[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 10 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 10

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 22, 2001

  Mr. Daschle (for himself, Mr. Baucus, Mr. Graham, Mr. Kennedy, Mr. 
 Akaka, Mr. Biden, Mr. Bingaman, Mrs. Boxer, Mr. Byrd, Mrs. Carnahan, 
   Mr. Cleland, Mrs. Clinton, Mr. Corzine, Mr. Dayton, Mr. Dodd, Mr. 
 Dorgan, Mr. Durbin, Mr. Hollings, Mr. Inouye, Mr. Johnson, Mr. Kerry, 
  Mr. Leahy, Mr. Levin, Mrs. Lincoln, Ms. Mikulski, Mrs. Murray, Mr. 
 Nelson of Florida, Mr. Reed, Mr. Reid, Mr. Rockefeller, Mr. Sarbanes, 
 and Mr. Schumer) introduced the following bill; which was read twice 
                and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


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

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Prescription Drug Coverage Act of 2001''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Medicare outpatient prescription drug benefit program.
         ``Part D--Outpatient Prescription Drug Benefit Program

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

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

        ``Sec. 1860M. Medicare Pharmacy and Therapeutics (P&T) Advisory 
                            Committee.''.
Sec. 4. Part D benefits under Medicare+Choice plans.
Sec. 5. Exclusion of part D costs from determination of part B monthly 
                            premium.
Sec. 6. Additional assistance for low-income beneficiaries.
Sec. 7. Medigap revisions.
Sec. 8. Comprehensive immunosuppressive drug coverage for transplant 
                            patients.
Sec. 9. HHS studies and report to Congress regarding outpatient 
                            prescription drug benefit program.
Sec. 10. GAO study and biennial reports on competition and savings.
Sec. 11. MedPAC study and annual reports on the pharmaceutical market, 
                            pharmacies, and beneficiary access.
Sec. 12. Appropriations.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) Prescription drug coverage was not a standard part of 
        health insurance when the medicare program under title XVIII of 
        the Social Security Act was enacted in 1965. Since 1965, 
        however, drug coverage has become a key component of most 
        private and public health insurance coverage, except for the 
        medicare program.
            (2) At least \2/3\ of medicare beneficiaries have 
        unreliable, inadequate, or no drug coverage at all.
            (3) Seniors who do not have drug coverage typically pay 15 
        percent more for prescription drugs than individuals that have 
        such coverage pay for such drugs, and often pay 2 times the 
        best available price for such drugs.
            (4) Although many medicare beneficiaries who lack 
        prescription drug coverage have low incomes, more than \1/2\ of 
        such beneficiaries have incomes greater than 150 percent of the 
        poverty line.
            (5) The number of private firms offering retiree health 
        coverage is declining.
            (6) The premiums for medicare supplemental policies 
        (medigap policies) that provide prescription drug coverage are 
        too expensive for most medicare beneficiaries and are highest 
        for older senior citizens who need prescription drug coverage 
        the most and typically have the lowest incomes.
            (7) The management of a medicare prescription drug benefit 
        should mirror the practices employed by private entities in 
        delivering prescription drugs. Discounts should be achieved 
        through competition.
            (8) All medicare beneficiaries should have access to a 
        voluntary, reliable, affordable outpatient drug benefit as part 
        of the medicare program that assists with the high cost of 
        prescription drugs and protects them against excessive out-of-
        pocket costs.
            (9) The addition of a medicare drug benefit should be 
        consistent with an overall plan to strengthen and modernize the 
        medicare program.

SEC. 3. MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT PROGRAM.

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

         ``Part D--Outpatient Prescription Drug Benefit Program

                             ``definitions

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

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

    ``establishment of outpatient prescription drug benefit program

    ``Sec. 1860A. (a) Provision of Benefit.--Beginning on the date that 
is 1 year after the date of enactment of this Act, the Secretary shall 
provide for an outpatient prescription drug benefit program under which 
an eligible beneficiary shall be provided covered outpatient drugs.
    ``(b) Voluntary Nature of Program.--Nothing in this part shall be 
construed as requiring an eligible beneficiary to enroll in the program 
established under this part.
    ``(c) Scope of Benefits.--The program established under this part 
shall provide for coverage of all therapeutic classes of covered 
outpatient drugs.
    ``(d) Financing.--The costs of providing benefits under this part 
shall be payable from the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841.

                              ``enrollment

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

                ``providing information to beneficiaries

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

                               ``premiums

    ``Sec. 1860D. (a) Annual Establishment of Monthly Premium Rates.--
            ``(1) Premium.--The Secretary shall, during September of 
        each year (beginning with the first September after the day 
        that is 1 year after the date of enactment of the Medicare 
        Prescription Drug Coverage Act of 2001), determine and 
        promulgate a monthly premium rate for the succeeding year in 
        accordance with the provisions of this subsection.
            ``(2) Actuarial determinations.--
                    ``(A) Determination of annual benefit and 
                administrative costs.--The Secretary shall estimate 
                annually for the succeeding year the amount equal to 
                the total of the benefits and administrative costs that 
                will be payable from the Federal Supplementary Medical 
                Insurance Trust Fund for providing covered outpatient 
                drugs in such calendar year with respect to enrollees 
                in the program under this part.
                    ``(B) Determination of monthly premium rates.--
                            ``(i) In general.--The Secretary shall 
                        determine the monthly premium rate with respect 
                        to such enrollees for such succeeding year, 
                        which shall be \1/12\ of the applicable percent 
                        of the amount determined under subparagraph 
                        (A), divided by the total number of such 
                        enrollees, and rounded (if such rate is not a 
                        multiple of 10 cents) to the nearest multiple 
                        of 10 cents.
                            ``(ii) Definition of applicable percent.--
                        For purposes of clause (i), the term 
                        `applicable percent' means--
                                    ``(I) 45 percent, in the case of 
                                premiums paid by an eligible 
                                beneficiary enrolled in the program 
                                under this part; and
                                    ``(II) 66.66 percent, in the case 
                                of premiums paid for such a beneficiary 
                                by an employer (as defined in section 
                                1860I(e)(2)) that the beneficiary 
                                formerly worked for.
            ``(3) Publication of assumptions.--The Secretary shall 
        publish, together with the promulgation of the monthly premium 
        rates for the succeeding year, a statement setting forth the 
        actuarial assumptions and bases employed in arriving at the 
        amounts and rates determined under paragraphs (1) and (2).
    ``(b) Collection of Premium.--The monthly premium applicable to an 
eligible beneficiary under this part shall be collected and credited to 
the Federal Supplementary Medical Insurance Trust Fund in the same 
manner as the monthly premium determined under section 1839 is 
collected and credited to such Trust Fund under section 1840.

                             ``cost-sharing

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

       ``selection of entities to provide outpatient drug benefit

    ``Sec. 1860F. (a) Establishment of Bidding Process.--
            ``(1) In general.--The Secretary shall establish procedures 
        under which the Secretary accepts bids submitted by eligible 
        entities and awards contracts to such entities in order to 
        administer and deliver the benefits provided under this part to 
        eligible beneficiaries in an area.
            ``(2) Competitive procedures.--Competitive procedures (as 
        defined in section 4(5) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 403(5))) shall be used to enter into 
        contracts under this part.
    ``(b) Area for Contracts.--
            ``(1) Regional basis.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subject to paragraph (2), the 
                contract entered into between the Secretary and an 
                eligible entity shall require the eligible entity to 
                provide covered outpatient drugs on a regional basis.
                    ``(B) Partial regional basis.--
                            ``(i) In general.--If determined 
                        appropriate by the Secretary, the Secretary may 
                        permit the coverage described in subparagraph 
                        (A) to be provided on a partial regional basis.
                            ``(ii) Requirements.--If the Secretary 
                        permits coverage pursuant to clause (i), the 
                        Secretary shall ensure that the partial region 
                        in which coverage is provided is--
                                    ``(I) at least the size of the 
                                commercial service area of the eligible 
                                entity for that area; and
                                    ``(II) not smaller than a State.
            ``(2) Determination.--
                    ``(A) In general.--In determining coverage areas 
                under this part, the Secretary shall--
                            ``(i) take into account the number of 
                        eligible beneficiaries in an area in order to 
                        encourage participation by eligible entities; 
                        and
                            ``(ii) ensure that there are at least 10 
                        different coverage areas in the United States.
                    ``(B) No administrative or judicial review.--The 
                determination of coverage areas under this part shall 
                not be subject to administrative or judicial review.
    ``(c) Submission of Bids.--
            ``(1) In general.--Each eligible entity desiring to provide 
        covered outpatient drugs under this part shall submit a bid to 
        the Secretary at such time, in such manner, and accompanied by 
        such information as the Secretary may reasonably require.
            ``(2) Required information.--The bids described in 
        paragraph (1) shall include--
                    ``(A) a proposal for the estimated prices of 
                covered outpatient drugs and the projected annual 
                increases in such prices, including differentials 
                between formulary and nonformulary prices, if 
                applicable;
                    ``(B) the amount that the entity will charge the 
                Secretary for administering and delivering the benefits 
                under such contract;
                    ``(C) a statement regarding whether the entity will 
                waive the deductible for generic drugs pursuant to 
                section 1860E(a)(2);
                    ``(D) a statement regarding whether the entity will 
                reduce the applicable coinsurance percentage pursuant 
                to section 1860E(b)(2) and if so, the amount of such 
                reduction;
                    ``(E) a detailed description of--
                            ``(i) the risk corridors tied to 
                        performance measures and other incentives that 
                        the entity will accept under the contract; and
                            ``(ii) how the entity will meet such 
                        measures and incentives;
                    ``(F) a detailed description of proposed contracts 
                with local pharmacy providers designed to ensure 
                access, including compensation for local pharmacists' 
                services;
                    ``(G) a detailed description of any ownership or 
                shared financial interests with other entities involved 
                in the delivery of the benefit as proposed;
                    ``(H) a detailed description of the entity's 
                estimated marketing and advertising expenditures 
                related to enrolling and retaining eligible 
                beneficiaries; and
                    ``(I) such other information that the Secretary 
                determines is necessary in order to carry out this 
                part, including information relating to the bidding 
                process under this part.
    ``(d) Access.--
            ``(1) In general.--The Secretary shall ensure that an 
        eligible entity--
                    ``(A) complies with the access requirements 
                described in section 1860G(a)(4)(A); and
                    ``(B) makes available to each beneficiary covered 
                under the contract the full scope of the benefits 
                required under this part.
            ``(2) Areas not covered by contracts.--The Secretary shall 
        develop procedures for the provision of covered outpatient 
        drugs under this part to each eligible beneficiary that resides 
        in an area that is not covered by any contract under this part.
            ``(3) Beneficiaries residing in different locations.--The 
        Secretary shall develop procedures to ensure that each eligible 
        beneficiary that resides in different areas in a year is 
        provided the benefits under this part throughout the entire 
        year.
            ``(4) Special attention to rural and hard-to-serve areas.--
                    ``(A) In general.--The Secretary shall ensure that 
                all eligible beneficiaries have access to the full 
                range of benefits under this part, and shall give 
                special attention to access, pharmacist counseling, and 
                delivery in rural and hard-to-serve areas (as the 
                Secretary may define by regulation).
                    ``(B) Special attention defined.--For purposes of 
                subparagraph (A), the term `special attention' may 
                include bonus payments to retail pharmacists in rural 
                areas, extra payments to eligible entities for the cost 
                of rapid delivery of pharmaceuticals, and any other 
                actions the Secretary determines are necessary to 
                ensure full access to benefits under this part by 
                eligible beneficiaries residing in rural and hard-to-
                serve areas.
                    ``(C) GAO report.--Not later than 2 years after the 
                date of enactment of the Medicare Prescription Drug 
                Coverage Act of 2001, the Comptroller General of the 
                United States shall submit to Congress a report on the 
                access to benefits under this part by eligible 
                beneficiaries residing in rural and hard-to-serve 
                areas, together with any recommendations of the 
                Comptroller General regarding any additional steps the 
                Secretary may need to take to ensure the access of 
                medicare beneficiaries to such benefits.
    ``(e) Awarding of Contracts.--
            ``(1) Number of contracts.--The Secretary shall, consistent 
        with the requirements of this part and the goal of containing 
        costs under this title, award in a competitive manner at least 
        2 contracts in an area, unless only 1 bidding entity meets the 
        minimum standards specified under this part and by the 
        Secretary.
            ``(2) Determination.--In determining which of the eligible 
        entities that submitted bids that meet the minimum standards 
        specified under this part and by the Secretary (including the 
        terms and conditions described in section 1860G) to award a 
        contract, the Secretary shall consider the comparative merits 
        of each bid, as determined on the basis of the past performance 
        of the entity and other relevant factors, with respect to--
                    ``(A) how well the entity meets such minimum 
                standards;
                    ``(B) the amount that the entity will charge the 
                Secretary for administering and delivering the benefits 
                under the contract;
                    ``(C) the proposed prices of covered outpatient 
                drugs and annual increases in such prices;
                    ``(D) the proposed risk corridors tied to 
                performance measures and other incentives that the 
                entity will be subject to under the contract;
                    ``(E) the factors described in section 1860C(b)(2);
                    ``(F) prior experience in administering a 
                prescription drug benefit program;
                    ``(G) effectiveness in containing costs through 
                pricing incentives and utilization management; and
                    ``(H) such other factors as the Secretary deems 
                necessary to evaluate the merits of each bid.
            ``(3) Exception to conflict of interest rules.--In awarding 
        contracts under this part, the Secretary may waive conflict of 
        interest laws generally applicable to Federal acquisitions 
        (subject to such safeguards as the Secretary may find necessary 
        to impose) in circumstances where the Secretary finds that such 
        waiver--
                    ``(A) is not inconsistent with the--
                            ``(i) purposes of the programs under this 
                        title; or
                            ``(ii) best interests of enrolled 
                        individuals; and
                    ``(B) permits a sufficient level of competition for 
                such contracts, promotes efficiency of benefits 
                administration, or otherwise serves the objectives of 
                the program under this part.
            ``(4) No administrative or judicial review.--The 
        determination of the Secretary to award or not award a contract 
        to an eligible entity under this part shall not be subject to 
        administrative or judicial review.
    ``(f) Approval of Marketing Material and Application Forms.--The 
provisions of section 1851(h) shall apply to marketing material and 
application forms under this part in the same manner as such provisions 
apply to marketing material and application forms under part C.
    ``(g) Duration of Contracts.--Each contract under this part shall 
be for a term of at least 2 years but not more than 5 years, as 
determined by the Secretary.

                   ``conditions for awarding contract

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

                               ``payments

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

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

    ``Sec. 1860I. (a) Program Authority.--The Secretary is authorized 
to develop and implement a program under this section called the 
`Employer Incentive Program' that encourages employers and other 
sponsors of employment-based health care coverage to provide adequate 
prescription drug benefits to retired individuals by subsidizing, in 
part, the sponsor's cost of providing coverage under qualifying plans.
    ``(b) Sponsor Requirements.--In order to be eligible to receive an 
incentive payment under this section with respect to coverage of an 
individual under a qualified retiree prescription drug plan (as defined 
in subsection (f)(3)), a sponsor shall meet the following requirements:
            ``(1) Assurances.--The sponsor shall--
                    ``(A) annually attest, and provide such assurances 
                as the Secretary may require, that the coverage offered 
                by the sponsor is a qualified retiree prescription drug 
                plan, and will remain such a plan for the duration of 
                the sponsor's participation in the program under this 
                section; and
                    ``(B) guarantee that it will give notice to the 
                Secretary and covered retirees--
                            ``(i) at least 120 days before terminating 
                        its plan; and
                            ``(ii) immediately upon determining that 
                        the actuarial value of the prescription drug 
                        benefit under the plan falls below the 
                        actuarial value of the outpatient prescription 
                        drug benefit under this part.
            ``(2) Beneficiary information.--The sponsor shall report to 
        the Secretary, for each calendar quarter for which it seeks an 
        incentive payment under this section, the names and social 
        security numbers of all retirees (and their spouses and 
        dependents) covered under such plan during such quarter and the 
        dates (if less than the full quarter) during which each such 
        individual was covered.
            ``(3) Audits.--The sponsor and the employment-based retiree 
        health coverage plan seeking incentive payments under this 
        section shall agree to maintain, and to afford the Secretary 
        access to, such records as the Secretary may require for 
        purposes of audits and other oversight activities necessary to 
        ensure the adequacy of prescription drug coverage, the accuracy 
of incentive payments made, and such other matters as may be 
appropriate.
            ``(4) Other requirements.--The sponsor shall provide such 
        other information, and comply with such other requirements, as 
        the Secretary may find necessary to administer the program 
        under this section.
    ``(c) Incentive Payments.--
            ``(1) In general.--A sponsor that meets the requirements of 
        subsection (b) with respect to a quarter in a calendar year 
        shall be entitled to have payment made by the Secretary on a 
        quarterly basis (to the sponsor or, at the sponsor's direction, 
        to the appropriate employment-based health plan) of an 
        incentive payment, in the amount determined in paragraph (2), 
        for each retired individual (or spouse) who--
                    ``(A) was covered under the sponsor's qualified 
                retiree prescription drug plan during such quarter; and
                    ``(B) was eligible for, but was not enrolled in, 
                the outpatient prescription drug benefit program under 
                this part.
            ``(2) Amount of incentive.--The payment under this section 
        with respect to each individual described in paragraph (1) for 
        a month shall be equal to \2/3\ of the monthly premium amount 
        payable by an eligible beneficiary enrolled under this part, as 
        set for the calendar year pursuant to section 1860D(a)(2).
            ``(3) Payment date.--The incentive under this section with 
        respect to a calendar quarter shall be payable as of the end of 
        the next succeeding calendar quarter.
    ``(d) Civil Money Penalties.--A sponsor, health plan, or other 
entity that the Secretary determines has, directly or through its 
agent, provided information in connection with a request for an 
incentive payment under this section that the entity knew or should 
have known to be false shall be subject to a civil monetary penalty in 
an amount up to 3 times the total incentive amounts under subsection 
(c) that were paid (or would have been payable) on the basis of such 
information.
    ``(e) Definitions.--In this section:
            ``(1) Employment-based retiree health coverage.--The term 
        `employment-based retiree health coverage' means health 
        insurance or other coverage of health care costs for retired 
        individuals (or for such individuals and their spouses and 
        dependents) based on their status as former employees or labor 
        union members.
            ``(2) Employer.--The term `employer' has the meaning given 
        the term in section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (except that such term shall include only 
        employers of 2 or more employees).
            ``(3) Qualified retiree prescription drug plan.--The term 
        `qualified retiree prescription drug plan' means health 
        insurance coverage included in employment-based retiree health 
        coverage that--
                    ``(A) provides coverage of the cost of prescription 
                drugs whose actuarial value (as defined by the 
                Secretary) to each retired beneficiary equals or 
                exceeds the actuarial value of the benefits provided to 
                an individual enrolled in the outpatient prescription 
                drug benefit program under this part; and
                    ``(B) does not deny, limit, or condition the 
                coverage or provision of prescription drug benefits for 
                retired individuals based on age or any health status-
                related factor described in section 2702(a)(1) of the 
                Public Health Service Act.
            ``(4) Sponsor.--The term `sponsor' has the meaning given 
        the term `plan sponsor' in section 3(16)(B) of the Employer 
        Retirement Income Security Act of 1974.
    ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated from time to time, out of any moneys in the Treasury not 
otherwise appropriated, such sums as may be necessary to carry out the 
program under this section.

              ``procedures for partial year implementation

    ``Sec. 1860J. If the Secretary first implements the program under 
this part on a day other that January 1 of a year, the Secretary shall 
establish procedures for implementing the program during the period 
between the date of implementation and December 31 of such year, 
including procedures--
            ``(1) for prorating premiums, deductibles, and coinsurance 
        under the program during such period; and
            ``(2) relating to requirements and payments under the 
        Medicare+Choice program during such period.

                            ``appropriations

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

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

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

    ``Sec. 1860M. (a) Establishment of Committee.--There is established 
a Medicare Pharmacy and Therapeutics Advisory Committee (in this 
section referred to as the `Committee').
    ``(b) Functions of Committee.--On and after January 1, 2002, the 
Committee shall advise the Secretary on policies related to--
            ``(1) the development of guidelines for the implementation 
        and administration of the outpatient prescription drug benefit 
        program under this part; and
            ``(2) the development of--
                    ``(A) standards for a pharmacy and therapeutics 
                committee required of eligible entities under section 
                1860G(a)(3)(B)(i);
                    ``(B) standards for--
                            ``(i) defining therapeutic classes;
                            ``(ii) adding new therapeutic classes to a 
                        formulary;
                            ``(iii) adding new drugs to a therapeutic 
                        class within a formulary; and
                            ``(iv) when and how often a formulary 
                        should be modified;
                    ``(C) procedures to evaluate the bids submitted by 
                eligible entities under this part; and
                    ``(D) procedures to ensure that eligible entities 
                with a contract under this part are in compliance with 
                the requirements under this part.
    ``(c) Structure and Membership of the Committee.--
            ``(1) Structure.--The Committee shall be composed of 19 
        members who shall be appointed by the Secretary.
            ``(2) Membership.--
                    ``(A) In general.--The members of the Committee 
                shall be chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their education, 
                experience, and attainments, exceptionally qualified to 
                perform the duties of members of the Committee.
                    ``(B) Specific members.--Of the members appointed 
                under paragraph (1)--
                            ``(i) eleven shall be chosen to represent 
                        physicians;
                            ``(ii) four shall be chosen to represent 
                        pharmacists;
                            ``(iii) one shall be chosen to represent 
                        the Health Care Financing Administration;
                            ``(iv) two shall be chosen to represent 
                        actuaries and pharmacoeconomists; and
                            ``(v) one shall be chosen to represent 
                        emerging drug technologies.
    ``(d) Terms of Appointment.--Each member of the Committee shall 
serve for a term determined appropriate by the Secretary. The terms of 
service of the members initially appointed shall begin on January 1, 
2002.
    ``(e) Chairman.--The Secretary shall designate a member of the 
Committee as Chairman. The term as Chairman shall be for a 1-year 
period.
    ``(f) Compensation and Travel Expenses.--
            ``(1) Compensation of members.--Each member of the 
        Committee who is not an officer or employee of the Federal 
        Government shall be compensated at a rate equal to the daily 
        equivalent of the annual rate of basic pay prescribed for level 
        IV of the Executive Schedule under section 5315 of title 5, 
        United States Code, for each day (including travel time) during 
        which such member is engaged in the performance of the duties 
        of the Committee. All members of the Committee who are officers 
        or employees of the United States shall serve without 
        compensation in addition to that received for their services as 
        officers or employees of the United States.
            ``(2) Travel expenses.--The members of the Committee shall 
        be allowed travel expenses, including per diem in lieu of 
        subsistence, at rates authorized for employees of agencies 
        under subchapter I of chapter 57 of title 5, United States 
        Code, while away from their homes or regular places of business 
        in the performance of services for the Committee.
    ``(g) Operation of the Committee.--
            ``(1) Meetings.--The Committee shall meet at the call of 
        the Chairman (after consultation with the other members of the 
        Committee) not less often than quarterly to consider a specific 
        agenda of issues, as determined by the Chairman after such 
        consultation.
            ``(2) Quorum.--Ten members of the Committee shall 
        constitute a quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--Section 14 of the Federal 
Advisory Committee Act (5 U.S.C. App.) shall not apply to the 
Committee.
    ``(i) Transfer of Personnel, Resources, and Assets.--For purposes 
of carrying out its duties, the Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ of the Department of Health and Human Services, and such 
resources and assets of the Department used in carrying out this title, 
as the Committee requires.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
    (b) Exclusions From Coverage.--
            (1) Application to part d.--Section 1862(a) of the Social 
        Security Act (42 U.S.C. 1395y(a)) is amended in the matter 
        preceding paragraph (1) by striking ``part A or part B'' and 
        inserting ``part A, B, or D''.
            (2) Prescription drugs not excluded from coverage if 
        appropriately prescribed.--Section 1862(a)(1) of the Social 
        Security Act (42 U.S.C. 1395y(a)(1)) is amended--
                    (A) in subparagraph (H), by striking ``and'' at the 
                end;
                    (B) in subparagraph (I), by striking the semicolon 
                at the end and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(J) in the case of prescription drugs covered 
                under part D, which are not prescribed in accordance 
                with such part;''.
    (c) Conforming References to Previous Part D.--
            (1) In general.--Any reference in law (in effect before the 
        date of enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of such 
        title (as in effect after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 6 months after the date of enactment of this Act, 
        the Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this Act.

SEC. 4. PART D BENEFITS UNDER MEDICARE+CHOICE PLANS.

    (a) Eligibility, Election, and Enrollment.--Section 1851 of the 
Social Security Act (42 U.S.C. 1395w-21) is amended--
            (1) in subsection (a)(1)(A), by striking ``parts A and B'' 
        and inserting ``parts A, B, and D''; and
            (2) in subsection (i)(1), by striking ``parts A and B'' and 
        inserting ``parts A, B, and D''.
    (b) Voluntary Beneficiary Enrollment for Drug Coverage.--Section 
1852(a)(1)(A) of such Act (42 U.S.C. 1395w-22(a)(1)(A)) is amended by 
inserting ``(and under part D to individuals also enrolled under that 
part)'' after ``parts A and B''.
    (c) Access to Services.--Section 1852(d)(1) of such Act (42 U.S.C. 
1395w-22(d)(1)) is amended--
            (1) in subparagraph (D), by striking ``and'' at the end;
            (2) in subparagraph (E), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(F) in the case of covered outpatient drugs 
                provided to individuals enrolled under part D (as 
                defined in section 1860(1)), the organization complies 
                with the access requirements applicable under part 
                D.''.
    (d) Payments to Organizations.--Section 1853(a)(1)(A) of such Act 
(42 U.S.C. 1395w-23(a)(1)(A)) is amended--
            (1) by inserting ``determined separately for the benefits 
        under parts A and B and under part D (for individuals enrolled 
        under that part)'' after ``as calculated under subsection 
        (c)'';
            (2) by striking ``that area, adjusted for such risk 
        factors'' and inserting ``that area. In the case of payment for 
        the benefits under parts A and B, such payment shall be 
        adjusted for such risk factors as''; and
            (3) by inserting before the last sentence the following: 
        ``In the case of the payments for the benefits under part D, 
        such payment shall initially be adjusted for the risk factors 
        of each enrollee as the Secretary determines to be feasible and 
        appropriate to ensure actuarial equivalence. By 2006, the 
        adjustments to payments for benefits under part D shall be for 
        the same risk factors used to adjust payments for the benefits 
        under parts A and B.''.
    (e) Calculation of Annual Medicare+Choice Capitation Rates.--
Section 1853(c) of such Act (42 U.S.C. 1395w-23(c)) is amended--
            (1) in paragraph (1), in the matter preceding subparagraph 
        (A), by inserting ``for benefits under parts A and B'' after 
        ``capitation rate''; and
            (2) by adding at the end the following new paragraph:
            ``(8) Payment for part d benefits.--The Secretary shall 
        determine a capitation rate for part D benefits (for 
        individuals enrolled under such part) as follows:
                    ``(A) Drugs dispensed before 2004.--In the case of 
                prescription drugs dispensed on or after the date that 
                is 1 year after the date of enactment of the Medicare 
                Prescription Drug Coverage Act of 2001 and before 
                January 1, 2004, the capitation rate shall be based on 
                the projected national per capita costs for 
                prescription drug benefits under part D and associated 
                claims processing costs for beneficiaries enrolled 
                under part D and not enrolled with a Medicare+Choice 
                organization under this part.
                    ``(B) Drugs dispensed in subsequent years.--In the 
                case of prescription drugs dispensed in 2004 or a 
                subsequent year, the capitation rate shall be equal to 
                the capitation rate for the preceding year increased by 
                the Secretary's estimate of the projected per capita 
                rate of growth in expenditures under this title for an 
                individual enrolled under part D for such subsequent 
                year.''.
    (f) Limitation on Enrollee Liability.--Section 1854(e) of such Act 
(42 U.S.C. 1395w-24(e)) is amended by adding at the end the following 
new paragraph:
            ``(5) Special rule for part d benefits.--With respect to 
        outpatient prescription drug benefits under part D, a 
        Medicare+Choice organization may not require that an enrollee 
        pay a deductible or a coinsurance percentage that exceeds the 
        deductible or coinsurance percentage applicable for such 
        benefits for an eligible beneficiary under part D.''.
    (g) Requirement for Additional Benefits.--Section 1854(f)(1) of 
such Act (42 U.S.C. 1395w-24(f)(1)) is amended by adding at the end the 
following new sentence: ``Such determination shall be made separately 
for the benefits under parts A and B and for prescription drug benefits 
under part D.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to items and services provided under a Medicare+Choice plan on or 
after the date that is 1 year after the date of enactment of this Act.

SEC. 5. EXCLUSION OF PART D COSTS FROM DETERMINATION OF PART B MONTHLY 
              PREMIUM.

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

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

    (a) Inclusion in Medicare Cost-Sharing.--Section 1905(p)(3) of the 
Social Security Act (42 U.S.C. 1396d(p)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``and'' at the end;
                    (B) in clause (ii), by inserting ``and'' at the 
                end; and
                    (C) by adding at the end the following new clause:
            ``(iii) premiums under section 1860D.'';
            (2) in subparagraph (B), by striking ``section 1813'' and 
        inserting ``sections 1813 and 1860E(b)''; and
            (3) in subparagraph (C), by striking ``section 1813 and 
        section 1833(b)'' and inserting ``sections 1813, 1833(b), and 
        1860E(a)''.
    (b) Expansion of Medical Assistance.--Section 1902(a)(10)(E) of the 
Social Security Act (42 U.S.C. 1396a(a)(10)(E)) is amended--
            (1) in clause (iii)--
                    (A) by striking ``section 1905(p)(3)(A)(ii)'' and 
                inserting ``clauses (ii) and (iii) of section 
                1905(p)(3)(A), for the coinsurance described in section 
                1860E(b), and for the deductible described in section 
                1860E(a)''; and
                    (B) by striking ``and'' at the end;
            (2) by redesignating clause (iv) as clause (vi); and
            (3) by inserting after clause (iii) the following new 
        clauses:
                    ``(iv) for making medical assistance available for 
                Medicare cost-sharing described in section 
                1905(p)(3)(A)(iii), for the coinsurance described in 
                section 1860E(b), and for the deductible described in 
                section 1860E(a) for individuals who would be qualified 
                Medicare beneficiaries described in section 1905(p)(1) 
                but for the fact that their income exceeds 120 percent 
                but does not exceed 135 percent of such official 
                poverty line for a family of the size involved;
                    ``(v) for making medical assistance available for 
                Medicare cost-sharing described in section 
                1905(p)(3)(A)(iii) on a linear sliding scale based on 
                the income of such individuals for individuals who 
                would be qualified Medicare beneficiaries described in 
                section 1905(p)(1) but for the fact that their income 
                exceeds 135 percent but does not exceed 175 percent of 
                such official poverty line for a family of the size 
                involved; and''.
    (c) Nonapplicability of Resource Requirements to Medicare Part D 
Cost-Sharing.--Section 1905(p)(1) of the Social Security Act (42 U.S.C. 
1396d(p)(1)) is amended by adding at the end the following flush 
sentence:
``In determining if an individual is a qualified medicare beneficiary 
under this paragraph, subparagraph (C) shall not be applied for 
purposes of providing the individual with medicare cost-sharing that 
consists of premiums under section 1860D, coinsurance described in 
section 1860E(b), or deductibles described in section 1860E(a).''.
    (d) Nonapplicability of Payment Differential Requirements to 
Medicare Part D Cost-Sharing.--Section 1902(n)(2) of the Social 
Security Act (42 U.S.C. 1396a(n)(2)) is amended by adding at the end 
the following new sentence: ``The preceding sentence shall not apply to 
coinsurance described in section 1860E(b) or deductibles described in 
section 1860E(a).''.
    (e) 100 Percent Federal Medical Assistance Percentage.--The first 
sentence of section 1905(b) of the Social Security Act (42 U.S.C. 
1396d(b)) is amended--
            (1) by striking ``and'' before ``(3)''; and
            (2) by inserting before the period at the end the 
        following: ``, and (4) the Federal medical assistance 
        percentage shall be 100 percent with respect to medical 
        assistance provided under clauses (iv) and (v) of section 
        1902(a)(10)(E)''.
    (f) Treatment of Territories.--Section 1108(g) of such Act (42 
U.S.C. 1308(g)) is amended by adding at the end the following new 
paragraph:
    ``(3) Notwithstanding the preceding provisions of this subsection, 
with respect to the first fiscal quarter that begins on or after the 
date that is 1 year after the date of enactment of the Medicare 
Prescription Drug Coverage Act of 2001 and any fiscal year thereafter, 
the amount otherwise determined under this subsection (and subsection 
(f)) for the fiscal year for a Commonwealth or territory shall be 
increased by the ratio (as estimated by the Secretary) of--
            ``(A) the aggregate amount of payments made to the 50 
        States and the District of Columbia for the fiscal year under 
        title XIX that are attributable to making medical assistance 
        available for individuals described in clauses (i), (iii), 
        (iv), and (v) of section 1902(a)(10)(E) for payment of Medicare 
        cost-sharing that consists of premiums under section 1860D, 
        coinsurance described in section 1860E(b), or deductibles 
        described in section 1860E(a); to
            ``(B) the aggregate amount of total payments made to such 
        States and District for the fiscal year under such title.''.
    (g) Conforming Amendments.--Section 1933 of the Social Security Act 
(42 U.S.C. 1396u-3) is amended--
            (1) in subsection (a), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)'';
            (2) in subsection (c)(2)(A)--
                    (A) in clause (i), by striking ``section 
                1902(a)(10)(E)(iv)(I)'' and inserting ``section 
                1902(a)(10)(E)(vi)(I)''; and
                    (B) in clause (ii), by striking ``section 
                1902(a)(10)(E)(iv)(II)'' and inserting ``section 
                1902(a)(10)(E)(vi)(II)'';
            (3) in subsection (d), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)''; and
            (4) in subsection (e), by striking ``section 
        1902(a)(10)(E)(iv)'' and inserting ``section 
        1902(a)(10)(E)(vi)''.
    (h) Effective Date.--The amendments made by this section shall 
apply for medical assistance provided under section 1902(a)(10)(E) of 
the Social Security Act (42 U.S.C. 1396a(a)(10)(E)) on and after the 
date that is 1 year after the date of enactment of this Act.

SEC. 7. MEDIGAP REVISIONS.

    Section 1882 of the Social Security Act (42 U.S.C. 1395ss) is 
amended by adding at the end the following new subsection:
    ``(v) Modernized Benefit Packages for Medicare Supplemental 
Policies.--
            ``(1) Promulgation of model regulation.--
                    ``(A) NAIC model regulation.--If, within 6 months 
                after the date of enactment of the Medicare 
                Prescription Drug Coverage Act of 2001, the National 
                Association of Insurance Commissioners (in this 
                subsection referred to as the `NAIC') changes the 1991 
                NAIC Model Regulation (described in subsection (p)) to 
                revise the benefit packages classified as `H', `I', and 
                `J' under the standards established by subsection 
                (p)(2) (including the benefit package classified as `J' 
                with a high deductible feature, as described in 
                subsection (p)(11)) so that--
                            ``(i) the coverage for outpatient 
                        prescription drugs available under such benefit 
                        packages is replaced with coverage for 
                        outpatient prescription drugs that compliments 
                        but does not duplicate the benefits for 
                        outpatient prescription drugs that 
                        beneficiaries are otherwise entitled to under 
                        this title;
                            ``(ii) the revised benefit packages provide 
                        a range of coverage options for outpatient 
                        prescription drugs for beneficiaries, but do 
                        not provide coverage for--
                                    ``(I) the deductible under section 
                                1860E(a); or
                                    ``(II) more than 90 percent of the 
                                coinsurance applicable to an individual 
                                under section 1860E(b);
                            ``(iii) uniform language and definitions 
                        are used with respect to such revised benefits;
                            ``(iv) uniform format is used in the policy 
                        with respect to such revised benefits; and
                            ``(v) such revised standards meet any 
                        additional requirements imposed by the Medicare 
                        Prescription Drug Coverage Act of 2001;
                subsection (g)(2)(A) shall be applied in each State, 
                effective for policies issued to policy holders on and 
                after the date that is 1 year after the date of 
                enactment of the Medicare Prescription Drug Coverage 
                Act of 2001, as if the reference to the Model 
                Regulation adopted on June 6, 1979, were a reference to 
                the 1991 NAIC Model Regulation as changed under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2002 NAIC Model Regulation').
                    ``(B) Regulation by the secretary.--If the NAIC 
                does not make the changes in the 1991 NAIC Model 
                Regulation within the 6-month period specified in 
                subparagraph (A), the Secretary shall promulgate, not 
                later than 6 months after the end of such period, a 
                regulation and subsection (g)(2)(A) shall be applied in 
                each State, effective for policies issued to policy 
                holders on and after the date that is 1 year after the 
                date of enactment of the Medicare Prescription Drug 
                Coverage Act of 2001, as if the reference to the Model 
                Regulation adopted on June 6, 1979, were a reference to 
                the 1991 NAIC Model Regulation as changed by the 
                Secretary under this subparagraph (such changed 
                regulation referred to in this section as the `2002 
                Federal Regulation').
                    ``(C) Consultation with working group.--In 
                promulgating standards under this paragraph, the NAIC 
                or Secretary shall consult with a working group similar 
                to the working group described in subsection (p)(1)(D).
                    ``(D) Modification of standards if medicare 
                benefits change.--If benefits (including deductibles 
                and coinsurance) under part D of this title are changed 
                and the Secretary determines, in consultation with the 
                NAIC, that changes in the 2002 NAIC Model Regulation or 
                2002 Federal Regulation are needed to reflect such 
                changes, the preceding provisions of this paragraph 
                shall apply to the modification of standards previously 
                established in the same manner as they applied to the 
                original establishment of such standards.
            ``(2) Construction of benefits in other medicare 
        supplemental policies.--Nothing in the benefit packages 
        classified as `A' through `G' under the standards established 
        by subsection (p)(2) (including the benefit package classified 
        as `F' with a high deductible feature, as described in 
        subsection (p)(11)) shall be construed as providing coverage 
        for benefits for which payment may be made under part D.
            ``(3) Application of provisions and conforming 
        references.--
                    ``(A) Application of provisions.--The provisions of 
                paragraphs (4) through (10) of subsection (p) shall 
                apply under this section, except that--
                            ``(i) any reference to the model regulation 
                        applicable under that subsection shall be 
                        deemed to be a reference to the applicable 2002 
                        NAIC Model Regulation or 2002 Federal 
                        Regulation; and
                            ``(ii) any reference to a date under such 
                        paragraphs of subsection (p) shall be deemed to 
                        be a reference to the appropriate date under 
                        this subsection.
                    ``(B) Other references.--Any reference to a 
                provision of subsection (p) or a date applicable under 
                such subsection shall also be considered to be a 
                reference to the appropriate provision or date under 
                this subsection.''.

SEC. 8. COMPREHENSIVE IMMUNOSUPPRESSIVE DRUG COVERAGE FOR TRANSPLANT 
              PATIENTS.

    (a) In General.--Section 1861(s)(2)(J) of the Social Security Act 
(42 U.S.C. 1395x(s)(2)(J)), as amended by section 113(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 ``, to an individual who receives'' and all that 
follows before the semicolon at the end and inserting ``to an 
individual who has received an organ transplant''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to drugs furnished on or after the date of enactment of this Act.

SEC. 9. HHS STUDIES AND REPORT TO CONGRESS REGARDING OUTPATIENT 
              PRESCRIPTION DRUG BENEFIT PROGRAM.

    (a) Studies.--The Secretary of Health and Human Services shall 
conduct a study on the following:
            (1) Waiver or reduction of late enrollment penalty.--The 
        feasibility and advisability of establishing an annual open 
        enrollment period under the outpatient prescription drug 
        benefit program under part D of title XVIII of the Social 
        Security Act (as added by section 3) in which the late 
        enrollment penalty under section 1860B(a)(2)(A) of the Social 
        Security Act (as so added) would be reduced or would not be 
        applied. Such study shall include a projection of the costs if 
        open enrollment was allowed with a reduced penalty or without a 
        penalty.
            (2) Uniform format for pharmacy benefit cards.--The 
        feasibility and advisability of establishing a uniform format 
        for pharmacy benefit cards provided to beneficiaries by 
        eligible entities under such outpatient prescription drug 
        benefit program.
            (3) Development of systems to electronically transfer 
        prescriptions.--The feasibility and advisability of developing 
        systems to electronically transfer prescriptions under such 
        outpatient prescription drug benefit program from the 
        prescriber to the pharmacist.
    (b) Report.--Not later than 9 months after the date of enactment of 
this Act, the Secretary of Health and Human Services shall submit to 
Congress a report on the results of the studies conducted under 
subsection (a), together with any recommendations for legislation that 
the Secretary determines to be appropriate as a result of such studies.

SEC. 10. GAO STUDY AND BIENNIAL REPORTS ON COMPETITION AND SAVINGS.

    (a) Ongoing Study.--The Comptroller General of the United States 
shall conduct an ongoing study and analysis of the outpatient 
prescription drug benefit program under part D of title XVIII of the 
Social Security Act (as added by section 3), including an analysis of--
            (1) the extent to which the competitive bidding process 
        under such program fosters maximum competition and efficiency; 
        and
            (2) the savings to the medicare program resulting from such 
        outpatient prescription drug benefit program, including the 
        reduction in the number or length of hospital visits.
    (b) Initial Report on Competitive Bidding Process.--Not later than 
9 months after the date of enactment of this Act, the Comptroller 
General shall submit to Congress a report on the extent to which the 
competitive bidding process under the outpatient prescription drug 
benefit program under part D of title XVIII of the Social Security Act 
(as added by section 3) is expected to foster maximum competition and 
efficiency.
    (c) Biennial Reports.--Not later than January 1, 2004, and 
biennially thereafter, the Comptroller General of the United States 
shall submit to Congress a report on the results of the study conducted 
under subsection (a), together with any recommendations for legislation 
that the Comptroller General determines to be appropriate as a result 
of such study.

SEC. 11. MEDPAC STUDY AND ANNUAL REPORTS ON THE PHARMACEUTICAL MARKET, 
              PHARMACIES, AND BENEFICIARY ACCESS.

    (a) Ongoing Study.--The Medicare Payment Advisory Commission shall 
conduct an ongoing study and analysis of the outpatient prescription 
drug benefit program under part D of title XVIII of the Social Security 
Act (as added by section 3), including an analysis of the impact of 
such program on--
            (1) the pharmaceutical market, including costs and pricing 
        of pharmaceuticals, beneficiary access to such pharmaceuticals, 
        and trends in research and development;
            (2) franchise, independent, and rural pharmacies; and
            (3) beneficiary access to outpatient prescription drugs, 
        including an assessment of--
                    (A) out-of-pocket spending;
                    (B) generic and brand-name utilization; and
                    (C) pharmacists' services.
    (b) Report.--Not later than January 1, 2004, and annually 
thereafter, the Medicare Payment Advisory Commission shall submit to 
Congress a report on the results of the study conducted under 
subsection (a), together with any recommendations for legislation that 
such Commission determines to be appropriate as a result of such study.

SEC. 12. APPROPRIATIONS.

    In addition to amounts otherwise appropriated to the Secretary of 
Health and Human Services, there are authorized to be appropriated to 
the Secretary for fiscal year 2002 and each subsequent fiscal year such 
sums as may be necessary to administer the outpatient prescription drug 
benefit program under part D of title XVIII of the Social Security Act 
(as added by section 3).
                                 <all>