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108th Congress                                                   Report
 1st Session            HOUSE OF REPRESENTATIVES                108-391
_______________________________________________________________________


 MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

                               __________

                           CONFERENCE REPORT

                              to accompany

                                 H.R. 1




November 21 (legislative day, November 20), 2003--Ordered to be printed


                                 ___________

                         U.S. GOVERNMENT PRINTING OFFICE
90-299                      WASHINGTON : 2003












108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-391
======================================================================
 
MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

                                _______
                                

   November 21, (legislative day, November 20), 2003.--Ordered to be 
                                printed

                                _______
                                

 Mr. Thomas, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                         [To accompany H.R. 1]

    The committee of conference on the disagreeing votes of the 
two Houses on the amendments of the Senate to the bill (H.R. 
1), to amend title XVIII of the Social Security Act to provide 
for a voluntary program for prescription drug coverage under 
the Medicare Program, to modernize the Medicare Program, to 
amend the Internal Revenue Code of 1986 to allow a deduction to 
individuals for amounts contributed to health savings security 
accounts and health savings accounts, to provide for the 
disposition of unused health benefits in cafeteria plans and 
flexible spending arrangements, and for other purposes, having 
met, after full and free conference, have agreed to recommend 
and do recommend to their respective Houses as follows:
    That the House recede from its disagreement to the 
amendment of the Senate to the text of the bill and agree to 
the same with an amendment as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following.

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
                    TO BIPA AND SECRETARY; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Prescription Drug, Improvement, and Modernization Act of 
2003''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in division A of this Act an 
amendment is expressed in terms of an amendment to or repeal of 
a section or other provision, the reference shall be considered 
to be made to that section or other provision of the Social 
Security Act.
    (c) BIPA; Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means the Medicare, 
        Medicaid, and SCHIP Benefits Improvement and Protection 
        Act of 2000, as enacted into law by section 1(a)(6) of 
        Public Law 106-554.
            (2) Secretary.--The term ``Secretary'' means the 
        Secretary of Health and Human Services.
    (d) Table of Contents.--The table of contents of this Act 
is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
          BIPA and Secretary; table of contents.

               TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Medicare prescription drug benefit.

          ``Part D--Voluntary Prescription Drug Benefit Program

 ``Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits

    ``Sec. 1860D-1. Eligibility, enrollment, and information.
    ``Sec. 1860D-2. Prescription drug benefits.
    ``Sec. 1860D-3. Access to a choice of qualified prescription drug 
              coverage.
    ``Sec. 1860D-4. Beneficiary protections for qualified prescription 
              drug coverage.

      ``Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

    ``Sec. 1860D-11. PDP regions; submission of bids; plan approval.
    ``Sec. 1860D-12. Requirements for and contracts with prescription 
              drug plan (PDP) sponsors.
    ``Sec. 1860D-13. Premiums; late enrollment penalty.
    ``Sec. 1860D-14. Premium and cost-sharing subsidies for low-income 
              individuals.
    ``Sec. 1860D-15. Subsidies for part D eligible individuals for 
              qualified prescription drug coverage.
    ``Sec. 1860D-16. Medicare Prescription Drug Account in the Federal 
              Supplementary Medical Insurance Trust Fund.

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

    ``Sec. 1860D-21. Application to Medicare Advantage program and 
              related managed care programs.
    ``Sec. 1860D-22. Special rules for employer-sponsored programs.
    ``Sec. 1860D-23. State pharmaceutical assistance programs.
    ``Sec. 1860D-24. Coordination requirements for plans providing 
              prescription drug coverage.

 ``Subpart 4--Medicare Prescription Drug Discount Card and Transitional 
                           Assistance Program

    ``Sec. 1860D-31. Medicare prescription drug discount card and 
              transitional assistance program.

          ``Subpart 5--Definitions and Miscellaneous Provisions

    ``Sec. 1860D-41. Definitions; treatment of references to provisions 
              in part C.
    ``Sec. 1860D-42. Miscellaneous provisions.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug 
          discount card and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription drug 
          programs.
Sec. 109. Expanding the work of medicare Quality Improvement 
          Organizations to include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

                   Subtitle B--Immediate Improvements

Sec. 211. Immediate improvements.

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

Sec. 221. Establishment of MA regional plans.
Sec. 222. Competition program beginning in 2006.
Sec. 223. Effective date.

                     Subtitle D--Additional Reforms

Sec. 231. Specialized MA plans for special needs individuals.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Medicare MSAs.
Sec. 234. Extension of reasonable cost contracts.
Sec. 235. 2-year extension of municipal health service demonstration 
          projects.
Sec. 236. Payment by PACE providers for medicare and medicaid services 
          furnished by noncontract providers.
Sec. 237. Reimbursement for Federally qualified health centers providing 
          services under MA plans.
Sec. 238. Institute of Medicine evaluation and report on health care 
          performance measures.

          Subtitle E--Comparative Cost Adjustment (CCA) Program

Sec. 241. Comparative Cost Adjustment (CCA) program.

              TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Payment for durable medical equipment; competitive acquisition 
          of certain items and services.
Sec. 303. Payment reform for covered outpatient drugs and biologicals.
Sec. 304. Extension of application of payment reform for covered 
          outpatient drugs and biologicals to other physician 
          specialties.
Sec. 305. Payment for inhalation drugs.
Sec. 306. Demonstration project for use of recovery audit contractors.
Sec. 307. Pilot program for national and State background checks on 
          direct patient access employees of long-term care facilities 
          or providers.

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

Sec. 401. Equalizing urban and rural standardized payment amounts under 
          the medicare inpatient hospital prospective payment system.
Sec. 402. Enhanced disproportionate share hospital (DSH) treatment for 
          rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 403. Adjustment to the medicare inpatient hospital prospective 
          payment system wage index to revise the labor-related share of 
          such index.
Sec. 404. More frequent update in weights used in hospital market 
          basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Medicare inpatient hospital payment adjustment for low-volume 
          hospitals.
Sec. 407. Treatment of missing cost reporting periods for sole community 
          hospitals.
Sec. 408. Recognition of attending nurse practitioners as attending 
          physicians to serve hospice patients.
Sec. 409. Rural hospice demonstration project.
Sec. 410. Exclusion of certain rural health clinic and federally 
          qualified health center services from the prospective payment 
          system for skilled nursing facilities.
Sec. 410A. Rural community hospital demonstration program.

             Subtitle B--Provisions Relating to Part B Only

Sec. 411. 2-year extension of hold harmless provisions for small rural 
          hospitals and sole community hospitals under the prospective 
          payment system for hospital outpatient department services.
Sec. 412. Establishment of floor on work geographic adjustment.
Sec. 413. Medicare incentive payment program improvements for physician 
          scarcity.
Sec. 414. Payment for rural and urban ambulance services.
Sec. 415. Providing appropriate coverage of rural air ambulance 
          services.
Sec. 416. Treatment of certain clinical diagnostic laboratory tests 
          furnished to hospital outpatients in certain rural areas.
Sec. 417. Extension of telemedicine demonstration project.
Sec. 418. Report on demonstration project permitting skilled nursing 
          facilities to be originating telehealth sites; authority to 
          implement.

            Subtitle C--Provisions Relating to Parts A and B

Sec. 421. 1-year increase for home health services furnished in a rural 
          area.
Sec. 422. Redistribution of unused resident positions.

                      Subtitle D--Other Provisions

Sec. 431. Providing safe harbor for certain collaborative efforts that 
          benefit medically underserved populations.
Sec. 432. Office of Rural Health Policy improvements.
Sec. 433. MedPAC study on rural hospital payment adjustments.
Sec. 434. Frontier extended stay clinic demonstration project.

                 TITLE V--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

Sec. 501. Revision of acute care hospital payment updates.
Sec. 502. Revision of the indirect medical education (IME) adjustment 
          percentage.
Sec. 503. Recognition of new medical technologies under inpatient 
          hospital prospective payment system.
Sec. 504. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 505. Wage index adjustment reclassification reform.
Sec. 506. Limitation on charges for inpatient hospital contract health 
          services provided to Indians by medicare participating 
          hospitals.
Sec. 507. Clarifications to certain exceptions to medicare limits on 
          physician referrals.
Sec. 508. 1-Time appeals process for hospital wage index classification.

                      Subtitle B--Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.
Sec. 513. Study on portable diagnostic ultrasound services for 
          beneficiaries in skilled nursing facilities.

                 TITLE VI--PROVISIONS RELATING TO PART B

         Subtitle A--Provisions Relating to Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Treatment of physicians' services furnished in Alaska.
Sec. 603. Inclusion of podiatrists, dentists, and optometrists under 
          private contracting authority.
Sec. 604. GAO study on access to physicians' services.
Sec. 605. Collaborative demonstration-based review of physician practice 
          expense geographic adjustment data.
Sec. 606. MedPAC report on payment for physicians' services.

                     Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cardiovascular screening blood tests.
Sec. 613. Coverage of diabetes screening tests.
Sec. 614. Improved payment for certain mammography services.

                      Subtitle C--Other Provisions

Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Limitation of application of functional equivalence standard.
Sec. 623. Payment for renal dialysis services.
Sec. 624. 2-year moratorium on therapy caps; provisions relating to 
          reports.
Sec. 625. Waiver of part B late enrollment penalty for certain military 
          retirees; special enrollment period.
Sec. 626. Payment for services furnished in ambulatory surgical centers.
Sec. 627. Payment for certain shoes and inserts under the fee schedule 
          for orthotics and prosthetics.
Sec. 628. Payment for clinical diagnostic laboratory tests.
Sec. 629. Indexing part B deductible to inflation.
Sec. 630. 5-year authorization of reimbursement for all medicare part B 
          services furnished by certain Indian hospitals and clinics.

  Subtitle D--Additional Demonstrations, Studies, and Other Provisions

Sec. 641. Demonstration project for coverage of certain prescription 
          drugs and biologicals.
Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) 
          for the treatment of primary immune deficiency diseases in the 
          home.
Sec. 643. MedPAC study of coverage of surgical first assisting services 
          of certified registered nurse first assistants.
Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.
Sec. 645. Studies relating to vision impairments.
Sec. 646. Medicare health care quality demonstration programs.
Sec. 647. MedPAC study on direct access to physical therapy services.
Sec. 648. Demonstration project for consumer-directed chronic outpatient 
          services.
Sec. 649. Medicare care management performance demonstration.
Sec. 650. GAO study and report on the propagation of concierge care.
Sec. 651. Demonstration of coverage of chiropractic services under 
          medicare.

             TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. Demonstration project to clarify the definition of homebound.
Sec. 703. Demonstration project for medical adult day care services.
Sec. 704. Temporary suspension of OASIS requirement for collection of 
          data on non-medicare and non-medicaid patients.
Sec. 705. MedPAC study on medicare margins of home health agencies.
Sec. 706. Coverage of religious nonmedical health care institution 
          services furnished in the home.

                 Subtitle B--Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.
Sec. 712. Exception to initial residency period for geriatric residency 
          or fellowship programs.
Sec. 713. Treatment of volunteer supervision.

                  Subtitle C--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
          service.
Sec. 722. Medicare Advantage quality improvement programs.
Sec. 723. Chronically ill medicare beneficiary research, data, 
          demonstration strategy.

                      Subtitle D--Other Provisions

Sec. 731. Improvements in national and local coverage determination 
          process to respond to changes in technology.
Sec. 732. Extension of treatment of certain physician pathology services 
          under medicare.
Sec. 733. Payment for pancreatic islet cell investigational transplants 
          for medicare beneficiaries in clinical trials.
Sec. 734. Restoration of medicare trust funds.
Sec. 735. Modifications to Medicare Payment Advisory Commission 
          (MedPAC).
Sec. 736. Technical amendments.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

Sec. 801. Inclusion in annual report of medicare trustees of information 
          on status of medicare trust funds.
Sec. 802. Presidential submission of legislation.
Sec. 803. Procedures in the House of Representatives.
Sec. 804. Procedures in the Senate.

     Subtitle B--Income-Related Reduction in Part B Premium Subsidy

Sec. 811. Income-related reduction in part B premium subsidy.

    TITLE IX--ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION, AND 
                           CONTRACTING REFORM

Sec. 900. Administrative improvements within the Centers for Medicare & 
          Medicaid Services (CMS).

                      Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.
Sec. 902. Issuance of regulations.
Sec. 903. Compliance with changes in regulations and policies.
Sec. 904. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 911. Increased flexibility in medicare administration.
Sec. 912. Requirements for information security for medicare 
          administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 921. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare Beneficiary Ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to 
          beneficiaries about skilled nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities 
          in hospital discharge plans.

                    Subtitle D--Appeals and Recovery

Sec. 931. Transfer of responsibility for medicare appeals.
Sec. 932. Process for expedited access to review.
Sec. 933. Revisions to medicare appeals process.
Sec. 934. Prepayment review.
Sec. 935. Recovery of overpayments.
Sec. 936. Provider enrollment process; right of appeal.
Sec. 937. Process for correction of minor errors and omissions without 
          pursuing appeals process.
Sec. 938. Prior determination process for certain items and services; 
          advance beneficiary notices.
Sec. 939. Appeals by providers when there is no other party available.
Sec. 940. Revisions to appeals timeframes and amounts.
Sec. 940A. Mediation process for local coverage determinations.

                  Subtitle E--Miscellaneous Provisions

Sec. 941. Policy development regarding evaluation and management (E & M) 
          documentation guidelines.
Sec. 942. Improvement in oversight of technology and coverage.
Sec. 943. Treatment of hospitals for certain services under medicare 
          secondary payor (MSP) provisions.
Sec. 944. EMTALA improvements.
Sec. 945. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
          Advisory Group.
Sec. 946. Authorizing use of arrangements to provide core hospice 
          services in certain circumstances.
Sec. 947. Application of OSHA bloodborne pathogens standard to certain 
          hospitals.
Sec. 948. BIPA-related technical amendments and corrections.
Sec. 949. Conforming authority to waive a program exclusion.
Sec. 950. Treatment of certain dental claims.
Sec. 951. Furnishing hospitals with information to compute DSH formula.
Sec. 952. Revisions to reassignment provisions.
Sec. 953. Other provisions.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                     Subtitle A--Medicaid Provisions

Sec. 1001. Medicaid disproportionate share hospital (DSH) payments.
Sec. 1002. Clarification of inclusion of inpatient drug prices charged 
          to certain public hospitals in the best price exemptions for 
          the medicaid drug rebate program.
Sec. 1003. Extension of moratorium.

                  Subtitle B--Miscellaneous Provisions

Sec. 1011. Federal reimbursement of emergency health services furnished 
          to undocumented aliens.
Sec. 1012. Commission on Systemic Interoperability.
Sec. 1013. Research on outcomes of health care items and services.
Sec. 1014. Health care that works for all Americans: Citizens Health 
          Care Working Group.
Sec. 1015. Funding start-up administrative costs for medicare reform.
Sec. 1016. Health care infrastructure improvement program.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

Sec. 1101. 30-month stay-of-effectiveness period.
Sec. 1102. Forfeiture of 180-day exclusivity period.
Sec. 1103. Bioavailability and bioequivalence.
Sec. 1104. Conforming amendments.

               Subtitle B--Federal Trade Commission Review

Sec. 1111. Definitions.
Sec. 1112. Notification of agreements.
Sec. 1113. Filing deadlines.
Sec. 1114. Disclosure exemption.
Sec. 1115. Enforcement.
Sec. 1116. Rulemaking.
Sec. 1117. Savings clause.
Sec. 1118. Effective date.

              Subtitle C--Importation of Prescription Drugs

Sec. 1121. Importation of prescription drugs.
Sec. 1122. Study and report on importation of drugs.
Sec. 1123. Study and report on trade in pharmaceuticals.

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

Sec. 1201. Health savings accounts.
Sec. 1202. Exclusion from gross income of certain Federal subsidies for 
          prescription drug plans.
Sec. 1203. Exception to information reporting requirements related to 
          certain health arrangements.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program

``Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits

               ``ELIGIBILITY, ENROLLMENT, AND INFORMATION

    ``Sec. 1860D-1. (a) Provision of Qualified Prescription 
Drug Coverage Through Enrollment in Plans.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this part, each part D eligible 
        individual (as defined in paragraph (3)(A)) is entitled 
        to obtain qualified prescription drug coverage 
        (described in section 1860D-2(a)) as follows:
                    ``(A) Fee-for-service enrollees may receive 
                coverage through a prescription drug plan.--A 
                part D eligible individual who is not enrolled 
                in an MA plan may obtain qualified prescription 
                drug coverage through enrollment in a 
                prescription drug plan (as defined in section 
                1860D-41(a)(14)).
                    ``(B) Medicare advantage enrollees.--
                            ``(i) Enrollees in a plan providing 
                        qualified prescription drug coverage 
                        receive coverage through the plan.--A 
                        part D eligible individual who is 
                        enrolled in an MA-PD plan obtains such 
                        coverage through such plan.
                            ``(ii) Limitation on enrollment of 
                        ma plan enrollees in prescription drug 
                        plans.--Except as provided in clauses 
                        (iii) and (iv), a part D eligible 
                        individual who is enrolled in an MA 
                        plan may not enroll in a prescription 
                        drug plan under this part.
                            ``(iii) Private fee-for-service 
                        enrollees in ma plans not providing 
                        qualified prescription drug coverage 
                        permitted to enroll in a prescription 
                        drug plan.--A part D eligible 
                        individual who is enrolled in an MA 
                        private fee-for-service plan (as 
                        defined in section 1859(b)(2)) that 
                        does not provide qualified prescription 
                        drug coverage may obtain qualified 
                        prescription drug coverage through 
                        enrollment in a prescription drug plan.
                            ``(iv) Enrollees in msa plans 
                        permitted to enroll in a prescription 
                        drug plan.--A part D eligible 
                        individual who is enrolled in an MSA 
                        plan (as defined in section 1859(b)(3)) 
                        may obtain qualified prescription drug 
                        coverage through enrollment in a 
                        prescription drug plan.
            ``(2) Coverage first effective january 1, 2006.--
        Coverage under prescription drug plans and MA-PD plans 
        shall first be effective on January 1, 2006.
            ``(3) Definitions.--For purposes of this part:
                    ``(A) Part d eligible individual.--The term 
                `part D eligible individual' means an 
                individual who is entitled to benefits under 
                part A or enrolled under part B.
                    ``(B) MA plan.--The term `MA plan' has the 
                meaning given such term in section 1859(b)(1).
                    ``(C) MA-PD plan.--The term `MA-PD plan' 
                means an MA plan that provides qualified 
                prescription drug coverage.
    ``(b) Enrollment Process for Prescription Drug Plans.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall 
                establish a process for the enrollment, 
                disenrollment, termination, and change of 
                enrollment of part D eligible individuals in 
                prescription drug plans consistent with this 
                subsection.
                    ``(B) Application of ma rules.--In 
                establishing such process, the Secretary shall 
                use rules similar to (and coordinated with) the 
                rules for enrollment, disenrollment, 
                termination, and change of enrollment with an 
                MA-PD plan under the following provisions of 
                section 1851:
                            ``(i) Residence requirements.--
                        Section 1851(b)(1)(A), relating to 
                        residence requirements.
                            ``(ii) Exercise of choice.--Section 
                        1851(c) (other than paragraph (3)(A) of 
                        such section), relating to exercise of 
                        choice.
                            ``(iii) Coverage election 
                        periods.--Subject to paragraphs (2) and 
                        (3) of this subsection, section 1851(e) 
                        (other than subparagraphs (B) and (C) 
                        of paragraph (2) and the second 
                        sentence of paragraph (4) of such 
                        section), relating to coverage election 
                        periods, including initial periods, 
                        annual coordinated election periods, 
                        special election periods, and election 
                        periods for exceptional circumstances.
                            ``(iv) Coverage periods.--Section 
                        1851(f), relating to effectiveness of 
                        elections and changes of elections.
                            ``(v) Guaranteed issue and 
                        renewal.--Section 1851(g) (other than 
                        paragraph (2) of such section and 
                        clause (i) and the second sentence of 
                        clause (ii) of paragraph (3)(C) of such 
                        section), relating to guaranteed issue 
                        and renewal.
                            ``(vi) Marketing material and 
                        application forms.--Section 1851(h), 
                        relating to approval of marketing 
                        material and application forms.
                In applying clauses (ii), (iv), and (v) of this 
                subparagraph, any reference to section 1851(e) 
                shall be treated as a reference to such section 
                as applied pursuant to clause (iii) of this 
                subparagraph.
                    ``(C) Special rule.--The process 
                established under subparagraph (A) shall 
                include, in the case of a part D eligible 
                individual who is a full-benefit dual eligible 
                individual (as defined in section 1935(c)(6)) 
                who has failed to enroll in a prescription drug 
                plan or an MA-PD plan, for the enrollment in a 
                prescription drug plan that has a monthly 
                beneficiary premium that does not exceed the 
                premium assistance available under section 
                1860D-14(a)(1)(A)). If there is more than one 
                such plan available, the Secretary shall enroll 
                such an individual on a random basis among all 
                such plans in the PDP region. Nothing in the 
                previous sentence shall prevent such an 
                individual from declining or changing such 
                enrollment.
            ``(2) Initial enrollment period.--
                    ``(A) Program initiation.--In the case of 
                an individual who is a part D eligible 
                individual as of November 15, 2005, there shall 
                be an initial enrollment period that shall be 
                the same as the annual, coordinated open 
                election period described in section 
                1851(e)(3)(B)(iii), as applied under paragraph 
                (1)(B)(iii).
                    ``(B) Continuing periods.--In the case of 
                an individual who becomes a part D eligible 
                individual after November 15, 2005, there shall 
                be an initial enrollment period which is the 
                period under section 1851(e)(1), as applied 
                under paragraph (1)(B)(iii) of this section, as 
                if `entitled to benefits under part A or 
                enrolled under part B' were substituted for 
                `entitled to benefits under part A and enrolled 
                under part B', but in no case shall such period 
                end before the period described in subparagraph 
                (A).
            ``(3) Additional special enrollment periods.--The 
        Secretary shall establish special enrollment periods, 
        including the following:
                    ``(A) Involuntary loss of creditable 
                prescription drug coverage.--
                            ``(i) In general.--In the case of a 
                        part D eligible individual who 
                        involuntarily loses creditable 
                        prescription drug coverage (as defined 
                        in section 1860D-13(b)(4)).
                            ``(ii) Notice.--In establishing 
                        special enrollment periods under clause 
                        (i), the Secretary shalltake into 
account when the part D eligible individuals are provided notice of the 
loss of creditable prescription drug coverage.
                            ``(iii) Failure to pay premium.--
                        For purposes of clause (i), a loss of 
                        coverage shall be treated as voluntary 
                        if the coverage is terminated because 
                        of failure to pay a required 
                        beneficiary premium.
                            ``(iv) Reduction in coverage.--For 
                        purposes of clause (i), a reduction in 
                        coverage so that the coverage no longer 
                        meets the requirements under section 
                        1860D-13(b)(5) (relating to actuarial 
                        equivalence) shall be treated as an 
                        involuntary loss of coverage.
                    ``(B) Errors in enrollment.--In the case 
                described in section 1837(h) (relating to 
                errors in enrollment), in the same manner as 
                such section applies to part B.
                    ``(C) Exceptional circumstances.--In the 
                case of part D eligible individuals who meet 
                such exceptional conditions (in addition to 
                those conditions applied under paragraph 
                (1)(B)(iii)) as the Secretary may provide.
                    ``(D) Medicaid coverage.--In the case of an 
                individual (as determined by the Secretary) who 
                is a full-benefit dual eligible individual (as 
                defined in section 1935(c)(6)).
                    ``(E) Discontinuance of ma-pd election 
                during first year of eligibility.--In the case 
                of a part D eligible individual who 
                discontinues enrollment in an MA-PD plan under 
                the second sentence of section 1851(e)(4) at 
                the time of the election of coverage under such 
                sentence under the original medicare fee-for-
                service program.
            ``(4) Information to facilitate enrollment.--
                    ``(A) In general.--Notwithstanding any 
                other provision of law but subject to 
                subparagraph (B), the Secretary may provide to 
                each PDP sponsor and MA organization such 
                identifying information about part D eligible 
                individuals as the Secretary determines to be 
                necessary to facilitate efficient marketing of 
                prescription drug plans and MA-PD plans to such 
                individuals and enrollment of such individuals 
                in such plans.
                    ``(B) Limitation.--
                            ``(i) Provision of information.--
                        The Secretary may provide the 
                        information under subparagraph (A) only 
                        to the extent necessary to carry out 
                        such subparagraph.
                            ``(ii) Use of information.--Such 
                        information provided by the Secretary 
                        to a PDP sponsor or an MA organization 
                        may be used by such sponsor or 
                        organization only to facilitate 
                        marketing of, and enrollment of part D 
                        eligible individuals in, prescription 
                        drug plans and MA-PD plans.
            ``(5) Reference to enrollment procedures for ma-pd 
        plans.--For rules applicable to enrollment, 
        disenrollment, termination, and change of enrollment of 
        part D eligible individuals in MA-PD plans, see section 
        1851.
            ``(6) Reference to penalties for late enrollment.--
        Section 1860D-13(b) imposes a late enrollment penalty 
        for part D eligible individuals who--
                    ``(A) enroll in a prescription drug plan or 
                an MA-PD plan after the initial enrollment 
                period described in paragraph (2); and
                    ``(B) fail to maintain continuous 
                creditable prescription drug coverage during 
                the period of non-enrollment.
    ``(c) Providing Information to Beneficiaries.--
            ``(1) Activities.--The Secretary shall conduct 
        activities that are designed to broadly disseminate 
        information to part D eligible individuals (and 
        prospective part D eligible individuals) regarding the 
        coverage provided under this part. Such activities 
        shall ensure that such information is first made 
        available at least 30 days prior to the initial 
        enrollment period described in subsection (b)(2)(A).
            ``(2) Requirements.--The activities described in 
        paragraph (1) shall--
                    ``(A) be similar to the activities 
                performed by the Secretary under section 
                1851(d), including dissemination (including 
                through the toll-free telephone number 1-800-
                MEDICARE) of comparative information for 
                prescription drug plans and MA-PD plans; and
                    ``(B) be coordinated with the activities 
                performed by the Secretary under such section 
                and under section 1804.
            ``(3) Comparative information.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the comparative information referred to in 
                paragraph (2)(A) shall include a comparison of 
                the following with respect to qualified 
                prescription drug coverage:
                            ``(i) Benefits.--The benefits 
                        provided under the plan.
                            ``(ii) Monthly beneficiary 
                        premium.--The monthly beneficiary 
                        premium under the plan.
                            ``(iii) Quality and performance.--
                        The quality and performance under the 
                        plan.
                            ``(iv) Beneficiary cost-sharing.--
                        The cost-sharing required of part D 
                        eligible individuals under the plan.
                            ``(v) Consumer satisfaction 
                        surveys.--The results of consumer 
                        satisfaction surveys regarding the plan 
                        conducted pursuant to section 1860D-
                        4(d).
                    ``(B) Exception for unavailability of 
                information.--The Secretary is not required to 
                provide comparative information under clauses 
                (iii) and (v) of subparagraph (A) with respect 
                to a plan--
                            ``(i) for the first plan year in 
                        which it is offered; and
                            ``(ii) for the next plan year if it 
                        is impracticable or the information is 
                        otherwise unavailable.
            ``(4) Information on late enrollment penalty.--The 
        information disseminated under paragraph (1) shall 
        include information concerning the methodology for 
        determining the late enrollment penalty under section 
        1860D-13(b).

                      ``PRESCRIPTION DRUG BENEFITS

    ``Sec. 1860D-2. (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 prescription drug coverage 
                with access to negotiated prices.--Standard 
                prescription drug coverage (as defined in 
                subsection (b)) and access to negotiated prices 
                under subsection (d).
                    ``(B) Alternative prescription drug 
                coverage with at least actuarially equivalent 
                benefits and access to negotiated prices.--
                Coverage of covered part D drugs which meets 
                the alternative prescription drug coverage 
                requirements of subsection (c) and access to 
                negotiated prices under subsection (d), but 
                only if the benefit design of such coverage is 
                approved by the Secretary, as provided under 
                subsection (c).
            ``(2) Permitting supplemental prescription drug 
        coverage.--
                    ``(A) In general.--Subject to subparagraph 
                (B), qualified prescription drug coverage may 
                include supplemental prescription drug coverage 
                consisting of either or both of the following:
                            ``(i) Certain reductions in cost-
                        sharing.--
                                    ``(I) In general.--A 
                                reduction in the annual 
                                deductible, a reduction in the 
                                coinsurance percentage, or an 
                                increase in the initial 
                                coverage limit with respect to 
                                covered part D drugs, or any 
                                combination thereof, insofar as 
                                such a reduction or increase 
                                increases the actuarial value 
                                of benefits above the actuarial 
                                value of basic prescription 
                                drug coverage.
                                    ``(II) Construction.--
                                Nothing in this paragraph shall 
                                be construed as affecting the 
                                application of subsection 
                                (c)(3).
                            ``(ii) Optional drugs.--Coverage of 
                        any product that would be a covered 
                        part D drug but for the application of 
                        subsection (e)(2)(A).
                    ``(B) Requirement.--A PDP sponsor may not 
                offer a prescription drug plan that provides 
                supplemental prescription drug coverage 
                pursuant to subparagraph (A) in an area unless 
                the sponsor also offers a prescription drug 
                plan in the area that only provides basic 
                prescription drug coverage.
            ``(3) Basic prescription drug coverage.--For 
        purposes of this part and part C, the term `basic 
        prescription drug coverage' means either of the 
        following:
                    ``(A) Coverage that meets the requirements 
                of paragraph (1)(A).
                    ``(B) Coverage that meets the requirements 
                of paragraph (1)(B) but does not have any 
                supplemental prescription drug coverage 
                described in paragraph (2)(A).
            ``(4) Application of secondary payor provisions.--
        The provisions of section 1852(a)(4) shall apply under 
        this part in the same manner as they apply under part 
        C.
            ``(5) Construction.--Nothing in this subsection 
        shall be construed as changing the computation of 
        incurred costs under subsection (b)(4).
    ``(b) Standard Prescription Drug Coverage.--For purposes of 
this part and part C, the term `standard prescription drug 
coverage' means coverage of covered part D drugs that meets the 
following requirements:
            ``(1) Deductible.--
                    ``(A) In general.--The coverage has an 
                annual deductible--
                            ``(i) for 2006, that is equal to 
                        $250; or
                            ``(ii) for a subsequent year, that 
                        is equal to the amount specified under 
                        this paragraph for the previous year 
                        increased by the percentage specified 
                        in paragraph (6) for the year involved.
                    ``(B) Rounding.--Any amount determined 
                under subparagraph (A)(ii) that is not a 
                multiple of $5 shall be rounded to the nearest 
                multiple of $5.
            ``(2) Benefit structure.--
                    ``(A) 25 percent coinsurance.--The coverage 
                has coinsurance (for costs above the annual 
                deductible specified in paragraph (1) and up to 
                the initial coverage limit under paragraph (3)) 
                that is--
                            ``(i) equal to 25 percent; or
                            ``(ii) actuarially equivalent 
                        (using processes and methods 
                        established under section 1860D-11(c)) 
                        to an average expected payment of 25 
                        percent of such costs.
                    ``(B) Use of tiers.--Nothing in this part 
                shall be construed as preventing a PDP sponsor 
                or an MA organization from applying tiered 
                copayments under a plan, so long as such tiered 
                copayments are consistent with subparagraph 
                (A)(ii).
            ``(3) Initial coverage limit.--
                    ``(A) In general.--Except as provided in 
                paragraph (4), the coverage has an initial 
                coverage limit on the maximum costs that may be 
                recognized for payment purposes (including the 
                annual deductible)--
                            ``(i) for 2006, that is equal to 
                        $2,250; or
                            ``(ii) for a subsequent year, that 
                        is equal to the amount specified in 
                        this paragraph for the previous year, 
                        increased by the annual percentage 
                        increase described in paragraph (6) for 
                        the year involved.
                    ``(B) Rounding.--Any amount determined 
                under subparagraph (A)(ii) that is not a 
                multiple of $10 shall be rounded to the nearest 
                multiple of $10.
            ``(4) Protection against high out-of-pocket 
        expenditures.--
                    ``(A) In general.--
                            ``(i) In general.--The coverage 
                        provides benefits, after the part D 
                        eligible individual has incurred costs 
                        (as described in subparagraph (C)) for 
                        covered part D drugs in a year equal to 
                        the annual out-of-pocket threshold 
                        specified in subparagraph (B), with 
                        cost-sharing that is equal to the 
                        greater of--
                                    ``(I) a copayment of $2 for 
                                a generic drug or a preferred 
                                drug that is a multiple source 
                                drug (as defined in section 
                                1927(k)(7)(A)(i)) and $5 for 
                                any other drug; or
                                    ``(II) coinsurance that is 
                                equal to 5 percent.
                            ``(ii) Adjustment of amount.--For a 
                        year after 2006, the dollar amounts 
                        specified in clause (i)(I) shall be 
                        equal to the dollar amounts specified 
                        in this subparagraph for the previous 
                        year, increased by the annual 
                        percentage increase described in 
                        paragraph (6) for the year involved. 
                        Any amount established under this 
                        clause that is not a multiple of a 5 
                        cents shall be rounded to the nearest 
                        multiple of 5 cents.
                    ``(B) Annual out-of-pocket threshold.--
                            ``(i) In general.--For purposes of 
                        this part, the `annual out-of-pocket 
                        threshold' specified in this 
                        subparagraph--
                                    ``(I) for 2006, is equal to 
                                $3,600; or
                                    ``(II) for a subsequent 
                                year, is equal to the amount 
                                specified in this subparagraph 
                                for the previous year, 
                                increased by the annual 
                                percentage increase described 
                                in paragraph (6) for the year 
                                involved.
                            ``(ii) Rounding.--Any amount 
                        determined under clause (i)(II) that is 
                        not a multiple of $50 shall be rounded 
                        to the nearest multiple of $50.
                    ``(C) Application.--In applying 
                subparagraph (A)--
                            ``(i) incurred costs shall only 
                        include costs incurred with respect to 
                        covered part D drugs for the annual 
                        deductible described in paragraph (1), 
                        for cost-sharing described in paragraph 
                        (2), and for amounts for which benefits 
                        are not provided because of the 
                        application of the initial coverage 
                        limit described in paragraph (3), but 
                        does not include any costs incurred for 
                        covered part D drugs which are not 
                        included (or treated as being included) 
                        in the plan's formulary; and
                            ``(ii) such costs shall be treated 
                        as incurred only if they are paid by 
                        the part D eligible individual (or by 
                        another person, such as a family 
                        member, on behalf of the individual), 
                        under section 1860D-14, or under a 
                        State Pharmaceutical Assistance Program 
                        and the part D eligible individual (or 
                        other person) is not reimbursed through 
                        insurance or otherwise, a group health 
                        plan, or other third-party payment 
                        arrangement (other than under such 
                        section or such a Program) for such 
                        costs.
                    ``(D) Information regarding third-party 
                reimbursement.--
                            ``(i) Procedures for exchanging 
                        information.--In order to accurately 
                        apply the requirements of subparagraph 
                        (C)(ii), the Secretary is authorized to 
                        establish procedures, in coordination 
                        with the Secretary of the Treasury and 
                        the Secretary of Labor--
                                    ``(I) for determining 
                                whether costs for part D 
                                eligible individuals are being 
                                reimbursed through insurance or 
                                otherwise, a group health plan, 
                                or other third-party payment 
                                arrangement; and
                                    ``(II) for alerting the PDP 
                                sponsors and MA organizations 
                                that offer the prescription 
                                drug plans and MA-PD plans in 
                                which such individuals are 
                                enrolled about such 
                                reimbursement arrangements.
                            ``(ii) Authority to request 
                        information from enrollees.--A PDP 
                        sponsor or an MA organization may 
                        periodically ask part D eligible 
                        individuals enrolled in a prescription 
                        drug plan or an MA-PD plan offered by 
                        the sponsor or organization whether 
                        such individuals have or expect to 
                        receive such third-party reimbursement. 
                        A material misrepresentation of the 
                        information described in the preceding 
                        sentence by an individual (as defined 
                        in standards set by the Secretary and 
                        determined through a process 
                        established by the Secretary) shall 
                        constitute grounds for termination of 
                        enrollment in any plan under section 
                        1851(g)(3)(B) (and as applied under 
                        this part under section 1860D-
                        1(b)(1)(B)(v)) for a period specified 
                        by the Secretary.
            ``(5) Construction.--Nothing in this part shall be 
        construed as preventing a PDP sponsor or an MA 
        organization offering an MA-PD plan from reducing to 0 
        the cost-sharing otherwise applicable to preferred or 
        generic drugs.
            ``(6) Annual percentage increase.--The annual 
        percentage increase specified in this paragraph for a 
        year is equal to the annual percentage increase in 
        average per capita aggregate expenditures for covered 
        part D drugs in the United States for part D eligible 
        individuals, as determined by the Secretary for the 12-
        month period ending in July of the previous year using 
        such methods as the Secretary shall specify.
    ``(c) Alternative Prescription Drug Coverage 
Requirements.--A prescription drug plan or an MA-PD plan may 
provide a different prescription drug benefit design from 
standard prescription drug coverage so long as the Secretary 
determines (consistent with section 1860D-11(c)) that the 
following requirements are met and the plan applies for, and 
receives, the approval of the Secretary for such benefit 
design:
            ``(1) Assuring at least actuarially equivalent 
        coverage.--
                    ``(A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total 
                coverage is at least equal to the actuarial 
                value of standard prescription drug coverage.
                    ``(B) Assuring equivalent unsubsidized 
                value of coverage.--The unsubsidized value of 
                the coverage is at least equal to the 
                unsubsidized value of standard prescription 
                drug coverage. For purposes of this 
                subparagraph, the unsubsidized value of 
                coverage is the amount by which the actuarial 
                value of the coverage exceeds the actuarial 
                value of the subsidy payments under section 
                1860D-15 with respect to such coverage.
                    ``(C) Assuring standard payment for costs 
                at initial coverage limit.--The coverage is 
                designed, based upon an actuarially 
                representative pattern of utilization, to 
                provide for the payment, with respect to costs 
                incurred that are equal to the initial coverage 
                limit under subsection (b)(3) for the year, of 
                an amount equal to at least the product of--
                            ``(i) the amount by which the 
                        initial coverage limit described in 
                        subsection (b)(3) for the year exceeds 
                        the deductible described in subsection 
                        (b)(1) for the year; and
                            ``(ii) 100 percent minus the 
                        coinsurance percentage specified in 
                        subsection (b)(2)(A)(i).
            ``(2) Maximum required deductible.--The deductible 
        under the coverage shall not exceed the deductible 
        amount specified under subsection (b)(1) for the year.
            ``(3) Same protection against high out-of-pocket 
        expenditures.--The coverage provides the coverage 
        required under subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
            ``(1) Access.--
                    ``(A) In general.--Under qualified 
                prescription drug coverage offered by a PDP 
                sponsor offering a prescription drug plan or an 
                MA organization offering an MA-PD plan, the 
                sponsor or organization shall provide enrollees 
                with access to negotiated prices used for 
                payment for covered part D drugs, regardless of 
                the fact that no benefits may be payable under 
                the coverage with respect to such drugs because 
                of the application of a deductible or other 
                cost-sharing or an initial coverage limit 
                (described in subsection (b)(3)).
                    ``(B) Negotiated prices.--For purposes of 
                this part, negotiated prices shall take into 
                account negotiated price concessions, such as 
                discounts, direct or indirect subsidies, 
                rebates, and direct or indirect remunerations, 
                for covered part D drugs, and include any 
                dispensing fees for such drugs.
                    ``(C) Medicaid-related provisions.--The 
                prices negotiated by a prescription drug plan, 
                by an MA-PD plan with respect to covered part D 
                drugs, or by a qualified retiree prescription 
                drug plan (as defined in section 1860D-
                22(a)(2)) with respect to such drugs on behalf 
                of part D eligible individuals, shall 
                (notwithstanding any other provision of law) 
                not be taken into account for the purposes of 
                establishing the best price under section 
                1927(c)(1)(C).
            ``(2) Disclosure.--A PDP sponsor offering a 
        prescription drug plan or an MA organization offering 
        an MA-PD plan shall disclose to the Secretary (in a 
        manner specified by the Secretary) the aggregate 
        negotiated price concessions described in paragraph 
        (1)(B) made available to the sponsor or organization by 
        a manufacturer which are passed through in the form of 
        lower subsidies, lower monthly beneficiary prescription 
        drug premiums, and lower prices through pharmacies and 
        other dispensers. The provisions of section 
        1927(b)(3)(D) apply to information disclosed to the 
        Secretary under this paragraph.
            ``(3) Audits.--To protect against fraud and abuse 
        and to ensure proper disclosures and accounting under 
        this part and in accordance with section 1857(d)(2)(B) 
        (as applied under section 1860D-12(b)(3)(C)), the 
        Secretary may conduct periodic audits, directly or 
        through contracts, of the financial statements and 
        records of PDP sponsors with respect to prescription 
        drug plans and MA organizations with respect to MA-PD 
        plans.
    ``(e) Covered Part D Drug Defined.--
            ``(1) In general.--Except as provided in this 
        subsection, for purposes of this part, the term 
        `covered part D drug' means--
                    ``(A) a drug that may be dispensed only 
                upon a prescription and that is described in 
                subparagraph (A)(i), (A)(ii), or (A)(iii) of 
                section 1927(k)(2); or
                    ``(B) a biological product described in 
                clauses (i) through (iii) of subparagraph (B) 
                of such section or insulin described in 
                subparagraph (C) of such section and medical 
                supplies associated with the injection of 
                insulin (as defined in regulations of the 
                Secretary),
        and such term includes a vaccine licensed under section 
        351 of the Public Health Service Act and any use of a 
        covered part D drug for a medically accepted indication 
        (as defined in section 1927(k)(6)).
            ``(2) Exclusions.--
                    ``(A) In general.--Such term does not 
                include drugs or classes of drugs, or their 
                medical uses, which may be excluded from 
                coverage or otherwise restricted under section 
                1927(d)(2), other than subparagraph (E) of such 
                section (relating to smoking cessation agents), 
                or under section 1927(d)(3).
                    ``(B) Medicare covered drugs.--A drug 
                prescribed for a part D eligible individual 
                that would otherwise be a covered part D drug 
                under this part shall not be so considered if 
                payment for such drug as so prescribed and 
                dispensed or administered with respect to that 
                individual is available (or would be available 
                but for the application of a deductible) under 
                part A or B for that individual.
            ``(3) Application of general exclusion 
        provisions.--A prescription drug plan or an MA-PD plan 
        may exclude from qualified prescription drug coverage 
        any covered part D drug--
                    ``(A) for which payment would not be made 
                if section 1862(a) applied to this part; or
                    ``(B) which is not prescribed in accordance 
                with the plan or this part.
        Such exclusions are determinations subject to 
        reconsideration and appeal pursuant to subsections (g) 
        and (h), respectively, of section 1860D-4.

      ``ACCESS TO A CHOICE OF QUALIFIED PRESCRIPTION DRUG COVERAGE

    ``Sec. 1860D-3. (a) Assuring Access to a Choice of 
Coverage.--
            ``(1) Choice of at least two plans in each area.--
        The Secretary shall ensure that each part D eligible 
        individual has available, consistent with paragraph 
        (2), a choice of enrollment in at least 2 qualifying 
        plans (as defined in paragraph (3)) in the area in 
        which the individual resides, at least one of which is 
        a prescription drug plan. In any such case in which 
        such plans are not available, the part D eligible 
        individual shall be given the opportunity to enroll in 
        a fallback prescription drug plan.
            ``(2) Requirement for different plan sponsors.--The 
        requirement in paragraph (1) is not satisfied with 
        respect to an area if only one entity offers all the 
        qualifying plans in the area.
            ``(3) Qualifying plan defined.--For purposes of 
        this section, the term `qualifying plan' means--
                    ``(A) a prescription drug plan; or
                    ``(B) an MA-PD plan described in section 
                1851(a)(2)(A)(i) that provides--
                            ``(i) basic prescription drug 
                        coverage; or
                            ``(ii) qualified prescription drug 
                        coverage that provides supplemental 
                        prescription drug coverage so long as 
                        there is no MA monthly supplemental 
                        beneficiary premium applied under the 
                        plan, due to the application of a 
                        credit against such premium of a rebate 
                        under section 1854(b)(1)(C).
    ``(b) Flexibility in Risk Assumed and Application of 
Fallback Plan.--In order to ensure access pursuant to 
subsection (a) in an area--
            ``(1) the Secretary may approve limited risk plans 
        under section 1860D-11(f) for the area; and
            ``(2) only if such access is still not provided in 
        the area after applying paragraph (1), the Secretary 
        shall provide for the offering of a fallback 
        prescription drug plan for that area under section 
        1860D-11(g).

   ``BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE

    ``Sec. 1860D-4. (a) Dissemination of Information.--
            ``(1) General information.--
                    ``(A) Application of ma information.--A PDP 
                sponsor shall disclose, in a clear, accurate, 
                and standardized form to each enrollee with a 
                prescription drug plan offered by the sponsor 
                under this part at the time of enrollment and 
                at least annually thereafter, the information 
                described in section 1852(c)(1) relating to 
                such plan, insofar as the Secretary determines 
                appropriate with respect to benefits provided 
                under this part, and including the information 
                described in subparagraph (B).
                    ``(B) Drug specific information.--The 
                information described in this subparagraph is 
                information concerning the following:
                            ``(i) Access to specific covered 
                        part D drugs, including access through 
                        pharmacy networks.
                            ``(ii) How any formulary (including 
                        any tiered formulary structure) used by 
                        the sponsor functions, including a 
                        description of how a part D eligible 
                        individual may obtain information on 
                        the formulary consistent with paragraph 
                        (3).
                            ``(iii) Beneficiary cost-sharing 
                        requirements and how a part D eligible 
                        individual may obtain information on 
                        such requirements, including tiered or 
                        other copayment level applicable to 
                        each drug (or class of drugs), 
                        consistent with paragraph (3).
                            ``(iv) The medication therapy 
                        management program required under 
                        subsection (c).
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request 
        of a part D eligible individual who is eligible to 
        enroll in a prescription drug plan, the PDP sponsor 
        offering such plan shall provide information similar 
        (as determined by the Secretary) to the information 
        described in subparagraphs (A), (B), and (C) of section 
        1852(c)(2) to such individual.
            ``(3) Provision of specific information.--
                    ``(A) Response to beneficiary questions.--
                Each PDP sponsor offering a prescription drug 
                plan shall have a mechanism for providing 
                specific information on a timely basis to 
                enrollees upon request. Such mechanism shall 
                include access to information through the use 
                of a toll-free telephone number and, upon 
                request, the provision of such information in 
                writing.
                    ``(B) Availability of information on 
                changes in formulary through the internet.--A 
                PDP sponsor offering a prescription drug plan 
                shall make available on a timely basis through 
                an Internet website information on specific 
                changes in the formulary under the plan 
                (including changes to tiered or preferred 
                status of covered part D drugs).
            ``(4) Claims information.--A PDP sponsor offering a 
        prescription drug plan must furnish to each enrollee in 
        a form easily understandable to such enrollees--
                    ``(A) an explanation of benefits (in 
                accordance with section 1806(a) or in a 
                comparable manner); and
                    ``(B) when prescription drug benefits are 
                provided under this part, a notice of the 
                benefits in relation to--
                            ``(i) the initial coverage limit 
                        for the current year; and
                            ``(ii) the annual out-of-pocket 
                        threshold for the current year.
                Notices under subparagraph (B) need not be 
                provided more often than as specified by the 
                Secretary and notices under subparagraph 
                (B)(ii) shall take into account the application 
                of section 1860D-2(b)(4)(C) to the extent 
                practicable, as specified by the Secretary.
    ``(b) Access to Covered Part D Drugs.--
            ``(1) Assuring pharmacy access.--
                    ``(A) Participation of any willing 
                pharmacy.--A prescription drug plan shall 
                permit the participation of any pharmacy that 
                meets the terms and conditions under the plan.
                    ``(B) Discounts allowed for network 
                pharmacies.--For covered part D drugs dispensed 
                through in-network pharmacies, a prescription 
                drug plan may, notwithstanding subparagraph 
                (A), reduce coinsurance or copayments for part 
                D eligible individuals enrolled in the plan 
                below the level otherwise required. In no case 
                shall such a reduction result in an increase in 
                payments made by the Secretary under section 
                1860D-15 to a plan.
                    ``(C) Convenient access for network 
                pharmacies.--
                            ``(i) In general.--The PDP sponsor 
                        of the prescription drug plan shall 
                        secure the participation in its network 
                        of a sufficient number of pharmacies 
                        that dispense (other than by mail 
                        order) drugs directly to patients to 
                        ensure convenient access (consistent 
                        with rules established by the 
                        Secretary).
                            ``(ii) Application of tricare 
                        standards.--The Secretary shall 
                        establish rules for convenient access 
                        to in-network pharmacies under this 
                        subparagraph that are no less favorable 
                        to enrollees than the rules for 
                        convenient access to pharmacies 
                        included in the statement of work of 
                        solicitation (#MDA906-03-R-0002) of the 
                        Department of Defense under the TRICARE 
                        Retail Pharmacy (TRRx) as of March 13, 
                        2003.
                            ``(iii) Adequate emergency 
                        access.--Such rules shall include 
                        adequate emergency access for 
                        enrollees.
                            ``(iv) Convenient access in long-
                        term care facilities.--Such rules may 
                        include standards with respect to 
                        access for enrollees who are residing 
                        in long-term care facilities and for 
                        pharmacies operated by the Indian 
                        Health Service, Indian tribes and 
                        tribal organizations, and urban Indian 
                        organizations (as defined in section 4 
                        of the Indian Health Care Improvement 
                        Act).
                    ``(D) Level playing field.--Such a sponsor 
                shall permit enrollees to receive benefits 
                (which may include a 90-day supply of drugs or 
                biologicals) through a pharmacy (other than a 
                mail order pharmacy), with any differential in 
                charge paid by such enrollees.
                    ``(E)  Not required to accept insurance 
                risk.--The terms and conditions under 
                subparagraph (A) may not require participating 
                pharmacies to accept insurance risk as a 
                condition of participation.
            ``(2) Use of standardized technology.--
                    ``(A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and 
                reissue, as appropriate) such a card (or other 
                technology) that may be used by an enrollee to 
                assure access to negotiated prices under 
                section 1860D-2(d).
                    ``(B) Standards.--
                            ``(i) In general.--The Secretary 
                        shall provide for the development, 
                        adoption, or recognition of standards 
                        relating to a standardized format for 
                        the card or other technology required 
                        under subparagraph (A). Such standards 
                        shall be compatible with part C of 
                        title XI and may be based on standards 
                        developed by an appropriate standard 
                        setting organization.
                            ``(ii) Consultation.--In developing 
                        the standards under clause (i), the 
                        Secretary shall consult with the 
                        National Council for Prescription Drug 
                        Programs and other standard setting 
                        organizations determined appropriate by 
                        the Secretary.
                            ``(iii) Implementation.--The 
                        Secretary shall develop, adopt, or 
                        recognize the standards under clause 
                        (i) by such date as the Secretary 
                        determines shall be sufficient to 
                        ensure that PDP sponsors utilize such 
                        standards beginning January 1, 2006.
            ``(3) Requirements on development and application 
        of formularies.--If a PDP sponsor of a prescription 
        drug plan uses a formulary (including the use of tiered 
        cost-sharing), the following requirements must be met:
                    ``(A) Development and revision by a 
                pharmacy and therapeutic (p&t;) committee.--
                            ``(i) In general.--The formulary 
                        must be developed and reviewed by a 
                        pharmacy and therapeutic committee. A 
                        majority of the members of such 
                        committee shall consist of individuals 
                        who are practicing physicians or 
                        practicing pharmacists (or both).
                            ``(ii) Inclusion of independent 
                        experts.--Such committee shall include 
                        at least one practicing physician and 
                        at least one practicing pharmacist, 
                        each of whom--
                                    ``(I) is independent and 
                                free of conflict with respect 
                                to the sponsor and plan; and
                                    ``(II) has expertise in the 
                                care of elderly or disabled 
                                persons.
                    ``(B) Formulary development.--In developing 
                and reviewing the formulary, the committee 
                shall--
                            ``(i) base clinical decisions on 
                        the strength of scientific evidence and 
                        standards of practice, including 
                        assessing peer-reviewed medical 
                        literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, 
                        outcomes research data, and on such 
                        other information as the committee 
                        determines to be appropriate; and
                            ``(ii) take into account whether 
                        including in the formulary (or in a 
                        tier in such formulary) particular 
                        covered part D drugs has therapeutic 
                        advantages in terms of safety and 
                        efficacy.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories and classes.--
                            ``(i) In general.--The formulary 
                        must include drugs within each 
                        therapeutic category and class of 
                        covered part D drugs, although not 
                        necessarily all drugs within such 
                        categories and classes.
                            ``(ii) Model guidelines.--The 
                        Secretary shall request the United 
                        States Pharmacopeia to develop, in 
                        consultation with pharmaceutical 
                        benefit managers and other interested 
                        parties, a list of categories and 
                        classes that may be used by 
                        prescription drug plans under this 
                        paragraph and to revise such 
                        classification from time to time to 
                        reflect changes in therapeutic uses of 
                        covered part D drugs and the additions 
                        of new covered part D drugs.
                            ``(iii) Limitation on changes in 
                        therapeutic classification.--The PDP 
                        sponsor of a prescription drug plan may 
                        not change the therapeutic categories 
                        and classes in a formulary other than 
                        at the beginning of each plan year 
                        except as the Secretary may permit to 
                        take into account new therapeutic uses 
                        and newly approved covered part D 
                        drugs.
                    ``(D) Provider and patient education.--The 
                PDP sponsor shall establish policies and 
                procedures to educate and inform health care 
                providers and enrollees concerning the 
                formulary.
                    ``(E) Notice before removing drug from 
                formulary or changing preferred or tier status 
                of drug.--Any removal of a covered part D drug 
                from a formulary and any change in the 
                preferred or tiered cost-sharing status of such 
                a drug shall take effect only after appropriate 
                notice is made available (such as under 
                subsection (a)(3)) to the Secretary, affected 
                enrollees, physicians, pharmacies, and 
                pharmacists.
                    ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, the sponsor of a 
                prescription drug plan shall provide for the 
                periodic evaluation and analysis of treatment 
                protocols and procedures.
        The requirements of this paragraph may be met by a PDP 
        sponsor directly or through arrangements with another 
        entity.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--The PDP sponsor shall have in 
        place, directly or through appropriate arrangements, 
        with respect to covered part D drugs, the following:
                    ``(A) A cost-effective drug utilization 
                management program, including incentives to 
                reduce costs when medically appropriate, such 
                as through the use of multiple source drugs (as 
                defined in section 1927(k)(7)(A)(i)).
                    ``(B) Quality assurance measures and 
                systems to reduce medication errors and adverse 
                drug interactions and improve medication use.
                    ``(C) A medication therapy management 
                program described in paragraph (2).
                    ``(D) A program to control fraud, abuse, 
                and waste.
        Nothing in this section shall be construed as impairing 
        a PDP sponsor from utilizing cost management tools 
        (including differential payments) under all methods of 
        operation.
            ``(2) Medication therapy management program.--
                    ``(A) Description.--
                            ``(i) In general.--A medication 
                        therapy management program described in 
                        this paragraph is a program of drug 
                        therapy management that may be 
                        furnished by a pharmacist and that is 
                        designed to assure, with respect to 
                        targeted beneficiaries described in 
                        clause (ii), that covered part D drugs 
                        under the prescription drug plan are 
                        appropriately used to optimize 
                        therapeutic outcomes through improved 
                        medication use, and to reduce the risk 
                        of adverse events, including adverse 
                        drug interactions. Such a program may 
                        distinguish between services in 
                        ambulatory and institutional settings.
                            ``(ii) Targeted beneficiaries 
                        described.--Targeted beneficiaries 
                        described in this clause are part D 
                        eligible individuals who--
                                    ``(I) have multiple chronic 
                                diseases (such as diabetes, 
                                asthma, hypertension, 
                                hyperlipidemia, and congestive 
                                heart failure);
                                    ``(II) are taking multiple 
                                covered part D drugs; and
                                    ``(III) are identified as 
                                likely to incur annual costs 
                                for covered part D drugs that 
                                exceed a level specified by the 
                                Secretary.
                    ``(B) Elements.--Such program may include 
                elements that promote--
                            ``(i) enhanced enrollee 
                        understanding to promote the 
                        appropriate use of medications by 
                        enrollees and to reduce the risk of 
                        potential adverse events associated 
                        with medications, through beneficiary 
                        education, counseling, and other 
                        appropriate means;
                            ``(ii) increased enrollee adherence 
                        with prescription medication regimens 
                        through medication refill reminders, 
                        special packaging, and other compliance 
                        programs and other appropriate means; 
                        and
                            ``(iii) detection of adverse drug 
                        events and patterns of overuse and 
                        underuse of prescription drugs.
                    ``(C) Development of program in cooperation 
                with licensed pharmacists.--Such program shall 
                be developed in cooperation with licensed and 
                practicing pharmacists and physicians.
                    ``(D) Coordination with care management 
                plans.--The Secretary shall establish 
                guidelines for the coordination of any 
                medication therapy management program under 
                this paragraph with respect to a targeted 
                beneficiary with any care management plan 
                established with respect to such beneficiary 
                under a chronic care improvement program under 
                section 1807.
                    ``(E) Considerations in pharmacy fees.--The 
                PDP sponsor of a prescription drug plan shall 
                take into account, in establishing fees for 
                pharmacists and others providing services under 
                such plan, the resources used, and time 
                required to, implement the medication therapy 
                management program under this paragraph. Each 
                such sponsor shall disclose to the Secretary 
                upon request the amount of any such management 
                or dispensing fees. The provisions of section 
                1927(b)(3)(D) apply to information disclosed 
                under this subparagraph.
    ``(d) Consumer Satisfaction Surveys.--In order to provide 
for comparative information under section 1860D-1(c)(3)(A)(v), 
the Secretary shall conduct consumer satisfaction surveys with 
respect to PDP sponsors and prescription drug plans in a manner 
similar to the manner such surveys are conducted for MA 
organizations and MA plans under part C.
    ``(e) Electronic Prescription Program.--
            ``(1) Application of standards.--As of such date as 
        the Secretary may specify, but not later than 1 year 
        after the date of promulgation of final standards under 
        paragraph (4)(D), prescriptions and other information 
        described in paragraph (2)(A) for covered part D drugs 
        prescribed for part D eligible individuals that are 
        transmitted electronically shall be transmitted only in 
        accordance with such standards under an electronic 
        prescription drug program that meets the requirements 
        of paragraph (2).
            ``(2) Program requirements.--Consistent with 
        uniform standards established under paragraph (3)--
                    ``(A) Provision of information to 
                prescribing health care professional and 
                dispensing pharmacies and pharmacists.--An 
                electronic prescription drug program shall 
                provide for the electronic transmittal to the 
                prescribing health care professional and to the 
                dispensing pharmacy and pharmacist of the 
                prescription and information on eligibility and 
                benefits (including the drugs included in the 
                applicable formulary, any tiered formulary 
                structure, and any requirements for prior 
                authorization) and of the following information 
                with respect to the prescribing and dispensing 
                of a covered part D drug:
                            ``(i) Information on the drug being 
                        prescribed or dispensed and other drugs 
                        listed on the medication history, 
                        including information on drug-drug 
                        interactions, warnings or cautions, 
                        and, when indicated, dosage 
                        adjustments.
                            ``(ii) Information on the 
                        availability of lower cost, 
                        therapeutically appropriate 
                        alternatives (if any) for the drug 
                        prescribed.
                    ``(B) Application to medical history 
                information.--Effective on and after such date 
                as the Secretary specifies and after the 
                establishment of appropriate standards to carry 
                out this subparagraph, the program shall 
                provide for the electronic transmittal in a 
                manner similar to the manner under subparagraph 
                (A) of information that relates to the medical 
                history concerning the individual and related 
                to a covered part D drug being prescribed or 
                dispensed, upon request of the professional or 
                pharmacist involved.
                    ``(C) Limitations.--Information shall only 
                be disclosed under subparagraph (A) or (B) if 
                the disclosure of such information is permitted 
                under the Federal regulations (concerning the 
                privacy of individually identifiable health 
                information) promulgated under section 264(c) 
                of the Health Insurance Portability and 
                Accountability Act of 1996.
                    ``(D) Timing.--To the extent feasible, the 
                information exchanged under this paragraph 
                shall be on an interactive, real-time basis.
            ``(3) Standards.--
                    ``(A) In general.--The Secretary shall 
                provide consistent with this subsection for the 
                promulgation of uniform standards relating to 
                the requirements for electronic prescription 
                drug programs under paragraph (2).
                    ``(B) Objectives.--Such standards shall be 
                consistent with the objectives of improving--
                            ``(i) patient safety;
                            ``(ii) the quality of care provided 
                        to patients; and
                            ``(iii) efficiencies, including 
                        cost savings, in the delivery of care.
                    ``(C) Design criteria.--Such standards 
                shall--
                            ``(i) be designed so that, to the 
                        extent practicable, the standards do 
                        not impose an undue administrative 
                        burden on prescribing health care 
                        professionals and dispensing pharmacies 
                        and pharmacists;
                            ``(ii) be compatible with standards 
                        established under part C of title XI, 
                        standards established under subsection 
                        (b)(2)(B)(i), and with general health 
                        information technology standards; and
                            ``(iii) be designed so that they 
                        permit electronic exchange of drug 
                        labeling and drug listing information 
                        maintained by the Food and Drug 
                        Administration and the National Library 
                        of Medicine.
                    ``(D) Permitting use of appropriate 
                messaging.--Such standards shall allow for the 
                messaging of information only if it relates to 
                the appropriate prescribing of drugs, including 
                quality assurance measures and systems referred 
                to in subsection (c)(1)(B).
                    ``(E) Permitting patient designation of 
                dispensing pharmacy.--
                            ``(i) In general.--Consistent with 
                        clause (ii), such standards shall 
                        permit a part D eligible individual to 
                        designate a particular pharmacy to 
                        dispense a prescribed drug.
                            ``(ii) No change in benefits.--
                        Clause (i) shall not be construed as 
                        affecting--
                                    ``(I) the access required 
                                to be provided to pharmacies by 
                                a prescription drug plan; or
                                    ``(II) the application of 
                                any differences in benefits or 
                                payments under such a plan 
                                based on the pharmacy 
                                dispensing a covered part D 
                                drug.
            ``(4) Development, promulgation, and modification 
        of standards.--
                    ``(A) Initial standards.--Not later than 
                September 1, 2005, the Secretary shall develop, 
                adopt, recognize, or modify initial uniform 
                standards relating to the requirements for 
                electronic prescription drug programs described 
                in paragraph (2) taking into consideration the 
                recommendations (if any) from the National 
                Committee on Vital and Health Statistics (as 
                established under section 306(k) of the Public 
                Health Service Act (42 U.S.C. 242k(k))) under 
                subparagraph (B).
                    ``(B) Role of ncvhs.--The National 
                Committee on Vital and Health Statistics shall 
                develop recommendations for uniform standards 
                relating to such requirements in consultation 
                with the following:
                            ``(i) Standard setting 
                        organizations (as defined in section 
                        1171(8))
                            ``(ii) Practicing physicians.
                            ``(iii) Hospitals.
                            ``(iv) Pharmacies.
                            ``(v) Practicing pharmacists.
                            ``(vi) Pharmacy benefit managers.
                            ``(vii) State boards of pharmacy.
                            ``(viii) State boards of medicine.
                            ``(ix) Experts on electronic 
                        prescribing.
                            ``(x) Other appropriate Federal 
                        agencies.
                    ``(C) Pilot project to test initial 
                standards.--
                            ``(i) In general.--During the 1-
                        year period that begins on January 1, 
                        2006, the Secretary shall conduct a 
                        pilot project to test the initial 
                        standards developed under subparagraph 
                        (A) prior to the promulgation of the 
                        final uniform standards under 
                        subparagraph (D) in order to provide 
                        for the efficient implementation of the 
                        requirements described in paragraph 
                        (2).
                            ``(ii) Exception.--Pilot testing of 
                        standards is not required under clause 
                        (i) where there already is adequate 
                        industry experience with such 
                        standards, as determined by the 
                        Secretary after consultation with 
                        effected standard setting organizations 
                        and industry users.
                            ``(iii) Voluntary participation of 
                        physicians and pharmacies.--In order to 
                        conduct the pilot project under clause 
                        (i), the Secretary shall enter into 
                        agreements with physicians, physician 
                        groups, pharmacies, hospitals, PDP 
                        sponsors, MA organizations, and other 
                        appropriate entities under which health 
                        care professionals electronically 
                        transmit prescriptions to dispensing 
                        pharmacies and pharmacists in 
                        accordance with such standards.
                            ``(iv) Evaluation and report.--
                                    ``(I) Evaluation.--The 
                                Secretary shall conduct an 
                                evaluation of the pilot project 
                                conducted under clause (i).
                                    ``(II) Report to 
                                congress.--Not later than April 
                                1, 2007, the Secretary shall 
                                submit to Congress a report on 
                                the evaluation conducted under 
                                subclause (I).
                    ``(D) Final standards.--Based upon the 
                evaluation of the pilot project under 
                subparagraph (C)(iv)(I) and not later than 
                April 1, 2008, the Secretary shall promulgate 
                uniform standards relating to the requirements 
                described in paragraph (2).
            ``(5) Relation to state laws.--The standards 
        promulgated under this subsection shall supersede any 
        State law or regulation that--
                    ``(A) is contrary to the standards or 
                restricts the ability to carry out this part; 
                and
                    ``(B) pertains to the electronic 
                transmission of medication history and of 
                information on eligibility, benefits, and 
                prescriptions with respect to covered part D 
                drugs under this part.
            ``(6) Establishment of safe harbor.--The Secretary, 
        in consultation with the Attorney General, shall 
        promulgate regulations that provide for a safe harbor 
        from sanctions under paragraphs (1) and (2) of section 
        1128B(b) and an exception to the prohibition under 
        subsection (a)(1) of section 1877 with respect to the 
        provision of nonmonetary remuneration (in the form of 
        hardware, software, or information technology and 
        training services) necessary and used solely to receive 
        and transmit electronic prescription information in 
        accordance with the standards promulgated under this 
        subsection--
                    ``(A) in the case of a hospital, by the 
                hospital to members of its medical staff;
                    ``(B) in the case of a group practice (as 
                defined in section 1877(h)(4)), by the practice 
                to prescribing health care professionals who 
                are members of such practice; and
                    ``(C) in the case of a PDP sponsor or MA 
                organization, by the sponsor or organization to 
                pharmacists and pharmacies participating in the 
                network of such sponsor or organization, and to 
                prescribing health care professionals.
    ``(f) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances 
between the sponsor (including any entity or individual through 
which the sponsor provides covered benefits) and enrollees with 
prescription drug plans of the sponsor under this part in 
accordance with section 1852(f).
    ``(g) Coverage Determinations and Reconsiderations.--
            ``(1) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet 
        the requirements of paragraphs (1) through (3) of 
        section 1852(g) with respect to covered benefits under 
        the prescription drug plan it offers under this part in 
        the same manner as such requirements apply to an MA 
        organization with respect to benefits it offers under 
        an MA plan under part C.
            ``(2) Request for a determination for the treatment 
        of tiered formulary drug.--In the case of a 
        prescription drug plan offered by a PDP sponsor that 
        provides for tiered cost-sharing for drugs included 
        within a formulary and provides lower cost-sharing for 
        preferred drugs included within the formulary, a part D 
        eligible individual who is enrolled in the plan may 
        request an exception to the tiered cost-sharing 
        structure. Under such an exception, a nonpreferred drug 
        could be covered under the terms applicable for 
        preferred drugs if the prescribing physician determines 
        that the preferred drug for treatment of the same 
        condition either would not be as effective for the 
        individual or would have adverse effects for the 
        individual or both. A PDP sponsor shall have an 
        exceptions process under this paragraph consistent with 
        guidelines established by the Secretary for making a 
        determination with respect to such a request. Denial of 
        such an exception shall be treated as a coverage denial 
        for purposes of applying subsection (h).
    ``(h) Appeals.--
            ``(1) In general.--Subject to paragraph (2), a PDP 
        sponsor shall meet the requirements of paragraphs (4) 
        and (5) of section 1852(g) with respect to benefits 
        (including a determination related to the application 
        of tiered cost-sharing described in subsection (g)(2)) 
        in a manner similar (as determined by the Secretary) to 
        the manner such requirements apply to an MA 
        organization with respect to benefits under the 
        original medicare fee-for-service program option it 
        offers under an MA plan under part C. In applying this 
        paragraph only the part D eligible individual shall be 
        entitled to bring such an appeal.
            ``(2) Limitation in cases on nonformulary 
        determinations.--A part D eligible individual who is 
        enrolled in a prescription drug plan offered by a PDP 
        sponsor may appeal under paragraph (1) a determination 
        not to provide for coverage of a covered part D drug 
        that is not on the formulary under the plan only if the 
        prescribing physician determines that all covered part 
        D drugs on any tier of the formulary for treatment of 
        the same condition would not be as effective for the 
        individual as the nonformulary drug, would have adverse 
        effects for the individual, or both.
            ``(3) Treatment of nonformulary determinations.--If 
        a PDP sponsor determines that a plan provides coverage 
        for a covered part D drug that is not on the formulary 
        of the plan, the drug shall be treated as being 
        included on the formulary for purposes of section 
        1860D-2(b)(4)(C)(i).
    ``(i) Privacy, Confidentiality, and Accuracy of Enrollee 
Records.--The provisions of section 1852(h) shall apply to a 
PDP sponsor and prescription drug plan in the same manner as it 
applies to an MA organization and an MA plan.
    ``(j) Treatment of Accreditation.--Subparagraph (A) of 
section 1852(e)(4) (relating to treatment of accreditation) 
shall apply to a PDP sponsor under this part with respect to 
the following requirements, in the same manner as it applies to 
an MA organization with respect to the requirements in 
subparagraph (B) (other than clause (vii) thereof) of such 
section:
            ``(1) Subsection (b) of this section (relating to 
        access to covered part D drugs).
            ``(2) Subsection (c) of this section (including 
        quality assurance and medication therapy management).
            ``(3) Subsection (i) of this section (relating to 
        confidentiality and accuracy of enrollee records).
    ``(k) Public Disclosure of Pharmaceutical Prices for 
Equivalent Drugs.--
            ``(1) In general.--A PDP sponsor offering a 
        prescription drug plan shall provide that each pharmacy 
        that dispenses a covered part D drug shall inform an 
        enrollee of any differential between the price of the 
        drug to the enrollee and the price of the lowest priced 
        generic covered part D drug under the plan that is 
        therapeutically equivalent and bioequivalent and 
        available at such pharmacy.
            ``(2) Timing of notice.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the information under paragraph (1) shall 
                be provided at the time of purchase of the drug 
                involved, or, in the case of dispensing by mail 
                order, at the time of delivery of such drug.
                    ``(B) Waiver.--The Secretary may waive 
                subparagraph (A) in such circumstances as the 
                Secretary may specify.

     ``Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

            ``PDP REGIONS; SUBMISSION OF BIDS; PLAN APPROVAL

    ``Sec. 1860D-11. (a) Establishment of PDP Regions; Service 
Areas.--
            ``(1) Coverage of entire pdp region.--The service 
        area for a prescription drug plan shall consist of an 
        entire PDP region established under paragraph (2).
            ``(2) Establishment of pdp regions.--
                    ``(A) In general.--The Secretary shall 
                establish, and may revise, PDP regions in a 
                manner that is consistent with the requirements 
                for the establishment and revision of MA 
                regions under subparagraphs (B) and (C) of 
                section 1858(a)(2).
                    ``(B) Relation to ma regions.--To the 
                extent practicable, PDP regions shall be the 
                same as MA regions under section 1858(a)(2). 
                The Secretary may establish PDP regions which 
                are not the same as MA regions if the Secretary 
                determines that the establishment of different 
                regions under this part would improve access to 
                benefits under this part.
                    ``(C) Authority for territories.--The 
                Secretary shall establish, and may revise, PDP 
                regions for areas in States that are not within 
                the 50 States or the District of Columbia.
            ``(3) National plan.--Nothing in this subsection 
        shall be construed as preventing a prescription drug 
        plan from being offered in more than one PDP region 
        (including all PDP regions).
    ``(b) Submission of Bids, Premiums, and Related 
Information.--
            ``(1) In general.--A PDP sponsor shall submit to 
        the Secretary information described in paragraph (2) 
        with respect to each prescription drug plan it offers. 
        Such information shall be submitted at the same time 
        and in a similar manner to the manner in which 
        information described in paragraph (6) of section 
        1854(a) is submitted by an MA organization under 
        paragraph (1) of such section.
            ``(2) Information described.--The information 
        described in this paragraph is information on the 
        following:
                    ``(A) Coverage provided.--The prescription 
                drug coverage provided under the plan, 
                including the deductible and other cost-
                sharing.
                    ``(B) Actuarial value.--The actuarial value 
                of the qualified prescription drug coverage in 
                the region for a part D eligible individual 
                with a national average risk profile for the 
                factors described in section 1860D-15(c)(1)(A) 
                (as specified by the Secretary).
                    ``(C) Bid.--Information on the bid, 
                including an actuarial certification of--
                            ``(i) the basis for the actuarial 
                        value described in subparagraph (B) 
                        assumed in such bid;
                            ``(ii) the portion of such bid 
                        attributable to basic prescription drug 
                        coverage and, if applicable, the 
                        portion of such bid attributable to 
                        supplemental benefits;
                            ``(iii) assumptions regarding the 
                        reinsurance subsidy payments provided 
                        under section 1860D-15(b) subtracted 
                        from the actuarial value to produce 
                        such bid; and
                            ``(iv) administrative expenses 
                        assumed in the bid.
                    ``(D) Service area.--The service area for 
                the plan.
                    ``(E) Level of risk assumed.--
                            ``(i) In general.--Whether the PDP 
                        sponsor requires a modification of risk 
                        level under clause (ii) and, if so, the 
                        extent of such modification. Any such 
                        modification shall apply with respect 
                        to all prescription drug plans offered 
                        by a PDP sponsor in a PDP region. This 
                        subparagraph shall not apply to an MA-
                        PD plan.
                            ``(ii) Risk levels described.--A 
                        modification of risk level under this 
                        clause may consist of one or more of 
                        the following:
                                    ``(I) Increase in federal 
                                percentage assumed in initial 
                                risk corridor.--An equal 
                                percentage point increase in 
                                the percents applied under 
                                subparagraphs (B)(i), 
                                (B)(ii)(I), (C)(i), and 
                                (C)(ii)(I) of section 1860D-
                                15(e)(2). In no case shall the 
                                application of previous 
                                sentence prevent the 
                                application of a higher 
                                percentage under section 1869D-
                                15(e)(2)(B)(iii).
                                    ``(II) Increase in federal 
                                percentage assumed in second 
                                risk corridor.--An equal 
                                percentage point increase in 
                                the percents applied under 
                                subparagraphs (B)(ii)(II) and 
                                (C)(ii)(II) of section 1860D-
                                15(e)(2).
                                    ``(III) Decrease in size of 
                                risk corridors.--A decrease in 
                                the threshold risk percentages 
                                specified in section 1860D-
                                15(e)(3)(C).
                    ``(F) Additional information.--Such other 
                information as the Secretary may require to 
                carry out this part.
            ``(3) Paperwork reduction for offering of 
        prescription drug plans nationally or in multi-region 
        areas.--The Secretary shall establish requirements for 
        information submission under this subsection in a 
        manner that promotes the offering of such plans in more 
        than one PDP region (including all regions) through the 
        filing of consolidated information.
    ``(c) Actuarial Valuation.--
            ``(1) Processes.--For purposes of this part, the 
        Secretary shall establish processes and methods for 
        determining the actuarial valuation of prescription 
        drug coverage, including--
                    ``(A) an actuarial valuation of standard 
                prescription drug coverage under section 1860D-
                2(b);
                    ``(B) actuarial valuations relating to 
                alternative prescription drug coverage under 
                section 1860D-2(c)(1);
                    ``(C) an actuarial valuation of the 
                reinsurance subsidy payments under section 
                1860D-15(b);
                    ``(D) the use of generally accepted 
                actuarial principles and methodologies; and
                    ``(E) applying the same methodology for 
                determinations of actuarial valuations under 
                subparagraphs (A) and (B).
            ``(2) Accounting for drug utilization.--Such 
        processes and methods for determining actuarial 
        valuation shall take into account the effect that 
        providing alternative prescription drug coverage 
        (rather than standard prescription drug coverage) has 
        on drug utilization.
            ``(3) Responsibilities.--
                    ``(A) Plan responsibilities.--PDP sponsors 
                and MA organizations are responsible for the 
                preparation and submission of actuarial 
                valuations required under this part for 
                prescription drug plans and MA-PD plans they 
                offer.
                    ``(B) Use of outside actuaries.--Under the 
                processes and methods established under 
                paragraph (1), PDP sponsors offering 
                prescription drug plans and MA organizations 
                offering MA-PD plans may use actuarial opinions 
                certified by independent, qualified actuaries 
                to establish actuarial values.
    ``(d) Review of Information and Negotiation.--
            ``(1) Review of information.--The Secretary shall 
        review the information filed under subsection (b) for 
        the purpose of conducting negotiations under paragraph 
        (2).
            ``(2) Negotiation regarding terms and conditions.--
        Subject to subsection (i), in exercising the authority 
        under paragraph (1), the Secretary--
                    ``(A) has the authority to negotiate the 
                terms and conditions of the proposed bid 
                submitted and other terms and conditions of a 
                proposed plan; and
                    ``(B) has authority similar to the 
                authority of the Director of the Office of 
                Personnel Management with respect to health 
                benefits plans under chapter 89 of title 5, 
                United States Code.
    ``(e) Approval of Proposed Plans.--
            ``(1) In general.--After review and negotiation 
        under subsection (d), the Secretary shall approve or 
        disapprove the prescription drug plan.
            ``(2) Requirements for approval.--The Secretary may 
        approve a prescription drug plan only if the following 
        requirements are met:
                    ``(A) Compliance with requirements.--The 
                plan and the PDP sponsor offering the plan 
                comply with the requirements under this part, 
                including the provision of qualified 
                prescription drug coverage.
                    ``(B) Actuarial determinations.--The 
                Secretary determines that the plan and PDP 
                sponsor meet the requirements under this part 
                relating to actuarial determinations, including 
                such requirements under section 1860D-2(c).
                    ``(C) Application of fehbp standard.--
                            ``(i) In general.--The Secretary 
                        determines that the portion of the bid 
                        submitted under subsection (b) that is 
                        attributable to basic prescription drug 
                        coverage is supported by the actuarial 
                        bases provided under such subsection 
                        and reasonably and equitably reflects 
                        the revenue requirements (as used for 
                        purposes of section 1302(8)(C) of the 
                        Public Health Service Act) for benefits 
                        provided under that plan, less the sum 
                        (determined on a monthly per capita 
                        basis) of the actuarial value of the 
                        reinsurance payments under section 
                        1860D-15(b).
                            ``(ii) Supplemental coverage.--The 
                        Secretary determines that the portion 
                        of the bid submitted under subsection 
                        (b) that is attributable to 
                        supplemental prescription drug coverage 
                        pursuant to section 1860D-2(a)(2) is 
                        supported by the actuarial bases 
                        provided under such subsection and 
                        reasonably and equitably reflects the 
                        revenue requirements (as used for 
                        purposes of section 1302(8)(C) of the 
                        Public Health Service Act) for such 
                        coverage under the plan.
                    ``(D) Plan design.--
                            ``(i) In general.--The Secretary 
                        does not find that the design of the 
                        plan and its benefits (including any 
                        formulary and tiered formulary 
                        structure) are likely to substantially 
                        discourage enrollment by certain part D 
                        eligible individuals under the plan.
                            ``(ii) Use of categories and 
                        classes in formularies.--The Secretary 
                        may not find that the design of 
                        categories and classes within a 
                        formulary violates clause (i) if such 
                        categories and classes are consistent 
                        with guidelines (if any) for such 
                        categories and classes established by 
                        the United States Pharmacopeia.
    ``(f) Application of Limited Risk Plans.--
            ``(1) Conditions for approval of limited risk 
        plans.--The Secretary may only approve a limited risk 
        plan (as defined in paragraph (4)(A)) for a PDP region 
        if the access requirements under section 1860D-3(a) 
        would not be met for the region but for the approval of 
        such a plan (or a fallback prescription drug plan under 
        subsection (g)).
            ``(2) Rules.--The following rules shall apply with 
        respect to the approval of a limited risk plan in a PDP 
        region:
                    ``(A) Limited exercise of authority.--Only 
                the minimum number of such plans may be 
                approved in order to meet the access 
                requirements under section 1860D-3(a).
                    ``(B) Maximizing assumption of risk.--The 
                Secretary shall provide priority in approval 
                for those plans bearing the highest level of 
                risk (as computed by the Secretary), but the 
                Secretary may take into account the level of 
                the bids submitted by such plans.
                    ``(C) No full underwriting for limited risk 
                plans.--In no case may the Secretary approve a 
                limited risk plan under which the modification 
                of risk level provides for no (or a de minimis) 
                level of financial risk.
            ``(3) Acceptance of all full risk contracts.--There 
        shall be no limit on the number of full risk plans that 
        are approved under subsection (e).
            ``(4) Risk-plans defined.--For purposes of this 
        subsection:
                    ``(A) Limited risk plan.--The term `limited 
                risk plan' means a prescription drug plan that 
                provides basic prescription drug coverage and 
                for which the PDP sponsor includes a 
                modification of risk level described in 
                subparagraph (E) of subsection (b)(2) in its 
                bid submitted for the plan under such 
                subsection. Such term does not include a 
                fallback prescription drug plan.
                    ``(B) Full risk plan.--The term `full risk 
                plan' means a prescription drug plan that is 
                not a limited risk plan or a fallback 
                prescription drug plan.
    ``(g) Guaranteeing Access to Coverage.--
            ``(1) Solicitation of bids.--
                    ``(A) In general.--Separate from the 
                bidding process under subsection (b), the 
                Secretary shall provide for a process for the 
                solicitation of bids from eligible fallback 
                entities (as defined in paragraph (2)) for the 
                offering in all fallback service areas (as 
                defined in paragraph (3)) in one or more PDP 
                regions of a fallback prescription drug plan 
                (as defined in paragraph (4)) during the 
                contract period specified in paragraph (5)).
                    ``(B) Acceptance of bids.--
                            ``(i) In general.--Except as 
                        provided in this subparagraph, the 
                        provisions of subsection (e) shall 
                        apply with respect to the approval or 
                        disapproval of fallback prescription 
                        drug plans. The Secretary shall enter 
                        into contracts under this subsection 
                        with eligible fallback entities for the 
                        offering of fallback prescription drug 
                        plans so approved in fallback service 
                        areas.
                            ``(ii) Limitation of 1 plan for all 
                        fallback service areas in a pdp 
                        region.--With respect to all fallback 
                        service areas in any PDP region for a 
                        contract period, the Secretary shall 
                        approve the offering of only 1 fallback 
                        prescription drug plan.
                            ``(iii) Competitive procedures.--
                        Competitive procedures (as defined in 
                        section 4(5) of the Office of Federal 
                        Procurement Policy Act (41 U.S.C. 
                        403(5))) shall be used to enter into a 
                        contract under this subsection. The 
                        provisions of subsection (d) of section 
                        1874A shall apply to a contract under 
                        this section in the same manner as they 
                        apply to a contract under such section.
                            ``(iv) Timing.--The Secretary shall 
                        approve a fallback prescription drug 
                        plan for a PDP region in a manner so 
                        that, if there are any fallback service 
                        areas in the region for a year, the 
                        fallback prescription drug plan is 
                        offered at the same time as 
                        prescription drug plans would otherwise 
                        be offered.
                            ``(v) No national fallback plan.--
                        The Secretary shall not enter into a 
                        contract with a single fallback entity 
                        for the offering of fallback plans 
                        throughout the United States.
            ``(2) Eligible fallback entity.--For purposes of 
        this section, the term `eligible fallback entity' 
        means, with respect to all fallback service areas in a 
        PDP region for a contract period, an entity that--
                    ``(A) meets the requirements to be a PDP 
                sponsor (or would meet such requirements but 
                for the fact that the entity is not a risk-
                bearing entity); and
                    ``(B) does not submit a bid under section 
                1860D-11(b) for any prescription drug plan for 
                any PDP region for the first year of such 
                contract period.
        For purposes of subparagraph (B), an entity shall be 
        treated as submitting a bid with respect to a 
        prescription drug plan if the entity is acting as a 
        subcontractor of a PDP sponsor that is offering such a 
        plan. The previous sentence shall not apply to entities 
        that are subcontractors of an MA organization except 
        insofar as such organization is acting as a PDP sponsor 
        with respect to a prescription drug plan.
            ``(3) Fallback service area.--For purposes of this 
        subsection, the term `fallback service area' means, for 
        a PDP region with respect to a year, any area within 
        such region for which the Secretary determines before 
        the beginning of the year that the access requirements 
        of the first sentence of section 1860D-3(a) will not be 
        met for part D eligible individuals residing in the 
        area for the year.
            ``(4) Fallback prescription drug plan.--For 
        purposes of this part, the term `fallback prescription 
        drug plan' means a prescription drug plan that--
                    ``(A) only offers the standard prescription 
                drug coverage and access to negotiated prices 
                described in section 1860D-2(a)(1)(A) and does 
                not include any supplemental prescription drug 
                coverage; and
                    ``(B) meets such other requirements as the 
                Secretary may specify.
            ``(5) Payments under the contract.--
                    ``(A) In general.--A contract entered into 
                under this subsection shall provide for--
                            ``(i) payment for the actual costs 
                        (taking into account negotiated price 
                        concessions described in section 1860D-
                        2(d)(1)(B)) of covered part D drugs 
                        provided to part D eligible individuals 
                        enrolled in a fallback prescription 
                        drug plan offered by the entity; and
                            ``(ii) payment of management fees 
                        that are tied to performance measures 
                        established by the Secretary for the 
                        management, administration, and 
                        delivery of the benefits under the 
                        contract.
                    ``(B) Performance measures.--The 
                performance measures established by the 
                Secretary pursuant to subparagraph (A)(ii) 
                shall include at least measures for each of the 
                following:
                            ``(i) Costs.--The entity contains 
                        costs to the Medicare Prescription Drug 
                        Account and to part D eligible 
                        individuals enrolled in a fallback 
                        prescription drug plan offered by the 
                        entity through mechanisms such as 
                        generic substitution and price 
                        discounts.
                            ``(ii) Quality programs.--The 
                        entity provides such enrollees with 
                        quality programs that avoid adverse 
                        drug reactions and overutilization and 
                        reduce medical errors.
                            ``(iii) Customer service.--The 
                        entity provides timely and accurate 
                        delivery of services and pharmacy and 
                        beneficiary support services.
                            ``(iv) Benefit administration and 
                        claims adjudication.--The entity 
                        provides efficient and effective 
                        benefit administration and claims 
                        adjudication.
            ``(6) Monthly beneficiary premium.--Except as 
        provided in section 1860D-13(b) (relating to late 
        enrollment penalty) and subject to section 1860D-14 
        (relating to low-income assistance), the monthly 
        beneficiary premium to be charged under a fallback 
        prescription drug plan offered in all fallback service 
        areas in a PDP region shall be uniform and shall be 
        equal to 25.5 percent of an amount equal to the 
        Secretary's estimate of the average monthly per capita 
        actuarial cost, including administrative expenses, 
        under the fallback prescription drug plan of providing 
        coverage in the region, as calculated by the Chief 
        Actuary of the Centers for Medicare & Medicaid 
        Services. In calculating such administrative expenses, 
        the Chief Actuary shall use a factor that is based on 
        similar expenses of prescription drug plans that are 
        not fallback prescription drug plans.
            ``(7) General contract terms and conditions.--
                    ``(A) In general.--Except as may be 
                appropriate to carry out this section, the 
                terms and conditions of contracts with eligible 
                fallback entities offering fallback 
                prescription drug plans under this subsection 
                shall be the same as the terms and conditions 
                of contracts under this part for prescription 
                drug plans.
                    ``(B) Period of contract.--
                            ``(i) In general.--Subject to 
                        clause (ii), a contract approved for a 
                        fallback prescription drug plan for 
                        fallback service areas for a PDP region 
                        under this section shall be for a 
                        period of 3 years (except as may be 
                        renewed after a subsequent bidding 
                        process).
                            ``(ii) Limitation.--A fallback 
                        prescription drug plan may be offered 
                        under a contract in an area for a year 
                        only if that area is a fallback service 
                        area for that year.
                    ``(C) Entity not permitted to market or 
                brand fallback prescription drug plans.--An 
                eligible fallback entity with a contract under 
                this subsection may not engage in any marketing 
                or branding of a fallback prescription drug 
                plan.
    ``(h) Annual Report on Use of Limited Risk Plans and 
Fallback Plans.--The Secretary shall submit to Congress an 
annual report that describes instances in which limited risk 
plans and fallback prescription drug plans were offered under 
subsections (f) and (g). The Secretary shall include in such 
report such recommendations as may be appropriate to limit the 
need for the provision of such plans and to maximize the 
assumption of financial risk under subsection (f).
    ``(i) Noninterference.--In order to promote competition 
under this part and in carrying out this part, the Secretary--
            ``(1) may not interfere with the negotiations 
        between drug manufacturers and pharmacies and PDP 
        sponsors; and
            ``(2) may not require a particular formulary or 
        institute a price structure for the reimbursement of 
        covered part D drugs.
    ``(j) Coordination of Benefits.--A PDP sponsor offering a 
prescription drug plan shall permit State Pharmaceutical 
Assistance Programs and Rx plans under sections 1860D-23 and 
1860D-24 to coordinate benefits with the plan and, in 
connection with such coordination with such a Program, not to 
impose fees that are unrelated to the cost of coordination.

  ``REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG PLAN (PDP) 
                                SPONSORS

    ``Sec. 1860D-12. (a) General Requirements.--Each PDP 
sponsor of a prescription drug plan shall meet the following 
requirements:
            ``(1) Licensure.--Subject to subsection (c), the 
        sponsor is organized and licensed under State law as a 
        risk-bearing entity eligible to offer health insurance 
        or health benefits coverage in each State in which it 
        offers a prescription drug plan.
            ``(2) Assumption of financial risk for unsubsidized 
        coverage.--
                    ``(A) In general.--Subject to subparagraph 
                (B), to the extent that the entity is at risk 
                the entity assumes financial risk on a 
                prospective basis for benefits that it offers 
                under a prescription drug plan and that is not 
                covered under section 1860D-15(b).
                    ``(B) Reinsurance permitted.--The plan 
                sponsor may obtain insurance or make other 
                arrangements for the cost of coverage provided 
                to any enrollee to the extent that the sponsor 
                is at risk for providing such coverage.
            ``(3) Solvency for unlicensed sponsors.--In the 
        case of a PDP sponsor that is not described in 
        paragraph (1) and for which a waiver has been approved 
        under subsection (c), such sponsor shall meet solvency 
        standards established by the Secretary under subsection 
        (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Secretary shall not permit 
        the enrollment under section 1860D-1 in a prescription 
        drug plan offered by a PDP sponsor under this part, and 
        the sponsor shall not be eligible for payments under 
        section 1860D-14 or 1860D-15, unless the Secretary has 
        entered into a contract under this subsection with the 
        sponsor with respect to the offering of such plan. Such 
        a contract with a sponsor may cover more than one 
        prescription drug plan. Such contract shall provide 
        that the sponsor agrees to comply with the applicable 
        requirements and standards of this part and the terms 
        and conditions of payment as provided for in this part.
            ``(2) Limitation on entities offering fallback 
        prescription drug plans.--The Secretary shall not enter 
        into a contract with a PDP sponsor for the offering of 
        a prescription drug plan (other than a fallback 
        prescription drug plan) in a PDP region for a year if 
        the sponsor--
                    ``(A) submitted a bid under section 1860D-
                11(g) for such year (as the first year of a 
                contract period under such section) to offer a 
                fallback prescription drug plan in any PDP 
                region;
                    ``(B) offers a fallback prescription drug 
                plan in any PDP region during the year; or
                    ``(C) offered a fallback prescription drug 
                plan in that PDP region during the previous 
                year.
        For purposes of this paragraph, an entity shall be 
        treated as submitting a bid with respect to a 
        prescription drug plan or offering a fallback 
        prescription drug plan if the entity is acting as a 
        subcontractor of a PDP sponsor that is offering such a 
        plan. The previous sentence shall not apply to entities 
        that are subcontractors of an MA organization except 
        insofar as such organization is acting as a PDP sponsor 
        with respect to a prescription drug plan.
            ``(3) Incorporation of certain medicare advantage 
        contract requirements.--Except as otherwise provided, 
        the following provisions of section 1857 shall apply to 
        contracts under this section in the same manner as they 
        apply to contracts under section 1857(a):
                    ``(A) Minimum enrollment.--Paragraphs (1) 
                and (3) of section 1857(b), except that--
                            ``(i) the Secretary may increase 
                        the minimum number of enrollees 
                        required under such paragraph (1) as 
                        the Secretary determines appropriate; 
                        and
                            ``(ii) the requirement of such 
                        paragraph (1) shall be waived during 
                        the first contract year with respect to 
                        an organization in a region.
                    ``(B) Contract period and effectiveness.--
                Section 1857(c), except that in applying 
                paragraph (4)(B) of such section any reference 
                to payment amounts under section 1853 shall be 
                deemed payment amounts under section 1860D-15.
                    ``(C) Protections against fraud and 
                beneficiary protections.--Section 1857(d).
                    ``(D) Additional contract terms.--Section 
                1857(e); except that section 1857(e)(2) shall 
                apply as specified to PDP sponsors and payments 
                under this part to an MA-PD plan shall be 
                treated as expenditures made under part D.
                    ``(E) Intermediate sanctions.--Section 
                1857(g) (other than paragraph (1)(F) of such 
                section), except that in applying such section 
                the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this 
                part.
                    ``(F) Procedures for termination.--Section 
                1857(h).
    ``(c) Waiver of Certain Requirements To Expand Choice.--
            ``(1) Authorizing waiver.--
                    ``(A) In general.--In the case of an entity 
                that seeks to offer a prescription drug plan in 
                a State, the Secretary shall waive the 
                requirement of subsection (a)(1) that the 
                entity be licensed in that State if the 
                Secretary determines, based on the application 
                and other evidence presented to the Secretary, 
                that any of the grounds for approval of the 
                application described in paragraph (2) have 
                been met.
                    ``(B) Application of regional plan waiver 
                rule.--In addition to the waiver available 
                under subparagraph (A), the provisions of 
                section 1858(d) shall apply to PDP sponsors 
                under this part in a manner similar to the 
                manner in which such provisions apply to MA 
                organizations under part C, except that no 
                application shall be required under paragraph 
                (1)(B) of such section in the case of a State 
                that does not provide a licensing process for 
                such a sponsor.
            ``(2) Grounds for approval.--
                    ``(A) In general.--The grounds for approval 
                under this paragraph are--
                            ``(i) subject to subparagraph (B), 
                        the grounds for approval described in 
                        subparagraphs (B), (C), and (D) of 
                        section 1855(a)(2); and
                            ``(ii) the application by a State 
                        of any grounds other than those 
                        required under Federal law.
                    ``(B) Special rules.--In applying 
                subparagraph (A)(i)--
                            ``(i) the ground of approval 
                        described in section 1855(a)(2)(B) is 
                        deemed to have been met if the State 
                        does not have a licensing process in 
                        effect with respect to the PDP sponsor; 
                        and
                            ``(ii) for plan years beginning 
                        before January 1, 2008, if the State 
                        does have such a licensing process in 
                        effect, such ground for approval 
                        described in such section is deemed to 
                        have been met upon submission of an 
                        application described in such section.
            ``(3) Application of waiver procedures.--With 
        respect to an application for a waiver (or a waiver 
        granted) under paragraph (1)(A) of this subsection, the 
        provisions of subparagraphs (E), (F), and (G) of 
        section 1855(a)(2) shall apply, except that clauses (i) 
        and (ii) of such subparagraph (E) shall not apply in 
        the case of a State that does not have a licensing 
        process described in paragraph (2)(B)(i) in effect.
            ``(4) References to certain provisions.--In 
        applying provisions of section 1855(a)(2) under 
        paragraphs (2) and (3) of this subsection to 
        prescription drug plans and PDP sponsors--
                    ``(A) any reference to a waiver application 
                under section 1855 shall be treated as a 
                reference to a waiver application under 
                paragraph (1)(A) of this subsection; and
                    ``(B) any reference to solvency standards 
                shall be treated as a reference to solvency 
                standards established under subsection (d) of 
                this section.
    ``(d) Solvency Standards for Non-Licensed Entities.--
            ``(1) Establishment and publication.--The 
        Secretary, in consultation with the National 
        Association of Insurance Commissioners, shall establish 
        and publish, by not later than January 1, 2005, 
        financial solvency and capital adequacy standards for 
        entities described in paragraph (2).
            ``(2) Compliance with standards.--A PDP sponsor 
        that is not licensed by a State under subsection (a)(1) 
        and for which a waiver application has been approved 
        under subsection (c) shall meet solvency and capital 
        adequacy standards established under paragraph (1). The 
        Secretary shall establish certification procedures for 
        such sponsors with respect to such solvency standards 
        in the manner described in section 1855(c)(2).
    ``(e) Licensure Does Not Substitute for or Constitute 
Certification.--The fact that a PDP sponsor is licensed in 
accordance with subsection (a)(1) or has a waiver application 
approved under subsection (c) does not deem the sponsor to meet 
other requirements imposed under this part for a sponsor.
    ``(f) Periodic Review and Revision of Standards.--
            ``(1) In general.--Subject to paragraph (2), the 
        Secretary may periodically review the standards 
        established under this section and, based on such 
        review, may revise such standards if the Secretary 
        determines such revision to be appropriate.
            ``(2) Prohibition of midyear implementation of 
        significant new regulatory requirements.--The Secretary 
        may not implement, other than at the beginning of a 
        calendar year, regulations under this section that 
        impose new, significant regulatory requirements on a 
        PDP sponsor or a prescription drug plan.
    ``(g) Prohibition of State Imposition of Premium Taxes; 
Relation to State Laws.--The provisions of sections 1854(g) and 
1856(b)(3) shall apply with respect to PDP sponsors and 
prescription drug plans under this part in the same manner as 
such sections apply to MA organizations and MA plans under part 
C.

                  ``PREMIUMS; LATE ENROLLMENT PENALTY

    ``Sec. 1860D-13. (a) Monthly Beneficiary Premium.--
            ``(1) Computation.--
                    ``(A) In general.--The monthly beneficiary 
                premium for a prescription drug plan is the 
                base beneficiary premium computed under 
                paragraph (2) as adjusted under this paragraph.
                    ``(B) Adjustment to reflect difference 
                between bid and national average bid.--
                            ``(i) Above average bid.--If for a 
                        month the amount of the standardized 
                        bid amount (as defined in paragraph 
                        (5)) exceeds the amount of the adjusted 
                        national average monthly bid amount (as 
                        defined in clause (iii)), the base 
                        beneficiary premium for the month shall 
                        be increased by the amount of such 
                        excess.
                            ``(ii) Below average bid.--If for a 
                        month the amount of the adjusted 
                        national average monthly bid amount for 
                        the month exceeds the standardized bid 
                        amount, the base beneficiary premium 
                        for the month shall be decreased by the 
                        amount of such excess.
                            ``(iii) Adjusted national average 
                        monthly bid amount defined.--For 
                        purposes of this subparagraph, the term 
                        `adjusted national average monthly bid 
                        amount' means the national average 
                        monthly bid amount computed under 
                        paragraph (4), as adjusted under 
                        section 1860D-15(c)(2).
                    ``(C) Increase for supplemental 
                prescription drug benefits.--The base 
                beneficiary premium shall be increased by the 
                portion of the PDP approved bid that is 
                attributable to supplemental prescription drug 
                benefits.
                    ``(D) Increase for late enrollment 
                penalty.--The base beneficiary premium shall be 
                increased by the amount of any late enrollment 
                penalty under subsection (b).
                    ``(E) Decrease for low-income assistance.--
                The monthly beneficiary premium is subject to 
                decrease in the case of a subsidy eligible 
                individual under section 1860D-14.
                    ``(F) Uniform premium.--Except as provided 
                in subparagraphs (D) and (E), the monthly 
                beneficiary premium for a prescription drug 
                plan in a PDP region is the same for all part D 
                eligible individuals enrolled in the plan.
            ``(2) Base beneficiary premium.--The base 
        beneficiary premium under this paragraph for a 
        prescription drug plan for a month is equal to the 
        product--
                    ``(A) the beneficiary premium percentage 
                (as specified in paragraph (3)); and
                    ``(B) the national average monthly bid 
                amount (computed under paragraph (4)) for the 
                month.
            ``(3) Beneficiary premium percentage.--For purposes 
        of this subsection, the beneficiary premium percentage 
        for any year is the percentage equal to a fraction--
                    ``(A) the numerator of which is 25.5 
                percent; and
                    ``(B) the denominator of which is 100 
                percent minus a percentage equal to--
                            ``(i) the total reinsurance 
                        payments which the Secretary estimates 
                        are payable under section 1860D-15(b) 
                        with respect to the coverage year; 
                        divided by
                            ``(ii) the sum of--
                                    ``(I) the amount estimated 
                                under clause (i) for the year; 
                                and
                                    ``(II) the total payments 
                                which the Secretary estimates 
                                will be paid to prescription 
                                drug plans and MA-PD plans that 
                                are attributable to the 
                                standardized bid amount during 
                                the year, taking into account 
                                amounts paid by the Secretary 
                                and enrollees.
            ``(4) Computation of national average monthly bid 
        amount.--
                    ``(A) In general.--For each year (beginning 
                with 2006) the Secretary shall compute a 
                national average monthly bid amount equal to 
                the average of the standardized bid amounts (as 
                defined in paragraph (5)) for each prescription 
                drug plan and for each MA-PD plan described in 
                section 1851(a)(2)(A)(i). Such average does not 
                take into account the bids submitted for MSA 
                plans, MA private fee-for-service plan, and 
                specialized MA plans for special needs 
                individuals, PACE programs under section 1894 
                (pursuant to section 1860D-21(f)), and under 
                reasonable cost reimbursement contracts under 
                section 1876(h) (pursuant to section 1860D-
                21(e)).
                    ``(B) Weighted average.--
                            ``(i) In general.--The monthly 
                        national average monthly bid amount 
                        computed under subparagraph (A) for a 
                        year shall be a weighted average, with 
                        the weight for each plan being equal to 
                        the average number of part D eligible 
                        individuals enrolled in such plan in 
                        the reference month (as defined in 
                        section 1858(f)(4)).
                            ``(ii) Special rule for 2006.--For 
                        purposes of applying this paragraph for 
                        2006, the Secretary shall establish 
                        procedures for determining the weighted 
                        average under clause (i) for 2005.
            ``(5) Standardized bid amount defined.--For 
        purposes of this subsection, the term `standardized bid 
        amount' means the following:
                    ``(A) Prescription drug plans.--
                            ``(i) Basic coverage.--In the case 
                        of a prescription drug plan that 
                        provides basic prescription drug 
                        coverage, the PDP approved bid (as 
                        defined in paragraph (6)).
                            ``(ii) Supplemental coverage.--In 
                        the case of a prescription drug plan 
                        that provides supplemental prescription 
                        drug coverage, the portion of the PDP 
                        approved bid that is attributable to 
                        basic prescription drug coverage.
                    ``(B) MA-PD plans.--In the case of an MA-PD 
                plan, the portion of the accepted bid amount 
                that is attributable to basic prescription drug 
                coverage.
            ``(6) PDP approved bid defined.--For purposes of 
        this part, the term `PDP approved bid' means, with 
        respect to a prescription drug plan, the bid amount 
        approved for the plan under this part.
    ``(b) Late Enrollment Penalty.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this subsection, in the case of a part D 
        eligible individual described in paragraph (2) with 
        respect to a continuous period of eligibility, there 
        shall be an increase in the monthly beneficiary premium 
        established under subsection (a) in an amount 
        determined under paragraph (3).
            ``(2) Individuals subject to penalty.--A part D 
        eligible individual described in this paragraph is, 
        with respect to a continuous period of eligibility, an 
        individual for whom there is a continuous period of 63 
        days or longer (all of which in such continuous period 
        of eligibility) beginning on the day after the last 
        date of the individual's initial enrollment period 
        under section 1860D-1(b)(2) and ending on the date of 
        enrollment under a prescription drug plan or MA-PD plan 
        during all of which the individual was not covered 
        under any creditable prescription drug coverage.
            ``(3) Amount of penalty.--
                    ``(A) In general.--The amount determined 
                under this paragraph for a part D eligible 
                individual for a continuous period of 
                eligibility is the greater of--
                            ``(i) an amount that the Secretary 
                        determines is actuarially sound for 
                        each uncovered month (as defined in 
                        subparagraph (B)) in the same 
                        continuous period of eligibility; or
                            ``(ii) 1 percent of the base 
                        beneficiary premium (computed under 
                        subsection (a)(2)) for each such 
                        uncovered month in such period.
                    ``(B) Uncovered month defined.--For 
                purposes of this subsection, the term 
                `uncovered month' means, with respect to a part 
                D eligible individual, any month beginning 
                after the end of the initial enrollment period 
                under section 1860D-1(b)(2) unless the 
                individual can demonstrate that the individual 
                had creditable prescription drug coverage (as 
                defined in paragraph (4)) for any portion of 
                such month.
            ``(4) Creditable prescription drug coverage 
        defined.--For purposes of this part, the term 
        `creditable prescription drug coverage' means any of 
        the following coverage, but only if the coverage meets 
        the requirement of paragraph (5):
                    ``(A) Coverage under prescription drug plan 
                or ma-pd plan.--Coverage under a prescription 
                drug plan or under an MA-PD plan.
                    ``(B) Medicaid.--Coverage under a medicaid 
                plan under title XIX or under a waiver under 
                section 1115.
                    ``(C) Group health plan.--Coverage under a 
                group health plan, including a health benefits 
                plan under chapter 89 of title 5, United States 
                Code (commonly known as the Federal employees 
                health benefits program), and a qualified 
                retiree prescription drug plan (as defined in 
                section 1860D-22(a)(2)).
                    ``(D) State pharmaceutical assistance 
                program.--Coverage under a State pharmaceutical 
                assistance program described in section 1860D-
                23(b)(1).
                    ``(E) Veterans' coverage of prescription 
                drugs.--Coverage for veterans, and survivors 
                and dependents of veterans, under chapter 17 of 
                title 38, United States Code.
                    ``(F) Prescription drug coverage under 
                medigap policies.--Coverage under a medicare 
                supplemental policy under section 1882 that 
                provides benefits for prescription drugs 
                (whether or not such coverage conforms to the 
                standards for packages of benefits under 
                section 1882(p)(1)).
                    ``(G) Military coverage (including 
                tricare).--Coverage under chapter 55 of title 
                10, United States Code.
                    ``(H) Other coverage.--Such other coverage 
                as the Secretary determines appropriate.
            ``(5) Actuarial equivalence requirement.--Coverage 
        meets the requirement of this paragraph only if the 
        coverage is determined (in a manner specified by the 
        Secretary) to provide coverage of the cost of 
        prescription drugs the actuarial value of which (as 
        defined by the Secretary) to the individual equals or 
        exceeds the actuarial value of standard prescription 
        drug coverage (as determined under section 1860D-
        11(c)).
            ``(6) Procedures to document creditable 
        prescription drug coverage.--
                    ``(A) In general.--The Secretary shall 
                establish procedures (including the form, 
                manner, and time) for the documentation of 
                creditable prescription drug coverage, 
                including procedures to assist in determining 
                whether coverage meets the requirement of 
                paragraph (5).
                    ``(B) Disclosure by entities offering 
                creditable prescription drug coverage.--
                            ``(i) In general.--Each entity that 
                        offers prescription drug coverage of 
                        the type described in subparagraphs (B) 
                        through (H) of paragraph (4) shall 
                        provide for disclosure, in a form, 
                        manner, and time consistent with 
                        standards established by the Secretary, 
                        to the Secretary and part D eligible 
                        individuals of whether the coverage 
                        meets the requirement of paragraph (5) 
                        or whether such coverage is changed so 
                        it no longer meets such requirement.
                            ``(ii) Disclosure of non-creditable 
                        coverage.--In the case of such coverage 
                        that does not meet such requirement, 
                        the disclosure to part D eligible 
                        individuals under this subparagraph 
                        shall include information regarding the 
                        fact that because such coverage does 
                        not meet such requirement there are 
                        limitations on the periods in a year in 
                        which the individuals may enroll under 
                        a prescription drug plan or an MA-PD 
                        plan and that any such enrollment is 
                        subject to a late enrollment penalty 
                        under this subsection.
                    ``(C) Waiver of requirement.--In the case 
                of a part D eligible individual who was 
                enrolled in prescription drug coverage of the 
                type described in subparagraphs (B) through (H) 
                of paragraph (4) which is not creditable 
                prescription drug coverage because it does not 
                meet the requirement of paragraph (5), the 
                individual may apply to the Secretary to have 
                such coverage treated as creditable 
                prescription drug coverage if the individual 
                establishes that the individual was not 
                adequately informed that such coverage did not 
                meet such requirement.
            ``(7) Continuous period of eligibility.--
                    ``(A) In general.--Subject to subparagraph 
                (B), for purposes of this subsection, the term 
                `continuous period of eligibility' means, with 
                respect to a part D eligible individual, the 
                period that begins with the first day on which 
                the individual is eligible to enroll in a 
                prescription drug plan under this part and ends 
                with the individual's death.
                    ``(B) Separate period.--Any period during 
                all of which a part D eligible individual is 
                entitled to hospital insurance benefits under 
                part A and--
                            ``(i) which terminated in or before 
                        the month preceding the month in which 
                        the individual attained age 65; or
                            ``(ii) for which the basis for 
                        eligibility for such entitlement 
                        changed between section 226(b) and 
                        section 226(a), between 226(b) and 
                        section 226A, or between section 226A 
                        and section 226(a),
                shall be a separate continuous period of 
                eligibility with respect to the individual (and 
                each such period which terminates shall be 
                deemed not to have existed for purposes of 
                subsequently applying this paragraph).
    ``(c) Collection of Monthly Beneficiary Premiums.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3), the provisions of section 1854(d) shall apply to 
        PDP sponsors and premiums (and any late enrollment 
        penalty) under this part in the same manner as they 
        apply to MA organizations and beneficiary premiums 
        under part C, except that any reference to a Trust Fund 
        is deemed for this purpose a reference to the Medicare 
        Prescription Drug Account.
            ``(2) Crediting of late enrollment penalty.--
                    ``(A) Portion attributable to increased 
                actuarial costs.--With respect to late 
                enrollment penalties imposed under subsection 
                (b), the Secretary shall specify the portion of 
                such a penalty that the Secretary estimates is 
                attributable to increased actuarial costs 
                assumed by the PDP sponsor or MA organization 
                (and not taken into account through risk 
                adjustment provided under section 1860D-
                15(c)(1) or through reinsurance payments under 
                section 1860D-15(b)) as a result of such late 
                enrollment.
                    ``(B) Collection through withholding.--In 
                the case of a late enrollment penalty that is 
                collected from a part D eligible individual in 
                the manner described in section 1854(d)(2)(A), 
                the Secretary shall provide that only the 
                portion of such penalty estimated under 
                subparagraph (A) shall be paid to the PDP 
                sponsor or MA organization offering the part D 
                plan in which the individual is enrolled.
                    ``(C) Collection by plan.--In the case of a 
                late enrollment penalty that is collected from 
                a part D eligible individual in a manner other 
                than the manner described in section 
                1854(d)(2)(A), the Secretary shall establish 
                procedures for reducing payments otherwise made 
                to the PDP sponsor or MA organization by an 
                amount equal to the amount of such penalty less 
                the portion of such penalty estimated under 
                subparagraph (A).
            ``(3) Fallback plans.--In applying this subsection 
        in the case of a fallback prescription drug plan, 
        paragraph (2) shall not apply and the monthly 
        beneficiary premium shall be collected in the manner 
        specified in section 1854(d)(2)(A) (or such other 
        manner as may be provided under section 1840 in the 
        case of monthly premiums under section 1839).

    ``PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME INDIVIDUALS

    ``Sec. 1860D-14. (a) Income-Related Subsidies for 
Individuals With Income Up to 150 Percent of Poverty Line.--
            ``(1) Individuals with income below 135 percent of 
        poverty line.--In the case of a subsidy eligible 
        individual (as defined in paragraph (3)) who is 
        determined to have income that is below 135 percent of 
        the poverty line applicable to a family of the size 
        involved and who meets the resources requirement 
        described in paragraph (3)(D) or who is covered under 
        this paragraph under paragraph (3)(B)(i), the 
        individual is entitled under this section to the 
        following:
                    ``(A) Full premium subsidy.--An income-
                related premium subsidy equal to--
                            ``(i) 100 percent of the amount 
                        described in subsection (b)(1), but not 
                        to exceed the premium amount specified 
                        in subsection (b)(2)(B); plus
                            ``(ii) 80 percent of any late 
                        enrollment penalties imposed under 
                        section 1860D-13(b) for the first 60 
                        months in which such penalties are 
                        imposed for that individual, and 100 
                        percent of any such penalties for any 
                        subsequent month.
                    ``(B) Elimination of deductible.--A 
                reduction in the annual deductible applicable 
                under section 1860D-2(b)(1) to $0.
                    ``(C) Continuation of coverage above the 
                initial coverage limit.--The continuation of 
                coverage from the initial coverage limit (under 
                paragraph (3) of section 1860D-2(b)) for 
                expenditures incurred through the total amount 
                of expenditures at which benefits are available 
                under paragraph (4) of such section, subject to 
                the reduced cost-sharing described in 
                subparagraph (D).
                    ``(D) Reduction in cost-sharing below out-
                of-pocket threshold.--
                            ``(i) Institutionalized 
                        individuals.--In the case of an 
                        individual who is a full-benefit dual 
                        eligible individual and who is an 
                        institutionalized individual or couple 
                        (as defined in section 1902(q)(1)(B)), 
                        the elimination of any beneficiary 
                        coinsurance described in section 1860D-
                        2(b)(2) (for all amounts through the 
                        total amount of expenditures at which 
                        benefits are available under section 
                        1860D-2(b)(4)).
                            ``(ii) Lowest income dual eligible 
                        individuals.--In the case of an 
                        individual not described in clause (i) 
                        who is a full-benefit dual eligible 
                        individual and whose income does not 
                        exceed 100 percent of the poverty line 
                        applicable to a family of the size 
                        involved, the substitution for the 
                        beneficiary coinsurance described in 
                        section 1860D-2(b)(2) (for all amounts 
                        through the total amount of 
                        expenditures at which benefits are 
                        available under section 1860D-2(b)(4)) 
                        of a copayment amount that does not 
                        exceed $1 for a generic drug or a 
                        preferred drug that is a multiple 
                        source drug (as defined in section 
                        1927(k)(7)(A)(i)) and $3 for any other 
                        drug, or, if less, the copayment amount 
                        applicable to an individual under 
                        clause (iii).
                            ``(iii) Other individuals.--In the 
                        case of an individual not described in 
                        clause (i) or (ii), the substitution 
                        for the beneficiary coinsurance 
                        described in section 1860D-2(b)(2) (for 
                        all amounts through the total amount of 
                        expenditures at which benefits are 
                        available under section 1860D-2(b)(4)) 
                        of a copayment amount that does not 
                        exceed the copayment amount specified 
                        under section 1860D-2(b)(4)(A)(i)(I) 
                        for the drug and year involved.
                    ``(E) Elimination of cost-sharing above 
                annual out-of-pocket threshold.--The 
                elimination of any cost-sharing imposed under 
                section 1860D-2(b)(4)(A).
            ``(2) Other individuals with income below 150 
        percent of poverty line.--In the case of a subsidy 
        eligible individual who is not described in paragraph 
        (1), the individual is entitled under this section to 
        the following:
                    ``(A) Sliding scale premium subsidy.--An 
                income-related premium subsidy determined on a 
                linear sliding scale ranging from 100 percent 
                of the amount described in paragraph (1)(A) for 
                individuals with incomes at or below 135 
                percent of such level to 0 percent of such 
                amount for individuals with incomes at 150 
                percent of such level.
                    ``(B) Reduction of deductible.--A reduction 
                in the annual deductible applicable under 
                section 1860D-2(b)(1) to $50.
                    ``(C) Continuation of coverage above the 
                initial coverage limit.--The continuation of 
                coverage from the initial coverage limit (under 
                paragraph (3) of section 1860D-2(b)) for 
                expenditures incurred through the total amount 
                of expenditures at which benefits are available 
                under paragraph (4) of such section, subject to 
                the reduced coinsurance described in 
                subparagraph (D).
                    ``(D) Reduction in cost-sharing below out-
                of-pocket threshold.--The substitution for the 
                beneficiary coinsurance described in section 
                1860D-2(b)(2) (for all amounts above the 
                deductible under subparagraph (B) through the 
                total amount of expenditures at which benefits 
                are available under section 1860D-2(b)(4)) of 
                coinsurance of `15 percent' instead of 
                coinsurance of `25 percent' in section 1860D-
                2(b)(2).
                    ``(E) Reduction of cost-sharing above 
                annual out-of-pocket threshold.--Subject to 
                subsection (c), the substitution for the cost-
                sharing imposed under section 1860D-2(b)(4)(A) 
                of a copayment or coinsurance not to exceed the 
                copayment or coinsurance amount specified under 
                section 1860D-2(b)(4)(A)(i)(I) for the drug and 
                year involved.
            ``(3) Determination of eligibility.--
                    ``(A) Subsidy eligible individual 
                defined.--For purposes of this part, subject to 
                subparagraph (F), the term `subsidy eligible 
                individual' means a part D eligible individual 
                who--
                            ``(i) is enrolled in a prescription 
                        drug plan or MA-PD plan;
                            ``(ii) has income below 150 percent 
                        of the poverty line applicable to a 
                        family of the size involved; and
                            ``(iii) meets the resources 
                        requirement described in subparagraph 
                        (D) or (E).
                    ``(B) Determinations.--
                            ``(i) In general.--The 
                        determination of whether a part D 
                        eligible individual residing in a State 
                        is a subsidy eligible individual and 
                        whether the individual is described in 
                        paragraph (1) shall be determined under 
                        the State plan under title XIX for the 
                        State under section 1935(a) or by the 
                        Commissioner of Social Security. There 
                        are authorized to be appropriated to 
                        the Social Security Administration such 
                        sums as may be necessary for the 
                        determination of eligibility under this 
                        subparagraph.
                            ``(ii) Effective period.--
                        Determinations under this subparagraph 
                        shall be effective beginning with the 
                        month in which the individual applies 
                        for a determination that the individual 
                        is a subsidy eligible individual and 
                        shall remain in effect for a period 
                        specified by the Secretary, but not to 
                        exceed 1 year.
                            ``(iii) Redeterminations and 
                        appeals through medicaid.--
                        Redeterminations and appeals, with 
                        respect to eligibility determinations 
                        under clause (i) made under a State 
                        plan under title XIX, shall be made in 
                        accordance with the frequency of, and 
                        manner in which, redeterminations and 
                        appeals of eligibility are made under 
                        such plan for purposes of medical 
                        assistance under such title.
                            ``(iv) Redeterminations and appeals 
                        through commissioner.--With respect to 
                        eligibility determinations under clause 
                        (i) made by the Commissioner of Social 
                        Security--
                                    ``(I) redeterminations 
                                shall be made at such time or 
                                times as may be provided by the 
                                Commissioner; and
                                    ``(II) the Commissioner 
                                shall establish procedures for 
                                appeals of such determinations 
                                that are similar to the 
                                procedures described in the 
                                third sentence of section 
                                1631(c)(1)(A).
                            ``(v) Treatment of medicaid 
                        beneficiaries.--Subject to subparagraph 
                        (F), the Secretary--
                                    ``(I) shall provide that 
                                part D eligible individuals who 
                                are full-benefit dual eligible 
                                individuals (as defined in 
                                section 1935(c)(6)) or who are 
                                recipients of supplemental 
                                security income benefits under 
                                title XVI shall be treated as 
                                subsidy eligible individuals 
                                described in paragraph (1); and
                                    ``(II) may provide that 
                                part D eligible individuals not 
                                described in subclause (I) who 
                                are determined for purposes of 
                                the State plan under title XIX 
                                to be eligible for medical 
                                assistance under clause (i), 
                                (iii), or (iv) of section 
                                1902(a)(10)(E) are treated as 
                                being determined to be subsidy 
                                eligible individuals described 
                                in paragraph (1).
                        Insofar as the Secretary determines 
                        that the eligibility requirements under 
                        the State plan for medical assistance 
                        referred to in subclause (II) are 
                        substantially the same as the 
                        requirements for being treated as a 
                        subsidy eligible individual described 
                        in paragraph (1), the Secretary shall 
                        provide for the treatment described in 
                        such subclause.
                    ``(C) Income determinations.--For purposes 
                of applying this section--
                            ``(i) in the case of a part D 
                        eligible individual who is not treated 
                        as a subsidy eligible individual under 
                        subparagraph (B)(v), income shall be 
                        determined in the manner described in 
                        section 1905(p)(1)(B), without regard 
                        to the application of section 
                        1902(r)(2); and
                            ``(ii) the term `poverty line' has 
                        the meaning given such term in section 
                        673(2) of the Community Services Block 
                        Grant Act (42 U.S.C. 9902(2)), 
                        including any revision required by such 
                        section.
                Nothing in clause (i) shall be construed to 
                affect the application of section 1902(r)(2) 
                for the determination of eligibility for 
                medical assistance under title XIX.
                    ``(D) Resource standard applied to full 
                low-income subsidy to be based on three times 
                ssi resource standard.--The resources 
                requirement of this subparagraph is that an 
                individual's resources (as determined under 
                section 1613 for purposes of the supplemental 
                security income program) do not exceed--
                            ``(i) for 2006 three times the 
                        maximum amount of resources that an 
                        individual may have and obtain benefits 
                        under that program; and
                            ``(ii) for a subsequent year the 
                        resource limitation established under 
                        this clause for the previous year 
                        increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year.
                Any resource limitation established under 
                clause (ii) that is not a multiple of $10 shall 
                be rounded to the nearest multiple of $10.
                    ``(E) Alternative resource standard.--
                            ``(i) In general.--The resources 
                        requirement of this subparagraph is 
                        that an individual's resources (as 
                        determined under section 1613 for 
                        purposes of the supplemental security 
                        income program) do not exceed--
                                    ``(I) for 2006, $10,000 (or 
                                $20,000 in the case of the 
                                combined value of the 
                                individual's assets or 
                                resources and the assets or 
                                resources of the individual's 
                                spouse); and
                                    ``(II) for a subsequent 
                                year the dollar amounts 
                                specified in this subclause (or 
                                subclause (I)) for the previous 
                                year increased by the annual 
                                percentage increase in the 
                                consumer price index (all 
                                items; U.S. city average) as of 
                                September of such previous 
                                year.
                        Any dollar amount established under 
                        subclause (II) that is not a multiple 
                        of $10 shall be rounded to the nearest 
                        multiple of $10.
                            ``(ii) Use of simplified 
                        application form and process.--The 
                        Secretary, jointly with the 
                        Commissioner of Social Security, 
                        shall--
                                    ``(I) develop a model, 
                                simplified application form and 
                                process consistent with clause 
                                (iii) for the determination and 
                                verification of a part D 
                                eligible individual's assets or 
                                resources under this 
                                subparagraph; and
                                    ``(II) provide such form to 
                                States.
                            ``(iii) Documentation and 
                        safeguards.--Under such process--
                                    ``(I) the application form 
                                shall consist of an attestation 
                                under penalty of perjury 
                                regarding the level of assets 
                                or resources (or combined 
                                assets and resources in the 
                                case of a married part D 
                                eligible individual) and 
                                valuations of general classes 
                                of assets or resources;
                                    ``(II) such form shall be 
                                accompanied by copies of recent 
                                statements (if any) from 
                                financial institutions in 
                                support of the application; and
                                    ``(III) matters attested to 
                                in the application shall be 
                                subject to appropriate methods 
                                of verification.
                            ``(iv) Methodology flexibility.--
                        The Secretary may permit a State in 
                        making eligibility determinations for 
                        premium and cost-sharing subsidies 
                        under this section to use the same 
                        asset or resource methodologies that 
                        are used with respect to eligibility 
                        for medical assistance for medicare 
                        cost-sharing described in section 
                        1905(p) so long as the Secretary 
                        determines that the use of such 
                        methodologies will not result in any 
                        significant differences in the number 
                        of individuals determined to be subsidy 
                        eligible individuals.
                    ``(F) Treatment of territorial residents.--
                In the case of a part D eligible individual who 
                is not a resident of the 50 States or the 
                District of Columbia, the individual is not 
                eligible to be a subsidy eligible individual 
                under this section but may be eligible for 
                financial assistance with prescription drug 
                expenses under section 1935(e).
            ``(4) Indexing dollar amounts.--
                    ``(A) Copayment for lowest income dual 
                eligible individuals.--The dollar amounts 
                applied under paragraph (1)(D)(ii)--
                            ``(i) for 2007 shall be the dollar 
                        amounts specified in such paragraph 
                        increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year; or
                            ``(ii) for a subsequent year shall 
                        be the dollar amounts specified in this 
                        clause (or clause (i)) for the previous 
                        year increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year.
                Any amount established under clause (i) or 
                (ii), that is based on an increase of $1 or $3, 
                that is not a multiple of 5 cents or 10 cents, 
                respectively, shall be rounded to the nearest 
                multiple of 5 cents or 10 cents, respectively.
                    ``(B) Reduced deductible.--The dollar 
                amount applied under paragraph (2)(B)--
                            ``(i) for 2007 shall be the dollar 
                        amount specified in such paragraph 
                        increased by the annual percentage 
                        increase described in section 1860D-
                        2(b)(6) for 2007; or
                            ``(ii) for a subsequent year shall 
                        be the dollar amount specified in this 
                        clause (or clause (i)) for the previous 
                        year increased by the annual percentage 
                        increase described in section 1860D-
                        2(b)(6) for the year involved.
                Any amount established under clause (i) or (ii) 
                that is not a multiple of $1 shall be rounded 
                to the nearest multiple of $1.
    ``(b) Premium Subsidy Amount.--
            ``(1) In general.--The premium subsidy amount 
        described in this subsection for a subsidy eligible 
        individual residing in a PDP region and enrolled in a 
        prescription drug plan or MA-PD plan is the low-income 
        benchmark premium amount (as defined in paragraph (2)) 
        for the PDP region in which the individual resides or, 
        if greater, the amount specified in paragraph (3).
            ``(2) Low-income benchmark premium amount 
        defined.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `low-income benchmark 
                premium amount' means, with respect to a PDP 
                region in which--
                            ``(i) all prescription drug plans 
                        are offered by the same PDP sponsor, 
                        the weighted average of the amounts 
                        described in subparagraph (B)(i) for 
                        such plans; or
                            ``(ii) there are prescription drug 
                        plans offered by more than one PDP 
                        sponsor, the weighted average of 
                        amounts described in subparagraph (B) 
                        for prescription drug plans and MA-PD 
                        plans described in section 
                        1851(a)(2)(A)(i) offered in such 
                        region.
                    ``(B) Premium amounts described.--The 
                premium amounts described in this subparagraph 
                are, in the case of--
                            ``(i) a prescription drug plan that 
                        is a basic prescription drug plan, the 
                        monthly beneficiary premium for such 
                        plan;
                            ``(ii) a prescription drug plan 
                        that provides alternative prescription 
                        drug coverage the actuarial value of 
                        which is greater than that of standard 
                        prescription drug coverage, the portion 
                        of the monthly beneficiary premium that 
                        is attributable to basic prescription 
                        drug coverage; and
                            ``(iii) an MA-PD plan, the portion 
                        of the MA monthly prescription drug 
                        beneficiary premium that is 
                        attributable to basic prescription drug 
                        benefits (described in section 
                        1852(a)(6)(B)(ii)).
                The premium amounts described in this 
                subparagraph do not include any amounts 
                attributable to late enrollment penalties under 
                section 1860D-13(b).
            ``(3) Access to 0 premium plan.--In no case shall 
        the premium subsidy amount under this subsection for a 
        PDP region be less than the lowest monthly beneficiary 
        premium for a prescription drug plan that offers basic 
        prescription drug coverage in the region.
    ``(c) Administration of Subsidy Program.--
            ``(1) In general.--The Secretary shall provide a 
        process whereby, in the case of a part D eligible 
        individual who is determined to be a subsidy eligible 
        individual and who is enrolled in a prescription drug 
        plan or is enrolled in an MA-PD plan--
                    ``(A) the Secretary provides for a 
                notification of the PDP sponsor or the MA 
                organization offering the plan involved that 
                the individual is eligible for a subsidy and 
                the amount of the subsidy under subsection (a);
                    ``(B) the sponsor or organization involved 
                reduces the premiums or cost-sharing otherwise 
                imposed by the amount of the applicable subsidy 
                and submits to the Secretary information on the 
                amount of such reduction;
                    ``(C) the Secretary periodically and on a 
                timely basis reimburses the sponsor or 
                organization for the amount of such reductions; 
                and
                    ``(D) the Secretary ensures the 
                confidentiality of individually identifiable 
                information.
        In applying subparagraph (C), the Secretary shall 
        compute reductions based upon imposition under 
        subsections (a)(1)(D) and (a)(2)(E) of unreduced 
        copayment amounts applied under such subsections.
            ``(2) Use of capitated form of payment.--The 
        reimbursement under this section with respect to cost-
        sharing subsidies may be computed on a capitated basis, 
        taking into account the actuarial value of the 
        subsidies and with appropriate adjustments to reflect 
        differences in the risks actually involved.
    ``(d) Relation to Medicaid Program.--For special provisions 
under the medicaid program relating to medicare prescription 
drug benefits, see section 1935.

``SUBSIDIES FOR PART D ELIGIBLE INDIVIDUALS FOR QUALIFIED PRESCRIPTION 
                             DRUG COVERAGE

    ``Sec. 1860D-15. (a) Subsidy Payment.--In order to reduce 
premium levels applicable to qualified prescription drug 
coverage for part D eligible individuals consistent with an 
overall subsidy level of 74.5 percent for basic prescription 
drug coverage, to reduce adverse selection among prescription 
drug plans and MA-PD plans, and to promote the participation of 
PDP sponsors under this part and MA organizations under part C, 
the Secretary shall provide for payment to a PDP sponsor that 
offers a prescription drug plan and an MA organization that 
offers an MA-PD plan of the following subsidies in accordance 
with this section:
            ``(1) Direct subsidy.--A direct subsidy for each 
        part D eligible individual enrolled in a prescription 
        drug plan or MA-PD plan for a month equal to--
                    ``(A) the amount of the plan's standardized 
                bid amount (as defined in section 1860D-
                13(a)(5)), adjusted under subsection (c)(1), 
                reduced by
                    ``(B) the base beneficiary premium (as 
                computed under paragraph (2) of section 1860D-
                13(a) and as adjusted under paragraph (1)(B) of 
                such section).
            ``(2) Subsidy through reinsurance.--The reinsurance 
        payment amount (as defined in subsection (b)).
This section constitutes budget authority in advance of 
appropriations Acts and represents the obligation of the 
Secretary to provide for the payment of amounts provided under 
this section.
    ``(b) Reinsurance Payment Amount.--
            ``(1) In general.--The reinsurance payment amount 
        under this subsection for a part D eligible individual 
        enrolled in a prescription drug plan or MA-PD plan for 
        a coverage year is an amount equal to 80 percent of the 
        allowable reinsurance costs (as specified in paragraph 
        (2)) attributable to that portion of gross covered 
        prescription drug costs as specified in paragraph (3) 
        incurred in the coverage year after such individual has 
        incurred costs that exceed the annual out-of-pocket 
        threshold specified in section 1860D-2(b)(4)(B).
            ``(2) Allowable reinsurance costs.--For purposes of 
        this section, the term `allowable reinsurance costs' 
        means, with respect to gross covered prescription drug 
        costs under a prescription drug plan offered by a PDP 
        sponsor or an MA-PD plan offered by an MA organization, 
        the part of such costs that are actually paid (net of 
        discounts, chargebacks, and average percentage rebates) 
        by the sponsor or organization or by (or on behalf of) 
        an enrollee under the plan, but in no case more than 
        the part of such costs that would have been paid under 
        the plan if the prescription drug coverage under the 
        plan were basic prescription drug coverage, or, in the 
        case of a plan providing supplemental prescription drug 
        coverage, if such coverage were standard prescription 
        drug coverage.
            ``(3) Gross covered prescription drug costs.--For 
        purposes of this section, the term `gross covered 
        prescription drug costs' means, with respect to a part 
        D eligible individual enrolled in a prescription drug 
        plan or MA-PD plan during a coverage year, the costs 
        incurred under the plan, not including administrative 
        costs, but including costs directly related to the 
        dispensing of covered part D drugs during the year and 
        costs relating to the deductible. Such costs shall be 
        determined whether they are paid by the individual or 
        under the plan, regardless of whether the coverage 
        under the plan exceeds basic prescription drug 
        coverage.
            ``(4) Coverage year defined.--For purposes of this 
        section, the term `coverage year' means a calendar year 
        in which covered part D drugs are dispensed if the 
        claim for such drugs (and payment on such claim) is 
        made not later than such period after the end of such 
        year as the Secretary specifies.
    ``(c) Adjustments Relating to Bids.--
            ``(1) Health status risk adjustment.--
                    ``(A) Establishment of risk adjustors.--The 
                Secretary shall establish an appropriate 
                methodology for adjusting the standardized bid 
                amount under subsection (a)(1)(A) to take into 
                account variation in costs for basic 
                prescription drug coverage among prescription 
                drug plans and MA-PD plans based on the 
                differences in actuarial risk of different 
                enrollees being served. Any such risk 
                adjustment shall be designed in a manner so as 
                not to result in a change in the aggregate 
                amounts payable to such plans under subsection 
                (a)(1) and through that portion of the monthly 
                beneficiary prescription drug premiums 
                described in subsection (a)(1)(B) and MA 
                monthly prescription drug beneficiary premiums.
                    ``(B) Considerations.--In establishing the 
                methodology under subparagraph (A), the 
                Secretary may take into account the similar 
                methodologies used under section 1853(a)(3) to 
                adjust payments to MA organizations for 
                benefits under the original medicare fee-for-
                service program option.
                    ``(C) Data collection.--In order to carry 
                out this paragraph, the Secretary shall 
                require--
                            ``(i) PDP sponsors to submit data 
                        regarding drug claims that can be 
                        linked at the individual level to part 
                        A and part B data and such other 
                        information as the Secretary determines 
                        necessary; and
                            ``(ii) MA organizations that offer 
                        MA-PD plans to submit data regarding 
                        drug claims that can be linked at the 
                        individual level to other data that 
                        such organizations are required to 
                        submit to the Secretary and such other 
                        information as the Secretary determines 
                        necessary.
                    ``(D) Publication.--At the time of 
                publication of risk adjustment factors under 
                section 1853(b)(1)(B)(i)(II), the Secretary 
                shall publish the risk adjusters established 
                under this paragraph for the succeeding year.
            ``(2) Geographic adjustment.--
                    ``(A) In general.--Subject to subparagraph 
                (B), for purposes of section 1860D-
                13(a)(1)(B)(iii), the Secretary shall establish 
                an appropriate methodology for adjusting the 
                national average monthly bid amount (computed 
                under section 1860D-13(a)(4)) to take into 
                account differences in prices for covered part 
                D drugs among PDP regions.
                    ``(B) De minimis rule.--If the Secretary 
                determines that the price variations described 
                in subparagraph (A) among PDP regions are de 
                minimis, the Secretary shall not provide for 
                adjustment under this paragraph.
                    ``(C) Budget neutral adjustment.--Any 
                adjustment under this paragraph shall be 
                applied in a manner so as to not result in a 
                change in the aggregate payments made under 
                this part that would have been made if the 
                Secretary had not applied such adjustment.
    ``(d) Payment Methods.--
            ``(1) In general.--Payments under this section 
        shall be based on such a method as the Secretary 
        determines. The Secretary may establish a payment 
        method by which interim payments of amounts under this 
        section are made during a year based on the Secretary's 
        best estimate of amounts that will be payable after 
        obtaining all of the information.
            ``(2) Requirement for provision of information.--
                    ``(A) Requirement.--Payments under this 
                section to a PDP sponsor or MA organization are 
                conditioned upon the furnishing to the 
                Secretary, in a form and manner specified by 
                the Secretary, of such information as may be 
                required to carry out this section.
                    ``(B) Restriction on use of information.--
                Information disclosed or obtained pursuant to 
                subparagraph (A) may be used by officers, 
                employees, and contractors of the Department of 
                Health and Human Services only for the purposes 
                of, and to the extent necessary in, carrying 
                out this section.
            ``(3) Source of payments.--Payments under this 
        section shall be made from the Medicare Prescription 
        Drug Account.
            ``(4) Application of enrollee adjustment.--The 
        provisions of section 1853(a)(2) shall apply to 
        payments to PDP sponsors under this section in the same 
        manner as they apply to payments to MA organizations 
        under section 1853(a).
    ``(e) Portion of Total Payments to a Sponsor or 
Organization Subject to Risk (Application of Risk Corridors).--
            ``(1) Computation of adjusted allowable risk 
        corridor costs.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `adjusted allowable risk 
                corridor costs' means, for a plan for a 
                coverage year (as defined in subsection 
                (b)(4))--
                            ``(i) the allowable risk corridor 
                        costs (as defined in subparagraph (B)) 
                        for the plan for the year, reduced by
                            ``(ii) the sum of (I) the total 
                        reinsurance payments made under 
                        subsection (b) to the sponsor of the 
                        plan for the year, and (II) the total 
                        subsidy payments made under section 
                        1860D-14 to the sponsor of the plan for 
                        the year.
                    ``(B) Allowable risk corridor costs.--For 
                purposes of this subsection, the term 
                `allowable risk corridor costs' means, with 
                respect to a prescription drug plan offered by 
                a PDP sponsor or an MA-PD plan offered by an MA 
                organization, the part of costs (not including 
                administrative costs, but including costs 
                directly related to the dispensing of covered 
                part D drugs during the year) incurred by the 
                sponsor or organization under the plan that are 
                actually paid (net of discounts, chargebacks, 
                and average percentage rebates) by the sponsor 
                or organization under the plan, but in no case 
                more than the part of such costs that would 
                have been paid under the plan if the 
                prescription drug coverage under the plan were 
                basic prescription drug coverage, or, in the 
                case of a plan providing supplemental 
                prescription drug coverage, if such coverage 
                were basic prescription drug coverage taking 
                into account the adjustment under section 
                1860D-11(c)(2). In computing allowable costs 
                under this paragraph, the Secretary shall 
                compute such costs based upon imposition under 
                paragraphs (1)(D) and (2)(E) of section 1860D-
                14(a) of the maximum amount of copayments 
                permitted under such paragraphs.
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if adjusted allowable 
                risk corridor costs within risk corridor.--If 
                the adjusted allowable risk corridor costs (as 
                defined in paragraph (1)) for the plan for the 
                year are at least equal to the first threshold 
                lower limit of the risk corridor (specified in 
                paragraph (3)(A)(i)), but not greater than the 
                first threshold upper limit of the risk 
                corridor (specified in paragraph (3)(A)(iii)) 
                for the plan for the year, then no payment 
                adjustment shall be made under this subsection.
                    ``(B) Increase in payment if adjusted 
                allowable risk corridor costs above upper limit 
                of risk corridor.--
                            ``(i) Costs between first and 
                        second threshold upper limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are greater 
                        than the first threshold upper limit, 
                        but not greater than the second 
                        threshold upper limit, of the risk 
                        corridor for the plan for the year, the 
                        Secretary shall increase the total of 
                        the payments made to the sponsor or 
                        organization offering the plan for the 
                        year under this section by an amount 
                        equal to 50 percent (or, for 2006 and 
                        2007, 75 percent or 90 percent if the 
                        conditions described in clause (iii) 
                        are met for the year) of the difference 
                        between such adjusted allowable risk 
                        corridor costs and the first threshold 
                        upper limit of the risk corridor.
                            ``(ii) Costs above second threshold 
                        upper limits.--If the adjusted 
                        allowable risk corridor costs for the 
                        plan for the year are greater than the 
                        second threshold upper limit of the 
                        risk corridor for the plan for the 
                        year, the Secretary shall increase the 
                        total of the payments made to the 
                        sponsor or organization offering the 
                        plan for the year under this section by 
                        an amount equal to the sum of--
                                    ``(I) 50 percent (or, for 
                                2006 and 2007, 75 percent or 90 
                                percent if the conditions 
                                described in clause (iii) are 
                                met for the year) of the 
                                difference between the second 
                                threshold upper limit and the 
                                first threshold upper limit; 
                                and
                                    ``(II) 80 percent of the 
                                difference between such 
                                adjusted allowable risk 
                                corridor costs and the second 
                                threshold upper limit of the 
                                risk corridor.
                            ``(iii) Conditions for application 
                        of higher percentage for 2006 and 
                        2007.--The conditions described in this 
                        clause are met for 2006 or 2007 if the 
                        Secretary determines with respect to 
                        such year that--
                                    ``(I) at least 60 percent 
                                of prescription drug plans and 
                                MA-PD plans to which this 
                                subsection applies have 
                                adjusted allowable risk 
                                corridor costs for the plan for 
                                the year that are more than the 
                                first threshold upper limit of 
                                the risk corridor for the plan 
                                for the year; and
                                    ``(II) such plans represent 
                                at least 60 percent of part D 
                                eligible individuals enrolled 
                                in any prescription drug plan 
                                or MA-PD plan.
                    ``(C) Reduction in payment if adjusted 
                allowable risk corridor costs below lower limit 
                of risk corridor.--
                            ``(i) Costs between first and 
                        second threshold lower limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are less than 
                        the first threshold lower limit, but 
                        not less than the second threshold 
                        lower limit, of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to 50 
                        percent (or, for 2006 and 2007, 75 
                        percent) of the difference between the 
                        first threshold lower limit of the risk 
                        corridor and such adjusted allowable 
                        risk corridor costs.
                            ``(ii) Costs below second threshold 
                        lower limit.--If the adjusted allowable 
                        risk corridor costs for the plan for 
                        the year are less the second threshold 
                        lower limit of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to the 
                        sum of--
                                    ``(I) 50 percent (or, for 
                                2006 and 2007, 75 percent) of 
                                the difference between the 
                                first threshold lower limit and 
                                the second threshold lower 
                                limit; and
                                    ``(II) 80 percent of the 
                                difference between the second 
                                threshold upper limit of the 
                                risk corridor and such adjusted 
                                allowable risk corridor costs.
            ``(3) Establishment of risk corridors.--
                    ``(A) In general.--For each plan year the 
                Secretary shall establish a risk corridor for 
                each prescription drug plan and each MA-PD 
                plan. The risk corridor for a plan for a year 
                shall be equal to a range as follows:
                            ``(i) First threshold lower 
                        limit.--The first threshold lower limit 
                        of such corridor shall be equal to--
                                    ``(I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                    ``(II) an amount equal to 
                                the first threshold risk 
                                percentage for the plan (as 
                                determined under subparagraph 
                                (C)(i)) of such target amount.
                            ``(ii) Second threshold lower 
                        limit.--The second threshold lower 
                        limit of such corridor shall be equal 
                        to--
                                    ``(I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                    ``(II) an amount equal to 
                                the second threshold risk 
                                percentage for the plan (as 
                                determined under subparagraph 
                                (C)(ii)) of such target amount.
                            ``(iii) First threshold upper 
                        limit.--The first threshold upper limit 
                        of such corridor shall be equal to the 
                        sum of--
                                    ``(I) such target amount; 
                                and
                                    ``(II) the amount described 
                                in clause (i)(II).
                            ``(iv) Second threshold upper 
                        limit.--The second threshold upper 
                        limit of such corridor shall be equal 
                        to the sum of--
                                    ``(I) such target amount; 
                                and
                                    ``(II) the amount described 
                                in clause (ii)(II).
                    ``(B) Target amount described.--The target 
                amount described in this paragraph is, with 
                respect to a prescription drug plan or an MA-PD 
                plan in a year, the total amount of payments 
                paid to the PDP sponsor or MA-PD organization 
                for the plan for the year, taking into account 
                amounts paid by the Secretary and enrollees, 
                based upon the standardized bid amount (as 
                defined in section 1860D-13(a)(5) and as risk 
                adjusted under subsection (c)(1)), reduced by 
                the total amount of administrative expenses for 
                the year assumed in such standardized bid.
                    ``(C) First and second threshold risk 
                percentage defined.--
                            ``(i) First threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the first 
                        threshold risk percentage is--
                                    ``(I) for 2006 and 2007, 
                                and 2.5 percent;
                                    ``(II) for 2008 through 
                                2011, 5 percent; and
                                    ``(III) for 2012 and 
                                subsequent years, a percentage 
                                established by the Secretary, 
                                but in no case less than 5 
                                percent.
                            ``(ii) Second threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the 
                        second threshold risk percentage is--
                                    ``(I) for 2006 and 2007, 5 
                                percent;
                                    ``(II) for 2008 through 
                                2011, 10 percent; and
                                    ``(III) for 2012 and 
                                subsequent years, a percentage 
                                established by the Secretary 
                                that is greater than the 
                                percent established for the 
                                year under clause (i)(III), but 
                                in no case less than 10 
                                percent.
                            ``(iii) Reduction of risk 
                        percentage to ensure 2 plans in an 
                        area.--Pursuant to section 1860D-
                        11(b)(2)(E)(ii), a PDP sponsor may 
                        submit a bid that requests a decrease 
                        in the applicable first or second 
                        threshold risk percentages or an 
                        increase in the percents applied under 
                        paragraph (2).
            ``(4) Plans at risk for entire amount of 
        supplemental prescription drug coverage.--A PDP sponsor 
        and MA organization that offers a plan that provides 
        supplemental prescription drug benefits shall be at 
        full financial risk for the provision of such 
        supplemental benefits.
            ``(5) No effect on monthly premium.--No adjustment 
        in payments made by reason of this subsection shall 
        affect the monthly beneficiary premium or the MA 
        monthly prescription drug beneficiary premium.
    ``(f) Disclosure of Information.--
            ``(1) In general.--Each contract under this part 
        and under part C shall provide that--
                    ``(A) the PDP sponsor offering a 
                prescription drug plan or an MA organization 
                offering an MA-PD plan shall provide the 
                Secretary with such information as the 
                Secretary determines is necessary to carry out 
                this section; and
                    ``(B) the Secretary shall have the right in 
                accordance with section 1857(d)(2)(B) (as 
                applied under section 1860D-12(b)(3)(C)) to 
                inspect and audit any books and records of a 
                PDP sponsor or MA organization that pertain to 
                the information regarding costs provided to the 
                Secretary under subparagraph (A).
            ``(2) Restriction on use of information.--
        Information disclosed or obtained pursuant to the 
        provisions of this section may be used by officers, 
        employees, and contractors of the Department of Health 
        and Human Services only for the purposes of, and to the 
        extent necessary in, carrying out this section.
    ``(g) Payment for Fallback Prescription Drug Plans.--In 
lieu of the amounts otherwise payable under this section to a 
PDP sponsor offering a fallback prescription drug plan (as 
defined in section 1860D-3(c)(4)), the amount payable shall be 
the amounts determined under the contract for such plan 
pursuant to section 1860D-11(g)(5).

   ``MEDICARE PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL SUPPLEMENTARY 
                      MEDICAL INSURANCE TRUST FUND

    ``Sec. 1860D-16. (a) Establishment and Operation of 
Account.--
            ``(1) Establishment.--There is created within the 
        Federal Supplementary Medical Insurance Trust Fund 
        established by section 1841 an account to be known as 
        the `Medicare Prescription Drug Account' (in this 
        section referred to as the `Account').
            ``(2) Funding.--The Account shall consist of such 
        gifts and bequests as may be made as provided in 
        section 201(i)(1), accrued interest on balances in the 
        Account, and such amounts as may be deposited in, or 
        appropriated to, such Account as provided in this part.
            ``(3) Separate from rest of trust fund.--Funds 
        provided under this part to the Account shall be kept 
        separate from all other funds within the Federal 
        Supplementary Medical Insurance Trust Fund, but shall 
        be invested, and such investments redeemed, in the same 
        manner as all other funds and investments within such 
        Trust Fund.
    ``(b) Payments From Account.--
            ``(1) In general.--The Managing Trustee shall pay 
        from time to time from the Account such amounts as the 
        Secretary certifies are necessary to make payments to 
        operate the program under this part, including--
                    ``(A) payments under section 1860D-14 
                (relating to low-income subsidy payments);
                    ``(B) payments under section 1860D-15 
                (relating to subsidy payments and payments for 
                fallback plans);
                    ``(C) payments to sponsors of qualified 
                retiree prescription drug plans under section 
                1860D-22(a); and
                    ``(D) payments with respect to 
                administrative expenses under this part in 
                accordance with section 201(g).
            ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall 
        transfer from time to time from the Account to the 
        Grants to States for Medicaid account amounts the 
        Secretary certifies are attributable to increases in 
        payment resulting from the application of section 
        1935(b).
            ``(3) Payments of premiums withheld.--The Managing 
        Trustee shall make payment to the PDP sponsor or MA 
        organization involved of the premiums (and the portion 
        of late enrollment penalties) that are collected in the 
        manner described in section 1854(d)(2)(A) and that are 
        payable under a prescription drug plan or MA-PD plan 
        offered by such sponsor or organization.
            ``(4) Treatment in relation to part b premium.--
        Amounts payable from the Account shall not be taken 
        into account in computing actuarial rates or premium 
        amounts under section 1839.
    ``(c) Deposits Into Account.--
            ``(1) Low-income transfer.--Amounts paid under 
        section 1935(c) (and any amounts collected or offset 
        under paragraph (1)(C) of such section) are deposited 
        into the Account.
            ``(2) Amounts withheld.--Pursuant to sections 
        1860D-13(c) and 1854(d) (as applied under this part), 
        amounts that are withheld (and allocated) to the 
        Account are deposited into the Account.
            ``(3) Appropriations to cover government 
        contributions.--There are authorized to be appropriated 
        from time to time, out of any moneys in the Treasury 
        not otherwise appropriated, to the Account, an amount 
        equivalent to the amount of payments made from the 
        Account under subsection (b) plus such amounts as the 
        Managing Trustee certifies is necessary to maintain an 
        appropriate contingency margin, reduced by the amounts 
        deposited under paragraph (1) or subsection (a)(2).
            ``(4) Initial funding and reserve.--In order to 
        assure prompt payment of benefits provided under this 
        part and the administrative expenses thereunder during 
        the early months of the program established by this 
        part and to provide an initial contingency reserve, 
        there are authorized to be appropriated to the Account, 
        out of any moneys in the Treasury not otherwise 
        appropriated, such amount as the Secretary certifies 
        are required, but not to exceed 10 percent of the 
        estimated total expenditures from such Account in 2006.
            ``(5) Transfer of any remaining balance from 
        transitional assistance account.--Any balance in the 
        Transitional Assistance Account that is transferred 
        under section 1860D-31(k)(5) shall be deposited into 
        the Account.

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

 ``APPLICATION TO MEDICARE ADVANTAGE PROGRAM AND RELATED MANAGED CARE 
                                PROGRAMS

    ``Sec. 1860D-21. (a) Special Rules Relating to Offering of 
Qualified Prescription Drug Coverage.--
            ``(1) In general.--An MA organization on and after 
        January 1, 2006--
                    ``(A) may not offer an MA plan described in 
                section 1851(a)(2)(A) in an area unless either 
                that plan (or another MA plan offered by the 
                organization in that same service area) 
                includes required prescription drug coverage 
                (as defined in paragraph (2)); and
                    ``(B) may not offer prescription drug 
                coverage (other than that required under parts 
                A and B) to an enrollee--
                            ``(i) under an MSA plan; or
                            ``(ii) under another MA plan unless 
                        such drug coverage under such other 
                        plan provides qualified prescription 
                        drug coverage and unless the 
                        requirements of this section with 
                        respect to such coverage are met.
            ``(2) Qualifying coverage.--For purposes of 
        paragraph (1)(A), the term `required coverage' means 
        with respect to an MA-PD plan--
                    ``(A) basic prescription drug coverage; or
                    ``(B) qualified prescription drug coverage 
                that provides supplemental prescription drug 
                coverage, so long as there is no MA monthly 
                supplemental beneficiary premium applied under 
                the plan (due to the application of a credit 
                against such premium of a rebate under section 
                1854(b)(1)(C)).
    ``(b) Application of Default Enrollment Rules.--
            ``(1) Seamless continuation.--In applying section 
        1851(c)(3)(A)(ii), an individual who is enrolled in a 
        health benefits plan shall not be considered to have 
        been deemed to make an election into an MA-PD plan 
        unless such health benefits plan provides any 
        prescription drug coverage.
            ``(2) MA continuation.--In applying section 
        1851(c)(3)(B), an individual who is enrolled in an MA 
        plan shall not be considered to have been deemed to 
        make an election into an MA-PD plan unless--
                    ``(A) for purposes of the election as of 
                January 1, 2006, the MA plan provided as of 
                December 31, 2005, any prescription drug 
                coverage; or
                    ``(B) for periods after January 1, 2006, 
                such MA plan is an MA-PD plan.
            ``(3) Discontinuance of ma-pd election during first 
        year of eligibility.--In applying the second sentence 
        of section 1851(e)(4) in the case of an individual who 
        is electing to discontinue enrollment in an MA-PD plan, 
        the individual shall be permitted to enroll in a 
        prescription drug plan under part D at the time of the 
        election of coverage under the original medicare fee-
        for-service program.
            ``(4) Rules regarding enrollees in ma plans not 
        providing qualified prescription drug coverage.--In the 
        case of an individual who is enrolled in an MA plan 
        (other than an MSA plan) that does not provide 
        qualified prescription drug coverage, if the 
        organization offering such coverage discontinues the 
        offering with respect to the individual of all MA plans 
        that do not provide such coverage--
                            ``(i) the individual is deemed to 
                        have elected the original medicare fee-
                        for-service program option, unless the 
                        individual affirmatively elects to 
                        enroll in an MA-PD plan; and
                            ``(ii) in the case of such a deemed 
                        election, the disenrollment shall be 
                        treated as an involuntary termination 
                        of the MA plan described in 
                        subparagraph (B)(ii) of section 
                        1882(s)(3) for purposes of applying 
                        such section.
        The information disclosed under section 1852(c)(1) for 
        individuals who are enrolled in such an MA plan shall 
        include information regarding such rules.
    ``(c) Application of Part D Rules for Prescription Drug 
Coverage.--With respect to the offering of qualified 
prescription drug coverage by an MA organization under this 
part on and after January 1, 2006--
            ``(1) In general.--Except as otherwise provided, 
        the provisions of this part shall apply under part C 
        with respect to prescription drug coverage provided 
        under MA-PD plans in lieu of the other provisions of 
        part C that would apply to such coverage under such 
        plans.
            ``(2) Waiver.--The Secretary shall waive the 
        provisions referred to in paragraph (1) to the extent 
        the Secretary determines that such provisions 
        duplicate, or are in conflict with, provisions 
        otherwise applicable to the organization or plan under 
        part C or as may be necessary in order to improve 
        coordination of this part with the benefits under this 
        part.
            ``(3) Treatment of ma owned and operated 
        pharmacies.--The Secretary may waive the requirement of 
        section 1860D-4(b)(1)(C) in the case of an MA-PD plan 
        that provides access (other than mail order) to 
        qualified prescription drug coverage through pharmacies 
        owned and operated by the MA organization, if the 
        Secretary determines that the organization's pharmacy 
        network is sufficient to provide comparable access for 
        enrollees under the plan.
    ``(d) Special Rules for Private Fee-for-Service Plans That 
Offer Prescription Drug Coverage.--With respect to an MA plan 
described in section 1851(a)(2)(C) that offers qualified 
prescription drug coverage, on and after January 1, 2006, the 
following rules apply:
            ``(1) Requirements regarding negotiated prices.--
        Subsections (a)(1) and (d)(1) of section 1860D-2 and 
        section 1860D-4(b)(2)(A) shall not be construed to 
        require the plan to provide negotiated prices 
        (described in subsection (d)(1)(B) of such section), 
        but shall apply to the extent the plan does so.
            ``(2) Modification of pharmacy access standard and 
        disclosure requirement.--If the plan provides coverage 
        for drugs purchased from all pharmacies, without 
        charging additional cost-sharing, and without regard to 
        whether they are participating pharmacies in a network 
        or have entered into contracts or agreements with 
        pharmacies to provide drugs to enrollees covered by the 
        plan, subsections (b)(1)(C) and (k) of section 1860D-4 
        shall not apply to the plan.
            ``(3) Drug utilization management program and 
        medication therapy management program not required.--
        The requirements of subparagraphs (A) and (C) of 
        section 1860D-4(c)(1) shall not apply to the plan.
            ``(4) Application of reinsurance.--The Secretary 
        shall determine the amount of reinsurance payments 
        under section 1860D-15(b) using a methodology that--
                    ``(A) bases such amount on the Secretary's 
                estimate of the amount of such payments that 
                would be payable if the plan were an MA-PD plan 
                described in section 1851(a)(2)(A)(i) and the 
                previous provisions of this subsection did not 
                apply; and
                    ``(B) takes into account the average 
                reinsurance payments made under section 1860D-
                15(b) for populations of similar risk under MA-
                PD plans described in such section.
            ``(5) Exemption from risk corridor provisions.--The 
        provisions of section 1860D-15(e) shall not apply.
            ``(6) Exemption from negotiations.--Subsections (d) 
        and (e)(2)(C) of section 1860D-11 shall not apply and 
        the provisions of section 1854(a)(5)(B) prohibiting the 
        review, approval, or disapproval of amounts described 
        in such section shall apply to the proposed bid and 
        terms and conditions described in section 1860D-11(d).
            ``(7) Treatment of incurred costs without regard to 
        formulary.--The exclusion of costs incurred for covered 
        part D drugs which are not included (or treated as 
        being included) in a plan's formulary under section 
        1860D-2(b)(4)(B)(i) shall not apply insofar as the plan 
        does not utilize a formulary.
    ``(e) Application to Reasonable Cost Reimbursement 
Contractors.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3) and rules established by the Secretary, in the case 
        of an organization that is providing benefits under a 
        reasonable cost reimbursement contract under section 
        1876(h) and that elects to provide qualified 
        prescription drug coverage to a part D eligible 
        individual who is enrolled under such a contract, the 
        provisions of this part (and related provisions of part 
        C) shall apply to the provision of such coverage to 
        such enrollee in the same manner as such provisions 
        apply to the provision of such coverage under an MA-PD 
        local plan described in section 1851(a)(2)(A)(i) and 
        coverage under such a contract that so provides 
        qualified prescription drug coverage shall be deemed to 
        be an MA-PD local plan.
            ``(2) Limitation on enrollment.--In applying 
        paragraph (1), the organization may not enroll part D 
        eligible individuals who are not enrolled under the 
        reasonable cost reimbursement contract involved.
            ``(3) Bids not included in determining national 
        average monthly bid amount.--The bid of an organization 
        offering prescription drug coverage under this 
        subsection shall not be taken into account in computing 
        the national average monthly bid amount and low-income 
        benchmark premium amount under this part.
    ``(f) Application to PACE.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3) and rules established by the Secretary, in the case 
        of a PACE program under section 1894 that elects to 
        provide qualified prescription drug coverage to a part 
        D eligible individual who is enrolled under such 
        program, the provisions of this part (and related 
        provisions of part C) shall apply to the provision of 
        such coverage to such enrollee in a manner that is 
        similar to the manner in which such provisions apply to 
        the provision of such coverage under an MA-PD local 
        plan described in section 1851(a)(2)(A)(ii) and a PACE 
        program that so provides such coverage may be deemed to 
        be an MA-PD local plan.
            ``(2) Limitation on enrollment.--In applying 
        paragraph (1), the organization may not enroll part D 
        eligible individuals who are not enrolled under the 
        PACE program involved.
            ``(3) Bids not included in determining standardized 
        bid amount.--The bid of an organization offering 
        prescription drug coverage under this subsection is not 
        be taken into account in computing any average 
        benchmark bid amount and low-income benchmark premium 
        amount under this part.

            ``SPECIAL RULES FOR EMPLOYER-SPONSORED PROGRAMS

    ``Sec. 1860D-22. (a) Subsidy Payment.--
            ``(1) In general.--The Secretary shall provide in 
        accordance with this subsection for payment to the 
        sponsor of a qualified retiree prescription drug plan 
        (as defined in paragraph (2)) of a special subsidy 
        payment equal to the amount specified in paragraph (3) 
        for each qualified covered retiree under the plan (as 
        defined in paragraph (4)). This subsection constitutes 
        budget authority in advance of appropriations Acts and 
        represents the obligation of the Secretary to provide 
        for the payment of amounts provided under this section.
            ``(2) Qualified retiree prescription drug plan 
        defined.--For purposes of this subsection, the term 
        `qualified retiree prescription drug plan' means 
        employment-based retiree health coverage (as defined in 
        subsection (c)(1)) if, with respect to a part D 
        eligible individual who is a participant or beneficiary 
        under such coverage, the following requirements are 
        met:
                    ``(A) Attestation of actuarial equivalence 
                to standard coverage.--The sponsor of the plan 
                provides the Secretary, annually or at such 
                other time as the Secretary may require, with 
                an attestation that the actuarial value of 
                prescription drug coverage under the plan (as 
                determined using the processes and methods 
                described in section 1860D-11(c)) is at least 
                equal to the actuarial value of standard 
                prescription drug coverage.
                    ``(B) Audits.--The sponsor of the plan, or 
                an administrator of the plan designated by the 
                sponsor, shall maintain (and afford the 
                Secretary access to) such records as the 
                Secretary may require for purposes of audits 
                and other oversight activities necessary to 
                ensure the adequacy of prescription drug 
                coverage and the accuracy of payments made 
                under this section. The provisions of section 
                1860D-2(d)(3) shall apply to such information 
                under this section (including such actuarial 
                value and attestation) in a manner similar to 
                the manner in which they apply to financial 
                records of PDP sponsors and MA organizations.
                    ``(C) Provision of disclosure regarding 
                prescription drug coverage.--The sponsor of the 
                plan shall provide for disclosure of 
                information regarding prescription drug 
                coverage in accordance with section 1860D-
                13(b)(6)(B).
            ``(3) Employer and union special subsidy amounts.--
                    ``(A) In general.--For purposes of this 
                subsection, the special subsidy payment amount 
                under this paragraph for a qualifying covered 
                retiree for a coverage year enrolled with the 
                sponsor of a qualified retiree prescription 
                drug plan is, for the portion of the retiree's 
                gross covered retiree plan-related prescription 
                drug costs (as defined in subparagraph (C)(ii)) 
                for such year that exceeds the cost threshold 
                amount specified in subparagraph (B) and does 
                not exceed the cost limit under such 
                subparagraph, an amount equal to 28 percent of 
                the allowable retiree costs (as defined in 
                subparagraph (C)(i)) attributable to such gross 
                covered prescription drug costs.
                    ``(B) Cost threshold and cost limit 
                applicable.--
                            ``(i) In general.--Subject to 
                        clause (ii)--
                                    ``(I) the cost threshold 
                                under this subparagraph is 
                                equal to $250 for plan years 
                                that end in 2006; and
                                    ``(II) the cost limit under 
                                this subparagraph is equal to 
                                $5,000 for plan years that end 
                                in 2006.
                            ``(ii) Indexing.--The cost 
                        threshold and cost limit amounts 
                        specified in subclauses (I) and (II) of 
                        clause (i) for a plan year that ends 
                        after 2006 shall be adjusted in the 
                        same manner as the annual deductible 
                        and the annual out-of-pocket threshold, 
                        respectively, are annually adjusted 
                        under paragraphs (1) and (4)(B) of 
                        section 1860D-2(b).
                    ``(C) Definitions.--For purposes of this 
                paragraph:
                            ``(i) Allowable retiree costs.--The 
                        term `allowable retiree costs' means, 
                        with respect to gross covered 
                        prescription drug costs under a 
                        qualified retiree prescription drug 
                        plan by a plan sponsor, the part of 
                        such costs that are actually paid (net 
                        of discounts, chargebacks, and average 
                        percentage rebates) by the sponsor or 
                        by or on behalf of a qualifying covered 
                        retiree under the plan.
                            ``(ii) Gross covered retiree plan-
                        related prescription drug costs.--For 
                        purposes of this section, the term 
                        `gross covered retiree plan-related 
                        prescription drug costs' means, with 
                        respect to a qualifying covered retiree 
                        enrolled in a qualified retiree 
                        prescription drug plan during a 
                        coverage year, the costs incurred under 
                        the plan, not including administrative 
                        costs, but including costs directly 
                        related to the dispensing of covered 
                        part D drugs during the year. Such 
                        costs shall be determined whether they 
                        are paid by the retiree or under the 
                        plan.
                    ``(iii) Coverage year.--The term `coverage 
                year' has the meaning given such term in 
                section 1860D-15(b)(4).
            ``(4) Qualifying covered retiree defined.--For 
        purposes of this subsection, the term `qualifying 
        covered retiree' means a part D eligible individual who 
        is not enrolled in a prescription drug plan or an MA-PD 
        plan but is covered under a qualified retiree 
        prescription drug plan.
            ``(5) Payment methods, including provision of 
        necessary information.--The provisions of section 
        1860D-15(d) (including paragraph (2), relating to 
        requirement for provision of information) shall apply 
        to payments under this subsection in a manner similar 
        to the manner in which they apply to payment under 
        section 1860D-15(b).
            ``(6) Construction.--Nothing in this subsection 
        shall be construed as--
                    ``(A) precluding a part D eligible 
                individual who is covered under employment-
                based retiree health coverage from enrolling in 
                a prescription drug plan or in an MA-PD plan;
                    ``(B) precluding such employment-based 
                retiree health coverage or an employer or other 
                person from paying all or any portion of any 
                premium required for coverage under a 
                prescription drug plan or MA-PD plan on behalf 
                of such an individual;
                    ``(C) preventing such employment-based 
                retiree health coverage from providing 
                coverage--
                            ``(i) that is better than standard 
                        prescription drug coverage to retirees 
                        who are covered under a qualified 
                        retiree prescription drug plan; or
                            ``(ii) that is supplemental to the 
                        benefits provided under a prescription 
                        drug plan or an MA-PD plan, including 
                        benefits to retirees who are not 
                        covered under a qualified retiree 
                        prescription drug plan but who are 
                        enrolled in such a prescription drug 
                        plan or MA-PD plan; or
                    ``(D) preventing employers to provide for 
                flexibility in benefit design and pharmacy 
                access provisions, without regard to the 
                requirements for basic prescription drug 
                coverage, so long as the actuarial equivalence 
                requirement of paragraph (2)(A) is met.
    ``(b) Application of MA Waiver Authority.--The provisions 
of section 1857(i) shall apply with respect to prescription 
drug plans in relation to employment-based retiree health 
coverage in a manner similar to the manner in which they apply 
to an MA plan in relation to employers, including authorizing 
the establishment of separate premium amounts for enrollees in 
a prescription drug plan by reason of such coverage and 
limitations on enrollment to part D eligible individuals 
enrolled under such coverage.
    ``(c) Definitions.--For purposes of this section:
            ``(1) Employment-based retiree health coverage.--
        The term `employment-based retiree health coverage' 
        means health insurance or other coverage of health care 
        costs (whether provided by voluntary insurance coverage 
        or pursuant to statutory or contractual obligation) for 
        part D eligible individuals (or for such individuals 
        and their spouses and dependents) under a group health 
        plan based on their status as retired participants in 
        such plan.
            ``(2) Sponsor.--The term `sponsor' means a plan 
        sponsor, as defined in section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974, in relation to 
        a group health plan, except that, in the case of a plan 
        maintained jointly by one employer and an employee 
        organization and with respect to which the employer is 
        the primary source of financing, such term means such 
        employer.
            ``(3) Group health plan.--The term `group health 
        plan' includes such a plan as defined in section 607(1) 
        of the Employee Retirement Income Security Act of 1974 
        and also includes the following:
                    ``(A) Federal and state governmental 
                plans.--Such a plan established or maintained 
                for its employees by the Government of the 
                United States, by the government of any State 
                or political subdivision thereof, or by any 
                agency or instrumentality of any of the 
                foregoing, including a health benefits plan 
                offered under chapter 89 of title 5, United 
                States Code.
                    ``(B) Collectively bargained plans.--Such a 
                plan established or maintained under or 
                pursuant to one or more collective bargaining 
                agreements.
                    ``(C) Church plans.--Such a plan 
                established and maintained for its employees 
                (or their beneficiaries) by a church or by a 
                convention or association of churches which is 
                exempt from tax under section 501 of the 
                Internal Revenue Code of 1986.

               ``STATE PHARMACEUTICAL ASSISTANCE PROGRAMS

    ``Sec. 1860D-23. (a) Requirements for Benefit 
Coordination.--
            ``(1) In general.--Before July 1, 2005, the 
        Secretary shall establish consistent with this section 
        requirements for prescription drug plans to ensure the 
        effective coordination between a part D plan (as 
        defined in paragraph (5)) and a State Pharmaceutical 
        Assistance Program (as defined in subsection (b)) with 
        respect to--
                    ``(A) payment of premiums and coverage; and
                    ``(B) payment for supplemental prescription 
                drug benefits,
        for part D eligible individuals enrolled under both 
        types of plans.
            ``(2) Coordination elements.--The requirements 
        under paragraph (1) shall include requirements relating 
        to coordination of each of the following:
                    ``(A) Enrollment file sharing.
                    ``(B) The processing of claims, including 
                electronic processing.
                    ``(C) Claims payment.
                    ``(D) Claims reconciliation reports.
                    ``(E) Application of the protection against 
                high out-of-pocket expenditures under section 
                1860D-2(b)(4).
                    ``(F) Other administrative processes 
                specified by the Secretary.
        Such requirements shall be consistent with applicable 
        law to safeguard the privacy of any individually 
        identifiable beneficiary information.
            ``(3) Use of lump sum per capita method.--Such 
        requirements shall include a method for the application 
        by a part D plan of specified funding amounts from a 
        State Pharmaceutical Assistance Program for enrolled 
        individuals for supplemental prescription drug 
        benefits.
            ``(4) Consultation.--In establishing requirements 
        under this subsection, the Secretary shall consult with 
        State Pharmaceutical Assistance Programs, MA 
        organizations, States, pharmaceutical benefit managers, 
        employers, representatives of part D eligible 
        individuals, the data processing experts, pharmacists, 
        pharmaceutical manufacturers, and other experts.
            ``(5) Part d plan defined.--For purposes of this 
        section and section 1860D-24, the term `part D plan' 
        means a prescription drug plan and an MA-PD plan.
    ``(b) State Pharmaceutical Assistance Program.--For 
purposes of this part, the term `State Pharmaceutical 
Assistance Program' means a State program--
            ``(1) which provides financial assistance for the 
        purchase or provision of supplemental prescription drug 
        coverage or benefits on behalf of part D eligible 
        individuals;
            ``(2) which, in determining eligibility and the 
        amount of assistance to part D eligible individuals 
        under the Program, provides assistance to such 
        individuals in all part D plans and does not 
        discriminate based upon the part D plan in which the 
        individual is enrolled; and
            ``(3) which satisfies the requirements of 
        subsections (a) and (c).
    ``(c) Relation to Other Provisions.--
            ``(1) Medicare as primary payor.--The requirements 
        of this section shall not change or affect the primary 
        payor status of a part D plan.
            ``(2) Use of a single card.--A card that is issued 
        under section 1860D-4(b)(2)(A) for use under a part D 
        plan may also be used in connection with coverage of 
        benefits provided under a State Pharmaceutical 
        Assistance Program and, in such case, may contain an 
        emblem or symbol indicating such connection.
            ``(3) Other provisions.--The provisions of section 
        1860D-24(c) shall apply to the requirements under this 
        section.
            ``(4) Special treatment under out-of-pocket rule.--
        In applying section 1860D-2(b)(4)(C)(ii), expenses 
        incurred under a State Pharmaceutical Assistance 
        Program may be counted toward the annual out-of-pocket 
        threshold.
            ``(5) Construction.--Nothing in this section shall 
        be construed as requiring a State Pharmaceutical 
        Assistance Program to coordinate or provide financial 
        assistance with respect to any part D plan.
    ``(d) Facilitation of Transition and Coordination With 
State Pharmaceutical Assistance Programs.--
            ``(1) Transitional grant program.--The Secretary 
        shall provide payments to State Pharmaceutical 
        Assistance Programs with an application approved under 
        this subsection.
            ``(2) Use of funds.--Payments under this section 
        may be used by a Program for any of the following:
                    ``(A) Educating part D eligible individuals 
                enrolled in the Program about the prescription 
                drug coverage available through part D plans 
                under this part.
                    ``(B) Providing technical assistance, phone 
                support, and counseling for such enrollees to 
                facilitate selection and enrollment in such 
                plans.
                    ``(C) Other activities designed to promote 
                the effective coordination of enrollment, 
                coverage, and payment between such Program and 
                such plans.
            ``(3) Allocation of funds.--Of the amount 
        appropriated to carry out this subsection for a fiscal 
        year, the Secretary shall allocate payments among 
        Programs that have applications approved under 
        paragraph (4) for such fiscal year in proportion to the 
        number of enrollees enrolled in each such Program as of 
        October 1, 2003.
            ``(4) Application.--No payments may be made under 
        this subsection except pursuant to an application that 
        is submitted and approved in a time, manner, and form 
        specified by the Secretary.
            ``(5) Funding.--Out of any funds in the Treasury 
        not otherwise appropriated, there are appropriated for 
        each of fiscal years 2005 and 2006, $62,500,000 to 
        carry out this subsection.

   ``COORDINATION REQUIREMENTS FOR PLANS PROVIDING PRESCRIPTION DRUG 
                                COVERAGE

    ``Sec. 1860D-24. (a) Application of Benefit Coordination 
Requirements to Additional Plans.--
            ``(1) In general.--The Secretary shall apply the 
        coordination requirements established under section 
        1860D-23(a) to Rx plans described in subsection (b) in 
        the same manner as such requirements apply to a State 
        Pharmaceutical Assistance Program.
            ``(2) Application to treatment of certain out-of-
        pocket expenditures.--To the extent specified by the 
        Secretary, the requirements referred to in paragraph 
        (1) shall apply to procedures established under section 
        1860D-2(b)(4)(D).
            ``(3) User fees.--
                    ``(A) In general.--The Secretary may impose 
                user fees for the transmittal of information 
                necessary for benefit coordination under 
                section 1860D-2(b)(4)(D) in a manner similar to 
                the manner in which user fees are imposed under 
                section 1842(h)(3)(B), except that the 
                Secretary may retain a portion of such fees to 
                defray the Secretary's costs in carrying out 
                procedures under section 1860D-2(b)(4)(D).
                    ``(B) Application.--A user fee may not be 
                imposed under subparagraph (A) with respect to 
                a State Pharmaceutical Assistance Program.
    ``(b) Rx Plan.--An Rx plan described in this subsection is 
any of the following:
            ``(1) Medicaid programs.--A State plan under title 
        XIX, including such a plan operating under a waiver 
        under section 1115, if it meets the requirements of 
        section 1860D-23(b)(2).
            ``(2) Group health plans.--An employer group health 
        plan.
            ``(3) FEHBP.--The Federal employees health benefits 
        plan under chapter 89 of title 5, United States Code.
            ``(4) Military coverage (including tricare).--
        Coverage under chapter 55 of title 10, United States 
        Code.
            ``(5) Other prescription drug coverage.--Such other 
        health benefit plans or programs that provide coverage 
        or financial assistance for the purchase or provision 
        of prescription drug coverage on behalf of part D 
        eligible individuals as the Secretary may specify.
    ``(c) Relation to Other Provisions.--
            ``(1) Use of cost management tools.--The 
        requirements of this section shall not impair or 
        prevent a PDP sponsor or MA organization from applying 
        cost management tools (including differential payments) 
        under all methods of operation.
            ``(2) No affect on treatment of certain out-of-
        pocket expenditures.--The requirements of this section 
        shall not affect the application of the procedures 
        established under section 1860D-2(b)(4)(D).

``Subpart 4--Medicare Prescription Drug Discount Card and Transitional 
                           Assistance Program

``MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND TRANSITIONAL ASSISTANCE 
                                PROGRAM

    ``Sec. 1860D-31. (a) Establishment of Program.--
            ``(1) In general.--The Secretary shall establish a 
        program under this section--
                    ``(A) to endorse prescription drug discount 
                card programs that meet the requirements of 
                this section in order to provide access to 
                prescription drug discounts through 
                prescription drug card sponsors for discount 
                card eligible individuals throughout the United 
                States; and
                    ``(B) to provide for transitional 
                assistance for transitional assistance eligible 
                individuals enrolled in such endorsed programs.
            ``(2) Period of operation.--
                    ``(A) Implementation deadline.--The 
                Secretary shall implement the program under 
                this section so that discount cards and 
                transitional assistance are first available by 
                not later than 6 months after the date of the 
                enactment of this section.
                    ``(B) Expediting implementation.--The 
                Secretary shall promulgate regulations to carry 
                out the program under this section which may be 
                effective and final immediately on an interim 
                basis as of the date of publication of the 
                interim final regulation. If the Secretary 
                provides for an interim final regulation, the 
                Secretary shall provide for a period of public 
                comments on such regulation after the date of 
                publication. The Secretary may change or revise 
                such regulation after completion of the period 
                of public comment.
                    ``(C) Termination and transition.--
                            ``(i) In general.--Subject to 
                        clause (ii)--
                                    ``(I) the program under 
                                this section shall not apply to 
                                covered discount card drugs 
                                dispensed after December 31, 
                                2005; and
                                    ``(II) transitional 
                                assistance shall be available 
                                after such date to the extent 
                                the assistance relates to drugs 
                                dispensed on or before such 
                                date.
                            ``(ii) Transition.--In the case of 
                        an individual who is enrolled in an 
                        endorsed discount card program as of 
                        December 31, 2005, during the 
                        individual's transition period (if any) 
                        under clause (iii), in accordance with 
                        transition rules specified by the 
                        Secretary--
                                    ``(I) such endorsed program 
                                may continue to apply to 
                                covered discount card drugs 
                                dispensed to the individual 
                                under the program during such 
                                transition period;
                                    ``(II) no annual enrollment 
                                fee shall be applicable during 
                                the transition period;
                                    ``(III) during such period 
                                the individual may not change 
                                the endorsed program plan in 
                                which the individual is 
                                enrolled; and
                                    ``(IV) the balance of any 
                                transitional assistance 
                                remaining on January 1, 2006, 
                                shall remain available for 
                                drugs dispensed during the 
                                individual's transition period.
                            ``(iii) Transition period.--The 
                        transition period under this clause for 
                        an individual is the period beginning 
                        on January 1, 2006, and ending in the 
                        case of an individual who--
                                    ``(I) is enrolled in a 
                                prescription drug plan or an 
                                MA-PD plan before the last date 
                                of the initial enrollment 
                                period under section 1860D-
                                1(b)(2)(A), on the effective 
                                date of the individual's 
                                coverage under such part; or
                                    ``(II) is not so enrolled, 
                                on the last day of such initial 
                                period.
            ``(3) Voluntary nature of program.--Nothing in this 
        section shall be construed as requiring a discount card 
        eligible individual to enroll in an endorsed discount 
        card program under this section.
            ``(4) Glossary and definitions of terms.--For 
        purposes of this section:
                    ``(A) Covered discount card drug.--The term 
                `covered discount card drug' has the meaning 
                given the term `covered part D drug' in section 
                1860D-2(e).
                    ``(B) Discount card eligible individual.--
                The term `discount card eligible individual' is 
                defined in subsection (b)(1)(A).
                    ``(C) Endorsed discount card program; 
                endorsed program.--The terms `endorsed discount 
                card program' and `endorsed program' mean a 
                prescription drug discount card program that is 
                endorsed (and for which the sponsor has a 
                contract with the Secretary) under this 
                section.
                    ``(D) Negotiated price.--Negotiated prices 
                are described in subsection (e)(1)(A)(ii).
                    ``(E) Prescription drug card sponsor; 
                sponsor.--The terms `prescription drug card 
                sponsor' and `sponsor' are defined in 
                subsection (h)(1)(A).
                    ``(F) State.--The term `State' has the 
                meaning given such term for purposes of title 
                XIX.
                    ``(G) Transitional assistance eligible 
                individual.--The term `transitional assistance 
                eligible individual' is defined in subsection 
                (b)(2).
    ``(b) Eligibility for Discount Card and for Transitional 
Assistance.--For purposes of this section:
            ``(1) Discount card eligible individual.--
                    ``(A) In general.--The term `discount card 
                eligible individual' means an individual who--
                            ``(i) is entitled to benefits, or 
                        enrolled, under part A or enrolled 
                        under part B; and
                            ``(ii) subject to paragraph (4), is 
                        not an individual described in 
                        subparagraph (B).
                    ``(B) Individual described.--An individual 
                described in this subparagraph is an individual 
                described in subparagraph (A)(i) who is 
                enrolled under title XIX (or under a waiver 
                under section 1115 of the requirements of such 
                title) and is entitled to any medical 
                assistance for outpatient prescribed drugs 
                described in section 1905(a)(12).
            ``(2) Transitional assistance eligible 
        individual.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the term `transitional assistance eligible 
                individual' means a discount card eligible 
                individual who resides in one of the 50 States 
                or the District of Columbia and whose income 
                (as determined under subsection (f)(1)(B)) is 
                not more than 135 percent of the poverty line 
                (as defined in section 673(2) of the Community 
                Services Block Grant Act, 42 U.S.C. 9902(2), 
                including any revision required by such 
                section) applicable to the family size involved 
                (as determined under subsection (f)(1)(B)).
                    ``(B) Exclusion of individuals with certain 
                prescription drug coverage.--Such term does not 
                include an individual who has coverage of, or 
                assistance for, covered discount card drugs 
                under any of the following:
                            ``(i) A group health plan or health 
                        insurance coverage (as such terms are 
                        defined in section 2791 of the Public 
                        Health Service Act), other than 
                        coverage under a plan under part C and 
                        other than coverage consisting only of 
                        excepted benefits (as defined in such 
                        section).
                            ``(ii) Chapter 55 of title 10, 
                        United States Code (relating to medical 
                        and dental care for members of the 
                        uniformed services).
                            ``(iii) A plan under chapter 89 of 
                        title 5, United States Code (relating 
                        to the Federal employees' health 
                        benefits program).
            ``(3) Special transitional assistance eligible 
        individual.--The term `special transitional assistance 
        eligible individual' means a transitional assistance 
        eligible individual whose income (as determined under 
        subsection (f)(1)(B)) is not more than 100 percent of 
        the poverty line (as defined in section 673(2) of the 
        Community Services Block Grant Act, 42 U.S.C. 9902(2), 
        including any revision required by such section) 
        applicable to the family size involved (as determined 
        under subsection (f)(1)(B)).
            ``(4) Treatment of medicaid medically needy.--For 
        purposes of this section, the Secretary shall provide 
        for appropriate rules for the treatment of medically 
        needy individuals described in section 1902(a)(10)(C) 
        as discount card eligible individuals and as 
        transitional assistance eligible individuals.
    ``(c) Enrollment and Enrollment Fees.--
            ``(1) Enrollment process.--The Secretary shall 
        establish a process through which a discount card 
        eligible individual is enrolled and disenrolled in an 
        endorsed discount card program under this section 
        consistent with the following:
                    ``(A) Continuous open enrollment.--Subject 
                to the succeeding provisions of this paragraph 
                and subsection (h)(9), a discount card eligible 
                individual who is not enrolled in an endorsed 
                discount card program and is residing in a 
                State may enroll in any such endorsed program--
                            ``(i) that serves residents of the 
                        State; and
                            ``(ii) at any time beginning on the 
                        initial enrollment date, specified by 
                        the Secretary, and before January 1, 
                        2006.
                    ``(B) Use of standard enrollment form.--An 
                enrollment in an endorsed program shall only be 
                effected through completion of a standard 
                enrollment form specified by the Secretary. 
                Each sponsor of an endorsed program shall 
                transmit to the Secretary (in a form and manner 
                specified by the Secretary) information on 
                individuals who complete such enrollment forms 
                and, to the extent provided under subsection 
                (f), information regarding certification as a 
                transitional assistance eligible individual.
                    ``(C) Enrollment only in one program.--
                            ``(i) In general.--Subject to 
                        clauses (ii) and (iii), a discount card 
                        eligible individual may be enrolled in 
                        only one endorsed discount card program 
                        under this section.
                            ``(ii) Change in endorsed program 
                        permitted for 2005.--The Secretary 
                        shall establish a process, similar to 
                        (and coordinated with) the process for 
                        annual, coordinated elections under 
                        section 1851(e)(3) during 2004, under 
                        which an individual enrolled in an 
                        endorsed discount card program may 
                        change the endorsed program in which 
                        the individual is enrolled for 2005.
                            ``(iii) Additional exceptions.--The 
                        Secretary shall permit an individual to 
                        change the endorsed discount card 
                        program in which the individual is 
                        enrolled in the case of an individual 
                        who changes residence to be outside the 
                        service area of such program and in 
                        such other exceptional cases as the 
                        Secretary may provide (taking into 
                        account the circumstances for special 
                        election periods under section 
                        1851(e)(4)). Under the previous 
                        sentence, the Secretary may consider a 
                        change in residential setting (such as 
                        placement in a nursing facility) or 
                        enrollment in or disenrollment from a 
                        plan under part C through which the 
                        individual was enrolled in an endorsed 
                        program to be an exceptional 
                        circumstance.
                    ``(D) Disenrollment.--
                            ``(i) Voluntary.--An individual may 
                        voluntarily disenroll from an endorsed 
                        discount card program at any time. In 
                        the case of such a voluntary 
                        disenrollment, the individual may not 
                        enroll in another endorsed program, 
                        except under such exceptional 
                        circumstances as the Secretary may 
                        recognize under subparagraph (C)(iii) 
                        or during the annual coordinated 
                        enrollment period provided under 
                        subparagraph (C)(ii).
                            ``(ii) Involuntary.--An individual 
                        who is enrolled in an endorsed discount 
                        card program and not a transitional 
                        assistance eligible individual may be 
                        disenrolled by the sponsor of the 
                        program if the individual fails to pay 
                        any annual enrollment fee required 
                        under the program.
                    ``(E) Application to certain enrollees.--In 
                the case of a discount card eligible individual 
                who is enrolled in a plan described in section 
                1851(a)(2)(A) or under a reasonable cost 
                reimbursement contract under section 1876(h) 
                that is offered by an organization that also is 
                a prescription discount card sponsor that 
                offers an endorsed discount card program under 
                which the individual may be enrolled and that 
                has made an election to apply the special rules 
                under subsection (h)(9)(B) for such an endorsed 
                program, the individual may only enroll in such 
                an endorsed discount card program offered by 
                that sponsor.
            ``(2) Enrollment fees.--
                    ``(A) In general.--Subject to the 
                succeeding provisions of this paragraph, a 
                prescription drug card sponsor may charge an 
                annual enrollment fee for each discount card 
                eligible individual enrolled in an endorsed 
                discount card program offered by such sponsor. 
                The annual enrollment fee for either 2004 or 
                2005 shall not be prorated for portions of a 
                year. There shall be no annual enrollment fee 
                for a year after 2005.
                    ``(B) Amount.--No annual enrollment fee 
                charged under subparagraph (A) may exceed $30.
                    ``(C) Uniform enrollment fee.--A 
                prescription drug card sponsor shall ensure 
                that the annual enrollment fee (if any) for an 
                endorsed discount card program is the same for 
                all discount card eligible individuals enrolled 
                in the program and residing in the State.
                    ``(D) Collection.--The annual enrollment 
                fee (if any) charged for enrollment in an 
                endorsed program shall be collected by the 
                sponsor of the program.
                    ``(E) Payment of fee for transitional 
                assistance eligible individuals.--Under 
                subsection (g)(1)(A), the annual enrollment fee 
                (if any) otherwise charged under this paragraph 
                with respect to a transitional assistance 
                eligible individual shall be paid by the 
                Secretary on behalf of such individual.
                    ``(F) Optional payment of fee by state.--
                            ``(i) In general.--The Secretary 
                        shall establish an arrangement under 
                        which a State may provide for payment 
                        of some or all of the enrollment fee 
                        for some or all enrollees who are not 
                        transitional assistance eligible 
                        individuals in the State, as specified 
                        by the State under the arrangement. 
                        Insofar as such a payment arrangement 
                        is made with respect to an enrollee, 
                        the amount of the enrollment fee shall 
                        be paid directly by the State to the 
                        sponsor.
                            ``(ii) No federal matching 
                        available under medicaid or schip.--
                        Expenditures made by a State for 
                        enrollment fees described in clause (i) 
                        shall not be treated as State 
                        expenditures for purposes of Federal 
                        matching payments under title XIX or 
                        XXI.
                    ``(G) Rules in case of changes in program 
                enrollment during a year.--The Secretary shall 
                provide special rules in the case of payment of 
                an annual enrollment fee for a discount card 
                eligible individual who changes the endorsed 
                program in which the individual is enrolled 
                during a year.
            ``(3) Issuance of discount card.--Each prescription 
        drug card sponsor of an endorsed discount card program 
        shall issue, in a standard format specified by the 
        Secretary, to each discount card eligible individual 
        enrolled in such program a card that establishes proof 
        of enrollment and that can be used in a coordinated 
        manner to identify the sponsor, program, and individual 
        for purposes of the program under this section.
            ``(4) Period of access.--In the case of a discount 
        card eligible individual who enrolls in an endorsed 
        program, access to negotiated prices and transitional 
        assistance, if any, under such endorsed program shall 
        take effect on such date as the Secretary shall 
        specify.
    ``(d) Provision of Information on Enrollment and Program 
Features.--
            ``(1) Secretarial responsibilities.--
                    ``(A) In general.--The Secretary shall 
                provide for activities under this subsection to 
                broadly disseminate information to discount 
                card eligible individuals (and prospective 
                eligible individuals) regarding--
                            ``(i) enrollment in endorsed 
                        discount card programs; and
                            ``(ii) the features of the program 
                        under this section, including the 
                        availability of transitional 
                        assistance.
                    ``(B) Promotion of informed choice.--In 
                order to promote informed choice among endorsed 
                prescription drug discount card programs, the 
                Secretary shall provide for the dissemination 
                of information which--
                            ``(i) compares the annual 
                        enrollment fee and other features of 
                        such programs, which may include 
                        comparative prices for covered discount 
                        card drugs; and
                            ``(ii) includes educational 
                        materials on the variability of 
                        discounts on prices of covered discount 
                        card drugs under an endorsed program.
                The dissemination of information under clause 
                (i) shall, to the extent practicable, be 
                coordinated with the dissemination of 
                educational information on other medicare 
                options.
                    ``(C) Special rule for initial enrollment 
                date under the program.--To the extent 
                practicable, the Secretary shall ensure, 
                through the activities described in 
                subparagraphs (A) and (B), that discount card 
                eligible individuals are provided with such 
                information at least 30 days prior to the 
                initial enrollment date specified under 
                subsection (c)(1)(A)(ii).
                    ``(D) Use of medicare toll-free number.--
                The Secretary shall provide through the toll-
                free telephone number 1-800-MEDICARE for the 
                receipt and response to inquiries and 
                complaints concerning the program under this 
                section and endorsed programs.
            ``(2) Prescription drug card sponsor 
        responsibilities.--
                    ``(A) In general.--Each prescription drug 
                card sponsor that offers an endorsed discount 
                card program shall make available to discount 
                card eligible individuals (through the Internet 
                and otherwise) information that the Secretary 
                identifies as being necessary to promote 
                informed choice among endorsed discount card 
                programs by such individuals, including 
                information on enrollment fees and negotiated 
                prices for covered discount card drugs charged 
                to such individuals.
                    ``(B) Response to enrollee questions.--Each 
                sponsor offering an endorsed discount card 
                program shall have a mechanism (including a 
                toll-free telephone number) for providing upon 
                request specific information (such as 
                negotiated prices and the amount of 
                transitional assistance remaining available 
                through the program) to discount card eligible 
                individuals enrolled in the program. The 
                sponsor shall inform transitional assistance 
                eligible individuals enrolled in the program of 
                the availability of such toll-free telephone 
                number to provide information on the amount of 
                available transitional assistance.
                    ``(C) Information on balance of 
                transitional assistance available at point-of-
                sale.--Each sponsor offering an endorsed 
                discount card program shall have a mechanism so 
                that information on the amount of transitional 
                assistance remaining under subsection (g)(1)(B) 
                is available (electronically or by telephone) 
                at the point-of-sale of covered discount card 
                drugs.
            ``(3) Public disclosure of pharmaceutical prices 
        for equivalent drugs.--
                    ``(A) In general.--A prescription drug card 
                sponsor offering an endorsed discount card 
                program shall provide that each pharmacy that 
                dispenses a covered discount card drug shall 
                inform a discount card eligible individual 
                enrolled in the program of any differential 
                between the price of the drug to the enrollee 
                and the price of the lowest priced generic 
                covered discount card drug under the program 
                that is therapeutically equivalent and 
                bioequivalent and available at such pharmacy.
                    ``(B) Timing of notice.--
                            ``(i) In general.--Subject to 
                        clause (ii), the information under 
                        subparagraph (A) shall be provided at 
                        the time of purchase of the drug 
                        involved, or, in the case of dispensing 
                        by mail order, at the time of delivery 
                        of such drug.
                            ``(ii) Waiver.--The Secretary may 
                        waive clause (i) in such circumstances 
                        as the Secretary may specify.
    ``(e) Discount Card Features.--
            ``(1) Savings to enrollees through negotiated 
        prices.--
                    ``(A) Access to negotiated prices.--
                            ``(i) In general.--Each 
                        prescription drug card sponsor that 
                        offers an endorsed discount card 
                        program shall provide each discount 
                        card eligible individual enrolled in 
                        the program with access to negotiated 
                        prices.
                            ``(ii) Negotiated prices.--For 
                        purposes of this section, negotiated 
                        prices shall take into account 
                        negotiated price concessions, such as 
                        discounts, direct or indirect 
                        subsidies, rebates, and direct or 
                        indirect remunerations, for covered 
                        discount card drugs, and include any 
                        dispensing fees for such drugs.
                    ``(B) Ensuring pharmacy access.--Each 
                prescription drug card sponsor offering an 
                endorsed discount card program shall secure the 
                participation in its network of a sufficient 
                number of pharmacies that dispense (other than 
                solely by mail order) drugs directly to 
                enrollees to ensure convenient access to 
                covered discount card drugs at negotiated 
                prices (consistent with rules established by 
                the Secretary). The Secretary shall establish 
                convenient access rules under this clause that 
                are no less favorable to enrollees than the 
                standards for convenient access to pharmacies 
                included in the statement of work of 
                solicitation (#MDA906-03-R-0002) of the 
                Department of Defense under the TRICARE Retail 
                Pharmacy (TRRx) as of March 13, 2003.
                    ``(C) Prohibition on charges for required 
                services.--
                            ``(i) In general.--Subject to 
                        clause (ii), a prescription drug card 
                        sponsor (and any pharmacy contracting 
                        with such sponsor for the provision of 
                        covered discount card drugs to 
                        individuals enrolled in such sponsor's 
                        endorsed discount card program) may not 
                        charge an enrollee any amount for any 
                        items and services required to be 
                        provided by the sponsor under this 
                        section.
                            ``(ii) Construction.--Nothing in 
                        clause (i) shall be construed to 
                        prevent--
                                    ``(I) the sponsor from 
                                charging the annual enrollment 
                                fee (except in the case of a 
                                transitional assistance 
                                eligible individual); and
                                    ``(II) the pharmacy 
                                dispensing the covered discount 
                                card drug, from imposing a 
                                charge (consistent with the 
                                negotiated price) for the 
                                covered discount card drug 
                                dispensed, reduced by the 
                                amount of any transitional 
                                assistance made available.
                    ``(D) Inapplicability of medicaid best 
                price rules.--The prices negotiated from drug 
                manufacturers for covered discount card drugs 
                under an endorsed discount card program under 
                this section shall (notwithstanding any other 
                provision of law) not be taken into account for 
                the purposes of establishing the best price 
                under section 1927(c)(1)(C).
            ``(2) Reduction of medication errors and adverse 
        drug interactions.--Each endorsed discount card program 
        shall implement a system to reduce the likelihood of 
        medication errors and adverse drug interactions and to 
        improve medication use.
    ``(f) Eligibility Procedures for Endorsed Programs and 
Transitional Assistance.--
            ``(1) Determinations.--
                    ``(A) Procedures.--The determination of 
                whether an individual is a discount card 
                eligible individual or a transitional 
                assistance eligible individual or a special 
                transitional assistance eligible individual (as 
                defined in subsection (b)) shall be determined 
                under procedures specified by the Secretary 
                consistent with this subsection.
                    ``(B) Income and family size 
                determinations.--For purposes of this section, 
                the Secretary shall define the terms `income' 
                and `family size' and shall specify the methods 
                and period for which they are determined. If 
                under such methods income or family size is 
                determined based on the income or family size 
                for prior periods of time, the Secretary shall 
                permit (whether through a process of 
                reconsideration or otherwise) an individual 
                whose income or family size has changed to 
                elect to have eligibility for transitional 
                assistance determined based on income or family 
                size for a more recent period.
            ``(2) Use of self-certification for transitional 
        assistance.--
                    ``(A) In general.--Under the procedures 
                specified under paragraph (1)(A) an individual 
                who wishes to be treated as a transitional 
                assistance eligible individual or a special 
                transitional assistance eligible individual 
                under this section (or another qualified person 
                on such individual's behalf) shall certify on 
                the enrollment form under subsection (c)(1)(B) 
                (or similar form specified by the Secretary), 
                through a simplified means specified by the 
                Secretary and under penalty of perjury or 
                similar sanction for false statements, as to 
                the amount of the individual's income, family 
                size, and individual's prescription drug 
                coverage (if any) insofar as they relate to 
                eligibility to be a transitional assistance 
                eligible individual or a special transitional 
                assistance eligible individual. Such 
                certification shall be deemed as consent to 
                verification of respective eligibility under 
                paragraph (3). A certification under this 
                paragraph may be provided before, on, or after 
                the time of enrollment under an endorsed 
                program.
                    ``(B) Treatment of self-certification.--The 
                Secretary shall treat a certification under 
                subparagraph (A) that is verified under 
                paragraph (3) as a determination that the 
                individual involved is a transitional 
                assistance eligible individual or special 
                transitional assistance eligible individual (as 
                the case may be) for the entire period of the 
                enrollment of the individual in any endorsed 
                program.
            ``(3) Verification.--
                    ``(A) In general.--The Secretary shall 
                establish methods (which may include the use of 
                sampling and the use of information described 
                in subparagraph (B)) to verify eligibility for 
                individuals who seek to enroll in an endorsed 
                program and for individuals who provide a 
                certification under paragraph (2).
                    ``(B) Information described.--The 
                information described in this subparagraph is 
                as follows:
                            ``(i) Medicaid-related 
                        information.--Information on 
                        eligibility under title XIX and 
                        provided to the Secretary under 
                        arrangements between the Secretary and 
                        States in order to verify the 
                        eligibility of individuals who seek to 
                        enroll in an endorsed program and of 
                        individuals who provide certification 
                        under paragraph (2).
                            ``(ii) Social security 
                        information.--Financial information 
                        made available to the Secretary under 
                        arrangements between the Secretary and 
                        the Commissioner of Social Security in 
                        order to verify the eligibility of 
                        individuals who provide such 
                        certification.
                            ``(iii) Information from secretary 
                        of the treasury.--Financial information 
                        made available to the Secretary under 
                        section 6103(l)(19) of the Internal 
                        Revenue Code of 1986 in order to verify 
                        the eligibility of individuals who 
                        provide such certification.
                    ``(C) Verification in cases of medicaid 
                enrollees.--
                            ``(i) In general.--Nothing in this 
                        section shall be construed as 
                        preventing the Secretary from finding 
                        that a discount card eligible 
                        individual meets the income 
                        requirements under subsection (b)(2)(A) 
                        if the individual is within a category 
                        of discount card eligible individuals 
                        who are enrolled under title XIX (such 
                        as qualified medicare beneficiaries 
                        (QMBs), specified low-income medicare 
                        beneficiaries (SLMBs), and certain 
                        qualified individuals (QI-1s)).
                            ``(ii) Availability of information 
                        for verification purposes.--As a 
                        condition of provision of Federal 
                        financial participation to a State that 
                        is one of the 50 States or the District 
                        of Columbia under title XIX, for 
                        purposes of carrying out this section, 
                        the State shall provide the information 
                        it submits to the Secretary relating to 
                        such title in a manner specified by the 
                        Secretary that permits the Secretary to 
                        identify individuals who are described 
                        in subsection (b)(1)(B) or are 
                        transitional assistance eligible 
                        individuals or special transitional 
                        assistance eligible individuals.
            ``(4) Reconsideration.--
                    ``(A) In general.--The Secretary shall 
                establish a process under which a discount card 
                eligible individual, who is determined through 
                the certification and verification methods 
                under paragraphs (2) and (3) not to be a 
                transitional assistance eligible individual or 
                a special transitional assistance eligible 
                individual, may request a reconsideration of 
                the determination.
                    ``(B) Contract authority.--The Secretary 
                may enter into a contract to perform the 
                reconsiderations requested under subparagraph 
                (A).
                    ``(C) Communication of results.--Under the 
                process under subparagraph (A) the results of 
                such reconsideration shall be communicated to 
                the individual and the prescription drug card 
                sponsor involved.
    ``(g) Transitional Assistance.--
            ``(1) Provision of transitional assistance.--An 
        individual who is a transitional assistance eligible 
        individual (as determined under this section) and who 
        is enrolled with an endorsed program is entitled--
                    ``(A) to have payment made of any annual 
                enrollment fee charged under subsection (c)(2) 
                for enrollment under the program; and
                    ``(B) to have payment made, up to the 
                amount specified in paragraph (2), under such 
                endorsed program of 90 percent (or 95 percent 
                in the case of a special transitional 
                assistance eligible individual) of the costs 
                incurred for covered discount card drugs 
                obtained through the program taking into 
                account the negotiated price (if any) for the 
                drug under the program.
            ``(2) Limitation on dollar amount.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the amount specified in this paragraph for 
                a transitional assistance eligible individual--
                            ``(i) for costs incurred during 
                        2004, is $600; or
                            ``(ii) for costs incurred during 
                        2005, is--
                                    ``(I) $600, plus
                                    ``(II) except as provided 
                                in subparagraph (E), the amount 
                                by which the amount available 
                                under this paragraph for 2004 
                                for that individual exceeds the 
                                amount of payment made under 
                                paragraph (1)(B) for that 
                                individual for costs incurred 
                                during 2004.
                    ``(B) Proration.--
                            ``(i) In general.--In the case of 
                        an individual not described in clause 
                        (ii) with respect to a year, the 
                        Secretary may prorate the amount 
                        specified in subparagraph (A) for the 
                        balance of the year involved in a 
                        manner specified by the Secretary.
                            ``(ii) Individual described.--An 
                        individual described in this clause is 
                        a transitional assistance eligible 
                        individual who--
                                    ``(I) with respect to 2004, 
                                enrolls in an endorsed program, 
                                and provides a certification 
                                under subsection (f)(2), before 
                                the initial implementation date 
                                of the program under this 
                                section; and
                                    ``(II) with respect to 
                                2005, is enrolled in an 
                                endorsed program, and has 
                                provided such a certification, 
                                before February 1, 2005.
                    ``(C) Accounting for available balances in 
                cases of changes in program enrollment.--In the 
                case of a transitional assistance eligible 
                individual who changes the endorsed discount 
                card program in which the individual is 
                enrolled under this section, the Secretary 
                shall provide a process under which the 
                Secretary provides to the sponsor of the 
                endorsed program in which the individual 
                enrolls information concerning the balance of 
                amounts available on behalf of the individual 
                under this paragraph.
                    ``(D) Limitation on use of funds.--Pursuant 
                to subsection (a)(2)(C), no assistance shall be 
                provided under paragraph (1)(B) with respect to 
                covered discount card drugs dispensed after 
                December 31, 2005.
                    ``(E) No rollover permitted in case of 
                voluntary disenrollment.--Except in such 
                exceptional cases as the Secretary may provide, 
                in the case of a transitional assistance 
                eligible individual who voluntarily disenrolls 
                from an endorsed plan, the provisions of 
                subclause (II) of subparagraph (A)(ii) shall 
                not apply.
            ``(3) Payment.--The Secretary shall provide a 
        method for the reimbursement of prescription drug card 
        sponsors for assistance provided under this subsection.
            ``(4) Coverage of coinsurance.--
                    ``(A) Waiver permitted by pharmacy.--
                Nothing in this section shall be construed as 
                precluding a pharmacy from reducing or waiving 
                the application of coinsurance imposed under 
                paragraph (1)(B) in accordance with section 
                1128B(b)(3)(G).
                    ``(B) Optional payment of coinsurance by 
                state.--
                            ``(i) In general.--The Secretary 
                        shall establish an arrangement under 
                        which a State may provide for payment 
                        of some or all of the coinsurance under 
                        paragraph (1)(B) for some or all 
                        enrollees in the State, as specified by 
                        the State under the arrangement. 
                        Insofar as such a payment arrangement 
                        is made with respect to an enrollee, 
                        the amount of the coinsurance shall be 
                        paid directly by the State to the 
                        pharmacy involved.
                            ``(ii) No federal matching 
                        available under medicaid or schip.--
                        Expenditures made by a State for 
                        coinsurance described in clause (i) 
                        shall not be treated as State 
                        expenditures for purposes of Federal 
                        matching payments under title XIX or 
                        XXI.
                            ``(iii) Not treated as medicare 
                        cost-sharing.--Coinsurance described in 
                        paragraph (1)(B) shall not be treated 
                        as coinsurance under this title for 
                        purposes of section 1905(p)(3)(B).
                    ``(C) Treatment of coinsurance.--The amount 
                of any coinsurance imposed under paragraph 
                (1)(B), whether paid or waived under this 
                paragraph, shall not be taken into account in 
                applying the limitation in dollar amount under 
                paragraph (2).
            ``(5) Ensuring access to transitional assistance 
        for qualified residents of long-term care facilities 
        and american indians.--
                    ``(A) Residents of long-term care 
                facilities.--The Secretary shall establish 
                procedures and may waive requirements of this 
                section as necessary to negotiate arrangements 
                with sponsors to provide arrangements with 
                pharmacies that support long-term care 
                facilities in order to ensure access to 
                transitional assistance for transitional 
                assistance eligible individuals who reside in 
                long-term care facilities.
                    ``(B) American indians.--The Secretary 
                shall establish procedures and may waive 
                requirements of this section to ensure that, 
                for purposes of providing transitional 
                assistance, pharmacies operated by the Indian 
                Health Service, Indian tribes and tribal 
                organizations, and urban Indian organizations 
                (as defined in section 4 of the Indian Health 
                Care Improvement Act) have the opportunity to 
                participate in the pharmacy networks of at 
                least two endorsed programs in each of the 50 
                States and the District of Columbia where such 
                a pharmacy operates.
            ``(6) No impact on benefits under other programs.--
        The availability of negotiated prices or transitional 
        assistance under this section shall not be treated as 
        benefits or otherwise taken into account in determining 
        an individual's eligibility for, or the amount of 
        benefits under, any other Federal program.
            ``(7) Disregard for purposes of part c.--
        Nonuniformity of benefits resulting from the 
        implementation of this section (including the provision 
        or nonprovision of transitional assistance and the 
        payment or waiver of any enrollment fee under this 
        section) shall not be taken into account in applying 
        section 1854(f).
    ``(h) Qualification of Prescription Drug Card Sponsors and 
Endorsement of Discount Card Programs; Beneficiary 
Protections.--
            ``(1) Prescription drug card sponsor and 
        qualifications.--
                    ``(A) Prescription drug card sponsor and 
                sponsor defined.--For purposes of this section, 
                the terms `prescription drug card sponsor' and 
                `sponsor' mean any nongovernmental entity that 
                the Secretary determines to be appropriate to 
                offer an endorsed discount card program under 
                this section, which may include--
                            ``(i) a pharmaceutical benefit 
                        management company;
                            ``(ii) a wholesale or retail 
                        pharmacy delivery system;
                            ``(iii) an insurer (including an 
                        insurer that offers medicare 
                        supplemental policies under section 
                        1882);
                            ``(iv) an organization offering a 
                        plan under part C; or
                            ``(v) any combination of the 
                        entities described in clauses (i) 
                        through (iv).
                    ``(B) Administrative qualifications.--Each 
                endorsed discount card program shall be 
                operated directly, or through arrangements with 
                an affiliated organization (or organizations), 
                by one or more entities that have demonstrated 
                experience and expertise in operating such a 
                program or a similar program and that meets 
                such business stability and integrity 
                requirements as the Secretary may specify.
                    ``(C) Accounting for transitional 
                assistance.--The sponsor of an endorsed 
                discount card program shall have arrangements 
                satisfactory to the Secretary to account for 
                the assistance provided under subsection (g) on 
                behalf of transitional assistance eligible 
                individuals.
            ``(2) Applications for program endorsement.--
                    ``(A) Submission.--Each prescription drug 
                card sponsor that seeks endorsement of a 
                prescription drug discount card program under 
                this section shall submit to the Secretary, at 
                such time and in such manner as the Secretary 
                may specify, an application containing such 
                information as the Secretary may require.
                    ``(B) Approval; compliance with applicable 
                requirements.--The Secretary shall review the 
                application submitted under subparagraph (A) 
                and shall determine whether to endorse the 
                prescription drug discount card program. The 
                Secretary may not endorse such a program 
                unless--
                            ``(i) the program and prescription 
                        drug card sponsor offering the program 
                        comply with the applicable requirements 
                        under this section; and
                            ``(ii) the sponsor has entered into 
                        a contract with the Secretary to carry 
                        out such requirements.
                    ``(C) Termination of endorsement and 
                contracts.--An endorsement of an endorsed 
                program and a contract under subparagraph (B) 
                shall be for the duration of the program under 
                this section (including any transition 
                applicable under subsection (a)(2)(C)(ii)), 
                except that the Secretary may, with notice and 
                for cause (as defined by the Secretary), 
                terminate such endorsement and contract.
                    ``(D) Ensuring choice of programs.--
                            ``(i) In general.--The Secretary 
                        shall ensure that there is available to 
                        each discount card eligible individual 
                        a choice of at least 2 endorsed 
                        programs (each offered by a different 
                        sponsor).
                            ``(ii) Limitation on number.--The 
                        Secretary may limit (but not below 2) 
                        the number of sponsors in a State that 
                        are awarded contracts under this 
                        paragraph.
            ``(3) Service area encompassing entire states.--
        Except as provided in paragraph (9), if a prescription 
        drug card sponsor that offers an endorsed program 
        enrolls in the program individuals residing in any part 
        of a State, the sponsor must permit any discount card 
        eligible individual residing in any portion of the 
        State to enroll in the program.
            ``(4) Savings to medicare beneficiaries.--Each 
        prescription drug card sponsor that offers an endorsed 
        discount card program shall pass on to discount card 
        eligible individuals enrolled in the program negotiated 
        prices on covered discount card drugs, including 
        discounts negotiated with pharmacies and manufacturers, 
        to the extent disclosed under subsection (i)(1).
            ``(5) Grievance mechanism.--Each prescription drug 
        card sponsor shall provide meaningful procedures for 
        hearing and resolving grievances between the sponsor 
        (including any entity or individual through which the 
        sponsor carries out the endorsed discount card program) 
        and enrollees in endorsed discount card programs of the 
        sponsor under this section in a manner similar to that 
        required under section 1852(f).
            ``(6) Confidentiality of enrollee records.--
                    ``(A) In general.--For purposes of the 
                program under this section, the operations of 
                an endorsed program are covered functions and a 
                prescription drug card sponsor is a covered 
                entity for purposes of applying part C of title 
                XI and all regulatory provisions promulgated 
                thereunder, including regulations (relating to 
                privacy) adopted pursuant to the authority of 
                the Secretary under section 264(c) of the 
                Health Insurance Portability and Accountability 
                Act of 1996 (42 U.S.C. 1320d-2 note).
                    ``(B) Waiver authority.--In order to 
                promote participation of sponsors in the 
                program under this section, the Secretary may 
                waive such relevant portions of regulations 
                relating to privacy referred to in subparagraph 
                (A), for such appropriate, limited period of 
                time, as the Secretary specifies.
            ``(7) Limitation on provision and marketing of 
        products and services.--The sponsor of an endorsed 
        discount card program--
                    ``(A) may provide under the program--
                            ``(i) a product or service only if 
                        the product or service is directly 
                        related to a covered discount card 
                        drug; or
                            ``(ii) a discount price for 
                        nonprescription drugs; and
                    ``(B) may, to the extent otherwise 
                permitted under paragraph (6) (relating to 
                application of HIPAA requirements), market a 
                product or service under the program only if 
                the product or service is directly related to--
                            ``(i) a covered discount card drug; 
                        or
                            ``(ii) a drug described in 
                        subparagraph (A)(ii) and the marketing 
                        consists of information on the 
                        discounted price made available for the 
                        drug involved.
            ``(8) Additional protections.--Each endorsed 
        discount card program shall meet such additional 
        requirements as the Secretary identifies to protect and 
        promote the interest of discount card eligible 
        individuals, including requirements that ensure that 
        discount card eligible individuals enrolled in endorsed 
        discount card programs are not charged more than the 
        lower of the price based on negotiated prices or the 
        usual and customary price.
            ``(9) Special rules for certain organizations.--
                    ``(A) In general.--In the case of an 
                organization that is offering a plan under part 
                C or enrollment under a reasonable cost 
                reimbursement contract under section 1876(h) 
                that is seeking to be a prescription drug card 
                sponsor under this section, the organization 
                may elect to apply the special rules under 
                subparagraph (B) with respect to enrollees in 
                any plan described in section 1851(a)(2)(A) 
                that it offers or under such contract and an 
                endorsed discount card program it offers, but 
                only if it limits enrollment under such program 
                to individuals enrolled in such plan or under 
                such contract.
                    ``(B) Special rules.--The special rules 
                under this subparagraph are as follows:
                            ``(i) Limitation on enrollment.--
                        The sponsor limits enrollment under 
                        this section under the endorsed 
                        discount card program to discount card 
                        eligible individuals who are enrolled 
                        in the part C plan involved or under 
                        the reasonable cost reimbursement 
                        contract involved and is not required 
                        nor permitted to enroll other 
                        individuals under such program.
                            ``(ii) Pharmacy access.--Pharmacy 
                        access requirements under subsection 
                        (e)(1)(B) are deemed to be met if the 
                        access is made available through a 
                        pharmacy network (and not only through 
                        mail order) and the network used by the 
                        sponsor is approved by the Secretary.
                            ``(iii) Sponsor requirements.--The 
                        Secretary may waive the application of 
                        such requirements for a sponsor as the 
                        Secretary determines to be duplicative 
                        or to conflict with a requirement of 
                        the organization under part C or 
                        section 1876 (as the case may be) or to 
                        be necessary in order to improve 
                        coordination of this section with the 
                        benefits under such part or section.
    ``(i) Disclosure and Oversight.--
            ``(1) Disclosure.--Each prescription drug card 
        sponsor offering an endorsed discount card program 
        shall disclose to the Secretary (in a manner specified 
        by the Secretary) information relating to program 
        performance, use of prescription drugs by discount card 
        eligible individuals enrolled in the program, the 
        extent to which negotiated price concessions described 
        in subsection (e)(1)(A)(ii) made available to the 
        entity by a manufacturer are passed through to 
        enrollees through pharmacies or otherwise, and such 
        other information as the Secretary may specify. The 
        provisions of section 1927(b)(3)(D) shall apply to drug 
        pricing data reported under the previous sentence 
        (other than data in aggregate form).
            ``(2) Oversight; audit and inspection authority.--
        The Secretary shall provide appropriate oversight to 
        ensure compliance of endorsed discount card programs 
        and their sponsors with the requirements of this 
        section. The Secretary shall have the right to audit 
        and inspect any books and records of a prescription 
        discount card sponsor (and of any affiliated 
        organization referred to in subsection (h)(1)(B)) that 
        pertain to the endorsed discount card program under 
        this section, including amounts payable to the sponsor 
        under this section.
            ``(3) Sanctions for abusive practices.--The 
        Secretary may implement intermediate sanctions or may 
        revoke the endorsement of a program offered by a 
        sponsor under this section if the Secretary determines 
        that the sponsor or the program no longer meets the 
        applicable requirements of this section or that the 
        sponsor has engaged in false or misleading marketing 
        practices. The Secretary may impose a civil money 
        penalty in an amount not to exceed $10,000 for conduct 
        that a party knows or should know is a violation of 
        this section. The provisions of section 1128A (other 
        than subsections (a) and (b) and the second sentence of 
        subsection (f)) shall apply to a civil money penalty 
        under the previous sentence in the same manner as such 
        provisions apply to a penalty or proceeding under 
        section 1128A(a).
    ``(j) Treatment of Territories.--
            ``(1) In general.--The Secretary may waive any 
        provision of this section (including subsection 
        (h)(2)(D)) in the case of a resident of a State (other 
        than the 50 States and the District of Columbia) 
        insofar as the Secretary determines it is necessary to 
        secure access to negotiated prices for discount card 
        eligible individuals (or, at the option of the 
        Secretary, individuals described in subsection 
        (b)(1)(A)(i)).
            ``(2) Transitional assistance.--
                    ``(A) In general.--In the case of a State, 
                other than the 50 States and the District of 
                Columbia, if the State establishes a plan 
                described in subparagraph (B) (for providing 
                transitional assistance with respect to the 
                provision of prescription drugs to some or all 
                individuals residing in the State who are 
                described in subparagraph (B)(i)), the 
                Secretary shall pay to the State for the entire 
                period of the operation of this section an 
                amount equal to the amount allotted to the 
                State under subparagraph (C).
                    ``(B) Plan.--The plan described in this 
                subparagraph is a plan that--
                            ``(i) provides transitional 
                        assistance with respect to the 
                        provision of covered discount card 
                        drugs to some or all individuals who 
                        are entitled to benefits under part A 
                        or enrolled under part B, who reside in 
                        the State, and who have income below 
                        135 percent of the poverty line; and
                            ``(ii) assures that amounts 
                        received by the State under this 
                        paragraph are used only for such 
                        assistance.
                    ``(C) Allotment limit.--The amount 
                described in this subparagraph for a State is 
                equal to $35,000,000 multiplied by the ratio 
                (as estimated by the Secretary) of--
                            ``(i) the number of individuals who 
                        are entitled to benefits under part A 
                        or enrolled under part B and who reside 
                        in the State (as determined by the 
                        Secretary as of July 1, 2003), to
                            ``(ii) the sum of such numbers for 
                        all States to which this paragraph 
                        applies.
                    ``(D) Continued availability of funds.--
                Amounts made available to a State under this 
                paragraph which are not used under this 
                paragraph shall be added to the amount 
                available to that State for purposes of 
                carrying out section 1935(e).
    ``(k) Funding.--
            ``(1) Establishment of transitional assistance 
        account.--
                    ``(A) In general.--There is created within 
                the Federal Supplementary Medical Insurance 
                Trust Fund established by section 1841 an 
                account to be known as the `Transitional 
                Assistance Account' (in this subsection 
                referred to as the `Account').
                    ``(B) Funds.--The Account shall consist of 
                such gifts and bequests as may be made as 
                provided in section 201(i)(1), accrued interest 
                on balances in the Account, and such amounts as 
                may be deposited in, or appropriated to, the 
                Account as provided in this subsection.
                    ``(C) Separate from rest of trust fund.--
                Funds provided under this subsection to the 
                Account shall be kept separate from all other 
                funds within the Federal Supplementary Medical 
                Insurance Trust Fund, but shall be invested, 
                and such investments redeemed, in the same 
                manner as all other funds and investments 
                within such Trust Fund.
            ``(2) Payments from account.--
                    ``(A) In general.--The Managing Trustee 
                shall pay from time to time from the Account 
                such amounts as the Secretary certifies are 
                necessary to make payments for transitional 
                assistance provided under subsections (g) and 
                (j)(2).
                    ``(B) Treatment in relation to part b 
                premium.--Amounts payable from the Account 
                shall not be taken into account in computing 
                actuarial rates or premium amounts under 
                section 1839.
            ``(3) Appropriations to cover benefits.--There are 
        appropriated to the Account in a fiscal year, out of 
        any moneys in the Treasury not otherwise appropriated, 
        an amount equal to the payments made from the Account 
        in the year.
            ``(4) For administrative expenses.--There are 
        authorized to be appropriated to the Secretary such 
        sums as may be necessary to carry out the Secretary's 
        responsibilities under this section.
            ``(5) Transfer of any remaining balance to medicare 
        prescription drug account.--Any balance remaining in 
        the Account after the Secretary determines that funds 
        in the Account are no longer necessary to carry out the 
        program under this section shall be transferred and 
        deposited into the Medicare Prescription Drug Account 
        under section 1860D-16.
            ``(6) Construction.--Nothing in this section shall 
        be construed as authorizing the Secretary to provide 
        for payment (other than payment of an enrollment fee on 
        behalf of a transitional assistance eligible individual 
        under subsection (g)(1)(A)) to a sponsor for 
        administrative expenses incurred by the sponsor in 
        carrying out this section (including in administering 
        the transitional assistance provisions of subsections 
        (f) and (g)).

         ``Subpart 5--Definitions and Miscellaneous Provisions

        ``DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN 
                                 PART C

    ``Sec. 1860D-41. (a) Definitions.--For purposes of this 
part:
            ``(1) Basic prescription drug coverage.--The term 
        `basic prescription drug coverage' is defined in 
        section 1860D-2(a)(3).
            ``(2) Covered part d drug.--The term `covered part 
        D drug' is defined in section 1860D-2(e).
            ``(3) Creditable prescription drug coverage.--The 
        term `creditable prescription drug coverage' has the 
        meaning given such term in section 1860D-13(b)(4).
            ``(4) Part d eligible individual.--The term `part D 
        eligible individual' has the meaning given such term in 
        section 1860D-1(a)(4)(A).
            ``(5) Fallback prescription drug plan.--The term 
        `fallback prescription drug plan' has the meaning given 
        such term in section 1860D-11(g)(4).
            ``(6) Initial coverage limit.--The term `initial 
        coverage limit' means such limit as established under 
        section 1860D-2(b)(3), or, in the case of coverage that 
        is not standard prescription drug coverage, the 
        comparable limit (if any) established under the 
        coverage.
            ``(7) Insurance risk.--The term `insurance risk' 
        means, with respect to a participating pharmacy, risk 
        of the type commonly assumed only by insurers licensed 
        by a State and does not include payment variations 
        designed to reflect performance-based measures of 
        activities within the control of the pharmacy, such as 
        formulary compliance and generic drug substitution.
            ``(8) MA plan.--The term `MA plan' has the meaning 
        given such term in section 1860D-1(a)(4)(B).
            ``(9) MA-PD plan.--The term `MA-PD plan' has the 
        meaning given such term in section 1860D-1(a)(4)(C).
            ``(10) Medicare prescription drug account.--The 
        term `Medicare Prescription Drug Account' means the 
        Account created under section 1860D-16(a).
            ``(11) PDP approved bid.--The term `PDP approved 
        bid' has the meaning given such term in section 1860D-
        13(a)(6).
            ``(12) PDP region.--The term `PDP region' means 
        such a region as provided under section 1860D-11(a)(2).
            ``(13) PDP sponsor.--The term `PDP sponsor' means a 
        nongovernmental entity that is certified under this 
        part as meeting the requirements and standards of this 
        part for such a sponsor.
            ``(14) Prescription drug plan.--The term 
        `prescription drug plan' means prescription drug 
        coverage that is offered--
                    ``(A) under a policy, contract, or plan 
                that has been approved under section 1860D-
                11(e); and
                    ``(B) by a PDP sponsor pursuant to, and in 
                accordance with, a contract between the 
                Secretary and the sponsor under section 1860D-
                12(b).
            ``(15) Qualified prescription drug coverage.--The 
        term `qualified prescription drug coverage' is defined 
        in section 1860D-2(a)(1).
            ``(16) Standard prescription drug coverage.--The 
        term `standard prescription drug coverage' is defined 
        in section 1860D-2(b).
            ``(17) State pharmaceutical assistance program.--
        The term `State Pharmaceutical Assistance Program' has 
        the meaning given such term in section 1860D-23(b).
            ``(18) Subsidy eligible individual.--The term 
        `subsidy eligible individual' has the meaning given 
        such term in section 1860D-14(a)(3)(A).
    ``(b) Application of Part C Provisions Under This Part.--
For purposes of applying provisions of part C under this part 
with respect to a prescription drug plan and a PDP sponsor, 
unless otherwise provided in this part such provisions shall be 
applied as if--
            ``(1) any reference to an MA plan included a 
        reference to a prescription drug plan;
            ``(2) any reference to an MA organization or a 
        provider-sponsored organization included a reference to 
        a PDP sponsor;
            ``(3) any reference to a contract under section 
        1857 included a reference to a contract under section 
        1860D-12(b);
            ``(4) any reference to part C included a reference 
        to this part; and
            ``(5) any reference to an election period under 
        section 1851 were a reference to an enrollment period 
        under section 1860D-1.

                       ``MISCELLANEOUS PROVISIONS

    ``Sec. 1860D-42. (a) Access to Coverage in Territories.--
The Secretary may waive such requirements of this part, 
including section 1860D-3(a)(1), insofar as the Secretary 
determines it is necessary to secure access to qualified 
prescription drug coverage for part D eligible individuals 
residing in a State (other than the 50 States and the District 
of Columbia).
    ``(b) Application of Demonstration Authority.--The 
provisions of section 402 of the Social Security Amendments of 
1967 (Public Law 90-248) shall apply with respect to this part 
and part C in the same manner it applies with respect to parts 
A and B, except that any reference with respect to a Trust Fund 
in relation to an experiment or demonstration project relating 
to prescription drug coverage under this part shall be deemed a 
reference to the Medicare Prescription Drug Account within the 
Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Submission of Legislative Proposal.--Not later than 6 
months after the date of the enactment of this Act, the 
Secretary shall submit to the appropriate committees of 
Congress a legislative proposal providing for such technical 
and conforming amendments in the law as are required by the 
provisions of this title and title II.
    (c) Study on Transitioning Part B Prescription Drug 
Coverage.--Not later than January 1, 2005, the Secretary shall 
submit a report to Congress that makes recommendations 
regarding methods for providing benefits under subpart 1 of 
part D of title XVIII of the Social Security Act for outpatient 
prescription drugs for which benefits are provided under part B 
of such title.
    (d) Report on Progress in Implementation of Prescription 
Drug Benefit.--Not later than March 1, 2005, the Secretary 
shall submit a report to Congress on the progress that has been 
made in implementing the prescription drug benefit under this 
title. The Secretary shall include in the report specific steps 
that have been taken, and that need to be taken, to ensure a 
timely start of the program on January 1, 2006. The report 
shall include recommendations regarding an appropriate 
transition from the program under section 1860D-31 of the 
Social Security Act to prescription drug benefits under subpart 
1 of part D of title XVIII of such Act.
    (e) Additional Conforming Changes.--
            (1) Conforming references to previous part d.--Any 
        reference in law (in effect before the date of the 
        enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of 
        such title (as in effect after such date).
            (2) Conforming amendment permitting waiver of cost-
        sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-
        7b(b)(3)) is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) the waiver or reduction by pharmacies 
        (including pharmacies of the Indian Health Service, 
        Indian tribes, tribal organizations, and urban Indian 
        organizations) of any cost-sharing imposed under part D 
        of title XVIII, if the conditions described in clauses 
        (i) through (iii) of section 1128A(i)(6)(A) are met 
        with respect to the waiver or reduction (except that, 
        in the case of such a waiver or reduction on behalf of 
        a subsidy eligible individual (as defined in section 
        1860D-14(a)(3)), section 1128A(i)(6)(A) shall be 
        applied without regard to clauses (ii) and (iii) of 
        that section).''.
            (3) Medicare prescription drug account.--
                    (A) Section 201(g) (42 U.S.C. 401(g)) is 
                amended--
                            (i) in paragraph (1)(B)(i)(V), by 
                        inserting ``(and, of such portion, the 
                        portion of such costs which should have 
                        been borne by the Medicare Prescription 
                        Drug Account in such Trust Fund)'' 
                        after ``Trust Fund''; and
                            (ii) in paragraph (1)(B)(ii)(III), 
                        by inserting ``(and, of such portion, 
                        the portion of such costs which should 
                        have been borne by the Medicare 
                        Prescription Drug Account in such Trust 
                        Fund)'' after ``Trust Fund''.
                    (B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) 
                is amended by inserting ``(and for the Medicare 
                Prescription Drug Account and the Transitional 
                Assistance Account in such Trust Fund)'' after 
                ``Federal Supplementary Medical Insurance Trust 
                Fund''.
                    (C) Section 1841 (42 U.S.C. 1395t) is 
                amended--
                            (i) in the last sentence of 
                        subsection (a)--
                                    (I) by striking ``and'' 
                                before ``such amounts''; and
                                    (II) by inserting before 
                                the period the following: ``, 
                                and such amounts as may be 
                                deposited in, or appropriated 
                                to, the Medicare Prescription 
                                Drug Account established by 
                                section 1860D-16'';
                            (ii) in subsection (g), by adding 
                        at the end the following: ``The 
                        payments provided for under part D, 
                        other than under section 1860D-
                        31(k)(2), shall be made from the 
                        Medicare Prescription Drug Account in 
                        the Trust Fund.'';
                            (iii) in subsection (h), by 
                        inserting ``or pursuant to section 
                        1860D-13(c)(1) or 1854(d)(2)(A) (in 
                        which case payments shall be made in 
                        appropriate part from the Medicare 
                        Prescription Drug Account in the Trust 
                        Fund)'' after ``1840(d)''; and
                            (iv) in subsection (i), by 
                        inserting after ``and section 1842(g)'' 
                        the following: ``and pursuant to 
                        sections 1860D-13(c)(1) and 
                        1854(d)(2)(A) (in which case payments 
                        shall be made in appropriate part from 
                        the Medicare Prescription Drug Account 
                        in the Trust Fund)''.
                    (D) Section 1853(f) (42 U.S.C. 1395w-23(f)) 
                is amended--
                            (i) in the heading by striking 
                        ``Trust Fund'' and inserting ``Trust 
                        Funds''; and
                            (ii) by inserting after the first 
                        sentence the following: ``Payments to 
                        MA organizations for statutory drug 
                        benefits provided under this title are 
                        made from the Medicare Prescription 
                        Drug Account in the Federal 
                        Supplementary Medical Insurance Trust 
                        Fund.''.
            (4) Application of confidentiality for drug pricing 
        data.--Section 1927(b)(3)(D) (42 U.S.C. 1396r-
        8(b)(3)(D)) is amended by adding after and below clause 
        (iii) the following:
                ``The previous sentence shall also apply to 
                information disclosed under section 1860D-
                2(d)(2) or 1860D-4(c)(2)(E).''.
            (5) Clarification of treatment of part a 
        enrollees.--Section 1818(a) (42 U.S.C. 1395i-2(a)) is 
        amended by adding at the end the following: ``Except as 
        otherwise provided, any reference to an individual 
        entitled to benefits under this part includes an 
        individual entitled to benefits under this part 
        pursuant to an enrollment under this section or section 
        1818A.''.
            (6) Disclosure.--Section 6103(l)(7)(D)(ii) of the 
        Internal Revenue Code of 1986 is amended by inserting 
        ``or subsidies provided under section 1860D-14 of such 
        Act'' after ``Social Security Act''.
            (7) Extension of study authority.--Section 1875(b) 
        (42 U.S.C. 1395ll(b)) is amended by striking ``the 
        insurance programs under parts A and B'' and inserting 
        ``this title''.
            (8) Conforming amendments relating to facilitation 
        of electronic prescribing.--
                    (A) Section 1128B(b)(3)(C) (42 U.S.C. 
                1320a-7b(b)(3)(C)) is amended by inserting ``or 
                in regulations under section 1860D-3(e)(6)'' 
                after ``1987''.
                    (B) Section 1877(b) (42 U.S.C. 1395nn(b)) 
                is amended by adding at the end the following 
                new paragraph:
            ``(5) Electronic prescribing.--An exception 
        established by regulation under section 1860D-
        3(e)(6).''.
            (9) Other changes.--Section 1927(g)(1)(B)(i) (42 
        U.S.C. 1396r-8(g)(1)(B)(i)) is amended--
                    (A) by adding ``and'' at the end of 
                subclause (II); and
                    (B) by striking subclause (IV).

SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

    (a) Conforming Amendments to Enrollment Process.--
            (1) Extending open enrollment periods.--Section 
        1851(e) (42 U.S.C. 1395w-21(e)) is amended--
                    (A) in paragraph (2), by striking ``2004'' 
                and ``2005'' and inserting ``2005'' and 
                ``2006'' each place it appears; and
                    (B) in paragraph (4), by striking ``2005'' 
                and inserting ``2006'' each place it appears.
            (2) Establishment of special annual, coordinated 
        election period for 6 months beginning november 15, 
        2005.--Section 1851(e)(3)(B) (42 U.S.C. 1395w-
        21(e)(3)(B)) is amended to read as follows:
                    ``(B) Annual, coordinated election 
                period.--For purposes of this section, the term 
                `annual, coordinated election period' means--
                            ``(i) with respect to a year before 
                        2002, the month of November before such 
                        year;
                            ``(ii) with respect to 2002, 2003, 
                        2004, and 2005, the period beginning on 
                        November 15 and ending on December 31 
                        of the year before such year;
                            ``(iii) with respect to 2006, the 
                        period beginning on November 15, 2005, 
                        and ending on May 15, 2006; and
                            ``(iv) with respect to 2007 and 
                        succeeding years, the period beginning 
                        on November 15 and ending on December 
                        31 of the year before such year.''.
            (3) Special information campaign.--Section 
        1851(e)(3) (42 U.S.C. 1395w-21(e)(3)) is amended--
                    (A) in subparagraph (C), by inserting ``and 
                during the period described in subparagraph 
                (B)(iii)'' after ``(beginning with 1999)''; and
                    (B) in subparagraph (D)--
                            (i) in the heading by striking 
                        ``campaign in 1998'' and inserting 
                        ``campaigns''; and
                            (ii) by adding at the end the 
                        following: ``During the period 
                        described in subparagraph (B)(iii), the 
                        Secretary shall provide for an 
                        educational and publicity campaign to 
                        inform MA eligible individuals about 
                        the availability of MA plans (including 
                        MA-PD plans) offered in different areas 
                        and the election process provided under 
                        this section.''.
            (4) Coordinating initial enrollment periods.--
        Section 1851(e)(1) (42 U.S.C. 1395w-21(e)(1)) is 
        amended by adding at the end the following new 
        sentence: ``If any portion of an individual's initial 
        enrollment period under part B occurs after the end of 
        the annual, coordinated election period described in 
        paragraph (3)(B)(iii), the initial enrollment period 
        under this part shall further extend through the end of 
        the individual's initial enrollment period under part 
        B.''.
            (5) Coordination of effectiveness of elections 
        during annual coordinated election period for 2006.--
        Section 1851(f)(3) (42 U.S.C. 1395w-21(f)(3)) is 
        amended by inserting ``, other than the period 
        described in clause (iii) of such subsection'' after 
        ``subsection (e)(3)(B)''.
            (6) Limitation on one-change rule to same type of 
        plan.--Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is 
        amended--
                    (A) in subparagraph (B)(i), by inserting 
                ``, subparagraph (C)(iii),'' after ``clause 
                (ii)'';
                    (B) in subparagraph (C)(i), by striking 
                ``clause (ii)'' and inserting ``clauses (ii) 
                and (iii)''; and
                    (C) by adding at the end of subparagraph 
                (C) the following new clause:
                            ``(iii) Limitation on exercise of 
                        right with respect to prescription drug 
                        coverage.--Effective for plan years 
                        beginning on or after January 1, 2006, 
                        in applying clause (i) (and clause (i) 
                        of subparagraph (B)) in the case of an 
                        individual who--
                                    ``(I) is enrolled in an MA 
                                plan that does provide 
                                qualified prescription drug 
                                coverage, the individual may 
                                exercise the right under such 
                                clause only with respect to 
                                coverage under the original 
                                fee-for-service plan or 
                                coverage under another MA plan 
                                that does not provide such 
                                coverage and may not exercise 
                                such right to obtain coverage 
                                under an MA-PD plan or under a 
                                prescription drug plan under 
                                part D; or
                                    ``(II) is enrolled in an 
                                MA-PD plan, the individual may 
                                exercise the right under such 
                                clause only with respect to 
                                coverage under another MA-PD 
                                plan (and not an MA plan that 
                                does not provide qualified 
                                prescription drug coverage) or 
                                under the original fee-for-
                                service plan and coverage under 
                                a prescription drug plan under 
                                part D.''.
    (b) Promotion of E-Prescribing by MA Plans.--Section 
1852(j) (42 U.S.C. 1395w-22(j)) is amended by adding at the end 
the following new paragraph:
            ``(7) Promotion of E-Prescribing by MA Plans.--
                    ``(A) In general.--An MA-PD plan may 
                provide for a separate payment or otherwise 
                provide for a differential payment for a 
                participating physician that prescribes covered 
                part D drugs in accordance with an electronic 
                prescription drug program that meets standards 
                established under section 1860D-4(e).
                    ``(B) Considerations.--Such payment may 
                take into consideration the costs of the 
                physician in implementing such a program and 
                may also be increased for those participating 
                physicians who significantly increase--
                            ``(i) formulary compliance;
                            ``(ii) lower cost, therapeutically 
                        equivalent alternatives;
                            ``(iii) reductions in adverse drug 
                        interactions; and
                            ``(iv) efficiencies in filing 
                        prescriptions through reduced 
                        administrative costs.
                    ``(C) Structure.--Additional or increased 
                payments under this subsection may be 
                structured in the same manner as medication 
                therapy management fees are structured under 
                section 1860D-4(c)(2)(E).''.
    (c) Other Conforming Amendments.--
            (1) Section 1851(a)(1) (42 U.S.C. 1395w-21(a)(1)) 
        is amended--
                    (A) by inserting ``(other than qualified 
                prescription drug benefits)'' after 
                ``benefits'';
                    (B) by striking the period at the end of 
                subparagraph (B) and inserting a comma; and
                    (C) by adding after and below subparagraph 
                (B) the following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860D-1.''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply on and after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

    (a) Determinations of Eligibility for Low-Income 
Subsidies.--
            (1) Requirement.--Section 1902(a) (42 U.S.C. 
        1396a(a)) is amended--
                    (A) by striking ``and'' at the end of 
                paragraph (64);
                    (B) by striking the period at the end of 
                paragraph (65) and inserting ``; and''; and
                    (C) by inserting after paragraph (65) the 
                following new paragraph:
            ``(66) provide for making eligibility 
        determinations under section 1935(a).''.
            (2) New section.--Title XIX is further amended--
                    (A) by redesignating section 1935 as 
                section 1936; and
                    (B) by inserting after section 1934 the 
                following new section:

  ``SPECIAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG BENEFIT

    ``Sec. 1935. (a) Requirements Relating to Medicare 
Prescription Drug Low-Income Subsidies and Medicare 
Transitional Prescription Drug Assistance.--As a condition of 
its State plan under this title under section 1902(a)(66) and 
receipt of any Federal financial assistance under section 
1903(a), a State shall do the following:
            ``(1) Information for transitional prescription 
        drug assistance verification.--The State shall provide 
        the Secretary with information to carry out section 
        1860D-31(f)(3)(B)(i).
            ``(2) Eligibility determinations for low-income 
        subsidies.--The State shall--
                    ``(A) make determinations of eligibility 
                for premium and cost-sharing subsidies under 
                and in accordance with section 1860D-14;
                    ``(B) inform the Secretary of such 
                determinations in cases in which such 
                eligibility is established; and
                    ``(C) otherwise provide the Secretary with 
                such information as may be required to carry 
                out part D, other than subpart 4, of title 
                XVIII (including section 1860D-14).
            ``(3) Screening for eligibility, and enrollment of, 
        beneficiaries for medicare cost-sharing.--As part of 
        making an eligibility determination required under 
        paragraph (2) for an individual, the State shall make a 
        determination of the individual's eligibility for 
        medical assistance for any medicare cost-sharing 
        described in section 1905(p)(3) and, if the individual 
        is eligible for any such medicare cost-sharing, offer 
        enrollment to the individual under the State plan (or 
        under a waiver of such plan).
    ``(b) Regular Federal Subsidy of Administrative Costs.--The 
amounts expended by a State in carrying out subsection (a) are 
expenditures reimbursable under the appropriate paragraph of 
section 1903(a).
    (b) Phased-In Federal Assumption of Medicaid Responsibility 
for Premium and Cost-Sharing Subsidies for Dually Eligible 
Individuals.--Section 1935, as inserted by subsection (a)(2), 
is amended by adding at the end the following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug 
Costs for Dually Eligible Individuals.--
            ``(1) Phased-down state contribution.--
                    ``(A) In general.--Each of the 50 States 
                and the District of Columbia for each month 
                beginning with January 2006 shall provide for 
                payment under this subsection to the Secretary 
                of the product of--
                            ``(i) the amount computed under 
                        paragraph (2)(A) for the State and 
                        month;
                            ``(ii) the total number of full-
                        benefit dual eligible individuals (as 
                        defined in paragraph (6)) for such 
                        State and month; and
                            ``(iii) the factor for the month 
                        specified in paragraph (5).
                    ``(B) Form and manner of payment.--Payment 
                under subparagraph (A) shall be made in a 
                manner specified by the Secretary that is 
                similar to the manner in which State payments 
                are made under an agreement entered into under 
                section 1843, except that all such payments 
                shall be deposited into the Medicare 
                Prescription Drug Account in the Federal 
                Supplementary Medical Insurance Trust Fund.
                    ``(C) Compliance.--If a State fails to pay 
                to the Secretary an amount required under 
                subparagraph (A), interest shall accrue on such 
                amount at the rate provided under section 
                1903(d)(5). The amount so owed and applicable 
                interest shall be immediately offset against 
                amounts otherwise payable to the State under 
                section 1903(a), in accordance with the Federal 
                Claims Collection Act of 1996 and applicable 
                regulations.
                    ``(D) Data match.--The Secretary shall 
                perform such periodic data matches as may be 
                necessary to identify and compute the number of 
                full-benefit dual eligible individuals for 
                purposes of computing the amount under 
                subparagraph (A).
            ``(2) Amount.--
                    ``(A) In general.--The amount computed 
                under this paragraph for a State described in 
                paragraph (1) and for a month in a year is 
                equal to--
                            ``(i) \1/12\ of the product of--
                                    ``(I) the base year state 
                                medicaid per capita 
                                expenditures for covered part D 
                                drugs for full-benefit dual 
                                eligible individuals (as 
                                computed under paragraph (3)); 
                                and
                                    ``(II) a proportion equal 
                                to 100 percent minus the 
                                Federal medical assistance 
                                percentage (as defined in 
                                section 1905(b)) applicable to 
                                the State for the fiscal year 
                                in which the month occurs; and
                            ``(ii) increased for each year 
                        (beginning with 2004 up to and 
                        including the year involved) by the 
                        applicable growth factor specified in 
                        paragraph (4) for that year.
                    ``(B) Notice.--The Secretary shall notify 
                each State described in paragraph (1) not later 
                than October 15 before the beginning of each 
                year (beginning with 2006) of the amount 
                computed under subparagraph (A) for the State 
                for that year.
            ``(3) Base year state medicaid per capita 
        expenditures for covered part D drugs for full-benefit 
        dual eligible individuals.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(A), the `base year State medicaid 
                per capita expenditures for covered part D 
                drugs for full-benefit dual eligible 
                individuals' for a State is equal to the 
                weighted average (as weighted under 
                subparagraph (C)) of--
                            ``(i) the gross per capita medicaid 
                        expenditures for prescription drugs for 
                        2003, determined under subparagraph 
                        (B); and
                            ``(ii) the estimated actuarial 
                        value of prescription drug benefits 
                        provided under a capitated managed care 
                        plan per full-benefit dual eligible 
                        individual for 2003, as determined 
                        using such data as the Secretary 
                        determines appropriate.
                    ``(B) Gross per capita medicaid 
                expenditures for prescription drugs.--
                            ``(i) In general.--The gross per 
                        capita medicaid expenditures for 
                        prescription drugs for 2003 under this 
                        subparagraph is equal to the 
                        expenditures, including dispensing 
                        fees, for the State under this title 
                        during 2003 for covered outpatient 
                        drugs, determined per full-benefit-
                        dual-eligible-individual for such 
                        individuals not receiving medical 
                        assistance for such drugs through a 
                        medicaid managed care plan.
                            ``(ii) Determination.--In 
                        determining the amount under clause 
                        (i), the Secretary shall--
                                    ``(I) use data from the 
                                Medicaid Statistical 
                                Information System (MSIS) and 
                                other available data;
                                    ``(II) exclude expenditures 
                                attributable to covered 
                                outpatient prescription drugs 
                                that are not covered part D 
                                drugs (as defined in section 
                                1860D-2(e)); and
                                    ``(III) reduce such 
                                expenditures by the product of 
                                such portion and the adjustment 
                                factor (described in clause 
                                (iii)).
                            ``(iii) Adjustment factor.--The 
                        adjustment factor described in this 
                        clause for a State is equal to the 
                        ratio for the State for 2003 of--
                                    ``(I) aggregate payments 
                                under agreements under section 
                                1927; to
                                    ``(II) the gross 
                                expenditures under this title 
                                for covered outpatient drugs 
                                referred to in clause (i).
                        Such factor shall be determined based 
                        on information reported by the State in 
                        the medicaid financial management 
                        reports (form CMS-64) for the 4 
                        quarters of calendar year 2003 and such 
                        other data as the Secretary may 
                        require.
                    ``(C) Weighted average.--The weighted 
                average under subparagraph (A) shall be 
                determined taking into account--
                            ``(i) with respect to subparagraph 
                        (A)(i), the average number of full-
                        benefit dual eligible individuals in 
                        2003 who are not described in clause 
                        (ii); and
                            ``(ii) with respect to subparagraph 
                        (A)(ii), the average number of full-
                        benefit dual eligible individuals in 
                        such year who received in 2003 medical 
                        assistance for covered outpatient drugs 
                        through a medicaid managed care plan.
            ``(4) Applicable growth factor.--The applicable 
        growth factor under this paragraph for--
                    ``(A) each of 2004, 2005, and 2006, is the 
                average annual percent change (to that year 
                from the previous year) of the per capita 
                amount of prescription drug expenditures (as 
                determined based on the most recent National 
                Health Expenditure projections for the years 
                involved); and
                    ``(B) a succeeding year, is the annual 
                percentage increase specified in section 1860D-
                2(b)(6) for the year.
            ``(5) Factor.--The factor under this paragraph for 
        a month--
                    ``(A) in 2006 is 90 percent;
                    ``(B) in 2007 is 88-\1/3\ percent;
                    ``(C) in 2008 is 86-\2/3\ percent;
                    ``(D) in 2009 is 85 percent;
                    ``(E) in 2010 is 83-\1/3\ percent;
                    ``(F) in 2011 is 81-\2/3\ percent;
                    ``(G) in 2012 is 80 percent;
                    ``(H) in 2013 is 78-\1/3\ percent;
                    ``(I) in 2014 is 76-\2/3\ percent; or
                    ``(J) after December 2014, is 75 percent.
            ``(6) Full-benefit dual eligible individual 
        defined.--
                    ``(A) In general.--For purposes of this 
                section, the term `full-benefit dual eligible 
                individual' means for a State for a month an 
                individual who--
                            ``(i) has coverage for the month 
                        for covered part D drugs under a 
                        prescription drug plan under part D of 
                        title XVIII, or under an MA-PD plan 
                        under part C of such title; and
                            ``(ii) is determined eligible by 
                        the State for medical assistance for 
                        full benefits under this title for such 
                        month under section 1902(a)(10)(A) or 
                        1902(a)(10)(C), by reason of section 
                        1902(f), or under any other category of 
                        eligibility for medical assistance for 
                        full benefits under this title, as 
                        determined by the Secretary.
                    ``(B) Treatment of medically needy and 
                other individuals required to spend down.--In 
                applying subparagraph (A) in the case of an 
                individual determined to be eligible by the 
                State for medical assistance under section 
                1902(a)(10)(C) or by reason of section 1902(f), 
                the individual shall be treated as meeting the 
                requirement of subparagraph (A)(ii) for any 
                month if such medical assistance is provided 
                for in any part of the month.''.
    (c) Medicaid Coordination With Medicare Prescription Drug 
Benefits.--Section 1935, as so inserted and amended, is further 
amended by adding at the end the following new subsection:
    ``(d) Coordination of Prescription Drug Benefits.--
            ``(1) Medicare as primary payor.--In the case of a 
        part D eligible individual (as defined in section 
        1860D-1(a)(3)(A)) who is described in subsection 
        (c)(6)(A)(ii), notwithstanding any other provision of 
        this title, medical assistance is not available under 
        this title for such drugs (or for any cost-sharing 
        respecting such drugs), and the rules under this title 
        relating to the provision of medical assistance for 
        such drugs shall not apply. The provision of benefits 
        with respect to such drugs shall not be considered as 
        the provision of care or services under the plan under 
        this title. No payment may be made under section 
        1903(a) for prescribed drugs for which medical 
        assistance is not available pursuant to this paragraph.
            ``(2) Coverage of certain excludable drugs.--In the 
        case of medical assistance under this title with 
        respect to a covered outpatient drug (other than a 
        covered part D drug) furnished to an individual who is 
        enrolled in a prescription drug plan under part D of 
        title XVIII or an MA-PD plan under part C of such 
        title, the State may elect to provide such medical 
        assistance in the manner otherwise provided in the case 
        of individuals who are not full-benefit dual eligible 
        individuals or through an arrangement with such 
        plan.''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1935, as so inserted and 
        amended, is further amended--
                    (A) in subsection (a) in the matter 
                preceding paragraph (1), by inserting ``subject 
                to subsection (e)'' after ``section 1903(a)'';
                    (B) in subsection (c)(1), by inserting 
                ``subject to subsection (e)'' after 
                ``1903(a)(1)''; and
                    (C) by adding at the end the following new 
                subsection:
    ``(e) Treatment of Territories.--
            ``(1) In general.--In the case of a State, other 
        than the 50 States and the District of Columbia--
                    ``(A) the previous provisions of this 
                section shall not apply to residents of such 
                State; and
                    ``(B) if the State establishes and submits 
                to the Secretary a plan described in paragraph 
                (2) (for providing medical assistance with 
                respect to the provision of prescription drugs 
                to part D eligible individuals), the amount 
                otherwise determined under section 1108(f) (as 
                increased under section 1108(g)) for the State 
                shall be increased by the amount for the fiscal 
                period specified in paragraph (3).
            ``(2) Plan.--The Secretary shall determine that a 
        plan is described in this paragraph if the plan--
                    ``(A) provides medical assistance with 
                respect to the provision of covered part D 
                drugs (as defined in section 1860D-2(e)) to 
                low-income part D eligible individuals;
                    ``(B) provides assurances that additional 
                amounts received by the State that are 
                attributable to the operation of this 
                subsection shall be used only for such 
                assistance and related administrative expenses 
                and that no more than 10 percent of the amount 
                specified in paragraph (3)(A) for the State for 
                any fiscal period shall be used for such 
                administrative expenses; and
                    ``(C) meets such other criteria as the 
                Secretary may establish.
            ``(3) Increased amount.--
                    ``(A) In general.--The amount specified in 
                this paragraph for a State for a year is equal 
                to the product of--
                            ``(i) the aggregate amount 
                        specified in subparagraph (B); and
                            ``(ii) the ratio (as estimated by 
                        the Secretary) of--
                                    ``(I) the number of 
                                individuals who are entitled to 
                                benefits under part A or 
                                enrolled under part B and who 
                                reside in the State (as 
                                determined by the Secretary 
                                based on the most recent 
                                available data before the 
                                beginning of the year); to
                                    ``(II) the sum of such 
                                numbers for all States that 
                                submit a plan described in 
                                paragraph (2).
                    ``(B) Aggregate amount.--The aggregate 
                amount specified in this subparagraph for--
                            ``(i) the last 3 quarters of fiscal 
                        year 2006, is equal to $28,125,000;
                            ``(ii) fiscal year 2007, is equal 
                        to $37,500,000; or
                            ``(iii) a subsequent year, is equal 
                        to the aggregate amount specified in 
                        this subparagraph for the previous year 
                        increased by annual percentage increase 
                        specified in section 1860D-2(b)(6) for 
                        the year involved.
            ``(4) Report.--The Secretary shall submit to 
        Congress a report on the application of this subsection 
        and may include in the report such recommendations as 
        the Secretary deems appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 
        U.S.C. 1308(f)) is amended by inserting ``and section 
        1935(e)(1)(B)'' after ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--
            (1) In general.--Section 1927(c)(1)(C)(i) (42 
        U.S.C. 1396r-8(c)(1)(C)(i)) is amended--
                    (A) by striking ``and'' at the end of 
                subclause (III);
                    (B) by striking the period at the end of 
                subclause (IV) and inserting a semicolon; and
                    (C) by adding at the end the following new 
                subclauses:
                                    ``(V) the prices negotiated 
                                from drug manufacturers for 
                                covered discount card drugs 
                                under an endorsed discount card 
                                program under section 1860D-31; 
                                and
                                    ``(VI) any prices charged 
                                which are negotiated by a 
                                prescription drug plan under 
                                part D of title XVIII, by an 
                                MA-PD plan under part C of such 
                                title with respect to covered 
                                part D drugs or by a qualified 
                                retiree prescription drug plan 
                                (as defined in section 1860D-
                                22(a)(2)) with respect to such 
                                drugs on behalf of individuals 
                                entitled to benefits under part 
                                A or enrolled under part B of 
                                such title.''.
            (2) In general.--Section 1927(c)(1)(C)(i)(VI) of 
        the Social Security Act, as added by paragraph (1), 
        shall apply to prices charged for drugs dispensed on or 
        after January 1, 2006.
    (f) Extension of Medicare Cost-Sharing for Part B Premium 
for Qualifying Individuals Through September 2004.--
            (1) In general.--Section 1902(a)(10)(E)(iv) (42 
        U.S.C. 1396a(a)(10)(E)(iv)), as amended by section 
        401(a) of Public Law 108-89, is amended by striking 
        ``ending with March 2004'' and inserting ``ending with 
        September 2004''.
            (2) Total amount available for allocation.--Section 
        1933(g) (42 U.S.C. 1396u-3(g)), as added by section 
        401(c) of Public Law 108-89, is amended--
                    (A) in the matter preceding paragraph (1), 
                by striking ``March 31, 2004'' and inserting 
                ``September 30, 2004''; and
                    (B) in paragraph (2), by striking 
                ``$100,000,000'' and inserting 
                ``$300,000,000''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to calendar quarters beginning 
        on or after April 1, 2004.
    (g) Outreach by the Commissioner of Social Security.--
Section 1144 (42 U.S.C. 1320b-14) is amended--
            (1) in the section heading, by inserting ``and 
        subsidies for low-income individuals under title 
        xviii'' after ``cost-sharing'';
            (2) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by 
                        inserting ``for the transitional 
                        assistance under section 1860D-31(f), 
                        or for premium and cost-sharing 
                        subsidies under section 1860D-14'' 
                        before the semicolon; and
                            (ii) in subparagraph (B), by 
                        inserting ``, program, and subsidies'' 
                        after ``medical assistance''; and
                    (B) in paragraph (2)--
                            (i) in the matter preceding 
                        subparagraph (A), by inserting ``, the 
                        transitional assistance under section 
                        1860D-31(f), or premium and cost-
                        sharing subsidies under section 1860D-
                        14'' after ``assistance''; and
                            (ii) in subparagraph (A), by 
                        striking ``such eligibility'' and 
                        inserting ``eligibility for medicare 
                        cost-sharing under the medicaid 
                        program''; and
            (3) in subsection (b)--
                    (A) in paragraph (1)(A), by inserting ``, 
                for transitional assistance under section 
                1860D-31(f), or for premium and cost-sharing 
                subsidies for low-income individuals under 
                section 1860D-14'' after ``1933''; and
                    (B) in paragraph (2), by inserting ``, 
                program, and subsidies'' after ``medical 
                assistance''.

SEC. 104. MEDIGAP AMENDMENTS.

    (a) Rules Relating to Medigap Policies That Provide 
Prescription Drug Coverage.--
            (1) In general.--Section 1882 (42 U.S.C. 1395ss) is 
        amended by adding at the end the following new 
        subsection:
    ``(v) Rules Relating to Medigap Policies That Provide 
Prescription Drug Coverage.--
            ``(1) Prohibition on sale, issuance, and renewal of 
        new policies that provide prescription drug coverage.--
                    ``(A) In general.--Notwithstanding any 
                other provision of law, on or after January 1, 
                2006, a medigap Rx policy (as defined in 
                paragraph (6)(A)) may not be sold, issued, or 
                renewed under this section--
                            ``(i) to an individual who is a 
                        part D enrollee (as defined in 
                        paragraph (6)(B)); or
                            ``(ii) except as provided in 
                        subparagraph (B), to an individual who 
                        is not a part D enrollee.
                    ``(B) Continuation permitted for non-part d 
                enrollees.--Subparagraph (A)(ii) shall not 
                apply to the renewal of a medigap Rx policy 
                that was issued before January 1, 2006.
                    ``(C) Construction.--Nothing in this 
                subsection shall be construed as preventing the 
                offering on and after January 1, 2006, of `H', 
                `I', and `J' policies described in paragraph 
                (2)(D)(i) if the benefit packages are modified 
                in accordance with paragraph (2)(C).
            ``(2) Elimination of duplicative coverage upon part 
        d enrollment.--
                    ``(A) In general.--In the case of an 
                individual who is covered under a medigap Rx 
                policy and enrolls under a part D plan--
                            ``(i) before the end of the initial 
                        part D enrollment period, the 
                        individual may--
                                    ``(I) enroll in a medicare 
                                supplemental policy without 
                                prescription drug coverage 
                                under paragraph (3); or
                                    ``(II) continue the policy 
                                in effect subject to the 
                                modification described in 
                                subparagraph (C)(i); or
                            ``(ii) after the end of such 
                        period, the individual may continue the 
                        policy in effect subject to such 
                        modification.
                    ``(B) Notice required to be provided to 
                current policyholders with medigap rx policy.--
                No medicare supplemental policy of an issuer 
                shall be deemed to meet the standards in 
                subsection (c) unless the issuer provides 
                written notice (in accordance with standards of 
                the Secretary established in consultation with 
                the National Association of Insurance 
                Commissioners) during the 60-day period 
                immediately preceding the initial part D 
                enrollment period, to each individual who is a 
                policyholder or certificate holder of a medigap 
                Rx policy (at the most recent available address 
                of that individual) of the following:
                            ``(i) If the individual enrolls in 
                        a plan under part D during the initial 
                        enrollment period under section 1860D-
                        1(b)(2)(A), the individual has the 
                        option of--
                                    ``(I) continuing enrollment 
                                in the individual's current 
                                plan, but the plan's coverage 
                                of prescription drugs will be 
                                modified under subparagraph 
                                (C)(i); or
                                    ``(II) enrolling in another 
                                medicare supplemental policy 
                                pursuant to paragraph (3).
                            ``(ii) If the individual does not 
                        enroll in a plan under part D during 
                        such period, the individual may 
                        continue enrollment in the individual's 
                        current plan without change, but--
                                    ``(I) the individual will 
                                not be guaranteed the option of 
                                enrollment in another medicare 
                                supplemental policy pursuant to 
                                paragraph (3); and
                                    ``(II) if the current plan 
                                does not provide creditable 
                                prescription drug coverage (as 
                                defined in section 1860D-
                                13(b)(4)), notice of such fact 
                                and that there are limitations 
                                on the periods in a year in 
                                which the individual may enroll 
                                under a part D plan and any 
                                such enrollment is subject to a 
                                late enrollment penalty.
                            ``(iii) Such other information as 
                        the Secretary may specify (in 
                        consultation with the National 
                        Association of Insurance 
                        Commissioners), including the potential 
                        impact of such election on premiums for 
                        medicare supplemental policies.
                    ``(C) Modification.--
                            ``(i) In general.--The policy 
                        modification described in this 
                        subparagraph is the elimination of 
                        prescription coverage for expenses of 
                        prescription drugs incurred after the 
                        effective date of the individual's 
                        coverage under a part D plan and the 
                        appropriate adjustment of premiums to 
                        reflect such elimination of coverage.
                            ``(ii) Continuation of renewability 
                        and application of modification.--No 
                        medicare supplemental policy of an 
                        issuer shall be deemed to meet the 
                        standards in subsection (c) unless the 
                        issuer--
                                    ``(I) continues 
                                renewability of medigap Rx 
                                policies that it has issued, 
                                subject to subclause (II); and
                                    ``(II) applies the policy 
                                modification described in 
                                clause (i) in the cases 
                                described in clauses (i)(II) 
                                and (ii) of subparagraph (A).
                    ``(D) References to rx policies.--
                            ``(i) H, i, and j policies.--Any 
                        reference to a benefit package 
                        classified as `H', `I', or `J' 
                        (including the benefit package 
                        classified as `J' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)) under the standards 
                        established under subsection (p)(2) 
                        shall be construed as including a 
                        reference to such a package as modified 
                        under subparagraph (C) and such 
                        packages as modified shall not be 
                        counted as a separate benefit package 
                        under such subsection.
                            ``(ii) Application in waivered 
                        states.--Except for the modification 
                        provided under subparagraph (C), the 
                        waivers previously in effect under 
                        subsection (p)(2) shall continue in 
                        effect.
            ``(3) Availability of substitute policies with 
        guaranteed issue.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                            ``(i) may not deny or condition the 
                        issuance or effectiveness of a medicare 
                        supplemental policy that has a benefit 
                        package classified as `A', `B', `C', or 
                        `F' (including the benefit package 
                        classified as `F' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)), under the 
                        standards established under subsection 
                        (p)(2), or a benefit package described 
                        in subparagraph (A) or (B) of 
                        subsection (w)(2) and that is offered 
                        and is available for issuance to new 
                        enrollees by such issuer;
                            ``(ii) may not discriminate in the 
                        pricing of such policy, because of 
                        health status, claims experience, 
                        receipt of health care, or medical 
                        condition; and
                            ``(iii) may not impose an exclusion 
                        of benefits based on a pre-existing 
                        condition under such policy, in the 
                        case of an individual described in 
                        subparagraph (B) who seeks to enroll 
                        under the policy not later than 63 days 
                        after the effective date of the 
                        individual's coverage under a part D 
                        plan.
                    ``(B) Individual covered.--An individual 
                described in this subparagraph with respect to 
                the issuer of a medicare supplemental policy is 
                an individual who--
                            ``(i) enrolls in a part D plan 
                        during the initial part D enrollment 
                        period;
                            ``(ii) at the time of such 
                        enrollment was enrolled in a medigap Rx 
                        policy issued by such issuer; and
                            ``(iii) terminates enrollment in 
                        such policy and submits evidence of 
                        such termination along with the 
                        application for the policy under 
                        subparagraph (A).
                    ``(C) Special rule for waivered states.--
                For purposes of applying this paragraph in the 
                case of a State that provides for offering of 
                benefit packages other than under the 
                classification referred to in subparagraph 
                (A)(i), the references to benefit packages in 
                such subparagraph are deemed references to 
                comparable benefit packages offered in such 
                State.
            ``(4) Enforcement.--
                    ``(A) Penalties for duplication.--The 
                penalties described in subsection (d)(3)(A)(ii) 
                shall apply with respect to a violation of 
                paragraph (1)(A).
                    ``(B) Guaranteed issue.--The provisions of 
                paragraph (4) of subsection (s) shall apply 
                with respect to the requirements of paragraph 
                (3) in the same manner as they apply to the 
                requirements of such subsection.
            ``(5) Construction.--Any provision in this section 
        or in a medicare supplemental policy relating to 
        guaranteed renewability of coverage shall be deemed to 
        have been met with respect to a part D enrollee through 
        the continuation of the policy subject to modification 
        under paragraph (2)(C) or the offering of a substitute 
        policy under paragraph (3). The previous sentence shall 
        not be construed to affect the guaranteed renewability 
        of such a modified or substitute policy.
            ``(6) Definitions.--For purposes of this 
        subsection:
                    ``(A) Medigap rx policy.--The term `medigap 
                Rx policy' means a medicare supplemental 
                policy--
                            ``(i) which has a benefit package 
                        classified as `H', `I', or `J' 
                        (including the benefit package 
                        classified as `J' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)) under the standards 
                        established under subsection (p)(2), 
                        without regard to this subsection; and
                            ``(ii) to which such standards do 
                        not apply (or to which such standards 
                        have been waived under subsection 
                        (p)(6)) but which provides benefits for 
                        prescription drugs.
                Such term does not include a policy with a 
                benefit package as classified under clause (i) 
                which has been modified under paragraph 
                (2)(C)(i).
                    ``(B) Part d enrollee.--The term `part D 
                enrollee' means an individual who is enrolled 
                in a part D plan.
                    ``(C) Part d plan.--The term `part D plan' 
                means a prescription drug plan or an MA-PD plan 
                (as defined for purposes of part D).
                    ``(D) Initial part d enrollment period.--
                The term `initial part D enrollment period' 
                means the initial enrollment period described 
                in section 1860D-1(b)(2)(A).''.
    (2) Conforming current guaranteed issue provisions.--
                    (A) Extending guaranteed issue policy for 
                individuals enrolled in medigap rx policies who 
                try medicare advantage.--Subsection 
                (s)(3)(C)(ii) of such section is amended--
                            (i) by striking ``(ii) Only'' and 
                        inserting ``(ii)(I) Subject to 
                        subclause (II), only''; and
                            (ii) by adding at the end the 
                        following new subclause:
    ``(II) If the medicare supplemental policy referred to in 
subparagraph (B)(v) was a medigap Rx policy (as defined in 
subsection (v)(6)(A)), a medicare supplemental policy described 
in this subparagraph is such policy in which the individual was 
most recently enrolled as modified under subsection 
(v)(2)(C)(i) or, at the election of the individual, a policy 
referred to in subsection (v)(3)(A)(i).''.
                    (B) Conforming amendment.--Section 
                1882(s)(3)(C)(iii) is amended by inserting 
                ``and subject to subsection (v)(1)'' after 
                ``subparagraph (B)(vi)''.
    (b) Development of New Standards for Medigap Policies.--
            (1) In general.--Section 1882 (42 U.S.C. 1395ss) is 
        further amended by adding at the end the following new 
        subsection:
    ``(w) Development of New Standards for Medicare 
Supplemental Policies.--
            ``(1) In general.--The Secretary shall request the 
        National Association of Insurance Commissioners to 
        review and revise the standards for benefit packages 
        under subsection (p)(1), taking into account the 
        changes in benefits resulting from enactment of the 
        Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003 and to otherwise update 
        standards to reflect other changes in law included in 
        such Act. Such revision shall incorporate the inclusion 
        of the 2 benefit packages described in paragraph (2). 
        Such revisions shall be made consistent with the rules 
        applicable under subsection (p)(1)(E) with the 
        reference to the `1991 NAIC Model Regulation' deemed a 
        reference to the NAIC Model Regulation as published in 
        the Federal Register on December 4, 1998, and as 
        subsequently updated by the National Association of 
        Insurance Commissioners to reflect previous changes in 
        law (and subsection (v)) and the reference to `date of 
        enactment of this subsection' deemed a reference to the 
        date of enactment of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003. To the 
        extent practicable, such revision shall provide for the 
        implementation of revised standards for benefit 
        packages as of January 1, 2006.
            ``(2) New benefit packages.--The benefit packages 
        described in this paragraph are the following 
        (notwithstanding any other provision of this section 
        relating to a core benefit package):
                    ``(A) First new benefit package.--A benefit 
                package consisting of the following:
                            ``(i) Subject to clause (ii), 
                        coverage of 50 percent of the cost-
                        sharing otherwise applicable under 
                        parts A and B, except there shall be no 
                        coverage of the part B deductible and 
                        coverage of 100 percent of any cost-
                        sharing otherwise applicable for 
                        preventive benefits.
                            ``(ii) Coverage for all hospital 
                        inpatient coinsurance and 365 extra 
                        lifetime days of coverage of inpatient 
                        hospital services (as in the current 
                        core benefit package).
                            ``(iii) A limitation on annual out-
                        of-pocket expenditures under parts A 
                        and B to $4,000 in 2006 (or, in a 
                        subsequent year, to such limitation for 
                        the previous year increased by an 
                        appropriate inflation adjustment 
                        specified by the Secretary).
                    ``(B) Second new benefit package.--A 
                benefit package consisting of the benefit 
                package described in subparagraph (A), except 
                as follows:
                            ``(i) Substitute `75 percent' for 
                        `50 percent' in clause (i) of such 
                        subparagraph.
                            ``(ii) Substitute `$2,000' for 
                        `$4,000' in clause (iii) of such 
                        subparagraph.''.
            (2) Conforming amendments.--Section 1882 (42 U.S.C. 
        1395ss) is amended--
                    (A) in subsection (g)(1), by inserting ``a 
                prescription drug plan under part D or'' after 
                ``but does not include''; and
                    (B) in subsection (o)(1), by striking 
                ``subsection (p)'' and inserting ``subsections 
                (p), (v), and (w)''.
    (c) Rule of Construction.--
            (1) In general.--Nothing in this Act shall be 
        construed to require an issuer of a medicare 
        supplemental policy under section 1882 of the Social 
        Security Act (42 U.S.C. 1395rr) to participate as a PDP 
        sponsor under part D of title XVIII of such Act, as 
        added by section 101, as a condition for issuing such 
        policy.
            (2) Prohibition on state requirement.--A State may 
        not require an issuer of a medicare supplemental policy 
        under section 1882 of the Social Security Act (42 
        U.S.C. 1395rr) to participate as a PDP sponsor under 
        such part D as a condition for issuing such policy.

SEC. 105. ADDITIONAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG 
                    DISCOUNT CARD AND TRANSITIONAL ASSISTANCE PROGRAM.

    (a) Exclusion of Costs From Determination of Part B Monthly 
Premium.--Section 1839(g) (42 U.S.C. 1395r(g)) is amended--
            (1) by striking ``attributable to the application 
        of section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; 
        and
            (3) by adding at the end the following new 
        paragraph:
            ``(2) the medicare prescription drug discount card 
        and transitional assistance program under section 
        1860D-31.''.
    (b) Application of Confidentiality for Drug Pricing Data.--
The last sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r-
8(b)(3)(D)), as added by section 101(e)(4), is amended by 
inserting ``and drug pricing data reported under the first 
sentence of section 1860D-31(i)(1)'' after ``section 1860D-
4(c)(2)(E)''.
    (c) Rules for Implementation.--The following rules shall 
apply to the medicare prescription drug discount card and 
transitional assistance program under section 1860D-31 of the 
Social Security Act, as added by section 101(a):
            (1) In promulgating regulations pursuant to 
        subsection (a)(2)(B) of such section 1860D-31--
                    (A) section 1871(a)(3) of the Social 
                Security Act (42 U.S.C. 1395hh(a)(3)), as added 
                by section 902(a)(1), shall not apply;
                    (B) chapter 35 of title 44, United States 
                Code, shall not apply; and
                    (C) sections 553(d) and 801(a)(3)(A) of 
                title 5, United States Code, shall not apply.
            (2) Section 1857(c)(5) of the Social Security Act 
        (42 U.S.C. 1395w-27(c)(5)) shall apply with respect to 
        section 1860D-31 of such Act, as added by section 
        101(a), in the same manner as it applies to part C of 
        title XVIII of such Act.
            (3) The administration of such program shall be 
        made without regard to chapter 35 of title 44, United 
        States Code.
            (4)(A) There shall be no judicial review of a 
        determination not to endorse, or enter into a contract, 
        with a prescription drug card sponsor under section 
        1860D-31 of the Social Security Act.
            (B) In the case of any order issued to enjoin any 
        provision of section 1860D-31 of the Social Security 
        Act (or of any provision of this section), such order 
        shall not affect any other provision of such section 
        (or of this section) and all such provisions shall be 
        treated as severable.
    (d) Conforming Amendments to Federal SMI Trust Fund for 
Transitional Assistance Account.--Section 1841 (42 U.S.C. 
1395t), as amended by section 101(e)(3)(C), is amended--
            (1) in the last sentence of subsection (a), by 
        inserting after ``section 1860D-16'' the following: 
        ``or the Transitional Assistance Account established by 
        section 1860D-31(k)(1)''; and
            (2) in subsection (g), by adding at the end the 
        following: ``The payments provided for under section 
        1860D-31(k)(2) shall be made from the Transitional 
        Assistance Account in the Trust Fund.''.
    (e) Disclosure of Return Information for Purposes of 
Providing Transitional Assistance Under Medicare Discount Card 
Program.--
            (1) In general.--Subsection (l) of section 6103 of 
        the Internal Revenue Code of 1986 (relating to 
        disclosure of returns and return information for 
        purposes other than tax administration) is amended by 
        adding at the end the following new paragraph:
            ``(19) Disclosure of return information for 
        purposes of providing transitional assistance under 
        medicare discount card program.--
                    ``(A) In general.--The Secretary, upon 
                written request from the Secretary of Health 
                and Human Services pursuant to carrying out 
                section 1860D-31 of the Social Security Act, 
                shall disclose to officers, employees, and 
                contractors of the Department of Health and 
                Human Services with respect to a taxpayer for 
                the applicable year--
                            ``(i)(I) whether the adjusted gross 
                        income, as modified in accordance with 
                        specifications of the Secretary of 
                        Health and Human Services for purposes 
                        of carrying out such section, of such 
                        taxpayer and, if applicable, such 
                        taxpayer's spouse, for the applicable 
                        year, exceeds the amounts specified by 
                        the Secretary of Health and Human 
                        Services in order to apply the 100 and 
                        135 percent of the poverty lines under 
                        such section, (II) whether the return 
                        was a joint return, and (III) the 
                        applicable year, or
                            ``(ii) if applicable, the fact that 
                        there is no return filed for such 
                        taxpayer for the applicable year.
                    ``(B) Definition of applicable year.--For 
                the purposes of this subsection, the term 
                `applicable year' means the most recent taxable 
                year for which information is available in the 
                Internal Revenue Service's taxpayer data 
                information systems, or, if there is no return 
                filed for such taxpayer for such year, the 
                prior taxable year.
                    ``(C) Restriction on use of disclosed 
                information.--Return information disclosed 
                under this paragraph may be used only for the 
                purposes of determining eligibility for and 
                administering transitional assistance under 
                section 1860D-31 of the Social Security Act.''
            (2) Confidentiality.--Paragraph (3) of section 
        6103(a) of such Code is amended by striking ``or (16)'' 
        and inserting ``(16), or (19)''.
            (3) Procedures and recordkeeping related to 
        disclosures.--Subsection (p)(4) of section 6103 of such 
        Code is amended by striking ``(l)(16) or (17)'' each 
        place it appears and inserting ``(l)(16), (17), or 
        (19)''.
            (4) Unauthorized disclosure or inspection.--
        Paragraph (2) of section 7213(a) of such Code is 
        amended by striking ``or (16)'' and inserting ``(16), 
        or (19)''.

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

    (a) Establishment.--
            (1) In general.--There is established, as of the 
        first day of the third month beginning after the date 
        of the enactment of this Act, a State Pharmaceutical 
        Assistance Transition Commission (in this section 
        referred to as the ``Commission'') to develop a 
        proposal for addressing the unique transitional issues 
        facing State pharmaceutical assistance programs, and 
        program participants, due to the implementation of the 
        voluntary prescription drug benefit program under part 
        D of title XVIII of the Social Security Act, as added 
        by section 101.
            (2) Definitions.--For purposes of this section:
                    (A) State pharmaceutical assistance program 
                defined.--The term ``State pharmaceutical 
                assistance program'' means a program (other 
                than the medicaid program) operated by a State 
                (or under contract with a State) that provides 
                as of the date of the enactment of this Act 
                financial assistance to medicare beneficiaries 
                for the purchase of prescription drugs.
                    (B) Program participant.--The term 
                ``program participant'' means a low-income 
                medicare beneficiary who is a participant in a 
                State pharmaceutical assistance program.
    (b) Composition.--The Commission shall include the 
following:
            (1) A representative of each Governor of each State 
        that the Secretary identifies as operating on a 
        statewide basis a State pharmaceutical assistance 
        program that provides for eligibility and benefits that 
        are comparable or more generous than the low-income 
        assistance eligibility and benefits offered under 
        section 1860D-14 of the Social Security Act.
            (2) Representatives from other States that the 
        Secretary identifies have in operation other State 
        pharmaceutical assistance programs, as appointed by the 
        Secretary.
            (3) Representatives of organizations that have an 
        inherent interest in program participants or the 
        program itself, as appointed by the Secretary but not 
        to exceed the number of representatives under 
        paragraphs (1) and (2).
            (4) Representatives of Medicare Advantage 
        organizations, pharmaceutical benefit managers, and 
        other private health insurance plans, as appointed by 
        the Secretary.
            (5) The Secretary (or the Secretary's designee) and 
        such other members as the Secretary may specify.
The Secretary shall designate a member to serve as Chair of the 
Commission and the Commission shall meet at the call of the 
Chair.
    (c) Development of Proposal.--The Commission shall develop 
the proposal described in subsection (a) in a manner consistent 
with the following principles:
            (1) Protection of the interests of program 
        participants in a manner that is the least disruptive 
        to such participants and that includes a single point 
        of contact for enrollment and processing of benefits.
            (2) Protection of the financial and flexibility 
        interests of States so that States are not financially 
        worse off as a result of the enactment of this title.
            (3) Principles of medicare modernization under this 
        Act.
    (d) Report.--By not later than January 1, 2005, the 
Commission shall submit to the President and Congress a report 
that contains a detailed proposal (including specific 
legislative or administrative recommendations, if any) and such 
other recommendations as the Commission deems appropriate.
    (e) Support.--The Secretary shall provide the Commission 
with the administrative support services necessary for the 
Commission to carry out its responsibilities under this 
section.
    (f) Termination.--The Commission shall terminate 30 days 
after the date of submission of the report under subsection 
(d).

SEC. 107. STUDIES AND REPORTS.

    (a) Study Regarding Regional Variations in Prescription 
Drug Spending.--
            (1) In general.--The Secretary shall conduct a 
        study that examines variations in per capita spending 
        for covered part D drugs under part D of title XVIII of 
        the Social Security Act among PDP regions and, with 
        respect to such spending, the amount of such variation 
        that is attributable to--
                    (A) price variations (described in section 
                1860D-15(c)(2) of such Act); and
                    (B) differences in per capita utilization 
                that is not taken into account in the health 
                status risk adjustment provided under section 
                1860D-15(c)(1) of such Act.
            (2) Report and recommendations.--Not later than 
        January 1, 2009, the Secretary shall submit to Congress 
        a report on the study conducted under paragraph (1). 
        Such report shall include--
                    (A) information regarding the extent of 
                geographic variation described in paragraph 
                (1)(B);
                    (B) an analysis of the impact on direct 
                subsidies under section 1860D-15(a)(1) of the 
                Social Security Act in different PDP regions if 
                such subsidies were adjusted to take into 
                account the variation described in subparagraph 
                (A); and
                    (C) recommendations regarding the 
                appropriateness of applying an additional 
                geographic adjustment factor under section 
                1860D-15(c)(2) that reflects some or all of the 
                variation described in subparagraph (A).
    (b) Review and Report on Current Standards of Practice for 
Pharmacy Services Provided to Patients in Nursing Facilities.--
            (1) Review.--
                    (A) In general.--Not later than 12 months 
                after the date of the enactment of this Act, 
                the Secretary shall conduct a thorough review 
                of the current standards of practice for 
                pharmacy services provided to patients in 
                nursing facilities
                    (B) Specific matters reviewed.--In 
                conducting the review under subparagraph (A), 
                the Secretary shall--
                            (i) assess the current standards of 
                        practice, clinical services, and other 
                        service requirements generally used for 
                        pharmacy services in long-term care 
                        settings; and
                            (ii) evaluate the impact of those 
                        standards with respect to patient 
                        safety, reduction of medication errors 
                        and quality of care.
            (2) Report.--
                    (A) In general.--Not later than the date 
                that is 18 months after the date of the 
                enactment of this Act, the Secretary shall 
                submit a report to Congress on the study 
                conducted under paragraph (1)(A).
                    (B) Contents.--The report submitted under 
                subparagraph (A) shall contain--
                            (i) a description of the plans of 
                        the Secretary to implement the 
                        provisions of this Act in a manner 
                        consistent with applicable State and 
                        Federal laws designed to protect the 
                        safety and quality of care of nursing 
                        facility patients; and
                            (ii) recommendations regarding 
                        necessary actions and appropriate 
                        reimbursement to ensure the provision 
                        of prescription drugs to medicare 
                        beneficiaries residing in nursing 
                        facilities in a manner consistent with 
                        existing patient safety and quality of 
                        care standards under applicable State 
                        and Federal laws.
    (c) IOM Study on Drug Safety and Quality.--
            (1) In general.--The Secretary shall enter into a 
        contract with the Institutes of Medicine of the 
        National Academies of Science (such Institutes referred 
        to in this subsection as the ``IOM'') to carry out a 
        comprehensive study (in this subsection referred to as 
        the ``study'') of drug safety and quality issues in 
        order to provide a blueprint for system-wide change.
            (2) Objectives.--
                    (A) The study shall develop a full 
                understanding of drug safety and quality issues 
                through an evidence-based review of literature, 
                case studies, and analysis. This review will 
                consider the nature and causes of medication 
                errors, their impact on patients, the 
                differences in causation, impact, and 
                prevention across multiple dimensions of health 
                care delivery-including patient populations, 
                care settings, clinicians, and institutional 
                cultures.
                    (B) The study shall attempt to develop 
                credible estimates of the incidence, severity, 
                costs of medication errors that can be useful 
                in prioritizing resources for national quality 
                improvement efforts and influencing national 
                health care policy.
                    (C) The study shall evaluate alternative 
                approaches to reducing medication errors in 
                terms of their efficacy, cost-effectiveness, 
                appropriateness in different settings and 
                circumstances, feasibility, institutional 
                barriers to implementation, associated risks, 
                and the quality of evidence supporting the 
                approach.
                    (D) The study shall provide guidance to 
                consumers, providers, payers, and other key 
                stakeholders on high-priority strategies to 
                achieve both short-term and long-term drug 
                safety goals, to elucidate the goals and 
                expected results of such initiatives and 
                support the business case for them, and to 
                identify critical success factors and key 
                levers for achieving success.
                    (E) The study shall assess the 
                opportunities and key impediments to broad 
                nationwide implementation of medication error 
                reductions, and to provide guidance to policy-
                makers and government agencies (including the 
                Food and Drug Administration, the Centers for 
                Medicare & Medicaid Services, and the National 
                Institutes of Health) in promoting a national 
                agenda for medication error reduction.
                    (F) The study shall develop an applied 
                research agenda to evaluate the health and cost 
                impacts of alternative interventions, and to 
                assess collaborative public and private 
                strategies for implementing the research agenda 
                through AHRQ and other government agencies.
            (3) Conduct of study.--
                    (A) Expert committee.--In conducting the 
                study, the IOM shall convene a committee of 
                leading experts and key stakeholders in 
                pharmaceutical management and drug safety, 
                including clinicians, health services 
                researchers, pharmacists, system 
                administrators, payer representatives, and 
                others.
                    (B) Completion.--The study shall be 
                completed within an 18-month period.
            (4) Report.--A report on the study shall be 
        submitted to Congress upon the completion of the study.
            (5) Authorization of appropriations.--There are 
        authorized to be appropriated to carry out this section 
        such sums as may be necessary.
    (d) Study of Multi-year Contracts.--
            (1) In general.--The Secretary shall provide for a 
        study on the feasibility and advisability of providing 
        for contracting with PDP sponsors and MA organizations 
        under parts C and D of title XVIII on a multi-year 
        basis.
            (2) Report.--Not later than January 1, 2007, the 
        Secretary shall submit to Congress a report on the 
        study under paragraph (1). The report shall include 
        such recommendations as the Secretary deems 
        appropriate.
    (e) GAO Study Regarding Impact of Assets Test for Subsidy 
Eligible Individuals.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study to determine the extent to 
        which drug utilization and access to covered part D 
        drugs under part D of title XVIII of the Social 
        Security Act by subsidy eligible individuals differs 
        from such utilization and access for individuals who 
        would qualify as such subsidy eligible individuals but 
        for the application of section 1860D-14(a)(3)(A)(iii) 
        of such Act.
            (2) Report.--Not later than September 30, 2007, the 
        Comptroller General shall submit a report to Congress 
        on the study conducted under paragraph (1) that 
        includes such recommendations for legislation as the 
        Comptroller General determines are appropriate.
    (f) Study on Making Prescription Pharmaceutical Information 
Accessible for Blind and Visually-Impaired Individuals.--
            (1) Study.--
                    (A) In general.--The Secretary shall 
                undertake a study of how to make prescription 
                pharmaceutical information, including drug 
                labels and usage instructions, accessible to 
                blind and visually-impaired individuals.
                    (B) Study to include existing and emerging 
                technologies.--The study under subparagraph (A) 
                shall include a review of existing and emerging 
                technologies, including assistive technology, 
                that makes essential information on the content 
                and prescribed use of pharmaceutical medicines 
                available in a usable format for blind and 
                visually-impaired individuals.
            (2) Report.--
                    (A) In general.--Not later than 18 months 
                after the date of the enactment of this Act, 
                the Secretary shall submit a report to Congress 
                on the study required under paragraph (1).
                    (B) Contents of report.--The report 
                required under paragraph (1) shall include 
                recommendations for the implementation of 
                usable formats for making prescription 
                pharmaceutical information available to blind 
                and visually-impaired individuals and an 
                estimate of the costs associated with the 
                implementation of each format.

SEC. 108. GRANTS TO PHYSICIANS TO IMPLEMENT ELECTRONIC PRESCRIPTION 
                    DRUG PROGRAMS.

    (a) In General.--The Secretary is authorized to make grants 
to physicians for the purpose of assisting such physicians to 
implement electronic prescription drug programs that comply 
with the standards promulgated or modified under section 1860D-
4(e) of the Social Security Act, as inserted by section 101(a).
    (b) Awarding of Grants.--
            (1) Application.--No grant may be made under this 
        section except pursuant to a grant application that is 
        submitted and approved in a time, manner, and form 
        specified by the Secretary.
            (2) Considerations and preferences.--In awarding 
        grants under this section, the Secretary shall--
                    (A) give special consideration to 
                physicians who serve a disproportionate number 
                of medicare patients; and
                    (B) give preference to physicians who serve 
                a rural or underserved area.
            (3) Limitation on grants.--Only 1 grant may be 
        awarded under this section with respect to any 
        physician or group practice of physicians.
    (c) Terms and Conditions.--
            (1) In general.--Grants under this section shall be 
        made under such terms and conditions as the Secretary 
        specifies consistent with this section.
            (2) Use of grant funds.--Funds provided under 
        grants under this section may be used for any of the 
        following:
                    (A) For purchasing, leasing, and installing 
                computer software and hardware, including 
                handheld computer technologies.
                    (B) Making upgrades and other improvements 
                to existing computer software and hardware to 
                enable e-prescribing.
                    (C) Providing education and training to 
                eligible physician staff on the use of 
                technology to implement the electronic 
                transmission of prescription and patient 
                information.
            (3) Provision of information.--As a condition for 
        the awarding of a grant under this section, an 
        applicant shall provide to the Secretary such 
        information as the Secretary may require in order to--
                    (A) evaluate the project for which the 
                grant is made; and
                    (B) ensure that funding provided under the 
                grant is expended only for the purposes for 
                which it is made.
            (4) Audit.--The Secretary shall conduct appropriate 
        audits of grants under this section.
            (5) Matching requirement.--The applicant for a 
        grant under this section shall agree, with respect to 
        the costs to be incurred by the applicant in 
        implementing an electronic prescription drug program, 
        to make available (directly or through donations from 
        public or private entities) non-Federal contributions 
        toward such costs in an amount that is not less than 50 
        percent of such costs. Non-Federal contributions under 
        the previous sentence may be in cash or in kind, fairly 
        evaluated, including plant, equipment, or services. 
        Amounts provided by the Federal Government, or services 
        assisted or subsidized to any significant extent by the 
        Federal Government, may not be included in determining 
        the amount of such contributions.
    (d) Authorization of Appropriations.--There are authorized 
to be appropriated to carry out this section $50,000,000 for 
fiscal year 2007 and such sums as may be necessary for each of 
fiscal years 2008 and 2009.

SEC. 109. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT 
                    ORGANIZATIONS TO INCLUDE PARTS C AND D.

    (a) Application to Medicare Managed Care and Prescription 
Drug Coverage.--Section 1154(a)(1) (42 U.S.C. 1320c-3(a)(1)) is 
amended by inserting ``, to Medicare Advantage organizations 
pursuant to contracts under part C, and to prescription drug 
sponsors pursuant to contracts under part D'' after ``under 
section 1876''.
    (b) Prescription Drug Therapy Quality Improvement.--Section 
1154(a) (42 U.S.C. 1320c-3(a)) is amended by adding at the end 
the following new paragraph:
            ``(17) The organization shall execute its 
        responsibilities under subparagraphs (A) and (B) of 
        paragraph (1) by offering to providers, practitioners, 
        Medicare Advantage organizations offering Medicare 
        Advantage plans under part C, and prescription drug 
        sponsors offering prescription drug plans under part D 
        quality improvement assistance pertaining to 
        prescription drug therapy. For purposes of this part 
        and title XVIII, the functions described in this 
        paragraph shall be treated as a review function.''.
    (c) Effective Date.--The amendments made by this section 
shall apply on and after January 1, 2004.
    (d) IOM Study of QIOs.--
            (1) In general.--The Secretary shall request the 
        Institute of Medicine of the National Academy of 
        Sciences to conduct an evaluation of the program under 
        part B of title XI of the Social Security Act. The 
        study shall include a review of the following:
                    (A) An overview of the program under such 
                part.
                    (B) The duties of organizations with 
                contracts with the Secretary under such part.
                    (C) The extent to which quality improvement 
                organizations improve the quality of care for 
                medicare beneficiaries.
                    (D) The extent to which other entities 
                could perform such quality improvement 
                functions as well as, or better than, quality 
                improvement organizations.
                    (E) The effectiveness of reviews and other 
                actions conducted by such organizations in 
                carrying out those duties.
                    (F) The source and amount of funding for 
                such organizations.
                    (G) The conduct of oversight of such 
                organizations.
            (2) Report to congress.--Not later than June 1, 
        2006, the Secretary shall submit to Congress a report 
        on the results of the study described in paragraph (1), 
        including any recommendations for legislation.
            (3) Increased competition.--If the Secretary finds 
        based on the study conducted under paragraph (1) that 
        other entities could improve quality in the medicare 
        program as well as, or better than, the current quality 
        improvement organizations, then the Secretary shall 
        provide for such increased competition through the 
        addition of new types of entities which may perform 
        quality improvement functions.

SEC. 110. CONFLICT OF INTEREST STUDY.

    (a) Study.--The Federal Trade Commission shall conduct a 
study of differences in payment amounts for pharmacy services 
provided to enrollees in group health plans that utilize 
pharmacy benefit managers. Such study shall include the 
following:
            (1) An assessment of the differences in costs 
        incurred by such enrollees and plans for prescription 
        drugs dispensed by mail-order pharmacies owned by 
        pharmaceutical benefit managers compared to mail-order 
        pharmacies not owned by pharmaceutical benefit 
        managers, and community pharmacies.
            (2) Whether such plans are acting in a manner that 
        maximizes competition and results in lower prescription 
        drug prices for enrollees.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a). Such 
report shall include recommendations regarding any need for 
legislation to ensure the fiscal integrity of the voluntary 
prescription drug benefit program under part D of title XVIII, 
as added by section 101, that may be appropriated as the result 
of such study.
    (c) Exemption From Paperwork Reduction Act.--Chapter 35 of 
title 44, United States Code, shall not apply to the collection 
of information under subsection (a).

SEC. 111. STUDY ON EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.

    (a) Study.--The Comptroller General of the United States 
shall conduct an initial and final study under this subsection 
to examine trends in employment-based retiree health coverage 
(as defined in 1860D-22(c)(1) of the Social Security Act, as 
added by section 101), including coverage under the Federal 
Employees Health Benefits Program (FEHBP), and the options and 
incentives available under this Act which may have an effect on 
the voluntary provision of such coverage.
    (b) Content of Initial Study.--The initial study under this 
section shall consider the following:
            (1) Trends in employment-based retiree health 
        coverage prior to the date of the enactment of this 
        Act.
            (2) The opinions of sponsors of employment-based 
        retiree health coverage concerning which of the options 
        available under this Act they are most likely to 
        utilize for the provision of health coverage to their 
        medicare-eligible retirees, including an assessment of 
        the administrative burdens associated with the 
        available options.
            (3) The likelihood of sponsors of employment-based 
        retiree health coverage to maintain or adjust their 
        levels of retiree health benefits beyond coordination 
        with medicare, including for prescription drug 
        coverage, provided to medicare-eligible retirees after 
        the date of the enactment of this Act.
            (4) The factors that sponsors of employment-based 
        retiree health coverage expect to consider in making 
        decisions about any changes they may make in the health 
        coverage provided to medicare-eligible retirees.
            (5) Whether the prescription drug plan options 
        available, or the health plan options available under 
        the Medicare Advantage program, are likely to cause 
        employers and other entities that did not provide 
        health coverage to retirees prior to the date of the 
        enactment of this Act to provide supplemental coverage 
        or contributions toward premium expenses for medicare-
        eligible retirees who may enroll in such options in the 
        future.
    (c) Contents of Final Study.--The final study under this 
section shall consider the following:
            (1) Changes in the trends in employment-based 
        retiree health coverage since the completion of the 
        initial study by the Comptroller General.
            (2) Factors contributing to any changes in coverage 
        levels.
            (3) The number and characteristics of sponsors of 
        employment-based retiree health coverage who receive 
        the special subsidy payments under section 1860D-22 of 
        the Social Security Act, as added by section 101, for 
        the provision of prescription drug coverage to their 
        medicare-eligible retirees that is the same or greater 
        actuarial value as the prescription drug coverage 
        available to other medicare beneficiaries without 
        employment-based retiree health coverage.
            (4) The extent to which sponsors of employment-
        based retiree health coverage provide supplemental 
        health coverage or contribute to the premiums for 
        medicare-eligible retirees who enroll in a prescription 
        drug plan or an MA-PD plan.
            (5) Other coverage options, including tax-preferred 
        retirement or health savings accounts, consumer-
        directed health plans, or other vehicles that sponsors 
        of employment-based retiree health coverage believe 
        would assist retirees with their future health care 
        needs and their willingness to sponsor such alternative 
        plan designs.
            (6) The extent to which employers or other entities 
        that did not provide employment-based retiree health 
        coverage prior to the date of the enactment of this Act 
        provided some form of coverage or financial assistance 
        for retiree health care needs after the date of the 
        enactment of this Act.
            (7) Recommendations by employers, benefits experts, 
        academics, and others on ways that the voluntary 
        provision of employment-based retiree health coverage 
        may be improved and expanded.
    (d) Reports.--The Comptroller General shall submit a report 
to Congress on--
            (1) the initial study under subsection (b) not 
        later than 1 year after the date of the enactment of 
        this Act; and
            (2) the final study under subsection (c) not later 
        than January 1, 2007.
    (e) Consultation.--The Comptroller General shall consult 
with sponsors of employment-based retiree health coverage, 
benefits experts, human resources professionals, employee 
benefits consultants, and academics with experience in health 
benefits and survey research in the development and design of 
the initial and final studies under this section.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

    (a) In General.--There is hereby established the Medicare 
Advantage program. The Medicare Advantage program shall consist 
of the program under part C of title XVIII of the Social 
Security Act (as amended by this Act).
    (b) References.--Subject to subsection (c), any reference 
to the program under part C of title XVIII of the Social 
Security Act shall be deemed a reference to the Medicare 
Advantage program and, with respect to such part, any reference 
to ``Medicare+Choice'' is deemed a reference to ``Medicare 
Advantage'' and ``MA''.
    (c) Transition.--In order to provide for an orderly 
transition and avoid beneficiary and provider confusion, the 
Secretary shall provide for an appropriate transition in the 
use of the terms ``Medicare+Choice'' and ``Medicare Advantage'' 
(or ``MA'') in reference to the program under part C of title 
XVIII of the Social Security Act. Such transition shall be 
fully completed for all materials for plan years beginning not 
later than January 1, 2006. Before the completion of such 
transition, any reference to ``Medicare Advantage'' or ``MA'' 
shall be deemed to include a reference to ``Medicare+Choice''.

                   Subtitle B--Immediate Improvements

SEC. 211. IMMEDIATE IMPROVEMENTS.

    (a) Equalizing Payments With Fee-for-Service.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 
        1395w-23(c)(1)) is amended by adding at the end the 
        following:
                    ``(D) 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For each year 
                        specified in clause (ii), the adjusted 
                        average per capita cost for the year 
                        involved, determined under section 
                        1876(a)(4) and adjusted as appropriate 
                        for the purpose of risk adjustment, for 
                        the MA payment area for individuals who 
                        are not enrolled in an MA plan under 
                        this part for the year, but adjusted to 
                        exclude costs attributable to payments 
                        under section 1886(h).
                            ``(ii) Periodic rebasing.--The 
                        provisions of clause (i) shall apply 
                        for 2004 and for subsequent years as 
                        the Secretary shall specify (but not 
                        less than once every 3 years).
                            ``(iii) Inclusion of costs of va 
                        and dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Defense or the 
                        Department of Veterans Affairs.''.
            (2) Conforming amendment.--Such section is further 
        amended, in the matter before subparagraph (A), by 
        striking ``or (C)'' and inserting ``(C), or (D)''.
    (b) Change in Budget Neutrality for Blend.--Section 1853(c) 
(42 U.S.C. 1395w-23(c)) is amended--
            (1) in paragraph (1)(A), by inserting ``(for a year 
        other than 2004)'' after ``multiplied''; and
            (2) in paragraph (5), by inserting ``(other than 
        2004)'' after ``for each year''.
    (c) Increasing Minimum Percentage Increase to National 
Growth Rate.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 
        1395w-23(c)(1)) is amended--
                    (A) in subparagraph (A), by striking ``The 
                sum'' and inserting ``For a year before 2005, 
                the sum'';
                    (B) in subparagraph (B)(iv), by striking 
                ``and each succeeding year'' and inserting ``, 
                2003, and 2004'';
                    (C) in subparagraph (C)(iv), by striking 
                ``and each succeeding year'' and inserting 
                ``and 2003''; and
                    (D) by adding at the end of subparagraph 
                (C) the following new clause:
                            ``(v) For 2004 and each succeeding 
                        year, the greater of--
                                    ``(I) 102 percent of the 
                                annual MA capitation rate under 
                                this paragraph for the area for 
                                the previous year; or
                                    ``(II) the annual MA 
                                capitation rate under this 
                                paragraph for the area for the 
                                previous year increased by the 
                                national per capita MA growth 
                                percentage, described in 
                                paragraph (6) for that 
                                succeeding year, but not taking 
                                into account any adjustment 
                                under paragraph (6)(C) for a 
                                year before 2004.''.
            (2) Conforming amendment.--Section 1853(c)(6)(C) 
        (42 U.S.C. 1395w-23(c)(6)(C)) is amended by inserting 
        before the period at the end the following: ``, except 
        that for purposes of paragraph (1)(C)(v)(II), no such 
        adjustment shall be made for a year before 2004''.
    (d) Inclusion of Costs of DOD and VA Military Facility 
Services to Medicare-Eligible Beneficiaries in Calculation of 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) 
is amended--
            (1) in subparagraph (A), by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (E)''; and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(E) Inclusion of costs of dod and va 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific MA capitation rate under subparagraph 
                (A) for a year (beginning with 2004), the 
                annual per capita rate of payment for 1997 
                determined under section 1876(a)(1)(C) shall be 
                adjusted to include in the rate the Secretary's 
                estimate, on a per capita basis, of the amount 
                of additional payments that would have been 
                made in the area involved under this title if 
                individuals entitled to benefits under this 
                title had not received services from facilities 
                of the Department of Defense or the Department 
                of Veterans Affairs.''.
    (e) Extending Special Rule for Certain Inpatient Hospital 
Stays to Rehabilitation Hospitals and Long-Term Care 
Hospitals.--
            (1) In general.--Section 1853(g) (42 U.S.C. 1395w-
        23(g)) is amended--
                    (A) in the matter preceding paragraph (1), 
                by inserting ``, a rehabilitation hospital 
                described in section 1886(d)(1)(B)(ii) or a 
                distinct part rehabilitation unit described in 
                the matter following clause (v) of section 
                1886(d)(1)(B), or a long-term care hospital 
                (described in section 1886(d)(1)(B)(iv))'' 
                after ``1886(d)(1)(B))''; and
                    (B) in paragraph (2)(B), by inserting ``or 
                other payment provision under this title for 
                inpatient services for the type of facility, 
                hospital, or unit involved, described in the 
                matter preceding paragraph (1), as the case may 
                be,'' after ``1886(d)''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to contract years beginning 
        on or after January 1, 2004.
    (f) MedPAC Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory 
        Commission shall conduct a study that assesses the 
        method used for determining the adjusted average per 
        capita cost (AAPCC) under section 1876(a)(4) of the 
        Social Security Act (42 U.S.C. 1395mm(a)(4)) as applied 
        under section 1853(c)(1)(A) of such Act (as amended by 
        subsection (a)). Such study shall include an 
        examination of--
                    (A) the bases for variation in such costs 
                between different areas, including differences 
                in input prices, utilization, and practice 
                patterns;
                    (B) the appropriate geographic area for 
                payment of MA local plans under the Medicare 
                Advantage program under part C of title XVIII 
                of such Act; and
                    (C) the accuracy of risk adjustment methods 
                in reflecting differences in costs of providing 
                care to different groups of beneficiaries 
                served under such program.
            (2) Report.--Not later than 18 months after the 
        date of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1).
    (g) Report on Impact of Increased Financial Assistance to 
Medicare Advantage Plans.--Not later than July 1, 2006, the 
Secretary shall submit to Congress a report that describes the 
impact of additional financing provided under this Act and 
other Acts (including the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999 and BIPA) on the 
availability of Medicare Advantage plans in different areas and 
its impact on lowering premiums and increasing benefits under 
such plans.
    (h) MedPAC Study and Report on Clarification of Authority 
Regarding Disapproval of Unreasonable Beneficiary Cost-
Sharing.--
            (1) Study.--The Medicare Payment Advisory 
        Commission, in consultation with beneficiaries, 
        consumer groups, employers, and organizations offering 
        plans under part C of title XVIII of the Social 
        Security Act, shall conduct a study to determine the 
        extent to which the cost-sharing structures under such 
        plans affect access to covered services or select 
        enrollees based on the health status of eligible 
        individuals described in section 1851(a)(3) of the 
        Social Security Act (42 U.S.C. 1395w-21(a)(3)).
            (2) Report.--Not later than December 31, 2004, the 
        Commission shall submit a report to Congress on the 
        study conducted under paragraph (1) together with 
        recommendations for such legislation and administrative 
        actions as the Commission considers appropriate.
    (i) Implementation of Provisions.--
            (1) Announcement of revised medicare advantage 
        payment rates.--Within 6 weeks after the date of the 
        enactment of this Act, the Secretary shall determine, 
        and shall announce (in a manner intended to provide 
        notice to interested parties) MA capitation rates under 
        section 1853 of the Social Security Act (42 U.S.C. 
        1395w-23) for 2004, revised in accordance with the 
        provisions of this section.
            (2) Transition to revised payment rates.--The 
        provisions of section 604 of BIPA (114 Stat. 2763A-555) 
        (other than subsection (a)) shall apply to the 
        provisions of subsections (a) through (d) of this 
        section for 2004 in the same manner as the provisions 
        of such section 604 applied to the provisions of BIPA 
        for 2001.
            (3) Special rule for payment rates in 2004.--
                    (A) January and february.--Notwithstanding 
                the amendments made by subsections (a) through 
                (d), for purposes of making payments under 
                section 1853 of the Social Security Act (42 
                U.S.C. 1395w-23) for January and February 2004, 
                the annual capitation rate for a payment area 
                shall be calculated and the excess amount under 
                section 1854(f)(1)(B) of such Act (42 U.S.C. 
                1395w-24(f)(1)(B)) shall be determined as if 
                such amendments had not been enacted.
                    (B) March through december.--
                Notwithstanding the amendments made by 
                subsections (a) through (d), for purposes of 
                making payments under section 1853 of the 
                Social Security Act (42 U.S.C. 1395w-23) for 
                March through December 2004, the annual 
                capitation rate for a payment area shall be 
                calculated and the excess amount under section 
                1854(f)(1)(B) of such Act (42 U.S.C. 1395w-
                24(f)(1)(B)) shall be determined, in such 
                manner as the Secretary estimates will ensure 
                that the total of such payments with respect to 
                2004 is the same as the amounts that would have 
                been if subparagraph (A) had not been enacted.
                    (C) Construction.--Subparagraphs (A) and 
                (B) shall not be taken into account in 
                computing such capitation rate for 2005 and 
                subsequent years.
            (4) Plans required to provide notice of changes in 
        plan benefits.--In the case of an organization offering 
        a plan under part C of title XVIII of the Social 
        Security Act that revises its submission of the 
        information described in section 1854(a)(1) of such Act 
        (42 U.S.C. 1395w-23(a)(1)) for a plan pursuant to the 
        application of paragraph (2), if such revision results 
        in changes in beneficiary premiums, beneficiary cost-
        sharing, or benefits under the plan, then by not later 
        than 3 weeks after the date the Secretary approves such 
        submission, the organization offering the plan shall 
        provide each beneficiary enrolled in the plan with 
        written notice of such changes.
            (5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        section 1878 of the Social Security Act (42 U.S.C. 
        1395ff and 1395oo), or otherwise of any determination 
        made by the Secretary under this subsection or the 
        application of the payment rates determined pursuant to 
        this subsection.
    (j) Additional Amendments.--Section 1852(d)(4) (42 U.S.C. 
1395w-22(d)(4)) is amended--
            (1) in subparagraph (B), by inserting ``(other than 
        deemed contracts or agreements under subsection 
        (j)(6))'' after ``the plan has contracts or 
        agreements''; and
            (2) in the last sentence, by inserting before the 
        period at the end the following: ``, except that, if a 
        plan entirely meets such requirement with respect to a 
        category of health care professional or provider on the 
        basis of subparagraph (B), it may provide for a higher 
        beneficiary copayment in the case of health care 
        professionals and providers of that category who do not 
        have contracts or agreements (other than deemed 
        contracts or agreements under subsection (j)(6)) to 
        provide covered services under the terms of the plan''.

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

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

    (a) Offering of MA Regional Plans.--
            (1) In general.--Section 1851(a)(2)(A) is amended--
                    (A) by striking ``Coordinated care plans.--
                Coordinated'' and inserting the following: 
                ``Coordinated care plans (including regional 
                plans).--
                            ``(i) In general.--Coordinated'';
                    (B) by inserting ``regional or local'' 
                before ``preferred provider organization 
                plans''; and
                    (C) by inserting `` (including MA regional 
                plans)'' after ``preferred provider 
                organization plans''.
            (2) Moratorium on new local preferred provider 
        organization plans.--The Secretary shall not permit the 
        offering of a local preferred provider organization 
        plan under part C of title XVIII of the Social Security 
        Act during 2006 or 2007 in a service area unless such 
        plan was offered under such part (including under a 
        demonstration project under such part) in such area as 
        of December 31, 2005.
    (b) Definition of MA Regional Plan; MA Local Plan.--
            (1) In general.--Section 1859(b) (42 U.S.C. 1395w-
        29(b)) is amended by adding at the end the following 
        new paragraphs:
            ``(4) MA regional plan.--The term `MA regional 
        plan' means an MA plan described in section 
        1851(a)(2)(A)(i)--
                    ``(A) that has a network of providers that 
                have agreed to a contractually specified 
                reimbursement for covered benefits with the 
                organization offering the plan;
                    ``(B) that provides for reimbursement for 
                all covered benefits regardless of whether such 
                benefits are provided within such network of 
                providers; and
                    ``(C) the service area of which is one or 
                more entire MA regions.
            ``(5) MA local plan.--The term `MA local plan' 
        means an MA plan that is not an MA regional plan.''.
            (2) Construction.--Nothing in part C of title XVIII 
        of the Social Security Act shall be construed as 
        preventing an MSA plan or MA private fee-for-service 
        plan from having a service area that covers one or more 
        MA regions or the entire nation.
    (c) Rules for MA Regional Plans.--Part C of title XVIII (42 
U.S.C. 1395w-21 et seq.) is amended by inserting after section 
1857 the following new section:

                 ``SPECIAL RULES FOR MA REGIONAL PLANS

    ``Sec. 1858. (a) Regional Service Area; Establishment of MA 
Regions.--
            ``(1) Coverage of entire ma region.--The service 
        area for an MA regional plan shall consist of an entire 
        MA region established under paragraph (2) and the 
        provisions of section 1854(h) shall not apply to such a 
        plan.
            ``(2) Establishment of ma regions.--
                    ``(A) MA region.--For purposes of this 
                title, the term `MA region' means such a region 
                within the 50 States and the District of 
                Columbia as established by the Secretary under 
                this paragraph.
                    ``(B) Establishment.--
                            ``(i) Initial establishment.--Not 
                        later than January 1, 2005, the 
                        Secretary shall first establish and 
                        publish MA regions.
                            ``(ii) Periodic review and revision 
                        of service areas.--The Secretary may 
                        periodically review MA regions under 
                        this paragraph and, based on such 
                        review, may revise such regions if the 
                        Secretary determines such revision to 
                        be appropriate.
                    ``(C) Requirements for ma regions.--The 
                Secretary shall establish, and may revise, MA 
                regions under this paragraph in a manner 
                consistent with the following:
                            ``(i) Number of regions.--There 
                        shall be no fewer than 10 regions, and 
                        no more than 50 regions.
                            ``(ii) Maximizing availability of 
                        plans.--The regions shall maximize the 
                        availability of MA regional plans to 
                        all MA eligible individuals without 
                        regard to health status, especially 
                        those residing in rural areas.
                    ``(D) Market survey and analysis.--Before 
                establishing MA regions, the Secretary shall 
                conduct a market survey and analysis, including 
                an examination of current insurance markets, to 
                determine how the regions should be 
                established.
            ``(3) National plan.--Nothing in this subsection 
        shall be construed as preventing an MA regional plan 
        from being offered in more than one MA region 
        (including all regions).
    ``(b) Application of Single Deductible and Catastrophic 
Limit on Out-of-Pocket Expenses.--An MA regional plan shall 
include the following:
            ``(1) Single deductible.--Any deductible for 
        benefits under the original medicare fee-for-service 
        program option shall be a single deductible (instead of 
        a separate inpatient hospital deductible and a part B 
        deductible) and may be applied differentially for in-
        network services and may be waived for preventive or 
        other items and services.
            ``(2) Catastrophic limit.--
                    ``(A) In-network.--A catastrophic limit on 
                out-of-pocket expenditures for in-network 
                benefits under the original medicare fee-for-
                service program option.
                    ``(B) Total.--A catastrophic limit on out-
                of-pocket expenditures for all benefits under 
                the original medicare fee-for-service program 
                option.
    ``(c) Portion of Total Payments to an Organization Subject 
to Risk for 2006 and 2007.--
            ``(1) Application of risk corridors.--
                    ``(A) In general.--This subsection shall 
                only apply to MA regional plans offered during 
                2006 or 2007.
                    ``(B) Notification of allowable costs under 
                the plan.--In the case of an MA organization 
                that offers an MA regional plan in an MA region 
                in 2006 or 2007, the organization shall notify 
                the Secretary, before such date in the 
                succeeding year as the Secretary specifies, 
                of--
                            ``(i) its total amount of costs 
                        that the organization incurred in 
                        providing benefits covered under the 
                        original medicare fee-for-service 
                        program option for all enrollees under 
                        the plan in the region in the year and 
                        the portion of such costs that is 
                        attributable to administrative expenses 
                        described in subparagraph (C); and
                            ``(ii) its total amount of costs 
                        that the organization incurred in 
                        providing rebatable integrated benefits 
                        (as defined in subparagraph (D)) and 
                        with respect to such benefits the 
                        portion of such costs that is 
                        attributable to administrative expenses 
                        described in subparagraph (C) and not 
                        described in clause (i) of this 
                        subparagraph.
                    ``(C) Allowable costs defined.--For 
                purposes of this subsection, the term 
                `allowable costs' means, with respect to an MA 
                regional plan for a year, the total amount of 
                costs described in subparagraph (B) for the 
                plan and year, reduced by the portion of such 
                costs attributable to administrative expenses 
                incurred in providing the benefits described in 
                such subparagraph.
                    ``(D) Rebatable integrated benefits.--For 
                purposes of this subsection, the term 
                `rebatable integrated benefits' means such non-
                drug supplemental benefits under subclause (I) 
                of section 1854(b)(1)(C)(ii) pursuant to a 
                rebate under such section that the Secretary 
                determines are integrated with the benefits 
                described in subparagraph (B)(i).
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if allowable costs 
                within 3 percent of target amount.--If the 
                allowable costs for the plan for the year are 
                at least 97 percent, but do not exceed 103 
                percent, of the target amount for the plan and 
                year, there shall be no payment adjustment 
                under this subsection for the plan and year.
                    ``(B) Increase in payment if allowable 
                costs above 103 percent of target amount.--
                            ``(i) Costs between 103 and 108 
                        percent of target amount.--If the 
                        allowable costs for the plan for the 
                        year are greater than 103 percent, but 
                        not greater than 108 percent, of the 
                        target amount for the plan and year, 
                        the Secretary shall increase the total 
                        of the monthly payments made to the 
                        organization offering the plan for the 
                        year under section 1853(a) by an amount 
                        equal to 50 percent of the difference 
                        between such allowable costs and 103 
                        percent of such target amount.
                            ``(ii) Costs above 108 percent of 
                        target amount.--If the allowable costs 
                        for the plan for the year are greater 
                        than 108 percent of the target amount 
                        for the plan and year, the Secretary 
                        shall increase the total of the monthly 
                        payments made to the organization 
                        offering the plan for the year under 
                        section 1853(a) by an amount equal to 
                        the sum of--
                                    ``(I) 2.5 percent of such 
                                target amount; and
                                    ``(II) 80 percent of the 
                                difference between such 
                                allowable costs and 108 percent 
                                of such target amount.
                    ``(C) Reduction in payment if allowable 
                costs below 97 percent of target amount.--
                            ``(i) Costs between 92 and 97 
                        percent of target amount.--If the 
                        allowable costs for the plan for the 
                        year are less than 97 percent, but 
                        greater than or equal to 92 percent, of 
                        the target amount for the plan and 
                        year, the Secretary shall reduce the 
                        total of the monthly payments made to 
                        the organization offering the plan for 
                        the year under section 1853(a) by an 
                        amount (or otherwise recover from the 
                        plan an amount) equal to 50 percent of 
                        the difference between 97 percent of 
                        the target amount and such allowable 
                        costs.
                            ``(ii) Costs below 92 percent of 
                        target amount.--If the allowable costs 
                        for the plan for the year are less than 
                        92 percent of the target amount for the 
                        plan and year, the Secretary shall 
                        reduce the total of the monthly 
                        payments made to the organization 
                        offering the plan for the year under 
                        section 1853(a) by an amount (or 
                        otherwise recover from the plan an 
                        amount) equal to the sum of--
                                    ``(I) 2.5 percent of such 
                                target amount; and
                                    ``(II) 80 percent of the 
                                difference between 92 percent 
                                of such target amount and such 
                                allowable costs.
                    ``(D) Target amount described.--For 
                purposes of this paragraph, the term `target 
                amount' means, with respect to an MA regional 
                plan offered by an organization in a year, an 
                amount equal to--
                            ``(i) the sum of--
                                    ``(I) the total monthly 
                                payments made to the 
                                organization for enrollees in 
                                the plan for the year that are 
                                attributable to benefits under 
                                the original medicare fee-for-
                                service program option (as 
                                defined in section 
                                1852(a)(1)(B));
                                    ``(II) the total of the MA 
                                monthly basic beneficiary 
                                premium collectable for such 
                                enrollees for the year; and
                                    ``(III) the total amount of 
                                the rebates under section 
                                1854(b)(1)(C)(ii) that are 
                                attributable to rebatable 
                                integrated benefits; reduced by
                            ``(ii) the amount of administrative 
                        expenses assumed in the bid insofar as 
                        the bid is attributable to benefits 
                        described in clause (i)(I) or (i)(III).
            ``(3) Disclosure of information.--
                    ``(A) In general.--Each contract under this 
                part shall provide--
                            ``(i) that an MA organization 
                        offering an MA regional plan shall 
                        provide the Secretary with such 
                        information as the Secretary determines 
                        is necessary to carry out this 
                        subsection; and
                            ``(ii) that, pursuant to section 
                        1857(d)(2)(B), the Secretary has the 
                        right to inspect and audit any books 
                        and records of the organization that 
                        pertain to the information regarding 
                        costs provided to the Secretary under 
                        paragraph (1)(B).
                    ``(B) Restriction on use of information.--
                Information disclosed or obtained pursuant to 
                the provisions of this subsection may be used 
                by officers, employees, and contractors of the 
                Department of Health and Human Services only 
                for the purposes of, and to the extent 
                necessary in, carrying out this subsection.
    ``(d) Organizational and Financial Requirements.--
            ``(1) In general.--In the case of an MA 
        organization that is offering an MA regional plan in an 
        MA region and--
                    ``(A) meets the requirements of section 
                1855(a)(1) with respect to at least one such 
                State in such region; and
                    ``(B) with respect to each other State in 
                such region in which it does not meet 
                requirements, it demonstrates to the 
                satisfaction of the Secretary that it has filed 
                the necessary application to meet such 
                requirements,

        the Secretary may waive such requirement with respect 
        to each State described in subparagraph (B) for such 
        period of time as the Secretary determines appropriate 
        for the timely processing of such an application by the 
        State (and, if such application is denied, through the 
        end of such plan year as the Secretary determines 
        appropriate to provide for a transition).
            ``(2) Selection of appropriate state.--In applying 
        paragraph (1) in the case of an MA organization that 
        meets the requirements of section 1855(a)(1) with 
        respect to more than one State in a region, the 
        organization shall select, in a manner specified by the 
        Secretary among such States, one State the rules of 
        which shall apply in the case of the States described 
        in paragraph (1)(B).
    ``(e) Stabilization Fund.--
            ``(1) Establishment.--The Secretary shall establish 
        under this subsection an MA Regional Plan Stabilization 
        Fund (in this subsection referred to as the `Fund') 
        which shall be available for 2 purposes:
                    ``(A) Plan entry.--To provide incentives to 
                have MA regional plans offered in each MA 
                region under paragraph (3).
                    ``(B) Plan retention.--To provide 
                incentives to retain MA regional plans in 
                certain MA regions with below-national-average 
                MA market penetration under paragraph (4).
            ``(2) Funding.--
                    ``(A) Initial funding.--
                            ``(i) In general.--There shall be 
                        available to the Fund, for expenditures 
                        from the Fund during the period 
                        beginning on January 1, 2007, and 
                        ending on December 31, 2013, a total of 
                        $10,000,000,000.
                            ``(ii) Payment from trust funds.--
                        Such amount shall be available to the 
                        Fund, as expenditures are made from the 
                        Fund, from the Federal Hospital 
                        Insurance Trust Fund and the Federal 
                        Supplementary Medical Insurance Trust 
                        Fund in the proportion specified in 
                        section 1853(f).
                    ``(B) Additional funding from savings.--
                            ``(i) In general.--There shall also 
                        be made available to the Fund, 50 
                        percent of savings described in clause 
                        (ii).
                            ``(ii) Savings.--The savings 
                        described in this clause are 25 percent 
                        of the average per capita savings 
                        described in section 1854(b)(4)(C) for 
                        which monthly rebates are provided 
                        under section 1854(b)(1)(C) in the 
                        fiscal year involved that are 
                        attributable to MA regional plans.
                            ``(iii) Availability.--Funds made 
                        available under this subparagraph shall 
                        be transferred into a special account 
                        in the Treasury from the Federal 
                        Hospital Insurance Trust Fund and the 
                        Federal Supplementary Medical Insurance 
                        Trust Fund in the proportion specified 
                        in section 1853(f) on a monthly basis.
                    ``(C) Obligations.--Amounts in the Fund 
                shall be available in advance of appropriations 
                to MA regional plans in qualifying MA regions 
                only in accordance with paragraph (5).
                    ``(D) Ordering.--Expenditures from the Fund 
                shall first be made from amounts made available 
                under subparagraph (A).
            ``(3) Plan entry funding.--
                    ``(A) In general.--Funding is available 
                under this paragraph for a year only as 
                follows:
                            ``(i) National plan.--For a 
                        national bonus payment described in 
                        subparagraph (B) for the offering by a 
                        single MA organization of an MA 
                        regional plan in each MA region in the 
                        year, but only if there was not such a 
                        plan offered in each such region in the 
                        previous year. Funding under this 
                        clause is only available with respect 
                        to any individual MA organization for a 
                        single year, but may be made available 
                        to more than one such organization in 
                        the same year.
                            ``(ii) Regional plans.--Subject to 
                        clause (iii), for an increased amount 
                        under subparagraph (C) for an MA 
                        regional plan offered in an MA region 
                        which did not have any MA regional plan 
                        offered in the prior year.
                            ``(iii) Limitation on regional plan 
                        funding in case of national plan.--In 
                        no case shall there be any payment 
                        adjustment under subparagraph (C) for a 
                        year for which a national payment 
                        adjustment is made under subparagraph 
                        (B).
                    ``(B) National bonus payment.--The national 
                bonus payment under this subparagraph shall--
                            ``(i) be available to an MA 
                        organization only if the organization 
                        offers MA regional plans in every MA 
                        region;
                            ``(ii) be available with respect to 
                        all MA regional plans of the 
                        organization regardless of whether any 
                        other MA regional plan is offered in 
                        any region; and
                            ``(iii) subject to amounts 
                        available under paragraph (5) for a 
                        year, be equal to 3 percent of the 
                        benchmark amount otherwise applicable 
                        for each MA regional plan offered by 
                        the organization.
                    ``(C) Regional payment adjustment.--
                            ``(i) In general.--The increased 
                        amount under this subparagraph for an 
                        MA regional plan in an MA region for a 
                        year shall be an amount, determined by 
                        the Secretary, based on the bid 
                        submitted for such plan (or plans) and 
                        shall be available to all MA regional 
                        plans offered in such region and year. 
                        Such amount may be based on the mean, 
                        mode, or median, or other measure of 
                        such bids and may vary from region to 
                        region. The Secretary may not limit the 
                        number of plans or bids in a region.
                            ``(ii) Multi-year funding.--
                                    ``(I) In general.--Subject 
                                to amounts available under 
                                paragraph (5), funding under 
                                this subparagraph shall be 
                                available for a period 
                                determined by the Secretary.
                                    ``(II) Report.--If the 
                                Secretary determines that 
                                funding will be provided for a 
                                second consecutive year with 
                                respect to an MA region, the 
                                Secretary shall submit to the 
                                Congress a report that 
                                describes the underlying market 
                                dynamics in the region and that 
                                includes recommendations 
                                concerning changes in the 
                                payment methodology otherwise 
                                provided for MA regional plans 
                                under this part.
                            ``(iii) Application to all plans in 
                        a region.--Funding under this 
                        subparagraph with respect to an MA 
                        region shall be made available with 
                        respect to all MA regional plans 
                        offered in the region.
                            ``(iv) Limitation on availability 
                        of plan retention funding in next 
                        year.--If an increased amount is made 
                        available under this subparagraph with 
                        respect to an MA region for a period 
                        determined by the Secretary under 
                        clause (ii)(I), in no case shall 
                        funding be available under paragraph 
                        (4) with respect to MA regional plans 
                        offered in the region in the year 
                        following such period.
                    ``(D) Application.--Any additional payment 
                under this paragraph provided for an MA 
                regional plan for a year shall be treated as if 
                it were an addition to the benchmark amount 
                otherwise applicable to such plan and year, but 
                shall not be taken into account in the 
                computation of any benchmark amount for any 
                subsequent year.
            ``(4) Plan retention funding.--
                    ``(A) In general.--Funding is available 
                under this paragraph for a year with respect to 
                MA regional plans offered in an MA region for 
                the increased amount specified in subparagraph 
                (B) but only if the region meets the 
                requirements of subparagraphs (C) and (E).
                    ``(B) Payment increase.--The increased 
                amount under this subparagraph for an MA 
                regional plan in an MA region for a year shall 
                be an amount, determined by the Secretary, that 
                does not exceed the greater of--
                            ``(i) 3 percent of the benchmark 
                        amount applicable in the region; or
                            ``(ii) such amount as (when added 
                        to the benchmark amount applicable to 
                        the region) will result in the ratio 
                        of--
                                    ``(I) such additional 
                                amount plus the benchmark 
                                amount computed under section 
                                1854(b)(4)(B)(i) for the region 
                                and year, to the adjusted 
                                average per capita cost for the 
                                region and year, as estimated 
                                by the Secretary under section 
                                1876(a)(4) and adjusted as 
                                appropriate for the purpose of 
                                risk adjustment; being equal to
                                    ``(II) the weighted average 
                                of such benchmark amounts for 
                                all the regions and such year, 
                                to the average per capita cost 
                                for the United States and such 
                                year, as estimated by the 
                                Secretary under section 
                                1876(a)(4) and adjusted as 
                                appropriate for the purpose of 
                                risk adjustment.
                    ``(C) Regional requirements.--The 
                requirements of this subparagraph for an MA 
                region for a year are as follows:
                            ``(i) Notification of plan exit.--
                        The Secretary has received notice (in 
                        such form and manner as the Secretary 
                        specifies) before a year that one or 
                        more MA regional plans that were 
                        offered in the region in the previous 
                        year will not be offered in the 
                        succeeding year.
                            ``(ii) Regional plans available 
                        from fewer than 2 ma organizations in 
                        the region.--The Secretary determines 
                        that if the plans referred to in clause 
                        (i) are not offered in the year, fewer 
                        than 2 MA organizations will be 
                        offering MA regional plans in the 
                        region in the year involved.
                            ``(iii) Percentage enrollment in ma 
                        regional plans below national 
                        average.--For the previous year, the 
                        Secretary determines that the average 
                        percentage of MA eligible individuals 
                        residing in the region who are enrolled 
                        in MA regional plans is less than the 
                        average percentage of such individuals 
                        in the United States enrolled in such 
                        plans.
                    ``(D) Application.--Any additional payment 
                under this paragraph provided for an MA 
                regional plan for a year shall be treated as if 
                it were an addition to the benchmark amount 
                otherwise applicable to such plan and year, but 
                shall not be taken into account in the 
                computation of any benchmark amount for any 
                subsequent year.
                    ``(E) 2-consecutive-year limitation.--
                            ``(i) In general.--In no case shall 
                        any funding be available under this 
                        paragraph in an MA region in a period 
                        of consecutive years that exceeds 2 
                        years.
                            ``(ii) Report.--If the Secretary 
                        determines that funding will be 
                        provided under this paragraph for a 
                        second consecutive year with respect to 
                        an MA region, the Secretary shall 
                        submit to the Congress a report that 
                        describes the underlying market 
                        dynamics in the region and that 
                        includes recommendations concerning 
                        changes in the payment methodology 
                        otherwise provided for MA regional 
                        plans under this part.
            ``(5) Funding limitation.--
                    ``(A) In general.--The total amount 
                expended from the Fund as a result of the 
                application of this subsection through the end 
                of a calendar year may not exceed the amount 
                available to the Fund as of the first day of 
                such year. For purposes of this subsection, 
                amounts that are expended under this title 
                insofar as such amounts would not have been 
                expended but for the application of this 
                subsection shall be counted as amounts expended 
                as a result of such application.
                    ``(B) Application of limitation.--The 
                Secretary may obligate funds from the Fund for 
                a year only if the Secretary determines (and 
                the Chief Actuary of the Centers for Medicare & 
                Medicaid Services and the appropriate budget 
                officer certify) that there are available in 
                the Fund at the beginning of the year 
                sufficient amounts to cover all such 
                obligations incurred during the year consistent 
                with subparagraph (A). The Secretary shall take 
                such steps, in connection with computing 
                additional payment amounts under paragraphs (3) 
                and (4) and including limitations on enrollment 
                in MA regional plans receiving such payments, 
                as will ensure that sufficient funds are 
                available to make such payments for the entire 
                year. Funds shall only be made available from 
                the Fund pursuant to an apportionment made in 
                accordance with applicable procedures.
            ``(6) Secretary reports.--Not later than April 1 of 
        each year (beginning in 2008), the Secretary shall 
        submit a report to Congress and the Comptroller General 
        of the United States that includes--
                    ``(A) a detailed description of--
                            ``(i) the total amount expended as 
                        a result of the application of this 
                        subsection in the previous year 
                        compared to the total amount that would 
                        have been expended under this title in 
                        the year if this subsection had not 
                        been enacted;
                            ``(ii) the projections of the total 
                        amount that will be expended as a 
                        result of the application of this 
                        subsection in the year in which the 
                        report is submitted compared to the 
                        total amount that would have been 
                        expended under this title in the year 
                        if this subsection had not been 
                        enacted;
                            ``(iii) amounts remaining within 
                        the funding limitation specified in 
                        paragraph (5); and
                            ``(iv) the steps that the Secretary 
                        will take under paragraph (5)(B) to 
                        ensure that the application of this 
                        subsection will not cause expenditures 
                        to exceed the amount available in the 
                        Fund; and
                    ``(B) a certification from the Chief 
                Actuary of the Centers for Medicare & Medicaid 
                Services that the description provided under 
                subparagraph (A) is reasonable, accurate, and 
                based on generally accepted actuarial 
                principles and methodologies.
            ``(7) Biennial gao reports.--Not later than January 
        1 of 2009, 2011, 2013, and 2015, the Comptroller 
        General of the United States shall submit to the 
        Secretary and Congress a report on the application of 
        additional payments under this subsection. Each report 
        shall include--
                    ``(A) an evaluation of--
                            ``(i) the quality of care provided 
                        to individuals enrolled in MA regional 
                        plans for which additional payments 
                        were made under this subsection;
                            ``(ii) the satisfaction of such 
                        individuals with benefits under such a 
                        plan;
                            ``(iii) the costs to the medicare 
                        program for payments made to such 
                        plans; and
                            ``(iv) any improvements in the 
                        delivery of health care services under 
                        such a plan;
                    ``(B) a comparative analysis of the 
                performance of MA regional plans receiving 
                payments under this subsection with MA regional 
                plans not receiving such payments; and
                    ``(C) recommendations for such legislation 
                or administrative action as the Comptroller 
                General determines to be appropriate.
    ``(f) Computation of Applicable MA Region-Specific Non-Drug 
Monthly Benchmark Amounts.--
            ``(1) Computation for regions.--For purposes of 
        section 1853(j)(2) and this section, subject to 
        subsection (e), the term `MA region-specific non-drug 
        monthly benchmark amount' means, with respect to an MA 
        region for a month in a year, the sum of the 2 
        components described in paragraph (2) for the region 
        and year. The Secretary shall compute such benchmark 
        amount for each MA region before the beginning of each 
        annual, coordinated election period under section 
        1851(e)(3)(B) for each year (beginning with 2006).
            ``(2) 2 components.--For purposes of paragraph (1), 
        the 2 components described in this paragraph for an MA 
        region and a year are the following:
                    ``(A) Statutory component.--The product of 
                the following:
                            ``(i) Statutory region-specific 
                        non-drug amount.--The statutory region-
                        specific non-drug amount (as defined in 
                        paragraph (3)) for the region and year.
                            ``(ii) Statutory national market 
                        share.--The statutory national market 
                        share percentage, determined under 
                        paragraph (4) for the year.
                    ``(B) Plan-bid component.--The product of 
                the following:
                            ``(i) Weighted average of ma plan 
                        bids in region.--The weighted average 
                        of the plan bids for the region and 
                        year (as determined under paragraph 
                        (5)(A)).
                            ``(ii) Non-statutory market 
                        share.--1 minus the statutory national 
                        market share percentage, determined 
                        under paragraph (4) for the year.
            ``(3) Statutory region-specific non-drug amount.--
        For purposes of paragraph (2)(A)(i), the term 
        `statutory region-specific non-drug amount' means, for 
        an MA region and year, an amount equal the sum (for 
        each MA local area within the region) of the product 
        of--
                    ``(A) MA area-specific non-drug monthly 
                benchmark amount under section 1853(j)(1)(A) 
                for that area and year; and
                    ``(B) the number of MA eligible individuals 
                residing in the local area, divided by the 
                total number of MA eligible individuals 
                residing in the region.
            ``(4) Computation of statutory market share 
        percentage.--
                    ``(A) In general.--The Secretary shall 
                determine for each year a statutory national 
                market share percentage that is equal to the 
                proportion of MA eligible individuals 
                nationally who were not enrolled in an MA plan 
                during the reference month.
                    ``(B) Reference month defined.--For 
                purposes of this part, the term `reference 
                month' means, with respect to a year, the most 
                recent month during the previous year for which 
                the Secretary determines that data are 
                available to compute the percentage specified 
                in subparagraph (A) and other relevant 
                percentages under this part.
            ``(5) Determination of weighted average ma bids for 
        a region.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(B)(i), the weighted average of 
                plan bids for an MA region and a year is the 
                sum, for MA regional plans described in 
                subparagraph (D) in the region and year, of the 
                products (for each such plan) of the following:
                            ``(i) Monthly ma statutory non-drug 
                        bid amount.--The unadjusted MA 
                        statutory non-drug monthly bid amount 
                        for the plan.
                            ``(ii) Plan's share of ma 
                        enrollment in region.--The factor 
                        described in subparagraph (B) for the 
                        plan.
                    ``(B) Plan's share of ma enrollment in 
                region.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this 
                        subparagraph, the factor described in 
                        this subparagraph for a plan is equal 
                        to the number of individuals described 
                        in subparagraph (C) for such plan, 
                        divided by the total number of such 
                        individuals for all MA regional plans 
                        described in subparagraph (D) for that 
                        region and year.
                            ``(ii) Single plan rule.--In the 
                        case of an MA region in which only a 
                        single MA regional plan is being 
                        offered, the factor described in this 
                        subparagraph shall be equal to 1.
                            ``(iii) Equal division among 
                        multiple plans in year in which plans 
                        are first available.--In the case of an 
                        MA region in the first year in which 
                        any MA regional plan is offered, if 
                        more than one MA regional plan is 
                        offered in such year, the factor 
                        described in this subparagraph for a 
                        plan shall (as specified by the 
                        Secretary) be equal to--
                                    ``(I) 1 divided by the 
                                number of such plans offered in 
                                such year; or
                                    ``(II) a factor for such 
                                plan that is based upon the 
                                organization's estimate of 
                                projected enrollment, as 
                                reviewed and adjusted by the 
                                Secretary to ensure 
                                reasonableness and as is 
                                certified by the Chief Actuary 
                                of the Centers for Medicare & 
                                Medicaid Services.
                    ``(C) Counting of individuals.--For 
                purposes of subparagraph (B)(i), the Secretary 
                shall count for each MA regional plan described 
                in subparagraph (D) for an MA region and year, 
                the number of individuals who reside in the 
                region and who were enrolled under such plan 
                under this part during the reference month.
                    ``(D) Plans covered.--For an MA region and 
                year, an MA regional plan described in this 
                subparagraph is an MA regional plan that is 
                offered in the region and year and was offered 
                in the region in the reference month.
    ``(g) Election of Uniform Coverage Determination.--Instead 
of applying section 1852(a)(2)(C) with respect to an MA 
regional plan, the organization offering the plan may elect to 
have a local coverage determination for the entire MA region be 
the local coverage determination applied for any part of such 
region (as selected by the organization).
    ``(h) Assuring Network Adequacy.--
            ``(1) In general.--For purposes of enabling MA 
        organizations that offer MA regional plans to meet 
        applicable provider access requirements under section 
        1852 with respect to such plans, the Secretary may 
        provide for payment under this section to an essential 
        hospital that provides inpatient hospital services to 
        enrollees in such a plan where the MA organization 
        offering the plan certifies to the Secretary that the 
        organization was unable to reach an agreement between 
        the hospital and the organization regarding provision 
        of such services under the plan. Such payment shall be 
        available only if--
                    ``(A) the organization provides assurances 
                satisfactory to the Secretary that the 
                organization will make payment to the hospital 
                for inpatient hospital services of an amount 
                that is not less than the amount that would be 
                payable to the hospital under section 1886 with 
                respect to such services; and
                    ``(B) with respect to specific inpatient 
                hospital services provided to an enrollee, the 
                hospital demonstrates to the satisfaction of 
                the Secretary that the hospital's costs of such 
                services exceed the payment amount described in 
                subparagraph (A).
            ``(2) Payment amounts.--The payment amount under 
        this subsection for inpatient hospital services 
        provided by a subsection (d) hospital to an enrollee in 
        an MA regional plan shall be, subject to the limitation 
        of funds under paragraph (3), the amount (if any) by 
        which--
                    ``(A) the amount of payment that would have 
                been paid for such services under this title if 
                the enrollees were covered under the original 
                medicare fee-for-service program option and the 
                hospital were a critical access hospital; 
                exceeds
                    ``(B) the amount of payment made for such 
                services under paragraph (1)(A).
            ``(3) Available amounts.--There shall be available 
        for payments under this subsection--
                    ``(A) in 2006, $25,000,000; and
                    ``(B) in each succeeding year the amount 
                specified in this paragraph for the preceding 
                year increased by the market basket percentage 
                increase (as defined in section 
                1886(b)(3)(B)(iii)) for the fiscal year ending 
                in such succeeding year.

        Payments under this subsection shall be made from the 
        Federal Hospital Insurance Trust Fund.
            ``(4) Essential hospital.--In this subsection, the 
        term `essential hospital' means, with respect to an MA 
        regional plan offered by an MA organization, a 
        subsection (d) hospital (as defined in section 1886(d)) 
        that the Secretary determines, based upon an 
        application filed by the organization with the 
        Secretary, is necessary to meet the requirements 
        referred to in paragraph (1) for such plan.''.
    (d) Conforming Amendments.--
            (1) Relating to ma regions.--Section 1853(d) (42 
        U.S.C. 1395w-23(d)) is amended--
                    (A) by amending the heading to read as 
                follows: ``MA Payment Area; MA Local Area; MA 
                Region Defined'';
                    (B) by redesignating paragraphs (2) and (3) 
                as paragraphs (3) and (4), respectively;
                    (C) by amending paragraph (1) to read as 
                follows:
            ``(1) MA payment area.--In this part, except as 
        provided in this subsection, the term `MA payment area' 
        means--
                    ``(A) with respect to an MA local plan, an 
                MA local area (as defined in paragraph (2)); 
                and
                    ``(B) with respect to an MA regional plan, 
                an MA region (as established under section 
                1858(a)(2)).'';
                    (D) by inserting after paragraph (1) the 
                following new paragraph:
            ``(2) MA local area.--The term `MA local area' 
        means a county or equivalent area specified by the 
        Secretary.''; and
                    (E) in paragraph (4), as so redesignated--
                            (i) in subparagraph (A), by 
                        inserting ``for MA local plans'' after 
                        ``paragraph (1)'';
                            (ii) in subparagraph (A)(iii), by 
                        striking ``paragraph (1)'' and 
                        inserting ``paragraph (1)(A)''; and
                            (iii) in subparagraph (B)--
                                    (I) by inserting ``with 
                                respect to MA local plans'' 
                                after ``established under this 
                                section'';
                                    (II) by inserting ``for 
                                such plans'' after ``payments 
                                under this section''; and
                                    (III) by inserting ``for 
                                such plans'' after ``made under 
                                this section''.
            (2) MA local area defined.--Section 1859(c) (42 
        U.S.C. 1395w-29(c)) is amended by adding at the end the 
        following:
            ``(5) MA local area.--The term `MA local area' is 
        defined in section 1853(d)(2).''.
            (3) Application of special benefit rules to ppos 
        and regional plans.--Section 1852(a) (42 U.S.C. 1395w-
        22(a)) is amended--
                    (A) in paragraph (1), by inserting ``and 
                except as provided in paragraph (6) for MA 
                regional plans'' after ``MSA plans''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(6) Special benefit rules for regional plans.--In 
        the case of an MA plan that is an MA regional plan, 
        benefits under the plan shall include the benefits 
        described in paragraphs (1) and (2) of section 
        1858(b).''.
            (4) Application of capitation rates to local 
        areas.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
        is amended by inserting ``that is an MA local area'' 
        after ``for a Medicare+Choice payment area''.
            (5) Network adequacy hospital payments.--Section 
        1851(i)(2) (42 U.S.C. 1395w-21(i)(2)) is amended by 
        inserting ``1858(h),'' after ``1857(f)(2),''.

SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of Bidding and Rebate Information Beginning 
in 2006.--
            (1) In general.--Section 1854 (42 U.S.C. 1395w-24) 
        is amended--
                    (A) by amending paragraph (1) of subsection 
                (a) to read as follows:
            ``(1) In general.--
                    ``(A) Initial submission.--Not later than 
                the second Monday in September of 2002, 2003, 
                and 2004 (or the first Monday in June of each 
                subsequent year), each MA organization shall 
                submit to the Secretary, in a form and manner 
                specified by the Secretary and for each MA plan 
                for the service area (or segment of such an 
                area if permitted under subsection (h)) in 
                which it intends to be offered in the following 
                year the following:
                            ``(i) The information described in 
                        paragraph (2), (3), (4), or (6)(A) for 
                        the type of plan and year involved.
                            ``(ii) The plan type for each plan.
                            ``(iii) The enrollment capacity (if 
                        any) in relation to the plan and area.
                    ``(B) Beneficiary rebate information.--In 
                the case of a plan required to provide a 
                monthly rebate under subsection (b)(1)(C) for a 
                year, the MA organization offering the plan 
                shall submit to the Secretary, in such form and 
                manner and at such time as the Secretary 
                specifies, information on--
                            ``(i) the manner in which such 
                        rebate will be provided under clause 
                        (ii) of such subsection; and
                            ``(ii) the MA monthly prescription 
                        drug beneficiary premium (if any) and 
                        the MA monthly supplemental beneficiary 
                        premium (if any).
                    ``(C) Paperwork reduction for offering of 
                ma regional plans nationally or in multi-region 
                areas.--The Secretary shall establish 
                requirements for information submission under 
                this subsection in a manner that promotes the 
                offering of MA regional plans in more than one 
                region (including all regions) through the 
                filing of consolidated information.''; and
                    (B) by adding at the end of subsection (a) 
                the following:
            ``(6) Submission of bid amounts by ma organizations 
        beginning in 2006.--
                    ``(A) Information to be submitted.--For an 
                MA plan (other than an MSA plan) for a plan 
                year beginning on or after January 1, 2006, the 
                information described in this subparagraph is 
                as follows:
                            ``(i) The monthly aggregate bid 
                        amount for the provision of all items 
                        and services under the plan, which 
                        amount shall be based on average 
                        revenue requirements (as used for 
                        purposes of section 1302(8) of the 
                        Public Health Service Act) in the 
                        payment area for an enrollee with a 
                        national average risk profile for the 
                        factors described in section 
                        1853(a)(1)(C) (as specified by the 
                        Secretary).
                            ``(ii) The proportions of such bid 
                        amount that are attributable to--
                                    ``(I) the provision of 
                                benefits under the original 
                                medicare fee-for-service 
                                program option (as defined in 
                                section 1852(a)(1)(B));
                                    ``(II) the provision of 
                                basic prescription drug 
                                coverage; and
                                    ``(III) the provision of 
                                supplemental health care 
                                benefits.
                            ``(iii) The actuarial basis for 
                        determining the amount under clause (i) 
                        and the proportions described in clause 
                        (ii) and such additional information as 
                        the Secretary may require to verify 
                        such actuarial bases and the projected 
                        number of enrollees in each MA local 
                        area.
                            ``(iv) A description of 
                        deductibles, coinsurance, and 
                        copayments applicable under the plan 
                        and the actuarial value of such 
                        deductibles, coinsurance, and 
                        copayments, described in subsection 
                        (e)(4)(A).
                            ``(v) With respect to qualified 
                        prescription drug coverage, the 
                        information required under section 
                        1860D-4, as incorporated under section 
                        1860D-11(b)(2), with respect to such 
                        coverage.
                In the case of a specialized MA plan for 
                special needs individuals, the information 
                described in this subparagraph is such 
                information as the Secretary shall specify.
                    ``(B) Acceptance and negotiation of bid 
                amounts.--
                            ``(i) Authority.--Subject to 
                        clauses (iii) and (iv), the Secretary 
                        has the authority to negotiate 
                        regarding monthly bid amounts submitted 
                        under subparagraph (A) (and the 
                        proportions described in subparagraph 
                        (A)(ii)), including supplemental 
                        benefits provided under subsection 
                        (b)(1)(C)(ii)(I) and in exercising such 
                        authority the Secretary shall have 
                        authority similar to the authority of 
                        the Director of the Office of Personnel 
                        Management with respect to health 
                        benefits plans under chapter 89 of 
                        title 5, United States Code.
                            ``(ii) Application of fehbp 
                        standard.--Subject to clause (iv), the 
                        Secretary may only accept such a bid 
                        amount or proportion if the Secretary 
                        determines that such amount and 
                        proportions are supported by the 
                        actuarial bases provided under 
                        subparagraph (A) and reasonably and 
                        equitably reflects the revenue 
                        requirements (as used for purposes of 
                        section 1302(8) of the Public Health 
                        Service Act) of benefits provided under 
                        that plan.
                            ``(iii) Noninterference.--In order 
                        to promote competition under this part 
                        and part D and in carrying out such 
                        parts, the Secretary may not require 
                        any MA organization to contract with a 
                        particular hospital, physician, or 
                        other entity or individual to furnish 
                        items and services under this title or 
                        require a particular price structure 
                        for payment under such a contract to 
                        the extent consistent with the 
                        Secretary's authority under this part.
                            ``(iv) Exception.--In the case of a 
                        plan described in section 
                        1851(a)(2)(C), the provisions of 
                        clauses (i) and (ii) shall not apply 
                        and the provisions of paragraph (5)(B), 
                        prohibiting the review, approval, or 
                        disapproval of amounts described in 
                        such paragraph, shall apply to the 
                        negotiation and rejection of the 
                        monthly bid amounts and the proportions 
                        referred to in subparagraph (A).''.
            (2) Definition of benefits under the original 
        medicare fee-for-service program option.--Section 
        1852(a)(1) (42 U.S.C. 1395w-22(a)(1)) is amended--
                    (A) by striking ``In general.--Except'' and 
                inserting ``Requirement.--
                    ``(A) In general.--Except''; and
                    (B) by striking ``title XI'' and all that 
                follows and inserting the following: ``title 
                XI, benefits under the original medicare fee-
                for-service program option (and, for plan years 
                before 2006, additional benefits required under 
                section 1854(f)(1)(A)).
                    ``(B) Benefits under the original medicare 
                fee-for-service program option defined.--
                            ``(i) In general.--For purposes of 
                        this part, the term `benefits under the 
                        original medicare fee-for-service 
                        program option' means those items and 
                        services (other than hospice care) for 
                        which benefits are available under 
                        parts A and B to individuals entitled 
                        to benefits under part A and enrolled 
                        under part B, with cost-sharing for 
                        those services as required under parts 
                        A and B or an actuarially equivalent 
                        level of cost-sharing as determined in 
                        this part.
                            ``(ii) Special rule for regional 
                        plans.--In the case of an MA regional 
                        plan in determining an actuarially 
                        equivalent level of cost-sharing with 
                        respect to benefits under the original 
                        medicare fee-for-service program 
                        option, there shall only be taken into 
                        account, with respect to the 
                        application of section 1858(b)(2), such 
                        expenses only with respect to 
                        subparagraph (A) of such section.''.
            (3) Conforming amendment relating to supplemental 
        health benefits.--Section 1852(a)(3) (42 U.S.C. 1395w-
        22(a)(3)) is amended by adding at the end the 
        following: ``Such benefits may include reductions in 
        cost-sharing below the actuarial value specified in 
        section 1854(e)(4)(B).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
            (1) Beneficiary rebates.--Section 1854(b)(1) (42 
        U.S.C. 1395w-24(b)(1)) is amended--
                    (A) in subparagraph (A), by striking ``The 
                monthly amount'' and inserting ``Subject to the 
                rebate under subparagraph (C), the monthly 
                amount (if any)''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Beneficiary rebate rule.--
                            ``(i) Requirement.--The MA plan 
                        shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of the 
                        average per capita savings (if any) 
                        described in paragraph (3)(C) or 
                        (4)(C), as applicable to the plan and 
                        year involved.
                            ``(ii) Form of rebate.--A rebate 
                        required under this subparagraph shall 
                        be provided through the application of 
                        the amount of the rebate toward one or 
                        more of the following:
                                    ``(I) Provision of 
                                supplemental health care 
                                benefits and payment for 
                                premium for supplemental 
                                benefits.--The provision of 
                                supplemental health care 
                                benefits described in section 
                                1852(a)(3) in a manner 
                                specified under the plan, which 
                                may include the reduction of 
                                cost-sharing otherwise 
                                applicable as well as 
                                additional health care benefits 
                                which are not benefits under 
                                the original medicare fee-for-
                                service program option, or 
                                crediting toward an MA monthly 
                                supplemental beneficiary 
                                premium (if any).
                                    ``(II) Payment for premium 
                                for prescription drug 
                                coverage.--Crediting toward the 
                                MA monthly prescription drug 
                                beneficiary premium.
                                    ``(III) Payment toward part 
                                b premium.--Crediting toward 
                                the premium imposed under part 
                                B (determined without regard to 
                                the application of subsections 
                                (b), (h), and (i) of section 
                                1839).
                            ``(iii) Disclosure relating to 
                        rebates.--The plan shall disclose to 
                        the Secretary information on the form 
                        and amount of the rebate provided under 
                        this subparagraph or the actuarial 
                        value in the case of supplemental 
                        health care benefits.
                            ``(iv) Application of part b 
                        premium reduction.--Insofar as an MA 
                        organization elects to provide a rebate 
                        under this subparagraph under a plan as 
                        a credit toward the part B premium 
                        under clause (ii)(III), the Secretary 
                        shall apply such credit to reduce the 
                        premium under section 1839 of each 
                        enrollee in such plan as provided in 
                        section 1840(i).''.
            (2) Revision of premium terminology.--Section 
        1854(b)(2) (42 U.S.C. 1395w-24(b)(2)) is amended--
                    (A) in the heading, by inserting ``and 
                bid'' after ``Premium'';
                    (B) by redesignating subparagraph (C) as 
                subparagraph (D);
                    (C) by striking subparagraphs (A) and (B) 
                and inserting the following:
                    ``(A) MA monthly basic beneficiary 
                premium.--The term `MA monthly basic 
                beneficiary premium' means, with respect to an 
                MA plan--
                            ``(i) described in section 
                        1853(a)(1)(B)(i) (relating to plans 
                        providing rebates), zero; or
                            ``(ii) described in section 
                        1853(a)(1)(B)(ii), the amount (if any) 
                        by which the unadjusted MA statutory 
                        non-drug monthly bid amount (as defined 
                        in subparagraph (E)) exceeds the 
                        applicable unadjusted MA area-specific 
                        non-drug monthly benchmark amount (as 
                        defined in section 1853(j)).
                    ``(B) MA monthly prescription drug 
                beneficiary premium.--The term `MA monthly 
                prescription drug beneficiary premium' means, 
                with respect to an MA plan, the base 
                beneficiary premium (as determined under 
                section 1860D-13(a)(2) and as adjusted under 
                section 1860D-13(a)(1)(B)), less the amount of 
                rebate credited toward such amount under 
                section 1854(b)(1)(C)(ii)(II).
                    ``(C) MA monthly supplemental beneficiary 
                premium.--The term `MA monthly supplemental 
                beneficiary premium' means, with respect to an 
                MA plan, the portion of the aggregate monthly 
                bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is 
                attributable under clause (ii)(III) of such 
                subsection to the provision of supplemental 
                health care benefits, less the amount of rebate 
                credited toward such portion under section 
                1854(b)(1)(C)(ii)(I).''; and
                    (D) by adding at the end the following:
                    ``(E) Unadjusted ma statutory non-drug 
                monthly bid amount.--The term `unadjusted MA 
                statutory non-drug monthly bid amount' means 
                the portion of the bid amount submitted under 
                clause (i) of subsection (a)(6)(A) for the year 
                that is attributable under clause (ii)(I) of 
                such subsection to the provision of benefits 
                under the original medicare fee-for-service 
                program option (as defined in section 
                1852(a)(1)(B)).''.
            (3) Computation of savings.--Section 1854(b) (42 
        U.S.C. 1395w-24(b)) is further amended by adding at the 
        end the following new paragraphs:
            ``(3) Computation of average per capita monthly 
        savings for local plans.--For purposes of paragraph 
        (1)(C)(i), the average per capita monthly savings 
        referred to in such paragraph for an MA local plan and 
        year is computed as follows:
                    ``(A) Determination of statewide average 
                risk adjustment for local plans.--
                            ``(i) In general.--Subject to 
                        clause (iii), the Secretary shall 
                        determine, at the same time rates are 
                        promulgated under section 1853(b)(1) 
                        (beginning with 2006) for each State, 
                        the average of the risk adjustment 
                        factors to be applied under section 
                        1853(a)(1)(C) to payment for enrollees 
                        in that State for MA local plans.
                            ``(ii) Treatment of states for 
                        first year in which local plan 
                        offered.--In the case of a State in 
                        which no MA local plan was offered in 
                        the previous year, the Secretary shall 
                        estimate such average. In making such 
                        estimate, the Secretary may use average 
                        risk adjustment factors applied to 
                        comparable States or applied on a 
                        national basis.
                            ``(iii) Authority to determine risk 
                        adjustment for areas other than 
                        states.--The Secretary may provide for 
                        the determination and application of 
                        risk adjustment factors under this 
                        subparagraph on the basis of areas 
                        other than States or on a plan-specific 
                        basis.
                    ``(B) Determination of risk adjusted 
                benchmark and risk-adjusted bid for local 
                plans.--For each MA plan offered in a local 
                area in a State, the Secretary shall--
                            ``(i) adjust the applicable MA 
                        area-specific non-drug monthly 
                        benchmark amount (as defined in section 
                        1853(j)(1)) for the area by the average 
                        risk adjustment factor computed under 
                        subparagraph (A); and
                            ``(ii) adjust the unadjusted MA 
                        statutory non-drug monthly bid amount 
                        by such applicable average risk 
                        adjustment factor.
                    ``(C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                for an MA local plan is equal to the amount (if 
                any) by which--
                            ``(i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i); exceeds
                            ``(ii) the risk-adjusted bid 
                        computed under subparagraph (B)(ii).
            ``(4) Computation of average per capita monthly 
        savings for regional plans.--For purposes of paragraph 
        (1)(C)(i), the average per capita monthly savings 
        referred to in such paragraph for an MA regional plan 
        and year is computed as follows:
                    ``(A) Determination of regionwide average 
                risk adjustment for regional plans.--
                            ``(i) In general.--The Secretary 
                        shall determine, at the same time rates 
                        are promulgated under section 
                        1853(b)(1) (beginning with 2006) for 
                        each MA region the average of the risk 
                        adjustment factors to be applied under 
                        section 1853(a)(1)(C) to payment for 
                        enrollees in that region for MA 
                        regional plans.
                            ``(ii) Treatment of regions for 
                        first year in which regional plan 
                        offered.--In the case of an MA region 
                        in which no MA regional plan was 
                        offered in the previous year, the 
                        Secretary shall estimate such average. 
                        In making such estimate, the Secretary 
                        may use average risk adjustment factors 
                        applied to comparable regions or 
                        applied on a national basis.
                            ``(iii) Authority to determine risk 
                        adjustment for areas other than 
                        regions.--The Secretary may provide for 
                        the determination and application of 
                        risk adjustment factors under this 
                        subparagraph on the basis of areas 
                        other than MA regions or on a plan-
                        specific basis.
                    ``(B) Determination of risk-adjusted 
                benchmark and risk-adjusted bid for regional 
                plans.--For each MA regional plan offered in a 
                region, the Secretary shall--
                            ``(i) adjust the applicable MA 
                        area-specific non-drug monthly 
                        benchmark amount (as defined in section 
                        1853(j)(2)) for the region by the 
                        average risk adjustment factor computed 
                        under subparagraph (A); and
                            ``(ii) adjust the unadjusted MA 
                        statutory non-drug monthly bid amount 
                        by such applicable average risk 
                        adjustment factor.
                    ``(C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                for an MA regional plan is equal to the amount 
                (if any) by which--
                            ``(i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i); exceeds
                            ``(ii) the risk-adjusted bid 
                        computed under subparagraph (B)(ii).''.
    (c) Collection of Premiums.--Section 1854(d) (42 U.S.C. 
1395w-24(d)) is amended--
            (1) by striking ``Premiums.--Each'' and inserting 
        ``Premiums.--
            ``(1) In general.--Each''; and
            (2) by adding at the end the following new 
        paragraphs:
            ``(2) Beneficiary's option of payment through 
        withholding from social security payment or use of 
        electronic funds transfer mechanism.--In accordance 
        with regulations, an MA organization shall permit each 
        enrollee, at the enrollee's option, to make payment of 
        premiums (if any) under this part to the organization 
        through--
                    ``(A) withholding from benefit payments in 
                the manner provided under section 1840 with 
                respect to monthly premiums under section 1839;
                    ``(B) an electronic funds transfer 
                mechanism (such as automatic charges of an 
                account at a financial institution or a credit 
                or debit card account); or
                    ``(C) such other means as the Secretary may 
                specify, including payment by an employer or 
                under employment-based retiree health coverage 
                (as defined in section 1860D-22(c)(1)) on 
                behalf of an employee or former employee (or 
                dependent).
        All premium payments that are withheld under 
        subparagraph (A) shall be credited to the appropriate 
        Trust Fund (or Account thereof), as specified by the 
        Secretary, under this title and shall be paid to the MA 
        organization involved. No charge may be imposed under 
        an MA plan with respect to the election of the payment 
        option described in subparagraph (A). The Secretary 
        shall consult with the Commissioner of Social Security 
        and the Secretary of the Treasury regarding methods for 
        allocating premiums withheld under subparagraph (A) 
        among the appropriate Trust Funds and Account.
            ``(3) Information necessary for collection.--In 
        order to carry out paragraph (2)(A) with respect to an 
        enrollee who has elected such paragraph to apply, the 
        Secretary shall transmit to the Commissioner of Social 
        Security--
                    ``(A) by the beginning of each year, the 
                name, social security account number, 
                consolidated monthly beneficiary premium 
                described in paragraph (4) owed by such 
                enrollee for each month during the year, and 
                other information determined appropriate by the 
                Secretary, in consultation with the 
                Commissioner of Social Security; and
                    ``(B) periodically throughout the year, 
                information to update the information 
                previously transmitted under this paragraph for 
                the year.
            ``(4) Consolidated monthly beneficiary premium.--In 
        the case of an enrollee in an MA plan, the Secretary 
        shall provide a mechanism for the consolidation of--
                    ``(A) the MA monthly basic beneficiary 
                premium (if any);
                    ``(B) the MA monthly supplemental 
                beneficiary premium (if any); and
                    ``(C) the MA monthly prescription drug 
                beneficiary premium (if any).''.
    (d) Computation of MA Area-Specific Non-Drug Benchmark.--
Section 1853 (42 U.S.C. 1395w-23) is amended by adding at the 
end the following new subsection:
    ``(j) Computation of Benchmark Amounts.--For purposes of 
this part, the term `MA area-specific non-drug monthly 
benchmark amount' means for a month in a year--
            ``(1) with respect to--
                    ``(A) a service area that is entirely 
                within an MA local area, an amount equal to \1/
                12\ of the annual MA capitation rate under 
                section 1853(c)(1) for the area for the year, 
                adjusted as appropriate for the purpose of risk 
                adjustment; or
                    ``(B) a service area that includes more 
                than one MA local area, an amount equal to the 
                average of the amounts described in 
                subparagraph (A) for each such local MA area, 
                weighted by the projected number of enrollees 
                in the plan residing in the respective local MA 
                areas (as used by the plan for purposes of the 
                bid and disclosed to the Secretary under 
                section 1854(a)(6)(A)(iii)), adjusted as 
                appropriate for the purpose of risk adjustment; 
                or
            ``(2) with respect to an MA region for a month in a 
        year, the MA region-specific non-drug monthly benchmark 
        amount, as defined in section 1858(f) for the region 
        for the year.''.
    (e) Payment of Plans Based on Bid Amounts.--
            (1) In general.--Section 1853(a)(1) (42 U.S.C. 
        1395w-23(a)(1)) (42 U.S.C. 1395w-23) is amended--
                    (A) by redesignating subparagraph (B) as 
                subparagraph (H); and
                    (B) in subparagraph (A), by striking ``in 
                an amount'' and all that follows and inserting 
                the following: ``in an amount determined as 
                follows:
                            ``(i) Payment before 2006.--For 
                        years before 2006, the payment amount 
                        shall be equal to \1/12\ of the annual 
                        MA capitation rate (as calculated under 
                        subsection (c)(1)) with respect to that 
                        individual for that area, adjusted 
                        under subparagraph (C) and reduced by 
                        the amount of any reduction elected 
                        under section 1854(f )(1)(E).
                            ``(ii) Payment for original fee-
                        for-service benefits beginning with 
                        2006.--For years beginning with 2006, 
                        the amount specified in subparagraph 
                        (B).
                    ``(B) Payment amount for original fee-for-
                service benefits beginning with 2006.--
                            ``(i) Payment of bid for plans with 
                        bids below benchmark.--In the case of a 
                        plan for which there are average per 
                        capita monthly savings described in 
                        section 1854(b)(3)(C) or 1854(b)(4)(C), 
                        as the case may be, the amount 
                        specified in this subparagraph is equal 
                        to the unadjusted MA statutory non-drug 
                        monthly bid amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G), plus 
                        the amount (if any) of any rebate under 
                        subparagraph (E).
                            ``(ii) Payment of benchmark for 
                        plans with bids at or above 
                        benchmark.--In the case of a plan for 
                        which there are no average per capita 
                        monthly savings described in section 
                        1854(b)(3)(C) or 1854(b)(4)(C), as the 
                        case may be, the amount specified in 
                        this subparagraph is equal to the MA 
                        area-specific non-drug monthly 
                        benchmark amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G).
                            ``(iii) Payment of benchmark for 
                        msa plans.--Notwithstanding clauses (i) 
                        and (ii), in the case of an MSA plan, 
                        the amount specified in this 
                        subparagraph is equal to the MA area-
                        specific non-drug monthly benchmark 
                        amount, adjusted under subparagraph 
                        (C).
                    ``(C) Demographic adjustment, including 
                adjustment for health status.--The Secretary 
                shall adjust the payment amount under 
                subparagraph (A)(i) and the amount specified 
                under subparagraph (B)(i), (B)(ii), and 
                (B)(iii) for such risk factors as age, 
                disability status, gender, institutional 
                status, and such other factors as the Secretary 
                determines to be appropriate, including 
                adjustment for health status under paragraph 
                (3), so as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such adjustment factors if such changes will 
                improve the determination of actuarial 
                equivalence.
                    ``(D) Separate payment for federal drug 
                subsidies.--In the case of an enrollee in an 
                MA-PD plan, the MA organization offering such 
                plan also receives--
                            ``(i) subsidies under section 
                        1860D-15 (other than under subsection 
                        (g)); and
                            ``(ii) reimbursement for premium 
                        and cost-sharing reductions for low-
                        income individuals under section 1860D-
                        14(c)(1)(C).
                    ``(E) Payment of rebate for plans with bids 
                below benchmark.--In the case of a plan for 
                which there are average per capita monthly 
                savings described in section 1854(b)(3)(C) or 
                1854(b)(4)(C), as the case may be, the amount 
                specified in this subparagraph is the amount of 
                the monthly rebate computed under section 
                1854(b)(1)(C)(i) for that plan and year (as 
                reduced by the amount of any credit provided 
                under section 1854(b)(1)(C)(iv)).
                    ``(F) Adjustment for intra-area 
                variations.--
                            ``(i) Intra-regional variations.--
                        In the case of payment with respect to 
                        an MA regional plan for an MA region, 
                        the Secretary shall also adjust the 
                        amounts specified under subparagraphs 
                        (B)(i) and (B)(ii) in a manner to take 
                        into account variations in MA local 
                        payment rates under this part among the 
                        different MA local areas included in 
                        such region.
                            ``(ii) Intra-service area 
                        variations.--In the case of payment 
                        with respect to an MA local plan for a 
                        service area that covers more than one 
                        MA local area, the Secretary shall also 
                        adjust the amounts specified under 
                        subparagraphs (B)(i) and (B)(ii) in a 
                        manner to take into account variations 
                        in MA local payment rates under this 
                        part among the different MA local areas 
                        included in such service area.
                    ``(G) Adjustment relating to risk 
                adjustment.--The Secretary shall adjust 
                payments with respect to MA plans as necessary 
                to ensure that--
                            ``(i) the sum of--
                                    ``(I) the monthly payment 
                                made under subparagraph 
                                (A)(ii); and
                                    ``(II) the MA monthly basic 
                                beneficiary premium under 
                                section 1854(b)(2)(A); equals
                            ``(ii) the unadjusted MA statutory 
                        non-drug monthly bid amount, adjusted 
                        in the manner described in subparagraph 
                        (C) and, for an MA regional plan, 
                        subparagraph (F).''.
    (f) Conforming Changes to Annual Announcement Process.--
Section 1853(b) (42 U.S.C. 1395w-23(b)(1)) is amended--
            (1) by amending paragraph (1) to read as follows:
            ``(1) Annual announcements.--
                    ``(A) For 2005.--The Secretary shall 
                determine, and shall announce (in a manner 
                intended to provide notice to interested 
                parties), not later than the second Monday in 
                May of 2004, with respect to each MA payment 
                area, the following:
                            ``(i) MA capitation rates.--The 
                        annual MA capitation rate for each MA 
                        payment area for 2005.
                            ``(ii) Adjustment factors.--The 
                        risk and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(C) for payments for months in 
                        2005.
                    ``(B) For 2006 and subsequent years.--For a 
                year after 2005--
                            ``(i) Initial announcement.--The 
                        Secretary shall determine, and shall 
                        announce (in a manner intended to 
                        provide notice to interested parties), 
                        not later than the first Monday in 
                        April before the calendar year 
                        concerned, with respect to each MA 
                        payment area, the following:
                                    ``(I) MA capitation rates; 
                                ma local area benchmark.--The 
                                annual MA capitation rate for 
                                each MA payment area for the 
                                year.
                                    ``(II) Adjustment 
                                factors.--The risk and other 
                                factors to be used in adjusting 
                                such rates under subsection 
                                (a)(1)(C) for payments for 
                                months in such year.
                            ``(ii) Regional benchmark 
                        announcement.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each MA region and each 
                        MA regional plan for which a bid was 
                        submitted under section 1854, the MA 
                        region-specific non-drug monthly 
                        benchmark amount for that region for 
                        the year involved.''; and
            (2) in paragraph (3), by striking ``in the 
        announcement'' and all that follows and inserting ``in 
        such announcement.''.
    (g) Other Amendments Relating to Premiums and Bid 
Amounts.--
            (1) In general.--Section 1854 (42 U.S.C. 1395w-24) 
        is amended--
                    (A) by amending the section heading to read 
                as follows:

                     ``PREMIUMS AND BID AMOUNTS'';

                    (B) in the heading of subsection (a), by 
                inserting ``, Bid Amounts,'' after 
                ``Premiums'';
                    (C) in subsection (a)(2)--
                            (i) by inserting ``before 2006'' 
                        after ``for coordinated care plans''; 
                        and
                            (ii) by inserting ``for a year 
                        before 2006'' after ``section 
                        1851(a)(2)(A)'';
                    (D) in subsection (a)(3), by striking 
                ``described'' and inserting ``for any year'';
                    (E) in subsection (a)(4)--
                            (i) by inserting ``before 2006'' 
                        after ``for private fee-for-service 
                        plans''; and
                            (ii) by inserting ``for a year 
                        before 2006'' after ``section 
                        1852(a)(1)(A)'';
                    (F) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2) and (4) of'' after ``filed 
                under'';
                    (G) in subsection (a)(5)(B), by inserting 
                after ``paragraph (3) or'' the following: ``, 
                in the case of an MA private fee-for-service 
                plan,''; and
                    (H) in subsection (b)(1)(A) by striking 
                ``and'' and inserting a comma and by inserting 
                before the period at the end the following: ``, 
                and, if the plan provides qualified 
                prescription drug coverage, the MA monthly 
                prescription drug beneficiary premium''.
            (2) Uniformity.--Section 1854(c) (42 U.S.C. 1395w-
        24(c)) is amended to read as follows:
    ``(c) Uniform Premium and Bid Amounts.--Except as permitted 
under section 1857(i), the MA monthly bid amount submitted 
under subsection (a)(6), the amounts of the MA monthly basic, 
prescription drug, and supplemental beneficiary premiums, and 
the MA monthly MSA premium charged under subsection (b) of an 
MA organization under this part may not vary among individuals 
enrolled in the plan.''.
            (3) Premiums.--Section 1854(d)(1) (42 U.S.C. 1395w-
        24(d)(1)), as amended by subsection (c)(1), is amended 
        by inserting ``, prescription drug,'' after ``basic''.
            (4) Limitation on enrollee liability.--Section 
        1854(e) (42 U.S.C. 1395w-24(e)) is amended--
                    (A) in paragraph (1), by striking ``.--In'' 
                and inserting ``before 2006.--For periods 
                before 2006, in'';
                    (B) in paragraph (2), by striking ``.--If'' 
                and insert ``before 2006.--For periods before 
                2006, if'';
                    (C) in paragraph (3), by striking ``or 
                (2)'' and inserting ``, (2), or (4)''; and
                    (D) in paragraph (4)--
                            (i) by inserting ``and for basic 
                        benefits beginning in 2006'' after 
                        ``plans'';
                            (ii) in the matter before 
                        subparagraph (A), by inserting ``and 
                        for periods beginning with 2006, with 
                        respect to an MA plan described in 
                        section 1851(a)(2)(A)'' after ``MSA 
                        plan)'';
                            (iii) in subparagraph (A), by 
                        striking ``required benefits described 
                        in section 1852(a)(1)'' and inserting 
                        ``benefits under the original medicare 
                        fee-for-service program option''; and
                            (iv) in subparagraph (B), by 
                        inserting ``with respect to such 
                        benefits'' after ``would be 
                        applicable''.
            (5) Modification of acr process.--Section 1854(f) 
        (42 U.S.C. 1395w-24(f)) is amended--
                    (A) in the heading, by inserting ``Before 
                2006'' after ``Additional Benefits''; and
                    (B) in paragraph (1)(A), by striking 
                ``Each'' and inserting ``For years before 2006, 
                each''.
    (h) Plan Incentives.--Section 1852(j)(4) (42 U.S.C. 1395w-
22(j)(4)) is amended--
            (1) by inserting ``the organization provides 
        assurances satisfactory to the Secretary that'' after 
        ``unless'';
            (2) in clause (ii)--
                    (A) by striking ``the organization--'' and 
                all that follows through ``(I) provides'' and 
                inserting ``the organization provides'';
                    (B) by striking ``, and'' and inserting a 
                period; and
                    (C) by striking subclause (II); and
            (3) by striking clause (iii).
    (i) Continuation of Treatment of Enrollees With End-Stage 
Renal Disease.--Section 1853(a)(1)(H), as redesignated under 
subsection (d)(1)(A), is amended--
            (1) by amending the second sentence to read as 
        follows: ``Such rates of payment shall be actuarially 
        equivalent to rates that would have been paid with 
        respect to other enrollees in the MA payment area (or 
        such other area as specified by the Secretary) under 
        the provisions of this section as in effect before the 
        date of the enactment of the Medicare Prescription 
        Drug, Improvement, and Modernization Act of 2003.''; 
        and
            (2) by adding at the end the following new 
        sentence: ``The Secretary may apply the competitive 
        bidding methodology provided for in this section, with 
        appropriate adjustments to account for the risk 
        adjustment methodology applied to end stage renal 
        disease payments.''.
    (j) Facilitation of Employer Sponsorship of MA Plans.--
Section 1857(i) (42 U.S.C. 1395w-27(i)) is amended--
            (1) by designating the matter following the heading 
        as a paragraph (1) with the heading ``Contracts with ma 
        organizations.--'' and appropriate indentation; and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Employer sponsored ma plans.--To facilitate 
        the offering of MA plans by employers, labor 
        organizations, or the trustees of a fund established by 
        one or more employers or labor organizations (or 
        combination thereof ) to furnish benefits to the 
        entity's employees, former employees (or combination 
        thereof ) or members or former members (or combination 
        thereof ) of the labor organizations, the Secretary may 
        waive or modify requirements that hinder the design of, 
        the offering of, or the enrollment in such MA plans. 
        Notwithstanding section 1851(g), an MA plan described 
        in the previous sentence may restrict the enrollment of 
        individuals under this part to individuals who are 
        beneficiaries and participants in such plan.''.
    (k) Expansion of Medicare Beneficiary Education and 
Information Campaign.--Section 1857(e)(2) (42 U.S.C. 1395w-
27(e)(2)) is amended--
            (1) in subparagraph (A) by inserting ``and a PDP 
        sponsor under part D'' after ``organization'';
            (2) in subparagraph (B)--
                    (A) by inserting ``and each PDP sponsor 
                with a contract under part D'' after ``contract 
                under this part'';
                    (B) by inserting ``or sponsor's'' after 
                ``organization's''; and
                    (C) by inserting ``, section 1860D-1(c),'' 
                after ``information)'';
            (3) in subparagraph (C)--
                    (A) by inserting ``and ending with fiscal 
                year 2005'' after ``beginning with fiscal year 
                2001'';
                    (B) by inserting ``and for each fiscal year 
                beginning with fiscal year 2006 an amount equal 
                to $200,000,000,'' after ``$100,000,000,''; and
                    (C) by inserting ``and section 1860D-
                12(b)(3)(D)'' after ``under this paragraph'';
            (4) in subparagraph (D)--
                    (A) in clause (i) by inserting ``and 
                section 1860D-1(c)'' after ``section 1851'';
                    (B) in clause (ii)(III), by striking 
                ``and'' at the end of subclause (III);
                    (C) in clause (ii)(IV), by striking ``each 
                succeeding fiscal year.'' and inserting ``each 
                succeeding fiscal year before fiscal year 2006; 
                and''; and
                    (D) in clause (ii), by adding at the end 
                the following new subclause:
                            ``(V) the applicable portion (as 
                        defined in subparagraph (F)) of 
                        $200,000,000 in fiscal year 2006 and 
                        each succeeding fiscal year.''; and
            (5) by adding at the end the following new 
        subparagraph:
                    ``(F) Applicable portion defined.--In this 
                paragraph, the term `applicable portion' means, 
                for a fiscal year--
                            ``(i) with respect to MA 
                        organizations, the Secretary's estimate 
                        of the total proportion of expenditures 
                        under this title that are attributable 
                        to expenditures made under this part 
                        (including payments under part D that 
                        are made to such organizations); or
                            ``(ii) with respect to PDP 
                        sponsors, the Secretary's estimate of 
                        the total proportion of expenditures 
                        under this title that are attributable 
                        to expenditures made to such sponsors 
                        under part D.''.
    (l) Conforming Amendments.--
            (1) Protection against beneficiary selection.--
        Section 1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is 
        amended by adding at the end the following: ``The 
        Secretary shall not approve a plan of an organization 
        if the Secretary determines that the design of the plan 
        and its benefits are likely to substantially discourage 
        enrollment by certain MA eligible individuals with the 
        organization.''.
            (2) Relating to rebates.--
                    (A) Section 1839(a)(2) (42 U.S.C. 
                1395r(a)(2)) is amended by striking ``80 
                percent of any reduction elected under section 
                1854(f )(1)(E)'' and inserting ``any credit 
                provided under section 
                1854(b)(1)(C)(ii)(III)''.
                    (B) The first sentence of section 1840(i) 
                (42 U.S.C. 1395s(i)) is amended by inserting 
                ``and to reflect any credit provided under 
                section 1854(b)(1)(C)(iv)'' after ``section 
                1854(f )(1)(E)''.
                    (C) Section 1844(c) (42 U.S.C. 1395w(c)) is 
                amended by inserting ``or any credits provided 
                under section 1854(b)(1)(C)(iv)'' after 
                ``section 1854(f )(1)(E)''.
            (3) Other conforming and technical amendments.--
                    (A) Section 1851(b)(1) (42 U.S.C. 1395w-
                21(b)(1)) is amended--
                            (i) in subparagraph (B), by 
                        striking ``a plan'' and inserting ``an 
                        MA local plan'';
                            (ii) in subparagraph (B), by 
                        striking ``basic benefits described in 
                        section 1852(a)(1)(A)'' and inserting 
                        ``benefits under the original medicare 
                        fee-for-service program option''; and
                            (iii) in subparagraph (C), by 
                        striking ``in a Medicare+Choice plan'' 
                        and inserting ``in an MA local plan''.
                    (B) Section 1851(d) (42 U.S.C. 1395w-21(d)) 
                is amended--
                            (i) in paragraph (3), by adding at 
                        the end the following new subparagraph:
                    ``(F) Catastrophic coverage and single 
                deductible.--In the case of an MA regional 
                plan, a description of the catastrophic 
                coverage and single deductible applicable under 
                the plan.'';
                            (ii) in paragraph (4)(A)(ii), by 
                        inserting ``, including information on 
                        the single deductible (if applicable) 
                        under section 1858(b)(1)'' after ``cost 
                        sharing'';
                            (iii) in paragraph (4)(B)(i), by 
                        striking ``Medicare+Choice monthly 
                        basic'' and all that follows and 
                        inserting ``monthly amount of the 
                        premium charged to an individual.''; 
                        and
                            (iv) by amending subparagraph (E) 
                        of subsection (d)(4) to read as 
                        follows:
                    ``(E) Supplemental benefits.--Supplemental 
                health care benefits, including any reductions 
                in cost-sharing under section 1852(a)(3) and 
                the terms and conditions (including premiums) 
                for such benefits.''.
                    (C) Section 1857(d)(1) (42 U.S.C. 1395w-
                27(d)(1)) is amended by striking ``, costs, and 
                computation of the adjusted community rate'' 
                and inserting ``and costs, including allowable 
                costs under section 1858(c)''.
                    (D) Section 1851(a)(3)(B)(ii) (42 U.S.C. 
                1395w-21(a)(3)(B)(ii)) is amended by striking 
                ``section 1851(e)(4)(A)'' and inserting 
                ``subsection (e)(4)(A)''.
                    (E) Section 1851(f)(1) (42 U.S.C. 1395w-
                21(f)(1)) is amended by striking ``subsection 
                (e)(1)(A)'' and inserting ``subsection 
                (e)(1)''.

SEC. 223. EFFECTIVE DATE.

    (a) Effective Date.--The amendments made by this subtitle 
shall apply with respect to plan years beginning on or after 
January 1, 2006.
    (b) Issuance of Regulations.--The Secretary shall revise 
the regulations previously promulgated to carry out part C of 
title XVIII of the Social Security Act to carry out the 
provisions of this Act.

                     Subtitle D--Additional Reforms

SEC. 231. SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.

    (a) Treatment as Coordinated Care Plan.--Section 
1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)), as amended by 
section 221(a), is amended by adding at the end the following 
new clause:
                            ``(ii) Specialized ma plans for 
                        special needs individuals.--Specialized 
                        MA plans for special needs individuals 
                        (as defined in section 1859(b)(6)) may 
                        be any type of coordinated care 
                        plan.''.
    (b) Specialized MA Plan for Special Needs Individuals 
Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)), as amended 
by section 221(b), is amended by adding at the end the 
following new paragraph:
            ``(6) Specialized ma plans for special needs 
        individuals.--
                    ``(A) In general.--The term `specialized MA 
                plan for special needs individuals' means an MA 
                plan that exclusively serves special needs 
                individuals (as defined in subparagraph (B)).
                    ``(B) Special needs individual.--The term 
                `special needs individual' means an MA eligible 
                individual who--
                            ``(i) is institutionalized (as 
                        defined by the Secretary);
                            ``(ii) is entitled to medical 
                        assistance under a State plan under 
                        title XIX; or
                            ``(iii) meets such requirements as 
                        the Secretary may determine would 
                        benefit from enrollment in such a 
                        specialized MA plan described in 
                        subparagraph (A) for individuals with 
                        severe or disabling chronic conditions.
                The Secretary may waive application of section 
                1851(a)(3)(B) in the case of an individual 
                described in clause (i), (ii), or (iii) of this 
                subparagraph and may apply rules similar to the 
                rules of section 1894(c)(4) for continued 
                eligibility of special needs individuals.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 
U.S.C. 1395w-29) is amended by adding at the end the following 
new subsection:
    ``(f) Restriction on Enrollment for Specialized MA Plans 
for Special Needs Individuals.--In the case of a specialized MA 
plan for special needs individuals (as defined in subsection 
(b)(6)), notwithstanding any other provision of this part and 
in accordance with regulations of the Secretary and for periods 
before January 1, 2009, the plan may restrict the enrollment of 
individuals under the plan to individuals who are within one or 
more classes of special needs individuals.''.
    (d) Authority To Designate Other Plans as Specialized MA 
Plans.--In promulgating regulations to carry out section 
1851(a)(2)(A)(ii) of the Social Security Act (as added by 
subsection (a)) and section 1859(b)(6) of such Act (as added by 
subsection (b)), the Secretary may provide (notwithstanding 
section 1859(b)(6)(A) of such Act) for the offering of 
specialized MA plans for special needs individuals by MA plans 
that disproportionately serve special needs individuals.
    (e) Report to Congress.--Not later than December 31, 2007, 
the Secretary shall submit to Congress a report that assesses 
the impact of specialized MA plans for special needs 
individuals on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the costs 
and savings to the medicare program as a result of amendments 
made by subsections (a), (b), and (c).
    (f) Effective Dates.--
            (1) In general.--The amendments made by subsections 
        (a), (b), and (c) shall take effect upon the date of 
        the enactment of this Act.
            (2) Deadline for issuance of requirements for 
        special needs individuals; transition.--No later than 1 
        year after the date of the enactment of this Act, the 
        Secretary shall issue final regulations to establish 
        requirements for special needs individuals under 
        section 1859(b)(6)(B)(iii) of the Social Security Act, 
        as added by subsection (b).

SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

    (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-
26(b)(3)) is amended to read as follows:
            ``(3) Relation to state laws.--The standards 
        established under this part shall supersede any State 
        law or regulation (other than State licensing laws or 
        State laws relating to plan solvency) with respect to 
        MA plans which are offered by MA organizations under 
        this part.''.
    (b) Conforming Amendment.--Section 1854(g) (42 U.S.C. 
1395w-24(g)) is amended by inserting ``or premiums paid to such 
organizations under this part'' after ``section 1853''.
    (c) Effective Date.--The amendments made by this subsection 
shall take effect on the date of the enactment of this Act.

SEC. 233. MEDICARE MSAS.

    (a) Exemption From Reporting Requirement.--
            (1) In general.--Section 1852(e)(1) (42 U.S.C. 
        1395w-22(e)(1)) is amended by inserting ``(other than 
        MSA plans)'' after ``plans''.
            (2) Conforming amendments.--Section 1852 (42 U.S.C. 
        1395w-22) is amended--
                    (A) in subsection (c)(1)(I), by inserting 
                before the period at the end the following: ``, 
                if required under such section''; and
                    (B) in subsection (e)(2)(A), by striking 
                ``, a non-network MSA plan,''; and
                    (C) in subsection (e)(2)(B), by striking 
                ``, non-network msa plans,'' and ``, a non-
                network MSA plan,''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply on and after the date of the 
        enactment of this Act but shall not apply to contract 
        years beginning on or after January 1, 2006.
    (b) Making Program Permanent and Eliminating Cap.--Section 
1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
            (1) in the heading, by striking ``on a 
        demonstration basis'';
            (2) by striking the first sentence of subparagraph 
        (A); and
            (3) by striking the second sentence of subparagraph 
        (C).
    (c) Applying Limitations on Balance Billing.--Section 
1852(k)(1) (42 U.S.C. 1395w-22(k)(1)) is amended by inserting 
``or with an organization offering an MSA plan'' after 
``section 1851(a)(2)(A)''.
    (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 
1395w-21(e)(5)(A)) is amended--
            (1) by adding ``or'' at the end of clause (i);
            (2) by striking ``, or'' at the end of clause (ii) 
        and inserting a semicolon; and
            (3) by striking clause (iii).

SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

    Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 
1395mm(h)(5)) is amended to read as follows:
    ``(C)(i) Subject to clause (ii), a reasonable cost 
reimbursement contract under this subsection may be extended or 
renewed indefinitely.
    ``(ii) For any period beginning on or after January 1, 
2008, a reasonable cost reimbursement contract under this 
subsection may not be extended or renewed for a service area 
insofar as such area during the entire previous year was within 
the service area of--
            ``(I) 2 or more MA regional plans described in 
        clause (iii); or
            ``(II) 2 or more MA local plans described in clause 
        (iii).
    ``(iii) A plan described in this clause for a year for a 
service area is a plan described in section 1851(a)(2)(A)(i) if 
the service area for the year meets the following minimum 
enrollment requirements:
            ``(I) With respect to any portion of the area 
        involved that is within a Metropolitan Statistical Area 
        with a population of more than 250,000 and counties 
        contiguous to such Metropolitan Statistical Area, 5,000 
        individuals.
            ``(II) With respect to any other portion of such 
        area, 1,500 individuals.''.

SEC. 235. 2-YEAR EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
                    PROJECTS.

    The last sentence of section 9215(a) of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (42 U.S.C. 1395b-1 
note), as amended by section 6135 of the Omnibus Budget 
Reconciliation Act of 1989, section 13557 of the Omnibus Budget 
Reconciliation Act of 1993, section 4017 of BBA, section 534 of 
BBRA (113 Stat. 1501A-390), and section 633 of BIPA, is amended 
by striking ``December 31, 2004'' and inserting ``December 31, 
2006''.

SEC. 236. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID SERVICES 
                    FURNISHED BY NONCONTRACT PROVIDERS.

    (a) Medicare Services.--
            (1) Medicare services furnished by providers of 
        services.--Section 1866(a)(1)(O) (42 U.S.C. 
        1395cc(a)(1)(O)) is amended--
                    (A) by striking ``part C or'' and inserting 
                ``part C, with a PACE provider under section 
                1894 or 1934, or'';
                    (B) by striking ``(i)'';
                    (C) by striking ``and (ii)'';
                    (D) by inserting ``(or, in the case of a 
                PACE provider, contract or other agreement)'' 
                after ``have a contract''; and
                    (E) by striking ``members of the 
                organization'' and inserting ``members of the 
                organization or PACE program eligible 
                individuals enrolled with the PACE provider,''.
            (2) Medicare services furnished by physicians and 
        other entities.--Section 1894(b) (42 U.S.C. 1395eee(b)) 
        is amended by adding at the end the following new 
        paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage 
                requirement with respect to medicare services 
                furnished by noncontract physicians and other 
                entities.--Section 1852(k)(1) (relating to 
                limitations on balance billing against MA 
                organizations for noncontract physicians and 
                other entities with respect to services covered 
                under this title) shall apply to PACE 
                providers, PACE program eligible individuals 
                enrolled with such PACE providers, and 
                physicians and other entities that do not have 
                a contract or other agreement establishing 
                payment amounts for services furnished to such 
                an individual in the same manner as such 
                section applies to MA organizations, 
                individuals enrolled with such organizations, 
                and physicians and other entities referred to 
                in such section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the 
                provision relating to limitations on balance 
                billing against PACE providers for services 
                covered under this title furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).
            ``(4) Reference to related provision for services 
        covered under title xix but not under this title.--For 
        provisions relating to limitations on payments to 
        providers participating under the State plan under 
        title XIX that do not have a contract or other 
        agreement with a PACE provider establishing payment 
        amounts for services covered under such plan (but not 
        under this title) when such services are furnished to 
        enrollees of that PACE provider, see section 
        1902(a)(66).''.
    (b) Medicaid Services.--
            (1) Requirement under state plan.--Section 1902(a) 
        (42 U.S.C. 1396a(a)), as amended by section 103(a), is 
        amended--
                    (A) in paragraph (65), by striking ``and'' 
                at the end;
                    (B) in paragraph (66), by striking the 
                period at the end and inserting ``; and''; and
                    (C) by inserting after paragraph (66) the 
                following new paragraph:
            ``(67) provide, with respect to services covered 
        under the State plan (but not under title XVIII) that 
        are furnished to a PACE program eligible individual 
        enrolled with a PACE provider by a provider 
        participating under the State plan that does not have a 
        contract or other agreement with the PACE provider that 
        establishes payment amounts for such services, that 
        such participating provider may not require the PACE 
        provider to pay the participating provider an amount 
        greater than the amount that would otherwise be payable 
        for the service to the participating provider under the 
        State plan for the State where the PACE provider is 
        located (in accordance with regulations issued by the 
        Secretary).''.
            (2) Application under medicaid.--Section 1934(b) 
        (42 U.S.C. 1396u-4(b)) is amended by adding at the end 
        the following new paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage 
                requirement with respect to medicare services 
                furnished by noncontract physicians and other 
                entities.--Section 1852(k)(1) (relating to 
                limitations on balance billing against MA 
                organizations for noncontract physicians and 
                other entities with respect to services covered 
                under title XVIII) shall apply to PACE 
                providers, PACE program eligible individuals 
                enrolled with such PACE providers, and 
                physicians and other entities that do not have 
                a contract or other agreement establishing 
                payment amounts for services furnished to such 
                an individual in the same manner as such 
                section applies to MA organizations, 
                individuals enrolled with such organizations, 
                and physicians and other entities referred to 
                in such section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the 
                provision relating to limitations on balance 
                billing against PACE providers for services 
                covered under title XVIII furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).
            ``(4) Reference to related provision for services 
        covered under this title but not under title xviii.--
        For provisions relating to limitations on payments to 
        providers participating under the State plan under this 
        title that do not have a contract or other agreement 
        with a PACE provider establishing payment amounts for 
        services covered under such plan (but not under title 
        XVIII) when such services are furnished to enrollees of 
        that PACE provider, see section 1902(a)(67).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2004.

SEC. 237. REIMBURSEMENT FOR FEDERALLY QUALIFIED HEALTH CENTERS 
                    PROVIDING SERVICES UNDER MA PLANS.

    (a) Reimbursement.--Section 1833(a)(3) (42 U.S.C. 
1395l(a)(3)) is amended to read as follows:
            ``(3) in the case of services described in section 
        1832(a)(2)(D)--
                    ``(A) except as provided in subparagraph 
                (B), the costs which are reasonable and related 
                to the cost of furnishing such services or 
                which are based on such other tests of 
                reasonableness as the Secretary may prescribe 
                in regulations, including those authorized 
                under section 1861(v)(1)(A), less the amount a 
                provider may charge as described in clause (ii) 
                of section 1866(a)(2)(A), but in no case may 
                the payment for such services (other than for 
                items and services described in section 
                1861(s)(10)(A)) exceed 80 percent of such 
                costs; or
                    ``(B) with respect to the services 
                described in clause (ii) of section 
                1832(a)(2)(D) that are furnished to an 
                individual enrolled with a MA plan under part C 
                pursuant to a written agreement described in 
                section 1853(a)(4), the amount (if any) by 
                which--
                            ``(i) the amount of payment that 
                        would have otherwise been provided 
                        under subparagraph (A) (calculated as 
                        if `100 percent' were substituted for 
                        `80 percent' in such subparagraph) for 
                        such services if the individual had not 
                        been so enrolled; exceeds
                            ``(ii) the amount of the payments 
                        received under such written agreement 
                        for such services (not including any 
                        financial incentives provided for in 
                        such agreement such as risk pool 
                        payments, bonuses, or withholds),
                less the amount the Federally qualified health 
                center may charge as described in section 
                1857(e)(3)(B);''.
    (b) Continuation of Monthly Payments.--
            (1) In general.--Section 1853(a) (42 U.S.C. 1395w-
        23(a)) is amended by adding at the end the following 
        new paragraph:
            ``(4) Payment rule for federally qualified health 
        center services.--If an individual who is enrolled with 
        an MA plan under this part receives a service from a 
        Federally qualified health center that has a written 
        agreement with the MA organization that offers such 
        plan for providing such a service (including any 
        agreement required under section 1857(e)(3))--
                    ``(A) the Secretary shall pay the amount 
                determined under section 1833(a)(3)(B) directly 
                to the Federally qualified health center not 
                less frequently than quarterly; and
                    ``(B) the Secretary shall not reduce the 
                amount of the monthly payments under this 
                subsection as a result of the application of 
                subparagraph (A).''.
            (2) Conforming amendments.--
                    (A) Section 1851(i) (42 U.S.C. 1395w-21(i)) 
                is amended--
                            (i) in paragraph (1), by inserting 
                        ``1853(a)(4),'' after ``Subject to 
                        sections 1852(a)(5),''; and
                            (ii) in paragraph (2), by inserting 
                        ``1853(a)(4),'' after ``Subject to 
                        sections''.
                    (B) Section 1853(c)(5) is amended by 
                striking ``subsections (a)(3)(C)(iii) and (i)'' 
                and inserting ``subsections (a)(3)(C)(iii), 
                (a)(4), and (i)''.
    (c) Additional Contract Requirements.--Section 1857(e) (42 
U.S.C. 1395w-27(e)) is amended by adding at the end the 
following new paragraph:
            ``(3) Agreements with federally qualified health 
        centers.--
                    ``(A) Payment levels and amounts.--A 
                contract under this section with an MA 
                organization shall require the organization to 
                provide, in any written agreement described in 
                section 1853(a)(4) between the organization and 
                a Federally qualified health center, for a 
                level and amount of payment to the Federally 
                qualified health center for services provided 
                by such health center that is not less than the 
                level and amount of payment that the plan would 
                make for such services if the services had been 
                furnished by a entity providing similar 
                services that was not a Federally qualified 
                health center.
                    ``(B) Cost-sharing.--Under the written 
                agreement referred to in subparagraph (A), a 
                Federally qualified health center must accept 
                the payment amount referred to in such 
                subparagraph plus the Federal payment provided 
                for in section 1833(a)(3)(B) as payment in full 
                for services covered by the agreement, except 
                that such a health center may collect any 
                amount of cost-sharing permitted under the 
                contract under this section, so long as the 
                amounts of any deductible, coinsurance, or 
                copayment comply with the requirements under 
                section 1854(e).''.
    (d) Safe Harbor.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7b(b)(3)), as amended by section 101(f)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after 
        the semicolon at the end;
            (2) in subparagraph (G), by striking the period at 
        the end and inserting ``; and''; and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(H) any remuneration between a Federally 
                qualified health center (or an entity 
                controlled by such a health center) and an MA 
                organization pursuant to a written agreement 
                described in section 1853(a)(4).''.
    (e) Effective Date.--The amendments made by this section 
shall apply to services provided on or after January 1, 2006, 
and contract years beginning on or after such date.

SEC. 238. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON HEALTH CARE 
                    PERFORMANCE MEASURES.

    (a) Evaluation.--
            (1) In general.--Not later than the date that is 2 
        months after the date of the enactment of this Act, the 
        Secretary shall enter into an arrangement under which 
        the Institute of Medicine of the National Academy of 
        Sciences (in this section referred to as the 
        ``Institute'') shall conduct an evaluation of leading 
        health care performance measures in the public and 
        private sectors and options to implement policies that 
        align performance with payment under the medicare 
        program under title XVIII of the Social Security Act 
        (42 U.S.C. 1395 et seq.).
            (2) Specific matters evaluated.--In conducting the 
        evaluation under paragraph (1), the Institute shall--
                    (A) catalogue, review, and evaluate the 
                validity of leading health care performance 
                measures;
                    (B) catalogue and evaluate the success and 
                utility of alternative performance incentive 
                programs in public or private sector settings; 
                and
                    (C) identify and prioritize options to 
                implement policies that align performance with 
                payment under the medicare program that 
                indicate--
                            (i) the performance measurement set 
                        to be used and how that measurement set 
                        will be updated;
                            (ii) the payment policy that will 
                        reward performance; and
                            (iii) the key implementation issues 
                        (such as data and information 
                        technology requirements) that must be 
                        addressed.
            (3) Scope of health care performance measures.--The 
        health care performance measures described in paragraph 
        (2)(A) shall encompass a variety of perspectives, 
        including physicians, hospitals, other health care 
        providers, health plans, purchasers, and patients.
            (4) Consultation with medpac.--In evaluating the 
        matters described in paragraph (2)(C), the Institute 
        shall consult with the Medicare Payment Advisory 
        Commission established under section 1805 of the Social 
        Security Act (42 U.S.C. 1395b-6).
    (b) Report.--Not later than the date that is 18 months 
after the date of enactment of this Act, the Institute shall 
submit to the Secretary and appropriate committees of 
jurisdiction of the Senate and House of Representatives a 
report on the evaluation conducted under subsection (a)(1) 
describing the findings of such evaluation and recommendations 
for an overall strategy and approach for aligning payment with 
performance, including options for updating performance 
measures, in the original medicare fee-for-service program 
under parts A and B of title XVIII of the Social Security Act, 
the Medicare Advantage program under part C of such title, and 
any other programs under such title XVIII.
    (c) Authorization of Appropriations.--There are authorized 
to be appropriated such sums as may be necessary for purposes 
of conducting the evaluation and preparing the report required 
by this section.

         Subtitle E--Comparative Cost Adjustment (CCA) Program

SEC. 241. COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM.

    (a) In General.--Part C of title XVIII is amended by adding 
at the end the following new section:

              ``COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM

    ``Sec. 1860C-1. (a) Establishment of Program.--
            ``(1) In general.--The Secretary shall establish a 
        program under this section (in this section referred to 
        as the `CCA program') for the application of 
        comparative cost adjustment in CCA areas selected under 
        this section.
            ``(2) Duration.--The CCA program shall begin 
        January 1, 2010, and shall extend over a period of 6 
        years, and end on December 31, 2015.
            ``(3) Report.--Upon the completion of the CCA 
        program, the Secretary shall submit a report to 
        Congress. Such report shall include the following, with 
        respect to both this part and the original medicare 
        fee-for-service program:
                    ``(A) An evaluation of the financial impact 
                of the CCA program.
                    ``(B) An evaluation of changes in access to 
                physicians and other health care providers.
                    ``(C) Beneficiary satisfaction.
                    ``(D) Recommendations regarding any 
                extension or expansion of the CCA program.
    ``(b) Requirements for Selection of CCA Areas.--
            ``(1) CCA area defined.--
                    ``(A) In general.--For purposes of this 
                section, the term `CCA area' means an MSA that 
                meets the requirements of paragraph (2) and is 
                selected by the Secretary under subsection (c).
                    ``(B) MSA defined.--For purposes of this 
                section, the term `MSA' means a Metropolitan 
                Statistical Area (or such similar area as the 
                Secretary recognizes).
            ``(2) Requirements for cca areas.--The requirements 
        of this paragraph for an MSA to be a CCA area are as 
        follows:
                    ``(A) MA enrollment requirement.--For the 
                reference month (as defined under section 
                1858(f)(4)(B)) with respect to 2010, at least 
                25 percent of the total number of MA eligible 
                individuals who reside in the MSA were enrolled 
                in an MA local plan described in section 
                1851(a)(2)(A)(i).
                    ``(B) 2 plan requirement.--There will be 
                offered in the MSA during the annual, 
                coordinated election period under section 
                1851(e)(3)(B) before the beginning of 2010 at 
                least 2 MA local plans described in section 
                1851(a)(2)(A)(i) (in addition to the fee-for-
                service program under parts A and B), each 
                offered by a different MA organization and each 
                of which met the minimum enrollment 
                requirements of paragraph (1) of section 
                1857(b) (as applied without regard to paragraph 
                (3) thereof) as of the reference month.
    ``(c) Selection of CCA Areas.--
            ``(1) General selection criteria.--The Secretary 
        shall select CCA areas from among those MSAs qualifying 
        under subsection (b) in a manner that--
                    ``(A) seeks to maximize the opportunity to 
                test the application of comparative cost 
                adjustment under this title;
                    ``(B) does not seek to maximize the number 
                of MA eligible individuals who reside in such 
                areas; and
                    ``(C) provides for geographic diversity 
                consistent with the criteria specified in 
                paragraph (2).
            ``(2) Selection criteria.--With respect to the 
        selection of MSAs that qualify to be CCA areas under 
        subsection (b), the following rules apply, to the 
        maximum extent feasible:
                    ``(A) Maximum number.--The number of such 
                MSAs selected may not exceed the lesser of (i) 
                6, or (ii) 25 percent of the number of MSAs 
                that meet the requirement of subsection 
                (b)(2)(A).
                    ``(B) One of 4 largest areas by 
                population.--At least one such qualifying MSA 
                shall be selected from among the 4 such 
                qualifying MSAs with the largest total 
                population of MA eligible individuals.
                    ``(C) One of 4 areas with lowest population 
                density.--At least one such qualifying MSA 
                shall be selected from among the 4 such 
                qualifying MSAs with the lowest population 
                density (as measured by residents per square 
                mile or similar measure of density).
                    ``(D) Multistate area.--At least one such 
                qualifying MSA shall be selected that includes 
                a multi-State area. Such an MSA may be an MSA 
                described in subparagraph (B) or (C).
                    ``(E) Limitation within same geographic 
                region.--No more than 2 such MSAs shall be 
                selected that are, in whole or in part, within 
                the same geographic region (as specified by the 
                Secretary) of the United States.
                    ``(F) Priority to areas not within certain 
                demonstration projects.--Priority shall be 
                provided for those qualifying MSAs that do not 
                have a demonstration project in effect as of 
                the date of the enactment of this section for 
                medicare preferred provider organization plans 
                under this part.
    ``(d) Application of Comparative Cost Adjustment.--
            ``(1) In general.--In the case of a CCA area for a 
        year--
                    ``(A) for purposes of applying this part 
                with respect to payment for MA local plans, any 
                reference to an MA area-specific non-drug 
                monthly benchmark amount shall be treated as a 
                reference to such benchmark computed as if the 
                CCA area-specific non-drug monthly benchmark 
                amount (as defined in subsection (e)(1)) were 
                substituted for the amount described in section 
                1853(j)(1)(A) for the CCA area and year 
                involved, as phased in under paragraph (3); and
                    ``(B) with respect to months in the year 
                for individuals residing in the CCA area who 
                are not enrolled in an MA plan, the amount of 
                the monthly premium under section 1839 is 
                subject to adjustment under subsection (f).
            ``(2) Exclusion of ma local areas with fewer than 2 
        organizations offering ma plans.--
                    ``(A) In general.--In no case shall an MA 
                local area that is within an MSA be included as 
                part of a CCA area unless for 2010 (and, except 
                as provided in subparagraph (B), for a 
                subsequent year) there is offered in each part 
                of such MA local area at least 2 MA local plans 
                described in section 1851(a)(2)(A)(i) each of 
                which is offered by a different MA 
                organization.
                    ``(B) Continuation.--If an MA local area 
                meets the requirement of subparagraph (A) and 
                is included in a CCA area for 2010, such local 
                area shall continue to be included in such CCA 
                area for a subsequent year notwithstanding that 
                it no longer meets such requirement so long as 
                there is at least one MA local plan described 
                in section 1851(a)(2)(A)(i) that is offered in 
                such local area.
            ``(3) Phase-in of cca benchmark.--
                    ``(A) In general.--In applying this section 
                for a year before 2013, paragraph (1)(A) shall 
                be applied as if the phase-in fraction under 
                subparagraph (B) of the CCA non-drug monthly 
                benchmark amount for the year were substituted 
                for such fraction of the MA area-specific non-
                drug monthly benchmark amount.
                    ``(B) Phase-in fraction.--The phase-in 
                fraction under this subparagraph is--
                            ``(i) for 2010 \1/4\; and
                            ``(ii) for a subsequent year is the 
                        phase-in fraction under this 
                        subparagraph for the previous year 
                        increased by \1/4\, but in no case more 
                        than 1.
    ``(e) Computation of CCA Benchmark Amount.--
            ``(1) CCA non-drug monthly benchmark amount.--For 
        purposes of this section, the term `CCA non-drug 
        monthly benchmark amount' means, with respect to a CCA 
        area for a month in a year, the sum of the 2 components 
        described in paragraph (2) for the area and year. The 
        Secretary shall compute such benchmark amount for each 
        such CCA area before the beginning of each annual, 
        coordinated election period under section 1851(e)(3)(B) 
        for each year (beginning with 2010) in which the CCA 
        area is so selected.
            ``(2) 2 components.--For purposes of paragraph (1), 
        the 2 components described in this paragraph for a CCA 
        area and a year are the following:
                    ``(A) MA local component.--The product of 
                the following:
                            ``(i) Weighted average of medicare 
                        advantage plan bids in area.--The 
                        weighted average of the plan bids for 
                        the area and year (as determined under 
                        paragraph (3)(A)).
                            ``(ii) Non-ffs market share.--1 
                        minus the fee-for-service market share 
                        percentage, determined under paragraph 
                        (4) for the area and year.
                    ``(B) Fee-for-service component.--The 
                product of the following:
                            ``(i) Fee-for-service area-specific 
                        non-drug amount.--The fee-for-service 
                        area-specific non-drug amount (as 
                        defined in paragraph (5)) for the area 
                        and year.
                            ``(ii) Fee-for-service market 
                        share.--The fee-for-service market 
                        share percentage, determined under 
                        paragraph (4) for the area and year.
            ``(3) Determination of weighted average ma bids for 
        a cca area.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(A)(i), the weighted average of 
                plan bids for a CCA area and a year is, subject 
                to subparagraph (D), the sum of the following 
                products for MA local plans described in 
                subparagraph (C) in the area and year:
                            ``(i) Monthly medicare advantage 
                        statutory non-drug bid amount.--The 
                        accepted unadjusted MA statutory non-
                        drug monthly bid amount.
                            ``(ii) Plan's share of medicare 
                        advantage enrollment in area.--The 
                        number of individuals described in 
                        subparagraph (B), divided by the total 
                        number of such individuals for all MA 
                        plans described in subparagraph (C) for 
                        that area and year.
                    ``(B) Counting of individuals.--The 
                Secretary shall count, for each MA local plan 
                described in subparagraph (C) for an area and 
                year, the number of individuals who reside in 
                the area and who were enrolled under such plan 
                under this part during the reference month for 
                that year.
                    ``(C) Exclusion of plans not offered in 
                previous year.--For an area and year, the MA 
                local plans described in this subparagraph are 
                MA local plans described in section 
                1851(a)(2)(A)(i) that are offered in the area 
                and year and were offered in the CCA area in 
                the reference month.
                    ``(D) Computation of weighted average of 
                plan bids.--In calculating the weighted average 
                of plan bids for a CCA area under subparagraph 
                (A)--
                            ``(i) in the case of an MA local 
                        plan that has a service area only part 
                        of which is within such CCA area, the 
                        MA organization offering such plan 
                        shall submit a separate bid for such 
                        plan for the portion within such CCA 
                        area; and
                            ``(ii) the Secretary shall adjust 
                        such separate bid (or, in the case of 
                        an MA local plan that has a service 
                        area entirely within such CCA area, the 
                        plan bid) as may be necessary to take 
                        into account differences between the 
                        service area of such plan within the 
                        CCA area and the entire CCA area and 
                        the distribution of plan enrollees of 
                        all MA local plans offered within the 
                        CCA area.
            ``(4) Computation of fee-for-service market share 
        percentage.--The Secretary shall determine, for a year 
        and a CCA area, the proportion (in this subsection 
        referred to as the `fee-for-service market share 
        percentage') equal to--
                    ``(A) the total number of MA eligible 
                individuals residing in such area who during 
                the reference month for the year were not 
                enrolled in any MA plan; divided by
                    ``(B) the sum of such number and the total 
                number of MA eligible individuals residing in 
                such area who during such reference month were 
                enrolled in an MA local plan described in 
                section 1851(a)(2)(A)(i),
        or, if greater, such proportion determined for 
        individuals nationally.
            ``(5) Fee-for-service area-specific non-drug 
        amount.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(B)(i) and subsection (f)(2)(A), 
                subject to subparagraph (C), the term `fee-for-
                service area-specific non-drug amount' means, 
                for a CCA area and a year, the adjusted average 
                per capita cost for such area and year 
                involved, determined under section 1876(a)(4) 
                and adjusted as appropriate for the purpose of 
                risk adjustment for benefits under the original 
                medicare fee-for-service program option for 
                individuals entitled to benefits under part A 
                and enrolled under part B who are not enrolled 
                in an MA plan for the year, but adjusted to 
                exclude costs attributable to payments under 
                section 1886(h).
                    ``(B) Use of full risk adjustment to 
                standardize fee-for-service costs to typical 
                beneficiary.--In determining the adjusted 
                average per capita cost for an area and year 
                under subparagraph (A), such costs shall be 
                adjusted to fully take into account the 
                demographic and health status risk factors 
                established under section 1853(a)(1)(A)(iv) so 
                that such per capita costs reflect the average 
                costs for a typical beneficiary residing in the 
                CCA area.
                    ``(C) Inclusion of costs of va and dod 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the adjusted 
                average per capita cost under subparagraph (A) 
                for a year, such cost shall be adjusted to 
                include the Secretary's estimate, on a per 
                capita basis, of the amount of additional 
                payments that would have been made in the area 
                involved under this title if individuals 
                entitled to benefits under this title had not 
                received services from facilities of the 
                Department of Veterans Affairs or the 
                Department of Defense.
    ``(f) Premium Adjustment.--
            ``(1) Application.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), in the case of an individual 
                who is enrolled under part B, who resides in a 
                CCA area, and who is not enrolled in an MA plan 
                under this part, the monthly premium otherwise 
                applied under part B (determined without regard 
                to subsections (b), (f), and (i) of section 
                1839 or any adjustment under this subsection) 
                shall be adjusted in accordance with paragraph 
                (2), but only in the case of premiums for 
                months during the period in which the CCA 
                program under this section for such area is in 
                effect.
                    ``(B) No premium adjustment for subsidy 
                eligible beneficiaries.--No premium adjustment 
                shall be made under this subsection for a 
                premium for a month if the individual is 
                determined to be a subsidy eligible individual 
                (as defined in section 1860D-14(a)(3)(A)) for 
                the month.
            ``(2) Amount of adjustment.--
                    ``(A) In general.--Under this paragraph, 
                subject to the exemption under paragraph (1)(B) 
                and the limitation under subparagraph (B), if 
                the fee-for-service area-specific non-drug 
                amount (as defined in section (e)(5)) for a CCA 
                area in which an individual resides for a 
                month--
                            ``(i) does not exceed the CCA non-
                        drug monthly benchmark amount (as 
                        determined under subsection (e)(1)) for 
                        such area and month, the amount of the 
                        premium for the individual for the 
                        month shall be reduced, by an amount 
                        equal to 75 percent of the amount by 
                        which such CCA benchmark exceeds such 
                        fee-for-service area-specific non-drug 
                        amount; or
                            ``(ii) exceeds such CCA non-drug 
                        benchmark, the amount of the premium 
                        for the individual for the month shall 
                        be adjusted to ensure, that--
                                    ``(I) the sum of the amount 
                                of the adjusted premium and the 
                                CCA non-drug benchmark for the 
                                area; is equal to
                                    ``(II) the sum of the 
                                unadjusted premium plus the 
                                amount of such fee-for-service 
                                area-specific non-drug amount 
                                for the area.
                    ``(B) Limitation.--In no case shall the 
                actual amount of an adjustment under 
                subparagraph (A) for an area and month in a 
                year result in an adjustment that exceeds the 
                maximum adjustment permitted under subparagraph 
                (C) for the area and year, or, if less, the 
                maximum annual adjustment permitted under 
                subparagraph (D) for the area and year.
                    ``(C) Phase-in of adjustment.--The amount 
                of an adjustment under subparagraph (A) for a 
                CCA area and year may not exceed the product of 
                the phase-in fraction for the year under 
                subsection (d)(3)(B) multiplied by the amount 
                of the adjustment otherwise computed under 
                subparagraph (A) for the area and year, 
                determined without regard to this subparagraph 
                and subparagraph (D).
                    ``(D) 5-percent limitation on adjustment.--
                The amount of the adjustment under this 
                subsection for months in a year shall not 
                exceed 5 percent of the amount of the monthly 
                premium amount determined for months in the 
                year under section 1839 without regard to 
                subsections (b), (f), and (i) of such section 
                and this subsection.''.
    (b) Conforming Amendments.--
            (1) MA local plans.--
                    (A) Section 1853(j)(1)(A) (42 U.S.C. 1395w-
                23(j)(1)(A)), as added by section 222(d), is 
                amended by inserting ``subject to section 
                1860C-1(d)(2)(A),'' after ``within an MA local 
                area,''.
                    (B) Section 1853(b)(1)(B), as amended by 
                section 222(f)(1), is amended by adding at the 
                end the following new clause:
                            ``(iii) Benchmark announcement for 
                        cca local areas.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each CCA area (as 
                        defined in section 1860C-1(b)(1)(A)), 
                        the CCA non-drug monthly benchmark 
                        amount under section 1860C-1(e)(1) for 
                        that area for the year involved.''.
            (2) Premium adjustment.--
                    (A) Section 1839 (42 U.S.C. 1395r) is 
                amended by adding at the end the following new 
                subsection:
    ``(h) Potential Application of Comparative Cost Adjustment 
in CCA Areas.--
            ``(1) In general.--Certain individuals who are 
        residing in a CCA area under section 1860C-1 who are 
        not enrolled in an MA plan under part C may be subject 
        to a premium adjustment under subsection (f) of such 
        section for months in which the CCA program under such 
        section is in effect in such area.
            ``(2) No effect on late enrollment penalty or 
        income-related adjustment in subsidies.--Nothing in 
        this subsection or section 1860C-1(f) shall be 
        construed as affecting the amount of any premium 
        adjustment under subsection (b) or (i). Subsection (f) 
        shall be applied without regard to any premium 
        adjustment referred to in paragraph (1).
            ``(3) Implementation.--In order to carry out a 
        premium adjustment under this subsection and section 
        1860C-1(f) (insofar as it is effected through the 
        manner of collection of premiums under section 
        1840(a)), the Secretary shall transmit to the 
        Commissioner of Social Security--
                    ``(A) at the beginning of each year, the 
                name, social security account number, and the 
                amount of the premium adjustment (if any) for 
                each individual enrolled under this part for 
                each month during the year; and
                    ``(B) periodically throughout the year, 
                information to update the information 
                previously transmitted under this paragraph for 
                the year.''.
                    (B) Section 1844(c) (42 U.S.C. 1395w(c)) is 
                amended by inserting ``and without regard to 
                any premium adjustment effected under sections 
                1839(h) and 1860C-1(f)'' before the period at 
                the end.
    (c) No Change in Medicare's Defined Benefit Package.--
Nothing in this part (or the amendments made by this part) 
shall be construed as changing the entitlement to defined 
benefits under parts A and B of title XVIII of the Social 
Security Act.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

    (a) Technical Amendment Concerning Secretary's Authority To 
Make Conditional Payment When Certain Primary Plans Do Not Pay 
Promptly.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is 
amended--
            (1) in subparagraph (A)(ii), by striking ``promptly 
        (as determined in accordance with regulations)''; and
            (2) in subparagraph (B)--
                    (A) by redesignating clauses (i) through 
                (v) as clauses (ii) through (vi), respectively; 
                and
                    (B) by inserting before clause (ii), as so 
                redesignated, the following new clause:
                            ``(i) Authority to make conditional 
                        payment.--The Secretary may make 
                        payment under this title with respect 
                        to an item or service if a primary plan 
                        described in subparagraph (A)(ii) has 
                        not made or cannot reasonably be 
                        expected to make payment with respect 
                        to such item or service promptly (as 
                        determined in accordance with 
                        regulations). Any such payment by the 
                        Secretary shall be conditioned on 
                        reimbursement to the appropriate Trust 
                        Fund in accordance with the succeeding 
                        provisions of this subsection.''.
    (b) Clarifying Amendments to Conditional Payment 
Provisions.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as 
amended by subsection (a), is amended--
            (1) in subparagraph (A), in the matter following 
        clause (ii), by inserting the following sentence at the 
        end: ``An entity that engages in a business, trade, or 
        profession shall be deemed to have a self-insured plan 
        if it carries its own risk (whether by a failure to 
        obtain insurance, or otherwise) in whole or in part.'';
            (2) in subparagraph (B)(ii), as redesignated by 
        subsection (a)(2)(A)--
                    (A) by striking the first sentence and 
                inserting the following: ``A primary plan, and 
                an entity that receives payment from a primary 
                plan, shall reimburse the appropriate Trust 
                Fund for any payment made by the Secretary 
                under this title with respect to an item or 
                service if it is demonstrated that such primary 
                plan has or had a responsibility to make 
                payment with respect to such item or service. A 
                primary plan's responsibility for such payment 
                may be demonstrated by a judgment, a payment 
                conditioned upon the recipient's compromise, 
                waiver, or release (whether or not there is a 
                determination or admission of liability) of 
                payment for items or services included in a 
                claim against the primary plan or the primary 
                plan's insured, or by other means.''; and
                    (B) in the final sentence, by striking ``on 
                the date such notice or other information is 
                received'' and inserting ``on the date notice 
                of, or information related to, a primary plan's 
                responsibility for such payment or other 
                information is received''; and
            (3) in subparagraph (B)(iii), as redesignated by 
        subsection (a)(2)(A), by striking the first sentence 
        and inserting the following: ``In order to recover 
        payment made under this title for an item or service, 
        the United States may bring an action against any or 
        all entities that are or were required or responsible 
        (directly, as an insurer or self-insurer, as a third-
        party administrator, as an employer that sponsors or 
        contributes to a group health plan, or large group 
        health plan, or otherwise) to make payment with respect 
        to the same item or service (or any portion thereof) 
        under a primary plan. The United States may, in 
        accordance with paragraph (3)(A) collect double damages 
        against any such entity. In addition, the United States 
        may recover under this clause from any entity that has 
        received payment from a primary plan or from the 
        proceeds of a primary plan's payment to any entity.''.
    (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 
1395y(b)) is amended--
            (1) in paragraph (1)(A), by moving the indentation 
        of clauses (ii) through (v) 2 ems to the left; and
            (2) in paragraph (3)(A), by striking ``such'' 
        before ``paragraphs''.
    (d) Effective Dates.--The amendments made by this section 
shall be effective--
            (1) in the case of subsection (a), as if included 
        in the enactment of title III of the Medicare and 
        Medicaid Budget Reconciliation Amendments of 1984 
        (Public Law 98-369); and
            (2) in the case of subsections (b) and (c), as if 
        included in the enactment of section 953 of the Omnibus 
        Reconciliation Act of 1980 (Public Law 96-499; 94 Stat. 
        2647).

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

    (a) Quality Enhancement and Fraud Reduction.--
            (1) Establishment of quality standards and 
        accreditation requirements for durable medical 
        equipment suppliers.--Section 1834(a) (42 U.S.C. 
        1395m(a)) is amended--
                    (A) by transferring paragraph (17), as 
                added by section 4551(c)(1) of the Balanced 
                Budget Act of 1997 (111 Stat. 458), to the end 
                of such section and redesignating such 
                paragraph as paragraph (19); and
                    (B) by adding at the end the following new 
                paragraph:
            ``(20) Identification of quality standards.--
                    ``(A) In general.--Subject to subparagraph 
                (C), the Secretary shall establish and 
                implement quality standards for suppliers of 
                items and services described in subparagraph 
                (D) to be applied by recognized independent 
                accreditation organizations (as designated 
                under subparagraph (B)) and with which such 
                suppliers shall be required to comply in order 
                to--
                            ``(i) furnish any such item or 
                        service for which payment is made under 
                        this part; and
                            ``(ii) receive or retain a provider 
                        or supplier number used to submit 
                        claims for reimbursement for any such 
                        item or service for which payment may 
                        be made under this title.
                    ``(B) Designation of independent 
                accreditation organizations.--Not later than 
                the date that is 1 year after the date on which 
                the Secretary implements the quality standards 
                under subparagraph (A), notwithstanding section 
                1865(b), the Secretary shall designate and 
                approve one or more independent accreditation 
                organizations for purposes of such 
                subparagraph.
                    ``(C) Quality standards.--The quality 
                standards described in subparagraph (A) may not 
                be less stringent than the quality standards 
                that would otherwise apply if this paragraph 
                did not apply and shall include consumer 
                services standards.
                    ``(D) Items and services described.--The 
                items and services described in this 
                subparagraph are the following items and 
                services, as the Secretary determines 
                appropriate:
                            ``(i) Covered items (as defined in 
                        paragraph (13)) for which payment may 
                        otherwise be made under this 
                        subsection.
                            ``(ii) Prosthetic devices and 
                        orthotics and prosthetics described in 
                        section 1834(h)(4).
                            ``(iii) Items and services 
                        described in section 1842(s)(2).
                    ``(E) Implementation.--The Secretary may 
                establish by program instruction or otherwise 
                the quality standards under this paragraph, 
                after consultation with representatives of 
                relevant parties. Such standards shall be 
                applied prospectively and shall be published on 
                the Internet website of the Centers for 
                Medicare & Medicaid Services.''.
            (2) Establishment of clinical conditions of 
        coverage standards for items of durable medical 
        equipment.--Section 1834(a)(1) (42 U.S.C. 1395m(a)(1)) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(E) Clinical conditions for coverage.--
                            ``(i) In general.--The Secretary 
                        shall establish standards for clinical 
                        conditions for payment for covered 
                        items under this subsection.
                            ``(ii) Requirements.--The standards 
                        established under clause (i) shall 
                        include the specification of types or 
                        classes of covered items that require, 
                        as a condition of payment under this 
                        subsection, a face-to-face examination 
                        of the individual by a physician (as 
                        defined in section 1861(r)(1)), a 
                        physician assistant, nurse 
                        practitioner, or a clinical nurse 
                        specialist (as those terms are defined 
                        in section 1861(aa)(5)) and a 
                        prescription for the item.
                            ``(iii) Priority of establishment 
                        of standards.--In establishing the 
                        standards under this subparagraph, the 
                        Secretary shall first establish 
                        standards for those covered items for 
                        which the Secretary determines there 
                        has been a proliferation of use, 
                        consistent findings of charges for 
                        covered items that are not delivered, 
                        or consistent findings of falsification 
                        of documentation to provide for payment 
                        of such covered items under this part.
                            ``(iv) Standards for power 
                        wheelchairs.--Effective on the date of 
                        the enactment of this subparagraph, in 
                        the case of a covered item consisting 
                        of a motorized or power wheelchair for 
                        an individual, payment may not be made 
                        for such covered item unless a 
                        physician (as defined in section 
                        1861(r)(1)), a physician assistant, 
                        nurse practitioner, or a clinical nurse 
                        specialist (as those terms are defined 
                        in section 1861(aa)(5)) has conducted a 
                        face-to-face examination of the 
                        individual and written a prescription 
                        for the item.
                            ``(v) Limitation on payment for 
                        covered items.--Payment may not be made 
                        for a covered item under this 
                        subsection unless the item meets any 
                        standards established under this 
                        subparagraph for clinical condition of 
                        coverage.''.
    (b) Competitive Acquisition.--
            (1) In general.--Section 1847 (42 U.S.C. 1395w-3) 
        is amended to read as follows:

        ``COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

    ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
            ``(1) Implementation of programs.--
                    ``(A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                    ``(B) Phased-in implementation.--The 
                programs--
                            ``(i) shall be phased in among 
                        competitive acquisition areas in a 
                        manner so that the competition under 
                        the programs occurs in--
                                    ``(I) 10 of the largest 
                                metropolitan statistical areas 
                                in 2007;
                                    ``(II) 80 of the largest 
                                metropolitan statistical areas 
                                in 2009; and
                                    ``(III) additional areas 
                                after 2009; and
                            ``(ii) may be phased in first among 
                        the highest cost and highest volume 
                        items and services or those items and 
                        services that the Secretary determines 
                        have the largest savings potential.
                    ``(C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
            ``(2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                    ``(A) Durable medical equipment and medical 
                supplies.--Covered items (as defined in section 
                1834(a)(13)) for which payment would otherwise 
                be made under section 1834(a), including items 
                used in infusion and drugs (other than 
                inhalation drugs) and supplies used in 
                conjunction with durable medical equipment, but 
                excluding class III devices under the Federal 
                Food, Drug, and Cosmetic Act.
                    ``(B) Other equipment and supplies.--Items 
                and services described in section 
                1842(s)(2)(D), other than parenteral nutrients, 
                equipment, and supplies.
                    ``(C) Off-the-shelf orthotics.--Orthotics 
                described in section 1861(s)(9) for which 
                payment would otherwise be made under section 
                1834(h) which require minimal self-adjustment 
                for appropriate use and do not require 
                expertise in trimming, bending, molding, 
                assembling, or customizing to fit to the 
                individual.
            ``(3) Exception authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                    ``(A) rural areas and areas with low 
                population density within urban areas that are 
                not competitive, unless there is a significant 
                national market through mail order for a 
                particular item or service; and
                    ``(B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
            ``(4) Special rule for certain rented items of 
        durable medical equipment and oxygen.--In the case of a 
        covered item for which payment is made on a rental 
        basis under section 1834(a) and in the case of payment 
        for oxygen under section 1834(a)(5), the Secretary 
        shall establish a process by which rental agreements 
        for the covered items and supply arrangements with 
        oxygen suppliers entered into before the application of 
        the competitive acquisition program under this section 
        for the item may be continued notwithstanding this 
        section. In the case of any such continuation, the 
        supplier involved shall provide for appropriate 
        servicing and replacement, as required under section 
        1834(a).
            ``(5) Physician authorization.--
                    ``(A) In general.--With respect to items or 
                services included within a particular HCPCS 
                code, the Secretary may establish a process for 
                certain items and services under which a 
                physician may prescribe a particular brand or 
                mode of delivery of an item or service within 
                such code if the physician determines that use 
                of the particular item or service would avoid 
                an adverse medical outcome on the individual, 
                as determined by the Secretary.
                    ``(B) No effect on payment amount.--A 
                prescription under subparagraph (A) shall not 
                affect the amount of payment otherwise 
                applicable for the item or service under the 
                code involved.
            ``(6) Application.--For each competitive 
        acquisition area in which the program is implemented 
        under this subsection with respect to items and 
        services, the payment basis determined under the 
        competition conducted under subsection (b) shall be 
        substituted for the payment basis otherwise applied 
        under section 1834(a), section 1834(h), or section 
        1842(s), as appropriate.
    ``(b) Program Requirements.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in an competitive 
                acquisition area pursuant to paragraph (1) to 
                furnish such items or services unless the 
                Secretary finds all of the following:
                            ``(i) The entity meets applicable 
                        quality standards specified by the 
                        Secretary under section 1834(a)(20).
                            ``(ii) The entity meets applicable 
                        financial standards specified by the 
                        Secretary, taking into account the 
                        needs of small providers.
                            ``(iii) The total amounts to be 
                        paid to contractors in a competitive 
                        acquisition area are expected to be 
                        less than the total amounts that would 
                        otherwise be paid.
                            ``(iv) Access of individuals to a 
                        choice of multiple suppliers in the 
                        area is maintained.
                    ``(B) Timely implementation of program.--
                Any delay in the implementation of quality 
                standards under section 1834(a)(20) or delay in 
                the receipt of advice from the program 
                oversight committee established under 
                subsection (c) shall not delay the 
                implementation of the competitive acquisition 
                program under this section.
            ``(3) Contents of contract.--
                    ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                    ``(B) Term of contracts.--The Secretary 
                shall recompete contracts under this section 
                not less often than once every 3 years.
            ``(4) Limit on number of contractors.--
                    ``(A) In general.--The Secretary may limit 
                the number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of individuals for such items 
                or services in the geographic area covered 
                under the contract on a timely basis.
                    ``(B) Multiple winners.--The Secretary 
                shall award contracts to multiple entities 
                submitting bids in each area for an item or 
                service.
            ``(5) Payment.--
                    ``(A) In general.--Payment under this part 
                for competitively priced items and services 
                described in subsection (a)(2) shall be based 
                on bids submitted and accepted under this 
                section for such items and services. Based on 
                such bids the Secretary shall determine a 
                single payment amount for each item or service 
                in each competitive acquisition area.
                    ``(B) Reduced beneficiary cost-sharing.--
                            ``(i) Application of coinsurance.--
                        Payment under this section for items 
                        and services shall be in an amount 
                        equal to 80 percent of the payment 
                        basis described in subparagraph (A).
                            ``(ii) Application of deductible.--
                        Before applying clause (i), the 
                        individual shall be required to meet 
                        the deductible described in section 
                        1833(b).
                    ``(C) Payment on assignment-related 
                basis.--Payment for any item or service 
                furnished by the entity may only be made under 
                this section on an assignment-related basis.
                    ``(D) Construction.--Nothing in this 
                section shall be construed as precluding the 
                use of an advanced beneficiary notice with 
                respect to a competitively priced item and 
                service.
            ``(6) Participating contractors.--
                    ``(A) In general.--Except as provided in 
                subsection (a)(4), payment shall not be made 
                for items and services described in subsection 
                (a)(2) furnished by a contractor and for which 
                competition is conducted under this section 
                unless--
                            ``(i) the contractor has submitted 
                        a bid for such items and services under 
                        this section; and
                            ``(ii) the Secretary has awarded a 
                        contract to the contractor for such 
                        items and services under this section.
                    ``(B) Bid defined.--In this section, the 
                term `bid' means an offer to furnish an item or 
                service for a particular price and time period 
                that includes, where appropriate, any services 
                that are attendant to the furnishing of the 
                item or service.
                    ``(C) Rules for mergers and acquisitions.--
                In applying subparagraph (A) to a contractor, 
                the contractor shall include a successor entity 
                in the case of a merger or acquisition, if the 
                successor entity assumes such contract along 
                with any liabilities that may have occurred 
                thereunder.
                    ``(D) Protection of small suppliers.--In 
                developing procedures relating to bids and the 
                awarding of contracts under this section, the 
                Secretary shall take appropriate steps to 
                ensure that small suppliers of items and 
                services have an opportunity to be considered 
                for participation in the program under this 
                section.
            ``(7) Consideration in determining categories for 
        bids.--The Secretary may consider the clinical 
        efficiency and value of specific items within codes, 
        including whether some items have a greater therapeutic 
        advantage to individuals.
            ``(8) Authority to contract for education, 
        monitoring, outreach, and complaint services.--The 
        Secretary may enter into contracts with appropriate 
        entities to address complaints from individuals who 
        receive items and services from an entity with a 
        contract under this section and to conduct appropriate 
        education of and outreach to such individuals and 
        monitoring quality of services with respect to the 
        program.
            ``(9) Authority to contract for implementation.--
        The Secretary may contract with appropriate entities to 
        implement the competitive bidding program under this 
        section.
            ``(10) No administrative or judicial review.--There 
        shall be no administrative or judicial review under 
        section 1869, section 1878, or otherwise, of--
                    ``(A) the establishment of payment amounts 
                under paragraph (5);
                    ``(B) the awarding of contracts under this 
                section;
                    ``(C) the designation of competitive 
                acquisition areas under subsection (a)(1)(A);
                    ``(D) the phased-in implementation under 
                subsection (a)(1)(B);
                    ``(E) the selection of items and services 
                for competitive acquisition under subsection 
                (a)(2); or
                    ``(F) the bidding structure and number of 
                contractors selected under this section.
    ``(c) Program Advisory and Oversight Committee.--
            ``(1) Establishment.--The Secretary shall establish 
        a Program Advisory and Oversight Committee (hereinafter 
        in this section referred to as the `Committee').
            ``(2) Membership; terms.--The Committee shall 
        consist of such members as the Secretary may appoint 
        who shall serve for such term as the Secretary may 
        specify.
            ``(3) Duties.--
                    ``(A) Advice.--The Committee shall provide 
                advice to the Secretary with respect to the 
                following functions:
                            ``(i) The implementation of the 
                        program under this section.
                            ``(ii) The establishment of 
                        financial standards for purposes of 
                        subsection (b)(2)(A)(ii).
                            ``(iii) The establishment of 
                        requirements for collection of data for 
                        the efficient management of the 
                        program.
                            ``(iv) The development of proposals 
                        for efficient interaction among 
                        manufacturers, providers of services, 
                        suppliers (as defined in section 
                        1861(d)), and individuals.
                            ``(v) The establishment of quality 
                        standards under section 1834(a)(20).
                    ``(B) Additional duties.--The Committee 
                shall perform such additional functions to 
                assist the Secretary in carrying out this 
                section as the Secretary may specify.
            ``(4) Inapplicability of faca.--The provisions of 
        the Federal Advisory Committee Act (5 U.S.C. App.) 
        shall not apply.
            ``(5) Termination.--The Committee shall terminate 
        on December 31, 2009.
    ``(d) Report.--Not later than July 1, 2009, the Secretary 
shall submit to Congress a report on the programs under this 
section. The report shall include information on savings, 
reductions in cost-sharing, access to and quality of items and 
services, and satisfaction of individuals.
    ``(e) Demonstration Project for Clinical Laboratory 
Services.--
            ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                    ``(A) for which payment would otherwise be 
                made under section 1833(h) (other than for pap 
                smear laboratory tests under paragraph (7) of 
                such section) or section 1834(d)(1) (relating 
                to colorectal cancer screening tests); and
                    ``(B) which are furnished by entities that 
                did not have a face-to-face encounter with the 
                individual.
            ``(2) Terms and conditions.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), such project shall be under 
                the same conditions as are applicable to items 
                and services described in subsection (a)(2), 
                excluding subsection (b)(5)(B) and other 
                conditions as the Secretary determines to be 
                appropriate.
                    ``(B) Application of clia quality 
                standards.--The quality standards established 
                by the Secretary under section 353 of the 
                Public Health Service Act for clinical 
                diagnostic laboratory tests shall apply to such 
                tests under the demonstration project under 
                this section in lieu of quality standards 
                described in subsection (b)(2)(A)(i).
            ``(3) Report.--The Secretary shall submit to 
        Congress--
                    ``(A) an initial report on the project not 
                later than December 31, 2005; and
                    ``(B) such progress and final reports on 
                the project after such date as the Secretary 
                determines appropriate.''.
            (2) Conforming amendments.--Section 1833(a)(1) (42 
        U.S.C. 1395l(a)(1)) is amended--
                    (A) by striking ``and (U)'' and inserting 
                ``(U)'';
                    (B) by inserting before the semicolon at 
                the end the following: ``, and (V) 
                notwithstanding subparagraphs (I) (relating to 
                durable medical equipment), (M) (relating to 
                prosthetic devices and orthotics and 
                prosthetics), and (Q) (relating to 1842(s) 
                items), with respect to competitively priced 
                items and services (described in section 
                1847(a)(2)) that are furnished in a competitive 
                area, the amounts paid shall be the amounts 
                described in section 1847(b)(5)''; and
                    (C) in clause (D)--
                            (i) by striking ``or (ii)'' and 
                        inserting ``(ii)''; and
                            (ii) by adding at the end the 
                        following: ``or (iii) on the basis of a 
                        rate established under a demonstration 
                        project under section 1847(e), the 
                        amount paid shall be equal to 100 
                        percent of such rate,''.
            (3) GAO report on impact of competitive acquisition 
        on suppliers.--
                    (A) Study.--The Comptroller General of the 
                United States shall conduct a study on the 
                impact of competitive acquisition of durable 
                medical equipment under section 1847 of the 
                Social Security Act, as amended by paragraph 
                (1), on suppliers and manufacturers of such 
                equipment and on patients. Such study shall 
                specifically examine the impact of such 
                competitive acquisition on access to, and 
                quality of, such equipment and service related 
                to such equipment.
                    (B) Report.--Not later than January 1, 
                2009, the Comptroller General shall submit to 
                Congress a report on the study conducted under 
                subparagraph (A) and shall include in the 
                report such recommendations as the Comptroller 
                General determines appropriate.
    (c) Transitional Freeze.--
            (1) DME.--
                    (A) In general.--Section 1834(a)(14) (42 
                U.S.C. 1395m(a)(14)) is amended--
                            (i) in subparagraph (E), by 
                        striking ``and'' at the end;
                            (ii) in subparagraph (F)--
                                    (I) by striking ``a 
                                subsequent year'' and inserting 
                                ``2003''; and
                                    (II) by striking ``the 
                                previous year.'' and inserting 
                                ``2002;''; and
                            (iii) by adding at the end the 
                        following new subparagraphs:
                    ``(G) for 2004 through 2006--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage increase described in 
                        subparagraph (B) for the year involved; 
                        and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points;
                    ``(H) for 2007--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage change determined by the 
                        Secretary to be appropriate taking into 
                        account recommendations contained in 
                        the report of the Comptroller General 
                        of the United States under section 
                        302(c)(1)(B) of the Medicare 
                        Prescription Drug, Improvement, and 
                        Modernization Act of 2003; and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points; and
                    ``(I) for 2008--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage increase described in 
                        subparagraph (B) (as applied to the 
                        payment amount for 2007 determined 
                        after the application of the percentage 
                        change under subparagraph (H)(i)); and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points; and
                    ``(J) for a subsequent year, the percentage 
                increase in the consumer price index for all 
                urban consumers (U.S. urban average) for the 
                12-month period ending with June of the 
                previous year.''.
                    (B) GAO report on class iii medical 
                devices.--Not later than March 1, 2006, the 
                Comptroller General of the United States shall 
                submit to Congress, and transmit to the 
                Secretary, a report containing recommendations 
                on the appropriate update percentage under 
                section 1834(a)(14) of the Social Security Act 
                (42 U.S.C. 1395m(a)(14)) for class III medical 
                devices described in section 513(a)(1)(C) of 
                the Federal Food, Drug, and Cosmetic Act (21 
                U.S.C. 360(a)(1)(C)) furnished to medicare 
                beneficiaries during 2007 and 2008.
            (2) Payment rule for specified items.--Section 
        1834(a) (42 U.S.C. 1395m(a)), as amended by subsection 
        (a), is further amended by adding at the end the 
        following new paragraph:
            ``(21) Special payment rule for specified items and 
        supplies.--
                    ``(A) In general.--Notwithstanding the 
                preceding provisions of this subsection, for 
                specified items and supplies (described in 
                subparagraph (B)) furnished during 2005, the 
                payment amount otherwise determined under this 
                subsection for such specified items and 
                supplies shall be reduced by the percentage 
                difference between--
                            ``(i) the amount of payment 
                        otherwise determined for the specified 
                        item or supply under this subsection 
                        for 2002, and
                            ``(ii) the amount of payment for 
                        the specified item or supply under 
                        chapter 89 of title 5, United States 
                        Code, as identified in the column 
                        entitled `Median FEHP Price' in the 
                        table entitled `SUMMARY OF MEDICARE 
                        PRICES COMPARED TO VA, MEDICAID, 
                        RETAIL, AND FEHP PRICES FOR 16 ITEMS' 
                        included in the Testimony of the 
                        Inspector General before the Senate 
                        Committee on Appropriations, June 12, 
                        2002, or any subsequent report by the 
                        Inspector General.
                    ``(B) Specified item or supply described.--
                For purposes of subparagraph (A), a specified 
                item or supply means oxygen and oxygen 
                equipment, standard wheelchairs (including 
                standard power wheelchairs), nebulizers, 
                diabetic supplies consisting of lancets and 
                testing strips, hospital beds, and air 
                mattresses, but only if the HCPCS code for the 
                item or supply is identified in a table 
                referred to in subparagraph (A)(ii).
                    ``(C) Application of update to special 
                payment amount.--The covered item update under 
                paragraph (14) for specified items and supplies 
                for 2006 and each subsequent year shall be 
                applied to the payment amount under 
                subparagraph (A) unless payment is made for 
                such items and supplies under section 1847.''.
            (3) Prosthetic devices and orthotics and 
        prosthetics.--Section 1834(h)(4)(A) (42 U.S.C. 
        1395m(h)(4)(A)) is amended--
                    (A) in clause (vii), by striking ``and'' at 
                the end;
                    (B) in clause (viii), by striking ``a 
                subsequent year'' and inserting ``2003''; and
                    (C) by adding at the end the following new 
                clauses:
                            ``(ix) for 2004, 2005, and 2006, 0 
                        percent; and
                            ``(x) for a subsequent year, the 
                        percentage increase in the consumer 
                        price index for all urban consumers 
                        (United States city average) for the 
                        12-month period ending with June of the 
                        previous year;''.
    (d) Conforming Amendments.--
            (1) Durable medical equipment; limitation of 
        inherent reasonableness authority.--Section 1834(a) (42 
        U.S.C. 1395m(a)) is amended--
                    (A) in paragraph (1)(B), by striking ``The 
                payment basis'' and inserting ``Subject to 
                subparagraph (F)(i), the payment basis'';
                    (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (F)(ii), this subsection'';
                    (C) by adding at the end of paragraph (1) 
                the following new subparagraph:
                    ``(F) Application of competitive 
                acquisition; limitation of inherent 
                reasonableness authority.--In the case of 
                covered items furnished on or after January 1, 
                2009, that are included in a competitive 
                acquisition program in a competitive 
                acquisition area under section 1847(a)--
                            ``(i) the payment basis under this 
                        subsection for such items and services 
                        furnished in such area shall be the 
                        payment basis determined under such 
                        competitive acquisition program; and
                            ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847 and in the case of such 
                        adjustment, paragraph (10)(B) shall not 
                        be applied.''; and
                    (D) in paragraph (10)(B), by inserting ``in 
                an area and with respect to covered items and 
                services for which the Secretary does not make 
                a payment amount adjustment under paragraph 
                (1)(F)'' after ``under this subsection''.
            (2) Off-the-shelf orthotics; limitation of inherent 
        reasonableness authority.--Section 1834(h) (42 U.S.C. 
        1395m(h)) is amended--
                    (A) in paragraph (1)(B), by striking ``and 
                (E)'' and inserting ``, (E), and (H)(i)'';
                    (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (H)(ii), this subsection''; and
                    (C) by adding at the end of paragraph (1) 
                the following new subparagraph:
                    ``(H) Application of competitive 
                acquisition to orthotics; limitation of 
                inherent reasonableness authority.--In the case 
                of orthotics described in paragraph (2)(C) of 
                section 1847(a) furnished on or after January 
                1, 2009, that are included in a competitive 
                acquisition program in a competitive 
                acquisition area under such section--
                            ``(i) the payment basis under this 
                        subsection for such orthotics furnished 
                        in such area shall be the payment basis 
                        determined under such competitive 
                        acquisition program; and
                            ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847, and in the case of such 
                        adjustment, paragraphs (8) and (9) of 
                        section 1842(b) shall not be 
                        applied.''.
            (3) Other items and services; limitation of 
        inherent reasonableness authority.--Section 1842(s) (42 
        U.S.C. 1395u(s)) is amended--
                    (A) in the first sentence of paragraph (1), 
                by striking ``The Secretary'' and inserting 
                ``Subject to paragraph (3), the Secretary''; 
                and
                    (B) by adding at the end the following new 
                paragraph:
    ``(3) In the case of items and services described in 
paragraph (2)(D) that are included in a competitive acquisition 
program in a competitive acquisition area under section 
1847(a)--
            ``(A) the payment basis under this subsection for 
        such items and services furnished in such area shall be 
        the payment basis determined under such competitive 
        acquisition program; and
            ``(B) the Secretary may use information on the 
        payment determined under such competitive acquisition 
        programs to adjust the payment amount otherwise 
        applicable under paragraph (1) for an area that is not 
        a competitive acquisition area under section 1847, and 
        in the case of such adjustment, paragraphs (8) and (9) 
        of section 1842(b) shall not be applied.''.
    (e) Report on Activities of Suppliers.--The Inspector 
General of the Department of Health and Human Services shall 
conduct a study to determine the extent to which (if any) 
suppliers of covered items of durable medical equipment that 
are subject to the competitive acquisition program under 
section 1847 of the Social Security Act, as amended by 
subsection (a), are soliciting physicians to prescribe certain 
brands or modes of delivery of covered items based on 
profitability. Not later than July 1, 2009, the Inspector 
General shall submit to Congress a report on such study.

SEC. 303. PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND BIOLOGICALS.

    (a) Adjustment to Physician Fee Schedule.--
            (1) Adjustment in practice expense relative value 
        units.--Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is 
        amended--
                    (A) in subparagraph (B)--
                            (i) in clause (ii)(II), by striking 
                        ``The adjustments'' and inserting 
                        ``Subject to clause (iv), the 
                        adjustments''; and
                            (ii) by adding at the end of 
                        subparagraph (B), the following new 
                        clause:
                            ``(iv) Exemption from budget 
                        neutrality.--The additional 
                        expenditures attributable to--
                                    ``(I) subparagraph (H) 
                                shall not be taken into account 
                                in applying clause (ii)(II) for 
                                2004;
                                    ``(II) subparagraph (I) 
                                insofar as it relates to a 
                                physician fee schedule for 2005 
                                or 2006 shall not be taken into 
                                account in applying clause 
                                (ii)(II) for drug 
                                administration services under 
                                the fee schedule for such year 
                                for a specialty described in 
                                subparagraph (I)(ii)(II); and
                                    ``(III) subparagraph (J) 
                                insofar as it relates to a 
                                physician fee schedule for 2005 
                                or 2006 shall not be taken into 
                                account in applying clause 
                                (ii)(II) for drug 
                                administration services under 
                                the fee schedule for such 
                                year.''; and
                    (B) by adding at the end the following new 
                subparagraphs:
                    ``(H) Adjustments in practice expense 
                relative value units for certain drug 
                administration services beginning in 2004.--
                            ``(i) Use of survey data.--In 
                        establishing the physician fee schedule 
                        under subsection (b) with respect to 
                        payments for services furnished on or 
                        after January 1, 2004, the Secretary 
                        shall, in determining practice expense 
                        relative value units under this 
                        subsection, utilize a survey submitted 
                        to the Secretary as of January 1, 2003, 
                        by a physician specialty organization 
                        pursuant to section 212 of the 
                        Medicare, Medicaid, and SCHIP Balanced 
                        Budget Refinement Act of 1999 if the 
                        survey--
                                    ``(I) covers practice 
                                expenses for oncology drug 
                                administration services; and
                                    ``(II) meets criteria 
                                established by the Secretary 
                                for acceptance of such surveys.
                            ``(ii) Pricing of clinical oncology 
                        nurses in practice expense 
                        methodology.--If the survey described 
                        in clause (i) includes data on wages, 
                        salaries, and compensation of clinical 
                        oncology nurses, the Secretary shall 
                        utilize such data in the methodology 
                        for determining practice expense 
                        relative value units under subsection 
                        (c).
                            ``(iii) Work relative value units 
                        for certain drug administration 
                        services.--In establishing the relative 
                        value units under this paragraph for 
                        drug administration services described 
                        in clause (iv) furnished on or after 
                        January 1, 2004, the Secretary shall 
                        establish work relative value units 
                        equal to the work relative value units 
                        for a level 1 office medical visit for 
                        an established patient.
                            ``(iv) Drug administration services 
                        described.--The drug administration 
                        services described in this clause are 
                        physicians' services--
                                    ``(I) which are classified 
                                as of October 1, 2003, within 
                                any of the following groups of 
                                procedures: therapeutic or 
                                diagnostic infusions (excluding 
                                chemotherapy); chemotherapy 
                                administration services; and 
                                therapeutic, prophylactic, or 
                                diagnostic injections;
                                    ``(II) for which there are 
                                no work relative value units 
                                assigned under this subsection 
                                as of such date; and
                                    ``(III) for which national 
                                relative value units have been 
                                assigned under this subsection 
                                as of such date.
                    ``(I) Adjustments in practice expense 
                relative value units for certain drug 
                administration services beginning with 2005.--
                            ``(i) In general.--In establishing 
                        the physician fee schedule under 
                        subsection (b) with respect to payments 
                        for services furnished on or after 
                        January 1, 2005 or 2006, the Secretary 
                        shall adjust the practice expense 
                        relative value units for such year 
                        consistent with clause (ii).
                            ``(ii) Use of supplemental survey 
                        data.--
                                    ``(I) In general.--Subject 
                                to subclause (II), if a 
                                specialty submits to the 
                                Secretary by not later than 
                                March 1, 2004, for 2005, or 
                                March 1, 2005, for 2006, data 
                                that includes expenses for the 
                                administration of drugs and 
                                biologicals for which the 
                                payment amount is determined 
                                pursuant to section 1842(o), 
                                the Secretary shall use such 
                                supplemental survey data in 
                                carrying out this subparagraph 
                                for the years involved insofar 
                                as they are collected and 
                                provided by entities and 
                                organizations consistent with 
                                the criteria established by the 
                                Secretary pursuant to section 
                                212(a) of the Medicare, 
                                Medicaid, and SCHIP Balanced 
                                Budget Refinement Act of 1999.
                                    ``(II) Limitation on 
                                specialty.--Subclause (I) shall 
                                apply to a specialty only 
                                insofar as not less than 40 
                                percent of payments for the 
                                specialty under this title in 
                                2002 are attributable to the 
                                administration of drugs and 
                                biologicals, as determined by 
                                the Secretary.
                                    ``(III) Application.--This 
                                clause shall not apply with 
                                respect to a survey to which 
                                subparagraph (H)(i) applies.
                    ``(J) Provisions for appropriate reporting 
                and billing for physicians' services associated 
                with the administration of covered outpatient 
                drugs and biologicals.--
                            ``(i) Evaluation of codes.--The 
                        Secretary shall promptly evaluate 
                        existing drug administration codes for 
                        physicians' services to ensure accurate 
                        reporting and billing for such 
                        services, taking into account levels of 
                        complexity of the administration and 
                        resource consumption.
                            ``(ii) Use of existing processes.--
                        In carrying out clause (i), the 
                        Secretary shall use existing processes 
                        for the consideration of coding changes 
                        and, to the extent coding changes are 
                        made, shall use such processes in 
                        establishing relative values for such 
                        services.
                            ``(iii) Implementation.--In 
                        carrying out clause (i), the Secretary 
                        shall consult with representatives of 
                        physician specialties affected by the 
                        implementation of section 1847A or 
                        section 1847B, and shall take such 
                        steps within the Secretary's authority 
                        to expedite such considerations under 
                        clause (ii).
                            ``(iv) Subsequent, budget neutral 
                        adjustments permitted.--Nothing in 
                        subparagraph (H) or (I) or this 
                        subparagraph shall be construed as 
                        preventing the Secretary from providing 
                        for adjustments in practice expense 
                        relative value units under (and 
                        consistent with) subparagraph (B) for 
                        years after 2004, 2005, or 2006, 
                        respectively.''.
            (2) Treatment of other services currently in the 
        nonphysician work pool.--The Secretary shall make 
        adjustments to the nonphysician work pool methodology 
        (as such term is used in the final rule promulgated by 
        the Secretary in the Federal Register on December 31, 
        2002 (67 Fed. Reg. 251)), for the determination of 
        practice expense relative value units under the 
        physician fee schedule under section 1848(c)(2)(C)(ii) 
        of the Social Security Act (42 U.S.C. 1395w-
        4(c)(2)(C)(ii)), so that the practice expense relative 
        value units for services determined under such 
        methodology are not affected relative to the practice 
        expense relative value units of services not determined 
        under such methodology, as a result of the amendments 
        made by paragraph (1).
            (3) Payment for multiple chemotherapy agents 
        furnished on a single day through the push technique.--
                    (A) Review of policy.--The Secretary shall 
                review the policy, as in effect on October 1, 
                2003, with respect to payment under section 
                1848 of the Social Security Act (42 U.S.C. 
                1395w-4) for the administration of more than 1 
                drug or biological to an individual on a single 
                day through the push technique.
                    (B) Modification of policy.--After 
                conducting the review under subparagraph (A), 
                the Secretary shall modify such payment policy 
                as the Secretary determines to be appropriate.
                    (C) Exemption from budget neutrality under 
                physician fee schedule.--If the Secretary 
                modifies such payment policy pursuant to 
                subparagraph (B), any increased expenditures 
                under title XVIII of the Social Security Act 
                resulting from such modification shall be 
                treated as additional expenditures attributable 
                to subparagraph (H) of section 1848(c)(2) of 
                the Social Security Act (42 U.S.C. 1395w-
                4(c)(2)), as added by paragraph (1)(B), for 
                purposes of applying the exemption to budget 
                neutrality under subparagraph (B)(iv) of such 
                section, as added by paragraph (1)(A).
            (4) Transitional adjustment.--
                    (A) In general.--In order to provide for a 
                transition during 2004 and 2005 to the payment 
                system established under the amendments made by 
                this section, in the case of physicians' 
                services consisting of drug administration 
                services described in subparagraph (H)(iv) of 
                section 1848(c)(2) of the Social Security Act 
                (42 U.S.C. 1395w-4(c)(2)), as added by 
                paragraph (1)(B), furnished on or after January 
                1, 2004, and before January 1, 2006, in 
                addition to the amount determined under the fee 
                schedule under section 1848(b) of such Act (42 
                U.S.C. 1395w-4(b)) there also shall be paid to 
                the physician from the Federal Supplementary 
                Medical Insurance Trust Fund an amount equal to 
                the applicable percentage specified in 
                subparagraph (B) of such fee schedule amount 
                for the services so determined.
                    (B) Applicable percentage.--The applicable 
                percentage specified in this subparagraph for 
                services furnished--
                            (i) during 2004, is 32 percent; and
                            (ii) during 2005, is 3 percent.
            (5) Medpac review and reports; secretarial 
        response.--
                    (A) Review.--The Medicare Payment Advisory 
                Commission shall review the payment changes 
                made under this section insofar as they affect 
                payment under part B of title XVIII of the 
                Social Security Act--
                            (i) for items and services 
                        furnished by oncologists; and
                            (ii) for drug administration 
                        services furnished by other 
                        specialists.
                    (B) Other matters studied.--In conducting 
                the review under subparagraph (A), the 
                Commission shall also review such changes as 
                they affect--
                            (i) the quality of care furnished 
                        to individuals enrolled under part B 
                        and the satisfaction of such 
                        individuals with that care;
                            (ii) the adequacy of reimbursement 
                        as applied in, and the availability in, 
                        different geographic areas and to 
                        different physician practice sizes; and
                            (iii) the impact on physician 
                        practices.
                    (C) Reports.--The Commission shall submit 
                to the Secretary and Congress--
                            (i) not later than January 1, 2006, 
                        a report on the review conducted under 
                        subparagraph (A)(i); and
                            (ii) not later than January 1, 
                        2007, a report on the review conducted 
                        under subparagraph (A)(ii).
                Each such report may include such 
                recommendations regarding further adjustments 
                in such payments as the Commission deems 
                appropriate.
                    (D) Secretarial response.--As part of the 
                rulemaking with respect to payment for 
                physicians services under section 1848 of the 
                Social Security Act (42 U.S.C. 1395w-4) for 
                2007, the Secretary may make appropriate 
                adjustments to payment for items and services 
                described in subparagraph (A)(i), taking into 
                account the report submitted under such 
                subparagraph (C)(i).
    (b) Application of Market-Based Payment Systems.--Section 
1842(o) (42 U.S.C. 1395u(o)) is amended--
            (1) in paragraph (1), by striking ``equal to 95 
        percent of the average wholesale price.'' and inserting 
        ``equal to the following:
            ``(A) In the case of any of the following drugs or 
        biologicals, 95 percent of the average wholesale price:
                    ``(i) A drug or biological furnished before 
                January 1, 2004.
                    ``(ii) Blood clotting factors furnished 
                during 2004.
                    ``(iii) A drug or biological furnished 
                during 2004 that was not available for payment 
                under this part as of April 1, 2003.
                    ``(iv) A vaccine described in subparagraph 
                (A) or (B) of section 1861(s)(10) furnished on 
                or after January 1, 2004.
                    ``(v) A drug or biological furnished during 
                2004 in connection with the furnishing of renal 
                dialysis services if separately billed by renal 
                dialysis facilities.
            ``(B) In the case of a drug or biological furnished 
        during 2004 that is not described in--
                    ``(i) clause (ii), (iii), (iv), or (v) of 
                subparagraph (A),
                    ``(ii) subparagraph (D)(i), or
                    ``(iii) subparagraph (F),
        the amount determined under paragraph (4).
            ``(C) In the case of a drug or biological that is 
        not described in subparagraph (A)(iv), (D)(i), or (F) 
        furnished on or after January 1, 2005, the amount 
        provided under section 1847, section 1847A, section 
        1847B, or section 1881(b)(13), as the case may be for 
        the drug or biological.
            ``(D)(i) Except as provided in clause (ii), in the 
        case of infusion drugs furnished through an item of 
        durable medical equipment covered under section 1861(n) 
        on or after January 1, 2004, 95 percent of the average 
        wholesale price for such drug in effect on October 1, 
        2003.
            ``(ii) In the case of such infusion drugs furnished 
        in a competitive acquisition area under section 1847 on 
        or after January 1, 2007, the amount provided under 
        section 1847.
            ``(E) In the case of a drug or biological, 
        consisting of intravenous immune globulin, furnished--
                    ``(i) in 2004, the amount of payment 
                provided under paragraph (4); and
                    ``(ii) in 2005 and subsequent years, the 
                amount of payment provided under section 1847A.
            ``(F) In the case of blood and blood products 
        (other than blood clotting factors), the amount of 
        payment shall be determined in the same manner as such 
        amount of payment was determined on October 1, 2003.
            ``(G) The provisions of subparagraphs (A) through 
        (F) of this paragraph shall not apply to an inhalation 
        drug or biological furnished through durable medical 
        equipment covered under section 1861(n).''; and
            (2) by adding at the end the following new 
        paragraph:
    ``(4)(A) Subject to the succeeding provisions of this 
paragraph, the amount of payment for a drug or biological under 
this paragraph furnished in 2004 is equal to 85 percent of the 
average wholesale price (determined as of April 1, 2003) for 
the drug or biological.
    ``(B) The Secretary shall substitute for the percentage 
under subparagraph (A) for a drug or biological the percentage 
that would apply to the drug or biological under the column 
entitled `Average of GAO and OIG data (percent)' in the table 
entitled `Table 3.--Medicare Part B Drugs in the Most Recent 
GAO and OIG Studies' published on August 20, 2003, in the 
Federal Register (68 Fed. Reg. 50445).
    ``(C)(i) The Secretary may substitute for the percentage 
under subparagraph (A) a percentage that is based on data and 
information submitted by the manufacturer of the drug or 
biological by October 15, 2003.
    ``(ii) The Secretary may substitute for the percentage 
under subparagraph (A) with respect to drugs and biologicals 
furnished during 2004 on or after April 1, 2004, a percentage 
that is based on data and information submitted by the 
manufacturer of the drug or biological after October 15, 2003, 
and before January 1, 2004.
    ``(D) In no case may the percentage substituted under 
subparagraph (B) or (C) be less than 80 percent.''.
    (c) Application of Average Sales Price Methods Beginning in 
2005.--
            (1) In general.--Title XVIII is amended by 
        inserting after section 1847 (42 U.S.C. 1395w-3), as 
        amended by section 302(b), the following new section:

            ``USE OF AVERAGE SALES PRICE PAYMENT METHODOLOGY

    ``Sec. 1847A. (a) Application.--
            ``(1) In general.--Except as provided in paragraph 
        (2), this section shall apply to payment for drugs and 
        biologicals that are described in section 1842(o)(1)(C) 
        and that are furnished on or after January 1, 2005.
            ``(2) Election.--This section shall not apply in 
        the case of a physician who elects under subsection 
        (a)(1)(A)(ii) of section 1847B for that section to 
        apply instead of this section for the payment for drugs 
        and biologicals.
    ``(b) Payment Amount.--
            ``(1) In general.--Subject to subsections (d)(3)(C) 
        and (e), the amount of payment determined under this 
        section for the billing and payment code for a drug or 
        biological (based on a minimum dosage unit) is, subject 
        to applicable deductible and coinsurance--
                    ``(A) in the case of a multiple source drug 
                (as defined in subsection (c)(6)(C)), 106 
                percent of the amount determined under 
                paragraph (3); or
                    ``(B) in the case of a single source drug 
                or biological (as defined in subsection 
                (c)(6)(D)), 106 percent of the amount 
                determined under paragraph (4).
            ``(2) Specification of unit.--
                    ``(A) Specification by manufacturer.--The 
                manufacturer of a drug or biological shall 
                specify the unit associated with each National 
                Drug Code (including package size) as part of 
                the submission of data under section 
                1927(b)(3)(A)(iii).
                    ``(B) Unit defined.--In this section, the 
                term `unit' means, with respect to each 
                National Drug Code (including package size) 
                associated with a drug or biological, the 
                lowest identifiable quantity (such as a capsule 
                or tablet, milligram of molecules, or grams) of 
                the drug or biological that is dispensed, 
                exclusive of any diluent without reference to 
                volume measures pertaining to liquids. For 
                years after 2004, the Secretary may establish 
                the unit for a manufacturer to report and 
                methods for counting units as the Secretary 
                determines appropriate to implement this 
                section.
            ``(3) Multiple source drug.--For all drug products 
        included within the same multiple source drug billing 
        and payment code, the amount specified in this 
        paragraph is the volume-weighted average of the average 
        sales prices reported under section 1927(b)(3)(A)(iii) 
        determined by--
                    ``(A) computing the sum of the products 
                (for each National Drug Code assigned to such 
                drug products) of--
                            ``(i) the manufacturer's average 
                        sales price (as defined in subsection 
                        (c)); and
                            ``(ii) the total number of units 
                        specified under paragraph (2) sold; and
                    ``(B) dividing the sum determined under 
                subparagraph (A) by the sum of the total number 
                of units under subparagraph (A)(ii) for all 
                National Drug Codes assigned to such drug 
                products.
            ``(4) Single source drug or biological.--The amount 
        specified in this paragraph for a single source drug or 
        biological is the lesser of the following:
                    ``(A) Average sales price.--The average 
                sales price as determined using the methodology 
                applied under paragraph (3) for all National 
                Drug Codes assigned to such drug or biological 
                product.
                    ``(B) Wholesale acquisition cost (wac).--
                The wholesale acquisition cost (as defined in 
                subsection (c)(6)(B)) using the methodology 
                applied under paragraph (3) for all National 
                Drug Codes assigned to such drug or biological 
                product.
            ``(5) Basis for payment amount.--The payment amount 
        shall be determined under this subsection based on 
        information reported under subsection (f) and without 
        regard to any special packaging, labeling, or 
        identifiers on the dosage form or product or package.
    ``(c) Manufacturer's Average Sales Price.--
            ``(1) In general.--For purposes of this section, 
        subject to paragraphs (2) and (3), the manufacturer's 
        `average sales price' means, of a drug or biological 
        for a National Drug Code for a calendar quarter for a 
        manufacturer for a unit--
                    ``(A) the manufacturer's sales to all 
                purchasers (excluding sales exempted in 
                paragraph (2)) in the United States for such 
                drug or biological in the calendar quarter; 
                divided by
                    ``(B) the total number of such units of 
                such drug or biological sold by the 
                manufacturer in such quarter.
            ``(2) Certain sales exempted from computation.--In 
        calculating the manufacturer's average sales price 
        under this subsection, the following sales shall be 
        excluded:
                    ``(A) Sales exempt from best price.--Sales 
                exempt from the inclusion in the determination 
                of `best price' under section 1927(c)(1)(C)(i).
                    ``(B) Sales at nominal charge.--Such other 
                sales as the Secretary identifies as sales to 
                an entity that are merely nominal in amount (as 
                applied for purposes of section 
                1927(c)(1)(C)(ii)(III), except as the Secretary 
                may otherwise provide).
            ``(3) Sale price net of discounts.--In calculating 
        the manufacturer's average sales price under this 
        subsection, such price shall include volume discounts, 
        prompt pay discounts, cash discounts, free goods that 
        are contingent on any purchase requirement, 
        chargebacks, and rebates (other than rebates under 
        section 1927). For years after 2004, the Secretary may 
        include in such price other price concessions, which 
        may be based on recommendations of the Inspector 
        General, that would result in a reduction of the cost 
        to the purchaser.
            ``(4) Payment methodology in cases where average 
        sales price during first quarter of sales is 
        unavailable.--In the case of a drug or biological 
        during an initial period (not to exceed a full calendar 
        quarter) in which data on the prices for sales for the 
        drug or biological is not sufficiently available from 
        the manufacturer to compute an average sales price for 
        the drug or biological, the Secretary may determine the 
        amount payable under this section for the drug or 
        biological based on--
                    ``(A) the wholesale acquisition cost; or
                    ``(B) the methodologies in effect under 
                this part on November 1, 2003, to determine 
                payment amounts for drugs or biologicals.
            ``(5) Frequency of determinations.--
                    ``(A) In general on a quarterly basis.--The 
                manufacturer's average sales price, for a drug 
                or biological of a manufacturer, shall be 
                calculated by such manufacturer under this 
                subsection on a quarterly basis. In making such 
                calculation insofar as there is a lag in the 
                reporting of the information on rebates and 
                chargebacks under paragraph (3) so that 
                adequate data are not available on a timely 
                basis, the manufacturer shall apply a 
                methodology based on a 12-month rolling average 
                for the manufacturer to estimate costs 
                attributable to rebates and chargebacks. For 
                years after 2004, the Secretary may establish a 
                uniform methodology under this subparagraph to 
                estimate and apply such costs.
                    ``(B) Updates in payment amounts.--The 
                payment amounts under subsection (b) shall be 
                updated by the Secretary on a quarterly basis 
                and shall be applied based upon the 
                manufacturer's average sales price calculated 
                for the most recent calendar quarter for which 
                data is available.
                    ``(C) Use of contractors; implementation.--
                The Secretary may contract with appropriate 
                entities to calculate the payment amount under 
                subsection (b). Notwithstanding any other 
                provision of law, the Secretary may implement, 
                by program instruction or otherwise, any of the 
                provisions of this section.
            ``(6) Definitions and other rules.--In this 
        section:
                    ``(A) Manufacturer.--The term 
                `manufacturer' means, with respect to a drug or 
                biological, the manufacturer (as defined in 
                section 1927(k)(5)).
                    ``(B) Wholesale acquisition cost.--The term 
                `wholesale acquisition cost' means, with 
                respect to a drug or biological, the 
                manufacturer's list price for the drug or 
                biological to wholesalers or direct purchasers 
                in the United States, not including prompt pay 
                or other discounts, rebates or reductions in 
                price, for the most recent month for which the 
                information is available, as reported in 
                wholesale price guides or other publications of 
                drug or biological pricing data.
                    ``(C) Multiple source drug.--
                            ``(i) In general.--The term 
                        `multiple source drug' means, for a 
                        calendar quarter, a drug for which 
                        there are 2 or more drug products 
                        which--
                                    ``(I) are rated as 
                                therapeutically equivalent 
                                (under the Food and Drug 
                                Administration's most recent 
                                publication of `Approved Drug 
                                Products with Therapeutic 
                                Equivalence Evaluations'),
                                    ``(II) except as provided 
                                in subparagraph (E), are 
                                pharmaceutically equivalent and 
                                bioequivalent, as determined 
                                under subparagraph (F) and as 
                                determined by the Food and Drug 
                                Administration, and
                                    ``(III) are sold or 
                                marketed in the United States 
                                during the quarter.
                            ``(ii) Exception.--With respect to 
                        single source drugs or biologicals that 
                        are within the same billing and payment 
                        code as of October 1, 2003, the 
                        Secretary shall treat such single 
                        source drugs or biologicals as if the 
                        single source drugs or biologicals were 
                        multiple source drugs.
                    ``(D) Single source drug or biological.--
                The term `single source drug or biological' 
                means--
                            ``(i) a biological; or
                            ``(ii) a drug which is not a 
                        multiple source drug and which is 
                        produced or distributed under a new 
                        drug application approved by the Food 
                        and Drug Administration, including a 
                        drug product marketed by any cross-
                        licensed producers or distributors 
                        operating under the new drug 
                        application.
                    ``(E) Exception from pharmaceutical 
                equivalence and bioequivalence requirement.--
                Subparagraph (C)(ii) shall not apply if the 
                Food and Drug Administration changes by 
                regulation the requirement that, for purposes 
                of the publication described in subparagraph 
                (C)(i), in order for drug products to be rated 
                as therapeutically equivalent, they must be 
                pharmaceutically equivalent and bioequivalent, 
                as defined in subparagraph (F).
                    ``(F) Determination of pharmaceutical 
                equivalence and bioequivalence.--For purposes 
                of this paragraph--
                            ``(i) drug products are 
                        pharmaceutically equivalent if the 
                        products contain identical amounts of 
                        the same active drug ingredient in the 
                        same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity; and
                            ``(ii) drugs are bioequivalent if 
                        they do not present a known or 
                        potential bioequivalence problem, or, 
                        if they do present such a problem, they 
                        are shown to meet an appropriate 
                        standard of bioequivalence.
                    ``(G) Inclusion of vaccines.--In applying 
                provisions of section 1927 under this section, 
                `other than a vaccine' is deemed deleted from 
                section 1927(k)(2)(B).
    ``(d) Monitoring of Market Prices.--
            ``(1) In general.--The Inspector General of the 
        Department of Health and Human Services shall conduct 
        studies, which may include surveys, to determine the 
        widely available market prices of drugs and biologicals 
        to which this section applies, as the Inspector 
        General, in consultation with the Secretary, determines 
        to be appropriate.
            ``(2) Comparison of prices.--Based upon such 
        studies and other data for drugs and biologicals, the 
        Inspector General shall compare the average sales price 
        under this section for drugs and biologicals with--
                    ``(A) the widely available market price for 
                such drugs and biologicals (if any); and
                    ``(B) the average manufacturer price (as 
                determined under section 1927(k)(1)) for such 
                drugs and biologicals.
            ``(3) Limitation on average sales price.--
                    ``(A) In general.--The Secretary may 
                disregard the average sales price for a drug or 
                biological that exceeds the widely available 
                market price or the average manufacturer price 
                for such drug or biological by the applicable 
                threshold percentage (as defined in 
                subparagraph (B)).
                    ``(B) Applicable threshold percentage 
                defined.--In this paragraph, the term 
                `applicable threshold percentage' means--
                            ``(i) in 2005, in the case of an 
                        average sales price for a drug or 
                        biological that exceeds widely 
                        available market price or the average 
                        manufacturer price, 5 percent; and
                            ``(ii) in 2006 and subsequent 
                        years, the percentage applied under 
                        this subparagraph subject to such 
                        adjustment as the Secretary may specify 
                        for the widely available market price 
                        or the average manufacturer price, or 
                        both.
                    ``(C) Authority to adjust average sales 
                price.--If the Inspector General finds that the 
                average sales price for a drug or biological 
                exceeds such widely available market price or 
                average manufacturer price for such drug or 
                biological by the applicable threshold 
                percentage, the Inspector General shall inform 
                the Secretary (at such times as the Secretary 
                may specify to carry out this subparagraph) and 
                the Secretary shall, effective as of the next 
                quarter, substitute for the amount of payment 
                otherwise determined under this section for 
                such drug or biological the lesser of--
                            ``(i) the widely available market 
                        price for the drug or biological (if 
                        any); or
                            ``(ii) 103 percent of the average 
                        manufacturer price (as determined under 
                        section 1927(k)(1)) for the drug or 
                        biological.
            ``(4) Civil money penalty.--
                    ``(A) In general.--If the Secretary 
                determines that a manufacturer has made a 
                misrepresentation in the reporting of the 
                manufacturer's average sales price for a drug 
                or biological, the Secretary may apply a civil 
                money penalty in an amount of up to $10,000 for 
                each such price misrepresentation and for each 
                day in which such price misrepresentation was 
                applied.
                    ``(B) Procedures.--The provisions of 
                section 1128A (other than subsections (a) and 
                (b)) shall apply to civil money penalties under 
                subparagraph (B) in the same manner as they 
                apply to a penalty or proceeding under section 
                1128A(a).
            ``(5) Widely available market price.--
                    ``(A) In general.--In this subsection, the 
                term `widely available market price' means the 
                price that a prudent physician or supplier 
                would pay for the drug or biological. In 
                determining such price, the Inspector General 
                shall take into account the discounts, rebates, 
                and other price concessions routinely made 
                available to such prudent physicians or 
                suppliers for such drugs or biologicals.
                    ``(B) Considerations.--In determining the 
                price under subparagraph (A), the Inspector 
                General shall consider information from one or 
                more of the following sources:
                            ``(i) Manufacturers.
                            ``(ii) Wholesalers.
                            ``(iii) Distributors.
                            ``(iv) Physician supply houses.
                            ``(v) Specialty pharmacies.
                            ``(vi) Group purchasing 
                        arrangements.
                            ``(vii) Surveys of physicians.
                            ``(viii) Surveys of suppliers.
                            ``(ix) Information on such market 
                        prices from insurers.
                            ``(x) Information on such market 
                        prices from private health plans.
    ``(e) Authority To Use Alternative Payment in Response to 
Public Health Emergency.--In the case of a public health 
emergency under section 319 of the Public Health Service Act in 
which there is a documented inability to access drugs and 
biologicals, and a concomitant increase in the price, of a drug 
or biological which is not reflected in the manufacturer's 
average sales price for one or more quarters, the Secretary may 
use the wholesale acquisition cost (or other reasonable measure 
of drug or biological price) instead of the manufacturer's 
average sales price for such quarters and for subsequent 
quarters until the price and availability of the drug or 
biological has stabilized and is substantially reflected in the 
applicable manufacturer's average sales price.
    ``(f) Quarterly Report on Average Sales Price.--For 
requirements for reporting the manufacturer's average sales 
price (and, if required to make payment, the manufacturer's 
wholesale acquisition cost) for the drug or biological under 
this section, see section 1927(b)(3).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, 
of--
            ``(1) determinations of payment amounts under this 
        section, including the assignment of National Drug 
        Codes to billing and payment codes;
            ``(2) the identification of units (and package 
        size) under subsection (b)(2);
            ``(3) the method to allocate rebates, chargebacks, 
        and other price concessions to a quarter if specified 
        by the Secretary;
            ``(4) the manufacturer's average sales price when 
        it is used for the determination of a payment amount 
        under this section; and
            ``(5) the disclosure of the average manufacturer 
        price by reason of an adjustment under subsection 
        (d)(3)(C) or (e).''.
            (2) Report on sales to pharmacy benefit managers.--
                    (A) Study.--The Secretary shall conduct a 
                study on sales of drugs and biologicals to 
                large volume purchasers, such as pharmacy 
                benefit managers and health maintenance 
                organizations, for purposes of determining 
                whether the price at which such drugs and 
                biologicals are sold to such purchasers does 
                not represent the price such drugs and 
                biologicals are made available for purchase to 
                prudent physicians.
                    (B) Report.--Not later than January 1, 
                2006, the Secretary shall submit to Congress a 
                report on the study conducted under paragraph 
                (1), and shall include recommendations on 
                whether such sales to large volume purchasers 
                should be excluded from the computation of a 
                manufacturer's average sales price under 
                section 1847A of the Social Security Act, as 
                added by paragraph (1).
            (3) Inspector general report on adequacy of 
        reimbursement rate under average sales price 
        methodology.--
                    (A) Study.--The Inspector General of the 
                Department of Health and Human Services shall 
                conduct a study on the ability of physician 
                practices in the specialties of hematology, 
                hematology/oncology, and medical oncology of 
                different sizes, especially particularly large 
                practices, to obtain drugs and biologicals for 
                the treatment of cancer patients at 106 percent 
                of the average sales price for the drugs and 
                biologicals. In conducting the study, the 
                Inspector General shall conduct an audit of a 
                representative sample of such practices to 
                determine the adequacy of reimbursement under 
                section 1847A of the Social Security Act, as 
                added by paragraph (1).
                    (B) Report.--Not later October 1, 2005, the 
                Inspector General shall submit to Congress a 
                report on the study conducted under 
                subparagraph (A), and shall include 
                recommendations on the adequacy of 
                reimbursement for such drugs and biologicals 
                under such section 1847A.
    (d) Payment Based on Competition.--
            (1) In general.--Title XVIII is amended by 
        inserting after section 1847A, as added by subsection 
        (c), the following new section:

     ``COMPETITIVE ACQUISITION OF OUTPATIENT DRUGS AND BIOLOGICALS

    ``Sec. 1847B. (a) Implementation of Competitive 
Acquisition.--
            ``(1) Implementation of program.--
                    ``(A) In general.--The Secretary shall 
                establish and implement a competitive 
                acquisition program under which--
                            ``(i) competitive acquisition areas 
                        are established for contract award 
                        purposes for acquisition of and payment 
                        for categories of competitively 
                        biddable drugs and biologicals (as 
                        defined in paragraph (2)) under this 
                        part;
                            ``(ii) each physician is given the 
                        opportunity annually to elect to obtain 
                        drugs and biologicals under the 
                        program, rather than under section 
                        1847A; and
                            ``(iii) each physician who elects 
                        to obtain drugs and biologicals under 
                        the program makes an annual selection 
                        under paragraph (5) of the contractor 
                        through which drugs and biologicals 
                        within a category of drugs and 
                        biologicals will be acquired and 
                        delivered to the physician under this 
                        part.
                This section shall not apply in the case of a 
                physician who elects section 1847A to apply.
                    ``(B) Implementation.--For purposes of 
                implementing the program, the Secretary shall 
                establish categories of competitively biddable 
                drugs and biologicals. The Secretary shall 
                phase in the program with respect to those 
                categories beginning in 2006 in such manner as 
                the Secretary determines to be appropriate.
                    ``(C) Waiver of certain provisions.--In 
                order to promote competition, in carrying out 
                the program the Secretary may waive such 
                provisions of the Federal Acquisition 
                Regulation as are necessary for the efficient 
                implementation of this section, other than 
                provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
                    ``(D) Exclusion authority.--The Secretary 
                may exclude competitively biddable drugs and 
                biologicals (including a class of such drugs 
                and biologicals) from the competitive bidding 
                system under this section if the application of 
                competitive bidding to such drugs or 
                biologicals--
                            ``(i) is not likely to result in 
                        significant savings; or
                            ``(ii) is likely to have an adverse 
                        impact on access to such drugs or 
                        biologicals.
            ``(2) Competitively biddable drugs and biologicals 
        and program defined.--For purposes of this section--
                    ``(A) Competitively biddable drugs and 
                biologicals defined.--The term `competitively 
                biddable drugs and biologicals' means a drug or 
                biological described in section 1842(o)(1)(C) 
                and furnished on or after January 1, 2006.
                    ``(B) Program.--The term `program' means 
                the competitive acquisition program under this 
                section.
                    ``(C) Competitive acquisition area; area.--
                The terms `competitive acquisition area' and 
                `area' mean an appropriate geographic region 
                established by the Secretary under the program.
                    ``(D) Contractor.--The term `contractor' 
                means an entity that has entered into a 
                contract with the Secretary under this section.
            ``(3) Application of program payment methodology.--
                    ``(A) In general.--With respect to 
                competitively biddable drugs and biologicals 
                which are supplied under the program in an area 
                and which are prescribed by a physician who has 
                elected this section to apply--
                            ``(i) the claim for such drugs and 
                        biologicals shall be submitted by the 
                        contractor that supplied the drugs and 
                        biologicals;
                            ``(ii) collection of amounts of any 
                        deductible and coinsurance applicable 
                        with respect to such drugs and 
                        biologicals shall be the responsibility 
                        of such contractor and shall not be 
                        collected unless the drug or biological 
                        is administered to the individual 
                        involved; and
                            ``(iii) the payment under this 
                        section (and related amounts of any 
                        applicable deductible and coinsurance) 
                        for such drugs and biologicals--
                                    ``(I) shall be made only to 
                                such contractor; and
                                    ``(II) shall be conditioned 
                                upon the administration of such 
                                drugs and biologicals.
                    ``(B) Process for adjustments.--The 
                Secretary shall provide a process for 
                adjustments to payments in the case in which 
                payment is made for drugs and biologicals which 
                were billed at the time of dispensing but which 
                were not actually administered.
                    ``(C) Information for purposes of cost-
                sharing.--The Secretary shall provide a process 
                by which physicians submit information to 
                contractors for purposes of the collection of 
                any applicable deductible or coinsurance 
                amounts under subparagraph (A)(ii).
            ``(4) Contract required.--Payment may not be made 
        under this part for competitively biddable drugs and 
        biologicals prescribed by a physician who has elected 
        this section to apply within a category and a 
        competitive acquisition area with respect to which the 
        program applies unless--
                    ``(A) the drugs or biologicals are supplied 
                by a contractor with a contract under this 
                section for such category of drugs and 
                biologicals and area; and
                    ``(B) the physician has elected such 
                contractor under paragraph (5) for such 
                category and area.
            ``(5) Contractor selection process.--
                    ``(A) Annual selection.--
                            ``(i) In general.--The Secretary 
                        shall provide a process for the 
                        selection of a contractor, on an annual 
                        basis and in such exigent circumstances 
                        as the Secretary may provide and with 
                        respect to each category of 
                        competitively biddable drugs and 
                        biologicals for an area by selecting 
                        physicians.
                            ``(ii) Timing of selection.--The 
                        selection of a contractor under clause 
                        (i) shall be made at the time of the 
                        election described in section 1847A(a) 
                        for this section to apply and shall be 
                        coordinated with agreements entered 
                        into under section 1842(h).
                    ``(B) Information on contractors.--The 
                Secretary shall make available to physicians on 
                an ongoing basis, through a directory posted on 
                the Internet website of the Centers for 
                Medicare & Medicaid Services or otherwise and 
                upon request, a list of the contractors under 
                this section in the different competitive 
                acquisition areas.
                    ``(C) Selecting physician defined.--For 
                purposes of this section, the term `selecting 
                physician' means, with respect to a contractor 
                and category and competitive acquisition area, 
                a physician who has elected this section to 
                apply and has selected to apply under this 
                section such contractor for such category and 
                area.
    ``(b) Program Requirements.--
            ``(1) Contract for competitively biddable drugs and 
        biologicals.--The Secretary shall conduct a competition 
        among entities for the acquisition of competitively 
        biddable drugs and biologicals. Notwithstanding any 
        other provision of this title, in the case of a 
        multiple source drug, the Secretary shall conduct such 
        competition among entities for the acquisition of at 
        least one competitively biddable drug and biological 
        within each billing and payment code within each 
        category for each competitive acquisition area.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in a competitive 
                acquisition area pursuant to paragraph (1) with 
                respect to the acquisition of competitively 
                biddable drugs and biologicals within a 
                category unless the Secretary finds that the 
                entity meets all of the following with respect 
                to the contract period involved:
                            ``(i) Capacity to supply 
                        competitively biddable drug or 
                        biological within category.--
                                    ``(I) In general.--The 
                                entity has sufficient 
                                arrangements to acquire and to 
                                deliver competitively biddable 
                                drugs and biologicals within 
                                such category in the area 
                                specified in the contract.
                                    ``(II) Shipment 
                                methodology.--The entity has 
                                arrangements in effect for the 
                                shipment at least 5 days each 
                                week of competitively biddable 
                                drugs and biologicals under the 
                                contract and for the timely 
                                delivery (including for 
                                emergency situations) of such 
                                drugs and biologicals in the 
                                area under the contract.
                            ``(ii) Quality, service, financial 
                        performance and solvency standards.--
                        The entity meets quality, service, 
                        financial performance, and solvency 
                        standards specified by the Secretary, 
                        including--
                                    ``(I) the establishment of 
                                procedures for the prompt 
                                response and resolution of 
                                complaints of physicians and 
                                individuals and of inquiries 
                                regarding the shipment of 
                                competitively biddable drugs 
                                and biologicals; and
                                    ``(II) a grievance and 
                                appeals process for the 
                                resolution of disputes.
                    ``(B) Additional considerations.--The 
                Secretary may refuse to award a contract under 
                this section, and may terminate such a 
                contract, with an entity based upon--
                            ``(i) the suspension or revocation, 
                        by the Federal Government or a State 
                        government, of the entity's license for 
                        the distribution of drugs or 
                        biologicals (including controlled 
                        substances); or
                            ``(ii) the exclusion of the entity 
                        under section 1128 from participation 
                        under this title.
                    ``(C) Application of medicare provider 
                ombudsman.--For provision providing for a 
                program-wide Medicare Provider Ombudsman to 
                review complaints, see section 1868(b), as 
                added by section 923 of the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003.
            ``(3) Awarding multiple contracts for a category 
        and area.--The Secretary may limit (but not below 2) 
        the number of qualified entities that are awarded such 
        contracts for any category and area. The Secretary 
        shall select among qualified entities based on the 
        following:
                    ``(A) The bid prices for competitively 
                biddable drugs and biologicals within the 
                category and area.
                    ``(B) Bid price for distribution of such 
                drugs and biologicals.
                    ``(C) Ability to ensure product integrity.
                    ``(D) Customer service.
                    ``(E) Past experience in the distribution 
                of drugs and biologicals, including controlled 
                substances.
                    ``(F) Such other factors as the Secretary 
                may specify.
            ``(4) Terms of contracts.--
                    ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify 
                consistent with this section.
                    ``(B) Period of contracts.--A contract 
                under this section shall be for a term of 3 
                years, but may be terminated by the Secretary 
                or the entity with appropriate, advance notice.
                    ``(C) Integrity of drug and biological 
                distribution system.--A contractor (as defined 
                in subsection (a)(2)(D)) shall--
                            ``(i) acquire all drug and 
                        biological products it distributes 
                        directly from the manufacturer or from 
                        a distributor that has acquired the 
                        products directly from the 
                        manufacturer; and
                            ``(ii) comply with any product 
                        integrity safeguards as may be 
                        determined to be appropriate by the 
                        Secretary.
                Nothing in this subparagraph shall be construed 
                to relieve or exempt any contractor from the 
                provisions of the Federal Food, Drug, and 
                Cosmetic Act that relate to the wholesale 
                distribution of prescription drugs or 
                biologicals.
                    ``(D) Compliance with code of conduct and 
                fraud and abuse rules.--Under the contract--
                            ``(i) the contractor shall comply 
                        with a code of conduct, specified or 
                        recognized by the Secretary, that 
                        includes standards relating to 
                        conflicts of interest; and
                            ``(ii) the contractor shall comply 
                        with all applicable provisions relating 
                        to prevention of fraud and abuse, 
                        including compliance with applicable 
                        guidelines of the Department of Justice 
                        and the Inspector General of the 
                        Department of Health and Human 
                        Services.
                    ``(E) Direct delivery of drugs and 
                biologicals to physicians.--Under the contract 
                the contractor shall only supply competitively 
                biddable drugs and biologicals directly to the 
                selecting physicians and not directly to 
                individuals, except under circumstances and 
                settings where an individual currently receives 
                a drug or biological in the individual's home 
                or other non-physician office setting as the 
                Secretary may provide. The contractor shall not 
                deliver drugs and biologicals to a selecting 
                physician except upon receipt of a prescription 
                for such drugs and biologicals, and such 
                necessary data as may be required by the 
                Secretary to carry out this section. This 
                section does not--
                            ``(i) require a physician to submit 
                        a prescription for each individual 
                        treatment; or
                            ``(ii) change a physician's 
                        flexibility in terms of writing a 
                        prescription for drugs or biologicals 
                        for a single treatment or a course of 
                        treatment.
            ``(5) Permitting access to drugs and biologicals.--
        The Secretary shall establish rules under this section 
        under which drugs and biologicals which are acquired 
        through a contractor under this section may be used to 
        resupply inventories of such drugs and biologicals 
        which are administered consistent with safe drug 
        practices and with adequate safeguards against fraud 
        and abuse. The previous sentence shall apply if the 
        physicians can demonstrate to the Secretary all of the 
        following:
                    ``(A) The drugs or biologicals are required 
                immediately.
                    ``(B) The physician could not have 
                reasonably anticipated the immediate 
                requirement for the drugs or biologicals.
                    ``(C) The contractor could not deliver to 
                the physician the drugs or biologicals in a 
                timely manner.
                    ``(D) The drugs or biologicals were 
                administered in an emergency situation.
            ``(6) Construction.--Nothing in this section shall 
        be construed as waiving applicable State requirements 
        relating to licensing of pharmacies.
    ``(c) Bidding Process.--
            ``(1) In general.--In awarding a contract for a 
        category of drugs and biologicals in an area under the 
        program, the Secretary shall consider with respect to 
        each entity seeking to be awarded a contract the bid 
        price and the other factors referred to in subsection 
        (b)(3).
            ``(2) Bid defined.--In this section, the term `bid' 
        means an offer to furnish a competitively biddable drug 
        or biological for a particular price and time period.
            ``(3) Bidding on a national or regional basis.--
        Nothing in this section shall be construed as 
        precluding a bidder from bidding for contracts in all 
        areas of the United States or as requiring a bidder to 
        submit a bid for all areas of the United States.
            ``(4) Uniformity of bids within area.--The amount 
        of the bid submitted under a contract offer for any 
        competitively biddable drug or biological for an area 
        shall be the same for that drug or biological for all 
        portions of that area.
            ``(5) Confidentiality of bids.--The provisions of 
        subparagraph (D) of section 1927(b)(3) shall apply to 
        periods during which a bid is submitted with respect to 
        a competitively biddable drug or biological under this 
        section in the same manner as it applies to information 
        disclosed under such section, except that any 
        reference--
                    ``(A) in that subparagraph to a 
                `manufacturer or wholesaler' is deemed a 
                reference to a `bidder' under this section;
                    ``(B) in that section to `prices charged 
                for drugs' is deemed a reference to a `bid' 
                submitted under this section; and
                    ``(C) in clause (i) of that section to 
                `this section', is deemed a reference to `part 
                B of title XVIII'.
            ``(6) Inclusion of costs.--The bid price submitted 
        in a contract offer for a competitively biddable drug 
        or biological shall--
                    ``(A) include all costs related to the 
                delivery of the drug or biological to the 
                selecting physician (or other point of 
                delivery); and
                    ``(B) include the costs of dispensing 
                (including shipping) of such drug or biological 
                and management fees, but shall not include any 
                costs related to the administration of the drug 
                or biological, or wastage, spillage, or 
                spoilage.
            ``(7) Price adjustments during contract period; 
        disclosure of costs.--Each contract awarded shall 
        provide for--
                    ``(A) disclosure to the Secretary the 
                contractor's reasonable, net acquisition costs 
                for periods specified by the Secretary, not 
                more often than quarterly, of the contract; and
                    ``(B) appropriate price adjustments over 
                the period of the contract to reflect 
                significant increases or decreases in a 
                contractor's reasonable, net acquisition costs, 
                as so disclosed.
    ``(d) Computation of Payment Amounts.--
            ``(1) In general.--Payment under this section for 
        competitively biddable drugs or biologicals shall be 
        based on bids submitted and accepted under this section 
        for such drugs or biologicals in an area. Based on such 
        bids the Secretary shall determine a single payment 
        amount for each competitively biddable drug or 
        biological in the area.
            ``(2) Special rules.--The Secretary shall establish 
        rules regarding the use under this section of the 
        alternative payment amount provided under section 1847A 
        to the use of a price for specific competitively 
        biddable drugs and biologicals in the following cases:
                    ``(A) New drugs and biologicals.--A 
                competitively biddable drug or biological for 
                which a payment and billing code has not been 
                established.
                    ``(B) Other cases.--Such other exceptional 
                cases as the Secretary may specify in 
                regulations.
    ``(e) Cost-sharing.--
            ``(1) Application of coinsurance.--Payment under 
        this section for competitively biddable drugs and 
        biologicals shall be in an amount equal to 80 percent 
        of the payment basis described in subsection (d)(1).
            ``(2) Deductible.--Before applying paragraph (1), 
        the individual shall be required to meet the deductible 
        described in section 1833(b).
            ``(3) Collection.--Such coinsurance and deductible 
        shall be collected by the contractor that supplies the 
        drug or biological involved. Subject to subsection 
        (a)(3)(B), such coinsurance and deductible may be 
        collected in a manner similar to the manner in which 
        the coinsurance and deductible are collected for 
        durable medical equipment under this part.
    ``(f) Special Payment Rules.--
            ``(1) Use in exclusion cases.--If the Secretary 
        excludes a drug or biological (or class of drugs or 
        biologicals) under subsection (a)(1)(D), the Secretary 
        may provide for payment to be made under this part for 
        such drugs and biologicals (or class) using the payment 
        methodology under section 1847A.
            ``(2) Application of requirement for assignment.--
        For provision requiring assignment of claims for 
        competitively biddable drugs and biologicals, see 
        section 1842(o)(3).
            ``(3) Protection for beneficiary in case of medical 
        necessity denial.--For protection of individuals 
        against liability in the case of medical necessity 
        determinations, see section 1842(b)(3)(B)(ii)(III).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, 
of--
            ``(1) the establishment of payment amounts under 
        subsection (d)(1);
            ``(2) the awarding of contracts under this section;
            ``(3) the establishment of competitive acquisition 
        areas under subsection (a)(2)(C);
            ``(4) the phased-in implementation under subsection 
        (a)(1)(B);
            ``(5) the selection of categories of competitively 
        biddable drugs and biologicals for competitive 
        acquisition under such subsection or the selection of a 
        drug in the case of multiple source drugs; or
            ``(6) the bidding structure and number of 
        contractors selected under this section.''.
            (2) Report.--Not later than July 1, 2008, the 
        Secretary shall submit to Congress a report on the 
        program conducted under section 1847B of the Social 
        Security Act, as added by paragraph (1). Such report 
        shall include information on savings, reductions in 
        cost-sharing, access to competitively biddable drugs 
        and biologicals, the range of choices of contractors 
        available to physicians, the satisfaction of physicians 
        and of individuals enrolled under this part, and 
        information comparing prices for drugs and biologicals 
        under such section and section 1847A of such Act, as 
        added by subsection (c).
    (e) Adjustments to Payment Amounts for Administration of 
Drugs and Biologicals.--
            (1) Items and services relating to furnishing of 
        blood clotting factors.--Section 1842(o) (42 U.S.C. 
        1395u(o)), as amended by subsection (b)(2), is amended 
        by adding at the end the following new paragraph:
    ``(5)(A) Subject to subparagraph (B), in the case of 
clotting factors furnished on or after January 1, 2005, the 
Secretary shall, after reviewing the January 2003 report to 
Congress by the Comptroller General of the United States 
entitled `Payment for Blood Clotting Factor Exceeds Providers 
Acquisition Cost', provide for a separate payment, to the 
entity which furnishes to the patient blood clotting factors, 
for items and services related to the furnishing of such 
factors in an amount that the Secretary determines to be 
appropriate. Such payment amount may take into account any or 
all of the following:
            ``(i) The mixing (if appropriate) and delivery of 
        factors to an individual, including special inventory 
        management and storage requirements.
            ``(ii) Ancillary supplies and patient training 
        necessary for the self-administration of such factors.
    ``(B) In determining the separate payment amount under 
subparagraph (A) for blood clotting factors furnished in 2005, 
the Secretary shall ensure that the total amount of payments 
under this part (as estimated by the Secretary) for such 
factors under paragraph (1)(C) and such separate payments for 
such factors does not exceed the total amount of payments that 
would have been made for such factors under this part (as 
estimated by the Secretary) if the amendments made by section 
303 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 had not been enacted.
    ``(C) The separate payment amount under this subparagraph 
for blood clotting factors furnished in 2006 or a subsequent 
year shall be equal to the separate payment amount determined 
under this paragraph for the previous year increased by the 
percentage increase in the consumer price index for medical 
care for the 12-month period ending with June of the previous 
year.''.
            (2) Pharmacy supplying fee for certain drugs and 
        biologicals.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
        previously amended, is amended by adding at the end the 
        following new paragraph:
    ``(6) In the case of an immunosuppressive drug described in 
subparagraph (J) of section 1861(s)(2) and an oral drug 
described in subparagraph (Q) or (T) of such section, the 
Secretary shall pay to the pharmacy a supplying fee for such a 
drug determined appropriate by the Secretary (less the 
applicable deductible and coinsurance amounts).''.
    (f) Linkage of Revised Drug Payments and Increases for Drug 
Administration.--The Secretary shall not implement the 
revisions in payment amounts for drugs and biologicals 
administered by physicians as a result of the amendments made 
by subsection (b) with respect to 2004 unless the Secretary 
concurrently makes adjustments to the practice expense payment 
adjustment under the amendments made by subsection (a).
    (g) Prohibition of Administrative and Judicial Review.--
            (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), 
        as previously amended, is amended by adding at the end 
        the following new paragraph:
    ``(7) There shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise, of 
determinations of payment amounts, methods, or adjustments 
under paragraphs (4) through (6).''.
            (2) Physician fee schedule.--Section 1848(i)(1)(B) 
        (42 U.S.C. 1395w-4(i)(1)(B)) is amended by striking 
        ``subsection (c)(2)(F)'' and inserting ``subsections 
        (c)(2)(F), (c)(2)(H), and (c)(2)(I)''.
            (3) Multiple chemotherapy agents, other services 
        currently on the non-physician work pool, and 
        transitional adjustment.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of determinations of 
        payment amounts, methods, or adjustments under 
        paragraphs (2) through (4) of subsection (a).
    (h) Continuation of Payment Methodology for 
Radiopharmaceuticals.--Nothing in the amendments made by this 
section shall be construed as changing the payment methodology 
under part B of title XVIII of the Social Security Act for 
radiopharmaceuticals, including the use by carriers of invoice 
pricing methodology.
    (i) Conforming Amendments.--
            (1) Application of asp and competitive bidding.--
        Section 1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended 
        by adding at the end the following: ``This paragraph 
        shall not apply in the case of payment under paragraph 
        (1)(C).''.
            (2) No change in coverage basis.--Section 
        1861(s)(2)(A) (42 U.S.C. 1395x(s)(2)(A)) is amended by 
        inserting ``(or would have been so included but for the 
        application of section 1847B)'' after ``included in the 
        physicians' bills''.
            (3) Payment.--(A) Section 1833(a)(1)(S) (42 U.S.C. 
        1395l(a)(1)(S)) is amended by inserting ``(or, if 
        applicable, under section 1847, 1847A, or 1847B)'' 
        after ``1842(o)''.
            (B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is 
        amended--
                    (i) by striking ``and'' at the end of 
                subparagraph (H);
                    (ii) by striking the semicolon at the end 
                of subparagraph (I) and inserting ``, and''; 
                and
                    (iii) by adding at the end the following 
                new subparagraph:
            ``(J) in the case of a drug or biological specified 
        in section 1847A(c)(6)(C) for which payment is made 
        under part B that is furnished in a competitive area 
        under section 1847B, that is not furnished by an entity 
        under a contract under such section;''.
            (4) Consolidated reporting of pricing 
        information.--Section 1927 (42 U.S.C. 1396r-8) is 
        amended--
                    (A) in subsection (a)(1), by inserting ``or 
                under part B of title XVIII'' after ``section 
                1903(a)'';
                    (B) in subsection (b)(3)(A)--
                            (i) in clause (i), by striking 
                        ``and'' at the end and inserting a 
                        semicolon;
                            (ii) in clause (ii), by striking 
                        the period and inserting ``; and''; and
                            (iii) by adding at the end the 
                        following:
                            ``(iii) for calendar quarters 
                        beginning on or after January 1, 2004, 
                        in conjunction with reporting required 
                        under clause (i) and by National Drug 
                        Code (including package size)--
                                    ``(I) the manufacturer's 
                                average sales price (as defined 
                                in section 1847A(c)) and the 
                                total number of units specified 
                                under section 1847A(b)(2)(A);
                                    ``(II) if required to make 
                                payment under section 1847A, 
                                the manufacturer's wholesale 
                                acquisition cost, as defined in 
                                subsection (c)(6) of such 
                                section; and
                                    ``(III) information on 
                                those sales that were made at a 
                                nominal price or otherwise 
                                described in section 
                                1847A(c)(2)(B);
                        for a drug or biological described in 
                        subparagraph (C), (D), (E), or (G) of 
                        section 1842(o)(1) or section 
                        1881(b)(13)(A)(ii).
                Information reported under this subparagraph is 
                subject to audit by the Inspector General of 
                the Department of Health and Human Services.'';
                    (C) in subsection (b)(3)(B)--
                            (i) in the heading, by inserting 
                        ``and manufacturer's average sales 
                        price'' after ``price''; and
                            (ii) by inserting ``and 
                        manufacturer's average sales prices 
                        (including wholesale acquisition cost) 
                        if required to make payment'' after 
                        ``manufacturer prices''; and
                    (D) in subsection (b)(3)(D)--
                            (i) in the matter preceding clause 
                        (i), by inserting ``(other than the 
                        wholesale acquisition cost for purposes 
                        of carrying out section 1847A)'' after 
                        ``subsection (a)(6)(A)(ii)''; and
                            (ii) in clause (i), by inserting 
                        ``, to carry out section 1847A 
                        (including the determination and 
                        implementation of the payment amount), 
                        or to carry out section 1847B'' after 
                        ``this section''.
            (5) Implementation.--The provisions of chapter 8 of 
        title 5, United States Code, shall not apply with 
        respect to regulations implementing the amendments made 
        by subsections (a), (b), and (e)(3), to regulations 
        implementing section 304, and to regulations 
        implementing the amendment made by section 305(a), 
        insofar as such regulations apply in 2004.
            (6) Repeal of study.--Section 4556 of the Balanced 
        Budget Act of 1997 (42 U.S.C. 1395u note) is amended by 
        striking subsection (c).
    (j) Application to Certain Physician Specialties.--Insofar 
as the amendments made by this section apply to payments for 
drugs or biologicals and drug administration services furnished 
by physicians, such amendments shall only apply to physicians 
in the specialties of hematology, hematology/oncology, and 
medical oncology under title XVIII of the Social Security Act.

SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR COVERED 
                    OUTPATIENT DRUGS AND BIOLOGICALS TO OTHER PHYSICIAN 
                    SPECIALTIES.

    Notwithstanding section 303(j), the amendments made by 
section 303 shall also apply to payments for drugs or 
biologicals and drug administration services furnished by 
physicians in specialties other than the specialties of 
hematology, hematology/oncology, and medical oncology.

SEC. 305. PAYMENT FOR INHALATION DRUGS.

    (a) In General.--Section 1842(o)(1)(G) (42 U.S.C. 
1395u(o)(1)(G)), as added by section 303(b), is amended to read 
as follows:
            ``(G) In the case of inhalation drugs or 
        biologicals furnished through durable medical equipment 
        covered under section 1861(n) that are furnished--
                    ``(i) in 2004, the amount provided under 
                paragraph (4) for the drug or biological; and
                    ``(ii) in 2005 and subsequent years, the 
                amount provided under section 1847A for the 
                drug or biological.''.
    (b) GAO Study of Medicare Payment for Inhalation Therapy.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study to examine the adequacy of 
        current reimbursements for inhalation therapy under the 
        medicare program.
            (2) Report.--Not later than 1 year after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary shall conduct a 
demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the use of 
recovery audit contractors under the Medicare Integrity Program 
in identifying underpayments and overpayments and recouping 
overpayments under the medicare program for services for which 
payment is made under part A or B of title XVIII of the Social 
Security Act. Under the project--
            (1) payment may be made to such a contractor on a 
        contingent basis;
            (2) such percentage as the Secretary may specify of 
        the amount recovered shall be retained by the Secretary 
        and shall be available to the program management 
        account of the Centers for Medicare & Medicaid 
        Services; and
            (3) the Secretary shall examine the efficacy of 
        such use with respect to duplicative payments, accuracy 
        of coding, and other payment policies in which 
        inaccurate payments arise.
    (b) Scope and Duration.--
            (1) Scope.--The project shall cover at least 2 
        States that are among the States with--
                    (A) the highest per capita utilization 
                rates of medicare services, and
                    (B) at least 3 contractors.
            (2) Duration.--The project shall last for not 
        longer than 3 years.
    (c) Waiver.--The Secretary shall waive such provisions of 
title XVIII of the Social Security Act as may be necessary to 
provide for payment for services under the project in 
accordance with subsection (a).
    (d) Qualifications of Contractors.--
            (1) In general.--The Secretary shall enter into a 
        recovery audit contract under this section with an 
        entity only if the entity has staff that has the 
        appropriate clinical knowledge of and experience with 
        the payment rules and regulations under the medicare 
        program or the entity has or will contract with another 
        entity that has such knowledgeable and experienced 
        staff.
            (2) Ineligibility of certain contractors.--The 
        Secretary may not enter into a recovery audit contract 
        under this section with an entity to the extent that 
        the entity is a fiscal intermediary under section 1816 
        of the Social Security Act (42 U.S.C. 1395h), a carrier 
        under section 1842 of such Act (42 U.S.C. 1395u), or a 
        Medicare Administrative Contractor under section 1874A 
        of such Act.
            (3) Preference for entities with demonstrated 
        proficiency.--In awarding contracts to recovery audit 
        contractors under this section, the Secretary shall 
        give preference to those risk entities that the 
        Secretary determines have demonstrated more than 3 
        years direct management experience and a proficiency 
        for cost control or recovery audits with private 
        insurers, health care providers, health plans, or under 
        the medicaid program under title XIX of the Social 
        Security Act.
    (e) Construction Relating to Conduct of Investigation of 
Fraud.--A recovery of an overpayment to a provider by a 
recovery audit contractor shall not be construed to prohibit 
the Secretary or the Attorney General from investigating and 
prosecuting, if appropriate, allegations of fraud or abuse 
arising from such overpayment.
    (f) Report.--The Secretary shall submit to Congress a 
report on the project not later than 6 months after the date of 
its completion. Such reports shall include information on the 
impact of the project on savings to the medicare program and 
recommendations on the cost-effectiveness of extending or 
expanding the project.information' means information about a 
conviction for a relevant crime or a finding of patient or 
resident abuse.

SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND CHECKS ON 
                    DIRECT PATIENT ACCESS EMPLOYEES OF LONG-TERM CARE 
                    FACILITIES OR PROVIDERS.

    (a) Authority To Conduct Program.--The Secretary, in 
consultation with the Attorney General, shall establish a pilot 
program to identify efficient, effective, and economical 
procedures for long term care facilities or providers to 
conduct background checks on prospective direct patient access 
employees.
    (b) Requirements.--
            (1) In general.--Under the pilot program, a long-
        term care facility or provider in a participating 
        State, prior to employing a direct patient access 
        employee that is first hired on or after the 
        commencement date of the pilot program in the State, 
        shall conduct a background check on the employee in 
        accordance with such procedures as the participating 
        State shall establish.
            (2) Procedures.--
                    (A) In general.--The procedures established 
                by a participating State under paragraph (1) 
                should be designed to--
                            (i) give a prospective direct 
                        access patient employee notice that the 
                        long-term care facility or provider is 
                        required to perform background checks 
                        with respect to new employees;
                            (ii) require, as a condition of 
                        employment, that the employee--
                                    (I) provide a written 
                                statement disclosing any 
                                disqualifying information;
                                    (II) provide a statement 
                                signed by the employee 
                                authorizing the facility to 
                                request national and State 
                                criminal history background 
                                checks;
                                    (III) provide the facility 
                                with a rolled set of the 
                                employee's fingerprints; and
                                    (IV) provide any other 
                                identification information the 
                                participating State may 
                                require;
                            (iii) require the facility or 
                        provider to check any available 
                        registries that would be likely to 
                        contain disqualifying information about 
                        a prospective employee of a long-term 
                        care facility or provider; and
                            (iv) permit the facility or 
                        provider to obtain State and national 
                        criminal history background checks on 
                        the prospective employee through a 10-
                        fingerprint check that utilizes State 
                        criminal records and the Integrated 
                        Automated Fingerprint Identification 
                        System of the Federal Bureau of 
                        Investigation.
                    (B) Elimination of unnecessary checks.--The 
                procedures established by a participating State 
                under paragraph (1) shall permit a long-term 
                care facility or provider to terminate the 
                background check at any stage at which the 
                facility or provider obtains disqualifying 
                information regarding a prospective direct 
                patient access employee.
            (3) Prohibition on hiring of abusive workers.--
                    (A) In general.--A long-term care facility 
                or provider may not knowingly employ any direct 
                patient access employee who has any 
                disqualifying information.
                    (B) Provisional employment.--
                            (i) In general.--Under the pilot 
                        program, a participating State may 
                        permit a long-term care facility or 
                        provider to provide for a provisional 
                        period of employment for a direct 
                        patient access employee pending 
                        completion of a background check, 
                        subject to such supervision during the 
                        employee's provisional period of 
                        employment as the participating State 
                        determines appropriate.
                            (ii) Special consideration for 
                        certain facilities and providers.--In 
                        determining what constitutes 
                        appropriate supervision of a 
                        provisional employee, a participating 
                        State shall take into account cost or 
                        other burdens that would be imposed on 
                        small rural long-term care facilities 
                        or providers, as well as the nature of 
                        care delivered by such facilities or 
                        providers that are home health agencies 
                        or providers of hospice care.
            (4) Use of information; immunity from liability.--
                    (A) Use of information.--A participating 
                State shall ensure that a long-term care 
                facility or provider that obtains information 
                about a direct patient access employee pursuant 
                to a background check uses such information 
                only for the purpose of determining the 
                suitability of the employee for employment.
                    (B) Immunity from liability.--A 
                participating State shall ensure that a long-
                term care facility or provider that, in denying 
                employment for an individual selected for hire 
                as a direct patient access employee (including 
                during any period of provisional employment), 
                reasonably relies upon information obtained 
                through a background check of the individual, 
                shall not be liable in any action brought by 
                the individual based on the employment 
                determination resulting from the information.
            (5) Agreements with employment agencies.--A 
        participating State may establish procedures for 
        facilitating the conduct of background checks on 
        prospective direct patient access employees that are 
        hired by a long-term care facility or provider through 
        an employment agency (including a temporary employment 
        agency).
            (6) Penalties.--A participating State may impose 
        such penalties as the State determines appropriate to 
        enforce the requirements of the pilot program conducted 
        in that State.
    (c) Participating States.--
            (1) In general.--The Secretary shall enter into 
        agreements with not more than 10 States to conduct the 
        pilot program under this section in such States.
            (2) Requirements for states.--An agreement entered 
        into under paragraph (1) shall require that a 
        participating State--
                    (A) be responsible for monitoring 
                compliance with the requirements of the pilot 
                program;
                    (B) have procedures by which a provisional 
                employee or an employee may appeal or dispute 
                the accuracy of the information obtained in a 
                background check performed under the pilot 
                program; and
                    (C) agree to--
                            (i) review the results of any State 
                        or national criminal history background 
                        checks conducted regarding a 
                        prospective direct patient access 
                        employee to determine whether the 
                        employee has any conviction for a 
                        relevant crime;
                            (ii) immediately report to the 
                        entity that requested the criminal 
                        history background checks the results 
                        of such review; and
                            (iii) in the case of an employee 
                        with a conviction for a relevant crime 
                        that is subject to reporting under 
                        section 1128E of the Social Security 
                        Act (42 U.S.C. 1320a-7e), report the 
                        existence of such conviction to the 
                        database established under that 
                        section.
            (3) Application and selection criteria.--
                    (A) Application.--A State seeking to 
                participate in the pilot program established 
                under this section, shall submit an application 
                to the Secretary containing such information 
                and at such time as the Secretary may specify.
                    (B) Selection criteria.--
                            (i) In general.--In selecting 
                        States to participate in the pilot 
                        program, the Secretary shall establish 
                        criteria to ensure--
                                    (I) geographic diversity;
                                    (II) the inclusion of a 
                                variety of long-term care 
                                facilities or providers;
                                    (III) the evaluation of a 
                                variety of payment mechanisms 
                                for covering the costs of 
                                conducting the background 
                                checks required under the pilot 
                                program; and
                                    (IV) the evaluation of a 
                                variety of penalties (monetary 
                                and otherwise) used by 
                                participating States to enforce 
                                the requirements of the pilot 
                                program in such States.
                            (ii) Additional criteria.--The 
                        Secretary shall, to the greatest extent 
                        practicable, select States to 
                        participate in the pilot program in 
                        accordance with the following:
                                    (I) At least one 
                                participating State should 
                                permit long-term care 
                                facilities or providers to 
                                provide for a provisional 
                                period of employment pending 
                                completion of a background 
                                check and at least one such 
                                State should not permit such a 
                                period of employment.
                                    (II) At least one 
                                participating State should 
                                establish procedures under 
                                which employment agencies 
                                (including temporary employment 
                                agencies) may contact the State 
                                directly to conduct background 
                                checks on prospective direct 
                                patient access employees.
                                    (III) At least one 
                                participating State should 
                                include patient abuse 
                                prevention training (including 
                                behavior training and 
                                interventions) for managers and 
                                employees of long-term care 
                                facilities and providers as 
                                part of the pilot program 
                                conducted in that State.
                            (iii) Inclusion of states with 
                        existing programs.--Nothing in this 
                        section shall be construed as 
                        prohibiting any State which, as of the 
                        date of the enactment of this Act, has 
                        procedures for conducting background 
                        checks on behalf of any entity 
                        described in subsection (g)(5) from 
                        being selected to participate in the 
                        pilot program conducted under this 
                        section.
    (d) Payments.--Of the amounts made available under 
subsection (f) to conduct the pilot program under this section, 
the Secretary shall--
            (1) make payments to participating States for the 
        costs of conducting the pilot program in such States; 
        and
            (2) reserve up to 4 percent of such amounts to 
        conduct the evaluation required under subsection (e).
    (e) Evaluation.--The Secretary, in consultation with the 
Attorney General, shall conduct by grant, contract, or 
interagency agreement an evaluation of the pilot program 
conducted under this section. Such evaluation shall--
            (1) review the various procedures implemented by 
        participating States for long-term care facilities or 
        providers to conduct background checks of direct 
        patient access employees and identify the most 
        efficient, effective, and economical procedures for 
        conducting such background checks;
            (2) assess the costs of conducting such background 
        checks (including start-up and administrative costs);
            (3) consider the benefits and problems associated 
        with requiring employees or facilities or providers to 
        pay the costs of conducting such background checks;
            (4) consider whether the costs of conducting such 
        background checks should be allocated between the 
        medicare and medicaid programs and if so, identify an 
        equitable methodology for doing so;
            (5) determine the extent to which conducting such 
        background checks leads to any unintended consequences, 
        including a reduction in the available workforce for 
        such facilities or providers;
            (6) review forms used by participating States in 
        order to develop, in consultation with the Attorney 
        General, a model form for such background checks;
            (7) determine the effectiveness of background 
        checks conducted by employment agencies; and
            (8) recommend appropriate procedures and payment 
        mechanisms for implementing a national criminal 
        background check program for such facilities and 
        providers.
    (f) Funding.--Out of any funds in the Treasury not 
otherwise appropriated, there are appropriated to the Secretary 
to carry out the pilot program under this section for the 
period of fiscal years 2004 through 2007, $25,000,000.
    (g) Definitions.--In this section:
            (1) Conviction for a relevant crime.--The term 
        ``conviction for a relevant crime'' means any Federal 
        or State criminal conviction for--
                    (A) any offense described in section 
                1128(a) of the Social Security Act (42 U.S.C. 
                1320a-7); and
                    (B) such other types of offenses as a 
                participating State may specify for purposes of 
                conducting the pilot program in such State.
            (2) Disqualifying information.--The term 
        ``disqualifying information'' means a conviction for a 
        relevant crime or a finding of patient or resident 
        abuse.
            (3) Finding of patient or resident abuse.--The term 
        ``finding of patient or resident abuse'' means any 
        substantiated finding by a State agency under section 
        1819(g)(1)(C) or 1919(g)(1)(C) of the Social Security 
        Act (42 U.S.C. 1395i-3(g)(1)(C), 1396r(g)(1)(C)) or a 
        Federal agency that a direct patient access employee 
        has committed--
                    (A) an act of patient or resident abuse or 
                neglect or a misappropriation of patient or 
                resident property; or
                    (B) such other types of acts as a 
                participating State may specify for purposes of 
                conducting the pilot program in such State.
            (4) Direct patient access employee.--The term 
        ``direct patient access employee'' means any individual 
        (other than a volunteer) that has access to a patient 
        or resident of a long-term care facility or provider 
        through employment or through a contract with such 
        facility or provider, as determined by a participating 
        State for purposes of conducting the pilot program in 
        such State.
            (5) Long-term care facility or provider.--
                    (A) In general.--The term ``long-term care 
                facility or provider'' means the following 
                facilities or providers which receive payment 
                for services under title XVIII or XIX of the 
                Social Security Act:
                            (i) A skilled nursing facility (as 
                        defined in section 1819(a) of the 
                        Social Security Act) (42 U.S.C. 1395i-
                        3(a)).
                            (ii) A nursing facility (as defined 
                        in section 1919(a) in such Act) (42 
                        U.S.C. 1396r(a)).
                            (iii) A home health agency.
                            (iv) A provider of hospice care (as 
                        defined in section 1861(dd)(1) of such 
                        Act) (42 U.S.C. 1395x(dd)(1)).
                            (v) A long-term care hospital (as 
                        described in section 1886(d)(1)(B)(iv) 
                        of such Act) (42 U.S.C. 
                        1395ww(d)(1)(B)(iv)).
                            (vi) A provider of personal care 
                        services.
                            (vii) A residential care provider 
                        that arranges for, or directly 
                        provides, long-term care services.
                            (viii) An intermediate care 
                        facility for the mentally retarded (as 
                        defined in section 1905(d) of such Act) 
                        42 U.S.C. 1396d(d)).
                    (B) Additional facilities or providers.--
                During the first year in which a pilot program 
                under this section is conducted in a 
                participating State, the State may expand the 
                list of facilities or providers under 
                subparagraph (A) (on a phased-in basis or 
                otherwise) to include such other facilities or 
                providers of long-term care services under such 
                titles as the participating State determines 
                appropriate.
                    (C) Exceptions.--Such term does not 
                include--
                            (i) any facility or entity that 
                        provides, or is a provider of, services 
                        described in subparagraph (A) that are 
                        exclusively provided to an individual 
                        pursuant to a self-directed arrangement 
                        that meets such requirements as the 
                        participating State may establish in 
                        accordance with guidance from the 
                        Secretary; or
                            (ii) any such arrangement that is 
                        obtained by a patient or resident 
                        functioning as an employer.
            (6) Participating state.--The term ``participating 
        State'' means a State with an agreement under 
        subsection (c)(1).

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT AMOUNTS UNDER 
                    THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE PAYMENT 
                    SYSTEM.

    (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
1395ww(d)(3)(A)(iv)) is amended--
            (1) by striking ``(iv) For discharges'' and 
        inserting ``(iv)(I) Subject to subclause (II), for 
        discharges''; and
            (2) by adding at the end the following new 
        subclause:
            ``(II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute a standardized amount for hospitals located in 
        any area within the United States and within each 
        region equal to the standardized amount computed for 
        the previous fiscal year under this subparagraph for 
        hospitals located in a large urban area (or, beginning 
        with fiscal year 2005, for all hospitals in the 
        previous fiscal year) increased by the applicable 
        percentage increase under subsection (b)(3)(B)(i) for 
        the fiscal year involved.''.
    (b) Conforming Amendments.--
            (1) Computing drg-specific rates.--Section 
        1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is amended--
                    (A) in the heading, by striking ``in 
                different areas'';
                    (B) in the matter preceding clause (i), by 
                striking ``, each of'';
                    (C) in clause (i)--
                            (i) in the matter preceding 
                        subclause (I), by inserting ``for 
                        fiscal years before fiscal year 2004,'' 
                        before ``for hospitals''; and
                            (ii) in subclause (II), by striking 
                        ``and'' after the semicolon at the end;
                    (D) in clause (ii)--
                            (i) in the matter preceding 
                        subclause (I), by inserting ``for 
                        fiscal years before fiscal year 2004,'' 
                        before ``for hospitals''; and
                            (ii) in subclause (II), by striking 
                        the period at the end and inserting ``; 
                        and''; and
                    (E) by adding at the end the following new 
                clause:
                    ``(iii) for a fiscal year beginning after 
                fiscal year 2003, for hospitals located in all 
                areas, to the product of--
                            ``(I) the applicable standardized 
                        amount (computed under subparagraph 
                        (A)), reduced under subparagraph (B), 
                        and adjusted or reduced under 
                        subparagraph (C) for the fiscal year; 
                        and
                            ``(II) the weighting factor 
                        (determined under paragraph (4)(B)) for 
                        that diagnosis-related group.''.
            (2) Technical conforming sunset.--Section 
        1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended--
                    (A) in the matter preceding subparagraph 
                (A), by inserting ``, for fiscal years before 
                fiscal year 1997,'' before ``a regional 
                adjusted DRG prospective payment rate''; and
                    (B) in subparagraph (D), in the matter 
                preceding clause (i), by inserting ``, for 
                fiscal years before fiscal year 1997,'' before 
                ``a regional DRG prospective payment rate for 
                each region,''.
            (3) Additional technical amendment.--Section 
        1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is 
        amended by striking ``in an other urban area'' and 
        inserting ``in an urban area''.
    (c) Equalizing Urban and Rural Standardized Payment Amounts 
Under the Medicare Inpatient Hospital Prospective Payment 
System for Hospitals in Puerto Rico.--
            (1) In general.--Section 1886(d)(9)(A) (42 U.S.C. 
        1395ww(d)(9)(A)), as amended by section 504, is 
        amended--
                    (A) in clause (i), by striking ``and'' 
                after the comma at the end; and
                    (B) by striking clause (ii) and inserting 
                the following new clause:
            ``(ii) the applicable Federal percentage (specified 
        in subparagraph (E)) of--
                    ``(I) for discharges beginning in a fiscal 
                year beginning on or after October 1, 1997, and 
                before October 1, 2003, the discharge-weighted 
                average of--
                            ``(aa) the national adjusted DRG 
                        prospective payment rate (determined 
                        under paragraph (3)(D)) for hospitals 
                        located in a large urban area,
                            ``(bb) such rate for hospitals 
                        located in other urban areas, and
                            ``(cc) such rate for hospitals 
                        located in a rural area,
                for such discharges, adjusted in the manner 
                provided in paragraph (3)(E) for different area 
                wage levels; and
                    ``(II) for discharges in a fiscal year 
                beginning on or after October 1, 2003, the 
                national DRG prospective payment rate 
                determined under paragraph (3)(D)(iii) for 
                hospitals located in any area for such 
                discharges, adjusted in the manner provided in 
                paragraph (3)(E) for different area wage 
                levels.
As used in this section, the term `subsection (d) Puerto Rico 
hospital' means a hospital that is located in Puerto Rico and 
that would be a subsection (d) hospital (as defined in 
paragraph (1)(B)) if it were located in one of the 50 
States.''.
            (2) Application of puerto rico standardized amount 
        based on large urban areas.--Section 1886(d)(9)(C) (42 
        U.S.C. 1395ww(d)(9)(C)) is amended--
                    (A) in clause (i)--
                            (i) by striking ``(i) The 
                        Secretary'' and inserting ``(i)(I) For 
                        discharges in a fiscal year after 
                        fiscal year 1988 and before fiscal year 
                        2004, the Secretary''; and
                            (ii) by adding at the end the 
                        following new subclause:
            ``(II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area of Puerto Rico that is equal to the 
        average standardized amount computed under subclause 
        (I) for fiscal year 2003 for hospitals in a large urban 
        area (or, beginning with fiscal year 2005, for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B) for the fiscal year involved.'';
                    (B) in clause (ii), by inserting ``(or for 
                fiscal year 2004 and thereafter, the average 
                standardized amount)'' after ``each of the 
                average standardized amounts''; and
                    (C) in clause (iii)(I), by striking ``for 
                hospitals located in an urban or rural area, 
                respectively''.
    (d) Implementation.--
            (1) In general.--The amendments made by subsections 
        (a), (b), and (c)(1) of this section shall have no 
        effect on the authority of the Secretary, under 
        subsection (b)(2) of section 402 of Public Law 108-89, 
        to delay implementation of the extension of provisions 
        equalizing urban and rural standardized inpatient 
        hospital payments under subsection (a) of such section 
        402.
            (2) Application of puerto rico standardized amount 
        based on large urban areas.--The authority of the 
        Secretary referred to in paragraph (1) shall apply with 
        respect to the amendments made by subsection (c)(2) of 
        this section in the same manner as that authority 
        applies with respect to the extension of provisions 
        equalizing urban and rural standardized inpatient 
        hospital payments under subsection (a) of such section 
        402, except that any reference in subsection (b)(2)(A) 
        of such section 402 is deemed to be a reference to 
        April 1, 2004.

SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
                    RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 
                    100 BEDS.

    (a) Doubling the Cap.--Section 1886(d)(5)(F) (42 U.S.C. 
1395ww(d)(5)(F)) is amended by adding at the end the following 
new clause:
    ``(xiv)(I) In the case of discharges occurring on or after 
April 1, 2004, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment 
percentage otherwise determined under clause (iv) (other than 
subclause (I)) or under clause (viii), (x), (xi), (xii), or 
(xiii), the disproportionate share adjustment percentage 
determined under clause (vii) (relating to large, urban 
hospitals).
    ``(II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 12 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C).''.
    (b) Conforming Amendments.--Section 1886(d) (42 U.S.C. 
1395ww(d)) is amended--
            (1) in paragraph (5)(F)--
                    (A) in each of subclauses (II), (III), 
                (IV), (V), and (VI) of clause (iv), by 
                inserting ``subject to clause (xiv) and'' 
                before ``for discharges occurring'';
                    (B) in clause (viii), by striking ``The 
                formula'' and inserting ``Subject to clause 
                (xiv), the formula''; and
                    (C) in each of clauses (x), (xi), (xii), 
                and (xiii), by striking ``For purposes'' and 
                inserting ``Subject to clause (xiv), for 
                purposes''; and
            (2) in paragraph (2)(C)(iv)--
                    (A) by striking ``or'' before ``the 
                enactment of section 303''; and
                    (B) by inserting before the period at the 
                end the following: ``, or the enactment of 
                section 402(a)(1) of the Medicare Prescription 
                Drug, Improvement, and Modernization Act of 
                2003''.

SEC. 403. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE 
                    PAYMENT SYSTEM WAGE INDEX TO REVISE THE LABOR-
                    RELATED SHARE OF SUCH INDEX.

    (a) Adjustment.--
            (1) In general.--Section 1886(d)(3)(E) (42 U.S.C. 
        1395ww(d)(3)(E)) is amended--
                    (A) by striking ``wage levels.--The 
                Secretary'' and inserting ``wage levels.--
                    ``(i) In general.--Except as provided in 
                clause (ii), the Secretary''; and
                    (B) by adding at the end the following new 
                clause:
                    ``(ii) Alternative proportion to be 
                adjusted beginning in fiscal year 2005.--For 
                discharges occurring on or after October 1, 
                2004, the Secretary shall substitute `62 
                percent' for the proportion described in the 
                first sentence of clause (i), unless the 
                application of this clause would result in 
                lower payments to a hospital than would 
                otherwise be made.''.
            (2) Waiving budget neutrality.--Section 
        1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 
        by subsection (a), is amended by adding at the end of 
        clause (i) the following new sentence: ``The Secretary 
        shall apply the previous sentence for any period as if 
        the amendments made by section 403(a)(1) of the 
        Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003 had not been enacted.''.
    (b) Application to Puerto Rico Hospitals.--Section 
1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended--
            (1) by inserting ``(I)'' after ``(iv)'';
            (2) by striking ``paragraph (3)(E)'' and inserting 
        ``paragraph (3)(E)(i)''; and
            (3) by adding at the end the following new 
        subclause:
            ``(II) For discharges occurring on or after October 
        1, 2004, the Secretary shall substitute `62 percent' 
        for the proportion described in the first sentence of 
        clause (i), unless the application of this subclause 
        would result in lower payments to a hospital than would 
        otherwise be made.''.

SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
                    BASKET.

    (a) More Frequent Updates in Weights.--After revising the 
weights used in the hospital market basket under section 
1886(b)(3)(B)(iii) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(iii)) to reflect the most current data 
available, the Secretary shall establish a frequency for 
revising such weights, including the labor share, in such 
market basket to reflect the most current data available more 
frequently than once every 5 years.
    (b) Incorporation of Explanation in Rulemaking.--The 
Secretary shall include in the publication of the final rule 
for payment for inpatient hospital services under section 
1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) for 
fiscal year 2006, an explanation of the reasons for, and 
options considered, in determining frequency established under 
subsection (a).

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Increase in Payment Amounts.--
            (1) In general.--Sections 1814(l), 1834(g)(1), and 
        1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 
        1395tt(a)(3)) are each amended by inserting ``equal to 
        101 percent of '' before ``the reasonable costs''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to payments for services 
        furnished during cost reporting periods beginning on or 
        after January 1, 2004.
    (b) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
            (1) In general.--Section 1834(g)(5) (42 U.S.C. 
        1395m(g)(5)) is amended--
                    (A) in the heading--
                            (i) by inserting ``certain'' before 
                        ``emergency''; and
                            (ii) by striking ``physicians'' and 
                        inserting ``providers'';
                    (B) by striking ``emergency room physicians 
                who are on-call (as defined by the Secretary)'' 
                and inserting ``physicians, physician 
                assistants, nurse practitioners, and clinical 
                nurse specialists who are on-call (as defined 
                by the Secretary) to provide emergency 
                services''; and
                    (C) by striking ``physicians' services'' 
                and inserting ``services covered under this 
                title''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply with respect to costs 
        incurred for services furnished on or after January 1, 
        2005.
    (c) Authorization of Periodic Interim Payment (PIP).--
            (1) In general.--Section 1815(e)(2) (42 U.S.C. 
        1395g(e)(2)) is amended--
                    (A) in the matter before subparagraph (A), 
                by inserting ``, in the cases described in 
                subparagraphs (A) through (D)'' after ``1986'';
                    (B) by striking ``and'' at the end of 
                subparagraph (C);
                    (C) by adding ``and'' at the end of 
                subparagraph (D); and
                    (D) by inserting after subparagraph (D) the 
                following new subparagraph:
            ``(E) inpatient critical access hospital 
        services;''.
            (2) Development of alternative timing methods of 
        periodic interim payments.--With respect to periodic 
        interim payments to critical access hospitals for 
        inpatient critical access hospital services under 
        section 1815(e)(2)(E) of the Social Security Act, as 
        added by paragraph (1), the Secretary shall develop 
        alternative methods for the timing of such payments.
            (3) Authorization of pip.--The amendments made by 
        paragraph (1) shall apply to payments made on or after 
        July 1, 2004.
    (d) Condition for Application of Special Professional 
Service Payment Adjustment.--
            (1) In general.--Section 1834(g)(2) (42 U.S.C. 
        1395m(g)(2)) is amended by adding after and below 
        subparagraph (B) the following:
        ``The Secretary may not require, as a condition for 
        applying subparagraph (B) with respect to a critical 
        access hospital, that each physician or other 
        practitioner providing professional services in the 
        hospital must assign billing rights with respect to 
        such services, except that such subparagraph shall not 
        apply to those physicians and practitioners who have 
        not assigned such billing rights.''.
            (2) Effective date.--
                    (A) In general.--Except as provided in 
                subparagraph (B), the amendment made by 
                paragraph (1) shall apply to cost reporting 
                periods beginning on or after July 1, 2004.
                    (B) Rule of application.--In the case of a 
                critical access hospital that made an election 
                under section 1834(g)(2) of the Social Security 
                Act (42 U.S.C. 1395m(g)(2)) before November 1, 
                2003, the amendment made by paragraph (1) shall 
                apply to cost reporting periods beginning on or 
                after July 1, 2001.
    (e) Revision of Bed Limitation for Hospitals.--
            (1) In general.--Section 1820(c)(2)(B)(iii) (42 
        U.S.C. 1395i-4(c)(2)(B)(iii)) is amended by striking 
        ``15 (or, in the case of a facility under an agreement 
        described in subsection (f), 25)'' and inserting 
        ``25''.
            (2) Conforming amendment.--Section 1820(f) (42 
        U.S.C. 1395i-4(f)) is amended by striking ``and the 
        number of beds used at any time for acute care 
        inpatient services does not exceed 15 beds''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to designations made before, on, 
        or after January 1, 2004, but any election made 
        pursuant to regulations promulgated to carry out such 
        amendments shall only apply prospectively.
    (f) Provisions Relating to FLEX Grants.--
            (1) Additional 4-year period of funding.--Section 
        1820(j) (42 U.S.C. 1395i-4(j)) is amended by inserting 
        before the period at the end the following: ``, and for 
        making grants to all States under paragraphs (1) and 
        (2) of subsection (g), $35,000,000 in each of fiscal 
        years 2005 through 2008''.
            (2) Additional requirements and administration.--
        Section 1820(g) (42 U.S.C. 1395i-4(g)) is amended by 
        adding at the end the following new paragraphs:
            ``(4) Additional requirements with respect to flex 
        grants.--With respect to grants awarded under paragraph 
        (1) or (2) from funds appropriated for fiscal year 2005 
        and subsequent fiscal years--
                    ``(A) Consultation with the state hospital 
                association and rural hospitals on the most 
                appropriate ways to use grants.--A State shall 
                consult with the hospital association of such 
                State and rural hospitals located in such State 
                on the most appropriate ways to use the funds 
                under such grant.
                    ``(B) Limitation on use of grant funds for 
                administrative expenses.--A State may not 
                expend more than the lesser of--
                            ``(i) 15 percent of the amount of 
                        the grant for administrative expenses; 
                        or
                            ``(ii) the State's federally 
                        negotiated indirect rate for 
                        administering the grant.
            ``(5) Use of funds for federal administrative 
        expenses.--Of the total amount appropriated for grants 
        under paragraphs (1) and (2) for a fiscal year 
        (beginning with fiscal year 2005), up to 5 percent of 
        such amount shall be available to the Health Resources 
        and Services Administration for purposes of 
        administering such grants.''.
    (g) Authority To Establish Psychiatric and Rehabilitation 
Distinct Part Units.--
            (1) In general.--Section 1820(c)(2) (42 U.S.C. 
        1395i-4(c)(2)) is amended by adding at the end the 
        following:
                    ``(E) Authority to establish psychiatric 
                and rehabilitation distinct part units.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this 
                        subparagraph, a critical access 
                        hospital may establish--
                                    ``(I) a psychiatric unit of 
                                the hospital that is a distinct 
                                part of the hospital; and
                                    ``(II) a rehabilitation 
                                unit of the hospital that is a 
                                distinct part of the hospital,
                        if the distinct part meets the 
                        requirements (including conditions of 
                        participation) that would otherwise 
                        apply to the distinct part if the 
                        distinct part were established by a 
                        subsection (d) hospital in accordance 
                        with the matter following clause (v) of 
                        section 1886(d)(1)(B), including any 
                        regulations adopted by the Secretary 
                        under such section.
                            ``(ii) Limitation on number of 
                        beds.--The total number of beds that 
                        may be established under clause (i) for 
                        a distinct part unit may not exceed 10.
                            ``(iii) Exclusion of beds from bed 
                        count.--In determining the number of 
                        beds of a critical access hospital for 
                        purposes of applying the bed 
                        limitations referred to in subparagraph 
                        (B)(iii) and subsection (f), the 
                        Secretary shall not take into account 
                        any bed established under clause (i).
                            ``(iv) Effect of failure to meet 
                        requirements.--If a psychiatric or 
                        rehabilitation unit established under 
                        clause (i) does not meet the 
                        requirements described in such clause 
                        with respect to a cost reporting 
                        period, no payment may be made under 
                        this title to the hospital for services 
                        furnished in such unit during such 
                        period. Payment to the hospital for 
                        services furnished in the unit may 
                        resume only after the hospital has 
                        demonstrated to the Secretary that the 
                        unit meets such requirements.''.
            (2) Payment on a prospective payment basis.--
        Section 1814(l) (42 U.S.C. 1395f(l)) is amended--
                    (A) by striking ``(l) The amount'' and 
                inserting ``(l)(1) Except as provided in 
                paragraph (2), the amount''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2) In the case of a distinct part psychiatric or 
rehabilitation unit of a critical access hospital described in 
section 1820(c)(2)(E), the amount of payment for inpatient 
critical access hospital services of such unit shall be equal 
to the amount of the payment that would otherwise be made if 
such services were inpatient hospital services of a distinct 
part psychiatric or rehabilitation unit, respectively, 
described in the matter following clause (v) of section 
1886(d)(1)(B).''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to cost reporting periods 
        beginning on or after October 1, 2004.
    (h) Waiver Authority.--
            (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 
        U.S.C. 1395i-4(c)(2)(B)(i)(II)) is amended by inserting 
        ``before January 1, 2006,'' after ``is certified''.
            (2) Grandfathering waiver authority for certain 
        facilities.--Section 1820(h) (42 U.S.C. 1395i-4(h)) is 
        amended--
                    (A) in the heading preceding paragraph (1), 
                by striking ``of Certain Facilities'' and 
                inserting ``Provisions''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) State authority to waive 35-mile rule.--In 
        the case of a facility that was designated as a 
        critical access hospital before January 1, 2006, and 
        was certified by the State as being a necessary 
        provider of health care services to residents in the 
        area under subsection (c)(2)(B)(i)(II), as in effect 
        before such date, the authority under such subsection 
        with respect to any redesignation of such facility 
        shall continue to apply notwithstanding the amendment 
        made by section 405(h)(1) of the Medicare Prescription 
        Drug, Improvement, and Modernization Act of 2003.''.

SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME 
                    HOSPITALS.

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is 
amended by adding at the end the following new paragraph:
            ``(12) Payment adjustment for low-volume 
        hospitals.--
                    ``(A) In general.--In addition to any 
                payments calculated under this section for a 
                subsection (d) hospital, for discharges 
                occurring during a fiscal year (beginning with 
                fiscal year 2005), the Secretary shall provide 
                for an additional payment amount to each low-
                volume hospital (as defined in subparagraph 
                (C)(i)) for discharges occurring during that 
                fiscal year that is equal to the applicable 
                percentage increase (determined under 
                subparagraph (B) for the hospital involved) in 
                the amount paid to such hospital under this 
                section for such discharges (determined without 
                regard to this paragraph).
                    ``(B) Applicable percentage increase.--The 
                Secretary shall determine an applicable 
                percentage increase for purposes of 
                subparagraph (A) as follows:
                            ``(i) The Secretary shall determine 
                        the empirical relationship for 
                        subsection (d) hospitals between the 
                        standardized cost-per-case for such 
                        hospitals and the total number of 
                        discharges of such hospitals and the 
                        amount of the additional incremental 
                        costs (if any) that are associated with 
                        such number of discharges.
                            ``(ii) The applicable percentage 
                        increase shall be determined based upon 
                        such relationship in a manner that 
                        reflects, based upon the number of such 
                        discharges for a subsection (d) 
                        hospital, such additional incremental 
                        costs.
                            ``(iii) In no case shall the 
                        applicable percentage increase exceed 
                        25 percent.
                    ``(C) Definitions.--
                            ``(i) Low-volume hospital.--For 
                        purposes of this paragraph, the term 
                        `low-volume hospital' means, for a 
                        fiscal year, a subsection (d) hospital 
                        (as defined in paragraph (1)(B)) that 
                        the Secretary determines is located 
                        more than 25 road miles from another 
                        subsection (d) hospital and has less 
                        than 800 discharges during the fiscal 
                        year.
                            ``(ii) Discharge.--For purposes of 
                        subparagraph (B) and clause (i), the 
                        term `discharge' means an inpatient 
                        acute care discharge of an individual 
                        regardless of whether the individual is 
                        entitled to benefits under part A.''.
    (b) Judicial Review.--Section 1886(d)(7)(A) (42 U.S.C. 
1395ww(d)(7)(A)) is amended by inserting after ``to subsection 
(e)(1)'' the following: ``or the determination of the 
applicable percentage increase under paragraph (12)(A)(ii)''.

SEC. 407. TREATMENT OF MISSING COST REPORTING PERIODS FOR SOLE 
                    COMMUNITY HOSPITALS.

    (a) In General.--Section 1886(b)(3)(I) (42 U.S.C. 
1395ww(b)(3)(I)) is amended by adding at the end the following 
new clause:
    ``(iii) In no case shall a hospital be denied treatment as 
a sole community hospital or payment (on the basis of a target 
rate as such as a hospital) because data are unavailable for 
any cost reporting period due to changes in ownership, changes 
in fiscal intermediaries, or other extraordinary circumstances, 
so long as data for at least one applicable base cost reporting 
period is available.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to cost reporting periods beginning on or after 
January 1, 2004.

SEC. 408. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS ATTENDING 
                    PHYSICIANS TO SERVE HOSPICE PATIENTS.

    (a) In General.--Section 1861(dd)(3)(B) (42 U.S.C. 
1395x(dd)(3)(B)) is amended by inserting ``or nurse 
practitioner (as defined in subsection (aa)(5))'' after ``the 
physician (as defined in subsection (r)(1))''.
    (b) Clarification of Hospice Role of Nurse Practitioners.--
Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I)) is 
amended by inserting ``(which for purposes of this subparagraph 
does not include a nurse practitioner)'' after ``attending 
physician (as defined in section 1861(dd)(3)(B))''.

SEC. 409. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a 
demonstration project for the delivery of hospice care to 
medicare beneficiaries in rural areas. Under the project 
medicare beneficiaries who are unable to receive hospice care 
in the facility for lack of an appropriate caregiver are 
provided such care in a facility of 20 or fewer beds which 
offers, within its walls, the full range of services provided 
by hospice programs under section 1861(dd) of the Social 
Security Act (42 U.S.C. 1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the 
project under this section with respect to no more than 3 
hospice programs over a period of not longer than 5 years each.
    (c) Compliance With Conditions.--Under the demonstration 
project--
            (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be 
        required to offer services outside of the home or to 
        meet the requirements of section 1861(dd)(2)(A)(iii) of 
        the Social Security Act; and
            (2) payments for hospice care shall be made at the 
        rates otherwise applicable to such care under title 
        XVIII of such Act.
The Secretary may require the program to comply with such 
additional quality assurance standards for its provision of 
services in its facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary 
shall submit a report to Congress on the project and shall 
include in the report recommendations regarding extension of 
such project to hospice programs serving rural areas.

SEC. 410. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY 
                    QUALIFIED HEALTH CENTER SERVICES FROM THE 
                    PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING 
                    FACILITIES.

    (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 
1395yy(e)(2)(A)) is amended--
            (1) in clause (i)(II), by striking ``clauses (ii) 
        and (iii)'' and inserting ``clauses (ii), (iii), and 
        (iv)''; and
            (2) by adding at the end the following new clause:
                            ``(iv) Exclusion of certain rural 
                        health clinic and federally qualified 
                        health center services.--Services 
                        described in this clause are--
                                    ``(I) rural health clinic 
                                services (as defined in 
                                paragraph (1) of section 
                                1861(aa)); and
                                    ``(II) Federally qualified 
                                health center services (as 
                                defined in paragraph (3) of 
                                such section);
                        that would be described in clause (ii) 
                        if such services were furnished by an 
                        individual not affiliated with a rural 
                        health clinic or a Federally qualified 
                        health center.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to services furnished on or after January 1, 2005.

SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) 
Demonstration Program.--
            (1) In general.--The Secretary shall establish a 
        demonstration program to test the feasibility and 
        advisability of the establishment of rural community 
        hospitals (as defined in subsection (f)(1)) to furnish 
        covered inpatient hospital services (as defined in 
        subsection (f)(2)) to medicare beneficiaries.
            (2) Demonstration areas.--The program shall be 
        conducted in rural areas selected by the Secretary in 
        States with low population densities, as determined by 
        the Secretary.
            (3) Application.--Each rural community hospital 
        that is located in a demonstration area selected under 
        paragraph (2) that desires to participate in the 
        demonstration program under this section shall submit 
        an application to the Secretary at such time, in such 
        manner, and containing such information as the 
        Secretary may require.
            (4) Selection of hospitals.--The Secretary shall 
        select from among rural community hospitals submitting 
        applications under paragraph (3) not more than 15 of 
        such hospitals to participate in the demonstration 
        program under this section.
            (5) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 5-year 
        period.
            (6) Implementation.--The Secretary shall implement 
        the demonstration program not later than January 1, 
        2005, but may not implement the program before October 
        1, 2004.
    (b) Payment.--
            (1) In general.--The amount of payment under the 
        demonstration program for covered inpatient hospital 
        services furnished in a rural community hospital, other 
        than such services furnished in a psychiatric or 
        rehabilitation unit of the hospital which is a distinct 
        part, is--
                    (A) for discharges occurring in the first 
                cost reporting period beginning on or after the 
                implementation of the demonstration program, 
                the reasonable costs of providing such 
                services; and
                    (B) for discharges occurring in a 
                subsequent cost reporting period under the 
                demonstration program, the lesser of--
                            (i) the reasonable costs of 
                        providing such services in the cost 
                        reporting period involved; or
                            (ii) the target amount (as defined 
                        in paragraph (2), applicable to the 
                        cost reporting period involved.
            (2) Target amount.--For purposes of paragraph 
        (1)(B)(ii), the term ``target amount'' means, with 
        respect to a rural community hospital for a particular 
        12-month cost reporting period--
                    (A) in the case of the second such 
                reporting period for which this subsection is 
                in effect, the reasonable costs of providing 
                such covered inpatient hospital services as 
                determined under paragraph (1)(A), and
                    (B) in the case of a later reporting 
                period, the target amount for the preceding 12-
                month cost reporting period,
        increased by the applicable percentage increase (under 
        clause (i) of section 1886(b)(3)(B) of the Social 
        Security Act (42 U.S.C. 1395ww(b)(3)(B))) in the market 
        basket percentage increase (as defined in clause (iii) 
        of such section) for that particular cost reporting 
        period.
    (c) Funding.--
            (1) In general.--The Secretary shall provide for 
        the transfer from the Federal Hospital Insurance Trust 
        Fund under section 1817 of the Social Security Act (42 
        U.S.C. 1395i) of such funds as are necessary for the 
        costs of carrying out the demonstration program under 
        this section.
            (2) Budget neutrality.--In conducting the 
        demonstration program under this section, the Secretary 
        shall ensure that the aggregate payments made by the 
        Secretary do not exceed the amount which the Secretary 
        would have paid if the demonstration program under this 
        section was not implemented.
    (d) Waiver Authority.--The Secretary may waive such 
requirements of title XVIII of the Social Security Act (42 
U.S.C. 1395 et seq.) as may be necessary for the purpose of 
carrying out the demonstration program under this section.
    (e) Report.--Not later than 6 months after the completion 
of the demonstration program under this section, the Secretary 
shall submit to Congress a report on such program, together 
with recommendations for such legislation and administrative 
action as the Secretary determines to be appropriate.
    (f) Definitions.--In this section:
            (1) Rural community hospital defined.--
                    (A) In general.--The term ``rural community 
                hospital'' means a hospital (as defined in 
                section 1861(e) of the Social Security Act (42 
                U.S.C. 1395x(e))) that--
                            (i) is located in a rural area (as 
                        defined in section 1886(d)(2)(D) of 
                        such Act (42 U.S.C. 1395ww(d)(2)(D))) 
                        or treated as being so located pursuant 
                        to section 1886(d)(8)(E) of such Act 
                        (42 U.S.C. 1395ww(d)(8)(E));
                            (ii) subject to paragraph (2), has 
                        fewer than 51 acute care inpatient 
                        beds, as reported in its most recent 
                        cost report;
                            (iii) makes available 24-hour 
                        emergency care services; and
                            (iv) is not eligible for 
                        designation, or has not been 
                        designated, as a critical access 
                        hospital under section 1820.
                    (B) Treatment of psychiatric and 
                rehabilitation units.--For purposes of 
                paragraph (1)(B), beds in a psychiatric or 
                rehabilitation unit of the hospital which is a 
                distinct part of the hospital shall not be 
                counted.
            (2) Covered inpatient hospital services.--The term 
        ``covered inpatient hospital services'' means inpatient 
        hospital services, and includes extended care services 
        furnished under an agreement under section 1883 of the 
        Social Security Act (42 U.S.C. 1395tt).

             Subtitle B--Provisions Relating to Part B Only

SEC. 411. 2-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL RURAL 
                    HOSPITALS AND SOLE COMMUNITY HOSPITALS UNDER THE 
                    PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
                    DEPARTMENT SERVICES.

    (a) Hold Harmless Provisions.--
            (1) In general.--Section 1833(t)(7)(D)(i) (42 
        U.S.C. 1395l(t)(7)(D)(i)) is amended--
                    (A) in the heading, by striking ``small'' 
                and inserting ``certain'';
                    (B) by inserting ``or a sole community 
                hospital (as defined in section 
                1886(d)(5)(D)(iii)) located in a rural area'' 
                after ``100 beds''; and
                    (C) by striking ``2004'' and inserting 
                ``2006''.
            (2) Effective date.--The amendment made by 
        paragraph (1)(B) shall apply with respect to cost 
        reporting periods beginning on and after January 1, 
        2004.
    (b) Study; Authorization of Adjustment.--Section 1833(t) 
(42 U.S.C. 1395l(t)) is amended--
            (1) by redesignating paragraph (13) as paragraph 
        (16); and
            (2) by inserting after paragraph (12) the following 
        new paragraph:
            ``(13) Authorization of adjustment for rural 
        hospitals.--
                    ``(A) Study.--The Secretary shall conduct a 
                study to determine if, under the system under 
                this subsection, costs incurred by hospitals 
                located in rural areas by ambulatory payment 
                classification groups (APCs) exceed those costs 
                incurred by hospitals located in urban areas.
                    ``(B) Authorization of adjustment.--Insofar 
                as the Secretary determines under subparagraph 
                (A) that costs incurred by hospitals located in 
                rural areas exceed those costs incurred by 
                hospitals located in urban areas, the Secretary 
                shall provide for an appropriate adjustment 
                under paragraph (2)(E) to reflect those higher 
                costs by January 1, 2006.''.

SEC. 412. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

    Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
            (1) in subparagraph (A), by striking 
        ``subparagraphs (B) and (C)'' and inserting 
        ``subparagraphs (B), (C), and (E)''; and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(E) Floor at 1.0 on work geographic 
                index.--After calculating the work geographic 
                index in subparagraph (A)(iii), for purposes of 
                payment for services furnished on or after 
                January 1, 2004, and before January 1, 2007, 
                the Secretary shall increase the work 
                geographic index to 1.00 for any locality for 
                which such work geographic index is less than 
                1.00.''.

SEC. 413. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
                    SCARCITY.

    (a) Additional Incentive Payment for Certain Physician 
Scarcity Areas.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following new subsection:
    ``(u) Incentive Payments for Physician Scarcity Areas.--
            ``(1) In general.--In the case of physicians' 
        services furnished on or after January 1, 2005, and 
        before January 1, 2008--
                    ``(A) by a primary care physician in a 
                primary care scarcity county (identified under 
                paragraph (4)); or
                    ``(B) by a physician who is not a primary 
                care physician in a specialist care scarcity 
                county (as so identified),
        in addition to the amount of payment that would 
        otherwise be made for such services under this part, 
        there also shall be paid an amount equal to 5 percent 
        of the payment amount for the service under this part.
            ``(2) Determination of ratios of physicians to 
        medicare beneficiaries in area.--Based upon available 
        data, the Secretary shall establish for each county or 
        equivalent area in the United States, the following:
                    ``(A) Number of physicians practicing in 
                the area.--The number of physicians who furnish 
                physicians' services in the active practice of 
                medicine or osteopathy in that county or area, 
                other than physicians whose practice is 
                exclusively for the Federal Government, 
                physicians who are retired, or physicians who 
                only provide administrative services. Of such 
                number, the number of such physicians who are--
                            ``(i) primary care physicians; or
                            ``(ii) physicians who are not 
                        primary care physicians.
                    ``(B) Number of medicare beneficiaries 
                residing in the area.--The number of 
                individuals who are residing in the county and 
                are entitled to benefits under part A or 
                enrolled under this part, or both (in this 
                subsection referred to as `individuals').
                    ``(C) Determination of ratios.--
                            ``(i) Primary care ratio.--The 
                        ratio (in this paragraph referred to as 
                        the `primary care ratio') of the number 
                        of primary care physicians (determined 
                        under subparagraph (A)(i)), to the 
                        number of individuals determined under 
                        subparagraph (B).
                            ``(ii) Specialist care ratio.--The 
                        ratio (in this paragraph referred to as 
                        the `specialist care ratio') of the 
                        number of other physicians (determined 
                        under subparagraph (A)(ii)), to the 
                        number of individuals determined under 
                        subparagraph (B).
            ``(3) Ranking of counties.--The Secretary shall 
        rank each such county or area based separately on its 
        primary care ratio and its specialist care ratio.
            ``(4) Identification of counties.--
                    ``(A) In general.--The Secretary shall 
                identify--
                            ``(i) those counties and areas (in 
                        this paragraph referred to as `primary 
                        care scarcity counties') with the 
                        lowest primary care ratios that 
                        represent, if each such county or area 
                        were weighted by the number of 
                        individuals determined under paragraph 
                        (2)(B), an aggregate total of 20 
                        percent of the total of the individuals 
                        determined under such paragraph; and
                            ``(ii) those counties and areas (in 
                        this subsection referred to as 
                        `specialist care scarcity counties') 
                        with the lowest specialist care ratios 
                        that represent, if each such county or 
                        area were weighted by the number of 
                        individuals determined under paragraph 
                        (2)(B), an aggregate total of 20 
                        percent of the total of the individuals 
                        determined under such paragraph.
                    ``(B) Periodic revisions.--The Secretary 
                shall periodically revise the counties or areas 
                identified in subparagraph (A) (but not less 
                often than once every three years) unless the 
                Secretary determines that there is no new data 
                available on the number of physicians 
                practicing in the county or area or the number 
                of individuals residing in the county or area, 
                as identified in paragraph (2).
                    ``(C) Identification of counties where 
                service is furnished.--For purposes of paying 
                the additional amount specified in paragraph 
                (1), if the Secretary uses the 5-digit postal 
                ZIP Code where the service is furnished, the 
                dominant county of the postal ZIP Code (as 
                determined by the United States Postal Service, 
                or otherwise) shall be used to determine 
                whether the postal ZIP Code is in a scarcity 
                county identified in subparagraph (A) or 
                revised in subparagraph (B).
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 
                1869, 1878, or otherwise, respecting--
                            ``(i) the identification of a 
                        county or area;
                            ``(ii) the assignment of a 
                        specialty of any physician under this 
                        paragraph;
                            ``(iii) the assignment of a 
                        physician to a county under paragraph 
                        (2); or
                            ``(iv) the assignment of a postal 
                        ZIP Code to a county or other area 
                        under this subsection.
            ``(5) Rural census tracts.--To the extent feasible, 
        the Secretary shall treat a rural census tract of a 
        metropolitan statistical area (as determined under the 
        most recent modification of the Goldsmith Modification, 
        originally published in the Federal Register on 
        February 27, 1992 (57 Fed. Reg. 6725)), as an 
        equivalent area for purposes of qualifying as a primary 
        care scarcity county or specialist care scarcity county 
        under this subsection.
            ``(6) Physician Defined.--For purposes of this 
        paragraph, the term `physician' means a physician 
        described in section 1861(r)(1) and the term `primary 
        care physician' means a physician who is identified in 
        the available data as a general practitioner, family 
        practice practitioner, general internist, or 
        obstetrician or gynecologist.
            ``(7) Publication of list of counties; posting on 
        website.--With respect to a year for which a county or 
        area is identified or revised under paragraph (4), the 
        Secretary shall identify such counties or areas as part 
        of the proposed and final rule to implement the 
        physician fee schedule under section 1848 for the 
        applicable year. The Secretary shall post the list of 
        counties identified or revised under paragraph (4) on 
        the Internet website of the Centers for Medicare & 
        Medicaid Services.''.
    (b) Improvement to Medicare Incentive Payment Program.--
            (1) In general.--Section 1833(m) (42 U.S.C. 
        1395l(m)) is amended--
                    (A) by inserting ``(1)'' after ``(m)'';
                    (B) in paragraph (1), as designated by 
                subparagraph (A)--
                            (i) by inserting ``in a year'' 
                        after ``In the case of physicians' 
                        services furnished''; and
                            (ii) by inserting ``as identified 
                        by the Secretary prior to the beginning 
                        of such year'' after ``as a health 
                        professional shortage area''; and
                    (C) by adding at the end the following new 
                paragraphs:
    ``(2) For each health professional shortage area identified 
in paragraph (1) that consists of an entire county, the 
Secretary shall provide for the additional payment under 
paragraph (1) without any requirement on the physician to 
identify the health professional shortage area involved. The 
Secretary may implement the previous sentence using the method 
specified in subsection (u)(4)(C).
    ``(3) The Secretary shall post on the Internet website of 
the Centers for Medicare & Medicaid Services a list of the 
health professional shortage areas identified in paragraph (1) 
that consist of a partial county to facilitate the additional 
payment under paragraph (1) in such areas.
    ``(4) There shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise, respecting--
            ``(A) the identification of a county or area;
            ``(B) the assignment of a specialty of any 
        physician under this paragraph;
            ``(C) the assignment of a physician to a county 
        under this subsection; or
            ``(D) the assignment of a postal ZIP code to a 
        county or other area under this subsection.''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to physicians' services 
        furnished on or after January 1, 2005.
    (c) GAO Study of Geographic Differences in Payments for 
Physicians' Services.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study of differences in payment 
        amounts under the physician fee schedule under section 
        1848 of the Social Security Act (42 U.S.C. 1395w-4) for 
        physicians' services in different geographic areas. 
        Such study shall include--
                    (A) an assessment of the validity of the 
                geographic adjustment factors used for each 
                component of the fee schedule;
                    (B) an evaluation of the measures used for 
                such adjustment, including the frequency of 
                revisions;
                    (C) an evaluation of the methods used to 
                determine professional liability insurance 
                costs used in computing the malpractice 
                component, including a review of increases in 
                professional liability insurance premiums and 
                variation in such increases by State and 
                physician specialty and methods used to update 
                the geographic cost of practice index and 
                relative weights for the malpractice component; 
                and
                    (D) an evaluation of the effect of the 
                adjustment to the physician work geographic 
                index under section 1848(e)(1)(E) of the Social 
                Security Act, as added by section 412, on 
                physician location and retention in areas 
                affected by such adjustment, taking into 
                account--
                            (i) differences in recruitment 
                        costs and retention rates for 
                        physicians, including specialists, 
                        between large urban areas and other 
                        areas; and
                            (ii) the mobility of physicians, 
                        including specialists, over the last 
                        decade.
            (2) Report.--Not later than 1 year after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1). The report shall include 
        recommendations regarding the use of more current data 
        in computing geographic cost of practice indices as 
        well as the use of data directly representative of 
        physicians' costs (rather than proxy measures of such 
        costs).

SEC. 414. PAYMENT FOR RURAL AND URBAN AMBULANCE SERVICES.

    (a) Phase-In Providing Floor Using Blend of Fee Schedule 
and Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 
1395m(l)) is amended--
            (1) in paragraph (2)(E), by inserting ``consistent 
        with paragraph (11)'' after ``in an efficient and fair 
        manner''; and
            (2) by redesignating paragraph (8), as added by 
        section 221(a) of BIPA (114 Stat. 2763A-486), as 
        paragraph (9); and
            (3) by adding at the end the following new 
        paragraph:
            ``(10) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        ground service furnished in a year, the portion of the 
        payment amount that is based on the fee schedule shall 
        be the greater of the amount determined under such fee 
        schedule (without regard to this paragraph) or the 
        following blended rate of the fee schedule under 
        paragraph (1) and of a regional fee schedule for the 
        region involved:
                    ``(A) For 2004 (for services furnished on 
                or after July 1, 2004), the blended rate shall 
                be based 20 percent on the fee schedule under 
                paragraph (1) and 80 percent on the regional 
                fee schedule.
                    ``(B) For 2005, the blended rate shall be 
                based 40 percent on the fee schedule under 
                paragraph (1) and 60 percent on the regional 
                fee schedule.
                    ``(C) For 2006, the blended rate shall be 
                based 60 percent on the fee schedule under 
                paragraph (1) and 40 percent on the regional 
                fee schedule.
                    ``(D) For 2007, 2008, and 2009, the blended 
                rate shall be based 80 percent on the fee 
                schedule under paragraph (1) and 20 percent on 
                the regional fee schedule.
                    ``(E) For 2010 and each succeeding year, 
                the blended rate shall be based 100 percent on 
                the fee schedule under paragraph (1).
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the nine 
        census divisions (referred to in section 1886(d)(2)) 
        using the methodology (used in establishing the fee 
        schedule under paragraph (1)) to calculate a regional 
        conversion factor and a regional mileage payment rate 
        and using the same payment adjustments and the same 
        relative value units as used in the fee schedule under 
        such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 
1834(l), as amended by subsection (a), is amended by adding at 
the end the following new paragraph:
            ``(11) Adjustment in payment for certain long 
        trips.--In the case of ground ambulance services 
        furnished on or after July 1, 2004, and before January 
        1, 2009, regardless of where the transportation 
        originates, the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 50 miles the 
        per-mile rate otherwise established shall be increased 
        by \1/4\ of the payment per mile otherwise applicable 
        to miles in excess of 50 miles in such trip.''.
    (c) Improvement in Payments To Retain Emergency Capacity 
for Ambulance Services in Rural Areas.--
            (1) In general.--Section 1834(l) (42 U.S.C. 
        1395m(l)), as amended by subsections (a) and (b), is 
        amended by adding at the end the following new 
        paragraph:
            ``(12) Assistance for rural providers furnishing 
        services in low population density areas.--
                    ``(A) In general.--In the case of ground 
                ambulance services furnished on or after July 
                1, 2004, and before January 1, 2010, for which 
                the transportation originates in a qualified 
                rural area (identified under subparagraph 
                (B)(iii)), the Secretary shall provide for a 
                percent increase in the base rate of the fee 
                schedule for a trip established under this 
                subsection. In establishing such percent 
                increase, the Secretary shall estimate the 
                average cost per trip for such services (not 
                taking into account mileage) in the lowest 
                quartile as compared to the average cost per 
                trip for such services (not taking into account 
                mileage) in the highest quartile of all rural 
                county populations.
                    ``(B) Identification of qualified rural 
                areas.--
                            ``(i) Determination of population 
                        density in area.--Based upon data from 
                        the United States decennial census for 
                        the year 2000, the Secretary shall 
                        determine, for each rural area, the 
                        population density for that area.
                            ``(ii) Ranking of areas.--The 
                        Secretary shall rank each such area 
                        based on such population density.
                            ``(iii) Identification of qualified 
                        rural areas.--The Secretary shall 
                        identify those areas (in subparagraph 
                        (A) referred to as `qualified rural 
                        areas') with the lowest population 
                        densities that represent, if each such 
                        area were weighted by the population of 
                        such area (as used in computing such 
                        population densities), an aggregate 
                        total of 25 percent of the total of the 
                        population of all such areas.
                            ``(iv) Rural area.--For purposes of 
                        this paragraph, the term `rural area' 
                        has the meaning given such term in 
                        section 1886(d)(2)(D). If feasible, the 
                        Secretary shall treat a rural census 
                        tract of a metropolitan statistical 
                        area (as determined under the most 
                        recent modification of the Goldsmith 
                        Modification, originally published in 
                        the Federal Register on February 27, 
                        1992 (57 Fed. Reg. 6725) as a rural 
                        area for purposes of this paragraph.
                            ``(v) Judicial review.--There shall 
                        be no administrative or judicial review 
                        under section 1869, 1878, or otherwise, 
                        respecting the identification of an 
                        area under this subparagraph.''.
            (2) Use of data.--In order to promptly implement 
        section 1834(l)(12) of the Social Security Act, as 
        added by paragraph (1), the Secretary may use data 
        furnished by the Comptroller General of the United 
        States.
    (d) Temporary Increase for Ground Ambulance Services.--
Section 1834(l) (42 U.S.C. 1395m(l)), as amended by subsections 
(a), (b), and (c), is amended by adding at the end the 
following new paragraph:
            ``(13) Temporary increase for ground ambulance 
        services.--
                    ``(A) In general.--After computing the 
                rates with respect to ground ambulance services 
                under the other applicable provisions of this 
                subsection, in the case of such services 
                furnished on or after July 1, 2004, and before 
                January 1, 2007, for which the transportation 
                originates in--
                            ``(i) a rural area described in 
                        paragraph (9) or in a rural census 
                        tract described in such paragraph, the 
                        fee schedule established under this 
                        section shall provide that the rate for 
                        the service otherwise established, 
                        after the application of any increase 
                        under paragraphs (11) and (12), shall 
                        be increased by 2 percent; and
                            ``(ii) an area not described in 
                        clause (i), the fee schedule 
                        established under this subsection shall 
                        provide that the rate for the service 
                        otherwise established, after the 
                        application of any increase under 
                        paragraph (11), shall be increased by 1 
                        percent.
                    ``(B) Application of increased payments 
                after 2006.--The increased payments under 
                subparagraph (A) shall not be taken into 
                account in calculating payments for services 
                furnished after the period specified in such 
                subparagraph.''.
    (e) Implementation.--The Secretary may implement the 
amendments made by this section, and revise the conversion 
factor applicable under section 1834(l) of the Social Security 
Act (42 U.S.C. 1395m(l)) for purposes of implementing such 
amendments, on an interim final basis, or by program 
instruction.
    (f) GAO Report on Costs and Access.--Not later than 
December 31, 2005, the Comptroller General of the United States 
shall submit to Congress an initial report on how costs differ 
among the types of ambulance providers and on access, supply, 
and quality of ambulance services in those regions and States 
that have a reduction in payment under the medicare ambulance 
fee schedule (under section 1834(l) of the Social Security Act, 
as amended by this Act). Not later than December 31, 2007, the 
Comptroller General shall submit to Congress a final report on 
such access and supply.
    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 
Stat. 2763A-487) is amended by striking ``subsection (b)(2)'' 
and inserting ``subsection (b)(3)''.
    (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended 
by moving subparagraph (U) 4 ems to the left.

SEC. 415. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR AMBULANCE 
                    SERVICES.

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
amended by subsections (a), (b), (c), and (d) of section 414, 
is amended by adding at the end the following new paragraph:
            ``(14) Providing appropriate coverage of rural air 
        ambulance services.--
                    ``(A) In general.--The regulations 
                described in section 1861(s)(7) shall provide, 
                to the extent that any ambulance services 
                (whether ground or air) may be covered under 
                such section, that a rural air ambulance 
                service (as defined in subparagraph (C)) is 
                reimbursedunder this subsection at the air 
ambulance rate if the air ambulance service--
                            ``(i) is reasonable and necessary 
                        based on the health condition of the 
                        individual being transported at or 
                        immediately prior to the time of the 
                        transport; and
                            ``(ii) complies with equipment and 
                        crew requirements established by the 
                        Secretary.
                    ``(B) Satisfaction of requirement of 
                medically necessary.--The requirement of 
                subparagraph (A)(i) is deemed to be met for a 
                rural air ambulance service if--
                            ``(i) subject to subparagraph (D), 
                        such service is requested by a 
                        physician or other qualified medical 
                        personnel (as specified by the 
                        Secretary) who reasonably determines or 
                        certifies that the individual's 
                        condition is such that the time needed 
                        to transport the individual by land or 
                        the instability of transportation by 
                        land poses a threat to the individual's 
                        survival or seriously endangers the 
                        individual's health; or
                            ``(ii) such service is furnished 
                        pursuant to a protocol that is 
                        established by a State or regional 
                        emergency medical service (EMS) agency 
                        and recognized or approved by the 
                        Secretary under which the use of an air 
                        ambulance is recommended, if such 
                        agency does not have an ownership 
                        interest in the entity furnishing such 
                        service.
                    ``(C) Rural air ambulance service 
                defined.--For purposes of this paragraph, the 
                term `rural air ambulance service' means fixed 
                wing and rotary wing air ambulance service in 
                which the point of pick up of the individual 
                occurs in a rural area (as defined in section 
                1886(d)(2)(D)) or in a rural census tract of a 
                metropolitan statistical area (as determined 
                under the most recent modification of the 
                Goldsmith Modification, originally published in 
                the Federal Register on February 27, 1992 (57 
                Fed. Reg. 6725)).
                    ``(D) Limitation.--
                            ``(i) In general.--Subparagraph 
                        (B)(i) shall not apply if there is a 
                        financial or employment relationship 
                        between the person requesting the rural 
                        air ambulance service and the entity 
                        furnishing the ambulance service, or an 
                        entity under common ownership with the 
                        entity furnishing the air ambulance 
                        service, or a financial relationship 
                        between an immediate family member of 
                        such requester and such an entity.
                            ``(ii) Exception.--Where a hospital 
                        and the entity furnishing rural air 
                        ambulance services are under common 
                        ownership, clause (i) shall not apply 
                        to remuneration (through employment or 
                        other relationship) by the hospital of 
                        the requester or immediate family