[Congressional Record Volume 147, Number 71 (Tuesday, May 22, 2001)]
[Senate]
[Pages S5444-S5455]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WELLSTONE:
  S. 925. A bill to amend the title XVIII of the Social Security Act to 
provide a prescription benefit program for all medicare beneficiaries; 
to the Committee on Finance.
  Mr. WELLSTONE. Mr. President, I rise to introduce long overdue 
legislation that will bring affordable prescription drugs to all 
Medicare beneficiaries. This legislation is the Medicare Extension of 
Drugs to Seniors, MEDS, Act of 2001.
  For a good period of the time that I have been a Senator, the Federal 
Government has operated with budget deficits. The goal during that 
period was deficit reduction, while protecting the programs that are 
important for people. I had hoped that when the economy began to do 
better, and we began to see surpluses, that finally, as a Senator from 
Minnesota, I would be able to do really well for people. It would not 
just be stopping the worst, it would be doing the better.
  Unfortunately, what we have this year in Washington instead is a 
choice. Either you are in favor of Robin-Hood-in-reverse tax cuts, with 
as much as 40 percent of the benefits going to the top 1 percent of 
earners. Or you are in favor of making an investment above and beyond 
reducing the debt and protecting Social Security and Medicare. I am one 
who favors making investments in people, for making sure that there is 
opportunity for all, quality education for all our children and young 
people, quality and affordable housing, that we honor our commitments 
to our veterans, that we reform mental health and achieve parity for 
mental health and addiction treatment services, that we help women out 
of domestic violence. And that we make sure that the senior citizens 
who built this country are able to afford prescription drugs.
  Everyone in Congress knows there is a need for more affordable 
prescription drugs. Everyone in Congress knows that the surplus is 
large enough to afford both a fair tax cut and better prescription drug 
coverage for seniors. The surplus is largely thanks to sound budget 
decisions made in the early 1990s, which promoted economic growth and 
greatly expanded tax revenues. Those surpluses now make it not only 
possible, but imperative that we address the prescription drug cost 
crisis. We must remember that Congress also made mistakes during the 
1990s. The Balanced Budget Act of 1997 brought cuts in Medicare 
spending, cuts that I opposed and that will total over $600 billion. It 
is only fair, now that there is a surplus, to return those cuts in 
health care spending back into the health care system where there is 
need. And I don't have to tell colleagues about the need. We all know 
it from our own families and our constituents.
  When Medicare was first enacted in 1965 the program ``mimicked'' 
typical private insurance which often did not include outpatient 
prescription drugs. Times have changed, but in that regard Medicare has 
not. Virtually all employment based insurance now includes outpatient 
prescription drug coverage. Fully 99 percent of state and local 
government employees have this coverage. The federal employees program 
requires all plans to cover out patient prescription drugs, and 
Medicaid in every state does the same. Its time to bring Medicare up to 
date with a prescription drug plan available to all beneficiaries.
  You don't have to tell people that prescription drugs are the largest 
out-of-pocket health care cost for seniors. They know. Over 85 percent 
of Medicare beneficiaries take at least one prescription medicine, and 
the average senior citizen fills eighteen prescriptions per year. 
Nationally, more than half of the cost of these drugs comes directly 
out of seniors' pockets. In Minnesota the number is even higher. 
Seniors who cannot afford drug coverage often do not take the drugs 
their doctors prescribe. One of every eight senior citizens at some 
time is forced to choose between buying food and buying medicine. 
That's not right.
  Charles Van Guilder, a Minnesota senior, was faced with the 
devastating option of having to divorce his wife in order to protect 
their assets which might be stripped away by high-rising Medicare HMO 
costs. Struggling with Parkinson's Disease, she was faced with an $850 
monthly charge for prescription drugs and home health premiums.
  Rose Grigsby was faced with a choice of living in Arizona where 
because of disparities in Medicare + Choice reimbursements she payed 
$17.50 a month for her healthcare including prescription drugs and even 
a health club membership and moving back home to Minnesota where she 
would have to pay $270 a month for 80 percent drug coverage. Despite 
wanting to be with family, she couldn't afford to move. Where's the 
fairness in that? It is time we add prescription drug coverage to 
Medicare so it is available on an equal basis to every senior in every 
state.
  The drug industry America's most profitable has never wanted a 
prescription drug benefit included in Medicare.

[[Page S5445]]

The industry is interested in protecting its very large profits. The 
most recent annual Fortune 500 report on American business showed once 
again as it has in each of the last 19 years that the pharmaceutical 
industry ranks first in profits. In the words of the editors of Fortune 
Magazine, ``Whether you gauge profitability by median return on 
revenues, assets or equity, pharmaceuticals had a Viagra kind of 
year.''
  Where the average Fortune 500 industry in the United States returned 
5 percent profits as a percentage of revenue, the pharmaceutical 
industry returned 18.6 percent. Where the average Fortune 500 industry 
returned 3.8 percent profits as a percentage of their assets, the 
pharmaceutical industry returned 16.5 percent. Where the average 
Fortune 500 industry returned 15 percent profits as a percentage of 
shareholders equity, the pharmaceutical industry returned 36 percent.
  The richest pharmaceutical company, Merck, pulled in nearly $6 
billion in profits, more than the entire Fortune 500 airline industry 
and registered twice the profits of the engineering construction 
industry. The 12 major companies of the pharmaceutical industry made 
$10 Billion more in total profits than the 24 companies of the motor 
vehicle and parts industry, including Ford, GM and others.
  Those record profits are no surprise to America's senior citizens. 
Medicare beneficiaries without prescription drug coverage are being 
gouged every day of the week by a pharmaceutical industry that charges 
higher prices in the United States than in any other country of the 
world. So, America's seniors know where those record profits come 
from--they come from their own pocketbooks.

  Year after year, the pharmaceutical industry rakes in record profits, 
much at the expense of America's most vulnerable citizens: the elderly, 
frail and ill. The high price of drugs forces seniors to chose between 
food and life preserving medications. Last year, when a Medicare 
prescription drug benefit available to all Senior Citizens seemed 
within reach, the pharmaceutical industry dipped into its coffers and 
forked over millions of dollars to fund a stealth campaign to defeat 
any such proposal.
  Nowhere in its campaign against a Medicare prescription drug benefit 
did the pharmaceutical industry tell people that it was the 
prescription-drug companies that were paying for the campaign. The 
industry's front organization is called Citizens for Better Medicare. 
That is like Foxes for Better Chickens. A more accurate description 
would be Pharmaceutical Companies for Higher Profits. But drug 
companies would rather hide behind a false shield, count their profits 
and count the ways they can continue to extract high profits from the 
American public, especially from the elderly.
  Indeed, according to a report from the Boston University School of 
Public Health, the pharmaceutical industry has encouraged the spread of 
seven interlocking myths that have ``permeated, paralyzed and 
poisoned'' public discourse of prescription drug policy. Let me just 
share 2 of those myths:
  Myth #1: High prices and profits are bestowed on the drug industry by 
a legitimate and bountiful free market. In reality, little of a free 
market is present in the world of patented prescription drugs. Today's 
prices and profits are therefore not justified by a legitimate free 
market.
  Myth #2: If government interferes with today's high price and 
profits, ``The lights go out in the labs, and there is no R&D,'' 
according to PhRMA, the drug industry's lobbying arm. As the Boston 
University researchers noted, that is like saying ``give us all of your 
money or we'll let you die.'' The researchers call that PhRMA's Fog of 
Fear. But the reality is the drug makers' profit-maximization is not to 
increase research. The facts are: Analysis of 1999 data shows that the 
six major drug makers spent 11 percent of their revenue on research and 
development, while 16 percent went to profits and 31 percent went to 
marketing and administration. These data closely parallel those 
collected in earlier years. Looking at the main task of drug company 
employees, as of June 1998: Fully 35 percent of drug makers' employees 
were engaged in marketing, with an additional 13 percent in 
administration. Producing and developing drugs each occupied only about 
one-quarter of employees. Looking at changes in employment of PhRMA 
members, from 1995 to 1999: The number of production workers fell, 
research workers rose slightly, while marketing employment rose by one-
third.
  The fact is there is plenty of room for the pharmaceutical industry 
to make a good profit without gouging the American consumer.
  The fact also is that with each passing year, the need for Medicare 
prescription drug coverage has become more acute. The reasons are well 
known.
  First, the cost of prescription drugs has skyrocketed in recent 
years. Direct to consumer advertising has increased demand, and drug 
companies have responded by raising prices and putting life saving 
drugs even further out of reach of the average senior citizen. Last 
year alone drug prices increased an estimated 17 percent. And there is 
no relief in sight. This year drug costs will increase another 18 
percent.
  Second, these increases hit seniors disproportionately: A 1998 study 
by the minority staff of the House Government Reform Committee found 
that older Americans without prescription drug insurance pay on average 
twice as much as the discounted prices drug companies offer large scale 
purchasers like HMOs and government agencies. The PRIME Institute, 
headed by Steve Schondelmeyer, at the University of Minnesota found 
what Minnesota seniors already know, that pharmaceutical prices 
overseas are far less then we pay in the United States. Statistics say 
that for every dollar we spend in the United States, Canadians spend on 
average just 64 cents; Italians spend just 51 cents; the English 65 
cents and Swedes 68 cents. They say statistics often lie. Well, from 
what I have seen and heard, the drugs seniors need most are even more 
expensive in the United States than those statistics tell us. Even more 
astounding than the average figures are some specific comparisons: 
Synthroid for thyroid disease costs seniors 14 times the discounted 
price to favored customers; and Micronase for diabetes costs over 3\1/
2\ times as much. So not only are seniors forced the pay out of pocket 
for these drugs, but the price they are charged is a national disgrace.
  Furthermore, prescription drug spending accounts for 19 percent of 
the out of pocket costs for senior citizens and is the largest spending 
category after premium payments. Beneficiaries were projected to spend 
an average of $480 out-of-pocket on prescription drugs in 2000. Average 
out-of-pocket prescription drug spending is even higher for 
beneficiaries in poor health, $685, those without drug coverage, $715, 
and those who are severely limited in their activities of daily living, 
$725.
  The high cost of drugs puts Americans in all income groups at risk. 
Of those seniors with incomes below 250 percent of poverty about 38 
percent, 7.6 million, lack Rx drug coverage. Of those with higher 
incomes 28 percent, 5.4 million, have no drug coverage.
  The increase in drugs cost and utilization is far outpacing the 
overall increase in the cost of living. A national study by Brandeis 
University and PCS Health Systems published in May 2000 found that 
prescription drug expenditure trends were even higher than previously 
estimated. They found that: Prescription drug costs grew at an annual 
rate of 24.8 percent per year from 1996 to 1999. Prescriptions per 
enrollee grew 14 percent per year. And not surprisingly, the number of 
prescriptions per person is rising fastest in the 65+ age group, from 
an average of 16 prescriptions in 1996 to an average of 23 by 1999.
  Rural Americans are hardest hit of all. In June 2000 the National 
Economic Council published a report on prescription drug coverage for 
rural Medicare beneficiaries. Among its findings: Rural beneficiaries 
are over 60 percent more likely to fail to get needed prescription 
drugs due to cost. A greater proportion of rural elderly spend a 
greater percent of their income on prescription drugs. Rural 
beneficiaries use nearly 10 percent more prescriptions. Rural 
beneficiaries pay over 25 percent more out-of-pocket for prescription 
drugs than urban beneficiaries but they are 50 percent less likely to 
have any prescription drug coverage.

[[Page S5446]]

  For Minnesotans, the lack of a Medicare prescription drug benefit 
hits especially hard because there are few alternatives. Only 19 
percent of Minnesota firms offer retiree health insurance and the 
number has been dropping. Medicare's HMO reimbursement in Minnesota is 
so low that no basic Medicare Managed Care Plans can include Rx Drug 
coverage. Even with the increased Medicare + Choice capitation payment 
floor we voted in last year, it is not enough for these plans to offer 
prescription drug coverage. When a comprehensive benefit without a cap 
is available, the costs become prohibitive--up to $130 per month, just 
for the pharmacy benefit. The cost of prescription drug coverage under 
the average Medigap policy in Minnesota is $90 per month, and that is 
only for limited benefits. Because of this, in Minnesota, 65 percent of 
seniors have no prescription drug coverage. That's twice the national 
average. But the fact is over half of the Seniors in the United States 
have either no prescription drug coverage or totally inadequate 
coverage.
  Both the high cost of drugs and lack of coverage have severe 
consequences. People discontinue their medications against medical 
advice, thereby placing themselves at risk for problems like heart 
attacks, cancer recurrence, depression and complications of diabetes. 
People lower the dose they take to make their prescriptions last 
longer. When I was in Duluth, Minnesota, meeting with seniors to 
discuss this very issue, one of my constituents told me about a 
neighbor who cut his pills in quarters because he couldn't afford to 
refill the prescription and wound up with an unnecessary 
hospitalization. People take their medicines as prescribed but then 
skimp on food and other necessities. Ray Erlandson, a retired steel 
worker from West Duluth was at that meeting in Duluth. Ray was spending 
about $300 a month for prescription drugs for he and his wife. He had 
nearly run out of savings. What does Ray say? ``People have to choose 
between food and buying their drugs. That shouldn't happen in this 
country. It's a dirty rotten shame. I'd like to ask the VIPs of the 
drug companies, Do you go to church? Do you know what you are doing to 
the elderly people?''
  How can the richest country on earth force its senior citizens to 
choose between the medicines they need to survive and the foods they 
need to stay healthy? We shouldn't allow it. The answer is to provide a 
prescription drug benefit for all seniors that includes a pricing 
policy that keeps costs affordable.
  In the 1960s when barely half the nation's senior citizens could 
afford health insurance, and far more were at risk for the loss of 
their life savings, we as a country responded and created Medicare.
  Today, at the beginning of a new century, when only half the nation's 
seniors--at best--have close to adequate prescription drug coverage, we 
are again called upon as a nation to respond. The beauty of it all is 
that we have a surplus that allows us to respond with a prescription 
drug program that we can all be proud of. The tragedy of it all is that 
we are not doing it. We have an administration that is more concerned 
with giving huge tax cuts to the wealthiest 1 percent of Americans than 
it is with providing the life sustaining medications our seniors need. 
We have a pharmaceutical industry that is more concerned with 
maximizing profits and making campaign contributions than it is with 
maximizing access to life saving medications and making prescription 
drugs affordable.
  The administration's prescription drug proposal is a clear 
demonstration of just where their priorities are. Republicans want to 
give $550 billion in tax cuts just to the wealthiest 1 percent of 
American families, leaving a pittance for Medicare prescription drugs. 
And the effect of those priorities will be seen in their as yet 
undisclosed plan: high premiums for beneficiaries; high deductibles, up 
to $2000; high co-pay; or a benefit available to only a fraction of the 
seniors who need it. In short, a benefit that isn't worth much. 
Millions of seniors will be left still holding the bag. You can't 
provide the kind of Medicare Rx Drug benefit that everyone on Medicare 
deserves with a tin-cup budget.

  Any meaningful prescription drug benefit passed by this Congress 
should reflect key principles: universality; low cost to beneficiaries; 
and serious efforts to reduce the price of prescription drugs. To 
remedy the high cost of prescription drugs and to provide comprehensive 
coverage, I am proud to introduce the Medicare Extension of Drugs to 
Seniors, MEDS, Act of 2001.
  Specifically, under this proposal, seniors and the disabled would 
have a 20-percent co-pay on all prescription drugs and a small, $24 
monthly premium. Every person would receive the same voluntary benefit, 
regardless of income or geographical location. Under the MEDS plan, no 
beneficiary would ever have to spend more than $2,000 out-of-pocket on 
their medications. Low-income beneficiaries would have no out-of-pocket 
expense. By contrast, other plans that have been proposed would have 
seniors paying up to $6,000 a year. Still, they would not necessarily 
cover everyone currently eligible for Medicare
  How can the MEDS plan provide such a strong benefit without busting 
the budget? By including provisions which seriously address the 
outrageously high prices that Americans are forced to pay for 
prescription drugs.
  First, the MEDS plan includes strong, loophole-free language to allow 
American pharmacists, wholesalers and distributors to purchase FDA-
approved prescription drugs at the lower prices charged abroad. Last 
year, a version of this legislation passed both Houses of Congress with 
solid bipartisan majorities. Unfortunately, at the last minute, the 
pharmaceutical industry was successful in adding loopholes to the bill 
that essentially make it unworkable. With strong reimportation language 
like that included in the MEDS plan, Americans would save 30-50 percent 
on the price of prescription drugs without any government subsidy.
  Second, the MEDS plan includes a provision, originally proposed by 
Representative Tom Allen, that would permit Medicare beneficiaries to 
purchase their prescription drugs at the same price other government 
agencies such as the VA does. MEDS also creates a so-called ``global 
budget'' which would allow Medicare to negotiate on behalf of all 
Medicare beneficiaries and work to restrain costs in the long term.
  Finally, the MEDS plan would ensure that when taxpayers foot the bill 
for research and development of a prescription drug, the pharmaceutical 
industry must offer that drug at a fair and reasonable price. Today, 
the federal government spends billions of dollars a year on research 
and development of medicines. Most often, this R&D is then given over 
to the pharmaceutical industry, which charges Americans any price they 
want for the final product. If we change this absurd system, we would 
ensure that new medicines would be affordable in the years ahead.
  You can expect the pharmaceutical industry to protest loudly. And you 
can expect the industry to increase its campaign contributions, which 
totaled $19 million last year alone, its lobbying spending, which 
reached $91 million in 1999, and its advertising budget.
  It is interesting. One pharmaceutical company executive recently said 
that no senior citizen should be forced to choose between his or her 
prescription and other vital needs. But the high prices his company 
charges and the high-priced lobbyists who do its bidding on Capitol 
Hill are forcing that very choice on many senior citizens. While paying 
lip service to seniors, according to a published news story, that same 
executive was earning over $6 million in salary, plus stock options 
worth more than $10 million.
  The drug companies will say that reductions in price will dry up 
research. I believe that is nonsense. Drug companies put billions more 
dollars into profits, marketing and administration than they do into 
research, based on information in their own annual reports. Just how 
hard would this most profitable of American industries be hit if we 
enacted a universal Medicare prescription drug benefit that required 
the drug companies to offer seniors the best price they now offer other 
Federal government programs? According to Merrill Lynch, only by about 
3 percent.
  In a June 23, 1999 report entitled A Medicare Drug Benefit: May Not 
Be So Bad, Merrill Lynch debunked the notion that a Medicare 
prescription drug benefit would seriously damage the

[[Page S5447]]

pharmaceutical industry's profitability. Merrill Lynch's analysis 
concludes that the toughest proposal on the table in Washington, the 
Prescription Drug Fairness for Seniors Act, (The Allen Bill), the 
provisions of which are included in this bill, and which provides a 40 
percent discount on drug costs for all 39 million Medicare 
beneficiaries, would cut just 3.3 percent from total pharmaceutical 
industry revenues because volume increases would offset much of the 
lost revenue due to the lower prices. According to Merrill Lynch: 
Volume is more important than price in driving pharmaceutical company 
sales growth. Between 1994 and 1998, the impact of volume on sales 
growth outpaced price by better than a 4-to-1 ratio. Medicare 
beneficiaries who either lack or have inadequate drug coverage 
underutilize prescription drugs because they cannot afford them. With a 
40-percent price discount, the one-third of beneficiaries who lack any 
drug coverage would increase their consumption by 45 percent, and the 
two-thirds with some coverage would see a 10-percent increase in drug 
purchases. This increased utilization reduces the lost revenue that 
would otherwise result from a 40-percent price discount for Medicare 
beneficiaries by almost one-half. Without adjusting for volume 
increases, a 40-percent price discount for Medicare beneficiaries would 
reduce total pharmaceutical industry revenues by 5.9 percent. But after 
adjusting for increased utilization, the net drop in sales is just 3.3 
percent. And that is from just a reduction in price, not an increase in 
coverage. If you factor in the coverage provided by the MEDS Act which 
all Seniors will have, drug company revenues will increase.
  It is time to get our priorities straight. Millions of hard-working 
Americans go to work every day and pay their taxes so that when they 
hit 65, they can retire in a country they can be proud of, a country 
that offers basic security for all an even better life for their 
children. Each day they read in the paper about scientific 
breakthroughs: the genome project and new advances in the treatment of 
cancer, heart disease, and diabetes, all being carried out at the 
National Institutes of Health, one of our nation's jewels. They turn on 
the television and see drug company advertisements that extol new and 
expensive medications. But what good is that medical research and those 
expensive drugs if they are unaffordable and out of reach of millions 
of Americans. That is the situation we have today. And it is 
unacceptable!
  The time has come to support a comprehensive, affordable, 20-percent 
co-pay, $2000-cap, prescription drug benefit for all seniors, a plan 
that does not favor the health insurance or pharmaceutical industries 
over our own parents and grandparents. The MEDS Act provides such a 
benefit, and I ask my colleagues to join me in supporting this 
legislation.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 925

       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 
     Extension of Drugs to Seniors (MEDS) Act of 2001''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Prescription medicine benefit program.

   ``Part D--Prescription Medicine Benefit for the Aged and Disabled

``Sec. 1860. Establishment of prescription medicine benefit program for 
              the aged and disabled.
``Sec. 1860A. Scope of benefits.
``Sec. 1860B. Payment of benefits; benefit limits.
``Sec. 1860C. Eligibility and enrollment.
``Sec. 1860D. Premiums.
``Sec. 1860E. Special eligibility, enrollment, and copayment rules for 
              low-income individuals.
``Sec. 1860F. Prescription Medicine Insurance Account.
``Sec. 1860G. Administration of benefits.
``Sec. 1860H. Employer incentive program for employment-based retiree 
              medicine coverage.
``Sec. 1860I. Promotion of pharmaceutical research on break-through 
              medicines while providing program cost containment.
``Sec. 1860J. Appropriations to cover Government contributions.
``Sec. 1860K. Prescription medicine defined.''.
Sec. 4. Substantial reductions in the price of prescription drugs for 
              medicare beneficiaries.
Sec. 5. Amendments to program for importation of certain prescription 
              drugs by pharmacists and wholesalers.
Sec. 6. Reasonable price agreement for federally funded research.
Sec. 7. GAO ongoing studies and reports on program; miscellaneous 
              reports.
Sec. 8. Medigap transition provisions.

     SEC. 2. FINDINGS.

       Congress makes the following findings:
       (1) Prescription medicine 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, medicine 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 medicine coverage at all.
       (3) Seniors who do not have medicine coverage typically 
     pay, at a minimum, 15 percent more than people with coverage.
       (4) Medicare beneficiaries at all income levels lack 
     prescription medicine coverage, with more than \1/2\ of such 
     beneficiaries having incomes greater than 150 percent of the 
     poverty line.
       (5) The number of private firms offering retiree health 
     coverage is declining.
       (6) Medigap premiums for medicines are too expensive for 
     most beneficiaries and are highest for older senior citizens, 
     who need prescription medicine coverage the most and 
     typically have the lowest incomes.
       (7) All medicare beneficiaries should have access to a 
     voluntary, reliable, affordable, and defined outpatient 
     medicine benefit as part of the medicare program that assists 
     with the high cost of prescription medicines and protects 
     them against excessive out-of-pocket costs.

     SEC. 3. PRESCRIPTION MEDICINE BENEFIT PROGRAM.

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

   ``Part D--Prescription Medicine Benefit for the Aged and Disabled


 ``establishment of prescription medicine benefit program for the aged 
                              and disabled

       ``Sec. 1860. There is established a voluntary insurance 
     program to provide prescription medicine benefits, including 
     pharmacy services, in accordance with the provisions of this 
     part for individuals who are aged or disabled or have end-
     stage renal disease and who elect to enroll under such 
     program, to be financed from premium payments by enrollees 
     together with contributions from funds appropriated by the 
     Federal Government.


                          ``scope of benefits

       ``Sec. 1860A. (a) In General.--The benefits provided to an 
     individual enrolled in the insurance program under this part 
     shall consist of--
       ``(1) payments made, in accordance with the provisions of 
     this part, for covered prescription medicines (as specified 
     in subsection (b)) dispensed by any pharmacy participating in 
     the program under this part (and, in circumstances designated 
     by the Secretary, by a nonparticipating pharmacy), including 
     any specifically named medicine prescribed for the individual 
     by a qualified health care professional regardless of whether 
     the medicine is included in any formulary established under 
     this part if such medicine is certified as medically 
     necessary by such health care professional (except that the 
     Secretary shall encourage to the maximum extent possible the 
     substitution and use of lower-cost generics), up to the 
     benefit limits specified in section 1860B; and
       ``(2) charging by pharmacies of the negotiated price--
       ``(A) for all covered prescription medicines, without 
     regard to such benefit limit; and
       ``(B) established with respect to any drugs or classes of 
     drugs described in subparagraphs (A), (B), (D), (E), or (F) 
     of section 1927(d)(2) that are available to individuals 
     receiving benefits under this title.
       ``(b) Covered Prescription Medicines.--
       ``(1) In general.--Covered prescription medicines, for 
     purposes of this part, include all prescription medicines (as 
     defined in section 1860K(1)), including smoking cessation 
     agents, except as otherwise provided in this subsection.
       ``(2) Exclusions from coverage.--Covered prescription 
     medicines shall not include drugs or classes of drugs 
     described in subparagraphs (A) through (D) and (F) through 
     (H) of section 1927(d)(2) unless--
       ``(A) specifically provided otherwise by the Secretary with 
     respect to a drug in any of such classes; or
       ``(B) a drug in any of such classes is certified to be 
     medically necessary by a health care professional.
       ``(3) Exclusion of prescription medicines to the extent 
     covered under part a or b.--

[[Page S5448]]

     A medicine prescribed for an individual that would otherwise 
     be a covered prescription medicine under this part shall not 
     be so considered to the extent that payment for such medicine 
     is available under part A or B, including all injectable 
     drugs and biologicals for which payment was made or should 
     have been made by a carrier under section 1861(s)(2) (A) or 
     (B) as of the date of enactment of the Medicare Extension of 
     Drugs to Seniors (MEDS) Act of 2001. Medicines otherwise 
     covered under part A or B shall be covered under this part to 
     the extent that benefits under part A or B are exhausted.
       ``(4) Study on inclusion of home infusion therapy 
     services.--Not later than 1 year after the date of enactment 
     of the Medicare Extension of Drugs to Seniors (MEDS) Act of 
     2001, the Secretary shall submit to Congress a legislative 
     proposal for the delivery of home infusion therapy services 
     under this title and for a system of payment for such a 
     benefit that coordinates items and services furnished under 
     part B and under this part.


                 ``payment of benefits; benefit limits

       ``Sec. 1860B. (a) Payment of Benefits.--
       ``(1) In general.--There shall be paid from the 
     Prescription Medicine Insurance Account within the 
     Supplementary Medical Insurance Trust Fund, in the case of 
     each individual who is enrolled in the insurance program 
     under this part and who purchases covered prescription 
     medicines in a calendar year--
       ``(A) with respect to costs incurred for covered 
     prescription medicine furnished during a year, before the 
     individual has incurred out-of-pocket expenses under this 
     subsection equal to the catastrophic out-of-pocket limit 
     specified in subsection (b), an amount equal to the 
     applicable percentage (specified in paragraph (2)) of the 
     negotiated price for each such covered prescription medicine 
     or such higher percentage as is proposed under section 
     1860G(b)(7); and
       ``(B) with respect to costs incurred for covered 
     prescription medicine furnished during a year, after the 
     individual has incurred out-of-pocket expenses under this 
     subsection equal to the catastrophic out-of-pocket limit 
     specified in subsection (b), an amount equal to 100 percent 
     of the negotiated price for each such covered prescription 
     medicine.
       ``(2) Applicable percentage.--The applicable percentage 
     specified in this paragraph is 80 percent or such higher 
     percentage as is proposed under section 1860G(b)(7), if the 
     Secretary finds that such higher percentage will not increase 
     aggregate costs to the Prescription Medicine Insurance 
     Account.
       ``(b) Catastrophic Limit on Out-of-Pocket Expenses.--
       ``(1) In general.--The catastrophic limit on out-of-pocket 
     expenses specified in this subsection for--
       ``(A) for each of calendar years 2003 and 2004, $2,000; and
       ``(B) subject to paragraph (2), for calendar year 2005 and 
     each subsequent calendar year is equal to the limit for the 
     preceding year under this paragraph adjusted by the 
     sustainable growth rate percentage (determined under section 
     1861I(b)) for the year involved.
       ``(2) Rounding.--Any amount determined under paragraph 
     (1)(E) that is not a multiple of $10 shall be rounded to the 
     nearest multiple of $10.


                      ``eligibility and enrollment

       ``Sec. 1860C. (a) Eligibility.--Every individual who, in or 
     after 2003, is entitled to hospital insurance benefits under 
     part A or enrolled in the medical insurance program under 
     part B is eligible to enroll, in accordance with the 
     provisions of this section, in the insurance program under 
     this part, during an enrollment period prescribed in or under 
     this section, in such manner and form as may be prescribed by 
     regulations.
       ``(b) Enrollment.--
       ``(1) In general.--Each individual who satisfies subsection 
     (a) shall be enrolled (or eligible to enroll) in the program 
     under this part in accordance with the provisions of section 
     1837, as if that section applied to this part, except as 
     otherwise explicitly provided in this part.
       ``(2) Single enrollment period.--Except as provided in 
     section 1837(i) (as such section applies to this part), 
     1860E, or 1860H(e), or as otherwise explicitly provided, no 
     individual shall be entitled to enroll in the program under 
     this part at any time after the initial enrollment period 
     without penalty, and in the case of all other late 
     enrollments, the Secretary shall develop a late enrollment 
     penalty for the individual that fully recovers the 
     additional actuarial risk involved providing coverage for 
     the individual.
       ``(3) Special enrollment period for 2003.--
       ``(A) In general.--An individual who first satisfies 
     subsection (a) in 2003 may, at any time on or before December 
     31, 2003--
       ``(i) enroll in the program under this part; and
       ``(ii) enroll or reenroll in such program after having 
     previously declined or terminated enrollment in such program.
       ``(B) Effective date of coverage.--An individual who 
     enrolls under the program under this part pursuant to 
     subparagraph (A) shall be entitled to benefits under this 
     part beginning on the first day of the month following the 
     month in which such enrollment occurs.
       ``(c) Period of Coverage.--
       ``(1) In general.--Except as otherwise provided in this 
     part, an individual's coverage under the program under this 
     part shall be effective for the period provided in section 
     1838, as if that section applied to the program under this 
     part.
       ``(2) Part d coverage terminated by termination of coverage 
     under parts a and b.--In addition to the causes of 
     termination specified in section 1838, an individual's 
     coverage under this part shall be terminated when the 
     individual retains coverage under neither the program under 
     part A nor the program under part B, effective on the 
     effective date of termination of coverage under part A or (if 
     later) under part B.


                               ``premiums

       ``Sec. 1860D. (a) Annual Establishment of Monthly Premium 
     Rates.--
       ``(1) In general.--The Secretary shall, during September of 
     2002 and of each succeeding year, determine and promulgate a 
     monthly premium rate for the succeeding year in accordance 
     with the provisions of this subsection.
       ``(2) Initial premiums.--For months in 2003, the monthly 
     premium rate under this subsection shall be--
       ``(A) $24, in the case of premiums paid by an individual 
     enrolled in the program under this part; and
       ``(B) $32, in the case of premiums paid for such an 
     individual by a former employer (as defined in section 
     1860H(f)(2)).
       ``(3) Subsequent years.--
       ``(A) In general.--For months in a year after 2003, the 
     monthly premium under this subsection shall be (subject to 
     subparagraph (B)) the monthly premium (computed under this 
     subsection without regard to subparagraph (B)) for the 
     previous year increased by the annual percentage increase in 
     average per capita aggregate expenditures for covered 
     outpatient medicines in the United States for medicare 
     beneficiaries, as estimated and published by the Secretary in 
     September before the year and for the year involved.
       ``(B) Rounding.--The monthly premium determined under 
     subparagraph (A) shall be rounded to the nearest multiple of 
     10 cents if it is not a multiple of 10 cents.
       ``(C) Publication of assumptions.--The Secretary shall 
     publish, together with the promulgation of the monthly 
     premium rates under this paragraph, a statement setting forth 
     the actuarial assumptions and bases employed in arriving at 
     the monthly premium under subparagraph (A).
       ``(b) Payment of Premiums.--
       ``(1) Payments by deduction from social security, railroad 
     retirement benefits, or benefits administered by opm.--
       ``(A) Deduction from benefits.--In the case of an 
     individual who is entitled to or receiving benefits as 
     described in subsection (a), (b), or (d) of section 1840, 
     premiums payable under this part shall be collected by 
     deduction from such benefits at the same time and in the same 
     manner as premiums payable under part B are collected 
     pursuant to section 1840.
       ``(B) Transfers to prescription medicine insurance 
     account.--The Secretary of the Treasury shall, from time to 
     time, but not less often than quarterly, transfer premiums 
     collected pursuant to subparagraph (A) to the Prescription 
     Medicine Insurance Account from the appropriate funds and 
     accounts described in subsections (a)(2), (b)(2), and (d)(2) 
     of section 1840, on the basis of the certifications described 
     in such subsections. The amounts of such transfers shall be 
     appropriately adjusted to the extent that prior transfers 
     were too great or too small.
       ``(2) Direct payments to secretary.--
       ``(A) Additional payment by enrollee.--An individual to 
     whom paragraph (1) applies (other than an individual 
     receiving benefits as described in section 1840(d)) and who 
     estimates that the amount that will be available for 
     deduction under such paragraph for any premium payment period 
     will be less than the amount of the monthly premiums for such 
     period may (under regulations) pay to the Secretary the 
     estimated balance, or such greater portion of the monthly 
     premium as the individual chooses.
       ``(B) Payments by other enrollees.--An individual enrolled 
     in the insurance program under this part with respect to whom 
     none of the preceding provisions of this subsection applies 
     (or to whom section 1840(c) applies) shall pay premiums to 
     the Secretary at such times and in such manner as the 
     Secretary shall by regulations prescribe.
       ``(C) Deposit of premiums.--Amounts paid to the Secretary 
     under this paragraph shall be deposited in the Treasury to 
     the credit of the Prescription Medicine Insurance Account 
     in the Supplementary Medical Insurance Trust Fund.
       ``(c) Certain Low-Income Individuals.--For rules concerning 
     premiums for certain low-income individuals, see section 
     1860E.


 ``special eligibility, enrollment, and copayment rules for low-income 
                              individuals

       ``Sec. 1860E. (a) State Agreements for Coverage.--
       ``(1) In general.--The Secretary shall, at the request of a 
     State, enter into an agreement with the State under which all 
     individuals described in paragraph (2) are enrolled in the 
     program under this part, without regard to whether any such 
     individual has previously declined the opportunity to enroll 
     in such program.
       ``(2) Eligibility groups.--The individuals described in 
     this paragraph, for purposes of paragraph (1), are 
     individuals who satisfy section 1860C(a) and who are--
       ``(A)(i) eligible individuals within the meaning of section 
     1843; and

[[Page S5449]]

       ``(ii) in a coverage group or groups permitted under 
     section 1843 (as selected by the State and specified in the 
     agreement); or
       ``(B) qualified medicare medicine beneficiaries (as defined 
     in subsection (e)(1)).
       ``(3) Coverage period.--The period of coverage under this 
     part of an individual enrolled under an agreement under this 
     subsection shall be as follows:
       ``(A) Individuals eligible (at state option) for part b 
     buy-in.--In the case of an individual described in subsection 
     (a)(2)(A), the coverage period shall be the same period that 
     applies (or would apply) pursuant to section 1843(d).
       ``(B) Qualified medicare medicine beneficiaries.--In the 
     case of an individual described in subsection (a)(2)(B)--
       ``(i) the coverage period shall begin on the latest of--

       ``(I) January 1, 2003;
       ``(II) the first day of the third month following the month 
     in which the State agreement is entered into; or
       ``(III) the first day of the first month following the 
     month in which the individual satisfies section 1860C(a); and

       ``(ii) the coverage period shall end on the last day of the 
     month in which the individual is determined by the State to 
     have become ineligible for medicare medicine cost-sharing.
       ``(4) Alternative enrollment methods.--In the process of 
     enrolling low-income individuals under this part, the 
     Secretary shall use the system provided under section 154 of 
     the Social Security Act Amendments of 1994 for newly eligible 
     medicare beneficiaries and shall apply a similar system for 
     other medicare beneficiaries. Such system shall use existing 
     Federal Government databases to identify eligibility. Such 
     system shall not require that beneficiaries apply for, or 
     enroll through, State medicaid systems in order to obtain 
     low-income assistance described in this section.
       ``(b) Special Part D Enrollment Opportunity for Individuals 
     Losing Medicaid Eligibility.--In the case of an individual 
     who--
       ``(1) satisfies section 1860C(a); and
       ``(2) loses eligibility for benefits under the State plan 
     under title XIX after having been enrolled under such plan or 
     having been determined eligible for such benefits;

     the Secretary shall provide an opportunity for enrollment 
     under the program under this part during the period that 
     begins on the date that such individual loses such 
     eligibility and ends on the date specified by the Secretary.
       ``(c) State Option To Buy-In Dually Eligible Individuals.--
       ``(1) Coverage of premiums as medical assistance.--For 
     purposes of applying the second sentence of section 1905(a), 
     any reference to premiums under part B shall be considered to 
     include a reference to premiums under this part.
       ``(2) State commitment to continue participation in part d 
     after benefit limit reached.--As a condition of additional 
     funding to a State under subsection (d), the State, in its 
     State plan under title XIX, shall provide that in the case of 
     any individual whose eligibility for medical assistance under 
     title XIX is not limited to medicare cost-sharing and for 
     whom the State elects to pay premiums under this part 
     pursuant to this section, the State will purchase all 
     prescription medicines for such individual in accordance with 
     the provisions of this part without regard to whether the 
     benefit limit for such individual under section 1860B(b) 
     has been reached.
       ``(3) Medicare cost-sharing required for qualified medicare 
     beneficiaries.--In applying title XIX, the term `medicare 
     cost-sharing' (as defined in section 1905(p)(3)) is deemed to 
     include--
       ``(A) premiums under section 1860D; and
       ``(B) the difference between the amount that is paid under 
     section 1860B and the amount that would be paid under such 
     section if any reference to `80 percent' in subsection (a)(2) 
     of such section were deemed a reference to `100 percent' (or, 
     if the Secretary approves a higher percentage under such 
     section, if such percentage were deemed to be 100 percent).
       ``(d) Payment to States for Coverage of Certain Medicare 
     Cost-Sharing.--
       ``(1) In general.--The Secretary shall provide for payment 
     under this subsection to each State that provides for--
       ``(A) medicare cost-sharing described in section 
     1905(p)(3)(A)(ii) for individuals who would be qualified 
     medicare beneficiaries described in section 1905(p)(1) but 
     for the fact that their income exceeds the income level 
     established by the State under section 1905(p)(2) and is at 
     least 120 percent, but less than 135 percent, of the official 
     poverty line (referred to in such section) for a family of 
     the size involved and who are not otherwise eligible for 
     medical assistance under the State plan; and
       ``(B) medicare medicine cost-sharing (as defined in 
     subsection (e)(2)) for qualified medicare medicine 
     beneficiaries described in subsection (e)(1).
       ``(2) Amount of payment.--The amount of payment under 
     paragraph (1) shall equal 100 percent of the cost-sharing 
     described in such paragraph, except that, in the case of an 
     individual whose eligibility for medical assistance under 
     title XIX is not limited to medicare cost-sharing or medicare 
     medicine cost-sharing, the amount of payment under paragraph 
     (1)(B) shall be equal to the Federal medical assistance 
     percentage described in section 1905(b)) of amounts as 
     expended for such cost-sharing.
       ``(3) Method of payment; relation to other payments.--
     Amounts shall be paid to States under this subsection in a 
     manner similar to that provided under section 1903(d). 
     Payments under this subsection shall be made in lieu of any 
     payments that otherwise may be made for medical assistance 
     provided under section 1902(a)(10)(E)(iv).
       ``(4) Treatment of territories.--
       ``(A) In general.--Subject to subparagraph (B), this 
     subsection shall not apply to States other than the 50 States 
     and the District of Columbia.
       ``(B) Payments.--In the case of a State (other than the 50 
     States and the District of Columbia) that develops and 
     implements a plan of assistance for pharmaceuticals provided 
     to low-income medicare beneficiaries, the Secretary shall 
     provide for payment to the State in an amount that is 
     reasonable in relation to the payment levels provided to 
     other States under paragraph (2).
       ``(e) Definitions; Special Rules.--For purposes of this 
     section:
       ``(1) Qualified medicare medicine beneficiary.--The term 
     `qualified medicare medicine beneficiary' means an 
     individual--
       ``(A) who is entitled to hospital insurance benefits under 
     part A (including an individual entitled to such benefits 
     pursuant to an enrollment under section 1818, but not 
     including an individual entitled to such benefits only 
     pursuant to an enrollment under section 1818A);
       ``(B) whose income (as determined under section 1612 for 
     purposes of the supplemental security income program, except 
     as provided in section 1905(p)(2)(D)) is above 100 percent 
     but below 150 percent of the official poverty line (as 
     defined by the Office of Management and Budget, and revised 
     annually in accordance with section 673(2) of the Omnibus 
     Budget Reconciliation Act of 1981) applicable to a family of 
     the size involved; and
       ``(C) whose resources (as determined under section 1613 for 
     purposes of the supplemental security income program) do not 
     exceed twice the maximum amount of resources that an 
     individual may have and obtain benefits under that program.
       ``(2) Medicare medicine cost-sharing.--The term `medicare 
     medicine cost-sharing' means the following costs incurred 
     with respect to a qualified medicare medicine beneficiary, 
     without regard to whether the costs incurred were for items 
     and services for which medical assistance is otherwise 
     available under a State plan under title XIX:
       ``(A) In the case of a qualified medicare medicine 
     beneficiary whose income (as determined under paragraph (1)) 
     is less than 135 percent of the official poverty line--
       ``(i) premiums under section 1860D; and
       ``(ii) the difference between the amount that is paid under 
     section 1860B and the amount that would be paid under such 
     section if any reference to `50 percent' therein were deemed 
     a reference to `100 percent' (or, if the Secretary approves a 
     higher percentage under such section, if such percentage were 
     deemed to be 100 percent).
       ``(B) In the case of a qualified medicare medicine 
     beneficiary whose income (as determined under paragraph (1)) 
     is at least 135 percent but less than 150 percent of the 
     official poverty line, a percentage of premiums under section 
     1860D, determined on a linear sliding scale ranging from 100 
     percent for individuals with incomes at 135 percent of 
     such line to 0 percent for individuals with incomes at 150 
     percent of such line.
       ``(3) State.--The term `State' has the meaning given such 
     term under section 1101(a) for purposes of title XIX.
       ``(4) Treatment of drugs purchased.--The provisions of 
     section 1927 shall not apply to prescription drugs purchased 
     under this part pursuant to an agreement with the Secretary 
     under this section (including any drugs so purchased after 
     the limit under section 1860B(b) has been exceeded).


               ``prescription medicine insurance account

       ``Sec. 1860F. (a) Establishment.--There is created within 
     the Federal Supplemental Medical Insurance Trust Fund 
     established by section 1841 an account to be known as the 
     `Prescription Medicine Insurance Account' (in this section 
     referred to as the `Account').
       ``(b) Amounts in Account.--
       ``(1) In general.--The Account shall consist of--
       ``(A) such amounts as may be deposited in, or appropriated 
     to, such fund as provided in this part; and
       ``(B) such gifts and bequests as may be made as provided in 
     section 201(i)(1).
       ``(2) Separation of funds.--Funds provided under this part 
     to the Account shall be kept separate from all other funds 
     within the Federal Supplemental Medical Insurance Trust Fund.
       ``(c) Payments From Account.--The Managing Trustee shall 
     pay from time to time from the Account such amounts as the 
     Secretary certifies are necessary to make the payments 
     provided for by this part, and the payments with respect to 
     administrative expenses in accordance with section 201(g).


                      ``administration of benefits

       ``Sec. 1860G. (a) Through HCFA.--The Secretary shall 
     provide for administration of the benefits under this part 
     through the Health Care Financing Administration in 
     accordance with the provisions of this section. The 
     Administrator of such Administration may enter into contracts 
     with carriers to administer this part in the same manner as 
     the Administrator enters into such contracts to administer 
     part B. Any such contract shall

[[Page S5450]]

     be separate from any contract under section 1842.
       ``(b) Administration Functions.--In carrying out this part, 
     the Administrator (or a carrier under a contract with the 
     Administrator) shall (or in the case of the function 
     described in paragraph (9), may) perform the following 
     functions:
       ``(1) Participation agreements, prices, and fees.--
       ``(A) Negotiated prices.--Establish, through negotiations 
     with medicine manufacturers and wholesalers and pharmacies, a 
     schedule of prices for covered prescription medicines.
       ``(B) Agreements with pharmacies.--Enter into participation 
     agreements under subsection (c) with pharmacies, that include 
     terms that--
       ``(i) secure the participation of sufficient numbers of 
     pharmacies to ensure convenient access (including adequate 
     emergency access);
       ``(ii) permit the participation of any pharmacy in the 
     service area that meets the participation requirements 
     described in subsection (c); and
       ``(iii) allow for reasonable dispensing and consultation 
     fees for pharmacies.
       ``(C) Lists of prices and participating pharmacies.--Ensure 
     that the negotiated prices established under subparagraph (A) 
     and the list of pharmacies with agreements under subsection 
     (c) are regularly updated and readily available to health 
     care professionals authorized to prescribe medicines, 
     participating pharmacies, and enrolled individuals.
       ``(2) Tracking of covered enrolled individuals.--Maintain 
     accurate, updated records of all enrolled individuals (other 
     than individuals enrolled in a plan under part C).
       ``(3) Payment and coordination of benefits.--
       ``(A) Payment.--
       ``(i) Administer claims for payment of benefits under this 
     part and encourage, to the maximum extent possible, use of 
     electronic means for the submissions of claims.
       ``(ii) Determine amounts of benefit payments to be made.
       ``(iii) Receive, disburse, and account for funds used in 
     making such payments, including through the activities 
     specified in the provisions of this paragraph.
       ``(B) Coordination.--Coordinate with other private benefit 
     providers, pharmacies, and other relevant entities as 
     necessary to ensure appropriate coordination of benefits with 
     respect to enrolled individuals, including coordination of 
     access to and payment for covered prescription medicines 
     according to an individual's in-service area plan provisions, 
     when such individual is traveling outside the home service 
     area, and under such other circumstances as the Secretary may 
     specify.
       ``(C) Explanation of benefits.--Furnish to enrolled 
     individuals an explanation of benefits in accordance with 
     section 1806(a), and a notice of the balance of benefits 
     remaining for the current year, whenever prescription 
     medicine benefits are provided under this part (except that 
     such notice need not be provided more often than monthly).
       ``(4) Rules relating to provision of benefits.--
       ``(A) In general.--In providing benefits under this part, 
     the Secretary (directly or through contracts) shall employ 
     mechanisms to provide benefits economically, including the 
     use of--
       ``(i) formularies (consistent with subparagraph (B));
       ``(ii) automatic generic medicine substitution (unless the 
     physician specifies otherwise, in which case a 30-day 
     prescription may be dispensed pending a consultation with the 
     physician on whether a generic substitute can be dispensed in 
     the future);
       ``(iii) tiered copayments (which may include copayments at 
     a rate lower than 20 percent) to encourage the use of the 
     lowest cost, on-formulary product in cases where there is no 
     restrictive prescription (described in subparagraph (D)(i)); 
     and
       ``(iv) therapeutic interchange.
       ``(B) Requirements with respect to formularies.--If a 
     formulary is used to contain costs under this part--
       ``(i) use an advisory committee (or a therapeutics 
     committee) comprised of licensed practicing physicians, 
     pharmacists, and other health care practitioners to develop 
     and manage the formulary;
       ``(ii) include in the formulary at least 1 medicine from 
     each therapeutic class and, if available, a generic 
     equivalent thereof; and
       ``(iii) disclose to current and prospective enrollees and 
     to participating providers and pharmacies, the nature of the 
     formulary restrictions, including information regarding the 
     medicines included in the formulary and any difference in 
     cost-sharing amounts.
       ``(C) Construction.--Nothing in this subsection shall be 
     construed to prevent the Secretary (directly or through 
     contracts) from using incentives (including a lower 
     beneficiary coinsurance) to encourage enrollees to select 
     generic or other cost-effective medicines, so long as--
       ``(i) such incentives are designed not to result in any 
     increase in the aggregate expenditures under the Federal 
     Medicare Prescription Medicine Trust Fund;
       ``(ii) the average coinsurance charged to all beneficiaries 
     by the Secretary (directly or through contractors) shall seek 
     to approximate (but in no case exceed) 20 percent for on-
     formulary medicines;
       ``(iii) a beneficiary's coinsurance shall be no greater 
     than 20 percent if the prescription is a restrictive 
     prescription; and
       ``(iv) the reimbursement for a prescribed nonformulary 
     medicine without a restrictive prescription in no case shall 
     be more than the lowest reimbursement for a formulary 
     medicine in the therapeutic class of the prescribed medicine.
       ``(D) Restrictive prescription.--For purposes of this 
     section:
       ``(i) Written prescriptions.--In the case of a written 
     prescription for a medicine, it is a restrictive prescription 
     only if the prescription indicates, in the writing of the 
     physician or other qualified person prescribing the medicine 
     and with an appropriate phrase (such as `brand medically 
     necessary') recognized by the Secretary, that a particular 
     medicine product must be dispensed based upon a belief by the 
     physician or person prescribing the medicine that the 
     particular medicine will provide even marginally superior 
     therapeutic benefits to the individual for whom the medicine 
     is prescribed or would have marginally fewer adverse 
     reactions with respect to such individual.
       ``(ii) Telephone prescriptions.--In the case of a 
     prescription issued by telephone for a medicine, it is a 
     restrictive prescription only if the prescription cannot be 
     longer than 30 days and the physician or other qualified 
     person prescribing the medicine (through use of such an 
     appropriate phrase) states that a particular medicine product 
     must be dispensed, and the physician or other qualified 
     person submits to the pharmacy involved, within 30 days after 
     the date of the telephone prescription, a written 
     confirmation from the physician or other qualified person 
     prescribing the medicine and which indicates with such 
     appropriate phrase that the particular medicine product was 
     required to have been dispensed based upon a belief by the 
     physician or person prescribing the medicine that the 
     particular medicine will provide even marginally superior 
     therapeutic benefits to the individual for whom the medicine 
     is prescribed or would have marginally fewer adverse 
     reactions with respect to such individual. Such written 
     confirmation is required to refill the prescription.
       ``(iii) Review of restrictive prescriptions.--The advisory 
     committee (established under subparagraph (B)(i)) may decide 
     to review a restrictive prescription and, if so, it may 
     approve or disapprove such restrictive prescription. It may 
     not disapprove such restrictive prescription unless it finds 
     that there is no clinical evidence or peer reviewed medical 
     literature that supports a determination that the particular 
     medicine provides even marginally superior therapeutic 
     benefits to the individual for whom the medicine is 
     prescribed or would have marginally fewer adverse reactions 
     with respect to such individual. If it disapproves, upon 
     request of the prescribing physician or the enrollee, the 
     committee must provide for a review by an independent 
     contractor of such decision within 48 hours of the time of 
     submission of the prescription, to determine whether the 
     prescription is an eligible benefit under this part. The 
     Secretary shall ensure that independent contractors so 
     used are completely independent of the contractor or its 
     advisory committee.
       ``(5) Cost and utilization management; quality assurance.--
     Have in place effective cost and utilization management, drug 
     utilization review, quality assurance measures, and systems 
     to reduce medical errors, including at least the following, 
     together with such additional measures as the Administrator 
     may specify:
       ``(A) Drug utilization review.--A drug utilization review 
     program conforming to the standards provided in section 
     1927(g)(2) (with such modifications as the Administrator 
     finds appropriate).
       ``(B) Fraud and abuse control.--Activities to control 
     fraud, abuse, and waste, including prevention of diversion of 
     pharmaceuticals to the illegal market.
       ``(C) Medication therapy management.--
       ``(i) In general.--A program of medicine therapy management 
     and medication administration that is designed to assure that 
     covered outpatient medicines are appropriately used to 
     achieve therapeutic goals and reduce the risk of adverse 
     events, including adverse drug interactions.
       ``(ii) Elements.--Such program may include--

       ``(I) enhanced beneficiary understanding of such 
     appropriate use through beneficiary education, counseling, 
     and other appropriate means; and
       ``(II) increased beneficiary adherence with prescription 
     medication regimens through medication refill reminders, 
     special packaging, and other appropriate means.

       ``(iii) Development of program in cooperation with licensed 
     pharmacists.--The program shall be developed in cooperation 
     with licensed pharmacists and physicians.
       ``(iv) Considerations in pharmacy fees.--There shall be 
     taken into account, in establishing fees for pharmacists and 
     others providing services under the medication therapy 
     management program, the resources and time used in 
     implementing the program.
       ``(6) Education and information activities.--Have in place 
     mechanisms for disseminating educational and informational 
     materials to enrolled individuals and health care providers 
     designed to encourage effective and cost-effective use of 
     prescription medicine benefits and to ensure that enrolled 
     individuals understand their rights and obligations under the 
     program.
       ``(7) Beneficiary protections.--

[[Page S5451]]

       ``(A) Confidentiality of health information.--Have in 
     effect systems to safeguard the confidentiality of health 
     care information on enrolled individuals, which comply with 
     section 1106 and with section 552a of title 5, United States 
     Code, and meet such additional standards as the Administrator 
     may prescribe.
       ``(B) Grievance and appeal procedures.--Have in place such 
     procedures as the Administrator may specify for hearing and 
     resolving grievances and appeals, including expedited 
     appeals, brought by enrolled individuals against the 
     Administrator or a pharmacy concerning benefits under this 
     part, which shall include procedures equivalent to those 
     specified in subsections (f) and (g) of section 1852.
       ``(8) Records, reports, and audits.--
       ``(A) Records and audits.--Maintain adequate records, and 
     afford the Administrator access to such records (including 
     for audit purposes).
       ``(B) Reports.--Make such reports and submissions of 
     financial and utilization data as the Administrator may 
     require taking into account standard commercial practices.
       ``(9) Proposal for alternative coinsurance amount.--
       ``(A) Submission.--The Administrator may provide for 
     increased Government cost-sharing for generic prescription 
     medicines, prescription medicines on a formulary, or 
     prescription medicines obtained through mail order 
     pharmacies.
       ``(B) Contents.--The proposal submitted under subparagraph 
     (A) shall contain evidence that such increased cost-sharing 
     would not result in an increase in aggregate costs to the 
     Account, including an analysis of differences in projected 
     drug utilization patterns by beneficiaries whose cost-sharing 
     would be reduced under the proposal and those making the 
     cost-sharing payments that would otherwise apply.
       ``(10) Other requirements.--Meet such other requirements as 
     the Secretary may specify.

     The Administrator shall negotiate a schedule of prices under 
     paragraph (1)(A), except that nothing in this sentence shall 
     prevent a carrier under a contract with the Administrator 
     from negotiating a lower schedule of prices for covered 
     prescription medicines.
       ``(c) Pharmacy Participation Agreements.--
       ``(1) In general.--A pharmacy that meets the requirements 
     of this subsection shall be eligible to enter an agreement 
     with the Administrator to furnish covered prescription 
     medicines and pharmacists' services to enrolled individuals.
       ``(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 enrolled individual more 
     than the negotiated price for an individual medicine as 
     established under subsection (b)(1), regardless of whether 
     such individual has attained the benefit limit under section 
     1860B(b), and shall not charge an enrolled individual more 
     than the individual's share of the negotiated price as 
     determined under the provisions of this part.
       ``(C) Performance standards.--The pharmacy and the 
     pharmacist shall comply with performance standards relating 
     to--
       ``(i) measures for quality assurance, reduction of medical 
     errors, and participation in the drug utilization review 
     program described in subsection (b)(3)(A);
       ``(ii) systems to ensure compliance with the 
     confidentiality standards applicable under subsection 
     (b)(5)(A); and
       ``(iii) other requirements as the Secretary may impose to 
     ensure integrity, efficiency, and the quality of the program.
       ``(D) Disclosure of price of generic medicine.--A pharmacy 
     participating under this part shall inform an enrollee of the 
     difference in price between generic and nongeneric 
     equivalents.
       ``(d) Special Attention to Rural and Hard-To-Serve Areas.--
       ``(1) In general.--The Secretary shall ensure that all 
     beneficiaries have access to the full range of 
     pharmaceuticals 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).
       ``(2) Special attention defined.--For purposes of paragraph 
     (1), the term `special attention' may include bonus payments 
     to retail pharmacists in rural areas and any other actions 
     the Secretary determines are necessary to ensure full access 
     to rural and hard-to-serve beneficiaries.
       ``(3) GAO report.--Not later than 2 years after the 
     implementation of this part the Comptroller General of the 
     United States shall submit to Congress a report on the access 
     of medicare beneficiaries to pharmaceuticals and pharmacists' 
     services in rural and hard-to-serve areas under this part 
     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 
     pharmaceuticals and pharmacists' services in such areas under 
     this part.
       ``(e) Incentives for Cost and Utilization Management and 
     Quality Improvement.--The Secretary is authorized to include 
     in a contract awarded under subsection (b) with a carrier 
     such incentives for cost and utilization management and 
     quality improvement as the Secretary may deem appropriate, 
     including--
       ``(1) bonus and penalty incentives to encourage 
     administrative efficiency;
       ``(2) incentives under which carriers share in any benefit 
     savings achieved;
       ``(3) risk-sharing arrangements related to initiatives to 
     encourage savings in benefit payments;
       ``(4) financial incentives under which savings derived from 
     the substitution of generic medicines in lieu of nongeneric 
     medicines are made available to carriers, pharmacies, and the 
     Prescription Medicine Insurance Account; and
       ``(5) any other incentive that the Secretary deems 
     appropriate and likely to be effective in managing costs or 
     utilization.


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

       ``Sec. 1860H. (a) Program Authority.--The Secretary shall 
     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 medicine benefits to retired 
     individuals and to maintain such existing benefit programs, 
     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 medicine 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 medicine 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 medicine benefit under the plan 
     falls below the actuarial value of the insurance benefit 
     under this part.
       ``(2) Other requirements.--The sponsor shall provide such 
     information, and comply with such requirements, including 
     information requirements to ensure the integrity of the 
     program, as the Secretary may find necessary to administer 
     the program under this section.
       ``(c) Incentive Payment.--
       ``(1) In general.--A sponsor that meets the requirements of 
     subsection (b) with respect to a quarter in a calendar year 
     shall 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 as described in paragraph 
     (2), for each retired individual (or spouse) who--
       ``(A) was covered under the sponsor's qualified retiree 
     prescription medicine plan during such quarter; and
       ``(B) was eligible for but was not enrolled in the 
     insurance 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 from the Prescription Medicine Insurance 
     Account for an enrolled individual, 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 equal to $2,000 for 
     each false representation plus an amount not to exceed 3 
     times the total incentive amounts under subsection (c) that 
     were paid (or would have been payable) on the basis of such 
     information.
       ``(e) Part D Enrollment for Certain Individuals Covered by 
     Employment-Based Retiree Health Coverage Plans.--
       ``(1) Eligible individuals.--An individual shall be given 
     the opportunity to enroll in the program under this part 
     during the period specified in paragraph (2) if--
       ``(A) the individual declined enrollment in the program 
     under this part at the time the individual first satisfied 
     section 1860C(a);
       ``(B) at that time, the individual was covered under a 
     qualified retiree prescription medicine plan for which an 
     incentive payment was paid under this section; and
       ``(C)(i) the sponsor subsequently ceased to offer such 
     plan; or
       ``(ii) the value of prescription medicine coverage under 
     such plan is reduced below the value of the coverage provided 
     at the time the individual first became eligible to 
     participate in the program under this part.
       ``(2) Special enrollment period.--An individual described 
     in paragraph (1) shall be eligible to enroll in the program 
     under this

[[Page S5452]]

     part during the 6-month period beginning on the first day of 
     the month in which--
       ``(A) the individual receives a notice that coverage under 
     such plan has terminated (in the circumstance described in 
     paragraph (1)(C)(i)) or notice that a claim has been denied 
     because of such a termination; or
       ``(B) the individual received notice of the change in 
     benefits (in the circumstance described in paragraph 
     (1)(C)(ii)).
       ``(f) 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 
     to such term by 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 medicine plan.--The 
     term `qualified retiree prescription medicine plan' means 
     health insurance coverage included in employment-based 
     retiree health coverage that--
       ``(A) provides coverage of the cost of prescription 
     medicines whose actuarial value to each retired beneficiary 
     equals or exceeds the actuarial value of the benefits 
     provided to an individual enrolled in the program under this 
     part; and
       ``(B) does not deny, limit, or condition the coverage or 
     provision of prescription medicine 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' by section 3(16)(B) of the Employee 
     Retirement Income Security Act of 1974.


``promotion of pharmaceutical research on break-through medicines while 
                   providing program cost containment

       ``Sec. 1860I. (a) Monitoring Expenditures.--The Secretary 
     shall monitor expenditures under this part. On October 1, 
     2003, the Secretary shall estimate total expenditures under 
     this part for 2003.
       ``(b) Establishment of Sustainable Growth Rate.--
       ``(1) In general.--The Secretary shall establish a 
     sustainable growth rate prescription medicine target system 
     for expenditures under this part for each year after 2003.
       ``(2) Initial computation.--Such target shall equal the 
     amount of total expenditures estimated for 2003 adjusted by 
     the Secretary's estimate of a sustainable growth rate (in 
     this section referred to as an `SGR') percentage between 2003 
     and 2004. Such SGR shall be estimated based on the following:
       ``(A) Reasonable changes in the cost of production or price 
     of covered pharmaceuticals, but in no event more than the 
     rate of increase in the Consumer Price Index for all urban 
     consumers for the period involved.
       ``(B) Population enrolled in this part, both in numbers and 
     in average age and severity of chronic and acute illnesses.
       ``(C) Appropriate changes in utilization of 
     pharmaceuticals, as determined by the Drug Review Board 
     (established under subsection (c)(3)) and based on best 
     estimates of utilization change if there were no direct-to-
     consumer advertising or promotions to providers.
       ``(D) Productivity index of manufacturers and distributors.
       ``(E) Percentage of products with patent and market 
     exclusivity protection versus products without patent 
     protection and changes in the availability of generic 
     substitutes.
       ``(F) Such other factors as the Secretary may determine are 
     appropriate.

     In no event may the sustainable growth rate exceed 120 
     percent of the estimated per capita growth in total spending 
     under this title.
       ``(3) Computation for subsequent years.--In October of 2004 
     and each year thereafter, for purposes of setting the SGRs 
     for the succeeding year, the Secretary shall adjust each 
     current year's estimated expenditures by the estimated SGR 
     for the succeeding year, further adjusted for corrections in 
     earlier estimates and the receipt of additional data on 
     previous years spending as follows:
       ``(A) Error estimates.--An adjustment (up or down) for 
     errors in the estimate of total expenditures under this part 
     for the previous year.
       ``(B) Costs.--An adjustment (up or down) for corrections in 
     the cost of production of prescriptions covered under this 
     part between the current calendar year and the previous year.
       ``(C) Target.--An adjustment for any amount (over or under) 
     that expenditures in the current year under this part are 
     estimated to differ from the target amount set for the year. 
     If expenditures in the current year are estimated to be--
       ``(i) less than the target amount, future target amounts 
     will be adjusted downward; or
       ``(ii) more than the target amount, the Secretary shall 
     notify all pharmaceutical manufacturers with sales of 
     pharmaceutical prescription medicine products to medicare 
     beneficiaries under this part, of a rebate requirement 
     (except as provided in this subparagraph) to be deposited in 
     the Federal Medicare Prescription Medicine Trust Fund.
       ``(D) Rebate determination.--The amount of the rebate 
     described in subparagraph (C)(ii) may vary among 
     manufacturers and shall be based on the manufacturer's 
     estimated contribution to the expenditure above the target 
     amount, taking into consideration such factors as--
       ``(i) above average increases in the cost of the 
     manufacturer's product;
       ``(ii) increases in utilization due to promotion activities 
     of the manufacturer, wholesaler, or retailer;
       ``(iii) launch prices of new drugs at the same or higher 
     prices as similar drugs already in the marketplace (so-called 
     `me too' or `copy-cat' drugs);
       ``(iv) the role of the manufacturer in delaying the entry 
     of generic products into the market; and
       ``(v) such other actions by the manufacturer that the 
     Secretary may determine has contributed to the failure to 
     meet the SGR target.

     The rebates shall be established under such subparagraph so 
     that the total amount of the rebates is estimated to ensure 
     that the amount the target for the current year is estimated 
     to be exceeded is recovered in lower spending in the 
     subsequent year; except that, no rebate shall be made in any 
     manufacturer's product which the Food and Drug Administration 
     has determined is a breakthrough medicine (as determined 
     under subsection (c)) or an orphan medicine.
       ``(c) Breakthrough Medicines.--
       ``(1) Determination.--For purposes of this section, a 
     medicine is a `breakthrough medicine' if the Drug Review 
     Board (established under paragraph (3)) determines--
       ``(A) it is a new product that will make a significant and 
     major improvement by reducing physical or mental illness, 
     reducing mortality, or reducing disability; and
       ``(B) that no other product is available to beneficiaries 
     that achieves similar results for the same condition at a 
     lower cost.
       ``(2) Condition.--An exemption from rebates under 
     subsection (b)(3) for a breakthrough medicine shall continue 
     as long as the medicine is certified as a breakthrough 
     medicine but shall be limited to 7 calendar years from 2003 
     or 7 calendar years from the date of the initial 
     determination under paragraph (1), whichever is later.
       ``(3) Drug review board.--The Drug Review Board under this 
     paragraph shall consist of the Commissioner of Food and 
     Drugs, the Directors of the National Institutes of Health, 
     the Director of the National Science Foundation, and 10 
     experts in pharmaceuticals, medical research, and clinical 
     care, selected by the Commissioner of Food and Drugs from the 
     faculty of academic medical centers, except that no person 
     who has (or who has an immediate family member that has) any 
     conflict of interest with any pharmaceutical manufacturer 
     shall serve on the Board.
       ``(d) No Review.--The Secretary's determination of the 
     rebate amounts under this section, and the Drug Review 
     Board's determination of what is a breakthrough drug, are not 
     subject to administrative or judicial review.


           ``appropriations to cover government contributions

       ``Sec. 1860J. (a) In General.--There are authorized to be 
     appropriated from time to time, out of any moneys in the 
     Treasury not otherwise appropriated, to the Prescription 
     Medicine Insurance Account, a Government contribution equal 
     to--
       ``(1) the aggregate premiums payable for a month pursuant 
     to section 1860D(a)(2) by individuals enrolled in the program 
     under this part; plus
       ``(2) one-half the aggregate premiums payable for a month 
     pursuant to such section for such individuals by former 
     employers; plus
       ``(3) the benefits payable by reason of the application of 
     paragraph (2) of section 1860B(a) (relating to catastrophic 
     benefits).
       ``(b) Appropriations To Cover Incentives for Employment-
     Based Retiree Medicine Coverage.--There are authorized to be 
     appropriated to the Prescription Medicine Insurance Account 
     from time to time, out of any moneys in the Treasury not 
     otherwise appropriated, such sums as may be necessary for 
     payment of incentive payments under section 1860H(c).


                    ``prescription medicine defined

       ``Sec. 1860K. As used in this part, the term `prescription 
     medicine' means--
       ``(1) a drug that may be dispensed only upon a 
     prescription, and that is described in subparagraph (A)(i), 
     (A)(ii), or (B) of section 1927(k)(2); and
       ``(2) insulin certified under section 506 of the Federal 
     Food, Drug, and Cosmetic Act, and needles, syringes, and 
     disposable pumps for the administration of such insulin.''.
       (b) Conforming Amendments.--
       (1) Amendments to federal supplementary health insurance 
     trust fund.--Section 1841 of the Social Security Act (42 
     U.S.C. 1395t) is amended--
       (A) in the last sentence of subsection (a)--
       (i) by striking ``and'' after ``section 201(i)(1)''; and
       (ii) by inserting before the period the following: ``, and 
     such amounts as may be deposited in, or appropriated to, the 
     Prescription Medicine Insurance Account established by 
     section 1860F'';
       (B) in subsection (g), by inserting after ``by this part,'' 
     the following: ``the payments provided for under part D (in 
     which case the payments shall come from the Prescription 
     Medicine Insurance Account in the Supplementary Medical 
     Insurance Trust Fund),'';

[[Page S5453]]

       (C) in the first sentence of subsection (h), by inserting 
     before the period the following: ``and section 1860D(b)(4) 
     (in which case the payments shall come from the Prescription 
     Medicine Insurance Account in the Supplementary Medical 
     Insurance Trust Fund)''; and
       (D) in the first sentence of subsection (i)--
       (i) by striking ``and'' after ``section 1840(b)(1)''; and
       (ii) by inserting before the period the following: ``, 
     section 1860D(b)(2) (in which case the payments shall come 
     from the Prescription Medicine Insurance Account in the 
     Supplementary Medical Insurance Trust Fund)''.
       (2) Prescription medicine option under medicare+choice 
     plans.--
       (A) Eligibility, election, and enrollment.--Section 1851 of 
     the Social Security Act (42 U.S.C. 1395w-21) is amended--
       (i) in subsection (a)(1)(A), by striking ``parts A and B'' 
     and inserting ``parts A, B, and D''; and
       (ii) in subsection (i)(1), by striking ``parts A and B'' 
     and inserting ``parts A, B, and D''.
       (B) Voluntary beneficiary enrollment for medicine 
     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--
       (i) in subparagraph (D), by striking ``and'' at the end;
       (ii) in subparagraph (E), by striking the period at the end 
     and inserting ``; and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(F) the plan for prescription medicine benefits under 
     part D guarantees coverage of any specifically named covered 
     prescription medicine for an enrollee, when prescribed by a 
     physician in accordance with the provisions of such part, 
     regardless of whether such medicine would otherwise be 
     covered under an applicable formulary or discount 
     arrangement.''.
       (D) Payments to organizations.--Section 1853(a)(1)(A) of 
     such Act (42 U.S.C. 1395w-23(a)(1)(A)) is amended--
       (i) by inserting ``determined separately for benefits under 
     parts A and B and under part D (for individuals enrolled 
     under that part)'' after ``as calculated under subsection 
     (c)'';
       (ii) by striking ``that area, adjusted for such risk 
     factors'' and inserting ``that area. In the case of payment 
     for benefits under parts A and B, such payment shall be 
     adjusted for such risk factors as''; and
       (iii) by inserting before the last sentence the following: 
     ``In the case of the payments for 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. By 2006, the adjustments would be for the same 
     risk factors applicable for 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--
       (i) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``for benefits under parts A and B'' after 
     ``capitation rate'';
       (ii) in paragraph (6)(A), by striking ``rate of growth in 
     expenditures under this title'' and inserting ``rate of 
     growth in expenditures for benefits available under parts A 
     and B''; and
       (iii) by adding at the end the following new paragraph:
       ``(8) Payment for prescription medicines.--The Secretary 
     shall determine a capitation rate for prescription 
     medicines--
       ``(A) dispensed in 2003, which is based on the projected 
     national per capita costs for prescription medicine benefits 
     under part D and associated claims processing costs for 
     beneficiaries under the original medicare fee-for-service 
     program; and
       ``(B) dispensed in each subsequent year, which shall be 
     equal to the rate for the previous year updated 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.''.
       (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 provision of part d benefits.--In no 
     event may a Medicare+Choice organization include as part of a 
     plan for prescription medicine benefits under part D a 
     requirement that an enrollee pay a deductible, or a 
     coinsurance percentage that exceeds 20 percent.''.
       (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 benefits under 
     parts A and B and for prescription medicine benefits under 
     part D.''.
       (3) Exclusions from coverage.--
       (A) 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''.
       (B) Prescription medicines not excluded from coverage if 
     appropriately prescribed.--Section 1862(a)(1) of such Act (42 
     U.S.C. 1395y(a)(1)) is amended--
       (i) in subparagraph (H), by striking ``and'' at the end;
       (ii) in subparagraph (I), by striking the semicolon at the 
     end and inserting ``, and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(J) in the case of prescription medicines covered under 
     part D, which are not prescribed in accordance with such 
     part;''.

     SEC. 4. SUBSTANTIAL REDUCTIONS IN THE PRICE OF PRESCRIPTION 
                   DRUGS FOR MEDICARE BENEFICIARIES.

       (a) Participating Manufacturers.--
       (1) In general.--Each participating manufacturer of a 
     covered outpatient drug shall make available for purchase by 
     each pharmacy such covered outpatient drug in the amount 
     described in paragraph (2) at the price described in 
     paragraph (3).
       (2) Description of amount of drugs.--The amount of a 
     covered outpatient drug that a participating manufacturer 
     shall make available for purchase by a pharmacy is an amount 
     equal to the aggregate amount of the covered outpatient drug 
     sold or distributed by the pharmacy to medicare 
     beneficiaries.
       (3) Description of price.--The price at which a 
     participating manufacturer shall make a covered outpatient 
     drug available for purchase by a pharmacy is the price equal 
     to the lowest of the following:
       (A) The lowest price paid for the covered outpatient drug 
     by any agency or department of the United States.
       (B) The manufacturer's best price for the covered 
     outpatient drug, as defined in section 1927(c)(1)(C) of the 
     Social Security Act (42 U.S.C. 1396r-8(c)(1)(C)).
       (C) The lowest price at which the drug is available (as 
     determined by the Secretary) through importation consistent 
     with the provisions of section 804 of the Federal Food, Drug, 
     and Cosmetic Act.
       (b) Special Provision With Respect to Hospice Programs.--
     For purposes of determining the amount of a covered 
     outpatient drug that a participating manufacturer shall make 
     available for purchase by a pharmacy under subsection (a), 
     there shall be included in the calculation of such amount the 
     amount of the covered outpatient drug sold or distributed by 
     a pharmacy to a hospice program. In calculating such amount, 
     only amounts of the covered outpatient drug furnished to a 
     medicare beneficiary enrolled in the hospice program shall be 
     included.
       (c) Administration.--The Secretary shall issue such 
     regulations as may be necessary to implement this section.
       (d) Reports to Congress Regarding Effectiveness of 
     Section.--
       (1) In general.--Not later than 2 years after the date of 
     enactment of this Act, and annually thereafter, the Secretary 
     shall report to Congress regarding the effectiveness of this 
     section in--
       (A) protecting medicare beneficiaries from discriminatory 
     pricing by drug manufacturers; and
       (B) making prescription drugs available to medicare 
     beneficiaries at substantially reduced prices.
       (2) Consultation.--In preparing such reports, the Secretary 
     shall consult with public health experts, affected 
     industries, organizations representing consumers and older 
     Americans, and other interested persons.
       (3) Recommendations.--The Secretary shall include in such 
     reports any recommendations they consider appropriate for 
     changes in this section to further reduce the cost of covered 
     outpatient drugs to medicare beneficiaries.
       (e) Definitions.--For purposes of this section:
       (1) Participating manufacturer.--The term ``participating 
     manufacturer'' means any manufacturer of drugs or biologicals 
     that, on or after the date of enactment of this Act, enters 
     into a contract or agreement with the United States for the 
     sale or distribution of covered outpatient drugs to the 
     United States.
       (2) Covered outpatient drug.--The term ``covered outpatient 
     drug'' has the meaning given that term in section 1927(k)(2) 
     of the Social Security Act (42 U.S.C. 1396r-8(k)(2)).
       (3) Medicare beneficiary.--The term ``medicare 
     beneficiary'' means an individual entitled to benefits under 
     part A of title XVIII of the Social Security Act or enrolled 
     under part B of such title, or both.
       (4) Hospice program.--The term ``hospice program'' has the 
     meaning given that term under section 1861(dd)(2) of the 
     Social Security Act (42 U.S.C. 1395x(dd)(2)).
       (5) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (f) Effective Date.--The Secretary shall implement this 
     section as expeditiously as practicable and in a manner 
     consistent with the obligations of the United States.

     SEC. 5. AMENDMENTS TO PROGRAM FOR IMPORTATION OF CERTAIN 
                   PRESCRIPTION DRUGS BY PHARMACISTS AND 
                   WHOLESALERS.

       Section 804 of the Federal Food, Drug, and Cosmetic Act (as 
     added by section 745(c)(2) of Public Law 106-387) is 
     amended--
       (1) by striking subsections (e) and (f) and inserting the 
     following subsections:
       ``(e) Testing; Approved Labeling.--
       ``(1) Testing.--Regulations under subsection (a)--
       ``(A) shall require that testing referred to in paragraphs 
     (6) through (8) of subsection (d) be conducted by the 
     importer of the covered product pursuant to subsection (a), 
     or the manufacturer of the product;
       ``(B) shall require that, if such tests are conducted by 
     the importer, information needed to authenticate the product 
     being tested be supplied by the manufacturer of such product 
     to the importer; and

[[Page S5454]]

       ``(C) shall provide for the protection of any information 
     supplied by the manufacturer under subparagraph (B) that is a 
     trade secret or commercial or financial information that is 
     privileged or confidential.
       ``(2) Approved labeling.--For purposes of importing a 
     covered product pursuant to subsection (a), the importer 
     involved may use the labeling approved for the product under 
     section 505, notwithstanding any other provision of law.
       ``(f) Discretion of Secretary Regarding Testing.--The 
     Secretary may waive or modify testing requirements described 
     in subsection (d) if, with respect to specific countries or 
     specific distribution chains, the Secretary has entered into 
     agreements or otherwise approved arrangements that the 
     Secretary determines ensure that the covered products 
     involved are not adulterated or in violation of section 
     505.'';
       (2) by striking subsections (h) and (i) and inserting the 
     following subsections:
       ``(h) Prohibited Agreements; Nondiscrimination.--
       ``(1) Prohibited agreements.--No manufacturer of a covered 
     product may enter into a contract or agreement that includes 
     a provision to prevent the sale or distribution of covered 
     products imported pursuant to subsection (a).
       ``(2) Nondiscrimination.--No manufacturer of a covered 
     product may take actions that discriminate against, or cause 
     other persons to discriminate against, United States 
     pharmacists, wholesalers, or consumers regarding the sale or 
     distribution of covered products.
       ``(i) Study and Report.--
       ``(1) Study.--The Comptroller General of the United States 
     shall conduct a study on the imports permitted under this 
     section, taking into consideration the information received 
     under subsection (a). In conducting such study, the 
     Comptroller General shall--
       ``(A) evaluate importers' compliance with regulations, 
     determine the number of shipments, if any, permitted under 
     this section that have been determined to be counterfeit, 
     misbranded, or adulterated; and
       ``(B) consult with the United States Trade Representative 
     and United States Patent and Trademark Office to evaluate the 
     effect of importations permitted under this section on trade 
     and patent rights under Federal law.
       ``(2) Report.--Not later than 5 years after the effective 
     date of final regulations issued pursuant to this section, 
     the Comptroller General of the United States shall prepare 
     and submit to Congress a report containing the study 
     described in paragraph (1).'';
       (3) in subsection (k)(2)--
       (A) by redesignating subparagraphs (A) through (E) as 
     subparagraphs (B) through (F), respectively; and
       (B) by inserting before subparagraph (B) (as so 
     redesignated) the following subparagraph:
       ``(A) The term `discrimination' includes a contract 
     provision, a limitation on supply, or other measure which has 
     the effect of providing United States pharmacists, 
     wholesalers, or consumers access to covered products on terms 
     or conditions that are less favorable than the terms or 
     conditions provided to any foreign purchaser of such 
     products.'';
       (4) by striking subsection (m); and
       (5) by inserting after subsection (l) the following 
     subsection:
       ``(m) Funding.--For the purpose of carrying out this 
     section, there are authorized to be appropriated such sums as 
     may be necessary for fiscal year 2002 and each subsequent 
     fiscal year.''.

     SEC. 6. REASONABLE PRICE AGREEMENT FOR FEDERALLY FUNDED 
                   RESEARCH.

       (a) In General.--If any Federal agency or any non-profit 
     entity undertakes federally funded health care research and 
     development and is to convey or provide a patent or other 
     exclusive right to use such research and development for a 
     drug or other health care technology, such agency or entity 
     shall not make such conveyance or provide such patent or 
     other right until the person who will receive such conveyance 
     or patent or other right first agrees to a reasonable pricing 
     agreement with the Secretary of Health and Human Services or 
     the Secretary makes a determination that the public interest 
     is served by a waiver of the reasonable pricing agreement 
     provided in accordance with subsection (c).
       (b) Consideration of Competitive Bidding.--In cases where 
     the Federal Government conveys or licenses exclusive rights 
     to federally funded research under subsection (a), 
     consideration shall be given to mechanisms for determining 
     reasonable prices which are based upon a competitive bidding 
     process. When appropriate, the mechanisms should be 
     considered where--
       (1) qualified bidders compete on the basis of the lowest 
     prices that will be charged to consumers;
       (2) qualified bidders compete on the basis of the least 
     sales revenues before prices are adjusted in accordance with 
     a cost-based reasonable pricing formula;
       (3) qualified bidders compete on the basis of the least 
     period of time before prices are adjusted in accordance with 
     a cost-based reasonable pricing formula;
       (4) qualified bidders compete on the basis of the shortest 
     period of exclusivity; or
       (5) qualified bidders compete under other competitive 
     bidding systems.

     Such competitive bidding process may incorporate requirements 
     for minimum levels of expenditures on research, marketing, 
     maximum price, or other factors.
       (c) Waiver.--No waiver shall take effect under subsection 
     (a) before the public is given notice of the proposed waiver 
     and provided a reasonable opportunity to comment on the 
     proposed waiver. A decision to grant a waiver shall set out 
     the Secretary's finding that such a waiver is in the public 
     interest.

     SEC. 7. GAO ONGOING STUDIES AND REPORTS ON PROGRAM; 
                   MISCELLANEOUS REPORTS.

       (a) Ongoing Study.--The Comptroller General of the United 
     States shall conduct an ongoing study and analysis of the 
     prescription medicine benefit program under part D of the 
     medicare program under title XVIII of the Social Security Act 
     (as added by section 3 of this Act), including an analysis of 
     each of the following:
       (1) The extent to which the administering entities have 
     achieved volume-based discounts similar to the favored price 
     paid by other large purchasers.
       (2) Whether access to the benefits under such program are 
     in fact available to all beneficiaries, with special 
     attention given to access for beneficiaries living in rural 
     and hard-to-serve areas.
       (3) The success of such program in reducing medication 
     error and adverse medicine reactions and improving quality of 
     care, and whether it is probable that the program has 
     resulted in savings through reduced hospitalizations and 
     morbidity due to medication errors and adverse medicine 
     reactions.
       (4) Whether patient medical record confidentiality is being 
     maintained and safe-guarded.
       (5) Such other issues as the Comptroller General may 
     consider.
       (b) Reports.--The Comptroller General shall issue such 
     reports on the results of the ongoing study described in 
     subsection (a) as the Comptroller General shall deem 
     appropriate and shall notify Congress on a timely basis of 
     significant problems in the operation of the part D 
     prescription medicine program and the need for legislative 
     adjustments and improvements.
       (c) Miscellaneous Studies and Reports.--
       (1) Study on methods to encourage additional research on 
     breakthrough pharmaceuticals.--
       (A) In general.--The Secretary of Health and Human Services 
     shall seek the advice of the Secretary of the Treasury on 
     possible tax and trade law changes to encourage increased 
     original research on new pharmaceutical breakthrough products 
     designed to address disease and illness.
       (B) Report.--Not later than January 1, 2003, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include recommended methods to encourage the 
     pharmaceutical industry to devote more resources to research 
     and development of new covered products than it devotes to 
     overhead expenses.
       (2) Study on pharmaceutical sales practices and impact on 
     costs and quality of care.--
       (A) In general.--The Secretary of Health and Human Services 
     shall conduct a study on the methods used by the 
     pharmaceutical industry to advertise and sell to consumers 
     and educate and sell to providers.
       (B) Report.--Not later than January 1, 2003, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include the estimated direct and indirect costs of the 
     sales methods used, the quality of the information conveyed, 
     and whether such sales efforts leads (or could lead) to 
     inappropriate prescribing. Such report may include 
     legislative and regulatory recommendations to encourage more 
     appropriate education and prescribing practices.
       (3) Study on cost of pharmaceutical research.--
       (A) In general.--The Secretary of Health and Human Services 
     shall conduct a study on the costs of, and needs for, the 
     pharmaceutical research and the role that the taxpayer 
     provides in encouraging such research.
       (B) Report.--Not later than January 1, 2003, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include a description of the full-range of taxpayer-
     assisted programs impacting pharmaceutical research, 
     including tax, trade, government research, and regulatory 
     assistance. The report may also include legislative and 
     regulatory recommendations that are designed to ensure that 
     the taxpayer's investment in pharmaceutical research results 
     in the availability of pharmaceuticals at reasonable prices.
       (4) Report on pharmaceutical prices in major foreign 
     nations.--Not later than January 1, 2003, the Secretary of 
     Health and Human Services shall submit to Congress a report 
     on the retail price of major pharmaceutical products in 
     various developed nations, compared to prices for the same or 
     similar products in the United States. The report shall 
     include a description of the principal reasons for any price 
     differences that may exist.

     SEC. 8. MEDIGAP TRANSITION PROVISIONS.

       (a) In General.--Notwithstanding any other provision of 
     law, no new medicare supplemental policy that provides 
     coverage of expenses for prescription drugs may be issued 
     under section 1882 of the Social Security Act on or after 
     January 1, 2003, to an individual unless it replaces a 
     medicare supplemental policy that was issued to that 
     individual and that provided some coverage of expenses for 
     prescription drugs.

[[Page S5455]]

       (b) Issuance of Substitute Policies if Prescription Drug 
     Coverage Is Obtained Through Medicare.--
       (1) In general.--The issuer of a medicare supplemental 
     policy--
       (A) may not deny or condition the issuance or effectiveness 
     of a medicare supplemental policy that has a benefit package 
     classified as ``A'', ``B'', ``C'', ``D'', ``E'', ``F'', or 
     ``G'' (under the standards established under subsection 
     (p)(2) of section 1882 of the Social Security Act, 42 U.S.C. 
     1395ss) and that is offered and is available for issuance to 
     new enrollees by such issuer;
       (B) may not discriminate in the pricing of such policy, 
     because of health status, claims experience, receipt of 
     health care, or medical condition; and
       (C) may not impose an exclusion of benefits based on a 
     preexisting condition under such policy,

     in the case of an individual described in paragraph (2) who 
     seeks to enroll under the policy not later than 63 days after 
     the date of the termination of enrollment described in such 
     paragraph and who submits evidence of the date of termination 
     or disenrollment along with the application for such medicare 
     supplemental policy.
       (2) Individual covered.--An individual described in this 
     paragraph is an individual who--
       (A) enrolls in a prescription drug plan under part D of 
     title XVIII of the Social Security Act; and
       (B) at the time of such enrollment was enrolled and 
     terminates enrollment in a medicare supplemental policy which 
     has a benefit package classified as ``H'', ``I'', or ``J'' 
     under the standards referred to in paragraph (1)(A) or 
     terminates enrollment in a policy to which such standards do 
     not apply but which provides benefits for prescription drugs.
       (3) Enforcement.--The provisions of paragraph (1) shall be 
     enforced as though they were included in section 1882(s) of 
     the Social Security Act (42 U.S.C. 1395ss(s)).
       (4) Definitions.--For purposes of this subsection, the term 
     ``medicare supplemental policy'' has the meaning given such 
     term in section 1882(g) of the Social Security Act (42 U.S.C. 
     1395ss(g)).
                                 ______