[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2578 Introduced in House (IH)]







108th CONGRESS
  1st Session
                                H. R. 2578

    To amend title XVIII of the Social Security Act to establish a 
 voluntary Medicare outpatient prescription drug discount and security 
                                program.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 24, 2003

Mr. Burr (for himself, Mr. Barton of Texas, Mr. Buyer, Mr. Norwood, Mr. 
 Shadegg, Mr. Akin, Mr. Bartlett of Maryland, Mr. Burgess, Mrs. Cubin, 
 Mr. Hoekstra, Mr. King of Iowa, Mr. Kline, Mr. Otter, Mr. Pitts, Mr. 
Toomey, Mr. Weldon of Florida, Mr. Garrett of New Jersey, and Mr. Jones 
of North Carolina) introduced the following bill; which was referred to 
the Committee on Energy and Commerce, and in addition to the Committee 
 on Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
    To amend title XVIII of the Social Security Act to establish a 
 voluntary Medicare outpatient prescription drug discount and security 
                                program.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare for the 
21st Century Act''.
    (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. 1860D-1. Establishment of program.
        ``Sec. 1860D-2. Enrollment.
        ``Sec. 1860D-3. Enrollee protections.
        ``Sec. 1860D-4. Benefits under the program.
        ``Sec. 1860D-5. Prescription drug accounts.
        ``Sec. 1860D-6. Definitions.
Sec. 3. Exclusion of part D costs from determination of part B monthly 
                            premium.
Sec. 4. Medicaid amendments.

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 by redesignating part D as part 
E and by inserting after part C the following new part:

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

                       ``establishment of program

    ``Sec. 1860D-1. (a) Provision of Benefit.--The Secretary shall 
establish a Medicare Outpatient Prescription Drug Discount and Security 
Program under this part under which an eligible beneficiary who 
voluntarily enrolls under this part is provided--
            ``(1) access to negotiated prices through an eligible 
        entity with a contract under this part that has been selected 
        by the beneficiary;
            ``(2) catastrophic coverage under this part; and
            ``(3) a prescription drug account and a public contribution 
        into such an account.
    ``(b) Eligible Beneficiary; Eligible Entity; Prescription Drug 
Account.--For purposes of this part:
            ``(1) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual who is eligible for benefits 
        under part A or enrolled under part B, regardless of whether or 
        not the individual is enrolled with a plan under part C.
            ``(2) Eligible entity.--The term `eligible entity' means 
        any entity that the Secretary determines to be appropriate to 
        provide the benefits under this part, including--
                    ``(A) pharmaceutical benefit management companies 
                and pharmacists;
                    ``(B) wholesale and retail pharmacy delivery 
                systems;
                    ``(C) insurers;
                    ``(D) Medicare+Choice organizations;
                    ``(E) other entities; or
                    ``(F) any combination of the entities described in 
                subparagraphs (A) through (E).
            ``(3) Prescription drug account.--The term `prescription 
        drug account' means, with respect to an eligible beneficiary, 
        an account established for the benefit of that beneficiary 
        under section 1860D-5.
    ``(c) Implementation of Program.--The Secretary shall establish the 
program under this part in a manner so that--
            ``(1) eligible beneficiaries may first enroll with eligible 
        entities and obtain prescription drug discounts not later than 
        90 days after the date of the enactment of this part; and
            ``(2) benefits with respect to contributions to a 
        prescription drug account and catastrophic coverage shall begin 
        with the month of September 2004, but there shall be no 
        catastrophic coverage provided for any period before January 1, 
        2005.
    ``(d) Voluntary Nature of Program.--Nothing in this part shall be 
construed as requiring an eligible beneficiary to enroll in the program 
under this part.
    ``(e) 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; selection of eligible entity

    ``Sec. 1860D-2. (a) Enrollment Under Part D.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary may make 
                an election to enroll under this part.
                    ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this part for a year in 
                order to be eligible to receive the benefits under this 
                part for that year.
                    ``(C) Limitation on enrollment.--
                            ``(i) In general.--Except as provided under 
                        this subparagraph and under such exceptional 
                        circumstances as the Secretary may provide, an 
                        eligible individual shall only have 1 
                        opportunity to enroll under this part. The 
                        Secretary shall specify the form, manner, and 
                        timing of such election but shall permit the 
                        exercise of such election at the time the 
individual is eligible to so enroll.
                            ``(ii) Late enrollment.--The Secretary 
                        shall permit individuals to elect to enroll 
                        under this part at times other than as 
                        permitted under the previous provisions of this 
                        paragraph, except that in the case of such a 
                        late enrollment the amount of the premiums for 
                        catastrophic coverage otherwise established 
                        under section 1860D-4(b)(3) shall be increased 
                        by such percentage as the Secretary shall 
                        specify in order to deter adverse selection.
                    ``(C) Termination of enrollment.--An enrollee under 
                this part shall be disenrolled--
                            ``(i) upon failure to pay the applicable 
                        enrollment fee under subsection (e) or the 
                        premium for catastrophic coverage under section 
                        1860D-4(b);
                            ``(ii) upon termination of coverage under 
                        part A or part B; or
                            ``(iii) upon notice submitted to the 
                        Secretary in such form, manner, and time as the 
                        Secretary shall provide.
                Terminations of enrollment under this subparagraph 
                shall be effective as specified by the Secretary in 
                regulations.
            ``(2) Enrollment periods.--
                    ``(A) In general.--Except as provided under 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) Open enrollment period 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 and shall end on November 30, 2003, during 
                which any eligible beneficiary may enroll under this 
                part.
                    ``(C) Special enrollment period in case of 
                termination of coverage under a group health plan.--The 
                Secretary shall provide for a special enrollment period 
                under this part in the same manner as is provided under 
                section 1837(i) with respect to part B, except that for 
                purposes of this subparagraph any reference to `by 
                reason of the individual's (or the individual's 
                spouse's) current employment status' shall be treated 
                as being deleted.
            ``(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.
    ``(b) Selection of an Eligible Entity for Access to Negotiated 
Prices.--
            ``(1) Process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary who is 
                enrolled under this part shall select any eligible 
                entity, that has been awarded a contract under this 
                part and serves the State in which the beneficiary 
                resides, to provide access to negotiated prices under 
                section 1860D-4(a).
                    ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Secretary shall use rules similar 
                to the rules for enrollment and disenrollment with a 
                Medicare+Choice plan under section 1851 (including the 
                special election periods under subsection (e)(4) of 
                such section), including that--
                            ``(i) an individual may not select more 
                        than one eligible entity at any time; and
                            ``(ii) an individual shall only be 
                        permitted (except for unusual circumstances) to 
                        change the selection of the entity once a year.
                In carrying out clause (ii), the Secretary may consider 
                a change in residential setting (such as placement in a 
                nursing facility) to be an unusual circumstance.
                    ``(C) Default selection.--In establishing such 
                process, the Secretary shall provide an equitable 
                method for the selection of an eligible entity for 
                individuals who enroll under this part and fail to make 
                such a selection.
            ``(2) Competition.--Eligible entities with a contract under 
        this part shall compete for beneficiaries on the basis of 
        discounts, formularies, pharmacy networks, and other services 
        provided for under the contract.
    ``(c) Enrollment Period for Benefits.--The processes developed 
under subsections (a) and (b) shall ensure that eligible beneficiaries 
are permitted to enroll under this part and to select an eligible 
entity prior to 90 days after the date of the enactment of this part, 
in order to ensure that prescription drug discount benefits are 
available under this part as of such date.
    ``(d) Providing Enrollment, Selection, and Coverage Information to 
Beneficiaries.--
            ``(1) 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, the 
        selection of eligible entities, and the prescription drug 
        coverage made available by eligible entities with a contract 
        under this part.
            ``(2) Special rule for first enrollment under the 
        program.--To the extent practicable, the activities described 
in paragraph (1) shall ensure that eligible beneficiaries are provided 
with such information at least 60 days prior to the first enrollment 
period described in section 1860D-2(c).
    ``(e) Enrollment Fee.--
            ``(1) Amount.--
                    ``(A) In general.--Except as provided in paragraph 
                (3), enrollment under the program under this part is 
                conditioned upon payment of an annual enrollment fee of 
                $30 for 2004 (including any portion of 2003 in which 
                the program is implemented under this section), plus 
                the premium for catastrophic coverage provided under 
                section 1860D-4(b)(3).
                    ``(B) Annual percentage increase in enrollment 
                fee.--
                            ``(i) In general.--In the case of any 
                        calendar year beginning after 2004, the dollar 
                        amount of the enrollment fee in subparagraph 
                        (A) shall be increased by an amount equal to--
                                    ``(I) such dollar amount; 
                                multiplied by
                                    ``(II) the annual percentage 
                                increase in the consumer price index 
                                for all urban consumers (all items; 
                                U.S. city average) for the year ending 
                                in September of the previous year.
                            ``(ii) Rounding.--If any increase 
                        determined under clause (i)(II) is not a 
                        multiple of $1, such increase shall be rounded 
                        to the nearest multiple of $1.
            ``(2) Collection of enrollment fee.--The annual enrollment 
        fee 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, 
        except that it shall be collected only 1 time per year.
            ``(3) Payment of enrollment fee by state for certain 
        beneficiaries.--
                    ``(A) In general.--The Secretary shall establish an 
                arrangement under which a State may provide for payment 
                of some or all of the enrollment fee for some or all 
                qualifying low income enrollees in the State, as 
                specified by the State under the arrangement. Insofar 
                as such a payment arrangement is made with respect to 
                an enrollee, the amount of the enrollment fee shall be 
                paid directly by the State and shall not be collected 
                under paragraph (2). In carrying out this paragraph, 
                the Secretary may apply procedures similar to that 
                applied under state agreements under section 1843.
                    ``(B) No federal matching available under medicaid 
                or schip.--Expenditures made by a State described in 
                subparagraph (A) shall not be treated as State 
                expenditures for purposes of Federal matching payments 
                under titles XIX and XXI insofar as such expenditures 
                are for an enrollment fee under this subsection.
            ``(4) Distribution of portion of enrollment fee.--Of the 
        enrollment fee collected by the Secretary under this paragraph 
        with respect to a beneficiary, \2/3\ of that fee shall be made 
        available to the eligible entity selected by the eligible 
        beneficiary.
    ``(f) Issuance of Card and Coordination.--Each eligible entity 
shall--
            ``(1) issue, in a uniform standard format specified by the 
        Secretary, to each enrolled beneficiary a card and an 
        enrollment number that establishes proof of enrollment and that 
        can be used in a coordinated manner--
                    ``(A) to identify the eligible entity selected to 
                provide access to negotiated prices under section 
                1860D-4(a);
                    ``(B) to identify the beneficiary for purposes of 
                the catastrophic coverage under section 1860D-4(b) and, 
                including tracking expenditures that count against the 
                catastrophic coverage threshold; and
                    ``(C) to make deposits to and withdrawals from a 
                prescription drug account under section 1860D-5; and
            ``(2) provide for electronic methods to coordinate with 
        such prescription drug accounts.

                         ``enrollee protections

    ``Sec. 1860D-3. (a) Guaranteed Issue and Nondiscrimination.--
            ``(1) Guaranteed issue.--
                    ``(A) In general.--An eligible beneficiary who is 
                eligible to select an eligible entity under section 
                1860D-2(b) for prescription drug coverage under this 
                part at a time during which selections are accepted 
                under this part with respect to the coverage shall not 
                be denied selection based on any health status-related 
                factor (described in section 2702(a)(1) of the Public 
                Health Service Act) or any other factor and may not be 
                charged any selection or other fee as a condition of 
                such acceptance.
                    ``(B) 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 selection of 
                eligible entities under this subsection.
            ``(2) 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.
            ``(3) Coverage of all portions of a state.--If an eligible 
        entity with a contract under this part serves any part of a 
        State it shall serve the entire State.
    ``(b) Dissemination of Information.--
            ``(1) General information.--An eligible entity with a 
        contract under this part shall disclose, in a clear, accurate, 
        and standardized form to each eligible beneficiary who has 
        selected the entity to provide access to negotiated prices 
        under this part at the time of selection and at least annually 
        thereafter, the information described in section 1852(c)(1) 
        relating to such prescription drug coverage. Such information 
        includes the following (in a manner designed to permit and 
        promote competition among eligible entities and to be 
        understood by eligible beneficiaries with mental impairments):
                    ``(A) Summary information regarding negotiated 
                prices (including discounts) for covered outpatient 
                drugs.
                    ``(B) Access to such prices through pharmacy 
                networks.
                    ``(C) How any formulary used by the eligible entity 
                functions.
                    ``(D) Any use of tiered copayments.
        The eligible entity also shall notify enrolled beneficiaries 
        when there is a change in the formulary during the year.
            ``(2) 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 section 1852(c)(2) (other than 
        subparagraph (D)) to such beneficiary.
            ``(3) Response to beneficiary questions.--Each eligible 
        entity offering prescription drug coverage under this part 
        shall have a mechanism (including a toll-free telephone number) 
        for providing upon request specific information (such as 
        negotiated prices, including discounts) to individuals who have 
        selected the entity. The entity shall make available, through 
        an Internet website and in writing upon request, information on 
        specific changes in its formulary.
            ``(4) Coordination with catastrophic coverage and 
        prescription drug account benefits.--Each such eligible entity 
        shall provide for coordination of such information as the 
        Secretary may specify to carry out sections 1860D-4(b) and 
        1860D-5.
            ``(5) Disclosure.--Each such eligible entity shall disclose 
        to the Secretary (in a manner specified by the Secretary) the 
        extent to which discounts or rebates or other remuneration or 
        price concessions made available to the entity by a 
        manufacturer are passed through to enrollees through pharmacies 
        and other dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Secretary under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
    ``(c) Access to Covered Benefits.--
            ``(1) Ensuring pharmacy access.--
                    ``(A) Participation of any willing pharmacy.--The 
                eligible entity shall permit the participation of any 
                pharmacy that meets terms and conditions that the 
                entity has established.
                    ``(B) Discounts allowed for network pharmacies.--An 
                eligible entity may, notwithstanding subparagraph (A), 
                reduce coinsurance or copayments for its enrolled 
                beneficiaries below the level otherwise provided for 
                covered outpatient drugs dispensed through in-network 
                pharmacies, but in no case shall such a reduction 
                result in an increase in payments made by the Secretary 
                under this part.
                    ``(C) Convenient access for network pharmacies.--
                The eligible entity 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, consistent with 
                rules of the Secretary. The Secretary shall establish 
                convenient access rules under this subparagraph that 
                are no less favorable to enrollees than the rules for 
                convenient access to pharmacies of the Secretary of 
                Defense established as of June 1, 2003, for purposes of 
                the TRICARE Retail Pharmacy (TRRx) program. Such rules 
                shall include adequate emergency access for enrolled 
                beneficiaries.
                    ``(D) Level playing field.--An eligible entity 
                shall permit enrollees to receive benefits (which may 
                include a 90-day supply of drugs or biologicals) 
                through a community pharmacy, rather than through mail 
                order, with any differential in cost paid by such 
                enrollees.
                    ``(E)  Not required to accept insurance risk.--The 
                terms and conditions under subparagraph (A) may not 
                require participating pharmacies to accept insurance 
                risk as a condition of participation.
            ``(2) Access to negotiated prices for prescription drugs.--
        For requirements relating to the access of an eligible 
        beneficiary to negotiated prices (including applicable 
        discounts), see section 1860D-4(a).
            ``(3) Requirements on development and application of 
        formularies.--Insofar as an eligible entity with a contract 
        under this part uses a formulary, the following requirements 
        must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                The entity must establish a pharmacy and therapeutic 
                committee that develops and reviews the formulary. Such 
                committee shall include at least one practicing 
                physician and at least one practicing pharmacist both 
                with expertise in the care of elderly or disabled 
                persons and a majority of its members shall consist of 
                individuals who are practicing physicians or practicing 
                pharmacists (or both).
                    ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall--
                            ``(i) 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; and
                            ``(ii) shall take into account whether 
                        including in the formulary particular covered 
                        outpatient drugs has therapeutic advantages in 
                        terms of safety and efficacy.
                    ``(C) 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). In 
                establishing such classes, the committee shall take 
                into account the standards published in the United 
                States Pharmacopeia-Drug Information. The committee 
                shall make available to the enrollees under the plan 
                through the Internet or otherwise the clinical bases 
                for the coverage of any drug on the formulary.
                    ``(D) Provider and patient education.--The 
                committee shall establish policies and procedures to 
                educate and inform health care providers and enrollees 
                concerning the formulary.
                    ``(E) Notice before removing drug from formulary or 
                changing preferred or tier status of drug.--Any removal 
                of a covered outpatient drug from a formulary and any 
                change in the preferred or tier cost-sharing status of 
                such a drug shall take effect only after appropriate 
                notice is made available to beneficiaries and 
                physicians.
                    ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, an eligible entity shall 
                provide for the periodic evaluation and analysis of 
                treatment protocols and procedures.
                    ``(G) Grievances and appeals relating to 
                application of formularies.--For provisions relating to 
                grievances and appeals of coverage, see subsections (e) 
                and (f).
    ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--For purposes of providing access to 
        negotiated benefits under section 1860D-4(a) and the 
        catastrophic benefit described in section 1860D-4(b), the 
        eligible entity shall have in place--
                    ``(A) an effective cost and drug utilization 
                management program, including appropriate incentives to 
                use generic drugs, when appropriate;
                    ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
including a medication therapy management program described in 
paragraph (2); and
                    ``(C) a program to control fraud, abuse, and waste.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that may be furnished by a pharmacy provider and that 
                is designed to assure, with respect to beneficiaries at 
                risk for potential medication problems, such as 
                beneficiaries with complex or chronic diseases (such as 
                diabetes, asthma, hypertension, and congestive heart 
                failure) or multiple prescriptions, that covered 
                outpatient drugs under the plans under this part are 
                appropriately used to optimize therapeutic outcomes 
                through improved medication use and reduce the risk of 
                adverse events, including adverse drug interactions. 
                Such programs may distinguish between services in 
                ambulatory and institutional settings.
                    ``(B) Elements.--Such program may include--
                            ``(i) enhanced beneficiary understanding to 
                        promote the appropriate use of medications by 
                        beneficiaries and to reduce the risk of 
                        potential adverse events associated with 
                        medications, through beneficiary education, 
                        counseling, case management, disease state 
                        management programs, and other appropriate 
                        means;
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other compliance programs and other 
                        appropriate means; and
                            ``(iii) detection of patterns of overuse 
                        and underuse of prescription drugs.
                    ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed and practicing pharmacists 
                and physicians.
                    ``(D) Considerations in pharmacy fees.--Each 
                eligible entity 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. Each such entity shall disclose to the 
                Secretary upon request the amount of any such 
                management or dispensing fees.
            ``(3) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug coverage provided 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):
                    ``(A) Subsection (c)(1) (relating to access to 
                covered benefits).
                    ``(B) Subsection (g) (relating to confidentiality 
                and accuracy of enrollee records).
            ``(4) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each eligible entity 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 available generic drug covered under the plan 
        that is therapeutically equivalent and bioequivalent.
    ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
            ``(1) In general.--Each eligible entity shall provide 
        meaningful procedures for hearing and resolving grievances 
        between the entity (including any entity or individual through 
        which the entity provides covered benefits) and enrollees in 
        accordance with section 1852(f).
            ``(2) Application of coverage determination and 
        reconsideration provisions.--An eligible entity shall meet the 
        requirements of paragraphs (1) through (3) of section 1852(g) 
        with respect to covered benefits under the plan it offers under 
        this part in the same manner as such requirements apply to an 
        organization with respect to benefits it offers under a plan 
        under part C.
            ``(3) Request for review of tiered formulary 
        determinations.--In the case of a 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 either would 
        not be as effective for the individual or would have adverse 
        effects for the individual or both.
    ``(f) Appeals.--
            ``(1) In general.--Subject to paragraph (2), an eligible 
        entity shall meet the requirements of paragraphs (4) and (5) of 
        section 1852(g) with respect to drugs (including a 
        determination related to the application of tiered cost-sharing 
        described in subsection (e)(3)) in the same manner as such 
        requirements apply to an organization with respect to benefits 
        it offers under a plan under part C.
            ``(2) Formulary determinations.--An individual who is 
        enrolled in a plan offered by an eligible entity may appeal to 
        obtain coverage for a covered outpatient drug that is not on a 
        formulary of the entity offering the plan if the prescribing 
        physician determines that the formulary drug for treatment of 
        the same condition either would not be as effective for the 
        individual or would have adverse effects for the individual or 
        both.
    ``(g) Confidentiality and Accuracy of Enrollee Records.--An 
eligible entity shall meet the requirements of section 1852(h) with 
respect to enrollees under this section in the same manner as such 
requirements apply to a Medicare Advantage organization with respect to 
enrollees under part C. The eligible entity shall implement policies 
and procedures to safeguard the use and disclosure of enrollees' 
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. The 
eligible entity shall be treated as a covered entity for purposes of 
the provisions of subpart E of part 164 of title 45, Code of Federal 
Regulations, adopted pursuant to the authority of the Secretary under 
section 264(c) of the Health Insurance Portability and Accountability 
Act of 1996 (42 U.S. C. 1320d-2 note).
    ``(h) Oversight.--The Secretary shall provide appropriate oversight 
to ensure compliance of eligible entities with the requirements of this 
section, including verification of the discounts and services provided.

                      ``benefits under the program

    ``Sec. 1860D-4. (a) Savings to Enrollees Through Negotiated 
Prices.--
            ``(1) In general.--Subject to paragraph (2), each eligible 
        entity with a contract under this part shall provide each 
        eligible beneficiary enrolled with the entity with access to 
        negotiated prices (including applicable discounts). For 
        purposes of this paragraph, 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. The prices negotiated by an eligible entity under this 
        paragraph 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).
            ``(2) Formulary restrictions.--Insofar as an eligible 
        entity with a contract under this part uses a formulary, the 
        negotiated prices (including applicable discounts) for 
        prescription drugs shall only be available for drugs included 
        in such formulary.
            ``(3) Prohibition on application only to mail order.--The 
        negotiated prices under this subsection shall apply to 
        prescription drugs that are available other than solely through 
        mail order.
            ``(4) Prohibition on charges for required services.--An 
        eligible entity (and any pharmacy contracting with such entity 
        for the provision of a discount under this part) may not charge 
        a beneficiary any amount for any services required to be 
        provided by the entity under this part.
    ``(b) Catastrophic Coverage.--
            ``(1) Through competition among private plans.--
                    ``(A) In general.--Each enrollee under this part 
                shall be entitled to catastrophic coverage through a 
                contract with a qualified private entity under this 
                subsection.
                    ``(B) Contract requirements to promote 
                competition.--The Secretary shall enter into contracts 
                with qualified private entities to offer the 
                catastrophic coverage under this subsection. To the 
                maximum extent practicable, the Secretary shall enter 
                into such contracts in a manner so that enrollees in 
                all areas have a choice among at least 3 such entities 
                to obtain the catastrophic coverage. Such an entity may 
                be an eligible entity with a contract under subsection 
                (a). Each such entity shall meet such financial 
                solvency and other requirements as the Secretary 
                determines to be necessary to carry out the program 
                under this subsection. Such a contract shall provide 
                for the prospective assumption of the maximum amount of 
                risk under the contract as the Secretary may negotiate. 
                In providing catastrophic coverage under this 
                subsection, the qualified private entities (and not the 
                Secretary) shall establish the payment rates for drugs 
                so covered.
                    ``(C) Contingency.--If the Secretary is otherwise 
                unable to enter into a contract with any qualified 
                private entity under this paragraph for the offering of 
                catastrophic coverage for enrollees in an area, the 
                Secretary shall otherwise provide directly for the 
                offering of the catastrophic coverage under this 
                subsection to such enrollees. In such contingency, the 
                payment rates for drugs so covered shall be the rates 
                established by entities offering price discounts under 
                this part.
            ``(2) Scope of coverage.--
                    ``(A) Scope.--
                            ``(i) In general.--Subject to paragraph 
                        (4), the catastrophic coverage under this 
                        section shall consist of payment under this 
                        part for incurred expenses for covered 
                        outpatient drugs for an enrollee, less the 
                        applicable copayment amount under paragraph 
                        (4), after the enrollee has incurred in a year 
                        expenses that equal the catastrophic coverage 
                        threshold specified in subparagraph (C) or (D) 
                        for the enrollee and year involved.
                            ``(ii) Payment rate.--The rate of payment 
                        negotiated (or agreed to) by the eligible 
                        entity with the manufacturer for a covered 
                        outpatient drug shall be the amount paid under 
                        this part on behalf of the individual for the 
                        drug except as may otherwise be provided under 
                        the contract under paragraph (1).
                    ``(B) Counting all incurred expenses.--
                            ``(i) In general.--In applying subparagraph 
                        (A), expenses shall be treated as incurred if 
                        they are paid directly from the prescription 
                        drug account of the individual or, subject to 
                        clause (ii), if they are paid by the individual 
                        or by any other person, including a family 
                        member, on behalf of the individual or 
                        otherwise, whether or not such expenses may 
                        otherwise be reimbursed through insurance or 
                        otherwise, a group health plan, or other third-
                        party payment arrangement, but shall not 
                        include expenses insofar as payment is made for 
                        such expenses under part A or part B of this 
                        title.
                            ``(ii) Requirement for account number on 
                        all countable transactions.--Expenses that are 
                        not paid directly from a prescription drug 
                        account shall be counted under clause (i) only 
                        if, under such process as the Secretary shall 
                        recognize, the account number of the 
                        individual's prescription drug account is part 
                        of the transaction involved.
                    ``(C) Catastrophic coverage thresholds.--
                            ``(i) Initial catastrophic coverage 
                        threshold.--Subject to clause (ii), the 
                        catastrophic coverage threshold is $10,000.
                            ``(ii) Inflation adjustment.--The 
                        provisions of subsection (c)(2)(B) shall apply 
                        with respect to the catastrophic coverage 
                        threshold under clause (i) for a year after 
2004 in the same manner as it applied to the annual Federal 
contribution amount for that year, except that, for purposes of this 
subparagraph, any reference in subsection (c)(2)(B)(ii) to `$1' is 
deemed a reference to `$100'.
            ``(3) Premiums.--
                    ``(A) In general.--The premium for catastrophic 
                coverage under this subsection through a qualified 
                private entity shall be the rate negotiated by the 
                Secretary with the entity reduced by the premium 
                subsidy under this paragraph. Such rate shall be 
                consistent with rules similar to the rules applied 
                under section 1860D-3(a) for eligible entities offering 
                prescription drug coverage (including guaranteed issue, 
                community-rated premiums, and nondiscrimination). In 
                the case described in paragraph (1)(C), such premium 
                shall be based on an actuarial basis specified by the 
                Secretary.
                    ``(B) Subsidized premiums.--
                            ``(i) Full premium subsidy for qualifying 
                        low income enrollees.--In the case of an 
                        enrollee who is a qualifying low income 
                        enrollee (as defined in section 1860D-6(5)) for 
                        a month, there shall be a premium subsidy equal 
                        to the average of the premiums under 
                        subparagraph (A) for catastrophic coverage 
                        under this subsection in the area in which the 
                        enrollee resides.
                            ``(ii) Sliding scale premium subsidies for 
                        other enrollees.--In the case of an enrollee 
                        who is not a qualifying low income enrollee (as 
                        so defined) but would be a qualifying low 
                        income enrollee (as defined in section 1860D-
                        6(5)) for a month if 250 percent were 
                        substituted for 175 percent in such section, 
                        there shall be a premium subsidy equal to a 
                        percentage of the average referred to in clause 
                        (i), with such percentage determined on a 
                        sliding scale from--
                                    ``(I) 75 percent for enrollees with 
                                income equal to 175 percent of the 
                                poverty line; to
                                    ``(II) 0 percent for enrollees with 
                                income equal to 250 percent of such 
                                poverty line.
                    ``(C) Collection.--Premiums under this paragraph 
                shall be collected in the manner specified in section 
                1860D-2(e)(2) but shall be paid over, in a manner 
                specified by the Secretary, to the entity that offers 
                the catastrophic coverage. Premium subsidies under 
                subparagraph (B) shall also be paid over in such a 
                manner to such an entity.
            ``(4) Applicable copayment amounts.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraphs (D) and (E), the term 
                `applicable copayment amount', with respect to an 
                enrollee that has selected an eligible entity under 
                this part and for a covered outpatient drug that is--
                            ``(i) a multiple source or generic drug (as 
                        described in section 1927(k)(7)(A)(i)), means 
                        $3;
                            ``(ii) a single source or brand-name drug 
                        (as described in section 1927(k)(7)(A)(iv))) 
                        that is included in formulary of that eligible 
                        entity, means $5; or
                            ``(iii) any other drug, means $10.
                In the case of a private contract entered into under 
                paragraph (1), the Secretary may provide for the 
                substitution of the qualifying private entity offering 
                such contract for the eligible entity under this 
                subparagraph.
                    ``(B) Collection.--Nothing in this paragraph shall 
                be construed as preventing a pharmacy from requiring, 
                as a condition of supplying covered outpatient drugs to 
                any enrollee, that payment is made of the applicable 
                copayment amount under subparagraph (A).
                    ``(C) No federal matching available under medicaid 
                or schip to cover copayment amounts.--No expenditure of 
                a State that reimburses for, or otherwise covers, any 
                copayment amounts established under this paragraph may 
                be treated as State expenditures for purposes of 
                Federal matching payments under titles XIX and XXI.
            ``(D) Alternative tiers permitted for catastrophic 
        coverage.--With respect to catastrophic coverage, an eligible 
        entity may provide for tiered copayments that are different 
        from the copayments specified in subparagraph (A) so long as 
        copayment amounts resulting from such application approximate 
        the copayment amounts that would result from the application of 
        the copayments under such subparagraph.
            ``(E) Application of formulary at catastrophic coverage 
        limit.--Once an eligible beneficiary reaches the catastrophic 
        coverage limit on prescription drug expenses, such beneficiary 
        is subject to the formulary of the eligible entity and rules 
        regarding catastrophic coverage.
            ``(5) Administration.--Insofar as the Secretary does not 
        provide for the catastrophic coverage under this subsection 
        through a contract with a qualifying private entity, the 
        Secretary is authorized to enter into such agreements with 
        entities as may be required to provide for the benefits under 
        this subsection. Such entities may be eligible entities, 
        carriers under part B, fiscal intermediaries under part A, or 
        other qualified entities.
            ``(6) Secondary payer provisions.--The provisions of 
        section 1862(b) shall apply to the benefits provided under this 
        subsection.
    ``(c) Contribution Into Prescription Drug Account.--
            ``(1) In general.--In the case of an individual enrolled 
        under this part--
                    ``(A) the Secretary shall establish a prescription 
                drug account for the individual under section 1860D-5; 
                and
                    ``(B) shall deposit into such account on a monthly 
                or other periodic basis an amount that, on an annual 
                basis, is equivalent to the annual Federal contribution 
                amount specified in paragraph (2) for the enrollee 
                involved.
        Amounts so deposited shall not be treated as income to the 
        accountholder for purposes of the Internal Revenue Code of 
        1986.
            ``(2) Annual federal contribution amount.--
                    ``(A) Initial amount.--Subject to subparagraph (B) 
                and subsection (d), in the case of an accountholder 
                whose modified adjusted gross income is--
                            ``(i) not more than 100 percent of the 
                        poverty line, the annual Federal contribution 
                        amount is $2,500;
                            ``(ii) more than 100 percent, but less than 
                        125 percent, of the poverty line, the annual 
                        Federal contribution amount is $1,500;
                            ``(iii) more than 125 percent, but less 
                        than 175 percent, of the poverty line, the 
                        annual Federal contribution amount is $1,100;
                            ``(iv) at least 175 percent, but less than 
                        250 percent, of the poverty line, the annual 
                        Federal contribution amount is $600;
                            ``(v) at least 250 percent, but less than 
                        350 percent, of the poverty line the annual 
                        Federal contribution amount is $300.
                            ``(vi) at least 350 percent of the poverty 
                        line (or who has not authorized income 
                        verification under subsection (d)) the annual 
                        Federal contribution amount is $100.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--For a year after 2004, 
                        the annual Federal contribution amount shall be 
                        the amount specified in subparagraph (A) 
                        increased by 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 2004.
                            ``(ii) Rounding.--If an annual Federal 
                        contribution amount determined under clause (i) 
                        is not a multiple of $1, such increase shall be 
                        rounded to the nearest multiple of $1.
                    ``(C) Availability of additional amounts for very 
                low income individuals.--
                            ``(i) In general.--The Secretary shall make 
                        available an additional amount for accounts of 
                        individuals in subparagraph (A)(i) up to $7,500 
                        in any year insofar as the accountholder incurs 
                        expenses in the year for which the balance in 
                        the account may be applied.
                            ``(ii) Condition.--In the case of an 
                        individual described in clause (i) who is 
                        residing in a State, upon the request of the 
                        State, the Secretary may condition the 
                        availability of an additional amount under such 
                        clause upon the individual's enrollment under 
                        this part with an eligible entity that is 
                        recognized or approved by that State.
                            ``(iii) Treatment as medical assistance.--
                        For provisions providing for State 
                        participation with respect to additional 
                        amounts made available under clause (i), see 
                        section 1935(c)(1)(A)(ii).
    ``(d) Requirement for Income Verification To Obtain Increased 
Contribution Amount or for Reduced Premium.--
            ``(1) In general.--The provisions of subsections 
        (b)(2)(C)(iii), (b)(3)(B), and clauses (i) through (iii) of 
        subsection (c)(2)(A) shall apply to an individual only if the 
        individual--
                    ``(A) provides such information as the Secretary 
                may require in order to determine the appropriate 
                category of benefits or subsidies under the respective 
                provisions; and
                    ``(B) authorizes in a form and manner specified by 
                the Secretary the verification of the individual's 
                modified adjusted gross income by the Secretary through 
                arrangements with States.
        An arrangement with a State under subparagraph (B) shall 
        provide for the payment by the Secretary under this part of the 
        State's reasonable costs of conducting income verifications 
        under such arrangement.
            ``(2) Penalties for understatement of income.--The 
        provision of false information under paragraph (1)(A) is 
        subject to criminal penalties under section 1128B.
            ``(3) Procedures for determining modified adjusted gross 
        income.--
                    ``(A) In general.--The Secretary shall establish 
                procedures for determining the modified adjusted gross 
                income of enrollees. The Secretary shall consult with 
                the Secretary of the Treasury in making such 
                determinations. Income determinations under this 
                subsection shall be valid for a period (of not less 
                than 1 year) specified by the Secretary.
                    ``(B) 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 the Secretary such return information 
as is necessary to make the determinations described in subparagraph 
(A). Return information disclosed under the preceding sentence may be 
used by the Secretary only for the purposes of, and to the extent 
necessary in, making such determinations.
    ``(e) Appropriation To Cover Net Program Expenditures.--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 sum of the portion of 
the enrollment fees retained by the Secretary and premiums collected 
under subsection (b)(3).

                      ``prescription drug accounts

    ``Sec. 1860D-5. ``(a) Establishment of Accounts.--
            ``(1) In general.--The Secretary shall establish and 
        maintain for each eligible beneficiary who is enrolled under 
        this part at the time of enrollment a prescription drug account 
        (in this section referred to as an `account').
            ``(2) Reserve accounts.--In cases described in subsections 
        (b)(3)(A), (b)(3)(B)(i), and (b)(3)(B)(ii)(I), the Secretary 
        shall establish and maintain for each surviving spouse who is 
        not enrolled under this part a reserve prescription drug 
        account (in this section referred to as a `reserve account').
            ``(3) Accountholder defined.--In this section, the term 
        `accountholder' means an individual for whom an account or 
        reserve account has been established under this section.
            ``(4) Expenditures from account.--Nothing in this section 
        shall be construed as requiring the Federal Government to 
        obligate funds for amounts in any account until such time as a 
        withdrawal from such account is authorized under this section.
    ``(b) Use of Accounts.--
            ``(1) In general.--Except as provided in this subsection, 
        amounts credited to an account shall only be used for the 
        purchase of covered outpatient drugs for the accountholder. Any 
        amounts remaining at the end of a year remain available for 
        expenditures in succeeding years.
            ``(2) Account rules for public and private contributions.--
        The Secretary shall establish an ongoing process for the 
        determination of the amount in each account that is 
        attributable to public and private contributions (including 
        spousal rollover contributions) based on the following rules:
                    ``(A) Treatment of expenditures.--Expenditures from 
                the account shall--
                            ``(i) first be counted against any public 
                        contribution; and
                            ``(ii) next be counted against private 
                        contributions.
                    ``(B) Treatment of spousal rollover 
                contributions.--With respect to any spousal rollover 
                contribution, the portions of such contribution that 
                were attributable to public and private contributions 
                at the time of its distribution under subsection (b)(3) 
                shall be treated under this paragraph as if it were a 
                direct public or private contribution, respectively, 
                into the account of the spouse.
            ``(3) Death of accountholder.--In the case of the death of 
        an accountholder, the balance in any account (taking into 
        account liabilities accrued before the time of death) shall be 
        distributed as follows:
                    ``(A) Treatment of public contributions.--If the 
                accountholder is married at the time of death, the 
                amount in the account that is attributable to public 
                contributions shall be credited to the account (if any) 
                of the surviving spouse of the accountholder (or, if 
                the surviving spouse is not an eligible beneficiary, 
                into a reserve account to be held for when that spouse 
                becomes an eligible beneficiary).
                    ``(B) Treatment of private contributions.--The 
                amount in the account that is attributable to private 
                contributions shall be distributed as follows:
                            ``(i) Designation of distributee.--If the 
                        accountholder has made a designation, in a form 
                        and manner specified by the Secretary, for the 
                        distribution of some or all of such amount, 
                        such amount shall be distributed in accordance 
                        with the designation. Such designation may 
                        provide for the distribution into an account 
                        (including a reserve account) of a surviving 
                        spouse.
                            ``(ii) Absence of designation.--Insofar as 
                        the accountholder has not made such a 
                        designation--
                                    ``(I) Surviving spouse.--If the 
                                accountholder was married at the time 
                                of death, the remainder shall be 
                                credited to an account (including a 
                                reserve account) of the accountholder's 
                                surviving spouse.
                                    ``(II) No surviving spouse.--If the 
                                accountholder was not so married, the 
                                remainder shall be distributed to the 
                                estate of the accountholder and 
                                distributed as provided by law.
            ``(4) Use of account for premiums.--
                    ``(A) For enrollment in a medicare plan.--During 
                any period in which an accountholder is enrolled in a 
                plan under part C, the balance in the account may be 
                used and applied only to reimburse the amount of the 
                premium (if any) established for enrollment under the 
                plan.
                    ``(B) For catastrophic coverage.--Amounts in an 
                account of an accountholder may be used and applied to 
                reimburse the amount of the premium imposed for 
                catastrophic coverage under section 1860D-4(b)(3).
            ``(5) Application to medicaid expenses in certain cases.--
                    ``(A) In general.--Except as provided in this 
                paragraph, an account shall be treated as an asset for 
                purposes of establishing eligibility for medical 
                assistance under title XIX.
                    ``(B) Application towards spenddown.--In the case 
                of an accountholder who is applying for such medical 
                assistance and who would, but for the application of 
                subparagraph (A), be eligible for such assistance--
                            ``(i) subparagraph (A) shall not apply; and
                            ``(ii) the account shall be available (in 
                        accordance with a procedure established by the 
                        Secretary) to the State to reimburse the State 
                        for any expenditures made under the plan for 
                        such medical assistance.
            ``(6) Treatment of withdrawals.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the withdrawal of any amounts from an 
                account in accordance with this section shall not be 
subject to income or other tax.
                    ``(B) Distribution of private contributions at time 
                of death.--Amounts in the account of an accountholder 
                at the time of death of the accountholder that are not 
                transferred to an account (including a reserve account) 
                of a surviving spouse shall be includable in the estate 
                of the accountholder and may be subject to taxation as 
                part of such estate.
    ``(c) Amounts Credited in Account.--The Secretary shall credit to a 
prescription drug account of an eligible beneficiary the following 
amounts:
            ``(1) Public contributions.--The following contributions 
        (each referred to in this section as a `public contribution'):
                    ``(A) Federal contributions.--Federal contributions 
                provided under subsection (d).
                    ``(B) State contributions.--Contributions made by a 
                State under subsection (f).
            ``(2) Spousal rollover contribution.--A distribution from a 
        deceased spouse under subsection (b)(3) (referred to in this 
        section as a `spousal rollover contribution').
            ``(3) Private contributions.--The following contributions 
        (each referred to in this section as a `private contribution'):
                    ``(A) Tax-favored employer and individual 
                contributions.--Contributions made under subsection 
                (e).
                    ``(B) Other individual contributions.--
                Contributions made by accountholder other than under 
                subsection (e).
                    ``(C) Contributions by nonprofit organizations.--
                Contributions made by a charitable, not-for-profit 
                organization (that may be a religious organization).
Except as provided in this subsection, no amounts may be contributed 
to, or credited to, a prescription drug account.
    ``(d) Federal Contribution.--For Federal contributions in the case 
of accountholders, see section 1860D-4(c). Such contributions shall not 
be treated as income for purposes of chapter 1 of the Internal Revenue 
Code of 1986.
    ``(e) Employer and Individual Contributions.--
            ``(1) Employment-related contribution.--
                    ``(A) In general.--In the case of any accountholder 
                who is a beneficiary or participant in a group health 
                plan (including a multi-employer plan), whether as an 
                employee, former employee or otherwise, including as a 
                dependent of an employee or former employee, the plan 
                may make a contribution into the accountholder's 
                account (but not into a reserve account of the 
                accountholder). Amounts so contributed shall be treated 
                under the Internal Revenue Code of 1986 as employer-
                provided coverage under an accident or health plan 
                (described in section 106 of such Code).
                    ``(B) Limitation.--The total amount that may be 
                contributed under subparagraph (A) under a plan to an 
                account during any year may not exceed $5,000.
                    ``(C) Condition.--A group health plan may condition 
                a contribution with respect to an accountholder under 
                this paragraph on the accountholder's enrollment under 
                this part with an eligible entity that is recognized or 
                approved by that plan.
            ``(2) Other individuals.--
                    ``(A) In general.--Any individual may also 
                contribute to the account of that individual or the 
                account of any other individual under this subsection. 
                Notwithstanding any other provision of law, subject to 
                subparagraph (B), the amount of income of an individual 
                in a taxable year for purposes of subchapter A of 
                chapter 1 of the Internal Revenue Code of 1986 shall be 
                treated as being reduced by the amount contributed in 
                the taxable year under the previous sentence by that 
                individual.
                    ``(B) Limitation.--The total amount that may be 
                contributed to an account under subparagraph (A) and 
                treated as a reduction in income under the second 
                sentence of such subparagraph during any year may not 
                exceed $5,000, regardless of who makes such 
                contribution. Nothing in the previous sentence shall be 
                treated as limiting the amount of non-tax-favored 
                contributions that may be made to such an account.
            ``(3) No contribution permitted to reserve account.--No 
        contribution may be made under this subsection to a reserve 
        account.
            ``(4) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
            ``(5) Indexing of dollar amounts.--The provisions of 
        section 1860D-4(c)(2)(B) shall apply with respect to the 
        limitation amounts specified in paragraphs (1)(B) and (2)(B) 
        for a year after 2004 in the same manner as it applied to the 
        annual Federal contribution amount for that year, except that, 
        for purposes of this paragraph, any reference in clause (ii) of 
        such section to `$1' is deemed a reference to `$100'.
    ``(f) State Contributions.--
            ``(1) In general.--A State may enter into arrangements with 
        the Secretary for the crediting of amounts for accountholders.
            ``(2) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
            ``(3) Tax and medicaid treatment.--Amounts credited under 
        this subsection--
                    ``(A) shall not be treated as income to the 
                accountholder for purposes of the Internal Revenue Code 
                of 1986; and
                    ``(B) shall not be treated as medical assistance 
                for purposes of title XIX or child health assistance 
                for purposes of title XXI for individuals who are not 
                qualifying low income enrollees.

                             ``definitions

    ``Sec. 1860D-6. In this part:
            ``(1) Covered outpatient drug.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `covered outpatient drug' 
                means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        clause (i) or (ii) of subparagraph (A) of 
                        section 1927(k)(2); or
                            ``(ii) a biological product or insulin 
                        described in subparagraph (B) or (C) of such 
                        section.
                    ``(B) Exclusions.--
                            ``(i) In general.--The term `covered 
                        outpatient drug' 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 
                        those restricted under subparagraph (E) of such 
                        section (relating to smoking cessation agents).
                            ``(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 considered to be such a 
                        drug if payment for the drug is available under 
                        part A or B (but such drug shall be so 
                        considered if such payment is not available 
                        because the eligible beneficiary has exhausted 
                        benefits under part A or B), without regard to 
                        whether the individual is entitled to benefits 
                        under part A or enrolled under part B.
            ``(2) Income.--
                    ``(A) In general.--The term `income' means, with 
                respect to benefits under this part in a year, the 
                modified adjusted gross income of the individual for 
                the taxable year ending in the previous year.
                    ``(B) Treatment of joint returns.--In the case of a 
                individual who files a joint return (as defined for 
                purposes of the Internal Revenue Code of 1986), the 
                income of the modified adjusted gross income of both 
                individuals shall be treated as the income of each 
                individual.
                    ``(C) Treatment of separate returns.--In the case 
                of an individual who is married and who does not file a 
                joint return and who is not living separate and apart 
                from the individual's spouse during at least 6 months 
                of the taxable year shall be treated for purposes of 
                this title as having income that exceeds 350 percent of 
                the poverty line.
            ``(3) Definition of modified adjusted gross income.--The 
        term `modified adjusted gross income' means adjusted gross 
        income (as defined in section 62 of the Internal Revenue Code 
        of 1986)--
                    ``(A) determined without regard to sections 911, 
                931, and 933 of such Code; and
                    ``(B) increased by--
                            ``(i) the amount of interest received or 
                        accrued by the taxpayer during the taxable year 
                        which is exempt from tax under such Code, and
                            ``(ii) the amount of social security 
                        benefits not includible in gross income under 
                        section 86 of such Code.
            ``(4) 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.
            ``(5) Qualifying low income; very low income.--
                    ``(A) The term `qualifying low income' means, with 
                respect to an enrollee or accountholder, that the 
                income of the enrollee or accountholder is under 175 
                percent of the poverty line, but only if the enrollee 
                or accountholder has authorized income verification 
                under section 1860D-4(d).
                    ``(B) The term `very low income' means, with 
                respect to an enrollee or accountholder, that the 
                income of the enrollee or accountholder is under 100 
                percent of the poverty line, but only if the enrollee 
                or accountholder has authorized income verification 
                under section 1860D-4(d).''.
    (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 F 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.

SEC. 3. 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. 4. MEDICAID AMENDMENTS.

    (a) Verification of Eligibility for Improved Part D Benefits.--
            (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (64);
                    (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                    (C) by inserting after paragraph (65) the following 
                new paragraph:
            ``(66) provide for verification of income under section 
        1860D-4(d)(1)(B).''.
            (2) New section.--Title XIX is further amended--
                    (A) by redesignating section 1935 as section 1936; 
                and
                    (B) by inserting after section 1934 the following 
                new section:

       ``special provisions relating to medicare part d benefits

    ``Sec. 1935. (a) Requirement for Verification of Eligibility 
Determinations for Improved Part D Benefits.--As a condition of its 
State plan under this title under section 1902(a)(66) and receipt of 
any Federal financial assistance under section 1903(a), a State shall 
provide for verification of income statements in accordance with 
arrangements under section 1860D-4(d)(1).
    ``(b) Payments for Additional Administrative Costs.--
            ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows (but in no case shall the rate as 
        so increased exceed 100 percent):
                    ``(A) For expenditures attributable to costs 
                incurred during 2004, the otherwise applicable Federal 
                matching rate shall be increased by 10 percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                    ``(B)(i) For expenditures attributable to costs 
                incurred during 2005 and each subsequent year through 
                2011, the otherwise applicable Federal matching rate 
                shall be increased by the applicable percent (as 
                defined in clause (ii)) of the percentage otherwise 
                payable (but for this subsection) by the State.
                    ``(ii) For purposes of clause (i), the `applicable 
                percent' for--
                            ``(I) 2005 is 20 percent; or
                            ``(II) a subsequent year is the applicable 
                        percent under this clause for the previous year 
                        increased by 10 percentage points.
                    ``(C) For expenditures attributable to costs 
                incurred after 2011, the otherwise applicable Federal 
                matching rate shall be increased to 100 percent.
            ``(2) Coordination.--The State shall provide the Secretary 
        with such information as may be necessary to properly allocate 
        administrative expenditures described in paragraph (1) that may 
        otherwise be made for eligibility determinations.''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Prescription Drug Benefits for Dually Eligible Individuals.--
            (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
            (2) Amount described.--Section 1935, as inserted by 
        subsection (a)(2), is amended by adding at the end the 
        following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
            ``(1) In general.--For purposes of section 1903(a)(1), for 
        a State that is one of the 50 States or the District of 
        Columbia for a calendar quarter in a year (beginning with 2004) 
        the amount computed under this subsection is equal to the 
        product of the following:
                    ``(A) Improved medicare benefits.--The sum of--
                            ``(i) the total amount of reductions in 
                        catastrophic coverage premiums in the quarter 
                        under part D of title XVIII that are the result 
                        of applying a zero premium under section 1860D-
                        4(b)(3)(D) for individuals who are residents of 
                        the State and are entitled to benefits with 
                        respect to prescribed drugs under the State 
                        plan under this title (including such a plan 
                        operating under a waiver under section 1115), 
                        multiplied by the phase-out proportion (as 
                        defined in paragraph (2)) for the quarter; and
                            ``(ii) the total amount of additional 
                        payments made to prescription drug accounts in 
                        the quarter under such part D that are 
                        attributable to the application of section 
                        1860D-4(c)(2)(C) to individuals residing in the 
                        State.
                    ``(B) State matching rate.--A proportion computed 
                by subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
            ``(2) Phase-out proportion.--For purposes of paragraph 
        (1)(A)(i), the `phase-out proportion' for a calendar quarter 
        in--
                    ``(A) 2004 is 90 percent;
                    ``(B) a subsequent year before 2012, is the phase-
                out proportion for calendar quarters in the previous 
                year decreased by 10 percentage points; or
                    ``(C) a year after 2011 is 0 percent.''.
    (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as so 
inserted and amended, is further amended by adding at the end the 
following new subsection:
    ``(d) Additional Provisions.--
            ``(1) Medicaid as secondary payor.--In the case of an 
        individual who is eligible to be enrolled under part D of title 
        XVIII and is eligible for medical assistance for prescribed 
        drugs under this title--
                    ``(A) Federal financial participation is not 
                available--
                            ``(i) for such medical assistance for very 
                        low income individuals (as defined in section 
                        1860D-6(5)); or
                            ``(ii) for other individuals to the extent 
                        payment may be made under such part for such 
                        assistance; and
                    ``(B) subject to paragraph (2), Federal financial 
                participation shall continue to be available for 
                prescribed drugs for such other individuals described 
                in subparagraph (A)(ii) to the extent payment may not 
                be made under such part (including under a prescription 
                drug account under such part).
            ``(2) Limitation.--Federal financial participation shall 
        not be available under paragraph (1)(B) for the following 
        medical assistance:
                    ``(A) For any applicable copayment amount under 
                section 1860D-4(b)(4).
                    ``(B) For the amount of any enrollment fee under 
                section 1860D-2(e).
                    ``(C) For any assistance for any individual who is 
                not a qualifying low income individual (as defined in 
                section 1860D-6(5)).''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1935, as so inserted and amended, 
        is further amended--
                    (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                    (B) in subsection (c)(1), by inserting ``subject to 
                subsection (e)'' after ``1903(a)(1)''; and
                    (C) by adding at the end the following new 
                subsection:
    ``(e) Treatment of Territories.--
            ``(1) In general.--In the case of a State, other than the 
        50 States and the District of Columbia--
                    ``(A) the previous provisions of this section shall 
                not apply to residents of such State; and
                    ``(B) if the State establishes a plan described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription drugs to 
                medicare beneficiaries), the amount otherwise 
                determined under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be increased by 
                the amount specified in paragraph (3).
            ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                    ``(A) provides medical assistance with respect to 
                the provision of covered outpatient drugs to low-income 
                medicare beneficiaries; and
                    ``(B) assures that additional amounts received by 
                the State that are attributable to the operation of 
                this subsection are used only for such assistance.
            ``(3) Increased amount.--
                    ``(A) In general.--The amount specified in this 
                paragraph for a State for a year is equal to the 
                product of--
                            ``(i) the aggregate amount specified in 
                        subparagraph (B); and
                            ``(ii) the amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                    ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                            ``(i) 2004, is equal to $20,000,000; or
                            ``(ii) a subsequent year, is equal to the 
                        amount specified in clause (i) increased by 
                        applicable percentage increase specified in 
                        section 1860D-2(e)(1)(B) for the year involved.
            ``(4) Report.--The Secretary shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Secretary deems 
        appropriate.''.
            (2) Conforming amendment.--Section 1108(g)(2) (42 U.S.C. 
        1308(g)(2)) is amended by inserting ``but subject to section 
        1935(e)(1)(B)'' after ``Notwithstanding subsection (f)''.
    (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r-8(c)(1)(C)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (III);
            (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
            (3) by adding at the end the following new subclause:
                                    ``(V) any prices charged which are 
                                negotiated under an eligible entity 
                                under part D of title XVIII on behalf 
                                of individuals enrolled under such 
                                part.''.
                                 <all>