[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5019 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 5019

To amend titles XVIII and XIX of the Social Security Act to provide for 
a voluntary Medicare prescription medicine benefit, to provide greater 
access to affordable pharmaceuticals, to revise and improve payments to 
    providers of services under the Medicare Program, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 26, 2002

   Mr. Rangel (for himself, Mr. Dingell, Mr. Holden, Mr. Maloney of 
  Connecticut, Mr. Ross, Mr. Shows, Mr. Brown of Ohio, Mr. Stark, Mr. 
  Waxman, Mr. Pallone, Mr. Abercrombie, Mr. Ackerman, Mr. Allen, Mr. 
 Andrews, Mr. Baca, Mr. Baird, Mr. Baldacci, Ms. Baldwin, Mr. Barcia, 
  Mr. Barrett of Wisconsin, Mr. Becerra, Ms. Berkley, Mr. Berry, Mr. 
  Blumenauer, Mr. Bonior, Mr. Borski, Mr. Boswell, Mr. Boucher, Mrs. 
      Capps, Mr. Capuano, Mr. Cardin, Ms. Carson of Indiana, Mrs. 
    Christensen, Mr. Clay, Mr. Conyers, Mr. Coyne, Mr. Crowley, Mr. 
    Cummings, Mr. Davis of Illinois, Ms. DeGette, Mr. Delahunt, Ms. 
 DeLauro, Mr. Deutsch, Mr. Doyle, Mr. Engel, Ms. Eshoo, Mr. Evans, Mr. 
 Filner, Mr. Frank, Mr. Frost, Mr. Gephardt, Mr. Gonzalez, Mr. Gordon, 
Mr. Green of Texas, Mr. Hastings of Florida, Mr. Hilliard, Mr. Hinchey, 
  Mr. Hinojosa, Mr. Honda, Mr. Hoyer, Mr. Israel, Ms. Jackson-Lee of 
Texas, Mr. Jefferson, Mr. John, Ms. Eddie Bernice Johnson of Texas, Mr. 
  Kanjorski, Ms. Kaptur, Mr. Kennedy of Rhode Island, Mr. Kildee, Ms. 
 Kilpatrick, Mr. Kleczka, Mr. LaFalce, Mr. Lampson, Mr. Langevin, Mr. 
  Lantos, Mr. Larson of Connecticut, Ms. Lee, Mr. Levin, Mr. Lewis of 
 Georgia, Mrs. Lowey, Mr. Lynch, Mrs. Maloney of New York, Mr. Markey, 
  Mr. Mascara, Mr. Matsui, Mrs. McCarthy of New York, Ms. McCarthy of 
Missouri, Ms. McCollum, Mr. McDermott, Mr. McGovern, Ms. McKinney, Mr. 
 McNulty, Mr. Meehan, Mrs. Meek of Florida, Mr. Meeks of New York, Mr. 
   George Miller of California, Mr. Murtha, Mr. Nadler, Mr. Neal of 
  Massachusetts, Ms. Norton, Mr. Oberstar, Mr. Olver, Mr. Ortiz, Mr. 
 Owens, Mr. Pastor, Ms. Pelosi, Mr. Phelps, Mr. Rahall, Mr. Reyes, Ms. 
 Rivers, Mr. Rodriguez, Ms. Roybal-Allard, Mr. Rush, Mr. Sandlin, Mr. 
    Sawyer, Ms. Schakowsky, Mr. Schiff, Mr. Scott, Mr. Serrano, Ms. 
   Slaughter, Ms. Solis, Mr. Strickland, Mr. Stupak, Mr. Thompson of 
Mississippi, Mrs. Thurman, Mrs. Jones of Ohio, Mr. Turner, Mr. Udall of 
New Mexico, Mr. Underwood, Mr. Visclosky, Ms. Watson of California, Mr. 
  Weiner, Mr. Wexler, Ms. Woolsey, Mr. Wynn, Mrs. Napolitano, and Ms. 
Millender-McDonald) introduced the following bill; which was referred, 
  pursuant to the order of the House of June 17, 2002, jointly to the 
          Committees on Energy and Commerce and Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend titles XVIII and XIX of the Social Security Act to provide for 
a voluntary Medicare prescription medicine benefit, to provide greater 
access to affordable pharmaceuticals, to revise and improve payments to 
    providers of services under 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; REFERENCES IN ACT; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare Rx Drug 
Benefit and Discount Act of 2002''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in title I of this Act an amendment is 
expressed in terms of an amendment to or repeal of a section or other 
provision, the reference shall be considered to be made to that section 
or other provision of the Social Security Act.
    (c) BIPA; Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means 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.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (d) Table of Contents.--The table of contents of this Act is as 
follows:

                 TITLE I--PRESCRIPTION DRUG PROVISIONS

           Subtitle A--Medicare Prescription Medicine Benefit

Sec. 101. Voluntary medicare outpatient prescription medicine program.
  ``Part D--Voluntary Prescription Medicine Benefit for the Aged and 
                                Disabled

``Sec. 1859. Medicare outpatient prescription medicine benefit.
``Sec. 1859A. Negotiating fair prices with pharmaceutical 
                            manufacturers.
``Sec. 1859B. Contract authority.
``Sec. 1859C. Eligibility; voluntary enrollment; coverage.
``Sec. 1859D. Provision of, and entitlement to, benefits.
``Sec. 1859E. Administration; quality assurance.
``Sec. 1859F. Federal Medicare Prescription Medicine Trust Fund.
``Sec. 1859G. Compensation for employers covering retiree medicine 
                            costs.
``Sec. 1859H. Medicare Prescription Medicine Advisory Committee.
Sec. 102. Provision of medicare outpatient prescription medicine 
                            coverage under the Medicare+Choice program.
Sec. 103. Medigap revisions.
Sec. 104. Transitional assistance for low income beneficiaries.
Sec. 105. Expansion of membership and duties of Medicare Payment 
                            Advisory Commission (MedPAC).
                 Subtitle B--Affordable Pharmaceuticals

          Part I--Greater Access to Affordable Pharmaceuticals

Sec. 111. Accelerated generic drug competition.
Sec. 112. Patent certification.
Sec. 113. Additional uses.
Part II--Notification of Agreements Affecting the Sale or Marketing of 
                             Generic Drugs

Sec. 121. Definitions.
Sec. 122. Notification of agreements affecting the sale or marketing of 
                            generic drugs.
Sec. 123. Filing deadlines.
Sec. 124. Enforcement.
Sec. 125. Rulemaking.
Sec. 126. Effective dates.
     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting 
                            deadlines and annual, coordinated election 
                            period.
Sec. 203. Specialized Medicare+Choice plans for special needs 
                            beneficiaries.
Sec. 204. Extension of reasonable cost and SHMO contracts.
Sec. 205. Continuous open enrollment and disenrollment.
Sec. 206. Limitation on Medicare+Choice cost-sharing.
Sec. 207. Extension of municipal health service demonstration projects.
               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

Sec. 301. Reference to full market basket increase for sole community 
                            hospitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for 
                            rural hospitals and urban hospitals with 
                            fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural 
                            and small urban areas to achieve a single, 
                            uniform standardized amount.
Sec. 304. More frequent update in weights used in hospital market 
                            basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services 
                            furnished in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care 
                            furnished in a frontier area and rural 
                            hospice demonstration project.
Sec. 308. Reference to priority for hospitals located in rural or small 
                            urban areas in redistribution of unused 
                            graduate medical education residencies.
Sec. 309. GAO study of geographic differences in payments for 
                            physicians' services.
Sec. 310. Providing safe harbor for certain collaborative efforts that 
                            benefit medically underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.
                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. Freeze in level of adjustment for indirect costs of medical 
                            education (IME) through fiscal year 2007.
Sec. 403. Recognition of new medical technologies under inpatient 
                            hospital PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate 
                            share hospital (DSH) payments for rural 
                            hospitals and urban hospitals with fewer 
                            than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase 
                            in the standardized amount in rural and 
                            small urban areas to achieve a single, 
                            uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the 
                            weights used in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access 
                            hospital program.
             Subtitle B--Skilled Nursing Facility Services

Sec. 411. Payment for covered skilled nursing facility services.
                          Subtitle C--Hospice

Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in 
                            a frontier area.
Sec. 423. Rural hospice demonstration project.
                      Subtitle D--Other Provisions

Sec. 431. Demonstration project for use of recovery audit contractors 
                            for part A services.
                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 501. Revision of updates for physicians' services.
Sec. 502. Studies on access to physicians' services.
Sec. 503. MedPAC report on payment for physicians' services.
Sec. 504. 1-year extension of treatment of certain physician pathology 
                            services under medicare.
Sec. 505. Physician fee schedule wage index revision.
                       Subtitle B--Other Services

Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 5-year extension of moratorium on therapy caps; provisions 
                            relating to reports.
Sec. 514. Accelerated implementation of 20 percent coinsurance for 
                            hospital outpatient department (OPD) 
                            services; other OPD provisions.
Sec. 515. Coverage of an initial preventive physical examination.
Sec. 516. Renal dialysis services.
Sec. 517. Improved payment for certain mammography services.
Sec. 518. Waiver of part B late enrollment penalty for certain military 
                            retirees; special enrollment period.
Sec. 519. Coverage of cholesterol and blood lipid screening.
             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 601. Elimination of 15 percent reduction in payment rates under 
                            the prospective payment system.
Sec. 602. Update in home health services.
Sec. 603. OASIS Task Force; suspension of certain OASIS data collection 
                            requirements pending Task Force submittal 
                            of report.
Sec. 604. MedPAC study on medicare margins of home health agencies.
             Subtitle B--Direct Graduate Medical Education

Sec. 611. Redistribution of unused resident positions.
Sec. 612. Increasing for 5 years to 100 percent of the locality 
                            adjusted national average per resident 
                            amount the payment floor for direct 
                            graduate medical education payments under 
                            the medicare program.
                      Subtitle C--Other Provisions

Sec. 621. Modifications to Medicare Payment Advisory Commission 
                            (MedPAC).
Sec. 622. Demonstration project for disease management for certain 
                            medicare beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
Sec. 624. Publication on final written guidance concerning prohibitions 
                            against discrimination by national origin 
                            with respect to health care services.
                     TITLE VII--MEDICAID PROVISIONS

                    Subtitle A--Medicaid Provisions

Sec. 701. DSH provisions.
Sec. 702. 1-year extension of Q-I1 program.
                    Subtitle B--Internet Pharmacies

Sec. 711. Internet sales of prescription drugs.Findings.
Sec. 712. Internet sales of prescription drugs; consideration by 
                            secretary of practices and procedures for 
                            certification of legitimate businesses.
Sec. 713. Effective date.
                 Subtitle C--Treatment of Rare Diseases

Sec. 721. NIH Office of Rare Diseases at National Institutes of Health.
Sec. 722. Rare disease regional centers of excellence.
             Subtitle D--Other Provisions Relating to Drugs

Sec. 731. GAO study regarding direct-to-consumer advertising of 
                            prescription drugs.
Sec. 732. Certain health professions programs regarding practice of 
                            pharmacy.
               ``Subpart 3--Pharmacist Workforce Programs

        ``Sec. 771. Public service announcements.
        ``Sec. 772. Demonstration project.
        ``Sec. 773. Information technology.
        ``Sec. 774. Authorization of appropriations.

               TITLE I--PRESCRIPTION MEDICINE PROVISIONS

           Subtitle A--MEDICARE PRESCRIPTION MEDICINE BENEFIT

SEC. 101. VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION MEDICINE PROGRAM.

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

  ``Part D--Voluntary Prescription Medicine Benefit for the Aged and 
                                Disabled

          ``medicare outpatient prescription medicine benefit

    ``Sec. 1859. Subject to the succeeding provisions of this part, the 
voluntary prescription medicine benefit program under this part 
provides the following:
            ``(1) Premium.--The monthly premium is $25.
            ``(2) Deductible.--The annual deductible is $100.
            ``(3) Coinsurance.--The coinsurance is 20 percent.
            ``(4) Out-of-pocket limit.--The annual limit on out-of-
        pocket spending on covered medicines is $2,000.

      ``negotiating fair prices with pharmaceutical manufacturers

    ``Sec. 1859A. (a) Authority to Negotiate Prices with 
Manufacturers.--The Secretary shall, consistent with the requirements 
of this part and the goals of providing quality care and containing 
costs under this part, negotiate contracts with manufacturers of 
covered outpatient prescription medicines that provide for the maximum 
prices that may be charged to individuals enrolled under this part by 
participating pharmacies for dispensing such medicines to such 
individuals.
    ``(b) Promotion of Breakthrough Medicines.--In conducting 
negotiations with manufacturers under this part, the Secretary shall 
take into account the goal of promoting the development of breakthrough 
medicines (as defined in section 1859H(b)).

                          ``contract authority

    ``Sec. 1859B. (a) Contract Authority.--
            ``(1) In general.--The Secretary is responsible for the 
        administration of this part and shall enter into contracts with 
        appropriate pharmacy contractors on a national or regional 
        basis to administer the benefits under this part.
            ``(2) Procedures.--The Secretary shall establish procedures 
        under which the Secretary--
                    ``(A) accepts bids submitted by entities to serve 
                as pharmacy contractors under this part in a region or 
                on a national basis;
                    ``(B) awards contracts to such contractors to 
                administer benefits under this part to eligible 
                beneficiaries in the region or on a national basis; and
                    ``(C) provides for the termination (and nonrenewal) 
                of a contract in the case of a contractor's failure to 
                meet the requirements of the contract and this part.
            ``(3) Competitive procedures.--Competitive procedures (as 
        defined in section 4(5) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 403(5))) shall be used to enter into 
        contracts under this part.
            ``(4) Terms and conditions.--Such contracts shall have such 
        terms and conditions as the Secretary shall specify and shall 
        be for such terms (of at least 2 years, but not to exceed 5 
        years) as the Secretary shall specify consistent with this 
        part.
            ``(5) Use of pharmacy contractors in price negotiations.--
        Such contracts shall require the contractor involved to 
        negotiate contracts with manufacturers that provide for maximum 
        prices for covered outpatient prescription medicines that are 
        lower than the maximum prices negotiated under section 
        1859A(a), if applicable. The price reductions shall be passed 
        on to eligible beneficiaries and the Secretary shall hold the 
        contractor accountable for meeting performance requirements 
        with respect to price reductions and limiting price increases.
            ``(6) Area for contracts.--
                    ``(A) Regional basis.--
                            ``(i) In general.--Except as provided in 
                        clause (ii) and subject to subparagraph (B), 
                        the contract entered into between the Secretary 
                        and a pharmacy contractor shall require the 
                        contractor to administer the benefits under 
                        this part in a region determined by the 
                        Secretary under subparagraph (B) or on a 
                        national basis.
                            ``(ii) Partial regional basis.--
                                    ``(I) In general.--If determined 
                                appropriate by the Secretary, the 
                                Secretary may permit the benefits to be 
                                administered in a partial region 
                                determined appropriate by the 
                                Secretary.
                                    ``(II) Requirements.--If the 
                                Secretary permits administration 
                                pursuant to subclause (I), the 
                                Secretary shall ensure that the partial 
                                region in which administration is 
                                effected is no smaller than a State and 
                                is at least the size of the commercial 
                                service area of the contractor for that 
                                area.
                    ``(B) Determination.--
                            ``(i) In general.--In determining regions 
                        for contracts under this part, the Secretary 
                        shall--
                                    ``(I) take into account the number 
                                of individuals enrolled under this part 
                                in an area in order to encourage 
                                participation by pharmacy contractors; 
                                and
                                    ``(II) ensure that there are at 
                                least 10 different regions in the 
                                United States.
                            ``(ii) No administrative or judicial 
                        review.--The determination of administrative 
                        areas under this paragraph shall not be subject 
                        to administrative or judicial review.
            ``(7) Submission of bids.--
                    ``(A) Submission.--
                            ``(i) In general.--Subject to subparagraph 
                        (B), each entity desiring to serve as a 
                        pharmacy contractor under this part in an area 
                        shall submit a bid with respect to such area to 
                        the Secretary at such time, in such manner, and 
                        accompanied by such information as the 
                        Secretary may reasonably require.
                            ``(ii) Bid that covers multiple areas.--The 
                        Secretary shall permit an entity to submit a 
                        single bid for multiple areas if the bid is 
                        applicable to all such areas.
                    ``(B) Required information.--The bids described in 
                subparagraph (A) shall include--
                            ``(i) a proposal for the estimated prices 
                        of covered outpatient prescription medicines 
                        and the projected annual increases in such 
                        prices, including the additional reduction in 
                        price negotiated below the Secretary's maximum 
                        price and differentials between preferred and 
                        nonpreferred prices, if applicable;
                            ``(ii) a statement regarding the amount 
                        that the entity will charge the Secretary for 
                        administering the benefits under the contract;
                            ``(iii) a statement regarding whether the 
                        entity will reduce the applicable coinsurance 
                        percentage pursuant to section 
                        1859E(a)(1)(A)(ii) and if so, the amount of 
                        such reduction and how such reduction is tied 
                        to the performance requirements described in 
                        subsection (c)(4)(A)(ii);
                            ``(iv) a detailed description of the 
                        performance requirements for which the 
                        administrative fee of the entity will be 
                        subject to risk pursuant to subsection 
                        (c)(4)(A)(ii);
                            ``(v) a detailed description of access to 
                        pharmacy services provided by the entity, 
                        including information regarding whether the 
                        pharmacy contractor will use a preferred 
                        pharmacy network, and, if so, how the pharmacy 
                        contractor will ensure access to pharmacies 
                        that choose to be outside of that network, and 
                        whether there will be increased cost-sharing 
                        for beneficiaries if they obtain medicines at 
                        such pharmacies;
                            ``(vi) a detailed description of the 
                        procedures and standards the entity will use 
                        for--
                                    ``(I) selecting preferred 
                                prescription medicines; and
                                    ``(II) determining when and how 
                                often the list of preferred 
                                prescription medicines should be 
                                modified;
                            ``(vii) a detailed description of any 
                        ownership or shared financial interests with 
                        pharmaceutical manufacturers, pharmacies, and 
                        other entities involved in the administration 
                        or delivery of benefits under this part as 
                        proposed in the bid;
                            ``(viii) a detailed description of the 
                        entity's estimated marketing and advertising 
                        expenditures related to enrolling and retaining 
                        eligible beneficiaries; and
                            ``(ix) such other information that the 
                        Secretary determines is necessary in order to 
                        carry out this part, including information 
                        relating to the bidding process under this 
                        part.
                The procedures under clause (vi) shall include the use 
                of a pharmaceutical and therapeutics committee the 
                members of which include practicing pharmacists.
            ``(8) Awarding of contracts.--
                    ``(A) Number of contracts.--The Secretary shall, 
                consistent with the requirements of this part and the 
                goals of providing quality care and of containing costs 
                under this part, award in a competitive manner at least 
                2 contracts to administer benefits under this part in 
                each area specified under paragraph (6), unless only 1 
                pharmacy contractor submitting a bid meets the minimum 
                standards specified under this part and by the 
                Secretary.
                    ``(B) Determination.--In determining which of the 
                pharmacy contractors that submitted bids that meet the 
                minimum standards specified under this part and by the 
                Secretary to award a contract, the Secretary shall 
                consider the comparative merits of each bid, as 
                determined on the basis of relevant factors, with 
                respect to--
                            ``(i) how well the contractor meets such 
                        minimum standards;
                            ``(ii) the amount that the contractor will 
                        charge the Secretary for administering the 
                        benefits under the contract;
                            ``(iii) the performance standards 
                        established under subsection (c)(2) and 
                        performance requirements for which the 
                        administrative fee of the entity will be 
                        subject to risk pursuant to subsection 
                        (c)(4)(A)(ii);
                            ``(iv) the proposed negotiated prices of 
                        covered outpatient medicines and annual 
                        increases in such prices;
                            ``(v) factors relating to benefits, quality 
                        and performance, beneficiary cost-sharing, and 
                        consumer satisfaction;
                            ``(vi) past performance and prior 
                        experience of the contractor in administering a 
                        prescription medicine benefit program;
                            ``(vii) effectiveness of the contractor in 
                        containing costs through pricing incentives and 
                        utilization management; and
                            ``(viii) such other factors as the 
                        Secretary deems necessary to evaluate the 
                        merits of each bid.
                    ``(C) Exception to conflict of interest rules.--In 
                awarding contracts with pharmacy contractors under this 
                part, the Secretary may waive conflict of interest laws 
                generally applicable to Federal acquisitions (subject 
                to such safeguards as the Secretary may find necessary 
                to impose) in circumstances where the Secretary finds 
                that such waiver--
                            ``(i) is not inconsistent with the--
                                    ``(I) purposes of the programs 
                                under this part; or
                                    ``(II) best interests of 
                                beneficiaries enrolled under this part; 
                                and
                            ``(ii) permits a sufficient level of 
                        competition for such contracts, promotes 
                        efficiency of benefits administration, or 
                        otherwise serves the objectives of the program 
                        under this part.
                    ``(D) No administrative or judicial review.--The 
                determination of the Secretary to award or not award a 
                contract to a pharmacy contractor under this part shall 
                not be subject to administrative or judicial review.
            ``(9) Access to benefits in certain areas.--
                    ``(A) Areas not covered by contracts.--The 
                Secretary shall develop procedures for the provision of 
                covered outpatient prescription medicines under this 
                part to each eligible beneficiary enrolled under this 
                part that resides in an area that is not covered by any 
                contract under this part.
                    ``(B) Beneficiaries residing in different 
                locations.--The Secretary shall develop procedures to 
                ensure that each eligible beneficiary enrolled under 
                this part that resides in different areas in a year is 
                provided the benefits under this part throughout the 
                entire year.
    ``(b) Quality, Financial, and Other Standards and Programs.--In 
consultation with appropriate pharmacy contractors, pharmacists, and 
health care professionals with expertise in prescribing, dispensing, 
and the appropriate use of prescription medicines, the Secretary shall 
establish standards and programs for the administration of this part to 
ensure appropriate prescribing, dispensing, and utilization of 
outpatient medicines under this part, to avoid adverse medicine 
reactions, and to continually reduce errors in the delivery of 
medically appropriate covered benefits. The Secretary shall not award a 
contract to a pharmacy contractor under this part unless the Secretary 
finds that the contractor agrees to comply with such standards and 
programs and other terms and conditions as the Secretary shall specify. 
The standards and programs under this subsection shall be applied to 
any administrative agreements described in subsection (a) the Secretary 
enters into. Such standards and programs shall include the following:
            ``(1) Access.--
                    ``(A) In general.--The pharmacy contractor shall 
                ensure that covered outpatient prescription medicines 
                are accessible and convenient to eligible beneficiaries 
                enrolled under this part for whom benefits are 
                administered by the pharmacy contractor, including by 
                offering the services 24 hours a day and 7 days a week 
                for emergencies.
                    ``(B) On-line review.--The pharmacy contractor 
                shall provide for on-line prospective review available 
                24 hours a day and 7 days a week in order to evaluate 
                each prescription for medicine therapy problems due to 
                duplication, interaction, or incorrect dosage or 
                duration of therapy.
                    ``(C) Guaranteed access to medicines in rural and 
                hard-to-serve areas.--The Secretary shall ensure that 
                all beneficiaries have guaranteed access to the full 
                range of pharmaceuticals under this part, and shall 
                give special attention to access, pharmacist 
                counseling, and delivery in rural and hard-to-serve 
                areas, including through the use of incentives such as 
                bonus payments to retail pharmacists in rural areas and 
                extra payments to the pharmacy contractor for the cost 
                of rapid delivery of pharmaceuticals and any other 
                actions necessary.
                    ``(D) Preferred pharmacy networks.--
                            ``(i) In general.--If a pharmacy contractor 
                        uses a preferred pharmacy network to deliver 
                        benefits under this part, such network shall 
                        meet minimum access standards established by 
                        the Secretary.
                            ``(ii) Standards.--In establishing 
                        standards under clause (i), the Secretary shall 
                        take into account reasonable distances to 
                        pharmacy services in both urban and rural 
                        areas.
                    ``(E) Adherence to negotiated prices.--The pharmacy 
                contractor shall have in place procedures to assure 
                compliance of pharmacies with the requirements of 
                subsection (d)(3)(C) (relating to adherence to 
                negotiated prices).
                    ``(F) Continuity of care.--
                            ``(i) In general.--The pharmacy contractor 
                        shall ensure that, in the case of an eligible 
                        beneficiary who loses coverage under this part 
                        with such entity under circumstances that would 
                        permit a special election period (as 
                        established by the Secretary under section 
                        1859C(b)(3)), the contractor will continue to 
                        provide coverage under this part to such 
                        beneficiary until the beneficiary enrolls and 
                        receives such coverage with another pharmacy 
                        contractor under this part or, if eligible, 
                        with a Medicare+Choice organization.
                            ``(ii) Limited period.--In no event shall a 
                        pharmacy contractor be required to provide the 
                        extended coverage required under clause (i) 
                        beyond the date which is 30 days after the 
                        coverage with such contractor would have 
                        terminated but for this subparagraph.
            ``(2) Enrollee guidelines.--The pharmacy contractor shall, 
        consistent with State law, apply guidelines for counseling 
        enrollees regarding--
                    ``(A) the proper use of covered outpatient 
                prescription medicine: and
                    ``(B) interactions and contra-indications.
            ``(3) Education.--The pharmacy contractor shall apply 
        methods to identify and educate providers, pharmacists, and 
        enrollees regarding--
                    ``(A) instances or patterns concerning the 
                unnecessary or inappropriate prescribing or dispensing 
                of covered outpatient prescription medicines;
                    ``(B) instances or patterns of substandard care;
                    ``(C) potential adverse reactions to covered 
                outpatient prescription medicines;
                    ``(D) inappropriate use of antibiotics;
                    ``(E) appropriate use of generic products; and
                    ``(F) the importance of using covered outpatient 
                prescription medicines in accordance with the 
                instruction of prescribing providers.
            ``(4) Coordination.--The pharmacy contractor shall 
        coordinate with State prescription medicine programs, other 
        pharmacy contractors, pharmacies, and other relevant entities 
        as necessary to ensure appropriate coordination of benefits 
        with respect to enrolled individuals when such individual is 
        traveling outside the home service area, and under such other 
        circumstances as the Secretary may specify.
            ``(5) Cost data.--
                    ``(A) The pharmacy contractor shall make data on 
                prescription medicine negotiated prices (including data 
                on discounts) available to the Secretary.
                    ``(B) The Secretary shall require, either directly 
                or through a pharmacy contractor, that participating 
                pharmacists, physicians, and manufacturers--
                            ``(i) maintain their prescription medicine 
                        cost data (including data on discounts) in a 
                        form and manner specified by the Secretary;
                            ``(ii) make such prescription medicine cost 
                        data available for review and audit by the 
                        Secretary; and
                            ``(iii) certify that the prescription 
                        medicine cost data are current, accurate, and 
                        complete, and reflect all discounts obtained by 
                        the pharmacist or physician in the purchasing 
                        of covered outpatient prescription medicines.
        Discounts referred to in subparagraphs (A) and (B) shall 
        include all volume discounts, manufacturer rebates, prompt 
        payment discounts, free goods, in-kind services, or any other 
        thing of financial value provided explicitly or implicitly in 
        exchange for the purchase of a covered outpatient prescription 
        medicine.
            ``(6) Reporting.--The pharmacy contractor shall provide the 
        Secretary with periodic reports on--
                    ``(A) the contractor's costs of administering this 
                part;
                    ``(B) utilization of benefits under this part;
                    ``(C) marketing and advertising expenditures 
                related to enrolling and retaining individuals under 
                this part; and
                    ``(D) grievances and appeals.
            ``(7) Records and audits.--The pharmacy contractor shall 
        maintain adequate records related to the administration of 
        benefits under this part and afford the Secretary access to 
        such records for auditing purposes.
            ``(8) Approval of marketing material and application 
        forms.--The pharmacy contractor shall comply with requirements 
        of section 1851(h) (relating to marketing material and 
        application forms) with respect to this part in the same manner 
        as such requirements apply under part C, except that the 
        provisions of paragraph (4)(A) of such section shall not apply 
        with respect to discounts or rebates provided in accordance 
        with this part.
    ``(c) Incentives for Cost and Utilization Management and Quality 
Improvement.--
            ``(1) In general.--The Secretary shall include in a 
        contract awarded under subsection (b) with a pharmacy 
        contractor such incentives for cost and utilization management 
        and quality improvement as the Secretary may deem appropriate. 
        The contract may provide financial or other incentives to 
        encourage greater savings to the program under this part.
            ``(2) Performance standards.--The Secretary shall provide 
        for performance standards (which may include monetary bonuses 
        if the standards are met and penalties if the standards are not 
        met), including standards relating to the time taken to answer 
        member and pharmacy inquiries (written or by telephone), the 
        accuracy of responses, claims processing accuracy, online 
        system availability, appeal procedure turnaround time, system 
        availability, the accuracy and timeliness of reports, and level 
        of beneficiary satisfaction.
            ``(3) Other incentives.--Such incentives under this 
        subsection may also include--
                    ``(A) financial incentives under which savings 
                derived from the substitution of generic and other 
                preferred multi-source medicines in lieu of nongeneric 
                and nonpreferred medicines are made available to 
                pharmacy contractors, pharmacies, beneficiaries, and 
                the Federal Medicare Prescription Medicine Trust Fund; 
                and
                    ``(B) any other incentive that the Secretary deems 
                appropriate and likely to be effective in managing 
                costs or utilization or improving quality that does not 
                reduce the access of beneficiaries to medically 
                necessary covered outpatient medicines.
            ``(4) Requirements for procedures.--
                    ``(A) In general.--The Secretary shall establish 
                procedures for making payments to each pharmacy 
                contractor with a contract under this part for the 
                administration of the benefits under this part. The 
                procedures shall provide for the following:
                            ``(i) Administrative payment.--Payment of 
                        administrative fees for such administration.
                            ``(ii) Risk requirement.--An adjustment of 
                        a percentage (determined under subparagraph 
                        (B)) of the administrative fee payments made to 
                        a pharmacy contractor to ensure that the 
                        contractor, in administering the benefits under 
                        this part, pursues performance requirements 
                        established by the Secretary, including the 
                        following:
                                    ``(I) Quality service.--The 
                                contractor provides eligible 
                                beneficiaries for whom it administers 
                                benefits with quality services, as 
                                measured by such factors as sustained 
                                pharmacy network access, timeliness and 
                                accuracy of service delivery in claims 
                                processing and card production, 
                                pharmacy and member service support 
                                access, and timely action with regard 
                                to appeals and current beneficiary 
                                service surveys.
                                    ``(II) Quality clinical care.--The 
                                contractor provides such beneficiaries 
                                with quality clinical care, as measured 
                                by such factors as providing 
                                notification to such beneficiaries and 
                                to providers in order to prevent 
                                adverse drug reactions and reduce 
                                medication errors and specific clinical 
                                suggestions to improve health and 
                                patient and prescriber education as 
                                appropriate.
                                    ``(III) Control of medicare 
                                costs.--The contractor contains costs 
                                under this part to the Federal Medicare 
                                Prescription Medicine Trust Fund and 
                                enrollees, as measured by generic 
                                substitution rates, price discounts, 
                                and other factors determined 
                                appropriate by the Secretary that do 
                                not reduce the access of beneficiaries 
                                to medically necessary covered 
                                outpatient prescription medicines.
                    ``(B) Percentage of payment tied to risk.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary shall determine the percentage of 
                        the administrative payments to a pharmacy 
                        contractor that will be tied to the performance 
                        requirements described in subparagraph (A)(ii).
                            ``(ii) Limitation on risk to ensure program 
                        stability.--In order to provide for program 
                        stability, the Secretary may not establish a 
                        percentage to be adjusted under this paragraph 
                        at a level that jeopardizes the ability of a 
                        pharmacy contractor to administer the benefits 
                        under this part or administer such benefits in 
                        a quality manner.
                    ``(C) Risk adjustment of payments based on 
                enrollees in plan.--To the extent that a pharmacy 
                contractor is at risk under this paragraph, the 
                procedures established under this paragraph may include 
                a methodology for risk adjusting the payments made to 
                such contractor based on the differences in actuarial 
                risk of different enrollees being served if the 
                Secretary determines such adjustments to be necessary 
                and appropriate.
    ``(d) Authority Relating to Pharmacy Participation.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, a pharmacy contractor may establish consistent 
        with this part conditions for the participation of pharmacies, 
        including conditions relating to quality (including reduction 
        of medical errors) and technology.
            ``(2) Agreements with pharmacies.--Each pharmacy contractor 
        shall enter into a participation agreement with any pharmacy 
        that meets the requirements of this subsection and section 
        1859E to furnish covered outpatient prescription medicines to 
        individuals enrolled under this part.
            ``(3) Terms of agreement.--An agreement under this 
        subsection shall include the following terms and conditions:
                    ``(A) Applicable requirements.--The pharmacy shall 
                meet (and throughout the contract period continue to 
                meet) all applicable Federal requirements and State and 
                local licensing requirements.
                    ``(B) Access and quality standards.--The pharmacy 
                shall comply with such standards as the Secretary (and 
                such a pharmacy contractor) shall establish concerning 
                the quality of, and enrolled individuals' access to, 
                pharmacy services under this part. Such standards shall 
                require the pharmacy--
                            ``(i) not to refuse to dispense covered 
                        outpatient prescription medicines to any 
                        individual enrolled under this part;
                            ``(ii) to keep patient records (including 
                        records on expenses) for all covered outpatient 
                        prescription medicines dispensed to such 
                        enrolled individuals;
                            ``(iii) to submit information (in a manner 
                        specified by the Secretary to be necessary to 
                        administer this part) on all purchases of such 
                        medicines dispensed to such enrolled 
                        individuals; and
                            ``(iv) to comply with periodic audits to 
                        assure compliance with the requirements of this 
                        part and the accuracy of information submitted.
                    ``(C) Adherence to negotiated prices.--(i) The 
                total charge for each medicine dispensed by the 
                pharmacy to an enrolled individual under this part, 
                without regard to whether the individual is financially 
                responsible for any or all of such charge, shall not 
                exceed the price negotiated under section 1859A(a) or, 
                if lower, negotiated under subsection (a)(5) (or, if 
                less, the retail price for the medicine involved) with 
                respect to such medicine plus a reasonable dispensing 
                fee determined contractually with the pharmacy 
                contractor.
                    ``(ii) The pharmacy does not charge (or collect 
                from) an enrolled individual an amount that exceeds the 
                individual's obligation (as determined in accordance 
                with the provisions of this part) of the applicable 
                price described in clause (i).
                    ``(D) Additional requirements.--The pharmacy shall 
                meet such additional contract requirements as the 
                applicable pharmacy contractor specifies under this 
                section.
            ``(4) Applicability of fraud and abuse provisions.--The 
        provisions of section 1128 through 1128C (relating to fraud and 
        abuse) apply to pharmacies participating in the program under 
        this part.

             ``eligibility; voluntary enrollment; coverage

    ``Sec. 1859C. (a) Eligibility.--Each individual who is entitled to 
hospital insurance benefits under part A or is eligible to be enrolled 
in the medical insurance program under part B is eligible to enroll in 
accordance with this section for outpatient prescription medicine 
benefits under this part.
    ``(b) Voluntary Enrollment.--
            ``(1) In general.--An individual may enroll under this part 
        only in such manner and form as may be prescribed by 
        regulations, and only during an enrollment period prescribed in 
        or under this subsection.
            ``(2) Initial enrollment period.--
                    ``(A) Individuals currently covered.--In the case 
                of an individual who satisfies subsection (a) as of 
                November 1, 2004, the initial general enrollment period 
                shall begin on August 1, 2004, and shall end on March 
                1, 2005.
                    ``(B) Individual covered in future.--In the case of 
                an individual who first satisfies subsection (a) on or 
                after November 1, 2004, the individual's initial 
                enrollment period shall begin on the first day of the 
                third month before the month in which such individual 
                first satisfies such paragraph and shall end seven 
                months later. The Secretary shall apply rules similar 
                to the rule described in the second sentence of section 
                1837(d).
            ``(3) Special enrollment periods (without premium 
        penalty).--
                    ``(A) Employer coverage at time of initial general 
                enrollment period.--In the case of an individual who--
                            ``(i) at the time the individual first 
                        satisfies subsection (a) is enrolled in a group 
                        health plan (including continuation coverage) 
                        that provides outpatient prescription medicine 
                        coverage by reason of the individual's (or the 
                        individual's spouse's) current (or, in the case 
                        of continuation coverage, former) employment 
                        status, and
                            ``(ii) has elected not to enroll (or to be 
                        deemed enrolled) under this subsection during 
                        the individual's initial enrollment period,
                there shall be a special enrollment period of 6 months 
                beginning with the first month that includes the date 
                of the individual's (or individual's spouse's) 
                retirement from or termination of current employment 
                status with the employer that sponsors the plan, or, in 
                the case of continuation coverage, that includes the 
                date of termination of such coverage, or that includes 
                the date the plan substantially terminates outpatient 
                prescription medicine coverage.
                    ``(B) Dropping of retiree prescription medicine 
                coverage.--In the case of an individual who--
                            ``(i) at the time the individual first 
                        satisfies subsection (a) is enrolled in a group 
                        health plan that provides outpatient 
                        prescription medicine coverage other than by 
                        reason of the individual's (or the individual's 
                        spouse's) current employment; and
                            ``(ii) has elected not to enroll (or to be 
                        deemed enrolled) under this subsection during 
                        the individual's initial enrollment period,
                there shall be a special enrollment period of 6 months 
                beginning with the first month that includes the date 
                that the plan substantially terminates outpatient 
                prescription medicine coverage and ending 6 months 
                later.
                    ``(C) Loss of medicare+choice prescription medicine 
                coverage.--In the case of an individual who is enrolled 
                under part C in a Medicare+Choice plan that provides 
                prescription medicine benefits, if such enrollment is 
                terminated because of the termination or reduction in 
                service area of the plan, there shall be a special 
                enrollment period of 6 months beginning with the first 
                month that includes the date that such plan is 
                terminated or such reduction occurs and ending 6 months 
                later.
                    ``(D) Loss of medicaid prescription medicine 
                coverage.--In the case of an individual who--
                            ``(i) satisfies subsection (a);
                            ``(ii) loses eligibility for benefits (that 
                        include benefits for prescription medicine) 
                        under a State plan after having been enrolled 
                        (or determined to be eligible) for such 
                        benefits under such plan; and
                            ``(iii) is not otherwise enrolled under 
                        this subsection at the time of such loss of 
                        eligibility,
                there shall be a special enrollment period specified by 
                the Secretary of not less than 6 months beginning with 
                the first month that includes the date that the 
                individual loses such eligibility.
            ``(4) Late enrollment with premium penalty.--The Secretary 
        shall permit an individual who satisfies subsection (a) to 
        enroll other than during the initial enrollment period under 
        paragraph (2) or a special enrollment period under paragraph 
        (3). But, in the case of such an enrollment, the amount of the 
        monthly premium of the individual is subject to an increase 
        under section 1859C(e)(1).
            ``(5) Information.--
                    ``(A) In general.--The Secretary shall broadly 
                distribute information to individuals who satisfy 
                subsection (a) on the benefits provided under this 
                part. The Secretary shall periodically make available 
                information on the cost differentials to enrollees for 
                the use of generic medicines and other medicines.
                    ``(B) Toll-free hotline.--The Secretary shall 
                maintain a toll-free telephone hotline (which may be a 
                hotline already used by the Secretary under this title) 
                for purposes of providing assistance to beneficiaries 
                in the program under this part, including responding to 
                questions concerning coverage, enrollment, benefits, 
                grievances and appeals procedures, and other aspects of 
                such program.
            ``(6) Enrollee defined.--For purposes of this part, the 
        term `enrollee' means an individual enrolled for benefits under 
        this part.
    ``(c) Coverage Period.--
            ``(1) In general.--The period during which an individual is 
        entitled to benefits under this part (in this subsection 
        referred to as the individual's `coverage period') shall begin 
        on such a date as the Secretary shall establish consistent with 
        the type of coverage rules described in subsections (a) and (e) 
        of section 1838, except that in no case shall a coverage period 
        begin before January 1, 2005. No payments may be made under 
        this part with respect to the expenses of an individual unless 
        such expenses were incurred by such individual during a period 
        which, with respect to the individual, is a coverage period.
            ``(2) Termination.--The Secretary shall provide for the 
        application of provisions under this subsection similar to the 
        provisions in section 1838(b).
    ``(d) Provision of Benefits to Medicare+Choice Enrollees.--In the 
case of an individual who is enrolled under this part and is enrolled 
in a Medicare+Choice plan under part C, the individual shall be 
provided the benefits under this part through such plan and not through 
payment under this part.
    ``(e) Late Enrollment Penalties; Payment of Premiums.--
            ``(1) Late enrollment penalty.--
                    ``(A) In general.--In the case of a late enrollment 
                described in subsection (b)(4), subject to the 
                succeeding provisions of this paragraph, the Secretary 
                shall establish procedures for increasing the amount of 
                the monthly premium under this part applicable to such 
                enrollee by an amount that the Secretary determines is 
                actuarially sound for each such period.
                    ``(B) Periods taken into account.--For purposes of 
                calculating any 12-month period under subparagraph (A), 
                there shall be taken into account months of lapsed 
                coverage in a manner comparable to that applicable 
                under the second sentence of section 1839(b).
                    ``(C) Periods not taken into account.--
                            ``(i) In general.--For purposes of 
                        calculating any 12-month period under 
                        subparagraph (A), subject to clause (ii), there 
                        shall not be taken into account months for 
                        which the enrollee can demonstrate that the 
                        enrollee was covered under a group health plan 
                        that provides coverage of the cost of 
                        prescription medicines whose actuarial value 
                        (as defined by the Secretary) to the enrollee 
                        equals or exceeds the actuarial value of the 
                        benefits provided to an individual enrolled in 
                        the outpatient prescription medicine benefit 
                        program under this part.
                            ``(ii) Application.--This subparagraph 
                        shall only apply with respect to a coverage 
                        period the enrollment for which occurs before 
                        the end of the 60-day period that begins on the 
                        first day of the month which includes the date 
                        on which the plan terminates or reduces its 
                        service area (in a manner that results in 
                        termination of enrollment), ceases to provide, 
                        or reduces the value of the prescription 
                        medicine coverage under such plan to below the 
                        value of the coverage provided under the 
                        program under this part.
            ``(2) Incorporation of premium payment and government 
        contributions provisions.--The provisions of sections 1840 and 
        1844(a)(1) shall apply to enrollees under this part in the same 
        manner as they apply to individuals 65 years of age or older 
        enrolled under part B. For purposes of this subsection, any 
        reference in a section referred to in a previous subsection to 
        the Federal Supplementary Medical Insurance Trust Fund is 
        deemed a reference to the Federal Medicare Prescription 
        Medicine Trust Fund.
    ``(f) Election of Pharmacy Contractor To Administer Benefits.--The 
Secretary shall establish a process whereby each individual enrolled 
under this part and residing in a region may elect the pharmacy 
contractor that will administer the benefits under this part with 
respect to the individual. Such process shall permit the individual to 
make an initial election and to change such an election on at least an 
annual basis and under such other circumstances as the Secretary shall 
specify.

              ``provision of, and entitlement to, benefits

    ``Sec. 1859D. (a) Benefits.--Subject to the succeeding provisions 
of this section, the benefits provided to an enrollee by the program 
under this part shall consist of the following:
            ``(1) Covered outpatient prescription medicine benefits.--
        Entitlement to have payment made on the individual's behalf for 
        covered outpatient prescription medicines.
            ``(2) Limitation on cost-sharing for part b outpatient 
        prescription medicines.--
                    ``(A) In general.--Once an enrollee has incurred 
                aggregate countable cost-sharing (as defined in 
                subparagraph (B)) equal to the stop-loss limit 
                specified in subsection (c)(4) for expenses in a year, 
                entitlement to the elimination of cost-sharing 
                otherwise applicable under part B for additional 
                expenses incurred in the year for outpatient 
                prescription medicines or biologicals for which payment 
                is made under part B.
                    ``(B) Countable cost-sharing defined.--For purposes 
                of this part, the term `countable cost-sharing' means--
                            ``(i) out-of-pocket expenses for outpatient 
                        prescription medicines with respect to which 
                        benefits are payable under part B, and
                            ``(ii) cost-sharing under subsections 
                        (c)(3)(B) and (c)(3)(C)(i).
    ``(b) Covered Outpatient Prescription Medicine Defined.--
            ``(1) In general.--Except as provided in paragraph (2), for 
        purposes of this part the term `covered outpatient prescription 
        medicine' means any of the following products:
                    ``(A) A medicine which may be dispensed only upon 
                prescription, and--
                            ``(i) which is approved for safety and 
                        effectiveness as a prescription medicine under 
                        section 505 of the Federal Food, Drug, and 
                        Cosmetic Act;
                            ``(ii)(I) which was commercially used or 
                        sold in the United States before the date of 
                        enactment of the Drug Amendments of 1962 or 
                        which is identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of title 21 
                        of the Code of Federal Regulations) to such a 
                        medicine, 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 medicine, 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 medicine 
                        under such section because the Secretary has 
                        determined that the medicine 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.
                    ``(C) Insulin approved under appropriate Federal 
                law, and needles, syringes, and disposable pumps for 
                the administration of such insulin.
                    ``(D) A prescribed medicine or biological product 
                that would meet the requirements of subparagraph (A) or 
                (B) but that is available over-the-counter in addition 
                to being available upon prescription, but only if the 
                particular dosage form or strength prescribed and 
                required for the individual is not available over-the-
                counter.
                    ``(E) Smoking cessation agents (as specified by the 
                Secretary).
            ``(2) Exclusion.--The term `covered outpatient prescription 
        medicine' does not include--
                    ``(A) medicines or classes of medicines, or their 
                medical uses, which may be excluded from coverage or 
                otherwise restricted under section 1927(d)(2), other 
                than subparagraph (E) thereof (relating to smoking 
                cessation agents), as the Secretary may specify and 
                does not include such other medicines, classes, and 
                uses as the Secretary may specify consistent with the 
                goals of providing quality care and containing costs 
                under this part;
                    ``(B) except as provided in paragraphs (1)(D) and 
                (1)(E), any product which may be distributed to 
                individuals without a prescription;
                    ``(C) any product 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; 
                or
                    ``(D) any product that is covered under part B of 
                this title.
    ``(c) Payment of Benefits.--
            ``(1) Covered outpatient prescription medicines.--There 
        shall be paid from the Federal Medicare Prescription Medicine 
        Trust Fund, in the case of each enrollee who incurs expenses 
        for medicines with respect to which benefits are payable under 
        this part under subsection (a)(1), amounts equal to the sum 
        of--
                    ``(A) the price for which the medicine is made 
                available under this part (consistent with sections 
                1859A and 1859B), reduced by any applicable cost-
                sharing under paragraphs (2) and (3); and
                    ``(B) a reasonable dispensing fee.
        The price under subparagraph (A) shall in no case exceed the 
        retail price for the medicine involved.
            ``(2) Deductible.--The amount of payment under paragraph 
        (1) for expenses incurred in a year, beginning with 2005, shall 
        be reduced by an annual deductible equal to the amount 
        specified in section 1859(2) (subject to adjustment under 
        paragraph (8)). Only expenses for countable cost-sharing (as 
        defined in subsection (a)(2)(B)) shall be taken into account in 
        applying this paragraph.
            ``(3) Coinsurance.--
                    ``(A) In general.--The amount of payment under 
                paragraph (1) for expenses incurred in a year shall be 
                further reduced (subject to the stop-loss limit under 
                paragraph (4)) by coinsurance as provided under this 
                paragraph.
                    ``(B) Preferred medicines.--The coinsurance under 
                this paragraph in the case of a preferred medicine 
                (including a medicine treated as a preferred medicine 
                under paragraph (5)), is equal to 20 percent of the 
                price applicable under paragraph (1)(A) (or such lower 
                percentage as may be provided for under section 
                1859E(a)(1)(A)(ii)). In this part, the term `preferred 
                medicine' means, with respect to medicines classified 
                within a therapeutic class, those medicines which have 
                been designated as a preferred medicine by the 
                Secretary or the pharmacy contractor involved with 
                respect to that class and (in the case of a nongeneric 
                medicine) with respect to which a contract has been 
                negotiated under this part.
                    ``(C) Nonpreferred medicines.--The coinsurance 
                under this paragraph in the case of a nonpreferred 
                medicine that is not treated as a preferred medicine 
                under paragraph (5) is equal to the sum of--
                            ``(i) 20 percent of the price for lowest 
                        price preferred medicine that is within the 
                        same therapeutic class; and
                            ``(ii) the amount by which--
                                    ``(I) the price at which the 
                                nonpreferred medicine is made available 
                                to the enrollee; exceeds
                                    ``(II) the price of such lowest 
                                price preferred medicine.
            ``(4) No coinsurance once out-of-pocket expenditures equal 
        stop-loss limit.--Once an enrollee has incurred aggregate 
        countable cost-sharing under paragraph (3) (including cost-
        sharing under part B attributable to outpatient prescription 
        drugs or biologicals) equal to the amount specified in section 
        1859(4) (subject to adjustment under paragraph (8)) for 
        expenses in a year--
                    ``(A) there shall be no coinsurance under paragraph 
                (3) for additional expenses incurred in the year 
                involved; and
                    ``(B) there shall be no coinsurance under part B 
                for additional expenses incurred in the year involved 
                for outpatient prescription drugs and biologicals.
            ``(5) Appeals rights relating to coverage of nonpreferred 
        medicines.--
                    ``(A) Procedures regarding the determination of 
                medicines that are medically necessary.--Each pharmacy 
                contractor shall have in place procedures on a case-by-
                case basis to treat a nonpreferred medicine as a 
                preferred medicine under this part if the preferred 
                medicine is determined to be not as effective for the 
                enrollee or to have significant adverse effect on the 
                enrollee. Such procedures shall require that such 
                determinations are based on professional medical 
                judgment, the medical condition of the enrollee, and 
                other medical evidence.
                    ``(B) Procedures regarding denials of care.--Such 
                contractor shall have in place procedures to ensure--
                            ``(i) a timely internal review for 
                        resolution of denials of coverage (in whole or 
                        in part and including those regarding the 
                        coverage of nonpreferred medicines) in 
                        accordance with the medical exigencies of the 
                        case and a timely resolution of complaints, by 
                        enrollees in the plan, or by providers, 
                        pharmacists, and other individuals acting on 
                        behalf of each such enrollee (with the 
                        enrollee's consent) in accordance with 
                        requirements (as established by the Secretary) 
                        that are comparable to such requirements for 
                        Medicare+Choice organizations under part C;
                            ``(ii) that the entity complies in a timely 
                        manner with requirements established by the 
                        Secretary that (I) provide for an external 
                        review by an independent entity selected by the 
                        Secretary of denials of coverage described in 
                        clause (i) not resolved in the favor of the 
                        beneficiary (or other complainant) under the 
                        process described in such clause and (II) are 
                        comparable to the external review requirements 
                        established for Medicare+Choice organizations 
                        under part C; and
                            ``(iii) that enrollees are provided with 
                        information regarding the appeals procedures 
                        under this part at the time of enrollment with 
                        a pharmacy contractor under this part and upon 
                        request thereafter.
            ``(6) Transfer of funds to cover costs of part b 
        prescription medicine catastrophic benefit.--With respect to 
        benefits described in subsection (a)(2), there shall 
        transferred from the Federal Medicare Prescription Medicine 
        Trust Fund to the Federal Supplementary Medical Insurance Trust 
        Fund amounts equivalent to the elimination of cost-sharing 
        described in such subsection.
            ``(7) Permitting application under part b of negotiated 
        prices.--For purposes of making payment under part B for 
        medicines that would be covered outpatient prescription 
        medicines but for the exclusion under subparagraph (B) or (C) 
        of subsection (b)(2), the Secretary may elect to apply the 
        payment basis used for payment of covered outpatient 
        prescription medicines under this part instead of the payment 
        basis otherwise used under such part, if it results in a lower 
        cost to the program.
            ``(8) Inflation adjustment.--
                    ``(A) In general.--With respect to expenses 
                incurred in a year after 2005--
                            ``(i) the deductible under paragraph (2) is 
                        equal to the deductible determined under such 
                        paragraph (or this subparagraph) for the 
                        previous year increased by the percentage 
                        increase in per capita program expenditures (as 
                        estimated in advance for the year involved 
                        under subparagraph (B)); and
                            ``(ii) the stop-loss limit under paragraph 
                        (3) is equal to the stop-loss limit determined 
                        under such paragraph (or this subparagraph) for 
                        the previous year increased by such percentage 
                        increase.
                The Secretary shall adjust such percentage increase in 
                subsequent years to take into account misestimations 
                made of the per capita program expenditures under 
                clauses (i) and (ii) in previous years. Any increase 
                under this subparagraph that is not a multiple of $10 
                shall be rounded to the nearest multiple of $10.
                    ``(B) Estimation of increase in per capita program 
                expenditures.--The Secretary shall before the beginning 
                of each year (beginning with 2006) estimate the 
                percentage increase in average per capita aggregate 
                expenditures from the Federal Medicare Prescription 
                Medicine Trust Fund for the year involved compared to 
                the previous year.
                    ``(C) Reconciliation.--The Secretary shall also 
                compute (beginning with 2007) the actual percentage 
                increase in such aggregate expenditures in order to 
                provide for reconciliation of deductibles, stop-loss 
                limits, and premiums under the second sentence of 
                subparagraph (A) and under section 1859D(d)(2).
    ``(d) Amount of Premiums.--
            ``(1) Monthly premium rate in 2005.--The monthly premium 
        rate in 2005 for prescription medicine benefits under this part 
        is the amount specified in section 1859(1).
            ``(2) Inflation adjustment for subsequent years.--The 
        monthly premium rate for a year after 2005 for prescription 
        medicine benefits under this part is equal to the monthly 
        premium rate for the previous year under this subsection 
        increased by the percentage increase in per capita program 
        expenditures (as estimated in advance for the year involved 
        under subsection (c)(8)(B)). The Secretary shall adjust such 
        percentage in subsequent years to take into account 
        misestimations made of the per capita program expenditures 
        under the previous sentence in previous years. Any increase 
        under this paragraph that is not a multiple of $1 shall be 
        rounded to the nearest multiple of $1.

                  ``administration; quality assurance

    ``Sec. 1859E. (a) Rules Relating to Provision of Benefits.--
            ``(1) Provision of benefits.--
                    ``(A) In general.--In providing benefits under this 
                part, the Secretary (directly or through the contracts 
                with pharmacy contractors) shall employ mechanisms to 
                provide benefits appropriately and efficiently, and 
                those mechanisms may include--
                            ``(i) the use of--
                                    ``(I) price negotiations 
                                (consistent with subsection (b));
                                    ``(II) reduced coinsurance (below 
                                20 percent) to encourage the 
                                utilization of appropriate preferred 
                                medicines; and
                                    ``(III) methods to reduce 
                                medication errors and encourage 
                                appropriate use of medications; and
                            ``(ii) permitting pharmacy contractors, as 
                        approved by the Secretary, to make exceptions 
                        to section 1859D(c)(3)(C) (relating to cost-
                        sharing for non-preferred medicines) to secure 
                        best prices for enrollees so long as the 
                        payment amount under section 1859D(c)(1) does 
                        not equal zero.
                    ``(B) Construction.--Nothing in this subsection 
                shall be construed to prevent the Secretary (directly 
                or through the contracts with pharmacy contractors) 
                from using incentives to encourage enrollees to select 
                generic or other cost-effective medicines, so long as--
                            ``(i) such incentives are designed not to 
                        result in any increase in the aggregate 
                        expenditures under the Federal Medicare 
                        Prescription Medicine Trust Fund; and
                            ``(ii) a beneficiary's coinsurance shall be 
                        no greater than 20 percent in the case of a 
                        preferred medicine (including a nonpreferred 
                        medicine treated as a preferred medicine under 
                        section 1859D(c)(5)).
            ``(2) Construction.--Nothing in this part shall preclude 
        the Secretary or a pharmacy contractor from--
                    ``(A) educating prescribing providers, pharmacists, 
                and enrollees about medical and cost benefits of 
                preferred medicines;
                    ``(B) requesting prescribing providers to consider 
                a preferred medicine prior to dispensing of a 
                nonpreferred medicine, as long as such request does not 
                unduly delay the provision of the medicine;
                    ``(C) using mechanisms to encourage enrollees under 
                this part to select cost-effective medicines or less 
                costly means of receiving or administering medicines, 
                including the use of therapeutic interchange programs, 
                disease management programs, and notification to the 
                beneficiary that a more affordable generic medicine 
                equivalent was not selected by the prescribing provider 
                and a statement of the lost cost savings to the 
                beneficiary;
                    ``(D) using price negotiations to achieve reduced 
                prices on covered outpatient prescription medicines, 
                including new medicines, medicines for which there are 
                few therapeutic alternatives, and medicines of 
                particular clinical importance to individuals enrolled 
                under this part; and
                    ``(E) utilizing information on medicine prices of 
                OECD countries and of other payors in the United States 
                in the negotiation of prices under this part.
    ``(b) Price Negotiations Process.--
            ``(1) Requirements with respect to preferred medicines.--
        Negotiations of contracts with manufacturers with respect to 
        covered outpatient prescription medicines under this part shall 
        be conducted in a manner so that--
                    ``(A) there is at least a contract for a medicine 
                within each therapeutic class (as defined by the 
                Secretary in consultation with such Medicare 
                Prescription Medicine Advisory Committee);
                    ``(B) if there is more than 1 medicine available in 
                a therapeutic class, there are contracts for at least 2 
                medicines within such class unless determined 
                clinically inappropriate in accordance with standards 
                established by the Secretary; and
                    ``(C) if there are more than 2 medicines available 
                in a therapeutic class, there is a contract for at 
                least 2 medicines within such class and a contract for 
                generic medicine substitute if available unless 
                determined clinically inappropriate in accordance with 
                standards established by the Secretary.
            ``(2) Establishment of therapeutic classes.--The Secretary, 
        in consultation with the Medicare Prescription Medicine 
        Advisory Committee (established under section 1859H), shall 
        establish for purposes of this part therapeutic classes and 
        assign to such classes covered outpatient prescription 
        medicines.
            ``(3) Disclosure concerning preferred medicines.--The 
        Secretary shall provide, through pharmacy contractors or 
        otherwise, for--
                    ``(A) disclosure to current and prospective 
                enrollees and to participating providers and pharmacies 
                in each service area a list of the preferred medicines 
                and differences in applicable cost-sharing between such 
                medicines and nonpreferred medicines; and
                    ``(B) advance disclosure to current enrollees and 
                to participating providers and pharmacies in each 
                service area of changes to any such list of preferred 
                medicines and differences in applicable cost-sharing.
            ``(4) No review.--The Secretary's establishment of 
        therapeutic classes and the assignment of medicines to such 
        classes and the Secretary's determination of what is a 
        breakthrough medicine are not subject to administrative or 
        judicial review.
    ``(c) Confidentiality.--The Secretary shall ensure that the 
confidentiality of individually identifiable health information 
relating to the provision of benefits under this part is protected, 
consistent with the standards for the privacy of such information 
promulgated by the Secretary under the Health Insurance Portability and 
Accountability Act of 1996, or any subsequent comprehensive and more 
protective set of confidentiality standards enacted into law or 
promulgated by the Secretary. Nothing in this subsection shall be 
construed as preventing the coordination of data with a State 
prescription medicine program so long as such program has in place 
confidentiality standards that are equal to or exceed the standards 
used by the Secretary.
    ``(d) Fraud and Abuse Safeguards.--The Secretary, through the 
Office of the Inspector General, is authorized and directed to issue 
regulations establishing appropriate safeguards to prevent fraud and 
abuse under this part. Such safeguards, at a minimum, should include 
compliance programs, certification data, audits, and recordkeeping 
practices. In developing such regulations, the Secretary shall consult 
with the Attorney General and other law enforcement and regulatory 
agencies.

          ``federal medicare prescription medicine trust fund

    ``Sec. 1859F. (a) Establishment.--There is hereby created on the 
books of the Treasury of the United States a trust fund to be known as 
the `Federal Medicare Prescription Medicine Trust Fund' (in this 
section referred to as the `Trust Fund'). The Trust Fund shall consist 
of such gifts and bequests as may be made as provided in section 
201(i)(1), and such amounts as may be deposited in, or appropriated to, 
such fund as provided in this part.
    ``(b) Application of SMI Trust Fund Provisions.--The provisions of 
subsections (b) through (i) of section 1841 shall apply to this part 
and the Trust Fund in the same manner as they apply to part B and the 
Federal Supplementary Medical Insurance Trust Fund, respectively.

      ``compensation for employers covering retiree medicine costs

    ``Sec. 1859G. (a) In General.--In the case of an individual who is 
eligible to be enrolled under this part and is a participant or 
beneficiary under a group health plan that provides outpatient 
prescription medicine coverage to retirees the actuarial value of which 
is not less than the actuarial value of the coverage provided under 
this part, the Secretary shall make payments to such plan subject to 
the provisions of this section. Such payments shall be treated as 
payments under this part for purposes of sections 1859F and 
1859C(e)(2). In applying the previous sentence with respect to section 
1859C(e)(2), the amount of the Government contribution referred to in 
section 1844(a)(1)(A) is deemed to be equal to the aggregate amount of 
the payments made under this section.
    ``(b) Requirements.--To receive payment under this section, a group 
health plan shall comply with the following requirements:
            ``(1) Compliance with requirements.--The group health plan 
        shall comply with the requirements of this Act and other 
        reasonable, necessary, and related requirements that are needed 
        to administer this section, as determined by the Secretary.
            ``(2) Annual assurances and notice before termination.--The 
        sponsor of the plan shall--
                    ``(A) annually attest, and provide such assurances 
                as the Secretary may require, that the coverage offered 
                under the group health plan meets the requirements of 
                this section and will continue to meet such 
                requirements for the duration of the sponsor's 
                participation in the program under this section; and
                    ``(B) guarantee that it will give notice to the 
                Secretary and covered enrollees--
                            ``(i) at least 120 days before terminating 
                        its plan, and
                            ``(ii) immediately upon determining that 
                        the actuarial value of the prescription 
                        medicine benefit under the plan falls below the 
                        actuarial value required under subsection (a).
            ``(3) Beneficiary information.--The sponsor of the plan 
        shall report to the Secretary, for each calendar quarter for 
        which it seeks a payment under this section, the names and 
        social security numbers of all enrollees described in 
        subsection (a) covered under such plan during such quarter and 
        the dates (if less than the full quarter) during which each 
        such individual was covered.
            ``(4) Audits.--The sponsor or plan seeking payment under 
        this section shall agree to maintain, and to afford the 
        Secretary access to, such records as the Secretary may require 
        for purposes of audits and other oversight activities necessary 
        to ensure the adequacy of prescription medicine coverage, the 
        accuracy of payments made, and such other matters as may be 
        appropriate.
    ``(c) Payment.--
            ``(1) In general.--The sponsor of a group health plan that 
        meets the requirements of subsection (b) with respect to a 
        quarter in a calendar year shall be entitled to have payment 
        made on a quarterly basis of the amount specified in paragraph 
        (2) for each individual described in subsection (a) who during 
        the quarter is covered under the plan and was not enrolled in 
        the insurance program under this part.
            ``(2) Amount of payment.--
                    ``(A) In general.--The amount of the payment for a 
                quarter shall approximate, for each such covered 
                individual, \2/3\ of the sum of the monthly Government 
                contribution amounts (computed under subparagraph (B)) 
                for each of the 3 months in the quarter.
                    ``(B) Computation of monthly government 
                contribution amount.--For purposes of subparagraph (A), 
                the monthly Government contribution amount for a month 
                in a year is equal to the amount by which--
                            ``(i) \1/12\ of the average per capita 
                        aggregate expenditures, as estimated under 
                        section 1859D(c)(8) for the year involved; 
                        exceeds
                            ``(ii) the monthly premium rate under 
                        section 1859D(d) for the month involved.

          ``medicare prescription medicine advisory committee

    ``Sec. 1859H. (a) Establishment of Committee.--There is established 
a Medicare Prescription Medicine Advisory Committee (in this section 
referred to as the `Committee').
    ``(b) Functions of Committee.--The Committee shall advise the 
Secretary on policies related to--
            ``(1) the development of guidelines for the implementation 
        and administration of the outpatient prescription medicine 
        benefit program under this part; and
            ``(2) the development of--
                    ``(A) standards required of pharmacy contractors 
                under section 1859D(c)(5) for determining if a medicine 
                is as effective for an enrollee or has a significant 
                adverse effect on an enrollee under this part;
                    ``(B) standards for--
                            ``(i) defining therapeutic classes;
                            ``(ii) adding new therapeutic classes;
                            ``(iii) assigning to such classes covered 
                        outpatient prescription medicines; and
                            ``(iv) identifying breakthrough medicines;
                    ``(C) procedures to evaluate the bids submitted by 
                pharmacy contractors under this part;
                    ``(D) procedures for negotiations, and standards 
                for entering into contracts, with manufacturers, 
                including identifying medicines or classes of medicines 
                where Secretarial negotiation is most likely to yield 
                savings under this part significantly above those that 
                which could be achieved by a pharmacy contractor; and
                    ``(E) procedures to ensure that pharmacy 
                contractors with a contract under this part are in 
                compliance with the requirements under this part.
For purposes of this part, a medicine is a `breakthrough medicine' if 
the Secretary, in consultation with the Committee, determines it is a 
new product that will make a significant and major improvement by 
reducing physical or mental illness, reducing mortality, or reducing 
disability, and that no other product is available to beneficiaries 
that achieves similar results for the same condition. The Committee may 
consider cost-effectiveness in establishing standards for defining 
therapeutic classes and assigning drugs to such classes under 
subparagraph (B).
    ``(c) Structure and Membership of the Committee.--
            ``(1) Structure.--The Committee shall be composed of 19 
        members who shall be appointed by the Secretary.
            ``(2) Membership.--
                    ``(A) In general.--The members of the Committee 
                shall be chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their education, 
                experience, and attainments, exceptionally qualified to 
                perform the duties of members of the Committee.
                    ``(B) Specific members.--Of the members appointed 
                under paragraph (1)--
                            ``(i) 5 shall be chosen to represent 
                        practicing physicians, 2 of whom shall be 
                        gerontologists;
                            ``(ii) 2 shall be chosen to represent 
                        practicing nurse practitioners;
                            ``(iii) 4 shall be chosen to represent 
                        practicing pharmacists;
                            ``(iv) 1 shall be chosen to represent the 
                        Centers for Medicare & Medicaid Services;
                            ``(v) 4 shall be chosen to represent 
                        actuaries, pharmacoeconomists, researchers, and 
                        other appropriate experts;
                            ``(vi) 1 shall be chosen to represent 
                        emerging medicine technologies;
                            ``(vii) 1 shall be chosen to represent the 
                        Food and Drug Administration; and
                            ``(viii) 1 shall be chosen to represent 
                        individuals enrolled under this part.
    ``(d) Terms of Appointment.--Each member of the Committee shall 
serve for a term determined appropriate by the Secretary. The terms of 
service of the members initially appointed shall begin on January 1, 
2004.
    ``(e) Chairperson.--The Secretary shall designate a member of the 
Committee as Chairperson. The term as Chairperson shall be for a 1-year 
period.
    ``(f) Committee Personnel Matters.--
            ``(1) Members.--
                    ``(A) Compensation.--Each member of the Committee 
                who is not an officer or employee of the Federal 
                Government shall be compensated at a rate equal to the 
                daily equivalent of the annual rate of basic pay 
                prescribed for level IV of the Executive Schedule under 
                section 5315 of title 5, United States Code, for each 
                day (including travel time) during which such member is 
                engaged in the performance of the duties of the 
                Committee. All members of the Committee who are 
                officers or employees of the United States shall serve 
                without compensation in addition to that received for 
                their services as officers or employees of the United 
                States.
                    ``(B) Travel expenses.--The members of the 
                Committee shall be allowed travel expenses, including 
                per diem in lieu of subsistence, at rates authorized 
                for employees of agencies under subchapter I of chapter 
                57 of title 5, United States Code, while away from 
                their homes or regular places of business in the 
                performance of services for the Committee.
            ``(2) Staff.--The Committee may appoint such personnel as 
        the Committee considers appropriate.
    ``(g) Operation of the Committee.--
            ``(1) Meetings.--The Committee shall meet at the call of 
        the Chairperson (after consultation with the other members of 
        the Committee) not less often than quarterly to consider a 
        specific agenda of issues, as determined by the Chairperson 
        after such consultation.
            ``(2) Quorum.--Ten members of the Committee shall 
        constitute a quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--Section 14 of the Federal 
Advisory Committee Act (5 U.S.C. App.) shall not apply to the 
Committee.
    ``(i) Transfer of Personnel, Resources, and Assets.--For purposes 
of carrying out its duties, the Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ of the Department of Health and Human Services (including 
the Centers for Medicare & Medicaid Services), and such resources and 
assets of the Department used in carrying out this title, as the 
Committee requires.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
    (b) Application of General Exclusions from Coverage.--
            (1) Application to part d.--Section 1862(a) (42 U.S.C. 
        1395y(a)) is amended in the matter preceding paragraph (1) by 
        striking ``part A or part B'' and inserting ``part A, B, or 
        D''.
            (2) Prescription medicines not excluded from coverage if 
        appropriately prescribed.--Section 1862(a)(1) (42 U.S.C. 
        1395y(a)(1)) is amended--
                    (A) in subparagraph (H), by striking ``and'' at the 
                end;
                    (B) in subparagraph (I), by striking the semicolon 
                at the end and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(J) in the case of prescription medicines covered 
                under part D, which are not prescribed in accordance 
                with such part;''.
    (c) Conforming Amendments.--(1) Part C of title XVIII is amended--
            (A) in section 1851(a)(2)(B) (42 U.S.C. 1395w-21(a)(2)(B)), 
        by striking ``1859(b)(3)'' and inserting ``1858(b)(3)'';
            (B) in section 1851(a)(2)(C) (42 U.S.C. 1395w-21(a)(2)(C)), 
        by striking ``1859(b)(2)'' and inserting ``1858(b)(2)'';
            (C) in section 1852(a)(1) (42 U.S.C. 1395w-22(a)(1)), by 
        striking ``1859(b)(3)'' and inserting ``1858(b)(3)'';
            (D) in section 1852(a)(3)(B)(ii) (42 U.S.C. 1395w-
        22(a)(3)(B)(ii)), by striking ``1859(b)(2)(B)'' and inserting 
        ``1858(b)(2)(B)'';
            (E) in section 1853(a)(1)(A) (42 U.S.C. 1395w-23(a)(1)(A)), 
        by striking ``1859(e)(4)'' and inserting ``1858(e)(4)''; and
            (F) in section 1853(a)(3)(D) (42 U.S.C. 1395w-23(a)(3)(D)), 
        by striking ``1859(e)(4)'' and inserting ``1858(e)(4)''.
    (2) Section 1171(a)(5)(D) (42 U.S.C. 1320d(a)(5)(D)) is amended by 
striking ``or (C)'' and inserting ``(C), or (D)''.

SEC. 102. PROVISION OF MEDICARE OUTPATIENT PRESCRIPTION MEDICINE 
              COVERAGE UNDER THE MEDICARE+CHOICE PROGRAM.

    (a) Requiring Availability of an Actuarially Equivalent 
Prescription Medicine Benefit.--Section 1851 (42 U.S.C. 1395w-21) is 
amended by adding at the end the following new subsection:
    ``(j) Availability of Prescription Medicine Benefits.--
            ``(1) In general.--Notwithstanding any other provision of 
        this part, each Medicare+Choice organization that makes 
        available a Medicare+Choice plan described in section 
        1851(a)(2)(A) shall make available such a plan that offers 
        coverage of covered outpatient prescription medicines that is 
        at least actuarially equivalent to the benefits provided under 
        part D. Information respecting such benefits shall be made 
        available in the same manner as information on other benefits 
        provided under this part is made available. Nothing in this 
        paragraph shall be construed as requiring the offering of such 
        coverage separate from coverage that includes benefits under 
        parts A and B.
            ``(2) Treatment of prescription medicine enrollees.--In the 
        case of a Medicare+Choice eligible individual who is enrolled 
        under part D, the benefits described in paragraph (1) shall be 
        treated in the same manner as benefits described in part B for 
        purposes of coverage and payment and any reference in this part 
        to the Federal Supplementary Medical Insurance Trust Fund shall 
        be deemed, with respect to such benefits, to be a reference to 
        the Federal Medicare Prescription Medicine Trust Fund.''.
    (b) Application of Quality Standards.--Section 1852(e)(2)(A) (42 
U.S.C. 1395w-22(e)(2)(A)) is amended--
            (1) by striking ``and'' at the end of clause (xi);
            (2) by striking the period at the end of clause (xii) and 
        inserting ``, and''; and
            (3) by adding at the end the following new clause:
                            ``(xiii) comply with the standards, and 
                        apply the programs, under section 1859B(b) for 
                        covered outpatient prescription medicines under 
                        the plan.''.
    (c) Payment Separate From Payment for Part A and B Benefits.--
Section 1853 (42 U.S.C. 1395w-23) is amended--
            (1) in subsection (a)(1)(A), by striking ``and (i)'' and 
        inserting ``(i), and (j)''; and
            (2) by adding at the end the following new subsection:
    ``(j) Payment for Prescription Medicine Coverage Option.--
            ``(1) In general.--In the case of a Medicare+Choice plan 
        that provides prescription medicine benefits described in 
        section 1851(j)(1), the amount of payment otherwise made to the 
        Medicare+Choice organization offering the plan shall be 
        increased by the amount described in paragraph (2). Such 
        payments shall be made in the same manner and time as the 
        amount otherwise paid, but such amount shall be payable from 
        the Federal Medicare Prescription Medicine Trust Fund.
            ``(2) Amount.--The amount described in this paragraph is 
        the monthly Government contribution amount computed under 
        section 1859G(c)(2)(B), but subject to adjustment under 
        paragraph (3). Such amount shall be uniform geographically and 
        shall not vary based on the Medicare+Choice payment area 
        involved.
            ``(3) Risk adjustment.--The Secretary shall establish a 
        methodology for the adjustment of the payment amount under this 
        subsection in a manner that takes into account the relative 
        risks for use of outpatient prescription medicines by 
        Medicare+Choice enrollees. Such methodology shall be designed 
        in a manner so that the total payments under this title 
        (including part D) are not changed as a result of the 
        application of such methodology.''.
    (d) Separate Application of Adjusted Community Rate (ACR).--Section 
1854 (42 U.S.C. 1395w-24) is amended by adding at the end the 
following:
    ``(i) Application to Prescription Medicine Coverage.--The Secretary 
shall apply the previous provisions of this section (including the 
computation of the adjusted community rate) separately with respect to 
prescription medicine benefits described in section 1851(j)(1).''.
    (f) Conforming Amendments.--
            (1) Section 1851 (42 U.S.C. 1395w-21) is amended--
                    (A) in subsection (a)(1)(A), by striking ``parts A 
                and B'' and inserting ``parts A, B, and D''; and
                    (B) in subsection (i) by inserting ``(and, if 
                applicable, part D)'' after ``parts A and B''.
            (2) Section 1852(a)(1)(A) (42 U.S.C. 1395w-22(a)(1)(A)) is 
        amended by inserting ``(and under part D to individuals also 
        enrolled under such part)'' after ``parts A and B''.
            (3) Section 1852(d)(1) (42 U.S.C. 1395w-22(d)(1)) is 
        amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (D);
                    (B) by striking the period at the end of 
                subparagraph (E) and inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(F) the plan for part D benefits guarantees 
                coverage of any specifically named prescription 
                medicine for an enrollee to the extent that it would be 
                required to be covered under part D.
        In carrying out subparagraph (F), a Medicare+Choice 
        organization has the same authority to enter into contracts 
        with respect to coverage of preferred medicines as the 
        Secretary has under part D, but subject to an independent 
        contractor appeal or other appeal process that would be 
        applicable to determinations by such a pharmacy contractor 
        consistent with section 1859D(c)(5).''.
    (e) Limitation on Cost-Sharing.--Section 1854(e) (42 U.S.C. 1395w-
24(e)) is amended by adding at the end the following new paragraph:
             ``(5) Limitation on cost-sharing.--In no event may a 
        Medicare+Choice organization include a requirement that an 
        enrollee pay cost-sharing in excess of the cost-sharing 
        otherwise permitted under part D.''.

SEC. 103. MEDIGAP REVISIONS.

    (a) Required Coverage of Covered Outpatient Prescription 
Medicines.--Section 1882(p)(2)(B) (42 U.S.C. 1395ss(p)(2)(B)) is 
amended by inserting before ``and'' at the end the following: 
``including a requirement that an appropriate number of policies 
provide coverage of medicines which complements but does not duplicate 
the medicine benefits that beneficiaries are otherwise eligible for 
benefits under part D of this title (with the Secretary and the 
National Association of Insurance Commissioners determining the 
appropriate level of medicine benefits that each benefit package must 
provide and ensuring that policies providing such coverage are 
affordable for beneficiaries;''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on January 1, 2005.
    (c) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to 
        the amendments made by this section, the State regulatory 
        program shall not be considered to be out of compliance with 
        the requirements of section 1882 of the Social Security Act due 
        solely to failure to make such change until the date specified 
        in paragraph (4).
            (2) NAIC standards.--If, within 9 months after the date of 
        enactment of this Act, the National Association of Insurance 
        Commissioners (in this subsection referred to as the ``NAIC'') 
        modifies its NAIC Model Regulation relating to section 1882 of 
        the Social Security Act (referred to in such section as the 
        1991 NAIC Model Regulation, as subsequently modified) to 
        conform to the amendments made by this section, such revised 
        regulation incorporating the modifications shall be considered 
        to be the applicable NAIC model regulation (including the 
        revised NAIC model regulation and the 1991 NAIC Model 
        Regulation) for the purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State changes its statutes 
                        or regulations to conform its regulatory 
                        program to the changes made by this section; or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first makes the modifications under 
                        paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) to conform its 
                        regulatory program to the changes made in this 
                        section; but
                            (ii) having a legislature which is not 
                        scheduled to meet in 2003 in a legislative 
                        session in which such legislation may be 
                        considered;
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after January 1, 2003. 
                For purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

SEC. 104. TRANSITIONAL ASSISTANCE FOR LOW INCOME BENEFICIARIES.

    (a) QMB Coverage of Premiums and Cost-Sharing.--Section 1905(p)(3) 
(42 U.S.C. 1396d(p)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``and'' at the end of clause (i),
                    (B) by adding ``and'' at the end of clause (ii), 
                and
                    (C) by adding at the end the following new clause:
            ``(iii) premiums under section 1859D(d).'';
            (2) in subparagraph (B), by inserting ``and section 
        1859D(c)(3)(B) and 1859D(c)(3)(C)(i)'' after ``1813''; and
            (3) in subparagraph (C), by striking ``and section 
        1833(b)'' and inserting ``, section 1833(b), and section 
        1859D(c)(2)''.
    (b) Expanded SLMB Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
1396a(a)(10)(E)) is amended--
            (1) by striking ``and'' at the end of clause (iii);
            (2) by adding ``and'' at the end of clause (iv); and
            (3) by adding at the end the following new clause:
                    ``(v)(I) for making medical assistance available 
                for medicare cost-sharing described in section 
                1905(p)(3)(A)(iii) and medicare cost-sharing described 
                in section 1905(p)(3)(B) and section 1905(p)(3)(C) but 
                only insofar as it relates to benefits provided under 
                part D of title XVIII, subject to section 1905(p)(4), 
                for individuals (other than qualified medicare 
                beneficiaries) who are enrolled under part D of title 
                XVIII and are described in section 1905(p)(1)(B) or 
                would be so described but for the fact that their 
                income exceeds 100 percent, but is less than 150 
                percent, of the official poverty line (referred to in 
                such section) for a family of the size involved;
                    ``(II) subject to section 1905(p)(4), for 
                individuals (other than qualified medicare 
                beneficiaries and individuals described in subclause 
                (I)) who are enrolled under part D of title XVIII and 
                would be described in section 1905(p)(1)(B) but for the 
                fact that their income exceeds 150 percent, but is less 
                than 175 percent, of the official poverty line 
                (referred to in such section) for a family of the size 
                involved, for making medical assistance available for 
                medicare cost-sharing described in section 
                1905(p)(3)(A)(iii) and medicare cost-sharing described 
                in section 1905(p)(3)(B) and section 1905(p)(3)(C) but 
                only insofar as it relates to benefits provided under 
                part D of title XVIII, and the assistance for medicare 
                cost-sharing described in section 1905(p)(3)(A)(iii) is 
                reduced (on a sliding scale based on income) from 100 
                percent to 0 percent as the income increases from 150 
                percent to 175 percent of such poverty line;''.
    (c) Federal Financing.--The third sentence of section 1905(b) (42 
U.S.C. 1396d(b)) is amended by inserting before the period at the end 
the following: ``and with respect to amounts expended that are 
attributable to section 1902(a)(10)(E)(v) (other than for individuals 
described in section 1905(p)(1)(B))''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1905(p) (42 U.S.C. 1396d(p)) is 
        amended--
                    (A) by redesignating paragraphs (5) and (6) as 
                paragraphs (6) and (7), respectively; and
                    (B) by inserting after paragraph (4) the following 
                new paragraph:
    ``(5)(A) In the case of a State, other than the 50 States and the 
District of Columbia--
            ``(i) the provisions of paragraph (3) insofar as they 
        relate to section 1859D and the provisions of section 
        1902(a)(10)(E)(v) shall not apply to residents of such State; 
        and
            ``(ii) if the State establishes a plan described in 
        subparagraph (B) (for providing medical assistance with respect 
        to the provision of prescription medicines to medicare 
        beneficiaries), the amount otherwise determined under section 
        1108(f) (as increased under section 1108(g)) for the State 
        shall be increased by the amount specified in subparagraph (C).
    ``(B) The plan described in this subparagraph is a plan that--
            ``(i) provides medical assistance with respect to the 
        provision of covered outpatient medicines (as defined in 
        section 1859D(b)) to low-income medicare beneficiaries; and
            ``(ii) assures that additional amounts received by the 
        State that are attributable to the operation of this paragraph 
        are used only for such assistance.
    ``(C)(i) The amount specified in this subparagraph for a State for 
a year is equal to the product of--
            ``(I) the aggregate amount specified in clause (ii); and
            ``(II) the amount specified in section 1108(g)(1) for that 
        State, divided by the sum of the amounts specified in such 
        section for all such States.
    ``(ii) The aggregate amount specified in this clause for--
            ``(I) 2005, is equal to $25,000,000; or
            ``(II) a subsequent year, is equal to the aggregate amount 
        specified in this clause for the previous year increased by 
        annual percentage increase specified in section 1859D(c)(8)(B) 
        for the year involved.
    ``(D) The Secretary shall submit to Congress a report on the 
application of this paragraph and may include in the report such 
recommendations as the Secretary deems appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 
        1905(p)(5)(A)(ii)'' after ``Subject to subsection (g)''.
    (e) Application of Cost-Sharing.--Section 1902(n)(2) (42 U.S.C. 
1396a(n)(2)) is amended by adding at the end the following: ``The 
previous sentence shall not apply to medicare cost-sharing relating to 
benefits under part D of title XVIII.''.
    (f) Effective Date.--The amendments made by this section apply to 
medical assistance for premiums and cost-sharing incurred on or after 
January 1, 2005, with regard to whether regulations to implement such 
amendments are promulgated by such date.

SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE PAYMENT 
              ADVISORY COMMISSION (MEDPAC).

    (a) Expansion of Membership.--
            (1) In general.--Section 1805(c) (42 U.S.C. 1395b-6(c)) is 
        amended--
                    (A) in paragraph (1), by striking ``17'' and 
                inserting ``19''; and
                    (B) in paragraph (2)(B), by inserting ``experts in 
                the area of pharmacology and prescription medicine 
                benefit programs,'' after ``other health 
                professionals,''.
            (2) Initial terms of additional members.--
                    (A) In general.--For purposes of staggering the 
                initial terms of members of the Medicare Payment 
                Advisory Commission under section 1805(c)(3) of the 
                Social Security Act (42 U.S.C. 1395b-6(c)(3)), the 
                initial terms of the 2 additional members of the 
                Commission provided for by the amendment under 
                paragraph (1)(A) are as follows:
                            (i) One member shall be appointed for 1 
                        year.
                            (ii) One member shall be appointed for 2 
                        years.
                    (B) Commencement of terms.--Such terms shall begin 
                on January 1, 2003.
    (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 1395b-
6(b)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Prescription medicine benefit program.--
                Specifically, the Commission shall review, with respect 
                to the prescription medicine benefit program under part 
                D, the following:
                            ``(i) The methodologies used for the 
                        management of costs and utilization of 
                        prescription medicines.
                            ``(ii) The prices negotiated and paid, 
                        including trends in such prices and applicable 
                        discounts and comparisons with prices under 
                        section 1859E(a)(2)(E).
                            ``(iii) The relationship of pharmacy 
                        acquisition costs to the prices so negotiated 
                        and paid.
                            ``(iv) The methodologies used to ensure 
                        access to covered outpatient prescription 
                        medicines and to ensure quality in the 
                        appropriate dispensing and utilization of such 
                        medicines.
                            ``(v) The impact of the program on 
                        promoting the development of breakthrough 
                        medicines.''.

                 Subtitle B--Affordable Pharmaceuticals

          PART I--GREATER ACCESS TO AFFORDABLE PHARMACEUTICALS

SEC. 111. ACCELERATED GENERIC DRUG COMPETITION.

    (a) In General.--Section 505(j)(5) of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355(j)(5)) is amended--
            (1) in subparagraph (B)(iv), by striking subclause (II) and 
        inserting the following:
                    ``(II) the earlier of--
                            ``(aa) the date of a final decision of a 
                        court in an action described in clause 
                        (iii)(II) (from which no appeal can or has been 
                        taken, other than a petition to the Supreme 
                        Court for a writ of certiorari) holding the 
                        patent that is the subject of the certification 
                        to be invalid or not infringed; or
                            ``(bb) the date of a settlement order or 
                        consent decree in such an action signed by a 
                        Federal judge that enters a final judgment and 
                        includes a finding that the patent that is the 
                        subject of the certification is invalid or not 
                        infringed;'';
            (2) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (E) and (F), respectively; and
            (3) by inserting before subparagraph (E) (as so 
        redesignated) the following subparagraph:
    ``(D)(i) The 180-day period described in subparagraph (B)(iv) shall 
be forfeited by the previous applicant if--
            ``(I) the previous applicant fails to market the drug by 
        the later of the date 60 days after the date on which the 
        approval of the application for the drug is made effective 
        under subparagraph (B)(iii) or, if such approval has been made 
        effective, and if an action has been brought against the 
        previous applicant for infringement of a patent subject to a 
        certification under paragraph (2)(A)(vii)(IV), or an action has 
        been brought by the previous applicant for a declaratory 
        judgment that such a patent is invalid or not infringed, the 
        date 60 days after the date of a final decision in such action, 
        if there is no other such action pending by or against the 
        previous applicant; except, however, that either of such dates 
        may be extended due to extraordinary or unusual circumstances, 
        as determined by the Secretary;
            ``(II) the previous applicant withdraws the application;
            ``(III) the previous applicant amends the certification 
        from a certification under subclause (IV) of paragraph 
        (2)(A)(vii) to a certification under subclause (III) of such 
        paragraph, either voluntarily or as a result of a settlement or 
        defeat in patent litigation;
            ``(IV) the previous applicant fails to obtain tentative 
        approval of the application within 30 months after the date on 
        which the application is filed, unless the failure is caused 
        by--
                    ``(aa) a change in the requirements for tentative 
                approval of the application imposed after the date on 
                which the application was filed; or
                    ``(bb) other extraordinary or unusual 
                circumstances, as determined by the Secretary;
            ``(V) in a case in which, after the date on which the 
        previous application was submitted under this subsection, new 
        patent information is submitted under subsection (c)(2) for the 
        listed drug for a patent for which certification or a method of 
        use statement is required under paragraph (2)(A), the previous 
        applicant fails to submit no later than 60 days from the date 
        the applicant receives notice from the Secretary under 
        paragraph (7)(A)(iii) of the submission of the new patent 
        information either a certification described in paragraph 
        (2)(A)(vii)(IV) or a statement that the method of use patent 
        does not claim a use for which the applicant is seeking 
        approval under this subsection in accordance with paragraph 
        (2)(A)(viii); except, however, that such date may be extended 
        due to extraordinary or unusual circumstances, as determined by 
        the Secretary; or
            ``(VI) the previous applicant is determined by the 
        Secretary, after a fair and sufficient hearing and in 
        consultation with the Federal Trade Commission, to have engaged 
        in anticompetitive or collusive conduct, or any other conduct 
        intended to unfairly monopolize the commercial manufacturing of 
        the drug of the application.
    ``(ii) If under clause (i) the previous applicant referred to in 
subparagraph (B)(iv) forfeits the 180-day period described in such 
subparagraph, such period shall become available to the next applicant 
submitting an application containing a certification under paragraph 
(2)(A)(vii)(IV) if--
            ``(I) no action described in subparagraph (B)(iii)(II) was 
        brought against or by the previous applicant, or such an action 
        was brought but did not result in a final judgment that 
        included a finding that the patent involved is invalid; and
            ``(II) an action described in subparagraph (B)(iii)(II) is 
        brought against or by the next applicant, and such action 
        results in a final judgment that includes a finding that the 
        patent involved is invalid.
    ``(iii) The 180-day period described in subparagraph (B)(iv) shall 
be available only to--
            ``(I) the previous applicant submitting an application for 
        a drug under this subsection containing a certification 
        described in paragraph (2)(A)(vii)(IV) with respect to any 
        patent; or
            ``(II) under clause (ii), the next applicant submitting an 
        application for a drug under this subsection containing such a 
        certification with respect to any patent;
even if an application has been submitted for the drug under this 
subsection containing such a certification with respect to a different 
patent.
    ``(iv) The 180-day period described in subparagraph (B)(iv) for an 
application containing a certification described in paragraph 
(2)(A)(vii)(IV) shall apply only if an action is brought for 
infringement of a patent that is the subject of the certification or 
the applicant brings an action (not later than 60 days after the date 
on which the notice provided under paragraph (2)(B)(ii) was received) 
against the holder of the approved application for the listed drug.''.
    (b) Effective Date.--The amendment made by this section shall be 
effective only with respect to an application filed under section 
505(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) 
for a listed drug for which no certification under section 
505(j)(2)(A)(vii)(IV) of that Act was made before June 7, 2002.

SEC. 112. PATENT CERTIFICATION.

    (a) Abbreviated New Drug Applications.--Section 505(j)(5) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) is amended--
            (1) in subparagraph (B), by striking clause (iii) and 
        inserting the following:
            ``(iii)(I) If the applicant made a certification described 
        in paragraph (2)(A)(vii)(IV) and--
                    ``(aa) no action is brought for infringement of a 
                patent that is the subject of the certification before 
                the expiration of the 45-day period beginning on the 
                date on which the notice provided under paragraph 
                (2)(B)(ii) was received; and
                    ``(bb) the applicant does not bring an action for 
                declaratory judgment authorized in subclause (II) 
                before the expiration of the 60-day period beginning on 
                the date on which the notice provided under paragraph 
                (2)(B)(ii) was received;
        the approval shall be made effective on the expiration of 60 
        days after the date on which the notice provided under 
        paragraph (2)(B)(ii) was received, provided none of the 
        conditions for denial of approval in paragraph (4) apply.
            ``(II) With respect to an applicant who made a 
        certification described in paragraph (2)(A)(vii)(IV), if an 
        action referred to in item (aa) of subclause (I) is brought 
        before the expiration of the period described in such item, or 
        if the applicant brings an action for declaratory judgment of 
        invalidity or noninfringement of such patent (which action is 
        hereby authorized) before the expiration of the period 
        described in item (bb) of such subclause, the approval shall, 
        provided none of the conditions for denial of approval in 
        paragraph (4) apply, be made effective in accordance with the 
        following:
                    ``(aa) If the action is an action referred to in 
                subclause (I)(aa), and neither the holder of the 
                approved application nor the owner of the patent seek a 
                preliminary injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale (or 
                both) of the drug, the approval shall be made effective 
                on the expiration of 60 days after the date on which 
                the notice provided under paragraph (2)(B)(ii) was 
                received.
                    ``(bb) If the action is an action referred to in 
                subclause (I)(aa), and such a preliminary injunction is 
                sought and the court denies the motion, the approval 
                shall be made effective on the date on which the court 
                denies the injunction.
                    ``(cc) If neither item (aa) nor (bb) applies, and 
                the holding of the court in the decision in the action 
                is that the patent is invalid or was not infringed, the 
                approval shall be made effective on the date of the 
                decision of the court.
                    ``(dd) If neither item (aa) nor (bb) applies, and 
                the holding of the court in the decision in the action 
                is that the patent was infringed, the approval shall be 
                made effective on such date as the court orders under 
                section 271(e)(4)(A) of title 35, United States 
                Code.''; and
            (2) by inserting before subparagraph (D) (as added by 
        section 111(a)(3)) the following subparagraph:
    ``(C) With respect to a civil action described in subparagraph 
(B)(iii)(II):
            ``(i) Each of the parties shall reasonably cooperate in 
        expediting the action.
            ``(ii) If the notice under paragraph (2)(B)(ii) contains an 
        address for the receipt of expedited notification of such an 
        action, the plaintiff shall, on the date the complaint is filed 
        in the court, simultaneously cause a notification of such 
        action to be delivered to such address by the next business 
        day.
            ``(iii) An action for a declaratory judgment authorized in 
        such subparagraph may not be brought by the applicant until the 
        expiration of 45 days after the date the notice provided under 
        paragraph (2)(B)(ii) was received, except that if information 
        on the patent involved has been published under subsection 
        (c)(2) for at least one year after the date on which the 
        application under this subsection was filed in relation to the 
        listed drug involved, the applicant may immediately bring such 
        an action for declaratory judgment.
            ``(iv) Any such action shall be brought in the judicial 
        district in which the defendant has its principal place of 
        business or a regular and established place of business.''.
    (b) New Drug Applications.--Section 505(c)(3) of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 355(c)(3)) is amended by striking 
subparagraph (C) and inserting the following:
            ``(C)(i)(I) If the applicant made a certification described 
        in subsection (b)(2)(A)(iv) and--
                    ``(aa) no action is brought for infringement of a 
                patent that is the subject of the certification before 
                the expiration of the 45-day period beginning on the 
                date on which the notice provided under subsection 
                (b)(3)(B) was received; and
                    ``(bb) the applicant does not bring an action for 
                declaratory judgment authorized in subclause (II) 
                before the expiration of the 60-day period beginning on 
                the date on which the notice provided under subsection 
                (b)(3)(B) was received;
        the approval shall be made effective on the expiration of 60 
        days after the date on which the notice provided under 
        subsection (b)(3)(B) was received, provided that none of the 
        conditions for refusal of approval in subsection (d) apply.
            ``(II) With respect to an applicant who made a 
        certification described in subsection (b)(2)(A)(iv), if an 
        action referred to in item (aa) of subclause (I) is brought 
        before the expiration of the period described in such item, or 
        if the applicant brings an action for declaratory judgment of 
        invalidity or noninfringement of such patent (which action is 
        hereby authorized) before the expiration of the period 
        described in item (bb) of such subclause, the approval shall, 
        provided none of the conditions for refusal of approval in 
        subsection (d) apply, be made effective in accordance with the 
        following:
                    ``(aa) If the action is an action referred to in 
                subclause (I)(aa), and neither the holder of the 
                approved application nor the owner of the patent seek a 
                preliminary injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale (or 
                both) of the drug, the approval shall be made effective 
                on the expiration of 60 days after the date on which 
                the notice provided under subsection (b)(3)(B) was 
                received.
                    ``(bb) If the action is an action referred to in 
                subclause (I)(aa), and such a preliminary injunction is 
                sought and the court denies the motion, the approval 
                shall be made effective on the date on which the court 
                denies the injunction.
                    ``(cc) If neither item (aa) nor (bb) applies, and 
                the holding of the court in the decision in the action 
                is that the patent is invalid or was not infringed, the 
                approval shall be made effective on the date of the 
                decision of the court.
                    ``(dd) If neither item (aa) nor (bb) applies, and 
                the holding of the court in the decision in the action 
                is that the patent was infringed, the approval shall be 
                made effective on such date as the court orders under 
                section 271(e)(4)(A) of title 35, United States Code.
            ``(ii) With respect to a civil action described in clause 
        (i)(II):
                    ``(I) Each of the parties shall reasonably 
                cooperate in expediting the action.
                    ``(II) If the notice under subsection (b)(3)(B) 
                contains an address for the receipt of expedited 
                notification of such an action, the plaintiff shall, on 
                the date the complaint is filed in the court, 
                simultaneously cause a notification of such action to 
                be delivered to such address by the next business day.
                    ``(III) An action for a declaratory judgment 
                authorized in such clause may not be brought by the 
                applicant until the expiration of 45 days after the 
                date the notice provided under subsection (b)(3)(B) was 
                received, except that if information on the patent 
                involved has been published under paragraph (2) for at 
                least one year after the date on which the application 
                was filed in relation to the drug involved, the 
                applicant may immediately bring such an action for 
                declaratory judgment.
                    ``(IV) Any such action shall be brought in the 
                judicial district in which the defendant has its 
                principal place of business or a regular and 
                established place of business.''.
    (c) Effective Date.--The amendments made by this section shall not 
apply to an application submitted under section 505(b)(1) or 505(j) of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) before June 7, 
2002.

SEC. 113. ADDITIONAL USES.

    Section 505(j) of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355(j)) is amended by adding at the end the following 
paragraph:''
    ``(10)(A) A drug for which an application has been submitted or 
approved under this subsection shall not be considered ineligible for 
approval under this subsection or misbranded under section 502 on the 
basis that the labeling of the drug omits a use or any other aspect of 
labeling when the omitted use or other aspect is protected by patent or 
by exclusivity under clause (iii) or (iv) of paragraph (5)(D).
    ``(B) Notwithstanding clauses (iii) and (iv) of paragraph (5)(D), 
the Secretary may require that the labeling of a drug approved under 
this subsection that omits a use or other aspect of labeling as 
described in subparagraph (A) include--
            ``(i) any statement that the Secretary considers necessary 
        for the safe use of the drug, such as appropriate 
        contraindications, warnings, or precautions; and
            ``(ii) a statement that, because of marketing exclusivity 
        for a manufacturer, the drug is not labeled for the use.''.

PART II--NOTIFICATION OF AGREEMENTS AFFECTING THE SALE OR MARKETING OF 
                             GENERIC DRUGS

SEC. 121. DEFINITIONS.

    In this part:
            (1) Agreement.--The term ``agreement'' means an agreement 
        under section 1 of the Sherman Act (15 U.S.C. 1) or section 5 
        of the Federal Trade Commission Act (15 U.S.C. 45).
            (2) Antitrust laws.--The term ``antitrust laws'' has the 
        same meaning as in section 1 of the Clayton Act (15 U.S.C. 12), 
        except that such term includes section 5 of the Federal Trade 
        Commission Act (15 U.S.C. 45) to the extent that such section 
        applies to unfair methods of competition.
            (3) ANDA.--The term ``ANDA'' means an Abbreviated New Drug 
        Application, as defined under section 505(j) of the Federal 
        Food, Drug and Cosmetic Act.
            (4) Brand name drug company.--The term ``brand name drug 
        company'' means a person engaged in the manufacture or 
        marketing of a drug approved under section 505(b) of the 
        Federal Food, Drug and Cosmetic Act.
            (5) Commission.--The term ``Commission'' means the Federal 
        Trade Commission.
            (6) FDA.--The term ``FDA'' means the United States Food and 
        Drug Administration.
            (7) Generic drug.--The term ``generic drug'' means a 
        product that is the subject of an ANDA.
            (8) Generic drug applicant.--The term ``generic drug 
        applicant'' means a person who has filed or received approval 
        for an ANDA under section 505(j) of the Federal Food, Drug and 
        Cosmetic Act.
            (9) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.

SEC. 122. NOTIFICATION OF AGREEMENTS AFFECTING THE SALE OR MARKETING OF 
              GENERIC DRUGS.

    A brand name drug company and a generic drug applicant that enter 
into an agreement regarding the sale or manufacture of a generic drug 
that the Secretary has determined is the therapeutic equivalent of a 
brand name drug that is manufactured or marketed by that brand name 
drug company, or for which the generic drug applicant seeks such a 
determination of therapeutic equivalence, and which agreement could 
have the effect of limiting the research, development, manufacture, 
marketing, or selling of a generic drug that has been or could be 
approved for sale by the FDA pursuant to an ANDA, shall file with the 
Commission and the Secretary the text of the agreement, an explanation 
of the purpose and scope of the agreement, and an explanation of 
whether the agreement could delay, restrain, limit, or in any way 
interfere with the production, manufacture, or sale of the generic 
version of the drug in question.

SEC. 123. FILING DEADLINES.

    Any notice, agreement, or other material required to be filed under 
section 122 shall be filed with the Commission and the Secretary not 
later than 10 business days after the date the agreement is executed.

SEC. 124. ENFORCEMENT.

    (a) Civil Fine.--Any person, or any officer, director, or partner 
thereof, who fails to comply with any provision of this part shall be 
liable for a civil penalty of not more than $20,000 for each day during 
which such person is in violation of this part. Such penalty may be 
recovered in a civil action brought by the United States, or brought by 
the Commission in accordance with the procedures established in section 
16(a)(1) of the Federal Trade Commission Act (15 U.S.C. 56(a)).
    (b) Compliance and Equitable Relief.--If any person, or any 
officer, director, partner, agent, or employee thereof, fails to comply 
with the notification requirement under section 122 of this part, the 
United States district court may order compliance, and may grant such 
other equitable relief as the court in its discretion determines 
necessary or appropriate, upon application of the Commission or the 
Assistant Attorney General.

SEC. 125. RULEMAKING.

    The Commission, in consultation with the Secretary, and with the 
concurrence of the Assistant Attorney General and by rule in accordance 
with section 553 of title 5, United States Code, consistent with the 
purposes of this part--
            (1) may require that the notice described in section 122 of 
        this part be in such form and contain such documentary material 
        and information relevant to the agreement as is necessary and 
        appropriate to enable the Commission and the Assistant Attorney 
        General to determine whether such agreement may violate the 
        antitrust laws;
            (2) may define the terms used in this part;
            (3) may exempt classes of persons or agreements from the 
        requirements of this part; and
            (4) may prescribe such other rules as may be necessary and 
        appropriate to carry out the purposes of this part.

SEC. 126. EFFECTIVE DATES.

    This part shall take effect 90 days after the date of enactment of 
this Act.

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

    (a) Equalizing Payments Between Fee-For-Service and 
Medicare+Choice.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                    ``(D) Based on 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For 2003 and 2004, the 
                        adjusted average per capita cost for the year 
                        involved, determined under section 1876(a)(4) 
                        for the Medicare+Choice payment area for 
                        services covered under parts A and B for 
                        individuals entitled to benefits under part A 
                        and enrolled under part B who are not enrolled 
                        in a Medicare+Choice plan under this part for 
                        the year, but adjusted to exclude costs 
                        attributable to payments under section 1886(h).
                            ``(ii) Inclusion of costs of va and dod 
                        military facility services to medicare-eligible 
                        beneficiaries.--In determining the adjusted 
                        average per capita cost under clause (i) for a 
                        year, such cost shall be adjusted to include 
                        the Secretary's estimate, on a per capita 
                        basis, of the amount of additional payments 
                        that would have been made in the area involved 
                        under this title if individuals entitled to 
                        benefits under this title had not received 
                        services from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.''.
            (2) Conforming amendment.--Such section is further amended, 
        in the matter before subparagraph (A), by striking ``or (C)'' 
        and inserting ``(C), or (D)''.
    (b) Revision of Blend.--
            (1) Revision of national average used in calculation of 
        blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 1395w-
        23(c)(4)(B)(i)(II)) is amended by inserting ``who (with respect 
        to determinations for 2003 and for 2004) are enrolled in a 
        Medicare+Choice plan'' after ``the average number of medicare 
        beneficiaries''.
            (2) Change in budget neutrality.--Section 1853(c) (42 
        U.S.C. 1395w-23(c)) is amended--
                    (A) in paragraph (1)(A), by inserting ``(for a year 
                before 2003)'' after ``multiplied''; and
                    (B) in paragraph (5), by inserting ``(before 
                2003)'' after ``for each year''.
    (c) Revision in Minimum Percentage Increase for 2003 and 2004.--
Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is amended by 
striking clause (iv) and inserting the following:
                            ``(iv) For 2002, 102 percent of the annual 
                        Medicare+Choice capitation rate under this 
                        paragraph for the area for 2001.
                            ``(v) For 2003 and 2004, 103 percent of the 
                        annual Medicare+Choice capitation rate under 
                        this paragraph for the area for the previous 
                        year.
                            ``(iv) For 2005 and each succeeding year, 
                        102 percent of the annual Medicare+Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.''.
    (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-eligible Beneficiaries in Calculation of Medicare+Choice 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is 
amended--
            (1) in subparagraph (A), by striking ``subparagraph (B)'' 
        and inserting ``subparagraphs (B) and (E)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible beneficiaries.--
                In determining the area-specific Medicare+Choice 
                capitation rate under subparagraph (A) for a year 
                (beginning with 2003), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
                or the Department of Veterans Affairs.''.
    (e) Announcement of Revised Medicare+Choice Payment Rates.--Within 
2 weeks after the date of the enactment of this Act, the Secretary 
shall determine, and shall announce (in a manner intended to provide 
notice to interested parties) Medicare+Choice capitation rates under 
section 1853 of the Social Security Act (42 U.S.C. 1395w-23) for 2003, 
revised in accordance with the provisions of this section.
    (f) MedPAC Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)). 
        Such study shall examine--
                    (A) the bases for variation in such costs between 
                different areas, including differences in input prices, 
                utilization, and practice patterns;
                    (B) the appropriate geographic area for payment 
                under the Medicare+Choice program under part C of title 
                XVIII of such Act; and
                    (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
            (2) Report.--Not later than 9 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1). Such 
        report shall include recommendations regarding changes in the 
        methods for computing the adjusted average per capita cost 
        among different areas.
    (g) Applying Limitations on Balance Billing to Medicare MSAs.--
Section 1852(k)(1) (42 U.S.C. 1395w-22(k)(1)) is amended by inserting 
``or with an organization offering a MSA plan'' after ``section 
1851(a)(2)(A)''.
    (h) Report on Impact of Increased Financial Assistance to 
Medicare+Choice Plans.--Not later than July 1, 2003, the Secretary 
shall submit to Congress a report that describes the impact of 
additional financing provided under this Act and other Acts (including 
the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 and BIPA) on the availability of Medicare+Choice plans in 
different areas and its impact on lowering premiums and increasing 
benefits under such plans.

SEC. 202. MAKING PERMANENT CHANGE IN MEDICARE+CHOICE REPORTING 
              DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

    (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year (or July 1 of 
each year before 2002)''.
    (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended by striking ``and 
after 2005, the month of November before such year and with respect to 
2003, 2004, and 2005'' and inserting ``, the month of November before 
such year and with respect to 2003 and any subsequent year''.
    (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended by striking ``and after 2005 not later than March 1 before 
the calendar year concerned and for 2004 and 2005'' and inserting ``not 
later than March 1 before the calendar year concerned and for 2004 and 
each subsequent year''.
    (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

SEC. 203. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
              BENEFICIARIES.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
    (b) Specialized Medicare+Choice Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Specialized medicare+choice plans for special needs 
        beneficiaries.--
                    ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs beneficiaries' 
                means a Medicare+Choice plan that exclusively serves 
                special needs beneficiaries (as defined in subparagraph 
                (B)).
                    ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare+Choice eligible 
                individual who--
                            ``(i) is institutionalized (as defined by 
                        the Secretary);
                            ``(ii) is entitled to medical assistance 
                        under a State plan under title XIX; or
                            ``(iii) meets such requirements as the 
                        Secretary may determine would benefit from 
                        enrollment in such a specialized 
                        Medicare+Choice plan described in subparagraph 
                        (A) for individuals with severe or disabling 
                        chronic conditions.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-29) is amended by adding at the end the following new subsection:
    ``(f) Restriction on Enrollment for Specialized Medicare+Choice 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), notwithstanding 
any other provision of this part and in accordance with regulations of 
the Secretary and for periods before January 1, 2007, the plan may 
restrict the enrollment of individuals under the plan to individuals 
who are within one or more classes of special needs beneficiaries.''.
    (d) Report to Congress.--Not later than December 31, 2005, the 
Secretary shall submit to Congress a report that assesses the impact of 
specialized Medicare+Choice plans for special needs beneficiaries on 
the cost and quality of services provided to enrollees. Such report 
shall include an assessment of the costs and savings to the medicare 
program as a result of amendments made by subsections (a), (b), and 
(c).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c) shall take effect upon the date of the enactment 
        of this Act.
            (2) Deadline for issuance of requirements for special needs 
        beneficiaries; transition.--No later than 6 months after the 
        date of the enactment of this Act, the Secretary of Health and 
        Human Services shall issue final regulations to establish 
        requirements for special needs beneficiaries under section 
        1859(b)(4)(B)(iii) of the Social Security Act, as added by 
        subsection (b).

SEC. 204. EXTENSION OF REASONABLE COST AND SHMO CONTRACTS.

    (a) Reasonable Cost Contracts.--
            (1) In general.--Section 1876(h)(5)(C) (42 U.S.C. 
        1395mm(h)(5)(C)) is amended--
                    (A) by inserting ``(i)'' after ``(C)'';
                    (B) by inserting before the period the following: 
                ``, except (subject to clause (ii)) in the case of a 
                contract for an area which is not covered in the 
                service area of 1 or more coordinated care 
                Medicare+Choice plans under part C''; and
                    (C) by adding at the end the following new clause:
    ``(ii) In the case in which--
            ``(I) a reasonable cost reimbursement contract includes an 
        area in its service area as of a date that is after December 
        31, 2003;
            ``(II) such area is no longer included in such service area 
        after such date by reason of the operation of clause (i) 
        because of the inclusion of such area within the service area 
        of a Medicare+Choice plan; and
            ``(III) all Medicare+Choice plans subsequently terminate 
        coverage in such area;
such reasonable cost reimbursement contract may be extended and renewed 
to cover such area (so long as it is not included in the service area 
of any Medicare+Choice plan).''.
            (2) Study.--The Secretary shall conduct a study of an 
        appropriate transition for plans offered under reasonable cost 
        contracts under section 1876 of the Social Security Act on and 
        after January 1, 2005. Such a transition may take into account 
        whether there are one or more coordinated care Medicare+Choice 
        plans being offered in the areas involved. Not later than 
        February 1, 2004, the Secretary shall submit to Congress a 
        report on such study and shall include recommendations 
        regarding any changes in the amendment made by paragraph (1) as 
        the Secretary determines to be appropriate.
    (b) Extension of Social Health Maintenance Organization (SHMO) 
Demonstration Project.--
            (1) In general.--Section 4018(b)(1) of the Omnibus Budget 
        Reconciliation Act of 1987 is amended by striking ``the date 
        that is 30 months after the date that the Secretary submits to 
        Congress the report described in section 4014(c) of the 
        Balanced Budget Act of 1997'' and inserting ``December 31, 
        2004''.
            (2) SHMOs offering medicare+choice plans.--Nothing in such 
        section 4018 shall be construed as preventing a social health 
        maintenance organization from offering a Medicare+Choice plan 
        under part C of title XVIII of the Social Security Act.

SEC. 205. CONTINUOUS OPEN ENROLLMENT AND DISENROLLMENT.

    (a) In General.--Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is 
amended to read as follows:
            ``(2) Continuous open enrollment and disenrollment.--
        Subject to paragraph (5), a Medicare+Choice eligible individual 
        may change the election under subsection (a)(1) at any time.''.
    (b) Conforming Amendments.--
            (1) Medicare+choice.--Section 1851(e) (42 U.S.C. 1395w-
        21(e)) is amended--
                    (A) in paragraph (4)--
                            (i) by striking ``Effective as of January 
                        1, 2002, an'' and inserting ``An'';
                            (ii) by striking ``other than during an 
                        annual, coordinated election period'';
                            (iii) by inserting ``in a special election 
                        period for such purpose'' after ``make a new 
                        election under this section''; and
                            (iv) by striking the second sentence; and
                    (B) in paragraphs (5)(B) and (6)(A), by striking 
                ``the first sentence of''.
            (2) Permitting enrollment in medigap when m+c plans reduce 
        benefits or when provider leaves a m+c plan.--
                    (A) In general.--Clause (ii) of section 
                1882(s)(3)(B) (42 U.S.C. 1395ss(s)(3)(B)) is amended--
                            (i) by inserting ``(I)'' after ``(ii)'';
                            (ii) by striking ``under the first sentence 
                        of'' each place it appears and inserting 
                        ``during a special election period provided for 
                        under'';
                            (iii) by inserting ``the circumstances 
                        described in subclause (II) are present or'' 
                        before ``there are circumstances''; and
                            (iv) by adding at the end the following new 
                        subclause:
            ``(II) The circumstances described in this subclause are, 
        with respect to an individual enrolled in a Medicare+Choice 
        plan, a reduction in benefits (including an increase in cost-
        sharing) offered under the Medicare+Choice plan from the 
        previous year or a provider of services or physician who serves 
        the individual no longer participating in the plan (other than 
        because of good cause relating to quality of care under the 
        plan).''.
                    (B) Conforming amendment.--Clause (iii) of such 
                section is amended--
                            (i) by inserting ``the circumstances 
                        described in clause (ii)(II) are met or'' after 
                        ``policy described in subsection (t), and''; 
                        and
                            (ii) by striking ``under the first sentence 
                        of'' and inserting ``during a special election 
                        period provided for under''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2003, and shall apply to reductions in benefits 
and changes in provider participation occurring on or after such date.

SEC. 206. LIMITATION ON MEDICARE+CHOICE COST-SHARING.

    (a) In General.--Section 1852(a) (42 U.S.C. 1395w-22(a)) is amended 
by adding at the end the following new paragraph:
            ``(6) Limitation on cost-sharing.--
                    ``(A) In general.--Subject to subparagraph (B), in 
                no case shall the cost-sharing with respect to an item 
                or service under a Medicare+Choice plan exceed the 
                cost-sharing otherwise applicable under parts A and B 
                to an individual who is not enrolled in a 
                Medicare+Choice plan under this part.
                    ``(B) Permitting flat copayments.--Subparagraph (A) 
                shall not be construed as preventing the application of 
                flat dollar copayment amounts (in place of a percentage 
                coinsurance), such as a fixed copayment for a doctor's 
                visit, so long as such amounts are reasonable and 
                appropriate and do not adversely affect access to items 
                and services (as determined by the Secretary).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply as of January 1, 2003.

SEC. 207. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION PROJECTS.

    The last sentence of section 9215(a) of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (42 U.S.C. 1395b-1 note), as 
previously amended, is amended by striking ``December 31, 2004, but 
only with respect to'' and all that follows and inserting ``December 
31, 2009, but only with respect to individuals who reside in the city 
in which the project is operated and so long as the total number of 
individuals participating in the project does not exceed the number of 
such individuals participating as of January 1, 1996.''.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE FOR SOLE COMMUNITY 
              HOSPITALS.

    For provision eliminating any reduction from full market basket in 
the update for inpatient hospital services for sole community 
hospitals, see section 401.

SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
              RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 
              BEDS.

    (a) Blending of Payment Amounts.--
            (1) In general.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended by adding at the end the following 
        new clause:
    ``(xiv)(I) In the case of discharges in a fiscal year beginning on 
or after October 1, 2002, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment percentage 
otherwise determined under clause (iv) (other than subclause (I)) or 
under clause (viii), (x), (xi), (xii), or (xiii), the old blend 
proportion (specified under subclause (III)) of the disproportionate 
share adjustment percentage otherwise determined under the respective 
clause and 100 percent minus such old blend proportion of the 
disproportionate share adjustment percentage determined under clause 
(vii) (relating to large, urban hospitals).
    ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).
    ``(III) For purposes of subclause (I), the old blend proportion for 
fiscal year 2003 is 66\2/3\ percent, for fiscal year 2004 is 33\1/3\ 
percent subsequent year, and for each fiscal year beginning with 2005 
is 0 percent.''.
            (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                    (A) in each of subclauses (II), (III), (IV), (V), 
                and (VI) of clause (iv), by inserting ``subject to 
                clause (xiv) and'' before ``for discharges occurring'';
                    (B) in clause (viii), by striking ``The formula'' 
                and inserting ``Subject to clause (xiv), the formula''; 
                and
                    (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and inserting 
                ``Subject to clause (xiv), for purposes''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to discharges occurring on or after October 1, 2002.

SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARDIZED AMOUNT IN RURAL 
              AND SMALL URBAN AREAS TO ACHIEVE A SINGLE, UNIFORM 
              STANDARDIZED AMOUNT.

    Section 1886(d)(3)(A)(iv) (42 U.S.C. 1395ww(d)(3)(A)(iv)) is 
amended--
            (1) by striking ``(iv) For discharges'' and inserting 
        ``(iv)(I) Subject to the succeeding provisions of this clause, 
        for discharges''; and
            (2) by adding at the end the following new subclauses:
            ``(II) For discharges occurring during fiscal year 2003, 
        the average standardized amount for hospitals located other 
        than in a large urban area shall be increased by \1/2\ of the 
        difference between the average standardized amount determined 
        under subclause (I) for hospitals located in large urban areas 
        for such fiscal year and such amount determined (without regard 
        to this subclause) for other hospitals for such fiscal year.
            ``(III) For discharges occurring in a fiscal year beginning 
        with fiscal year 2004, the Secretary shall compute an average 
        standardized amount for hospitals located in any area within 
        the United States and within each region equal to the average 
        standardized amount computed for the previous fiscal year under 
        this subparagraph for hospitals located in a large urban area 
        (or, beginning with fiscal year 2005, for hospitals located in 
        any area) increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i).''.

SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
              BASKET.

    (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights in such market basket to reflect the most 
current data available more frequently than once every 5 years.
    (b) Report.--Not later than October 1, 2003, the Secretary shall 
submit a report to Congress on the frequency established under 
subsection (a), including an explanation of the reasons for, and 
options considered, in determining such frequency.

SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Reinstatement of Periodic Interim Payment (PIP).--Section 
1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph (C);
            (2) by adding ``and'' at the end of subparagraph (D); and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
            ``(E) inpatient critical access hospital services;''.
    (b) Condition for Application of Special Physician Payment 
Adjustment.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is amended by 
adding after and below subparagraph (B) the following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician providing professional services in the 
        hospital must assign billing rights with respect to such 
        services, except that such subparagraph shall not apply to 
        those physicians who have not assigned such billing rights.''.
    (c) Flexibility in Bed Limitation for Hospitals with Strong 
Seasonal Census Fluctuations.--Section 1820 (42 U.S.C. 1395i-4) is 
amended--
            (1) in subsection (c)(2)(B)(iii), by inserting ``subject to 
        paragraph (3)'' after ``(iii) provides'';
            (2) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(3) Increase in maximum number of beds for hospitals with 
        strong seasonal census fluctuations.--
                    ``(A) In general.--In the case of a hospital that 
                demonstrates that it meets the standards established 
                under subparagraph (B), the bed limitations otherwise 
                applicable under paragraph (2)(B)(iii) and subsection 
                (f) shall be increased by 5 beds.
                    ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical access 
                hospital has sufficiently strong seasonal variations in 
                patient admissions to justify the increase in bed 
                limitation provided under subparagraph (A).''; and
            (3) in subsection (f), by adding at the end the following 
        new sentence: ``The limitations in numbers of beds under the 
        first sentence are subject to adjustment under subsection 
        (c)(3).''.
    (d) 5-Year Extension of the Authorization for Appropriations for 
Grant Program.--Section 1820(j) (42 U.S.C. 1395i-4(j)) is amended by 
striking ``through 2002'' and inserting ``through 2007''.
    (e) Prohibition of Retroactive Recoupment.--The Secretary shall not 
recoup (or otherwise seek to recover) overpayments made for outpatient 
critical access hospital services under part B of title XVIII of the 
Social Security Act, for services furnished in cost reporting periods 
that began before October 1, 2002, insofar as such overpayments are 
attributable to payment being based on 80 percent of reasonable costs 
(instead of 100 percent of reasonable costs minus 20 percent of 
charges).
    (f) Effective Dates.--
            (1) Reinstatement of pip.--The amendments made by 
        subsection (a) shall apply to payments made on or after January 
        1, 2003.
            (2) Physician payment adjustment condition.--The amendment 
        made by subsection (b) shall be effective as if included in the 
        enactment of section 403(d) of the Medicare, Medicaid, and 
        SCHIP Balanced Budget Refinement Act of 1999 (113 Stat. 1501A-
        371).
            (3) Flexibility in bed limitation.--The amendments made by 
        subsection (c) shall apply to designations made on or after 
        January 1, 2003, but shall not apply to critical access 
        hospitals that were designated as of such date.

SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH SERVICES 
              FURNISHED IN A RURAL AREA.

    (a) In General.--Section 508(a) of BIPA (114 Stat. 2763A-533) is 
amended--
            (1) by striking ``24-Month Increase Beginning April 1, 
        2001'' and inserting ``In General''; and
            (2) by striking ``April 1, 2003'' and inserting ``January 
        1, 2005''.
    (b) Conforming Amendment.--Section 547(c)(2) of BIPA (114 Stat. 
2763A-553) is amended by striking ``the period beginning on April 1, 
2001, and ending on September 30, 2002,'' and inserting ``a period 
under such section''.

SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE 
              FURNISHED IN A FRONTIER AREA AND RURAL HOSPICE 
              DEMONSTRATION PROJECT.

    For--
            (1) provision of 10 percent increase in payment for hospice 
        care furnished in a frontier area, see section 422; and
            (2) provision of a rural hospice demonstration project, see 
        section 423.

SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LOCATED IN RURAL OR SMALL 
              URBAN AREAS IN REDISTRIBUTION OF UNUSED GRADUATE MEDICAL 
              EDUCATION RESIDENCIES.

    For provision providing priority for hospitals located in rural or 
small urban areas in redistribution of unused graduate medical 
education residencies, see section 611.

SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
              PHYSICIANS' SERVICES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of differences in payment amounts under the physician 
fee schedule under section 1848 of the Social Security Act (42 U.S.C. 
1395w-4) for physicians' services in different geographic areas. Such 
study shall include--
            (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
            (2) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions; and
            (3) an evaluation of the methods used to determine 
        professional liability insurance costs used in computing the 
        malpractice component, including a review of increases in 
        professional liability insurance premiums and variation in such 
        increases by State and physician specialty and methods used to 
        update the geographic cost of practice index and relative 
        weights for the malpractice component.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Comptroller General shall submit to Congress a report 
on the study conducted under subsection (a). The report shall include 
recommendations regarding the use of more current data in computing 
geographic cost of practice indices as well as the use of data directly 
representative of physicians' costs (rather than proxy measures of such 
costs).

SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
              BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(b)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after the 
        semicolon at the end;
            (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(H) any remuneration between a public or 
                nonprofit private health center entity described under 
                clause (i) or (ii) of section 1905(l)(2)(B) and any 
                individual or entity providing goods, items, services, 
                donations or loans, or a combination thereof, to such 
                health center entity pursuant to a contract, lease, 
                grant, loan, or other agreement, if such agreement 
                contributes to the ability of the health center entity 
                to maintain or increase the availability, or enhance 
                the quality, of services provided to a medically 
                underserved population served by the health center 
                entity.''.
    (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
            (1) Establishment.--
                    (A) In general.--The Secretary of Health and Human 
                Services (in this subsection referred to as the 
                ``Secretary'') shall establish, on an expedited basis, 
                standards relating to the exception described in 
                section 1128B(b)(3)(H) of the Social Security Act, as 
                added by subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                    (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, in 
                establishing standards relating to the exception for 
                health center entity arrangements under subparagraph 
                (A):
                            (i) Whether the arrangement between the 
                        health center entity and the other party 
                        results in savings of Federal grant funds or 
                        increased revenues to the health center entity.
                            (ii) Whether the arrangement between the 
                        health center entity and the other party 
                        restricts or limits a patient's freedom of 
                        choice.
                            (iii) Whether the arrangement between the 
                        health center entity and the other party 
                        protects a health care professional's 
                        independent medical judgment regarding 
                        medically appropriate treatment.
                The Secretary may also include other standards and 
                criteria that are consistent with the intent of 
                Congress in enacting the exception established under 
                this section.
            (2) Interim final effect.--No later than 180 days after the 
        date of enactment of this Act, the Secretary shall publish a 
        rule in the Federal Register consistent with the factors under 
        paragraph (1)(B). Such rule shall be effective and final 
        immediately on an interim basis, subject to such change and 
        revision, after public notice and opportunity (for a period of 
        not more than 60 days) for public comment, as is consistent 
        with this subsection.

SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.

    (a) In General.--In the case of a non-teaching hospital that meets 
the condition of subsection (b), for its cost reporting period 
beginning in each of fiscal years 2003, 2004, and 2005 the amount of 
payment made to the hospital under section 1886(d) of the Social 
Security Act for discharges occurring during such fiscal year only 
shall be increased as though the applicable percentage increase 
(otherwise applicable to discharges occurring during such fiscal year 
under section 1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(i)) had been increased by 5 percentage points. The 
previous sentence shall be applied for each such fiscal year separately 
without regard to its application in a previous fiscal year and shall 
not affect payment for discharges for any hospital occurring during a 
fiscal year after fiscal year 2005.
    (b) Condition.--A non-teaching hospital meets the condition of this 
paragraph if--
            (1) it is located in a rural area and the amount of the 
        aggregate payments under subsection (d) of such section for 
        non-teaching hospitals located in rural areas in the State for 
        their cost reporting periods beginning during fiscal year 1999 
        is less than the aggregate allowable operating costs of 
        inpatient hospital services (as defined in section 1886(a)(4) 
        of such Act) for all such hospitals in such areas in such State 
        with respect to such cost reporting periods; or
            (2) it is located in an urban area and the amount of the 
        aggregate payments under subsection (d) of such section for 
        non-teaching hospitals located in urban areas in the State for 
        their cost reporting periods beginning during fiscal year 1999 
        is less than 103 percent of the aggregate allowable operating 
        costs of inpatient hospital services (as defined in section 
        1886(a)(4) of such Act) for all such hospitals in such areas in 
        such State with respect to such cost reporting periods.
The amounts under paragraphs (1) and (2) shall be determined by the 
Secretary of Health and Human Services based on data of the Medicare 
Payment Advisory Commission.
    (c) Definitions.--For purposes of this section:
            (1) Non-teaching hospital.--The term ``non-teaching 
        hospital'' means, for a cost reporting period, a subsection (d) 
        hospital (as defined in section 1886(d)(1)(B) of the Social 
        Security Act, 42 U.S.C. 1395ww(d)(1)(B))) that is not receiving 
        any additional payment under section 1886(d)(5)(B) of such Act 
        (42 U.S.C. 1395ww(d)(5)(B)) or a payment under section 1886(h) 
        of such Act (42 U.S.C. 1395ww(h)) for discharges occurring 
        during the period.
            (2) Rural; urban.--The terms ``rural'' and ``urban'' have 
        the meanings given such terms for purposes of section 1886(d) 
        of the Social Security Act (42 U.S.C. 1395ww(d)).

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

    Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended to read as follows:
            ``(XVIII) for fiscal year 2003, the market basket 
        percentage increase for sole community hospitals and such 
        increase minus 0.25 percentage points for other hospitals, 
        and''.

SEC. 402. FREEZE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF MEDICAL 
              EDUCATION (IME) THROUGH FISCAL YEAR 2007.

    Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
            (1) in subclause (VI), by inserting ``and each succeeding 
        fiscal year through fiscal year 2007'' after ``2002''; and
            (2) in subclause (VII), by striking ``2002'' and inserting 
        ``2007''.

SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PPS.

    (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
    ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
    (b) Eligibility Standard.--
            (1) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                    (A) by inserting ``(I)'' after ``(vi)''; and
                    (B) by adding at the end the following new 
                subclause:
    ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of a 
significant sample of specific discharges in which the service or 
technology has been used.''.
            (2) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
        (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
        ``(applying a threshold specified by the Secretary that is the 
        lesser of 50 percent of the national average standardized 
        amount for operating costs of inpatient hospital services for 
        all hospitals and all diagnosis-related groups or one standard 
        deviation for the diagnosis-related group involved)'' after 
        ``is inadequate''.
            (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
    ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
or 526 of the Federal Food, Drug, and Cosmetic Act, approved under 
section 314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 515(d)(5) of such 
Act.''.
            (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is 
        amended--
                    (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified to meet 
                the requirements of clause (viii).''; and
                    (B) by adding at the end the following new clause:
    ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries as follows:
            ``(I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for which an 
        application for additional payment under this subparagraph is 
        pending.
            ``(II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding whether the 
        service or technology represents a substantial improvement.
            ``(III) The Secretary shall provide for a meeting at which 
        organizations representing hospitals, physicians, medicare 
        beneficiaries, manufacturers, and any other interested party 
        may present comments, recommendations, and data to the clinical 
        staff of the Centers for Medicare & Medicaid Services before 
        publication of a notice of proposed rulemaking regarding 
        whether service or technology represents a substantial 
        improvement.''.
    (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the 
following new clause:
    ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary shall seek 
to identify one or more diagnosis-related groups associated with such 
technology, based on similar clinical or anatomical characteristics and 
the cost of the technology. Within such groups the Secretary shall 
assign an eligible new technology into a diagnosis-related group where 
the average costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under this 
subparagraph shall be made with respect to such new technology and this 
clause shall not affect the application of paragraph (4)(C)(iii).''.
    (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
    (e) Effective Date.--
            (1) In general.--The Secretary shall implement the 
        amendments made by this section so that they apply to 
        classification for fiscal years beginning with fiscal year 
        2004.
            (2) Reconsiderations of applications for fiscal year 2003 
        that are denied.--In the case of an application for a 
        classification of a medical service or technology as a new 
        medical service or technology under section 1886(d)(5)(K) of 
        the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
        filed for fiscal year 2003 and that is denied--
                    (A) the Secretary shall automatically reconsider 
                the application as an application for fiscal year 2004 
                under the amendments made by this section; and
                    (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                    (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
            (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
            ``(i) between October 1, 1987, and September 30, 1997, the 
        applicable Puerto Rico percentage is 75 percent and the 
        applicable Federal percentage is 25 percent;
            ``(ii) on or after October 1, 1997, and before October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 45 percent and the applicable Federal percentage 
        is 55 percent;
            ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 40 percent and the applicable Federal percentage 
        is 60 percent;
            ``(v) during fiscal year 2006, the applicable Puerto Rico 
        percentage is 35 percent and the applicable Federal percentage 
        is 65 percent;
            ``(vi) during fiscal year 2007, the applicable Puerto Rico 
        percentage is 30 percent and the applicable Federal percentage 
        is 70 percent; and
            ``(vii) on or after October 1, 2007, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 405. REFERENCE TO PROVISION RELATING TO ENHANCED DISPROPORTIONATE 
              SHARE HOSPITAL (DSH) PAYMENTS FOR RURAL HOSPITALS AND 
              URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

    For provision enhancing disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals with fewer than 100 
beds, see section 302.

SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR PHASED-IN INCREASE 
              IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN AREAS 
              TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED AMOUNT.

    For provision phasing in over a 2-year period an increase in the 
standardized amount for rural and small urban areas to achieve a 
single, uniform, standardized amount, see section 303.

SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT UPDATES IN THE 
              WEIGHTS USED IN HOSPITAL MARKET BASKET.

    For provision providing for more frequent updates in the weights 
used in hospital market basket, see section 304.

SEC. 408. REFERENCE TO PROVISION MAKING IMPROVEMENTS TO CRITICAL ACCESS 
              HOSPITAL PROGRAM.

    For provision providing making improvements to critical access 
hospital program, see section 305.

             Subtitle B--Skilled Nursing Facility Services

SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

    (a) 5-Year Extension of Temporary Increase in Nursing Component of 
PPS Federal Rate.--Section 312(a) of BIPA is amended by striking ``, 
and before October 1, 2002'' and inserting ``and before October 1, 
2007''.
    (b) Adjustment to RUGs for AIDS Residents.--
            (1) In general.--Paragraph (12) of section 1888(e) (42 
        U.S.C. 1395yy(e)) is amended to read as follows:
            ``(12) Adjustment for residents with aids.--
                    ``(A) In general.--Subject to subparagraph (B), in 
                the case of a resident of a skilled nursing facility 
                who is afflicted with acquired immune deficiency 
                syndrome (AIDS), the per diem amount of payment 
                otherwise applicable shall be increased by 128 percent 
                to reflect increased costs associated with such 
                residents.
                    ``(B) Sunset.--Subparagraph (A) shall not apply on 
                and after such date as the Secretary certifies that 
                there is an appropriate adjustment in the case mix 
                under paragraph (4)(G)(i) to compensate for the 
                increased costs associated with residents described in 
                such subparagraph.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to services furnished on or after October 1, 2003.

                          Subtitle C--Hospice

SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERVICES.

    (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (3);
            (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) for individuals who are terminally ill, have not made 
        an election under subsection (d)(1), and have not previously 
        received services under this paragraph, services that are 
        furnished by a physician who is the medical director or an 
        employee of a hospice program and that consist of--
                    ``(A) an evaluation of the individual's need for 
                pain and symptom management;
                    ``(B) counseling the individual with respect to 
                end-of-life issues and care options; and
                    ``(C) advising the individual regarding advanced 
                care planning.''.
    (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended by 
adding at the end the following new paragraph:
    ``(4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made under 
this part shall be equal to an amount equivalent to the amount 
established for an office or other outpatient visit for evaluation and 
management associated with presenting problems of moderate severity 
under the fee schedule established under section 1848(b), other than 
the portion of such amount attributable to the practice expense 
component.''.
    (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 U.S.C. 
1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end 
the following: ``and services described in section 1812(a)(5)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services provided by a hospice program on or after January 1, 
2004.

SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN 
              A FRONTIER AREA.

    (a) In General.--Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) is 
amended by adding at the end the following new subparagraph:
    ``(D) With respect to hospice care furnished in a frontier area on 
or after January 1, 2003, and before January 1, 2008, the payment rates 
otherwise established for such care shall be increased by 10 percent. 
For purposes of this subparagraph, the term `frontier area' means a 
county in which the population density is less than 7 persons per 
square mile.''.
    (b) Report on Costs.--Not later than January 1, 2007, the 
Comptroller General of the United States shall submit to Congress a 
report on the costs of furnishing hospice care in frontier areas. Such 
report shall include recommendations regarding the appropriateness of 
extending, and modifying, the payment increase provided under the 
amendment made by subsection (a).

SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a demonstration 
project for the delivery of hospice care to medicare beneficiaries in 
rural areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the home for lack of an appropriate caregiver 
are provided such care in a facility of 20 or fewer beds which offers, 
within its walls, the full range of services provided by hospice 
programs under section 1861(dd) of the Social Security Act (42 U.S.C. 
1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the project 
under this section with respect to no more than 3 hospice programs over 
a period of not longer than 5 years each.
    (c) Compliance with Conditions.--Under the demonstration project--
            (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be required 
        to offer services outside of the home or to meet the 
        requirements of section 1861(dd)(2)(A)(iii) of the Social 
        Security Act; and
            (2) payments for hospice care shall be made at the rates 
        otherwise applicable to such care under title XVIII of such 
        Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

                      Subtitle D--Other Provisions

SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the use of recovery 
audit contractors under the Medicare Integrity Program in identifying 
and recouping overpayments under the medicare program for services for 
which payment is made under part A of title XVIII of the Social 
Security Act. Under the project--
            (1) payment may be made to such a contractor on a 
        contingent basis;
            (2) a percentage of the amount recovered may be retained by 
        the Secretary and shall be available to the program management 
        account of the Centers for Medicare & Medicaid Services; and
            (3) the Secretary shall examine the efficacy of such use 
        with respect to duplicative payments, accuracy of coding, and 
        other payment policies in which inaccurate payments arise.
    (b) Scope and Duration.--The project shall cover at least 2 States 
and at least 3 contractors and shall last for not longer than 3 years.
    (c) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (a).
    (d) Qualifications of Contractors.--
            (1) In general.--The Secretary shall enter into a recovery 
        audit contract under this section with an entity only if the 
        entity has staff that has knowledge of and experience with the 
        payment rules and regulations under the medicare program or the 
        entity has or will contract with another entity that has such 
        knowledgeable and experienced staff.
            (2) Ineligibility of certain contractors.--The Secretary 
        may not enter into a recovery audit contract under this section 
        with an entity to the extent that the entity is a fiscal 
        intermediary under section 1816 of the Social Security Act (42 
        U.S.C. 1395h), a carrier under section 1842 of such Act (42 
        U.S.C. 1395u), or a Medicare Administrative Contractor under 
        section 1874A of such Act, or any other entity that carries out 
        the type of activities with respect to providers of services 
        under part A that would constitute a conflict of interest, as 
        determined by the Secretary.
            (3) Preference for entities with demonstrated proficiency 
        with private insurers.--In awarding contracts to recovery audit 
        contractors under this section, the Secretary shall give 
        preference to those entities that the Secretary determines have 
        demonstrated proficiency in recovery audits with private 
        insurers or under the medicaid program under title XIX of such 
        Act.
    (e) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on the project not later than 6 months 
after the date of its completion. Such reports shall include 
information on the impact of the project on savings to the medicare 
program and recommendations on the cost-effectiveness of extending or 
expanding the project.

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

SEC. 501. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

    (a) Update for 2003 through 2006.--
            (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended by adding at the end the following new paragraphs:
            ``(5) Update for 2003.--The update to the single conversion 
        factor established in paragraph (1)(C) for 2003 is 2 percent.
            ``(6) Special rules for update for 2004, 2005, and 2006.--
        The following rules apply in determining the update adjustment 
        factors under paragraph (4)(B) for 2004, 2005, and 2006:
                    ``(A) Use of 2002 data in determining allowable 
                costs.--
                            ``(i) The reference in clause (ii)(I) of 
                        such paragraph to April 1, 1996, is deemed to 
                        be a reference to January 1, 2002.
                            ``(ii) The allowed expenditures for 2002 is 
                        deemed to be equal to the actual expenditures 
                        for physicians' services furnished during 2002, 
                        as estimated by the Secretary.
                    ``(B) 1 percentage point increase in gdp under 
                sgr.--The annual average percentage growth in real 
                gross domestic product per capita under subsection 
                (f)(2)(C) for each of 2003, 2004, 2005, and 2006 is 
                deemed to be increased by 1 percentage point.''.
            (2) Conforming amendment.--Paragraph (4)(B) of such section 
        is amended, in the matter before clause (i), by inserting ``and 
        paragraph (6)'' after ``subparagraph (D)''.
            (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments made by 
        this subsection shall not be treated as a change in law for 
        purposes of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
    (b) Use of 10-Year Rolling Average in Computing Gross Domestic 
Product.--
            (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
        4(f)(2)(C)) is amended--
                    (A) by striking ``projected'' and inserting 
                ``annual average''; and
                    (B) by striking ``from the previous applicable 
                period to the applicable period involved'' and 
                inserting ``during the 10-year period ending with the 
                applicable period involved''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to computations of the sustainable growth rate for 
        years beginning with 2002.
    (c) Elimination of Transitional Adjustment.--Section 1848(d)(4)(F) 
(42 U.S.C. 1395w-4(d)(4)(F)) is amended by striking ``subparagraph 
(A)'' and all that follows and inserting ``subparagraph (A), for each 
of 2001 and 2002, of -0.2 percent.''

SEC. 502. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

    (a) GAO Study on Beneficiary Access to Physicians' Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access of medicare beneficiaries to 
        physicians' services under the medicare program. The study 
        shall include--
                    (A) an assessment of the use by beneficiaries of 
                such services through an analysis of claims submitted 
                by physicians for such services under part B of the 
                medicare program;
                    (B) an examination of changes in the use by 
                beneficiaries of physicians' services over time;
                    (C) an examination of the extent to which 
                physicians are not accepting new medicare beneficiaries 
                as patients.
            (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1). 
        The report shall include a determination whether--
                    (A) data from claims submitted by physicians under 
                part B of the medicare program indicate potential 
                access problems for medicare beneficiaries in certain 
                geographic areas; and
                    (B) access by medicare beneficiaries to physicians' 
                services may have improved, remained constant, or 
                deteriorated over time.
    (b) Study and Report on Supply of Physicians.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to conduct a study 
        on the adequacy of the supply of physicians (including 
        specialists) in the United States and the factors that affect 
        such supply.
            (2) Report to congress.--Not later than 2 years after the 
        date of enactment of this section, the Secretary shall submit 
        to Congress a report on the results of the study described in 
        paragraph (1), including any recommendations for legislation.

SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

    Not later than 1 year after the date of the enactment of this Act, 
the Medicare Payment Advisory Commission shall submit to Congress a 
report on the effect of refinements to the practice expense component 
of payments for physicians' services in the case of services for which 
there are no physician work relative value units, after the transition 
to a full resource-based payment system in 2002, under section 1848 of 
the Social Security Act (42 U.S.C. 1395w-4). Such report shall examine 
the following matters by physician specialty:
            (1) The effect of such refinements on payment for 
        physicians' services.
            (2) The interaction of the practice expense component with 
        other components of and adjustments to payment for physicians' 
        services under such section.
            (3) The appropriateness of the amount of compensation by 
        reason of such refinements.
            (4) The effect of such refinements on access to care by 
        medicare beneficiaries to physicians' services.
            (5) The effect of such refinements on physician 
        participation under the medicare program.

SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
              SERVICES UNDER MEDICARE.

    Section 542(c) of BIPA is amended by striking ``2-year period'' and 
inserting ``3-year period''.

SEC. 505. PHYSICIAN FEE SCHEDULE WAGE INDEX REVISION.

    (a) In General.--Notwithstanding any other provision of law, for 
purposes of payment under the physician fee schedule under section 1848 
of the Social Security Act (42 U.S.C. 1395w-4) for physicians' services 
furnished during 2004, in no case may the work geographic index 
otherwise calculated under section 1848(e)(1)(A)(iii) of such Act (42 
U.S.C. 1395w-4(e)(1)(A)(iii)) be less than 0.985.
    (b) Exemption From Limitation on Annual Adjustments.--The increase 
in expenditures attributable to subsection (a) during 2004 shall not be 
taken into account in applying section 1848(c)(2)(B)(ii)(II) of such 
Act (42 U.S.C. 1395w-4(c)(2)(B)(ii)(II)) for that year.
    (c) GAO Report.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study to evaluate the following:
                    (A) The economic basis of the current methodology 
                for geographic adjustment of the work component of the 
                physician payment rate under the physician fee schedule 
                under section 1848 of the Social Security Act (42 
                U.S.C. 1395w-4).
                    (B) Whether the adjustment under subsection (a) 
                should be continued, and whether there is an economic 
                basis for the continuation of such adjustment, in those 
                areas in which the adjustment applies.
                    (C) The effect of the methodology on physician 
                location and retention in areas affected by such 
                adjustment.
                    (D) The differences in recruitment costs and 
                retention rates for physicians, including specialists, 
                between large urban areas and other areas.
                    (E) The mobility of physicians, including 
                specialists, over the last decade.
                    (F) The effect of raising the floor of the 
                geographic index to a value of 1.0 for adjustment of 
                the work component.
            (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1) by 
        not later than 1 year after the date of the enactment of this 
        Act.

                       Subtitle B--Other Services

SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

    (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended to 
read as follows:

        ``competitive acquisition of certain items and services

    ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
            ``(1) Implementation of programs.--
                    ``(A) In general.--The Secretary shall establish 
                and implement programs under which, beginning in 2008, 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services (described in 
                paragraph (2)) for which payment is made under this 
                part. Such areas may differ for different items and 
                services.
                    ``(B) Phased-in implementation.--The programs shall 
                be phased-in among competitive acquisition areas over a 
                period of not longer than 3 years in a manner so that 
                the competition under the programs occurs in--
                            ``(i) at least \1/3\ of such areas in 2008; 
                        and
                            ``(ii) at least \2/3\ of such areas in 
                        2009.
                    ``(C) Waiver of certain provisions.--In carrying 
                out the programs, the Secretary may waive such 
                provisions of the Federal Acquisition Regulation as are 
                necessary for the efficient implementation of this 
                section, other than provisions relating to 
                confidentiality of information and such other 
                provisions as the Secretary determines appropriate.
            ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                    ``(A) Durable medical equipment and inhalation 
                drugs used in connection with durable medical 
                equipment.--Covered items (as defined in section 
                1834(a)(13)) for which payment is otherwise made under 
                section 1834(a), other than items used in infusion, and 
                inhalation drugs used in conjunction with durable 
                medical equipment.
                    ``(B) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which payment is 
                otherwise made under section 1834(h) which require 
                minimal self-adjustment for appropriate use and does 
                not require expertise in trimming, bending, molding, 
                assembling, or customizing to fit to the patient.
            ``(3) Exemption authority.--In carrying out the programs 
        under this section, the Secretary may exempt--
                    ``(A) areas that are not competitive due to low 
                population density; and
                    ``(B) items and services for which the application 
                of competitive acquisition is not likely to result in 
                significant savings.
    ``(b) Program Requirements.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive acquisition 
        area in which the program is implemented under subsection (a) 
        with respect to such items and services.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in an competitive acquisition area pursuant to 
                paragraph (1) to furnish such items or services unless 
                the Secretary finds all of the following:
                            ``(i) The entity meets quality and 
                        financial standards specified by the Secretary 
                        or developed by accreditation entities or 
                        organizations recognized by the Secretary.
                            ``(ii) The total amounts to be paid under 
                        the contract (including costs associated with 
                        the administration of the contract) are 
                        expected to be less than the total amounts that 
                        would otherwise be paid.
                            ``(iii) Beneficiary access to a choice of 
                        multiple suppliers in the area is maintained.
                            ``(iv) Beneficiary liability is limited to 
                        the applicable percentage of contract award 
                        price.
                    ``(B) Quality standards.--The quality standards 
                specified under subparagraph (A)(i) shall not be less 
                than the quality standards that would otherwise apply 
                if this section did not apply and shall include 
                consumer services standards. The Secretary shall 
                consult with an expert outside advisory panel composed 
                of an appropriate selection of representatives of 
                physicians, practitioners, and suppliers to review (and 
                advise the Secretary concerning) such quality 
                standards.
            ``(3) Contents of contract.--
                    ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.
                    ``(B) Term of contracts.--The Secretary shall rebid 
                contracts under this section not less often than once 
                every 3 years.
            ``(4) Limit on number of contractors.--
                    ``(A) In general.--The Secretary may limit the 
                number of contractors in a competitive acquisition area 
                to the number needed to meet projected demand for items 
                and services covered under the contracts. In awarding 
                contracts, the Secretary shall take into account the 
                ability of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such items or 
                services in the geographic area covered under the 
                contract on a timely basis.
                    ``(B) Multiple winners.--The Secretary shall award 
                contracts to more than one entity submitting a bid in 
                each area for an item or service.
            ``(5) Participating contractors.--Payment shall not be made 
        for items and services described in subsection (a)(2) furnished 
        by a contractor and for which competition is conducted under 
        this section unless--
                    ``(A) the contractor has submitted a bid for such 
                items and services under this section; and
                    ``(B) the Secretary has awarded a contract to the 
                contractor for such items and services under this 
                section.
            ``(6) Authority to contract for education, outreach and 
        complaint services.--The Secretary may enter into a contract 
        with an appropriate entity to address complaints from 
        beneficiaries who receive items and services from an entity 
        with a contract under this section and to conduct appropriate 
        education of and outreach to such beneficiaries with respect to 
        the program.
    ``(c) Annual Reports.--The Secretary shall submit to Congress an 
annual management report on the programs under this section. Each such 
report shall include information on savings, reductions in cost-
sharing, access to items and services, and beneficiary satisfaction.
    ``(d) Demonstration Project for Clinical Laboratory Services.--
            ``(1) In general.--The Secretary shall, beginning in 2008, 
        conduct a demonstration project on the application of 
        competitive acquisition under this section to clinical 
        diagnostic laboratory tests--
                    ``(A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to colorectal 
                cancer screening tests); and
                    ``(B) which are furnished without a face-to-face 
                encounter between the individual and the hospital or 
                physician ordering the tests.
            ``(2) Terms and conditions.--Such project shall be under 
        the same conditions as are applicable to items and services 
        described in subsection (a)(2).
            ``(3) Report.--The Secretary shall submit to Congress--
                    ``(A) an initial report on the project not later 
                than December 31, 2009; and
                    ``(B) such progress and final reports on the 
                project after such date as the Secretary determines 
                appropriate.''.
    (b) Continuation of Certain Demonstration Projects.--
Notwithstanding the amendment made by subsection (a), with respect to 
demonstration projects implemented by the Secretary under section 1847 
of the Social Security Act (42 U.S.C. 1395w-3) (relating to the 
establishment of competitive acquisition areas) that was in effect on 
the day before the date of the enactment of this Act, each such 
demonstration project may continue under the same terms and conditions 
applicable under that section as in effect on that date.
    (c) Report on Differences in Payment for Laboratory Services.--Not 
later than 18 months after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report that analyzes differences in reimbursement between public and 
private payors for clinical diagnostic laboratory services.
    (d) MedPAC Report on Impact of Demonstration Projects on 
Beneficiary Access to Services.--Not later than 1 year after the date 
of the enactment of this Act, the Medicare Pyament Advisory Commission 
shall submit to Congress a report that analyzes the impact of 
demonstration projects carried out under section 1847 of the Social 
Security Act, as in effect on June 1, 2002, on access by medicare 
beneficiaries to durable medical equipment for which payment was made 
under the demonstration project.

SEC. 512. PAYMENT FOR AMBULANCE SERVICES.

    (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
amended--
            (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (10)'' after ``in an efficient and fair manner'';
            (2) by redesignating the paragraph (8) added by section 
        221(a) of BIPA as paragraph (9); and
            (3) by adding at the end the following new paragraph:
            ``(10) Phase-in providing floor using blend of fee schedule 
        and regional fee schedules.--In carrying out the phase-in under 
        paragraph (2)(E) for each level of service furnished in a year 
        before January 1, 2007, the portion of the payment amount that 
        is based on the fee schedule shall not be less than the 
        following blended rate of the fee schedule under paragraph (1) 
        and of a regional fee schedule for the region involved:
                    ``(A) For 2003, the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                    ``(B) For 2004, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                    ``(C) For 2005, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                    ``(D) For 2006, the blended rate shall be based 80 
                percent on the fee schedule under paragraph (1) and 20 
                percent on the regional fee schedule.
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the 9 Census divisions using 
        the methodology (used in establishing the fee schedule under 
        paragraph (1)) to calculate a regional conversion factor and a 
        regional mileage payment rate and using the same payment 
        adjustments and the same relative value units as used in the 
        fee schedule under such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is further amended by adding at the end 
the following new paragraph:
            ``(11) Adjustment in payment for certain long trips.--In 
        the case of ground ambulance services furnished on or after 
        January 1, 2003, and before January 1, 2008, regardless of 
        where the transportation originates, the fee schedule 
        established under this subsection shall provide that, with 
        respect to the payment rate for mileage for a trip above 50 
        miles the per mile rate otherwise established shall be 
        increased by \1/4\ of the payment per mile otherwise applicable 
        to such miles.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to ambulance services furnished on or after January 1, 2003.

SEC. 513. 5-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; PROVISIONS 
              RELATING TO REPORTS.

    (a) 5-Year Extension of Moratorium on Therapy Caps.--Section 
1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by striking ``and 2002'' 
and inserting ``2002, 2003, 2004, 2005, 2006, and 2007''.
    (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than December 31, 2002, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (relating to alternatives 
to a single annual dollar cap on outpatient therapy) and under section 
221(d) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient therapy).
    (c) Identification of Conditions and Diseases Justifying Waiver of 
Therapy Cap.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to identify 
        conditions or diseases that should justify conducting an 
        assessment of the need to waive the therapy caps under section 
        1833(g)(4) of the Social Security Act (42 U.S.C. 1395l(g)(4)).
            (2) Reports to congress.--Not later than July 1, 2003, the 
        Secretary shall submit to Congress a preliminary report on the 
        conditions and diseases identified under paragraph (1) and not 
        later than September 1, 2003, a final report on the conditions 
        and diseases so identified.
    (d) GAO Study of Patient Access to Physical Therapist Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access to physical therapist services 
        in States authorizing such services without a physician 
        referral and in States that require such a physician referral. 
        The study shall--
                    (A) examine the use of and referral patterns for 
                physical therapist services for patients age 50 and 
                older in States that authorize such services without a 
                physician referral and in States that require such a 
                physician referral;
                    (B) examine the use of and referral patterns for 
                physical therapist services for patients who are 
                medicare beneficiaries;
                    (C) examine the potential effect of prohibiting a 
                physician from referring patients to physical therapy 
                services owned by the physician and provided in the 
                physician's office;
                    (D) examine the delivery of physical therapists' 
                services within the facilities of Department of 
                Defense; and
                    (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the medicare 
                program of eliminating the need for a physician 
                referral and physician certification for physical 
                therapist services under the medicare program.
            (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1) by 
        not later than 1 year after the date of the enactment of this 
        Act.

SEC. 514. ACCELERATED IMPLEMENTATION OF 20 PERCENT COINSURANCE FOR 
              HOSPITAL OUTPATIENT DEPARTMENT (OPD) SERVICES; OTHER OPD 
              PROVISIONS.

    (a) Accelerated Implementation of Coinsurance Reductions.--Section 
1833(t)(8)(C)(ii) (42 U.S.C. 1395l(t)(8)(C)(ii)) is amended by striking 
subclauses (III) through (V) and inserting the following:
                                    ``(III) For procedures performed in 
                                2004, 45 percent.
                                    ``(IV) For procedures performed in 
                                2005, 40 percent.
                                    ``(V) For procedures performed in 
                                2006, 2007, 2008 and 2009, 35 percent.
                                    ``(VI) For procedures performed in 
                                2010, 30 percent.
                                    ``(VII) For procedures performed in 
                                2011, 25 percent.
                                    ``(VIII) For procedures performed 
                                in 2012 and thereafter, 20 percent.''.
    (b) Treatment of Temperature Monitored Cryoablation.--
            (1) In general.--Section 1833(t)(6)(A)(ii) (42 U.S.C. 
        1395l(t)(6)(A)(ii)) is amended by striking ``or temperature 
        monitored cryoablation''.
            (2) Effective date.--The amendment made by paragraph (1) 
        applies to payment for services furnished on or after January 
        1, 2003.

SEC. 515. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), is 
amended--
            (1) in subparagraph (U), by striking ``and'' at the end;
            (2) in subparagraph (V), by inserting ``and'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
                    ``(W) an initial preventive physical examination 
                (as defined in subsection (ww));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is amended 
by adding at the end the following new subsection:

               ``Initial Preventive Physical Examination

    ``(ww) The term `initial preventive physical examination' means 
physicians' services consisting of a physical examination with the goal 
of health promotion and disease detection and includes items and 
services specified by the Secretary in regulations.''.
    (c) Waiver of Deductible and Coinsurance.--
            (1) Deductible.--The first sentence of section 1833(b) (42 
        U.S.C. 1395l(b)) is amended--
                    (A) by striking ``and'' before ``(6)'', and
                    (B) by inserting before the period at the end the 
                following: ``, and (7) such deductible shall not apply 
                with respect to an initial preventive physical 
                examination (as defined in section 1861(ww))''.
            (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
        1395l(a)(1)) is amended--
                    (A) in clause (N), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''; and
                    (B) in clause (O), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''.
    (d) Payment as Physicians' Services.--Section 1848(j)(3) (42 U.S.C. 
1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after ``(2)(S),''.
    (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``and'' at the end of subparagraph 
                (H);
                    (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months after 
        the date the individual's first coverage period begins under 
        part B;''; and
            (2) in paragraph (7), by striking ``or (H)'' and inserting 
        ``(H), or (J)''.
    (f) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004, but only for 
individuals whose coverage period begins on or after such date.

SEC. 516. RENAL DIALYSIS SERVICES.

    (a) Report on Differences in Costs in Different Settings.--Not 
later than 1 year after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report containing--
            (1) an analysis of the differences in costs of providing 
        renal dialysis services under the medicare program in home 
        settings and in facility settings;
            (2) an assessment of the percentage of overhead costs in 
        home settings and in facility settings; and
            (3) an evaluation of whether the charges for home dialysis 
        supplies and equipment are reasonable and necessary.
    (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
            (1) In general.--Section 422(a)(2) of BIPA is amended--
                    (A) in subparagraph (A), by striking ``and (C)'' 
                and inserting ``, (C), and (D)'';
                    (B) in subparagraph (B), by striking ``In the 
                case'' and inserting ``Subject to subparagraph (D), in 
                the case''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) Inapplicability to pediatric facilities.--
                Subparagraphs (A) and (B) shall not apply, as of 
                October 1, 2002, to pediatric facilities that do not 
                have an exception rate described in subparagraph (C) in 
                effect on such date. For purposes of this subparagraph, 
                the term `pediatric facility' means a renal facility at 
                least 50 percent of whose patients are individuals 
                under 18 years of age.''.
            (2) Conforming amendment.--The fourth sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking 
        ``The Secretary'' and inserting ``Subject to section 422(a)(2) 
        of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000, the Secretary''.
    (c) Increase in Renal Dialysis Composite Rate for Services 
Furnished in 2004.--Notwithstanding any other provision of law, with 
respect to payment under part B of title XVIII of the Social Security 
Act for renal dialysis services furnished in 2004, the composite 
payment rate otherwise established under section 1881(b)(7) of such Act 
(42 U.S.C. 1395rr(b)(7)) shall be increased by 1.2 percent.

SEC. 517. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

    (a) Exclusion from OPD Fee Schedule.--Section 1833(t)(1)(B)(iv) (42 
U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at 
the end the following: ``and does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and bilateral diagnostic 
mammography''.
    (b) Adjustment to Technical Component.--For diagnostic mammography 
performed on or after January 1, 2004, for which payment is made under 
the physician fee schedule under section 1848 of the Social Security 
Act (42 U.S.C. 1395w-4), the Secretary, based on the most recent cost 
data available, shall provide for an appropriate adjustment in the 
payment amount for the technical component of the diagnostic 
mammography.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to mammography performed on or after January 1, 2004.

SEC. 518. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
              RETIREES; SPECIAL ENROLLMENT PERIOD.

    (a) Waiver of Penalty.--
            (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
        amended by adding at the end the following new sentence: ``No 
        increase in the premium shall be effected for a month in the 
        case of an individual who is 65 years of age or older, who 
        enrolls under this part during 2001, 2002, or 2003, and who 
        demonstrates to the Secretary before December 31, 2003, that 
        the individual is a covered beneficiary (as defined in section 
        1072(5) of title 10, United States Code). The Secretary of 
        Health and Human Services shall consult with the Secretary of 
        Defense in identifying individuals described in the previous 
        sentence.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to premiums for months beginning with January 2003. 
        The Secretary of Health and Human Services shall establish a 
        method for providing rebates of premium penalties paid for 
        months on or after January 2003 for which a penalty does not 
        apply under such amendment but for which a penalty was 
        previously collected.
    (b) Medicare Part B Special Enrollment Period.--
            (1) In general.--In the case of any individual who, as of 
        the date of the enactment of this Act, is 65 years of age or 
        older, is eligible to enroll but is not enrolled under part B 
        of title XVIII of the Social Security Act, and is a covered 
        beneficiary (as defined in section 1072(5) of title 10, United 
        States Code), the Secretary of Health and Human Services shall 
        provide for a special enrollment period during which the 
        individual may enroll under such part. Such period shall begin 
        as soon as possible after the date of the enactment of this Act 
        and shall end on December 31, 2003.
            (2) Coverage period.--In the case of an individual who 
        enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.

SEC. 519. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 515(a), is amended--
            (1) in subparagraph (V), by striking ``and'' at the end;
            (2) in subparagraph (W), by inserting ``and'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
                    ``(X) cholesterol and other blood lipid screening 
                tests (as defined in subsection (xx));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by section 515(b), is amended by adding at the end the following new 
subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

    ``(xx)(1) The term `cholesterol and other blood lipid screening 
test' means diagnostic testing of cholesterol and other lipid levels of 
the blood for the purpose of early detection of abnormal cholesterol 
and other lipid levels.
    ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency and type of 
cholesterol and other blood lipid screening tests, except that such 
frequency may not be more often than once every 2 years.''.
    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 515(e), is amended
            (1) by striking ``and'' at the end of subparagraph (I);
            (2) by striking the semicolon at the end of subparagraph 
        (J) and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(K) in the case of a cholesterol and other blood lipid 
        screening test (as defined in section 1861(xx)(1)), which is 
        performed more frequently than is covered under section 
        1861(xx)(2).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to tests furnished on or after January 1, 2004.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN PAYMENT RATES UNDER 
              THE PROSPECTIVE PAYMENT SYSTEM.

    (a) In General.--Section 1895(b)(3)(A) (42 U.S.C. 1395fff(b)(3)(A)) 
is amended to read as follows:
                    ``(A) Initial basis.--Under such system the 
                Secretary shall provide for computation of a standard 
                prospective payment amount (or amounts) as follows:
                            ``(i) Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2001 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect and if section 1861(v)(1)(L)(ix) 
                        had not been enacted.
                            ``(ii) For fiscal year 2002 and for the 
                        first quarter of fiscal year 2003, such amount 
                        (or amounts) shall be equal to the amount (or 
                        amounts) determined under this paragraph for 
                        the previous fiscal year, updated under 
                        subparagraph (B).
                            ``(iii) For 2003, such amount (or amounts) 
                        shall be equal to the amount (or amounts) 
                        determined under this paragraph for fiscal year 
                        2002, updated under subparagraph (B) for 2003.
                            ``(iv) For 2004 and each subsequent year, 
                        such amount (or amounts) shall be equal to the 
                        amount (or amounts) determined under this 
                        paragraph for the previous year, updated under 
                        subparagraph (B).
                Each such amount shall be standardized in a manner that 
                eliminates the effect of variations in relative case 
                mix and area wage adjustments among different home 
                health agencies in a budget neutral manner consistent 
                with the case mix and wage level adjustments provided 
                under paragraph (4)(A). Under the system, the Secretary 
                may recognize regional differences or differences based 
                upon whether or not the services or agency are in an 
                urbanized area.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 501 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).

SEC. 602. UPDATE IN HOME HEALTH SERVICES.

    (a) Change to Calendar Year Update.--
            (1) In general.--Section 1895(b) (42 U.S.C. 1395fff(b)(3)) 
        is amended--
                    (A) in paragraph (3)(B)(i)--
                            (i) by striking ``each fiscal year 
                        (beginning with fiscal year 2002)'' and 
                        inserting ``fiscal year 2002 and for each 
                        subsequent year (beginning with 2003)''; and
                            (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                    (B) in paragraph (3)(B)(ii)--
                            (i) in subclause (II), by striking ``fiscal 
                        year'' and inserting ``year'' and by 
                        redesignating such subclause as subclause 
                        (III); and
                            (ii) in subclause (I), by striking ``each 
                        of fiscal years 2002 and 2003'' and inserting 
                        the following: ``fiscal year 2002, the home 
                        health market basket percentage increase (as 
                        defined in clause (iii)) minus 1.1 percentage 
                        points;
                                    ``(II) 2003'';
                    (C) in paragraph (3)(B)(iii), by inserting ``or 
                year'' after ``fiscal year'' each place it appears;
                    (D) in paragraph (3)(B)(iv)--
                            (i) by inserting ``or year'' after ``fiscal 
                        year'' each place it appears; and
                            (ii) by inserting ``or years'' after 
                        ``fiscal years''; and
                    (E) in paragraph (5), by inserting ``or year'' 
                after ``fiscal year''.
            (2) Transition rule.--The standard prospective payment 
        amount (or amounts) under section 1895(b)(3) of the Social 
        Security Act for the calendar quarter beginning on October 1, 
        2002, shall be such amount (or amounts) for the previous 
        calendar quarter.
    (b) Changes in Updates for 2003, 2004, and 2005.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(1)(B), is amended--
            (1) in subclause (II), by striking ``the home health market 
        basket percentage increase (as defined in clause (iii)) minus 
        1.1 percentage points'' and inserting ``2.0 percentage 
        points'';
            (2) by striking ``or'' at the end of subclause (II);
            (3) by redesignating subclause (III) as subclause (V); and
            (4) by inserting after subclause (II) the following new 
        subclause:
                                    ``(III) 2004, 1.1 percentage 
                                points;
                                    ``(IV) 2005, 2.7 percentage points; 
                                or''.
    (c) Payment Adjustment.--
            (1) In general.--Section 1895(b)(5) (42 U.S.C. 
        1395fff(b)(5)) is amended by striking ``5 percent'' and 
        inserting ``3 percent''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to years beginning with 2003.

SEC. 603. OASIS TASK FORCE; SUSPENSION OF CERTAIN OASIS DATA COLLECTION 
              REQUIREMENTS PENDING TASK FORCE SUBMITTAL OF REPORT.

    (a) Establishment.--The Secretary of Health and Human Services 
shall establish and appoint a task force (to be known as the ``OASIS 
Task Force'') to examine the data collection and reporting requirements 
under OASIS. For purposes of this section, the term ``OASIS'' means the 
Outcome and Assessment Information Set required by reason of section 
4602(e) of Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).
    (b) Composition.--The OASIS Task Force shall be composed of the 
following:
            (1) Staff of the Centers for Medicare & Medicaid Services 
        with expertise in post-acute care.
            (2) Representatives of home health agencies.
            (3) Health care professionals and research and health care 
        quality experts outside the Federal Government with expertise 
        in post-acute care.
            (4) Advocates for individuals requiring home health 
        services.
    (c) Duties.--
            (1) Review and recommendations.--The OASIS Task Force shall 
        review and make recommendations to the Secretary regarding 
        changes in OASIS to improve and simplify data collection for 
        purposes of--
                    (A) assessing the quality of home health services; 
                and
                    (B) providing consistency in classification of 
                patients into home health resource groups (HHRGs) for 
                payment under section 1895 of the Social Security Act 
                (42 U.S.C. 1395fff).
            (2) Specific items.--In conducting the review under 
        paragraph (1), the OASIS Task Force shall specifically 
        examine--
                    (A) the 41 outcome measures currently in use;
                    (B) the timing and frequency of data collection; 
                and
                    (C) the collection of information on comorbidities 
                and clinical indicators.
            (3) Report.--The OASIS Task Force shall submit a report to 
        the Secretary containing its findings and recommendations for 
        changes in OASIS by not later than 18 months after the date of 
        the enactment of this Act.
    (d) Sunset.--The OASIS Task Force shall terminate 60 days after the 
date on which the report is submitted under subsection (c)(2).
    (e) Nonapplication of FACA.--The provisions of the Federal Advisory 
Committee Act shall not apply to the OASIS Task Force.
    (f) Suspension of OASIS Requirement for Collection of Data on Non-
Medicare and Non-Medicaid Patients Pending Task Force Report.--
            (1) In general.--During the period described in paragraph 
        (2), the Secretary of Health and Human Services may not 
        require, under section 4602(e) of the Balanced Budget Act of 
        1997 or otherwise under OASIS, a home health agency to gather 
        or submit information that relates to an individual who is not 
        eligible for benefits under either title XVIII or title XIX of 
        the Social Security Act.
            (2) Period of suspension.--The period described in this 
        paragraph--
                    (A) begins on January 1, 2003, and
                    (B) ends on the last day of the 2nd month beginning 
                after the date the report is submitted under subsection 
                (c)(2).

SEC. 604. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

    (a) Study.--The Medicare Payment Advisory Commission shall conduct 
a study of payment margins of home health agencies under the home 
health prospective payment system under section 1895 of the Social 
Security Act (42 U.S.C. 1395fff). Such study shall examine whether 
systematic differences in payment margins are related to differences in 
case mix (as measured by home health resource groups (HHRGs)) among 
such agencies. The study shall use the partial or full-year cost 
reports filed by home health agencies.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to Congress a report on the 
study under subsection (a).

             Subtitle B--Direct Graduate Medical Education

SEC. 611. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
amended--
            (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
            (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and (G),''; and
            (3) by adding at the end the following new subparagraph:
                    ``(I) Redistribution of unused resident 
                positions.--
                            ``(i) Reduction in limit based on unused 
                        positions.--
                                    ``(I) In general.--If a hospital's 
                                resident level (as defined in clause 
                                (iii)(I)) is less than the otherwise 
                                applicable resident limit (as defined 
                                in clause (iii)(II)) for each of the 
                                reference periods (as defined in 
                                subclause (II)), effective for cost 
                                reporting periods beginning on or after 
                                January 1, 2003, the otherwise 
                                applicable resident limit shall be 
                                reduced by 75 percent of the difference 
                                between such limit and the reference 
                                resident level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                    ``(II) Reference periods defined.--
                                In this clause, the term `reference 
                                periods' means, for a hospital, the 3 
                                most recent consecutive cost reporting 
                                periods of the hospital for which cost 
                                reports have been settled (or, if not, 
                                submitted) on or before September 30, 
                                2001.
                                    ``(III) Reference resident level.--
                                Subject to subclause (IV), the 
                                reference resident level specified in 
                                this subclause for a hospital is the 
                                highest resident level for the hospital 
                                during any of the reference periods.
                                    ``(IV) Adjustment process.--Upon 
                                the timely request of a hospital, the 
                                Secretary may adjust the reference 
                                resident level for a hospital to be the 
                                resident level for the hospital for the 
                                cost reporting period that includes 
                                July 1, 2002.
                            ``(ii) Redistribution.--
                                    ``(I) In general.--The Secretary is 
                                authorized to increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate number 
                                estimated by the Secretary that does 
                                not exceed the aggregate reduction in 
                                such limits attributable to clause (i) 
                                (without taking into account any 
                                adjustment under subclause (IV) of such 
                                clause).
                                    ``(II) Effective date.--No increase 
                                under subclause (I) shall be permitted 
                                or taken into account for a hospital 
                                for any portion of a cost reporting 
                                period that occurs before July 1, 2003, 
                                or before the date of the hospital's 
                                application for an increase under this 
                                clause. No such increase shall be 
                                permitted for a hospital unless the 
                                hospital has applied to the Secretary 
                                for such increase by December 31, 2004.
                                    ``(III) Considerations in 
                                redistribution.--In determining for 
                                which hospitals the increase in the 
                                otherwise applicable resident limit is 
                                provided under subclause (I), the 
                                Secretary shall take into account the 
                                need for such an increase by specialty 
                                and location involved, consistent with 
                                subclause (IV).
                                    ``(IV) Priority for rural and small 
                                urban areas.--In determining for which 
                                hospitals and residency training 
                                programs an increase in the otherwise 
                                applicable resident limit is provided 
                                under subclause (I), the Secretary 
                                shall first distribute the increase to 
                                programs of hospitals located in rural 
                                areas or in urban areas that are not 
                                large urban areas (as defined for 
                                purposes of subsection (d)) on a first-
                                come-first-served basis (as determined 
                                by the Secretary) based on a 
                                demonstration that the hospital will 
                                fill the positions made available under 
                                this clause and not to exceed an 
                                increase of 25 full-time equivalent 
                                positions with respect to any hospital.
                                    ``(V) Application of locality 
                                adjusted national average per resident 
                                amount.--With respect to additional 
                                residency positions in a hospital 
                                attributable to the increase provided 
                                under this clause, notwithstanding any 
                                other provision of this subsection, the 
                                approved FTE resident amount is deemed 
                                to be equal to the locality adjusted 
                                national average per resident amount 
                                computed under subparagraph (E) for 
                                that hospital.
                                    ``(VI) Construction.--Nothing in 
                                this clause shall be construed as 
                                permitting the redistribution of 
                                reductions in residency positions 
                                attributable to voluntary reduction 
                                programs under paragraph (6) or as 
                                affecting the ability of a hospital to 
                                establish new medical residency 
                                training programs under subparagraph 
                                (H).
                            ``(iii) Resident level and limit defined.--
                        In this subparagraph:
                                    ``(I) Resident level.--The term 
                                `resident level' means, with respect to 
                                a hospital, the total number of full-
                                time equivalent residents, before the 
                                application of weighting factors (as 
                                determined under this paragraph), in 
                                the fields of allopathic and 
                                osteopathic medicine for the hospital.
                                    ``(II) Otherwise applicable 
                                resident limit.--The term `otherwise 
                                applicable resident limit' means, with 
                                respect to a hospital, the limit 
                                otherwise applicable under 
                                subparagraphs (F)(i) and (H) on the 
                                resident level for the hospital 
                                determined without regard to this 
                                subparagraph.''.
    (b) No Application of Increase to IME.--Section 1886(d)(5)(B)(v) 
(42 U.S.C. 1395ww(d)(5)(B)(v)) is amended by adding at the end the 
following: ``The provisions of clause (i) of subparagraph (I) of 
subsection (h)(4) shall apply with respect to the first sentence of 
this clause in the same manner as it applies with respect to 
subparagraph (F) of such subsection, but the provisions of clause (ii) 
of such subparagraph shall not apply.''.
    (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2004, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

SEC. 612. INCREASING FOR 5 YEARS TO 100 PERCENT OF THE LOCALITY 
              ADJUSTED NATIONAL AVERAGE PER RESIDENT AMOUNT THE PAYMENT 
              FLOOR FOR DIRECT GRADUATE MEDICAL EDUCATION PAYMENTS 
              UNDER THE MEDICARE PROGRAM.

    Section 1886(h)(2)(D)(iii) (42 U.S.C. 1395ww(h)(2)(D)(iii)), as 
amended by section 511 of BIPA, is amended--
            (1) by striking ``and'' after ``70 percent,''; and
            (2) by inserting after ``85 percent,'' the following: ``and 
        for cost reporting periods beginning during the period 
        beginning on October 1, 2002, and ending on September 31, 2007, 
        shall not be less than 100 percent,''.

                      Subtitle C--Other Provisions

SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
              (MEDPAC).

    (a) Examination of Budget Consequences.--Section 1805(b) (42 U.S.C. 
1395b-6(b)) is amended by adding at the end the following new 
paragraph:
            ``(8) Examination of budget consequences.--Before making 
        any recommendations, the Commission shall examine the budget 
        consequences of such recommendations, directly or through 
        consultation with appropriate expert entities.''.
    (b) Consideration of Efficient Provision of Services.--Section 
1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by 
inserting ``the efficient provision of'' after ``expenditures for''.
    (c) Additional Reports.--
            (1) Data needs and sources.--The Medicare Payment Advisory 
        Commission shall conduct a study, and submit a report to 
        Congress by not later than June 1, 2003, on the need for 
        current data, and sources of current data available, to 
        determine the solvency and financial circumstances of hospitals 
        and other medicare providers of services. The Commission shall 
        examine data on uncompensated care, as well as the sahre of 
        uncompensated care accounted for by the expenses for treating 
        illegal aliens.
            (2) Use of tax-related returns.--Using return information 
        provided under Form 990 of the Internal Revenue Service, the 
        Commission shall submit to Congress, by not later than June 1, 
        2003, a report on the following:
                    (A) Investments and capital financing of hospitals 
                participating under the medicare program and related 
                foundations.
                    (B) Access to capital financing for private and for 
                not-for-profit hospitals.

SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR CERTAIN 
              MEDICARE BENEFICIARIES WITH DIABETES.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the impact on costs and 
health outcomes of applying disease management to certain medicare 
beneficiaries with diagnosed diabetes. In no case may the number of 
participants in the project exceed 30,000 at any time.
    (b) Voluntary Participation.--
            (1) Eligibility.--Medicare beneficiaries are eligible to 
        participate in the project only if--
                    (a) they are Hispanic, as determined by the 
                Secretary;
                    (A) they meet specific medical criteria 
                demonstrating the appropriate diagnosis and the 
                advanced nature of their disease;
                    (B) their physicians approve of participation in 
                the project; and
                    (C) they are not enrolled in a Medicare+Choice 
                plan.
            (2) Benefits.--A medicare beneficiary who is enrolled in 
        the project shall be eligible--
                    (A) for disease management services related to 
                their diabetes; and
                    (B) for payment for all costs for prescription 
                drugs without regard to whether or not they relate to 
                the diabetes, except that the project may provide for 
                modest cost-sharing with respect to prescription drug 
                coverage.
    (c) Contracts With Disease Management Organizations.--
            (1) In general.--The Secretary of Health and Human Services 
        shall carry out the project through contracts with up to three 
        disease management organizations. The Secretary shall not enter 
        into such a contract with an organization unless the 
        organization demonstrates that it can produce improved health 
        outcomes and reduce aggregate medicare expenditures consistent 
        with paragraph (2).
            (2) Contract provisions.--Under such contracts--
                    (A) such an organization shall be required to 
                provide for prescription drug coverage described in 
                subsection (b)(2)(B);
                    (B) such an organization shall be paid a fee 
                negotiated and established by the Secretary in a manner 
                so that (taking into account savings in expenditures 
                under parts A and B of the medicare program under title 
                XVIII of the Social Security Act) there will be no net 
                increase, and to the extent practicable, there will be 
                a net reduction in expenditures under the medicare 
                program as a result of the project; and
                    (C) such an organization shall guarantee, through 
                an appropriate arrangement with a reinsurance company 
                or otherwise, the prohibition on net increases in 
                expenditures described in subparagraph (B).
            (3) Payments.--Payments to such organizations shall be made 
        in appropriate proportion from the Trust Funds established 
        under title XVIII of the Social Security Act.
            (4) Working group.--The Secretary shall establish within 
        the Department of Health and Human Services a working group 
        consisting of employees of the Department to carry out the 
        following:
                    (A) To oversee the project.
                    (B) To establish policy and criteria for medicare 
                disease management programs within the Department, 
                including the establishment of policy and criteria for 
                such programs.
                    (C) To identify targeted medical conditions and 
                targeted individuals.
                    (D) To select areas in which such programs are 
                carried out.
                    (E) To monitor health outcomes under such programs.
                    (F) To measure the effectiveness of such programs 
                in meeting any budget neutrality requirements.
                    (G) Otherwise to serve as a central focal point 
                within the Department for dissemination of information 
                on medicare disease management programs.
    (d) Application of Medigap Protections to Demonstration Project 
Enrollees.--(1) Subject to paragraph (2), the provisions of section 
1882(s)(3) (other than clauses (i) through (iv) of subparagraph (B)) 
and 1882(s)(4) of the Social Security Act shall apply to enrollment 
(and termination of enrollment) in the demonstration project under this 
section, in the same manner as they apply to enrollment (and 
termination of enrollment) with a Medicare+Choice organization in a 
Medicare+Choice plan.
    (2) In applying paragraph (1)--
            (A) any reference in clause (v) or (vi) of section 
        1882(s)(3)(B) of such Act to 12 months is deemed a reference to 
        the period of the demonstration project; and
            (B) the notification required under section 1882(s)(3)(D) 
        of such Act shall be provided in a manner specified by the 
        Secretary of Health and Human Services.
    (e) Duration.--The project shall last for not longer than 3 years.
    (f) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (c)(3).
    (g) Report.--The Secretary of Health and Human Services shall 
submit to Congress an interim report on the project not later than 2 
years after the date it is first implemented and a final report on the 
project not later than 6 months after the date of its completion. Such 
reports shall include information on the impact of the project on costs 
and health outcomes and recommendations on the cost-effectiveness of 
extending or expanding the project.
    (h) GAO Study on Disease Management Programs.--The Comptroller 
General of the United States shall conduct a study that compares 
disease management programs under title XVIII of the Social Security 
Act with such programs conducted in the private sector, including the 
prevalence of such programs and programs for case management. The study 
shall identify the cost-effectiveness of such programs and any savings 
achieved by such programs. The Comptroller General shall submit a 
report on such study to Congress by not later than 18 months after the 
date of the enactment of this Act.

SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

    (a) Establishment.--Subject to the succeeding provisions of this 
section, the Secretary of Health and Human Services shall establish a 
demonstration project (in this section referred to as the 
``demonstration project'') under which the Secretary shall, as part of 
a plan of an episode of care for home health services established for a 
medicare beneficiary, permit a medical adult day care facility or a 
home health agency, directly or under arrangements with a medical adult 
day care facility, to provide medical adult day care services as a 
substitute for a portion of home health services that would otherwise 
be provided in the beneficiary's home.
    (b) Payment.--
            (1) In general.--The amount of payment for an episode of 
        care for home health services, a portion of which consists of 
        substitute medical adult day care services, under the 
        demonstration project shall be made at a rate equal to 95 
        percent of the amount that would otherwise apply for such home 
        health services under section 1895 of the Social Security Act 
        (42 u.s.c. 1395fff). In no case may a a medical adult day care 
        facility or home health agency, or a medical adult day care 
        facility under arrangements with a home health agency, 
        separately charge a beneficiary for medical adult day care 
        services furnished under the plan of care.
            (2) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the Secretary shall 
        provide for an appropriate reduction in the aggregate amount of 
        additional payments made under section 1895 of the Social 
        Security Act (42 U.S.C. 1395fff) to reflect any increase in 
        amounts expended from the Trust Funds as a result of the 
        demonstration project conducted under this section.
    (c) Demonstration Project Sites.--The project established under 
this section shall be conducted in not more than 5 sites in States 
selected by the Secretary that license or certify providers of services 
that furnish medical adult day care services.
    (d) Duration.--The Secretary shall conduct the demonstration 
project for a period of 3 years.
    (e) Voluntary Participation.--Participation of medicare 
beneficiaries in the demonstration project shall be voluntary. The 
total number of such beneficiaries that may participate in the project 
at any given time may not exceed 15,000.
    (f) Preference in Selecting Agencies.--In selecting medical adult 
day care facilities and home health agencies to participate under the 
demonstration project, the Secretary shall give preference to those 
facilities and agencies that--
            (1) are currently licensed or certified to furnish medical 
        adult day care services; and
            (2) have furnished medical adult day care services to 
        medicare beneficiaries for a continuous 2-year period before 
        the beginning of the demonstration project.
    (g) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act as may be necessary for the 
purposes of carrying out the demonstration project, other than waiving 
the requirement that an individual be homebound in order to be eligible 
for benefits for home health services.
    (h) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the clinical and cost effectiveness of the demonstration 
project. Not later 30 months after the commencement of the project, the 
Secretary shall submit to Congress a report on the evaluation, and 
shall include in the report the following:
            (1) An analysis of the patient outcomes and costs of 
        furnishing care to the medicare beneficiaries participating in 
        the project as compared to such outcomes and costs to 
        beneficiaries receiving only home health services for the same 
        health conditions.
            (2) Such recommendations regarding the extension, 
        expansion, or termination of the project as the Secretary 
        determines appropriate.
    (i) Definitions.--In this section:
            (1) Home health agency.--The term ``home health agency'' 
        has the meaning given such term in section 1861(o) of the 
        Social Security Act (42 U.S.C. 1395x(o)).
            (2) Medical adult day care facility.--The term ``medical 
        adult day care facility'' means a facility that--
                    (A) has been licensed or certified by a State to 
                furnish medical adult day care services in the State 
                for a continuous 2-year period;
                    (B) is engaged in providing skilled nursing 
                services and other therapeutic services directly or 
                under arrangement with a home health agency;
                    (C) meets such standards established by the 
                Secretary to assure quality of care and such other 
                requirements as the Secretary finds necessary in the 
                interest of the health and safety of individuals who 
                are furnished services in the facility; and
                    (D) provides medical adult day care services.
            (3) Medical adult day care services.--The term ``medical 
        adult day care services'' means--
                    (A) home health service items and services 
                described in paragraphs (1) through (7) of section 
                1861(m) furnished in a medical adult day care facility;
                    (B) a program of supervised activities furnished in 
                a group setting in the facility that--
                            (i) meet such criteria as the Secretary 
                        determines appropriate; and
                            (ii) is designed to promote physical and 
                        mental health of the individuals; and
                    (C) such other services as the Secretary may 
                specify.
            (4) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual entitled to benefits under 
        part A of this title, enrolled under part B of this title, or 
        both.

SEC. 624. PUBLICATION ON FINAL WRITTEN GUIDANCE CONCERNING PROHIBITIONS 
              AGAINST DISCRIMINATION BY NATIONAL ORIGIN WITH RESPECT TO 
              HEALTH CARE SERVICES.

    Not later than January 1, 2003, the Secretary shall issue final 
written guidance concerning the application of the prohibition in title 
VI of the Civil Rights Act of 1964 against national origin 
discrimination as it affects persons with limited English proficiency 
with respect to access to health care services under the medicare 
program.

            TITLE VII--MEDICAID AND OTHER HEALTH PROVISIONS

                    Subtitle A--Medicaid Provisions

SEC. 701. DSH PROVISIONS.

    (a) Continuation of Medicaid DSH Allotment Adjustments under 
BIPA2000.--
            (1) In general.--Section 1923(f) (42 U.S.C. 1396r-4(f))--
                    (A) in paragraph (2)--
                            (i) in the heading, by striking ``through 
                        2002'' and inserting ``through 2000'';
                            (ii) by striking ``ending with fiscal year 
                        2002'' and inserting ``ending with fiscal year 
                        2000''; and
                            (iii) in the table in such paragraph, by 
                        striking the columns labeled ``FY 01'' and 
                        ``FY02'';
                    (B) in paragraph (3)(A), by striking ``paragraph 
                (2)'' and inserting ``paragraph (4)''; and
                    (C) in paragraph (4), as added by section 701(a)(1) 
                of BIPA--
                            (i) by striking ``for fiscal years 2001 and 
                        2002'' in the heading;
                            (ii) in subparagraph (A), by striking 
                        ``Notwithstanding paragraph (2), the'' and 
                        inserting ``The'';
                            (iii) in subparagraph (C)--
                                    (I) by striking ``No application'' 
                                and inserting ``Application''; and
                                    (II) by striking ``without regard 
                                to'' and inserting ``taking into 
                                account''.
            (2) Increase in medicaid dsh allotment for the district of 
        columbia.--
                    (A) In general.--Effective for DSH allotments 
                beginning with fiscal year 2002, the item in the table 
                contained in section 1923(f)(2) of the Social Security 
                Act (42 U.S.C. 1396r-4(f)(2)) for the District of 
                Columbia for the DSH allotment for FY 00 (fiscal year 
                2000) is amended by striking ``32'' and inserting 
                ``49''.
                    (B) Construction.--Nothing in subparagraph (A) 
                shall be construed as preventing the application of 
                section 1923(f)(4) of the Social Security Act (as 
                amended by subsection (a)) to the District of Columbia 
                for fiscal year 2002 and subsequent fiscal years.
    (b) Increase in Floor for Treatment As an Extremely Low Dsh State 
to 3 Percent in Fiscal Year 2002.--
            (1) Increase in dsh floor.--Section 1923(f)(5) (42 U.S.C. 
        1396r-4(f)(5)) is amended--
                    (A) by striking ``fiscal year 1999'' and inserting 
                ``fiscal year 2001'';
                    (B) by striking ``August 31, 2000'' and inserting 
                ``August 31, 2002'';
                    (C) by striking ``1 percent'' each place it appears 
                and inserting ``3 percent''; and
                    (D) by striking ``fiscal year 2001'' and inserting 
                ``fiscal year 2003''.
            (2) Effective date.--The amendments made by paragraph (1) 
        take effect on October 1, 2002, and apply to DSH allotments 
        under title XIX of the Social Security Act for fiscal year 2003 
        and each fiscal year thereafter.

SEC. 702. 1-YEAR EXTENSION OF Q-I1 PROGRAM.

    Section 1902(a)(10)(E)(E)(iv) (42 U.S.C. 1396a(a)(10)(E)(E)(iv)) is 
amended by striking ``2002'' and inserting ``2003''.

                    Subtitle B--Internet Pharmacies

SEC. 711. INTERNET SALES OF PRESCRIPTION DRUGS.

    (a) In General.--Chapter 5 of the Federal Food, Drug, and Cosmetic 
Act (21 U.S.C. 351 et seq.) is amended by inserting after section 503A 
the following section:

``SEC. 503B. INTERNET SALES OF PRESCRIPTION DRUGS.

    ``(a) Requirements Regarding Information on Internet Site.--
            ``(1) In general.--A person may not dispense a prescription 
        drug pursuant to a sale of the drug by such person if--
                    ``(A) the purchaser of the drug submitted the 
                purchase order for the drug, or conducted any other 
                part of the sales transaction for the drug, through an 
                Internet site; and
                    ``(B) such site, or any other Internet site used by 
                such person for purposes of sales of a prescription 
                drug, fails to meet each of the requirements specified 
                in paragraph (2) (other than a site or pages on a site 
                that are not intended to be accessed by purchasers or 
                prospective purchasers).
            ``(2) Requirements.--With respect to an Internet site, the 
        requirements referred to in subparagraph (B) of paragraph (1) 
        for a person to whom such paragraph applies are as follows:
                    ``(A) Each page of the site shall include either 
                the following information or a link to a page that 
                provides the following information:
                            ``(i) The name of such person; the address 
                        of the principal place of business of the 
                        person with respect to sales of prescription 
                        drugs through the Internet; and the telephone 
                        number for such place of business.
                            ``(ii) Each State in which the person is 
                        authorized by law to dispense prescription 
                        drugs.
                            ``(iii) The name of each individual who 
                        serves as a pharmacist for purposes of the 
                        site, and each State in which the individual is 
                        authorized by law to dispense prescription 
                        drugs.
                            ``(iv) If the person provides for medical 
                        consultations through the site for purposes of 
                        providing prescriptions, the name of each 
                        individual who provides such consultations; 
                        each State in which the individual is licensed 
                        or otherwise authorized by law to provide such 
                        consultations; and the type or types of health 
                        professions for which the individual holds such 
                        licenses or other authorizations.
                    ``(B) A link to which paragraph (1) applies shall 
                be clearly visible on the page involved, shall not be 
                of a size smaller than other links on the page (if 
                any), and shall include in the caption for the link the 
                words `licensing and contact information'.
    ``(b) Internet Sales Without Appropriate Medical Relationships.--
            ``(1) In general.--A person may not dispense a prescription 
        drug, or arrange the dispensing of such a drug, pursuant to a 
        sale of the drug if--
                    ``(A) for purposes of such sale, the purchaser 
                communicated with the person through the Internet;
                    ``(B) the patient for whom the drug was purchased 
                did not, when such communications began, have a 
                prescription for the drug;
                    ``(C) pursuant to such communications, the person 
                provided for the involvement of a practitioner and the 
                practitioner issued a prescription for the drug that 
                was purchased;
                    ``(D) the person knew, or had reason to know, that 
                the practitioner did not, when issuing the 
                prescription, have a qualifying medical relationship 
                with the patient; and
                    ``(E)(i) the person received payment for the drug 
                from the purchaser; or
                    ``(ii) in the case of arranging the dispensing of 
                the drug, the person received payment for doing so from 
                the person who dispensed the drug.
        For purposes of subparagraph (E), payment is received if money 
        or other valuable consideration is received.
            ``(2) Qualifying medical relationship.--
                    ``(A) In general.--With respect to issuing a 
                prescription for a drug for a patient, a practitioner 
                has a qualifying medical relationship with the patient 
                for purposes of this section if at least one in-person 
                medical evaluation of the patient has been conducted by 
                the practitioner. This subparagraph and subparagraph 
                (B) may not be construed as having any applicability 
                beyond this section.
                    ``(B) In-person medical evaluation.--A medical 
                evaluation by a practitioner is an in-person medical 
                evaluation for purposes of this section if the 
                practitioner is in the physical presence of the patient 
                as part of conducting the evaluation, without regard to 
                whether portions of the evaluation are conducted by 
                other health professionals.
    ``(c) Actions by States.--
            ``(1) In general.--Whenever an attorney general of any 
        State has reason to believe that the interests of the residents 
        of that State have been or are being threatened or adversely 
        affected because any person has engaged or is engaging in a 
        pattern or practice that violates section 301(l), the State may 
        bring a civil action on behalf of its residents in an 
        appropriate district court of the United States to enjoin such 
        practice, to enforce compliance with such section (including a 
        nationwide injunction), to obtain damages, restitution, or 
        other compensation on behalf of residents of such State, to 
        obtain reasonable attorneys fees and costs if the State 
        prevails in the civil action, or to obtain such further and 
        other relief as the court may deem appropriate.
            ``(2) Notice.--The State shall serve prior written notice 
        of any civil action under paragraph (1) or (5)(B) upon the 
        Secretary and provide the Secretary with a copy of its 
        complaint, except that if it is not feasible for the State to 
        provide such prior notice, the State shall serve such notice 
        immediately upon instituting such action. Upon receiving a 
        notice respecting a civil action, the Secretary shall have the 
        right--
                    ``(A) to intervene in such action;
                    ``(B) upon so intervening, to be heard on all 
                matters arising therein; and
                    ``(C) to file petitions for appeal.
            ``(3) Construction.--For purposes of bringing any civil 
        action under paragraph (1), nothing in this chapter shall 
        prevent an attorney general of a State from exercising the 
        powers conferred on the attorney general by the laws of such 
        State to conduct investigations or to administer oaths or 
        affirmations or to compel the attendance of witnesses or the 
        production of documentary and other evidence.
            ``(4) Venue; service of process.--Any civil action brought 
        under paragraph (1) in a district court of the United States 
        may be brought in the district in which the defendant is found, 
        is an inhabitant, or transacts business or wherever venue is 
        proper under section 1391 of title 28, United States Code. 
        Process in such an action may be served in any district in 
        which the defendant is an inhabitant or in which the defendant 
        may be found.
            ``(5) Actions by other state officials.--
                    ``(A) Nothing contained in this section shall 
                prohibit an authorized State official from proceeding 
                in State court on the basis of an alleged violation of 
                any civil or criminal statute of such State.
                    ``(B) In addition to actions brought by an attorney 
                general of a State under paragraph (1), such an action 
                may be brought by officers of such State who are 
                authorized by the State to bring actions in such State 
                on behalf of its residents.
    ``(d) Definitions.--
            ``(1) Internet-related definitions.--For purposes of this 
        section:
                    ``(A) The term `Internet' means collectively the 
                myriad of computer and telecommunications facilities, 
                including equipment and operating software, which 
                comprise the interconnected world-wide network of 
                networks that employ the transmission control protocol/
                internet protocol, or any predecessor or successor 
                protocols to such protocol, to communicate information 
                of all kinds by wire or radio.
                    ``(B) The term `link', with respect to the 
                Internet, means one or more letters, words, numbers, 
                symbols, or graphic items that appear on a page of an 
                Internet site for the purpose of serving, when 
                activated, as a method for executing an electronic 
                command--
                            ``(i) to move from viewing one portion of a 
                        page on such site to another portion of the 
                        page;
                            ``(ii) to move from viewing one page on 
                        such site to another page on such site; or
                            ``(iii) to move from viewing a page on one 
                        Internet site to a page on another Internet 
                        site.
                    ``(C) The term `page', with respect to the 
                Internet, means a document or other file accessed at an 
                Internet site.
                    ``(D)(i) The terms `site' and `address', with 
                respect to the Internet, mean a specific location on 
                the Internet that is determined by Internet Protocol 
                numbers. Such term includes the domain name, if any.
                    ``(ii) The term `domain name' means a method of 
                representing an Internet address without direct 
                reference to the Internet Protocol numbers for the 
                address, including methods that use designations such 
                as `.com', `.edu', `.gov', `.net', or `.org'.
                    ``(iii) The term `Internet Protocol numbers' 
                includes any successor protocol for determining a 
                specific location on the Internet.
            ``(2) Other definitions.--For purposes of this section:
                    ``(A) The term `practitioner', with respect to the 
                issuance of a prescription for a drug for a patient, 
                means--
                            ``(i) an individual authorized by law to 
                        administer the drug; or
                            ``(ii) an individual who is not so 
                        authorized but represents himself or herself as 
                        an individual who is so authorized.
                    ``(B) The term `prescription drug' means a drug 
                that is subject to section 503(b).
                    ``(C) The term `qualifying medical relationship', 
                with respect to a practitioner and a patient, has the 
                meaning indicated for such term in subsection (b).''.
    (b) Inclusion as Prohibited Act.--Section 301 of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 331) is amended by inserting after 
paragraph (k) the following:
    ``(l) The dispensing of a prescription drug in violation of section 
503B, or arranging for the dispensing of such a drug in violation of 
such section.''.

SEC. 712. INTERNET SALES OF PRESCRIPTION DRUGS; CONSIDERATION BY 
              SECRETARY OF PRACTICES AND PROCEDURES FOR CERTIFICATION 
              OF LEGITIMATE BUSINESSES.

    In carrying out section 503B of the Federal Food, Drug, and 
Cosmetic Act (as added by section 711 of this Act), the Secretary of 
Health and Human Services shall take into consideration the practices 
and procedures of public or private entities that certify that 
businesses selling prescription drugs through Internet sites are 
legitimate businesses, including practices and procedures regarding 
disclosure formats and verification programs.

SEC. 713. EFFECTIVE DATE.

    The amendments made by section 711 take effect upon the expiration 
of the 60-day period beginning on the date of the enactment of this 
Act, without regard to whether a final rule to implement such 
amendments has been promulgated by the Secretary of Health and Human 
Services under section 701(a) of the Federal Food, Drug, and Cosmetic 
Act. The preceding sentence may not be construed as affecting the 
authority of such Secretary to promulgate such a final rule.

                 Subtitle C--Treatment of Rare Diseases

SEC. 721. NIH OFFICE OF RARE DISEASES AT NATIONAL INSTITUTES OF HEALTH.

    Title IV of the Public Health Service Act (42 U.S.C. 281 et seq.), 
as amended by Public Law 107-84, is amended by inserting after section 
404E the following:

                       ``office of rare diseases

    ``Sec. 404F. (a) Establishment.--There is established within the 
Office of the Director of NIH an office to be known as the Office of 
Rare Diseases (in this section referred to as the `Office'), which 
shall be headed by a Director (in this section referred to as the 
`Director'), appointed by the Director of NIH.
    ``(b) Duties.--
            ``(1) In general.--The Director of the Office shall carry 
        out the following:
                    ``(A) The Director shall recommend an agenda for 
                conducting and supporting research on rare diseases 
                through the national research institutes and centers. 
                The agenda shall provide for a broad range of research 
                and education activities, including scientific 
                workshops and symposia to identify research 
                opportunities for rare diseases.
                    ``(B) The Director shall, with respect to rare 
                diseases, promote coordination and cooperation among 
                the national research institutes and centers and 
                entities whose research is supported by such 
                institutes.
                    ``(C) The Director, in collaboration with the 
                directors of the other relevant institutes and centers 
                of the National Institutes of Health, may enter into 
                cooperative agreements with and make grants for 
                regional centers of excellence on rare diseases in 
                accordance with section 404G.
                    ``(D) The Director shall promote the sufficient 
                allocation of the resources of the National Institutes 
                of Health for conducting and supporting research on 
                rare diseases.
                    ``(E) The Director shall promote and encourage the 
                establishment of a centralized clearinghouse for rare 
                and genetic disease information that will provide 
                understandable information about these diseases to the 
                public, medical professionals, patients and families.
                    ``(F) The Director shall biennially prepare a 
                report that describes the research and education 
                activities on rare diseases being conducted or 
                supported through the national research institutes and 
                centers, and that identifies particular projects or 
                types of projects that should in the future be 
                conducted or supported by the national research 
                institutes and centers or other entities in the field 
                of research on rare diseases.
                    ``(G) The Director shall prepare the NIH Director's 
                annual report to Congress on rare disease research 
                conducted by or supported through the national research 
                institutes and centers.
            ``(2) Principal advisor regarding orphan diseases.--With 
        respect to rare diseases, the Director shall serve as the 
        principal advisor to the Director of NIH and shall provide 
        advice to other relevant agencies. The Director shall provide 
        liaison with national and international patient, health and 
        scientific organizations concerned with rare diseases.
    ``(c) Definition.--For purposes of this section, the term `rare 
disease' means any disease or condition that affects less than 200,000 
persons in the United States.
    ``(d) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated such sums as 
already have been appropriated for fiscal year 2002, and $4,000,000 for 
each of the fiscal years 2003 through 2006.''.

SEC. 722. RARE DISEASE REGIONAL CENTERS OF EXCELLENCE.

    Title IV of the Public Health Service Act (42 U.S.C. 281 et seq.), 
as amended by section 721, is further amended by inserting after 
section 404F the following:

             ``rare disease regional centers of excellence

    ``Sec. 404G. (a) Cooperative Agreements and Grants.--
            ``(1) In general.--The Director of the Office of Rare 
        Diseases (in this section referred to as the `Director'), in 
        collaboration with the directors of the other relevant 
        institutes and centers of the National Institutes of Health, 
        may enter into cooperative agreements with and make grants to 
        public or private nonprofit entities to pay all or part of the 
        cost of planning, establishing, or strengthening, and providing 
        basic operating support for regional centers of excellence for 
        clinical research into, training in, and demonstration of 
        diagnostic, prevention, control, and treatment methods for rare 
        diseases.
            ``(2) Policies.--A cooperative agreement or grant under 
        paragraph (1) shall be entered into in accordance with policies 
        established by the Director of NIH.
    ``(b) Coordination With Other Institutes.--The Director shall 
coordinate the activities under this section with similar activities 
conducted by other national research institutes, centers and agencies 
of the National Institutes of Health and by the Food and Drug 
Administration to the extent that such institutes, centers and agencies 
have responsibilities that are related to rare diseases.
    ``(c) Uses for Federal Payments Under Cooperative Agreements or 
Grants.--Federal payments made under a cooperative agreement or grant 
under subsection (a) may be used for--
            ``(1) staffing, administrative, and other basic operating 
        costs, including such patient care costs as are required for 
        research;
            ``(2) clinical training, including training for allied 
        health professionals, continuing education for health 
        professionals and allied health professions personnel, and 
        information programs for the public with respect to rare 
        diseases; and
            ``(3) clinical research and demonstration programs.
    ``(d) Period of Support; Additional Periods.--Support of a center 
under subsection (a) may be for a period of not to exceed 5 years. Such 
period may be extended by the Director for additional periods of not 
more than 5 years if the operations of such center have been reviewed 
by an appropriate technical and scientific peer review group 
established by the Director and if such group has recommended to the 
Director that such period should be extended.
    ``(e) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated such sums as 
already have been appropriated for fiscal year 2002, and $20,000,000 
for each of the fiscal years 2003 through 2006.''.

             Subtitle D--Other Provisions Relating to Drugs

SEC. 731. GAO STUDY REGARDING DIRECT-TO-CONSUMER ADVERTISING OF 
              PRESCRIPTION DRUGS.

    (a) In General.--The Comptroller General of the United States shall 
conduct a study for the purpose of determining--
            (1) whether and to what extent there have been increases in 
        utilization rates of prescription drugs that are attributable 
        to guidance regarding direct-to-consumer advertising of such 
        drugs that has been issued by the Food and Drug Administration 
        under section 502(n) of the Federal Food, Drug, and Cosmetic 
        Act; and
            (2) if so, whether and to what extent such increased 
        utilization rates have resulted in increases in the costs of 
        public or private health plans, health insurance, or other 
        health programs.
    (b) Certain Determinations.--The study under subsection (a) shall 
include determinations of the following:
            (1) The extent to which advertisements referred to in such 
        subsection have resulted in effective consumer education about 
        the prescription drugs involved, including an understanding of 
        the risks of the drugs relative to the benefits.
            (2) The extent of consumer satisfaction with such 
        advertisements.
            (3) The extent of physician satisfaction with the 
        advertisements, including determining whether physicians 
        believe that the advertisements interfere with the exercise of 
        their medical judgment by influencing consumers to prefer 
        advertised drugs over alternative therapies.
            (4) The extent to which the advertisements have resulted in 
        increases in health care costs for taxpayers, for employers, or 
        for consumers due to consumer decisions to seek advertised 
        drugs rather than lower-costs alternative therapies.
            (5) The extent to which the advertisements have resulted in 
        decreases in health care costs for taxpayers, for employers, or 
        for consumers due to decreased hospitalization rates, fewer 
        physician visits (not related to hospitalization), lower 
        treatment costs, or reduced instances of employee absences to 
        care for family members with diseases or disorders.
    (c) Report.--Not later than two years after the date of the 
enactment of this Act, the Comptroller General of the United States 
shall submit to the Congress a report providing the findings of the 
study under subsection (a).

SEC. 732. CERTAIN HEALTH PROFESSIONS PROGRAMS REGARDING PRACTICE OF 
              PHARMACY.

    Part E of title VII of the Public Health Service Act (42 U.S.C. 
294n et seq.) is amended by adding at the end the following subpart:

               ``Subpart 3--Pharmacist Workforce Programs

``SEC. 771. PUBLIC SERVICE ANNOUNCEMENTS.

    ``(a) Public Service Announcements.--
            ``(1) In general.--The Secretary shall develop and issue 
        public service announcements that advertise and promote the 
        pharmacist profession, highlight the advantages and rewards of 
        being a pharmacist, and encourage individuals to enter the 
        pharmacist profession.
            ``(2) Method.--The public service announcements described 
        in subsection (a) shall be broadcast through appropriate media 
        outlets, including television or radio, in a manner intended to 
        reach as wide and diverse an audience as possible.
    ``(b) State and Local Public Service Announcements.--
            ``(1) In general.--The Secretary shall award grants to 
        entities to support State and local advertising campaigns 
        through appropriate media outlets to promote the pharmacist 
        profession, highlight the advantages and rewards of being a 
        pharmacist, and encourage individuals from disadvantaged 
        backgrounds to enter the pharmacist profession.
            ``(2) Use of funds.--An entity that receives a grant under 
        subsection (a) shall use funds received through such grant to 
        acquire local television and radio time, place advertisements 
        in local newspapers, and post information on billboards or on 
        the Internet, in order to--
                    ``(A) advertise and promote the pharmacist 
                profession;
                    ``(B) promote pharmacist education programs;
                    ``(C) inform the public of public assistance 
                regarding such education programs;
                    ``(D) highlight individuals in the community that 
                are presently practicing as pharmacists to recruit new 
                pharmacists; and
                    ``(E) provide any other information to recruit 
                individuals for the pharmacist profession.
            ``(3) Method.--The campaigns described in subsection (a) 
        shall be broadcast on television or radio, placed in newspapers 
        as advertisements, or posted on billboards or the Internet, in 
        a manner intended to reach as wide and diverse an audience as 
        possible.

``SEC. 772. DEMONSTRATION PROJECT.

    ``(a) In General.--The Secretary shall establish a demonstration 
project to enhance the participation of individuals who are pharmacists 
in the National Health Service Corps Loan Repayment Program described 
in section 338B.
    ``(b) Services.--Services that may be provided by pharmacists 
pursuant to the demonstration project established under this section 
include medication therapy management services to assure that 
medications are used appropriately by patients, to enhance patients' 
understanding of the appropriate use of medications, to increase 
patients' adherence to prescription medication regimens, to reduce the 
risk of adverse events associated with medications, and to reduce the 
need for other costly medical services through better management of 
medication therapy. Such services may include case management, disease 
management, drug therapy management, patient training and education, 
counseling, drug therapy problem resolution, medication administration, 
the provision of special packaging, or other services that enhance the 
use of prescription medications.
    ``(c) Procedure.--The Secretary may not provide assistance to an 
individual under this section unless the individual agrees to comply 
with all requirements described in sections 338B and 338E.
    ``(d) Limitations.--The demonstration project described in this 
section shall provide for the participation of--
            ``(1) individuals to provide services in rural and urban 
        areas; and
            ``(2) enough individuals to allow the Secretary to properly 
        analyze the effectiveness of such project.
    ``(e) Designations.--The demonstration project described in this 
section, and any pharmacists who are selected to participate in such 
project, shall not be considered by the Secretary in the designation of 
a health professional shortage area under section 332 during fiscal 
years 2003 through 2005.
    ``(f) Rule of Construction.--This section shall not be construed to 
require any State to participate in the project described in this 
section.
    ``(g) Report.--The Secretary shall prepare and submit a report on 
the project to--
            ``(1) the Committee on Health, Education, Labor, and 
        Pensions of the Senate;
            ``(2) the Subcommittee on Labor, Health and Human Services, 
        and Education of the Committee on Appropriations of the Senate;
            ``(3) the Committee on Energy and Commerce of the House of 
        Representatives; and
            ``(4) the Subcommittee on Labor, Health and Human Services, 
        and Education of the Committee on Appropriations of the House 
        of Representatives.

``SEC. 773. INFORMATION TECHNOLOGY.

    ``(a) Grants and Contracts.--The Secretary may make awards of 
grants or contracts to qualifying schools of pharmacy for the purpose 
of assisting such schools in acquiring and installing computer-based 
systems to provide pharmaceutical education. Education provided through 
such systems may be graduate education, professional education, or 
continuing education. The computer-based systems may be designed to 
provide on-site education, or education at remote sites (commonly 
referred to as distance learning), or both.
    ``(b) Qualifying School of Pharmacy.--For purposes of this section, 
the term `qualifying school of pharmacy' means a school of pharmacy (as 
defined in section 799B) that requires students to serve in a clinical 
rotation in which pharmacist services are part of the curriculum.

``SEC. 774. AUTHORIZATION OF APPROPRIATIONS.

    ``For the purpose of carrying out this subpart, there are 
authorized to be appropriated such sums as may be necessary for each of 
the fiscal years 2003 through 2006.''.
                                 <all>