[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4607 Introduced in House (IH)]







106th CONGRESS
  2d Session
                                H. R. 4607

   To amend title XVIII of the Social Security Act to provide for a 
         prescription drug benefit for Medicare beneficiaries.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 8, 2000

Ms. Eshoo (for herself, Mr. Engel, Mr. Frost, Mr. Gordon, Mr. Deutsch, 
    Mrs. Capps, Mr. Wynn, Ms. DeGette, Mr. Sawyer, Ms. McCarthy of 
   Missouri, Ms. Woolsey, Mr. Rush, and Mr. Ackerman) introduced the 
following bill; which was referred to the Committee on Ways and Means, 
   and in addition to the Committee on Commerce, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
   To amend title XVIII of the Social Security Act to provide for a 
         prescription drug benefit for Medicare beneficiaries.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS; REFERENCES TO SOCIAL 
              SECURITY ACT.

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

Sec. 1. Short title; table of contents; references to Social Security 
                            Act.
Sec. 2. Providing for medicare prescription drug benefit.
     ``Part D--Prescription Drug Benefit for the Aged and Disabled

        ``Sec. 1860. Establishment of prescription drug benefit program 
                            for the aged and disabled.
        ``Sec. 1860A. Scope of benefits.
        ``Sec. 1860B. Payment of benefits.
        ``Sec. 1860C. Eligibility and enrollment.
        ``Sec. 1860D. Premiums.
        ``Sec. 1860E. Special eligibility, enrollment, and copayment 
                            rules for low-income individuals.
        ``Sec. 1860F. Prescription Drug Insurance Account.
        ``Sec. 1860G. Administration of benefits.
        ``Sec. 1860H. Employer incentive program for employment-based 
                            retiree drug coverage.
        ``Sec. 1860I. Appropriations to cover government contributions.
        ``Sec. 1860J. Definition.
Sec. 3. Medicaid buy-in of medicare prescription drug coverage for 
                            certain low-income individuals.
Sec. 4. MedPAC studies on benefit managers.
    (c) References to Social Security Act.--Except as otherwise 
expressly provided, whenever in this Act an amendment or repeal 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 a section or 
other provision of the Social Security Act.

SEC. 2. PROVIDING FOR 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--Prescription Drug Benefit for the Aged and Disabled

``SEC. 1860. ESTABLISHMENT OF PRESCRIPTION DRUG BENEFIT PROGRAM FOR THE 
              AGED AND DISABLED.

    ``There is hereby established a voluntary program to provide 
prescription drug benefits in accordance with the provisions of this 
part for individuals who are aged or disabled or have end stage renal 
disease and who elect to enroll under such program, to be financed from 
premium payments by enrollees together with contributions from funds 
appropriated by the Federal Government and to be administered by the 
Director of the Office of Personnel Management (in this part referred 
to as the `Director'), except that functions relating to eligibility to 
enroll, enrollment, and collection of beneficiary premiums under this 
part shall be administered by the Secretary in coordination with the 
Director.

``SEC. 1860A. SCOPE OF BENEFITS.

    ``(a) In General.--The benefits provided to an individual enrolled 
in the program under this part shall consist of--
            ``(1) payments made, in accordance with the provisions of 
        this part, for covered prescription drugs (as specified in 
        subsection (b)) dispensed by any pharmacy participating in the 
        program under this part (and, in circumstances designated by 
        the benefit manager, by a nonparticipating pharmacy), including 
        any specifically named drug prescribed for the individual by a 
        qualified health care professional regardless of whether the 
        drug is included in a formulary established by the benefit 
        manager if such drug is certified as medically necessary by 
        such health care professional, up to the benefit limits 
        specified in section 1860B; and
            ``(2) charging by participating pharmacies of--
                    ``(A) the price for all covered prescription drugs, 
                without regard to such benefit limit; and
                    ``(B) the price (if any) established with respect 
                to any drugs or classes of drugs described in 
                subparagraphs (A) through (D) or (F) of section 
                1927(d)(2) that are available to individuals receiving 
                benefits under this title.
    ``(b) Covered Prescription Drugs.--
            ``(1) In general.--Covered prescription drugs, for purposes 
        of this part, include all prescription drugs (as defined in 
        section 1860J(1)), including smoking cessation agents, except 
        as otherwise provided in this subsection.
            ``(2) Exclusions from coverage.--Covered prescription drugs 
        shall not include drugs or classes of drugs described in 
        subparagraphs (A) through (D) and (F) through (H) of section 
        1927(d)(2) (except to the extent otherwise specifically 
        provided by the Director with respect to a drug in any of such 
        classes).
            ``(3) Exclusion of prescription drugs to the extent covered 
        under part a or b.--A drug prescribed for an individual that 
        would otherwise be a covered prescription drug under this part 
        shall not be so considered to the extent that payment for such 
        drug is available under part A or B (but shall be so considered 
        to the extent that such payment is not available because 
        benefits under part A or B have been exhausted).
    ``(c) Effective Date of Benefits.--In no case shall benefits be 
available under this part for prescription drugs for which costs are 
incurred before January 1, 2002.

``SEC. 1860B. PAYMENT OF BENEFITS.

    ``(a) Payments.--
            ``(1) In general.--There shall be paid from the 
        Prescription Drug Insurance Account within the Supplementary 
        Medical Insurance Trust Fund (hereafter in this part referred 
        to as the `Prescription Drug Insurance Account' or `the 
        Insurance Account'), in the case of each individual who is 
        enrolled in the insurance program under this part and who 
        purchases covered prescription drugs in a calendar year, an 
        amount equal to the Federal payment percentage (specified under 
        paragraph (2)) of the price for each such covered prescription 
        drug.
            ``(2) Federal payment percentage.--For purposes of 
        paragraph (1), the `Federal payment percentage' with respect to 
        purchases during a year--
                    ``(A) up to the initial benefit limit specified in 
                subsection (b), is equal to 50 percent or such higher 
                percentage as is proposed by a benefit manager pursuant 
                to section 1860G(c)(8), if the Director finds that such 
                percentage will not increase aggregate costs to the 
                Insurance Account; or
                    ``(B) above the stop loss amount specified in 
                paragraph (3) (or, if greater for a year after 2008, 
                the initial benefit limit specified under subsection 
                (b)(2)), is equal to 100 percent.
        If the Federal payment percentage is increased under 
        subparagraph (A), the beneficiary payment percentage is reduced 
        accordingly.
            ``(3) Stop-loss amount.--The stop-loss amount specified in 
        this paragraph--
                    ``(A) for 2002 is $5,000; or
                    ``(B) for a subsequent year is the stop-loss amount 
                specified in this paragraph for the preceding year 
                increased by the percentage increase (if any) in the 
                consumer price index for all urban consumers (U.S. 
                urban average) for the 12-month period ending with June 
                of the preceding year.
        If the stop-loss amount computed under subparagraph (B) for a 
        year is not a multiple of $25, it shall be rounded to the 
        nearest multiple of $25.
    ``(b) Initial Benefit Limit.--For purposes of subsection (a)--
            ``(1) For 2002 through 2008.--The initial benefit limit 
        specified under this subsection is--
                    ``(A) $2,000 for each of calendar years 2002 and 
                2003;
                    ``(B) $3,000 for each of calendar years 2004 and 
                2005;
                    ``(C) $4,000 for each of calendar years 2006 and 
                2007; and
                    ``(D) $5,000 for calendar year 2008.
            ``(2) For 2009 and subsequent years.--The initial benefit 
        limit specified under this subsection for 2009 and each 
        subsequent year is equal to the amount specified under this 
        subsection for the preceding year increased by the percentage 
        increase (if any) in the consumer price index for all urban 
        consumers (U.S. urban average) for the 12-month period ending 
        with June of the preceding year.
    ``(c) Election of Benefit Manager.--
            ``(1) In general.--The Director shall establish a process 
        (based upon the process under which a Medicare+Choice eligible 
        individual may elect coverage under a Medicare+Choice plan 
        under part C) under which an individual enrolled under this 
        part elects a specific benefit manager (under section 1860G) 
        that will be responsible for the provision of benefits under 
        this part on behalf of the individual.
            ``(2) Changes in election.--Such process shall permit a 
        change in election at least annually and at such other times as 
        the Director may specify, based upon the type of circumstances 
        for which a change would be permitted under part C.
            ``(3) Nondiscrimination.--Such process shall not permit a 
        benefit manager to refuse the election of any individual, 
        except as the Director may permit in a nondiscriminatory manner 
        based upon legitimate capacity limitations.
            ``(4) Information.--The Director shall provide for 
        dissemination of such information as will enable individuals 
        enrolled under this part to make informed decisions about the 
        election of benefit managers.

``SEC. 1860C. ELIGIBILITY AND ENROLLMENT.

    ``(a) Eligibility.--Every individual who, in or after 2002, is 
entitled to hospital insurance benefits under part A or enrolled in the 
medical insurance program under part B is eligible to enroll, in 
accordance with the provisions of this section, in the program under 
this part, during an enrollment period prescribed in or under this 
section, in such manner and form as may be prescribed by the Secretary 
in regulations.
    ``(b) Enrollment.--
            ``(1) In general.--Each individual who satisfies subsection 
        (a) shall be enrolled (or eligible to enroll) in the program 
        under this part in accordance with the provisions of section 
        1837, as if that section applied to this part, except as 
        otherwise explicitly provided in this part.
            ``(2) Enrollment period.--Except as provided in section 
        1860E or 1860H, or as otherwise explicitly provided, no 
        individual shall be entitled to enroll in the program under 
        this part at any time after the initial enrollment period.
            ``(3) Special enrollment period for 2002.--
                    ``(A) In general.--An individual who first 
                satisfies subsection (a) in 2002 may, at any time on or 
                before December 31, 2002--
                            ``(i) enroll in the program under this 
                        part; and
                            ``(ii) enroll or re-enroll in such program 
                        after having previously declined or terminated 
                        enrollment in such program.
                    ``(B) Effective date of coverage.--An individual 
                who enrolls under the program under this part pursuant 
                to subparagraph (A) shall be entitled to benefits under 
                this part beginning on the first day of the month 
                following the month in which such enrollment occurs.
    ``(e) Period of Coverage.--
            ``(1) In general.--Except as otherwise provided in this 
        part, an individual's coverage under the program under this 
        part shall be effective for the period provided in section 
        1838, as if that section applied to the program under this 
        part.
            ``(2) Part d coverage terminated by termination of coverage 
        under parts a and b.--In addition to the causes of termination 
        specified in section 1838, an individual's coverage under this 
        part shall be terminated when the individual retains coverage 
        under neither the program under part A nor the program under 
        part B, effective on the effective date of termination of 
        coverage under part A or (if later) under part B.

``SEC. 1860D. PREMIUMS.

    ``(a) Annual Establishment of Monthly Premium Rates.--
            ``(1) In general.--The Director in coordination with the 
        Secretary shall, during September of 2001 and of each 
        succeeding year, determine and promulgate a monthly premium 
        rate for the succeeding year in accordance with the provisions 
        of this subsection.
            ``(2) Actuarial determinations.--
                    ``(A) Determination of annual benefit costs.--The 
                Director in coordination with the Secretary shall 
                estimate annually for the succeeding year the amount 
                equal to the total of the benefits that will be payable 
                from the Insurance Account for prescription drugs 
                dispensed in such calendar year with respect to 
                enrollees in the program under this part. In 
                calculating such amount, the Director in coordination 
                with the Secretary shall include an appropriate amount 
                for a contingency margin.
                    ``(B) Determination of monthly premium rates.--
                            ``(i) In general.--The Director in 
                        coordination with the Secretary shall determine 
                        the monthly premium rate with respect to such 
                        enrollees for such succeeding year, which shall 
                        be one-twelfth of the share specified in clause 
                        (ii) of the amount determined under 
                        subparagraph (A), divided by the total number 
                        of such enrollees, and rounded (if such rate is 
                        not a multiple of 10 cents) to the nearest 
                        multiple of 10 cents.
                            ``(ii) Enrollee and employer percentage 
                        shares.--The share specified in this clause, 
                        for purposes of clause (i), shall be--
                                    ``(I) one-half, in the case of 
                                premiums paid by an individual enrolled 
                                in the program under this part; and
                                    ``(II) two-thirds, in the case of 
                                premiums paid for such an individual by 
                                a former employer (as defined in 
                                section 1860H(f)(2)).
            ``(3) Publication of assumptions.--The Director in 
        coordination with the Secretary shall publish, together with 
        the promulgation of the monthly premium rates for the 
        succeeding year, a statement setting forth the actuarial 
        assumptions and bases employed in arriving at the amounts and 
        rates determined under paragraphs (1) and (2).
    ``(b) Payment of Premiums.--
            ``(1) Payments by deduction from social security, railroad 
        retirement benefits, or benefits administered by opm.--
                    ``(A) Deduction from benefits.--In the case of an 
                individual who is entitled to or receiving benefits as 
                described in subsection (a), (b), or (d) of section 
                1840, premiums payable under this part shall be 
                collected by deduction from such benefits at the same 
                time and in the same manner as premiums payable under 
                part B are collected pursuant to section 1840.
                    ``(B) Transfers to insurance account.--The 
                Secretary of the Treasury shall, from time to time, but 
                not less often than quarterly, transfer premiums 
                collected pursuant to subparagraph (A) to the Insurance 
                Account from the appropriate funds and accounts 
                described in subsections (a)(2), (b)(2), and (d)(2) of 
                section 1840, on the basis of the certifications 
                described in such subsections. The amounts of such 
                transfers shall be appropriately adjusted to the extent 
                that prior transfers were too great or too small.
            ``(2) Direct payments to secretary.--
                    ``(A) Additional payment by enrollee.--An 
                individual to whom paragraph (1) applies (other than an 
                individual receiving benefits as described in section 
                1840(d)) and who estimates that the amount that will be 
                available for deduction under such paragraph for any 
                premium payment period will be less than the amount of 
                the monthly premiums for such period may (under 
                regulations) pay to the Secretary the estimated 
                balance, or such greater portion of the monthly premium 
                as the individual chooses.
                    ``(B) Payments by other enrollees.--An individual 
                enrolled in the program under this part with respect to 
                whom none of the preceding provisions of this 
                subsection applies (or to whom section 1840(c) applies) 
                shall pay premiums to the Secretary at such times and 
                in such manner as the Secretary shall by regulations 
                prescribe in coordination with the Secretary.
                    ``(C) Deposit of premiums.--Amounts paid to the 
                Secretary under this paragraph shall be deposited in 
                the Treasury to the credit of the Prescription Drug 
                Insurance Account in the Supplementary Medical 
                Insurance Trust Fund.

``SEC. 1860E. SPECIAL ELIGIBILITY, ENROLLMENT, AND COPAYMENT RULES FOR 
              LOW-INCOME INDIVIDUALS.

    ``(a) State Agreements for Coverage.--
            ``(1) In general.--The Secretary shall, at the request of a 
        State, enter into an agreement with the State under which all 
        individuals described in paragraph (2) are enrolled in the 
        program under this part, without regard to whether any such 
        individual has previously declined the opportunity to enroll in 
        such program.
            ``(2) Eligibility groups.--The individuals described in 
        this paragraph, for purposes of paragraph (1), are individuals 
        who satisfy section 1860C(a) and who are--
                    ``(A)(i) eligible individuals within the meaning of 
                section 1843, and
                    ``(ii) in a coverage group or groups permitted 
                under section 1843 (as selected by the State and 
                specified in the agreement); or
                    ``(B) qualified medicare drug beneficiaries (as 
                defined in section 1905(v)(1)).
            ``(3) Coverage period.--The period of coverage under this 
        part of an individual enrolled under an agreement under this 
        subsection shall be as follows:
                    ``(A) Individuals eligible (at state option) for 
                part b buy-in.--In the case of an individual described 
                in subsection (a)(2)(A), the coverage period shall be 
the same period that applies (or would apply) pursuant to section 
1843(d).
                    ``(B) Qualified medicare drug beneficiaries.--In 
                the case of an individual described in subsection 
                (a)(2)(B)--
                            ``(i) the coverage period shall begin on 
                        the latest of--
                                    ``(I) January 1, 2002,
                                    ``(II) the first day of the third 
                                month following the month in which the 
                                State agreement is entered into; or
                                    ``(III) the first day of the first 
                                month following the month in which the 
                                individual satisfies section 1860C(a); 
                                and
                            ``(ii) the coverage period shall end on the 
                        last day of the month in which the individual 
                        is determined by the State to have become 
                        ineligible for medicare drug cost-sharing.
    ``(b) Special Part D Enrollment Opportunity for Individuals Losing 
Medicaid Eligibility.--In the case of an individual who--
            ``(1) satisfies section 1860C(a), and
            ``(2) loses eligibility for benefits under the State plan 
        under title XIX after having been enrolled under such plan or 
        having been determined eligible for such benefits,
the Secretary (in coordination with the Director) shall provide an 
opportunity for enrollment under the program under this part during the 
period that begins on the date that such individual loses such 
eligibility and ends on the date specified by the Secretary.
    ``(c) Definition.--For purposes of this section, the term `State' 
has the meaning given such term under section 1101(a) for purposes of 
title XIX.

``SEC. 1860F. PRESCRIPTION DRUG INSURANCE ACCOUNT.

    ``(a) In General.--There is created within the Federal Supplemental 
Medical Insurance Trust Fund established by section 1841 an account to 
be known as the `Prescription Drug Insurance Account' (hereafter in 
this section referred to as the 'Account'). The Account shall consist 
of such gifts and bequests as may be made as provided in section 
201(i)(1), and such amounts as may be deposited in, or appropriated to, 
such fund as provided in this part. Funds provided under this part to 
the Account shall be kept separate from all other funds within the 
Federal Supplemental Medical Insurance Trust Fund.
    ``(b) Payments From Account.--The Managing Trustee shall pay from 
time to time from the Account such amounts as the Director certifies 
are necessary to make the payments provided for by this part, and the 
payments with respect to administrative expenses in accordance with 
section 201(g), including expenses of the Director and the Secretary in 
carry out this part. Any reference in such section to the Secretary in 
relation to carrying out this part shall be construed to include a 
reference to the Director.
    ``(c) Construction.--Nothing in this part shall be construed as 
authorizing any expenditures from the Account for activities under 
chapter 89 of title 5, United States Code (relating to the Federal 
employees health benefits program). No funds appropriated to carry out 
such chapter shall be used to carry out this part.

``SEC. 1860G. ADMINISTRATION OF BENEFITS.

    ``(a) In General.--The Director shall provide for administration of 
the benefits under this part through contracts with benefit managers 
approved in accordance with subsection (b) for enrolled individuals 
(other than such individuals enrolled in a Medicare+Choice program 
under part C) in accordance with the provisions of this section.
    ``(b) Approval of Benefit Managers.--
            ``(1) Award and duration of contract.--Each contract shall 
        be awarded for a period of not less than three nor more than 
        five years.
            ``(2) Eligible entities.--Any entity that meets the 
        following criteria is eligible to serve as a benefit manager:
                    ``(A) Type.--The entity shall be any entity that 
                the Director determines is capable of administering a 
                prescription drug benefit program.
                    ``(B) Performance capability.--The entity shall 
                have sufficient expertise, personnel, and resources to 
                perform effectively and efficiently the benefit 
                administration functions.
                    ``(C) Integrity; fiscal soundness.--The entity and 
                its officers, directors, agents, and managing employees 
                shall have a satisfactory record of professional 
                competence and professional and financial integrity, 
                and the entity shall have financial resources the 
                Director determines to be adequate to perform services 
                under the contract without risk of insolvency.
                    ``(D) Beneficiary protections.--The entity shall 
                have in place safeguards to protect beneficiaries who 
                receive benefits under this part through the entity, 
including the following protections:
                            ``(i) Confidentiality of health 
                        information.--Have in effect systems to 
                        safeguard the confidentiality of health care 
                        information on enrolled individuals, which 
                        comply with section 1106 and with section 552a 
                        of title 5, United States Code, and meet such 
                        additional standards as the Director may 
                        prescribe.
                            ``(ii) Grievance and appeals procedures.--
                        Have in place such procedures as the Director 
                        may specify for hearing and resolving 
                        grievances and appeals brought by enrolled 
                        individuals against the benefit manager or a 
                        pharmacy concerning benefits under this part, 
                        which shall, to the extent the Director finds 
                        necessary and appropriate, include procedures 
                        equivalent to those specified in subsections 
                        (f) and (g) of section 1852.
                            ``(iii) Clinical quality.--Have in place 
                        systems for improving clinical quality, 
                        including the prevention of drug-drug 
                        interactions, assessment of clinical relevance, 
                        monitoring and improving compliance, and 
                        adoption of information technologies proven to 
                        reduce prescription errors.
                            ``(iv) Nondiscrimination in elections.--Not 
                        to refuse elections, except as may be 
                        specifically permitted under section 
                        1860B(c)(3).
            ``(3) Proposal requirements.--An entity's proposal for 
        award or renewal of a contract under this section shall--
                    ``(A) include a cost proposal setting forth the 
                entity's proposed charges for administration of the 
                prescription drug benefit;
                    ``(B) include a proposal for the prices of drugs 
                and annual increases in such prices, including 
                differentials between formulary and non-formulary 
                prices, if applicable (and at the entity's election, 
                include a proposal described in subsection (d)(8));
                    ``(C) specify details of proposed cost and 
                utilization management, prescription error reduction, 
                clinical quality, and quality assurance measures;
                    ``(D) be accompanied by such information as the 
                Director may require on the entity's past performance;
                    ``(E) disclose ownership and shared financial 
                interests with other entities involved in the delivery 
                of the benefit as proposed;
                    ``(F) include such other material and information 
                as the Director may require; and
                    ``(G) specify a mechanism to control government and 
                beneficiary costs once the stop-loss provision is 
                triggered.
            ``(4) Exceptions to conflict of interest rules.--In 
        awarding contracts under this subsection, the Director may 
        waive conflict of interest rules generally applicable to 
        Federal acquisitions (subject to such safeguards as the 
        Director may find necessary to impose) in circumstances where 
        the Director finds that such waiver--
                    ``(A) is not inconsistent with the purposes of the 
                programs under this title and the best interests of 
                enrolled individuals; and
                    ``(B) will permit a sufficient level of competition 
                for such contracts, promote efficiency of benefits 
                administration, or otherwise serve the objectives of 
                the program under this part.
    ``(c) Functions of Benefit Manager.--The benefit manager shall (or 
in the case of the function described in paragraph (8), may) perform 
some or all of the following functions, as specified by the Director:
            ``(1) Participation agreements, prices, and fees.--
                    ``(A) Schedule of covered drug prices.--Establish a 
                schedule of prices for covered prescription drugs for 
                beneficiaries. Such prices shall not be subject to 
                administrative or judicial review.
                    ``(B) Agreements with pharmacies.--Enter into 
                participation agreements with qualifying pharmacies on 
                terms that--
                            ``(i) secure the participation of 
                        sufficient numbers of pharmacies to ensure 
                        convenient access (including adequate emergency 
                        access) for enrolled individuals obtaining 
                        benefits through the entity; and
                            ``(ii) permit the participation of any 
                        pharmacy that meets the participation 
                        requirements described in subsection (e).
                    ``(C) Lists of prices and participating 
                pharmacies.--Ensure that the prices established under 
                subparagraph (A), formulary restrictions, and the list 
of participating pharmacies are regularly updated and readily available 
to health care professionals authorized to prescribe drugs, 
participating pharmacies, and enrolled individuals.
            ``(2) Tracking of covered enrolled individuals.--Maintain 
        accurate, updated records of all enrolled individuals (other 
        than individuals enrolled in a plan under part C) who are 
        receiving benefits through the entity.
            ``(3) Payment and coordination of benefits.--
                    ``(A) In general.--Administer claims for payment of 
                benefits under this part; determine amounts of benefit 
                payments to be made; and receive, disburse, and account 
                for funds used in making such payments, including 
                through the activities specified in the provisions of 
                this paragraph.
                    ``(B) Coordination and payment of benefits.--
                Coordinate with the Director, other benefit managers, 
                pharmacies and other relevant entities as necessary to 
                ensure appropriate coordination of benefits with 
                respect to enrolled individuals, including coordination 
                of access to and payment for covered prescription drugs 
                according to an individual's plan provisions, when such 
                individual is traveling outside the home service area, 
                and under such other circumstances as the Director may 
                specify.
                    ``(C) Explanation of benefits.--Furnish to enrolled 
                individuals receiving benefits through the entity an 
                explanation of benefits in accordance with section 
                1806(a), and a notice of the balance of benefits 
                remaining for the current year, whenever prescription 
                drug benefits are provided under this part (except that 
                such notice need not be provided more often than 
                monthly).
            ``(4) Cost and utilization management; quality assurance.--
        Have in place effective cost and utilization management, 
        quality assurance measures, and systems to reduce prescription 
        errors, including at least the following, together with such 
        additional measures as the Director may specify:
                    ``(A) Drug utilization review.--A drug utilization 
                review program conforming to the standards provided in 
                section 1927(g)(2) (with such modifications as the 
                Director finds appropriate for operation of such 
                program by an entity other than a State).
                    ``(B) Clinical quality.--Have in place clinical 
                quality systems consistent with subsection (b)(3)(C).
                    ``(C) Fraud and abuse control.--Activities to 
                control fraud, abuse, and waste.
            ``(5) Education and information activities.--Have in place 
        mechanisms for disseminating educational and informational 
        materials to enrolled individuals and health care providers 
        designed to encourage effective and cost-effective use of 
        prescription drug benefits and to ensure that enrolled 
        individuals understand their rights and obligations under the 
        program.
            ``(6) Beneficiary protections.--Have in effect beneficiary 
        protections consistent with paragraph (2)(D)(i).
            ``(7) Records, reports, and audits of benefit managers.--
                    ``(A) Records and audits.--Maintain adequate 
                records, and afford the Director access to such records 
                (including for audit purposes).
                    ``(B) Reports.--Make such reports and submissions 
                of financial and utilization data as the Director may 
                require taking into account standard commercial 
                practices.
            ``(8) Proposal for reduced beneficary coinsurance.--At the 
        benefit manager's election, provide a proposal for increased 
        Federal cost sharing percentage (and a reduction in beneficiary 
        cost sharing percentage) for generic prescription drugs, 
        prescription drugs on the benefit manager's formulary, or 
        prescription drugs obtained through mail order pharmacies, 
        which includes evidence that such increased Federal cost 
        sharing percentage would not result in an increase in aggregate 
        costs to the Account.
            ``(9) Other requirements.--Meet such other requirements as 
        the Director may specify.
    ``(d) Pharmacy Participation Agreements.--
            ``(1) In general.--A pharmacy that meets the requirements 
        of this subsection shall be eligible to enter an agreement with 
        a benefit manager to furnish covered prescription drugs to 
        enrolled individuals. The benefit manager may offer 
        preferential financial terms to pharmacies that agree to be 
        included for the purposes of the initial bid.
            ``(2) Terms of agreement.--An agreement under this 
        subsection shall include the following terms and requirements:
                    ``(A) Licensing.--The pharmacy shall meet (and 
                throughout the contract period will continue to meet) 
                all applicable State and local licensing requirements.
                    ``(B) Access and quality standards.--The pharmacy 
                shall comply with such standards as the Director and 
                the benefit manager shall establish concerning the 
                quality of, and enrolled individuals' access to, 
                pharmacy services under this part.
                    ``(C) Adherence to established prices.--The total 
                charge for each drug dispensed to an enrolled 
                individual, without regard to whether such individual 
                is financially responsible for any or all of such 
                charge, shall not exceed the price for the drug, as 
                established under subsection (c)(1)(A).
                    ``(D) Management systems and procedures.--The 
                pharmacy shall--
                            ``(i) have in effect management systems 
                        (including electronic systems) and procedures 
                        for carrying out functions under the agreement; 
                        and
                            ``(ii) maintain adequate records, afford 
                        the benefit manager access to such records for 
                        audit purposes, and make such reports as the 
                        benefit manager may require to meet its 
                        responsibilities under this section.
                    ``(E) Cost and utilization management; quality 
                assurance.--The pharmacy shall implement effective 
                measures for quality assurance, cost management, and 
                reduction of medical errors with respect to drugs 
                dispensed under the agreement, including maintenance of 
                utilization records and participation in the drug 
                utilization review program described in subsection 
                (d)(4)(A).
                    ``(F) Confidentiality protections.--The pharmacy 
                shall have in effect systems to ensure compliance with 
                the confidentiality standards applicable under 
                subsection (b)(2)(D)(i).
                    ``(G) Other requirements.--The pharmacy shall meet 
                such other requirements as the Director may impose.
            ``(3) Construction.--Nothing in this section shall be 
        construed as requiring a benefit manager to pay a particular 
        level of dispensing fees to participating pharmacies or as 
        guaranteeing such a level as would provide for the 
        participation by all pharmacies.
    ``(e) Limitation of Liability.--The provisions of section 1157(b) 
shall apply with respect to activities of benefit managers and their 
officers, employees, and agents under a contract under this section.
    ``(f) Incentives for Cost and Utilization Management and Quality 
Improvement.--
            ``(1) Contract provisions.--The Director is authorized to 
        include in a contract awarded under subsection (c) such 
        incentives for cost and utilization management and quality 
        improvement as the Director may deem appropriate, including--
                    ``(A) bonus and penalty incentives to encourage 
                administrative efficiency;
                    ``(B) incentives under which benefit managers share 
                in any benefit savings achieved;
                    ``(C) risk sharing arrangements related to benefit 
                payments; and
                    ``(D) any other incentive that the Director deems 
                appropriate and likely to be effective in managing 
                costs or utilization.
            ``(2) Establishment of a secondary insurance market for 
        risk.--Insofar as the Director provides for a risk sharing 
        arrangement in contracts under subsection (c), the Director 
        shall enter into or promote arrangements (including the 
        establishment of a secondary insurance market or pooling 
        mechanism) for the appropriate distribution of excess risk 
        among entities offering such contracts.
            ``(3) Construction.--Nothing in this part shall be 
        construed as limiting the ability of a benefit manager, subject 
        to provisions of the contract under subsection (c), to utilize 
        such cost containment and utilization management strategies as 
        necessary, including generic substitution, formulary limits, 
        differential copayment structures, and mail order prescription 
        services, or as limiting the ability of benefit managers to 
        offer to enrolled individuals multiple products offering 
        different formulary and copayment structures.
    ``(g) Flexibility in Assigning Workload Among Benefit Managers.--
During the period after the Director has given notice of intent to 
terminate a contract under subsection (c), the Director may transfer 
responsibilities of the benefit manager under such contract to another 
benefit manager.
    ``(h) Noninterference.--Nothing in this section or in this part 
shall be construed as authorizing the Director or the Secretary to 
authorize a particular formulary or to institute a price structure for 
benefits, or to otherwise interfere with the competitive nature of 
providing a prescription drug benefit through benefit managers.
    ``(i) Anti-Selection Criteria.--The Director shall design 
provisions to exclude bids designed to exploit adverse selection, 
including the definition of a minimum geographical service area.

``SEC. 1860H. EMPLOYER INCENTIVE PROGRAM FOR EMPLOYMENT-BASED RETIREE 
              DRUG COVERAGE.

    ``(a) Program Authority.--The Director is authorized to develop and 
implement a program under this section called the Employer Incentive 
Program that encourages employers and other sponsors of employment-
based health care coverage to provide adequate prescription drug 
benefits to retired individuals by subsidizing, in part, the sponsor's 
cost of providing coverage under qualifying plans.
    ``(b) Sponsor Requirements.--In order to be eligible to receive an 
incentive payment under this section with respect to coverage of an 
individual under a qualified retiree prescription drug plan (as defined 
in subsection (f)(3)), a sponsor shall meet the following requirements:
            ``(1) Assurances.--The sponsor shall--
                    ``(A) annually attest, and provide such assurances 
                as the Director may require, that the coverage offered 
                by the sponsor is a qualified retiree prescription drug 
                plan, and will remain such a plan for the duration of 
                the sponsor's participation in the program under this 
                section; and
                    ``(B) guarantee that it will give notice to the 
                Director and covered retirees--
                            ``(i) at least 120 days before terminating 
                        its plan, and
                            ``(ii) immediately upon determining that 
                        the actuarial value of the prescription drug 
                        benefit under the plan falls below the 
                        actuarial value of the benefit under this part.
            ``(2) Beneficiary information.--The sponsor shall report to 
        the Director, for each calendar quarter for which it seeks an 
        incentive payment under this section the names and social 
        security numbers of all retirees (and their spouses and 
        dependents) covered under such plan during such quarter and the 
        dates (if less than the full quarter) during which each such 
        individual was covered.
            ``(3) Audits.--The sponsor and the employment-based retiree 
        health coverage plan seeking incentive payments under this 
        section shall agree to maintain, and to afford the Director 
        access to, such records as the Director may require for 
        purposes of audits and other oversight activities necessary to 
        ensure the adequacy of prescription drug coverage, the accuracy 
        of incentive payments made, and such other matters as may be 
        appropriate.
            ``(4) Other requirements.--The sponsor shall provide such 
        other information, and comply with such other requirements, as 
        the Director may find necessary to administer the program under 
        this section.
    ``(c) Incentive Payment.--
            ``(1) In general.--A sponsor that meets the requirements of 
        subsection (b) with respect to a quarter in a calendar year 
        shall be entitled to have payment made on a quarterly basis (to 
        the sponsor or, at the sponsor's direction, to the appropriate 
        employment-based health plan) of an incentive payment, in the 
        amount determined as described in paragraph (2), for each 
        retired individual (or spouse) who--
                    ``(A) was covered under the sponsor's qualified 
                retiree prescription drug plan during such quarter; and
                    ``(B) was eligible for but was not enrolled in the 
                program under this part.
            ``(2) Amount of incentive.--The payment under this section 
        with respect to each individual described in paragraph (1) for 
        a month shall be equal to two-thirds of the monthly premium 
        amount payable by an enrolled individual, as set for the 
        calendar year pursuant to section 1860D(a)(2).
            ``(3) Payment date.--The incentive under this section with 
        respect to a calendar quarter shall be payable as of the end of 
        the next succeeding calendar quarter.
    ``(d) Civil Money Penalties.--A sponsor, health plan, or other 
entity that the Director determines has, directly or through its agent, 
provided information in connection with a request for an incentive 
payment under this section that the entity knew or should have known to 
be false shall be subject to a civil monetary penalty in an amount up 
to three times the total incentive amounts under subsection (c) that 
were paid (or would have been payable) on the basis of such 
information.
    ``(e) Part D Enrollment for Certain Individuals Covered by 
Employment-Based Retiree Health Coverage Plans.--
            ``(1) Eligible individuals.--An individual shall be given 
        the opportunity to enroll in the program under this part during 
        the period specified in paragraph (2) if--
                    ``(A) the individual declined enrollment in the 
                program under this part at the time the individual 
                first satisfied section 1860C(a);
                    ``(B) at that time, the individual was covered 
                under a qualified retiree prescription drug plan for 
                which an incentive payment was paid under this section; 
                and
                    ``(C)(i) the sponsor subsequently ceased to offer 
                such plan; or
                    ``(ii) the value of prescription drug coverage 
                under such plan became less than the value of the 
                coverage under the program under this part.
            ``(2) Special enrollment period.--An individual described 
        in paragraph (1) shall be eligible to enroll in the program 
        under this part during the six-month period beginning on the 
        first day of the month in which--
                    ``(A) the individual receives a notice that 
                coverage under such plan has terminated (in the 
                circumstance described in paragraph (1)(C)(i)) or 
                notice that a claim has been denied because of such a 
                termination; or
                    ``(B) the individual received notice of the change 
                in benefits (in the circumstance described in 
                subparagraph (1)(C)(ii)).
    ``(f) Definitions.--As used in this section, terms have the 
following meanings:
            ``(1) Employment-based retiree health coverage.--The term 
        `employment-based retiree health coverage' means health 
        insurance or other coverage of health care costs for retired 
        individuals (or for such individuals and their spouses and 
        dependents) based on their status as former employees or labor 
        union members.
            ``(2) Employer.--The term `employer' has the meaning given 
        such term by section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (except that such term shall include only 
        employers of two or more employees).
            ``(3) Qualified retiree prescription drug plan.--The term 
        `qualified retiree prescription drug plan' means health 
        insurance coverage included in employment-based retiree health 
        coverage that--
                    ``(A) provides coverage of the cost of prescription 
                drugs whose actuarial value (as defined by the 
                Director) to each retired beneficiary equals or exceeds 
                the actuarial value of the benefits provided to an 
                individual enrolled in the program under this part; and
                    ``(B) does not deny, limit, or condition the 
                coverage or provision of prescription drug benefits for 
                retired individuals based on age or any health status-
                related factor described in section 2702(a)(1) of the 
                Public Health Service Act.
            ``(4) Sponsor.--The term `sponsor' means plan sponsor as 
        defined in section 3(16) of the Employer Retirement Income 
        Security Act of 1974.
    ``(g) Appropriations to Cover Incentives for Employment-Based 
Retiree Drug Coverage.--There are authorized to be appropriated from 
time to time, out of any moneys in the Treasury not otherwise 
appropriated such sums as may be necessary for payment of incentive 
payments under subsection (c).

``SEC. 1860I. 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 
Prescription Drug Insurance Account, a Government contribution equal 
to--
            ``(1) the aggregate premiums payable for a month pursuant 
        to section 1860D(a)(2) by individuals enrolled in the program 
        under this part, plus
            ``(2) one-half the aggregate premiums payable for a month 
        pursuant to such section for such individuals by former 
        employers.

``SEC. 1860J. DEFINITION.

    ``As used in this part, the term `prescription drug' means--
            ``(A) a drug that may be dispensed only upon a 
        prescription, and that is described in subparagraph (A)(i), 
        (A)(ii), or (B) of section 1927(k)(2); and
            ``(B) insulin certified under section 506 of the Federal 
        Food, Drug, and Cosmetic Act, and needles, syringes, and 
        disposable pumps for the administration of such insulin.''.
    (b) Study of Annual Open Enrollment.--
            (1) Study.--During 2002 and 2003, the Director of the 
        Office of Personnel Management shall study the feasibility and 
advisability of establishing an annual open enrollment period for the 
program under part D (as added by subsection (a)). Such study shall 
reflect data reported by benefit managers administering benefits under 
such part and shall include--
                    (A) a review of the costs, effectiveness, and 
                administrative feasibility of an annual open enrollment 
                period for beneficiaries who previously declined 
                enrollment or who previously disenrolled and desire to 
                re-enroll;
                    (B) an evaluation of a premium penalty for late 
                enrollment based on actuarially determined costs to the 
                program of late enrollment; and
                    (C) a projection of the costs to the program under 
                such part through 2010 of an annual open enrollment 
                period.
            (2) Report.--The Director shall prepare a report setting 
        forth the outcome of the study, and may include in the report a 
        recommendation as to whether an annual open enrollment period 
        should be implemented under such part.
    (c) Amendments to Medicare+Choice Program.--Part C of title XVIII 
of the Social Security Act is amended by inserting after section 1857 
the following new section:

                    ``coverage of prescription drugs

    ``Sec. 1858. (a) Availability.--
            ``(1) In general.--In accordance with rules established by 
        the Director of the Office of Personnel Management, in 
        coordination with the Secretary, each Medicare+Choice plan 
        shall provide, to each individual enrolled under part D, 
        prescription drug benefits described in part D (or equivalent 
        benefits as authorized by the Director).
            ``(2) Special rule for provision of part d benefits.--In no 
        event may a Medicare+Choice organization include as part of a 
        plan for such benefits a requirement that an enrollee pay a 
        deductible or pay a higher coinsurance percentage than the 
        percentage applicable under part D for the expenses involved.
            ``(3) Availability of prices.--Each contract under section 
        1857 shall provide that enrollees entitled to benefits made 
        available under this section who exhaust the plan's 
        prescription drug benefits will continue to have access to 
        prescription drugs at prices equivalent to the total combined 
        cost of such drugs to the plan and the enrollee prior to such 
        exhaustion of benefits.
    ``(b) Information.--Information respecting the benefits made 
available under subsection (a) shall be provided in the same manner as 
information on other benefits provided under this part is made 
available.
    ``(c) Payment.--
            ``(1) In general.--In the case of a Medicare+Choice plan 
        that provides prescription drug coverage described in 
        subsection (a), the amount of monthly payment otherwise made to 
        the Medicare+Choice organization offering the plan under 
        section 1853 shall be increased by the amount described in 
        paragraph (2). Such payments shall be made in the same manner 
        and time as the amount otherwise paid under section 1853, but 
        such amount shall be payable from the Prescription Drug 
        Insurance Account in the Federal Supplementary Medical 
        Insurance Trust Fund.
            ``(2) Amount.--The amount described in this paragraph is 
        the monthly premium rate under section 1860D(a)(2)(B), but 
        subject to adjustment under paragraph (3). Such amount shall be 
        uniform geographically and shall not vary based on the 
        Medicare+Choice payment area involved.
            ``(3) Risk adjustment.--The Director of the Office of 
        Personnel Management may establish a methodology for the 
        adjustment of the payment amount under this subsection in a 
        budget-neutral manner that takes into account the relative 
        risks for use of outpatient prescription drugs by 
        Medicare+Choice enrollees.
    ``(d) Separate Application of ACR to Prescription Drug Coverage.--
In applying section 1854 with respect to prescription drug benefits 
provided under this section, the Secretary shall apply the provisions 
of such section (including the computation of the adjusted community 
rate) separately with respect to such benefits.''.
    (d) Medigap Changes.--For purposes of applying section 
1882(p)(1)(E) of the Social Security Act (42 U.S.C. 1395ss(p)(1)(E))--
            (1) the Secretary of Health and Human Services shall be 
        deemed to have made the determination described in such 
        section; and
            (2) in modifying standards under such section, 
        notwithstanding the provisions of section 1882(p)(3)(A) of such 
        Act, any coverage for outpatient prescription drugs shall be 
        designed in a manner that does not substantially eliminate any 
        cost-sharing with respect to prescription drug coverage.
    (e) Conforming Amendments.--
            (1) Amendments to federal supplementary health insurance 
        trust fund.--Section 1841 (42 U.S.C. 1395t) is amended--
                    (A) in the last sentence of subsection (a)--
                            (i) by striking ``and such amounts'' and 
                        replacing it with ``such amounts''; and
                            (ii) by adding the following before the 
                        period: ``and such amounts as may be deposited 
                        in, or appropriated to, the Prescription Drug 
                        Insurance Account established by section 
                        1860F'';
                    (B) in subsection (g), by inserting after ``by this 
                part,'' the following: ``the payments provided for 
                under part D (in which case the payments shall come 
                from the Prescription Drug Insurance Account in the 
                Supplementary Medical Insurance Trust Fund),'';
                    (C) in subsection (h), by adding at the end of the 
                first sentence: ``and section 1860D(b)(4) (in which 
                case the payments shall come from the Prescription Drug 
                Insurance Account in the Supplementary Medical 
                Insurance Trust Fund)''; and
                    (D) in subsection (i), by inserting after ``section 
                1840(b)(1)'' the following: ``, section 1860D(b)(2) (in 
                which case the payments shall come from the 
                Prescription Drug Insurance Account in the 
                Supplementary Medical Insurance Trust Fund),''.
            (2) Exclusions from coverage.--
                    (A) Application to part d.--Section 1862(a) (42 
                U.S.C. 1395y(a)) is amended in the matter preceding 
                paragraph (1) by striking ``part A or part B'' and 
                inserting ``part A, B, or D''.
                    (B) Prescription drugs not excluded from coverage 
                if appropriately prescribed.--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 after subparagraph (I) the 
                        following new subparagraph:
                    ``(J) in the case of prescription drugs covered 
                under part D, which are not prescribed in accordance 
                with such part;

SEC. 3. MEDICAID BUY-IN OF MEDICARE PRESCRIPTION DRUG COVERAGE FOR 
              CERTAIN LOW-INCOME INDIVIDUALS.

    (a) State Option to Buy-In Dually Eligible Individuals.--
            (1) Coverage of premiums as medical assistance.--Section 
        1905(a) (42 U.S.C. 1396d(a)) is amended in the fourth sentence 
        by striking ``under part B'' the first place it appears and 
        inserting ``under parts B and D''.
            (2) State commitment to continue participation in part d 
        after benefit limit reached.--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 adding after paragraph (65) the following 
                new paragraph:
            ``(66) that, in the case of any individual whose 
        eligibility for medical assistance is not limited to medicare 
        or medicare drug cost sharing and for whom the State elects to 
        pay premiums under part D of title XVIII pursuant to section 
        1860E, the State will purchase all prescription drugs for such 
        individual in accordance with the provisions of such part D, 
        without regard to whether the benefit limit for such individual 
        under section 1860B(b) has been reached.''.
    (b) Medicare Cost Sharing Required for Qualified Medicare 
Beneficiaries.--Section 1905(p)(3) (42 U.S.C. 1396d(p)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``and'' at the end of clause (i);
                    (B) by inserting ``and'' at the end of clause (ii); 
                and
                    (C) by adding after clause (ii) the following:
                            ``(iii) premiums under section 1860D,'';
            (2) in subparagraph (D)--
                    (A) by inserting ``(i)'' after ``(D)''; and
                    (B) by adding at the end the following:
                            ``(ii) The difference between the amount 
                        that is paid under section 1860B and the amount 
                        that would be paid under such section if any 
                        reference to `50 percent' therein were deemed a 
                        reference to `100 percent' (or, if the Director 
                        approves a higher percentage under such 
section, if any reference to such percentage were deemed to be 
multiplied by two).
    (c) Medicare Drug Cost Sharing Required for Medicare-Eligible 
Individuals With Incomes Between 100 and 150 Percent of Poverty Line.--
            (1) Definitions of eligible beneficiaries and coverage.--
        Section 1905 (42 U.S.C. 1396d) is amended by adding at the end 
        the following new subsection:
    ``(v)(1) The term `qualified medicare drug beneficiary' means an 
individual--
            ``(A) who is entitled to hospital insurance benefits under 
        part A of title XVIII (including an individual entitled to such 
        benefits pursuant to an enrollment under section 1818, but not 
        including an individual entitled to such benefits only pursuant 
        to an enrollment under section 1818A),
            ``(B) whose income (as determined under section 1612 for 
        purposes of the supplemental security income program, except as 
        provided in subsection (p)(2)(D)) is above 100 percent but 
        below 150 percent of the official poverty line (as defined by 
        the Office of Management and Budget, and revised annually in 
        accordance with section 673(2) of the Omnibus Budget 
        Reconciliation Act of 1981) applicable to a family of the size 
        involved; and
            ``(C) whose resources (as determined under section 1613 for 
        purposes of the supplemental security income program) do not 
        exceed twice the maximum amount of resources that an individual 
        may have and obtain benefits under that program.
    ``(2) The term `medicare drug cost-sharing' means the following 
costs incurred with respect to a qualified medicare drug beneficiary, 
without regard to whether the costs incurred were for items and 
services for which medical assistance is otherwise available under the 
plan:
            ``(A) In the case of a qualified medicare drug beneficiary 
        whose income (as determined under paragraph (1)) is less than 
        135 percent of the official poverty line--
                    ``(i) premiums under section 1860D; and
                    ``(ii) the difference between the amount that is 
                paid under section 1860B and the amount that would be 
                paid under such section if there were no coinsurance.
            ``(B) In the case of a qualified medicare drug beneficiary 
        whose income (as determined under paragraph (1)) is at least 
        135 percent but less than 150 percent of the official poverty 
        line, a percentage of premiums under section 1860D, determined 
        on a linear sliding scale ranging from 100 percent for 
        individuals with incomes at 135 percent of such line to 0 
        percent for individuals with incomes at 150 percent of such 
        line.
    ``(3) In the case of any State which is providing medical 
assistance to its residents under a waiver granted under section 1115, 
the Secretary shall require the State to meet the requirement of 
section 1902(a)(10)(E) in the same manner as the State would be 
required to meet such requirement if the State had in effect a plan 
approved under this title.''.
            (2) State plan requirement.--Section 1902(a)(10)(E) (42 
        U.S.C. 1396(a)(10)(E)) is amended--
                    (A) by striking ``and'' at the end of clause (iii);
                    (B) by adding at the end the following new clause:
                            ``(v) for making medical assistance 
                        available for medicare drug cost sharing (as 
                        defined in section 1905(v)(2)) for qualified 
                        medicare drug beneficiaries described in 
                        section 1905(v)(1); and''.
            (3) 100 percent federal matching of state medical 
        assistance costs for medicare drug cost sharing.--Section 
        1903(a) (42 U.S.C. 1396b(a)) is amended--
                    (A) by redesignating paragraph (7) as paragraph 
                (8); and
                    (B) by adding after paragraph (6) the following new 
                paragraph:
            ``(7) an amount equal to 100 percent of amounts as expended 
        as medicare drug cost sharing for qualified medicare drug 
        beneficiaries (as defined in section 1905(v)) (except that this 
        paragraph shall not apply to amounts expended with respect to 
        any individual whose eligibility for medical assistance is not 
        limited to medicare or medicare drug cost sharing); and''.
    (d) Medicaid Drug Price Rebates Unavailable With Respect to Drugs 
Purchased Through Medicare Buy-In.--Section 1927 (42 U.S.C. 1396r-8) is 
amended by adding at the end the following new subsection:
    ``(l) Drugs Purchased Through Medicare Buy-In.--The provisions of 
this section shall not apply to prescription drugs purchased under part 
D of title XVIII pursuant to an agreement with the Director under 
section 1860E (including any drugs so purchased after the initial 
benefit limit under section 1860B(b) has been exceeded).''.
    (e) Effective Date.--The amendments made by this section apply to 
prescription drugs purchased on or after January 1, 2002.

SEC. 4. MEDPAC STUDIES ON BENEFIT MANAGERS.

    (a) Studies.--The Medicare Payment Advisory Commission shall 
conduct a study on--
            (1) the ability of benefit managers to improve quality and 
        reduce costs and to assume risk;
            (2) strategies to improve risk assumption by such managers;
            (3) the likely effect of allowing benefit managers to vary 
        aspects of the benefit package (such as type of cost-sharing, 
        premium levels, and stop-loss provisions) based on costs, 
        utilization, and access; and
            (4) the use of the stop-loss provision, including analysis 
        of benefit manager data on beneficiary utilization and the 
        effectiveness of cost constraints once the stop-loss is 
        triggered.
    (b) Reports.--The Commission shall submit a report to Congress not 
later than 1 year after the date of the enactment of this Act on the 
studies under subsection (a).
                                 <all>