[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 339 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 339

To amend title XVIII of the Social Security Act to provide for coverage 
of outpatient prescription drugs under part B of the Medicare Program, 
                        and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 31, 2001

   Mr. Engel (for himself, Mr. Frost, Mr. Hilliard, Mr. Weiner, Mr. 
   Nadler, and Mr. McNulty) introduced the following bill; which was 
 referred to the Committee on Energy and Commerce, and in addition to 
   the Committee on Ways and Means, for a period to be subsequently 
   determined by the Speaker, in each case for consideration of such 
 provisions as fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
To amend title XVIII of the Social Security Act to provide for coverage 
of outpatient prescription drugs under part B of the Medicare Program, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Outpatient Prescription 
Drug Coverage Act of 2001''.

SEC. 2. MEDICARE COVERAGE OF OUTPATIENT PRESCRIPTION DRUGS.

    (a) Description of Covered Outpatient Drugs.--
            (1) Coverage.--Section 1861(s)(2)(J) of the Social Security 
        Act (42 U.S.C. 1395x(s)(2)(J)) is amended to read as follows:
            ``(J) covered outpatient drugs (as defined in subsection 
        (t)(2));''.
            (2) Drugs defined.--Section 1861(t) of such Act (42 U.S.C. 
        1395x(t)) is amended--
                    (A) in the heading, by adding at the end the 
                following: ``; Covered Outpatient Drugs'';
                    (B) in paragraph (1)--
                            (i) by striking ``paragraph (2)'' and 
                        inserting ``the succeeding paragraphs of this 
                        subsection'', and
                            (ii) by striking the period at the end and 
                        inserting ``, but only if used for a medically 
                        accepted indication (as described in paragraph 
                        (4)).''; and
                    (C) by striking paragraph (2) and inserting the 
                following:
    ``(2) Subject to paragraph (3), the term `covered outpatient drug' 
means--
            ``(A) 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 
                or 507 of the Federal Food, Drug, and Cosmetic Act or 
                which is approved under section 505(j) of such Act;
                    ``(ii)(I) which was commercially used or sold in 
                the United States before the date of the 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 (II) 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)(I) 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 (II) 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;
            ``(B) 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; and
            ``(C) insulin certified under section 506 of the Federal 
        Food, Drug, and Cosmetic Act.
    ``(3) The term `covered outpatient drug' does not include--
            ``(A) any drug, biological product, or insulin when 
        furnished as part of, or as incident to, a diagnostic service 
        or any other item or service for which payment may be made 
        under this title (other than physicians' services or services 
        which would be physicians' services if furnished by a 
        physician); or
            ``(B) any drug that is intravenously administered in a home 
        setting.
    ``(4) For purposes of paragraph (2), the term `medically accepted 
indication', with respect to the use of an outpatient drug, includes--
            ``(A) any use which has been approved by the Food and Drug 
        Administration for the drug, and
            ``(B) any other use of the drug, unless the Secretary 
        determines that such use is not medically appropriate.''.
            (3) Conforming amendments repealing separate coverage of 
        certain drugs and products.--(A) Effective January 1, 2003, 
        section 1861(s)(2) of such Act (42 U.S.C. 1395x(s)(2)) is 
        amended--
                    (i) in each of subparagraphs (A) and (B) (as 
                amended by section 112(a) of the Medicare, Medicaid, 
                and SCHIP Benefits Improvement and Protection Act of 
                2000, as enacted into law by section 1(a)(6) of Public 
Law 106-554), by striking ``(including drugs'' and all that follows 
through ``patient)''; and
                    (ii) by striking subparagraphs (G), (I), (O), (Q), 
                and (T).
            (B) Effective January 1, 2003, section 1861 of such Act (42 
        U.S.C. 1395x) is amended by striking the subsection (kk).
            (C) Effective January 1, 2003, section 1881(b) of such Act 
        (42 U.S.C. 1395rr(b)) is amended--
                    (i) in the first sentence of paragraph (1)--
                            (I) by striking ``, (B)'' and inserting 
                        ``and (B)''; and
                            (II) by striking ``, and (C)'' and all that 
                        follows and inserting a period; and
                    (ii) in paragraph (11)--
                            (I) by striking ``(11)(A)'' and inserting 
                        ``(11)''; and
                            (II) by striking subparagraphs (B) and (C).
    (b) Deductible and Payment Amounts.--(1) Section 1833(a)(1) of such 
Act (42 U.S.C. 1395l(a)(1)), as amended by sections 105(c) and 223(c) 
of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, as enacted into law by section 1(a)(6) of 
Public Law 106-554, is amended--
            (A) by striking ``and (U)'' and inserting ``(U)''; and
            (B) by striking the semicolon at the end and inserting the 
        following ``, and (V) with respect to expenses incurred for 
        covered outpatient drugs, the amounts paid shall be the amounts 
        determined under section 1834(e)(2);''.
    (2) Section 1833(a)(2) of such Act (42 U.S.C. 1395l(a)(2)) is 
amended--
            (A) by inserting ``(other than covered outpatient drugs)'' 
        after ``(2) in the case of services''; and
            (B) by striking ``(other than a covered osteoporosis drug) 
        (as defined in section 1861(kk))''.
    (3) Section 1833(b) of such Act (42 U.S.C. 1395l(b)) is amended--
            (A) in clause (1), by inserting ``or for covered outpatient 
        drugs'' after ``1861(s)(10)(A)'', and
            (B) in clause (2), by striking `` (other than a covered 
        osteoporosis drug (as defined in section 1861(kk)))''.
    (4) Section 1834 of such Act (42 U.S.C. 1395m) is amended by 
inserting after subsection (d) the following new subsection:
    ``(e) Payment for Covered Outpatient Drugs.--
            ``(1) Deductible.--
                    ``(A) Application.--
                            ``(i) In general.--Except as provided in 
                        clauses (ii) and (iii), payment shall be made 
                        under paragraph (2) only with respect to 
                        expenses incurred by an individual for covered 
                        outpatient drugs during a calendar year on or 
                        after such date in the year as the Secretary 
                        determines that the individual has incurred 
                        expenses in the year for covered outpatient 
                        drugs (during a period in which the individual 
                        is entitled to benefits under this part) equal 
                        to the amount of the prescription drug 
                        deductible specified in subparagraph (C) for 
                        that year.
                            ``(ii) Deductible not applied to 1st year 
                        immunosuppressives.--The prescription drug 
                        deductible established under this paragraph 
                        shall not apply to drugs described in section 
                        1861(t)(2)(A) used in immunosuppressive therapy 
                        and furnished, to an individual who receives an 
                        organ transplant for which payment is made 
                        under this title, within 1 year after the date 
                        of the transplant.
                    ``(B) Response to application.--If the system 
                described in section 1842(u)(4) has not been 
                established and an individual applies to the Secretary 
                to establish that the individual has met the 
                requirement of subparagraph (A), the Secretary shall 
                promptly notify the individual (and, if the application 
                was submitted by or through a participating pharmacy, 
                the pharmacy) as to the date (if any) as of which the 
                individual has met such requirement.
                    ``(C) Prescription drug deductible amount.--The 
                prescription drug deductible specified in this 
                subparagraph for--
                            ``(i) 2003 is $250, and
                            ``(ii) any succeeding year, is the 
                        prescription drug deductible for the preceding 
                        year, increased by the percentage by which the 
                        monthly premium under section 1839 for months 
                        during the year exceeds the monthly premium 
                        under such section for months during the 
                        preceding year.
            ``(2) Payment amount.--
                    ``(A) In general.--Subject to the prescription drug 
                deductible established under paragraph (1)(A) and 
                except as provided in subparagraph (B), the amounts 
                payable under this part with respect to a covered 
                outpatient drug is equal to 80 percent of the lesser 
                of--
                            ``(i) the actual charge for the drug, or
                            ``(ii) the applicable payment limit 
                        established under paragraph (3).
                    ``(B) Treatment of certain cost-based prepaid 
                organizations.--In applying subparagraph (A) in the 
                case of a Medicare+Choice organization under part C, an 
                organization under a reasonable cost reimbursement 
                contract under section 1876, and in the case of an 
                organization receiving payment under section 
                1833(a)(1)(A) and providing coverage of covered 
                outpatient drugs, the Secretary shall provide for an 
                appropriate adjustment in the payment amounts otherwise 
                made to reflect the aggregate increase in payments that 
                would otherwise be made with respect to enrollees 
in such an organization if payments were made other than under such 
clause or such a contract on an individual-by-individual basis.
            ``(3) Payment limits.--
                    ``(A) Payment limit for non-multiple source drugs 
                and multiple-source drugs with restrictive 
                prescriptions.--In the case of a drug that either is 
                not a multiple source drug (as defined in paragraph 
                (9)(A)) or is a multiple source drug and has 
a restrictive prescription (as defined in paragraph (9)(B)), the 
payment limit for the drug under this paragraph for a payment 
calculation period is equal to the lesser of--
                            ``(i) the 90th percentile of the actual 
                        charges (computed on a statewide basis, 
                        carrier-wide basis, or other appropriate 
                        geographic area basis, as specified by the 
                        Secretary) for the drug for the second previous 
                        payment calculation period, adjusted (as the 
                        Secretary determines to be appropriate) to 
                        reflect the number of tablets (or other dosage 
                        units) dispensed; or
                            ``(ii) the amount of the administrative 
                        allowance (established under paragraph (4)) 
                        plus the product of--
                                    ``(I) the number of tablets (or 
                                other dosage units) dispensed, and
                                    ``(II) the per tablet or unit 
                                average wholesale price for such drug 
                                (as determined under subparagraph (C) 
                                for the period for purposes of this 
                                subparagraph).
                    ``(B) Payment limit for multiple source drugs 
                without restrictive prescriptions.--In the case of a 
                drug that is a multiple source drug but does not have a 
                restrictive prescription, the payment limit for the 
                drug under this paragraph for a payment calculation 
                period is equal to the amount of the administrative 
                allowance (established under paragraph (4)) plus the 
                product of--
                            ``(i) the number of tablets (or other 
                        dosage units) dispensed, and
                            ``(ii) the unweighted median of the per 
                        tablet or unit average wholesale prices 
                        (determined under subparagraph (C) for purposes 
                        of this subparagraph) for such drug for the 
                        period.
                    ``(C) Determination of unit price.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the Secretary shall determine, with 
                        respect to the dispensing of a covered 
                        outpatient drug in a payment calculation period 
                        (beginning on or after January 1, 2003), the 
                        per tablet or unit average wholesale price for 
                        the drug.
                            ``(ii) Basis for determinations.--
                                    ``(I) Determination for non-
                                multiple-source drugs.--For purposes of 
                                subparagraph (A), such determination 
                                shall be based on a biannual survey 
                                conducted by the Secretary of a 
                                representative sample of direct 
                                sellers, wholesalers, or pharmacies (as 
                                appropriate) of wholesale (or 
                                comparable direct) prices (excluding 
                                discounts to pharmacies); except that 
                                if, because of low volume of sales for 
                                the drug or other appropriate reasons 
                                or in the case of covered outpatient 
                                drugs during 2003, the Secretary 
                                determines that such a survey is not 
                                appropriate with respect to a specific 
                                drug, such determination shall be based 
                                on published average wholesale (or 
                                comparable direct) prices for the drug.
                                    ``(II) Determination for multiple-
                                source drugs.--For purposes of 
                                subparagraph (B), the Secretary may 
                                base the determination under this 
                                subparagraph on the published average 
                                wholesale (or comparable direct) prices 
                                for the drug or on a biannual survey 
                                conducted by the Secretary of a 
                                representative sample of direct 
                                sellers, wholesalers, or pharmacists 
                                (as appropriate) of wholesale (or 
                                comparable direct) prices (excluding 
                                discounts to pharmacies).
                                    ``(III) Compliance with survey 
                                required.--If a wholesaler or direct 
                                seller of a covered outpatient drug 
                                refuses, after being requested by the 
                                Secretary, to provide the information 
                                required in a survey under this clause, 
                                or deliberately provides information 
                                that is false, the Secretary may impose 
                                a civil money penalty of not to exceed 
                                $10,000 for each such refusal or 
                                provision of false information. The 
                                provisions of section 1128A (other than 
                                subsections (a) and (b)) shall apply to 
                                civil money penalties under the 
                                previous sentence in the same manner as 
                                such provisions apply to a penalty or 
                                proceeding under section 1128A(a). 
                                Information gathered pursuant to the 
                                survey shall not be disclosed except as 
                                the Secretary determines to be 
                                necessary to carry out the purposes of 
                                this part.
                            ``(iii) Quantity and timing.--Such 
                        determination shall be based on the price or 
                        prices for purchases in reasonable quantities 
                        and shall be made for a payment calculation 
                        period based on prices for the first day of the 
                        first month of the previous payment calculation 
                        period.
                            ``(iv) Geographic basis.--The Secretary 
                        shall make such determination, and calculate 
the payment limits under this paragraph, on a national basis.
                            ``(v) Adjustment for geographic variations 
                        in costs.--The Secretary shall adjust the 
                        payment limits under this paragraph to take 
                        account of limitations on the availability of 
                        drug products and variations among regions in 
                        the average wholesale prices for a drug 
                        product, using an appropriate index as 
                        determined by the Secretary.
            ``(4) Administrative allowance for purposes of payment 
        limits.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), for drugs dispensed in--
                            ``(i) 2003, the administrative allowance 
                        under this paragraph is--
                                    ``(I) $5 for drugs dispensed by a 
                                participating pharmacy, or
                                    ``(II) $3 for drugs dispensed by 
                                another pharmacy; or
                            ``(ii) a subsequent year, the 
                        administrative allowance under this paragraph 
                        is the administrative allowance under this 
                        paragraph for the preceding year increased by 
                        the percentage increase (if any) in the 
                        implicit price deflator for gross national 
                        product (as published by the Department of 
                        Commerce in its `Survey of Current Business') 
                        over the 12-month period ending with August of 
                        such preceding year.
                Any allowance determined under the clause (ii) which is 
                not a multiple of 1 cent shall be rounded to the 
                nearest multiple of 1 cent.
                    ``(B) Adjustment in allowance for mail service 
                pharmacies.--The Secretary may, by regulation and after 
                consultation with pharmacists, elderly groups, and 
                private insurers, reduce the administrative allowances 
                established under subparagraph (A) for any drug 
                dispensed by a mail service pharmacy (as defined by the 
                Secretary) based on differences between such pharmacies 
                and other pharmacies with respect to operating costs 
                and other economies.
            ``(5) Assuring appropriate prescribing and dispensing 
        practices.--
                    ``(A) In general.--The Secretary shall establish a 
                program to identify (and to educate physicians and 
                pharmacists concerning)--
                            ``(i) instances or patterns of unnecessary 
                        or inappropriate prescribing or dispensing 
                        practices for covered outpatient drugs;
                            ``(ii) instances or patterns of substandard 
                        care with respect to such drugs; and
                            ``(iii) potential adverse reactions.
                    ``(B) Standards.--In carrying out the program under 
                subparagraph (A), the Secretary shall establish for 
                each covered outpatient drug standards for the 
                prescribing of the drug which are based on accepted 
                medical practice. In establishing such standards, the 
                Secretary shall incorporate standards from such current 
                authoritative compendia as the Secretary may select; 
                except that the Secretary may modify such a standard by 
                regulation on the basis of scientific and medical 
                information that such standard is not consistent with 
                the safe and effective use of the drug.
                    ``(C) Prohibition of formulary.--Nothing in this 
                title (other than section 1862(c)) shall be construed 
                as authorizing the Secretary to exclude from coverage 
                or to deny payment--
                            ``(i) for any specific covered outpatient 
                        drug, or specific class of covered outpatient 
                        drug; or
                            ``(ii) for any specific use of such a drug 
                        for a specific indication unless such exclusion 
                        is pursuant to section 1862(a)(1) based on a 
                        finding by the Secretary that such use is not 
                        safe or is not effective.
            ``(6) Treatment of certain prepaid organizations.--
                    ``(A) General rule counting prepaid plan expenses 
                toward the prescription drug deductible.--Except as 
                provided in subparagraph (B), expenses incurred by (or 
                on behalf of) a medicare beneficiary for covered 
                outpatient drugs shall be counted (consistent with 
                subparagraph (C)) toward the prescription drug 
                deductible established under paragraph (1) whether or 
                not, at the time the expenses were incurred, the 
                beneficiary was enrolled in a plan under section 
                1833(a)(1)(A), a Medicare+Choice plan under part C, or 
                under section 1876.
                    ``(B) Treatment of drug buy-out plan expenses.--In 
                the case of a medicare beneficiary enrolled in a month 
                in a drug buy-out plan (as defined in subparagraph 
                (D))--
                            ``(i) expenses incurred by the beneficiary 
                        for covered outpatient drugs reimbursed under 
                        the plan shall not be counted toward the 
                        prescription drug deductible, but
                            ``(ii) if the individual disenrolls from 
                        the plan during the year, the beneficiary is 
                        deemed to have incurred, for each month of such 
                        enrollment, expenses for covered outpatient 
                        drugs in an amount equal to the actuarial value 
                        (with respect to such month) of the deductible 
                        for covered outpatient drugs (as computed by 
                        the Secretary for purposes of section 
                        1876(e)(1)) applicable on the average to 
                        individuals in the United States.
                    ``(C) Treatment of expenses for covered outpatient 
                drugs incurred while enrolled in a prepaid plan other 
                than a drug buy-out plan.--The Secretary may not enter 
                into a contract with a Medicare+Choice organization 
under part C, an organization under section 1876, or provide for 
payment under section 1833(a)(1)(A) with respect to an organization 
which provides reimbursement for covered outpatient drugs, with respect 
to a plan that is not a drug buy-out plan, unless the organization 
provides assurances, satisfactory to the Secretary, that--
                            ``(i) the organization will maintain and 
                        make available, for its enrollees and in 
                        coordination with the appropriate carriers 
                        under this part, an accounting of expenses 
                        incurred by (or on behalf of) enrollees under 
the plan for covered outpatient drugs; and
                            ``(ii) the organization will take into 
                        account, in any deductibles established under 
                        the plan in a year with respect to covered 
                        outpatient drugs under this part, the amounts 
                        of expenses for covered outpatient drugs 
                        incurred in the year by (or on behalf of) the 
                        beneficiary and otherwise counted toward the 
                        prescription drug deductible in the year.
                    ``(D) Drug buy-out plan defined.--In this 
                paragraph, the term `drug buy-out plan' means a plan 
                under section 1833(a)(1)(A) or offered by a 
                Medicare+Choice organization under part C, or an 
                organization under section 1876 and with respect to 
                which--
                            ``(i) the amount of any deductible under 
                        the plan with respect to covered outpatient 
                        drugs under this title,
                is less than 50 percent of--
                            ``(ii) the prescription drug deductible 
                        specified in paragraph (1)(C).
                    ``(E) Medicare beneficiary defined.--In this 
                subsection, the term `Medicare beneficiary' means, with 
                respect to a month, an individual covered for benefits 
                under this part for the month.
                    ``(F) Treatment of plan charges.--In the case of 
                covered outpatient drugs furnished by a Medicare+Choice 
                organization under part C, an eligible organization 
                under section 1876(b) or an organization described in 
                section 1833(a)(1)(A) which does not impose charges on 
                covered outpatient drugs dispensed to its members, for 
                purposes of this subsection the actual charges of the 
                organization shall be the organization's standard 
                charges to members, and other individuals, not entitled 
                to benefits with respect to such drugs.
            ``(7) Physician guide.--
                    ``(A) In general.--The Secretary shall develop, and 
                update annually, an information guide for physicians 
                concerning the comparative average wholesale prices of 
                at least 500 of the most commonly prescribed covered 
                outpatient drugs. Such guide shall, to the extent 
                practicable, group covered outpatient drugs (including 
                multiple source drugs) in a manner useful to physicians 
                by therapeutic category or with respect to the 
                conditions for which they are prescribed. Such guide 
                shall specify the average wholesale prices on the basis 
                of the amount of the drug required for a typical daily 
                therapeutic regimen.
                    ``(B) Mailing guide.--The Secretary shall provide 
                for mailing, in January of each year (beginning with 
                2003), a copy of the guide developed and updated under 
                subparagraph (A)--
                            ``(i) to each hospital with an agreement in 
                        effect under section 1866;
                            ``(ii) to each physician (as defined in 
                        section 1861(r)(1)) who routinely provides 
                        services under this part; and
                            ``(iii) to Social Security offices, senior 
                        citizen centers, and other appropriate places.
            ``(8) Reports on utilization and effects on prices.--
                    ``(A) Compilation of information.--The Secretary 
                shall compile information on--
                            ``(i) manufacturers' prices for covered 
                        outpatient drugs, and on charges of pharmacists 
                        for covered outpatient drugs, and
                            ``(ii) the use of covered outpatient drugs 
                        by individuals entitled to benefits under this 
                        part.
                The information compiled under clause (i) shall include 
                a comparison of the increases in prices and charges for 
                covered outpatient drugs during each 6 month period 
                (beginning with January 1999) with the semiannual 
                average increase in such prices and charges during the 
                5 years beginning with 1993.
                    ``(B) Reports.--The Secretary shall submit to the 
                Committees on Ways and Means and Commerce of the House 
                of Representatives and the Committee on Finance of the 
                Senate a report, in May and November of 2002 and 2003 
                and in May of each succeeding year, providing the 
                information compiled under subparagraph (A). For each 
                such report submitted after 2004, the report shall 
                include an explanation of the extent to which the 
                increases in outlays for covered outpatient drugs under 
                this part are due to the factors described in 
                subparagraphs (A)(i) and (A)(ii).
            ``(9) Definitions.--In this subsection:
                    ``(A) Multiple source drug.--
                            ``(i) In general.--The term `multiple 
                        source drug' means, with respect to a payment 
                        calculation period, a covered outpatient drug 
                        for which there are 2 or more drug products 
                        which--
                                    ``(I) are rated as therapeutically 
                                equivalent (under the Food and Drug 
                                Administration's most recent 
                                publication of `Approved Drug Products 
                                with Therapeutic Equivalence 
Evaluations');
                                    ``(II) except as provided in clause 
                                (ii), are pharmaceutically equivalent 
                                and bioequivalent, as defined in clause 
                                (iii) and as determined by the Food and 
                                Drug Administration; and
                                    ``(III) are sold or marketed during 
                                the period.
                            ``(ii) Exception.--Subclause (II) of clause 
                        (i) shall not apply if the Food and Drug 
                        Administration changes by regulation (after an 
                        opportunity for public comment of 90 days) the 
                        requirement that, for purposes of the 
                        publication described in clause (i)(I), in 
                        order for drug products to be rated as 
                        therapeutically equivalent, they must be 
                        pharmaceutically equivalent and bioequivalent, 
                        as defined in clause (iii).
                            ``(iii) Definitions.--For purposes of this 
                        subparagraph:
                                    ``(I) Pharmaceutically 
                                equivalent.--Drug products are 
                                pharmaceutically equivalent if the 
                                products contain identical amounts of 
                                the same active drug ingredient in the 
                                same dosage form and meet compendial or 
                                other applicable standards of strength, 
                                quality, purity, and identity.
                                    ``(II) Bioequivalent.--Drugs are 
                                bioequivalent if they do not present a 
                                known or potential bioequivalence 
                                problem or, if they do present such a 
                                problem, are shown to meet an 
                                appropriate standard of bioequivalence.
                                    ``(III) Sold or marketed.--A drug 
                                is considered to be sold or marketed 
                                during a period if it is listed in the 
                                publications referred to in clause 
                                (i)(I), unless the Secretary determines 
                                that such sale or marketing is not 
                                actually taking place.
                    ``(B) Restrictive prescription.--A drug has a 
                `restrictive prescription' only if--
                            ``(i) in the case of a written 
                        prescription, the prescription for the drug 
                        indicates, in the handwriting of the physician 
                        or other person prescribing the drug and with 
                        an appropriate phrase (such as `brand medically 
                        necessary') recognized by the Secretary, that 
                        the particular drug must be dispensed; or
                            ``(ii) in the case of a prescription issued 
                        by telephone--
                                    ``(I) the physician or other person 
                                prescribing the drug (through use of 
                                such an appropriate phrase) states that 
                                the particular drug must be dispensed, 
                                and
                                    ``(II) the physician or other 
                                person submits to the pharmacy 
                                involved, within 30 days after the date 
                                of the telephone prescription, a 
                                written confirmation which is in the 
                                handwriting of the physician or other 
                                person prescribing the drug and which 
                                indicates with such appropriate phrase 
                                that the particular drug was required 
                                to have been dispensed.
                    ``(C) Payment calculation period.--The term 
                `payment calculation period' means the 6-month period 
                beginning with January of each year and the 6-month 
                period beginning with July of each year.''.
    (c) Participating Pharmacies; Civil Money Penalties.--
            (1) Participating pharmacies.--Section 1842 of such Act (42 
        U.S.C. 1395t) is amended--
                    (A) in subsection (h)(1), by inserting before the 
                period at the end of the second sentence the following: 
                ``, except that, with respect to a supplier of covered 
                outpatient drugs, the term `participating supplier' 
                means a participating pharmacy (as defined in 
                subsection (u)(1))'';
                    (B) in subsection (h)(4), by adding at the end the 
                following: ``In publishing directories under this 
                paragraph, the Secretary shall provide for separate 
                directories (wherever appropriate) for participating 
                pharmacies.''; and
                    (C) by inserting after subsection (t) the following 
                new subsection:
    ``(u)(1) For purposes of this section, the term `participating 
pharmacy' means, with respect to covered outpatient drugs dispensed on 
or after January 1, 2003, an entity which is authorized under a State 
law to dispense covered outpatient drugs and which has entered into an 
agreement with the Secretary, providing at least the following:
            ``(A) The entity agrees to accept payment under this part 
        on an assignment-related basis for all covered outpatient drugs 
        dispensed to an individual entitled to benefits under this part 
        (in this subsection referred to as a `Medicare beneficiary') 
        during a year after--
                    ``(i) the Secretary has notified the entity, 
                through the electronic system described in paragraph 
                (4); or
                    ``(ii) in the absence of such a system, the entity 
                is otherwise notified that the Secretary has 
                determined,
        that the individual has met the prescription drug deductible 
        with respect to such drugs under section 1834(e)(1) for the 
        year.
            ``(B) The entity agrees--
                    ``(i) not to refuse to dispense covered outpatient 
                drugs stocked by the entity to any medicare 
                beneficiary; and
                    ``(ii) not to charge Medicare beneficiaries 
                (regardless of whether or not the beneficiaries are 
                enrolled under a prepaid health plan, a Medicare+Choice 
                organization under part C, or with eligible 
                organization under section 1876) more for such drugs 
                than the amount it charges to the general public (as 
determined by the Secretary in regulations).
            ``(C) The entity agrees to keep patient records (including 
        records on expenses) for all covered outpatient drugs dispensed 
        to all medicare beneficiaries.
            ``(D) The entity agrees to submit information (in a manner 
        specified by the Secretary to be necessary to administer this 
        title) on all purchases of covered outpatient drugs dispensed 
        to medicare beneficiaries.
            ``(E) The entity agrees--
                    ``(i) to offer to counsel, or to offer to provide 
                information (consistent with State law respecting the 
                provision of such information) to, each Medicare 
                beneficiary on the appropriate use of a drug to be 
                dispensed and whether there are potential interactions 
                between the drug and other drugs dispensed to the 
                beneficiary; and
                    ``(ii) to advise the beneficiary on the 
                availability (consistent with State laws respecting 
                substitution of drugs) of therapeutically equivalent 
                covered outpatient drugs.
            ``(F) The entity agrees to provide the information 
        requested by the Secretary in surveys under section 
        1834(e)(3)(C)(ii).
Nothing in this paragraph shall be construed as requiring a pharmacy 
operated by a Medicare+Choice organization under part C, an eligible 
organization (described in section 1876(b)) or an organization 
described in section 1833(a)(1)(A) for the exclusive benefit of its 
members to dispense covered outpatient drugs to individuals who are not 
members of the organization.
    ``(2) The Secretary shall provide to each participating pharmacy--
            ``(A) a distinctive emblem (suitable for display to the 
        public) indicating that the pharmacy is a participating 
        pharmacy; and
            ``(B) upon request, such electronic equipment and technical 
        assistance (other than the costs of obtaining, maintaining, or 
        expanding telephone service) as the Secretary determines may be 
        necessary for the pharmacy to submit claims using the 
        electronic system established under paragraph (4).
    ``(3) The Secretary shall provide for periodic audits of 
participating pharmacies to assure--
            ``(A) compliance with the requirements for participation 
        under this title; and
            ``(B) the accuracy of information submitted by the 
        pharmacies under this title.
    ``(4) The Secretary shall establish, by not later than January 1, 
2003, a point-of-sale electronic system for use by carriers and 
participating pharmacies in the submission of information respecting 
covered outpatient drugs dispensed to medicare beneficiaries under this 
part.
    ``(5) Notwithstanding subsection (b)(3)(B), payment for covered 
outpatient drugs may be made on the basis of an assignment described in 
clause (ii) of that subsection only to a participating pharmacy.''.
            (2) Civil money penalties for violation of participation 
        agreement, for excessive charges for nonparticipating 
        pharmacies and for failure to provide survey information.--
        Section 1128A(a) of such Act (42 U.S.C. 1320a-7a(a)) is 
        amended--
                    (A) in paragraph (2)(C), by inserting ``or to be a 
                participating pharmacy under section 1842(u)'' after 
                ``1842(h)(1)'';
                    (B) by striking ``, or'' at the end of paragraph 
                (6);
                    (C) by adding ``or'' at the end of paragraph (7); 
                and
                    (D) by inserting after paragraph (7) the following 
                new paragraph:
            ``(8) in the case of a participating or nonparticipating 
        pharmacy (as defined for purposes of part B of title XVIII)--
                    ``(A) presents or causes to be presented to any 
                person a request for payment for covered outpatient 
                drugs dispensed to an individual entitled to benefits 
                under part B of title XVIII and for which the amount 
                charged by the pharmacy is greater than the amount the 
                pharmacy charges the general public (as determined by 
                the Secretary in regulations), or
                    ``(B) fails to provide the information requested by 
                the Secretary in a survey under section 
                1834(e)(3)(C)(ii);''.
    (d) Limitation on Length of Prescription.--Section 1862(c) of such 
Act (42 U.S.C. 1395y(c)) is amended--
            (1) by redesignating subparagraphs (A) through (D) of 
        paragraph (1) as clauses (i) through (iv) respectively;
            (2) in paragraph (2)(A), by striking ``paragraph (1)'' and 
        inserting ``subparagraph (A)'';
            (3) by redesignating subparagraphs (A) and (B) of paragraph 
        (2) as clauses (i) and (ii) respectively;
            (4) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B) respectively;
            (5) by inserting ``(1)'' after ``(c)''; and
            (6) by adding at the end the following new paragraph:
    ``(2) No payment may be made under part B for any expense incurred 
for a covered outpatient drug if the drug is dispensed in a quantity 
exceeding a supply of 30 days or such longer period of time (not to 
exceed 90 days, except in exceptional circumstances) as the Secretary 
may authorize.''.
    (e) Use of Carriers, Fiscal Intermediaries, and Other Entities in 
Administration.--
            (1) Authorizing use of other entities in electronic claims 
        system.--Section 1842(f) of such Act (42 U.S.C. 1395u(f)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (1);
                    (B) by striking the period at the end of paragraph 
                (2) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(3) with respect to implementation and operation (and 
        related functions) of the electronic system established under 
        subsection (u)(4), a voluntary association, corporation, 
        partnership, or other nongovernmental organization, which the 
        Secretary determines to be qualified to conduct such 
        activities.''.
            (2) Additional functions of carriers.--Section 1842(b)(3) 
        of such Act (42 U.S.C. 1395u(b)(3)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (I);
                    (B) by redesignating subparagraph (L) as 
                subparagraph (J); and
                    (C) by inserting after subparagraph (J) (as so 
                redesignated) the following new subparagraphs:
            ``(K) if it makes determinations or payments with respect 
        to covered outpatient drugs, will--
                    ``(i) receive information transmitted under the 
                electronic system established under subsection (u)(4), 
                and
                    ``(ii) respond to requests by participating 
                pharmacies (and individuals entitled to benefits under 
                this part) as to whether or not such an individual has 
                met the prescription drug deductible established under 
                section 1834(e)(1)(A) for a year; and
            ``(L) will enter into such contracts with organizations 
        described in subsection (f)(3) as the Secretary determines may 
        be necessary to implement and operate (and for related 
        functions with respect to) the electronic system established 
        under subsection (u)(4) for covered outpatient drugs under this 
        part.''.
            (3) Special contract provisions for electronic claims 
        system.--
                    (A) Payment on other than a cost basis.--Section 
                1842(c)(1) of such Act (42 U.S.C. 1395u(c)(1)) is 
                amended--
                            (i) by inserting ``(A)'' after ``(c)(1)'';
                            (ii) in the first sentence, by inserting 
                        ``, except as provided in subparagraph (B),'' 
                        after ``under this part, and''; and
                            (iii) by adding at the end the following 
                        new subparagraph:
    ``(B) To the extent that a contract under this section provides for 
implementation and operation (and related functions) of the electronic 
system established under subsection (u)(4) for covered outpatient 
drugs, the Secretary may provide for payment for such activities based 
on any method of payment determined by the Secretary to be 
appropriate.''.
                    (B) Application of different performance 
                standards.--The Secretary of Health and Human Services, 
                before entering into contracts under section 1842 of 
                the Social Security Act with respect to the 
                implementation and operation (and related functions) of 
                the electronic system for covered outpatient drugs, 
                shall establish standards with respect to performance 
                with respect to such activities. The provisions of 
                subsections (e)(2), (h)(1), and (h)(2) of section 1153 
                of such Act (42 U.S.C. 1320c-2) shall apply to such 
                activities in the same manner as they apply to 
                contracts with peer review organizations, instead of 
                the requirements of the second and third sentences of 
                section 1842(b)(2)(A) of such Act (42 U.S.C. 
                1395u(b)(2)(A)).
                    (C) Use of regional carriers.--Section 
                1842(b)(2)(A) of such Act (42 U.S.C. 1395u(b)(2)(A)) is 
                amended by adding at the end the following new 
                sentence: ``With respect to activities relating to 
                implementation and operation (and related functions) of 
                the electronic system established under subsection 
                (u)(4), the Secretary may enter into contracts with 
                carriers under this section to perform such activities 
                on a regional basis.''.
            (4) Delay in application of coordinated benefits with 
        medigap.--The provisions of subparagraph (B) of section 
        1842(h)(3) of the Social Security Act (42 U.S.C. 1395u(h)(3)) 
        shall not apply to covered outpatient drugs (other than drugs 
        described in section 1861(s)(2)(J) of such Act (42 U.S.C. 
        1395x(s)(2)(J)) as of the date of the enactment of this Act) 
        dispensed before January 1, 2004.
            (5) Batch prompt processing of claims.--Section 1842(c) of 
        such Act (42 U.S.C. 1395u(c)), is amended--
                    (A) by redesignating paragraph (6) as paragraph 
                (7);
                    (B) in paragraphs (2)(A) and (3)(A), by striking 
                ``Each'' and inserting ``Except as provided in 
                paragraph (6), each''; and
                    (C) by inserting after paragraph (5) the following 
                new paragraph:
    ``(6)(A) Each contract under this section which provides for the 
disbursement of funds, as described in subsection (a)(1)(B), with 
respect to claims for payment for covered outpatient drugs shall 
provide for a payment cycle under which each carrier will, on a monthly 
basis, make a payment with respect to all claims which were received 
and approved for payment in the period since the most recent date on 
which such a payment was made with respect to the participating 
pharmacy or individual submitting the claim.
    ``(B) If payment is not issued, mailed, or otherwise transmitted 
within 5 days of when such a payment is required to be made under 
subparagraph (A), interest shall be paid at the rate used for purposes 
of section 3902(a) of title 31, United States Code (relating to 
interest penalties for failure to make prompt payments) for the period 
beginning on the day after such 5-day period and ending on the date on 
which payment is made.''.
    (f) Modification of HMO/CMP Contracts.--
            (1) Separate actuarial determination for covered outpatient 
        drug benefit.--Section 1876(e)(1) of such Act (42 U.S.C. 
        1395mm(e)(1)) is amended by adding at the end thereof the 
        following new sentence: ``The preceding sentence shall be 
        applied separately with respect to covered outpatient drugs.''.
            (2) Additional optional benefits.--Section 1876(g)(3)(A) of 
        such Act (42 U.S.C. 1395mm(g)(3)(A)) is amended by striking 
        ``rate'' and inserting ``rates''.
    (g) Conforming Amendments.--
            (1) The first sentence of section 1866(a)(2)(A) (42 U.S.C. 
        1395cc(a)(2)(A)) is amended--
                    (A) by inserting ``1834(e),'' after ``1833(b),''; 
                and
                    (B) by inserting ``and in the case of covered 
                outpatient drugs, applicable coinsurance percent 
                (specified in section 1834(e)(2)(C)) of the lesser of 
                the actual charges for the drugs or the payment limit 
                (established under section 1834(d)(3))'' after 
                ``established by the Secretary)''.
            (2) Section 1903(i)(5) (42 U.S.C. 1396b(i)(5)) is amended 
        by striking ``section 1862(c)'' and inserting ``section 
        1862(c)(1)''.
    (h) Prescription Drug Payment Review Commission.--Part B is amended 
by adding at the end the following new section:

             ``prescription drug payment review commission

    ``Sec. 1849. (a)(1) The Director of the Congressional Office of 
Technology Assessment (in this section referred to as the `Director' 
and the `Office', respectively) shall provide for the appointment of a 
Prescription Drug Payment Review Commission (in this section referred 
to as the `Commission'), to be composed of individuals with expertise 
in the provision and financing of covered outpatient drugs appointed by 
the Director (without regard to the provisions of title 5, United 
States Code, governing appointments in the competitive service).
    ``(2) The Commission shall consist of 11 individuals. Members of 
the Commission shall first be appointed by no later than January 1, 
2002, for a term of 3 years, except that the Director may provide 
initially for such shorter terms as will ensure that (on a continuing 
basis) the terms of no more than 4 members expire in any one year.
    ``(3) The membership of the Commission shall include recognized 
experts in the fields of health care economics, medicine, pharmacology, 
pharmacy, and prescription drug reimbursement, as well as at least one 
individual who is a medicare beneficiary.
    ``(b)(1) The Commission shall submit to Congress an annual report 
no later than May 1 of each year, beginning with 2003, concerning 
methods of determining payment for covered outpatient drugs under this 
part.
    ``(2) Such report, in 2004 and thereafter, shall include, with 
respect to the previous year, information on--
            ``(A) increases in manufacturers' prices for covered 
        outpatient drugs and in charges of pharmacists for covered 
        outpatient drugs,
            ``(B) the level of utilization of covered outpatient drugs 
        by medicare beneficiaries, and
            ``(C) administrative costs relating to covered outpatient 
        drugs.
    ``(c) The following provisions of section 1805 shall apply to the 
Commission in the same manner as they apply to the Medicare Payment 
Advisory Commission:
            ``(1) Subsection (c)(4) (relating to compensation of 
        members).
            ``(2) Subsection (d) (relating to staffing and 
        administration).
            ``(3) Subsection (e) (relating to powers of the Commission 
        generally).
            ``(4) Subsection (f)(1) (relating to requests for 
        appropriations).
    ``(d) There are authorized to be appropriated such sums as may be 
necessary to carry out the provisions of this section. Such sums shall 
be payable from the Federal Supplementary Medical Insurance Trust 
Fund.''.
    (i) Development of Standard Medicare Claims Form.--
            (1) The Secretary shall develop, in consultation with 
        representatives of pharmacies and other interested individuals, 
        a standard claims form (and a standard electronic claims 
        format) to be used in requests for payment for covered 
        outpatient drugs under the medicare program and other third-
        party payors.
            (2) Not later than October 1, 2002, the Secretary shall 
        distribute official sample copies of the format developed under 
        paragraph (1) to pharmacies and other interested parties and by 
        not later than October 1, 2002, shall distribute official 
        sample copies of the form developed under paragraph (1) to 
        pharmacies and other interested parties.
    (j) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        items dispensed on or after January 1, 2003.
            (2) Carriers.--The amendments made by subsection (e) shall 
        take effect on the date of the enactment of this Act; except 
        that the amendments made by subsection (e)(5) shall take effect 
        on January 1, 2004, but shall not be construed as requiring 
        payment before February 1, 2004.
            (3) HMO/CMP enrollments.--The amendment made by subsection 
        (f) shall apply to enrollments effected on or after January 1, 
        2003.
                                 <all>