[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2758 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2758

To amend title XVIII of the Social Security Act to provide coverage of 
       outpatient prescription drugs under the medicare program.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 20, 2000

   Mr. Graham (for himself, Mr. Bryan, Mr. Robb, Mr. Conrad, Mr. L. 
 Chafee, Mr. Baucus, Mr. Rockefeller, and Mrs. Lincoln) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
To amend title XVIII of the Social Security Act to provide coverage of 
       outpatient prescription drugs under the medicare program.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

Sec. 1. Short title; table of contents.
Sec. 2. Medicare outpatient prescription drug benefit program.
         ``Part D--Outpatient Prescription Drug Benefit Program

        ``Sec. 1860. Definitions.
  ``Subpart 1--Establishment of Outpatient Prescription Drug Benefit 
                                Program

        ``Sec. 1860A. Establishment of outpatient prescription drug 
                            benefit program.
        ``Sec. 1860B. Enrollment.
        ``Sec. 1860C. Providing information to beneficiaries.
        ``Sec. 1860D. Premiums.
        ``Sec. 1860E. Cost-sharing.
        ``Sec. 1860F. Selection of entities to provide outpatient drug 
                            benefit.
        ``Sec. 1860G. Conditions for awarding contract.
        ``Sec. 1860H. Payments.
        ``Sec. 1860I. Employer incentive program for employment-based 
                            retiree drug coverage.
        ``Sec. 1860J. Appropriations.
    ``Subpart 2--Medicare Pharmacy and Therapeutics (P&T) Advisory 
                               Committee

        ``Sec. 1860M. Medicare Pharmacy and Therapeutics (P&T) Advisory 
                            Committee.''.
Sec. 3. Part D benefits under Medicare+Choice plans.
Sec. 4. Exclusion of part D costs from determination of part B monthly 
                            premium.
Sec. 5. Reporting requirements for Secretary of the Treasury regarding 
                            income-related part D premium.
Sec. 6. Additional assistance for low-income beneficiaries.
Sec. 7. Medigap revisions.
Sec. 8. HHS studies and report to Congress.
Sec. 9. Appropriations.

SEC. 2. MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT PROGRAM.

    (a) Establishment.--Title XVIII of the Social Security Act (42 
U.S.C. 1395 et seq.) is amended by redesignating part D as part E and 
by inserting after part C the following new part:

         ``Part D--Outpatient Prescription Drug Benefit Program

                             ``definitions

    ``Sec. 1860. In this part:
            ``(1) Covered outpatient drug.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `covered outpatient drug' 
                means any of the following products:
                            ``(i) A drug which may be dispensed only 
                        upon prescription, and--
                                    ``(I) which is approved for safety 
                                and effectiveness as a prescription 
                                drug under section 505 of the Federal 
                                Food, Drug, and Cosmetic Act;
                                    ``(II)(aa) which was commercially 
                                used or sold in the United States 
                                before the date of enactment of the 
                                Drug Amendments of 1962 or which is 
                                identical, similar, or related (within 
                                the meaning of section 310.6(b)(1) of 
                                title 21 of the Code of Federal 
                                Regulations) to such a drug, and (bb) 
                                which has not been the subject of a 
                                final determination by the Secretary 
                                that it is a `new drug' (within the 
                                meaning of section 201(p) of the 
                                Federal Food, Drug, and Cosmetic Act) 
                                or an action brought by the Secretary 
                                under section 301, 302(a), or 304(a) of 
                                such Act to enforce section 502(f) or 
                                505(a) of such Act; or
                                    ``(III)(aa) which is described in 
                                section 107(c)(3) of the Drug 
                                Amendments of 1962 and for which the 
                                Secretary has determined there is a 
                                compelling justification for its 
                                medical need, or is identical, similar, 
                                or related (within the meaning of 
                                section 310.6(b)(1) of title 21 of the 
                                Code of Federal Regulations) to such a 
                                drug, and (bb) for which the Secretary 
                                has not issued a notice of an 
                                opportunity for a hearing under section 
                                505(e) of the Federal Food, Drug, and 
                                Cosmetic Act on a proposed order of the 
                                Secretary to withdraw approval of an 
                                application for such drug under such 
                                section because the Secretary has 
                                determined that the drug is less than 
                                effective for all conditions of use 
                                prescribed, recommended, or suggested 
                                in its labeling.
                            ``(ii) A biological product which--
                                    ``(I) may only be dispensed upon 
                                prescription;
                                    ``(II) is licensed under section 
                                351 of the Public Health Service Act; 
                                and
                                    ``(III) is produced at an 
                                establishment licensed under such 
                                section to produce such product.
                            ``(iii) Insulin approved under appropriate 
                        Federal law, including needles, syringes, and 
                        disposable pumps for the administration of such 
                        insulin.
                            ``(iv) A prescribed drug or biological 
                        product that would meet the requirements of 
                        clause (i) or (ii) but that it is available 
                        over-the-counter in addition to being available 
                        upon prescription.
                    ``(B) Exclusion.--The term `covered outpatient 
                drug' does not include any product--
                            ``(i) except as provided in subparagraph 
                        (A)(iv), which may be distributed to 
                        individuals without a prescription;
                            ``(ii) that is covered under part A or B 
                        (unless coverage of such product is not 
                        available because benefits under part A or B 
                        have been exhausted); or
                            ``(iii) except for agents used to promote 
                        smoking cessation, for which coverage may be 
                        excluded or restricted under section 
                        1927(d)(2).
            ``(2) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual that is entitled to benefits 
        under part A or enrolled under part B.
            ``(3) Eligible entity.--The term `eligible entity' means 
        any entity that the Secretary determines to be appropriate to 
        provide eligible beneficiaries with covered outpatient drugs 
        under a contract entered into under this part, including--
                    ``(A) a pharmacy benefit management company;
                    ``(B) a retail pharmacy delivery system;
                    ``(C) a health plan or insurer;
                    ``(D) a State (through mechanisms established under 
                a State plan under title XIX);
                    ``(E) any other entity approved by the Secretary; 
                or
                    ``(F) any combination of the entities described in 
                subparagraphs (A) through (E) if the Secretary 
                determines that such combination--
                            ``(i) increases the scope or efficiency of 
                        the provision of benefits under this part; and
                            ``(ii) is not anticompetitive.

  ``Subpart 1--Establishment of Outpatient Prescription Drug Benefit 
                                Program

    ``establishment of outpatient prescription drug benefit program

    ``Sec. 1860A. (a) Provision of Benefit.--Beginning in 2003, the 
Secretary shall provide for an outpatient prescription drug benefit 
program under which an eligible beneficiary shall be provided covered 
outpatient drugs.
    ``(b) Voluntary Nature of Program.--Nothing in this part shall be 
construed as requiring an eligible beneficiary to enroll in the program 
established under this part.
    ``(c) Scope of Benefits.--The program established under this part 
shall provide for coverage of all therapeutic classes of covered 
outpatient drugs.
    ``(d) Financing.--The costs of providing benefits under this part 
shall be payable from the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841.

                              ``enrollment

    ``Sec. 1860B. (a) Enrollment Under Part D.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary 
                (including an eligible beneficiary enrolled in a 
                Medicare+Choice plan offered by a Medicare+Choice 
                organization) may make an election to enroll under this 
                part. Such process shall be similar to the process for 
                enrollment in part B under section 1837.
                    ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this part in order to be 
                eligible to receive covered outpatient drugs under this 
                title.
            ``(2) Enrollment procedures.--
                    ``(A) Late enrollment penalty.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this subparagraph, in 
                        the case of an eligible beneficiary whose 
                        coverage period under this part began pursuant 
                        to an enrollment after the beneficiary's 
                        initial enrollment period under part B 
                        (determined pursuant to section 1837(d)) and 
                        not pursuant to the open enrollment period 
                        described in subparagraph (B), the Secretary 
                        shall establish procedures for increasing the 
                        amount of the monthly premium under section 
                        1860D applicable to such beneficiary--
                                    ``(I) by an amount that is equal to 
                                10 percent of such premium for each 
                                full 12-month period (in the same 
                                continuous period of eligibility) in 
                                which the eligible beneficiary could 
                                have been enrolled under this part but 
                                was not so enrolled; or
                                    ``(II) if determined appropriate by 
                                the Secretary, by an amount that the 
                                Secretary determines is actuarily sound 
                                for each such period.
                            ``(ii) Periods taken into account.--For 
                        purposes of calculating any 12-month period 
                        under clause (i), there shall be taken into 
                        account--
                                    ``(I) the months which elapsed 
                                between the close of the eligible 
                                beneficiary's initial enrollment period 
                                and the close of the enrollment period 
                                in which the beneficiary enrolled; and
                                    ``(II) in the case of an eligible 
                                beneficiary who reenrolls under this 
                                part, the months which elapsed between 
                                the date of termination of a previous 
                                coverage period and the close of the 
                                enrollment period in which the 
                                beneficiary reenrolled.
                            ``(iii) Periods not taken into account.--
                                    ``(I) In general.--For purposes of 
                                calculating any 12-month period under 
                                clause (i), subject to subclause (II), 
                                there shall not be taken into account 
                                months for which the eligible 
                                beneficiary can demonstrate that the 
                                beneficiary was covered under a group 
                                health plan, including a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860I(e)(3)) for 
                                which an incentive payment was paid 
                                under section 1860I, that provides 
                                coverage of the cost of prescription 
                                drugs whose actuarial value (as defined 
                                by the Secretary) to the beneficiary 
                                equals or exceeds the actuarial value 
                                of the benefits provided to an 
                                individual enrolled in the outpatient 
                                prescription drug benefit program under 
                                this part.
                                    ``(II) Application.--This clause 
                                shall only apply with respect to a 
                                coverage period the enrollment for 
                                which occurs before the end of the 60-
                                day period that begins on the first day 
                                of the month which includes the date on 
                                which the plan terminates, ceases to 
                                provide, or reduces the value of the 
                                prescription drug coverage under such 
                                plan to below the value of the coverage 
                                provided under the program under this 
                                part.
                            ``(iv) Periods treated separately.--Any 
                        increase in an eligible beneficiary's monthly 
                        premium under clause (i) with respect to a 
                        particular continuous period of eligibility 
                        shall not be applicable with respect to any 
                        other continuous period of eligibility which 
                        the beneficiary may have.
                            ``(v) Continuous period of eligibility.--
                                    ``(I) In general.--Subject to 
                                subclause (II), for purposes of this 
                                subparagraph, an eligible beneficiary's 
                                `continuous period of eligibility' is 
                                the period that begins with the first 
                                day on which the beneficiary is 
                                eligible to enroll under section 1836 
                                and ends with the beneficiary's death.
                                    ``(II) Separate period.--Any period 
                                during all of which an eligible 
                                beneficiary satisfied paragraph (1) of 
                                section 1836 and which terminated in or 
                                before the month preceding the month in 
                                which the beneficiary attained age 65 
                                shall be a separate `continuous period 
                                of eligibility' with respect to the 
                                beneficiary (and each such period which 
                                terminates shall be deemed not to have 
                                existed for purposes of subsequently 
                                applying this subparagraph).
                    ``(B) Open enrollment period for current 
                beneficiaries in which late enrollment procedures do 
                not apply.--The Secretary shall establish an applicable 
                period, which shall begin on the date on which the 
Secretary first begins to accept elections for enrollment under this 
part, during which any eligible beneficiary may enroll under this part 
without the application of the late enrollment procedures established 
under subparagraph (A)(i).
            ``(3) Period of coverage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an eligible beneficiary'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.
                    ``(B) Open enrollment.--An eligible beneficiary who 
                enrolls under the program under this part pursuant to 
                paragraph (2)(B) shall be entitled to the benefits 
                under this part beginning on the first day of the month 
                following the month in which such enrollment occurs.
                    ``(C) Limitation.--Coverage under this part shall 
                not begin prior to January 1, 2003.
            ``(4) Part d coverage terminated by termination of coverage 
        under parts a and b.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in section 1838, the Secretary 
                shall terminate an individual's coverage under this 
                part if the individual is no longer enrolled in either 
                part A or part B.
                    ``(B) Effective date.--The termination described in 
                subparagraph (A) shall be effective on the effective 
                date of termination of coverage under part A or (if 
                later) under part B.
    ``(b) Enrollment With Eligible Entity.--
            ``(1) Process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary who is 
                enrolled under this part but not enrolled in a 
                Medicare+Choice plan offered by a Medicare+Choice 
                organization shall make an annual election to enroll 
                with any eligible entity that has been awarded a 
                contract under this part and serves the geographic area 
                in which the beneficiary resides.
                    ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Secretary shall use rules similar 
                to the rules for enrollment and disenrollment with a 
                Medicare+Choice plan under section 1851 (including 
                special election periods under subsection (e)(4) of 
                such section).
            ``(2) Medicare+choice enrollees.--An eligible beneficiary 
        who is enrolled under this part and enrolled in a 
        Medicare+Choice plan offered by a Medicare+Choice organization 
        shall receive coverage of covered outpatient drugs under this 
        part through such plan.
    ``(c) First Enrollment Period.--The processes developed under 
subsections (a) and (b) shall ensure that eligible beneficiaries are 
permitted to enroll under this part and with an eligible entity prior 
to January 1, 2003, in order to ensure that coverage under this part is 
effective as of such date.

                ``providing information to beneficiaries

    ``Sec. 1860C. (a) Activities.--
            ``(1) In general.--The Secretary shall conduct activities 
        that are designed to broadly disseminate information to 
        eligible beneficiaries (and prospective eligible beneficiaries) 
        regarding the coverage provided under this part.
            ``(2) Special rule for first enrollment under the 
        program.--To the extent practicable, the activities described 
        in paragraph (1) shall ensure that eligible beneficiaries are 
        provided with such information at least 30 days prior to the 
        first enrollment period described in section 1860B(c).
    ``(b) Requirements.--
            ``(1) In general.--The activities described in subsection 
        (a) shall--
                    ``(A) be similar to the activities performed by the 
                Secretary under section 1851(d);
                    ``(B) be coordinated with the activities performed 
                by the Secretary under such section and under section 
                1804; and
                    ``(C) provide for the dissemination of information 
                comparing the eligible entities that are available to 
                eligible beneficiaries residing in an area under this 
                part.
            ``(2) Comparative information.--The comparative information 
        described in paragraph (1)(B) shall include the following:
                    ``(A) Benefits.--A comparison of the benefits 
                provided by each eligible entity, including a 
                comparison of the pharmacy networks used by each 
                eligible entity and the formularies and appeals 
                processes implemented by each entity.
                    ``(B) Quality and performance.--To the extent 
                available, the quality and performance of each eligible 
                entity.
                    ``(C) Beneficiary costs.--The cost-sharing required 
                of eligible beneficiaries enrolled in each eligible 
                entity.
                    ``(D) Consumer satisfaction surveys.--To the extent 
                available, the results of consumer satisfaction surveys 
                regarding each eligible entity.
                    ``(E) Additional information.--Such additional 
                information as the Secretary may prescribe.
            ``(3) Information standards.--The Secretary shall develop 
        standards to ensure that the information provided to eligible 
        beneficiaries under this part is complete, accurate, and 
        uniform.
    ``(c) Use of Medicare Consumer Coalitions To Provide Information.--
            ``(1) In general.--The Secretary may contract with Medicare 
        Consumer Coalitions to conduct the informational activities--
                    ``(A) under this section;
                    ``(B) under section 1851(d); and
                    ``(C) under section 1804.
            ``(2) Selection of coalitions.--If the Secretary determines 
        the use of Medicare Consumer Coalitions to be appropriate, the 
        Secretary shall--
                    ``(A) develop and disseminate, in such areas as the 
                Secretary determines appropriate, a request for 
                proposals for Medicare Consumer Coalitions to contract 
                with the Secretary in order to conduct any of the 
                informational activities described in paragraph (1); 
                and
                    ``(B) select a proposal of a Medicare Consumer 
                Coalition to conduct the informational activities in 
                each such area, with a preference for broad 
                participation by organizations with experience in 
                providing information to beneficiaries under this 
                title.
            ``(3) Payment to medicare consumer coalitions.--The 
        Secretary shall make payments to Medicare Consumer Coalitions 
        contracting under this subsection in such amounts and in such 
        manner as the Secretary determines appropriate.
            ``(4) Authorization of appropriations.--There are 
        authorized to be appropriated to the Secretary such sums as may 
        be necessary to contract with Medicare Consumer Coalitions 
        under this section.
            ``(5) Medicare consumer coalition defined.--In this 
        subsection, the term `Medicare Consumer Coalition' means an 
        entity that is a nonprofit organization operated under the 
        direction of a board of directors that is primarily composed of 
        beneficiaries under this title.

                               ``premiums

    ``Sec. 1860D. (a) Annual Establishment of Monthly Premium Rates.--
            ``(1) In general.--The Secretary shall, during September of 
        each year (beginning in 2002), 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 and 
                administrative costs.--The Secretary shall estimate 
                annually for the succeeding year the amount equal to 
                the total of the benefits and administrative costs that 
                will be payable from the Federal Supplementary Medical 
                Insurance Trust Fund for providing covered outpatient 
                drugs in such calendar year with respect to enrollees 
                in the program under this part.
                    ``(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 \1/12\ of the applicable share 
                        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) Definition of applicable share.--For 
                        purposes of clause (i), the term `applicable 
                        share' means--
                                    ``(I) one-half, in the case of 
                                premiums paid by an eligible 
                                beneficiary enrolled in the program 
                                under this part; and
                                    ``(II) two-thirds, in the case of 
                                premiums paid for such a beneficiary by 
                                an employer (as defined in section 
                                1860I(e)(2)) that the beneficiary 
                                formerly worked for.
            ``(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) Collection of Premium.--The monthly premium applicable to an 
eligible beneficiary under this part shall be collected and credited to 
the Federal Supplementary Medical Insurance Trust Fund in the same 
manner as the monthly premium determined under section 1839 is 
collected and credited to such Trust Fund under section 1840.
    ``(c) Increase in Premium for High-Income Beneficiaries.--
            ``(1) Increase.--
                    ``(A) Amount.--
                            ``(i) In general.--Except as provided in 
                        paragraph (4), in the case of an eligible 
                        beneficiary whose modified adjusted gross 
                        income for a taxable year ending with or within 
                        a calendar year (as initially determined by the 
                        Secretary in accordance with paragraph (2)) 
                        exceeds the threshold amount, the Secretary 
                        shall increase the amount of the monthly 
                        premium established under subsection (a) by an 
                        amount which bears the same ratio to such 
                        premium as such excess bears to $25,000 (or 
                        $50,000 in the case of a joint return).
                            ``(ii) Limitation.--In no event shall the 
                        increase described in clause (i) exceed an 
                        amount equal to 50 percent of the monthly 
                        premium established under subsection (a).
                    ``(B) Definition of threshold amount.--For purposes 
                of this subsection, the term `threshold amount' means--
                            ``(i) except as otherwise provided in this 
                        subparagraph, $75,000;
                            ``(ii) $150,000 in the case of a joint 
                        return; and
                            ``(iii) zero in the case of a taxpayer 
                        who--
                                    ``(I) is married at the close of 
                                the taxable year but does not file a 
                                joint return (as so defined) for such 
                                year; and
                                    ``(II) does not live apart from his 
                                spouse at all times during the taxable 
                                year.
                    ``(C) Inflation adjustment for threshold amount.--
                            ``(i) In general.--In the case of any 
                        calendar year beginning after 2003, each of the 
                        dollar amounts in clauses (i) and (ii) of 
                        subparagraph (B) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the percentage (if any) by 
                                which the average of the Consumer Price 
                                Index for all urban consumers (United 
                                States city average) for the 12-month 
                                period ending with June of the 
                                preceding calendar year, exceeds such 
                                average for the 12-month period ending 
                                with June 2002.
                            ``(ii) Rounding.--If any dollar amount 
                        after being increased under clause (i) is not a 
                        multiple of $5, such dollar amount shall be 
                        rounded to the nearest multiple of $5.
                    ``(D) Definition of modified adjusted gross 
                income.--For purposes of this subsection, the term 
                `modified adjusted gross income' means adjusted gross 
                income (as defined in section 62 of the Internal 
                Revenue Code of 1986)--
                            ``(i) determined without regard to sections 
                        135, 911, 931, and 933 of such Code; and
                            ``(ii) increased by the amount of interest 
                        received or accrued by the taxpayer during the 
                        taxable year which is exempt from tax under 
                        such Code.
                    ``(E) Definition of joint return.--For purposes of 
                this subsection, the term `joint return' has the 
                meaning given the term in section 7701(a)(38) of the 
                Internal Revenue Code of 1986.
            ``(2) Determination of modified adjusted gross income.--The 
        Secretary shall make an initial determination of the amount of 
        an eligible beneficiary's modified adjusted gross income for a 
        taxable year ending with or within a calendar year for purposes 
        of this subsection as follows:
                    ``(A) Notice.--Not later than September 1 of the 
                year preceding the year, the Secretary shall provide 
                notice to each eligible beneficiary whom the Secretary 
                finds (on the basis of the beneficiary's actual 
                modified adjusted gross income for the most recent 
                taxable year for which such information is available or 
                other information provided to the Secretary by the 
                Secretary of the Treasury) will be subject to an 
                increase under this subsection that the beneficiary 
                will be subject to such an increase, and shall include 
                in such notice the Secretary's estimate of the 
                beneficiary's modified adjusted gross income for the 
                year.
                    ``(B) Calculation based on information provided by 
                beneficiary.--If, during the 60-day period beginning on 
                the date notice is provided to an eligible beneficiary 
                under subparagraph (A), the beneficiary provides the 
                Secretary with appropriate information (as determined 
                by the Secretary) on the beneficiary's anticipated 
                modified adjusted gross income for the year, the amount 
                initially determined by the Secretary under this 
                paragraph with respect to the beneficiary shall be 
                based on the information provided by the beneficiary.
                    ``(C) Calculation based on notice amount if no 
                information is provided by the beneficiary or if the 
                secretary determines that the provided information in 
                not appropriate.--The amount initially determined by 
                the Secretary under this paragraph with respect to an 
                eligible beneficiary shall be the amount included in 
                the notice provided to the beneficiary under 
                subparagraph (A) if--
                            ``(i) the beneficiary does not provide the 
                        Secretary with information under subparagraph 
                        (B); or
                            ``(ii) the Secretary determines that the 
                        information provided by the beneficiary to the 
                        Secretary under such subparagraph in not 
                        appropriate.
            ``(3) Adjustments.--
                    ``(A) In general.--If the Secretary determines (on 
                the basis of final information provided by the 
                Secretary of the Treasury) that the amount of an 
                eligible beneficiary's actual modified adjusted gross 
                income for a taxable year ending with or within a 
                calendar year is less than or greater than the amount 
                initially determined by the Secretary under paragraph 
                (2), the Secretary shall increase or decrease the 
                amount of the beneficiary's monthly premium under this 
                part (as the case may be) for months during the 
                following calendar year by an amount equal to \1/12\ of 
                the difference between--
                            ``(i) the total amount of all monthly 
                        premiums paid by the beneficiary under this 
                        part during the previous calendar year; and
                            ``(ii) the total amount of all such 
                        premiums which would have been paid by the 
                        beneficiary during the previous calendar year 
                        if the amount of the beneficiary's modified 
                        adjusted gross income initially determined 
                        under paragraph (2) were equal to the actual 
                        amount of the beneficiary's modified adjusted 
                        gross income determined under this paragraph.
                    ``(B) Interest.--
                            ``(i) Increase.--In the case of an eligible 
                        beneficiary for whom the amount initially 
                        determined by the Secretary under paragraph (2) 
                        is based on information provided by the 
                        beneficiary under subparagraph (B) of such 
                        paragraph, if the Secretary determines under 
                        subparagraph (A) that the amount of the 
beneficiary's actual modified adjusted gross income for a taxable year 
is greater than the amount initially determined under paragraph (2), 
the Secretary shall increase the amount otherwise determined for the 
year under subparagraph (A) by an amount of interest equal to the sum 
of the amounts determined under clause (ii) for each of the months 
described in such clause.
                            ``(ii) Computation.--Interest shall be 
                        computed for any month in an amount determined 
                        by applying the underpayment rate established 
                        under section 6621 of the Internal Revenue Code 
                        of 1986 (compounded daily) to any portion of 
                        the difference between the amount initially 
                        determined under paragraph (2) and the amount 
                        determined under subparagraph (A) for the 
                        period beginning on the first day of the month 
                        beginning after the eligible beneficiary 
                        provided information to the Secretary under 
                        subparagraph (B) of paragraph (2) and ending 30 
                        days before the first month for which the 
                        beneficiary's monthly premium is increased 
                        under this paragraph.
                            ``(iii) Exception.--Interest shall not be 
                        imposed under this subparagraph if the amount 
                        of the eligible beneficiary's modified adjusted 
                        gross income provided by the beneficiary under 
                        subparagraph (B) of paragraph (2) was not less 
                        than the beneficiary's modified adjusted gross 
                        income determined on the basis of information 
                        shown on the return of tax imposed by chapter 1 
                        of the Internal Revenue Code of 1986 for the 
                        taxable year involved.
                    ``(C) Steps to recover amounts due from previously 
                enrolled beneficiaries.--In the case of an eligible 
                beneficiary who is not enrolled under this part for any 
                calendar year for which the beneficiary's monthly 
                premium under this part for months during the year 
                would be increased pursuant to subparagraph (A) if the 
                beneficiary were enrolled under this part for the year, 
                the Secretary may take such steps as the Secretary 
                considers appropriate to recover from the beneficiary 
                the total amount by which the beneficiary's monthly 
                premium under this part for months during the year 
                would have been increased under subparagraph (A) if the 
                beneficiary were enrolled under this part for the year.
                    ``(D) Deceased beneficiary.--In the case of a 
                deceased eligible beneficiary for whom the amount of 
                the monthly premium under this part for months in a 
                year would have been decreased pursuant to subparagraph 
                (A) if the beneficiary were not deceased, the Secretary 
                shall make a payment to the beneficiary's surviving 
                spouse (or, in the case of an eligible beneficiary who 
                does not have a surviving spouse, to the beneficiary's 
                estate) in an amount equal to the difference between--
                            ``(i) the total amount by which the 
                        beneficiary's premium would have been decreased 
                        for all months during the year pursuant to 
                        subparagraph (A); and
                            ``(ii) the amount (if any) by which the 
                        beneficiary's premium was decreased for months 
                        during the year pursuant to subparagraph (A).
            ``(4) Waiver by secretary.--The Secretary may waive the 
        imposition of all or part of the increase of the premium or all 
        or part of any interest due under this subsection for any 
        period if the Secretary determines that a gross injustice would 
        otherwise result without such waiver.
            ``(5) Transfer to part b trust fund.--The Secretary shall 
        transfer amounts received pursuant to this subsection to the 
        Federal Supplementary Medical Insurance Trust Fund.

                             ``cost-sharing

    ``Sec. 1860E. (a) Deductible.--
            ``(1) In general.--Subject to paragraph (2), no payments 
        shall be made under this part on behalf of an eligible 
        beneficiary until the beneficiary has met a $250 deductible.
            ``(2) Waiver of deductible for generic drugs.--
                    ``(A) In general.--An eligible entity may provide 
                that generic drugs are not subject to the deductible 
                described in paragraph (1) if the Secretary determines 
                that the waiver of the deductible--
                            ``(i) is tied to the performance measures 
                        and other incentives applicable to the entity 
                        pursuant to section 1860H(a); and
                            ``(ii) will not result in an increase in 
                        the expenditures made from the Federal 
                        Supplementary Medical Insurance Trust Fund.
                    ``(B) Credit for amounts paid.--If the deductible 
                is waived pursuant to subparagraph (A), any coinsurance 
                paid by an eligible beneficiary for the generic drug 
                shall be credited toward the annual deductible.
    ``(b) Coinsurance.--
            ``(1) Establishment.--
                    ``(A) In general.--Subject to paragraph (2), if any 
                covered outpatient drug is provided to an eligible 
                beneficiary in a year after the beneficiary has met any 
                deductible requirement under subsection (a) for the 
                year, the beneficiary shall be responsible for making 
                payments for the drug in an amount equal to the 
                applicable percentage of the cost of the drug.
                    ``(B) Applicable percentage defined.--For purposes 
                of subparagraph (A), the `applicable percentage' means, 
                with respect to any covered outpatient drug provided to 
                an eligible beneficiary in a year--
                            ``(i) 50 percent to the extent the out-of-
                        pocket expenses of the beneficiary for such 
                        drug, when added to the out-of-pocket expenses 
                        of the beneficiary for covered outpatient drugs 
                        previously provided in the year, do not exceed 
                        $3,500;
                            ``(ii) 25 percent to the extent such 
                        expenses, when so added, exceed $3,500 but do 
                        not exceed $4,000; and
                            ``(iii) 0 percent to the extent such 
                        expenses, when so added, would exceed $4,000.
                    ``(C) Out-of-pocket expenses defined.--For purposes 
                of subparagraph (B), the term `out-of-pocket expenses' 
                means expenses incurred as a result of the application 
                of the deductible under subsection (a) and the 
                coinsurance required under this subsection.
            ``(2) Reduction by eligible entity.--An eligible entity may 
        reduce the applicable percentage that an eligible beneficiary 
        is subject to under paragraph (1) if the Secretary determines 
        that such reduction--
                    ``(A) is tied to the performance measures and other 
                incentives applicable to the entity pursuant to section 
                1860H(a); and
                    ``(B) will not result in an increase in the 
                expenditures made from the Federal Supplementary 
                Medical Insurance Trust Fund.
    ``(c) Inflation Adjustment.--
            ``(1) In general.--In the case of any calendar year 
        beginning after 2004, each of the dollar amounts in subsections 
        (a)(1) and (b)(1)(B) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the percentage (if any) by which the amount 
                of expenditures under this part in the preceding 
                calendar year exceeds the amount of such expenditures 
                in 2003.
            ``(2) Rounding.--If any dollar amount after being increased 
        under paragraph (1) is not a multiple of $5, such dollar amount 
        shall be rounded to the nearest multiple of $5.

       ``selection of entities to provide outpatient drug benefit

    ``Sec. 1860F. (a) Establishment of Bidding Process.--
            ``(1) In general.--The Secretary shall establish procedures 
        under which the Secretary accepts bids submitted by eligible 
        entities and awards contracts to such entities in order to 
        administer and deliver the benefits provided under this part to 
        eligible beneficiaries in an area.
            ``(2) Competitive procedures.--Competitive procedures (as 
        defined in section 4(5) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 403(5))) shall be used to enter into 
        contracts under this part.
    ``(b) Area for Contracts.--
            ``(1) Regional basis.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subject to paragraph (2), the 
                contract entered into between the Secretary and an 
                eligible entity shall require the eligible entity to 
                provide covered outpatient drugs on a regional basis.
                    ``(B) Partial regional basis.--
                            ``(i) In general.--If determined 
                        appropriate by the Secretary, the Secretary may 
                        permit the coverage described in subparagraph 
                        (A) to be provided on a partial regional basis.
                            ``(ii) Requirements.--If the Secretary 
                        permits coverage pursuant to clause (i), the 
                        Secretary shall ensure that the partial region 
                        in which coverage is provided is--
                                    ``(I) at least the size of the 
                                commercial service area of the eligible 
                                entity for that area; and
                                    ``(II) not smaller than a State.
            ``(2) Determination.--
                    ``(A) In general.--In determining coverage areas 
                under this part, the Secretary shall--
                            ``(i) take into account the number of 
                        eligible beneficiaries in an area in order to 
                        encourage participation by eligible entities; 
                        and
                            ``(ii) ensure that there are at least 10 
                        different coverage areas in the United States.
                    ``(B) No administrative or judicial review.--The 
                determination of coverage areas under this part shall 
                not be subject to administrative or judicial review.
    ``(c) Submission of Bids.--
            ``(1) In general.--Each eligible entity desiring to provide 
        covered outpatient drugs under this part shall submit a bid to 
        the Secretary at such time, in such manner, and accompanied by 
        such information as the Secretary may reasonably require.
            ``(2) Required information.--The bids described in 
        paragraph (1) shall include--
                    ``(A) a proposal for the estimated prices of 
                covered outpatient drugs and the projected annual 
                increases in such prices, including differentials 
                between formulary and nonformulary prices, if 
                applicable;
                    ``(B) the amount that the entity will charge the 
                Secretary for administering and delivering the benefits 
                under such contract;
                    ``(C) a statement regarding whether the entity will 
                waive the deductible for generic drugs pursuant to 
                section 1860E(a)(2);
                    ``(D) a statement regarding whether the entity will 
                reduce the applicable coinsurance percentage pursuant 
                to section 1860E(b)(2) and if so, the amount of such 
                reduction;
                    ``(E) a detailed description of--
                            ``(i) the risk corridors tied to 
                        performance measures and other incentives that 
                        the entity will accept under the contract; and
                            ``(ii) how the entity will meet such 
                        measures and incentives;
                    ``(F) a detailed description of any ownership or 
                shared financial interests with other entities involved 
                in the delivery of the benefit as proposed;
                    ``(G) a detailed description of the entity's 
                estimated marketing and advertising expenditures 
                related to enrolling and retaining eligible 
                beneficiaries; and
                    ``(H) such other information that the Secretary 
                determines is necessary in order to carry out this 
                part, including information relating to the bidding 
                process under this part.
    ``(d) Access.--
            ``(1) In general.--The Secretary shall ensure that an 
        eligible entity--
                    ``(A) complies with the access requirements 
                described in section 1860G(4)(A); and
                    ``(B) makes available to each beneficiary covered 
                under the contract the full scope of the benefits 
                required under this part.
            ``(2) Areas not covered by contracts.--The Secretary shall 
        develop procedures for the provision of covered outpatient 
        drugs under this part to each eligible beneficiary that resides 
        in an area that is not covered by any contract under this part.
            ``(3) Beneficiaries residing in different locations.--The 
        Secretary shall develop procedures to ensure that each eligible 
        beneficiary that resides in different areas in a year is 
        provided the benefits under this part throughout the entire 
        year.
    ``(e) Awarding of Contracts.--
            ``(1) Number of contracts.--The Secretary shall, consistent 
        with the requirements of this part and the goal of containing 
        costs under this title, award in a competitive manner at least 
        2 contracts in an area, unless only 1 bidding entity meets the 
        minimum standards specified under this part and by the 
        Secretary.
            ``(2) Determination.--In determining which of the eligible 
        entities that submitted bids that meet the minimum standards 
        specified under this part and by the Secretary (including the 
        terms and conditions described in section 1860G) to award a 
        contract, the Secretary shall consider the comparative merits 
        of each bid, as determined on the basis of the past performance 
        of the entity and other relevant factors, with respect to--
                    ``(A) how well the entity meets such minimum 
                standards;
                    ``(B) the amount that the entity will charge the 
                Secretary for administering and delivering the benefits 
                under the contract;
                    ``(C) the proposed prices of covered outpatient 
                drugs and annual increases in such prices;
                    ``(D) the proposed risk corridors tied to 
                performance measures and other incentives that the 
                entity will be subject to under the contract;
                    ``(E) the factors described in section 1860C(b)(2);
                    ``(F) prior experience in administering a 
                prescription drug benefit program;
                    ``(G) effectiveness in containing costs through 
                pricing incentives and utilization management; and
                    ``(H) such other factors as the Secretary deems 
                necessary to evaluate the merits of each bid.
            ``(3) Exception to conflict of interest rules.--In awarding 
        contracts under this part, the Secretary may waive conflict of 
        interest laws 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--
                            ``(i) purposes of the programs under this 
                        title; or
                            ``(ii) best interests of enrolled 
                        individuals; and
                    ``(B) permits a sufficient level of competition for 
                such contracts, promotes efficiency of benefits 
                administration, or otherwise serves the objectives of 
                the program under this part.
            ``(4) No administrative or judicial review.--The 
        determination of the Secretary to award or not award a contract 
        to an eligible entity under this part shall not be subject to 
        administrative or judicial review.
    ``(f) Approval of Marketing Material and Application Forms.--The 
provisions of section 1851(h) shall apply to marketing material and 
application forms under this part in the same manner as such provisions 
apply to marketing material and application forms under part C.
    ``(g) Duration of Contracts.--Each contract under this part shall 
be for a term of at least 2 years but not more than 5 years, as 
determined by the Secretary.

                   ``conditions for awarding contract

    ``Sec. 1860G. The Secretary shall not award a contract to an 
eligible entity under this part unless the Secretary finds that the 
eligible entity agrees to comply with such terms and conditions as the 
Secretary shall specify, including the following:
            ``(1) Quality and financial standards.--The eligible entity 
        meets the quality and financial standards specified by the 
        Secretary.
            ``(2) Procedures to ensure proper utilization, compliance, 
        and avoidance of adverse drug reactions.--The eligible entity 
        has in place drug utilization review procedures to ensure--
                    ``(A) the appropriate utilization by eligible 
                beneficiaries of the benefits to be provided under the 
                contract; and
                    ``(B) the avoidance of adverse drug reactions among 
                eligible beneficiaries enrolled with the entity, 
                including problems due to therapeutic duplication, 
                drug-disease contraindications, drug-drug interactions 
                (including serious interactions with nonprescription or 
                over-the-counter drugs), incorrect drug dosage or 
                duration of drug treatment, drug-allergy interactions, 
                and clinical abuse and misuse.
            ``(3) Cost-effective provision of benefits.--
                    ``(A) In general.--In providing the benefits under 
                a contract under this part, an eligible entity may--
                            ``(i) employ mechanisms to provide the 
                        benefits economically, including the use of--
                                    ``(I) formularies (pursuant to 
                                subparagraph (B));
                                    ``(II) alternative methods of 
                                distribution; and
                                    ``(III) generic drug substitution;
                            ``(ii) use mechanisms to encourage eligible 
                        beneficiaries to select cost-effective drugs or 
                        less costly means of receiving drugs, including 
                        the use of pharmacy incentive programs, 
                        therapeutic interchange programs, and disease 
                        management programs; and
                            ``(iii) encourage pharmacy providers to--
                                    ``(I) inform beneficiaries of the 
                                differentials in price between generic 
                                and nongeneric drug equivalents; and
                                    ``(II) provide medication therapy 
                                management programs in order to enhance 
                                beneficiaries' understanding of the 
                                appropriate use of medications and to 
                                reduce the risk of potential adverse 
                                events associated with medications.
                    ``(B) Formularies.--If an eligible entity uses a 
                formulary under this part, such formulary shall comply 
                with standards established by the Secretary in 
                consultation with the Medicare Pharmacy and 
                Therapeutics Advisory Committee established under 
                section 1860M. Such standards shall require that the 
                eligible entity--
                            ``(i) use a pharmacy and therapeutic 
                        committee (that meets the standards for a 
                        pharmacy and therapeutic committee established 
                        by the Secretary in consultation with the 
                        Medicare Pharmacy and Therapeutics Advisory 
                        Committee established under section 1860M) to 
                        develop and implement the formulary;
                            ``(ii) include in the formulary--
                                    ``(I) at least 1 drug from each 
                                therapeutic class (as defined by the 
                                entity's pharmacy and therapeutic 
                                committee in accordance with standards 
                                established by the Secretary in 
                                consultation with the Medicare Pharmacy 
                                and Therapeutics Advisory Committee 
                                established under section 1860M);
                                    ``(II) if there is more than 1 drug 
                                available in a therapeutic class, at 
                                least 2 drugs from such class; and
                                    ``(III) if there is more than 2 
                                drugs available in a therapeutic class, 
                                at least 2 drugs from such class and a 
                                generic drug substitute if available;
                            ``(iii) develop procedures for the--
                                    ``(I) addition of new therapeutic 
                                classes to the formulary;
                                    ``(II) addition of new drugs to an 
                                existing therapeutic class; and
                                    ``(III) modification of the 
                                formulary;
                            ``(iv) provide for coverage of nonformulary 
                        drugs when determined (pursuant to subparagraph 
                        (C) or (D)(i) of paragraph (4)) to be medically 
                        necessary to prevent or slow the deterioration 
                        of, or improve or maintain, the health of an 
                        eligible beneficiary; and
                            ``(v) disclose to current and prospective 
                        beneficiaries and to providers in the service 
                        area the nature of the formulary restrictions, 
                        including information regarding the drugs 
                        included in the formulary, coinsurance, and any 
                        difference in the cost-sharing for different 
                        types of drugs.
                    ``(C) Construction.--Nothing in this paragraph 
                shall be construed as precluding an eligible entity 
                from--
                            ``(i) requiring cost-sharing for 
                        nonformulary drugs that is higher than the 
                        cost-sharing established in section 1860E(b), 
                        except that such entity shall provide for 
                        coverage of a nonformulary drug at the same 
                        cost-sharing level as a drug within the 
                        formulary if such nonformulary drug is 
                        determined (pursuant to subparagraph (C) or 
                        (D)(i) of paragraph (4)) to be medically 
                        necessary to prevent or slow the deterioration 
                        of, or improve or maintain, the health of an 
                        eligible beneficiary;
                            ``(ii) educating prescribing providers, 
                        pharmacists, and beneficiaries about the 
                        medical and cost benefits of formulary drugs 
                        (including generic drugs); or
                            ``(iii) requesting prescribing providers to 
                        consider a formulary drug prior to dispensing 
                        of a nonformulary drug, as long as such request 
                        does not unduly delay the provision of the 
                        drug.
            ``(4) Patient protections.--
                    ``(A) Access.--The eligible entity ensures that the 
                covered outpatient drugs are accessible and convenient 
                to eligible beneficiaries covered under the contract, 
                including by offering the services in the following 
                manner:
                            ``(i) Services during emergencies.--The 
                        offering of services 24 hours a day and 7 days 
                        a week for emergencies.
                            ``(ii) Contracts with retail pharmacies.--
                        The offering of services--
                                    ``(I) at a sufficient number (as 
                                determined by the Secretary) of retail 
                                pharmacies;
                                    ``(II) to the extent feasible, at 
                                retail pharmacies located throughout 
                                the eligible entity's service area to 
                                ensure reasonable geographic access (as 
                                determined by the Secretary) to such 
                                services; and
                                    ``(III) such that--
                                            ``(aa) the total charge for 
                                        each covered outpatient drug 
                                        dispensed to an eligible 
                                        beneficiary enrolled with the 
                                        entity does not exceed the 
                                        negotiated price for the drug 
                                        (as reported to the Secretary 
                                        pursuant to paragraph (6)(A)); 
                                        and
                                            ``(bb) the retail pharmacy 
                                        dispensing the drug does not 
                                        charge (or collect from) such 
                                        beneficiary an amount that 
                                        exceeds the beneficiary's 
                                        obligation (as determined in 
accordance with the provisions of this part) of the negotiated price.
                    ``(B) Continuity of care.--
                            ``(i) In general.--The eligible entity 
                        ensures that, in the case of an eligible 
                        beneficiary who loses coverage under this part 
                        with such entity under circumstances that would 
                        permit a special election period (as 
                        established by the Secretary under section 
                        1860B(b)), the entity will continue to provide 
                        coverage under this part to such beneficiary 
                        until the beneficiary enrolls and receives such 
                        coverage with another eligible entity under 
                        this part.
                            ``(ii) Limited period.--In no event shall 
                        an eligible entity be required to provide the 
                        extended coverage required under clause (i) 
                        beyond the date which is 30 days after the 
                        coverage with such entity would have terminated 
                        but for this subparagraph.
                    ``(C) Procedures regarding the determination of 
                drugs that are medically necessary.--The eligible 
                entity has in place procedures to determine if a drug 
                is medically necessary to prevent or slow the 
                deterioration of, or improve or maintain, the health of 
                an eligible beneficiary. Such procedures shall require 
                that such determinations are based on professional 
                medical judgment, the medical condition of the 
                beneficiary, and other medical evidence.
                    ``(D) Procedures regarding denials of care.--The 
                eligible entity has in place procedures to ensure--
                            ``(i) a timely internal and external review 
                        and resolution of denials of coverage (in whole 
                        or in part) and complaints (including those 
                        regarding the use of formularies under 
                        paragraph (3)) by eligible beneficiaries, or by 
                        providers, pharmacists, and other individuals 
                        acting on behalf of each such beneficiary (with 
                        the beneficiary's consent) in accordance with 
                        requirements (as established by the Secretary) 
                        that are comparable to such requirements for 
                        Medicare+Choice organizations under part C; and
                            ``(ii) that beneficiaries are provided with 
                        information regarding the appeals procedures 
                        under this part at the time of enrollment.
                    ``(E) Procedures regarding patient 
                confidentiality.--Insofar as an eligible entity 
                maintains individually identifiable medical records or 
                other health information regarding eligible 
                beneficiaries under a contract entered into under this 
                part, the entity has in place procedures to--
                            ``(i) safeguard the privacy of any 
                        individually identifiable beneficiary 
                        information;
                            ``(ii) maintain such records and 
                        information in a manner that is accurate and 
                        timely;
                            ``(iii) ensure timely access by such 
                        beneficiaries to such records and information; 
                        and
                            ``(iv) otherwise comply with applicable 
                        laws relating to patient confidentiality.
                    ``(F) Procedures regarding transfer of medical 
                records.--
                            ``(i) In general.--The eligible entity has 
                        in place procedures for the timely transfer of 
                        records and information described in 
                        subparagraph (E) (with respect to a beneficiary 
                        who loses coverage under this part with the 
                        entity and enrolls with another entity under 
                        this part) to such other entity.
                            ``(ii) Patient confidentiality.--The 
                        procedures described in clause (i) shall comply 
                        with the patient confidentiality procedures 
                        described in subparagraph (E).
                    ``(G) Procedures regarding medical errors.--The 
                eligible entity has in place procedures for working 
                with the Secretary to deter medical errors related to 
                the provision of covered outpatient drugs.
            ``(5) Procedures to control fraud, abuse, and waste.--The 
        eligible entity has in place procedures to control fraud, 
        abuse, and waste.
            ``(6) Reporting requirements.--
                    ``(A) In general.--The eligible entity provides the 
                Secretary with reports containing information regarding 
                the following:
                            ``(i) The prices that the eligible entity 
                        is paying for covered outpatient drugs.
                            ``(ii) The prices that eligible 
                        beneficiaries enrolled with the entity will be 
                        charged for covered outpatient drugs.
                            ``(iii) The administrative costs of 
                        providing such benefits.
                            ``(iv) Utilization of such benefits.
                            ``(v) Marketing and advertising 
                        expenditures related to enrolling and retaining 
                        eligible beneficiaries.
                    ``(B) Timeframe for submitting reports.--
                            ``(i) In general.--The eligible entity 
                        shall submit a report described in subparagraph 
                        (A) to the Secretary within 3 months after the 
                        end of each 12-month period in which the 
                        eligible entity has a contract under this part. 
                        Such report shall contain information 
                        concerning the benefits provided during such 
                        12-month period.
                            ``(ii) Last year of contract.--In the case 
                        of the last year of a contract under this 
                        section, the Secretary may require that a 
                        report described in subparagraph (A) be 
                        submitted 3 months prior to the end of the 
                        contract. Such report shall contain information 
concerning the benefits provided between the period covered by the most 
recent report under this subparagraph and the date that a report is 
submitted under this clause.
                    ``(C) Confidentiality of information.--
                            ``(i) In general.--Notwithstanding any 
                        other provision of law and subject to clause 
                        (ii), information disclosed by an eligible 
                        entity pursuant to subparagraph (A) is 
                        confidential and shall only be used by the 
                        Secretary for the purposes of, and to the 
                        extent necessary, to carry out this part.
                            ``(ii) Utilization data.--Subject to 
                        patient confidentiality laws, the Secretary 
                        shall make information disclosed by an eligible 
                        entity pursuant to subparagraph (A)(iv) 
                        (regarding utilization data) available for 
                        research purposes. The Secretary may charge a 
                        reasonable fee for making such information 
                        available.
            ``(7) Approval of marketing material and application 
        forms.--The eligible entity will comply with the requirements 
        described in section 1860F(f).
            ``(8) Records and audits.--The eligible entity maintains 
        adequate records related to the administration of the benefit 
        under this part and affords the Secretary access to such 
        records for auditing purposes.

                               ``payments

    ``Sec. 1860H. (a) Payments to Eligible Entities.--
            ``(1) Procedures.--
                    ``(A) In general.--The Secretary shall establish 
                procedures for making payments to an eligible entity 
                under a contract entered into under this part for the 
                administration and delivery of the benefits under this 
                part.
                    ``(B) Entities only subject to limited risk.--Under 
                the procedures established under subparagraph (A), an 
                eligible entity shall only be at risk to the extent 
                that the entity is at risk under paragraph (2).
            ``(2) Risk corridors tied to performance measures and other 
        incentives.--
                    ``(A) In general.--The procedures established under 
                paragraph (1) may include the use of--
                            ``(i) risk corridors tied to performance 
                        measures that have been agreed to between the 
                        eligible entity and the Secretary under the 
                        contract; and
                            ``(ii) any other incentives that the 
                        Secretary determines appropriate.
                    ``(B) Phase-in of risk corridors tied to 
                performance measures.--The Secretary may phase-in the 
                use of risk corridors tied to performance measures if 
                the Secretary determines such phase-in to be 
                appropriate.
                    ``(C) Payments subject to incentives.--If a 
                contract under this part includes the use of risk 
                corridors tied to performance measures or other 
                incentives pursuant to subparagraph (A), payments to 
                eligible entities under such contract shall be subject 
                to such risk corridors tied to performance measures and 
                other incentives.
            ``(3) Risk adjustment.--To the extent that eligible 
        entities are at risk because of the risk corridors or other 
        incentives described in paragraph (2)(A), the procedures 
        established under paragraph (1) may include a methodology for 
        adjusting the payments made to such entities based on the 
        differences in actuarial risk of different enrollees being 
        served if the Secretary determines such adjustments to be 
        necessary and appropriate.
    ``(b) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.

``employer incentive program for employment-based retiree drug coverage

    ``Sec. 1860I. (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 outpatient prescription 
                        drug 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 Payments.--
            ``(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 by the Secretary 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 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 
                outpatient prescription drug benefit 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 \2/3\ of the monthly premium amount 
        payable by an eligible beneficiary enrolled under this part, as 
        set for the calendar year pursuant to section 1860D(a)(2).
            ``(3) Payment date.--The incentive under this section with 
        respect to a calendar quarter shall be payable as of the end of 
        the next succeeding calendar quarter.
    ``(d) Civil Money Penalties.--A sponsor, health plan, or other 
entity that the 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 3 times the total incentive amounts under subsection 
(c) that were paid (or would have been payable) on the basis of such 
information.
    ``(e) Definitions.--In this section:
            ``(1) Employment-based retiree health coverage.--The term 
        `employment-based retiree health coverage' means health 
        insurance or other coverage of health care costs 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 
        the term in section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (except that such term shall include only 
        employers of 2 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 outpatient prescription 
                drug benefit 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' has the meaning given 
        the term `plan sponsor' in section 3(16)(B) of the Employer 
        Retirement Income Security Act of 1974.
    ``(f) Authorization of Appropriations.--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 to carry out the 
program under this section.

                            ``appropriations

    ``Sec. 1860J. There are authorized to be appropriated from time to 
time, out of any moneys in the Treasury not otherwise appropriated, to 
the Federal Supplementary Medical Insurance Trust Fund established 
under section 1841, an amount equal to the amount by which the benefits 
and administrative costs of providing the benefits under this part 
exceed the premiums collected under section 1860D.

    ``Subpart 2--Medicare Pharmacy and Therapeutics (P&T) Advisory 
                               Committee

     ``medicare pharmacy and therapeutics (p&t) advisory committee

    ``Sec. 1860M. (a) Establishment of Committee.--There is established 
a Medicare Pharmacy and Therapeutics Advisory Committee (in this 
section referred to as the `Committee').
    ``(b) Functions of Committee.--On and after October 1, 2001, the 
Committee shall advise the Secretary on policies related to--
            ``(1) the development of guidelines for the implementation 
        and administration of the outpatient prescription drug benefit 
        program under this part; and
            ``(2) the development of--
                    ``(A) standards for a pharmacy and therapeutics 
                committee required of eligible entities under section 
                1860G(3)(B)(i);
                    ``(B) procedures required of eligible entities 
                under subparagraphs (C) and (D) of section 1860G(4) for 
                determining if a drug is medically necessary to prevent 
                or slow the deterioration of, or improve or maintain, 
                the health of an eligible beneficiary;
                    ``(C) standards for--
                            ``(i) defining therapeutic classes;
                            ``(ii) adding new therapeutic classes to a 
                        formulary;
                            ``(iii) adding new drugs to a therapeutic 
                        class within a formulary; and
                            ``(iv) when and how often a formulary 
                        should be modified;
                    ``(D) procedures to evaluate the bids submitted by 
                eligible entities under this part; and
                    ``(E) procedures to ensure that eligible entities 
                with a contract under this part are in compliance with 
                the requirements under this part.
    ``(c) Structure and Membership of the Committee.--
            ``(1) Structure.--The Committee shall be composed of 19 
        members who shall be appointed by the Secretary.
            ``(2) Membership.--
                    ``(A) In general.--The members of the Committee 
                shall be chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their education, 
                experience, and attainments, exceptionally qualified to 
                perform the duties of members of the Committee.
                    ``(B) Specific members.--Of the members appointed 
                under paragraph (1)--
                            ``(i) eleven shall be chosen to represent 
                        physicians;
                            ``(ii) four shall be chosen to represent 
                        pharmacists;
                            ``(iii) one shall be chosen to represent 
                        the Health Care Financing Administration;
                            ``(iv) two shall be chosen to represent 
                        actuaries and pharmacoeconomists; and
                            ``(v) one shall be chosen to represent 
                        emerging drug technologies.
    ``(d) Terms of Appointment.--Each member of the Committee shall 
serve for a term determined appropriate by the Secretary. The terms of 
service of the members initially appointed shall begin on January 1, 
2001.
    ``(e) Chairman.--The Secretary shall designate a member of the 
Committee as Chairman. The term as Chairman shall be for a 1-year 
period.
    ``(f) Compensation and Travel Expenses.--
            ``(1) Compensation of members.--Each member of the 
        Committee who is not an officer or employee of the Federal 
        Government shall be compensated at a rate equal to the daily 
        equivalent of the annual rate of basic pay prescribed for level 
        IV of the Executive Schedule under section 5315 of title 5, 
        United States Code, for each day (including travel time) during 
        which such member is engaged in the performance of the duties 
        of the Committee. All members of the Committee who are officers 
        or employees of the United States shall serve without 
        compensation in addition to that received for their services as 
        officers or employees of the United States.
            ``(2) Travel expenses.--The members of the Committee shall 
        be allowed travel expenses, including per diem in lieu of 
        subsistence, at rates authorized for employees of agencies 
        under subchapter I of chapter 57 of title 5, United States 
        Code, while away from their homes or regular places of business 
        in the performance of services for the Committee.
    ``(g) Operation of the Committee.--
            ``(1) Meetings.--The Committee shall meet at the call of 
        the Chairman (after consultation with the other members of the 
        Committee) not less often than quarterly to consider a specific 
        agenda of issues, as determined by the Chairman after such 
        consultation.
            ``(2) Quorum.--Ten members of the Committee shall 
        constitute a quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--Section 14 of the Federal 
Advisory Committee Act (5 U.S.C. App.) shall not apply to the 
Committee.
    ``(i) Transfer of Personnel, Resources, and Assets.--For purposes 
of carrying out its duties, the Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ of the Department of Health and Human Services, and such 
resources and assets of the Department used in carrying out this title, 
as the Committee requires.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
    (b) Exclusions From Coverage.--
            (1) Application to part d.--Section 1862(a) of the Social 
        Security Act (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''.
            (2) Prescription drugs not excluded from coverage if 
        reasonable and necessary.--Section 1862(a)(1) of the Social 
        Security Act (42 U.S.C. 1395y(a)(1)) is amended--
                    (A) in subparagraph (H), by striking ``and'' at the 
                end;
                    (B) in subparagraph (I), by striking the semicolon 
                at the end and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(J) in the case of prescription drugs covered 
                under part D, which are not reasonable and necessary to 
                prevent or slow the deterioration of, or improve or 
                maintain, the health of eligible beneficiaries;''.
    (c) Conforming References to Previous Part D.--
            (1) In general.--Any reference in law (in effect before the 
        date of enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of such 
        title (as in effect after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 6 months after the date of enactment of this Act, 
        the Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this Act.

SEC. 3. PART D BENEFITS UNDER MEDICARE+CHOICE PLANS.

    (a) Eligibility, Election, and Enrollment.--Section 1851 of the 
Social Security Act (42 U.S.C. 1395w-21) is amended--
            (1) in subsection (a)(1)(A), by striking ``parts A and B'' 
        and inserting ``parts A, B, and D''; and
            (2) in subsection (i)(1), by striking ``parts A and B'' and 
        inserting ``parts A, B, and D''.
    (b) Voluntary Beneficiary Enrollment for Drug Coverage.--Section 
1852(a)(1)(A) of such Act (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) Access to Services.--Section 1852(d)(1) of such Act (42 U.S.C. 
1395w-22(d)(1)) is amended--
            (1) in subparagraph (D), by striking ``and'' at the end;
            (2) in subparagraph (E), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(F) in the case of covered outpatient drugs 
                provided to individuals enrolled under part D (as 
                defined in section 1860(1)), the organization complies 
                with the access requirements applicable under part 
                D.''.
    (d) Payments to Organizations.--Section 1853(a)(1)(A) of such Act 
(42 U.S.C. 1395w-23(a)(1)(A)) is amended--
            (1) by inserting ``determined separately for the benefits 
        under parts A and B and under part D (for individuals enrolled 
        under that part)'' after ``as calculated under subsection 
        (c)'';
            (2) by striking ``that area, adjusted for such risk 
        factors'' and inserting ``that area. In the case of payment for 
        the benefits under parts A and B, such payment shall be 
        adjusted for such risk factors as''; and
            (3) by inserting before the last sentence the following: 
        ``In the case of the payments for the benefits under part D, 
        such payment shall initially be adjusted for the risk factors 
        of each enrollee as the Secretary determines to be feasible and 
        appropriate to ensure actuarial equivalence. By 2006, the 
        adjustments to payments for benefits under part D shall be for 
        the same risk factors used to adjust payments for the benefits 
        under parts A and B.''.
    (e) Calculation of Annual Medicare+Choice Capitation Rates.--
Section 1853(c) of such Act (42 U.S.C. 1395w-23(c)) is amended--
            (1) in paragraph (1), in the matter preceding subparagraph 
        (A), by inserting ``for benefits under parts A and B'' after 
        ``capitation rate''; and
            (2) by adding at the end the following new paragraph:
            ``(8) Payment for part d benefits.--The Secretary shall 
        determine a capitation rate for part D benefits (for 
        individuals enrolled under such part) as follows:
                    ``(A) Drugs dispensed in 2003.--In the case of 
                prescription drugs dispensed in 2003, the capitation 
                rate shall be based on the projected national per 
                capita costs for prescription drug benefits under part 
                D and associated claims processing costs for 
                beneficiaries enrolled under part D and not enrolled 
                with a Medicare+Choice organization under this part.
                    ``(B) Drugs dispensed in subsequent years.--In the 
                case of prescription drugs dispensed in a subsequent 
                year, the capitation rate shall be equal to the 
                capitation rate for the preceding year increased by the 
                Secretary's estimate of the projected per capita rate 
                of growth in expenditures under this title for an 
                individual enrolled under part D for such subsequent 
                year.''.
    (f) Limitation on Enrollee Liability.--Section 1854(e) of such Act 
(42 U.S.C. 1395w-24(e)) is amended by adding at the end the following 
new paragraph:
            ``(5) Special rule for part d benefits.--With respect to 
        outpatient prescription drug benefits under part D, a 
        Medicare+Choice organization may not require that an enrollee 
        pay a deductible or a coinsurance percentage that exceeds the 
        deductible or coinsurance percentage applicable for such 
        benefits for an eligible beneficiary under part D.''.
    (g) Requirement for Additional Benefits.--Section 1854(f)(1) of 
such Act (42 U.S.C. 1395w-24(f)(1)) is amended by adding at the end the 
following new sentence: ``Such determination shall be made separately 
for the benefits under parts A and B and for prescription drug benefits 
under part D.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to items and services provided under a Medicare+Choice plan on or 
after January 1, 2003.

SEC. 4. EXCLUSION OF PART D COSTS FROM DETERMINATION OF PART B MONTHLY 
              PREMIUM.

    Section 1839(g) of the Social Security Act (42 U.S.C. 1395r(g)) is 
amended--
            (1) by striking ``attributable to the application of 
        section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(2) the program under part D providing payment for 
        covered outpatient drugs (including costs associated with 
        making payments to employers and other sponsors of employment-
        based health care coverage under the Employer Incentive Program 
        under section 1860I).''.

SEC. 5. REPORTING REQUIREMENTS FOR SECRETARY OF THE TREASURY REGARDING 
              INCOME-RELATED PART D PREMIUM.

    (a) In General.--Subsection (l) of section 6103 of the Internal 
Revenue Code of 1986 (relating to disclosure of returns and return 
information for purposes other than tax administration) is amended by 
adding at the end the following new paragraph:
            ``(18) Disclosure of return information to carry out 
        income-related reduction in medicare part d premium.--
                    ``(A) In general.--The Secretary may, upon written 
                request from the Secretary of Health and Human 
                Services, disclose to officers and employees of the 
                Health Care Financing Administration return information 
with respect to a taxpayer who is required to pay a monthly premium 
under part D of the Social Security Act. Such return information shall 
be limited to--
                            ``(i) taxpayer identity information with 
                        respect to such taxpayer,
                            ``(ii) the filing status of such taxpayer,
                            ``(iii) the adjusted gross income of such 
                        taxpayer,
                            ``(iv) the amounts excluded from such 
                        taxpayer's gross income under sections 135 and 
                        911,
                            ``(v) the interest received or accrued 
                        during the taxable year which is exempt from 
                        the tax imposed by chapter 1 to the extent such 
                        information is available, and
                            ``(vi) the amounts excluded from such 
                        taxpayer's gross income under sections 931 and 
                        933 to the extent such information is 
                        available.
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed under 
                subparagraph (A) may be used by officers and employees 
                of the Health Care Financing Administration only for 
                the purposes of, and to the extent necessary in, 
                establishing the appropriate monthly premium under part 
                D of the Social Security Act.''.
    (b) Conforming Amendment.--Paragraphs (3)(A) and (4) of section 
6103(p) of such Code are each amended by striking ``or (17)'' each 
place it appears and inserting ``(17), or (18)''.

SEC. 6. ADDITIONAL ASSISTANCE FOR LOW-INCOME BENEFICIARIES.

    (a) Inclusion in Medicare Cost-Sharing.--Section 1905(p)(3) of the 
Social Security Act (42 U.S.C. 1396d(p)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``and'' at the end;
                    (B) in clause (ii), by inserting ``and'' at the 
                end; and
                    (C) by adding at the end the following new clause:
            ``(iii) premiums under section 1860D.'';
            (2) in subparagraph (B), by striking ``section 1813'' and 
        inserting ``sections 1813 and 1860E(b)''; and
            (3) in subparagraph (C), by striking ``section 1813 and 
        section 1833(b)'' and inserting ``sections 1813, 1833(b), and 
        1860E(a)''.
    (b) Expansion of Medical Assistance.--Section 1902(a)(10)(E) of the 
Social Security Act (42 U.S.C. 1396a(a)(10)(E)) is amended--
            (1) in clause (iii)--
                    (A) by striking ``section 1905(p)(3)(A)(ii)'' and 
                inserting ``clauses (ii) and (iii) of section 
                1905(p)(3)(A), for the coinsurance described in section 
                1860E(b), and for the deductible described in section 
                1860E(a)''; and
                    (B) by striking ``and'' at the end;
            (2) by redesignating clause (iv) as clause (vi); and
            (3) by inserting after clause (iii) the following new 
        clauses:
                    ``(iv) for making medical assistance available for 
                medicare cost-sharing described in section 
                1905(p)(3)(A)(iii), for the coinsurance described in 
                section 1860E(b), and for the deductible described in 
                section 1860E(a) for individuals who would be qualified 
                medicare beneficiaries described in section 1905(p)(1) 
                but for the fact that their income exceeds 120 percent 
                but does not exceed 135 percent of such official 
                poverty line for a family of the size involved;
                    ``(v) for making medical assistance available for 
                medicare cost-sharing described in section 
                1905(p)(3)(A)(iii) on a linear sliding scale based on 
                the income of such individuals for individuals who 
                would be qualified medicare beneficiaries described in 
                section 1905(p)(1) but for the fact that their income 
                exceeds 135 percent but does not exceed 150 percent of 
                such official poverty line for a family of the size 
                involved; and''.
    (c) Nonapplicability of Payment Differential Requirements to 
Medicare Part D Cost-Sharing.--Section 1902(n)(2) of the Social 
Security Act (42 U.S.C. 1396a(n)(2)) is amended by adding at the end 
the following new sentence: ``The preceding sentence shall not apply to 
coinsurance described in section 1860E(b) or deductibles described in 
section 1860E(a).''.
    (d) 100 Percent Federal Medical Assistance Percentage.--The first 
sentence of section 1905(b) of the Social Security Act (42 U.S.C. 
1396d(b)) is amended--
            (1) by striking ``and'' before ``(3)''; and
            (2) by inserting before the period at the end the 
        following: ``, and (4) the Federal medical assistance 
        percentage shall be 100 percent with respect to medical 
        assistance provided under clauses (iv) and (v) of section 
        1902(a)(10)(E)''.
    (e) Treatment of Territories.--Section 1108(g) of such Act (42 
U.S.C. 1308(g)) is amended by adding at the end the following new 
paragraph:
    ``(3) Notwithstanding the preceding provisions of this subsection, 
with respect to fiscal year 2003 and any fiscal year thereafter, the 
amount otherwise determined under this subsection (and subsection (f)) 
for the fiscal year for a Commonwealth or territory shall be increased 
by the ratio (as estimated by the Secretary) of--
            ``(A) the aggregate amount of payments made to the 50 
        States and the District of Columbia for the fiscal year under 
        title XIX that are attributable to making medical assistance 
        available for individuals described in clauses (i), (iii), 
        (iv), and (v) of section 1902(a)(10)(E) for payment of medicare 
        cost-sharing that consists of premiums under section 1860D, 
        coinsurance described in section 1860E(b), or deductibles 
        described in section 1860E(a); to
            ``(B) the aggregate amount of total payments made to such 
        States and District for the fiscal year under such title.''.
    (f) Conforming Amendments.--Section 1933 of the Social Security Act 
(42 U.S.C. 1396u-3) is amended--
            (1) in subsection (a), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)'';
            (2) in subsection (c)(2)(A)--
                    (A) in clause (i), by striking ``section 
                1902(a)(10)(E)(iv)(I)'' and inserting ``section 
                1902(a)(10)(E)(vi)(I)''; and
                    (B) in clause (ii), by striking ``section 
                1902(a)(10)(E)(iv)(II)'' and inserting ``section 
                1902(a)(10)(E)(vi)(II)'';
            (3) in subsection (d), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)''; and
            (4) in subsection (e), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)''.
    (g) Effective Date.--The amendments made by this section shall 
apply for medical assistance provided under section 1902(a)(10)(E) of 
the Social Security Act (42 U.S.C. 1396a(a)(10)(E)) on and after 
January 1, 2003.

SEC. 7. MEDIGAP REVISIONS.

    Section 1882 of the Social Security Act (42 U.S.C. 1395ss) is 
amended by adding at the end the following new subsection:
    ``(v) Modernized Benefit Packages for Medicare Supplemental 
Policies.--
            ``(1) Promulgation of model regulation.--
                    ``(A) NAIC model regulation.--If, within 9 months 
                after the date of enactment of the Medicare Outpatient 
                Drug Act of 2000, the National Association of Insurance 
                Commissioners (in this subsection referred to as the 
                `NAIC') changes the 1991 NAIC Model Regulation 
                (described in subsection (p)) to revise the benefit 
                packages classified as `H', `I', and `J' under the 
                standards established by subsection (p)(2) (including 
                the benefit package classified as `J' with a high 
                deductible feature, as described in subsection (p)(11)) 
                so that--
                            ``(i) the coverage for outpatient 
                        prescription drugs available under such benefit 
                        packages is replaced with coverage for 
                        outpatient prescription drugs that compliments 
                        but does not duplicate the benefits for 
                        outpatient prescription drugs that 
                        beneficiaries are otherwise entitled to under 
                        this title;
                            ``(ii) the revised benefit packages provide 
                        a range of coverage options for outpatient 
                        prescription drugs for beneficiaries, but do 
                        not provide coverage for--
                                    ``(I) the deductible under section 
                                1860E(a); or
                                    ``(II) more than 90 percent of the 
                                coinsurance applicable to an individual 
                                under section 1860E(b);
                            ``(iii) uniform language and definitions 
                        are used with respect to such revised benefits;
                            ``(iv) uniform format is used in the policy 
                        with respect to such revised benefits; and
                            ``(v) such revised standards meet any 
                        additional requirements imposed by the Medicare 
                        Outpatient Drug Act of 2000;
                subsection (g)(2)(A) shall be applied in each State, 
                effective for policies issued to policy holders on and 
                after January 1, 2003, as if the reference to the Model 
                Regulation adopted on June 6, 1979, were a reference to 
                the 1991 NAIC Model Regulation as changed under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2003 NAIC Model Regulation').
                    ``(B) Regulation by the secretary.--If the NAIC 
                does not make the changes in the 1991 NAIC Model 
                Regulation within the 9-month period specified in 
                subparagraph (A), the Secretary shall promulgate, not 
                later than 9 months after the end of such period, a 
                regulation and subsection (g)(2)(A) shall be applied in 
                each State, effective for policies issued to policy 
                holders on and after January 1, 2003, as if the 
                reference to the Model Regulation adopted on June 6, 
                1979, were a reference to the 1991 NAIC Model 
                Regulation as changed by the Secretary under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2003 Federal Regulation').
                    ``(C) Consultation with working group.--In 
                promulgating standards under this paragraph, the NAIC 
                or Secretary shall consult with a working group similar 
                to the working group described in subsection (p)(1)(D).
                    ``(D) Modification of standards if medicare 
                benefits change.--If benefits (including deductibles 
                and coinsurance) under part D of this title are changed 
                and the Secretary determines, in consultation with the 
                NAIC, that changes in the 2003 NAIC Model Regulation or 
                2003 Federal Regulation are needed to reflect such 
                changes, the preceding provisions of this paragraph 
                shall apply to the modification of standards previously 
                established in the same manner as they applied to the 
                original establishment of such standards.
            ``(2) Construction of benefits in other medicare 
        supplemental policies.--Nothing in the benefit packages 
        classified as `A' through `G' under the standards established 
        by subsection (p)(2) (including the benefit package classified 
        as `F' with a high deductible feature, as described in 
        subsection (p)(11)) shall be construed as providing coverage 
        for benefits for which payment may be made under part D.
            ``(3) Application of provisions and conforming 
        references.--
                    ``(A) Application of provisions.--The provisions of 
                paragraphs (4) through (10) of subsection (p) shall 
                apply under this section, except that--
                            ``(i) any reference to the model regulation 
                        applicable under that subsection shall be 
                        deemed to be a reference to the applicable 2003 
                        NAIC Model Regulation or 2003 Federal 
                        Regulation; and
                            ``(ii) any reference to a date under such 
                        paragraphs of subsection (p) shall be deemed to 
                        be a reference to the appropriate date under 
                        this subsection.
                    ``(B) Other references.--Any reference to a 
                provision of subsection (p) or a date applicable under 
                such subsection shall also be considered to be a 
                reference to the appropriate provision or date under 
                this subsection.''.

SEC. 8. HHS STUDIES AND REPORT TO CONGRESS.

    (a) Studies.--The Secretary of Health and Human Services shall 
conduct a study to determine the feasibility and advisability of--
            (1) establishing a uniform format for pharmacy benefit 
        cards provided to beneficiaries by eligible entities under the 
        outpatient prescription drug benefit program under part D of 
        title XVIII of the Social Security Act (as added by section 2); 
        and
            (2) developing systems to electronically transfer 
        prescriptions under such program from the prescriber to the 
        pharmacist.
    (b) Report.--Not later than 2 years after the date of enactment of 
this Act, the Secretary of Health and Human Services shall submit to 
Congress a report on the results of the studies conducted under 
subsection (a), together with any recommendations for legislation that 
the Secretary determines to be appropriate as a result of such studies.

SEC. 9. APPROPRIATIONS.

    In addition to amounts otherwise appropriated to the Secretary of 
Health and Human Services, there are authorized to be appropriated to 
the Secretary for fiscal year 2001 and each subsequent fiscal year such 
sums as may be necessary to administer the outpatient prescription drug 
benefit program under part D of title XVIII of the Social Security Act 
(as added by section 2).
                                 <all>