[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2625 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2625

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

                             June 14, 2002

Mr. Graham (for himself, Mr. Miller, Mr. Kennedy, Mr. Rockefeller, Mr. 
Daschle, Mr. Cleland, Mr. Inouye, Mr. Reid, Ms. Mikulski, Mr. Johnson, 
   Mr. Leahy, Mrs. Clinton, Mr. Nelson of Florida, Mr. Sarbanes, Mr. 
 Bingaman, Ms. Stabenow, Mr. Wellstone, Mr. Hollings, Mrs. Murray, Mr. 
  Schumer, Mr. Akaka, Mrs. Boxer, Mr. Reed, Mr. Dodd, Mr. Levin, Mrs. 
  Carnahan, Ms. Cantwell, Mr. Durbin, and Mr. Dayton) 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 
Outpatient Prescription Drug Act of 2002''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

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

``Sec. 1860. Definitions.
``Sec. 1860A. Establishment of outpatient prescription drug benefit 
                            program.
``Sec. 1860B. Enrollment under program.
``Sec. 1860C. Enrollment in a plan.
``Sec. 1860D. Providing information to beneficiaries.
``Sec. 1860E. Premiums.
``Sec. 1860F. Outpatient prescription drug benefits.
``Sec. 1860G. Entities eligible to provide outpatient drug benefit.
``Sec. 1860H. Minimum standards for eligible entities.
``Sec. 1860I. Payments.
``Sec. 1860J. Employer incentive program for employment-based retiree 
                            drug coverage.
``Sec. 1860K. Prescription Drug Account in the Federal Supplementary 
                            Medical Insurance Trust Fund.
``Sec. 1860L. Medicare Prescription Drug Advisory Committee.''.
Sec. 3. Part D benefits under Medicare+Choice plans.
Sec. 4. Additional assistance for low-income beneficiaries.
Sec. 5. Medigap revisions.
Sec. 6. HHS studies and report on uniform pharmacy benefit cards and 
                            systems for transferring prescriptions 
                            electronically.
Sec. 7. GAO study and biennial reports on competition and savings.
Sec. 8. Expansion of membership and duties of Medicare Payment Advisory 
                            Commission (MedPAC).

SEC. 2. 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) except 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) for which payment is available under 
                        part A or B or would be available under part B 
                        but for the application of a deductible under 
                        such part (unless payment for such product is 
                        not available because benefits under part A or 
                        B have been exhausted), determined, except as 
                        provided in subparagraph (C), without regard to 
                        whether the beneficiary involved is entitled to 
                        benefits under part A or enrolled under part B; 
                        or
                            ``(iii) except for agents used to promote 
                        smoking cessation and agents used for the 
                        treatment of obesity, for which coverage may be 
                        excluded or restricted under section 
                        1927(d)(2).
                    ``(C) Clarification regarding immunosuppressive 
                drugs.--In the case of a beneficiary who is not 
                eligible for any coverage under part B of drugs 
                described in section 1861(s)(2)(J) because of the 
                requirements under such section (and would not be so 
                eligible if the individual were enrolled under such 
                part), the term `covered outpatient drug' shall include 
                such drugs if the drugs would otherwise be described in 
                subparagraph (A).
            ``(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 plan 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.
            ``(4) Medicare+choice organization; medicare+choice plan.--
        The terms `Medicare+Choice organization' and `Medicare+Choice 
        plan' have the meanings given such terms in subsections (a)(1) 
        and (b)(1), respectively, of section 1859 (relating to 
        definitions relating to Medicare+Choice organizations).
            ``(5) Prescription drug account.--The term `Prescription 
        Drug Account' means the Prescription Drug Account (as 
        established under section 1860K) in the Federal Supplementary 
        Medical Insurance Trust Fund under section 1841.

    ``establishment of outpatient prescription drug benefit program

    ``Sec. 1860A. (a) Provision of Benefit.--
            ``(1) In general.--Beginning in 2004, the Secretary shall 
        provide for and administer an outpatient prescription drug 
        benefit program under which each eligible beneficiary enrolled 
        under this part shall be provided with coverage of covered 
        outpatient drugs as follows:
                    ``(A) Medicare+choice plan.--If the eligible 
                beneficiary is eligible to enroll in a Medicare+Choice 
                plan, the beneficiary--
                            ``(i) may enroll in such a plan; and
                            ``(ii) if so enrolled, shall obtain 
                        coverage of covered outpatient drugs through 
                        such plan.
                    ``(B) Medicare prescription drug plan.--If the 
                eligible beneficiary is not enrolled in a 
                Medicare+Choice plan, the beneficiary shall obtain 
                coverage of covered outpatient drugs through enrollment 
                in a plan offered by an eligible entity with a contract 
                under this part.
            ``(2) 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.
            ``(3) Scope of benefits.--The program established under 
        this part shall provide for coverage of all therapeutic classes 
        of covered outpatient drugs.
    ``(b) Access to Alternative Prescription Drug Coverage.--In the 
case of an eligible beneficiary who has creditable prescription drug 
coverage (as defined in section 1860B(b)(1)(F)), such beneficiary--
            ``(1) may continue to receive such coverage and not enroll 
        under this part; and
            ``(2) pursuant to section 1860B(b)(1)(C), is permitted to 
        subsequently enroll under this part without any penalty and 
        obtain coverage of covered outpatient drugs in the manner 
        described in subsection (a) if the beneficiary involuntarily 
        loses such coverage.
    ``(c) Financing.--The costs of providing benefits under this part 
shall be payable from the Prescription Drug Account.

                       ``enrollment under program

    ``Sec. 1860B. (a) Establishment of Process.--
            ``(1) Process similar to enrollment under part b.--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, including the deeming provisions of such section.
            ``(2) Requirement of enrollment.--An eligible beneficiary 
        must enroll under this part in order to be eligible to receive 
        covered outpatient drugs under this title.
    ``(b) Special Enrollment Procedures.--
            ``(1) Late enrollment penalty.--
                    ``(A) Increase in premium.--Subject to the 
                succeeding provisions of this paragraph, 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 
                paragraph (2), the Secretary shall establish procedures 
                for increasing the amount of the monthly part D premium 
                under section 1860E(a) 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.
                    ``(B) Periods taken into account.--For purposes of 
                calculating any 12-month period under subparagraph (A), 
                there shall be taken into account--
                            ``(i) the months which elapsed between the 
                        close of the 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.
                    ``(C) Periods not taken into account.--
                            ``(i) In general.--For purposes of 
                        calculating any 12-month period under 
                        subparagraph (A), subject to clause (ii), there 
                        shall not be taken into account months for 
                        which the eligible beneficiary can demonstrate 
                        that the beneficiary had creditable 
                        prescription drug coverage (as defined in 
                        subparagraph (F)).
                            ``(ii) Application.--This subparagraph 
                        shall only apply with respect to a coverage 
                        period the enrollment for which occurs before 
                        the end of the 60-day period that begins on the 
                        first day of the month which includes--
                                    ``(I) in the case of a beneficiary 
                                with coverage described in clause (ii) 
                                of subparagraph (F), 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 actuarial value of 
                                the coverage provided under the program 
                                under this part; or
                                    ``(II) in the case of a beneficiary 
                                with coverage described in clause (i), 
                                (iii), or (iv) of subparagraph (F), the 
                                date on which the beneficiary loses 
                                eligibility for such coverage.
                    ``(D) Periods treated separately.--Any increase in 
                an eligible beneficiary's monthly part D premium under 
                subparagraph (A) with respect to a particular 
                continuous period of eligibility shall not be 
                applicable with respect to any other continuous period 
                of eligibility which the beneficiary may have.
                    ``(E) Continuous period of eligibility.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of this paragraph, 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 paragraph).
                    ``(F) Creditable prescription drug coverage 
                defined.--For purposes of this part, the term 
                `creditable prescription drug coverage' means any of 
                the following:
                            ``(i) Medicaid prescription drug 
                        coverage.--Prescription drug coverage under a 
                        medicaid plan under title XIX, including 
                        through the Program of All-inclusive Care for 
                        the Elderly (PACE) under section 1934 and 
                        through a social health maintenance 
                        organization (referred to in section 4104(c) of 
                        the Balanced Budget Act of 1997).
                            ``(ii) Prescription drug coverage under a 
                        group health plan.--Prescription drug coverage 
                        under a group health plan, including a health 
                        benefits plan under the Federal Employees 
                        Health Benefit Program under chapter 89 of 
                        title 5, United States Code, and a qualified 
                        retiree prescription drug plan (as defined in 
                        section 1860J(e)(3)), that provides coverage of 
                        the cost of prescription drugs the actuarial 
                        value of which (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.
                            ``(iii) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program.
                            ``(iv) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans, and survivors and dependents of 
                        veterans, under chapter 17 of title 38, United 
                        States Code.
            ``(2) Open enrollment period for current beneficiaries in 
        which late enrollment procedures do not apply.--
                    ``(A) In general.--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 paragraph (1)(A).
                    ``(B) Open enrollment period to begin prior to 
                january 1, 2004.--The Secretary shall ensure that 
                eligible beneficiaries are permitted to enroll under 
                this part prior to January 1, 2004, in order to ensure 
                that coverage under this part is effective as of such 
                date.
            ``(3) Special enrollment period for beneficiaries who 
        involuntarily lose creditable prescription drug coverage.--The 
        Secretary shall establish a special open enrollment period for 
        an eligible beneficiary that loses creditable prescription drug 
        coverage.
    ``(c) Period of Coverage.--
            ``(1) In general.--Except as provided in paragraph (2) and 
        subject to paragraph (3), 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.
            ``(2) Open and special enrollment.--Subject to paragraph 
        (3), an eligible beneficiary who enrolls under the program 
        under this part pursuant to paragraph (2) or (3) of subsection 
        (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.
            ``(3) Limitation.--Coverage under this part shall not begin 
        prior to January 1, 2004.
    ``(d) Termination.--
            ``(1) In general.--The causes of termination specified in 
        section 1838 shall apply to this part in the same manner as 
        such causes apply to part B.
            ``(2) Coverage terminated by termination of coverage under 
        parts a and b.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in paragraph (1), the Secretary 
                shall terminate an individual's coverage under this 
                part if the individual is no longer enrolled in either 
                part A or 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.
            ``(3) Procedures regarding termination of a beneficiary 
        under a plan.--The Secretary shall establish procedures for 
        determining the status of an eligible beneficiary's enrollment 
        under this part if the beneficiary's enrollment in a plan 
        offered by an eligible entity under this part is terminated by 
        the entity for cause (pursuant to procedures established by the 
        Secretary under section 1860C(a)(1)).

                         ``enrollment in a plan

    ``Sec. 1860C. (a) Process.--
            ``(1) Establishment.--
                    ``(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 in 
                any plan offered by an eligible entity that has been 
awarded a contract under this part and serves the geographic area in 
which the beneficiary resides. Such process shall include for the 
default enrollment in such a plan in the case of an eligible 
beneficiary who is enrolled under this part but who has failed to make 
an election of such a plan.
                    ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Secretary shall--
                            ``(i) use rules similar to the rules for 
                        enrollment, disenrollment, and termination of 
                        enrollment with a Medicare+Choice plan under 
                        section 1851, including--
                                    ``(I) the establishment of special 
                                election periods under subsection 
                                (e)(4) of such section; and
                                    ``(II) the application of the 
                                guaranteed issue and renewal provisions 
                                of subsection (g) of such section 
                                (other than paragraph (3)(C)(i), 
                                relating to default enrollment); and
                            ``(ii) coordinate enrollments, 
                        disenrollments, and terminations of enrollment 
                        under part C with enrollments, disenrollments, 
                        and terminations of enrollment under this part.
            ``(2) First enrollment period for plan enrollment.--The 
        process developed under paragraph (1) shall--
                    ``(A) ensure that eligible beneficiaries who choose 
                to enroll under this part are permitted to enroll with 
                an eligible entity prior to January 1, 2004, in order 
                to ensure that coverage under this part is effective as 
                of such date; and
                    ``(B) be coordinated with the open enrollment 
                period under section 1860B(b)(2)(A).
    ``(b) Medicare+Choice Enrollees.--
            ``(1) In general.--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.
            ``(2) Rules.--Enrollment in a Medicare+Choice plan is 
        subject to the rules for enrollment in such a plan under 
        section 1851.

                ``providing information to beneficiaries

    ``Sec. 1860D. (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 
        open enrollment period described in section 1860B(b)(2)(A).
    ``(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 plans offered by eligible entities under 
                this part that are available to eligible beneficiaries 
                residing in an area.
            ``(2) Comparative information.--The comparative information 
        described in paragraph (1)(C) shall include a comparison of the 
        following:
                    ``(A) Benefits.--The benefits provided under the 
                plan, including the prices beneficiaries will be 
                charged for covered outpatient drugs, any preferred 
                pharmacy networks used by the eligible entity under the 
                plan, and the formularies and appeals processes under 
                the plan.
                    ``(B) Quality and performance.--To the extent 
                available, the quality and performance of the eligible 
                entity offering the plan.
                    ``(C) Beneficiary cost-sharing.--The cost-sharing 
                required of eligible beneficiaries under the plan.
                    ``(D) Consumer satisfaction surveys.--To the extent 
                available, the results of consumer satisfaction surveys 
                regarding the plan and the eligible entity offering 
                such plan.
                    ``(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 
        under--
                    ``(A) this section;
                    ``(B) section 1851(d); and
                    ``(C) 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. 1860E. (a) Annual Establishment of Monthly Part D Premium 
Rates.--
            ``(1) In general.--The Secretary shall, during September of 
        each year (beginning in 2003), determine and promulgate a 
        monthly part D premium rate for the succeeding year.
            ``(2) Amount.--The Secretary shall determine the monthly 
        part D premium rate for the succeeding year as follows:
                    ``(A) Premium for 2004.--The monthly part D premium 
                rate for 2004 shall be $25.
                    ``(B) Inflation adjustment of premium for 2005 and 
                subsequent years.--
                            ``(i) In general.--Subject to clause (ii), 
                        in the case of any calendar year beginning 
                        after 2004, the monthly part D premium rate for 
                        the year shall be the amount described in 
                        subparagraph (A) increased by an amount equal 
                        to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the percentage (if any) by 
                                which the amount of the average annual 
                                per capita aggregate expenditures 
                                payable from the Prescription Drug 
                                Account for the year (as estimated 
                                under section 1860J(c)(2)(C)) exceeds 
                                the amount of such expenditures in 
                                2004.
                            ``(ii) Rounding.--If the monthly part D 
                        premium rate determined under clause (i) is not 
                        a multiple of $1, such rate shall be rounded to 
                        the nearest multiple of $1.
    ``(b) Collection of Part D Premium.--The monthly part D premium 
applicable to an eligible beneficiary under this part (after 
application of any increase under section 1860B(b)(1)) shall be 
collected and credited to the Prescription Drug Account in the same 
manner as the monthly premium determined under section 1839 is 
collected and credited to the Federal Supplementary Medical Insurance 
Trust Fund under section 1840.

                ``outpatient prescription drug benefits

    ``Sec. 1860F. (a) Requirement.--A plan offered by an eligible 
entity under this part shall provide eligible beneficiaries enrolled in 
such plan with--
            ``(1) coverage of covered outpatient drugs--
                    ``(A) without the application of any deductible; 
                and
                    ``(B) with the cost-sharing described in subsection 
                (b); and
            ``(2) access to negotiated prices for such drugs under 
        subsection (c).
    ``(b) Cost-Sharing.--
            ``(1) Three-tiered copayment structure for drugs included 
        in the formulary.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, in the case of a covered 
                outpatient drug that is dispensed in a year to an 
                eligible beneficiary and that is included in the 
                formulary established by the eligible entity (pursuant 
                to section 1860H(c)) for the plan, the beneficiary 
                shall be responsible for a copayment for the drug in an 
                amount equal to the following:
                            ``(i) Generic drugs.--In the case of a 
                        generic covered outpatient drug, $10 for each 
                        prescription (as defined by the Secretary in 
                        consultation with the Medicare Prescription 
                        Drug Advisory Committee established under 
                        section 1860L) of such drug.
                            ``(ii) Preferred brand name drugs.--In the 
                        case of a preferred brand name covered 
                        outpatient drug (including a drug treated as a 
                        preferred brand name drug under subparagraph 
                        (C)), $40 for each prescription (as so defined) 
                        of such drug.
                            ``(iii) Nonpreferred brand name drug.--In 
                        the case of a nonpreferred brand name covered 
                        outpatient drug (that is not treated as a 
                        preferred brand name drug under subparagraph 
                        (C)), $60 for each prescription (as so defined) 
                        of such drug.
                    ``(B) Reduction by eligible entity.--An eligible 
                entity offering a plan under this part may reduce the 
                applicable copayment amount that an eligible 
                beneficiary enrolled in the plan is subject to under 
                subparagraph (A) if the Secretary determines that such 
                reduction--
                            ``(i) is tied to the performance 
                        requirements described in section 
                        1860I(b)(1)(C); and
                            ``(ii) will not result in an increase in 
                        the expenditures made from the Prescription 
                        Drug Account.
                    ``(C) Treatment of medically necessary nonpreferred 
                and nonformulary drugs.--The eligible entity shall 
                treat a nonpreferred brand name drug and a nonformulary 
                drug as a preferred brand name drug under subparagraph 
                (A)(ii) if such nonpreferred or nonformulary drug, as 
                the case may be, is determined (pursuant to 
                subparagraph (D) or (E) of section 1860H(a)(3)) to be 
                medically necessary.
            ``(2) Authority for increased cost-sharing for nonformulary 
        drugs.--Pursuant to section 1860H(c)(3)(A), an eligible entity 
        offering a plan under this part may require cost-sharing for a 
        nonformulary drug that is higher than the copayment amount 
        described in paragraph (1)(A)(iii).
            ``(3) Cost-sharing may not exceed negotiated price.--
                    ``(A) In general.--If the amount of cost-sharing 
                for a covered outpatient drug that would otherwise be 
                required under this subsection (but for this paragraph) 
                is greater than the applicable amount, then the amount 
                of such cost-sharing shall be reduced to an amount 
                equal to such applicable amount.
                    ``(B) Applicable amount defined.--For purposes of 
                subparagraph (A), the term `applicable amount' means an 
                amount equal to--
                            ``(i) in the case of generic drugs and 
                        preferred brand name drugs, the negotiated 
                        price for the drug (as reported to the 
                        Secretary pursuant to section 1860H(a)(5)(A)) 
                        less $5; and
                            ``(ii) in the case of nonpreferred brand 
                        name drugs and nonformulary drugs, the 
                        negotiated price for the drug (as so reported).
            ``(4) No cost-sharing once expenses equal annual out-of-
        pocket limit.--
                    ``(A) In general.--An eligible entity offering a 
                plan under this part shall provide coverage of covered 
                outpatient drugs without any cost-sharing if the 
                individual has incurred costs (as described in 
                subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket limit specified 
                in subparagraph (B).
                    ``(B) Annual out-of-pocket limit.--Subject to 
                paragraph (5), for purposes of this part, the `annual 
                out-of-pocket limit' specified in this subparagraph is 
                equal to $4,000.
                    ``(C) Application.--In applying subparagraph (A)--
                            ``(i) incurred costs shall only include 
                        costs incurred for the cost-sharing described 
                        in this subsection; but
                            ``(ii) such costs shall be treated as 
                        incurred without regard to whether the 
                        individual or another person, including a State 
                        program or other third-party coverage, has paid 
                        for such costs.
            ``(5) Inflation adjustment for copayment amounts and annual 
        out-of-pocket limit.--
                    ``(A) In general.--For any year after 2005--
                            ``(i) the copayment amounts described in 
                        clauses (i), (ii), and (iii) of paragraph 
                        (1)(A) are equal to the copayment amounts 
                        determined under such paragraph (or this 
                        paragraph) for the previous year increased by 
                        the annual percentage increase described in 
                        subparagraph (B); and
                            ``(ii) the annual out-of-pocket limit 
                        specified in paragraph (4)(B) is equal to the 
                        annual out-of-pocket limit determined under 
                        such paragraph (or this paragraph) for the 
                        previous year increased by the annual 
                        percentage increase described in subparagraph 
                        (B).
                    ``(B) Annual percentage increase.--The annual 
                percentage increase specified in this subparagraph for 
                a year is equal to the annual percentage increase in 
                the prices of covered outpatient drugs (including both 
                price inflation and price changes due to changes in 
                therapeutic mix), as determined by the Secretary for 
                the 12-month period ending in July of the previous 
                year.
                    ``(C) Rounding.--If any amount determined under 
                subparagraph (A) is not a multiple of $1, such amount 
                shall be rounded to the nearest multiple of $1.
    ``(c) Access to Negotiated Prices.--Under a plan offered by an 
eligible entity with a contract under this part, the eligible entity 
offering such plan shall provide eligible beneficiaries enrolled in 
such plan with access to negotiated prices (including applicable 
discounts) used for payment for covered outpatient drugs, regardless of 
the fact that only partial benefits may be payable under the coverage 
with respect to such drugs because of the application of the cost-
sharing under subsection (b).

         ``entities eligible to provide outpatient drug benefit

    ``Sec. 1860G. (a) Establishment of Panels of Plans Available in an 
Area.--
            ``(1) In general.--The Secretary shall establish procedures 
        under which the Secretary--
                    ``(A) accepts bids submitted by eligible entities 
                for the plans which such entities intend to offer in an 
                area established under subsection (b); and
                    ``(B) awards contracts to such entities to provide 
                such plans to eligible beneficiaries in the 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 with respect to a plan shall require 
                the eligible entity to provide coverage of covered 
                outpatient drugs under the plan in a region determined 
                by the Secretary under paragraph (2).
                    ``(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 in a partial region 
                        determined appropriate by the Secretary.
                            ``(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 regions for 
                contracts 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 regions 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) Submission.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each eligible entity desiring to offer a plan under 
                this part in an area shall submit a bid with respect to 
                such plan to the Secretary at such time, in such 
                manner, and accompanied by such information as the 
                Secretary may reasonably require.
                    ``(B) Bid that covers multiple areas.--The 
                Secretary shall permit an eligible entity to submit a 
                single bid for multiple areas if the bid is applicable 
                to all such areas.
            ``(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) a statement regarding the amount that the 
                entity will charge the Secretary for managing, 
                administering, and delivering the benefits under the 
                contract;
                    ``(C) a statement regarding whether the entity will 
                reduce the applicable cost-sharing amount pursuant to 
                section 1860F(b)(1)(B) and if so, the amount of such 
reduction and how such reduction is tied to the performance 
requirements described in section 1860I(b)(1)(C);
                    ``(D) a detailed description of the performance 
                requirements for which the payments to the entity will 
                be subject to risk pursuant to section 1860I(b)(1)(C);
                    ``(E) a detailed description of access to pharmacy 
                services provided under the plan, including information 
                regarding--
                            ``(i) whether the entity will use a 
                        preferred pharmacy network under the plan; and
                            ``(ii) if a preferred pharmacy network is 
                        used, whether the entity will offer access to 
                        pharmacies that are outside such network and if 
                        such access is provided, rules for accessing 
                        such pharmacies;
                    ``(F) with respect to the formulary used by the 
                entity, a detailed description of the procedures and 
                standards the entity will use for--
                            ``(i) adding new drugs to a therapeutic 
                        class within the formulary; and
                            ``(ii) determining when and how often the 
                        formulary should be modified;
                    ``(G) a detailed description of any ownership or 
                shared financial interests with other entities involved 
                in the delivery of the benefit as proposed under the 
                plan;
                    ``(H) a detailed description of the entity's 
                estimated marketing and advertising expenditures 
                related to enrolling eligible beneficiaries under the 
                plan and retaining such enrollment; 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 to Benefits in Certain Areas.--
            ``(1) Areas not covered by contracts.--The Secretary shall 
        develop procedures for the provision of covered outpatient 
        drugs under this part to each eligible beneficiary enrolled 
        under this part that resides in an area that is not covered by 
        any contract under this part.
            ``(2) Beneficiaries residing in different locations.--The 
        Secretary shall develop procedures to ensure that each eligible 
        beneficiary enrolled under this part that resides in different 
        areas in a year is provided the benefits under this part 
        throughout the entire year.
    ``(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 to offer a plan in an area, unless only 1 bidding 
        entity (and the plan offered by the 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 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 (and the plan offered by 
                the entity) meet such minimum standards;
                    ``(B) the amount that the entity will charge the 
                Secretary for managing, administering, and delivering 
                the benefits under the contract;
                    ``(C) the performance requirements for which the 
                payments to the entity will be subject to risk pursuant 
                to section 1860I(b)(1)(C);
                    ``(D) the proposed negotiated prices of covered 
                outpatient drugs and annual increases in such prices;
                    ``(E) the factors described in section 1860D(b)(2);
                    ``(F) prior experience of the entity in managing, 
                administering, and delivering a prescription drug 
                benefit program;
                    ``(G) effectiveness of the entity and plan 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 beneficiaries 
                        enrolled under this part; 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 with respect to a plan 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 awarded under this part 
shall be for a term of at least 2 years but not more than 5 years, as 
determined by the Secretary.

               ``minimum standards for eligible entities

    ``Sec. 1860H. (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.--
                    ``(A) In general.--The eligible entity has in place 
                drug utilization review procedures to ensure--
                            ``(i) the appropriate utilization by 
                        eligible beneficiaries enrolled in the plan 
                        covered by the contract of the benefits to be 
                        provided under the plan;
                            ``(ii) the avoidance of adverse drug 
                        reactions among such beneficiaries, 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; and
                            ``(iii) the reasonable application of peer-
                        reviewed medical literature pertaining to 
                        improvements in pharmaceutical safety and 
                        appropriate use of drugs.
                    ``(B) Authority to use certain compendia and 
                literature.--The eligible entity may use the compendia 
                and literature referred to in clauses (i) and (ii), 
                respectively, of section 1927(g)(1)(B) as a source for 
                the utilization review under subparagraph (A).
            ``(3) Patient protections.--
                    ``(A) Access.--
                            ``(i) In general.--The eligible entity 
                        ensures that the covered outpatient drugs are 
                        accessible and convenient to eligible 
                        beneficiaries enrolled in the plan covered by 
                        the contract, including by offering the 
                        services 24 hours a day and 7 days a week for 
                        emergencies.
                            ``(ii) Agreements with pharmacies.--The 
                        eligible entity shall enter into a 
                        participation agreement with any pharmacy that 
                        meets the requirements of subsection (d) to 
                        furnish covered prescription drugs to eligible 
                        beneficiaries under this part. Such agreements 
                        shall include the payment of a reasonable 
                        dispensing fee for covered outpatient drugs 
                        dispensed to a beneficiary under the agreement.
                            ``(iii) Preferred pharmacy networks.--If 
                        the eligible entity utilizes a preferred 
                        pharmacy network, the network complies with the 
                        standards under subsection (e).
                    ``(B) Ensuring that beneficiaries are not 
                overcharged.--The eligible entity has procedures in 
                place to ensure that each pharmacy with a participation 
                agreement under this part with the entity complies with 
                the requirements under subsection (d)(1)(C) (relating 
                to adherence to negotiated prices).
                    ``(C) 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 
                        1860C(a)(1)), 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 or, if eligible, with a 
                        Medicare+Choice organization.
                            ``(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.
                    ``(D) Procedures regarding the determination of 
                drugs that are medically necessary.--
                            ``(i) In general.--The eligible entity has 
                        in place procedures on a case-by-case basis to 
                        treat a nonpreferred brand name drug as a 
                        preferred brand name drug and a nonformulary 
                        drug as a preferred brand name drug under this 
                        part if the nonpreferred brand name drug or the 
                        nonformulary drug, as the case may be, is 
                        determined--
                                    ``(I) to be not as effective for 
                                the enrollee in preventing or slowing 
                                the deterioration of, or improving or 
                                maintaining, the health of the 
                                enrollee; or
                                    ``(II) to have a significant 
                                adverse effect on the enrollee.
                            ``(ii) Requirement.--The procedures under 
                        clause (i) shall require that determinations 
                        under such clause are based on professional 
                        medical judgment, the medical condition of the 
                        enrollee, and other medical evidence.
                    ``(E) Procedures regarding appeal rights with 
                respect to denials of care.--The eligible entity has in 
                place procedures to ensure--
                            ``(i) a timely internal review for 
                        resolution of denials of coverage (in whole or 
                        in part and including those regarding the 
                        coverage of nonpreferred brand name drugs and 
                        nonformulary drugs as preferred brand name 
                        drugs) in accordance with the medical 
                        exigencies of the case and a timely resolution 
                        of complaints, by enrollees in the plan, or by 
                        providers, pharmacists, and other individuals 
                        acting on behalf of each such enrollee (with 
                        the enrollee's consent) in accordance with 
                        requirements (as established by the Secretary) 
                        that are comparable to such requirements for 
                        Medicare+Choice organizations under part C (and 
                        are not less favorable to the enrollee than 
                        such requirements under such part as in effect 
                        on the date of enactment of the Medicare 
                        Outpatient Prescription Drug Act of 2002);
                            ``(ii) that the entity complies in a timely 
                        manner with requirements established by the 
                        Secretary that (I) provide for an external 
                        review by an independent entity selected by the 
                        Secretary of denials of coverage described in 
                        clause (i) not resolved in the favor of the 
                        beneficiary (or other complainant) under the 
                        process described in such clause, and (II) are 
                        comparable to the external review requirements 
                        established for Medicare+Choice organizations 
                        under part C (and are not less favorable to the 
                        enrollee than such requirements under such part 
                        as in effect on the date of enactment of the 
                        Medicare Outpatient Prescription Drug Act of 
                        2002); and
                            ``(iii) that enrollees are provided with 
                        information regarding the appeals procedures 
                        under this part at the time of enrollment with 
                        the entity and upon request thereafter.
                    ``(F) Procedures regarding patient 
                confidentiality.--Insofar as an eligible entity 
                maintains individually identifiable medical records or 
                other health information regarding eligible 
                beneficiaries enrolled in the plan that is covered by 
                the contract, 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.
                    ``(G) 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 (F) (with respect to a beneficiary 
                        who loses coverage under this part with the 
                        entity and enrolls with another entity 
                        (including a Medicare+Choice organization) 
                        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 (F).
                    ``(H) Procedures regarding medical errors.--The 
                eligible entity has in place procedures for--
                            ``(i) working with the Secretary to deter 
                        medical errors related to the provision of 
                        covered outpatient drugs; and
                            ``(ii) ensuring that pharmacies with a 
                        contract with the entity have in place 
                        procedures to deter medical errors related to 
                        the provision of covered outpatient drugs.
            ``(4) Procedures to control fraud, abuse, and waste.--The 
        eligible entity has in place procedures to control fraud, 
        abuse, and waste.
            ``(5) Reporting requirements.--
                    ``(A) In general.--The eligible entity provides the 
                Secretary with reports containing information regarding 
                the following:
                            ``(i) The negotiated prices that the 
                        eligible entity is paying for covered 
                        outpatient drugs.
                            ``(ii) The prices that eligible 
                        beneficiaries enrolled in the plan that is 
                        covered by the contract will be charged for 
                        covered outpatient drugs.
                            ``(iii) The management 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 part, 
                        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) (except for 
                        information described in clause (ii) of such 
                        subparagraph) 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.
            ``(6) Approval of marketing material and application 
        forms.--The eligible entity complies with the requirements 
        described in section 1860G(f).
            ``(7) Records and audits.--The eligible entity maintains 
        adequate records related to the administration of the benefits 
        under this part and affords the Secretary access to such 
        records for auditing purposes.
    ``(b) Special Rules Regarding Cost-Effective Provision of 
Benefits.--In providing the benefits under a contract under this part, 
an eligible entity shall--
            ``(1) employ mechanisms to provide the benefits 
        economically, such as through the use of--
                    ``(A) alternative methods of distribution;
                    ``(B) preferred pharmacy networks (pursuant to 
                subsection (e)); and
                    ``(C) generic drug substitution;
            ``(2) use mechanisms to encourage eligible beneficiaries to 
        select cost-effective drugs or less costly means of receiving 
        drugs, such as through the use of--
                    ``(A) pharmacy incentive programs;
                    ``(B) therapeutic interchange programs; and
                    ``(C) disease management programs;
            ``(3) encourage pharmacy providers to--
                    ``(A) inform beneficiaries of the differentials in 
                price between generic and brand name drug equivalents; 
                and
                    ``(B) 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; and
            ``(4) develop and implement a formulary in accordance with 
        subsection (c).
    ``(c) Requirements for Formularies.--
            ``(1) In general.--The formulary developed and implemented 
        by the eligible entity shall comply with standards established 
        by the Secretary in consultation with the Medicare Prescription 
        Drug Advisory Committee established under section 1860L.
            ``(2) Requirements for standards.--The standards 
        established under paragraph (1) shall require that the eligible 
        entity--
                    ``(A) use a pharmacy and therapeutic committee 
                (that meets the standards for a pharmacy and 
                therapeutic committee established by the Secretary in 
                consultation with such Medicare Prescription Drug 
                Advisory Committee) to develop and implement the 
                formulary;
                    ``(B) assign all brand name drugs included in the 
                formulary to either the preferred category or 
                nonpreferred category of drugs;
                    ``(C) include--
                            ``(i) all generic covered outpatient drugs 
                        in the formulary;
                            ``(ii) at least 1 brand name covered 
                        outpatient drug from each therapeutic class (as 
                        defined by the Secretary in consultation with 
                        such Medicare Prescription Drug Advisory 
                        Committee) as a preferred brand name drug in 
                        the formulary; and
                            ``(iii) if there is more than 1 brand name 
                        covered outpatient drug available in a 
                        therapeutic class, at least 1 such drug as a 
                        preferred brand name drug in the formulary and 
                        at least 1 such drug as a nonpreferred brand 
                        name drug in the formulary;
                    ``(D) develop procedures for the modification of 
                the formulary, including for the addition of new drugs 
                to an existing therapeutic class;
                    ``(E) pursuant to section 1860F(b)(1)(C), provide 
                for coverage of nonpreferred brand name drugs and 
                nonformulary drugs at the preferred rate when 
                determined under subparagraph (D) or (E) of subsection 
                (a)(3) to be medically necessary;
                    ``(F) 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 and any difference in the cost-sharing for--
                            ``(i) drugs included in the formulary; and
                            ``(ii) for drugs not included in the 
                        formulary; and
                    ``(G) provide a reasonable amount of notice to 
                beneficiaries enrolled in the plan that is covered by 
                the contract under this part of any change in the 
                formulary.
            ``(3) Construction.--Nothing in this part shall be 
        construed as precluding an eligible entity from--
                    ``(A) except as provided in section 1860F(b)(1)(C) 
                (relating to the coverage of medically necessary drugs 
                at the preferred rate), requiring cost-sharing for 
                nonformulary drugs that is higher than the copayment 
                amount established in section 1860F(b)(1)(A)(iii);
                    ``(B) educating prescribing providers, pharmacists, 
                and beneficiaries about the medical and cost benefits 
                of drugs included in the formulary (including generic 
                drugs); or
                    ``(C) requesting prescribing providers to consider 
                a drug included in the formulary prior to dispensing of 
                a drug not so included or a preferred brand name drug 
                prior to dispensing of a nonpreferred brand name drug, 
                as long as such a request does not unduly delay the 
                provision of the drug.
    ``(d) Terms of Participation Agreement With Pharmacies.--
            ``(1) In general.--A participation agreement between an 
        eligible entity and a pharmacy under this part (pursuant to 
        subsection (a)(3)(A)(ii)) shall include the following terms and 
        conditions:
                    ``(A) Applicable requirements.--The pharmacy shall 
                meet (and throughout the contract period continue to 
                meet) all applicable Federal requirements and State and 
                local licensing requirements.
                    ``(B) Access and quality standards.--The pharmacy 
                shall comply with such standards as the Secretary (and 
                the eligible entity) shall establish concerning the 
                quality of, and enrolled beneficiaries' access to, 
                pharmacy services under this part. Such standards shall 
                require the pharmacy--
                            ``(i) not to refuse to dispense covered 
                        outpatient drugs to any eligible beneficiary 
                        enrolled under this part;
                            ``(ii) to keep patient records (including 
                        records on expenses) for all covered outpatient 
                        drugs dispensed to such enrolled beneficiaries;
                            ``(iii) to submit information (in a manner 
                        specified by the Secretary to be necessary to 
                        administer this part) on all purchases of such 
                        drugs dispensed to such enrolled beneficiaries; 
                        and
                            ``(iv) to comply with periodic audits to 
                        assure compliance with the requirements of this 
                        part and the accuracy of information submitted.
                    ``(C) Ensuring that beneficiaries are not 
                overcharged.--
                            ``(i) Adherence to negotiated prices.--The 
                        total charge for each covered outpatient drug 
                        dispensed by the pharmacy to a beneficiary 
                        enrolled in the plan, without regard to whether 
                        the individual is financially responsible for 
                        any or all of such charge, shall not exceed the 
                        negotiated price for the drug (as reported to 
                        the Secretary pursuant to subsection 
                        (a)(5)(A)).
                            ``(ii) Adherence to beneficiary 
                        obligation.--The pharmacy may not charge (or 
                        collect from) such beneficiary an amount that 
                        exceed's the cost-sharing that the beneficiary 
                        is responsible for under this part (as 
                        determined under section 1860F(b) using the 
                        negotiated price of the drug).
                    ``(D) Additional requirements.--The pharmacy shall 
                meet such additional contract requirements as the 
                eligible entity specifies under this section.
            ``(2) Applicability of fraud and abuse provisions.--The 
        provisions of section 1128 through 1128C (relating to fraud and 
        abuse) apply to pharmacies participating in the program under 
        this part.
    ``(e) Preferred Pharmacy Networks.--
            ``(1) In general.--If an eligible entity uses a preferred 
        pharmacy network to deliver benefits under this part, such 
        network shall meet minimum access standards established by the 
        Secretary.
            ``(2) Standards.--In establishing standards under paragraph 
        (1), the Secretary shall take into account reasonable distances 
        to pharmacy services in both urban and rural areas.

                               ``payments

    ``Sec. 1860I. (a) Procedures for Payments to Eligible Entities.--
The Secretary shall establish procedures for making payments to each 
eligible entity with a contract under this part for the management, 
administration, and delivery of the benefits under this part.
    ``(b) Requirements for Procedures.--
            ``(1) In general.--The procedures established under 
        subsection (a) shall provide for the following:
                    ``(A) Management payment.--Payment for the 
                management, administration, and delivery of the 
                benefits under this part.
                    ``(B) Reimbursement for negotiated costs of drugs 
                provided.--Payments for the negotiated costs of covered 
                outpatient drugs provided to eligible beneficiaries 
                enrolled under this part and in a plan offered by the 
                eligible entity, reduced by any applicable cost-sharing 
under section 1860F(b).
                    ``(C) Risk requirement to ensure pursuit of 
                performance requirements.--An adjustment of a 
                percentage (as determined under paragraph (2)) of the 
                payments made to an entity under subparagraph (A) to 
                ensure that the entity, in managing, administering, and 
                delivering the benefits under this part, pursues 
                performance requirements established by the Secretary, 
                including the following:
                            ``(i) Control of medicare and beneficiary 
                        costs.--The entity contains costs to the 
                        Prescription Drug Account and to eligible 
                        beneficiaries enrolled under this part and in 
                        the plan offered by the entity, as measured by 
                        generic substitution rates, price discounts, 
                        and other factors determined appropriate by the 
                        Secretary that do not reduce the access of such 
                        beneficiaries to medically necessary covered 
                        outpatient drugs.
                            ``(ii) Quality clinical care.--The entity 
                        provides such beneficiaries with quality 
                        clinical care, as measured by such factors as--
                                    ``(I) the level of adverse drug 
                                reactions and medical errors among such 
                                beneficiaries; and
                                    ``(II) providing specific clinical 
                                suggestions to improve health and 
                                patient and prescriber education as 
                                appropriate.
                            ``(iii) Quality service.--The entity 
                        provides such beneficiaries with quality 
                        services, as measured by such factors as 
                        sustained pharmacy network access, timeliness 
                        and accuracy of service delivery in claims 
                        processing and card production, pharmacy and 
                        member service support access, response time in 
                        mail delivery service, and timely action with 
                        regard to appeals and current beneficiary 
                        service surveys.
            ``(2) Percentage of payment tied to risk.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall determine the percentage (which may be 
                up to 100 percent) of the payments made to an entity 
                under subparagraph (A) that will be tied to the 
                performance requirements described in paragraph (1)(C).
                    ``(B) Limitation on risk to ensure program 
                stability.--In order to provide for program stability, 
                the Secretary may not establish a percentage to be 
                adjusted under this subsection at a level that 
                jeopardizes the ability of an eligible entity to 
                administer and deliver the benefits under this part or 
                administer and deliver such benefits in a quality 
                manner.
            ``(3) Risk adjustment of payments based on enrollees in 
        plan.--To the extent that an eligible entity is at risk under 
        this subsection, the procedures established under subsection 
        (a) may include a methodology for risk adjusting the payments 
        made to such entity based on the differences in actuarial risk 
        of different enrollees being served if the Secretary determines 
        such adjustments to be necessary and appropriate.
            ``(4) Pass-through of rebates and price concessions 
        obtained by the eligible entity.--The Secretary, if determined 
        by the Secretary to be in the best interests of the medicare 
        program or eligible beneficiaries, may establish procedures for 
        reducing the amount of payments to an eligible entity under 
        subsection (a) to take into account any rebates or price 
        concessions obtained by the entity from manufacturers of 
        covered outpatient drugs.
    ``(c) Payments to Medicare+Choice Organizations.--For provisions 
related to payments to Medicare+Choice organizations for the 
administration and delivery of benefits under this part to eligible 
beneficiaries enrolled in a Medicare+Choice plan offered by the 
organization, see section 1853(c)(8).
    ``(d) 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. 1860J. (a) Program Authority.--The Secretary is authorized 
to develop and implement a program under this section to be known as 
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 (e)(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 or dependent) 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 payment.--
                    ``(A) In general.--The amount of the payment for a 
                quarter shall be, for each individual described in 
                paragraph (1), \2/3\ of the sum of the monthly 
                Government contribution amounts (computed under 
                subparagraph (B)) for each of the 3 months in the 
                quarter.
                    ``(B) Computation of monthly government 
                contribution amount.--For purposes of subparagraph (A), 
                the monthly Government contribution amount for a month 
                in a year is equal to the amount by which--
                            ``(i) \1/12\ of the amount estimated under 
                        subparagraph (C) for the year involved; exceeds
                            ``(ii) the monthly Part D premium under 
                        section 1860E(a) (determined without regard to 
                        any increase under section 1860B(b)(1)) for the 
                        month involved.
                    ``(C) Estimate of average annual per capita 
                aggregate expenditures.--
                            ``(i) In general.--The Secretary shall for 
                        each year after 2003 estimate for that year an 
                        amount equal to average annual per capita 
                        aggregate expenditures payable from the 
                        Prescription Drug Account for that year.
                            ``(ii) Timeframe for estimation.--The 
                        Secretary shall make the estimate described in 
                        clause (i) for a year before the beginning of 
                        that year.
            ``(3) Payment date.--The payment 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, whether provided by voluntary 
        insurance coverage or pursuant to statutory or contractual 
        obligation, 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 with an actuarial value (as defined by the 
                Secretary) to each retired beneficiary that 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.

   ``prescription drug account in the federal supplementary medical 
                          insurance trust fund

    ``Sec. 1860K. (a) Establishment.--
            ``(1) In general.--There is created within the Federal 
        Supplementary Medical Insurance Trust Fund established by 
        section 1841 an account to be known as the `Prescription Drug 
        Account' (in this section referred to as the `Account').
            ``(2) Funds.--The Account shall consist of such gifts and 
        bequests as may be made as provided in section 201(i)(1), and 
        such amounts as may be deposited in, or appropriated to, the 
        account as provided in this part.
            ``(3) Separate from rest of trust fund.--Funds provided 
        under this part to the Account shall be kept separate from all 
        other funds within the Federal Supplementary Medical Insurance 
        Trust Fund.
    ``(b) Payments From Account.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Secretary 
        certifies are necessary to make payments to operate the program 
        under this part, including payments to eligible entities under 
        section 1860I, payments to Medicare+Choice organizations under 
        section 1853(c)(8), and payments with respect to administrative 
        expenses under this part in accordance with section 201(g).
            ``(2) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
    ``(c) Appropriations To Cover Benefits and Administrative Costs.--
            ``(1) In general.--Subject to paragraph (2), there are 
        appropriated to the Account in a fiscal year, out of any moneys 
        in the Treasury not otherwise appropriated, an amount equal to 
        the amount by which the benefits and administrative costs of 
        providing the benefits under this part in the year exceed the 
        premiums collected under section 1860E(b) for the year.
            ``(2) Limitation.--No amounts shall be appropriated, and no 
        amounts expended, for expenses incurred for providing coverage 
        of covered outpatient drugs after January 1, 2011. The 
        Secretary may make payments on or after such date for expenses 
        incurred to the extent such expenses were incurred for 
        providing coverage of covered outpatient drugs prior to such 
        date.

            ``medicare prescription drug advisory committee

    ``Sec. 1860L. (a) Establishment of Committee.--There is established 
a Medicare Prescription Drug Advisory Committee (in this section 
referred to as the `Committee').
    ``(b) Functions of Committee.--On and after March 1, 2003, 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 
                1860H(c)(2)(A);
                    ``(B) standards required under subparagraphs (D) 
                and (E) of section 1860H(a)(3) for determining if a 
                drug is medically necessary;
                    ``(C) standards for--
                            ``(i) establishing therapeutic classes;
                            ``(ii) adding new therapeutic classes to a 
                        formulary; and
                            ``(iii) defining a prescription of covered 
                        outpatient drugs for purposes of applying cost-
                        sharing under section 1860F(b);
                    ``(D) procedures to evaluate the bids submitted by 
                eligible entities under this part; and
                    ``(E) 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, attainments, and understanding of 
                pharmaceutical cost control and quality enhancement, 
                exceptionally qualified to perform the duties of 
                members of the Committee.
                    ``(B) Specific members.--Of the members appointed 
                under paragraph (1)--
                            ``(i) five shall be chosen to represent 
                        physicians, 2 of whom shall be geriatricians;
                            ``(ii) two shall be chosen to represent 
                        nurse practitioners;
                            ``(iii) four shall be chosen to represent 
                        pharmacists;
                            ``(iv) one shall be chosen to represent the 
                        Centers for Medicare & Medicaid Services;
                            ``(v) four shall be chosen to represent 
                        actuaries, pharmacoeconomists, researchers, and 
                        other appropriate experts;
                            ``(vi) one shall be chosen to represent 
                        emerging drug technologies;
                            ``(vii) one shall be closed to represent 
                        the Food and Drug Administration; and
                            ``(viii) one shall be chosen to represent 
                        individuals enrolled under this part.
    ``(d) Terms of Appointment.--Each member of the Committee shall 
serve for a term determined appropriate by the Secretary. The terms of 
service of the members initially appointed shall begin on January 1, 
2003.
    ``(e) Chairperson.--The Secretary shall designate a member of the 
Committee as Chairperson. The term as Chairperson shall be for a 1-year 
period.
    ``(f) Committee Personnel Matters.--
            ``(1) Members.--
                    ``(A) Compensation.--Each member of the Committee 
                who is not an officer or employee of the Federal 
                Government shall be compensated at a rate equal to the 
                daily equivalent of the annual rate of basic pay 
prescribed for level IV of the Executive Schedule under section 5315 of 
title 5, United States Code, for each day (including travel time) 
during which such member is engaged in the performance of the duties of 
the Committee. All members of the Committee who are officers or 
employees of the United States shall serve without compensation in 
addition to that received for their services as officers or employees 
of the United States.
                    ``(B) Travel expenses.--The members of the 
                Committee shall be allowed travel expenses, including 
                per diem in lieu of subsistence, at rates authorized 
                for employees of agencies under subchapter I of chapter 
                57 of title 5, United States Code, while away from 
                their homes or regular places of business in the 
                performance of services for the Committee.
            ``(2) Staff.--The Committee may appoint such personnel as 
        the Committee considers appropriate.
    ``(g) Operation of the Committee.--
            ``(1) Meetings.--The Committee shall meet at the call of 
        the Chairperson (after consultation with the other members of 
        the Committee) not less often than quarterly to consider a 
        specific agenda of issues, as determined by the Chairperson 
        after such consultation.
            ``(2) Quorum.--Ten members of the Committee shall 
        constitute a quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--Section 14 of the Federal 
Advisory Committee Act (5 U.S.C. App.) shall not apply to the 
Committee.
    ``(i) Transfer of Personnel, Resources, and Assets.--For purposes 
of carrying out its duties, the Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ of the Department of Health and Human Services (including 
the Centers for Medicare & Medicaid Services), and such resources and 
assets of the Department used in carrying out this title, as the 
Committee requires.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
    (b) 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 
        reasonable and necessary.--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 reasonable and necessary to 
                prevent or slow the deterioration of, or improve or 
                maintain, the health of eligible beneficiaries;''.
    (c) Conforming Amendments to Federal Supplementary Medical 
Insurance Trust Fund.--Section 1841 of the Social Security Act (42 
U.S.C. 1395t) is amended--
            (1) in the last sentence of subsection (a)--
                    (A) by striking ``and'' before ``such amounts''; 
                and
                    (B) by inserting before the period the following: 
                ``, and such amounts as may be deposited in, or 
                appropriated to, the Prescription Drug Account 
                established by section 1860K'';
            (2) in subsection (g), by inserting after ``by this part,'' 
        the following: ``the payments provided for under part D (in 
        which case the payments shall be made from the Prescription 
        Drug Account in the Trust Fund),'';
            (3) in subsection (h), by inserting after ``1840(d)'' the 
        following: ``and section 1860E(b) (in which case the payments 
        shall be made from the Prescription Drug Account in the Trust 
        Fund)''; and
            (4) in subsection (i), by inserting after ``section 
        1840(b)(1)'' the following: ``, section 1860E(b) (in which case 
        the payments shall be made from the Prescription Drug Account 
        in the Trust Fund),''.
    (d) 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 
        Congress a legislative proposal providing for such technical 
        and conforming amendments in the law as are required by the 
        provisions of this Act.

SEC. 3. 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 the Social Security 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 the Social Security 
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 (as 
                defined in section 1860(1)) provided to individuals 
                enrolled under part D, the organization complies with 
                the access requirements applicable under part D.''.
    (d) Payments to Organizations for Part D Benefits.--
            (1) In general.--Section 1853(a)(1)(A) of the Social 
        Security Act (42 U.S.C. 1395w-23(a)(1)(A)) is amended--
                    (A) 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)'';
                    (B) 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
                    (C) by inserting before the last sentence the 
                following: ``In the case of the payments under 
                subsection (c)(8) for the provision of coverage of 
                covered outpatient drugs to individuals enrolled under 
                part D, such payment shall be adjusted for the risk 
                factors of each enrollee as the Secretary determines to 
                be feasible and appropriate to ensure actuarial 
                equivalence.''.
            (2) Amount.--Section 1853(c) of the Social Security Act (42 
        U.S.C. 1395w-23(c)) is amended--
                    (A) in paragraph (1), in the matter preceding 
                subparagraph (A), by inserting ``for benefits under 
                parts A and B'' after ``capitation rate''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(8) Capitation rate for part d benefits.--
                    ``(A) In general.--In the case of a Medicare+Choice 
                plan that provides coverage of covered outpatient drugs 
                to an individual enrolled under part D, the capitation 
                rate for such coverage shall be the amount described in 
                subparagraph (B). Such payments shall be made in the 
                same manner and at the same time as the payments to the 
                Medicare+Choice organization offering the plan for 
                benefits under parts A and B are otherwise made, but 
                such payments shall be payable from the Prescription 
                Drug Account in the Federal Supplementary Medical 
                Insurance Trust Fund under section 1841.
                    ``(B) Amount.--The amount described in this 
                paragraph is an amount equal to \1/12\ of the average 
                annual per capita aggregate expenditures payable from 
                the Prescription Drug Account for the year (as 
                estimated under section 1860J(c)(2)(C)).''.
    (e) Limitation on Enrollee Liability.--Section 1854(e) of the 
Social Security 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 any deductible or pay a cost-sharing amount that exceeds 
        the amount of cost-sharing applicable for such benefits for an 
        eligible beneficiary under part D.''.
    (f) Requirement for Additional Benefits.--Section 1854(f)(1) of the 
Social Security 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.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to items and services provided under a Medicare+Choice plan on or 
after January 1, 2004.

SEC. 4. 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 1860E(a).''; and
            (2) in subparagraph (B), by inserting ``and cost-sharing 
        described in section 1860F(b)'' after ``section 1813''.
    (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) and for medicare cost-sharing described 
                in section 1905(p)(3)(B) (but only insofar as it 
                relates to benefits provided under part D of title 
                XVIII),''; 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) and for medicare cost-sharing 
                described in section 1905(p)(3)(B) (but only insofar as 
                it relates to benefits provided under part D of title 
                XVIII) 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 150 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 
described in section 1905(p)(3)(A)(iii) or for medicare cost-sharing 
described in section 1905(p)(3)(B) (but only insofar as it relates to 
benefits provided under part D of title XVIII).''.
    (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 
the cost-sharing described in section 1860F(b).''.
    (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 ``(4)''; and
            (2) by inserting before the period at the end the 
        following: ``, and (5) 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 the Social 
Security 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 fiscal year 2004 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 described in section 1905(p)(3)(A)(iii) and for 
        medicare cost-sharing described in section 1905(p)(3)(B) (but 
        only insofar as it relates to benefits provided under part D of 
        title XVIII); 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 
January 1, 2004.

SEC. 5. 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) Revision of benefit packages.--
                    ``(A) In general.--Notwithstanding subsection (p), 
                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)) shall be revised so that--
                            ``(i) the coverage of outpatient 
                        prescription drugs available under such benefit 
                        packages is replaced with coverage of 
                        outpatient prescription drugs that complements 
                        but does not duplicate the coverage of 
                        outpatient prescription drugs that is otherwise 
                        available 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 more than 90 percent 
                        of the cost-sharing amount applicable to an 
                        individual under section 1860F(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;
                            ``(v) such revised standards meet any 
                        additional requirements imposed by the 
                        amendments made by the Medicare Outpatient 
                        Prescription Drug Act of 2002; and
                            ``(vi) except as revised under the 
                        preceding clauses or as provided under 
                        subsection (p)(1)(E), the benefit packages are 
                        identical to the benefit packages that were 
                        available on the date of enactment of the 
                        Medicare Outpatient Prescription Drug Act of 
                        2002.
                    ``(B) Manner of revision.--The benefit packages 
                revised under this section shall be revised in the 
                manner described in subparagraph (E) of subsection 
                (p)(1), except that for purposes of subparagraph (C) of 
                such subsection, the standards established under this 
                subsection shall take effect not later than January 1, 
                2004.
            ``(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) Guaranteed issuance and renewal of revised 
        policies.--The provisions of subsections (q) and (s), including 
        provisions of subsection (s)(3) (relating to special enrollment 
        periods in cases of termination or disenrollment), shall apply 
        to medicare supplemental policies revised under this subsection 
        in the same manner as such provisions apply to medicare 
        supplemental policies issued under the standards established 
        under subsection (p).
            ``(4) Opportunity of current policyholders to purchase 
        revised policies.--
                    ``(A) In general.--No medicare supplemental policy 
                of an issuer with a benefit package that is revised 
                under paragraph (1) shall be deemed to meet the 
                standards in subsection (c) unless the issuer--
                            ``(i) provides written notice during the 
                        60-day period immediately preceding the period 
                        established for the open enrollment period 
                        established under section 1860B(b)(2)(A), to 
                        each individual who is a policyholder or 
                        certificate holder of a medicare supplemental 
                        policy issued by that issuer (at the most 
recent available address of that individual) of the offer described in 
clause (ii) and of the fact that such individual will no longer be 
covered under such policy as of January 1, 2004; and
                            ``(ii) offers the policyholder or 
                        certificate holder under the terms described in 
                        subparagraph (B), during at least the period 
                        established under section 1860B(b)(2)(A), a 
                        medicare supplemental policy with the benefit 
                        package that the Secretary determines is most 
                        comparable to the policy in which the 
                        individual is enrolled with coverage effective 
                        as of the date on which the individual is first 
                        entitled to benefits under part D.
                    ``(B) Terms of offer described.--The terms 
                described in this subparagraph are terms which do not--
                            ``(i) deny or condition the issuance or 
                        effectiveness of a medicare supplemental policy 
                        described in subparagraph (A)(ii) that is 
                        offered and is available for issuance to new 
                        enrollees by such issuer;
                            ``(ii) discriminate in the pricing of such 
                        policy because of health status, claims 
                        experience, receipt of health care, or medical 
                        condition; or
                            ``(iii) impose an exclusion of benefits 
                        based on a preexisting condition under such 
                        policy.
            ``(5) Elimination of obsolete policies with no 
        grandfathering.--No person may sell, issue, or renew a medicare 
        supplemental policy with a benefit package that is classified 
        as `H', `I', or `J' (or with a benefit package classified as 
        `J' with a high deductible feature) that has not been revised 
        under this subsection on or after January 1, 2004.
            ``(6) Penalties.--Each penalty under this section shall 
        apply with respect to policies revised under this subsection as 
        if such policies were issued under the standards established 
        under subsection (p), including the penalties under subsections 
        (a), (d), (p)(8), (p)(9), (q)(5), (r)(6)(A), (s)(4), and 
        (t)(2)(D).''.

SEC. 6. HHS STUDIES AND REPORT ON UNIFORM PHARMACY BENEFIT CARDS AND 
              SYSTEMS FOR TRANSFERRING PRESCRIPTIONS ELECTRONICALLY.

    (a) Studies.--The Secretary of Health and Human Services shall 
conduct a study to determine the feasibility and advisability of--
            (1) establishing a uniform format for pharmacy benefit 
        cards provided to beneficiaries by eligible entities under the 
        outpatient prescription drug benefit program under part D of 
        title XVIII of the Social Security Act (as added by section 2); 
        and
            (2) developing systems to electronically transfer 
        prescriptions under such program from the prescriber to the 
        pharmacist.
    (b) Report.--Not later than 2 years 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. 7. 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 2), 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 of the United States shall submit to Congress a report on the 
results of the portion of the study conducted pursuant to subsection 
(a)(1).
    (c) Biennial Reports.--Not later than January 1, 2005, 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 such recommendations for legislation 
and administrative action as the Comptroller General determines 
appropriate.

SEC. 8. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE PAYMENT ADVISORY 
              COMMISSION (MEDPAC).

    (a) Expansion of Membership.--
            (1) In general.--Section 1805(c) of the Social Security Act 
        (42 U.S.C. 1395b-6(c)) is amended--
                    (A) in paragraph (1), by striking ``17'' and 
                inserting ``19''; and
                    (B) in paragraph (2)(B), by inserting ``experts in 
                the area of pharmacology and prescription drug benefit 
                programs,'' after ``other health professionals,''.
            (2) Initial terms of additional members.--
                    (A) In general.--For purposes of staggering the 
                initial terms of members of the Medicare Payment 
                Advisory Commission under section 1805(c)(3) of the 
                Social Security Act (42 U.S.C. 1395b-6(c)(3)), the 
                initial terms of the 2 additional members of the 
                Commission provided for by the amendment under 
                paragraph (1)(A) are as follows:
                            (i) One member shall be appointed for 1 
                        year.
                            (ii) One member shall be appointed for 2 
                        years.
                    (B) Commencement of terms.--Such terms shall begin 
                on January 1, 2003.
    (b) Expansion of Duties.--Section 1805(b)(2) of the Social Security 
Act (42 U.S.C. 1395b-6(b)(2)) is amended by adding at the end the 
following new subparagraph:
                    ``(D) Prescription medicine benefit program.--
                Specifically, the Commission shall review, with respect 
                to the outpatient prescription drug benefit program 
                under part D, the impact of such program on--
                            ``(i) the pharmaceutical market, including 
                        costs and pricing of pharmaceuticals, 
                        beneficiary access to such pharmaceuticals, and 
                        trends in research and development;
                            ``(ii) franchise, independent, and rural 
                        pharmacies; and
                            ``(iii) beneficiary access to outpatient 
                        prescription drugs, including an assessment of 
                        out-of-pocket spending, generic and brand name 
                        drug utilization, and pharmacists' services.''.
                                 <all>