[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4741 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 4741

 To amend title XVIII of the Social Security Act to provide affordable 
 prescription drugs to low-income Medicare beneficiaries and stop-loss 
       prescription drug coverage for all Medicare beneficiaries.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 15, 2002

 Mrs. Emerson 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 affordable 
 prescription drugs to low-income Medicare beneficiaries and stop-loss 
       prescription drug coverage for all Medicare beneficiaries.

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

SECTION 1. SHORT TITLE; FINDINGS.

    (a) Short Title.--This Act may be cited as the ``Medicare Pharmacy 
Benefit Act of 2002''.
    (b) Findings.--The Congress finds that:
            (1) It is essential for seniors to have access to 
        prescription medications for life and health. Prescription 
        medications and medication therapy management services are a 
        critical component of medical therapy, and are among the most 
        cost-effective medical interventions available in the health 
        care system. Medicare does not have an outpatient prescription 
        drug benefit for seniors. A pharmacy benefit program is needed 
        to help assure that seniors have access to necessary 
        prescription medications.
            (2) A market-based pharmacy benefit program is the best 
        method of ensuring that medicare beneficiaries have access to 
        necessary prescription drugs. Rather than rely on Government 
        price controls, Congress intends to harness the innovation and 
        cost savings of the private marketplace to help meet the needs 
        of seniors.
            (3) No prescription drug program will be truly effective 
        unless it addresses the increasing cost of medications. In 
        order to provide real relief to seniors, a pharmacy benefit 
        program must ensure that manufacturers' price subsidies are 
        passed on to consumers. Manufacturers' rebates collected by 
        pharmacy benefits middlemen are not always passed on to 
        consumers. Seniors who lack coverage for prescription 
        medications need access to price subsidies that are often 
        available only to large pharmacy benefits managers.
            (4) A market-based approach will limit the taxpayer funding 
        burden of a pharmacy benefit for seniors. However, seniors who 
        face unusually large expenditures for prescription medications 
        need assistance to purchase prescription medications. Limited 
        Federal funding of catastrophic losses is necessary to protect 
        our most vulnerable seniors.
            (5) Seniors deserve access to quality services and cost-
        effective drug prices at the pharmacy of their choice. A 
        pharmacy benefit for seniors will not succeed without robust 
        participation by pharmacy providers. A pharmacy benefit program 
        must provide adequate payment to pharmacy providers so they are 
        able to provide the level of care that seniors need and 
        deserve.
            (6) A truly market-based pharmacy benefit program must be 
        voluntary for all participants--manufacturers, pharmacy 
        providers, and beneficiaries.

SEC. 2. MEDICARE PHARMACY BENEFIT PROGRAM.

    (a) Establishment of Program.--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--Medicare Pharmacy Benefit Program

                       ``establishment of program

    ``Sec. 1860. (a) Provision of Benefit.--There is established the 
Medicare Pharmacy Benefit Program under which medicare beneficiaries 
who are eligible for enrollment may receive the following benefits:
            ``(1) Drug discounts.--Subsidies or discounts from 
        participating pharmacy providers off the price of covered 
        outpatient drugs under section 1860B.
            ``(2) Catastrophic benefits.--Catastrophic coverage 
        benefits under section 1860C.
            ``(3) Medication review and management.--Covered medication 
        review and medication therapy management services under section 
        1860C(b).
    ``(b) Voluntary Program.--Nothing in this part shall be construed 
as requiring a medicare beneficiary, a manufacturer, or a pharmacy 
provider to participate in the program.

                 ``enrollment of eligible beneficiaries

    ``Sec. 1860A. (a) Beneficiary Eligibility.--
            ``(1) In general.--Subject to paragraph (2), an individual 
        is eligible to enroll in the Medicare Pharmacy Benefit Program 
        under this part if the individual is entitled to benefits under 
        part A, enrolled under part B, or both.
            ``(2) Ineligible individuals.--
                    ``(A) Medicaid eligibles.--An individual may not 
                enroll in the Medicare Pharmacy Benefit Program under 
                this part to the extent the individual is, with respect 
                to a year eligible for medical assistance for covered 
                outpatient drugs under section 1927 under a State plan 
                under title XIX.
                    ``(B) Drug discounts.--
                            ``(i) In general.--In the case of drug 
                        subsidies and discounts from drugs of a 
                        manufacturer under section 1860B, an individual 
                        whose annual income exceeds the applicable 
                        percentage of the Federal poverty line or who 
                        does not otherwise satisfy additional 
                        requirements established by each participating 
                        manufacturer.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage of the 
                        Federal poverty line is a percentage 
                        established by the manufacturer of a covered 
                        outpatient drug, but in no case less than 200 
                        percent.
    ``(b) Enrollment Process.--
            ``(1) In general.--The Secretary shall establish an open 
        enrollment process for eligible beneficiaries to enroll under 
        this part.
            ``(2) Processing of enrollment applications.--The Secretary 
        shall provide that applications to enroll under the Medicare 
        Pharmacy Benefit Program may be collected by pharmacy 
        providers, manufacturers, or their agents. Applications 
        collected shall be forwarded to the appropriate Pharmacy 
        Benefit Administrator.
            ``(3) Approval of application.--Each Pharmacy Benefit 
        Administrator shall process applications for enrollment and 
        approve or reject such applications based upon standards 
        established by the Secretary in accordance with this part.
            ``(4) Notice.--Upon acceptance of an application, the 
        Pharmacy Benefit Administrator shall notify the beneficiary and 
        shall enter all applicable data into an electronic system to 
        allow pharmacy providers to process and certify enrollment of 
        beneficiaries.
    ``(c) Initial Enrollment Fee.--The Secretary shall require that, 
prior to enrollment in the Medicare Pharmacy Benefit Program, the 
beneficiary pay a one-time initial enrollment fee in such amount as the 
Secretary determines appropriate. Fees collected pursuant to this 
subsection shall be deposited into the Pharmacy Benefit Fund 
established in section 1860E to carry out this part.
    ``(d) Nondiscrimination.--An eligible beneficiary shall not be 
denied enrollment based on any health status-related factor described 
in section 2702(a)(1) of the Public Health Service Act.
    ``(e) Standard Pharmacy Benefit Card.--Upon enrollment, the 
Pharmacy Benefit Administrator shall issue to each enrolled beneficiary 
a Standard Pharmacy Benefit Card that conforms to the most recent 
standards adopted by an appropriate accredited organization, as 
determined by the Secretary.
    ``(f) Initial Coverage Period.--An enrolled beneficiary 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.
    ``(g) Termination of Coverage.--
            ``(1) In general.--A Pharmacy Benefit Administrator shall 
        terminate an enrolled beneficiary's coverage under this part if 
        the beneficiary is no longer eligible by reason of subsection 
        (a)(2)(B).
            ``(2) Notice of termination.--Upon termination, the 
        Pharmacy Benefit Administrator shall immediately notify the 
        beneficiary, manufacturers, and pharmacy providers.
    ``(h) Providing Information to Beneficiaries.--The Secretary shall 
provide for the broad dissemination of information to eligible 
beneficiaries and enrolled beneficiaries regarding enrollment under 
this part and of the price subsidies and discounts and catastrophic 
coverage available under this part.

                ``access to drug subsidies and discounts

    ``Sec. 1860B. (a) In General.--The manner in which a medicare 
beneficiary who is enrolled in the Medicare Pharmacy Benefit Program 
under this part may receive a subsidy or a discount for the price of a 
covered outpatient drug made available for sale by a manufacturer is as 
follows:
            ``(1) Voluntary nature of subsidy or discount.--A 
        manufacturer may offer subsidies or discounts for the covered 
        outpatient drugs it makes available for sale subject to the 
        terms and conditions established in a term sheet submitted by 
        the manufacturer to the Pharmacy Benefit Administrator for--
                    ``(A) eligibility of the beneficiary for the 
                subsidy or discount; and
                    ``(B) provisions for payment.
            ``(2) Voluntary nature of pharmacies to participate.--A 
        pharmacy provider may accept or reject each manufacturer's term 
        sheet.
            ``(3) Payments into pharmacy benefit fund.--A manufacturer 
        shall make payments into the Pharmacy Benefit Fund in an amount 
        equal to the aggregate amount the manufacturer agrees to pay 
        for subsidies and reimbursements to pharmacy providers under 
        the term sheet.
            ``(4) Payment to pharmacy provider for subsidies or 
        discounts passed-on to beneficiaries.--A pharmacy provider 
        shall provide subsidies or discounts to beneficiaries enrolled 
        under the Medicare Pharmacy Benefit Program for covered 
        outpatient drugs for which a subsidy or discount has been made 
        available by a manufacturer in the amount specified in the term 
        sheet that the pharmacy provider has accepted, and shall be 
        reimbursed by the Pharmacy Benefit Administrator for each such 
        subsidy or discount passed-on to the beneficiary from the 
        Pharmacy Benefit Fund.
    ``(b) Manufacturer Term Sheets.--A manufacturer that wishes to 
participate in the program shall submit a binding term sheet to the 
Pharmacy Benefit Administrator that contains all of the terms and 
conditions of the manufacturer's subsidies or discounts. The term sheet 
shall describe the method of calculating any price subsidies for 
beneficiaries, and the method of calculating any rates that pharmacy 
providers may charge beneficiaries, for each dosage form and strength 
of the manufacturer's covered outpatient drugs dispensed to enrolled 
beneficiaries under the program. The term sheet shall also describe 
participation requirements for beneficiaries, the duration of the term 
sheet, and any other terms and conditions of receiving any subsidies, 
discounts, and payments made available under the term sheet. The terms 
and conditions contained in the term sheets shall not impose quantity 
restrictions of any kind on dispensing covered outpatient drugs, and 
shall not vary based upon the class of trade of the pharmacy provider 
or the method of delivering covered outpatient drugs.
    ``(c) Manufacturer Payments.--To the extent that the manufacturer's 
term sheet provides that the manufacturer will make payments to 
pharmacy providers through the Pharmacy Benefit Administrator, the 
manufacturer shall make such payments into the Pharmacy Benefit Fund 
not less frequently than each calendar quarter, in compliance with 
procedures established by the Secretary. Each calendar quarter the 
Pharmacy Benefit Administrator shall report to each manufacturer, in a 
standard reporting format established by the Secretary, information on 
the total number of units of each dosage form and strength and package 
size of each covered outpatient drug dispensed during the preceding 
quarter under the program. The manufacturer shall remit payments 
required by its term sheet to that Pharmacy Benefit Administrator no 
later than 30 days after receiving the report from the Pharmacy Benefit 
Administrator. The Pharmacy Benefit Administrator shall deposit the 
payments into the Pharmacy Benefit Fund.
    ``(d) Pharmacy Agreements.--Any pharmacy provider may voluntarily 
enter into a provider agreement with the Pharmacy Benefit Administrator 
for the program upon such terms and conditions as the Secretary 
determines are necessary and appropriate to carry out the purposes of 
this part.
    ``(e) Acceptance or Rejection of Term Sheets.--
            ``(1) Acceptance.--A pharmacy provider may accept a 
        manufacturer's term sheet at any time during the manufacturer's 
        participation in the program. Each term sheet accepted by the 
        pharmacy provider shall become a part of the provider 
        agreement.
            ``(2) Rejection.--
                    ``(A) Negotiation.--If a pharmacy provider rejects 
                a manufacturer's term sheet, the pharmacy provider and 
                the manufacturer may negotiate modifications to the 
                pricing provisions of the term sheet. If the pharmacy 
                provider and manufacturer reach an agreement pursuant 
                to such negotiations, the Pharmacy Benefit 
                Administrator shall incorporate the pricing 
                modifications into the electronic claims information 
                sent to the pharmacy provider whenever the pharmacy 
                provider dispenses the manufacturer's covered 
                outpatient drugs to enrolled beneficiaries.
                    ``(B) Notice to beneficiary.--If the pharmacy 
                provider rejects the manufacturer's term sheet, the 
                pharmacy provider may inform beneficiaries who are 
                purchasing the drug products mentioned in the term 
                sheet that the pharmacy provider does not participate 
                in the manufacturer's subsidy program.
                    ``(C) Additional authority.--The pharmacy provider 
                may encourage beneficiaries to purchase appropriate 
                alternatives for the manufacturer's products after 
                consultation with other medical professionals as may be 
                required by State law.
    ``(f) Pharmacy Price Discounts.--
            ``(1) In general.--Upon the presentation by an enrolled 
        beneficiary of a valid prescription for a covered outpatient 
        prescription drug product, a participating pharmacy provider 
        shall process the prescription in accordance with the 
        manufacturer's term sheet.
            ``(2) Real-time claims processing.--Pricing and payment 
        information and other relevant provisions of the term sheet 
        applicable to the drug product shall be calculated and 
        communicated to the pharmacy providers by the Pharmacy Benefit 
        Administrator on a real-time basis at the time a claim is 
        submitted.
    ``(g) Pharmacy Claims.--
            ``(1) In general.--A pharmacy provider shall submit claims 
        to the Pharmacy Benefit Administrator through an online, real-
        time claims processing system. The Pharmacy Benefit 
        Administrator shall promptly reimburse the pharmacy provider as 
        provided in the manufacturer's term sheet, as soon as 
        practicable and in no case later than 15 days of the date the 
        claim was submitted.
            ``(2) Fees paid by pharmacy benefit fund.--The Pharmacy 
        Benefit Administrator, directly or through an agent or 
        otherwise, shall not impose transaction charges, processing, or 
        administrative fees on pharmacy providers that submit claims or 
        receive payments under the program. Transactions charges, 
        processing or administrative fees shall be paid by the Pharmacy 
        Benefit Administrator from the Pharmacy Benefit Fund.
    ``(h) Price Comparisons.--The Secretary shall encourage and create 
incentives for a pharmacy provider to make available, on a voluntary 
basis, a price list that the pharmacy provider would charge for other 
covered outpatient drugs within the same therapeutic class.
    ``(i) Private Services Contracts With Pharmacies.--
            ``(1) In general.--To the extent not prohibited by or 
        otherwise in conflict with any other provision in this title, 
        pharmacies may privately contract with manufacturers, 
        beneficiaries or other persons to provide pharmacy services to 
        individuals upon such terms and conditions as those contracting 
        parties may agree.
            ``(2) Description of services.--The services referred to in 
        paragraph (1) include medication review services, medication 
        therapy management services, medication compliance and 
        persistence programs, disease state management programs for 
        targeted beneficiaries, refill reminders, medication 
        monitoring, medication therapy problem resolution, beneficiary 
        education regarding medication preparation and administration, 
        and other professional services consistent with the applicable 
        State's scope of pharmacy practice.

                    ``catastrophic coverage benefit

    ``Sec. 1860C. (a) Benefits.--The benefits provided to an eligible 
beneficiary under this section shall consist of the following:
            ``(1) Stop-loss.--Payment for covered outpatient drugs 
        furnished in a year after the beneficiary incurs in that year 
        unreimbursed out-of-pocket costs in excess $5,000. In the case 
        of any calendar year after 2003, the dollar amount in this 
        paragraph shall be adjusted each year by an amount equal to the 
        percentage increase or decrease in the Consumer Price Index for 
        medical care for the preceding year, as determined by the 
        Bureau of Labor Statistics.
            ``(2) Medication therapy management services.--Payment for 
        covered medication therapy management services and other 
        professional services furnished by a pharmacy provider in 
        accordance with the provisions of this part.
    ``(b) Medication Review and Medication Therapy Management.--
            ``(1) Purpose.--To help reduce overall medical costs, the 
        Secretary shall implement a medication review and medication 
        therapy management services program designed to ensure that 
        covered outpatient drugs are used appropriately to achieve 
        therapeutic goals and reduce the risk of adverse events, 
        including adverse drug interactions.
            ``(2) Services described.--Covered medication review and 
        medication therapy management services shall be treated as 
        treatment activities for purposes of applying part C of title 
        XI, and shall include--
                    ``(A) services or programs provided by 
                participating pharmacy providers which are designed 
                to--
                            ``(i) assure that medications are used 
                        appropriately by beneficiaries;
                            ``(ii) enhance beneficiaries' understanding 
                        of the appropriate use of medications through 
                        beneficiary education, counseling, and other 
                        appropriate means;
                            ``(iii) increase beneficiaries' adherence 
                        with prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means;
                            ``(iv) reduce the risk of potential adverse 
                        events associated with medications; and
                            ``(v) reduce the need for other costly 
                        medical services through better management of 
                        medication therapy; and
                    ``(B) services offered by pharmacy providers 
                involving counseling, case management, disease 
                management, patient training and education, medication 
                refill reminders, medication therapy management and 
                problem resolution, annual medication review 
                assessments of all medications currently used by a 
                beneficiary to identify potential adverse interactions 
                or to identify the need for additional medication 
                therapies, and such other professional services that 
                enhance the use of prescription medications, consistent 
                with the scope of the practice of pharmacy as defined 
                by applicable State law.
            ``(2) Program operation.--Any medication therapy management 
        program established under this section must--
                    ``(A) identify and provide medication therapy 
                management services to beneficiaries at risk for 
                potential medication problems, such as beneficiaries 
                taking multiple medications and beneficiaries with 
                complex or chronic medical conditions;
                    ``(B) be developed and structured in cooperation 
                with organizations representing participating pharmacy 
                providers, including identifying those medication 
                therapy management services that will be provided, as 
                well as payment mechanisms for these services; and
                    ``(C) provide for ongoing evaluation and 
                documentation of these services in improving quality of 
                care and reducing health care costs.
    ``(c) Payments for Covered Outpatient Drugs.--For each covered 
outpatient drug dispensed to an enrolled beneficiary by a participating 
pharmacy provider under this section, the Pharmacy Benefit 
Administrator shall pay the pharmacy provider an amount equal to the 
lesser of--
            ``(1) the pharmacy provider's usual and customary retail 
        price, without regard to any discount otherwise applicable, for 
        the covered outpatient drug that the pharmacy provider 
        ordinarily charges customers who do not have private or Federal 
        or State financed prescription drug coverage; or
            ``(2) the sum of the applicable drug product reimbursement 
        rate under subparagraph (A) and the administrative allowance 
        under subparagraph (B), but in no case less than the minimum 
        rate under subparagraph (C), as follows:
                    ``(A) Drug product reimbursement.--
                            ``(i) Generics.--For covered outpatient 
                        drugs that are noninnovator multiple source 
                        drugs, the drug product reimbursement rate 
                        shall equal the maximum payment amount 
                        calculated under section 1927.
                            ``(ii) Other drugs.--For a drug other than 
                        a drug described in clause (i), the drug 
                        product reimbursement shall equal 110 percent 
                        of the most current wholesale acquisition cost 
                        of the drug product as reported by the 
                        manufacturer.
                    ``(B) Administrative allowance.--For calendar year 
                2003, an administrative allowance of $7.00 per 
                prescription shall be paid as reimbursement for costs 
                associated with storing, preparing, and dispensing 
                covered outpatient drugs, operating and staffing 
                pharmacy locations, and other direct and indirect costs 
                of providing covered outpatient drugs under this part, 
                as well as to provide an incentive to participate in 
                the program.
                    ``(C) Adjustment for inflation.--For a year after 
                2003, the administrative allowance shall be adjusted 
                annually based on the percentage increase or decrease 
                in the Consumer Price Index for medical care for the 
                preceding year, as calculated by the Bureau of Labor 
                Statistics.
    ``(d) Payments for Medication Review and Medication Therapy 
Management.--For covered medication review and medication therapy 
management services provided to an enrolled beneficiary by a pharmacy 
provider, the Pharmacy Benefit Administrator shall make payments to the 
pharmacy provider in amounts established by the Secretary that--
            ``(1) are reasonable and adequate to cover all direct and 
        indirect overhead and other costs of furnishing the services;
            ``(2) do not vary by size, type, or corporate structure of 
        pharmacy provider;
            ``(3) do not exceed the pharmacy provider's usual and 
        customary retail charges that the pharmacy provider ordinarily 
        charges customers who do not have private or Government 
        financed coverage with respect to such benefits; and
            ``(4) recognize and provide appropriate payment incentives 
        for individual pharmacy providers located in rural and 
        underserved areas, as the Secretary may define.
    ``(e) Manufacturer Payments.--
            ``(1) In general.--The Pharmacy Benefit Administrator shall 
        only make payment under this part for innovator multiple source 
        drugs or single source drugs (as defined in clauses (ii) and 
        (iv), respectively, of section 1927(k)(7)(A)) for which payment 
        may be made under this part of a manufacturer if that 
        manufacturer has entered into and has in effect an agreement 
        with the Pharmacy Benefit Administrator that requires the 
        manufacturer to make periodic payments in the amount described 
        in this subsection. A payment agreement shall be effective for 
        an initial period of not less than 1 year and shall be 
        automatically renewed for a period of not less than 1 year.
            ``(2) Amount of payment.--
                    ``(A) In general.--The payment amount for a covered 
                outpatient drug furnished under this part shall be 
                equal to not less than the sum of the basic rebate 
                amount (determined under subparagraph (B)) for each 
                dosage form and strength of such drug increased by the 
                amount of the inflation adjustment rebate (determined 
                under subparagraph (C)) for each dosage form and 
                strength of such drug.
                    ``(B) Basic rebate amount.--The basic rebate amount 
                shall be equal to the product of the total number of 
                units of each dosage form and strength paid for by the 
                Pharmacy Benefit Administrator in the payment period 
                (as defined in section 1927(b)), and the average 
                manufacturer's price (as defined in section 1860) for 
                the quarter for the dosage form and strength of the 
                covered outpatient drug minus not less than 18 percent 
                of the average manufacturer's price for the quarter, or 
                such amount as determined by the Secretary through 
negotiations with the manufacturer of such drug.
                    ``(C) Inflation adjustment amount.--The amount of 
                the basic rebate payment shall be increased by an 
                amount equal to the product of the number of units of 
                each dosage form and strength paid for by the Pharmacy 
                Benefit Administrator in the payment period and the 
                amount by which the average manufacturer's price for 
                such drug and dosage form and strength for the calendar 
                quarter increased in excess of the percentage by which 
                the consumer price index for all urban consumers 
                increased during the calendar quarter.
            ``(3) Pharmacy benefit administrator responsibility.--The 
        Pharmacy Benefit Administrator shall report to each 
        manufacturer not later than 60 days after the end of each 
        payment period and in a form consistent with a standard 
        reporting format established by the Secretary, information on 
        the total number of units of each dosage form and strength and 
        package size of each covered outpatient drug dispensed in the 
        quarter for which payment was made under the program during the 
        period, and shall promptly transmit a copy of such report to 
        the Secretary.
            ``(4) Manufacturer responsibility.--The manufacturer shall 
        remit payments to the Pharmacy Benefit Administrator not later 
        than 30 days after receiving information from the Pharmacy 
        Benefit Administrator on the total number of units of each 
        dosage form and strength of the manufacturer's drugs paid for 
        by the Pharmacy Benefit Administrator in the quarter.
            ``(5) Collection of payments.--The Pharmacy Benefit 
        Administrator shall deposit the payments collected under this 
        subsection from manufacturers in the Pharmacy Benefit Fund, and 
        shall use the payments for program purposes.
    ``(f) Cost and Utilization Management; Quality Assurance.--In 
addition to other incentives provided to pharmacy providers under this 
part, in connection with catastrophic coverage benefits provided under 
this section, the Secretary may establish and create incentives for 
pharmacies to participate in--
            ``(1) an effective cost and drug utilization management 
        program, including appropriate incentives to promote 
        appropriate use of generic drugs in order to maximize program 
        savings;
            ``(2) quality assurance measures and systems to reduce 
        medical errors and adverse drug interactions, including a 
        medication therapy management program; and
            ``(3) a program to control fraud, abuse, and waste.
    ``(g) Nondiscrimination.--The payments made to pharmacy providers 
under this section for covered outpatient drugs shall not vary based 
upon the identity or class of trade of the pharmacy provider or the 
method of delivering the covered outpatient drugs.

                    ``pharmacy benefit administrator

    ``Sec. 1860D. (a) Selection.--
            ``(1) Establishment of bidding process.--The Secretary 
        shall establish a process under which the Secretary accepts 
        bids and awards a contract to one or more Pharmacy Benefit 
        Administrators to administer the benefits under this part for 
        eligible beneficiaries. Each entity desiring to enter into the 
        contract 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) Awarding of contract.--The Secretary shall, 
        consistent with the requirements of this part and the goal of 
        containing program costs, award contracts to one or more 
        entities to serve as Pharmacy Benefit Administrators.
            ``(3) Eligible entities.--An entity eligible for 
        consideration by the Secretary as the Pharmacy Benefit 
        Administrator shall meet at least the following criteria:
                    ``(A) Performance.--The entity shall have 
                sufficient expertise, personnel, and resources to 
                perform the contracted benefit administrations. The 
                entity shall be subject to such review as required by 
                the Secretary, both prior to issuing a contract under 
                this part and in review of performance administering 
                contracts under this part, including audits as 
                appropriate.
                    ``(B) Financial integrity.--The entity and its 
                officers, directors, agents, and managing employees 
                shall have a satisfactory record of professional 
                competence and professional and financial integrity, 
                and the entity shall have adequate financial resources 
                to perform services under the contract without risk of 
                insolvency.
                    ``(C) Capability to maintain records.--The entity 
                shall have systems to maintain adequate records, and 
                afford the Secretary access to such records (including 
                for audit purposes).
                    ``(D) Cost and pricing data.--The entity shall 
                submit to the Secretary as part of its bid submission 
                all relevant cost and pricing data which shall include 
                all fees charged by the entity for performing the 
                administrative functions pursuant to any competitively 
                bid contract awarded to the Pharmacy Benefit 
                Administrator under this section, plus any and all 
                administrative fees or other payments received by the 
                entity from any entity for any goods or services that 
                relate directly or indirectly to the program.
                    ``(E) Capability to generate reports.--The entity 
                shall have systems to make such reports and submissions 
                of financial and utilization data as the Secretary may 
                require, including but not limited to, reports 
                describing the nature and type of manufacturers' 
                payments received by the Pharmacy Benefit Fund.
                    ``(F) Conflict of interest.--The entity shall have 
                no conflict of interest in performing the duties of a 
                Pharmacy Benefit Administrator under this part, such as 
                a conflict of interest may arise if the entity owns or 
controls, or is owned or controlled by, a manufacturer or pharmacy 
provider that participates in the program.
    ``(b) Duties.--The Pharmacy Benefit Administrator shall perform the 
following administrative functions--
            ``(1) receive, disburse, and account for funds in making 
        payments to participating pharmacy providers under this part;
            ``(2) assure that proper payments are made under this part;
            ``(3) serve as a channel of communication of eligibility 
        and coverage information to beneficiaries and pharmacy 
        providers;
            ``(4) provide the information and computer system support, 
        either directly or through a contract with an outside entity, 
        for participating pharmacy providers to conduct a drug 
        utilization review program conforming to the standards 
        established by section 1927(g)(2), with modifications as the 
        Secretary determines by regulation to be appropriate;
            ``(5) conduct activities to prevent fraud, abuse, and 
        waste, in accordance with existing law or regulations 
        promulgated by the Secretary;
            ``(6) monitor and collect payments from participating 
        manufacturers as required by this part;
            ``(7) process applications, determine eligibility, and 
        maintain eligibility files for beneficiaries as directed by the 
        Secretary;
            ``(8) facilitate and support contracts between pharmacy 
        providers and manufacturers pursuant to sections 1860B and 
        1860C;
            ``(9) issue Standard Pharmacy Benefits Cards to enrolled 
        beneficiaries upon approved enrollment and thereafter as 
        necessary;
            ``(10) execute agreements with manufacturers and pharmacy 
        providers;
            ``(11) comply with all standards applicable to covered 
        entities under the administrative simplification provisions of 
        the Health Insurance Portability and Accountability Act of 
        1996;
            ``(12) operate a service center available all day every day 
        to answer questions and resolve problems presented by 
        beneficiaries and pharmacy providers; and
            ``(13) resolve coordination of benefits issues to 
        facilitate the secondary payer status of the program, pursuant 
        to rules and procedures established by the Secretary.
    ``(c) Limited Functions of Pharmacy Benefit Administrator.--The 
role of the Pharmacy Benefit Administrator shall be purely 
administrative. The Secretary may receive, review, and resolve 
complaints from beneficiaries, pharmacy providers, and manufacturers 
alleging that the Pharmacy Benefit Administrator has exceeded or abused 
its authority. The Secretary shall not contract with the Pharmacy 
Benefit Administrator to--
            ``(1) negotiate or make determinations of the rates and 
        amounts of payments to be made to pharmacy providers under this 
        part;
            ``(2) make determinations of any limitations on covered 
        benefits, such as the nature, scope, choice, or amount of 
        benefits available, including but not limited to, prior 
        authorization or limitations on the quantity or days supply of 
        covered outpatient drugs dispensed by pharmacy providers; or
            ``(3) manage patient care or clinical aspects of the 
        program, or to otherwise practice medicine or pharmacy.
    ``(d) Confidentiality.--The Pharmacy Benefit Administrator shall 
not own, use, or disclose patient information or the business or 
proprietary information of manufacturers or pharmacy providers, and 
shall not contact or communicate with beneficiaries, other than as 
necessary to perform the duties enumerated in this part, except as 
otherwise required by law.
    ``(e) Administrative Fees.--
            ``(1) Payment to pharmacy benefit administrator.--The 
        Secretary shall establish procedures for paying administrative 
        fees to the Pharmacy Benefit Administrator under a contract 
        entered into under this part for costs associated with 
        processing enrollment applications, determining eligibility, 
        issuing Standard Pharmacy Benefits Cards, collecting subsidies 
        and payments from manufacturers and disbursing them to pharmacy 
        providers, processing individual prescription claims, 
        administering the catastrophic benefit under this part, and 
        performing the other administrative functions required by this 
        part. The administrative fees shall be negotiated by the 
        Secretary.
            ``(2) No entitlement to manufacturer subsidies.--The 
        payments made by manufacturers under this part are intended to 
        reduce the costs incurred by enrolled beneficiaries, and the 
        Pharmacy Benefit Administrator is not entitled to a portion of 
        those payments. The Pharmacy Benefit Administrator shall be 
        prohibited from accepting any remuneration from a manufacturer 
        for any services directly or indirectly related to the program.

                        ``pharmacy benefits fund

    ``Sec. 1860E.
    ``(a) Pharmacy Benefit Fund.--There is established within the 
Federal Supplementary Medical Insurance Trust Fund established under 
section 1841 an account to be known as the ``Pharmacy Benefit Fund''.
    ``(b) Deposits.--There shall be deposited into the Pharmacy Benefit 
Fund--
            ``(1) subsidy or discounts payments from manufacturers 
        under this part,
            ``(2) amounts appropriated to the Pharmacy Benefit Fund.
Interest on Fund balances shall accrue to the fund.
    ``(c) Payment of Benefits.--Surplus assets of the Pharmacy Benefit 
Fund shall be used for the benefit of the program. The assets of the 
Fund shall be used to--
            ``(1) reimburse pharmacy providers for price subsidies, 
        medication review and medication therapy management services, 
        and catastrophic coverage benefits provided to enrolled 
        beneficiaries under this part; and
            ``(2) reimburse the Pharmacy Benefits Administrator for its 
        administrative costs as provided in section 1860D.
    ``(d) Financing and Appropriations.--
            ``(1) Financing.--The costs of providing benefits under 
        this part shall be payable primarily from the Pharmacy Benefit 
        Fund, and secondarily from the Federal Supplementary Medical 
        Insurance Trust Fund established under section 1841.
            ``(2) Ongoing appropriations.--There are authorized to be 
        appropriated to the Pharmacy Benefit Fund from time to time, 
        out of any moneys in the Treasury not otherwise appropriated, 
        amounts equal to the amount by which the costs of providing the 
        payments and benefits under this part exceed the enrollment 
        fees and manufacturer payments collected under this part.
    ``(e) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.
    ``(f) Exclusion of Drug Prices From Best Price Determinations.--
            ``(1) State medicaid programs.--Prices for covered 
        outpatient drugs established or offered under this part shall 
        not be considered for purposes of calculating reimbursement 
        from States to pharmacy providers for outpatient drugs or 
        services furnished to individuals under title XIX of this Act.
            ``(2) Medicaid drug rebate program.--Any prices for covered 
        outpatient drugs established or offered under this part shall 
        be excluded from the definition of `best price' contained in 
        section 1927(c)(1)(C).

                             ``definitions

    ``Sec. 1860F. In this part:
            ``(1) Average manufacturers' price.--The term `average 
        manufacturers' price' means, with respect to a prescription 
        drug of a manufacturer provided under this part for a calendar 
        quarter, the average unit price paid to the manufacturer by 
        wholesalers for drugs distributed to the retail pharmacy class 
        of trade (excluding direct sales to hospitals, health 
        maintenance organizations, and wholesalers where the drug is 
        relabeled under the distributor's national drug code). Average 
        manufacturers' price includes cash discounts allowed and all 
        other price reductions that reduce the actual price paid.
            ``(2) Covered outpatient drug.--
                    ``(A) In general.--Subject to paragraph (2), the 
                term `covered outpatient prescription drug' means--
                            ``(i) a drug or biological that may be 
                        dispensed only upon a prescription;
                            ``(ii) insulin certified under section 506 
                        of the Federal Food, Drug, and Cosmetic Act, 
                        and needles, syringes, and disposable pumps for 
                        the administration of such insulin; and
                            ``(iii) such nonprescription drugs as 
                        defined under section 503 of the Federal Food, 
                        Drug, and Cosmetic Act that are prescribed and 
                        determined medically necessary by a physician 
                        or other health care provider licensed by the 
                        State to prescribe medications.
                    ``(B) Exclusion of cosmetic agents and fertility 
                agents.--For purposes of catastrophic coverage under 
                section 1860D, the term `covered outpatient drugs' does 
                not include medications or classes of outpatient 
                prescription drugs described in subparagraphs (B) and 
                (C) of section 1927(d)(2).
            ``(3) Manufacturer.--the term `manufacturer' means any 
        entity which is engaged in the production, preparation, 
        propagation, conversion, or processing of prescription drug 
        products, but such term does not include a wholesale 
        distributor or a pharmacy provider that compounds, repackages, 
        relabels, dispenses, or distributes prescription drug products.
            ``(4) Pharmacy provider.--The term `pharmacy provider' 
        means any private sector pharmacist or pharmacy that is 
        authorized by applicable State agencies to engage in the 
        practice of pharmacy or operate a pharmacy.''.
    (b) 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 by inserting before the period the following: ``, or 
attributable to the Medicare Pharmacy Benefit Program under part D''.
    (c) Conforming References to Previous Part D.--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 to be a reference to part E 
of such title (as in effect after such date).
    (d) Effective Date.--The amendments made by this section shall 
first apply on January 2003.
                                 <all>