[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 803 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 803

 To amend title XVIII of the Social Security Act to make the Medicare 
 Program more competitive and efficient, to extend the solvency of the 
Medicare Program, to provide for a prescription drug benefit under the 
    Medicare Program, to improve quality of care, to make medicare 
    supplemental insurance (Medigap) more affordable, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 28, 2001

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

_______________________________________________________________________

                                 A BILL


 
 To amend title XVIII of the Social Security Act to make the Medicare 
 Program more competitive and efficient, to extend the solvency of the 
Medicare Program, to provide for a prescription drug benefit under the 
    Medicare Program, to improve quality of care, to make medicare 
    supplemental insurance (Medigap) more affordable, and for other 
                               purposes.

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

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

    (a) Short Title.--This Act may be cited as the ``Medicare 
Modernization and Solvency Act of 2001''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in 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) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; references in act; table of contents.
        TITLE I--MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT

                Subtitle A--Competitive Defined Benefit

Sec. 101. Competitive defined benefit.
        Subtitle B--Medicare Fee for Service Quality Improvement

Sec. 111. Care coordination services.
Sec. 112. Establishment of medicare home health care case managers for 
                            long term home health spells of illness.
Sec. 113. Additional payment amount to rural providers of services who 
                            furnish preventive and case manager 
                            services.
Sec. 114. Disease management services.
Sec. 115. Provider and physician collaboration to furnish a bundled, 
                            coordinated set of services.
Sec. 116. Demonstration projects to increase quality of information 
                            provided to medicare beneficiaries with 
                            respect to treatment options.
Sec. 117. Administration of certain private sector purchasing and 
                            quality improvement programs.
Sec. 118. Reports to Congress on private sector purchasing and quality 
                            improvement programs.
 Subtitle C--Immediate and Long-Term Payment Reforms for Medicare Fee 
                              for Service

Sec. 121. Competitive acquisition of items and services.
Sec. 122. Preferred participants.
Sec. 123. Program to improve outcomes and reduce patient morbidity and 
                            mortality.
Sec. 124. Authority to impose sustainable growth rate limitations on 
                            payment for certain medicare items and 
                            services.
Sec. 125. Authority to negotiate payment rates in certain areas (most 
                            favored customer authority) and expand 
                            inherent reasonableness authority.
Sec. 126. Authorization of basing medicare payment for hospital 
                            outpatient department services on payment 
                            rates for similar services provided outside 
                            the hospital setting.
Sec. 127. Medicare single, unified prospective payment system for post-
                            care hospital services.
Sec. 128. Medicare payment adjustment to reflect deviations from 
                            generally accepted practice in overserving 
                            or underserving medicare beneficiaries.
Sec. 129. Promoting the use of cost effective medicare noninstitutional 
                            services through waiver of benefit 
                            limitations.
Sec. 130. Increased flexibility in contracting for medicare claims 
                            processing.
Sec. 131. Special provisions for funding of activities related to 
                            certain overpayment recoveries and provider 
                            enrollment and reverification of 
                            eligibility.
Sec. 132. Establishment of medicare administrative fee for submission 
                            of paper claims.
               Subtitle D--Long-Term Hospital Provisions

Sec. 141. Findings and purposes of subtitle.
Sec. 142. Reductions in medicare capital payments in case of excess bed 
                            supply in hospitals without a plan of 
                            adjustment.
Sec. 143. Special payments to essential hospitals and development of 
                            economic recovery plan.
Sec. 144. Uniform hospital cost reporting.
Sec. 145. Medicare payments for inpatient hospital services involving 
                            emergency care; National Conference on 
                            Emergency Care.
                TITLE II--MODERNIZING MEDICARE BENEFITS

                 Subtitle A--Prescription Drug Benefit

Sec. 201. Optional medicare outpatient prescription medicine program 
                            under title XVIII.
   ``Part D--Prescription Medicine Benefit for the Aged and Disabled

        ``Sec. 1859. Eligibility; optional enrollment; coverage.
        ``Sec. 1859A. Benefits.
        ``Sec. 1859B. Premiums.
        ``Sec. 1859C. Federal Medicare Prescription Medicine Trust 
                            Fund.
        ``Sec. 1859D. Administration; quality assurance.
        ``Sec. 1859E. Compensation for employers covering retiree 
                            medicine costs.
        ``Sec. 1859F. Promotion of pharmaceutical research on break-
                            through medicines while providing program 
                            cost containment.
        ``Sec. 1859G. Coordination with comprehensive State 
                            prescription drug programs.
Sec. 202. Provision of medicare outpatient prescription drug coverage 
                            under the Medicare+Choice program.
Sec. 203. Transitional assistance for low income beneficiaries.
Sec. 204. Medigap revisions.
Sec. 205. Rate reduction for medicare eligible Federal annuitants.
Sec. 206. Part B payment for outpatient drugs based on actual 
                            acquisition cost.
Sec. 207. Coverage of home infusion drug therapy services.
Sec. 208. Expansion of membership of MedPAC to 19.
Sec. 209. GAO ongoing studies and reports on program; miscellaneous 
                            reports.
         Subtitle B--Improving Benefits and Preventive Services

Sec. 221. Authority to provide preventive services under part B of the 
                            medicare program.
Sec. 222. Smoking cessation demonstration.
Sec. 223. Outreach to prevent blindness.
Sec. 224. Coverage of substitute adult day care services under 
                            medicare.
    Subtitle C--Rationalizing Payments and Cost Sharing and Medigap

Sec. 231. Extension of buy-down of copayment on hospital outpatient 
                            services.
Sec. 232. Indexing deductible to inflation.
Sec. 233. Medicare direct supplemental insurance option.
Sec. 234. Increasing access to medigap for disabled and ESRD 
                            beneficiaries.
      Subtitle D--Improved Assistance to Low-Income Beneficiaries

Sec. 241. Increase in slmb eligibility to 135 percent of poverty; 
                            presumptive enrollment.
Sec. 242. Mechanism promoting provision of medicare cost-sharing 
                            assistance to individuals who become 
                            eligible for such assistance.
           Subtitle E--Medicare Early Access and Tax Credits

 Part I--Access to Medicare Benefits for Individuals 62-to-65 Years of 
                                  Age

Sec. 251. Access to medicare benefits for individuals 62-to-65 years of 
                            age.
 ``Part E--Purchase of Medicare Benefits by Certain Individuals Age 62-
                           to-65 Years of Age

        ``Sec. 1860. Program benefits; eligibility.
        ``Sec. 1860A. Enrollment process; coverage.
        ``Sec. 1860B. Premiums.
        ``Sec. 1860C. Payment of premiums.
        ``Sec. 1860D. Medicare early access trust fund.
        ``Sec. 1860E. Oversight and accountability.
        ``Sec. 1860F. Administration and miscellaneous.
  Part II--Access to Medicare Benefits for Displaced Workers 55-to-62 
                              Years of Age

Sec. 252. Access to medicare benefits for displaced workers 55-to-62 
                            years of age.
subpart a--amendments to the employee retirement income security act of 
                                  1974
Sec. 253. Cobra continuation benefits for certain retired workers who 
         subpart b--amendments to the public health service act
Sec. 254. Cobra continuation benefits for certain retired workers who 
       subpart c--amendments to the internal revenue code of 1986
Sec. 255. Cobra continuation benefits for certain retired workers who 
                            lose retiree health coverage.
   Part IV--50 Percent Credit Against Income Tax for Medicare Buy-in 
     Premiums and for Certain Cobra Continuation Coverage Premiums

Sec. 256. 50 percent credit for medicare buy-in premiums and for 
                            certain cobra continuation coverage 
                            premiums.
         TITLE III--PROTECTING AND EXTENDING MEDICARE SOLVENCY

  Subtitle A--Dedication of 20 Percent of Projected Budget Surplus to 
                                Medicare

Sec. 301. Transfers to extend medicare solvency.
Sec. 302. Medicare solvency debt reduction reserve.
Sec. 303. Protection of medicare solvency debt reduction reserve.
                    Subtitle B--Additional Revenues

Sec. 311. Increased Federal excise taxes on tobacco products.
Sec. 312. Tobacco settlement deposit.
Sec. 313. Excess profits from medicare tax.
Sec. 314. Medicare part B percent subsidy included in gross income.
Sec. 315. Dedication of Federal estate and gift tax receipts, tobacco 
                            tax receipts, and other revenues to 
                            Medicare.

        TITLE I--MAKING MEDICARE MORE COMPETITIVE AND EFFICIENT

                Subtitle A--Competitive Defined Benefit

SEC. 101. COMPETITIVE DEFINED BENEFIT.

    (a) Payments to Medicare+Choice Organizations Based on Risk-
Adjusted Bids.--
            (1) In general.--Section 1853(a)(1) (42 U.S.C. 1395w-
        23(a)(1)) is amended by striking ``the Secretary shall make'' 
        and all that follows and inserting ``the Secretary shall make, 
        to each Medicare+Choice organization, with respect to coverage 
        of an individual for a month under this part in a 
        Medicare+Choice payment area, separate monthly payments with 
        respect to benefits under parts A and B combined, and (as 
        applicable) with respect to benefits under part D, as 
        determined in accordance with this section.''.
            (2) Annual determination and announcement of payment 
        factors.--
                    (A) In general.--Section 1853(b) (42 U.S.C. 1395w-
                23(b)) is amended--
                            (i) in paragraph (1), by striking ``the 
                        calendar year concerned'' and all that follows 
                        and inserting ``the calendar year concerned, 
                        the following factors, as defined in paragraph 
                        (4):
                    ``(A) national monthly per capita costs,
                    ``(B) the benchmark amount for each payment area, 
                and
                    ``(C) the health status and demographic adjustment 
                factors to be used in making payment for individual 
                enrollees.'';
                            (ii) in paragraph (3), by striking 
                        ``monthly adjusted'' and all that follows and 
                        inserting ``such estimates, factors, and 
                        amounts''; and
                            (iii) by adding at the end the following 
                        new paragraphs:
            ``(4) Factors used in adjusting bids for medicare+choice 
        organizations and in determining enrollee premiums.--
                    ``(A) In general.--Subject to paragraph (5), the 
                Secretary shall use, for purposes of adjusting plan 
                bids and determining enrollee premiums under this part, 
                the factors specified in this paragraph, which 
                factors--
                            ``(i) shall be calculated separately for 
                        benefits under parts A and B combined, and 
                        under part D; and
                            ``(ii) shall be calculated separately for--
                                    ``(I) beneficiaries who are aged or 
                                disabled; and
                                    ``(II) beneficiaries who have end 
                                stage renal disease until such time as 
                                the Secretary establishes an integrated 
                                risk adjustment system for the groups 
                                specified in subclause (I) and this 
                                subclause.
                    ``(B) National monthly per capita costs.--
                            ``(i) In general.--The term `national 
                        monthly per capita costs' means (subject to 
                        clause (ii)) the projected national, monthly, 
                        per capita costs of benefits under this title 
                        and associated claims processing costs for 
                        individuals entitled to benefits under part A 
                        and individuals enrolled in the program under 
                        part B.
                            ``(ii) Exclusion of dsh and gme costs.--The 
                        calculation of costs under clause (i) shall not 
                        take into account any amounts attributable to--
                                    ``(I) payment adjustments under 
                                section 1886(d)(5)(F) for hospitals 
                                serving a significantly 
                                disproportionate number of low income 
                                patients;
                                    ``(II) payments for costs of 
                                graduate medical education under 
                                section 1886(h); or
                                    ``(III) payments for indirect costs 
                                of medical education under section 
                                1886(d)(5)(B).
                    ``(C) Benchmark amount.--
                            ``(i) The term `benchmark amount' means, 
                        for a payment area, an amount equal to the 
                        greater of--
                                    ``(I) except as provided in clause 
                                (ii), \1/12\ of the annual 
                                Medicare+Choice capitation rate that 
                                would have applied in that payment area 
                                under section 1853(c) (as in effect 
                                prior to the enactment of the Medicare 
                                Modernization and Solvency Act of 
                                2001); or
                                    ``(II) the product of 96 percent of 
                                national monthly per capita costs and 
                                the ratio, for a previous period, of--
                                            ``(aa) monthly per capita 
                                        costs of Medicare benefits for 
                                        individuals entitled to 
                                        benefits under part A and 
                                        individuals enrolled in the 
                                        program under part B in that 
                                        payment area (adjusted for 
                                        relative risk due to health 
                                        status and demographic 
                                        adjustment factors) to--
                                            ``(bb) the weighted average 
                                        for all payment areas of such 
                                        monthly per capita costs.
                            ``(ii) If the amount calculated under 
                        clause (i)(I) for a year for all payment areas 
                        is equal to either the minimum amount or the 
                        blended capitation rate, for all subsequent 
                        years the Secretary shall not calculate the 
                        rates described in that clause and the amount 
                        under such clause instead shall be equal to the 
                        product of 96 percent of national monthly per 
                        capita costs and the ratio of--
                                    ``(I) the annual Medicare+Choice 
                                capitation rate for the last year that 
                                such rates were calculated under such 
                                clause to--
                                    ``(II) the weighted average of the 
                                area-specific Medicare+Choice 
                                capitation rates for that same year.
                    ``(D) Health status and demographic adjustment 
                factors.--The term `health status and demographic 
                adjustment factors' means health status and such other 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as the 
                Secretary determines to be appropriate, so as to ensure 
                actuarial equivalence. The Secretary may add to, 
                modify, or substitute for such factors, if such changes 
                will improve the determination of actuarial 
                equivalence, and in that event will make comparable 
                adjustments to the benchmark amounts.''.
                    (B) Conforming amendment.--Section 1853(c)(7) (42 
                U.S.C. 1395w-23(c)(7)) is relocated and redesignated as 
                section 1853(b)(5), indented accordingly, and amended 
                by striking all that follows ``shall adjust 
                appropriately'' and inserting ``national monthly per 
                capita costs for the following year''.
            (3) Submission of bids by medicare+choice organizations.--
                    (A) In general.--Section 1853(c) (42 U.S.C. 1395w-
                23(c)) is amended to read as follows:
    ``(c) Submission of Bids by Medicare+Choice Organizations.--
            ``(1) In general.--Each Medicare+Choice organization shall 
        submit to the Secretary, in a form and manner specified by the 
        Secretary and for each Medicare+Choice plan which it intends to 
        offer in a service area in the following year--
                    ``(A) by July 1, notice of such intent and 
                information on the service area and plan type for each 
                plan; and
                    ``(B) by August 1--
                            ``(i) the information described in 
                        paragraph (2) for the type of plan involved; 
                        and
                            ``(ii) the enrollment capacity (if any) in 
                        relation to the plan and area.
            ``(2) Information required for competitive plans.--The 
        information described in this paragraph, which shall be 
        submitted separately for combined part A and part B benefits, 
        and for part D benefits, is as follows:
                    ``(A) The monthly plan bid for the provision of 
                benefits.
                    ``(B) The actuarial value of the reduction in cost-
                sharing for Medicare benefits included in each plan bid 
                (which value shall not exceed 15 percent of the value 
                of the balance of the bid).
                    ``(C) A description of the cost-sharing for 
                Medicare benefits that will apply and the actuarial 
                value of such cost-sharing.
                    ``(D) For each supplemental benefits package 
                offered (if any), the adjusted community rate of the 
                package, the monthly supplemental premium, a 
                description of cost-sharing and such other information 
                as the Secretary considers necessary.
                    ``(E) The assumptions used with respect to numbers, 
                in each payment area, of--
                            ``(i) enrolled individuals who are aged or 
                        disabled; and
                            ``(ii) enrolled individuals who have end-
                        stage renal disease.''.
                    (B) Conforming amendments.--
                            (i) Paragraphs (3) and (5) of section 
                        1854(a) (42 U.S.C. 1395w-24(a)) are relocated 
                        and redesignated as paragraphs (3) and (4), 
                        respectively, of section 1853(c) (42 U.S.C. 
1395w-23(c)), as amended.
                            (ii) Section 1853(c)(3)(B) (42 U.S.C. 
                        1395w-23(c)(3)(B)), as redesignated, is amended 
                        by striking ``beneficiary''.
                            (iii) Section 1853(c)(4)(B) (42 U.S.C. 
                        1395w-23(c)(3)(B)), as redesignated, is amended 
                        by striking ``or subparagraphs (A)(ii) and (B) 
                        of paragraph (4)''.
            (4) Secretary's determination of payment amount.--Section 
        1853 (42 U.S.C. 1395w-23) is further amended--
                    (A) by redesignating subsections (d) through (h) as 
                subsections (e) through (i), respectively; and
                    (B) by inserting after subsection (c) the following 
                new subsection:
    ``(d) Secretary's Determination of Payment Amount.--
            ``(1) Conversion to normalized bids.--The Secretary shall 
        adjust each monthly plan bid submitted under subsection (c) for 
        the relative risk of enrollees in such plan based on health 
        status and demographic adjustment factors.
            ``(2) Comparison to plan benchmark amount.--
                    ``(A) Determination of plan benchmark.--The 
                Secretary shall determine, using the plan enrollment 
                assumptions included in the organization's bid, a plan 
                benchmark amount for each plan equal to--
                            ``(i) (until such time as the Secretary 
                        establishes an integrated risk adjustment 
                        system for individuals who are aged or disabled 
                        and for individuals who have end-stage renal 
                        disease)--
                                    ``(I) the product of the weighted 
                                average of the benchmark amounts for 
                                the payment areas included in the 
                                plan's service area for individuals who 
                                are aged or disabled and the number of 
                                such individuals in the plan, plus
                                    ``(II) the product of the weighted 
                                average of the benchmark amounts for 
                                the payment areas included in the 
                                plan's service area for individuals who 
                                have end-stage renal disease and the 
                                number of such individuals in the plan,
                        (divided by the total number of individuals in 
                        subclauses (I) and (II); and
                            ``(ii) (after such time) the weighted 
                        average of the benchmark amounts for the 
                        payment areas included in the plan's service 
                        area.
                    ``(B) Comparison to benchmark; determination of 
                payment amount.--The monthly payment to a 
                Medicare+Choice organization with respect to each 
                individual enrolled in a plan shall be set as follows:
                            ``(i) If bid does not exceed benchmark.--If 
                        the normalized bid determined under paragraph 
                        (1) does not exceed the plan benchmark amount 
                        determined under subparagraph (A), the monthly 
                        payment shall be the normalized bid, adjusted 
                        to account for the health status and 
                        demographic adjustment factors of the 
                        individual enrollee.
                            ``(ii) If bid exceeds benchmark.--If the 
                        normalized bid determined under paragraph (1) 
                        exceeds the plan benchmark amount determined 
                        under subparagraph (B), the monthly payment 
                        shall be the normalized bid, adjusted as 
                        described in clause (i), minus the monthly 
                        excess premium determined under section 
                        1854.''.
    (b) Premiums.--
            (1) Determination of premium amount.--Section 1854 (42 
        U.S.C. 1395-4) is amended--
                    (A) by striking subsection (a) and redesignating 
                subsections (b) and (c) as subsections (a) and (b), 
                respectively; and
                    (B) by adding after subsection (b) as redesignated 
                the following new subsection:
    ``(c) Determination of Medicare Premium Reduction and Excess 
Premium.--
            ``(1) In general.--Subject to paragraph (2), the Secretary 
        shall subtract the normalized bid (determined under section 
        1853(d)(1)) from the plan's benchmark amount (determined under 
        section 1853(d)(2)) to determine the Medicare premium reduction 
        or monthly excess premium for plan enrollees.
            ``(2) Adjustment.--If the difference between the normalized 
        bid and the plan's benchmark amount--
                    ``(A) is a positive amount, 75 percent of that 
                amount shall be equal to--
                            ``(i) the monthly Medicare premium 
                        reduction for individuals enrolled in the plan 
                        (up to the entire amount of the premium for 
                        part B or part D, as applicable); and
                            ``(ii) the remainder, if any, under clause 
                        (i) shall be equal to the additional reduction 
                        in the actuarial value of plan cost-sharing for 
                        plan enrollees; or
                    ``(B) is a negative amount, the absolute value of 
                that amount shall equal the monthly excess premium for 
                individuals enrolled in the plan.''.
            (2) Limitation on enrollee liability.--
                    (A) For basic benefits.--Section 1854(e)(1) (42 
                U.S.C. 1395w-4(e)(1)) is amended to read as follows:
            ``(1) For basic benefits.--The sum of--
                    ``(A) the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with a 
                Medicare+Choice plan described in section 1851(a)(2)(A) 
                or (C) of an organization with respect to benefits 
                described in section 1852(a)(1);
                    ``(B) the reduction in cost sharing included in the 
                plan bid;
                    ``(C) the portion, if any, of the monthly 
                supplemental premium that is in lieu of plan cost-
                sharing for Medicare benefits; and
                    ``(D) any additional reduction in cost-sharing 
                under subsection (c)(2)(A) (determined separately with 
                respect to benefits under parts A and B, and benefits 
                under part D) must equal the actuarial value of the 
                deductibles, coinsurance, and copayments that would be 
                applicable on average to individuals entitled to such 
                benefits if they were not members of a Medicare+Choice 
                organization for the year (adjusted as determined 
                appropriate by the Secretary to account for geographic 
                differences and for plan cost and utilization 
                differences).''.
                    (B) For supplemental benefits.--Section 1854(e)(2) 
                (42 U.S.C. 1395w-4(e)(2)) is amended--
                            (i) by striking ``section 1851(a)(2)(A)'' 
                        and inserting ``subparagraph (A) or (C) of 
                        section 1851(a)(2)'';
                            (ii) by striking ``(multiplied by 12)''; 
                        and
                            (iii) by striking ``may not exceed'' and 
                        inserting ``must equal''.
    (c) Other Changes in Plan Design.--
            (1) Allowing plans to include cost sharing reduction in 
        their basic benefits.--Section 1852(a)(1)(B) (42 U.S.C. 1395w-
        22(a)(1)(B)) is amended to read as follows:
                    ``(B) at plan option, reduction in cost-sharing for 
                part A and part B benefits, or part D benefits, that 
                would otherwise be applicable (the actuarial value of 
                such reduction however shall not exceed 15 percent of 
                the value of the portion of the bid related to combined 
                part A and part B benefits, or part D benefits, as 
                applicable).''.
            (2) Elimination of mandatory supplemental benefits.--
        Section 1852(a)(3) (42 U.S.C. 1395w-22(a)(3)) is amended by 
        striking subparagraph (A) and redesignating subparagraphs (B) 
        and (C) and subparagraphs (A) and (B), respectively.
    (d) Conforming Amendments.--
            (1) Premium reductions.--
                    (A) Under part b.--
                            (i) Section 1839(a)(2) (42 U.S.C. 
                        1395r(a)(2)) is amended by striking ``shall'' 
                        and all that follows and inserting ``shall be 
                        the amount determined under paragraph (3), 
                        adjusted as required in accordance with 
                        subsections (b), (c), and (f), and thereafter 
                        further modified as required to comply with 
                        section 1854(c)(2)(A).''.
                            (ii) Section 1840 (42 U.S.C. 1395s) is 
                        amended by adding at the end the following:
    ``(i) The Secretary shall provide for necessary adjustments of the 
Medicare premium for Medicare+Choice enrollees determined under section 
1854(c)(2)(A). This premium adjustment may be provided directly or as 
an adjustment to Social Security, Railroad Retirement and Civil Service 
Retirement benefits, as appropriate, as the Secretary determines 
feasible with the concurrence of such agencies.''.
                    (B) Under part d.--
                            (i) Section 1859D(a)(2)(B) is amended by 
                        inserting ``thereafter further modified as 
                        required to comply with section 
                        1854(c)(2)(A),'' before ``and rounded''.
                            (ii) Section 1859D(b)(1) is amended by 
                        adding at the end the following new 
                        subparagraph:
                    ``(C) The Secretary shall provide for necessary 
                adjustments of the Medicare premium for Medicare+Choice 
                enrollees determined under section 1854(c)(2)(A). This 
                premium adjustment may be provided directly or as an 
                adjustment to Social Security, Railroad Retirement and 
                Civil Service Retirement benefits, as appropriate, as 
                the Secretary determines feasible with the concurrence 
                of such agencies.''.
            (2) Appropriations for government contribution.--Section 
        1844(a)(1) (42 U.S.C. 1395w(a)(1)) is amended by adding after 
        subparagraph (B) the following new subparagraph:
                    ``(C) an adjustment for the Government contribution 
                to reflect the savings to the Trust Fund from 
                enrollment in Medicare+Choice plans by beneficiaries 
                who receive monthly Medicare premium reductions in 
                accordance with section 1854(c)(2)(A).''.
            (3) Section 1851(b)(1)(B) (42 U.S.C. 1395w-21(b)(1)(B)) is 
        amended by striking ``section 1852(a)(1)(A)'' and inserting 
        ``section 1852(a)(1)''.
            (4) Section 1851(d)(2)(A) (42 U.S.C. 1395w-21(d)(2)(A)) is 
        amended by striking ``At least 15 days before'' and inserting 
        ``Before''.
            (5) Part C is amended by striking ``beneficiary'' each time 
        it appears immediately before ``premium'' or ``premiums'', and 
        by striking ``beneficiary'' each time it appears immediately 
        before ``premium'' or ``premiums''.
            (6) Section 1851(d)(4)(B) (42 U.S.C. 1395w-21(d)(4)(B)) is 
        amended--
                    (A) by inserting ``(i)'' after ``premi-
                ums.--''; and
                    (B) by inserting before the period ``; and (ii) the 
                reduction in the part B and part D premiums, if any''.
            (7) Section 1851(d)(4)(E) (42 U.S.C. 1395w-21(d)(4)(E)) is 
        amended by striking ``includes mandatory supplemental benefits 
        in its base benefit package or''.
            (8) Section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)) is 
        amended by striking ``the annual Medicare+Choice capitation 
        rate'' and inserting ``the national monthly per capita costs''.
            (9) Section 1852(c)(1)(F) (42 U.S.C. 1395w-22(c)(1)(F)) is 
        amended by striking clause (i) and redesignating clauses (ii) 
        and (iii) as clauses (i) and (ii), respectively.
            (10) Section 1853(a)(1)(B) (42 U.S.C. 1395w-23(a)(1)(B)) is 
        amended by striking the first and second sentences.
            (11) Section 1853(e)(3)(B) (42 U.S.C. 1395w-23(e)(3)(B)), 
        as redesignated, is amended--
                    (A) in the caption, by striking ``Budget 
                Neutrality''; and
                    (B) by striking ``adjust the payment rates'' and 
                all that follows through ``that would have been made'' 
                and inserting ``adjust the benchmark amounts otherwise 
                established under this section for Medicare+Choice 
                payment areas in the State in a manner so that the 
                weighted average of the benchmark amounts under this 
                section in the State equals the weighted average of 
                benchmark amounts that would have been applicable''.
            (12) Section 1853(i)(2) (42 U.S.C. 1395w-23(i)(2)), as 
        redesignated, is amended--
                    (A) by inserting ``and'' at the end of subparagraph 
                (A);
                    (B) by striking ``; and'' at the end of 
                subparagraph (B) and inserting a period; and
                    (C) by striking subparagraph (C).
            (13)(A) Section 1854(a)(2)(A) (42 U.S.C. 1395w-4(a)(2)(A)), 
        as redesignated, is amended by striking ``the amount authorized 
        to be charged'' and all that follows and inserting ``the amount 
        required to be charged under subsection (c)(2)(B) for the 
        plan.''.
            (B) Section 1854(a)(2)(B) (42 U.S.C. 1395w-4(a)(2)(B)), as 
        redesignated, is amended--
                    (i) by striking ``or Medicare+Choice fee-for-
                service plan'', and
                    (ii) by striking ``or (4)(B)''.
            (14) Section 1854(e) (42 U.S.C. 1395w-4(e)) is amended by 
        striking paragraph (4).
            (15)(A) Paragraphs (3) and (4) of section 1854(f) (42 
        U.S.C. 1395w-4(f)) are relocated and redesignated as paragraphs 
        (4) and (5) of subsection (e).
            (B) Section 1854(e)(4) (42 U.S.C. 1395w-4(e)(4)), as so 
        redesignated, is amended by striking ``subject to paragraph 
        (4)'' and inserting ``subject to paragraph (5)''.
            (C) Section 1854 (42 U.S.C. 1395w-4) is amended by striking 
        subsection (f).
            (16) Section 1858(c), as redesignated by section 201, is 
        amended by striking paragraph (3) and redesignating paragraph 
        (4) as paragraph (3).
    (e) Extending Minimum Medicare+Choice Contract Period to 2 Years.--
            (1) In general.--Section 1857(c)(1) (42 U.S.C. 1395w-
        27(c)(1)) is amended by striking ``1 year'' and inserting ``2 
        years''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to contracts entered into on or after the date of 
        the enactment of this Act.
    (f) Medicare+Choice Payment Areas.--
            (1) In general.--Section 1853(d)(1) (42 U.S.C. 1395w-
        23(d)(1)) is amended to read as follows:
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `Medicare+Choice payment area' means a 
        contiguous area with similar costs and patterns of medical 
        practice, which may be a multi-county, single country, 
        metropolitan statistical area, or other combination of 
        geographic units, as specified by the Secretary. The Secretary 
        shall specify such payment areas in a manner that is designed 
        to minimize payment variability from year to year and payment 
        discrepancies across similar geographic units.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on January 1, 2003.
    (g) Effective Date.--The amendments made by this section (other 
than subsections (e) and (f)) shall be effective for 2005 and 
succeeding years.

        Subtitle B--Medicare Fee for Service Quality Improvement

SEC. 111. CARE COORDINATION SERVICES.

    (a) Program Authorized.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 412 of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, as enacted into law by section 
1(a)(6) of Public Law 106-554, is amended by adding after section 1866B 
the following new section:

``SEC. 1866C. CARE COORDINATION SERVICES.

    ``(a) In General.--
            ``(1) Purpose.--The purpose of this section is to provide 
        assistance to a beneficiary with a non-chronic serious illness 
        or injury to obtain the appropriate level and mix of follow-up 
        care.
            ``(2) Program authority.--Beginning in 2004, the Secretary 
        may implement a care coordination services program in 
        accordance with the provisions of this section under which, in 
        appropriate circumstances, eligible individuals may elect to 
        have health care services covered under this title managed and 
        coordinated by a designated care coordinator.
            ``(3) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866F.
    ``(b) Eligibility Criteria; Identification and Notification of 
Eligible Individuals.--
            ``(1) Individual eligibility criteria.--The Secretary shall 
        specify criteria to be used in making a determination as to 
        whether an individual with a non-chronic spell of illness or 
        injury may appropriately be enrolled in the care coordination 
        services program under this section, which shall include at 
        least a finding by the Secretary that for cohorts of 
        individuals with characteristics identified by the Secretary, 
        professional management and coordination of care can reasonably 
be expected to improve processes or outcomes of health care. The 
Secretary shall give priority attention to identifying those cohorts of 
individuals who, if they receive care coordination services under this 
section, such services are likely to--
                    ``(A) reduce total expenditures under the program 
                with respect to the individual and illness or injury, 
                or
                    ``(B) not increase such total expenditures with 
                respect to the individual and illness or injury that 
                the Secretary determines would have been made without 
                the provision of care coordination services under this 
                section.
            ``(2) Procedures to facilitate enrollment.--The Secretary 
        shall develop and implement procedures designed to facilitate 
        enrollment of eligible individuals in the program under this 
        section.
    ``(c) Enrollment of Individuals.--
            ``(1) Secretary's determination of eligibility.--The 
        Secretary shall determine the eligibility for services under 
        this section of individuals who are enrolled in the program 
        under this section and who make application for such services 
        in such form and manner as the Secretary may prescribe.
            ``(2) Enrollment period.--
                    ``(A) Effective date and duration.--Enrollment of 
                an individual in the program under this section shall 
                be effective as of the first day of the month following 
                the month in which the Secretary approves the 
                individual's application under paragraph (1), shall 
                remain in effect for one month (or such longer period 
                as the Secretary may specify), and shall be 
                automatically renewed for additional periods, unless 
                terminated in accordance with such procedures as the 
                Secretary shall establish by regulation.
                    ``(B) Limitation on reenrollment.--The Secretary 
                may establish limits on an individual's eligibility to 
                reenroll in the program under this section if the 
                individual has disenrolled from the program more than 
                once during a specified time period.
    ``(d) Program.--The care coordination services program under this 
section shall include the following elements:
            ``(1) Basic care coordination services.--
                    ``(A) In general.--Subject to the cost-
                effectiveness criteria specified in subsection (b)(1), 
                except as otherwise provided in this section, enrolled 
                individuals shall receive services described in section 
                1905(t)(1) and may receive additional items and 
                services as described in subparagraph (B).
                    ``(B) Additional benefits.--The Secretary may 
                specify additional benefits for which payment would not 
                otherwise be made under this title that may be 
                available to individuals enrolled in the program under 
                this section (subject to an assessment by the care 
                coordinator of an individual's circumstance and need 
                for such benefits) in order to encourage enrollment in, 
                or to improve the effectiveness of, such program.
            ``(2) Care coordination requirement.--Notwithstanding any 
        other provision of this title, the Secretary may provide that 
        an individual enrolled in the program under this section may be 
        entitled to payment under this title for any specified health 
        care items or services only if the items or services have been 
        furnished by the care coordinator, or coordinated through the 
        care coordination services program. Under such provision, the 
        Secretary shall prescribe exceptions for emergency medical 
        services as described in section 1852(d)(3), and other 
        exceptions determined by the Secretary for the delivery of 
        timely and needed care.
            ``(3) Reduction or elimination of cost sharing.--
        Notwithstanding any other provision of law, subject to the 
        cost-effectiveness criteria specified in subsection (b)(1), the 
        Secretary may provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
        coinsurance) with respect to any of the items or services 
        furnished under this title and may limit such reduction or 
        elimination to particular service areas.
    ``(e) Care Coordinators.--
            ``(1) Conditions of participation.--In order to be 
        qualified to furnish care coordination services under this 
        section, an individual or entity shall--
                    ``(A) be a health care professional or entity 
                (which may include physicians, physician group 
                practices, or other health care professionals or 
                entities the Secretary may find appropriate) meeting 
                such conditions as the Secretary may specify;
                    ``(B) have entered into a care coordination 
                agreement; and
                    ``(C) meet such criteria as the Secretary may 
                establish (which may include experience in the 
                provision of care coordination or primary care 
                physician's services).
            ``(2) Agreement term; payment.--
                    ``(A) Duration and renewal.--A care coordination 
                agreement under this subsection shall be for one year 
                and may be renewed if the Secretary is satisfied that 
                the care coordinator continues to meet the conditions 
                of participation specified in paragraph (1).
                    ``(B) Payment for services.--The Secretary may 
                negotiate or otherwise establish payment terms and 
                rates for services described in subsection (d)(1).
                    ``(C) Terms.--In addition to such other terms as 
                the Secretary may require, an agreement under this 
                section shall include the terms specified in 
                subparagraphs (A) through (C) of section 1905(t)(3).''.
    (b) Coverage of Care Coordination Services as a Part B Medical 
Service.--
            (1) In general.--Section 1861(s) (42 U.S.C. 1395x(s)) is 
        amended--
                    (A) in the second sentence, by redesignating 
                paragraphs (16) and (17) as clauses (i) and (ii); and
                    (B) in the first sentence--
                            (i) by striking ``and'' at the end of 
                        paragraph (14);
                            (ii) by striking the period at the end of 
                        paragraph (15) and inserting ``; and''; and
                            (iii) by adding after paragraph (15) the 
                        following new paragraph:
            ``(16) care coordination services furnished in accordance 
        with section 1866C.''.
            (2) Conforming amendments.--Sections 1864(a) 1902(a)(9)(C), 
        and 1915(a)(1)(B)(ii)(I) of such Act (42 U.S.C. 1395aa(a), 
        1396a(a)(9)(C), and 1396n(a)(1)(B)(ii)(I)) are each amended by 
        striking ``paragraphs (16) and (17)'' each place it appears and 
        inserting ``clauses (i) and (ii) of the second sentence''.
            (3) Part b coinsurance and deductible not applicable to 
        care coordination services.--
                    (A) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
                1395l(a)(1)), as amended by sections 105 and 223 of the 
                Medicare, Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000, as enacted into law by section 
                1(a)(6) of Public Law 106-554, is amended--
                            (i) by striking ``and'' at the end of 
                        subparagraph (T); and
                            (ii) by inserting before the final 
                        semicolon ``, and (V) with respect to care 
                        coordination services described in section 
                        1861(s)(16), the amounts paid shall be 100 
                        percent of the payment amount established under 
                        section 1866C''.
                    (B) Deductible.--Section 1833(b) (42 U.S.C. 
                1395l(b)) is amended--
                            (i) by striking ``and'' at the end of 
                        paragraph (5); and
                            (ii) by inserting before the final period 
                        ``, and (7) such deductible shall not apply 
                        with respect to care coordination services (as 
                        described in section 1861(s)(16))''.

SEC. 112. ESTABLISHMENT OF MEDICARE HOME HEALTH CARE CASE MANAGERS FOR 
              LONG TERM HOME HEALTH SPELLS OF ILLNESS.

    (a) Requirement for Case Management Plan for Beneficiaries 
Requiring Extended Home Health Services.--
            (1) In general.--Section 1861(m) (42 U.S.C. 1395x(m)) is 
        amended, in the matter preceding paragraph (1), by inserting 
        after ``under a plan (for furnishing such items and services to 
        such individual) established and periodically reviewed by a 
        physician'' the following: ``and, in the case of such services 
        furnished (or likely to be required to be furnished) for an 
        extended period (as defined by the Secretary in regulations), 
        under a home health case management plan (as defined in 
        subsection (ww)(2)) established by a home health case manager 
        (as defined in subsection (ww)(1)) in consultation with the 
        physician and, if available, the family of the individual for 
        an individual who is not participating in a case or disease 
        management program under any other provision of this Act''.
            (2) Definitions.--Section 1861 (42 U.S.C. 1395x), as 
        amended by sections 102 and 105 of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554, is 
        amended by adding at the end the following new subsection:

                       ``Home Health Case Manager

    ``(ww)(1) The term `home health case manager' means a public agency 
or private organization (or a subdivision thereof) that--
            ``(A) develops, coordinates, and monitors the delivery of 
        home health services by home health agencies to an individual;
            ``(B) has experience and expertise in the furnishing of 
        home health services; and
            ``(C) meets such other standards as the Secretary finds 
        necessary for the effective and efficient development and 
        oversight of home health case management plans and to ensure 
        the health and safety of individuals furnished services under 
        such a plan.
    ``(2) The term `home health case management plan' means a 
structured plan for the delivery of home health services that is 
developed by a home health case manager, after consultation with the 
physician and, if available, the family of the individual involved.
    ``(3) The term `home health case manager services' means the 
development, coordination, and monitoring of a home health case 
management plan for an individual furnished (or likely to be required 
to be furnished) home health services for an extended period (as 
defined by the Secretary in regulations under subsection (m)) and 
includes the periodic review of such a plan.''.
            (3) Guidance on initiation of case manager services.--The 
        Secretary of Health and Human Services shall provide guidance 
        on the process or processes that may be used to identify 
        Medicare beneficiaries requiring home health services for 
        extended periods and to develop home health case management 
        plans on a timely basis.
            (4) Limitation on referrals.--Section 1877 of the Social 
        Security Act (42 U.S.C. 1395nn) shall apply to a referral by a 
        home health case manager to a home health agency in the same 
        manner as such section applies to a referral by a physician to 
        an entity described in section 1877(a)(2) of such Act.
    (b) Coverage of and Payment for Home Health Case Manager 
Services.--
            (1) Part a.--
                    (A) Coverage.--Section 1812(a)(3) (42 U.S.C. 
                1395d(a)(3)) is amended by inserting before the 
                semicolon ``, and home health case manager services (as 
                defined in section 1861(ww)(3))''.
                    (B) Eligibility.--Section 1814(a)(2)(C) (42 U.S.C. 
                1395f(a)(2)(C)) is amended by inserting ``and, in the 
                case of such services furnished (or likely to 
be required to be furnished) for an extended period (as defined by the 
Secretary under section 1861(m)), under a home health case management 
plan that has been established and periodically reviewed by a home 
health case manager'' after ``is periodically reviewed by a 
physician''.
                    (C) Payment.--Section 1812 (42 U.S.C. 1395d) is 
                amended by adding at the end the following new 
                subsection:
    ``(h)(1) Payment under this part for home health case manager 
services (as defined in section 1861(ww)(3)) shall be made pursuant to 
the fee schedule established by the Secretary under section 1834(n).
    ``(2) Payment may be made under this title for home health case 
manager services with respect to an individual only--
            ``(A) for the initial development of the home health case 
        management plan for the individual, and
            ``(B) for the subsequent review and modification of such 
        plan, as provided by the Secretary in regulations.''.
            (2) Part b.--
                    (A) Coverage.--Section 1832(a)(2)(A) (42 U.S.C. 
                1395k(a)(2)(A)) is amended by inserting before the 
                semicolon ``, and home health case manager services (as 
                defined in section 1861(ww)(3))''.
                    (B) Eligibility.--Section 1835(a)(2) (42 U.S.C. 
                1395n(a)(2)) is amended by inserting ``and, in the case 
                of such services furnished (or likely to be required to 
                be furnished) for an extended period (as defined by the 
                Secretary under section 1861(m)), under a home health 
                case management plan that has been established and 
                periodically reviewed by a home health case manager'' 
                after ``is periodically reviewed by a physician''.
                    (C) Payment.--Section 1833 (42 U.S.C. 1395l) is 
                amended--
                            (i) in subsection (a)(2)--
                                    (I) by striking ``and'' at the end 
                                of subparagraph (F);
                                    (II) by adding ``and'' at the end 
                                of subparagraph (G); and
                                    (III) by adding after subparagraph 
                                (G) the following new subparagraph:
                    ``(H) subject to subsection (u), with respect to 
                home health case manager services (as defined in 
                section 1861(ww)(3), the amount determined under the 
                fee schedule established under section 1834(n);'', and
                            (ii) by adding at the end the following new 
                        subsection:
    ``(u) Payment may be made under this title for home health case 
manager services with respect to an individual only--
            ``(1) for the initial development of the home health case 
        management plan for the individual, and
            ``(2) for the subsequent review and modification of such 
        plan, as provided by the Secretary in regulations.''.
            (3) Establishment of fee schedule.--Section 1834 (42 U.S.C. 
        1395m), as amended by section 223 of the Medicare, Medicaid, 
        and SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554, is 
        amended by adding at the end the following new section:
    ``(n) Establishment of Fee Schedule for Home Health Case Manager 
Services.--
            ``(1) In general.--The Secretary shall establish a fee 
        schedule for payment for home health case manager services. 
        Such schedule may provide for rates that differ for such 
        services that comprise the establishment of a home health case 
        management plan and that comprise review and modification of 
        such a plan.
            ``(2) Considerations.--In establishing such fee schedule, 
        the Secretary shall consider appropriate regional and 
        operational differences and adjustments to payment rates to 
        account for inflation and other relevant factors.
            ``(3) Consultation.--In establishing the fee schedule for 
        home health case manager services under this subsection, the 
        Secretary shall consult with appropriate organizations 
        representing individuals and entities who furnish referral 
        services for home health services and share with such 
        organizations relevant data in establishing such schedule.
            ``(4) Alternative payment under competitive bidding.--
                    ``(A) In general.--Notwithstanding the preceding 
                provisions of this subsection, the Secretary may, by 
                region, use a competitive process to contract with home 
                health case managers for furnishing home health case 
                manager services.
                    ``(B) Payment.--Payment under this paragraph shall 
                be made on the basis of negotiated all-inclusive rates. 
                The amount of payment made by the Secretary to a home 
                health case manager for home health case manager 
                services under this title for services covered under a 
                contract shall be less than the aggregate amount of the 
                payments that the Secretary would have otherwise made 
                for the services.
                    ``(C) Contract period.--A contract period shall be 
                three years (subject to renewal), as long as the entity 
                continues to meet quality and other contractual 
                standards.''.
    (c) Effective Date.--The amendments made by this section apply with 
respect to home health services furnished on or after October 1, 2004.

SEC. 113. ADDITIONAL PAYMENT AMOUNT TO RURAL PROVIDERS OF SERVICES WHO 
              FURNISH PREVENTIVE AND CASE MANAGER SERVICES.

    (a) Authority To Provide Additional Payment for Rural Case Manager 
Services.--
            (1) Findings.--The Congress finds as follows:
                    (A) Medicare beneficiaries who live in rural and 
                frontier areas receive fewer preventive care services.
                    (B) Medicare+Choice plans that offer preventive 
                care services and other additional benefits are not 
                likely to be established in rural or frontier areas.
                    (C) Long travel distances and times create special 
                problems for providers of services and physicians to 
                follow up on courses of treatment for medicare 
                beneficiaries residing in rural areas who require 
                additional case management and other services.
            (2) Authority.--In the case of a provider of services or a 
        physician that furnishes services to Medicare beneficiaries in 
        a rural area, the Secretary of Health and Human Services may 
        provide for an additional payment under the Medicare Program 
        for rural case manager services furnished by such provider or 
        physician to Medicare beneficiaries.
    (b) Requirement for Rural Case Management Plan.--No payment may be 
made under subsection (a) for rural case manager services furnished to 
a Medicare beneficiary unless such provider or physician establishes, 
and periodically reviews, a rural case management plan for furnishing 
preventive services and items and services for the treatment of the 
illness or injury of the Medicare beneficiary. The Secretary shall 
establish such standards as the Secretary finds necessary for the 
effective and efficient development and oversight of rural case manager 
services and rural case management plans to ensure the health and 
safety of Medicare beneficiaries furnished services under such a plan.
    (c) Payment.--
            (1) In general.--Payment may be made under this section for 
        rural case manager services with respect to a Medicare 
        beneficiary only--
                    (A) for the initial development of the rural case 
                management plan for the individual, and
                    (B) for the subsequent review and modification of 
                such plan, as provided by the Secretary in regulations.
            (2) Payment under fee schedule.--Payment under this section 
        for rural case manager services shall be made pursuant to the 
        fee schedule established by the Secretary.
            (3) Establishment of fee schedule.--
                    (A) In general.--The Secretary shall establish a 
                fee schedule for payment for rural case manager 
                services. Such schedule may provide for rates that 
                differ for such services that comprise the 
                establishment of a rural case management plan and that 
                comprise review and modification of such a plan.
                    (B) Considerations.--In establishing such fee 
                schedule, the Secretary shall consider appropriate 
                regional and operational differences and adjustments to 
                payment rates to account for travel and transportation 
                of the provider and beneficiary, inflation, and other 
                relevant factors.
                    (C) Consultation.--In establishing the fee schedule 
                for rural case manager services under this subsection, 
                the Secretary shall consult with appropriate 
                organizations representing individuals and entities who 
                furnish referral services in rural areas for health 
                care items and services furnished and share with such 
                organizations relevant data in establishing such 
                schedule.
    (d) Guidance on Initiation of Case Manager Services.--The Secretary 
of Health and Human Services shall provide guidance on the process or 
processes that may be used to develop rural case management plans on a 
timely basis.
    (e) Limitation on Referrals.--Section 1877 of the Social Security 
Act (42 U.S.C. 1395nn) shall apply to a referral by a rural case 
manager to a rural agency in the same manner as such section applies to 
a referral by a physician to an entity described in section 1877(a)(2) 
of such Act.
    (f) Definitions.--In this section:
            (1) The term ``rural case manager services'' means the 
        development, coordination, and monitoring of a rural case 
        management plan for an individual furnished items and services 
        for the prevention of illness and for the diagnosis and 
        treatment of an illness or injury, and includes such home 
        visits as are medically necessary and the periodic review of 
        such a plan.
            (2) The term ``rural case management plan'' means a 
        structured plan for the delivery of items and services that is 
        developed by a rural case manager, after consultation with the 
        physician and, if available, the family of the individual 
        involved.
            (3) The term ``provider of service'' has the meaning given 
        that term in section 1861(u) of the Social Security Act (42 
        U.S.C. 1395x(u)).
            (4) The term ``physician'' has the meaning given that term 
        in section 1861(r) of such Act (42 U.S.C. 1395x(r)).
            (5) The term ``rural area'' means an area designated as a 
        rural area under section 1886(d)(2)(D) of such Act (42 U.S.C. 
        1395ww(d)(2)(D)).
            (6) The term ``Medicare beneficiary'' means an individual 
        entitled to benefits under part A of title XVIII of such Act, 
        or enrolled under part B of such title, or both.
            (7) The term ``Medicare Program'' means the insurance 
        program established under title XVIII of the Social Security 
        Act.
    (g) Effective Date.--This section shall take effect on January 1, 
2004, and apply with respect to rural services furnished on or after 
January 1, 2004.

SEC. 114. DISEASE MANAGEMENT SERVICES.

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

``SEC. 1866D. DISEASE MANAGEMENT SERVICES.

    ``(a) In General.--
            ``(1) Purpose.--The purpose of this section is to assist 
        beneficiaries with a chronic or advanced illness or injury to 
        obtain the appropriate level and mix of follow-up care.
            ``(2) Program authority.--Beginning in 2004, the Secretary 
        may implement a program in accordance with the provisions of 
        this section under which certain eligible individuals may, in 
        appropriate circumstances, receive disease management services 
        for chronic and advanced illness from entities designated by 
        the Secretary with respect to diagnoses that the Secretary 
        determines are amenable to such management.
            ``(3) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866F.
    ``(b) Individuals Who May Receive Disease Management Services.--No 
individual shall be eligible for enrollment in a disease management 
program under this section unless the Secretary finds the following 
with respect to the individual:
            ``(1) Diagnosis and related characteristics.--
                    ``(A) In general.--The individual has been 
                diagnosed with congestive heart failure, chronic 
                obstructive pulmonary disease, diabetes, schizophrenia, 
                or any other diagnosis (physical or mental), if the 
                Secretary has determined with respect to such diagnoses 
                that there is evidence that the provision of disease 
                management services, over clinically relevant time-
                periods, to cohorts of individuals with such diagnoses 
                can reasonably be expected to improve processes or 
                outcomes of health care for the Medicare population and 
                to reduce aggregate costs to the programs under this 
                title.
                    ``(B) Additional factors.--Where required by the 
                Secretary, the individual also has certain clinical 
                characteristics or conditions, exhibits certain 
                patterns of utilization, or manifests other factors 
                indicating the need for and potential effectiveness of 
                disease management.
            ``(2) Referral by qualified individual or entity.--The 
        individual has been referred for consideration for such 
        services by an individual or entity furnishing health care 
        items or services, or by an entity administering benefits under 
        this title.
    ``(c) Procedures To Facilitate Enrollment.--The Secretary shall 
develop and implement procedures designed to facilitate enrollment of 
eligible individuals in the program under this section.
    ``(d) Enrollment of Individuals With Disease Management 
Organizations.--
            ``(1) Effective date and duration.--Enrollment of an 
        individual in the program under this section shall remain in 
        effect for one month (or such longer period as the Secretary 
        may specify), and shall be automatically renewed for additional 
        periods, unless terminated in accordance with such procedures 
        as the Secretary shall establish by regulation.
            ``(2) Limitation on reenrollment.--The Secretary may 
        establish limits on an individual's eligibility to reenroll in 
        the program under this section if the individual has 
        disenrolled from the program more than once during a specified 
        time period.
    ``(e) Disease Management Requirement.--Notwithstanding any other 
provision of this title, the Secretary may provide that an individual 
enrolled in the program under this section may be entitled to payment 
under this title for any specified health care items or services only 
if the items or services have been furnished by the disease management 
organization, or coordinated through the disease management services 
program. Under such provision, the Secretary shall prescribe exceptions 
for emergency medical services as described in section 1852(d)(3), and 
other exceptions determined by the Secretary for the delivery of timely 
and needed care.
    ``(f) Disease Management Services.--
            ``(1) In general.--Subject to the cost-effectiveness 
        criteria specified in subsection (b)(1), disease management 
        services provided to an individual under this section may 
        include--
                    ``(A) initial and periodic health screening and 
                assessment;
                    ``(B) management (including coordination with other 
                providers) of, and referral for, medical and other 
                health services related to the managed diagnosis (which 
                may include referral for provision of such services by 
                the disease management organization);
                    ``(C) monitoring and control of medications 
                (including coordination with the entity managing 
                benefits for the individual under part D);
                    ``(D) patient education and counseling, including 
                advanced illness counseling (as defined in subsection 
                (j));
                    ``(E) nursing or other health professional home 
                visits, as appropriate;
                    ``(F) providing access for consultations by 
                telephone with physicians or other appropriate medical 
                professionals, including 24-hour availability for 
                emergency consultations;
                    ``(G) managing and facilitating the transition to 
                other care arrangements in preparation for termination 
                of the disease management enrollment; and
                    ``(H) such other services for which payment would 
                not otherwise be made under this title as the Secretary 
                shall determine to be appropriate.
            ``(2) Variations in service packages.--The types and 
        combinations of disease management services furnished under 
        agreements under this section may vary (as permitted or 
        required by the Secretary) according to the types of diagnoses, 
        conditions, patient profiles being managed, expertise of the 
        disease management organization, and other factors the 
        Secretary finds appropriate.
            ``(3) Reduction or elimination of cost sharing.--
        Notwithstanding any other provision of law, subject to the 
        cost-effectiveness criteria specified in subsection (b)(1), the 
        Secretary may provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
coinsurance) with respect to any of the items or services furnished 
under this title (other than those furnished under a service package 
developed under paragraph (2)), and may limit such reduction or 
elimination to particular service areas.
    ``(g) Agreements With Disease Management Organizations.--
            ``(1) Entities eligible.--Entities qualified to enter into 
        agreements with the Secretary for the provision of disease 
        management services under this section include entities that 
        have demonstrated the ability to meet the performance standards 
        and other criteria established by the Secretary with respect 
        to--
                    ``(A) the management of each diagnosis and 
                condition with respect to which the entity, if 
                designated, would furnish disease management services 
                under this section; and
                    ``(B) the implementation of each disease management 
                approach that the entity, if designated, would 
                implement under this section.
            ``(2) Conditions of participation.--In order to be eligible 
        to provide disease management services under this section, an 
        entity shall--
                    ``(A) have in effect an agreement with the 
                Secretary setting forth such obligations of the entity 
                as a disease management organization under this section 
                as the Secretary shall prescribe;
                    ``(B) meet the standards established by the 
                Secretary under subsection (h); and
                    ``(C) meet such other conditions as the Secretary 
                may establish.
            ``(3) Secretary's option for noncompetitive designation.--
        The Secretary may designate an entity to provide disease 
        management services under this section without regard to the 
        requirements of section 5 of title 41, United States Code.
    ``(h) Standards.--
            ``(1) Quality.--The Secretary shall establish standards 
        for, and procedures for assessing, the quality of care provided 
        by disease management organizations under this section, which 
        shall include--
                    ``(A) performance standards with respect to the 
                processes or outcomes of health care or the health 
                status of enrolled individuals, including procedures 
                for establishing a baseline and measuring changes in 
                health care processes or health outcomes with respect 
                to managed diseases or health conditions;
                    ``(B) such other quality standards, including 
                patient satisfaction, as the Secretary may find 
                appropriate; and
                    ``(C) a requirement that the organization meet such 
                licensure and other accreditation standards as the 
                Secretary may find appropriate.
            ``(2) Cost management.--The Secretary shall establish a 
        performance standard with respect to management or reduction of 
        the aggregate costs of health care items and services related 
        to managed health conditions furnished to enrolled individuals, 
        including procedures for establishing a baseline and measuring 
        changes in costs for such items and services.
    ``(i) Payment.--
            ``(1) Terms of payment.--The Secretary may negotiate or 
        otherwise establish payment terms and rates for service 
        packages developed under subsection (f)(2).
            ``(2) Withholding of payments.--An agreement under 
        subsection (g) may provide that the Secretary may withhold up 
        to ten percent of the amount due a disease management 
        organization under the basis of payment established under 
        paragraph (1) until such time as such organization meets a 
        standard or standards specified in such agreement.
    ``(j) Advanced Illness Counseling Defined.--For purposes of this 
section, the term `advanced illness counseling' means counseling to 
individuals (and a spouse or principal caregiver of such an individual) 
with advanced, chronic, or terminal illnesses about treatment options 
available from various providers, including (where appropriate) hospice 
programs.''.
    (b) Coverage of Disease Management Services as a Part B Medical 
Service.--
            (1) In general.--Section 1861(s), as amended by section 
        111, is further amended--
                    (A) by striking ``and'' at the end of paragraph 
                (15);
                    (B) by striking the period at the end of paragraph 
                (16) and inserting ``and''; and
                    (C) by adding after paragraph (16) the following 
                new paragraph:
            ``(17) disease management services furnished in accordance 
        with section 1866D.''.
            (2) Part b coinsurance and deductible not applicable to 
        disease management services.--
                    (A) Coinsurance.--Section 1833(a)(1)(T) (42 U.S.C. 
                1395l(a)(1)(T)), as added by section 111(b)(2)(A), is 
                amended to read as follows: ``(T) with respect to care 
                coordination services described in section 1861(s)(16) 
                and disease management services described in section 
                1861(s)(17), the amounts paid shall be 100 percent of 
                the payment amounts established under sections 1866C 
                and 1866D, respectively;''.
                    (B) Deductible.--Section 1833(b) (42 U.S.C. 
                1395l(b)), as amended by section 111(b)(2)(A), is 
                further amended by inserting before the final period 
                ``or to disease management services (as described in 
                section 1861(s)(17))''.

SEC. 115. PROVIDER AND PHYSICIAN COLLABORATION TO FURNISH A BUNDLED, 
              COORDINATED SET OF SERVICES.

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

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

    ``(a) In General.--
            ``(1) Purpose.--The purpose of this section is to assist a 
        beneficiary with a complex or sophisticated illness or injury 
        to obtain a coordinated, high quality bundled package of items 
        and services under this title.
            ``(2) Program authority.--Beginning in 2004, the Secretary 
        may enter into agreements with specific quality providers, 
        suppliers, or other individuals or entities for the furnishing 
        of bundled items and services in selected sites of service or 
        related to specific medical conditions or needs for an episode 
        of care. The services may include any items or services covered 
        under this title that the Secretary determines to be 
        appropriate, including post-hospital services.
            ``(3) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866F.
    ``(b) Basis of Selection.--The Secretary shall select entities for 
agreements under this section on the basis of ability to provide 
services more efficiently, to provide improved coordination of care, to 
offer additional benefits, and to meet quality and other standards and 
beneficiary protections and other requirements set by the Secretary.
    ``(c) Payment.--Payment under this section shall be made on the 
basis of all-inclusive rates. The all-inclusive rate paid to an entity 
for bundled items and services furnished during an episode of care 
under this section shall be less than the estimated amount of the 
payments that the Secretary would have otherwise made for the items and 
services.
    ``(d) Term of Agreement.--Agreements under this section shall be 
for periods that the Secretary may determine.
    ``(e) Incentives to Beneficiaries for Use of Contracting 
Entities.--Notwithstanding any other provision of law, entities under a 
contract under this section may furnish additional services or waive 
part or all beneficiary cost sharing (such as deductibles, copayments, 
and coinsurance) with respect to any of the items or services furnished 
under this section.
    ``(f) Beneficiary Election.--An individual entitled to benefits 
under this title who elects to obtain services under an agreement under 
this section shall agree to receive under such agreement all benefits 
related to the episode of care covered by the agreement (subject to 
such exceptions for emergency services and as the Secretary otherwise 
may specify).''.

SEC. 116. DEMONSTRATION PROJECTS TO INCREASE QUALITY OF INFORMATION 
              PROVIDED TO MEDICARE BENEFICIARIES WITH RESPECT TO 
              TREATMENT OPTIONS.

    (a) Establishment of Project.--
            (1) In general.--Not later than January 1, 2003, the 
        Secretary of Health and Human Services shall establish 
        demonstration projects (in this section referred to as the 
        ``projects'') under which the Secretary shall furnish to 
        providers of services and physicians participating in the 
        Medicare Program under title XVIII of the Social Security Act 
        informational videotapes (as described in subsection (b)) to 
        present to a Medicare beneficiary diagnosed with a particular 
        disease, injury, or advanced illness (as identified by the 
        Secretary pursuant to subsection (c)) before the beneficiary 
        elects a course of treatment for that disease, injury, or 
        advanced illness. The Secretary shall furnish such 
        informational videotapes at no cost to such providers and 
        physicians.
            (2) Project areas.--The projects shall be conducted in five 
        separate counties of which 3 shall be in urban areas and 2 
        shall be in rural areas.
    (b) Informational Videotape Described.--
            (1) In general.--The Institute of Medicine, in consultation 
        with the National Institutes of Health and other medical 
        experts (as determined by the Secretary), shall develop a 
        videotape presentation to provide a Medicare beneficiary 
        diagnosed as having the disease, injury, or advanced illness 
        identified under subsection (c) with the following information:
                    (A) A description of the disease, injury, or 
                advanced illness.
                    (B) The possible courses of treatment for the 
                disease, injury, or advanced illness.
                    (C) The likely consequences of each such course of 
                treatment or of the decision not to pursue any course 
                of treatment.
            (2) Concluding statement.--Any such videotape presentation 
        shall conclude with a statement that the Medicare beneficiary 
        may elect any course of treatment or not to pursue any course 
        of treatment, that the Medicare beneficiary should consult with 
        a physician, and that the Medicare beneficiary may seek a 
        referral to a physician who furnishes services consisting of 
        the course of treatment that the beneficiary elects.
            (3) Updating of videotape.--Any such videotape presentation 
        shall be updated to reflect new findings based on the best 
        scientific evidence available, as determined by the Institute 
        of Medicine, in consultation with the National Institutes of 
        Health and such other medical experts, about the disease, 
        injury, or advanced illness, and various courses of treatment.
    (c) Selection of Disease, Injury, or Advanced Illness.--
            (1) In general.--For purposes of selecting a particular 
        disease, injury, or advanced illness for which an informational 
        videotape shall be provided under the projects, the Secretary 
        shall identify diseases, injuries, or advanced illnesses for 
        which there is a wide variation in treatment of that disease, 
        injury, or advanced illness throughout the United States.
            (2) Mandatory designation of prostate enlargement for one 
        project.--The disease, injury, or advanced illness for which an 
        informational videotape is provided in one of the projects 
conducted under this section shall be benign and malignant prostate 
enlargement.
    (d) Payment.--(1) The Secretary shall establish a payment amount to 
be made to a provider of services or a physician under title XVIII of 
the Social Security Act to reflect services consisting of the 
presentation of an informational videotape to and consultation with a 
Medicare beneficiary after such presentation.
    (2) For purposes of the payment amount under paragraph (1), no 
payment may be made for the purchase or rental of equipment or office 
space for purposes of making such presentation.
    (e) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of such Act as may be necessary for the purposes of 
carrying out the project.
    (f) Reports.--Not later than June 1, 2006, the Secretary shall 
submit to Congress a report on the following matters:
            (1) A description of courses of treatment for the diseases, 
        injuries, or advanced illnesses identified under subsection (c) 
        selected by Medicare beneficiaries during the three year period 
        ending on December 31, 2005.
            (2) A comparison between courses of treatment described in 
        paragraph (1) and courses of treatment selected by the Medicare 
        beneficiaries participating in the project.
            (3) An analysis of the effect on costs to the Medicare 
        program due to any change in selection of courses of treatment.
    (g) Duration.--A demonstration project under this section shall be 
conducted for a 3-year period.

SEC. 117. ADMINISTRATION OF CERTAIN PRIVATE SECTOR PURCHASING AND 
              QUALITY IMPROVEMENT PROGRAMS.

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

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

    ``(a) In General.--Except as otherwise specifically provided, the 
provisions of this section apply to the programs under the following 
provisions of this title:
            ``(1) section 1866C (care coordination services);
            ``(2) section 1866D (disease management services);
            ``(3) section 1866E (provider and physician 
        collaborations);
            ``(4) section 1866G (competitive acquisition of items and 
        services);
            ``(5) section 1866H (preferred participants); and
            ``(6) section 1866I (program to improve outcomes and reduce 
        patient morbidity and mortality).
    ``(b) Provisions Generally Applicable to Designated Programs.--The 
following provisions apply to programs specified in subsection (a), 
except as otherwise specifically provided:
            ``(1) Beneficiary eligibility.--Except as otherwise 
        provided by the Secretary, an individual shall only be eligible 
        to receive benefits under a program specified in subsection (a) 
        if such individual--
                    ``(A) is enrolled in under the program under part 
                B;
                    ``(B) is not enrolled in a Medicare+Choice plan 
                under part C, an eligible organization under a contract 
                under section 1876 (or a similar organization operating 
                under a demonstration project authority), an 
                organization with an agreement under section 
                1833(a)(1)(A), or a PACE program under section 1894; 
                and
                    ``(C) in the case of the programs specified in 
                paragraphs (1), (2), (4), and (6) of subsection (a), is 
                entitled to benefits under part A.
            ``(2) Secretary's discretion as to scope of program.--The 
        Secretary may limit the implementation of a program specified 
        in subsection (a) to--
                    ``(A) a geographic area (or areas) that the 
                Secretary designates for purposes of the program, based 
                upon such criteria as the Secretary finds appropriate;
                    ``(B) a subgroup (or subgroups) of beneficiaries or 
                individuals and entities furnishing items or services 
                (otherwise eligible to participate in the program), 
                selected on the basis of the number of such 
                participants that the Secretary finds consistent with 
                the effective and efficient implementation of the 
                program;
                    ``(C) an element (or elements) of the program that 
                the Secretary determines to be suitable for 
                implementation; or
                    ``(D) any combination of any of the limits 
                described in subparagraphs (A) through (C).
            ``(3) Voluntary receipt of items and services.--Except as 
        provided in the authority for the program specified in 
        subsection (a)(3), items and services shall be furnished to an 
        individual under the programs specified in subsection (a) only 
        at the individual's election.
            ``(4) Agreements.--The Secretary is authorized to enter 
        into agreements with individuals and entities to furnish health 
        care items and services to beneficiaries under the programs 
        specified in subsection (a).
            ``(5) Program standards and criteria.--The Secretary shall 
        establish performance standards for the programs specified in 
        subsection (a) including, as applicable, standards for quality 
        of health care items and services, cost-effectiveness, 
        beneficiary satisfaction, and such other factors as the 
        Secretary finds appropriate. The eligibility of individuals or 
        entities for the initial award, continuation, and renewal of 
        agreements to provide health care items and services under the 
        program shall be conditioned, at a minimum, on performance that 
        meets or exceeds such standards.
            ``(6) Administrative review of adverse decision.--
                    ``(A) Decisions affecting individuals and entities 
                furnishing services under programs.--An individual or 
                entity furnishing services under a program specified in 
                subsection (a) shall be entitled to a review by the 
                program administrator (or, if the Secretary has not 
                contracted with a program administrator, by the 
                Secretary) of a decision not to enter into, or to 
                terminate, or not to renew, an agreement with the 
                individual or entity to provide health care items or 
                services under such program.
                    ``(B) Decisions affecting beneficiaries under care 
                coordination services or disease management services 
                programs.--
                            ``(i) Determination of ineligibility.--An 
                        individual shall be entitled to a review by the 
                        program administrator (or, if the Secretary has 
                        not contracted with a program administrator, by 
                        the Secretary) of a determination that the 
                        individual does not meet the criteria for 
                        eligibility to participate in a program 
                        specified in paragraph (1) or (2) of subsection 
                        (a).
                            ``(ii) Denial of payment for items or 
                        services.--A beneficiary shall be entitled to a 
                        reconsideration or appeal of a denial of 
                        payment under section 1866C(d)(2) or 1866D(e) 
                        in accordance with the provisions of section 
                        1869, as if such section applied to this 
                        clause.
            ``(7) Secretary's review of marketing materials.--An 
        agreement with an individual or entity furnishing services 
        under a program specified in subsection (a) shall require the 
        individual or entity to guarantee that it will not distribute 
        materials marketing items or services under such program 
        without the Secretary's prior review and approval;
            ``(8) Payment in full.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an individual or entity receiving 
                payment from the Secretary under a contract or 
                agreement under a program specified in subsection (a) 
                shall agree to accept such payment as payment in full, 
                and such payment shall be in lieu of any payments to 
                which the individual or entity would otherwise be 
                entitled under this title.
                    ``(B) Collection of deductibles and coinsurance.--
                Such individual or entity may collect any applicable 
                deductible or coinsurance amount from a beneficiary.
    ``(c) Contracts for Program Administration.--
            ``(1) In general.--The Secretary may administer a program 
        specified in subsection (a) through a contract with a program 
        administrator in accordance with the provisions of this 
        subsection.
            ``(2) Scope of program administrator contracts.--A contract 
        under this subsection may, at the Secretary's discretion, 
        relate to administration of any or all of the programs 
        specified in subsection (a). The Secretary may enter into such 
        contracts for a limited geographic area, or on a regional or 
        national basis.
            ``(3) Eligible contractors.--The Secretary may contract for 
        the administration of the program with--
                    ``(A) an entity that, under a contract under 
                section 1816 or 1842, determines the amount of and 
                makes payments for health care items and services 
                furnished under this title; or
                    ``(B) any other entity with substantial experience 
                in managing the type of program concerned.
            ``(4) Contract award, duration, and renewal.--
                    ``(A)  In general.--A contract under this 
                subsection shall be for an initial term of up to three 
                years, renewable for additional terms of up to three 
                years.
                    ``(B) Noncompetitive award and renewal for entities 
                administering part a or part b payments.--The Secretary 
                may enter or renew a contract under this subsection 
                with an entity described in paragraph (3)(A) without 
                regard to the requirements of section 5 of title 41, 
                United States Code.
            ``(5) Applicability of federal acquisition regulation.--The 
        Federal Acquisition Regulation shall apply to program 
        administration contracts under this subsection.
            ``(6) Performance standards.--The Secretary shall establish 
        performance standards for the program administrator including, 
        as applicable, standards for the quality and cost-effectiveness 
        of the program administered, and such other factors as the 
        Secretary finds appropriate. The eligibility of entities for 
        the initial award, continuation, and renewal of program 
        administration contracts shall be conditioned, at a minimum, on 
        performance that meets or exceeds such standards.
            ``(7) Functions of program administrator.--A program 
        administrator shall perform any or all of the following 
        functions, as specified by the Secretary:
                    ``(A) Agreements with individuals or entities 
                furnishing health care items and services.--Determine 
                the qualifications of individuals or entities seeking 
                to enter or renew agreements to provide services under 
                a program specified in subsection (a), and as 
                appropriate enter or renew (or refuse to enter or 
                renew) such agreements on behalf of the Secretary.
                    ``(B) Establishment of payment rates.--Negotiate or 
                otherwise establish, subject to the Secretary's 
                approval, payment rates for covered health care items 
                and services.
                    ``(C) Payment of claims or fees.--Administer 
                payments for health care items or services furnished 
                under any such program.
                    ``(D) Payment of bonuses.--Using such guidelines as 
                the Secretary shall establish, and subject to the 
                approval of the Secretary, make bonus payments 
as described in subsection (d)(2)(A)(ii) to individuals and entities 
furnishing items or services for which payment may be made under any 
such program.
                    ``(E) List of program participants.--Maintain and 
                regularly update a list of individuals or entities with 
                agreements to provide health care items and services 
                under any such program, and ensure that such list, in 
                electronic and hard copy formats, is readily available, 
                as applicable, to--
                            ``(i) individuals residing in the service 
                        area who are entitled to benefits under part A 
                        or enrolled in the program under part B;
                            ``(ii) the entities responsible under 
                        sections 1816 and 1842 for administering 
                        payments for health care items and services 
                        furnished; and
                            ``(iii) individuals and entities providing 
                        health care items and services in the service 
                        area.
                    ``(F) Beneficiary enrollment.--Determine 
                eligibility of individuals to enroll under a program 
                specified in subsection (a) and provide enrollment-
                related services (but only if the Secretary finds that 
                the program administrator has no conflict of interest 
                caused by a financial relationship with any individual 
                or entity furnishing items or services for which 
                payment may be made under any such program, or any 
                other conflict of interest with respect to such 
                function).
                    ``(G) Oversight.--Monitor the compliance of 
                individuals and entities with agreements under any such 
                program with the conditions of participation.
                    ``(H) Administrative review.--Conduct reviews of 
                adverse determinations specified in subparagraph (A) 
                and in subsection (b)(6).
                    ``(I) Review of marketing materials.--Conduct a 
                review of marketing materials proposed by an individual 
                or entity furnishing services under any such program.
                    ``(J) Additional functions.--Perform such other 
                functions as the Secretary may specify.
            ``(8) Limitation of liability.--The provisions of section 
        1157(b) shall apply with respect to activities of contractors 
        and their officers, employees, and agents under a contract 
        under this subsection.
            ``(9) Information sharing.--Notwithstanding section 1106 
        and section 552a of title 5, United States Code, the Secretary 
        is authorized to disclose to an entity with a program 
        administration contract under this subsection such information 
        (including medical information) on individuals receiving health 
        care items and services under the program as the entity may 
        require to carry out its responsibilities under the contract. 
        Nothing in this paragraph shall be construed as exempting such 
        an entity from maintaining the confidentiality of such 
        information consistent with applicable privacy laws.
    ``(d) Rules Applicable to Both Program Agreements and Program 
Administration Contracts.--
            ``(1) Records, reports, and audits.--The Secretary is 
        authorized to require individuals and entities with agreements 
        to provide health care items or services under programs 
        specified under subsection (a), and entities with program 
        administration contracts under subsection (c), to maintain 
        adequate records, to afford the Secretary access to such 
        records (including for audit purposes), and to furnish such 
        reports and other materials (including audited financial 
        statements and performance data) as the Secretary may require 
        for purposes of implementation, oversight, and evaluation of 
        such program and of individuals' and entities' effectiveness in 
        performance of such agreements or contracts.
            ``(2) Bonuses.--Notwithstanding any other provision of law, 
        but subject to subparagraph (B)(ii), the Secretary may make 
        bonus payments under a program specified in subsection (a) from 
        the Health Insurance and Supplementary Medical Insurance Trust 
        Funds in amounts that do not exceed 50 percent of the savings 
        to such Trust Funds attributable to such programs (or in the 
        case of the program specified in subsection (a)(7), in amounts 
        authorized under such program), in accordance with the 
        following:
                    ``(A) Payments to program administrators.--The 
                Secretary may make bonus payments under each program 
                specified in subsection (a) to program administrators.
                    ``(B) Payments to individuals and entities 
                furnishing services.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make bonus payments to 
                        individuals or entities furnishing items or 
                        services for which payment may be made under 
                        the programs specified in paragraphs (1), (2), 
                        and (5) of subsection (a), or may authorize a 
                        program administrator to make such bonus 
                        payments in accordance with such guidelines as 
                        the Secretary shall establish and subject to 
                        the Secretary's approval.
                            ``(ii) Limitations.--The Secretary may 
                        limit bonus payments under clause (i) to 
                        particular service areas, types of individuals 
                        or entities furnishing items or services under 
                        a program, or kinds of items or services, and 
                        may condition such payments on the achievement 
                        of such standards related to efficiency, 
                        improvement in processes or outcomes of care, 
                        or such other factors as the Secretary 
                        determines to be appropriate.
            ``(3) Antidiscrimination limitation.--
                    ``(A) In general.--The Secretary shall not enter 
                into an agreement with an individual or entity to 
                provide health care items or services under a program 
                specified under subsection (a), or with an entity to 
                administer such a program, unless such individual or 
                entity guarantees that it will not deny, limit, or 
                condition the coverage or provision of benefits under 
                such program, for individuals eligible to be enrolled 
                under such program, based on any health status-related 
factor described in section 2702(a)(1) of the Public Health Service 
Act.
                    ``(B) Construction.--Subparagraph (A) shall not be 
                construed to prohibit such individual or entity from 
                taking any action explicitly authorized by the 
                provisions of section 1866C (care coordination 
                services) or section 1866D (disease management 
                services).
    ``(e) Limitations on Judicial Review.--The following actions and 
determinations with respect to a program specified in subsection (a) 
shall not be subject to review by a judicial or administrative 
tribunal:
            ``(1) A limitation on the implementation of a program under 
        subsection (b)(2).
            ``(2) The establishment of program participation standards 
        under subsection (b)(5); or the denial or termination of, or 
        refusal to renew, an agreement with an individual or entity to 
        provide health care items and services under the program.
            ``(3) The determination of a beneficiary's eligibility 
        under subsection (b)(6)(B).
            ``(4) The establishment of program administration contract 
        performance standards under subsection (c)(6); or the refusal 
        to renew a program administration contract; or the 
        noncompetitive award or renewal of a program administration 
        contract under subsection (c)(4)(B).
            ``(5) The establishment of payment rates, through 
        negotiation or otherwise, under a program agreement or a 
        program administration contract.
            ``(6) A determination with respect to a program (where 
        specifically authorized by the program authority or by 
        subsection (d)(2))--
                    ``(A) as to whether cost savings have been 
                achieved, and the amount of savings;
                    ``(B) as to whether, to whom, and in what amounts 
                bonuses will be paid; or
                    ``(C) as to whether to reduce or eliminate 
                beneficiary cost-sharing.
    ``(f) Application Limited to Parts A and B.--None of the provisions 
of this section or of the programs specified in subsection (a) shall 
apply to the programs under parts C and D.''.
    (b) Exception to Limits on Physician Referrals.--Section 1877(b) 
(42 U.S.C. 1395nn(b)) is amended--
            (1) by redesignating paragraph (4) as paragraph (5); and
            (2) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) Private sector purchasing and quality improvement 
        tools for original medicare.--In the case of a designated 
        health service, if the designated health service is--
                    ``(A) included in the services under section 1866C, 
                1866D, 1866E, or 1866I; and
                    ``(B) is provided by an individual or entity 
                meeting such criteria related to quality assurance, 
                financial disclosure, and other factors as the 
                Secretary may find appropriate.''.

SEC. 118. REPORTS TO CONGRESS ON PRIVATE SECTOR PURCHASING AND QUALITY 
              IMPROVEMENT PROGRAMS.

    Not later than five years after the date of the enactment of the 
Medicare Modernization and Solvency Act of 2001, and biennially 
thereafter for six years, the Secretary of Health and Human Services 
shall report to the Congress on the use of authorities enacted by 
sections 111, 114, 115, 121, 122, and 123 of this Act. Each report 
shall address the impact of the use of those authorities on quality, 
access, and expenditures under the programs under title XVIII of the 
Social Security Act.

 Subtitle C--Immediate and Long-term Payment Reforms for Medicare Fee 
                              for Service

SEC. 121. COMPETITIVE ACQUISITION OF ITEMS AND SERVICES.

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

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

    ``(a) In General.--
            ``(1) Program authority.--The Secretary shall implement a 
        program to purchase, on behalf of individuals enrolled under 
        this part certain competitively priced quality items and 
        services for which payment may be made under part B.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866F.
    ``(b) Establishment of Competitive Acquisition Areas.--
            ``(1) In general.--The Secretary shall establish one or 
        more competitive acquisition areas for agreement award purposes 
        for the furnishing under part B of the items and services 
        described in subsection (d) after 2004. The Secretary may 
        establish different competitive acquisition areas under this 
        subsection for different classes of items and services or may 
        establish a single, national competition for non-complex items.
            ``(2) Criteria for establishment.--The competitive 
        acquisition areas established under paragraph (1) shall be 
        chosen based on the availability and accessibility of 
        individuals and entities able to furnish items and services, 
        and the estimated savings to be realized by the use 
of competitive acquisition in the furnishing of items and services in 
the area.
    ``(c) Awarding of Agreements in Competitive Acquisition Areas.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying items and 
        services described in subsection (d) for each competitive 
        acquisition area established under subsection (b) for each 
        class of items and services.
            ``(2) Conditions for awarding agreement.--The Secretary may 
        not enter an agreement with any entity under the competition 
        conducted pursuant to paragraph (1) to furnish an item or 
        service unless the Secretary finds that the entity meets 
        quality standards specified by the Secretary, and that the 
        aggregate amounts to be paid under the agreement are expected 
        to be less than the aggregate amounts that would otherwise be 
        paid.
            ``(3) Terms of agreement.--An agreement entered into with 
        an entity under the competition conducted pursuant to paragraph 
        (1) is subject to terms and conditions that the Secretary may 
        specify.
    ``(d) Services Described.--The items and services to which this 
section applies are all items and services described in paragraphs (5) 
through (9) of section 1861(s) (other than custom fabricated 
prostheses, as defined by the Secretary), and such other items or 
services reimbursed under this title as the Secretary may specify.''.
    (b) Items and Services To Be Furnished Only Through Competitive 
Acquisition.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (20),
            (2) by striking the period at the end of paragraph (21) and 
        inserting ``; or'', and
            (3) by adding after paragraph (21) the following:
            ``(22) where the expenses are for an item or service 
        furnished in a competitive acquisition area (as established by 
        the Secretary under section 1866G(a)) by an entity other than 
        an entity with which the Secretary has entered into an 
        agreement under section 1866G(c) for the furnishing of such an 
        item or service in that area, except in such cases of emergency 
        or urgent need as the Secretary shall prescribe.''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
apply to items and services furnished after 2004.

SEC. 122. PREFERRED PARTICIPANTS.

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

``SEC. 1866H. PREFERRED PARTICIPANTS.

    ``(a) Program Authority.--
            ``(1) In general.--
                    ``(A) Discretionary authority.--Beginning in 2004, 
                the Secretary may implement a preferred participant 
                program, under which the Secretary enters into 
                agreements for the furnishing of health care items and 
                services by individuals and entities participating in 
                the program under part A or B of this title that 
                provide high-quality, efficient health care.
                    ``(B) Mandatory implementation.--Beginning in 2010, 
                the Secretary of Health and Human Services shall 
                implement such a program in any geographic area (which 
                may include a hospital referral region, as defined by 
                the latest determination of the Center for the 
                Evaluative Clinical Services of the Dartmouth Medical 
                School) where the intensity of pattern of practice 
                (represented by the number of services) and cost of 
                service is determined to be in the most expensive 10 
                percent of the nation, as adjusted for severity and 
                other factors of the population as the Secretary 
                determines to be appropriate.
            ``(2) Limitation.--The Secretary shall not implement the 
        program under this section with respect to a service area, or 
        with respect to a category of individuals and entities 
        furnishing items and services in such service area, unless the 
        Secretary estimates that to do so will improve the quality and 
        reduce the cost of the programs under this title.
            ``(3) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary shall administer the 
        program under this section in accordance with section 1866F.
    ``(b) Preferred Participant Agreement.--
            ``(1) Criteria and terms.--In order to be eligible to 
        participate in the program under part A or B as a preferred 
        participant, an individual or entity shall meet the following 
        conditions:
                    ``(A) Participation criteria.--The individual or 
                entity shall meet the criteria established by the 
                Secretary under section 1866F(b)(5) (relating to 
                quality, cost-effectiveness, categories of participants 
                in service area, and such other standards or criteria 
                as the Secretary may establish).
                    ``(B) Payment rate.--The individual or entity shall 
                agree to accept payment, for covered health care items 
                and services furnished during the term of the 
                agreement, at the rates established under this section 
                (which may include rates in effect under part A or B, 
                discounted rates, or such other rates as the Secretary 
                may find appropriate).
        ``(2) Duration.--A preferred participant agreement under this 
        section shall be for a calendar year (or, in the case of an 
        agreement commencing after the first day of January (or such 
        later date as the Secretary may specify), for the remainder of 
        such calendar year), and shall be annually renewable, at the 
        option of the participant, while the participant continues to 
        meet all applicable conditions of participation.
    ``(c) Option To Reduce Cost Sharing.--Notwithstanding any other 
provision of law, subject to the cost-effectiveness criteria specified 
in subsection (a)(2), the Secretary may--
            ``(1) provide for the reduction or elimination of 
        beneficiary cost sharing (such as deductibles, copayments, and 
        coinsurance) with respect to any of the items or services 
        furnished under this section, and may limit such reduction or 
        elimination to particular service areas; and
            ``(2) permit individuals or entities under an agreement 
        under this section to waive part or all of such beneficiary 
        cost sharing.''.
    (b) Definitions.--Section 1861 (42 U.S.C. 1395x), as amended by 
section 112, is amended by adding at the end the following new 
subsection:
    ``(xx) Preferred Participant.--The term `preferred participant' 
means an individual or entity that furnishes health care items or 
services under part A or B and that has in effect an agreement under 
section 1866H(b).''.

SEC. 123. PROGRAM TO IMPROVE OUTCOMES AND REDUCE PATIENT MORBIDITY AND 
              MORTALITY.

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

``SEC. 1866I. PROGRAM TO IMPROVE OUTCOMES AND REDUCE PATIENT MORBIDITY 
              AND MORTALITY.

    ``(a) In General.--
            ``(1) Competition to furnish bundled items and services.--
        Beginning in 2004, the Secretary shall use a competitive 
        process to enter into agreements with specific hospitals or 
        other entities for the furnishing of bundled groups of items 
        and services related to certain surgical procedures, and of 
        other bundled groups of items and services (unrelated to 
        surgical procedures) specified by the Secretary furnished 
        during an episode of care (as defined by the Secretary). Such 
        items and services may include any items or services covered 
        under this title that the Secretary determines to be 
        appropriate. The Secretary shall give special emphasis to 
        including under this program those procedures where the 
        Secretary determines evidence exists that morbidity and 
        mortality of beneficiaries can be reduced by the use of the 
        program.
            ``(2) Administration by contract.--Except as otherwise 
        specifically provided, the Secretary may administer the program 
        under this section in accordance with section 1866F.
    ``(b) Eligibility Criteria.--In order to be eligible for an 
agreement under this section, an entity shall--
            ``(1) meet quality standards established by the Secretary;
            ``(2) implement an ongoing quality assurance program 
        approved by the Secretary; and
            ``(3) meet such other requirements as the Secretary may 
        establish.
    ``(c) Payment.--
            ``(1) In general.--The Secretary shall establish criteria 
        for identifying the health care items and services furnished by 
        a center with an agreement under this section during an episode 
        of care that are to be bundled together and for which payment 
        shall be made on the basis of an all-inclusive rate.
            ``(2) Payment limitation.--
                    ``(A) Limitation on aggregate payments to 
                entities.--The estimated amount of aggregate payments 
                to all entities under this section for a year shall be 
                less than the estimated amount of aggregate payments 
                that the Secretary would otherwise have made for such 
                year, adjusted for changes in the number of individuals 
                receiving services.
                    ``(B) Limitation on payments to particular 
                entities.--In no case shall the all-inclusive rate paid 
                to an entity for items and services furnished during an 
                episode of care under this section exceed the estimated 
                amount of the payments that the Secretary would 
                otherwise have made for such items and services.
    ``(d) Agreement Period.--An agreement period shall be for up to 
three years (subject to renewal).
    ``(e) Incentives for Use of Centers.--Notwithstanding any other 
provision of law, the Secretary may permit entities under an agreement 
under this section to furnish additional services (including family and 
caregiver support services) or to waive part or all beneficiary cost 
sharing (such as deductibles, copayments, and coinsurance) with respect 
to any of the items or services furnished under this section.
    ``(f) Beneficiary Election.--Notwithstanding any other provision of 
this title, an individual who voluntarily elects to receive items and 
services under an arrangement described in subsection (a)(1) with 
respect to an episode of care shall not be entitled to payment under 
this title for any such item or service furnished with respect to such 
episode of care other than through such arrangement, subject to such 
exceptions as the Secretary may prescribe for emergency medical 
services as described in section 1852(d)(3) and other cases of urgent 
need.''.

SEC. 124. AUTHORITY TO IMPOSE SUSTAINABLE GROWTH RATE LIMITATIONS ON 
              PAYMENT FOR CERTAIN MEDICARE ITEMS AND SERVICES.

    (a) In General.--In the case of unusual increases in costs to the 
medicare program (as determined by the Secretary of Health and Human 
Services) attributable to unjustified increases in the amount or 
intensity of items and services furnished under the program, the 
Secretary shall modify the payment update and/or methodology with 
respect to such items and services from the update and/or methodology 
which permitted or resulted in such unusual increases in costs to an 
update and/or methodology that imposes a sustainable growth rate for 
such items and services similar to the sustainable growth rate applied 
with respect to payment for physicians services under section 1848(f) 
of the Social Security Act (42 U.S.C. 1395w-4(f)).
    (b) Authority To Vary by Region.--Any sustainable growth rate 
recommended by the Secretary may provide for the determination of such 
rate on a uniform national basis, by Metropolitan Statistical Area, by 
State, or by any other region that the Secretary determines 
appropriate.

SEC. 125. AUTHORITY TO NEGOTIATE PAYMENT RATES IN CERTAIN AREAS (MOST 
              FAVORED CUSTOMER AUTHORITY) AND EXPAND INHERENT 
              REASONABLENESS AUTHORITY.

    (a) Findings; Purpose.--
            (1) Finding.--The Congress finds as follows:
                    (A) The medicare program is the largest single 
                purchaser of health care services in the United States.
                    (B) It is inappropriate for the medicare program to 
                in effect subsidize lower prices offered by providers 
                of services and suppliers to smaller volume purchasers 
                of health care services.
            (2) Purpose.--The purpose of this section is to require the 
        treatment of the medicare program as a preferred or volume 
        buyer of health care services in the United States by requiring 
        the Secretary of Health and Human Services to negotiate a lower 
        rate for items and services for which reimbursement is made 
        under the program.
    (b) Mandate To Negotiate.--In the case of a service area (as 
determined by the Secretary) where payment rates under the medicare 
program for items and services furnished exceed the rates charged by 
such health care provider for such items and services for which payment 
is made other than under the medicare program, the Secretary shall 
negotiate a similar, lower customer rate with such health care provider 
for such items and services under the medicare program.
    (c) Adjustment.--In negotiating such similar, lower customer rate 
under subsection (a), the Secretary shall take into account costs 
uniquely associated with the provision of items and services under the 
medicare program.
    (d) 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 this Act.
    (e) Definitions.--In this section:
            (1) Medicare program.--The term ``medicare program'' means 
        the program established under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.).
            (2) Health care provider.--The term ``health care 
        provider'' means a provider of services, a physician, or a 
        supplier who furnishes items or services for which payment is 
        made under the medicare program.
            (3) Provider of services.--The term ``provider of 
        services'' has the meaning given that term under section 
        1861(u) of the Social Security Act (42 U.S.C. 1395x(u)).
            (4) Physician.--The term ``physician'' has the meaning 
        given that term under section 1861(r) of such Act (42 U.S.C. 
        1395x(r)).
    (f) Section 1842(b)(8) is amended to strike ``15 percent'' each 
place it appears and substitute ``30 percent''.

SEC. 126. AUTHORIZATION OF BASING MEDICARE PAYMENT FOR HOSPITAL 
              OUTPATIENT DEPARTMENT SERVICES ON PAYMENT RATES FOR 
              SIMILAR SERVICES PROVIDED OUTSIDE THE HOSPITAL SETTING.

    (a) In General.--Section 1833(t)(1) (42 U.S.C. 1395l(t)(1)) is 
amended--
                    (1) in subparagraph (A), by inserting ``subject to 
                subparagraph (C),'' after ``1999,'', and
                    (2) by adding at the end the following new 
                subparagraph:
                    ``(C) Use of rates in non-hospital settings.--The 
                Secretary shall review differentials in total medicare 
                payments for non-inpatient services furnished in and 
                outside hospitals. With respect to covered OPD services 
                furnished on or after January 1, 2010, where the 
                Secretary determines that there is no danger to quality 
                of care or outcomes, the Secretary shall adjust payment 
                rates for covered OPD services (including any facility-
                related component to such services) to pay no more than 
                the lowest rate in any setting for similar services.''.
    (b) Conforming Amendment.--The fifth sentence of section 
1866(a)(2)(A) (42 U.S.C. 1395cc(a)(2)(A)) is amended by inserting ``, 
or in the case described in section 1833(t)(1)(C), the coinsurance 
amount that would otherwise apply with respect to the provision of the 
similar services referred to in such section'' before the period at the 
end.

SEC. 127. MEDICARE SINGLE, UNIFIED PROSPECTIVE PAYMENT SYSTEM FOR POST-
              CARE HOSPITAL SERVICES.

    (a) Development of Payment System.--
            (1) In general.--By not later than January 1, 2010, the 
        Secretary of Health and Human Services shall develop and 
        transmit to Congress a plan to provide for a single, unified 
        system for the payment under a prospective payment system for 
        post-acute care hospital services (including professional 
        services) within a course of treatment under the Medicare 
        Program under title XVIII of the Social Security Act.
            (2) Adjustments for area variations in costs and 
        outliers.--Such a system shall provide for appropriate 
        adjustments to take into account--
                    (A) appropriate variations in the costs of wages 
                and such other input costs as the Secretary finds 
                appropriate; and
                    (B) outliers that reflect bona fide variations in 
                the case mix and severity of patients being served.
    (b) Implementation.--Unless Congress provides otherwise, the 
Secretary shall implement the system developed under subsection (a) for 
items and services furnished on or after January 1, 2012.
    (c) Relation to Current Payment Methodologies.--The system under 
this section shall be designed and implemented so as to supersede the 
various different prospective payment system for such services, which 
use different payment, risk adjustment, and other criteria, under the 
Medicare Program.

SEC. 128. MEDICARE PAYMENT ADJUSTMENT TO REFLECT DEVIATIONS FROM 
              GENERALLY ACCEPTED PRACTICE IN OVERSERVING OR 
              UNDERSERVING MEDICARE BENEFICIARIES.

    (a) Findings.--The Congress finds as follows:
            (1) The intensity and cost of the practice of medicine 
        varies by more than 200 percent across various regions of the 
        United States and, in the case of certain medical procedures, 
        by that percent or more among some adjoining counties.
            (2) Such variations in cost and intensity do not appear to 
        be related to the severity of illness or the underlying health 
        of the population of the United States.
            (3) If the pattern of practice of medicine in the State of 
        Minnesota (one of the States with the highest quality of health 
        of residents) were adopted nationwide, the financial stability 
        of the medicare program would be assured.
            (4) For both quality of care and financial purposes, it is 
        the purpose of this section to encourage best patterns of 
        practice of medicine.
    (b) Establishment of Practice Profiles.--
            (1) In general.--By not later than January 1, 2010, the 
        Secretary of Health and Human Services shall establish clinical 
        profiles of the practice patterns of health care providers 
        (including both institutional providers, health care 
        professionals, and Medicare+Choice organizations) providing 
        items and services under the Medicare program under title XVIII 
        of the Social Security Act in order to determine how their 
        practice patterns compare to each other, on a local, State, and 
        national basis. In establishing such profiles, the Secretary 
        shall take into account differences in the case mix and 
        severity of patients served by such providers and shall take 
        into account, to the extent practicable, the medical outcomes 
        resulting from such practices.
            (2) Dissemination of information.--The Secretary shall 
        establish a method for disseminating summary information to the 
        public on the clinical profiles established under paragraph 
        (1). No information that identifies (or permits the 
        identification of) an individual patient shall be disseminated.
    (c) Authority To Make Payment Adjustments.--For items and services 
furnished on or after January 1, 2020, the Secretary of Health and 
Human Services may adjust the amount of the payments made under the 
Medicare program to health care providers in order to encourage their 
provision of services in a medically appropriate manner and to 
discourage significant deviations in underservice or overservice from 
generally accepted norms of best medical practice. Such adjustments 
shall be made on the basis of provider profiles established under 
subsection (b) and shall be made only after taking into account 
variations among providers in the case mix and severity of patients 
served.
    (d) Requirement To Make Payment Adjustments.--
            (1) In general.--For items and services furnished on or 
        after January 1, 2025, the Secretary of Health and Human 
        Services shall reduce by 10 percent the amount of the payments 
        made under the Medicare program to health care providers 
        described in paragraph (2).
            (2) Health care providers described.--For purposes of 
        paragraph (1), a health care provider described in this 
        paragraph is a provider--
                    (A) that furnishes services in a hospital referral 
                region (as defined by the latest determination of the 
                Center for the Evaluative Clinical Services of the 
                Dartmouth Medical School where the intensity of pattern 
                of practice (as represented by the number of services) 
                and the cost of services is determined by the Secretary 
                to be in the most expensive 20 percent of all such 
                services in the United States, as adjusted for severity 
                and such other factors as the Secretary determines 
                appropriate;
                    (B) with respect to which the Secretary is unable 
                to identify improved quality care or outcomes as a 
                result of such higher intensity services or costs;
                    (C) that has a pattern of practice which is among 
                the top 20 percent of providers in the region in terms 
                of intensity and costs; and
                    (D) that does not serve a patient population that 
                is preponderately among the 20 percent most severely 
                ill in the region.

SEC. 129. PROMOTING THE USE OF COST EFFECTIVE MEDICARE NONINSTITUTIONAL 
              SERVICES THROUGH WAIVER OF BENEFIT LIMITATIONS.

    (a) In General.--If the Secretary of Health and Human Services 
estimates that treatment in a non-hospital or non-institutional setting 
under the medicare program under title XVIII of the Social Security Act 
is likely to provide similar or better quality care and outcomes at a 
lower cost to the program, the Secretary of Health and Human Services 
may waive requirements described in subsection (b) which discourage or 
prevent treatment in such a setting.
    (b) Requirements Waivable.--
            (1) In general.--Subject to paragraph (2), the requirements 
        that may be waived include the following:
                    (A) The requirement, for the receipt of benefits 
                for extended care services, that the services be post-
                hospital extended care services.
                    (B) Cost sharing (including deductibles, 
                coinsurance, and copayments) that may be applicable.
            (2) Nonwaivable provisions.--The Secretary of Health and 
        Human Services may not under this section provide for coverage 
        of services for which no payment is otherwise provided under 
        the medicare program.
    (c) Limitation.--The Secretary may not provide for such a waiver in 
the case of an individual unless there are satisfactory assurances that 
the medicare beneficiary has not received (and is not likely to 
receive) medicare benefits for hospital services for the treatment with 
respect to which the waiver applies.

SEC. 130. INCREASED FLEXIBILITY IN CONTRACTING FOR MEDICARE CLAIMS 
              PROCESSING.

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

SEC. 131. SPECIAL PROVISIONS FOR FUNDING OF ACTIVITIES RELATED TO 
              CERTAIN OVERPAYMENT RECOVERIES AND PROVIDER ENROLLMENT 
              AND REVERIFICATION OF ELIGIBILITY.

    (a) Funding Available Under the Medicare Integrity Program (MIP) 
Appropriation for Provider Enrollment Activities Performed by Fiscal 
Intermediaries and Carriers.--Section 1817(k)(4) (42 U.S.C. 
1395i(k)(4)) is amended--
            (1) in subparagraph (A), by inserting ``and the activities 
        specified in subparagraph (C)'' after ``the Medicare Integrity 
        Program under section 1893''; and
            (2) by adding at the end the following new subparagraph:
                    ``(C)(i) Of the amounts appropriated under 
                subparagraph (A), the amounts specified in clause (iii) 
                shall be available to the Secretary for payment of the 
                costs of the activities described in clause (ii) which 
                are performed by entities with contracts under section 
                1816 or 1842.
                    ``(ii) For purposes of clause (i), the activities 
                specified in this paragraph are--
                            ``(I) determinations as to whether 
                        overpayments were made to an individual or 
                        entity furnishing items or services for which 
                        payment may be made under this title and 
                        recovery of any such overpayments; and
                            ``(II) activities related to enrolling such 
                        individuals and entities under the program 
                        under this title, including establishing 
                        billing privileges and records systems, 
                        processing applications, background 
                        investigations, and related activities.
                    ``(iii) For purposes of clause (i), the amount 
                specified under this clause is the lesser of the 
                amounts necessary to perform the activities described 
                in clause (ii) or--
                            ``(I) for fiscal year 2003, $14,000,000; 
                        and
                            ``(II) for fiscal years 2004 and 2005, the 
                        amount for the preceding year, increased by 30 
                        percent of the difference between the maximum 
                        amount specified in subparagraph (B) for such 
                        year and the maximum amount so specified for 
                        the preceding year.
                    ``(iv) Amounts available under this subparagraph 
                for the activities described in clause (ii) shall be in 
                addition to any amounts that may otherwise be available 
                to carry out such activities.''.
    (b) Additional Functions To Be Performed by MIP Contractors.--
            (1) Reverification of eligibility function.--Section 
        1893(b) (42 U.S.C. 1395ddd(b)) is amended by adding at the end 
        the following new paragraph:
            ``(6) activities related to reverifying the eligibility of 
        individuals and entities described in paragraph (1) to 
        participate under the program under this title, and related 
        activities.''.
            (2) Provider enrollment and overpayment recovery functions 
        added as mip contractor functions after phase-in period.--
        Section 1893(b) (42 U.S.C. 1395ddd(b)) is amended by adding at 
        the end the following new paragraphs:
            ``(7) Activities related to enrolling individuals and 
        entities described in paragraph (1) under the program under 
        this title, including establishing billing privileges and 
        records systems, processing applications, background 
        investigations, and related activities.
            ``(8) Determinations with respect to overpayments made 
        under this title that are discovered pursuant to the 
        performance of an activity described in paragraph (1) or (2), 
        and recovery of any such overpayments.''.
            (3) Effective dates.--The amendment made by paragraph (1) 
        shall be effective on and after October 1, 2002. The amendment 
        made by paragraph (2) shall be effective on and after October 
        1, 2005.

SEC. 132. ESTABLISHMENT OF MEDICARE ADMINISTRATIVE FEE FOR SUBMISSION 
              OF PAPER CLAIMS.

    (a) Imposition of Fee.--Notwithstanding any other provision of law, 
the Secretary of Health and Human Services shall establish (in the form 
of a separate fee or reduction of payment otherwise made under the 
medicare program under title XVIII of the Social Security Act) an 
administrative fee of $1 for the submission of a claim in a paper or 
non-electronic form for items or services for which payment is sought 
under such title.
    (b) Exception Authority.--The Secretary--
            (1) shall waive the imposition of a fee under subsection 
        (a) in cases in which there is no method available for the 
        submission of claims other than in a written form; and
            (2) may waive the imposition of such a fee in such unusual 
        cases as the Secretary finds appropriate.
    (c) Effective Date.--Subsection (a) applies to claims submitted on 
or after January 1, 2005.
    (d) The Secretary shall make available at no charge, public domain 
software to facilitate the filing of electronic forms and claims under 
title XVIII and XIX of the Social Security Act.

               Subtitle D--Long-Term Hospital Provisions

SEC. 141. FINDINGS AND PURPOSES OF SUBTITLE.

    (a) Findings.--Congress finds the following:
            (1) The use of inpatient hospital services has been 
        declining, and is likely to continue to decline, with the 
        advent of new pharmaceuticals, technologies, and outpatient 
        services.
            (2) In many areas hospitals are often half occupied.
            (3) The quality of care among hospitals may vary 
        significantly, with evidence that complicated and difficult 
        procedures carried out in a hospital that does not perform a 
        large volume of such procedures may create problems with 
        outcomes.
            (4) Regions and communities expect a full range of quality 
        medical services in an area so as to ensure that hospitalized 
        individuals are near family and friends--a goal which may 
        compound the quality outcomes problem described in paragraph 
        (3).
            (5) Hospitals have been, and increasingly will be, faced, 
        with cost control pressures from public and private programs.
            (6) Hospital emergency rooms furnish essential life-saving 
        services and must be available in all areas. But they 
        frequently provide uncompensated care, which increases 
        financial pressure on hospitals.
            (7) There are approximately 3 million rural residents 
        living more than 30 minutes from the nearest emergency room, 
        and it is increasingly clear that the nation needs a 
        coordinated emergency room (ER) policy.
            (8) There is a need for a major increase in medical 
        information technology investment so as to improve quality, 
        reduce paperwork, and ensure the best patterns of practice.
    (b) Purpose.--It is the purpose of this subtitle to use medicare to 
encourage the development of a national hospital policy that delivers 
more efficient and better quality care, ensures access to emergency 
room services to all citizens in a timely manner, and provides 
necessary regional quality hospital services.

SEC. 142. REDUCTIONS IN MEDICARE CAPITAL PAYMENTS IN CASE OF EXCESS BED 
              SUPPLY IN HOSPITALS WITHOUT A PLAN OF ADJUSTMENT.

    (a) In General.--Notwithstanding any other provision of law, the 
Secretary of Health and Human Services may, for cost reporting periods 
and discharges occurring on or after October 1, 2005, reduce by 25 
percent medicare capital payments for a hospital located in a hospital 
catchment area if--
            (1) the hospital bed ratio for the area for that type of 
        hospital is higher than the national average hospital bed ratio 
        for that type of hospital; and
            (2) the average hospital occupancy rate for the hospital is 
        below the average hospital occupancy rate for that type of 
        hospital.
    (b) Limitation on Amount of Reduction.--The reduction in payment 
under subsection (a) may not exceed 25 percent of the amount of the 
medicare capital payments.
    (c) Exceptions.--The Secretary shall not make a reduction under 
subsection (a) insofar as the Secretary determines that such reduction 
would be inappropriate as--
            (1) it would adversely effect an ongoing plan for the 
        hospital to reduce the number of acute care inpatient hospital 
        beds, whether directly or through closure or merger with 
        another hospital and such plan has been developed through 
        public hearings, with community input, and has a schedule for 
        implementation;
            (2) additional capacity will be required to meet the needs 
        of an underserved population, such as a growing suburban area 
        and the governor of the State attests to such requirement; or
            (3) the hospital has been certified as a critical access 
        hospital under section 1820(e) of the Social Security Act (42 
        U.S.C. 1395i-4(e)) and is part of a State rural health care 
        plan.
    (d) Definitions.--For purposes of this section:
            (1) PPS hospital; pps-exempt hospital.--The term ``PPS 
        hospital'' has the meaning given the term ``subsection (d) 
        hospital'' in section 1886(d)(1)(B) of the Social Security Act 
        (42 U.S.C. 1395ww(d)(1)(B)), and the term ``PPS-exempt 
        hospital'' means a hospital other than a PPS hospital.
            (2) Type of hospital.--The term ``type of hospital'' means 
        PPS hospitals and each type of hospital described in a clause 
        of section 1886(d)(1)(B) of the Social Security Act (42 U.S.C. 
        1395ww(d)(1)(B)).
            (3) Hospital catchment area.--The term ``hospital catchment 
        area'' means a standard metropolitan statistical area or such 
        area as the Secretary determines appropriate.
            (4) Hospital bed ratio.--
                    (A) In general.--The term ``hospital bed ratio'' 
                means, for an area and a type of hospital and as 
                determined by the Secretary, the ratio of--
                            (i) the number of licensed inpatient 
                        hospital beds for that type of hospital in the 
                        area, to
                            (ii) the population of the area.
                    (B) Case mix adjustment authority.--In determining 
                a hospital bed ratio, the Secretary may provide for 
                such adjustment as may be appropriate to take into 
                account differences in the case mix of the population 
                served by the hospital.
            (5) Hospital occupancy rate.--The term ``hospital occupancy 
        rate'' means, for a hospital and period and as determined by 
        the Secretary, the average number of inpatient beds in the 
        hospital which are occupied on any day in that period, divided 
        by the average total number of licensed inpatient beds in the 
        hospital on any day in that period.
            (6) Medicare capital payments.--The term ``medicare capital 
        payments'' means payments to a hospital under section 1886 of 
        the Social Security Act (42 U.S.C. 1395ww) for capital-related 
        costs, and includes payments under section 1886(g) of such Act, 
        but does not include payments for a return on equity capital.
            (7) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.

SEC. 143. SPECIAL PAYMENTS TO ESSENTIAL HOSPITALS AND DEVELOPMENT OF 
              ECONOMIC RECOVERY PLAN.

    (a) In General.--Section 1886(g) (42 U.S.C. 1395ww(g)) is amended 
by adding at the end the following:
    ``(5)(A) Effective beginning October 1, 2003, in the case of a 
deemed hospital (as defined in subparagraph (B)), the Secretary shall 
increase all payments for all services provided under this title by 
such deemed hospital (including in-patient, out-patient, skilled 
nursing facility, home health agency, hospice, and end-stage renal 
disease, and other covered services provided by such deemed hospital) 
by 10 percent for a period of 5 fiscal years, subject to the conditions 
under paragraph (6).
    ``(B) For purposes of this paragraph and paragraphs (6) and (7), a 
`deemed hospital' is a hospital in a hospital referral region--
            ``(i) that is defined by the The Center for the Evaluative 
        Clinical Sciences, Dartmouth Medical School (popularly known as 
        the `Dartmouth Atlas of Health Care'), and as may be updated by 
        such Center, except that the Secretary may by regulation 
        provide for criteria to adjust the hospitals to be included or 
        excluded from such a hospital referral region;
            ``(ii) that has 75 percent of the hospitals in the region, 
        for the last completed cost report period, having had negative 
        medicare operating margins and negative total operating 
        margins; and
            ``(iii) that has a medicare-eligible beneficiary patient 
        discharge percentage for hospitals in the region exceeding 40 
        percent;
but only if the hospital had agreed to participate in the development 
of a cooperative economic recovery plan described in paragraph (6).
Such hospitals in a referral region shall be deemed to be essential 
hospitals necessary for the delivery of health care to all medicare and 
other residents of the region.
    ``(6)(A) Within one year of receiving deemed status and higher 
medicare payments under paragraph (5), each hospital in the referral 
region, either individually or (notwithstanding any other provision of 
law) cooperatively, shall submit an economic recovery plan to the 
Secretary for long-range (post-deemed status) financial viability after 
the end of increased payments under paragraph (5). The Secretary shall 
offer assistance in the development of such plan or plans.
    ``(B) Such plan may include capital payments and operating payments 
to--
            ``(i) right-size capacity;
            ``(ii) coordinate and share high cost services;
            ``(iii) ensure a viable regional emergency room network and 
        access;
            ``(iv) convert unused acute care beds to skilled nursing 
        facility, intermediate care facility, or assisted living 
        facility support facilities;
            ``(v) assist in the conversion of unused acute care beds to 
        psychiatric, long-term care, or rehabilitation care hospital 
        services as are determined to be in short supply;
            ``(vi) finance the development and implementation of 
        medical information technology systems that are compatible 
        within the region and the nation and which improve quality of 
        care and reduce paperwork cost and burdens; and
            ``(vii) such other adjustments to the current acute care 
        hospital facility as shall ensure the long-term economic 
        viability of the facility and the continuation of essential 
        health care services to the community.
    ``(C) The Secretary shall review such economic recovery plans, 
provide assistance in the improvement and modification of such plans, 
and within one year of receipt of a plan which the Secretary determines 
has a reasonable opportunity of ensuring the long term viability of the 
facility or facilities, the Secretary shall further increase the 
Medicare payment increases described in paragraph (5) by such 
additional amount as to ensure the successful completion of the 
economic recovery plan or plans under this paragraph.
    ``(7) Notwithstanding any other provision of law, the additional 
payments made to deemed hospitals under paragraphs (5) and (6) shall 
not result in payment reductions to any non-deemed hospital or provider 
under this title.''.

SEC. 144. UNIFORM HOSPITAL COST REPORTING.

    Each hospital, as a requirement under a participation agreement 
under section 1866(a) of the Social Security Act (42 U.S.C. 1395cc(a)) 
for each cost reporting period beginning during or after fiscal year 
2003, shall provide for the reporting of cost information to the 
Secretary of Health and Human Services with respect to any hospital 
care provided in a uniform manner consistent with standards established 
by the Secretary to carry out section 4007(c) of the Omnibus Budget 
Reconciliation Act of 1987 and in an electronic form consistent with 
standards established by the Secretary.

SEC. 145. MEDICARE PAYMENTS FOR INPATIENT HOSPITAL SERVICES INVOLVING 
              EMERGENCY CARE; NATIONAL CONFERENCE ON EMERGENCY CARE.

    (a) MedPAC Report on DRG Weighting Factors.--The Medicare Payment 
Advisory Commission shall submit a report to Congress and the Secretary 
of Health and Human Services, by January 1, 2003, on whether the DRG 
weighting factors under section 1886(d)(4)(B) of the Social Security 
Act for diagnosis-related groups associated with emergency care are 
adequate to cover the costs of emergency room use within discharges 
classified within such groups.
    (b) Adjustment of Weighting Factors.--Taking into account the 
report submitted under subsection (a), the Secretary of Health and 
Human Services shall make appropriate adjustments in the DRG weighting 
factors described in subsection (a) for discharges occurring on or 
after January 1, 2004, as may be appropriate to ensure that hospital 
emergency room costs attributable to medicare patients are 
appropriately covered.
    (c) National Conference on ER Policy.--Not later than 1 year after 
the date of the enactment of this Act, the Secretary of Health and 
Human Services shall convene a National Conference on the State of 
Emergency Room Care and Access in the United States. Such conference 
shall explore the current state of emergency room care, future trends, 
and make recommendations on whether a national emergency room policy 
should be developed to ensure timely access to emergency rooms for all 
residents of the United States. The conference shall be open to the 
public and the Secretary shall appoint up to 30 members of the public, 
the provider community, and other stakeholders to participate in the 
development of the conference report and shall designate one to serve 
as chairman.

                TITLE II--MODERNIZING MEDICARE BENEFITS

                 Subtitle A--Prescription Drug Benefit

SEC. 201. OPTIONAL MEDICARE OUTPATIENT PRESCRIPTION MEDICINE PROGRAM 
              UNDER TITLE XVIII.

    (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--Prescription Medicine Benefit for the Aged and Disabled

              ``eligibility; optional enrollment; coverage

    ``Sec. 1859. (a) Eligibility.--Each individual who is enrolled 
under this part is eligible to enroll in accordance with this section 
for outpatient prescription medicine benefits under this part.
    ``(b) Optional 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, 2003, the initial general enrollment period 
                shall begin on August 1, 2003, and shall end on March 
                1, 2004.
                    ``(B) Individual covered in future.--In the case of 
                an individual who first satisfies subsection (a) on or 
                after November 1, 2003, 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 by reason of the individual's (or 
                        the individual's spouse's) current 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.
                    ``(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 employee; 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 that are at least 
                equivalent to (or greater than) the benefits made 
                available under this part, if such enrollment is 
                terminated because of the termination 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 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 prescription 
                        medicine benefits 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 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 1859B(a)(2).
            ``(5) Information.--
                    ``(A) In general.--The Secretary shall broadly 
                distribute information to eligible beneficiaries 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, 2004. 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).

                               ``benefits

    ``Sec. 1859A. (a) In General.--Subject to the succeeding provisions 
of this section, the benefits provided to an enrollee by the program 
under this part shall consist of entitlement to have payment made on 
the individual's behalf for covered outpatient prescription medicines.
    ``(b) Covered Outpatient Medicine Defined.--
            ``(1) In general.--Except as provided in paragraph (2), for 
        purposes of this part the term `covered outpatient 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.
                    ``(E) Smoking cessation agents (as specified by the 
                Secretary)
            ``(2) Exclusion.--The term `covered outpatient medicine' 
        does not include any product--
                    ``(A) except as provided in paragraphs (1)(D) and 
                (1)(E), which may be distributed to individuals without 
                a prescription;
                    ``(B) 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;
                    ``(C) that was covered under this title on the day 
                before the date of the enactment of the Medicare 
                Modernization and Solvency Act of 2001; or
                    ``(D) that is a therapeutically equivalent 
                replacement for a product described in subparagraph (B) 
                or (C), as determined by the Secretary.
    ``(c) Payment of Benefits.--
            ``(1) In general.--Subject to paragraphs (2) and (3), 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, amounts equal to the price for which the medicine is 
        made available under this part (consistent with subsection (d) 
        and including a reasonable dispensing fee). In no case shall 
        the reimbursement for a prescribed nonformulary medicine 
        without a restrictive prescription be more than the lowest 
        reimbursement for a formulary medicine in the therapeutic class 
        of the prescribed medicine.
            ``(2) Cost-sharing.--
                    ``(A) Deductible.--The amount of payment under 
                paragraph (1) for expenses incurred in a year, 
                beginning with 2004, shall be reduced by an annual 
                deductible equal to $250.
                    ``(B) Application of limited coinsurance.--The 
                amount of payment under paragraph (1) for expenses 
                incurred in a year shall be reduced (subject to the 
                stop-loss limit under subparagraph (C)) by coinsurance 
                equal to 20 percent of the price or other amount 
                described in paragraph (1) (except as the Secretary may 
                otherwise provide under section 1859D(c)).
                    ``(C) Reduction in coinsurance for costs exceeding 
                an amount.--
                            ``(i) In general.--Subject to clause (ii), 
                        once an enrollee has incurred aggregate cost-
                        sharing under subparagraph (B) (including cost-
                        sharing under part B attributable to outpatient 
                        prescription drugs or biologicals) equal to 
                        $2,000 for expenses in a year, the coinsurance 
                        under subparagraph (B) shall be reduced from 20 
                        percent to 5 percent.
                            ``(ii) Continued application of coinsurance 
                        for certain unnecessarily expensive drugs.--The 
                        reduction in coinsurance under clause (i) shall 
                        not apply to a prescribed formulary medicine 
                        without a restricted prescription that is more 
                        expensive than the lowest cost medicine in the 
                        same therapeutic class.
                    ``(D) Inflation adjustment.--
                            ``(i) In general.--In the case of any year 
                        beginning after 2004, each of the dollar 
                        amounts in subparagraphs (A) and (C) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the percentage change 
                                estimated by the Secretary for the 
                                period beginning with 2004 and ending 
                                with the year involved as provided 
                                under section 1859F.
                            ``(ii) Rounding.--If any dollar amount 
                        after being increased under clause (i) is not a 
                        multiple of $10, such dollar amount shall be 
                        rounded to the nearest multiple of $10.
            ``(3) Application of catastrophic limit to part b cost-
        sharing for other drugs.--In addition to payments under 
        paragraph (1), there shall be paid from the Federal Medicare 
        Prescription Medicine Trust Fund, in the case of each enrollee 
        who incurs out-of-pocket expenses for outpatient prescription 
        medicines with respect to which benefits are payable under part 
        B, amounts equivalent to the amount of the reduction in cost-
        sharing that would have been made under subparagraph (B) of 
        paragraph (2) if the payment had been made for the drug under 
        this part rather than under part B.
            ``(4) Application of pricing system under part b.--For 
        purposes of making payment under part B for medicines that 
        would be covered outpatient 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 medicines under this part instead of the 
        payment basis otherwise used under such part, if it results in 
        a lower cost to the program.
    ``(d) Availability of Prescription Medicines at Reasonable 
Prices.--In order to establish reasonable prices for covered 
prescription medicines under this part, the Secretary may use a 
competitive bidding system, contract with appropriate fiscal 
intermediaries or carriers (in this section referred to as 
`contractors'), or use such other private sector practices (including 
negotiations with medicine manufacturers, wholesalers, and pharmacies) 
as may be appropriate to assure adequate reimbursement in order to have 
the participation of sufficient numbers of pharmacies to ensure 
convenient access (including adequate emergency access) to covered 
prescription medicines. The prices established under this subsection 
shall not be subject to administrative or judicial review.
    ``(e) Agreements with Any Willing Pharmacy.--
            ``(1) In general.--The Secretary (and any contractor) shall 
        enter into a participation agreement with any willing pharmacy 
        that meets the requirements of this subsection and section 
        1859D to furnish covered prescription medicines to individuals 
        enrolled under this part.
            ``(2) Terms of agreement.--An agreement under this 
        subsection shall include the following terms and conditions:
                    ``(A) Licensing.--The pharmacy shall meet (and 
                throughout the contract period continue to meet) all 
                applicable State and local licensing requirements.
                    ``(B) Access and quality standards.--The pharmacy 
                shall comply with such standards as the Secretary (and 
                such a contractor) shall establish concerning the 
                quality of, and enrolled individuals' access to, 
                pharmacy services under this part.
                    ``(C) Adherence to established prices.--The total 
                charge for each 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 established under subsection (d) with respect to 
                such medicine plus a reasonable dispensing fee 
                determined contractually with the Secretary (or 
                contractor).

                               ``premiums

    ``Sec. 1859B. (a) Amount of Premium.--
            (1) In general.--The provisions of subsections (a)(1), 
        (a)(2), (a)(3), (c), and (f) of section 1839 shall apply under 
        this part to all enrollees in the same manner as they apply 
        under part B to individuals 65 years of age or older enrolled 
        under such part.
            ``(2) Late enrollment penalty.--
                    ``(A) In general.--In the case of a late enrollment 
                described in section 1859A(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 section applicable to 
                such enrollee--
                            ``(i) by an amount that is equal to 10 
                        percent of such premium for each full 12-month 
                        period (in the same continuous period of 
                        eligibility) in which the enrollee could have 
                        been enrolled under this part but was not so 
                        enrolled; or
                            ``(ii) if determined appropriate by the 
                        Secretary, by an amount that the Secretary 
                        determines is 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--
                            ``(i) the months which elapsed between the 
                        close of the enrollee's initial enrollment 
                        period and the close of the enrollment period 
                        in which the enrollee enrolled; and
                            ``(ii) in the case of an enrollee who 
                        reenrolls under this part, the months which 
                        elapsed between the date of termination of a 
                        previous coverage period and the close of the 
                        enrollment period in which the enrollee 
                        reenrolled.
                    ``(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 drugs 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 drug 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, ceases to provide, or reduces the value of the prescription 
drug coverage under such plan to below the value of the coverage 
provided under the program under this part.
                    ``(D) Periods treated separately.--Any increase in 
                an enrollee's monthly premium under subparagraph (A) 
                with respect to a particular continuous period of 
                eligibility shall not be applicable with respect to any 
                other continuous period of eligibility which the 
                enrollee may have.
                    ``(E) Continuous period of eligibility.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of this paragraph, an enrollee's 
                        `continuous period of eligibility' is the 
                        period that begins with the first day on which 
                        the enrollee is eligible to enroll under 
                        section 1859A and ends with the enrollee's 
                        death.
                            ``(ii) Separate period.--Any period during 
                        all of which an enrollee satisfied section 
                        1859A(a) and which terminated in or before the 
                        month preceding the month in which the 
                        beneficiary attained age 65 shall be a separate 
                        `continuous period of eligibility' with respect 
                        to the enrollee (and each such period which 
                        terminates shall be deemed not to have existed 
                        for purposes of subsequently applying this 
                        paragraph).
    ``(b) Payment of Premium.--The provisions of section 1840 shall 
apply to enrollees in the same manner as they apply to individuals 
enrolled under part B.
    ``(c) Government Contribution.--The provisions of section 
1844(a)(1) shall apply to enrollees under this part in the same manner 
as they apply under part B to individuals 65 years of age or older 
enrolled under part B.
    ``(d) References.--For purposes of this section, 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.

          ``federal medicare prescription medicine trust fund

    ``Sec. 1859C. (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, including all manufacturer rebates 
as provided under section 1859F(b).
    ``(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.

                  ``administration; quality assurance

    ``Sec. 1859D. (a) In General.--The Secretary is responsible for the 
administration of this part and may enter into contracts with 
appropriate contractors (including State and local governments and 
agencies of such governments) on a national or regional basis to 
administer the program under this part in a manner similar to the 
administration under part B. The Secretary shall provide for only one 
contractor for each region, but may allow multiple specialty 
contractors in a region (such as a State or unit of local government 
serving a low-income population in an area) and may, in the case of 
multiple contractors in a region, require them to coordinate coverage 
and services in that region. Such contracts shall have such terms and 
conditions as the Secretary shall specify and shall be for such terms 
(not to exceed 5 years) as the Secretary shall specify consistent with 
this part.
    ``(b) Quality and Financial Standards and Programs.--In 
consultation with appropriate contractors 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. Such standards 
and programs shall be applied to any administrative agreements 
described in subsection (a) the Secretary enters into. Such standards 
and programs shall include the following:
            ``(1) On-line review.--A requirement 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.
            ``(2) Enrollee guidelines.--Consistent with State law, 
        application of guidelines for counseling enrollees regarding--
                    ``(A) the proper use of prescribed covered 
                outpatient medicines; and
                    ``(B) interactions and contra-indications.
            ``(3) Education.--Application of 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 medicines;
                    ``(B) instances or patterns of substandard care;
                    ``(C) potential adverse reactions to covered 
                outpatient medicines;
                    ``(D) inappropriate use of antibiotics;
                    ``(E) appropriate use of generic products; and
                    ``(F) the importance of using covered outpatient 
                medicines in accordance with the instruction of 
                prescribing providers.
            ``(4) Coordination.--Coordination with State prescription 
        drug programs, contractors, pharmacies, and other relevant 
        entities as necessary to ensure appropriate coordination of 
benefits with respect to enrolled individuals, including coordination 
of access to and payment for covered prescription medicines according 
to an individual's in-service area plan provisions, when such 
individual is traveling outside the home service area, and under such 
other circumstances as the Secretary may specify.
            ``(5) Cost data.--
                    ``(A) Requiring contracted private carriers 
                administering a prescription medicine plan to make 
                prescription medicine cost data available to the 
                Secretary.
                    ``(B) With respect to section 1859A(d)(1), 
                requiring private contractors--
                            ``(i) to maintain its prescription medicine 
                        cost data and certify the prescription medicine 
                        cost data is current, accurate, and complete, 
                        and reflects all discounts that would affect 
                        the level of payments from the Federal Medicare 
                        Prescription Drug Trust Fund to the carrier,
                            ``(ii) to make such prescription medicine 
                        cost data available for review and audit by the 
                        Secretary, and
                            ``(iii) to certify that the carrier has met 
                        the requirements of subsection (c).
                    ``(C) Requiring that all private administrative 
                contractors require participating pharmacists, 
                physicians, and manufacturers--
                            ``(i) to maintain their prescription 
                        medicine cost data,
                            ``(ii) to make such prescription medicine 
                        cost data available for review and audit by the 
                        Secretary, and
                            ``(iii) to certify that the prescription 
                        medicine cost data is current, accurate, and 
                        complete, and reflects all discounts obtained 
                        by the pharmacist or physician in the 
                        purchasing of covered outpatient medicines that 
                        were provided to the individual enrolled under 
                        the prescription medicine plan.
                    ``(D) The Secretary, either directly or through a 
                contractor, shall define, compile, and make public on 
                the Internet in an easily comparable form, the average 
                manufacturer price of all medicines covered under this 
                title.
                    ``(E) Discounts referred to in subparagraphs (B) 
                and (C) 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 prescription 
                medicine.
            ``(6) Procedures to compensate pharmacists for 
        counseling.--The Secretary shall publish procedures for 
        compensating pharmacists for providing the counseling described 
        in paragraph (2).
    ``(c) Rules Relating to Provision of Benefits.--
            ``(1) Provision of benefits.--
                    ``(A) In general.--In providing benefits under this 
                part, the Secretary (directly or through contracts) 
                shall employ mechanisms to provide benefits 
                economically, including the use of--
                            ``(i) formularies (consistent with 
                        paragraph (2));
                            ``(ii) automatic generic medicine 
                        substitution (unless the physician specifies 
                        otherwise, in which case a 30-day prescription 
                        may be dispensed pending a consultation with 
                        the physician on whether a generic substitute 
                        can be dispensed in the future);
                            ``(iii) tiered copayments (which may 
                        include copayments at a rate higher than 20 
                        percent) to encourage the use of the lowest 
                        cost, on-formulary product in cases where there 
                        is no restrictive prescription (described in 
                        subparagraph (C)(i)); and
                            ``(iv) therapeutic interchange.
                    ``(B) Construction.--Nothing in this subsection 
                shall be construed to prevent the Secretary (directly 
                or through contracts) from using incentives (including 
                a lower or higher beneficiary coinsurance) 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;
                            ``(ii) the average coinsurance charged to 
                        all beneficiaries by the Secretary (directly or 
                        through contractors) shall seek to approximate 
                        20 percent for on-formulary medicines;
                            ``(iii) a beneficiary's coinsurance shall 
                        be no greater than 20 percent if the 
                        prescription is a restrictive prescription; and
                            ``(iv) the reimbursement for a prescribed 
                        nonformulary medicine without a restrictive 
                        prescription in no case shall be more than the 
                        lowest reimbursement for a formulary medicine 
                        in the therapeutic class of the prescribed 
                        medicine.
                    ``(C) Restrictive prescription.--For purposes of 
                this section:
                            ``(i) Written prescriptions.--In the case 
                        of a written prescription for a medicine, it is 
                        a restrictive prescription only if the 
                        prescription indicates, in the writing of the 
                        physician or other qualified person prescribing 
                        the medicine and with an appropriate phrase 
                        (such as `brand medically necessary') 
                        recognized by the Secretary, that a particular 
                        medicine product must be dispensed and a brief 
                        explanation of why a restrictive prescription 
                        is necessary. Such explanation may cite 
                        literature, approved by the Food and Drug 
                        Administration, that references adverse 
                        reactions of the formulary drug.
                            ``(ii) Telephone prescriptions.--In the 
                        case of a prescription issued by telephone for 
                        a medicine, it is a restrictive prescription 
                        only if the prescription cannot be longer than 
                        30 days and the physician or other qualified 
person prescribing the medicine (through use of such an appropriate 
phrase) states that a particular medicine product must be dispensed, 
and the physician or other qualified person submits to the pharmacy 
involved, within 30 days after the date of the telephone prescription, 
a written confirmation from the physician or other qualified person 
prescribing the medicine and which indicates with such appropriate 
phrase that the particular medicine product was required to have been 
dispensed and a brief explanation of why a restrictive prescription is 
necessary. Such explanation may cite literature, approved by the Food 
and Drug Administration, that references adverse reactions of the 
formulary drug. Such written confirmation is required to refill the 
prescription.
                            ``(iii) Review of restrictive 
                        prescriptions.--The advisory committee 
                        (established under paragraph (2)(A)) may decide 
                        to review a restrictive prescription and, if 
                        so, it may approve or disapprove such 
                        restrictive prescription and, if it 
                        disapproves, upon request of the prescribing 
                        physician or the enrollee, must provide for a 
                        review by an independent contractor of such 
                        decision within 48 hours of the time of 
                        submission of the prescription, to determine 
                        whether the prescription is an eligible benefit 
                        under this part. The Secretary shall ensure 
                        that independent contractors so used are 
                        completely independent of the contractor or its 
                        advisory committee.
            ``(2) Requirements with respect to formularies.--If the 
        Secretary uses or permits the use of a formulary by a 
        contractor to contain costs under this part, the Secretary or 
        contractor shall--
                    ``(A) use an advisory committee (or a therapeutics 
                committee) comprised of licensed practicing physicians, 
                pharmacists, and other health care practitioners to 
                develop the formulary, except that no person (or 
                immediate family member) who has a conflict of interest 
                with any pharmaceutical manufacturer (such as any 
                financial tie to a manufacturer of a covered drug) 
                shall serve on the advisory committee;
                    ``(B) include in the formulary at least 1 medicine 
                from each therapeutic class and, if available, a 
                generic equivalent thereof; and
                    ``(C) disclose to current and prospective enrollees 
                and to participating providers and pharmacies in the 
                service area the nature of the formulary restrictions, 
                including information regarding the medicines included 
                in the formulary and any difference in cost-sharing 
                amounts.
            ``(3) Construction.--Nothing in this subsection shall 
        preclude the Secretary (or an administering entity under a 
        contract with the Secretary) from--
                    ``(A) educating prescribing providers, pharmacists, 
                and enrollees about medical and cost benefits of 
                formulary products;
                    ``(B) requesting prescribing providers to consider 
                a formulary product prior to dispensing of a 
                nonformulary medicine, as long as such request does not 
                unduly delay the provision of the medicine;
                    ``(C) requiring pharmacists (or contractors) to 
                substitute a generic medicine equivalent for a 
                prescribed medicine, except when the prescribed 
                medicine has a restrictive prescription;
                    ``(D) using mechanisms to encourage eligible 
                beneficiaries 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;
                    ``(E) using a competitive bidding system for each 
                therapeutic medicine class in order to include only the 
                most cost-effective medicines on the formulary;
                    ``(F) comparing medicine prices of OECD countries 
                in an effort to include the most cost-effective 
                medicines on the formulary and, in compliance with laws 
                governing the importation and re-importation of 
                pharmaceuticals, obtaining pharmaceuticals from the 
                lowest cost source that is approved for safety by the 
                Food and Drug Administration; and
                    ``(G) establishing performance standards, or 
                monetary bonuses or penalties, or both, if the 
                specified performance standards are not met, including 
                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, 
                and the accuracy and timeliness of reports.
        To encourage responsiveness to beneficiary concerns, penalties 
        or incentive bonuses, or both, may be used based on the level 
        of beneficiary satisfaction with their services, as measured by 
        beneficiary satisfaction surveys and interviews.
            ``(4) Incentives for cost and utilization management and 
        quality improvement.--
                    ``(A) In general.--The Secretary shall include in a 
                contract awarded under subsection (b) with a contractor 
                such incentives for cost and utilization management and 
                quality improvement as the Secretary may deem 
                appropriate.
                    ``(B) Risk corridors tied to performance measures 
                and other incentives.--The incentives under 
                subparagraph (A) shall include a risk corridor under 
                which--
                            ``(i) there is a 50 percent sharing of all 
                        savings (as determined based on the 
difference between the contract bid per beneficiary and the costs per 
beneficiary) greater than 5 percent; and
                            ``(ii) a 50 percent sharing of all losses 
                        (as so determined) greater than 105 percent of 
                        the contract bid per beneficiary.
                    ``(C) Other incentives.--Such incentives may also 
                include--
                            ``(i) financial incentives under which 
                        savings derived from the substitution of 
                        generic medicines in lieu of nongeneric 
                        medicines are made available to carriers, 
                        pharmacies, beneficiaries, and the Federal 
                        Medicare Prescription Medicine Trust Fund; and
                            ``(ii) any other incentive that the 
                        Secretary deems appropriate and likely to be 
                        effective in managing costs or utilization.
                    ``(D) Adjustment based on actuarial risk.--To the 
                extent that incentives under this paragraph are 
                established, the Secretary may include a methodology 
                for adjusting the payments made based on differences in 
                the actuarial risk of different enrollees being served 
                if the Secretary determines such adjustments to be 
                necessary and appropriate.
    ``(d) Confidentiality.--The Secretary shall ensure that the 
confidentiality of individually identifiable health information used 
under this part is protected, consistent with the Secretary's 
guidelines of September 11, 1997, the Privacy Rule published in the 
Federal Register on December 28, 2000, 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 drug program so long as such program has in place 
confidentiality standards that are equal to or exceed the standards 
used by the Secretary.
    ``(e) Procedures Regarding Denials of Care.--The Secretary shall 
establish guidelines for--
            ``(1) the timely review and resolution of denials of care 
        and grievances (including those regarding the use of 
        formularies under subsection (c)) by enrollees, or providers, 
        pharmacists, and other individuals acting on behalf of such 
        individual (with the individual's consent) in accordance with 
        requirements (as established by the Secretary) that are 
        comparable to such requirements for Medicare+Choice 
        organizations under part C, including expedited appeals; and
            ``(2) providing enrollees with information regarding such 
        grievances and appeals procedures at the time of enrollment 
        under this part and annually thereafter.
    ``(f) 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. Such safeguards, at a minimum, should include compliance 
programs, certification data, and recordkeeping practices. In 
developing such regulations, the Secretary shall consult with the 
Attorney General and other law enforcement and regulatory agencies.
    ``(g) 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 benefit administrator for the cost of rapid 
delivery of pharmaceuticals and any other actions necessary.

      ``compensation for employers covering retiree medicine costs

    ``Sec. 1859E. (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 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 1859C and 1859B(c). In applying the 
previous sentence with respect to section 1859B(c), 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) Maintenance of current benefits.--In the case of a 
        group health plan that is in existence prior to the date of the 
        enactment of this section and that provides medicine coverage 
        to retirees that is equal to or greater than the medicine 
        coverage provided under this part, the plan shall reimburse or 
        otherwise arrange to compensate beneficiaries for the portion 
        of such premium for at least 1 year from the date that the 
        group health plan begins participation under this section.
            ``(3) Maintenance of current benefits under certain 
        collective bargaining agreements.--In the case of a group 
        health plan that, on the date of the enactment of this section, 
        was providing medicine coverage in excess of that provided 
        under this part to eligible beneficiaries under a collective 
        bargaining agreement (other than pursuant to a labor management 
        plan operating under the Labor-Management Relations Act, 1947 
        (popularly known as the Taft-Hartley Act)), the plan shall 
        continue to provide such excess coverage to such eligible 
        beneficiaries until the later of 4 years after the date of the 
        enactment of this section or the expiration of any 
contractual obligation to provide such excess coverage that existed as 
of such date of enactment.
            ``(4) 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).
            ``(5) 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.
            ``(6) 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.--The amount of the payment for a 
        quarter shall approximate, for each such covered individual, 
        \2/3\ of the portion of the premium under subsection (a) of 
        section 1859B that is not payable by the individual under such 
        section for months in the quarter.

``promotion of pharmaceutical research on break-through medicines while 
                   providing program cost containment

    ``Sec. 1859F. (a) Monitoring Expenditures.--The Secretary shall 
monitor expenditures under this part. On October 1, 2004, the Secretary 
shall estimate total expenditures under this part for 2004.
    ``(b) Establishment of Sustainable Growth Rate.--
            ``(1) In general.--The Secretary shall establish a 
        sustainable growth rate prescription medicine target system for 
        expenditures under this part for each year after 2004.
            ``(2) Initial computation.--Such target shall equal the 
        amount of total expenditures estimated for 2004 adjusted by the 
        Secretary's estimate of a sustainable growth rate (in this 
        section referred to as an `SGR') percentage between 2004 and 
        2005. Such SGR shall be estimated based on the following:
                    ``(A) Reasonable changes in the cost of production 
                or price of covered pharmaceuticals, but in no event 
                more than the rate of increase in the consumer price 
                index for all urban consumers for the period involved.
                    ``(B) Population enrolled in this part, both in 
                numbers and in average age and severity of chronic and 
                acute illnesses.
                    ``(C) Appropriate changes in utilization of 
                pharmaceuticals, as determined by the Drug Review Board 
                (established under subsection (c)(3)) and based on best 
                estimates of utilization change if there were no 
                direct-to-consumer advertising or promotions to 
                providers.
                    ``(D) Productivity index of manufacturers and 
                distributors.
                    ``(E) Percentage of products with patent and market 
                exclusivity protection versus products without patent 
                protection and changes in the availability of generic 
                substitutes.
                    ``(F) Such other factors as the Secretary may 
                determine are appropriate.
        In no event may the sustainable growth rate exceed 120 percent 
        of the estimated per capita growth in total spending under this 
        title.
            ``(3) Computation for subsequent years.--In October of 2005 
        and each year thereafter, for purposes of setting the SGRs for 
        the succeeding year, the Secretary shall adjust each current 
        year's estimated expenditures by the estimated SGR for the 
        succeeding year, further adjusted for corrections in earlier 
        estimates and the receipt of additional data on previous years 
        spending as follows:
                    ``(A) Error estimates.--An adjustment (up or down) 
                for errors in the estimate of total expenditures under 
                this part for the previous year.
                    ``(B) Costs.--An adjustment (up or down) for 
                corrections in the cost of production of prescriptions 
                covered under this part between the current calendar 
                year and the previous year.
                    ``(C) Target.--An adjustment for any amount (over 
                or under) that expenditures in the current year under 
                this part are estimated to differ from the target 
                amount set for the year. If expenditures in the current 
                year are estimated to be--
                            ``(i) less than the target amount, future 
                        target amounts will be adjusted downward; or
                            ``(ii) more than the target amount, the 
                        Secretary shall notify all pharmaceutical 
                        manufacturers with sales of pharmaceutical 
                        prescription medicine products to medicare 
beneficiaries under this part, of a rebate requirement (except as 
provided in this subparagraph) to be deposited in the Federal Medicare 
Prescription Medicine Trust Fund.
                    ``(D) Rebate determination.--The amount of the 
                rebate described in subparagraph (C)(ii) may vary among 
                manufacturers and shall be based on the manufacturer's 
                estimated contribution to the expenditure above the 
                target amount, taking into consideration such factors 
                as--
                            ``(i) above average increases in the cost 
                        of the manufacturer's product;
                            ``(ii) increases in utilization due to 
                        promotion activities of the manufacturer, 
                        wholesaler, or retailer;
                            ``(iii) launch prices of new drugs at the 
                        same or higher prices as similar drugs already 
                        in the marketplace (so-called `me too' or 
                        `copy-cat' drugs);
                            ``(iv) the role of the manufacturer in 
                        delaying the entry of generic products into the 
                        market; and
                            ``(v) such other actions by the 
                        manufacturer that the Secretary may determine 
                        has contributed to the failure to meet the SGR 
                        target.
                The rebates shall be established under such 
                subparagraph so that the total amount of the rebates is 
                estimated to ensure that the amount the target for the 
                current year is estimated to be exceeded is recovered 
                in lower spending in the subsequent year; except that, 
                no rebate shall be made in any manufacturer's product 
                which the Food and Drug Administration has determined 
                is a breakthrough medicine (as determined under 
                subsection (c)) or an orphan medicine.
    ``(c) Breakthrough Medicines.--
            ``(1) Determination.--For purposes of this section, a 
        medicine is a `breakthrough medicine' if the Drug Review Board 
        (established under paragraph (3)) determines--
                    ``(A) 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
                    ``(B) that no other product is available to 
                beneficiaries that achieves similar results for the 
                same condition at a lower cost.
            ``(2) Condition.--An exemption from rebates under 
        subsection (b)(3) for a breakthrough medicine shall continue as 
        long as the medicine is certified as a breakthrough medicine 
        but shall be limited to 7 calendar years from 2004 or 7 
        calendar years from the date of the initial determination under 
        paragraph (1), whichever is later.
            ``(3) Drug review board.--The Drug Review Board under this 
        paragraph shall consist of the Commissioner of Food and Drugs, 
        the Directors of the National Institutes of Health, the 
        Director of the National Science Foundation, and 10 experts in 
        pharmaceuticals, medical research, and clinical care, selected 
        by the Commissioner of Food and Drugs from the faculty of 
        academic medical centers, except that no person who has (or who 
        has an immediate family member that has) any conflict of 
        interest with any pharmaceutical manufacturer shall serve on 
        the Board.
    ``(d) No Review.--The Secretary's determination of the rebate 
amounts under this section, and the Drug Review Board's determination 
of what is a breakthrough drug, are not subject to administrative or 
judicial review.

   ``coordination with comprehensive state prescription drug programs

    ``Sec. 1859G. (a) In General.--In the case of a comprehensive 
State-funded prescription drug program (in this section referred to as 
a `State program') that is in existence on the date of the enactment of 
this part, the State shall have the option of electing to use the 
program as a wrap-around program to supplement and coordinate the 
benefits with the benefits provided under this part consistent with 
this section. In the case of a State that makes such an election, the 
Secretary shall require pharmaceutical benefit managers and other 
contracting entities to coordinate with the State program in a manner 
to ensure that the State program supplements (and does not supplant) 
the program under this part.
    ``(b) Deeming.--The State program may provide that individuals who 
are enrolled in the State program and who are eligible to enroll in the 
program under this part but are not enrolled in the program under this 
part (or in a Medicare+Choice plan) are deemed enrolled in the program 
under this part.
    ``(c) Coordination of Benefits.--The State program may coordinate 
benefits in a manner so that it is a payor of last resort, including 
payment after payment may be made under this part or under a 
Medicare+Choice plan, including for individuals for whom the State 
elects to buy-in to this part or such a plan.
    ``(d) Requirement for Emergency Dispensing.--The State program may 
require a pharmaceutical benefit manager to authorize dispensing of a 
72-hour emergency supply of a medication for which a prior 
authorization is otherwise required to a person enrolled in a State 
program. The cost for such emergency supply shall be treated as a 
benefit under this part.
    ``(e) Treatment as Pharmaceutical Benefit Manager.--The State 
program may elect to treat itself as a contracting entity under this 
part with respect to individuals enrolled (or eligible to be enrolled) 
under the State program. In the case of such an election, the State 
shall maintain its existing eligibility criteria as well as existing 
benefit structure so long as such criteria and structure provide a 
standard benefit equal to or greater than the benefit provided under 
this part.
    ``(f) Confidentiality.--The Secretary shall waive any 
confidentiality requirements relating to the sharing of enrollment data 
between a State program and the Secretary in order to implement this 
section.''.
    (b) Conforming Amendments.--(1) Part C of title XVIII of such Act 
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 138(b)(4) of the Internal Revenue Code of 1986 is 
amended by striking ``1859(b)(3)'' and inserting ``1858(b)(3)''.

SEC. 202. PROVISION OF MEDICARE OUTPATIENT PRESCRIPTION DRUG 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 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 drug 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 1859D(b) for 
                        covered outpatient 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 
        twice the actuarial rate computed under section 1859B(a) (based 
        upon the provisions of section 1839(a)(1)), 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).''.
    (e) 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, when prescribed by a 
                physician in accordance with the provisions of such 
                part, regardless of whether such medicine would 
                otherwise be covered under an applicable formulary or 
                discount arrangement, but only 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 establish formularies as 
        contracting entities have under part D, but subject to an 
        independent contractor appeal or other appeal process that 
        would be applicable to determinations by such a contracting 
        entity.''.
            (4) Section 1854(e) (42 U.S.C. 1395w-24(e)) is amended by 
        adding at the end the following new paragraph:
            ``(5) Special rule for part d benefits.--In no event may a 
        Medicare+Choice organization include as part of a plan for part 
        D benefits a requirement that an enrollee pay a deductible or a 
        coinsurance percentage that exceeds 20 percent, except as 
        provided in section 1859A(c).''.

SEC. 203. 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 1859B(a).'';
            (2) in subparagraph (B), by inserting ``and section 
        1859A(b)(1)(B)'' after ``1813''; and
            (3) in subparagraph (C), by striking ``and section 
        1833(b)'' and inserting ``, section 1833(b), and section 
        1859A(b)(1)(A)''.
    (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
            (2) 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) but only insofar as it relates 
                to benefits provided under part D of title XVIII, 
                subject to section 1905(p)(4), for individuals who 
                would be qualified medicare beneficiaries described in 
                section 1905(p)(1) but for the fact that their income 
                exceeds 100 percent, but is less than 135 percent, of 
                the official poverty line (referred to in such section) 
                for a family of the size involved; and
                    ``(II) subject to section 1905(p)(4), for 
                individuals who would be qualified medicare 
                beneficiaries described in section 1905(p)(1) but for 
                the fact that their income exceeds 135 percent, but is 
                less than 150 percent, of the official poverty line 
                (referred to in such section) for a family of the size 
                involved, for making medical assistance available for a 
                portion of the medicare cost sharing described in 
                section 1905(p)(3)(A)(iii), such portion determined on 
                a sliding scale related to income;''.
    (c) Federal Financing.--The second 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)''.
    (d) Alternative Enrollment Methods.--Section 1902 (42 U.S.C. 1396a) 
is amended by adding at the end the following new subsection:
    ``(aa) In the process of enrolling low-income individuals for 
medicare cost-sharing under this title, the Secretary shall use the 
system provided under section 154 of the Social Security Act Amendments 
of 1994 for newly eligible medicare beneficiaries and shall apply a 
similar system for other medicare beneficiaries. Such system shall use 
existing Federal Government databases to identify eligibility. Such 
system shall not require that beneficiaries apply for, or enroll 
through, State medicaid systems in order to obtain medical assistance 
for medicare cost-sharing under this title.''.
    (e) Effective Date.--The amendments made by this section apply to 
medical assistance for premiums and cost-sharing incurred on or after 
January 1, 2004, with regard to whether regulations to implement such 
amendments are promulgated by such date.

SEC. 204. MEDIGAP REVISIONS.

    (a) Required Coverage of Covered Outpatient 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 and include at 
least a 5 percent copayment per prescription);''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on January 1, 2004.
    (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 2002 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, 2002. 
                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. 205. RATE REDUCTION FOR MEDICARE ELIGIBLE FEDERAL ANNUITANTS.

    (a) In General.--
            (1) The Office of Personnel Management shall, in 
        consultation with carriers offering health benefits plans 
        contracted pursuant to section 8902 of title 5, United States 
        Code, reduce the rates charged medicare eligible individuals 
        participating in such health benefit plans, by the amount, 
        prorated for each covered medicare eligible individual, of the 
        estimated cost of medical services and supplies which, but for 
        the amendments made by this subtitle, would have been payable 
        by such plans.
            (2) The reduced rates as provided under paragraph (1), 
        shall apply as of the effective dates of the respective 
        amendments.
    (b) Authorization of Availability of Employee Health Benefits Fund 
for Rate Reduction.--Funds in the Employees Health Benefits Fund 
established under section 8909 of title 5, United States Code, are 
available without fiscal year limitation for costs incurred by the 
Office of Personnel Management in making rate reductions provided under 
this section.
    (c) Definition.--For purposes of this section, The term ``medicare 
eligible individual'' means any annuitant, survivor of an annuitant, or 
former spouse of an annuitant--
            (1) who is--
                    (A) otherwise eligible for benefits under chapter 
                89 of title 5, United States Code; and
                    (B) enrolled for benefits under part D of title 
                XVIII of the Social Security Act; and
            (2) for whom benefits paid under title XVIII of the Social 
        Security Act are the primary source of health care benefits.

SEC. 206. PART B PAYMENT FOR OUTPATIENT DRUGS BASED ON ACTUAL 
              ACQUISITION COST.

    (a) In General.--Section 1842(o)(1) (42 U.S.C. 1395u(o)(1)) is 
amended by striking ``95 percent of the average wholesale price'' and 
inserting ``the actual acquisition cost to the physician, supplier, or 
other person, plus such dispensing fee as the Secretary determines is 
necessary to cover the efficient administration of the drug by the 
physician, supplier, or other person''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to drugs provided on or after January 1, 2002.

SEC. 207. COVERAGE OF HOME INFUSION DRUG THERAPY SERVICES.

    (a) In General.--Section 1832(a)(2)(A) (42 U.S.C. 1395k(a)(2)(A)) 
is amended by inserting ``and home infusion drug therapy services'' 
before the semicolon.
    (b) Home Infusion Drug Therapy Services Defined.--Section 1861 of 
such Act (42 U.S.C. 1395x), as amended by sections 102(b) and 105(b) of 
the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, as enacted into law by section 1(a)(6) of Public Law 106-
554, is amended by adding at the end the following new subsection:

                 ``Home Infusion Drug Therapy Services

    ``(ww)(1) The term `home infusion drug therapy services' means the 
items and services described in paragraph (2) furnished to an 
individual who is under the care of a physician--
            ``(A) in a setting described in paragraph (4)(A)(ii),
            ``(B) by a qualified home infusion drug therapy provider 
        (as defined in paragraph (3)) or by others under arrangements 
        with them made by that provider, and
            ``(C) under a plan established and periodically reviewed by 
        a physician.
    ``(2) The items and services described in this paragraph are such 
nursing, pharmacy, and related services (including medical supplies, 
intravenous fluids, delivery, and equipment) as are necessary to 
conduct safely and effectively a drug regimen through use of a covered 
home infusion drug (as defined in paragraph (4)), but do not include 
such covered home infusion drugs.
    ``(3) The term `qualified home infusion drug therapy provider' 
means any entity that the Secretary determines meets the following 
requirements (or, in the case of a home health agency or an entity with 
respect to which the only items and services described in paragraph (2) 
furnished by the entity are enteral nutrition therapy services, meets 
any of the following requirements which the Secretary considers 
appropriate):
            ``(A) The entity is capable of providing or arranging for 
        the items and services described in paragraph (2) and covered 
        home infusion drugs.
            ``(B) The entity maintains clinical records on all 
        patients.
            ``(C) The entity adheres to written protocols and policies 
        with respect to the provision of items and services.
            ``(D) The entity makes services available (as needed) seven 
        days a week on a 24-hour basis.
            ``(E) The entity coordinates all service with the patient's 
        physician.
            ``(F) The entity conducts a quality assessment and 
        assurance program, including drug regimen review and 
        coordination of patient care.
            ``(G) The entity assures that only trained personnel 
        provide covered home infusion drugs (and any other service for 
        which training is required to provide the service safely).
            ``(H) The entity assumes responsibility for the quality of 
        services provided by others under arrangements with the entity.
            ``(I) In the case of an entity in any State in which State 
        or applicable local law provides for the licensing of entities 
        of this nature, the entity (i) is licensed pursuant to such 
        law, or (ii) is approved, by the agency of such State or 
        locality responsible for licensing entities of this nature, as 
        meeting the standards established for such licensing.
            ``(J) The entity meets such other requirements as the 
        Secretary may determine are necessary to assure the safe and 
        effective provision of home infusion drug therapy services and 
        the efficient administration of the home infusion drug therapy 
        benefit.
    ``(4)(A) The term `covered home infusion drug' means a covered 
outpatient drug dispensed to an individual that--
            ``(i) is administered intravenously, subcutaneously, or 
        epidurally, using an access device that is inserted into the 
        body and an infusion device to control the rate of flow of the 
        drug (or through other means of administration determined by 
        the Secretary);
            ``(ii) is administered--
                    ``(I) in the individual's home,
                    ``(II) an institution used as the individual's 
                home, but only if the drug is administered during an 
                inpatient day for which payment is not made to the 
                institution under part A for inpatient or extended care 
                services furnished to the individual, or
                    ``(III) in a facility other than the individual's 
                home if the administration of the drug at the facility 
                is determined by the Secretary to be cost-effective (in 
                accordance with such criteria as the Secretary may 
                establish); and
            ``(iii) with respect to a drug furnished in a home 
        setting--
                    ``(I) is an antibiotic drug and the Secretary has 
                not determined, for the specific drug or the indication 
                to which the drug is applied, that the drug cannot 
                generally be administered safely and effectively in 
                such a setting, or
                    ``(II) is not an antibiotic drug and the Secretary 
                has determined, for the specific drug or the indication 
                to which the drug is applied, that the drug can 
                generally be administered safely and effectively in 
                such a setting.
    ``(B) Not later than January 1, 2004, (and periodically 
thereafter), the Secretary shall publish a list of the drugs, and 
indications for such drugs, that are covered home infusion drugs, with 
respect to which home infusion drug therapy may be provided under this 
title.''.
    (c) Payment.--
            (1) In general.--Section 1833 (42 U.S.C. 1395l) is 
        amended--
                    (A) in subsection (a)(2)(B), by striking ``or (E)'' 
                and inserting ``(E), or (F)'',
                    (B) in subsection (a)(2)(F), by striking ``and'' at 
                the end,
                    (C) in subsection (a)(2)(G), by striking the 
                semicolon and inserting ``; and'',
                    (D) by inserting after subsection (a)(2)(G) the 
                following new subparagraph:
                    ``(H) with respect to home infusion drug therapy 
                services, the amounts described in section 1834(n);'', 
                and
                    (E) in the first sentence of subsection (b), by 
                striking ``, (3)'' and inserting ``and home infusion 
                drug therapy services, (3)''.
            (2) Amount described.--Section 1834, as amended by section 
        223(b) of the Medicare, Medicaid, and SCHIP Benefits 
        Improvement and Protection Act of 2000, as enacted into law by 
        section 1(a)(6) of Public Law 106-554, is amended by adding at 
        the end the following new subsection:
    ``(n) Home infusion Drug Therapy Services.--
            ``(1) In general.--With respect to home infusion drug 
        therapy services, payment under this part shall be made in an 
        amount equal to the lesser of the actual charges for such 
        services or the fee schedule established under paragraph (2). 
        Payment for drugs so infused shall be made based on actual 
        acquisition costs consistent with section 1842(o) (as amended 
        by section 206 of the Medicare Modernization and Solvency Act 
        of 2001).
            ``(2) Establishment of fee schedule.--
                    ``(A) In general.--The Secretary shall establish by 
                regulation before the beginning of 2004 and each 
                succeeding year a fee schedule for home infusion drug 
                therapy services for which payment is made under this 
                part.
                    ``(B) Adjustment for services furnished by 
                institutions.--The fee schedule established by the 
                Secretary under subparagraph (A) shall provide for 
                adjustments in the case of home infusion drug therapy 
                services for which payment is made under this part that 
                are furnished by a provider of services to avoid 
                duplicative payments under this title for the service 
                costs associated with such services.''.
    (d) Certification.--Section 1835(a)(2) (42 U.S.C. 1395n(a)(2)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (E),
            (2) by striking the period at the end of subparagraph (F) 
        and inserting ``; and'', and
            (3) by inserting after subparagraph (F) the following:
                    ``(G) in the case of home infusion drug therapy 
                services, (i) such services are or were required 
                because the individual needed such services for the 
                administration of a covered home infusion drug, (ii) a 
                plan for furnishing such services has been established 
                and is reviewed periodically by a physician, and (iii) 
                such services are or were furnished while the 
                individual is or was under the care of a physician.''.
    (e) Certification of Home Infusion Drug Therapy Providers; 
Intermediate Sanctions for Noncompliance.--
            (1) Treatment as provider of services.--Section 1861(u) (42 
        U.S.C. 1395x(u)) is amended by inserting ``home infusion drug 
        therapy provider,'' after ``hospice program,''.
            (2) Consultation with state agencies and other 
        organizations.--Section 1863 (42 U.S.C. 1395z) is amended by 
        striking ``and (dd)(2)'' and inserting ``(dd)(2), and 
        (ww)(3)''.
            (3) Use of state agencies in determining compliance.--
        Section 1864(a) (42 U.S.C. 1395aa(a)) is amended--
                    (A) in the first sentence, by striking ``an agency 
                is a hospice program'' and inserting ``an agency or 
                entity is a hospice program or a home infusion drug 
                therapy provider,''; and
                    (B) in the second sentence--
                            (i) by striking ``institution or agency'' 
                        and inserting ``institution, agency, or 
                        entity'', and
                            (ii) by striking ``or hospice program'' and 
                        inserting ``hospice program, or home infusion 
                        drug therapy provider''.
            (4) Application of intermediate sanctions.--Section 1846 
        (42 U.S.C. 1395w-2) is amended--
                    (A) in the heading, by adding ``and for qualified 
                home infusion drug therapy providers'' at the end,
                    (B) in subsection (a), by inserting ``or that a 
                qualified home infusion drug therapy provider that is 
                certified for participation under this title no longer 
                substantially meets the requirements of section 
                1861(ww)(3)'' after ``under this part'', and
                    (C) in subsection (b)(2)(A)(iv), by inserting ``or 
                home infusion drug therapy services'' after ``clinical 
                diagnostic laboratory tests''.
    (f) Use of Regional Intermediaries in Administration of Benefit.--
Section 1816 (42 U.S.C. 1395h) is amended by adding at the end the 
following new subsection:
    ``(m) With respect to carrying out functions relating to payment 
for home infusion drug therapy services and covered home infusion 
drugs, the Secretary shall enter into contracts with agencies or 
organizations under this section to perform such functions on a 
regional basis.''.
    (g) Conforming Amendments.--(1) Section 1834(h)(4)(B) (42 U.S.C. 
1395m(h)(4)(B)) is amended by striking ``parenteral'' and all that 
follows through ``and does not include''.
    (2) Section 1861(n) (42 U.S.C. 1395x(n)) is amended by adding at 
the end the following: ``Such term does not include any home infusion 
drug therapy services described in section 1861(ww) or any covered 
outpatient drug used as a supply related to the furnishing of an item 
of durable medical equipment.''.
    (3) Section 1861(s)(8) (42 U.S.C. 1395x(s)(8)) is amended by 
inserting after ``dental'' the following: ``devices or enteral and 
parenteral nutrients, supplies, and equipment''.
    (h) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 2004.

SEC. 208. EXPANSION OF MEMBERSHIP OF MEDPAC TO 19.

    (a) In General.--Section 1805(c) (42 U.S.C. 1395b-6(c)) is 
amended--
            (1) in paragraph (1), by striking ``17'' and inserting 
        ``19''; and
            (2) in paragraph (2)(B), by inserting ``experts in the area 
        of pharmacology and prescription medicine benefit programs,'' 
        after ``other health professionals,''.
    (b) Initial Terms of Additional Members.--
            (1) 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 
        subsection (a)(1) are as follows:
                    (A) One member shall be appointed for 1 year.
                    (B) One member shall be appointed for 2 years.
            (2) Commencement of terms.--Such terms shall begin on 
        January 1, 2002.
    (c) Duty to Review SGR System.--Section 1805(b)(2) of such Act (42 
U.S.C. 1395b-6(b)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Examination of sgr system.--Specifically, the 
                Commission shall review the sustainable growth rate 
                prescription medicine target system established under 
                section 1859F(b).''.

SEC. 209. GAO ONGOING STUDIES AND REPORTS ON PROGRAM; MISCELLANEOUS 
              REPORTS.

    (a) Ongoing Study.--The Comptroller General of the United States 
shall conduct an ongoing study and analysis of the prescription 
medicine benefit program under part D of the Medicare Program under 
title XVIII of the Social Security Act (as added by section 201 of this 
subtitle), including an analysis of each of the following:
            (1) The extent to which the administering entities have 
        achieved volume-based discounts similar to the favored price 
        paid by other large purchasers.
            (2) Whether access to the benefits under such program are 
        in fact available to all beneficiaries, with special attention 
        given to access for beneficiaries living in rural and hard-to-
        serve areas.
            (3) The success of such program in reducing medication 
        error and adverse medicine reactions and improving quality of 
        care, and whether it is probable that the program has resulted 
        in savings through reduced hospitalizations and morbidity due 
        to fewer (A) medication errors, (B) adverse medicine reactions, 
        and (C) illnesses and injuries caused by medications no longer 
        foregone for financial reasons.
            (4) Whether patient medical record confidentiality is being 
        maintained and safeguarded.
            (5) Such other issues as the Comptroller General may 
        consider.
    (b) Reports.--The Comptroller General shall issue such reports on 
the results of the ongoing study described in subsection (a) as the 
Comptroller General shall deem appropriate and shall notify Congress on 
a timely basis of significant problems in the operation of the 
prescription medicine program and the need for legislative adjustments 
and improvements.
    (c) Miscellaneous Studies and Reports.--
            (1) Study on methods to encourage additional research on 
        breakthrough pharmaceuticals.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall seek the advice of the Secretary of the 
                Treasury on possible tax and trade law changes to 
                encourage increased original research on new 
                pharmaceutical breakthrough products designed to 
                address disease and illness.
                    (B) Report.--Not later than January 1, 2004, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include recommended methods to 
                encourage the pharmaceutical industry to devote more 
                resources to research and development of new covered 
                products than it devotes to overhead expenses.
            (2) Study on pharmaceutical sales practices and impact on 
        costs and quality of care.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall conduct a study on the methods used by 
the pharmaceutical industry to advertise and sell to consumers and 
educate and sell to providers.
                    (B) Report.--Not later than January 1, 2004, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include the estimated direct 
                and indirect costs of the sales methods used, the 
                quality of the information conveyed, and whether such 
                sales efforts lead (or could lead) to inappropriate 
                prescribing. Such report may include legislative and 
                regulatory recommendations to encourage more 
                appropriate education and prescribing practices.
            (3) Study on cost of pharmaceutical research.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall conduct a study on the costs of the 
                pharmaceutical research and the role that the taxpayer 
                provides in encouraging such research.
                    (B) Report.--Not later than January 1, 2004, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include a description of the 
                full range of taxpayer-assisted programs impacting 
                pharmaceutical research, including tax, trade, 
                Government research, and regulatory assistance. The 
                report may also include legislative and regulatory 
                recommendations that are designed to ensure that the 
                taxpayer's investment in pharmaceutical research 
                results in the availability of pharmaceuticals at 
                reasonable prices.
            (4) Report on pharmaceutical prices in major foreign 
        nations.--Not later than January 1, 2004, the Secretary of 
        Health and Human Services shall submit to Congress a report on 
        the retail price of major pharmaceutical products in various 
        developed nations, compared to prices for the same or similar 
        products in the United States. The report shall include a 
        description of the principal reasons for any price differences 
        that may exist.
            (5) Study on reduced error and paperwork through physician 
        electronic submission of prescriptions.--The Secretary shall 
        study and report within 2 years on what steps can be taken to 
        use electronic prescribing, hand-held computers, and improved 
        software resources to--
                    (A) reduce prescription errors, the prescribing of 
                inappropriate or contraindicated medicines, and to make 
                available a patient's prescription history;
                    (B) reduce paperwork;
                    (C) enable physicians to quickly and accurately 
                determine whether a particular patient's medicine is on 
                or off-formulary; and
                    (D) what the approximate cost to medicare and to 
                patients is of various electronic and information 
                technology options available to providers to improve 
                the quality and safety of the delivery of the 
                prescription drug benefit under this subtitle.
            (6) Study on ways to reduce costs of pharmaceuticals and 
        finance a medicare prescription drug benefit, without reducing 
        research on innovative pharmaceuticals.--The Secretary, in 
        coordination with the Secretary of the Treasury, shall study 
        and report on how much revenue could be raised for the 
        financing of the medicare outpatient prescription medicine 
        program, how much medicine prices could be reduced for 
        beneficiaries and for such program, and what the impact on the 
        ability to conduct research on innovative pharmaceuticals would 
        be if--
                    (A) tax incentives and export incentives were 
                eliminated on the sale of United States manufactured 
                pharmaceuticals sold to developed nations at a lower 
                cost than offered for sale in the United States;
                    (B) tax deductions for the cost of direct to 
                consumer advertising, gifts, and other direct lobbying 
                of physicians (generally know as detailing) were 
                denied;
                    (C) a tax at a 100 percent rate was imposed on any 
                income received by a pharmaceutical company as payment 
                for withholding a generic pharmaceutical product 
                approved by the Food and Drug Administration from the 
                marketplace; and
                    (D) tax deductions on amounts spent on marketing 
                and advertising in excess of research were denied.

         Subtitle B--Improving Benefits and Preventive Services

SEC. 221. AUTHORITY TO PROVIDE PREVENTIVE SERVICES UNDER PART B OF THE 
              MEDICARE PROGRAM.

    (a) Preventive Services Benefit.--Section 1861(s), as amended by 
sections 111 and 114, is further amended--
            (1) by striking ``and'' at the end of paragraph (16);
            (2) by striking the period at the end of paragraph (17) and 
        inserting ``and''; and
            (3) by inserting after paragraph (17) the following new 
        paragraph:
            ``(18) qualified preventive services, as defined in 
        subsection (yy).''.
    (b) Definition of Preventive Services.--Section 1861 (42 U.S.C. 
1395x), as amended by sections 112 and 122, is further amended by 
adding at the end the following new subsection:

                    ``Qualified Preventive Services

    ``(yy)(1) Subject to paragraph (2), the term `qualified preventive 
services' means items and services determined by the Secretary to be 
reasonable and necessary for the prevention or early detection of an 
illness or disability.
    ``(2) An item or service described in paragraph (1) shall be 
qualified as a preventive service if the Secretary determines by 
authoritative evidence that the provision of such item or service is 
cost effective. In determining if such an item or service is cost 
effective, the Secretary shall consider the following:
            ``(A) Whether furnishing such an item or service for an 
        illness or disability results in reductions in estimated 
        expenditures under the Social Security Act for the illness or 
        disability, or avoids treatment in a more expensive setting.
            ``(B) Whether the item or service improves the health of 
        the individual for whom the item or service is furnished.
            ``(C) In the case of an individual entitled to benefits 
        under this title by reason of section 226(b), whether the item 
        or service facilitates the return to work of the individual.''.
    (c) Payment for Preventive Services.--Section 1834 (42 U.S.C. 
1395m) is amended by inserting after subsection (d) the following new 
subsection:
    ``(e) Alternative Payment for Preventive Services.--
            ``(1) General payment rule.--
                    ``(A) Qualified preventive services.--The Secretary 
                shall establish by regulation a payment amount for 
                qualified preventive services, as defined in section 
                1861(yy).
                    ``(B) Other preventive services.--The Secretary may 
                establish by regulation a payment amount for each type 
                of preventive service described in subparagraphs (A) 
                through (J) of paragraph (5).
            ``(2) Payment amount.--In the case of a preventive service 
        described in paragraph (5) that may be performed as a 
        diagnostic or therapeutic service under this title, the payment 
        amount under this subsection for a service performed as a 
        preventive service shall be the same as the payment amount 
        established under this title for such service performed as a 
        diagnostic or therapeutic service.
            ``(3) Manner of payment.--In the case of a preventive 
        service described in paragraph (6) that may be performed as a 
        diagnostic or therapeutic service under this title, the 
        Secretary shall apply the same method of payment under this 
        subsection for a service performed as a preventive service as 
        the Secretary applies under this title for such service 
        performed as a diagnostic or therapeutic service.
            ``(4) Prohibition on balance billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        the furnishing of preventive services described in paragraph 
        (5) for which payment is made under this subsection in the same 
        manner as such subparagraphs apply to services furnished by a 
        practitioner described in subparagraph (C) of such section.
            ``(5) Preventive services described.--For purposes of this 
        subsection, the preventive services described in this paragraph 
        are any of the following services:
                    ``(A) Antigens (under section 1861(s)(2)(G)).
                    ``(B) Prostate cancer screening tests (as defined 
                in section 1861(oo)).
                    ``(C) Colorectal cancer screening tests (as defined 
                in section 1861(pp)).
                    ``(D) Diabetes outpatient self-management training 
                services (as defined in section 1861(qq)).
                    ``(E)(i) Pneumococcal vaccine and its 
                administration and influenza vaccine and its 
                administration (under section 1861(s)(10)(A)).
                    ``(ii) Hepatitis B vaccine and its administration 
                (under section 1861(s)(10)(B)).
                    ``(F) Screening mammography (as defined in section 
                1861(jj)).
                    ``(G) Screening pap smear and screening pelvic exam 
                (as defined in paragraphs (1) and (2), respectively, of 
                section 1861(nn)).
                    ``(H) Bone mass measurement (as defined in section 
                1861(rr)).
                    ``(I) Screening for glaucoma (as defined in section 
                1861(uu).
                    ``(J) Qualified preventive services (as defined in 
                section 1861(yy)).''.
    (d) Exclusion From Coverage Conforming Amendment.--Section 
1862(a)(1)(B) (42 U.S.C. 1395y(a)(1)(B)) is amended by striking 
``section 1861(s)(10)'' and inserting ``section 1834(e)(5)''.
    (e) Waiver of Deductible.--Section 1833(b) (42 U.S.C. 1395l(b)) is 
amended in clause (1) to read as follows: ``(1) such deductible shall 
not apply with respect to preventive service described in section 
1834(e)(5)''.
    (f) Waiver of Cost-Sharing.--Section 1833(a)(1)(B) (42 U.S.C. 
1395l(a)(1)(B)) is amended by inserting ``subject to section 1834(e),'' 
before ``the amounts paid shall be 100 percent of the reasonable 
charges for such items and services,''.
    (g) Additional Conforming Amendments.--(1) Section 1833(a)(2)(G) 
(42 U.S.C. 1395l(a)(2)(G)) is amended by inserting ``subject to section 
1834(e),'' before ``with respect to items and services''.
    (2) Section 1834(c)(1)(C) (42 U.S.C. 1395m(c)) is amended by 
striking ``the amount of the payment'' and inserting ``except as 
provided by the Secretary under subsection (e), the amount of the 
payment''.
    (3) Section 1834(d) (42 U.S.C. 1395m(d)) is amended--
            (A) in paragraph (1)(A), by striking ``The payment amount'' 
        and inserting ``Except as provided by the Secretary under 
        subsection (e), the payment amount''; and
            (B) in paragraphs (2)(A) and (3)(A), by striking ``payment 
        under section 1848'' each place it appears and inserting 
        ``except as provided by the Secretary under subsection (e), 
        payment under section 1848''.
    (4) Section 1848(g)(2)(C) (42 U.S.C. 1395w-4(g)(2)(C)) is amended--
            (A) by striking ``For'' and inserting ``(i) Subject to 
        clause (ii), for''; and
            (B) by adding at the end the following new clause:
                    ``(ii) For physicians' services consisting of 
                preventive services (as described in section 
                1834(e)(5)) furnished on or after January 1, 2003, the 
                `limiting charge' shall be 100 percent of the 
                recognized payment amount under this part for 
                nonparticipating physicians or for nonparticipating 
                suppliers or other persons.''.
    (5) Section 1848(g)(2)(D) (42 U.S.C. 1395w-4(g)(2)(D)) is amended 
by striking ``the fee schedule amount determined under subsection (a)'' 
and all that follows and inserting ``the fee schedule amount determined 
under subsection (a), in the case of preventive services (as described 
in section 1834(e)(5)) the amount determined by the Secretary under 
section 1834(e), or, if payment under this part is made on a basis 
other than the fee schedule under this section or other than the amount 
established under section 1834(e) with respect to such preventive 
services, 95 percent of the other payment basis.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 2004.

SEC. 222. SMOKING CESSATION DEMONSTRATION.

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

SEC. 223. OUTREACH TO PREVENT BLINDNESS.

    (a) In General.--Not later than July 1, 2003, the Secretary of 
Health and Human Services shall establish no fewer than 3 
demonstrations of ophthalmic care outreach in underserved communities 
designed to reduce the level of eye disease and to prevent blindness 
among medicare beneficiaries.
    (b) Duration.--The duration of the demonstrations shall be for 3 
years, except that the Secretary may extend or expand the 
demonstrations if the Secretary determines that the demonstrations have 
succeeded in reducing the level of blindness and eye disease in the 
communities serviced by 20 percent or more.
    (c) Communities To Be Served.--The communities to be served under 
the demonstrations shall be medically underserved urban and rural areas 
(under section 330 of the Public Health Service Act (42 U.S.C. 254b)) 
with rates of preventable and treatable blindness 3 or more times the 
average rate of such blindness.
    (d) Provider Networks.--Providers selected to participate in the 
demonstrations shall be a nonprofit network institute or group practice 
of ophthalmic care professionals located in the areas to be served. 
Such professionals shall include a number of minority professionals to 
reflect the population of the area served and shall offer a substantial 
level (as defined by the Secretary) of uncompensated care to others in 
the community.
    (e) Payments.--Payment to providers under the demonstrations shall 
include payment of the 20 percent copayment in cases in which the 
provide waives collection of the copayment from the beneficiary because 
of the income status of the beneficiary. Payment amounts shall include 
reasonable costs (as determined by the Secretary) for follow-up 
pharmaceuticals, eyeglasses, lenses (contract and intraocular), 
specialized ophthalmic diagnostic and therapeutic equipment, and 
telehealth equipment, insofar as payment is not otherwise made by the 
beneficiary.

SEC. 224. COVERAGE OF SUBSTITUTE ADULT DAY CARE SERVICES UNDER 
              MEDICARE.

    (a) Substitute Adult Day Care Services Benefit.--
            (1) In general.--Section 1861(m) (42 U.S.C. 1395x(m)) is 
        amended--
                    (A) in the matter preceding paragraph (1), by 
                inserting ``or paragraph (8)'' after ``paragraph (7)'';
                    (B) in paragraph (6), by striking ``and'' at the 
                end;
                    (C) in paragraph (7), by adding ``and'' at the end; 
                and
                    (D) by inserting after paragraph (7), the following 
                new paragraph:
            ``(8) substitute adult day care services (as defined in 
        subsection (zz));''.
            (2) Substitute adult day care services defined.--Section 
        1861 (42 U.S.C. 1395x), as amended by sections 112, 122, and 
        221, is further amended by adding at the end the following new 
        subsection:

     ``Substitute Adult Day Care Services; Adult Day Care Facility

    ``(zz)(1)(A) The term `substitute adult day care services' means 
the items and services described in subparagraph (B) furnished to an 
individual by an adult day care facility as a part of a plan under 
subsection (m) substituting such services for a portion of the items 
and services described in subparagraph (B)(i) furnished by a home 
health agency under the plan, as determined by the physician 
establishing the plan.
    ``(B) The items and services described in this subparagraph are the 
following items and services:
            ``(i) Items and services described in paragraphs (1) 
        through (7) of subsection (m).
            ``(ii) Transportation of the individual to and from the 
        adult day care facility in connection with any such item or 
        service.
            ``(iii) Meals.
            ``(iv) A program of supervised activities designed to 
        promote physical and mental health and furnished to the 
        individual by the adult day care facility in a group setting 
        for a period of not fewer than four and not greater than twelve 
        hours per day.
            ``(v) A medication management program (as defined in 
        subparagraph (C)).
    ``(C) For purposes of subparagraph (B)(v), the term `medication 
management program' means a program of education and services (that 
meets such criteria as the Secretary determines appropriate) to 
minimize--
            ``(i) unnecessary or inappropriate use of prescription 
        drugs; and
            ``(ii) adverse events due to unintended prescription drug-
        to-drug interactions.
    ``(2)(A) Except as provided in subparagraph (B), the term `adult 
day care facility' means a public agency or private organization, or a 
subdivision of such an agency or organization, that--
            ``(i) is engaged in providing skilled nursing services and 
        other therapeutic services;
            ``(ii) 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;
            ``(iii) provides the items and services described in 
        paragraph (1)(B); and
            ``(iv) meets the requirements of paragraphs (2) through (8) 
        of subsection (o).
    ``(B) The Secretary may waive the requirement of a surety bond 
under paragraph (7) of subsection (o) in the case of an agency or 
organization that provides a comparable surety bond under State law.
    ``(C) For purposes of payment for home health services consisting 
of substitute adult day care services furnished under this title, any 
reference to a home health agency is deemed to be a reference to an 
adult day care facility.''.
            (3) Conforming amendments.--Sections 1814(a)(2)(C) and 
        1835(a)(2)(A)(i) (42 U.S.C. 1395f(a)(2)(C) and 42 U.S.C. 
        1395f(a)(2)(C)) are each amended by striking ``section 
        1861(m)(7)'' and inserting ``paragraph (7) or (8) of section 
        1861(m)''.
    (b) Payment for Substitute Adult Day Care Services Under the Home 
Health Prospective Payment System.--Section 1895 (42 U.S.C. 1395fff), 
as amended by section 504(a) of the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (as enacted into law by 
section 1(a)(6) of Public Law 106-554), is amended--
            (1) in the first sentence of paragraph (b)(1), by inserting 
        after ``home health services'' the following: ``or home health 
        services consisting of substitute adult day care services.''; 
        and
            (2) by adding at the end the following new subsection:
    ``(f) Limitation on Payment for Substitute Adult Day Care 
Services.--
            ``(1) General limitation.--With respect to home health 
        services consisting of substitute adult day care services, no 
        payment may be made under this section for home health services 
        consisting of substitute adult day care services described in 
        clauses (ii) through (v) of section 1861(zz)(1)(B).
            ``(2) Limitation on balance billing.--An adult day care 
        facility shall accept as payment in full for substitute adult 
        day care services (including those services described in 
        clauses (ii) through (v) of section 1861(zz)(1)(B)) furnished 
        by the facility to an individual entitled to benefits under 
        this title the amount of payment provided under this section 
        for home health services consisting of substitute adult day 
        care services.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 2003.

    Subtitle C--Rationalizing Payments and Cost Sharing and Medigap

SEC. 231. EXTENSION OF BUY-DOWN OF COPAYMENT ON HOSPITAL OUTPATIENT 
              SERVICES.

    Section 1833(t)(8)(C)(ii) (42 U.S.C. 1395l(t)(8)(C)(ii)), as 
amended by section 111(a) of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, as enacted into law by section 
1(a)(6) of Public Law 106-554, is amended by striking subclause (V) and 
inserting the following:
                                    ``(V) For procedures performed in 
                                2006, 40 percent.
                                    ``(VI) For procedures performed in 
                                2007, 35 percent.
                                    ``(VII) For procedures performed in 
                                2008, 30 percent.
                                    ``(VIII) For procedures performed 
                                in 2009, 25 percent; and.
                                    ``(IX) For procedures performed in 
                                2010 and thereafter, 20 percent.''.

SEC. 232. INDEXING DEDUCTIBLE TO INFLATION.

    Section 1833(b) (42 U.S.C. 1395l(b)) is amended by inserting after 
``1991 and subsequent years'' the following: ``, adjusted annually, 
effective January 1 of each year beginning in 2004, by a percentage 
increase or decrease equal to the percentage increase or decrease in 
the consumer price index for all urban consumers (U.S. city average) 
for the 12-month period ending with June of the previous year, rounded 
to the nearest dollar''.

SEC. 233. MEDICARE DIRECT SUPPLEMENTAL INSURANCE OPTION.

    (a) In General.--Title XVIII is amended by inserting after section 
1882 the following new section:

            ``medicare direct supplemental insurance option

    ``Sec. 1882A. (a) In General.--The Secretary shall provide for the 
offering under this section of a voluntary program to supplement the 
benefits provided to individuals under parts A and B of this title.
    ``(b) Eligibility; Enrollment.--The Secretary shall provide 
procedures for the enrollment under the program under this section of 
individuals who are entitled to benefits under part A and enrolled 
under part B, but who are not enrolled in Medicare+Choice plan under 
part C (or in a plan under section 1876). Such procedures shall be 
similar in timing and manner to the procedures by which individuals are 
permitted to enroll in Medicare+Choice plans under part C, except that 
the Secretary shall provide for an initial enrollment period during 
2001 that permits benefits to be first made available under the program 
for months beginning with January 2003.
    ``(c) Benefits.--
            ``(1) In general.--Subject to paragraph (2), the benefits 
        provided under the program under this section shall consist of 
        payment of the cost of deductibles, copayments, and other cost-
        sharing amounts (including amounts attributable to and 
        permitted as balance billing) otherwise imposed or permitted 
        under this title, subject to an annual deductible of $500.
            ``(2) Nominal copayment.--
                    ``(A) In general.--With respect to each part B 
                service furnished to an enrollee under this section 
                during 2003, the enrollee shall pay a nominal copayment 
                of $5.
                    ``(B) Outyears.--For 2004 and each subsequent year, 
                the amount of nominal copayment applicable for each 
                part B service under this paragraph is equal to the 
                amount of copayment for the previous year adjusted by a 
                percentage increase or decrease equal to the percentage 
                increase or decrease in the Consumer Price Index for 
                All Urban Consumers (United States city average). Any 
                amount determined under this subparagraph that is not a 
                multiple of $1 shall be rounded to the nearest multiple 
                of $1.
                    ``(C) Counting nominal copayments toward the annual 
                deductible.--A nominal copayment payable by an enrollee 
                under this paragraph in a year shall count toward the 
                annual deductible applicable under paragraph (1) for 
                that year.
            ``(3) Administration.--The Secretary shall coordinate 
        payment of benefits under this part with those under parts A 
        and B and may, for such purpose, enter into appropriate 
        arrangements with qualified entities (which may include fiscal 
        intermediaries and carriers).
    ``(d) Premiums.--
            ``(1) Actuarial cost.--The Secretary shall, during 
        September of each year beginning with 2002, determine a monthly 
        actuarial rate for all enrollees under this section, which rate 
        shall be applicable for months in the succeeding calendar year. 
        Such actuarial rate shall be the amount the Secretary estimates 
        to be necessary so that the aggregate amount for such calendar 
        year with respect to those enrollees will equal the total 
        amount which the Secretary estimates will be payable under this 
        section for benefits accrued (including services performed and 
        related administrative costs incurred) in such calendar year 
        under the program under this section. In calculating the 
        monthly actuarial rate, the Secretary shall make adjustments to 
        take into account errors in estimations under this paragraph 
        for previous years and shall include an appropriate amount for 
        a contingency margin.
            ``(2) Premium.--The monthly premium of each individual 
        enrolled under this section for a month in a year shall be the 
        monthly actuarial rate determined under paragraph (1) for 
        months in such year. Such premium shall not vary among 
        enrollees based upon the age, place of residence, or any other 
        factors.
            ``(3) Collection.--The Secretary shall provide for the 
        collection of premiums for enrollees under this part in the 
same manner as premiums under part B are collected under section 1840, 
except that any reference in such section to the Federal Supplementary 
Medical Insurance Trust Fund shall be deemed a reference to an account 
(to be known as the ``Direct Medicare Supplemental Insurance Account'') 
to be established in the Treasury by the Secretary to carry out the 
program under this section. Amounts in such account may be invested and 
draw interest in the same manner as such Trust Fund under section 
1840(c).
            ``(4) Use of funds.--Premium amounts deposited into the 
        account established under paragraph (3) shall be available 
        without regard to appropriations to the Secretary to make 
        payment for benefits and administrative costs incurred in 
        carrying out this section.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act and shall apply to 
benefits for months beginning with January 2003.

      Subtitle D--Improved Assistance to Low-Income Beneficiaries

SEC. 241. INCREASE IN SLMB ELIGIBILITY TO 135 PERCENT OF POVERTY; 
              PRESUMPTIVE ENROLLMENT.

    (a) Increase in SLMB Eligibility to 135 Percent of Poverty.--
Section 1902(a)(10)(E)(iii) (42 U.S.C. 1396a(a)(10)(E)(iii)) is amended 
by striking ``120 percent in 1995 and years thereafter'' and inserting 
``120 percent in 1995 through 2003 and 135 percent in 2004 and years 
thereafter''.
    (b) Presumptive Enrollment.--Title XVIII is amended by inserting 
after section 1806 the following new section:

     ``voluntary provision of information to establish presumptive 
          eligibility; application of presumptive eligibility

    ``Sec. 1807. (a) At the time an individual first applies for old-
age and survivors insurance benefit payments or disability insurance 
benefit payments under title II, the Commissioner of Social Security 
shall ask the individual to voluntarily disclose and attest to 
information on expected annual income and assets. If, on the basis of 
such attestation, the Commissioner determines that the individual 
qualifies for medical assistance for medicare cost-sharing under title 
XIX (either as a qualified medicare beneficiary, special low-income 
medicare beneficiary, or otherwise), the Commissioner--
            ``(1) shall transmit, to the State agency responsible for 
        administration of such title in the State in which the 
        individual resides, a certification of such eligibility; and
            ``(2) may, at the State's option, conduct audits to 
        determine the individual's eligibility for such assistance.
    ``(b) Unless otherwise determined under such an audit, an 
individual certified under subsection (a)(1) (so long as the individual 
is eligible for benefits under title XVIII and notwithstanding any 
other provision of law) shall be treated as having had an application 
approved for the medical assistance under title XIX with respect to 
medicare cost-sharing based on the levels of income and assets 
certified by the Commissioner. Such an individual need not apply 
separately for such benefit and the individual is not required to 
reapply to qualify for such benefits.''.
    (c) Effective Date.--The amendments made by this section shall be 
effective on and after January 1, 2004.

SEC. 242. MECHANISM PROMOTING PROVISION OF MEDICARE COST-SHARING 
              ASSISTANCE TO INDIVIDUALS WHO BECOME ELIGIBLE FOR SUCH 
              ASSISTANCE.

    (a) In General.--Part A of title XI is amended by adding at the end 
the following new section:

    ``promoting provision of medicare cost-sharing assistance under 
   medicaid program for identified low-income medicare beneficiaries

    ``Sec. 1150A. (a) Requirement for Data Match.--
            ``(1) Requesting matching information.--The Commissioner of 
        Social Security shall, not less often than annually beginning 
        with 2002, transmit to the Secretary of the Treasury a list of 
        the names and taxpayer identification numbers (TIN) of medicare 
        beneficiaries (as defined in section 6103(l)(18) of the 
        Internal Revenue Code of 1986) and request that such Secretary 
        disclose to the Secretary of Health and Human Services the 
        information described in subparagraph (A) of such section.
            ``(2) Specification of income levels.--The Secretary shall 
        specify--
                    ``(A) the items that will be included in 
                determination of income for purposes of applying this 
                section and section 6103(l)(18)(A)(i) of the Internal 
                Revenue Code of 1986; and
                    ``(B) the levels of such income (based upon a 
                percentage of the Federal poverty guidelines) that 
                individuals may have and qualify for medical assistance 
                under section 1902(a)(10)(E)(i) of the Social Security 
                Act (relating to assistance for medicare cost-sharing 
                benefits under the Medicaid program).
    ``(b) Notice to Individuals Identified.--
            ``(1) Initial eligibility.--The Secretary promptly shall 
        provide for an appropriate notice to each individual identified 
        under subsection (a) who is described in section 
        6103(l)(18)(A)(i), of the following:
                    ``(A) Subject to subparagraph (B), the individual 
                is deemed eligible for some form of medical assistance 
                for some medicare cost-sharing under clause (i) or 
                (iii) of section 1902(a)(10)(E), depending on the 
                individual's level of income.
                    ``(B) By accepting such assistance the individual 
                is obligated to notify the Secretary if the individual 
                is not eligible for such assistance due to--
                            ``(i) the individual having tax-exempt 
                        income;
                            ``(ii) the individual having countable 
                        assets in excess of the maximum permissible 
                        assets, if the individual resides in a State 
                        that imposes an asset test for such 
                        eligibility; or
                            ``(iii) the individual otherwise is not 
                        eligible for such assistance.
                    ``(C) If the individual accepts such assistance 
                notwithstanding that the individual is not eligible, 
                the individual is liable to the State for the amount of 
                medical assistance provided (with interest).
            ``(2) Continued eligibility.--The Secretary shall provide 
        for an appropriate notice to each individual identified under 
        subsection (a) who is described in section 6103(l)(18)(A)(ii), 
        of the following: `Unless the individual declines coverage or 
        indicates otherwise, the individual will be enrolled for the 
        appropriate assistance with medicare cost-sharing under the 
        State plan operated under title XIX for the State in which the 
        individual resides.'
    ``(c) Notice to State.--In the case of an individual who is 
identified under this section and resides in a State, the Secretary 
shall provide for appropriate notice to the State of the individual's 
eligibility or termination of eligibility (as the case may be) for 
medical assistance under clause (i) or (iii) of section 1902(a)(10)(E), 
as the case may be.''.
    (b) Conforming Amendment to Medicaid Program.--Section 1902 (42 
U.S.C. 1396a), as amended by section 702(b) of the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000, as enacted 
into law by section 1(a)(6) of Public Law 106-554, is amended by adding 
at the end the following:
    ``(cc) A State shall treat an individual who is identified under 
section 1150A(b) as being eligible for medical assistance under clause 
(i) or (ii) of subsection (a)(10)(E) as being so eligible, until the 
Secretary notifies the State otherwise, with respect to medical 
assistance for items and services furnished on or after the date of the 
notice.''.
    (c) Authorization of Disclosure.--Section 6103(l) of the Internal 
Revenue Code of 1986 (relating to disclosure of returns and return 
information for purposes other than tax administration) is amended by 
adding at the end the following new paragraph:
            ``(18) Disclosure of certain information in order to 
        qualify for medicare cost-sharing assistance.--
                    ``(A) In general.--The Secretary shall, upon 
                written request from the Commissioner of Social 
                Security, disclose to the Secretary of Health and Human 
                Services, whether with respect to any medicare 
                beneficiary (as defined in paragraph (12)(E)(i)) 
                identified by the Commissioner--
                            ``(i) there has not been filed an income 
                        tax return for the most recent period for which 
                        the Secretary has information; or there has 
                        been such a return filed and the amount of the 
                        gross income (or the sum of such elements of 
                        gross income as the Secretary of Health and 
                        Human Services may specify) is below such level 
                        (or levels) as such Secretary may specify to 
                        carry out section 1150A(b) of the Social 
                        Security Act, treating the number of dependents 
                        as the size of the family involved; and
                            ``(ii) whether, for such an individual who 
                        qualified for medicare cost-sharing assistance 
                        described in section 1150A at any time in the 
                        previous year, the individual is still 
                        described in clause (i).
                    ``(B) Disclosure by health care financing 
                administration.--With respect to information disclosed 
                under subparagraph (A), the Administrator of the Health 
                Care Financing Administration may disclose to the 
                appropriate officials of a State responsible for 
                administration of a State plan under title XIX of the 
                Social Security Act the name, address, and TIN of the 
                preliminary eligibility determination.
                    ``(C) Special rules.--
                            ``(i) Restrictions on disclosure.--
                        Information may be disclosed under this 
                        paragraph only for purposes of, and to the 
                        extent necessary in, determining the extent to 
                        which an individual beneficiary is entitled to 
                        medical assistance under a State plan under 
                        title XIX of the Social Security Act for some 
                        or all medicare cost-sharing.
                            ``(ii) Timely responses to requests.--Any 
                        request made under subparagraph (A) shall be 
                        complied with as soon as possible but in no 
                        event later than 60 days after the date the 
                        request was made.''.

           Subtitle E--Medicare Early Access and Tax Credits

 PART I--ACCESS TO MEDICARE BENEFITS FOR INDIVIDUALS 62-TO-65 YEARS OF 
                                  AGE

SEC. 251. ACCESS TO MEDICARE BENEFITS FOR INDIVIDUALS 62-TO-65 YEARS OF 
              AGE.

    (a) In General.--Title XVIII, as amended by section 201, is 
amended--
            (1) by redesignating part E as part F; and
            (2) by inserting after part D the following new part:

 ``Part E--Purchase of Medicare Benefits by Certain Individuals Age 62-
                           to-65 Years of Age

``SEC. 1860. PROGRAM BENEFITS; ELIGIBILITY.

    ``(a) Entitlement to Medicare Benefits for Enrolled Individuals.--
            ``(1) In general.--An individual enrolled under this part 
        is entitled to the same benefits under this title as an 
        individual entitled to benefits under part A and enrolled under 
        part B.
            ``(2) Definitions.--For purposes of this part:
                    ``(A) Federal or state cobra continuation 
                provision.--The term `Federal or State COBRA 
                continuation provision' has the meaning given the term 
                `COBRA continuation provision' in section 2791(d)(4) of 
                the Public Health Service Act and includes a comparable 
                State program, as determined by the Secretary.
                    ``(B) Federal health insurance program defined.--
                The term `Federal health insurance program' means any 
                of the following:
                            ``(i) Medicare.--Part A or part B of this 
                        title (other than by reason of this part).
                            ``(ii) Medicaid.--A State plan under title 
                        XIX.
                            ``(iii) FEHBP.--The Federal employees 
                        health benefit program under chapter 89 of 
                        title 5, United States Code.
                            ``(iv) TRICARE.--The TRICARE program (as 
                        defined in section 1072(7) of title 10, United 
                        States Code).
                            ``(v) Active duty military.--Health 
                        benefits under title 10, United States Code, to 
                        an individual as a member of the uniformed 
                        services of the United States.
                    ``(C) Group health plan.--The term `group health 
                plan' has the meaning given such term in section 
                2791(a)(1) of the Public Health Service Act.
    ``(b) Eligibility of Individuals Age 62-to-65 Years of Age.--
            ``(1) In general.--Subject to paragraph (2), an individual 
        who meets the following requirements with respect to a month is 
        eligible to enroll under this part with respect to such month:
                    ``(A) Age.--As of the last day of the month, the 
                individual has attained 62 years of age, but has not 
                attained 65 years of age.
                    ``(B) Medicare eligibility (but for age).--The 
                individual would be eligible for benefits under part A 
                or part B for the month if the individual were 65 years 
                of age.
                    ``(C) Not eligible for coverage under group health 
                plans or federal health insurance programs.--The 
                individual is not eligible for benefits or coverage 
                under a Federal health insurance program (as defined in 
                subsection (a)(2)(B)) or under a group health plan 
                (other than such eligibility merely through a Federal 
                or State COBRA continuation provision) as of the last 
                day of the month involved.
            ``(2) Limitation on eligibility if terminated enrollment.--
        If an individual described in paragraph (1) enrolls under this 
        part and coverage of the individual is terminated under section 
        1860A(d) (other than because of age), the individual is not 
        again eligible to enroll under this subsection unless the 
        following requirements are met:
                    ``(A) New coverage under group health plan or 
                federal health insurance program.--After the date of 
                termination of coverage under such section, the 
                individual obtains coverage under a group health plan 
                or under a Federal health insurance program.
                    ``(B) Subsequent loss of new coverage.--The 
                individual subsequently loses eligibility for the 
                coverage described in subparagraph (A) and exhausts any 
                eligibility the individual may subsequently have for 
                coverage under a Federal or State COBRA continuation 
                provision.
            ``(3) Change in health plan eligibility does not affect 
        coverage.--In the case of an individual who is eligible for and 
        enrolls under this part under this subsection, the individual's 
        continued entitlement to benefits under this part shall not be 
        affected by the individual's subsequent eligibility for 
        benefits or coverage described in paragraph (1)(C), or 
        entitlement to such benefits or coverage.

``SEC. 1860A. ENROLLMENT PROCESS; COVERAGE.

    ``(a) In General.--An individual may enroll in the program 
established under this part only in such manner and form as may be 
prescribed by regulations, and only during an enrollment period 
prescribed by the Secretary consistent with the provisions of this 
section. Such regulations shall provide a process under which--
            ``(1) individuals eligible to enroll as of a month are 
        permitted to pre-enroll during a prior month within an 
        enrollment period described in subsection (b); and
            ``(2) each individual seeking to enroll under section 
        1860(b) is notified, before enrolling, of the deferred monthly 
        premium amount the individual will be liable for under section 
        1860C(b) upon attaining 65 years of age as determined under 
        section 1860B(c)(3).
    ``(b) Enrollment Periods.--
            ``(1) Individuals 62-to-65 years of age.--In the case of 
        individuals eligible to enroll under this part under section 
        1860(b)--
                    ``(A) Initial enrollment period.--If the individual 
                is eligible to enroll under such section for January 
                2002, the enrollment period shall begin on November 1, 
                2001, and shall end on February 28, 2002. Any such 
                enrollment before January 1, 2002, is conditioned upon 
                compliance with the conditions of eligibility for 
                January 2002.
                    ``(B) Subsequent periods.--If the individual is 
                eligible to enroll under such section for a month after 
                January 2002, the enrollment period shall begin on the 
                first day of the second month before the month in which 
                the individual first is eligible to so enroll and shall 
                end four months later. Any such enrollment before the 
                first day of the third month of such enrollment period 
                is conditioned upon compliance with the conditions of 
                eligibility for such third month.
            ``(2) Authority to correct for government errors.--The 
        provisions of section 1837(h) apply with respect to enrollment 
        under this part in the same manner as they apply to enrollment 
        under part B.
    ``(c) Date Coverage Begins.--
            ``(1) In general.--The period during which an individual is 
        entitled to benefits under this part shall begin as follows, 
        but in no case earlier than January 1, 2002:
                    ``(A) In the case of an individual who enrolls 
                (including pre-enrolls) before the month in which the 
                individual satisfies eligibility for enrollment under 
                section 1860, the first day of such month of 
                eligibility.
                    ``(B) In the case of an individual who enrolls 
                during or after the month in which the individual first 
                satisfies eligibility for enrollment under such 
                section, the first day of the following month.
            ``(2) Authority to provide for partial months of 
        coverage.--Under regulations, the Secretary may, in the 
        Secretary's discretion, provide for coverage periods that 
        include portions of a month in order to avoid lapses of 
        coverage.
            ``(3) Limitation on payments.--No payments may be made 
        under this title with respect to the expenses of an individual 
        enrolled under this part unless such expenses were incurred by 
        such individual during a period which, with respect to the 
        individual, is a coverage period under this section.
    ``(d) Termination of Coverage.--
            ``(1) In general.--An individual's coverage period under 
        this part shall continue until the individual's enrollment has 
        been terminated at the earliest of the following:
                    ``(A) General provisions.--
                            ``(i) Notice.--The individual files notice 
                        (in a form and manner prescribed by the 
                        Secretary) that the individual no longer wishes 
                        to participate in the insurance program under 
                        this part.
                            ``(ii) Nonpayment of premiums.--The 
                        individual fails to make payment of premiums 
                        required for enrollment under this part.
                            ``(iii) Medicare eligibility.--The 
                        individual becomes entitled to benefits under 
                        part A or enrolled under part B (other than by 
                        reason of this part).
                    ``(B) Termination based on age.--The individual 
                attains 65 years of age.
            ``(2) Effective date of termination.--
                    ``(A) Notice.--The termination of a coverage period 
                under paragraph (1)(A)(i) shall take effect at the 
                close of the month following for which the notice is 
                filed.
                    ``(B) Nonpayment of premium.--The termination of a 
                coverage period under paragraph (1)(A)(ii) shall take 
                effect on a date determined under regulations, which 
                may be determined so as to provide a grace period in 
                which overdue premiums may be paid and coverage 
                continued. The grace period determined under the 
                preceding sentence shall not exceed 60 days; except 
                that it may be extended for an additional 30 days in 
                any case where the Secretary determines that there was 
                good cause for failure to pay the overdue premiums 
                within such 60-day period.
                    ``(C) Age or medicare eligibility.--The termination 
                of a coverage period under paragraph (1)(A)(iii) or 
                (1)(B) shall take effect as of the first day of the 
                month in which the individual attains 65 years of age 
                or becomes entitled to benefits under part A or 
                enrolled for benefits under part B (other than by 
                reason of this part).

``SEC. 1860B. PREMIUMS.

    ``(a) Amount of Monthly Premiums.--
            ``(1) Base monthly premiums.--The Secretary shall, during 
        September of each year (beginning with 1998), determine the 
        following premium rates which shall apply with respect to 
        coverage provided under this title for any month in the 
        succeeding year:
                    ``(A) Base monthly premium for individuals 62 years 
                of age or older.--A base monthly premium for 
                individuals 62 years of age or older, equal to \1/12\ 
                of the base annual premium rate computed under 
                subsection (b) for each premium area.
            ``(2) Deferred monthly premiums for individuals 62 years of 
        age or older.--The Secretary shall, during September of each 
        year (beginning with 2001), determine under subsection (c) the 
        amount of deferred monthly premiums that shall apply with 
        respect to individuals who first obtain coverage under this 
        part under section 1860(b) in the succeeding year.
            ``(3) Establishment of premium areas.--For purposes of this 
        part, the term `premium area' means such an area as the 
        Secretary shall specify to carry out this part. The Secretary 
        from time to time may change the boundaries of such premium 
        areas. The Secretary shall seek to minimize the number of such 
        areas specified under this paragraph.
    ``(b) Base Annual Premium for Individuals 62 Years of Age or 
Older.--
            ``(1) National, per capita average.--The Secretary shall 
        estimate the average, annual per capita amount that would be 
        payable under this title with respect to individuals residing 
        in the United States who meet the requirement of section 
        1860(b)(1)(A) as if all such individuals were eligible for (and 
        enrolled) under this title during the entire year (and assuming 
        that section 1862(b)(2)(A)(i) did not apply).
            ``(2) Geographic adjustment.--The Secretary shall adjust 
        the amount determined under paragraph (1) for each premium area 
        (specified under subsection (a)(3)) in order to take into 
        account such factors as the Secretary deems appropriate and 
        shall limit the maximum premium under this paragraph in a 
        premium area to assure participation in all areas throughout 
        the United States.
            ``(3) Base annual premium.--The base annual premium under 
        this subsection for months in a year for individuals 62 years 
        of age or older residing in a premium area is equal to the 
        average, annual per capita amount estimated under paragraph (1) 
        for the year, adjusted for such area under paragraph (2).
    ``(c) Deferred Premium Rate for Individuals 62 Years of Age or 
Older.--The deferred premium rate for individuals with a group of 
individuals who obtain coverage under section 1860(b) in a year shall 
be computed by the Secretary as follows:
            ``(1) Estimation of national, per capita annual average 
        expenditures for enrollment group.--The Secretary shall 
        estimate the average, per capita annual amount that will be 
        paid under this part for individuals in such group during the 
        period of enrollment under section 1860(b). In making such 
        estimate for coverage beginning in a year before 2005, the 
        Secretary may base such estimate on the average, per capita 
        amount that would be payable if the program had been in 
        operation over a previous period of at least 4 years.
            ``(2) Difference between estimated expenditures and 
        estimated premiums.--Based on the characteristics of 
        individuals in such group, the Secretary shall estimate during 
        the period of coverage of the group under this part under 
        section 1860(b) the amount by which--
                    ``(A) the amount estimated under paragraph (1); 
                exceeds
                    ``(B) the average, annual per capita amount of 
                premiums that will be payable for months during the 
                year under section 1860C(a) for individuals in such 
                group (including premiums that would be payable if 
                there were no terminations in enrollment under clause 
                (i) or (ii) of section 1860A(d)(1)(A)).
            ``(3) Actuarial computation of deferred monthly premium 
        rates.--The Secretary shall determine deferred monthly premium 
        rates for individuals in such group in a manner so that--
                    ``(A) the estimated actuarial value of such 
                premiums payable under section 1860C(b), is equal to
                    ``(B) the estimated actuarial present value of the 
                differences described in paragraph (2).
        Such rate shall be computed for each individual in the group in 
        a manner so that the rate is based on the number of months 
        between the first month of coverage based on enrollment under 
        section 1860(b) and the month in which the individual attains 
        65 years of age.
            ``(4) Determinants of actuarial present values.--The 
        actuarial present values described in paragraph (3) shall 
        reflect--
                    ``(A) the estimated probabilities of survival at 
                ages 62 through 84 for individuals enrolled during the 
                year; and
                    ``(B) the estimated effective average interest 
                rates that would be earned on investments held in the 
                trust funds under this title during the period in 
                question.

``SEC. 1860C. PAYMENT OF PREMIUMS.

    ``(a) Payment of Base Monthly Premium.--
            ``(1) In general.--The Secretary shall provide for payment 
        and collection of the base monthly premium, determined under 
        section 1860B(a)(1) for the age (and age cohort, if applicable) 
        of the individual involved and the premium area in which the 
        individual principally resides, in the same manner as for 
        payment of monthly premiums under section 1840, except that, 
        for purposes of applying this section, any reference in such 
        section to the Federal Supplementary Medical Insurance Trust 
        Fund is deemed a reference to the Trust Fund established under 
        section 1860D.
            ``(2) Period of payment.--In the case of an individual who 
        participates in the program established by this title, the base 
        monthly premium shall be payable for the period commencing with 
        the first month of the individual's coverage period and ending 
        with the month in which the individual's coverage under this 
        title terminates.
    ``(b) Payment of Deferred Premium for Individuals Covered After 
Attaining Age 62.--
            ``(1) Rate of payment.--
                    ``(A) In general.--In the case of an individual who 
                is covered under this part for a month pursuant to an 
                enrollment under section 1860(b), subject to 
                subparagraph (B), the individual is liable for payment 
                of a deferred premium in each month during the period 
                described in paragraph (2) in an amount equal to the 
                full deferred monthly premium rate determined for the 
                individual under section 1860B(c).
                    ``(B) Special rules for those who disenroll 
                early.--
                            ``(i) In general.--If such an individual's 
                        enrollment under such section is terminated 
                        under clause (i) or (ii) of section 
                        1860A(d)(1)(A), subject to clause (ii), the 
                        amount of the deferred premium otherwise 
                        established under this paragraph shall be pro-
                        rated to reflect the number of months of 
                        coverage under this part under such enrollment 
                        compared to the maximum number of months of 
                        coverage that the individual would have had if 
                        the enrollment were not so terminated.
                            ``(ii) Rounding to 12-month minimum 
                        coverage periods.--In applying clause (i), the 
                        number of months of coverage (if not a multiple 
                        of 12) shall be rounded to the next highest 
                        multiple of 12 months, except that in no case 
                        shall this clause result in a number of months 
                        of coverage exceeding the maximum number of 
                        months of coverage that the individual would 
                        have had if the enrollment were not so 
                        terminated.
            ``(2) Period of payment.--The period described in this 
        paragraph for an individual is the period beginning with the 
        first month in which the individual has attained 65 years of 
        age and ending with the month before the month in which the 
        individual attains 85 years of age.
            ``(3) Collection.--In the case of an individual who is 
        liable for a premium under this subsection, the amount of the 
        premium shall be collected in the same manner as the premium 
        for enrollment under such part is collected under section 1840, 
        except that any reference in such section to the Federal 
        Supplementary Medical Insurance Trust Fund is deemed to be a 
reference to the Medicare Early Access Trust Fund established under 
section 1860D.
    ``(c) Application of Certain Provisions.--The provisions of section 
1840 (other than subsection (h)) shall apply to premiums collected 
under this section in the same manner as they apply to premiums 
collected under part B, except that any reference in such section to 
the Federal Supplementary Medical Insurance Trust Fund is deemed a 
reference to the Trust Fund established under section 1860D.

``SEC. 1860D. MEDICARE EARLY ACCESS TRUST FUND.

    ``(a) Establishment of Trust Fund.--
            ``(1) In general.--There is hereby created on the books of 
        the Treasury of the United States a trust fund to be known as 
        the `Medicare Early Access 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 title.
            ``(2) Premiums.--Premiums collected under section 1860B 
        shall be transferred to the Trust Fund.
    ``(b) Incorporation of Provisions.--
            ``(1) In general.--Subject to paragraph (2), subsections 
        (b) through (i) of section 1841 shall apply with respect to the 
        Trust Fund and this title in the same manner as they apply with 
        respect to the Federal Supplementary Medical Insurance Trust 
        Fund and part B, respectively.
            ``(2) Miscellaneous references.--In applying provisions of 
        section 1841 under paragraph (1)--
                    ``(A) any reference in such section to `this part' 
                is construed to refer to this part E;
                    ``(B) any reference in section 1841(h) to section 
                1840(d) and in section 1841(i) to sections 1840(b)(1) 
                and 1842(g) are deemed references to comparable 
                authority exercised under this part; and
                    ``(C) payments may be made under section 1841(g) to 
                the Trust Funds under sections 1817 and 1841 as 
                reimbursement to such funds for payments they made for 
                benefits provided under this part.

``SEC. 1860E. OVERSIGHT AND ACCOUNTABILITY.

    ``(a) Through Annual Reports of Trustees.--The Board of Trustees of 
the Medicare Early Access Trust Fund under section 1860D(b)(1) shall 
report on an annual basis to Congress concerning the status of the 
Trust Fund and the need for adjustments in the program under this part 
to maintain financial solvency of the program under this part.
    ``(b) Periodic GAO Reports.--The Comptroller General of the United 
States shall periodically submit to Congress reports on the adequacy of 
the financing of coverage provided under this part. The Comptroller 
General shall include in such report such recommendations for 
adjustments in such financing and coverage as the Comptroller General 
deems appropriate in order to maintain financial solvency of the 
program under this part.

``SEC. 1860F. ADMINISTRATION AND MISCELLANEOUS.

    ``(a) Treatment for Purposes of Title.--Except as otherwise 
provided in this part--
            ``(1) individuals enrolled under this part shall be treated 
        for purposes of this title as though the individual were 
        entitled to benefits under part A and enrolled under part B; 
        and
            ``(2) benefits described in section 1860 shall be payable 
        under this title to such individuals in the same manner as if 
        such individuals were so entitled and enrolled.
    ``(b) Not Treated As Medicare Program for Purposes of Medicaid 
Program.--For purposes of applying title XIX (including the provision 
of medicare cost-sharing assistance under such title), an individual 
who is enrolled under this part shall not be treated as being entitled 
to benefits under this title.
    ``(c) Not Treated As Medicare Program for Purposes of COBRA 
Continuation Provisions.--In applying a COBRA continuation provision 
(as defined in section 2791(d)(4) of the Public Health Service Act), 
any reference to an entitlement to benefits under this title shall not 
be construed to include entitlement to benefits under this title 
pursuant to the operation of this part.''.
    (b) Conforming Amendments to Social Security Act Provisions.--
            (1) Section 201(i)(1) of the Social Security Act (42 U.S.C. 
        401(i)(1)) is amended by striking ``or the Federal 
        Supplementary Medical Insurance Trust Fund'' and inserting 
        ``the Federal Supplementary Medical Insurance Trust Fund, and 
        the Medicare Early Access Trust Fund''.
            (2) Section 201(g)(1)(A) of such Act (42 U.S.C. 
        401(g)(1)(A)) is amended by striking ``and the Federal 
        Supplementary Medical Insurance Trust Fund established by title 
        XVIII'' and inserting
        ``, the Federal Supplementary Medical Insurance Trust Fund, and 
        the Medicare Early Access Trust Fund established by title 
        XVIII''.
            (3) Section 1820(i) of such Act (42 U.S.C. 1395i-4(i)) is 
        amended by striking ``part D'' and inserting ``part F''.
            (4) Section 1853(c) of such Act (42 U.S.C. 1395w-23(c)) is 
        amended--
                    (A) in paragraph (1), by striking ``or (7)'' and 
                inserting ``, (7), or (8)'', and
                    (B) by adding at the end the following:
            ``(8) Adjustment for early access.--In applying this 
        subsection with respect to individuals entitled to benefits 
        under part E, the Secretary shall provide for an appropriate 
        adjustment in the Medicare+Choice capitation rate as may be 
        appropriate to reflect differences between the population 
        served under such part and the population under parts A and 
        B.''.
    (c) Other Conforming Amendments.--
            (2)(A) Section 602(2)(D)(ii) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1162(2)) is amended by 
        inserting ``(not including an individual who is so entitled 
        pursuant to enrollment under section 1860A)'' after ``Social 
        Security Act''.
            (B) Section 2202(2)(D)(ii) of the Public Health Service Act 
        (42 U.S.C. 300bb-2(2)(D)(ii)) is amended by inserting ``(not 
        including an individual who is so entitled pursuant to 
        enrollment under section 1860A)'' after ``Social Security 
        Act''.
            (C) Section 4980B(f)(2)(B)(i)(V) of the Internal Revenue 
        Code of 1986 is amended by inserting ``(not including an 
        individual who is so entitled pursuant to enrollment under 
        section 1860A)'' after ``Social Security Act''.

  PART II--ACCESS TO MEDICARE BENEFITS FOR DISPLACED WORKERS 55-TO-62 
                              YEARS OF AGE

SEC. 252. ACCESS TO MEDICARE BENEFITS FOR DISPLACED WORKERS 55-TO-62 
              YEARS OF AGE.

    (a) Eligibility.--Section 1860, as inserted by section 251(a)(2), 
is amended by adding at the end the following new subsection:
    ``(c) Displaced Workers and Spouses.--
            ``(1) Displaced workers.--Subject to paragraph (3), an 
        individual who meets the following requirements with respect to 
        a month is eligible to enroll under this part with respect to 
        such month:
                    ``(A) Age.--As of the last day of the month, the 
                individual has attained 55 years of age, but has not 
                attained 62 years of age.
                    ``(B) Medicare eligibility (but for age).--The 
                individual would be eligible for benefits under part A 
                or part B for the month if the individual were 65 years 
                of age.
                    ``(C) Loss of employment-based coverage.--
                            ``(i) Eligible for unemployment 
                        compensation.--The individual meets the 
                        requirements relating to period of covered 
                        employment and conditions of separation from 
                        employment to be eligible for unemployment 
                        compensation (as defined in section 85(b) of 
                        the Internal Revenue Code of 1986), based on a 
                        separation from employment occurring on or 
                        after July 1, 2001. The previous sentence shall 
                        not be construed as requiring the individual to 
                        be receiving such unemployment compensation.
                            ``(ii) Loss of employment-based coverage.--
                        Immediately before the time of such separation 
                        of employment, the individual was covered under 
                        a group health plan on the basis of such 
                        employment, and, because of such loss, is no 
                        longer eligible for coverage under such plan 
                        (including such eligibility based on the 
                        application of a Federal or State COBRA 
                        continuation provision) as of the last day of 
                        the month involved.
                            ``(iii) Previous creditable coverage for at 
                        least 1 year.--As of the date on which the 
                        individual loses coverage described in clause 
                        (ii), the aggregate of the periods of 
                        creditable coverage (as determined under 
                        section 2701(c) of the Public Health Service 
                        Act) is 12 months or longer.
                    ``(D) Exhaustion of available cobra continuation 
                benefits.--
                            ``(i) In general.--In the case of an 
                        individual described in clause (ii) for a month 
                        described in clause (iii)--
                                    ``(I) the individual (or spouse) 
                                elected coverage described in clause 
                                (ii); and
                                    ``(II) the individual (or spouse) 
                                has continued such coverage for all 
                                months described in clause (iii) in 
                                which the individual (or spouse) is 
                                eligible for such coverage.
                            ``(ii) Individuals to whom cobra 
                        continuation coverage made available.--An 
                        individual described in this clause is an 
                        individual--
                                    ``(I) who was offered coverage 
                                under a Federal or State COBRA 
                                continuation provision at the time of 
                                loss of coverage eligibility described 
                                in subparagraph (C)(ii); or
                                    ``(II) whose spouse was offered 
                                such coverage in a manner that 
                                permitted coverage of the individual at 
                                such time.
                            ``(iii) Months of possible cobra 
                        continuation coverage.--A month described in 
                        this clause is a month for which an individual 
                        described in clause (ii) could have had 
                        coverage described in such clause as of the 
last day of the month if the individual (or the spouse of the 
individual, as the case may be) had elected such coverage on a timely 
basis.
                    ``(E) Not eligible for coverage under federal 
                health insurance program or group health plans.--The 
                individual is not eligible for benefits or coverage 
                under a Federal health insurance program or under a 
                group health plan (whether on the basis of the 
                individual's employment or employment of the 
                individual's spouse) as of the last day of the month 
                involved.
            ``(2) Spouse of displaced worker.--Subject to paragraph 
        (3), an individual who meets the following requirements with 
        respect to a month is eligible to enroll under this part with 
        respect to such month:
                    ``(A) Age.--As of the last day of the month, the 
                individual has not attained 62 years of age.
                    ``(B) Married to displaced worker.--The individual 
                is the spouse of an individual at the time the 
                individual enrolls under this part under paragraph (1) 
                and loses coverage described in paragraph (1)(C)(ii) 
                because the individual's spouse lost such coverage.
                    ``(C) Medicare eligibility (but for age); 
                exhaustion of any cobra continuation coverage; and not 
                eligible for coverage under federal health insurance 
                program or group health plan.--The individual meets the 
                requirements of subparagraphs (B), (D), and (E) of 
                paragraph (1).
            ``(3) Change in health plan eligibility affects continued 
        eligibility.--For provision that terminates enrollment under 
this section in the case of an individual who becomes eligible for 
coverage under a group health plan or under a Federal health insurance 
program, see section 1860A(d)(1)(C).
            ``(4) Reenrollment permitted.--Nothing in this subsection 
        shall be construed as preventing an individual who, after 
        enrolling under this subsection, terminates such enrollment 
        from subsequently reenrolling under this subsection if the 
        individual is eligible to enroll under this subsection at that 
        time.''.
    (b) Enrollment.--Section 1860A, as so inserted, is amended--
            (1) in subsection (a), by striking ``and'' at the end of 
        paragraph (1), by striking the period at the end of paragraph 
        (2) and inserting ``; and'', and by adding at the end the 
        following new paragraph:
            ``(3) individuals whose coverage under this part would 
        terminate because of subsection (d)(1)(B)(ii) are provided 
        notice and an opportunity to continue enrollment in accordance 
        with section 1860E(c)(1).'';
            (2) in subsection (b), by inserting after Notwithstanding 
        any other provision of law, (1) the following:
            ``(2) Displaced workers and spouses.--In the case of 
        individuals eligible to enroll under this part under section 
        1860(c), the following rules apply:
                    ``(A) Initial enrollment period.--If the individual 
                is first eligible to enroll under such section for 
                January 2002, the enrollment period shall begin on 
                November 1, 2001, and shall end on February 28, 2002. 
                Any such enrollment before January 1, 2002, is 
                conditioned upon compliance with the conditions of 
                eligibility for January 2002.
                    ``(B) Subsequent periods.--If the individual is 
                eligible to enroll under such section for a month after 
                January 2002, the enrollment period based on such 
                eligibility shall begin on the first day of the second 
                month before the month in which the individual first is 
                eligible to so enroll (or reenroll) and shall end four 
                months later.'';
            (3) in subsection (d)(1), by amending subparagraph (B) to 
        read as follows:
                    ``(B) Termination based on age.--
                            ``(i) At age 65.--Subject to clause (ii), 
                        the individual attains 65 years of age.
                            ``(ii) At age 62 for displaced workers and 
                        spouses.--In the case of an individual enrolled 
                        under this part pursuant to section 1860(c), 
                        subject to subsection (a)(1), the individual 
                        attains 62 years of age.'';
            (4) in subsection (d)(1), by adding at the end the 
        following new subparagraph:
                    ``(C) Obtaining access to employment-based coverage 
                or federal health insurance program for individuals 
                under 62 years of age.--In the case of an individual 
                who has not attained 62 years of age, the individual is 
                covered (or eligible for coverage) as a participant or 
                beneficiary under a group health plan or under a 
                Federal health insurance program.'';
            (5) in subsection (d)(2), by amending subparagraph (C) to 
        read as follows:
                    ``(C) Age or medicare eligibility.--
                            ``(i) In general.--The termination of a 
                        coverage period under paragraph (1)(A)(iii) or 
                        (1)(B)(i) shall take effect as of the first day 
                        of the month in which the individual attains 65 
                        years of age or becomes entitled to benefits 
                        under part A or enrolled for benefits under 
                        part B.
                            ``(ii) Displaced workers.--The termination 
                        of a coverage period under paragraph (1)(B)(ii) 
                        shall take effect as of the first day of the 
                        month in which the individual attains 62 years 
                        of age, unless the individual has enrolled 
                        under this part pursuant to section 1860(b) and 
                        section 1860E(c)(1).''; and
            (6) in subsection (d)(2), by adding at the end the 
        following new subparagraph:
                    ``(D) Access to coverage.--The termination of a 
                coverage period under paragraph (1)(C) shall take 
                effect on the date on which the individual is eligible 
                to begin a period of creditable coverage (as defined in 
                section 2701(c) of the Public Health Service Act) under 
                a group health plan or under a Federal health insurance 
                program.''.
    (c) Premiums.--Section 1860B, as so inserted, is amended--
            (1) in subsection (a)(1), by adding at the end the 
        following:
                    ``(B) Base monthly premium for individuals under 62 
                years of age.--A base monthly premium for individuals 
                under 62 years of age, equal to \1/12\ of the base 
                annual premium rate computed under subsection (d)(3) 
                for each premium area and age cohort.''; and
            (2) by adding at the end the following new subsection:
    ``(d) Base Monthly Premium for Individuals Under 62 Years of Age.--
            ``(1) National, per capita average for age groups.--
                    ``(A) Estimate of amount.--The Secretary shall 
                estimate the average, annual per capita amount that 
                would be payable under this title with respect to 
                individuals residing in the United States who meet the 
                requirement of section 1860(c)(1)(A) within each of the 
                age cohorts established under subparagraph (B) as if 
                all such individuals within such cohort were eligible 
                for (and enrolled) under this title during the entire 
                year (and assuming that section 1862(b)(2)(A)(i) did 
                not apply).
                    ``(B) Age cohorts.--For purposes of subparagraph 
                (A), the Secretary shall establish separate age cohorts 
                in 5 year age increments for individuals who have not 
attained 60 years of ages and a separate cohort for individuals who 
have attained 60 years of age.
            ``(2) Geographic adjustment.--The Secretary shall adjust 
        the amount determined under paragraph (1)(A) for each premium 
        area (specified under subsection (a)(3)) in the same manner and 
        to the same extent as the Secretary provides for adjustments 
        under subsection (b)(2).
            ``(3) Base annual premium.--The base annual premium under 
        this subsection for months in a year for individuals in an age 
        cohort under paragraph (1)(B) in a premium area is equal to 165 
        percent of the average, annual per capita amount estimated 
        under paragraph (1) for the age cohort and year, adjusted for 
        such area under paragraph (2).
            ``(4) Pro-ration of premiums to reflect coverage during a 
        part of a month.--If the Secretary provides for coverage of 
        portions of a month under section 1860A(c)(2), the Secretary 
        shall pro-rate the premiums attributable to such coverage under 
        this section to reflect the portion of the month so covered.''.
    (d) Administrative Provisions.--Section 1860F, as so inserted, is 
amended by adding at the end the following:
    ``(d) Additional Administrative Provisions.--
            ``(1) Process for continued enrollment of displaced workers 
        who attain 62 years of age.--The Secretary shall provide a 
        process for the continuation of enrollment of individuals whose 
        enrollment under section 1860(c) would be terminated upon 
        attaining 62 years of age. Under such process such individuals 
        shall be provided appropriate and timely notice before the date 
        of such termination and of the requirement to enroll under this 
        part pursuant to section 1860(b) in order to continue 
        entitlement to benefits under this title after attaining 62 
        years of age.
            ``(2) Arrangements with states for determinations relating 
        to unemployment compensation eligibility.--The Secretary may 
        provide for appropriate arrangements with States for the 
        determination of whether individuals in the State meet or would 
        meet the requirements of section 1860(c)(1)(C)(i).''.
    (e) Conforming Amendment to Heading to Part.--The heading of part E 
of title XVIII, as so inserted, is amended by striking ``62'' and 
inserting ``55''.

             PART III--COBRA PROTECTION FOR EARLY RETIREES

Subpart A--Amendments to the Employee Retirement Income Security Act of 
                                  1974

SEC. 253. COBRA CONTINUATION BENEFITS FOR CERTAIN RETIRED WORKERS WHO 
              LOSE RETIREE HEALTH COVERAGE.

    (a) Establishment of New Qualifying Event.--
            (1) In general.--Section 603 of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1163) is amended by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) The termination or substantial reduction in benefits 
        (as defined in section 607(7)) of group health plan coverage as 
        a result of plan changes or termination in the case of a 
        covered employee who is a qualified retiree.''.
            (2) Qualified retiree; qualified beneficiary; and 
        substantial reduction defined.--Section 607 of such Act (29 
        U.S.C. 1167) is amended--
                    (A) in paragraph (3)--
                            (i) in subparagraph (A), by inserting 
                        ``except as otherwise provided in this 
                        paragraph,'' after ``means,''; and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(D) Special rule for qualifying retirees and 
                dependents.--In the case of a qualifying event 
                described in section 603(7), the term `qualified 
                beneficiary' means a qualified retiree and any other 
                individual who, on the day before such qualifying 
                event, is a beneficiary under the plan on the basis of 
                the individual's relationship to such qualified 
                retiree.''; and
                    (B) by adding at the end the following new 
                paragraphs:
            ``(6) Qualified retiree.--The term `qualified retiree' 
        means, with respect to a qualifying event described in section 
        603(7), a covered employee who, at the time of the event--
                    ``(A) has attained 55 years of age; and
                    ``(B) was receiving group health coverage under the 
                plan by reason of the retirement of the covered 
                employee.
            ``(7) Substantial reduction.--The term `substantial 
        reduction'--
                    ``(A) means, as determined under regulations of the 
                Secretary and with respect to a qualified beneficiary, 
                a reduction in the average actuarial value of benefits 
                under the plan (through reduction or elimination of 
                benefits, an increase in premiums, deductibles, 
                copayments, and coinsurance, or any combination 
                thereof), since the date of commencement of coverage of 
                the beneficiary by reason of the retirement of the 
                covered employee (or, if later, January 6, 2001), in an 
                amount equal to at least 50 percent of the total 
                average actuarial value of the benefits under the plan 
                as of such date (taking into account an appropriate 
                adjustment to permit comparison of values over time); 
                and
                    ``(B) includes an increase in premiums required to 
                an amount that exceeds the premium level described in 
                the fourth sentence of section 602(3).''.
    (b) Duration of Coverage Through Age 65.--Section 602(2)(A) of such 
Act (29 U.S.C. 1162(2)(A)) is amended--
            (1) in clause (ii), by inserting ``or 603(7)'' after 
        ``603(6)'';
            (2) in clause (iv), by striking ``or 603(6)'' and inserting 
        ``, 603(6), or 603(7)'';
            (3) by redesignating clause (iv) as clause (vi);
            (4) by redesignating clause (v) as clause (iv) and by 
        moving such clause to immediately follow clause (iii); and
            (5) by inserting after such clause (iv) the following new 
        clause:
                            ``(v) Special rule for certain dependents 
                        in case of termination or substantial reduction 
                        of retiree health coverage.--In the case of a 
                        qualifying event described in section 603(7), 
                        in the case of a qualified beneficiary 
                        described in section 607(3)(D) who is not the 
                        qualified retiree or spouse of such retiree, 
                        the later of--
                                    ``(I) the date that is 36 months 
                                after the earlier of the date the 
                                qualified retiree becomes entitled to 
                                benefits under title XVIII of the 
                                Social Security Act, or the date of the 
                                death of the qualified retiree; or
                                    ``(II) the date that is 36 months 
                                after the date of the qualifying 
                                event.''.
    (c) Type of Coverage in Case of Termination or Substantial 
Reduction of Retiree Health Coverage.--Section 602(1) of such Act (29 
U.S.C. 1162(1)) is amended--
            (1) by striking ``The coverage'' and inserting the 
        following:
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the coverage''; and
            (2) by adding at the end the following:
                    ``(B) Certain retirees.--In the case of a 
                qualifying event described in section 603(7), in 
                applying the first sentence of subparagraph (A) and the 
                fourth sentence of paragraph (3), the coverage offered 
                that is the most prevalent coverage option (as 
                determined under regulations of the Secretary) 
                continued under the group health plan (or, if none, 
                under the most prevalent other plan offered by the same 
                plan sponsor) shall be treated as the coverage 
                described in such sentence, or (at the option of the 
                plan and qualified beneficiary) such other coverage 
                option as may be offered and elected by the qualified 
                beneficiary involved.''.
    (d) Increased Level of Premiums Permitted.--Section 602(3) of such 
Act (29 U.S.C. 1162(3)) is amended by adding at the end the following 
new sentence: ``In the case of an individual provided continuation 
coverage by reason of a qualifying event described in section 603(7), 
any reference in subparagraph (A) of this paragraph to `102 percent of 
the applicable premium' is deemed a reference to `125 percent of the 
applicable premium for employed individuals (and their dependents, if 
applicable) for the coverage option referred to in paragraph 
(1)(B)'.''.
    (e) Notice.--Section 606(a) of such Act (29 U.S.C. 1166) is 
amended--
            (1) in paragraph (4)(A), by striking ``or (6)'' and 
        inserting ``(6), or (7)''; and
            (2) by adding at the end the following:
``The notice under paragraph (4) in the case of a qualifying event 
described in section 603(7) shall be provided at least 90 days before 
the date of the qualifying event.''.
    (f) Effective Dates.--
            (1) In general.--The amendments made by this section (other 
        than subsection (e)(2)) shall apply to qualifying events 
        occurring on or after January 6, 2001. In the case of a 
        qualifying event occurring on or after such date and before the 
        date of the enactment of this Act, such event shall be deemed 
        (for purposes of such amendments) to have occurred on the date 
        of the enactment of this Act.
            (2) Advance notice of terminations and reductions.--The 
        amendment made by subsection (e)(2) shall apply to qualifying 
        events occurring after the date of the enactment of this Act, 
        except that in no case shall notice be required under such 
        amendment before such date.

         Subpart B--Amendments to the Public Health Service Act

SEC. 254. COBRA CONTINUATION BENEFITS FOR CERTAIN RETIRED WORKERS WHO 
              LOSE RETIREE HEALTH COVERAGE.

    (a) Establishment of New Qualifying Event.--
            (1) In general.--Section 2203 of the Public Health Service 
        Act (42 U.S.C. 300bb-3) is amended by inserting after paragraph 
        (5) the following new paragraph:
            ``(6) The termination or substantial reduction in benefits 
        (as defined in section 2208(6)) of group health plan coverage 
        as a result of plan changes or termination in the case of a 
        covered employee who is a qualified retiree.''.
            (2) Qualified retiree; qualified beneficiary; and 
        substantial reduction defined.--Section 2208 of such Act (42 
        U.S.C. 300bb-8) is amended--
                    (A) in paragraph (3)--
                            (i) in subparagraph (A), by inserting 
                        ``except as otherwise provided in this 
                        paragraph,'' after ``means,''; and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(C) Special rule for qualifying retirees and 
                dependents.--In the case of a qualifying event 
                described in section 2203(6), the term `qualified 
                beneficiary' means a qualified retiree and any other 
                individual who, on the day before such qualifying 
                event, is a beneficiary under the plan on the basis of 
                the individual's relationship to such qualified 
                retiree.''; and
                    (B) by adding at the end the following new 
                paragraphs:
            ``(5) Qualified retiree.--The term `qualified retiree' 
        means, with respect to a qualifying event described in section 
        2203(6), a covered employee who, at the time of the event--
                    ``(A) has attained 55 years of age; and
                    ``(B) was receiving group health coverage under the 
                plan by reason of the retirement of the covered 
                employee.
            ``(6) Substantial reduction.--The term `substantial 
        reduction'--
                    ``(A) means, as determined under regulations of the 
                Secretary of Labor and with respect to a qualified 
                beneficiary, a reduction in the average actuarial value 
                of benefits under the plan (through reduction or 
                elimination of benefits, an increase in premiums, 
                deductibles, copayments, and coinsurance, or any 
                combination thereof), since the date of commencement of 
                coverage of the beneficiary by reason of the retirement 
                of the covered employee (or, if later, January 6, 
                2001), in an amount equal to at least 50 percent of the 
                total average actuarial value of the benefits under the 
                plan as of such date (taking into account an 
                appropriate adjustment to permit comparison of values 
                over time); and
                    ``(B) includes an increase in premiums required to 
                an amount that exceeds the premium level described in 
                the fourth sentence of section 2202(3).''.
    (b) Duration of Coverage Through Age 65.--Section 2202(2)(A) of 
such Act (42 U.S.C. 300bb-2(2)(A)) is amended--
            (1) by redesignating clause (iii) as clause (iv); and
            (2) by inserting after clause (ii) the following new 
        clause:
                            ``(iii) Special rule for certain dependents 
                        in case of termination or substantial reduction 
                        of retiree health coverage.--In the case of a 
                        qualifying event described in section 2203(6), 
                        in the case of a qualified beneficiary 
                        described in section 2208(3)(C) who is not the 
                        qualified retiree or spouse of such retiree, 
                        the later of--
                                    ``(I) the date that is 36 months 
                                after the earlier of the date the 
                                qualified retiree becomes entitled to 
                                benefits under title XVIII of the 
                                Social Security Act, or the date of the 
                                death of the qualified retiree; or
                                    ``(II) the date that is 36 months 
                                after the date of the qualifying 
                                event.''.
    (c) Type of Coverage in Case of Termination or Substantial 
Reduction of Retiree Health Coverage.--Section 2202(1) of such Act (42 
U.S.C. 300bb-2(1)) is amended--
            (1) by striking ``The coverage'' and inserting the 
        following:
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the coverage''; and
            (2) by adding at the end the following:
                    ``(B) Certain retirees.--In the case of a 
                qualifying event described in section 2203(6), in 
                applying the first sentence of subparagraph (A) and the 
                fourth sentence of paragraph (3), the coverage offered 
                that is the most prevalent coverage option (as 
                determined under regulations of the Secretary of Labor) 
                continued under the group health plan (or, if none, 
                under the most prevalent other plan offered by the same 
                plan sponsor) shall be treated as the coverage 
                described in such sentence, or (at the option of the 
                plan and qualified beneficiary) such other coverage 
                option as may be offered and elected by the qualified 
                beneficiary involved.''.
    (d) Increased Level of Premiums Permitted.--Section 2202(3) of such 
Act (42 U.S.C. 300bb-2(3)) is amended by adding at the end the 
following new sentence: ``In the case of an individual provided 
continuation coverage by reason of a qualifying event described in 
section 2203(6), any reference in subparagraph (A) of this paragraph to 
`102 percent of the applicable premium' is deemed a reference to `125 
percent of the applicable premium for employed individuals (and their 
dependents, if applicable) for the coverage option referred to in 
paragraph (1)(B)'.''.
    (e) Notice.--Section 2206(a) of such Act (42 U.S.C. 300bb-6(a)) is 
amended--
            (1) in paragraph (4)(A), by striking ``or (4)'' and 
        inserting ``(4), or (6)''; and
            (2) by adding at the end the following:
``The notice under paragraph (4) in the case of a qualifying event 
described in section 2203(6) shall be provided at least 90 days before 
the date of the qualifying event.''.
    (f) Effective Dates.--
            (1) In general.--The amendments made by this section (other 
        than subsection (e)(2)) shall apply to qualifying events 
        occurring on or after January 6, 2001. In the case of a 
        qualifying event occurring on or after such date and before the 
        date of the enactment of this Act, such event shall be deemed 
        (for purposes of such amendments) to have occurred on the date 
        of the enactment of this Act.
            (2) Advance notice of terminations and reductions.--The 
        amendment made by subsection (e)(2) shall apply to qualifying 
        events occurring after the date of the enactment of this Act, 
        except that in no case shall notice be required under such 
        amendment before such date.

       Subpart C--Amendments to the Internal Revenue Code of 1986

SEC. 255. COBRA CONTINUATION BENEFITS FOR CERTAIN RETIRED WORKERS WHO 
              LOSE RETIREE HEALTH COVERAGE.

    (a) Establishment of New Qualifying Event.--
            (1) In general.--Section 4980B(f)(3) of the Internal 
        Revenue Code of 1986 is amended by inserting after subparagraph 
        (F) the following new subparagraph:
                    ``(G) The termination or substantial reduction in 
                benefits (as defined in subsection (g)(6)) of group 
                health plan coverage as a result of plan changes or 
                termination in the case of a covered employee who is a 
                qualified retiree.''.
            (2) Qualified retiree; qualified beneficiary; and 
        substantial reduction defined.--Section 4980B(g) of such Code 
        is amended--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by inserting 
                        ``except as otherwise provided in this 
                        paragraph,'' after ``means,''; and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(E) Special rule for qualifying retirees and 
                dependents.--In the case of a qualifying event 
                described in subsection (f)(3)(G), the term `qualified 
                beneficiary' means a qualified retiree and any other 
                individual who, on the day before such qualifying 
                event, is a beneficiary under the plan on the basis of 
                the individual's relationship to such qualified 
                retiree.''; and
                    (B) by adding at the end the following new 
                paragraphs:
            ``(5) Qualified retiree.--The term `qualified retiree' 
        means, with respect to a qualifying event described in 
        subsection (f)(3)(G), a covered employee who, at the time of 
        the event--
                    ``(A) has attained 55 years of age; and
                    ``(B) was receiving group health coverage under the 
                plan by reason of the retirement of the covered 
                employee.
            ``(6) Substantial reduction.--The term `substantial 
        reduction'--
                    ``(A) means, as determined under regulations of the 
                Secretary of Labor and with respect to a qualified 
                beneficiary, a reduction in the average actuarial value 
                of benefits under the plan (through reduction or 
                elimination of benefits, an increase in premiums, 
                deductibles, copayments, and coinsurance, or any 
                combination thereof), since the date of commencement of 
                coverage of the beneficiary by reason of the retirement 
                of the covered employee (or, if later, January 6, 
                2001), in an amount equal to at least 50 percent of the 
                total average actuarial value of the benefits under the 
                plan as of such date (taking into account an 
                appropriate adjustment to permit comparison of values 
                over time); and
                    ``(B) includes an increase in premiums required to 
                an amount that exceeds the premium level described in 
                the fourth sentence of subsection (f)(2)(C).''.
    (b) Duration of Coverage Through Age 65.--Section 4980B(f)(2)(B)(i) 
of such Code is amended--
            (1) in subclause (II), by inserting ``or (3)(G)'' after 
        ``(3)(F)'';
            (2) in subclause (IV), by striking ``or (3)(F)'' and 
        inserting ``, (3)(F), or (3)(G)'';
            (3) by redesignating subclause (IV) as subclause (VI);
            (4) by redesignating subclause (V) as subclause (IV) and by 
        moving such clause to immediately follow subclause (III); and
            (5) by inserting after such subclause (IV) the following 
        new subclause:
                                    ``(V) Special rule for certain 
                                dependents in case of termination or 
                                substantial reduction of retiree health 
                                coverage.--In the case of a qualifying 
                                event described in paragraph (3)(G), in 
                                the case of a qualified beneficiary 
                                described in subsection (g)(1)(E) who 
                                is not the qualified retiree or spouse 
                                of such retiree, the later of--
                                            ``(a) the date that is 36 
                                        months after the earlier of the 
                                        date the qualified retiree 
                                        becomes entitled to benefits 
                                        under title XVIII of the Social 
                                        Security Act, or the date of 
                                        the death of the qualified 
                                        retiree; or
                                            ``(b) the date that is 36 
                                        months after the date of the 
                                        qualifying event.''.
    (c) Type of Coverage in Case of Termination or Substantial 
Reduction of Retiree Health Coverage.--Section 4980B(f)(2)(A) of such 
Code is amended--
            (1) by striking ``The coverage'' and inserting the 
        following:
                            ``(i) In general.--Except as provided in 
                        clause (ii), the coverage''; and
            (2) by adding at the end the following:
                            ``(ii) Certain retirees.--In the case of a 
                        qualifying event described in paragraph (3)(G), 
                        in applying the first sentence of clause (i) 
                        and the fourth sentence of subparagraph (C), 
                        the coverage offered that is the most prevalent 
                        coverage option (as determined under 
                        regulations of the Secretary of Labor) 
                        continued under the group health plan (or, if 
                        none, under the most prevalent other plan 
                        offered by the same plan sponsor) shall be 
                        treated as the coverage described in such 
                        sentence, or (at the option of the plan and 
                        qualified beneficiary) such other coverage 
                        option as may be offered and elected by the 
                        qualified beneficiary involved.''.
    (d) Increased Level of Premiums Permitted.--Section 4980B(f)(2)(C) 
of such Code is amended by adding at the end the following new 
sentence: ``In the case of an individual provided continuation coverage 
by reason of a qualifying event described in paragraph (3)(G), any 
reference in clause (i) of this subparagraph to `102 percent of the 
applicable premium' is deemed a reference to `125 percent of the 
applicable premium for employed individuals (and their dependents, if 
applicable) for the coverage option referred to in subparagraph 
(A)(ii)'.''.
    (e) Notice.--Section 4980B(f)(6) of such Code is amended--
            (1) in subparagraph (D)(i), by striking ``or (F)'' and 
        inserting ``(F), or (G)''; and
            (2) by adding at the end the following:
``The notice under subparagraph (D)(i) in the case of a qualifying 
event described in paragraph (3)(G) shall be provided at least 90 days 
before the date of the qualifying event.''.
    (f) Effective Dates.--
            (1) In general.--The amendments made by this section (other 
        than subsection (e)(2)) shall apply to qualifying events 
        occurring on or after January 6, 2001. In the case of a 
        qualifying event occurring on or after such date and before the 
        date of the enactment of this Act, such event shall be deemed 
        (for purposes of such amendments) to have occurred on the date 
        of the enactment of this Act.
            (2) Advance notice of terminations and reductions.--The 
        amendment made by subsection (e)(2) shall apply to qualifying 
        events occurring after the date of the enactment of this Act, 
        except that in no case shall notice be required under such 
        amendment before such date.

   PART IV--50 PERCENT CREDIT AGAINST INCOME TAX FOR MEDICARE BUY-IN 
     PREMIUMS AND FOR CERTAIN COBRA CONTINUATION COVERAGE PREMIUMS

SEC. 256. 50 PERCENT CREDIT FOR MEDICARE BUY-IN PREMIUMS AND FOR 
              CERTAIN COBRA CONTINUATION COVERAGE PREMIUMS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25A the 
following new section:

``SEC. 25B. MEDICARE BUY-IN PREMIUMS AND CERTAIN COBRA CONTINUATION 
              COVERAGE PREMIUMS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 50 percent of the amount paid during 
such year as--
            ``(1) qualified continuation health coverage premiums, and
            ``(2) medicare buy-in coverage premiums.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified continuation health coverage premiums.--The 
        term `qualified continuation health coverage premiums' means, 
        for any period, premiums paid for continuation coverage (as 
        defined in section 4980B(f)) under a group health plan for such 
        period but only if failure to offer such coverage to the 
        taxpayer for such period would constitute a failure by such 
        health plan to meet the requirements of section 4980B(f) and 
        only if the continuation coverage is provided because of a 
        qualifying event described in section 4980B(f)(3)(G).
            ``(2) Medicare buy-in coverage premiums.--The term 
        `medicare buy-in coverage premiums' means premiums paid under 
        part E of title XVIII of the Social Security Act.''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 25A the following new 
item:

        ``Sec. 25B. Medicare buy-in premiums and certain COBRA 
                  continuation coverage premiums.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

         TITLE III--PROTECTING AND EXTENDING MEDICARE SOLVENCY

  Subtitle A--Dedication of 20 Percent of Projected Budget Surplus to 
                                Medicare

SEC. 301. TRANSFERS TO EXTEND MEDICARE SOLVENCY.

    Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following new subsection:
    ``(l) Additional Appropriation to Federal Hospital Insurance Trust 
Fund.--
            ``(1) Findings.--The Congress finds as follows:
                    ``(A) The number of individuals eligible for 
                benefits under the medicare program will approximately 
                double (from about 40,000,000 to 80,000,000) between 
                2000 and 2030.
                    ``(B) It is expected that there will be major new 
                high technology services available to medicare 
                beneficiaries that may be priced accordingly.
                    ``(C) It is essential that additional resources be 
                made available to finance the medicare program in the 
                future.
            ``(2) Amount of additional appropriation.--In addition to 
        any other amounts appropriated to the Trust Fund, there is 
        hereby appropriated to the Trust Fund, out of any moneys in the 
        Treasury not otherwise appropriated, 20 percent of the on-
        budget surplus, as estimated by the Congressional Budget Office 
        in January 2001 (adjusted to exclude surpluses in the Federal 
        Hospital Insurance Trust Fund), as follows:
                    ``(A) for fiscal year 2002, $21,200,000,000;
                    ``(B) for fiscal year 2003, $26,400,000,000;
                    ``(C) for fiscal year 2004, $31,000,000,000;
                    ``(D) for fiscal year 2005, $34,400,000,000;
                    ``(E) for fiscal year 2006, $44,600,000,000;
                    ``(F) for fiscal year 2007, $55,000,000,000;
                    ``(G) for fiscal year 2008, $63,600,000,000;
                    ``(H) for fiscal year 2009, $75,600,000,000;
                    ``(I) for fiscal year 2010, $89,400,000,000;
                    ``(J) for fiscal year 2011, $104,800,000,000; and
                    ``(K) for any subsequent fiscal year through fiscal 
                year 2015, 20 percent of any such adjusted on-budget 
                surplus.
            ``(3) Transfer of funds.--The amounts appropriated for each 
        fiscal year by paragraph (2) shall be transferred from the 
        general fund in the Treasury to the Trust Fund in equal monthly 
        installments on the first business day of each month.''.

SEC. 302. MEDICARE SOLVENCY DEBT REDUCTION RESERVE.

    (a) In General.--The transfers under section 1817(l) of the Social 
Security Act shall be known as the Medicare Solvency Debt Reduction 
Reserve.
    (b) Points of Order To Protect Reserve.--
            (1) Section 301 of the Congressional Budget Act of 1974 is 
        amended by adding at the end the following:
    ``(j) Point of Order To Protect Medicare Solvency Debt Reduction 
Reserve.--It shall not be in order in the House of Representatives or 
the Senate to consider any concurrent resolution on the budget (or 
amendment, motion, or conference report on the resolution) that would 
allocate any amount of, or assume a reduction in the Medicare Solvency 
Debt Reduction Reserve.''.
            (2) Section 311(a) of the Congressional Budget Act of 1974 
        is amended by adding at the end the following:
            ``(4) Enforcement of medicare solvency reserve.--It shall 
        not be in order in the House of Representatives or the Senate 
        to consider any bill, joint resolution, amendment, motion, or 
        conference report that would cause a decrease in the level of 
        the Medicare Solvency Debt Reduction Reserve.''.
    (c) Super Majority Requirement.--
            (1) Section 904(c)(2) of the Congressional Budget Act of 
        1974 is amended by inserting ``301(j),'' after ``301(i),''.
            (2) Section 904(d)(3) of the Congressional Budget Act of 
        1974 is amended by inserting ``301(j),'' after ``301(i),''.

SEC. 303. PROTECTION OF MEDICARE SOLVENCY DEBT REDUCTION RESERVE.

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

                    Subtitle B--Additional Revenues

SEC. 311. INCREASED FEDERAL EXCISE TAXES ON TOBACCO PRODUCTS.

    (a) In General.--Section 5701 of the Internal Revenue Code of 1986 
(relating to rate of tax on tobacco products) is amended to read as 
follows:

``SEC. 5701. RATE OF TAX.

    ``(a) Cigars.--On cigars, manufactured in or imported into the 
United States, there shall be imposed the following taxes:
            ``(1) Small cigars.--On cigars, weighing not more than 3 
        pounds per thousand, $4.406 per thousand.
            ``(2) Large cigars.--On cigars weighing more than 3 pounds 
        per thousand, a tax equal to 49.99 percent of the price for 
        which sold but not more than $98.75 per thousand.
Cigars not exempt from tax under this chapter which are removed but not 
intended for sale shall be taxed at the same rate as similar cigars 
removed for sale.
    ``(b) Cigarettes.--On cigarettes, manufactured in or imported into 
the United States, there shall be imposed the following taxes:
            ``(1) Small cigarettes.--On cigarettes, weighing not more 
        than 3 pounds per thousand, $47.00 per thousand.
            ``(2) Large cigarettes.--On cigarettes, weighing more than 
        3 pounds per thousand, $98.70 per thousand.
Cigarettes described in paragraph (2), if more than 6\1/2\ inches in 
length, shall be taxable at the rate under paragraph (1) by treating 
each 2\3/4\ inches (or fraction thereof) of the length of each as 1 
cigarette.
    ``(c) Cigarette Papers.--On cigarette papers, manufactured in or 
imported into the United States, there shall be imposed a tax of 2.9 
cents for each 50 papers or fractional part thereof; except that 
cigarette papers which measure more than 6\1/2\ inches in length shall 
be taxable at the rate prescribed by treating each 2\3/4\ inches (or 
fraction thereof) of the length of each as 1 cigarette paper.
    ``(d) Cigarette Tubes.--On cigarette tubes, manufactured in or 
imported into the United States, there shall be imposed a tax of 5.9 
cents for each 50 tubes or fractional part thereof; except that 
cigarette tubes which measure more than 6\1/2\ inches in length shall 
be taxable at the rate prescribed by treating each 2\3/4\ inches (or 
fraction thereof) of the length of each as 1 cigarette tube.
    ``(e) Smokeless Tobacco.--
            ``(1) Snuff.--On snuff, manufactured in or imported into 
        the United States, there shall be imposed a tax of $1.41 per 
        pound (and a proportionate tax at the like rate on all 
        fractional parts of a pound).
            ``(2) Chewing tobacco.--On chewing tobacco, manufactured in 
        or imported into the United States, there shall be imposed a 
tax of 47 cents (and a proportionate tax at the like rate on all 
fractional parts of a pound).
    ``(f) Pipe Tobacco.--On pipe tobacco, manufactured in or imported 
into the United States, there shall be imposed a tax of $2.64 per pound 
(and a proportionate tax at the like rate on all fractional parts of a 
pound).
    ``(g) Roll-Your-Own Tobacco.--On roll-your-own tobacco, 
manufactured in or imported into the United States, there shall be 
imposed a tax $2.64 per pound (and a proportionate tax at the like rate 
on all fractional parts of a pound).
    ``(h) Imported Tobacco Products and Cigarette Papers and Tubes.--
The taxes imposed by this section on tobacco products and cigarette 
papers and tubes imported into the United States shall be in addition 
to any import duties imposed on such articles, unless such import 
duties are imposed in lieu of internal revenue tax.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2002.
    (c) Floor Stocks Taxes.--
            (1) Imposition of tax.--On tobacco products and cigarette 
        papers and tubes manufactured in or imported into the United 
        States which are removed before January 1, 2002, and held on 
        such date for sale by any person, there is hereby imposed a tax 
        in an amount equal to the excess of--
                    (A) the tax which would be imposed under section 
                5701 of the Internal Revenue Code of 1986 on the 
                article if the article had been removed on such date, 
                over
                    (B) the prior tax (if any) imposed under section 
                5701 of such Code on such article.
            (2) Authority to exempt cigarettes held in vending 
        machines.--To the extent provided in regulations prescribed by 
        the Secretary, no tax shall be imposed by paragraph (1) on 
        cigarettes held for retail sale on January 1, 2002, by any 
        person in any vending machine. If the Secretary provides such a 
        benefit with respect to any person, the Secretary may reduce 
        the $500 amount in paragraph (3) with respect to such person.
            (3) Credit against tax.--Each person shall be allowed as a 
        credit against the taxes imposed by paragraph (1) an amount 
        equal to $500. Such credit shall not exceed the amount of taxes 
        imposed by paragraph (1) for which such person is liable.
            (4) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding cigarettes 
                on January 1, 2002, to which any tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe by regulations.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before April 1, 2000.
            (5) Articles in foreign trade zones.--Notwithstanding the 
        Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any 
        other provision of law, any article which is located in a 
        foreign trade zone on January 1, 2002, shall be subject to the 
        tax imposed by paragraph (1) if--
                    (A) internal revenue taxes have been determined, or 
                customs duties liquidated, with respect to such article 
                before such date pursuant to a request made under the 
                1st proviso of section 3(a) of such Act, or
                    (B) such article is held on such date under the 
                supervision of a customs officer pursuant to the 2d 
                proviso of such section 3(a).
            (6) Definitions.--For purposes of this subsection--
                    (A) In general.--Terms used in this subsection 
                which are also used in section 5702 of the Internal 
                Revenue Code of 1986 shall have the respective meanings 
                such terms have in such section, as amended by this 
                Act.
                    (B) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or the Secretary's delegate.
            (7) Controlled groups.--Rules similar to the rules of 
        section 5061(e)(3) of such Code shall apply for purposes of 
        this subsection.
            (8) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 5701 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply to the floor stocks taxes imposed by 
        paragraph (1), to the same extent as if such taxes were imposed 
        by such section 5701. The Secretary may treat any person who 
        bore the ultimate burden of the tax imposed by paragraph (1) as 
        the person to whom a credit or refund under such provisions may 
        be allowed or made.

SEC. 312. TOBACCO SETTLEMENT DEPOSIT.

    Amounts that are recovered by the United States in the civil action 
brought on September 22, 1999, under the Racketeer Influenced and 
Corrupt Organizations Act (RICO) in the United States District Court 
for the District of Columbia against the industry engaged in the 
production and sale of tobacco products and persons engaged in public 
relations and lobbying for such industry and that are attributable to 
the expenditures of the Department of Health and Human Services for 
tobacco-related illnesses shall be deposited in the Federal Hospital 
Insurance Trust Fund established under section 1817 of the Social 
Security Act (42 U.S.C. 1395i).

SEC. 313. EXCESS PROFITS FROM MEDICARE TAX.

    (a) In General.--Subchapter A of chapter 1 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new part:

        ``PART VIII--EXCESS PROFITS OF PHARMACEUTICAL COMPANIES

        ``Sec. 59B. Imposition of tax.

``SEC. 59B. IMPOSITION OF TAX.

    ``(a) In General.--In the case of any person who manufactures or 
produces any article reimbursed under part D of title XVIII of the 
Social Security Act, there is hereby imposed (in addition to any other 
tax imposed by this title) a tax equal to 50 percent of the excess 
profit on the sale of such article by such person.
    ``(b) Excess Profit.--For purposes of subsection (a), the term 
`excess profit' means, with respect to an article, the amount by which 
the costs associated with the sale of such article (including gifts, 
other than samples of the article, provided to physicians) exceeds 
twice the research and development costs properly allocable to such 
article.''
    (b) Clerical Amendment.--The table of parts for subchapter A of 
chapter 1 of such Code is amended by adding at the end the following 
new item:

                              ``Part VIII. Excess profits of 
                                        pharmaceutical companies.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2004.

SEC. 314. MEDICARE PART B PERCENT SUBSIDY INCLUDED IN GROSS INCOME.

    (a) In General.--Part II of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically included 
in gross income) is amended by adding at the end the following new 
section:

``SEC. 91. MEDICARE PART B SUBSIDY.

    ``(a) In General.--Gross income includes the applicable percentage 
of the Medicare part B subsidy with respect to premiums under part B of 
title XVIII of the Social Security Act which are paid by the taxpayer 
during the taxable year.
    ``(b) Applicable Percentage.--For purposes of this section, the 
applicable percentage for any taxable year is the applicable percentage 
determined under the following table for the calendar year in which 
such taxable year begins.
                                                             Applicable
Calendar year                                                percentage
    2005..........................................               10    
    2006..........................................               20    
    2007..........................................               30    
    2008..........................................               40    
    2009..........................................               50    
    2010..........................................               60    
    2011..........................................               70    
    2012..........................................               80    
    2014..........................................               90    
    2015 or thereafter............................           100.''    
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 91. Medicare part B subsidy.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to taxable years beginning after December 31, 2004.

SEC. 315. DEDICATION OF FEDERAL ESTATE AND GIFT TAX RECEIPTS, TOBACCO 
              TAX RECEIPTS AND OTHER REVENUES TO MEDICARE.

    (a) Transfer to Federal Hospital Insurance Trust Fund.--Section 
1817(a) (42 U.S.C. 1395i(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (1), and
            (2) by striking the period at the end of paragraph (2) and 
        inserting a semicolin, and
            (3) by inserting after paragraph (2) the following new 
        paragraphs:
            ``(3) the taxes imposed by subtitle B of the Internal 
        Revenue Code of 1986 (relating to estate and gift taxes) 
        reported to the Secretary of the Treasury or his delegate on 
        tax returns under subtitle F of such Code;
            ``(4) the taxes imposed by chapter 52 of such Code 
        (relating to cigars, cigarettes, smokeless tobacco, pipe 
        tobacco, and cigarette papers and tubes) as so reported;
            ``(5) the taxes imposed by section 59B of such Code 
        (relating to excess profits of pharmaceutical companies) as so 
        reported; and
            ``(6) the increase in tax liabilities under chapter 1 of 
        such Code which is attributable to section 91 of such Code 
        (relating to medicare part B subsidy).''
    (b) Effective Date.--The amendments made by this section apply to 
taxes imposed after the date of the enactment of this Act.
                                 <all>