[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2736 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2736

  To amend title XVIII of the Social Security Act to provide medicare 
    beneficiaries with a drug discount card that ensures access to 
               affordable outpatient prescription drugs.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 16, 2002

   Mr. Hagel (for himself, Mr. Ensign, Mr. Lugar, Mr. Gramm, and Mr. 
    Inhofe) 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 medicare 
    beneficiaries with a drug discount card that ensures access to 
               affordable outpatient prescription drugs.

    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 Rx Drug 
Discount and Security 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. Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program.
``Part D--Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program

        ``Sec. 1860. Definitions.
        ``Sec. 1860A. Establishment of program.
        ``Sec. 1860B. Enrollment.
        ``Sec. 1860C. Providing enrollment and coverage information to 
                            beneficiaries.
        ``Sec. 1860D. Enrollee protections.
        ``Sec. 1860E. Annual enrollment fee.
        ``Sec. 1860F. Benefits under the program.
        ``Sec. 1860G. Selection of entities to provide prescription 
                            drug coverage.
        ``Sec. 1860H. Payments to eligible entities for administering 
                            the catastrophic benefit.
        ``Sec. 1860I. Determination of income levels.
        ``Sec. 1860J. Appropriations.
        ``Sec. 1860K. Medicare Competition and Prescription Drug 
                            Advisory Board.''.
Sec. 3. Administration of Voluntary Medicare Outpatient Prescription 
                            Drug Discount and Security Program.
Sec. 4. Exclusion of part D costs from determination of part B monthly 
                            premium.
Sec. 5. Medigap revisions.

SEC. 2. VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION DRUG DISCOUNT AND 
              SECURITY PROGRAM.

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

``Part D--Voluntary Medicare Outpatient Prescription Drug Discount and 
                            Security Program

                             ``definitions

    ``Sec. 1860. In this part:
            ``(1) Covered outpatient drug.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the term `covered outpatient drug' means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        subparagraph (A)(i) or (A)(ii) of section 
                        1927(k)(2); or
                            ``(ii) a biological product described in 
                        clauses (i) through (iii) of subparagraph (B) 
                        of such section or insulin described in 
                        subparagraph (C) of such section,
                and such term includes a vaccine licensed under section 
                351 of the Public Health Service Act and any use of a 
                covered outpatient drug for a medically accepted 
                indication (as defined in section 1927(k)(6)).
                    ``(B) Exclusions.--
                            ``(i) In general.--Such term does not 
                        include drugs or classes of drugs, or their 
                        medical uses, which may be excluded from 
                        coverage or otherwise restricted under section 
                        1927(d)(2), other than subparagraph (E) thereof 
                        (relating to smoking cessation agents), or 
                        under section 1927(d)(3).
                            ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered outpatient drug under 
                        this part shall not be so considered if payment 
                        for such drug is available under part A or B 
                        for an individual entitled to benefits under 
                        part A and enrolled under part B.
                    ``(C) Application of formulary restrictions.--A 
                drug prescribed for an individual that would otherwise 
                be a covered outpatient drug under this part shall not 
                be so considered under a plan if the plan excludes the 
                drug under a formulary and such exclusion is not 
                successfully appealed under section 1860D(a)(4)(B).
                    ``(D) Application of general exclusion 
                provisions.--A prescription drug discount card plan or 
                Medicare+Choice plan may exclude from qualified 
                prescription drug coverage any covered outpatient 
                drug--
                            ``(i) for which payment would not be made 
                        if section 1862(a) applied to part D; or
                            ``(ii) which are not prescribed in 
                        accordance with the plan or this part.
                Such exclusions are determinations subject to 
                reconsideration and appeal pursuant to section 
                1860D(a)(4).
            ``(2) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual who is--
                    ``(A) eligible for benefits under part A or 
                enrolled under part B; and
                    ``(B) not eligible for prescription drug coverage 
                under a State plan under the medicaid program under 
                title XIX.
            ``(3) Eligible entity.--The term `eligible entity' means 
        any--
                    ``(A) pharmaceutical benefit management company;
                    ``(B) wholesale pharmacy delivery system;
                    ``(C) retail pharmacy delivery system;
                    ``(D) insurer (including any issuer of a medicare 
                supplemental policy under section 1882);
                    ``(E) Medicare+Choice organization;
                    ``(F) State (in conjunction with a pharmaceutical 
                benefit management company);
                    ``(G) employer-sponsored plan;
                    ``(H) other entity that the Secretary determines to 
                be appropriate to provide benefits under this part; or
                    ``(I) combination of the entities described in 
                subparagraphs (A) through (H).
            ``(4) Out-of-pocket expenses.--The term `out-of-pocket 
        expenses' means only those expenses for covered outpatient 
        drugs that are incurred by the eligible beneficiary using a 
        card approved by the Secretary under this part that are paid by 
        that beneficiary and for which the beneficiary is not 
        reimbursed (through insurance or otherwise) by another person.
            ``(5) Poverty line.--The term `poverty line' means the 
        income official poverty line (as defined by the Office of 
        Management and Budget, and revised annually in accordance with 
        section 673(2) of the Omnibus Budget Reconciliation Act of 
        1981) applicable to a family of the size involved.
            ``(6) Secretary.--The term `Secretary' means the Secretary 
        of Health and Human Services, acting through the Administrator 
        of the Centers for Medicare & Medicaid Services.

                       ``establishment of program

    ``Sec. 1860A. (a) Provision of Benefit.--The Secretary shall 
establish a Medicare Outpatient Prescription Drug Discount and Security 
Program under which the Secretary endorses prescription drug card plans 
offered by eligible entities in which eligible beneficiaries may 
voluntarily enroll and receive benefits under this part.
    ``(b) Endorsement of Prescription Drug Discount Card Plans.--
            ``(1) In general.--The Secretary shall endorse a 
        prescription drug card plan offered by an eligible entity with 
        a contract under this part if the eligible entity meets the 
        requirements of this part with respect to that plan.
            ``(2) National plans.--In addition to other types of plans, 
        the Secretary may endorse national prescription drug plans 
        under paragraph (1).
    ``(c) Voluntary Nature of Program.--Nothing in this part shall be 
construed as requiring an eligible beneficiary to enroll in the program 
under this part.
    ``(d) Financing.--The costs of providing benefits under this part 
shall be payable from the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841.

                              ``enrollment

    ``Sec. 1860B. (a) Enrollment Under Part D.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary 
                (including an eligible beneficiary enrolled in a 
                Medicare+Choice plan offered by a Medicare+Choice 
                organization) may make an election to enroll under this 
                part. Except as otherwise provided in this subsection, 
                such process shall be similar to the process for 
                enrollment under part B under section 1837.
                    ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this part in order to be 
                eligible to receive the benefits under this part.
            ``(2) Enrollment periods.--
                    ``(A) In general.--Except as provided in this 
                paragraph, an eligible beneficiary may not enroll in 
                the program under this part during any period after the 
                beneficiary's initial enrollment period under part B 
                (as determined under section 1837).
                    ``(B) Special enrollment period.--In the case of 
                eligible beneficiaries that have recently lost 
                eligibility for prescription drug coverage under a 
                State plan under the medicaid program under title XIX, 
                the Secretary shall establish a special enrollment 
                period in which such beneficiaries may enroll under 
                this part.
                    ``(C) Open enrollment period in 2003 for current 
                beneficiaries.--The Secretary shall establish a 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--
                            ``(i) enroll under this part; or
                            ``(ii) enroll or reenroll under this part 
                        after having previously declined or terminated 
                        such enrollment.
            ``(3) Period of coverage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subject to subparagraph (C), an 
                eligible beneficiary's coverage under the program under 
                this part shall be effective for the period provided 
                under section 1838, as if that section applied to the 
                program under this part.
                    ``(B) Enrollment during open and special 
                enrollment.--Subject to subparagraph (C), an eligible 
                beneficiary who enrolls under the program under this 
                part under subparagraph (B) or (C) of paragraph (2) 
                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.
            ``(4) Part d coverage terminated by termination of coverage 
        under parts a and b or eligibility for medical assistance.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in section 1838, the Secretary 
                shall terminate an individual's coverage under this 
                part if the individual is--
                            ``(i) no longer enrolled in part A or B; or
                            ``(ii) eligible for prescription drug 
                        coverage under a State plan under the medicaid 
                        program under title XIX.
                    ``(B) Effective date.--The termination described in 
                subparagraph (A) shall be effective on the effective 
                date of--
                            ``(i) the termination of coverage under 
                        part A or (if later) under part B; or
                            ``(ii) the coverage under title XIX.
    ``(b) Enrollment With Eligible Entity.--
            ``(1) Process.--The Secretary shall establish a process 
        through which an eligible beneficiary who is enrolled under 
        this part shall make an annual election to enroll in a 
        prescription drug card 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.
            ``(2) Election periods.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this subsection 
                shall be the same as the coverage election periods 
                under the Medicare+Choice program under section 
                1851(e), including--
                            ``(i) annual coordinated election periods; 
                        and
                            ``(ii) special election periods.
                In applying the last sentence of section 1851(e)(4) 
                (relating to discontinuance of a Medicare+Choice 
                election during the first year of eligibility) under 
                this subparagraph, in the case of an election described 
                in such section in which the individual had elected or 
                is provided qualified prescription drug coverage at the 
                time of such first enrollment, the individual shall be 
                permitted to enroll in a prescription drug card plan 
                under this part at the time of the election of coverage 
                under the original fee-for-service plan.
                    ``(B) Initial election periods.--
                            ``(i) Individuals currently covered.--In 
                        the case of an individual who is entitled to 
                        benefits under part A or enrolled under part B 
                        as of November 1, 2003, there shall be an 
                        initial election period of 6 months beginning 
                        on that date.
                            ``(ii) Individual covered in future.--In 
                        the case of an individual who is first entitled 
                        to benefits under part A or enrolled under part 
                        B after such date, there shall be an initial 
                        election period which is the same as the 
                        initial enrollment period under section 
                        1837(d).
                    ``(C) Additional special election periods.--The 
                Administrator shall establish special election 
                periods--
                            ``(i) in cases of individuals who have and 
                        involuntarily lose prescription drug coverage 
                        described in paragraph (3);
                            ``(ii) in cases described in section 
                        1837(h) (relating to errors in enrollment), in 
                        the same manner as such section applies to part 
                        B; and
                            ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions provided under section 
                        1851(e)(4)(D)) as the Secretary may provide.
                    ``(D) Enrollment with one plan only.--The rules 
                established under subparagraph (B) shall ensure that an 
                eligible beneficiary may only enroll in 1 prescription 
                drug card plan offered by an eligible entity for a 
                year.
            ``(3) Medicare+choice enrollees.--An eligible beneficiary 
        who is enrolled under this part and enrolled in a 
        Medicare+Choice plan offered by a Medicare+Choice organization 
        must enroll in a prescription drug discount card plan offered 
        by an eligible entity in order to receive benefits under this 
        part. The beneficiary may elect to receive such benefits 
        through the Medicare+Choice organization in which the 
        beneficiary is enrolled if the organization has been awarded a 
        contract under this part.
            ``(4) Continuous prescription drug coverage.--An individual 
        is considered for purposes of this part to be maintaining 
        continuous prescription drug coverage on and after the date the 
        individual first qualifies to elect prescription drug coverage 
        under this part if the individual establishes that as of such 
        date the individual is covered under any of the following 
        prescription drug coverage and before the date that is the last 
        day of the 63-day period that begins on the date of termination 
        of the particular prescription drug coverage involved 
        (regardless of whether the individual subsequently obtains any 
        of the following prescription drug coverage):
                    ``(A) Coverage under prescription drug card plan or 
                medicare+choice plan.--Prescription drug coverage under 
                a prescription drug card plan under this part or under 
                a Medicare+Choice plan.
                    ``(B) 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, through a social health maintenance organization 
                (referred to in section 4104(c) of the Balanced Budget 
                Act of 1997), or through a Medicare+Choice project that 
                demonstrates the application of capitation payment 
                rates for frail elderly medicare beneficiaries through 
                the use of a interdisciplinary team and through the 
                provision of primary care services to such 
                beneficiaries by means of such a team at the nursing 
                facility involved.
                    ``(C) Prescription drug coverage under group health 
                plan.--Any outpatient prescription drug coverage under 
                a group health plan, including a health benefits plan 
                under the Federal Employees Health Benefit Plan under 
                chapter 89 of title 5, United States Code, and a 
                qualified retiree prescription drug plan (as defined by 
                the Secretary), but only if (subject to subparagraph 
                (E)(ii)) the coverage provides benefits at least 
                equivalent to the benefits under a prescription drug 
                card plan under this part.
                    ``(D) Prescription drug coverage under certain 
                medigap policies.--Coverage under a medicare 
                supplemental policy under section 1882 that provides 
                benefits for prescription drugs (whether or not such 
                coverage conforms to the standards for packages of 
                benefits under section 1882(p)(1)) and if (subject to 
                subparagraph (E)(ii)) the coverage provides benefits at 
                least equivalent to the benefits under a prescription 
                drug card plan under this part.
                    ``(E) State pharmaceutical assistance program.--
                Coverage of prescription drugs under a State 
                pharmaceutical assistance program, but only if (subject 
                to subparagraph (E)(ii)) the coverage provides benefits 
                at least equivalent to the benefits under a 
                prescription drug card plan under this part.
                    ``(F) Veterans' coverage of prescription drugs.--
                Coverage of prescription drugs for veterans under 
                chapter 17 of title 38, United States Code, but only if 
                (subject to subparagraph (E)(ii)) the coverage provides 
                benefits at least equivalent to the benefits under a 
                prescription drug card plan under this part.
        For purposes of carrying out this paragraph, the certifications 
        of the type described in sections 2701(e) of the Public Health 
        Service Act and in section 9801(e) of the Internal Revenue Code 
        of 1986 shall also include a statement for the period of 
        coverage of whether the individual involved had prescription 
        drug coverage described in this paragraph.
            ``(5) Competition.--Each eligible entity with a contract 
        under this part shall compete for the enrollment of 
        beneficiaries in a prescription drug card plan offered by the 
        entity on the basis of discounts, formularies, pharmacy 
networks, and other services provided for under the contract.

    ``providing enrollment and coverage information to beneficiaries

    ``Sec. 1860C. (a) Activities.--The Secretary shall provide for 
activities under this part to broadly disseminate information to 
eligible beneficiaries (and prospective eligible beneficiaries) 
regarding enrollment under this part and the prescription drug card 
plans offered by eligible entities with a contract under this part.
    ``(b) Special Rule for First Enrollment Under the Program.--To the 
extent practicable, the activities described in subsection (a) shall 
ensure that eligible beneficiaries are provided with such information 
at least 60 days prior to the first enrollment period described in 
section 1860B(c).

                         ``enrollee protections

    ``Sec. 1860D. (a) Requirements for All Eligible Entities.--Each 
eligible entity shall meet the following requirements:
            ``(1) Guaranteed issuance and nondiscrimination.--
                    ``(A) Guaranteed issuance.--
                            ``(i) In general.--An eligible beneficiary 
                        who is eligible to enroll in a prescription 
                        drug card plan offered by an eligible entity 
                        under section 1860B(b) for prescription drug 
                        coverage under this part at a time during which 
                        elections are accepted under this part with 
                        respect to the coverage shall not be denied 
                        enrollment based on any health status-related 
                        factor (described in section 2702(a)(1) of the 
                        Public Health Service Act) or any other factor.
                            ``(ii) Medicare+choice limitations 
                        permitted.--The provisions of paragraphs (2) 
                        and (3) (other than subparagraph (C)(i), 
                        relating to default enrollment) of section 
                        1851(g) (relating to priority and limitation on 
                        termination of election) shall apply to 
                        eligible entities under this subsection.
                    ``(B) Nondiscrimination.--An eligible entity 
                offering prescription drug coverage under this part 
                shall not establish a service area in a manner that 
                would discriminate based on health or economic status 
                of potential enrollees.
            ``(2) Disclosure of information.--
                    ``(A) Information.--
                            ``(i) General information.--Each eligible 
                        entity with a contract under this part to 
                        provide a prescription drug card plan shall 
                        disclose, in a clear, accurate, and 
                        standardized form to each eligible beneficiary 
                        enrolled in a prescription drug discount card 
                        program offered by such entity under this part 
                        at the time of enrollment and at least annually 
                        thereafter, the information described in 
                        section 1852(c)(1) relating to such 
                        prescription drug coverage.
                            ``(ii) Specific information.--In addition 
                        to the information described in clause (i), 
                        each eligible entity with a contract under this 
                        part shall disclose the following:
                                    ``(I) How enrollees will have 
                                access to covered outpatient drugs, 
                                including access to such drugs through 
                                pharmacy networks.
                                    ``(II) How any formulary used by 
                                the eligible entity functions.
                                    ``(III) Information on grievance 
                                and appeals procedures.
                                    ``(IV) Information on enrollment 
                                fees and prices charged to the enrollee 
                                for covered outpatient drugs.
                                    ``(V) Any other information that 
                                the Secretary determines is necessary 
                                to promote informed choices by eligible 
                                beneficiaries among eligible entities.
                    ``(B) Disclosure upon request of general coverage, 
                utilization, and grievance information.--Upon request 
                of an eligible beneficiary, the eligible entity shall 
                provide the information described in paragraph (3) to 
                such beneficiary.
                    ``(C) Response to beneficiary questions.--Each 
                eligible entity offering a prescription drug discount 
                card plan under this part shall have a mechanism for 
                providing specific information to enrollees upon 
                request. The entity shall make available, through an 
                Internet website and, upon request, in writing, 
                information on specific changes in its formulary.
            ``(3) Grievance mechanism, coverage determinations, and 
        reconsiderations.--
                    ``(A) In general.--With respect to the benefit 
                under this part, each eligible entity offering a 
                prescription drug discount card plan shall provide 
                meaningful procedures for hearing and resolving 
                grievances between the organization (including any 
                entity or individual through which the eligible entity 
                provides covered benefits) and enrollees with 
                prescription drug card plans of the eligible entity 
                under this part in accordance with section 1852(f).
                    ``(B) Application of coverage determination and 
                reconsideration provisions.--Each eligible entity shall 
                meet the requirements of paragraphs (1) through (3) of 
                section 1852(g) with respect to covered benefits under 
                the prescription drug card plan it offers under this 
                part in the same manner as such requirements apply to a 
                Medicare+Choice organization with respect to benefits 
                it offers under a Medicare+Choice plan under part C.
                    ``(C) Request for review of tiered formulary 
                determinations.--In the case of a prescription drug 
                card plan offered by an eligible entity that provides 
                for tiered cost-sharing for drugs included within a 
                formulary and provides lower cost-sharing for preferred 
                drugs included within the formulary, an individual who 
                is enrolled in the plan may request coverage of a 
                nonpreferred drug under the terms applicable for 
                preferred drugs if the prescribing physician determines 
                that the preferred drug for treatment of the same 
                condition is not as effective for the individual or has 
                adverse effects for the individual.
            ``(4) Appeals.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each eligible entity offering a prescription drug card 
                plan shall meet the requirements of paragraphs (4) and 
                (5) of section 1852(g) with respect to drugs not 
                included on any formulary in the same manner as such 
                requirements apply to a Medicare+Choice organization 
                with respect to benefits it offers under a 
                Medicare+Choice plan under part C.
                    ``(B) Formulary determinations.--An individual who 
                is enrolled in a prescription drug card plan offered by 
                an eligible entity may appeal to obtain coverage under 
                this part for a covered outpatient drug that is not on 
                a formulary of the eligible entity if the 
prescribing physician determines that the formulary drug for treatment 
of the same condition is not as effective for the individual or has 
adverse effects for the individual.
            ``(5) Confidentiality and accuracy of enrollee records.--
        Each eligible entity offering a prescription drug discount card 
        plan shall meet the requirements of the Health Insurance 
        Portability and Accountability Act of 1996.
    (b) Eligible Entities Offering a Discount Card Program.--If an 
eligible entity offers a discount card program under this part, in 
addition to the requirements under subsection (a), the entity shall 
meet the following requirements:
            ``(1) Access to covered benefits.--
                    ``(A) Assuring pharmacy access.--
                            ``(i) In general.--The eligible entity 
                        offering the prescription drug discount card 
                        plan shall secure the participation in its 
                        network of a sufficient number of pharmacies 
                        that dispense (other than by mail order) drugs 
                        directly to patients to ensure convenient 
                        access (as determined by the Secretary and 
                        including adequate emergency access) for 
                        enrolled beneficiaries, in accordance with 
                        standards established under section 1860D(a)(3) 
                        that ensure such convenient access.
                            ``(ii) Use of point-of-service system.--
                        Each eligible entity offering a prescription 
                        drug discount card plan shall establish an 
                        optional point-of-service method of operation 
                        under which--
                                    ``(I) the plan provides access to 
                                any or all pharmacies that are not 
                                participating pharmacies in its 
                                network; and
                                    ``(II) discounts under the plan may 
                                not be available.
                        The additional copayments so charged shall not 
                        be counted as out-of-pocket expenses for 
                        purposes of section 1860F(b).
                    ``(B) Use of standardized technology.--
                            ``(i) In general.--Each eligible entity 
                        offering a prescription drug discount card plan 
                        shall issue (and reissue, as appropriate) such 
                        a card (or other technology) that may be used 
                        by an enrolled beneficiary to assure access to 
                        negotiated prices under section 1860F(a) for 
                        the purchase of prescription drugs for which 
                        coverage is not otherwise provided under the 
                        prescription drug discount card plan.
                            ``(ii) Standards.--The Secretary shall 
                        provide for the development of national 
                        standards relating to a standardized format for 
                        the card or other technology referred to in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                    ``(C) Requirements on development and application 
                of formularies.--If an eligible entity that offers a 
                prescription drug discount card plan uses a formulary, 
                the following requirements must be met:
                            ``(i) Pharmacy and therapeutic (p&t) 
                        committee.--The eligible entity must establish 
                        a pharmacy and therapeutic committee that 
                        develops and reviews the formulary. Such 
                        committee shall include at least 1 physician 
                        and at least 1 pharmacist both with expertise 
                        in the care of elderly or disabled persons and 
                        a majority of its members shall consist of 
                        individuals who are a physician or a practicing 
                        pharmacist (or both).
                            ``(ii) Formulary development.--In 
                        developing and reviewing the formulary, the 
                        committee shall base clinical decisions on the 
                        strength of scientific evidence and standards 
                        of practice, including assessing peer-reviewed 
                        medical literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, outcomes 
                        research data, and such other information as 
                        the committee determines to be appropriate.
                            ``(iii) Inclusion of drugs in all 
                        therapeutic categories.--The formulary must 
                        include drugs within each therapeutic category 
                        and class of covered outpatient drugs (although 
                        not necessarily for all drugs within such 
                        categories and classes).
                            ``(iv) Provider education.--The committee 
                        shall establish policies and procedures to 
                        educate and inform health care providers 
                        concerning the formulary.
                            ``(v) Notice before removing drugs from 
                        formulary.--Any removal of a drug from a 
                        formulary shall take effect only after 
                        appropriate notice is made available to 
                        beneficiaries and physicians.
                            ``(vi) Grievances and appeals relating to 
                        application of formularies.--For provisions 
                        relating to grievances and appeals of coverage, 
                        see subsections (e) and (f).
            ``(2) Cost and utilization management; quality assurance; 
        medication therapy management program.--
                    ``(A) In general.--Each eligible entity offering a 
                prescription drug discount card plan may have in place 
                with respect to covered outpatient drugs--
                            ``(i) an effective cost and drug 
                        utilization management program, including 
                        medically appropriate incentives to use generic 
                        drugs and therapeutic interchange, when 
                        appropriate;
                            ``(ii) quality assurance measures and 
                        systems to reduce medical errors and adverse 
                        drug interactions, including a medication 
                        therapy management program described in 
                        subparagraph (B) and an electronic prescription 
                        program described in subparagraph (C); and
                            ``(iii) a program to control fraud, abuse, 
                        and waste.
                Nothing in this section shall be construed as impairing 
                an eligible entity from applying cost management tools 
                (including differential payments) under all methods of 
                operation.
                    ``(B) Medication therapy management program.--
                            ``(i) In general.--A medication therapy 
                        management program described in this paragraph 
                        is a program of drug therapy management and 
                        medication administration that is designed to 
                        ensure, with respect to beneficiaries with 
                        chronic diseases (such as diabetes, asthma, 
                        hypertension, and congestive heart failure) or 
                        multiple prescriptions, that covered outpatient 
                        drugs under the prescription drug discount card 
                        plan are appropriately used to achieve 
                        therapeutic goals and reduce the risk 
of adverse events, including adverse drug interactions.
                            ``(ii) Elements.--Such program may 
                        include--
                                    ``(I) enhanced beneficiary 
                                understanding of such appropriate use 
                                through beneficiary education, 
                                counseling, and other appropriate 
                                means;
                                    ``(II) increased beneficiary 
                                adherence with prescription medication 
                                regimens through medication refill 
                                reminders, special packaging, and other 
                                appropriate means; and
                                    ``(III) detection of patterns of 
                                overuse and underuse of prescription 
                                drugs.
                            ``(iii) Development of program in 
                        cooperation with licensed pharmacists.--The 
                        program shall be developed in cooperation with 
                        licensed pharmacists and physicians.
                            ``(iv) Considerations in pharmacy fees.--
                        Each eligible entity offering a prescription 
                        drug discount card plan shall take into 
                        account, in establishing fees for pharmacists 
                        and others providing services under the 
                        medication therapy management program, the 
                        resources and time used in implementing the 
                        program.
                    ``(C) Treatment of accreditation.--Section 
                1852(e)(4) (relating to treatment of accreditation) 
                shall apply to prescription drug discount card plans 
                under this part with respect to the following 
                requirements, in the same manner as they apply to 
                Medicare+Choice plans under part C with respect to the 
                requirements described in a clause of section 
                1852(e)(4)(B):
                            ``(i) Paragraph (1) (including quality 
                        assurance), including any medication therapy 
                        management program under paragraph (2).
                            ``(ii) Subsection (c)(1) (relating to 
                        access to covered benefits).
                            ``(iii) Subsection (g) (relating to 
                        confidentiality and accuracy of enrollee 
                        records).
                    ``(D) Public disclosure of pharmaceutical prices 
                for equivalent drugs.--Each eligible entity offering a 
                prescription drug discount card plan shall provide that 
                each pharmacy or other dispenser that arranges for the 
                dispensing of a covered outpatient drug shall inform 
                the beneficiary at the time of purchase of the drug of 
                any differential between the price of the prescribed 
                drug to the enrollee and the price of the lowest cost 
                generic drug covered under the plan that is 
                therapeutically equivalent and bioequivalent.

                        ``annual enrollment fee

    ``Sec. 1860E. (a) Amount.--
            ``(1) In general.--Except as provided in subsection (c), 
        enrollment under the program under this part is conditioned 
        upon payment of an annual enrollment fee of $25.
            ``(2) Annual percentage increase.--
                    ``(A) In general.--In the case of any calendar year 
                beginning after 2004, the dollar amount in paragraph 
                (1) shall be increased by an amount equal to--
                            ``(i) such dollar amount; multiplied by
                            ``(ii) the inflation adjustment.
                    ``(B) Inflation adjustment.--For purposes of 
                subparagraph (A)(ii), the inflation adjustment for any 
                calendar year is the percentage (if any) by which--
                            ``(i) the average per capita aggregate 
                        expenditures for covered outpatient drugs in 
                        the United States for medicare beneficiaries, 
                        as determined by the Secretary for the 12-month 
                        period ending in July of the previous year; 
                        exceeds
                            ``(ii) such aggregate expenditures for the 
                        12-month period ending with July 2003.
                    ``(C) Rounding.--If any increase determined under 
                clause (ii) is not a multiple of $1, such increase 
                shall be rounded to the nearest multiple of $1.
    ``(b) Collection of Annual Enrollment Fee.--
            ``(1) In general.--Unless the eligible beneficiary makes an 
        election under paragraph (2), the annual enrollment fee 
        described in subsection (a) shall be collected and credited to 
        the Federal Supplementary Medical Insurance Trust Fund in the 
        same manner as the monthly premium determined under section 
        1839 is collected and credited to such Trust Fund under section 
        1840.
            ``(2) Direct payment.--An eligible beneficiary may elect to 
        pay the annual enrollment fee directly or in any other manner 
        approved by the Secretary. The Secretary shall establish 
        procedures for making such an election.
    ``(c) Waiver.--The Secretary shall waive the enrollment fee 
described in subsection (a) in the case of an eligible beneficiary 
whose income is below 200 percent of the poverty line.

                      ``benefits under the program

    ``Sec. 1860F. (a) Access to Negotiated Prices.--
            ``(1) Negotiated prices.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each prescription drug card plan offering a discount 
                card program by an eligible entity with a contract 
                under this part shall provide each eligible beneficiary 
                enrolled in such plan with access to negotiated prices 
                (including applicable discounts) for such prescription 
                drugs as the eligible entity determines appropriate. 
                Such discounts may include discounts for nonformulary 
                drugs. If such a beneficiary becomes eligible for the 
                catastrophic benefit under subsection (b), the 
                negotiated prices (including applicable discounts) 
                shall continue to be available to the beneficiary for 
                those prescription drugs for which payment may not be 
                made under section 1860H(b). For purposes of this 
subparagraph, the term `prescription drugs' is not limited to covered 
outpatient drugs, but does not include any over-the-counter drug that 
is not a covered outpatient drug.
                    ``(B) Limitations.--
                            ``(i) Formulary restrictions.--Insofar as 
                        an eligible entity with a contract under this 
                        part uses a formulary, the negotiated prices 
                        (including applicable discounts) for 
                        nonformulary drugs may differ.
                            ``(ii) Avoidance of duplicate coverage.--
                        The negotiated prices (including applicable 
                        discounts) for prescription drugs shall not be 
                        available for any drug prescribed for an 
                        eligible beneficiary if payment for the drug is 
                        available under part A or B (but such 
                        negotiated prices shall be available if payment 
                        under part A or B is not available because the 
                        beneficiary has not met the deductible or has 
                        exhausted benefits under part A or B).
            ``(2) Discount card.--The Secretary shall develop a uniform 
        standard card format to be issued by each eligible entity 
        offering a prescription drug discount card plan that shall be 
        used by an enrolled beneficiary to ensure the access of such 
        beneficiary to negotiated prices under paragraph (1).
            ``(3) Ensuring discounts in all areas.--The Secretary shall 
        develop procedures that ensure that each eligible beneficiary 
        that resides in an area where no prescription drug discount 
        card plans are available is provided with access to negotiated 
        prices for prescription drugs (including applicable discounts).
    ``(b) Catastrophic Benefit.--
            ``(1) In general.--Subject to paragraph (4) (relating to 
        eligibility for the catastrophic benefit) and any formulary 
        used by the prescription drug discount card program in which 
        the eligible beneficiary is enrolled, the catastrophic benefit 
        shall be administered as follows:
                    ``(A) Beneficiaries with annual incomes below 200 
                percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as defined in paragraph (4)(E)) is below 200 
                percent of the poverty line, the beneficiary shall not 
                be responsible for making a payment for a covered 
                outpatient drug provided under this part to the 
                beneficiary in a year to the extent that the out-of-
                pocket expenses of the beneficiary for such drug exceed 
                $1,500, unless the Secretary implements cost-sharing 
                (as authorized under this part).
                    ``(B) Beneficiaries with annual incomes between 200 
                and 400 percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as so defined) equals or exceeds 200 percent, 
                but does not exceed 400 percent, of the poverty line, 
                the beneficiary shall not be responsible for making a 
                payment for a covered outpatient drug provided under 
                this part to the beneficiary in a year to the extent 
                that the out-of-pocket expenses of the beneficiary for 
                such drug exceed $3,500, unless the Secretary 
                implements cost-sharing (as authorized under this 
                part).
                    ``(C) Beneficiaries with annual incomes between 400 
                and 600 percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as so defined) equals or exceeds 400 percent, 
                but does not exceed 600 percent, of the poverty line, 
                the beneficiary shall not be responsible for making a 
                payment for a covered outpatient drug provided under 
                this part to the beneficiary in a year to the extent 
                that the out-of-pocket expenses of the beneficiary for 
                such drug exceed $5,500, unless the Secretary 
                implements cost-sharing (as authorized under this 
                part).
                    ``(D) Beneficiaries with annual incomes that exceed 
                600 percent of the poverty line.--In the case of an 
                eligible beneficiary whose modified adjusted gross 
                income (as so defined) equals or exceeds 600 percent of 
                the poverty line, the beneficiary shall not be 
                responsible for making a payment for a covered 
                outpatient drug provided under this part to the 
                beneficiary in a year to the extent that the out-of-
                pocket expenses of the beneficiary for such drug 
                exceeds 20 percent of that beneficiary's income, unless 
                the Secretary implements cost-sharing (as authorized 
                under this part).
            ``(2) Annual percentage increase.--
                    ``(A) In general.--In the case of any calendar year 
                after 2004, the dollar amounts in paragraph (1) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount; multiplied by
                            ``(ii) the inflation adjustment determined 
                        under section 1860E(a)(2)(B) for such calendar 
                        year.
                    ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of $1, such increase 
                shall be rounded to the nearest multiple of $1.
            ``(3) Eligible entity not at risk for catastrophic 
        benefit.--
                    ``(A) In general.--The Secretary, and not the 
                eligible entity, shall be at risk for the provision of 
                the catastrophic benefit under this subsection.
                    ``(B) Provisions relating to payments to eligible 
                entities.--For provisions relating to payments to 
                eligible entities for administering the catastrophic 
                benefit under this subsection, see section 1860H.
                    ``(C) Procedures for determining modified adjusted 
                gross income.--
                            ``(i) In general.--The Secretary shall 
                        establish procedures for determining the 
                        modified adjusted gross income of eligible 
                        beneficiaries enrolled under this part.
                            ``(ii) Consultation.--The Secretary shall 
                        consult with the Secretary of the Treasury in 
                        making the determinations described in clause 
                        (i).
                            ``(iii) Disclosure of information.--
                        Notwithstanding section 6103(a) of the Internal 
                        Revenue Code of 1986, the Secretary of the 
                        Treasury may, upon written request from the 
                        Secretary, disclose to officers and employees 
                        of the Centers for Medicare & Medicaid Services 
                        such return information as is necessary to make 
                        the determinations described in clause (i). 
                        Return information disclosed under the 
                        preceding sentence may be used by officers and 
                        employees of the Centers for Medicare & 
                        Medicaid Services only for the purposes of, and 
                        to the extent necessary, in making such 
                        determinations.
                    ``(D) Definition of modified adjusted gross 
                income.--In this paragraph, the term `modified adjusted 
                gross income' means adjusted gross income (as defined 
                in section 62 of the Internal Revenue Code of 1986)--
                            ``(i) determined without regard to sections 
                        135, 911, 931, and 933 of such Code;
                            ``(ii) increased by the amount of interest 
                        received or accrued by the taxpayer during the 
                        taxable year which is exempt from tax under 
                        such Code; and
                            ``(iii) increased by any amount received 
                        under title II.
            ``(5) Ensuring catastrophic benefit in all areas.--The 
        Secretary shall develop procedures for the provision of the 
        catastrophic benefit under this subsection to each eligible 
        beneficiary that resides in an area where there are no 
        prescription drug discount card plans offered that have been 
        awarded a contract under this part.

   ``requirements for entities to provide prescription drug coverage

    ``Sec. 1860G. (a) Establishment of Bidding Process.--The Secretary 
shall establish a process under which the Secretary accepts bids from 
eligible entities and awards contracts to the entities to provide the 
benefits under this part to eligible beneficiaries in an area.
    ``(b) Submission of Bids.--Each eligible entity desiring to enter 
into a contract under this part shall submit a bid to the Secretary at 
such time, in such manner, and accompanied by such information as the 
Secretary may require.
    ``(c) Administrative Fee Bid.--
            ``(1) Submission.--For the bid described in subsection (b), 
        each entity shall submit to the Secretary information regarding 
        administration of the discount card and catastrophic benefit 
        under this part.
            ``(2) Bid submission requirements.--
                    ``(A) Administrative fee bid submission.--In 
                submitting bids, the entities shall include separate 
                costs for administering the discount card component, if 
                applicable, and the catastrophic benefit. The entity 
                shall submit the administrative fee bid in a form and 
                manner specified by the Secretary, and shall include a 
                statement of projected enrollment and a separate 
                statement of the projected administrative costs for at 
                least the following functions:
                            ``(i) Enrollment, including income 
                        eligibility determination.
                            ``(ii) Claims processing.
                            ``(iii) Quality assurance, including drug 
                        utilization review.
                            ``(iv) Beneficiary and pharmacy customer 
                        service.
                            ``(v) Coordination of benefits.
                            ``(vi) Fraud and abuse prevention.
                    ``(B) Negotiated administrative fee bid amounts.--
                The Secretary has the authority to negotiate regarding 
                the bid amounts submitted. The Secretary may reject a 
                bid if the Secretary determines it is not supported by 
                the administrative cost information provided in the bid 
                as specified in subparagraph (A).
                    ``(C) Payment to plans based on administrative fee 
                bid amounts.--The Secretary shall use the bid amounts 
                to calculate a benchmark amount consisting of the 
                enrollment-weighted average of all bids for each 
                function and each class of entity. The class of entity 
                is either a regional or national entity, or such other 
                classes as the Secretary may determine to be 
                appropriate. The functions are the discount card and 
                catastrophic components. If an eligible entity's 
                combined bid for both functions is above the combined 
                benchmark within the entity's class for the functions, 
                the eligible entity shall collect additional necessary 
                revenue through one or both of the following:
                            ``(i) Additional fees charged to the 
                        beneficiary, not to exceed $25 annually.
                            ``(ii) Use of rebate amounts from drug 
                        manufacturers to defray administrative costs.
    ``(d) Awarding of Contracts.--
            ``(1) In general.--The Secretary shall, consistent with the 
        requirements of this part and the goal of containing medicare 
        program costs, award at least 2 contracts in each area, unless 
        only 1 bidding entity meets the terms and conditions specified 
        by the Secretary under paragraph (2).
            ``(2) Terms and conditions.--The Secretary shall not award 
        a contract to an eligible entity under this section unless the 
        Secretary finds that the eligible entity is in compliance with 
        such terms and conditions as the Secretary shall specify.
            ``(3) Requirements for eligible entities providing discount 
        card program.--Except as provided in subsection (e), in 
        determining which of the eligible entities that submitted bids 
        that meet the terms and conditions specified by the Secretary 
        under paragraph (2) to award a contract, the Secretary shall 
        consider whether the bid submitted by the entity meets at least 
        the following requirements:
                    ``(A) Level of savings to medicare beneficiaries.--
                The program passes on to medicare beneficiaries who 
                enroll in the program discounts on prescription drugs, 
                including discounts negotiated with manufacturers.
                    ``(B) Prohibition on application only to mail 
                order.--The program applies to drugs that are available 
                other than solely through mail order and provides 
                convenient access to retail pharmacies.
                    ``(C) Level of beneficiary services.--The program 
                provides pharmaceutical support services, such as 
                education and services to prevent adverse drug 
                interactions.
                    ``(D) Adequacy of information.--The program makes 
                available to medicare beneficiaries through the 
                Internet and otherwise information, including 
                information on enrollment fees, prices charged to 
                beneficiaries, and services offered under the program, 
                that the Secretary identifies as being necessary to 
                provide for informed choice by beneficiaries among 
                endorsed programs.
                    ``(E) Extent of demonstrated experience.--The 
                entity operating the program has demonstrated 
                experience and expertise in operating such a program or 
                a similar program.
                    ``(F) Extent of quality assurance.--The entity has 
                in place adequate procedures for assuring quality 
                service under the program.
                    ``(G) Operation of assistance program.--The entity 
                meets such requirements relating to solvency, 
                compliance with financial reporting requirements, audit 
                compliance, and contractual guarantees as specified by 
                the Secretary.
                    ``(H) Privacy compliance.--The entity implements 
                policies and procedures to safeguard the use and 
                disclosure of program beneficiaries' individually 
                identifiable health information in a manner consistent 
                with the Federal regulations (concerning the privacy of 
                individually identifiable health information) 
                promulgated under section 264(c) of the Health 
                Insurance Portability and Accountability Act of 1996.
                    ``(I) Additional beneficiary protections.--The 
                program meets such additional requirements as the 
                Secretary identifies to protect and promote the 
                interest of medicare beneficiaries, including 
                requirements that ensure that beneficiaries are not 
                charged more than the lower of the negotiated retail 
                price or the usual and customary price.
        The prices negotiated by a prescription drug discount card 
        program endorsed under this section shall (notwithstanding any 
        other provision of law) not be taken into account for the 
        purposes of establishing the best price under section 
        1927(c)(1)(C).
            ``(4) Beneficiary access to savings and rebates.--The 
        Secretary shall require eligible entities offering a discount 
        card program to pass on savings and rebates negotiated with 
        manufacturers to eligible beneficiaries enrolled with the 
        entity.
            ``(5) Negotiated agreements with employer-sponsored 
        plans.--Notwithstanding any other provision of this part, the 
        Secretary may negotiate agreements with employer-sponsored 
        plans under which eligible beneficiaries are provided with a 
        benefit for prescription drug coverage that is more generous 
        than the benefit that would otherwise have been available under 
        this part if such an agreement results in cost savings to the 
        Federal Government.
    ``(e) Requirements for Other Eligible Entities.--If an eligible 
entity is licensed under State law to provide the benefit under this 
section, such entity shall not be required to meet the requirements of 
subsection (d)(3). If an eligible entity offers a national plan, such 
entity shall not be required to meet the requirements of subsection 
(d)(3), but shall meet the requirements of Employee Retirement Income 
Security Act of 1974 that apply with respect to such plan.

  ``payments to eligible entities for administering the catastrophic 
                                benefit

    ``Sec. 1860H. (a) In General.--The Secretary may establish 
procedures for making payments to an eligible entity under a contract 
entered into under this part for--
            ``(1) no less than 90 percent of the costs of providing 
        covered outpatient prescription drugs to beneficiaries eligible 
        for the benefit under this part in accordance with subsection 
        (b); and
            ``(2) costs incurred by the entity in administering the 
        catastrophic benefit in accordance with section 1860G.
    ``(b) Payment for Covered Outpatient Prescription Drugs.--
            ``(1) In general.--Except as provided in subsection (c) and 
        subject to paragraph (2), the Secretary may only pay an 
        eligible entity for covered outpatient drugs furnished by the 
        eligible entity to an eligible beneficiary enrolled with such 
        entity under this part that is eligible for the catastrophic 
        benefit under section 1860F(b).
            ``(2) Limitations.--
                    ``(A) Formulary restrictions.--Insofar as an 
                eligible entity with a contract under this part uses a 
                formulary, the Secretary may not make any payment for a 
                covered outpatient drug that is not included in such 
                formulary, except to the extent provided under section 
                1860D(a)(4)(B).
                    ``(B) Negotiated prices.--The Secretary may not pay 
                an amount for a covered outpatient drug furnished to an 
                eligible beneficiary that exceeds the negotiated price 
                (including applicable discounts) that the beneficiary 
                would have been responsible for under section 1860F(a) 
                or the price negotiated for insurance coverage under 
                the Medicare+Choice program under part C, a medicare 
                supplemental policy, employer-sponsored coverage, or a 
                State plan.
                    ``(C) Cost-sharing limitations.--An eligible entity 
                may not charge an individual enrolled with such entity 
                who is eligible for the catastrophic benefit under this 
                part any copayment, tiered copayment, coinsurance, or 
                other cost-sharing that exceeds 10 percent of the cost 
                of the drug that is dispensed to the individual.
            ``(3) Payment in competitive areas.--In a geographic area 
        in which 2 or more eligible entities offer a plan under this 
        part, the Secretary may negotiate an agreement with the entity 
        to reimburse the entity for costs incurred in providing the 
        benefit under this part on a capitated basis.
    ``(c) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.

                    ``determination of income levels

    ``Sec. 1860I. (a) Determination of Income Levels.--
            ``(1) In general.--The Secretary, in consultation with the 
        Secretary of the Treasury, shall establish procedures under 
        which each eligible entity awarded a contract under this part 
        determines the income levels of eligible beneficiaries enrolled 
        in a prescription drug card plan offered by that entity at 
        least annually for purposes of sections 1860E(c) and 1860F(b).
            ``(2) Procedures.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the procedures established under 
                paragraph (1) shall--
                            ``(i) require each eligible beneficiary who 
                        is enrolled in a prescription drug card plan to 
                        present the Federal income tax return for the 
                        preceding taxable year to the eligible entity 
                        offering the plan as proof of income for that 
                        year;
                            ``(ii) require, upon the request of an 
                        eligible entity, the Secretary of the Treasury 
                        to confirm the amount of income reported on 
                        such a Federal income tax return; and
                            ``(iii) attribute, in the case of a joint 
                        return, \1/2\ of the income reported on the 
                        return to each eligible beneficiary filing such 
                        a return.
            ``(B) Other proof of income.--If an eligible beneficiary 
        did not file a Federal income tax return for the preceding 
        year, if such beneficiary experiences a significant decrease in 
        income during a year, or if such other circumstances exist as 
        the Secretary may specify, an eligible beneficiary may submit 
        an affidavit and such supporting documents as the Secretary may 
        require as proof of the income of that beneficiary instead of a 
        Federal income tax return.
    ``(b) Enforcement of Income Determinations.--The Secretary, in 
consultation with the Secretary of the Treasury, shall--
            ``(1) establish procedures that ensure that eligible 
        beneficiaries comply with sections 1860E(c) and 1860F(b); and
            ``(2) require, if the Secretary determines that payments 
        were made under this part to which an eligible beneficiary was 
        not entitled, the repayment of any excess payments with 
        interest and a penalty.
    ``(c) Quality Control System.--
            ``(1) Establishment.--The Secretary shall establish a 
        quality control system to monitor income determinations made by 
        eligible entities under this section and to produce appropriate 
        and comprehensive measures of error rates.
            ``(2) Periodic audits.--The Inspector General of the 
        Department of Health and Human Services shall conduct periodic 
        audits to ensure that the system established under paragraph 
        (1) is functioning appropriately.

                            ``appropriations

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

      ``medicare competition and prescription drug advisory board

    ``Sec. 1860K. (a) Establishment of Board.--There is established a 
Medicare Prescription Drug Advisory Board (in this section referred to 
as the `Board').
    ``(b) Advice on Policies; Reports.--
            ``(1) Advice on policies.--The Board shall advise the 
        Secretary on policies relating to the Medicare Outpatient 
        Prescription Drug Discount and Security Program under this 
        part.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of the program under this part, the 
                Board shall submit to Congress and to the Secretary 
                such reports as the Board determines appropriate. Each 
                such report may contain such recommendations as the 
                Board determines appropriate for legislative or 
                administrative changes to improve the administration of 
                the program under this part. Each such report shall be 
                published in the Federal Register.
                    ``(B) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
    ``(c) Structure and Membership of the Board.--
            ``(1) Membership.--The Board shall be composed of 7 members 
        who shall be appointed as follows:
                    ``(A) Presidential appointments.--
                            ``(i) In general.--Three members shall be 
                        appointed by the President, by and with the 
                        advice and consent of the Senate.
                            ``(ii) Limitation.--Not more than 2 such 
                        members may be from the same political party.
                    ``(B) Senatorial appointments.--Two members (each 
                member from a different political party) shall be 
                appointed by the President pro tempore of the Senate 
                with the advice of the Chairman and the Ranking 
                Minority Member of the Committee on Finance of the 
                Senate.
                    ``(C) Congressional appointments.--Two members 
                (each member from a different political party) shall be 
                appointed by the Speaker of the House of 
                Representatives, with the advice of the Chairman and 
                the Ranking Minority Member of the Committee on Ways 
                and Means of the House of Representatives.
            ``(2) Qualifications.--The members shall be chosen on the 
        basis of their integrity, impartiality, and good judgment, and 
        shall be individuals who are, by reason of their education, 
        experience, and attainments, exceptionally qualified to perform 
        the duties of members of the Board.
            ``(3) Composition.--Of the members appointed under 
        paragraph (1)--
                    ``(A) at least one shall represent the 
                pharmaceutical industry;
                    ``(B) at least one shall represent physicians;
                    ``(C) at least one shall represent medicare 
                beneficiaries;
                    ``(D) at least one shall represent practicing 
                pharmacists; and
                    ``(E) at least one shall represent eligible 
                entities.
    ``(d) Terms of Appointment.--
            ``(1) In general.--Subject to paragraph (2), each member of 
        the Board shall serve for a term of 6 years.
            ``(2) Continuance in office and staggered terms.--
                    ``(A) Continuance in office.--A member appointed to 
                a term of office after the commencement of such term 
                may serve under such appointment only for the remainder 
                of such term.
                    ``(B) Staggered terms.--The terms of service of the 
                members initially appointed under this section shall 
                begin on January 1, 2004, and expire as follows:
                            ``(i) Presidential appointments.--The terms 
                        of service of the members initially appointed 
                        by the President shall expire as designated by 
                        the President at the time of nomination, 1 each 
                        at the end of--
                                    ``(I) 2 years;
                                    ``(II) 4 years; and
                                    ``(III) 6 years.
                            ``(ii) Senatorial appointments.--The terms 
                        of service of members initially appointed by 
                        the President pro tempore of the Senate shall 
                        expire as designated by the President pro 
                        tempore of the Senate at the time of 
                        nomination, 1 each at the end of--
                                    ``(I) 3 years; and
                                    ``(II) 6 years.
                            ``(iii) Congressional appointments.--The 
                        terms of service of members initially appointed 
                        by the Speaker of the House of Representatives 
                        shall expire as designated by the Speaker of 
                        the House of Representatives at the time of 
                        nomination, 1 each at the end of--
                                    ``(I) 4 years; and
                                    ``(II) 5 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
    ``(e) Chairperson.--A member of the Board shall be designated by 
the President to serve as Chairperson for a term of 4 years, coincident 
with the term of the President, or until the designation of a 
successor.
    ``(f) Expenses and Per Diem.--Members of the Board shall serve 
without compensation, except that, while serving on business of the 
Board away from their homes or regular places of business, members may 
be allowed travel expenses, including per diem in lieu of subsistence, 
as authorized by section 5703 of title 5, United States Code, for 
persons in the Government employed intermittently.
    ``(g) Meeting.--
            ``(1) In general.--The Board shall meet at the call of the 
        Chairperson (in consultation with the other members of the 
        Board) not less than 4 times each year to consider a specific 
        agenda of issues, as determined by the Chairperson in 
        consultation with the other members of the Board.
            ``(2) Quorum.--Four members of the Board (not more than 3 
        of whom may be of the same political party) shall constitute a 
        quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--The Board shall be exempt 
from the provisions of the Federal Advisory Committee Act (5 U.S.C. 
App.).
    ``(i) Personnel.--
            ``(1) Staff director.--The Board shall, without regard to 
        the provisions of title 5, United States Code, relating to the 
        competitive service, appoint a Staff Director who shall be paid 
        at a rate equivalent to a rate established for the Senior 
        Executive Service under section 5382 of title 5, United States 
        Code.
            ``(2) Staff.--
                    ``(A) In general.--The Board may employ, without 
                regard to chapter 31 of title 5, United States Code, 
                such officers and employees as are necessary to 
                administer the activities to be carried out by the 
                Board.
                    ``(B) Flexibility with respect to civil service 
                laws.--
                            ``(i) In general.--The staff of the Board 
                        shall be appointed without regard to the 
                        provisions of title 5, United States Code, 
                        governing appointments in the competitive 
                        service, and, subject to clause (ii), shall be 
                        paid without regard to the provisions of 
                        chapters 51 and 53 of such title (relating to 
                        classification and schedule pay rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated, out of the Federal Supplemental Medical Insurance Trust 
Fund established under section 1841, and the general fund of the 
Treasury, such sums as are necessary to carry out the purposes of this 
section.''.
    (b) 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 
        section, the Secretary of Health and Human Services shall 
        submit to the appropriate committees of Congress a legislative 
        proposal providing for such technical and conforming amendments 
        in the law as are required by the provisions of this section.
    (c) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of enactment of this Act.
            (2) Implementation.--Notwithstanding any provision of part 
        D of title XVIII of the Social Security Act (as added by 
        subsection (a)), the Secretary of Health and Human Services 
        shall implement the Voluntary Medicare Outpatient Prescription 
        Drug Discount and Security Program established under such part 
        in a manner such that--
                    (A) benefits under such part for eligible 
                beneficiaries (as defined in section 1860 of such Act, 
                as added by such subsection) with annual incomes below 
                200 percent of the poverty line (as defined in such 
                section) are available to such beneficiaries not later 
                than the date that is 6 months after the date of 
                enactment of this Act; and
                    (B) benefits under such part for other eligible 
                beneficiaries are available to such beneficiaries not 
                later than the date that is 1 year after the date of 
                enactment of this Act.

SEC. 3. ADMINISTRATION OF VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION 
              DRUG DISCOUNT AND SECURITY PROGRAM.

    (a) Establishment of Center for Medicare Prescription Drugs.--There 
is established, within the Centers for Medicare & Medicaid Services of 
the Department of Health and Human Services, a Center for Medicare 
Prescription Drugs. Such Center shall be separate from the Center for 
Beneficiary Choices, the Center for Medicare Management, and the Center 
for Medicaid and State Operations.
    (b) Duties.--It shall be the duty of the Center for Medicare 
Prescription Drugs to administer the Voluntary Medicare Outpatient 
Prescription Drug Discount and Security Program established under part 
D of title XVIII of the Social Security Act (as added by section 2).
    (c) Director.--
            (1) Appointment.--There shall be in the Center for Medicare 
        Prescription Drugs a Director of Medicare Prescription Drugs, 
        who shall be appointed by the President, by and with the advice 
        and consent of the Senate.
            (2) Responsibilities.--The Director shall be responsible 
        for the exercise of all powers and the discharge of all duties 
        of the Center for Medicare Prescription Drugs and shall have 
        authority and control over all personnel and activities 
        thereof.
    (d) Personnel.--The Director of the Center for Medicare 
Prescription Drugs may appoint and terminate such personnel as may be 
necessary to enable the Center for Medicare Prescription Drugs to 
perform its duties.

SEC. 4. EXCLUSION OF PART D COSTS FROM DETERMINATION OF PART B MONTHLY 
              PREMIUM.

    Section 1839(g) of the Social Security Act (42 U.S.C. 1395r(g)) is 
amended--
            (1) by striking ``attributable to the application of 
        section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(2) the Voluntary Medicare Outpatient Prescription Drug 
        Discount and Security Program under part D.''.

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) Modernization of Medicare Supplemental Policies.--
            ``(1) Promulgation of model regulation.--
                    ``(A) NAIC model regulation.--If, within 9 months 
                after the date of enactment of the Medicare Rx Drug 
                Discount and Security Act of 2002, the National 
                Association of Insurance Commissioners (in this 
                subsection referred to as the `NAIC') changes the 1991 
                NAIC Model Regulation (described in subsection (p)) to 
                revise the benefit package classified as `J' under the 
                standards established by subsection (p)(2) (including 
                the benefit package classified as `J' with a high 
                deductible feature, as described in subsection (p)(11)) 
                so that--
                            ``(i) the coverage for outpatient 
                        prescription drugs available under such benefit 
                        package is replaced with coverage for 
                        outpatient prescription drugs that complements 
                        but does not duplicate the benefits for 
                        outpatient prescription drugs that 
                        beneficiaries are otherwise entitled to under 
                        this title;
                            ``(ii) a uniform format is used in the 
                        policy with respect to such revised benefits; 
                        and
                            ``(iii) such revised standards meet any 
                        additional requirements imposed by the Medicare 
                        Rx Drug Discount and Security Act of 2002;
                subsection (g)(2)(A) shall be applied in each State, 
                effective for policies issued to policy holders on and 
                after January 1, 2004, as if the reference to the Model 
                Regulation adopted on June 6, 1979, were a reference to 
                the 1991 NAIC Model Regulation as changed under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2004 NAIC Model Regulation').
                    ``(B) Regulation by the secretary.--If the NAIC 
                does not make the changes in the 1991 NAIC Model 
                Regulation within the 9-month period specified in 
                subparagraph (A), the Secretary shall promulgate, not 
                later than 9 months after the end of such period, a 
                regulation and subsection (g)(2)(A) shall be applied in 
                each State, effective for policies issued to policy 
                holders on and after January 1, 2004, as if the 
                reference to the Model Regulation adopted on June 6, 
                1979, were a reference to the 1991 NAIC Model 
                Regulation as changed by the Secretary under this 
                subparagraph (such changed regulation referred to in 
                this section as the `2004 Federal Regulation').
                    ``(C) Consultation with working group.--In 
                promulgating standards under this paragraph, the NAIC 
                or Secretary shall consult with a working group similar 
                to the working group described in subsection (p)(1)(D).
                    ``(D) Modification of standards if medicare 
                benefits change.--If benefits under part D of this 
                title are changed and the Secretary determines, in 
                consultation with the NAIC, that changes in the 2004 
                NAIC Model Regulation or 2004 Federal Regulation are 
                needed to reflect such changes, the preceding 
                provisions of this paragraph shall apply to the 
                modification of standards previously established in the 
                same manner as they applied to the original 
                establishment of such standards.
            ``(2) Construction of benefits in other medicare 
        supplemental policies.--Nothing in the benefit packages 
        classified as `A' through `I' under the standards established 
        by subsection (p)(2) (including the benefit package classified 
        as `F' with a high deductible feature, as described in 
        subsection (p)(11)) shall be construed as providing coverage 
        for benefits for which payment may be made under part D.
            ``(3) Application of provisions and conforming 
        references.--
                    ``(A) Application of provisions.--The provisions of 
                paragraphs (4) through (10) of subsection (p) shall 
                apply under this section, except that--
                            ``(i) any reference to the model regulation 
                        applicable under that subsection shall be 
                        deemed to be a reference to the applicable 2004 
                        NAIC Model Regulation or 2004 Federal 
                        Regulation; and
                            ``(ii) any reference to a date under such 
                        paragraphs of subsection (p) shall be deemed to 
                        be a reference to the appropriate date under 
                        this subsection.
                    ``(B) Other references.--Any reference to a 
                provision of subsection (p) or a date applicable under 
                such subsection shall also be considered to be a 
                reference to the appropriate provision or date under 
                this subsection.''.
                                 <all>