[Congressional Record Volume 147, Number 7 (Monday, January 22, 2001)]
[Senate]
[Pages S155-S163]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DASCHLE (for himself, Mr. Baucus, Mr. Graham, Mr. Kennedy, 
        Mr. Akaka, Mr. Biden, Mr. Bingaman, Mrs. Boxer, Mr. Byrd, Mrs. 
        Carnahan, Mr. Cleland, Mrs. Clinton, Mr. Corzine, Mr. Dayton, 
        Mr. Dodd, Mr. Dorgan, Mr. Durbin, Mr. Hollings, Mr. Inouye, Mr. 
        Johnson, Mr. Kerry, Mr. Leahy, Mr. Levin, Mrs. Lincoln, Ms. 
        Mikulski, Mrs. Murray, Mr. Nelson of Florida, Mr. Reed, Mr. 
        Reid, Mr. Rockefeller, Mr. Sarbanes and, Mr. Schumer):
  S. 10. A bill to amend title XVIII of the Social Security Act to 
provide coverage of outpatient prescription drugs under the Medicare 
Program; to the Committee on Finance.


            medicare prescription drug coverage act of 2001

  Mr. BAUCUS. Mr. President, today I introduce legislation, along with 
Senator Daschle and our colleagues, to establish a universal 
prescription drug benefit program in Medicare. I am pleased to be part 
of this effort, because I believe Congress should enact a drug benefit 
this year. The lack of coverage for outpatient prescription drugs in 
Medicare has become a glaring gap in the program.
  The practice of medicine has changed dramatically since Medicare was 
created in 1965. Today, more often than not, a trip to the doctor 
results in a trip to the pharmacy, to fill a prescription as part of 
the therapy. In many cases, prescription drugs allow patients to avoid 
more expensive and invasive therapies such as hospitalization and 
surgery.
  Our increasing reliance on pharmaceutical products has also fueled 
drug spending. Pharmaceuticals are the fastest growing segment of 
national health expenditures. In 2000, national drug spending increased 
by an estimated 11 percent, compared with 7 percent for physician 
services and 6 percent for hospital care. Since 1990, national spending 
for prescription drugs has tripled.
  And as the role and expense of prescription drugs have grown, their 
absence from Medicare's outpatient benefit package has become 
increasingly problematic for beneficiaries. An estimated 35 percent of 
Medicare beneficiaries currently lack coverage for outpatient 
prescription drugs. But that figure may understate the problem. One 
study has shown that only about 50 percent of seniors have drug 
coverage throughout the year, and for many who do have coverage, it is 
often limited or inadequate.
  In my home state of Montana, Medicare beneficiaries are even less 
likely to have coverage for prescription drugs than those living in 
other parts of the country. A National Economic Council study that I 
requested last year showed that rural Medicare beneficiaries are 50 
percent less likely than their urban counterparts to have prescription 
drug coverage. And although rural Medicare beneficiaries use 10 percent 
more prescriptions than urban folks, they pay 25 percent more out-of-
pocket for their drugs.
  These factors underscore the importance of this issue to folks back 
home. I intend to work hard this year to pass a Medicare drug bill for 
them and for the millions of other Medicare beneficiaries who lack 
coverage or are at risk of losing the coverage they currently have. It 
is time for Congress to act on this issue and pass legislation to 
provide prescription drugs for America's seniors.
  The Medicare Prescription Drug Coverage Act of 2001 is a good place 
to start. This legislation builds on the excellent work of Senator 
Graham and other members of the Finance Committee, including Senators 
Conrad, Jeffords, and Rockefeller. The benefit is universal, it is part 
of the Medicare program, it includes a deductible, and patient 
coinsurance decreases as drug expenditures increase. The proposal 
provides subsidies for low-income seniors to help them with their 
premiums and cost sharing. And the proposal relies on private sector 
entities to administer the benefit.
  Let me add--by no means does this legislation represent the end of 
the debate. Rather, it represents a beginning, a starting point. For 
example, the bill does not address many of the elements of Medicare 
reform that are currently on the table and, quite frankly, should be 
included. President Bush and others have emphasized that a new drug 
benefit must be added in the context of overall Medicare reform. As 
Senator Breaux is fond of saying, a prescription drug benefit is the 
dessert that we get when we take the medicine of reform.
  I expect that any prescription drug legislation we pass, and the 
President signs, will include provisions addressing solvency, 
competition, HCFA reform, and fee-for-service modernizations. These are 
areas, in addition to adding a drug benefit, where Medicare could also 
be updated and improved, and the bipartisan Medicare Commission has 
gone a long way toward putting these issues on the national agenda.
  I am encouraged that the new administration also recognizes that 
prescription drugs is an important issue. President Bush campaigned on 
a promise to address this issue early on, and I sincerely appreciate 
that it is one of the top priorities of the new administration. 
Likewise, I know that Senator Grassley also cares deeply about this 
issue.
  In closing, I want to reiterate that I am committed to working with 
Senator Grassley, with the other members of the Finance Committee, and 
with the new Administration to come up with a compromise solution. It 
is truly my hope that we can work together, build consensus, and forge 
compromise solutions on this issue. If we're creative, and if we listen 
to each other, I am confident that we can find balanced and bipartisan 
solution.

                                 S. 10

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Medicare outpatient prescription drug benefit program.

         ``Part D--Outpatient Prescription Drug Benefit Program

``Sec. 1860. Definitions.

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

``Sec. 1860A. Establishment of outpatient prescription drug benefit 
              program.
``Sec. 1860B. Enrollment.
``Sec. 1860C. Providing information to beneficiaries.
``Sec. 1860D. Premiums.
``Sec. 1860E. Cost-sharing.
``Sec. 1860F. Selection of entities to provide outpatient drug benefit.
``Sec. 1860G. Conditions for awarding contract.
``Sec. 1860H. Payments.
``Sec. 1860I. Employer incentive program for employment-based retiree 
              drug coverage.
``Sec. 1860J. Procedures for partial year implementation.
``Sec. 1860K. Appropriations.

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

``Sec. 1860M. Medicare Pharmacy and Therapeutics (P&T) Advisory 
              Committee.''.
Sec. 4. Part D benefits under Medicare+Choice plans.
Sec. 5. Exclusion of part D costs from determination of part B monthly 
              premium.
Sec. 6. Additional assistance for low-income beneficiaries.
Sec. 7. Medigap revisions.
Sec. 8. Comprehensive immunosuppressive drug coverage for transplant 
              patients.

[[Page S156]]

Sec. 9. HHS studies and report to Congress regarding outpatient 
              prescription drug benefit program.
Sec. 10. GAO study and biennial reports on competition and savings.
Sec. 11. MedPAC study and annual reports on the pharmaceutical market, 
              pharmacies, and beneficiary access.
Sec. 12. Appropriations.

     SEC. 2. FINDINGS.

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

     SEC. 3. MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT 
                   PROGRAM.

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

         ``Part D--Outpatient Prescription Drug Benefit Program


                             ``definitions

       ``Sec. 1860. In this part:
       ``(1) Covered outpatient drug.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `covered outpatient drug' means any of the following 
     products:
       ``(i) A drug which may be dispensed only upon prescription, 
     and--

       ``(I) which is approved for safety and effectiveness as a 
     prescription drug under section 505 of the Federal Food, 
     Drug, and Cosmetic Act;
       ``(II)(aa) which was commercially used or sold in the 
     United States before the date of enactment of the Drug 
     Amendments of 1962 or which is identical, similar, or related 
     (within the meaning of section 310.6(b)(1) of title 21 of the 
     Code of Federal Regulations) to such a drug, and (bb) which 
     has not been the subject of a final determination by the 
     Secretary that it is a `new drug' (within the meaning of 
     section 201(p) of the Federal Food, Drug, and Cosmetic Act) 
     or an action brought by the Secretary under section 301, 
     302(a), or 304(a) of such Act to enforce section 502(f) or 
     505(a) of such Act; or
       ``(III)(aa) which is described in section 107(c)(3) of the 
     Drug Amendments of 1962 and for which the Secretary has 
     determined there is a compelling justification for its 
     medical need, or is identical, similar, or related (within 
     the meaning of section 310.6(b)(1) of title 21 of the Code of 
     Federal Regulations) to such a drug, and (bb) for which the 
     Secretary has not issued a notice of an opportunity for a 
     hearing under section 505(e) of the Federal Food, Drug, and 
     Cosmetic Act on a proposed order of the Secretary to withdraw 
     approval of an application for such drug under such section 
     because the Secretary has determined that the drug is less 
     than effective for all conditions of use prescribed, 
     recommended, or suggested in its labeling.

       ``(ii) A biological product which--

       ``(I) may only be dispensed upon prescription;
       ``(II) is licensed under section 351 of the Public Health 
     Service Act; and
       ``(III) is produced at an establishment licensed under such 
     section to produce such product.

       ``(iii) Insulin approved under appropriate Federal law, 
     including needles, syringes, and disposable pumps for the 
     administration of such insulin.
       ``(iv) A prescribed drug or biological product that would 
     meet the requirements of clause (i) or (ii) but that it is 
     available over-the-counter in addition to being available 
     upon prescription.
       ``(B) Exclusion.--The term `covered outpatient drug' does 
     not include any product--
       ``(i) except as provided in subparagraph (A)(iv), which may 
     be distributed to individuals without a prescription;
       ``(ii) that is covered under part A or B (unless coverage 
     of such product is not available because benefits under part 
     A or B have been exhausted); or
       ``(iii) except for agents used to promote smoking 
     cessation, for which coverage may be excluded or restricted 
     under section 1927(d)(2).
       ``(2) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual that is entitled to benefits 
     under part A or enrolled under part B.
       ``(3) Eligible entity.--The term `eligible entity' means 
     any entity that the Secretary determines to be appropriate to 
     provide eligible beneficiaries with covered outpatient drugs 
     under a contract entered into under this part, including--
       ``(A) a pharmacy benefit management company;
       ``(B) a retail pharmacy delivery system;
       ``(C) a health plan or insurer;
       ``(D) a State (through mechanisms established under a State 
     plan under title XIX);
       ``(E) any other entity approved by the Secretary; or
       ``(F) any combination of the entities described in 
     subparagraphs (A) through (E) if the Secretary determines 
     that such combination--
       ``(i) increases the scope or efficiency of the provision of 
     benefits under this part; and
       ``(ii) is not anticompetitive.

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


    ``establishment of outpatient prescription drug benefit program

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


                              ``enrollment

       ``Sec. 1860B. (a) Enrollment Under Part D.--
       ``(1) Establishment of process.--
       ``(A) In general.--The Secretary shall establish a process 
     through which an eligible beneficiary (including an eligible 
     beneficiary enrolled in a Medicare+Choice plan offered by a 
     Medicare+Choice organization) may make an election to enroll 
     under this part. Such process shall be similar to the process 
     for enrollment in part B under section 1837.
       ``(B) Requirement of enrollment.--An eligible beneficiary 
     must enroll under this part in order to be eligible to 
     receive covered outpatient drugs under this title.
       ``(2) Enrollment procedures.--
       ``(A) Late enrollment penalty.--
       ``(i) In general.--Subject to the succeeding provisions of 
     this subparagraph, in the case of an eligible beneficiary 
     whose coverage period under this part began pursuant to an 
     enrollment after the beneficiary's initial enrollment period 
     under part B (determined pursuant to section 1837(d)) and not 
     pursuant to the open enrollment period described in 
     subparagraph (B), the Secretary shall establish procedures 
     for increasing the amount of the monthly premium under 
     section 1860D applicable to such beneficiary--

       ``(I) by an amount that is equal to 10 percent of such 
     premium for each full 12-month period (in the same continuous 
     period of eligibility) in which the eligible beneficiary 
     could have been enrolled under this part but was not so 
     enrolled; or
       ``(II) if determined appropriate by the Secretary, by an 
     amount that the Secretary determines is actuarily sound for 
     each such period.

       ``(ii) Periods taken into account.--For purposes of 
     calculating any 12-month period under clause (i), there shall 
     be taken into account--

       ``(I) the months which elapsed between the close of the 
     eligible beneficiary's initial enrollment period and the 
     close of the enrollment period in which the beneficiary 
     enrolled; and
       ``(II) in the case of an eligible beneficiary who reenrolls 
     under this part, the months which elapsed between the date of 
     termination of a previous coverage period and the close of 
     the enrollment period in which the beneficiary reenrolled.

       ``(iii) Periods not taken into account.--

       ``(I) In general.--For purposes of calculating any 12-month 
     period under clause (i), subject to subclause (II), there 
     shall not be taken into account months for which the eligible 
     beneficiary can demonstrate that the beneficiary was covered 
     under a group health plan, including a qualified retiree 
     prescription drug plan (as defined in section 1860I(e)(3)) 
     for which an incentive payment was paid under section 1860I, 
     that provides coverage of the cost of prescription drugs 
     whose actuarial value (as defined by the Secretary) to the 
     beneficiary equals or exceeds the actuarial value of the 
     benefits provided to an individual enrolled in the outpatient

[[Page S157]]

     prescription drug benefit program under this part.
       ``(II) Application.--This clause shall only apply with 
     respect to a coverage period the enrollment for which occurs 
     before the end of the 60-day period that begins on the first 
     day of the month which includes the date on which the plan 
     terminates, ceases to provide, or reduces the value of the 
     prescription drug coverage under such plan to below the value 
     of the coverage provided under the program under this part.

       ``(iv) Periods treated separately.--Any increase in an 
     eligible beneficiary's monthly premium under clause (i) with 
     respect to a particular continuous period of eligibility 
     shall not be applicable with respect to any other continuous 
     period of eligibility which the beneficiary may have.
       ``(v) Continuous period of eligibility.--

       ``(I) In general.--Subject to subclause (II), for purposes 
     of this subparagraph, an eligible beneficiary's `continuous 
     period of eligibility' is the period that begins with the 
     first day on which the beneficiary is eligible to enroll 
     under section 1836 and ends with the beneficiary's death.
       ``(II) Separate period.--Any period during all of which an 
     eligible beneficiary satisfied paragraph (1) of section 1836 
     and which terminated in or before the month preceding the 
     month in which the beneficiary attained age 65 shall be a 
     separate `continuous period of eligibility' with respect to 
     the beneficiary (and each such period which terminates shall 
     be deemed not to have existed for purposes of subsequently 
     applying this subparagraph).

       ``(B) Open enrollment period for current beneficiaries in 
     which late enrollment procedures do not apply.--The Secretary 
     shall establish an applicable period, which shall begin on 
     the date on which the Secretary first begins to accept 
     elections for enrollment under this part, during which any 
     eligible beneficiary may enroll under this part without the 
     application of the late enrollment procedures established 
     under subparagraph (A)(i).
       ``(3) Period of coverage.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     an eligible beneficiary's coverage under the program under 
     this part shall be effective for the period provided in 
     section 1838, as if that section applied to the program under 
     this part.
       ``(B) Open enrollment.--An eligible beneficiary who enrolls 
     under the program under this part pursuant to paragraph 
     (2)(B) shall be entitled to the benefits under this part 
     beginning on the first day of the month following the month 
     in which such enrollment occurs.
       ``(C) Limitation.--Coverage under this part shall not begin 
     prior to the date that is 1 year after the date of enactment 
     of this Act.
       ``(4) Part d coverage terminated by termination of coverage 
     under parts a and b.--
       ``(A) In general.--In addition to the causes of termination 
     specified in section 1838, the Secretary shall terminate an 
     individual's coverage under this part if the individual is no 
     longer enrolled in either part A or part B.
       ``(B) Effective date.--The termination described in 
     subparagraph (A) shall be effective on the effective date of 
     termination of coverage under part A or (if later) under part 
     B.
       ``(b) Enrollment With Eligible Entity.--
       ``(1) Process.--
       ``(A) In general.--The Secretary shall establish a process 
     through which an eligible beneficiary who is enrolled under 
     this part but not enrolled in a Medicare+Choice plan offered 
     by a Medicare+Choice organization shall make an annual 
     election to enroll with any eligible entity that has been 
     awarded a contract under this part and serves the geographic 
     area in which the beneficiary resides.
       ``(B) Rules.--In establishing the process under 
     subparagraph (A), the Secretary shall use rules similar to 
     the rules for enrollment and disenrollment with a 
     Medicare+Choice plan under section 1851 (including special 
     election periods under subsection (e)(4) of such section).
       ``(2) Medicare+choice enrollees.--An eligible beneficiary 
     who is enrolled under this part and enrolled in a 
     Medicare+Choice plan offered by a Medicare+Choice 
     organization shall receive coverage of covered outpatient 
     drugs under this part through such plan.
       ``(c) First Enrollment Period.--The processes developed 
     under subsections (a) and (b) shall ensure that eligible 
     beneficiaries are permitted to enroll under this part and 
     with an eligible entity prior to the date that is 1 year 
     after the date of enactment of this Act, in order to ensure 
     that coverage under this part is effective as of such date.


                ``providing information to beneficiaries

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


                               ``premiums

       ``Sec. 1860D. (a) Annual Establishment of Monthly Premium 
     Rates.--
       ``(1) Premium.--The Secretary shall, during September of 
     each year (beginning with the first September after the day 
     that is 1 year after the date of enactment of the Medicare 
     Prescription Drug Coverage Act of 2001), determine and 
     promulgate a monthly premium rate for the succeeding year in 
     accordance with the provisions of this subsection.
       ``(2) Actuarial determinations.--
       ``(A) Determination of annual benefit and administrative 
     costs.--The Secretary shall estimate annually for the 
     succeeding year the amount equal to the total of the benefits 
     and administrative costs that will be payable from the 
     Federal Supplementary Medical Insurance Trust Fund for 
     providing covered outpatient drugs in such calendar year with 
     respect to enrollees in the program under this part.
       ``(B) Determination of monthly premium rates.--
       ``(i) In general.--The Secretary shall determine the 
     monthly premium rate with respect to such enrollees for such 
     succeeding year, which shall be \1/12\ of the applicable 
     percent of the amount determined under subparagraph (A), 
     divided by the total number of such enrollees, and rounded 
     (if such rate is not a multiple of 10 cents) to the nearest 
     multiple of 10 cents.
       ``(ii) Definition of applicable percent.--For purposes of 
     clause (i), the term `applicable percent' means--

       ``(I) 45 percent, in the case of premiums paid by an 
     eligible beneficiary enrolled in the program under this part; 
     and
       ``(II) 66.66 percent, in the case of premiums paid for such 
     a beneficiary by an employer (as defined in section 
     1860I(e)(2)) that the beneficiary formerly worked for.

       ``(3) Publication of assumptions.--The Secretary shall 
     publish, together with the promulgation of the monthly 
     premium rates for the succeeding year, a statement setting 
     forth the actuarial assumptions and bases employed in 
     arriving at the amounts and rates determined under paragraphs 
     (1) and (2).
       ``(b) Collection of Premium.--The monthly premium 
     applicable to an eligible beneficiary under this part shall 
     be collected and

[[Page S158]]

     credited to the Federal Supplementary Medical Insurance Trust 
     Fund in the same manner as the monthly premium determined 
     under section 1839 is collected and credited to such Trust 
     Fund under section 1840.


                             ``cost-sharing

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


       ``selection of entities to provide outpatient drug benefit

       ``Sec. 1860F. (a) Establishment of Bidding Process.--
       ``(1) In general.--The Secretary shall establish procedures 
     under which the Secretary accepts bids submitted by eligible 
     entities and awards contracts to such entities in order to 
     administer and deliver the benefits provided under this part 
     to eligible beneficiaries in an area.
       ``(2) Competitive procedures.--Competitive procedures (as 
     defined in section 4(5) of the Office of Federal Procurement 
     Policy Act (41 U.S.C. 403(5))) shall be used to enter into 
     contracts under this part.
       ``(b) Area for Contracts.--
       ``(1) Regional basis.--
       ``(A) In general.--Except as provided in subparagraph (B) 
     and subject to paragraph (2), the contract entered into 
     between the Secretary and an eligible entity shall require 
     the eligible entity to provide covered outpatient drugs on a 
     regional basis.
       ``(B) Partial regional basis.--
       ``(i) In general.--If determined appropriate by the 
     Secretary, the Secretary may permit the coverage described in 
     subparagraph (A) to be provided on a partial regional basis.
       ``(ii) Requirements.--If the Secretary permits coverage 
     pursuant to clause (i), the Secretary shall ensure that the 
     partial region in which coverage is provided is--

       ``(I) at least the size of the commercial service area of 
     the eligible entity for that area; and
       ``(II) not smaller than a State.

       ``(2) Determination.--
       ``(A) In general.--In determining coverage areas under this 
     part, the Secretary shall--
       ``(i) take into account the number of eligible 
     beneficiaries in an area in order to encourage participation 
     by eligible entities; and
       ``(ii) ensure that there are at least 10 different coverage 
     areas in the United States.
       ``(B) No administrative or judicial review.--The 
     determination of coverage areas under this part shall not be 
     subject to administrative or judicial review.
       ``(c) Submission of Bids.--
       ``(1) In general.--Each eligible entity desiring to provide 
     covered outpatient drugs under this part shall submit a bid 
     to the Secretary at such time, in such manner, and 
     accompanied by such information as the Secretary may 
     reasonably require.
       ``(2) Required information.--The bids described in 
     paragraph (1) shall include--
       ``(A) a proposal for the estimated prices of covered 
     outpatient drugs and the projected annual increases in such 
     prices, including differentials between formulary and 
     nonformulary prices, if applicable;
       ``(B) the amount that the entity will charge the Secretary 
     for administering and delivering the benefits under such 
     contract;
       ``(C) a statement regarding whether the entity will waive 
     the deductible for generic drugs pursuant to section 
     1860E(a)(2);
       ``(D) a statement regarding whether the entity will reduce 
     the applicable coinsurance percentage pursuant to section 
     1860E(b)(2) and if so, the amount of such reduction;
       ``(E) a detailed description of--
       ``(i) the risk corridors tied to performance measures and 
     other incentives that the entity will accept under the 
     contract; and
       ``(ii) how the entity will meet such measures and 
     incentives;
       ``(F) a detailed description of proposed contracts with 
     local pharmacy providers designed to ensure access, including 
     compensation for local pharmacists' services;
       ``(G) a detailed description of any ownership or shared 
     financial interests with other entities involved in the 
     delivery of the benefit as proposed;
       ``(H) a detailed description of the entity's estimated 
     marketing and advertising expenditures related to enrolling 
     and retaining eligible beneficiaries; and
       ``(I) such other information that the Secretary determines 
     is necessary in order to carry out this part, including 
     information relating to the bidding process under this part.
       ``(d) Access.--
       ``(1) In general.--The Secretary shall ensure that an 
     eligible entity--
       ``(A) complies with the access requirements described in 
     section 1860G(a)(4)(A); and
       ``(B) makes available to each beneficiary covered under the 
     contract the full scope of the benefits required under this 
     part.
       ``(2) Areas not covered by contracts.--The Secretary shall 
     develop procedures for the provision of covered outpatient 
     drugs under this part to each eligible beneficiary that 
     resides in an area that is not covered by any contract under 
     this part.
       ``(3) Beneficiaries residing in different locations.--The 
     Secretary shall develop procedures to ensure that each 
     eligible beneficiary that resides in different areas in a 
     year is provided the benefits under this part throughout the 
     entire year.
       ``(4) Special attention to rural and hard-to-serve areas.--
       ``(A) In general.--The Secretary shall ensure that all 
     eligible beneficiaries have access to the full range of 
     benefits under this part, and shall give special attention to 
     access, pharmacist counseling, and delivery in rural and 
     hard-to-serve areas (as the Secretary may define by 
     regulation).
       ``(B) Special attention defined.--For purposes of 
     subparagraph (A), the term `special attention' may include 
     bonus payments to retail pharmacists in rural areas, extra 
     payments to eligible entities for the cost of rapid delivery 
     of pharmaceuticals, and any other actions the Secretary 
     determines are necessary to ensure full access to benefits 
     under this part by eligible beneficiaries residing in rural 
     and hard-to-serve areas.
       ``(C) GAO report.--Not later than 2 years after the date of 
     enactment of the Medicare Prescription Drug Coverage Act of 
     2001, the Comptroller General of the United States shall 
     submit to Congress a report on the access to benefits under 
     this part by eligible beneficiaries residing in rural and 
     hard-to-serve areas, together with any recommendations of the 
     Comptroller General regarding any additional steps the 
     Secretary may need to take to ensure the access of medicare 
     beneficiaries to such benefits.
       ``(e) Awarding of Contracts.--
       ``(1) Number of contracts.--The Secretary shall, consistent 
     with the requirements of this part and the goal of containing 
     costs under this title, award in a competitive manner at 
     least 2 contracts in an area, unless only 1 bidding entity 
     meets the minimum standards specified under this part and by 
     the Secretary.
       ``(2) Determination.--In determining which of the eligible 
     entities that submitted bids that meet the minimum standards 
     specified under this part and by the Secretary (including the 
     terms and conditions described in section 1860G) to award a 
     contract, the Secretary shall consider the comparative merits 
     of each bid, as determined on the basis of the past 
     performance of the entity and other relevant factors, with 
     respect to--
       ``(A) how well the entity meets such minimum standards;

[[Page S159]]

       ``(B) the amount that the entity will charge the Secretary 
     for administering and delivering the benefits under the 
     contract;
       ``(C) the proposed prices of covered outpatient drugs and 
     annual increases in such prices;
       ``(D) the proposed risk corridors tied to performance 
     measures and other incentives that the entity will be subject 
     to under the contract;
       ``(E) the factors described in section 1860C(b)(2);
       ``(F) prior experience in administering a prescription drug 
     benefit program;
       ``(G) effectiveness in containing costs through pricing 
     incentives and utilization management; and
       ``(H) such other factors as the Secretary deems necessary 
     to evaluate the merits of each bid.
       ``(3) Exception to conflict of interest rules.--In awarding 
     contracts under this part, the Secretary may waive conflict 
     of interest laws generally applicable to Federal acquisitions 
     (subject to such safeguards as the Secretary may find 
     necessary to impose) in circumstances where the Secretary 
     finds that such waiver--
       ``(A) is not inconsistent with the--
       ``(i) purposes of the programs under this title; or
       ``(ii) best interests of enrolled individuals; and
       ``(B) permits a sufficient level of competition for such 
     contracts, promotes efficiency of benefits administration, or 
     otherwise serves the objectives of the program under this 
     part.
       ``(4) No administrative or judicial review.--The 
     determination of the Secretary to award or not award a 
     contract to an eligible entity under this part shall not be 
     subject to administrative or judicial review.
       ``(f) Approval of Marketing Material and Application 
     Forms.--The provisions of section 1851(h) shall apply to 
     marketing material and application forms under this part in 
     the same manner as such provisions apply to marketing 
     material and application forms under part C.
       ``(g) Duration of Contracts.--Each contract under this part 
     shall be for a term of at least 2 years but not more than 5 
     years, as determined by the Secretary.


                   ``conditions for awarding contract

       ``Sec. 1860G. (a) In General.--The Secretary shall not 
     award a contract to an eligible entity under this part unless 
     the Secretary finds that the eligible entity agrees to comply 
     with such terms and conditions as the Secretary shall 
     specify, including the following:
       ``(1) Quality and financial standards.--The eligible entity 
     meets the quality and financial standards specified by the 
     Secretary.
       ``(2) Procedures to ensure proper utilization, compliance, 
     and avoidance of adverse drug reactions.--The eligible entity 
     has in place drug utilization review procedures to ensure--
       ``(A) the appropriate utilization by eligible beneficiaries 
     of the benefits to be provided under the contract; and
       ``(B) the avoidance of adverse drug reactions among 
     eligible beneficiaries enrolled with the entity, including 
     problems due to therapeutic duplication, drug-disease 
     contraindications, drug-drug interactions (including serious 
     interactions with nonprescription or over-the-counter drugs), 
     incorrect drug dosage or duration of drug treatment, drug-
     allergy interactions, and clinical abuse and misuse.
       ``(3) Cost-effective provision of benefits.--
       ``(A) In general.--In providing the benefits under a 
     contract under this part, an eligible entity may--
       ``(i) employ mechanisms to provide the benefits 
     economically, including the use of--

       ``(I) formularies (pursuant to subparagraph (B));
       ``(II) alternative methods of distribution; and
       ``(III) generic drug substitution;

       ``(ii) use mechanisms to encourage eligible beneficiaries 
     to select cost-effective drugs or less costly means of 
     receiving drugs, including the use of pharmacy incentive 
     programs, therapeutic interchange programs, and disease 
     management programs; and
       ``(iii) encourage pharmacy providers to--

       ``(I) inform beneficiaries of the differentials in price 
     between generic and nongeneric drug equivalents; and
       ``(II) provide medication therapy management programs in 
     order to enhance beneficiaries' understanding of the 
     appropriate use of medications and to reduce the risk of 
     potential adverse events associated with medications.

       ``(B) Formularies.--If an eligible entity uses a formulary 
     under this part, such formulary shall comply with standards 
     established by the Secretary in consultation with the 
     Medicare Pharmacy and Therapeutics Advisory Committee 
     established under section 1860M. Such standards shall require 
     that the eligible entity--
       ``(i) use a pharmacy and therapeutic committee (that meets 
     the standards for a pharmacy and therapeutic committee 
     established by the Secretary in consultation with the 
     Medicare Pharmacy and Therapeutics Advisory Committee 
     established under section 1860M) to develop and implement the 
     formulary;
       ``(ii) include in the formulary--

       ``(I) at least 1 drug from each therapeutic class (as 
     defined by the entity's pharmacy and therapeutic committee in 
     accordance with standards established by the Secretary in 
     consultation with the Medicare Pharmacy and Therapeutics 
     Advisory Committee established under section 1860M);

       ``(II) if there is more than 1 drug available in a 
     therapeutic class, at least 2 drugs from such class; and
       ``(III) if there are more than 2 drugs available in a 
     therapeutic class, at least 2 drugs from such class and a 
     generic drug substitute if available;

       ``(iii) develop procedures for the--

       ``(I) addition of new therapeutic classes to the formulary;
       ``(II) addition of new drugs to an existing therapeutic 
     class; and
       ``(III) modification of the formulary;

       ``(iv) provide for coverage of otherwise covered non-
     formulary drugs when recommended by a prescribing provider; 
     and
       ``(v) disclose to current and prospective beneficiaries and 
     to providers in the service area the nature of the formulary 
     restrictions, including information regarding the drugs 
     included in the formulary, coinsurance, and any difference in 
     the cost-sharing for different types of drugs.
       ``(C) Construction.--Nothing in this paragraph shall be 
     construed as precluding an eligible entity from--
       ``(i) requiring cost-sharing for nonformulary drugs that is 
     higher than the cost-sharing established in section 1860E(b), 
     except that such entity shall provide for coverage of a 
     nonformulary drug at the same cost-sharing level as a drug 
     within the formulary if such nonformulary drug is recommended 
     by a prescribing provider;
       ``(ii) educating prescribing providers, pharmacists, and 
     beneficiaries about the medical and cost benefits of 
     formulary drugs (including generic drugs); or
       ``(iii) requiring prescribing providers to consider a 
     formulary drug prior to dispensing of a nonformulary drug, as 
     long as such requirement does not unduly delay the provision 
     of the drug.
       ``(4) Patient protections.--
       ``(A) Access.--The eligible entity ensures that the covered 
     outpatient drugs are accessible and convenient to eligible 
     beneficiaries covered under the contract, including by doing 
     the following:
       ``(i) Services during emergencies.--Offering services 24 
     hours a day and 7 days a week for emergencies.
       ``(ii) Agreements with pharmacies.--Entering into 
     participation agreements under subsection (b) with 
     pharmacies, that include terms that--

       ``(I) secure the participation of sufficient numbers of 
     pharmacies to ensure convenient access (including adequate 
     emergency access); and
       ``(II) permit the participation of any pharmacy in the 
     service area that meets the participation requirements 
     described in subsection (b).

       ``(B) Continuity of care.--
       ``(i) In general.--The eligible entity ensures that, in the 
     case of an eligible beneficiary who loses coverage under this 
     part with such entity under circumstances that would permit a 
     special election period (as established by the Secretary 
     under section 1860B(b)), the entity will continue to provide 
     coverage under this part to such beneficiary until the 
     beneficiary enrolls and receives such coverage with another 
     eligible entity under this part.
       ``(ii) Limited period.--In no event shall an eligible 
     entity be required to provide the extended coverage required 
     under clause (i) beyond the date which is 30 days after the 
     coverage with such entity would have terminated but for this 
     subparagraph.
       ``(C) Procedures regarding denials of care.--The eligible 
     entity has in place procedures to ensure--
       ``(i) a timely internal and external review and resolution 
     of denials of coverage (in whole or in part) and complaints 
     (including those regarding the use of formularies under 
     paragraph (3)) by eligible beneficiaries, or by providers, 
     pharmacists, and other individuals acting on behalf of each 
     such beneficiary (with the beneficiary's consent) in 
     accordance with requirements (as established by the 
     Secretary) that are comparable to such requirements for 
     Medicare+Choice organizations under part C; and
       ``(ii) that beneficiaries are provided with information 
     regarding the appeals procedures under this part at the time 
     of enrollment.
       ``(D) Procedures regarding patient confidentiality.--
     Insofar as an eligible entity maintains individually 
     identifiable medical records or other health information 
     regarding eligible beneficiaries under a contract entered 
     into under this part, the entity has in place procedures to--
       ``(i) safeguard the privacy of any individually 
     identifiable beneficiary information;
       ``(ii) maintain such records and information in a manner 
     that is accurate and timely;
       ``(iii) ensure timely access by such beneficiaries to such 
     records and information; and
       ``(iv) otherwise comply with applicable laws relating to 
     patient confidentiality.
       ``(E) Procedures regarding transfer of medical records.--
       ``(i) In general.--The eligible entity has in place 
     procedures for the timely transfer of records and information 
     described in subparagraph (D) (with respect to a beneficiary 
     who loses coverage under this part with the entity and 
     enrolls with another entity under this part) to such other 
     entity.
       ``(ii) Patient confidentiality.--The procedures described 
     in clause (i) shall comply

[[Page S160]]

     with the patient confidentiality procedures described in 
     subparagraph (D).
       ``(F) Procedures regarding medical errors.--The eligible 
     entity has in place procedures for working with the Secretary 
     to deter medical errors related to the provision of covered 
     outpatient drugs.
       ``(5) Procedures to control fraud, abuse, and waste.--The 
     eligible entity has in place procedures to control fraud, 
     abuse, and waste.
       ``(6) Reporting requirements.--
       ``(A) In general.--The eligible entity provides the 
     Secretary with reports containing information regarding the 
     following:
       ``(i) The prices that the eligible entity is paying for 
     covered outpatient drugs.
       ``(ii) The prices that eligible beneficiaries enrolled with 
     the entity will be charged for covered outpatient drugs.
       ``(iii) The administrative costs of providing such 
     benefits.
       ``(iv) Utilization of such benefits.
       ``(v) Marketing and advertising expenditures related to 
     enrolling and retaining eligible beneficiaries.
       ``(B) Timeframe for submitting reports.--
       ``(i) In general.--The eligible entity shall submit a 
     report described in subparagraph (A) to the Secretary within 
     3 months after the end of each 12-month period in which the 
     eligible entity has a contract under this part. Such report 
     shall contain information concerning the benefits provided 
     during such 12-month period.
       ``(ii) Last year of contract.--In the case of the last year 
     of a contract under this section, the Secretary may require 
     that a report described in subparagraph (A) be submitted 3 
     months prior to the end of the contract. Such report shall 
     contain information concerning the benefits provided between 
     the period covered by the most recent report under this 
     subparagraph and the date that a report is submitted under 
     this clause.
       ``(C) Confidentiality of information.--
       ``(i) In general.--Notwithstanding any other provision of 
     law and subject to clause (ii), information disclosed by an 
     eligible entity pursuant to subparagraph (A) is confidential 
     and shall only be used by the Secretary for the purposes of, 
     and to the extent necessary, to carry out this part.
       ``(ii) Utilization data.--Subject to patient 
     confidentiality laws, the Secretary shall make information 
     disclosed by an eligible entity pursuant to subparagraph 
     (A)(iv) (regarding utilization data) available for research 
     purposes. The Secretary may charge a reasonable fee for 
     making such information available.
       ``(7) Approval of marketing material and application 
     forms.--The eligible entity will comply with the requirements 
     described in section 1860F(f).
       ``(8) Records and audits.--The eligible entity maintains 
     adequate records related to the administration of the benefit 
     under this part and affords the Secretary access to such 
     records for auditing purposes.
       ``(b) Pharmacy Participation Agreements.--
       ``(1) In general.--A pharmacy that meets the requirements 
     of this subsection shall be eligible to enter an agreement 
     with an eligible entity to furnish covered outpatient drugs 
     and pharmacists' services to eligible beneficiaries enrolled 
     with such entity and residing in the service area.
       ``(2) Terms of agreement.--An agreement under this 
     subsection shall include the following terms and 
     requirements:
       ``(A) Licensing.--The pharmacy and pharmacists shall meet 
     (and throughout the contract period will continue to meet) 
     all applicable State and local licensing requirements.
       ``(B) Limitation on charges.--Pharmacies participating 
     under this part shall not charge an eligible beneficiary 
     enrolled with the eligible entity more than--
       ``(i) the negotiated price for an individual drug (as 
     reported to the Secretary pursuant to subsection (a)(6)(A)); 
     or
       ``(ii) the amount of the beneficiary's obligation (as 
     determined in accordance with the provisions of this part) of 
     the negotiated price of such drug.
       ``(C) Performance standards.--The pharmacy shall comply 
     with performance standards relating to--
       ``(i) measures for quality assurance, reduction of medical 
     errors, and compliance with the drug utilization review 
     procedures described in subsection (a)(2);
       ``(ii) systems to ensure compliance with the patient 
     confidentiality standards applicable under subsection 
     (a)(4)(D); and
       ``(iii) other requirements as the Secretary may impose to 
     ensure integrity, efficiency, and the quality of the program 
     under this part.


                               ``payments

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


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

       ``Sec. 1860I. (a) Program Authority.--The Secretary is 
     authorized to develop and implement a program under this 
     section called the `Employer Incentive Program' that 
     encourages employers and other sponsors of employment-based 
     health care coverage to provide adequate prescription drug 
     benefits to retired individuals by subsidizing, in part, the 
     sponsor's cost of providing coverage under qualifying plans.
       ``(b) Sponsor Requirements.--In order to be eligible to 
     receive an incentive payment under this section with respect 
     to coverage of an individual under a qualified retiree 
     prescription drug plan (as defined in subsection (f)(3)), a 
     sponsor shall meet the following requirements:
       ``(1) Assurances.--The sponsor shall--
       ``(A) annually attest, and provide such assurances as the 
     Secretary may require, that the coverage offered by the 
     sponsor is a qualified retiree prescription drug plan, and 
     will remain such a plan for the duration of the sponsor's 
     participation in the program under this section; and
       ``(B) guarantee that it will give notice to the Secretary 
     and covered retirees--
       ``(i) at least 120 days before terminating its plan; and
       ``(ii) immediately upon determining that the actuarial 
     value of the prescription drug benefit under the plan falls 
     below the actuarial value of the outpatient prescription drug 
     benefit under this part.
       ``(2) Beneficiary information.--The sponsor shall report to 
     the Secretary, for each calendar quarter for which it seeks 
     an incentive payment under this section, the names and social 
     security numbers of all retirees (and their spouses and 
     dependents) covered under such plan during such quarter and 
     the dates (if less than the full quarter) during which each 
     such individual was covered.
       ``(3) Audits.--The sponsor and the employment-based retiree 
     health coverage plan seeking incentive payments under this 
     section shall agree to maintain, and to afford the Secretary 
     access to, such records as the Secretary may require for 
     purposes of audits and other oversight activities necessary 
     to ensure the adequacy of prescription drug coverage, the 
     accuracy of incentive payments made, and such other matters 
     as may be appropriate.
       ``(4) Other requirements.--The sponsor shall provide such 
     other information, and comply with such other requirements, 
     as the Secretary may find necessary to administer the program 
     under this section.
       ``(c) Incentive Payments.--
       ``(1) In general.--A sponsor that meets the requirements of 
     subsection (b) with respect to a quarter in a calendar year 
     shall be entitled to have payment made by the Secretary on a 
     quarterly basis (to the sponsor or, at the sponsor's 
     direction, to the appropriate employment-based health plan) 
     of an incentive payment, in the amount determined in 
     paragraph (2), for each retired individual (or spouse) who--
       ``(A) was covered under the sponsor's qualified retiree 
     prescription drug plan during such quarter; and
       ``(B) was eligible for, but was not enrolled in, the 
     outpatient prescription drug benefit program under this part.
       ``(2) Amount of incentive.--The payment under this section 
     with respect to each individual described in paragraph (1) 
     for a month shall be equal to \2/3\ of the monthly premium 
     amount payable by an eligible beneficiary enrolled under this 
     part, as set for the calendar year pursuant to section 
     1860D(a)(2).
       ``(3) Payment date.--The incentive under this section with 
     respect to a calendar quarter shall be payable as of the end 
     of the next succeeding calendar quarter.
       ``(d) Civil Money Penalties.--A sponsor, health plan, or 
     other entity that the Secretary determines has, directly or 
     through its agent, provided information in connection with a 
     request for an incentive payment under this section that the 
     entity knew or should have known to be false shall be subject 
     to a civil monetary penalty in an amount up to 3 times the 
     total incentive

[[Page S161]]

     amounts under subsection (c) that were paid (or would have 
     been payable) on the basis of such information.
       ``(e) Definitions.--In this section:
       ``(1) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage of health care costs for retired 
     individuals (or for such individuals and their spouses and 
     dependents) based on their status as former employees or 
     labor union members.
       ``(2) Employer.--The term `employer' has the meaning given 
     the term in section 3(5) of the Employee Retirement Income 
     Security Act of 1974 (except that such term shall include 
     only employers of 2 or more employees).
       ``(3) Qualified retiree prescription drug plan.--The term 
     `qualified retiree prescription drug plan' means health 
     insurance coverage included in employment-based retiree 
     health coverage that--
       ``(A) provides coverage of the cost of prescription drugs 
     whose actuarial value (as defined by the Secretary) to each 
     retired beneficiary equals or exceeds the actuarial value of 
     the benefits provided to an individual enrolled in the 
     outpatient prescription drug benefit program under this part; 
     and
       ``(B) does not deny, limit, or condition the coverage or 
     provision of prescription drug benefits for retired 
     individuals based on age or any health status-related factor 
     described in section 2702(a)(1) of the Public Health Service 
     Act.
       ``(4) Sponsor.--The term `sponsor' has the meaning given 
     the term `plan sponsor' in section 3(16)(B) of the Employer 
     Retirement Income Security Act of 1974.
       ``(f) Authorization of Appropriations.--There are 
     authorized to be appropriated from time to time, out of any 
     moneys in the Treasury not otherwise appropriated, such sums 
     as may be necessary to carry out the program under this 
     section.


              ``procedures for partial year implementation

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


                            ``appropriations

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

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


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

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

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

       (a) Eligibility, Election, and Enrollment.--Section 1851 of 
     the Social Security Act (42 U.S.C. 1395w-21) is amended--
       (1) in subsection (a)(1)(A), by striking ``parts A and B'' 
     and inserting ``parts A, B, and D''; and
       (2) in subsection (i)(1), by striking ``parts A and B'' and 
     inserting ``parts A, B, and D''.
       (b) Voluntary Beneficiary Enrollment for Drug Coverage.--
     Section 1852(a)(1)(A) of such Act (42 U.S.C. 1395w-
     22(a)(1)(A)) is amended by inserting ``(and under part D to 
     individuals also enrolled under that part)'' after ``parts A 
     and B''.
       (c) Access to Services.--Section 1852(d)(1) of such Act (42 
     U.S.C. 1395w-22(d)(1)) is amended--
       (1) in subparagraph (D), by striking ``and'' at the end;
       (2) in subparagraph (E), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(F) in the case of covered outpatient drugs provided to 
     individuals enrolled under

[[Page S162]]

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

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

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

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

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

     SEC. 7. MEDIGAP REVISIONS.

       Section 1882 of the Social Security Act (42 U.S.C. 1395ss) 
     is amended by adding at the end the following new subsection:
       ``(v) Modernized Benefit Packages for Medicare Supplemental 
     Policies.--
       ``(1) Promulgation of model regulation.--
       ``(A) NAIC model regulation.--If, within 6 months after the 
     date of enactment of the Medicare Prescription Drug Coverage 
     Act of 2001, the National Association of Insurance

[[Page S163]]

     Commissioners (in this subsection referred to as the `NAIC') 
     changes the 1991 NAIC Model Regulation (described in 
     subsection (p)) to revise the benefit packages classified as 
     `H', `I', and `J' under the standards established by 
     subsection (p)(2) (including the benefit package classified 
     as `J' with a high deductible feature, as described in 
     subsection (p)(11)) so that--
       ``(i) the coverage for outpatient prescription drugs 
     available under such benefit packages is replaced with 
     coverage for outpatient prescription drugs that compliments 
     but does not duplicate the benefits for outpatient 
     prescription drugs that beneficiaries are otherwise entitled 
     to under this title;
       ``(ii) the revised benefit packages provide a range of 
     coverage options for outpatient prescription drugs for 
     beneficiaries, but do not provide coverage for--

       ``(I) the deductible under section 1860E(a); or
       ``(II) more than 90 percent of the coinsurance applicable 
     to an individual under section 1860E(b);

       ``(iii) uniform language and definitions are used with 
     respect to such revised benefits;
       ``(iv) uniform format is used in the policy with respect to 
     such revised benefits; and
       ``(v) such revised standards meet any additional 
     requirements imposed by the Medicare Prescription Drug 
     Coverage Act of 2001;
     subsection (g)(2)(A) shall be applied in each State, 
     effective for policies issued to policy holders on and after 
     the date that is 1 year after the date of enactment of the 
     Medicare Prescription Drug Coverage Act of 2001, as if the 
     reference to the Model Regulation adopted on June 6, 1979, 
     were a reference to the 1991 NAIC Model Regulation as changed 
     under this subparagraph (such changed regulation referred to 
     in this section as the `2002 NAIC Model Regulation').
       ``(B) Regulation by the secretary.--If the NAIC does not 
     make the changes in the 1991 NAIC Model Regulation within the 
     6-month period specified in subparagraph (A), the Secretary 
     shall promulgate, not later than 6 months after the end of 
     such period, a regulation and subsection (g)(2)(A) shall be 
     applied in each State, effective for policies issued to 
     policy holders on and after the date that is 1 year after the 
     date of enactment of the Medicare Prescription Drug Coverage 
     Act of 2001, as if the reference to the Model Regulation 
     adopted on June 6, 1979, were a reference to the 1991 NAIC 
     Model Regulation as changed by the Secretary under this 
     subparagraph (such changed regulation referred to in this 
     section as the `2002 Federal Regulation').
       ``(C) Consultation with working group.--In promulgating 
     standards under this paragraph, the NAIC or Secretary shall 
     consult with a working group similar to the working group 
     described in subsection (p)(1)(D).
       ``(D) Modification of standards if medicare benefits 
     change.--If benefits (including deductibles and coinsurance) 
     under part D of this title are changed and the Secretary 
     determines, in consultation with the NAIC, that changes in 
     the 2002 NAIC Model Regulation or 2002 Federal Regulation are 
     needed to reflect such changes, the preceding provisions of 
     this paragraph shall apply to the modification of standards 
     previously established in the same manner as they applied to 
     the original establishment of such standards.
       ``(2) Construction of benefits in other medicare 
     supplemental policies.--Nothing in the benefit packages 
     classified as `A' through `G' under the standards established 
     by subsection (p)(2) (including the benefit package 
     classified as `F' with a high deductible feature, as 
     described in subsection (p)(11)) shall be construed as 
     providing coverage for benefits for which payment may be made 
     under part D.
       ``(3) Application of provisions and conforming 
     references.--
       ``(A) Application of provisions.--The provisions of 
     paragraphs (4) through (10) of subsection (p) shall apply 
     under this section, except that--
       ``(i) any reference to the model regulation applicable 
     under that subsection shall be deemed to be a reference to 
     the applicable 2002 NAIC Model Regulation or 2002 Federal 
     Regulation; and
       ``(ii) any reference to a date under such paragraphs of 
     subsection (p) shall be deemed to be a reference to the 
     appropriate date under this subsection.
       ``(B) Other references.--Any reference to a provision of 
     subsection (p) or a date applicable under such subsection 
     shall also be considered to be a reference to the appropriate 
     provision or date under this subsection.''.

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

       (a) In General.--Section 1861(s)(2)(J) of the Social 
     Security Act (42 U.S.C. 1395x(s)(2)(J)), as amended by 
     section 113(a) of the Medicare, Medicaid, and SCHIP Benefits 
     Improvement and Protection Act of 2000 (as enacted into law 
     by section 1(a)(6) of Public Law 106-554), is amended by 
     striking ``, to an individual who receives'' and all that 
     follows before the semicolon at the end and inserting ``to an 
     individual who has received an organ transplant''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to drugs furnished on or after the date of 
     enactment of this Act.

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

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

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

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

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

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

     SEC. 12. APPROPRIATIONS.

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