[Congressional Record Volume 148, Number 79 (Friday, June 14, 2002)]
[Senate]
[Pages S5584-S5597]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAHAM (for himself, Mr. Miller, Mr. Kennedy, Mr. 
        Rockefeller, Mr. Daschle, Mr. Cleland, Mr. Inouye, Mr. Reid, 
        Ms. Mikulski, Mr. Johnson, Mr. Leahy, Mrs. Clinton, Mr. Nelson 
        of Florida, Mr. Sarbanes, Mr. Bingaman, Ms.

[[Page S5585]]

        Stabenow, Mr. Wellstone, Mr. Hollings, Mrs. Murray, Mr. 
        Schumer, Mr. Akaka, Mrs. Boxer, Mr. Reed, Mr. Dodd, Mr. Levin, 
        Mrs. Carnahan, Ms. Cantwell, Mr. Durbin, and Mr. Dayton):
  S. 2625. A bill to amend title XVIII of the Social Security Act to 
provide coverage of outpatient prescription drugs under the Medicare 
Program; to the Committee on Finance.
  Mr. GRAHAM. Madam President, along with my colleagues, Senators, 
Miller and Kennedy, I am very pleased to announce the introduction of 
the Medicare Outpatient Prescription Drug Act of 2002.
  A prescription drug benefit is the most fundamental shift we can make 
in the health care of older Americans. Adding a prescription drug 
benefit to Medicare will represent a 180 degree turn, a change in the 
focus of how we deliver health care to our Nation's seniors.
  Quite simply, including prescription drugs will transform Medicare 
from a sickness program to a wellness program. Failure to provide a 
prescription drug benefit will continue to confine millions of elderly 
Americans to a system that is antiquated, one that only looks backward, 
not forward.
  The sponsors of this legislation do not buy the conventional wisdom 
that nothing significant can be enacted in an election year. We are 
committed to meeting our goal this year: passage of a universal, 
comprehensive, and affordable prescription drug benefit.
  To be sure, there are questions in this debate which still remain. 
But, the most important question, ``will our drug benefit meet seniors' 
needs?'', can be answered with a resounding ``YES.''
  The voluntary benefit we are offering to all seniors is very simple, 
no gimmicks, gotchas or ``gaps'' to fall into. With our benefit, ``what 
you see is what you get.'' Seniors will know exactly what they will 
pay, and exactly what they will get: the monthly premium is $25, no 
matter where a person lives; all beneficiaries get assistance from the 
very first prescription of the year.
  For the first two years, seniors will pay $10 for each generic 
prescription, and no more than $40 for all medically-necessary brand-
name medicines. All other drugs would cost no more than $60. After two 
years, the co-pay will be indexed to the increase in prescription drug 
prices.
  Seniors who either pay $4,000 out of their own pocket or have a third 
party contribute towards this $4,000 spending level would pay no more.
  Seniors with very low incomes, below 135 percent of poverty, would 
pay no premiums. Seniors with incomes between 135 and 150 percent of 
the poverty level would pay reduced premiums.
  And no senior will be faced with a burdensome ``asset test'' that 
could deny them the very drugs they need.
  This kind of certainty, and this kind of help, is what beneficiaries 
need. Take, for example a 68-year-old man with two conditions very 
common among the elderly, congestive heart failure and diabetes, and no 
drug coverage. He would have to spend over $5,100 annually for a 
typical medication regimen. Under our plan, this gentleman would get 
the medicines he needs to stay healthy, and would save nearly $3,300.
  In addition to being affordable, comprehensive, and universally 
available to all of America's seniors, we need a drug benefit that will 
be attractive to beneficiaries. Why? Because voluntary participation of 
all seniors will ensure that we will have a program that is sustainable 
for the long run. A program that attracts only the sickest 
beneficiaries is doomed to fail.
  The Congressional Budget Office has evaluated our plan and has stated 
that it does not leave a single Medicare beneficiary without access to 
drug coverage.
  How does this bill achieve this goal? By following the principle that 
the drug benefit should track the prescription drug benefits that 
seniors have been accustomed to in their working years. We have an 
attractive benefit with an affordable premium and a catastrophic 
provision that is an insurance policy for all elderly, in particular, 
for those seniors who are healthy right now, but who may face health 
problems later in life. We have modeled our bill after what works for 
most Americans right now. Our benefit includes tiered copayments, and 
we use as our delivery system the private sector model in place today 
in every part of the country.
  Addition of a prescription drug benefit will be the largest expansion 
of the Medicare program since it was initiated in 1965. This fact 
challenges Congress to be sure that we get it right. In light of the 
scope of the changes we are making, we are suggesting that, after seven 
years, Congress should examine how well the benefit is working and to 
make whatever modifications are necessary and appropriate. Not only 
will we learn about how our delivery system has worked, but we can 
discover that access to prescription drugs will save Medicare money. 
How? By doctors prescribing medications instead of performing costly 
medical procedures. A physician on my staff recently told me that his 
students had never seen an ulcer operation. Why? Because prescription 
drugs have ended the need for this surgery.
  Improving Medicare by including a prescription drug benefit is a 
serious and critical undertaking, and deserves our most serious 
efforts. We all know that our seniors cannot afford to wait out another 
election cycle.
  I am pleased to announce that the American Association of Retired 
Persons, America Federation of State and County Municipal Employees, 
the National Council on the Aging, Families USA, the AFL-CIO, the 
Alliance for Retired Americans, the National Committee to Preserve 
Social Security and Medicare, and the Generic Pharmaceutical 
Association support our legislation. I ask unanimous consent that their 
letters of support be printed in the Record. With their help, we can 
get this done this year.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                                         AARP,

                                    Washington, DC, June 12, 2002.
     Hon. Bob Graham and Hon. Zell Miller,
     U.S. Senate,
     Washington, DC.
       Dear Senators: We are pleased to restate our position on 
     your revised Medicare prescription drug proposal. Action on a 
     bipartisan prescription drug benefit is a top priority for 
     AARP, our members and the nation.
       Medicare beneficiaries have waited long enough for access 
     to meaningful, affordable prescription drug coverage. We know 
     from our membership that in order for a Medicare prescription 
     drug benefit to provide comprehensive coverage it must 
     include:
       An affordable premium and coinsurance;
       Meaningful catastrophic stop-loss that limits out-of-pocket 
     costs;
       A benefit that does not expose beneficiaries to a gap in 
     insurance coverage;
       Additional assistance for low-income beneficiaries; and
       Quality and safety features to curb unnecessary costs and 
     prevent dangerous drug interactions.
       AARP supports your initiative in incorporate these goals. 
     We commend you for including key elements in your proposal 
     that Medicare beneficiaries and our members have indicated 
     they find valuable. For instance, your proposal includes a 
     premium that many Medicare beneficiaries view as affordable 
     and a benefit design that does not include a gap in insurance 
     coverage. Your proposal also now includes co-payments 
     specified as dollar amounts, an approach that our research 
     shows our members prefer to coinsurance. In our view, this 
     plan could provide real value to beneficiaries in protecting 
     them against the high costs of prescription drugs.
       It is important that any prescription drug benefit be made 
     a permanent and stable part of Medicare, and we want to work 
     with you to achieve this before enactment.
       Thank you for your leadership on this issue. We look 
     forward to working with you and your colleagues as the 
     legislation moves forward. AARP will continue to urge 
     Congress to work in a bipartisan manner to enact affordable, 
     meaningful Medicare prescription drug coverage.
           Sincerely,
                                               William D. Novelli,
     Executive Director and CEO.
                                  ____



                            The National Council on the Aging,

                                    Washington, DC, June 11, 2002.
     Hon. Bob Graham,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Graham: On behalf of the National Council on 
     the Aging (NCOA)--the nation's first organization formed to 
     represent America's seniors and those who serve them--I write 
     to commend and thank you for your proposal to provide 
     meaningful Medicare prescription drug coverage to America's 
     seniors. The Medicare Outpatient Prescription Drug Act of 
     2002 is consistent with the principles supported by the vast 
     majority of

[[Page S5586]]

     organizations representing Medicare beneficiaries. It 
     provides the foundation for a vehicle that we hope can 
     achieve bipartisan consensus on this issue this year.
       NCOA is particularly pleased that your legislation would 
     provide prescription drug coverage that is universal, 
     voluntary, reliable, and continuous. Other proposals being 
     offered include significant coverage gaps and would fail to 
     solve the problem. Under such bills, a significant number of 
     beneficiaries would not want to participate in the program, 
     and many of those who do participate would continue to be 
     forced to choose between buying food and essential medicines.
       We commend many of the modifications you have made to your 
     Medicare bill from last year. These improvements include a 
     significantly lower premium, the option to provide a flat 
     copayment, an earlier effective date, and assistance with the 
     very first prescription. We believe these changes will make 
     the coverage affordable and attractive to the vast majority 
     of beneficiaries, which is so critical to making a voluntary 
     prescription drug program work. While we have concerns about 
     the need to reauthorize the program after 2010, we understand 
     the budget trade-offs needed to provide meaningful and 
     attractive coverage, and fully expect that the Congress would 
     reauthorize the program.
       NCOA is also pleased that your proposal does not include 
     price controls and that the program would promote stability 
     and efficiency through administration by multiple, competing 
     Pharmacy Benefit Managers (PBMs), using management tools 
     available in the private sector in which PBMs would be at 
     risk of their performance, including effective cost 
     containment.
       NCOA deeply appreciates your efforts to move this critical 
     debate in a direction that guarantees access to meaningful 
     coverage--even in rural and frontier areas of the country--
     and responds in a constructive manner to many of the specific 
     concerns that have been raised regarding other Medicare 
     prescription drug proposals.
       It is impossible to have real health security without 
     coverage for prescription drugs. Prescription drug coverage 
     is the number one legislative priority for America's seniors. 
     Virtually every member of Congress has made campaign promises 
     to try to pass a good prescription drug bill. The time has 
     come to get serious and to work together to achieve consensus 
     on the issues in controversy. Your proposal provides us with 
     an excellent starting point.
       NCOA looks forward to working on a bipartisan basis with 
     you and other members of Congress to pass legislation this 
     year that provides meaningful, continuous, affordable 
     prescription drug coverage to all Medicare beneficiaries.
           Sincerely,
                                                     James Firman,
     President and CEO.
                                  ____

                                    National Committee to Preserve


                                 Social Security and Medicare,

                                    Washington, DC, June 12, 2002.
     Sen. Bob Graham,
     Senate Hart Office Building,
     Washington, DC.
       Dear Senator Graham: On behalf of the millions of members 
     and supporters of the National Committee to Preserve Social 
     Security and Medicare, I write in support of your Medicare 
     prescription drug legislation that will provide much needed 
     relief to seniors. Your bill contains all of the elements 
     that seniors need in a comprehensive drug benefit under 
     Medicare, such as universal, voluntary, affordable, not means 
     tested and most importantly, with a defined benefit, so that 
     seniors can plan accordingly. Prescription drug prices are 
     increasing over 17% per year (faster than inflation) and 
     seniors are spending more on out-of-pocket drug expenditures 
     than ever. The time is now to enact a drug benefit that will 
     provide the Medicare beneficiary with some assistance.
       We are pleased that your plan would be available for 
     seniors, no matter where they live. Our members have 
     expressed to us that a prescription drug benefit must be 
     affordable. We believe that a plan such as yours, with no 
     annual deductible and a $4,000 cap on out of pocket 
     expenditures, is reasonable and one that most seniors would 
     be able to afford.
       We applaud you for your leadership in this area. Please let 
     me know how we can further support your efforts.
           Sincerely,
                                                 Barbara Kennelly,
     President.
                                  ____



                                                 Families USA,

                                    Washington, DC, June 13, 2002.
     Sen. Bob Graham,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Graham: We congratulate you and Senators 
     Miller, Kennedy and Rockefeller on the introduction of your 
     bill, ``The Medicare Outpatient Prescription Drug Act,'' 
     which provides a prescription drug benefit for Medicare 
     beneficiaries.
       This is an issue of utmost importance to all Americans who 
     need prescription drugs, especially to seniors and people 
     with disabilities. As you well know, seniors' ability to 
     afford prescription drugs is a particularly difficult problem 
     today. In our 2001 report entitled, ``Enough to Make You 
     Sick: Prescription Drug Prices for the Elderly,'' we 
     concluded that the 50 top drugs used by seniors rose 2.3 
     times the rate of inflation between 2000 and 2001. We are in 
     the process of updating this report for last year, and our 
     preliminary data shows that this devastating rate of price 
     increases continues. Millions of seniors have limited income 
     and no, or limited, drug coverage and will find themselves 
     deciding whether to buy drugs or to pay for other essentials.
       Your bill addresses many important design issues that we 
     care about in a Medicare prescription drug benefit. The 
     benefit is universal, comprehensive, and is delivered through 
     the Medicare program, ensuring that seniors know it will be 
     available to them when it is needed. Low-income people get 
     extra assistance. Also, there are provisions to assure that 
     costs will be contained and quality maintained.
       Please let us know how we can assist you to move this bill 
     toward enactment so that all Medicare beneficiaries can have 
     access to the prescription drugs they need.
           Sincerely,
                                                Ronald F. Pollack,
     Executive Director.
                                  ____

         American Federation of State, County and Municipal 
           Employees, AFL-CIO,
                                    Washington, DC, June 12, 2002.
     Senators Edward Kennedy, Bob Graham, and Zell Miller,
     U.S. Senate,
     Washington, DC.
       Dear Senators: On behalf of the 1.3 million members of the 
     American Federation of State, County and Municipal Employees 
     (AFSCME), I am writing to express our support for the 
     Medicare prescription drug benefit proposal you unveiled 
     today.
       AFSCME has long supported the creation of a Medicare 
     prescription drug benefit that is comprehensive in coverage, 
     affordable and voluntary for all Medicare beneficiaries. We 
     believe that your proposal is a solid step forward in meeting 
     these standards.
       In particular, we applaud your proposal's provisions for 
     continuous coverage. We believe that it is one of the most 
     critical components of a meaningful prescription drug 
     benefit. Beneficiaries must have coverage they can count on, 
     with no gaps in coverage. Doing anything less would force our 
     seniors to pay all prescription costs out of their own pocket 
     when they will need the coverage the most.
       Since Medicare was started over 35 years ago, many 
     illnesses that were once only treatable in a hospital can now 
     be effectively treated with prescription drugs. Adding a drug 
     benefit to the program is the most urgently needed Medicare 
     reform. We applaud you for not holding the prescription drug 
     benefit hostage to force radical privatization proposals that 
     would cut benefits and increase costs for retirees.
       We look forward to working with you and the other sponsors 
     of this important legislation. A Medicare prescription drug 
     benefit is long overdue, and our nation's seniors deserve no 
     less.
           Sincerely,
                                              Charles M. Loveless,
     Director of Legislation.
                                  ____

         American Federation of Labor and Congress of Industrial 
           Organizations,
                                    Washington, DC, June 12, 2002.
     Hon. Bob Graham,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Graham: On behalf of the 13 million members of 
     the AFL-CIO, I am writing to commend you for your efforts to 
     provide much-needed relief to Medicare beneficiaries. Your 
     proposal to create a voluntary drug benefit within the 
     Medicare program represents an encouraging and solid step 
     toward enacting the one reform most urgently needed for 
     Medicare.
       Seniors need a real benefit that provides comprehensive, 
     continuous and certain coverage. The Graham-Miller-Kennedy 
     bill provides that benefit, giving seniors coverage they can 
     count on. A Medicare drug benefit must also be affordable for 
     beneficiaries. The $25 monthly premium and zero deductible in 
     your proposal means seniors need only pay an affordable 
     premium to begin getting coverage immediately. And no senior 
     will have to pay more than $40 for the drugs they need and 
     often will pay less.
       In addition, your proposal would not put at risk those 
     retirees who currently have some prescription drug coverage 
     through an employer. Retiree health care is the primary 
     source of prescription drug coverage for seniors, and your 
     proposal rightly provides some relief for employers that 
     choose to continue that coverage.
       A proposal widely reported under consideration by House 
     Republican leaders offers only unreliable, expensive and 
     unworkable coverage through private plans, with an enormous 
     gap in coverage that leaves seniors without any coverage at 
     all for drug costs between $2000 and $4500. And the only 
     relief for employers is if they drop the coverage they now 
     offer. Such a proposal will not move us any closer to a real 
     benefit.
       As this debate moves forward, we want to work with you and 
     your co-sponsors to enact the best possible Medicare drug 
     benefit. We appreciate your role in advancing that process.
           Sincerely,
                                                   William Samuel,
                                          Director of Legislation.

[[Page S5587]]

     
                                  ____
                               Alliance for Retired Americans,

                                    Washington, DC, June 12, 2002.
     Sen. Edward M. Kennedy,
     U.S. Senate,
     Washington, DC.
       Dear Senator Kennedy: On behalf of the over 2.7 million 
     members of the Alliance for Retired Americans, I want to 
     thank you for your tireless work on behalf of older and 
     disabled Americans to create a Medicare prescription drug 
     benefit program. I also want to express our views on the 
     Medicare prescription drug legislation proposed by you and 
     Senators Graham and Miller. The Alliance supports this 
     proposal as a positive step forward in the effort to create a 
     Medicare prescription drug benefit program.
       The Alliance for Retired Americans believes that all older 
     and disabled Americans need an affordable, comprehensive, and 
     voluntary Medicare prescription drug benefit now. Such a 
     benefit program should have low monthly premiums, annual 
     deductibles, and be administered as part of the Medicare 
     program. Your proposed legislation meets these Alliance 
     principles. Unlike other proposals that would begin in 2005, 
     your plan would start in 2004, which gives beneficiaries the 
     coverage they need a full year earlier.
       The Alliance will work to enact your legislation. During 
     legislative deliberations, the Alliance will seek to improve 
     benefits because we believe that an 80/20 co-insurance 
     payment system, like the rest of Medicare, will provide the 
     best benefits for older and disabled Americans. The Alliance 
     also supports a $2,000 annual catastrophic cap. We will 
     continue to work to improve any legislation that moves 
     through Congress in order to reach these goals.
       Older Americans will spend $1.8 trillion on prescription 
     drugs during the next decade. The inflation rate for 
     prescription drugs will continue at an annual double digit 
     pace as well. Our members and indeed all Americans simply 
     cannot afford these costs. We look forward to working with 
     you and Senators Graham and Miller to enact a comprehensive 
     Medicare prescription drug benefit as soon as possible.
           Sincerely yours,
                                                  Edward F. Coyle,
     Executive Director.
                                  ____



                           Generic Pharmaceutical Association,

                                    Washington, DC, June 12, 2002.
     Hon. Bob Graham,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Graham: On behalf of the Generic 
     Pharmaceutical Association (GPhA), we would like to commend 
     you and Senators Miller and Kennedy for your leadership 
     introducing legislation to create a Medicare prescription 
     drug benefit for our nation's seniors. We agree with you that 
     the passage and enactment of a voluntary Medicare 
     prescription drug benefit is long overdue. We are strongly 
     supportive of your innovative tiered co-pay structure, as 
     well as the other provisions advocated by you and your 
     colleagues, that are designed to increase the utilization of 
     high-quality, affordable generic medicines.
       Generic pharmaceuticals have a proven track record of 
     substantially lowering drug costs. Studies have shown that 
     for every 1 percent increase in generic drug utilization, 
     consumer, business, and health plan purchasers save over $1 
     billion. The increased use of generics can play an invaluable 
     role in helping Medicare, Medicaid, the Federal Employees 
     Health Benefit Plan (FEHBP) and other Federal and private 
     plans assure that beneficiaries have access to quality, 
     affordable medications. A tiered co-pay system with a 
     significant differential between brand and generic 
     pharmaceuticals will ensure an appropriate incentive is in 
     place for seniors to consider more cost-effective options 
     when making choices about pharmaceutical therapies. We 
     believe an explicit dollar co-pay will also provide seniors 
     with the comfort of knowing they will pay a fixed cost to 
     have their prescriptions filled.
       With your leadership, the Graham/Miller/Kennedy bill 
     employs a number of private sector best practices that are 
     now widely used to assure access to cost-effective, quality 
     affordable medications. These provisions not only encourage 
     the appropriate and beneficial use of these products, but 
     provide unbiased and greatly needed educational information 
     to the public about the benefits of these medicines.
       The Graham/Miller/Kennedy bill adheres to GPhA's principles 
     for creating a Medicare prescription drug benefit and steers 
     the Medicare reform debate down a prudent public policy path. 
     We look forward to working with you, your cosponsors and with 
     other Members of the House and Senate of both parties to 
     further our common objective of providing our nation's nearly 
     40 million Medicare beneficiaries and the taxpayers who help 
     support them with the most affordable and highest quality 
     prescription drug benefit possible. If the rest of the 
     Congress and the Administration follow your lead in 
     recognizing the role generics must play in reaching this 
     objective, we are confident we will achieve this goal.
       Thank you again for your efforts. If we can be of any 
     assistance to you, please do not hesitate to call.
           Sincerely,
                                                  Kathleen Jaeger,
                                                President and CEO.

  Mr. GRAHAM. I want to thank Senators Miller and Kennedy for their 
leadership and commitment to this issue, and urge all of our colleagues 
to join us in ensuring passage of this critical legislation this year.
  I ask unanimous consent that the text of the legislation be printed 
in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2625

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Medicare 
     Outpatient Prescription Drug Act of 2002''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

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

         ``Part D--Outpatient Prescription Drug Benefit Program

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

     SEC. 2. MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT 
                   PROGRAM.

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

         ``Part D--Outpatient Prescription Drug Benefit Program


                             ``definitions

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

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

       ``(ii) A biological product which--

       ``(I) may only be dispensed upon prescription;
       ``(II) is licensed under section 351 of the Public Health 
     Service Act; and

       ``(III) is produced at an establishment licensed under such 
     section to produce such product.

       ``(iii) Insulin approved under appropriate Federal law, 
     including needles, syringes, and disposable pumps for the 
     administration of such insulin.
       ``(iv) A prescribed drug or biological product that would 
     meet the requirements of

[[Page S5588]]

     clause (i) or (ii) except that it is available over-the-
     counter in addition to being available upon prescription.
       ``(B) Exclusion.--The term `covered outpatient drug' does 
     not include any product--
       ``(i) except as provided in subparagraph (A)(iv), which may 
     be distributed to individuals without a prescription;
       ``(ii) for which payment is available under part A or B or 
     would be available under part B but for the application of a 
     deductible under such part (unless payment for such product 
     is not available because benefits under part A or B have been 
     exhausted), determined, except as provided in subparagraph 
     (C), without regard to whether the beneficiary involved is 
     entitled to benefits under part A or enrolled under part B; 
     or
       ``(iii) except for agents used to promote smoking cessation 
     and agents used for the treatment of obesity, for which 
     coverage may be excluded or restricted under section 
     1927(d)(2).
       ``(C) Clarification regarding immunosuppressive drugs.--In 
     the case of a beneficiary who is not eligible for any 
     coverage under part B of drugs described in section 
     1861(s)(2)(J) because of the requirements under such section 
     (and would not be so eligible if the individual were enrolled 
     under such part), the term `covered outpatient drug' shall 
     include such drugs if the drugs would otherwise be described 
     in subparagraph (A).
       ``(2) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual that is entitled to benefits 
     under part A or enrolled under part B.
       ``(3) Eligible entity.--The term `eligible entity' means 
     any entity that the Secretary determines to be appropriate to 
     provide eligible beneficiaries with covered outpatient drugs 
     under a plan under this part, including--
       ``(A) a pharmacy benefit management company;
       ``(B) a retail pharmacy delivery system;
       ``(C) a health plan or insurer;
       ``(D) a State (through mechanisms established under a State 
     plan under title XIX);
       ``(E) any other entity approved by the Secretary; or
       ``(F) any combination of the entities described in 
     subparagraphs (A) through (E) if the Secretary determines 
     that such combination--
       ``(i) increases the scope or efficiency of the provision of 
     benefits under this part; and
       ``(ii) is not anticompetitive.
       ``(4) Medicare+choice organization; medicare+choice plan.--
     The terms `Medicare+Choice organization' and `Medicare+Choice 
     plan' have the meanings given such terms in subsections 
     (a)(1) and (b)(1), respectively, of section 1859 (relating to 
     definitions relating to Medicare+Choice organizations).
       ``(5) Prescription drug account.--The term `Prescription 
     Drug Account' means the Prescription Drug Account (as 
     established under section 1860K) in the Federal Supplementary 
     Medical Insurance Trust Fund under section 1841.


    ``establishment of outpatient prescription drug benefit program

       ``Sec. 1860A. (a) Provision of Benefit.--
       ``(1) In general.--Beginning in 2004, the Secretary shall 
     provide for and administer an outpatient prescription drug 
     benefit program under which each eligible beneficiary 
     enrolled under this part shall be provided with coverage of 
     covered outpatient drugs as follows:
       ``(A) Medicare+choice plan.--If the eligible beneficiary is 
     eligible to enroll in a Medicare+Choice plan, the 
     beneficiary--
       ``(i) may enroll in such a plan; and
       ``(ii) if so enrolled, shall obtain coverage of covered 
     outpatient drugs through such plan.
       ``(B) Medicare prescription drug plan.--If the eligible 
     beneficiary is not enrolled in a Medicare+Choice plan, the 
     beneficiary shall obtain coverage of covered outpatient drugs 
     through enrollment in a plan offered by an eligible entity 
     with a contract under this part.
       ``(2) Voluntary nature of program.--Nothing in this part 
     shall be construed as requiring an eligible beneficiary to 
     enroll in the program established under this part.
       ``(3) Scope of benefits.--The program established under 
     this part shall provide for coverage of all therapeutic 
     classes of covered outpatient drugs.
       ``(b) Access to Alternative Prescription Drug Coverage.--In 
     the case of an eligible beneficiary who has creditable 
     prescription drug coverage (as defined in section 
     1860B(b)(1)(F)), such beneficiary--
       ``(1) may continue to receive such coverage and not enroll 
     under this part; and
       ``(2) pursuant to section 1860B(b)(1)(C), is permitted to 
     subsequently enroll under this part without any penalty and 
     obtain coverage of covered outpatient drugs in the manner 
     described in subsection (a) if the beneficiary involuntarily 
     loses such coverage.
       ``(c) Financing.--The costs of providing benefits under 
     this part shall be payable from the Prescription Drug 
     Account.


                       ``enrollment under program

       ``Sec. 1860B. (a) Establishment of Process.--
       ``(1) Process similar to enrollment under part b.--The 
     Secretary shall establish a process through which an eligible 
     beneficiary (including an eligible beneficiary enrolled in a 
     Medicare+Choice plan offered by a Medicare+Choice 
     organization) may make an election to enroll under this part. 
     Such process shall be similar to the process for enrollment 
     in part B under section 1837, including the deeming 
     provisions of such section.
       ``(2) Requirement of enrollment.--An eligible beneficiary 
     must enroll under this part in order to be eligible to 
     receive covered outpatient drugs under this title.
       ``(b) Special Enrollment Procedures.--
       ``(1) Late enrollment penalty.--
       ``(A) Increase in premium.--Subject to the succeeding 
     provisions of this paragraph, in the case of an eligible 
     beneficiary whose coverage period under this part began 
     pursuant to an enrollment after the beneficiary's initial 
     enrollment period under part B (determined pursuant to 
     section 1837(d)) and not pursuant to the open enrollment 
     period described in paragraph (2), the Secretary shall 
     establish procedures for increasing the amount of the monthly 
     part D premium under section 1860E(a) applicable to such 
     beneficiary--
       ``(i) by an amount that is equal to 10 percent of such 
     premium for each full 12-month period (in the same continuous 
     period of eligibility) in which the eligible beneficiary 
     could have been enrolled under this part but was not so 
     enrolled; or
       ``(ii) if determined appropriate by the Secretary, by an 
     amount that the Secretary determines is actuarily sound for 
     each such period.
       ``(B) Periods taken into account.--For purposes of 
     calculating any 12-month period under subparagraph (A), there 
     shall be taken into account--
       ``(i) the months which elapsed between the close of the 
     eligible beneficiary's initial enrollment period and the 
     close of the enrollment period in which the beneficiary 
     enrolled; and
       ``(ii) in the case of an eligible beneficiary who reenrolls 
     under this part, the months which elapsed between the date of 
     termination of a previous coverage period and the close of 
     the enrollment period in which the beneficiary reenrolled.
       ``(C) Periods not taken into account.--
       ``(i) In general.--For purposes of calculating any 12-month 
     period under subparagraph (A), subject to clause (ii), there 
     shall not be taken into account months for which the eligible 
     beneficiary can demonstrate that the beneficiary had 
     creditable prescription drug coverage (as defined in 
     subparagraph (F)).
       ``(ii) Application.--This subparagraph shall only apply 
     with respect to a coverage period the enrollment for which 
     occurs before the end of the 60-day period that begins on the 
     first day of the month which includes--

       ``(I) in the case of a beneficiary with coverage described 
     in clause (ii) of subparagraph (F), the date on which the 
     plan terminates, ceases to provide, or reduces the value of 
     the prescription drug coverage under such plan to below the 
     actuarial value of the coverage provided under the program 
     under this part; or
       ``(II) in the case of a beneficiary with coverage described 
     in clause (i), (iii), or (iv) of subparagraph (F), the date 
     on which the beneficiary loses eligibility for such coverage.

       ``(D) Periods treated separately.--Any increase in an 
     eligible beneficiary's monthly part D premium under 
     subparagraph (A) with respect to a particular continuous 
     period of eligibility shall not be applicable with respect to 
     any other continuous period of eligibility which the 
     beneficiary may have.
       ``(E) Continuous period of eligibility.--
       ``(i) In general.--Subject to clause (ii), for purposes of 
     this paragraph, an eligible beneficiary's `continuous period 
     of eligibility' is the period that begins with the first day 
     on which the beneficiary is eligible to enroll under section 
     1836 and ends with the beneficiary's death.
       ``(ii) Separate period.--Any period during all of which an 
     eligible beneficiary satisfied paragraph (1) of section 1836 
     and which terminated in or before the month preceding the 
     month in which the beneficiary attained age 65 shall be a 
     separate `continuous period of eligibility' with respect to 
     the beneficiary (and each such period which terminates shall 
     be deemed not to have existed for purposes of subsequently 
     applying this paragraph).
       ``(F) Creditable prescription drug coverage defined.--For 
     purposes of this part, the term `creditable prescription drug 
     coverage' means any of the following:
       ``(i) Medicaid prescription drug coverage.--Prescription 
     drug coverage under a medicaid plan under title XIX, 
     including through the Program of All-inclusive Care for the 
     Elderly (PACE) under section 1934 and through a social health 
     maintenance organization (referred to in section 4104(c) of 
     the Balanced Budget Act of 1997).
       ``(ii) Prescription drug coverage under a group health 
     plan.--Prescription drug coverage under a group health plan, 
     including a health benefits plan under the Federal Employees 
     Health Benefit Program under chapter 89 of title 5, United 
     States Code, and a qualified retiree prescription drug plan 
     (as defined in section 1860J(e)(3)), that provides coverage 
     of the cost of prescription drugs the actuarial value of 
     which (as defined by the Secretary) to the beneficiary equals 
     or exceeds the actuarial value of the benefits provided to an 
     individual enrolled in the outpatient prescription drug 
     benefit program under this part.
       ``(iii) State pharmaceutical assistance program.--Coverage 
     of prescription drugs under a State pharmaceutical assistance 
     program.

[[Page S5589]]

       ``(iv) Veterans' coverage of prescription drugs.--Coverage 
     of prescription drugs for veterans, and survivors and 
     dependents of veterans, under chapter 17 of title 38, United 
     States Code.
       ``(2) Open enrollment period for current beneficiaries in 
     which late enrollment procedures do not apply.--
       ``(A) In general.--The Secretary shall establish an 
     applicable period, which shall begin on the date on which the 
     Secretary first begins to accept elections for enrollment 
     under this part, during which any eligible beneficiary may 
     enroll under this part without the application of the late 
     enrollment procedures established under paragraph (1)(A).
       ``(B) Open enrollment period to begin prior to january 1, 
     2004.--The Secretary shall ensure that eligible beneficiaries 
     are permitted to enroll under this part prior to January 1, 
     2004, in order to ensure that coverage under this part is 
     effective as of such date.
       ``(3) Special enrollment period for beneficiaries who 
     involuntarily lose creditable prescription drug coverage.--
     The Secretary shall establish a special open enrollment 
     period for an eligible beneficiary that loses creditable 
     prescription drug coverage.
       ``(c) Period of Coverage.--
       ``(1) In general.--Except as provided in paragraph (2) and 
     subject to paragraph (3), an eligible beneficiary's coverage 
     under the program under this part shall be effective for the 
     period provided in section 1838, as if that section applied 
     to the program under this part.
       ``(2) Open and special enrollment.--Subject to paragraph 
     (3), an eligible beneficiary who enrolls under the program 
     under this part pursuant to paragraph (2) or (3) of 
     subsection (b) shall be entitled to the benefits under this 
     part beginning on the first day of the month following the 
     month in which such enrollment occurs.
       ``(3) Limitation.--Coverage under this part shall not begin 
     prior to January 1, 2004.
       ``(d) Termination.--
       ``(1) In general.--The causes of termination specified in 
     section 1838 shall apply to this part in the same manner as 
     such causes apply to part B.
       ``(2) Coverage terminated by termination of coverage under 
     parts a and b.--
       ``(A) In general.--In addition to the causes of termination 
     specified in paragraph (1), the Secretary shall terminate an 
     individual's coverage under this part if the individual is no 
     longer enrolled in either part A or B.
       ``(B) Effective date.--The termination described in 
     subparagraph (A) shall be effective on the effective date of 
     termination of coverage under part A or (if later) under part 
     B.
       ``(3) Procedures regarding termination of a beneficiary 
     under a plan.--The Secretary shall establish procedures for 
     determining the status of an eligible beneficiary's 
     enrollment under this part if the beneficiary's enrollment in 
     a plan offered by an eligible entity under this part is 
     terminated by the entity for cause (pursuant to procedures 
     established by the Secretary under section 1860C(a)(1)).


                         ``enrollment in a plan

       ``Sec. 1860C. (a) Process.--
       ``(1) Establishment.--
       ``(A) In general.--The Secretary shall establish a process 
     through which an eligible beneficiary who is enrolled under 
     this part but not enrolled in a Medicare+Choice plan offered 
     by a Medicare+Choice organization shall make an annual 
     election to enroll in any plan offered by an eligible entity 
     that has been awarded a contract under this part and serves 
     the geographic area in which the beneficiary resides. Such 
     process shall include for the default enrollment in such a 
     plan in the case of an eligible beneficiary who is enrolled 
     under this part but who has failed to make an election of 
     such a plan.
       ``(B) Rules.--In establishing the process under 
     subparagraph (A), the Secretary shall--
       ``(i) use rules similar to the rules for enrollment, 
     disenrollment, and termination of enrollment with a 
     Medicare+Choice plan under section 1851, including--

       ``(I) the establishment of special election periods under 
     subsection (e)(4) of such section; and
       ``(II) the application of the guaranteed issue and renewal 
     provisions of subsection (g) of such section (other than 
     paragraph (3)(C)(i), relating to default enrollment); and

       ``(ii) coordinate enrollments, disenrollments, and 
     terminations of enrollment under part C with enrollments, 
     disenrollments, and terminations of enrollment under this 
     part.
       ``(2) First enrollment period for plan enrollment.--The 
     process developed under paragraph (1) shall--
       ``(A) ensure that eligible beneficiaries who choose to 
     enroll under this part are permitted to enroll with an 
     eligible entity prior to January 1, 2004, in order to ensure 
     that coverage under this part is effective as of such date; 
     and
       ``(B) be coordinated with the open enrollment period under 
     section 1860B(b)(2)(A).
       ``(b) Medicare+Choice Enrollees.--
       ``(1) In general.--An eligible beneficiary who is enrolled 
     under this part and enrolled in a Medicare+Choice plan 
     offered by a Medicare+Choice organization shall receive 
     coverage of covered outpatient drugs under this part through 
     such plan.
       ``(2) Rules.--Enrollment in a Medicare+Choice plan is 
     subject to the rules for enrollment in such a plan under 
     section 1851.


                ``providing information to beneficiaries

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


                               ``premiums

       ``Sec. 1860E. (a) Annual Establishment of Monthly Part D 
     Premium Rates.--
       ``(1) In general.--The Secretary shall, during September of 
     each year (beginning in 2003), determine and promulgate a 
     monthly part D premium rate for the succeeding year.
       ``(2) Amount.--The Secretary shall determine the monthly 
     part D premium rate for the succeeding year as follows:
       ``(A) Premium for 2004.--The monthly part D premium rate 
     for 2004 shall be $25.
       ``(B) Inflation adjustment of premium for 2005 and 
     subsequent years.--
       ``(i) In general.--Subject to clause (ii), in the case of 
     any calendar year beginning after 2004, the monthly part D 
     premium rate for the year shall be the amount described in 
     subparagraph (A) increased by an amount equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the percentage (if any) by which the amount of the 
     average annual per capita aggregate expenditures payable from 
     the Prescription Drug Account for the year (as estimated 
     under section 1860J(c)(2)(C)) exceeds the amount of such 
     expenditures in 2004.

[[Page S5590]]

       ``(ii) Rounding.--If the monthly part D premium rate 
     determined under clause (i) is not a multiple of $1, such 
     rate shall be rounded to the nearest multiple of $1.
       ``(b) Collection of Part D Premium.--The monthly part D 
     premium applicable to an eligible beneficiary under this part 
     (after application of any increase under section 1860B(b)(1)) 
     shall be collected and credited to the Prescription Drug 
     Account in the same manner as the monthly premium determined 
     under section 1839 is collected and credited to the Federal 
     Supplementary Medical Insurance Trust Fund under section 
     1840.


                ``outpatient prescription drug benefits

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


         ``entities eligible to provide outpatient drug benefit

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

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

       ``(2) Determination.--
       ``(A) In general.--In determining regions for contracts 
     under this part, the Secretary shall--
       ``(i) take into account the number of eligible 
     beneficiaries in an area in order to encourage participation 
     by eligible entities; and
       ``(ii) ensure that there are at least 10 different regions 
     in the United States.
       ``(B) No administrative or judicial review.--The 
     determination of coverage areas under this part shall not be 
     subject to administrative or judicial review.
       ``(c) Submission of Bids.--
       ``(1) Submission.--
       ``(A) In general.--Subject to subparagraph (B), each 
     eligible entity desiring to offer a plan under this part in 
     an area shall submit a bid with respect to such plan to the 
     Secretary at such time, in such manner, and accompanied by 
     such information as the Secretary may reasonably require.
       ``(B) Bid that covers multiple areas.--The Secretary shall 
     permit an eligible entity to submit a single bid for multiple 
     areas if the bid is applicable to all such areas.
       ``(2) Required information.--The bids described in 
     paragraph (1) shall include--
       ``(A) a proposal for the estimated prices of covered 
     outpatient drugs and the projected annual increases in such 
     prices, including differentials between formulary and 
     nonformulary prices, if applicable;
       ``(B) a statement regarding the amount that the entity will 
     charge the Secretary for managing, administering, and 
     delivering the benefits under the contract;
       ``(C) a statement regarding whether the entity will reduce 
     the applicable cost-sharing amount pursuant to section 
     1860F(b)(1)(B) and if so, the amount of such reduction and 
     how such reduction is tied to the performance requirements 
     described in section 1860I(b)(1)(C);

[[Page S5591]]

       ``(D) a detailed description of the performance 
     requirements for which the payments to the entity will be 
     subject to risk pursuant to section 1860I(b)(1)(C);
       ``(E) a detailed description of access to pharmacy services 
     provided under the plan, including information regarding--
       ``(i) whether the entity will use a preferred pharmacy 
     network under the plan; and
       ``(ii) if a preferred pharmacy network is used, whether the 
     entity will offer access to pharmacies that are outside such 
     network and if such access is provided, rules for accessing 
     such pharmacies;
       ``(F) with respect to the formulary used by the entity, a 
     detailed description of the procedures and standards the 
     entity will use for--
       ``(i) adding new drugs to a therapeutic class within the 
     formulary; and
       ``(ii) determining when and how often the formulary should 
     be modified;
       ``(G) a detailed description of any ownership or shared 
     financial interests with other entities involved in the 
     delivery of the benefit as proposed under the plan;
       ``(H) a detailed description of the entity's estimated 
     marketing and advertising expenditures related to enrolling 
     eligible beneficiaries under the plan and retaining such 
     enrollment; and
       ``(I) such other information that the Secretary determines 
     is necessary in order to carry out this part, including 
     information relating to the bidding process under this part.
       ``(d) Access to Benefits in Certain Areas.--
       ``(1) Areas not covered by contracts.--The Secretary shall 
     develop procedures for the provision of covered outpatient 
     drugs under this part to each eligible beneficiary enrolled 
     under this part that resides in an area that is not covered 
     by any contract under this part.
       ``(2) Beneficiaries residing in different locations.--The 
     Secretary shall develop procedures to ensure that each 
     eligible beneficiary enrolled under this part that resides in 
     different areas in a year is provided the benefits under this 
     part throughout the entire year.
       ``(e) Awarding of Contracts.--
       ``(1) Number of contracts.--The Secretary shall, consistent 
     with the requirements of this part and the goal of containing 
     costs under this title, award in a competitive manner at 
     least 2 contracts to offer a plan in an area, unless only 1 
     bidding entity (and the plan offered by the entity) meets the 
     minimum standards specified under this part and by the 
     Secretary.
       ``(2) Determination.--In determining which of the eligible 
     entities that submitted bids that meet the minimum standards 
     specified under this part and by the Secretary to award a 
     contract, the Secretary shall consider the comparative merits 
     of each bid, as determined on the basis of the past 
     performance of the entity and other relevant factors, with 
     respect to--
       ``(A) how well the entity (and the plan offered by the 
     entity) meet such minimum standards;
       ``(B) the amount that the entity will charge the Secretary 
     for managing, administering, and delivering the benefits 
     under the contract;
       ``(C) the performance requirements for which the payments 
     to the entity will be subject to risk pursuant to section 
     1860I(b)(1)(C);
       ``(D) the proposed negotiated prices of covered outpatient 
     drugs and annual increases in such prices;
       ``(E) the factors described in section 1860D(b)(2);
       ``(F) prior experience of the entity in managing, 
     administering, and delivering a prescription drug benefit 
     program;
       ``(G) effectiveness of the entity and plan in containing 
     costs through pricing incentives and utilization management; 
     and
       ``(H) such other factors as the Secretary deems necessary 
     to evaluate the merits of each bid.
       ``(3) Exception to conflict of interest rules.--In awarding 
     contracts under this part, the Secretary may waive conflict 
     of interest laws generally applicable to Federal acquisitions 
     (subject to such safeguards as the Secretary may find 
     necessary to impose) in circumstances where the Secretary 
     finds that such waiver--
       ``(A) is not inconsistent with the--
       ``(i) purposes of the programs under this title; or
       ``(ii) best interests of beneficiaries enrolled under this 
     part; and
       ``(B) permits a sufficient level of competition for such 
     contracts, promotes efficiency of benefits administration, or 
     otherwise serves the objectives of the program under this 
     part.
       ``(4) No administrative or judicial review.--The 
     determination of the Secretary to award or not award a 
     contract to an eligible entity with respect to a plan under 
     this part shall not be subject to administrative or judicial 
     review.
       ``(f) Approval of Marketing Material and Application 
     Forms.--The provisions of section 1851(h) shall apply to 
     marketing material and application forms under this part in 
     the same manner as such provisions apply to marketing 
     material and application forms under part C.
       ``(g) Duration of Contracts.--Each contract awarded under 
     this part shall be for a term of at least 2 years but not 
     more than 5 years, as determined by the Secretary.


               ``minimum standards for eligible entities

       ``Sec. 1860H. (a) In General.--The Secretary shall not 
     award a contract to an eligible entity under this part unless 
     the Secretary finds that the eligible entity agrees to comply 
     with such terms and conditions as the Secretary shall 
     specify, including the following:
       ``(1) Quality and financial standards.--The eligible entity 
     meets the quality and financial standards specified by the 
     Secretary.
       ``(2) Procedures to ensure proper utilization, compliance, 
     and avoidance of adverse drug reactions.--
       ``(A) In general.--The eligible entity has in place drug 
     utilization review procedures to ensure--
       ``(i) the appropriate utilization by eligible beneficiaries 
     enrolled in the plan covered by the contract of the benefits 
     to be provided under the plan;
       ``(ii) the avoidance of adverse drug reactions among such 
     beneficiaries, including problems due to therapeutic 
     duplication, drug-disease contraindications, drug-drug 
     interactions (including serious interactions with 
     nonprescription or over-the-counter drugs), incorrect drug 
     dosage or duration of drug treatment, drug-allergy 
     interactions, and clinical abuse and misuse; and
       ``(iii) the reasonable application of peer-reviewed medical 
     literature pertaining to improvements in pharmaceutical 
     safety and appropriate use of drugs.
       ``(B) Authority to use certain compendia and literature.--
     The eligible entity may use the compendia and literature 
     referred to in clauses (i) and (ii), respectively, of section 
     1927(g)(1)(B) as a source for the utilization review under 
     subparagraph (A).
       ``(3) Patient protections.--
       ``(A) Access.--
       ``(i) In general.--The eligible entity ensures that the 
     covered outpatient drugs are accessible and convenient to 
     eligible beneficiaries enrolled in the plan covered by the 
     contract, including by offering the services 24 hours a day 
     and 7 days a week for emergencies.
       ``(ii) Agreements with pharmacies.--The eligible entity 
     shall enter into a participation agreement with any pharmacy 
     that meets the requirements of subsection (d) to furnish 
     covered prescription drugs to eligible beneficiaries under 
     this part. Such agreements shall include the payment of a 
     reasonable dispensing fee for covered outpatient drugs 
     dispensed to a beneficiary under the agreement.
       ``(iii) Preferred pharmacy networks.--If the eligible 
     entity utilizes a preferred pharmacy network, the network 
     complies with the standards under subsection (e).
       ``(B) Ensuring that beneficiaries are not overcharged.--The 
     eligible entity has procedures in place to ensure that each 
     pharmacy with a participation agreement under this part with 
     the entity complies with the requirements under subsection 
     (d)(1)(C) (relating to adherence to negotiated prices).
       ``(C) Continuity of care.--
       ``(i) In general.--The eligible entity ensures that, in the 
     case of an eligible beneficiary who loses coverage under this 
     part with such entity under circumstances that would permit a 
     special election period (as established by the Secretary 
     under section 1860C(a)(1)), the entity will continue to 
     provide coverage under this part to such beneficiary until 
     the beneficiary enrolls and receives such coverage with 
     another eligible entity under this part or, if eligible, with 
     a Medicare+Choice organization.
       ``(ii) Limited period.--In no event shall an eligible 
     entity be required to provide the extended coverage required 
     under clause (i) beyond the date which is 30 days after the 
     coverage with such entity would have terminated but for this 
     subparagraph.
       ``(D) Procedures regarding the determination of drugs that 
     are medically necessary.--
       ``(i) In general.--The eligible entity has in place 
     procedures on a case-by-case basis to treat a nonpreferred 
     brand name drug as a preferred brand name drug and a 
     nonformulary drug as a preferred brand name drug under this 
     part if the nonpreferred brand name drug or the nonformulary 
     drug, as the case may be, is determined--

       ``(I) to be not as effective for the enrollee in preventing 
     or slowing the deterioration of, or improving or maintaining, 
     the health of the enrollee; or
       ``(II) to have a significant adverse effect on the 
     enrollee.

       ``(ii) Requirement.--The procedures under clause (i) shall 
     require that determinations under such clause are based on 
     professional medical judgment, the medical condition of the 
     enrollee, and other medical evidence.
       ``(E) Procedures regarding appeal rights with respect to 
     denials of care.--The eligible entity has in place procedures 
     to ensure--
       ``(i) a timely internal review for resolution of denials of 
     coverage (in whole or in part and including those regarding 
     the coverage of nonpreferred brand name drugs and 
     nonformulary drugs as preferred brand name drugs) in 
     accordance with the medical exigencies of the case and a 
     timely resolution of complaints, by enrollees in the plan, or 
     by providers, pharmacists, and other individuals acting on 
     behalf of each such enrollee (with the enrollee's consent) in 
     accordance with requirements (as established by the 
     Secretary) that are comparable to such requirements for 
     Medicare+Choice organizations under part C (and are not less 
     favorable to the enrollee than such requirements under

[[Page S5592]]

     such part as in effect on the date of enactment of the 
     Medicare Outpatient Prescription Drug Act of 2002);
       ``(ii) that the entity complies in a timely manner with 
     requirements established by the Secretary that (I) provide 
     for an external review by an independent entity selected by 
     the Secretary of denials of coverage described in clause (i) 
     not resolved in the favor of the beneficiary (or other 
     complainant) under the process described in such clause, and 
     (II) are comparable to the external review requirements 
     established for Medicare+Choice organizations under part C 
     (and are not less favorable to the enrollee than such 
     requirements under such part as in effect on the date of 
     enactment of the Medicare Outpatient Prescription Drug Act of 
     2002); and
       ``(iii) that enrollees are provided with information 
     regarding the appeals procedures under this part at the time 
     of enrollment with the entity and upon request thereafter.
       ``(F) Procedures regarding patient confidentiality.--
     Insofar as an eligible entity maintains individually 
     identifiable medical records or other health information 
     regarding eligible beneficiaries enrolled in the plan that is 
     covered by the contract, the entity has in place procedures 
     to--
       ``(i) safeguard the privacy of any individually 
     identifiable beneficiary information;
       ``(ii) maintain such records and information in a manner 
     that is accurate and timely;
       ``(iii) ensure timely access by such beneficiaries to such 
     records and information; and
       ``(iv) otherwise comply with applicable laws relating to 
     patient confidentiality.
       ``(G) Procedures regarding transfer of medical records.--
       ``(i) In general.--The eligible entity has in place 
     procedures for the timely transfer of records and information 
     described in subparagraph (F) (with respect to a beneficiary 
     who loses coverage under this part with the entity and 
     enrolls with another entity (including a Medicare+Choice 
     organization) under this part) to such other entity.
       ``(ii) Patient confidentiality.--The procedures described 
     in clause (i) shall comply with the patient confidentiality 
     procedures described in subparagraph (F).
       ``(H) Procedures regarding medical errors.--The eligible 
     entity has in place procedures for--
       ``(i) working with the Secretary to deter medical errors 
     related to the provision of covered outpatient drugs; and
       ``(ii) ensuring that pharmacies with a contract with the 
     entity have in place procedures to deter medical errors 
     related to the provision of covered outpatient drugs.
       ``(4) Procedures to control fraud, abuse, and waste.--The 
     eligible entity has in place procedures to control fraud, 
     abuse, and waste.
       ``(5) Reporting requirements.--
       ``(A) In general.--The eligible entity provides the 
     Secretary with reports containing information regarding the 
     following:
       ``(i) The negotiated prices that the eligible entity is 
     paying for covered outpatient drugs.
       ``(ii) The prices that eligible beneficiaries enrolled in 
     the plan that is covered by the contract will be charged for 
     covered outpatient drugs.
       ``(iii) The management costs of providing such benefits.
       ``(iv) Utilization of such benefits.
       ``(v) Marketing and advertising expenditures related to 
     enrolling and retaining eligible beneficiaries.
       ``(B) Timeframe for submitting reports.--
       ``(i) In general.--The eligible entity shall submit a 
     report described in subparagraph (A) to the Secretary within 
     3 months after the end of each 12-month period in which the 
     eligible entity has a contract under this part. Such report 
     shall contain information concerning the benefits provided 
     during such 12-month period.
       ``(ii) Last year of contract.--In the case of the last year 
     of a contract under this part, the Secretary may require that 
     a report described in subparagraph (A) be submitted 3 months 
     prior to the end of the contract. Such report shall contain 
     information concerning the benefits provided between the 
     period covered by the most recent report under this 
     subparagraph and the date that a report is submitted under 
     this clause.
       ``(C) Confidentiality of information.--
       ``(i) In general.--Notwithstanding any other provision of 
     law and subject to clause (ii), information disclosed by an 
     eligible entity pursuant to subparagraph (A) (except for 
     information described in clause (ii) of such subparagraph) is 
     confidential and shall only be used by the Secretary for the 
     purposes of, and to the extent necessary, to carry out this 
     part.
       ``(ii) Utilization data.--Subject to patient 
     confidentiality laws, the Secretary shall make information 
     disclosed by an eligible entity pursuant to subparagraph 
     (A)(iv) (regarding utilization data) available for research 
     purposes. The Secretary may charge a reasonable fee for 
     making such information available.
       ``(6) Approval of marketing material and application 
     forms.--The eligible entity complies with the requirements 
     described in section 1860G(f).
       ``(7) Records and audits.--The eligible entity maintains 
     adequate records related to the administration of the 
     benefits under this part and affords the Secretary access to 
     such records for auditing purposes.
       ``(b) Special Rules Regarding Cost-Effective Provision of 
     Benefits.--In providing the benefits under a contract under 
     this part, an eligible entity shall--
       ``(1) employ mechanisms to provide the benefits 
     economically, such as through the use of--
       ``(A) alternative methods of distribution;
       ``(B) preferred pharmacy networks (pursuant to subsection 
     (e)); and
       ``(C) generic drug substitution;
       ``(2) use mechanisms to encourage eligible beneficiaries to 
     select cost-effective drugs or less costly means of receiving 
     drugs, such as through the use of--
       ``(A) pharmacy incentive programs;
       ``(B) therapeutic interchange programs; and
       ``(C) disease management programs;
       ``(3) encourage pharmacy providers to--
       ``(A) inform beneficiaries of the differentials in price 
     between generic and brand name drug equivalents; and
       ``(B) provide medication therapy management programs in 
     order to enhance beneficiaries' understanding of the 
     appropriate use of medications and to reduce the risk of 
     potential adverse events associated with medications; and
       ``(4) develop and implement a formulary in accordance with 
     subsection (c).
       ``(c) Requirements for Formularies.--
       ``(1) In general.--The formulary developed and implemented 
     by the eligible entity shall comply with standards 
     established by the Secretary in consultation with the 
     Medicare Prescription Drug Advisory Committee established 
     under section 1860L.
       ``(2) Requirements for standards.--The standards 
     established under paragraph (1) shall require that the 
     eligible entity--
       ``(A) use a pharmacy and therapeutic committee (that meets 
     the standards for a pharmacy and therapeutic committee 
     established by the Secretary in consultation with such 
     Medicare Prescription Drug Advisory Committee) to develop and 
     implement the formulary;
       ``(B) assign all brand name drugs included in the formulary 
     to either the preferred category or nonpreferred category of 
     drugs;
       ``(C) include--
       ``(i) all generic covered outpatient drugs in the 
     formulary;
       ``(ii) at least 1 brand name covered outpatient drug from 
     each therapeutic class (as defined by the Secretary in 
     consultation with such Medicare Prescription Drug Advisory 
     Committee) as a preferred brand name drug in the formulary; 
     and
       ``(iii) if there is more than 1 brand name covered 
     outpatient drug available in a therapeutic class, at least 1 
     such drug as a preferred brand name drug in the formulary and 
     at least 1 such drug as a nonpreferred brand name drug in the 
     formulary;
       ``(D) develop procedures for the modification of the 
     formulary, including for the addition of new drugs to an 
     existing therapeutic class;
       ``(E) pursuant to section 1860F(b)(1)(C), provide for 
     coverage of nonpreferred brand name drugs and nonformulary 
     drugs at the preferred rate when determined under 
     subparagraph (D) or (E) of subsection (a)(3) to be medically 
     necessary;
       ``(F) disclose to current and prospective beneficiaries and 
     to providers in the service area the nature of the formulary 
     restrictions, including information regarding the drugs 
     included in the formulary and any difference in the cost-
     sharing for--
       ``(i) drugs included in the formulary; and
       ``(ii) for drugs not included in the formulary; and
       ``(G) provide a reasonable amount of notice to 
     beneficiaries enrolled in the plan that is covered by the 
     contract under this part of any change in the formulary.
       ``(3) Construction.--Nothing in this part shall be 
     construed as precluding an eligible entity from--
       ``(A) except as provided in section 1860F(b)(1)(C) 
     (relating to the coverage of medically necessary drugs at the 
     preferred rate), requiring cost-sharing for nonformulary 
     drugs that is higher than the copayment amount established in 
     section 1860F(b)(1)(A)(iii);
       ``(B) educating prescribing providers, pharmacists, and 
     beneficiaries about the medical and cost benefits of drugs 
     included in the formulary (including generic drugs); or
       ``(C) requesting prescribing providers to consider a drug 
     included in the formulary prior to dispensing of a drug not 
     so included or a preferred brand name drug prior to 
     dispensing of a nonpreferred brand name drug, as long as such 
     a request does not unduly delay the provision of the drug.
       ``(d) Terms of Participation Agreement With Pharmacies.--
       ``(1) In general.--A participation agreement between an 
     eligible entity and a pharmacy under this part (pursuant to 
     subsection (a)(3)(A)(ii)) shall include the following terms 
     and conditions:
       ``(A) Applicable requirements.--The pharmacy shall meet 
     (and throughout the contract period continue to meet) all 
     applicable Federal requirements and State and local licensing 
     requirements.
       ``(B) Access and quality standards.--The pharmacy shall 
     comply with such standards as the Secretary (and the eligible 
     entity) shall establish concerning the quality of, and 
     enrolled beneficiaries' access to, pharmacy services under 
     this part. Such standards shall require the pharmacy--

[[Page S5593]]

       ``(i) not to refuse to dispense covered outpatient drugs to 
     any eligible beneficiary enrolled under this part;
       ``(ii) to keep patient records (including records on 
     expenses) for all covered outpatient drugs dispensed to such 
     enrolled beneficiaries;
       ``(iii) to submit information (in a manner specified by the 
     Secretary to be necessary to administer this part) on all 
     purchases of such drugs dispensed to such enrolled 
     beneficiaries; and
       ``(iv) to comply with periodic audits to assure compliance 
     with the requirements of this part and the accuracy of 
     information submitted.
       ``(C) Ensuring that beneficiaries are not overcharged.--
       ``(i) Adherence to negotiated prices.--The total charge for 
     each covered outpatient drug dispensed by the pharmacy to a 
     beneficiary enrolled in the plan, without regard to whether 
     the individual is financially responsible for any or all of 
     such charge, shall not exceed the negotiated price for the 
     drug (as reported to the Secretary pursuant to subsection 
     (a)(5)(A)).
       ``(ii) Adherence to beneficiary obligation.--The pharmacy 
     may not charge (or collect from) such beneficiary an amount 
     that exceed's the cost-sharing that the beneficiary is 
     responsible for under this part (as determined under section 
     1860F(b) using the negotiated price of the drug).
       ``(D) Additional requirements.--The pharmacy shall meet 
     such additional contract requirements as the eligible entity 
     specifies under this section.
       ``(2) Applicability of fraud and abuse provisions.--The 
     provisions of section 1128 through 1128C (relating to fraud 
     and abuse) apply to pharmacies participating in the program 
     under this part.
       ``(e) Preferred Pharmacy Networks.--
       ``(1) In general.--If an eligible entity uses a preferred 
     pharmacy network to deliver benefits under this part, such 
     network shall meet minimum access standards established by 
     the Secretary.
       ``(2) Standards.--In establishing standards under paragraph 
     (1), the Secretary shall take into account reasonable 
     distances to pharmacy services in both urban and rural areas.


                               ``payments

       ``Sec. 1860I. (a) Procedures for Payments to Eligible 
     Entities.--The Secretary shall establish procedures for 
     making payments to each eligible entity with a contract under 
     this part for the management, administration, and delivery of 
     the benefits under this part.
       ``(b) Requirements for Procedures.--
       ``(1) In general.--The procedures established under 
     subsection (a) shall provide for the following:
       ``(A) Management payment.--Payment for the management, 
     administration, and delivery of the benefits under this part.
       ``(B) Reimbursement for negotiated costs of drugs 
     provided.--Payments for the negotiated costs of covered 
     outpatient drugs provided to eligible beneficiaries enrolled 
     under this part and in a plan offered by the eligible entity, 
     reduced by any applicable cost-sharing under section 
     1860F(b).
       ``(C) Risk requirement to ensure pursuit of performance 
     requirements.--An adjustment of a percentage (as determined 
     under paragraph (2)) of the payments made to an entity under 
     subparagraph (A) to ensure that the entity, in managing, 
     administering, and delivering the benefits under this part, 
     pursues performance requirements established by the 
     Secretary, including the following:
       ``(i) Control of medicare and beneficiary costs.--The 
     entity contains costs to the Prescription Drug Account and to 
     eligible beneficiaries enrolled under this part and in the 
     plan offered by the entity, as measured by generic 
     substitution rates, price discounts, and other factors 
     determined appropriate by the Secretary that do not reduce 
     the access of such beneficiaries to medically necessary 
     covered outpatient drugs.
       ``(ii) Quality clinical care.--The entity provides such 
     beneficiaries with quality clinical care, as measured by such 
     factors as--

       ``(I) the level of adverse drug reactions and medical 
     errors among such beneficiaries; and
       ``(II) providing specific clinical suggestions to improve 
     health and patient and prescriber education as appropriate.

       ``(iii) Quality service.--The entity provides such 
     beneficiaries with quality services, as measured by such 
     factors as sustained pharmacy network access, timeliness and 
     accuracy of service delivery in claims processing and card 
     production, pharmacy and member service support access, 
     response time in mail delivery service, and timely action 
     with regard to appeals and current beneficiary service 
     surveys.
       ``(2) Percentage of payment tied to risk.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall determine the percentage (which may be up to 
     100 percent) of the payments made to an entity under 
     subparagraph (A) that will be tied to the performance 
     requirements described in paragraph (1)(C).
       ``(B) Limitation on risk to ensure program stability.--In 
     order to provide for program stability, the Secretary may not 
     establish a percentage to be adjusted under this subsection 
     at a level that jeopardizes the ability of an eligible entity 
     to administer and deliver the benefits under this part or 
     administer and deliver such benefits in a quality manner.
       ``(3) Risk adjustment of payments based on enrollees in 
     plan.--To the extent that an eligible entity is at risk under 
     this subsection, the procedures established under subsection 
     (a) may include a methodology for risk adjusting the payments 
     made to such entity based on the differences in actuarial 
     risk of different enrollees being served if the Secretary 
     determines such adjustments to be necessary and appropriate.
       ``(4) Pass-through of rebates and price concessions 
     obtained by the eligible entity.--The Secretary, if 
     determined by the Secretary to be in the best interests of 
     the medicare program or eligible beneficiaries, may establish 
     procedures for reducing the amount of payments to an eligible 
     entity under subsection (a) to take into account any rebates 
     or price concessions obtained by the entity from 
     manufacturers of covered outpatient drugs.
       ``(c) Payments to Medicare+Choice Organizations.--For 
     provisions related to payments to Medicare+Choice 
     organizations for the administration and delivery of benefits 
     under this part to eligible beneficiaries enrolled in a 
     Medicare+Choice plan offered by the organization, see section 
     1853(c)(8).
       ``(d) Secondary Payer Provisions.--The provisions of 
     section 1862(b) shall apply to the benefits provided under 
     this part.


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

       ``Sec. 1860J. (a) Program Authority.--The Secretary is 
     authorized to develop and implement a program under this 
     section to be known as the `Employer Incentive Program' that 
     encourages employers and other sponsors of employment-based 
     health care coverage to provide adequate prescription drug 
     benefits to retired individuals by subsidizing, in part, the 
     sponsor's cost of providing coverage under qualifying plans.
       ``(b) Sponsor Requirements.--In order to be eligible to 
     receive an incentive payment under this section with respect 
     to coverage of an individual under a qualified retiree 
     prescription drug plan (as defined in subsection (e)(3)), a 
     sponsor shall meet the following requirements:
       ``(1) Assurances.--The sponsor shall--
       ``(A) annually attest, and provide such assurances as the 
     Secretary may require, that the coverage offered by the 
     sponsor is a qualified retiree prescription drug plan, and 
     will remain such a plan for the duration of the sponsor's 
     participation in the program under this section; and
       ``(B) guarantee that it will give notice to the Secretary 
     and covered retirees--
       ``(i) at least 120 days before terminating its plan; and
       ``(ii) immediately upon determining that the actuarial 
     value of the prescription drug benefit under the plan falls 
     below the actuarial value of the outpatient prescription drug 
     benefit under this part.
       ``(2) Beneficiary information.--The sponsor shall report to 
     the Secretary, for each calendar quarter for which it seeks 
     an incentive payment under this section, the names and social 
     security numbers of all retirees (and their spouses and 
     dependents) covered under such plan during such quarter and 
     the dates (if less than the full quarter) during which each 
     such individual was covered.
       ``(3) Audits.--The sponsor and the employment-based retiree 
     health coverage plan seeking incentive payments under this 
     section shall agree to maintain, and to afford the Secretary 
     access to, such records as the Secretary may require for 
     purposes of audits and other oversight activities necessary 
     to ensure the adequacy of prescription drug coverage, the 
     accuracy of incentive payments made, and such other matters 
     as may be appropriate.
       ``(4) Other requirements.--The sponsor shall provide such 
     other information, and comply with such other requirements, 
     as the Secretary may find necessary to administer the program 
     under this section.
       ``(c) Incentive Payments.--
       ``(1) In general.--A sponsor that meets the requirements of 
     subsection (b) with respect to a quarter in a calendar year 
     shall be entitled to have payment made by the Secretary on a 
     quarterly basis (to the sponsor or, at the sponsor's 
     direction, to the appropriate employment-based health plan) 
     of an incentive payment, in the amount determined in 
     paragraph (2), for each retired individual (or spouse or 
     dependent) who--
       ``(A) was covered under the sponsor's qualified retiree 
     prescription drug plan during such quarter; and
       ``(B) was eligible for, but was not enrolled in, the 
     outpatient prescription drug benefit program under this part.
       ``(2) Amount of payment.--
       ``(A) In general.--The amount of the payment for a quarter 
     shall be, for each individual described in paragraph (1), \2/
     3\ of the sum of the monthly Government contribution amounts 
     (computed under subparagraph (B)) for each of the 3 months in 
     the quarter.
       ``(B) Computation of monthly government contribution 
     amount.--For purposes of subparagraph (A), the monthly 
     Government contribution amount for a month in a year is equal 
     to the amount by which--
       ``(i) \1/12\ of the amount estimated under subparagraph (C) 
     for the year involved; exceeds
       ``(ii) the monthly Part D premium under section 1860E(a) 
     (determined without regard to any increase under section 
     1860B(b)(1)) for the month involved.
       ``(C) Estimate of average annual per capita aggregate 
     expenditures.--
       ``(i) In general.--The Secretary shall for each year after 
     2003 estimate for that year

[[Page S5594]]

     an amount equal to average annual per capita aggregate 
     expenditures payable from the Prescription Drug Account for 
     that year.
       ``(ii) Timeframe for estimation.--The Secretary shall make 
     the estimate described in clause (i) for a year before the 
     beginning of that year.
       ``(3) Payment date.--The payment under this section with 
     respect to a calendar quarter shall be payable as of the end 
     of the next succeeding calendar quarter.
       ``(d) Civil Money Penalties.--A sponsor, health plan, or 
     other entity that the Secretary determines has, directly or 
     through its agent, provided information in connection with a 
     request for an incentive payment under this section that the 
     entity knew or should have known to be false shall be subject 
     to a civil monetary penalty in an amount up to 3 times the 
     total incentive amounts under subsection (c) that were paid 
     (or would have been payable) on the basis of such 
     information.
       ``(e) Definitions.--In this section:
       ``(1) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage, whether provided by voluntary 
     insurance coverage or pursuant to statutory or contractual 
     obligation, of health care costs for retired individuals (or 
     for such individuals and their spouses and dependents) based 
     on their status as former employees or labor union members.
       ``(2) Employer.--The term `employer' has the meaning given 
     the term in section 3(5) of the Employee Retirement Income 
     Security Act of 1974 (except that such term shall include 
     only employers of 2 or more employees).
       ``(3) Qualified retiree prescription drug plan.--The term 
     `qualified retiree prescription drug plan' means health 
     insurance coverage included in employment-based retiree 
     health coverage that--
       ``(A) provides coverage of the cost of prescription drugs 
     with an actuarial value (as defined by the Secretary) to each 
     retired beneficiary that equals or exceeds the actuarial 
     value of the benefits provided to an individual enrolled in 
     the outpatient prescription drug benefit program under this 
     part; and
       ``(B) does not deny, limit, or condition the coverage or 
     provision of prescription drug benefits for retired 
     individuals based on age or any health status-related factor 
     described in section 2702(a)(1) of the Public Health Service 
     Act.
       ``(4) Sponsor.--The term `sponsor' has the meaning given 
     the term `plan sponsor' in section 3(16)(B) of the Employer 
     Retirement Income Security Act of 1974.
       ``(f) Authorization of Appropriations.--There are 
     authorized to be appropriated from time to time, out of any 
     moneys in the Treasury not otherwise appropriated, such sums 
     as may be necessary to carry out the program under this 
     section.


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

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


            ``medicare prescription drug advisory committee

       ``Sec. 1860L. (a) Establishment of Committee.--There is 
     established a Medicare Prescription Drug Advisory Committee 
     (in this section referred to as the `Committee').
       ``(b) Functions of Committee.--On and after March 1, 2003, 
     the Committee shall advise the Secretary on policies related 
     to--
       ``(1) the development of guidelines for the implementation 
     and administration of the outpatient prescription drug 
     benefit program under this part; and
       ``(2) the development of--
       ``(A) standards for a pharmacy and therapeutics committee 
     required of eligible entities under section 1860H(c)(2)(A);
       ``(B) standards required under subparagraphs (D) and (E) of 
     section 1860H(a)(3) for determining if a drug is medically 
     necessary;
       ``(C) standards for--
       ``(i) establishing therapeutic classes;
       ``(ii) adding new therapeutic classes to a formulary; and
       ``(iii) defining a prescription of covered outpatient drugs 
     for purposes of applying cost-sharing under section 1860F(b);
       ``(D) procedures to evaluate the bids submitted by eligible 
     entities under this part; and
       ``(E) procedures to ensure that eligible entities with a 
     contract under this part are in compliance with the 
     requirements under this part.
       ``(c) Structure and Membership of the Committee.--
       ``(1) Structure.--The Committee shall be composed of 19 
     members who shall be appointed by the Secretary.
       ``(2) Membership.--
       ``(A) In general.--The members of the Committee shall be 
     chosen on the basis of their integrity, impartiality, and 
     good judgment, and shall be individuals who are, by reason of 
     their education, experience, attainments, and understanding 
     of pharmaceutical cost control and quality enhancement, 
     exceptionally qualified to perform the duties of members of 
     the Committee.
       ``(B) Specific members.--Of the members appointed under 
     paragraph (1)--
       ``(i) five shall be chosen to represent physicians, 2 of 
     whom shall be geriatricians;
       ``(ii) two shall be chosen to represent nurse 
     practitioners;
       ``(iii) four shall be chosen to represent pharmacists;
       ``(iv) one shall be chosen to represent the Centers for 
     Medicare & Medicaid Services;
       ``(v) four shall be chosen to represent actuaries, 
     pharmacoeconomists, researchers, and other appropriate 
     experts;
       ``(vi) one shall be chosen to represent emerging drug 
     technologies;
       ``(vii) one shall be closed to represent the Food and Drug 
     Administration; and
       ``(viii) one shall be chosen to represent individuals 
     enrolled under this part.
       ``(d) Terms of Appointment.--Each member of the Committee 
     shall serve for a term determined appropriate by the 
     Secretary. The terms of service of the members initially 
     appointed shall begin on January 1, 2003.
       ``(e) Chairperson.--The Secretary shall designate a member 
     of the Committee as Chairperson. The term as Chairperson 
     shall be for a 1-year period.
       ``(f) Committee Personnel Matters.--
       ``(1) Members.--
       ``(A) Compensation.--Each member of the Committee who is 
     not an officer or employee of the Federal Government shall be 
     compensated at a rate equal to the daily equivalent of the 
     annual rate of basic pay prescribed for level IV of the 
     Executive Schedule under section 5315 of title 5, United 
     States Code, for each day (including travel time) during 
     which such member is engaged in the performance of the duties 
     of the Committee. All members of the Committee who are 
     officers or employees of the United States shall serve 
     without compensation in addition to that received for their 
     services as officers or employees of the United States.
       ``(B) Travel expenses.--The members of the Committee shall 
     be allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Committee.
       ``(2) Staff.--The Committee may appoint such personnel as 
     the Committee considers appropriate.
       ``(g) Operation of the Committee.--
       ``(1) Meetings.--The Committee shall meet at the call of 
     the Chairperson (after consultation with the other members of 
     the Committee) not less often than quarterly to consider a 
     specific agenda of issues, as determined by the Chairperson 
     after such consultation.
       ``(2) Quorum.--Ten members of the Committee shall 
     constitute a quorum for purposes of conducting business.
       ``(h) Federal Advisory Committee Act.--Section 14 of the 
     Federal Advisory Committee Act (5 U.S.C. App.) shall not 
     apply to the Committee.
       ``(i) Transfer of Personnel, Resources, and Assets.--For 
     purposes of carrying out its duties, the Secretary and the 
     Committee may provide for the transfer to the Committee of 
     such civil service personnel in the employ of the Department 
     of Health and Human Services (including the Centers for 
     Medicare & Medicaid Services), and such resources and assets 
     of the Department used in carrying out this title, as the 
     Committee requires.
       ``(j) Authorization of Appropriations.--There are 
     authorized to be appropriated such

[[Page S5595]]

     sums as may be necessary to carry out the purposes of this 
     section.''.
       (b) Exclusions From Coverage.--
       (1) Application to part d.--Section 1862(a) of the Social 
     Security Act (42 U.S.C. 1395y(a)) is amended in the matter 
     preceding paragraph (1) by striking ``part A or part B'' and 
     inserting ``part A, B, or D''.
       (2) Prescription drugs not excluded from coverage if 
     reasonable and necessary.--Section 1862(a)(1) of the Social 
     Security Act (42 U.S.C. 1395y(a)(1)) is amended--
       (A) in subparagraph (H), by striking ``and'' at the end;
       (B) in subparagraph (I), by striking the semicolon at the 
     end and inserting ``, and''; and
       (C) by adding at the end the following new subparagraph:
       ``(J) in the case of prescription drugs covered under part 
     D, which are not reasonable and necessary to prevent or slow 
     the deterioration of, or improve or maintain, the health of 
     eligible beneficiaries;''.
       (c) Conforming Amendments to Federal Supplementary Medical 
     Insurance Trust Fund.--Section 1841 of the Social Security 
     Act (42 U.S.C. 1395t) is amended--
       (1) in the last sentence of subsection (a)--
       (A) by striking ``and'' before ``such amounts''; and
       (B) by inserting before the period the following: ``, and 
     such amounts as may be deposited in, or appropriated to, the 
     Prescription Drug Account established by section 1860K'';
       (2) in subsection (g), by inserting after ``by this part,'' 
     the following: ``the payments provided for under part D (in 
     which case the payments shall be made from the Prescription 
     Drug Account in the Trust Fund),'';
       (3) in subsection (h), by inserting after ``1840(d)'' the 
     following: ``and section 1860E(b) (in which case the payments 
     shall be made from the Prescription Drug Account in the Trust 
     Fund)''; and
       (4) in subsection (i), by inserting after ``section 
     1840(b)(1)'' the following: ``, section 1860E(b) (in which 
     case the payments shall be made from the Prescription Drug 
     Account in the Trust Fund),''.
       (d) Conforming References to Previous Part D.--
       (1) In general.--Any reference in law (in effect before the 
     date of enactment of this Act) to part D of title XVIII of 
     the Social Security Act is deemed a reference to part E of 
     such title (as in effect after such date).
       (2) Secretarial submission of legislative proposal.--Not 
     later than 6 months after the date of enactment of this Act, 
     the Secretary of Health and Human Services shall submit to 
     Congress a legislative proposal providing for such technical 
     and conforming amendments in the law as are required by the 
     provisions of this Act.

     SEC. 3. PART D BENEFITS UNDER MEDICARE+CHOICE PLANS.

       (a) Eligibility, Election, and Enrollment.--Section 1851 of 
     the Social Security Act (42 U.S.C. 1395w-21) is amended--
       (1) in subsection (a)(1)(A), by striking ``parts A and B'' 
     and inserting ``parts A, B, and D''; and
       (2) in subsection (i)(1), by striking ``parts A and B'' and 
     inserting ``parts A, B, and D''.
       (b) Voluntary Beneficiary Enrollment for Drug Coverage.--
     Section 1852(a)(1)(A) of the Social Security Act (42 U.S.C. 
     1395w-22(a)(1)(A)) is amended by inserting ``(and under part 
     D to individuals also enrolled under that part)'' after 
     ``parts A and B''.
       (c) Access to Services.--Section 1852(d)(1) of the Social 
     Security Act (42 U.S.C. 1395w-22(d)(1)) is amended--
       (1) in subparagraph (D), by striking ``and'' at the end;
       (2) in subparagraph (E), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(F) in the case of covered outpatient drugs (as defined 
     in section 1860(1)) provided to individuals enrolled under 
     part D, the organization complies with the access 
     requirements applicable under part D.''.
       (d) Payments to Organizations for Part D Benefits.--
       (1) In general.--Section 1853(a)(1)(A) of the Social 
     Security Act (42 U.S.C. 1395w-23(a)(1)(A)) is amended--
       (A) by inserting ``determined separately for the benefits 
     under parts A and B and under part D (for individuals 
     enrolled under that part)'' after ``as calculated under 
     subsection (c)'';
       (B) by striking ``that area, adjusted for such risk 
     factors'' and inserting ``that area. In the case of payment 
     for the benefits under parts A and B, such payment shall be 
     adjusted for such risk factors as''; and
       (C) by inserting before the last sentence the following: 
     ``In the case of the payments under subsection (c)(8) for the 
     provision of coverage of covered outpatient drugs to 
     individuals enrolled under part D, such payment shall be 
     adjusted for the risk factors of each enrollee as the 
     Secretary determines to be feasible and appropriate to ensure 
     actuarial equivalence.''.
       (2) Amount.--Section 1853(c) of the Social Security Act (42 
     U.S.C. 1395w-23(c)) is amended--
       (A) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``for benefits under parts A and B'' after 
     ``capitation rate''; and
       (B) by adding at the end the following new paragraph:
       ``(8) Capitation rate for part d benefits.--
       ``(A) In general.--In the case of a Medicare+Choice plan 
     that provides coverage of covered outpatient drugs to an 
     individual enrolled under part D, the capitation rate for 
     such coverage shall be the amount described in subparagraph 
     (B). Such payments shall be made in the same manner and at 
     the same time as the payments to the Medicare+Choice 
     organization offering the plan for benefits under parts A and 
     B are otherwise made, but such payments shall be payable from 
     the Prescription Drug Account in the Federal Supplementary 
     Medical Insurance Trust Fund under section 1841.
       ``(B) Amount.--The amount described in this paragraph is an 
     amount equal to \1/12\ of the average annual per capita 
     aggregate expenditures payable from the Prescription Drug 
     Account for the year (as estimated under section 
     1860J(c)(2)(C)).''.
       (e) Limitation on Enrollee Liability.--Section 1854(e) of 
     the Social Security Act (42 U.S.C. 1395w-24(e)) is amended by 
     adding at the end the following new paragraph:
       ``(5) Special rule for part d benefits.--With respect to 
     outpatient prescription drug benefits under part D, a 
     Medicare+Choice organization may not require that an enrollee 
     pay any deductible or pay a cost-sharing amount that exceeds 
     the amount of cost-sharing applicable for such benefits for 
     an eligible beneficiary under part D.''.
       (f) Requirement for Additional Benefits.--Section 
     1854(f)(1) of the Social Security Act (42 U.S.C. 1395w-
     24(f)(1)) is amended by adding at the end the following new 
     sentence: ``Such determination shall be made separately for 
     the benefits under parts A and B and for prescription drug 
     benefits under part D.''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to items and services provided under a 
     Medicare+Choice plan on or after January 1, 2004.

     SEC. 4. ADDITIONAL ASSISTANCE FOR LOW-INCOME BENEFICIARIES.

       (a) Inclusion in Medicare Cost-Sharing.--Section 1905(p)(3) 
     of the Social Security Act (42 U.S.C. 1396d(p)(3)) is 
     amended--
       (1) in subparagraph (A)--
       (A) in clause (i), by striking ``and'' at the end;
       (B) in clause (ii), by inserting ``and'' at the end; and
       (C) by adding at the end the following new clause:
       ``(iii) premiums under section 1860E(a).''; and
       (2) in subparagraph (B), by inserting ``and cost-sharing 
     described in section 1860F(b)'' after ``section 1813''.
       (b) Expansion of Medical Assistance.--Section 
     1902(a)(10)(E) of the Social Security Act (42 U.S.C. 
     1396a(a)(10)(E)) is amended--
       (1) in clause (iii)--
       (A) by striking ``section 1905(p)(3)(A)(ii)'' and inserting 
     ``clauses (ii) and (iii) of section 1905(p)(3)(A) and for 
     medicare cost-sharing described in section 1905(p)(3)(B) (but 
     only insofar as it relates to benefits provided under part D 
     of title XVIII),''; and
       (B) by striking ``and'' at the end;
       (2) by redesignating clause (iv) as clause (vi); and
       (3) by inserting after clause (iii) the following new 
     clauses:
       ``(iv) for making medical assistance available for medicare 
     cost-sharing described in section 1905(p)(3)(A)(iii) and for 
     medicare cost-sharing described in section 1905(p)(3)(B) (but 
     only insofar as it relates to benefits provided under part D 
     of title XVIII) for individuals who would be qualified 
     medicare beneficiaries described in section 1905(p)(1) but 
     for the fact that their income exceeds 120 percent but does 
     not exceed 135 percent of such official poverty line for a 
     family of the size involved;
       ``(v) for making medical assistance available for medicare 
     cost-sharing described in section 1905(p)(3)(A)(iii) on a 
     linear sliding scale based on the income of such individuals 
     for individuals who would be qualified medicare beneficiaries 
     described in section 1905(p)(1) but for the fact that their 
     income exceeds 135 percent but does not exceed 150 percent of 
     such official poverty line for a family of the size involved; 
     and''.
       (c) Nonapplicability of Resource Requirements to Medicare 
     Part D Cost-Sharing.--Section 1905(p)(1) of the Social 
     Security Act (42 U.S.C. 1396d(p)(1)) is amended by adding at 
     the end the following flush sentence:

     ``In determining if an individual is a qualified medicare 
     beneficiary under this paragraph, subparagraph (C) shall not 
     be applied for purposes of providing the individual with 
     medicare cost-sharing described in section 1905(p)(3)(A)(iii) 
     or for medicare cost-sharing described in section 
     1905(p)(3)(B) (but only insofar as it relates to benefits 
     provided under part D of title XVIII).''.
       (d) Nonapplicability of Payment Differential Requirements 
     to Medicare Part D Cost-Sharing.--Section 1902(n)(2) of the 
     Social Security Act (42 U.S.C. 1396a(n)(2)) is amended by 
     adding at the end the following new sentence: ``The preceding 
     sentence shall not apply to the cost-sharing described in 
     section 1860F(b).''.
       (e) 100 Percent Federal Medical Assistance Percentage.--The 
     first sentence of section 1905(b) of the Social Security Act 
     (42 U.S.C. 1396d(b)) is amended--
       (1) by striking ``and'' before ``(4)''; and
       (2) by inserting before the period at the end the 
     following: ``, and (5) the Federal medical assistance 
     percentage shall be 100 percent

[[Page S5596]]

     with respect to medical assistance provided under clauses 
     (iv) and (v) of section 1902(a)(10)(E)''.
       (f) Treatment of Territories.--Section 1108(g) of the 
     Social Security Act (42 U.S.C. 1308(g)) is amended by adding 
     at the end the following new paragraph:
       ``(3) Notwithstanding the preceding provisions of this 
     subsection, with respect to fiscal year 2004 and any fiscal 
     year thereafter, the amount otherwise determined under this 
     subsection (and subsection (f)) for the fiscal year for a 
     Commonwealth or territory shall be increased by the ratio (as 
     estimated by the Secretary) of--
       ``(A) the aggregate amount of payments made to the 50 
     States and the District of Columbia for the fiscal year under 
     title XIX that are attributable to making medical assistance 
     available for individuals described in clauses (i), (iii), 
     (iv), and (v) of section 1902(a)(10)(E) for payment of 
     medicare cost-sharing described in section 1905(p)(3)(A)(iii) 
     and for medicare cost-sharing described in section 
     1905(p)(3)(B) (but only insofar as it relates to benefits 
     provided under part D of title XVIII); to
       ``(B) the aggregate amount of total payments made to such 
     States and District for the fiscal year under such title.''.
       (g) Conforming Amendments.--Section 1933 of the Social 
     Security Act (42 U.S.C. 1396u-3) is amended--
       (1) in subsection (a), by striking ``section 
     1902(a)(10)(E)(iv)'' and inserting ``section 
     1902(a)(10)(E)(vi)'';
       (2) in subsection (c)(2)(A)--
       (A) in clause (i), by striking ``section 
     1902(a)(10)(E)(iv)(I)'' and inserting ``section 
     1902(a)(10)(E)(vi)(I)''; and
       (B) in clause (ii), by striking ``section 
     1902(a)(10)(E)(iv)(II)'' and inserting ``section 
     1902(a)(10)(E)(vi)(II)'';
       (3) in subsection (d), by striking ``section 
     1902(a)(10)(E)(iv)'' and inserting ``section 
     1902(a)(10)(E)(vi)''; and
       (4) in subsection (e), by striking ``section 
     1902(a)(10)(E)(iv)'' and inserting ``section 
     1902(a)(10)(E)(vi)''.
       (h) Effective Date.--The amendments made by this section 
     shall apply for medical assistance provided under section 
     1902(a)(10)(E) of the Social Security Act (42 U.S.C. 
     1396a(a)(10)(E)) on and after January 1, 2004.

     SEC. 5. MEDIGAP REVISIONS.

       Section 1882 of the Social Security Act (42 U.S.C. 1395ss) 
     is amended by adding at the end the following new subsection:
       ``(v) Modernized Benefit Packages for Medicare Supplemental 
     Policies.--
       ``(1) Revision of benefit packages.--
       ``(A) In general.--Notwithstanding subsection (p), the 
     benefit packages classified as `H', `I', and `J' under the 
     standards established by subsection (p)(2) (including the 
     benefit package classified as `J' with a high deductible 
     feature, as described in subsection (p)(11)) shall be revised 
     so that--
       ``(i) the coverage of outpatient prescription drugs 
     available under such benefit packages is replaced with 
     coverage of outpatient prescription drugs that complements 
     but does not duplicate the coverage of outpatient 
     prescription drugs that is otherwise available under this 
     title;
       ``(ii) the revised benefit packages provide a range of 
     coverage options for outpatient prescription drugs for 
     beneficiaries, but do not provide coverage for more than 90 
     percent of the cost-sharing amount applicable to an 
     individual under section 1860F(b);
       ``(iii) uniform language and definitions are used with 
     respect to such revised benefits;
       ``(iv) uniform format is used in the policy with respect to 
     such revised benefits;
       ``(v) such revised standards meet any additional 
     requirements imposed by the amendments made by the Medicare 
     Outpatient Prescription Drug Act of 2002; and
       ``(vi) except as revised under the preceding clauses or as 
     provided under subsection (p)(1)(E), the benefit packages are 
     identical to the benefit packages that were available on the 
     date of enactment of the Medicare Outpatient Prescription 
     Drug Act of 2002.
       ``(B) Manner of revision.--The benefit packages revised 
     under this section shall be revised in the manner described 
     in subparagraph (E) of subsection (p)(1), except that for 
     purposes of subparagraph (C) of such subsection, the 
     standards established under this subsection shall take effect 
     not later than January 1, 2004.
       ``(2) Construction of benefits in other medicare 
     supplemental policies.--Nothing in the benefit packages 
     classified as `A' through `G' under the standards established 
     by subsection (p)(2) (including the benefit package 
     classified as `F' with a high deductible feature, as 
     described in subsection (p)(11)) shall be construed as 
     providing coverage for benefits for which payment may be made 
     under part D.
       ``(3) Guaranteed issuance and renewal of revised 
     policies.--The provisions of subsections (q) and (s), 
     including provisions of subsection (s)(3) (relating to 
     special enrollment periods in cases of termination or 
     disenrollment), shall apply to medicare supplemental policies 
     revised under this subsection in the same manner as such 
     provisions apply to medicare supplemental policies issued 
     under the standards established under subsection (p).
       ``(4) Opportunity of current policyholders to purchase 
     revised policies.--
       ``(A) In general.--No medicare supplemental policy of an 
     issuer with a benefit package that is revised under paragraph 
     (1) shall be deemed to meet the standards in subsection (c) 
     unless the issuer--
       ``(i) provides written notice during the 60-day period 
     immediately preceding the period established for the open 
     enrollment period established under section 1860B(b)(2)(A), 
     to each individual who is a policyholder or certificate 
     holder of a medicare supplemental policy issued by that 
     issuer (at the most recent available address of that 
     individual) of the offer described in clause (ii) and of the 
     fact that such individual will no longer be covered under 
     such policy as of January 1, 2004; and
       ``(ii) offers the policyholder or certificate holder under 
     the terms described in subparagraph (B), during at least the 
     period established under section 1860B(b)(2)(A), a medicare 
     supplemental policy with the benefit package that the 
     Secretary determines is most comparable to the policy in 
     which the individual is enrolled with coverage effective as 
     of the date on which the individual is first entitled to 
     benefits under part D.
       ``(B) Terms of offer described.--The terms described in 
     this subparagraph are terms which do not--
       ``(i) deny or condition the issuance or effectiveness of a 
     medicare supplemental policy described in subparagraph 
     (A)(ii) that is offered and is available for issuance to new 
     enrollees by such issuer;
       ``(ii) discriminate in the pricing of such policy because 
     of health status, claims experience, receipt of health care, 
     or medical condition; or
       ``(iii) impose an exclusion of benefits based on a 
     preexisting condition under such policy.
       ``(5) Elimination of obsolete policies with no 
     grandfathering.--No person may sell, issue, or renew a 
     medicare supplemental policy with a benefit package that is 
     classified as `H', `I', or `J' (or with a benefit package 
     classified as `J' with a high deductible feature) that has 
     not been revised under this subsection on or after January 1, 
     2004.
       ``(6) Penalties.--Each penalty under this section shall 
     apply with respect to policies revised under this subsection 
     as if such policies were issued under the standards 
     established under subsection (p), including the penalties 
     under subsections (a), (d), (p)(8), (p)(9), (q)(5), 
     (r)(6)(A), (s)(4), and (t)(2)(D).''.

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

       (a) Studies.--The Secretary of Health and Human Services 
     shall conduct a study to determine the feasibility and 
     advisability of--
       (1) establishing a uniform format for pharmacy benefit 
     cards provided to beneficiaries by eligible entities under 
     the outpatient prescription drug benefit program under part D 
     of title XVIII of the Social Security Act (as added by 
     section 2); and
       (2) developing systems to electronically transfer 
     prescriptions under such program from the prescriber to the 
     pharmacist.
       (b) Report.--Not later than 2 years after the date of 
     enactment of this Act, the Secretary of Health and Human 
     Services shall submit to Congress a report on the results of 
     the studies conducted under subsection (a) together with any 
     recommendations for legislation that the Secretary determines 
     to be appropriate as a result of such studies.

     SEC. 7. GAO STUDY AND BIENNIAL REPORTS ON COMPETITION AND 
                   SAVINGS.

       (a) Ongoing Study.--The Comptroller General of the United 
     States shall conduct an ongoing study and analysis of the 
     outpatient prescription drug benefit program under part D of 
     title XVIII of the Social Security Act (as added by section 
     2), including an analysis of--
       (1) the extent to which the competitive bidding process 
     under such program fosters maximum competition and 
     efficiency; and
       (2) the savings to the medicare program resulting from such 
     outpatient prescription drug benefit program, including the 
     reduction in the number or length of hospital visits.
       (b) Initial Report on Competitive Bidding Process.--Not 
     later than 9 months after the date of enactment of this Act, 
     the Comptroller General of the United States shall submit to 
     Congress a report on the results of the portion of the study 
     conducted pursuant to subsection (a)(1).
       (c) Biennial Reports.--Not later than January 1, 2005, and 
     biennially thereafter, the Comptroller General of the United 
     States shall submit to Congress a report on the results of 
     the study conducted under subsection (a) together with such 
     recommendations for legislation and administrative action as 
     the Comptroller General determines appropriate.

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

       (a) Expansion of Membership.--
       (1) In general.--Section 1805(c) of the Social Security Act 
     (42 U.S.C. 1395b-6(c)) is amended--
       (A) in paragraph (1), by striking ``17'' and inserting 
     ``19''; and
       (B) in paragraph (2)(B), by inserting ``experts in the area 
     of pharmacology and prescription drug benefit programs,'' 
     after ``other health professionals,''.
       (2) Initial terms of additional members.--
       (A) In general.--For purposes of staggering the initial 
     terms of members of the Medicare Payment Advisory Commission 
     under section 1805(c)(3) of the Social Security Act (42 
     U.S.C. 1395b-6(c)(3)), the initial terms of the 2 additional 
     members of the Commission provided for by the amendment under 
     paragraph (1)(A) are as follows:
       (i) One member shall be appointed for 1 year.

[[Page S5597]]

       (ii) One member shall be appointed for 2 years.
       (B) Commencement of terms.--Such terms shall begin on 
     January 1, 2003.
       (b) Expansion of Duties.--Section 1805(b)(2) of the Social 
     Security Act (42 U.S.C. 1395b-6(b)(2)) is amended by adding 
     at the end the following new subparagraph:
       ``(D) Prescription medicine benefit program.--Specifically, 
     the Commission shall review, with respect to the outpatient 
     prescription drug benefit program under part D, the impact of 
     such program on--
       ``(i) the pharmaceutical market, including costs and 
     pricing of pharmaceuticals, beneficiary access to such 
     pharmaceuticals, and trends in research and development;
       ``(ii) franchise, independent, and rural pharmacies; and
       ``(iii) beneficiary access to outpatient prescription 
     drugs, including an assessment of out-of-pocket spending, 
     generic and brand name drug utilization, and pharmacists' 
     services.''.

  Mr. MILLER. Madam President, I am proud to tell America's seniors who 
have been waiting in line for a long time that, finally, they have 
reached the front of the line. Their time has come. This Senate is 
ready to take action on prescription drugs.
  Our action cannot come soon enough. Most of our elderly in this 
country are not wealthy. Many live on fixed incomes. They are the ones 
who are hurt first and hurt most by rising health care costs.
  Our elderly have been waiting a long time. Waiting for Congress to do 
something. Waiting for Congress to help them with the skyrocketing 
costs of their prescription drugs.
  Our bill provides an affordable prescription drug benefit under 
Medicare for all seniors for the first time. Coverage begins with the 
first prescription filled because there is no deductible.
  For the roughly 12 million seniors in this country who earn less than 
$11,900 a year, there is no premium and no copayment. For our neediest 
seniors, our bill gives them their medicine for free.
  For those who earn more, our plan has an affordable a $25 monthly 
premium and a copayment of $10 for generic drugs and $40 for brand-name 
drugs. Also, our bill has no gap in coverage and an out-of-pocket 
maximum of $4,000 a year.
  We realize it is a huge, complex and complicated undertaking. And 
that is why this bill provides that in 2011, we will come back and re-
evaluate this program, just like we do with other complicated 
legislation.
  We believe that is the wise and judicious thing to do. In fact, if 
the original Medicare program had required such a reauthorization, we 
probably would have had a prescription drug benefit added to it long 
ago.
  But since Medicare was permanently authorized from the beginning, 
there was no requirement for Congress to re-evaluate and therefore 
modernize the program as circumstances changed over the years.
  And, reauthorization is not anything new or different. We re-evaluate 
many programs on a regular basis: We just did it with the Farm Bill. 
Welfare Reform, the Elementary and Secondary Education program, Head 
Start, all of them are re-evaluated at regular intervals.
  I hope that all members of the Senate will come together and pass 
this bill in the next few weeks so that our elderly across this land of 
plenty, those folks who have played by the rules and worked hard, can 
have some hope and some dignity in the last few years they are on this 
earth.
  Mr. KENNEDY. Madam President, Medicare is a solemn promise between 
government and its citizens and between the generations. It says, 
``Contribute to the system during your working years and we will assure 
you health security in your retirement years.'' But that promise is 
broken every day, because Medicare does not cover prescription drugs. 
The Graham-Miller-Kennedy Medicare Prescription Drug Act of 2002 sends 
the message loud and clear: it is time to mend Medicare's broken 
promise.
  There is no domestic issue that is more important to the American 
people than assuring that senior citizens can afford the prescription 
drugs they need. Senior citizens have an average income of $15,000, and 
they spend an average of $2,000 of that limited income on prescription 
drugs. Too many of our elderly citizens must choose between food on the 
table and the medicine their doctors prescribe. Too many of the elderly 
are taking half the drugs their doctor prescribes, or none at all, 
because they simply can't afford them.
  Every day we delay, the problem becomes worse. Prescription drugs 
costs are escalating at double-digit rates. One-third of all senior 
citizens don't have a dime of prescription drug coverage, and those who 
do have coverage are in danger of losing it. The sad fact is that the 
only senior citizens who have reliable, affordable, adequate coverage 
are the very poor on Medicaid. That is not good enough, and we are here 
today to say that America owes it to its senior citizens to do better.
  Every politician understands that senior citizens, and their 
children, and their grandchildren want action. Every politician 
understands that opposition to a prescription drug benefit is not a 
sustainable position. The question is not whether Congress will pass a 
bill; the question is whether we will pass a bill that truly provides 
the protection senior citizens need. The elderly do not need a 
prescription drug benefit that cannot pass the truth in advertising 
test. They don't need a benefit that pays pennies on the dollar for the 
medicines the elderly need to survive. They do not need a benefit that 
offers the pretence of relief but not the performance.
  The bill we are offering today mends the broken promise of Medicare. 
It offers real benefits at a price the elderly can afford. It is a 
lifeline for every senior citizen who needs prescription drugs. It is a 
priority for the American people.
  It is time to pass a Medicare prescription drug benefit. It is time 
for Congress to listen to the American people instead of the powerful 
special interests.
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