[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2342 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2342

To amend the Medicare program under title XVIII of the Social Security 
 Act to make Medicare more competitive and efficient, to provide for a 
           prescription drug benefit, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 4, 2000

Mr. Moynihan (by request) introduced the following bill; which was read 
             twice and referred to the Committee on finance

_______________________________________________________________________

                                 A BILL


 
To amend the Medicare program under title XVIII of the Social Security 
 Act to make Medicare more competitive and efficient, to provide for a 
           prescription drug benefit, and for other purposes.

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

SECTION 1. SHORT TITLE; REFERENCES IN ACT; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Modernization Act of 2000''.
    (b) References.--Except where otherwise specifically provided, 
references in this Act shall be considered to be made to the Social 
Security Act, or to a section or other provision thereof.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

        TITLE I--MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT

                  Part A--Competitive Defined Benefit

Sec. 101. Competitive defined benefit.
  Part B--Private Sector Purchasing and Quality Improvement Tools for 
                          Traditional Medicare

Sec. 111. Care coordination services.
Sec. 112. Disease management services.
Sec. 113. Competitive acquisition of items and services.
Sec. 114. Provider and physician collaborations.
Sec. 115. Preferred participants.
Sec. 116. Centers of excellence.
Sec. 117. Demonstration of bonus payments for health care groups.
Sec. 118. Administration of certain private sector purchasing and 
                            quality improvement programs.
Sec. 119. Reports to Congress on private sector purchasing and quality 
                            improvement programs.
Sec. 120. Increased flexibility in contracting for Medicare claims 
                            processing.
Sec. 121. Special provisions for funding of activities related to 
                            certain overpayment recoveries and provider 
                            enrollment and reverification of 
                            eligibility.
                TITLE II--MODERNIZING MEDICARE BENEFITS

                   Part A--Prescription Drug Benefit

Sec. 201. Prescription drug benefit.
Sec. 202. Medicaid buy-in of Medicare prescription drug coverage for 
                            certain low-income individuals.
   Part B--Improving Preventive Benefits and Eliminating Cost Sharing

Sec. 221. Elimination of cost sharing for preventive benefits.
Sec. 222. Information campaign on prevention.
Sec. 223. Smoking cessation demonstration.
             Part C--Rationalizing Cost Sharing and Medigap

Sec. 231. Deductibles and coinsurance for clinical laboratory services.
Sec. 232. Indexing deductible to inflation.
Sec. 233. Updating and expanding Medigap plan options.
Sec. 234. Report to Congress on options for improving Medicare 
                            supplemental coverage.
Sec. 235. Increasing access to Medigap.
Sec. 236. Removal of sunset date for cost-sharing in Medicare part B 
                            premiums for certain qualifying 
                            individuals.
         TITLE III--PROTECTING AND EXTENDING MEDICARE SOLVENCY

Sec. 301. Transfers to extend solvency.
Sec. 302. Catastrophic prescription drug coverage reserve.
Sec. 303. Medicare solvency debt reduction reserve.
Sec. 304. Protection of Medicare solvency debt reduction reserve.

        TITLE I--MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT

                  PART A--COMPETITIVE DEFINED BENEFIT

SEC. 101. COMPETITIVE DEFINED BENEFIT.

    (a) Payments to Medicare+Choice Organizations Based on Risk-
Adjusted Bids.--
            (1) In general.--Section 1853(a)(1) (42 U.S.C. 1395w-
        23(a)(1)) is amended by striking ``the Secretary shall make'' 
        and all that follows and inserting ``the Secretary shall make, 
        to each Medicare+Choice organization, with respect to coverage 
        of an individual for a month under this part in a 
        Medicare+Choice payment area, separate monthly payments with 
        respect to benefits under parts A and B combined, and (as 
        applicable) with respect to benefits under part D, as 
        determined in accordance with this section.''.
            (2) Annual determination and announcement of payment 
        factors.--
                    (A) In general.--Section 1853(b) (42 U.S.C. 1395w-
                23(b)) is amended--
                            (i) in paragraph (1), by striking ``the 
                        calendar year concerned'' and all that follows 
                        and inserting ``the calendar year concerned, 
                        the following factors, as defined in paragraph 
                        (4):
                    ``(A) national monthly per capita costs,
                    ``(B) the benchmark amount for each payment area, 
                and
                    ``(C) the health status and demographic adjustment 
                factors to be used in making payment for individual 
                enrollees.'';
                            (ii) in paragraph (3), by striking 
                        ``monthly adjusted'' and all that follows and 
                        inserting ``such estimates, factors, and 
                        amounts''; and
                            (iii) by adding at the end the following 
                        new paragraphs:
            ``(4) Factors used in adjusting bids for medicare+choice 
        organizations and in determining enrollee premiums.--
                    ``(A) In general.--Subject to paragraph (5), the 
                Secretary shall use, for purposes of adjusting plan 
                bids and determining enrollee premiums under this part, 
                the factors specified in this paragraph, which 
                factors--
                            ``(i) shall be calculated separately for 
                        benefits under parts A and B combined, and 
                        under part D; and
                            ``(ii) shall be calculated separately for--
                                    ``(I) beneficiaries who are aged or 
                                disabled; and
                                    ``(II) beneficiaries who have end 
                                stage renal disease until such time as 
                                the Secretary establishes an integrated 
                                risk adjustment system for the groups 
                                specified in subclauses (I) and (II).
                    ``(B) National monthly per capita costs.--
                            ``(i) In general.--The term `national 
                        monthly per capita costs' means (subject to 
                        clause (ii)) the projected national, monthly, 
                        per capita costs of benefits under this title 
                        and associated claims processing costs for 
                        individuals entitled to benefits under part A 
                        and individuals enrolled in the program under 
                        part B who are not enrolled in a plan under 
                        this part.
                            ``(ii) Exclusion of dsh and gme costs.--The 
                        calculation of costs under clause (i) shall not 
                        take into account any amounts attributable to--
                                    ``(I) payment adjustments under 
                                section 1886(d)(5)(F) for hospitals 
                                serving a significantly 
                                disproportionate number of low 
income patients;
                                    ``(II) payments for costs of 
                                graduate medical education under 
                                section 1886(h); or
                                    ``(III) payments for indirect costs 
                                of medical education under section 
                                1886(d)(5)(B).
                    ``(C) Benchmark amount.--
                            ``(i) The term `benchmark amount' means, 
                        for a payment area, an amount equal to the 
                        greater of--
                                    ``(I) except as provided in clause 
                                (ii), \1/12\ of the annual 
                                Medicare+Choice capitation rate that 
                                would have applied in that payment area 
                                under section 1853(c) (as in effect 
                                prior to the enactment of the Medicare 
                                Modernization Act of 2000); or
                                    ``(II) the product of 96 percent of 
                                national monthly per capita costs and 
                                the ratio, for a previous period, of--
                                            ``(aa) monthly per capita 
                                        costs of Medicare benefits for 
                                        individuals entitled to 
                                        benefits under part A and 
                                        individuals enrolled in the 
                                        program under part B in that 
                                        payment area (adjusted for 
                                        relative risk due to health 
                                        status and demographic 
                                        adjustment factors) to--
                                            ``(bb) the weighted average 
                                        for all payment areas of such 
                                        monthly per capita costs.
                            ``(ii) If the amount calculated under 
                        clause (i)(I) for a year for all payment areas 
                        is equal to either the minimum amount or the 
                        blended capitation rate, for all subsequent 
                        years the Secretary shall not calculate the 
                        rates described in that clause and the amount 
                        under such clause instead shall be equal to the 
                        product of 96 percent of national monthly per 
                        capita costs and the ratio of--
                                    ``(I) the annual Medicare+Choice 
                                capitation rate for the last year that 
                                such rates were calculated under such 
                                clause to--
                                    ``(II) the weighted average of the 
                                area-specific Medicare+Choice 
                                capitation rates for that same year.
                            ``(iii) For years prior to 2005, with 
                        regard to benefits under part D, the Secretary 
                        may use 96 percent of national monthly per 
                        capita costs as the benchmark amount for all 
                        payment areas or provide for regional rather 
                        than payment area-specific determinations of 
                        the benchmark amounts.
                    ``(D) Health status and demographic adjustment 
                factors.--The term `health status and demographic 
                adjustment factors' means health status and such other 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as the 
                Secretary determines to be appropriate, so as to ensure 
                actuarial equivalence. The Secretary may add to, 
                modify, or substitute for such factors, if such changes 
                will improve the determination of actuarial 
                equivalence, and in that event will make comparable 
                adjustments to the benchmark amounts. For years prior 
                to 2005, with regard to part D benefits, the Secretary 
                shall not be required to include health status in the 
                factors described in this subparagraph.''.
                    (B) Conforming amendment.--Section 1853(c)(7) is 
                relocated and redesignated as section 1853(b)(5), 
                indented accordingly, and amended by striking all that 
                follows ``shall adjust appropriately'' and inserting 
                ``national monthly per capita costs for the following 
                year''.
            (3) Submission of bids by medicare+choice organizations.--
                    (A) In general.--Section 1853 (42 U.S.C. 1395w-23) 
                is amended by striking subsection (c) and inserting the 
                following new subsection:
    ``(c) Submission of Bids by Medicare+Choice Organizations.--
            ``(1) In general.--Each Medicare+Choice organization shall 
        submit to the Secretary, in a form and manner specified by the 
        Secretary and for each Medicare+Choice plan which it intends to 
        offer in a service area in the following year--
                    ``(A) by April 1, notice of such intent and 
                information on the service area and plan type for each 
                plan; and
                    ``(B) by July 1--
                            ``(i) the information described in 
                        paragraph (2) for the type of plan involved; 
                        and
                            ``(ii) the enrollment capacity (if any) in 
                        relation to the plan and area.
            ``(2) Information required for competitive plans.--The 
        information described in this paragraph, which shall be 
        submitted separately for combined part A and part B benefits, 
        and for part D benefits, is as follows:
                    ``(A) The monthly plan bid for the provision of 
                benefits.
                    ``(B) The actuarial value of the reduction in cost-
                sharing for Medicare benefits included in each plan bid 
                (which value shall not exceed 15 percent of the value 
                of the balance of the bid).
                    ``(C) A description of the cost-sharing for 
                Medicare benefits that will apply and the actuarial 
                value of such cost-sharing.
                    ``(D) For each supplemental benefits package 
                offered (if any), the adjusted community rate of the 
                package, the monthly supplemental premium, a 
                description of cost-sharing and such other information 
                as the Secretary considers necessary.
                    ``(E) The assumptions used with respect to numbers, 
                in each payment area, of--
                            ``(i) enrolled individuals who are aged or 
                        disabled; and
                            ``(ii) enrolled individuals who have end-
                        stage renal disease.''.
                    (B) Conforming amendments.--
                            (i) Paragraphs (3) and (5) of section 
                        1854(a) are relocated and redesignated as 
                        paragraphs (3) and (4), respectively, of 
                        section 1853(c), as amended.
                            (ii) Section 1853(c)(3)(B) (42 U.S.C. 
                        1395w-23(c)(3)(B)), as redesignated, is amended 
                        by striking ``beneficiary''.
                            (iii) Section 1853(c)(4)(B) (42 U.S.C. 
                        1395w-23(c)(3)(B)), as redesignated, is amended 
by striking ``or subparagraphs (A)(ii) and (B) of paragraph (4)''.
            (4) Secretary's determination of payment amount.--Section 
        1853 is further amended--
                    (A) by redesignating subsections (d) through (h) as 
                subsections (e) through (i), respectively; and
                    (B) by adding after subsection (c) the following 
                new subsection:
    ``(d) Secretary's Determination of Payment Amount.--
            ``(1) Conversion to normalized bids.---
                    ``(A) Normalized bids.--Subject to subparagraph 
                (B), the Secretary shall adjust each monthly plan bid 
                submitted under subsection (c) for the relative risk of 
                enrollees in such plan based on health status and 
                demographic adjustment factors.
                    ``(B) Special rule for plan bids for part d 
                benefits before 2005.--The Secretary is not required, 
                for years before 2005, to make the adjustments 
                described in subparagraph (A) with respect to plans for 
                part D benefits.
            ``(2) Comparison to plan benchmark amount.--
                    ``(A) Determination of plan benchmark.--The 
                Secretary shall determine, using the plan enrollment 
                assumptions included in the organization's bid, a plan 
                benchmark amount for each plan equal to--
                            ``(i) (until such time as the Secretary 
                        establishes an integrated risk adjustment 
                        system for individuals who are aged or disabled 
                        and for individuals who have end-stage renal 
                        disease)--
                                    ``(I) the product of the weighted 
                                average of the benchmark amounts for 
                                the payment areas included in the 
                                plan's service area for individuals who 
                                are aged or disabled and the number of 
                                such individuals in the plan, plus
                                    ``(II) the product of the weighted 
                                average of the benchmark amounts for 
                                the payment areas included in the 
                                plan's service area for individuals who 
                                have end-stage renal disease and the 
                                number of such individuals in the 
                                plan,divided by the total number of 
                                individuals in subclauses (I) and (II); 
                                and
                            ``(ii) (after such time) the weighted 
                        average of the benchmark amounts for the 
                        payment areas included in the plan's service 
                        area.
                    ``(B) Comparison to benchmark; determination of 
                payment amount.--The monthly payment to a 
                Medicare+Choice organization with respect to each 
                individual enrolled in a plan shall be set as follows:
                            ``(i) If bid does not exceed benchmark.--If 
                        the normalized bid determined under paragraph 
                        (1) does not exceed the plan benchmark amount 
                        determined under subparagraph (A), the monthly 
                        payment shall be the normalized bid, adjusted 
                        to account for the health status and 
                        demographic adjustment factors of the 
                        individual enrollee.
                            ``(ii) If bid exceeds benchmark.--If the 
                        normalized bid determined under paragraph (1) 
                        exceeds the plan benchmark amount determined 
                        under subparagraph (B), the monthly payment 
                        shall be the normalized bid, adjusted as 
                        described in clause (i), minus the monthly 
                        excess premium determined under section 
                        1854.''.
    (b) Premiums.--
            (1) Determination of premium amount.--Section 1854 (42 
        U.S.C. 1395-4) is amended--
                    (A) by striking subsection (a) and redesignating 
                subsections (b) and (c) as subsections (a) and (b);
                    (B) by adding after subsection (b) the following 
                new subsection:
    ``(c) Determination of Medicare Premium Reduction and Excess 
Premium.--
            ``(1) In general.--Subject to paragraph (2), the Secretary 
        shall subtract the normalized bid (determined under section 
        1853(d)(1)) from the plan's benchmark amount (determined under 
        section 1853(d)(2)) to determine the Medicare premium reduction 
        or monthly excess premium for plan enrollees.
            ``(2) Adjustment.--If the difference between the normalized 
        bid and the plan's benchmark amount--
                    ``(A) is a positive amount, 75 percent of that 
                amount shall be equal to--
                            ``(i) the monthly Medicare premium 
                        reduction for individuals enrolled in the plan 
                        (up to the entire amount of the premium for 
                        part B or part D, as applicable); and
                            ``(ii) the remainder, if any, under clause 
                        (i) shall be equal to the additional reduction 
                        in the actuarial value of plan cost-sharing for 
                        plan enrollees;
                    ``(B) is a negative amount, the absolute value of 
                that amount shall equal the monthly excess premium for 
                individuals enrolled in the plan.
            (2) Limitation on enrollee liability.--
                    (A) For basic benefits.--Section 1854(e)(1) (42 
                U.S.C. 1395w-4(e)(1)) is amended to read as follows:
            ``(1) For basic benefits.--The sum of--
                    ``(A) the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with a 
                Medicare+Choice plan described in section 1851(a)(2)(A) 
                or (C) of an organization with respect to benefits 
                described in section 1852(a)(1);
                    ``(B) the reduction in cost sharing included in the 
                plan bid;
                    ``(C) the portion, if any, of the monthly 
                supplemental premium that is in lieu of plan cost-
                sharing for Medicare benefits; and
                    ``(D) any additional reduction in cost-sharing 
                under subsection (c)(2)(A) (determined separately with 
                respect to benefits under parts A and B, and benefits 
                under part D) must equal the actuarial value of the 
                deductibles, coinsurance, and copayments that would be 
                applicable on average to individuals entitled to such 
                benefits if they were not members of a Medicare+Choice 
                organization for the year (adjusted as 
determined appropriate by the Secretary to account for geographic 
differences and for plan cost and utilization differences).''.
                    (B) For supplemental benefits.--Section1854(e)(2) 
                (42 U.S.C. 1395w-4(e)(2)) is amended--
                            (i) by striking ``section 1851(a)(2)(A)'' 
                        and inserting ``subparagraph (A) or (C) of 
                        section 1851(a)(2)'';
                            (ii) by striking ``(multiplied by 12)''; 
                        and
                            (iii) by striking ``may not exceed'' and 
                        inserting ``must equal''.
    (c) Other Changes in Plan Design.--
            (1) Allowing plans to include cost sharing reduction in 
        their basic benefits.--Section 1852(a)(1) (42 U.S.C. 1395w-
        22(a)(1)) is amended by striking subparagraph (B) and inserting 
        the following--
                    ``(B) at plan option, reduction in cost-sharing for 
                part A and part B benefits, or part D benefits, that 
                would otherwise be applicable (the actuarial value of 
                such reduction however shall not exceed 15 percent of 
                the value of the portion of the bid related to combined 
                part A and part B benefits, or part D benefits, as 
                applicable).''.
            (2) Elimination of mandatory supplemental benefits.--
        Section 1852(a)(3) (42 U.S.C. 1395w-22(a)(3)) is amended by 
        striking subparagraph (A) and redesignating subparagraphs (B) 
        and (C) and subparagraphs (A) and (B).
    (d) Conforming Amendments.--
            (1) Premium reductions.--
                    (A) Under part b.--
                            (i) Section 1839(a)(2) (42 U.S.C. 
                        1395r(a)(2)) is amended by striking ``shall'' 
                        and all that follows and inserting ``shall be 
                        the amount determined under paragraph (3), 
                        adjusted as required in accordance with 
                        subsections (b), (c), and (f), and thereafter 
                        further modified as required to comply with 
                        section 1854(c)(2)(A).''.
                            (ii) Section 1840 (42 U.S.C. 1395s) is 
                        amended by adding at the end the following:
                            ``(i) The Secretary shall provide for 
                        necessary adjustments of the Medicare premium 
                        for Medicare+Choice enrollees determined under 
                        section 1854(c)(2)(A). This premium adjustment 
                        may be provided directly or as an adjustment to 
                        Social Security, Railroad Retirement and Civil 
                        Service Retirement benefits, as appropriate, as 
                        the Secretary determines feasible with the 
                        concurrence of such agencies.''.
                    (B) Under part d.--
                            (i) Section 1859D(a)(2)(B) is amended by 
                        inserting ``thereafter further modified as 
                        required to comply with section 
                        1854(c)(2)(A),'' before ``and rounded''.
                            (ii) Section 1859(b)(1) is amended by 
                        adding at the end the following:
                    ``(C) The Secretary shall provide for necessary 
                adjustments of the Medicare premium for Medicare+Choice 
                enrollees determined under section 1854(c)(2)(A). This 
                premium adjustment may be provided directly or as an 
                adjustment to Social Security, Railroad Retirement and 
                Civil Service Retirement benefits, as appropriate, as 
                the Secretary determines feasible with the concurrence 
                of such agencies.''.
            (2) Appropriations for government contribution.--Section 
        1844(a)(1) (42 U.S.C. 1395w(a)(1)) is amended by adding after 
        subparagraph (B) the following new subparagraph:
                    ``(C) an adjustment for the Government contribution 
                to reflect the savings to the Trust Fund from 
                enrollment in Medicare+Choice plans by beneficiaries 
                who receive monthly Medicare premium reductions in 
                accordance with section 1854(c)(2)(A).''.
            (3) Section 1851(b)(1)(B) (42 U.S.C. 1395w-21(b)(1)(B)) is 
        amended by striking ``section 1852(a)(1)(A)'' and inserting 
        ``section 1852(a)(1)''.
            (4) Section 1851(d)(2)(A) (42 U.S.C. 1395w-21(d)(2)(A)) is 
        amended by striking ``At least 15 days before'' and inserting 
        ``Before''.
            (5) Part C is amended by striking ``beneficiary'' each time 
        it appears immediately before ``premium'' or ``premiums'', and 
        by striking ``beneficiary'' each time it appears immediately 
        before ``premium'' or ``premiums''.
            (6) Section 1851(d)(4)(B) (42 U.S.C. 1395w-21(d)(4)(B)) is 
        amended--
                    (A) by inserting ``(i)'' after ``premi-
                ums.--''; and
                    (B) by adding before the period ``; and (ii) the 
                reduction in the part B and part D premiums, if any''.
            (7) Section 1851(d)(4)(E) (42 U.S.C. 1395w-21(d)(4)(E)) is 
        amended by striking ``includes mandatory supplemental benefits 
        in its base benefit package or''.
            (8) Section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)) is 
        amended by striking ``the annual Medicare+Choice capitation 
        rate'' and inserting ``the national monthly per capita costs''.
            (9) Section 1852(c)(1)(F) (42 U.S.C. 1395w-22(c)(1)(F)) is 
        amended by striking clause (i) and redesignating clauses (ii) 
        and (iii) as clauses (i) and (ii).
            (10) Section 1853(a)(1)(B) (42 U.S.C. 1395w-23(a)(1)(B)) is 
        amended by striking the first and second sentences.
            (11) Section 1853(e)(3)(B) (42 U.S.C. 1395w-23(e)(3)(B)), 
        as redesignated, is amended--
                    (A) in the caption, by striking ``Budget 
                Neutrality'';
                    (B) by striking ``adjust the payment rates'' and 
                all that follows through ``that would have been made'' 
                and inserting ``adjust the benchmark amounts otherwise 
                established under this section for Medicare+Choice 
                payment areas in the State in a manner so that the 
                weighted average of the benchmark amounts under this 
                section in the State equals the weighted average of 
                benchmark amounts that would have been applicable''.
            (12) Section 1853(i)(2) (42 U.S.C. 1395w-23(i)(2)), as 
        redesignated, is amended--
                    (A) by inserting ``and'' at the end of subparagraph 
                (A);
                    (B) by striking ``; and'' at the end of 
                subparagraph (B) and inserting a period; and
                    (C) by striking subparagraph (C).
            (13)(A) Section 1854(a)(2)(A) (42 U.S.C. 1395w-4(a)(2)(A)), 
        as redesignated, is amended by striking ``the amount authorized 
        to be charged'' and all that follows and inserting ``the amount 
        required to be charged under subsection (c)(2)(B) for the 
        plan.''.
            (B) Section 1854(a)(2)(B) (42 U.S.C. 1395w-4(a)(2)(B)), as 
        redesignated, is amended--
                    (i) by striking ``or Medicare+Choice fee-for-
                service plan'', and
                    (ii) by striking ``or (4)(B)''.
            (14) Section 1854(e) (42 U.S.C. 1395w-4(e)) is amended by 
        striking paragraph (4).
            (15)(A) Paragraphs (3) and (4) of section 1854(f) (42 
        U.S.C. 1395w-4(f)) are relocated and redesignated as paragraphs 
        (4) and (5) of subsection (e).
            (B) Section 1854(e)(4) (42 U.S.C. 1395w-4(e)(4)), as so 
        redesignated, is amended by striking ``subject to paragraph 
        (4)'' and inserting ``subject to paragraph (5)''.
            (C) Section 1854(f) (42 U.S.C. 1395w-4(f)) is stricken.
            (16) Section 1858(c), as redesignated by section 201, is 
        amended by striking paragraph (3) and redesignating paragraph 
        (4) as paragraph (3).
    (e) Effective Date.--The amendments made by this section shall be 
effective for 2003 and succeeding years.

  PART B--PRIVATE SECTOR PURCHASING AND QUALITY IMPROVEMENT TOOLS FOR 
                           ORIGINAL MEDICARE

SEC. 111. CARE COORDINATION SERVICES.

    (a) Program Authorized.--Title XVIII (42 U.S.C. 1395 et seq.) is 
amended by adding after section 1866 the following new section:

``SEC. 1866A. CARE COORDINATION SERVICES.

    ``(a) In General.--
            ``(1) Program authority.--The Secretary, beginning in 2002, 
        may implement a care coordination services program in 
        accordance with the provisions of this section under which, in 
        appropriate circumstances, eligible individuals may elect to 
        have health care services covered under this title managed and 
        coordinated by a designated care coordinator.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
    ``(b) Eligibility Criteria; Identification and Notification of 
Eligible Individuals.--
            ``(1) Individual eligibility criteria.--The Secretary shall 
        specify criteria to be used in making a determination as to 
        whether an individual may appropriately be enrolled in the care 
        coordination services program under this section, which shall 
        include at least a finding by the Secretary that for cohorts of 
        individuals with characteristics identified by the Secretary, 
        professional management and coordination of care can reasonably 
        be expected to improve processes or outcomes of health care and 
        to reduce aggregate costs to the programs under this title.
            ``(2) Procedures to facilitate enrollment.--The Secretary 
        shall develop and implement procedures designed to facilitate 
        enrollment of eligible individuals in the program under this 
        section.
    ``(c) Enrollment of Individuals.--
            ``(1) Secretary's determination of eligibility.--The 
        Secretary shall determine the eligibility for services under 
        this section of individuals who are enrolled in the program 
        under this section and who make application for such services 
        in such form and manner as the Secretary may prescribe.
            ``(2) Enrollment period.--
                    ``(A) Effective date and duration.--Enrollment of 
                an individual in the program under this section shall 
                be effective as of the first day of the month following 
                the month in which the Secretary approves the 
                individual's application under paragraph (1), shall 
                remain in effect for one month (or such longer period 
                as the Secretary may specify), and shall be 
                automatically renewed for additional periods, unless 
                terminated in accordance with such procedures as the 
                Secretary shall establish by regulation.
                    ``(B) Limitation on reenrollment.--The Secretary 
                may establish limits on an individual's eligibility to 
                reenroll in the program under this section if the 
                individual has disenrolled from the program more than 
                once during a specified time period.
    ``(d) Program.--The care coordination services program under this 
section shall include the following elements:
            ``(1) Basic care coordination services.--
                    ``(A) In general.--Subject to the cost-
                effectiveness criteria specified in subsection (b)(1), 
                except as otherwise provided in this section, enrolled 
                individuals shall receive services described in section 
                1905(t)(1) and may receive additional items and 
                services as described in subparagraph (B).
                    ``(B) Additional benefits.--The Secretary may 
                specify additional benefits for which payment would not 
                otherwise be made under this title that may be 
                available to individuals enrolled in the program under 
                this section (subject to an assessment by the care 
                coordinator of an individual's circumstance and need 
                for such benefits) in order to encourage enrollment in, 
                or to improve the effectiveness of, such program.
            ``(2) Care coordination requirement.--Notwithstanding any 
        other provision of this title, the Secretary may provide that 
        an individual enrolled in the program under this section may be 
        entitled to payment under this title for any specified health 
        care items or services only if the items or services have been 
        furnished by the care coordinator, or coordinated through the 
        care coordination services program. Under such provision, the 
        Secretary shall prescribe exceptions for emergency medical 
        services as described in section 1852(d)(3), and other 
        exceptions determined by the Secretary for the delivery of 
        timely and needed care.
            ``(3) Reduction or elimination of cost sharing.--
        Notwithstanding any other provision of law, subject to the 
        cost-effectiveness criteria specified in subsection (b)(1), the 
        Secretary may provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
coinsurance) with respect to any of the items or services furnished 
under this title (other than the care coordination services and other 
benefits described in paragraph (1)) and may limit such reduction or 
elimination to particular service areas.
    ``(e) Care Coordinators.--
            ``(1) Conditions of participation.--In order to be 
        qualified to furnish care coordination services under this 
        section, an individual or entity shall--
                    ``(A) be a health care professional or entity 
                (which may include physicians, physician group 
                practices, or other health care professionals or 
                entities the Secretary may find appropriate) meeting 
                such conditions as the Secretary may specify;
                    ``(B) have entered into a care coordination 
                agreement; and
                    ``(C) meet such criteria as the Secretary may 
                establish (which may include experience in the 
                provision of care coordination or primary care 
                physician's services).
                    ``(2) Agreement term; payment.--
                    ``(A) Duration and renewal.--A care coordination 
                agreement under this subsection shall be for one year 
                and may be renewed if the Secretary is satisfied that 
                the care coordinator continues to meet the conditions 
                of participation specified in paragraph (1).
                    ``(B) Payment for services.--The Secretary may 
                negotiate or otherwise establish payment terms and 
                rates for services described in subsection (d)(1).
                    ``(C) Terms.--In addition to such other terms as 
                the Secretary may require, an agreement under this 
                section shall include the terms specified in 
                subparagraphs (A) through (C) of section 1905(t)(3).''.
    (b) Coverage of Care Coordination Services as a Part B Medical 
Service.--
            (1) In general.--Section 1861(s) (42 U.S.C. 1395x(s)) is 
        amended--
                    (A) in the second sentence, by redesignating 
                paragraphs (16) and (17) as clauses (i) and (ii); and
                    (B) in the first sentence--
                            (i) by striking ``and'' at the end of 
                        paragraph (14);
                            (ii) by striking the period at the end of 
                        paragraph (15) and inserting ``; and''; and
                            (iii) by adding after paragraph (15) the 
                        following new paragraph:
            ``(16) care coordination services furnished in accordance 
        with section 1866A.''.
            (2) Part b coinsurance and deductible not applicable to 
        care coordination services.--
                    (A) Coinsurance.--Section 1833(a)(1) is amended--
                            (i) by striking ``and'' at the end of 
                        subparagraph (R); and
                            (ii) by inserting before the final 
                        semicolon ``, and (T) with respect to care 
                        coordination services described in section 
                        1861(s)(16), the amounts paid shall be 100 
                        percent of the payment amount established under 
                        section 1866C''.
                    (B) Deductible.--Section 1833(b) (42 U.S.C. 
                1395l(b)) is amended--
                            (i) by striking ``and'' at the end of 
                        paragraph (5); and
                            (ii) by inserting before the final period 
                        ``, and (7) such deductible shall not apply 
                        with respect to care coordination services (as 
                        described in section 1861(s)(16))''.

SEC. 112. DISEASE MANAGEMENT SERVICES.

    (a) Program Authorized.--Title XVIII (42 U.S.C. 1395 et seq.), as 
previously amended by this part, is further amended by adding after 
section 1866A the following new section:

``SEC. 1866B. DISEASE MANAGEMENT SERVICES.

    ``(a) In General.--
            ``(1) Program authority.--The Secretary, beginning in 2002, 
        may implement a program in accordance with the provisions of 
        this section under which certain eligible individuals may, in 
        appropriate circumstances, receive disease management services 
        from entities designated by the Secretary with respect to 
        diagnoses that the Secretary determines are amenable to such 
        management.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
    ``(b) Individuals Who May Receive Disease Management Services.--No 
individual shall be eligible for enrollment in a disease management 
program under this section unless the Secretary finds the following 
with respect to the individual:
            ``(1) Diagnosis and related characteristics.--
                    ``(A) In general.--The individual has been 
                diagnosed with congestive heart failure, chronic 
                obstructive pulmonary disease, diabetes, or any other 
                diagnosis, if the Secretary has determined with respect 
                to such diagnoses that there is evidence that the 
                provision of disease management services, over 
                clinically relevant time-periods, to cohorts of 
                individuals with such diagnoses can reasonably be 
                expected to improve processes or outcomes of health 
                care for the Medicare population and to reduce 
                aggregate costs to the programs under this title.
                    ``(B) Additional factors.--Where required by the 
                Secretary, the individual also has certain clinical 
                characteristics or conditions, exhibits certain 
                patterns of utilization, or manifests other factors 
                indicating the need for and potential effectiveness of 
                disease management.
            ``(2) Referral by qualified individual or entity.--The 
        individual has been referred for consideration for such 
        services by an individual or entity furnishing health care 
        items or services, or by an entity administering benefits under 
        this title.
    ``(c) Procedures To Facilitate Enrollment.--The Secretary shall 
develop and implement procedures designed to facilitate enrollment of 
eligible individuals in the program under this section.
    ``(d) Enrollment of Individuals With Disease Management 
Organizations.--
            ``(1) Effective date and duration.--Enrollment of an 
        individual in the program under this section shall remain in 
        effect for one month (or such longer period as the Secretary 
        may specify), and shall be automatically renewed for additional 
        periods, unless terminated in accordance with such procedures 
as the Secretary shall establish by regulation.
            ``(2) Limitation on reenrollment.--The Secretary may 
        establish limits on an individual's eligibility to reenroll in 
        the program under this section if the individual has 
        disenrolled from the program more than once during a specified 
        time period.
    ``(e) Disease Management Requirement.--Notwithstanding any other 
provision of this title, the Secretary may provide that an individual 
enrolled in the program under this section may be entitled to payment 
under this title for any specified health care items or services only 
if the items or services have been furnished by the disease management 
organization, or coordinated through the disease management services 
program. Under such provision, the Secretary shall prescribe exceptions 
for emergency medical services as described in section 1852(d)(3), and 
other exceptions determined by the Secretary for the delivery of timely 
and needed care.
    ``(f) Disease Management Services.--
            ``(1) In General.--Subject to the cost-effectiveness 
        criteria specified in subsection (b)(1), disease management 
        services provided to an individual under this section may 
        include--
                    ``(A) initial and periodic health screening and 
                assessment;
                    ``(B) management (including coordination with other 
                providers) of, and referral for, medical and other 
                health services related to the managed diagnosis (which 
                may include referral for provision of such services by 
                the disease management organization);
                    ``(C) monitoring and control of medications 
                (including coordination with the entity managing 
                benefits for the individual under part D);
                    ``(D) patient education and counseling;
                    ``(E) nursing or other health professional home 
                visits, as appropriate;
                    ``(F) providing access for consultations by 
                telephone with physicians or other appropriate medical 
                professionals, including 24-hour availability for 
                emergency consultations;
                    ``(G) managing and facilitating the transition to 
                other care arrangements in preparation for termination 
                of the disease management enrollment; and
                    ``(H) such other services for which payment would 
                not otherwise be made under this title as the Secretary 
                shall determine to be appropriate.
            ``(2) Variations in service packages.--The types and 
        combinations of disease management services furnished under 
        agreements under this section may vary (as permitted or 
        required by the Secretary) according to the types of diagnoses, 
        conditions, patient profiles being managed, expertise of the 
        disease management organization, and other factors the 
        Secretary finds appropriate.
            ``(3) Reduction or elimination of cost sharing.--
        Notwithstanding any other provision of law, subject to the 
        cost-effectiveness criteria specified in subsection (b)(1), the 
        Secretary may provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
        coinsurance) with respect to any of the items or services 
        furnished under this title (other than those furnished under a 
        service package developed under paragraph (2)), and may limit 
        such reduction or elimination to particular service areas.
    ``(g) Agreements With Disease Management Organizations.--
            ``(1) Entities eligible.--Entities qualified to enter into 
        agreements with the Secretary for the provision of disease 
        management services under this section include entities that 
        have demonstrated the ability to meet the performance standards 
        and other criteria established by the Secretary with respect 
        to--
                    ``(A) the management of each diagnosis and 
                condition with respect to which the entity, if 
                designated, would furnish disease management services 
                under this section; and
                    ``(B) the implementation of each disease management 
                approach that the entity, if designated, would 
                implement under this section.
            ``(2) Conditions of participation.--In order to be eligible 
        to provide disease management services under this section, an 
        entity shall--
                    ``(A) have in effect an agreement with the 
                Secretary setting forth such obligations of the entity 
                as a disease management organization under this section 
                as the Secretary shall prescribe;
                    ``(B) meet the standards established by the 
                Secretary under subsection (h); and
                    ``(C) meet such other conditions as the Secretary 
                may establish.
            ``(3) Secretary's option for noncompetitive designation.--
        The Secretary may designate an entity to provide disease 
        management services under this section without regard to the 
        requirements of section 5 of title 41, United States Code.
    ``(h) Standards.--
            ``(1) Quality.--The Secretary shall establish standards 
        for, and procedures for assessing, the quality of care provided 
        by disease management organizations under this section, which 
        shall include--
                    ``(A) performance standards with respect to the 
                processes or outcomes of health care or the health 
                status of enrolled individuals, including procedures 
                for establishing a baseline and measuring changes in 
                health care processes or health outcomes with respect 
                to managed diseases or health conditions;
                    ``(B) a requirement that the organization meet such 
                licensure and other accreditation standards as the 
                Secretary may find appropriate; and
                    ``(C) such other quality standards, including 
                patient satisfaction, as the Secretary may find 
                appropriate.
            ``(2) Cost management.--The Secretary shall establish a 
        performance standard with respect to management or reduction of 
        the aggregate costs of health care items and services related 
        to managed health conditions furnished to enrolled individuals, 
        including procedures for establishing a baseline and measuring 
        changes in costs for such items and services.
    ``(i) Payment.--
            ``(1) Terms of payment.--The Secretary may negotiate or 
        otherwise establish payment terms and rates for service 
        packages developed under subsection (f)(2).
            ``(2) Withholding of payments.--An agreement under 
        subsection (g) may provide that the Secretary may withhold up 
        to ten percent of the amount due a disease management 
        organization under the basis of payment established under 
        paragraph (1) until such time as such organization meets a 
        standard or standards specified in such agreement.
    (b) Coverage of Disease Management Services as a Part B Medical 
Service.--
            (1) In general.--Section 1861(s), as amended by section 
        111, is further amended--
                    (A) by striking ``and'' at the end of paragraph 
                (15);
                    (B) by striking the period at the end of paragraph 
                (16) and inserting ``and''; and
                    (C) by adding after paragraph (16) the following 
                new paragraph:
            ``(17) disease management services furnished in accordance 
        with section 1866B.''.
            (2) Part b coinsurance and deductible not applicable to 
        disease management services.--
                    (A) Coinsurance.--Section 1833(a)(1)(T) (42 U.S.C. 
                1395l(a)(1)(T)), as added by section 111(b)(2)(A), is 
                amended to read as follows: ``(T) with respect to care 
                coordination services described in section 1861(s)(16) 
                and disease management services described in section 
                1861(s)(17), the amounts paid shall be 100 percent of 
                the payment amounts established under sections 1866A 
                and 1866B, respectively;''.
                    (B) Deductible.--Section 1833(b) (42 U.S.C. 
                1395l(b)), as amended by section 111(b)(2)(A), is 
                further amended by inserting before the final period 
                ``or to disease management services (as described in 
                section 1861(s)(17))''.

SEC. 113. COMPETITIVE ACQUISITION OF ITEMS AND SERVICES.

    (a) Program Authorized.--Title XVIII (42 U.S.C. 1395 et seq.), as 
previously amended by this part, is further amended by adding after 
section 1866B the following new section:

``SEC. 1866C. COMPETITIVE ACQUISITION OF ITEMS AND SERVICES.

    ``(a) In General.--
            ``(1) Program authority.--The Secretary shall implement a 
        program to purchase, on behalf of individuals enrolled under 
        this part certain competitively priced items and services for 
        which payment may be made under part B.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
    ``(b) Establishment of Competitive Acquisition Areas.--
            ``(1) In general.--The Secretary shall establish 
        competitive acquisition areas for agreement award purposes for 
        the furnishing under part B of the items and services described 
        in subsection (d) after 2002. The Secretary may establish 
        different competitive acquisition areas under this subsection 
        for different classes of items and services.
            ``(2) Criteria for establishment.--The competitive 
        acquisition areas established under paragraph (1) shall be 
        chosen based on the availability and accessibility of 
        individuals and entities able to furnish items and services, 
        and the estimated savings to be realized by the use of 
        competitive acquisition in the furnishing of items and services 
        in the area.
    ``(c) Awarding of Agreements in Competitive Acquisition Areas.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying items and 
        services described in subsection (d) for each competitive 
        acquisition area established under subsection (b) for each 
        class of items and services.
            ``(2) Conditions for awarding agreement.--The Secretary may 
        not enter an agreement with any entity under the competition 
        conducted pursuant to paragraph (1) to furnish an item or 
        service unless the Secretary finds that the entity meets 
        quality standards specified by the Secretary, and that the 
        aggregate amounts to be paid under the agreement are expected 
        to be less than the aggregate amounts that would otherwise be 
        paid.
                    ``(3) Terms of agreement.--An agreement entered 
                into with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms and 
                conditions that the Secretary may specify.
    ``(d) Services Described.--The items and services to which this 
section applies are all items and services described in paragraphs (3) 
and (5) through (9) of section 1861(s) (other than custom fabricated 
prostheses, as defined by the Secretary), and such other items or 
services as the Secretary may specify.''.
    (b) Items and Services To Be Furnished Only Through Competitive 
Acquisition.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (20),
            (2) by striking the period at the end of paragraph (21) and 
        inserting ``; or'', and
            (3) by adding after paragraph (21) the following:
            ``(22) where the expenses are for an item or service 
        furnished in a competitive acquisition area (as established by 
        the Secretary under section 1866C(a)) by an entity other than 
        an entity with which the Secretary has entered into an 
        agreement under section 1866C(c) for the furnishing of such an 
        item or service in that area, except in such cases of emergency 
        or urgent need as the Secretary shall prescribe.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
apply to items and services furnished after 2002.

SEC. 114. PROVIDER AND PHYSICIAN COLLABORATIONS.

    Title XVIII (42 U.S.C. 1395 et seq.), as previously amended by this 
part, is further amended by adding after section 1866C the following 
new section:

``SEC. 1866D. PROVIDER AND PHYSICIAN COLLABORATIONS.

    ``(a) In General.--
            ``(1) Program authority.--The Secretary may enter into 
        agreements with specific providers, suppliers, or other 
        individuals or entities for the furnishing of bundled items and 
        services in selected sites of service or related to specific 
        medical conditions or needs for an episode of care. The 
        services may include any items or services covered under this 
        title that the Secretary determines to be appropriate, 
        including post-hospital services.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
    ``(b) Basis of Selection.--The Secretary shall select entities for 
agreements under this section on the basis of ability to provide 
services more efficiently, to provide improved coordination of care, to 
offer additional benefits, and to meet quality and other standards and 
beneficiary protections and other requirements set by the Secretary.
    ``(c) Payment.--Payment under this section shall be made on the 
basis of all-inclusive rates. The all-inclusive rate paid to an entity 
for bundled items and services furnished during an episode of care 
under this section shall be less than the estimated amount of the 
payments that the Secretary would have otherwise made for the items and 
services.
    ``(d) Term of Agreement.--Agreements under this section shall be 
for periods that the Secretary may determine.
    ``(e) Incentives to Beneficiaries for Use of Contracting 
Entities.--Notwithstanding any other provision of law, entities under a 
contract under this section may furnish additional services or waive 
part or all beneficiary cost sharing (such as deductibles, copayments, 
and coinsurance) with respect to any of the items or services furnished 
under this section.
    ``(f) Beneficiary Election.--An individual entitled to benefits 
under this title who elects to obtain services under an agreement under 
this section shall agree to receive under such agreement all benefits 
related to the episode of care covered by the agreement (subject to 
such exceptions for emergency services and as the Secretary otherwise 
may specify).''.

SEC. 115. PREFERRED PARTICIPANTS.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
previously amended by this part, is further amended by adding after 
section 1866D the following new section:

``SEC. 1866E. PREFERRED PARTICIPANTS.

    ``(a) Program Authority.--
            ``(1) In general.--The Secretary shall implement beginning 
        in 2002, a preferred participant program, under which the 
        Secretary enters into agreements for the furnishing of health 
        care items and services by individuals and entities 
        participating in the program under part A or B of this title 
        that provide high-quality, efficient health care.
            ``(2) Limitation.--The Secretary shall not implement the 
        program under this section with respect to a service area, or 
        with respect to a category of individuals and entities 
        furnishing items and services in such service area, unless the 
        Secretary estimates that to do so will reduce the cost and 
        improve the quality of the programs under this title.
            ``(3) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary shall administer the 
        program under this section in accordance with section 1866M.
    ``(b) Preferred Participant Agreement.--
            ``(1) Criteria and terms.--In order to be eligible to 
        participate in the program under part A or B as a preferred 
        participant, an individual or entity shall meet the following 
        conditions:
                    ``(A) Participation criteria.--The individual or 
                entity shall meet the criteria established by the 
                Secretary under section 1866M(b)(5) (relating to 
                quality, cost-effectiveness, categories of participants 
                in service area, and such other standards or criteria 
                as the Secretary may establish).
                    ``(B) Payment rate.--The individual or entity shall 
                agree to accept payment, for covered health care items 
                and services furnished during the term of the 
                agreement, at the rates established under this section 
                (which may include rates in effect under part A or B, 
                discounted rates, or such other rates as the Secretary 
                may find appropriate).
        ``(2) Duration.--A preferred participant agreement under this 
        section shall be for a calendar year (or, in the case of an 
        agreement commencing after the first day of January (or such 
        later date as the Secretary may specify), for the remainder of 
        such calendar year), and shall be annually renewable, at the 
        option of the participant, while the participant continues to 
        meet all applicable conditions of participation.
    ``(c) Option To Reduce Cost Sharing.--Notwithstanding any other 
provision of law, subject to the cost-effectiveness criteria specified 
in subsection (a)(2), the Secretary may--
            ``(1) provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
        coinsurance) with respect to any of the items or services 
        furnished under this section, and may limit such reduction or 
        elimination to particular service areas; and
            ``(2) permit individuals or entities under an agreement 
        under this section to waive part or all of such beneficiary 
        cost sharing.''.
    (b) Definitions.--Section 1861 (42 U.S.C. 1395x) is amended by 
adding at the end the following new subsection:
    ``(uu) Preferred Participant.--The term `preferred participant' 
means an individual or entity that furnishes health care items or 
services under part A or B and that has in effect an agreement under 
section 1866E(b).''.

SEC. 116. CENTERS OF EXCELLENCE.

    Title XVIII (42 U.S.C. 1395 et seq.), as previously amended by this 
part, is further amended by adding after section 1866E the following 
new section:

``SEC. 1866F. CENTERS OF EXCELLENCE.

    ``(a) In General.--
            ``(1) Competition to furnish bundled items and services.--
        The Secretary, beginning in 2002, shall use a competitive 
        process to enter into agreements with specific hospitals or 
        other entities for the furnishing of bundled groups of items 
        and services related to certain surgical procedures, and of 
        other bundled groups of items and services (unrelated to 
        surgical procedures) specified by the Secretary furnished 
        during an episode of care (as defined by the Secretary). Such 
        items and services may include any items or services covered 
        under this title that the Secretary determines to be 
        appropriate.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
    ``(b) Eligibility Criteria.--In order to be eligible for an 
agreement under this section, an entity shall--
            ``(1) meet quality standards established by the Secretary;
            ``(2) implement an ongoing quality assurance program 
        approved by the Secretary; and
            ``(3) meet such other requirements as the Secretary may 
        establish.
    ``(c) Payment.--
            ``(1) In General.--The Secretary shall establish criteria 
        for identifying the health care items and services furnished by 
        a center with an agreement under this section during an episode 
        of care that are to be bundled together and for which payment 
        shall be made on the basis of an all-inclusive rate.
            ``(2) Payment Limitation.--
                    ``(A) Limitation on aggregate payments to 
                entities.--The estimated amount of aggregate payments 
                to all entities under this section for a year shall be 
                less than the estimated amount of aggregate payments 
                that the Secretary would otherwise have made for such 
                year, adjusted for changes in the number of individuals 
                receiving services.
                    ``(B) Limitation on payments to particular 
                entities.--In no case shall the all-inclusive rate paid 
                to an entity for items and services furnished during an 
                episode of care under this section exceed the estimated 
                amount of the payments that the Secretary would 
                otherwise have made for such items and services.
    ``(d) Agreement Period.--An agreement period shall be for up to 
three years (subject to renewal).
    ``(e) Incentives for Use of Centers.--Notwithstanding any other 
provision of law, the Secretary may permit entities under an agreement 
under this section to furnish additional services or to waive part or 
all beneficiary cost sharing (such as deductibles, copayments, and 
coinsurance) with respect to any of the items or services furnished 
under this section.
    ``(f) Beneficiary Election.--Notwithstanding any other provision of 
this title, an individual who voluntarily elects to receive items and 
services under an arrangement described in subsection (a)(1) with 
respect to an episode of care shall not be entitled to payment under 
this title for any such item or service furnished with respect to such 
episode of care other than through such arrangement, subject to such 
exceptions as the Secretary may prescribe for emergency 
medical services as described in section 1852(d)(3) and other cases of 
urgent need.''.

SEC. 117. DEMONSTRATION OF BONUS PAYMENTS FOR HEALTH CARE GROUPS.

    Title XVIII (42 U.S.C. 1395 et seq.), as previously amended by this 
part, is further amended by adding after section 1866F the following 
new section:

``SEC. 1866G. DEMONSTRATION OF BONUS PAYMENTS FOR HEALTH CARE --GROUPS.

    ``(a) Demonstration Program Authorized.--
            ``(1) In general.--The Secretary shall conduct 
        demonstration projects to test and, if proven effective, expand 
        the use of incentives to health care groups participating in 
        the program under this title that--
                    ``(A) encourage coordination of the care furnished 
                to individuals under the programs under parts A and B 
                by institutional and other providers, practitioners, 
                and suppliers of health care items and services;
                    ``(B) encourage investment in administrative 
                structures and processes to ensure efficient service 
                delivery; and
                    ``(C) reward physicians for improving health 
                outcomes.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866M.
            ``(3) Definitions.--For purposes of this section, terms 
        have the following meanings:
                    ``(A) Physician.--Except as the Secretary may 
                otherwise provide, the term `physician' means any 
                individual who furnishes services which may be paid for 
                as physicians' services under this title .
                    ``(B) Health care group.--The term `health care 
                group' means a group of physicians (as defined in 
                subparagraph (A)) organized at least in part for the 
                purpose of providing physicians' services under this 
                title. As the Secretary finds appropriate, a health 
                care group may include a hospital and any other 
                individual or entity furnishing items or services for 
                which payment may be made under this title that is 
                affiliated with the health care group under an 
                arrangement structured so that such individual or 
                entity participates in a demonstration under this 
                section and will share in any bonus earned under 
                subsection (d).
    ``(b) Eligibility Criteria.--
            ``(1) In general.--The Secretary is authorized to establish 
        criteria for health care groups eligible to participate in a 
        demonstration under this section, including criteria relating 
        to numbers of health care professionals in, and of patients 
        served by, the group, scope of services provided, and quality 
        of care.
            ``(2) Payment method.--A health care group participating in 
        the demonstration under this section shall agree with respect 
        to services furnished to beneficiaries within the scope of the 
        demonstration (as determined under subsection (c))--
                    ``(A) to be paid on a fee-for-service basis; and
                    ``(B) that payment with respect to all such 
                services furnished by members of the health care group 
                to such beneficiaries shall (where determined 
                appropriate by the Secretary) be made to a single 
                entity.
            ``(3) Data reporting.--A health care group participating in 
        a demonstration under this section shall report to the 
        Secretary such data, at such times and in such format as the 
        Secretary require, for purposes of monitoring and evaluation of 
        the demonstration under this section.
    ``(c) Patients Within Scope of Demonstration.--
            ``(1) In general.--The Secretary shall specify, in 
        accordance with this subsection, the criteria for identifying 
        those patients of a health care group who shall be considered 
        within the scope of the demonstration under this section for 
        purposes of application of subsection (d) and for assessment of 
        the effectiveness of the group in achieving the objectives of 
        this section.
            ``(2) Other criteria.--The Secretary may establish 
        additional criteria for inclusion of beneficiaries within a 
        demonstration under this section, which may include frequency 
        of contact with physicians in the group or other factors or 
        criteria that the Secretary finds to be appropriate.
            ``(3) Notice requirements.--In the case of each beneficiary 
        determined to be within the scope of a demonstration under this 
        section with respect to a specific health care group, the 
        Secretary shall ensure that such beneficiary is notified of the 
        incentives, and of any waivers of coverage or payment rules, 
        applicable to such group under such demonstration.
    ``(d) Incentives.--
            ``(1) Performance target.--The Secretary shall establish 
        for each health care group participating in a demonstration 
        under this section--
                    ``(A) a base expenditure amount, equal to the 
                average total payments under parts A, B, and D for 
                patients served by the health care group on a fee-for-
                service basis in a base period determined by the 
                Secretary; and
                    ``(B) an annual per capita expenditure target for 
                patients determined to be within the scope of the 
                demonstration, reflecting the base expenditure amount 
                adjusted for risk and expected growth rates.
            ``(2) Incentive bonus.--The Secretary shall pay to each 
        participating health care group (subject to paragraph (4)) a 
        bonus for each year under the demonstration equal to a portion 
        of the Medicare savings realized for such year relative to the 
        performance target.
            ``(3) Additional bonus for process and outcome 
        improvements.--At such time as the Secretary has established 
        appropriate criteria based on evidence the Secretary determines 
        to be sufficient, the Secretary shall also pay to a 
        participating health care group (subject to paragraph (4)) an 
        additional bonus for a year, equal to such portion as the 
        Secretary may designate of the saving to the Medicare program 
        resulting from process improvements made by and patient outcome 
        improvements attributable to activities of the group.
            ``(4) Limitation.--The Secretary shall limit bonus payments 
        under this section as necessary to ensure that the aggregate 
        expenditures under this title (inclusive of bonus payments) 
        with respect to patients within the scope of the demonstration 
        do not exceed the amount which the Secretary estimates would be 
        expended if the demonstration projects under this section were 
        not implemented.
    ``(e) Selection of Demonstration Projects.--The Secretary shall 
implement up to ten demonstrations under this section, selected 
competitively on the basis of criteria determined by the Secretary.''.

SEC. 118. ADMINISTRATION OF CERTAIN PRIVATE SECTOR PURCHASING AND 
              QUALITY IMPROVEMENT PROGRAMS.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by adding after 
section 1866F the following new section:

``SEC. 1866M. GENERAL PROVISIONS FOR ADMINISTRATION OF CERTAIN PRIVATE 
              SECTOR PURCHASING AND QUALITY IMPROVEMENT PROGRAMS.

    ``(a) In General.--Except as otherwise specifically provided, the 
provisions of this section apply to the programs under the following 
provisions of this title:
            ``(1) section 1866A (care coordination services);
            ``(2) section 1866B (disease management services);
            ``(3) section 1866C (competitive acquisition of items and 
        services);
            ``(4) section 1866D (provider and physician 
        collaborations); and
            ``(5) section 1866E (preferred participants);
            ``(6) section 1866F (centers of excellence);
            ``(7) section 1866G (demonstration of bonus payments for 
        health care groups).
    ``(b) Provisions Generally Applicable to Designated Programs.--The 
following provisions apply to programs specified in subsection (a), 
except as otherwise specifically provided:
            ``(1) Beneficiary eligibility.--Except as otherwise 
        provided by the Secretary, an individual shall only be eligible 
        to receive benefits under a program specified in subsection (a) 
        if such individual--
                    ``(A) is enrolled in under the program under part 
                B;
                    ``(B) is not enrolled in a Medicare+Choice plan 
                under part C, an eligible organization under a contract 
                under section 1876 (or a similar organization operating 
                under a demonstration project authority), an 
                organization with an agreement under section 
                1833(a)(1)(A), or a PACE program under section 1894; 
                and
                    ``(C) in the case of the programs specified in 
                paragraphs (1), (2), (4), (6), and (7) of subsection 
                (a), is entitled to benefits under part A.
            ``(2) Secretary's discretion as to scope of program.--The 
        Secretary may limit the implementation of a program specified 
        in subsection (a) to--
                    ``(A) a geographic area (or areas) that the 
                Secretary designates for purposes of the program, based 
                upon such criteria as the Secretary finds appropriate;
                    ``(B) a subgroup (or subgroups) of beneficiaries or 
                individuals and entities furnishing items or services 
                (otherwise eligible to participate in the program), 
                selected on the basis of the number of such 
                participants that the Secretary finds consistent with 
                the effective and efficient implementation of the 
                program;
                    ``(C) an element (or elements) of the program that 
                the Secretary determines to be suitable for 
                implementation; or
                    ``(D) any combination of any of the limits 
                described in subparagraphs (A) through (C).
            ``(3) Voluntary receipt of items and services.--Except as 
        provided in the authority for the program specified in 
        subsection (a)(3), items and services shall be furnished to an 
        individual under the programs specified in subsection (a) only 
        at the individual's election.
            ``(4) Agreements.--The Secretary is authorized to enter 
        into agreements with individuals and entities to furnish health 
        care items and services to beneficiaries under the programs 
        specified in subsection (a).
            ``(5) Program standards and criteria.--The Secretary shall 
        establish performance standards for the programs specified in 
        subsection (a) including, as applicable, standards for quality 
        of health care items and services, cost-effectiveness, 
        beneficiary satisfaction, and such other factors as the 
        Secretary finds appropriate. The eligibility of individuals or 
        entities for the initial award, continuation, and renewal of 
        agreements to provide health care items and services under the 
        program shall be conditioned, at a minimum, on performance that 
        meets or exceeds such standards.
            ``(6) Administrative review of adverse decision.--
                    ``(A) Decisions affecting individuals and entities 
                furnishing services under programs.--An individual or 
                entity furnishing services under a program specified in 
                subsection (a) shall be entitled to a review by the 
                program administrator (or, if the Secretary has not 
                contracted with a program administrator, by the 
                Secretary) of a decision not to enter into, or to 
                terminate, or not to renew, an agreement with the 
                individual or entity to provide health care items or 
                services under such program.
                    ``(B) Decisions affecting beneficiaries under care 
                coordination services or disease management services 
                programs.--
                            ``(i) Determination of ineligibility.--An 
                        individual shall be entitled to a review by the 
                        program administrator (or, if the Secretary has 
                        not contracted with a program administrator, by 
                        the Secretary) of a determination that the 
                        individual does not meet the criteria for 
                        eligibility to participate in a program 
                        specified in paragraph (1) or (2) of subsection 
                        (a).
                            ``(ii) Denial of payment for items or 
                        services.--A beneficiary shall be entitled to a 
                        reconsideration or appeal of a denial of 
                        payment under section 1866A(d)(2) or 
                        1866B(e)(2) in accordance with the provisions 
                        of section 1852(g), as if such section applied 
                        to this clause. In applying such section 
                        1852(g), any reference to a Medicare+Choice 
                        organization is construed to refer to the 
                        program administrator or, if the Secretary has 
                        not contracted with a program administrator, to 
                        the Secretary.
            ``(7) Secretary's review of marketing materials.--An 
        agreement with an individual or entity furnishing services 
        under a program specified in subsection (a) shall require the 
        individual or entity to guarantee that it will not distribute 
        materials marketing items or services under such program 
        without the Secretary's prior review and approval;
            ``(8) Payment in full.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an individual or entity receiving 
                payment from the Secretary under a contract or 
                agreement under a program specified in subsection (a) 
                shall agree to accept such payment as payment in full, 
                and such payment shall be in lieu of any payments to 
                which the individual or entity would otherwise be 
                entitled under this title.
                    ``(B) Collection of deductibles and coinsurance.--
                Such individual or entity may collect any applicable 
                deductible or coinsurance amount from a beneficiary.
    ``(c) Contracts for Program Administration.--
            ``(1) In general.--The Secretary may administer a program 
        specified in subsection (a) through a contract with a program 
        administrator in accordance with the provisions of this 
        subsection.
            ``(2) Scope of program administrator contracts.--A contract 
        under this subsection may, at the Secretary's discretion, 
        relate to administration of any or all of the programs 
        specified in subsection (a). The Secretary may enter into such 
        contracts for a limited geographic area, or on a regional or 
        national basis.
            ``(3) Eligible contractors.--The Secretary may contract for 
        the administration of the program with--
                    ``(A) an entity that, under a contract under 
                section 1816 or 1842, determines the amount of and 
                makes payments for health care items and services 
                furnished under this title; or
                    ``(B) any other entity with substantial experience 
                in managing the type of program concerned.
            ``(4) Contract award, duration, and renewal.--
                    ``(A)  In general.--A contract under this 
                subsection shall be for an initial term of up to three 
                years, renewable for additional terms of up to three 
                years.
                    ``(B) Noncompetitive award and renewal for entities 
                administering part a or part b payments.--The Secretary 
                may enter or renew a contract under this subsection 
                with an entity described in paragraph (3)(A) without 
                regard to the requirements of section 5 of title 41, 
                United States Code.
            ``(5) Applicability of federal acquisition regulation.--The 
        Federal Acquisition Regulation shall apply to program 
        administration contracts under this subsection.
            ``(6) Performance standards.--The Secretary shall establish 
        performance standards for the program administrator including, 
        as applicable, standards for the quality and cost-effectiveness 
        of the program administered, and such other factors as the 
        Secretary finds appropriate. The eligibility of entities for 
        the initial award, continuation, and renewal of program 
        administration contracts shall be conditioned, at a minimum, on 
        performance that meets or exceeds such standards.
            ``(7) Functions of program administrator.--A program 
        administrator shall perform any or all of the following 
        functions, as specified by the Secretary:
                    ``(A) Agreements with individuals or entities 
                furnishing health care items and services.--Determine 
                the qualifications of individuals or entities seeking 
                to enter or renew agreements to provide services under 
                a program specified in subsection (a), and as 
                appropriate enter or renew (or refuse to enter or 
                renew) such agreements on behalf of the Secretary.
                    ``(B) Establishment of payment rates.--Negotiate or 
                otherwise establish, subject to the Secretary's 
                approval, payment rates for covered health care items 
                and services.
                    ``(C) Payment of claims or fees.--Administer 
                payments for health care items or services furnished 
                under any such program.
                    ``(D) Payment of bonuses.--Using such guidelines as 
                the Secretary shall establish, and subject to the 
                approval of the Secretary, make bonus payments as 
                described in subsection (d)(2)(A)(ii) to individuals 
                and entities furnishing items or services for which 
                payment may be made under any such program.
                    ``(E) List of program participants.--Maintain and 
                regularly update a list of individuals or entities with 
                agreements to provide health care items and services 
                under any such program, and ensure that such list, in 
                electronic and hard copy formats, is readily available, 
                as applicable, to--
                            ``(i) individuals residing in the service 
                        area who are entitled to benefits under part A 
                        or enrolled in the program under part B;
                            ``(ii) the entities responsible under 
                        sections 1816 and 1842 for administering 
                        payments for health care items and services 
                        furnished; and
                            ``(iii) individuals and entities providing 
                        health care items and services in the service 
                        area.
                    ``(F) Beneficiary enrollment.--Determine 
                eligibility of individuals to enroll under a program 
                specified in subsection (a) and provide enrollment-
                related services (but only if the Secretary finds that 
                the program administrator has no conflict of interest 
                caused by a financial relationship with any individual 
                or entity furnishing items or services for which 
                payment may be made under any such program, or any 
                other conflict of interest with respect to such 
                function).
                    ``(G) Oversight.--Monitor the compliance of 
                individuals and entities with agreements under any such 
                program with the conditions of participation.
                    ``(H) Administrative review.--Conduct reviews of 
                adverse determinations specified in subparagraph (A) 
                and in subsection (b)(6).
                    ``(I) Review of marketing materials.--Conduct a 
                review of marketing materials proposed by an individual 
                or entity furnishing services under any such program.
                    ``(J) Additional functions.--Perform such other 
                functions as the Secretary may specify.
            ``(8) Limitation of liability.--The provisions of section 
        1157(b) shall apply with respect to activities of contractors 
        and their officers, employees, and agents under a contract 
        under this subsection.
            ``(9) Information sharing.--Notwithstanding section 1106 
        and section 552a of title 5, United States Code, the Secretary 
        is authorized to disclose to an entity with a program 
        administration contract under this subsection such information 
        (including medical information) on individuals receiving health 
        care items and services under the program as the entity may 
        require to carry out its responsibilities under the contract.
    ``(d) Rules Applicable to Both Program Agreements and Program 
Administration Contracts.--
            ``(1) Records, reports, and audits.--The Secretary is 
        authorized to require individuals and entities with agreements 
        to provide health care items or services under programs 
        specified under subsection (a), and entities with program 
        administration contracts under subsection (c), to maintain 
        adequate records, to afford the Secretary access to such 
        records (including for audit purposes), and to furnish such 
        reports and other materials (including audited financial 
        statements and performance data) as the Secretary may require 
        for purposes of implementation, oversight, and evaluation of 
        such program and of individuals' and entities' effectiveness in 
        performance of such agreements or contracts.
            ``(2) Bonuses.--Notwithstanding any other provision of law, 
        but subject to subparagraph (B)(ii), the Secretary may make 
        bonus payments under a program specified in subsection (a) from 
        the Health Insurance and Supplementary Medical Insurance Trust 
        Funds in amounts that do not exceed 50 percent of the savings 
to such Trust Funds attributable to such programs (or in the case of 
the program specified in subsection (a)(7), in amounts authorized under 
such program), in accordance with the following:
                    ``(A) Payments to program administrators.--The 
                Secretary may make bonus payments under each program 
                specified in subsection (a) to program administrators.
                    ``(B) Payments to individuals and entities 
                furnishing services.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make bonus payments to 
                        individuals or entities furnishing items or 
                        services for which payment may be made under 
                        the programs specified in paragraphs (1), (2), 
                        (5), and (7) of subsection (a), or may 
                        authorize a program administrator to make such 
                        bonus payments in accordance with such 
                        guidelines as the Secretary shall establish and 
                        subject to the Secretary's approval.
                            ``(ii) Limitations.--The Secretary may 
                        limit bonus payments under clause (i) to 
                        particular service areas, types of individuals 
                        or entities furnishing items or services under 
                        a program, or kinds of items or services, and 
                        may condition such payments on the achievement 
                        of such standards related to efficiency, 
                        improvement in processes or outcomes of care, 
                        or such other factors as the Secretary 
                        determines to be appropriate.
            ``(3) Antidiscrimination limitation.--
                    ``(A) In general.--The Secretary shall not enter 
                into an agreement with an individual or entity to 
                provide health care items or services under a program 
                specified under subsection (a), or with an entity to 
                administer such a program, unless such individual or 
                entity guarantees that it will not deny, limit, or 
                condition the coverage or provision of benefits under 
                such program, for individuals eligible to be enrolled 
                under such program, based on any health status-related 
                factor described in section 2702(a)(1) of the Public 
                Health Service Act.
                    ``(B) Construction.--Subparagraph (A) shall not be 
                construed to prohibit such individual or entity from 
                taking any action explicitly authorized by the 
                provisions of section 1866A (care coordination 
                services) or section 1866B (disease management 
                services).
    ``(e) Limitations on Judicial Review.--The following actions and 
determinations with respect to a program specified in subsection (a) 
shall not be subject to review by a judicial or administrative 
tribunal:
            ``(1) limiting the implementation of a program under 
        subsection (b)(2);
            ``(2) establishment of program participation standards 
        under subsection (b)(5); or the denial or termination of, or 
        refusal to renew, an agreement with an individual or entity to 
        provide health care items and services under the program;
            ``(3) determination of a beneficiary's eligibility under 
        subsection (b)(6)(B);
            ``(4) establishment of program administration contract 
        performance standards under subsection (c)(6); or the refusal 
        to renew a program administration contract; or the 
        noncompetitive award or renewal of a program administration 
        contract under subsection (c)(4)(B);
            ``(5) the establishment of payment rates, through 
        negotiation or otherwise, under a program agreement or a 
        program administration contract;
            ``(6) a determination with respect to a program (where 
        specifically authorized by the program authority or by 
        subsection (d)(2))--
                    ``(A) as to whether cost savings have been 
                achieved, and the amount of savings;
                    ``(B) as to whether, to whom, and in what amounts 
                bonuses will be paid; or
                    ``(C) as to whether to reduce or eliminate 
                beneficiary cost-sharing.
    ``(f) Application Limited to Parts A and B.--None of the provisions 
of this section or of the programs specified in subsection (a) shall 
apply to the programs under parts C and D.''.
    (b) Exception to Limits on Physician Referrals.--Section 1877(b) 
(42 U.S.C. 1395nn(b)) is amended--
            (1) by redesignating paragraph (4) as paragraph (5); and
            (2) by adding after paragraph (3) the following new 
        paragraph:
            ``(4) Private sector purchasing and quality improvement 
        tools for original medicare.--In the case of a designated 
        health service, if the designated health service is--
                    ``(A) included in the services under section 1866A, 
                1866B, 1866D, or 1866F; and
                    ``(B) is provided by an individual or entity 
                meeting such criteria related to quality assurance, 
                financial disclosure, and other factors as the 
                Secretary may find appropriate.''.

SEC. 119. REPORTS TO CONGRESS ON PRIVATE SECTOR PURCHASING AND QUALITY 
              IMPROVEMENT PROGRAMS.

    Not later than two years after the date of enactment of the 
Medicare Modernization Act of 2000, and biennially thereafter for six 
years, the Secretary shall report to the Congress on the use of 
authorities enacted by sections 111 through 117 of this Act. Each 
report shall address the impact of the use of those authorities on 
expenditures, access, and quality under the programs under title XVIII 
of the Social Security Act.

SEC. 120. INCREASED FLEXIBILITY IN CONTRACTING FOR MEDICARE CLAIMS 
              PROCESSING.

    (a) Carriers To Include Entities That Are Not Insurance 
Companies.--
            (1) The matter in section 1842(a) (42 U.S.C. 1395u(a)) 
        preceding paragraph (1) is amended by striking ``with 
        carriers'' and inserting ``with agencies and organizations 
        (referred to as carriers)''.
            (2) Section 1842(f) (42 U.S.C. 1395u(f)) is repealed.
    (b) Secretarial Flexibility in Contracting for and in Assigning 
Fiscal Intermediary and Carrier Functions.--
            (1) Section 1816 (42 U.S.C. 1395h) is amended by striking 
        everything after the heading but before subsection (b) and 
inserting the following:
    ``Sec. 1816. (a)(1) The Secretary may enter into contracts with 
agencies or organizations to perform any or all of the following 
functions, or parts of those functions (or, to the extent provided in a 
contract, to secure performance thereof by other organizations):
            ``(A) determine (subject to the provisions of section 1878 
        and to such review by the Secretary as may be provided for by 
        the contracts) the amount of the payments required pursuant to 
        this part to be made to providers of services,
            ``(B) make payments described in subparagraph (A),
            ``(C) provide consultative services to institutions or 
        agencies to enable them to establish and maintain fiscal 
        records necessary for purposes of this part and otherwise to 
        qualify as providers of services,
            ``(D) serve as a center for, and communicate to individuals 
        entitled to benefits under this part and to providers of 
        services, any information or instructions furnished to the 
        agency or organization by the Secretary, and serve as a channel 
        of communication from individuals entitled to benefits under 
        this part and from providers of services to the Secretary,
            ``(E) make such audits of the records of providers of 
        services as may be necessary to insure that proper payments are 
        made under this part,
            ``(F) perform the functions described by subsection (d), 
        and
            ``(G) perform such other functions as are necessary to 
        carry out the purposes of this part.
    ``(2) As used in this title and title XI, the term `fiscal 
intermediary' means an agency or organization with a contract under 
this section.''.
            (2) Subsections (d) and (e) of section 1816 (42 U.S.C. 
        1395h) are amended to read as follows:
    ``(d) Each provider of services shall have a fiscal intermediary 
that--
            ``(1) acts as a single point of contact for the provider of 
        services under this part,
            ``(2) makes its services sufficiently available to meet the 
        needs of the provider of services, and
            ``(3) is responsible and accountable for arranging the 
        resolution of issues raised under this part by the provider of 
        services.
    ``(e) The Secretary, in evaluating the performance of a fiscal 
intermediary, may solicit comments from providers of services.''.
            (3)(A) Section 1816(b)(1)(A) (42 U.S.C. 1395h(b)(1)(A)) is 
        amended by striking ``after applying the standards, criteria, 
        and procedures'' and inserting ``after evaluating the ability 
        of the agency or organization to fulfill the contract 
        performance requirements''.
            (B) Section 1816(f)(1) (42 U.S.C. 1395h(f)(1)) is amended 
        to read as follows:
    ``(f)(1) The Secretary may consult with Medicare+Choice 
organizations under part C of this title, providers of services and 
other persons who furnish items or services for which payment may be 
made under this title, and organizations and agencies performing 
functions necessary to carry out the purposes of this part with respect 
to performance requirements for contracts under subsection (a).''.
            (C) The second sentence of section 1842(b)(2)(A) (42 U.S.C. 
        1395u(b)(2)(A)) is amended to read as follows: ``The Secretary 
        may consult with Medicare+Choice organizations under part C of 
        this title, providers of services and other persons who furnish 
        items or services for which payment may be made under this 
        title, and organizations and agencies performing functions 
        necessary to carry out the purposes of this part with respect 
        to performance requirements for contracts under subsection 
        (a).''.
            (D) Section 1842(b)(2)(A) (42 U.S.C. 1395u(b)(2)(A)) is 
        amended by striking the third sentence.
            (E) The matter in section 1842(b)(2)(B) (42 U.S.C. 
        1395u(b)(2)(B)) preceding clause (i) is amended by striking 
        ``establish standards'' and inserting ``develop contract 
        performance requirements''.
            (F) Section 1842(b)(2)(D) (42 U.S.C. 1395u(b)(2)(D)) is 
        amended by striking ``standards and criteria'' each place it 
        occurs and inserting ``contract performance requirements''.
            (4)(A) The matter in section 1816(b) (42 U.S.C. 1395h(b)) 
        preceding paragraph (1) is amended by striking ``an agreement'' 
        and inserting ``a contract''.
            (B) Paragraphs (1)(B) and (2)(A) of section 1816(b) (42 
        U.S.C. 1395h(b)) are each amended by striking ``agreement'' and 
        inserting ``contract''.
            (C) The first sentence of section 1816(c)(1) (42 U.S.C. 
        1395h(c)(1)) is amended by striking ``An agreement'' and 
        inserting ``A contract''.
            (D) The last sentence of section 1816(c)(1) (42 U.S.C. 
        1395h(c)(1)) is amended by striking ``an agreement'' and 
        inserting ``a contract''.
            (E) The matter in section 1816(c)(2)(A) (42 U.S.C. 
        1395h(c)(2)(A)) preceding clause (i) is amended by striking 
        ``agreement'' and inserting ``contract''.
            (F) Section 1816(c)(3)(A) (42 U.S.C. 1395h(c)(3)(A)) is 
        amended by striking ``agreement'' and inserting ``contract''.
            (G) Section 1816(h) (42 U.S.C. 1395h(h)) is amended--
                    (i) by striking ``An agreement'' and inserting ``A 
                contract'', and
                    (ii) by striking ``the agreement'' each place it 
                occurs and inserting ``the contract''.
            (H) Section 1816(i)(1) (42 U.S.C. 1395h(i)(1)) is amended 
        by striking ``an agreement'' and inserting ``a contract''.
            (I) Section 1816(j) (42 U.S.C. 1395h(j)) is amended by 
        striking ``An agreement'' and inserting ``A contract''.
            (J) Section 1816(k) (42 U.S.C. 1395h(k)) is amended by 
        striking ``An agreement'' and inserting ``A contract''.
            (K) Section 1816(l) (42 U.S.C. 1395h(l)) is amended by 
        striking ``an agreement'' and inserting ``a contract''.
            (L) The matter in section 1842(a) (42 U.S.C. 1395u(a)) 
        preceding paragraph (1) is amended by striking ``agreements'' 
        and inserting ``contracts''.
            (M) Section 1842(h)(3)(A) (42 U.S.C. 1395u(h)(3)(A)) is 
        amended by striking ``an agreement'' and inserting ``a 
        contract''.
            (5)(A) The matter in section 1816(c)(2)(A) (42 U.S.C. 
        1395h(c)(2)(A)) preceding clause (i) is amended by inserting 
        ``that provides for making payments under this part'' after 
        ``this section''.
            (B) Section 1816(c)(3)(A) (42 U.S.C. 1395h(c)(3)(A)) is 
        amended by inserting ``that provides for making payments under 
this part'' after ``this section''.
            (C) Section 1816(k) (42 U.S.C. 1395h(k)) is amended by 
        inserting ``(as appropriate)'' after ``submit''.
            (D) The matter in section 1842(a) (42 U.S.C. 1395u(a)) 
        preceding paragraph (1) is amended by striking ``some or all of 
        the following functions'' and inserting ``any or all of the 
        following functions, or parts of those functions''.
            (E) The first sentence of section 1842(b)(2)(C) (42 U.S.C. 
        1395u(b)(2)(C)) is amended by inserting ``(as appropriate)'' 
        after ``carriers''.
            (F) The matter preceding subparagraph (A) in the first 
        sentence of section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is 
        amended by inserting ``(as appropriate)'' after ``contract''.
            (G) The matter in section 1842(b)(7)(A) (42 U.S.C. 
        1395u(b)(7)(A)) preceding clause (i) is amended by striking 
        ``the carrier'' and inserting ``a carrier''.
            (H) The matter in section 1842(b)(11)(A) (42 U.S.C. 
        1395u(b)(11)(A)) preceding clause (i) is amended by inserting 
        ``(as appropriate)'' after ``each carrier''.
            (I) The first sentence of section 1842(h)(2) (42 U.S.C. 
        1395u(h)(2)) is amended by inserting ``(as appropriate)'' after 
        ``shall''.
            (J) Section 1842(h)(5)(A) (42 U.S.C. 1395u(h)(5)(A)) is 
        amended by inserting ``(as appropriate)'' after ``carriers''.
            (6)(A) Section 1816(c)(2)(C) (42 U.S.C. 1395h(c)(2)(C)) is 
        amended by striking ``hospital, rural primary care hospital, 
        skilled nursing facility, home health agency, hospice program, 
        comprehensive outpatient rehabilitation facility, or 
        rehabilitation agency'' and inserting ``provider of services''.
            (B) The matter in section 1816(j) (42 U.S.C. 1395h(j)) 
        preceding paragraph (1) is amended by striking ``for home 
        health services, extended care services, or post-hospital 
        extended care services''.
            (7) Section 1842(a)(3) (42 U.S.C. 1395u(a)(3)) is amended 
        by inserting ``(to and from individuals enrolled under this 
        part and to and from physicians and other entities that furnish 
        items and services)'' after ``communication''.
            (8) The matter in section 1842(a) (42 U.S.C. 1395u(a)) 
        preceding paragraph (1), as amended by subsection (b)(4)(L), is 
        amended by striking ``carriers with which contracts'' and 
        inserting ``single contracts under section 1816 and this 
        section together, or separate contracts with eligible agencies 
        and organizations with which contracts''.
    (c) Elimination of Special Provisions for Terminations of 
Contracts.--
            (1) The matter in section 1816(b) (42 U.S.C. 1395h(b)) 
        preceding paragraph (1) is amended by striking ``or renew''.
            (2) The last sentence of section 1816(c)(1) (42 U.S.C. 
        1395h(c)(1)) is amended by striking ``or renewing''.
            (3) Section 1816(g) (42 U.S.C. 1395h(g)) is repealed.
            (4) The last sentence of section 1842(b)(2)(A) (42 U.S.C. 
        1395u(b)(2)(A)) is amended by striking ``or renewing''.
            (5) Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
        striking paragraph (5).
    (d) Repeal of Fiscal Intermediary Requirements That Are Not Cost-
Effective.--Section 1816(f)(2) (42 U.S.C. 1395h(f)(2)) is amended to 
read as follows:
    ``(2) The contract performance requirements described in paragraph 
(1) shall include, with respect to claims for services furnished under 
this part by any provider of services other than a hospital, whether 
such agency or organization is able to process 75 percent of 
reconsiderations within 60 days and 90 percent of reconsiderations 
within 90 days.''.
    (e) Repeal of Cost Reimbursement Requirements.--
            (1) The first sentence of section 1816(c)(1) (42 U.S.C. 
        1395h(c)(1)) is amended--
                    (A) by striking the comma after ``appropriate'' and 
                inserting ``and'', and
                    (B) by striking everything after ``subsection (a)'' 
                up to the period.
            (2) Section 1816(c)(1) (42 U.S.C. 1395h(c)(1)) is further 
        amended by striking the second and third sentences.
            (3) The first sentence of section 1842(c)(1) (42 U.S.C. 
        1395h(c)(1)) is amended--
                    (A) by striking ``shall provide'' the first place 
                it occurs and inserting ``may provide'', and
                    (B) by striking everything after ``this part'' up 
                to the period.
            (4) Section 1842(c)(1) (42 U.S.C. 1395h(c)(1)) is further 
        amended by striking the remaining sentences.
            (5) Section 2326(a) of the Deficit Reduction Act of 1984 
        (42 U.S.C. 1395h nt) is repealed.
    (f) Secretarial Flexibility With Respect To Renewing Contracts and 
Transfer of Functions.--
            (1) Section 1816(c) (42 U.S.C. 1395h(c)) is amended by 
        adding at the end the following:
            ``(4)(A) Except as provided in laws with general 
        applicability to Federal acquisition and procurement or in 
        subparagraph (B), the Secretary shall use competitive 
        procedures when entering into contracts under this section.
            ``(B)(i) The Secretary may renew a contract with a fiscal 
        intermediary under this section from term to term without 
        regard to section 5 of title 41, United States Code, or any 
        other provision of law requiring competition, if the fiscal 
        intermediary has met or exceeded the performance requirements 
        established in the current contract.
            ``(ii) Functions may be transferred among fiscal 
        intermediaries without regard to any provision of law requiring 
        competition. However, the Secretary shall ensure that 
        performance quality is considered in such transfers.''.
            (2) Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
        striking everything before paragraph (2) and inserting the 
        following:
    ``(b)(1)(A) Except as provided in laws with general applicability 
to Federal acquisition and procurement or in subparagraph (B), the 
Secretary shall use competitive procedures when entering into contracts 
under this section.
    ``(B)(i) The Secretary may renew a contract with a carrier under 
subsection (a) from term to term without regard to section 5 of title 
41, United States Code, or any other provision of law requiring 
competition, if the carrier has met or exceeded the performance 
requirements established in the current contract.
    ``(ii) Functions may be transferred among carriers without regard 
to any provision of law requiring competition. However, the Secretary 
shall ensure that performance quality is considered in such 
transfers.''.
    (g) Waiver of Competitive Requirements for Initial Contracts.--
            (1) Contracts under section 1816(a) (42 U.S.C. 1395h(a)) or 
        1842(a) (42 U.S.C. 1395u(a)) whose periods begin before or 
        during the one year period that begins on the first day of the 
        fourth calendar month that begins after the date of enactment 
        of this section may be entered into without regard to any 
        provision of law requiring competition.
            (2) The amendments made by subsection (f) apply to 
        contracts whose periods begin after the end of the one year 
        period specified in paragraph (1) of this subsection.
    (h) Effective Dates.--
            (1) The amendments made by subsection (c) apply to 
        contracts whose periods end at, or after, the end of the third 
        calendar month that begins after the date of enactment of this 
        section.
            (2) The amendments made by subsections (a), (b), (d), and 
        (e) apply to contracts whose periods begin after the third 
        calendar month that begins after the date of enactment of this 
        section.

SEC. 121. SPECIAL PROVISIONS FOR FUNDING OF ACTIVITIES RELATED TO 
              CERTAIN OVERPAYMENT RECOVERIES AND PROVIDER ENROLLMENT 
              AND REVERIFICATION OF ELIGIBILITY.

    (a) Funding Available Under the Medicare Integrity Program (MIP) 
Appropriation for Provider Enrollment Activities Performed by Fiscal 
Intermediaries and Carriers.--Section 1817(k)(4) (42 U.S.C. 
1395i(k)(4)) is amended--
            (1) in subparagraph (A), by inserting ``and the activities 
        specified in subparagraph (C)'' after ``the Medicare Integrity 
        Program under section 1893''; and
            (2) by adding at the end the following new subparagraph:
                    ``(C)(i) Of the amounts appropriated under 
                subparagraph (A), the amounts specified in clause (iii) 
                shall be available to the Secretary for payment of the 
                costs of the activities described in clause (ii) which 
                are performed by entities with contracts under section 
                1816 or 1842.
                    ``(ii) For purposes of clause (i), the activities 
                specified in this paragraph are--
                            ``(I) determinations as to whether 
                        overpayments were made to an individual or 
                        entity furnishing items or services for which 
                        payment may be made under this title and 
                        recovery of any such overpayments; and
                            ``(II) activities related to enrolling such 
                        individuals and entities under the program 
                        under this title, including establishing 
                        billing privileges and records systems, 
                        processing applications, background 
                        investigations, and related activities.
                    ``(iii) For purposes of clause (i), the amount 
                specified under this clause is the lesser of the 
                amounts necessary to perform the activities described 
                in clause (ii) or--
                            ``(I) for fiscal year 2001, $14,000,000; 
                        and
                            ``(II) for fiscal years 2002 and 2003, the 
                        amount for the preceding year, increased by 30 
                        percent of the difference between the maximum 
                        amount specified in subparagraph (B) for such 
                        year and the maximum amount so specified for 
                        the preceding year.
                    ``(iv) Amounts available under this subparagraph 
                for the activities described in clause (ii) shall be in 
                addition to any amounts that may otherwise be available 
                to carry out such activities.''.
    (b) Additional Functions To Be Performed by MIP Contractors.--
            (1) Reverification of eligibility function.--Section 
        1893(b) (42 U.S.C. 1395ddd(b)) is amended by adding at the end 
        the following new paragraph:
            ``(6) activities related to reverifying the eligibility of 
        individuals and entities described in paragraph (1) to 
        participate under the program under this title, and related 
        activities.
            (2) Provider enrollment and overpayment recovery functions 
        added as mip contractor functions after phase-in period.--
        Section 1893(b) (42 U.S.C. 1395ddd(b)) is amended by adding at 
        the end the following new paragraphs:
            ``(7) Activities related to enrolling individuals and 
        entities described in paragraph (1) under the program under 
        this title, including establishing billing privileges and 
        records systems, processing applications, background 
        investigations, and related activities.
            ``(8) Determinations with respect to overpayments made 
        under this title that are discovered pursuant to the 
        performance of an activity described in paragraph (1) or (2), 
        and recovery of any such overpayments.''.
            (3) Effective dates.--The amendment made by paragraph (1) 
        shall be effective on and after October 1, 2000. The amendment 
        made by paragraph (2) shall be effective on and after October 
        1, 2003.

                TITLE II--MODERNIZING MEDICARE BENEFITS

                   PART A--PRESCRIPTION DRUG BENEFIT

SEC. 201. PRESCRIPTION DRUG BENEFIT.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is amended--
            (1) by redesignating section 1859 and part D as section 
        1858 and part F, respectively; and
            (2) by adding after section 1858, as so redesignated, the 
        following new part:

     ``PART D--PRESCRIPTION DRUG BENEFIT FOR THE AGED AND DISABLED

``SEC. 1859. ESTABLISHMENT OF PRESCRIPTION DRUG BENEFIT PROGRAM FOR THE 
              AGED AND DISABLED.

    ``There is hereby established a voluntary insurance 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.

``SEC. 1859A. SCOPE OF BENEFITS.

    ``(a) In General.--The benefits provided to an individual enrolled 
in the insurance 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 non-participating 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 1859B; and
            ``(2) charging by participating pharmacies of--
                    ``(A) the negotiated price for all covered 
                prescription drugs, without regard to such benefit 
                limit; and
                    ``(B) the negotiated 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 1859J(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 Secretary 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).

``SEC. 1859B. PAYMENT OF BENEFITS; BENEFIT LIMITS.

    ``(a) Payments.--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 (not 
exceeding 50 percent of the applicable limit under subsection (b)) 
equal to 50 percent of the negotiated price for each such covered 
prescription drug or such higher percentage as is proposed by a benefit 
manager pursuant to section 1859G(d)(8), if the Secretary finds that 
such percentage will not increase aggregate costs to the Insurance 
Account.
    ``(b) Limit.--
            ``(1) For 2003 through 2009.--For purposes of subsection 
        (a), the limit under this subsection for 2003 through 2009 is--
                    ``(A) $2,000 for each of calendar years 2003 and 
                2004;
                    ``(B) $3,000 for each of calendar years 2005 and 
                2006;
                    ``(C) $4,000 for each of calendar years 2007 and 
                2008; and
                    ``(D) $5,000 for calendar year 2009.
            ``(2) For 2010 and subsequent years.--For purposes of 
        subsection (a), the limit under this subsection for 2010 and 
        each subsequent year is equal to the greater of the limit for 
        the preceding year adjusted by the percentage change 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; or the limit for the preceding year.

``SEC. 1859C. ELIGIBILITY AND ENROLLMENT.

    ``(a) Eligibility.--Every individual who, in or after 2003, 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 insurance 
program under this part, during an enrollment period prescribed in or 
under this section, in such manner and form as may be prescribed by 
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 
        1859E or 1859H, 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 2003.--
                    ``(A) In general.--An individual who first 
                satisfies subsection (a) in 2003 may, at any time on or 
                before December 31, 2003--
                            ``(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. 1859D. PREMIUMS.

    ``(a) Annual Establishment of Monthly Premium Rates.--
            ``(1) In general.--The Secretary shall, during September of 
        2002 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 
                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 Secretary shall include an 
                appropriate amount for a contingency margin.
                    ``(B) Determination of monthly premium rates.--
                            ``(i) In general.--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 1859H(f)(2)).
            ``(3) Publication of assumptions.--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 insurance 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.
                    ``(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.
    ``(d) Certain Low-Income Individuals.--For rules concerning 
premiums for certain low-income individuals, see section 1859E.

``SEC. 1859F. 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 Secretary of Health 
and Human Services 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).

``SEC. 1859G. ADMINISTRATION OF BENEFITS.

    ``(a) In General.--The Secretary shall provide for administration 
of the benefits under this part through a contract with a benefit 
manager designated in accordance with subsection (c), for enrolled 
individuals residing in each service area designated pursuant to 
subsection (b) (other than such individuals enrolled in a 
Medicare+Choice program under part C), in accordance with the 
provisions of this section.
    ``(b) Designation of Service Areas.--
            ``(1) In general.--The Secretary shall divide the total 
        geographic area served by the programs under this title into at 
        least fifteen service areas for purposes of administration of 
        benefits under this part. Such division shall not be subject to 
        administrative or judicial review.
            ``(2) Considerations.--In determining or adjusting the 
        number and boundaries of service areas under this subsection, 
        the Secretary shall seek to ensure that--
                    ``(A) there is a reasonable expectation of a 
                meaningful level of competition among entities eligible 
                to contract to provide the benefit management services 
                under this section for each area; and
                    ``(B) the designation of areas is consistent with 
                the goal of securing contracts under this section with 
                respect to the maximum feasible number of areas so 
                designated.
    ``(c) Designation of Benefit Manager.--
            ``(1) Award and duration of contract.--The following shall 
        apply to the award of a contract under this subsection with 
        respect to a service area:
                    ``(A) Competitive award.--Each contract shall be 
                awarded competitively in accordance with section 5 of 
                title 41, United States Code, for a period (subject to 
                subparagraph (B)) of not less than three nor more than 
                five years.
                    ``(B) Noncompetitive extension.--The second and 
                each succeeding contract for a service area may be 
                extended noncompetitively, at the discretion of the 
                Secretary, for a total contract period not to exceed 
                five years.
                    ``(2) Eligible entities.--An entity eligible for 
                consideration as a benefit manager for a service area 
                shall meet at least the following criteria:
                    ``(A) Type.--The entity shall be any entity that 
                the Secretary 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 the benefit administration 
                functions for such area.
                    ``(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 
                Secretary determines to be adequate to perform services 
                under the contract without risk of insolvency.
            ``(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, error reduction, and quality 
                assurance measures;
                    ``(D) be accompanied by such information as the 
                Secretary 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 a proposal for working with the 
                Secretary to deter medical errors related to 
                prescription drugs; and
                    ``(G) include such other material and information 
                as the Secretary may require.
            ``(4) Criteria for competitive selection.--In awarding a 
        contract competitively, the Secretary shall consider the 
        comparative merits of each of the applications by eligible 
        entities, as determined on the basis of the entities' past 
        performance and other relevant factors, with respect to the 
        following:
                    ``(A) the estimated total cost of the contract, 
                taking into consideration the entity's proposed fees 
                and price and cost estimates, as evaluated and adjusted 
                by the Secretary in accordance with the provisions of 
                the Federal Acquisition Regulation concerning 
                contracting by negotiation;
                    ``(B) prior experience in administering a 
                prescription drug benefit program;
                    ``(C) effectiveness in containing costs through 
                pricing incentives and utilization management;
                    ``(D) the quality and efficiency of benefit 
                management services with respect to such matters as 
                claims processing and benefits coordination; record-
                keeping and reporting; and drug utilization review, 
                patient information, and other activities supporting 
                quality of care; and
                    ``(E) such other factors as the Secretary deems 
                necessary to evaluate the merits of each application.
            ``(5) Exceptions to conflict of interest rules.--In 
        awarding contracts under this subsection, the Secretary may 
        waive conflict of interest rules generally applicable to 
        Federal acquisitions (subject to such safeguards as the 
        Secretary may find necessary to impose) in circumstances where 
        the Secretary 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.
            ``(6) Maximizing competition.--In awarding contracts under 
        this section, the Secretary shall give consideration to the 
        need to maintain sufficient numbers of entities eligible and 
        willing to administer benefits under this part to ensure 
        vigorous competition for such contracts.
    ``(d) Functions of Benefit Manager.--The benefit manager for a 
service area 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 Secretary:
            ``(1) Participation agreements, prices, and fees.--
                    ``(A) Schedule of covered drug prices.--Establish, 
                through negotiations with drug manufacturers and 
                wholesalers and pharmacies, a schedule of prices for 
                covered prescription drugs. Such negotiated prices 
                shall not be subject to administrative or judicial 
                review.
                    ``(B) Agreements with pharmacies.--Enter into 
                participation agreements under subsection (e) with 
                qualifying pharmacies, on terms that--
                            ``(i) secure the participation of 
                        sufficient numbers of pharmacies to ensure 
                        convenient access (including adequate emergency 
                        access); and
                            ``(ii) permit the participation of any 
                        pharmacy in the service area that meets the 
                        participation requirements described in 
                        subsection (e).
                    ``(C) Lists of prices and participating 
                pharmacies.--Ensure that the negotiated prices 
                established under subparagraph (A) and the list of 
                pharmacies with agreements under subsection (e) are 
                regularly updated and readily available in the service 
                area 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 residing 
        in the service area (other than individuals enrolled in a plan 
        under part C).
            ``(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 Secretary, 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 in-service area plan 
                provisions, when such individual is traveling outside 
                the home service area, and under such other 
                circumstances as the Secretary may specify.
                    ``(C) Explanation of benefits.--Furnish to enrolled 
                individuals 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 medical 
        errors, including at least the following, together with such 
        additional measures as the Secretary 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 
                Secretary finds appropriate for operation of such 
                program by an entity other than a State).
                    ``(B) 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.--
                    ``(A) 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 Secretary may prescribe.
                    ``(B) Grievance and appeal procedures.--Have in 
                place such procedures as the Secretary 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 Secretary finds necessary and 
                appropriate, include procedures equivalent to those 
                specified in subsections (f) and (g) of section 1852.
            ``(7) Records, reports, and audits of benefit managers.--
                    ``(A) Records and audits.--Maintain adequate 
                records, and afford the Secretary access to such 
                records (including for audit purposes).
                    ``(B) Reports.--Make such reports and submissions 
                of financial and utilization data as the Secretary may 
                require taking into account standard commercial 
                practices.
            ``(8) Proposal for alternative coinsurance amount.--At the 
        benefit manager's election, provide a proposal for increased 
        Government cost sharing 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 cost sharing would 
        not result in an increase in aggregate costs to the Account 
        including an analysis of differences in projected drug 
        utilization patterns by beneficiaries whose cost sharing would 
        be reduced under the proposal and those making the cost-sharing 
        payments that would otherwise apply.
            ``(9) Other requirements.--Meet such other requirements as 
        the Secretary may specify.
    ``(e) 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 residing in the service area.
            ``(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 Secretary 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 negotiated price for the 
                drug, as established under subsection (d)(1)(A) with 
                respect to the service area in which the enrolled 
                individual resides.
                    ``(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 (d)(6)(A).
                    ``(G) Other requirements.--The pharmacy shall meet 
                such other requirements as the Secretary may impose.
    (f) 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.
    (g) Incentives for Cost and Utilization Management and Quality 
Improvement.--The Secretary is authorized to include in a contract 
awarded under subsection (c)(4) such incentives for cost and 
utilization management and quality improvement as the Secretary may 
deem appropriate, including--
            ``(1) bonus and penalty incentives to encourage 
        administrative efficiency;
            ``(2) incentives under which benefit managers share in any 
        benefit savings achieved;
            ``(3) risk sharing arrangements related to benefit 
        payments; and
            ``(4) any other incentive that the Secretary deems 
        appropriate and likely to be effective in managing costs or 
        utilization.
    ``(h) Flexibility in Assigning Workload Among Benefit Managers.--
During the period after the Secretary has given notice of intent to 
terminate a contract under subsection (c)(4), the Secretary may 
transfer responsibilities of the benefit manager under such contract to 
another benefit manager.
    ``(i) Noninterference.--Nothing in this section or in this part 
shall be construed as authorizing 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.

``SEC. 1859H. EMPLOYER INCENTIVE PROGRAM FOR EMPLOYMENT-BASED RETIREE 
              DRUG COVERAGE.

    ``(a) Program Authority.--The Secretary 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 Secretary 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 
                Secretary 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 insurance benefit under 
                        this part.
            ``(2) Beneficiary information.--The sponsor shall report to 
        the Secretary, 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 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, 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 Secretary 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 
                insurance 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 1859D(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 Secretary 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 1859C(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 
                Secretary) 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. 1859I. 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 1859D(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. 1859J. DEFINITION.

    ``As used in this part, the term `prescription drug' means--
            ``(1) 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
            ``(2) 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.--During 2003 and 2004, the 
Secretary 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:
            (1) 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;
            (2) an evaluation of a premium penalty for late enrollment 
        based on actuarially determined costs to the program of late 
        enrollment; and
            (3) a projection of the costs to the program under such 
        part through 2010 of an annual open enrollment period.
The Secretary 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) 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 
                        1859F'';
                    (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 1859D(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 1859D(b)(2) (in 
                which case the payments shall come from the 
                Prescription Drug Insurance Account in the 
                Supplementary Medical Insurance Trust Fund),''.
            (2) Prescription drug option under medicare+choice plans.--
                    (A) Section 1851 (42 U.S.C. 1395w-21) is amended--
                            (i) in subsection (a)(1)(A), by striking 
                        ``parts A and B'' and inserting ``parts A, B, 
                        and D''; and
                            (ii) in subsection (i), by striking ``parts 
                        A and B'' and inserting ``parts A, B, and D''.
                    (B) Section 1852(a)(1)(A) (42 U.S.C. 1395w-
                22(a)(1)(A)) is amended by inserting ``(and under part 
                D to individuals also enrolled under that part)'' after 
                ``parts A and B''.
                    (C) Section 1852(d)(1) (42 U.S.C. 1395(d)(1)) is 
                amended--
                            (i) by striking ``and'' at the end of 
                        subparagraph (D);
                            (ii) by striking the period at the end of 
                        subparagraph (E) and inserting ``; and'' and
                            (iii) by adding at the end the following 
                        new subparagraph:
                    ``(F) the plan for part D benefits guarantees 
                coverage of any specifically named covered prescription 
                drug for an enrollee, when prescribed by a physician in 
                accordance with the provisions of such part, regardless 
                of whether such drug would otherwise be covered under 
                an applicable formulary or discount arrangement.''.
                    (D) Section 1854(e) (42 U.S.C. 1395w-4(e)) is 
                amended by adding at the end the following new 
                paragraph:
            ``(5) Special rule for provision of part d benefits.--In no 
        event may a Medicare+Choice organization include as part of a 
        plan for part D benefits a requirement that an enrollee pay a 
        deductible, or a coinsurance percentage that exceeds 50 
        percent.
                    (E) Section 1857(d) (42 U.S.C. 1395w-27(d)) is 
                amended by adding at the end the following new 
                paragraph:
            ``(6) Availability of negotiated prices.--Each contract 
        under this section shall provide that enrollees who exhaust the 
        plan's prescription drug benefits will continue to have access 
        to prescription drugs at negotiated prices equivalent to the 
        total combined cost of such drugs to the plan and the enrollee 
        prior to such exhaustion of benefits.''.
            (3) 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. 202. 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 1859E, 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 1859B(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 1859D,'';
            (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 1859B 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 
                        Secretary 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 1859D; and
                    ``(ii) the difference between the amount that is 
                paid under section 1859B 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 Secretary approves a higher 
                percentage under such section, if any reference to such 
                percentage were deemed to be multiplied by two).
            ``(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 1859D, 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 Secretary under section 1859E (including any 
        drugs so purchased after the limit under section 1859B(b) has 
        been exceeded).''.
    (e) Amendments to Medicare Part D.--Part D of title XVIII, as added 
by section 201, is amended by adding after section 1859D the following 
new section:

``SEC. 1859E. 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 1859C(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, 2003,
                                    ``(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 1859C(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 1859C(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 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.''.

   Part B--Improving Preventive Benefits and Eliminating Cost Sharing

SEC. 221. ELIMINATION OF DEDUCTIBLES AND COINSURANCE FOR PREVENTIVE 
              BENEFITS.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding after subsection (o) the following new subsection:
    ``(p) Deductibles and Coinsurance Waived for Preventive Benefits.--
Deductibles and coinsurance under subsections (a) and (b) shall not be 
required of individuals covered under the insurance program under this 
part for any of the following preventive health care items and 
services:
            ``(1) blood-testing strips, lancets, and blood glucose 
        monitors for individuals with diabetes described in section 
        1861(n);
            ``(2) diabetes outpatient self-management training services 
        described in section 1861(s)(2)(S);
            ``(3) pneumococcal, influenza, and hepatitis B vaccines and 
        administration described in section 1861(s)(10) ;
            ``(4) screening mammography as described in section 
        1861(s)(13);
            ``(5) screening pap smear and screening pelvic examinations 
        as described in section 1861(s)(14);
            ``(6) bone mass measurement as described in section 
        1861(s)(15);
            ``(7) prostate cancer screening tests as defined in section 
        1861(oo); and
            ``(8) colorectal cancer screening as defined in section 
        1861(pp)(1).''.
    (b) Waiver of Coinsurance.--Section 1833(a)(1)(B) (42 U.S.C. 
1395l(a)(1)(B)) is amended by striking ``items and services described 
in section 1861(s)(10)(A)'' and inserting ``preventive care items and 
services described in subsection (p)''.
    (c) Waiver of Deductible.--Section 1833(b) (42 U.S.C. 1395l(b)) is 
amended in clause (1) to read as follows: ``(1) such deductible shall 
not apply with respect to preventive health care items and services 
specified in subsection (p)''.
    (d) Adding ``Lancet'' to Definition of DME.--Section 1861(n) (42 
U.S.C. 1395x(n)) is amended by striking ``blood-testing strips and 
blood glucose monitors'' and inserting ``blood-testing strips, lancets, 
and blood glucose monitors ''.
    (e) Conforming Amendments.--
            (1) Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended--
                    (A) in subparagraph (B)--
                            (i) by striking ``section 1861(s)(10)(A)'' 
                        and inserting ``section 1833(p)''; and
                            (ii) by striking ``reasonable charges'' and 
                        inserting ``of the fee schedule or other basis 
                        of payment under this title''; and
                    (B) in subparagraphs (1)(D)(i) and (2)(D)(i), by 
                inserting ``described in subsection (p) or'' after ``in 
                the case of such tests''.
            (2) Section 1834(a)(1)(A) (42 U.S.C. 1395m(a)(1)(A)) is 
        amended by inserting ``(or 100 percent, in the case of such an 
        item described in section 1833(p))'' after ``80 percent''.
            (3) Section 1834(c)(1)(C) (42 U.S.C. 1395m(c)(1)(C)) is 
        amended by striking ``80 percent'' and inserting ``100 
        percent''.
            (4) Section 1834(d) (42 U.S.C. 1395m(d)) is amended--
                    (A) in each of paragraphs (2)(C) and (3)(C)--
                            (i) by striking clause (ii); and
                            (ii) by striking all that precedes 
                        ``subsections (i)(2)(A) and (t)'' and inserting 
                        the following:
                    ``(C) Facility payment limit.--Notwithstanding'', 
                and adjusting margins accordingly; and
                    (B) in paragraph (2)(C), by redesignating 
                subclauses (I) and (II) as clauses (i) and (ii).
    (f) Effective Date.--The amendments made by this section shall be 
effective on and after January 1, 2003.

SEC. 222. INFORMATION CAMPAIGN ON PREVENTION.

    (a) Required Activities.--The Secretary of Health and Human 
Services shall carry out, during 2002 and 2003, a nationwide education 
campaign to promote preventive health awareness among older Americans 
and people with disabilities, which shall include the following 
activities:
            (1) An information campaign, in collaboration with the 
        Social Security Administration, State health insurance 
        assistance programs, area agencies on aging, and the private 
        sector, designed to educate all Americans over age 50 and 
        individuals with disabilities about the importance of 
        preventive health care.
            (2) Activities designed to encourage Medicare beneficiaries 
        to use Medicare preventive benefits, including distribution of 
        comprehensive information on Medicare preventive benefits to 
        all Medicare beneficiaries.
            (3) Development and testing of a health status assessment 
        tool with follow-up interventions, to assist Medicare 
        beneficiaries and their providers in identifying and mitigating 
        health risks.
            (4) A nationwide education and awareness campaign designed 
        to educate older Americans on adjustments to behavior and the 
        home environment that can prevent falls.
    (b) Authorization of Appropriations.--Such sums as may be necessary 
to carry out this section are authorized to be appropriated for fiscal 
years 2002 and 2003.

SEC. 223. SMOKING CESSATION DEMONSTRATION.

    (a) In General.--The Secretary shall, either directly or through 
grants, contracts, or cooperative agreements, carry out a demonstration 
project testing a variety of smoking cessation services for Medicare 
beneficiaries, for the purpose of identifying the most successful and 
cost-effective approaches.
    (b) Design of Demonstration.--
            (1) In general.--The Secretary shall determine the design, 
        implementation, and evaluation of the demonstration under this 
        section, subject to the provisions of this section.
            (2) Services included.--Services under the demonstration 
        may include an initial patient assessment, counseling services, 
and any pharmacotherapy for smoking cessation approved by the Food and 
Drug Administration, and such other services as the Secretary may 
authorize. Services may be furnished by a person or entity that 
provides other services for which payment may be made under title XVIII 
of the Social Security Act, as well as by health educators and other 
professionals in categories designated by the Secretary who meet 
applicable certification and licensing requirements of State and local 
law.
            (3) Scope and duration.--Demonstration projects under this 
        section shall be conducted at a minimum of four sites and shall 
        not exceed five years in duration.
    (c) Notwithstanding any provision of title XVIII of the Social 
Security Act (42 U.S.C. 1395 et seq.) or any other provision of law, in 
the case of smoking cessation items and services furnished to a 
Medicare beneficiary under a demonstration conducted by the Secretary 
under this section by an individual or entity authorized by the 
Secretary to participate in such demonstration--
            (1) Such items and services shall be deemed to be health 
        care items and services covered under the insurance programs 
        under such title XVIII for purposes of payment from the Federal 
        Health Insurance and Federal Supplementary Medical Insurance 
        Trust Funds;
            (2) Persons and entities furnishing smoking cessation items 
        and services under a demonstration under this section shall be 
        entitled to be paid from such Trust Funds an amount equal to 
        the lesser of the actual cost of such items and services or the 
        payment amount prescribed for such items or services under a 
        fee schedule established by the Secretary; and
            (3) The Secretary shall waive all coinsurance and 
        deductibles under such title XVIII for smoking cessation items 
        and services furnished under such demonstration.
    (d) Waiver Authority.--The Secretary is authorized to waive the 
requirements of title XVIII of the Social Security Act (42 U.S.C. 1395 
et seq.) to the extent and for the period the Secretary finds necessary 
to conduct the demonstration under this section.
    (e) Funding.--The Secretary shall provide for the transfer from the 
Federal Health Insurance and Federal Supplementary Insurance Trust Fund 
of such funds as are necessary for the costs of carrying out and 
evaluating the demonstration projects under this section.
    (f) Evaluation; Report to Congress.--Upon conclusion of the 
demonstration, the Secretary shall cause the demonstration to be 
evaluated and shall submit to Congress a report including the 
following:
            (1) A description of the demonstration.
            (2) An assessment of--
                    (A) patient outcomes, including smoking ``quit'' 
                rates;
                    (B) the cost-effectiveness of the demonstration; 
                and
                    (C) the quality of the services furnished through 
                the demonstration, including measures of beneficiary 
                and provider satisfaction.
            (3) A recommendation as to whether the demonstration should 
        be continued or expanded under part B of such title XVIII, 
        including, if the evaluation has found the demonstration 
        successful, recommendations as to the individuals who should be 
        eligible to receive smoking cessation benefits, the persons and 
        entities that should be authorized to provide the benefits, the 
        type and scope of benefits, and appropriate payment 
        methodologies.
            (4) Any other information that the Secretary determines to 
        be appropriate.

             Part C--Rationalizing Cost Sharing and Medigap

SEC. 231. DEDUCTIBLES AND COINSURANCE FOR CLINICAL LABORATORY --
              SERVICES.

    (a) In General.--Section 1833, as amended by section 221, is 
further amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)(D)--
                            (i) in clause (i), by striking the open 
                        parenthesis an all that follows through ``on an 
                        assignment-related basis)''; and
                            (ii) in clause (ii), by striking ``100 
                        percent'' and inserting ``80 percent (or 100 
                        percent, in the case of such tests described in 
                        subsection (p))''; and
                    (B) in paragraph (2)(D)--
                            (i) in clause (i), by striking the open 
                        parenthesis and all that follows through 
                        ``section 1866'' and inserting ``such tests 
                        described in subsection (p)''; and
                            (ii) in clause (ii), by striking ``100 
                        percent'' and inserting ``80 percent (or 100 
                        percent, in the case of such tests described in 
                        subsection (p))''; and
            (2) in subsection (b)--
                    (A) by striking subparagraph (3); and
                    (B) by redesignating paragraphs (4) through (6) as 
                paragraphs (3) through (5) respectively.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to tests furnished on or after January 1, 2003.

SEC. 232. INDEXING DEDUCTIBLE TO INFLATION.

    Section 1833(b) (42 U.S.C. 1395l(b)) is amended by inserting after 
``1991 and subsequent years'' the following: ``, adjusted annually, 
effective January 1 of each year beginning in 2003, by a percentage 
increase or decrease equal to the percentage increase or decrease in 
the consumer price index for all urban consumers (U.S. city average) 
for the 12-month period ending with June of the previous year, rounded 
to the nearest dollar''.

SEC. 233. UPDATING AND EXPANDING MEDIGAP PLAN OPTIONS.

    (a) Review and Update of Benefit Packages for Medigap Policies.--
            (1) Establishment of new medigap plan.--
                    (A) In general.--Section 1882(p)(1) (42 U.S.C. 
                1395ss(p)(1)) is amended by redesignating subparagraph 
                (E) as subparagraph (F) and inserting after 
                subparagraph (D) the following new subparagraph:
                    ``(E) (i) Within 9 months after enactment of this 
                subparagraph, the Association may revise the 1991 NAIC 
                Model Regulation to include a new plan `K' that--
                            ``(I) complies with paragraphs (2) and (3);
                            ``(II) except as provided in subclause 
                        (III), requires the beneficiary of the policy 
                        to pay--
                                    ``(aa) nominal copayments; and
                                    ``(bb) all or a portion (not to be 
                                less than 50 percent) of the part B 
                                deductible under section 1833; and
                            ``(III) in the case of beneficiaries under 
                        the policy who are receiving services under any 
                        of the programs specified in paragraphs (1) 
                        through (4) of section 1866M(a), covers 100 
                        percent of any cost-sharing charges imposed on 
                        beneficiaries under such program.
                        If the Association so revises the 1991 NAIC 
                        Model Regulation, references to the 1991 NAIC 
                        Model Regulation in this section shall be 
                        interpreted to refer to the 1991 NAIC Model 
                        Regulation as so revised.
                    ``(ii) If the Association does not make the changes 
                in the revised NAIC Model Regulation within the 9-month 
                period specified in clause (i) the Secretary shall 
                provide for the establishment of a new plan `K' in 
                accordance with the provisions of subparagraph (B), and 
                any requirements applicable to a State under 
                subparagraph (B) shall apply with respect to the 
                establishment of the new plan under this 
                subparagraph.''.
                    (B) Requirement that all issuers offer plan 
                ``k''.--
                            (i) In general.--Section 1882(p)(9)(A) (42 
                        U.S.C. 1395ss(p)(9)(A)) is amended by inserting 
                        before the period ``and a medicare supplemental 
                        policy described in paragraph (1)(E)''.
                            (ii) Prohibition on state restriction.--
                        Section 1882(p)(5)(B) (42 U.S.C. 
                        1395ss(p)(5)(B)) is amended by inserting before 
                        the period ``or a medicare supplemental policy 
                        described in paragraph (1)(E)''.
                    (C) Conforming amendments.--Section 1882(p) (42 
                U.S.C. 1395ss(p)) is amended in paragraph (2)(C) by 
                striking ``shall not exceed 10'' and inserting ``shall 
                not exceed 11''.
            (2) Periodic review.--Section 1882(p)(1)(F) (42 U.S.C. 
        1395ss(p)(1)(F)) as redesignated, is amended--
                    (A) by striking all that precedes ``the preceding 
                provisions of this paragraph'' and inserting the 
                following:
                    ``(F) The Secretary, in consultation with the 
                Association, shall periodically review standard 
                supplemental packages established pursuant to paragraph 
                (2). If, on the basis of such consultation and review, 
                the Secretary determines that changes in the 1991 NAIC 
                Model Regulation or 1991 Federal Regulation (including 
                changes in the content or number of packages 
                established pursuant to paragraph (2), and in the 
                provision or scope of drug benefits available under 
                those packages), are needed to better reflect the needs 
                of beneficiaries under this title (including the need 
                for affordable supplemental insurance options),''; and
                    (B) by adding at the end the following new 
                sentence: ``If the Secretary determines that it is 
                necessary to change the benefit packages established 
                under paragraph (2) to better reflect the needs of 
                beneficiaries as described in this subparagraph, the 
                Secretary shall, through a notice in the Federal 
                Register, request the Association to recommend such 
                changes to the benefit package as it considers 
                appropriate.''.
    (b) Improved Information on Medigap.--Section 1882(e) (42 U.S.C. 
1395ss(e)) is amended by adding at the end the following new paragraph:
            ``(4) The Secretary shall provide to individuals entitled 
        to benefits under this title (and, to the extent feasible, 
        individuals about to become so entitled) information allowing 
        easy comparison of the supplemental insurance policies 
        authorized under subsection (p)(2), including the benefits, 
        premiums, and cost-sharing provisions of such policies.''.

SEC. 234. REPORT TO CONGRESS ON OPTIONS FOR IMPROVING MEDICARE 
              SUPPLEMENTAL COVERAGE.

    (a) In General.--The Secretary shall prepare and transmit to the 
Congress, not later than January 1, 2002, a detailed report that may 
include specific recommendations on policy options for improving 
Medicare supplemental coverage, with particular attention to means of 
limiting out-of-pocket costs for health care items and services covered 
under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) .
    (b) Contents of Report.--The report required under this section 
may--
            (1) consider effects of beneficiaries' having multiple 
        sources of health care coverage (including duplication of 
        coverage and incentives for overutilization of services);
            (2) compare total cost sharing by Medicare beneficiaries 
        (under Medicare and Medicare supplemental policies) with cost 
        sharing by beneficiaries of private-sector health insurance;
            (3) consider means of improving beneficiary information on 
        the comparative cost and quality of Medicare supplemental 
        policies;
            (4) consider options for structuring, and the feasibility 
        and advisability (including the potential for reducing 
        beneficiaries' out-of-pocket costs and unnecessary utilization) 
        of alternatives including--
                    (A) optional unsubsidized supplemental coverage 
                under Medicare requiring beneficiary cost-sharing; and
                    (B) a Medicare supplemental benefit, requiring 
                beneficiary copayments, to be offered by private 
                entities as a supplement to coverage under original 
                Medicare as part of the competitive defined benefit 
                program.

SEC. 235. INCREASING ACCESS TO MEDIGAP.

    (a) Applying Medigap Protections to Disabled and ESRD Medicare 
Beneficiaries.--
            (1) Open enrollment period for disabled and esrd 
        beneficiaries.--
                    (A) In general.--Section 1882(s) (42 U.S.C. 
                1395ss(s)) is amended--
                            (i) in paragraph (2)(A), by striking ``the 
                        6 month period'' and all that follows through 
                        the period and inserting ``(i) the 6 month 
                        period beginning with the first month as of the 
                        first day on which the individual is first 
                        enrolled for benefits under part B of this 
                        subchapter; and (ii) if different from the 
                        period specified in clause (i), the 6 month 
                        period beginning with the first month as of the 
                        first day on which the individual is 65 years 
                        of age or older and is enrolled for benefits 
                        under such part B.'';
                            (ii) in paragraph (2)(D), in the matter 
                        preceding clause (i)--
                                    (I) by striking ``the 6-month 
                                period'' and inserting ``a 6-
month period''; and
                                    (II) by striking ``who is 65 years 
                                of age or older as of the date of 
                                issuance and''; and
                            (iii) in paragraph (3)(B)(vi), by striking 
                        ``at age 65''.
                    (B) Initial open enrollment period.--Section 
                1882(s)(2) (42 U.S.C. 1395ss(s)), as amended by 
                subparagraph (A), is amended by adding at the end the 
                following new subparagraph:
                    ``(E) In the case of an individual who, as of the 
                effective date of enactment of this subparagraph, is 
                enrolled for benefits under part B on the basis of 
                disability or end-stage renal disease and has not 
                attained age 65, the 6 month period specified in 
                subparagraph (A)(i) shall be deemed to be the 6 month 
                period beginning on such date.''.
            (2) Requirement that medigap issuers offer policies to 
        disabled and esrd beneficiaries.--Section 1882(s) (42 U.S.C. 
        1395ss(s)) is amended--
                    (A) by redesignating paragraph (4) as paragraph 
                (5); and
                    (B) by adding after paragraph (3) the following new 
                paragraph:
            ``(4) The issuer of a Medicare supplemental policy that 
        offers such policy to individuals who are 65 years of age or 
        older may not decline to offer such policy to individuals 
        entitled to benefits under this title pursuant to section 
        226(b) or 226A.''.
            (3) Rating standards for policies issued to disabled and 
        esrd beneficiaries.--Section 1882(s) (42 U.S.C. 1395ss(s)), as 
        amended by paragraph (2), is amended--
                    (A) by redesignating paragraph (5) as paragraph 
                (6); and
                    (B) by adding after paragraph (4) the following new 
                paragraph:
            ``(5)(A) The Secretary shall request the National 
        Association of Insurance Commissioners (in this paragraph 
        referred to as the `Association') to develop and publish model 
        standards for rating Medicare supplemental policies for 
        individuals who are under age 65. Such standards shall be 
        designed to ensure affordable access to such policies for such 
        individuals while avoiding, to the greatest extent possible, 
        disruptions in the market for Medicare supplemental 
        policies.''.
            (4) Effective date.--The amendments made by paragraphs (1), 
        (2), and (3) are effective 30 days after enactment of this Act.
    (b) Special Medigap Enrollment Antidiscrimination Provision for 
Certain Beneficiaries.--
            (1) Disenrollment window in accordance with beneficiary's 
        circumstance.--Section 1882(s)(3) is amended--
                    (A) in subparagraph (A), by striking ``not later 
                than 63 days after the date of termination of 
                enrollment described in such subparagraph'' and 
                inserting ``during the period specified in subparagraph 
                (E)''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(E) For purposes of subparagraph (A), the time 
                period specified in this subsection in the case of an 
                individual--
                            ``(i) described in clause (i) of 
                        subparagraph (B), is the period beginning on 
                        the date the individual receives a notice of 
                        termination or cessation of all supplemental 
                        health benefits or, if no such notice is 
                        received, notice that a claim has been denied 
                        because of such a termination or cessation and 
                        ending 63 days thereafter;
                            ``(ii) described in clause (ii), (iii), 
                        (v), or (vi) of subparagraph (B) whose 
                        enrollment is terminated involuntarily, is the 
                        period beginning on the date that the 
                        individual receives a notice of termination and 
                        ending on the date 63 days after the date 
                        coverage ends;
                            ``(iii) described in clause (iv)(I), is the 
                        period beginning on the earlier of (I) the date 
                        that the individual receives a notice of 
                        termination, a notice of the issuer's 
                        bankruptcy or insolvency, or other such similar 
                        notice, if any, and (II) the date that coverage 
                        ends, and ending on the date 63 days after the 
                        date coverage ends;
                            ``(iv) described in clause (ii), (iii), 
                        (iv)(II), (iv)(III), (v), or (vi) of 
                        subparagraph (B) who disenrolls voluntarily, is 
                        the period beginning on the date 60 days before 
                        and ending on the date 63 days after, the 
                        effective date of disenrollment; and
                            ``(v) described in subparagraph (B), but 
                        not described in the preceding provisions of 
                        this subparagraph, is the period beginning on 
                        the effective date of disenrollment and ending 
                        on the date 63 days thereafter.''.
            (2) Extended medigap access for interrupted trial 
        periods.--Section 1882(s)(3), as amended by paragraph (1), is 
        further amended by adding at the end the following new 
        subparagraph:
                    ``(F) For purposes of this paragraph--
                            ``(i) in the case of an individual 
                        described in subparagraph (B)(v) (or deemed to 
                        be so described, pursuant to this subparagraph) 
                        whose enrollment with an organization described 
                        in subparagraph (B)(v)(II) is involuntarily 
                        terminated within the first 12 months of such 
                        enrollment, and who, without an intervening 
                        enrollment, enrolls with another such 
                        organization, such subsequent enrollment shall 
                        be deemed to be an initial enrollment described 
                        in such clause (v); and
                            ``(ii) in the case of an individual 
                        described in subparagraph (B)(vi) (or deemed to 
                        be so described, pursuant to this subparagraph) 
                        whose enrollment with a plan described in 
                        subparagraph (B)(v)(II) is involuntarily 
                        terminated within the first 12 months of such 
                        enrollment, and who, without an intervening 
                        enrollment, enrolls in another such plan, such 
                        subsequent enrollment shall be deemed to be an 
                        initial enrollment described in such clause 
                        (vi).''.
    (c) One-Time Additional Special Open Enrollment for Beneficiaries 
Losing Access to Medicare+Choice Plans.--
            (1) In general.--An issuer of a medicare supplemental 
        policy must comply with the conditions of clauses (i) through 
(iii) of section 1882(s)(3)(A) in the case of an individual described 
in paragraph (2) who seeks to enroll under the policy not later than 92 
days after the date of enactment of this section.
            (2) Conditions of eligibility.--
                    (A) In general.--For purposes of paragraph (1), an 
                individual is described in this paragraph if--
                            (i) the individual's enrollment with an 
                        organization--
                                    (I) described in clause (i) or (ii) 
                                of subparagraph (B) is terminated 
                                because of a circumstance described in 
                                section 1851(e)(4)(A); or
                                    (II) described in clause (iii) of 
                                subparagraph (B) is terminated on or 
                                before December 31, 1998 because of 
                                such a circumstance;
                            (ii) the individual is not enrolled--
                                    (I) with another organization 
                                described in subparagraph (B); or
                                    (II) under a medicare supplemental 
                                policy; and
                            (iii) the individual submits evidence of 
                        the date of termination or disenrollment along 
                        with the application for such medicare 
                        supplemental policy.
                (B) Applicable organizations.--For purposes of 
                subparagraph (A), an organization described in this 
                subparagraph is--
                            (i) an eligible organization under a 
                        contract under section 1876 or a similar 
                        organization operating under a demonstration 
                        project authority;
                            (ii) an organization under an agreement 
                        under section 1833(a)(1)(A); or
                            (iii) a Medicare+Choice organization under 
                        a Medicare+Choice plan under part C.
    (d) Guaranteed Access for Certain Medicare Beneficiaries to All 
Supplemental Policies.--Section 1882(s)(3)(C)(iii) (42 U.S.C. 
1395ss(s)(3)(C)(iii)) is amended by inserting ``or an individual 
described in subparagraph (B)(ii) or (B)(iii) in the case of 
circumstances permitting discontinuance of the individual's election 
under section 1851(e)(4)(A)'' after ``subparagraph(B)(vi)''.
    (e) Increased Civil Money Penalties for Violation of Open 
Enrollment Requirement.--Section 1882(s)(4) (42 U.S.C. 1395ss(s)(4)) is 
amended by striking ``the requirements of this subsection is subject to 
a civil money penalty of not to exceed $5,000 for each such failure'' 
and inserting ``any requirement of this subsection with respect to any 
individual is subject to a civil money penalty of not to exceed $50,000 
for each such failure with respect to such individual, plus an 
additional civil money penalty of not to exceed $5,000 for each day 
such failure continues with respect to such individual''.
    (f) Transition Provisions.--The provisions of section 4031(e) of 
the Balanced Budget Act of 1997 shall apply to the amendments made by 
this section in the same manner as they apply to such section 4031, 
except that--
            (1) the reference in such section 4031(e) to ``9 months 
        after the date of the enactment of this Act'' shall be 
        considered to be a reference to 9 months after the effective 
        date of this section;
            (2) the reference in such section 4031(e) to the ``1991 
        NAIC Model Regulation, as modified pursuant to section 
        171(m)(2) of the Social Security Act Amendments of 1994 (Public 
        Law 103-432) and as modified pursuant to section 
        1882(d)(3)(A)(vi)(IV) of the Social Security Act, as added by 
        section 271(a) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191)'' shall be 
        considered to be a reference to the 1991 NAIC Model Regulation, 
        as modified pursuant to all statutes enacted prior to the 
        enactment of this section; and
            (3) any reference to ``1999'' in such section 4031(e) shall 
        be considered to be a reference to 2002 for purposes of the 
        amendments made by this section.

SEC. 236. REMOVAL OF SUNSET DATE FOR COST-SHARING IN MEDICARE PART B 
              PREMIUMS FOR CERTAIN QUALIFYING INDIVIDUALS.

    (a) In General.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
1396a(a)(10)(E)(iv)) is amended--
            (1) by striking subclause (II);
            (2) by amending the text preceding subclause (I) to read as 
        follows:
                            ``(iv) subject to section 1905(p)(4), for 
                        making medical assistance available'';
            (3) by striking subclause designation ``(I)'', relocating 
        the remaining text at the end of clause (iv), and indenting 
        appropriately; and
            (4) by striking ``, and'' at the end of clause (iv), as so 
        amended, and inserting ``; and''.
    (b) Relocation of Provision Requiring 100 Percent Federal Matching 
of State Medical Assistance Costs for Certain Qualifying Individuals.--
Section 1903(a) (42 U.S.C. 1395b(a)), as amended by section 202(c)(3), 
is amended--
            (1) by redesignating paragraph (8) as paragraph (9); and
            (2) by adding after paragraph (7) the following new 
        paragraph:
            ``(8) an amount equal to 100 percent of amounts as expended 
        as medicare drug cost sharing for individuals described in 
        section 1903(a)(10)(E)(iv);''.
    (c) Repeal of Section 1933.--Section 1933 (42 U.S.C. 1396u-3) is 
repealed.
    (d) Effective Date.--The amendments made by this section shall be 
effective on and after January 1, 2003.

         TITLE III--PROTECTING AND EXTENDING MEDICARE SOLVENCY

SEC. 301. TRANSFERS TO EXTEND MEDICARE SOLVENCY.

    Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following new subsection:
    ``(l) Additional Appropriation to Federal Hospital Insurance Trust 
Fund.--
            ``(1) In addition to any other amounts appropriated to the 
        Trust Fund, there is hereby appropriated to the Trust Fund, out 
        of any moneys in the Treasury not otherwise appropriated--
                    ``(A) for the fiscal year ending September 30, 
                2001, $15,400,000,000;
                    ``(B) for the fiscal year ending September 30, 
                2002, $12,600,000,000;
                    ``(C) for the fiscal year ending September 30, 
                2006, $26,000,000,000;
                    ``(D) for the fiscal year ending September 30, 
                2007, $47,000,000,000;
                    ``(E) for the fiscal year ending September 30, 
                2008, $57,000,000,000;
                    ``(F) for the fiscal year ending September 30, 
                2009, $61,000,000,000;
                    ``(G) for the fiscal year ending September 30, 
                2010, $80,000,000,000;
                    ``(H) for the fiscal year ending September 30, 
                2011, $22,400,000,000;
                    ``(I) for the fiscal year ending September 30, 
                2012, $29,500,000,000;
                    ``(J) for the fiscal year ending September 30, 
                2013, $32,000,000,000;
                    ``(K) for the fiscal year ending September 30, 
                2014, $26,200,000,000;
                    ``(L) for the fiscal year ending September 30, 
                2015, $13,800,000,000.
            ``(2) The amounts appropriated for each fiscal year by 
        paragraph (1) shall be transferred from the general fund in the 
        Treasury to the Trust Fund in equal monthly installments on the 
        first business day of each month.''.

SEC. 302. CATASTROPHIC PRESCRIPTION DRUG COVERAGE RESERVE.

    (a) Establishment of Reserve.--There is established a reserve fund 
which shall be known as the ``Catastrophic Prescription Drug Coverage 
Reserve,'' as defined in section 3(11) of the Congressional Budget Act 
of 1974, as amended by this Act.
    (b) Definition.--Section 3 of the Congressional Budget Act of 1974 
is amended by adding at the end the following:
            ``(11) The term `Catastrophic Prescription Drug Coverage 
        Reserve' means--
                    ``(A) for fiscal year 2006, $4,000,000,000;
                    ``(B) for fiscal year 2007, $5,000,000,000;
                    ``(C) for fiscal year 2008, $6,800,000,000;
                    ``(D) for fiscal year 2009, $8,400,000,000; and
                    ``(E) for fiscal year 2010, $10,800,000,000.''.
    (c) Disposition of Reserve Fund.--Beginning with September 30, 
2006, any balance remaining in the Catastrophic Prescription Drug 
Coverage Reserve on the last day of a fiscal year is appropriated to 
the Federal Hospital Insurance Trust Fund.

SEC. 303. MEDICARE SOLVENCY DEBT REDUCTION RESERVE.

    (a) In General.--Both the transfers under section 1817(1) of the 
Social Security Act as well as amounts placed in reserve for 
catastrophic prescription drug coverage under section 3(11) of the 
Congressional Budget Act shall be known as the Medicare Solvency Debt 
Reduction Reserve.
    (b) Points of Order To Protect Reserve.--
            (1) Section 301 of the Congressional Budget Act of 1974 is 
        amended by adding at the end the following:
    ``(j) Point of Order To Protect Medicare Solvency Debt Reduction 
Reserve.--
            ``(1) In general.--It shall not be in order in the House of 
        Representatives or the Senate to consider any concurrent 
        resolution on the budget (or amendment, motion, or conference 
        report on the resolution) that would allocate any amount of, or 
        assume a reduction in the Medicare Solvency Debt Reduction 
        Reserve.
            ``(2) Inapplicability.--This subsection shall not apply to 
        legislation that appropriates funds from the Catastrophic 
        Prescription Drug Coverage Reserve for catastrophic 
        prescription drug benefits under the Medicare program.''
            (2) Section 311(a) of the Congressional Budget Act of 1974 
        is amended by adding at the end the following:
            ``(4) Enforcement of medicare solvency reserve.--
                    ``(A) In general.--It shall not be in order in the 
                House of Representatives or the Senate to consider any 
                bill, joint resolution, amendment, motion, or 
                conference report that would cause a decrease in the 
                level of the Medicare Solvency Debt Reduction Reserve.
                    ``(B) Inapplicability.--This paragraph shall not 
                apply to legislation that appropriates a portion of the 
                Medicare Solvency Debt Reduction Reserve for new 
                amounts for Medicare or catastrophic prescription drug 
                benefits under the Medicare program.''.
    (c) Super Majority Requirement.--
            (1) Section 904(c)(2) of the Congressional Budget Act of 
        1974 is amended by inserting ``301(j),'' after ``301(i),''.
            (2) Section 904(d)(3) of the Congressional Budget Act of 
        1974 is amended by inserting ``301(j),'' after ``301(i),''.

SEC. 304. PROTECTION OF MEDICARE SOLVENCY DEBT REDUCTION RESERVE.

    (a) Reduction of Medicare Solvency Transfers, or Catastrophic 
Prescription Drug Reserve Not To Be Counted as Pay-As-You-Go Offset.--
Any provision of legislation that would reduce, repeal, or reverse the 
transfers to the Hospital Insurance Trust Fund under section 1817(1) of 
the Social Security Act or the amount of the Catastrophic Prescription 
Drug Coverage Reserve under section 3(11) of the Congressional Budget 
Act, shall not be counted on the pay-as-you-go scorecard and shall not 
be included in any pay-as-you-go estimates made by the Congressional 
Budget Office or the Office of Management and Budget under section 252 
of the Balanced Budget and Emergency Deficit Control Act of 1985.
    (b) Conforming Change.--Section 252 of the Balanced Budget and 
Emergency Deficit Control Act of 1985 is amended, in paragraph (4) of 
subsection (d), by--
            (1) striking ``and'' after subparagraph (A),
            (2) striking the period after the subparagraph (B) and 
        inserting ``; and'', and
            (3) adding the following:
                    ``(C) provisions that reduce, repeal, or reverse 
                transfers under section 1817(1) of the Social Security 
                Act or the amount of the reserve under section 3(11) of 
                the Congressional Budget Act.''.
    (c) Medicare Solvency Transfers and Catastrophic Prescription Drug 
Reserve Reduce On-Budget Surplus.--The transfers under section 1817(1) 
of the Social Security Act and amounts placed in the reserve under 
section 3(11) of the Congressional Budget Act, together known as the 
``Medicare Solvency Debt Reduction Reserve'', shall be treated for 
purposes of the President's budget under title 31, United States Code, 
the Balanced Budget and Emergency Deficit Control Act of 1985, and the 
Congressional Budget Act of 1974 as reductions to the on-budget surplus 
(or increases in the on-budget deficit).
                                 <all>