator an annual per capita rate that--
                                  ``(I) reflects an annual rate of 
                                increase up to the rate of increase 
                                specified in clause (ii);
                                  ``(II) takes into account audited 
                                current data supplied by the 
                                organization on its adjusted community 
                                rate (as defined in section 
                                1854(f)(3)); and
                                  ``(III) does not exceed the United 
                                States per capita cost, as projected by 
                                the Secretary for the year involved.
                          ``(ii) Maximum rate described.--The rate of 
                        increase specified in this clause for a year is 
                        the rate of inflation in private health 
                        insurance for the year involved, as projected 
                        by the Medicare Benefits Administrator, and 
                        includes such adjustments as may be necessary--
                                  ``(I) to reflect the demographic 
                                characteristics in the population under 
                                this title; and
                                  ``(II) to eliminate the costs of 
                                prescription drugs.
                          ``(iii) Adjustments for over or under 
                        projections.--If subparagraph is applied to an 
                        organization and payment area for a year, in 
                        applying this subparagraph for a subsequent 
                        year the provisions of paragraph (6)(C) shall 
                        apply in the same manner as such provisions 
                        apply under this paragraph.''.

SEC. 307. 10-YEAR PHASE IN OF RISK ADJUSTMENT BASED ON DATA FROM ALL 
                    SETTINGS.

  Section 1853(a)(3)(C)(ii) of the Social Security Act (42 U.S.C. 
1395w-23(c)(1)(C)(ii)) is amended--
          (1) by striking the period at the end of subclause (II) and 
        inserting a semicolon; and
          (2) by adding after and below subclause (II) the following:
                        ``and, beginning in 2004, insofar as such risk 
                        adjustment is based on data from all settings, 
                        the methodology shall be phased in equal 
                        increments over a 10 year period, beginning 
                        with 2004 or (if later) the first year in which 
                        such data is used.''.

 Subtitle B--Preservation of Medicare Coverage of Drugs and Biologicals

SEC. 311. PRESERVATION OF COVERAGE OF DRUGS AND BIOLOGICALS UNDER PART 
                    B OF THE MEDICARE PROGRAM.

  (a) In General.--Section 1861(s)(2) of the Social Security Act (42 
U.S.C. 1395x(s)(2)) is amended, in each of subparagraphs (A) and (B), 
by striking ``(including drugs and biologicals which cannot, as 
determined in accordance with regulations, be self-administered)'' and 
inserting ``(including injectable and infusable drugs and biologicals 
which are not usually self-administered by the patient)''.
  (b) Effective Date.--The amendment made by subsection (a) applies to 
drugs and biologicals administered on or after October 1, 2000.

SEC. 312. GAO REPORT ON PART B PAYMENT FOR DRUGS AND BIOLOGICALS AND 
                    RELATED SERVICES.

  (a) In General.--The Comptroller General of the United States shall 
conduct a study to quantify the extent to which reimbursement for drugs 
and biologicals under the current medicare payment methodology 
(provided under section 1842 (o) of the Social Security Act (42 U.S.C. 
1395u(o)) overpays for the cost of such drugs and biologicals compared 
to the average acquisition cost paid by physicians or other suppliers 
of such drugs
  (B) Elements.--The study shall also assess the consequences of 
changing the current medicare payment methodology to a payment 
methodology that is based on the average acquisition cost of the drugs. 
The study shall, at a minimum, assess the effects of such a reduction 
on--
          (1) the delivery of health care services to Medicare 
        beneficiaries with cancer;
          (2) total Medicare expenditures, including an estimate of the 
        number of patients who would, as a result of the payment 
        reduction, receive chemotherapy in a hospital rather than in a 
        physician's office;
          (3) the delivery of dialysis services;
          (4) the delivery of vaccines;
          (5) the administration in physician offices of drugs other 
        than cancer therapy drugs; and
          (6) the effect on the delivery of drug therapies by hospital 
        outpatient departments of changing the average wholesale price 
        as the basis for Medicare pass-through payments to such 
        departments, as included in the Medicare, Medicaid, and SCHIP 
        Balanced Budget Refinement Act of 1999.
  (c) Payment for Related Professional Services.--The study shall also 
include a review of the extent to which other payment methodologies 
under part B of the medicare program, if any, intended to reimburse 
physician and other suppliers of drugs and biologicals described in 
subsection (a) for costs incurred in handling, storing and 
administering such drugs and biologicals are inadequate to cover such 
costs and whether an additional payment would be required to cover 
these costs under the average acquisition cost methodology.
  (d) Consideration of Issues in Implementing an Average Acquisition 
Cost Methodology.--The study shall assess possible means by which a 
payment method based on average acquisition cost could be implemented, 
including at least the following:
          (1) Identification of possible bases for determining the 
        average acquisition cost of drugs, such as surveys of 
        wholesaler catalog prices, and determination of the advantages, 
        disadvantages, and costs (to the government and public) of each 
        possible approach.
          (2) The impact on individual providers and practitioners if 
        average or median prices are used as the payment basis.
          (3) Methods for updating and keeping current the prices used 
        as the payment basis.
  (e) Coordination with BBRA Study.--The Comptroller General shall 
conduct the study under this section in coordination with the study 
provided for under section 213(a) of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999 (113 Stat. 1501A-350), as 
enacted into law by section 1000(a)(6) of Public Law 106-113.
  (f) Report.--Not later than 6 months after the date of the enactment 
of this Act, the Comptroller General shall submit a report on the study 
conducted under this section, as well as the study referred to in 
subsection (e). Such report shall include recommendations regarding 
such changes in the medicare reimbursement policies described in 
subsections (a) and (c) as the Comptroller General deems appropriate, 
as well as the recommendations described in section 213(b) of the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999.

                            I. INTRODUCTION


                         A. Purpose and Summary

    Although Medicare currently offers a wide range of health 
care benefits, it is significantly different from other Federal 
health care programs and private health insurance plans because 
it does not generally offer coverage of outpatient prescription 
drugs to its enrollees. While a patchwork of different coverage 
sources has assisted most Medicare beneficiaries, a significant 
number of beneficiaries are without adequate prescription drug 
coverage. Additionally, while the nation's healthcare system 
has become increasingly reliant on prescription drugs as 
effective treatment regimens, the rate of prescription drug 
spending has exploded and continually surpassed the rate of 
inflation. The lack of coverage and increased prescription drug 
spending has resulted in higher out-of-pocket drug spending for 
beneficiaries and increased beneficiary financial exposure to 
extraordinarily high drug costs.
    H.R. 4680, the ``Medicare Rx 2000 Act,'' amends Title XVIII 
of the Social Security Act by establishing a voluntary, 
universally-offered prescription drug benefit for Medicare 
beneficiaries under a new Part D program. The bill provides 
prescription drug coverage through private Prescription Drug 
plans (PDPs) and Medicare+Choice (M+C) plans and makes 
provisions for a standard, or qualified alternative, benefit 
which includes a beneficiary out-of-pocket spending limit. The 
new Part D program, as well as the Medicare+Choice program 
(Part C), would be administered by a new agency, the Medicare 
Benefits Administration (MBA), within the U.S. Department of 
Health and Human Services.
    Additionally, provisions in H.R. 4680 make changes to the 
way some Medicare benefits are administered, reform the 
coverage and appeals process for Medicare beneficiaries and the 
health care providers and suppliers that provide services to 
them, and strengthen and stabilize the Medicare+Choice program.
    The Committee strongly believes that the creation of a new 
agency, given operational flexibility within the U.S. 
Department of Health and Human Services, will ensure that 
market competition and private-sector practices are used in the 
administration of the Part C and Part D programs, since these 
practices are vital to the overall long-term health of 
Medicare+Choice and the new prescription drug benefit.
    H.R. 4680 was written after receiving input from public 
hearings before the Committee on Ways and Means and its 
Subcommittee on Health. During these hearings, the Committee 
and Subcommittee received expert testimony from many witnesses, 
including Members of Congress, representatives of beneficiary 
organizations, health care providers, and other experts in 
Medicare and healthcare policy. Additionally, the bill was 
crafted in deference to the House budget resolution (H. Con. 
Res. 290) passed in March, which set aside $40 billion over the 
next five years for legislation ``that reforms the Medicare 
Program and provides coverage for prescription drugs * * *''

                 B. Background and Need for Legislation

    Eighty percent of senior citizens use a prescription drug 
everyday. On average, seniors currently spend in excess of $600 
annually on pharmaceuticals, with future spending anticipated 
to rise in the next ten years. In the absence of prescription 
drug coverage under Medicare, more than two-thirds of Medicare 
beneficiaries have come to rely on other sources to obtain 
prescription drug benefits, including employer-sponsored 
retiree health insurance, Medicaid and other State-sponsored 
health programs, and managed care plans through the 
Medicare+Choice program. In recent years, Medicare+Choice plans 
are requiring more cost-sharing, making drug benefits less 
generous. Also, as the rate of pharmaceutical costs has risen 
faster than the inflation rate, there have been growing 
concerns that current coverage sources are becoming inadequate 
to protect beneficiaries from ever-rising out-of-pocket cost 
exposure. Specifically, commentators have targeted increased 
beneficiary cost-sharing and catastrophic costs as major 
financial concerns for Medicare beneficiaries.
    Since the enactment of the Medicare+Choice program in the 
Balanced Budget Act of 1997 (Public Law 105-33), there have 
been concerns about its viability. Most problematic has been 
the number of plans withdrawing from service areas in the past 
two years, leaving uncertainty in the way enrolled 
beneficiaries receive their care. In addition to unfavorable 
competitive markets, plans have tied their withdrawals to low 
reimbursement rates and administrative burdens associated with 
Medicare+Choice. In 1999, the Medicare, Medicaid, S-CHIP 
Balanced Budget Refinement Act, as incorporated in Public Law 
106-113, contained several provisions to strengthen the 
Medicare+Choice program, including changes in the 
implementation of the proposed risk adjuster, increases in 
payments to plans entering an area without a Medicare+Choice 
plan, and the easing of some administrative burdens.

                         C. Legislative History


Committee bill

    H.R. 4680 was introduced on June 15, 2000 by Representative 
Bill Thomas (R-CA) and was referred to the Committee on Ways 
and Means and the Committee on Commerce. On June 21, 2000, the 
Committee on Ways and Means ordered favorably reported the 
bill, amended by an amendment in the nature of a substitute by 
Representative Thomas, to the House of Representatives by a 
roll call vote of 23 ayes and 14 nays.
    The bill contains three main titles. Title I contains 
provisions establishing the new Medicare prescription drug 
benefit. Section 101 establishes the Medicare prescription drug 
benefit and institutes rules and regulations for beneficiary 
eligibility and requirements for participation in the program. 
Section 102 consists of provisions ensuring a prescription drug 
benefit under the Medicare+Choice program, and Sections 103 and 
104 amend the Medicaid program and Medigap regulations, 
respectively.
    Title II contains provisions relating to the modernization 
of the administration of Medicare through a new agency. 
Subtitle A establishes the Medicare Benefits Administration to 
oversee the implementation of the Medicare prescription drug 
benefit and the Medicare+Choice program. Subtitle B requires 
the Board of Trustees of the Medicare Trust Funds to report on 
an additional, more relevant measure of solvency using the 
total Federal resources required to finance Medicare benefits. 
Subtitle C reforms the Medicare Part A and Part B coverage and 
appeals process.
    Title III contains provisions relating to the 
Medicare+Choice program and drugs and biologicals covered under 
Part B. Subtitle A consists of provisions pertaining to 
Medicare+Choice payment reform and Subtitle B deals with the 
preservation of certain drugs and biologicals covered under 
Part B of the Medicare program.

Legislative hearings

    The Committee on Ways and Means and its Subcommittee on 
Health each have held hearings focusing on the addition and 
implementation of a prescription drug benefit under the 
Medicare program. On February 15, 2000, the Subcommittee 
examined seniors' access to a prescription drug benefit. Among 
topics discussed at the hearing were the effects of 
prescription drug proposals on publicly and privately financed 
health care and their long-term effects on the Medicare 
program.
    On May 11, 2000, the Subcommittee held a hearing on the 
Clinton Administration's prescription drug proposal. The 
hearing offered the Subcommittee an opportunity to discuss the 
President's budgetary proposal for a prescription drug benefit. 
The Subcommittee also examined the analysis provided by the 
Congressional Budget Office to determine the long-term effects 
of the Administration's proposal on the financial stability of 
Medicare.
    On June 13, 2000, the Committee held a hearing to discuss 
legislative proposals to establish a prescription drug benefit 
under the Medicare program. The primary proposal examined was a 
House bipartisan plan advocated by Subcommittee Chairman Bill 
Thomas. The hearing provided an opportunity to receive 
informative perspectives on the different legislative proposals 
from Members of Congress, the Administration, health plans, and 
experts in the pharmaceutical industry.

                     II. EXPLANATION OF PROVISIONS


Section 1. Short Title; Table of Contents

    The Act may be cited as the ``Medicare Rx 2000 Act''.

              Title I--Medicare Prescription Drug Benefit


Section 101. Establishment of a Medicare Prescription Drug Benefit

Current law

    Currently Medicare beneficiaries who are inpatients of 
hospitals or skilled nursing facilities may receive drugs as 
part of their treatment. Medicare payments made to the 
facilities cover these costs. In addition, drugs used incident 
to certain outpatient procedures, whether performed in hospital 
outpatient departments or ambulatory surgical centers, may be 
covered and are paid for through a similar bundled payment. 
Medicare also makes payments to physicians for drugs or 
biologicals which cannot be self-administered. In addition, 
Medicare Part B provides some limited coverage for selected 
self-administered drugs and immunizations in certain 
circumstances (e.g., immunosuppressive drugs after an organ 
transplant, pneumococcal pneumonia vaccine if ordered by a 
physician).
    Beyond these limited benefits, Medicare does not generally 
cover outpatient prescription drugs.

Explanation of provision

    The provision would establish a new, universally 
accessible, voluntary prescription drug program for all 
Medicare beneficiaries. This program would be created under a 
new Medicare Part D, consisting of ten new sections (Sections 
1860A-J).
            Sec. 1860A  Benefits; eligibility; enrollment; and coverage 
                    period
    Section 1860A establishes the new prescription drug benefit 
and specifies eligibility requirements, enrollment procedures, 
and allowable coverage restrictions.
    Part D benefits would be administered by the Medicare 
Benefits Administration (MBA), established under Title II of 
this Act, and be provided through either Medicare+Choice (M+C) 
plans or new Prescription Drug plans (PDP). All Medicare 
beneficiaries who are enrolled in Part B would be eligible to 
obtain qualified prescription drug coverage through Part D. A 
special rule is includedallowing for a one-time enrollment 
opportunity at the initiation of the program for those who are 
currently eligible for Medicare Part A but not now enrolled in Medicare 
Part B to elect Part D benefits. All beneficiaries electing Part D 
coverage would be guaranteed a choice of at least two drug plan 
options, at least one of which is a prescription drug plan.
    Beneficiaries who elect to participate in Medicare Part D 
would select and enroll in a plan available in their area 
through a process similar to that now provided for Part B 
enrollment. All eligible beneficiaries would be entitled to 
enroll in a plan without any late enrollment penalty during a 
six-month period at the initiation of the new prescription drug 
program, and could change plans during annual and specified 
special enrollment periods thereafter. Annual enrollment 
periods would be conducted in conjunction with Medicare+Choice 
enrollment. Special enrollment periods could be established by 
the MBA Administrator and, at minimum, would be provided for 
those who involuntarily lose alternative prescription drug 
coverage, miss an enrollment deadline due to an error in the 
processing of a request for enrollment, or met exceptional 
conditions determined by the Administrator. As with Part B, 
individuals who become eligible for Medicare in the future 
would have seven months to decide whether or not to participate 
in Part D. Current beneficiaries who elect Part D benefits upon 
the program's initiation, and future beneficiaries who join the 
program in their initial eligibility period, would be 
guaranteed the protection of community rating and the non-
application of pre-existing condition limitations, so long as 
they maintain continuous coverage while in the program. As in 
Part B, those electing not to participate in Part D during 
their initial eligibility period could (unless continuously 
covered under alternative prescription drug coverage) be 
assessed late enrollment penalties if they decided to join the 
program at a later date.
    The section specifies what forms of alternative 
prescription drug coverage qualify for purposes of 
administering the continuous coverage rules and includes 
conforming amendments to allow for the administration of such 
rules. It also specifies when plan elections and terminations 
would take effect, and provides that the initial period of 
coverage under the program would begin January 1, 2003.
            Sec. 1860B  Requirements for qualified prescription drug 
                    coverage
    Section 1860B establishes the benefit requirements that 
plans participating in Part D would have to meet. First, a plan 
would be required to make available to its enrollees the 
benefit of all price discounts that it negotiates on behalf of 
its enrollees, even when the plan is under no obligation to pay 
benefits itself. Second, a plan would be required to provide, 
at a minimum, coverage for covered outpatient drugs that was 
either standard coverage (defined in law) or qualified 
alternative coverage. For plans offering in 2003, standard 
coverage would be defined as having: (1) A $250 deductible; (2) 
required cost-sharing of on average 50% on the next $2,100 of 
incurred costs (above the deductible); and (3) a limitation on 
overall beneficiary out-of-pocket spending of $6,000. The 
standard coverage deductible, initial coverage limit and 
limitation on out-of-pocket spending would be indexed to the 
average annual increase in per capita aggregate expenditures 
for covered outpatient drugs for Medicare beneficiaries, and 
rounded to the nearest appropriate multiple. In any given year, 
qualified alternative coverage would be defined as coverage 
that: (1) Is at least actuarially equivalent to the standard 
coverage required for such year; (2) provides coverage the 
unsubsidized value of which is at least equal to the 
unsubsidized value of the standardized coverage; (3) is 
designed to provide, using an actuarially representative 
pattern of utilization, for the payment of the initial benefit 
that is at least equal to the standard benefit; and (4) limits 
overall out-of-pocket spending that was the same as that 
required under standard coverage for such year.
    Participating plans could offer coverage that is more 
munificent than standard coverage, if approved by the MBA 
Administrator. The Administrator would be required to review 
and approve all plans before they were made available to 
beneficiaries, and could terminate the contract of any plan 
sponsor if the sponsor purposefully engaged in any activities 
intended to result in favorable selection.
    Covered outpatient drugs would be defined to include: (1) A 
drug that may only be dispensed subject to a prescription and 
which is described in subparagraph (A)(i) or (A)(ii) of Section 
1927(k)(2) of the Social Security Act (relating to drugs for 
which federal matching payments may be made under the Medicaid 
program); (2) a biological product described in subparagraph 
(B) of such section; (3) insulin described in subparagraph (C) 
of such section; and (4) prescription smoking cessation agents 
otherwise excluded from coverage under Medicaid. The definition 
includes any use of a covered outpatient drug for a medically 
accepted indication. Drugs for which benefits could be paid 
under Part B would not be covered under Part D. If a plan met 
the associated patient protection requirements included in 
Section 1860C, it could elect to utilize a formulary to limit 
benefits for certain covered outpatient drugs.
            Sec. 1860C  Beneficiary protections for qualified 
                    prescription drug coverage
    Section 1860C specifies beneficiary protections to protect 
the interests of beneficiaries who might elect to enroll in 
Medicare Part D. A participating plan would be required to 
provide each enrolling beneficiary information about the plan's 
benefit structure, its affiliated networks of pharmacy 
providers, any applicable formulary requirements, and their 
right to file grievances and/or seek benefit appeals. In 
addition, as is the case in Medicare+Choice, beneficiaries 
would have a right to obtain more detailed plan information, 
including comparable quality information, at any time upon 
request. Plans would be required to have a mechanism for 
responding to beneficiary inquiries and make available 
information regarding any changes in the plan's formulary. 
Plans would be required to furnish enrollees with a detailed 
explanation of benefits when prescription drug benefits were 
provided under the program. Plans would also be required to 
secure agreements with sufficient numbers of pharmacies to make 
access to covered benefits convenient for enrolled 
beneficiaries. In addition, plans would be required to 
guarantee that enrolled beneficiaries were able to continue 
benefitting from any price discounts the plan negotiates from 
affiliated pharmacies or manufacturers for covered prescription 
drugs, even when the plan was under no obligation to pay 
benefits.
    Plans that elect to establish drug formularies would be 
required to establish a pharmaceuticaland therapeutic committee 
(that includes representatives from both medicine and pharmacy) to 
develop and maintain the formulary. Plans would be required to cover 
drugs from each therapeutic class. Beneficiaries could appeal any 
denial of a request for benefits based on the application of a 
formulary whenever their attending physician indicates that the use of 
a drug listed on the formulary is not sufficient to meet the patient's 
medical needs.
    In addition, plans participating in Part D would be 
required to establish and maintain quality assurance, 
utilization management, and medication therapy management 
programs so that the health and safety of program enrollees 
would be protected. Utilization management programs would be 
required to include incentives to use generic drugs when 
appropriate. Medication therapy management programs would have 
to be developed in cooperation with licensed pharmacists and 
physicians. Such programs would be used to reduce adverse drug 
interactions and increase beneficiary adherence with 
prescription medication regimens through refill reminders, 
special packaging and other appropriate means. Prescription 
drug plans would also ensure that enrolled beneficiaries were 
informed, at the time of purchase, of any price differential 
between their prescribed drug and the lowest cost generic drug 
therapeutically and pharmaceutically equivalent and 
bioequivalent.
    Finally, all participating plans would be required to 
maintain meaningful procedures for the hearing and resolving of 
any enrollee grievances, protect the confidentiality and 
accuracy of all enrollee records, and provide enrollee access 
to both expedited coverage determinations and a procedure for 
the reconsideration of any benefit denials, in the same way as 
such rights are currently provided to enrollees of 
Medicare+Choice plans. As is the case in Medicare Part C, the 
Administrator would be required to contract with an independent 
review organization to review and resolve in a timely manner 
any plan reconsiderations that affirm a denial of coverage.
            Sec. 1860D  Requirements for prescription drug plan (PDP) 
                    sponsors
    Section 1860D specifies organizational requirements for 
prescription drug plan sponsors who seek to participate in Part 
D. In general, provisions in this section would require 
participating plans to be licensed under state law as a risk-
bearing entity eligible to offer health insurance or health 
benefits coverage in each state in which the plan operated. 
Additionally, the provisions would require plans who contract 
with the Administrator to provide covered drugs to 
beneficiaries who are entitled to receive benefits under the 
program to accept full financial risk for the provision of such 
benefits to each such beneficiary whom they enroll.
    The Administrator would be required to enter into contracts 
binding plan sponsors to fulfill the requirements specified. 
Such contracts could apply to one or more prescription drug 
plans. By reference, the section would incorporate and impose 
on prescription drug plans many of the contract requirements 
now required of Medicare+Choice plans in Section 1857, 
including requirements pertaining to allowable audits to guard 
against fraud and abuse, minimum enrollments, contract periods, 
intermediate sanctions and contract terminations. A special 
rule is included allowing for the imposition of limited, pro 
rata user fees on prescription drug plans. Such fees would be 
used to help finance related beneficiary educational 
activities, as is the case with Medicare+Choice.
    In order to maximize choice and access, the Administrator 
would be empowered to waive plan licensure requirements in 
circumstances similar to those allowable under Part C for 
provider-sponsored organizations. In such cases, plans would be 
required to meet financial solvency and capital adequacy 
standards established by the Administrator. The Administrator 
would be given the authority to establish by regulation such 
additional plan and plan sponsor standards as deemed 
appropriate to implement Part D, and would be required to 
publish such regulations by October 1, 2001.
    As is the case under Part C, the standards that would be 
established for plans and plan sponsors under Part D would 
supercede any state law or regulation affecting such entities 
to the extent that they were inconsistent with such standards. 
Specifically, state laws relating to benefit requirements, laws 
relating to the inclusion or treatment of affiliated providers, 
laws related to coverage determinations, and the establishment 
and regulation of premiums would be preempted. In addition, 
States would be prohibited from imposing premium taxes, similar 
taxes with respect to premiums or other funds paid to PDP 
sponsors in exchange for the provision of benefits described in 
Part D.
            Sec. 1860E  Process for beneficiaries to select qualified 
                    prescription drug coverage
    Section 1860E specifies the procedures by which eligible 
beneficiaries would be able to select a prescription drug or 
Medicare+Choice plan that provided qualified prescription drug 
coverage under Part D. The Administrator, acting through the 
Office of Beneficiary Assistance (established under Title II), 
would be required to establish and maintain plan election 
procedures consistent with those now provided for the election 
of M+C plans under Part C. Such procedures would include the 
conducting of open annual enrollment periods in which 
beneficiaries already enrolled in a plan under Part D could 
elect to change plans, the active dissemination of comparative 
plan information (including price, quality and comparative 
benefit information) in a manner consistent with and in 
coordination with the dissemination of information regarding 
M+C plans, and the coordination of elections through filing 
with an M+C organization or a PDP sponsor in a manner 
consistent with that provided for the election of benefits 
under Part C.
    The Administrator would be instructed to administer the 
program in a manner such that all eligible individuals would be 
assured of the availability of at least two qualifying plan 
options in their area of residence. If necessary to ensure such 
access, the Administrator is authorized to provide financial 
incentives, including the partial underwriting of risk, for a 
PDP sponsor to expand its service area under an existing 
prescription drug plan to adjoining or additional areas, or to 
establish such a plan (including offering such a plan on a 
regional or nationwide basis). Limitations on this authority 
would be included so as to maximize, to the extent possible, 
the assumption of financial risk by PDP sponsors and M+C 
organizations. The Administrator would be required to report to 
Congress annually on the exercise ofthis authority.
            Sec. 1860F  Premiums
    New Section 1860F requires each PDP sponsor to submit to 
the MBA Administrator specified information in the same manner 
as information is submitted by an M+C organization. The 
information to be submitted is information on the qualified 
drug coverage to be provided, the actuarial value of the 
coverage, and the monthly premium to be charged for the 
coverage. The PDP sponsor must include an actuarial 
certification of the actuarial basis for the premium, the 
portion of the premium attributable to benefits in excess of 
the standard coverage, and the reduction in the premium 
resulting from reinsurance subsidies. The MBA Administrator 
would review the submitted information and approve or 
disapprove the rates, values, and amounts submitted. The 
Administrator would take into account the adjusted community 
rate (ACR) for the covered benefits and would have the same 
authority to negotiate the terms and conditions of the plans as 
the Director of the Office of Personnel Management has with 
respect to Federal Employees Health Benefits Program (FEHBP) 
plans.
    The premium for a prescription drug plan could not vary 
among individuals enrolled in the plan in the same service 
area, provided the individuals are not subject to late 
enrollment penalties. The M+C provisions relating to the terms 
and conditions for imposing premiums would apply to the new 
Part D.
    The PDP sponsor of any prescribed drug plan offered in the 
area would be required to accept the reference premium as the 
full premium for qualified prescription drug coverage if there 
was no standard coverage available in an area. M+C plans would 
be required to accept the reference premium under the same 
conditions.
            Sec. 1860G  Premium and cost-sharing subsidies for low-
                    income individuals
    New Section 1860G would provide subsidies for low-income 
individuals. Individuals who met the resource requirements of 
the Qualified Medicare Beneficiary (QMB) program, and who had 
incomes under 135% of poverty, would be entitled to a full 
premium subsidy for the standard plan (or actuarially 
equivalent alternative) coverage. Such individuals would also 
be entitled to cost-sharing subsidies, of an amount equal to 
95% of the potential cost-sharing obligations a non-subsidized 
beneficiary would face on spending up to the initial coverage 
limit if enrolled in a standard plan. Individuals who obtained 
coverage via these subsidies would still be charged nominal 
copays for each prescription. Individuals who met the QMB 
program resource test and had incomes between 135% and 150% of 
poverty would be entitled to phased-out premium subsidies, 
ranging from 100% for persons at 135% of poverty to 0% for 
those at 150% of poverty. State Medicaid plans would determine 
whether an individual is eligible for a subsidy and the amount 
of the subsidy. The determination would be made by the MBA 
Administrator if a state does not operate such a plan (or a 
state waiver program under Section 1115 of the Social Security 
Act).
    The premium subsidy amount would be defined as the 
reference premium for the qualified prescription drug coverage 
that the entitled beneficiary selects, whether it is offered by 
a prescription drug plan or an M+C plan in the area. The 
reference premium means the premium imposed (without regard to 
any subsidies or late enrollment penalties) for enrollment in a 
plan providing standard coverage (or alternative coverage if 
the actuarial value is equivalent). If a plan provides 
alternative coverage with a higher actuarial value than that 
for standard coverage, the reference premium is the same ratio 
to the total premium as the actuarial value of standard 
coverage is to the actuarial value of the alternative coverage.
    The MBA Administrator would provide a process whereby the 
Administrator would notify the PDP sponsor or M+C organization 
that an individual is eligible for a subsidy and the amount of 
the subsidy. The sponsor or organization would reduce the 
premiums or cost-sharing otherwise imposed by the amount of the 
subsidy. The Administrator would periodically and on a timely 
basis reimburse the sponsor or organization for the amount of 
the reductions.
    Part D coverage would be primary to any drug benefits under 
Medicaid.
            Sec. 1860H  Subsidies for all Medicare beneficiaries 
                    through reinsurance for qualified prescription drug 
                    coverage
    In order to reduce premiums for all beneficiaries, mitigate 
adverse selection, and encourage participation, the MBA 
Administrator would provide for reinsurance payments for 
qualifying entities. Such payments would be made for specified 
costs incurred in providing prescription drug coverage for 
individuals enrolled in a PDP plan under Part D, for 
individuals enrolled in an M+C plan that provides qualified 
drug coverage, and for persons enrolled in a qualified retiree 
drug plan. The section would constitute budget authority in 
advance of appropriations and represent the obligation of the 
Administrator to provide payments of the amounts provided under 
Section 1860H.
    Entities qualified to receive subsidies would be a PDP 
sponsor, an M+C organization offering qualified prescription 
drug coverage, and the sponsor of a qualified retiree drug 
plan.
    In 2003, the reinsurance payment amount for a qualifying 
covered individual would be equal to the sum of the following: 
(a) for the portion of an individual's gross covered drug costs 
that exceeds $1,250 but does not exceed $1,350, 30% of the 
allowable costs for such coverage; (b) for the portion of an 
individual's gross covered drug costs that exceeds $1,350 but 
does not exceed $1,450, 50% of the allowable costs for such 
coverage; (c) for the portion of an individual's gross covered 
drug costs that exceeds $1,450 but does not exceed $1,550, 70% 
of the allowable costs for such coverage; (d) for the portion 
of an individual's gross covered drug costs that exceeds $1,550 
but does not exceed $2,350, 90% of the allowable costs for such 
coverage; and (e) for the portion of an individual's gross 
covered drug costs that exceeds $7,050, 90% of the allowable 
costs for such coverage. In subsequent years, these dollar 
amounts are increased by the percentage increase in average per 
capita aggregateexpenditures for covered drugs for 
beneficiaries for the 12-month period ending the previous July. The 
amounts so determined would be rounded to the nearest multiple of $5.
    Allowable costs would be defined as the portion of gross 
covered prescription drug costs that are actually paid by the 
plan, but in no case be more than the part of such costs that 
would have been paid by the plan if the drug coverage under the 
plan were standard coverage. Gross covered drug costs would be 
defined as costs incurred under the plan for covered 
prescription drugs, including costs related to the deductible, 
whether paid by the enrollee or the plan, regardless of whether 
coverage under the plan exceeded standard coverage and 
regardless of when the payment for drugs is made.
    The MBA Administrator would be required to estimate the 
total reinsurance payments that would be made throughout the 
program during the year under the reinsurance schedule 
described above, and the total benefit payments that would be 
expected to be made by qualifying entities for standard 
coverage during the year. The Administrator would 
proportionately adjust payments such that total reinsurance 
payments made during the year are equal to 35% of total 
payments made by qualifying plans for standard coverage during 
the year. The payment method would be determined by the MBA 
Administrator, who could use an interim payment system based on 
estimates. Payments would be made from the Medicare 
Prescription Drug Account.
    A ``qualified retiree prescription drug plan'' would be 
defined as employment-based retiree health coverage that met 
the following requirements: (1) the sponsor of the plan would 
be required to annually attest to the MBA Administrator (and to 
provide such assurances as required by the Administrator) that 
the coverage meets the requirements for qualified coverage; (2) 
the sponsor and the plan would have to maintain and provide 
access to records needed to ensure the adequacy of coverage and 
the accuracy of payments made; (3) payment could not be made 
for an individual unless the individual is covered under the 
plan and is entitled to obtain coverage through a PDP or M+C 
plan but elected not to; and (4) payments could only be made 
for Medicare primary individuals.
            Sec. 1860I  Medicare prescription drug account in Federal 
                    Supplementary Medical Insurance Trust Fund
    New Section 1860I would create a Medicare Prescription Drug 
Account within the Part B Trust Fund. Funds provided under Part 
D to the Account would be kept separate from all other funds 
within Part B. The MBA Administrator would pay from the 
account, from time to time, low-income subsidies, reinsurance 
payments, and administrative costs. The Managing Trustee would 
transfer, from time to time, to the Medicaid account amounts 
attributable to allowable increases in administrative costs 
associated with identifying and qualifying beneficiaries 
eligible for low-income subsidies. Amounts deposited to the 
Account would include Federal amounts which would otherwise be 
payable by Medicaid, except for the fact that Medicaid becomes 
the secondary payer of drug benefits for dual-eligibles.
            Sec. 1860J  Definitions; Treatment of references to 
                    provisions in part C
    New Section 1860J includes definitions of terms and 
specifies how cross references to Part C are to be applied. It 
further provides conforming changes to the Federal 
Supplementary Medical Insurance Trust Fund. It also requires 
the Secretary to submit a legislative proposal for technical 
changes within six months of enactment.

Effective date

    Date of enactment of the act.

Reason for change

    The Committee recognizes that modern medicine is 
increasingly reliant upon the use of outpatient prescription 
drug therapies in the fight against disease. This is 
particularly true in the Medicare population. It has been 
estimated recently that the average Medicare beneficiary spends 
more than $600 a year on prescription medications. For some 
indications, drug therapies can cost tens of thousands of 
dollars a year. However, currently the Medicare program 
generally excludes coverage for these drugs. While most 
beneficiaries have obtained alternative forms of insurance to 
help them finance needed prescription medications, more than 10 
million current beneficiaries lack affordable access to such 
protection. This provision adds a new Medicare prescription 
drug benefit to the Medicare program in recognition of this 
need. By including both an initial standard benefit covering 
costs of up to $2,350 a year in 2003 and an out-of-pocket 
spending limit of $6,000, the provision would provide all 
beneficiaries access to coverage for both routine and 
catastrophic drug expenses. The low-income and reinsurance 
subsidies ensure that the benefit will be affordable for those 
in need. In addition, by providing the benefit through a 
voluntary, competitive, private-sector delivery model, the 
Committee notes that beneficiaries will be provided the 
benefits of greater price discounts and the ability to either 
maintain their current coverage, if they have it, or in the 
alternative, to choose a plan that best meets their needs.
    The Committee recommends that all medication therapy 
management programs include services routinely provided or 
coordinated by pharmacists, including services related to case 
management, disease management, drug therapy management, 
patient training and education, face-to-face counseling, 
medication refill reminders, drug therapy problem 
identification and resolution, the provision of special 
packaging, or other services that enhance the use of 
prescription medications.

Section 102. Offering of Qualified Prescription Drug Coverage Under the 
        Medicare+Choice Program

Current law

    Under current law Medicare+Choice plans may elect to offer 
prescription drug coverage under Part C. The extent of these 
benefits vary and are not subject to any explicit 
standardization requirements. However, as with all 
Medicare+Choice benefit specifics, the financing and design of 
such benefits must meet the approval of the Secretary under the 
adjusted community rate (ACR) approval process. Generally, 
plans offering drugs must either finance such benefits from 
differences between the applicable county payment rate and 
their costs in providing Medicare's basic benefits, or by 
assessing beneficiaries who enroll in the plan supplemental 
premiums.

Explanation of provision

    A Medicare+Choice plan could not offer drug coverage (other 
than that already required under Medicare) unless the coverage 
was qualified prescription drug coverage. The organization 
would be required to meet beneficiary protections outlined in 
the new Section 1860C, including requirements relating to 
information dissemination and grievance and appeals. The 
Administrator could waive such requirements to the extent the 
Administrator determined they were duplicative of requirements 
otherwise applicable to the plan or organization.
    Medicare+Choice organizations would be required to compute 
and publish: (a) a premium for drug benefits that is separate 
from other coverage; (b) the ratio of the actuarial value of 
standard coverage to the actuarial value of prescription drug 
coverage offered under the plan; and (c) a standard premium. 
Medicare+Choice organizations would be permitted to reduce the 
amount of premiums charged for qualified coverage through the 
application of overages identified through the ACR process 
provided for in Part C. For purposes of low-income subsidy 
payments, the organization would be required to accept the 
reference premium as the full premium if there is no standard 
or equivalent coverage in the area (as provided under Section 
1860F(d)).

Effective date

    Changes apply to Medicare+Choice plan coverage that is 
provided on or after January 1, 2003.

Reason for change

    This provision makes the conforming changes needed to 
integrate the new drug benefit into the Medicare+Choice 
program. It ensures that Medicare+Choice plans can continue 
offering enrollees prescription drug benefits; however, it 
requires that they meet the requisite standards specified in 
the new Part D if they do. Standardization of the minimum 
benefit requirements ensures that the new drug program will not 
be harmed by the potential for adverse selection that could 
result if Medicare+Choice plans were allowed to offer 
prescription drug benefits that did not meet the minimum 
requirements included in Part D. The Committee expects that 
through these changes, and the additional resources provided 
under Section 101 and Title III of this Act, the 
Medicare+Choice program will be greatly strengthened and that 
Medicare+Choice plans will become instrumental in expanding 
beneficiary access to multiple prescription drug coverage 
options.

Section 103. Medicaid Amendments

Current law

    State Medicaid programs have the option to include 
prescription drugs in their Medicaid benefits package. All 
states and the five territories (American Samoa, Guam, Northern 
Mariana Islands, Puerto Rico and Virgin Islands) currently do 
so. In general, a Medicare beneficiary who is fully entitled to 
Medicaid benefits is eligible to receive prescription drug 
coverage under his or her state's Medicaid program.
    Medicaid also provides a very limited benefit to certain 
elderly and disabled Medicare beneficiaries. They include 
``qualified Medicare beneficiaries'' (QMBs), ``specified low-
income Medicare beneficiaries'' (SLMBs), and other ``qualified 
individuals.'' QMBs are aged and disabled persons who are 
receiving Medicare, whose income is below 100 percent of the 
Federal poverty level, and whose resources do not exceed twice 
the allowable amount under SSI. They receive Medicaid coverage 
for the cost of Medicare Part B premiums (and if applicable, 
Part A premiums) and Medicare coinsurance and deductible 
amounts. (Those QMBs who are otherwise eligible for full 
Medicaid receive QMB benefits in addition to Medicaid 
benefits.) SLMBs are like QMBs except that their income is 
between 100% and 120% of the Federal poverty level and they 
receive coverage for only Medicare Part B premiums.
    Qualified individuals (QI1s) with income between 120% and 
135% of the Federal poverty level and qualified individuals 
(QI2s) with income between 135% and 175% of the Federal poverty 
level are unique in that neither group is entitled to their 
benefit. States are allotted amounts to cover QI1s and QI2s on 
a first-come, first-serve basis, and states do not contribute 
to the cost of their benefits. In addition, QI1s and QI2s 
cannot otherwise be eligible for Medicaid. QI1s are eligible 
for Medicaid payment of their Medicare Part B premium. QI2s are 
eligible for Medicaid payment of the small portion of the 
Medicare Part B premium attributable to the transfer of certain 
home health visits (estimated to be just over $1 per month in 
2000) from Part A. Coverage of these special groups of Medicare 
beneficiaries is optional in the five territories. Currently, 
none of these territories have elected such coverage. However, 
territories may pay Medicare premiums (i.e., buy-in) for some 
dual-enrolled persons.
    All Medicaid costs are financed by the states and federal 
government through a system of ``matching payments.'' Most of 
the costs of administering the Medicaid program are shared 
evenly by the states and the federal government, with each 
paying 50%. State shares of Medicaid benefits are determined by 
a formula in Medicaid statute that is based on average per 
capita income in each statecompared to the national average. 
The federal share (the ``federal matching percentage'' or FMAP) is 
equal to 100% minus each calculated state share. States with higher 
average incomes receive lower federal matching shares. The FMAP for 
benefits is subject to a floor of 50% and a ceiling of 83%.
    In the 50 States and the District of Columbia, Medicaid is 
an individual entitlement. There are no upper limits on the 
Federal payments for Medicaid as long as states contribute 
their share of matching funds. In contrast, Medicaid in the 
territories is subject to Federal spending caps. Every year, 
those caps are increased by the percentage change in the 
medical care component of the Consumer Price Index for all 
urban consumers (as published by the Bureau of Labor 
Statistics). The Federal matching rate is statutorily set at 50 
percent for the territories.

Explanation of provision

    Section 103 adds a new Section 1935 to the Social Security 
Act entitled ``Special Provisions Relating to Medicare 
Prescription Drug Benefit.'' The provision requires States, as 
a condition of receiving Federal assistance, to make 
eligibility determinations for premium and cost-sharing 
assistance for Part D, inform the MBA Administrator of cases 
where eligibility has been established, and otherwise provide 
information to the MBA Administrator as may be required to 
carry out Part D.
    The provision provides for a phased-in Federal assumption 
of the costs associated with providing dual-eligible Medicaid 
beneficiaries qualified drug coverage under Medicare Part D. 
These costs would be assumed by the Federal government over a 
period of five years, in increments of 20% each year, and be 
assumed through appropriate revisions in the Medicaid matching 
payments for each State.
    The provision includes clarification that in the case of 
individuals dually entitled to prescription drug coverage under 
Part D and drug coverage under Medicaid, that those 
individuals' coverage under Medicare would be primary. The 
provision allows States to require, as a condition for receipt 
of Medicaid drug benefits, that a dually-entitled individual 
elect qualified prescription drug coverage under Medicare.
    Residents of Territories are not eligible for regular low-
income subsidies. However, Territories would be able to get 
additional Medicaid funds, beginning at $20 million a year and 
escalating by the annual percentage increase in prescription 
drug costs for Medicare beneficiaries. In order to obtain these 
funds, Territories would be required to formulate a plan on how 
they would dedicate the funds to assist low-income Medicare 
beneficiaries in obtaining covered outpatient prescription 
drugs.

Effective date

    Date of enactment of the act.

Reason for change

    The Medicaid amendments included in Section 103 are 
necessary to implement and provide for the ongoing 
administration of the new Medicare drug program specified in 
Section 101. The administrative payments authorized in this 
provision are necessary to ensure that low-income beneficiaries 
who are eligible for the new subsidies provided for in Section 
101 are appropriately identified and enrolled in the program. 
The provisions in subsection (b) provide for a federal 
assumption of the costs associated with making the new Medicare 
drug benefit primary for individuals who are dually entitled to 
Medicare and Medicaid. The Committee notes that the assumption 
of these costs will reduce projected state Medicaid obligations 
by billions of dollars over the next several years, freeing up 
resources that could be used to expand or improve existing 
state medical assistance or other pharmacy assistance programs.

Section 104. Medigap Transition Provisions

Current law

    Under current law private insurance companies may sell one 
of ten standardized supplemental Medicare insurance (a.k.a 
``Medigap'') products, three of which contain limited coverage 
for prescription drugs. In addition, insurers can renew 
policies that provide some coverage for prescription drugs if 
those policies were initially sold before the Medigap program 
was standardized.

Explanation of provision

    Beneficiaries who have current Medigap prescription drug 
insurance could maintain such coverage. However, no new (not 
including renewals of existing policies) Medigap prescription 
drug policies could be sold to an individual after January 1, 
2003. Individuals who currently have a Medigap policy with 
prescription drug coverage and who elect to terminate such 
coverage and enroll in Part D would be able to enroll in a 
Medigap policy without prescription drug coverage without 
penalty within 63 days of the termination of prior coverage.

Effective date

    Date of enactment of the act.

Reason for change

    The provisions in Section 104 provide conforming changes 
necessary to integrate the new prescription drug program with 
the Medigap insurance market. The provisions ensure that 
individuals who currently maintain prescription drug coverage 
through a Medigap policy may continue such coverage; however, 
they also ensure that the stability of the drug program will 
not be threatened by theissuance of additional policies which 
do not meet the minimum benefit requirements specified in Part D. After 
consultation with the Congressional Budget Office and independent 
actuaries, the Committee concluded that these provisions were necessary 
to protect against undue adverse selection in the new Medicare drug 
program.

Section 105. Demonstration Project for Disease Management for Severely 
        Chronically Ill Medicare Beneficiaries

Current law

    Medicare does not currently provide direct reimbursement 
for disease management services under the fee-for service 
program. The Secretary does have standing authority to initiate 
demonstration projects. However, currently there is no 
operative disease management program of that kind in place.

Explanation of provision

    The MBA Administrator would conduct a three-year 
demonstration project applying disease management to Medicare 
beneficiaries diagnosed with advanced-stage congestive heart 
failure, diabetes, or coronary disease. A beneficiary would be 
eligible for the demonstration project if: (1) the beneficiary 
met the appropriate diagnosis; (2) the beneficiary's physician 
approved of the participation; and (3) the beneficiary was not 
a Medicare+Choice enrollee. Enrolled beneficiaries would be 
eligible for disease management services, as well as decreased 
premiums, deductible, cost-sharing, and out-of-pocket costs if 
they were also enrolled in a prescription drug plan, or payment 
for all costs of prescription drugs if they were not enrolled 
in a prescription drug plan.
    The MBA Administrator would contract with up to 3 disease 
management organizations to conduct the demonstration, and 
provide the disease management services and prescription drug 
benefits. The organizations would be paid in a manner so that 
there would be a net reduction in expenditures under the 
Medicare program as a result of the demonstration project.
    The MBA Administrator would be required to submit an 
interim report not later than 2 years after the demonstration 
project was first implemented and a final report not later than 
6 months after the project's completion. The reports would 
focus on the costs, health outcomes, and recommendations 
associated to the project and its possible extension or 
expansion.

Effective date

    Date of enactment.

Reason for change

    The provision is included to examine whether active use of 
disease management services may improve the overall health of 
Medicare beneficiaries with advanced illnesses, while 
effectively reducing overall program costs.
    The Committee recommends that all disease management 
demonstration projects include pharmacist participation in case 
management, drug therapy management, patient training and 
education, drug therapy problem identification and resolution, 
the provision of special packaging, or other services that 
enhance the use of prescription medications.

         Title II--Modernization of Administration of Medicare


              Subtitle A--Medicare Benefits Administration

Section 201(a). Establishment of Administration

Current law

    At present, the Health Care Financing Administration (HCFA) 
located within the Department of Health and Human Services 
(DHHS) administers the Medicare program along with several 
other programs.

Explanation of provision

    The provision would establish a new agency, the Medicare 
Benefits Administration (MBA), within the Department of Health 
and Human Services.

Effective date

    Date of enactment of the act.

Reason for change

    This provision creates a new agency, the Medicare Benefits 
Administration (MBA), to strengthen and modernize the Medicare 
program. The Committee notes that the range and complexity of 
activities involved in managing Medicare are considerable and 
continue to grow. The Health Care Financing Administration 
(HCFA), which currently administers Medicare, also oversees 
more than 50 Medicaid programs, the State Children's Health 
Insurance Programs and has many other duties.
    Historically, adding a new mission to a government agency, 
such as the Medicare+Choice program in 1997 and now the new 
prescription drug benefit provided in this bill, may mean that 
the new functions do not get the management attention they 
deserve and need in order to flourish. The Committee believes 
these two aspects of the Medicare program are sufficiently 
different from operating the fee-for-service portion of 
Medicare to warrant the creation of a new agency to manage 
them, particularly in light of the movement toward negotiated 
pricing. The Committee believes that a new agency will enable 
these two programs to develop and mature to their maximum 
potential, and provide an opportunity to create a culture 
attuned to fostering innovation, flexibility, and competitive 
pricing in health care delivery. A new agency will relieve some 
of the considerable pressures on HCFA and enable it to focus on 
the increasingly complex tasks associated with administering 
the fee-for-service portion of the Medicare program.
    The MBA provides an appropriate structure for administering 
portions of the Medicare program, including a new prescription 
drug benefit, through a partnership with the private sector, 
and ensuring health plan choices for beneficiaries in the 
Medicare+Choice. Additionally, the new agency, through its 
Office of Beneficiary Assistance, will streamline and simplify 
beneficiaries' access to consumer information about their 
benefits, rights, and health care plan options and, through the 
Ombudsman program, will provide assistance to seniors in 
resolving problems with Medicare. The Committee notes that as 
the Medicare program has become increasingly complex, it is 
critical to provide seamless, easy access to information about 
the program provided in a consumer-oriented manner that 
reflects the best communication practices of the private 
sector. The Committee intends that the MBA organize and manage 
the Office of Beneficiary Assistance and the Ombudsman program 
with these goals in mind.
    This provision calls for a structure that is flexible, yet 
accountable to the President and Congress, but to some degree, 
is independent of Executive Branch involvement in carrying out 
the duties of the MBA. For example, the new Medicare Policy 
Advisory Board, a separate entity created to advise the MBA on 
policy, will include both Presidential and Congressional 
appointees, and will make recommendations directly to the 
Congress without review or comment by any Federal office or 
official. The Committee will look to the Board to provide 
objective assessments of the administration of the MBA, the 
operation of the new Medicare programs as well as the 
functioning of Medicare as a whole.
    The fixed five-year terms of the Administrator and Deputy 
Administrator provide some necessary stability to the 
management of this agency as well as a measure of independence 
from the President. Flexibility with respect to hiring and 
compensation, within limits, is provided to attract personnel 
who will bring private sector, best business practices 
experience to the new agency. However, for example, the 
Committee expects that the MBA Administrator would hire 
personnel at reasonable compensation levels, even though he/she 
has considerable freedom to set salary structure. The Committee 
notes that the President can remove the MBA Administrator at 
any time if the individual's behavior is egregious in any 
respect. The Committee hopes that in allowing the MBA 
Administrator this flexibility in terms of staffing, the 
organizational culture will be oriented toward the 
identification, expeditious hiring and retention of highly 
qualified personnel to enable the quality management and 
operation of a competition-based program.
    The new agency is established within the Department of 
Health and Human Services to provide accountability to the 
executive and legislative branches and to the public. The 
Secretary is directed to ensure appropriate coordination 
between the two agencies, the MBA and the HCFA, in carrying out 
the Medicare program, including the transfer and/or sharing of 
data and information. The Committee anticipates that 
coordinated, focused management activities will be necessary to 
ensure that effective administration of Medicare as a whole. 
With that need in mind, we encourage the Secretary to develop 
the necessary mechanisms to foster interagency cooperation not 
only at the MBA's inception but also on an ongoing basis. 
However, the Committee is concerned about the duplication of 
functions and increases in overall personnel in creating a 
second government agency to administer Medicare. With respect 
to this concern, the provision limits staffing in the MBA, only 
for those functions being transferred to it from HCFA, to the 
number of full-time equivalent HCFA employees currently 
performing those duties.
    The Committee does not wish to minimize the number of tasks 
involved in establishing a new agency. It is expected that the 
Secretary would begin to craft an implementation plan upon 
enactment, including the oversight of transition tasks, 
consideration of potential candidates for the Administrator and 
Deputy Administrator positions, and the development of 
interagency memoranda of understanding. The Committee 
encourages the Secretary to share the implementation plan with 
the Committee as soon as feasible so that appropriate oversight 
can be exercised.

Section 201(b).  Administrator and Deputy Administrator

Current law

    Currently, HCFA is headed by an Administrator, appointed by 
the President with the advice and consent of the Senate. The 
Administrator is at Executive Level IV and is appointed to an 
indefinite term of office. At present, HCFA has a Deputy 
Administrator who is in the Senior Executive Service and is 
appointed by the Secretary of Health and Human Services.
    The heads of departments and agencies generally have 
authority over the various programs carried out by various 
units under them, and are responsible for the appropriate 
coordination of those programs.

Explanation of provision

    The Medicare Benefits Administration (MBA) would be headed 
by an Administrator who would report directly to the Secretary. 
The Administrator would be appointed by the President to a 
fixed five-year term of office, subject to the advice and 
consent of the Senate, at Executive Level III. When the term 
expires, the Administrator could continue in office until a 
successor was appointed. Anyone appointed to complete an 
unexpired term could be appointed only for the remainder of the 
term.
    The Administrator would be responsible for the exercise of 
all powers and the discharge of all duties of the MBA, could 
establish and reorganize units with the administration, could 
prescribe rules and regulations under the Administrative 
Procedures Act, and could delegate authority to his or her 
subordinates.
    There would be a Deputy Administrator appointed by the 
President at Executive Level IV to a fixed five-year term of 
office, subject to the advice and consent of the Senate. When 
the term expires, the Deputy Administrator could continue in 
office until a successor was appointed. Anyone appointed to 
complete an unexpired term could be appointed only for the 
remainder of the term. The Deputy Administrator is to perform 
the duties and exercise the powers delegated to him or her by 
the Administrator.
    The Secretary of HHS would ensure appropriate coordination 
between the Administrator of the MBA and the Administrator of 
HCFA in carrying out the Medicare program.

Effective date

    Date of enactment of the act, except that the Administrator 
and the Deputy Administrator cannot be appointed before March 
1, 2001.

Reason for change

    See Section 201(a).

Section 201(c).  Duties; Administrative Provisions

Current law

    Currently, the HCFA Administrator is responsible for the 
effective administration and oversight of the Medicare program 
(both Parts A and B or traditional fee-for-service, as well as 
Part C or the Medicare managed care), the Federal portion of 
the Medicaid program, the Children's Health Insurance Program, 
and related quality assurance programs including oversight of 
clinical laboratories, oversight of Medicare supplemental 
insurance, certification and survey activities for nursing 
homes, and oversight of certain aspects of private health 
insurance markets.
    Many units within executive departments are required to 
submit annual reports regarding their activities to Congress 
and the President.
    At present, HCFA staff, with the approval of the Secretary, 
is appointed and paid in accordance with Title V Civil Service 
provisions.
    When a new entity is established, information and data that 
is needed by the new entity, but that is in the possession of 
an existing entity, normally is transferred to the new entity.

Explanation of provision

    The Administrator would carry out Parts C and D of Title 
XVIII of the Social Security Act (hereby referred to as ``Title 
XVIII''), including negotiating, entering into, and enforcing 
contracts with plans under Medicare+Choice and contracts with 
PDP sponsors offering prescription drug plans under Part D. The 
Administrator also would carry out other duties under Parts C 
and D, including demonstration projects and the Programs of 
All-Inclusive Care for the Elderly (PACE), Social Health 
Maintenance Organizations (SHMOs), and EverCare. Additionally, 
in administering the prescription drug benefit, the 
Administrator would not: (1) Require a particular formulary or 
price structure for drug reimbursement; (2) interfere with 
negotiations between Medicare+Choice plans and PDP sponsors and 
drug manufacturers, wholesalers, or other suppliers; or (3) 
interfere with the competitive nature of providing drug 
coverage through PDP sponsors and Medicare+Choice plans.
    The MBA Administrator would be required, not later than 
March 31 of each year, to submit a report covering the 
administration of Parts C and D during the previous fiscal year 
to Congress and the President.
    The MBA Administrator, with the approval of the Secretary, 
would be authorized to employ staff in a flexible manner 
without regard to the Title V Civil Service provisions 
governing appointment (5 U.S.C. 31) and pay (5 U.S.C. 51 and 
53), except that the rate of compensation may not exceed the 
rate of basic pay for Executive Level IV ($122,400).
    The Secretary is to establish an appropriate transition of 
responsibility to redelegate the administration of Part C from 
the HCFA Administrator to the Administrator of the MBA. The 
Secretary also would ensure that information and data in the 
possession of the HCFA Administrator that is needed by the MBA 
Administrator to carry out his or her duties will be 
transferred to the latter.

Effective date

    Date of enactment of the act. However, the Administrator 
cannot be appointed until March 1, 2001. The MBA 
Administrator's duties in carrying out Parts C and D would 
begin in 2003.

Reason for change

    See Section 201(a).

Section 201(d).  Office of Beneficiary Assistance

Current law

    At present, the Center for Beneficiary Services in HCFA 
serves as the central location for interactions with 
beneficiaries, including beneficiary-centered information, 
education and service initiatives.

Explanation of provision

    The Secretary of HHS would establish the Office of 
Beneficiary Assistance (OBA) within the MBA to carry out 
functions relating to beneficiaries' access to the entire 
Medicare program. Some of these functions would include 
responsibility for eligibility and enrollment, and for 
dissemination of information on benefits and appeals rights for 
Medicare Parts A, B ,C, and D. In addition, the OBA would 
disseminate information on benefits and limitations on payment, 
including cost-sharing, stop-loss and formulary restrictions 
under Parts C and D. The OBA would make available other 
information so that beneficiaries could compare benefits 
throughout the entire program, including comparisons of M+C 
benefits under Part C with Medicare supplemental policies. The 
OBA also would disseminate information on beneficiaries' 
grievance and appeals procedural rights for the entire Medicare 
program. Dissemination of benefits information would occur 
through the mail, Internet, and toll-free telephone number.

Effective date

    Date of enactment. The Administrator of the MBA would carry 
out enrollment and make eligibility determinations beginning on 
or after January 1, 2003.

Reason for change

    See Section 201(a).

Section 201(d)(3).  Medicare Ombudsman

Current law

    At present, there is a National Ombudsman in the Elder 
Rights Protection Office in the Administration on Aging in the 
Department of Health and Human Services. (The office, 
originally named Office of Long-Term Care Ombudsman Programs, 
was established under 42 U.S.C. 3011(d)). The Director of the 
office is appointed by the Assistant Secretary of the 
Administration on Aging from among individuals who have 
expertise and background in the fields of long-term care 
advocacy and management. The National Ombudsman and the 
Director serve as advocates on behalf of older individuals who 
reside in long-term care facilities regarding all Federal 
policies affecting such individuals. Among other activities, 
they advocate, monitor, and coordinate Federal and State 
activities of Long-term Care Ombudsmen. The Director makes 
recommendations to the Secretary and Assistant Secretary 
regarding long-term care programs, and submits to the Speaker 
of the House of Representatives and President pro tempore of 
the Senate an annual report on the effectiveness of services 
provided under the State Long-Term Care Ombudsman programs.

Explanation of provision

    A Medicare Ombudsman (MO) would be established within the 
Office of Beneficiary Assistance (OBA). The MO would be 
appointed by the Secretary from among individuals with 
expertise and experience in the fields of health care and 
advocacy, to assist Medicare beneficiaries regarding their 
complaints, grievances, and requests for information with 
respect to any aspect of the Medicare program.
    The duties of the MO would include assisting Medicare 
beneficiaries: (1) In collecting relevant information to seek 
an appeal of a decision or determination made by a Fiscal 
Intermediary, Medicare Carrier, Medicare+Choice organization, a 
PDP sponsor under Part D, or the Secretary; and (2) with any 
problems arising from disenrollment from an M+C plan under Part 
C of Title XVIII or a prescription drug plan under Part D of 
Title XVIII. The MO would also be required to submit annual 
reports to Congress, the Secretary, and the Medicare Policy 
Advisory Board describing the activities of the Office, 
including recommendations for improvement in the administration 
of this title.
    The MO also would help guide and coordinate the efforts of 
State medical ombudsman programs and State-based and community-
based consumer organizations to provide information about the 
Medicare program and educate Medicare beneficiaries regarding 
how problems under the Medicare program may be resolved or 
avoided.

Effective date

    Date of enactment of the act.

Reason for change

    See Section 201(a).

Section 201(e).  Medicare Policy Advisory Board

Current law

    Established in statute, the Social Security Advisory Board 
advises the Commissioner of Social Security on numerous Social 
Security issues, including policies related to old-age, 
survivors, and disability insurance. The Board submits reports 
to Congress and the President regarding the various issues 
affecting Social Security. While there are numerous advisory 
boards operating throughout the Federal government, the Social 
Security Advisory Board closely approximates the structure and 
function of the proposed Medicare Policy Advisory Board.

Explanation of provision

    The Medicare Policy Advisory Board (MPAB) would be 
established within the Medicare Benefits Administration (MBA). 
The Board would advise, consult with, and make recommendations 
to the Administrator of the MBA regarding the administration of 
Parts C and D of Title XVIII, including the review of payment 
policies.
    The Board is to submit to Congress and the MBA 
Administrator, and publish in the Federal Register, such 
reports as it determines appropriate, including legislative or 
administrative recommendations to improve Parts C and D. The 
reports may include recommendations on such topics as fostering 
competition under Parts C and D, improving education and 
enrollment processes for Medicare beneficiaries, implementation 
of risk-adjustment methodology under Medicare+Choice, the 
inclusion of disease management programs, and improving 
competition and access to Part C and Part D plans in rural 
areas. The reports would be submitted directly to Congress, and 
no officer or agency of the United States may require that they 
be submitted to any officer or agency for approval, comments, 
or review, before being submitted to Congress.
    The MBA Administrator, within 90 days after a report by 
MPAB is submitted, is to submit to Congress and the President 
an analysis of any recommendations in the report, and is to 
publish the analysis in the Federal Register.

Effective date

    Date of enactment of the act.

Reason for change

    See Section 201(a).

Section 201(e).  (4) Membership, (5) Compensation, (6) Terms of Office, 
        (7) Chair, (8) Meetings, (9) Director and Staff

Current law

    The Social Security Advisory Board consists of seven 
members, no more than four of whom may be from the same 
political party. Three members are appointed by the President, 
with the advice and consent of the Senate; two by the President 
pro tempore of the Senate, with the advice of the chair and 
ranking minority member of the Committee on Finance; and two by 
the Speaker of the House, with the advice of the chair and 
ranking minority member of the Committee on Ways and Means.
    Members are entitled to travel and per diem expenses while 
serving on Board business. Members serve six-year staggered 
terms; they must leave office when their terms expire. A member 
appointed to an unexpired term serves only for the remainder of 
the term. The Chair is designated by the President for a four-
year term; the Board meets at the call of the Chair, but not 
less than four times a year.
    The Board appoints a staff director without regard to Civil 
Service provisions, who is paid at a rate equivalent to the 
rate for the Senior Executive Service ($106,200 to $122,400). 
The Board also appoints additional personnel and may compensate 
such personnel without regard to Title V regarding the 
competitive service.

Explanation of provisions

    The Medicare Policy Advisory Board is to consist of seven 
members, of which three are to be appointed by the President; 
two by the Speaker of the House, with the advice of the 
chairmen and ranking minority members of the Committee on Ways 
and Means and the Committee on Commerce; and two by the 
President pro tempore of the Senate, with the advice of the 
chairman and ranking minority member of the Committee on 
Finance. The members are to be chosen based on their integrity, 
impartiality, and good judgment, and are to be exceptionally 
qualified by reason of their education and experience in health 
care benefits management.
    While engaged on Board business, members are to be 
compensated at rates not to exceed the daily equivalent to the 
annual rate in effect for Executive Level IV.
    Terms of office are to be for three years, and, as 
designated by the President at the time of appointment, one is 
to be appointed for one year; three for two years, and three 
for three years. No member may serve for more than eight years. 
A member appointed to fill an unexpired term may be appointed 
only to complete the term. A member whose term expires may 
continue to serve until a successor is appointed.
    The Chair of the Board would be elected by the members to a 
three-year term. The Board is to meet at the call of the Chair, 
but not less than three times during the fiscal year.
    The Board would have a director who would be appointed by 
the Chair. With the Board's approval, the director appoints and 
fixes the pay of the staff. Both the director and staff are to 
be appointed and paid without regard to Civil Service 
provisions governing appointment (5 U.S.C. 31) and pay (5 
U.S.C. 51 and 53), except that the rate of pay may not exceed 
the rate of basic pay for Executive Level IV ($122,400).
    The MBA Administrator is to make available to the Board 
such information and other assistance as it may require to 
carry out its functions. The MPAB may contract with and 
compensate government and private agencies to carry out its 
duties.

Effective date

    Date of enactment of the act.

Reason for change

    See Section 201(a).

Section 201(f).  Funding

Current law

    HCFA currently is authorized to be appropriated in part 
from the Federal Hospital Insurance Trust Fund and from the 
Federal Supplementary Medical Insurance Trust Fund such sums as 
are necessary to carry out its Medicare programs. Funds are 
appropriated under the normal appropriations process.

Explanation of provision

    The provision would authorize funds for the MBA and the 
MPAB, like HCFA, to be appropriated in part from the Federal 
Hospital Insurance Trust Fund and from the Federal 
Supplementary Medical Insurance Trust Fund in such sums as are 
necessary to carry out this section of the act. The funds would 
be appropriated under the normal appropriations process.

Effective date

    Date of enactment of the act.

Reason for change

    See Section 201(a).

Section 202.  Miscellaneous Administrative Provisions

Current law

    At present, the HCFA Administrator is the Secretary of the 
Board of Trustees of the Medicare Trust Funds, while the 
Secretary of the Treasury is the managing trustee and an ex 
officio member. Other ex officio members of the Board include 
the Commissioner of Social Security, the Secretary of Labor, 
and the Secretary of Health and Human Services.
    The Administrator of HCFA is at Executive Level IV 
position.

Explanation of provision

    The provision would make the MBA Administrator an ex 
officio member of the Board. The provision also would raise the 
HCFA Administrator to Executive Level III.

Effective date

    The provision would become effective on March 1, 2001.

Reason for change

    This provision recognizes that the Administrator of the 
Health Care Financing Administration and the Administrator of 
the new Medicare Benefits Administration should have equal 
professional status in the Department of Health and Human 
Services. A review of the other Cabinet level departments' 
executive structures demonstrates that the Administrators of 
large, complex governmental programs, such as Medicare, warrant 
recognition commensurate with their management 
responsibilities.

   Subtitle B--Oversight of Financial Sustainability of the Medicare 
                                Program

Section 211.  Additional Requirements for Annual Financial Report and 
        Oversight on Medicare Program

Current law

    The Board of Trustees of the Medicare Trust Funds are 
required to submit reports to Congress concerning the operation 
and status of each Trust Fund during the preceding fiscal year 
and the next two fiscal years no later than the first day of 
April of each year. The reports also include an actuarial 
opinion by the Chief Actuarial Officer of the Health Care 
Financing Administration certifying that the techniques and 
methods are generally accepted and reasonable.

Explanation of provision

    The Board of Trustees would be required to submit an 
additional report to Congress on the operation and status of 
the Hospital Insurance (Part A) Trust Fund and Federal 
Supplemental Medical Insurance (Part B) Trust Fund that would 
include information on the obligations from the general 
revenues of the Treasury for Medicare benefits (in total, in 
relation to all other general revenue amounts, and as a percent 
of gross domestic product); a historical overview of that 
spending; and 10-year and 50-year projections. The report would 
be published by the Committee on Ways and Means and published 
on the Internet.

Effective date

    This provision would be effective the fiscal years 
following the date of enactment.

Reason for change

    This provision requires the Medicare Board of Trustees to 
adopt a test of financial solvency for the Medicare program in 
addition to the tests that currently exists. The Committee 
believes that this test, which measures overall spending from 
the general revenues of the Treasury for Medicare benefits, 
provides a more relevant and realistic picture of the financial 
viability of the Medicare program. The current concept of 
Medicare's solvency is based on the fiscal outlook for the 
Federal Hospital Insurance (HI) Trust Fund (Part A), which is 
funded by a payroll tax paid by employers and employees, and 
the Federal Supplementary Medical Insurance Trust Fund (Part 
B), which is funded by premiums paid by beneficiaries and 
general revenue. The Committee notes that the current 
measurement of solvency is open to manipulation by moving funds 
between the two accounts, as was done in 1997 when spending for 
home health services was transferred gradually from the HI 
Trust Fund to Part B, thus artificially improving the financial 
outlook of the HI Trust Fund. The Committee notes that rosy 
projections of HI Trust Fund spending belie the true state of 
Medicare's solvency, encouraging the delay of important reform 
and financing decisions for years and making them dramatic and 
painful when they must be implemented. The Committee believes 
that the critical question for Medicare's financial health is 
not how much revenue from payroll taxes is needed to fund a 
portion of Medicare, but rather how much total tax revenue is 
needed to fund the entire program. The Committee includes this 
provision to focus the public debate about Medicare's financial 
viability in a more realistic and meaningful way.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

Section 221.  Revisions to Medicare Appeals Process

Current law

    Medicare beneficiaries and, in certain circumstances, 
providers and suppliers of health care services may appeal 
adverse determinations regarding claims for benefits under Part 
A and Part B. Section 1869 of the Social Security Act allows 
these parties who have been denied coverage of an item or 
service the right to appeal that decision through a series of 
administrative appeals and then into federal district court if 
the amounts of disputed claims in question meet certain 
thresholds at each step of the appeals process.
    The procedures differ for Medicare Part A and Medicare Part 
B services. Generally, each part has its own initial appeals 
process which the beneficiary must exhaust before moving on to 
a hearing before an administrative law judge (ALJ), then to 
review by the Health and Human Services Department Appeals 
Board (DAB) and then possibly to federal court. Under Part A, 
an ALJ hearing is available for disputed amounts greater than 
$100 and judicial review is available for disputed amounts 
greater than $1,000. Under Part B, an ALJ hearing is available 
for disputed amounts greater than $500 and judicial review is 
available for amounts greater than $1,000. Generally, claims 
involving the delivery of similar or related services to the 
same individual or involving common issues of law and fact 
arising from services furnished to two or more individuals can 
be aggregated to reach the jurisdictional amount.
    Generally, current law provides that a beneficiary may be 
represented in an appeal by a person who supplied the service 
or item. However, the supplier or provider must first waive 
their rights to payment from the beneficiary for the services 
or items that are being appealed. The person may not impose any 
financial liability on the beneficiary in connection with such 
representation.
    Current law includes provisions for an expedited appeal 
process where a party may request court review in place of an 
ALJ hearing or DAB review when all parties to the reconsidered 
decision (including the Secretary) concur that the only issue 
precluding a favorable determination is a statutory provision 
which the individual requesting review alleges to be 
unconstitutional or a regulation, national coverage decision 
under Section 1862(a)(1) of the Social Security Act, or a HCFA 
ruling is alleged to be invalid. HCFA policy currently provides 
that an expedited review would not apply to a challenge to a 
manual instruction, local medical policy, or a policy 
statement; only agency determinations, such as regulations, 
HCFA rulings, and national coverage determinations, that are 
binding on the ALJ can be appealed in such a fashion.
    Significant statutory limitations have been imposed on the 
review of national coverage determinations (called national 
coverage decisions by HCFA). Specifically, an ALJ may not 
review a national coverage determination, except to decide 
whether the determination has been applied correctly to the 
claim at issue. A court would not set aside or invalidate a 
national coverage determination because public rulemaking 
provisions contained in the Administrative Procedure Act (5 
U.S.C. 553) or Section 1871(b) of the Social Security Act have 
not been followed. Further, any case in which a court 
determines that the record is incomplete or otherwise lacks 
adequate information to support the validity of a national 
coverage determination is remanded back to the Secretary for 
additional proceedings tosupplement the record. The court may 
not determine that an item or service is covered in the particular case 
except upon review of the supplemented record. Finally, the statute 
limits judiciary review of certain Part B payment methodologies.

Explanation of provision

    These provisions would revise Section 1869, change certain 
statutory requirements and codify, clarify and, in some 
instances, redefine certain actions currently established 
through regulation. In general, the provisions would combine 
the Part A and Part B beneficiary appeal processes; would 
permit providers and suppliers adversely affected by claims 
processing and coverage decisions to appeal; would give 
qualified independent review contractors the responsibility for 
reconsiderations of initial determinations; would provide for 
expedited reconsideration of certain initial determinations 
that could cause the termination of ongoing care; would 
establish a review process, including judicial review, for both 
national and local coverage determinations; would extend the 
limitations on liability provided to qualified independent 
contractors to Medicare +Choice independent appeals 
contractors; and would make all decisions made by the Provider 
Reimbursement Review Board subject to appeal under 1869.
    Initial determinations would be defined to include 
determinations regarding: (1) whether a beneficiary is entitled 
to Medicare benefits; (2) the amount of Medicare benefits 
available to a beneficiary; (3) a claim for benefits under 
Parts A or B, including an initial determination by the 
Secretary that payment may not be made, or may no longer be 
made, for an item or service under such Parts; (4) the 
appropriateness of a discharge of a beneficiary from a 
provider, made by a utilization and quality control peer review 
organization; and (5) other initial determinations with respect 
to benefits made by contractors administering Medicare or Title 
XI (peer review).
    At the request of an affected beneficiary, the Secretary 
would be required to provide for a reconsideration of initial 
determinations, including a hearing thereon. The Secretary 
would enter into contracts with qualified independent 
contractors to conduct reconsiderations of initial 
determinations. Under this subsection, the Secretary would 
enter into contracts with not fewer than 12 qualified 
independent contractors. The qualified independent contractor 
would be an entity that is independent of any organization 
under contract with the Secretary that makes initial 
determinations and that meets requirements established by the 
Secretary. Contracts would be for an initial term of three 
years and renewable every three years thereafter. The Secretary 
would provide specific criteria and guidance, including all 
applicable national and local coverage policies necessary to 
assist the contractors to make informed decisions. These 
policies would be published on the Internet. Contractors would 
only be bound by local or national coverage policies that were 
published on the Internet. Contractors would not be bound by 
any other policies (not local or national coverage policies) if 
not provided in a published format.
    The qualified independent contractor would determine 
whether payment would be made for items or services under Part 
A or Part B and the amount of such payment. The qualified 
independent contractor would conduct and conclude a 
determination or reconsideration and then would mail the notice 
of the decision by not later than the end of the 45-day period 
from the date that a reconsideration request had been filed. If 
the deadline for mailing the decision is missed, the appealing 
party would be able to request an ALJ hearing. The Secretary 
would be able to reopen or revise any initial or reconsidered 
determination under guidelines that would be established in 
regulation.
    Beneficiaries would be able to request, in writing or 
orally, an expedited determination or expedited reconsideration 
of an initial determination. The qualified independent 
contractor would provide notice (by telephone and in writing) 
of the reconsideration results to the Medicare beneficiary, 
provider of services, and attending physician no later than 1 
day after the medical or other records needed for 
reconsideration are received. The contractor would solicit the 
views of the individual involved and conduct the 
reconsideration regardless of whether the beneficiary would be 
charged for continuing services or be liable for payment.
    Each qualified independent contractor would monitor its own 
determinations to ensure consistency by collecting and 
maintaining an electronic database that identifies: (1) 
specific claims that give rise to appeals; (2) situations where 
further provider education may be necessary; and (3) situations 
where changes in national coverage, local coverage or local 
medical review policies may be necessary. The database would be 
used for the contractors own purposes. Additionally, the 
contractor would submit its database annually to the Secretary 
for the Secretary's own purposes.
    After a determination has been made, contractors would 
promptly notify the individual and the Medicare claims payer. 
Contractor determinations would be in writing and include a 
detailed explanation of the determination. The Secretary would 
establish a methodology under which qualified independent 
contractors would make available all determinations to fiscal 
intermediaries, carriers, peer review organizations, 
Medicare+Choice organizations and other entities under contract 
to make initial determinations under Medicare or peer review 
statutes. Qualified independent contractors and their employees 
would not be held liable under any federal or state criminal or 
civil law if due care was exercised in the performance of its 
duties, functions or activities.
    The Secretary would also establish in regulation the time 
limits for requesting a hearing. Hearings would be available 
for disputed amounts greater than $100. Judicial review would 
be available for disputed amounts greater than $1,000. 
Aggregation of claims to meet these thresholds, with certain 
restrictions, would be permitted. An ALJ would conduct a 
hearing on a contractor's determination and issue a decision no 
later than 90 days after the hearing request date. However, the 
party requesting the hearing can request the 90 day period be 
waived. The DAB would conduct a review on an ALJ's decision and 
issue a decision or remand no later than 90 days after the 
review request date. In the event that an ALJ does not issue a 
hearing decision by the appropriate time period, the party 
requesting the hearing would be able to request the DAB to 
review the case de novo. All hearing decisions would be made 
public and published on the website of Health and Human 
Services absent information that would identify the 
beneficiary, provider or supplier.
    National coverage determinations would be determinations by 
the Secretary regarding whether a particular item or service is 
covered under this title. Like current law, national coverage 
determinations would not be reviewed by an ALJ and would not be 
held to be unlawful because of rulemaking violations. These 
determinations would be reviewed by the Department Appeals 
Board (DAB) of the Department of Health and Human Services, who 
would be able to review the record, as well as permit discovery 
and the taking of evidence. The DAB would defer only to 
reasonable findings of fact, interpretations of law and 
reasonable applications of fact to law by the Secretary. A 
decision by the DAB would constitute a final agency action and 
would be subject to judicial review. Local coverage 
determinations would be determinations made by a fiscal 
intermediary or a carrier under Part A or Part B regarding 
whether a particular type or class of items or services is 
covered under such Parts. Local coverage determinations made by 
Medicare claims processing contractors would be subject to 
review by an ALJ of the Social Security Administration, who 
would be able to review the record, as well as permit discovery 
and the taking of evidence to evaluate the reasonableness of 
the determination. The ALJ would defer only to reasonable 
findings of fact, interpretations of law, and reasonable 
applications of fact to law by the Secretary. An ALJ decision 
would constitute a final agency action and would be subject to 
review by the DAB, constituting a final agency action which is 
subject to judicial review. When there are no material issues 
of facts in dispute and the issues concern either the 
constitutionality of the provision or the validity of a 
regulation, ruling or determination, the aggrieved party would 
be able to seek review in a court of competent jurisdiction.
    When the Secretary has not issued a national coverage or 
noncoverage determination, with respect to a particular type or 
class of item or service, an affected party would be able to 
submit a request to make such a determination. The Secretary 
would have 90 days to either: (1) issue a national coverage 
determination, with or without limitations; (2) issue a 
national noncoverage determination; (3) issue a determination 
that no determination is appropriate; or (4) issue a notice 
that the Secretary has not completed a review of the national 
coverage determination and identify the remaining steps in the 
Secretary's review process and a deadline by which the 
Secretary would complete the review. All of these actions would 
be accompanied by an explanation of the basis for the 
determination. Failure to complete a review pursuant to the 
above (4) would be deemed to be an action under (3). Any action 
under (1), (2) or (3) is deemed to be national coverage 
determinations and subject to review. Also, all decisions of 
hearings by the Secretary would be made public and published on 
the Internet.
    The Secretary would submit a report to Congress annually, 
and subsequently publish the report on the Internet, on the 
actual time periods necessary to fully implement national 
coverage determinations made in the previous fiscal year.
    Aggrieved persons with standing to initiate action under 
this section would include: (1) individuals entitled to Part A 
or enrolled in Part B or both who are in need of the items or 
services involved in the coverage determination and (2) persons 
or classes of persons who make, manufacture, offer, supply, 
make available, or provide such items and services. Included 
are many of the existing provisions and protections with 
respect to people providing items and services representing 
beneficiaries.
    The Secretary would perform outreach activities to inform 
beneficiaries, providers, and suppliers of their appeal rights 
and procedures, including the use of the toll-free telephone 
number to respond to inquiries about the status of appeals. No 
later than one year after enactment of these provisions, the 
Secretary would promulgate regulations governing 
reconsideration and hearing procedures which would include such 
specific criteria and guidance to ensure adequately functional 
and consistent reconsiderations and hearings. The Secretary 
would provide each qualified independent contractor and ALJ (in 
consultation with the Social Security Administration) 
continuing education regarding Medicare or PRO policies so that 
informed appeal decisions would be made.
    The Secretary would monitor determinations made by all 
qualified independent contractors and ALJs to ensure 
consistency of their determinations by providing for the 
continuing education, administration and oversight of qualified 
independent contractors and ALJs through a central office in 
HHS.
    The Secretary would submit a report to Congress not less 
frequently than every five years on beneficiary, provider, and 
supplier satisfaction with the appeals process of 
determinations, as well as the respective education and 
training involved in the process. The report would include any 
legislative and administrative recommendations the Secretary 
determines appropriate.
    In addition, the Secretary would submit an annual report to 
Congress on the number of appeals for the previous year, 
identifying issues that require administrative or legislative 
action, and any recommendations of the Secretary on these 
actions. The report would also include an analysis and causes 
of inconsistent decisions of determinations by qualified 
independent contractors.

Effective date

    The Secretary would promulgate regulations governing 
reconsideration and hearing procedures no later than one year 
after enactment of these provisions.

Reason for change

    The Committee held several hearings in the last two years 
dealing with both private-sector patient protections and the 
Medicare coverage and appeals procedures. These hearings 
revealed that when compared to enrollees in private sector 
health plans, Medicare beneficiaries have far fewer legal 
protections when denied coverage for a requested benefit. Not 
only do Medicare beneficiaries have to wait much longer periods 
of time to have claims disputes resolved (e.g. Part B claims 
take on average over 400 days to resolve), often times they 
lack detailed information about Medicare's coverage policies, 
and due to administrative delay and obfuscation, can be 
effectively precluded from challenging disputed policies in 
court.
    The provisions in this section are intended to correct 
these deficiencies, and ensure that all beneficiaries maintain 
a legitimate right to challenge in a timely manner, before an 
independent decisionmaker, any adverse coverage or claims 
decisions that may impact their ability to obtain quality 
health care. In addition, by combining the Part A and Part B 
appeals processes, the Committee intends, along with the 
changes in subtitle A, to streamline and improve the 
administration of Medicare appeals.

Section 222. Provisions with Respect to Limitations of the Liability of 
        Beneficiaries

Current law

    Under certain circumstances, Medicare will pay for services 
that are not normally covered. In general, Medicare will pay 
for these services if neither the beneficiary, nor the 
provider, practitioner, or supplier knew, or could have 
reasonably been expected to know, that the services were 
excluded from coverage. A beneficiary will be liable if given 
advance notice, in writing, the service may not be covered. The 
written notice, called a notice of noncoverage for Part A 
services and an advance beneficiary notice (ABN) for Part B 
services, must have been given to the beneficiary (or someone 
acting on the beneficiary's behalf) by a provider, 
practitioner, or supplier furnishing the service and then 
signed by the beneficiary or by the beneficiary's 
representative.

Explanation of provision

    These provisions would amend Section 1879 of the Social 
Security Act to clarify situations and establish procedures 
where beneficiaries who are furnished items or services that 
are subsequently found not to be covered under Medicare will 
and will not be liable for repayment.
    Specifically, a Medicare beneficiary furnished a service or 
item would not be liable for repayment if a claim for an item 
or service is incorrectly paid by the Secretary except when 
Medicare payments are made to the beneficiary and then only up 
to the amount of the payment.
    A Medicare beneficiary furnished a service or item would 
not be liable for payment if: (1) the initial determination on 
payment of a benefit had not been made by the Secretary to 
establish whether Medicare payment can be made; or (2) the 
claim for an item or service is improperly submitted by a 
provider or supplier or is rejected by an entity under contract 
to review or pay Medicare claims or by an M+C organization. 
These limitations of beneficiary liability would not apply if 
the beneficiary signs a waiver form, developed by the 
Secretary, that clearly informs beneficiaries of their 
limitations on liability, their rights to obtain an initial 
determination of Medicare payment of the benefit, and their 
rights to appeals The waiver form would also include the toll-
free number maintained by the Secretary to obtain any further 
information
    These waiver forms are the only manner in which 
beneficiaries may waive their liability. This waiver is not 
applicable in cases where a claim is denied for noncompliance 
with Medicare or peer review regulations.
    A Medicare beneficiary who is furnished services by a 
provider would not be liable for payment prior to noon of the 
first working day after the date the beneficiary receives 
notice of determination of discharge and a notice of appeal 
rights unless: (1) the provider furnishes the notice of 
discharge and appeal rights to each Medicare beneficiary served 
upon admission and furnishes a notice of the beneficiary's 
limitation of liability and appeal rights upon notice of 
determination of discharge; and (2) the beneficiary, prior to 
discharge, appeals the determination to discharge no later than 
noon of the first working day and the provider by close of that 
business day provides the records necessary to review the 
determination.
    A Medicare beneficiary would not be liable for payment of 
cost-sharing amounts of more than $50 for a furnished item or 
service unless the beneficiary has been informed in advance of 
the estimated cost-sharing amount of the item or service using 
a standard form established by the Secretary.
    Information regarding the beneficiary's payment liability 
for furnished benefits and the toll-free number to access 
information on beneficiary liability and appeal rights would be 
required to be included on the explanation of Medicare 
benefits.

Effective date

    Date of enactment of the act.

Reason for change

    This provision clarifies the circumstances in which 
Medicare beneficiaries may and may not be held liable for the 
costs of care not reimbursable under the Medicare program. The 
use of a standardized waiver form is intended to better protect 
the interests of Medicare beneficiaries, and help educate them 
about their rights under the improved appeals process.

Section 223. Waivers of Liability for Cost Sharing Amounts

Current law

    Providers, suppliers and practitioners who routinely waive 
beneficiary coinsurance and deductible amounts may be held 
liable under the Medicare and Medicaid anti-kickback statute. A 
routine waiver of beneficiary cost-sharing amounts may result 
in false claims as well as excessive utilization of items and 
services paid for by Medicare. Providers, suppliers and 
practitioners mayforgive the copayment in consideration of a 
particular patient's financial hardship; this exception is not to be 
used routinely, but should be used occasionally to address the 
financial needs of a given patient.

Explanation of provision

    This provision would revise the circumstances in which the 
beneficiary's cost-sharing amounts can be waived if: (1) the 
waiver is offered as part of a supplemental insurance policy or 
retiree health plan; (2) the waiver is not part of any 
advertisement or solicitation; (3) the person waives the 
coinsurance and deductible after the beneficiary informs the 
person that payment would pose a financial hardship; (4) the 
person determines that the coinsurance and deductible would not 
justify the costs of collection.

Effective date

    Date of enactment of the act.

Reason for change

    This provision clarifies and rationalizes the circumstances 
in which providers of health services may lawfully elect to 
forgo the collection or imposition of Medicare's scheduled 
cost-sharing requirements. The changes included in this 
provision will ensure that providers have greater discretion to 
waive cost-sharing requirements if they would pose a financial 
hardship to patients, and allow for the more efficient 
operation of provider collection practices.

Section 224. Elimination of Motions by the Secretary on Decisions of 
        the Provider Reimbursement Review Board

Current law

    Providers who submit required cost reports and are 
dissatisfied with the resolution of issues that affect their 
Medicare reimbursement may apply for hearing in front of the 
Provider Reimbursement Review Board (PRRB). The amount in 
controversy must be at least $10,000. At the hearing, providers 
have the right to be represented by counsel, introduce 
evidence, and examine witnesses. The PRRB has the power to 
affirm, modify or reverse a final determination of a fiscal 
intermediary with respect to a cost report. A PRRB decision 
would be final unless the Secretary, within 60 days after the 
date the provider is informed of this decision, acts to 
reverse, affirm, or modify the decision.

Explanation of provision

    The provision would eliminate the Secretary's authority to 
reverse, affirm or modify PRRB decisions within 60 days after 
the provider is notified of the decision.

Effective date

    Date of enactment of the act.

Reason for change

    This provision streamlines the appeals process for 
providers seeking reimbursement under Part A of the Medicare 
program. The change is consistent with the concepts of binding 
external review and specified timeframes for appeals that are 
also incorporated in the beneficiary appeals provisions in 
Section 221 and comparable requirement imposed on private 
sector health plans by other law.

  Title III--Medicare+Choice Reforms; Preservation of Medicare Part B 
                              Drug Benefit


                  Subtitle A--Medicare+Choice Reforms

Section 301. Increase in National Per Capita Medicare+Choice Growth 
        Percentage in 2001 and 2002

Current law

    For each beneficiary enrolled, the Medicare+Choice (M+C) 
plan receives the M+C payment rate applicable to the payment 
area (typically a county) in which the enrollee resides, 
adjusted for risk. This rate is based on a formula which gives 
the county the highest of three different rates: (1) a floor, 
or minimum payment rate; (2) a minimum update rate; and (3) a 
blended rate. After each county's payment rate is determined, 
the total projected spending for Medicare+Choice is compared to 
a budget-neutral amount. If the projected spending is greater 
than the budget-neutral amount, payment rates are reduced until 
budget neutrality is met. This is accomplished by lowering 
payments in counties with blended rates. However, no county 
will receive less than the floor rate or the minimum update 
rate, whichever is larger.
    The floor payment rate was set at $401.61 per month for 
aged beneficiaries in 2000. Each year the floor is increased by 
an annual update factor, equal to adjusted growth in Medicare 
fee-for-service expenditures per capita, minus 0.5 percentage 
points in 2000 and 2001, and minus 0.3 percentage points in 
2002.
    The minimum update rate was set at the county rate in 1997, 
increased by 2%. This rate increases 2% each year.
    The blended rate represents an average of local and 
national rates. The local rate is an area-specific capitation 
rate, which is adjusted to remove the share of payments that 
represent payments for graduate medical education (GME), with a 
phase-out over 5 years. Beginning in 1998, local rates for 
blending purposes had 20% of GME spending removed. The 
reduction in GME payments is increased by 20% annually, until 
all GME funds are removed from 2002 forward. The local rate is 
the 1997 county rate, updated annually by the national per 
capita M+C growth percentage. The national rate is the average 
of local area-specific payment rates, weighted by the number of 
Medicare beneficiaries in each county. For blending purposes, 
the national rate is input-price adjusted to reflect 
differences in the costs of providing medical care across 
counties. The blended rate is computed as follows: 90% local/
10% national in 1998; 82% local/18% national in 1999; 74% 
local/26% national in 2000; 66% local/34% national in 2001; 58% 
local/42% national in 2002; 50% local/50% national from 
2003onward.

Explanation of provision

    The provision would remove the decrease in the annual 
update factor, equal to adjusted growth in Medicare fee-for-
service expenditures per capita. The decrease would be changed 
from minus 0.5 percentage points to minus 0.0 percentage points 
in 2001, and from minus 0.3 percentage points to minus 0.0 
percentage point in 2002.

Effective date

    The provision would be effective beginning in January 2001.

Reason for change

    This provision will remove the reductions from the national 
per capita growth rate in 2001 and 2002, which are scheduled to 
be minus 0.5 percentage point and 0.3 percentage point 
respectively. The Committee notes that the reductions are 
inappropriate at this time, given the current state of the 
Medicare+Choice program.

Section 302. Permanently Removing Application of Budget Neutrality 
        Beginning in 2002

Current law

    After each county's payment rate is determined under the 
formula, the total projected spending for Medicare+Choice is 
compared to a budget-neutral amount. If the projected spending 
is greater than the budget-neutral amount, payment rates are 
reduced until budget neutrality is met. This is accomplished by 
lowering payments in counties with blended rates. However, no 
county receives less than the floor rate or the minimum update 
rate, whichever is larger.

Explanation of provision

    The provision would remove budget neutrality beginning in 
2002.

Effective date

    The provision would become effective beginning with payment 
rates for 2002.

Reason for change

    This provision permanently removes the application of 
budget neutrality in the calculation of the Medicare+Choice 
starting in 2002. The Committee agrees that ``funding the 
blended rates'' will increase the rates for many payment areas.

Section 303. Increasing Minimum Payment Amount

Current law

    For each beneficiary enrolled, the M+C plan receives the 
M+C payment rate applicable to the payment area (typically a 
county) in which the enrollee resides, adjusted for risk. This 
rate is based on a formula which gives the county the highest 
of three different rates: (1) a floor, or minimum payment rate; 
(2) a minimum update rate; and (3) a blended rate.

Explanation of provision

    The floor, or minimum payment rate, would be raised in 2002 
to $450 for aged beneficiaries, with proportional increases for 
disabled beneficiaries and those with end-stage renal disease. 
After 2002, the minimum payment rate would be allowed to 
increase at the rate of Medicare fee-for-service per capita 
growth.

Effective date

    The provision would be effective in 2002.

Reason for change

    This provision increases the minimum payment amount to $450 
in 2002, and provides for an update at the rate of fee-for-
service per capita growth thereafter. The Committee recognizes 
that changes in payment policy need to occur to attract 
Medicare+Choice plans to rural areas. Raising the minimum 
payment amount is one change that can accomplish this 
objective.

Section 304. Allowing Movement to 50:50 Percent Blend in 2002

Current law

    The blended rate represents an average of local and 
national rates. The local rate is an area-specific capitation 
rate, which is adjusted to remove the share of payments that 
represent payments for graduate medical education (GME), with a 
phase-out over 5 years, ending in 2002. The national rate is 
the average of local area-specific payment rates, weighted by 
the number of Medicare beneficiaries ineach county. For 
blending purposes, the national rate is input-price adjusted to reflect 
differences in the costs of providing medical care across counties. The 
blended rate is computed as follows: 90% local/10% national in 1998; 
82% local/18% national in 1999; 74% local/26% national in 2000; 66% 
local/34% national in 2001; 58% local/42% national in 2002; and 50% 
local/50% national from 2003 onward.

Explanation of provision

    The provision would allow plans to choose to be paid a 
blend of 50 percent local costs and 50 percent national costs 
in 2002 instead of the 58 percent local/42 percent national 
blend scheduled to be in effect in that year. For 2003, the 
blend would be 50 percent local/50 percent national.

Effective date

    The provision would be effective in 2002.

Reason for change

    This provision would allow health plans to move more 
quickly to a blended rate of 50 percent local area costs and 50 
percent national costs in 2002, instead of in 2003 as currently 
scheduled. Current law provides for a blend of 58 percent local 
costs and 42 percent national costs in 2002. The Committee 
believes that health plans, particularly those serving local 
areas with relatively low costs, should have the opportunity to 
benefit one year sooner from a rate based on a higher 
percentage of national costs.

Section 305. Increased Update for Payment Areas with Only One or No 
        Medicare+Choice Contracts

Current law

    For each beneficiary enrolled, the M+C plan receives the 
M+C payment rate applicable to the payment area (typically a 
county) in which the enrollee resides, adjusted for risk. This 
rate is based on a formula which gives the county the highest 
of three different rates: (1) a floor, or minimum payment rate; 
(2) a minimum update rate; and (3) a blended rate. The minimum 
update rate was set at the county rate in 1997 increased by 2%. 
This rate increases 2% each year.
    The Balanced Budget Refinement Act of 1999 (BBRA) 
encouraged new M+C plans to enter counties that would otherwise 
not have a private plan participating. The first plan to enter 
a previously unserved county receives a 5% added payment during 
its first year and a 3% added payment during its second year, 
applied during the 2-year period beginning January 1, 2000.

Explanation of provision

    The provision would allow plans to apply for a higher 
update to their rates if there are one or no contracts in the 
county. Instead of the 2% minimum update, plans would receive a 
2.5% update in 2002 through 2005.

Effective date

    This provision would become effective beginning in 2002.

Reason for change

    This provision allows Medicare+Choice plans to receive a 
2.5 percent update in payment areas where there is only one or 
no contract, compared to the 2 percent minimum update they 
normally would receive. The Committee believes strongly in 
offering many choices to seniors and views this change as one 
way to encourage health plans to participate in the program.

Section 306. Permitting Higher Negotiated Rates in Certain Payment 
        Areas Below National Average

Current law

    Plans are paid an administered monthly price, called the 
Medicare+Choice payment rate, for each enrollee. It is 
calculated according to a formula established in statute and 
updated by law.

Explanation of provision

    The provision would introduce an element of negotiated 
pricing into the rates paid to plans by allowing them to 
negotiate their annual update with the Medicare Benefits 
Administration (MBA), the new agency that administers the M+C 
program. Only those plans with rates below the national 
average, the USPCC (United States Per Capita Cost), would be 
allowed to negotiate their updates.
    Plans would negotiate with the MBA by presenting data on 
costs, benefits and utilization to the agency. A plan would be 
required to submit its current audited adjusted community rates 
(ACRs) to the new agency. Starting in 2004, plans could 
negotiate updates up to a ceiling of the growth rate of the 
private insurance market, net of the increases in prescription 
drug costs and adjusted for the characteristics of the Medicare 
population, as calculated by the Medicare Benefits 
Administration. However, no plan would be permitted to 
negotiate a rate that exceeds the USPCC.

Effective date

    The provision would become effective in 2004.

Reason for change

    This provision permits health plans to negotiate inflation 
updates to their rates with the Medicare Benefits 
Administration beginning in 2004. Health plans will present 
current, audited data to the Administrator to prove that their 
costs warrant an increase higher than the mandated update. The 
Committee believes that this is a first step toward introducing 
negotiated pricing and increasing competition in the Medicare 
program.

Section 307. Ten-Year Phase-In of Risk Adjustment Based on Data from 
        All Settings

Current law

    M+C payments to plans are currently adjusted using a blend 
of demographically-based and health status-based adjusters. 
Prior to 2000, payments were adjusted solely based on 
demographic characteristics of plan enrollees. These 
demographic factors included age, gender, coverage by Medicaid, 
institutionalized status, and working status.
    As required under the Balanced Budget Act of 1997, the 
Secretary began using a health status-based risk adjustment 
system in 2000. The Secretary chose the principal inpatient 
diagnostic cost groups (PIP-DCG) method, which supplements 
demographic factors with health status factors. This 
prospective model uses diagnoses in a base year to adjust 
payment for a future payment year. Payment is determined by 
each Medicare+Choice enrollee's risk factor, which is based on 
inpatient data using the PIP-DCG adjusters. These adjusters 
predict incremental costs, above the average for the 
demographic group, which are expected to be incurred in the 
year after hospitalization.
    The BBRA required a phase-in of the new risk adjustment 
methodology such that M+C payments would reflect a blend of 
payments under the older demographic adjustment procedure and 
the new PIP-DCG procedure. The BBRA held the risk adjuster at 
90% demographic/10% PIP-DCG blend for 2000 and 2001. In 2002, 
not more than 20% of the risk adjuster may be based on the 
health status method.
    The BBRA requires the Medicare Payment Advisory Commission 
(MedPAC) to conduct a study that evaluates the risk adjustment 
method and report findings by December 2000. The Secretary is 
required to study and report on how to reduce the costs and 
burdens of M+C plans' reporting of encounter data, due January 
1, 2001. The Secretary has proposed moving to comprehensive 
risk adjustment, which would take into account a wider range of 
measures for health status, not just hospitalization, by 2004.

Explanation of provision

    The provision would phase in a new risk adjustment method 
based on data from all settings gradually over ten years, in 
one-tenth increments, starting in 2004.

Effective date

    The transition would begin in 2004.

Reason for change

    This provision provides for a gradual phase-in of risk 
adjustment over a ten-year period, once the methodology is 
based on data from all settings. The Committee recognizes that 
risk-adjusted payments will likely have dramatic effects on 
some health plans, and notes that sweeping payment policy 
changes in the Medicare program, such as the hospital inpatient 
prospective payment system for capital-related costs, have been 
implemented with very long transition periods so that entities 
can adjust gradually.

 Subtitle B--Preservation of Medicare Coverage of Drugs and Biologicals

Section 311. Preservation of Coverage of Drugs and Biologicals Under 
        Part B of the Medicare Program

Current law

    Section 1862(s) of the Social Security Act defines covered 
``medical and other health services'' for purposes of coverage 
under Medicare Part B. The definition includes:

        (2)(A) services and supplies (including drugs and 
        biologicals which cannot, as determined in accordance 
        with regulations, be self-administered) furnished as 
        incident to a physician's professional service, of 
        kinds which are commonly furnished in physicians' 
        offices and are commonly either rendered without charge 
        or included in the physicians' bills * * *

    The phrase ``cannot be self-administered'' is defined in 
the Medicare Carrier's Manual as follows:

          Whether a drug or biological is of a type which 
        cannot be self-administered is based on the usual 
        method of administration of the form of that drug or 
        biological as furnished bythe physician. Thus, where a 
physician gives a patient pills or other oral medication, these are 
excluded from coverage since the form of the drug given to the patient 
is usually self-administered. Similarly, if a physician gives a patient 
an injection which is usually self-injected (e.g., insulin or 
calcitonin), this drug is excluded from coverage, unless administered 
to the patient in an emergency situation (e.g., diabetic coma). Where, 
however, a physician injects a drug which is not usually self-injected, 
this drug is not subject to the self-administrable drug exclusion 
(regardless of whether the drug may also be available in oral form) 
since it is not self-administrable in the form in which it was 
furnished to the patient.

    Individual Medicare carriers have reportedly applied 
different policies when considering whether a drug or 
biological can or cannot be self-administered. Some carriers 
have based the determination on the typical means of 
administration while others have assessed the individual 
patient's ability to administer the drug.
    On August 13, 1997, HCFA issued a memorandum to Medicare 
carriers which was intended to clarify program policy. The 
memorandum stated that the inability to self-administer is to 
be based on the typical means of administration of the drug, 
not on the individual patient's ability to administer the drug. 
The memorandum stated that: ``The individual patient's mental 
or physical ability to administer any drug is not a 
consideration for this purpose.'' The memorandum went on to 
note that certain drugs that are generally self-administered 
may not be self-administered under certain limited 
circumstances such as when the patient first learns how to 
administer the drug. Coverage in these limited situations is at 
the discretion of the Medicare carrier; i.e. the carrier 
determines in these instances whether it is medically necessary 
for the physician or staff to administer the drug. The carrier 
could not consider the patient's condition such as a mental or 
physical disability.
    As a result of this memorandum, certain patients (for 
example, patients with multiple sclerosis) no longer had 
Medicare coverage for certain drugs. However, implementation of 
this policy directive was halted for FY2000 by a provision in 
the Consolidated Appropriations Act. The provision prohibits 
the use of any funds to carry out the August 13, 1997 
transmittal or to promulgate any regulation or other 
transmittal or policy directive that has the effect of imposing 
(or clarifying the imposition of) a restriction on the coverage 
of injectable drugs beyond those applied on the day before 
issuance of the transmittal. HCFA issued a Program Memorandum 
in April 2000 which suspended application of the August 13, 
1997 memorandum. It noted that each carrier or intermediary 
must establish its own policies individually and could not 
establish model policies as a group.

Explanation of provision

    Section 311 would replace the current phrase in Section 
1862(a)(2) relating to self-administered drugs and biologicals. 
The new language would permit coverage of ``injectable and 
infusable drugs and biologicals which are not usually 
administered by the patient.''

Effective date

    This provision applies to drugs and biologicals 
administered on or after October 1, 2000.

Reason for change

    This provision ensures that Medicare beneficiaries will 
continue to be able to obtain the full range of medications 
covered by Part B prior to HCFA's issuance of its revised 
carrier memorandum of August 17, 1998.

Section 312. GAO Report on Part B Payment for Drugs and Biologicals and 
        Related Services

Current law

    Under current law, Medicare Part B pays for some 
medications in certain circumstances. Currently, those who 
supply these drugs are reimbursed the average wholesale price 
of the drug minus 5%, as specified under Section 1842(o).

Explanation of provision

    The provision would require the General Accounting Office 
to conduct a study on the extent to which Medicare payment 
methodology overpays for the cost of drugs and biologicals 
currently covered under Medicare Part B compared to the average 
acquisition cost paid by other suppliers. The study would also 
address: (1) the consequences of changing current methodology 
to one based on average acquisition of costs on the delivery of 
oncology, chemotherapy, dialysis, and vaccine services, on the 
administration of drugs in physician offices, and on the effect 
of drug therapy delivery in the hospital outpatient setting; 
(2) other Part B payment methodologies intended to reimburse 
physician and supplier costs in handling, storing, and 
administering these drugs and biologicals; and (3) issues on 
the implementation of an average acquisition cost methodology.

Effective date

    The report would be submitted 6 months after the date of 
enactment.

Reason for change

    In the past, the General Accounting Office (GAO) and the 
Office of Inspector General in the Department of Health and 
Human Services have criticized the current methodology for the 
Part B drug and biological reimbursement and reported that 
Medicare has overpaid for drugs and biologicals covered under 
Part B. The Committee finds these reports troubling and is 
intent on devising improvements in this area so as to prevent 
the overpayment of covered drugs and biologicals in the future. 
The intent of this section is to gather more information on the 
average actual acquisition costs incurred by those who 
routinely supply covered drugs and biologicals to Medicare 
beneficiaries, and to examine the related quality and access to 
care issues that may arise, especially with respect to oncology 
care, if the current payment methodology for Part B drugs and 
biologicals were changed. The report would be done along with a 
pending GAO report, authorized under Public Law 106-113, to 
study the adequacy of practice expense payments for providers 
of drug and biological services.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4680.

                       motion to report the bill

    The bill, H.R. 4680, as amended, was ordered favorably 
reported by a rollcall vote of 23 yeas to 14 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Thomas.....................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Coyne........  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Watkins....................        X   ........  .........
Mr. Hayworth...................        X   ........  .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          votes on amendments

    Rollcall votes were conducted on the following amendments 
to the Thomas amendment in the nature of a substitute.
    An amendment by Mr. Cardin, to allow the Health Care 
Financing Administration to be a Prescription Drug plan (PDP) 
sponsor for a nationwide prescription drug plan, was defeated 
by a rollcall vote of 12 yeas to 22 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Thurman and Mr. Doggett, to give legal 
authority and require Medicare prescription drug plans to 
obtain prescription drugs for their enrollees and make them 
available at the lower of two federally-negotiated prices, was 
defeated by a rollcall vote of 13 yeas to 21 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........  ........  .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott and Mr. Lewis of Georgia, to 
require the Administrator of the Medicare Benefits 
Administration to determine whether an individual is eligible 
for the low-income subsidy, was defeated by a rollcall vote of 
14 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Tanner, to modify how PDP sponsors 
permit pharmacy participation in their plan, was defeated by a 
rollcall vote of 15 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    A substitute amendment by Mr. Stark was defeated by a 
rollcall vote of 14 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made:
    The Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO) which is included below. The 
Committee notes that the CBO has provided a revised estimate 
which takes into account modifications that will be made to the 
bill by an en bloc amendment to be offered by the Chairman of 
the Committee to be incorporated upon adoption of the rule 
providing for floor consideration. The Committee notes that a 
technical change to the disease management demonstration 
project contained in Section 105 was made to limit the cost of 
the provision and keep the bill within the amount provided for 
in the budget resolution.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
Committee bill would result in increased federal direct 
spending over the five-year period and a negligible indirect 
effect on revenues over the five-year period.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 27, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the attached table of the estimated effects on 
spending and revenues of H.R. 4680, the Medicare Rx 2000 Act, 
as ordered reported by the committee on Ways and Means on June 
21, 2000.
    CBO estimates H.R. 4680, as ordered reported, would 
increase direct spending by $0.4 billion in 2001, by $40.7 
billion over the 2001-2005 period, and by $159.9 billion over 
the 2001-2010 period. The increase in budget authority for 
direct spending would be equal to the increase in outlays.
    We also estimate that the bill would reduce revenues from 
income and payroll taxes by $0.2 billion during the 2001-2010 
period. Social Security payroll taxes, which are off-budget, 
account for $0.1 billion of that amount. Subject to 
Appropriation of the necessary amounts, CBO estimates the bill 
would increase discretionary spending by $0.2 billion in 2001 
and by $6.6 billion over the 2001-2010 period.
    The bill contains a number of preemptions of state law that 
would be intergovernmental mandates as defined in the Unfunded 
Mandates Reform Act (UMBRA). CBO cannot estimate the costs of a 
preemption of state taxing authority because of uncertainties 
about market changes. The other preemptions in the bill would 
impose no costs on state, local, or tribal governments.
    The bill contains a private-sector mandate on medigap 
insurers that would bar them from providing coverage of 
prescription drug expenses for certain individuals, but CBO 
estimates that its cost would not exceed the threshold 
specified in UMRA ($109 million in 2000, adjusted annually for 
inflation).
    I hope this information is helpful to you. The CBO staff 
contact is Tom Bradley.
            Sincerely,
                                         Barry B. Anderson,
                                    (For Dan L. Crippen, Director).
    Attachments.

          ESTIMATED BUDGETARY EFFECT OF THE MEDICARE Rx 2000 ACT--AS ORDERED REPORTED ON JUNE 21, 2000
----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in billions of dollars--
                                 -------------------------------------------------------------------------------
                                   2001    2002    2003    2004    2005    2006    2007    2008    2009    2010
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Medicare outlays:
    Payments to qualifying drug        0       0     6.2     7.7     8.6     9.5    10.5    11.5    12.7    14.1
     plans......................
    Disease management project..       0       0     0.1     0.3     0.6     0.1    -0.1       0       0       0
    Coverage and appeals........     0.1     0.1     0.1     0.2     0.2     0.3     0.4     0.5     0.6     0.7
    Medicare+Choice payments....     0.2     1.2     0.2     0.9     1.1     1.1     1.5     1.8     2.2     2.6
    SMI coverage of drugs and        0.1     0.2     0.1     0.1     0.1     0.1     0.1     0.1     0.1     0.2
     biologicals................
    Low-income subsidy for             0       0     5.0     7.9     9.6    10.9    12.1    13.4    14.9    16.5
     premium and cost-sharing
     assistance.................
    SMI transfer to Medicaid for       0       0   (\1\)     0.1     0.1     0.2     0.2     0.3     0.3     0.3
     subsidy administration.....
                                 -------------------------------------------------------------------------------
      Subtotal..................     0.4     1.5    11.9    17.1    20.3    22.2    24.7    27.6    30.8    34.3
Medicaid outlays:
    Change to current-law drug         0       0    -2.6    -3.7    -4.1    -4.6    -5.1    -5.7    -6.3    -7.0
     spending...................
    Part A/B benefits and other        0       0     0.3     0.7     1.2     1.4     1.5     1.6     1.7     1.9
     Medicaid costs.............
    Reductions in payments to          0       0    -0.6    -1.3    -1.2    -0.8    -0.3       0       0       0
     states.....................
    Administration (net of SMI         0     0.1     0.2     0.2     0.2     0.2     0.2     0.2     0.2     0.2
     transfer)..................
                                 -------------------------------------------------------------------------------
      Subtotal..................       0     0.1    -2.7    -4.1    -3.9    -3.8    -3.7    -3.9    -4.4    -4.9
Effect of higher drug prices on
 outlays by federal programs:
    Medicaid....................       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)     0.1     0.1
    FEHB (for annuitants, on-          0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
     budget)....................
                                 -------------------------------------------------------------------------------
      Subtotal, on-budget.......       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)     0.1     0.1     0.1
                                 ===============================================================================
      Total, on-budget outlays..     0.4     1.7     9.2    13.0    16.4    18.5    21.0    23.8    26.4    29.4
Off-budget outlays (FEHB for           0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 postal workers and annuitants).

                                               CHANGES IN REVENUES

Income and Medicare payroll            0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 taxes (on-budget)..............
Social Security payroll taxes          0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 (off-budget)...................
                                 -------------------------------------------------------------------------------
      Total.....................       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)    -0.1

                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Administration of drug benefit       0.2     0.4     0.5     0.5     0.6     0.6     0.6     0.6     0.7     0.7
 and related activities.........
Administration of coverage/        (\1\)     0.1     0.1     0.1     0.1     0.1     0.1     0.1     0.2     0.2
 appeals provision..............
Effect of higher drug prices on        0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 outlays for FEHB (for active
 workers) and other federal
 programs.......................
                                 -------------------------------------------------------------------------------
      Total.....................     0.2     0.4     0.6     0.6     0.7     0.7     0.7     0.8     0.9     0.9
----------------------------------------------------------------------------------------------------------------
\1\ Costs or savings of less than $50 million.

Notes:--SMI = Supplementary Medical Insurance (Part B of Medicare); FEHB = Federal Employees Health Benefits.

Source: Congressional Budget office.


                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 27, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the attached table of the estimated effects on 
spending and revenues of H.R. 4680, the Medicare Rx 2000 Act, 
as ordered reported by the Committee on Ways and Means on June 
21, 2000, and modified by a Manager's Amendment provided on 
June 26, 2000.
    The Manager's Amendment permits the Medicare Benefits 
Administrator to add coverage of drugs otherwise excluded, and 
it caps participation in the Disease Management Project at 
30,000. The amendment also contains several technical 
corrections.
    CBO estimates H.R. 4680, as amended, would increase direct 
spending by $0.4 billion in 2001, by $40.0 billion over the 
2001-2005 period, and by $159 billion over the 2001-2010 
period. The increase in budget authority for direct spending 
would be equal to the increase in outlays.
    We also estimate that the bill would reduce revenues from 
income and payroll taxes by $0.2 billion during the 2001-2010 
period. Social Security payroll taxes, which are off-budget, 
account for $0.1 billion of that amount. Subject to 
appropriation of the necessary amounts, CBO estimates the bill 
would increase discretionary spending by $0.2 billion in 2001 
and by $6.6 billion over the 2001-2010 period.
    CBO is preparing a detailed cost estimate of the bill, 
which we expect to deliver later today.
    I hope this information is helpful to you. The CBO staff 
contact is Tom Bradley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).

                             ESTIMATED BUDGETARY EFFECT OF THE MEDICARE Rx 2000 ACT
----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in billions of dollars--
                                 -------------------------------------------------------------------------------
                                   2001    2002    2003    2004    2005    2006    2007    2008    2009    2010
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Medicare outlays:
    Payments to qualifying drug        0       0     6.2     7.7     8.6     9.5    10.5    11.5    12.7    14.1
     plans......................
    Disease management project..       0       0     0.1     0.1     0.1   (\1\)   (\1\)       0       0       0
    Coverage and appeals........     0.1     0.1     0.1     0.2     0.2     0.3     0.4     0.5     0.6     0.7
    Medicare+Choice payments....     0.2     1.2     0.2     0.9     1.1     1.1     1.5     1.8     2.2     2.6
    SMI coverage of drugs and        0.1     0.2     0.1     0.1     0.1     0.1     0.1     0.1     0.1     0.2
     biologicals................
    Low-income subsidy for             0       0     5.0     7.9     9.6    10.9    12.1    13.4    14.9    16.5
     premium and cost-sharing
     assistance.................
    SMI transfer to Medicaid for       0       0       a     0.1     0.1     0.2     0.2     0.3     0.3     0.3
     subsidy administration.....
                                 -------------------------------------------------------------------------------
      Subtotal..................     0.4     1.5    11.9    16.9    19.9    22.1    24.7    27.6    30.8    34.3
Medicaid outlays:
    Change to current-law drug         0       0    -2.6    -3.7    -4.1    -4.6    -5.1    -5.7    -6.3    -7.0
     spending...................
    Part A/B benefits and other        0       0     0.3     0.7     1.2     1.4     1.5     1.6     1.7     1.9
     Medicaid costs.............
    Reductions in payments to          0       0    -0.6    -1.3    -1.2    -0.8    -0.3       0       0       0
     states.....................
    Administration (net of SMI         0     0.1     0.2     0.2     0.2     0.2     0.2     0.2     0.2     0.2
     transfer)..................
                                 -------------------------------------------------------------------------------
      Subtotal..................       0     0.1    -2.7    -4.1    -3.9    -3.8    -3.7    -3.9    -4.4    -4.9
Effect of higher drug prices on
 outlays by federal programs:
    Medicaid....................       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)     0.1     0.1
    FEHB (for annuitants, on-          0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
     budget)....................
                                 -------------------------------------------------------------------------------
      Subtotal, on-budget.......       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)     0.1     0.1     0.1
                                 ===============================================================================
      Total, on-budget outlays..     0.4     1.7     9.2    12.8    16.0    18.4    21.1    23.8    26.4    29.4
Off-budget outlays (FEHB for           0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 postal workers and annuitants).

                                               CHANGES IN REVENUES

Income and Medicare payroll            0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 taxes (on-budget)..............
Social Security payroll taxes          0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 (off-budget)...................
                                 -------------------------------------------------------------------------------
      Total.....................       0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)    -0.1

                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Administration of drug benefit       0.2     0.4     0.5     0.5     0.6     0.6     0.6     0.6     0.7     0.7
 and related activities.........
Administration of coverage/        (\1\)     0.1     0.1     0.1     0.1     0.1     0.1     0.1     0.2     0.2
 appeals provision..............
Effect of higher drug prices on        0       0   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)   (\1\)
 outlays for FEHB (for active
 workers) & other federal
 programs.......................
                                 -------------------------------------------------------------------------------
      Total.....................     0.2     0.4     0.6     0.6     0.7     0.7     0.7     0.8     0.9     0.9
----------------------------------------------------------------------------------------------------------------
\1\ Costs or savings of less than $50 million.

Notes.--SMI=Supplementary Medical Insurance (Part B of Medicare); FEHB=Federal Employees Health Benefits.

Source: Congressional Budget Office.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
need for this legislation was confirmed by the oversight 
hearings of the Committee and its Subcommittee on Health. The 
hearings were as follows:
    The Subcommittee on Health held a hearing on February 15, 
2000 examining the implications of different proposals aimed at 
helping seniors gain more affordable access to prescription 
drugs. Testimony at the hearing was presented by the General 
Accounting Office and health care experts and advocates.
    On May 11, 2000, the Subcommittee held a hearing to examine 
the Clinton Administration's prescription drug proposal and its 
effect on beneficiary care. Testimony at the hearing was 
provided by the Health Care Financing Administration, the 
Congressional Budget Office, and the General Accounting Office.
    Finally, on June 13, 2000, the Committee held a hearing on 
legislation to cover prescription drugs under Medicare and the 
related effects on the financial outlook of the Medicare 
program. Testimony at the hearing was received from Members of 
Congress and other parties pertinent to the development of 
legislation.

  B. Summary of Findings and Recommendations of the Government Reform 
                               Committee

    In compliance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
oversight findings or recommendations have been submitted to 
the Committee on Government Reform regarding the subject of the 
bill.

                 C. Constitutional Authority Statement

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general welfare of the 
United States * * *'').

       VI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                          SOCIAL SECURITY ACT

           *       *       *       *       *       *       *



     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                            SIMPLIFICATION

           *       *       *       *       *       *       *



SEC. 1108. ADDITIONAL GRANTS TO PUERTO RICO, THE VIRGIN ISLANDS, GUAM, 
                    AND AMERICAN SAMOA; LIMITATION ON TOTAL PAYMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Subject to subsection (g) and section 1935(e)(1)(B), the 
total amount certified by the Secretary under title XIX with 
respect to a fiscal year for payment to--
          (1) * * *

           *       *       *       *       *       *       *


                        civil monetary penalties

  Sec. 1128A. (a) * * *

           *       *       *       *       *       *       *

  (i) For the purposes of this section:
          (1) The term ``State agency'' means the agency 
        established or designated to administer or supervise 
        the administration of the State plan under title XIX of 
        this Act or designated to administer the State's 
        program under title V or title XX of this Act.
          (6) The term ``remuneration'' includes the waiver of 
        coinsurance and deductible amounts (or any part 
        thereof), and transfers of items or services for free 
        or for other than fair market value. The term 
        ``remuneration'' does not include--
                  (A) the waiver of coinsurance and deductible 
                amounts by a person, if--
                          [(i) the waiver is not offered as 
                        part of any advertisement or 
                        solicitation;
                          [(ii) the person does not routinely 
                        waive coinsurance or deductible 
                        amounts; and
                          [(iii) the person--
                                  [(I) waives the coinsurance 
                                and deductible amounts after 
                                determining in good faith that 
                                the individual is in financial 
                                need; or
                                  [(II) fails to collect 
                                coinsurance or deductible 
                                amounts after making reasonable 
                                collection efforts;]
                          (i) the waiver is offered as a part 
                        of a supplemental insurance policy or 
                        retiree health plan;
                          (ii) the waiver is not offered as 
                        part of any advertisement or 
                        solicitation, other than in conjunction 
                        with a policy or plan described in 
                        clause (i);
                          (iii) the person waives the 
                        coinsurance and deductible amount after 
                        the beneficiary informs the person that 
                        payment of the coinsurance or 
                        deductible amount would pose a 
                        financial hardship for the individual; 
                        or
                          (iv) the person determines that the 
                        coinsurance and deductible amount would 
                        not justify the costs of collection.

           *       *       *       *       *       *       *


   criminal penalties for acts involving federal health care programs

  Sec. 1128B. (a) * * *
  (b)(1) Whoever knowingly and willfully solicits or receives 
any remuneration (including any kickback, bribe, or rebate) 
directly or indirectly, overtly or covertly, in cash or in 
kind--
          (A) * * *

           *       *       *       *       *       *       *

          (4) In this section, the term ``remuneration'' 
        includes the meaning given such term in section 
        1128A(i)(6).

           *       *       *       *       *       *       *


        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *


                    explanation of medicare benefits

  Sec. 1806. (a) In General.--The Secretary shall furnish to 
each individual for whom payment has been made under this title 
(or would be made without regard to any deductible) a statement 
which--
          (1) lists the item or service for which payment has 
        been made and the amount of such payment for each item 
        or service; [and]
          (2) lists with respect to each item or service 
        furnished the amount of the individual's liability for 
        payment;
          [(2)] (3) includes a notice of the individual's right 
        to request an itemized statement (as provided in 
        subsection (b))[.]; and
          (4) includes the toll-free telephone number (1-800-
        MEDICAR(E)) (1-800-633-4227) for information and 
        questions concerning the statement, liability of the 
        individual for payment, and appeal rights.

           *       *       *       *       *       *       *



                    medicare benefits administration


  Sec. 1807. (a) Establishment.--There is established within 
the Department of Health and Human Services an agency to be 
known as the Medicare Benefits Administration.
  (b) Administrator and Deputy Administrator.--
          (1) Administrator.--
                  (A) In general.--The Medicare Benefits 
                Administration shall be headed by an 
                Administrator (in this section referred to as 
                the ``Administrator'') who shall be appointed 
                by the President, by and with the advice and 
                consent of the Senate. The Administrator shall 
                be in direct line of authority to the 
                Secretary.
                  (B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level 
                III of the Executive Schedule under section 
                5314 of title 5, United States Code.
                  (C) Term of office.--The Administrator shall 
                be appointed for a term of 5 years. In any case 
                in which a successor does not take office at 
                the end of an Administrator's term of office, 
                that Administrator may continue in office until 
                the entry upon office of such a successor. An 
                Administrator appointed to a term of office 
                after the commencement of such term may serve 
                under such appointment only for the remainder 
                of such term.
                  (D) General authority.--The Administrator 
                shall be responsible for the exercise of all 
                powers and the discharge of all duties of the 
                Administration, and shall have authority and 
                control over all personnel and activities 
                thereof.
                  (E) Rulemaking authority.--The Administrator 
                may prescribe such rules and regulations as the 
                Administrator determines necessary or 
                appropriate to carry out the functions of the 
                Administration. The regulations prescribed by 
                the Administrator shall be subject to the 
                rulemaking procedures established under section 
                553 of title 5, United States Code.
                  (F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational 
                units or components within the Administration 
                as the Administrator considers necessary or 
                appropriate, except that this subparagraph 
                shall not apply with respect to any unit, 
                component, or provision provided for by this 
                section.
                  (G) Authority to delegate.--The Administrator 
                may assign duties, and delegate, or authorize 
                successive redelegations of, authority to act 
                and to render decisions, to such officers and 
                employees of the Administration as the 
                Administrator may find necessary. Within the 
                limitations of such delegations, redelegations, 
                or assignments, all official acts and decisions 
                of such officers and employees shall have the 
                same force and effect as though performed or 
                rendered by the Administrator.
          (2) Deputy administrator.--
                  (A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits 
                Administration who shall be appointed by the 
                President, by and with the advice and consent 
                of the Senate.
                  (B) Compensation.--The Deputy Administrator 
                shall be paid at the rate of basic pay payable 
                for level IV of the Executive Schedule under 
                section 5315 of title 5, United States Code.
                  (C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 5 years. In 
                any case in which a successor does not take 
                office at the end of a Deputy Administrator's 
                term of office, such Deputy Administrator may 
                continue in office until the entry upon office 
                of such a successor. A Deputy Administrator 
                appointed to a term of office after the 
                commencement of such term may serve under such 
                appointment only for the remainder of such 
                term.
                  (D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as 
                the Administrator shall from time to time 
                assign or delegate. The Deputy Administrator 
                shall be Acting Administrator of the 
                Administration during the absence or disability 
                of the Administrator and, unless the President 
                designates another officer of the Government as 
                Acting Administrator, in the event of a vacancy 
                in the office of the Administrator.
          (3) Secretarial coordination of program 
        administration.--The Secretary shall ensure appropriate 
        coordination between the Administrator and the 
        Administrator of the Health Care Financing 
        Administration in carrying out the programs under this 
        title.
  (c) Duties; Administrative Provisions.--
          (1) Duties.--
                  (A) General duties.--The Administrator shall 
                carry out parts C and D, including--
                          (i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under 
                        part C, including the offering of 
                        qualified prescription drug coverage 
                        under such plans; and
                          (ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors 
                        for the offering of prescription drug 
                        plans under part D.
                  (B) Other duties.--The Administrator shall 
                carry out any duty provided for under part C or 
                part D, including demonstration projects 
                carried out in part or in whole under such 
                parts, the programs of all-inclusive care for 
                the elderly (PACE program) under section 1894, 
                the social health maintenance organization 
                (SHMO) demonstration projects (referred to in 
                section 4104(c) of the Balanced Budget Act of 
                1997), and through a Medicare+Choice project 
                that demonstrates the application of capitation 
                payment rates for frail elderly medicare 
                beneficiaries through the use of a 
                interdisciplinary team and through the 
                provision of primary care services to such 
                beneficiaries by means of such a team at the 
                nursing facility involved).
                  (C) Noninterference.--In carrying out its 
                duties with respect to the provision of 
                qualified prescription drug coverage to 
                beneficiaries under this title, the Administrator 
                may not--
                          (i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient 
                        drugs;
                          (ii) interfere in any way with 
                        negotiations between PDP sponsors and 
                        Medicare+Choice organizations and drug 
                        manufacturers, wholesalers, or other 
                        suppliers of covered outpatient drugs; 
                        and
                          (iii) otherwise interfere with the 
                        competitive nature of providing such 
                        coverage through such sponsors and 
                        organizations.
                  (D) Annual reports.--Not later March 31 of 
                each year, the Administrator shall submit to 
                Congress and the President a report on the 
                administration of parts C and D during the 
                previous fiscal year.
          (2) Staff.--
                  (A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without 
                regard to chapter 31 of title 5, United States 
                Code, such officers and employees as are 
                necessary to administer the activities to be 
                carried out through the Medicare Benefits 
                Administration.
                  (B) Flexibility with respect to 
                compensation.--
                          (i) In general.--The staff of the 
                        Medicare Benefits Administration shall, 
                        subject to clause (ii), be paid without 
                        regard to the provisions of chapter 51 
                        and chapter 53 of such title (relating 
                        to classification and schedule pay 
                        rates).
                          (ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  (C) Limitation on full-time equivalent 
                staffing for current hcfa functions being 
                transferred.--The Administrator may not employ 
                under this paragraph a number of full-time 
                equivalent employees, to carry out functions 
                that were previously conducted by the Health 
                Care Financing Administration and that are 
                conducted by the Administrator by reason of 
                this section, that exceeds the number of such 
                full-time equivalent employees authorized to be 
                employed by the Health Care Financing 
                Administration to conduct such functions as of 
                the date of the enactment of this Act.
          (3) Redelegation of certain functions of the health 
        care financing administration.--
                  (A) In general.--The Secretary, the 
                Administrator, and the Administrator of the 
                Health Care Financing Administration shall 
                establish an appropriate transition of 
                responsibility in order to redelegate the 
                administration of part C from the Secretary and 
                the Administrator of the Health Care Financing 
                Administration to the Administrator as is 
                appropriate to carry out the purposes of this 
                section.
                  (B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator 
                of the Health Care Financing Administration 
                transfers to the Administrator of the Medicare 
                Benefits Administration such information and 
                data in the possession of the Administrator of 
                the Health Care Financing Administration as the 
                Administrator of the Medicare Benefits 
                Administration requires to carry out the duties 
                described in paragraph (1).
                  (C) Construction.--Insofar as a 
                responsibility of the Secretary or the 
                Administrator of the Health Care Financing 
                Administration is redelegated to the 
                Administrator under this section, any reference 
                to the Secretary or the Administrator of the 
                Health Care Financing Administration in this 
                title or title XI with respect to such 
                responsibility is deemed to be a reference to 
                the Administrator.
  (d) Office of Beneficiary Assistance.--
          (1) Establishment.--The Secretary shall establish 
        within the Medicare Benefits Administration an Office 
        of Beneficiary Assistance to carry out functions 
        relating to medicare beneficiaries under this title, 
        including making determinations of eligibility of 
        individuals for benefits under this title, providing 
        for enrollment of medicare beneficiaries under this 
        title, and the functions described in paragraph (2). 
        The Office shall be separate operating division within 
        the Administration.
          (2) Dissemination of information on benefits and 
        appeals rights.--
                  (A) Dissemination of benefits information.--
                The Office of Beneficiary Assistance shall 
                disseminate to medicare beneficiaries, by mail, 
                by posting on the Internet site of the Medicare 
                Benefits Administration and through the toll-
                free telephone number provided for under 
                section 1804(b), information with respect to 
                the following:
                          (i) Benefits, and limitations on 
                        payment (including cost-sharing, stop-
                        loss provisions, and formulary 
                        restrictions) under parts C and D.
                          (ii) Benefits, and limitations on 
                        payment under parts A and B, including 
                        information on medicare supplemental 
                        policies under section 1882.
                Such information shall be presented in a manner 
                so that medicare beneficiaries may compare 
                benefits under parts A, B, D, and medicare 
                supplemental policies with benefits under 
                Medicare+Choice plans under part C.
                  (B) Dissemination of appeals rights 
                information.--The Office of Beneficiary 
                Assistance shall disseminate to medicare 
                beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural 
                rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A 
                and B, the Medicare+Choice program under part 
                C, and the Voluntary Prescription Drug Benefit 
                Program under part D.
          (3) Medicare ombudsman.--
                  (A) In general.--Within the Office of 
                Beneficiary Assistance, there shall be a 
                Medicare Ombudsman, appointed by the Secretary 
                from among individuals with expertise and experience 
                in the fields of health care and advocacy, to carry 
                out the duties described in subparagraph (B).
                  (B) Duties.--The Medicare Ombudsman shall--
                          (i) receive complaints, grievances, 
                        and requests for information submitted 
                        by a medicare beneficiary, with respect 
                        to any aspect of the medicare program;
                          (ii) provide assistance with respect 
                        to complaints, grievances, and requests 
                        referred to in clause (i), including--
                                  (I) assistance in collecting 
                                relevant information for such 
                                beneficiaries, to seek an 
                                appeal of a decision or 
                                determination made by a fiscal 
                                intermediary, carrier, 
                                Medicare+Choice organization, a 
                                PDP sponsor under part D, or 
                                the Secretary; and
                                  (II) assistance to such 
                                beneficiaries with any problems 
                                arising from disenrollment from 
                                a Medicare+Choice plan under 
                                part C or a prescription drug 
                                plan under part D; and
                          (iii) submit annual reports to 
                        Congress, the Secretary, and the 
                        Medicare Policy Advisory Board 
                        describing the activities of the 
                        Office, and including such 
                        recommendations for improvement in the 
                        administration of this title as the 
                        Ombudsman determines appropriate.
                  (C) Coordination with state ombudsman 
                programs and consumer organizations.--The 
                Medicare Ombudsman shall, to the extent 
                appropriate, coordinate with State medical 
                Ombudsman programs, and with State- and 
                community-based consumer organizations, to--
                          (i) provide information about the 
                        medicare program; and
                          (ii) conduct outreach to educate 
                        medicare beneficiaries with respect to 
                        manners in which problems under the 
                        medicare program may be resolved or 
                        avoided.
  (e) Medicare Policy Advisory Board.--
          (1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy 
        Advisory Board (in this section referred to the 
        ``Board''). The Board shall advise, consult with, and 
        make recommendations to the Administrator of the 
        Medicare Benefits Administration with respect to the 
        administration of parts C and D, including the review 
        of payment policies under such parts.
          (2) Reports.--
                  (A) In general.--With respect to matters of 
                the administration of parts C and D, the Board 
                shall submit to Congress and to the 
                Administrator of the Medicare Benefits 
                Administration such reports as the Board 
                determines appropriate. Each such report may 
                contain such recommendations as the Board 
                determines appropriate for legislative or 
                administrative changes to improve the 
                administration of such parts, including the 
                topics described in subparagraph (B). Each such 
                report shall be published in the Federal 
                Register.
                  (B) Topics described.--Reports required under 
                subparagraph (A) may include the following 
                topics:
                          (i) Fostering competition.--
                        Recommendations or proposals to 
                        increase competition under parts C and 
                        D for services furnished to medicare 
                        beneficiaries.
                          (ii) Education and enrollment.--
                        Recommendations for the improvement to 
                        efforts to provide medicare 
                        beneficiaries information and education 
                        on the program under this title, and 
                        specifically parts C and D, and the 
                        program for enrollment under the title.
                          (iii) Implementation of risk-
                        adjustment.--Evaluation of the 
                        implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that 
                        section to Medicare+Choice 
                        organizations offering Medicare+Choice 
                        plans that accounts for variations in 
                        per capita costs based on health status 
                        and other demographic factors.
                          (iv) Disease management programs.--
                        Recommendations on the incorporation of 
                        disease management programs under parts 
                        C and D.
                          (v) Rural access.--Recommendations to 
                        improve competition and access to plans 
                        under parts C and D in rural areas.
                  (C) Maintaining independence of board.--The 
                Board shall directly submit to Congress reports 
                required under subparagraph (A). No officer or 
                agency of the United States may require the 
                Board to submit to any officer or agency of the 
                United States for approval, comments, or 
                review, prior to the submission to Congress of 
                such reports.
          (3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted 
        by the Board under paragraph (2)(A), not later than 90 
        days after the report is submitted, the Administrator 
        of the Medicare Benefits Administration shall submit to 
        Congress and the President an analysis of 
        recommendations made by the Board in such report. Each 
        such analysis shall be published in the Federal 
        Register.
          (4) Membership.--
                  (A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall 
                consist of 7 members to be appointed as 
                follows:
                          (i) 3 members shall be appointed by 
                        the President.
                          (ii) 2 members shall be appointed by 
                        the Speaker of the House of 
                        Representatives, with the advice of the 
                        chairman and the ranking minority 
                        member of the Committees on Ways and 
                        Means and on Commerce of the House of 
                        Representatives.
                          (iii) 2 members shall be appointed by 
                        the President pro tempore of the Senate 
                        with the advice of the chairman and the 
                        ranking minority member of the Senate 
                        Committee on Finance.
                  (B) Qualifications.--The members shall be 
                chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their education 
                and experience in health care benefits management, 
                exceptionally qualified to perform the duties of 
                members of the Board.
                  (C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the 
                United States may serve as a member of the 
                Board.
          (5) Compensation.--Members of the Board shall 
        receive, for each day (including travel time) they are 
        engaged in the performance of the functions of the 
        board, compensation at rates not to exceed the daily 
        equivalent to the annual rate in effect for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code.
          (6) Terms of office.--
                  (A) In general.--The term of office of 
                members of the Board shall be 3 years.
                  (B) Terms of initial appointees.--As 
                designated by the President at the time of 
                appointment, of the members first appointed--
                          (i) 1 shall be appointed for a term 
                        of 1 year;
                          (ii) 3 shall be appointed for terms 
                        of 2 years; and
                          (iii) 3 shall be appointed for terms 
                        of 3 years.
                  (C) Reappointments.--Any person appointed as 
                a member of the Board may not serve for more 
                than 8 years.
                  (D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the 
                term for which the member's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Board shall be filled in the manner in 
                which the original appointment was made.
          (7) Chair.--The Chair of the Board shall be elected 
        by the members. The term of office of the Chair shall 
        be 3 years.
          (8) Meetings.--The Board shall meet at the call of 
        the Chair, but in no event less than 3 times during 
        each fiscal year.
          (9) Director and staff.--
                  (A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the 
                Chair.
                  (B) In general.--With the approval of the 
                Board, the Director may appoint, without regard 
                to chapter 31 of title 5, United States Code, 
                such additional personnel as the Director 
                considers appropriate.
                  (C) Flexibility with respect to 
                compensation.--
                          (i) In general.--The Director and 
                        staff of the Board shall, subject to 
                        clause (ii), be paid without regard to 
                        the provisions of chapter 51 and 
                        chapter 53 of such title (relating to 
                        classification and schedule pay rates).
                          (ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  (D) Assistance from the administrator of the 
                medicare benefits administration.--The 
                Administrator of the Medicare Benefits 
                Administration shall make available to the 
                Board such information and other assistance as 
                it may require to carry out its functions.
          (10) Contract authority.--The Board may contract with 
        and compensate government and private agencies or 
        persons to carry out its duties under this subsection, 
        without regard to section 3709 of the Revised Statutes 
        (41 U.S.C. 5).
  (f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund 
and from the Federal Supplementary Medical Insurance Trust Fund 
(including the Medicare Prescription Drug Account), such sums 
as are necessary to carry out this section.

           *       *       *       *       *       *       *


    Part A--Hospital Insurance Benefits for the Aged and Disabled

           *       *       *       *       *       *       *


                 FEDERAL HOSPITAL INSURANCE TRUST FUND

  Sec. 1817. (a) * * *
  (b) With respect to the Trust Fund, there is hereby created a 
body to be known as the Board of Trustees of the Trust Fund 
(hereinafter in this section referred to as the ``Board of 
Trustees'') composed of the Commissioner of Social Security, 
the Secretary of the Treasury, the Secretary of Labor, [and the 
Secretary of Health and Human Services, all ex officio,] the 
Secretary of Health and Human Services, and the Administrator 
of the Medicare Benefits Administration, all ex officio, and of 
two members of the public (both of whom may not be from the 
same political party), who shall be nominated by the President 
for a term of four years and subject to confirmation by the 
Senate. A member of the Board of Trustees serving as a member 
of the public and nominated and confirmed to fill a vacancy 
occurring during a term shall be nominated and confirmed only 
for the remainder of such term. An individual nominated and 
confirmed as a member of the public may serve in such position 
after the expiration of such member's term until the earlier of 
the time at which the member's successor takes office or the 
time at which a report of the Board is first issued under 
paragraph (2) after the expiration of the member's term. The 
Secretary of the Treasury shall be the Managing Trustee of the 
Board of Trustees (hereinafter in this section referred to as 
the ``Managing Trustee''). The Administrator of the Health Care 
Financing Administration shall serve as the Secretary of the 
Board of Trustees. The Board of Trustees shall meet not less 
frequently than once each calendar year. It shall be the duty 
of the Board of Trustees to--
          (1) * * *

           *       *       *       *       *       *       *

  (l) Combined Report on Operation and Status of the Trust Fund 
and the Federal Supplementary Medical Insurance Trust Fund.--
          (1) In general.--In addition to the duty of the Board 
        of Trustees to report to Congress under subsection (b), 
        on the date the Board submits the report required under 
        subsection (b)(2), the Board shall submit to Congress a 
        report on the operation and status of the Trust Fund 
        and the Federal Supplementary Medical Insurance Trust 
        Fund established under section 1841 (in this subsection 
        referred to as the ``Trust Funds''). Such report shall 
        included the following information:
                  (A) Overall spending from the general fund of 
                the treasury.--A statement of total amounts 
                obligated during the preceding fiscal year from 
                the General Revenues of the Treasury to the 
                Trust Funds for payment for benefits covered 
                under this title, stated in terms of the total 
                amount and in terms of the percentage such 
                amount bears to all other amounts obligated 
                from such General Revenues during such fiscal 
                year.
                  (B) Historical overview of spending.--From 
                the date of the inception of the program of 
                insurance under this title through the fiscal 
                year involved, a statement of the total amounts 
                referred to in subparagraph (A).
                  (C) 10-year and 50-year projections.--An 
                estimate of total amounts referred to in 
                subparagraph (A) required to be obligated for 
                payment for benefits covered under this title 
                for each of the 10 fiscal years succeeding the 
                fiscal year involved and for the 50-year period 
                beginning with the succeeding fiscal year.
                  (D) Relation to gdp growth.--A comparison of 
                the rate of growth of the total amounts 
                referred to in subparagraph (A) to the rate of 
                growth in the gross domestic product for the 
                same period.
          (2) Publication.--Each report submitted under 
        paragraph (1) shall be published by the Committee on 
        Ways and Means as a public document and shall be made 
        available by such Committee on the Internet.

           *       *       *       *       *       *       *


   Part B--Supplementary Medical Insurance Benefits for the Aged and 
                               Disabled

           *       *       *       *       *       *       *


           FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

  Sec. 1841. (a) There is hereby created on the books of the 
Treasury of the United States a trust fund to be known as the 
``Federal Supplementary Medical Insurance Trust Fund'' 
(hereinafter in this section referred to as the ``Trust 
Fund''). The Trust Fund shall consist of such gifts and 
bequests as may be made as provided in section 201(i)(1), [and] 
such amounts as may be deposited in, or appropriated to, such 
fund as provided in this part and such amounts as may be 
deposited in, or appropriated to, the Medicare Prescription 
Drug Account established by section 1860I.
  (b) With respect to the Trust Fund, there is hereby created a 
body to be known as the Board of Trustees of the Trust Fund 
(hereinafter in this section referred to as the ``Board of 
Trustees'') composed of the Commissioner of Social Security, 
Secretary of the Treasury, the Secretary of Labor, [and the 
Secretary of Health and Human Services, all ex officio,] the 
Secretary of Health and Human Services, and the Administrator 
of the Medicare Benefits Administration, all ex officio, and of 
two members of the public (both of whom may not be from the 
same political party), who shall be nominated by the President 
for a term of four years and subject to confirmation by the 
Senate. A member of the Board of Trustees serving as a member 
of the public and nominated and confirmed to fill a vacancy 
occurring during a term shall be nominated and confirmed only 
for the remainder of such term. An individual nominated and 
confirmed as a member of the public may serve in such position 
after the expiration of such member's term until the earlier of 
the time at which the member's successor takes office or the 
time at which a report of the Board is first issued under 
paragraph (2) after the expiration of the member's term. The 
Secretary of the Treasury shall be the Managing Trustee of the 
Board of Trustees (hereinafter in this section referred to as 
the ``Managing Trustee''). The Administrator of the Health Care 
Financing Administration shall serve as the Secretary of the 
Board of Trustees. The Board of Trustees shall meet not less 
frequently than once each calendar year. It shall be the duty 
of the Board of Trustees to--
          (1) * * *

           *       *       *       *       *       *       *

  (g) The Managing Trustee shall pay from time to time from the 
Trust Fund such amounts as the Secretary of Health and Human 
Services certifies are necessary to make the payments provided 
for by this part, the payments provided for under part D (in 
which case the payments shall come from the Medicare 
Prescription Drug Account in the Trust Fund), and the payments 
with respect to administrative expenses in accordance with 
section 201(g)(1).

           *       *       *       *       *       *       *


                    Part C--Medicare+Choice Program

                 eligibility, election, and enrollment

  Sec. 1851. (a) Choice of Medicare Benefits Through 
Medicare+Choice Plans.--
          (1) In general.--Subject to the provisions of this 
        section, each Medicare+Choice eligible individual (as 
        defined in paragraph (3)) is entitled to elect to 
        receive benefits (other than qualified prescription 
        drug benefits) under this title--
                  (A) through the original medicare fee-for-
                service program under parts A and B, or
                  (B) through enrollment in a Medicare+Choice 
                plan under this part[.],
        and may elect qualified prescription drug coverage in 
        accordance with section 1860A.

           *       *       *       *       *       *       *

  (g) Guaranteed Issue and Renewal.--
          (1) In general.--Except as provided in this 
        subsection and section 1860A(c)(2)(B), a 
        Medicare+Choice organizationshall provide that at any 
time during which elections are accepted under this section with 
respect to a Medicare+Choice plan offered by the organization, the 
organization will accept without restrictions individuals who are 
eligible to make such election.

           *       *       *       *       *       *       *

  (j) Availability of Prescription Drug Benefits.--
          (1) In general.--A Medicare+Choice organization may 
        not offer prescription drug coverage (other than that 
        required under parts A and B) to an enrollee under a 
        Medicare+Choice plan unless such drug coverage is at 
        least qualified prescription drug coverage and unless 
        the requirements of this subsection with respect to 
        such coverage are met.
          (2) Compliance with additional beneficiary 
        protections.--With respect to the offering of qualified 
        prescription drug coverage by a Medicare+Choice 
        organization under a Medicare+Choice plan, the 
        organization and plan shall meet the requirements of 
        section 1860C, including requirements relating to 
        information dissemination and grievance and appeals, in 
        the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D. The Medicare 
        Benefits Administrator shall waive such requirements to 
        the extent the Administrator determines that such 
        requirements duplicate requirements otherwise 
        applicable to the organization or plan under this part.
          (3) Treatment of coverage.--Except as provided in 
        this subsection, qualified prescription drug coverage 
        offered under this subsection shall be treated under 
        this part in the same manner as supplemental health 
        care benefits described in section 1852(a)(3)(A).
          (4) Availability of premium and cost-sharing 
        subsidies for low-income enrollees and reinsurance 
        subsidy payments for organizations.--For provisions--
                  (A) providing premium and cost-sharing 
                subsidies to low-income individuals receiving 
                qualified prescription drug coverage through a 
                Medicare+Choice plan, see section 1860G; and
                  (B) providing a Medicare+Choice organization 
                with reinsurance subsidy payments for providing 
                qualified prescription drug coverage under this 
                part, see section 1860H.
          (5) Specification of separate and standard premium.--
                  (A) In general.--For purposes of applying 
                section 1854 and section 1860G(b)(2)(B) with 
                respect to qualified prescription drug coverage 
                offered under this subsection under a plan, the 
                Medicare+Choice organization shall compute and 
                publish the following:
                          (i) Separate prescription drug 
                        premium.--A premium for prescription 
                        drug benefits that constitute qualified 
                        prescription drug coverage that is 
                        separate from other coverage under the 
                        plan.
                          (ii) Portion of coverage attributable 
                        to standard benefits.--The ratio of the 
                        actuarial value of standard coverage to 
                        the actuarial value of the qualified 
                        prescription drug coverage offered 
                        under the plan.
                          (iii) Portion of premium attributable 
                        to standard benefits.--A standard 
                        premium equal to the product of the 
                        premium described in clause (i) and the 
                        ratio under clause (ii).
                The premium under clause (i) shall be compute 
                without regard to any reduction in the premium 
                permitted under subparagraph (B).
                  (B) Reduction of premiums allowed.--Nothing 
                in this subsection shall be construed as 
                preventing a Medicare+Choice organization from 
                reducing the amount of a premium charged for 
                prescription drug coverage because of the 
                application of section 1854(f)(1)(A) to other 
                coverage.
                  (C) Acceptance of reference premium as full 
                premium if no standard (or equivalent) coverage 
                in an area.--For requirement to accept 
                reference premium as full premium if there is 
                no standard (or equivalent) coverage in the 
                area of a Medicare+Choice plan, see section 
                1860F(d).
          (6) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the 
        annual, coordinated election period under subsection 
        (e)(3)(B) for 2003 shall be the 6-month period 
        beginning with November 2002.
          (7) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms 
        ``qualified prescription drug coverage'' and ``standard 
        coverage'' have the meanings given such terms in 
        section 1860B.

           *       *       *       *       *       *       *


                  benefits and beneficiary protections

  Sec. 1852. (a) * * *

           *       *       *       *       *       *       *

  (g) Coverage Determinations, Reconsiderations, and Appeals.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Independent review of certain coverage denials.--
        The Secretary shall contract with an independent, 
        outside entity to review and resolve in a timely manner 
        reconsiderations that affirm denial of coverage, in 
        whole or in part. The provisions of section 1869(c)(5) 
        shall apply to independent outside entities under 
        contract with the Secretary under this paragraph.

           *       *       *       *       *       *       *


               payments to medicare+choice organizations

  Sec. 1853. (a) Payments to Organizations.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Establishment of risk adjustment factors.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Initial implementation.--
                          (i) * * *
                          (ii) Phase-in.--Such risk adjustment 
                        methodology shall be implemented in a 
                        phased-in manner so that the 
                        methodology insofar as it makes 
                        adjustments to capitation rates for 
                        health status applies to--
                                  (I) * * *
                                  (II) not more than 20 percent 
                                of such capitation rate in 
                                2002[.];
                        and, beginning in 2004, insofar as such 
                        risk adjustment is based on data from 
                        all settings, the methodology shall be 
                        phased in equal increments over a 10 
                        year period, beginning with 2004 or (if 
                        later) the first year in which such 
                        data is used.

           *       *       *       *       *       *       *

  (c) Calculation of Annual Medicare+Choice Capitation Rates.--
          (1) In general.--For purposes of this part, subject 
        to paragraphs (6)(C) and (7), each annual 
        Medicare+Choice capitation rate, for a Medicare+Choice 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraph (A), (B), [or 
        (C)] (C), or (D):
                  (A) Blended capitation rate.--The sum of--
                          (i) * * *
                          (ii) the national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national Medicare+Choice 
                        capitation rate, as determined under 
                        paragraph (4) for the year,
                multiplied (for years before 2002) by the 
                budget neutrality adjustment factor determined 
                under paragraph (5).
                  (B) Minimum amount.--12 multiplied by the 
                following amount:
                          (i) * * *
                          [(ii) For a succeeding year] (ii)(I) 
                        Subject to subclause (II), for a 
                        succeeding year, the minimum amount 
                        specified in this clause (or clause 
                        (i)) for the preceding year increased 
                        by the national per capita 
                        Medicare+Choice growth percentage, 
                        described in paragraph (6)(A) for that 
                        succeeding year.
                          (II) For 2002 for any of the 50 
                        States and the District of Columbia, 
                        $450.
                  (C) Minimum percentage increase.--
                          (i) * * *
                          [(ii) For a subsequent year] (ii)(I) 
                        Subject to subclause (II), for a 
                        subsequent year, 102 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        the previous year.
                          (II) During 2002, 2003, 2004, and 
                        2005, in the case of a Medicare+Choice 
                        payment area in which there is no more 
                        than 1 contract entered into under this 
                        part as of July 1 before the beginning 
                        of the year, 102.5 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        the previous year.
                  (D) Permitting higher rates through 
                negotiation.--
                          (i) In general.--For each year 
                        beginning with 2004, in the case of a 
                        Medicare+Choice payment area for which 
                        the Medicare+Choice capitation rate 
                        under this paragraph would otherwise be 
                        less than the United States per capita 
                        cost (USPCC), as calculated by the 
                        Secretary, a Medicare+Choice 
                        organization may negotiate with the 
                        Medicare Benefits Administrator an 
                        annual per capita rate that--
                                  (I) reflects an annual rate 
                                of increase up to the rate of 
                                increase specified in clause 
                                (ii);
                                  (II) takes into account 
                                audited current data supplied 
                                by the organization on its 
                                adjusted community rate (as 
                                defined in section 1854(f)(3)); 
                                and
                                  (III) does not exceed the 
                                United States per capita cost, 
                                as projected by the Secretary 
                                for the year involved.
                          (ii) Maximum rate described.--The 
                        rate of increase specified in this 
                        clause for a year is the rate of 
                        inflation in private health insurance 
                        for the year involved, as projected by 
                        the Medicare Benefits Administrator, 
                        and includes such adjustments as may be 
                        necessary--
                                  (I) to reflect the 
                                demographic characteristics in 
                                the population under this 
                                title; and
                                  (II) to eliminate the costs 
                                of prescription drugs.
                          (iii) Adjustments for over or under 
                        projections.--If subparagraph is 
                        applied to an organization and payment 
                        area for a year, in applying this 
                        subparagraph for a subsequent year the 
                        provisions of paragraph (6)(C) shall 
                        apply in the same manner as such 
                        provisions apply under this paragraph.
          (2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) for a year after 2002, the ``area-
                specific percentage'' is 50 percent and the 
                ``national percentage'' is 50 percent[.];
        except that a Medicare+Choice organization may elect to 
        apply subparagraph (F) (rather than subparagraph (E)) 
        for 2002.

           *       *       *       *       *       *       *

          (5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year (before 
        2002), the Secretary shall determine a budget 
        neutrality adjustment factor so that the aggregate of 
        the payments under this part (other than those 
        attributable to subsection (i)) shall equal the 
        aggregate payments that would have been made under 
        this part if payment were based entirely on area-specific 
        capitation rates.
          (6) National per capita medicare+choice growth 
        percentage defined.--
                  (A) * * *
                  (B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iv) [for 2001, 0.5 percentage 
                        points] for 2001, 0 percentage points,
                          (v) [for 2002, 0.3 percentage points] 
                        for 2002, 0 percentage points, and

           *       *       *       *       *       *       *


          Part D--Voluntary Prescription Drug Benefit Program

SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

  (a) Provision of Qualified Prescription Drug Coverage Through 
Enrollment in Plans.--Subject to the succeeding provisions of 
this part, each individual who is enrolled under part B is 
entitled to obtain qualified prescription drug coverage 
(described in section 1860B(a)) as follows:
          (1) Medicare+choice plan.--If the individual is 
        eligible to enroll in a Medicare+Choice plan that 
        provides qualified prescription drug coverage under 
        section 1851(j), the individual may enroll in the plan 
        and obtain coverage through such plan.
          (2) Prescription drug plan.--If the individual is not 
        enrolled in a Medicare+Choice plan that provides 
        qualified prescription drug coverage, the individual 
        may enroll under this part in a prescription drug plan 
        (as defined in section 1860C(a)).
Such individuals shall have a choice of such plans under 
section 1860E(d).
  (b) General Election Procedures.--
          (1) In general.--An individual may elect to enroll in 
        a prescription drug plan under this part, or elect the 
        option of qualified prescription drug coverage under a 
        Medicare+Choice plan under part C, and change such 
        election only in such manner and form as may be 
        prescribed by regulations of the Administrator of the 
        Medicare Benefits Administration (appointed under 
        section 1807(b)) (in this part referred to as the 
        ``Medicare Benefits Administrator'') and only during an 
        election period prescribed in or under this subsection.
          (2) Election periods.--
                  (A) In general.--Except as provided in this 
                paragraph, the election periods under this 
                subsection shall be the same as the coverage 
                election periods under the Medicare+Choice 
                program under section 1851(e), including--
                          (i) annual coordinated election 
                        periods; and
                          (ii) special election periods.
                In applying the last sentence of section 
                1851(e)(4) (relating to discontinuance of a 
                Medicare+Choice election during the first year 
                of eligibility) under this subparagraph, in the 
                case of an election described in such section 
                in which the individual had elected or is 
                provided qualified prescription drug coverage 
                at the time of such first enrollment, the 
                individual shall be permitted to enroll in a 
                prescription drug plan under this part at the 
                time of the election of coverage under the 
                original fee-for-service plan.
                  (B) Initial election periods.--
                          (i) Individuals currently covered.--
                        In the case of an individual who is 
                        enrolled under part B as of November 1, 
                        2002, there shall be an initial 
                        election period of 6 months beginning 
                        on that date.
                          (ii) Individual covered in future.--
                        In the case of an individual who is 
                        first enrolled under part B after 
                        November 1, 2002, there shall be an 
                        initial election period which is the 
                        same as the initial enrollment period 
                        under section 1837(d).
                  (C) Additional special election periods.--The 
                Medicare Benefits Administrator shall establish 
                special election periods--
                          (i) in cases of individuals who have 
                        and involuntarily lose prescription 
                        drug coverage described in subsection 
                        (c)(2)(C);
                          (ii) in cases described in section 
                        1837(h) (relating to errors in 
                        enrollment), in the same manner as such 
                        section applies to part B; and
                          (iii) in the case of an individual 
                        who meets such exceptional conditions 
                        (including conditions recognized under 
                        section 1851(d)(4)(D)) as the 
                        Administrator may provide.
                  (D) One-time enrollment permitted for current 
                part a only beneficiaries.--In the case of an 
                individual who as of November 1, 2002--
                          (i) is entitled to benefits under 
                        part A; and
                          (ii) is not (and has not previously 
                        been) enrolled under part B;
                the individual shall be eligible to enroll in a 
                prescription drug plan under this part but only 
                during the period described in subparagraph 
                (B)(i). If the individual enrolls in such a 
                plan, the individual may change such enrollment 
                under this part, but the individual may not 
                enroll in a Medicare+Choice plan under part C 
                unless the individual enrolls under part B. 
                Nothing in this subparagraph shall be construed 
                as providing for coverage under a prescription 
                drug plan of benefits that are excluded because 
                of the application of section 1860B(f)(2)(B).
  (c) Guaranteed Issue; Community Rating; and 
Nondiscrimination.--
          (1) Guaranteed issue.--
                  (A) In general.--An eligible individual who 
                is eligible to elect qualified prescription 
                drug coverage under a prescription drug plan or 
                Medicare+Choice plan at a time during which 
                elections are accepted under this part with respect 
                to the plan shall not be denied enrollment based on 
                any health status-related factor (described in section 
                2702(a)(1) of the Public Health Service Act) or 
                any other factor.
                  (B) Medicare+choice limitations permitted.--
                The provisions of paragraphs (2) and (3) (other 
                than subparagraph (C)(i), relating to default 
                enrollment) of section 1851(g) (relating to 
                priority and limitation on termination of 
                election) shall apply to PDP sponsors under 
                this subsection.
          (2) Community-rated premium.--
                  (A) In general.--In the case of an individual 
                who maintains (as determined under subparagraph 
                (C)) continuous prescription drug coverage 
                since first qualifying to elect prescription 
                drug coverage under this part, a PDP sponsor or 
                Medicare+Choice organization offering a 
                prescription drug plan or Medicare+Choice plan 
                that provides qualified prescription drug 
                coverage and in which the individual is 
                enrolled may not deny, limit, or condition the 
                coverage or provision of covered prescription 
                drug benefits or increase the premium under the 
                plan based on any health status-related factor 
                described in section 2702(a)(1) of the Public 
                Health Service Act or any other factor.
                  (B) Late enrollment penalty.--In the case of 
                an individual who does not maintain such 
                continuous prescription drug coverage, a PDP 
                sponsor or Medicare+Choice organization may 
                (notwithstanding any provision in this title) 
                increase the premium otherwise applicable or 
                impose a pre-existing condition exclusion with 
                respect to qualified prescription drug coverage 
                in a manner that reflects additional actuarial 
                risk involved. Such a risk shall be established 
                through an appropriate actuarial opinion of the 
                type described in subparagraphs (A) through (C) 
                of section 2103(c)(4).
                  (C) Continuous prescription drug coverage.--
                An individual is considered for purposes of 
                this part to be maintaining continuous 
                prescription drug coverage on and after a date 
                if the individual establishes that there is no 
                period of 63 days or longer on and after such 
                date (beginning not earlier than January 1, 
                2003) during all of which the individual did 
                not have any of the following prescription drug 
                coverage:
                          (i) Coverage under prescription drug 
                        plan or medicare+choice plan.--
                        Qualified prescription drug coverage 
                        under a prescription drug plan or under 
                        a Medicare+Choice plan.
                          (ii) Medicaid prescription drug 
                        coverage.--Prescription drug coverage 
                        under a medicaid plan under title XIX, 
                        including through the Program of All-
                        inclusive Care for the Elderly (PACE) 
                        under section 1934, through a social 
                        health maintenance organization 
                        (referred to in section 4104(c) of the 
                        Balanced Budget Act of 1997), or 
                        through a Medicare+Choice project that 
                        demonstrates the application of 
                        capitation payment rates for frail 
                        elderly medicare beneficiaries through 
                        the use of a interdisciplinary team and 
                        through the provision of primary care 
                        services to such beneficiaries by means 
                        of such a team at the nursing facility 
                        involved.
                          (iii) Prescription drug coverage 
                        under group health plan.--Any 
                        outpatient prescription drug coverage 
                        under a group health plan, including a 
                        health benefits plan under the Federal 
                        Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States 
                        Code, and a qualified retiree 
                        prescription drug plan as defined in 
                        section 1860H(f)(1).
                          (iv) Prescription drug coverage under 
                        certain medigap policies.--Coverage 
                        under a medicare supplemental policy 
                        under section 1882 that provides 
                        benefits for prescription drugs 
                        (whether or not such coverage conforms 
                        to the standards for packages of 
                        benefits under section 1882(p)(1)), but 
                        only if the policy was in effect on 
                        January 1, 2003, and only until the 
                        date such coverage is terminated.
                          (v) State pharmaceutical assistance 
                        program.--Coverage of prescription 
                        drugs under a State pharmaceutical 
                        assistance program.
                          (vi) Veterans' coverage of 
                        prescription drugs.--Coverage of 
                        prescription drugs for veterans under 
                        chapter 17 of title 38, United States 
                        Code.
                  (D) Certification.--For purposes of carrying 
                out this paragraph, the certifications of the 
                type described in sections 2701(e) of the 
                Public Health Service Act and in section 
                9801(e) of the Internal Revenue Code shall also 
                include a statement for the period of coverage 
                of whether the individual involved had 
                prescription drug coverage described in 
                subparagraph (C).
                  (E) Construction.--Nothing in this section 
                shall be construed as preventing the 
                disenrollment of an individual from a 
                prescription drug plan or a Medicare+Choice 
                plan based on the termination of an election 
                described in section 1851(g)(3), including for 
                non-payment of premiums or for other reasons 
                specified in subsection (d)(3), which takes 
                into account a grace period described in 
                section 1851(g)(3)(B)(i).
          (3) Nondiscrimination.--A PDP sponsor offering a 
        prescription drug plan shall not establish a service 
        area in a manner that would discriminate based on 
        health or economic status of potential enrollees.
  (d) Effective Date of Elections.--
          (1) In general.--Except as provided in this section, 
        the Medicare Benefits Administrator shall provide that 
        elections under subsection (b) take effect at the same 
        time as the Secretary provides that similar elections 
        under section 1851(e) take effect under section 
        1851(f).
          (2) No election effective before 2003.--In no case 
        shall any election take effect before January 1, 2003.
          (3) Termination.--The Medicare Benefits Administrator 
        shall provide for the termination of an election in the 
        case of--
                  (A) termination of coverage under part B 
                (other than the case of an individual described 
                in subsection (b)(2)(D) (relating to part A 
                only individuals)); and
                  (B) termination of elections described in 
                section 1851(g)(3) (including failure to pay 
                required premiums).

SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

  (a) Requirements.--
          (1) In general.--For purposes of this part and part 
        C, the term ``qualified prescription drug coverage'' 
        means either of the following:
                  (A) Standard coverage with access to 
                negotiated prices.--Standard coverage (as 
                defined in subsection (b)) and access to 
                negotiated prices under subsection (d).
                  (B) Actuarially equivalent coverage with 
                access to negotiated prices.--Coverage of 
                covered outpatient drugs which meets the 
                alternative coverage requirements of subsection 
                (c) and access to negotiated prices under 
                subsection (d).
          (2) Permitting additional outpatient prescription 
        drug coverage.--
                  (A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as 
                preventing qualified prescription drug coverage 
                from including coverage of covered outpatient 
                drugs that exceeds the coverage required under 
                paragraph (1), but any such additional coverage 
                shall be limited to coverage of covered 
                outpatient drugs.
                  (B) Disapproval authority.--The Medicare 
                Benefits Administrator shall review the 
                offering of qualified prescription drug 
                coverage under this part or part C. If the 
                Administrator finds that, in the case of a 
                qualified prescription drug coverage under a 
                prescription drug plan or a Medicare+Choice 
                plan, that the organization or sponsor offering 
                the coverage is purposefully engaged in 
                activities intended to result in favorable 
                selection of those eligible medicare 
                beneficiaries obtaining coverage through the 
                plan, the Administrator may terminate the 
                contract with the sponsor or organization under 
                this part or part C.
          (3) Application of secondary payor provisions.--The 
        provisions of section 1852(a)(4) shall apply under this 
        part in the same manner as they apply under part C.
  (b) Standard Coverage.--For purposes of this part, the 
``standard coverage'' is coverage of covered outpatient drugs 
(as defined in subsection (f)) that meets the following 
requirements:
          (1) Deductible.--The coverage has an annual 
        deductible--
                  (A) for 2003, that is equal to $250; or
                  (B) for a subsequent year, that is equal to 
                the amount specified under this paragraph for 
                the previous year increased by the percentage 
                specified in paragraph (5) for the year 
                involved.
        Any amount determined under subparagraph (B) that is 
        not a multiple of $5 shall be rounded to the nearest 
        multiple of $5.
          (2) Limits on cost-sharing.--The coverage has cost-
        sharing (for costs above the annual deductible 
        specified in paragraph (1) and up to the initial 
        coverage limit under paragraph (3)) that is equal to 50 
        percent or that is actuarially consistent (using 
        processes established under subsection (e)) with an 
        average expected payment of 50 percent of such costs.
          (3) Initial coverage limit.--Subject to paragraph 
        (4), the coverage has an initial coverage limit on the 
        maximum costs that may be recognized for payment 
        purposes (above the annual deductible)--
                  (A) for 2003, that is equal to $2,100; or
                  (B) for a subsequent year, that is equal to 
                the amount specified in this paragraph for the 
                previous year, increased by the annual 
                percentage increase described in paragraph (5) 
                for the year involved.
        Any amount determined under subparagraph (B) that is 
        not a multiple of $25 shall be rounded to the nearest 
        multiple of $25.
          (4) Limitation on out-of-pocket expenditures by 
        beneficiary.--
                  (A) In general.--Notwithstanding paragraph 
                (3), the coverage provides benefits without any 
                cost-sharing after the individual has incurred 
                costs (as described in subparagraph (C)) for 
                covered outpatient drugs in a year equal to the 
                annual out-of-pocket limit specified in 
                subparagraph (B).
                  (B) Annual out-of-pocket limit.--For purposes 
                of this part, the ``annual out-of-pocket 
                limit'' specified in this subparagraph--
                          (i) for 2003, is equal to $6,000; or
                          (ii) for a subsequent year, is equal 
                        to the amount specified in this 
                        subparagraph for the previous year, 
                        increased by the annual percentage 
                        increase described in paragraph (5) for 
                        the year involved.
                Any amount determined under clause (ii) that is 
                not a multiple of $100 shall be rounded to the 
                nearest multiple of $100.
                  (C) Application.--In applying subparagraph 
                (A)--
                          (i) incurred costs shall only include 
                        costs incurred for the annual 
                        deductible (described in paragraph 
                        (1)), cost-sharing (described in 
                        paragraph (2)), and amounts for which 
                        benefits are not provided because of 
                        the application of the initial coverage 
                        limit described in paragraph (3); and
                          (ii) such costs shall be treated as 
                        incurred without regard to whether the 
                        individual or another person, including 
                        a State program or other third-party 
                        coverage, has paid for such costs.
          (5) Annual percentage increase.--For purposes of this 
        part, the annual percentage increase specified in this 
        paragraph for a year is equal to the annual percentage 
        increase in average per capita aggregate expenditures 
        for covered outpatient drugs in the United States for 
        medicare beneficiaries, as determined by the Medicare 
        Benefits Administrator for the 12-month period ending 
        in July of the previous year.
  (c) Alternative Coverage Requirements.--A prescription drug 
plan or Medicare+Choice plan may provide a different 
prescription drug benefit design from the standard coverage 
described in subsection (b) so long as the following 
requirements are met:
          (1) Assuring at least actuarially equivalent 
        coverage.--
                  (A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total 
                coverage (as determined under subsection (e)) 
                is at least equal to the actuarial value (as so 
                determined) of standard coverage.
                  (B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the 
                coverage is at least equal to the unsubsidized 
                value of standard coverage. For purposes of 
                this subparagraph, the unsubsidized value of 
                coverage is the amount by which the actuarial 
                value of the coverage (as determined under 
                subsection (e)) exceeds the actuarial value of 
                the reinsurance subsidy payments under section 
                1860H with respect to such coverage.
                  (C) Assuring standard payment for costs at 
                initial coverage limit.--The coverage is 
                designed, based upon an actuarially 
                representative pattern of utilization (as 
                determined under subsection (e)), to provide 
                for the payment, with respect to costs incurred 
                that are equal to the sum of the deductible 
                under subsection (b)(1) and the initial 
                coverage limit under subsection (b)(3), of an 
                amount equal to at least such initial coverage 
                limit multiplied by the percentage specified in 
                subsection (b)(2).
          (2) Limitation on out-of-pocket expenditures by 
        beneficiaries.--The coverage provides the limitation on 
        out-of-pocket expenditures by beneficiaries described 
        in subsection (b)(4).
  (d) Access to Negotiated Prices.--Under qualified 
prescription drug coverage offered by a PDP sponsor or a 
Medicare+Choice organization, the sponsor or organization shall 
provide beneficiaries with access to negotiated prices 
(including applicable discounts) used for payment for covered 
outpatient drugs, regardless of the fact that no benefits may 
be payable under the coverage with respect to such drugs 
because of the application of cost-sharing or an initial 
coverage limit (described in subsection (b)(3)). Insofar as a 
State elects to provide medical assistance under title XIX for 
a drug based on the prices negotiated by a prescription drug 
plan under this part, the requirements of section 1927 shall 
not apply to such drugs.
  (e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
          (1) Processes.--For purposes of this section, the 
        Medicare Benefits Administrator shall establish 
        processes and methods--
                  (A) for determining the actuarial valuation 
                of prescription drug coverage, including--
                          (i) an actuarial valuation of 
                        standard coverage and of the 
                        reinsurance subsidy payments under 
                        section 1860H;
                          (ii) the use of generally accepted 
                        actuarial principles and methodologies; 
                        and
                          (iii) applying the same methodology 
                        for determinations of alternative 
                        coverage under subsection (c) as is 
                        used with respect to determinations of 
                        standard coverage under subsection (b); 
                        and
                  (B) for determining annual percentage 
                increases described in subsection (b)(5).
          (2) Use of outside actuaries.--Under the processes 
        under paragraph (1)(A), PDP sponsors and 
        Medicare+Choice organizations may use actuarial 
        opinions certified by independent, qualified actuaries 
        to establish actuarial values.
  (f) Covered Outpatient Drugs Defined.--
          (1) In general.--Except as provided in this 
        subsection, for purposes of this part, the term 
        ``covered outpatient drug'' means--
                  (A) a drug that may be dispensed only upon a 
                prescription and that is described in 
                subparagraph (A)(i) or (A)(ii) of section 
                1927(k)(2); or
                  (B) a biological product or insulin described 
                in subparagraph (B) or (C) of such section;
        and such term includes any use of a covered outpatient 
        drug for a medically accepted indication (as defined in 
        section 1927(k)(6)).
          (2) Exclusions.--
                  (A) In general.--Such term does not include 
                drugs or classes of drugs, or their medical 
                uses, which may be excluded from coverage or 
                otherwise restricted under section 1927(d)(2), 
                other than subparagraph (E) thereof (relating 
                to smoking cessation agents).
                  (B) Avoidance of duplicate coverage.--A drug 
                prescribed for an individual that would 
                otherwise be a covered outpatient drug under 
                this part shall not be so considered if payment 
                for such drug is available under part A or B 
                (but shall be so considered if such payment is 
                not available because benefits under part A or 
                B have been exhausted), without regard to 
                whether the individual is entitled to benefits 
                under part A or enrolled under part B.
          (3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a 
        covered outpatient drug under this part shall not be so 
        considered under a plan if the plan excludes the drug 
        under a formulary that meets the requirements of 
        section 1860C(f)(2) (including providing an appeal 
        process).
          (4) Application of general exclusion provisions.--A 
        prescription drug plan or Medicare+Choice plan may 
        exclude from qualified prescription drug coverage any 
        covered outpatient drug--
                  (A) for which payment would not be made if 
                section 1862(a) applied to part D; or
                  (B) which are not prescribed in accordance 
                with the plan or this part.
        Such exclusions are determinations subject to 
        reconsideration and appeal pursuant to section 
        1860C(f).
          (5) Study on inclusion of drugs treating morbid 
        obesity.--The Medicare Policy Advisory Board shall 
        provide for a study on removing the exclusion under 
        paragraph (2)(A) for coverage of agents used for weight 
        loss in the case of morbidly obese individuals. The 
        Board shall report to Congress on the results of the 
        study not later than March 1, 2002.

SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  (a) Guaranteed Issue Community-Related Premiums and 
Nondiscrimination.--For provisions requiring guaranteed issue, 
community-rated premiums, and nondiscrimination, see sections 
1860A(c)(1), 1860A(c)(2), and 1860F(b).
  (b) Dissemination of Information.--
          (1) General information.--A PDP sponsor shall 
        disclose, in a clear, accurate, and standardized form 
        to each enrollee with a prescription drug plan offered 
        by the sponsor under this part at the time of 
        enrollment and at least annually thereafter, the 
        information described in section 1852(c)(1) relating to 
        such plan. Such information includes the following:
                  (A) Access to covered outpatient drugs, 
                including access through pharmacy networks.
                  (B) How any formulary used by the sponsor 
                functions.
                  (C) Co-payments and deductible requirements.
                  (D) Grievance and appeals procedures.
          (2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request 
        of an individual eligible to enroll under a 
        prescription drug plan, the PDP sponsor shall provide 
        the information described in section 1852(c)(2) (other 
        than subparagraph (D)) to such individual.
          (3) Response to beneficiary questions.--Each PDP 
        sponsor offering a prescription drug plan shall have a 
        mechanism for providing specific information to 
        enrollees upon request. The sponsor shall make 
        available, through an Internet website and in writing 
        upon request, information on specific changes in its 
        formulary.
          (4) Claims information.--Each PDP sponsor offering a 
        prescription drug plan must furnish to enrolled 
        individuals in a form easily understandable to such 
        individuals an explanation of benefits (in accordance 
        with section 1806(a) or in a comparable manner) and a 
        notice of the benefits in relation to initial coverage 
        limit and annual out-of-pocket limit for the current 
        year, whenever prescription drug benefits are provided 
        under this part (except that such notice need not be 
        provided more often than monthly).
  (c) Access to Covered Benefits.--
          (1) Assuring pharmacy access.--The PDP sponsor of the 
        prescription drug plan shall secure the participation 
        of sufficient numbers of pharmacies (which may include 
        mail order pharmacies) to ensure convenient access 
        (including adequate emergency access) for enrolled 
        beneficiaries, in accordance with standards established 
        under section 1860D(e) that ensure such convenient 
        access. Nothing in this paragraph shall be construed as 
        requiring the participation of (or permitting the 
        exclusion of) all pharmacies in any area under a plan.
          (2) Access to negotiated prices for prescription 
        drugs.--The PDP sponsor of a prescription drug plan 
        shall issue such a card that may be used by an enrolled 
        beneficiary to assure access to negotiated prices under 
        section 1860B(d) for the purchase of prescription drugs 
        for which coverage is not otherwise provided under the 
        prescription drug plan.
          (3) Requirements on development and application of 
        formularies.--Insofar as a PDP sponsor of a 
        prescription drug plan uses a formulary, the following 
        requirements must be met:
                  (A) Formulary committee.--The sponsor must 
                establish a pharmaceutical and therapeutic 
                committee that develops the formulary. Such 
                committee shall include at least one physician 
                and at least one pharmacist.
                  (B) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs 
                within all therapeutic categories and classes 
                of covered outpatient drugs (although not 
                necessarily for all drugs within such 
                categories and classes).
                  (C) Appeals and exceptions to application.--
                The PDP sponsor must have, as part of the 
                appeals process under subsection (f)(2), a 
                process for appeals for denials of coverage 
                based on such application of the formulary.
  (d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
          (1) In general.--The PDP sponsor shall have in 
        place--
                  (A) an effective cost and drug utilization 
                management program, including appropriate 
                incentives to use generic drugs, when 
                appropriate;
                  (B) quality assurance measures and systems to 
                reduce medical errors and adverse drug 
                interactions, including a medication therapy 
                management program described in paragraph (2); 
                and
                  (C) a program to control fraud, abuse, and 
                waste.
          (2) Medication therapy management program.--
                  (A) In general.--A medication therapy 
                management program described in this paragraph 
                is a program of drug therapy management and 
                medication administration that is designed to 
                assure that covered outpatient drugs under the 
                prescription drug plan are appropriately used 
                to achieve therapeutic goals and reduce the 
                risk of adverse events, including adverse drug 
                interactions.
                  (B) Elements.--Such program may include--
                          (i) enhanced beneficiary 
                        understanding of such appropriate use 
                        through beneficiary education, 
                        counseling, and other appropriate 
                        means; and
                          (ii) increased beneficiary adherence 
                        with prescription medication regimens 
                        through medication refill reminders, 
                        special packaging, and other 
                        appropriate means.
                  (C) Development of program in cooperation 
                with licensed pharmacists.--The program shall 
                be developed in cooperation with licensed 
                pharmacists and physicians.
                  (D) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug program shall 
                take into account, in establishing fees for 
                pharmacists and others providing services under 
                the medication therapy management program, the 
                resources and time used in implementing the program.
          (3) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to 
        the following requirements, in the same manner as they 
        apply to Medicare+Choice plans under part C with 
        respect to the requirements described in a clause of 
        section 1852(e)(4)(B):
                  (A) Paragraph (1) (including quality 
                assurance), including medication therapy 
                management program under paragraph (2).
                  (B) Subsection (c)(1) (relating to access to 
                covered benefits).
                  (C) Subsection (g) (relating to 
                confidentiality and accuracy of enrollee 
                records).
          (4) Public disclosure of pharmaceutical prices for 
        generic equivalent drugs.--Each PDP sponsor shall 
        provide that each pharmacy or other dispenser that 
        arranges for the dispensing of a covered outpatient 
        drug shall inform the beneficiary at the time of 
        purchase of the drug of any differential between the 
        price of the prescribed drug to the enrollee and the 
        price of the lowest cost generic drug that is 
        therapeutically and pharmaceutically equivalent and 
        bioequivalent.
  (e) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances 
between the organization (including any entity or individual 
through which the sponsor provides covered benefits) and 
enrollees with prescription drug plans of the sponsor under 
this part in accordance with section 1852(f).
  (f) Coverage Determinations, Reconsiderations, and Appeals.--
          (1) In general.--A PDP sponsor shall meet the 
        requirements of section 1852(g) with respect to covered 
        benefits under the prescription drug plan it offers 
        under this part in the same manner as such requirements 
        apply to a Medicare+Choice organization with respect to 
        benefits it offers under a Medicare+Choice plan under 
        part C.
          (2) Appeals of formulary determinations.--Under the 
        appeals process under paragraph (1) an individual who 
        is enrolled in a prescription drug plan offered by a 
        PDP sponsor may appeal to obtain coverage for a covered 
        outpatient drug that is not on the formulary of the 
        sponsor (established under subsection (c)) if the 
        prescribing physician determines that the 
        therapeutically similar drug that is on the formulary 
        is not as effective for the enrollee or has significant 
        adverse effects for the enrollee.
  (g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor shall meet the requirements of section 1852(h) with 
respect to enrollees under this part in the same manner as such 
requirements apply to a Medicare+Choice organization with 
respect to enrollees under part C.

SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG PLAN (PDP) SPONSORS; 
                    CONTRACTS; ESTABLISHMENT OF STANDARDS.

  (a) General Requirements.--Each PDP sponsor of a prescription 
drug plan shall meet the following requirements:
          (1) Licensure.--Subject to subsection (c), the 
        sponsor is organized and licensed under State law as a 
        risk-bearing entity eligible to offer health insurance 
        or health benefits coverage in each State in which it 
        offers a prescription drug plan.
          (2) Assumption of full financial risk.--
                  (A) In general.--Subject to subparagraph (B) 
                and section 1860E(d)(2), the entity assumes 
                full financial risk on a prospective basis for 
                qualified prescription drug coverage that it 
                offers under a prescription drug plan and that 
                is not covered under reinsurance under section 
                1860H.
                  (B) Reinsurance permitted.--The entity may 
                obtain insurance or make other arrangements for 
                the cost of coverage provided to any enrolled 
                member under this part.
          (3) Solvency for unlicensed sponsors.--In the case of 
        a sponsor that is not described in paragraph (1), the 
        sponsor shall meet solvency standards established by 
        the Medicare Benefits Administrator under subsection 
        (d).
  (b) Contract Requirements.--
          (1) In general.--The Medicare Benefits Administrator 
        shall not permit the election under section 1860A of a 
        prescription drug plan offered by a PDP sponsor under 
        this part, and the sponsor shall not be eligible for 
        payments under section 1860G or 1860H, unless the 
        Administrator has entered into a contract under this 
        subsection with the sponsor with respect to the 
        offering of such plan. Such a contract with a sponsor 
        may cover more than 1 prescription drug plan. Such 
        contract shall provide that the sponsor agrees to 
        comply with the applicable requirements and standards 
        of this part and the terms and conditions of payment as 
        provided for in this part.
          (2) Negotiation regarding terms and conditions.--The 
        Medicare Benefits Administrator shall have the same 
        authority to negotiate the terms and conditions of 
        prescription drug plans under this part as the Director 
        of the Office of Personnel Management has with respect 
        to health benefits plans under chapter 89 of title 5, 
        United States Code. In negotiating the terms and 
        conditions regarding premiums for which information is 
        submitted under section 1860F(a)(2), the Administrator 
        shall take into account the reinsurance subsidy 
        payments under section 1860H and the adjusted community 
        rate (as defined in section 1854(f)(3)) for the 
        benefits covered.
          (3) Incorporation of certain medicare+choice contract 
        requirements.--The following provisions of section 1857 
        shall apply, subject to subsection (c)(5), to contracts 
        under this section in the same manner as they apply to 
        contracts under section 1857(a):
                  (A) Minimum enrollment.--Paragraphs (1) and 
                (3) of section 1857(b).
                  (B) Contract period and effectiveness.--
                Paragraphs (1) through (3) and (5) of section 
                1857(c).
                  (C) Protections against fraud and beneficiary 
                protections.--Section 1857(d).
                  (D) Additional contract terms.--Section 
                1857(e); except that in applying section 
                1857(e)(2) under this part--
                          (i) such section shall be applied 
                        separately to costs relating to this 
                        part (from costs under part C);
                          (ii) in no case shall the amount of 
                        the fee established under this 
                        subparagraph for a plan exceed 20 
                        percent of the maximum amount of the 
                        fee that may be established under 
                        subparagraph (B) of such section; and
                          (iii) no fees shall be applied under 
                        this subparagraph with respect to 
                        Medicare+Choice plans.
                  (E) Intermediate sanctions.--Section 1857(g).
                  (F) Procedures for termination.--Section 
                1857(h).
          (4) Rules of application for intermediate 
        sanctions.--In applying paragraph (3)(E)--
                  (A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this 
                part; and
                  (B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
  (c) Waiver of Certain Requirements to Expand Choice.--
          (1) In general.--In the case of an entity that seeks 
        to offer a prescription drug plan in a State, the 
        Medicare Benefits Administrator shall waive the 
        requirement of subsection (a)(1) that the entity be 
        licensed in that State if the Administrator determines, 
        based on the application and other evidence presented 
        to the Administrator, that any of the grounds for 
        approval of the application described in paragraph (2) 
        has been met.
          (2) Grounds for approval.--The grounds for approval 
        under this paragraph are the grounds for approval 
        described in subparagraph (B), (C), and (D) of section 
        1855(a)(2), and also include the application by a State 
        of any grounds other than those required under Federal 
        law.
          (3) Application of waiver procedures.--With respect 
        to an application for a waiver (or a waiver granted) 
        under this subsection, the provisions of subparagraphs 
        (E), (F), and (G) of section 1855(a)(2) shall apply.
          (4) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the 
        entity to meet other requirements imposed under this 
        part for a PDP sponsor.
          (5) References to certain provisions.--For purposes 
        of this subsection, in applying provisions of section 
        1855(a)(2) under this subsection to prescription drug 
        plans and PDP sponsors--
                  (A) any reference to a waiver application 
                under section 1855 shall be treated as a 
                reference to a waiver application under 
                paragraph (1); and
                  (B) any reference to solvency standards shall 
                be treated as a reference to solvency standards 
                established under subsection (d).
  (d) Solvency Standards for Non-Licensed Sponsors.--
          (1) Establishment.--The Medicare Benefits 
        Administrator shall establish, by not later than 
        October 1, 2001, financial solvency and capital 
        adequacy standards that an entity that does not meet 
        the requirements of subsection (a)(1) must meet to 
        qualify as a PDP sponsor under this part.
          (2) Compliance with standards.--Each PDP sponsor that 
        is not licensed by a State under subsection (a)(1) and 
        for which a waiver application has been approved under 
        subsection (c) shall meet solvency and capital adequacy 
        standards established under paragraph (1). The Medicare 
        Benefits Administrator shall establish certification 
        procedures for such PDP sponsors with respect to such 
        solvency standards in the manner described in section 
        1855(c)(2).
  (e) Other Standards.--The Medicare Benefits Administrator 
shall establish by regulation other standards (not described in 
subsection (d)) for PDP sponsors and plans consistent with, and 
to carry out, this part. The Administrator shall publish such 
regulations by October 1, 2001. In order to carry out this 
requirement in a timely manner, the Administrator may 
promulgate regulations that take effect on an interim basis, 
after notice and pending opportunity for public comment.
  (f) Relation to State Laws.--
          (1) In general.--The standards established under this 
        section shall supersede any State law or regulation 
        (including standards described in paragraph (2)) with 
        respect to prescription drug plans which are offered by 
        PDP sponsors under this part to the extent such law or 
        regulation is inconsistent with such standards.
          (2) Standards specifically superseded.--State 
        standards relating to the following are superseded 
        under this subsection:
                  (A) Benefit requirements.
                  (B) Requirements relating to inclusion or 
                treatment of providers.
                  (C) Coverage determinations (including 
                related appeals and grievance processes).
                  (D) Establishment and regulation of premiums.
          (3) Prohibition of state imposition of premium 
        taxes.--No State may impose a premium tax or similar 
        tax with respect to premiums paid to PDP sponsors for 
        prescription drug plans under this part, or with 
        respect to any payments made to such a sponsor by the 
        Medicare Benefits Administrator under this part.

SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED PRESCRIPTION 
                    DRUG COVERAGE.

  (a) In General.--The Medicare Benefits Administrator, through 
the Office of Beneficiary Assistance, shall establish, based 
upon and consistent with the procedures used under part C 
(including section 1851), a process for the selection of the 
prescription drug plan or Medicare+Choice plan which offer 
qualified prescription drug coverage through which eligible 
individuals elect qualified prescription drug coverage under 
this part.
  (b) Elements.--Such process shall include the following:
          (1) Annual, coordinated election periods, in which 
        such individuals can change the qualifying plans 
        through which they obtain coverage, in accordance with 
        section 1860A(b)(2).
          (2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon 
        price, quality, and other features, in the manner 
        described in (and in coordination with) section 
        1851(d), including the provision of annual comparative 
        information, maintenance of a toll-free hotline, and 
        the use of non-federal entities.
          (3) Coordination of elections through filing with a 
        Medicare+Choice organization or a PDP sponsor, in the 
        manner described in (and in coordination with) section 
        1851(c)(2).
  (c) Medicare+Choice Enrollee In Plan Offering Prescription 
Drug Coverage May Only Obtain Benefits Through the Plan.--An 
individual who is enrolled under a Medicare+Choice plan that 
offers qualified prescription drug coverage may only elect to 
receive qualified prescription drug coverage under this part 
through such plan.
  (d) Assuring Access to a Choice of Qualified Prescription 
Drug Coverage.--
          (1) Choice of at least 2 plans in each area.--
                  (A) In general.--The Medicare Benefits 
                Administrator shall assure that each individual 
                who is enrolled under part B and who is 
                residing in an area has available, consistent 
                with subparagraph (B), a choice of enrollment 
                in at least 2 qualifying plans (as defined in 
                paragraph (5)) in the area in which the 
                individual resides, at least one of which is a 
                prescription drug plan.
                  (B) Requirement for different plan 
                sponsors.--The requirement in subparagraph (A) 
                is not satisfied with respect to an area if 
                only one PDP sponsor or Medicare+Choice 
                organization offers all the qualifying plans in 
                the area.
          (2) Guaranteeing access to coverage.--In order to 
        assure access under paragraph (1) and consistent with 
        paragraph (3), the Medicare Benefits Administrator may 
        provide financial incentives (including partial 
        underwriting of risk) for a PDP sponsor to expand the 
        service area under an existing prescription drug plan 
        to adjoining or additional areas or to establish such a 
        plan (including offering such a plan on a regional or 
        nationwide basis), but only so long as (and to the 
        extent) necessary to assure the access guaranteed under 
        paragraph (1).
          (3) Limitation on authority.--In exercising authority 
        under this subsection, the Medicare Benefits 
        Administrator--
                  (A) shall not provide for the full 
                underwriting of financial risk for any PDP 
                sponsor;
                  (B) shall not provide for any underwriting of 
                financial risk for a public PDP sponsor with 
                respect to the offering of a nationwide 
                prescription drug plan; and
                  (C) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or 
                Medicare+Choice organizations.
          (4) Reports.--The Medicare Benefits Administrator 
        shall, in each annual report to Congress under section 
        1807(f), include information on the exercise of 
        authority under this subsection. The Administrator also 
        shall include such recommendations as may be 
        appropriate to minimize the exercise of such authority, 
        including minimizing the assumption of financial risk.
          (5) Qualifying plan defined.--For purposes of this 
        subsection, the term ``qualifying plan'' means a 
        prescription drug plan or a Medicare+Choice plan that 
        includes qualified prescription drug coverage.

SEC. 1860F. PREMIUMS.

  (a) Submission of Premiums and Related Information.--
          (1) In general.--Each PDP sponsor shall submit to the 
        Medicare Benefits Administrator information of the type 
        described in paragraph (2) in the same manner as 
        information is submitted by a Medicare+Choice 
        organization under section 1854(a)(1).
          (2) Type of information.--The information described 
        in this paragraph is the following:
                  (A) Information on the qualified prescription 
                drug coverage to be provided.
                  (B) Information on the actuarial value of the 
                coverage.
                  (C) Information on the monthly premium to be 
                charged for the coverage, including an 
                actuarial certification of--
                          (i) the actuarial basis for such 
                        premium;
                          (ii) the portion of such premium 
                        attributable to benefits in excess of 
                        standard coverage; and
                          (iii) the reduction in such premium 
                        resulting from the reinsurance subsidy 
                        payments provided under section 1860H.
                  (D) Such other information as the Medicare 
                Benefits Administrator may require to carry out 
                this part.
          (3) Review.--The Medicare Benefits Administrator 
        shall review the information filed under paragraph (2) 
        for the purpose of conducting negotiations under 
        section 1860D(b)(2).
  (b) Uniform Premium.--The premium for a prescription drug 
plan charged under this section may not vary among individuals 
enrolled in the plan in the same service area, except as is 
permitted under section 1860A(c)(2)(B) (relating to late 
enrollment penalties).
  (c) Terms and Conditions for Imposing Premiums.--The 
provisions of section 1854(d) shall apply under this part in 
the same manner as they apply under part C, and, for this 
purpose, the reference in such section to section 
1851(g)(3)(B)(i) is deemed a reference to section 
1860A(d)(3)(B) (relating to failure to pay premiums required 
under this part).
  (d) Acceptance of Reference Premium as Full Premium if No 
Standard (or Equivalent) Coverage in an Area.--
          (1) In general.--If there is no standard prescription 
        drug coverage (as defined in paragraph (2)) offered in 
        an area, in the case of an individual who is eligible 
        for a premium subsidy under section 1860G and resides 
        in the area, the PDP sponsor of any prescription drug 
        plan offered in the area (and any Medicare+Choice 
        organization that offers qualified prescription drug 
        coverage in the area) shall accept the reference 
        premium under section 1860G(b)(2) as payment in full 
        for the premium charge for qualified prescription drug 
        coverage.
          (2) Standard prescription drug coverage defined.--For 
        purposes of this subsection, the term ``standard 
        prescription drug coverage'' means qualified 
        prescription drug coverage that is standard coverage or 
        that has an actuarial value equivalent to the actuarial 
        value for standard coverage.

SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
                    INDIVIDUALS.

  (a) In General.--
          (1) Full premium subsidy and reduction of cost-
        sharing for individuals with income below 135 percent 
        of federal poverty level.--In the case of a subsidy 
        eligible individual (as defined in paragraph (3)) who 
        is determined to have income that does not exceed 135 
        percent of the Federal poverty level, the individual is 
        entitled under this section--
                  (A) to a premium subsidy equal to 100 percent 
                of the amount described in subsection (b)(1); 
                and
                  (B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing 
                described in paragraphs (1) and (2) of section 
                1860B(b) (up to the initial coverage limit 
                specified in paragraph (3) of such section) of 
                amounts that are nominal.
          (2) Sliding scale premium subsidy for individuals 
        with income above 135, but below 150 percent, of 
        federal poverty level.--In the case of a subsidy 
        eligible individual who is determined to have income 
        that exceeds 135 percent, but does not exceed 150 
        percent, of the Federal poverty level, the individual 
        is entitled under this section to a premium subsidy 
        determined on a linear sliding scale ranging from 100 
        percent of the amount described in subsection (b)(1) 
        for individuals with incomes at 135 percent of such 
        level to 0 percent of such amount for individuals with 
        incomes at 150 percent of such level.
          (3) Determination of eligibility.--
                  (A) Subsidy eligible individual defined.--For 
                purposes of this section, subject to 
                subparagraph (D), the term ``subsidy eligible 
                individual'' means an individual who--
                          (i) is eligible to elect, and has 
                        elected, to obtain qualified 
                        prescription drug coverage under this 
                        part;
                          (ii) has income below 150 percent of 
                        the Federal poverty line; and
                          (iii) meets the resources requirement 
                        described in section 1905(p)(1)(C).
                  (B) Determinations.--The determination of 
                whether an individual residing in a State is a 
                subsidy eligible individual and the amount of 
                such individual's income shall be determined 
                under the State medicaid plan for the State 
                under section 1935(a). In the case of a State 
                that does not operate such a medicaid plan 
                (either under title XIX or under a statewide 
                waiver granted under section 1115), such 
                determination shall be made under arrangements 
                made by the Medicare Benefits Administrator.
                  (C) Income determinations.--For purposes of 
                applying this section--
                          (i) income shall be determined in the 
                        manner described in section 
                        1905(p)(1)(B); and
                          (ii) the term ``Federal poverty 
                        line'' means the official poverty line 
                        (as defined by the Office of Management 
                        and Budget, and revised annually in 
                        accordance with section 673(2) of the 
                        Omnibus Budget Reconciliation Act of 
                        1981) applicable to a family of the 
                        size involved.
                  (D) Treatment of territorial residents.--In 
                the case of an individual who is not a resident 
                of the 50 States or the District of Columbia, 
                the individual is not eligible to be a subsidy 
                eligible individual but may be eligible for 
                financial assistance with prescription drug 
                expenses under section 1935(e).
  (b) Premium Subsidy Amount.--
          (1) In general.--The premium subsidy amount described 
        in this subsection for an individual residing in an 
        area is the reference premium (as defined in paragraph 
        (2)) for qualified prescription drug coverage offered 
        by the prescription drug plan or the Medicare+Choice 
        plan in which the individual is enrolled.
          (2) Reference premium defined.--For purposes of this 
        subsection, the term ``reference premium'' means, with 
        respect to qualified prescription drug coverage offered 
        under--
                  (A) a prescription drug plan that--
                          (i) provides standard coverage (or 
                        alternative prescription drug coverage 
                        the actuarial value is equivalent to 
                        that of standard coverage), the premium 
                        imposed for enrollment under the plan 
                        under this part (determined without 
                        regard to any subsidy under this 
                        section or any late enrollment penalty 
                        under section 1860A(c)(2)(B)); or
                          (ii) provides alternative 
                        prescription drug coverage the 
                        actuarial value of which is greater 
                        than that of standard coverage, the 
                        premium described in clause (i) 
                        multiplied by the ratio of (I) the 
                        actuarial value of standard coverage, 
                        to (II) the actuarial value of the 
                        alternative coverage; or
                  (B) a Medicare+Choice plan, the standard 
                premium computed under section 
                1851(j)(4)(A)(iii), determined without regard 
                to any reduction effected under section 
                1851(j)(4)(B).
  (c) Rules in Applying Cost-Sharing Subsidies.--
          (1) In general.--In applying subsection (a)(1)(B)--
                  (A) the maximum amount of subsidy that may be 
                provided with respect to an enrollee for a year 
                may not exceed 95 percent of the maximum cost-
                sharing described in such subsection that may 
                be incurred for standard coverage;
                  (B) the Medicare Benefits Administrator shall 
                determine what is ``nominal'' taking into 
                account the rules applied under section 
                1916(a)(3); and
                  (C) nothing in this part shall be construed 
                as preventing a plan or provider from waiving 
                or reducing the amount of cost-sharing 
                otherwise applicable.
          (2) Limitation on charges.--In the case of an 
        individual receiving cost-sharing subsidies under 
        subsection (a)(1)(B), the PDP sponsor may not charge 
        more than a nominal amount in cases in which the cost-sharing 
        subsidy is provided under such subsection.
  (d) Administration of Subsidy Program.--The Medicare Benefits 
Administrator shall provide a process whereby, in the case of 
an individual who is determined to be a subsidy eligible 
individual and who is enrolled in prescription drug plan or is 
enrolled in a Medicare+Choice plan under which qualified 
prescription drug coverage is provided--
          (1) the Administrator provides for a notification of 
        the PDP sponsor or Medicare+Choice organization 
        involved that the individual is eligible for a subsidy 
        and the amount of the subsidy under subsection (a);
          (2) the sponsor or organization involved reduces the 
        premiums or cost-sharing otherwise imposed by the 
        amount of the applicable subsidy and submits to the 
        Administrator information on the amount of such 
        reduction; and
          (3) the Administrator periodically and on a timely 
        basis reimburses the sponsor or organization for the 
        amount of such reductions.
The reimbursement under paragraph (3) with respect to cost-
sharing subsidies may be computed on a capitated basis, taking 
into account the actuarial value of the subsidies and with 
appropriate adjustments to reflect differences in the risks 
actually involved.
  (e) Relation to Medicaid Program.--
          (1) In general.--For provisions providing for 
        eligibility determinations, and additional financing, 
        under the medicaid program, see section 1935.
          (2) Medicaid providing wrap around benefits.--The 
        coverage provided under this part is primary payor to 
        benefits for prescribed drugs provided under the 
        medicaid program under title XIX.

SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES THROUGH 
                    REINSURANCE FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  (a) Reinsurance Subsidy Payment.--In order to reduce premium 
levels applicable to qualified prescription drug coverage for 
all medicare beneficiaries, to reduce adverse selection among 
prescription drug plans and Medicare+Choice plans that provide 
qualified prescription drug coverage, and to promote the 
participation of PDP sponsors under this part, the Medicare 
Benefits Administrator shall provide in accordance with this 
section for payment to a qualifying entity (as defined in 
subsection (b)) of the reinsurance payment amount (as defined 
in subsection (c)) for excess costs incurred in providing 
qualified prescription drug coverage--
          (1) for individuals enrolled with a prescription drug 
        plan under this part;
          (2) for individuals enrolled with a Medicare+Choice 
        plan that provides qualified prescription drug coverage 
        under part C; and
          (3) for medicare primary individuals (described in 
        subsection (f)(3)(D)) who are enrolled in a qualified 
        retiree prescription drug plan.
This section constitutes budget authority in advance of 
appropriations Acts and represents the obligation of the 
Administrator to provide for the payment of amounts provided 
under this section.
  (b) Qualifying Entity Defined.--For purposes of this section, 
the term ``qualifying entity'' means any of the following that 
has entered into an agreement with the Administrator to provide 
the Administrator with such information as may be required to 
carry out this section:
          (1) A PDP sponsor offering a prescription drug plan 
        under this part.
          (2) A Medicare+Choice organization that provides 
        qualified prescription drug coverage under a 
        Medicare+Choice plan under part C.
          (3) The sponsor of a qualified retiree prescription 
        drug plan (as defined in subsection (f)).
  (c) Reinsurance Payment Amount.--
          (1) In general.--Subject to subsection (d)(2) and 
        paragraph (4), the reinsurance payment amount under 
        this subsection for a qualifying covered individual (as 
        defined in subsection (g)(1)) for a coverage year (as 
        defined in subsection (g)(2)) is equal to the sum of 
        the following:
                  (A) For the portion of the individual's gross 
                covered prescription drug costs (as defined in 
                paragraph (3)) for the year that exceeds 
                $1,250, but does not exceed $1,350, an amount 
                equal to 30 percent of the allowable costs (as 
                defined in paragraph (2)) attributable to such 
                gross covered prescription drug costs.
                  (B) For the portion of the individual's gross 
                covered prescription drug costs for the year 
                that exceeds $1,350, but does not exceed 
                $1,450, an amount equal to 50 percent of the 
                allowable costs attributable to such gross 
                covered prescription drug costs.
                  (C) For the portion of the individual's gross 
                covered prescription drug costs for the year 
                that exceeds $1,450, but does not exceed 
                $1,550, an amount equal to 70 percent of the 
                allowable costs attributable to such gross 
                covered prescription drug costs.
                  (D) For the portion of the individual's gross 
                covered prescription drug costs for the year 
                that exceeds $1,550, but does not exceed 
                $2,350, an amount equal to 90 percent of the 
                allowable costs attributable to such gross 
                covered prescription drug costs.
                  (E) For the portion of the individual's gross 
                covered prescription drug costs for the year 
                that exceeds $7,050, an amount equal to 90 
                percent of the allowable costs attributable to 
                such gross covered prescription drug costs.
          (2) Allowable costs.--For purposes of this section, 
        the term ``allowable costs'' means, with respect to 
        gross covered prescription drug costs under a plan 
        described in subsection (b) offered by a qualifying 
        entity, the part of such costs that are actually paid 
        under the plan, but in no case more than the part of 
        such costs that would have been paid under the plan if 
        the prescription drug coverage under the plan were 
        standard coverage.
          (3) Gross covered prescription drug costs.--For 
        purposes of this section, the term ``gross covered 
        prescription drug costs'' means, with respect to an 
        enrollee with a qualifying entity under a plan 
        described in subsection (b) during a coverage year, the 
        costs incurred under the plan for covered prescription 
        drugs dispensed during the year, including costs 
        relating to the deductible, whether paid by the 
        enrollee or under the plan, regardless of whether the 
        coverage under the plan exceeds standard coverage and 
        regardless of when the payment for such drugs is made.
          (4) Indexing dollar amounts.--
                  (A) Amounts for 2003.--The dollar amounts 
                applied under paragraph (1) for 2003 shall be 
                the dollar amounts specified in such paragraph.
                  (B) For 2004.--The dollar amounts applied 
                under paragraph (1) for 2004 shall be the 
                dollar amounts specified in such paragraph 
                increased by the annual percentage increase 
                described in section 1860B(b)(5) for 2004.
                  (C) For subsequent years.--The dollar amounts 
                applied under paragraph (1) for a year after 
                2004 shall be the amounts (under this 
                paragraph) applied under paragraph (1) for the 
                preceding year increased by the annual 
                percentage increase described in section 
                1860B(b)(5) for the year involved.
                  (D) Rounding.--Any amount, determined under 
                the preceding provisions of this paragraph for 
                a year, which is not a multiple of $5 shall be 
                rounded to the nearest multiple of $5.
  (d) Adjustment of Payments.--
          (1) In general.--The Medicare Benefits Administrator 
        shall estimate--
                  (A) the total payments to be made (without 
                regard to this subsection) during a year under 
                this section; and
                  (B) the total payments to be made by 
                qualifying entities for standard coverage under 
                plans described in subsection (b) during the 
                year.
          (2) Adjustment of payments.--The Administrator shall 
        proportionally adjust the payments made under this 
        section for a coverage year in such manner so that the 
        total of the payments made for the year under this 
        section is equal to 35 percent of the total payments 
        described in paragraph (1)(B) during the year.
  (e) Payment Methods.--
          (1) In general.--Payments under this section shall be 
        based on such a method as the Medicare Benefits 
        Administrator determines. The Administrator may 
        establish a payment method by which interim payments of 
        amounts under this section are made during a year based 
        on the Administrator's best estimate of amounts that 
        will be payable after obtaining all of the information.
          (2) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug 
        Account.
  (f) Qualified Retiree Prescription Drug Plan Defined.--
          (1) In general.--For purposes of this section, the 
        term ``qualified retiree prescription drug plan'' means 
        employment-based retiree health coverage (as defined in 
        paragraph (3)(A)) if, with respect to an individual 
        enrolled (or eligible to be enrolled) under this part 
        who is covered under the plan, the following 
        requirements are met:
                  (A) Assurance.--The sponsor of the plan shall 
                annually attest, and provide such assurances as 
                the Medicare Benefits Administrator may 
                require, that the coverage meets the 
                requirements for qualified prescription drug 
                coverage.
                  (B) Audits.--The sponsor (and the plan) shall 
                maintain, and afford the Medicare Benefits 
                Administrator access to, such records as the 
                Administrator may require for purposes of 
                audits and other oversight activities necessary 
                to ensure the adequacy of prescription drug 
                coverage, the accuracy of payments made, and 
                such other matters as may be appropriate.
                  (C) Provision of certification of 
                prescription drug coverage.--The sponsor of the 
                plan shall provide for issuance of 
                certifications of the type described in section 
                1860A(c)(2)(D).
                  (D) Other requirements.--The sponsor of the 
                plan shall comply with such other requirements 
                as the Medicare Benefits Administrator finds 
                necessary to administer the program under this 
                section.
          (2) Limitation on benefit eligibility.--No payment 
        shall be provided under this section with respect to an 
        individual who is enrolled under a qualified retiree 
        prescription drug plan unless the individual is a 
        medicare primary individual who--
                  (A) is covered under the plan; and
                  (B) is eligible to obtain qualified 
                prescription drug coverage under section 1860A 
                but did not elect such coverage under this part 
                (either through a prescription drug plan or 
                through a Medicare+Choice plan).
          (3) Definitions.--As used in this section:
                  (A) Employment-based retiree health 
                coverage.--The term ``employment-based retiree 
                health coverage'' means health insurance or 
                other coverage of health care costs for 
                medicare primary individuals (or for such 
                individuals and their spouses and dependents) 
                based on their status as former employees or 
                labor union members.
                  (B) Employer.--The term ``employer'' has the 
                meaning given such term by section 3(5) of the 
                Employee Retirement Income Security Act of 1974 
                (except that such term shall include only 
                employers of two or more employees).
                  (C) Sponsor.--The term ``sponsor'' means a 
                plan sponsor, as defined in section 3(16)(B) of 
                the Employee Retirement Income Security Act of 
                1974.
                  (D) Medicare primary individual.--The term 
                ``medicare primary individual'' means, with 
                respect to a plan, an individual who is covered 
                under the plan and with respect to whom the 
                plan is not a primary plan (as defined in 
                section 1862(b)(2)(A)).
  (g) General Definitions.--For purposes of this section:
          (1) Qualifying covered individual.--The term 
        ``qualifying covered individual'' means an individual 
        who--
                  (A) is enrolled with a prescription drug plan 
                under this part;
                  (B) is enrolled with a Medicare+Choice plan 
                that provides qualified prescription drug 
                coverage under part C; or
                  (C) is covered as a medicare primary 
                individual under a qualified retiree 
                prescription drug plan.
          (2) Coverage year.--The term ``coverage year'' means 
        a calendar year in which covered outpatient drugs are 
        dispensed if a claim for payment is made under the plan 
        for such drugs, regardless of when the claim is paid.

SEC. 1860I. MEDICARE PRESCRIPTION DRUG ACCOUNT IN FEDERAL SUPPLEMENTARY 
                    MEDICAL INSURANCE TRUST FUND.

  (a) In General.--There is created within the Federal 
Supplementary Medical Insurance Trust Fund established by 
section 1841 an account to be known as the ``Medicare 
Prescription Drug Account'' (in this section referred to as the 
``Account''). The Account shall consist of such gifts and 
bequests as may be made as provided in section 201(i)(1), and 
such amounts as may be deposited in, or appropriated to, such 
fund as provided in this part. Funds provided under this part 
to the Account shall be kept separate from all other funds 
within the Federal Supplementary Medical Insurance Trust Fund.
  (b) Payments From Account.--
          (1) In general.--The Managing Trustee shall pay from 
        time to time from the Account such amounts as the 
        Medicare Benefits Administrator certifies are necessary 
        to make--
                  (A) payments under section 1860G (relating to 
                low-income subsidy payments);
                  (B) payments under section 1860H (relating to 
                reinsurance subsidy payments); and
                  (C) payments with respect to administrative 
                expenses under this part in accordance with 
                section 201(g).
          (2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall 
        transfer from time to time from the Account to the 
        Grants to States for Medicaid account amounts the 
        Secretary certifies are attributable to increases in 
        payment resulting from the application of a higher 
        Federal matching percentage under section 1935(b).
          (3) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into 
        account in computing actuarial rates or premium amounts 
        under section 1839.
  (c) Deposits Into Account.--
          (1) Medicaid transfer.--There is hereby transferred 
        to the Account, from amounts appropriated for Grants to 
        States for Medicaid, amounts equivalent to the 
        aggregate amount of the reductions in payments under 
        section 1903(a)(1) attributable to the application of 
        section 1935(c).
          (2) Appropriations to cover government 
        contributions.--There are authorized to be appropriated 
        from time to time, out of any moneys in the Treasury 
        not otherwise appropriated, to the Account, an amount 
        equivalent to the amount of payments made from the 
        Account under subsection (b), reduced by the amount 
        transferred to the Account under paragraph (1).

SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN PART 
                    C.

  (a) Definitions.--For purposes of this part:
          (1) Covered outpatient drugs.--The term ``covered 
        outpatient drugs'' is defined in section 1860B(f).
          (2) Initial coverage limit.--The term ``initial 
        coverage limit'' means the such limit as established 
        under section 1860B(b)(3), or, in the case of coverage 
        that is not standard coverage, the comparable limit (if 
        any) established under the coverage.
          (3) Medicare prescription drug account.--The term 
        ``Medicare Prescription Drug Account'' means the 
        Account in the Federal Supplementary Medical Insurance 
        Trust Fund created under section 1860I(a).
          (4) PDP sponsor.--The term ``PDP sponsor'' means an 
        entity that is certified under this part as meeting the 
        requirements and standards of this part for such a 
        sponsor.
          (5) Prescription drug plan.--The term ``prescription 
        drug plan'' means health benefits coverage that--
                  (A) is offered under a policy, contract, or 
                plan by a PDP sponsor pursuant to, and in 
                accordance with, a contract between the 
                Medicare Benefits Administrator and the sponsor 
                under section 1860D(b);
                  (B) provides qualified prescription drug 
                coverage; and
                  (C) meets the applicable requirements of the 
                section 1860C for a prescription drug plan.
          (6) Qualified prescription drug coverage.--The term 
        ``qualified prescription drug coverage'' is defined in 
        section 1860B(a).
          (7) Standard coverage.--The term ``standard 
        coverage'' is defined in section 1860B(b).
  (b) Application of Medicare+Choice Provisions Under This 
Part.--For purposes of applying provisions of part C under this 
part with respect to a prescription drug plan and a PDP 
sponsor, unless otherwise provided in this part such provisions 
shall be applied as if--
          (1) any reference to a Medicare+Choice plan included 
        a reference to a prescription drug plan;
          (2) any reference to a provider-sponsored 
        organization included a reference to a PDP sponsor;
          (3) any reference to a contract under section 1857 
        included a reference to a contract under section 
        1860D(b); and
          (4) any reference to part C included a reference to 
        this part.

                  Part [D] E--Miscellaneous Provisions

              definitions of services, institutions, etc.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a) * * *

           *       *       *       *       *       *       *

  (s) The term ``medical and other health services'' means any 
of the following items or services:
          (1) * * *
          (2)(A) services and supplies [(including drugs and 
        biologicals which cannot, as determined in accordance 
        with regulations, be self-administered)] (including 
        injectable and infusable drugs and biologicals which 
        are not usually self-administered by the patient) 
        furnished as an incident to a physician's professional 
        service, of kinds which are commonly furnished in 
        physicians' offices and are commonly either rendered 
        without charge or included in the physicians' bills;
          (B) hospital services [(including drugs and 
        biologicals which cannot, as determined in accordance 
        with regulations, be self-administered)] (including 
        injectable and infusable drugs and biologicals which 
        are not usually self-administered by the patient) 
        incident to physicians' services rendered to 
        outpatients and partial hospitalization services 
        incident to such services;

           *       *       *       *       *       *       *


                        [determinations; appeals

  [Sec. 1869. (a) The determination of whether an individual is 
entitled to benefits under part A or part B, and the 
determination of the amount of benefits under part A or part B, 
and any other determination with respect to a claim for 
benefits under part A or a claim for benefits with respect to 
home health services under part B shall be made by the 
Secretary in accordance with regulations prescribed by him.
  [(b)(1) Any individual dissatisfied with any determination 
under subsection (a) as to--
          [(A) whether he meets the conditions of section 226 
        of this Act or section 103 of the Social Security 
        Amendments of 1965, or
          [(B) whether he is eligible to enroll and has 
        enrolled pursuant to the provisions of part B of this 
        title or section 1818,
          [(C) the amount of benefits under part A or part B 
        (including a determination where such amount is 
        determined to be zero), or
          [(D) any other denial (other than under part B of 
        title XI) of a claim for benefits under part A or a 
        claim for benefits with respect to home health services 
        under part B,
shall be entitled to a hearing thereon by the Secretary to the 
same extent as is provided in section 205(b) and to judicial 
review of the Secretary's final decision after such hearing as 
is provided in section 205(g), except that, in so applying such 
sections and in applying section 205(l) thereto, any reference 
therein to the Commissioner of Social Security or the Social 
Security Administration shall be considered a reference to the 
Secretary or the Department of Health and Human Services, 
respectively. Sections 206(a), 1102, and 1871 shall not be 
construed as authorizing the Secretary to prohibit an 
individual from being represented under this subsection by a 
person that furnishes or supplies the individual, directly or 
indirectly, with services or items solely on the basis that the 
person furnishes or supplies the individual with such a service 
or item. Any person that furnishes services or items to an 
individual may not represent an individual under this 
subsection with respect to the issue described in section 
1879(a)(2) unless the person has waived any rights for payment 
from the beneficiary with respect to the services or items 
involved in the appeal. If a person furnishes services or items 
to an individual and represents the individual under this 
subsection, the person may not impose any financial liability 
on such individual in connection with such representation.
  [(2) Notwithstanding paragraph (1)(C) and (1)(D), in the case 
of a claim arising--
          [(A) under part A, a hearing shall not be available 
        to an individual under paragraph (1)(C) and (1)(D) if 
        the amount in controversy is less than $100 and 
        judicial review shall not be available to the 
        individual under that paragraph if the amount in 
        controversy is less than $1,000; or--
          [(B) under part B, a hearing shall not be available 
        to an individual under paragraph (1)(C) and (1)(D) if 
        the amount in controversy is less than $500 (or $100 in 
        the case of home health services) and judicial review 
        shall not be available to the individual under that 
        paragraph if the aggregate amount in controversy is 
        less than $1,000.
In determining the amount in controversy, the Secretary, under 
regulations, shall allow two or more claims to be aggregated if 
the claims involve the delivery of similar or related services 
to the same individual or involve common issues of law and fact 
arising from services furnished to two or more individuals.
  [(3) Review of any national coverage determination under 
section 1862(a)(1) respecting whether or not a particular type 
or class of items or services is covered under this title shall 
be subject to the following limitations:
          [(A) Such a determination shall not be reviewed by 
        any administrative law judge.
          [(B) Such a determination shall not be held unlawful 
        or set aside on the ground that a requirement of 
        section 553 of title 5, United States Code, or section 
        1871(b), relating to publication in the Federal 
        Register or opportunity for public comment, was not 
        satisfied.
          [(C) In any case in which a court determines that the 
        record is incomplete or otherwise lacks adequate 
        information to support the validity of the 
        determination, it shall remand the matter to the 
        Secretary for additional proceedings to supplement the 
        record and the court may not determine that an item or 
        service is covered except upon review of the 
        supplemented record.
  [(4) A regulation or instruction which relates to a method 
for determining the amount of payment under part B and which 
was initially issued before January 1, 1981, shall not be 
subject to judicial review.
  [(5) In an administrative hearing pursuant to paragraph (1), 
where the moving party alleges that there are no material 
issuesof fact in dispute, the administrative law judge shall 
make an expedited determination as to whether any such facts are in 
dispute and, if not, shall determine the case expeditiously.]


                        determinations; appeals


  Sec. 1869. (a) Initial Determinations.--The Secretary shall 
promulgate regulations and make initial determinations with 
respect to benefits under part A or part B in accordance with 
those regulations for the following:
          (1) The initial determination of whether an 
        individual is entitled to benefits under such parts.
          (2) The initial determination of the amount of 
        benefits available to the individual under such parts.
          (3) Any other initial determination with respect to a 
        claim for benefits under such parts, including an 
        initial determination by the Secretary that payment may 
        not be made, or may no longer be made, for an item or 
        service under such parts, an initial determination made 
        by a utilization and quality control peer review 
        organization under section 1154(a)(2), and an initial 
        determination made by an entity pursuant to a contract 
        with the Secretary to administer provisions of this 
        title or title XI.
  (b) Appeal Rights.--
          (1) In general.--
                  (A) Reconsideration of initial 
                determination.--Subject to subparagraph (D), 
                any individual dissatisfied with any initial 
                determination under subsection (a) shall be 
                entitled to reconsideration of the 
                determination, and, subject to subparagraphs 
                (D) and (E), a hearing thereon by the Secretary 
                to the same extent as is provided in section 
                205(b) and to judicial review of the 
                Secretary's final decision after such hearing 
                as is provided in section 205(g).
                  (B) Representation by provider or supplier.--
                          (i) In general.--Sections 206(a), 
                        1102, and 1871 shall not be construed 
                        as authorizing the Secretary to 
                        prohibit an individual from being 
                        represented under this section by a 
                        person that furnishes or supplies the 
                        individual, directly or indirectly, 
                        with services or items, solely on the 
                        basis that the person furnishes or 
                        supplies the individual with such a 
                        service or item.
                          (ii) Mandatory waiver of right to 
                        payment from beneficiary.--Any person 
                        that furnishes services or items to an 
                        individual may not represent an 
                        individual under this section with 
                        respect to the issue described in 
                        section 1879(a)(2) unless the person 
                        has waived any rights for payment from 
                        the beneficiary with respect to the 
                        services or items involved in the 
                        appeal.
                          (iii) Prohibition on payment for 
                        representation.--If a person furnishes 
                        services or items to an individual and 
                        represents the individual under this 
                        section, the person may not impose any 
                        financial liability on such individual 
                        in connection with such representation.
                          (iv) Requirements for representatives 
                        of a beneficiary.--The provisions of 
                        section 205(j) and section 206 
                        (regarding representation of claimants) 
                        shall apply to representation of an 
                        individual with respect to appeals 
                        under this section in the same manner 
                        as they apply to representation of an 
                        individual under those sections.
                  (C) Succession of rights in cases of 
                assignment.--The right of an individual to an 
                appeal under this section with respect to an 
                item or service may be assigned to the provider 
                of services or supplier of the item or service 
                upon the written consent of such individual 
                using a standard form established by the 
                Secretary for such an assignment.
                  (D) Time limits for appeals.--
                          (i) Reconsiderations.--
                        Reconsideration under subparagraph (A) 
                        shall be available only if the 
                        individual described subparagraph (A) 
                        files notice with the Secretary to 
                        request reconsideration by not later 
                        than 180 days after the individual 
                        receives notice of the initial 
                        determination under subsection (a) or 
                        within such additional time as the 
                        Secretary may allow.
                          (ii) Hearings conducted by the 
                        secretary.--The Secretary shall 
                        establish in regulations time limits 
                        for the filing of a request for a 
                        hearing by the Secretary in accordance 
                        with provisions in sections 205 and 
                        206.
                  (E) Amounts in controversy.--
                          (i) In general.--A hearing (by the 
                        Secretary) shall not be available to an 
                        individual under this section if the 
                        amount in controversy is less than 
                        $100, and judicial review shall not be 
                        available to the individual if the 
                        amount in controversy is less than 
                        $1,000.
                          (ii) Aggregation of claims.--In 
                        determining the amount in controversy, 
                        the Secretary, under regulations, shall 
                        allow 2 or more appeals to be 
                        aggregated if the appeals involve--
                                  (I) the delivery of similar 
                                or related services to the same 
                                individual by one or more 
                                providers of services or 
                                suppliers, or
                                  (II) common issues of law and 
                                fact arising from services 
                                furnished to 2 or more 
                                individuals by one or more 
                                providers of services or 
                                suppliers.
                  (F) Expedited proceedings.--
                          (i) Expedited determination.--In the 
                        case of an individual who--
                                  (I) has received notice by a 
                                provider of services that the 
                                provider of services plans to 
                                terminate services provided to 
                                an individual and a physician 
                                certifies that failure to 
                                continue the provision of such 
                                services is likely to place the 
                                individual's health at 
                                significant risk, or
                                  (II) has received notice by a 
                                provider of services that the 
                                provider of services plans to 
                                discharge the individual from 
                                the provider of services,
                        the individual may request, in writing 
                        or orally, an expedited determination 
                        or an expedited reconsideration of an 
                        initial determination made under 
                        subsection (a), as the case may be, and 
                        the Secretary shall provide such 
                        expedited determination or expedited 
                        reconsideration.
                          (ii) Expedited hearing.--In a hearing 
                        by the Secretary under this section, in 
                        which the moving party alleges that no 
                        material issues of fact are in dispute, 
                        the Secretary shall make an expedited 
                        determination as to whether any such 
                        facts are in dispute and, if not, shall 
                        render a decision expeditiously.
                  (G) Reopening and revision of 
                determinations.--The Secretary may reopen or 
                revise any initial determination or 
                reconsidered determination described in this 
                subsection under guidelines established by the 
                Secretary in regulations.
          (2) Review of coverage determinations.--
                  (A) National coverage determinations.--
                          (i) In general.--Review of any 
                        national coverage determination shall 
                        be subject to the following 
                        limitations:
                                  (I) Such a determination 
                                shall not be reviewed by any 
                                administrative law judge.
                                  (II) Such a determination 
                                shall not be held unlawful or 
                                set aside on the ground that a 
                                requirement of section 553 of 
                                title 5, United States Code, or 
                                section 1871(b) of this title, 
                                relating to publication in the 
                                Federal Register or opportunity 
                                for public comment, was not 
                                satisfied.
                                  (III) Upon the filing of a 
                                complaint by an aggrieved 
                                party, such a determination 
                                shall be reviewed by the 
                                Departmental Appeals Board of 
                                the Department of Health and 
                                Human Services. In conducting 
                                such a review, the Departmental 
                                Appeals Board shall review the 
                                record and shall permit 
                                discovery and the taking of 
                                evidence to evaluate the 
                                reasonableness of the 
                                determination. In reviewing 
                                such a determination, the 
                                Departmental Appeals Board 
                                shall defer only to the 
                                reasonable findings of fact, 
                                reasonable interpretations of 
                                law, and reasonable 
                                applications of fact to law by 
                                the Secretary.
                                  (IV) A decision of the 
                                Departmental Appeals Board 
                                constitutes a final agency 
                                action and is subject to 
                                judicial review.
                          (ii) Definition of national coverage 
                        determination.--For purposes of this 
                        section, the term ``national coverage 
                        determination'' means a determination 
                        by the Secretary respecting whether or 
                        not a particular item or service is 
                        covered nationally under this title, 
                        including such a determination under 
                        1862(a)(1).
          (B) Local coverage determination.--In the case of a 
        local coverage determination made by a fiscal 
        intermediary or a carrier under part A or part B 
        respecting whether a particular type or class of items 
        or services is covered under such parts, the following 
        limitations apply:
                  (i) Upon the filing of a complaint by an 
                aggrieved party, such a determination shall be 
                reviewed by an administrative law judge of the 
                Social Security Administration. The 
                administrative law judge shall review the 
                record and shall permit discovery and the 
                taking of evidence to evaluate the 
                reasonableness of the determination. In 
                reviewing such a determination, the 
                administrative law judge shall defer only to 
                the reasonable findings of fact, reasonable 
                interpretations of law, and reasonable 
                applications of fact to law by the Secretary.
                  (ii) Such a determination may be reviewed by 
                the Departmental Appeals Board of the 
                Department of Health and Human Services.
                  (iii) A decision of the Departmental Appeals 
                Board constitutes a final agency action and is 
                subject to judicial review.
          (C) No material issues of fact in dispute.--In the 
        case of review of a determination under subparagraph 
        (A)(i)(III) or (B)(i) where the moving party alleges 
        that there are no material issues of fact in dispute, 
        and alleges that the only issue is the 
        constitutionality of a provision of this title, or that 
        a regulation, determination, or ruling by the Secretary 
        is invalid, the moving party may seek review by a court 
        of competent jurisdiction.
          (D) Pending national coverage determinations.--
                  (i) In general.--In the event the Secretary 
                has not issued a national coverage or 
                noncoverage determination with respect to a 
                particular type or class of items or services, 
                an affected party may submit to the Secretary a 
                request to make such a determination with 
                respect to such items or services. By not later 
                than the end of the 90-day period beginning on 
                the date the Secretary receives such a request, 
                the Secretary shall take one of the following 
                actions:
                          (I) Issue a national coverage 
                        determination, with or without 
                        limitations.
                          (II) Issue a national noncoverage 
                        determination.
                          (III) Issue a determination that no 
                        national coverage or noncoverage 
                        determination is appropriate as of the 
                        end of such 90-day period with respect 
                        to national coverage of such items or 
                        services.
                          (IV) Issue a notice that states that 
                        the Secretary has not completed a 
                        review of the request for a national 
                        coverage determination and that 
                        includes an identification of the 
                        remaining steps in the Secretary's 
                        review process and a deadline by which 
                        the Secretary will complete the review 
                        and take an action described in 
                        subclause (I), (II), or (III).
                  (ii) In the case of an action described in 
                clause (i)(IV), if the Secretary fails to take 
                an action referred to in such clause by the 
                deadline specified by the Secretary under such 
                clause, then the Secretary is deemed to have taken 
                an action described in clause (i)(III) as of the 
                deadline.
                  (iii) When issuing a determination under 
                clause (i), the Secretary shall include an 
                explanation of the basis for the determination. 
                An action taken under clause (i) (other than 
                subclause (IV)) is deemed to be a national 
                coverage determination for purposes of review 
                under subparagraph (A).
          (E) Annual report on national coverage 
        determinations.--
                  (i) In general.--Not later than December 1 of 
                each year, beginning in 2001, the Secretary 
                shall submit to Congress a report that sets 
                forth a detailed compilation of the actual time 
                periods that were necessary to complete and 
                fully implement national coverage 
                determinations that were made in the previous 
                fiscal year for items, services, or medical 
                devices not previously covered as a benefit 
                under this title, including, with respect to 
                each new item, service, or medical device, a 
                statement of the time taken by the Secretary to 
                make the necessary coverage, coding, and 
                payment determinations, including the time 
                taken to complete each significant step in the 
                process of making such determinations.
                  (ii) Publication of reports on the 
                internet.--The Secretary shall publish each 
                report submitted under clause (i) on the 
                medicare Internet site of the Department of 
                Health and Human Services.
          (3) Publication on the internet of decisions of 
        hearings of the secretary.--Each decision of a hearing 
        by the Secretary shall be made public, and the 
        Secretary shall publish each decision on the Medicare 
        Internet site of the Department of Health and Human 
        Services. The Secretary shall remove from such decision 
        any information that would identify any individual, 
        provider of services, or supplier.
          (4) Limitation on review of certain regulations.--A 
        regulation or instruction which relates to a method for 
        determining the amount of payment under part B and 
        which was initially issued before January 1, 1981, 
        shall not be subject to judicial review.
          (5) Standing.--An action under this section seeking 
        review of a coverage determination (with respect to 
        items and services under this title) may be initiated 
        only by one (or more) of the following aggrieved 
        persons, or classes of persons:
                  (A) Individuals entitled to benefits under 
                part A, or enrolled under part B, or both, who 
                are in need of the items or services that are 
                the subject of the coverage determination.
                  (B) Persons, or classes of persons, who make, 
                manufacture, offer, supply, make available, or 
                provide such items and services.
  (c) Conduct of Reconsiderations by Independent Contractors.--
          (1) In general.--The Secretary shall enter into 
        contracts with qualified independent contractors to 
        conduct reconsiderations of initial determinations made 
        under paragraphs (2) and (3) of subsection (a). 
        Contracts shall be for an initial term of three years 
        and shall be renewable on a triennial basis thereafter.
          (2) Qualified independent contractor.--For purposes 
        of this subsection, the term ``qualified independent 
        contractor'' means an entity or organization that is 
        independent of any organization under contract with the 
        Secretary that makes initial determinations under 
        subsection (a), and that meets the requirements 
        established by the Secretary consistent with paragraph 
        (3).
          (3) Requirements.--Any qualified independent 
        contractor entering into a contract with the Secretary 
        under this subsection shall meet the following 
        requirements:
                  (A) In general.--The qualified independent 
                contractor shall perform such duties and 
                functions and assume such responsibilities as 
                may be required under regulations of the 
                Secretary promulgated to carry out the 
                provisions of this subsection, and such 
                additional duties, functions, and 
                responsibilities as provided under the 
                contract.
                  (B) Determinations.--The qualified 
                independent contractor shall determine, on the 
                basis of such criteria, guidelines, and 
                policies established by the Secretary and 
                published under subsection (d)(2)(D), whether 
                payment shall be made for items or services 
                under part A or part B and the amount of such 
                payment. Such determination shall constitute 
                the conclusive determination on those issues 
                for purposes of payment under such parts for 
                fiscal intermediaries, carriers, and other 
                entities whose determinations are subject to 
                review by the contractor; except that payment 
                may be made if--
                          (i) such payment is allowed by reason 
                        of section 1879;
                          (ii) in the case of inpatient 
                        hospital services or extended care 
                        services, the qualified independent 
                        contractor determines that additional 
                        time is required in order to arrange 
                        for postdischarge care, but payment may 
                        be continued under this clause for not 
                        more than 2 days, and only in the case 
                        in which the provider of such services 
                        did not know and could not reasonably 
                        have been expected to know (as 
                        determined under section 1879) that 
                        payment would not otherwise be made for 
                        such services under part A or part B 
                        prior to notification by the qualified 
                        independent contractor under this 
                        subsection;
                          (iii) such determination is changed 
                        as the result of any hearing by the 
                        Secretary or judicial review of the 
                        decision under this section; or
                          (iv) such payment is authorized under 
                        section 1861(v)(1)(G).
                  (C) Deadlines for decisions.--
                          (i) Determinations.--The qualified 
                        independent contractor shall conduct 
                        and conclude a determination under 
                        subparagraph (B) or an appeal of an 
                        initial determination, and mail the 
                        notice of the decision by not later than 
                        the end of the 45-day period beginning on 
                        the date a request for reconsideration has 
                        been timely filed.
                          (ii) Consequences of failure to meet 
                        deadline.--In the case of a failure by 
                        the qualified independent contractor to 
                        mail the notice of the decision by the 
                        end of the period described in clause 
                        (i), the party requesting the 
                        reconsideration or appeal may request a 
                        hearing before an administrative law 
                        judge, notwithstanding any requirements 
                        for a reconsidered determination for 
                        purposes of the party's right to such 
                        hearing.
                          (iii) Expedited reconsiderations.--
                        The qualified independent contractor 
                        shall perform an expedited 
                        reconsideration under subsection 
                        (b)(1)(F) of a notice from a provider 
                        of services or supplier that payment 
                        may not be made for an item or service 
                        furnished by the provider of services 
                        or supplier, of a decision by a 
                        provider of services to terminate 
                        services furnished to an individual, or 
                        in accordance with the following:
                                  (I) Deadline for decision.--
                                Notwithstanding section 216(j), 
                                not later than 1 day after the 
                                date the qualified independent 
                                contractor has received a 
                                request for such 
                                reconsideration and has 
                                received such medical or other 
                                records needed for such 
                                reconsideration, the qualified 
                                independent contractor shall 
                                provide notice (by telephone 
                                and in writing) to the 
                                individual and the provider of 
                                services and attending 
                                physician of the individual of 
                                the results of the 
                                reconsideration. Such 
                                reconsideration shall be 
                                conducted regardless of whether 
                                the provider of services or 
                                supplier will charge the 
                                individual for continued 
                                services or whether the 
                                individual will be liable for 
                                payment for such continued 
                                services.
                                  (II) Consultation with 
                                beneficiary.--In such 
                                reconsideration, the qualified 
                                independent contractor shall 
                                solicit the views of the 
                                individual involved.
                  (D) Limitation on individual reviewing 
                determinations.--
                          (i) Physicians.--No physician under 
                        the employ of a qualified independent 
                        contractor may review--
                                  (I) determinations regarding 
                                health care services furnished 
                                to a patient if the physician 
                                was directly responsible for 
                                furnishing such services; or
                                  (II) determinations regarding 
                                health care services provided 
                                in or by an institution, 
                                organization, or agency, if the 
                                physician or any member of the 
                                physician's family has, 
                                directly or indirectly, a 
                                significant financial interest 
                                in such institution, 
                                organization, or agency.
                          (ii) Physician's family described.--
                        For purposes of this paragraph, a 
                        physician's family includes the 
                        physician's spouse (other than a spouse 
                        who is legally separated from the 
                        physician under a decree of divorce or 
                        separate maintenance), children 
                        (including stepchildren and legally 
                        adopted children), grandchildren, 
                        parents, and grandparents.
                  (E) Explanation of determinations.--Any 
                determination of a qualified independent 
                contractor shall be in writing, and shall 
                include a detailed explanation of the 
                determination as well as a discussion of the 
                pertinent facts and applicable regulations 
                applied in making such determination.
                  (F) Notice requirements.--Whenever a 
                qualified independent contractor makes a 
                determination under this subsection, the 
                qualified independent contractor shall promptly 
                notify such individual and the entity 
                responsible for the payment of claims under 
                part A or part B of such determination.
                  (G) Dissemination of information.--Each 
                qualified independent contractor shall, using 
                the methodology established by the Secretary 
                under subsection (d)(4), make available all 
                determinations of such qualified independent 
                contractors to fiscal intermediaries (under 
                section 1816), carriers (under section 1842), 
                peer review organizations (under part B of 
                title XI), Medicare+Choice organizations 
                offering Medicare+Choice plans under part C, 
                and other entities under contract with the 
                Secretary to make initial determinations under 
                part A or part B or title XI.
                  (H) Ensuring consistency in determinations.--
                Each qualified independent contractor shall 
                monitor its determinations to ensure the 
                consistency of its determinations with respect 
                to requests for reconsideration of similar or 
                related matters.
                  (I) Data collection.--
                          (i) In general.--Consistent with the 
                        requirements of clause (ii), a 
                        qualified independent contractor shall 
                        collect such information relevant to 
                        its functions, and keep and maintain 
                        such records in such form and manner as 
                        the Secretary may require to carry out 
                        the purposes of this section and shall 
                        permit access to and use of any such 
                        information and records as the 
                        Secretary may require for such 
                        purposes.
                          (ii) Type of data collected.--Each 
                        qualified independent contractor shall 
                        keep accurate records of each decision 
                        made, consistent with standards 
                        established by the Secretary for such 
                        purpose. Such records shall be 
                        maintained in an electronic database in 
                        a manner that provides for 
                        identification of the following:
                                  (I) Specific claims that give 
                                rise to appeals.
                                  (II) Situations suggesting 
                                the need for increased 
                                education for providers of 
                                services, physicians, or 
                                suppliers.
                                  (III) Situations suggesting 
                                the need for changes in 
                                national or local coverage 
                                policy.
                                  (IV) Situations suggesting 
                                the need for changes in local 
                                medical review policies.
                          (iii) Annual reporting.--Each 
                        qualified independent contractor shall 
                        submit annually to the Secretary (or 
                        otherwise as the Secretary may request) 
                        records maintained under this paragraph 
                        for the previous year.
                  (J) Hearings by the secretary.--The qualified 
                independent contractor shall (i) prepare such 
                information as is required for an appeal of its 
                reconsidered determination to the Secretary for 
                a hearing, including as necessary, explanations 
                of issues involved in the determination and 
                relevant policies, and (ii) participate in such 
                hearings as required by the Secretary.
          (4) Number of qualified independent contractors.--The 
        Secretary shall enter into contracts with not fewer 
        than 12 qualified independent contractors under this 
        subsection.
          (5) Limitation on qualified independent contractor 
        liability.--No qualified independent contractor having 
        a contract with the Secretary under this subsection and 
        no person who is employed by, or who has a fiduciary 
        relationship with, any such qualified independent 
        contractor or who furnishes professional services to 
        such qualified independent contractor, shall be held by 
        reason of the performance of any duty, function, or 
        activity required or authorized pursuant to this 
        subsection or to a valid contract entered into under 
        this subsection, to have violated any criminal law, or 
        to be civilly liable under any law of the United States 
        or of any State (or political subdivision thereof) 
        provided due care was exercised in the performance of 
        such duty, function, or activity.
  (d) Administrative Provisions.--
          (1) Outreach.--The Secretary shall perform such 
        outreach activities as are necessary to inform 
        individuals entitled to benefits under this title and 
        providers of services and suppliers with respect to 
        their rights of, and the process for, appeals made 
        under this section. The Secretary shall use the toll-
        free telephone number maintained by the Secretary (1-
        800-MEDICAR(E)) (1-800-633-4227) to provide information 
        regarding appeal rights and respond to inquiries 
        regarding the status of appeals.
          (2) Guidance for reconsiderations and hearings.--
                  (A) Regulations.--Not later than 1 year after 
                the date of the enactment of this section, the 
                Secretary shall promulgate regulations 
                governing the processes of reconsiderations of 
                determinations by the Secretary and qualified 
                independent contractors and of hearings by the 
                Secretary. Such regulations shall include such 
                specific criteria and provide such guidance as 
                required to ensure the adequate functioning of 
                the reconsiderations and hearings processes and 
                to ensure consistency in such processes.
                  (B) Deadlines for administrative action.--
                          (i) Hearing by administrative law 
                        judge.--
                                  (II) In general.--Except as 
                                provided in subclause (II), an 
                                administrative law judge shall 
                                conduct and conclude a hearing 
                                on a decision of a qualified 
                                independent contractor under 
                                subsection (c) and render a 
                                decision on such hearing by not 
                                later than the end of the 90-
                                day period beginning on the 
                                date a request for hearing has 
                                been timely filed.
                                  (II) Waiver of deadline by 
                                party seeking hearing.--The 90-
                                day period under subclause (i) 
                                shall not apply in the case of 
                                a motion or stipulation by the 
                                party requesting the hearing to 
                                waive such period.
                          (ii) Departmental appeals board 
                        review.--The Departmental Appeals Board 
                        of the Department of Health and Human 
                        Services shall conduct and conclude a 
                        review of the decision on a hearing 
                        described in subparagraph (B) and make 
                        a decision or remand the case to the 
                        administrative law judge for 
                        reconsideration by not later than the 
                        end of the 90-day period beginning on 
                        the date a request for review has been 
                        timely filed.
                          (iii) Consequences of failure to meet 
                        deadlines.--In the case of a failure by 
                        an administrative law judge to render a 
                        decision by the end of the period 
                        described in clause (ii), the party 
                        requesting the hearing may request a 
                        review by the Departmental Appeals 
                        Board of the Department of Health and 
                        Human Services, notwithstanding any 
                        requirements for a hearing for purposes 
                        of the party's right to such a review.
                          (iv) DAB hearing procedure.--In the 
                        case of a request described in clause 
                        (iii), the Departmental Appeals Board 
                        shall review the case de novo.
                  (C) Policies.--The Secretary shall provide 
                such specific criteria and guidance, including 
                all applicable national and local coverage 
                policies and rationale for such policies, as is 
                necessary to assist the qualified independent 
                contractors to make informed decisions in 
                considering appeals under this section. The 
                Secretary shall furnish to the qualified 
                independent contractors the criteria and 
                guidance described in this paragraph in a 
                published format, which may be an electronic 
                format.
                  (D) Publication of medicare coverage policies 
                on the internet.--The Secretary shall publish 
                national and local coverage policies under this 
                title on an Internet site maintained by the 
                Secretary.
                  (E) Effect of failure to publish policies.--
                          (i) National and local coverage 
                        policies.--Qualified independent 
                        contractors shall not be bound by any 
                        national or local medicare coverage 
                        policy established by the Secretary 
                        that is not published on the Internet 
                        site under subparagraph (D).
                          (ii) Other policies.--With respect to 
                        policies established by the Secretary 
                        other than the policies described in 
                        clause (i), qualified independent 
                        contractors shall not be bound by such 
                        policies if the Secretary does not 
                        furnish to the qualified independent 
                        contractor the policies in a published 
                        format consistent with subparagraph (C).
          (3) Continuing education requirement for qualified 
        independent contractors and administrative law 
        judges.--
                  (A) In general.--The Secretary shall provide 
                to each qualified independent contractor, and, 
                in consultation with the Commissioner of Social 
                Security, to administrative law judges that 
                decide appeals of reconsiderations of initial 
                determinations or other decisions or 
                determinations under this section, such 
                continuing education with respect to policies 
                of the Secretary under this title or part B of 
                title XI as is necessary for such qualified 
                independent contractors and administrative law 
                judges to make informed decisions with respect 
                to appeals.
                  (B) Monitoring of decisions by qualified 
                independent contractors and administrative law 
                judges.--The Secretary shall monitor 
                determinations made by all qualified 
                independent contractors and administrative law 
                judges under this section and shall provide 
                continuing education and training to such 
                qualified independent contractors and 
                administrative law judges to ensure consistency 
                of determinations with respect to appeals on 
                similar or related matters. To ensure such 
                consistency, the Secretary shall provide for 
                administration and oversight of qualified 
                independent contractors and, in consultation 
                with the Commissioner of Social Security, 
                administrative law judges through a central 
                office of the Department of Health and Human 
                Services. Such administration and oversight may 
                not be delegated to regional offices of the 
                Department.
          (4) Dissemination of determinations.--The Secretary 
        shall establish a methodology under which qualified 
        independent contractors shall carry out subsection 
        (c)(3)(G).
          (5) Survey.--Not less frequently than every 5 years, 
        the Secretary shall conduct a survey of a valid sample 
        of individuals entitled to benefits under this title, 
        providers of services, and suppliers to determine the 
        satisfaction of such individuals or entities with the 
        process for appeals of determinations provided for 
        under this section and education and training provided 
        by the Secretary with respect to that process. The 
        Secretary shall submit to Congress a report describing 
        the results of the survey, and shall include any 
        recommendations for administrative or legislative 
        actions that the Secretary determines appropriate.
          (6) Report to congress.--The Secretary shall submit 
        to Congress an annual report describing the number of 
        appeals for the previous year, identifying issues that 
        require administrative or legislative actions, and 
        including any recommendations of the Secretary with 
        respect to such actions. The Secretary shall include in 
        such report an analysis of determinations by qualified 
        independent contractors with respect to inconsistent 
        decisions and an analysis of the causes of any such 
        inconsistencies.

   overpayment on behalf of individuals and settlement of claims for 
               benefits on behalf of deceased individuals

  Sec. 1870. (a) [Any payment under this title] Except as 
provided in section 1879(i), any payment under this title to 
any provider of services or other person with respect to any 
items or services furnished any individual shall be regarded as 
a payment to such individual.

           *       *       *       *       *       *       *


                  provider reimbursement review board

  Sec. 1878. (a) * * *

           *       *       *       *       *       *       *

  (f)(1) A decision of the Board shall be final [unless the 
Secretary, on his own motion, and within 60 days after the 
provider of services is notified of the Board's decision, 
reverses, affirms, or modifies the Board's decision]. Providers 
shall have the right to obtain judicial review of any final 
decision of the Board[, or of any reversal, affirmance, or 
modification by the Secretary,] or of any reversal, affirmance, 
or modification by the Secretary by a civil action commenced 
within 60 days of the date on which notice of any final 
decision by the Board or of any reversal, affirmance, or 
modification by the Secretary is received. Providers shall also 
have the right to obtain judicial review of any action of the 
fiscal intermediary which involves a question of law or 
regulations relevant to the matters in controversy whenever the 
Board determines (on its own motion or at the request of a 
provider of services as described in the following sentence) 
that it is without authority to decide the question, by a civil 
action commenced within sixty days of the date on which 
notification of such determination is received. If a provider 
of services may obtain a hearing under subsection (a) and has 
filed a request for such a hearing, such provider may file a 
request for a determination by the Board of its authority to 
decide the question of law or regulations relevant to the 
matters in controversy (accompanied by such documents and 
materials as the Board shall require for purposes of rendering 
such determination). The Board shall render such determination 
in writing within thirty days after the Board receives the 
request and such accompanying documents and materials, and the 
determination shall be considered a final decision [and not 
subject to review by the Secretary]. If the Board fails to 
render such determination within such period, the provider may 
bring a civil action (within sixty days of the end of such 
period) with respect to the matter in controversy contained in 
such request for a hearing. Such action shall be brought in the 
district court of the United States for the judicial district 
in which the provider is located (or, in an action brought 
jointly by several providers, the judicial district in which 
the greatest number of such providers are located) or in the 
District Court for the District of Columbia and shall be tried 
pursuant to the applicable provisions under chapter 7 of title 
5, United States Code, notwithstanding any other provisions in 
section 205. Any appeal to the Board or action for judicial 
review by providers which are under common ownership or control 
or which have obtained a hearing under subsection(b) must be 
brought by such providers as a group with respect to any matter 
involving an issue common to such providers.

           *       *       *       *       *       *       *

  (g)(1) * * *

           *       *       *       *       *       *       *

  (3) Findings described in paragraph (1) and determinations 
and other decisions described in paragraph (2) may be reviewed 
or appealed under section 1869.

           *       *       *       *       *       *       *


   limitation on liability of beneficiary where medicare claims are 
                               disallowed

  Sec. 1879. (a) * * *

           *       *       *       *       *       *       *

  (i) Notwithstanding any other provision of this Act, an 
individual who is entitled to benefits under this title and is 
furnished a service or item is not liable for repayment to the 
Secretary of amounts with respect to such benefits--
          (1) subject to paragraph (2), in the case of a claim 
        for such item or service that is incorrectly paid by 
        the Secretary; and
          (2) in the case of payments made to the individual by 
        the Secretary with respect to any claim under paragraph 
        (1), the individual shall be liable for repayment of 
        such amount only up to the amount of payment received 
        by the individual from the Secretary.
  (j)(1) An individual who is entitled to benefits under this 
title and is furnished a service or item is not liable for 
payment of amounts with respect to such benefits in the 
following cases:
          (A) In the case of a benefit for which an initial 
        determination has not been made by the Secretary under 
        subsection (a) whether payment may be made under this 
        title for such benefit.
          (B) In the case of a claim for such item or service 
        that is--
                  (i) improperly submitted by the provider of 
                services or supplier; or
                  (ii) rejected by an entity under contract 
                with the Secretary to review or pay claims for 
                services and items furnished under this title, 
                including an entity under contract with the 
                Secretary under section 1857.
  (2) The limitation on liability under paragraph (1) shall not 
apply if the individual signs a waiver provided by the 
Secretary under subsection (l) of protections under this 
paragraph, except that any such waiver shall not apply in the 
case of a denial of a claim for noncompliance with applicable 
regulations or procedures under this title or title XI.
  (k) An individual who is entitled to benefits under this 
title and is furnished services by a provider of services is 
not liable for payment of amounts with respect to such services 
prior to noon of the first working day after the date the 
individual receives the notice of determination to discharge 
and notice of appeal rights under paragraph (1), unless the 
following conditions are met:
          (1) The provider of services shall furnish a notice 
        of discharge and appeal rights established by the 
        Secretary under subsection (l) to each individual 
        entitled to benefits under this title to whom such 
        provider of services furnishes services, upon admission 
        of the individual to the provider of services and upon 
        notice of determination to discharge the individual 
        from the provider of services, of the individual's 
        limitations of liability under this section and rights 
        of appeal under section 1869.
          (2) If the individual, prior to discharge from the 
        provider of services, appeals the determination to 
        discharge under section 1869 not later than noon of the 
        first working day after the date the individual 
        receives the notice of determination to discharge and 
        notice of appeal rights under paragraph (1), the 
        provider of services shall, by the close of business of 
        such first working day, provide to the Secretary (or 
        qualified independent contractor under section 1869, as 
        determined by the Secretary) the records required to 
        review the determination.
  (l) The Secretary shall develop appropriate standard forms 
for individuals entitled to benefits under this title to waive 
limitation of liability protections under subsection (j) and to 
receive notice of discharge and appeal rights under subsection 
(k). The forms developed by the Secretary under this subsection 
shall clearly and in plain language inform such individuals of 
their limitations on liability, their rights under section 
1869(a) to obtain an initial determination by the Secretary of 
whether payment may be made under part A or part B for such 
benefit, and their rights of appeal under section 1869(b), and 
shall inform such individuals that they may obtain further 
information or file an appeal of the determination by use of 
the toll-free telephone number (1-800-MEDICAR(E)) (1-800-633-
4227) maintained by the Secretary. The forms developed by the 
Secretary under this subsection shall be the only manner in 
which such individuals may waive such protections under this 
title or title XI.
  (m) An individual who is entitled to benefits under this 
title and is furnished an item or service is not liable for 
payment of cost sharing amounts of more than $50 with respect 
to such benefits unless the individual has been informed in 
advance of being furnished the item or service of the estimated 
amount of the cost sharing for the item or service using a 
standard form established by the Secretary.

           *       *       *       *       *       *       *


      TITLE XIX--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

           *       *       *       *       *       *       *


                   STATE PLANS FOR MEDICAL ASSISTANCE

  Sec. 1902. (a) A State plan for medical assistance must--
          (1) * * *

           *       *       *       *       *       *       *

          (64) provide, not later than 1 year after the date of 
        the enactment of this paragraph, a mechanism to receive 
        reports from beneficiaries and others and compile data 
        concerning alleged instances of waste, fraud, and abuse 
        relating to the operation of this title; [and]
          (65) provide that the State shall issue provider 
        numbers for all suppliers of medical assistance 
        consisting of durable medical equipment, as defined in 
        section 1861(n), and the State shall not issue or renew 
        such a supplier number for any such supplier unless--
                  (A) * * *

           *       *       *       *       *       *       *

                  (B) a surety bond in a form specified by the 
                Secretary under section 1834(a)(16)(B) and in 
                an amount that is not less than $50,000 or such 
                comparable surety bond as the Secretary may 
                permit under the second sentence of such 
                section[.]; and
          (66) provide for making eligibility determinations 
        under section 1935(a).

           *       *       *       *       *       *       *


                           PAYMENT TO STATES

  Sec. 1903. (a) From the sums appropriated therefor, the 
Secretary (except as otherwise provided in this section) shall 
pay to each State which has a plan approved under this title, 
for each quarter, beginning with the quarter commencing January 
1, 1966--
          (1) an amount equal to the Federal medical assistance 
        percentage (as defined in section 1905(b), subject to 
        subsections (g) and (j) of this section and subsection 
        1923(f)) of the total amount expended during such 
        quarter as medical assistance under the State plan, 
        reduced by the amount computed under section 1935(c)(1) 
        for the State and the quarter; plus

           *       *       *       *       *       *       *



   special provisions relating to medicare prescription drug benefit


  Sec. 1935. (a) Requirement for Making Eligibility 
Determinations for Low-Income Subsidies.--As a condition of its 
State plan under this title under section 1902(a)(66) and 
receipt of any Federal financial assistance under section 
1903(a) subject to subsection (e), a State shall--
          (1) make determinations of eligibility for premium 
        and cost-sharing subsidies under (and in accordance 
        with) section 1860G;
          (2) inform the Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which 
        such eligibility is established; and
          (3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of 
        title XVIII (including section 1860G).
  (b) Payments for Additional Administrative Costs.--
          (1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph 
        (2), expenditures reimbursable under the appropriate 
        paragraph of section 1903(a); except that, 
        notwithstanding any other provision of such section, 
        the applicable Federal matching rates with respect to 
        such expenditures under such section shall be increased 
        as follows:
                  (A) For expenditures attributable to costs 
                incurred during 2003, the otherwise applicable 
                Federal matching rate shall be increased by 20 
                percent of the percentage otherwise payable 
                (but for this subsection) by the State.
                  (B) For expenditures attributable to costs 
                incurred during 2004, the otherwise applicable 
                Federal matching rate shall be increased by 40 
                percent of the percentage otherwise payable 
                (but for this subsection) by the State.
                  (C) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable 
                Federal matching rate shall be increased by 60 
                percent of the percentage otherwise payable 
                (but for this subsection) by the State.
                  (D) For expenditures attributable to costs 
                incurred during 2006, the otherwise applicable 
                Federal matching rate shall be increased by 80 
                percent of the percentage otherwise payable 
                (but for this subsection) by the State.
                  (E) For expenditures attributable to costs 
                incurred after 2006, the otherwise applicable 
                Federal matching rate shall be increased to 100 
                percent.
          (2) Coordination.--The State shall provide the 
        Secretary with such information as may be necessary to 
        properly allocate administrative expenditures described 
        in paragraph (1) that may otherwise be made for similar 
        eligibility determinations.
  (c) Federal Assumption of Medicaid Prescription Drug Costs 
for Dually-Eligible Beneficiaries.--
          (1) In general.--For purposes of section 1903(a)(1) 
        subject to subsection (e), for a State that is one of 
        the 50 States or the District of Columbia for a 
        calendar quarter in a year (beginning with 2003) the 
        amount computed under this subsection is equal to the 
        product of the following:
                  (A) Medicare subsidies.--The total amount of 
                payments made in the quarter under section 
                1860G (relating to premium and cost-sharing 
                prescription drug subsidies for low-income 
                medicare beneficiaries) that are attributable 
                to individuals who are residents of the State 
                and are entitled to benefits with respect to 
                prescribed drugs under the State plan under 
                this title (including such a plan operating 
                under a waiver under section 1115).
                  (B) State matching rate.--A proportion 
                computed by subtracting from 100 percent the 
                Federal medical assistance percentage (as 
                defined in section 1905(b)) applicable to the 
                State and the quarter.
                  (C) Phase-out proportion.--The phase-out 
                proportion (as defined in paragraph (2)) for 
                the quarter.
          (2) Phase-out proportion.--For purposes of paragraph 
        (1)(C), the ``phase-out proportion'' for a calendar 
        quarter in--
                  (A) 2003 is 80 percent;
                  (B) 2004 is 60 percent;
                  (C) 2005 is 40 percent;
                  (D) 2006 is 20 percent; or
                  (E) a year after 2006 is 0 percent.
  (d) Additional Provisions.--
          (1) Medicaid as secondary payor.--In the case of an 
        individual dually entitled to qualified prescription 
        drug coverage under a prescription drug plan under part 
        D of title XVIII (or under a Medicare+Choice plan under 
        part C of such title) and medical assistance for 
        prescribed drugs under this title, medical assistance 
        shall continue to be provided under this title for 
        prescribed drugs to the extent payment is not made 
        under the prescription drug plan or the Medicare+Choice 
        plan selected by the individual.
          (2) Condition.--A State may require, as a condition 
        for the receipt of medical assistance under this title 
        with respect to prescription drug benefits for an 
        individual eligible to obtain qualified prescription 
        drug coverage described in paragraph (1), that the 
        individual elect qualified prescription drug coverage 
        under section 1860A.
  (e) Treatment of Territories.--
          (1) In general.--In the case of a State, other than 
        the 50 States and the District of Columbia--
                  (A) the previous provisions of this section 
                shall not apply to residents of such State; and
                  (B) if the State establishes a plan described 
                in paragraph (2) (for providing medical 
                assistance with respect to the provision of 
                prescription drugs to medicare beneficiaries), 
                the amount otherwise determined under section 
                1108(f) (as increased under section 1108(g)) 
                for the State shall be increased by the amount 
                specified in paragraph (3).
          (2) Plan.--The plan described in this paragraph is a 
        plan that--
                  (A) provides medical assistance with respect 
                to the provision of covered outpatient drugs 
                (as defined in section 1860B(f)) to low-income 
                medicare beneficiaries; and
                  (B) assures that additional amounts received 
                by the State that are attributable to the 
                operation of this subsection are used only for 
                such assistance.
          (3) Increased amount.--
                  (A) In general.--The amount specified in this 
                paragraph for a State for a year is equal to 
                the product of--
                          (i) the aggregate amount specified in 
                        subparagraph (B); and
                          (ii) the amount specified in section 
                        1108(g)(1) for that State, divided by 
                        the sum of the amounts specified in 
                        such section for all such States.
                  (B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                          (i) 2003, is equal to $20,000,000; or
                          (ii) a subsequent year, is equal to 
                        the aggregate amount specified in this 
                        subparagraph for the previous year 
                        increased by annual percentage increase 
                        specified in section 1860(b)(5) for the 
                        year involved.
          (4) Report.--The Secretary shall submit to Congress a 
        report on the application of this subsection and may 
        include in the report such recommendations as the 
        Secretary deems appropriate.

         references to laws directly affecting medicaid program

  Sec. [1935.] 1936. (a) Authority or Requirements to Cover 
Additional Individuals.--For provisions of law which make 
additional individuals eligible for medical assistance under 
this title, see the following:
          (1)  * * *

           *       *       *       *       *       *       *

                              ----------                              


                      TITLE 5, UNITED STATES CODE

           *       *       *       *       *       *       *


                   CHAPTER 53--PAY RATES AND SYSTEMS

           *       *       *       *       *       *       *


             SUBCHAPTER II--EXECUTIVE SCHEDULE PAY RATES

           *       *       *       *       *       *       *


Sec. 5314. Positions at level III

  Level III of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Solicitor General of the United States.

           *       *       *       *       *       *       *

          Administrator of the Health Care Financing 
        Administration.

Sec. 5315. Positions at level IV

  Level IV of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Deputy Administrator of General Services.

           *       *       *       *       *       *       *

          [Administrator of the Health Care Financing 
        Administration.]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    The bill ordered reported from this Committee solely by its 
Republican Members is a failure. It is a political placebo--the 
creature of a desperate poll-driven desire to appear to 
accomplish something. All it does is help the drug makers and 
the Medicare Health Maintenance Organizations.
    By rejecting the Democratic substitute, the Committee 
missed a golden opportunity to provide a real, defined, 
dependable prescription medicine benefit in Medicare.
    The Republican bill is not a true Medicare entitlement. In 
fact, there is no ``there'' there in the Republican plan:
          there is no certainty of the benefit;
          there is no certainty of the premium, other than it 
        being too high.
          there is no certainty that the medicine your doctor 
        orders will be delivered to you.
    There is certainty that our nation's elderly and disabled 
who sign up for this Rube Goldberg scheme (see diagram No. 1) 
will be hassled by the private insurance companies who will 
seek to sell them the equivalent of drug medigap programs and 
then, to save money, hound doctors and pharmacies not to 
deliver. There is certainty that many rural and community 
pharmacies will be driven to the wall of bankruptcy.
    In the Republican pseudo-plan, there will be no stability 
from year to year. Premiums and formularies will oscillate. Rx 
drug plans will enter and leave the program annually, just as 
they do under Medicare+Choice.
    Millions of seniors and disabled won't participate and will 
continue to go without coverage. The frailest elderly and those 
with Alzheimer's and other dementia will be particularly 
vulnerable, as they face these bad choices.

        defeat the republican bill and pass the democratic plan

    The Republican bill should be defeated in favor of the 
Democratic substitute.
    Passing the Democratic substitute would enact the 
President's proposal, as described in his radio address of June 
24th.\1\ We propose a defined benefit
---------------------------------------------------------------------------
    \1\ The only notable difference between the Democratic substitute 
offered in Committee and the President's radio address is he proposes 
starting in 2002 rather than as originally proposed, 2003.
---------------------------------------------------------------------------
          with no deductible;
          with Medicare paying half of the first $2000 in Rx 
        expenses in 2003 and 2004, with the benefit rising to 
        $5000 in 2009;
          with beneficiaries' premium starting at $25 per month 
        in 2003 and with increases limited to the growth in 
        medication spending;
          with a catastrophic out-of-pocket protection of 
        $4000, the cost of which is not included in the premium 
        (thus effectively lowering the beneficiaries total 
        share of the cost of the program to below 50%); and
        with administration through Medicare contractors (who 
        would obtain discounts off of current Rx prices) in a 
        way that would ensure everyone would get the medicines 
        prescribed by their doctors, and those medicines would 
        be available from convenient neighborhood pharmacies at 
        lower prices.
          includes a package of $3.6 billion in relief for 
        rural Medicare HMOs, a major improvement in the 
        Medicare appeals process, and the President's proposal 
        for $21 billion in adjustments to the Balanced Budget 
        Act of 1997, helping rural and urban hospitals, managed 
        care plans, nursing homes, home health agencies, and 
        others.

 all a matter of budget priorities: democrats want to do more for the 
   retired and disabled. republicans want to do more for the wealthy

    We admit that the cost of our Medicare program expansion to 
seniors and the disabled is more than twice the cost of the 
Republican gift to drug companies and HMOs. We are proud to be 
doing more for the most vulnerable in our society. The $40 
billion over five years allowed for a drug benefit by the 
Republicans' FY 2001 Congressional Budget Resolution is a 
prescription for failure. No one can enact a decent Rx benefit 
for so little.
    Our substitute is a clear statement to the world: the 
Republican budget priorities are a total failure: they want to 
give tens of billions in tax relief to the richest people in 
our society, rather than help the disabled and retired in their 
hour of sickness.

                               background

    Prescription drugs are an integral part of modern medical 
treatment. Access to these pharmaceuticals should be a Medicare 
benefit, treated no differently than Medicare treats doctor 
visits or surgical procedures. The task of the Committee was to 
pass a bill that satisfied the needs of the \2/3\ of the 
nation's seniors who have no prescription drug coverage or only 
inadequate and unreliable insurance.
    Rather than pursue real dialogue and negotiations to define 
the best path to providing a good Medicare drug benefit to 
improve the health of retirees and the disabled, the Republican 
majority has chosen instead to push for a complex plan that 
puts HMO's and drug industry interests before those of 
beneficiaries.
    While Medicare remains the cornerstone of financial 
security for the elderly by virtue of its success in 
eliminating major illness as a cause of financial ruin, it does 
not cover the cost of outpatient prescription drugs. The 87% of 
beneficiaries taking such medications face a bewildering and 
potentially expensive series of alternatives. They must
          join a Medicare-HMO that may offer drug benefits 
        temporarily;
          if lucky, rely on retiree health plan drug benefits 
        from their former employer or union;
          purchase, on their own, supplemental coverage through 
        Medigap;
          rely on Medicaid if they qualify; or
          pay the highest retail drug prices in the world 
        (since they do not get the discounts offered to 
        insurers and other large purchasers).
    The situation facing seniors and the disabled has reached 
crisis proportions: the price of medications has soared, and 
HMOs and employers are daily scaling-back or canceling coverage 
and Medigap policies are becoming prohibitively expensive.
    Under the Thomas Republican plan, Medicare will not provide 
guaranteed access to a reasonably priced drug plan, without 
regard to where beneficiaries live, independent of private 
health insurance company business decisions (which can reduce 
or eliminate benefits).

    The question is how to provide a defined, guaranteed Rx 
benefit and ensure it is available in rural America.
    The question is not whether to provide a Medicare drug 
benefit, but how to do it. How does the Thomas Republican plan 
fail beneficiaries, while benefiting drug companies and 
promoting HMO's?
    By relying on Medicare managed care programs (HMOs) or a 
new private insurance product the Republicans fail or offer 
stability and predictability. The following diagram (No. 1) 
shows why:
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    One just has to look at the daily news to see reports of 
Health Maintenance Organizations abandoning seniors in region 
after region and cutting back or canceling the voluntary Rx 
benefits they have been offering in the past. Hundreds of 
thousands of seniors will lose their Medicare+Choice (M+C) 
plans as plans exit the program effective January 2001. The 
Thomas Republican plan takes money intended to purchase 
pharmaceuticals for seniors and spends billions on payment 
reforms for M+C plans (raising the floor, increasing payment 
updates) without the requirement that each of those managed 
care plans provide any decent, affordable, defined Rx benefit 
to beneficiaries.
    Rather than spending money to prop up private plans, 
Congress should add the requirement of a good drug benefit to 
the basic Medicare package, so that it is available to 
everyone:
          to those in HMOs,
          to those in fee-for-service Medicare,
          to those in rural America, and
          to those in our cities.
    A Rx requirement in all of Medicare would allow M+C plans 
to compete on the basis of their ability to manage care, rather 
than on how deftly they can market themselves by using the 
excess from payments intended to cover basic Medicare benefits 
to offer prescription drug coverage. An explicit drug benefit 
``eliminates the extreme regional variation in Medicare+Choice 
drug coverage, in which only 23 percent of rural beneficiaries 
with access to Medicare+Choice have access to prescription drug 
coverage, compared to 86 percent of urban beneficiaries.'' \2\
---------------------------------------------------------------------------
    \2\ Statement of Nancy-Ann DeParle, Administrator, Health Care 
Financing Administration before the House Ways and Means Committee 
during a public hearing on Medicare Prescription Drug Coverage. June 
13, 2000.

    Will a stand-alone private health insurance market 
prescription drug plan be offered on an equitable basis to all 
beneficiaries?
    The Thomas Republican plan appears to rely heavily 
onparticipation by private insurers. Testimony by Mr. Charles Kahn,\3\ 
the president of the Health Insurance Association of America, has made 
it clear that such stand-alone, drug-only policies would not work in 
practice: ``Designing a theoretical drug coverage model through 
legislative language does not guarantee that private insurers will 
develop that product in the market.'' He points out that there are 
significant economic barriers, including:
---------------------------------------------------------------------------
    \3\ Testimony of Charles N. Kahn III, President-Health Insurance 
Association of America, during a public hearing on ``Medicare 
Prescription Drug Coverage'' before the U.S. House Committee on Ways 
and Means. June 13, 2000.

        the costs of development, marketing and administration. 
        Premiums for the policy would have to reflect these 
        costs. Adding to these administrative expenses is the 
        inherent difficulty of developing a sustainable premium 
        structure for a benefit that is so widely used and for 
---------------------------------------------------------------------------
        which the costs are rising so dramatically.

    Adverse selection will further drive up premiums. HIAA 
projects that \1/3\ of seniors will have drug costs under $250 
in the year 2000, with their average cost estimated at $68. 
These seniors are unlikely to purchase any type of private drug 
coverage, given that the additional premium for such a policy 
would be about 10 times higher than their average annual drug 
costs.
    Medicare Administrator Nancy Ann DeParle observed

        subsidizing private insurers instead of establishing a 
        reliable Medicare benefit means that out patient 
        prescription drugs would not be part of the Medicare 
        benefits package like doctor or hospital care. 
        Beneficiary premiums would pay for expensive, private 
        Medigap plans whose administrative costs are on average 
        more than 10 times higher than Medicare's, according to 
        the National Association of Insurance Commissioners 
        statistics, rather than an affordable Medicare option. 
        Furthermore, Medigap plans have little experience 
        negotiating with drug manufacturers and relying on 
        numerous plans does not pool the purchasing power of 
        seniors; both elements are needed to keep the benefit 
        affordable.\4\
---------------------------------------------------------------------------
    \4\ Statement before the House Ways and Means Committee during 
public hearing on Medicare Prescription Drug Coverage. June 13, 2000.

    The Administrator pointed out that developing a new private 
insurance product market would be difficult in sparsely 
populated rural areas, where risk pools are smaller and costs 
often higher.
    Even if coverage is offered, insurers would be likely to 
come in and out of the market, move to profitable areas and 
significantly modify benefit design from year to year based on 
the prior year's experience. This could result in the same 
pull-outs and uncertainty seen in the M+C plans.
    It is quite possible that with enough subsidies from the 
taxpayer that private insurers will participate in this 
Republican scheme. But the questions remain:
          --at what extra price to taxpayers in wasted 
        overhead?
          --at what extra cost to beneficiaries?
          --at what level of stability and certainty?

    Is the drug coverage available and affordable to all 
beneficiaries?
    Under the Thomas Republican bill, the monthly premiums for 
these new private insurance (medigap-like) Prescription Drug 
Plans remain unspecified, subject to negotiation by a new 
Medicare Benefits Administration. They can and will vary 
significantly by region of the country. CBO (at the time of 
writing) estimated the Republican plan would enroll about 2.4 
million fewer seniors than the Democratic plan.
    We suspect that many of those left out will be lower-income 
individuals, because the Republican plan lets States enroll 
people for low-income premium and co-payment assistance only 
through State welfare offices, rather than sign them up with 
less hassle through Social Security offices. Without assistance 
in paying premiums and copays, millions will be unable to 
afford the Republican plan.
    The Republican plan does not provide direct premium 
subsidies to those with incomes above 150 percent of 
poverty.\5\ In testimony before the Ways and Means Committee on 
June 13, 2000, the representative of the Older Women's League 
emphasized that access to prescription drugs is not simply a 
problem for the poor. While older Americans comprise only 13 
percent of the U.S. population, they account for \1/3\ of 
prescription drug spending. After premium payments, drugs 
account for the single largest component of out-of-pocket 
spending for non-institutionalized Medicare beneficiaries age 
65 and older. Thus many seniors with moderate incomes also are 
finding the higher cost of drugs to be out of reach. Middle 
income seniors are finding their retirement security undermined 
by the high cost of pharmaceuticals. A simply Medicaid 
enhancement does not solve the full scope of the problem.
---------------------------------------------------------------------------
    \5\ In contrast, the Democratic substitute would provide a premium 
subsidy for all participating beneficiaries of greater than 50%.
---------------------------------------------------------------------------
    The following table shows how inadequate the Republican 
drug benefit is:
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    The Thomas Republican bill would subsidize insurers for 
part of the cost of the most expensive enrollees, claiming that 
this will result in the ``trickle down'' effect of lower 
premiums for all; this ``trickle down benefit'' is not mandated 
and is far, far from assured. Table 3 explains how the 
Republican plan is a gift to the companies, rather than the 
beneficiaries:
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    Will the Republican bill guarantee a meaningful benefit?
    The Thomas bill specifies a dollar amount--an actuarial 
equivalent \6\--and not a true defined benefit. Private 
insurers could define deductibles, co-pays and benefit limits. 
They could change significantly the benefit package year by 
year. Only the catastrophic coverage is clearly delineated. 
This is an invitation to beneficiary confusion and benefit 
packages designed by for-profit companies for ``cherry 
picking'' of low-cost, healthy enrollees. For example, insurers 
could offer no deductible, low co-pays and a low benefit cap 
that would leave an even larger gap before the catastrohic 
stop-loss became effective. This represents a retreat from the 
Medigap reforms of the early 1990's that stndardized benefits, 
thus ensuring that plans compete on price and quality and not 
on consumer confusion.
---------------------------------------------------------------------------
    \6\ Members of Congress may get a lot of questions, when they try 
to explain ``actuarial equivalent'' at a Town Meeting. Unfortunately, 
it is just not possible to explain the Republican plan simply!
---------------------------------------------------------------------------
    The plan also seems to require a formal appeals process 
before a beneficiary could get off-formulary drugs or to file 
any grievance. Such a mechanism could limit access by the 
``hassling'' of doctros and beneficiaries. Furthermore, this 
plan's multi-insurer approach reduces the pooled purcahsing 
power of seniors, encouraging insuers to control costs through 
restrictive formularies and limited pharmacy choice.

    Bye-bye corner drugstore?
    Finally, the Republican bill offers no guarantee that a 
beneficiary will be able to obtain needed pharmaceuticals from 
his or her local pharmacy, only that access be ``convenient.''

    Will the approach proposed by the Republican plan offer any 
remedies for rising drug prices?
    We believe the Congressional Budget Office may say (we do 
not have their letter of analysis at the time of writing) that 
the Republican bill would achieve deeper drug price savings 
than the Democratic plan, but that those savings are largely 
offset by marketing costs and the cost of second-guessing and 
hassling doctors to switch medicines. Indeed, those savings may 
not be passed through to beneficiaries.
    Policies that rely primarily on restrictive formularies, 
fewer retail outlets, and excluding access to needed 
medications in an attempt to control costs are unacceptable to 
seniors and the disabled.
    Remember the laughter and cheers in theaters all across 
America when the heroine in ``As Good As It Gets'' expresses 
her true feelings about HMOs? Wait 'til seniors experience the 
hassle of the Republican Rx private insurers!
    They won't be laughing.
    They will be begging every Member of Congress for help.

  republican plan creates new bureaucracies and adds inefficiency and 
                                expense

    Ironically, the Thomas Republican bill creates yet another 
governmental entity. Within the Department of Health and Human 
Services, there would be established a new Medicare Benefits 
Administration (MBA), exempt from normal Civil Service pay 
scales (but with a limit of $122,400 per employee), the 
conflict of interest rules that govern the civil service, and 
co-existing with HCFA.

                         principles we support

    The Republican scheme is described accurately by Ranking 
Health Subcommittee member Pete Stark as, ``basically a hoax, a 
prescription for failure.'' It fails to offer the option of 
affordable prescription drug insurance to all Medicare 
beneficiaries.
    Democratic amendments offered in the attempt to remedy the 
failures in the Thomas plan were rejected.
    Defeated by a series of votes along party lines were
          --a proposal by Rep. Cardin to institute a 
        government-guaranteed safety-net Rx plan to supplement 
        the private market plans. Mr. Cardin pointed out, 
        ``there is no guarantee of any particular benefit that 
        our constituents will get if the Republican bill is 
        enacted. The Republicans say this would be an 
        entitlement program, but there is no specific benefit 
        to which seniors are entitled.''
          --an amendment by Reps. Thurman and Doggett to 
        guarantee to seniors the same drug discounts that drug 
        manufacturers give their best or most favored 
        customers. This version of Rep. Tom Allen's price 
        discount bill was defeated by the Republican majority.
          --Rep. McDermott's effort to eliminate the need for 
        low-income beneficiaries to go to State Medicaid 
        (welfare) offices in order to apply for and receive the 
        premium and co-insurance assistance to which they are 
        ``entitled.'' The Republicans likely opposed this 
        provision because they knew that if we permitted 
        enrollment through Social Security offices, more low 
        income seniors and disabled would participate and costs 
        would go up.
          --Rep. Tanner's amendment to ensure that any local 
        pharmacy that wants to participate in the program can 
        do so. This amendment was proposed in order to 
        guarantee access to benefits for all beneficiaries, 
        especially those in rural areas. The amendment drew one 
        Republican vote, but was defeated by all the rest of 
        the Republicans.
    Seniors need and deserve stability, equity, continuity and 
predictability in their health care plans. They do not get this 
from for-profit managed care as presently structured. They will 
not get this from private insurance policies with premiums, co-
pays, benefits or even coverage open to change on an annual 
basis.
    The Rx plan we enact should be simple. Our plan is simple: 
the following chart says it all:
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    Under the Democrats plan, beneficiaries can volunteer to 
receive, as part of Medicare, universal, defined-benefit 
prescription medicine coverage. With negotiated price discounts 
and private sector administration (like Medicare is 
administered today) the plan will be affordable to 
beneficiaries and to taxpayers.
    As stated by Ways and Means Committee Ranking Member 
Rangel, ``The Republicans have no confidence in providing 
assistance directly to our aged. Rather, they want to subsidize 
the private sector, the HMOs and the insurance companies.''
    The Democratic substitute amendment would help those who 
need it.

   help for medicare providers and the special needs of rural america

    Our substitute also demonstrates a commitment to supporting 
the President on the need for corrections to the Balanced 
Budget Act of 1997. We propose adjustments along the lines 
suggested by the President.
    We propose to return to the people who serve Medicare 
beneficiaries the same amount he has proposed: $21 billion over 
five years. This package includes major adjustments to rural 
and urban hospitals, teaching hospitals, hospitals that serve a 
higher proportion of low-income patients, skilled nursing 
facilities, home health agencies, end-stage renal disease 
facilities, and others.
    We include in this package Rep. Tanner's special rural 
hospital amendment to provide a full inflation update and to 
pay more for rural hospital outpatient services.
    At the request of Reps. McDermott, Thurman, and Cardin, we 
include a $3.6 billion package of assistance to stabilize and 
encourage the growth of Medicare HMOs and managed care in rural 
and lower-paid counties.
    Like the President, we leave slightly more than half the 
$21 billion unspecified--but with the commitment that we will 
work with all our colleagues in the coming weeks to determine 
the areas of remaining unaddressed critical need. We will work 
to enact a final Balanced Budget Refinement Act II this summer.

                               conclusion

    Members of Congress should defeat the Republican Rx hoax 
and vote for a real, defined benefit in Medicare. They should 
enact the Democatic substitute.

                                   Pete Stark.
                                   Jim McDermott.
                                   Xavier Becerra.
                                   William J. Coyne.
                                   Michael R. McNulty.
                                   Robert T. Matsui.
                                   John S. Tanner.
                                   Karen L. Thurman.
                                   William J. Jefferson.
                                   C.B. Rangel.
                                   Sander Levin.
                                   Jerry Kleczka.
                                   Richard E. Neal.
                                   John Lewis.
                                   Ben Cardin.