[Congressional Record Volume 148, Number 98 (Thursday, July 18, 2002)]
[Senate]
[Pages S7048-S7080]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 4304. Mr. SMITH of New Hampshire (for himself, Mr. Allard, Mr. 
Grassley, Mr. Hatch, Mr. Burns, Mr. Craig, Mr. Crapo, and Mr. Santorum) 
submitted an amendment intended to be proposed by him to the bill S. 
812, to amend the Federal Food, Drug, and Cosmetic Act to provide 
greater access to affordable pharmaceuticals; which was ordered to lie 
on the table; as follows:
       At the appropriate place, insert the following:

     SEC. __. MEDICARE PAYMENT FOR OUTPATIENT PRESCRIPTION DRUGS 
                   UNDER THE RX OPTION.

       (a) In General.--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 E--Voluntary Medicare Prescription Drug Coverage


                   ``Medicare Prescription Drug Plan

       ``Sec. 1860AA. (a) In General.--Each Medicare Prescription 
     Drug Plan eligible individual may elect coverage (beginning 
     on January 1, 2003) under this part in lieu of any other 
     prescription drug coverage program under this title by 
     enrolling in the Rx Option in order to receive coverage for 
     outpatient prescription drugs as described in section 1860BB 
     and to pay a combined deductible under section 1860CC.
       ``(b) Medicare Prescription Drug Plan Eligible Individual 
     Defined.--In this part, the term `Medicare Prescription Drug 
     Plan eligible individual' means an individual who is--
       ``(1) eligible for benefits under part A and enrolled under 
     part B;
       ``(2) not enrolled in a Medicare+Choice plan under part C; 
     and
       ``(3) not eligible for medical assistance for outpatient 
     prescription drugs under title XIX.


                              ``rx option

       ``Sec. 1860BB. (a) Enrollment in the Rx Option.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     Secretary shall establish a process for the enrollment of 
     Medicare Prescription Drug Plan eligible individuals under 
     the Rx Option that is based upon the process for enrollment 
     in Medicare+Choice plans under part C of this title.
       ``(2) Exceptions.--
       ``(A) 2-year obligation.--Except as provided in 
     subparagraph (B), a Medicare Prescription Drug Plan eligible 
     individual who elects the Rx Option shall be subject to the 
     provisions of this part for a minimum period of 2 years, 
     beginning with the first full month during which the 
     individual is eligible for benefits under the Rx Option.
       ``(B) Free look period.--An individual who elects the Rx 
     Option may disenroll from such Option no later than the last 
     day of the first full month following the month in which such 
     election was made.
       ``(3) Enrollment in medicare supplemental policies.--An 
     individual enrolled in the Rx Option may be enrolled only in 
     a medicare supplemental policy subject to the special rules 
     described in section 1882(v).
       ``(b) Outpatient Prescription Drug Benefits.--
       ``(1) In general.--Beginning in 2002, under the Rx Option, 
     after the enrollee has met the combined deductible under 
     section 1860C, the Secretary shall provide a benefit for 
     outpatient prescription drugs through private entities under 
     section 1860D equal to 50 percent of the lesser of--
       ``(A) the cost of outpatient prescription drugs for such 
     year; or
       ``(B) $5000.
       ``(2) Cost-of-living adjustment.--In the case of any 
     calendar year beginning after 2002, the dollar amount in 
     paragraph (1)(B) shall be increased by an amount equal to--
       ``(A) such dollar amount; multiplied by
       ``(B) the percentage (if any) by which--
       ``(i) the prescription drug component of the Consumer Price 
     Index for all urban consumers (all items city average) for 
     the 12-month period ending with August of the preceding year; 
     exceeds
       ``(ii) such prescription drug component of the Consumer 
     Price Index for the 12-month period ending with August 2001.
       ``(3) Rounding.--If any increase determined under paragraph 
     (2) is not a multiple of $1, such increase shall be rounded 
     to the nearest multiple of $1.


                         ``combined deductible

       ``Sec. 1860CC. (a) In General.--Notwithstanding any 
     provision of this title and beginning in 2002, a beneficiary 
     electing the Rx Option shall be subject to a combined 
     deductible that shall apply in lieu of the deductibles 
     applied under sections 1813(a)(1) and 1833(b).
       ``(b) Amount.--
       ``(1) In general.--For purposes of subsection (a), the 
     combined deductible is equal to $675.
       ``(2) Cost-of-living adjustment.--In the case of any 
     calendar year after 2002, the dollar amount in paragraph (1) 
     shall be increased by an amount equal to--
       ``(A) such dollar amount; multiplied by
       ``(B) the percentage (if any) by which--
       ``(i) the medical component of the Consumer Price Index for 
     all urban consumers (all items city average) for the 12-month 
     period ending with August of the preceding year; exceeds
       ``(ii) such medical component of the Consumer Price Index 
     for the 12-month period ending with August 2001.
       ``(3) Rounding.--If any increase determined under paragraph 
     (2) is not a multiple of $1, such increase shall be rounded 
     to the nearest multiple of $1.
       ``(c) Application.--In applying the combined deductible 
     described in subsection (a) such deductible shall apply to 
     each expense incurred on a calendar year basis for each item 
     or service covered under this title, and each expense paid on 
     a calendar year basis for such an item or service shall be 
     credited against such deductible.


      ``partnerships with private entities to offer the rx option

       ``Sec. 1860DD. (a) Partnerships.--
       ``(1) In general.--The Secretary shall contract with 
     private entities for the provision of outpatient prescription 
     drug benefits under the Rx Option.
       ``(2) Private entities.--The private entities described in 
     paragraph (1) shall include insurers (including issuers of 
     medicare supplemental policies under section 1882), 
     pharmaceutical benefit managers, chain pharmacies, groups of 
     independent pharmacies, and other private entities that the 
     Secretary determines are appropriate.
       ``(3) Areas.--The Secretary may award a contract to a 
     private entity under this section on a local, regional, or 
     national basis.

[[Page S7049]]

       ``(4) Drug benefits only through private entities.--
     Outpatient prescription drug benefits under the Rx Option 
     shall be offered only through a contract with a private 
     entity under this section.
       ``(b) Secretary Required To Contract With Any Willing 
     Qualified Private Entity.--The Secretary may not exclude a 
     private entity from receiving a contract to provide 
     outpatient prescription drug benefits under the Rx Option if 
     the private entity meets all of the requirements established 
     by the Secretary for providing such benefits.


                ``eligibility for catastrophic coverage

       ``Sec. 1860EE. Noting in this part shall be construed to 
     prohibit an individual who elects coverage under the Rx 
     Option from obtaining catastrophic coverage under any other 
     program under this title.''.
       (b) Conforming Medigap Changes.--Section 1882 of the Social 
     Security Act (42 U.S.C. 1395ss) is amended by adding at the 
     end the following new subsection:
       ``(v) Special Rules for Medicare Prescription Drug Plan 
     Enrollees.--
       ``(1) Revision of benefit packages.--
       ``(A) In general.--Notwithstanding subsection (p), the 
     benefit packages established under such subsection (including 
     the 2 plans described in paragraph (11)(A) of such 
     subsection) shall be revised (in the manner described in 
     subsection (p)(1)(E)) so that each of the benefit packages 
     classified as `A' through `J' remain exactly the same, except 
     that each benefit package shall include special rules that 
     apply only to individuals enrolled in the Rx Option under 
     section 1860B as follows:
       ``(i) Combined deductible.--Each benefit package shall 
     require the beneficiary of the policy to pay annual out-of-
     pocket expenses (other than premiums) in an amount equal to 
     the amount of the combined deductible under section 1860C(b) 
     before the policy begins payment of any benefits.
       ``(ii) Prescription drug coverage.--In the case of a 
     benefit package classified as `H', `I', and `J', such policy 
     may not provide coverage for outpatient prescription drugs 
     that duplicates the coverage for outpatient prescription 
     drugs provided under the Rx Option under section 1860B(b).
       ``(B) Adjusted premium.--In the case of an individual 
     enrolled in the Rx Option, the premium for the policy in 
     which the individual is enrolled may be appropriately 
     adjusted to reflect the special rules applicable to such 
     individual under subparagraph (A).
       ``(2) Renewability and continuity of coverage.--The 
     revisions of benefit packages under paragraph (1) shall not 
     affect--
       ``(A) the renewal of medicare supplemental policies under 
     this section that are in existence on the effective date of 
     such revisions; or
       ``(B) the continuity of coverage under such policies.''.
                                  ____

  SA 4307. Mr. NELSON of Florida submitted an amendment intended to be 
proposed by him to the bill S. 812, to amend the Federal Food, Drug, 
and Cosmetic Act to provide greater access to affordable 
pharmaceuticals; which was ordered to lie on the table; as follows:
       At the appropriate place, insert the following:

     SEC. __. LIMITATION ON PAYMENTS TO PROVIDERS UNDER A FEDERAL 
                   HEALTH CARE PROGRAM.

       (a) In General.--Title XI of the Social Security Act (42 
     U.S.C. 1301 et seq.) is amended by inserting after section 
     1128F the following new section:

     ``SEC. 1128G. LIMITATION ON PAYMENTS TO PROVIDERS UNDER A 
                   FEDERAL HEALTH CARE PROGRAM.

       ``(a) In General.--No Federal funds shall be used to 
     provide payments under a Federal health care program to any 
     physician (as defined in section 1861(r)), practitioner (as 
     described in section 1842(b)(18)(C)), or other individual who 
     charges a membership fee or any other extraneous or 
     incidental fee to a patient, or requires a patient to 
     purchase an item or service, as a prerequisite for the 
     provision of an item or service to the patient.
       ``(b) Federal Health Care Program Defined.--In this 
     section, the term `Federal health care program' has the 
     meaning given that term under section 1128B(f) except that, 
     for purposes of this section, such term includes the health 
     insurance program under chapter 89 of title 5, United States 
     Code.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to payments made on or after the date of enactment of 
     this Act.
                                  ____

  SA 4308. Mr. TORRICELLI (for himself, Mr. Leahy, and Mr. Jeffords) 
submitted an amendment intended to be proposed by him to the bill S. 
812. to amend the Federal Food, Drug, and Cosmetic Act to provide 
greater access to affordable pharmaceuticals; which was ordered to lie 
on the table; as follows:
       At the appropriate place, insert the following:

                  TITLE __--GIFT AND REBATE DISCLOSURE

     SEC. __01. SHORT TITLE.

       This title may be cited as the ``Gift and Rebate Disclosure 
     Act of 2002''.

     SEC. __02. DISCLOSURE BY PRESCRIPTION DRUG MANUFACTURERS, 
                   PACKERS, AND DISTRIBUTORS OF CERTAIN GIFTS.

       Section 503 of the Federal Food, Drug, and Cosmetics Act 
     (21 U.S.C. 353) is amended by adding at the end the 
     following:
       ``(h)(1) Each manufacturer, packer, or distributor of a 
     drug subject to subsection (b)(1) shall disclose to the 
     Commissioner--
       ``(A) not later than June 30, 2004, and each June 30 
     thereafter, the value, nature, and purpose of any--
       ``(i) gift provided during the preceding calendar year to 
     any covered health entity by the manufacturer, packer, or 
     distributor, or a representative thereof, in connection with 
     detailing, promotional, or other marketing activities; and
       ``(ii) cash rebate, discount, or any other financial 
     consideration provided during the preceding calendar year to 
     any pharmaceutical benefit manager by the manufacturer, 
     packer, or distributor, or a representative thereof, in 
     connection with detailing, promotional, or other marketing 
     activities; and
       ``(B) not later than the date that is 6 months after the 
     date of enactment of this subsection and each June 30 
     thereafter, the name and address of the individual 
     responsible for the compliance of the manufacturer, packer, 
     or distributor with the provisions of this subsection.
       ``(2) Subject to paragraph (3), the Commissioner shall make 
     all information disclosed to the Commissioner under paragraph 
     (1) publicly available, including by posting such information 
     on the Internet.
       ``(3) The Commissioner shall keep confidential any 
     information disclosed to or otherwise obtained by the 
     Commissioner under this subsection that relates to a trade 
     secret referred to in section 1905 of title 18, United States 
     Code. The Commissioner shall provide an opportunity in the 
     disclosure form required under paragraph (4) for a 
     manufacturer, packer, or distributor to identify any such 
     information.
       ``(4) Each disclosure under this subsection shall be made 
     in such form and manner as the Commissioner may require.
       ``(5) Each manufacturer, packer, and distributor described 
     in paragraph (1) shall be subject to a civil monetary penalty 
     of not more than $10,000 for each violation of this 
     subsection. Each unlawful failure to disclose shall 
     constitute a separate violation. The provisions of paragraphs 
     (3), (4), and (5) of section 303(g) shall apply to such a 
     violation in the same manner as such provisions apply to a 
     violation of a requirement of this Act that relates to 
     devices.
       ``(6) For purposes of this subsection:
       ``(A) The term `covered health entity' includes any 
     physician, pharmaceutical benefit manager, hospital, nursing 
     home, pharmacist, health benefit plan administrator, or any 
     other entity authorized to prescribe or dispense drugs that 
     are subject to subsection (b)(1), in the District of Columbia 
     or any State, commonwealth, possession, or territory of the 
     United States.
       ``(B) The term `gift' includes any gift, fee, payment, 
     subsidy, or other economic benefit with a value of $50 or 
     more, except that such term excludes the following:
       ``(i) Free samples of drugs subject to subsection (b)(1) 
     intended to be distributed to patients.
       ``(ii) The payment of reasonable compensation and 
     reimbursement of expenses in connection with any clinical 
     trial conducted in connection with a valid scientific study 
     designed to answer specific questions about drugs, devices, 
     new therapies, or new ways of using known treatments, or in 
     connection with a clinical trial involving the compassionate 
     use of an experimental drug or device as permitted under 
     regulations promulgated by the Food and Drug Administration.
       ``(iii) Any scholarship or other support for medical 
     students, residents, or fellows selected by a national, 
     regional, or specialty medical or other professional 
     association to attend a significant educational, scientific, 
     or policy-making conference of the association.''.

     SEC. __03. DISALLOWANCE OF DEDUCTION FOR PHYSICIAN GIFT 
                   EXPENSES OF PRESCRIPTION DRUG MANUFACTURERS.

       (a) General Rule.--Part IX of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to items not 
     deductible) is amended by adding at the end the following new 
     section:

     ``SEC. 280I. PHYSICIAN GIFT EXPENSES OF PRESCRIPTION DRUG 
                   MANUFACTURERS.

       ``(a) General Rule.--No deduction shall be allowed under 
     this chapter for any physician gift expense paid or incurred 
     by any prescription drug manufacturer.
       ``(b) Physician Gift Expense.--For purposes of this 
     section, the term `physician gift expense' means any gift 
     provided directly or indirectly to or for the benefit of a 
     physician, including gifts of meals, sponsored teachings, 
     symposia, and travel, but not including product samples.
       ``(c) Prescription Drug Manufacturer.--For purposes of this 
     section, the term `prescription drug manufacturer' means--
       ``(1) any person engaged in the trade or business of 
     manufacturing or producing any prescription drug, and
       ``(2) any person who is a member of an affiliated group 
     which includes a person described in paragraph (1).

     For purposes of the preceding sentence, the term `affiliated 
     group' means any affiliated group as defined in section 1504 
     (determined without regard to paragraphs (3) and (4) of 
     1504(b)).''

[[Page S7050]]

       (b) Clerical Amendment.--The table of sections for part IX 
     of subchapter B of chapter 1 of such Code is amended by 
     adding at the end thereof the following new item:

``Sec. 280I. Physician gift expenses of prescription drug 
              manufacturers.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after December 31, 
     2001.
                                  ____

  SA 4309. Mr. GRAHAM (for himself, Mr. Miller, Mr. Kennedy and Mr. 
Corzine) proposed an amendment to the bill S. 812. to amend the Federal 
Food, Drug, and Cosmetic Act to provide greater access to affordable 
pharmaceuticals; as follows:
       At the end, add the following:

    TITLE II--MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT PROGRAM

     SEC. 201. SHORT TITLE; TABLE OF CONTENTS.

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

Sec. 201. Short title; table of contents.
Sec. 202. 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. 203. Part D benefits under Medicare+Choice plans.
Sec. 204. Additional assistance for low-income beneficiaries.
Sec. 205. Medigap revisions.
Sec. 206. Comprehensive immunosuppressive drug coverage for transplant 
              patients under part B.
Sec. 207. HHS study and report on uniform pharmacy benefit cards.
Sec. 208. GAO study and biennial reports on competition and savings.
Sec. 209. Expansion of membership and duties of Medicare Payment 
              Advisory Commission (MedPAC).

     SEC. 202. 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 and syringes for the administration of such 
     insulin.
       ``(iv) A prescribed drug or biological product that would 
     meet the requirements of 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 2005, 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.

[[Page S7051]]

                       ``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 by an amount that the Secretary determines is 
     actuarily sound 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.
       ``(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), but only if the coverage 
     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.
       ``(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)), but only if the coverage 
     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, but only if the coverage 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.
       ``(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, but only if the coverage 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.
       ``(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, 
     2005.--The Secretary shall ensure that eligible beneficiaries 
     are permitted to enroll under this part prior to January 1, 
     2005, 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, 2005.
       ``(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) Election.--
       ``(i) 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--

       ``(I) 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; and
       ``(II) may make an annual election to change the election 
     under this clause.

       ``(ii) Default enrollment.--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--

[[Page S7052]]

       ``(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, 2005, 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 2004), 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 2005.--The monthly part D premium rate 
     for 2005 shall be $25.
       ``(B) Inflation adjustment of premium for 2006 and 
     subsequent years.--
       ``(i) In general.--Subject to clause (ii), in the case of 
     any calendar year beginning after 2005, 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 2005.

       ``(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) 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 in 
     subparagraph (D)) 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.
       ``(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 nonformulary 
     drugs.--The eligible entity shall treat a nonformulary drug 
     as a preferred brand name drug under subparagraph (A)(ii) if 
     such nonformulary drug is determined (pursuant to 
     subparagraph (D) or (E) of section 1860H(a)(4)) to be 
     medically necessary.
       ``(D) Prescription defined.--
       ``(i) In general.--Subject to clause (ii), for purposes of 
     subparagraph (A), the term `prescription' means--

       ``(I) a 30-day supply for a maintenance drug; and
       ``(II) a supply necessary for the length of the course that 
     is typical of current practice for a nonmaintenance drug.

       ``(ii) Special Rule for mail order drugs.--In the case of 
     drugs obtained by mail order, the term `prescription' may be 
     for a supply that is longer than the period specified in 
     clause (i) or (ii) (as the case may be) if the Secretary 
     determines that the longer supply will not result in an 
     increase in the expenditures made from the Prescription Drug 
     Account.
       ``(2) Beneficiary responsible for negotiated price of 
     nonformulary drugs.--In the case of a covered outpatient drug 
     that is dispensed to an eligible beneficiary and that is not 
     included in the formulary established by the eligible entity 
     (pursuant to section 1860H(c)) for the plan (and not treated 
     a preferred brand name drug under paragraph (1)(C)), the 
     beneficiary shall be responsible for the negotiated price for 
     the drug (as reported to the Secretary pursuant to section 
     1860H(a)(6)(A)).
       ``(3) Cost-sharing may not exceed negotiated price.--
       ``(A) In general.--If the amount of cost-sharing for a 
     covered outpatient drug that

[[Page S7053]]

     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 a drug included in the formulary 
     (generic drugs and preferred brand name drugs, including a 
     drug treated as a preferred brand name drug under paragraph 
     (1)(C)), the negotiated price for the drug (as reported to 
     the Secretary pursuant to section 1860H(a)(6)(A)) less $5; 
     and
       ``(ii) in the case of a nonformulary drug, 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 for 2006 and subsequent years.--
       ``(A) In general.--For any year after 2005--
       ``(i) the copayment amounts described in clauses (i) and 
     (ii) of paragraph (1)(A) are equal to the copayment amounts 
     determined under such paragraph (or this paragraph) for the 
     previous year--

       ``(I) increased by the annual percentage increase described 
     in subparagraph (B); and
       ``(II) further adjusted to reflect relative changes in the 
     composition of drug spending among the copayment structure 
     under paragraph (1) to ensure that the percentage of drug 
     spending that beneficiaries enrolled under this part are 
     required to pay in the year is the same (as estimated by the 
     Secretary) as the percentage required in the previous year; 
     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 (C).
       ``(B) Annual percentage increase specified in subparagraph 
     (b).--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) Annual percentage increase specified in subparagraph 
     (c).--The annual percentage increase specified in this 
     subparagraph for a year is equal to the annual percentage 
     increase in average per capita aggregate expenditures for 
     covered outpatient drugs in the United States for medicare 
     beneficiaries, as determined by the Secretary for the 12-
     month period ending in July of the previous year.
       ``(D) 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.--
       ``(1) Access.--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).
       ``(2) Medicaid related provisions.--Insofar as a State 
     elects to provide medical assistance under title XIX for a 
     drug based on the prices negotiated under a plan under this 
     part, the requirements of section 1927 shall not apply to 
     such drugs. The prices negotiated under a plan under this 
     part with respect to covered outpatient drugs, under a 
     Medicare+Choice plan with respect to such drugs, or under a 
     qualified retiree prescription drug plan (as defined in 
     section 1860J(e)(3)) with respect to such drugs, on behalf of 
     eligible beneficiaries, shall (notwithstanding any other 
     provision of law) not be taken into account for the purposes 
     of establishing the best price under section 1927(c)(1)(C).


         ``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);
       ``(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;
       ``(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

[[Page S7054]]

     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) Electronic prescription program.--
       ``(A) In general.--The eligible entity has in place, for 
     years beginning with 2006, an electronic prescription drug 
     program that includes at least the following components, 
     consistent with national standards established under 
     subparagraph (B):
       ``(i) Electronic transmittal of prescriptions.--
     Prescriptions are only received electronically, except in 
     emergency cases and other exceptional circumstances 
     recognized by the Secretary.
       ``(ii) Provision of information to prescribing health care 
     professional.--The program provides, upon transmittal of a 
     prescription by a prescribing health care professional, for 
     transmittal by the pharmacist to the professional of 
     information that includes--

       ``(I) information (to the extent available and feasible) on 
     the drugs being prescribed for that patient and other 
     information relating to the medical history or condition of 
     the patient that may be relevant to the appropriate 
     prescription for that patient;
       ``(II) cost-effective alternatives (if any) for the use of 
     the drug prescribed; and
       ``(III) information on the drugs included in the applicable 
     formulary.

     To the extent feasible, such program shall permit the 
     prescribing health care professional to provide (and be 
     provided) related information on an interactive, real-time 
     basis.
       ``(B) Standards.--
       ``(i) Development.--The Secretary shall provide for the 
     development of national standards relating to the electronic 
     prescription drug program described in subparagraph (A). Such 
     standards shall be compatible with standards established 
     under part C of title XI.
       ``(ii) Advisory task force.--In developing such standards, 
     the Secretary shall establish a task force that includes 
     representatives of physicians, hospitals, pharmacists, and 
     technology experts and representatives of the Departments of 
     Veterans Affairs and Defense and other appropriate Federal 
     agencies to provide recommendations to the Secretary on such 
     standards, including recommendations relating to the 
     following:

       ``(I) The range of available computerized prescribing 
     software and hardware and their costs to develop and 
     implement.
       ``(II) The extent to which such systems reduce medication 
     errors and can be readily implemented by physicians and 
     hospitals.
       ``(III) Efforts to develop a common software platform for 
     computerized prescribing.
       ``(IV) The cost of implementing such systems in the range 
     of hospital and physician office settings, including 
     hardware, software, and training costs.
       ``(V) Implementation issues as they relate to part C of 
     title XI, and current Federal and State prescribing laws and 
     regulations and their impact on implementation of 
     computerized prescribing.

       ``(iii) Deadlines.--

       ``(I) The Secretary shall constitute the task force under 
     clause (ii) by not later than April 1, 2003.
       ``(II) Such task force shall submit recommendations to 
     Secretary by not later than January 1, 2004.
       ``(III) The Secretary shall develop and promulgate the 
     national standards referred to in clause (ii) by not later 
     than January 1, 2005.

       ``(C) Waiver of application for certain rural providers.--
     If the Secretary determines that it is unduly burdensome on 
     providers in rural areas to comply with the requirements 
     under this paragraph, the Secretary may waive such 
     requirements for such providers.
       ``(D) Reference to availability of grant funds.--Grant 
     funds are authorized under section 399O of the Public Health 
     Service Act to provide assistance to health care providers in 
     implementing electronic prescription drug programs.
       ``(4) 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 dispense 
     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 nonformulary 
     drug as a preferred brand name drug under this part if the 
     nonformulary drug is determined--

[[Page S7055]]

       ``(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 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 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 in a manner consistent 
     with the Federal regulations (concerning the privacy of 
     individually identifiable health information) promulgated 
     under section 264(c) of the Health Insurance Portability and 
     Accountability Act of 1996 (Public Law 104-191; 110 Stat. 
     2033);
       ``(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.
       ``(5) Procedures to control fraud, abuse, and waste.--
       ``(A) In general.--The eligible entity has in place 
     procedures to control fraud, abuse, and waste.
       ``(B) Applicability of fraud and abuse provisions.--The 
     provisions of section 1128 through 1128C (relating to fraud 
     and abuse) apply to eligible entities with contracts under 
     this part.
       ``(6) 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.
       ``(7) Approval of marketing material and application 
     forms.--The eligible entity complies with the requirements 
     described in section 1860G(f).
       ``(8) 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.--
       ``(1) In general.--In providing the benefits under a 
     contract under this part, an eligible entity shall--
       ``(A) employ mechanisms to provide the benefits 
     economically, such as through the use of--
       ``(i) alternative methods of distribution;
       ``(ii) preferred pharmacy networks (pursuant to subsection 
     (e)); and
       ``(iii) generic drug substitution;
       ``(B) use mechanisms to encourage eligible beneficiaries to 
     select cost-effective drugs or less costly means of receiving 
     drugs, such as through the use of--
       ``(i) pharmacy incentive programs;
       ``(ii) therapeutic interchange programs; and
       ``(iii) disease management programs;
       ``(C) encourage pharmacy providers to--
       ``(i) inform beneficiaries of the differentials in price 
     between generic and brand name drug equivalents; and
       ``(ii) provide medication therapy management programs in 
     order to enhance beneficiaries' understanding of the 
     appropriate use of medications and to reduce the risk of 
     potential adverse events associated with medications; and
       ``(D) develop and implement a formulary in accordance with 
     subsection (c).
       ``(2) Restriction.--If an eligible entity uses alternative 
     methods of distribution pursuant to paragraph (1)(A)(i), the 
     entity may not require that a beneficiary use such methods in 
     order to obtain covered outpatient drugs.
       ``(c) Requirements for Formularies.--
       ``(1) Standards.--
       ``(A) 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.
       ``(B) No national formulary or requirement to exclude 
     specific drugs.--
       ``(i) Secretary may not establish a national formulary.--
     The Secretary may not establish a national formulary.
       ``(ii) No requirement to exclude specific drugs.--The 
     standards established by the Secretary pursuant to 
     subparagraph (A) may not require that an eligible entity 
     exclude a specific covered outpatient drug from the formulary 
     developed and implemented by the entity.
       ``(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) include--
       ``(i) all generic covered outpatient drugs in the 
     formulary; and
       ``(ii) at least 1 but no more than 2 (unless the Secretary 
     determines that such limitation is determined to be 
     clinically inappropriate for a given therapeutic class) brand 
     name covered outpatient drugs 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;
       ``(C) develop procedures for the modification of the 
     formulary, including for the addition of new drugs to an 
     existing therapeutic class;
       ``(D) pursuant to section 1860F(b)(1)(C), provide for 
     coverage of nonformulary drugs at the preferred brand name 
     drug rate when determined under subparagraph (D) or (E) of 
     subsection (a)(3) to be medically necessary;

[[Page S7056]]

       ``(E) 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
       ``(F) 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) educating prescribing providers, pharmacists, and 
     beneficiaries about the medical and cost benefits of drugs 
     included in the formulary (including generic drugs); or
       ``(B) requesting prescribing providers to consider a drug 
     included in the formulary prior to dispensing of a drug not 
     so included, 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--
       ``(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, discounts, and price 
     concessions obtained by the eligible entity.--The Secretary 
     shall establish procedures for reducing the amount of 
     payments to an eligible entity under subsection (a) to take 
     into account any rebates, discounts, or price concessions 
     obtained by the entity from manufacturers of covered 
     outpatient drugs, unless the Secretary determines that such 
     procedures are not in the best interests of the medicare 
     program or eligible beneficiaries.
       ``(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

[[Page S7057]]

     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 
     2004 estimate for that year 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.--
       ``(A) In general.--Except as provided in subparagraphs (B) 
     and (C), no obligations shall be incurred, no amounts shall 
     be appropriated, and no amounts expended, for expenses 
     incurred for providing coverage of covered outpatient drugs 
     after December 31, 2010.
       ``(B) Expenses for coverage prior to 2011.--The Secretary 
     shall make payments on or after January 1, 2011, for expenses 
     incurred to the extent such expenses were incurred for 
     providing coverage of covered outpatient drugs prior to such 
     date.
       ``(C) Legislation enacted that provides savings.--Amounts 
     shall continue to be appropriated, and the Secretary shall 
     continue to incur obligations and expend amounts, for 
     expenses incurred for providing coverage of covered 
     outpatient drugs after December 31, 2010, if legislation is 
     enacted prior to January 1, 2011, which states that savings 
     have been achieved equal to or greater than the difference 
     between the full cost of the Medicare Outpatient Prescription 
     Drug Act of 2002 over the period beginning October 1, 2004, 
     and ending September 30, 2012, and the full cost of such Act 
     over such period if this paragraph had not been included in 
     such Act.


            ``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 January 1, 
     2004, 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)(4) 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 maintenance and nonmaintenance drugs and 
     determining the length of the course that is typical of 
     current practice for nonmaintenance drugs for purposes of 
     applying section 1860F(b)(1);
       ``(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

[[Page S7058]]

     determined appropriate by the Secretary. The terms of service 
     of the members initially appointed shall begin on March 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 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 title.

     SEC. 203. 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, 2005.

     SEC. 204. 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

[[Page S7059]]

     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 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 2005 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) Amendment to Best Price.--Section 1927(c)(1)(C)(i) of 
     the Social Security Act (42 U.S.C. 1396r-8(c)(1)(C)(i)) is 
     amended--
       (1) by striking ``and'' at the end of subclause (III);
       (2) by striking the period at the end of subclause (IV) and 
     inserting ``; and''; and
       (3) by adding at the end the following new subclause:

       ``(V) any prices charged which are negotiated under a plan 
     under part D of title XVIII with respect to covered 
     outpatient drugs, under a Medicare+Choice plan under part C 
     of such title with respect to such drugs, or by a qualified 
     retiree prescription drug plan (as defined in section 
     1860J(e)(3)) with respect to such drugs, on behalf of 
     eligible beneficiaries (as defined in section 1860(2).''.

       (h) 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)''.
       (i) 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, 2005.

     SEC. 205. 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, 2005.
       ``(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, 2005; 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, 
     2005.
       ``(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

[[Page S7060]]

      penalties under subsections (a), (d), (p)(8), (p)(9), 
     (q)(5), (r)(6)(A), (s)(4), and (t)(2)(D).''.

     SEC. 206. COMPREHENSIVE IMMUNOSUPPRESSIVE DRUG COVERAGE FOR 
                   TRANSPLANT PATIENTS UNDER PART B.

       (a) In General.--Section 1861(s)(2)(J) of the Social 
     Security Act (42 U.S.C. 1395x(s)(2)(J)), as amended by 
     section 113(a) of the Medicare, Medicaid, and SCHIP Benefits 
     Improvement and Protection Act of 2000 (114 Stat. 2763A-473), 
     as enacted into law by section 1(a)(6) of Public Law 106-554, 
     is amended by striking ``, to an individual who receives'' 
     and all that follows before the semicolon at the end and 
     inserting ``to an individual who has received an organ 
     transplant''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to drugs furnished on or after the date of 
     enactment of this Act.

     SEC. 207. HHS STUDY AND REPORT ON UNIFORM PHARMACY BENEFIT 
                   CARDS.

       (a) Studies.--The Secretary of Health and Human Services 
     shall conduct a study to determine the feasibility and 
     advisability of 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 202).
       (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 study conducted under subsection (a) together with any 
     recommendations for legislation that the Secretary determines 
     to be appropriate as a result of such study.

     SEC. 208. 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 
     202), 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, 2006, 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. 209. 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.
       (ii) One member shall be appointed for 2 years.
       (B) Commencement of terms.--Such terms shall begin on 
     January 1, 2004.
       (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.''.
                                  ____

  SA 4310. Mr. HATCH (for Mr. Grassley (for himself, Ms. Snowe, Mr. 
Jeffords, Mr. Breaux, Mr. Hatch, Ms. Collins, Ms. Landrieu, Mr. 
Hutchinson, and Mr. Domenici)) proposed an amendment to the bill S. 
812, to amend the Federal Food, Drug, and Cosmetic Act to provide 
greater access to affordable pharmaceuticals; as follows:
       At the end, add the following:

                 DIVISION __--21ST CENTURY MEDICARE ACT

     SEC. 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; 
                   REFERENCES TO BIPA; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``21st 
     Century Medicare Act''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in this Act an amendment is 
     expressed in terms of an amendment to or repeal of a section 
     or other provision, the reference shall be considered to be 
     made to that section or other provision of the Social 
     Security Act.
       (c) BIPA; Secretary.--In this Act:
       (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
     and SCHIP Benefits Improvement and Protection Act of 2000, as 
     enacted into law by section 1(a)(6) of Public Law 106-554.
       (2) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (d) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
              BIPA; table of contents.

     TITLE I--MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM

Sec. 101. Medicare voluntary prescription drug delivery program.

         ``Part D--Voluntary Prescription Drug Delivery Program

``Sec. 1860D. Definitions; treatment of references to provisions in 
              Medicare+Choice program.

  ``Subpart 1--Establishment of Voluntary Prescription Drug Delivery 
                                Program

``Sec. 1860D-1. Establishment of voluntary prescription drug delivery 
              program.
``Sec. 1860D-2. Enrollment under program.
``Sec. 1860D-3. Election of a Medicare Prescription Drug plan.
``Sec. 1860D-4. Providing information to beneficiaries.
``Sec. 1860D-5. Beneficiary protections.
``Sec. 1860D-6. Prescription drug benefits.
``Sec. 1860D-7. Requirements for entities offering Medicare 
              Prescription Drug plans; establishment of standards.

             ``Subpart 2--Prescription Drug Delivery System

``Sec. 1860D-10. Establishment of service areas.
``Sec. 1860D-11. Publication of risk adjusters.
``Sec. 1860D-12. Submission of bids for proposed Medicare Prescription 
              Drug plans.
``Sec. 1860D-13. Approval of proposed Medicare Prescription Drug plans.
``Sec. 1860D-14. Computation of monthly standard coverage premiums.
``Sec. 1860D-15. Computation of monthly national average premium.
``Sec. 1860D-16. Payments to eligible entities offering Medicare 
              Prescription Drug plans.
``Sec. 1860D-17. Computation of beneficiary obligation.
``Sec. 1860D-18. Collection of beneficiary obligation.
``Sec. 1860D-19. Premium and cost-sharing subsidies for low-income 
              individuals.
``Sec. 1860D-20. Reinsurance payments for qualified prescription drug 
              coverage.

``Subpart 3--Medicare Competitive Agency; Prescription Drug Account in 
         the Federal Supplementary Medical Insurance Trust Fund

``Sec. 1860D-25. Establishment of Medicare Competitive Agency.
``Sec. 1860D-26. Prescription Drug Account in the Federal Supplementary 
              Medical Insurance Trust Fund.''.
Sec. 102. Study and report on permitting part B only individuals to 
              enroll in medicare voluntary prescription drug delivery 
              program.
Sec. 103. Additional requirements for annual financial report and 
              oversight on medicare program.
Sec. 104. Reference to medigap provisions.
Sec. 105. Medicaid amendments.
Sec. 106. Expansion of membership and duties of Medicare Payment 
              Advisory Commission (MedPAC).
Sec. 107. Miscellaneous administrative provisions.

            TITLE II--OPTION FOR ENHANCED MEDICARE BENEFITS

Sec. 201. Option for enhanced medicare benefits.

                  ``Part E--Enhanced Medicare Benefits

``Sec. 1860E-1. Entitlement to elect to receive enhanced medicare 
              benefits.
``Sec. 1860E-2. Scope of enhanced medicare benefits.
``Sec. 1860E-3. Payment of benefits.
``Sec. 1860E-4. Eligible beneficiaries; election of enhanced medicare 
              benefits; termination of election.

[[Page S7061]]

``Sec. 1860E-5. Premium adjustments; late election penalty.''.
Sec. 202. Rules relating to medigap policies that provide prescription 
              drug coverage; establishment of enhanced medicare fee-
              for-service medigap policies.

                 TITLE III--MEDICARE+CHOICE COMPETITION

Sec. 301. Annual calculation of benchmark amounts based on floor rates 
              and local fee-for-service rates.
Sec. 302. Application of comprehensive risk adjustment methodology.
Sec. 303. Annual announcement of benchmark amounts and other payment 
              factors.
Sec. 304. Submission of bids by Medicare+Choice organizations.
Sec. 305. Adjustment of plan bids; comparison of adjusted bid to 
              benchmark; payment amount.
Sec. 306. Determination of premium reductions, reduced cost-sharing, 
              additional benefits, and beneficiary premiums.
Sec. 307. Eligibility, election, and enrollment in competitive 
              Medicare+Choice plans.
Sec. 308. Benefits and beneficiary protections under competitive 
              Medicare+Choice plans.
Sec. 309. Payments to Medicare+Choice organizations for enhanced 
              medicare benefits under part E based on risk-adjusted 
              bids.
Sec. 310. Separate payments to Medicare+Choice organizations for part D 
              benefits.
Sec. 311. Administration by the Medicare Competitive Agency.
Sec. 312. Continued calculation of annual Medicare+Choice capitation 
              rates.
Sec. 313. Five-year extension of medicare cost contracts.
Sec. 314. Effective date.

     TITLE I--MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM

     SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY 
                   PROGRAM.

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

         ``Part D--Voluntary Prescription Drug Delivery Program


``definitions; treatment of references to provisions in medicare+choice 
                                program

       ``Sec. 1860D. (a) Definitions.--In this part:
       ``(1) Administrator.--The term `Administrator' means the 
     Administrator of the Medicare Competitive Agency as 
     established under section 1860D-25.
       ``(2) Covered drug.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `covered drug' means--
       ``(i) a drug that may be dispensed only upon a prescription 
     and that is described in clause (i) or (ii) of subparagraph 
     (A) of section 1927(k)(2); or
       ``(ii) a biological product or insulin described in 
     subparagraph (B) or (C) of such section;

     and such term includes a vaccine licensed under section 351 
     of the Public Health Service Act and any use of a covered 
     outpatient drug for a medically accepted indication (as 
     defined in section 1927(k)(6)).
       ``(B) Exclusions.--
       ``(i) In general.--The term `covered drug' does not include 
     drugs or classes of drugs, or their medical uses, which may 
     be excluded from coverage or otherwise restricted under 
     section 1927(d)(2), other than subparagraph (E) thereof 
     (relating to smoking cessation agents), or under section 
     1927(d)(3).
       ``(ii) Avoidance of duplicate coverage.--A drug prescribed 
     for an individual that would otherwise be a covered drug 
     under this part shall not be so considered if payment for 
     such drug is available under part A or B (or under part E for 
     an eligible beneficiary who elects to receive enhanced 
     medicare benefits under that part), but shall be so 
     considered if such payment is not available because benefits 
     under part A or B (or part E, as applicable) have been 
     exhausted.
       ``(3) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual that is entitled to benefits 
     under part A and enrolled under part B.
       ``(4) Eligible entity.--The term `eligible entity' means 
     any risk-bearing entity that the Administrator determines to 
     be appropriate to provide eligible beneficiaries with the 
     benefits under a Medicare Prescription Drug plan, including--
       ``(A) a pharmaceutical benefit management company;
       ``(B) a wholesale or retail pharmacist delivery system;
       ``(C) an insurer (including an insurer that offers medicare 
     supplemental policies under section 1882);
       ``(D) another entity; or
       ``(E) any combination of the entities described in 
     subparagraphs (A) through (D).
       ``(5) Initial coverage limit.--The term `initial coverage 
     limit' means the limit as established under section 1860D-
     6(c)(3), or, in the case of coverage that is not standard 
     coverage, the comparable limit (if any) established under the 
     coverage.
       ``(6) 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).
       ``(7) Medicare prescription drug plan.--The term `Medicare 
     Prescription Drug plan' means prescription drug coverage that 
     is offered under a policy, contract, or plan--
       ``(A) by an eligible entity pursuant to, and in accordance 
     with, a contract between the Administrator and the entity 
     under section 1860D-7(b); and
       ``(B) that has been approved under section 1860D-13.
       ``(8) Prescription drug account.--The term `Prescription 
     Drug Account' means the Prescription Drug Account (as 
     established under section 1860D-26) in the Federal 
     Supplementary Medical Insurance Trust Fund under section 
     1841.
       ``(9) Qualified prescription drug coverage.--The term 
     `qualified prescription drug coverage' means the coverage 
     described in section 1860D-6(a)(1).
       ``(10) Standard coverage.--The term `standard coverage' 
     means the coverage described in section 1860D-6(c).
       ``(b) Application of Medicare+Choice Provisions Under This 
     Part.--For purposes of applying provisions of part C under 
     this part with respect to a Medicare Prescription Drug plan 
     and an eligible entity, unless otherwise provided in this 
     part such provisions shall be applied as if--
       ``(1) any reference to a Medicare+Choice plan included a 
     reference to a Medicare Prescription Drug plan;
       ``(2) any reference to a provider-sponsored organization 
     included a reference to an eligible entity;
       ``(3) any reference to a contract under section 1857 
     included a reference to a contract under section 1860D-7(b); 
     and
       ``(4) any reference to part C included a reference to this 
     part.

  ``Subpart 1--Establishment of Voluntary Prescription Drug Delivery 
                                Program


    ``establishment of voluntary prescription drug delivery program

       ``Sec. 1860D-1. (a) Provision of Benefit.--
       ``(1) In general.--The Administrator shall provide for and 
     administer a voluntary prescription drug delivery program 
     under which each eligible beneficiary enrolled under this 
     part shall be provided with access to qualified prescription 
     drug coverage as follows:
       ``(A) Medicare+choice plan.--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 benefits under this part through such plan if 
     such plan provides qualified prescription drug coverage.
       ``(B) Medicare prescription drug plan.--An eligible 
     beneficiary who is enrolled under this part but is not 
     enrolled in a Medicare+Choice plan that provides qualified 
     prescription drug coverage shall receive coverage of benefits 
     under this part through enrollment in a Medicare Prescription 
     Drug plan that is offered in the geographic area in which the 
     beneficiary resides.
       ``(2) Voluntary nature of program.--Nothing in this part 
     shall be construed as requiring an eligible beneficiary to 
     enroll in the program under this part.
       ``(3) Scope of benefits.--The program established under 
     this part shall provide for coverage of all therapeutic 
     classes of covered drugs.
       ``(4) Program to begin in 2005.--The Administrator shall 
     establish the program under this part in a manner so that 
     benefits are first provided for months beginning with January 
     2005.
       ``(b) Access to Alternative Prescription Drug Coverage.--In 
     the case of an eligible beneficiary who has creditable 
     prescription drug coverage (as defined in section 1860D-
     2(b)(1)(F)), such beneficiary--
       ``(1) may continue to receive such coverage and not enroll 
     under this part; and
       ``(2) pursuant to section 1860D-2(b)(1)(C), is permitted to 
     subsequently enroll under this part without any penalty and 
     obtain access to qualified prescription drug coverage 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. 1860D-2. (a) Establishment of Enrollment Process.--
       ``(1) Process similar to part b enrollment.--The 
     Administrator 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) Condition of enrollment.--An eligible beneficiary 
     must be enrolled under this part in order to be eligible to 
     receive access to qualified prescription drug coverage.
       ``(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 Administrator shall 
     establish procedures for increasing the amount of the monthly 
     beneficiary obligation under section 1860D-17 applicable to

[[Page S7062]]

     such beneficiary by an amount that the Administrator 
     determines is actuarially sound 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.
       ``(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 clauses (ii) and 
     (iii), 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) Beneficiary must involuntarily lose coverage.--
     Clause (i) shall only apply with respect to coverage--

       ``(I) in the case of coverage described in clause (ii) of 
     subparagraph (F), if the plan terminates, ceases to provide, 
     or reduces the value of the prescription drug coverage under 
     such plan to below the actuarial value of standard coverage 
     (as determined under section 1860D-6(f));
       ``(II) in the case of coverage described in clause (i), 
     (iii), or (iv) of subparagraph (F), if the beneficiary loses 
     eligibility for such coverage; or
       ``(III) in the case of a beneficiary with coverage 
     described in clause (v) of subparagraph (F), if the issuer of 
     the policy terminates coverage under the policy.

       ``(iii) Partial credit for certain medigap coverage.--In 
     the case of a beneficiary that had creditable prescription 
     drug coverage described in subparagraph (F)(v) that does not 
     provide coverage of the cost of prescription drugs the 
     actuarial value of which (as defined by the Administrator) to 
     the beneficiary equals or exceeds the actuarial value of 
     standard coverage (as determined under section 1860D-6(f)), 
     the Administrator shall determine a percentage of the period 
     in which the beneficiary had such creditable prescription 
     drug coverage that will be taken into account under 
     subparagraph (B) (and not considered to be such creditable 
     prescription drug coverage under clause (i)).
       ``(D) Periods treated separately.--Any increase in an 
     eligible beneficiary's monthly beneficiary obligation 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, through a social health 
     maintenance organization (referred to in section 4104(c) of 
     the Balanced Budget Act of 1997), and through a 
     Medicare+Choice project that demonstrates the application of 
     capitation payment rates for frail elderly medicare 
     beneficiaries through the use of a interdisciplinary team and 
     through the provision of primary care services to such 
     beneficiaries by means of such a team at the nursing facility 
     involved, but only if the coverage provides coverage of the 
     cost of prescription drugs the actuarial value of which (as 
     defined by the Administrator) to the beneficiary equals or 
     exceeds the actuarial value of standard coverage (as 
     determined under section 1860D-6(f)).
       ``(ii) Prescription drug coverage under a group health 
     plan.--Any outpatient 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 1860D-
     20(f)(1)), but only if the coverage provides coverage of the 
     cost of prescription drugs the actuarial value of which (as 
     defined by the Administrator) to the beneficiary equals or 
     exceeds the actuarial value of standard coverage (as 
     determined under section 1860D-6(f)).
       ``(iii) State pharmaceutical assistance program.--Coverage 
     of prescription drugs under a State pharmaceutical assistance 
     program, but only if the coverage provides coverage of the 
     cost of prescription drugs the actuarial value of which (as 
     defined by the Administrator) to the beneficiary equals or 
     exceeds the actuarial value of standard coverage (as 
     determined under section 1860D-6(f)).
       ``(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, but only if the coverage provides coverage of 
     the cost of prescription drugs the actuarial value of which 
     (as defined by the Administrator) to the beneficiary equals 
     or exceeds the actuarial value of standard coverage (as 
     determined under section 1860D-6(f)).
       ``(v) Prescription drug coverage under medigap policies.--
     Subject to subparagraph (C)(iii), coverage under a medicare 
     supplemental policy under section 1882 that provides benefits 
     for prescription drugs (whether or not such coverage conforms 
     to the standards for packages of benefits under section 
     1882(p)(1)).
       ``(2) Open enrollment period for current beneficiaries in 
     which late enrollment procedures do not apply.--In the case 
     of an individual who is an eligible beneficiary as of January 
     1, 2005, the Administrator shall establish procedures under 
     which such beneficiary may enroll under this part during the 
     open enrollment period without the application of the late 
     enrollment procedures established under paragraph (1)(A). For 
     purposes of the preceding sentence, the open enrollment 
     period shall be the 7-month period that begins on April 1, 
     2004, and ends on November 30, 2004.
       ``(3) Special enrollment period for beneficiaries who 
     involuntarily lose creditable prescription drug coverage.--
       ``(A) Establishment.--The Administrator shall establish a 
     special open enrollment period (as described in subparagraph 
     (B)) for an eligible beneficiary that loses creditable 
     prescription drug coverage.
       ``(B) Special open enrollment period.--The special open 
     enrollment period described in this subparagraph is the 63-
     day period that begins--
       ``(i) in the case of a beneficiary with coverage described 
     in clause (ii) of paragraph (1)(F), the date on which the 
     plan terminates, ceases to provide, or substantially reduces 
     (as defined by the Administrator) the value of the 
     prescription drug coverage under such plan;
       ``(ii) in the case of a beneficiary with coverage described 
     in clause (i), (iii), or (iv) of paragraph (1)(F), the date 
     on which the beneficiary loses eligibility for such coverage; 
     or
       ``(iii) in the case of a beneficiary with coverage 
     described in clause (v) of paragraph (1)(F), the date on 
     which the issuer of the policy terminates coverage under the 
     policy.
       ``(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.--
       ``(A) Open enrollment.--An eligible beneficiary who enrolls 
     under the program under this part pursuant to subsection 
     (b)(2) shall be entitled to the benefits under this part 
     beginning on January 1, 2005.
       ``(B) Special enrollment.--Subject to paragraph (3), an 
     eligible beneficiary who enrolls under the program under this 
     part pursuant to subsection (b)(3) 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, 2005.
       ``(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 or b.--
       ``(A) In general.--In addition to the causes of termination 
     specified in paragraph (1), the Administrator shall terminate 
     an individual's coverage under this part if the individual is 
     no longer enrolled in both parts A and 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 earlier) under 
     part B.
       ``(3) Procedures regarding termination of a beneficiary 
     under a plan.--The Administrator shall establish procedures 
     for determining the status of an eligible beneficiary's 
     enrollment under this part if the beneficiary's enrollment in 
     a Medicare Prescription Drug plan offered by an eligible 
     entity under this part is terminated by the entity for cause 
     (pursuant to procedures established by the Administrator 
     under section 1860D-3(a)(1)).


            ``election of a medicare prescription drug plan

       ``Sec. 1860D-3. (a) In General.--
       ``(1) Process.--
       ``(A) Election.--
       ``(i) In general.--The Administrator 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 that provides 
     qualified prescription drug coverage--

[[Page S7063]]

       ``(I) shall make an election to enroll in any Medicare 
     Prescription Drug plan that is offered by an eligible entity 
     and that serves the geographic area in which the beneficiary 
     resides; and
       ``(II) may make an annual election to change the election 
     under this clause.

       ``(ii) Clarification regarding enrollment.--The process 
     established under clause (i) shall include, in the case of an 
     eligible beneficiary who is enrolled under this part but who 
     has failed to make an election of a Medicare Prescription 
     Drug plan in an area, for the enrollment in the Medicare 
     Prescription Drug plan with the lowest monthly premium that 
     is available in the area.
       ``(B) Requirements for process.--In establishing the 
     process under subparagraph (A), the Administrator 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 section 1851(g) (other than clause (i) and the 
     second sentence of clause (ii) of paragraph (3)(C), 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 ensure that 
     eligible beneficiaries who enroll under this part during the 
     open enrollment period under section 1860D-2(b)(2) are 
     permitted to elect an eligible entity prior to January 1, 
     2005, in order to ensure that coverage under this part is 
     effective as of such date.
       ``(b) Enrollment in a Medicare+Choice Plan.--
       ``(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 that provides 
     qualified prescription drug coverage shall receive access to 
     such coverage under this part through such plan.
       ``(2) Rules.--Enrollment in a Medicare+Choice plan is 
     subject to the rules for enrollment in such plan under 
     section 1851.


                ``providing information to beneficiaries

       ``Sec. 1860D-4. (a) Activities.--
       ``(1) In general.--The Administrator 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.--The activities described in paragraph (1) shall 
     ensure that eligible beneficiaries are provided with such 
     information at least 30 days prior to the first enrollment 
     period described in section 1860D-3(a)(2).
       ``(b) Requirements.--
       ``(1) In general.--The activities described in subsection 
     (a) shall--
       ``(A) be similar to the activities performed by the 
     Administrator under section 1851(d);
       ``(B) be coordinated with the activities performed by--
       ``(i) the Administrator under such section; and
       ``(ii) the Secretary 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 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 Administrator may prescribe.


                       ``beneficiary protections

       ``Sec. 1860D-5. (a) Dissemination of Information.--
       ``(1) General information.--An eligible entity offering a 
     Medicare Prescription Drug plan shall disclose, in a clear, 
     accurate, and standardized form to each enrollee at the time 
     of enrollment and at least annually thereafter, the 
     information described in section 1852(c)(1) relating to such 
     plan. Such information includes the following:
       ``(A) Access to covered drugs, including access through 
     pharmacy networks.
       ``(B) How any formulary used by the entity functions.
       ``(C) Copayments, coinsurance, and deductible requirements.
       ``(D) Grievance and appeals procedures.
       ``(2) Disclosure upon request of general coverage, 
     utilization, and grievance information.--Upon request of an 
     individual eligible to enroll in a Medicare Prescription Drug 
     plan, the eligible entity offering such plan shall provide 
     the information described in section 1852(c)(2) to such 
     individual.
       ``(3) Response to beneficiary questions.--An eligible 
     entity offering a Medicare Prescription Drug plan shall have 
     a mechanism for providing specific information to enrollees 
     upon request, including information on the coverage of 
     specific drugs and changes in its formulary on a timely 
     basis.
       ``(4) Claims information.--An eligible entity offering a 
     Medicare Prescription Drug plan must furnish to enrolled 
     individuals in a form easily understandable to such 
     individuals an explanation of benefits (in accordance with 
     section 1806(a) or in a comparable manner) and a notice of 
     the benefits in relation to initial coverage limit and annual 
     out-of-pocket limit for the current year, whenever 
     prescription drug benefits are provided under this part 
     (except that such notice need not be provided more often than 
     monthly).
       ``(5) 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.
       ``(b) Access to Covered Drugs.--
       ``(1) Access to negotiated prices for prescription drugs.--
     An eligible entity offering a Medicare Prescription Drug plan 
     shall issue such a card (or other technology) that may be 
     used by an enrolled beneficiary to assure access to 
     negotiated prices under section 1860D-6(e) for the purchase 
     of prescription drugs for which coverage is not otherwise 
     provided under the Medicare Prescription Drug plan.
       ``(2) Assuring pharmacy access.--
       ``(A) In general.--An eligible entity offering a Medicare 
     Prescription Drug plan shall secure the participation in its 
     network of a sufficient number of pharmacies that dispense 
     (other than by mail order) drugs directly to patients to 
     ensure convenient access (as determined by the Administrator 
     and including adequate emergency access) for enrolled 
     beneficiaries, in accordance with standards established under 
     section 1860D-7(f) that ensure such convenient access. Such 
     standards shall take into account reasonable distances to 
     pharmacy services in both urban and rural areas.
       ``(B) Use of point-of-service system.--An eligible entity 
     offering a Medicare Prescription Drug plan shall establish an 
     optional point-of-service method of operation under which--
       ``(i) the plan provides access to any or all pharmacies 
     that are not participating pharmacies in its network; and
       ``(ii) the plan may charge beneficiaries through 
     adjustments in copayments any additional costs associated 
     with the point-of-service option.

     The additional copayments so charged shall not count toward 
     the application of section 1860D-6(c).
       ``(3) Requirements on development and application of 
     formularies.--If an eligible entity offering a Medicare 
     Prescription Drug plan uses a formulary, the following 
     requirements must be met:
       ``(A) Pharmacy and therapeutic (p&t) committee.--The 
     eligible entity must establish a pharmacy and therapeutic 
     committee that develops and reviews the formulary. Such 
     committee shall include at least one practicing physician and 
     at least one practicing pharmacist both with expertise in the 
     care of elderly or disabled persons and a majority of its 
     members shall consist of individuals who are a practicing 
     physician or a practicing pharmacist (or both).
       ``(B) Formulary development.--In developing and reviewing 
     the formulary, the committee shall base clinical decisions on 
     the strength of scientific evidence and standards of 
     practice, including assessing peer-reviewed medical 
     literature, such as randomized clinical trials, 
     pharmacoeconomic studies, outcomes research data, and such 
     other information as the committee determines to be 
     appropriate.
       ``(C) Inclusion of drugs in all therapeutic categories.--
     The formulary must include drugs within each therapeutic 
     category and class of covered outpatient drugs (although not 
     necessarily for all drugs within such categories and 
     classes).
       ``(D) Provider education.--The committee shall establish 
     policies and procedures to educate and inform health care 
     providers concerning the formulary.
       ``(E) Notice before removing drugs from formulary.--Any 
     removal of a drug from a formulary shall take effect only 
     after appropriate notice is made available to beneficiaries 
     and physicians.
       ``(F) Appeals and exceptions to application.--The eligible 
     entity must have, as part of the appeals process under 
     subsection (e)(3), a process for timely appeals for denials 
     of coverage based on such application of the formulary.
       ``(c) Cost and Utilization Management; Quality Assurance; 
     Medication Therapy Management Program.--
       ``(1) In general.--An eligible entity shall have in place 
     the following with respect to covered drugs:
       ``(A) A cost-effective drug utilization management program, 
     including incentives to reduce costs when appropriate.
       ``(B) Quality assurance measures to reduce medical errors 
     and adverse drug interactions, which--
       ``(i) shall include a medication therapy management program 
     described in paragraph (2); and

[[Page S7064]]

       ``(ii) may include beneficiary education programs, 
     counseling, medication refill reminders, and special 
     packaging.
       ``(C) A program to control fraud, abuse, and waste.
       ``(2) Medication therapy management program.--
       ``(A) In general.--A medication therapy management program 
     described in this paragraph is a program of drug therapy 
     management and medication administration that is designed to 
     assure, with respect to beneficiaries with chronic diseases 
     (such as diabetes, asthma, hypertension, and congestive heart 
     failure) or multiple prescriptions, that covered outpatient 
     drugs under the prescription drug plan are appropriately used 
     to achieve therapeutic goals and reduce the risk of adverse 
     events, including adverse drug interactions.
       ``(B) Elements.--Such program may include--
       ``(i) enhanced beneficiary understanding of such 
     appropriate use through beneficiary education, counseling, 
     and other appropriate means;
       ``(ii) increased beneficiary adherence with prescription 
     medication regimens through medication refill reminders, 
     special packaging, and other appropriate means; and
       ``(iii) detection of patterns of overuse and underuse of 
     prescription drugs.
       ``(C) Development of program in cooperation with licensed 
     pharmacists.--The program shall be developed in cooperation 
     with licensed and practicing pharmacists and physicians.
       ``(D) Considerations in pharmacy fees.--The eligible entity 
     offering a Medicare Prescription Drug plan shall take into 
     account, in establishing fees for pharmacists and others 
     providing services under the medication therapy management 
     program, the resources and time used in implementing the 
     program.
       ``(3) Public disclosure of pharmaceutical prices for 
     equivalent drugs.--The eligible entity offering a Medicare 
     Prescription Drug plan shall provide that each pharmacy or 
     other dispenser that arranges for the dispensing of a covered 
     drug shall inform the beneficiary at the time of purchase of 
     the drug of any differential between the price of the 
     prescribed drug to the enrollee and the price of the lowest 
     cost generic drug covered under the plan that is 
     therapeutically equivalent and bioequivalent.
       ``(d) Grievance Mechanism.--An eligible entity shall 
     provide meaningful procedures for hearing and resolving 
     grievances between the eligible entity (including any entity 
     or individual through which the eligible entity provides 
     covered benefits) and enrollees in a Medicare Prescription 
     Drug plan offered by the eligible entity in accordance with 
     section 1852(f).
       ``(e) Coverage Determinations, Reconsiderations, and 
     Appeals.--
       ``(1) In general.--An eligible entity shall meet the 
     requirements of section 1852(g) with respect to covered 
     benefits under the Medicare Prescription Drug plan it offers 
     under this part in the same manner as such requirements apply 
     to a Medicare+Choice organization with respect to benefits it 
     offers under a Medicare+Choice plan under part C.
       ``(2) Request for review of tiered formulary 
     determinations.--In the case of a Medicare Prescription Drug 
     plan offered by an eligible entity that provides for tiered 
     cost-sharing for covered drugs included within a formulary 
     and provides lower cost-sharing for preferred drugs included 
     within the formulary, an individual who is enrolled in the 
     plan may request coverage of a nonpreferred drug under the 
     terms applicable for preferred drugs if the prescribing 
     physician determines that the preferred drug for treatment of 
     the same condition is not as effective for the individual or 
     has adverse effects for the individual.
       ``(3) Appeals of formulary determinations.--
       ``(A) In general.--Subject to subparagraph (B), consistent 
     with the requirements of section 1852(g), an eligible entity 
     shall establish a process for individuals to appeal formulary 
     determinations.
       ``(B) Formulary determinations.--An individual who is 
     enrolled in a Medicare Prescription Drug plan offered by an 
     eligible entity may appeal to obtain coverage for a covered 
     drug that is not on a formulary of the eligible entity if the 
     prescribing physician determines that the formulary drug for 
     treatment of the same condition is not as effective for the 
     individual or has adverse effects for the individual.
       ``(f) Confidentiality and Accuracy of Enrollee Records.--An 
     eligible entity shall meet the requirements of section 
     1852(h) with respect to enrollees under this part in the same 
     manner as such requirements apply to a Medicare+Choice 
     organization with respect to enrollees under part C.
       ``(g) Uniform Premium.--An eligible entity shall ensure 
     that the monthly premium for a Medicare Prescription Drug 
     plan charged under this part is the same for all eligible 
     beneficiaries enrolled in the plan.


                      ``prescription drug benefits

       ``Sec. 1860D-6. (a) Requirements.--
       ``(1) In general.--For purposes of this part and part C, 
     the term `qualified prescription drug coverage' means either 
     of the following:
       ``(A) Standard coverage with access to negotiated prices.--
     Standard coverage (as defined in subsection (c)) and access 
     to negotiated prices under subsection (e).
       ``(B) Actuarially equivalent coverage with access to 
     negotiated prices.--Coverage of covered drugs which meets the 
     alternative coverage requirements of subsection (d) and 
     access to negotiated prices under subsection (e), but only if 
     it is approved by the Administrator, as provided under 
     subsection (d).
       ``(2) Permitting additional prescription drug coverage.--
       ``(A) In general.--Subject to subparagraph (B) and section 
     1860D-13(c)(2), nothing in this part shall be construed as 
     preventing qualified prescription drug coverage from 
     including coverage of covered drugs that exceeds the coverage 
     required under paragraph (1).
       ``(B) Requirement.--An eligible entity may not offer a 
     Medicare Prescription Drug plan that provides additional 
     benefits pursuant to subparagraph (A) in an area unless the 
     eligible entity offering such plan also offers a Medicare 
     Prescription Drug plan in the area that only provides the 
     coverage of prescription drugs that is required under 
     subsection (a)(1).
       ``(3) Cost control mechanisms.--In providing qualified 
     prescription drug coverage, the entity offering the Medicare 
     Prescription Drug plan or the Medicare+Choice plan may use 
     cost control mechanisms that are customarily used in 
     employer-sponsored health care plans that offer coverage for 
     prescription drugs, including the use of formularies, tiered 
     copayments, selective contracting with providers of 
     prescription drugs, and mail order pharmacies.
       ``(b) Application of Secondary Payor Provisions.--The 
     provisions of section 1852(a)(4) shall apply under this part 
     in the same manner as they apply under part C.
       ``(c) Standard Coverage.--For purposes of this part and 
     part C, the term `standard coverage' means coverage of 
     covered drugs that meets the following requirements:
       ``(1) Deductible.--
       ``(A) In general.--The coverage has an annual deductible--
       ``(i) for 2005, that is equal to $250; or
       ``(ii) for a subsequent year, that is equal to the amount 
     specified under this paragraph for the previous year 
     increased by the percentage specified in paragraph (5) for 
     the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(2) Limits on cost-sharing.--The coverage has cost-
     sharing (for costs above the annual deductible specified in 
     paragraph (1) and up to the initial coverage limit under 
     paragraph (3)) that is equal to 50 percent or that is 
     actuarially consistent (using processes established under 
     subsection (f)) with an average expected payment of 50 
     percent of such costs.
       ``(3) Initial coverage limit.--
       ``(A) In general.--Subject to paragraph (4), the coverage 
     has an initial coverage limit on the maximum costs that may 
     be recognized for payment purposes (above the annual 
     deductible)--
       ``(i) for 2005, that is equal to $3,450; or
       ``(ii) for a subsequent year, that is equal to the amount 
     specified in this paragraph for the previous year, increased 
     by the annual percentage increase described in paragraph (5) 
     for the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(4) Limitation on out-of-pocket expenditures by 
     beneficiary.--
       ``(A) In general.--Notwithstanding paragraph (3), the 
     coverage provides benefits with cost-sharing that is equal to 
     10 percent after the individual has incurred costs (as 
     described in subparagraph (C)) for covered drugs in a year 
     equal to the annual out-of-pocket limit specified in 
     subparagraph (B).
       ``(B) Annual out-of-pocket limit.--
       ``(i) In general.--For purposes of this part, the `annual 
     out-of-pocket limit' specified in this subparagraph--

       ``(I) for 2005, is equal to $3,700; or
       ``(II) for a subsequent year, is equal to the amount 
     specified in the subparagraph for the previous year, 
     increased by the annual percentage increase described in 
     paragraph (5) for the year involved.

       ``(ii) Rounding.--Any amount determined under clause 
     (i)(II) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(C) Application.--In applying subparagraph (A)--
       ``(i) incurred costs shall only include costs incurred for 
     the annual deductible (described in paragraph (1)), cost-
     sharing (described in paragraph (2)), and amounts for which 
     benefits are not provided because of the application of the 
     initial coverage limit described in paragraph (3); and
       ``(ii) such costs shall be treated as incurred only if they 
     are paid by the individual (or by another individual, such as 
     a family member, on behalf of the individual), under section 
     1860D-19, or under title XIX and the individual (or other 
     individual) is not reimbursed through insurance or otherwise, 
     a group health plan, or other third-party payment arrangement 
     for such costs.
       ``(5) Annual percentage increase.--For purposes of this 
     part, the annual percentage increase specified in this 
     paragraph for a year is equal to the annual percentage 
     increase in average per capita aggregate expenditures for 
     covered drugs in the United States for beneficiaries under 
     this title, as determined by the Administrator for the 12-
     month period ending in July of the previous year.
       ``(d) Alternative Coverage Requirements.--A Medicare 
     Prescription Drug plan

[[Page S7065]]

     or Medicare+Choice plan may provide a different prescription 
     drug benefit design from the standard coverage described in 
     subsection (c) so long as the Administrator determines (based 
     on an actuarial analysis by the Administrator) that the 
     following requirements are met and the plan applies for, and 
     receives, the approval of the Administrator for such benefit 
     design:
       ``(1) Assuring at least actuarially equivalent coverage.--
       ``(A) Assuring equivalent value of total coverage.--The 
     actuarial value of the total coverage (as determined under 
     subsection (f)) is at least equal to the actuarial value (as 
     so determined) of standard coverage.
       ``(B) Assuring equivalent unsubsidized value of coverage.--
     The unsubsidized value of the coverage is at least equal to 
     the unsubsidized value of standard coverage. For purposes of 
     this subparagraph, the unsubsidized value of coverage is the 
     amount by which the actuarial value of the coverage (as 
     determined under subsection (f)) exceeds the actuarial value 
     of the amounts associated with the application of section 
     1860D-17(c) and reinsurance payments under section 1860D-20 
     with respect to such coverage.
       ``(C) Assuring standard payment for costs at initial 
     coverage limit.--The coverage is designed, based upon an 
     actuarially representative pattern of utilization (as 
     determined under subsection (f)), to provide for the payment, 
     with respect to costs incurred that are equal to the sum of 
     the deductible under subsection (c)(1) and the initial 
     coverage limit under subsection (c)(3), of an amount equal to 
     at least such initial coverage limit multiplied by the 
     percentage specified in subsection (c)(2).

     Benefits other than qualified prescription drug coverage 
     shall not be taken into account for purposes of this 
     paragraph.
       ``(2) Limitation on out-of-pocket expenditures by 
     beneficiaries.--The coverage provides the limitation on out-
     of-pocket expenditures by beneficiaries described in 
     subsection (c)(4).
       ``(e) Access to Negotiated Prices.--
       ``(1) Access.--
       ``(A) In general.--Under qualified prescription drug 
     coverage offered by an eligible entity or a Medicare+Choice 
     organization, the entity or organization shall provide 
     beneficiaries with access to negotiated prices (including 
     applicable discounts) used for payment for covered drugs, 
     regardless of the fact that no benefits may be payable under 
     the coverage with respect to such drugs because of the 
     application of the deductible, any cost-sharing, or an 
     initial coverage limit (described in subsection (c)(3)).
       ``(B) Medicaid related provisions.--Insofar as a State 
     elects to provide medical assistance under title XIX for a 
     drug based on the prices negotiated under a Medicare 
     Prescription Drug plan under this part, the requirements of 
     section 1927 shall not apply to such drugs. The prices 
     negotiated under a Medicare Prescription Drug plan with 
     respect to covered drugs, under a Medicare+Choice plan with 
     respect to such drugs, or under a qualified retiree 
     prescription drug plan (as defined in section 1860D-20(f)(1)) 
     with respect to such drugs, on behalf of eligible 
     beneficiaries, shall (notwithstanding any other provision of 
     law) not be taken into account for the purposes of 
     establishing the best price under section 1927(c)(1)(C).
       ``(2) Cards or other technology.--In providing the access 
     under paragraph (1), the eligible entity or Medicare+Choice 
     organization shall issue a card or use other technology 
     pursuant to section 1860D-5(b)(1).
       ``(f) Actuarial Valuation; Determination of Annual 
     Percentage Increases.--
       ``(1) Processes.--For purposes of this section, the 
     Administrator shall establish processes and methods--
       ``(A) for determining the actuarial valuation of 
     prescription drug coverage, including--
       ``(i) an actuarial valuation of standard coverage and of 
     the reinsurance payments under section 1860D-20;
       ``(ii) the use of generally accepted actuarial principles 
     and methodologies; and
       ``(iii) applying the same methodology for determinations of 
     alternative coverage under subsection (d) as is used with 
     respect to determinations of standard coverage under 
     subsection (c); and
       ``(B) for determining annual percentage increases described 
     in subsection (c)(5).
       ``(2) Use of outside actuaries.--Under the processes under 
     paragraph (1)(A), eligible entities and Medicare+Choice 
     organizations may use actuarial opinions certified by 
     independent, qualified actuaries to establish actuarial 
     values, but the Administrator shall determine whether such 
     actuarial values meet the requirements under subsection 
     (c)(1).


``requirements for entities offering medicare prescription drug plans; 
                       establishment of standards

       ``Sec. 1860D-7. (a) General Requirements.--An eligible 
     entity offering a Medicare Prescription Drug plan shall meet 
     the following requirements:
       ``(1) Licensure.--Subject to subsection (c), the entity is 
     organized and licensed under State law as a risk-bearing 
     entity eligible to offer health insurance or health benefits 
     coverage in each State in which it offers a Medicare 
     Prescription Drug plan.
       ``(2) Assumption of financial risk.--
       ``(A) In general.--Subject to subparagraph (B) and section 
     1860D-20, the entity assumes financial risk on a prospective 
     basis for the benefits that it offers under a Medicare 
     Prescription Drug plan and that is not covered under such 
     section or section 1860D-16.
       ``(B) Reinsurance permitted.--The entity may obtain 
     insurance or make other arrangements for the cost of coverage 
     provided to any enrolled member under this part.
       ``(3) Solvency for unlicensed entities.--In the case of an 
     eligible entity that is not described in paragraph (1) and 
     for which a waiver has been approved under subsection (c), 
     such entity shall meet solvency standards established by the 
     Administrator under subsection (d).
       ``(b) Contract Requirements.--The Administrator shall not 
     permit an eligible beneficiary to elect a Medicare 
     Prescription Drug plan offered by an eligible entity under 
     this part, and the entity shall not be eligible for payments 
     under section 1860D-16 or 1860D-20, unless the Administrator 
     has entered into a contract under this subsection with the 
     entity with respect to the offering of such plan. Such a 
     contract with an entity may cover more than 1 Medicare 
     Prescription Drug plan. Such contract shall provide that the 
     entity agrees to comply with the applicable requirements and 
     standards of this part and the terms and conditions of 
     payment as provided for in this part.
       ``(c) Waiver of Certain Requirements in Order To Ensure 
     Beneficiary Choice.--
       ``(1) In general.--In the case of an eligible entity that 
     seeks to offer a Medicare Prescription Drug plan in a State, 
     the Administrator shall waive the requirement of subsection 
     (a)(1) that the entity be licensed in that State if the 
     Administrator determines, based on the application and other 
     evidence presented to the Administrator, that any of the 
     grounds for approval of the application described in 
     paragraph (2) have been met.
       ``(2) Grounds for approval.--The grounds for approval under 
     this paragraph are the grounds for approval described in 
     subparagraphs (B), (C), and (D) of section 1855(a)(2), and 
     also include the application by a State of any grounds other 
     than those required under Federal law.
       ``(3) Application of waiver procedures.--With respect to an 
     application for a waiver (or a waiver granted) under this 
     subsection, the provisions of subparagraphs (E), (F), and (G) 
     of section 1855(a)(2) shall apply.
       ``(4) References to certain provisions.--For purposes of 
     this subsection, in applying the provisions of section 
     1855(a)(2) under this subsection to Medicare Prescription 
     Drug plans and eligible entities--
       ``(A) any reference to a waiver application under section 
     1855 shall be treated as a reference to a waiver application 
     under paragraph (1); and
       ``(B) any reference to solvency standards were treated as a 
     reference to solvency standards established under subsection 
     (d).
       ``(d) Solvency Standards for Non-Licensed Entities.--
       ``(1) Establishment and publication.--The Administrator, in 
     consultation with the National Association of Insurance 
     Commissioners, shall establish and publish, by not later than 
     January 1, 2004, financial solvency and capital adequacy 
     standards for entities described in paragraph (2).
       ``(2) Compliance with standards.--An eligible entity that 
     is not licensed by a State under subsection (a)(1) and for 
     which a waiver application has been approved under subsection 
     (c) shall meet solvency and capital adequacy standards 
     established under paragraph (1). The Administrator shall 
     establish certification procedures for such eligible entities 
     with respect to such solvency standards in the manner 
     described in section 1855(c)(2).
       ``(e) Licensure Does Not Substitute for or Constitute 
     Certification.--The fact that an entity is licensed in 
     accordance with subsection (a)(1) or has a waiver application 
     approved under subsection (c) does not deem the eligible 
     entity to meet other requirements imposed under this part for 
     an eligible entity.
       ``(f) Other Standards.--The Administrator shall establish 
     by regulation other standards (not described in subsection 
     (d)) for eligible entities and Medicare Prescription Drug 
     plans consistent with, and to carry out, this part. The 
     Administrator shall publish such regulations by January 1, 
     2004.
       ``(g) Periodic Review and Revision of Standards.--The 
     Administrator shall periodically review the standards 
     established under this section and, based on such review, may 
     revise such standards if the Administrator determines such 
     revision to be appropriate.
       ``(h) Relation to State Laws.--
       ``(1) In general.--The standards established under this 
     part shall supersede any State law or regulation (including 
     standards described in paragraph (2)) with respect to 
     Medicare Prescription Drug plans which are offered by 
     eligible entities under this part--
       ``(A) to the extent such law or regulation is inconsistent 
     with such standards; and
       ``(B) in the same manner as such laws and regulations are 
     superseded under section 1856(b)(3).
       ``(2) Standards specifically superseded.--State standards 
     relating to the following are superseded under this section:
       ``(A) Benefit requirements.
       ``(B) Requirements relating to inclusion or treatment of 
     providers.
       ``(C) Coverage determinations (including related appeals 
     and grievance processes).
       ``(3) Prohibition of state imposition of premium taxes.--No 
     State may impose a premium tax or similar tax with respect 
     to--

[[Page S7066]]

       ``(A) premiums paid to the Administrator for Medicare 
     Prescription Drug plans under this part; or
       ``(B) any payments made by the Administrator under this 
     part to an eligible entity offering such a plan.

             ``Subpart 2--Prescription Drug Delivery System


                    ``establishment of service areas

       ``Sec. 1860D-10. (a) Establishment.--
       ``(1) Initial establishment.--Not later than April 15, 
     2004, the Administrator shall establish and publish the 
     service areas in which Medicare Prescription Drug plans may 
     offer benefits under this part.
       ``(2) Periodic review and revision of service areas.--The 
     Administrator shall periodically review the service areas 
     applicable under this section and, based on such review, may 
     revise such service areas if the Administrator determines 
     such revision to be appropriate.
       ``(b) Requirements for Establishment of Service Areas.--
       ``(1) In general.--The Administrator shall establish the 
     service areas under subsection (a) in a manner that--
       ``(A) maximizes the availability of Medicare Prescription 
     Drug plans to eligible beneficiaries; and
       ``(B) minimizes the ability of eligible entities offering 
     such plans to favorably select eligible beneficiaries.
       ``(2) Service area may not be smaller than a state.--A 
     service area established under subsection (a) may not be 
     smaller than a State.


                    ``publication of risk adjusters

       ``Sec. 1860D-11. (a) Publication.--Not later than April 15 
     of each year (beginning in 2004), the Administrator shall 
     publish the risk adjusters established under subsection (b) 
     to be used in computing--
       ``(1) under section 1860D-16(a) the amount of payment to 
     Medicare Prescription Drug plans in the subsequent year; and
       ``(2) under section 1853(k)(2) the amount of payment to 
     Medicare+Choice organizations that offer qualified 
     prescription drug coverage in the subsequent year.
       ``(b) Establishment of Risk Adjusters.--
       ``(1) In general.--Subject to paragraph (2), the 
     Administrator shall establish an appropriate methodology for 
     adjusting the amount of payment to Medicare Prescription Drug 
     plans computed under section 1860D-16(a) to take into 
     account, in a budget neutral manner, variation in costs based 
     on the differences in actuarial risk of different enrollees 
     being served.
       ``(2) Considerations.--In establishing the methodology 
     under paragraph (1), the Administrator may take into account 
     the similar methodologies used under section 1853(a)(3) to 
     adjust payments to Medicare+Choice organizations (with 
     respect to enhanced medicare benefits under part E).


   ``submission of bids for proposed medicare prescription drug plans

       ``Sec. 1860D-12. (a) In General.--Each eligible entity that 
     intends to offer a Medicare Prescription Drug plan in a year 
     (beginning with 2005) shall submit to the Administrator, at 
     such time and in such manner as the Administrator may 
     specify, such information as the Administrator may require, 
     including the information described in subsection (b).
       ``(b) Information Described.--The information described in 
     this subsection includes information on each of the 
     following:
       ``(1) A description of the benefits under the plan (as 
     required under section 1860D-6).
       ``(2) Information on the actuarial value of the qualified 
     prescription drug coverage.
       ``(3) Information on the monthly premium to be charged for 
     all benefits, including an actuarial certification of--
       ``(A) the actuarial basis for such premium; and
       ``(B) the portion of such premium attributable to benefits 
     in excess of standard coverage; and
       ``(C) the reduction in such bid and premium resulting from 
     the payments associated with section 1860D-16(c) and payments 
     provided under section 1860D-20.
       ``(4) The service area for the plan.
       ``(5) Such other information as the Administrator may 
     require to carry out this part.
       ``(c) Options Regarding Service Areas.--
       ``(1) In general.--The service area of a Medicare 
     Prescription Drug plan shall be either--
       ``(A) the entire area of 1 of the service areas established 
     by the Administrator under section 1860D-10; or
       ``(B) the entire area covered by the medicare program.
       ``(2) Rule of construction.--Nothing in this part shall be 
     construed as prohibiting an eligible entity from submitting 
     separate bids in multiple service areas as long as each bid 
     is for a single service area.


        ``approval of proposed medicare prescription drug plans

       ``Sec. 1860D-13. (a) In General.--The Administrator shall 
     review the information filed under section 1860D-12 and shall 
     approve or disapprove the Medicare Prescription Drug plan. 
     The Administrator may not approve a plan if--
       ``(1) the plan and the entity offering the plan comply with 
     the requirements under this part; and
       ``(2) the premium accurately reflects both (A) the 
     actuarial value of the benefits provided, and (B) the 
     payments associated with the application of 186D-16(c) and 
     the payments under section 1860D-20 for the standard benefit.
       ``(b) Negotiation.--In exercising the authority under 
     subsection (a), the Administrator shall have the same 
     authority to negotiate the terms and conditions of the 
     premiums submitted and other terms and conditions of proposed 
     plans as the Director of the Office of Personnel Management 
     has with respect to health benefits plans under chapter 89 of 
     title 5, United States Code.
       ``(c) Special Rules for Approval.--The Administrator may 
     approve a Medicare Prescription Drug plan submitted under 
     section 1860D-12 only if the benefits under such plan--
       ``(1) include the required benefits under section 1860D-
     6(a)(1); and
       ``(2) are not designed in such a manner that the 
     Administrator finds is likely to result in favorable 
     selection of eligible beneficiaries.
       ``(d) Assuring Access.--
       ``(1) Number of contracts.--The Administrator shall, 
     consistent with the requirements of this part and the goal of 
     containing costs under this title, approve at least 2 
     contracts to offer a Medicare Prescription Drug plan in an 
     area.
       ``(2) Guaranteeing access to coverage.--In order to assure 
     access under paragraph (1) in an area and consistent with 
     paragraph (3), the Administrator may provide financial 
     incentives (including partial underwriting of risk) for an 
     eligible entity to offer a Medicare Prescription Drug plan in 
     that area, but only so long as (and to the extent) necessary 
     to assure the access guaranteed under paragraph (1) in that 
     area.
       ``(3) Limitation on authority.--In exercising authority 
     under this subsection, the Administrator--
       ``(A) shall not provide for the full underwriting of 
     financial risk for any eligible entity;
       ``(B) shall not provide for any underwriting of financial 
     risk for a public eligible entity with respect to the 
     offering of a nationwide prescription drug plan; and
       ``(C) shall seek to maximize the assumption of financial 
     risk by an eligible entity.
       ``(4) Reports.--The Administrator shall, in each annual 
     report to Congress under section 1860D-25(c)(1)(D), include 
     information on the exercise of authority under this 
     subsection. The Administrator also shall include such 
     recommendations as may be appropriate to limit the exercise 
     of such authority, including minimizing the assumption of 
     financial risk.
       ``(e) Annual Contracts.--A contract approved under this 
     part shall be for a 1-year period.


          ``computation of monthly standard coverage premiums

       ``Sec. 1860D-14. (a) In General.--For each year (beginning 
     with 2005), the Administrator shall compute a monthly 
     standard coverage premium for each Medicare Prescription Drug 
     plan approved under section 1860D-13.
       ``(b) Requirements.--The monthly standard coverage premium 
     for a Medicare Prescription Drug plan for a year shall be 
     equal to--
       ``(1) in the case of a plan offered by an eligible entity 
     that provides standard coverage or an actuarially equivalent 
     coverage and does not provide additional prescription drug 
     coverage pursuant to section 1860D-6(a)(2), the monthly 
     premium approved for the plan under section 1860D-13 for the 
     year; and
       ``(2) in the case of a plan offered by an eligible entity 
     that provides additional prescription drug coverage pursuant 
     to section 1860D-6(a)(2)--
       ``(A) an amount that reflects only the actuarial value of 
     the standard coverage offered under the plan; or
       ``(B) if determined appropriate by the Administrator, the 
     monthly premium approved under section 1860D-13 for the year 
     for the Medicare Prescription Drug plan that (as required 
     under subparagraph (B) of such section)--
       ``(i) is offered by such entity in the same area as the 
     plan; and
       ``(ii) does not provide additional prescription drug 
     coverage pursuant to such section.


           ``computation of monthly national average premium

       ``Sec. 1860D-15. (a) Computation.--
       ``(1) In general.--For each year (beginning with 2005) the 
     Administrator shall compute a monthly national average 
     premium equal to the average of the monthly standard coverage 
     premium for each Medicare Prescription Drug plan (as computed 
     under section 1860D-14).
       ``(2) Weighted average.--The monthly national average 
     premium computed under paragraph (1) shall be a weighted 
     average, with the weight for each plan being equal to the 
     average number of beneficiaries enrolled under such plan in 
     the previous year.
       ``(b) Special Rule for 2005.--For purposes of applying this 
     section for 2005, the Administrator shall establish 
     procedures for determining the weighted average under 
     subsection (a)(2) for 2004.


  ``payments to eligible entities offering medicare prescription drug 
                                 plans

       ``Sec. 1860D-16. (a) Payment of Premiums.--For each year 
     (beginning with 2005), the Administrator shall pay to each 
     entity offering a Medicare Prescription Drug plan in which an 
     eligible beneficiary is enrolled an amount equal to the full 
     amount of the monthly premium approved for the plan under 
     section 1860D-13 on behalf of each eligible beneficiary 
     enrolled in such plan for the year, as adjusted using the 
     risk adjusters that apply to the standard coverage published 
     under section 1860D-11.

[[Page S7067]]

       ``(b) Payment Terms.--Payment under this section to an 
     entity offering a Medicare Prescription Drug plan shall be 
     made in a manner determined by the Administrator and based 
     upon the manner in which payments are made under section 
     1853(a) (relating to payments to Medicare+Choice 
     organizations).
       ``(c) Payments to Medicare+Choice Plans.--For provisions 
     related to payments to Medicare+Choice organizations offering 
     Medicare+Choice plans that provide qualified prescription 
     drug coverage, see section 1853(k)(2).
       ``(d) Secondary Payer Provisions.--The provisions of 
     section 1862(b) shall apply to the benefits provided under 
     this part.


                ``computation of beneficiary obligation

       ``Sec. 1860D-17. (a) Beneficiaries Enrolled in a Medicare 
     Prescription Drug Plan.--In the case of an eligible 
     beneficiary enrolled under this part and in a Medicare 
     Prescription Drug plan, the monthly beneficiary obligation 
     for enrollment in such plan in a year shall be determined as 
     follows:
       ``(1) Medicare prescription drug plan premiums equal to the 
     monthly national average.--If the amount of the monthly 
     premium approved by the Administrator under section 1860D-13 
     for a Medicare Prescription Drug plan for the year is equal 
     to the monthly national average premium (as computed under 
     section 1860D-15) for the year, the monthly obligation of the 
     eligible beneficiary in that year shall be an amount equal to 
     the applicable percent (as defined in subsection (c)) of the 
     amount of the monthly national average premium.
       ``(2) Medicare prescription drug plan premiums that are 
     less than the monthly national average.--If the amount of the 
     monthly premium approved by the Administrator under section 
     1860D-13 for the Medicare Prescription Drug plan for the year 
     is less than the monthly national average premium (as 
     computed under section 1860D-15) for the year, the monthly 
     obligation of the eligible beneficiary in that year shall be 
     an amount equal to--
       ``(A) the applicable percent of the amount of the monthly 
     national average premium; minus
       ``(B) the amount by which the monthly national average 
     premium exceeds the amount of the premium approved by the 
     Administrator for the plan.
       ``(3) Medicare prescription drug plan premiums that are 
     greater than the monthly national average.--If the amount of 
     the monthly premium approved by the Administrator under 
     section 1860D-13 for a Medicare Prescription Drug plan for 
     the year exceeds the monthly national average premium (as 
     computed under section 1860D-15) for the year, the monthly 
     obligation of the eligible beneficiary in that year shall be 
     an amount equal to the sum of--
       ``(A) the applicable percent of the amount of the monthly 
     national average premium; plus
       ``(B) the amount by which the premium approved by the 
     Administrator for the plan exceeds the amount of the monthly 
     national average premium.
       ``(b) Beneficiaries Enrolled in a Medicare+Choice Plan.--In 
     the case of an eligible beneficiary that is receiving 
     qualified prescription drug coverage under a Medicare+Choice 
     plan, the monthly obligation for such coverage shall be 
     determined pursuant to section 1853(k)(3).
       ``(c) Applicable Percent Defined.--For purposes of this 
     section, except as provided in section 1860D-19 (relating to 
     premium subsidies for low-income individuals), the term 
     `applicable percent' means 55 percent.

                 ``collection of beneficiary obligation

       ``Sec. 1860D-18. (a) Collection of Amount in Same Manner as 
     Part B Premium.--The amount of the monthly beneficiary 
     obligation (determined under section 1860D-17) applicable to 
     an eligible beneficiary under this part (after application of 
     any increase under section 1860D-2(b)(1)(A)) 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.
       ``(b) Information Necessary for Collection.--In order to 
     carry out subsection (a), the Administrator shall transmit to 
     the Commissioner of Social Security--
       ``(1) at the beginning of each year, the name, social 
     security account number, and annual beneficiary obligation 
     owed by each individual enrolled in a Medicare Prescription 
     Drug plan for each month during the year; and
       ``(2) periodically throughout the year, information to 
     update the information previously transmitted under this 
     paragraph for the year.
       ``(c) Collection for Beneficiaries Receiving Qualified 
     Prescription Drug Coverage Under a Medicare+Choice Plan.--For 
     provisions related to the collection of the monthly 
     beneficiary obligation for qualified prescription drug 
     coverage under a Medicare+Choice plan, see section 
     1853(k)(4).


    ``premium and cost-sharing subsidies for low-income individuals

       ``Sec. 1860D-19. (a) In General.--
       ``(1) Full premium subsidy and reduction of cost-sharing 
     for individuals with income below 135 percent of federal 
     poverty line.--In the case of a subsidy-eligible individual 
     (as defined in paragraph (3)) who is determined to have 
     income that does not exceed 135 percent of the Federal 
     poverty line--
       ``(A) section 1860D-17 shall be applied--
       ``(i) in subsection (c), by substituting `0 percent' for 
     `55 percent'; and
       ``(ii) in subparagraphs (A) and (B) of subsection (a)(3), 
     by substituting ``the amount of the premium for the Medicare 
     Prescription Drug plan with the lowest monthly premium in the 
     area that the beneficiary resides'' for ``the amount of the 
     monthly national average premium'', but only if there is no 
     Medicare Prescription Drug plan offered in the area in which 
     the individual resides that has a monthly premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     year;
       ``(B) the annual deductible applicable under section 1860D-
     6(c)(1) in a year shall be reduced to an amount equal to 5 
     percent of the annual deductible otherwise applicable under 
     such section for that year;
       ``(C) section 1860D-6(c)(2) shall be applied by 
     substituting `2.5 percent' for `50 percent' each place it 
     appears;
       ``(D) such individual shall be responsible for cost-sharing 
     for the cost of any covered drug provided in the year (after 
     the individual has reached such initial coverage limit and 
     before the individual has reached the limitation under 
     section 1860D-6(c)(4)(A)), that is equal to 50 percent; and
       ``(E) section 1860D-6(c)(4)(A) shall be applied by 
     substituting `0 percent' for `10 percent'.
     In no case may the application of subparagraph (A) result in 
     a monthly beneficiary obligation that is below zero.
       ``(2) Sliding scale premium subsidy and reduction of cost-
     sharing for individuals with income between 135 and 150 
     percent of federal poverty line.--
       ``(A) In general.--In the case of a subsidy-eligible 
     individual who is determined to have income that exceeds 135 
     percent, but is less than 150 percent, of the Federal poverty 
     line--
       ``(i) section 1860D-17 shall be applied--

       ``(I) in subsection (c), by substituting `subsidy percent' 
     for `55 percent'; and
       ``(II) in subparagraphs (A) and (B) of subsection (a)(3), 
     by substituting ``the amount of the premium for the Medicare 
     Prescription Drug plan with the lowest monthly premium in the 
     area that the beneficiary resides'' for ``the amount of the 
     monthly national average premium'', but only if there is no 
     Medicare Prescription Drug plan offered in the area in which 
     the individual resides that has a monthly premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     year; and

       ``(ii) such individual shall be responsible for cost-
     sharing for the cost of any covered drug provided in the year 
     (after the individual has reached such initial coverage limit 
     and before the individual has reached the limitation under 
     section 1860D-6(c)(4)(A)), that is equal to 50 percent.
     In no case may the application of clause (i) result in a 
     monthly beneficiary obligation that is below zero.
       ``(B) Subsidy percent defined.--For purposes of 
     subparagraph (A)(i), the term `subsidy percent' means a 
     percent determined on a linear sliding scale ranging from 0 
     percent for individuals with incomes at 135 percent of such 
     level to 55 percent for individuals with incomes at 150 
     percent of such level.
       ``(3) Determination of eligibility.--
       ``(A) Subsidy-eligible individual defined.--For purposes of 
     this section, subject to subparagraph (D), the term `subsidy-
     eligible individual' means an individual who--
       ``(i) is enrolled under this part, including an individual 
     receiving qualified prescription drug coverage under a 
     Medicare+Choice plan;
       ``(ii) has income that is less that 150 percent of the 
     Federal poverty line; and
       ``(iii) meets the resources requirement described in 
     section 1905(p)(1)(C).
       ``(B) Determinations.--The determination of whether an 
     individual residing in a State is a subsidy-eligible 
     individual and the amount of such individual's income shall 
     be determined under the State medicaid plan for the State 
     under section 1935(a). In the case of a State that does not 
     operate such a medicaid plan (either under title XIX or under 
     a statewide waiver granted under section 1115), such 
     determination shall be made under arrangements made by the 
     Administrator.
       ``(C) Income determinations.--For purposes of applying this 
     section--
       ``(i) income shall be determined in the manner described in 
     section 1905(p)(1)(B); and
       ``(ii) the term `Federal poverty line' means the official 
     poverty line (as defined by the Office of Management and 
     Budget, and revised annually in accordance with section 
     673(2) of the Omnibus Budget Reconciliation Act of 1981) 
     applicable to a family of the size involved.
       ``(D) Treatment of territorial residents.--In the case of 
     an individual who is not a resident of the 50 States or the 
     District of Columbia, the individual is not eligible to be a 
     subsidy-eligible individual but may be eligible for financial 
     assistance with prescription drug expenses under section 
     1935(e).
       ``(b) Rules in Applying Cost-Sharing Subsidies.--
       ``(1) Additional benefits.--In applying subparagraphs (B) 
     and (C) of subsection (a)(1) and clauses (ii) and (iii) of 
     subsection (a)(2)(A), nothing in this part shall be construed 
     as preventing an eligible entity offering a Medicare 
     Prescription Drug plan or a Medicare+Choice organization 
     offering a Medicare+Choice plan in which qualified

[[Page S7068]]

     drug coverage is provided from waiving or reducing the amount 
     of the deductible or other cost-sharing otherwise applicable 
     pursuant to section 1860D-6(a)(2).
       ``(2) Limitation on charges.--In the case of an individual 
     receiving cost-sharing subsidies under subparagraphs (B) and 
     (C) of subsection (a)(1) or under clauses (ii) and (iii) of 
     subsection (a)(2)(A), the eligible entity offering a Medicare 
     Prescription Drug plan or the Medicare+Choice organization 
     offering a Medicare+Choice plan in which qualified drug 
     coverage is provided may not charge more than the deductible 
     or other cost-sharing required pursuant to such subsection.
       ``(c) Administration of Subsidy Program.--The Administrator 
     shall provide a process whereby, in the case of an individual 
     eligible for a cost-sharing under subparagraphs (B) and (C) 
     of subsection (a)(1) or under clauses (ii) and (iii) of 
     subsection (a)(2)(A) and who is enrolled in a Medicare 
     Prescription Drug plan or is enrolled in a Medicare+Choice 
     plan under which qualified prescription drug coverage is 
     provided--
       ``(1) the Administrator provides for a notification of the 
     eligible entity or Medicare+Choice organization involved that 
     the individual is eligible for a cost-sharing subsidy and the 
     amount of the subsidy under such subsection;
       ``(2) the entity or organization involved reduces the cost-
     sharing otherwise imposed by the amount of the applicable 
     subsidy and submits to the Administrator information on the 
     amount of such reduction; and
       ``(3) the Administrator periodically and on a timely basis 
     reimburses the entity or organization for the amount of such 
     reductions.
     The reimbursement under paragraph (3) may be computed on a 
     capitated basis, taking into account the actuarial value of 
     the subsidies and with appropriate adjustments to reflect 
     differences in the risks actually involved.
       ``(d) Relation to Medicaid Program.--
       ``(1) In general.--For provisions providing for eligibility 
     determinations, and additional financing, under the medicaid 
     program, see section 1935.
       ``(2) Medicaid providing wrap around benefits.--The 
     coverage provided under this part is primary payor to 
     benefits for prescribed drugs provided under the medicaid 
     program under title XIX.


    ``reinsurance payments for qualified prescription drug coverage

       ``Sec. 1860D-20. (a) Reinsurance Payments.--
       ``(1) In general.--The Administrator shall provide in 
     accordance with this section for payment to a qualifying 
     entity (as defined in subsection (b)) of the reinsurance 
     payment amount (as defined in subsection (c)), which in the 
     aggregate is 30 percent of the total payments made by a 
     qualifying entity for standard coverage under the respective 
     plan, for excess costs incurred in providing qualified 
     prescription drug coverage for qualifying covered individuals 
     (as defined in subsection (g)(1)).
       ``(2) Budget authority.--This section constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Administrator to provide for the 
     payment of amounts provided under this section.
       ``(b) Qualifying Entity Defined.--For purposes of this 
     section, the term `qualifying entity' means any of the 
     following that has entered into an agreement with the 
     Administrator to provide the Administrator with such 
     information as may be required to carry out this section:
       ``(1) An eligible entity offering a Medicare Prescription 
     Drug plan under this part.
       ``(2) A Medicare+Choice organization that provides 
     qualified prescription drug coverage under a Medicare+Choice 
     plan under part C.
       ``(3) The sponsor of a qualified retiree prescription drug 
     plan (as defined in subsection (f)).
       ``(c) Reinsurance Payment Amount.--
       ``(1) In general.--Subject to subsection (d)(2), the 
     reinsurance payment amount under this subsection for a 
     qualifying covered individual for a coverage year (as defined 
     in subsection (g)(2)) is equal to the sum of the following:
       ``(A) For the portion of the individual's gross covered 
     drug costs (as defined in paragraph (3)) for the year that 
     exceeds the amount specified in paragraph (2), but does not 
     exceed the initial coverage limit, an amount equal to 50 
     percent of the allowable costs (as defined in paragraph (3)) 
     attributable to such gross covered drug costs.
       ``(B) For the portion of the individual's gross covered 
     drug costs for the year that exceeds the annual out-of-pocket 
     threshold specified in section 1860D-6(c)(4)(B), an amount 
     equal to 80 percent of the allowable costs attributable to 
     such gross covered drug costs.
       ``(2) Amount specified.--The amount specified under this 
     paragraph--
       ``(A) for 2005, is equal to $2,000; and
       ``(B) for a subsequent year, is equal to the amount 
     specified in this paragraph for the previous year, increased 
     by the annual percentage increase described in section 1860D-
     6(c)(5).
       ``(3) Allowable costs.--For purposes of this section, the 
     term `allowable costs' means, with respect to gross covered 
     drug costs (as defined in paragraph (4)) under a plan 
     described in subsection (b) offered by a qualifying entity, 
     the part of such costs that are actually paid (net of average 
     percentage rebates) under the plan, but in no case more than 
     the part of such costs that would have been paid under the 
     plan if the prescription drug coverage under the plan were 
     standard coverage.
       ``(4) Gross covered drug costs.--For purposes of this 
     section, the term `gross covered drug costs' means, with 
     respect to an enrollee with a qualifying entity under a plan 
     described in subsection (b) during a coverage year, the costs 
     incurred under the plan (including costs attributable to 
     administrative costs) for covered drugs dispensed during the 
     year, including costs relating to the deductible, whether 
     paid by the enrollee or under the plan, regardless of whether 
     the coverage under the plan exceeds standard coverage and 
     regardless of when the payment for such drugs is made.
       ``(d) Adjustment of Reinsurance Payments to Assure 30 
     Percent Level of Payment.--
       ``(1) Estimation of payments.--The Administrator shall 
     estimate--
       ``(A) the total payments to be made (without regard to this 
     subsection) during a year under subsections (a) and (c); and
       ``(B) the total payments to be made by qualifying entities 
     for standard coverage under plans described in subsection (b) 
     during the year.
       ``(2) Adjustment.--The Administrator shall proportionally 
     adjust the payments made under subsections (a) and (c) for a 
     coverage year in such manner so that the total of the 
     payments made under such subsections for the year is equal to 
     30 percent of the total payments described in subparagraph 
     (A)(ii).
       ``(e) Payment Methods.--
       ``(1) In general.--Payments under this section shall be 
     based on such a method as the Administrator determines. The 
     Administrator may establish a payment method by which interim 
     payments of amounts under this section are made during a year 
     based on the Administrator's best estimate of amounts that 
     will be payable after obtaining all of the information.
       ``(2) Source of payments.--Payments under this section 
     shall be made from the Prescription Drug Account.
       ``(f) Qualified Retiree Prescription Drug Plan Defined.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified retiree prescription drug plan' means employment-
     based retiree health coverage (as defined in paragraph 
     (3)(A)) if, with respect to a qualifying covered individual 
     who is covered under the plan, the following requirements are 
     met:
       ``(A) Assurance.--The sponsor of the plan shall annually 
     attest, and provide such assurances as the Administrator may 
     require, that the coverage meets or exceeds the requirements 
     for qualified prescription drug coverage.
       ``(B) Audits.--The sponsor (and the plan) shall maintain, 
     and afford the Administrator access to, such records as the 
     Administrator may require for purposes of audits and other 
     oversight activities necessary to ensure the adequacy of 
     prescription drug coverage, and the accuracy of payments 
     made.
       ``(2) Limitation on benefit eligibility.--No payment shall 
     be provided under this section with respect to an individual 
     who is enrolled under a qualified retiree prescription drug 
     plan unless the individual--
       ``(A) is covered under the plan; and
       ``(B) was eligible for, but was not enrolled in, the 
     program under this part.
       ``(3) Definitions.--As used in this section:
       ``(A) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage of health care costs for 
     individuals (or for such individuals and their spouses and 
     dependents) based on their status as former employees or 
     labor union members.
       ``(B) Sponsor.--The term `sponsor' means a plan sponsor, as 
     defined in section 3(16)(B) of the Employee Retirement Income 
     Security Act of 1974.
       ``(g) General Definitions.--For purposes of this section:
       ``(1) Qualifying covered individual.--The term `qualifying 
     covered individual' means an individual who--
       ``(A) is enrolled in this part and in a Medicare 
     Prescription Drug plan;
       ``(B) is enrolled in this part and in a Medicare+Choice 
     plan that provides qualified prescription drug coverage; or
       ``(C) is eligible for, but not enrolled in, the program 
     under this part, and is covered under a qualified retiree 
     prescription drug plan.
       ``(2) Coverage year.--The term `coverage year' means a 
     calendar year in which covered drugs are dispensed if a claim 
     for payment is made under the plan for such drugs, regardless 
     of when the claim is paid.

``Subpart 3--Medicare Competitive Agency; Prescription Drug Account in 
         the Federal Supplementary Medical Insurance Trust Fund


             ``establishment of medicare competitive agency

       ``Sec. 1860D-25. (a) Establishment.--By not later than 
     March 1, 2003, the Secretary shall establish within the 
     Department of Health and Human Services an agency to be known 
     as the Medicare Competitive Agency.
       ``(b) Administrator and Deputy Administrator.--
       ``(1) Administrator.--
       ``(A) In general.--The Medicare Competitive Agency shall be 
     headed by an Administrator (in this section referred to as 
     the `Administrator') who shall be appointed by the

[[Page S7069]]

     President, by and with the advice and consent of the Senate. 
     The Administrator shall report directly to the Secretary.
       ``(B) Compensation.--The Administrator shall be paid at the 
     rate of basic pay payable for level III of the Executive 
     Schedule under section 5314 of title 5, United States Code.
       ``(C) Term of office.--The Administrator shall be appointed 
     for a term of 5 years. In any case in which a successor does 
     not take office at the end of an Administrator's term of 
     office, that Administrator may continue in office until the 
     entry upon office of such a successor. An Administrator 
     appointed to a term of office after the commencement of such 
     term may serve under such appointment only for the remainder 
     of such term.
       ``(D) General authority.--The Administrator shall be 
     responsible for the exercise of all powers and the discharge 
     of all duties of the Administration, and shall have authority 
     and control over all personnel and activities thereof.
       ``(E) Rulemaking authority.--The Administrator may 
     prescribe such rules and regulations as the Administrator 
     determines necessary or appropriate to carry out the 
     functions of the Administration. The regulations prescribed 
     by the Administrator shall be subject to the rulemaking 
     procedures established under section 553 of title 5, United 
     States Code.
       ``(F) Authority to establish organizational units.--The 
     Administrator may establish, alter, consolidate, or 
     discontinue such organizational units or components within 
     the Administration as the Administrator considers necessary 
     or appropriate, except that this subparagraph shall not apply 
     with respect to any unit, component, or provision provided 
     for by this section.
       ``(G) Authority to delegate.--The Administrator may assign 
     duties, and delegate, or authorize successive redelegations 
     of, authority to act and to render decisions, to such 
     officers and employees of the Administration as the 
     Administrator may find necessary. Within the limitations of 
     such delegations, redelegations, or assignments, all official 
     acts and decisions of such officers and employees shall have 
     the same force and effect as though performed or rendered by 
     the Administrator.
       ``(2) Deputy administrator.--
       ``(A) In general.--There shall be a Deputy Administrator of 
     the Medicare Competitive Agency who shall be appointed by the 
     President, by and with the advice and consent of the Senate.
       ``(B) Compensation.--The Deputy Administrator shall be paid 
     at the rate of basic pay payable for level IV of the 
     Executive Schedule under section 5315 of title 5, United 
     States Code.
       ``(C) Term of office.--The Deputy Administrator shall be 
     appointed for a term of 5 years. In any case in which a 
     successor does not take office at the end of a Deputy 
     Administrator's term of office, such Deputy Administrator may 
     continue in office until the entry upon office of such a 
     successor. A Deputy Administrator appointed to a term of 
     office after the commencement of such term may serve under 
     such appointment only for the remainder of such term.
       ``(D) Duties.--The Deputy Administrator shall perform such 
     duties and exercise such powers as the Administrator shall 
     from time to time assign or delegate. The Deputy 
     Administrator shall be Acting Administrator of the 
     Administration during the absence or disability of the 
     Administrator and, unless the President designates another 
     officer of the Government as Acting Administrator, in the 
     event of a vacancy in the office of the Administrator.
       ``(3) Secretarial coordination of program administration.--
     The Secretary shall ensure appropriate coordination between 
     the Administrator and the Administrator of the Centers for 
     Medicare & Medicaid Services in carrying out the programs 
     under this title.
       ``(c) Duties; Administrative Provisions.--
       ``(1) Duties.--
       ``(A) General duties.--The Administrator shall carry out 
     parts C and D, including--
       ``(i) negotiating, entering into, and enforcing, contracts 
     with plans for the offering of Medicare+Choice plans under 
     part C, including the offering of qualified prescription drug 
     coverage under such plans; and
       ``(ii) negotiating, entering into, and enforcing, contracts 
     with eligible entities for the offering of Medicare 
     Prescription Drug plans under part D.
       ``(B) Other duties.--The Administrator shall carry out any 
     duty provided for under part C or D, including demonstration 
     projects carried out in part or in whole under such parts, 
     the programs of all-inclusive care for the elderly (PACE 
     program) under section 1894, the social health maintenance 
     organization (SHMO) demonstration projects (referred to in 
     section 4104(c) of the Balanced Budget Act of 1997), and 
     through a Medicare+Choice project that demonstrates the 
     application of capitation payment rates for frail elderly 
     medicare beneficiaries through the use of an 
     interdisciplinary team and through the provision of primary 
     care services to such beneficiaries by means of such a team 
     at the nursing facility involved.
       ``(C) Noninterference.--In carrying out its duties with 
     respect to the provision of qualified prescription drug 
     coverage to beneficiaries under this title, the Administrator 
     may not--
       ``(i) require a particular formulary or institute a price 
     structure for the reimbursement of covered drugs;
       ``(ii) interfere in any way with negotiations between 
     eligible entities and Medicare+Choice organizations and drug 
     manufacturers, wholesalers, or other suppliers of covered 
     drugs; and
       ``(iii) otherwise interfere with the competitive nature of 
     providing such qualified prescription drug coverage through 
     such entities and organizations.
       ``(D) Annual reports.--Not later than March 31 of each 
     year, the Administrator shall submit to Congress and the 
     President a report on the administration of the voluntary 
     prescription drug delivery program under this part during the 
     previous fiscal year.
       ``(2) Staff.--
       ``(A) In general.--The Administrator, with the approval of 
     the Secretary, may employ, without regard to chapter 31 of 
     title 5, United States Code, other than sections 3110 and 
     3112, such officers and employees as are necessary to 
     administer the activities to be carried out through the 
     Medicare Competitive Agency. The Administrator shall employ 
     staff with appropriate and necessary expertise in negotiating 
     contracts in the private sector.
       ``(B) Flexibility with respect to compensation.--
       ``(i) In general.--The staff of the Medicare Competitive 
     Agency shall, subject to clause (ii), be paid without regard 
     to the provisions of chapter 51 (other than section 5101) and 
     chapter 53 (other than section 5301) of such title (relating 
     to classification and schedule pay rates).
       ``(ii) Maximum rate.--In no case may the rate of 
     compensation determined under clause (i) exceed the rate of 
     basic pay payable for level IV of the Executive Schedule 
     under section 5315 of title 5, United States Code.
       ``(C) Limitation on full-time equivalent staffing for 
     current cms functions being transferred.--The Administrator 
     may not employ under this paragraph a number of full-time 
     equivalent employees, to carry out functions that were 
     previously conducted by the Centers for Medicare & Medicaid 
     Services and that are conducted by the Administrator by 
     reason of this section, that exceeds the number of such full-
     time equivalent employees authorized to be employed by the 
     Centers for Medicare & Medicaid Services to conduct such 
     functions as of the date of enactment of this Act.
       ``(3) Redelegation of certain functions of the centers for 
     medicare and medicaid services.--
       ``(A) In general.--The Secretary, the Administrator, and 
     the Administrator of the Centers for Medicare & Medicaid 
     Services shall establish an appropriate transition of 
     responsibility in order to redelegate the administration of 
     part C from the Secretary and the Administrator of the 
     Centers for Medicare & Medicaid Services to the Administrator 
     as is appropriate to carry out the purposes of this section.
       ``(B) Transfer of data and information.--The Secretary 
     shall ensure that the Administrator of the Centers for 
     Medicare & Medicaid Services transfers to the Administrator 
     such information and data in the possession of the 
     Administrator of the Centers for Medicare & Medicaid Services 
     as the Administrator requires to carry out the duties 
     described in paragraph (1).
       ``(C) Construction.--Insofar as a responsibility of the 
     Secretary or the Administrator of the Centers for Medicare & 
     Medicaid Services is redelegated to the Administrator under 
     this section, any reference to the Secretary or the 
     Administrator of the Centers for Medicare & Medicaid Services 
     in this title or title XI with respect to such responsibility 
     is deemed to be a reference to the Administrator.
       ``(d) Office of Beneficiary Assistance.--
       ``(1) Establishment.--The Secretary shall establish within 
     the Medicare Competitive Agency an Office of Beneficiary 
     Assistance to carry out functions relating to medicare 
     beneficiaries under this title, including making 
     determinations of eligibility of individuals for benefits 
     under this title, providing for enrollment of medicare 
     beneficiaries under this title, and the functions described 
     in paragraph (2). The Office shall be a separate operating 
     division within the Administration.
       ``(2) Dissemination of information on benefits and appeals 
     rights.--
       ``(A) Dissemination of benefits information.--The Office of 
     Beneficiary Assistance shall disseminate to medicare 
     beneficiaries, by mail, by posting on the Internet site of 
     the Medicare Competitive Agency, and through the toll-free 
     telephone number provided for under section 1804(b), 
     information with respect to the following:
       ``(i) Benefits, and limitations on payment (including cost-
     sharing, stop-loss provisions, and formulary restrictions) 
     under parts C and D.
       ``(ii) Benefits, and limitations on payment under parts A, 
     B, and E, including information on medicare supplemental 
     policies under section 1882.

     Such information shall be presented in a manner so that 
     medicare beneficiaries may compare benefits under parts A, B, 
     D, and E, and medicare supplemental policies with benefits 
     under Medicare+Choice plans under part C.
       ``(B) Dissemination of appeals rights information.--The 
     Office of Beneficiary Assistance shall disseminate to 
     medicare beneficiaries in the manner provided under 
     subparagraph (A) a description of procedural rights 
     (including grievance and appeals procedures) of beneficiaries 
     under the original

[[Page S7070]]

     medicare fee-for-service program under parts A and B 
     (including beneficiaries who elect to receive enhanced 
     medicare benefits under part E), the Medicare+Choice program 
     under part C, and the voluntary prescription drug delivery 
     program under part D.
       ``(3) Medicare ombudsman.--
       ``(A) In general.--Within the Office of Beneficiary 
     Assistance, there shall be a Medicare Ombudsman, appointed by 
     the Secretary from among individuals with expertise and 
     experience in the fields of health care and advocacy, to 
     carry out the duties described in subparagraph (B).
       ``(B) Duties.--The Medicare Ombudsman shall--
       ``(i) receive complaints, grievances, and requests for 
     information submitted by a medicare beneficiary, with respect 
     to any aspect of the medicare program;
       ``(ii) provide assistance with respect to complaints, 
     grievances, and requests referred to in clause (i), 
     including--

       ``(I) assistance in collecting relevant information for 
     such beneficiaries, to seek an appeal of a decision or 
     determination made by a fiscal intermediary, carrier, 
     Medicare+Choice organization, an eligible entity under part 
     D, or the Secretary; and
       ``(II) assistance to such beneficiaries with any problems 
     arising from disenrollment from a Medicare+Choice plan under 
     part C or a prescription drug plan under part D; and

       ``(iii) submit annual reports to Congress, the Secretary, 
     and the Medicare Competitive Policy Advisory Board describing 
     the activities of the Office, and including such 
     recommendations for improvement in the administration of this 
     title as the Ombudsman determines appropriate.
       ``(C) Coordination with state ombudsman programs and 
     consumer organizations.--The Medicare Ombudsman shall, to the 
     extent appropriate, coordinate with State medical Ombudsman 
     programs, and with State- and community-based consumer 
     organizations, to--
       ``(i) provide information about the medicare program; and
       ``(ii) conduct outreach to educate medicare beneficiaries 
     with respect to manners in which problems under the medicare 
     program may be resolved or avoided.
       ``(e) Medicare Competitive Policy Advisory Board.--
       ``(1) Establishment.--There is established within the 
     Medicare Competitive Agency the Medicare Competitive Policy 
     Advisory Board (in this section referred to as the `Board'). 
     The Board shall advise, consult with, and make 
     recommendations to the Administrator with respect to the 
     administration of parts C and D, including the review of 
     payment policies under such parts.
       ``(2) Reports.--
       ``(A) In general.--With respect to matters of the 
     administration of parts C and D, the Board shall submit to 
     Congress and to the Administrator such reports as the Board 
     determines appropriate. Each such report may contain such 
     recommendations as the Board determines appropriate for 
     legislative or administrative changes to improve the 
     administration of such parts, including the stability and 
     solvency of the programs under such parts and the topics 
     described in subparagraph (B). Each such report shall be 
     published in the Federal Register.
       ``(B) Topics described.--Reports required under 
     subparagraph (A) may include the following topics:
       ``(i) Fostering competition.--Recommendations or proposals 
     to increase competition under parts C and D for services 
     furnished to medicare beneficiaries.
       ``(ii) Education and enrollment.--Recommendations for the 
     improvement of efforts to provide medicare beneficiaries 
     information and education on the program under this title, 
     and specifically parts C and D, and the program for 
     enrollment under the title.
       ``(iii) Quality.--Recommendations on ways to improve the 
     quality of benefits provided under plans under parts C and D.
       ``(iv) Disease management programs.--Recommendations on the 
     incorporation of disease management programs under parts C 
     and D.
       ``(v) Rural access.--Recommendations to improve competition 
     and access to plans under parts C and D in rural areas.
       ``(C) Maintaining independence of board.--The Board shall 
     directly submit to Congress reports required under 
     subparagraph (A). No officer or agency of the United States 
     may require the Board to submit to any officer or agency of 
     the United States for approval, comments, or review, prior to 
     the submission to Congress of such reports.
       ``(3) Duty of administrator.--With respect to any report 
     submitted by the Board under paragraph (2)(A), not later than 
     90 days after the report is submitted, the Administrator 
     shall submit to Congress and the President an analysis of 
     recommendations made by the Board in such report. Each such 
     analysis shall be published in the Federal Register.
       ``(4) Membership.--
       ``(A) Appointment.--Subject to the succeeding provisions of 
     this paragraph, the Board shall consist of 7 members to be 
     appointed as follows:
       ``(i) Three members shall be appointed by the President.
       ``(ii) Two members shall be appointed by the Speaker of the 
     House of Representatives, with the advice of the chairman and 
     the ranking minority member of the Committees on Ways and 
     Means and on Energy and Commerce of the House of 
     Representatives.
       ``(iii) Two members shall be appointed by the President pro 
     tempore of the Senate with the advice of the chairman and the 
     ranking minority member of the Committee on Finance of the 
     Senate.
       ``(B) Qualifications.--The members shall be chosen on the 
     basis of their integrity, impartiality, and good judgment, 
     and shall be individuals who are, by reason of their 
     education and experience in health care benefits management, 
     exceptionally qualified to perform the duties of members of 
     the Board.
       ``(C) Prohibition on inclusion of federal employees.--No 
     officer or employee of the United States may serve as a 
     member of the Board.
       ``(5) Compensation.--Members of the Board shall receive, 
     for each day (including travel time) they are engaged in the 
     performance of the functions of the Board, compensation at 
     rates not to exceed the daily equivalent to the annual rate 
     in effect for level IV of the Executive Schedule under 
     section 5315 of title 5, United States Code.
       ``(6) Terms of office.--
       ``(A) In general.--The term of office of members of the 
     Board shall be 3 years.
       ``(B) Terms of initial appointees.--As designated by the 
     President at the time of appointment, of the members first 
     appointed--
       ``(i) one shall be appointed for a term of 1 year;
       ``(ii) three shall be appointed for terms of 2 years; and
       ``(iii) three shall be appointed for terms of 3 years.
       ``(C) Reappointments.--Any person appointed as a member of 
     the Board may not serve for more than 8 years.
       ``(D) Vacancy.--Any member appointed to fill a vacancy 
     occurring before the expiration of the term for which the 
     member's predecessor was appointed shall be appointed only 
     for the remainder of that term. A member may serve after the 
     expiration of that member's term until a successor has taken 
     office. A vacancy in the Board shall be filled in the manner 
     in which the original appointment was made.
       ``(7) Chair.--The Chair of the Board shall be elected by 
     the members. The term of office of the Chair shall be 3 
     years.
       ``(8) Meetings.--The Board shall meet at the call of the 
     Chair, but in no event less than 3 times during each fiscal 
     year.
       ``(9) Director and staff.--
       ``(A) Appointment of director.--The Board shall have a 
     Director who shall be appointed by the Chair.
       ``(B) In general.--With the approval of the Board, the 
     Director may appoint, without regard to chapter 31 of title 
     5, United States Code, such additional personnel as the 
     Director considers appropriate.
       ``(C) Flexibility with respect to compensation.--
       ``(i) In general.--The Director and staff of the Board 
     shall, subject to clause (ii), be paid without regard to the 
     provisions of chapter 51 and chapter 53 of such title 
     (relating to classification and schedule pay rates).
       ``(ii) Maximum rate.--In no case may the rate of 
     compensation determined under clause (i) exceed the rate of 
     basic pay payable for level IV of the Executive Schedule 
     under section 5315 of title 5, United States Code.
       ``(D) Assistance from the administrator.--The Administrator 
     shall make available to the Board such information and other 
     assistance as it may require to carry out its functions.
       ``(10) Contract authority.--The Board may contract with and 
     compensate government and private agencies or persons to 
     carry out its duties under this subsection, without regard to 
     section 3709 of the Revised Statutes (41 U.S.C. 5).
       ``(f) Funding.--There is authorized to be appropriated, in 
     appropriate part from the Federal Hospital Insurance Trust 
     Fund and from the Federal Supplementary Medical Insurance 
     Trust Fund (including the Prescription Drug Account), such 
     sums as are necessary to carry out this section.


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

       ``Sec. 1860D-26. (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 1860D-16, payments under 1860D-19 for 
     low-income subsidy payments for cost-sharing, reinsurance 
     payments under section 1860D-20, and payments with respect to 
     administrative expenses under this part in accordance with 
     section 201(g).
       ``(2) Transfer to parts a and b trust funds for 
     medicare+choice payments.--The Managing Trustee shall 
     establish procedures

[[Page S7071]]

     for the transfer of funds from the Account, in an amount 
     determined appropriate by the Secretary, to the Federal 
     Hospital Insurance Trust Fund and the Federal Supplementary 
     Medical Insurance Trust Fund in order to reimburse such trust 
     funds for payments to Medicare+Choice organizations for the 
     provision of qualified prescription drug coverage pursuant to 
     section 1853(k).
       ``(3) Transfers to medicaid account for increased 
     administrative costs.--The Managing Trustee shall transfer 
     from time to time from the Account to the Grants to States 
     for Medicaid account amounts the Secretary certifies are 
     attributable to increases in payment resulting from the 
     application of a higher Federal matching percentage under 
     section 1935(b).
       ``(4) 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) Deposits Into Account.--
       ``(1) Medicaid transfer.--There is hereby transferred to 
     the Account, from amounts appropriated for Grants to States 
     for Medicaid, amounts equivalent to the aggregate amount of 
     the reductions in payments under section 1903(a)(1) 
     attributable to the application of section 1935(c).
       ``(2) Appropriations to cover benefits and administrative 
     costs.--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--
       ``(A) the payments and transfers made from the Account 
     under subsection (b) in the year; exceed
       ``(B) the premiums collected under section 1860D-18 and 
     1853(k)(4) (for beneficiaries receiving qualified 
     prescription drug coverage under a Medicare+Choice plan).''.
       (b) Conforming Amendments to Federal Supplementary Medical 
     Insurance Trust Fund.--Section 1841 (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 1860D-26'';
       (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 1860D-18 (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 1860D-18 (in which 
     case the payments shall be made from the Prescription Drug 
     Account in the Trust Fund),''.
       (c) Conforming References to Previous Part D.--Any 
     reference in law (in effect before the date of enactment of 
     this Act) to part D of title XVIII of the Social Security Act 
     is deemed a reference to part F of such title (as in effect 
     after such date).

     SEC. 102. STUDY AND REPORT ON PERMITTING PART B ONLY 
                   INDIVIDUALS TO ENROLL IN MEDICARE VOLUNTARY 
                   PRESCRIPTION DRUG DELIVERY PROGRAM.

       (a) Study.--The Administrator of the Medicare Competitive 
     Agency (as established under section 1860D-25 of the Social 
     Security Act (as added by section 301(a))) shall conduct a 
     study on the need for rules relating to permitting 
     individuals who are enrolled under part B of title XVIII of 
     the Social Security Act but are not entitled to benefits 
     under part A of such title to buy into the medicare voluntary 
     prescription drug delivery program under part D of such title 
     (as so added).
       (b) Report.--Not later than January 1, 2004, the 
     Administrator of the Medicare Competitive Agency shall submit 
     a report to Congress on the study conducted under subsection 
     (a), together with any recommendations for legislation that 
     the Administrator determines to be appropriate as a result of 
     such study.

     SEC. 103. ADDITIONAL REQUIREMENTS FOR ANNUAL FINANCIAL REPORT 
                   AND OVERSIGHT ON MEDICARE PROGRAM.

       (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended 
     by adding at the end the following new subsection:
       ``(l) Combined Report on Operation and Status of the Trust 
     Fund and the Federal Supplementary Medical Insurance Trust 
     Fund (Including the Prescription Drug Account).--In addition 
     to the duty of the Board of Trustees to report to Congress 
     under subsection (b), on the date the Board submits the 
     report required under subsection (b)(2), the Board shall 
     submit to Congress a report on the operation and status of 
     the Trust Fund and the Federal Supplementary Medical 
     Insurance Trust Fund established under section 1841, 
     including the Prescription Drug Account within such Trust 
     Fund, (in this subsection referred to as the `Trust Funds'). 
     Such report shall include the following information:
       ``(1) Overall spending from the general fund of the 
     treasury.--A statement of total amounts obligated during the 
     preceding fiscal year from the General Revenues of the 
     Treasury to the Trust Funds, separately stated in terms of 
     the total amount and in terms of the percentage such amount 
     bears to all other amounts obligated from such General 
     Revenues during such fiscal year, for each of the following 
     amounts:
       ``(A) Medicare benefits.--The amount expended for payment 
     of benefits covered under this title.
       ``(B) Administrative and other expenses.--The amount 
     expended for payments not related to the benefits described 
     in subparagraph (A).
       ``(2) Historical overview of spending.--From the date of 
     the inception of the program of insurance under this title 
     through the fiscal year involved, a statement of the total 
     amounts referred to in paragraph (1), separately stated for 
     the amounts described in subparagraphs (A) and (B) of such 
     paragraph.
       ``(3) 10-year and 50-year projections.--An estimate of 
     total amounts referred to in paragraph (1), separately stated 
     for the amounts described in subparagraphs (A) and (B) of 
     such paragraph, required to be obligated for payment for 
     benefits covered under this title for each of the 10 fiscal 
     years succeeding the fiscal year involved and for the 50-year 
     period beginning with the succeeding fiscal year.
       ``(4) Relation to other measures of growth.--A comparison 
     of the rate of growth of the total amounts referred to in 
     paragraph (1), separately stated for the amounts described in 
     subparagraphs (A) and (B) of such paragraph, to the rate of 
     growth for the same period in--
       ``(A) the gross domestic product;
       ``(B) health insurance costs in the private sector;
       ``(C) employment-based health insurance costs in the public 
     and private sectors; and
       ``(D) other areas as determined appropriate by the Board of 
     Trustees.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply with respect to fiscal years beginning on or 
     after the date of enactment of this Act.
       (c) Congressional Hearings.--It is the sense of Congress 
     that the committees of jurisdiction of Congress shall hold 
     hearings on the reports submitted under section 1817(l) of 
     the Social Security Act (as added by subsection (a)).

     SEC. 104. REFERENCE TO MEDIGAP PROVISIONS.

       For provisions related to medicare supplemental policies 
     under section 1882 of the Social Security Act (42 U.S.C. 
     1395ss), see section 202.

     SEC. 105. MEDICAID AMENDMENTS.

       (a) Determinations of Eligibility for Low-Income 
     Subsidies.--
       (1) Requirement.--Section 1902 (42 U.S.C. 1396a) is 
     amended--
       (A) in subsection (a)--
       (i) by striking ``and'' at the end of paragraph (64);
       (ii) by striking the period at the end of paragraph (65) 
     and inserting ``; and''; and
       (iii) by inserting after paragraph (65) the following new 
     paragraph:
       ``(66) provide for making eligibility determinations under 
     section 1935(a).''.
       (2) New section.--Title XIX (42 U.S.C. 1396 et seq.) is 
     amended--
       (A) by redesignating section 1935 as section 1936; and
       (B) by inserting after section 1934 the following new 
     section:


  ``special provisions relating to medicare prescription drug benefit

       ``Sec. 1935. (a) Requirement for Making Eligibility 
     Determinations for Low-Income Subsidies.--As a condition of 
     its State plan under this title under section 1902(a)(66) and 
     receipt of any Federal financial assistance under section 
     1903(a), a State shall--
       ``(1) make determinations of eligibility for premium and 
     cost-sharing subsidies under (and in accordance with) section 
     1860D-19;
       ``(2) inform the Administrator of the Medicare Competitive 
     Agency of such determinations in cases in which such 
     eligibility is established; and
       ``(3) otherwise provide such Administrator with such 
     information as may be required to carry out part D of title 
     XVIII (including section 1860D-19).
       ``(b) Payments for Additional Administrative Costs.--
       ``(1) In general.--The amounts expended by a State in 
     carrying out subsection (a) are, subject to paragraph (2), 
     expenditures reimbursable under the appropriate paragraph of 
     section 1903(a); except that, notwithstanding any other 
     provision of such section, the applicable Federal matching 
     rates with respect to such expenditures under such section 
     shall be increased as follows:
       ``(A) For expenditures attributable to costs incurred 
     during 2005, the otherwise applicable Federal matching rate 
     shall be increased by 20 percent of the percentage otherwise 
     payable (but for this subsection) by the State.
       ``(B) For expenditures attributable to costs incurred 
     during 2006, the otherwise applicable Federal matching rate 
     shall be increased by 40 percent of the percentage otherwise 
     payable (but for this subsection) by the State.
       ``(C) For expenditures attributable to costs incurred 
     during 2007, the otherwise applicable Federal matching rate 
     shall be increased by 60 percent of the percentage otherwise 
     payable (but for this subsection) by the State.
       ``(D) For expenditures attributable to costs incurred 
     during 2008, the otherwise applicable Federal matching rate 
     shall be increased by 80 percent of the percentage otherwise 
     payable (but for this subsection) by the State.

[[Page S7072]]

       ``(E) For expenditures attributable to costs incurred after 
     2008, the otherwise applicable Federal matching rate shall be 
     increased to 100 percent.
       ``(2) Coordination.--The State shall provide the Secretary 
     with such information as may be necessary to properly 
     allocate administrative expenditures described in paragraph 
     (1) that may otherwise be made for similar eligibility 
     determinations.''.
       (b) Phased-In Federal Assumption of Medicaid Responsibility 
     for Premium and Cost-Sharing Subsidies for Dually Eligible 
     Individuals.--
       (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
     is amended by inserting before the semicolon the following: 
     ``, reduced by the amount computed under section 1935(c)(1) 
     for the State and the quarter''.
       (2) Amount described.--Section 1935, as added by subsection 
     (a)(2), is amended by adding at the end the following new 
     subsection:
       ``(c) Federal Assumption of Medicaid Prescription Drug 
     Costs for Dually-Eligible Beneficiaries.--
       ``(1) In general.--For purposes of section 1903(a)(1), for 
     a State for a calendar quarter in a year (beginning with 
     2005) the amount computed under this subsection is equal to 
     the product of the following:
       ``(A) Standard prescription drug coverage under medicare.--
     With respect to individuals who are residents of the State 
     and are entitled to benefits with respect to prescribed drugs 
     under the State plan under this title (including such a plan 
     operating under a waiver under section 1115)--
       ``(i) the total amount of payments made (or not collected 
     from the individuals) in the quarter under section 1860D-19 
     (relating to premium and cost-sharing prescription drug 
     subsidies for low-income medicare beneficiaries) that are 
     attributable to such individuals; and
       ``(ii) the actuarial value of standard coverage (as 
     determined under section 1860D-6(f)) provided for all such 
     individuals.
       ``(B) State matching rate.--A proportion computed by 
     subtracting from 100 percent the Federal medical assistance 
     percentage (as defined in section 1905(b)) applicable to the 
     State and the quarter.
       ``(C) Phase-out proportion.--The phase-out proportion (as 
     defined in paragraph (2)) for the quarter.
       ``(2) Phase-out proportion.--For purposes of paragraph 
     (1)(C), the `phase-out proportion' for a calendar quarter 
     in--
       ``(A) 2005 is 90 percent;
       ``(B) 2006 is 80 percent;
       ``(C) 2007 is 70 percent;
       ``(D) 2008 is 60 percent; or
       ``(E) a year after 2008 is 50 percent.''.
       (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, 
     as added by subsection (a)(2) and amended by subsection 
     (b)(2), is amended by adding at the end the following new 
     subsection:
       ``(d) Additional Provisions.--
       ``(1) Medicaid as secondary payor.--In the case of an 
     individual who is enrolled under part D of title XVIII and 
     entitled to medical assistance for prescribed drugs under 
     this title, medical assistance shall continue to be provided 
     under this title for prescribed drugs to the extent payment 
     is not made under the Medicare Prescription Drug plan or the 
     Medicare+Choice plan selected by the individual to receive 
     part D benefits.
       ``(2) Condition.--A State may require, as a condition for 
     the receipt of medical assistance under this title with 
     respect to prescription drug benefits for an individual 
     eligible to enroll in part D, that the individual elect to 
     enroll under such part.''.
       (d) Treatment of Territories.--
       (1) In general.--Section 1935, as added by subsection 
     (a)(2) and amended by subsections (b)(2) and (c), is 
     amended--
       (A) in subsection (a) in the matter preceding paragraph 
     (1), by inserting ``subject to subsection (e)'' after 
     ``section 1903(a)'';
       (B) in subsection (c)(1), by inserting ``subject to 
     subsection (e)'' after ``1903(a)(1)''; and
       (C) by adding at the end the following new subsection:
       ``(e) Treatment of Territories.--
       ``(1) In general.--In the case of a State, other than the 
     50 States and the District of Columbia--
       ``(A) the previous provisions of this section shall not 
     apply to residents of such State; and
       ``(B) if the State establishes a plan described in 
     paragraph (2) (for providing medical assistance with respect 
     to the provision of prescription drugs to medicare 
     beneficiaries), the amount otherwise determined under section 
     1108(f) (as increased under section 1108(g)) for the State 
     shall be increased by the amount specified in paragraph (3).
       ``(2) Plan.--The plan described in this paragraph is a plan 
     that--
       ``(A) provides medical assistance with respect to the 
     provision of covered drugs (as defined in section 
     1860D(a)(2)) to low-income medicare beneficiaries; and
       ``(B) assures that additional amounts received by the State 
     that are attributable to the operation of this subsection are 
     used only for such assistance.
       ``(3) Increased amount.--
       ``(A) In general.--The amount specified in this paragraph 
     for a State for a year is equal to the product of--
       ``(i) the aggregate amount specified in subparagraph (B); 
     and
       ``(ii) the amount specified in section 1108(g)(1) for that 
     State, divided by the sum of the amounts specified in such 
     section for all such States.
       ``(B) Aggregate amount.--The aggregate amount specified in 
     this subparagraph for--
       ``(i) 2005, is equal to $20,000,000; or
       ``(ii) a subsequent year, is equal to the aggregate amount 
     specified in this subparagraph for the previous year 
     increased by the annual percentage increase specified in 
     section 1860D-6(c)(5) for the year involved.
       ``(4) Report.--The Secretary shall submit to Congress a 
     report on the application of this subsection and may include 
     in the report such recommendations as the Secretary deems 
     appropriate.''.
       (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
     1308(f)) is amended by inserting ``and section 
     1935(e)(1)(B)'' after ``Subject to subsection (g)''.
       (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 
     U.S.C. 1396r-8(c)(1)(C)(i)) is amended--
       (1) by striking ``and'' at the end of subclause (III);
       (2) by striking the period at the end of subclause (IV) and 
     inserting ``; and''; and
       (3) by adding at the end the following new subclause:

       ``(V) any prices charged which are negotiated under a 
     Medicare Prescription Drug plan under part D of title XVIII 
     with respect to covered drugs, under a Medicare+Choice plan 
     under part C of such title with respect to such drugs, or 
     under a qualified retiree prescription drug plan (as defined 
     in section 1860D-20(f)(1)) with respect to such drugs, on 
     behalf of eligible beneficiaries (as defined in section 
     1860D(a)(3).''.

     SEC. 106. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE 
                   PAYMENT ADVISORY COMMISSION (MEDPAC).

       (a) Expansion of Membership.--
       (1) In general.--Section 1805(c) (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.
       (ii) One member shall be appointed for 2 years.
       (B) Commencement of terms.--Such terms shall begin on 
     January 1, 2004.
       (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 
     1395b-6(b)(2)) is amended by adding at the end the following 
     new subparagraph:
       ``(D) Voluntary prescription drug delivery program.--
     Specifically, the Commission shall review, with respect to 
     the voluntary prescription drug delivery program under part 
     D, competition among eligible entities offering Medicare 
     Prescription Drug plans and beneficiary access to such plans 
     and covered drugs, particularly in rural areas.''.

     SEC. 107. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

       (a) Administrator as Member of the Board of Trustees of the 
     Medicare Trust Funds.--Sections 1817(b) and 1841(b) (42 
     U.S.C. 1395i(b), 1395t(b)) are each amended by striking ``and 
     the Secretary of Health and Human Services, all ex officio,'' 
     and inserting ``the Secretary of Health and Human Services, 
     and the Administrator of the Medicare Competitive Agency, all 
     ex officio,''.
       (b) Increase in Grade to Executive Level III for the 
     Administrator of the Centers for Medicare & Medicaid 
     Services.--
       (1) In general.--Section 5314 of title 5, United States 
     Code, is amended by adding at the end the following:
       ``Administrator of the Centers for Medicare & Medicaid 
     Services.''.
       (2) Conforming amendment.--Section 5315 of such title is 
     amended by striking ``Administrator of the Health Care 
     Financing Administration.''.
       (3) Effective date.--The amendments made by this subsection 
     take effect on March 1, 2003.

            TITLE II--OPTION FOR ENHANCED MEDICARE BENEFITS

     SEC. 201. OPTION FOR ENHANCED MEDICARE BENEFITS.

       (a) Establishment.--Title XVIII (42 U.S.C. 1395 et seq.), 
     as amended by section 101, is amended by inserting after part 
     D the following new part:

                  ``Part E--Enhanced Medicare Benefits


      ``entitlement to elect to receive enhanced medicare benefits

       ``Sec. 1860E-1. (a) In General.--The Secretary shall 
     establish procedures under which each eligible beneficiary 
     shall be entitled to elect to receive enhanced medicare 
     benefits under this part instead of the benefits under parts 
     A and B.
       ``(b) Enhanced Medicare Benefits To Be Available in 2005.--
     The Secretary shall establish the procedures under subsection 
     (a) in a manner such that enhanced medicare benefits are 
     first provided for months beginning with January 2005.
       ``(c) Preservation of Original Medicare Fee-For-Service 
     Benefits.--Nothing in this part shall be construed to limit 
     the right of

[[Page S7073]]

     an individual who is entitled to benefits under part A or 
     enrolled under part B to receive benefits under such part if 
     an election to receive enhanced medicare benefits under this 
     part is not in effect with respect to such individual.


                 ``scope of enhanced medicare benefits

       ``Sec. 1860E-2. (a) In General.--Except for the 
     modifications described in the succeeding provisions of this 
     section, enhanced medicare benefits shall be identical to the 
     benefits that are available under parts A and B.
       ``(b) Unified Deductible.--
       ``(1) In general.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part--
       ``(A) the amount otherwise payable under part A and the 
     total amount of expenses incurred by an eligible beneficiary 
     during a year which would (except for this section) 
     constitute incurred expenses from which benefits payable 
     under section 1833(a) are determinable, shall be reduced 
     under sections 1813(b) and 1833(b) by the amount of the 
     unified deductible under paragraph (2); and
       ``(B) the eligible beneficiary shall be responsible for the 
     payment of such amount.
       ``(2) Amount of unified deductible.--
       ``(A) In general.--The amount of the unified deductible 
     under this subsection shall be--
       ``(i) for 2005, $300; or
       ``(ii) for a subsequent year, the amount specified in this 
     subparagraph for the preceding year increased by the 
     percentage increase in the per capita actuarial value of 
     benefits under parts A and B for such subsequent year.
       ``(B) 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.
       ``(3) Application.--The unified deductible under this 
     subsection for a year shall be applied--
       ``(A) with respect to benefits under part A, on the basis 
     of the amount that is payable for such benefits without 
     regard to any other copayments or coinsurance and before the 
     application of any such copayments or coinsurance;
       ``(B) with respect to benefits under part B, on the basis 
     of the total amount of the expenses incurred by an eligible 
     beneficiary during a year which would, except for the 
     application of the deductible, constitute incurred expenses 
     from which benefits payable under section 1833(a) are 
     determinable, without regard to any other copayments or 
     coinsurance and before the application of any such copayments 
     or coinsurance; and
       ``(C) instead of the deductibles described in sections 
     1813(b) and 1833(b).
       ``(c) Serious Illness Protection.--
       ``(1) In general.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part, if the amount of the out-of-pocket cost-sharing of 
     such beneficiary for a calendar year equals or exceeds the 
     serious illness protection threshold for that year--
       ``(A) the beneficiary shall not be responsible for 
     additional out-of-pocket cost-sharing incurred during that 
     year; and
       ``(B) the Secretary shall establish procedures under which 
     the Secretary shall pay on behalf of the beneficiary the 
     amount of the additional out-of-pocket cost-sharing described 
     in subparagraph (A) from the Federal Hospital Insurance Trust 
     Fund and the Federal Supplementary Medical Insurance Trust 
     Fund, in such proportion as the Secretary determines 
     appropriate.
       ``(2) Serious illness protection threshold.--
       ``(A) In general.--The amount of the serious illness 
     protection threshold under this subsection shall be--
       ``(i) for 2005, $6,000; or
       ``(ii) for a subsequent year, the amount specified in this 
     subparagraph for the preceding year increased by the 
     percentage increase in the per capita actuarial value of 
     benefits under parts A and B for such subsequent year.
       ``(B) 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.
       ``(3) Out-of-pocket cost-sharing defined.--In this 
     subsection, the term `out-of-pocket cost-sharing' means, with 
     respect to an eligible beneficiary, the amount of costs 
     incurred by the beneficiary that are attributable to 
     deductibles, coinsurance, and copayments imposed under part A 
     or B (as modified by this part), without regard to whether 
     the beneficiary or another person, including a State program 
     or other third-party coverage, has paid for such costs.
       ``(d) Enhanced Hospital Benefits.--
       ``(1) Elimination of durational limits on inpatient 
     hospital services.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part--
       ``(A) there shall be no spell of illness limit or lifetime 
     limit on inpatient hospital services under subsections (a)(1) 
     and (b)(1) of section 1812 during the period in which the 
     election of the beneficiary to receive enhanced medicare 
     benefits under this part is in effect; and
       ``(B) section 1812(c) shall not be applied during such 
     period.
       ``(2) Revision of inpatient hospital coinsurance.--
       ``(A) In general.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part, after the application of the unified deductible 
     under subsection (b), instead of imposing any coinsurance 
     under the second sentence of section 1813(a)(1), the amount 
     payable under part A for inpatient hospital services or 
     inpatient critical access hospital services furnished to the 
     eligible beneficiary during any year, shall be reduced by the 
     amount of the inpatient hospital copayment specified in 
     subparagraph (B) for each period of hospitalization and the 
     beneficiary shall be responsible for payment of such amount 
     for each such period.
       ``(B) Amount of inpatient hospital copayment.--
       ``(i) In general.--The amount of the inpatient hospital 
     copayment under this paragraph shall be--

       ``(I) for 2005, $400; or
       ``(II) for a subsequent year, the amount specified in this 
     clause for the preceding year increased by the percentage 
     increase in the per capita actuarial value of benefits under 
     parts A and B for such subsequent year.

       ``(ii) Rounding.--If any amount determined under clause (i) 
     is not a multiple of $1, such amount shall be rounded to the 
     nearest multiple of $1.
       ``(C) Period of hospitalization defined.--In this 
     subsection, the term `period of hospitalization' means the 
     period that begins on the date that the eligible beneficiary 
     is admitted to the hospital and ends on the date on which the 
     beneficiary has not been hospitalized for a 72-hour period.
       ``(D) Collection of copayments.--For purposes of section 
     1866(a)(2)(A), hospitals shall substitute the imposition of 
     the inpatient hospital copayment under this paragraph for the 
     hospital coinsurance described in the second sentence of 
     section 1813(a)(1).
       ``(e) Elimination of Cost-Sharing for Preventive Health 
     Care Items and Services.--
       ``(1) In general.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part, the unified deductible under subsection (b) and 
     deductibles and the coinsurance otherwise applicable under 
     subsections (a) and (b) of section 1833 shall not be applied 
     with respect to expenses incurred for any preventive health 
     care items and services (and no charges may be imposed under 
     section 1866(a)(2) where such deductibles and coinsurance are 
     not imposed).
       ``(2) Preventive health care items and services defined.--
     In this subsection, the term `preventive health care items 
     and services' means any of the following health care items 
     and services:
       ``(A) Screening mammography under section 1861(s)(13).
       ``(B) Screening pap smear and screening pelvic examinations 
     under section 1861(s)(14).
       ``(C) Bone mass measurement under section 1861(s)(15).
       ``(D) Prostate cancer screening tests under section 
     1861(s)(2)(P).
       ``(E) Colorectal cancer screening under section 
     1861(s)(2)(R).
       ``(F) Blood testing strips, lancets, and blood glucose 
     monitors for individuals with diabetes under section 1861(n).
       ``(G) Diabetes outpatient self-management training services 
     under section 1861(s)(2)(S).
       ``(H) Pneumococcal, influenza, and hepatitis B vaccines and 
     administration under section 1861(s)(10).
       ``(I) Screening for glaucoma under section 1861(s)(2)(U).
       ``(J) Medical nutrition therapy services under section 
     1861(s)(2)(V).
       ``(f) Simplification of Cost-Sharing.--In the case of an 
     eligible beneficiary who has elected to receive enhanced 
     medicare benefits under this part, the following cost-sharing 
     rules shall apply:
       ``(1) Modification of skilled nursing facility cost-
     sharing.--Instead of the coinsurance established under 
     section 1813(b) for extended care services, under section 
     1888(e)--
       ``(A) the payment amount under paragraph (1)(B) of such 
     section shall be equal to the amount otherwise provided minus 
     the amount described in subparagraph (B); and
       ``(B) the eligible beneficiary shall be responsible for a 
     copayment amount for each of the 100 days of care for which 
     payment is made on behalf of an eligible beneficiary under 
     that section equal to--
       ``(i) for 2005, $60; and
       ``(ii) for a subsequent year, the amount specified in this 
     subparagraph for the preceding year increased by the 
     percentage increase in the per capita actuarial value of 
     benefits under parts A and B for such subsequent year.

     If any amount determined under this subparagraph is not a 
     multiple of $1, such amount shall be rounded to the nearest 
     multiple of $1.
       ``(2) Application of home health service coinsurance.--
       ``(A) In general.--The amount of the payment otherwise made 
     under section 1895 for home health services (other than such 
     services for which payment is made under section 1834(a)) 
     shall be reduced by the amount described in clause (ii).
       ``(B) Copayment amount.--
       ``(i) In general.--Subject to clause (ii), the eligible 
     beneficiary shall be responsible for a copayment amount for 
     each of the first 5 visits during an episode of care for 
     which payment is made on behalf of an eligible beneficiary 
     under section 1895 equal to--

       ``(I) for 2005, $10; and

[[Page S7074]]

       ``(II) for a subsequent year, the amount specified in this 
     clause for the preceding year increased by the percentage 
     increase in the per capita actuarial value of benefits under 
     parts A and B for such subsequent year.

     If any amount determined under this clause is not a multiple 
     of $1, such amount shall be rounded to the nearest multiple 
     of $1.
       ``(ii) Annual limit.--For each year in which an election to 
     receive enhanced medicare benefits under this part is in 
     effect, the eligible beneficiary shall not be responsible for 
     the payment of any copayment amount under this subparagraph 
     after the date on which the amount of payments made as a 
     result of the application of this paragraph equals $300.
       ``(3) Blood deductible.--The Secretary shall not apply the 
     deductible under sections 1813(a)(2) and 1833(b) for blood or 
     blood cells furnished to an eligible beneficiary during the 
     period in which an election of the beneficiary to receive 
     enhanced medicare benefits under this part is in effect.


                         ``payment of benefits

       ``Sec. 1860E-3. Payment for enhanced medicare benefits on 
     behalf of an eligible beneficiary who has elected to receive 
     such benefits under this part shall be made in the same 
     manner as payment for such benefits would have been made 
     under parts A and B, subject to the modifications described 
     in section 1860E-2, from the Federal Hospital Insurance Trust 
     Fund and the Federal Supplementary Medical Insurance Trust 
     Fund, in such proportion as the Secretary determines 
     appropriate.


   ``eligible beneficiaries; election of enhanced medicare benefits; 
                        termination of election

       ``Sec. 1860E-4. (a) Eligible Beneficiary Defined.--For 
     purposes of this part, the term `eligible beneficiary' has 
     the meaning given that term in section 1860D(a)(3).
       ``(b) Election of Enhanced Medicare Benefits.--
       ``(1) Election by individuals who become eligible 
     beneficiaries after january 1, 2005.--
       ``(A) Initial election.--Any individual whose initial 
     election period begins after September 30, 2004, shall be 
     deemed to have elected to receive enhanced medicare benefits 
     under this part as of the date on which such individual first 
     becomes entitled to benefits under part A or eligible to 
     enroll for benefits under part B, whichever is later, unless 
     that individual affirmatively elects (in such form and manner 
     as the Secretary may specify) to receive benefits under parts 
     A and B.
       ``(B) Initial election period.--For purposes of this 
     paragraph, the term `initial election period' means, with 
     respect to an individual, the period that begins on the first 
     day of the third month before the month in which such 
     individual first becomes entitled to benefits under part A or 
     eligible to enroll for benefits under part B, whichever is 
     later, and ends 7 months later.
       ``(C) Effect of election.--If an individual makes an 
     election under subparagraph (A) and such individual is not 
     entitled to benefits under part A or enrolled for benefits 
     under part B at the time of such election, such individual 
     shall be deemed--
       ``(i) to have elected to enroll for benefits under such 
     part under section 1818 or 1837 (as appropriate) if such 
     individual is eligible to enroll for benefits under such 
     section, as of the date of such election; or
       ``(ii) if such individual is not eligible to enroll for 
     benefits under section 1818 or 1837, to have elected to 
     enroll under part B as of the first date on which the 
     individual is eligible to enroll under such part.
       ``(2) Special election periods.--The Secretary shall 
     establish special election periods for individuals under this 
     part who have elected not to make an election (or to be 
     deemed to have made such an election) under this part that 
     are similar to the special enrollment periods under section 
     1837(i) for individuals described in such section.
       ``(3) Transitional election for individuals who become 
     eligible beneficiaries on or before january 1, 2005.--
       ``(A) In general.--In the case of an individual who is an 
     eligible beneficiary as of January 1, 2005, the Secretary 
     shall establish procedures under which such beneficiary may 
     affirmatively elect to receive enhanced medicare benefits 
     under this part during the 7-month period that begins on 
     April 1, 2004, and ends on November 30, 2004, for such 
     election to take effect on January 1, 2005.
       ``(B) Effect of medicare+choice enrollment.--If an eligible 
     beneficiary enrolls in a Medicare+Choice plan under part C 
     during November 2004, such individual shall be deemed to have 
     elected to receive enhanced medicare benefits under 
     subparagraph (A).
       ``(4) Changes in election.--
       ``(A) In general.--An individual who has elected (or is 
     deemed to have elected) to receive enhanced medicare benefits 
     under this part under paragraph (1), (2), or (3) may change 
     such election during an annual, coordinated election period 
     and such election shall take effect on January 1 of the 
     subsequent year. In no case shall such a change of election 
     take effect on a date other than on January 1 of a year 
     (unless the election is automatic pursuant to a termination 
     resulting from a loss or termination of coverage under part A 
     or part B).
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means, with respect to a calendar year (beginning with 2005), 
     the month of November preceding such year.
       ``(5) Procedures.--The Secretary shall establish procedures 
     for the termination and reinstatement of an election under 
     this section.
       ``(c) Coverage Terminated by Termination of Coverage Under 
     Part A or B.--
       ``(1) In general.--The Secretary shall terminate an 
     individual's coverage under this part if the individual is no 
     longer enrolled in both parts A and B.
       ``(2) Effective date.--The termination described in 
     subparagraph (A) shall be effective on the effective date of 
     termination of coverage under part A or (if earlier) under 
     part B.


              ``premium adjustments; late election penalty

       ``Sec. 1860E-5. (a) General Rule of No Change in Amount of 
     Premiums.--Except as provided in this section, an election to 
     receive enhanced medicare benefits under this part shall not 
     affect the amount of any premium charged under part A or B.
       ``(b) Late Election Penalty.--
       ``(1) In general.--In the case of an eligible beneficiary 
     who does not elect to receive enhanced medicare benefits 
     under this part during an election period described in 
     paragraph (1), (2), or (3) of section 1860E-4(b) of that 
     beneficiary, reinstates such an election under the procedures 
     established under paragraph (5) of such section, or otherwise 
     does not have such an election continuously in effect from 
     the first date on which such election could be in effect, the 
     premium otherwise imposed under part B (taking into account 
     any late enrollment penalty under section 1839(b)) shall be 
     increased during the period in which such individual has an 
     election to receive enhanced medicare benefits under this 
     part in effect by an amount that the Secretary determines is 
     actuarially sound (based on the financial impact on the 
     program under this part of the late election of the 
     beneficiary or of the reinstatement of an election of the 
     beneficiary) for each full 12-month period (in the same 
     continuous period of eligibility) in which the eligible 
     beneficiary could have elected to receive enhanced medicare 
     benefits under this part but did not elect to receive such 
     benefits.
       ``(2) Procedures.--In applying the late election penalty 
     under paragraph (1), the Secretary shall establish procedures 
     for applying the penalty under this subsection that are 
     similar to the procedures for applying the late enrollment 
     penalty under section 1839(b).
       ``(c) Late Reversal of Election Penalty.--
       ``(1) In general.--In the case of an eligible beneficiary 
     who has elected to receive enhanced medicare benefits under 
     this part and terminates such election under the procedures 
     established under section 1860E-4(b)(5) on a date that is 
     more than 1 year after the date on which such beneficiary 
     first elected to receive enhanced medicare benefits under 
     this part, the premium otherwise imposed under part B (taking 
     into account any late enrollment penalty under section 
     1839(b)) shall be increased during the period in which such 
     individual is enrolled under such part by an amount that the 
     Secretary determines is actuarially sound based on the 
     financial impact on the program under this part of the 
     reversal of the election of the beneficiary.
       ``(2) Procedures.--In applying the late reversal of 
     election penalty under paragraph (1), the Secretary shall 
     establish procedures for applying the penalty under this 
     subsection that are similar to the procedures for applying 
     the late enrollment penalty under section 1839(b).''.
       (b) Providing Information to Beneficiaries.--During 2004, 
     the Secretary shall provide for an extensive, national 
     educational and publicity campaign to inform eligible 
     beneficiaries (and prospective eligible beneficiaries) 
     regarding the enhanced medicare benefits to be made available 
     under part E of title XVIII of the Social Security Act (as 
     added by subsection (a)).
       (c) Conforming Adjustments to Part A and B Premiums.--
       (1) Effect of part e on part a premium.--Section 1818(d)(1) 
     (42 U.S.C. 1395i-2(d)(1)) is amended by adding at the end the 
     following new sentence: ``In making the estimate under the 
     previous sentence, the Secretary shall take into account the 
     effect of elections to receive enhanced medicare benefits 
     under part E on the amounts paid from such Trust Fund.''.
       (2) Effect of part e on part b premium.--Section 1839(a) 
     (42 U.S.C. 1395r(a)) is amended--
       (A) in paragraph (1)--
       (i) by inserting ``(including eligible beneficiaries who 
     elect to receive enhanced medicare benefits under part E)'' 
     after ``age 65 and over''; and
       (ii) by inserting ``(including eligible beneficiaries who 
     elect to receive enhanced medicare benefits under part E)'' 
     after ``age 65 and older'';
       (B) in paragraph (2), by inserting ``, as adjusted under 
     section 1860E-5'' before the period at the end;
       (C) in paragraph (3)--
       (i) by inserting ``(including eligible beneficiaries who 
     elect to receive enhanced medicare benefits under part E)'' 
     after ``age 65 and over''; and
       (ii) by inserting ``(including eligible beneficiaries who 
     elect to receive enhanced medicare benefits under part E)'' 
     after ``age 65 and older''; and
       (D) in paragraph (4)--

[[Page S7075]]

       (i) in the first sentence, by inserting ``(including 
     eligible beneficiaries who elect to receive enhanced medicare 
     benefits under part E)'' after ``under age 65''; and
       (ii) in the second sentence, by striking ``under age 65 
     which'' and inserting ``under age 65 (including eligible 
     beneficiaries who elect to receive enhanced medicare benefits 
     under part E)''.
       (d) Clarification of Application of Exclusions From 
     Coverage to Part E.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``(including for enhanced medicare benefits under part E)'' 
     after ``for items or services''.

     SEC. 202. RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE 
                   PRESCRIPTION DRUG COVERAGE; ESTABLISHMENT OF 
                   ENHANCED MEDICARE FEE-FOR-SERVICE MEDIGAP 
                   POLICIES.

       (a) Rules Relating to Medigap Policies That Provide 
     Prescription Drug Coverage.--Section 1882 (42 U.S.C. 1395ss) 
     is amended by adding at the end the following new subsection:
       ``(v) Rules Relating to Medigap Policies That Provide 
     Prescription Drug Coverage.--
       ``(1) Prohibition on sale, issuance, and renewal of 
     policies that provide prescription drug coverage to part d 
     enrollees.--
       ``(A) In general.--Notwithstanding any other provision of 
     law, on or after January 1, 2005, no medicare supplemental 
     policy that provides coverage of expenses for prescription 
     drugs may be sold, issued, or renewed under this section to 
     an individual who is enrolled under part D.
       ``(B) Penalties.--The penalties described in subsection 
     (d)(3)(A)(ii) shall apply with respect to a violation of 
     subparagraph (A).
       ``(2) Issuance of substitute policies if the policyholder 
     obtains prescription drug coverage under part d.--
       ``(A) In general.--The issuer of a medicare supplemental 
     policy--
       ``(i) may not deny or condition the issuance or 
     effectiveness of a medicare supplemental policy that has a 
     benefit package classified as `A', `B', `C', `D', `E', `F' 
     (including the benefit package classified as `F' with a high 
     deductible feature, as described in subsection (p)(11)), or 
     `G' (under the standards established under subsection (p)(2)) 
     and that is offered and is available for issuance to new 
     enrollees by such issuer;
       ``(ii) may not discriminate in the pricing of such policy, 
     because of health status, claims experience, receipt of 
     health care, or medical condition; and
       ``(iii) may not impose an exclusion of benefits based on a 
     pre-existing condition under such policy,

     in the case of an individual described in subparagraph (B) 
     who seeks to enroll under the policy during the open 
     enrollment period established under section 1860D-2(b)(2) and 
     who submits evidence that they meet the requirements under 
     subparagraph (B) along with the application for such medicare 
     supplemental policy.
       ``(B) Individual described.--An individual described in 
     this subparagraph is an individual who--
       ``(i) enrolls in the medicare prescription drug delivery 
     program under part D; and
       ``(ii) at the time of such enrollment was enrolled and 
     terminates enrollment in a medicare supplemental policy which 
     has a benefit package classified as `H', `I', or `J' 
     (including the benefit package classified as `J' with a high 
     deductible feature, as described in section 1882(p)(11)) 
     under the standards referred to in subparagraph (A)(i) or 
     terminates enrollment in a policy to which such standards do 
     not apply but which provides benefits for prescription drugs.
       ``(C) Enforcement.--The provisions of subparagraph (A) 
     shall be enforced as though they were included in subsection 
     (s).
       ``(3) Notice required to be provided to current 
     policyholders with prescription drug coverage.--
       ``(A) In general.--No medicare supplemental policy of an 
     issuer shall be deemed to meet the standards in subsection 
     (c) unless the issuer provides written notice during the 60-
     day period immediately preceding the period established for 
     the open enrollment period established under section 1860D-
     2(b)(2), to each individual who is a policyholder or 
     certificate holder of a medicare supplemental policy issued 
     by that issuer that provides some coverage of expenses for 
     prescription drugs (at the most recent available address of 
     that individual) of--
       ``(i) the ability to enroll in a new medicare supplemental 
     policy pursuant to paragraph (2); and
       ``(ii) the fact that, so long as such individual retains 
     coverage under such policy, the individual shall be 
     ineligible for coverage of prescription drugs under part D 
     and ineligible to elect to receive enhanced medicare benefits 
     under part E.
       ``(B) Coordination.--The notice provided under subparagraph 
     (A) shall be coordinated with the notice required under 
     subsection (v)(4)(A)(i).
       ``(4) Clarification regarding one-time availability of a 
     guaranteed issue policy for beneficiaries who lose coverage 
     under a medicare+choice plan of january 1, 2005, because they 
     elect not to receive enhanced part e benefits.--In the case 
     of a beneficiary who is enrolled in a Medicare+Choice plan as 
     of December 31, 2004, will not be eligible to be enrolled 
     under such plan as of January 1, 2005, because the 
     beneficiary has elected not to receive enhanced medicare 
     benefits under part E--
       ``(A) such beneficiary shall be deemed to be described in 
     subsection (s)(3)(B)(ii); and
       ``(B) for purposes of (s)(3)(E)(ii), the date of the 
     termination of coverage shall be January 1, 2005.''.
       (b) Establishment of Enhanced Medicare Fee-For-Service 
     Medigap Policies.--Section 1882 (42 U.S.C. 1395ss), as 
     amended by subsection (a), is amended by adding at the end 
     the following new subsection:
       ``(w) Enhanced Medicare Fee-For-Service Supplemental 
     Policies.--
       ``(1) Additional benefit packages.--
       ``(A) Establishment.--
       ``(i) In general.--In addition to the benefit packages 
     classified under the standards established by subsection 
     (p)(2), there shall be established benefit packages that may 
     only be purchased by beneficiaries who have elected to 
     receive enhanced medicare benefits under part E that--

       ``(I) complement but do not duplicate enhanced medicare 
     benefits described in section 1860E-2;
       ``(II) do not provide for coverage of the unified 
     deductible under section 1860E-2(b);
       ``(III) subject to clause (ii), do not provide coverage for 
     more than 50 percent of the amount of coinsurance and 
     copayments applicable under section 1860E-2;
       ``(IV) do not provide for coverage of expenses for 
     prescription drugs;
       ``(V) provide a range of coverage options for 
     beneficiaries; and
       ``(VI) use uniform language, definitions, and format with 
     respect to the coverage provided under a policy.

       ``(ii) One package required to cover all cost-sharing.--

       ``(I) In general.--One of the benefit packages established 
     under clause (i) shall include coverage of all coinsurance 
     and copayments applicable under section 1860E-2.
       ``(II) Availability limited to beneficiaries that enrolled 
     in part e during certain periods.--The benefit package that 
     includes the coverage described in subclause (II) shall only 
     be made available to beneficiaries who elect to receive 
     enhanced medicare benefits under part E during the 
     beneficiary's initial election period (as defined in 
     paragraph (1)(B) of section 1860D-4(b)), during a special 
     election period described in paragraph (2) of such section, 
     or during the transitional election period under paragraph 
     (3) of such section.

       ``(B) Manner of establishment.--The benefit packages 
     established under this section shall be established 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, 2005.
       ``(2) Construction of benefits in other medicare 
     supplemental policies.--Nothing in this subsection shall be 
     construed to affect the benefit packages classified as `A' 
     through `J' under the standards established by subsection 
     (p)(2) (including the benefit packages classified as `F' and 
     `J' with a high deductible feature, as described in 
     subsection (p)(11)).
       ``(3) Guaranteed issuance and renewal of enhanced medicare 
     fee-for-service supplemental 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 established under this subsection in a 
     similar manner as such provisions apply to medicare 
     supplemental policies issued under the standards established 
     under subsection (p).
       ``(4) Opportunity of current policyholders to purchase 
     enhanced medicare fee-for-service supplemental policies.--
       ``(A) Requirements for issuers of policies with respect to 
     current policyholders.--No medicare supplemental policy of an 
     issuer with a benefit package that is established under 
     paragraph (1) shall be deemed to meet the standards in 
     subsection (c) unless the issuer does all of the following:
       ``(i) Notice to current policyholders.--Provide written 
     notice during the 60-day period immediately preceding the 
     period established under section 1860E-4(b)(1), 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, so long 
     as such individual retains coverage under such policy, the 
     individual shall be ineligible to elect enhanced medicare 
     benefits under part E.
       ``(ii) Offer for current policyholders.--Offer the 
     policyholder or certificate holder under the terms described 
     in subparagraph (C), during at least the period established 
     under section 1860E-4(b)(1), a medicare supplemental policy 
     established under paragraph (1) 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 effective date of the election of the individual under 
     part E.
       ``(iii) Offer for individuals covered under policies issued 
     by other issuers if that issuer is not going to offer 
     enhanced medicare fee-for-service supplemental policies.--
     Offer an individual described in subparagraph (B), under the 
     terms described in subparagraph (C), and during at least the 
     period established under section 1860E-4(b)(1), a medicare 
     supplemental policy established under paragraph (1) with the 
     benefit package that the Secretary determines

[[Page S7076]]

     is most comparable to the policy in which the individual is 
     enrolled with coverage effective as of the effective date of 
     the election of the individual under part E.

     The notice provided under clause (i) shall be coordinated 
     with the notice required under subsection (v)(3)(A).
       ``(B) Individual described.--An individual described in 
     this subparagraph is an individual who is a policyholder or 
     certificate holder of a medicare supplemental policy issued 
     by an issuer who is not going to offer a policy with a 
     benefit package established under paragraph (1).
       ``(C) 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) Prohibition of sale of enhanced policies to original 
     medicare fee-for-service enrollees; prohibition of sale of 
     original policies to enhanced medicare fee-for-service 
     enrollees.--
       ``(A) Prohibition.--No person may sell, issue, or renew a 
     medicare supplemental policy with--
       ``(i) a benefit package established under this subsection 
     to an individual who has not elected to receive enhanced 
     medicare benefits under part E; or
       ``(ii) a benefit package classified as `A' through `J' 
     under the standards established by subsection (p)(2) 
     (including the benefit packages classified as `F' and `J' 
     with a high deductible feature, as described in subsection 
     (p)(11)) to an individual who has elected to receive enhanced 
     medicare benefits under part E.
       ``(B) Penalty.--Any person who violates the provisions of 
     subparagraph (A) shall be subject to a civil money penalty in 
     an amount that does not exceed $25,000 (or $15,000 in the 
     case of a seller who is not an issuer of a policy) for each 
     such violation. The provisions of section 1128A (other than 
     the first sentence of subsection (a) and other than 
     subsection (b)) shall apply to a civil money penalty under 
     the previous sentence in the same manner as such provisions 
     apply to a penalty or proceeding under section 1128A(a).
       ``(6) Other prohibitions and penalties.--Each penalty under 
     this section shall apply with respect to policies established 
     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).''.

                 TITLE III--MEDICARE+CHOICE COMPETITION

     SEC. 301. ANNUAL CALCULATION OF BENCHMARK AMOUNTS BASED ON 
                   FLOOR RATES AND LOCAL FEE-FOR-SERVICE RATES.

       (a) Annual Calculation of Benchmark Amounts Based on Floor 
     Rates and Local Fee-For-Service Rates.--Section 1853(a) (42 
     U.S.C. 1395w-23(a)) is amended by adding at the end the 
     following new paragraph:
       ``(4) Annual calculation of benchmark amounts.--For each 
     year, the Secretary shall calculate a benchmark amount for 
     each Medicare+Choice payment area for each month for such 
     year with respect to coverage of enhanced medicare benefits 
     under part E equal to the greatest of the following amounts:
       ``(A) Minimum amount.--\1/12\ of the annual Medicare+Choice 
     capitation rate determined under subsection (c)(1)(B) for the 
     payment area for the year; or
       ``(B) Local fee-for-service rate.--The local fee-for-
     service rate for such area for the year (as calculated under 
     paragraph (5)).''.
       (b) Annual Calculation of Local Fee-For-Service Rates.--
     Section 1853(a) (42 U.S.C. 1395w-23(a)), as amended by 
     subsection (a), is amended by adding at the end the following 
     new paragraph:
       ``(5) Annual calculation of local fee-for-service rates.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), 
     the term `local fee-for-service rate' means the amount of 
     payment for a month in a Medicare+Choice payment area for 
     benefits under this title and associated claims processing 
     costs for an individual who has elected to receive enhanced 
     medicare benefits under part E (but, if the Medicare+Choice 
     plan offers prescription drug coverage, excluding any costs 
     associated with part D), and not enrolled in a 
     Medicare+Choice plan under this part. The Secretary shall 
     annually calculate such amount in a manner similar to the 
     manner in which the Secretary calculated the adjusted average 
     per capita cost under section 1876, except that such 
     calculation shall include in such amount, to the extent 
     practicable, any amounts that would have been paid under this 
     title if individuals entitled to benefits under this title 
     had not received services from facilities of the Department 
     of Veterans Affairs or the Department of Defense.
       ``(B) Removal of medical education costs from calculation 
     of local fee-for-service rate.--
       ``(i) In general.--In calculating the local fee-for-service 
     rate under subparagraph (A) for a year, the amount of payment 
     described in such subparagraph shall be adjusted to exclude 
     from such payment the payment adjustments described in clause 
     (ii).
       ``(ii) Payment adjustments described.--

       ``(I) In general.--Subject to subclause (II), the payment 
     adjustments described in this subparagraph are payment 
     adjustments that the Secretary estimates were payable during 
     each month for direct graduate medical education costs under 
     section 1886(h).
       ``(II) Treatment of payments covered under state hospital 
     reimbursement system.--To the extent that the Secretary 
     estimates that the amount of the local fee-for-service rates 
     reflects payments to hospitals reimbursed under section 
     1814(b)(3), the Secretary shall estimate a payment adjustment 
     that is comparable to the payment adjustment that would have 
     been made under clause (i) if the hospitals had not been 
     reimbursed under such section.

       ``(C) Special rule for rural areas.--
       ``(i) In general.--Subject to clause (ii), in calculating 
     the local fee-for-service rates under subparagraph (A) for a 
     year, the Secretary shall calculate such costs for rural 
     areas (as defined in section 1886(d)(2)(D)) of a State as if 
     each rural area were part of a single Medicare+Choice payment 
     area.
       ``(ii) Limitation.--Payment amounts determined under 
     subparagraph (A) may not be less than the amounts that would 
     have been paid if clause (i) did not apply.''.
       (c) CPI Increases in Floor Payment Rates.--Section 
     1853(c)(1)(B) (42 U.S.C. 1395w-23(c)(1)(B)) is amended--
       (1) in clause (iv), by striking ``and each succeeding 
     year,'' and inserting ``, 2003, and 2004,''; and
       (2) by adding at the end the following new clause:
       ``(v) For 2005 and each succeeding year, the minimum amount 
     specified in this clause (or clause (iv)) for the preceding 
     year increased by the percentage increase in the Consumer 
     Price Index for all urban consumers (U.S. urban average) for 
     the 12-month period ending with June of the previous year.''.
       (d) Furnishing of Claims Data by VA and DoD.--Upon the 
     request of the Secretary of Health and Human Services, the 
     Secretary of Veterans Affairs and the Secretary of Defense 
     shall provide such claims data as the Secretary of Health and 
     Human Services may require to determine the amount that would 
     have been paid under the medicare program under title XVIII 
     of the Social Security Act if individuals entitled to 
     benefits under such program had not received services from 
     facilities of the Department of Veterans Affairs or the 
     Department of Defense for purposes calculating the amounts 
     under section 1853(a)(5) of such Act (as added by subsection 
     (b)) and section 1853(c)(8) of such Act (as added by section 
     312(b)).

     SEC. 302. APPLICATION OF COMPREHENSIVE RISK ADJUSTMENT 
                   METHODOLOGY.

       Section 1853(a)(3) is amended to read as follows:
       ``(3) Comprehensive risk adjustment methodology.--
       ``(A) Application of methodology.--The Secretary shall 
     apply the comprehensive risk adjustment methodology described 
     in subparagraph (B) to 100 percent of the amount of the plan 
     bids under section 1853(d)(1) and the weighted service area 
     benchmark amounts calculated under section 1853(d)(3).
       ``(B) Comprehensive risk adjustment methodology 
     described.--The comprehensive risk adjustment methodology 
     described in this subparagraph is the risk adjustment 
     methodology that would apply with respect to Medicare+Choice 
     plans offered by Medicare+Choice organizations in 2004, 
     except that if such methodology does not apply to groups of 
     beneficiaries who are aged or disabled and groups of 
     beneficiaries who have end-stage renal disease, the Secretary 
     shall revise such methodology to apply to such groups.
       ``(C) Uniform application to all types of plans.--Subject 
     to section 1859(e)(4), the comprehensive risk adjustment 
     methodology established under this paragraph shall be applied 
     uniformly without regard to the type of plan.
       ``(D) Data collection.--In order to carry out this 
     paragraph, the Secretary shall require Medicare+Choice 
     organizations to submit such data and other information as 
     the Secretary deems necessary.
       ``(E) Improvement of payment accuracy.--Notwithstanding any 
     other provision of this paragraph, the Secretary may revise 
     the comprehensive risk adjustment methodology described in 
     subparagraph (B) from time to time to improve payment 
     accuracy.''.

     SEC. 303. ANNUAL ANNOUNCEMENT OF BENCHMARK AMOUNTS AND OTHER 
                   PAYMENT FACTORS.

       Section 1853(b) (42 U.S.C. 1395w-23(b)), as amended by 
     section 532(d)(1) of the Public Health Security and 
     Bioterrorism Preparedness and Response Act of 2002 (Public 
     Law 107-188; 116 Stat. 696), is amended--
       (1) in the heading, by striking ``Payment Rates'' and 
     inserting ``Payment Factors'';
       (2) by striking paragraph (1) and inserting the following:
       ``(1) Annual announcement.--Beginning in 2004, at the same 
     time as the Secretary publishes the risk adjusters under 
     section 1860D-11, the Secretary shall annually announce (in a 
     manner intended to provide notice to interested parties) the 
     following payment factors:
       ``(A) The benchmark amount for each Medicare+Choice payment 
     area (as calculated under subsection (a)(4)) for the year.

[[Page S7077]]

       ``(B) The factors to be used for adjusting payments under 
     the comprehensive risk adjustment methodology described in 
     subsection (a)(3)(B) with respect to each Medicare+Choice 
     payment area for the year.'';
       (3) in paragraph (3), by striking ``monthly adjusted'' and 
     all that follows before the period at the end and inserting 
     ``each payment factor described in paragraph (1)''; and
       (4) by striking paragraph (4).

     SEC. 304. SUBMISSION OF BIDS BY MEDICARE+CHOICE 
                   ORGANIZATIONS.

       Section 1854(a) (42 U.S.C. 1395w-24(a)), as amended by 
     section 532(b)(1) of the Public Health Security and 
     Bioterrorism Preparedness and Response Act of 2002 (Public 
     Law 107-188; 116 Stat. 696), is amended to read as follows:
       ``(a) Submission of Bids by Medicare+Choice 
     Organizations.--
       ``(1) In general.--Not later than the second Monday in 
     September (or July 1 of each year before 2002) and except as 
     provided in paragraph (3), each Medicare+Choice organization 
     shall submit to the Secretary, in such form and manner as the 
     Secretary may specify, for each Medicare+Choice plan that the 
     organization intends to offer in a service area in the 
     following year--
       ``(A) notice of such intent and information on the service 
     area of the plan;
       ``(B) the plan type for each plan;
       ``(C) if the Medicare+Choice plan is a coordinated care 
     plan (as described in section 1851(a)(2)(A)) or a private 
     fee-for-service plan (as described in section 1851(a)(2)(C)), 
     the information described in paragraph (2) with respect to 
     each payment area;
       ``(D) the enrollment capacity (if any) in relation to the 
     plan and each payment area;
       ``(E) the expected mix, by health status, of enrolled 
     individuals; and
       ``(F) such other information as the Secretary may specify.
       ``(2) Information required for coordinated care plans and 
     private fee-for-service plans.--For a Medicare+Choice plan 
     that is a coordinated care plan (as described in section 
     1851(a)(2)(A)) or a private fee-for-service plan (as 
     described in section 1851(a)(2)(C)), the information 
     described in this paragraph is as follows:
       ``(A) Information required with respect to benefits under 
     part e.--Information relating to the coverage of benefits 
     under part E as follows:
       ``(i) The plan bid, which shall consist of a dollar amount 
     that represents the total amount that the plan is willing to 
     accept (after the application of the comprehensive risk 
     adjustment methodology under section 1853(a)(3)) for 
     providing coverage of the benefits under part E to an 
     individual enrolled in the plan that resides in the service 
     area of the plan for a month.
       ``(ii) For the supplemental benefits package offered (if 
     any)--

       ``(I) the adjusted community rate (as defined in subsection 
     (g)(3)) of the package;
       ``(II) the Medicare+Choice monthly supplemental beneficiary 
     premium (as defined in subsection (b)(2)(C));
       ``(III) a description of any cost-sharing; and
       ``(IV) such other information as the Secretary considers 
     necessary.

       ``(iii) The assumptions that the Medicare+Choice 
     organization used in preparing the plan bid with respect to 
     numbers, in each payment area, of enrolled individuals and 
     the mix, by health status, of such individuals.
       ``(B) Information required with respect to part d.--If the 
     Medicare+Choice organization elects to offer prescription 
     drug coverage, the information required to be submitted by an 
     eligible entity under section 1860D-12, including the monthly 
     premiums for standard coverage and any other qualified 
     prescription drug coverage available to individuals enrolled 
     under part D.
       ``(3) Requirements for msa plans.--For an MSA plan 
     described in section 1851(a)(2)(B), the information described 
     in this paragraph is the information that such a plan would 
     have been required to submit under this part if the 21st 
     Century Medicare Act had not been enacted.
       ``(4) Review.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall review the adjusted community rates (as 
     defined in section 1854(g)(3)), the amounts of the 
     Medicare+Choice monthly basic and supplemental beneficiary 
     premiums filed under this subsection and shall approve or 
     disapprove such rates and amounts so submitted. The Chief 
     Actuary of the Medicare Competitive Agency shall review the 
     actuarial assumptions and data used by the Medicare+Choice 
     organization with respect to such rates and amounts so 
     submitted to determine the appropriateness of such 
     assumptions and data.
       ``(B) Exception.--The Secretary shall not review, approve, 
     or disapprove the amounts submitted under paragraph (3).''.

     SEC. 305. ADJUSTMENT OF PLAN BIDS; COMPARISON OF ADJUSTED BID 
                   TO BENCHMARK; PAYMENT AMOUNT.

       (a) In General.--Section 1853 (42 U.S.C. 1395w-23) is 
     amended--
       (1) by redesignating subsections (d) through (i) as 
     subsections (e) through (j), respectively; and
       (2) by inserting after subsection (c) the following new 
     subsection:
       ``(d) Secretary's Determination of Payment Amount for 
     Enhanced Medicare Benefits.--
       ``(1) Adjustment of plan bids.--The Secretary shall adjust 
     each plan bid submitted under section 1854(a) for the 
     coverage of benefits under part E using the comprehensive 
     risk adjustment methodology applicable under subsection 
     (a)(3) based on the assumptions described in section 
     1854(a)(2)(A)(iii) that the plan used with respect to numbers 
     of enrolled individuals.
       ``(2) Determination of weighted service area benchmark 
     amounts.--The Secretary shall calculate a weighted service 
     area benchmark amount for enhanced medicare benefits under 
     part E for each plan equal to the weighted average of the 
     benchmark amounts for enhanced medicare benefits under such 
     part for the payment areas included in the service area of 
     the plan using the assumptions described in section 
     1854(a)(2)(A)(iii) that the plan used with respect to numbers 
     of enrolled individuals.
       ``(3) Determination of plan benchmark.--The Secretary shall 
     calculate the plan benchmark amount by adjusting the weighted 
     service area benchmark amount determined under paragraph (1) 
     using--
       ``(A) the comprehensive risk adjustment methodology 
     applicable under subsection (a)(3); and
       ``(B) the assumptions contained in the plan bid that the 
     plan used with respect to numbers of enrolled individuals.
       ``(4) Comparison to benchmark.--The Secretary shall 
     determine the difference between each plan bid (as adjusted 
     under paragraph (1)) and the plan benchmark amount (as 
     determined under paragraph (3)) for purposes of determining--
       ``(A) the payment amount under paragraph (5); and
       ``(B) the part E premium reductions and Medicare+Choice 
     monthly basic beneficiary premiums.
       ``(5) Determination of payment amount.--The Secretary shall 
     determine the payment amount for plans as follows:
       ``(A) Bids that equal or exceed the benchmark.--The amount 
     of each monthly payment to a Medicare+Choice organization 
     with respect to each individual enrolled in a plan shall be 
     the plan benchmark amount.
       ``(B) Bids below the benchmark.--The amount of each monthly 
     payment to a Medicare+Choice organization with respect to 
     each individual enrolled in a plan shall be the plan 
     benchmark amount reduced by 25 percent of the difference 
     between the bid and the benchmark amount and further reduced 
     by the amount of any premium reduction elected by the plan 
     under section 1854(d)(1)(A)(i).
       ``(6) Factors used in adjusting bids and benchmarks for 
     medicare+choice organizations and in determining enrollee 
     premiums.--Subject to paragraph (7), the Secretary shall use, 
     for purposes of adjusting plan bids and calculating plan 
     benchmarks under this subsection--
       ``(A) with respect to benefits under part E--
       ``(i) the benchmark amount for the Medicare+Choice payment 
     area announced under section 1854(a)(1)(A); and
       ``(ii) the health status and other demographic adjustment 
     factors for the Medicare+Choice payment area announced under 
     section 1854(a)(1)(B); and
       ``(B) if the Medicare+Choice organization elects to offer 
     prescription drug coverage, the risk adjusters published 
     under section 1860D-11 applicable with respect to such 
     coverage.
       ``(7) Adjustment for national coverage determinations and 
     legislative changes in benefits.--If the Secretary makes a 
     determination with respect to coverage under this title or 
     there is a change in benefits required to be provided under 
     this part that the Secretary projects will result in a 
     significant increase in the costs to Medicare+Choice 
     organizations of providing benefits under contracts under 
     this part (for periods after any period described in section 
     1852(a)(5)), the Secretary shall appropriately adjust the 
     benchmark amounts or payment amounts (as determined by the 
     Secretary). Such projection and adjustment shall be based on 
     an analysis by the Chief Actuary of the Competitive Medicare 
     Agency of the actuarial costs associated with the new 
     benefits.''.
       (b) Conforming Amendment.--Section 1853(c)(7) (42 U.S.C. 
     1395w-23(c)(7)) is repealed.

     SEC. 306. DETERMINATION OF PREMIUM REDUCTIONS, REDUCED COST-
                   SHARING, ADDITIONAL BENEFITS, AND BENEFICIARY 
                   PREMIUMS.

       (a) Calculation of Beneficiary Premiums.--Section 1854 (42 
     U.S.C. 1395-24) is amended by--
       (1) redesignating subsections (d) through (h) as 
     subsections (e) through (i), respectively; and
       (2) inserting after subsection (c) the following new 
     subsection:
       ``(d) Determination of Premium Reductions, Reduced Cost-
     Sharing, Additional Benefits, and Beneficiary Premiums.--
       ``(1) Bids below the benchmark.--
       ``(A) In general.--If the Secretary determines under 
     section 1853(d)(4) that the plan benchmark amount exceeds the 
     plan bid, the Secretary shall require the plan to return 75 
     percent of such excess to the enrollee in the form of, at the 
     option of the organization offering the plan--
       ``(i) subject to subparagraph (B), a monthly medicare 
     premium reduction for individuals enrolled in the plan;
       ``(ii) a reduction in the actuarial value of plan cost-
     sharing for plan enrollees;

[[Page S7078]]

       ``(iii) subject to subparagraph (C), such additional 
     benefits as the organization may specify; or
       ``(iv) any combination of the reductions and benefits 
     described in clauses (i) through (iii).
       ``(B) Limitation on premium reductions.--The amount of the 
     reduction under subparagraph (A)(i) with respect to any 
     enrollee in a Medicare+Choice plan--
       ``(i) may not exceed the premium described in section 
     1839(a)(3), as adjusted under section 1860E-5; and
       ``(ii) shall apply uniformly to each enrollee of the 
     Medicare+Choice plan to which such reduction applies.
       ``(C) Requirement of enrollment in part d to receive 
     prescription drug benefits.--An organization may not specify 
     any additional benefit that provides for the coverage of any 
     prescription drug (other than that required under part E).
       ``(2) Bids above the benchmark.--If the Secretary 
     determines under section 1853(d)(4) that the plan bid (as 
     adjusted under section 1853(d)(1)) exceeds the plan benchmark 
     amount (determined under section 1853(d)(3)), the amount of 
     such excess shall be the Medicare+Choice monthly basic 
     beneficiary premium (as defined in section 1854(b)(2)(A)).''.
       (b) Conforming Part E Premium Reduction Amendments.--
       (1) Adjustment and payment of part e premiums.--Section 
     1860E-5 (as added by section 201) is amended--
       (A) in subsection (a), by inserting ``, except as reduced 
     by the amount of any reduction elected under section 
     1854(d)(1)(A)(i)'' before the period at the end; and
       (B) by adding at the end the following new subsection:
       ``(c) Medicare+Choice Premium Reductions.--In the case of 
     an individual enrolled in a Medicare+Choice plan, the 
     Secretary shall reduce (but not below zero) the amount of the 
     monthly beneficiary premium to reflect any reduction elected 
     under section 1854(d)(1)(A)(i). Such premium adjustment may 
     be provided in such manner as the Secretary may specify.''.
       (2) Treatment of reduction for purposes of determining 
     government contribution under part e.--Section 1844(c) (42 
     U.S.C. 1395w) is amended by striking ``section 
     1854(f)(1)(E)'' and inserting ``section 1854(d)(1)(A)(i)''.
       (c) Sunset of Specific Requirements for Additional 
     Benefits.--Section 1854(g) (as redesignated by subsection 
     (a)(1)) is amended--
       (1) in paragraph (1)(A), by striking ``Each Medicare+Choice 
     organization'' and inserting ``For years before 2005, each 
     Medicare+Choice organization''; and
       (2) in paragraph (2), by striking ``A Medicare+Choice 
     organization'' and inserting ``For years before 2005, a 
     Medicare+Choice organization''.
       (d) Limitation on Enrollee Liability.--
       (1) For benefits under part e.--Section 1854(f)(1) (as 
     redesignated by subsection (a)(1)) is amended to read as 
     follows:
       ``(1) For enhanced medicare benefits.--The sum of--
       ``(A) the Medicare+Choice monthly basic beneficiary premium 
     (multiplied by 12) and the actuarial value of the 
     deductibles, coinsurance, and copayments (taking into account 
     any reductions in cost-sharing described in subsection 
     (d)(1)(A)(ii)) applicable on average to individuals enrolled 
     under this part with a Medicare+Choice plan described in 
     subparagraph (A) or (C) of section 1851(a)(2) of an 
     organization with respect to required benefits described in 
     section 1852(a)(1)(A) and any additional benefits described 
     in subsection (a)(2)(A)(iii) for a year; must equal
       ``(B) the actuarial value of the deductibles, coinsurance, 
     and copayments that would be applicable on average to 
     individuals who have elected to receive enhanced medicare 
     benefits under part E if they were not members of a 
     Medicare+Choice organization for the year (adjusted as 
     determined appropriate by the Secretary to account for 
     geographic differences and for plan cost and utilization 
     differences).''.
       (2) For supplemental benefits.--Section 1854(f)(2) (as so 
     redesignated) is amended to read as follows:
       ``(2) For supplemental benefits.--If the Medicare+Choice 
     organization provides to its members enrolled under this part 
     in a Medicare+Choice plan described in subparagraph (A) or 
     (C) of section 1851(a)(2) with respect to supplemental 
     benefits relating to benefits under part E described in 
     section 1852(a)(3)(A), the sum of the Medicare+Choice monthly 
     supplemental beneficiary premium (multiplied by 12) charged 
     and the actuarial value of its deductibles, coinsurance, and 
     copayments charged with respect to such benefits for a year 
     must equal the adjusted community rate (as defined in 
     subsection (g)(3)) for such benefits for the year.''.
       (e) Premiums Charged; Premium Terminology.--Section 1854(b) 
     (42 U.S.C. 1395w-24) is amended to read as follows:
       ``(b) Monthly Premiums Charged.--
       ``(1) In general.--
       ``(A) Coordinated care and private fee-for-service plans.--
     The monthly amount of the premium charged to an individual 
     enrolled in a Medicare+Choice plan (other than an MSA plan) 
     offered by a Medicare+Choice organization shall be equal to 
     the sum of the following:
       ``(i) The Medicare+Choice monthly basic beneficiary premium 
     (if any).
       ``(ii) The Medicare+Choice monthly supplemental beneficiary 
     premium (if any).
       ``(iii) The Medicare+Choice monthly obligation for 
     qualified prescription drug coverage (if any).
       ``(B) MSA plans.--The rules under this section that would 
     have applied with respect to an MSA plan if the 21st Century 
     Medicare Act had not been enacted shall continue to apply to 
     MSA plans after the date of enactment of such Act.
       ``(2) Premium terminology.--For purposes of this part:
       ``(A) Medicare+choice monthly basic beneficiary premium.--
     The term `Medicare+Choice monthly basic beneficiary premium' 
     means, with respect to a Medicare+Choice plan, the amount 
     required to be charged under subsection (d)(2) for the plan.
       ``(B) Medicare+choice monthly obligation for qualified 
     prescription drug coverage.--The term `Medicare+Choice 
     monthly obligation for qualified prescription drug coverage' 
     means, with respect to a Medicare+Choice plan, the amount 
     determined under section 1853(k)(3).
       ``(C) Medicare+choice monthly supplemental beneficiary 
     premium.--The term `Medicare+Choice monthly supplemental 
     beneficiary premium' means, with respect to a Medicare+Choice 
     plan, the amount required to be charged under subsection 
     (f)(2) for the plan, or, in the case of an MSA plan, the 
     amount filed under subsection (a)(3).
       ``(D) Medicare+choice monthly msa premium.--The term 
     `Medicare+Choice monthly MSA premium' means, with respect to 
     a Medicare+Choice plan, the amount of such premium filed 
     under subsection (a)(3) for the plan.''.
       (f) Conforming Amendments.--
       (1) Section 1851(d)(2)(D) (42 U.S.C. 1395w-21(d)(2)(D)) is 
     amended by inserting ``and Medicare+Choice monthly obligation 
     for qualified prescription drug coverage'' after 
     ``Medicare+Choice monthly basic and supplemental beneficiary 
     premiums''.
       (2) Section 1851(g)(3)(B)(i) (42 U.S.C. 1395w-
     21(g)(3)(B)(i)) is amended by striking ``any Medicare+Choice 
     monthly basic and supplemental beneficiary premiums'' and 
     inserting ``any Medicare+Choice monthly basic beneficiary 
     premium, Medicare+Choice monthly obligation for qualified 
     prescription drug coverage, Medicare+Choice monthly 
     supplemental beneficiary premium,''.
       (3) Section 1852(c)(1)(F) (42 U.S.C. 1395w-22(c)(1)(F)) is 
     amended to read as follows:
       ``(F) Supplemental benefits.--Supplemental benefits 
     available from the organization offering the plan, including 
     the supplemental benefits covered and the Medicare+Choice 
     monthly supplemental beneficiary premium for such 
     benefits.''.
       (4) Section 1853(f)(1) (as redesignated by section 305(1)) 
     is amended by striking ``(as defined in section 
     1854(b)(2)(C))'' and inserting ``(as defined in section 
     1854(b)(2)(D))''.
       (5) Section 1854(c) (42 U.S.C. 1395w-24(c)) is amended by 
     striking ``The Medicare+Choice monthly basic and supplemental 
     beneficiary premium'' and inserting ``The Medicare+Choice 
     monthly basic beneficiary premium, the Medicare+Choice 
     monthly obligation for qualified prescription drug coverage, 
     or the Medicare+Choice monthly supplemental beneficiary 
     premium''.
       (6) Section 1854(e) (as redesignated by subsection (a)(1)) 
     is amended by inserting ``and the Medicare+Choice monthly 
     obligation for qualified prescription drug coverage'' after 
     ``Medicare+Choice monthly basic and supplemental beneficiary 
     premiums''.
       (7) Section 1859(c)(4) (42 U.S.C. 1395w-28(c)(4)) is 
     amended to read as follows:
       ``(4) Medicare+choice monthly basic beneficiary premium; 
     medicare+choice monthly obligation for qualified prescription 
     drug coverage; medicare+choice monthly supplemental 
     beneficiary premium.--The terms `Medicare+Choice monthly 
     basic beneficiary premium', `Medicare+Choice monthly 
     obligation for qualified prescription drug coverage', and 
     `Medicare+Choice monthly supplemental beneficiary premium' 
     are defined in section 1854(b)(2).''.

     SEC. 307. ELIGIBILITY, ELECTION, AND ENROLLMENT IN 
                   COMPETITIVE MEDICARE+CHOICE PLANS.

       (a) Eligibility.--Section 1851(a)(3) is amended to read as 
     follows:
       ``(3) Medicare+choice eligible individual.--In this title, 
     the term `Medicare+Choice eligible individual' means an 
     individual who--
       ``(A) is entitled to benefits under part A and enrolled 
     under part B; and
       ``(B) has elected to receive enhanced medicare benefits 
     under part E.''.
       (b) Elections.--
       (1) In general.--Section 1851(a)(1)(A) is amended by 
     inserting ``(including through the election of enhanced 
     medicare benefits under part E) and, if elected by the 
     beneficiary and offered by the Medicare+Choice plan, through 
     the voluntary prescription drug delivery program under part 
     D'' after ``parts A and B''.
       (2) Default election.--Section 1851(c)(3) (42 U.S.C. 1395w-
     21(c)(3)) is amended by inserting ``to receive enhanced 
     medicare benefits under part E of the'' after ``deemed to 
     have chosen''.
       (3) Coverage election periods.--Section 1851(e)(1) (42 
     U.S.C. 1395w-21(e)(1)) is amended by striking ``entitled to 
     benefits under part A and enrolled under part B'' and 
     inserting ``eligible to elect to receive enhanced medicare 
     benefits under part E''.

[[Page S7079]]

       (4) Guaranteed issuance and renewal.--Section 1851(g)(3)(C) 
     (42 U.S.C. 1395w-21(g)(3)(C)) is amended--
       (A) in clause (i), by inserting ``elected to receive 
     enhanced medicare benefits under part E of the'' after 
     ``deemed to have''; and
       (B) in clause (ii), by striking ``deemed to have chosen to 
     change coverage to'' and inserting ``deemed to have elected 
     to receive enhanced medicare benefits under part E through 
     the''.
       (5) Effect of election of medicare+choice plan option.--
     Section 1851(i) (42 U.S.C. 1395w-21(i)) is amended--
       (A) in paragraph (1)--
       (i) by striking ``1853(g), 1853(h)'' and inserting 
     ``1853(h), 1853(i)''; and
       (ii) by inserting ``(as modified under part E)'' after 
     ``parts A and B''; and
       (B) in paragraph (2), by striking ``1853(e), 1853(g), 
     1853(h)'' and inserting ``1853(f), 1853(h), 1853(i)''.
       (c) Providing Information To Promote Informed Choice.--
       (1) General information on benefits.--Section 1851(d)(3) 
     (42 U.S.C. 1395w-21(d)(3)) is amended--
       (A) by striking subparagraph (A) and inserting the 
     following:
       ``(A) Benefits under enhanced medicare fee-for-service 
     program option.--A general description of the enhanced 
     medicare benefits covered under the original medicare fee-
     for-service program under parts A and B for individuals who 
     have elected to receive such benefits under part E, 
     including--
       ``(i) covered items and services;
       ``(ii) beneficiary cost-sharing, such as deductibles, 
     coinsurance, and copayment amounts; and
       ``(iii) any beneficiary liability for balance billing.'';
       (B) by redesignating subparagraphs (B) through (E) as 
     subparagraphs (C) through (F), respectively;
       (C) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Outpatient prescription drug coverage benefits.--For 
     Medicare+Choice eligible individuals who are enrolled under 
     part D, the information required under section 1860D-4 if the 
     Medicare+Choice organization elects to offer prescription 
     drug coverage.''; and
       (D) in subparagraph (D) (as redesignated by subparagraph 
     (B)), by inserting ``(with the enhanced medicare benefits 
     under part E)'' after ``the original medicare fee-for-service 
     program''.
       (2) Information comparing plan options.--Section 1851(d)(4) 
     (42 U.S.C. 1395w-21(d)(4)) is amended--
       (A) in subparagraph (A), by adding at the end the following 
     new clause:
       ``(ix) For Medicare+Choice eligible individuals who are 
     enrolled under part D, the comparative information described 
     in section 1860D-4(b)(2) if the Medicare+Choice organization 
     elects to offer prescription drug coverage.''; and
       (B) in subparagraph (D), by inserting ``with respect to 
     eligible beneficiaries who elect to receive enhanced medicare 
     benefits under part E'' after ``under parts A and B''.

     SEC. 308. BENEFITS AND BENEFICIARY PROTECTIONS UNDER 
                   COMPETITIVE MEDICARE+CHOICE PLANS.

       (a) Basic Benefits.--Section 1852(a) (42 U.S.C. 1395w-
     22(a)(1)(A)) is amended--
       (1) in paragraph (1)--
       (A) by striking subparagraph (A) and inserting the 
     following new subparagraph:
       ``(A) those items and services (other than hospice care) 
     for which benefits are available under parts A and B to 
     individuals residing in the area served by the plan and who 
     have elected to receive enhanced medicare benefits under part 
     E;'';
       (B) by redesignating subparagraph (B) as subparagraph (C);
       (C) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) if the Medicare+Choice organization elects to offer 
     prescription drug coverage, prescription drug coverage under 
     part D to individuals who are enrolled under that part and 
     who reside in the area served by the plan; and''; and
       (D) in subparagraph (C) (as redesignated by paragraph (2)), 
     by striking ``1854(f)(1)(A)'' and inserting ``1854(d)(1)'';
       (2) in paragraph (2), by striking ``parts A and B 
     (including any balance billing permitted under such parts'' 
     and inserting ``part E (including any balance billing 
     permitted under such part'';
       (3) in paragraph (3), by adding at the end the following 
     new subparagraph:
       ``(D) Requirement of enrollment in part d to receive 
     prescription drug benefits.--Notwithstanding the preceding 
     provisions of this paragraph, the Secretary may not approve 
     any supplemental health care benefit that provides for the 
     coverage of any prescription drug (other than that required 
     under part E).''; and
       (4) in paragraph (5), by striking ``Health Care Financing 
     Administration'' and inserting ``Medicare Competitive 
     Agency'' in the flush matter following subparagraph (B).
       (b) ESRD Antidiscrimination.--Section 1852(b)(1) (42 U.S.C. 
     1395w-22(b)(1)) is amended to read as follows:
       ``(1) Beneficiaries.--A Medicare+Choice organization may 
     not deny, limit, or condition the coverage or provision of 
     benefits under this part, for individuals permitted to be 
     enrolled with the organization under this part, based on any 
     health status-related factor described in section 2702(a)(1) 
     of the Public Health Service Act.''.
       (c) Disclosure Requirements.--Section 1852(c)(1)(B) (42 
     U.S.C. 1395w-22(c)(1)(B)) is amended by striking ``section 
     1851(d)(3)(A)'' and inserting ``subparagraphs (A) and (B) of 
     section 1851(d)(3)''.
       (d) Assuring Access to Services in Medicare+Choice Private 
     Fee-For-Service Plans.--Section 1852(d)(4)(A) is amended by 
     striking ``part A, part B, or both, for such services, or'' 
     and inserting ``part E for such services (and, if the 
     Medicare+Choice organization elects to offer prescription 
     drug coverage, that are not less than the payment rates 
     provided under part D for such services for Medicare+Choice 
     eligible individuals enrolled under that part); or''.
       (e) Information on Beneficiary Liability for 
     Medicare+Choice Private Fee-For-Service Plans.--Section 
     1852(k)(2)(C)(i) (42 U.S.C. 1395w-22(k)(2)(C)(i)) is amended 
     by striking ``parts A and B'' and inserting ``part E, under 
     part D for individuals enrolled under that part (if the 
     Medicare+Choice organization elects to offer prescription 
     drug coverage),''.

     SEC. 309. PAYMENTS TO MEDICARE+CHOICE ORGANIZATIONS FOR 
                   ENHANCED MEDICARE BENEFITS UNDER PART E BASED 
                   ON RISK-ADJUSTED BIDS.

       (a) In General.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-
     23(a)(1)(A)) is amended to read as follows:
       ``(1) Monthly payments.--Under a contract under section 
     1857 and subject to subsections (f), (h), and (j) and section 
     1859(e)(4), the Secretary shall make, to each Medicare+Choice 
     organization, with respect to coverage of an individual for a 
     month under this part in a Medicare+Choice payment area, 
     separate monthly payments with respect to--
       ``(A) enhanced medicare benefits under part E in accordance 
     with subsection (d); and
       ``(B) if the Medicare+Choice organization elects to offer 
     prescription drug coverage, benefits under part D in 
     accordance with subsection (k) for individuals enrolled under 
     that part.''.
       (b) Conforming Amendment.--Section 1853(g)(1)(A) (42 U.S.C. 
     1395w-23(g)(1)(A)) is amended by inserting ``as part of the 
     enhanced medicare benefits elected under part E of'' before 
     ``the original medicare fee-for-service program option''.

     SEC. 310. SEPARATE PAYMENTS TO MEDICARE+CHOICE ORGANIZATIONS 
                   FOR PART D BENEFITS.

       (a) In General.--Section 1853 (42 U.S.C. 1395w-27) is 
     amended by adding at the end the following new subsection:
       ``(k) Availability of Prescription Drug Benefits.--
       ``(1) Scope of prescription drug benefits.--
       ``(A) Availability of standard coverage.--If a 
     Medicare+Choice organization elects to offer prescription 
     drug coverage under a Medicare+Choice plan, such organization 
     shall make such coverage (other than that required under part 
     E) available to each enrollee under that plan who is also 
     enrolled under part D that includes only standard coverage 
     and that meets the requirements of this subsection.
       ``(B) Additional qualified prescription drug coverage.--In 
     addition to the standard coverage option made available to 
     each enrollee under paragraph (1), a Medicare+Choice plan may 
     make available to each enrollee that is also enrolled under 
     part D, other qualified prescription drug coverage (other 
     than that required under part E) that meets the requirements 
     of this subsection under a Medicare+Choice plan offered under 
     this part.
       ``(C) Requirement of enrollment in part d to receive 
     prescription drug benefits.--A Medicare+Choice organization 
     may not provide for the coverage of any prescription drugs 
     (other than that required under part E) to an enrollee unless 
     that enrollee is also enrolled under part D.
       ``(2) Payment of full amount of premium to organizations 
     for qualified prescription drug coverage.--For each year 
     (beginning with 2005), the Secretary shall pay to each 
     Medicare+Choice organization offering a Medicare+Choice plan 
     that provides qualified prescription drug coverage in which a 
     Medicare+Choice eligible individual is enrolled, an amount 
     equal to the full amount of the monthly premium submitted 
     under section 1854(a)(2)(B) on behalf of each such individual 
     enrolled in such plan for the year, as adjusted using the 
     risk adjusters that apply to the standard coverage under 
     section 1853(b)(4)(B).
       ``(3) Amount of medicare+choice monthly obligation for 
     qualified prescription drug coverage.--In the case of a 
     Medicare+Choice eligible individual receiving qualified 
     prescription drug coverage under a Medicare+Choice plan, the 
     obligation for qualified prescription drug coverage of such 
     individual in a year shall be determined as follows:
       ``(A) Premiums equal to the monthly national average.--If 
     the amount of the monthly premium for qualified prescription 
     drug coverage submitted under section 1854(a)(2)(B) for the 
     plan for the year is equal to the monthly national average 
     premium (as computed under section 1860D-15) for the year, 
     the monthly obligation of the individual in that year shall 
     be an amount equal to the applicable percent (as defined in 
     section 1860D-17(c)) of the amount of the monthly national 
     average premium.
       ``(B) Premiums that are less than the monthly national 
     average.--If the amount of the monthly premium for qualified 
     prescription drug coverage submitted under section 
     1854(a)(2)(B) for the plan for the year is

[[Page S7080]]

     less than the monthly national average premium (as computed 
     under section 1860D-15) for the year, the monthly obligation 
     of the individual in that year shall be an amount equal to--
       ``(i) the applicable percent (as defined in section 1860D-
     17(c)) of the amount of the monthly national average premium; 
     minus
       ``(ii) the amount by which the monthly national average 
     premium exceeds the amount of the premium submitted under 
     section 1854(a)(2)(B).
       ``(C) Premiums that are greater than the monthly national 
     average.--If the amount of the monthly premium for qualified 
     prescription drug coverage submitted under section 
     1854(a)(2)(B) for the plan for the year exceeds the monthly 
     national average premium (as computed under section 1860D-15) 
     for the year, the monthly obligation of the individual in 
     that year shall be an amount equal to the sum of--
       ``(i) the applicable percent (as defined in section 1860D-
     17(c)) of the amount of the monthly national average premium; 
     plus
       ``(ii) the amount by which the premium submitted under 
     section 1854(a)(2)(B) exceeds the amount of the monthly 
     national average premium.
       ``(4) Collection of medicare+choice monthly obligation for 
     qualified prescription drug coverage.--The provisions of 
     section 1860D-18, including subsection (b) of such section, 
     shall apply to the amount of the monthly premium required to 
     be paid by a Medicare+Choice eligible individual receiving 
     qualified prescription drug coverage under a Medicare+Choice 
     plan (as determined under paragraph (3)) in the same manner 
     as such provisions apply to the monthly beneficiary 
     obligation required to be paid by an eligible beneficiary 
     enrolled in a Medicare Prescription Drug plan.
       ``(5) Compliance with additional beneficiary protections.--
     With respect to the offering of qualified prescription drug 
     coverage by a Medicare+Choice organization under a 
     Medicare+Choice plan, the organization and plan shall meet 
     the requirements of section 1860D-5, including requirements 
     relating to information dissemination and grievance and 
     appeals, in the same manner as they apply to an eligible 
     entity and a Medicare Prescription Drug plan under part D. 
     The Secretary shall waive such requirements to the extent the 
     Secretary determines that such requirements duplicate 
     requirements otherwise applicable to the organization or plan 
     under this part.
       ``(6) Coverage of prescription drugs for enrollees in plans 
     that do not offer prescription drug coverage.--If an 
     individual who is enrolled under part D is enrolled in a 
     Medicare+Choice plan that does not offer prescription drug 
     coverage, such individual shall be permitted to enroll for 
     prescription drug coverage under such part in the same manner 
     as if such individual was not enrolled in a Medicare+Choice 
     plan.
       ``(7) Availability of premium subsidy and cost-sharing 
     reductions for low-income enrollees.--For provisions--
       ``(A) providing premium subsidies and cost-sharing 
     reductions for low-income individuals receiving qualified 
     prescription drug coverage through a Medicare+Choice plan, 
     see section 1860D-19; and
       ``(B) providing a Medicare+Choice organization with 
     insurance subsidy payments for providing qualified 
     prescription drug coverage through a Medicare+Choice plan, 
     see section 1860D-20.
       ``(8) Qualified prescription drug coverage; standard 
     coverage.--For purposes of this part, the terms `qualified 
     prescription drug coverage' and `standard coverage' have the 
     meanings given such terms in paragraphs (9) and (10), 
     respectively, of section 1860D.''.
       (b) Sanctions for Improper Prescription Drug Coverage.--
     Section 1857(g)(1) (42 U.S.C. 1395w-27(g)(1)) is amended--
       (1) in subparagraph (F), by striking ``or'' after the 
     semicolon at the end;
       (2) in subparagraph (G), by adding ``or'' after the 
     semicolon at the end; and
       (3) by adding at the end the following new subparagraph:
       ``(H) charges any individual an amount in excess of the 
     Medicare+Choice monthly obligation for qualified prescription 
     drug coverage under section 1853(k)(3), provides coverage for 
     prescription drugs that is not qualified prescription drug 
     coverage (as defined in section 1853(k)(7)), offers 
     prescription drug coverage, but does not make standard 
     prescription drug coverage available (as defined in such 
     section), or provides coverage for prescription drugs (other 
     than those covered under part E) to an individual who is not 
     enrolled under part D;''.

     SEC. 311. ADMINISTRATION BY THE MEDICARE COMPETITIVE AGENCY.

       On and after January 1, 2005, the Medicare+Choice program 
     under part C of title XVIII of the Social Security Act shall 
     be administered by the Medicare Competitive Agency in 
     accordance with subpart 3 of part D of such title (as added 
     by section 101), and, in accordance with section 1860D-
     25(c)(3)(C) of such Act (as added by section 101), each 
     reference to the Secretary made in this title, or the 
     amendments made by this title, shall be deemed to be a 
     reference to the Administrator of the Medicare Competitive 
     Agency.

     SEC. 312. CONTINUED CALCULATION OF ANNUAL MEDICARE+CHOICE 
                   CAPITATION RATES.

       (a) Continued Calculation.--
       (1) In general.--Section 1853(c) (as amended by subsection 
     (b)) is amended by adding at the end the following new 
     paragraph:
       ``(7) Transition to medicare+choice competition.--
       ``(A) In general.--For each year (beginning with 2005) 
     payments to Medicare+Choice plans shall not be computed under 
     this subsection, but instead shall be based on the payment 
     amount determined under subsection (d).
       ``(B) Continued calculation of capitation rates.--For each 
     year (beginning with 2004) the Secretary shall calculate and 
     publish the annual Medicare+Choice capitation rates under 
     this subsection and shall use the annual Medicare+Choice 
     capitation rate determined under subsection (c)(1)(B) for 
     purposes of determining the benchmark amount under subsection 
     (a)(4).''.
       (2) Conforming amendment.--Section 1853(c)(1) (42 U.S.C. 
     1395w-23(c)(1)) is amended by striking ``For purposes of this 
     part, subject to paragraphs (6)(C) and (7),'' and inserting 
     ``For purposes of making payments under this part for years 
     before 2004 and for purposes of calculating the annual 
     Medicare+Choice capitation rates under paragraph (7) 
     beginning with such year, subject to paragraph (6)(C),'' in 
     the matter preceding subparagraph (A).
       (b) Inclusion of Costs of VA and DoD Military Facility 
     Services in Continued Calculation.--Section 1853(c) (42 
     U.S.C. 1395w-23(c)), as amended by subsection (a)(1), is 
     amended by adding at the end the following new paragraph:
       ``(8) Inclusion of costs of va and dod military facility 
     services to medicare-eligible beneficiaries.--For purposes of 
     determining the blended capitation rate under subparagraph 
     (A) of paragraph (1) and the minimum percentage increase 
     under subparagraph (C) of such paragraph for a year, the 
     annual per capita rate of payment for 1997 determined under 
     section 1876(a)(1)(C) shall be adjusted to include in such 
     rate, to the extent practicable, the Secretary's estimate, on 
     a per capita basis, of the amount of additional payments that 
     would have been made in the area involved under this title if 
     individuals entitled to benefits under this title had not 
     received services from facilities of the Department of 
     Veterans Affairs or the Department of Defense.''.

     SEC. 313. FIVE-YEAR EXTENSION OF MEDICARE COST CONTRACTS.

       (a) In General.--Section 1876(h)(5)(C) (42 U.S.C. 
     1395mm(h)(5)(C)), as redesignated by section 634(1) of BIPA 
     (114 Stat. 2763A-568), is amended by striking ``2004'' and 
     inserting ``2009''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act.

     SEC. 314. EFFECTIVE DATE.

       (a) In General.--Except as provided in section 
     306(b)(1)(B), section 313(b), and subsection (b), the 
     amendments made by this title shall apply to plan years 
     beginning on and after January 1, 2005.
       (b) Medicare+Choice MSA Plans.--Notwithstanding any 
     provision of this title, the Secretary shall apply the 
     payment and other rules that apply with respect to an MSA 
     plan described in section 1851(a)(2)(B) of the Social 
     Security Act (42 U.S.C. 1395w-21(a)(2)(B)) as if this title 
     had not been enacted.
                                  ____

  SA 4311. Mr. REID (for Mr. Wyden (for himself and Mr. Allen) proposed 
an amendment to the bill S. 2037, to mobilize technology and science 
experts to respond quickly to the threats posed by terrorist attacks 
and other emergencies, by providing for the establishment of a national 
emergency technology guard, a technology reliability advisory board, 
and a center for evaluating antiterrorism and disaster response 
technology within the National Institute of Standards and Technology; 
as follows:
       On page 26, line 19, after the period, insert ``In 
     completing the report, representatives of the commercial 
     wireless industry shall be consulted, particularly to the 
     extent that the report addresses commercial wireless 
     systems.''.
       On page 26, strike lines 22 and 23, and insert the 
     following:
       (1) developing a system of priority access for certain 
     governmental officials to existing commercial wireless 
     systems, and the impact such a priority access system would 
     have on both emergency communications capability and consumer 
     access to commercial wireless services;

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