[Congressional Record Volume 149, Number 90 (Wednesday, June 18, 2003)]
[Senate]
[Pages S8013-S8116]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    PRESCRIPTION DRUG AND MEDICARE IMPROVEMENT ACT OF 2003--Resumed

  The PRESIDING OFFICER. Under the previous order, the hour of 10 a.m. 
having arrived, the Senate will proceed to the consideration of S. 1, 
which the clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 1) to amend title XVIII of the Social Security 
     Act to make improvements in the medicare program, to provide 
     prescription drug coverage under the medicare program, and 
     for other purposes.

  The PRESIDING OFFICER (Mr. Cornyn). The Senator from New Hampshire.
  Mr. GREGG. Mr. President, I rise to talk about an issue which we, as 
the Senate, are going to address for the next 2 weeks, which is the 
question of how to put in place a drug benefit and to reform the 
Medicare system so that it is more viable.
  This is, obviously, the most significant piece of legislation in the 
area of spending on which any of us in this Congress will vote. In 
fact, in my years in Congress, this is the most significant piece of 
spending legislation I have ever seen because it represents the most 
dramatic expansion, the greatest expansion of an entitlement in our 
history; therefore, it needs to be done right. In my opinion, there are 
issues which need to be addressed and which we need to discuss in order 
to accomplish that.
  To understand the issue and to put it in context, you have to go back 
to the beginning of the problem. And the beginning of the problem, I 
hate to say it, was when I was born--1946, 1947 through 1955. It was 
that postwar period, where America was full of itself, and our people 
were returning from the war, and we repopulated our country with the 
largest baby boom in the history of our country. That baby boom meant 
an explosion of people in our country, people who have contributed, I 
hope--people think immensely--over those years and decades since that

[[Page S8014]]

time. But in each decade, the postwar baby boom generation has moved 
forward, it has changed fundamentally, not only the demographics of the 
country but also the reaction of the country to various issues.
  For example, in the 1950s, we had to build literally hundreds of 
elementary schools in order to accommodate this generation. In the 
1960s, there was, of course, the great upheaval of social 
consciousness, which was driven primarily by the coming of age of the 
baby boom generation and their concerns about civil rights, about the 
war in Vietnam, about the rights of women.
  So as this generation has moved through the tube of its time, there 
has been a bubble which has significantly changed all around them. Now 
that generation is headed for retirement and, as a result, our 
retirement systems which were put in place with a very appropriate 
social purpose of making sure that senior citizens were properly cared 
for, which arose out of the period of the Depression in the 1930s, 
where so many people suffered--I was not alive then, but history tells 
us and the people who experienced it tell us that this was a period of 
immense trauma--we as a culture decided we were wealthy enough and 
strong enough to make sure that never happened again to our seniors. So 
we put in place the Social Security system and the Medicare system as 
an effort to try to make sure seniors could live their final days of 
their retirement in dignity, financially and in health care.
  These systems have been extraordinarily good systems for our Nation. 
But now as this generation heads into retirement, these systems are 
going to come under immense pressure. The whole concept of both of 
these systems was that there would be a pyramid where you would have a 
large number of people working and a smaller number of people retired, 
like a pyramid. So that the large number of people working could be 
paying into the retirement system and benefiting those people in 
retirement. So the pyramid would work as long as there was a larger 
working population than retired population.
  The practical effect of the baby boom generation, the demographic 
effect, is that when we hit the retirement system, we go from a pyramid 
to basically a rectangle where essentially you will have about as many 
people working as retired.
  For example, in 1950 there were 12.5 people working for every 1 
person retired. This year, there is something like 3.3, 3.5 people 
working for every 1 person retired. By the time we hit 2030, there are 
going to be 2 people working for every 1 person retired. The number of 
people retired today is 40 million. The number of people who will be 
retired in the year 2030 will be 70 million, a 75 percent increase. So 
the system, which was structured to be a pyramid and has worked very 
well as a pyramid, simply won't work effectively as a rectangle. You 
can't have about as many people working, paying retirement benefits, as 
you have people taking those benefits because the practical effect of 
that is you would have to dramatically increase the taxes on working 
Americans in order to support nonworking retired Americans to a point 
where working Americans' lifestyles would be significantly reduced.
  The debate today has to be put in the context of two fundamental 
issues: One, how do we benefit senior citizens with a reasonable drug 
program that is going to give them adequate drug care, adequate 
prescription drug opportunities; but, two--and we can't forget this 
issue in addressing the question--how do we make sure that in doing 
that, we don't set up a situation where the next generation of young 
people--these folks who are working as our pages, people who are in 
high school today, people who are in college today, people in their 
twenties today--don't end up with a tax burden that is so large that we 
significantly reduce the quality of their life because we have decided 
this year to give seniors a benefit which we cannot afford 5 or 10 
years from now because there will be so many seniors who are retiring.
  We have to keep in mind, as we go through this reform effort and the 
addition of a prescription drug benefit to Medicare, those two groups--
seniors and young people who will have to pay the taxes, our children 
and grandchildren, in order to support that program.
  This brings us to the question of what type of program should we have 
which can accomplish that. To begin with, we have to put in place a 
Medicare Program which is cost sensitive, which has in place 
marketplace forces which allow us to maintain a reasonable cost so that 
we don't have a growth rate in Medicare that is so great that it simply 
overwhelms the ability of working Americans to pay the taxes to support 
it.
  We know, for example, we already have a $13.3 trillion unfunded 
liability in Medicare. We know, for example, that under the present 
Medicare system, the costs of Medicare are exceeding the income of 
Medicare by about 71 percent and that by 2026 the Medicare system will 
be insolvent under the present structure, insolvent because it has this 
huge unfunded liability as a result of the huge demographic group, the 
postwar baby boom generation, entering the system.
  These are facts that cannot be changed. The people are alive, the 
baby boom generation exists, and we will retire. We will, therefore, be 
on the Medicare system and on the Social Security system.
  We have to find some way to address the Medicare system in a manner 
which will allow us to make it affordable as we move into the outyears. 
This means putting some cost sensitivity into its structure. If we are 
going to add a new benefit to Medicare, we have to be sensitive that it 
does not at the same time create a massive new unfunded liability.
  If, for example, we simply put on to the Medicare system a $330 
billion new drug benefit, which was the proposal last year from 
someone--that was the number; today it is $400 billion--that $330 
billion drug benefit over 10 years translates into a $4.6 trillion add-
on in unfunded liability in the system, which just means you have to 
raise taxes by that much on working Americans, on our children and 
their children, in order to pay for it. So we have to be thoughtful 
about how we do this. As a parent and hopefully a future grandparent, I 
don't want to reduce the lifestyle of my children and their children 
and their ability to participate in the American dream simply to 
support me when I am retired.
  What does this bill do? This bill has two fundamental problems, both 
of which go to the issue. First, it adds a $400 billion drug benefit, 
but it does it in a way that essentially says: We are going to take a 
lot of people who are already paying for their benefit, middle-income 
Americans, Americans who have worked and have obtained a retirement 
benefit, which includes a drug benefit, and we are going to move them 
from the private sector on to the public sector. We are essentially 
going to nationalize the drug delivery system for everybody who is over 
65, whether they want it or not. That policy has some fundamental 
flaws.
  What do we need as a drug benefit? What we need is to make sure that 
people who cannot afford to buy drugs today, people who are making the 
difficult decision between purchasing a meal or maintaining their 
residence and buying the drugs they need to be healthy, those folks who 
have to make that type of choice, that they have support, that they 
have a drug assistance program that helps them buy pharmaceuticals and 
assists them in a way that allows them to live a decent lifestyle 
without having to make terrible choices between the basics of life, 
such as food and housing versus their medical care.
  We do need a drug benefit that does that, that takes care of the low-
income individual who is not covered today by a drug benefit. And we 
need a drug benefit that says you don't have to spend your life savings 
in order to pay for your drugs. You don't have to wipe yourself out 
financially in order to be able to care for yourself physically as a 
result of your needs to purchase pharmaceuticals. So we need 
catastrophic coverage, where over a certain level you basically have an 
insurance program that comes in and pays your costs. But this bill 
doesn't do that.
  What this bill does, as I mentioned, is it says to everyone that you 
shall have drug coverage, and it takes literally 40 percent of the 
seniors, as a conservative estimate, who presently have some sort of 
private coverage program and moves them onto the public coverage 
system. As a practical matter, in

[[Page S8015]]

doing that, it spends a lot of money but, more importantly, it creates 
a lot of outyear liability because it essentially says the Federal 
Government shall have a nationalized drug system for everybody over 65 
which will be paid for by earning Americans who are in their twenties 
and thirties and trying to raise families. Whether or not they are 
wealthy, they are going to have this sort of drug benefit. That really 
doesn't make a whole lot of sense, in my opinion.
  It would make much more sense if the drug benefit in the bill said 
something to the effect of, if you are a low-income individual and you 
don't qualify for a State program, which already gives you a drug 
benefit--which is Medicaid, basically--and your income is, say, under 
200 percent of poverty--I'll just pick that as a number because I think 
that is a reasonable number--then you shall receive assistance in 
purchasing your prescription drugs. There are about 4 million to 5 
million people in that category. There are 40 million seniors. In the 
category between those covered by Medicaid and those at 200 percent of 
poverty, there are approximately 4 million to 5 million people. The 
cost of doing that part of the drug benefit to make sure you had a 
reasonable drug benefit--and essentially those low-income seniors have 
the support they need to pay for their drugs--can be $135 billion to 
$185 billion, depending how you score it. But it would not be $400 
billion.
  So you could set up a reasonable program targeted at low-income 
seniors to make sure they had fair and reasonable coverage, with the 
support of the Government. Other seniors who are over that income level 
should have the protection of a catastrophic program. But they should 
not have the protection of a public program because they already have 
it.
  It has been estimated that 75 percent of the seniors in the country 
today already have some form of drug coverage. Why should the Federal 
Government come in and replace that? Why should the Federal Government 
come in and say to General Motors, which negotiated a contract with its 
employees that when they retire they would get a health care package 
that gave them drug coverage--why should you, a person working at a 
restaurant in Claremont, NH, in your twenties, trying to raise two kids 
and send them to school--why should your Medicare and health insurance 
tax be taken to pay for a drug benefit for somebody who retired from 
General Motors, who already has a benefit under the terms of the 
agreement they negotiated with General Motors? All you are essentially 
doing is saying, if you do that, that some poor guy or woman who is 
working hard to make ends meet in Claremont, NH, in a restaurant is 
going to bear the burden of what General Motors should be bearing for 
its retirees. You are replacing the obligation of General Motors with 
the obligation of some poor guy or woman in their twenties or thirties 
who is trying to raise a family and is working in a restaurant, and 
they have two kids going to school. They have to buy a Chevrolet, which 
is a pretty expensive experience. They should not have to pay for the 
health care of the person who made that Chevrolet. But that is what 
this bill essentially does.

  The bill basically frees up, within 5 years--not immediately because 
there are contracts in place--certainly by the time the baby boom 
generation retires, which is 2008, it basically frees up corporate 
America from any obligation to bear any cost relative to retirement in 
the area of drugs. Now, there may be some unions that will negotiate a 
strong contract with their corporations and they will force them to 
come and do some sort of wraparound. But the core of the drug benefit 
will always be from here on out, once this bill is passed, that the 
public sector will bear the burden of all the costs for drugs for all 
Americans, no matter how wealthy they are, no matter what their income 
is, whether they had a union contract, agreement, or a Medigap policy 
that covers the drug costs.
  The practical effect of that is going to be that when the baby boom 
generation--my generation--hits retirement beginning in 2008, we are 
going to escalate the cost of this benefit radically--radically. So 
$400 billion is a conservative number for 10 years and, over the life 
of this program, $4.6 trillion is an incredibly conservative number. 
This benefit, which is a very legitimate benefit and a very appropriate 
benefit, should be targeted at people who need it, people who cannot 
afford it, people who are having to make the tough choices in their 
life between the food they eat, the housing they have, and the drugs 
they pay for. Those folks deserve Government support. But Bill Gates, 
when he retires, does not deserve Government support in the area of 
purchasing his drugs. Under this bill, he would get it.
  So that is the first and most fundamental flaw in this bill. It 
essentially nationalizes and moves from the private sector literally 
millions of people who are presently capable of having, and who are in, 
programs that take care of their drug benefit. It does an aggressive 
job, I admit, on the low-income person and that should be kept in 
place. There are a variety of ways to do that. But we should not 
nationalize the system for everyone.
  The second flaw in this bill, the most fundamental flaw, is the issue 
of how you control the overall cost of Medicare. This is at the essence 
of the future financial soundness of this country. Today, Medicare 
consumes about 14 percent of the GDP, if you include retirement 
benefits, Social Security, Medicare, and Medicaid. If you applied the 
projections to the Medicare, which are in place, the fact that we have 
a $13 trillion unfunded liability, and if you apply the unfunded 
liability projections to Social Security and Medicaid, then you will 
end up by 2030 having those three--Social Security, Medicare and 
Medicaid--absorbing 14 percent of the GDP. They do not do that today, 
obviously. Today, the Federal Government absorbs about 19 percent of 
the gross domestic product. So you could see that if you project the 
cost of Medicare and Social Security out to 2030 and you have it using 
up 14 percent of the gross national product, and today we do all 
Government spending, all the Government responsibilities, including 
education, national defense, and all the different issues of core 
Government needs we manage with 19 percent of the gross national 
product, we can see that by the time we get to the year 2030, there is 
not going to be anything left that the Federal Government is going to 
be able to do other than take care of the retirement accounts. We are 
not going to be able to do national defense, education, roads, parks--
all the important functions to have a strong Government and a good 
society. They are not going to be affordable unless we are willing to 
radically increase the taxes on the working Americans of this country 
who will be our children and our grandchildren.

  That is why I say reforming Medicare--and Social Security, for that 
matter, which I have already worked on extensively--is one of the most 
fundamental issues we face as a country, getting those costs under 
control in the outyears.
  Does this bill do that? This bill attempts to create a market force 
in the area of Medicare by setting up something called PPOs, preferred 
provider groups. The practical effect, though, is there are very few 
likely scenarios under which the PPOs will be viable, under which 
private market forces will come into play. We will still have, 
basically, a price-controlled situation, a single-payer situation.
  We cannot reform Medicare unless we bring into Medicare market 
forces. We cannot control the price and delivery of health care unless 
we start to put in place some sensitivity to the quality of care that 
is being delivered in the context of how it is being delivered, when it 
should be delivered, and the amount that should be delivered. We cannot 
do that in a single-payer system. We cannot do that in a price-
controlled system. We can only do that if we have market forces that 
are competing and, thus, bringing to the table the essence of 
competition, which is competing on the basis of price and quality.
  This bill in name attempts to do that through the PPO process. It is 
projected, however, by CBO, the Congressional Budget Office--there are 
so many initials thrown around; we confuse people--that only 2 percent 
of the Medicare recipients will take advantage of this market-oriented 
approach.
  The White House and the Office of Management and Budget projects it 
at

[[Page S8016]]

a much higher level. They say 45 percent will take advantage of this 
program, and that is because they are optimistic, and it is because it 
is their plan. I think the Congressional Budget Office has taken a much 
fairer and objective look at this. They have said: What in this plan 
creates an atmosphere which would cause somebody to leave Medicare and 
move over to a private provider? There is virtually nothing in this 
plan that would cause somebody to do that. There is no market force 
which is allowed to be brought into play to accomplish that because of 
the way the pricing mechanism is set up under this bill.
  The practical effect is that the market has been taken out of--at 
least in a real sense, not in an illusory sense; it is there as a 
stated purpose--but as a practical likely effect, it has been taken out 
of the game. So we are going to move forward into the next generation 
with the same program that we presently have with a drug benefit on top 
of it, which drug benefit essentially will cover everyone, no matter 
what their income levels are, no matter what their benefit structures 
are. They already exist.
  Instead of improving the system, what we are going to end up with is 
the same old Medicare system, a 1950s car with a brand new paint job on 
it in the form of the drug benefit but without anything in it that is 
going to fundamentally improve it as it moves into the next generation 
and the need to control costs in the next generation.

  The practical effect of it will be that the $13.3 trillion unfunded 
liability that already exists in Medicare will have $4.6 trillion of 
new unfunded liability put on top of that for the purpose of the drug 
benefit, which are all massive numbers, but they come down to this: For 
a child born today--John Jones or Mary Smith--when that child takes his 
or her first breath, that child gets with that breath a debt of $44,000 
to pay for Medicare. That debt is going to have added to it $15,000 
after this bill passes to pay for the new Medicare benefit.
  Yes, this bill does take care of our seniors and our baby boom 
generation group who are becoming seniors in a very generous way. One-
half of the equation is addressed--seniors. That is always politically 
very attractive. It polls very well. It gets you through the next 
election. It makes you a hero with groups of people who are concerned 
about seniors' rights. But the other half of the equation is our 
children and our children's children. It leaves them with an 
extraordinary bill and with no opportunity to affect it.
  The great tragedy is this drug benefit gave us, the Congress and the 
executive branch, the first and best opportunity to substantively 
reform Medicare using the drug benefit basically as the carrot that 
brings along the reforms. We could have used this benefit in an 
extraordinarily constructive way to assure that my generation, the baby 
boom generation, is not an undue burden on our children and our 
grandchildren or on that fellow or woman working in a restaurant in 
Claremont.
  Instead, what we have done with this bill is added a drug benefit 
which will make my generation very happy and seniors who are receiving 
it today very happy, which will leave in place a Medicare system that 
has a $13 trillion projected unfunded liability and which will leave 
with our kids a debt which is both unfair, inappropriate, and, 
ironically, unnecessary were we approaching this with better policy.
  I suppose, in understated terms, I have reservations about this bill.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, it is my understanding, under the order now 
in effect, that a Democrat will be recognized; is that right?
  The PRESIDING OFFICER. That is correct.
  Mr. REID. Senator Kennedy is here and ready to speak. Under the 
previous order, a Democrat is to be recognized to speak now. The 
Senator has until 11 o'clock if he wants to use that time. At 11 
o'clock, the two managers of the bill will be recognized to offer a 
substitute.
  Mr. KENNEDY. We now will be recognized?
  Mr. REID. For debate only on the bill.
  Mr. CRAIG. Mr. President, will the minority whip yield?
  Mr. REID. I will be happy to.
  Mr. CRAIG. Will it be possible for me to gain some time following the 
Senator from Massachusetts?
  Mr. REID. Through the Chair, I ask the Senator from Massachusetts, 
how long does the Senator wish to speak? I say to the Senator from 
Massachusetts, Senator Gregg spoke for 30 minutes. Under the order, we 
have the time.
  Mr. KENNEDY. We have 9 minutes?
  Mr. REID. Senator Kennedy has until the top of the hour.
  Mr. KENNEDY. I want to accommodate my friend. Do I understand the 
Senator from Michigan intends to offer an amendment this morning?
  Mr. REID. Mr. President, the intention, although there is no order in 
effect, is that at 11 o'clock, the two managers of the bill will be 
recognized and, at that time, they will offer their substitute. At that 
time, it will be open to amendment. It has been talked about for the 
last 2 days that Senator Stabenow will be recognized to offer an 
amendment.
  Mr. KENNEDY. We have, therefore, about 20 minutes between now and 11 
o'clock. I will be glad to divide that time.
  Mr. CRAIG. I will require more time than that. The Senator, 
obviously, has the floor, as under the UC, which is fine. I am looking 
for a window of about 15 or 20 minutes maximum.
  Mr. REID. Mr. President, I do not know if the two managers of the 
bill would be willing to start at 11:15 rather than 11. They are in the 
cloakroom. While Senator Kennedy speaks, I will walk back and ask them.
  Mr. CRAIG. That would be appreciated.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Mr. KENNEDY. Mr. President, I thank the Senator from Idaho as well. 
As I indicated, I was willing to share the time we had up to 11. As 
soon as a Member is prepared to offer an amendment, I will yield the 
floor because I do think we have had a good opportunity to make general 
comments and opening statements over the period of these last 2 days, 
and I think the business of the Senate should require that we begin to 
address some of the areas which need addressing.
  I understood my friend and colleague from Michigan will be in the 
Chamber shortly, and as soon as she is and it is agreeable with the 
managers, I will yield the floor.
  To review very quickly, this is a momentous time. We give credit to 
the chairman and ranking member of the Finance Committee in moving this 
process forward in a way which I think can be a building foundation for 
addressing the critical issue which is on the minds of so many of our 
seniors, and that is a good, effective, reliable, affordable 
prescription drug program.
  As has been mentioned previously, when we passed the Medicare Program 
in 1965, it provided for the hospitalization and physician fees, but it 
did not provide for prescription drugs. Only about 3 percent of all of 
the private sector insurance programs had a prescription drug program. 
What we have seen since that time is the extraordinary explosion of 
prescription drugs which are so necessary to enhance and improve the 
quality of life for so many of our seniors. They are as indispensable 
to our seniors as hospitalization and physician fees.
  In 1965, we made a commitment and a pledge to our seniors that is 
really the basis of a program that was developed in the late 1950s. It 
was an issue that divided the two political parties in the 1960 
campaign. President Kennedy felt strongly about developing a Medicare 
system for our seniors. We had failed to provide national health 
insurance for all Americans, a goal I am still committed to. It was 
Harry Truman's goal.
  We are always reminded that we in the Senate, Republicans and 
Democrats, effectively have national health insurance. There is not a 
single Member of this body who does not take the Federal employees 
program, rejects that, and takes their own homegrown program. They all 
take the Federal employees program, which is heavily underwritten by 
the Federal Government. I do not know of a single program that exists 
in this country that has the taxpayer underwriting what we in the 
Congress and the Senate have, including a prescription drug program.
  So I am always interested in those who complain about our efforts to 
try

[[Page S8017]]

and pass a good, effective prescription drug program when we have it 
ourselves. We have looked out after ourselves and we have been so slow 
in looking out after the needs of our fellow elderly citizens.
  I arrived to the Chamber too late to hear my good friend--and he is 
my good friend--from New Hampshire talk about the indebtedness this 
bill will provide in terms of the children of this country. This is a 
$400 billion bill and it is going to mean several thousand dollars of 
indebtedness to the children who are being born today. Well, that pales 
in significance when we think that under the Republican administration 
of the last 2 \1/2\ years we have passed a $2.3 billion tax reduction 
that is going to mean billions and hundreds of billions of dollars of 
indebtedness for our children.

  This program at least is going to make a difference in terms of the 
quality of life for seniors who have built this country and sacrificed 
for their children and fought in the wars and fought to make sure we 
were going to have economic recovery. It is an investment in them 
rather than just to the wealthiest individuals. I welcome the 
opportunity to debate, if we are going to have the chance to do it, 
which is of greater value to the Nation, which is of greater value to 
our fellow human beings, these extraordinary tax cuts or the 
downpayment on the prescription drug program.
  The principal reason we have been unable to bring this matter up and 
develop a bipartisan approach is because of ideology, which has been a 
part of the Republican commitment over the years, and that is to 
privatize Social Security and privatize Medicare. They have been 
opposed to Medicare, opposed to Social Security, from the time 
immemorial when these programs were passed. We heard the word 
``socialism'' talked about all during the debates on the Medicare 
Program. Every other word was ``socialized medicine.'' We do not hear 
any of those words anymore. We hear words, as we heard from Newt 
Gingrich, ``we want to see Medicare wither on the vine.'' But they are 
opposed to it.
  So this issue has been divisive because those of us who have been 
strongly committed to Medicare refuse to see that it is effectively 
dismantled by offering a prescription program that would be used to 
either bribe or coerce seniors out of the Medicare system into a 
private sector system and then to let the Medicare system wither on the 
vine. Our elderly people, our seniors, those who have contributed to 
this country, know their doctor, they know their neighborhood, they 
know their hospital, and they do not want to be forced out of Medicare 
into an uncertain system. Many of us in this body are going to resist 
that and fight that with every fiber in our body.
  We have seen an alteration and change, and that is what has been 
developed in the Senate Finance Committee legislation, which will 
permit those who are under Medicare to be assured that no matter what 
part of the country they live in they are going to be able to have 
access to the prescription drug program that is outlined in this 
legislation.
  For those who want to go into the HMOs, there will be at least the 
opportunity for those in the private sector who want to risk providing 
the benefit package that is in here, and want to take the chance, to be 
able to compete. That is the compromise that has certainly not 
satisfied everyone--I certainly would not have drafted the bill as it 
is drafted today--but nonetheless it is the compromise that came out of 
that committee and which I think Senator Grassley and Senator Baucus 
deserve credit for.
  They have established a foundation in which this prescription drug 
program can be enhanced, strengthened, and built upon, both during the 
debate over the next 6 days but also in the future years. As long as I 
am in the Senate and honored to represent the people of Massachusetts, 
I make the commitment and pledge that I am going to do everything I 
possibly can to make sure this is the kind of program which is worthy 
of our senior citizens in the future, but we will have a downpayment in 
this program with this legislation.
  In the past, we reviewed very briefly the need for this program and 
the costs for this program. I think at the time that we are actually 
into the amendments, we do not have to go back and speak about the 
enormous costs our elderly are paying, how their CPI, their adjustment, 
is not enough to make up for these escalating costs; the fact that 
these prescription drugs are absolutely indispensable to the lives and 
well-being of millions of our citizens. We know that is the truth. We 
know we have an uncertain condition out there in terms of the seniors 
having access to the drugs. Many of them do not have it. Others are in 
retirement programs. An increasing number of the retirement programs 
are dropping individuals. Millions of others have them in Medicaid and 
that is being cut back in a number of our States, and they are being 
left out and left behind.
  Millions are in HMOs, and almost half of those numbers have been 
dropped by the HMOs and other conditions have been put on in terms of 
restricting the amounts that will be expended by the HMOs in the 
prescription drug program which is disadvantaging these individuals to 
an enormous degree. Medigap is not picking up the process. The fact 
remains, our seniors are enormously vulnerable today. Never have they 
been more vulnerable.

  This is against another background that I will just mention very 
briefly. We have seen in the Congress, in the Senate, over the period 
of this last 5 years the doubling of the NIH budget. Why was that done? 
The reason it was done is the recognition that we have had, Republicans 
and Democrats alike, of the enormous opportunities for breakthroughs, 
in prescription drugs primarily, and in new technologies to deal with 
the challenges in health care, mixing technologies and mixing 
prescription drugs to make further advances--which is certainly the 
goal of Dr. Sahni at the NIH.
  These are very bold and challenging new initiatives in which they are 
involved. We have seen the mapping of the human genome, with all that 
means, in the predictability of how genes are going to function and so 
averting dangers that presents to patients in the future, anticipating 
that and developing medical technologies that can address that so we 
can prevent individuals from developing, in this instance I am talking 
about, several different types of cancers. The list goes on.
  We have the most extraordinary opportunity now for breakthroughs in 
prescription drugs. Now that we have doubled the NIH budget, we have to 
ask ourselves what is the sense of making these breakthroughs and 
spending billions and billions of dollars if we are not going to get 
them out of the laboratory and into the homes of those who need them?
  This bill is that downpayment that ensures the drugs get out of the 
laboratory and to those who need them. That is why it is so important 
we take action. We are seeing such progress. I see in my own State of 
Massachusetts--we have more biotech companies in our State than all of 
Western Europe. I am always amazed at the continued dreams in these 
research labs in terms of potential breakthroughs and the progress that 
is being made. It is beyond the possible imagination of so many of us, 
to think someday we might really conquer cancer, we might really 
conquer Alzheimer's, we might really conquer diabetes or other 
diseases. There are dreamers who believe it will be done, and in the 
none-too-distant future.
  We want to put in place a process, a procedure, a delivery system 
which is affordable, dependable, reliable, so those breakthroughs can 
get out and get to them. That is what this bill does.
  I will just review this because these issues were raised. One of the 
features, which is not a major feature but which I find has not been 
mentioned in most of the news reports, is that in January of next year 
5 million seniors will receive a card--some might have to pay $25 for 
it but no more than $25--that will guarantee them $600 worth of 
prescription drugs. If they do not use all $600, if they use just $400, 
they can carry that over to next year. That is a real downpayment of 
this legislation. Five million people are going to receive that. 
Although the Medicare program will take 3 years to get implemented, 
this prescription drug card will soon provide needed relief to millions 
of seniors. That is an indicator to at least 5 million of our seniors, 
that help is coming, help is on its way.

[[Page S8018]]

  Let me give three quick examples of an average senior citizen with an 
income of $15,000. That is the average senior citizen, if they have 
drug costs at the national average of $2,300. This is the group this 
legislation perhaps helps the least. We take great care of the 40 
percent of the senior citizens with lowest incomes and we take care of 
those with catastrophic expenses. This is the group we hope to provide 
additional assistance. This individual would pay a $420 premium, and 
they would pay $1,298 for cost sharing, and they would receive $604. 
That may not sound like much, but that is $604 they do not get today.

  Let's take the instance of an individual who has the same income, 
average income, and has a great deal of medical expenses; $15,000 
income and they have $10,000 in expenses. They will end up paying the 
$4,500 but they get $5,400 in savings under this legislation. That is 
still a good deal--I'd like it to be better, but at least they will 
gain significantly from this legislation if they have those kinds of 
bills.
  Let's take the same individual. By and large this is 40 percent of 
all the senior citizens--not half but not far from it. Let's look at a 
person just above the poverty line with $9,000 in income and the same 
$2,300 in drug expenses each year. That works out to about $190 per 
month.
  Under this legislation, at $9,000 income, you would pay $5. That 
would mean a monthly savings of $185.
  If your income is $12,000 and you pay out the $190 per month in 
expenses today, under this legislation you would pay $10 and would save 
$180 per month.
  If your income is $13,500 and you have $190 in monthly costs, under 
this legislation you would pay $23 and save $168. That is a major 
relief for those families who are facing these extraordinary challenges 
across this country.
  I see the ranking members of the Finance Committee now on the floor. 
Let me wind up.
  Mr. President, listen to this: 83 percent of all Medicare 
beneficiaries are going to receive more out of this legislation than 
they will pay in. Today, in part B of the Medicare only about 50 
percent of seniors get out more than they pay in. Under this 
legislation it would be 83 percent.
  For those who go through what they call the doughnut hole, that is 
the period of time when they are not getting the full assistance I 
would like to see, it is important to recognize that two-thirds of 
those who go into the doughnut hole go out the other end into the 
catastrophic and get extra help. Only about 8 percent actually remain 
in that doughnut hole.
  We are going to have the opportunity here to try to make some further 
adjustments to strengthen and improve this legislation.
  Finally, let me say in watching what happened over in the House of 
Representatives, their legislation fails to have the kind of backup 
this legislation has in the delivery of the Medicare benefit, which is 
unacceptable. They have what they call a premium support program which 
effectively would undermine the Medicare system, which is completely 
unacceptable. The means testing is in there, which would require 
individuals to submit their tax forms to agencies of the Federal 
Government and insurance companies. I think that would be very 
offensive.
  There are many different aspects of that legislation that are 
enormously troubling. But that is not this bill. That is not this bill.
  So, again, I commend Senator Grassley and Senator Baucus and our 
Republican leader, Senator Frist, for all they have done working this 
through. I look forward to the opportunity to address these amendments.
  I see the hour of 11 has arrived.
  Mr. REID. Mr. President, even though there may not be a unanimous 
consent request that has been ordered, I ask that the two managers be 
recognized now; that following whatever they decide to do the Senator 
from Idaho be recognized to speak for up to 15 minutes; and following 
the statement of the Senator from Idaho that Senator Stabenow be 
recognized to offer an amendment. We talked about her amendment for a 
couple of days.
  I ask all this in the form of a unanimous consent request.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The PRESIDING OFFICER. The Senator from Iowa is recognized.
  Mr. GRASSLEY. Mr. President, I am going to offer a modification in 
just a minute. We are going to wait for our staff to come and present 
the exact language which we will use in the unanimous consent request.
  Before we do that, I have not had the opportunity to express my 
appreciation to the entire Senate for Senator Baucus's cooperation in 
bringing the bill here, and for everything we have done in order to 
bring a bipartisan bill here which was voted out of a committee on a 
16-5 vote.
  In other speeches, I have talked about people who have been working 
on this issue, such as Senator Breaux with the Breaux Commission. I 
have talked about the tripartisan people who worked over the last 2 
years to bring a bill before the Senate last year, all of which set the 
stage for some of the subject matter we have before us. Senator Baucus 
and I hope we will have a continuation of the bipartisanship that has 
been expressed so far in that vote.
  But I haven't had a chance to tell the Senate of my appreciation to 
Senator Baucus in working both at the staff level and his staff--
meaning the Finance Committee staff on the Democratic side, and the 
Finance Committee staff on the Republican side--doing a lot of nitty-
gritty work to bring things together with a consensus that can be 
arrived at at the staff level, but, more importantly, a lot of the 
things Senator Baucus and I had to work out.
  When it was all said and done, it was a very pleasant experience. I 
don't say that because of the relationship Senator Baucus and I have, 
but it is because of a continuation of the tradition of the Senate 
Finance Committee to do most of its business--albeit not all of its 
business--in a bipartisan way.

  We would not have an issue before us like this--and a lot of other 
issues that have come out of the Senate Finance Committee--without that 
sort of cooperation.
  I think this deserves a little more special attention of 
bipartisanship and Senator Baucus's cooperation. This is the first 
major expansion of Medicare in 35 years. This is something that 
candidates of both political parties have talked about the necessity of 
doing--providing prescription drugs for seniors.
  There is something which is very much of an issue to Montana and to 
Iowa and to a lot of other States we call rural States. There is an 
inequity issue within Medicare reimbursement.
  Working very closely with Senator Baucus last year to establish a 
Baucus-Grassley bill on Medicare rural equity, then moving this year to 
adopt the one earlier on a tax bill and duplicating that effort in this 
prescription drug bill was all done in a bipartisan way. You can only 
say it so many times, but I don't think you can say it enough either, 
because people think the Senate is always a highly partisan body. 
Sometimes we are too highly partisan. Sometimes it is OK to be 
partisan, I believe, in our system of government. But really nothing 
gets done in the Senate if there isn't some bipartisan cooperation. 
Obviously, I take this opportunity to thank Senator Baucus for that 
cooperation.
  We still have not had that agreement presented to us yet. I am going 
to ask Senator Baucus if we should let Senator Craig go ahead and speak 
for his 15 minutes before we lay down our amendment.
  Mr. BAUCUS. Mr. President, first I very much appreciate the kind 
words by the chairman of the committee. It is wonderful working with 
the Senator from Iowa. He is a good man.
  With respect to the point made by the chairman, I agree. I think it 
makes sense at this time, since we are still trying to get papers 
ready, for the Senator from Idaho to proceed.
  Mr. GRASSLEY. Mr. President, we will let the Senator from Idaho 
finish before we proceed with our unanimous consent.
  The PRESIDING OFFICER. The Senator from Idaho.
  Mr. CRAIG. Mr. President, I want to thank the Chairman of the Finance 
Committee and the ranking member for the work they have done on the 
Finance Committee on S. 1, the Medicare legislation.
  The legislation before us today is a praiseworthy document, in that 
it is a

[[Page S8019]]

step forward toward the fundamental goals of providing prescription 
drug relief for America's seniors and strengthening the Medicare 
program. This is certainly not to suggest that this legislation is 
without flaws, but it does begin the process of improving Medicare for 
our children and our grandchildren down the road and in what we hope 
will be the right direction.
  To paraphrase the words of a rather historic person, Benjamin 
Franklin, ``Is the sun rising, or is the sun setting'' on the promise 
of creating a federally funded but also privately competitive Medicare 
system that can succeed, both in holding down costs and in providing 
adequate coverage?
  Only the future will tell whether what we have before us is the case 
of a sun rising on a new day in health care or simply a dramatic shift 
and a sun setting.
  What I think is happening here today is the beginning of a very 
important debate for the remainder of this week and next week. I hope 
that passage of this legislation will prove to be a major step forward.
  As chairman of the Special Committee on Aging, I have convened a 
variety of hearings over the last several months to carefully examine 
the difficulties of all of the issues that are going to be talked about 
here this week, including the long-term demographic pressures facing 
Medicare, the value of integrating competitive alternatives into the 
program, and the promise of making care coordination part of a 
strengthened and improved Medicare prescription drug coverage.
  All of these are important. But there is no question that 
prescription drug coverage is the political engine that drives this 
debate, but it is just one of several grave challenges we face as we 
take up this important legislation.
  There is no question that drug coverage for America's seniors is long 
overdue, especially for those in the greatest of need. Except for 
Medicare, virtually every health care insurance plan in America today 
covers prescription drugs. Medicare today is trapped in a 1960s model 
of health care delivery, and lags decades behind what the private 
sector has to offer.
  This bill would address this problem. Beginning immediately, 
America's seniors would receive a drug discount card enabling them to 
purchase drugs at a significant discount. More importantly, in 2006 
seniors would be able to enroll in federally subsidized Medicare drug 
coverage for a premium of about $35 a month--coverage that would be of 
greater per-dollar value than that currently offered through Medicare 
supplemental, Medigap, or wraparound plans.
  I am especially pleased that this legislation devotes the greatest 
share of its drug assistance to seniors of low and modest income--most 
especially seniors below 160 percent of poverty. These seniors--those 
with annual incomes below about $13,500 for an individual, and about 
$18,200 for a couple--would receive special assistance of about 80 to 
90 percent for their drug costs, depending on income.
  The truth is, the proportion of seniors who truly cannot afford 
prescription drugs is relatively small--perhaps 25 percent. It is on 
these seniors in the greatest of need that our help should be focused.
  Mr. President, even more important than drug coverage is the urgent 
need to begin putting Medicare on a more modern and secure footing as 
the 77-million-strong baby boomer generation moves even closer to 
retirement age. According to the Medicare Trustees, Medicare costs, 
even without any drug benefit, will more than triple over the next 75 
years, placing a tremendous burden on future generations.
  Despite this looming challenge, Medicare today remains clogged by 
rigid bureaucracy and complex regulations regulations that are already 
beginning to drive doctors and other health care providers out of this 
program, leaving our seniors, in many instances, without access to the 
health care they need.
  Medicare, as we know it today, is micromanaged to the tiniest of 
details for medical payments and procedures, including the pricing and 
regulation of more than 7,000 medical procedures and over 500 hospital 
procedures. Why are we so intent on micromanaging the system? Medicare 
regulations now total more than 110,000 pages of rules and regulations.
  Perhaps it is not surprising, then, that doctors and hospitals report 
having to spend half an hour to an hour in paperwork for every hour 
spent in patient care. In other words, there is often more intensity on 
doing the paperwork right than there is on good health care procedures 
for the patient and all because of a Federal system that is so heavily 
micromanaged. And of course, the risks to providers are high if they 
fail to perform the required regulatory tasks in the most minute of 
ways.
  Even more distressing, the heavily bureaucratic Medicare Program has 
ultimately failed to keep up with the kinds of medical and health care 
coverage innovations most of the rest of us take for granted. For 
example, the current Medicare Program only covers a handful of 
preventive screenings and tests and in most cases will not even pay for 
a standard physical.
  Medicare also lags far behind the private sector in its use of care 
coordination and disease management systems under which a patient's 
care is coordinated and optimized, promoting better health outcomes and 
fewer days of hospitalization.
  For certain chronic conditions, such as diabetes and congestive heart 
failure, as many as 83 to 97 percent of America's health care plans now 
offer such care coordination. Medicare, meanwhile, has only barely 
begun to experiment with demonstration projects in this area and some 
prominent experts, such as former CBO Director Dan Crippen, doubt that 
care management can ever work effectively in Medicare as we know it 
today.
  The bill before us seeks to bring Medicare into the 21st century, not 
just by providing prescription drug coverage, but also by offering 
seniors the choice to enroll in federally supervised but privately 
operated health care plans the same kind of choices and coverage 
currently enjoyed by millions of other Americans under age 65. Ideally, 
these plans could include preferred provider organizations, fee-for-
service plans, HMOs, and even medical savings accounts.
  The current Medicare system forces seniors to hunt for and purchase 
supplemental plans for many of the things that Medicare does not cover. 
By contrast, the new Medicare Advantage plans would give seniors one-
stop shopping for comprehensive and integrated coverage including 
prescription drugs, preventive care, care coordination, and 
protection against high catastrophic medical bills, benefits which are 
largely unheard of in the traditional Medicare plan of today.

  Importantly, these new choices would be entirely voluntary. Seniors 
who want to keep their current coverage and stay in traditional 
Medicare would be free to do so. Also, the new prescription drug 
program would be offered in both the traditional program and in the new 
Medicare Advantage plans. No senior would see any reduction in Medicare 
benefits under this bill. No benefits would be taken away--none.
  I am also extremely pleased this bill includes a significant and 
necessary package of improvements in rural health care and 
reimbursement. Among other changes, this legislation would improve 
certain categories of rural payment and would make needed rule changes 
to assist critical access hospitals and other rural providers.
  For far too long, doctors and hospitals in Idaho and other rural 
States have suffered under payment classifications and reimbursement 
levels that put them at a significant disadvantage and that make the 
already difficult job of providing health care in rural America even 
more daunting.
  The underlying framework of this bill is a sound one, and it follows 
the basic principles laid out by President Bush earlier this year--
namely, to strengthen traditional Medicare and keep it as an 
alternative for those seniors who want it, but also to provide a new 
foundation for the future, one built on choices, competition, and 
innovation.
  This said, however, I am gravely troubled by certain aspects of this 
bill's current design--particularly the fact that we have not 
incorporated in it enough competitive alternatives.
  First, I believe it is a mistake to offer exactly equivalent drug 
benefits in the older, more traditional program

[[Page S8020]]

and in the new Medicare Advantage plans--and thereby not create a 
strong competitive advantage for the Medicare Advantage programs. This 
is an important issue in causing seniors to make selections toward the 
marketplace and toward a variety of alternatives--rather than to be 
fearfully hunkered down, if you will, in the old program. If we truly 
believe, as I do, that structured competition, rather than a 
perpetuation of top-down bureaucratic health care, is the better future 
for Medicare, our legislation should reflect this commitment.
  Second, this bill unwisely imposes a ceiling, or benchmark, on the 
amount the Federal Government will pay the new Medicare Advantage 
plans. What we want is a variety of robust competitive alternatives in 
the marketplace, and capping or creating a ceiling may threaten that 
goal.
  Third, the legislation creates an unnecessarily heavy-handed and 
restrictive bidding system for the Medicare Advantage Program. Under 
this program, HHS would choose only three winning plans for each of ten 
national regions. Far preferable would be a system like the Federal 
Health Benefits Program, under which any plan meeting basic federal 
standards would be permitted to compete. It should be the marketplace, 
not HHS bureaucrats, who decide which plans succeed or fail.
  Fourth, I am concerned by this legislation's overall high level of 
complexity and prescriptiveness--prescriptiveness that threatens to add 
appreciably to the 110,000 pages of regulation already in place. Shame 
on us if we do that. This bill, which I suspect weighs a few pounds, 
has hundreds and hundreds of pages. I hope that, for every page of 
legislation we do not also see 25 or 30 pages of ensuing regulation. If 
that is the case, we will have created the opposite of what we should 
intend--namely walking away from the bureaucracy and into the 
marketplace, into the opportunity of choice, and into a much freer 
environment--one that providers want to join, and one that provides 
optimum health care for the senior of today.
  Over the course of the next week and a half, hopefully, amendments 
will take us toward simplicity instead of toward the kind of 
micromanagement we have seen in the past. History should not repeat 
itself here, and I think all of us should be concerned that it might. 
This is because we have the great tendency to err on the side of the 
bureaucracy and the side of regulation, when, in fact, the 
marketplace--as shown by the hearings I have held--can, in fact, be the 
greater arbiter of health care when effective competition is provided.
  These concerns are by no means exhaustive. Like many of my 
colleagues, I am also concerned about the complexity and stability of 
the proposed system for providing drug coverage in the traditional 
Medicare program, and I worry about the possibility that some employers 
may react to the new Federal drug coverage by cutting back or dropping 
benefits they currently provide to their retirees.
  Finally, I want to caution my colleagues, in no uncertain terms, that 
neither this bill nor any of the alternative Democratic proposals 
offers a magic bullet for Medicare's future. The financial and 
demographic outlook for Medicare is sobering in the extreme, and 
nothing can change the fact that hard choices lie ahead, regardless of 
what we do this year. This legislation could improve our prospects, but 
it is, at best, only a first step.
  Majority Leader Frist, Senator Grassley, and others on the Finance 
Committee deserve tremendous credit for bringing us to where we are 
today, as does President Bush for making prescription drugs and 
Medicare reform a top priority this year.
  The coming weeks will be critical ones. I hope we can succeed in 
producing a bill worthy of this historic opportunity.
  Mr. President, I again thank the chairman and the ranking member. I 
also thank Senator Frist, our leader, for insisting that this issue get 
to the floor for the kind of debate I trust we will have--and for 
working with the House toward putting on our President's desk something 
that we have long promised America's seniors: That those who are truly 
needy will have access to prescription drugs and all seniors will have 
access to a modernized Medicare Program.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Graham of South Carolina). The Senator 
from Nevada.
  Mr. REID. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                  Modification to Committee Amendment

  Mr. GRASSLEY. Mr. President, with the authority of the majority of 
the Finance Committee, I now modify my committee substitute and the 
modification is at the desk.
  The PRESIDING OFFICER. The amendment is so modified.
  The committee amendment, as modified, is as follows:

     SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; 
                   REFERENCES TO BIPA AND SECRETARY; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the 
     ``Prescription Drug and Medicare Improvement Act of 2003''.
       (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 and Secretary; table of contents.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

   Subtitle A--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 
              MedicareAdvantage 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 prescription drug 
              coverage premiums.
``Sec. 1860D-15. Computation of monthly national average premium.
``Sec. 1860D-16. Payments to eligible entities.
``Sec. 1860D-17. Computation of monthly beneficiary obligation.
``Sec. 1860D-18. Collection of monthly beneficiary obligation.
``Sec. 1860D-19. Premium and cost-sharing subsidies for low-income 
              individuals.
``Sec. 1860D-20. Reinsurance payments for expenses incurred in 
              providing prescription drug coverage above the annual 
              out-of-pocket threshold.
``Sec. 1860D-21. Direct subsidy for sponsor of a qualified retiree 
              prescription drug plan for plan enrollees eligible for, 
              but not enrolled in, this part.

                 ``Subpart 3--Miscellaneous Provisions

``Sec. 1860D-25. Prescription Drug Account in the Federal Supplementary 
              Medical Insurance Trust Fund.

[[Page S8021]]

``Sec. 1860D-26. Other related provisions.
Sec. 102. Study and report on permitting part B only individuals to 
              enroll in medicare voluntary prescription drug delivery 
              program.
Sec. 103. Rules relating to medigap policies that provide prescription 
              drug coverage.
Sec. 104. Medicaid and other amendments related to low-income 
              beneficiaries.
Sec. 105. Expansion of membership and duties of Medicare Payment 
              Advisory Commission (MedPAC).
Sec. 106. Study regarding variations in spending and drug utilization.

 Subtitle B--Medicare Prescription Drug Discount Card and Transitional 
                Assistance for Low-Income Beneficiaries

Sec. 111. Medicare prescription drug discount card and transitional 
              assistance for low-income beneficiaries.

            Subtitle C--Standards for Electronic Prescribing

Sec. 121. Standards for electronic prescribing.

                      Subtitle D--Other Provisions

Sec. 131. Additional requirements for annual financial report and 
              oversight on medicare program.
Sec. 132. Trustees' report on medicare's unfunded obligations.

                      TITLE II--MEDICAREADVANTAGE

               Subtitle A--MedicareAdvantage Competition

Sec. 201. Eligibility, election, and enrollment.
Sec. 202. Benefits and beneficiary protections.
Sec. 203. Payments to MedicareAdvantage organizations.
Sec. 204. Submission of bids; premiums.
Sec. 205. Special rules for prescription drug benefits.
Sec. 206. Facilitating employer participation.
Sec. 207. Administration by the Center for Medicare Choices.
Sec. 208. Conforming amendments.
Sec. 209. Effective date.

              Subtitle B--Preferred Provider Organizations

Sec. 211. Establishment of MedicareAdvantage preferred provider program 
              option.

                 Subtitle C--Other Managed Care Reforms

Sec. 221. Extension of reasonable cost contracts.
Sec. 222. Specialized Medicare+Choice plans for special needs 
              beneficiaries.
Sec. 223. Payment by PACE providers for medicare and medicaid services 
              furnished by noncontract providers.
Sec. 224. Institute of Medicine evaluation and report on health care 
              performance measures.
Sec. 225. Expanding the work of medicare quality improvement 
              organizations to include parts C and D.

                 TITLE III--CENTER FOR MEDICARE CHOICES

Sec. 301. Establishment of the Center for Medicare Choices.
Sec. 302. Miscellaneous administrative provisions.

            TITLE IV--MEDICARE FEE-FOR-SERVICE IMPROVEMENTS

               Subtitle A--Provisions Relating to Part A

Sec. 401. Equalizing urban and rural standardized payment amounts under 
              the medicare inpatient hospital prospective payment 
              system.
Sec. 402. Adjustment to the medicare inpatient hospital PPS wage index 
              to revise the labor-related share of such index.
Sec. 403. Medicare inpatient hospital payment adjustment for low-volume 
              hospitals.
Sec. 404. Fairness in the medicare disproportionate share hospital 
              (DSH) adjustment for rural hospitals.
Sec. 405. Critical access hospital (CAH) improvements.
Sec. 406. Authorizing use of arrangements to provide core hospice 
              services in certain circumstances.
Sec. 407. Services provided to hospice patients by nurse practitioners, 
              clinical nurse specialists, and physician assistants.
Sec. 408. Authority to include costs of training of psychologists in 
              payments to hospitals under medicare.
Sec. 409. Revision of Federal rate for hospitals in Puerto Rico.
Sec. 410. Authority regarding geriatric fellowships.
Sec. 411. Clarification of congressional intent regarding the counting 
              of residents in a nonprovider setting and a technical 
              amendment regarding the 3-year rolling average and the 
              IME ratio.
Sec. 412. Limitation on charges for inpatient hospital contract health 
              services provided to Indians by medicare participating 
              hospitals.
Sec. 413. GAO study and report on appropriateness of payments under the 
              prospective payment system for inpatient hospital 
              services.

               Subtitle B--Provisions Relating to Part B

Sec. 421. Establishment of floor on geographic adjustments of payments 
              for physicians' services.
Sec. 422. Medicare incentive payment program improvements.
Sec. 423. Increase in renal dialysis composite rate.
Sec. 424. Extension of hold harmless provisions for small rural 
              hospitals and treatment of certain sole community 
              hospitals to limit decline in payment under the OPD PPS.
Sec. 425. Increase in payments for certain services furnished by small 
              rural and sole community hospitals under medicare 
              prospective payment system for hospital outpatient 
              department services.
Sec. 426. Increase for ground ambulance services furnished in a rural 
              area.
Sec. 427. Ensuring appropriate coverage of air ambulance services under 
              ambulance fee schedule.
Sec. 428. Treatment of certain clinical diagnostic laboratory tests 
              furnished by a sole community hospital.
Sec. 429. Improvement in rural health clinic reimbursement.
Sec. 430. Elimination of consolidated billing for certain services 
              under the medicare PPS for skilled nursing facility 
              services.
Sec. 431. Freeze in payments for certain items of durable medical 
              equipment and certain orthotics; establishment of quality 
              standards and accreditation requirements for DME 
              providers.
Sec. 432. Application of coinsurance and deductible for clinical 
              diagnostic laboratory tests.
Sec. 433. Basing medicare payments for covered outpatient drugs on 
              market prices.
Sec. 434. Indexing part B deductible to inflation.
Sec. 435. Revisions to reassignment provisions.
Sec. 436. Extension of treatment of certain physician pathology 
              services under medicare.
Sec. 437. Adequate reimbursement for outpatient pharmacy therapy under 
              the hospital outpatient PPS.
Sec. 438. Limitation of application of functional equivalence standard.
Sec. 439. Medicare coverage of routine costs associated with certain 
              clinical trials.
Sec. 440. Waiver of part B late enrollment penalty for certain military 
              retirees; special enrollment period.
Sec. 441. Demonstration of coverage of chiropractic services under 
              medicare.
Sec. 442. Medicare health care quality demonstration programs.
Sec. 443. Medicare complex clinical care management payment 
              demonstration.
Sec. 444. Medicare fee-for-service care coordination demonstration 
              program.
Sec. 445. GAO study of geographic differences in payments for 
              physicians' services.

            Subtitle C--Provisions Relating to Parts A and B

Sec. 451. Increase for home health services furnished in a rural area.
Sec. 452. Limitation on reduction in area wage adjustment factors under 
              the prospective payment system for home health services.
Sec. 453. Clarifications to certain exceptions to medicare limits on 
              physician referrals.
Sec. 454. Demonstration program for substitute adult day services.

  TITLE V--MEDICARE APPEALS, REGULATORY, AND CONTRACTING IMPROVEMENTS

                     Subtitle A--Regulatory Reform

Sec. 501. Rules for the publication of a final regulation based on the 
              previous publication of an interim final regulation.
Sec. 502. Compliance with changes in regulations and policies.
Sec. 503. Report on legal and regulatory inconsistencies.

                   Subtitle B--Appeals Process Reform

Sec. 511. Submission of plan for transfer of responsibility for 
              medicare appeals.
Sec. 512. Expedited access to judicial review.
Sec. 513. Expedited review of certain provider agreement 
              determinations.
Sec. 514. Revisions to medicare appeals process.
Sec. 515. Hearing rights related to decisions by the Secretary to deny 
              or not renew a medicare enrollment agreement; 
              consultation before changing provider enrollment forms.
Sec. 516. Appeals by providers when there is no other party available.
Sec. 517. Provider access to review of local coverage determinations.

                     Subtitle C--Contracting Reform

Sec. 521. Increased flexibility in medicare administration.

[[Page S8022]]

            Subtitle D--Education and Outreach Improvements

Sec. 531. Provider education and technical assistance.
Sec. 532. Access to and prompt responses from medicare contractors.
Sec. 533. Reliance on guidance.
Sec. 534. Medicare provider ombudsman.
Sec. 535. Beneficiary outreach demonstration programs.

          Subtitle E--Review, Recovery, and Enforcement Reform

Sec. 541. Prepayment review.
Sec. 542. Recovery of overpayments.
Sec. 543. Process for correction of minor errors and omissions on 
              claims without pursuing appeals process.
Sec. 544. Authority to waive a program exclusion.

                       TITLE VI--OTHER PROVISIONS

Sec. 601. Increase in medicaid DSH allotments for fiscal years 2004 and 
              2005.
Sec. 602. Increase in floor for treatment as an extremely low DSH State 
              under the medicaid program for fiscal years 2004 and 
              2005.
Sec. 603. Increased reporting requirements to ensure the 
              appropriateness of payment adjustments to 
              disproportionate share hospitals under the medicaid 
              program.
Sec. 604. Clarification of inclusion of inpatient drug prices charged 
              to certain public hospitals in the best price exemptions 
              for the medicaid drug rebate program.
Sec. 605. Assistance with coverage of legal immigrants under the 
              medicaid program and SCHIP.
Sec. 606. Establishment of consumer ombudsman account.
Sec. 607. GAO study regarding impact of assets test for low-income 
              beneficiaries.
Sec. 608. Health care infrastructure improvement.
Sec. 609. Capital infrastructure revolving loan program.
Sec. 610. Federal reimbursement of emergency health services furnished 
              to undocumented aliens.
Sec. 611. Increase in appropriation to the health care fraud and abuse 
              control account.
Sec. 612. Increase in civil penalties under the False Claims Act.
Sec. 613. Increase in civil monetary penalties under the Social 
              Security Act.
Sec. 614. Extension of customs user fees.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

   Subtitle A--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 E and by inserting 
     after part C the following new part:

         ``Part D--Voluntary Prescription Drug Delivery Program


        ``definitions; treatment of references to provisions in 
                       medicareadvantage program

       ``Sec. 1860D. (a) Definitions.--In this part:
       ``(1) Administrator.--The term `Administrator' means the 
     Administrator of the Center for Medicare Choices as 
     established under section 1808.
       ``(2) Covered drug.--
       ``(A) In general.--Except as provided in subparagraphs (B), 
     (C), and (D), 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 described in clauses (i) 
     through (iii) of subparagraph (B) of such section; or
       ``(iii) insulin described in subparagraph (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 
     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, but shall be so 
     considered if such payment is not available under part A or B 
     or because benefits under such parts have been exhausted.
       ``(C) Application of formulary restrictions.--A drug 
     prescribed for an individual that would otherwise be a 
     covered drug under this part shall not be so considered under 
     a plan if the plan excludes the drug under a formulary and 
     such exclusion is not successfully resolved under subsection 
     (d) or (e)(2) of section 1860D-5.
       ``(D) Application of general exclusion provisions.--A 
     Medicare Prescription Drug plan or a MedicareAdvantage plan 
     may exclude from qualified prescription drug coverage any 
     covered drug--
       ``(i) for which payment would not be made if section 
     1862(a) applied to part D; or
       ``(ii) which are not prescribed in accordance with the plan 
     or this part.
     Such exclusions are determinations subject to reconsideration 
     and appeal pursuant to section 1860D-5(e).
       ``(3) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual who is entitled to, or 
     enrolled for, benefits under part A and enrolled under part B 
     (other than a dual eligible individual, as defined in section 
     1860D-19(a)(4)(E)).
       ``(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) any other risk-bearing 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 
     prescription drug coverage, the comparable limit (if any) 
     established under the coverage.
       ``(6) Medicareadvantage organization; medicareadvantage 
     plan.--The terms `MedicareAdvantage organization' and 
     `MedicareAdvantage plan' have the meanings given such terms 
     in subsections (a)(1) and (b)(1), respectively, of section 
     1859 (relating to definitions relating to MedicareAdvantage 
     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) that has been approved under section 1860D-13; and
       ``(B) by an eligible entity pursuant to, and in accordance 
     with, a contract between the Administrator and the entity 
     under section 1860D-7(b).
       ``(8) Prescription drug account.--The term `Prescription 
     Drug Account' means the Prescription Drug Account (as 
     established under section 1860D-25) 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 prescription drug coverage.--The term 
     `standard prescription drug coverage' means the coverage 
     described in section 1860D-6(c).
       ``(b) Application of MedicareAdvantage 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 MedicareAdvantage 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) Medicareadvantage enrollees receive coverage through 
     medicareadvantage plan.--
       ``(i) In general.--Except as provided in clause (ii), an 
     eligible beneficiary who is enrolled under this part and 
     enrolled in a MedicareAdvantage plan offered by a 
     MedicareAdvantage organization shall receive coverage of 
     benefits under this part through such plan.
       ``(ii) Exception for enrollees in medicareadvantage msa 
     plans.--An eligible beneficiary who is enrolled under this 
     part and enrolled in an MSA plan under part C 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. For 
     purposes of this part, the term `MSA plan' has the meaning 
     given such term in section 1859(b)(3).
       ``(iii) Exception for enrollees in medicareadvantage 
     private fee-for-service plans.--An eligible beneficiary who 
     is enrolled under this part and enrolled in a private fee-
     for-service plan under part C shall--

       ``(i) receive benefits under this part through such plan if 
     the plan provides qualified prescription drug coverage; and
       ``(ii) if the plan does not provide qualified prescription 
     drug coverage, receive coverage of benefits under this part 
     through enrollment in a Medicare Prescription Drug plan

[[Page S8023]]

     that is offered in the geographic area in which the 
     beneficiary resides. For purposes of this part, the term 
     `private fee-for-service plan' has the meaning given such 
     term in section 1859(b)(2).

       ``(B) Fee-for-service enrollees receive coverage through a 
     medicare prescription drug plan.--An eligible beneficiary who 
     is enrolled under this part but is not enrolled in a 
     MedicareAdvantage plan (except for an MSA plan or a private 
     fee-for-service plan that does not provide 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.--Pursuant to section 1860D-
     6(b)(3)(C), the program established under this part shall 
     provide for coverage of all therapeutic categories and 
     classes of covered drugs (although not necessarily for all 
     drugs within such categories and classes).
       ``(4) Program to begin in 2006.--The Administrator shall 
     establish the program under this part in a manner so that 
     benefits are first provided beginning on January 1, 2006.
       ``(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 MedicareAdvantage plan offered by a 
     MedicareAdvantage 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 monthly beneficiary obligation.--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 
     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 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) 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 
     prescription drug 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 is 
     involuntarily disenrolled or becomes ineligible 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.

       ``(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.--
     Subject to subparagraph (G), for purposes of this part, the 
     term `creditable prescription drug coverage' means any of the 
     following:
       ``(i) Drug-only coverage under Medicaid.--Coverage of 
     covered outpatient drugs (as defined in section 1927) under 
     title XIX or a waiver under 1115 that is provided to an 
     individual who is not a dual eligible individual (as defined 
     in section 1860D-19(a)(4)(E)).
       ``(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 
     chapter 89 of title 5, United States Code (commonly known as 
     the Federal employees health benefits program), and a 
     qualified retiree prescription drug plan (as defined in 
     section 1860D-20(e)(4)).
       ``(iii) State pharmaceutical assistance program.--Coverage 
     of prescription drugs under a State pharmaceutical assistance 
     program.
       ``(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.
       ``(v) Prescription drug coverage under medigap policies.--
     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)).
       ``(G) Requirement for creditable coverage.--Coverage 
     described in clauses (i) through (v) of subparagraph (F) 
     shall not be considered to be creditable coverage under this 
     part unless 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 prescription drug coverage 
     (as determined under section 1860D-6(f)).
       ``(H) Disclosure.--
       ``(i) In general.--Each entity that offers coverage of the 
     type described in clause (ii) (iii), (iv), or (v) of 
     subparagraph (F) shall provide for disclosure, consistent 
     with standards established by the Administrator, of whether 
     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 prescription drug coverage (as 
     determined under section 1860D-6(f)).
       ``(ii) Waiver of limitations.--An individual may apply to 
     the Administrator to waive the application of subparagraph 
     (G) if the individual establishes that the individual was not 
     adequately informed that the coverage the beneficiary was 
     enrolled in did not provide the level of benefits required in 
     order for the coverage to be considered creditable coverage 
     under subparagraph (F).
       ``(2) Initial election periods.--
       ``(A) 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 
     November 1, 2005, there shall be an open enrollment period of 
     6 months beginning on that date under which such beneficiary 
     may enroll under this part without the application of the 
     late enrollment procedures established under paragraph 
     (1)(A).
       ``(B) Individual covered in future.--In the case of an 
     individual who becomes an eligible beneficiary after such 
     date, there shall be an initial election period which is the 
     same as the initial enrollment period under section 1837(d).
       ``(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 on--
       ``(i) in the case of a beneficiary with coverage described 
     in clause (ii) of paragraph (1)(F), the later of 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 or 
     the date the beneficiary is provided with notice of such 
     termination or reduction;

[[Page S8024]]

       ``(ii) in the case of a beneficiary with coverage described 
     in clause (i), (iii), or (iv) of paragraph (1)(F), the later 
     of the date on which the beneficiary is involuntarily 
     disenrolled or becomes ineligible for such coverage or the 
     date the beneficiary is provided with notice of such loss of 
     eligibility; or
       ``(iii) in the case of a beneficiary with coverage 
     described in clause (v) of paragraph (1)(F), the latter of 
     the date on which the issuer of the policy terminates 
     coverage under the policy or the date the beneficiary is 
     provided with notice of such termination.
       ``(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, 2006.
       ``(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, 2006.
       ``(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 
     part 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 MedicareAdvantage plan 
     (except for an MSA plan or a private fee-for-service plan 
     that does not provide qualified prescription drug coverage) 
     offered by a MedicareAdvantage organization--

       ``(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 any Medicare 
     Prescription Drug plan that has been designated by the 
     Administrator in the area. The Administrator shall establish 
     a process for designating a plan or plans in order to carry 
     out the preceding sentence.
       ``(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 
     MedicareAdvantage 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, 
     2006, in order to ensure that coverage under this part is 
     effective as of such date.
       ``(b) Enrollment in a MedicareAdvantage Plan.--
       ``(1) In general.--An eligible beneficiary who is enrolled 
     under this part and enrolled in a MedicareAdvantage plan 
     (except for an MSA plan or a private fee-for-service plan 
     that does not provide qualified prescription drug coverage) 
     offered by a MedicareAdvantage organization shall receive 
     access to such coverage under this part through such plan.
       ``(2) Rules.--Enrollment in a MedicareAdvantage plan is 
     subject to the rules for enrollment in such plan under 
     section 1851.
       ``(c) Information to Entities To Facilitate Enrollment.--
     Notwithstanding any other provision of law, the Administrator 
     may provide to each eligible entity with a contract under 
     this part such information about eligible beneficiaries as 
     the Administrator determines to be necessary to facilitate 
     efficient enrollment by such beneficiaries with such 
     entities. The Administrator may provide such information only 
     so long as and to the extent necessary to carry out such 
     objective.


                ``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 grievance and appeals processes under the 
     plan.
       ``(B) Monthly beneficiary obligation.--The monthly 
     beneficiary obligation under the plan.
       ``(C) Quality and performance.--The quality and performance 
     of the eligible entity offering the plan.
       ``(D) Beneficiary cost-sharing.--The cost-sharing required 
     of eligible beneficiaries under the plan.
       ``(E) Consumer satisfaction surveys.--The results of 
     consumer satisfaction surveys regarding the plan and the 
     eligible entity offering such plan (conducted pursuant to 
     section 1860D-5(h).
       ``(F) 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 processes.
     The information described in the preceding sentence shall 
     also be made available on request to prospective enrollees 
     during open enrollment periods.
       ``(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 
     information similar (as determined by the Administrator) to 
     the information described in subparagraphs (A), (B), and (C) 
     of 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 on a timely basis specific 
     information to enrollees upon request, including information 
     on the coverage of specific drugs and changes in its 
     formulary.
       ``(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--
       ``(A) an explanation of benefits (in accordance with 
     section 1806(a) or in a comparable manner); and
       ``(B) when prescription drug benefits are provided under 
     this part, a notice of the benefits in relation to the 
     initial coverage limit and annual out-of-pocket limit for the 
     current year (except that such notice need not be provided 
     more often than monthly).

[[Page S8025]]

       ``(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 have in place procedures to ensure that beneficiaries 
     are not charged more than the negotiated price of a covered 
     drug. Such procedures shall include the issuance of a card 
     (or other technology) that may be used by an enrolled 
     beneficiary 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 by 
     the Administrator under section 1860D-7(g) 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.--
       ``(i) In general.--The eligible entity must establish a 
     pharmacy and therapeutic committee that develops and reviews 
     the formulary.
       ``(ii) Composition.--A pharmacy and therapeutic committee 
     shall include at least 1 academic expert, at least 1 
     practicing physician, and at least 1 practicing pharmacist, 
     all of whom have expertise in the care of elderly or disabled 
     persons, and a majority of the members of such committee 
     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 on such 
     other information as the committee determines to be 
     appropriate.
       ``(C) Inclusion of drugs in all therapeutic categories and 
     classes.--
       ``(i) In general.--The formulary must include drugs within 
     each therapeutic category and class of covered drugs (as 
     defined by the Administrator), although not necessarily for 
     all drugs within such categories and classes.
       ``(ii) Requirement.--In defining therapeutic categories and 
     classes of covered drugs pursuant to clause (i), the 
     Administrator shall use--

       ``(I) the compendia referred to section 1927(g)(1)(B)(i); 
     and
       ``(II) other recognized sources of drug classifications and 
     categorizations determined appropriate by the Administrator.

       ``(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, 
     physicians, and pharmacists.
       ``(F) Appeals and exceptions to application.--The eligible 
     entity must have, as part of the appeals process under 
     subsection (e), 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 and to improve medication use, 
     which--
       ``(i) shall include a medication therapy management program 
     described in paragraph (2); and
       ``(ii) may include beneficiary education programs, 
     counseling, medication refill reminders, and special 
     packaging.
       ``(C) A program to control fraud, abuse, and waste.

     Nothing in this section shall be construed as impairing an 
     eligible entity from applying cost management tools 
     (including differential payments) under all methods of 
     operation.
       ``(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, hyperlipidemia, and 
     congestive heart failure) or multiple prescriptions, that 
     covered drugs under the Medicare Prescription Drug plan are 
     appropriately used to optimize therapeutic outcomes through 
     improved medication use and 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, Coverage Determinations, and 
     Reconsiderations.--
       ``(1) In general.--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 with Medicare Prescription Drug plans 
     of the eligible entity under this part in accordance with 
     section 1852(f).
       ``(2) Application of coverage determination and 
     reconsideration provisions.--The requirements of paragraphs 
     (1) through (3) of section 1852(g) shall apply to an eligible 
     entity 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 MedicareAdvantage 
     organization with respect to benefits it offers under a 
     MedicareAdvantage plan under part C.
       ``(3) 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 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.
       ``(e) Appeals.--
       ``(1) In general.--Subject to paragraph (2), the 
     requirements of paragraphs (4) and (5) of section 1852(g) 
     shall apply to an eligible entity with respect to drugs not 
     included on any formulary in a manner that is similar (as 
     determined by the Administrator) to the manner that such 
     requirements apply to a MedicareAdvantage organization with 
     respect to benefits it offers under a MedicareAdvantage plan 
     under part C.
       ``(2) 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 entity under the terms 
     applicable for a formulary drug 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) Privacy, Confidentiality, and Accuracy of Enrollee 
     Records.--Insofar as an eligible entity maintains 
     individually identifiable medical records or other health 
     information regarding eligible beneficiaries enrolled in the 
     Medicare Prescription Drug plan offered by the entity, the 
     entity shall have in place procedures to--
       ``(1) 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

[[Page S8026]]

     under section 264(c) of the Health Insurance Portability and 
     Accountability Act of 1996;
       ``(2) maintain such records and information in a manner 
     that is accurate and timely;
       ``(3) ensure timely access by such beneficiaries to such 
     records and information; and
       ``(4) otherwise comply with applicable laws relating to 
     patient privacy and confidentiality.
       ``(g) Uniform Monthly Plan Premium.--An eligible entity 
     shall ensure that the monthly plan premium for a Medicare 
     Prescription Drug plan charged under this part is the same 
     for all eligible beneficiaries enrolled in the plan.
       ``(h) Consumer Satisfaction Surveys.--An eligible entity 
     shall conduct consumer satisfaction surveys with respect to 
     the plan and the entity. The Administrator shall establish 
     uniform requirements for such surveys.


                      ``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 prescription drug coverage with access to 
     negotiated prices.--Standard prescription drug coverage (as 
     defined in subsection (c)) and access to negotiated prices 
     under subsection (e).
       ``(B) Actuarially equivalent prescription drug 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 
     paragraph (1).
       ``(3) Cost control mechanisms.--In providing qualified 
     prescription drug coverage, the entity offering the Medicare 
     Prescription Drug plan or the MedicareAdvantage plan may use 
     a variety of cost control mechanisms, 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 Prescription Drug Coverage.--For purposes of 
     this part and part C, the term `standard prescription drug 
     coverage' means coverage of covered drugs that meets the 
     following requirements:
       ``(1) Deductible.--
       ``(A) In general.--The coverage has an annual deductible--
       ``(i) for 2006, that is equal to $275; 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 (including the annual 
     deductible)--
       ``(i) for 2006, that is equal to $4,500; 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.--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 2006, is equal to $3,700; or
       ``(II) for a subsequent year, is equal to the amount 
     specified in this 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, 
     with respect to covered drugs, 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) (including costs incurred 
     for covered drugs described in section 1860D(a)(2)(C)); 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, under title XIX, or under a State pharmaceutical 
     assistance program 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.
       ``(D) Information regarding third-party reimbursement.--In 
     order to ensure compliance with the requirements of 
     subparagraph (C)(ii), the Administrator is authorized to 
     establish procedures, in coordination with the Secretary of 
     Treasury and the Secretary of Labor, for determining whether 
     costs for individuals are being reimbursed through insurance 
     or otherwise, a group health plan, or other third-party 
     payment arrangement, and for alerting the entities in which 
     such individuals are enrolled about such reimbursement 
     arrangements. An entity with a contract under this part may 
     also periodically ask individuals enrolled in a plan offered 
     by the entity whether the individuals have or expect to 
     receive such third-party reimbursement. A material 
     misrepresentation of the information described in the 
     preceding sentence by an individual (as defined in standards 
     set by the Administrator and determined through a process 
     established by the Administrator) shall constitute grounds 
     for termination of enrollment under section 1860D-2(d).
       ``(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 or MedicareAdvantage plan may provide 
     a different prescription drug benefit design from the 
     standard prescription drug 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 prescription 
     drug 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 prescription drug coverage.
       ``(B) Assuring equivalent unsubsidized value of coverage.--
     The unsubsidized value of the coverage is at least equal to 
     the unsubsidized value of standard prescription drug 
     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 initial 
     coverage limit under subsection (c)(3), of an amount equal to 
     at least the product of--
       ``(i) such initial coverage limit minus the deductible 
     under subsection (c)(1); and
       ``(ii) 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) Deductible and limitation on out-of-pocket 
     expenditures by beneficiaries may not vary.--The coverage may 
     not vary the deductible under subsection (c)(1) for the year 
     or the limitation on out-of-pocket expenditures by 
     beneficiaries described in subsection (c)(4) for the year.
       ``(e) Access to Negotiated Prices.--
       ``(1) Access.--
       ``(A) In general.--Under qualified prescription drug 
     coverage offered by an eligible entity or a MedicareAdvantage 
     organization, the entity or organization shall provide 
     beneficiaries with access to negotiated prices 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)). For purposes of this part, the term 
     `negotiated prices' includes all discounts, direct

[[Page S8027]]

     or indirect subsidies, rebates, or other price concessions or 
     direct or indirect remunerations.
       ``(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 MedicareAdvantage plan with 
     respect to such drugs, or under a qualified retiree 
     prescription drug plan (as defined in section 1860D-20(e)(4)) 
     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.--
       ``(A) In general.--In providing the access under paragraph 
     (1), the eligible entity or MedicareAdvantage organization 
     shall issue a card or use other technology pursuant to 
     section 1860D-5(b)(1).
       ``(B) National standards.--
       ``(i) Development.--The Administrator shall provide for the 
     development of national standards relating to a standardized 
     format for the card or other technology required under 
     subparagraph (A). Such standards shall be compatible with 
     parts C and D of title XI and may be based on standards 
     developed by an appropriate standard setting organization.
       ``(ii) Consultation.--In developing the standards under 
     clause (i), the Administrator shall consult with the National 
     Council for Prescription Drug Programs and other standard-
     setting organizations determined appropriate by the 
     Administrator.
       ``(iii) Implementation.--The Administrator shall implement 
     the standards developed under clause (i) by January 1, 2008.
       ``(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 prescription drug 
     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 prescription drug 
     coverage under subsection (c); and
       ``(B) for determining annual percentage increases described 
     in subsection (c)(5).

     Such processes shall take into account any effect that 
     providing actuarially equivalent prescription drug coverage 
     rather than standard prescription drug coverage has on drug 
     utilization.
       ``(2) Use of outside actuaries.--Under the processes under 
     paragraph (1)(A), eligible entities and MedicareAdvantage 
     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 
     subsections (d)(2) and (e) of section 1860D-13, to the extent 
     that the entity is at risk pursuant to such section 1860D-16, 
     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 section 1860D-20.
       ``(B) Reinsurance permitted.--To the extent that the entity 
     is at risk pursuant to section 1860D-16, 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, 2005, 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) Incorporation of Certain MedicareAdvantage Contract 
     Requirements.--The following provisions of section 1857 shall 
     apply, subject to subsection (c)(4), to contracts under this 
     section in the same manner as they apply to contracts under 
     section 1857(a):
       ``(1) Protections against fraud and beneficiary 
     protections.--Section 1857(d).
       ``(2) Intermediate sanctions.--Section 1857(g), except that 
     in applying such section--
       ``(A) the reference in section 1857(g)(1)(B) to section 
     1854 is deemed a reference to this part; and
       ``(B) the reference in section 1857(g)(1)(F) to section 
     1852(k)(2)(A)(ii) shall not be applied.
       ``(3) Procedures for termination.--Section 1857(h).
       ``(g) 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, 
     2005.
       ``(h) Periodic Review and Revision of Standards.--
       ``(1) In general.--Subject to paragraph (2), 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.
       ``(2) Prohibition of midyear implementation of significant 
     new regulatory requirements.--The Administrator may not 
     implement, other than at the beginning of a calendar year, 
     regulations under this section that impose new, significant 
     regulatory requirements on an eligible entity or a Medicare 
     Prescription Drug plan.
       ``(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, including requirements relating 
     to cost-sharing and the structure of formularies.
       ``(B) Premiums.
       ``(C) Requirements relating to inclusion or treatment of 
     providers.
       ``(D) Coverage determinations (including related appeals 
     and grievance processes).
       ``(E) Requirements relating to marketing materials and 
     summaries and schedules of

[[Page S8028]]

     benefits regarding a Medicare Prescription Drug plan.
       ``(3) Prohibition of state imposition of premium taxes.--No 
     State may impose a premium tax or similar tax with respect 
     to--
       ``(A) monthly beneficiary obligations 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, 
     2005, 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) Additional requirements.--The Administrator shall 
     establish the service areas under subsection (a) consistent 
     with the following requirements:
       ``(A) There shall be at least 10 service areas.
       ``(B) Each service area must include at least 1 State.
       ``(C) The Administrator may not divide States so that 
     portions of the State are in different service areas.
       ``(D) To the extent possible, the Administrator shall 
     include multistate metropolitan statistical areas in a single 
     service area. The Administrator may divide metropolitan 
     statistical areas where it is necessary to establish service 
     areas of such size and geography as to maximize the 
     participation of Medicare Prescription Drug plans.
       ``(3) May conform to medicareadvantage preferred provider 
     regions.--The Administrator may conform the service areas 
     established under this section to the preferred provider 
     regions established under section 1858(a)(3).


                    ``publication of risk adjusters

       ``Sec. 1860D-11. (a) Publication.--Not later than April 15 
     of each year (beginning in 2005), the Administrator shall 
     publish the risk adjusters established under subsection (b) 
     to be used in computing--
       ``(1) the amount of payment to Medicare Prescription Drug 
     plans in the subsequent year under section 1860D-16(a), 
     insofar as it is attributable to standard prescription drug 
     coverage (or actuarially equivalent prescription drug 
     coverage); and
       ``(2) the amount of payment to MedicareAdvantage plans in 
     the subsequent year under section 1858A(c), insofar as it is 
     attributable to standard prescription drug coverage (or 
     actuarially equivalent prescription drug coverage).
       ``(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 plans referred to in 
     subsection (a) to take into account variation in costs based 
     on the differences in actuarial risk of different enrollees 
     being served. Any such risk adjustment shall be designed in a 
     manner as to not result in a change in the aggregate payments 
     described in paragraphs (1) and (2) of subsection (a).
       ``(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 MedicareAdvantage organizations.
       ``(3) Data collection.--In order to carry out this 
     subsection, the Administrator shall require--
       ``(A) eligible entities to submit data regarding drug 
     claims that can be linked at the beneficiary level to part A 
     and part B data and such other information as the 
     Administrator determines necessary; and
       ``(B) MedicareAdvantage organizations (except MSA plans or 
     a private fee-for-service plan that does not provide 
     qualified prescription drug coverage) to submit data 
     regarding drug claims that can be linked to other data that 
     such organizations are required to submit to the 
     Administrator and such other information as the Administrator 
     determines necessary.


   ``submission of bids for proposed medicare prescription drug plans

       ``Sec. 1860D-12. (a) Submission.--
       ``(1) In general.--Each eligible entity that intends to 
     offer a Medicare Prescription Drug plan in an area in a year 
     (beginning with 2006) shall submit to the Administrator, at 
     such time in the previous year and in such manner as the 
     Administrator may specify, such information as the 
     Administrator may require, including the information 
     described in subsection (b).
       ``(2) Annual submission.--An eligible entity shall submit 
     the information required under paragraph (1) with respect to 
     a Medicare Prescription Drug plan that the entity intends to 
     offer on an annual basis.
       ``(b) Information Described.--The information described in 
     this subsection includes information on each of the 
     following:
       ``(1) The benefits under the plan (as required under 
     section 1860D-6).
       ``(2) The actuarial value of the qualified prescription 
     drug coverage.
       ``(3) The amount of the monthly plan premium under the 
     plan, including an actuarial certification of--
       ``(A) the actuarial basis for such monthly plan premium;
       ``(B) the portion of such monthly plan premium attributable 
     to standard prescription drug coverage or actuarially 
     equivalent prescription drug coverage and, if applicable, to 
     benefits that are in addition to such coverage; and
       ``(C) the reduction in such monthly plan premium resulting 
     from the payments provided under section 1860D-20.
       ``(4) The service area for the plan.
       ``(5) Whether the entity plans to use any funds in the plan 
     stabilization reserve fund in the Prescription Drug Account 
     that are available to the entity to stabilize or reduce the 
     monthly plan premium submitted under paragraph (3), and if 
     so, the amount in such reserve fund that is to be used.
       ``(6) 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) Approval.--
       ``(1) In general.--The Administrator shall review the 
     information filed under section 1860D-12 and shall approve or 
     disapprove the Medicare Prescription Drug plan.
       ``(2) Requirements for approval.--The Administrator may not 
     approve a Medicare Prescription Drug plan unless the 
     following requirements are met:
       ``(A) Compliance with requirements.--The plan and the 
     entity offering the plan comply with the requirements under 
     this part.
       ``(B) Application of fehbp standard.--(i) The portion of 
     the monthly plan premium submitted under section 1860D-12(b) 
     that is attributable to standard prescription drug coverage 
     reasonably and equitably reflects the actuarial value of the 
     standard prescription drug coverage less the actuarial value 
     of the reinsurance payments under section 1860D-20 and the 
     amount of any funds in the plan stabilization reserve fund in 
     the Prescription Drug Account used to stabilize or reduce the 
     monthly plan premium.
       ``(ii) If the plan provides additional prescription drug 
     coverage pursuant to section 1860D-6(a)(2), the monthly plan 
     premium reasonably and equitably reflects the actuarial value 
     of the coverage provided less the actuarial value of the 
     reinsurance payments under section 1860D-20 and the amount of 
     any funds in the plan stabilization reserve fund in the 
     Prescription Drug Account used to stabilize or reduce the 
     monthly plan premium.
       ``(b) Negotiation.--In exercising the authority under 
     subsection (a), the Administrator shall have the authority 
     to--
       ``(1) negotiate the terms and conditions of the proposed 
     monthly plan premiums submitted and other terms and 
     conditions of a proposed plan; and
       ``(2) disapprove, or limit enrollment in, a proposed plan 
     based on--
       ``(A) the costs to beneficiaries under the plan;
       ``(B) the quality of the coverage and benefits under the 
     plan;
       ``(C) the adequacy of the network under the plan; or
       ``(D) other factors determined appropriate by the 
     Administrator.
       ``(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) Access to Competitive Coverage.--
       ``(1) Number of contracts.--The Administrator, consistent 
     with the requirements of this part and the goal of containing 
     costs under this title, shall, with respect to a year, 
     approve at least 2 contracts to offer a Medicare Prescription 
     Drug plan in each service area (established under section 
     1860D-10) for the year.
       ``(2) Authority to reduce risk to ensure access.--
       ``(A) In general.--Subject to subparagraph (B), if the 
     Administrator determines, with respect to an area, that the 
     access required under paragraph (1) is not going to be 
     provided in the area during the subsequent year, the 
     Administrator shall--

[[Page S8029]]

       ``(i) adjust the percents specified in paragraphs (2) and 
     (4) of section 1860D-16(b) in an area in a year; or
       ``(ii) increase the percent specified in section 1860D-
     20(c)(1) in an area in a year.

     The administrator shall exercise the authority under the 
     preceding sentence only so long as (and to the extent) 
     necessary to assure the access guaranteed under paragraph 
     (1).
       ``(B) Requirements for use of authority.--In exercising 
     authority under subparagraph (A), the Administrator--
       ``(i) shall not provide for the full underwriting of 
     financial risk for any eligible entity;
       ``(ii) shall not provide for any underwriting of financial 
     risk for a public eligible entity with respect to the 
     offering of a nationwide Medicare Prescription Drug plan; and
       ``(iii) shall seek to maximize the assumption of financial 
     risk by eligible entities to ensure fair competition among 
     Medicare Prescription Drug plans.
       ``(C) Requirement to accept 2 full-risk qualified bids 
     before exercising authority.--The Administrator may not 
     exercise the authority under subparagraph (A) with respect to 
     an area and year if 2 or more qualified bids are submitted by 
     eligible entities to offer a Medicare Prescription Drug plan 
     in the area for the year under paragraph (1) before the 
     application of subparagraph (A).
       ``(D) Reports.--The Administrator, in each annual report to 
     Congress under section 1808(c)(1)(D), shall include 
     information on the exercise of authority under subparagraph 
     (A). The Administrator also shall include such 
     recommendations as may be appropriate to limit the exercise 
     of such authority.
       ``(e) Guaranteed Access.--
       ``(1) Access.--In order to assure access to qualified 
     prescription drug coverage in an area, the Administrator 
     shall take the following steps:
       ``(A) Determination.--Not later than September 1 of each 
     year (beginning in 2005) and for each area (established under 
     section 1860D-10), the Administrator shall make a 
     determination as to whether the access required under 
     subsection (d)(1) is going to be provided in the area during 
     the subsequent year. Such determination shall be made after 
     the Administrator has exercised the authority under 
     subsection (d)(2).
       ``(B) Contract with an entity to provide coverage in an 
     area.--Subject to paragraph (3), if the Administrator makes a 
     determination under subparagraph (A) that the access required 
     under subsection (d)(1) is not going to be provided in an 
     area during the subsequent year, the Administrator shall 
     enter into a contract with an entity to provide eligible 
     beneficiaries enrolled under this part (and not, except for 
     an MSA plan or a private fee-for-service plan that does not 
     provide qualified prescription drug coverage enrolled in a 
     MedicareAdvantage plan) and residing in the area with 
     standard prescription drug coverage (including access to 
     negotiated prices for such beneficiaries pursuant to section 
     1860D-6(e)) during the subsequent year. An entity may be 
     awarded a contract for more than 1 of the areas for which the 
     Administrator is required to enter into a contract under this 
     paragraph but the Administrator may enter into only 1 such 
     contract in each such area. An entity with a contract under 
     this part shall meet the requirements described in section 
     1860D-5 and such other requirements determined appropriate by 
     the Administrator.
       ``(C) Requirement to accept 2 reduced-risk qualified bids 
     before entering into contract.--The Administrator may not 
     enter into a contract under subparagraph (B) with respect to 
     an area and year if 2 or more qualified bids are submitted by 
     eligible entities to offer a Medicare Prescription Drug plan 
     in the area for the year after the Administrator has 
     exercised the authority under subsection (d)(2) in the area 
     for the year.
       ``(D) Entity required to meet beneficiary protection and 
     other requirements.--An entity with a contract under 
     subparagraph (B) shall meet the requirements described in 
     section 1860D-5 and such other requirements determined 
     appropriate by the Administrator.
       ``(E) 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 a 
     contract under subparagraph (B).
       ``(2) Monthly beneficiary obligation for enrollment.--
       ``(A) In general.--In the case of an eligible beneficiary 
     receiving access to qualified prescription drug coverage 
     through enrollment with an entity with a contract under 
     paragraph (1)(B), the monthly beneficiary obligation of such 
     beneficiary for such enrollment shall be an amount equal to 
     the applicable percent (as determined under section 1860D-
     17(c)) of the monthly national average premium (as computed 
     under section 1860D-15) for the area for the year, as 
     adjusted using the geographic adjuster under subparagraph 
     (B).
       ``(B) Establishment of geographic adjuster.--The 
     Administrator shall establish an appropriate methodology for 
     adjusting the monthly beneficiary obligation (as computed 
     under subparagraph (A)) for the year in an area to take into 
     account differences in drug prices among areas. In 
     establishing such methodology, the Administrator may take 
     into account differences in drug utilization between eligible 
     beneficiaries in an area and eligible beneficiaries in other 
     areas and the results of the ongoing study required under 
     section 106 of the Prescription Drug and Medicare Improvement 
     Act of 2003. Any such adjustment shall be applied in a manner 
     so as to not result in a change in the aggregate payments 
     made under this part that would have been made if the 
     Administrator had not applied such adjustment.
       ``(3) Payments under the contract.--
       ``(A) In general.--A contract entered into under paragraph 
     (1)(B) shall provide for--
       ``(i) payment for the negotiated costs of covered drugs 
     provided to eligible beneficiaries enrolled with the entity; 
     and
       ``(ii) payment of prescription management fees that are 
     tied to performance requirements established by the 
     Administrator for the management, administration, and 
     delivery of the benefits under the contract.
       ``(B) Performance requirements.--The performance 
     requirements established by the Administrator pursuant to 
     subparagraph (A)(ii) shall include the following:
       ``(i) The entity contains costs to the Prescription Drug 
     Account and to eligible beneficiaries enrolled under this 
     part and with the entity.
       ``(ii) The entity provides such beneficiaries with quality 
     clinical care.
       ``(iii) The entity provides such beneficiaries with quality 
     services.
       ``(C) Entity only at risk to the extent of the fees tied to 
     performance requirements.--An entity with a contract under 
     paragraph (1)(B) shall only be at risk for the provision of 
     benefits under the contract to the extent that the management 
     fees paid to the entity are tied to performance requirements 
     under subparagraph (A)(ii).
       ``(4) Eligible entity that submitted a bid for the area not 
     eligible to be awarded the contract.--An eligible entity that 
     submitted a bid to offer a Medicare Prescription Drug plan 
     for an area for a year under section 1860D-12, including a 
     bid submitted after the Administrator has exercised the 
     authority under subsection (d)(2), may not be awarded a 
     contract under paragraph (1)(B) for that area and year. The 
     previous sentence shall apply to an entity that was awarded a 
     contract under paragraph (1)(B) for the area in the previous 
     year and submitted such a bid under section 1860D-12 for the 
     year.
       ``(5) Term of contract.--A contract entered into under 
     paragraph (1)(B) shall be for a 1-year period. Such contract 
     may provide for renewal at the discretion of the 
     Administrator if the Administrator is required to enter into 
     a contract under such paragraph with respect to the area 
     covered by such contract for the subsequent year.
       ``(6) Entity not permitted to market or brand the 
     contract.--An entity with a contract under paragraph (1)(B) 
     may not engage in any marketing or branding of such contract.
       ``(7) Rules for areas where only 1 competitively bid plan 
     was approved.--In the case of an area where (before the 
     application of this subsection) only 1 Medicare Prescription 
     Drug plan was approved for a year--
       ``(A) the plan may (at the option of the plan) be offered 
     in the area for the year (under rules applicable to such 
     plans under this part and not under this subsection);
       ``(B) eligible beneficiaries described in paragraph (1)(B) 
     may receive access to qualified prescription drug coverage 
     through enrollment in the plan or with an entity with a 
     contract under paragraph (1)(B); and
       ``(C) for purposes of applying section 1860D-
     3(a)(1)(A)(ii), such plan shall be the plan designated in the 
     area under such section.
       ``(f) Two-Year Contracts.--Except for a contract entered 
     into under subsection (e)(1)(B), a contract approved under 
     this part (including a contract under) shall be for a 2-year 
     period.


 ``computation of monthly standard prescription drug coverage premiums

       ``Sec. 1860D-14. (a) In General.--For each year (beginning 
     with 2006), the Administrator shall compute a monthly 
     standard prescription drug coverage premium for each Medicare 
     Prescription Drug plan approved under section 1860D-13 and 
     for each MedicareAdvantage plan.
       ``(b) Requirements.--The monthly standard prescription drug 
     coverage premium for a plan for a year shall be equal to--
       ``(1) in the case of a plan offered by an eligible entity 
     or MedicareAdvantage organization that provides standard 
     prescription drug coverage or an actuarially equivalent 
     prescription drug coverage and does not provide additional 
     prescription drug coverage pursuant to section 1860D-6(a)(2), 
     the monthly plan 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 
     or MedicareAdvantage organization 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 prescription drug coverage offered under the 
     plan; or
       ``(B) if determined appropriate by the Administrator, the 
     monthly plan premium approved under section 1860D-13 for the 
     year for the Medicare Prescription Drug plan (or, if 
     applicable, the MedicareAdvantage plan) that, as required 
     under section 1860D-6(a)(2)(B) for a Medicare Prescription 
     Drug plans and a MedicareAdvantage plan--
       ``(i) is offered by such entity or organization in the same 
     area as the plan; and
       ``(ii) does not provide additional prescription drug 
     coverage pursuant to such section.

[[Page S8030]]

           ``computation of monthly national average premium

       ``Sec. 1860D-15. (a) Computation.--
       ``(1) In general.--For each year (beginning with 2006) the 
     Administrator shall compute a monthly national average 
     premium equal to the average of the monthly standard 
     prescription drug coverage premium for each Medicare 
     Prescription Drug plan and each MedicareAdvantage plan (as 
     computed under section 1860D-14). Such premium may be 
     adjusted pursuant to any methodology determined under 
     subsection (b), as determined appropriate by the 
     Administrator.
       ``(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) Geographic Adjustment.--The Administrator shall 
     establish an appropriate methodology for adjusting the 
     monthly national average premium (as computed under 
     subsection (a)) for the year in an area to take into account 
     differences in prices for covered drugs among different 
     areas. In establishing such methodology, the Administrator 
     may take into account differences in drug utilization between 
     eligible beneficiaries in that area and other eligible 
     beneficiaries and the results of the ongoing study required 
     under section 106 of the Prescription Drug and Medicare 
     Improvement Act of 2003. Any such adjustment shall be applied 
     in a manner as to not result in a change in aggregate 
     payments made under this part than would have been made if 
     the Administrator had not applied such adjustment.
       ``(c) Special Rule for 2006.--For purposes of applying this 
     section for 2006, the Administrator shall establish 
     procedures for determining the weighted average under 
     subsection (a)(2) for 2005.


                    ``payments to eligible entities

       ``Sec. 1860D-16. (a) Payment of Monthly Plan Premiums.--For 
     each year (beginning with 2006), 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 plan 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 
     prescription drug coverage published under section 1860D-11.
       ``(b) Portion of Total Payments of Monthly Plan Premiums 
     Subject to Risk.--
       ``(1) Notification of spending under the plan.--
       ``(A) In general.--For each year (beginning in 2007), the 
     eligible entity offering a Medicare Prescription Drug plan 
     shall notify the Administrator of the following:
       ``(i) Total actual costs.--The total amount of costs that 
     the entity incurred in providing standard prescription drug 
     coverage (or prescription drug coverage that is actuarially 
     equivalent pursuant to section 1860D-6(a)(1)(B)) for all 
     enrollees under the plan in the previous year.
       ``(ii) Actual costs for specific drugs.--With respect to 
     the total amount under clause (i) for the year, a breakdown 
     of--

       ``(I) each covered drug that constitutes a portion of such 
     amount;
       ``(II) the negotiated price for the eligible entity for 
     each such drug;
       ``(III) the number of prescriptions; and
       ``(IV) the average beneficiary coinsurance rate for a each 
     covered drug that constitutes a portion of such amount.

       ``(B) Certain expenses not included.--The amounts under 
     clauses (i) and (ii)(II) of subparagraph (A) may not 
     include--
       ``(i) administrative expenses incurred in providing the 
     coverage described in subparagraph (A)(i);
       ``(ii) amounts expended on providing additional 
     prescription drug coverage pursuant to section 1860D-6(a)(2); 
     or
       ``(iii) amounts expended for which the entity is 
     subsequently provided with reinsurance payments under section 
     1860D-20.
       ``(2) Adjustment of payment.--
       ``(A) No adjustment if allowable costs within risk 
     corridor.--If the allowable costs (specified in paragraph 
     (3)) for the plan for the year are not more than the first 
     threshold upper limit of the risk corridor (specified in 
     paragraph (4)(A)(iii)) and are not less than the first 
     threshold lower limit of the risk corridor (specified in 
     paragraph (4)(A)(i)) for the plan for the year, then no 
     additional payments shall be made by the Administrator and no 
     payments shall be made by (or collected from) the eligible 
     entity offering the plan.
       ``(B) Increase in payment if allowable costs above upper 
     limit of risk corridor.--
       ``(i) In general.--If the allowable costs for the plan for 
     the year are more than the first threshold upper limit of the 
     risk corridor for the plan for the year, then the 
     Administrator shall increase the total of the monthly 
     payments made to the entity offering the plan for the year 
     under subsection (a) by an amount equal to the sum of--

       ``(I) the applicable percent (as defined in subparagraph 
     (D)) of such allowable costs which are more than such first 
     threshold upper limit of the risk corridor and not more than 
     the second threshold upper limit of the risk corridor for the 
     plan for the year (as specified under paragraph (4)(A)(iv)); 
     and

       ``(II) 90 percent of such allowable costs which are more 
     than such second threshold upper limit of the risk corridor.

       ``(ii) Special transitional corridor for 2006 and 2007.--If 
     the Administrator determines with respect to 2006 or 2007 
     that at least 60 percent of Medicare Prescription Drug plans 
     and MedicareAdvantage Plans (excluding MSA plans or private 
     fee-for-service plans that do not provide qualified 
     prescription drug coverage) have allowable costs for the plan 
     for the year that are more than the first threshold upper 
     limit of the risk corridor for the plan for the year and that 
     such plans represent at least 60 percent of eligible 
     beneficiaries enrolled under this part, clause (i)(I) shall 
     be applied by substituting `90 percent' for `applicable 
     percent'.
       ``(C) Plan payment if allowable costs below lower limit of 
     risk corridor.--If the allowable costs for the plan for the 
     year are less than the first threshold lower limit of the 
     risk corridor for the plan for the year, then the entity 
     offering the plan shall a make a payment to the Administrator 
     of an amount (or the Administrator shall otherwise recover 
     from the plan an amount) equal to--
       ``(i) the applicable percent (as so defined) of such 
     allowable costs which are less than such first threshold 
     lower limit of the risk corridor and not less than the second 
     threshold lower limit of the risk corridor for the plan for 
     the year (as specified under paragraph (4)(A)(ii)); and
       ``(ii) 90 percent of such allowable costs which are less 
     than such second threshold lower limit of the risk corridor.
       ``(D) Applicable percent defined.--For purposes of this 
     paragraph, the term `applicable percent' means--
       ``(i) for 2006 and 2007, 75 percent; and
       ``(ii) for 2008 and subsequent years, 50 percent.
       ``(3) Establishment of allowable costs.--
       ``(A) In general.--For each year, the Administrator shall 
     establish the allowable costs for each Medicare Prescription 
     Drug plan for the year. The allowable costs for a plan for a 
     year shall be equal to the amount described in paragraph 
     (1)(A)(i) for the plan for the year, adjusted under 
     subparagraph (B)(ii).
       ``(B) Repricing of costs.--
       ``(i) Calculation of average plan cost.--Utilizing the 
     information obtained under paragraph (1)(A)(ii) and section 
     1860D-20(b)(1)(B), for each year (beginning with 2006), the 
     Administrator shall establish an average negotiated price 
     with respect to all Medicare Prescription Drug plans for each 
     covered drug.
       ``(ii) Adjustment if actual costs exceed average costs.--
     With respect to a Medicare Prescription Drug plan for a year, 
     the Administrator shall reduce the amount described in 
     paragraph (1)(A)(i) for the plan for the year to the extent 
     such amount is based on costs of specific covered drugs 
     furnished under the plan in the year (as specified under 
     paragraph (1)(A)(ii)) for which the negotiated prices are 
     greater than the average negotiated price for the covered 
     drug for the year (as determined under clause (i)).
       ``(4) Establishment of risk corridors.--
       ``(A) In general.--For each year (beginning with 2006), the 
     Administrator shall establish a risk corridor for each 
     Medicare Prescription Drug plan. The risk corridor for a plan 
     for a year shall be equal to a range as follows:
       ``(i) First threshold lower limit.--The first threshold 
     lower limit of such corridor shall be equal to--

       ``(I) the target amount described in subparagraph (B) for 
     the plan; minus
       ``(II) an amount equal to the first threshold risk 
     percentage for the plan (as determined under subparagraph 
     (C)(i)) of such target amount.

       ``(ii) Second threshold lower limit.--The second threshold 
     lower limit of such corridor shall be equal to--

       ``(I) the target amount described in subparagraph (B) for 
     the plan; minus
       ``(II) an amount equal to the second threshold risk 
     percentage for the plan (as determined under subparagraph 
     (C)(ii)) of such target amount.

       ``(iii) First threshold upper limit.--The first threshold 
     upper limit of such corridor shall be equal to the sum of--

       ``(I) such target amount; and
       ``(II) the amount described in clause (i)(II).

       ``(iv) Second threshold upper limit.--The second threshold 
     upper limit of such corridor shall be equal to the sum of--

       ``(I) such target amount; and
       ``(II) the amount described in clause (ii)(II).

       ``(B) Target amount described.--The target amount described 
     in this paragraph is, with respect to a Medicare Prescription 
     Drug plan offered by an eligible entity in a year--
       ``(i) in the case of a plan offered by an eligible entity 
     that provides standard prescription drug coverage or 
     actuarially equivalent prescription drug coverage and does 
     not provide additional prescription drug coverage pursuant to 
     section 1860D-6(a)(2), an amount equal to the total of the 
     monthly plan premiums paid to such entity for such plan for 
     the year pursuant to subsection (a), reduced by the 
     percentage specified in subparagraph (D); and
       ``(ii) in the case of a plan offered by an eligible entity 
     that provides additional prescription drug coverage pursuant 
     to section 1860D-6(a)(2), an amount equal to the total of the 
     monthly plan premiums paid to such entity for such plan for 
     the year pursuant to subsection (a) that are related to 
     standard prescription drug coverage (determined using the 
     rules under section 1860D-14(b)), reduced by the percentage 
     specified in subparagraph (D).

[[Page S8031]]

       ``(C) First and second threshold risk percentage defined.--
       ``(i) First threshold risk percentage.--Subject to clause 
     (iii), for purposes of this section, the first threshold risk 
     percentage is--

       ``(I) for 2006 and 2007, and 2.5 percent;

       ``(II) for 2008 through 2011, 5 percent; and
       ``(III) for 2012 and subsequent years, a percentage 
     established by the Administrator, but in no case less than 5 
     percent.

       ``(ii) Second threshold risk percentage.--Subject to clause 
     (iii), for purposes of this section, the second threshold 
     risk percentage is--

       ``(I) for 2006 and 2007, 5.0 percent;
       ``(II) for 2008 through 2011, 10 percent
       ``(III) for 2012 and subsequent years, a percentage 
     established by the Administrator that is greater than the 
     percent established for the year under clause (i)(III), but 
     in no case less than 10 percent.

       ``(iii) Reduction of risk percentage to ensure 2 plans in 
     an area.--Pursuant to paragraph (2) of section 1860D-13(d), 
     the Administrator may reduce the applicable first or second 
     threshold risk percentage in an area in a year in order to 
     ensure the access to plans required under paragraph (1) of 
     such section.
       ``(D) Target amount not to include administrative expenses 
     negotiated between the administrator and the entity offering 
     the plan.--For each year (beginning in 2006), the 
     Administrator and the entity offering a Medicare Prescription 
     Drug plan shall negotiate, as part of the negotiation process 
     described in section 1860D-13(b) during the previous year, 
     the percentage of the payments to the entity under subsection 
     (a) with respect to the plan that are attributable and 
     reasonably incurred for administrative expenses for providing 
     standard prescription drug coverage or actuarially equivalent 
     prescription drug coverage in the year.
       ``(5) Plans at risk for entire amount of additional 
     prescription drug coverage.--An eligible entity that offers a 
     Medicare Prescription Drug plan that provides additional 
     prescription drug coverage pursuant to section 1860D-6(a)(2) 
     shall be at full financial risk for the provision of such 
     additional coverage.
       ``(6) No effect on eligible beneficiaries.--No change in 
     payments made by reason of this subsection shall affect the 
     beneficiary obligation under section 1860D-17 for the year in 
     which such change in payments is made.
       ``(7) Disclosure of information.--
       ``(A) In general.--Each contract under this part shall 
     provide that--
       ``(i) the entity offering a Medicare Prescription Drug plan 
     shall provide the Administrator with such information as the 
     Administrator determines is necessary to carry out this 
     section; and
       ``(ii) the Administrator shall have the right to inspect 
     and audit any books and records of the eligible entity that 
     pertain to the information regarding costs provided to the 
     Administrator under paragraph (1).
       ``(B) Restriction on use of information.--Information 
     disclosed or obtained pursuant to the provisions of this 
     section may be used by officers and employees of the 
     Department of Health and Human Services only for the purposes 
     of, and to the extent necessary in, carrying out this 
     section.
       ``(c) Stabilization Reserve Fund.--
       ``(1) Establishment.--
       ``(A) In general.--There is established, within the 
     Prescription Drug Account, a stabilization reserve fund in 
     which the Administrator shall deposit amounts on behalf of 
     eligible entities in accordance with paragraph (2) and such 
     amounts shall be made available by the Secretary for the use 
     of eligible entities in contract year 2008 and subsequent 
     contract years in accordance with paragraph (3).
       ``(B) Reversion of unused amounts.--Any amount in the 
     stabilization reserve fund established under subparagraph (A) 
     that is not expended by an eligible entity in accordance with 
     paragraph (3) or that was deposited for the use of an 
     eligible entity that no longer has a contract under this part 
     shall revert for the use of the Prescription Drug Account.
       ``(2) Deposit of amounts for 5 years.--
       ``(A) In general.--If the target amount for a Medicare 
     Prescription Drug plan for 2006, 2007, 2008, 2009, or 2010 
     (as determined under subsection (b)(4)(B)) exceeds the 
     applicable costs for the plan for the year by more than 3 
     percent, then--
       ``(i) the entity offering the plan shall make a payment to 
     the Administrator of an amount (or the Administrator shall 
     otherwise recover from the plan an amount) equal to the 
     portion of such excess that is in excess of 3 percent of the 
     target amount; and
       ``(ii) the Administrator shall deposit an amount equal to 
     the amount collected or otherwise recovered under clause (i) 
     in the stabilization reserve fund on behalf of the eligible 
     entity offering such plan.
       ``(B) Applicable costs.--For purposes of subparagraph (A), 
     the term `applicable costs' means, with respect to a Medicare 
     Prescription Drug plan and year, an amount equal the sum of--
       ``(i) the allowable costs for the plan and year (as 
     determined under subsection (b)(3)(A); and
       ``(ii) the total amount by which monthly payments to the 
     plan were reduced (or otherwise recovered from the plan) for 
     the year under subsection (b)(2)(C).
       ``(3) Use of reserve fund to stabilize or reduce monthly 
     plan premiums.--
       ``(A) In general.--For any contract year beginning after 
     2007, an eligible entity offering a Medicare Prescription 
     Drug plan may use funds in the stabilization reserve fund in 
     the Prescription Drug Account that were deposited in such 
     fund on behalf of the entity to stabilize or reduce monthly 
     plan premiums submitted under section 1860D-12(b)(3).
       ``(B) Procedures.--The Administrator shall establish 
     procedures for--
       ``(i) reducing monthly plan premiums submitted under 
     section 1860D-12(b)(3) pursuant to subparagraph (A); and
       ``(ii) making payments from the plan stabilization reserve 
     fund in the Prescription Drug Account to eligible entities 
     that inform the Secretary under section 1860D-12(b)(5) of the 
     entity's intent to use funds in such reserve fund to reduce 
     such premiums.
       ``(d) Portion of Payments of Monthly Plan Premiums 
     Attributable to Administrative Expenses Tied to Performance 
     Requirements.--
       ``(1) In general.--The Administrator shall establish 
     procedures to adjust the portion of the payments made to an 
     entity under subsection (a) that are attributable to 
     administrative expenses (as determined pursuant to subsection 
     (b)(4)(D)) to ensure that the entity meets the performance 
     requirements described in clauses (ii) and (iii) of section 
     1860D-13(e)(4)(B).
       ``(2) No effect on eligible beneficiaries.--No change in 
     payments made by reason of this subsection shall affect the 
     beneficiary obligation under section 1860D-17 for the year in 
     which such change in payments is made.
       ``(e) Payment Terms.--
       ``(1) Administrator payments.--Payments to an entity 
     offering a Medicare Prescription Drug plan under this section 
     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 MedicareAdvantage 
     organizations).
       ``(2) Plan payments.--The Administrator shall establish a 
     process for collecting (or other otherwise recovering) 
     amounts that an entity offering a Medicare Prescription Drug 
     plan is required to make to the Administrator under this 
     section.
       ``(f) Payments to MedicareAdvantage Plans.--For provisions 
     related to payments to MedicareAdvantage organizations 
     offering MedicareAdvantage plans for qualified prescription 
     drug coverage made available under the plan, see section 
     1858A(c).
       ``(g) Secondary Payer Provisions.--The provisions of 
     section 1862(b) shall apply to the benefits provided under 
     this part.


            ``computation of monthly 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) Monthly plan premium equals monthly national average 
     premium.--If the amount of the monthly plan 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 area for the year, the monthly beneficiary obligation 
     of the eligible beneficiary in that year shall be an amount 
     equal to the applicable percent (as determined in subsection 
     (c)) of the amount of such monthly national average premium.
       ``(2) Monthly plan premium less than monthly national 
     average premium.--If the amount of the monthly plan 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 area for the year, the monthly beneficiary 
     obligation of the eligible beneficiary in that year shall be 
     an amount equal to--
       ``(A) the applicable percent of the amount of such monthly 
     national average premium; minus
       ``(B) the amount by which such monthly national average 
     premium exceeds the amount of the monthly plan premium 
     approved by the Administrator for the plan.
       ``(3) Monthly plan premium exceeds monthly national average 
     premium.--If the amount of the monthly plan 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 area for the year, the monthly beneficiary 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 such monthly 
     national average premium; plus
       ``(B) the amount by which the monthly plan premium approved 
     by the Administrator for the plan exceeds the amount of such 
     monthly national average premium.
       ``(b) Beneficiaries Enrolled in a MedicareAdvantage Plan.--
     In the case of an eligible beneficiary that is enrolled in a 
     MedicareAdvantage plan (except for an MSA plan or a private 
     fee-for-service plan that does not provide qualified 
     prescription drug coverage), the Medicare monthly beneficiary 
     obligation for qualified prescription drug coverage shall be 
     determined pursuant to section 1858A(d).
       ``(c) Applicable Percent.--For purposes of this section, 
     except as provided in section

[[Page S8032]]

     1860D-19 (relating to premium subsidies for low-income 
     individuals), the applicable percent for any year is the 
     percentage equal to a fraction--
       ``(1) the numerator of which is 30 percent; and
       ``(2) the denominator of which is 100 percent minus a 
     percentage equal to--
       ``(A) the total reinsurance payments which the 
     Administrator estimates will be made under section 1860D-20 
     to qualifying entities described in subsection (e)(3) of such 
     section during the year; divided by
       ``(B) the sum of--
       ``(i) the amount estimated under subparagraph (A) for the 
     year; and
       ``(ii) the total payments which the Administrator estimates 
     will be made under sections 1860D-16 and 1858A(c) during the 
     year that relate to standard prescription drug coverage (or 
     actuarially equivalent prescription drug coverage).


             ``collection of monthly beneficiary obligation

       ``Sec. 1860D-18. (a) Collection of Amount in Same Manner as 
     Part B Premium.--
       ``(1) In general.--Subject to paragraph (2), 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.
       ``(2) Procedures for sponsor to pay obligation on behalf of 
     retiree.--The Administrator shall establish procedures under 
     which an eligible beneficiary enrolled in a Medicare 
     Prescription Drug plan may elect to have the sponsor (as 
     defined in paragraph (5) of section 1860D-20(e)) of 
     employment-based retiree health coverage (as defined in 
     paragraph (4)(B) of such section) in which the beneficiary is 
     enrolled pay the amount of the monthly beneficiary obligation 
     applicable to the beneficiary under this part directly to the 
     Administrator.
       ``(b) Information Necessary for Collection.--In order to 
     carry out subsection (a), the Administrator shall transmit to 
     the Commissioner of Social Security--
       ``(1) by the beginning of each year, the name, social 
     security account number, monthly beneficiary obligation owed 
     by each individual enrolled in a Medicare Prescription Drug 
     plan for each month during the year, and other information 
     determined appropriate by the Administrator; and
       ``(2) periodically throughout the year, information to 
     update the information previously transmitted under this 
     paragraph for the year.
       ``(c) Collection for Beneficiaries Enrolled in a 
     MedicareAdvantage Plan.--For provisions related to the 
     collection of the monthly beneficiary obligation for 
     qualified prescription drug coverage under a 
     MedicareAdvantage plan, see section 1858A(e).


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

       ``Sec. 1860D-19. (a) Amount of Subsidies.--
       ``(1) Full premium subsidy and reduction of cost-sharing 
     for qualified medicare beneficiaries.--In the case of a 
     qualified medicare beneficiary (as defined in paragraph 
     (4)(A))--
       ``(A) section 1860D-17 shall be applied--
       ``(i) in subsection (c), by substituting `0 percent' for 
     the applicable percent that would otherwise apply under such 
     subsection; and
       ``(ii) in subsection (a)(3)(B), by substituting `the amount 
     of the monthly plan premium for the Medicare Prescription 
     Drug plan with the lowest monthly plan premium in the area 
     that the beneficiary resides' for `the amount of such 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 plan premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     area for the year;
       ``(B) the annual deductible applicable under section 1860D-
     6(c)(1) in a year shall be reduced to $0;
       ``(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 the initial coverage limit 
     described in section 1860D-6(c)(3) and before the individual 
     has reached the annual out-of-pocket limit under section 
     1860D-6(c)(4)(A)), that is equal to 5.0 percent; and
       ``(E) section 1860D-6(c)(4)(A) shall be applied by 
     substituting `2.5 percent' for `10 percent'.

     In no case may the application of subparagraph (A) result in 
     a monthly beneficiary obligation that is below 0.
       ``(2) Full premium subsidy and reduction of cost-sharing 
     for specified low income medicare beneficiaries and 
     qualifying individuals.--In the case of a specified low 
     income medicare beneficiary (as defined in paragraph (4)(B)) 
     or a qualifying individual (as defined in paragraph (4)(C))--
       ``(A) section 1860D-17 shall be applied--
       ``(i) in subsection (c), by substituting `0 percent' for 
     the applicable percent that would otherwise apply under such 
     subsection; and
       ``(ii) in subsection (a)(3)(B), by substituting `the amount 
     of the monthly plan premium for the Medicare Prescription 
     Drug plan with the lowest monthly plan premium in the area 
     that the beneficiary resides' for `the amount of such 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 plan premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     area for the year;
       ``(B) the annual deductible applicable under section 1860D-
     6(c)(1) in a year shall be reduced to $0;
       ``(C) section 1860D-6(c)(2) shall be applied by 
     substituting `5.0 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 the initial coverage limit 
     described in section 1860D-6(c)(3) and before the individual 
     has reached the annual out-of-pocket limit under section 
     1860D-6(c)(4)(A)), that is equal to 10.0 percent; and
       ``(E) section 1860D-6(c)(4)(A) shall be applied by 
     substituting `2.5 percent' for `10 percent'.
     In no case may the application of subparagraph (A) result in 
     a monthly beneficiary obligation that is below 0.
       ``(3) Sliding scale premium subsidy and reduction of cost-
     sharing for subsidy-eligible individuals.--
       ``(A) In general.--In the case of a subsidy-eligible 
     individual (as defined in paragraph (4)(D))--
       ``(i) section 1860D-17 shall be applied--

       ``(I) in subsection (c), by substituting `subsidy percent' 
     for the applicable percentage that would otherwise apply 
     under such subsection; and
       ``(II) in subparagraphs (A) and (B) of subsection (a)(3), 
     by substituting `the amount of the monthly plan premium for 
     the Medicare Prescription Drug plan with the lowest monthly 
     plan premium in the area that the beneficiary resides' for 
     `the amount of such 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 plan premium for the year that is equal to or less 
     than the monthly national average premium (as computed under 
     section 1860D-15) for the area for the year; and

       ``(ii) the annual deductible applicable under section 
     1860D-6(c)(1)--

       ``(I) for 2006, shall be reduced to $50; and
       ``(II) for a subsequent year, shall be reduced to the 
     amount specified under this clause for the previous year 
     increased by the percentage specified in section 1860D-
     6(c)(5) for the year involved;

       ``(iii) section 1860D-6(c)(2) shall be applied by 
     substituting `10.0 percent' for `50 percent' each place it 
     appears;
       ``(iv) such individual shall be responsible for cost-
     sharing for the cost of any covered drug provided in the year 
     (after the individual has reached the initial coverage limit 
     described in section 1860D-6(c)(3) and before the individual 
     has reached the annual out-of-pocket limit under section 
     1860D-6(c)(4)(A)), that is equal to 20.0 percent; and
       ``(v) such individual shall be responsible for the cost-
     sharing described in section 1860D-6(c)(4)(A).

     In no case may the application of clause (i) result in a 
     monthly beneficiary obligation that is below 0.
       ``(B) Subsidy percent defined.--For purposes of 
     subparagraph (A)(i), the term `subsidy percent' means, with 
     respect to a State, a percent determined on a linear sliding 
     scale ranging from--
       ``(i) 0 percent with respect to a subsidy-eligible 
     individual residing in the State whose income does not exceed 
     135 percent of the poverty line; to
       ``(ii) the highest percentage that would otherwise apply 
     under section 1860D-17 in the service area in which the 
     subsidy-eligible individual resides, in the case of a 
     subsidy-eligible individual residing in the State whose 
     income equals 160 percent of the poverty line.
       ``(4) Definitions.--In this part:
       ``(A) Qualified medicare beneficiary.--Subject to 
     subparagraph (H), the term `qualified medicare beneficiary' 
     means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan;
       ``(ii) is described in section 1905(p)(1); and
       ``(iii) is not--

       ``(I) a specified low-income medicare beneficiary;
       ``(II) a qualifying individual; or
       ``(III) a dual eligible individual.

       ``(B) Specified low income medicare beneficiary.--Subject 
     to subparagraph (H), the term `specified low income medicare 
     beneficiary' means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan;
       ``(ii) is described in section 1902(a)(10)(E)(iii); and
       ``(iii) is not--

       ``(I) a qualified medicare beneficiary;
       ``(II) a qualifying individual; or
       ``(III) a dual eligible individual.

       ``(C) Qualifying individual.--Subject to subparagraph (H), 
     the term `qualifying individual' means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan;

[[Page S8033]]

       ``(ii) is described in section 1902(a)(10)(E)(iv) (without 
     regard to any termination of the application of such section 
     under title XIX); and
       ``(iii) is not--

       ``(I) a qualified medicare beneficiary;
       ``(II) a specified low-income medicare beneficiary; or
       ``(III) a dual eligible individual.

       ``(D) Subsidy-eligible individual.--Subject to subparagraph 
     (H), the term `subsidy-eligible individual' means an 
     individual--
       ``(i) who is enrolled under this part, including an 
     individual who is enrolled under a MedicareAdvantage plan;
       ``(ii) whose income is less than 160 percent of the poverty 
     line; and
       ``(iii) who is not--

       ``(I) a qualified medicare beneficiary;
       ``(II) a specified low-income medicare beneficiary;
       ``(III) a qualifying individual; or
       ``(IV) a dual eligible individual.

       ``(E) Dual eligible individual.--
       ``(i) In general.--The term `dual eligible individual' 
     means an individual who is--

       ``(I) enrolled under title XIX or under a waiver under 
     section 1115 of the requirements of such title for medical 
     assistance that is not less than the medical assistance 
     provided to an individual described in section 
     1902(a)(10)(A)(i) and includes covered outpatient drugs (as 
     such term is defined for purposes of section 1927); and
       ``(II) entitled to benefits under part A and enrolled under 
     part B.

       ``(ii) Inclusion of medically needy.--Such term includes an 
     individual described in section 1902(a)(10)(C).
       ``(F) Poverty line.--The term `poverty line' has the 
     meaning given such term in section 673(2) of the Community 
     Services Block Grant Act (42 U.S.C. 9902(2)), including any 
     revision required by such section.
       ``(G) Eligibility determinations.--Beginning on November 1, 
     2005, the determination of whether an individual residing in 
     a State is an individual described in subparagraph (A), (B), 
     (C), (D), or (E) and, for purposes of paragraph (3), the 
     amount of an 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.
       ``(H) Nonapplication to dual eligible individuals and 
     territorial residents.--In the case of an individual who is a 
     dual eligible individual or an individual who is not a 
     resident of the 50 States or the District of Columbia--
       ``(i) the subsidies provided under this section shall not 
     apply; and
       ``(ii) such individuals may be provided with medical 
     assistance for covered outpatient drugs (as such term is 
     defined for purposes of section 1927) in accordance with 
     section 1935 under the State medicaid program under title 
     XIX.
       ``(b) Rules in Applying Cost-Sharing Subsidies.--Nothing in 
     this section shall be construed as preventing an eligible 
     entity offering a Medicare Prescription Drug plan or a 
     MedicareAdvantage organization offering a MedicareAdvantage 
     plan from waiving or reducing the amount of the deductible or 
     other cost-sharing otherwise applicable pursuant to section 
     1860D-6(a)(2).
       ``(c) Administration of Subsidy Program.--The Administrator 
     shall establish a process whereby, in the case of an 
     individual eligible for a cost-sharing subsidy under 
     subsection (a) who is enrolled in a Medicare Prescription 
     Drug plan or a MedicareAdvantage plan--
       ``(1) the Administrator provides for a notification of the 
     eligible entity or MedicareAdvantage 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.--For provisions 
     providing for eligibility determinations and additional 
     Federal payments for expenditures related to providing 
     prescription drug coverage for dual eligible individuals and 
     territorial residents under the medicaid program, see section 
     1935.


``reinsurance payments for expenses incurred in providing prescription 
         drug coverage above the annual out-of-pocket threshold

       ``Sec. 1860D-20. (a) Reinsurance Payments.--
       ``(1) In general.--Subject to section 1860D-21(b), the 
     Administrator shall provide in accordance with this section 
     for payment to a qualifying entity of the reinsurance payment 
     amount (as specified in subsection (c)(1)) for costs incurred 
     by the entity in providing prescription drug coverage for a 
     qualifying covered individual after the individual has 
     reached the annual out-of-pocket threshold specified in 
     section 1860D-6(c)(4)(B) for the year.
       ``(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) Notification of Spending Under the Plan for Costs 
     Incurred in Providing Prescription Drug Coverage Above the 
     Annual Out-of-Pocket Threshold.--
       ``(1) In general.--Each qualifying entity shall notify the 
     Administrator of the following with respect to a qualifying 
     covered individual for a coverage year:
       ``(A) Total actual costs.--The total amount (if any) of 
     costs that the qualifying entity incurred in providing 
     prescription drug coverage for the individual in the year 
     after the individual had reached the annual out-of-pocket 
     threshold specified in section 1860D-6(c)(4)(B) for the year.
       ``(B) Actual costs for specific drugs.--With respect to the 
     total amount under subparagraph (A) for the year, a breakdown 
     of--
       ``(i) each covered drug that constitutes a portion of such 
     amount;
       ``(ii) the negotiated price for the qualifying entity for 
     each such drug;
       ``(iii) the number of prescriptions; and
       ``(iv) the average beneficiary coinsurance rate for a each 
     covered drug that constitutes a portion of such amount.
       ``(2) Certain expenses not included.--The amounts under 
     subparagraphs (A) and (B)(ii) of paragraph (1) may not 
     include--
       ``(A) administrative expenses incurred in providing the 
     coverage described in paragraph (1)(A); or
       ``(B) amounts expended on providing additional prescription 
     drug coverage pursuant to section 1860D-6(a)(2).
       ``(3) Restriction on use of information.--The restriction 
     specified in section 1860D-16(b)(7)(B) shall apply to 
     information disclosed or obtained pursuant to the provisions 
     of this section.
       ``(c) Reinsurance Payment Amount.--
       ``(1) In general.--The reinsurance payment amount under 
     this subsection for a qualifying covered individual for a 
     coverage year is an amount equal to 80 percent of the 
     allowable costs (as specified in paragraph (2)) incurred by 
     the qualifying entity with respect to the individual and 
     year.
       ``(2) Allowable costs.--
       ``(A) In general.--In the case of a qualifying entity that 
     has incurred costs described in subsection (b)(1)(A) with 
     respect to a qualifying covered individual for a coverage 
     year, the Administrator shall establish the allowable costs 
     for the individual and year. Such allowable costs shall be 
     equal to the amount described in such subsection for the 
     individual and year, adjusted under subparagraph (B).
       ``(B) Repricing of costs if actual costs exceed average 
     costs.--The Administrator shall reduce the amount described 
     in subsection (b)(1)(A) with respect to a qualifying covered 
     individual for a coverage year to the extent such amount is 
     based on costs of specific covered drugs furnished under the 
     plan in the year (as specified under subsection (b)(1)(B)) 
     that are greater than the average cost for the covered drug 
     for the year (as determined under section 1860D-16(b)(3)(A)).
       ``(d) 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.
       ``(e) Definitions.--In this section:
       ``(1) 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.
       ``(2) 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 MedicareAdvantage 
     plan (except for an MSA plan or a private fee-for-service 
     plan that does not provide 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.
       ``(3) Qualifying entity.--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:
       ``(A) An eligible entity offering a Medicare Prescription 
     Drug plan under this part.
       ``(B) A MedicareAdvantage organization offering a 
     MedicareAdvantage plan under part C (except for an MSA plan 
     or a private fee-for-service plan that does not provide 
     qualified prescription drug coverage).
       ``(C) The sponsor of a qualified retiree prescription drug 
     plan.
       ``(4) Qualified retiree prescription drug plan.--
       ``(A) In general.--The term `qualified retiree prescription 
     drug plan' means employment-based retiree health coverage if, 
     with respect to a qualifying covered individual

[[Page S8034]]

     who is covered under the plan, the following requirements are 
     met:
       ``(i) 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.
       ``(ii) Disclosure of information.--The sponsor complies 
     with the requirements described in clauses (i) and (ii) of 
     section 1860D-16(b)(7)(A).
       ``(B) 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.
       ``(5) Sponsor.--The term `sponsor' means a plan sponsor, as 
     defined in section 3(16)(B) of the Employee Retirement Income 
     Security Act of 1974.


 ``direct subsidy for sponsor of a qualified retiree prescription drug 
  plan for plan enrollees eligible for, but not enrolled in, this part

       ``Sec. 1860D-21. (a) Direct Subsidy.--
       ``(1) In general.--The Administrator shall provide for the 
     payment to a sponsor of a qualified retiree prescription drug 
     plan (as defined in section 1860D-20(e)(4)) for each 
     qualifying covered individual (described in subparagraph (C) 
     of section 1860D-20(e)(2)) enrolled in the plan for each 
     month for which such individual is so enrolled.
       ``(2) Amount of payment.--
       ``(A) In general.--The amount of the payment under 
     paragraph (1) shall be an amount equal to the direct subsidy 
     percent determined for the year of the monthly national 
     average premium for the area for the year (determined under 
     section 1860D-15), as adjusted using the risk adjusters that 
     apply to the standard prescription drug coverage published 
     under section 1860D-11.
       ``(B) Direct subsidy percent.--For purposes of subparagraph 
     (A), the term `direct subsidy percent' means the percentage 
     equal to--
       ``(i) 100 percent; minus
       ``(ii) the applicable percent for the year (as determined 
     under section 1860D-17(c).
       ``(b) 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.

                 ``Subpart 3--Miscellaneous Provisions


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

       ``Sec. 1860D-25. (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--
       ``(A) payments to eligible entities under section 1860D-16;
       ``(B) payments under 1860D-19 for low-income subsidy 
     payments for cost-sharing;
       ``(C) reinsurance payments under section 1860D-20;
       ``(D) payments to sponsors of qualified retiree 
     prescription drug plans under section 1860D-21;
       ``(E) payments to MedicareAdvantage organizations for the 
     provision of qualified prescription drug coverage under 
     section 1858A(c); and
       ``(F) 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.--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 payments and transfers 
     made from the Account in the year.


                       ``other related provisions

       ``Sec. 1860D-26. (a) Restriction on Enrollment in a 
     Medicare Prescription Drug Plan Offered by a Sponsor of 
     Employment-Based Retiree Health Coverage.--
       ``(1) In general.--In the case of a Medicare Prescription 
     Drug plan offered by an eligible entity that is a sponsor (as 
     defined in paragraph (5) of section 1860D-20(e)) of 
     employment-based retiree health coverage (as defined in 
     paragraph (4)(B) of such section), notwithstanding any other 
     provision of this part and in accordance with regulations of 
     the Administrator, the entity offering the plan may restrict 
     the enrollment of eligible beneficiaries enrolled under this 
     part to eligible beneficiaries who are enrolled in such 
     coverage.
       ``(2) Limitation.--The sponsor of the employment-based 
     retiree health coverage described in paragraph (1) may not 
     offer enrollment in the Medicare Prescription Drug plan 
     described in such paragraph based on the health status of 
     eligible beneficiaries enrolled for such coverage.
       ``(b) Coordination With State Pharmaceutical Assistance 
     Programs.--
       ``(1) In general.--An eligible entity offering a Medicare 
     Prescription Drug plan, or a MedicareAdvantage organization 
     offering a MedicareAdvantage plan (other than an MSA plan or 
     a private fee-for-service plan that does not provide 
     qualified prescription drug coverage), may enter into an 
     agreement with a State pharmaceutical assistance program 
     described in paragraph (2) to coordinate the coverage 
     provided under the plan with the assistance provided under 
     the State pharmaceutical assistance program.
       ``(2) State pharmaceutical assistance program described.--
     For purposes of paragraph (1), a State pharmaceutical 
     assistance program described in this paragraph is a program 
     that has been established pursuant to a waiver under section 
     1115 or otherwise.
       ``(c) Regulations To Carry Out This Part.--
       ``(1) Authority for interim final regulations.--The 
     Secretary may promulgate initial regulations implementing 
     this part in interim final form without prior opportunity for 
     public comment.
       ``(2) Final regulations.--A final regulation reflecting 
     public comments must be published within 1 year of the 
     interim final regulation promulgated under paragraph (1).''.
       (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-25'';
       (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 sections 1860D-18 and 1858A(e) (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: ``, sections 1860D-18 and 
     1858A(e) (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).
       (d) Submission of Legislative Proposal.--Not later than 6 
     months after the date of the enactment of this Act, the 
     Secretary shall submit to the appropriate committees of 
     Congress a legislative proposal providing for such technical 
     and conforming amendments in the law as are required by the 
     provisions of this Act.

     SEC. 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 Center for Medicare 
     Choices (as established under section 1808 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, 2005, the 
     Administrator of the Center for Medicare Choices 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. RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE 
                   PRESCRIPTION DRUG COVERAGE.

       (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.--

[[Page S8035]]

       ``(A) In general.--Notwithstanding any other provision of 
     law, on or after January 1, 2006, 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.--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--
       ``(A) the ability to enroll in a new medicare supplemental 
     policy pursuant to paragraph (2); and
       ``(B) 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.''.
       (b) Rule of Construction.--
       (1) In general.--Nothing in this Act shall be construed to 
     require an issuer of a medicare supplemental policy under 
     section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
     participate as an eligible entity under part D of such Act, 
     as added by section 101, as a condition for issuing such 
     policy.
       (2) Prohibition on state requirement.--A State may not 
     require an issuer of a medicare supplemental policy under 
     section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
     participate as an eligible entity under part D of such Act, 
     as added by section 101, as a condition for issuing such 
     policy.

     SEC. 104. MEDICAID AND OTHER AMENDMENTS RELATED TO LOW-INCOME 
                   BENEFICIARIES.

       (a) Determinations of Eligibility for Low-Income 
     Subsidies.--Section 1902(a) (42 U.S.C. 1396a(a)) is amended--
       (1) by striking ``and'' at the end of paragraph (64);
       (2) by striking the period at the end of paragraph (65) and 
     inserting ``; and''; and
       (3) by inserting after paragraph (65) the following new 
     paragraph:
       ``(66) provide for making eligibility determinations under 
     section 1935(a).''.
       (b) New Section.--
       (1) In general.--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 satisfy the following:
       ``(1) Determination of eligibility for transitional 
     prescription drug assistance card program for eligible low-
     income beneficiaries.--For purposes of section 1807A, submit 
     to the Secretary an eligibility plan under which the State--
       ``(A) establishes eligibility standards consistent with the 
     provisions of that section;
       ``(B) establishes procedures for providing presumptive 
     eligibility for eligible low-income beneficiaries (as defined 
     in section 1807A(i)(2)) under that section in a manner that 
     is similar to the manner in which presumptive eligibility is 
     provided to children and pregnant women under this title;
       ``(C) makes determinations of eligibility and income for 
     purposes of identifying eligible low-income beneficiaries (as 
     so defined) under that section; and
       ``(D) communicates to the Secretary determinations of 
     eligibility or discontinuation of eligibility under that 
     section for purposes of notifying prescription drug card 
     sponsors under that section of the identity of eligible 
     medicare low-income beneficiaries.
       ``(2) Determination of eligibility for premium and cost-
     sharing subsidies under part D of title XVIII for low-income 
     individuals.--Beginning November 1, 2005, for purposes of 
     section 1860D-19--
       ``(A) make determinations of eligibility for premium and 
     cost-sharing subsidies under and in accordance with such 
     section;
       ``(B) establish procedures for providing presumptive 
     eligibility for individuals eligible for subsidies under that 
     section in a manner that is similar to the manner in which 
     presumptive eligibility is provided to children and pregnant 
     women under this title;
       ``(C) inform the Administrator of the Center for Medicare 
     Choices of such determinations in cases in which such 
     eligibility is established; and
       ``(D) otherwise provide such Administrator with such 
     information as may be required to carry out part D of title 
     XVIII (including section 1860D-19).
       ``(3) Agreement to establish information and enrollment 
     sites at social security field offices.--Enter into an 
     agreement with the Commissioner of Social Security to use all 
     Social Security field offices located in the State as 
     information and enrollment sites for making the eligibility 
     determinations required under paragraphs (1) and (2).
       ``(b) Federal Subsidy of Administrative Costs.--
       ``(1) Enhanced match for eligibility determinations.--
     Subject to paragraphs (2) and (4), with respect to calendar 
     quarters beginning on or after January 1, 2004, the amounts 
     expended by a State in carrying out subsection (a) are 
     expenditures reimbursable under section 1903(a)(7) except 
     that, in applying such section with respect to such 
     expenditures incurred for--
       ``(A) such calendar quarters occurring in fiscal year 2004 
     or 2005, `75 percent' shall be substituted for `50 per 
     centum';
       ``(B) calendar quarters occurring in fiscal year 2006, `70 
     percent' shall be substituted for `50 per centum';
       ``(C) calendar quarters occurring in fiscal year 2007, `65 
     percent' shall be substituted for `50 per centum'; and
       ``(D) calendar quarters occurring in fiscal year 2008 or 
     any fiscal year thereafter, `60 percent' shall be substituted 
     for `50 per centum'.
       ``(2) 100 percent match for eligibility determinations for 
     subsidy-eligible individuals.--In the case of amounts 
     expended by a State on or after November 1, 2005, to 
     determine whether an individual is a subsidy-eligible 
     individual for purposes of section 1860D-19, such 
     expenditures shall be reimbursed under section 1903(a)(7) by 
     substituting `100 percent' for `50 per centum'.
       ``(3) Enhanced match for updates or improvements to 
     eligibility determination systems.--With respect to calendar 
     quarters occurring in fiscal year 2004, 2005, or 2006, the 
     Secretary, in addition to amounts otherwise paid under 
     section 1903(a), shall pay to each State which has a plan 
     approved under this title, for each such quarter an amount 
     equal to 90 percent of so much of the sums expended during 
     such quarter as are attributable to the design, development, 
     acquisition, or installation of improved eligibility 
     determination systems (including hardware and software for 
     such systems) in order to carry out the requirements of 
     subsection (a) and section 1807A(h)(1). No payment shall be 
     made to a State under the preceding sentence unless the 
     State's improved eligibility determination system--
       ``(A) satisfies such standards for improvement as the 
     Secretary may establish; and
       ``(B) complies, and is compatible, with the standards 
     established under part C of title XI and any regulations 
     promulgated under section 264(c) of the Health Insurance 
     Portability and Accountability Act of 1996 (42 U.S.C. 1320d-2 
     note).
       ``(4) Coordination.--The State shall provide the Secretary 
     with such information as may be necessary to properly 
     allocate expenditures described in paragraph (1), (2), or (3) 
     that may otherwise be made for similar eligibility 
     determinations or expenditures.
       ``(c) Federal Payment of Medicare Part B Premium for States 
     Providing Prescription Drug Coverage for Dual Eligible 
     Individuals.--
       ``(1) In general.--Subject to paragraph (4), in the case of 
     a State that provides medical assistance for covered drugs 
     (as such term is defined in section 1860D(a)(2)) to dual 
     eligible individuals under this title that satisfies the 
     minimum standards described in paragraph (2), the Secretary 
     shall be responsible in accordance with section 1841(f)(2) 
     for paying 100 percent of the medicare cost-sharing described 
     in section 1905(p)(3)(A)(ii) (relating to premiums under 
     section 1839) for individuals--

[[Page S8036]]

       ``(A) who are dual eligible individuals or qualified 
     medicare beneficiaries; and
       ``(B) whose family income is at least 74 percent, but not 
     more than 100 percent, of the poverty line (as defined in 
     section 2110(c)(5)) applicable to a family of the size 
     involved.
       ``(2) Minimum standards described.--For purposes of 
     paragraph (1), the minimum standards described in this 
     paragraph are the following:
       ``(A) In providing medical assistance for dual eligible 
     individuals for such covered drugs, the State satisfies the 
     requirements of this title (including limitations on cost-
     sharing imposed under section 1916) applicable to the 
     provision of medical assistance for prescribed drugs to dual 
     eligible individuals.
       ``(B) In providing medical assistance for dual eligible 
     individuals for such covered drugs, the State provides such 
     individuals with beneficiary protections that the Secretary 
     determines are equivalent to the beneficiary protections 
     applicable under section 1860D-5 to eligible entities 
     offering a Medicare Prescription Drug plan under part D of 
     title XVIII.
       ``(C) In providing medical assistance for dual eligible 
     individuals for such covered drugs, the State does not impose 
     a limitation on the number of prescriptions an individual may 
     have filled.
       ``(3) Nonapplication.--Section 1927(d)(2)(E) shall not 
     apply to a State for purposes of providing medical assistance 
     for covered drugs (as such term is defined in section 
     1860D(a)(2)) to dual eligible individuals that satisfies the 
     minimum standards described in paragraph (2).
       ``(4) Limitation.--Paragraph (1) shall not apply to any 
     State before January 1, 2006.
       ``(d) Federal Payment of Medicare Part A Cost-Sharing for 
     Certain States.--
       ``(1) In general.--Subject to paragraph (2), in the case of 
     a State that, as of the date of enactment of the Prescription 
     Drug and Medicare Improvement Act of 2003, provides medical 
     assistance for individuals described in section 
     1902(a)(10)(A)(ii))(X), the Secretary shall be responsible in 
     accordance with section 1817(g)(2), for paying 100 percent of 
     the medicare cost-sharing described in subparagraphs (B) and 
     (C) of section 1905(p)(3) (relating to coinsurance and 
     deductibles established under title XVIII) for the 
     individuals provided medical assistance under section 
     1902(a)(10)(A)(ii)(X), but only--
       ``(A) with respect to such medicare cost-sharing that is 
     incurred under part A of title XVIII; and
       ``(B) for so long as the State elects to provide medical 
     assistance under section 1902(a)(10)(A)(ii)(X).
       ``(2) Limitation.--Paragraph (1) shall not apply to any 
     State before January 1, 2006.
       ``(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), the amount otherwise determined under section 
     1108(f) (as increased under section 1108(g)) for the State 
     shall be further 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 individuals described in subparagraph (A), 
     (B), (C), or (D) of section 1860D-19(a)(3); and
       ``(B) ensures 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 fiscal 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) the last 3 quarters of fiscal year 2006, is equal to 
     $22,500,000;
       ``(ii) fiscal year 2007, is equal to $30,000,000; and
       ``(iii) any subsequent fiscal year, is equal to the 
     aggregate amount specified in this subparagraph for the 
     previous fiscal year increased by the annual percentage 
     increase specified in section 1860D-6(c)(5) for the calendar 
     year beginning in such fiscal year.
       ``(4) Nonapplication.--Section 1927(d)(2)(E) shall not 
     apply to a State described in paragraph (1) for purposes of 
     providing medical assistance described in paragraph (2)(A).
       ``(5) 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.
       ``(f) Definitions.--For purposes of this section, the terms 
     `qualified medicare beneficiary', `subsidy-eligible 
     individual', and `dual eligible individual' have the meanings 
     given such terms in subparagraphs (A), (D), and (E), 
     respectively, of section 1860D-19(a)(4).''.
       (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)''.
       (3) Transfer of federally assumed portions of medicare 
     cost-sharing.--
       (A) Transfer of assumption of part b premium for states 
     providing prescription drug coverage for dual eligible 
     individuals to the federal supplementary medical insurance 
     trust fund.--Section 1841(f) (42 U.S.C. 1395t(f)) is 
     amended--
       (i) by inserting ``(1)'' after ``(f)''; and
       (ii) by adding at the end the following new paragraph:
       ``(2) There shall be transferred periodically (but not less 
     often than once each fiscal year) to the Trust Fund from the 
     Treasury amounts which the Secretary of Health and Human 
     Services shall have certified are equivalent to the amounts 
     determined under section 1935(c)(1) with respect to all 
     States for a fiscal year.''.
       (B) Transfer of assumption of part a cost-sharing for 
     certain states.--Section 1817(g) (42 U.S.C. 1395i(g)) is 
     amended--
       (i) by inserting ``(1)'' after ``(g)''; and
       (ii) by adding at the end the following new paragraph:
       ``(2) There shall be transferred periodically (but not less 
     often than once each fiscal year) to the Trust Fund from the 
     Treasury amounts which the Secretary of Health and Human 
     Services shall have certified are equivalent to the amounts 
     determined under section 1935(d)(1) with respect to certain 
     States for a fiscal year.''.
       (4) Amendment to best price.--Section 1927(c)(1)(C)(i) (42 
     U.S.C. 1396r-8(c)(1)(C)(i)), as amended by section 111(b), is 
     amended--
       (A) by striking ``and'' at the end of subclause (IV);
       (B) by striking the period at the end of subclause (V) and 
     inserting ``; and''; and
       (C) by adding at the end the following new subclause:

       ``(VI) 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 MedicareAdvantage 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).''.

       (c) Extension of Medicare Cost-Sharing for Part B Premium 
     for Qualifying Individuals Through 2008.--
       (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
     1396a(a)(10)(E)(iv)) is amended to read as follows:
       ``(iv) subject to sections 1933 and 1905(p)(4), for making 
     medical assistance available (but only for premiums payable 
     with respect to months during the period beginning with 
     January 1998, and ending with December 2008) for medicare 
     cost-sharing described in section 1905(p)(3)(A)(ii) for 
     individuals who would be qualified medicare beneficiaries 
     described in section 1905(p)(1) but for the fact that their 
     income exceeds the income level established by the State 
     under section 1905(p)(2) and is at least 120 percent, but 
     less than 135 percent, of the official poverty line (referred 
     to in such section) for a family of the size involved and who 
     are not otherwise eligible for medical assistance under the 
     State plan;''.
       (2) Total amount available for allocation.--Section 1933(c) 
     (42 U.S.C. 1396u-3(c)) is amended--
       (A) in paragraph (1)--
       (i) in subparagraph (D), by striking ``and'' at the end;
       (ii) in subparagraph (E)--

       (I) by striking ``fiscal year 2002'' and inserting ``each 
     of fiscal years 2002 through 2008''; and
       (II) by striking the period and inserting ``; and''; and

       (iii) by adding at the end the following new subparagraph:
       ``(F) the first quarter of fiscal year 2009, 
     $100,000,000.''; and
       (B) in paragraph (2)(A), by striking ``the sum of'' and all 
     that follows through ``1902(a)(10)(E)(iv)(II) in the State; 
     to'' and inserting ``twice the total number of individuals 
     described in section 1902(a)(10)(E)(iv) in the State; to''.
       (d) Outreach by the Commissioner of Social Security.--
     Section 1144 (42 U.S.C. 1320b-14) is amended--
       (1) in the section heading, by inserting ``and subsidies 
     for low-income individuals under title xviii'' after ``cost-
     sharing'';
       (2) in subsection (a)--
       (A) in paragraph (1)--
       (i) in subparagraph (A), by inserting ``for the 
     transitional prescription drug assistance card program under 
     section 1807A, or for premium and cost-sharing subsidies 
     under section 1860D-19'' before the semicolon; and
       (ii) in subparagraph (B), by inserting ``, program, and 
     subsidies'' after ``medical assistance''; and
       (B) in paragraph (2)--
       (i) in the matter preceding subparagraph (A), by inserting 
     ``, the transitional prescription drug assistance card 
     program under section 1807A, or premium and cost-sharing 
     subsidies under section 1860D-19'' after ``assistance''; and
       (ii) in subparagraph (A), by striking ``such eligibility'' 
     and inserting ``eligibility for medicare cost-sharing under 
     the medicaid program''; and
       (3) in subsection (b)--
       (A) in paragraph (1)(A), by inserting ``, for the 
     transitional prescription drug assistance card program under 
     section 1807A, or for premium and cost-sharing subsidies for 
     low-income individuals under section 1860D-19'' after 
     ``1933''; and

[[Page S8037]]

       (B) in paragraph (2), by inserting ``, program, and 
     subsidies'' after ``medical assistance''.
       (e) Report Regarding Voluntary Enrollment of Dual Eligible 
     Individuals in Part D.--Not later than January 1, 2005, the 
     Secretary shall submit a report to Congress that contains 
     such recommendations for legislation as the Secretary 
     determines are necessary in order to establish a voluntary 
     option for dual eligible individuals (as defined in 1860D-
     19(a)(4)(E) of the Social Security Act (as added by section 
     101)) to enroll under part D of title XVIII of such Act for 
     prescription drug coverage.

     SEC. 105. 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, 2005.
       (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. 106. STUDY REGARDING VARIATIONS IN SPENDING AND DRUG 
                   UTILIZATION.

       (a) Study.--The Secretary shall study on an ongoing basis 
     variations in spending and drug utilization under part D of 
     title XVIII of the Social Security Act for covered drugs to 
     determine the impact of such variations on premiums imposed 
     by eligible entities offering Medicare Prescription Drug 
     plans under that part. In conducting such study, the 
     Secretary shall examine the impact of geographic adjustments 
     of the monthly national average premium under section 1860D-
     15 of such Act on--
       (1) maximization of competition under part D of title XVIII 
     of such Act; and
       (2) the ability of eligible entities offering Medicare 
     Prescription Drug plans to contain costs for covered drugs.
       (b) Report.--Beginning with 2007, the Secretary shall 
     submit annual reports to Congress on the study required under 
     subsection (a).

 Subtitle B--Medicare Prescription Drug Discount Card and Transitional 
                Assistance for Low-Income Beneficiaries

     SEC. 111. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND 
                   TRANSITIONAL ASSISTANCE FOR LOW-INCOME 
                   BENEFICIARIES.

       (a) In General.--Title XVIII is amended by inserting after 
     section 1806 the following new sections:


     ``medicare prescription drug discount card endorsement program

       ``Sec. 1807. (a) Establishment.--There is established a 
     medicare prescription drug discount card endorsement program 
     under which the Secretary shall--
       ``(1) endorse prescription drug discount card programs 
     offered by prescription drug card sponsors that meet the 
     requirements of this section; and
       ``(2) make available to eligible beneficiaries information 
     regarding such endorsed programs.
       ``(b) Eligibility, Election of Program, and Enrollment 
     Fees.--
       ``(1) Eligibility and election of program.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall establish procedures--
       ``(i) for identifying eligible beneficiaries; and
       ``(ii) under which such beneficiaries may make an election 
     to enroll in any prescription drug discount card program 
     endorsed under this section and disenroll from such a 
     program.
       ``(B) Limitation.--An eligible beneficiary may not be 
     enrolled in more than 1 prescription drug discount card 
     program at any time.
       ``(2) Enrollment fees.--
       ``(A) In general.--A prescription drug card sponsor may 
     charge an annual enrollment fee to each eligible beneficiary 
     enrolled in a prescription drug discount card program offered 
     by such sponsor.
       ``(B) Amount.--No enrollment fee charged under subparagraph 
     (A) may exceed $25.
       ``(C) Uniform enrollment fee.--A prescription drug card 
     sponsor shall ensure that the enrollment fee for a 
     prescription drug discount card program endorsed under this 
     section is the same for all eligible medicare beneficiaries 
     enrolled in the program.
       ``(D) Collection.--Any enrollment fee shall be collected by 
     the prescription drug card sponsor.
       ``(c) Providing Information to Eligible Beneficiaries.--
       ``(1) Promotion of informed choice.--
       ``(A) By the secretary.--In order to promote informed 
     choice among endorsed prescription drug discount card 
     programs, the Secretary shall provide for the dissemination 
     of information which compares the costs and benefits of such 
     programs. Such dissemination shall be coordinated with the 
     dissemination of educational information on other medicare 
     options.
       ``(B) By prescription drug card sponsors.--Each 
     prescription drug card sponsor shall make available to each 
     eligible beneficiary (through the Internet and otherwise) 
     information--
       ``(i) that the Secretary identifies as being necessary to 
     promote informed choice among endorsed prescription drug 
     discount card programs by eligible beneficiaries, including 
     information on enrollment fees, negotiated prices for 
     prescription drugs charged to beneficiaries, and services 
     relating to prescription drugs offered under the program;
       ``(ii) on how any formulary used by such sponsor functions.
       ``(2) Use of medicare toll-free number.--The Secretary 
     shall provide through the 1-800-MEDICARE toll free telephone 
     number for the receipt and response to inquiries and 
     complaints concerning the medicare prescription drug discount 
     card endorsement program established under this section and 
     prescription drug discount card programs endorsed under such 
     program.
       ``(d) Beneficiary Protections.--
       ``(1) In general.--Each prescription drug discount card 
     program endorsed under this section shall meet such 
     requirements as the Secretary identifies to protect and 
     promote the interest of eligible beneficiaries, including 
     requirements that--
       ``(A) relate to appeals by eligible beneficiaries and 
     marketing practices; and
       ``(B) ensure that beneficiaries are not charged more than 
     the lower of the negotiated retail price or the usual and 
     customary price.
       ``(2) Ensuring pharmacy access.--Each prescription drug 
     card sponsor offering a prescription drug discount card 
     program endorsed under this section 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 Secretary and including adequate emergency 
     access) for enrolled beneficiaries. Such standards shall take 
     into account reasonable distances to pharmacy services in 
     both urban and rural areas.
       ``(3) Quality assurance.--Each prescription drug card 
     sponsor offering a prescription drug discount card program 
     endorsed under this section shall have in place adequate 
     procedures for assuring that quality service is provided to 
     eligible beneficiaries enrolled in a prescription drug 
     discount card program offered by such sponsor.
       ``(4) Confidentiality of enrollee records.--Insofar as a 
     prescription drug card sponsor maintains individually 
     identifiable medical records or other health information 
     regarding eligible beneficiaries enrolled in a prescription 
     drug discount card program endorsed under this section, the 
     prescription drug card sponsor shall have in place procedures 
     to safeguard the privacy of any individually identifiable 
     beneficiary information in a manner that the Secretary 
     determines is 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.
       ``(5) No other fees.--A prescription drug card sponsor may 
     not charge any fee to an eligible beneficiary under a 
     prescription drug discount card program endorsed under this 
     section other than an enrollment fee charged under subsection 
     (b)(2)(A).
       ``(6) Prices.--
       ``(A) Avoidance of high priced drugs.--A prescription drug 
     card sponsor may not recommend switching an eligible 
     beneficiary to a drug with a higher negotiated price absent a 
     recommendation by a licensed health professional that there 
     is a clinical indication with respect to the patient for such 
     a switch.
       ``(B) Price stability.--Negotiated prices charged for 
     prescription drugs covered under a prescription drug discount 
     card program endorsed under this section may not change more 
     frequently than once every 60 days.
       ``(e) Prescription Drug Benefits.--
       ``(1) In general.--Each prescription drug card sponsor may 
     only provide benefits that relate to prescription drugs (as 
     defined in subsection (i)(2)) under a prescription drug 
     discount card program endorsed under this section.
       ``(2) Savings to eligible beneficiaries.--
       ``(A) In general.--Subject to subparagraph (D), each 
     prescription drug card sponsor shall provide eligible 
     beneficiaries who enroll in a prescription drug discount card 
     program offered by such sponsor that is endorsed under this 
     section with access to negotiated prices used by the sponsor 
     with respect to prescription drugs dispensed to eligible 
     beneficiaries.
       ``(B) Inapplicability of medicaid best price rules.--The 
     requirements of section 1927 relating to manufacturer best 
     price shall

[[Page S8038]]

     not apply to the negotiated prices for prescription drugs 
     made available under a prescription drug discount card 
     program endorsed under this section.
       ``(C) Guaranteed access to negotiated prices.--The 
     Secretary, in consultation with the Inspector General of the 
     Department of Health and Human Services, shall establish 
     procedures to ensure that eligible beneficiaries have access 
     to the negotiated prices for prescription drugs provided 
     under subparagraph (A).
       ``(D) Application of formulary restrictions.--A drug 
     prescribed for an eligible beneficiary that would otherwise 
     be a covered drug under this section shall not be so 
     considered under a prescription drug discount card program if 
     the program excludes the drug under a formulary.
       ``(3) Beneficiary services.--Each prescription drug 
     discount card program endorsed under this section shall 
     provide pharmaceutical support services, such as education, 
     counseling, and services to prevent adverse drug 
     interactions.
       ``(4) Discount cards.--Each prescription drug card sponsor 
     shall issue a card to eligible beneficiaries enrolled in a 
     prescription drug discount card program offered by such 
     sponsor that the beneficiary may use to obtain benefits under 
     the program.
       ``(f) Submission of Applications for Endorsement and 
     Approval.--
       ``(1) Submission of applications for endorsement.--Each 
     prescription drug card sponsor that seeks endorsement of a 
     prescription drug discount card program under this section 
     shall submit to the Secretary, at such time and in such 
     manner as the Secretary may specify, such information as 
     the Secretary may require.
       ``(2) Approval.--The Secretary shall review the information 
     submitted under paragraph (1) and shall determine whether to 
     endorse the prescription drug discount card program to which 
     such information relates. The Secretary may not approve a 
     program unless the program and prescription drug card sponsor 
     offering the program comply with the requirements under this 
     section.
       ``(g) Requirements on Development and Application of 
     Formularies.--If a prescription drug card sponsor offering a 
     prescription drug discount card program uses a formulary, the 
     following requirements must be met:
       ``(1) Pharmacy and therapeutic (p&t) committee.--
       ``(A) In general.--The eligible entity must establish a 
     pharmacy and therapeutic committee that develops and reviews 
     the formulary.
       ``(B) Composition.--A pharmacy and therapeutic committee 
     shall include at least 1 academic expert, at least 1 
     practicing physician, and at least 1 practicing pharmacist, 
     all of whom have expertise in the care of elderly or disabled 
     persons, and a majority of the members of such committee 
     shall consist of individuals who are a practicing physician 
     or a practicing pharmacist (or both).
       ``(2) 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.
       ``(3) Inclusion of drugs in all therapeutic categories and 
     classes.--
       ``(A) In general.--The formulary must include drugs within 
     each therapeutic category and class of covered outpatient 
     drugs (as defined by the Secretary), although not necessarily 
     for all drugs within such categories and classes.
       ``(B) Requirement.--In defining therapeutic categories and 
     classes of covered outpatient drugs pursuant to subparagraph 
     (A), the Secretary shall use the compendia referred to 
     section 1927(g)(1)(B)(i) or other recognized sources for 
     categorizing drug therapeutic categories and classes.
       ``(4) Provider education.--The committee shall establish 
     policies and procedures to educate and inform health care 
     providers concerning the formulary.
       ``(5) 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 pharmacies.
       ``(h) Fraud and Abuse Prevention.--
       ``(1) In general.--The Secretary shall provide appropriate 
     oversight to ensure compliance of endorsed programs with the 
     requirements of this section, including verification of the 
     negotiated prices and services provided.
       ``(2) Disqualification for abusive practices.--The 
     Secretary may implement intermediate sanctions and may revoke 
     the endorsement of a program that the Secretary determines no 
     longer meets the requirements of this section or that has 
     engaged in false or misleading marketing practices.
       ``(3) Authority with respect to civil money penalties.--The 
     Secretary may impose a civil money penalty in an amount not 
     to exceed $10,000 for any violation of this section. The 
     provisions of section 1128A (other than subsections (a) and 
     (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).
       ``(4) Reporting to secretary.--Each prescription drug card 
     sponsor offering a prescription drug discount card program 
     endorsed under this section shall report information relating 
     to program performance, use of prescription drugs by eligible 
     beneficiaries enrolled in the program, financial information 
     of the sponsor, and such other information as the Secretary 
     may specify. The Secretary may not disclose any proprietary 
     data reported under this paragraph.
       ``(5) Drug utilization review.--The Secretary may use 
     claims data from parts A and B for purposes of conducting a 
     drug utilization review program.
       ``(i) Definitions.--In this section:
       ``(1) Eligible beneficiary.--
       ``(A) In general.--The term `eligible beneficiary' means an 
     individual who--
       ``(i) is entitled to, or enrolled for, benefits under part 
     A and enrolled under part B; and
       ``(ii) is not a dual eligible individual (as defined in 
     subparagraph (B)).
       ``(B) Dual eligible individual.--
       ``(i) In general.--The term `dual eligible individual' 
     means an individual who is--

       ``(I) enrolled under title XIX or under a waiver under 
     section 1115 of the requirements of such title for medical 
     assistance that is not less than the medical assistance 
     provided to an individual described in section 
     1902(a)(10)(A)(i) and includes covered outpatient drugs (as 
     such term is defined for purposes of section 1927); and
       ``(II) entitled to benefits under part A and enrolled under 
     part B.

       ``(ii) Inclusion of medically needy.--Such term includes an 
     individual described in section 1902(a)(10)(C).
       ``(2) Prescription drug.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `prescription 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.--The term `prescription 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).
       ``(3) Negotiated price.--The term `negotiated price' 
     includes all discounts, direct or indirect subsidies, 
     rebates, price concessions, and direct or indirect 
     remunerations.
       ``(4) Prescription drug card sponsor.--The term 
     `prescription drug card sponsor' means any entity with 
     demonstrated experience and expertise in operating a 
     prescription drug discount card program, an insurance program 
     that provides coverage for prescription drugs, or a similar 
     program that the Secretary determines to be appropriate to 
     provide eligible beneficiaries with the benefits under a 
     prescription drug discount card program endorsed by the 
     Secretary under this section, 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) any other entity; or
       ``(E) any combination of the entities described in 
     subparagraphs (A) through (D).


 ``transitional prescription drug assistance card program for eligible 
                        low-income beneficiaries

       ``Sec. 1807A. (a) Establishment.--
       ``(1) In general.--There is established a program under 
     which the Secretary shall award contracts to prescription 
     drug card sponsors offering a prescription drug discount card 
     that has been endorsed by the Secretary under section 1807 
     under which such sponsors shall offer a prescription drug 
     assistance card program to eligible low-income beneficiaries 
     in accordance with the requirements of this section.
       ``(2) Application of discount card provisions.--Except as 
     otherwise provided in this section, the provisions of section 
     1807 shall apply to the program established under this 
     section.
       ``(b) Eligibility, Election of Program, and Enrollment 
     Fees.--
       ``(1) Eligibility and election of program.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this paragraph, the enrollment procedures established under 
     section 1807(b)(1)(A)(ii) shall apply for purposes of this 
     section.
       ``(B) Enrollment of any eligible low-income beneficiary.--
     Each prescription drug card sponsor offering a prescription 
     drug assistance card program under this section shall permit 
     any eligible low-income beneficiary to enroll in such program 
     if it serves the geographic area in which the beneficiary 
     resides.
       ``(C) Simultaneous enrollment in prescription drug discount 
     card program.--An eligible low-income beneficiary who enrolls 
     in a prescription drug assistance card program offered by a 
     prescription drug card

[[Page S8039]]

     sponsor under this section shall be simultaneously enrolled 
     in a prescription drug discount card program offered by such 
     sponsor.
       ``(2) Waiver of enrollment fees.--
       ``(A) In general.--A prescription drug card sponsor may not 
     charge an enrollment fee to any eligible low-income 
     beneficiary enrolled in a prescription drug discount card 
     program offered by such sponsor.
       ``(B) Payment by secretary.--Under a contract awarded under 
     subsection (f)(2), the Secretary shall pay to each 
     prescription drug card sponsor an amount equal to any 
     enrollment fee charged under section 1807(b)(2)(A) on behalf 
     of each eligible low-income beneficiary enrolled in a 
     prescription drug discount card program under paragraph 
     (1)(C) offered by such sponsor.
       ``(c) Additional Beneficiary Protections.--
       ``(1) Providing information to eligible low-income 
     beneficiaries.--In addition to the information provided to 
     eligible beneficiaries under section 1807(c), the 
     prescription drug card sponsor shall--
       ``(A) periodically notify each eligible low-income 
     beneficiary enrolled in a prescription drug assistance card 
     program offered by such sponsor of the amount of coverage for 
     prescription drugs remaining under subsection (d)(2)(A); and
       ``(B) notify each eligible low-income beneficiary enrolled 
     in a prescription drug assistance card program offered by 
     such sponsor of the grievance and appeals processes under the 
     program.
       ``(2) Convenient access in long-term care facilities.--For 
     purposes of determining whether convenient access has been 
     provided under section 1807(d)(2) with respect to eligible 
     low-income beneficiaries enrolled in a prescription drug 
     assistance card program, the Secretary may only make a 
     determination that such access has been provided if an 
     appropriate arrangement is in place for eligible low-income 
     beneficiaries who are in a long-term care facility (as 
     defined by the Secretary) to receive prescription drug 
     benefits under the program.
       ``(3) Coordination of benefits.--
       ``(A) In general.--The Secretary shall establish procedures 
     under which eligible low-income beneficiaries who are 
     enrolled for coverage described in subparagraph (B) and 
     enrolled in a prescription drug assistance card program have 
     access to the prescription drug benefits available under such 
     program.
       ``(B) Coverage described.--Coverage described in this 
     subparagraph is as follows:
       ``(i) Coverage of prescription drugs under a State 
     pharmaceutical assistance program.
       ``(ii) Enrollment in a Medicare+Choice plan under part C.
       ``(4) Grievance mechanism.--Each prescription drug card 
     sponsor with a contract under this section shall provide in 
     accordance with section 1852(f) meaningful procedures for 
     hearing and resolving grievances between the prescription 
     drug card sponsor (including any entity or individual through 
     which the prescription drug card sponsor provides covered 
     benefits) and enrollees in a prescription drug assistance 
     card program offered by such sponsor.
       ``(5) Application of coverage determination and 
     reconsideration provisions.--
       ``(A) In general.--The requirements of paragraphs (1) 
     through (3) of section 1852(g) shall apply with respect to 
     covered benefits under a prescription drug assistance card 
     program under this section 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.
       ``(B) Request for review of tiered formulary 
     determinations.--In the case of a prescription drug 
     assistance card program offered by a prescription drug card 
     sponsor that provides for tiered pricing for drugs included 
     within a formulary and provides lower prices for preferred 
     drugs included within the formulary, an eligible low-income 
     beneficiary who is enrolled in the program 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 eligible low-income beneficiary 
     or has adverse effects for the eligible low-income 
     beneficiary.
       ``(C) Formulary determinations.--An eligible low-income 
     beneficiary who is enrolled in a prescription drug assistance 
     card program offered by a prescription drug card sponsor may 
     appeal to obtain coverage for a covered drug that is not on a 
     formulary of the entity if the prescribing physician 
     determines that the formulary drug for treatment of the same 
     condition is not as effective for the eligible low-income 
     beneficiary or has adverse effects for the eligible low-
     income beneficiary.
       ``(6) Appeals.--
       ``(A) In general.--Subject to subparagraph (B), a 
     prescription drug card sponsor shall meet the requirements of 
     paragraphs (4) and (5) of section 1852(g) with respect to 
     drugs not included on any formulary in a similar manner (as 
     determined by the Secretary) as such requirements apply to a 
     Medicare+Choice organization with respect to benefits it 
     offers under a Medicare+Choice plan under part C.
       ``(B) Formulary determinations.--An eligible low-income 
     beneficiary who is enrolled in a prescription drug assistance 
     card program offered by a prescription drug card sponsor may 
     appeal to obtain coverage for a covered drug that is not on a 
     formulary of the entity if the prescribing physician 
     determines that the formulary drug for treatment of the same 
     condition is not as effective for the eligible low-income 
     beneficiary or has adverse effects for the eligible low-
     income beneficiary.
       ``(C) Appeals and exceptions to application.--The 
     prescription drug card sponsor must have, as part of the 
     appeals process under this paragraph, a process for timely 
     appeals for denials of coverage based on the application of 
     the formulary.
       ``(d) Prescription Drug Benefits.--
       ``(1) In general.--Subject to paragraph (5), all the 
     benefits available under a prescription drug discount card 
     program offered by a prescription drug card sponsor and 
     endorsed under section 1807 shall be available to eligible 
     low-income beneficiaries enrolled in a prescription drug 
     assistance card program offered by such sponsor.
       ``(2) Assistance for eligible low-income beneficiaries.--
       ``(A) $600 annual assistance.--Subject to subparagraphs (B) 
     and (C) and paragraph (5), each prescription drug card 
     sponsor with a contract under this section shall provide 
     coverage for the first $600 of expenses for prescription 
     drugs incurred during each calendar year by an eligible low-
     income beneficiary enrolled in a prescription drug assistance 
     card program offered by such sponsor.
       ``(B) Coinsurance.--
       ``(i) In general.--The prescription drug card sponsor shall 
     determine an amount of coinsurance to collect from each 
     eligible low-income beneficiary enrolled in a prescription 
     drug assistance card program offered by such sponsor for 
     which coverage is available under subparagraph (A).
       ``(ii) Amount.--The amount of coinsurance collected under 
     clause (i) shall be at least 10 percent of the negotiated 
     price of each prescription drug dispensed to an eligible low-
     income beneficiary.
       ``(iii) Construction.--Amounts collected under clause (i) 
     shall not be counted against the total amount of coverage 
     available under subparagraph (A).
       ``(C) Reduction for late enrollment.--For each month during 
     a calendar quarter in which an eligible low-income 
     beneficiary is not enrolled in a prescription drug assistance 
     card program offered by a prescription drug card sponsor with 
     a contract under this section, the amount of assistance 
     available under subparagraph (A) shall be reduced by $50.
       ``(D) Crediting of unused benefits toward future years.--
     The dollar amount of coverage described in subparagraph (A) 
     shall be increased by any amount of coverage described in 
     such subparagraph that was not used during the previous 
     calendar year.
       ``(E) Waiver to ensure provision of benefit.--The Secretary 
     may waive such requirements of this section and section 1807 
     as may be necessary to ensure that each eligible low-income 
     beneficiaries has access to the assistance described in 
     subparagraph (A).
       ``(3) Additional discounts.--A prescription drug card 
     sponsor with a contract under this section shall provide each 
     eligible low-income beneficiary enrolled in a prescription 
     drug assistance program offered by the sponsor with access to 
     negotiated prices that reflect a minimum average discount of 
     at least 20 percent of the average wholesale price for 
     prescription drugs covered under that program.
       ``(4) Assistance cards.--Each prescription drug card 
     sponsor shall permit eligible low-income beneficiaries 
     enrolled in a prescription drug assistance card program 
     offered by such sponsor to use the discount card issued under 
     section 1807(e)(4) to obtain benefits under the program.
       ``(5) Application of formulary restrictions.--A drug 
     prescribed for an eligible low-income beneficiary that would 
     otherwise be a covered drug under this section shall not be 
     so considered under a prescription drug assistance card 
     program if the program excludes the drug under a formulary 
     and such exclusion is not successfully resolved under 
     paragraph (4), (5), or (6) of subsection (c).
       ``(e) Requirements for Prescription Drug Card Sponsors That 
     Offer Prescription Drug Assistance Card Programs.--
       ``(1) In general.--Each prescription drug card sponsor 
     shall--
       ``(A) process claims made by eligible low-income 
     beneficiaries;
       ``(B) negotiate with brand name and generic prescription 
     drug manufacturers and others for low prices on prescription 
     drugs;
       ``(C) track individual beneficiary expenditures in a format 
     and periodicity specified by the Secretary; and
       ``(D) perform such other functions as the Secretary may 
     assign.
       ``(2) Data exchanges.--Each prescription drug card sponsor 
     shall receive data exchanges in a format specified by the 
     Secretary and shall maintain real-time beneficiary files.
       ``(3) Public disclosure of pharmaceutical prices for 
     equivalent drugs.--The prescription drug card sponsor 
     offering the prescription drug assistance card program shall 
     provide that each pharmacy or other dispenser that arranges 
     for the dispensing of a covered drug shall inform the 
     eligible low-income 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 
     priced generic drug covered under the plan that is 
     therapeutically equivalent and bioequivalent and available at 
     such pharmacy or other dispenser.
       ``(f) Submission of Bids and Awarding of Contracts.--

[[Page S8040]]

       ``(1) Submission of bids.--Each prescription drug card 
     sponsor that seeks to offer a prescription drug assistance 
     card program under this section shall submit to the 
     Secretary, at such time and in such manner as the Secretary 
     may specify, such information as the Secretary may require.
       ``(2) Awarding of contracts.--The Secretary shall review 
     the information submitted under paragraph (1) and shall 
     determine whether to award a contract to the prescription 
     drug card sponsor offering the program to which such 
     information relates. The Secretary may not approve a program 
     unless the program and prescription drug card sponsor 
     offering the program comply with the requirements under this 
     section.
       ``(3) Number of contracts.--There shall be no limit on the 
     number of prescription drug card sponsors that may be awarded 
     contracts under paragraph (2).
       ``(4) Contract provisions.--
       ``(A) Duration.--A contract awarded under paragraph (2) 
     shall be for the lifetime of the program under this section.
       ``(B) Withdrawal.--A prescription drug card sponsor that 
     desires to terminate the contract awarded under paragraph (2) 
     may terminate such contract without penalty if such sponsor 
     gives notice--
       ``(i) to the Secretary 90 days prior to the termination of 
     such contract; and
       ``(ii) to each eligible low-income beneficiary that is 
     enrolled in a prescription drug assistance card program 
     offered by such sponsor 60 days prior to such termination.
       ``(C) Service area.--The service area under the contract 
     shall be the same as the area served by the prescription drug 
     card sponsor under section 1807.
       ``(5) Simultaneous approval of discount card and assistance 
     programs.--A prescription drug card sponsor may submit an 
     application for endorsement under section 1807 as part of the 
     bid submitted under paragraph (1) and the Secretary may 
     approve such application at the same time as the Secretary 
     awards a contract under this section.
       ``(g) Payments to Prescription Drug Card Sponsors.--
       ``(1) In general.--The Secretary shall pay to each 
     prescription drug card sponsor offering a prescription drug 
     assistance card program in which an eligible low-income 
     beneficiary is enrolled an amount equal to the amount agreed 
     to by the Secretary and the sponsor in the contract awarded 
     under subsection (f)(2).
       ``(2) Payment from part b trust fund.--The costs of 
     providing benefits under this section shall be payable from 
     the Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841.
       ``(h) Eligibility Determinations Made by States; 
     Presumptive Eligibility.--States shall perform the functions 
     described in section 1935(a)(1).
       ``(i) Appropriations.--There are appropriated from the 
     Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841 such sums as may be necessary 
     to carry out the program under this section.
       ``(j) Definitions.--In this section:
       ``(1) Eligible beneficiary; negotiated price; prescription 
     drug.--The terms `eligible beneficiary', `negotiated price', 
     and `prescription drug' have the meanings given those terms 
     in section 1807(i).
       ``(2) Eligible low-income beneficiary.--The term `eligible 
     low-income beneficiary' means an individual who--
       ``(A) is an eligible beneficiary (as defined in section 
     1807(i)); and
       ``(B) is described in clause (iii) or (iv) of section 
     1902(a)(10)(E) or in section 1905(p)(1).
       ``(3) Prescription drug card sponsor.--The term 
     `prescription drug card sponsor' has the meaning given that 
     term in section 1807(i), except that such sponsor shall also 
     be an entity that the Secretary determines is--
       ``(A) is appropriate to provide eligible low-income 
     beneficiaries with the benefits under a prescription drug 
     assistance card program under this section; and
       ``(B) is able to manage the monetary assistance made 
     available under subsection (d)(2);
       ``(C) agrees to submit to audits by the Secretary; and
       ``(D) provides such other assurances as the Secretary may 
     require.
       ``(4) State.--The term `State' has the meaning given such 
     term for purposes of title XIX.''.
       (b) Exclusion of Prices From Determination of 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 negotiated prices charged under the medicare 
     prescription drug discount card endorsement program under 
     section 1807 or under the transitional prescription drug 
     assistance card program for eligible low-income beneficiaries 
     under section 1807A.''.

       (c) Exclusion of Prescription Drug Assistance Card Costs 
     From Determination of Part B Monthly Premium.--Section 
     1839(g) of the Social Security Act (42 U.S.C. 1395r(g)) is 
     amended--
       (1) by striking ``attributable to the application of 
     section'' and inserting ``attributable to--
       ``(1) the application of section'';
       (2) by striking the period and inserting ``; and''; and
       (3) by adding at the end the following new paragraph:
       ``(2) the prescription drug assistance card program under 
     section 1807A.''.
       (d) Regulations.--
       (1) Authority for interim final regulations.--The Secretary 
     may promulgate initial regulations implementing sections 1807 
     and 1807A of the Social Security Act (as added by this 
     section) in interim final form without prior opportunity for 
     public comment.
       (2) Final regulations.--A final regulation reflecting 
     public comments must be published within 1 year of the 
     interim final regulation promulgated under paragraph (1).
       (3) Exemption from the paperwork reduction act.--The 
     promulgation of the regulations under this subsection and the 
     administration the programs established by sections 1807 and 
     1807A of the Social Security Act (as added by this section) 
     shall be made without regard to chapter 35 of title 44, 
     United States Code (commonly known as the ``Paperwork 
     Reduction Act'').
       (e) Implementation; Transition.--
       (1) Implementation.--The Secretary shall implement the 
     amendments made by this section in a manner that discounts 
     are available to eligible beneficiaries under section 1807 of 
     the Social Security Act and assistance is available to 
     eligible low-income beneficiaries under section 1807A of such 
     Act not later than January 1, 2004.
       (2) Transition.--The Secretary shall provide for an 
     appropriate transition and discontinuation of the programs 
     under section 1807 and 1807A of the Social Security Act. Such 
     transition and discontinuation shall ensure that such 
     programs continue to operate until the date on which the 
     first enrollment period under part D ends.

            Subtitle C--Standards for Electronic Prescribing

      SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING.

       Title XI (42 U.S.C. 1301 et seq.) is amended by adding at 
     the end the following new part:

                    ``Part D--Electronic Prescribing


                 ``standards for electronic prescribing

       ``Sec. 1180. (a) Standards.--
       ``(1) Development and Adoption.--
       ``(A) In general.--The Secretary shall develop or adopt 
     standards for transactions and data elements for such 
     transactions (in this section referred to as `standards') to 
     enable the electronic transmission of medication history, 
     eligibility, benefit, and other prescription information.
       ``(B) Consultation.--In developing and adopting the 
     standards under subparagraph (A), the Secretary shall consult 
     with representatives of physicians, hospitals, pharmacists, 
     standard setting organizations, pharmacy benefit managers, 
     beneficiary information exchange networks, technology 
     experts, and representatives of the Departments of Veterans 
     Affairs and Defense and other interested parties.
       ``(2) Objective.--Any standards developed or adopted under 
     this part shall be consistent with the objectives of 
     improving--
       ``(A) patient safety; and
       ``(B) the quality of care provided to patients.
       ``(3) Requirements.--Any standards developed or adopted 
     under this part shall comply with the following:
       ``(A) Electronic transmittal of prescriptions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     standards require that prescriptions be written and 
     transmitted electronically.
       ``(ii) Exceptions.--The standards shall not require a 
     prescription to be written and transmitted electronically--

       ``(I) in emergency cases and other exceptional 
     circumstances recognized by the Administrator; or
       ``(II) if the patient requests that the prescription not be 
     transmitted electronically.

     If a patient makes a request under subclause (II), no 
     additional charges may be imposed on the patient for making 
     such request.
       ``(B) Patient-specific medication history, eligibility, 
     benefit, and other prescription information.--
       ``(i) In general.--The standards shall accommodate 
     electronic transmittal of patient-specific medication 
     history, eligibility, benefit, and other prescription 
     information among prescribing and dispensing professionals at 
     the point of care.
       ``(ii) Required information.--The information described in 
     clause (i) shall include the following:

       ``(I) Information (to the extent available and feasible) on 
     the drugs being prescribed for that patient and other 
     information relating to the medication history of the patient 
     that may be relevant to the appropriate prescription for that 
     patient.
       ``(II) Cost-effective alternatives (if any) to the drug 
     prescribed.
       ``(III) Information on eligibility and benefits, including 
     the drugs included in the applicable formulary and any 
     requirements for prior authorization.
       ``(IV) Information on potential interactions with drugs 
     listed on the medication history, graded by severity of the 
     potential interaction.
       ``(V) Other information to improve the quality of patient 
     care and to reduce medical errors.

       ``(C) Undue burden.--The standards shall be designed so 
     that, to the extent practicable, the standards do not impose 
     an

[[Page S8041]]

     undue administrative burden on the practice of medicine, 
     pharmacy, or other health professions.
       ``(D) Compatibility with administrative simplification and 
     privacy laws.--The standards shall be--
       ``(i) 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; and
       ``(ii) compatible with the standards adopted under part C.
       ``(4) Transfer of information.--The Secretary shall develop 
     and adopt standards for transferring among prescribing and 
     insurance entities and other necessary entities appropriate 
     standard data elements needed for the electronic exchange of 
     medication history, eligibility, benefit, and other 
     prescription drug information and other health information 
     determined appropriate in compliance with the standards 
     adopted or modified under this part.
       ``(b) Timetable for Adoption of Standards.--
       ``(1) In general.--The Secretary shall adopt the standards 
     under this part by January 1, 2006.
       ``(2) Additions and modifications to standards.--The 
     Secretary shall, in consultation with appropriate 
     representatives of interested parties, review the standards 
     developed or adopted under this part and adopt modifications 
     to the standards (including additions to the standards), as 
     determined appropriate. Any addition or modification to such 
     standards shall be completed in a manner which minimizes the 
     disruption and cost of compliance.
       ``(c) Compliance With Standards.--
       ``(1) Requirement for all individuals and entities that 
     transmit or receive prescriptions electronically.--
       ``(A) In general.--Individuals or entities that transmit or 
     receive electronic medication history, eligibility, benefit 
     and prescription information, shall comply with the standards 
     adopted or modified under this part.
       ``(B) Relation to state laws.--The standards adopted or 
     modified under this part shall supersede any State law or 
     regulations pertaining to the electronic transmission of 
     medication history, eligibility, benefit and prescription 
     information.
       ``(2) Timetable for compliance.--
       ``(A) Initial compliance.--
       ``(i) In general.--Not later than 24 months after the date 
     on which an initial standard is adopted under this part, each 
     individual or entity to whom the standard applies shall 
     comply with the standard.
       ``(ii) Special rule for small health plans.--In the case of 
     a small health plan, as defined by the Secretary for purposes 
     of section 1175(b)(1)(B), clause (i) shall be applied by 
     substituting `36 months' for `24 months'.
       ``(d) Consultation With Attorney General.--The Secretary 
     shall consult with the Attorney General before developing, 
     adopting, or modifying a standard under this part to ensure 
     that the standard accommodates secure electronic transmission 
     of prescriptions for controlled substances in a manner that 
     minimizes the possibility of violations under the 
     Comprehensive Drug Abuse Prevention and Control Act of 1970 
     and related Federal laws.


``grants to health care providers to implement electronic prescription 
                                programs

       ``Sec. 1180A. (a) In General.--The Secretary is authorized 
     to make grants to health care providers for the purpose of 
     assisting such entities to implement electronic prescription 
     programs that comply with the standards adopted or modified 
     under this part.
       ``(b) Application.--No grant may be made under this section 
     except pursuant to a grant application that is submitted in a 
     time, manner, and form approved by the Secretary.
       ``(c) Authorization of Appropriations.--There are 
     authorized to be appropriated for each of fiscal years 2006, 
     2007, and 2008, such sums as may be necessary to carry out 
     this section.''.

                      Subtitle D--Other Provisions

     SEC. 131. 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. 132. TRUSTEES' REPORT ON MEDICARE'S UNFUNDED 
                   OBLIGATIONS.

       (a) Report.--The report submitted under sections 1817(b)(2) 
     and 1841(b)(2) of the Social Security Act (42 U.S.C. 
     1395i(b)(2) and 1395t(b)(2)) during 2004 shall include an 
     analysis of the total amount of the unfunded obligations of 
     the Medicare program under title XVIII of the Social Security 
     Act.
       (b) Matters Analyzed.--The analysis described in subsection 
     (A) shall compare the long-term obligations of the Medicare 
     program to the dedicated funding sources for that program 
     (other than general revenue transfers), including the 
     combined obligations of the Federal Hospital Insurance Trust 
     Fund established under section 1817 of such Act (42 U.S.C. 
     1395i) and the Federal Supplementary Medical Insurance Trust 
     Fund established under section 1841 of such Act (42 U.S.C. 
     1395t).

                      TITLE II--MEDICAREADVANTAGE

               Subtitle A--MedicareAdvantage Competition

     SEC. 201. ELIGIBILITY, ELECTION, AND ENROLLMENT.

       Section 1851 (42 U.S.C. 1395w-21) is amended to read as 
     follows:


                ``eligibility, election, and enrollment

       ``Sec. 1851. (a) Choice of Medicare Benefits Through 
     MedicareAdvantage Plans.--
       ``(1) In general.--Subject to the provisions of this 
     section, each MedicareAdvantage eligible individual (as 
     defined in paragraph (3)) is entitled to elect to receive 
     benefits under this title--
       ``(A) through--
       ``(i) the original Medicare fee-for-service program under 
     parts A and B; and
       ``(ii) the voluntary prescription drug delivery program 
     under part D; or
       ``(B) through enrollment in a MedicareAdvantage plan under 
     this part.
       ``(2) Types of medicareadvantage plans that may be 
     available.--A MedicareAdvantage plan may be any of the 
     following types of plans of health insurance:
       ``(A) Coordinated care plans.--Coordinated care plans which 
     provide health care services, including health maintenance 
     organization plans (with or without point of service options) 
     and plans offered by provider-sponsored organizations (as 
     defined in section 1855(d)).
       ``(B) Combination of msa plan and contributions to 
     medicareadvantage msa.--An MSA plan, as defined in section 
     1859(b)(3), and a contribution into a MedicareAdvantage 
     medical savings account (MSA).
       ``(C) Private fee-for-service plans.--A MedicareAdvantage 
     private fee-for-service plan, as defined in section 
     1859(b)(2).
       ``(3) Medicareadvantage eligible individual.--
       ``(A) In general.--Subject to subparagraph (B), in this 
     title, the term `MedicareAdvantage eligible individual' means 
     an individual who is entitled to (or enrolled for) benefits 
     under part A, enrolled under part B, and enrolled under part 
     D.
       ``(B) Special rule for end-stage renal disease.--Such term 
     shall not include an individual medically determined to have 
     end-stage renal disease, except that--
       ``(i) an individual who develops end-stage renal disease 
     while enrolled in a Medicare+Choice or a MedicareAdvantage 
     plan may continue to be enrolled in that plan; and

[[Page S8042]]

       ``(ii) in the case of such an individual who is enrolled in 
     a Medicare+Choice plan or a MedicareAdvantage plan under 
     clause (i) (or subsequently under this clause), if the 
     enrollment is discontinued under circumstances described in 
     section 1851(e)(4)(A), then the individual will be treated as 
     a `MedicareAdvantage eligible individual' for purposes of 
     electing to continue enrollment in another MedicareAdvantage 
     plan.
       ``(b) Special Rules.--
       ``(1) Residence requirement.--
       ``(A) In general.--Except as the Secretary may otherwise 
     provide and except as provided in subparagraph (C), an 
     individual is eligible to elect a MedicareAdvantage plan 
     offered by a MedicareAdvantage organization only if the plan 
     serves the geographic area in which the individual resides.
       ``(B) Continuation of enrollment permitted.--Pursuant to 
     rules specified by the Secretary, the Secretary shall provide 
     that a plan may offer to all individuals residing in a 
     geographic area the option to continue enrollment in the 
     plan, notwithstanding that the individual no longer resides 
     in the service area of the plan, so long as the plan provides 
     that individuals exercising this option have, as part of the 
     basic benefits described in section 1852(a)(1)(A), reasonable 
     access within that geographic area to the full range of basic 
     benefits, subject to reasonable cost-sharing liability in 
     obtaining such benefits.
       ``(C) Continuation of enrollment permitted where service 
     changed.--Notwithstanding subparagraph (A) and in addition to 
     subparagraph (B), if a MedicareAdvantage organization 
     eliminates from its service area a MedicareAdvantage payment 
     area that was previously within its service area, the 
     organization may elect to offer individuals residing in all 
     or portions of the affected area who would otherwise be 
     ineligible to continue enrollment the option to continue 
     enrollment in a MedicareAdvantage plan it offers so long as--
       ``(i) the enrollee agrees to receive the full range of 
     basic benefits (excluding emergency and urgently needed care) 
     exclusively at facilities designated by the organization 
     within the plan service area; and
       ``(ii) there is no other MedicareAdvantage plan offered in 
     the area in which the enrollee resides at the time of the 
     organization's election.
       ``(2) Special rule for certain individuals covered under 
     fehbp or eligible for veterans or military health benefits.--
       ``(A) FEHBP.--An individual who is enrolled in a health 
     benefit plan under chapter 89 of title 5, United States Code, 
     is not eligible to enroll in an MSA plan until such time as 
     the Director of the Office of Management and Budget certifies 
     to the Secretary that the Office of Personnel Management has 
     adopted policies which will ensure that the enrollment of 
     such individuals in such plans will not result in increased 
     expenditures for the Federal Government for health benefit 
     plans under such chapter.
       ``(B) VA and dod.--The Secretary may apply rules similar to 
     the rules described in subparagraph (A) in the case of 
     individuals who are eligible for health care benefits under 
     chapter 55 of title 10, United States Code, or under chapter 
     17 of title 38 of such Code.
       ``(3) Limitation on eligibility of qualified medicare 
     beneficiaries and other medicaid beneficiaries to enroll in 
     an msa plan.--An individual who is a qualified medicare 
     beneficiary (as defined in section 1905(p)(1)), a qualified 
     disabled and working individual (described in section 
     1905(s)), an individual described in section 
     1902(a)(10)(E)(iii), or otherwise entitled to medicare cost-
     sharing under a State plan under title XIX is not eligible to 
     enroll in an MSA plan.
       ``(4) Coverage under msa plans on a demonstration basis.--
       ``(A) In general.--An individual is not eligible to enroll 
     in an MSA plan under this part--
       ``(i) on or after January 1, 2004, unless the enrollment is 
     the continuation of such an enrollment in effect as of such 
     date; or
       ``(ii) as of any date if the number of such individuals so 
     enrolled as of such date has reached 390,000.

     Under rules established by the Secretary, an individual is 
     not eligible to enroll (or continue enrollment) in an MSA 
     plan for a year unless the individual provides assurances 
     satisfactory to the Secretary that the individual will reside 
     in the United States for at least 183 days during the year.
       ``(B) Evaluation.--The Secretary shall regularly evaluate 
     the impact of permitting enrollment in MSA plans under this 
     part on selection (including adverse selection), use of 
     preventive care, access to care, and the financial status of 
     the Trust Funds under this title.
       ``(C) Reports.--The Secretary shall submit to Congress 
     periodic reports on the numbers of individuals enrolled in 
     such plans and on the evaluation being conducted under 
     subparagraph (B).
       ``(c) Process for Exercising Choice.--
       ``(1) In general.--The Secretary shall establish a process 
     through which elections described in subsection (a) are made 
     and changed, including the form and manner in which such 
     elections are made and changed. Such elections shall be made 
     or changed only during coverage election periods specified 
     under subsection (e) and shall become effective as provided 
     in subsection (f).
       ``(2) Coordination through medicareadvantage 
     organizations.--
       ``(A) Enrollment.--Such process shall permit an individual 
     who wishes to elect a MedicareAdvantage plan offered by a 
     MedicareAdvantage organization to make such election through 
     the filing of an appropriate election form with the 
     organization.
       ``(B) Disenrollment.--Such process shall permit an 
     individual, who has elected a MedicareAdvantage plan offered 
     by a MedicareAdvantage organization and who wishes to 
     terminate such election, to terminate such election through 
     the filing of an appropriate election form with the 
     organization.
       ``(3) Default.--
       ``(A) Initial election.--
       ``(i) In general.--Subject to clause (ii), an individual 
     who fails to make an election during an initial election 
     period under subsection (e)(1) is deemed to have chosen the 
     original medicare fee-for-service program option.
       ``(ii) Seamless continuation of coverage.--The Secretary 
     may establish procedures under which an individual who is 
     enrolled in a Medicare+Choice plan or another health plan 
     (other than a MedicareAdvantage plan) offered by a 
     MedicareAdvantage organization at the time of the initial 
     election period and who fails to elect to receive coverage 
     other than through the organization is deemed to have elected 
     the MedicareAdvantage plan offered by the organization (or, 
     if the organization offers more than 1 such plan, such plan 
     or plans as the Secretary identifies under such procedures).
       ``(B) Continuing periods.--An individual who has made (or 
     is deemed to have made) an election under this section is 
     considered to have continued to make such election until such 
     time as--
       ``(i) the individual changes the election under this 
     section; or
       ``(ii) the MedicareAdvantage plan with respect to which 
     such election is in effect is discontinued or, subject to 
     subsection (b)(1)(B), no longer serves the area in which the 
     individual resides.
       ``(d) Providing Information To Promote Informed Choice.--
       ``(1) In general.--The Secretary shall provide for 
     activities under this subsection to broadly disseminate 
     information to medicare beneficiaries (and prospective 
     medicare beneficiaries) on the coverage options provided 
     under this section in order to promote an active, informed 
     selection among such options.
       ``(2) Provision of notice.--
       ``(A) Open season notification.--At least 15 days before 
     the beginning of each annual, coordinated election period (as 
     defined in subsection (e)(3)(B)), the Secretary shall mail to 
     each MedicareAdvantage eligible individual residing in an 
     area the following:
       ``(i) General information.--The general information 
     described in paragraph (3).
       ``(ii) List of plans and comparison of plan options.--A 
     list identifying the MedicareAdvantage plans that are (or 
     will be) available to residents of the area and information 
     described in paragraph (4) concerning such plans. Such 
     information shall be presented in a comparative form.
       ``(iii) Additional information.--Any other information that 
     the Secretary determines will assist the individual in making 
     the election under this section.

     The mailing of such information shall be coordinated, to the 
     extent practicable, with the mailing of any annual notice 
     under section 1804.
       ``(B) Notification to newly eligible medicareadvantage 
     eligible individuals.--To the extent practicable, the 
     Secretary shall, not later than 30 days before the beginning 
     of the initial MedicareAdvantage enrollment period for an 
     individual described in subsection (e)(1), mail to the 
     individual the information described in subparagraph (A).
       ``(C) Form.--The information disseminated under this 
     paragraph shall be written and formatted using language that 
     is easily understandable by medicare beneficiaries.
       ``(D) Periodic updating.--The information described in 
     subparagraph (A) shall be updated on at least an annual basis 
     to reflect changes in the availability of MedicareAdvantage 
     plans, the benefits under such plans, and the 
     MedicareAdvantage monthly basic beneficiary premium, 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits, and MedicareAdvantage monthly beneficiary 
     obligation for qualified prescription drug coverage for such 
     plans.
       ``(3) General information.--General information under this 
     paragraph, with respect to coverage under this part during a 
     year, shall include the following:
       ``(A) Benefits under the original medicare fee-for-service 
     program option.--A general description of the benefits 
     covered under parts A and B of the original medicare fee-for-
     service program, 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) Catastrophic coverage and combined deductible.--A 
     description of the catastrophic coverage and unified 
     deductible applicable under the plan.
       ``(C) Outpatient prescription drug coverage benefits.--The 
     information required under section 1860D-4 with respect to 
     coverage for prescription drugs under the plan.

[[Page S8043]]

       ``(D) Election procedures.--Information and instructions on 
     how to exercise election options under this section.
       ``(E) Rights.--A general description of procedural rights 
     (including grievance and appeals procedures) of beneficiaries 
     under the original medicare fee-for-service program 
     (including such rights under part D) and the 
     MedicareAdvantage program and the right to be protected 
     against discrimination based on health status-related factors 
     under section 1852(b).
       ``(F) Information on medigap and medicare select.--A 
     general description of the benefits, enrollment rights, and 
     other requirements applicable to medicare supplemental 
     policies under section 1882 and provisions relating to 
     medicare select policies described in section 1882(t).
       ``(G) Potential for contract termination.--The fact that a 
     MedicareAdvantage organization may terminate its contract, 
     refuse to renew its contract, or reduce the service area 
     included in its contract, under this part, and the effect of 
     such a termination, nonrenewal, or service area reduction may 
     have on individuals enrolled with the MedicareAdvantage plan 
     under this part.
       ``(4) Information comparing plan options.--Information 
     under this paragraph, with respect to a MedicareAdvantage 
     plan for a year, shall include the following:
       ``(A) Benefits.--The benefits covered under the plan, 
     including the following:
       ``(i) Covered items and services beyond those provided 
     under the original medicare fee-for-service program option.
       ``(ii) Beneficiary cost-sharing for any items and services 
     described in clause (i) and paragraph (3)(A)(i), including 
     information on the unified deductible under section 
     1852(a)(1)(C).
       ``(iii) The maximum limitations on out-of-pocket expenses 
     under section 1852(a)(1)(C).
       ``(iv) In the case of an MSA plan, differences in cost-
     sharing, premiums, and balance billing under such a plan 
     compared to under other MedicareAdvantage plans.
       ``(v) In the case of a MedicareAdvantage private fee-for-
     service plan, differences in cost-sharing, premiums, and 
     balance billing under such a plan compared to under other 
     MedicareAdvantage plans.
       ``(vi) The extent to which an enrollee may obtain benefits 
     through out-of-network health care providers.
       ``(vii) The extent to which an enrollee may select among 
     in-network providers and the types of providers participating 
     in the plan's network.
       ``(viii) The organization's coverage of emergency and 
     urgently needed care.
       ``(ix) The comparative information described in section 
     1860D-4(b)(2) relating to prescription drug coverage under 
     the plan.
       ``(B) Premiums.--
       ``(i) In general.--The MedicareAdvantage monthly basic 
     beneficiary premium and MedicareAdvantage monthly beneficiary 
     premium for enhanced medical benefits, if any, for the plan 
     or, in the case of an MSA plan, the MedicareAdvantage monthly 
     MSA premium.
       ``(ii) Reductions.--The reduction in part B premiums, if 
     any.
       ``(iii) Nature of the premium for enhanced medical 
     benefits.--Whether the MedicareAdvantage monthly premium for 
     enhanced benefits is optional or mandatory.
       ``(C) Service area.--The service area of the plan.
       ``(D) Quality and performance.--Plan quality and 
     performance indicators for the benefits under the plan (and 
     how such indicators compare to quality and performance 
     indicators under the original medicare fee-for-service 
     program under parts A and B and under the voluntary 
     prescription drug delivery program under part D in the area 
     involved), including--
       ``(i) disenrollment rates for medicare enrollees electing 
     to receive benefits through the plan for the previous 2 years 
     (excluding disenrollment due to death or moving outside the 
     plan's service area);
       ``(ii) information on medicare enrollee satisfaction;
       ``(iii) information on health outcomes; and
       ``(iv) the recent record regarding compliance of the plan 
     with requirements of this part (as determined by the 
     Secretary).
       ``(5) Maintaining a toll-free number and internet site.--
     The Secretary shall maintain a toll-free number for inquiries 
     regarding MedicareAdvantage options and the operation of this 
     part in all areas in which MedicareAdvantage plans are 
     offered and an Internet site through which individuals may 
     electronically obtain information on such options and 
     MedicareAdvantage plans.
       ``(6) Use of non-federal entities.--The Secretary may enter 
     into contracts with non-Federal entities to carry out 
     activities under this subsection.
       ``(7) Provision of information.--A MedicareAdvantage 
     organization shall provide the Secretary with such 
     information on the organization and each MedicareAdvantage 
     plan it offers as may be required for the preparation of the 
     information referred to in paragraph (2)(A).
       ``(e) Coverage Election Periods.--
       ``(1) Initial choice upon eligibility to make election if 
     medicareadvantage plans available to individual.--If, at the 
     time an individual first becomes eligible to elect to receive 
     benefits under part B or D (whichever is later), there is 1 
     or more MedicareAdvantage plans offered in the area in which 
     the individual resides, the individual shall make the 
     election under this section during a period specified by the 
     Secretary such that if the individual elects a 
     MedicareAdvantage plan during the period, coverage under the 
     plan becomes effective as of the first date on which the 
     individual may receive such coverage.
       ``(2) Open enrollment and disenrollment opportunities.--
     Subject to paragraph (5), the following rules shall apply:
       ``(A) Continuous open enrollment and disenrollment through 
     2005.--At any time during the period beginning January 1, 
     1998, and ending on December 31, 2005, a Medicare+Choice 
     eligible individual may change the election under subsection 
     (a)(1).
       ``(B) Continuous open enrollment and disenrollment for 
     first 6 months during 2006.--
       ``(i) In general.--Subject to clause (ii) and subparagraph 
     (D), at any time during the first 6 months of 2006, or, if 
     the individual first becomes a MedicareAdvantage eligible 
     individual during 2006, during the first 6 months during 2006 
     in which the individual is a MedicareAdvantage eligible 
     individual, a MedicareAdvantage eligible individual may 
     change the election under subsection (a)(1).
       ``(ii) Limitation of 1 change.--An individual may exercise 
     the right under clause (i) only once. The limitation under 
     this clause shall not apply to changes in elections effected 
     during an annual, coordinated election period under paragraph 
     (3) or during a special enrollment period under the first 
     sentence of paragraph (4).
       ``(C) Continuous open enrollment and disenrollment for 
     first 3 months in subsequent years.--
       ``(i) In general.--Subject to clause (ii) and subparagraph 
     (D), at any time during the first 3 months of 2007 and each 
     subsequent year, or, if the individual first becomes a 
     MedicareAdvantage eligible individual during 2007 or any 
     subsequent year, during the first 3 months of such year in 
     which the individual is a MedicareAdvantage eligible 
     individual, a MedicareAdvantage eligible individual may 
     change the election under subsection (a)(1).
       ``(ii) Limitation of 1 change during open enrollment period 
     each year.--An individual may exercise the right under clause 
     (i) only once during the applicable 3-month period described 
     in such clause in each year. The limitation under this clause 
     shall not apply to changes in elections effected during an 
     annual, coordinated election period under paragraph (3) or 
     during a special enrollment period under paragraph (4).
       ``(D) Continuous open enrollment for institutionalized 
     individuals.--At any time during 2006 or any subsequent year, 
     in the case of a MedicareAdvantage eligible individual who is 
     institutionalized (as defined by the Secretary), the 
     individual may elect under subsection (a)(1)--
       ``(i) to enroll in a MedicareAdvantage plan; or
       ``(ii) to change the MedicareAdvantage plan in which the 
     individual is enrolled.
       ``(3) Annual, coordinated election period.--
       ``(A) In general.--Subject to paragraph (5), each 
     individual who is eligible to make an election under this 
     section may change such election during an annual, 
     coordinated election period.
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means, with respect to a year before 2003 and after 2006, the 
     month of November before such year and with respect to 2003, 
     2004, 2005, and 2006, the period beginning on November 15 and 
     ending on December 31 of the year before such year.
       ``(C) Medicareadvantage health information fairs.--During 
     the fall season of each year (beginning with 2006), in 
     conjunction with the annual coordinated election period 
     defined in subparagraph (B), the Secretary shall provide for 
     a nationally coordinated educational and publicity campaign 
     to inform MedicareAdvantage eligible individuals about 
     MedicareAdvantage plans and the election process provided 
     under this section.
       ``(D) Special information campaign in 2005.--During the 
     period beginning on November 15, 2005, and ending on December 
     31, 2005, the Secretary shall provide for an educational and 
     publicity campaign to inform MedicareAdvantage eligible 
     individuals about the availability of MedicareAdvantage 
     plans, and eligible organizations with risk-sharing contracts 
     under section 1876, offered in different areas and the 
     election process provided under this section.
       ``(4) Special election periods.--Effective on and after 
     January 1, 2006, an individual may discontinue an election of 
     a MedicareAdvantage plan offered by a MedicareAdvantage 
     organization other than during an annual, coordinated 
     election period and make a new election under this section 
     if--
       ``(A)(i) the certification of the organization or plan 
     under this part has been terminated, or the organization or 
     plan has notified the individual of an impending termination 
     of such certification; or
       ``(ii) the organization has terminated or otherwise 
     discontinued providing the plan in the area in which the 
     individual resides, or has notified the individual of an 
     impending termination or discontinuation of such plan;
       ``(B) the individual is no longer eligible to elect the 
     plan because of a change in the individual's place of 
     residence or other change in circumstances (specified by the 
     Secretary, but not including termination of the individual's 
     enrollment on the basis described in clause (i) or (ii) of 
     subsection (g)(3)(B));

[[Page S8044]]

       ``(C) the individual demonstrates (in accordance with 
     guidelines established by the Secretary) that--
       ``(i) the organization offering the plan substantially 
     violated a material provision of the organization's contract 
     under this part in relation to the individual (including the 
     failure to provide an enrollee on a timely basis medically 
     necessary care for which benefits are available under the 
     plan or the failure to provide such covered care in 
     accordance with applicable quality standards); or
       ``(ii) the organization (or an agent or other entity acting 
     on the organization's behalf) materially misrepresented the 
     plan's provisions in marketing the plan to the individual; or
       ``(D) the individual meets such other exceptional 
     conditions as the Secretary may provide.

     Effective on and after January 1, 2006, an individual who, 
     upon first becoming eligible for benefits under part A at age 
     65, enrolls in a MedicareAdvantage plan under this part, the 
     individual may discontinue the election of such plan, and 
     elect coverage under the original fee-for-service plan, at 
     any time during the 12-month period beginning on the 
     effective date of such enrollment.
       ``(5) Special rules for msa plans.--Notwithstanding the 
     preceding provisions of this subsection, an individual--
       ``(A) may elect an MSA plan only during--
       ``(i) an initial open enrollment period described in 
     paragraph (1);
       ``(ii) an annual, coordinated election period described in 
     paragraph (3)(B); or
       ``(iii) the month of November 1998;
       ``(B) subject to subparagraph (C), may not discontinue an 
     election of an MSA plan except during the periods described 
     in clause (ii) or (iii) of subparagraph (A) and under the 
     first sentence of paragraph (4); and
       ``(C) who elects an MSA plan during an annual, coordinated 
     election period, and who never previously had elected such a 
     plan, may revoke such election, in a manner determined by the 
     Secretary, by not later than December 15 following the date 
     of the election.
       ``(6) Open enrollment periods.--Subject to paragraph (5), a 
     MedicareAdvantage organization--
       ``(A) shall accept elections or changes to elections during 
     the initial enrollment periods described in paragraph (1), 
     during the period beginning on November 15, 2005, and ending 
     on December 31, 2005, and during the annual, coordinated 
     election period under paragraph (3) for each subsequent year, 
     and during special election periods described in the first 
     sentence of paragraph (4); and
       ``(B) may accept other changes to elections at such other 
     times as the organization provides.
       ``(f) Effectiveness of Elections and Changes of 
     Elections.--
       ``(1) During initial coverage election period.--An election 
     of coverage made during the initial coverage election period 
     under subsection (e)(1)(A) shall take effect upon the date 
     the individual becomes entitled to (or enrolled for) benefits 
     under part A, enrolled under part B, and enrolled under part 
     D, except as the Secretary may provide (consistent with 
     sections 1838 and 1860D-2)) in order to prevent retroactive 
     coverage.
       ``(2) During continuous open enrollment periods.--An 
     election or change of coverage made under subsection (e)(2) 
     shall take effect with the first day of the first calendar 
     month following the date on which the election or change is 
     made.
       ``(3) Annual, coordinated election period.--An election or 
     change of coverage made during an annual, coordinated 
     election period (as defined in subsection (e)(3)(B)) in a 
     year shall take effect as of the first day of the following 
     year.
       ``(4) Other periods.--An election or change of coverage 
     made during any other period under subsection (e)(4) shall 
     take effect in such manner as the Secretary provides in a 
     manner consistent (to the extent practicable) with protecting 
     continuity of health benefit coverage.
       ``(g) Guaranteed Issue and Renewal.--
       ``(1) In general.--Except as provided in this subsection, a 
     MedicareAdvantage organization shall provide that at any time 
     during which elections are accepted under this section with 
     respect to a MedicareAdvantage plan offered by the 
     organization, the organization will accept without 
     restrictions individuals who are eligible to make such 
     election.
       ``(2) Priority.--If the Secretary determines that a 
     MedicareAdvantage organization, in relation to a 
     MedicareAdvantage plan it offers, has a capacity limit and 
     the number of MedicareAdvantage eligible individuals who 
     elect the plan under this section exceeds the capacity limit, 
     the organization may limit the election of individuals of the 
     plan under this section but only if priority in election is 
     provided--
       ``(A) first to such individuals as have elected the plan at 
     the time of the determination; and
       ``(B) then to other such individuals in such a manner that 
     does not discriminate, on a basis described in section 
     1852(b), among the individuals (who seek to elect the plan).

     The preceding sentence shall not apply if it would result in 
     the enrollment of enrollees substantially nonrepresentative, 
     as determined in accordance with regulations of the 
     Secretary, of the medicare population in the service area of 
     the plan.
       ``(3) Limitation on termination of election.--
       ``(A) In general.--Subject to subparagraph (B), a 
     MedicareAdvantage organization may not for any reason 
     terminate the election of any individual under this section 
     for a MedicareAdvantage plan it offers.
       ``(B) Basis for termination of election.--A 
     MedicareAdvantage organization may terminate an individual's 
     election under this section with respect to a 
     MedicareAdvantage plan it offers if--
       ``(i) any MedicareAdvantage monthly basic beneficiary 
     premium, MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage, or MedicareAdvantage 
     monthly beneficiary premium for required or optional enhanced 
     medical benefits required with respect to such plan are not 
     paid on a timely basis (consistent with standards under 
     section 1856 that provide for a grace period for late payment 
     of such premiums);
       ``(ii) the individual has engaged in disruptive behavior 
     (as specified in such standards); or
       ``(iii) the plan is terminated with respect to all 
     individuals under this part in the area in which the 
     individual resides.
       ``(C) Consequence of termination.--
       ``(i) Terminations for cause.--Any individual whose 
     election is terminated under clause (i) or (ii) of 
     subparagraph (B) is deemed to have elected to receive 
     benefits under the original medicare fee-for-service program 
     option.
       ``(ii) Termination based on plan termination or service 
     area reduction.--Any individual whose election is terminated 
     under subparagraph (B)(iii) shall have a special election 
     period under subsection (e)(4)(A) in which to change coverage 
     to coverage under another MedicareAdvantage plan. Such an 
     individual who fails to make an election during such period 
     is deemed to have chosen to change coverage to the original 
     medicare fee-for-service program option.
       ``(D) Organization obligation with respect to election 
     forms.--Pursuant to a contract under section 1857858., each 
     MedicareAdvantage organization receiving an election form 
     under subsection (c)(2) shall transmit to the Secretary (at 
     such time and in such manner as the Secretary may specify) a 
     copy of such form or such other information respecting the 
     election as the Secretary may specify.
       ``(h) Approval of Marketing Material and Application 
     Forms.--
       ``(1) Submission.--No marketing material or application 
     form may be distributed by a MedicareAdvantage organization 
     to (or for the use of) MedicareAdvantage eligible individuals 
     unless--
       ``(A) at least 45 days (or 10 days in the case described in 
     paragraph (5)) before the date of distribution the 
     organization has submitted the material or form to the 
     Secretary for review; and
       ``(B) the Secretary has not disapproved the distribution of 
     such material or form.
       ``(2) Review.--The standards established under section 1856 
     shall include guidelines for the review of any material or 
     form submitted and under such guidelines the Secretary shall 
     disapprove (or later require the correction of) such material 
     or form if the material or form is materially inaccurate or 
     misleading or otherwise makes a material misrepresentation.
       ``(3) Deemed approval (1-stop shopping).--In the case of 
     material or form that is submitted under paragraph (1)(A) to 
     the Secretary or a regional office of the Department of 
     Health and Human Services and the Secretary or the office has 
     not disapproved the distribution of marketing material or 
     form under paragraph (1)(B) with respect to a 
     MedicareAdvantage plan in an area, the Secretary is deemed 
     not to have disapproved such distribution in all other areas 
     covered by the plan and organization except with regard to 
     that portion of such material or form that is specific only 
     to an area involved.
       ``(4) Prohibition of certain marketing practices.--Each 
     MedicareAdvantage organization shall conform to fair 
     marketing standards, in relation to MedicareAdvantage plans 
     offered under this part, included in the standards 
     established under section 1856. Such standards--
       ``(A) shall not permit a MedicareAdvantage organization to 
     provide for cash or other monetary rebates as an inducement 
     for enrollment or otherwise (other than as an additional 
     benefit described in section 1854(g)(1)(C)(i)); and
       ``(B) may include a prohibition against a MedicareAdvantage 
     organization (or agent of such an organization) completing 
     any portion of any election form used to carry out elections 
     under this section on behalf of any individual.
       ``(5) Special treatment of marketing material following 
     model marketing language.--In the case of marketing material 
     of an organization that uses, without modification, proposed 
     model language specified by the Secretary, the period 
     specified in paragraph (1)(A) shall be reduced from 45 days 
     to 10 days.
       ``(i) Effect of Election of MedicareAdvantage Plan 
     Option.--
       ``(1) Payments to organizations.--Subject to sections 
     1852(a)(5), 1853(h), 1853(i), 1886(d)(11), and 1886(h)(3)(D), 
     payments under a contract with a MedicareAdvantage 
     organization under section 1853(a) with respect to an 
     individual electing a MedicareAdvantage plan offered by the 
     organization shall be instead of the amounts which (in the 
     absence of the contract) would otherwise be payable

[[Page S8045]]

     under parts A, B, and D for items and services furnished to 
     the individual.
       ``(2) Only organization entitled to payment.--Subject to 
     sections 1853(f), 1853(h), 1853(i), 1857(f)(2), 1886(d)(11), 
     and 1886(h)(3)(D), only the MedicareAdvantage organization 
     shall be entitled to receive payments from the Secretary 
     under this title for services furnished to the individual.''.

     SEC. 202. BENEFITS AND BENEFICIARY PROTECTIONS.

       Section 1852 (42 U.S.C. 1395w-22) is amended to read as 
     follows:


                 ``benefits and beneficiary protections

       ``Sec. 1852. (a) Basic Benefits.--
       ``(1) In general.--Except as provided in section 1859(b)(3) 
     for MSA plans, each MedicareAdvantage plan shall provide to 
     members enrolled under this part, through providers and other 
     persons that meet the applicable requirements of this title 
     and part A of title XI--
       ``(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;
       ``(B) except as provided in paragraph (2)(D), qualified 
     prescription drug coverage under part D to individuals 
     residing in the area served by the plan;
       ``(C) a maximum limitation on out-of-pocket expenses and a 
     unified deductible; and
       ``(D) additional benefits required under section 
     1854(d)(1).
       ``(2) Satisfaction of requirement.--
       ``(A) In general.--A MedicareAdvantage plan (other than an 
     MSA plan) offered by a MedicareAdvantage organization 
     satisfies paragraph (1)(A), with respect to benefits for 
     items and services furnished other than through a provider or 
     other person that has a contract with the organization 
     offering the plan, if the plan provides payment in an amount 
     so that--
       ``(i) the sum of such payment amount and any cost-sharing 
     provided for under the plan; is equal to at least
       ``(ii) the total dollar amount of payment for such items 
     and services as would otherwise be authorized under parts A 
     and B (including any balance billing permitted under such 
     parts).
       ``(B) Reference to related provisions.--For provisions 
     relating to--
       ``(i) limitations on balance billing against 
     MedicareAdvantage organizations for noncontract providers, 
     see sections 1852(k) and 1866(a)(1)(O); and
       ``(ii) limiting actuarial value of enrollee liability for 
     covered benefits, see section 1854(f).
       ``(C) Election of uniform coverage policy.--In the case of 
     a MedicareAdvantage organization that offers a 
     MedicareAdvantage plan in an area in which more than 1 local 
     coverage policy is applied with respect to different parts of 
     the area, the organization may elect to have the local 
     coverage policy for the part of the area that is most 
     beneficial to MedicareAdvantage enrollees (as identified by 
     the Secretary) apply with respect to all MedicareAdvantage 
     enrollees enrolled in the plan.
       ``(D) Special rule for private fee-for-service plans.--
       ``(i) In general.--A private fee-for-service plan may elect 
     not to provide qualified prescription drug coverage under 
     part D to individuals residing in the area served by the 
     plan.
       ``(ii) Availability of drug coverage for enrollees.--If a 
     beneficiary enrolls in a plan making the election described 
     in clause (i), the beneficiary may enroll for drug coverage 
     under part D with an eligible entity under such part.
       ``(3) Enhanced medical benefits.--
       ``(A) Benefits included subject to secretary's approval.--
     Each MedicareAdvantage organization may provide to 
     individuals enrolled under this part, other than under an MSA 
     plan (without affording those individuals an option to 
     decline the coverage), enhanced medical benefits that the 
     Secretary may approve. The Secretary shall approve any such 
     enhanced medical benefits unless the Secretary determines 
     that including such enhanced medical benefits would 
     substantially discourage enrollment by MedicareAdvantage 
     eligible individuals with the organization.
       ``(B) At enrollees' option.--A MedicareAdvantage 
     organization may not provide, under an MSA plan, enhanced 
     medical benefits that cover the deductible described in 
     section 1859(b)(2)(B). In applying the previous sentence, 
     health benefits described in section 1882(u)(2)(B) shall not 
     be treated as covering such deductible.
       ``(C) Application to medicareadvantage private fee-for-
     service plans.--Nothing in this paragraph shall be construed 
     as preventing a MedicareAdvantage private fee-for-service 
     plan from offering enhanced medical benefits that include 
     payment for some or all of the balance billing amounts 
     permitted consistent with section 1852(k) and coverage of 
     additional services that the plan finds to be medically 
     necessary.
       ``(D) Rule for approval of medical and prescription drug 
     benefits.--Notwithstanding the preceding provisions of this 
     paragraph, the Secretary may not approve any enhanced medical 
     benefit that provides for the coverage of any prescription 
     drug (other than that relating to prescription drugs covered 
     under the original medicare fee-for-service program option).
       ``(4) Organization as secondary payer.--Notwithstanding any 
     other provision of law, a MedicareAdvantage organization may 
     (in the case of the provision of items and services to an 
     individual under a MedicareAdvantage plan under circumstances 
     in which payment under this title is made secondary pursuant 
     to section 1862(b)(2)) charge or authorize the provider of 
     such services to charge, in accordance with the charges 
     allowed under a law, plan, or policy described in such 
     section--
       ``(A) the insurance carrier, employer, or other entity 
     which under such law, plan, or policy is to pay for the 
     provision of such services; or
       ``(B) such individual to the extent that the individual has 
     been paid under such law, plan, or policy for such services.
       ``(5) National coverage determinations and legislative 
     changes in benefits.--If there is a national coverage 
     determination or legislative change in benefits required to 
     be provided under this part made in the period beginning on 
     the date of an announcement under section 1853(b) and ending 
     on the date of the next announcement under such section and 
     the Secretary projects that the determination will result in 
     a significant change in the costs to a MedicareAdvantage 
     organization of providing the benefits that are the subject 
     of such national coverage determination and that such change 
     in costs was not incorporated in the determination of the 
     benchmark amount announced under section 1853(b)(1)(A) at the 
     beginning of such period, then, unless otherwise required by 
     law--
       ``(A) such determination or legislative change in benefits 
     shall not apply to contracts under this part until the first 
     contract year that begins after the end of such period; and
       ``(B) if such coverage determination or legislative change 
     provides for coverage of additional benefits or coverage 
     under additional circumstances, section 1851(i)(1) shall not 
     apply to payment for such additional benefits or benefits 
     provided under such additional circumstances until the first 
     contract year that begins after the end of such period.

     The projection under the previous sentence shall be based on 
     an analysis by the Secretary of the actuarial costs 
     associated with the coverage determination or legislative 
     change in benefits.
       ``(6) Authority to prohibit risk selection.--The Secretary 
     shall have the authority to disapprove any MedicareAdvantage 
     plan that the Secretary determines is designed to attract a 
     population that is healthier than the average population 
     residing in the service area of the plan.
       ``(7) Unified deductible defined.--In this part, the term 
     `unified deductible' means an annual deductible amount that 
     is applied in lieu of the inpatient hospital deductible under 
     section 1813(b)(1) and the deductible under section 1833(b). 
     Nothing in this part shall be construed as preventing a 
     MedicareAdvantage organization from requiring coinsurance or 
     a copayment for inpatient hospital services after the unified 
     deductible is satisfied, subject to the limitation on 
     enrollee liability under section 1854(f).
       ``(b) Antidiscrimination.--
       ``(1) Beneficiaries.--
       ``(A) In general.--A MedicareAdvantage 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.
       ``(B) Construction.--Except as provided under section 
     1851(a)(3)(B), subparagraph (A) shall not be construed as 
     requiring a MedicareAdvantage organization to enroll 
     individuals who are determined to have end-stage renal 
     disease.
       ``(2) Providers.--A MedicareAdvantage organization shall 
     not discriminate with respect to participation, 
     reimbursement, or indemnification as to any provider who is 
     acting within the scope of the provider's license or 
     certification under applicable State law, solely on the basis 
     of such license or certification. This paragraph shall not be 
     construed to prohibit a plan from including providers only to 
     the extent necessary to meet the needs of the plan's 
     enrollees or from establishing any measure designed to 
     maintain quality and control costs consistent with the 
     responsibilities of the plan.
       ``(c) Disclosure Requirements.--
       ``(1) Detailed description of plan provisions.--A 
     MedicareAdvantage organization shall disclose, in clear, 
     accurate, and standardized form to each enrollee with a 
     MedicareAdvantage plan offered by the organization under this 
     part at the time of enrollment and at least annually 
     thereafter, the following information regarding such plan:
       ``(A) Service area.--The plan's service area.
       ``(B) Benefits.--Benefits offered under the plan, including 
     information described section 1852(a)(1) (relating to 
     benefits under the original Medicare fee-for-service program 
     option, the maximum limitation in out-of-pocket expenses and 
     the unified deductible, and qualified prescription drug 
     coverage under part D, respectively) and exclusions from 
     coverage and, if it is an MSA plan, a comparison of benefits 
     under such a plan with benefits under other MedicareAdvantage 
     plans.
       ``(C) Access.--The number, mix, and distribution of plan 
     providers, out-of-network coverage (if any) provided by the 
     plan, and

[[Page S8046]]

     any point-of-service option (including the MedicareAdvantage 
     monthly beneficiary premium for enhanced medical benefits for 
     such option).
       ``(D) Out-of-area coverage.--Out-of-area coverage provided 
     by the plan.
       ``(E) Emergency coverage.--Coverage of emergency services, 
     including--
       ``(i) the appropriate use of emergency services, including 
     use of the 911 telephone system or its local equivalent in 
     emergency situations and an explanation of what constitutes 
     an emergency situation;
       ``(ii) the process and procedures of the plan for obtaining 
     emergency services; and
       ``(iii) the locations of--

       ``(I) emergency departments; and
       ``(II) other settings, in which plan physicians and 
     hospitals provide emergency services and post-stabilization 
     care.

       ``(F) Enhanced medical benefits.--Enhanced medical benefits 
     available from the organization offering the plan, 
     including--
       ``(i) whether the enhanced medical benefits are optional;
       ``(ii) the enhanced medical benefits covered; and
       ``(iii) the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits.
       ``(G) Prior authorization rules.--Rules regarding prior 
     authorization or other review requirements that could result 
     in nonpayment.
       ``(H) Plan grievance and appeals procedures.--All plan 
     appeal or grievance rights and procedures.
       ``(I) Quality assurance program.--A description of the 
     organization's quality assurance program under subsection 
     (e).
       ``(2) Disclosure upon request.--Upon request of a 
     MedicareAdvantage eligible individual, a MedicareAdvantage 
     organization must provide the following information to such 
     individual:
       ``(A) The general coverage information and general 
     comparative plan information made available under clauses (i) 
     and (ii) of section 1851(d)(2)(A).
       ``(B) Information on procedures used by the organization to 
     control utilization of services and expenditures.
       ``(C) Information on the number of grievances, 
     reconsiderations, and appeals and on the disposition in the 
     aggregate of such matters.
       ``(D) An overall summary description as to the method of 
     compensation of participating physicians.
       ``(E) The information described in subparagraphs (A) 
     through (C) in relation to the qualified prescription drug 
     coverage provided by the organization.
       ``(d) Access to Services.--
       ``(1) In general.--A MedicareAdvantage organization 
     offering a MedicareAdvantage plan may select the providers 
     from whom the benefits under the plan are provided so long 
     as--
       ``(A) the organization makes such benefits available and 
     accessible to each individual electing the plan within the 
     plan service area with reasonable promptness and in a manner 
     which assures continuity in the provision of benefits;
       ``(B) when medically necessary the organization makes such 
     benefits available and accessible 24 hours a day and 7 days a 
     week;
       ``(C) the plan provides for reimbursement with respect to 
     services which are covered under subparagraphs (A) and (B) 
     and which are provided to such an individual other than 
     through the organization, if--
       ``(i) the services were not emergency services (as defined 
     in paragraph (3)), but--

       ``(I) the services were medically necessary and immediately 
     required because of an unforeseen illness, injury, or 
     condition; and
       ``(II) it was not reasonable given the circumstances to 
     obtain the services through the organization;

       ``(ii) the services were renal dialysis services and were 
     provided other than through the organization because the 
     individual was temporarily out of the plan's service area; or
       ``(iii) the services are maintenance care or post-
     stabilization care covered under the guidelines established 
     under paragraph (2);
       ``(D) the organization provides access to appropriate 
     providers, including credentialed specialists, for medically 
     necessary treatment and services; and
       ``(E) coverage is provided for emergency services (as 
     defined in paragraph (3)) without regard to prior 
     authorization or the emergency care provider's contractual 
     relationship with the organization.
       ``(2) Guidelines respecting coordination of post-
     stabilization care.--A MedicareAdvantage plan shall comply 
     with such guidelines as the Secretary may prescribe relating 
     to promoting efficient and timely coordination of appropriate 
     maintenance and post-stabilization care of an enrollee after 
     the enrollee has been determined to be stable under section 
     1867.
       ``(3) Definition of emergency services.--In this 
     subsection--
       ``(A) In general.--The term `emergency services' means, 
     with respect to an individual enrolled with an organization, 
     covered inpatient and outpatient services that--
       ``(i) are furnished by a provider that is qualified to 
     furnish such services under this title; and
       ``(ii) are needed to evaluate or stabilize an emergency 
     medical condition (as defined in subparagraph (B)).
       ``(B) Emergency medical condition based on prudent 
     layperson.--The term `emergency medical condition' means a 
     medical condition manifesting itself by acute symptoms of 
     sufficient severity (including severe pain) such that a 
     prudent layperson, who possesses an average knowledge of 
     health and medicine, could reasonably expect the absence of 
     immediate medical attention to result in--
       ``(i) placing the health of the individual (or, with 
     respect to a pregnant woman, the health of the woman or her 
     unborn child) in serious jeopardy;
       ``(ii) serious impairment to bodily functions; or
       ``(iii) serious dysfunction of any bodily organ or part.
       ``(4) Assuring access to services in medicareadvantage 
     private fee-for-service plans.--In addition to any other 
     requirements under this part, in the case of a 
     MedicareAdvantage private fee-for-service plan, the 
     organization offering the plan must demonstrate to the 
     Secretary that the organization has sufficient number and 
     range of health care professionals and providers willing to 
     provide services under the terms of the plan. The Secretary 
     shall find that an organization has met such requirement with 
     respect to any category of health care professional or 
     provider if, with respect to that category of provider--
       ``(A) the plan has established payment rates for covered 
     services furnished by that category of provider that are not 
     less than the payment rates provided for under part A, B, or 
     D for such services; or
       ``(B) the plan has contracts or agreements with a 
     sufficient number and range of providers within such category 
     to provide covered services under the terms of the plan,

     or a combination of both. The previous sentence shall not be 
     construed as restricting the persons from whom enrollees 
     under such a plan may obtain covered benefits.
       ``(e) Quality Assurance Program.--
       ``(1) In general.--Each MedicareAdvantage organization must 
     have arrangements, consistent with any regulation, for an 
     ongoing quality assurance program for health care services it 
     provides to individuals enrolled with MedicareAdvantage plans 
     of the organization.
       ``(2) Elements of program.--
       ``(A) In general.--The quality assurance program of an 
     organization with respect to a MedicareAdvantage plan (other 
     than a MedicareAdvantage private fee-for-service plan or a 
     nonnetwork MSA plan) it offers shall--
       ``(i) stress health outcomes and provide for the 
     collection, analysis, and reporting of data (in accordance 
     with a quality measurement system that the Secretary 
     recognizes) that will permit measurement of outcomes and 
     other indices of the quality of MedicareAdvantage plans and 
     organizations;
       ``(ii) monitor and evaluate high volume and high risk 
     services and the care of acute and chronic conditions;
       ``(iii) provide access to disease management and chronic 
     care services;
       ``(iv) provide access to preventive benefits and 
     information for enrollees on such benefits;
       ``(v) evaluate the continuity and coordination of care that 
     enrollees receive;
       ``(vi) be evaluated on an ongoing basis as to its 
     effectiveness;
       ``(vii) include measures of consumer satisfaction;
       ``(viii) provide the Secretary with such access to 
     information collected as may be appropriate to monitor and 
     ensure the quality of care provided under this part;
       ``(ix) provide review by physicians and other health care 
     professionals of the process followed in the provision of 
     such health care services;
       ``(x) provide for the establishment of written protocols 
     for utilization review, based on current standards of medical 
     practice;
       ``(xi) have mechanisms to detect both underutilization and 
     overutilization of services;
       ``(xii) after identifying areas for improvement, establish 
     or alter practice parameters;
       ``(xiii) take action to improve quality and assesses the 
     effectiveness of such action through systematic followup; and
       ``(xiv) make available information on quality and outcomes 
     measures to facilitate beneficiary comparison and choice of 
     health coverage options (in such form and on such quality and 
     outcomes measures as the Secretary determines to be 
     appropriate).

     Such program shall include a separate focus (with respect to 
     all the elements described in this subparagraph) on racial 
     and ethnic minorities.
       ``(B) Elements of program for organizations offering 
     medicareadvantage private fee-for-service plans, and 
     nonnetwork msa plans.--The quality assurance program of an 
     organization with respect to a MedicareAdvantage private fee-
     for-service plan or a nonnetwork MSA plan it offers shall--
       ``(i) meet the requirements of clauses (i) through (viii) 
     of subparagraph (A);
       ``(ii) insofar as it provides for the establishment of 
     written protocols for utilization review, base such protocols 
     on current standards of medical practice; and
       ``(iii) have mechanisms to evaluate utilization of services 
     and inform providers and enrollees of the results of such 
     evaluation.

     Such program shall include a separate focus (with respect to 
     all the elements described in this subparagraph) on racial 
     and ethnic minorities.

[[Page S8047]]

       ``(C) Definition of nonnetwork msa plan.--In this 
     subsection, the term `nonnetwork MSA plan' means an MSA plan 
     offered by a MedicareAdvantage organization that does not 
     provide benefits required to be provided by this part, in 
     whole or in part, through a defined set of providers under 
     contract, or under another arrangement, with the 
     organization.
       ``(3) External review.--
       ``(A) In general.--Each MedicareAdvantage organization 
     shall, for each MedicareAdvantage plan it operates, have an 
     agreement with an independent quality review and improvement 
     organization approved by the Secretary to perform functions 
     of the type described in paragraphs (4)(B) and (14) of 
     section 1154(a) with respect to services furnished by 
     MedicareAdvantage plans for which payment is made under this 
     title. The previous sentence shall not apply to a 
     MedicareAdvantage private fee-for-service plan or a 
     nonnetwork MSA plan that does not employ utilization review.
       ``(B) Nonduplication of accreditation.--Except in the case 
     of the review of quality complaints, and consistent with 
     subparagraph (C), the Secretary shall ensure that the 
     external review activities conducted under subparagraph (A) 
     are not duplicative of review activities conducted as part of 
     the accreditation process.
       ``(C) Waiver authority.--The Secretary may waive the 
     requirement described in subparagraph (A) in the case of an 
     organization if the Secretary determines that the 
     organization has consistently maintained an excellent record 
     of quality assurance and compliance with other requirements 
     under this part.
       ``(4) Treatment of accreditation.--
       ``(A) In general.--The Secretary shall provide that a 
     MedicareAdvantage organization is deemed to meet all the 
     requirements described in any specific clause of subparagraph 
     (B) if the organization is accredited (and periodically 
     reaccredited) by a private accrediting organization under a 
     process that the Secretary has determined assures that the 
     accrediting organization applies and enforces standards that 
     meet or exceed the standards established under section 1856 
     to carry out the requirements in such clause.
       ``(B) Requirements described.--The provisions described in 
     this subparagraph are the following:
       ``(i) Paragraphs (1) and (2) of this subsection (relating 
     to quality assurance programs).
       ``(ii) Subsection (b) (relating to antidiscrimination).
       ``(iii) Subsection (d) (relating to access to services).
       ``(iv) Subsection (h) (relating to confidentiality and 
     accuracy of enrollee records).
       ``(v) Subsection (i) (relating to information on advance 
     directives).
       ``(vi) Subsection (j) (relating to provider participation 
     rules).
       ``(C) Timely action on applications.--The Secretary shall 
     determine, within 210 days after the date the Secretary 
     receives an application by a private accrediting organization 
     and using the criteria specified in section 1865(b)(2), 
     whether the process of the private accrediting organization 
     meets the requirements with respect to any specific clause in 
     subparagraph (B) with respect to which the application is 
     made. The Secretary may not deny such an application on the 
     basis that it seeks to meet the requirements with respect to 
     only one, or more than one, such specific clause.
       ``(D) Construction.--Nothing in this paragraph shall be 
     construed as limiting the authority of the Secretary under 
     section 1857, including the authority to terminate contracts 
     with MedicareAdvantage organizations under subsection (c)(2) 
     of such section.
       ``(5) Report to congress.--
       ``(A) In general.--The Secretary shall submit to Congress a 
     biennial report regarding how quality assurance programs 
     conducted under this subsection focus on racial and ethnic 
     minorities.
       ``(B) Contents of report.--Each such report shall include 
     the following:
       ``(i) A description of the means by which such programs 
     focus on such racial and ethnic minorities.
       ``(ii) An evaluation of the impact of such programs on 
     eliminating health disparities and on improving health 
     outcomes, continuity and coordination of care, management of 
     chronic conditions, and consumer satisfaction.
       ``(iii) Recommendations on ways to reduce clinical outcome 
     disparities among racial and ethnic minorities.
       ``(f) Grievance Mechanism.--Each MedicareAdvantage 
     organization must provide meaningful procedures for hearing 
     and resolving grievances between the organization (including 
     any entity or individual through which the organization 
     provides health care services) and enrollees with 
     MedicareAdvantage plans of the organization under this part.
       ``(g) Coverage Determinations, Reconsiderations, and 
     Appeals.--
       ``(1) Determinations by organization.--
       ``(A) In general.--A MedicareAdvantage organization shall 
     have a procedure for making determinations regarding whether 
     an individual enrolled with the plan of the organization 
     under this part is entitled to receive a health service under 
     this section and the amount (if any) that the individual is 
     required to pay with respect to such service. Subject to 
     paragraph (3), such procedures shall provide for such 
     determination to be made on a timely basis.
       ``(B) Explanation of determination.--Such a determination 
     that denies coverage, in whole or in part, shall be in 
     writing and shall include a statement in understandable 
     language of the reasons for the denial and a description of 
     the reconsideration and appeals processes.
       ``(2) Reconsiderations.--
       ``(A) In general.--The organization shall provide for 
     reconsideration of a determination described in paragraph 
     (1)(B) upon request by the enrollee involved. The 
     reconsideration shall be within a time period specified by 
     the Secretary, but shall be made, subject to paragraph (3), 
     not later than 60 days after the date of the receipt of the 
     request for reconsideration.
       ``(B) Physician decision on certain reconsiderations.--A 
     reconsideration relating to a determination to deny coverage 
     based on a lack of medical necessity shall be made only by a 
     physician with appropriate expertise in the field of medicine 
     which necessitates treatment who is other than a physician 
     involved in the initial determination.
       ``(3) Expedited determinations and reconsiderations.--
       ``(A) Receipt of requests.--
       ``(i) Enrollee requests.--An enrollee in a 
     MedicareAdvantage plan may request, either in writing or 
     orally, an expedited determination under paragraph (1) or an 
     expedited reconsideration under paragraph (2) by the 
     MedicareAdvantage organization.
       ``(ii) Physician requests.--A physician, regardless whether 
     the physician is affiliated with the organization or not, may 
     request, either in writing or orally, such an expedited 
     determination or reconsideration.
       ``(B) Organization procedures.--
       ``(i) In general.--The MedicareAdvantage organization shall 
     maintain procedures for expediting organization 
     determinations and reconsiderations when, upon request of an 
     enrollee, the organization determines that the application of 
     the normal timeframe for making a determination (or a 
     reconsideration involving a determination) could seriously 
     jeopardize the life or health of the enrollee or the 
     enrollee's ability to regain maximum function.
       ``(ii) Expedition required for physician requests.--In the 
     case of a request for an expedited determination or 
     reconsideration made under subparagraph (A)(ii), the 
     organization shall expedite the determination or 
     reconsideration if the request indicates that the application 
     of the normal timeframe for making a determination (or a 
     reconsideration involving a determination) could seriously 
     jeopardize the life or health of the enrollee or the 
     enrollee's ability to regain maximum function.
       ``(iii) Timely response.--In cases described in clauses (i) 
     and (ii), the organization shall notify the enrollee (and the 
     physician involved, as appropriate) of the determination or 
     reconsideration under time limitations established by the 
     Secretary, but not later than 72 hours of the time of receipt 
     of the request for the determination or reconsideration (or 
     receipt of the information necessary to make the 
     determination or reconsideration), or such longer period as 
     the Secretary may permit in specified cases.
       ``(4) Independent review of certain coverage denials.--The 
     Secretary shall contract with an independent, outside entity 
     to review and resolve in a timely manner reconsiderations 
     that affirm denial of coverage, in whole or in part. The 
     provisions of section 1869(c)(5) shall apply to independent 
     outside entities under contract with the Secretary under this 
     paragraph.
       ``(5) Appeals.--An enrollee with a MedicareAdvantage plan 
     of a MedicareAdvantage organization under this part who is 
     dissatisfied by reason of the enrollee's failure to receive 
     any health service to which the enrollee believes the 
     enrollee is entitled and at no greater charge than the 
     enrollee believes the enrollee is required to pay is 
     entitled, if the amount in controversy is $100 or more, to a 
     hearing before the Secretary to the same extent as is 
     provided in section 205(b), and in any such hearing the 
     Secretary shall make the organization a party. If the amount 
     in controversy is $1,000 or more, the individual or 
     organization shall, upon notifying the other party, be 
     entitled to judicial review of the Secretary's final decision 
     as provided in section 205(g), and both the individual and 
     the organization shall be entitled to be parties to that 
     judicial review. In applying subsections (b) and (g) of 
     section 205 as provided in this paragraph, and in applying 
     section 205(l) thereto, any reference therein to the 
     Commissioner of Social Security or the Social Security 
     Administration shall be considered a reference to the 
     Secretary or the Department of Health and Human Services, 
     respectively.
       ``(h) Confidentiality and Accuracy of Enrollee Records.--
     Insofar as a MedicareAdvantage organization maintains medical 
     records or other health information regarding enrollees under 
     this part, the MedicareAdvantage organization shall establish 
     procedures--
       ``(1) to safeguard the privacy of any individually 
     identifiable enrollee information;
       ``(2) to maintain such records and information in a manner 
     that is accurate and timely; and
       ``(3) to assure timely access of enrollees to such records 
     and information.
       ``(i) Information on Advance Directives.--Each 
     MedicareAdvantage organization shall meet the requirement of 
     section

[[Page S8048]]

     1866(f) (relating to maintaining written policies and 
     procedures respecting advance directives).
       ``(j) Rules Regarding Provider Participation.--
       ``(1) Procedures.--Insofar as a Medicare-Advantage 
     organization offers benefits under a MedicareAdvantage plan 
     through agreements with physicians, the organization shall 
     establish reasonable procedures relating to the participation 
     (under an agreement between a physician and the organization) 
     of physicians under such a plan. Such procedures shall 
     include--
       ``(A) providing notice of the rules regarding 
     participation;
       ``(B) providing written notice of participation decisions 
     that are adverse to physicians; and
       ``(C) providing a process within the organization for 
     appealing such adverse decisions, including the presentation 
     of information and views of the physician regarding such 
     decision.
       ``(2) Consultation in medical policies.--A 
     MedicareAdvantage organization shall consult with physicians 
     who have entered into participation agreements with the 
     organization regarding the organization's medical policy, 
     quality, and medical management procedures.
       ``(3) Prohibiting interference with provider advice to 
     enrollees.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), a 
     MedicareAdvantage organization (in relation to an individual 
     enrolled under a MedicareAdvantage plan offered by the 
     organization under this part) shall not prohibit or otherwise 
     restrict a covered health care professional (as defined in 
     subparagraph (D)) from advising such an individual who is a 
     patient of the professional about the health status of the 
     individual or medical care or treatment for the individual's 
     condition or disease, regardless of whether benefits for such 
     care or treatment are provided under the plan, if the 
     professional is acting within the lawful scope of practice.
       ``(B) Conscience protection.--Subparagraph (A) shall not be 
     construed as requiring a MedicareAdvantage plan to provide, 
     reimburse for, or provide coverage of a counseling or 
     referral service if the MedicareAdvantage organization 
     offering the plan--
       ``(i) objects to the provision of such service on moral or 
     religious grounds; and
       ``(ii) in the manner and through the written 
     instrumentalities such MedicareAdvantage organization deems 
     appropriate, makes available information on its policies 
     regarding such service to prospective enrollees before or 
     during enrollment and to enrollees within 90 days after the 
     date that the organization or plan adopts a change in policy 
     regarding such a counseling or referral service.
       ``(C) Construction.--Nothing in subparagraph (B) shall be 
     construed to affect disclosure requirements under State law 
     or under the Employee Retirement Income Security Act of 1974.
       ``(D) Health care professional defined.--For purposes of 
     this paragraph, the term `health care professional' means a 
     physician (as defined in section 1861(r)) or other health 
     care professional if coverage for the professional's services 
     is provided under the MedicareAdvantage plan for the services 
     of the professional. Such term includes a podiatrist, 
     optometrist, chiropractor, psychologist, dentist, licensed 
     pharmacist, physician assistant, physical or occupational 
     therapist and therapy assistant, speech-language pathologist, 
     audiologist, registered or licensed practical nurse 
     (including nurse practitioner, clinical nurse specialist, 
     certified registered nurse anesthetist, and certified nurse-
     midwife), licensed certified social worker, registered 
     respiratory therapist, and certified respiratory therapy 
     technician.
       ``(4) Limitations on physician incentive plans.--
       ``(A) In general.--No MedicareAdvantage organization may 
     operate any physician incentive plan (as defined in 
     subparagraph (B)) unless the following requirements are met:
       ``(i) No specific payment is made directly or indirectly 
     under the plan to a physician or physician group as an 
     inducement to reduce or limit medically necessary services 
     provided with respect to a specific individual enrolled with 
     the organization.
       ``(ii) If the plan places a physician or physician group at 
     substantial financial risk (as determined by the Secretary) 
     for services not provided by the physician or physician 
     group, the organization--

       ``(I) provides stop-loss protection for the physician or 
     group that is adequate and appropriate, based on standards 
     developed by the Secretary that take into account the number 
     of physicians placed at such substantial financial risk in 
     the group or under the plan and the number of individuals 
     enrolled with the organization who receive services from the 
     physician or group; and
       ``(II) conducts periodic surveys of both individuals 
     enrolled and individuals previously enrolled with the 
     organization to determine the degree of access of such 
     individuals to services provided by the organization and 
     satisfaction with the quality of such services.

       ``(iii) The organization provides the Secretary with 
     descriptive information regarding the plan, sufficient to 
     permit the Secretary to determine whether the plan is in 
     compliance with the requirements of this subparagraph.
       ``(B) Physician incentive plan defined.--In this paragraph, 
     the term `physician incentive plan' means any compensation 
     arrangement between a MedicareAdvantage organization and a 
     physician or physician group that may directly or indirectly 
     have the effect of reducing or limiting services provided 
     with respect to individuals enrolled with the organization 
     under this part.
       ``(5) Limitation on provider indemnification.--A 
     MedicareAdvantage organization may not provide (directly or 
     indirectly) for a health care professional, provider of 
     services, or other entity providing health care services (or 
     group of such professionals, providers, or entities) to 
     indemnify the organization against any liability resulting 
     from a civil action brought for any damage caused to an 
     enrollee with a MedicareAdvantage plan of the organization 
     under this part by the organization's denial of medically 
     necessary care.
       ``(6) Special rules for medicareadvantage private fee-for-
     service plans.--For purposes of applying this part (including 
     subsection (k)(1)) and section 1866(a)(1)(O), a hospital (or 
     other provider of services), a physician or other health care 
     professional, or other entity furnishing health care services 
     is treated as having an agreement or contract in effect with 
     a MedicareAdvantage organization (with respect to an 
     individual enrolled in a MedicareAdvantage private fee-for-
     service plan it offers), if--
       ``(A) the provider, professional, or other entity furnishes 
     services that are covered under the plan to such an enrollee; 
     and
       ``(B) before providing such services, the provider, 
     professional, or other entity --
       ``(i) has been informed of the individual's enrollment 
     under the plan; and
       ``(ii) either--

       ``(I) has been informed of the terms and conditions of 
     payment for such services under the plan; or
       ``(II) is given a reasonable opportunity to obtain 
     information concerning such terms and conditions,

     in a manner reasonably designed to effect informed agreement 
     by a provider.

     The previous sentence shall only apply in the absence of an 
     explicit agreement between such a provider, professional, or 
     other entity and the MedicareAdvantage organization.
       ``(k) Treatment of Services Furnished by Certain 
     Providers.--
       ``(1) In general.--Except as provided in paragraph (2), a 
     physician or other entity (other than a provider of services) 
     that does not have a contract establishing payment amounts 
     for services furnished to an individual enrolled under this 
     part with a MedicareAdvantage organization described in 
     section 1851(a)(2)(A) shall accept as payment in full for 
     covered services under this title that are furnished to such 
     an individual the amounts that the physician or other entity 
     could collect if the individual were not so enrolled. Any 
     penalty or other provision of law that applies to such a 
     payment with respect to an individual entitled to benefits 
     under this title (but not enrolled with a MedicareAdvantage 
     organization under this part) also applies with respect to an 
     individual so enrolled.
       ``(2) Application to medicareadvantage private fee-for-
     service plans.--
       ``(A) Balance billing limits under medicareadvantage 
     private fee-for-service plans in case of contract 
     providers.--
       ``(i) In general.--In the case of an individual enrolled in 
     a MedicareAdvantage private fee-for-service plan under this 
     part, a physician, provider of services, or other entity that 
     has a contract (including through the operation of subsection 
     (j)(6)) establishing a payment rate for services furnished to 
     the enrollee shall accept as payment in full for covered 
     services under this title that are furnished to such an 
     individual an amount not to exceed (including any 
     deductibles, coinsurance, copayments, or balance billing 
     otherwise permitted under the plan) an amount equal to 115 
     percent of such payment rate.
       ``(ii) Procedures to enforce limits.--The MedicareAdvantage 
     organization that offers such a plan shall establish 
     procedures, similar to the procedures described in section 
     1848(g)(1)(A), in order to carry out clause (i).
       ``(iii) Assuring enforcement.--If the MedicareAdvantage 
     organization fails to establish and enforce procedures 
     required under clause (ii), the organization is subject to 
     intermediate sanctions under section 1857(g).
       ``(B) Enrollee liability for noncontract providers.--For 
     provisions--
       ``(i) establishing a minimum payment rate in the case of 
     noncontract providers under a MedicareAdvantage private fee-
     for-service plan, see section 1852(a)(2); or
       ``(ii) limiting enrollee liability in the case of covered 
     services furnished by such providers, see paragraph (1) and 
     section 1866(a)(1)(O).
       ``(C) Information on beneficiary liability.--
       ``(i) In general.--Each MedicareAdvantage organization that 
     offers a MedicareAdvantage private fee-for-service plan shall 
     provide that enrollees under the plan who are furnished 
     services for which payment is sought under the plan are 
     provided an appropriate explanation of benefits (consistent 
     with that provided under parts A, B, and D, and, if 
     applicable, under medicare supplemental policies) that 
     includes a clear statement of the amount of the enrollee's 
     liability (including any liability for balance billing 
     consistent with this subsection) with respect to payments for 
     such services.

[[Page S8049]]

       ``(ii) Advance notice before receipt of inpatient hospital 
     services and certain other services.--In addition, such 
     organization shall, in its terms and conditions of payments 
     to hospitals for inpatient hospital services and for other 
     services identified by the Secretary for which the amount of 
     the balance billing under subparagraph (A) could be 
     substantial, require the hospital to provide to the enrollee, 
     before furnishing such services and if the hospital imposes 
     balance billing under subparagraph (A)--

       ``(I) notice of the fact that balance billing is permitted 
     under such subparagraph for such services; and
       ``(II) a good faith estimate of the likely amount of such 
     balance billing (if any), with respect to such services, 
     based upon the presenting condition of the enrollee.

       ``(l) Return to Home Skilled Nursing Facilities for Covered 
     Post-Hospital Extended Care Services.--
       ``(1) Ensuring return to home snf.--
       ``(A) In general.--In providing coverage of post-hospital 
     extended care services, a MedicareAdvantage plan shall 
     provide for such coverage through a home skilled nursing 
     facility if the following conditions are met:
       ``(i) Enrollee election.--The enrollee elects to receive 
     such coverage through such facility.
       ``(ii) SNF agreement.--The facility has a contract with the 
     MedicareAdvantage organization for the provision of such 
     services, or the facility agrees to accept substantially 
     similar payment under the same terms and conditions that 
     apply to similarly situated skilled nursing facilities that 
     are under contract with the MedicareAdvantage organization 
     for the provision of such services and through which the 
     enrollee would otherwise receive such services.
       ``(B) Manner of payment to home snf.--The organization 
     shall provide payment to the home skilled nursing facility 
     consistent with the contract or the agreement described in 
     subparagraph (A)(ii), as the case may be.
       ``(2) No less favorable coverage.--The coverage provided 
     under paragraph (1) (including scope of services, cost-
     sharing, and other criteria of coverage) shall be no less 
     favorable to the enrollee than the coverage that would be 
     provided to the enrollee with respect to a skilled nursing 
     facility the post-hospital extended care services of which 
     are otherwise covered under the MedicareAdvantage plan.
       ``(3) Rule of construction.--Nothing in this subsection 
     shall be construed to do the following:
       ``(A) To require coverage through a skilled nursing 
     facility that is not otherwise qualified to provide benefits 
     under part A for medicare beneficiaries not enrolled in a 
     MedicareAdvantage plan.
       ``(B) To prevent a skilled nursing facility from refusing 
     to accept, or imposing conditions upon the acceptance of, an 
     enrollee for the receipt of post-hospital extended care 
     services.
       ``(4) Definitions.--In this subsection:
       ``(A) Home skilled nursing facility.--The term `home 
     skilled nursing facility' means, with respect to an enrollee 
     who is entitled to receive post-hospital extended care 
     services under a MedicareAdvantage plan, any of the following 
     skilled nursing facilities:
       ``(i) SNF residence at time of admission.--The skilled 
     nursing facility in which the enrollee resided at the time of 
     admission to the hospital preceding the receipt of such post-
     hospital extended care services.
       ``(ii) SNF in continuing care retirement community.--A 
     skilled nursing facility that is providing such services 
     through a continuing care retirement community (as defined in 
     subparagraph (B)) which provided residence to the enrollee at 
     the time of such admission.
       ``(iii) SNF residence of spouse at time of discharge.--The 
     skilled nursing facility in which the spouse of the enrollee 
     is residing at the time of discharge from such hospital.
       ``(B) Continuing care retirement community.--The term 
     `continuing care retirement community' means, with respect to 
     an enrollee in a MedicareAdvantage plan, an arrangement under 
     which housing and health-related services are provided (or 
     arranged) through an organization for the enrollee under an 
     agreement that is effective for the life of the enrollee or 
     for a specified period.''.

     SEC. 203. PAYMENTS TO MEDICAREADVANTAGE ORGANIZATIONS.

       Section 1853 (42 U.S.C. 1395w-23) is amended to read as 
     follows:


             ``payments to medicareadvantage organizations

       ``Sec. 1853. (a) Payments to Organizations.--
       ``(1) Monthly payments.--
       ``(A) In general.--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 
     MedicareAdvantage organization, with respect to coverage of 
     an individual for a month under this part in a 
     MedicareAdvantage payment area, separate monthly payments 
     with respect to--
       ``(i) benefits under the original medicare fee-for-service 
     program under parts A and B in accordance with subsection 
     (d); and
       ``(ii) benefits under the voluntary prescription drug 
     program under part D in accordance with section 1858A and the 
     other provisions of this part.
       ``(B) Special rule for end-stage renal disease.--The 
     Secretary shall establish separate rates of payment to a 
     MedicareAdvantage organization with respect to classes of 
     individuals determined to have end-stage renal disease and 
     enrolled in a MedicareAdvantage plan of the organization. 
     Such rates of payment shall be actuarially equivalent to 
     rates paid to other enrollees in the MedicareAdvantage 
     payment area (or such other area as specified by the 
     Secretary). In accordance with regulations, the Secretary 
     shall provide for the application of the seventh sentence of 
     section 1881(b)(7) to payments under this section covering 
     the provision of renal dialysis treatment in the same manner 
     as such sentence applies to composite rate payments described 
     in such sentence. In establishing such rates, the Secretary 
     shall provide for appropriate adjustments to increase each 
     rate to reflect the demonstration rate (including the risk 
     adjustment methodology associated with such rate) of the 
     social health maintenance organization end-stage renal 
     disease capitation demonstrations (established by section 
     2355 of the Deficit Reduction Act of 1984, as amended by 
     section 13567(b) of the Omnibus Budget Reconciliation Act of 
     1993), and shall compute such rates by taking into account 
     such factors as renal treatment modality, age, and the 
     underlying cause of the end-stage renal disease.
       ``(2) Adjustment to reflect number of enrollees.--
       ``(A) In general.--The amount of payment under this 
     subsection may be retroactively adjusted to take into account 
     any difference between the actual number of individuals 
     enrolled with an organization under this part and the number 
     of such individuals estimated to be so enrolled in 
     determining the amount of the advance payment.
       ``(B) Special rule for certain enrollees.--
       ``(i) In general.--Subject to clause (ii), the Secretary 
     may make retroactive adjustments under subparagraph (A) to 
     take into account individuals enrolled during the period 
     beginning on the date on which the individual enrolls with a 
     MedicareAdvantage organization under a plan operated, 
     sponsored, or contributed to by the individual's employer or 
     former employer (or the employer or former employer of the 
     individual's spouse) and ending on the date on which the 
     individual is enrolled in the organization under this part, 
     except that for purposes of making such retroactive 
     adjustments under this subparagraph, such period may not 
     exceed 90 days.
       ``(ii) Exception.--No adjustment may be made under clause 
     (i) with respect to any individual who does not certify that 
     the organization provided the individual with the disclosure 
     statement described in section 1852(c) at the time the 
     individual enrolled with the organization.
       ``(C) Equalization of federal contribution.--In applying 
     subparagraph (A), the Secretary shall ensure that the payment 
     to the MedicareAdvantage organization for each individual 
     enrolled with the organization shall equal the 
     MedicareAdvantage benchmark amount for the payment area in 
     which that individual resides (as determined under paragraph 
     (4)), as adjusted--
       ``(i) by multiplying the benchmark amount for that payment 
     area by the ratio of--

       ``(I) the payment amount determined under subsection 
     (d)(4); to
       ``(II) the weighted service area benchmark amount 
     determined under subsection (d)(2); and

       ``(ii) using such risk adjustment factor as specified by 
     the Secretary under subsection (b)(1)(B).
       ``(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 payments 
     to plans under subsection (d)(4)(B).
       ``(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 
     MedicareAdvantage plans offered by MedicareAdvantage 
     organizations in 2005, 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 MedicareAdvantage 
     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.
       ``(4) Annual calculation of benchmark amounts.--For each 
     year, the Secretary shall calculate a benchmark amount for 
     each MedicareAdvantage payment area for each month for such 
     year with respect to coverage of the benefits available 
     under the original medicare fee-for-service program option 
     equal to the greater of the following amounts (adjusted as 
     appropriate for the application of the risk adjustment 
     methodology under paragraph (3)):

[[Page S8050]]

       ``(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.
       ``(B) Local fee-for-service rate.--The local fee-for-
     service rate for such area for the year (as calculated under 
     paragraph (5)).
       ``(5) Annual calculation of local fee-for-service rates.--
       ``(A) In general.--Subject to subparagraph (B), the term 
     `local fee-for-service rate' means the amount of payment for 
     a month in a MedicareAdvantage payment area for benefits 
     under this title and associated claims processing costs for 
     an individual who has elected to receive benefits under the 
     original medicare fee-for-service program option and not 
     enrolled in a MedicareAdvantage 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.
       ``(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 which the Secretary estimates are payable during 
     the year--

       ``(aa) for the indirect costs of medical education under 
     section 1886(d)(5)(B); and
       ``(bb) 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.

       ``(b) Annual Announcement of Payment Factors.--
       ``(1) Annual announcement.--Beginning in 2005, 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 MedicareAdvantage 
     payment area (as calculated under subsection (a)(4)) for the 
     year.
       ``(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 MedicareAdvantage 
     payment area for the year.
       ``(2) Advance notice of methodological changes.--At least 
     45 days before making the announcement under paragraph (1) 
     for a year, the Secretary shall--
       ``(A) provide for notice to MedicareAdvantage organizations 
     of proposed changes to be made in the methodology from the 
     methodology and assumptions used in the previous 
     announcement; and
       ``(B) provide such organizations with an opportunity to 
     comment on such proposed changes.
       ``(3) Explanation of assumptions.--In each announcement 
     made under paragraph (1), the Secretary shall include an 
     explanation of the assumptions and changes in methodology 
     used in the announcement in sufficient detail so that 
     MedicareAdvantage organizations can compute each payment 
     factor described in paragraph (1).
       ``(c) Calculation of Annual Medicare+Choice Capitation 
     Rates.--
       ``(1) In general.--For purposes of making payments under 
     this part for years before 2006 and for purposes of 
     calculating the annual Medicare+Choice capitation rates under 
     paragraph (7) beginning with such year, subject to paragraph 
     (6)(C), each annual Medicare+Choice capitation rate, for a 
     Medicare+Choice payment area before 2006 or a 
     MedicareAdvantage payment area beginning with such year for a 
     contract year consisting of a calendar year, is equal to the 
     largest of the amounts specified in the following 
     subparagraph (A), (B), or (C):
       ``(A) Blended capitation rate.--The sum of--
       ``(i) the area-specific percentage (as specified under 
     paragraph (2) for the year) of the annual area-specific 
     Medicare+Choice capitation rate for the MedicareAdvantage 
     payment area, as determined under paragraph (3) for the year; 
     and
       ``(ii) the national percentage (as specified under 
     paragraph (2) for the year) of the input-price-adjusted 
     annual national Medicare+Choice capitation rate, as 
     determined under paragraph (4) for the year,

     multiplied by the budget neutrality adjustment factor 
     determined under paragraph (5).
       ``(B) Minimum amount.--12 multiplied by the following 
     amount:
       ``(i) For 1998, $367 (but not to exceed, in the case of an 
     area outside the 50 States and the District of Columbia, 150 
     percent of the annual per capita rate of payment for 1997 
     determined under section 1876(a)(1)(C) for the area).
       ``(ii) For 1999 and 2000, the minimum amount determined 
     under clause (i) or this clause, respectively, for the 
     preceding year, increased by the national per capita 
     Medicare+Choice growth percentage described in paragraph 
     (6)(A) applicable to 1999 or 2000, respectively.
       ``(iii)(I) Subject to subclause (II), for 2001, for any 
     area in a Metropolitan Statistical Area with a population of 
     more than 250,000, $525, and for any other area $475.
       ``(II) In the case of an area outside the 50 States and the 
     District of Columbia, the amount specified in this clause 
     shall not exceed 120 percent of the amount determined under 
     clause (ii) for such area for 2000.
       ``(iv) For 2002 through 2013, the minimum amount specified 
     in this clause (or clause (iii)) for the preceding year 
     increased by the national per capita Medicare+Choice growth 
     percentage, described in paragraph (6)(A) for that succeeding 
     year.
       ``(v) For 2014 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.
       ``(C) Minimum percentage increase.--
       ``(i) For 1998, 102 percent of the annual per capita rate 
     of payment for 1997 determined under section 1876(a)(1)(C) 
     for the Medicare+Choice payment area.
       ``(ii) For 1999 and 2000, 102 percent of the annual 
     Medicare+Choice capitation rate under this paragraph for the 
     area for the previous year.
       ``(iii) For 2001, 103 percent of the annual Medicare+Choice 
     capitation rate under this paragraph for the area for 2000.
       ``(iv) For 2002 and each succeeding year, 102 percent of 
     the annual Medicare+Choice capitation rate under this 
     paragraph for the area for the previous year.
       ``(2) Area-specific and national percentages.--For purposes 
     of paragraph (1)(A)--
       ``(A) for 1998, the `area-specific percentage' is 90 
     percent and the `national percentage' is 10 percent;
       ``(B) for 1999, the `area-specific percentage' is 82 
     percent and the `national percentage' is 18 percent;
       ``(C) for 2000, the `area-specific percentage' is 74 
     percent and the `national percentage' is 26 percent;
       ``(D) for 2001, the `area-specific percentage' is 66 
     percent and the `national percentage' is 34 percent;
       ``(E) for 2002, the `area-specific percentage' is 58 
     percent and the `national percentage' is 42 percent; and
       ``(F) for a year after 2002, the `area-specific percentage' 
     is 50 percent and the `national percentage' is 50 percent.
       ``(3) Annual area-specific medicare+choice capitation 
     rate.--
       ``(A) In general.--For purposes of paragraph (1)(A), 
     subject to subparagraph (B), the annual area-specific 
     Medicare+Choice capitation rate for a Medicare+Choice payment 
     area--
       ``(i) for 1998 is, subject to subparagraph (D), the annual 
     per capita rate of payment for 1997 determined under section 
     1876(a)(1)(C) for the area, increased by the national per 
     capita Medicare+Choice growth percentage for 1998 (described 
     in paragraph (6)(A)); or
       ``(ii) for a subsequent year is the annual area-specific 
     Medicare+Choice capitation rate for the previous year 
     determined under this paragraph for the area, increased by 
     the national per capita Medicare+Choice growth percentage for 
     such subsequent year.
       ``(B) Removal of medical education from calculation of 
     adjusted average per capita cost.--
       ``(i) In general.--In determining the area-specific 
     Medicare+Choice capitation rate under subparagraph (A) for a 
     year (beginning with 1998), the annual per capita rate of 
     payment for 1997 determined under section 1876(a)(1)(C) shall 
     be adjusted to exclude from the rate the applicable percent 
     (specified in clause (ii)) of the payment adjustments 
     described in subparagraph (C).
       ``(ii) Applicable percent.--For purposes of clause (i), the 
     applicable percent for--

       ``(I) 1998 is 20 percent;
       ``(II) 1999 is 40 percent;
       ``(III) 2000 is 60 percent;
       ``(IV) 2001 is 80 percent; and

       ``(V) a succeeding year is 100 percent.

       ``(C) Payment adjustment.--
       ``(i) In general.--Subject to clause (ii), the payment 
     adjustments described in this subparagraph are payment 
     adjustments which the Secretary estimates were payable during 
     1997--

       ``(I) for the indirect costs of medical education under 
     section 1886(d)(5)(B); and
       ``(II) 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 an annual per capita rate of payment for 1997 
     described in clause (i) 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.
       ``(D) Treatment of areas with highly variable payment 
     rates.--In the case of a Medicare+Choice payment area for 
     which the annual per capita rate of payment determined under 
     section 1876(a)(1)(C) for 1997 varies by more than 20 percent 
     from such rate for 1996, for purposes of this subsection the 
     Secretary may substitute for such rate for

[[Page S8051]]

     1997 a rate that is more representative of the costs of the 
     enrollees in the area.
       ``(4) Input-price-adjusted annual national medicare+choice 
     capitation rate.--
       ``(A) In general.--For purposes of paragraph (1)(A), the 
     input-price-adjusted annual national Medicare+Choice 
     capitation rate for a Medicare+Choice payment area for a year 
     is equal to the sum, for all the types of medicare services 
     (as classified by the Secretary), of the product (for each 
     such type of service) of--
       ``(i) the national standardized annual Medicare+Choice 
     capitation rate (determined under subparagraph (B)) for the 
     year;
       ``(ii) the proportion of such rate for the year which is 
     attributable to such type of services; and
       ``(iii) an index that reflects (for that year and that type 
     of services) the relative input price of such services in the 
     area compared to the national average input price of such 
     services.

     In applying clause (iii), the Secretary may, subject to 
     subparagraph (C), apply those indices under this title that 
     are used in applying (or updating) national payment rates for 
     specific areas and localities.
       ``(B) National standardized annual medicare+choice 
     capitation rate.--In subparagraph (A)(i), the `national 
     standardized annual Medicare+Choice capitation rate' for a 
     year is equal to--
       ``(i) the sum (for all Medicare+Choice payment areas) of 
     the product of--

       ``(I) the annual area-specific Medicare+Choice capitation 
     rate for that year for the area under paragraph (3); and
       ``(II) the average number of medicare beneficiaries 
     residing in that area in the year, multiplied by the average 
     of the risk factor weights used to adjust payments under 
     subsection (a)(1)(A) for such beneficiaries in such area; 
     divided by

       ``(ii) the sum of the products described in clause (i)(II) 
     for all areas for that year.
       ``(5) Payment adjustment budget neutrality factor.--For 
     purposes of paragraph (1)(A), for each year, the Secretary 
     shall determine a budget neutrality adjustment factor so that 
     the aggregate of the payments under this part (other than 
     those attributable to subsections (a)(3)(C)(iii) and (i)) 
     shall equal the aggregate payments that would have been made 
     under this part if payment were based entirely on area-
     specific capitation rates.
       ``(6) National per capita medicare+choice growth percentage 
     defined.--
       ``(A) In general.--In this part, the `national per capita 
     Medicare+Choice growth percentage' for a year is the 
     percentage determined by the Secretary, by March 1st before 
     the beginning of the year involved, to reflect the 
     Secretary's estimate of the projected per capita rate of 
     growth in expenditures under this title for an individual 
     entitled to (or enrolled for) benefits under part A and 
     enrolled under part B, reduced by the number of percentage 
     points specified in subparagraph (B) for the year. Separate 
     determinations may be made for aged enrollees, disabled 
     enrollees, and enrollees with end-stage renal disease.
       ``(B) Adjustment.--The number of percentage points 
     specified in this subparagraph is--
       ``(i) for 1998, 0.8 percentage points;
       ``(ii) for 1999, 0.5 percentage points;
       ``(iii) for 2000, 0.5 percentage points;
       ``(iv) for 2001, 0.5 percentage points;
       ``(v) for 2002, 0.3 percentage points; and
       ``(vi) for a year after 2002, 0 percentage points.
       ``(C) Adjustment for over or under projection of national 
     per capita medicare+choice growth percentage.--Beginning with 
     rates calculated for 1999, before computing rates for a year 
     as described in paragraph (1), the Secretary shall adjust all 
     area-specific and national Medicare+Choice capitation rates 
     (and beginning in 2000, the minimum amount) for the previous 
     year for the differences between the projections of the 
     national per capita Medicare+Choice growth percentage for 
     that year and previous years and the current estimate of such 
     percentage for such years.
       ``(7) Transition to medicareadvantage competition.--
       ``(A) In general.--For each year (beginning with 2006) 
     payments to MedicareAdvantage 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 2006) 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) for 
     purposes of determining the benchmark amount under subsection 
     (a)(4).
       ``(d) Secretary's Determination of Payment Amount.--
       ``(1) Review of plan bids.--The Secretary shall review each 
     plan bid submitted under section 1854(a) for the coverage of 
     benefits under the original medicare fee-for-service program 
     option to ensure that such bids are consistent with the 
     requirements under this part an are based on the assumptions 
     described in section 1854(a)(2)(A)(iii).
       ``(2) Determination of weighted service area benchmark 
     amounts.--The Secretary shall calculate a weighted service 
     area benchmark amount for the benefits under the original 
     medicare fee-for-service program option for each plan equal 
     to the weighted average of the benchmark amounts for benefits 
     under such original medicare fee-for-service program option 
     for the payment areas included in the service area of the 
     plan using the assumptions described in section 
     1854(a)(2)(A)(iii).
       ``(3) Comparison to benchmark.--The Secretary shall 
     determine the difference between each plan bid (as adjusted 
     under paragraph (1)) and the weighted service area benchmark 
     amount (as determined under paragraph (2)) for purposes of 
     determining--
       ``(A) the payment amount under paragraph (4); and
       ``(B) the additional benefits required and 
     MedicareAdvantage monthly basic beneficiary premiums.
       ``(4) Determination of payment amount for original medicare 
     fee-for-service benefits.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall determine the payment amount for 
     MedicareAdvantage plans for the benefits under the original 
     medicare fee-for-service program option as follows:
       ``(i) Bids that equal or exceed the benchmark.--In the case 
     of a plan bid that equals or exceeds the weighted service 
     area benchmark amount, the amount of each monthly payment to 
     a MedicareAdvantage organization with respect to each 
     individual enrolled in a plan shall be the weighted service 
     area benchmark amount.
       ``(ii) Bids below the benchmark.--In the case of a plan bid 
     that is less than the weighted service area benchmark amount, 
     the amount of each monthly payment to a MedicareAdvantage 
     organization with respect to each individual enrolled in a 
     plan shall be the weighted service area benchmark amount 
     reduced by the amount of any premium reduction elected by the 
     plan under section 1854(d)(1)(A)(i).
       ``(B) Application of comprehensive risk adjustment 
     methodology.--The Secretary shall adjust the amounts 
     determined under subparagraph (A) using the comprehensive 
     risk adjustment methodology applicable under subsection 
     (a)(3).
       ``(6) 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 MedicareAdvantage 
     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 Secretary of the actuarial costs 
     associated with the new benefits.
       ``(7) Benefits under the original medicare fee-for-service 
     program option defined.--For purposes of this part, the term 
     `benefits under the original medicare fee-for-service program 
     option' means those items and services (other than hospice 
     care) for which benefits are available under parts A and B to 
     individuals entitled to, or enrolled for, benefits under part 
     A and enrolled under part B, with cost-sharing for those 
     services as required under parts A and B or an actuarially 
     equivalent level of cost-sharing as determined in this part.
       ``(e) MedicareAdvantage Payment Area Defined.--
       ``(1) In general.--In this part, except as provided in 
     paragraph (3), the term `MedicareAdvantage payment area' 
     means a county, or equivalent area specified by the 
     Secretary.
       ``(2) Rule for esrd beneficiaries.--In the case of 
     individuals who are determined to have end stage renal 
     disease, the MedicareAdvantage payment area shall be a State 
     or such other payment area as the Secretary specifies.
       ``(3) Geographic adjustment.--
       ``(A) In general.--Upon written request of the chief 
     executive officer of a State for a contract year (beginning 
     after 2005) made by not later than February 1 of the previous 
     year, the Secretary shall make a geographic adjustment to a 
     MedicareAdvantage payment area in the State otherwise 
     determined under paragraph (1)--
       ``(i) to a single statewide MedicareAdvantage payment area;
       ``(ii) to the metropolitan based system described in 
     subparagraph (C); or
       ``(iii) to consolidating into a single MedicareAdvantage 
     payment area noncontiguous counties (or equivalent areas 
     described in paragraph (1)) within a State.

     Such adjustment shall be effective for payments for months 
     beginning with January of the year following the year in 
     which the request is received.
       ``(B) Budget neutrality adjustment.--In the case of a State 
     requesting an adjustment under this paragraph, the Secretary 
     shall initially (and annually thereafter) adjust the payment 
     rates otherwise established under this section for 
     MedicareAdvantage payment areas in the State in a manner so 
     that the aggregate of the payments under this section in the 
     State shall not exceed the aggregate payments that would have 
     been made under this section for MedicareAdvantage payment 
     areas in the State in the absence of the adjustment under 
     this paragraph.
       ``(C) Metropolitan based system.--The metropolitan based 
     system described in this subparagraph is one in which--
       ``(i) all the portions of each metropolitan statistical 
     area in the State or in the case of a consolidated 
     metropolitan statistical area,

[[Page S8052]]

     all of the portions of each primary metropolitan statistical 
     area within the consolidated area within the State, are 
     treated as a single MedicareAdvantage payment area; and
       ``(ii) all areas in the State that do not fall within a 
     metropolitan statistical area are treated as a single 
     MedicareAdvantage payment area.
       ``(D) Areas.--In subparagraph (C), the terms `metropolitan 
     statistical area', `consolidated metropolitan statistical 
     area', and `primary metropolitan statistical area' mean any 
     area designated as such by the Secretary of Commerce.
       ``(f) Special Rules for Individuals Electing MSA Plans.--
       ``(1) In general.--If the amount of the MedicareAdvantage 
     monthly MSA premium (as defined in section 1854(b)(2)(D)) for 
     an MSA plan for a year is less than \1/12\ of the annual 
     Medicare+Choice capitation rate applied under this section 
     for the area and year involved, the Secretary shall deposit 
     an amount equal to 100 percent of such difference in a 
     MedicareAdvantage MSA established (and, if applicable, 
     designated) by the individual under paragraph (2).
       ``(2) Establishment and designation of MedicareAdvantage 
     medical savings account as requirement for payment of 
     contribution.--In the case of an individual who has elected 
     coverage under an MSA plan, no payment shall be made under 
     paragraph (1) on behalf of an individual for a month unless 
     the individual--
       ``(A) has established before the beginning of the month (or 
     by such other deadline as the Secretary may specify) a 
     MedicareAdvantage MSA (as defined in section 138(b)(2) of the 
     Internal Revenue Code of 1986); and
       ``(B) if the individual has established more than 1 such 
     MedicareAdvantage MSA, has designated 1 of such accounts as 
     the individual's MedicareAdvantage MSA for purposes of this 
     part.

     Under rules under this section, such an individual may change 
     the designation of such account under subparagraph (B) for 
     purposes of this part.
       ``(3) Lump-sum deposit of medical savings account 
     contribution.--In the case of an individual electing an MSA 
     plan effective beginning with a month in a year, the amount 
     of the contribution to the MedicareAdvantage MSA on behalf of 
     the individual for that month and all successive months in 
     the year shall be deposited during that first month. In the 
     case of a termination of such an election as of a month 
     before the end of a year, the Secretary shall provide for a 
     procedure for the recovery of deposits attributable to the 
     remaining months in the year.
       ``(g) Payments From Trust Funds.--Except as provided in 
     section 1858A(c) (relating to payments for qualified 
     prescription drug coverage), the payment to a 
     MedicareAdvantage organization under this section for 
     individuals enrolled under this part with the organization 
     and payments to a MedicareAdvantage MSA under subsection 
     (e)(1) shall be made from the Federal Hospital Insurance 
     Trust Fund and the Federal Supplementary Medical Insurance 
     Trust Fund in such proportion as the Secretary determines 
     reflects the relative weight that benefits under part A and 
     under part B represents of the actuarial value of the total 
     benefits under this title. Monthly payments otherwise payable 
     under this section for October 2000 shall be paid on the 
     first business day of such month. Monthly payments otherwise 
     payable under this section for October 2001 shall be paid on 
     the last business day of September 2001. Monthly payments 
     otherwise payable under this section for October 2006 shall 
     be paid on the first business day of October 2006.
       ``(h) Special Rule for Certain Inpatient Hospital Stays.--
     In the case of an individual who is receiving inpatient 
     hospital services from a subsection (d) hospital (as defined 
     in section 1886(d)(1)(B)) as of the effective date of the 
     individual's--
       ``(1) election under this part of a MedicareAdvantage plan 
     offered by a MedicareAdvantage organization--
       ``(A) payment for such services until the date of the 
     individual's discharge shall be made under this title through 
     the MedicareAdvantage plan or the original medicare fee-for-
     service program option (as the case may be) elected before 
     the election with such organization,
       ``(B) the elected organization shall not be financially 
     responsible for payment for such services until the date 
     after the date of the individual's discharge; and
       ``(C) the organization shall nonetheless be paid the full 
     amount otherwise payable to the organization under this part; 
     or
       ``(2) termination of election with respect to a 
     MedicareAdvantage organization under this part--
       ``(A) the organization shall be financially responsible for 
     payment for such services after such date and until the date 
     of the individual's discharge;
       ``(B) payment for such services during the stay shall not 
     be made under section 1886(d) or by any succeeding 
     MedicareAdvantage organization; and
       ``(C) the terminated organization shall not receive any 
     payment with respect to the individual under this part during 
     the period the individual is not enrolled.
       ``(i) Special Rule for Hospice Care.--
       ``(1) Information.--A contract under this part shall 
     require the MedicareAdvantage organization to inform each 
     individual enrolled under this part with a MedicareAdvantage 
     plan offered by the organization about the availability of 
     hospice care if--
       ``(A) a hospice program participating under this title is 
     located within the organization's service area; or
       ``(B) it is common practice to refer patients to hospice 
     programs outside such service area.
       ``(2) Payment.--If an individual who is enrolled with a 
     MedicareAdvantage organization under this part makes an 
     election under section 1812(d)(1) to receive hospice care 
     from a particular hospice program--
       ``(A) payment for the hospice care furnished to the 
     individual shall be made to the hospice program elected by 
     the individual by the Secretary;
       ``(B) payment for other services for which the individual 
     is eligible notwithstanding the individual's election of 
     hospice care under section 1812(d)(1), including services not 
     related to the individual's terminal illness, shall be made 
     by the Secretary to the MedicareAdvantage organization or the 
     provider or supplier of the service instead of payments 
     calculated under subsection (a); and
       ``(C) the Secretary shall continue to make monthly payments 
     to the MedicareAdvantage organization in an amount equal to 
     the value of the additional benefits required under section 
     1854(f)(1)(A).''.

     SEC. 204. SUBMISSION OF BIDS; PREMIUMS.

       Section 1854 (42 U.S.C. 1395w-24) is amended to read as 
     follows:


                     ``submission of bids; premiums

       ``Sec. 1854. (a) Submission of Bids by MedicareAdvantage 
     Organizations.--
       ``(1) In general.--Not later than the second Monday in 
     September and except as provided in paragraph (3), each 
     MedicareAdvantage organization shall submit to the Secretary, 
     in such form and manner as the Secretary may specify, for 
     each MedicareAdvantage 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 MedicareAdvantage 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 MedicareAdvantage 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 
     the original medicare fee-for-service program option.--
     Information relating to the coverage of benefits under the 
     original medicare fee-for-service program option 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 (not taking into account the application of the 
     comprehensive risk adjustment methodology under section 
     1853(a)(3)) for providing coverage of the benefits under the 
     original medicare fee-for-service program option to an 
     individual enrolled in the plan that resides in the service 
     area of the plan for a month.
       ``(ii) For the enhanced medical benefits package offered--

       ``(I) the adjusted community rate (as defined in subsection 
     (g)(3)) of the package;
       ``(II) the portion of the actuarial value of such benefits 
     package (if any) that will be applied toward satisfying the 
     requirement for additional benefits under subsection (g);
       ``(III) the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits (as defined in subsection 
     (b)(2)(C));

       ``(IV) a description of any cost-sharing;
       ``(V) a description of whether the amount of the unified 
     deductible has been lowered or the maximum limitations on 
     out-of-pocket expenses have been decreased (relative to the 
     levels used in calculating the plan bid);
       ``(VI) such other information as the Secretary considers 
     necessary.

       ``(iii) The assumptions that the MedicareAdvantage 
     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.--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.
       ``(C) Determining plan costs included in plan bid.--For 
     purposes of submitting its plan bid under subparagraph (A)(i) 
     a MedicareAdvantage plan offered by a MedicareAdvantage 
     organization satisfies subparagraphs (A) and (C) of section 
     1852(a)(1) if the actuarial value of the deductibles, 
     coinsurance, and copayments applicable on average to 
     individuals enrolled

[[Page S8053]]

     in such plan under this part with respect to benefits under 
     the original medicare fee-for-service program option on which 
     that bid is based (ignoring any reduction in cost-sharing 
     offered by such plan as enhanced medical benefits under 
     paragraph (2)(A)(ii) or required under clause (ii) or (iii) 
     of subsection (g)(1)(C)) equals the amount specified in 
     subsection (f)(1)(B).
       ``(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 
     Prescription Drug and Medicare Improvements Act of 2003 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 
     MedicareAdvantage monthly basic premium and the 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits filed under this subsection and shall 
     approve or disapprove such rates and amounts so submitted. 
     The Secretary shall review the actuarial assumptions and data 
     used by the MedicareAdvantage organization with respect to 
     such rates and amounts so submitted to determine the 
     appropriateness of such assumptions and data.
       ``(B) MSA exception.--The Secretary shall not review, 
     approve, or disapprove the amounts submitted under paragraph 
     (3).
       ``(C) Clarification of authority regarding disapproval of 
     unreasonable beneficiary cost-sharing.--Under the authority 
     under subparagraph (A), the Secretary may disapprove the bid 
     if the Secretary determines that the deductibles, 
     coinsurance, or copayments applicable under the plan 
     discourage access to covered services or are likely to result 
     in favorable selection of MedicareAdvantage eligible 
     individuals.
       ``(5) Application of fehbp standard; prohibition on price 
     gouging.--Each bid amount submitted under paragraph (1) for a 
     MedicareAdvantage plan must reasonably and equitably reflect 
     the cost of benefits provided under that plan.
       ``(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 MedicareAdvantage plan (other than an MSA plan) 
     offered by a MedicareAdvantage organization shall be equal to 
     the sum of the following:
       ``(i) The MedicareAdvantage monthly basic beneficiary 
     premium (if any).
       ``(ii) The MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits (if any).
       ``(iii) The MedicareAdvantage 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 Prescription 
     Drug and Medicare Improvements Act of 2003 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) Medicareadvantage monthly basic beneficiary 
     premium.--The term `MedicareAdvantage monthly basic 
     beneficiary premium' means, with respect to a 
     MedicareAdvantage plan, the amount required to be charged 
     under subsection (d)(2) for the plan.
       ``(B) Medicareadvantage monthly beneficiary obligation for 
     qualified prescription drug coverage.--The term 
     `MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage' means, with respect to 
     a MedicareAdvantage plan, the amount determined under section 
     1858A(d).
       ``(C) Medicareadvantage monthly beneficiary premium for 
     enhanced medical benefits.--The term `MedicareAdvantage 
     monthly beneficiary premium for enhanced medical benefits' 
     means, with respect to a MedicareAdvantage 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) Medicareadvantage monthly msa premium.--The term 
     `MedicareAdvantage monthly MSA premium' means, with respect 
     to a MedicareAdvantage plan, the amount of such premium filed 
     under subsection (a)(3) for the plan.
       ``(c) Uniform Premium.--The MedicareAdvantage monthly basic 
     beneficiary premium, the MedicareAdvantage monthly 
     beneficiary obligation for qualified prescription drug 
     coverage, the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits, and the MedicareAdvantage 
     monthly MSA premium charged under subsection (b) of a 
     MedicareAdvantage organization under this part may not vary 
     among individuals enrolled in the plan.
       ``(d) Determination of Premium Reductions, Reduced Cost-
     Sharing, Additional Benefits, and Beneficiary Premiums.--
       ``(1) Bids below the benchmark.--If the Secretary 
     determines under section 1853(d)(3) that the weighted service 
     area benchmark amount exceeds the plan bid, the Secretary 
     shall require the plan to provide additional benefits in 
     accordance with subsection (g).
       ``(2) Bids above the benchmark.--If the Secretary 
     determines under section 1853(d)(3) that the plan bid exceeds 
     the weighted service area benchmark amount (determined under 
     section 1853(d)(2)), the amount of such excess shall be the 
     MedicareAdvantage monthly basic beneficiary premium (as 
     defined in section 1854(b)(2)(A)).
       ``(e) Terms and Conditions of Imposing Premiums.--Each 
     MedicareAdvantage organization shall permit the payment of 
     any MedicareAdvantage monthly basic premium, the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage, and the 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits on a monthly basis, may terminate election 
     of individuals for a MedicareAdvantage plan for failure to 
     make premium payments only in accordance with section 
     1851(g)(3)(B)(i), and may not provide for cash or other 
     monetary rebates as an inducement for enrollment or otherwise 
     (other than as an additional benefit described in subsection 
     (g)(1)(C)(i)).
       ``(f) Limitation on Enrollee Liability.--
       ``(1) For benefits under the original medicare fee-for-
     service program option.--The sum of--
       ``(A) the MedicareAdvantage monthly basic beneficiary 
     premium (multiplied by 12) and the actuarial value of the 
     deductibles, coinsurance, and copayments (determined on the 
     same basis as used in determining the plan's bid under 
     paragraph (2)(C)) applicable on average to individuals 
     enrolled under this part with a MedicareAdvantage 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); 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 benefits under the 
     original medicare fee-for-service program option if such 
     individuals were not members of a MedicareAdvantage 
     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 enhanced medical benefits.--If the 
     MedicareAdvantage organization provides to its members 
     enrolled under this part in a MedicareAdvantage plan 
     described in subparagraph (A) or (C) of section 1851(a)(2) 
     with respect to enhanced medical benefits relating to 
     benefits under the original medicare fee-for-service program 
     option, the sum of the MedicareAdvantage monthly beneficiary 
     premium for enhanced medical benefits (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 minus the actuarial value of any additional benefits 
     pursuant to clause (ii), (iii), or (iv) of subsection 
     (g)(2)(C) that the plan specified under subsection 
     (a)(2)(i)(II).
       ``(3) Determination on other basis.--If the Secretary 
     determines that adequate data are not available to determine 
     the actuarial value under paragraph (1)(A) or (2), the 
     Secretary may determine such amount with respect to all 
     individuals in the same geographic area, the State, or in the 
     United States, eligible to enroll in the MedicareAdvantage 
     plan involved under this part or on the basis of other 
     appropriate data.
       ``(4) Special rule for private fee-for-service plans.--With 
     respect to a MedicareAdvantage private fee-for-service plan 
     (other than a plan that is an MSA plan), in no event may--
       ``(A) the actuarial value of the deductibles, coinsurance, 
     and copayments applicable on average to individuals enrolled 
     under this part with such a plan of an organization with 
     respect to required benefits described in subparagraphs (A), 
     (C), and (D) of section 1852(a)(1); exceed
       ``(B) the actuarial value of the deductibles, coinsurance, 
     and copayments that would be applicable on average to 
     individuals entitled to (or enrolled for) benefits under part 
     A and enrolled under part B if they were not members of a 
     MedicareAdvantage organization for the year.
       ``(g) Requirement for Additional Benefits.--
       ``(1) Requirement.--
       ``(A) In general.--Each MedicareAdvantage organization (in 
     relation to a MedicareAdvantage plan, other than an MSA plan, 
     it offers) shall provide that if there is an excess amount 
     (as defined in subparagraph (B)) for the plan for a contract 
     year, subject to the succeeding provisions of this 
     subsection, the organization shall provide to individuals 
     such additional benefits described in subparagraph (C) as the 
     organization may specify in a value which the Secretary 
     determines is at least equal to the adjusted excess amount 
     (as defined in subparagraph (D)).
       ``(B) Excess amount.--For purposes of this paragraph, the 
     term `excess amount' means, for an organization for a plan, 
     is 100 percent of the amount (if any) by which the weighted 
     service area benchmark amount (determined under section 
     1853(d)(2)) exceeds the plan bid (as adjusted under section 
     1853(d)(1)).
       ``(C) Additional benefits described.--The additional 
     benefits described in this subparagraph are as follows:
       ``(i) Subject to subparagraph (F), a monthly part B premium 
     reduction for individuals enrolled in the plan.
       ``(ii) Lowering the amount of the unified deductible and 
     decreasing the maximum limitations on out-of-pocket expenses 
     for individuals enrolled in the plan.

[[Page S8054]]

       ``(iii) A reduction in the actuarial value of plan cost-
     sharing for plan enrollees.
       ``(iv) Subject to subparagraph (E), such additional 
     benefits as the organization may specify.
       ``(v) Contributing to the stabilization fund under 
     paragraph (2).
       ``(vi) Any combination of the reductions and benefits 
     described in clauses (i) through (v).
       ``(D) Adjusted excess amount.--For purposes of this 
     paragraph, the term `adjusted excess amount' means, for an 
     organization for a plan, is the excess amount reduced to 
     reflect any amount withheld and reserved for the organization 
     for the year under paragraph (2).
       ``(E) Rule for approval of medical and prescription drug 
     benefits.--An organization may not specify any additional 
     benefit that provides for the coverage of any prescription 
     drug (other than that relating to prescription drugs covered 
     under the original medicare fee-for-service program option).
       ``(F) Premium reductions.--
       ``(i) In general.--Subject to clause (ii), as part of 
     providing any additional benefits required under subparagraph 
     (A), a MedicareAdvantage organization may elect a reduction 
     in its payments under section 1853(a)(1)(A)(i) with respect 
     to a MedicareAdvantage plan and the Secretary shall apply 
     such reduction to reduce the premium under section 1839 of 
     each enrollee in such plan as provided in section 1840(i).
       ``(ii) Amount of reduction.--The amount of the reduction 
     under clause (i) with respect to any enrollee in a 
     MedicareAdvantage plan--

       ``(I) may not exceed 125 percent of the premium described 
     under section 1839(a)(3); and
       ``(II) shall apply uniformly to each enrollee of the 
     MedicareAdvantage plan to which such reduction applies.

       ``(G) Uniform application.--This paragraph shall be applied 
     uniformly for all enrollees for a plan.
       ``(H) Construction.--Nothing in this subsection shall be 
     construed as preventing a MedicareAdvantage organization from 
     providing enhanced medical benefits (described in section 
     1852(a)(3)) that are in addition to the health care benefits 
     otherwise required to be provided under this paragraph and 
     from imposing a premium for such enhanced medical benefits.
       ``(2) Stabilization fund.--A MedicareAdvantage organization 
     may provide that a part of the value of an excess amount 
     described in paragraph (1) be withheld and reserved in the 
     Federal Hospital Insurance Trust Fund and in the Federal 
     Supplementary Medical Insurance Trust Fund (in such 
     proportions as the Secretary determines to be appropriate) by 
     the Secretary for subsequent annual contract periods, to the 
     extent required to prevent undue fluctuations in the 
     additional benefits offered in those subsequent periods by 
     the organization in accordance with such paragraph. Any of 
     such value of the amount reserved which is not provided as 
     additional benefits described in paragraph (1)(A) to 
     individuals electing the MedicareAdvantage plan of the 
     organization in accordance with such paragraph prior to the 
     end of such periods, shall revert for the use of such Trust 
     Funds.
       ``(3) Adjusted community rate.--For purposes of this 
     subsection, subject to paragraph (4), the term `adjusted 
     community rate' for a service or services means, at the 
     election of a MedicareAdvantage organization, either--
       ``(A) the rate of payment for that service or services 
     which the Secretary annually determines would apply to an 
     individual electing a MedicareAdvantage plan under this part 
     if the rate of payment were determined under a `community 
     rating system' (as defined in section 1302(8) of the Public 
     Health Service Act, other than subparagraph (C)); or
       ``(B) such portion of the weighted aggregate premium, which 
     the Secretary annually estimates would apply to such an 
     individual, as the Secretary annually estimates is 
     attributable to that service or services,

     but adjusted for differences between the utilization 
     characteristics of the individuals electing coverage under 
     this part and the utilization characteristics of the other 
     enrollees with the plan (or, if the Secretary finds that 
     adequate data are not available to adjust for those 
     differences, the differences between the utilization 
     characteristics of individuals selecting other 
     MedicareAdvantage coverage, or MedicareAdvantage eligible 
     individuals in the area, in the State, or in the United 
     States, eligible to elect MedicareAdvantage coverage under 
     this part and the utilization characteristics of the rest of 
     the population in the area, in the State, or in the United 
     States, respectively).
       ``(4) Determination based on insufficient data.--For 
     purposes of this subsection, if the Secretary finds that 
     there is insufficient enrollment experience to determine the 
     average amount of payments to be made under this part at the 
     beginning of a contract period or to determine (in the case 
     of a newly operated provider-sponsored organization or other 
     new organization) the adjusted community rate for the 
     organization, the Secretary may determine such an average 
     based on the enrollment experience of other contracts entered 
     into under this part and may determine such a rate using data 
     in the general commercial marketplace.
       ``(h) Prohibition of State Imposition of Premium Taxes.--No 
     State may impose a premium tax or similar tax with respect to 
     payments to MedicareAdvantage organizations under section 
     1853.
       ``(i) Permitting Use of Segments of Service Areas.--The 
     Secretary shall permit a MedicareAdvantage organization to 
     elect to apply the provisions of this section uniformly to 
     separate segments of a service area (rather than uniformly to 
     an entire service area) as long as such segments are composed 
     of 1 or more MedicareAdvantage payment areas.''.
       (b) Study and Report on Clarification of Authority 
     Regarding Disapproval of Unreasonable Beneficiary Cost-
     Sharing.--
       (1) Study.--The Secretary, in consultation with 
     beneficiaries, consumer groups, employers, and 
     Medicare+Choice organizations, shall conduct a study to 
     determine the extent to which the cost-sharing structures 
     under Medicare+Choice plans under part C of title XVIII of 
     the Social Security Act discourage access to covered services 
     or discriminate based on the health status of Medicare+Choice 
     eligible individuals (as defined in section 1851(a)(3) of the 
     Social Security Act (42 U.S.C. 1395w-21(a)(3))).
       (2) Report.--Not later than December 31, 2004, the 
     Secretary shall submit a report to Congress on the study 
     conducted under paragraph (1) together with recommendations 
     for such legislation and administrative actions as the 
     Secretary considers appropriate.

     SEC. 205. SPECIAL RULES FOR PRESCRIPTION DRUG BENEFITS.

       Part C of title XVIII (42 U.S.C. 1395w-21 et seq.) is 
     amended by inserting after section 1857 the following new 
     section:


             ``special rules for prescription drug benefits

       ``Sec. 1858A. (a) Availability.--
       ``(1) Plans required to provide qualified prescription drug 
     coverage to enrollees.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     on and after January 1, 2006, a MedicareAdvantage 
     organization offering a MedicareAdvantage plan (except for an 
     MSA plan) shall make available qualified prescription drug 
     coverage that meets the requirements for such coverage under 
     this part and part D to each enrollee of the plan.
       ``(B) Private fee-for-service plans may, but are not 
     required to, provide qualified prescription drug coverage.--
     Pursuant to section 1852(a)(2)(D), a private fee-for-service 
     plan may elect not to provide qualified prescription drug 
     coverage under part D to individuals residing in the area 
     served by the plan.
       ``(2) Reference to provision permitting additional 
     prescription drug coverage.--For the provisions of part D, 
     made applicable to this part pursuant to paragraph (1), that 
     permit a plan to make available qualified prescription drug 
     coverage that includes coverage of covered drugs that exceeds 
     the coverage required under paragraph (1) of section 1860D-6 
     in an area, but only if the MedicareAdvantage organization 
     offering the plan also offers a MedicareAdvantage plan in the 
     area that only provides the coverage that is required under 
     such paragraph (1), see paragraph (2) of such section.
       ``(3) Rule for approval of medical and prescription drug 
     benefits.--Pursuant to sections 1854(g)(1)(F) and 
     1852(a)(3)(D), a MedicareAdvantage organization offering a 
     MedicareAdvantage plan that provides qualified prescription 
     drug coverage may not make available coverage of any 
     prescription drugs (other than that relating to prescription 
     drugs covered under the original medicare fee-for-service 
     program option) to an enrollee as an additional benefit or as 
     an enhanced medical benefit.
       ``(b) Compliance With Additional Beneficiary Protections.--
     With respect to the offering of qualified prescription drug 
     coverage by a MedicareAdvantage organization under a 
     MedicareAdvantage plan, the organization and plan shall meet 
     the requirements of section 1860D-5, including requirements 
     relating to information dissemination and grievance and 
     appeals, and such other requirements under part D that the 
     Secretary determines appropriate in the same manner as such 
     requirements 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 the plan under 
     this part.
       ``(c) Payments for Prescription Drugs.--
       ``(1) Payment of full amount of premium to organizations 
     for qualified prescription drug coverage.--
       ``(A) In general.--For each year (beginning with 2006), the 
     Secretary shall pay to each MedicareAdvantage organization 
     offering a MedicareAdvantage plan that provides qualified 
     prescription drug coverage, an amount equal to the full 
     amount of the monthly premium submitted under section 
     1854(a)(2)(B) for the year, as adjusted using the risk 
     adjusters that apply to the standard prescription drug 
     coverage published under section 1860D-11.
       ``(B) Application of part d risk corridor, stabilization 
     reserve fund, and administrative expenses provisions.--The 
     provisions of subsections (b), (c), and (d) of section 1860D-
     16 shall apply to a MedicareAdvantage organization offering a 
     MedicareAdvantage plan that provides qualified prescription 
     drug coverage and payments made to such organization under 
     subparagraph (A) in the same manner as such provisions apply 
     to an eligible entity offering a Medicare Prescription Drug 
     plan and payments made to such entity under subsection (a) of 
     section 1860D-16.

[[Page S8055]]

       ``(2) Payment from prescription drug account.--Payment made 
     to MedicareAdvantage organizations under this subsection 
     shall be made from the Prescription Drug Account in the 
     Federal Supplementary Medical Insurance Trust Fund under 
     section 1841.
       ``(d) Computation of MedicareAdvantage Monthly Beneficiary 
     Obligation for Qualified Prescription Drug Coverage.--In the 
     case of a MedicareAdvantage eligible individual receiving 
     qualified prescription drug coverage under a 
     MedicareAdvantage plan during a year after 2005, the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage of such individual in 
     the year shall be determined in the same manner as the 
     monthly beneficiary obligation is determined under section 
     1860D-17 for eligible beneficiaries enrolled in a Medicare 
     Prescription Drug plan, except that, for purposes of this 
     subparagraph, any reference to the monthly plan premium 
     approved by the Secretary under section 1860D-13 shall be 
     treated as a reference to the monthly premium for 
     qualified prescription drug coverage submitted by the 
     MedicareAdvantage organization offering the plan under 
     section 1854(a)(2)(A) and approved by the Secretary.
       ``(e) Collection of MedicareAdvantage Monthly Beneficiary 
     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 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage (as determined under 
     subsection (d)) required to be paid by a MedicareAdvantage 
     eligible individual enrolled in a MedicareAdvantage plan in 
     the same manner as such provisions apply to the amount of the 
     monthly beneficiary obligation required to be paid by an 
     eligible beneficiary enrolled in a Medicare Prescription Drug 
     plan under part D.
       ``(f) Availability of Premium Subsidy and Cost-Sharing 
     Reductions for Low-Income Enrollees and Reinsurance 
     Payments.--For provisions--
       ``(1) providing premium subsidies and cost-sharing 
     reductions for low-income individuals receiving qualified 
     prescription drug coverage through a MedicareAdvantage plan, 
     see section 1860D-19; and
       ``(2) providing a MedicareAdvantage organization with 
     reinsurance payments for certain expenses incurred in 
     providing qualified prescription drug coverage through a 
     MedicareAdvantage plan, see section 1860D-20.''.
       (b) Treatment of Reduction for Purposes of Determining 
     Government Contribution Under Part B.--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)''.

     SEC. 206. FACILITATING EMPLOYER PARTICIPATION.

       Section 1858(h) (as added by section 211) is amended by 
     inserting ``(including subsection (i) of such section)'' 
     after ``section 1857''.

     SEC. 207. ADMINISTRATION BY THE CENTER FOR MEDICARE CHOICES.

       On and after January 1, 2006, the MedicareAdvantage program 
     under part C of title XVIII of the Social Security Act shall 
     be administered by the Center for Medicare Choices 
     established under section 1808 such title (as added by 
     section 301), and each reference to the Secretary made in 
     such part shall be deemed to be a reference to the 
     Administrator of the Center for Medicare Choices.

     SEC. 208. CONFORMING AMENDMENTS.

       (a) Organizational and Financial Requirements for 
     MedicareAdvantage Organizations; Provider-Sponsored 
     Organizations.--Section 1855 (42 U.S.C. 1395w-25) is 
     amended--
       (1) in subsection (b), in the matter preceding paragraph 
     (1), by inserting ``subparagraphs (A), (B), and (D) of'' 
     before ``section 1852(A)(1)''; and
       (2) by striking ``Medicare+Choice'' and inserting 
     ``MedicareAdvantage'' each place it appears.
       (b) Establishment of PSO Standards.--Section 1856 (42 
     U.S.C. 1395w-26) is amended by striking ``Medicare+Choice'' 
     and inserting ``MedicareAdvantage'' each place it appears.
       (c) Contracts With MedicareAdvantage Organizations.--
     Section 1857 (42 U.S.C. 1395w-27) is amended--
       (1) in subsection (g)(1)--
       (A) in subparagraph (B), by striking ``amount of the 
     Medicare+Choice monthly basic and supplemental beneficiary 
     premiums'' and inserting ``amounts of the MedicareAdvantage 
     monthly basic premium and MedicareAdvantage monthly 
     beneficiary premium for enhanced medical benefits'';
       (B) in subparagraph (F), by striking ``or'' after the 
     semicolon at the end;
       (C) in subparagraph (G), by adding ``or'' after the 
     semicolon at the end; and
       (D) by inserting after subparagraph (G) the following new 
     subparagraph:
       ``(H)(i) charges any individual an amount in excess of the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage under section 1858A(d);
       ``(ii) provides coverage for prescription drugs that is not 
     qualified prescription drug coverage;
       ``(iii) offers prescription drug coverage, but does not 
     make standard prescription drug coverage available; or
       ``(iv) provides coverage for prescription drugs (other than 
     that relating to prescription drugs covered under the 
     original medicare fee-for-service program option described in 
     section 1851(a)(1)(A)(i)) as an enhanced medical benefit 
     under section 1852(a)(3)(D) or as an additional benefit under 
     section 1854(g)(1)(F),''; and
       (2) by striking ``Medicare+Choice'' and inserting 
     ``MedicareAdvantage'' each place it appears.
       (d) Definitions; Miscellaneous Provisions.--Section 1859 
     (42 U.S.C. 1395w-28) is amended--
       (1) by striking subsection (c) and inserting the following 
     new subsection:
       ``(c) Other References to Other Terms.--
       ``(1) Enhanced medical benefits.--The term `enhanced 
     medical benefits' is defined in section 1852(a)(3)(E).
       ``(2) Medicareadvantage eligible individual.--The term 
     `MedicareAdvantage eligible individual' is defined in section 
     1851(a)(3).
       ``(3) Medicareadvantage payment area.--The term 
     `MedicareAdvantage payment area' is defined in section 
     1853(d).
       ``(4) National per capita medicare+choice growth 
     percentage.--The `national per capita Medicare+Choice growth 
     percentage' is defined in section 1853(c)(6).
       ``(5) Medicareadvantage monthly basic beneficiary premium; 
     medicareadvantage monthly beneficiary obligation for 
     qualified prescription drug coverage; medicareadvantage 
     monthly beneficiary premium for enhanced medical benefits.--
     The terms `MedicareAdvantage monthly basic beneficiary 
     premium', `MedicareAdvantage monthly beneficiary obligation 
     for qualified prescription drug coverage', and 
     `MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits' are defined in section 1854(b)(2).
       ``(6) Qualified prescription drug coverage.--The term 
     `qualified prescription drug coverage' has the meaning given 
     such term in section 1860D(9).
       ``(7) Standard prescription drug coverage.--The term 
     `standard prescription drug coverage' has the meaning given 
     such term in section 1860D(10).''; and
       (2) by striking ``Medicare+Choice'' and inserting 
     ``MedicareAdvantage'' each place it appears.
       (e) Conforming Amendments Effective Before 2006.--
       (1) Extension of MSAs.--Section 1851(b)(4) (42 U.S.C. 
     1395w-21(b)(4)) is amended by striking ``January 1, 2003'' 
     and inserting ``January 1, 2004''.
       (2) Continuous open enrollment and disenrollment through 
     2005.--Section 1851(e) of the Social Security Act (42 U.S.C. 
     1395w-21(e)) is amended--
       (A) in paragraph (2)(A), by striking ``through 2004'' and 
     ``December 31,2004'' and inserting ``through 2005'' and 
     ``December 31, 2005'', respectively;
       (B) in the heading of paragraph (2)(B), by striking 
     ``during 2005'' and inserting ``during 2006'';
       (C) in paragraphs (2)(B)(i) and (2)(C)(i), by striking 
     ``2005'' and inserting ``2006'' each place it appears;
       (D) in paragraph (2)(D), by striking ``2004'' and inserting 
     ``2005''; and
       (E) in paragraph (4), by striking ``2005'' and inserting 
     ``2006'' each place it appears.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of enactment of this Act.
       (e) Other Conforming Amendments.--
       (1) Conforming medicare cross-references.--
       (A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended 
     by striking ``section 1854(f)(1)(E)'' and inserting ``section 
     1854(g)(1)(C)(i)''.
       (B) Section 1840(i) (42 U.S.C. 1395s(i)) is amended by 
     striking ``section 1854(f)(1)(E)'' and inserting ``section 
     1854(g)(1)(C)(i)''.
       (C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
     striking ``section 1854(f)(1)(E)'' and inserting ``section 
     1854(g)(1)(C)(i)''.
       (D) Section 1876(k)(3)(A) (42 U.S.C. 1395mm(k)(3)(A)) is 
     amended by inserting ``(as in effect immediately before the 
     enactment of the Prescription Drug and Medicare Improvements 
     Act of 2003)'' after section 1853(a).
       (F) Section 1876(k)(4) (42 U.S.C. 1395mm(k)(4)(A)) is 
     amended--
       (i) in subparagraph (A), by striking ``section 
     1853(a)(3)(B)'' and inserting ``section 1853(a)(3)(D)''; and
       (ii) in subparagraph (B), by striking ``section 1854(g)'' 
     and inserting ``section 1854(h)''.
       (G) Section 1876(k)(4)(C) (42 U.S.C. 1395mm(k)(4)(C)) in 
     amended by inserting ``(as in effect immediately before the 
     enactment of the Prescription Drug and Medicare Improvements 
     Act of 2003)'' after ``section 1851(e)(6)''.
       (H) Section 1894(d) (42 U.S.C. 1395eee(d)) is amended by 
     adding at the end the following new paragraph:
       ``(3) Application of provisions.--For purposes of 
     paragraphs (1) and (2), the references to section 1853 and 
     subsection (a)(2) of such section in such paragraphs shall be 
     deemed to be references to those provisions as in effect 
     immediately before the enactment of the Prescription Drug and 
     Medicare Improvements Act of 2003.''.
       (2) Conforming medicare terminology.--Title XVIII (42 
     U.S.C. 1395 et seq.), except for part C of such title (42 
     U.S.C. 1395w-21 et seq.), and title XIX (42 U.S.C. 1396 et 
     seq.) are each amended by striking ``Medicare+Choice'' and 
     inserting ``MedicareAdvantage'' each place it appears.

[[Page S8056]]

     SEC. 209. EFFECTIVE DATE.

       (a) In General.--Except as provided in section 208(d)(3) 
     and subsection (b), the amendments made by this title shall 
     apply with respect to plan years beginning on and after 
     January 1, 2006.
       (b) MedicareAdvantage 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.

              Subtitle B--Preferred Provider Organizations

     SEC. 211. ESTABLISHMENT OF MEDICARE ADVANTAGE PREFERRED 
                   PROVIDER PROGRAM OPTION.

       (a) Establishment of Preferred Provider Program Option.--
     Section 1851(a)(2) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Preferred provider organization plans.--A 
     MedicareAdvantage preferred provider organization plan under 
     the program established under section 1858.''.
       (b) Program specifications.--Part C of title XVIII (42 
     U.S.C. 1395w-21 et seq.) is amended by inserting after 
     section 1857 the following new section:


                   ``preferred provider organizations

       ``Sec. 1858. (a) Establishment of Program.--
       ``(1) In general.--Beginning on January 1, 2006, there is 
     established a preferred provider program under which 
     preferred provider organization plans offered by preferred 
     provider organizations are offered to MedicareAdvantage 
     eligible individuals in preferred provider regions.
       ``(2) Definitions.--
       ``(A) Preferred provider organization.--The term `preferred 
     provider organization' means an entity with a contract under 
     section 1857 that meets the requirements of this section 
     applicable with respect to preferred provider organizations.
       ``(B) Preferred provider organization plan.--The term 
     `preferred provider organization plan' means a 
     MedicareAdvantage plan that--
       ``(i) has a network of providers that have agreed to a 
     contractually specified reimbursement for covered benefits 
     with the organization offering the plan;
       ``(ii) provides for reimbursement for all covered benefits 
     regardless of whether such benefits are provided within such 
     network of providers; and
       ``(iii) is offered by a preferred provider organization.
       ``(C) Preferred provider region.--The term `preferred 
     provider region' means--
       ``(i) a region established under paragraph (3); and
       ``(ii) a region that consists of the entire United States.
       ``(3) Preferred provider regions.--For purposes of this 
     part the Secretary shall establish preferred provider regions 
     as follows:
       ``(A) There shall be at least 10 regions.
       ``(B) Each region must include at least 1 State.
       ``(C) The Secretary may not divide States so that portions 
     of the State are in different regions.
       ``(D) To the extent possible, the Secretary shall include 
     multistate metropolitan statistical areas in a single region. 
     The Secretary may divide metropolitan statistical areas where 
     it is necessary to establish regions of such size and 
     geography as to maximize the participation of preferred 
     provider organization plans.
       ``(E) The Secretary may conform the preferred provider 
     regions to the service areas established under section 1860D-
     10.
       ``(b) Eligibility, Election, and Enrollment; Benefits and 
     Beneficiary Protections.--
       ``(1) In general.--Except as provided in the succeeding 
     provisions of this subsection, the provisions of sections 
     1851 and 1852 that apply with respect to coordinated care 
     plans shall apply to preferred provider organization plans 
     offered by a preferred provider organization.
       ``(2) Service area.--The service area of a preferred 
     provider organization plan shall be a preferred provider 
     region.
       ``(3) Availability.--Each preferred provider organization 
     plan must be offered to each MedicareAdvantage eligible 
     individual who resides in the service area of the plan.
       ``(4) Authority to prohibit risk selection.--The provisions 
     of section 1852(a)(6) shall apply to preferred provider 
     organization plans.
       ``(5) Assuring access to services in preferred provider 
     organization plans.--
       ``(A) In general.--In addition to any other requirements 
     under this section, in the case of a preferred provider 
     organization plan, the organization offering the plan must 
     demonstrate to the Secretary that the organization has 
     sufficient number and range of health care professionals and 
     providers willing to provide services under the terms of the 
     plan.
       ``(B) Determination of sufficient access.--The Secretary 
     shall find that an organization has met the requirement under 
     subparagraph (A) with respect to any category of health care 
     professional or provider if, with respect to that category of 
     provider the plan has contracts or agreements with a 
     sufficient number and range of providers within such category 
     to provide covered services under the terms of the plan.
       ``(C) Construction.--Subparagraph (B) shall not be 
     construed as restricting the persons from whom enrollees 
     under such a plan may obtain covered benefits.
       ``(c) Payments to Preferred Provider Organizations.--
       ``(1) Payments to organizations.--
       ``(A) Monthly payments.--
       ``(i) In general.--Under a contract under section 1857 and 
     subject to paragraph (5), subsection (e), and section 
     1859(e)(4), the Secretary shall make, to each preferred 
     provider organization, with respect to coverage of an 
     individual for a month under this part in a preferred 
     provider region, separate monthly payments with respect to--

       ``(I) benefits under the original medicare fee-for-service 
     program under parts A and B in accordance with paragraph (4); 
     and
       ``(II) benefits under the voluntary prescription drug 
     program under part D in accordance with section 1858A and the 
     other provisions of this part.

       ``(ii) Special rule for end-stage renal disease.--The 
     Secretary shall establish separate rates of payment 
     applicable with respect to classes of individuals determined 
     to have end-stage renal disease and enrolled in a preferred 
     provider organization plan under this clause that are similar 
     to the separate rates of payment described in section 
     1853(a)(1)(B).
       ``(B) Adjustment to reflect number of enrollees.--The 
     Secretary may retroactively adjust the amount of payment 
     under this paragraph in a manner that is similar to the 
     manner in which payment amounts may be retroactively adjusted 
     under section 1853(a)(2).
       ``(C) Comprehensive risk adjustment methodology.--The 
     Secretary shall apply the comprehensive risk adjustment 
     methodology described in section 1853(a)(3)(B) to 100 percent 
     of the amount of payments to plans under paragraph 
     (4)(D)(ii).
       ``(D) Adjustment for spending variations within a region.--
     The Secretary shall establish a methodology for adjusting the 
     amount of payments to plans under paragraph (4)(D)(ii) that 
     achieves the same objective as the adjustment described in 
     paragraph 1853(a)(2)(C).
       ``(2) Annual calculation of benchmark amounts for preferred 
     provider regions.--For each year (beginning in 2006), the 
     Secretary shall calculate a benchmark amount for each 
     preferred provider region for each month for such year with 
     respect to coverage of the benefits available under the 
     original medicare fee-for-service program option equal to the 
     average of each benchmark amount calculated under section 
     1853(a)(4) for each MedicareAdvantage payment area for the 
     year within such region, weighted by the number of 
     MedicareAdvantage eligible individuals residing in each such 
     payment area for the year.
       ``(3) Annual announcement of payment factors.--
       ``(A) Annual announcement.--Beginning in 2005, 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:
       ``(i) The benchmark amount for each preferred provider 
     region (as calculated under paragraph (2)(A)) for the year.
       ``(ii) The factors to be used for adjusting payments 
     described under--

       ``(I) the comprehensive risk adjustment methodology 
     described in paragraph (1)(C) with respect to each preferred 
     provider region for the year; and
       ``(II) the methodology used for adjustment for geographic 
     variations within such region established under paragraph 
     (1)(D).

       ``(B) Advance notice of methodological changes.--At least 
     45 days before making the announcement under subparagraph (A) 
     for a year, the Secretary shall--
       ``(i) provide for notice to preferred provider 
     organizations of proposed changes to be made in the 
     methodology from the methodology and assumptions used in the 
     previous announcement; and
       ``(ii) provide such organizations with an opportunity to 
     comment on such proposed changes.
       ``(C) Explanation of assumptions.--In each announcement 
     made under subparagraph (A), the Secretary shall include an 
     explanation of the assumptions and changes in methodology 
     used in the announcement in sufficient detail so that 
     preferred provider organizations can compute each payment 
     factor described in such subparagraph.
       ``(4) Secretary's determination of payment amount for 
     benefits under the original medicare fee-for-service 
     program.--The Secretary shall determine the payment amount 
     for plans as follows:
       ``(A) Review of plan bids.--The Secretary shall review each 
     plan bid submitted under subsection (d)(1) for the coverage 
     of benefits under the original medicare fee-for-service 
     program option to ensure that such bids are consistent with 
     the requirements under this part and are based on the 
     assumptions described in section 1854(a)(2)(A)(iii) that the 
     plan used with respect to numbers of enrolled individuals.
       ``(B) Determination of preferred provider regional 
     benchmark amounts.--The Secretary shall calculate a preferred 
     provider regional benchmark amount for that plan for the 
     benefits under the original medicare fee-for-service program 
     option for each plan equal to the regional benchmark adjusted 
     by using the assumptions described in section 
     1854(a)(2)(A)(iii) that the plan used

[[Page S8057]]

     with respect to numbers of enrolled individuals.
       ``(C) Comparison to benchmark.--The Secretary shall 
     determine the difference between each plan bid (as adjusted 
     under subparagraph (A)) and the preferred provider regional 
     benchmark amount (as determined under subparagraph (B)) for 
     purposes of determining--
       ``(i) the payment amount under subparagraph (D); and
       ``(ii) the additional benefits required and 
     MedicareAdvantage monthly basic beneficiary premiums.
       ``(D) Determination of payment amount.--
       ``(i) In general.--Subject to clause (ii), the Secretary 
     shall determine the payment amount to a preferred provider 
     organization for a preferred provider organization plan as 
     follows:

       ``(I) Bids that equal or exceed the benchmark.--In the case 
     of a plan bid that equals or exceeds the preferred provider 
     regional benchmark amount, the amount of each monthly payment 
     to the organization with respect to each individual enrolled 
     in a plan shall be the preferred provider regional benchmark 
     amount.
       ``(II) Bids below the benchmark.--In the case of a plan bid 
     that is less than the preferred provider regional benchmark 
     amount, the amount of each monthly payment to the 
     organization with respect to each individual enrolled in a 
     plan shall be the preferred provider regional benchmark 
     amount reduced by the amount of any premium reduction elected 
     by the plan under section 1854(d)(1)(A)(i).

       ``(ii) Application of adjustment methodologies.--The 
     Secretary shall adjust the amounts determined under 
     subparagraph (A) using the factors described in paragraph 
     (3)(A)(ii).
       ``(E) Factors used in adjusting bids and benchmarks for 
     preferred provider organizations and in determining enrollee 
     premiums.--Subject to subparagraph (F), in addition to the 
     factors used to adjust payments to plans described in section 
     1853(d)(6), the Secretary shall use the adjustment for 
     geographic variation within the region established under 
     paragraph (1)(D).
       ``(F) Adjustment for national coverage determinations and 
     legislative changes in benefits.--The Secretary shall provide 
     for adjustments for national coverage determinations and 
     legislative changes in benefits applicable with respect to 
     preferred provider organizations in the same manner as the 
     Secretary provides for adjustments under section 1853(d)(7).
       ``(5) Payments from trust fund.--The payment to a preferred 
     provider organization under this section shall be made from 
     the Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund in a manner 
     similar to the manner described in section 1853(g).
       ``(6) Special rule for certain inpatient hospital stays.--
     Rules similar to the rules applicable under section 1853(h) 
     shall apply with respect preferred provider organizations.
       ``(7) Special rule for hospice care.--Rules similar to the 
     rules applicable under section 1853(i) shall apply with 
     respect to preferred provider organizations.
       ``(d) Submission of Bids by PPOs; Premiums.--
       ``(1) Submission of bids by preferred provider 
     organizations.--
       ``(A) In general.--For the requirements on submissions by 
     MedicareAdvantage preferred provider organization plans, see 
     section 1854(a)(1).
       ``(B) Uniform premiums.--Each bid amount submitted under 
     subparagraph (A) for a preferred provider organization plan 
     in a preferred provider region may not vary among 
     MedicareAdvantage eligible individuals residing in such 
     preferred provider region.
       ``(C) Application of fehbp standard; prohibition on price 
     gouging.--Each bid amount submitted under subparagraph (A) 
     for a preferred provider organization plan must reasonably 
     and equitably reflect the cost of benefits provided under 
     that plan.
       ``(D) Review.--The Secretary shall review the adjusted 
     community rates (as defined in section 1854(g)(3)), the 
     amounts of the MedicareAdvantage monthly basic premium and 
     the MedicareAdvantage monthly beneficiary premium for 
     enhanced medical benefits filed under this paragraph and 
     shall approve or disapprove such rates and amounts so 
     submitted. The Secretary shall review the actuarial 
     assumptions and data used by the preferred provider 
     organization with respect to such rates and amounts so 
     submitted to determine the appropriateness of such 
     assumptions and data.
       ``(E) Authority to limit number of plans in a region.--If 
     there are bids for more than 3 preferred provider 
     organization plans in a preferred provider region, the 
     Secretary shall accept only the 3 lowest-cost credible bids 
     for that region that meet or exceed the quality and minimum 
     standards applicable under this section.
       ``(2) Monthly premiums charged.--The amount of the monthly 
     premium charged to an individual enrolled in a preferred 
     provider organization plan offered by a preferred provider 
     organization shall be equal to the sum of the following:
       ``(A) The MedicareAdvantage monthly basic beneficiary 
     premium, as defined in section 1854(b)(2)(A) (if any).
       ``(B) The MedicareAdvantage monthly beneficiary premium for 
     enhanced medical benefits, as defined in section 
     1854(b)(2)(C) (if any).
       ``(C) The MedicareAdvantage monthly obligation for 
     qualified prescription drug coverage, as defined in section 
     1854(b)(2)(B) (if any).
       ``(3) Determination of premium reductions, reduced cost-
     sharing, additional benefits, and beneficiary premiums.--The 
     rules for determining premium reductions, reduced cost-
     sharing, additional benefits, and beneficiary premiums under 
     section 1854(d) shall apply with respect to preferred 
     provider organizations.
       ``(4) Prohibition of segmenting preferred provider 
     regions.--The Secretary may not permit a preferred provider 
     organization to elect to apply the provisions of this section 
     uniformly to separate segments of a preferred provider region 
     (rather than uniformly to an entire preferred provider 
     region).
       ``(e) Portion of Total Payments to an Organization Subject 
     to Risk for 2 Years.--
       ``(1) Notification of spending under the plan.--
       ``(A) In general.--For 2007 and 2008, the preferred 
     provider organization offering a preferred provider 
     organization plan shall notify the Secretary of the total 
     amount of costs that the organization incurred in providing 
     benefits covered under parts A and B of the original medicare 
     fee-for-service program for all enrollees under the plan in 
     the previous year.
       ``(B) Certain expenses not included.--The total amount of 
     costs specified in subparagraph (A) may not include--
       ``(i) subject to subparagraph (C), administrative expenses 
     incurred in providing the benefits described in such 
     subparagraph; or
       ``(ii) amounts expended on providing enhanced medical 
     benefits under section 1852(a)(3)(D).
       ``(C) Establishment of allowable administrative expenses.--
     For purposes of applying subparagraph (B)(i), the 
     administrative expenses incurred in providing benefits 
     described in subparagraph (A) under a preferred provider 
     organization plan may not exceed an amount determined 
     appropriate by the Administrator.
       ``(2) Adjustment of payment.--
       ``(A) No adjustment if costs within risk corridor.--If the 
     total amount of costs specified in paragraph (1)(A) for the 
     plan for the year are not more than the first threshold upper 
     limit of the risk corridor (specified in paragraph 
     (3)(A)(iii)) and are not less than the first threshold lower 
     limit of the risk corridor (specified in paragraph (3)(A)(i)) 
     for the plan for the year, then no additional payments shall 
     be made by the Secretary and no reduced payments shall be 
     made to the preferred provider organization offering the 
     plan.
       ``(B) Increase in payment if costs above upper limit of 
     risk corridor.--
       ``(i) In general.--If the total amount of costs specified 
     in paragraph (1)(A) for the plan for the year are more than 
     the first threshold upper limit of the risk corridor for the 
     plan for the year, then the Secretary shall increase the 
     total of the monthly payments made to the preferred provider 
     organization offering the plan for the year under subsection 
     (c)(1)(A) by an amount equal to the sum of--

       ``(I) 50 percent of the amount of such total costs which 
     are more than such first threshold upper limit of the risk 
     corridor and not more than the second threshold upper limit 
     of the risk corridor for the plan for the year (as specified 
     under paragraph (3)(A)(iv)); and

       ``(II) 90 percent of the amount of such total costs which 
     are more than such second threshold upper limit of the risk 
     corridor.

       ``(C) Reduction in payment if costs below lower limit of 
     risk corridor.--If the total amount of costs specified in 
     paragraph (1)(A) for the plan for the year are less than the 
     first threshold lower limit of the risk corridor for the plan 
     for the year, then the Secretary shall reduce the total of 
     the monthly payments made to the preferred provider 
     organization offering the plan for the year under subsection 
     (c)(1)(A) by an amount (or otherwise recover from the plan an 
     amount) equal to--
       ``(i) 50 percent of the amount of such total costs which 
     are less than such first threshold lower limit of the risk 
     corridor and not less than the second threshold lower limit 
     of the risk corridor for the plan for the year (as specified 
     under paragraph (3)(A)(ii)); and
       ``(ii) 90 percent of the amount of such total costs which 
     are less than such second threshold lower limit of the risk 
     corridor.
       ``(3) Establishment of risk corridors.--
       ``(A) In general.--For 2006 and 2007, the Secretary shall 
     establish a risk corridor for each preferred provider 
     organization plan. The risk corridor for a plan for a year 
     shall be equal to a range as follows:
       ``(i) First threshold lower limit.--The first threshold 
     lower limit of such corridor shall be equal to--

       ``(I) the target amount described in subparagraph (B) for 
     the plan; minus
       ``(II) an amount equal to 5 percent of such target amount.

       ``(ii) Second threshold lower limit.--The second threshold 
     lower limit of such corridor shall be equal to--

       ``(I) the target amount described in subparagraph (B) for 
     the plan; minus
       ``(II) an amount equal to 10 percent of such target amount.

       ``(iii) First threshold upper limit.--The first threshold 
     upper limit of such corridor shall be equal to the sum of--

       ``(I) such target amount; and

[[Page S8058]]

       ``(II) the amount described in clause (i)(II).

       ``(iv) Second threshold upper limit.--The second threshold 
     upper limit of such corridor shall be equal to the sum of--

       ``(I) such target amount; and
       ``(II) the amount described in clause (ii)(II).

       ``(B) Target amount described.--The target amount described 
     in this paragraph is, with respect to a preferred provider 
     organization plan offered by a preferred provider 
     organization in a year, an amount equal to the sum of--
       ``(i) the total monthly payments made to the organization 
     for enrollees in the plan for the year under subsection 
     (c)(1)(A); and
       ``(ii) the total MedicareAdvantage basic beneficiary 
     premiums collected for such enrollees for the year under 
     subsection (d)(2)(A).
       ``(4) Plans at risk for entire amount of enhanced medical 
     benefits.--A preferred provider organization that offers a 
     preferred provider organization plan that provides enhanced 
     medial benefits under section 1852(a)(3)(D) shall be at full 
     financial risk for the provision of such benefits.
       ``(5) No effect on eligible beneficiaries.--No change in 
     payments made by reason of this subsection shall affect the 
     amount of the MedicareAdvantage basic beneficiary premium 
     that a beneficiary is otherwise required to pay under the 
     plan for the year under subsection (d)(2)(A).
       ``(6) Disclosure of information.--The provisions of section 
     1860D-16(b)(7), including subparagraph (B) of such section, 
     shall apply to a preferred provider organization and a 
     preferred provider organization plan in the same manner as 
     such provisions apply to an eligible entity and a Medicare 
     Prescription Drug plan under part D.
       ``(f) Organizational and Financial Requirements for 
     Preferred Provider Organizations.--A preferred provider 
     organization shall be organized and licensed under State law 
     as a risk-bearing entity eligible to offer health insurance 
     or health benefits coverage in each State within the 
     preferred provider region in which it offers a preferred 
     provider organization plan.
       ``(g) Inapplicability of Provider-Sponsored Organization 
     Solvency Standards.--The requirements of section 1856 shall 
     not apply with respect to preferred provider organizations.
       ``(h) Contracts With Preferred Provider Organizations.--The 
     provisions of section 1857 shall apply to a preferred 
     provider organization plan offered by a preferred provider 
     organization under this section.''.
       (c) Preferred Provider Terminology Defined.--Section 
     1859(a) is amended by adding at the end the following new 
     paragraph:
       ``(3) Preferred provider organization; preferred provider 
     organization plan; preferred provider region.--The terms 
     `preferred provider organization', `preferred provider 
     organization plan', and `preferred provider region' have the 
     meaning given such terms in section 1858(a)(2).''.

                 Subtitle C--Other Managed Care Reforms

     SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS.

       (a) Five-Year Extension.--Section 1876(h)(5)(C) (42 U.S.C. 
     1395mm(h)(5)(C)) is amended by striking ``2004'' and 
     inserting ``2009''.
       (b) Application of Certain Medicare+Choice Requirements to 
     Cost Contracts Extended or Renewed After 2003.--Section 
     1876(h) (42 U.S.C. 1395mm(h)(5)), as amended by subsection 
     (a), is amended--
       (1) by redesignating paragraph (5) as paragraph (6); and
       (2) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) Any reasonable cost reimbursement contract with an 
     eligible organization under this subsection that is extended 
     or renewed on or after the date of enactment of the 
     Prescription Drug and Medicare Improvements Act of 2003 for 
     plan years beginning on or after January 1, 2004, shall 
     provide that the following provisions of the Medicare+Choice 
     program under part C (and, on and after January 1, 2006, the 
     provisions of the MedicareAdvantage program under such part) 
     shall apply to such organization and such contract in a 
     substantially similar manner as such provisions apply to 
     Medicare+Choice organizations and Medicare+Choice plans (or, 
     on and after January 1, 2006, MedicareAdvantage organizations 
     and MedicareAdvantage plans, respectively) under such part:
       ``(A) Paragraph (1) of section 1852(e) (relating to the 
     requirement of having an ongoing quality assurance program) 
     and paragraph (2)(B) of such section (relating to the 
     required elements for such a program).
       ``(B) Section 1852(j)(4) (relating to limitations on 
     physician incentive plans).
       ``(C) Section 1854(c) (relating to the requirement of 
     uniform premiums among individuals enrolled in the plan).
       ``(D) Section 1854(g), or, on and after January 1, 2006, 
     section 1854(h) (relating to restrictions on imposition of 
     premium taxes with respect to payments to organizations).
       ``(E) Section 1856(b) (regarding compliance with the 
     standards established by regulation pursuant to such section, 
     including the provisions of paragraph (3) of such section 
     relating to relation to State laws).
       ``(F) Section 1852(a)(3)(A) (regarding the authority of 
     organizations to include supplemental health care benefits 
     and, on and after January 1, 2006, enhanced medical benefits 
     under the plan subject to the approval of the Secretary).
       ``(G) The provisions of part C relating to timelines for 
     benefit filings, contract renewal, and beneficiary 
     notification.
       ``(H) Section 1854(e), or, on and after January 1, 2006, 
     section 1854(f) (relating to proposed cost-sharing under the 
     contract being subject to review by the Secretary).''.
       (c) Permitting dedicated group practice health maintenance 
     organizations to participate in the medicare cost contract 
     program.--Section 1876(h)(6) of the Social Security Act (42 
     U.S.C. 1395mm(h)(6)), as redesignated and amended by 
     subsections (a) and (b), is amended--
       (1) in subparagraph (A), by striking ``After the date of 
     the enactment'' and inserting ``Except as provided in 
     subparagraph (C), after the date of the enactment'';
       (2) in subparagraph (B), by striking ``subparagraph (C)'' 
     and inserting ``subparagraph (D)'';
       (3) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (4) by inserting after subparagraph (B), the following new 
     subparagraph:
       ``(C) Subject to paragraph (5) and subparagraph (D), the 
     Secretary shall approve an application to enter into a 
     reasonable cost contract under this section if--
       ``(i) the application is submitted to the Secretary by a 
     health maintenance organization (as defined in section 
     1301(a) of the Public Health Service Act) that, as of January 
     1, 2004, and except as provided in section 1301(b)(3)(B) of 
     such Act, provides at least 85 percent of the services of a 
     physician which are provided as basic health services through 
     a medical group (or groups), as defined in section 1302(4) of 
     such Act; and
       ``(ii) the Secretary determines that the organization meets 
     the requirements applicable to such organizations and 
     contracts under this section.''.

     SEC. 222. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
                   BENEFICIARIES.

       (a) Treatment as Coordinated Care Plan.--Section 
     1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)) is amended by 
     adding at the end the following new sentence: ``Specialized 
     Medicare+Choice plans for special needs beneficiaries (as 
     defined in section 1859(b)(4)) may be any type of coordinated 
     care plan.''.
       (b) Specialized Medicare+Choice Plan for Special Needs 
     Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-
     28(b)) is amended by adding at the end the following new 
     paragraph:
       ``(4) Specialized medicare+choice plans for special needs 
     beneficiaries.--
       ``(A) In general.--The term `specialized Medicare+Choice 
     plan for special needs beneficiaries' means a Medicare+Choice 
     plan that exclusively serves special needs beneficiaries (as 
     defined in subparagraph (B)).
       ``(B) Special needs beneficiary.--The term `special needs 
     beneficiary' means a Medicare+Choice eligible individual 
     who--
       ``(i) is institutionalized (as defined by the Secretary);
       ``(ii) is entitled to medical assistance under a State plan 
     under title XIX; or
       ``(iii) meets such requirements as the Secretary may 
     determine would benefit from enrollment in such a specialized 
     Medicare+Choice plan described in subparagraph (A) for 
     individuals with severe or disabling chronic conditions.''.
       (c) Restriction on Enrollment Permitted.--Section 1859 (42 
     U.S.C. 1395w-28) is amended by adding at the end the 
     following new subsection:
       ``(f) Restriction on Enrollment for Specialized 
     Medicare+Choice Plans for Special Needs Beneficiaries.--In 
     the case of a specialized Medicare+Choice plan (as defined in 
     subsection (b)(4)), notwithstanding any other provision of 
     this part and in accordance with regulations of the Secretary 
     and for periods before January 1, 2008, the plan may restrict 
     the enrollment of individuals under the plan to individuals 
     who are within 1 or more classes of special needs 
     beneficiaries.''.
       (d) Report to Congress.--Not later than December 31, 2006, 
     the Secretary shall submit to Congress a report that assesses 
     the impact of specialized Medicare+Choice plans for special 
     needs beneficiaries on the cost and quality of services 
     provided to enrollees. Such report shall include an 
     assessment of the costs and savings to the medicare program 
     as a result of amendments made by subsections (a), (b), and 
     (c).
       (e) Effective Dates.--
       (1) In general.--The amendments made by subsections (a), 
     (b), and (c) shall take effect on the date of enactment of 
     this Act.
       (2) Deadline for issuance of requirements for special needs 
     beneficiaries; transition.--No later than 1 year after the 
     date of enactment of this Act, the Secretary shall issue 
     final regulations to establish requirements for special needs 
     beneficiaries under section 1859(b)(4)(B)(iii) of the Social 
     Security Act, as added by subsection (b).

     SEC. 223. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID 
                   SERVICES FURNISHED BY NONCONTRACT PROVIDERS.

       (a) Medicare Services.--
       (1) Medicare services furnished by providers of services.--
     Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is 
     amended--
       (A) by striking ``part C or'' and inserting ``part C, with 
     a PACE provider under section 1894 or 1934, or'';
       (B) by striking ``(i)'';
       (C) by striking ``and (ii)''; and

[[Page S8059]]

       (D) by striking ``members of the organization'' and 
     inserting ``members of the organization or PACE program 
     eligible individuals enrolled with the PACE provider,''.
       (2) Medicare services furnished by physicians and other 
     entities.--Section 1894(b) (42 U.S.C. 1395eee(b)) is amended 
     by adding at the end the following new paragraphs:
       ``(3) Treatment of medicare services furnished by 
     noncontract physicians and other entities.--
       ``(A) Application of medicare+choice requirement with 
     respect to medicare services furnished by noncontract 
     physicians and other entities.--Section 1852(k)(1) (relating 
     to limitations on balance billing against Medicare+Choice 
     organizations for noncontract physicians and other entities 
     with respect to services covered under this title) shall 
     apply to PACE providers, PACE program eligible individuals 
     enrolled with such PACE providers, and physicians and other 
     entities that do not have a contract establishing payment 
     amounts for services furnished to such an individual in the 
     same manner as such section applies to Medicare+Choice 
     organizations, individuals enrolled with such organizations, 
     and physicians and other entities referred to in such 
     section.
       ``(B) Reference to related provision for noncontract 
     providers of services.--For the provision relating to 
     limitations on balance billing against PACE providers for 
     services covered under this title furnished by noncontract 
     providers of services, see section 1866(a)(1)(O).
       ``(4) Reference to related provision for services covered 
     under title xix but not under this title.--For provisions 
     relating to limitations on payments to providers 
     participating under the State plan under title XIX that do 
     not have a contract with a PACE provider establishing payment 
     amounts for services covered under such plan (but not under 
     this title) when such services are furnished to enrollees of 
     that PACE provider, see section 1902(a)(66).''.
       (b) Medicaid Services.--
       (1) Requirement under state plan.--Section 1902(a) (42 
     U.S.C. 1396a(a)) is amended--
       (A) in paragraph (64), by striking ``and'' at the end;
       (B) in paragraph (65), by striking the period at the end 
     and inserting ``; and''; and
       (C) by inserting after paragraph (65) the following new 
     paragraph:
       ``(66) provide, with respect to services covered under the 
     State plan (but not under title XVIII) that are furnished to 
     a PACE program eligible individual enrolled with a PACE 
     provider by a provider participating under the State plan 
     that does not have a contract with the PACE provider that 
     establishes payment amounts for such services, that such 
     participating provider may not require the PACE provider to 
     pay the participating provider an amount greater than the 
     amount that would otherwise be payable for the service to the 
     participating provider under the State plan for the State 
     where the PACE provider is located (in accordance with 
     regulations issued by the Secretary).''.
       (2) Reference in medicaid statute.--Section 1934(b) (42 
     U.S.C. 1396u-4(b)) is amended by adding at the end the 
     following new paragraphs:
       ``(3) Treatment of medicare services furnished by 
     noncontract physicians and other entities.--
       ``(A) Application of medicare+choice requirement with 
     respect to medicare services furnished by noncontract 
     physicians and other entities.--Section 1852(k)(1) (relating 
     to limitations on balance billing against Medicare+Choice 
     organizations for noncontract physicians and other entities 
     with respect to services covered under title XVIII) shall 
     apply to PACE providers, PACE program eligible individuals 
     enrolled with such PACE providers, and physicians and other 
     entities that do not have a contract establishing payment 
     amounts for services furnished to such an individual in the 
     same manner as such section applies to Medicare+Choice 
     organizations, individuals enrolled with such organizations, 
     and physicians and other entities referred to in such 
     section.
       ``(B) Reference to related provision for noncontract 
     providers of services.--For the provision relating to 
     limitations on balance billing against PACE providers for 
     services covered under title XVIII furnished by noncontract 
     providers of services, see section 1866(a)(1)(O).
       ``(4) Reference to related provision for services covered 
     under this title but not under title xviii.--For provisions 
     relating to limitations on payments to providers 
     participating under the State plan under this title that do 
     not have a contract with a PACE provider establishing payment 
     amounts for services covered under such plan (but not under 
     title XVIII) when such services are furnished to enrollees of 
     that PACE provider, see section 1902(a)(66).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2004.

     SEC. 224. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON 
                   HEALTH CARE PERFORMANCE MEASURES.

       (a) Evaluation.--
       (1) In general.--Not later than the date that is 2 months 
     after the date of enactment of this Act, the Secretary of 
     Health and Human Services shall enter into an arrangement 
     under which the Institute of Medicine of the National Academy 
     of Sciences (in this section referred to as the 
     ``Institute'') shall conduct an evaluation of leading health 
     care performance measures and options to implement policies 
     that align performance with payment under the medicare 
     program under title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.).
       (2) Specific matters evaluated.--In conducting the 
     evaluation under paragraph (1), the Institute shall--
       (A) catalogue, review, and evaluate the validity of leading 
     health care performance measures;
       (B) catalogue and evaluate the success and utility of 
     alternative performance incentive programs in public or 
     private sector settings; and
       (C) identify and prioritize options to implement policies 
     that align performance with payment under the medicare 
     program that indicate--
       (i) the performance measurement set to be used and how that 
     measurement set will be updated;
       (ii) the payment policy that will reward performance; and
       (iii) the key implementation issues (such as data and 
     information technology requirements) that must be addressed.
       (3) Scope of health care performance measures.--The health 
     care performance measures described in paragraph (2)(A) shall 
     encompass a variety of perspectives, including physicians, 
     hospitals, health plans, purchasers, and consumers.
       (4) Consultation with medpac.--In evaluating the matters 
     described in paragraph (2)(C), the Institute shall consult 
     with the Medicare Payment Advisory Commission established 
     under section 1805 of the Social Security Act (42 U.S.C. 
     1395b-6).
       (b) Report.--Not later than the date that is 18 months 
     after the date of enactment of this Act, the Institute shall 
     submit to the Secretary of Health and Human Services, the 
     Committees on Ways and Means and Energy and Commerce of the 
     House of Representatives, and the Committee on Finance of the 
     Senate a report on the evaluation conducted under subsection 
     (a)(1) describing the findings of such evaluation and 
     recommendations for an overall strategy and approach for 
     aligning payment with performance in the original medicare 
     fee-for-service program under parts A and B of title XVIII of 
     the Social Security Act, the Medicare+Choice program under 
     part C of such title, and any other programs under such title 
     XVIII.
       (c) Authorization of Appropriations.--There are authorized 
     to be appropriated $1,000,000 for purposes of conducting the 
     evaluation and preparing the report required by this section.

     SEC. 225. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT 
                   ORGANIZATIONS TO INCLUDE PARTS C AND D.

       (a) Application to Medicare Managed Care and Prescription 
     Drug Coverage.--Section 1154(a)(1) (42 U.S.C. 1320c-3(a)(1)) 
     is amended by inserting ``, Medicare+Choice organizations and 
     MedicareAdvantage organizations under part C, and 
     prescription drug card sponsors and eligible entities under 
     part D'' after ``under section 1876''.
       (b) Prescription Drug Therapy Quality Improvement.--Section 
     1154(a) (42 U.S.C. 1320c-3(a)) is amended by adding at the 
     end the following new paragraph:
       ``(17) The organization shall execute its responsibilities 
     under subparagraphs (A) and (B) of paragraph (1) by offering 
     to providers, practitioners, prescription drug card sponsors 
     and eligible entities under part D, and Medicare+Choice and 
     MedicareAdvantage plans under part C quality improvement 
     assistance pertaining to prescription drug therapy. For 
     purposes of this part and title XVIII, the functions 
     described in this paragraph shall be treated as a review 
     function.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply on and after January 1, 2004.

                 TITLE III--CENTER FOR MEDICARE CHOICES

     SEC. 301. ESTABLISHMENT OF THE CENTER FOR MEDICARE CHOICES.

       (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
     amended by section 111, is amended by inserting after 1806 
     the following new section:


           ``establishment of the center for medicare choices

       ``Sec. 1808. (a) Establishment.--By not later than March 1, 
     2004, the Secretary shall establish within the Department of 
     Health and Human Services the Center for Medicare Choices, 
     which shall be separate from the Centers for Medicare & 
     Medicaid Services.
       ``(b) Administrator and Deputy Administrator.--
       ``(1) Administrator.--
       ``(A) In general.--The Center for Medicare Choices shall be 
     headed by an Administrator (in this section referred to as 
     the `Administrator') who shall be appointed by the 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.

[[Page S8060]]

       ``(D) General authority.--The Administrator shall be 
     responsible for the exercise of all powers and the discharge 
     of all duties of the Center for Medicare Choices, 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 Center for Medicare Choices. 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 Center for Medicare Choices 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 Center for Medicare Choices 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 Center for Medicare Choices who shall be appointed by the 
     Administrator.
       ``(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 the Acting Administrator of the Center 
     for Medicare Choices 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 MedicareAdvantage 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 duties 
     relating to--
       ``(i) reasonable cost contracts with eligible organizations 
     under section 1876(h); and
       ``(ii) demonstration projects carried out in part or in 
     whole under such parts, including the demonstration project 
     carried out through a MedicareAdvantage (formerly 
     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 order to promote competition 
     under parts C and D, the Administrator, in carrying out the 
     duties required under this section, may not, to the extent 
     possible, interfere in any way with negotiations between 
     eligible entities, MedicareAdvantage organizations, 
     hospitals, physicians, other entities or individuals 
     furnishing items and services under this title (including 
     contractors for such items and services), and drug 
     manufacturers, wholesalers, or other suppliers of covered 
     drugs
       ``(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) Management staff.--
       ``(A) In general.--The Administrator, with the approval of 
     the Secretary, may employ, such management staff as 
     determined appropriate. Any such manager shall be required to 
     have demonstrated, by their education and experience (either 
     in the public or private sector), superior expertise in the 
     following areas:
       ``(i) The review, negotiation, and administration of health 
     care contracts.
       ``(ii) The design of health care benefit plans.
       ``(iii) Actuarial sciences.
       ``(iv) Compliance with health plan contracts.
       ``(v) Consumer education and decision making.
       ``(B) Compensation.--
       ``(i) In general.--Subject to clause (ii), the 
     Administrator shall establish the rate of pay for an 
     individual employed under subparagraph (A).
       ``(ii) Maximum rate.--In no case may the rate of 
     compensation determined under clause (i) exceed the highest 
     rate of basic pay for the Senior Executive Service under 
     section 5382(b) of title 5, United States Code.
       ``(3) Redelegation of certain functions of the centers for 
     medicare & medicaid services.--
       ``(A) In general.--The Secretary, the Administrator of the 
     Center for Medicare Choices, 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 of the Center for Medicare 
     Choices 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 Center for Medicare Choices 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 Center for Medicare Choices.
       ``(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 Center for Medicare Choices, 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, 
     and B, including information on medicare supplemental 
     policies under section 1882.
       ``(iii) Other areas determined to be appropriate by the 
     Administrator.

     Such information shall be presented in a manner so that 
     medicare beneficiaries may compare benefits under parts A, B, 
     and D, and medicare supplemental policies with benefits under 
     MedicareAdvantage 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 medicare fee-for-service program under 
     parts A and B, the MedicareAdvantage 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, 
     MedicareAdvantage organization, an eligible entity under part 
     D, or the Secretary; and
       ``(II) assistance to such beneficiaries with any problems 
     arising from disenrollment from a MedicareAdvantage plan 
     under part C or a prescription drug plan under part D; and

[[Page S8061]]

       ``(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 
     Center for Medicare Choices 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 such additional personnel as the 
     Director considers appropriate.
       ``(C) 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.''.
       (b) Use of Central, Toll-Free Number (1-800-MEDICARE).--
     Section 1804(b) (42 U.S.C. 1395b-2(b)) is amended by adding 
     at the end the following: ``By not later than 1 year after 
     the date of the enactment of the Prescription Drug and 
     Medicare Improvement Act of 2003, the Secretary shall 
     provide, through the toll-free number 1-800-MEDICARE, for a 
     means by which individuals seeking information about, or 
     assistance with, such programs who phone such toll-free 
     number are transferred (without charge) to appropriate 
     entities for the provision of such information or assistance. 
     Such toll-free number shall be the toll-free number listed 
     for general information and assistance in the annual notice 
     under subsection (a) instead of the listing of numbers of 
     individual contractors.''.

     SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

       (a) Administrator as Member and Co-Secretary of the Board 
     of Trustees of the Medicare Trust Funds.--The fifth sentence 
     of sections 1817(b) and 1841(b) (42 U.S.C. 1395i(b), 
     1395t(b)) are each amended by striking ``shall serve as the 
     Secretary'' and inserting ``and the Administrator of the 
     Center for Medicare Choices shall serve as the Co-
     Secretaries''.
       (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, 2004.

            TITLE IV--MEDICARE FEE-FOR-SERVICE IMPROVEMENTS

               Subtitle A--Provisions Relating to Part A

     SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT 
                   AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL 
                   PROSPECTIVE PAYMENT SYSTEM.

       (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
     1395ww(d)(3)(A)(iv)) is amended--
       (1) by striking ``(iv) For discharges'' and inserting 
     ``(iv)(I) Subject to the succeeding provisions of this 
     clause, for discharges''; and
       (2) by adding at the end the following new subclauses:
       ``(II) For discharges occurring during the last 3 quarters 
     of fiscal year 2004, the operating standardized amount for 
     hospitals located other than in a large urban area shall be 
     increased by \1/2\ of the difference between the operating 
     standardized amount determined under subclause (I) for 
     hospitals located in large urban areas for such fiscal year 
     and such amount determined (without regard to this subclause) 
     for other hospitals for such fiscal year.
       ``(III) For discharges occurring in a fiscal year beginning 
     with fiscal year 2005, the Secretary shall compute an 
     operating standardized amount for hospitals located in any 
     area within the United States and within each region equal to 
     the operating standardized amount computed for the previous 
     fiscal year under this subparagraph for hospitals located in 
     a large urban area (or, beginning with fiscal year 2006, 
     applicable for all hospitals in the previous fiscal year) 
     increased by the applicable percentage increase under

[[Page S8062]]

     subsection (b)(3)(B)(i) for the fiscal year involved.''.
       (b) Conforming Amendments.--
       (1) Computing drg-specific rates.--Section 1886(d)(3)(D) 
     (42 U.S.C. 1395ww(d)(3)(D)) is amended--
       (A) in the heading, by striking ``in different areas'';
       (B) in the matter preceding clause (i), by striking ``each 
     of which is'';
       (C) in clause (i)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2005,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking ``and'' after the 
     semicolon at the end;
       (D) in clause (ii)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2005,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking the period at the end 
     and inserting ``; and''; and
       (E) by adding at the end the following new clause:
       ``(iii) for a fiscal year beginning after fiscal year 2004, 
     for hospitals located in all areas, to the product of--
       ``(I) the applicable operating standardized amount 
     (computed under subparagraph (A)), reduced under subparagraph 
     (B), and adjusted or reduced under subparagraph (C) for the 
     fiscal year; and
       ``(II) the weighting factor (determined under paragraph 
     (4)(B)) for that diagnosis-related group.''.
       (2) Technical conforming sunset.--Section 1886(d)(3) (42 
     U.S.C. 1395ww(d)(3)) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, for fiscal years before fiscal year 1997,'' before ``a 
     regional adjusted DRG prospective payment rate''; and
       (B) in subparagraph (D), in the matter preceding clause 
     (i), by inserting ``, for fiscal years before fiscal year 
     1997,'' before ``a regional DRG prospective payment rate for 
     each region,''.

     SEC. 402. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS 
                   WAGE INDEX TO REVISE THE LABOR-RELATED SHARE OF 
                   SUCH INDEX.

       (a) In General.--Section 1886(d)(3)(E) (42 U.S.C. 
     1395ww(d)(3)(E)) is amended--
       (1) by striking ``wage levels.--The Secretary'' and 
     inserting ``wage levels.--
       ``(i) In general.--Except as provided in clause (ii), the 
     Secretary''; and
       (2) by adding at the end the following new clause:
       ``(ii) Alternative proportion to be adjusted beginning in 
     fiscal year 2005.--
       ``(I) In general.--Except as provided in subclause (II), 
     for discharges occurring on or after October 1, 2004, the 
     Secretary shall substitute `62 percent' for the proportion 
     described in the first sentence of clause (i).
       ``(II) Hold harmless for certain hospitals.--If the 
     application of subclause (I) would result in lower payments 
     to a hospital than would otherwise be made, then this 
     subparagraph shall be applied as if this clause had not been 
     enacted.''.
       (b) Waiving Budget Neutrality.--Section 1886(d)(3)(E) (42 
     U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a), is 
     amended by adding at the end of clause (i) the following new 
     sentence: ``The Secretary shall apply the previous sentence 
     for any period as if the amendments made by section 402(a) of 
     the Prescription Drug and Medicare Improvement Act of 2003 
     had not been enacted.''.

     SEC. 403. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR 
                   LOW-VOLUME HOSPITALS.

       Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding 
     at the end the following new paragraph:
       ``(12) Payment adjustment for low-volume hospitals.--
       ``(A) Payment adjustment.--
       ``(i) In general.--Notwithstanding any other provision of 
     this section, for each cost reporting period (beginning with 
     the cost reporting period that begins in fiscal year 2005), 
     the Secretary shall provide for an additional payment amount 
     to each low-volume hospital (as defined in clause (iii)) for 
     discharges occurring during that cost reporting period which 
     is equal to the applicable percentage increase (determined 
     under clause (ii)) in the amount paid to such hospital under 
     this section for such discharges.
       ``(ii) Applicable percentage increase.--The Secretary shall 
     determine a percentage increase applicable under this 
     paragraph that ensures that--

       ``(I) no percentage increase in payments under this 
     paragraph exceeds 25 percent of the amount of payment that 
     would (but for this paragraph) otherwise be made to a low-
     volume hospital under this section for each discharge;
       ``(II) low-volume hospitals that have the lowest number of 
     discharges during a cost reporting period receive the highest 
     percentage increases in payments due to the application of 
     this paragraph; and

       ``(III) the percentage increase in payments to any low-
     volume hospital due to the application of this paragraph is 
     reduced as the number of discharges per cost reporting period 
     increases.

       ``(iii) Low-volume hospital defined.--For purposes of this 
     paragraph, the term `low-volume hospital' means, for a cost 
     reporting period, a subsection (d) hospital (as defined in 
     paragraph (1)(B)) other than a critical access hospital (as 
     defined in section 1861(mm)(1)) that--

       ``(I) the Secretary determines had an average of less than 
     2,000 discharges (determined with respect to all patients and 
     not just individuals receiving benefits under this title) 
     during the 3 most recent cost reporting periods for which 
     data are available that precede the cost reporting period to 
     which this paragraph applies; and
       ``(II) is located at least 15 miles from a like hospital 
     (or is deemed by the Secretary to be so located by reason of 
     such factors as the Secretary determines appropriate, 
     including the time required for an individual to travel to 
     the nearest alternative source of appropriate inpatient care 
     (after taking into account the location of such alternative 
     source of inpatient care and any weather or travel conditions 
     that may affect such travel time).

       ``(B) Prohibiting certain reductions.--Notwithstanding 
     subsection (e), the Secretary shall not reduce the payment 
     amounts under this section to offset the increase in payments 
     resulting from the application of subparagraph (A).''.

     SEC. 404. FAIRNESS IN THE MEDICARE DISPROPORTIONATE SHARE 
                   HOSPITAL (DSH) ADJUSTMENT FOR RURAL HOSPITALS.

       (a) Equalizing DSH Payment Amounts.--
       (1) In general.--Section 1886(d)(5)(F)(vii) (42 U.S.C. 
     1395ww(d)(5)(F)(vii)) is amended by inserting ``, and, after 
     October 1, 2004, for any other hospital described in clause 
     (iv),'' after ``clause (iv)(I)'' in the matter preceding 
     subclause (I).
       (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
     U.S.C. 1395ww(d)(5)(F)) is amended--
       (A) in clause (iv)--
       (i) in subclause (II)--

       (I) by inserting ``and before October 1, 2004,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2004, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xiii)'';

       (ii) in subclause (III)--

       (I) by inserting ``and before October 1, 2004,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2004, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xii)'';

       (iii) in subclause (IV)--

       (I) by inserting ``and before October 1, 2004,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2004, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x) or (xi)'';

       (iv) in subclause (V)--

       (I) by inserting ``and before October 1, 2004,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2004, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xi)''; and

       (v) in subclause (VI)--

       (I) by inserting ``and before October 1, 2004,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2004, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x)'';

       (B) in clause (viii), by striking ``The formula'' and 
     inserting ``For discharges occurring before October 1, 2004, 
     the formula''; and
       (C) in each of clauses (x), (xi), (xii), and (xiii), by 
     striking ``For purposes'' and inserting ``With respect to 
     discharges occurring before October 1, 2004, for purposes''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to discharges occurring on or after October 1, 
     2004.

     SEC. 405. CRITICAL ACCESS HOSPITAL (CAH) IMPROVEMENTS.

       (a) Permitting CAHs To Allocate Swing Beds and Acute Care 
     Inpatient Beds Subject to a Total Limit of 25 Beds.--
       (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 
     1395i-4(c)(2)(B)(iii)) is amended to read as follows:
       ``(iii) provides not more than a total of 25 extended care 
     service beds (pursuant to an agreement under subsection (f)) 
     and acute care inpatient beds (meeting such standards as the 
     Secretary may establish) for providing inpatient care for a 
     period that does not exceed, as determined on an annual, 
     average basis, 96 hours per patient;''.
       (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 
     1395i-4(f)) is amended by striking ``and the number of beds 
     used at any time for acute care inpatient services does not 
     exceed 15 beds''.
       (3) Effective date.--The amendments made by this subsection 
     shall with respect to designations made on or after October 
     1, 2004.
       (b) Elimination of the Isolation Test for Cost-Based CAH 
     Ambulance Services.--
       (1) Elimination.--
       (A) In general.--Section 1834(l)(8) (42 U.S.C. 
     1395m(l)(8)), as added by section 205(a) of BIPA (114 Stat. 
     2763A-482), is amended by striking the comma at the end of 
     subparagraph (B) and all that follows and inserting a period.
       (B) Effective date.--The amendment made by subparagraph (A) 
     shall apply to services furnished on or after January 1, 
     2005.
       (2) Technical correction.--Section 1834(l) (42 U.S.C. 
     1395m(l)) is amended by redesignating paragraph (8), as added 
     by section 221(a) of BIPA (114 Stat. 2763A-486), as paragraph 
     (9).
       (c) Coverage of Costs for Certain Emergency Room On-Call 
     Providers.--
       (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
     is amended--
       (A) in the heading--

[[Page S8063]]

       (i) by inserting ``certain'' before ``emergency''; and
       (ii) by striking ``physicians'' and inserting 
     ``providers'';
       (B) by striking ``emergency room physicians who are on-call 
     (as defined by the Secretary)'' and inserting ``physicians, 
     physician assistants, nurse practitioners, and clinical nurse 
     specialists who are on-call (as defined by the Secretary) to 
     provide emergency services''; and
       (C) by striking ``physicians' services'' and inserting 
     ``services covered under this title''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to costs incurred for services provided on or 
     after January 1, 2005.
       (d) Authorization of Periodic Interim Payment (PIP).--
       (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
     is amended--
       (A) in subparagraph (C), by striking ``and'' after the 
     semicolon at the end;
       (B) in subparagraph (D), by adding ``and'' after the 
     semicolon at the end; and
       (C) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) inpatient critical access hospital services;''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to payments for inpatient critical access 
     facility services furnished on or after January 1, 2005.
       (e) Exclusion of New CAHs From PPS Hospital Wage Index 
     Calculation.--Section 1886(d)(3)(E)(i) (42 U.S.C. 
     1395ww(d)(3)(E)(i)), as amended by section 402, is amended by 
     inserting after the first sentence the following new 
     sentence: ``In calculating the hospital wage levels under the 
     preceding sentence applicable with respect to cost reporting 
     periods beginning on or after January 1, 2004, the Secretary 
     shall exclude the wage levels of any facility that became a 
     critical access hospital prior to the cost reporting period 
     for which such hospital wage levels are calculated.''.
       (f) Provisions Related to Certain Rural Grants.--
       (1) Small rural hospital improvement program.--Section 
     1820(g) (42 U.S.C. 1395i-4(g)) is amended--
       (A) by redesignating paragraph (3)(F) as paragraph (5) and 
     redesignating and indenting appropriately; and
       (B) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) Small rural hospital improvement program.--
       ``(A) Grants to hospitals.--The Secretary may award grants 
     to hospitals that have submitted applications in accordance 
     with subparagraph (B) to assist eligible small rural 
     hospitals (as defined in paragraph (3)(B)) in meeting the 
     costs of reducing medical errors, increasing patient safety, 
     protecting patient privacy, and improving hospital quality 
     and performance.
       ``(B) Application.--A hospital seeking a grant under this 
     paragraph shall submit an application to the Secretary on or 
     before such date and in such form and manner as the Secretary 
     specifies.
       ``(C) Amount of grant.--A grant to a hospital under this 
     paragraph may not exceed $50,000.
       ``(D) Use of funds.--A hospital receiving a grant under 
     this paragraph may use the funds for the purchase of computer 
     software and hardware, the education and training of hospital 
     staff, and obtaining technical assistance.''.
       (2) Authorization for appropriations.--Section 1820(j) (42 
     U.S.C. 1395i-4(j)) is amended to read as follows:
       ``(j) Authorization of Appropriations.--
       ``(1) HI trust fund.--There are authorized to be 
     appropriated from the Federal Hospital Insurance Trust Fund 
     for making grants to all States under--
       ``(A) subsection (g), $25,000,000 in each of the fiscal 
     years 1998 through 2002; and
       ``(B) paragraphs (1) and (2) of subsection (g), $40,000,000 
     in each of the fiscal years 2004 through 2008.
       ``(2) General revenues.--There are authorized to be 
     appropriated from amounts in the Treasury not otherwise 
     appropriated for making grants to all States under subsection 
     (g)(4), $25,000,000 in each of the fiscal years 2004 through 
     2008.''.
       (3) Requirement that states awarded grants consult with the 
     state hospital association and rural hospitals on the most 
     appropriate ways to use such grants.--
       (A) In general.--Section 1820(g) (42 U.S.C. 1395i-4(g)), as 
     amended by paragraph (1), is amended by adding at the end the 
     following new paragraph:
       ``(6) Required consultation for states awarded grants.--A 
     State awarded a grant under paragraph (1) or (2) shall 
     consult with the hospital association of such State and rural 
     hospitals located in such State on the most appropriate ways 
     to use the funds under such grant.''.
       (B) Effective date and application.--The amendment made by 
     subparagraph (A) shall take effect on the date of enactment 
     of this Act and shall apply to grants awarded on or after 
     such date and to grants awarded prior to such date to the 
     extent that funds under such grants have not been obligated 
     as of such date.

     SEC. 406. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE 
                   HOSPICE SERVICES IN CERTAIN CIRCUMSTANCES.

       (a) In General.--Section 1861(dd)(5) (42 U.S.C. 
     1395x(dd)(5)) is amended by adding at the end the following:
       ``(D) In extraordinary, exigent, or other non-routine 
     circumstances, such as unanticipated periods of high patient 
     loads, staffing shortages due to illness or other events, or 
     temporary travel of a patient outside a hospice program's 
     service area, a hospice program may enter into arrangements 
     with another hospice program for the provision by that other 
     program of services described in paragraph (2)(A)(ii)(I). The 
     provisions of paragraph (2)(A)(ii)(II) shall apply with 
     respect to the services provided under such arrangements.
       ``(E) A hospice program may provide services described in 
     paragraph (1)(A) other than directly by the program if the 
     services are highly specialized services of a registered 
     professional nurse and are provided non-routinely and so 
     infrequently so that the provision of such services directly 
     would be impracticable and prohibitively expensive.''.
       (b) Conforming Payment Provision.--Section 1814(i) (42 
     U.S.C. 1395f(i)) is amended by adding at the end the 
     following new paragraph:
       ``(4) In the case of hospice care provided by a hospice 
     program under arrangements under section 1861(dd)(5)(D) made 
     by another hospice program, the hospice program that made the 
     arrangements shall bill and be paid for the hospice care.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to hospice care provided on or after October 1, 
     2004.

     SEC. 407. SERVICES PROVIDED TO HOSPICE PATIENTS BY NURSE 
                   PRACTITIONERS, CLINICAL NURSE SPECIALISTS, AND 
                   PHYSICIAN ASSISTANTS.

       (a) In general.--Section 1812(d)(2)(A) (42 U.S.C. 
     1395d(d)(2)(A) in the matter following clause (i)(II), is 
     amended--
       (1) by inserting ``or services described in section 
     1861(s)(2)(K)'' after ``except that clause (i) shall not 
     apply to physicians' services''; and
       (2) by inserting ``, or by a physician assistant, nurse 
     practitioner, or clinical nurse specialist whom is not an 
     employee of the hospice program, and who the individual 
     identifies as the health care provider having the most 
     significant role in the determination and delivery of medical 
     care to the individual at the time the individual makes an 
     election to receive hospice care,'' after the ``(if not an 
     employee of the hospice program)''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to hospice care furnished on or after October 1, 
     2004.

     SEC. 408. AUTHORITY TO INCLUDE COSTS OF TRAINING OF 
                   PSYCHOLOGISTS IN PAYMENTS TO HOSPITALS UNDER 
                   MEDICARE.

       Effective for cost reporting periods beginning on or after 
     October 1, 2004, for purposes of payments to hospitals under 
     the medicare program under title XVIII of the Social Security 
     Act for costs of approved educational activities (as defined 
     in section 413.85 of title 42 of the Code of Federal 
     Regulations), such approved educational activities shall 
     include professional educational training programs, 
     recognized by the Secretary, for psychologists.

     SEC. 409. REVISION OF FEDERAL RATE FOR HOSPITALS IN PUERTO 
                   RICO.

       Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
       (1) in subparagraph (A)--
       (A) in clause (i), by striking ``for discharges beginning 
     on or after October 1, 1997, 50 percent (and for discharges 
     between October 1, 1987, and September 30, 1997, 75 
     percent)'' and inserting ``the applicable Puerto Rico 
     percentage (specified in subparagraph (E))''; and
       (B) in clause (ii), by striking ``for discharges beginning 
     in a fiscal year beginning on or after October 1, 1997, 50 
     percent (and for discharges between October 1, 1987, and 
     September 30, 1997, 25 percent)'' and inserting ``the 
     applicable Federal percentage (specified in subparagraph 
     (E))''; and
       (2) by adding at the end the following new subparagraph:
       ``(E) For purposes of subparagraph (A), for discharges 
     occurring--
       ``(i) between October 1, 1987, and September 30, 1997, the 
     applicable Puerto Rico percentage is 75 percent and the 
     applicable Federal percentage is 25 percent;
       ``(ii) on or after October 1, 1997, and before October 1, 
     2004, the applicable Puerto Rico percentage is 50 percent and 
     the applicable Federal percentage is 50 percent;
       ``(iii) on or after October 1, 2004, and before October 1, 
     2009, the applicable Puerto Rico percentage is 0 percent and 
     the applicable Federal percentage is 100 percent; and
       ``(iv) on or after October 1, 2009, the applicable Puerto 
     Rico percentage is 50 percent and the applicable Federal 
     percentage is 50 percent.''.

     SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOWSHIPS.

       The Secretary shall have the authority to clarify that 
     geriatric training programs are eligible for 2 years of 
     fellowship support for purposes of making payments for direct 
     graduate medical education under subsection (h) of section 
     1886 of the Social Security Act (42 U.S.C. 1395ww) and 
     indirect medical education under subsection (d)(5)(B) of such 
     section on or after October 1, 2004.

     SEC. 411. CLARIFICATION OF CONGRESSIONAL INTENT REGARDING THE 
                   COUNTING OF RESIDENTS IN A NONPROVIDER SETTING 
                   AND A TECHNICAL AMENDMENT REGARDING THE 3-YEAR 
                   ROLLING AVERAGE AND THE IME RATIO.

       (a) Clarification of Requirements for Counting Residents 
     Training in Nonprovider Setting.--

[[Page S8064]]

       (1) D-GME.--Section 1886(h)(4)(E) (42 U.S.C. 
     1395ww(h)(4)(E)) is amended by adding at the end the 
     following new sentence: For purposes of the preceding 
     sentence time shall only be counted from the effective date 
     of a written agreement between the hospital and the entity 
     owning or operating a nonprovider setting. The effective date 
     of such written agreement shall be determined in accordance 
     with generally accepted accounting principles. All, or 
     substantially all, of the costs for the training program in 
     that setting shall be defined as the residents' stipends and 
     benefits and other costs, if any, as determined by the 
     parties.''.
       (2) IME.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
     1395ww(d)(5)(B)(iv)) is amended by adding at the end the 
     following new sentence: For purposes of the preceding 
     sentence time shall only be counted from the effective date 
     of a written agreement between the hospital and the entity 
     owning or operating a nonprovider setting. The effective date 
     of such written agreement shall be determined in accordance 
     with generally accepted accounting principles. All, or 
     substantially all, of the costs for the training program in 
     that setting shall be defined as the residents' stipends and 
     benefits and other costs, if any, as determined by the 
     parties.''.
       (b) Limiting One-Year Lag in the Indirect Medical Education 
     (IME) Ratio and Three-Year Rolling Average in Resident Count 
     for IME and for Direct Graduate Medical Education (D-GME) To 
     Medical Residency Programs.--
       (1) IME ratio and ime rolling average.--Section 
     1886(d)(5)(B)(vi) of the Social Security Act (42 U.S.C. 
     1395ww(d)(5)(B)(vi)) is amended by adding at the end the 
     following new sentence: ``For cost reporting periods 
     beginning during fiscal years beginning on or after October 
     1, 2004, subclauses (I) and (II) shall be applied only with 
     respect to a hospital's approved medical residency training 
     programs in the fields of allopathic and osteopathic 
     medicine.''.
       (2) D-GME rolling average.--Section 1886(h)(4)(G) of the 
     Social Security Act (42 U.S.C. 1395ww(h)(4)(G)) is amended by 
     adding at the end the following new clause:
       ``(iv) Application for fiscal year 2004 and subsequent 
     years.--For cost reporting periods beginning during fiscal 
     years beginning on or after October 1, 2004, clauses (i) 
     through (iii) shall be applied only with respect to a 
     hospital's approved medical residency training program in the 
     fields of allopathic and osteopathic medicine.''.

     SEC. 412. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL 
                   CONTRACT HEALTH SERVICES PROVIDED TO INDIANS BY 
                   MEDICARE PARTICIPATING HOSPITALS.

       (a) In General.--Section 1866(a)(1) (42 U.S.C. 
     1395cc(a)(1)) is amended--
       (1) in subparagraph (R), by striking ``and'' at the end;
       (2) in subparagraph (S), by striking the period and 
     inserting ``, and''; and
       (3) by adding at the end the following new subparagraph:
       ``(T) in the case of hospitals which furnish inpatient 
     hospital services for which payment may be made under this 
     title, to be a participating provider of medical care--
       ``(i) under the contract health services program funded by 
     the Indian Health Service and operated by the Indian Health 
     Service, an Indian tribe, or tribal organization (as those 
     terms are defined in section 4 of the Indian Health Care 
     Improvement Act), with respect to items and services that are 
     covered under such program and furnished to an individual 
     eligible for such items and services under such program; and
       ``(ii) under a program funded by the Indian Health Service 
     and operated by an urban Indian organization with respect to 
     the purchase of items and services for an eligible urban 
     Indian (as those terms are defined in such section 4),

     in accordance with regulations promulgated by the Secretary 
     regarding admission practices, payment methodology, and rates 
     of payment (including the acceptance of no more than such 
     payment rate as payment in full for such items and 
     services).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply as of a date specified by the Secretary of Health 
     and Human Services (but in no case later than 6 months after 
     the date of enactment of this Act) to medicare participation 
     agreements in effect (or entered into) on or after such date.

     SEC. 413. GAO STUDY AND REPORT ON APPROPRIATENESS OF PAYMENTS 
                   UNDER THE PROSPECTIVE PAYMENT SYSTEM FOR 
                   INPATIENT HOSPITAL SERVICES.

       (a) Study.--The Comptroller General of the United States, 
     using the most current data available, shall conduct a study 
     to determine--
       (1) the appropriate level and distribution of payments in 
     relation to costs under the prospective payment system under 
     section 1886 of the Social Security Act (42 U.S.C. 1395ww) 
     for inpatient hospital services furnished by subsection (d) 
     hospitals (as defined in subsection (d)(1)(B) of such 
     section); and
       (2) whether there is a need to adjust such payments under 
     such system to reflect legitimate differences in costs across 
     different geographic areas, kinds of hospitals, and types of 
     cases.
       (b) Report.--Not later than 24 months after the date of 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to Congress a report on the study 
     conducted under subsection (a) together with such 
     recommendations for legislative and administrative action as 
     the Comptroller General determines appropriate.

               Subtitle B--Provisions Relating to Part B

     SEC. 421. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC ADJUSTMENTS OF 
                   PAYMENTS FOR PHYSICIANS' SERVICES.

       Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
       (1) in subparagraph (A), by striking ``subparagraphs (B) 
     and (C)'' and inserting ``subparagraphs (B), (C), (E), and 
     (F)''; and
       (2) by adding at the end the following new subparagraphs:
       ``(E) Floor for work geographic indices.--
       ``(i) In general.--For purposes of payment for services 
     furnished on or after January 1, 2004, and before January 1, 
     2008, after calculating the work geographic indices in 
     subparagraph (A)(iii), the Secretary shall increase the work 
     geographic index to the work floor index for any locality for 
     which such geographic index is less than the work floor 
     index.
       ``(ii) Work floor index.--For purposes of clause (i), the 
     term `applicable floor index' means--

       ``(I) 0.980 with respect to services furnished during 2004; 
     and
       ``(II) 1.000 for services furnished during 2005, 2006, and 
     2007.

       ``(F) Floor for practice expense and malpractice geographic 
     indices.--For purposes of payment for services furnished on 
     or after January 1, 2005, and before January 1, 2008, after 
     calculating the practice expense and malpractice indices in 
     clauses (i) and (ii) of subparagraph (A) and in subparagraph 
     (B), the Secretary shall increase any such index to 1.00 for 
     any locality for which such index is less than 1.00.

     SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS.

       (a) Procedures for Secretary, and Not Physicians, To 
     Determine When Bonus Payments Under Medicare Incentive 
     Payment Program Should Be Made.--Section 1833(m) (42 U.S.C. 
     1395l(m)) is amended--
       (1) by inserting ``(1)'' after ``(m)''; and
       (2) by adding at the end the following new paragraph:
       ``(2) The Secretary shall establish procedures under which 
     the Secretary, and not the physician furnishing the service, 
     is responsible for determining when a payment is required to 
     be made under paragraph (1).''.
       (b) Educational Program Regarding the Medicare Incentive 
     Payment Program.--The Secretary shall establish and implement 
     an ongoing educational program to provide education to 
     physicians under the medicare program on the medicare 
     incentive payment program under section 1833(m) of the Social 
     Security Act (42 U.S.C. 1395l(m)).
       (c) Ongoing GAO Study and Annual Report on the Medicare 
     Incentive Payment Program.--
       (1) Ongoing study.--The Comptroller General of the United 
     States shall conduct an ongoing study on the medicare 
     incentive payment program under section 1833(m) of the Social 
     Security Act (42 U.S.C. 1395l(m)). Such study shall focus on 
     whether such program increases the access of medicare 
     beneficiaries who reside in an area that is designated (under 
     section 332(a)(1)(A) of the Public Health Service Act (42 
     U.S.C. 254e(a)(1)(A))) as a health professional shortage area 
     to physicians' services under the medicare program.
       (2) Annual reports.--Not later than 1 year after the date 
     of enactment of this Act, and annually thereafter, the 
     Comptroller General of the United States shall submit to 
     Congress a report on the study conducted under paragraph (1), 
     together with recommendations as the Comptroller General 
     considers appropriate.

     SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE.

       Notwithstanding any other provision of law, with respect to 
     payment under part B of title XVIII of the Social Security 
     Act for renal dialysis services furnished in 2005 and 2006, 
     the composite rate for such services shall be increased by 
     1.6 percent under section 1881(b)(12) of such Act (42 U.S.C. 
     1395rr(b)(7)), as added by section 433(b)(5).

     SEC. 424. EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL 
                   RURAL HOSPITALS AND TREATMENT OF CERTAIN SOLE 
                   COMMUNITY HOSPITALS TO LIMIT DECLINE IN PAYMENT 
                   UNDER THE OPD PPS.

       (a) Small Rural Hospitals.--Section 1833(t)(7)(D)(i) (42 
     U.S.C. 1395l(t)(7)(D)(i)) is amended by inserting ``and 
     during 2006'' after ``2004,''.
       (b) Sole community hospitals.--Section 1833(t)(7)(D) (42 
     U.S.C. 1395l(t)(7)(D)) is amended by adding at the end the 
     following:
       ``(iii) Temporary treatment for sole community hospitals 
     .--In the case of a sole community hospital (as defined in 
     section 1886(d)(5)(D)(iii)) located in a rural area, for 
     covered OPD services furnished in 2006, for which the PPS 
     amount is less than the pre-BBA amount, the amount of payment 
     under this subsection shall be increased by the amount of 
     such difference.''.

     SEC. 425. INCREASE IN PAYMENTS FOR CERTAIN SERVICES FURNISHED 
                   BY SMALL RURAL AND SOLE COMMUNITY HOSPITALS 
                   UNDER MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR 
                   HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

       (a) Increase.--

[[Page S8065]]

       (1) In general.--In the case of an applicable covered OPD 
     service (as defined in paragraph (2)) that is furnished by a 
     hospital described in clause (i) or (iii) of paragraph (7)(D) 
     of section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t)), as amended by section 424, on or after January 1, 
     2005, and before January 1, 2008, the Secretary shall 
     increase the medicare OPD fee schedule amount (as determined 
     under paragraph (4)(A) of such section) that is applicable 
     for such service in that year (determined without regard to 
     any increase under this section in a previous year) by 5 
     percent.
       (2) Applicable covered opd services defined.--For purposes 
     of this section, the term ``applicable covered OPD service'' 
     means a covered clinic or emergency room visit that is 
     classified within the groups of covered OPD services (as 
     defined in paragraph (1)(B) of section 1833(t) of the Social 
     Security Act (42 U.S.C. 1395l(t))) established under 
     paragraph (2)(B) of such section.
       (b) No Effect on Copayment Amount.--The Secretary shall 
     compute the copayment amount for applicable covered OPD 
     services under section 1833(t)(8)(A) of the Social Security 
     Act (42 U.S.C. 1395l(t)(8)(A)) as if this section had not 
     been enacted.
       (c) No Effect on Increase Under Hold Harmless or Outlier 
     Provisions.--The Secretary shall apply the temporary hold 
     harmless provision under clause (i) and (iii) of paragraph 
     (7)(D) of section 1833(t) of the Social Security Act (42 
     U.S.C. 1395l(t)) and the outlier provision under paragraph 
     (5) of such section as if this section had not been enacted.
       (d) Waiving Budget Neutrality and No Revision or 
     Adjustments.--The Secretary shall not make any revision or 
     adjustment under subparagraph (A), (B), or (C) of section 
     1833(t)(9) of the Social Security Act (42 U.S.C. 1395l(t)(9)) 
     because of the application of subsection (a)(1).
       (e) No Effect on Payments After Increase Period Ends.--The 
     Secretary shall not take into account any payment increase 
     provided under subsection (a)(1) in determining payments for 
     covered OPD services (as defined in paragraph (1)(B) of 
     section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t))) under such section that are furnished after 
     January 1, 2008.
       (f) Technical Amendment.--Section 1833(t)(2)(B) (42 U.S.C. 
     1395l(t)(2)(B)) is amended by inserting ``(and periodically 
     revise such groups pursuant to paragraph (9)(A))'' after 
     ``establish groups''.

     SEC. 426. INCREASE FOR GROUND AMBULANCE SERVICES FURNISHED IN 
                   A RURAL AREA.

       Section 1834(l) (42 U.S.C. 1395m(l)), as amended by section 
     405(b)(2), is amended by adding at the end the following new 
     paragraph:
       ``(10) Temporary increase for ground ambulance services 
     furnished in a rural area.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, in the case of ground ambulance services 
     furnished on or after January 1, 2005, and before January 1, 
     2008, for which the transportation originates in a rural area 
     described in paragraph (9) or in a rural census tract 
     described in such paragraph, the fee schedule established 
     under this section, with respect to both the payment rate for 
     service and the payment rate for mileage, shall provide that 
     such rates otherwise established, after application of any 
     increase under such paragraph, shall be increased by 5 
     percent.
       ``(B) Application of increased payments after 2007.--The 
     increased payments under subparagraph (A) shall not be taken 
     into account in calculating payments for services furnished 
     on or after the period specified in such subparagraph.''.

     SEC. 427. ENSURING APPROPRIATE COVERAGE OF AIR AMBULANCE 
                   SERVICES UNDER AMBULANCE FEE SCHEDULE.

       (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
     amended by section 426, is amended by adding at the end the 
     following new paragraph:
       ``(11) Ensuring appropriate coverage of air ambulance 
     services.--
       ``(A) In general.--The regulations described in section 
     1861(s)(7) shall ensure that air ambulance services (as 
     defined in subparagraph (C)) are reimbursed under this 
     subsection at the air ambulance rate if the air ambulance 
     service--
       ``(i) is medically necessary based on the health condition 
     of the individual being transported at or immediately prior 
     to the time of the transport; and
       ``(ii) complies with equipment and crew requirements 
     established by the Secretary.
       ``(B) Medically necessary.--An air ambulance service shall 
     be considered to be medically necessary for purposes of 
     subparagraph (A)(i) if such service is requested--
       ``(i) by a physician or a hospital in accordance with the 
     physician's or hospital's responsibilities under section 1867 
     (commonly known as the Emergency Medical Treatment and Active 
     Labor Act);
       ``(ii) as a result of a protocol established by a State or 
     regional emergency medical service (EMS) agency;
       ``(iii) by a physician, nurse practitioner, physician 
     assistant, registered nurse, or emergency medical responder 
     who reasonably determines or certifies that the patient's 
     condition is such that the time needed to transport the 
     individual by land or the lack of an appropriate ground 
     ambulance, significantly increases the medical risks for the 
     individual; or
       ``(iv) by a Federal or State agency to relocate patients 
     following a natural disaster, an act of war, or a terrorist 
     attack.
       ``(C) Air ambulance services defined.--For purposes of this 
     paragraph, the term `air ambulance service' means fixed wing 
     and rotary wing air ambulance services.''.
       (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
     1395x(s)(7)) is amended by inserting ``, subject to section 
     1834(l)(11),'' after ``but''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2005.

     SEC. 428. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY 
                   TESTS FURNISHED BY A SOLE COMMUNITY HOSPITAL.

       Notwithstanding subsections (a), (b), and (h) of section 
     1833 of the Social Security Act (42 U.S.C. 1395l) and section 
     1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case 
     of a clinical diagnostic laboratory test covered under part B 
     of title XVIII of such Act that is furnished in 2005 or 2006 
     by a sole community hospital (as defined in section 
     1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
     1395ww(d)(5)(D)(iii))) as part of services furnished to 
     patients of the hospital, the following rules shall apply:
       (1) Payment based on reasonable costs.--The amount of 
     payment for such test shall be 100 percent of the reasonable 
     costs of the hospital in furnishing such test.
       (2) No beneficiary cost-sharing.--Notwithstanding section 
     432, no coinsurance, deductible, copayment, or other cost-
     sharing otherwise applicable under such part B shall apply 
     with respect to such test.

     SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIMBURSEMENT.

       Section 1833(f) (42 U.S.C. 1395l(f)) is amended--
       (1) in paragraph (1), by striking ``, and'' at the end and 
     inserting a semicolon;
       (2) in paragraph (2)--
       (A) by striking ``in a subsequent year'' and inserting ``in 
     1989 through 2004''; and
       (B) by striking the period at the end and inserting a 
     semicolon; and
       (3) by adding at the end the following new paragraphs:
       ``(3) in 2005, at $80 per visit; and
       ``(4) in a subsequent year, at the limit established under 
     this subsection for the previous year increased by the 
     percentage increase in the MEI (as so defined) applicable to 
     primary care services (as so defined) furnished as of the 
     first day of that year.''.

     SEC. 430. ELIMINATION OF CONSOLIDATED BILLING FOR CERTAIN 
                   SERVICES UNDER THE MEDICARE PPS FOR SKILLED 
                   NURSING FACILITY SERVICES.

       (a) Certain Rural Health Clinic and Federally Qualified 
     Health Center Services.--Section 1888(e) (42 U.S.C. 
     1395yy(e)) is amended--
       (1) in paragraph (2)(A)(i)(II), by striking ``clauses (ii) 
     and (iii)'' and inserting ``clauses (ii), (iii), and (iv)''; 
     and
       (2) by adding at the end of paragraph (2)(A) the following 
     new clause:
       ``(iv) Exclusion of certain rural health clinic and 
     federally qualified health center services.--Services 
     described in this clause are--

       ``(I) rural health clinic services (as defined in paragraph 
     (1) of section 1861(aa)); and

       ``(II) Federally qualified health center services (as 
     defined in paragraph (3) of such section);

     that would be described in clause (ii) if such services were 
     furnished by a physician or practitioner not affiliated with 
     a rural health clinic or a Federally qualified health 
     center.''.
       (b) Certain Services Furnished by an Entity Jointly Owned 
     by Hospitals and Critical Access Hospitals.--For purposes of 
     applying section 411.15(p)-(3)(iii) of title 42 of the Code 
     of Federal Regulations, the Secretary shall treat an entity 
     that is 100 percent owned as a joint venture by 2 Medicare-
     participating hospitals or critical access hospitals as a 
     Medicare-participating hospital or a critical access 
     hospital.
       (c) Technical Amendments.--Sections 1842(b)(6)(E) and 
     1866(a)(1)(H)(ii) (42 U.S.C. 1395u(b)(6)(E); 
     1395cc(a)(1)(H)(ii)) are each amended by striking ``section 
     1888(e)(2)(A)(ii)'' and inserting ``clauses (ii), (iii), and 
     (iv) of section 1888(e)(2)(A)''.
       (d) Effective Date.--The amendments made by this section 
     and the provision of subsection (b) shall apply to services 
     furnished on or after January 1, 2005.

     SEC. 431. FREEZE IN PAYMENTS FOR CERTAIN ITEMS OF DURABLE 
                   MEDICAL EQUIPMENT AND CERTAIN ORTHOTICS; 
                   ESTABLISHMENT OF QUALITY STANDARDS AND 
                   ACCREDITATION REQUIREMENTS FOR DME PROVIDERS.

       (a) Freeze for DME.--Section 1834(a)(14) (42 U.S.C. 
     1395m(a)(14)) is amended--
       (1) in subparagraph (E), by striking ``and'' at the end;
       (2) in subparagraph (F)--
       (A) by striking ``a subsequent year'' and inserting 
     ``2003''; and
       (B) by striking ``the previous year.'' and inserting 
     ``2002;''; and
       (3) by adding at the end the following new subparagraphs:
       ``(G) for each of the years 2004 through 2010--
       ``(i) in the case of class III medical devices described in 
     section 513(a)(1)(C) of the Federal Food, Drug, and Cosmetic 
     Act (21 U.S.C. 360(c)(1)(C)), the percentage increase 
     described in subparagraph (B) for the year involved; and
       ``(ii) in the case of covered items not described in clause 
     (i), 0 percentage points; and

[[Page S8066]]

       ``(H) for a subsequent year, the percentage increase 
     described in subparagraph (B) for the year involved.''.
       (b) Freeze for Off-the-Shelf Orthotics.--Section 
     1834(h)(4)(A) of the Social Security Act (42 U.S.C. 
     1395m(h)(4)(A)) is amended--
       (1) in clause (vii), by striking ``and'' at the end;
       (2) in clause (viii), by striking ``a subsequent year'' and 
     inserting ``2003''; and
       (3) by adding at the end the following new clauses:
       ``(ix) for each of the years 2004 through 2010--

       ``(I) in the case of orthotics that have not been custom-
     fabricated, 0 percent; and
       ``(II) in the case of prosthetics, prosthetic devices, and 
     custom-fabricated orthotics, the percentage increase 
     described in clause (viii) for the year involved; and

       ``(x) for 2011 and each subsequent year, the percentage 
     increase described in clause (viii) for the year involved;''.
       (c) Establishment of Quality Standards and Accreditation 
     Requirements for Durable Medical Equipment Providers.--
     Section 1834(a) (42 U.S.C. 1395m(a)) is amended--
       (1) by redesignating paragraph (17), as added by section 
     4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat. 
     458), as paragraph (19); and
       (2) by adding at the end the following new paragraph:
       ``(20) Identification of quality standards.--
       ``(A) In general.--Subject to subparagraph (C), the 
     Secretary shall establish and implement quality standards for 
     providers of durable medical equipment throughout the United 
     States that are developed by recognized independent 
     accreditation organizations (as designated under subparagraph 
     (B)(i)) and with which such providers shall be required to 
     comply in order to--
       ``(i) participate in the program under this title;
       ``(ii) furnish any item or service described in 
     subparagraph (D) for which payment is made under this part; 
     and
       ``(iii) receive or retain a provider or supplier number 
     used to submit claims for reimbursement for any item or 
     service described in subparagraph (D) for which payment may 
     be made under this title.
       ``(B) Designation of independent accreditation 
     organizations.--
       ``(i) In general.--Not later that the date that is 6 months 
     after the date of enactment of the Prescription Drug and 
     Medicare Improvement Act of 2003, the Secretary shall 
     designate independent accreditation organizations for 
     purposes of subparagraph (A).
       ``(ii) Consultation.--In determining which independent 
     accreditation organizations to designate under clause (i), 
     the Secretary shall consult with an expert outside advisory 
     panel composed of an appropriate selection of representatives 
     of physicians, practitioners, suppliers, and manufacturers to 
     review (and advise the Secretary concerning) selection of 
     accrediting organizations and the quality standards of such 
     organizations.
       ``(C) Quality standards.--The quality standards described 
     in subparagraph (A) may not be less stringent than the 
     quality standards that would otherwise apply if this 
     paragraph did not apply and shall include consumer services 
     standards.
       ``(D) Items and services described.--The items and services 
     described in this subparagraph are covered items (as defined 
     in paragraph (13)) for which payment may otherwise be made 
     under this subsection, other than items used in infusion, and 
     inhalation drugs used in conjunction with durable medical 
     equipment.
       ``(E) Phased-in implementation.--The application of the 
     quality standards described in subparagraph (A) shall be 
     phased-in over a period that does not exceed 3 years.''.

     SEC. 432. APPLICATION OF COINSURANCE AND DEDUCTIBLE FOR 
                   CLINICAL DIAGNOSTIC LABORATORY TESTS.

       (a) Coinsurance.--
       (1) In general.--Section 1833(a) (42 U.S.C. 1395l(a)) is 
     amended--
       (A) in paragraph (1)(D)(i), by striking ``(or 100 percent, 
     in the case of such tests for which payment is made on an 
     assignment-related basis)''; and
       (B) in paragraph (2)(D)(i), by striking ``(or 100 percent, 
     in the case of such tests for which payment is made on an 
     assignment-related basis or to a provider having an agreement 
     under section 1866)''.
       (2) Conforming amendment.--The third sentence of section 
     1866(a)(2)(A) of the Social Security Act (42 U.S.C. 
     1395cc(a)(2)(A) is amended by striking ``and with respect to 
     clinical diagnostic laboratory tests for which payment is 
     made under part B''.
       (b) Deductible.--Section 1833(b) of the Social Security Act 
     (42 U.S.C. 1395l(b)) is amended--
       (1) by striking paragraph (3); and
       (2) by redesignating paragraphs (4), (5), and (6) as 
     paragraphs (3), (4), and (5), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to tests furnished on or after January 1, 2004.

     SEC. 433. BASING MEDICARE PAYMENTS FOR COVERED OUTPATIENT 
                   DRUGS ON MARKET PRICES.

       (a) Medicare Market Based Payment Amount.--Section 1842(o) 
     (42 U.S.C. 1395u(o)) is amended--
       (1) in paragraph (1), by striking ``equal to 95 percent of 
     the average wholesale price.'' and inserting ``equal to--
       ``(A) in the case of a drug or biological furnished prior 
     to January 1, 2004, 95 percent of the average wholesale 
     price; and
       ``(B) in the case of a drug or biological furnished on or 
     after January 1, 2004, the payment amount specified in--
       ``(i) in the case of such a drug or biological that is 
     first available for payment under this part on or before 
     April 1, 2003, paragraph (4); and
       ``(ii) in the case of such a drug or biological that is 
     first available for payment under this part after such date, 
     paragraph (5).''; and
       (2) by adding at the end the following new paragraphs:
       ``(4)(A) Subject to subparagraph (C), the payment amount 
     specified in this paragraph for a year for a drug or 
     biological is an amount equal to the lesser of--
       ``(i) the average wholesale price for the drug or 
     biological; or
       ``(ii) the amount determined under subparagraph (B)
       ``(B)(i) Subject to clause (ii), the amount determined 
     under this subparagraph is an amount equal to--
       ``(I) in the case of a drug or biological furnished in 
     2004, 85 percent of the average wholesale price for the drug 
     or biological (determined as of April 1, 2003); and
       ``(II) in the case of a drug or biological furnished in 
     2005 or a subsequent year, the amount determined under this 
     subparagraph for the previous year increased by the 
     percentage increase in the consumer price index for medical 
     care for the 12-month period ending with June of the previous 
     year.
       ``(ii) In the case of a vaccine described in subparagraph 
     (A) or (B) of section 1861(s)(10), the amount determined 
     under this subparagraph is an amount equal to the average 
     wholesale price for the drug or biological.
       ``(C)(i) The Secretary shall establish a process under 
     which the Secretary determines, for such drugs or biologicals 
     as the Secretary determines appropriate, whether the widely 
     available market price to physicians or suppliers for the 
     drug or biological furnished in a year is different from the 
     payment amount established under subparagraph (B) for the 
     year. Such determination shall be based on the information 
     described in clause (ii) as the Secretary determines 
     appropriate.
       ``(ii) The information described in this clause is the 
     following information:
       ``(I) Any report on drug or biological market prices by the 
     Inspector General of the Department of Health and Human 
     Services or the Comptroller General of the United States that 
     is made available after December 31, 1999.
       ``(II) A review of drug or biological market prices by the 
     Secretary, which may include information on such market 
     prices from insurers, private health plans, manufacturers, 
     wholesalers, distributors, physician supply houses, specialty 
     pharmacies, group purchasing arrangements, physicians, 
     suppliers, or any other source the Secretary determines 
     appropriate.
       ``(III) Data and information submitted by the manufacturer 
     of the drug or biological or by another entity.
       ``(IV) Other data and information as determined appropriate 
     by the Secretary.
       ``(iii) If the Secretary makes a determination under clause 
     (i) with respect to the widely available market price for a 
     drug or biological for a year, the following provisions shall 
     apply:
       ``(I) Subject to clause (iv), the amount determined under 
     this subparagraph shall be substituted for the amount 
     determined under subparagraph (B) for purposes of applying 
     subparagraph (A)(ii)(I) for the year and all subsequent 
     years.
       ``(II) The Secretary may make subsequent determinations 
     under clause (i) with respect to the widely available market 
     price for the drug or biological.
       ``(III) If the Secretary does not make a subsequent 
     determination under clause (i) with respect to the widely 
     available market price for the drug or biological for a year, 
     the amount determined under this subparagraph shall be an 
     amount equal to the amount determined under this subparagraph 
     for the previous year increased by the percentage increase 
     described in subparagraph (B)(i)(II) for the year involved.
       ``(iv) If the first determination made under clause (i) 
     with respect to the widely available market price for a drug 
     or biological would result in a payment amount in a year that 
     is more than 15 percent less than the amount determined under 
     subparagraph (B) for the drug or biological for the previous 
     year (or, for 2004, the payment amount determined under 
     paragraph (1)(A), determined as of April 1, 2003), the 
     Secretary shall provide for a transition to the amount 
     determined under clause (i) so that the payment amount is 
     reduced in annual increments equal to 15 percent of the 
     payment amount in such previous year until the payment amount 
     is equal to the amount determined under clause (i), as 
     increased each year by the percentage increase described in 
     subparagraph (B)(i)(II) for the year. The preceding sentence 
     shall not apply to a drug or biological where a generic 
     version of the drug or biological first enters the market on 
     or after January 1, 2004 (even if the generic version of the 
     drug or biological is not marketed under the chemical name of 
     such drug or biological).
       ``(5) In the case of a drug or biological that is first 
     available for payment under this part after April 1, 2003, 
     the following rules shall apply:

[[Page S8067]]

       ``(A) As a condition of obtaining a code to report such new 
     drug or biological and to receive payment under this part, a 
     manufacturer shall provide the Secretary (in a time, manner, 
     and form approved by the Secretary) with data and information 
     on prices at which the manufacturer estimates physicians and 
     suppliers will be able to routinely obtain the drug or 
     biological in the market during the first year that the drug 
     or biological is available for payment under this part and 
     such additional information that the manufacturer determines 
     appropriate.
       ``(B) During the year that the drug or biological is first 
     available for payment under this part, the manufacturer of 
     the drug or biological shall provide the Secretary (in a 
     time, manner, and form approved by the Secretary) with 
     updated information on the actual market prices paid by such 
     physicians or suppliers for the drug or biological in the 
     year.
       ``(C) The amount specified in this paragraph for a drug or 
     biological for the year described in subparagraph (B) is 
     equal to an amount determined by the Secretary based on the 
     information provided under subparagraph (A) and other 
     information that the Secretary determines appropriate.
       ``(D) The amount specified in this paragraph for a drug or 
     biological for the year after the year described in 
     subparagraph (B) is equal to an amount determined by the 
     Secretary based on the information provided under 
     subparagraph (B) and other information that the Secretary 
     determines appropriate.
       ``(E) The amount specified in this paragraph for a drug or 
     biological for the year beginning after the year described in 
     subparagraph (D) and each subsequent year is equal to the 
     lesser of--
       ``(i) the average wholesale price for the drug or 
     biological; or
       ``(ii) the amount determined--
       ``(I) by the Secretary under paragraph (4)(C)(i) with 
     respect to the widely available market price for the drug or 
     biological for the year, if such paragraph was applied by 
     substituting `the payment determined under paragraph 
     (5)(E)(ii)(II) for the year' for `established under 
     subparagraph (B) for the year'; and
       ``(II) if no determination described in subclause (I) is 
     made for the drug or biological for the year, under this 
     subparagraph with respect to the drug or biological for the 
     previous year increased by the percentage increase described 
     in paragraph (4)(B)(i)(II) for the year involved.''.
       (b) Adjustments to Payment Amounts for Administration of 
     Drugs and Biologicals.--
       (1) Adjustment in physician practice expense relative value 
     units.--Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is 
     amended--
       (A) in subparagraph (B)--
       (i) in clause (ii)(II), by striking ``The adjustments'' and 
     inserting ``Subject to clause (iv), the adjustments''; and
       (ii) by adding at the end the following new clause:
       ``(iv) Exemption from budget neutrality in 2004.--Any 
     additional expenditures under this part that are attributable 
     to subparagraph (H) shall not be taken into account in 
     applying clause (ii)(II) for 2004.''; and
       (B) by adding at the end the following new subparagraph:
       ``(H) Adjustments in practice expense relative value units 
     for drug administration services for 2004.--In establishing 
     the physician fee schedule under subsection (b) with respect 
     to payments for services furnished in 2004, the Secretary 
     shall, in determining practice expense relative value units 
     under this subsection, utilize a survey submitted to the 
     Secretary as of January 1, 2003, by a physician specialty 
     organization pursuant to section 212 of the Medicare, 
     Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 if 
     the survey--
       ``(i) covers practice expenses for oncology administration 
     services; and
       ``(ii) meets criteria established by the Secretary for 
     acceptance of such surveys.''.
       (2) Payment for multiple chemotherapy agents furnished on a 
     single day through the push technique.--
       (A) Review of policy.--The Secretary shall review the 
     policy, as in effect on the date of enactment of this Act, 
     with respect to payment under section 1848 of the Social 
     Security Act (42 U.S.C. 1395w-4) for the administration of 
     more than 1 anticancer chemotherapeutic agent to an 
     individual on a single day through the push technique.
       (B) Modification of policy.--After conducting the review 
     under subparagraph (A), the Secretary shall modify such 
     payment policy if the Secretary determines such modification 
     to be appropriate.
       (C) Exemption from budget neutrality under physician fee 
     schedule.--If the Secretary modifies such payment policy 
     pursuant to subparagraph (B), any increased expenditures 
     under title XVIII of the Social Security Act resulting from 
     such modification shall be treated as additional expenditures 
     attributable to subparagraph (H) of section 1848(c)(2) of the 
     Social Security Act (42 U.S.C. 1395w-4(c)(2)), as added by 
     paragraph (1)(B), for purposes of applying the exemption to 
     budget neutrality under subparagraph (B)(iv) of such section, 
     as added by paragraph (1)(A).
       (3) Treatment of other services currently in the 
     nonphysician work pool.--The Secretary shall make adjustments 
     to the nonphysician work pool methodology (as such term is 
     used in the final rule promulgated by the Secretary in the 
     Federal Register on December 31, 2002 (67 Fed. Reg. 251)), 
     for the determination of practice expense relative value 
     units under the physician fee schedule under section 
     1848(c)(2)(C)(ii) of the Social Security Act (42 U.S.C. 
     1395w-4(c)(2)(C)(ii)), so that the practice expense relative 
     value units for services determined under such methodology 
     are not disproportionately reduced relative to the practice 
     expense relative value units of services not determined under 
     such methodology, as a result of the amendments to such Act 
     made by paragraph (1).
       (4) Administration of blood clotting factors.--Section 
     1842(o) (42 U.S.C. 1395u(o)), as amended by subsection 
     (a)(2), is amended by adding at the end the following new 
     paragraph:
       ``(6)(A) Subject to subparagraph (B), in the case of 
     clotting factors furnished on or after January 1, 2004, the 
     Secretary shall, after reviewing the January 2003 report to 
     Congress by the Comptroller General of the United States 
     entitled `Payment for Blood Clotting Factor Exceeds Providers 
     Acquisition Cost' (GAO-03-184), provide for a separate 
     payment for the administration of such blood clotting factors 
     in an amount that the Secretary determines to be appropriate.
       ``(B) In determining the separate payment amount under 
     subparagraph (A) for blood clotting factors furnished in 
     2004, the Secretary shall ensure that the total amount of 
     payments under this part (as estimated by the Secretary) for 
     such factors under paragraphs (4) and (5) and such separate 
     payments for such factors does not exceed the total amount of 
     payments that would have been made for such factors under 
     this part (as estimated by the Secretary) if the amendments 
     made by section 433 of the Prescription Drug and Medicare 
     Improvement Act of 2003 had not been enacted.
       ``(C) The separate payment amount under this subparagraph 
     for blood clotting factors furnished in 2005 or a subsequent 
     year shall be equal to the separate payment amount determined 
     under this paragraph for the previous year increased by the 
     percentage increase described in paragraph (4)(B)(i)(II) for 
     the year involved.''.
       (5) Increase in composite rate for end stage renal disease 
     facilities.--Section 1881(b) (42 U.S.C. 1395rr(b) is 
     amended--
       (A) in paragraph (7), by adding at the end the following 
     new sentence: ``In the case of dialysis services furnished in 
     2004 or a subsequent year, the composite rate for such 
     services shall be determined under paragraph (12).''; and
       (B) by adding at the end the following new paragraph:
       ``(12)(A) In the case of dialysis services furnished during 
     2004, the composite rate for such services shall be the 
     composite rate that would otherwise apply under paragraph (7) 
     for the year increased by an amount to ensure (as estimated 
     by the Secretary) that--
       ``(i) the sum of the total amount of--
       ``(I) the composite rate payments for such services for the 
     year, as increased under this paragraph; and
       ``(II) the payments for drugs and biologicals (other than 
     erythropoetin) furnished in connection with the furnishing of 
     renal dialysis services and separately billed by renal 
     dialysis facilities under paragraphs (4) and (5) of section 
     1842(o) for the year; is equal to
       ``(ii) the sum of the total amount of the composite rate 
     payments under paragraph (7) for the year and the payments 
     for the separately billed drugs and biologicals described in 
     clause (i)(II) that would have been made if the amendments 
     made by section 433 of the Prescription Drug and Medicare 
     Improvement Act of 2003 had not been enacted.
       ``(B) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2005, the composite rate for such 
     services shall be an amount equal to the composite rate 
     established under subparagraph (A), increased by 0.05 percent 
     and further increased pursuant to section 423 of the 
     Prescription Drug and Medicare Improvement Act of 2003.
       ``(C) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2006, the composite rate for such 
     services shall be an amount equal to the composite rate 
     established under subparagraph (B), increased by 0.05 
     percent.
       ``(D) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2007 or a subsequent year, the 
     composite rate for such services shall be an amount equal to 
     the composite rate established under this paragraph for the 
     previous year (determined as if such section 423 had not been 
     enacted), increased by 0.05 percent.
       ``(E) If the Secretary implements a reduction in the 
     payment amount under paragraph (4)(C) or (5) for a drug or 
     biological described in subparagraph (A)(i)(II) for a year 
     after 2004, the Secretary shall, as estimated by the 
     Secretary--
       ``(i) increase the composite rate for dialysis services 
     furnished in such year in the same manner that the composite 
     rate for such services for 2004 was increased under 
     subparagraph (A); and
       ``(ii) increase the percentage increase under subparagraph 
     (C) or (D) (as applicable) for years after the year described 
     in clause (i) to ensure that such increased percentage would 
     result in expenditures equal to the sum of the total 
     composite rate payments for such services for such years and 
     the total payments for drugs and biologicals described in 
     subparagraph (A)(i)(II) is equal to the sum of the total 
     amount of the composite rate

[[Page S8068]]

     payments under this paragraph for such years and the payments 
     for the drugs and biologicals described in subparagraph 
     (A)(i)(II) that would have been made if the reduction in 
     payment amount described in subparagraph had not been made.
       ``(F) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, of 
     determinations of payment amounts, methods, or adjustments 
     under this paragraph.''.
       (6) Home infusion drugs.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraph (4), 
     is amended by adding at the end the following new paragraph:
       ``(7)(A) Subject to subparagraph (B), in the case of 
     infusion drugs and biologicals furnished through an item of 
     durable medical equipment covered under section 1861(n) on or 
     after January 1, 2004, the Secretary may make separate 
     payments for furnishing such drugs and biologicals in an 
     amount determined by the Secretary if the Secretary 
     determines such separate payment to be appropriate.
       ``(B) In determining the amount of any separate payment 
     under subparagraph (A) for a year, the Secretary shall ensure 
     that the total amount of payments under this part for such 
     infusion drugs and biologicals for the year and such separate 
     payments for the year does not exceed the total amount of 
     payments that would have been made under this part for the 
     year for such infusion drugs and biologicals if section 433 
     of the Prescription Drug and Medicare Improvement Act of 2003 
     had not been enacted.''.
       (7) Inhalation drugs.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraphs (4) 
     and (6), is amended by adding at the end the following new 
     paragraph:
       ``(8)(A) Subject to subparagraph (B), in the case of 
     inhalation drugs and biologicals furnished through durable 
     medical equipment covered under section 1861(n) on or after 
     January 1, 2004, the Secretary may increase payments for such 
     equipment under section 1834(a) and may make separate 
     payments for furnishing such drugs and biologicals if the 
     Secretary determines such increased or separate payments are 
     necessary to appropriately furnish such equipment and drugs 
     and biologicals to beneficiaries.
       ``(B) The total amount of any increased payments and 
     separate payments under subparagraph (A) for a year may not 
     exceed an amount equal to 10 percent of the amount (as 
     estimated by the Secretary) by which--
       ``(i) the total amount of payments that would have been 
     made for such drugs and biologicals for the year if section 
     433 of the Prescription Drug and Medicare Improvement Act of 
     2003 had not been enacted; exceeds
       ``(ii) the total amount of payments for such drugs and 
     biologicals under paragraphs (4) and (5).''.
       (8) Pharmacy dispensing fee for certain drugs and 
     biologicals.--Section 1842(o)(2) (42 U.S.C. 1395u(o)(2)) is 
     amended to read as follows:
       ``(2) If payment for a drug or biological is made to a 
     licensed pharmacy approved to dispense drugs or biologicals 
     under this part, the Secretary--
       ``(A) in the case of an immunosuppressive drug described in 
     subparagraph (J) of section 1861(s)(2) and an oral drug 
     described in subparagraph (Q) or (T) of such section, shall 
     pay a dispensing fee determined appropriate by the Secretary 
     (less the applicable deductible and coinsurance amounts) to 
     the pharmacy; and
       ``(B) in the case of a drug or biological not described in 
     subparagraph (A), may pay a dispensing fee determined 
     appropriate by the Secretary (less the applicable deductible 
     and coinsurance amounts) to the pharmacy.''.
       (9) Payment for Chemotherapy Drugs Purchased but not 
     Administered by Physicians.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraphs 
     (4), (6) and (7), is amended by adding at the end the 
     following new paragraph:
       ``(9)(A) Subject to subparagraph (B), the Secretary may 
     increase (in an amount determined appropriate) the amount of 
     payments to physicians for anticancer chemotherapeutic drugs 
     or biologicals that would otherwise be made under this part 
     in order to compensate such physicians for anticancer 
     chemotherapeutic drugs or biologicals that are purchased by 
     physicians with a reasonable intent to administer to an 
     individual enrolled under this part but which cannot be 
     administered to such individual despite the reasonable 
     efforts of the physician.
       ``(B) The total amount of increased payments made under 
     subparagraph (A) in a year (as estimated by the Secretary) 
     may not exceed an amount equal to 1 percent of the total 
     amount of payments made under paragraphs (4) and (5) for such 
     anticancer chemotherapeutic drugs or biologicals furnished by 
     physicians in such year (as estimated by the Secretary).''.
       (c) Linkage of Revised Drug Payments and Increases for Drug 
     Administration.--The Secretary shall not implement the 
     revisions in payment amounts for a category of drug or 
     biological as a result of the amendments made by subsection 
     (a) unless the Secretary concurrently implements the 
     adjustments to payment amounts for administration of such 
     category of drug or biological for which the Secretary is 
     required to make an adjustment, as specified in the 
     amendments made by, and provisions of, subsection (b).
       (d) Prohibition of Administrative and Judicial Review.--
       (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
     amended by subsection (a)(2) and paragraphs (4), (6), (7), 
     and (9) of subsection (b), is amended by adding at the end 
     the following new paragraph:
       ``(10) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, of 
     determinations of payment amounts, methods, or adjustments 
     under paragraph (2) or paragraphs (4) through (9).''.
       (2) Physician fee schedule.--Section 1848(i)(1) (42 U.S.C. 
     1395w-4(i)(1)) is amended--
       (A) in subparagraph (D), by striking ``and'' at the end;
       (B) in subparagraph (E), by striking the period at the end 
     and inserting ``, and''; and
       (C) by adding at the end the following new subparagraph:
       ``(F) adjustments in practice expense relative value units 
     under subsection (c)(2)(H).''.
       (3) Multiple chemotherapy agents and other services 
     currently on the non-physician work pool.--There shall be no 
     administrative or judicial review under section 1869, section 
     1878, or otherwise, of determinations of payment amounts, 
     methods, or adjustments under paragraphs (2) and (3) of 
     subsection (b).
       (e) Studies and Reports.--
       (1) GAO study and report on beneficiary access to drugs and 
     biologicals.--
       (A) Study.--The Comptroller General of the United States 
     shall conduct a study that examines the impact the provisions 
     of, and the amendments made by, this section have on access 
     by medicare beneficiaries to drugs and biologicals covered 
     under the medicare program.
       (B) Report.--Not later than January 1, 2006, the 
     Comptroller General shall submit a report to Congress on the 
     study conducted under subparagraph (A) together with such 
     recommendations as the Comptroller General determines to be 
     appropriate.
       (2) Study and report by the hhs inspector general on market 
     prices of drugs and biologicals.--
       (A) Study.--The Inspector General of the Department of 
     Health and Human Services shall conduct 1 or more studies 
     that--
       (i) examine the market prices that drugs and biologicals 
     covered under the medicare program are widely available to 
     physicians and suppliers; and
       (ii) compare such widely available market prices to the 
     payment amount for such drugs and biologicals under section 
     1842(o) of the Social Security Act (42 U.S.C. 1395u(o).
       (B) Requirement.--In conducting the study under 
     subparagraph (A), the Inspector General shall focus on those 
     drugs and biologicals that represent the largest portions of 
     expenditures under the medicare program for drugs and 
     biologicals.
       (C) Report.--The Inspector General shall prepare a report 
     on any study conducted under subparagraph (A).

     SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION.

       The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) 
     is amended by striking ``and $100 for 1991 and subsequent 
     years'' and inserting the following: ``, $100 for 1991 
     through 2005, $125 for 2006, and for 2007 and thereafter, the 
     amount in effect for the previous year, increase by the 
     percentage increase in the consumer price index for all urban 
     consumers (U.S. city average) for the 12-month period ending 
     with June of the previous year, rounded to the nearest 
     dollar''.

     SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS.

       (a) In General.--Section 1842(b)(6)(A)(ii) (42 U.S.C. 
     1395u(b)(6)(A)(ii)) is amended to read as follows: ``(ii) 
     where the service was provided under a contractual 
     arrangement between such physician or other person and an 
     entity (as defined by the Secretary), to the entity if under 
     such arrangement such entity submits the bill for such 
     service and such arrangement meets such program integrity and 
     other safeguards as the Secretary may determine to be 
     appropriate,''.
       (b) Conforming Amendment.--The second sentence of section 
     1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by striking 
     ``except to an employer or facility as described in clause 
     (A)'' and inserting ``except to an employer or entity as 
     described in subparagraph (A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made on or after the date of 
     enactment of this Act.

     SEC. 436. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN 
                   PATHOLOGY SERVICES UNDER MEDICARE.

       Section 542(c) of BIPA (114 Stat. 2763A-551) is amended by 
     inserting ``, and for services furnished during 2005'' before 
     the period at the end.

     SEC. 437. ADEQUATE REIMBURSEMENT FOR OUTPATIENT PHARMACY 
                   THERAPY UNDER THE HOSPITAL OUTPATIENT PPS.

       (a) Special Rules for Drugs and Biologicals.--Section 
     1833(t) (42 U.S.C. 1395(t)) is amended--
       (1) by redesignating paragraph (13) as paragraph (14); and
       (2) by inserting after paragraph (12) the following new 
     paragraph:
       ``(13) Special rules for certain drugs and biologicals.--
       ``(A) Before 2007.--

[[Page S8069]]

       ``(i) In general.--Notwithstanding paragraph (6), but 
     subject to clause (ii), with respect to a separately payable 
     drug or biological described in subparagraph (D) furnished on 
     or after January 1, 2005, and before January 1, 2007, 
     hospitals shall be reimbursed as follows:

       ``(I) Drugs and biologicals furnished as part of a current 
     opd service.--The amount of payment for a drug or biological 
     described in subparagraph (D) provided as a part of a service 
     that was a covered OPD service on May 1, 2003, shall be the 
     applicable percentage (as defined in subparagraph (C)) of the 
     average wholesale price for the drug or biological that would 
     have been determined under section 1842(o) on such date.
       ``(II) Drugs and biologicals furnished as part of other opd 
     services.--The amount of payment for a drug or biological 
     described in subparagraph (D) provided as part of any other 
     covered OPD service shall be the applicable percentage (as 
     defined in subparagraph (C)) of the average wholesale price 
     that would have been determined under section 1842(o) on May 
     1, 2003, if payment for such a drug or biological could have 
     been made under this part on that date.

       ``(ii) Update for 2006.--For 2006, the amounts determined 
     under clauses (i) and (ii) shall be the amount established 
     for 2005 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.
       ``(B) After 2007.--
       ``(i) Ongoing study and reports on adequate 
     reimbursements.--

       ``(I) Study.--The Secretary shall contract with an eligible 
     organization (as defined in subclause (IV)) to conduct a 
     study to determine the hospital acquisition and handling 
     costs for each individual drug or biological described in 
     subparagraph (D).
       ``(II) Study requirements.--The study conducted under 
     subclause (I) shall--

       ``(aa) be accurate to within 3 percent of true mean 
     hospital acquisition and handling costs for each drug and 
     biological at the 95 percent confidence level;
       ``(bb) begin not later than January 1, 2005; and
       ``(cc) be updated annually for changes in hospital costs 
     and the addition of newly marketed products.

       ``(III) Reports.--Not later than January 1 of each year 
     (beginning with 2006), the Secretary shall submit to Congress 
     a report on the study conducted under clause (i) together 
     with recommendations for such legislative or administrative 
     action as the Secretary determines to be appropriate.
       ``(IV) Eligible organization defined.--In this clause, the 
     term `eligible organization' means a private, nonprofit 
     organization within the meaning of section 501(c) of the 
     Internal Revenue Code.

       ``(ii) Establishment of payment methodology.--
     Notwithstanding paragraph (6), the Secretary, in establishing 
     a payment methodology on or after the date of enactment of 
     the Prescription Drug and Medicare Improvement Act of 2003, 
     shall take into consideration the findings of the study 
     conducted under clause (i)(I) in determining payment amounts 
     for each drug and biological provided as part of a covered 
     OPD service furnished on or after January 1, 2007.
       ``(C) Applicable percentage defined.--In this paragraph, 
     the term `applicable percentage' means--
       ``(i) with respect to a biological product (approved under 
     a biologics license application under section 351 of the 
     Public Health Service Act), a single source drug (as defined 
     in section 1927(k)(7)(A)(iv)), or an orphan product 
     designated under section 526 of the Food, Drug, and Cosmetic 
     Act to which the prospective payment system established under 
     this subsection did not apply under the final rule for 2003 
     payments under such system, 94 percent;
       ``(ii) with respect to an innovator multiple source drug 
     (as defined in section 1927(k)(7)(A)(ii)), 91 percent; and
       ``(iii) with respect to a noninnovator multiple source drug 
     (as defined in as defined in section 1927(k)(7)(A)(iii)), 71 
     percent.
       ``(D) Drugs and biologicals described.--A drug or 
     biological described in this paragraph is any drug or 
     biological--
       ``(i) for which the amount of payment was determined under 
     paragraph (6) prior to January 1, 2005;
       ``(ii) which is assigned to a drug specific ambulatory 
     payment classification on or after the date of enactment of 
     the Prescription Drug and Medicare Improvement Act of 2003; 
     and
       ``(iii) that would have been reimbursed under paragraph (6) 
     but for the application of this paragraph.''.
       (b) Exceptions to budget neutrality requirement.--Section 
     1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B)) is amended by adding 
     at the end the following: ``In determining the budget 
     neutrality adjustment required by the preceding sentence for 
     fiscal years 2005 and 2006, the Secretary shall not take into 
     account any expenditures that would not have been made but 
     for the application of paragraph (13).''.

     SEC. 438. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVALENCE 
                   STANDARD.

       Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Limitation of application of functional equivalence 
     standard.--
       ``(i) In general.--The Secretary may not publish 
     regulations that apply a functional equivalence standard to a 
     drug or biological under this paragraph.
       ``(ii) Application.--Paragraph (1) shall apply to the 
     application of a functional equivalence standard to a drug or 
     biological on or after the date of enactment of the 
     Prescription Drug and Medicare Improvement Act of 2003 
     unless--

       ``(I) such application was being made to such drug or 
     biological prior to such date of enactment; and
       ``(II) the Secretary applies such standard to such drug or 
     biological only for the purpose of determining eligibility of 
     such drug or biological for additional payments under this 
     paragraph and not for the purpose of any other payments under 
     this title.

       ``(iii) Rule of construction.--Nothing in this subparagraph 
     shall be construed to effect the Secretary's authority to 
     deem a particular drug to be identical to another drug if the 
     2 products are pharmaceutically equivalent and bioequvalent, 
     as determined by the Commissioner of Food and Drugs.

     SEC. 439. MEDICARE COVERAGE OF ROUTINE COSTS ASSOCIATED WITH 
                   CERTAIN CLINICAL TRIALS.

       (a) In General.--With respect to the coverage of routine 
     costs of care for beneficiaries participating in a qualifying 
     clinical trial, as set forth on the date of the enactment of 
     this Act in National Coverage Determination 30-1 of the 
     Medicare Coverage Issues Manual, the Secretary shall deem 
     clinical trials conducted in accordance with an 
     investigational device exemption approved under section 
     520(g) of the Federal Food, Drug, and Cosmetic Act (42 U.S.C. 
     360j(g)) to be automatically qualified for such coverage.
       (b) Rule of Construction.--Nothing in this section shall be 
     construed as authorizing or requiring the Secretary to modify 
     the regulations set forth on the date of the enactment of 
     this Act at subpart B of part 405 of title 42, Code of 
     Federal Regulations, or subpart A of part 411 of such title, 
     relating to coverage of, and payment for, a medical device 
     that is the subject of an investigational device exemption by 
     the Food and Drug Administration (except as may be necessary 
     to implement subsection (a)).
       (c) Effective Date.--This section shall apply to clinical 
     trials begun on or after January 1, 2005.

     SEC. 440. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR 
                   CERTAIN MILITARY RETIREES; SPECIAL ENROLLMENT 
                   PERIOD.

       (a) Waiver of Penalty.--
       (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
     amended by adding at the end the following new sentence: ``No 
     increase in the premium shall be effected for a month in the 
     case of an individual who is 65 years of age or older, who 
     enrolls under this part during 2002, 2003, 2004, or 2005 and 
     who demonstrates to the Secretary before December 31, 2005, 
     that the individual is a covered beneficiary (as defined in 
     section 1072(5) of title 10, United States Code). The 
     Secretary shall consult with the Secretary of Defense in 
     identifying individuals described in the previous 
     sentence.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to premiums for months beginning with January 
     2005. The Secretary shall establish a method for providing 
     rebates of premium penalties paid for months on or after 
     January 2005 for which a penalty does not apply under such 
     amendment but for which a penalty was previously collected.
       (b) Medicare Part B Special Enrollment Period.--
       (1) In general.--In the case of any individual who, as of 
     the date of enactment of this Act, is 65 years of age or 
     older, is eligible to enroll but is not enrolled under part B 
     of title XVIII of the Social Security Act, and is a covered 
     beneficiary (as defined in section 1072(5) of title 10, 
     United States Code), the Secretary shall provide for a 
     special enrollment period during which the individual may 
     enroll under such part. Such period shall begin 1 year after 
     the date of the enactment of this Act and shall end on 
     December 31, 2005.
       (2) Coverage period.--In the case of an individual who 
     enrolls during the special enrollment period provided under 
     paragraph (1), the coverage period under part B of title 
     XVIII of the Social Security Act shall begin on the first day 
     of the month following the month in which the individual 
     enrolls.

     SEC. 441. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES 
                   UNDER MEDICARE.

       (a) Definitions.--In this section:
       (1) Chiropractic services.--The term ``chiropractic 
     services'' has the meaning given that term by the Secretary 
     for purposes of the demonstration projects, but shall 
     include, at a minimum--
       (A) care for neuromusculoskeletal conditions typical among 
     eligible beneficiaries; and
       (B) diagnostic and other services that a chiropractor is 
     legally authorized to perform by the State or jurisdiction in 
     which such treatment is provided.
       (2) Demonstration project.--The term ``demonstration 
     project'' means a demonstration project established by the 
     Secretary under subsection (b)(1).
       (3) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means an individual who is enrolled under part 
     B of the medicare program.
       (4) Medicare program.--The term ``medicare program'' means 
     the health benefits program under title XVIII of the Social 
     Security Act (42 U.S.C. 1395 et seq.).

[[Page S8070]]

       (b) Demonstration of Coverage of Chiropractic Services 
     Under Medicare.--
       (1) Establishment.--The Secretary shall establish 
     demonstration projects in accordance with the provisions of 
     this section for the purpose of evaluating the feasibility 
     and advisability of covering chiropractic services under the 
     medicare program (in addition to the coverage provided for 
     services consisting of treatment by means of manual 
     manipulation of the spine to correct a subluxation described 
     in section 1861(r)(5) of the Social Security Act (42 U.S.C. 
     1395x(r)(5))).
       (2) No physician approval required.--In establishing the 
     demonstration projects, the Secretary shall ensure that an 
     eligible beneficiary who participates in a demonstration 
     project, including an eligible beneficiary who is enrolled 
     for coverage under a Medicare+Choice plan (or, on and after 
     January 1, 2006, under a MedicareAdvantage plan), is not 
     required to receive approval from a physician or other health 
     care provider in order to receive a chiropractic service 
     under a demonstration project.
       (3) Consultation.--In establishing the demonstration 
     projects, the Secretary shall consult with chiropractors, 
     organizations representing chiropractors, eligible 
     beneficiaries, and organizations representing eligible 
     beneficiaries.
       (4) Participation.--Any eligible beneficiary may 
     participate in the demonstration projects on a voluntary 
     basis.
       (c) Conduct of Demonstration Projects.--
       (1) Demonstration sites.--
       (A) Selection of demonstration sites.--The Secretary shall 
     conduct demonstration projects at 6 demonstration sites.
       (B) Geographic diversity.--Of the sites described in 
     subparagraph (A)--
       (i) 3 shall be in rural areas; and
       (ii) 3 shall be in urban areas.
       (C) Sites located in hpsas.--At least 1 site described in 
     clause (i) of subparagraph (B) and at least 1 site described 
     in clause (ii) of such subparagraph shall be located in an 
     area that is designated under section 332(a)(1)(A) of the 
     Public Health Service Act (42 U.S.C. 254e(a)(1)(A)) as a 
     health professional shortage area.
       (2) Implementation; duration.--
       (A) Implementation.--The Secretary shall not implement the 
     demonstration projects before October 1, 2004.
       (B) Duration.--The Secretary shall complete the 
     demonstration projects by the date that is 3 years after the 
     date on which the first demonstration project is implemented.
       (d) Evaluation and Report.--
       (1) Evaluation.--The Secretary shall conduct an evaluation 
     of the demonstration projects--
       (A) to determine whether eligible beneficiaries who use 
     chiropractic services use a lesser overall amount of items 
     and services for which payment is made under the medicare 
     program than eligible beneficiaries who do not use such 
     services;
       (B) to determine the cost of providing payment for 
     chiropractic services under the medicare program;
       (C) to determine the satisfaction of eligible beneficiaries 
     participating in the demonstration projects and the quality 
     of care received by such beneficiaries; and
       (D) to evaluate such other matters as the Secretary 
     determines is appropriate.
       (2) Report.--Not later than the date that is 1 year after 
     the date on which the demonstration projects conclude, the 
     Secretary shall submit to Congress a report on the evaluation 
     conducted under paragraph (1) together with such 
     recommendations for legislation or administrative action as 
     the Secretary determines is appropriate.
       (e) Waiver of Medicare Requirements.--The Secretary shall 
     waive compliance with such requirements of the medicare 
     program to the extent and for the period the Secretary finds 
     necessary to conduct the demonstration projects.
       (f) Funding.--
       (1) Demonstration projects.--
       (A) In general.--Subject to subparagraph (B) and paragraph 
     (2), the Secretary shall provide for the transfer from the 
     Federal Supplementary Insurance Trust Fund under section 1841 
     of the Social Security Act (42 U.S.C. 1395t) of such funds as 
     are necessary for the costs of carrying out the demonstration 
     projects under this section.
       (B) Limitation.--In conducting the demonstration projects 
     under this section, the Secretary shall ensure that the 
     aggregate payments made by the Secretary under the medicare 
     program do not exceed the amount which the Secretary would 
     have paid under the medicare program if the demonstration 
     projects under this section were not implemented.
       (2) Evaluation and report.--There are authorized to be 
     appropriated such sums as are necessary for the purpose of 
     developing and submitting the report to Congress under 
     subsection (d).

     SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRATION 
                   PROGRAMS.

       Title XVIII (42 U.S.C. 1395 et seq.) is amended by 
     inserting after section 1866B the following new section:


              ``health care quality demonstration program

       ``Sec. 1866C. (a) Definitions.--In this section:
       ``(1) Beneficiary.--The term `beneficiary' means a 
     beneficiary who is enrolled in the original medicare fee-for-
     service program under parts A and B or a beneficiary in a 
     staff model or dedicated group model health maintenance 
     organization under the Medicare+Choice program (or, on and 
     after January 1, 2006, under the MedicareAdvantage program) 
     under part C.
       ``(2) Health care group.--
       ``(A) In general.--The term `health care group' means--
       ``(i) a group of physicians that is organized at least in 
     part for the purpose of providing physician's services under 
     this title;
       ``(ii) an integrated health care delivery system that 
     delivers care through coordinated hospitals, clinics, home 
     health agencies, ambulatory surgery centers, skilled nursing 
     facilities, rehabilitation facilities and clinics, and 
     employed, independent, or contracted physicians; or
       ``(iii) an organization representing regional coalitions of 
     groups or systems described in clause (i) or (ii).
       ``(B) Inclusion.--As the Secretary determines appropriate, 
     a health care group may include a hospital or any other 
     individual or entity furnishing items or services for which 
     payment may be made under this title that is affiliated with 
     the health care group under an arrangement structured so that 
     such hospital, individual, or entity participates in a 
     demonstration project under this section.
       ``(3) Physician.--Except as otherwise provided for by the 
     Secretary, the term `physician' means any individual who 
     furnishes services that may be paid for as physicians' 
     services under this title.
       ``(b) Demonstration Projects.--The Secretary shall 
     establish a 5-year demonstration program under which the 
     Secretary shall approve demonstration projects that examine 
     health delivery factors that encourage the delivery of 
     improved quality in patient care, including--
       ``(1) the provision of incentives to improve the safety of 
     care provided to beneficiaries;
       ``(2) the appropriate use of best practice guidelines by 
     providers and services by beneficiaries;
       ``(3) reduced scientific uncertainty in the delivery of 
     care through the examination of variations in the utilization 
     and allocation of services, and outcomes measurement and 
     research;
       ``(4) encourage shared decision making between providers 
     and patients;
       ``(5) the provision of incentives for improving the quality 
     and safety of care and achieving the efficient allocation of 
     resources;
       ``(6) the appropriate use of culturally and ethnically 
     sensitive health care delivery; and
       ``(7) the financial effects on the health care marketplace 
     of altering the incentives for care delivery and changing the 
     allocation of resources.
       ``(c) Administration by Contract.--
       ``(1) In general.--Except as otherwise provided in this 
     section, the Secretary may administer the demonstration 
     program established under this section in a manner that is 
     similar to the manner in which the demonstration program 
     established under section 1866A is administered in accordance 
     with section 1866B.
       ``(2) Alternative payment systems.--A health care group 
     that receives assistance under this section may, with respect 
     to the demonstration project to be carried out with such 
     assistance, include proposals for the use of alternative 
     payment systems for items and services provided to 
     beneficiaries by the group that are designed to--
       ``(A) encourage the delivery of high quality care while 
     accomplishing the objectives described in subsection (b); and
       ``(B) streamline documentation and reporting requirements 
     otherwise required under this title.
       ``(3) Benefits.--A health care group that receives 
     assistance under this section may, with respect to the 
     demonstration project to be carried out with such assistance, 
     include modifications to the package of benefits available 
     under the traditional fee-for-service program under parts A 
     and B or the package of benefits available through a staff 
     model or a dedicated group model health maintenance 
     organization under part C. The criteria employed under the 
     demonstration program under this section to evaluate outcomes 
     and determine best practice guidelines and incentives shall 
     not be used as a basis for the denial of medicare benefits 
     under the demonstration program to patients against their 
     wishes (or if the patient is incompetent, against the wishes 
     of the patient's surrogate) on the basis of the patient's age 
     or expected length of life or of the patient's present or 
     predicted disability, degree of medical dependency, or 
     quality of life.
       ``(d) Eligibility Criteria.--To be eligible to receive 
     assistance under this section, an entity shall--
       ``(1) be a health care group;
       ``(2) meet quality standards established by the Secretary, 
     including--
       ``(A) the implementation of continuous quality improvement 
     mechanisms that are aimed at integrating community-based 
     support services, primary care, and referral care;
       ``(B) the implementation of activities to increase the 
     delivery of effective care to beneficiaries;
       ``(C) encouraging patient participation in preference-based 
     decisions;
       ``(D) the implementation of activities to encourage the 
     coordination and integration of medical service delivery; and
       ``(E) the implementation of activities to measure and 
     document the financial impact on the health care marketplace 
     of altering

[[Page S8071]]

     the incentives of health care delivery and changing the 
     allocation of resources; and
       ``(3) meet such other requirements as the Secretary may 
     establish.
       ``(e) Waiver Authority.--The Secretary may waive such 
     requirements of titles XI and XVIII as may be necessary to 
     carry out the purposes of the demonstration program 
     established under this section.
       ``(f) Budget Neutrality.--With respect to the 5-year period 
     of the demonstration program under subsection (b), the 
     aggregate expenditures under this title for such period shall 
     not exceed the aggregate expenditures that would have been 
     expended under this title if the program established under 
     this section had not been implemented.
       ``(g) Notice Requirements.--In the case of an individual 
     that receives health care items or services under a 
     demonstration program carried out under this section, the 
     Secretary shall ensure that such individual is notified of 
     any waivers of coverage or payment rules that are applicable 
     to such individual under this title as a result of the 
     participation of the individual in such program.
       ``(h) Participation and Support by Federal Agencies.--In 
     carrying out the demonstration program under this section, 
     the Secretary may direct--
       ``(1) the Director of the National Institutes of Health to 
     expand the efforts of the Institutes to evaluate current 
     medical technologies and improve the foundation for evidence-
     based practice;
       ``(2) the Administrator of the Agency for Healthcare 
     Research and Quality to, where possible and appropriate, use 
     the program under this section as a laboratory for the study 
     of quality improvement strategies and to evaluate, monitor, 
     and disseminate information relevant to such program; and
       ``(3) the Administrator of the Centers for Medicare & 
     Medicaid Services and the Administrator of the Center for 
     Medicare Choices to support linkages of relevant medicare 
     data to registry information from participating health care 
     groups for the beneficiary populations served by the 
     participating groups, for analysis supporting the purposes of 
     the demonstration program, consistent with the applicable 
     provisions of the Health Insurance Portability and 
     Accountability Act of 1996.
       ``(i) Implementation.--The Secretary shall not implement 
     the demonstration program before October 1, 2004.''.

     SEC. 443. MEDICARE COMPLEX CLINICAL CARE MANAGEMENT PAYMENT 
                   DEMONSTRATION.

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a 
     demonstration program to make the medicare program more 
     responsive to needs of eligible beneficiaries by promoting 
     continuity of care, helping stabilize medical conditions, 
     preventing or minimizing acute exacerbations of chronic 
     conditions, and reducing adverse health outcomes, such as 
     adverse drug interactions related to polypharmacy.
       (2) Sites.--The Secretary shall designate 6 sites at which 
     to conduct the demonstration program under this section, of 
     which at least 3 shall be in an urban area and at least 1 
     shall be in a rural area. One of the sites shall be located 
     in the State of Arkansas.
       (3) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 3-year period.
       (4) Implementation.--The Secretary shall not implement the 
     demonstration program before October 1, 2004.
       (b) Participants.--Any eligible beneficiary who resides in 
     an area designated by the Secretary as a demonstration site 
     under subsection (a)(2) may participate in the demonstration 
     program under this section if such beneficiary identifies a 
     principal care physician who agrees to manage the complex 
     clinical care of the eligible beneficiary under the 
     demonstration program.
       (c) Principal Care Physician Responsibilities.--The 
     Secretary shall enter into an agreement with each principal 
     care physician who agrees to manage the complex clinical care 
     of an eligible beneficiary under subsection (b) under which 
     the principal care physician shall--
       (1) serve as the primary contact of the eligible 
     beneficiary in accessing items and services for which payment 
     may be made under the medicare program;
       (2) maintain medical information related to care provided 
     by other health care providers who provide health care items 
     and services to the eligible beneficiary, including clinical 
     reports, medication and treatments prescribed by other 
     physicians, hospital and hospital outpatient services, 
     skilled nursing home care, home health care, and medical 
     equipment services;
       (3) monitor and advocate for the continuity of care of the 
     eligible beneficiary and the use of evidence-based 
     guidelines;
       (4) promote self-care and family caregiver involvement 
     where appropriate;
       (5) have appropriate staffing arrangements to conduct 
     patient self-management and other care coordination 
     activities as specified by the Secretary;
       (6) refer the eligible beneficiary to community services 
     organizations and coordinate the services of such 
     organizations with the care provided by health care 
     providers; and
       (7) meet such other complex care management requirements as 
     the Secretary may specify.
       (d) Complex Clinical Care Management Fee.--
       (1) Payment.--Under an agreement entered into under 
     subsection (c), the Secretary shall pay to each principal 
     care physician, on behalf of each eligible beneficiary under 
     the care of that physician, the complex clinical care 
     management fee developed by the Secretary under paragraph 
     (2).
       (2) Development of fee.--The Secretary shall develop a 
     complex care management fee under this paragraph that is paid 
     on a monthly basis and which shall be payment in full for all 
     the functions performed by the principal care physician under 
     the demonstration program, including any functions performed 
     by other qualified practitioners acting on behalf of the 
     physician, appropriate staff under the supervision of the 
     physician, and any other person under a contract with the 
     physician, including any person who conducts patient self-
     management and caregiver education under subsection (c)(4).
       (e) Funding.--
       (1) In general.--The Secretary shall provide for the 
     transfer from the Federal Supplementary Insurance Trust Fund 
     established under section 1841 of the Social Security Act (42 
     U.S.C. 1395t) of such funds as are necessary for the costs of 
     carrying out the demonstration program under this section.
       (2) Budget neutrality.--In conducting the demonstration 
     program under this section, the Secretary shall ensure that 
     the aggregate payments made by the Secretary do not exceed 
     the amount which the Secretary would have paid if the 
     demonstration program under this section was not implemented.
       (f) Waiver Authority.--The Secretary may waive such 
     requirements of titles XI and XVIII of the Social Security 
     Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as may be 
     necessary for the purpose of carrying out the demonstration 
     program under this section.
       (g) Report.--Not later than 6 months after the completion 
     of the demonstration program under this section, the 
     Secretary shall submit to Congress a report on such program, 
     together with recommendations for such legislation and 
     administrative action as the Secretary determines to be 
     appropriate.
       (h) Definitions.--In this section:
       (1) Activity of daily living.--The term ``activity of daily 
     living'' means eating, toiling, transferring, bathing, 
     dressing, and continence.
       (2) Chronic condition.--The term ``chronic condition'' 
     means a biological, physical, or mental condition that is 
     likely to last a year or more, for which there is no known 
     cure, for which there is a need for ongoing medical care, and 
     which may affect an individual's ability to carry out 
     activities of daily living or instrumental activities of 
     daily living, or both.
       (3) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means any individual who--
       (A) is enrolled for benefits under part B of the medicare 
     program;
       (B) has at least 4 complex medical conditions (one of which 
     may be cognitive impairment); and
       (C) has--
       (i) an inability to self-manage their care; or
       (ii) a functional limitation defined as an impairment in 1 
     or more activity of daily living or instrumental activity of 
     daily living.
       (4) Instrumental activity of daily living.--The term 
     ``instrumental activity of daily living'' means meal 
     preparation, shopping, housekeeping, laundry, money 
     management, telephone use, and transportation use.
       (5) Medicare program.--The term ``medicare program'' means 
     the health care program under title XVIII of the Social 
     Security Act (42 U.S.C. 1395 et seq.).
       (6) Principal care physician.--The term ``principal care 
     physician'' means the physician with primary responsibility 
     for overall coordination of the care of an eligible 
     beneficiary (as specified in a written plan of care) who may 
     be a primary care physician or a specialist.

     SEC. 444. MEDICARE FEE-FOR-SERVICE CARE COORDINATION 
                   DEMONSTRATION PROGRAM.

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a 
     demonstration program to contract with qualified care 
     management organizations to provide health risk assessment 
     and care management services to eligible beneficiaries who 
     receive care under the original medicare fee-for-service 
     program under parts A and B of title XVIII of the Social 
     Security Act to eligible beneficiaries.
       (2) Sites.--The Secretary shall designate 6 sites at which 
     to conduct the demonstration program under this section. In 
     selecting sites under this paragraph, the Secretary shall 
     give preference to sites located in rural areas.
       (3) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 5-year period.
       (4) Implementation.--The Secretary shall not implement the 
     demonstration program before October 1, 2004.
       (b) Participants.--Any eligible beneficiary who resides in 
     an area designated by the Secretary as a demonstration site 
     under subsection (a)(2) may participate in the demonstration 
     program under this section if such beneficiary identifies a 
     care management organization who agrees to furnish care 
     management services to the eligible beneficiary under the 
     demonstration program.
       (c) Contracts With CMOs.--

[[Page S8072]]

       (1) In general.--The Secretary shall enter into a contract 
     with care management organizations to provide care management 
     services to eligible beneficiaries residing in the area 
     served by the care management organization.
       (2) Cancellation.--The Secretary may cancel a contract 
     entered into under paragraph (1) if the care management 
     organization does not meet negotiated savings or quality 
     outcomes targets for the year.
       (3) Number of cmos.--The Secretary may contract with more 
     than 1 care management organization in a geographic area.
       (d) Payment to CMOs.--
       (1) Payment.--Under an contract entered into under 
     subsection (c), the Secretary shall pay care management 
     organizations a fee for which the care management 
     organization is partially at risk based on bids submitted by 
     care management organizations.
       (2) Portion of payment at risk.--The Secretary shall 
     establish a benchmark for quality and cost against which the 
     results of the care management organization are to be 
     measured. The Secretary may not pay a care management 
     organization the portion of the fee described in paragraph 
     (1) that is at risk unless the Secretary determines that the 
     care management organization has met the agreed upon savings 
     and outcomes targets for the year.
       (e) Funding.--
       (1) In general.--The Secretary shall provide for the 
     transfer from the Federal Hospital Insurance Trust Fund under 
     section 1817 of the Social Security Act (42 U.S.C. 1395i) and 
     the Federal Supplementary Insurance Trust Fund established 
     under section 1841 of such Act (42 U.S.C. 1395t), in such 
     proportion as the Secretary determines to be appropriate, of 
     such funds as are necessary for the costs of carrying out the 
     demonstration program under this section.
       (2) Budget neutrality.--In conducting the demonstration 
     program under this section, the Secretary shall ensure that 
     the aggregate payments made by the Secretary do not exceed 
     the amount which the Secretary would have paid if the 
     demonstration program under this section was not implemented.
       (f) Waiver Authority.--
       (1) In general.--The Secretary may waive such requirements 
     of titles XI and XVIII of the Social Security Act (42 U.S.C. 
     1301 et seq.; 1395 et seq.) as may be necessary for the 
     purpose of carrying out the demonstration program under this 
     section.
       (2) Waiver of medigap preemptions.--The Secretary shall 
     waive any provision of section 1882 of the Social Security 
     Act that would prevent an insurance carrier described in 
     subsection (h)(3)(D) from participating in the demonstration 
     program under this section.
       (g) Report.--Not later than 6 months after the completion 
     of the demonstration program under this section, the 
     Secretary shall submit to Congress a report on such program, 
     together with recommendations for such legislation and 
     administrative action as the Secretary determines to be 
     appropriate.
       (h) Definitions.--In this section:
       (1) Care management services.--The term ``care management 
     services'' means services that are furnished to an eligible 
     beneficiary (as defined in paragraph (2)) by a care 
     management organization (as defined in paragraph (3)) in 
     accordance with guidelines established by the Secretary that 
     are consistent with guidelines established by the American 
     Geriatrics Society.
       (2) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means an individual who is--
       (A) entitled to (or enrolled for) benefits under part A and 
     enrolled for benefits under part B of the Social Security Act 
     (42 U.S.C. 1395c et seq.; 1395j et seq.);
       (B) not enrolled with a Medicare+Choice plan or a 
     MedicareAdvantage plan under part C; and
       (C) at high-risk (as defined by the Secretary, but 
     including eligible beneficiaries with multiple sclerosis or 
     another disabling chronic condition, eligible beneficiaries 
     residing in a nursing home or at risk for nursing home 
     placement, or eligible beneficiaries eligible for assistance 
     under a State plan under title XIX).
       (3) Care management organization.--The term ``care 
     management organization'' means an organization that meets 
     such qualifications as the Secretary may specify and includes 
     any of the following:
       (A) A physician group practice, hospital, home health 
     agency, or hospice program.
       (B) A disease management organization.
       (C) A Medicare+Choice or MedicareAdvantage organization.
       (D) Insurance carriers offering medicare supplemental 
     policies under section 1882 of the Social Security Act (42 
     U.S.C. 1395ss).
       (E) Such other entity as the Secretary determines to be 
     appropriate.

     SEC. 445. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
                   PHYSICIANS' SERVICES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study of differences in payment amounts under 
     the physician fee schedule under section 1848 of the Social 
     Security Act (42 U.S.C. 1395w-4) for physicians' services in 
     different geographic areas. Such study shall include--
       (1) an assessment of the validity of the geographic 
     adjustment factors used for each component of the fee 
     schedule;
       (2) an evaluation of the measures used for such adjustment, 
     including the frequency of revisions;
       (3) an evaluation of the methods used to determine 
     professional liability insurance costs used in computing the 
     malpractice component, including a review of increases in 
     professional liability insurance premiums and variation in 
     such increases by State and physician specialty and methods 
     used to update the geographic cost of practice index and 
     relative weights for the malpractice component;
       (4) an evaluation of whether there is a sound economic 
     basis for the implementation of the adjustment under 
     subparagraphs (E) and (F) of section 1848(e)(1) of the Social 
     Security Act (42 U.S.C. 1395w-4(e)(1)), as added by section 
     421, in those areas in which the adjustment applies;
       (5) an evaluation of the effect of such adjustment on 
     physician location and retention in areas affected by such 
     adjustment, taking into account--
       (A) differences in recruitment costs and retention rates 
     for physicians, including specialists, between large urban 
     areas and other areas; and
       (B) the mobility of physicians, including specialists, over 
     the last decade; and
       (6) an evaluation of appropriateness of extending such 
     adjustment or making such adjustment permanent.
       (b) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to Congress a report on the study 
     conducted under subsection (a). The report shall include 
     recommendations regarding the use of more current data in 
     computing geographic cost of practice indices as well as the 
     use of data directly representative of physicians' costs 
     (rather than proxy measures of such costs).

            Subtitle C--Provisions Relating to Parts A and B

     SEC. 451. INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
                   RURAL AREA.

       (a) In General.--In the case of home health services 
     furnished in a rural area (as defined in section 
     1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
     1395ww(d)(2)(D))) on or after October 1, 2004, and before 
     October 1, 2006, the Secretary shall increase the payment 
     amount otherwise made under section 1895 of such Act (42 
     U.S.C. 1395fff ) for such services by 5 percent.
       (b) Waiving Budget Neutrality.--The Secretary shall not 
     reduce the standard prospective payment amount (or amounts) 
     under section 1895 of the Social Security Act (42 U.S.C. 
     1395fff ) applicable to home health services furnished during 
     a period to offset the increase in payments resulting from 
     the application of subsection (a).
       (c) No Effect on Subsequent Periods.--The payment increase 
     provided under subsection (a) for a period under such 
     subsection--
       (1) shall not apply to episodes and visits ending after 
     such period; and
       (2) shall not be taken into account in calculating the 
     payment amounts applicable for episodes and visits occurring 
     after such period.

     SEC. 452. LIMITATION ON REDUCTION IN AREA WAGE ADJUSTMENT 
                   FACTORS UNDER THE PROSPECTIVE PAYMENT SYSTEM 
                   FOR HOME HEALTH SERVICES.

       Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) is 
     amended--
       (1) by striking ``factors.--The Secretary'' and inserting 
     ``factors.--
       ``(i) In general.--Subject to clause (ii), the Secretary''; 
     and
       (2) by adding at the end the following new clause:
       ``(ii) Limitation on reduction in fiscal year 2005 and 
     2006.--For fiscal years 2005 and 2006, the area wage 
     adjustment factor applicable to home health services 
     furnished in an area in the fiscal year may not be more that 
     3 percent less than the area wage adjustment factor 
     applicable to home health services for the area for the 
     previous year.''.

     SEC. 453. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE 
                   LIMITS ON PHYSICIAN REFERRALS.

       (a) Limits on Physician Referrals.--
       (1) Ownership and investment interests in whole 
     hospitals.--
       (A) In general.--Section 1877(d)(3) (42 U.S.C. 
     1395nn(d)(3)) is amended--
       (i) by striking ``and'' at the end of subparagraph (A); and
       (ii) by redesignating subparagraph (B) as subparagraph (C) 
     and inserting after subparagraph (A) the following:
       ``(B) the hospital is not a specialty hospital (as defined 
     in subsection (h)(7)); and''.
       (B) Definition.--Section 1877(h) (42 U.S.C. 1395nn(h)) is 
     amended by adding at the end the following:
       ``(7) Specialty hospital.--
       ``(A) In general.--For purposes of this section, except as 
     provided in subparagraph (B), the term `specialty hospital' 
     means a hospital that is primarily or exclusively engaged in 
     the care and treatment of one of the following:
       ``(i) patients with a cardiac condition;
       ``(ii) patients with an orthopedic condition;
       ``(iii) patients receiving a surgical procedure; or
       ``(iv) any other specialized category of patients or cases 
     that the Secretary designates as inconsistent with the 
     purpose of permitting physician ownership and investment 
     interests in a hospital under this section.
       ``(B) Exception.--For purposes of this section, the term 
     `specialty hospital' does not include any hospital--

[[Page S8073]]

       ``(i) determined by the Secretary--

       ``(I) to be in operation before June 12, 2003; or
       ``(II) under development as of such date;

       ``(ii) for which the number of beds and the number of 
     physician investors at any time on or after such date is no 
     greater than the number of such beds or investors as of such 
     date; and
       ``(iii) that meets such other requirements as the Secretary 
     may specify.''.
       (2) Ownership and investment interests in a rural 
     provider.--Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is 
     amended to read as follows:
       ``(2) Rural providers.--In the case of designated health 
     services furnished in a rural area (as defined in section 
     1886(d)(2)(D)) by an entity, if--
       ``(A) substantially all of the designated health services 
     furnished by the entity are furnished to individuals residing 
     in such a rural area;
       ``(B) the entity is not a specialty hospital (as defined in 
     subsection (h)(7)); and
       ``(C) the Secretary determines, with respect to such 
     entity, that such services would not be available in such 
     area but for the ownership or investment interest.''.
       (b) Effective Date.--Subject to paragraph (2), the 
     amendments made by this section shall apply to referrals made 
     for designated health services on or after January 1, 2004.
       (c) Application of Exception for Hospitals Under 
     Development.--For purposes of section 1877(h)(7)(B)(i)(II) of 
     the Social Security Act, as added by subsection (a)(1)(B), in 
     determining whether a hospital is under development as of 
     June 12, 2003, the Secretary shall consider--
       (1) whether architectural plans have been completed, 
     funding has been received, zoning requirements have been met, 
     and necessary approvals from appropriate State agencies have 
     been received; and
       (2) any other evidence the Secretary determines would 
     indicate whether a hospital is under development as of such 
     date.

     SEC. 454. DEMONSTRATION PROGRAM FOR SUBSTITUTE ADULT DAY 
                   SERVICES.

       (a) Establishment.--The Secretary shall establish a 
     demonstration program (in this section referred to as the 
     ``demonstration program'') under which the Secretary provides 
     eligible medicare beneficiaries with coverage under the 
     medicare program of substitute adult day services furnished 
     by an adult day services facility.
       (b) Payment Rate for Substitute Adult Day Services.--
       (1) Payment rate.--For purposes of making payments to an 
     adult day services facility for substitute adult day services 
     under the demonstration program, the following rules shall 
     apply:
       (A) Estimation of payment amount.--The Secretary shall 
     estimate the amount that would otherwise be payable to a home 
     health agency under section 1895 of the Social Security Act 
     (42 U.S.C. 1395fff) for all home health services described in 
     subsection (i)(4)(B)(i) under the plan of care.
       (B) Amount of payment.--Subject to paragraph (3)(B), the 
     total amount payable for substitute adult day services under 
     the plan of care is equal to 95 percent of the amount 
     estimated to be payable under subparagraph (A).
       (2) Limitation on balance billing.--Under the demonstration 
     program, an adult day services facility shall accept as 
     payment in full for substitute adult day services (including 
     those services described in clauses (ii) through (iv) of 
     subsection (i)(4)(B)) furnished by the facility to an 
     eligible medicare beneficiary the amount of payment provided 
     under the demonstration program for home health services 
     consisting of substitute adult services.
       (3) Adjustment in case of overutilization of substitute 
     adult day services to ensure budget neutrality.--The 
     Secretary shall monitor the expenditures under the 
     demonstration program and under title XVIII of the Social 
     Security Act for home health services. If the Secretary 
     estimates that the total expenditures under the demonstration 
     program and under such title XVIII for home health services 
     for a period determined by the Secretary exceed expenditures 
     that would have been made under such title XVIII for home 
     health services for such period if the demonstration program 
     had not been conducted, the Secretary shall adjust the rate 
     of payment to adult day services facilities under paragraph 
     (1)(B) in order to eliminate such excess.
       (c) Demonstration Program Sites.--The demonstration program 
     shall be conducted in not more than 3 sites selected by the 
     Secretary.
       (d) Duration; Implementation.--
       (1) Duration.--The Secretary shall conduct the 
     demonstration program for a period of 3 years.
       (2) Implementation.--The Secretary may not implement the 
     demonstration program before October 1, 2004.
       (e) Voluntary Participation.--Participation of eligible 
     medicare beneficiaries in the demonstration program shall be 
     voluntary.
       (f) Waiver Authority.--
       (1) In general.--Except as provided in paragraph (2), the 
     Secretary may waive such requirements of titles XI and XVIII 
     of the Social Security Act (42 U.S.C. 1301 et seq.; 1395 et 
     seq.) as may be necessary for the purposes of carrying out 
     the demonstration program.
       (2) May not waive eligibility requirements for home health 
     services.--The Secretary may not waive the beneficiary 
     eligibility requirements for home health services under title 
     XVIII of the Social Security Act.
       (g) Evaluation and Report.--
       (1) Evaluation.--The Secretary shall conduct an evaluation 
     of the clinical and cost effectiveness of the demonstration 
     program.
       (2) Report.--Not later than 30 months after the 
     commencement of the demonstration program, the Secretary 
     shall submit to Congress a report on the evaluation conducted 
     under paragraph (1) and shall include in the report the 
     following:
       (A) An analysis of the patient outcomes and costs of 
     furnishing care to the eligible medicare beneficiaries 
     participating in the demonstration program as compared to 
     such outcomes and costs to such beneficiaries receiving only 
     home health services under title XVIII of the Social Security 
     Act for the same health conditions.
       (B) Such recommendations regarding the extension, 
     expansion, or termination of the program as the Secretary 
     determines appropriate.
       (i) Definitions.--In this section:
       (1) Adult day services facility.--
       (A) In general.--Except as provided in subparagraphs (B) 
     and (C), the term ``adult day services facility'' means a 
     public agency or private organization, or a subdivision of 
     such an agency or organization, that--
       (i) is engaged in providing skilled nursing services and 
     other therapeutic services directly or under arrangement with 
     a home health agency;
       (ii) provides the items and services described in paragraph 
     (4)(B); and
       (iii) meets the requirements of paragraphs (2) through (8) 
     of subsection (o).
       (B) Inclusion.--Notwithstanding subparagraph (A), the term 
     ``adult day services facility'' shall include a home health 
     agency in which the items and services described in clauses 
     (ii) through (iv) of paragraph (4)(B) are provided--
       (i) by an adult day services program that is licensed or 
     certified by a State, or accredited, to furnish such items 
     and services in the State; and
       (ii) under arrangements with that program made by such 
     agency.
       (C) Waiver of surety bond.--The Secretary may waive the 
     requirement of a surety bond under section 1861(o)(7) of the 
     Social Security Act (42 U.S.C. 1395x(o)(7)) in the case of an 
     agency or organization that provides a comparable surety bond 
     under State law.
       (2) Eligible medicare beneficiary.--The term ``eligible 
     medicare beneficiary'' means an individual eligible for home 
     health services under title XVIII of the Social Security Act.
       (3) Home health agency.--The term ``home health agency'' 
     has the meaning given such term in section 1861(o) of the 
     Social Security Act (42 U.S.C. 1395x(o)).
       (4) Substitute adult day services.--
       (A) In general.--The term ``substitute adult day services'' 
     means the items and services described in subparagraph (B) 
     that are furnished to an individual by an adult day services 
     facility as a part of a plan under section 1861(m) of the 
     Social Security Act (42 U.S.C. 1395x(m)) that substitutes 
     such services for some or all of the items and services 
     described in subparagraph (B)(i) furnished by a home health 
     agency under the plan, as determined by the physician 
     establishing the plan.
       (B) Items and services described.--The items and services 
     described in this subparagraph are the following items and 
     services:
       (i) Items and services described in paragraphs (1) through 
     (7) of such section 1861(m).
       (ii) Meals.
       (iii) A program of supervised activities designed to 
     promote physical and mental health and furnished to the 
     individual by the adult day services facility in a group 
     setting for a period of not fewer than 4 and not greater than 
     12 hours per day.
       (iv) A medication management program (as defined in 
     subparagraph (C)).
       (C) Medication management program.--For purposes of 
     subparagraph (B)(iv), the term ``medication management 
     program'' means a program of services, including medicine 
     screening and patient and health care provider education 
     programs, that provides services to minimize--
       (i) unnecessary or inappropriate use of prescription drugs; 
     and
       (ii) adverse events due to unintended prescription drug-to-
     drug interactions.

  TITLE V--MEDICARE APPEALS, REGULATORY, AND CONTRACTING IMPROVEMENTS

                     Subtitle A--Regulatory Reform

     SEC. 501. RULES FOR THE PUBLICATION OF A FINAL REGULATION 
                   BASED ON THE PREVIOUS PUBLICATION OF AN INTERIM 
                   FINAL REGULATION.

       (a) In General.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
     amended by adding at the end the following new paragraph:
       ``(3)(A) With respect to the publication of a final 
     regulation based on the previous publication of an interim 
     final regulation--
       ``(i) subject to subparagraph (B), the Secretary shall 
     publish the final regulation within the 12-month period that 
     begins on the date of publication of the interim final 
     regulation;
       ``(ii) if a final regulation is not published by the 
     deadline established under this paragraph, the interim final 
     regulation shall not continue in effect unless the Secretary 
     publishes a notice described in subparagraph (B) by such 
     deadline; and

[[Page S8074]]

       ``(iii) the final regulation shall include responses to 
     comments submitted in response to the interim final 
     regulation.
       ``(B) If the Secretary determines before the deadline 
     otherwise established in this paragraph that there is good 
     cause, specified in a notice published before such deadline, 
     for delaying the deadline otherwise applicable under this 
     paragraph, the deadline otherwise established under this 
     paragraph shall be extended for such period (not to exceed 12 
     months) as the Secretary specifies in such notice.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act and 
     shall apply to interim final regulations published on or 
     after such date.
       (c) Status of Pending Interim Final Regulations.--Not later 
     than 6 months after the date of enactment of this Act, the 
     Secretary shall publish a notice in the Federal Register that 
     provides the status of each interim final regulation that was 
     published on or before the date of enactment of this Act and 
     for which no final regulation has been published. Such notice 
     shall include the date by which the Secretary plans to 
     publish the final regulation that is based on the interim 
     final regulation.

     SEC. 502. COMPLIANCE WITH CHANGES IN REGULATIONS AND 
                   POLICIES.

       (a) No Retroactive Application of Substantive Changes.--
       (1) In general.--Section 1871 (42 U.S.C. 1395hh) is amended 
     by adding at the end the following new subsection:
       ``(d)(1)(A) A substantive change in regulations, manual 
     instructions, interpretative rules, statements of policy, or 
     guidelines of general applicability under this title shall 
     not be applied (by extrapolation or otherwise) retroactively 
     to items and services furnished before the effective date of 
     the change, unless the Secretary determines that--
       ``(i) such retroactive application is necessary to comply 
     with statutory requirements; or
       ``(ii) failure to apply the change retroactively would be 
     contrary to the public interest.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to substantive changes issued on or after the 
     date of enactment of this Act.
       (b) Timeline for Compliance With Substantive Changes After 
     Notice.--
       (1) In general.--Section 1871(d)(1), as added by subsection 
     (a), is amended by adding at the end the following:
       ``(B) A compliance action may be made against a provider of 
     services, physician, practitioner, or other supplier with 
     respect to noncompliance with such a substantive change only 
     for items and services furnished on or after the effective 
     date of the change.
       ``(C)(i) Except as provided in clause (ii), a substantive 
     change may not take effect before the date that is the end of 
     the 30-day period that begins on the date that the Secretary 
     has issued or published, as the case may be, the substantive 
     change.
       ``(ii) The Secretary may provide for a substantive change 
     to take effect on a date that precedes the end of the 30-day 
     period under clause (i) if the Secretary finds that waiver of 
     such 30-day period is necessary to comply with statutory 
     requirements or that the application of such 30-day period is 
     contrary to the public interest. If the Secretary provides 
     for an earlier effective date pursuant to this clause, the 
     Secretary shall include in the issuance or publication of the 
     substantive change a finding described in the first sentence, 
     and a brief statement of the reasons for such finding.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to compliance actions undertaken on or after the 
     date of enactment of this Act.

     SEC. 503. REPORT ON LEGAL AND REGULATORY INCONSISTENCIES.

       Section 1871 (42 U.S.C. 1395hh), as amended by section 
     502(a)(1), is amended by adding at the end the following new 
     subsection:
       ``(e)(1) Not later than 2 years after the date of enactment 
     of this subsection, and every 3 years thereafter, the 
     Secretary shall submit to Congress a report with respect to 
     the administration of this title and areas of inconsistency 
     or conflict among the various provisions under law and 
     regulation.
       ``(2) In preparing a report under paragraph (1), the 
     Secretary shall collect--
       ``(A) information from beneficiaries, providers of 
     services, physicians, practitioners, and other suppliers with 
     respect to such areas of inconsistency and conflict; and
       ``(B) information from medicare contractors that tracks the 
     nature of all communications and correspondence.
       ``(3) A report under paragraph (1) shall include a 
     description of efforts by the Secretary to reduce such 
     inconsistency or conflicts, and recommendations for 
     legislation or administrative action that the Secretary 
     determines appropriate to further reduce such inconsistency 
     or conflicts.''.

                   Subtitle B--Appeals Process Reform

     SEC. 511. SUBMISSION OF PLAN FOR TRANSFER OF RESPONSIBILITY 
                   FOR MEDICARE APPEALS.

       (a) Submission of Transition Plan.--
       (1) In general.--Not later than April 1, 2004, the 
     Commissioner of Social Security and the Secretary shall 
     develop and transmit to Congress and the Comptroller General 
     of the United States a plan under which the functions of 
     administrative law judges responsible for hearing cases under 
     title XVIII of the Social Security Act (and related 
     provisions in title XI of such Act) are transferred from the 
     responsibility of the Commissioner and the Social Security 
     Administration to the Secretary and the Department of Health 
     and Human Services.
       (2) Contents.--The plan shall include information on the 
     following:
       (A) Workload.--The number of such administrative law judges 
     and support staff required now and in the future to hear and 
     decide such cases in a timely manner, taking into account the 
     current and anticipated claims volume, appeals, number of 
     beneficiaries, and statutory changes.
       (B) Cost projections and financing.--Funding levels 
     required for fiscal year 2005 and subsequent fiscal years to 
     carry out the functions transferred under the plan and how 
     such transfer should be financed.
       (C) Transition timetable.--A timetable for the transition.
       (D) Regulations.--The establishment of specific regulations 
     to govern the appeals process.
       (E) Case tracking.--The development of a unified case 
     tracking system that will facilitate the maintenance and 
     transfer of case specific data across both the fee-for-
     service and managed care components of the medicare program.
       (F) Feasibility of precedential authority.--The feasibility 
     of developing a process to give decisions of the Departmental 
     Appeals Board in the Department of Health and Human Services 
     addressing broad legal issues binding, precedential 
     authority.
       (G) Access to administrative law judges.--The feasibility 
     of--
       (i) filing appeals with administrative law judges 
     electronically; and
       (ii) conducting hearings using tele- or video-conference 
     technologies.
       (H) Independence of administrative law judges.--The steps 
     that should be taken to ensure the independence of 
     administrative law judges, including ensuring that such 
     judges are in an office that is functionally and 
     operationally separate from the Centers for Medicare & 
     Medicaid Services and the Center for Medicare Choices.
       (I) Geographic distribution.--The steps that should be 
     taken to provide for an appropriate geographic distribution 
     of administrative law judges throughout the United States to 
     ensure timely access to such judges.
       (J) Hiring.--The steps that should be taken to hire 
     administrative law judges (and support staff).
       (K) Performance standards.--The establishment of 
     performance standards for administrative law judges with 
     respect to timelines for decisions in cases under title XVIII 
     of the Social Security Act.
       (L) Shared resources.--The feasibility of the Secretary 
     entering into such arrangements with the Commissioner of 
     Social Security as may be appropriate with respect to 
     transferred functions under the plan to share office space, 
     support staff, and other resources, with appropriate 
     reimbursement.
       (M) Training.--The training that should be provided to 
     administrative law judges with respect to laws and 
     regulations under title XVIII of the Social Security Act.
       (3) Additional information.--The plan may also include 
     recommendations for further congressional action, including 
     modifications to the requirements and deadlines established 
     under section 1869 of the Social Security Act (as amended by 
     sections 521 and 522 of BIPA (114 Stat. 2763A-534) and this 
     Act).
       (b) GAO Evaluation.--The Comptroller General of the United 
     States shall--
       (1) evaluate the plan submitted under subsection (a); and
       (2) not later than 6 months after such submission, submit 
     to Congress, the Commissioner of Social Security, and the 
     Secretary a report on such evaluation.
       (c) Submission of GAO Report Required Before Plan 
     Implementation.--The Commissioner of Social Security and the 
     Secretary may not implement the plan developed under 
     subsection (a) before the date that is 6 months after the 
     date the report required under subsection (b)(2) is submitted 
     to the Commissioner and the Secretary.

     SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW.

       (a) In General.--Section 1869(b) (42 U.S.C. 1395ff(b)) is 
     amended--
       (1) in paragraph (1)(A), by inserting ``, subject to 
     paragraph (2),'' before ``to judicial review of the 
     Secretary's final decision''; and
       (2) by adding at the end the following new paragraph:
       ``(2) Expedited access to judicial review.--
       ``(A) In general.--The Secretary shall establish a process 
     under which a provider of services or supplier that furnishes 
     an item or service or a beneficiary who has filed an appeal 
     under paragraph (1) (other than an appeal filed under 
     paragraph (1)(F)(i)) may obtain access to judicial review 
     when a review entity (described in subparagraph (D)), on its 
     own motion or at the request of the appellant, determines 
     that the Departmental Appeals Board does not have the 
     authority to decide the question of law or regulation 
     relevant to the matters in controversy and that there is no 
     material issue of fact in dispute. The appellant may make 
     such request only once with respect to a question of law or 
     regulation for a specific matter in dispute in a case of an 
     appeal.

[[Page S8075]]

       ``(B) Prompt determinations.--If, after or coincident with 
     appropriately filing a request for an administrative hearing, 
     the appellant requests a determination by the appropriate 
     review entity that the Departmental Appeals Board does not 
     have the authority to decide the question of law or 
     regulations relevant to the matters in controversy and that 
     there is no material issue of fact in dispute, and if such 
     request is accompanied by the documents and materials as the 
     appropriate review entity shall require for purposes of 
     making such determination, such review entity shall make a 
     determination on the request in writing within 60 days after 
     the date such review entity receives the request and such 
     accompanying documents and materials. Such a determination by 
     such review entity shall be considered a final decision and 
     not subject to review by the Secretary.
       ``(C) Access to judicial review.--
       ``(i) In general.--If the appropriate review entity--

       ``(I) determines that there are no material issues of fact 
     in dispute and that the only issues to be adjudicated are 
     ones of law or regulation that the Departmental Appeals Board 
     does not have authority to decide; or
       ``(II) fails to make such determination within the period 
     provided under subparagraph (B);

     then the appellant may bring a civil action as described in 
     this subparagraph.
       ``(ii) Deadline for filing.--Such action shall be filed, in 
     the case described in--

       ``(I) clause (i)(I), within 60 days of the date of the 
     determination described in such clause; or
       ``(II) clause (i)(II), within 60 days of the end of the 
     period provided under subparagraph (B) for the determination.

       ``(iii) Venue.--Such action shall be brought in the 
     district court of the United States for the judicial district 
     in which the appellant is located (or, in the case of an 
     action brought jointly by more than 1 applicant, the judicial 
     district in which the greatest number of applicants are 
     located) or in the District Court for the District of 
     Columbia.
       ``(iv) Interest on any amounts in controversy.--Where a 
     provider of services or supplier is granted judicial review 
     pursuant to this paragraph, the amount in controversy (if 
     any) shall be subject to annual interest beginning on the 
     first day of the first month beginning after the 60-day 
     period as determined pursuant to clause (ii) and equal to the 
     rate of interest on obligations issued for purchase by the 
     Federal Supplementary Medical Insurance Trust Fund for the 
     month in which the civil action authorized under this 
     paragraph is commenced, to be awarded by the reviewing court 
     in favor of the prevailing party. No interest awarded 
     pursuant to the preceding sentence shall be deemed income or 
     cost for the purposes of determining reimbursement due 
     providers of services, physicians, practitioners, and other 
     suppliers under this Act.
       ``(D) Review entity defined.--For purposes of this 
     subsection, a `review entity' is a panel of no more than 3 
     members from the Departmental Appeals Board, selected for the 
     purpose of making determinations under this paragraph.''.
       (b) Application to Provider Agreement Determinations.--
     Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
       (1) by inserting ``(A)'' after ``(h)(1)''; and
       (2) by adding at the end the following new subparagraph:
       ``(B) An institution or agency described in subparagraph 
     (A) that has filed for a hearing under subparagraph (A) shall 
     have expedited access to judicial review under this 
     subparagraph in the same manner as providers of services, 
     suppliers, and beneficiaries may obtain expedited access to 
     judicial review under the process established under section 
     1869(b)(2). Nothing in this subparagraph shall be construed 
     to affect the application of any remedy imposed under section 
     1819 during the pendency of an appeal under this 
     subparagraph.''.
       (c) GAO Study and Report on Access to Judicial Review.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on the access of medicare beneficiaries 
     and health care providers to judicial review of actions of 
     the Secretary and the Department of Health and Human Services 
     with respect to items and services under title XVIII of the 
     Social Security Act subsequent to February 29, 2000, the date 
     of the decision of Shalala, Secretary of Health and Human 
     Services, et al. v. Illinois Council on Long Term Care, Inc. 
     (529 U.S. 1 (2000)).
       (2) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1) together with such recommendations as the Comptroller 
     General determines to be appropriate.
       (d) Conforming Amendment.--Section 1869(b)(1)(F)(ii) (42 
     U.S.C. 1395ff(b)(1)(F)(ii)) is amended to read as follows:
       ``(ii) Reference to expedited access to judicial review.--
     For the provision relating to expedited access to judicial 
     review, see paragraph (2).''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to appeals filed on or after October 1, 2004.

     SEC. 513. EXPEDITED REVIEW OF CERTAIN PROVIDER AGREEMENT 
                   DETERMINATIONS.

       (a) Termination and Certain Other Immediate Remedies.--
       (1) In general.--The Secretary shall develop and implement 
     a process to expedite proceedings under sections 1866(h) of 
     the Social Security Act (42 U.S.C. 1395cc(h)) in which--
       (A) the remedy of termination of participation has been 
     imposed;
       (B) a sanction described in clause (i) or (iii) of section 
     1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) has 
     been imposed, but only if such sanction has been imposed on 
     an immediate basis; or
       (C) the Secretary has required a skilled nursing facility 
     to suspend operations of a nurse aide training program.
       (2) Priority for cases of termination.--Under the process 
     described in paragraph (1), priority shall be provided in 
     cases of termination described in subparagraph (A) of such 
     paragraph.
       (b) Increased Financial Support.--In addition to any 
     amounts otherwise appropriated, to reduce by 50 percent the 
     average time for administrative determinations on appeals 
     under section 1866(h) of the Social Security Act (42 U.S.C. 
     1395cc(h)), there are authorized to be appropriated (in 
     appropriate part from the Federal Hospital Insurance Trust 
     Fund and the Federal Supplementary Medical Insurance Trust 
     Fund) to the Secretary such sums for fiscal year 2004 and 
     each subsequent fiscal year as may be necessary to increase 
     the number of administrative law judges (and their staffs) at 
     the Departmental Appeals Board of the Department of Health 
     and Human Services and to educate such judges and staff on 
     long-term care issues.

     SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS.

       (a) Timeframes for the Completion of the Record.--Section 
     1869(b) (42 U.S.C. 1395ff(b)), as amended by section 
     512(a)(2), is amended by adding at the end the following new 
     paragraph:
       ``(3) Timely completion of the record.--
       ``(A) Deadline.--Subject to subparagraph (B), the deadline 
     to complete the record in a hearing before an administrative 
     law judge or a review by the Departmental Appeals Board is 90 
     days after the date the request for the review or hearing is 
     filed.
       ``(B) Extensions for good cause.--The person filing a 
     request under subparagraph (A) may request an extension of 
     such deadline for good cause. The administrative law judge, 
     in the case of a hearing, and the Departmental Appeals Board, 
     in the case of a review, may extend such deadline based upon 
     a finding of good cause to a date specified by the judge or 
     Board, as the case may be.
       ``(C) Delay in decision deadlines until completion of 
     record.--Notwithstanding any other provision of this section, 
     the deadlines otherwise established under subsection (d) for 
     the making of determinations in hearings or review under this 
     section are 90 days after the date on which the record is 
     complete.
       ``(D) Complete record described.--For purposes of this 
     paragraph, a record is complete when the administrative law 
     judge, in the case of a hearing, or the Departmental Appeals 
     Board, in the case of a review, has received--
       ``(i) written or testimonial evidence, or both, submitted 
     by the person filing the request,
       ``(ii) written or oral argument, or both,
       ``(iii) the decision of, and the record for, the prior 
     level of appeal, and
       ``(iv) such other evidence as such judge or Board, as the 
     case may be, determines is required to make a determination 
     on the request.''.
       (b) Use of Patients' Medical Records.--Section 
     1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amended by 
     inserting ``(including the medical records of the individual 
     involved)'' after ``clinical experience''.
       (c) Notice Requirements for Medicare Appeals.--
       (1) Initial determinations and redeterminations.--Section 
     1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at the end 
     the following new paragraph:
       ``(4) Requirements of notice of determinations and 
     redeterminations.--A written notice of a determination on an 
     initial determination or on a redetermination, insofar as 
     such determination or redetermination results in a denial of 
     a claim for benefits, shall be provided in printed form and 
     written in a manner to be understood by the beneficiary and 
     shall include--
       ``(A) the reasons for the determination, including, as 
     appropriate--
       ``(i) upon request in the case of an initial determination, 
     the provision of the policy, manual, or regulation that 
     resulted in the denial; and
       ``(ii) in the case of a redetermination, a summary of the 
     clinical or scientific evidence used in making the 
     determination (as appropriate);
       ``(B) the procedures for obtaining additional information 
     concerning the determination or redetermination; and
       ``(C) notification of the right to seek a redetermination 
     or otherwise appeal the determination and instructions on how 
     to initiate such a redetermination or appeal under this 
     section.''.
       (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
     1395ff(c)(3)(E)) is amended to read as follows:
       ``(E) Explanation of decision.--Any decision with respect 
     to a reconsideration of a qualified independent contractor 
     shall be in writing in a manner to be understood by the 
     beneficiary and shall include--

[[Page S8076]]

       ``(i) to the extent appropriate, a detailed explanation of 
     the decision as well as a discussion of the pertinent facts 
     and applicable regulations applied in making such decision;
       ``(ii) a notification of the right to appeal such 
     determination and instructions on how to initiate such appeal 
     under this section; and
       ``(iii) in the case of a determination of whether an item 
     or service is reasonable and necessary for the diagnosis or 
     treatment of illness or injury (under section 1862(a)(1)(A)) 
     an explanation of the medical or scientific rationale for the 
     decision.''.
       (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)) is 
     amended--
       (A) in the heading, by inserting ``; Notice'' after 
     ``Secretary''; and
       (B) by adding at the end the following new paragraph:
       ``(4) Notice.--Notice of the decision of an administrative 
     law judge shall be in writing in a manner to be understood by 
     the beneficiary and shall include--
       ``(A) the specific reasons for the determination 
     (including, to the extent appropriate, a summary of the 
     clinical or scientific evidence used in making the 
     determination);
       ``(B) the procedures for obtaining additional information 
     concerning the decision; and
       ``(C) notification of the right to appeal the decision and 
     instructions on how to initiate such an appeal under this 
     section.''.
       (4) Preparation of record for appeal.--Section 
     1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is amended by 
     striking ``such information as is required for an appeal'' 
     and inserting ``the record for the appeal''.
       (d) Qualified Independent Contractors.--
       (1) Eligibility requirements of qualified independent 
     contractors.--Section 1869(c) (42 U.S.C. 1395ff(c)) is 
     amended--
       (A) in paragraph (2)--
       (i) by inserting ``(except in the case of a utilization and 
     quality control peer review organization, as defined in 
     section 1152)'' after ``means an entity or organization 
     that''; and
       (ii) by striking the period at the end and inserting the 
     following: ``and meets the following requirements:
       ``(A) General requirements.--
       ``(i) The entity or organization has (directly or through 
     contracts or other arrangements) sufficient medical, legal, 
     and other expertise (including knowledge of the program under 
     this title) and sufficient staffing to carry out duties of a 
     qualified independent contractor under this section on a 
     timely basis.
       ``(ii) The entity or organization has provided assurances 
     that it will conduct activities consistent with the 
     applicable requirements of this section, including that it 
     will not conduct any activities in a case unless the 
     independence requirements of subparagraph (B) are met with 
     respect to the case.
       ``(iii) The entity or organization meets such other 
     requirements as the Secretary provides by regulation.
       ``(B) Independence requirements.--
       ``(i) In general.--Subject to clause (ii), an entity or 
     organization meets the independence requirements of this 
     subparagraph with respect to any case if the entity--

       ``(I) is not a related party (as defined in subsection 
     (g)(5));
       ``(II) does not have a material familial, financial, or 
     professional relationship with such a party in relation to 
     such case; and
       ``(III) does not otherwise have a conflict of interest with 
     such a party (as determined under regulations).

       ``(ii) Exception for compensation.--Nothing in clause (i) 
     shall be construed to prohibit receipt by a qualified 
     independent contractor of compensation from the Secretary for 
     the conduct of activities under this section if the 
     compensation is provided consistent with clause (iii).
       ``(iii) Limitations on entity compensation.--Compensation 
     provided by the Secretary to a qualified independent 
     contractor in connection with reviews under this section 
     shall not be contingent on any decision rendered by the 
     contractor or by any reviewing professional.''; and
       (B) in paragraph (3)(A), by striking ``, and shall have 
     sufficient training and expertise in medical science and 
     legal matters to make reconsiderations under this 
     subsection''.
       (2) Eligibility requirements for reviewers.--Section 1869 
     (42 U.S.C. 1395ff) is amended--
       (A) by amending subsection (c)(3)(D) to read as follows:
       ``(D) Qualifications of reviewers.--The requirements of 
     subsection (g) shall be met (relating to qualifications of 
     reviewing professionals).''; and
       (B) by adding at the end the following new subsection:
       ``(g) Qualifications of Reviewers.--
       ``(1) In general.--In reviewing determinations under this 
     section, a qualified independent contractor shall assure 
     that--
       ``(A) each individual conducting a review shall meet the 
     qualifications of paragraph (2);
       ``(B) compensation provided by the contractor to each such 
     reviewer is consistent with paragraph (3); and
       ``(C) in the case of a review by a panel described in 
     subsection (c)(3)(B) composed of physicians or other health 
     care professionals (each in this subsection referred to as a 
     `reviewing professional'), each reviewing professional meets 
     the qualifications described in paragraph (4).
       ``(2) Independence.--
       ``(A) In general.--Subject to subparagraph (B), each 
     individual conducting a review in a case shall--
       ``(i) not be a related party (as defined in paragraph (5));
       ``(ii) not have a material familial, financial, or 
     professional relationship with such a party in the case under 
     review; and
       ``(iii) not otherwise have a conflict of interest with such 
     a party (as determined under regulations).
       ``(B) Exception.--Nothing in subparagraph (A) shall be 
     construed to--
       ``(i) prohibit an individual, solely on the basis of 
     affiliation with a fiscal intermediary, carrier, or other 
     contractor, from serving as a reviewing professional if--

       ``(I) a nonaffiliated individual is not reasonably 
     available;
       ``(II) the affiliated individual is not involved in the 
     provision of items or services in the case under review;
       ``(III) the fact of such an affiliation is disclosed to the 
     Secretary and the beneficiary (or authorized representative) 
     and neither party objects; and
       ``(IV) the affiliated individual is not an employee of the 
     intermediary, carrier, or contractor and does not provide 
     services exclusively or primarily to or on behalf of such 
     intermediary, carrier, or contractor;

       ``(ii) prohibit an individual who has staff privileges at 
     the institution where the treatment involved takes place from 
     serving as a reviewer merely on the basis of such affiliation 
     if the affiliation is disclosed to the Secretary and the 
     beneficiary (or authorized representative), and neither party 
     objects; or
       ``(iii) prohibit receipt of compensation by a reviewing 
     professional from a contractor if the compensation is 
     provided consistent with paragraph (3).
       ``(3) Limitations on reviewer compensation.--Compensation 
     provided by a qualified independent contractor to a reviewer 
     in connection with a review under this section shall not be 
     contingent on the decision rendered by the reviewer.
       ``(4) Licensure and expertise.--Each reviewing professional 
     shall be a physician (allopathic or osteopathic) or health 
     care professional who--
       ``(A) is appropriately credentialed or licensed in 1 or 
     more States to deliver health care services; and
       ``(B) has medical expertise in the field of practice that 
     is appropriate for the items or services at issue.
       ``(5) Related party defined.--For purposes of this section, 
     the term `related party' means, with respect to a case under 
     this title involving an individual beneficiary, any of the 
     following:
       ``(A) The Secretary, the medicare administrative contractor 
     involved, or any fiduciary, officer, director, or employee of 
     the Department of Health and Human Services, or of such 
     contractor.
       ``(B) The individual (or authorized representative).
       ``(C) The health care professional that provides the items 
     or services involved in the case.
       ``(D) The institution at which the items or services (or 
     treatment) involved in the case are provided.
       ``(E) The manufacturer of any drug or other item that is 
     included in the items or services involved in the case.
       ``(F) Any other party determined under any regulations to 
     have a substantial interest in the case involved.''.
       (3) Number of qualified independent contractors.--Section 
     1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is amended by striking 
     ``12'' and inserting ``4''.
       (e) Implementation of Certain BIPA Reforms.--
       (1) Delay in certain bipa reforms.--Section 521(d) of BIPA 
     (114 Stat. 2763A-543) is amended to read as follows:
       ``(d) Effective Date.--
       ``(1) In general.--Except as specified in paragraph (2), 
     the amendments made by this section shall apply with respect 
     to initial determinations made on or after December 1, 2004.
       ``(2) Expedited proceedings and reconsideration 
     requirements.--For the following provisions, the amendments 
     made by subsection (a) shall apply with respect to initial 
     determinations made on or after October 1, 2003:
       ``(A) Subsection (b)(1)(F)(i) of section 1869 of the Social 
     Security Act.
       ``(B) Subsection (c)(3)(C)(iii) of such section.
       ``(C) Subsection (c)(3)(C)(iv) of such section to the 
     extent that it applies to expedited reconsiderations under 
     subsection (c)(3)(C)(iii) of such section.
       ``(3) Transitional use of peer review organizations to 
     conduct expedited reconsiderations until qics are 
     operational.--Expedited reconsiderations of initial 
     determinations under section 1869(c)(3)(C)(iii) of the Social 
     Security Act shall be made by peer review organizations until 
     qualified independent contractors are available for such 
     expedited reconsiderations.''.
       (2) Conforming amendments.--Section 521(c) of BIPA (114 
     Stat. 2763A-543) and section 1869(c)(3)(C)(iii)(III) of the 
     Social Security Act (42 U.S.C. 1395ff(c)(3)(C)(iii)(III)), as 
     added by section 521 of BIPA, are repealed.
       (f) Effective Date.--The amendments made by this section 
     shall be effective as if included in the enactment of the 
     respective provisions of subtitle C of title V of BIPA, 114 
     Stat. 2763A-534.

[[Page S8077]]

       (g) Transition.--In applying section 1869(g) of the Social 
     Security Act (as added by subsection (d)(2)), any reference 
     to a medicare administrative contractor shall be deemed to 
     include a reference to a fiscal intermediary under section 
     1816 of the Social Security Act (42 U.S.C. 1395h) and a 
     carrier under section 1842 of such Act (42 U.S.C. 1395u).

     SEC. 515. HEARING RIGHTS RELATED TO DECISIONS BY THE 
                   SECRETARY TO DENY OR NOT RENEW A MEDICARE 
                   ENROLLMENT AGREEMENT; CONSULTATION BEFORE 
                   CHANGING PROVIDER ENROLLMENT FORMS.

       (a) Hearing Rights.--
       (1) In general.--Section 1866 (42 U.S.C. 1395cc) is amended 
     by adding at the end the following new subsection:
       ``(j) Hearing Rights in Cases of Denial or Nonrenewal.--The 
     Secretary shall establish by regulation procedures under 
     which--
       ``(1) there are deadlines for actions on applications for 
     enrollment (and, if applicable, renewal of enrollment); and
       ``(2) providers of services, physicians, practitioners, and 
     suppliers whose application to enroll (or, if applicable, to 
     renew enrollment) are denied are provided a mechanism to 
     appeal such denial and a deadline for consideration of such 
     appeals.''.
       (2) Effective date.--The Secretary shall provide for the 
     establishment of the procedures under the amendment made by 
     paragraph (1) within 18 months after the date of enactment of 
     this Act.
       (b) Consultation Before Changing Provider Enrollment 
     Forms.--Section 1871 (42 U.S.C. 1395hh), as amended by 
     sections 502 and 503, is amended by adding at the end the 
     following new subsection:
       ``(f) The Secretary shall consult with providers of 
     services, physicians, practitioners, and suppliers before 
     making changes in the provider enrollment forms required of 
     such providers, physicians, practitioners, and suppliers to 
     be eligible to submit claims for which payment may be made 
     under this title.''.

     SEC. 516. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY 
                   AVAILABLE.

       (a) In General.--Section 1870 (42 U.S.C. 1395gg) is amended 
     by adding at the end the following new subsection:
       ``(h) Notwithstanding subsection (f) or any other provision 
     of law, the Secretary shall permit a provider of services, 
     physician, practitioner, or other supplier to appeal any 
     determination of the Secretary under this title relating to 
     services rendered under this title to an individual who 
     subsequently dies if there is no other party available to 
     appeal such determination.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act and 
     shall apply to items and services furnished on or after such 
     date.

     SEC. 517. PROVIDER ACCESS TO REVIEW OF LOCAL COVERAGE 
                   DETERMINATIONS.

       (a) Provider Access To Review of Local Coverage 
     Determinations.--Section 1869(f)(5) (42 U.S.C. 1395ff(f)(5)) 
     is amended to read as follows:
       ``(5) Aggrieved party defined.--In this section, the term 
     `aggrieved party' means--
       ``(A) with respect to a national coverage determination, an 
     individual entitled to benefits under part A, or enrolled 
     under part B, or both, who is in need of the items or 
     services that are the subject of the coverage determination; 
     and
       ``(B) with respect to a local coverage determination--
       ``(i) an individual who is entitled to benefits under part 
     A, or enrolled under part B, or both, who is adversely 
     affected by such a determination; or
       ``(ii) a provider of services, physician, practitioner, or 
     supplier that is adversely affected by such a 
     determination.''.
       (b) Clarification of Local Coverage Determination 
     Definition.--Section 1869(f)(2)(B) (42 U.S.C. 
     1395ff(f)(2)(B)) is amended by inserting ``, including, where 
     appropriate, the specific requirements and clinical 
     indications relating to the medical necessity of an item or 
     service'' before the period at the end.
       (c) Request for Local Coverage Determinations by 
     Providers.--Section 1869 (42 U.S.C. 1395ff), as amended by 
     section 514(d)(2)(B), is amended by adding at the end the 
     following new subsection:
       ``(h) Request for Local Coverage Determinations by 
     Providers.--
       ``(1) Establishment of process.--The Secretary shall 
     establish a process under which a provider of services, 
     physician, practitioner, or supplier who certifies that they 
     meet the requirements established in paragraph (3) may 
     request a local coverage determination in accordance with the 
     succeeding provisions of this subsection.
       ``(2) Provider local coverage determination request 
     defined.--In this subsection, the term `provider local 
     coverage determination request' means a request, filed with 
     the Secretary, at such time and in such form and manner as 
     the Secretary may specify, that the Secretary, pursuant to 
     paragraph (4)(A), require a fiscal intermediary, carrier, or 
     program safeguard contractor to make or revise a local 
     coverage determination under this section with respect to an 
     item or service.
       ``(3) Request requirements.--Under the process established 
     under paragraph (1), by not later than 30 days after the date 
     on which a provider local coverage determination request is 
     filed under paragraph (1), the Secretary shall determine 
     whether such request establishes that--
       ``(A) there have been at least 5 reversals of 
     redeterminations made by a fiscal intermediary or carrier 
     after a hearing before an administrative law judge on claims 
     submitted by the provider in at least 2 different cases 
     before an administrative law judge;
       ``(B) each reversal described in subparagraph (A) involves 
     substantially similar material facts;
       ``(C) each reversal described in subparagraph (A) involves 
     the same medical necessity issue; and
       ``(D) at least 50 percent of the total number of claims 
     submitted by such provider within the past year involving the 
     substantially similar material facts described in 
     subparagraph (B) and the same medical necessity issue 
     described in subparagraph (C) have been denied and have been 
     reversed by an administrative law judge.
       ``(4) Approval or rejection of request.--
       ``(A) Approval of request.--If the Secretary determines 
     that subparagraphs (A) through (D) of paragraph (3) have been 
     satisfied, the Secretary shall require the fiscal 
     intermediary, carrier, or program safeguard contractor 
     identified in the provider local coverage determination 
     request, to make or revise a local coverage determination 
     with respect to the item or service that is the subject of 
     the request not later than the date that is 210 days after 
     the date on which the Secretary makes the determination. Such 
     fiscal intermediary, carrier, or program safeguard contractor 
     shall retain the discretion to determine whether or not, and/
     or the circumstances under which, to cover the item or 
     service for which a local coverage determination is 
     requested. Nothing in this subsection shall be construed to 
     require a fiscal intermediary, carrier or program safeguard 
     contractor to develop a local coverage determination that is 
     inconsistent with any national coverage determination, or any 
     coverage provision in this title or in regulation, manual, or 
     interpretive guidance of the Secretary.
       ``(B) Rejection of request.--If the Secretary determines 
     that subparagraphs (A) through (D) of paragraph (3) have not 
     been satisfied, the Secretary shall reject the provider local 
     coverage determination request and shall notify the provider 
     of services, physician, practitioner, or supplier that filed 
     the request of the reason for such rejection and no further 
     proceedings in relation to such request shall be 
     conducted.''.
       (d) Study and Report on the Use of Contractors To Monitor 
     Medicare Appeals.--
       (1) Study.--The Secretary shall conduct a study on the 
     feasibility and advisability of requiring fiscal 
     intermediaries and carriers to monitor and track--
       (A) the subject matter and status of claims denied by the 
     fiscal intermediary or carrier (as applicable) that are 
     appealed under section 1869 of the Social Security Act (42 
     U.S.C. 1395ff), as added by section 522 of BIPA (114 Stat. 
     2763A-543) and amended by this Act; and
       (B) any final determination made with respect to such 
     claims.
       (2) Report.--Not later than the date that is 1 year after 
     the date of enactment of this Act, the Secretary shall submit 
     to Congress a report on the study conducted under paragraph 
     (1) together with such recommendations for legislation and 
     administrative action as the Commission determines 
     appropriate.
       (e) Authorization of Appropriations.--There are authorized 
     to be appropriated such sums as are necessary to carry out 
     the amendments made by subsections (a), (b), and (c).
       (f) Effective Dates.--
       (1) Provider access to review of local coverage 
     determinations.--The amendments made by subsections (a) and 
     (b) shall apply to--
       (A) any review of any local coverage determination filed on 
     or after October 1, 2003;
       (B) any request to make such a determination made on or 
     after such date; or
       (C) any local coverage determination made on or after such 
     date.
       (2) Provider local coverage determination requests.--The 
     amendment made by subsection (c) shall apply with respect to 
     provider local coverage determination requests (as defined in 
     section 1869(h)(2) of the Social Security Act, as added by 
     subsection (c)) filed on or after the date of enactment of 
     this Act.

                     Subtitle C--Contracting Reform

     SEC. 521. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

       (a) Consolidation and Flexibility in Medicare 
     Administration.--
       (1) In general.--Title XVIII is amended by inserting after 
     section 1874 the following new section:


          ``contracts with medicare administrative contractors

       ``Sec. 1874A. (a) Authority.--
       ``(1) Authority to enter into contracts.--The Secretary may 
     enter into contracts with any eligible entity to serve as a 
     medicare administrative contractor with respect to the 
     performance of any or all of the functions described in 
     paragraph (4) or parts of those functions (or, to the extent 
     provided in a contract, to secure performance thereof by 
     other entities).
       ``(2) Eligibility of entities.--An entity is eligible to 
     enter into a contract with respect to the performance of a 
     particular function described in paragraph (4) only if--
       ``(A) the entity has demonstrated capability to carry out 
     such function;

[[Page S8078]]

       ``(B) the entity complies with such conflict of interest 
     standards as are generally applicable to Federal acquisition 
     and procurement;
       ``(C) the entity has sufficient assets to financially 
     support the performance of such function; and
       ``(D) the entity meets such other requirements as the 
     Secretary may impose.
       ``(3) Medicare administrative contractor defined.--For 
     purposes of this title and title XI--
       ``(A) In general.--The term `medicare administrative 
     contractor' means an agency, organization, or other person 
     with a contract under this section.
       ``(B) Appropriate medicare administrative contractor.--With 
     respect to the performance of a particular function in 
     relation to an individual entitled to benefits under part A 
     or enrolled under part B, or both, a specific provider of 
     services, physician, practitioner, facility, or supplier (or 
     class of such providers of services, physicians, 
     practitioners, facilities, or suppliers), the `appropriate' 
     medicare administrative contractor is the medicare 
     administrative contractor that has a contract under this 
     section with respect to the performance of that function in 
     relation to that individual, provider of services, physician, 
     practitioner, facility, or supplier or class of provider of 
     services, physician, practitioner, facility, or supplier.
       ``(4) Functions described.--The functions referred to in 
     paragraphs (1) and (2) are payment functions (including the 
     function of developing local coverage determinations, as 
     defined in section 1869(f)(2)(B)), provider services 
     functions, and beneficiary services functions as follows:
       ``(A) Determination of payment amounts.--Determining 
     (subject to the provisions of section 1878 and to such review 
     by the Secretary as may be provided for by the contracts) the 
     amount of the payments required pursuant to this title to be 
     made to providers of services, physicians, practitioners, 
     facilities, suppliers, and individuals.
       ``(B) Making payments.--Making payments described in 
     subparagraph (A) (including receipt, disbursement, and 
     accounting for funds in making such payments).
       ``(C) Beneficiary education and assistance.--Serving as a 
     center for, and communicating to individuals entitled to 
     benefits under part A or enrolled under part B, or both, with 
     respect to education and outreach for those individuals, and 
     assistance with specific issues, concerns, or problems of 
     those individuals.
       ``(D) Provider consultative services.--Providing 
     consultative services to institutions, agencies, and other 
     persons to enable them to establish and maintain fiscal 
     records necessary for purposes of this title and otherwise to 
     qualify as providers of services, physicians, practitioners, 
     facilities, or suppliers.
       ``(E) Communication with providers.--Serving as a center 
     for, and communicating to providers of services, physicians, 
     practitioners, facilities, and suppliers, any information or 
     instructions furnished to the medicare administrative 
     contractor by the Secretary, and serving as a channel of 
     communication from such providers, physicians, practitioners, 
     facilities, and suppliers to the Secretary.
       ``(F) Provider education and technical assistance.--
     Performing the functions described in subsections (e) and 
     (f), relating to education, training, and technical 
     assistance to providers of services, physicians, 
     practitioners, facilities, and suppliers.
       ``(G) Additional functions.--Performing such other 
     functions, including (subject to paragraph (5)) functions 
     under the Medicare Integrity Program under section 1893, as 
     are necessary to carry out the purposes of this title.
       ``(5) Relationship to mip contracts.--
       ``(A) Nonduplication of activities.--In entering into 
     contracts under this section, the Secretary shall assure that 
     activities of medicare administrative contractors do not 
     duplicate activities carried out under contracts entered into 
     under the Medicare Integrity Program under section 1893. The 
     previous sentence shall not apply with respect to the 
     activity described in section 1893(b)(5) (relating to prior 
     authorization of certain items of durable medical equipment 
     under section 1834(a)(15)).
       ``(B) Construction.--An entity shall not be treated as a 
     medicare administrative contractor merely by reason of having 
     entered into a contract with the Secretary under section 
     1893.
       ``(6) Application of federal acquisition regulation.--
     Except to the extent inconsistent with a specific requirement 
     of this title, the Federal Acquisition Regulation applies to 
     contracts under this title.
       ``(b) Contracting Requirements.--
       ``(1) Use of competitive procedures.--
       ``(A) In general.--Except as provided in laws with general 
     applicability to Federal acquisition and procurement, the 
     Federal Acquisition Regulation, or in subparagraph (B), the 
     Secretary shall use competitive procedures when entering into 
     contracts with medicare administrative contractors under this 
     section.
       ``(B) Renewal of contracts.--The Secretary may renew a 
     contract with a medicare administrative contractor under this 
     section from term to term without regard to section 5 of 
     title 41, United States Code, or any other provision of law 
     requiring competition, if the medicare administrative 
     contractor has met or exceeded the performance requirements 
     applicable with respect to the contract and contractor, 
     except that the Secretary shall provide for the application 
     of competitive procedures under such a contract not less 
     frequently than once every 6 years.
       ``(C) Transfer of functions.--The Secretary may transfer 
     functions among medicare administrative contractors without 
     regard to any provision of law requiring competition. The 
     Secretary shall ensure that performance quality is considered 
     in such transfers. The Secretary shall provide notice 
     (whether in the Federal Register or otherwise) of any such 
     transfer (including a description of the functions so 
     transferred and contact information for the contractors 
     involved) to providers of services, physicians, 
     practitioners, facilities, and suppliers affected by the 
     transfer.
       ``(D) Incentives for quality.--The Secretary may provide 
     incentives for medicare administrative contractors to provide 
     quality service and to promote efficiency.
       ``(2) Compliance with requirements.--No contract under this 
     section shall be entered into with any medicare 
     administrative contractor unless the Secretary finds that 
     such medicare administrative contractor will perform its 
     obligations under the contract efficiently and effectively 
     and will meet such requirements as to financial 
     responsibility, legal authority, and other matters as the 
     Secretary finds pertinent.
       ``(3) Performance requirements.--
       ``(A) Development of specific performance requirements.--
     The Secretary shall develop contract performance requirements 
     to carry out the specific requirements applicable under this 
     title to a function described in subsection (a)(4) and shall 
     develop standards for measuring the extent to which a 
     contractor has met such requirements. In developing such 
     performance requirements and standards for measurement, the 
     Secretary shall consult with providers of services, 
     organizations representative of beneficiaries under this 
     title, and organizations and agencies performing functions 
     necessary to carry out the purposes of this section with 
     respect to such performance requirements. The Secretary shall 
     make such performance requirements and measurement standards 
     available to the public.
       ``(B) Considerations.--The Secretary shall include, as 1 of 
     the standards, provider and beneficiary satisfaction levels.
       ``(C) Inclusion in contracts.--All contractor performance 
     requirements shall be set forth in the contract between the 
     Secretary and the appropriate medicare administrative 
     contractor. Such performance requirements--
       ``(i) shall reflect the performance requirements published 
     under subparagraph (A), but may include additional 
     performance requirements;
       ``(ii) shall be used for evaluating contractor performance 
     under the contract; and
       ``(iii) shall be consistent with the written statement of 
     work provided under the contract.
       ``(4) Information requirements.--The Secretary shall not 
     enter into a contract with a medicare administrative 
     contractor under this section unless the contractor agrees--
       ``(A) to furnish to the Secretary such timely information 
     and reports as the Secretary may find necessary in performing 
     his functions under this title; and
       ``(B) to maintain such records and afford such access 
     thereto as the Secretary finds necessary to assure the 
     correctness and verification of the information and reports 
     under subparagraph (A) and otherwise to carry out the 
     purposes of this title.
       ``(5) Surety bond.--A contract with a medicare 
     administrative contractor under this section may require the 
     medicare administrative contractor, and any of its officers 
     or employees certifying payments or disbursing funds pursuant 
     to the contract, or otherwise participating in carrying out 
     the contract, to give surety bond to the United States in 
     such amount as the Secretary may deem appropriate.
       ``(6) Retaining diversity of local coverage 
     determinations.--A contract with a medicare administrative 
     contractor under this section to perform the function of 
     developing local coverage determinations (as defined in 
     section 1869(f)(2)(B)) shall provide that the contractor 
     shall--
       ``(A) designate at least 1 different individual to serve as 
     medical director for each State for which such contract 
     performs such function;
       ``(B) utilize such medical director in the performance of 
     such function; and
       ``(C) appoint a contractor advisory committee with respect 
     to each such State to provide a formal mechanism for 
     physicians in the State to be informed of, and participate 
     in, the development of a local coverage determination in an 
     advisory capacity.
       ``(c) Terms and Conditions.--
       ``(1) In general.--Subject to subsection (a)(6), a contract 
     with any medicare administrative contractor under this 
     section may contain such terms and conditions as the 
     Secretary finds necessary or appropriate and may provide for 
     advances of funds to the medicare administrative contractor 
     for the making of payments by it under subsection (a)(4)(B).
       ``(2) Prohibition on mandates for certain data 
     collection.--The Secretary may not require, as a condition of 
     entering into, or renewing, a contract under this section, 
     that the medicare administrative contractor match data 
     obtained other than in its activities under this title with 
     data used in the administration of this title for purposes of

[[Page S8079]]

     identifying situations in which the provisions of section 
     1862(b) may apply.
       ``(d) Limitation on Liability of Medicare Administrative 
     Contractors and Certain Officers.--
       ``(1) Certifying officer.--No individual designated 
     pursuant to a contract under this section as a certifying 
     officer shall, in the absence of the reckless disregard of 
     the individual's obligations or the intent by that individual 
     to defraud the United States, be liable with respect to 
     any payments certified by the individual under this 
     section.
       ``(2) Disbursing officer.--No disbursing officer shall, in 
     the absence of the reckless disregard of the officer's 
     obligations or the intent by that officer to defraud the 
     United States, be liable with respect to any payment by such 
     officer under this section if it was based upon an 
     authorization (which meets the applicable requirements for 
     such internal controls established by the Comptroller 
     General) of a certifying officer designated as provided in 
     paragraph (1) of this subsection.
       ``(3) Liability of medicare administrative contractor.--No 
     medicare administrative contractor shall be liable to the 
     United States for a payment by a certifying or disbursing 
     officer unless, in connection with such a payment, the 
     medicare administrative contractor acted with reckless 
     disregard of its obligations under its medicare 
     administrative contract or with intent to defraud the United 
     States.
       ``(4) Relationship to false claims act.--Nothing in this 
     subsection shall be construed to limit liability for conduct 
     that would constitute a violation of sections 3729 through 
     3731 of title 31, United States Code (commonly known as the 
     ``False Claims Act'').
       ``(5) Indemnification by secretary.--
       ``(A) In general.--Notwithstanding any other provision of 
     law and subject to the succeeding provisions of this 
     paragraph, in the case of a medicare administrative 
     contractor (or a person who is a director, officer, or 
     employee of such a contractor or who is engaged by the 
     contractor to participate directly in the claims 
     administration process) who is made a party to any judicial 
     or administrative proceeding arising from, or relating 
     directly to, the claims administration process under this 
     title, the Secretary may, to the extent specified in the 
     contract with the contractor, indemnify the contractor (and 
     such persons).
       ``(B) Conditions.--The Secretary may not provide 
     indemnification under subparagraph (A) insofar as the 
     liability for such costs arises directly from conduct that is 
     determined by the Secretary to be criminal in nature, 
     fraudulent, or grossly negligent.
       ``(C) Scope of indemnification.--Indemnification by the 
     Secretary under subparagraph (A) may include payment of 
     judgments, settlements (subject to subparagraph (D)), awards, 
     and costs (including reasonable legal expenses).
       ``(D) Written approval for settlements.--A contractor or 
     other person described in subparagraph (A) may not propose to 
     negotiate a settlement or compromise of a proceeding 
     described in such subparagraph without the prior written 
     approval of the Secretary to negotiate a settlement. Any 
     indemnification under subparagraph (A) with respect to 
     amounts paid under a settlement are conditioned upon the 
     Secretary's prior written approval of the final settlement.
       ``(E) Construction.--Nothing in this paragraph shall be 
     construed--
       ``(i) to change any common law immunity that may be 
     available to a medicare administrative contractor or person 
     described in subparagraph (A); or
       ``(ii) to permit the payment of costs not otherwise 
     allowable, reasonable, or allocable under the Federal 
     Acquisition Regulations.''.
       (2) Consideration of incorporation of current law 
     standards.--In developing contract performance requirements 
     under section 1874A(b) of the Social Security Act (as added 
     by paragraph (1)) the Secretary shall consider inclusion of 
     the performance standards described in sections 1816(f)(2) of 
     such Act (relating to timely processing of reconsiderations 
     and applications for exemptions) and section 1842(b)(2)(B) of 
     such Act (relating to timely review of determinations and 
     fair hearing requests), as such sections were in effect 
     before the date of enactment of this Act.
       (b) Conforming Amendments to Section 1816 (Relating to 
     Fiscal Intermediaries).--Section 1816 (42 U.S.C. 1395h) is 
     amended as follows:
       (1) The heading is amended to read as follows:


        ``provisions relating to the administration of part a''.

       (2) Subsection (a) is amended to read as follows:
       ``(a) The administration of this part shall be conducted 
     through contracts with medicare administrative contractors 
     under section 1874A.''.
       (3) Subsection (b) is repealed.
       (4) Subsection (c) is amended--
       (A) by striking paragraph (1); and
       (B) in each of paragraphs (2)(A) and (3)(A), by striking 
     ``agreement under this section'' and inserting ``contract 
     under section 1874A that provides for making payments under 
     this part''.
       (5) Subsections (d) through (i) are repealed.
       (6) Subsections (j) and (k) are each amended--
       (A) by striking ``An agreement with an agency or 
     organization under this section'' and inserting ``A contract 
     with a medicare administrative contractor under section 1874A 
     with respect to the administration of this part''; and
       (B) by striking ``such agency or organization'' and 
     inserting ``such medicare administrative contractor'' each 
     place it appears.
       (7) Subsection (l) is repealed.
       (c) Conforming Amendments to Section 1842 (Relating to 
     Carriers).--Section 1842 (42 U.S.C. 1395u) is amended as 
     follows:
       (1) The heading is amended to read as follows:


        ``provisions relating to the administration of part b''.

       (2) Subsection (a) is amended to read as follows:
       ``(a) The administration of this part shall be conducted 
     through contracts with medicare administrative contractors 
     under section 1874A.''.
       (3) Subsection (b) is amended--
       (A) by striking paragraph (1);
       (B) in paragraph (2)--
       (i) by striking subparagraphs (A) and (B);
       (ii) in subparagraph (C), by striking ``carriers'' and 
     inserting ``medicare administrative contractors''; and
       (iii) by striking subparagraphs (D) and (E);
       (C) in paragraph (3)--
       (i) in the matter before subparagraph (A), by striking 
     ``Each such contract shall provide that the carrier'' and 
     inserting ``The Secretary'';
       (ii) by striking ``will'' the first place it appears in 
     each of subparagraphs (A), (B), (F), (G), (H), and (L) and 
     inserting ``shall'';
       (iii) in subparagraph (B), in the matter before clause (i), 
     by striking ``to the policyholders and subscribers of the 
     carrier'' and inserting ``to the policyholders and 
     subscribers of the medicare administrative contractor'';
       (iv) by striking subparagraphs (C), (D), and (E);
       (v) in subparagraph (H)--

       (I) by striking ``if it makes determinations or payments 
     with respect to physicians' services,''; and
       (II) by striking ``carrier'' and inserting ``medicare 
     administrative contractor'';

       (vi) by striking subparagraph (I);
       (vii) in subparagraph (L), by striking the semicolon and 
     inserting a period;
       (viii) in the first sentence, after subparagraph (L), by 
     striking ``and shall contain'' and all that follows through 
     the period; and
       (ix) in the seventh sentence, by inserting ``medicare 
     administrative contractor,'' after ``carrier,'';
       (D) by striking paragraph (5);
       (E) in paragraph (6)(D)(iv), by striking ``carrier'' and 
     inserting ``medicare administrative contractor''; and
       (F) in paragraph (7), by striking ``the carrier'' and 
     inserting ``the Secretary'' each place it appears.
       (4) Subsection (c) is amended--
       (A) by striking paragraph (1);
       (B) in paragraph (2), by striking ``contract under this 
     section which provides for the disbursement of funds, as 
     described in subsection (a)(1)(B),'' and inserting ``contract 
     under section 1874A that provides for making payments under 
     this part'';
       (C) in paragraph (3)(A), by striking ``subsection 
     (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
       (D) in paragraph (4), by striking ``carrier'' and inserting 
     ``medicare administrative contractor'';
       (E) in paragraph (5), by striking ``contract under this 
     section which provides for the disbursement of funds, as 
     described in subsection (a)(1)(B), shall require the 
     carrier'' and ``carrier responses'' and inserting ``contract 
     under section 1874A that provides for making payments under 
     this part shall require the medicare administrative 
     contractor'' and ``contractor responses'', respectively; and
       (F) by striking paragraph (6).
       (5) Subsections (d), (e), and (f) are repealed.
       (6) Subsection (g) is amended by striking ``carrier or 
     carriers'' and inserting ``medicare administrative contractor 
     or contractors''.
       (7) Subsection (h) is amended--
       (A) in paragraph (2)--
       (i) by striking ``Each carrier having an agreement with the 
     Secretary under subsection (a)'' and inserting ``The 
     Secretary''; and
       (ii) by striking ``Each such carrier'' and inserting ``The 
     Secretary'';
       (B) in paragraph (3)(A)--
       (i) by striking ``a carrier having an agreement with the 
     Secretary under subsection (a)'' and inserting ``medicare 
     administrative contractor having a contract under section 
     1874A that provides for making payments under this part''; 
     and
       (ii) by striking ``such carrier'' and inserting ``such 
     contractor'';
       (C) in paragraph (3)(B)--
       (i) by striking ``a carrier'' and inserting ``a medicare 
     administrative contractor'' each place it appears; and
       (ii) by striking ``the carrier'' and inserting ``the 
     contractor'' each place it appears; and
       (D) in paragraphs (5)(A) and (5)(B)(iii), by striking 
     ``carriers'' and inserting ``medicare administrative 
     contractors'' each place it appears.
       (8) Subsection (l) is amended--
       (A) in paragraph (1)(A)(iii), by striking ``carrier'' and 
     inserting ``medicare administrative contractor''; and
       (B) in paragraph (2), by striking ``carrier'' and inserting 
     ``medicare administrative contractor''.

[[Page S8080]]

       (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
     and inserting ``medicare administrative contractor''.
       (10) Subsection (q)(1)(A) is amended by striking 
     ``carrier''.
       (d) Effective Date; Transition Rule.--
       (1) Effective date.--
       (A) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall take 
     effect on October 1, 2005, and the Secretary is authorized to 
     take such steps before such date as may be necessary to 
     implement such amendments on a timely basis.
       (B) Construction for current contracts.--Such amendments 
     shall not apply to contracts in effect before the date 
     specified under subparagraph (A) that continue to retain the 
     terms and conditions in effect on such date (except as 
     otherwise provided under this title, other than under this 
     section) until such date as the contract is let out for 
     competitive bidding under such amendments.
       (C) Deadline for competitive bidding.--The Secretary shall 
     provide for the letting by competitive bidding of all 
     contracts for functions of medicare administrative 
     contractors for annual contract periods that begin on or 
     after October 1, 2011.
       (2) General transition rules.--
       (A) Authority to continue to enter into new agreements and 
     contracts and waiver of provider nomination provisions during 
     transition.--Prior to the date specified in paragraph (1)(A), 
     the Secretary may, consistent with subparagraph (B), continue 
     to enter into agreements under section 1816 and contracts 
     under section 1842 of the Social Security Act (42 U.S.C. 
     1395h, 1395u). The Secretary may enter into new agreements 
     under section 1816 during the time period without regard to 
     any of the provider nomination provisions of such section.
       (B) Appropriate transition.--The Secretary shall take such 
     steps as are necessary to provide for an appropriate 
     transition from agreements under section 1816 and contracts 
     under section 1842 of the Social Security Act (42 U.S.C. 
     1395h, 1395u) to contracts under section 1874A, as added by 
     subsection (a)(1).
       (3) Authorizing continuation of mip activities under 
     current contracts and agreements and under transition 
     contracts.--The provisions contained in the exception in 
     section 1893(d)(2) of the Social Security Act (42 U.S.C. 
     1395ddd(d)(2)) shall continue to apply notwithstanding the 
     amendments made by this section, and any reference in such 
     provisions to an agreement or contract shall be deemed to 
     include agreements and contracts entered into pursuant to 
     paragraph (2)(A).
       (e) References.--On and after the effective date provided 
     under subsection (d)(1), any reference to a fiscal 
     intermediary or carrier under title XI or XVIII of the Social 
     Security Act (or any regulation, manual instruction, 
     interpretative rule, statement of policy, or guideline issued 
     to carry out such titles) shall be deemed a reference to an 
     appropriate medicare administrative contractor (as provided 
     under section 1874A of the Social Security Act).
       (f) Secretarial Submission of Legislative Proposal.--Not 
     later than 6 months after the date of enactment of this Act, 
     the Secretary shall submit to the appropriate committees of 
     Congress a legislative proposal providing for such technical 
     and conforming amendments in the law as are required by the 
     provisions of this section.
       (g) Reports on Implementation.--
       (1) Proposal for implementation.--At least 1 year before 
     the date specified in subsection (d)(1)(A), the Secretary 
     shall submit a report to Congress and the Comptroller General 
     of the United States that describes a plan for an appropriate 
     transition. The Comptroller General shall conduct an 
     evaluation of such plan and shall submit to Congress, not 
     later than 6 months after the date the report is received, a 
     report on such evaluation and shall include in such report 
     such recommendations as the Comptroller General deems 
     appropriate.
       (2) Status of implementation.--The Secretary shall submit a 
     report to Congress not later than October 1, 2008, that 
     describes the status of implementation of such amendments and 
     that includes a description of the following:
       (A) The number of contracts that have been competitively 
     bid as of such date.
       (B) The distribution of functions among contracts and 
     contractors.
       (C) A timeline for complete transition to full competition.
       (D) A detailed description of how the Secretary has 
     modified oversight and management of medicare contractors to 
     adapt to full competition.

            Subtitle D--Education and Outreach Improvements

     SEC. 531. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

       (a) Coordination of Education Funding.--
       (1) In general.--The Social Security Act is amended by 
     inserting after section 1888 the following new section:


             ``provider education and technical assistance

       ``Sec. 1889. (a) Coordination of Education Funding.--The 
     Secretary shall coordinate the educational activities 
     provided through medicare contractors (as defined in 
     subsection (e), including under section 1893) in order to 
     maximize the effectiveness of Federal education efforts for 
     providers of services, physicians, practitioners, and 
     suppliers.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of enactment of this Act.
       (3) Report.--Not later than October 1, 2004, the Secretary 
     shall submit to Congress a report that includes a description 
     and evaluation of the steps taken to coordinate the funding 
     of provider education under section 1889(a) of the Social 
     Security Act, as added by paragraph (1).
       (b) Incentives To Improve Contractor Performance.--
       (1) In general.--Section 1874A, as added by section 
     521(a)(1), is amended by adding at the end the following new 
     subsection:
       ``(e) Incentives To Improve Contractor Performance in 
     Provider Education and Outreach.--
       ``(1) Methodology to measure contractor error rates.--In 
     order to give medicare contractors (as defined in paragraph 
     (3)) an incentive to implement effective education and 
     outreach programs for providers of services, physicians, 
     practitioners, and suppliers, the Secretary shall develop and 
     implement by October 1, 2004, a methodology to measure the 
     specific claims payment error rates of such contractors in 
     the processing or reviewing of medicare claims.
       ``(2) GAO review of methodology.--The Comptroller General 
     of the United States shall review, and make recommendations 
     to the Secretary, regarding the adequacy of such methodology.
       ``(3) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' includes a 
     medicare administrative contractor, a fiscal intermediary 
     with a contract under section 1816, and a carrier with a 
     contract under section 1842.''.
       (2) Report.--The Secretary shall submit to Congress a 
     report that describes how the Secretary intends to use the 
     methodology developed under section 1874A(e)(1) of the Social 
     Security Act, as added by paragraph (1), in assessing 
     medicare contractor performance in implementing effective 
     education and outreach programs, including whether to use 
     such methodology as a basis for performance bonuses.
       (c) Improved Provider Education and Training.--
       (1) Increased funding for enhanced education and training 
     through medicare integrity program.--Section 1817(k)(4) (42 
     U.S.C. 1395i(k)(4)) is amended--
       (A) in subparagraph (A), by striking ``subparagraph (B)'' 
     and inserting ``subparagraphs (B) and (C)'';
       (B) in subparagraph (B), by striking ``The amount 
     appropriated'' and inserting ``Subject to subparagraph (C), 
     the amount appropriated''; and
       (C) by adding at the end the following new subparagraph:
       ``(C) Enhanced provider education and training.--
       ``(i) In general.--In addition to the amount appropriated 
     under subparagraph (B), the amount appropriated under 
     subparagraph (A) for a fiscal year (beginning with fiscal 
     year 2004) is increased by $35,000,000.
       ``(ii) Use.--The funds made available under this 
     subparagraph shall be used only to increase the conduct by 
     medicare contractors of education and training of providers 
     of services, physicians, practitioners, and suppliers 
     regarding billing, coding, and other appropriate items and 
     may also be used to improve the accuracy, consistency, and 
     timeliness of contractor responses to written and phone 
     inquiries from providers of services, physicians, 
     practitioners, and suppliers.''.
       (2) Tailoring education and training for small providers or 
     suppliers.--
       (A) In general.--Section 1889, as added by subsection (a), 
     is amended by adding at the end the following new subsection:
       ``(b) Tailoring Education and Training Activities for Small 
     Providers or Suppliers.--
       ``(1) In general.--Insofar as a medicare contractor 
     conducts education and training activities, it shall take 
     into consideration the special needs of small providers of 
     services or suppliers (as defined in paragraph (2)). Such 
     education and training activities for small providers of 
     services and suppliers may include the provision of technical 
     assistance (such as review of billing systems and internal 
     controls to determine program compliance and to suggest more 
     efficient and effective means of achieving such compliance).
       ``(2) Small provider of services or supplier.--In this 
     subsection, the term `small provider of services or supplier' 
     means--
       ``(A) an institutional provider of services with fewer than 
     25 full-time-equivalent employees; or
       ``(B) a physician, practitioner, or supplier with fewer 
     than 10 full-time-equivalent employees.''.
       (B) Effective date.--The amendment made by subparagraph (A) 
     shall take effect on January 1, 2004.
       (d) Additional Provider Education Provisions.--
       (1) In general.--Section 1889, as added by subsection (a) 
     and as amended by subsection (c)(2), is amended by adding at 
     the end the following new subsections:
       ``(c) Encouragement of Participation in Education Program 
     Activities.--A medicare contractor may not use a record of 
     attendance at (or failure to attend) educational activities 
     or other information gathered during an educational program 
     conducted under this section or otherwise by the Secretary to 
     select or track providers of

[[Page S8081]]

     services, physicians, practitioners, or suppliers for the 
     purpose of conducting any type of audit or prepayment review.
       ``(d) Construction.--Nothing in this section or section 
     1893(g) shall be construed as providing for disclosure by a 
     medicare contractor--
       ``(1) of the screens used for identifying claims that will 
     be subject to medical review; or
       ``(2) of information that would compromise pending law 
     enforcement activities or reveal findings of law enforcement-
     related audits.
       ``(e) Definitions.--For purposes of this section and 
     section 1817(k)(4)(C), the term `medicare contractor' 
     includes the following:
       ``(1) A medicare administrative contractor with a contract 
     under section 1874A, a fiscal intermediary with a contract 
     under section 1816, and a carrier with a contract under 
     section 1842.
       ``(2) An eligible entity with a contract under section 
     1893.

     Such term does not include, with respect to activities of a 
     specific provider of services, physician, practitioner, or 
     supplier an entity that has no authority under this title or 
     title XI with respect to such activities and such provider of 
     services, physician, practitioner, or supplier.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of enactment of this Act.

     SEC. 532. ACCESS TO AND PROMPT RESPONSES FROM MEDICARE 
                   CONTRACTORS.

       (a) In General.--Section 1874A, as added by section 
     521(a)(1) and as amended by section 531(b)(1), is amended by 
     adding at the end the following new subsection:
       ``(f) Communicating With Beneficiaries and Providers.--
       ``(1) Communication process.--The Secretary shall develop a 
     process for medicare contractors to communicate with 
     beneficiaries and with providers of services, physicians, 
     practitioners, and suppliers under this title.
       ``(2) Response to written inquiries.--Each medicare 
     contractor (as defined in paragraph (5)) shall provide 
     general written responses (which may be through electronic 
     transmission) in a clear, concise, and accurate manner to 
     inquiries by beneficiaries, providers of services, 
     physicians, practitioners, and suppliers concerning the 
     programs under this title within 45 business days of the date 
     of receipt of such inquiries.
       ``(3) Response to toll-free lines.--The Secretary shall 
     ensure that medicare contractors provide a toll-free 
     telephone number at which beneficiaries, providers, 
     physicians, practitioners, and suppliers may obtain 
     information regarding billing, coding, claims, coverage, and 
     other appropriate information under this title.
       ``(4) Monitoring of contractor responses.--
       ``(A) In general.--Each medicare contractor shall, 
     consistent with standards developed by the Secretary under 
     subparagraph (B)--
       ``(i) maintain a system for identifying who provides the 
     information referred to in paragraphs (2) and (3); and
       ``(ii) monitor the accuracy, consistency, and timeliness of 
     the information so provided.
       ``(B) Development of standards.--
       ``(i) In general.--The Secretary shall establish (and 
     publish in the Federal Register) standards regarding the 
     accuracy, consistency, and timeliness of the information 
     provided in response to inquiries under this subsection. Such 
     standards shall be consistent with the performance 
     requirements established under subsection (b)(3).
       ``(ii) Evaluation.--In conducting evaluations of individual 
     medicare contractors, the Secretary shall consider the 
     results of the monitoring conducted under subparagraph (A) 
     taking into account as performance requirements the standards 
     established under clause (i). The Secretary shall, in 
     consultation with organizations representing providers of 
     services, suppliers, and individuals entitled to benefits 
     under part A or enrolled under part B, or both, establish 
     standards relating to the accuracy, consistency, and 
     timeliness of the information so provided.
       ``(C) Direct monitoring.--Nothing in this paragraph shall 
     be construed as preventing the Secretary from directly 
     monitoring the accuracy, consistency, and timeliness of the 
     information so provided.
       ``(5) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' has the meaning 
     given such term in subsection (e)(3).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect October 1, 2004.

     SEC. 533. RELIANCE ON GUIDANCE.

       (a) In General.--Section 1871(d), as added by section 
     502(a), is amended by adding at the end the following new 
     paragraph:
       ``(2) If--
       ``(A) a provider of services, physician, practitioner, or 
     other supplier follows written guidance provided--
       ``(i) by the Secretary; or
       ``(ii) by a medicare contractor (as defined in section 
     1889(e) and whether in the form of a written response to a 
     written inquiry under section 1874A(f)(1) or otherwise) 
     acting within the scope of the contractor's contract 
     authority,

     in response to a written inquiry with respect to the 
     furnishing of items or services or the submission of a claim 
     for benefits for such items or services;
       ``(B) the Secretary determines that--
       ``(i) the provider of services, physician, practitioner, or 
     supplier has accurately presented the circumstances relating 
     to such items, services, and claim to the Secretary or the 
     contractor in the written guidance; and
       ``(ii) there is no indication of fraud or abuse committed 
     by the provider of services, physician, practitioner, or 
     supplier against the program under this title; and
       ``(C) the guidance was in error;

     the provider of services, physician, practitioner, or 
     supplier shall not be subject to any penalty or interest 
     under this title (or the provisions of title XI insofar as 
     they relate to this title) relating to the provision of such 
     items or service or such claim if the provider of services, 
     physician, practitioner, or supplier reasonably relied on 
     such guidance. In applying this paragraph with respect to 
     guidance in the form of general responses to frequently asked 
     questions, the Secretary retains authority to determine the 
     extent to which such general responses apply to the 
     particular circumstances of individual claims.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to penalties imposed on or after the date of 
     enactment of this Act.

     SEC. 534. MEDICARE PROVIDER OMBUDSMAN.

       (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 
     1395ee) is amended--
       (1) by adding at the end of the heading the following: ``; 
     medicare provider ombudsman'';
       (2) by inserting ``Practicing Physicians Advisory 
     Council.--(1)'' after ``(a)'';
       (3) in paragraph (1), as so redesignated under paragraph 
     (2), by striking ``in this section'' and inserting ``in this 
     subsection'';
       (4) by redesignating subsections (b) and (c) as paragraphs 
     (2) and (3), respectively; and
       (5) by adding at the end the following new subsection:
       ``(b) Medicare Provider Ombudsman.--
       ``(1) In general.--By not later than 1 year after the date 
     of enactment of the Prescription Drug and Medicare 
     Improvement Act of 2003, the Secretary shall appoint a 
     Medicare Provider Ombudsman.
       ``(2) Duties.--The Medicare Provider Ombudsman shall--
       ``(A) provide assistance, on a confidential basis, to 
     entities and individuals providing items and services, 
     including covered drugs under part D, under this title with 
     respect to complaints, grievances, and requests for 
     information concerning the programs under this title 
     (including provisions of title XI insofar as they relate to 
     this title and are not administered by the Office of the 
     Inspector General of the Department of Health and Human 
     Services) and in the resolution of unclear or conflicting 
     guidance given by the Secretary and medicare contractors to 
     such providers of services and suppliers regarding such 
     programs and provisions and requirements under this title and 
     such provisions; and
       ``(B) submit recommendations to the Secretary for 
     improvement in the administration of this title and such 
     provisions, including--
       ``(i) recommendations to respond to recurring patterns of 
     confusion in this title and such provisions (including 
     recommendations regarding suspending imposition of sanctions 
     where there is widespread confusion in program 
     administration), and
       ``(ii) recommendations to provide for an appropriate and 
     consistent response (including not providing for audits) in 
     cases of self-identified overpayments by providers of 
     services and suppliers.
       ``(3) Staff.--The Secretary shall provide the Medicare 
     Provider Ombudsman with appropriate staff.''.
       (b) Funding.--There are authorized to be appropriated to 
     the Secretary (in appropriate part from the Federal Hospital 
     Insurance Trust Fund and the Federal Supplementary Medical 
     Insurance Trust Fund (including the Prescription Drug 
     Account)) to carry out the provisions of subsection (b) of 
     section 1868 of the Social Security Act (42 U.S.C. 1395ee) 
     (relating to the Medicare Provider Ombudsman), as added by 
     subsection (a)(5), such sums as are necessary for fiscal year 
     2004 and each succeeding fiscal year.

     SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PROGRAMS.

       (a) Demonstration on the Provision of Advice and Assistance 
     to Medicare Beneficiaries at Local Offices of the Social 
     Security Administration.--
       (1) Establishment.--The Secretary shall establish a 
     demonstration program (in this subsection referred to as the 
     ``demonstration program'') under which medicare specialists 
     employed by the Department of Health and Human Services 
     provide advice and assistance to medicare beneficiaries at 
     the location of existing local offices of the Social Security 
     Administration.
       (2) Locations.--
       (A) In general.--The demonstration program shall be 
     conducted in at least 6 offices or areas. Subject to 
     subparagraph (B), in selecting such offices and areas, the 
     Secretary shall provide preference for offices with a high 
     volume of visits by medicare beneficiaries.
       (B) Assistance for rural beneficiaries.--The Secretary 
     shall provide for the selection of at least 2 rural areas to 
     participate in the demonstration program. In conducting the 
     demonstration program in such rural areas, the Secretary 
     shall provide for medicare specialists to travel among local 
     offices in a rural area on a scheduled basis.
       (3) Duration.--The demonstration program shall be conducted 
     over a 3-year period.

[[Page S8082]]

       (4) Evaluation and report.--
       (A) Evaluation.--The Secretary shall provide for an 
     evaluation of the demonstration program. Such evaluation 
     shall include an analysis of--
       (i) utilization of, and beneficiary satisfaction with, the 
     assistance provided under the program; and
       (ii) the cost-effectiveness of providing beneficiary 
     assistance through out-stationing medicare specialists at 
     local social security offices.
       (B) Report.--The Secretary shall submit to Congress a 
     report on such evaluation and shall include in such report 
     recommendations regarding the feasibility of permanently out-
     stationing Medicare specialists at local social security 
     offices.
       (b) Demonstration on Providing Prior Determinations.--
       (1) Establishment.--By not later than 1 year after the date 
     of enactment of this Act, the Secretary shall establish a 
     demonstration project to test the administrative feasibility 
     of providing a process for medicare beneficiaries and 
     entities and individuals furnishing such beneficiaries with 
     items and services under title XVIII of the Social Security 
     Act program to make a request for, and receive, a 
     determination (after an advance beneficiary notice is issued 
     with respect to the item or service involved but before such 
     item or service is furnished to the beneficiary) as to 
     whether the item or service is covered under such title 
     consistent with the applicable requirements of section 
     1862(a)(1)(A) of such Act (42 U.S.C. 1395y(a)(1)(A)) 
     (relating to medical necessity).
       (2) Evaluation and report.--
       (A) Evaluation.--The Secretary shall provide for an 
     evaluation of the demonstration program conducted under 
     paragraph (1).
       (B) Report.--By not later than January 1, 2006, the 
     Secretary shall submit to Congress a report on such 
     evaluation together with recommendations for such legislation 
     and administrative actions as the Secretary considers 
     appropriate.

          Subtitle E--Review, Recovery, and Enforcement Reform

     SEC. 541. PREPAYMENT REVIEW.

       (a) In General.--Section 1874A, as added by section 
     521(a)(1) and as amended by sections 531(b)(1) and 532(a), is 
     amended by adding at the end the following new subsection:
       ``(g) Conduct of Prepayment Review.--
       ``(1) Standardization of random prepayment review.--A 
     medicare administrative contractor shall conduct random 
     prepayment review only in accordance with a standard protocol 
     for random prepayment audits developed by the Secretary.
       ``(2) Limitations on initiation of nonrandom prepayment 
     review.--A medicare administrative contractor may not 
     initiate nonrandom prepayment review of a provider of 
     services, physician, practitioner, or supplier based on the 
     initial identification by that provider of services, 
     physician, practitioner, or supplier of an improper billing 
     practice unless there is a likelihood of sustained or high 
     level of payment error (as defined by the Secretary).
       ``(3) Termination of nonrandom prepayment review.--The 
     Secretary shall establish protocols or standards relating to 
     the termination, including termination dates, of nonrandom 
     prepayment review. Such regulations may vary such a 
     termination date based upon the differences in the 
     circumstances triggering prepayment review.
       ``(4) Construction.--Nothing in this subsection shall be 
     construed as preventing the denial of payments for claims 
     actually reviewed under a random prepayment review. In the 
     case of a provider of services, physician, practitioner, or 
     supplier with respect to which amounts were previously 
     overpaid, nothing in this subsection shall be construed as 
     limiting the ability of a medicare administrative contractor 
     to request the periodic production of records or supporting 
     documentation for a limited sample of submitted claims to 
     ensure that the previous practice is not continuing.
       ``(5) Random prepayment review defined.--For purposes of 
     this subsection, the term `random prepayment review' means a 
     demand for the production of records or documentation absent 
     cause with respect to a claim.''.
       (b) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendment made by subsection (a) shall take effect on the 
     date of enactment of this Act.
       (2) Deadline for promulgation of certain regulations.--The 
     Secretary shall first issue regulations under section 
     1874A(g) of the Social Security Act, as added by subsection 
     (a), by not later than 1 year after the date of enactment of 
     this Act.
       (3) Application of standard protocols for random prepayment 
     review.--Section 1874A(g)(1) of the Social Security Act, as 
     added by subsection (a), shall apply to random prepayment 
     reviews conducted on or after such date (not later than 1 
     year after the date of enactment of this Act) as the 
     Secretary shall specify. The Secretary shall develop and 
     publish the standard protocol under such section by not later 
     than 1 year after the date of enactment of this Act.

     SEC. 542. RECOVERY OF OVERPAYMENTS.

       (a) In General.--Section 1874A, as added by section 
     521(a)(1) and as amended by sections 531(b)(1), 532(a), and 
     541(a), is amended by adding at the end the following new 
     subsection:
       ``(h) Recovery of Overpayments.--
       ``(1) Use of repayment plans.--
       ``(A) In general.--If the repayment, within the period 
     otherwise permitted by a provider of services, physician, 
     practitioner, or other supplier, of an overpayment under this 
     title meets the standards developed under subparagraph (B), 
     subject to subparagraph (C), and the provider, physician, 
     practitioner, or supplier requests the Secretary to enter 
     into a repayment plan with respect to such overpayment, the 
     Secretary shall enter into a plan with the provider, 
     physician, practitioner, or supplier for the offset or 
     repayment (at the election of the provider, physician, 
     practitioner, or supplier) of such overpayment over a period 
     of at least 1 year, but not longer than 3 years. Interest 
     shall accrue on the balance through the period of repayment. 
     The repayment plan shall meet terms and conditions determined 
     to be appropriate by the Secretary.
       ``(B) Development of standards.--The Secretary shall 
     develop standards for the recovery of overpayments. Such 
     standards shall--
       ``(i) include a requirement that the Secretary take into 
     account (and weigh in favor of the use of a repayment plan) 
     the reliance (as described in section 1871(d)(2)) by a 
     provider of services, physician, practitioner, and supplier 
     on guidance when determining whether a repayment plan should 
     be offered; and
       ``(ii) provide for consideration of the financial hardship 
     imposed on a provider of services, physician, practitioner, 
     or supplier in considering such a repayment plan.

     In developing standards with regard to financial hardship 
     with respect to a provider of services, physician, 
     practitioner, or supplier, the Secretary shall take into 
     account the amount of the proposed recovery as a proportion 
     of payments made to that provider, physician, practitioner, 
     or supplier.
       ``(C) Exceptions.--Subparagraph (A) shall not apply if--
       ``(i) the Secretary has reason to suspect that the provider 
     of services, physician, practitioner, or supplier may file 
     for bankruptcy or otherwise cease to do business or 
     discontinue participation in the program under this title; or
       ``(ii) there is an indication of fraud or abuse committed 
     against the program.
       ``(D) Immediate collection if violation of repayment 
     plan.--If a provider of services, physician, practitioner, or 
     supplier fails to make a payment in accordance with a 
     repayment plan under this paragraph, the Secretary may 
     immediately seek to offset or otherwise recover the total 
     balance outstanding (including applicable interest) under the 
     repayment plan.
       ``(E) Relation to no fault provision.--Nothing in this 
     paragraph shall be construed as affecting the application of 
     section 1870(c) (relating to no adjustment in the cases of 
     certain overpayments).
       ``(2) Limitation on recoupment.--
       ``(A) No recoupment until reconsideration exercised.--In 
     the case of a provider of services, physician, practitioner, 
     or supplier that is determined to have received an 
     overpayment under this title and that seeks a reconsideration 
     of such determination by a qualified independent contractor 
     under section 1869(c), the Secretary may not take any action 
     (or authorize any other person, including any Medicare 
     contractor, as defined in subparagraph (C)) to recoup the 
     overpayment until the date the decision on the 
     reconsideration has been rendered.
       ``(B) Payment of interest.--
       ``(i) Return of recouped amount with interest in case of 
     reversal.--Insofar as such determination on appeal against 
     the provider of services, physician, practitioner, or 
     supplier is later reversed, the Secretary shall provide for 
     repayment of the amount recouped plus interest for the period 
     in which the amount was recouped.
       ``(ii) Interest in case of affirmation.--Insofar as the 
     determination on such appeal is against the provider of 
     services, physician, practitioner, or supplier, interest on 
     the overpayment shall accrue on and after the date of the 
     original notice of overpayment.
       ``(iii) Rate of interest.--The rate of interest under this 
     subparagraph shall be the rate otherwise applicable under 
     this title in the case of overpayments.
       ``(C) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' has the meaning 
     given such term in section 1889(e).
       ``(3) Payment audits.--
       ``(A) Written notice for post-payment audits.--Subject to 
     subparagraph (C), if a medicare contractor decides to conduct 
     a post-payment audit of a provider of services, physician, 
     practitioner, or supplier under this title, the contractor 
     shall provide the provider of services, physician, 
     practitioner, or supplier with written notice (which may be 
     in electronic form) of the intent to conduct such an audit.
       ``(B) Explanation of findings for all audits.--Subject to 
     subparagraph (C), if a medicare contractor audits a provider 
     of services, physician, practitioner, or supplier under this 
     title, the contractor shall--
       ``(i) give the provider of services, physician, 
     practitioner, or supplier a full review and explanation of 
     the findings of the audit in a manner that is understandable 
     to the provider of services, physician, practitioner, or 
     supplier and permits the development of an appropriate 
     corrective action plan;
       ``(ii) inform the provider of services, physician, 
     practitioner, or supplier of the appeal

[[Page S8083]]

     rights under this title as well as consent settlement options 
     (which are at the discretion of the Secretary); and
       ``(iii) give the provider of services, physician, 
     practitioner, or supplier an opportunity to provide 
     additional information to the contractor.
       ``(C) Exception.--Subparagraphs (A) and (B) shall not apply 
     if the provision of notice or findings would compromise 
     pending law enforcement activities, whether civil or 
     criminal, or reveal findings of law enforcement-related 
     audits.
       ``(4) Notice of over-utilization of codes.--The Secretary 
     shall establish, in consultation with organizations 
     representing the classes of providers of services, 
     physicians, practitioners, and suppliers, a process under 
     which the Secretary provides for notice to classes of 
     providers of services, physicians, practitioners, and 
     suppliers served by a medicare contractor in cases in which 
     the contractor has identified that particular billing codes 
     may be overutilized by that class of providers of services, 
     physicians, practitioners, or suppliers under the programs 
     under this title (or provisions of title XI insofar as they 
     relate to such programs).
       ``(5) Standard methodology for probe sampling.--The 
     Secretary shall establish a standard methodology for medicare 
     administrative contractors to use in selecting a sample of 
     claims for review in the case of an abnormal billing pattern.
       ``(6) Consent settlement reforms.--
       ``(A) In general.--The Secretary may use a consent 
     settlement (as defined in subparagraph (D)) to settle a 
     projected overpayment.
       ``(B) Opportunity to submit additional information before 
     consent settlement offer.--Before offering a provider of 
     services, physician, practitioner, or supplier a consent 
     settlement, the Secretary shall--
       ``(i) communicate to the provider of services, physician, 
     practitioner, or supplier in a nonthreatening manner that, 
     based on a review of the medical records requested by the 
     Secretary, a preliminary evaluation of those records 
     indicates that there would be an overpayment; and
       ``(ii) provide for a 45-day period during which the 
     provider of services, physician, practitioner, or supplier 
     may furnish additional information concerning the medical 
     records for the claims that had been reviewed.
       ``(C) Consent settlement offer.--The Secretary shall review 
     any additional information furnished by the provider of 
     services, physician, practitioner, or supplier under 
     subparagraph (B)(ii). Taking into consideration such 
     information, the Secretary shall determine if there still 
     appears to be an overpayment. If so, the Secretary--
       ``(i) shall provide notice of such determination to the 
     provider of services, physician, practitioner, or supplier, 
     including an explanation of the reason for such 
     determination; and
       ``(ii) in order to resolve the overpayment, may offer the 
     provider of services, physician, practitioner, or supplier--

       ``(I) the opportunity for a statistically valid random 
     sample; or
       ``(II) a consent settlement.

     The opportunity provided under clause (ii)(I) does not waive 
     any appeal rights with respect to the alleged overpayment 
     involved.
       ``(D) Consent settlement defined.--For purposes of this 
     paragraph, the term `consent settlement' means an agreement 
     between the Secretary and a provider of services, physician, 
     practitioner, or supplier whereby both parties agree to 
     settle a projected overpayment based on less than a 
     statistically valid sample of claims and the provider of 
     services, physician, practitioner, or supplier agrees not to 
     appeal the claims involved.''.
       (b) Effective Dates and Deadlines.--
       (1) Not later than 1 year after the date of enactment of 
     this Act, the Secretary shall first--
       (A) develop standards for the recovery of overpayments 
     under section 1874A(h)(1)(B) of the Social Security Act, as 
     added by subsection (a);
       (B) establish the process for notice of overutilization of 
     billing codes under section 1874A(h)(4) of the Social 
     Security Act, as added by subsection (a); and
       (C) establish a standard methodology for selection of 
     sample claims for abnormal billing patterns under section 
     1874A(h)(5) of the Social Security Act, as added by 
     subsection (a).
       (2) Section 1874A(h)(2) of the Social Security Act, as 
     added by subsection (a), shall apply to actions taken after 
     the date that is 1 year after the date of enactment of this 
     Act.
       (3) Section 1874A(h)(3) of the Social Security Act, as 
     added by subsection (a), shall apply to audits initiated 
     after the date of enactment of this Act.
       (4) Section 1874A(h)(6) of the Social Security Act, as 
     added by subsection (a), shall apply to consent settlements 
     entered into after the date of enactment of this Act.

     SEC. 543. PROCESS FOR CORRECTION OF MINOR ERRORS AND 
                   OMISSIONS ON CLAIMS WITHOUT PURSUING APPEALS 
                   PROCESS.

       (a) In General.--The Secretary shall develop, in 
     consultation with appropriate medicare contractors (as 
     defined in section 1889(e) of the Social Security Act, as 
     added by section 531(d)(1)) and representatives of providers 
     of services, physicians, practitioners, facilities, and 
     suppliers, a process whereby, in the case of minor errors or 
     omissions (as defined by the Secretary) that are detected in 
     the submission of claims under the programs under title XVIII 
     of such Act, a provider of services, physician, practitioner, 
     facility, or supplier is given an opportunity to correct such 
     an error or omission without the need to initiate an appeal. 
     Such process shall include the ability to resubmit corrected 
     claims.
       (b) Deadline.--Not later than 1 year after the date of 
     enactment of this Act, the Secretary shall first develop the 
     process under subsection (a).

     SEC. 544. AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

       The first sentence of section 1128(c)(3)(B) (42 U.S.C. 
     1320a-7(c)(3)(B)) is amended to read as follows: ``Subject to 
     subparagraph (G), in the case of an exclusion under 
     subsection (a), the minimum period of exclusion shall be not 
     less than 5 years, except that, upon the request of an 
     administrator of a Federal health care program (as defined in 
     section 1128B(f)) who determines that the exclusion would 
     impose a hardship on beneficiaries of that program, the 
     Secretary may, after consulting with the Inspector General of 
     the Department of Health and Human Services, waive the 
     exclusion under subsection (a)(1), (a)(3), or (a)(4) with 
     respect to that program in the case of an individual or 
     entity that is the sole community physician or sole source of 
     essential specialized services in a community.''.

                       TITLE VI--OTHER PROVISIONS

     SEC. 601. INCREASE IN MEDICAID DSH ALLOTMENTS FOR FISCAL 
                   YEARS 2004 AND 2005.

       (a) In General.--Section 1923(f)(4) (42 U.S.C. 1396r-
     4(f)(4)) is amended--
       (1) in the paragraph heading, by striking ``fiscal years 
     2001 and 2002'' and inserting ``certain fiscal years'';
       (2) in subparagraph (A)--
       (A) in clause (i)--
       (i) by striking ``paragraph (2)'' and inserting 
     ``paragraphs (2) and (3)''; and
       (ii) by striking ``and'' at the end;
       (B) in clause (ii), by striking the period and inserting a 
     semicolon; and
       (C) by adding at the end the following:
       ``(iii) for fiscal year 2004, shall be the DSH allotment 
     determined under paragraph (3) for that fiscal year increased 
     by the amount equal to the product of 0.50 and the difference 
     between--

       ``(I) the amount that the DSH allotment would be if the DSH 
     allotment for the State determined under clause (ii) were 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the Consumer Price Index for all 
     urban consumers (all items; U.S. city average) for each of 
     fiscal years 2002 and 2003; and
       ``(II) the DSH allotment determined under paragraph (3) for 
     the State for fiscal year 2004; and

       ``(iv) for fiscal year 2005, shall be the DSH allotment 
     determined under paragraph (3) for that fiscal year increased 
     by the amount equal to the product of 0.50 and the difference 
     between--

       ``(I) the amount that the DSH allotment would be if the DSH 
     allotment for the State determined under clause (ii) were 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the Consumer Price Index for all 
     urban consumers (all items; U.S. city average) for each of 
     fiscal years 2002, 2003, and 2004; and
       ``(II) the DSH allotment determined under paragraph (3) for 
     the State for fiscal year 2005.''; and

       (3) in subparagraph (C)--
       (A) in the subparagraph heading, by striking ``after fiscal 
     year 2002'' and inserting ``for other fiscal years''; and
       (B) by striking ``2003 or'' and inserting ``2003, fiscal 
     year 2006, or''.
       (b) DSH Allotment for the District of Columbia.--Section 
     1923(f)(4) (42 U.S.C. 1396r-4(f)(4)), as amended by paragraph 
     (1), is amended--
       (1) in subparagraph (A), by inserting ``and except as 
     provided in subparagraph (C)'' after ``paragraph (2)'';
       (2) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (3) by inserting after subparagraph (B) the following:
       ``(C) DSH allotment for the district of columbia.--
       ``(i) In general.--Notwithstanding subparagraph (A), the 
     DSH allotment for the District of Columbia for fiscal year 
     2004, shall be determined by substituting `49' for `32' in 
     the item in the table contained in paragraph (2) with respect 
     to the DSH allotment for FY 00 (fiscal year 2000) for the 
     District of Columbia, and then increasing such allotment, 
     subject to subparagraph (B) and paragraph (5), by the 
     percentage change in the Consumer Price Index for all urban 
     consumers (all items; U.S. city average) for each of fiscal 
     years 2000, 2001, 2002, and 2003.
       ``(ii) No application to allotments after fiscal year 
     2004.--The DSH allotment for the District of Columbia for 
     fiscal year 2003, fiscal year 2005, or any succeeding fiscal 
     year shall be determined under paragraph (3) without regard 
     to the DSH allotment determined under clause (i).''.
       (c) Conforming Amendment.--Section 1923(f)(3) of such Act 
     (42 U.S.C. 1396r-4(f)(3)) is amended by inserting ``, 
     paragraph (4),'' after ``subparagraph (B)''.

[[Page S8084]]

     SEC. 602. INCREASE IN FLOOR FOR TREATMENT AS AN EXTREMELY LOW 
                   DSH STATE UNDER THE MEDICAID PROGRAM FOR FISCAL 
                   YEARS 2004 AND 2005.

       (a) In General.--Section 1923(f)(5) (42 U.S.C. 1396r-
     4(f)(5)) is amended--
       (1) by striking ``In the case of'' and inserting the 
     following:
       ``(A) In general.--In the case of''; and
       (2) by adding at the end the following:
       ``(B) Increase in floor for fiscal years 2004 and 2005.--
       ``(i) Fiscal year 2004.--In the case of a State in which 
     the total expenditures under the State plan (including 
     Federal and State shares) for disproportionate share hospital 
     adjustments under this section for fiscal year 2000, as 
     reported to the Administrator of the Centers for Medicare & 
     Medicaid Services as of August 31, 2003, is greater than 0 
     but less than 3 percent of the State's total amount of 
     expenditures under the State plan for medical assistance 
     during the fiscal year, the DSH allotment for fiscal year 
     2004 shall be increased to 3 percent of the State's total 
     amount of expenditures under such plan for such assistance 
     during such fiscal year.
       ``(ii) Fiscal year 2005.--In the case of a State in which 
     the total expenditures under the State plan (including 
     Federal and State shares) for disproportionate share hospital 
     adjustments under this section for fiscal year 2001, as 
     reported to the Administrator of the Centers for Medicare & 
     Medicaid Services as of August 31, 2004, is greater than 0 
     but less than 3 percent of the State's total amount of 
     expenditures under the State plan for medical assistance 
     during the fiscal year, the DSH allotment for fiscal year 
     2005 shall be the DSH allotment determined for the State for 
     fiscal year 2004 (under clause (i) or paragraph (4) (as 
     applicable)), increased by the percentage change in the 
     consumer price index for all urban consumers (all items; U.S. 
     city average) for fiscal year 2004.
       ``(iii) No application to allotments after fiscal year 
     2005.--The DSH allotment for any State for fiscal year 2006 
     or any succeeding fiscal year shall be determined under this 
     subsection without regard to the DSH allotments determined 
     under this subparagraph.''.
       (b) Allotment Adjustment.--
       (1) In general.--Section 1923(f) of the Social Security Act 
     (42 U.S.C. 1396r-4(f)) is amended--
       (A) by redesignating paragraph (6) as paragraph (7); and
       (B) by inserting after paragraph (5) the following:
       ``(6) Allotment adjustment.--Only with respect to fiscal 
     year 2004 or 2005, if a statewide waiver under section 1115 
     that was implemented on January 1, 1994, is revoked or 
     terminated before the end of either such fiscal year, the 
     Secretary shall--
       ``(A) permit the State whose waiver was revoked or 
     terminated to submit an amendment to its State plan that 
     would describe the methodology to be used by the State (after 
     the effective date of such revocation or termination) to 
     identify and make payments to disproportionate share 
     hospitals, including children's hospitals and institutions 
     for mental diseases or other mental health facilities (other 
     than State-owned institutions or facilities), on the basis of 
     the proportion of patients served by such hospitals that are 
     low-income patients with special needs; and
       ``(B) provide for purposes of this subsection for 
     computation of an appropriate DSH allotment for the State for 
     fiscal year 2004 or 2005 (or both) that provides for the 
     maximum amount (permitted consistent with paragraph 
     (3)(B)(ii)) that does not result in greater expenditures 
     under this title than would have been made if such waiver had 
     not been revoked or terminated.''.
       (2) Treatment of institutions for mental diseases.--Section 
     1923(h)(1) of the Social Security Act (42 U.S.C. 1396r-
     4(h)(1)) is amended--
       (A) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``(subject to paragraph (3))'' after ``the 
     lesser of the following''; and
       (B) by adding at the end the following new paragraph:
       ``(3) Special rule.--The limitation of paragraph (1) shall 
     not apply in the case of a State to which subsection (f)(6) 
     applies.''.

     SEC. 603. INCREASED REPORTING REQUIREMENTS TO ENSURE THE 
                   APPROPRIATENESS OF PAYMENT ADJUSTMENTS TO 
                   DISPROPORTIONATE SHARE HOSPITALS UNDER THE 
                   MEDICAID PROGRAM.

       Section 1923 (42 U.S.C. 1396r-4) is amended by adding at 
     the end the following new subsection:
       ``(j) Annual Reports Regarding Payment Adjustments.--With 
     respect to fiscal year 2004 and each fiscal year thereafter, 
     the Secretary shall require a State, as a condition of 
     receiving a payment under section 1903(a)(1) with respect to 
     a payment adjustment made under this section, to submit an 
     annual report that--
       ``(1) identifies each disproportionate share hospital that 
     received a payment adjustment under this section for the 
     preceding fiscal year and the amount of the payment 
     adjustment made to such hospital for the preceding fiscal 
     year; and
       ``(2) includes such other information as the Secretary 
     determines necessary to ensure the appropriateness of the 
     payment adjustments made under this section for the preceding 
     fiscal year.''.

     SEC. 604. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES 
                   CHARGED TO CERTAIN PUBLIC HOSPITALS IN THE BEST 
                   PRICE EXEMPTIONS FOR THE MEDICAID DRUG REBATE 
                   PROGRAM.

       (a) In General.--Section 1927(c)(1)(C)(i)(I) of the Social 
     Security Act (42 U.S.C. 1396r-8(c)(1)(C)(i)(I)) is amended by 
     inserting before the semicolon the following: ``(including 
     inpatient prices charged to hospitals described in section 
     340B(a)(4)(L) of the Public Health Service Act)''.
       (b) Anti-Diversion Protection.--Section 1927(c)(1)(C) of 
     the Social Security Act (42 U.S.C. 1396r-8(c)(1)(C)) is 
     amended by adding at the end the following:
       ``(iii) Application of auditing and recordkeeping 
     requirements.--With respect to a covered entity described in 
     section 340B(a)(4)(L) of the Public Health Service Act, any 
     drug purchased for inpatient use shall be subject to the 
     auditing and recordkeeping requirements described in section 
     340B(a)(5)(C) of the Public Health Service Act.''.
       (c) Effective Date.--The amendments made by this section 
     take effect on October 1, 2003.

     SEC. 605. ASSISTANCE WITH COVERAGE OF LEGAL IMMIGRANTS UNDER 
                   THE MEDICAID PROGRAM AND SCHIP.

       (a) Medicaid Program.--Section 1903(v) (42 U.S.C. 1396b(v)) 
     is amended--
       (1) in paragraph (1), by striking ``paragraph (2)'' and 
     inserting ``paragraphs (2) and (4)''; and
       (2) by adding at the end the following new paragraph:
       ``(4)(A) With respect to any or all of fiscal years 2005 
     through 2007, a State may elect (in a plan amendment under 
     this title) to provide medical assistance under this title 
     (including under a waiver authorized by the Secretary) for 
     aliens who are lawfully residing in the United States 
     (including battered aliens described in section 431(c) of 
     such Act) and who are otherwise eligible for such assistance, 
     within either or both of the following eligibility 
     categories:
       ``(i) Pregnant women.--Women during pregnancy (and during 
     the 60-day period beginning on the last day of the 
     pregnancy).
       ``(ii) Children.--Children (as defined under such plan), 
     including optional targeted low-income children described in 
     section 1905(u)(2)(B).
       ``(B)(i) In the case of a State that has elected to provide 
     medical assistance to a category of aliens under subparagraph 
     (A), no debt shall accrue under an affidavit of support 
     against any sponsor of such an alien on the basis of 
     provision of assistance to such category and the cost of such 
     assistance shall not be considered as an unreimbursed cost.
       ``(ii) The provisions of sections 401(a), 402(b), 403, and 
     421 of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 shall not apply to a State that 
     makes an election under subparagraph (A).''.
       (b) SCHIP.--Section 2107(e)(1) (42 U.S.C. 1397gg(e)(1)) is 
     amended by redesignating subparagraphs (C) and (D) as 
     subparagraph (D) and (E), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) Section 1903(v)(4) (relating to optional coverage of 
     categories of permanent resident alien children), but only if 
     the State has elected to apply such section to the category 
     of children under title XIX and only with respect to any or 
     all of fiscal years 2005 through 2007.''.

     SEC. 606. ESTABLISHMENT OF CONSUMER OMBUDSMAN ACCOUNT.

       (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended 
     by adding at the end the following new subsection:
       ``(i) Consumer Ombudsman Account.--
       ``(1) Establishment.--There is hereby established in the 
     Trust Fund an expenditure account to be known as the 
     `Consumer Ombudsman Account' (in this subsection referred to 
     as the `Account').
       ``(2) Appropriated amounts to account for health insurance 
     information, counseling, and assistance grants.--
       ``(A) In general.--There are hereby appropriated to the 
     Account from the Trust Fund for each fiscal year beginning 
     with fiscal year 2005, the amount described in subparagraph 
     (B) for such fiscal year for the purpose of making grants 
     under section 4360 of the Omnibus Budget Reconciliation Act 
     of 1990.
       ``(B) Amount described.--For purposes of subparagraph (A), 
     the amount described in this subparagraph for a fiscal year 
     is the amount equal to the product of--
       ``(i) $1; and
       ``(ii) the total number of individuals receiving benefits 
     under this title for the calendar year ending on December 31 
     of the preceding fiscal year.''.
       (b) Conforming Amendment.--Section 4360(g) of the Omnibus 
     Budget Reconciliation Act of 1990 (42 U.S.C. 1395b-4(g)) is 
     amended to read as follows:
       ``(g) Funding.--The Secretary shall use amounts 
     appropriated to the Consumer Ombudsman Account in accordance 
     with section 1817(i) of the Social Security Act for a fiscal 
     year for making grants under this section for that fiscal 
     year.''.

     SEC. 607. GAO STUDY REGARDING IMPACT OF ASSETS TEST FOR LOW-
                   INCOME BENEFICIARIES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study to determine the extent to which drug 
     utilization and access to covered drugs for an individual 
     described in subsection (b) differs from the drug utilization 
     and access to covered drugs of an individual who qualifies 
     for

[[Page S8085]]

     the transitional assistance prescription drug card program 
     under section 1807A of the Social Security Act (as added by 
     section 111) or for the premiums and cost-sharing subsidies 
     applicable to a qualified medicare beneficiary, a specified 
     low-income medicare beneficiary, or a qualifying individual 
     under section 1860D-19 of the Social Security Act (as added 
     by section 101).
       (b) Individual Described.--An individual is described in 
     this subsection if the individual does not qualify for the 
     transitional assistance prescription drug card program under 
     section 1807A of the Social Security Act or for the premiums 
     and cost-sharing subsidies applicable to a qualified medicare 
     beneficiary, a specified low-income medicare beneficiary, or 
     a qualifying individual under section 1860D-19 of the Social 
     Security Act solely as a result of the application of an 
     assets test to the individual.
       (c) Report.--Not later than September 30, 2007, the 
     Comptroller General shall submit a report to Congress on the 
     study conducted under subsection (a) that includes such 
     recommendations for legislation as the Comptroller General 
     determines are appropriate.
       (d) Definitions.--In this section:
       (1) Covered drugs.--The term ``covered drugs'' has the 
     meaning given that term in section 1860D(a)(D) of the Social 
     Security Act.
       (2) Qualified medicare beneficiary; specified low-income 
     medicare beneficiary; qualifying individual.--The terms 
     ``qualified medicare beneficiary'', ``specified low-income 
     medicare beneficiary'' and ``qualifying individual'' have the 
     meaning given those terms under section 1860D-19 of the 
     Social Security Act.

     SEC. 608. HEALTH CARE INFRASTRUCTURE IMPROVEMENT.

       At the end of the Social Security Act, add the following 
     new title:

          ``TITLE XXII--HEALTH CARE INFRASTRUCTURE IMPROVEMENT

     ``SEC. 2201. DEFINITIONS.

       ``In this title, the following definitions apply:
       ``(1) Eligible project costs.--The term `eligible project 
     costs' means amounts substantially all of which are paid by, 
     or for the account of, an obligor in connection with a 
     project, including the cost of--
       ``(A) development phase activities, including planning, 
     feasibility analysis, revenue forecasting, environmental 
     study and review, permitting, architectural engineering and 
     design work, and other preconstruction activities;
       ``(B) construction, reconstruction, rehabilitation, 
     replacement, and acquisition of facilities and real property 
     (including land related to the project and improvements to 
     land), environmental mitigation, construction contingencies, 
     and acquisition of equipment;
       ``(C) capitalized interest necessary to meet market 
     requirements, reasonably required reserve funds, capital 
     issuance expenses, and other carrying costs during 
     construction;
       ``(D) major medical equipment determined to be appropriate 
     by the Secretary; and
       ``(E) refinancing projects or activities that are otherwise 
     eligible for financial assistance under subparagraphs (A) 
     through (D).
       ``(2) Federal credit instrument.--The term `Federal credit 
     instrument' means a secured loan, loan guarantee, or line of 
     credit authorized to be made available under this title with 
     respect to a project.
       ``(3) Investment-grade rating.--The term `investment-grade 
     rating' means a rating category of BBB minus, Baa3, or higher 
     assigned by a rating agency to project obligations offered 
     into the capital markets.
       ``(4) Lender.--The term `lender' means any non-Federal 
     qualified institutional buyer (as defined in section 
     230.144A(a) of title 17, Code of Federal Regulations (or any 
     successor regulation), known as Rule 144A(a) of the 
     Securities and Exchange Commission and issued under the 
     Securities Act of 1933 (15 U.S.C. 77a et seq.)), including--
       ``(A) a qualified retirement plan (as defined in section 
     4974(c) of the Internal Revenue Code of 1986) that is a 
     qualified institutional buyer; and
       ``(B) a governmental plan (as defined in section 414(d) of 
     the Internal Revenue Code of 1986) that is a qualified 
     institutional buyer.
       ``(5) Line of credit.--The term `line of credit' means an 
     agreement entered into by the Secretary with an obligor under 
     section 2204 to provide a direct loan at a future date upon 
     the occurrence of certain events.
       ``(6) Loan guarantee.--The term `loan guarantee' means any 
     guarantee or other pledge by the Secretary to pay all or part 
     of the principal of and interest on a loan or other debt 
     obligation issued by an obligor and funded by a lender.
       ``(7) Local servicer.--The term `local servicer' means a 
     State or local government or any agency of a State or local 
     government that is responsible for servicing a Federal credit 
     instrument on behalf of the Secretary.
       ``(8) Obligor.--The term `obligor' means a party primarily 
     liable for payment of the principal of or interest on a 
     Federal credit instrument, which party may be a corporation, 
     partnership, joint venture, trust, or governmental entity, 
     agency, or instrumentality.
       ``(9) Project.--The term `project' means any project that 
     is designed to improve the health care infrastructure, 
     including the construction, renovation, or other capital 
     improvement of any hospital, medical research facility, or 
     other medical facility or the purchase of any equipment to be 
     used in a hospital, research facility, or other medical 
     research facility.
       ``(10) Project obligation.--The term `project obligation' 
     means any note, bond, debenture, lease, installment sale 
     agreement, or other debt obligation issued or entered into by 
     an obligor in connection with the financing of a project, 
     other than a Federal credit instrument.
       ``(11) Rating agency.--The term `rating agency' means a 
     bond rating agency identified by the Securities and Exchange 
     Commission as a Nationally Recognized Statistical Rating 
     Organization.
       ``(12) Secured loan.--The term `secured loan' means a 
     direct loan or other debt obligation issued by an obligor and 
     funded by the Secretary in connection with the financing of a 
     project under section 2203.
       ``(13) State.--The term `State' has the meaning given the 
     term in section 101 of title 23, United States Code.
       ``(14) Subsidy amount.--The term `subsidy amount' means the 
     amount of budget authority sufficient to cover the estimated 
     long-term cost to the Federal Government of a Federal credit 
     instrument, calculated on a net present value basis, 
     excluding administrative costs and any incidental effects on 
     governmental receipts or outlays in accordance with the 
     provisions of the Federal Credit Reform Act of 1990 (2 U.S.C. 
     661 et seq.).
       ``(15) Substantial completion.--The term `substantial 
     completion' means the opening of a project to patients or for 
     research purposes.

     ``SEC. 2202. DETERMINATION OF ELIGIBILITY AND PROJECT 
                   SELECTION.

       ``(a) Eligibility.--To be eligible to receive financial 
     assistance under this title, a project shall meet the 
     following criteria:
       ``(1) Application.--A State, a local servicer identified 
     under section 2205(a), or the entity undertaking a project 
     shall submit a project application to the Secretary.
       ``(2) Eligible project costs.--To be eligible for 
     assistance under this title, a project shall have total 
     eligible project costs that are reasonably anticipated to 
     equal or exceed $40,000,000.
       ``(3) Sources of repayments.--Project financing shall be 
     repayable, in whole or in part, from reliable revenue sources 
     as described in the application submitted under paragraph 
     (1).
       ``(4) Public sponsorship of private entities.--In the case 
     of a project that is undertaken by an entity that is not a 
     State or local government or an agency or instrumentality of 
     a State or local government, the project that the entity is 
     undertaking shall be publicly sponsored or sponsored by an 
     entity that is described in section 501(c)(3) of the Internal 
     Revenue Code of 1986 and exempt from tax under section 501(a) 
     of such Code.
       ``(b) Selection Among Eligible Projects.--
       ``(1) Establishment.--The Secretary shall establish 
     criteria for selecting among projects that meet the 
     eligibility criteria specified in subsection (a).
       ``(2) Selection criteria.--
       ``(A) In general.--The selection criteria shall include the 
     following:
       ``(i) The extent to which the project is nationally or 
     regionally significant, in terms of expanding or improving 
     the health care infrastructure of the United States or the 
     region or in terms of the medical benefit that the project 
     will have.
       ``(ii) The creditworthiness of the project, including a 
     determination by the Secretary that any financing for the 
     project has appropriate security features, such as a rate 
     covenant, credit enhancement requirements, or debt services 
     coverages, to ensure repayment.
       ``(iii) The extent to which assistance under this title 
     would foster innovative public-private partnerships and 
     attract private debt or equity investment.
       ``(iv) The likelihood that assistance under this title 
     would enable the project to proceed at an earlier date than 
     the project would otherwise be able to proceed.
       ``(v) The extent to which the project uses or results in 
     new technologies.
       ``(vi) The amount of budget authority required to fund the 
     Federal credit instrument made available under this title.
       ``(vii) The extent to which the project helps maintain or 
     protect the environment.
       ``(B) Specific requirements.--The selection criteria shall 
     require that a project applicant--
       ``(i) be engaged in research in the causes, prevention, and 
     treatment of cancer;
       ``(ii) be designated as a cancer center for the National 
     Cancer Institute or be designated by the State as the 
     official cancer institute of the State; and
       ``(iii) be located in a State that, on the date of 
     enactment of this title, has a population of less than 
     3,000,000 individuals.
       ``(C) Rating letter.--For purposes of subparagraph (A)(ii), 
     the Secretary shall require each project applicant to provide 
     a rating letter from at least 1 rating agency indicating that 
     the project's senior obligations have the potential to 
     achieve an investment-grade rating with or without credit 
     enhancement.

     ``SEC. 2203. SECURED LOANS.

       ``(a) In General.--
       ``(1) Agreements.--Subject to paragraphs (2) through (4), 
     the Secretary may enter into agreements with 1 or more 
     obligors to make secured loans, the proceeds of which shall 
     be used--

[[Page S8086]]

       ``(A) to finance eligible project costs;
       ``(B) to refinance interim construction financing of 
     eligible project costs; or
       ``(C) to refinance existing debt or prior project 
     obligations;
     of any project selected under section 2202.
       ``(2) Limitation on refinancing of interim construction 
     financing.--A loan under paragraph (1) shall not refinance 
     interim construction financing under paragraph (1)(B) later 
     than 1 year after the date of substantial completion of the 
     project.
       ``(3) Risk assessment.--Before entering into an agreement 
     for a secured loan under this subsection, the Secretary, in 
     consultation with each rating agency providing a rating 
     letter under section 2202(b)(2)(B), shall determine an 
     appropriate capital reserve subsidy amount for each secured 
     loan, taking into account such letter.
       ``(4) Investment-grade rating requirement.--The funding of 
     a secured loan under this section shall be contingent on the 
     project's senior obligations receiving an investment-grade 
     rating, except that--
       ``(A) the Secretary may fund an amount of the secured loan 
     not to exceed the capital reserve subsidy amount determined 
     under paragraph (3) prior to the obligations receiving an 
     investment-grade rating; and
       ``(B) the Secretary may fund the remaining portion of the 
     secured loan only after the obligations have received an 
     investment-grade rating by at least 1 rating agency.
       ``(b) Terms and Limitations.--
       ``(1) In general.--A secured loan under this section with 
     respect to a project shall be on such terms and conditions 
     and contain such covenants, representations, warranties, and 
     requirements (including requirements for audits) as the 
     Secretary determines appropriate.
       ``(2) Maximum amount.--The amount of the secured loan shall 
     not exceed 100 percent of the reasonably anticipated eligible 
     project costs.
       ``(3) Payment.--The secured loan--
       ``(A) shall--
       ``(i) be payable, in whole or in part, from reliable 
     revenue sources; and
       ``(ii) include a rate covenant, coverage requirement, or 
     similar security feature supporting the project obligations; 
     and
       ``(B) may have a lien on revenues described in subparagraph 
     (A) subject to any lien securing project obligations.
       ``(4) Interest rate.--The interest rate on the secured loan 
     shall be not less than the yield on marketable United States 
     Treasury securities of a similar maturity to the maturity of 
     the secured loan on the date of execution of the loan 
     agreement.
       ``(5) Maturity date.--The final maturity date of the 
     secured loan shall be not later than 30 years after the date 
     of substantial completion of the project.
       ``(6) Nonsubordination.--The secured loan shall not be 
     subordinated to the claims of any holder of project 
     obligations in the event of bankruptcy, insolvency, or 
     liquidation of the obligor.
       ``(7) Fees.--The Secretary may establish fees at a level 
     sufficient to cover all or a portion of the costs to the 
     Federal Government of making a secured loan under this 
     section.
       ``(c) Repayment.--
       ``(1) Schedule.--The Secretary shall establish a repayment 
     schedule for each secured loan under this section based on 
     the projected cash flow from project revenues and other 
     repayment sources.
       ``(2) Commencement.--Scheduled loan repayments of principal 
     or interest on a secured loan under this section shall 
     commence not later than 5 years after the date of substantial 
     completion of the project.
       ``(3) Sources of repayment funds.--The sources of funds for 
     scheduled loan repayments under this section shall include 
     any revenue generated by the project.
       ``(4) Deferred payments.--
       ``(A) Authorization.--If, at any time during the 10 years 
     after the date of substantial completion of the project, the 
     project is unable to generate sufficient revenues to pay the 
     scheduled loan repayments of principal and interest on the 
     secured loan, the Secretary may, subject to subparagraph (C), 
     allow the obligor to add unpaid principal and interest to the 
     outstanding balance of the secured loan.
       ``(B) Interest.--Any payment deferred under subparagraph 
     (A) shall--
       ``(i) continue to accrue interest in accordance with 
     subsection (b)(4) until fully repaid; and
       ``(ii) be scheduled to be amortized over the remaining term 
     of the loan beginning not later than 10 years after the date 
     of substantial completion of the project in accordance with 
     paragraph (1).
       ``(C) Criteria.--
       ``(i) In general.--Any payment deferral under subparagraph 
     (A) shall be contingent on the project meeting criteria 
     established by the Secretary.
       ``(ii) Repayment standards.--The criteria established under 
     clause (i) shall include standards for reasonable assurance 
     of repayment.
       ``(5) Prepayment.--
       ``(A) Use of excess revenues.--Any excess revenues that 
     remain after satisfying scheduled debt service requirements 
     on the project obligations and secured loan and all deposit 
     requirements under the terms of any trust agreement, bond 
     resolution, reimbursement agreement, credit agreement, loan 
     agreement, or similar agreement securing project obligations 
     may be applied annually to prepay the secured loan without 
     penalty.
       ``(B) Use of proceeds of refinancing.--The secured loan may 
     be prepaid at any time without penalty, regardless of whether 
     such repayment is from the proceeds of refinancing from non-
     Federal funding sources.
       ``(6) Forgiveness of indebtedness.--The Secretary may 
     forgive a loan secured under this title under terms and 
     conditions that are analogous to the loan forgiveness 
     provision for student loans under part D of title IV of the 
     Higher Education Act of 1965 (20 U.S.C. 1087a et seq.), 
     except that the Secretary shall condition such forgiveness on 
     the establishment by the project of--
       ``(A) an outreach program for cancer prevention, early 
     diagnosis, and treatment that provides services to a 
     substantial majority of the residents of a State or region, 
     including residents of rural areas;
       ``(B) an outreach program for cancer prevention, early 
     diagnosis, and treatment that provides services to multiple 
     Indian tribes; and
       ``(C)(i) unique research resources (such as population 
     databases); or
       ``(ii) an affiliation with an entity that has unique 
     research resources.
       ``(d) Sale of Secured Loans.--
       ``(1) In general.--Subject to paragraph (2), as soon as 
     practicable after substantial completion of a project and 
     after notifying the obligor, the Secretary may sell to 
     another entity or reoffer into the capital markets a secured 
     loan for the project if the Secretary determines that the 
     sale or reoffering can be made on favorable terms.
       ``(2) Consent of obligor.--In making a sale or reoffering 
     under paragraph (1), the Secretary may not change the 
     original terms and conditions of the secured loan without the 
     written consent of the obligor.
       ``(e) Loan Guarantees.--
       ``(1) In general.--The Secretary may provide a loan 
     guarantee to a lender in lieu of making a secured loan if the 
     Secretary determines that the budgetary cost of the loan 
     guarantee is substantially the same as that of a secured 
     loan.
       ``(2) Terms.--The terms of a guaranteed loan shall be 
     consistent with the terms set forth in this section for a 
     secured loan, except that the rate on the guaranteed loan and 
     any prepayment features shall be negotiated between the 
     obligor and the lender, with the consent of the Secretary.

     ``SEC. 2204. LINES OF CREDIT.

       ``(a) In General.--
       ``(1) Agreements.--Subject to paragraphs (2) through (4), 
     the Secretary may enter into agreements to make available 
     lines of credit to 1 or more obligors in the form of direct 
     loans to be made by the Secretary at future dates on the 
     occurrence of certain events for any project selected under 
     section 2202.
       ``(2) Use of proceeds.--The proceeds of a line of credit 
     made available under this section shall be available to pay 
     debt service on project obligations issued to finance 
     eligible project costs, extraordinary repair and replacement 
     costs, operation and maintenance expenses, and costs 
     associated with unexpected Federal or State environmental 
     restrictions.
       ``(3) Risk assessment.--Before entering into an agreement 
     for a secured loan under this subsection, the Secretary, in 
     consultation with each rating agency providing a rating 
     letter under section 2202(b)(2)(B), shall determine an 
     appropriate subsidy amount for each secured loan, taking into 
     account such letter.
       ``(4) Investment-grade rating requirement.--The funding of 
     a line of credit under this section shall be contingent on 
     the project's senior obligations receiving an investment-
     grade rating from at least 1 rating agency.
       ``(b) Terms and Limitations.--
       ``(1) In general.--A line of credit under this section with 
     respect to a project shall be on such terms and conditions 
     and contain such covenants, representations, warranties, and 
     requirements (including requirements for audits) as the 
     Secretary determines appropriate.
       ``(2) Maximum amounts.--
       ``(A) Total amount.--The total amount of the line of credit 
     shall not exceed 33 percent of the reasonably anticipated 
     eligible project costs.
       ``(B) 1-year draws.--The amount drawn in any 1 year shall 
     not exceed 20 percent of the total amount of the line of 
     credit.
       ``(3) Draws.--Any draw on the line of credit shall 
     represent a direct loan and shall be made only if net 
     revenues from the project (including capitalized interest, 
     any debt service reserve fund, and any other available 
     reserve) are insufficient to pay the costs specified in 
     subsection (a)(2).
       ``(4) Interest rate.--The interest rate on a direct loan 
     resulting from a draw on the line of credit shall be not less 
     than the yield on 30-year marketable United States Treasury 
     securities as of the date on which the line of credit is 
     obligated.
       ``(5) Security.--The line of credit--
       ``(A) shall--
       ``(i) be payable, in whole or in part, from reliable 
     revenue sources; and
       ``(ii) include a rate covenant, coverage requirement, or 
     similar security feature supporting the project obligations; 
     and
       ``(B) may have a lien on revenues described in subparagraph 
     (A) subject to any lien securing project obligations.
       ``(6) Period of availability.--The line of credit shall be 
     available during the period beginning on the date of 
     substantial completion of the project and ending not later 
     than 10 years after that date.
       ``(7) Rights of third-party creditors.--

[[Page S8087]]

       ``(A) Against federal government.--A third-party creditor 
     of the obligor shall not have any right against the Federal 
     Government with respect to any draw on the line of credit.
       ``(B) Assignment.--An obligor may assign the line of credit 
     to 1 or more lenders or to a trustee on the lenders' behalf.
       ``(8) Nonsubordination.--A direct loan under this section 
     shall not be subordinated to the claims of any holder of 
     project obligations in the event of bankruptcy, insolvency, 
     or liquidation of the obligor.
       ``(9) Fees.--The Secretary may establish fees at a level 
     sufficient to cover all or a portion of the costs to the 
     Federal Government of providing a line of credit under this 
     section.
       ``(10) Relationship to other credit instruments.--A project 
     that receives a line of credit under this section also shall 
     not receive a secured loan or loan guarantee under section 
     2203 of an amount that, combined with the amount of the line 
     of credit, exceeds 100 percent of eligible project costs.
       ``(c) Repayment.--
       ``(1) Terms and conditions.--The Secretary shall establish 
     repayment terms and conditions for each direct loan under 
     this section based on the projected cash flow from project 
     revenues and other repayment sources.
       ``(2) Timing.--All scheduled repayments of principal or 
     interest on a direct loan under this section shall commence 
     not later than 5 years after the end of the period of 
     availability specified in subsection (b)(6) and be fully 
     repaid, with interest, by the date that is 25 years after the 
     end of the period of availability specified in subsection 
     (b)(6).
       ``(3) Sources of repayment funds.--The sources of funds for 
     scheduled loan repayments under this section shall include 
     reliable revenue sources.

     ``SEC. 2205. PROJECT SERVICING.

       ``(a) Requirement.--The State in which a project that 
     receives financial assistance under this title is located may 
     identify a local servicer to assist the Secretary in 
     servicing the Federal credit instrument made available under 
     this title.
       ``(b) Agency; Fees.--If a State identifies a local servicer 
     under subsection (a), the local servicer--
       ``(1) shall act as the agent for the Secretary; and
       ``(2) may receive a servicing fee, subject to approval by 
     the Secretary.
       ``(c) Liability.--A local servicer identified under 
     subsection (a) shall not be liable for the obligations of the 
     obligor to the Secretary or any lender.
       ``(d) Assistance From Expert Firms.--The Secretary may 
     retain the services of expert firms in the field of project 
     finance to assist in the underwriting and servicing of 
     Federal credit instruments.

     ``SEC. 2206. STATE AND LOCAL PERMITS.

       ``The provision of financial assistance under this title 
     with respect to a project shall not--
       ``(1) relieve any recipient of the assistance of any 
     obligation to obtain any required State or local permit or 
     approval with respect to the project;
       ``(2) limit the right of any unit of State or local 
     government to approve or regulate any rate of return on 
     private equity invested in the project; or
       ``(3) otherwise supersede any State or local law (including 
     any regulation) applicable to the construction or operation 
     of the project.

     ``SEC. 2207. REGULATIONS.

       ``The Secretary may issue such regulations as the Secretary 
     determines appropriate to carry out this title.

     ``SEC. 2208. FUNDING.

       ``(a) Funding.--
       ``(1) In general.--There are authorized to be appropriated 
     to carry out this title, $49,000,000 to remain available 
     during the period beginning on July 1, 2004 and ending on 
     September 30, 2008.
       ``(2) Administrative costs.--From funds made available 
     under paragraph (1), the Secretary may use, for the 
     administration of this title, not more than $2,000,000 for 
     each of fiscal years 2004 through 2008.
       ``(b) Contract Authority.--Notwithstanding any other 
     provision of law, approval by the Secretary of a Federal 
     credit instrument that uses funds made available under this 
     title shall be deemed to be acceptance by the United States 
     of a contractual obligation to fund the Federal credit 
     instrument.
       ``(c) Availability.--Amounts appropriated under this 
     section shall be available for obligation on July 1, 2004.

     ``SEC. 2209. REPORT TO CONGRESS.

       ``Not later than 4 years after the date of enactment of 
     this title, the Secretary shall submit to Congress a report 
     summarizing the financial performance of the projects that 
     are receiving, or have received, assistance under this title, 
     including a recommendation as to whether the objectives of 
     this title are best served--
       ``(1) by continuing the program under the authority of the 
     Secretary;
       ``(2) by establishing a Government corporation or 
     Government-sponsored enterprise to administer the program; or
       ``(3) by phasing out the program and relying on the capital 
     markets to fund the types of infrastructure investments 
     assisted by this title without Federal participation.''.

     SEC. 609. CAPITAL INFRASTRUCTURE REVOLVING LOAN PROGRAM.

       (a) In General.--Part A of title XVI of the Public Health 
     Service Act (42 U.S.C. 300q et seq.) is amended by adding at 
     the end the following new section:

            ``capital infrastructure revolving loan program

       ``Sec. 1603. (a) Authority To Make and Guarantee Loans.--
       ``(1) Authority to make loans.--The Secretary may make 
     loans from the fund established under section 1602(d) to any 
     rural entity for projects for capital improvements, 
     including--
       ``(A) the acquisition of land necessary for the capital 
     improvements;
       ``(B) the renovation or modernization of any building;
       ``(C) the acquisition or repair of fixed or major movable 
     equipment; and
       ``(D) such other project expenses as the Secretary 
     determines appropriate.
       ``(2) Authority to guarantee loans.--
       ``(A) In general.--The Secretary may guarantee the payment 
     of principal and interest for loans made to rural entities 
     for projects for any capital improvement described in 
     paragraph (1) to any non-Federal lender.
       ``(B) Interest subsidies.--In the case of a guarantee of 
     any loan made to a rural entity under subparagraph (A), the 
     Secretary may pay to the holder of such loan, for and on 
     behalf of the project for which the loan was made, amounts 
     sufficient to reduce (by not more than 3 percent) the net 
     effective interest rate otherwise payable on such loan.
       ``(b) Amount of Loan.--The principal amount of a loan 
     directly made or guaranteed under subsection (a) for a 
     project for capital improvement may not exceed $5,000,000.
       ``(c) Funding Limitations.--
       ``(1) Government credit subsidy exposure.--The total of the 
     Government credit subsidy exposure under the Credit Reform 
     Act of 1990 scoring protocol with respect to the loans 
     outstanding at any time with respect to which guarantees have 
     been issued, or which have been directly made, under 
     subsection (a) may not exceed $50,000,000 per year.
       ``(2) Total amounts.--Subject to paragraph (1), the total 
     of the principal amount of all loans directly made or 
     guaranteed under subsection (a) may not exceed $250,000,000 
     per year.
       ``(d) Capital Assessment and Planning Grants.--
       ``(1) Nonrepayable grants.--Subject to paragraph (2), the 
     Secretary may make a grant to a rural entity, in an amount 
     not to exceed $50,000, for purposes of capital assessment and 
     business planning.
       ``(2) Limitation.--The cumulative total of grants awarded 
     under this subsection may not exceed $2,500,000 per year.
       ``(e) Termination of Authority.--The Secretary may not 
     directly make or guarantee any loan under subsection (a) or 
     make a grant under subsection (d) after September 30, 
     2008.''.
       (b) Rural Entity Defined.--Section 1624 of the Public 
     Health Service Act (42 U.S.C. 300s-3) is amended by adding at 
     the end the following new paragraph:
       ``(14)(A) The term `rural entity' includes--
       ``(i) a rural health clinic, as defined in section 
     1861(aa)(2) of the Social Security Act;
       ``(ii) any medical facility with at least 1 bed, but with 
     less than 50 beds, that is located in--
       ``(I) a county that is not part of a metropolitan 
     statistical area; or
       ``(II) a rural census tract of a metropolitan statistical 
     area (as determined under the most recent modification of the 
     Goldsmith Modification, originally published in the Federal 
     Register on February 27, 1992 (57 Fed. Reg. 6725));
       ``(iii) a hospital that is classified as a rural, regional, 
     or national referral center under section 1886(d)(5)(C) of 
     the Social Security Act; and
       ``(iv) a hospital that is a sole community hospital (as 
     defined in section 1886(d)(5)(D)(iii) of the Social Security 
     Act).
       ``(B) For purposes of subparagraph (A), the fact that a 
     clinic, facility, or hospital has been geographically 
     reclassified under the medicare program under title XVIII of 
     the Social Security Act shall not preclude a hospital from 
     being considered a rural entity under clause (i) or (ii) of 
     subparagraph (A).''.
       (c) Conforming Amendments.--Section 1602 of the Public 
     Health Service Act (42 U.S.C. 300q-2) is amended--
       (1) in subsection (b)(2)(D), by inserting ``or 
     1603(a)(2)(B)'' after ``1601(a)(2)(B)''; and
       (2) in subsection (d)--
       (A) in paragraph (1)(C), by striking ``section 
     1601(a)(2)(B)'' and inserting ``sections 1601(a)(2)(B) and 
     1603(a)(2)(B)''; and
       (B) in paragraph (2)(A), by inserting ``or 1603(a)(2)(B)'' 
     after ``1601(a)(2)(B)''.

     SEC. 610. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES 
                   FURNISHED TO UNDOCUMENTED ALIENS.

       (a) Total Amount Available for Allotment.--There is 
     appropriated, out of any funds in the Treasury not otherwise 
     appropriated, $250,000,000 for each of fiscal years 2005 
     through 2008, for the purpose of making allotments under this 
     section to States described in paragraph (1) or (2) of 
     subsection (b). Funds appropriated under the preceding 
     sentence shall remain available until expended.
       (b) State Allotments.--
       (1) Based on percentage of undocumented aliens.--
       (A) In general.--Out of the amount appropriated under 
     subsection (a) for a fiscal year, the Secretary shall use 
     $167,000,000 of such

[[Page S8088]]

     amount to make allotments for such fiscal year in accordance 
     with subparagraph (B).
       (B) Formula.--The amount of the allotment for each State 
     for a fiscal year shall be equal to the product of--
       (i) the total amount available for allotments under this 
     paragraph for the fiscal year; and
       (ii) the percentage of undocumented aliens residing in the 
     State with respect to the total number of such aliens 
     residing in all States, as determined by the Statistics 
     Division of the Immigration and Naturalization Service, as of 
     January 2003, based on the 2000 decennial census.
       (2) Based on number of undocumented alien apprehension 
     states.--
       (A) In general.--Out of the amount appropriated under 
     subsection (a) for a fiscal year, the Secretary shall use 
     $83,000,000 of such amount to make allotments for such fiscal 
     year for each of the 6 States with the highest number of 
     undocumented alien apprehensions for such fiscal year.
       (B) Determination of allotments.--The amount of the 
     allotment for each State described in subparagraph (A) for a 
     fiscal year shall bear the same ratio to the total amount 
     available for allotments under this paragraph for the fiscal 
     year as the ratio of the number of undocumented alien 
     apprehensions in the State in that fiscal year bears to the 
     total of such numbers for all such States for such fiscal 
     year.
       (C) Data.--For purposes of this paragraph, the highest 
     number of undocumented alien apprehensions for a fiscal year 
     shall be based on the 4 most recent quarterly apprehension 
     rates for undocumented aliens in such States, as reported by 
     the Immigration and Naturalization Service.
       (3) Rule of construction.--Nothing in this section shall be 
     construed as prohibiting a State that is described in both of 
     paragraphs (1) and (2) from receiving an allotment under both 
     paragraphs for a fiscal year.
       (c) Use of Funds.--
       (1) Authority to make payments.--From the allotments made 
     for a State under subsection (b) for a fiscal year, the 
     Secretary shall pay directly to local governments, hospitals, 
     or other providers located in the State (including providers 
     of services received through an Indian Health Service 
     facility whether operated by the Indian Health Service or by 
     an Indian tribe or tribal organization) that provide 
     uncompensated emergency health services furnished to 
     undocumented aliens during that fiscal year, and to the 
     State, such amounts (subject to the total amount available 
     from such allotments) as the local governments, hospitals, 
     providers, or State demonstrate were incurred for the 
     provision of such services during that fiscal year.
       (2) Limitation on state use of funds.--Funds paid to a 
     State from allotments made under subsection (b) for a fiscal 
     year may only be used for making payments to local 
     governments, hospitals, or other providers for costs incurred 
     in providing emergency health services to undocumented aliens 
     or for State costs incurred with respect to the provision of 
     emergency health services to such aliens.
       (3) Inclusion of costs incurred with respect to certain 
     aliens.--Uncompensated emergency health services furnished to 
     aliens who have been allowed to enter the United States for 
     the sole purpose of receiving emergency health services may 
     be included in the determination of costs incurred by a 
     State, local government, hospital, or other provider with 
     respect to the provision of such services.
       (d) Applications; Advance Payments.--
       (1) Deadline for establishment of application process.--
       (A) In general.--Not later than September 1, 2004, the 
     Secretary shall establish a process under which States, local 
     governments, hospitals, or other providers located in the 
     State may apply for payments from allotments made under 
     subsection (b) for a fiscal year for uncompensated emergency 
     health services furnished to undocumented aliens during that 
     fiscal year.
       (B) Inclusion of measures to combat fraud.--The Secretary 
     shall include in the process established under subparagraph 
     (A) measures to ensure that fraudulent payments are not made 
     from the allotments determined under subsection (b).
       (2) Advance payment; retrospective adjustment.--The process 
     established under paragraph (1) shall allow for making 
     payments under this section for each quarter of a fiscal year 
     on the basis of advance estimates of expenditures submitted 
     by applicants for such payments and such other investigation 
     as the Secretary may find necessary, and for making 
     reductions or increases in the payments as necessary to 
     adjust for any overpayment or underpayment for prior quarters 
     of such fiscal year.
       (e) Definitions.--In this section:
       (1) Hospital.--The term ``hospital'' has the meaning given 
     such term in section 1861(e) of the Social Security Act (42 
     U.S.C. 1395x(e)).
       (2) Indian tribe; tribal organization.--The terms ``Indian 
     tribe'' and ``tribal organization'' have the meanings given 
     such terms in section 4 of the Indian Health Care Improvement 
     Act (25 U.S.C. 1603).
       (3) Provider.--The term ``provider'' includes a physician, 
     any other health care professional licensed under State law, 
     and any other entity that furnishes emergency health 
     services, including ambulance services.
       (4) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (5) State.--The term ``State'' means the 50 States and the 
     District of Columbia.

     SEC. 611. INCREASE IN APPROPRIATION TO THE HEALTH CARE FRAUD 
                   AND ABUSE CONTROL ACCOUNT.

       Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is 
     amended--
       (1) in clause (i)--
       (A) in subclause (II), by striking ``and'' at the end; and
       (B) by striking subclause (III), and inserting the 
     following new subclauses:

       ``(III) for fiscal year 2004, the limit for fiscal year 
     2003 increased by $10,000,000;
       ``(IV) for fiscal year 2005, the limit for fiscal year 2003 
     increased by $15,000,000;
       ``(V) for fiscal year 2006, the limit for fiscal year 2003 
     increased by $25,000,000; and
       ``(VI) for each fiscal year after fiscal year 2006, the 
     limit for fiscal year 2003.''; and

       (2) in clause (ii)--
       (A) in subclause (VI), by striking ``and'' at the end;
       (B) in subclause (VII)--
       (i) by striking ``each fiscal year after fiscal year 2002'' 
     and inserting ``fiscal year 2003''; and
       (ii) by striking the period and inserting a semicolon; and
       (3) by adding at the end the following:

       ``(VIII) for fiscal year 2004, $170,000,000;
       ``(IX) for fiscal year 2005, $175,000,000;
       ``(X) for fiscal year 2006, $185,000,000; and
       ``(XI) for each fiscal year after fiscal year 2006, not 
     less than $150,000,000 and not more than $160,000,000.''.

     SEC. 612. INCREASE IN CIVIL PENALTIES UNDER THE FALSE CLAIMS 
                   ACT.

       (a) In General.--Section 3729(a) of title 31, United States 
     Code, is amended--
       (1) by striking ``$5,000'' and inserting ``$7,500''; and
       (2) by striking ``$10,000'' and inserting ``$15,000''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to violations occurring on or after January 1, 
     2004.

     SEC. 613. INCREASE IN CIVIL MONETARY PENALTIES UNDER THE 
                   SOCIAL SECURITY ACT.

       (a) In General.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), 
     in the matter following paragraph (7), is amended--
       (1) by striking ``$10,000'' each place it appears and 
     inserting ``$12,500'';
       (2) by striking ``$15,000'' and inserting ``$18,750''; and
       (3) striking ``$50,000'' and inserting ``$62,500''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to violations occurring on or after January 1, 
     2004.

     SEC. 614. EXTENSION OF CUSTOMS USER FEES.

       Section 13031(j)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended 
     by striking ``September 30, 2003'' and inserting ``September 
     30, 2013''.
  Mr. GRASSLEY. Mr. President, the technical corrections in this 
modification obviously have been agreed to by Senator Baucus or I would 
not have offered it, and they are not controversial. The corrected 
items in this modification are technical in nature. It merely perfects 
policies in the Finance Committee's reported mark that were drafted 
incorrectly in S. 1. The corrected items also reflect drafting changes 
that, while small, were important from CBO's perspective in getting us 
a complete score. All of these technical changes are incorporated now 
into this modified version of S. 1.
  The new version also includes an official line-by-line score from the 
Congressional Budget Office. I am looking forward to getting on to 
amendments at this point. I repeat what I said yesterday: My hope is 
the spirit of comity and consensus building that existed in the Finance 
Committee last week will be and can be, and I am surely going to work 
for it to be, replicated here on the Senate floor. The Finance 
Committee members reached across party lines to arrive at that 
consensus. For some it was very difficult. But the final vote showed a 
lot of give and take because that vote out of committee was 16 to 5. I 
hope that same spirit will prevail here today and in the coming days 
this week and next week that we are on the bill.
  There was another part of the consent I did not ask. I now ask 
unanimous consent the amendment be agreed to--our professional staff 
has some disagreement whether or not I should be making that motion at 
this point, so I will not.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, the Senator from Michigan is now going to 
offer her amendment. We are willing to enter into a time agreement on 
the amendment. There are a number of meetings at the White House, I am 
told, that prevent our arriving at a definite time for the amendment 
today. I have spoken to the staff on both sides, and maybe at 3:15 we 
could have a vote.

[[Page S8089]]

Members should keep that in mind, that we may be able to do that.
  There is nothing definite at this stage. I want the record to reflect 
we are not trying to stall movement of this bill. We have this 
amendment, this important amendment. We are ready to vote on it earlier 
than 3:15. But because of the White House calling Senators down, we 
will be unable to do that.
  Mr. GRASSLEY. Mr. President, in addition to what the Senator 
expressed, it is a desire on our part that we would have some votes yet 
today and that we would like to move along very quickly. I think the 
spirit he has set is one that is shared on our side, even to the point 
of being specific statements from our leadership, the extent to which 
they would hope to have some votes today.
  I yield the floor.
  Mr. REID. It was suggested earlier today that we would rotate back 
and forth on amendments. That is fine. I think we have more amendments 
than you have, but if that is the case, we are happy to alternate back 
and forth.
  Mr. GRASSLEY. Mr. President, if I may further add to what the Senator 
said, for our part, we would like to have a very general rule that we 
would alternate back and forth, but it is also our belief on this side 
that we would give great deference to the other side to offer 
amendments, two Democratic or three Democratic amendments in order so 
we could be very flexible on that. We did want to reserve and provide 
some predictability to the order on the floor because there might be 
some Members on the Republican side who would like to offer an 
amendment, and they want some certainty when that would be done.
  The PRESIDING OFFICER. The Senator from Michigan.


                           Amendment No. 931

  Ms. STABENOW. Mr. President, I send an amendment to the desk on 
behalf of myself, Senators Boxer, Bob Graham, Rockefeller, Harkin, 
Cantwell, Kerry, Bingaman, Jack Reed, Clinton, and Mikulski. I ask for 
its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Michigan [Ms. Stabenow], for herself, Mrs. 
     Boxer, Mr. Graham of Florida, Mr. Rockefeller, Mr. Harkin, 
     Ms. Cantwell, Mr. Kerry, Mr. Bingaman, Mr. Reed, Mrs. 
     Clinton, and Ms. Mikulski, proposes an amendment numbered 
     931.

  Ms. STABENOW. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

    (Purpose: To require that the Medicare plan, to be known as the 
Medicare Guaranteed Option, be available to all eligible beneficiaries 
                             in every year)

       Beginning on page 74, strike line 10 and all that follows 
     through page 84, line 3, and insert the following:
       ``(e) Medicare Guaranteed Option.--
       ``(1) Access.--
       ``(A) In general.--The Administrator shall enter into a 
     contract with an entity in each area (established under 
     section 1860D-10) to provide eligible beneficiaries enrolled 
     under this part (and not, except for an MSA plan or a private 
     fee-for-service plan that does not provide qualified 
     prescription drug coverage, enrolled in a MedicareAdvantage 
     plan) and residing in the area with standard prescription 
     drug coverage (including access to negotiated prices for such 
     beneficiaries pursuant to section 1860D-6(e)). An entity may 
     be awarded a contract for more than 1 area but the 
     Administrator may enter into only 1 such contract in each 
     such area.
       ``(B) Entity required to meet beneficiary protection and 
     other requirements.--An entity with a contract under 
     subparagraph (A) shall meet the requirements described in 
     section 1860D-5 and such other requirements determined 
     appropriate by the Administrator.
       ``(C) 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 a 
     contract under subparagraph (A).
       ``(D) Same timeframe as medicare prescription drug plans.--
     The Administrator shall apply similar timeframes for the 
     submission of bids and entering into to contracts under this 
     subsection as the Administrator applies to Medicare 
     Prescription Drug plans.
       ``(2) Monthly beneficiary obligation for enrollment.--In 
     the case of an eligible beneficiary receiving access to 
     qualified prescription drug coverage through enrollment with 
     an entity with a contract under paragraph (1)(A), the monthly 
     beneficiary obligation of such beneficiary for such 
     enrollment shall be an amount equal to the applicable percent 
     (as determined under section 1860D-17(c) before any 
     adjustment under paragraph (2) of such section) of the 
     monthly national average premium (as computed under section 
     1860D-15 before any adjustment under subsection (b) of such 
     section) for the year.
       ``(3) Payments under the contract.--
       ``(A) In general.--A contract entered into under paragraph 
     (1)(A) shall provide for--
       ``(i) payment for the negotiated costs of covered drugs 
     provided to eligible beneficiaries enrolled with the entity; 
     and
       ``(ii) payment of prescription management fees that are 
     tied to performance requirements established by the 
     Administrator for the management, administration, and 
     delivery of the benefits under the contract.
       ``(B) Performance requirements.--The performance 
     requirements established by the Administrator pursuant to 
     subparagraph (A)(ii) shall include the following:
       ``(i) The entity contains costs to the Prescription Drug 
     Account and to eligible beneficiaries enrolled under this 
     part and with the entity.
       ``(ii) The entity provides such beneficiaries with quality 
     clinical care.
       ``(iii) The entity provides such beneficiaries with quality 
     services.
       ``(C) Entity only at risk to the extent of the fees tied to 
     performance requirements.--An entity with a contract under 
     paragraph (1)(A) shall only be at risk for the provision of 
     benefits under the contract to the extent that the management 
     fees paid to the entity are tied to performance requirements 
     under subparagraph (A)(ii).
       ``(4) Term of contract.--A contract entered into under 
     paragraph (1)(A) shall be for a period of at least 2 years 
     but not more than 5 years.
       ``(5) No effect on access requirements.--The contract 
     entered into under subparagraph (1)(A) shall be in addition 
     to the plans required under subsection (d)(1).
       ``(6) Authority to prevent increased costs.--If the 
     Administrator determines that Federal payments made with 
     respect to eligible beneficiaries enrolled in a contract 
     under paragraph (1)(A) exceed on average the Federal payments 
     made with respect to eligible beneficiaries enrolled in a 
     Medicare Prescription Drug plan or a MedicareAdvantage plan 
     (with respect to qualified prescription drug coverage), the 
     Administrator may adjust the requirements or payments under 
     such a contract to eliminate such excess.

  Ms. STABENOW. Mr. President, first of all, before explaining the 
amendment, I commend my colleagues for their leadership on the Finance 
Committee. They have been working very diligently--the chairman, 
Senator Grassley, and the ranking member, Senator Baucus, and members 
on both sides of the aisle. I commend them for bringing forward one of 
the most critical issues affecting American people, American families, 
American seniors today. While we may disagree on specifics and on what 
is the best approach, I very much commend them for giving us the 
opportunity to debate this critical issue and for the hard work that 
has gone on, on both sides.
  My amendment is a simple one. It would provide another choice of 
prescription drug plans for seniors on Medicare. In fact, it would 
provide the choice the majority of seniors want to make on Medicare.
  The underlying bill allows seniors to choose a prescription drug 
plan, but only if the plan is one offered by a private insurance 
company. My amendment simply allows seniors to get their prescription 
drugs through the Medicare Program. It is creating one more option. The 
legislation before us tries to expand health care choices for people on 
Medicare. Regrettably, it does not provide the full range of choices 
for seniors.
  Without my amendment, we are not in fact providing the full range of 
choices, including the one for which the seniors are asking. My 
amendment will allow seniors the choice to get their prescriptions 
filled within traditional Medicare, to choose a private prescription 
drug plan, or enroll in a PPO or an HMO. This range of choice will 
foster competition among the different plans and allow our seniors to 
make the best possible choice for themselves. This amendment puts all 
of the plans on the same footing and does not favor one over the other.
  I think it is also important to note that the private plans described 
in the bill don't exist today. In fact, Robert Reischauer was quoted 
recently in the New York Times saying, ``Private drug-only plans don't 
exist in nature.'' They don't currently exist in nature. So we are 
designing a system around plans that do not currently exist.
  Medicare does exist. A Medicare plan is one that we know we can put 
together and that seniors can count on, at the same time giving the 
opportunity for new plans to be created, as

[[Page S8090]]

well as the structures of HMOs and PPOs.
  I also think this plan could actually save the Federal Government 
dollars, and certainly the record would reflect that. There is ample 
objective evidence that providing health care through the Medicare 
Program is more efficient than through the private sector. This is one 
area where the evidence is clear, based on various points of 
information. Let me just share some with you.
  On May 5, 2003, the New York Times reported on findings by MedPAC, 
our own nonpartisan advisory plan. MedPAC discovered that private 
health plan fees are about 15 percent higher than Medicare. The Center 
for Studying Health Systems Change has also made similar findings. So 
we know that if we go to private plans, on average, services will be 
about 15 percent higher--more costly for fees for services. Surgeries, 
they found, were about 26 percent more. Radiology was about 19 percent 
more. Hospital and nursing home visits and consultations were 9 percent 
more. On average, we know it doesn't in fact cost less to provide 
services to private plans. Independent, nonpartisan organizations have 
found that it in fact costs more.

  Also, using private plans would likely cost additional dollars. In 
the year 2000, our own General Accounting Office estimated that 
payments to Medicare+Choice plans--and those are the Medicare HMOs that 
were set up in 1997--exceeded the costs that would have been incurred 
for treating patients directly through traditional Medicare by an 
annual average of 13.2 percent.
  So, again, we have a situation where our own nonpartisan, objective 
General Accounting Office said that providing services through Medicare 
HMOs actually cost, on average, 13.2 percent more than the same service 
offered under traditional Medicare, where seniors get to select their 
own doctors and have the dependability of knowing that Medicare will be 
there.
  Thirdly, private plans are not necessarily more efficient than 
Medicare. The inspector general of the Department of Health and Human 
Services found that HMOs that contract with Medicare, on average, spent 
15 percent of their revenue on administrative costs rather than on 
health care. In fact, we know those numbers can be even higher in other 
private sector plans. Dollars have been put aside in this plan to cover 
higher administrative costs. Some managed care systems spend as much as 
32 percent of their revenue. That means that for every precious dollar 
we have that we want to help seniors pay for their medicine, about one-
third of that could go to administration.
  By contrast, the Medicare plan spends only 2 percent of its budget on 
administrative overhead. On average, a private HMO--and we realize more 
plans are being developed under this proposal than just HMOs, but if we 
look at what we have to go on in terms of the differences, it is 2 
percent administrative costs under Medicare and an average of 15 
percent for HMOs. And we know that in some areas, in fact, it is even 
higher administrative costs for other private insurance plans.
  Furthermore, the enrollment experience with private plans in Medicare 
has certainly not been stellar. In the past 5 years, 2.5 million 
seniors have been dropped by their Medicare HMO. As I have indicated 
before, one of those in fact was my own mother in Lansing, MI, who had 
a very positive experience under a Medicare HMO. But the decision was 
made, for financial reasons, to no longer cover Medicare recipients. 
She lost her plan and her doctor, and she was left to figure out how 
else she would be receiving care under Medicare.
  In 2002, three plans in Michigan dropped out of Medicare+Choice 
altogether, while two dropped significant numbers of enrollees. More 
than 31,000 seniors in Michigan have been dropped just since 2002. What 
does that mean in real terms for people? It means that they went into a 
system, they had a doctor, they were within a certain kind of health 
care system; then the private managed care plan decided to pull out, 
and they were then left to go find another plan, actually another 
doctor, and another way of providing health care.
  Only 8 of 83 counties in Michigan now have private Medicare HMO 
plans, and all of them are concentrated in one area, southeastern 
Michigan, around metro Detroit, which means that those in the Upper 
Peninsula of our State don't have that choice. I expect it would be 
very difficult for them to find a private sector plan, even into the 
future, in northern Michigan, the Upper Peninsula, or the west side of 
the State. Right now, the only option is obviously around metro 
Detroit. None of the remaining Medicare HMOs in Michigan is accepting 
new enrollees.
  One Michigan provider even chose to pay a $25,000 fine to get out of 
Medicare+Choice and stop serving seniors immediately rather than go 
through the official withdrawal process. That requires more than 3 
months of notice of intent to withdraw. By pulling out immediately, 
this plan left our seniors in the lurch with very little transition 
time to explore other ways in order to be able to get their health 
coverage.
  Because of the poor records of the Medicare+Choice plan, almost 9 out 
of 10 seniors--basically 89 percent--have decided to stay in 
traditional Medicare. I believe they ought to have the choice to do 
that. That is what my amendment is all about. It is saying to those 
right now who have had a choice of a private managed care plan or 
traditional Medicare since 1997, who have chosen to stay with 
traditional Medicare, to choose their own doctor, to know that 
regardless of where they live they will have the dependability, the 
stability of Medicare, it will be there for those individuals who have 
chosen overwhelmingly to stay in traditional Medicare--89 percent.

  Any one of us would love that kind of a percentage when people are 
choosing in an election. Eighty-nine percent of the seniors today have 
said they want traditional Medicare. Yet this choice they have made is 
not available to them if there are two or more private sector plans 
available in their region. Essentially, unfortunately, what the current 
plan says is you have made your choice; we do not like your choice; 
pick again. My amendment would guarantee seniors would be able to have 
that choice.
  I know some colleagues strongly believe that moving seniors into the 
private sector is the best way to provide them prescription drug 
coverage. While I respectfully disagree with this premise, I think it 
is a good idea to provide private sector options for those who desire 
them.
  Back to my own family, I think my mother should have that choice, and 
she should be able to go into Medicare+Choice or another managed care 
plan if she so desires. I absolutely agree with that if it works for 
them.
  The question is whether the Federal Government should force seniors 
into a plan, whether it is a private insurance plan or traditional 
Medicare. Should we be deciding what our seniors should have for their 
prescription drug coverage? Should we make that choice or should they 
make the choice? That is why my amendment is so important. It will 
allow seniors to choose the appropriate plan for them, not the Federal 
Government.
  I have heard a lot of arguments that we should provide seniors with 
the same options that Members of Congress and Federal employees have in 
the Federal Employees Health Benefits Plan. Under that plan, we have 
several options ranging from fee for service to PPOs to HMOs. If we 
like one of those options--and we choose that option, by the way--the 
Federal Government does not come in and say, If you work for the 
Senate, you cannot have option A, you can only get B, C, D, and only A 
under certain circumstances. We say here is the range of options; you 
select the one that works for you. If we like the one we selected, we 
can stay in that plan as long as we want. As long as we are covered by 
the Federal employees health plan, we can choose that plan. We are 
never forced to switch plans.
  Mr. President, can you imagine if we were living under the plan we 
are asking seniors to live under; if every employee had to switch back 
and forth, potentially, depending on what was offered in the private 
sector, rather than remaining with the plan they desired? We have never 
been forced to switch plans ourselves. It should be the same for our 
seniors. If we do not have to switch plans year to year, then seniors 
should not have to switch either.

[[Page S8091]]

  My guess is most of us like the plans we are in and probably want to 
stay with them. Certainly, if we do not, we have the opportunity to 
change. But the last thing we want to do is switch health plans every 
year or every other year and try to leaf through hundreds of pages of 
brochures to evaluate the benefits of a new plan. I, for one, find it 
is difficult to find the time to do that. I cannot imagine anyone would 
want the chore of going through every year or every other year all of 
the paperwork to figure out what is best for them, particularly if they 
like the plan they are in.

  Many seniors want stability. They seek a good, solid, guaranteed 
health plan where they can see their own doctors. There are some 
seniors who prefer to experiment with private plans, and they should be 
given that option. But all seniors should have all options, and that is 
what my amendment would do. It would make sure the choice is in the 
hands of our seniors.
  Again, this approach is within the framework of the bill. It is 
within the $400 billion that has been carved out within the budget 
resolution. It is within the framework of the benefits structure that 
has been designed by the committee. This amendment does not change 
anything other than to say every senior should have the option, as 89 
percent of them have chosen to do, to not only have their own doctor 
under Medicare, but to have a prescription drug plan under Medicare 
regardless of where they live, and a plan they can count on and depend 
on.
  Again, I commend my colleagues who have been working diligently on 
this issue. I know it has been a challenge for everyone. I believe this 
amendment does exactly what the seniors of America want and allows all 
of us to enthusiastically embrace this proposal as being the right 
proposal.
  I hope my colleagues will support my amendment to offer one more 
choice to seniors. It builds on the structure of this bipartisan plan 
and provides more choices.
  I know many of us believe this bill can be improved. Outside 
objective critics have even used stronger language about the way this 
is restricted in the bill. For example, former CBO Director Robert 
Reischauer said:

       The benefit is rather skimpy and has a bizarre structure. 
     It is an insurance structure that exists nowhere in the 
     private sector or in nature.

  Through this amendment we will have a structure that makes sense, 
that is dependable, that is explainable, that is simple and 
straightforward, that provides all range of options to seniors so they 
can decide what it is they wish to do in terms of prescription drug 
coverage.
  Mr. President, I have a letter from the National Committee to 
Preserve Social Security and Medicare. I will read a portion of it:

       On behalf of the millions of members and supporters of the 
     National Committee to Preserve Social Security and Medicare, 
     I am writing in support of your ``Medicare Guaranteed 
     Option'' amendment to S. 1. Since the current Senate 
     prescription drug bill, S. 1, wants to offer seniors choices, 
     your amendment would offer seniors real choices because they 
     would have the choice of what they really want, which is a 
     defined benefit under Medicare.

  I ask unanimous consent that this letter be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
                                                    June 17, 2003.
     Hon. Debbie Stabenow,
     U.S. Senate,
     Washington, DC.
       Dear Senator Stabenow: On behalf of the millions of members 
     and supporters of the National Committee to Preserve Social 
     Security and Medicare (NCPSSM), I am writing in support of 
     your ``Medicare Guaranteed Option'' amendment to S. 1. Since 
     the current Senate prescription drug bill, S. 1, wants to 
     offer seniors choices, your amendment would offer seniors 
     real choices because they would have the choice of what they 
     really want, which is defined benefit under Medicare.
       We understand that your amendment would allow traditional 
     Medicare to be an option that stands side-by-side next to the 
     other two or more private plans that are required to be in 
     that region. Instead of the current requirement that Medicare 
     stand as a fall back, only if there are no private plans in 
     the area, it would allow Medicare to be a third choice for 
     seniors who prefer to get their benefits through traditional 
     Medicare. We agree that seniors should have the right to 
     select the option in which they are most comfortable, and for 
     many, that choice might be to stay with traditional Medicare 
     versus one of private plans that are located within their 
     region.
       We applaud your efforts and dedication on behalf of 
     America's seniors, and appreciate your continued leadership 
     on this issue. We look forward to continuing to work with 
     you.
           Sincerely,


                                          Barbara B. Kennelly,

                                                        President.

  Ms. STABENOW. I thank the Chair. Mr. President, again, I urge my 
colleagues to join in this amendment. I am hopeful we can join together 
enthusiastically in embracing a system that has worked since 1965 for 
our seniors. I hope also we can join together to improve it, not only 
prescription drug coverage, but ways to minimize paperwork and focus 
more on prevention, as the Secretary of HHS has suggested.
  There are many opportunities for us to improve within the structure 
of Medicare a plan that is focused more on prevention, to eliminate the 
paperwork, and to do it together and still provide our seniors with the 
choice for which they are asking.
  In conclusion, I ask unanimous consent to add Senator Levin, Senator 
Kohl, and Senator Dodd as cosponsors of my amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Ms. STABENOW. I thank the Chair. I yield the floor.
  The PRESIDING OFFICER. The Senator from Montana.
  Mr. BAUCUS. Mr. President, first, I congratulate the Senator from 
Michigan. She has worked very hard and, I might add, effectively in 
helping make this a better bill.
  Everyone in this body wants legislation passed that gives good, solid 
prescription drug benefits to seniors.
  The debate is somewhat over delivery; that is, how we set the plan 
up, who provides the benefits and so on. The bottom line is the same 
for all of us. We want good, solid prescription drug benefits for 
seniors.
  The Senator from Michigan is probably as well-versed in this subject 
and more of an advocate for seniors than any other Member of this body, 
or at least as much as any other Member of this body. I thank her very 
much for what she has done.
  The issue basically is that we have roughly $400 billion to spend 
over 10 years, and the question is how we best assure that seniors get 
those benefits. Now, $400 billion over 10 years may sound like a lot of 
money to some folks but when it is cranked out in terms of deductibles, 
copays, premiums and benefits, it is really a modest benefit for 
seniors. It is not a lot of money.
  Some other programs give much more generous prescription drug 
benefits than is called for under this legislation. For example, under 
TRICARE, that is the military plan, military retirees receive 
substantially more benefits than are called for under this bill. The 
same is true for the VA. If the U.S. Government, under this 
legislation, were to provide the same benefits for seniors generally 
that the military does under TRICARE, this bill would not be $400 
billion, it would be upwards of $800 billion to a trillion dollars, 
which gives one a sense of the difference.
  The VA's benefits are greater. The Federal Employees Health Benefits 
Plan, FEHBP, provides drug benefits that are greater than called for 
under this bill.
  I mention that so the expectations are not raised too high that this 
legislation is going to be the be-all and end-all, that it is going to 
help seniors with all their drug expenditures. It will not, but it is a 
first step. It is a major advancement in helping seniors get their 
prescription drug benefits.
  There will be many bills later on in the next several years as we 
address ways to improve our health care delivery system generally, on 
how we can help improve prescription drug benefits to seniors more 
specifically, but we are operating under a bit of a constraint and the 
constraint is $400 billion. That is what we in the Congress agreed to, 
$400 billion on the Senate side for prescription drug benefits for 
seniors.
  Under that constraint, we have to work very hard to try to achieve 
some balance. One goal is stability, another is efficiency. What do I 
mean?
  Under stability, we clearly want this program to be as stable as 
possible so seniors know what they are getting for the premiums they 
will be paying. This is a voluntary program. Seniors are not

[[Page S8092]]

required to sign up. What we want is a stable program. We do not want a 
program that is changing a lot. That is unsettling to seniors.
  We also want to achieve efficiencies. By that I mean lower some 
costs. The Medicare Program is growing exponentially. We all know that 
not too many years from now, when the baby boomers start to retire, we 
are going to face some significant challenges on how we address 
Medicare payments generally, which certainly will include some 
prescription drug benefits. We want to try to cut costs, and the idea 
that a balance is struck between stability and efficiency is 
essentially one where both private plans and the U.S. Government 
participate.
  I strongly wish we were able to have more dollars to spend so we 
would have more stability and have a program that more closely 
resembles the military's TRICARE plan or the Federal Employees Health 
Benefits Plan or the Veterans' Administration plan, and even some 
private plans, but we do not. We are taking this steadily, a step at a 
time.
  The Senator from Michigan has a good idea. Her idea is that in the 
interest of stability, as opposed to efficiency, that any senior would 
have the right to participate for life in the Government-sponsored plan 
as opposed to the private sector. We in the Finance Committee have 
labored mightily to try to find the right balance, and the right 
balance is not easy to find, I must say. We have Senators from one side 
of the spectrum and Senators from the other side of the spectrum 
bending my ear and bending the ear of the chairman. Quite often, our 
ears are bent so much we wonder if there is any rubber left in them. We 
have been talked to.
  I have been talked to very much by the wonderful Senator from 
Michigan about her amendment. If I had my druthers, it would be 
something I would prefer, but we are a bit constrained. I do not know 
that I can support the amendment for that reason because we are trying 
to keep a balance.
  I do want to highly commend the Senator for the great effort she has 
undertaken. She has clearly helped advance the ball in many ways. She 
will continue to advance the ball, there is no doubt in my mind. She is 
a great Senator for the people of the State of Michigan.
  I yield the floor.
  The PRESIDING OFFICER (Ms. Murkowski). The Senator from Iowa.
  Mr. GRASSLEY. Madam President, I rise in opposition to the amendment. 
I have had a chance to hear what the Senator from Montana has said 
about the amendment. I associate myself with his remarks. I also heard 
what he said about the Senator from Michigan being a fair player and 
offering alternatives, and I share his compliments of her and how she 
approaches these issues.
  This is a place where we have some honest disagreements. We are going 
to debate those honest disagreements, and I hope the Senator from 
Michigan comes out on the short end of this debate when we have a 
rollcall vote.
  Before I make some specific statements in opposition to her 
amendment, I will state that the chart she has before her right now is 
an accurate chart, but I would like to comment on it from the 
standpoint of not being maybe a complete picture. I think the 
percentages are very accurate but we also need to remember that 
Medicare+Choice is not offered in all parts of the United States. For 
instance, in my State of Iowa, there is only 1 county out of 99--and 
that is Pottawattamie County, Council Bluffs county seat across from 
Omaha--where there are about 4,000 people out of about 350,000 seniors 
who belong to a Medicare+Choice plan, and I find that they like it very 
well. They can join in that county because they are associated with 
Omaha across the river in Nebraska.
  Also in several major cities in California, Arizona, Texas, Florida, 
and New York there are several, maybe even some rural areas in those 
States, where they get a very high percentage. Now, how much higher 
than 11 percent, I do not know, but I remember back in the mid-to-late 
1990s that I was able to say--whether I can still say it today, I do 
not know--that 40 percent of the seniors in some large cities did, in 
fact, choose Medicare+Choice plans. Whatever higher percentage it is in 
those cities, we have to realize that people are in these 
Medicare+Choice plans voluntarily.
  I also have come in contact with many Iowans who winter in other 
States where they have Medicare+Choice, and they do not seem to 
understand why we cannot have Medicare+Choice in Iowa, and I wonder 
that myself. I took action in 1997 to very dramatically increase the 
payment to Medicare+Choices so they would come to the State of Iowa, 
but they still have not come.
  We have increased it from $300 per month per beneficiary up to a 
national floor now of $490, and they still don't come, even considering 
the fact that fee for service in Iowa is closer to the $300 per month 
per beneficiary. So I don't know why we can get almost 50 percent more 
and at least 70 percent more Medicare+Choice, yet the plans don't come 
to Iowa.
  What I am saying to the Senator from Michigan is it is not fair to 
say Medicare fee for service is so well liked by seniors, as her chart 
would imply, that we ought to completely forget about anything but fee 
for service. In a lot of places people like it. A high percentage of 
seniors are in it. They are in it voluntarily. They can come in one 
year and get out the next if they want to go to the fee for service. In 
my State of Iowa, citizens are irritated because in Arizona they see 
people getting benefits through Medicare+Choice that we do not get in 
fee for service within the State of Iowa.
  There is nothing wrong with your chart except I think it ought to be 
magnified to some extent so that there are a lot of people with 
Medicare+Choice who like it. More would choose it if it was more widely 
available. That is one of the advantages of our PPO section of the bill 
before the Senate: to give more people that opportunity. That does not 
necessarily mean HMO. It can be preferred provider organization or it 
could even be a fee for service.
  Let me get back to the specifics of the amendment. The purpose of the 
amendment is to make the Government-run fallback plan available in 
every area all the time, even when the bill before us has very strict 
standards for the presence of private plans, and that these be met, and 
when they are met or provided for, no fallback is needed.
  In essence, this amendment would destroy our bill's competitive 
incentives and replace them with a Government-controlled regime for 
dispensing drugs in this country. The amendment before us would also 
create an unlevel playing field between the Government-run plans and 
private plans. As a result, it would discourage the initial entry of 
private plans, dooming the effort to provide the drug benefit through 
competing private plans. This would place the drug benefit right back 
in the very command-and-control mentality of Government-run health care 
plans we ought to try to move away from. It would reinstitute 
Government micromanagement, and it would bring about price controls.
  It would ultimately put the Government into the full-time business of 
setting drug prices and determining what drugs are covered and which 
are not.
  This is the opposite result of what the underlying bill is seeking to 
achieve with a competitive private-sector-run prescription health plan. 
The Government-run approach saves less than competing private plans. 
Private plans competing to enroll beneficiaries would achieve greater 
savings because at-risk plans would work harder to negotiate lower 
prices and work harder to offer more affordable premiums.
  This fact is brought out by CBO this year, but it reaffirms 
everything we knew about every plan in the Senate discussed last July, 
including the tripartisan plan that set out the tripartisan plan 
savings and costing less as opposed to the Government-run plans that 
were offered on the other side of the aisle last summer when we debated 
this same issue.
  CBO has indicated that a structure based on competing at-risk private 
plans has a higher cost management factor than Government-run plans 
which cannot respond quickly to market changes. The Congressional 
Budget Office recognizes that private plans will do a better job of 
managing drug costs and keeping pace with market changes.
  Don't we want the seniors to have a right to choose? And they do have 
the

[[Page S8093]]

right to choose. That is what this approach is all about: not forcing 
something down the throats of seniors. But don't we all think we ought 
to have programs that respond to the market because that gives our 
seniors an opportunity to select products and services that are the 
result of the dynamics of our marketplace?
  You know how long it takes Congress to make a decision. You know how 
long it takes a bureaucracy to make a decision. It does not serve 
seniors as adequately as we should be serving seniors. In fact, we know 
already the Government does a very poor job of reimbursing for 
prescription drugs because of the years of overpayment for the drugs 
already covered under Part B of Medicare.
  Medicare has been overpaying for Part B drugs for years because of 
its inability to keep up with the marketplace. Taxpayers are paying 
more because CMS is about 2 or 3 years behind in pricing new therapies, 
such as new approaches in the area of prosthetics.
  In fact, the bill before us includes reforms to Part B drug payments 
to end the overpayments Medicare is already making. But it has taken 
years for General Accounting Office reports and investigations by the 
Inspector General for Congress to act to fix this problem.
  Overpayment for drugs in Part B has cost taxpayers billions of 
dollars and our underlying bill seeks to correct that problem. But we 
should learn the lessons of history and recognize that if the 
Government is wasting billions in overpayments for the drugs covered 
under Part B today, how much would be wasted by the Government if such 
a system were used for all prescription drugs dispensed to the seniors.
  In answering that question, don't believe the assumption in my 
question, believe what CBO has already said about it. The Congressional 
Budget Office has the expertise of pricing these things and accounting 
for the costs. The potential waste, then, the overpayments for drugs 
and increased costs to the taxpayers has become astonishingly high.
  Setting up a Government-run plan that undermines or eliminates 
private-sector competition will take choices and savings away from 
seniors. By pushing private plans out of the market, I believe, 
regardless of how well-intended the amendment by the Senator from 
Michigan is, it would reduce the broad array of choices that would 
otherwise be available to beneficiaries under the bill before the 
Senate. This would deny seniors the opportunity to enroll in the plan 
that best fits their needs by forcing these seniors into the typical 
one-size-fits-all model.
  This would effectively deny seniors a private plan operation, which 
would deny them the enhanced savings achieved by the private plans. 
This would effectively undermine a major principle of this legislation: 
the right of seniors to choose. Seniors ought to have that right. They 
may not want to exercise that right, but we should not assume, when 
there are 40-some-million seniors in America, that one program is right 
for all of them. We give alternatives. The right to choose is very 
important. The right to choose in Medicare is one of the major ways we 
modernize and strengthen Medicare. Medicare has become a part of the 
social fabric of America, like Social Security. We do not want to, in 
any way, affect this integral part of the social fabric of America 
except to give American seniors more right to choose.

  The amendment before the Senate by the Senator from Michigan takes 
away some right to choose or destroys the dynamics of the choices we 
are giving to seniors.
  I urge my colleagues to defeat this amendment.
  The PRESIDING OFFICER. The Senator from Michigan.
  Ms. STABENOW. Madam President, I will respond to my colleague, the 
chairman of the Finance Committee. First, I thank the Senator for his 
kind words and my esteemed ranking member from Montana, as well, for 
his kind words. We have different views, different perspectives on how 
best to provide seniors with prescription drug help, but we all share a 
common desire to do that and, within the confines we are operating 
under, to create a way to do that.
  First, the Senator from Iowa, the chairman of the committee, is 
correct: A portion of the individuals who are in traditional Medicare 
are there because there are not plans available in their area. In 
Michigan, as I indicated in explaining the amendment, only 2 percent of 
the people right now in Medicare in Michigan have access to 
Medicare+Choice. So it is definitely true.
  It is my understanding, though, that CBO has said under the new plan 
only 1 or 2 percent of the folks would go into managed care under this 
bill. If that is correct, we would not see much of a choice even if it 
were available.
  However, the larger point is whether or not the market has worked as 
it relates to health care for seniors. In 1965, when Medicare was 
created, it came about because at that time half the seniors in the 
country could not find health care insurance or could not afford it. 
The market was not working for older Americans at that time.
  I argue, also, the fact that there are no managed care plans in Iowa, 
northern Michigan, or other parts of the country. Again, it is a 
question of whether or not the market works in those circumstances. The 
reason Medicare came into being is because there were not health care 
plans in rural America, there were not health care plans available to 
those who needed them. We decided in one of the best decisions that has 
been made by the Congress--I was not there at that time--one of the 
wisest things that was done at that time was to say our value, as 
Americans, is that older Americans, the disabled in our country, should 
not have to struggle to find health care. We believe health care should 
be available to them whether they live in a rural community, whether 
they live in a city or a suburb, anywhere in the United States. Our 
priority as Americans is to create a system that, regardless of where 
you live, health care would be available and affordable for older 
Americans and disabled.
  Many say today we should be going in the exact opposite direction of 
expanding what we are doing to make sure everyone has the opportunity 
for the same health care that seniors and the disabled have in our 
country; that children and families, working hard every day, that 
individuals working two and three part-time jobs who cannot find health 
insurance, ought to have the ability to buy into a system of health 
care coverage.
  There is a great need to make sure that health care is available and 
affordable. Medicare has done that.
  I agree there are improvements to be made, such as more focus on 
prevention. We can certainly streamline the paperwork and bring it into 
the 21st century as far as technology and other options, to make the 
system better. From my perspective, here is a plan, unfortunately, that 
moves away from that stability, the dependability and affordability of 
Medicare.
  I see my esteemed colleague from Iowa, Senator Harkin, and I know he 
wants to speak. Members feel strongly about this issue. What we are 
doing with this amendment is the ultimate choice. It is the real 
choice. It is the choice the majority of seniors have already made, and 
it is the choice they want. Under the underlying bill, the only way 
they could get to the place to choose what they want is if private 
insurance plans were not available in their area. The plan goes through 
all kinds of changes to try and make that available, even if it costs 
more.

  Ask any small business, any large business in this country today, how 
fast their private insurance premiums are going up. We have seen small 
business premiums double in 5 years. We have seen Medicare going up 
about 5 percent. We see private sector going up 15, 20, 25, 30 percent 
a year. This says rather than having a plan that goes up 5 percent a 
year, we are going to design this so it goes up 15 or 20 percent a 
year.
  That does not make sense. In all honesty, the only group this makes 
sense for are the pharmaceutical companies who do not want folks in one 
place to be able to bargain and negotiate lower prices, which is what 
Medicare would be able to do--negotiate lower prices.
  For all who want to get this right for our seniors, I urge my 
colleagues to join in creating real choice for our seniors. Give them 
the opportunity for the choice they want. If, in fact, someone chooses 
to go into managed care, an HMO, PPO, or other kinds of private plans, 
they should have that choice, as

[[Page S8094]]

well. This amendment allows them to do that.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. HARKIN. Madam President, as the cosponsor of the Stabenow 
amendment, I add my strong support for the amendment offered by my 
distinguished colleague from Michigan.
  Senator Stabenow has it right. She understands what is happening. 
Senator Stabenow has time and time again come to the floor to point out 
we need to give seniors more choices rather than fewer choices. That is 
what we are doing with this amendment.
  The bill we are considering in the Senate this week, S. 1, has a 
number of flaws despite its good intentions. Its prescription drug 
benefit for seniors is far from comprehensive. There is a significant 
coverage gap. Premiums are not fixed. Many of the copays are too high. 
The bill does not contain the actual costs of prescription drugs. 
Although the generics amendment, which I assume will be added to the 
bill, which will certainly help in that regard, the bill does not go 
into effect until 2006; interestingly enough, just to get us by the 
2004 election.
  I have a number of concerns. I plan to speak about all of these as we 
proceed on this bill this week. One of the most significant flaws in 
this bill is addressed by this amendment offered by Senator Stabenow; 
that is, this bill requires seniors obtain the prescription drug 
benefit through private insurance unless there are not two such private 
insurance plans in their area. In other words, a prescription drug 
benefit through Medicare is only available as a so-called fallback.
  In other words, if you are a senior in, let us say, a rural State 
where there are no private HMOs--speaking about my State of Iowa, we 
don't have one Medicare-based HMO in the State of Iowa. Let us say you 
are in an area and you have two private plans. You don't have a choice 
other than those two. That is all you have. You have those two. If you 
are in a State where there are not two plans, then you can get 
Medicare. Let us talk about this. It is only a fallback position. If 
the two plans aren't there, then you can get it through Medicare.
  What Senator Stabenow's amendment says is that we want a prescription 
drug benefit through Medicare that would be available to all seniors at 
all times so they can have a real choice. Under this amendment, this is 
how it would change the bill.
  You are in an area and you have two private plans. You could also 
have Medicare. Now you have one of three choices. Under the bill here, 
you have one of two choices. We are expanding the choices. We are 
saying you can go with private plan A, private plan B, or Medicare. You 
have the choice. If private plans are so desirable and they are so 
good, then let them compete against a Medicare benefit. Let us see 
which one a senior chooses.
  I found the arguments propounded by my friend and colleague from my 
own State of Iowa Orwellian at best. The chairman of the committee was 
talking about choices. We want to give seniors choices. If a senior has 
one of two choices, or one of three choices, which one gives the senior 
more choices? The chairman of the committee said the first one that 
offers two plans gives them more choices. That is Orwellian. It is 
Orwellian-speak that somehow two choices are more than three choices. 
Go figure.
  To me, this is the key issue that needs to be fixed in this bill. I 
am glad it is the first amendment because it is vital. I think it 
represents the fundamental difference between many on our side and many 
on the Republican side on this bill.
  I want to be very clear. I am not against a free market. I am not 
against the private sector or private health insurance plans. But the 
reality is that the private sector by its very nature leaves certain 
groups of people behind, especially in the health care area.
  Let us be honest about it. People with disabilities are not a 
profitable group. You have a disability. Try getting insurance. Try it. 
There is no money to be made there. People with mental illnesses are 
not a profitable group. We have been trying for some time to get mental 
health parity. We still don't have it because the private sector 
understands they can't make money.
  Guess what other group is not profitable? Senior citizens are not 
profitable. They use more health care as they get older. So they are 
not profitable.
  If you look back in history, that is why we established Medicare in 
the first place in the 1960s--to care for those people who were left 
behind by the private sector.
  I remember as though it were yesterday when my father was in his 
later years and had health care problems. In the 1950s my father was 
then in his early seventies. He had been quite disabled from working 
for over 20 years in coal mines. He had ``miners lung,'' as they called 
it then. Later they called it ``black lung.'' He had had some 
accidents. He was now in his late sixties. He was in his early 
seventies in the 1950s. His health was in bad shape. He was on Social 
Security. That is all he had. He had no life savings. He had no 
dividends. He owned no stock. My father only went to the 8th grade. He 
worked most of his life in the coal mines. After that, he worked as a 
handyman. All he owned was a small house on 1 acre of land. That is all 
he had. Thank God he worked enough to pay into Social Security to get a 
Social Security benefit. But he had no health care insurance. He had no 
outside sources of income. He had some young kids, me being one of 
them. We had no outside source of income at all. My father's income in 
the 1950s on an annual basis was probably around about--I would be 
surprised if it was over $2,000 or maybe $2,500 a year at the most. He 
couldn't get health insurance.

  There was no one who would sell my father health insurance, even if 
we could have afforded it. Later on, when a couple of his kids got out 
of college and we looked around to try to see if we could get some, no 
one would cover him. He was now in his midseventies and had black lung 
disease. He had a few other problems. Try to find an insurance program. 
There were health insurance programs at that time. There were a lot of 
health insurance programs that covered a lot of workers at that time 
through their employment but they were not about to cover my father. 
That would not have been profitable.
  I remember when Medicare came in. My father got his Medicare card. 
Now he could go to the doctor and go to the hospital.
  There are those of us who lived through this and saw our parents 
denied health care coverage because they couldn't afford a private 
health care plan because the private health care plans left them 
behind. We look at this bill and say: Wait a minute. You are saying you 
are going to have these two private plans out there but you are not 
going to have a Medicare choice?
  We experimented with private health care and HMOs. Guess what 
happened. Seniors all over the country were dumped by plans. They had a 
plan. They signed up. As soon as the plan saw they weren't making 
money, they said: We are out of town. So seniors were dumped. We didn't 
have a law that said you had to cover them. They just walked away from 
it.
  That is what is going to happen with this bill, too. Obviously, they 
can do it on an annual basis. That is another point of this bill that 
is going to get highlighted. A plan could be in effect and they find 
out after a year they are not making enough money. Bang, they walk 
away. Then maybe another plan will come in. Oh, well. Maybe a senior 
can sign up for that. What is the coverage, or the copay, or what is 
the deductible? It may be different.
  For years, Republicans have not so subtly wanted to privatize 
Medicare. There were public comments such as then-Speaker Newt Gingrich 
who said about Medicare that he wanted to ``let it wither on the 
vine.''
  I think when you read those statements and the statements by the 
third ranking Republican in the Senate who said that the basic Medicare 
benefit basically needs to be done away with, you get an insight into 
the long-term goal of those on that side.
  What they state is their support for including the private sector 
here to take advantage of the efficiency by the experience and the 
virtues of private competition. All well and good. I am all for 
competition and efficiency. But what happens is that this bill now 
before us relies on the participation of private plans to deliver this 
drug benefit to our seniors. But you have to set the rhetoric aside.

[[Page S8095]]

  The current structure of this bill before us invests unwisely in 
private health plans to provide the drug benefit for seniors, and it 
restricts their choice. It restricts it. As I said, the Senator from 
Iowa, the chairman of the committee, spoke about giving seniors 
choices. That is exactly what the Stabenow amendment does. If they do 
not want to be in Medicare, they can go out and get a private plan. But 
under the bill before us, if they do not want to be in a private plan 
and want to stay in Medicare, they cannot do it.
  Now, again, for some reason I am having trouble understanding this 
argument made by the chairman of the committee that somehow having two 
choices gives you more choices than having three choices. Someone has 
to really explain this to me because that is what the Stabenow 
amendment does. It gives you three choices: Medicare, plan A, plan B. 
The bill before us gives you two choices: plan A or plan B.
  Now, again, this is especially bad for seniors in rural States where 
private plans have shown no interest in participating in the Medicare 
program. Now, again, the scheme in this bill of having the private 
plans only--if there was some history to back this up, and the chairman 
of the committee talked about history. Well, OK, let's look at the 
history. We know from history the administrative costs in Medicare are 
much lower than in private health plans--2 to 3 percent a year compared 
to 15 percent in the private health care plans. We know that. That is 
fact. That is data.
  We also know that over the past 30 years Medicare spending has grown 
at a slower rate than private health care spending; about 9.6 percent 
for Medicare, over 11 percent for private health care plans. We know 
that. It is factual. Yet ignoring this history, in the plan before us, 
this administration and the Republican leadership in the Senate insist 
on relying almost solely on private plans to provide this drug benefit 
to our seniors.
  As I said, the bill before us might be reasonable if we had some past 
history to back up the fact that the private health care plans were the 
most efficient. They want to talk about efficiency. The facts show that 
administrative costs are about one-fifth--one-fifth--as much in 
Medicare as in private plans, 2 to 3 percent compared to 15 percent. So 
efficiency? Obviously, Medicare is more efficient.
  And the cost, well, as I said, over the last 30 years Medicare has 
grown at a slower rate than private health plan spending. So which 
costs more, Medicare or private health care plans? Well, we have the 
facts. We have the data. This cannot be ignored.
  The only way you can ignore this data and these facts is if your 
ideology trumps experience. If you have an ideology that says we are 
going to set up a system that will ensure that Medicare sometime in the 
future fails, I guess you could ignore facts, you could ignore the 
history. And that is really what this is all about, folks.
  The result of all this private plan investment means there is less 
money available to actually help seniors get the drugs they need. It is 
estimated that the underlying bill will actually pay private insurance 
companies over $25 billion just to participate. Boy, talk about a 
sweetheart deal.
  OK, let me get it straight now. We want only two private plans out 
there in a region for seniors. The bill will not let Medicare compete. 
That is what the Stabenow amendment does for us, it allows Medicare to 
compete. The bill will not. So you have two private plans out there. 
Because why? ``They are more efficient. They have more experience,'' et 
cetera, et cetera. ``They will have competition, and the competition 
will keep the price down.'' Then why are we giving them $25 billion in 
subsidies to get them into the program? You would think they would be 
knocking the doors of the Senate down rushing to get in on this.

  Let me proffer a question. What if we took out the subsidies to the 
private insurance plans? How many would come into this program? Zero. 
No, we are going to give them $25 billion. What if we took that $25 
billion and we put it into a prescription drug benefit? Well, we could 
cut down what? We could cut down the deductible, maybe. We could cut 
down the copays. We could close the coverage gap--all of which would 
help our seniors. No, no, no. We are going to take $25 billion and we 
are going to help the private insurance companies. We are going to coax 
them. I have a different word. We are going to bribe them. We are going 
to bribe them with $25 billion of money to come in here.
  Talk about efficiency. Boy, isn't the private sector grand. Isn't 
competition wonderful when the Government comes in with your taxpayers' 
dollars and gives them $25 billion so they can offer some kind of a 
prescription drug plan.
  I mentioned just a minute ago about how in the past private plans 
have come into existence. Seniors join them, and then the plans close 
down, leaving the seniors holding the bag. That is the history. That is 
the data. That is what has happened. Because of the structure of this 
plan, seniors could be forced to switch plans and drugs on a yearly 
basis--yearly--as private plans may join and then pull out of the 
markets.
  So you have these two plans out there. Your grandparents, your 
parents, join plan B because it looks good for them, and it turns out 
maybe the first year it is OK for them, but the plan they joined finds 
they are not making enough money. Guess what. At the end of the year 
they walk away.
  Now, what do your grandma and grandpa do then? Well, they can go to 
maybe plan A, or maybe another plan will come in, have a different 
copay, different deductible, different this, different that. And I will 
tell you, if you think your health plan today is confusing--and it is. 
I look at my health care plan every year when the open season comes 
around and I try to make heads or tails of it. I was trained as a 
lawyer. I may not be a very good one, but I was trained as a lawyer, 
and reading these things is confusing, even for someone trained. Put 
these plans out there for the average senior citizen to read every year 
of who gives what, what is the benefit--total confusion.
  Then what happens? Well, people get confused. They get upset with the 
program. Seniors talk among themselves at their various groups and 
clubs, and they find out that Mrs. Jones over here, while she has an 
income of $14,640 a year--guess what--her deductible and her copays are 
up here, they are high. Mrs. Smith, her friend and neighbor, who comes 
to the same club, her income is $14,639--$1 less--and she gets all hers 
free. Think about that. Think about what this is going to mean to the 
elderly out there when they see: Wait a minute, my neighbor, my friend, 
they get a few dollars more a year than I do. They pay. I get a few 
dollars less. I don't have to pay anything.
  What is that going to lead to? Not only to confusion, it is going to 
lead to anger, and it is going to lead ultimately to seniors saying 
that this whole system has to be changed. And that is the end result of 
what the Republicans want to do with this bill; that is, to strike a 
dagger to the heart of Medicare. Now they can't go after the heart 
right now, so you cut a few veins. You take a leg here and a leg there 
and an arm here and an arm there, and pretty soon Medicare is done for.
  That is why this amendment by Senator Stabenow is so important. It 
follows a simple and reasonable philosophy that says seniors who want 
to stay in traditional Medicare ought to have that choice. We are not 
forcing them. Senator Stabenow is not forcing any senior to stay in any 
plan. She is simply providing them the choice.
  Again, as the chairman of the committee said earlier, as the 
President has said, they extoll the virtues of giving seniors more 
choices. I say yes, let's give them more choices. This amendment does 
that by doing two things. It gives seniors the option of staying in 
traditional Medicare for all of their health care needs including 
prescription drugs. They have that choice. They don't have to if they 
don't want to. And as Senator Stabenow has shown time and time again, 
11 percent of the seniors have said no, they don't want to stay in 
Medicare. Fine, if they want to go somewhere else, that is their 
privilege. Her amendment would not change that whatsoever.
  But the second thing the Stabenow amendment does is it guarantees our 
seniors, especially those who live in rural areas where private plans 
are less likely to participate, a reliable and consistent option that 
will never leave them without coverage.
  Throughout this debate, we have heard and will continue to hear our

[[Page S8096]]

friends on the other side, the Republicans, talk about how great 
private plans are, how they will control costs through competition. I 
just cited some statistics that show that historically this has not 
been true. The Stabenow amendment will make sure that every senior in 
every State has access to a consistent benefit and the option of 
staying in the Medicare Program.
  I would think--maybe I am naive; I hope not--that if the chairman of 
the committee and the Republicans really wanted to give choices to 
seniors, they would welcome this amendment. If you listen to our 
friends on the Republican side and trust them, you will believe the 
private plans will provide a better benefit at a better price to 
seniors. If that is the case, what are they afraid of?
  If the Republicans truly believe the private plans will provide a 
better benefit at a better price to seniors, why are they so afraid of 
letting seniors have Medicare as an option then? Because obviously they 
would pick the private plan because it would be better than Medicare. 
So what are they afraid of? Why would they not want this amendment? 
Because, all rhetoric aside, the Republicans want to constrict choice. 
They want to force seniors into private health care plans--force them--
and only if there are not two plans available, then you get this 
fallback into Medicare. If it is good enough as a fallback, why not let 
it compete upfront?
  I may have an amendment on this later in the week, but if these 
private plans are going to be so good and they are so good at 
competition and efficiency and so good at keeping prices down, why do 
we have to give them $25 billion in subsidies? Let them go out there on 
their own. That is the private market. I don't think they need the 
subsidies if they are truly going to provide this kind of a benefit. 
Again, I am not arguing it now. I am saying that may come along later.
  The Stabenow amendment provides seniors with three choices. The bill 
provides them with two choices. So this amendment offers them more 
choices than the underlying bill does. If what the Republicans want are 
more choices, this is it. They should support the amendment.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. Madam President, on behalf of the leadership, I ask 
unanimous consent that following my remarks, Senator Graham of Florida 
be recognized to speak for up to 10 minutes on the Stabenow amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                TENTH CIRCUIT COURT OF APPEALS DECISION

  Mr. DOMENICI. Madam President, I thank Senator Graham for allowing me 
to speak on a matter of utmost importance to my State. That accounts 
for the consent that he would follow me. He was supposed to speak next.
  I come to the floor to discuss a situation of grave concern in my 
State of New Mexico. On June 12, the Tenth Circuit Court of Appeals 
issued an opinion that puts the fate of a small endangered fish called 
the silvery minnow ahead of the interests of the people of New Mexico. 
This ruling has far-reaching implications for all Americans. It 
essentially favors fish over people.
  This ruling requires that the Bureau of Reclamation reassess its 
contractual obligations to provide water to the cities of Albuquerque, 
Santa Fe, and others--even water resulting from interbasin transfers. 
The two judges issuing the majority opinion conclude that under the 
Endangered Species Act, the water needs of the silvery minnow come 
before the water needs of the people of my State.
  This far-reaching opinion essentially says that the Endangered 
Species Act can be used to artificially create a drought. That is 
precisely what is going to happen if the Bureau of Reclamation deprives 
cities, farms, and Indian reservations in my State of the water they 
desperately need. The ruling says the Endangered Species Act can 
preempt anything and everything, essentially.
  This opinion creates a new Federal right for endangered species. It 
effectively invalidates preexisting contracts and orders the 
importation of water from another basin in violation of New Mexico law 
that allows only for municipal use. In essence, it says even that water 
must be used for the fish. The water resulting from the interbasin 
transfer was never part of the ecosystem or the stream basin. It was 
brought in for other purposes. Under the court's theory, no city, 
county, State, or agricultural community can reasonably expect a 
permanent water supply.
  This is not what Congress intended when we passed the Endangered 
Species Act. This is not what I intended when I voted for the law. The 
concurring opinion of Judge Porfilio says that the Endangered Species 
Act can undermine any contract with the Federal Government for the 
supply of water resources if bureaucrats determine that an endangered 
fish or threatened species needs the water. As we saw with Klamath 
Falls 2 years ago, bureaucrats are often wrong in these affairs. But no 
matter, according to the court, what Federal bureaucrats mandate in the 
name of ESA must be so, regardless of the devastating consequences.
  Did any of us who voted for the Endangered Species Act believe we 
were amending all Federal laws and contracts at the time of its 
passage? I certainly did not. Has anyone who has contracted with the 
Federal Government for a timber lease, mineral lease, for water, or for 
use of Federal facilities included a clause that says such contract 
will not be amended by action under the ESA? Because, according to this 
ruling, if one didn't, the contract won't stand if a bureaucrat somehow 
or somewhere decides that a fly, a fish, or rodent needs that resource.
  This decision cannot be allowed to stand. It threatens all Federal 
contracts. It undermines the financial integrity of the United States 
of America and all of those with whom she contracts.
  This opinion will be devastating for western water users at a time of 
growing crisis in the West. Currently, after years of drought, 
agriculture, States, cities, and counties are struggling to meet their 
water needs now and in the future. There simply isn't enough water to 
go around. Members of Congress have been deeply involved in trying to 
resolve this growing crisis. Now comes the Tenth Circuit Court of 
Appeals with its announcement that the ESA preempts 75 years of 
existing water law, all existing contracts, and the needs of the 
burgeoning western population. This ruling hobbles us in our efforts to 
address the western water crisis.
  Judge Kelly, in his dissent, rightly characterizes the ESA as a 
Frankenstein. Despite good intentions, this law has become a monster.
  Congress never meant for this to happen. Yet, for years, we have 
stood by as our own law has wreaked havoc--oftentimes needlessly--in 
the cooperative relationship of man and nature.
  I believe there is a better way. I believe we can amend this law to 
better protect struggling species, while still respecting the authority 
of this Government, States, localities, and Indian tribes. I believe we 
can amend this law to better protect struggling species, while still 
allowing people access to the resources we need to survive.
  Critics have rightly pointed out that since the passage of the ESA, 
the number of threatened and endangered species has increased 
exponentially. There are now more than 1,100 species on that list. Only 
a handful have recovered since the passage of the ESA. Most of them, 
like the bald eagle, recovered because we banned the use of DDT. I have 
not seen evidence of any species that recovered because of abrogated 
water rights, which is the principal issue discussed by this Senator 
regarding this opinion.
  As this law is now written and interpreted by the courts, we are 
failing our struggling species. We are also failing our citizens who 
look to us, State, and local leaders, for access to the resources they 
need to live.
  This ruling says we cannot even guarantee them the very water they 
need for survival, sanitation, and food. In fact, it says we cannot do 
that by importing water into a river basin in which the fish lived 
before the importation. This decision says that even imported water for 
local use can and must be allocated for these fish. Government cannot 
function under such prescribed chaos.

[[Page S8097]]

  Madam President, we must amend this law. I don't know when it will 
happen, but I will ask this Senate to address this law and the far-
reaching implications of this decision. I will have that ready soon so 
that the first bill that goes through here can carry it along to 
fruition.
  Certainty is the bedrock of western water law. That certainty is 
critical for our people and our country and our economy and, yes, our 
environment, including the endangered species. Certainty is a must for 
endangered species also. The court, however, chose to abandon 
collaborative efforts and the 2003 biological opinion and directly 
threaten every interstate compact in America, established adjudication, 
and the intent of Congress.
  These rights are all out the window by virtue of this 2-to-1 opinion. 
A request for a rehearing en banc will be made to the Tenth Circuit 
and, obviously, the State of New Mexico must take it to the Supreme 
Court, if necessary. But I am going to look to the Senate--at least for 
New Mexico and what I have described here today--for a way to fix it by 
statutory prescription. I will be looking for the help of Senators 
within the next month or two on one of the bills that moves its way 
through here.
  I yield the floor.


                           Amendment No. 931

  Mr. BAUCUS. Madam President, if I am not mistaken, the pending 
amendment is the one offered by the Senator from Michigan. I see the 
Senator from Florida, Senator Graham, who would like to address the 
Senate.
  The PRESIDING OFFICER. The Senator from Florida is recognized.
  Mr. GRAHAM of Florida. Madam President, I rise in strong support of 
the amendment offered by the Senator from Michigan. We are about to 
undertake a massive social experiment. We are about to do it with the 
39 million older Americans, including some of the most vulnerable and 
frail of our fellow citizens. Why do I say this is a massive social 
experiment? Because there is no example in America of a freestanding 
drug-only insurance policy as the means to gain access to prescription 
drugs.
  There are some very fundamental reasons why we don't do that in the 
Federal Employees Health Benefit Program, and why even the 
pharmaceutical industry doesn't do it in distributing drugs to its 
employees. There are two basic reasons why this is a first-of-a-kind 
social experiment. One is this is not an insurable risk. The example 
that has been frequently used is the one of fire insurance. If you are 
going to purchase fire insurance, you buy it on the whole house, from 
the bedroom to the living room, to the garage, to the kitchen. If you 
were to go to your insurance company and say I don't want to insure the 
whole house, I only want to insure the kitchen, the answer would be we 
won't sell you such a policy because the kitchen is the most vulnerable 
part of the house to actually have a fire.
  This is a similar proposition. Prescription drugs are the fastest 
growing part of the health care budget. Insurance companies don't want 
to sell a prescription-drug-only freestanding policy. That is seen in 
the structure of this bill. Essentially, although the statement is made 
that we are going to get better prices because of competition and the 
willingness of insurance agencies to assume the risk, the Federal 
Government is assuming virtually all the risk under this plan. 
Therefore, all of the expectations and representations that we are 
going to have competition through that lower cost is a mirage.
  The second reason is the fact that within health care, there are 
tradeoffs. As an example, just a few years ago the standard way of 
dealing with ulcers was surgery. Today there is almost no ulcer 
surgery; the standard treatment is through prescription drugs.
  What is the relevance of that? If you are only providing prescription 
drugs, if you had a freestanding prescription drug only policy, all you 
would have is the additional cost of prescription drugs. If you are 
insuring the whole body, you get the savings of avoiding surgery while 
you get the additional cost of providing the prescription drugs.
  Those are just two of the reasons there is no other example of what 
we are about to impose on 39 million old, many very sick, many very 
frail, Americans as a social experiment. If we were going to do this, I 
think what we ought to do is say we are going to change the Federal 
health insurance policy starting now and let us all be the experiment 
to find out whether such a freestanding prescription drug policy will 
work.
  We represent a much more diverse population--Federal employees. Many 
of us are younger, healthier than the Medicare population. We would be 
a more appropriate guinea pig for this experimentation than to focus 
this on the oldest and, in many cases, the most vulnerable of our 
people.
  A second concern I have about this approach is that it denies choice. 
Under the structure of this bill, once the elderly have made two 
choices, then they will not have any choice at all as it relates to 
prescription drugs.
  The first choice they make is the choice that they are making today 
and have made for many years in the past: Will I get my total health 
care coverage through traditional Medicare, the fee-for-service plan, 
or will I get it through some form of a managed care plan?
  The jury has come in and rendered its verdict on that issue. Over 85 
percent of America's elderly have decided they want to get their health 
care through the traditional fee for service. The basic reason they 
want fee for service is that is the true access to choice. Under fee 
for service, they can decide what doctor, what hospital they wish to 
use. Under the various managed care plans, they frequently are 
restricted in their choice, and they have to use a gatekeeper in order 
to get to what choices are available.
  We have had a big debate in this Chamber, a debate I anticipate we 
will return to, and that is over the standards of managed care. That 
debate was sparked because so many people have had a negative 
experience with managed care, where services were denied or where they 
did not have access to the physician they wanted for their particular 
needs.
  This whole debate about whether there should be some Federal 
standards for HMOs is because of the actual real-life human experience 
of many Americans, including older Americans, as to how these managed 
care systems work.
  After the Americans have made the judgment as to which plan they wish 
to be in, then they will make a second judgment, and that is, under 
this prescription drug plan, do they want to take advantage of it? It 
is yes or no as to whether they will participate in the prescription 
drug plan.
  Once they have decided, yes, I wish to participate, then they lose 
their choices. If they are in the traditional care plan and if there 
are not two or more standalone prescription drug plans, then they will 
be forced to get their prescription drugs through the social experiment 
with a freestanding prescription drug plan. If there is only one plan 
where they live, they will be denied access to that single plan and 
they will have to get their drugs through traditional Medicare. I think 
that is a denial of the fundamental option and choice which has been a 
key part of the success of Medicare.

  I also think denial of choice could well be the torpedo which will 
sink prescription drugs. We learned a lesson about 15 years ago when we 
passed something called catastrophic care which the Congress thought 
would be received by the elderly with roses and flowers and applause. 
In fact, it ended up being received by the chairman of the House Ways 
and Means Committee having his car turned upside down, there was so 
much objection to that plan.
  I think we had better keep our cars in the garage after we pass this 
because we may experience the same thing, and this issue will be one of 
the reasons, in my judgment, that there will be less elderly 
participation in the prescription drugs and an increased likelihood 
that there will be a sufficient revolt that we will be forced, as were 
our predecessors, to repeal what we thought was going to be a very 
popular plan.
  This prescription drug architecture only works if a very high 
percentage of the elderly sign up to participate. If the only ones who 
sign up are those who are already sick and using high levels of 
prescription drugs, this plan will crater as being actuarially 
unsustainable. If it is to attract

[[Page S8098]]

enough of the elderly who are not sick and do not have high drug bills, 
who will see this as a true insurance policy--that is, that they are 
purchasing this plan not just based on their current prescription drug 
costs but because they believe they may someday become ill, sicker than 
they are today, and get into this category of high cost--we must be 
able to attract that group of the elderly in order to make this plan 
sustainable.
  I think one of the reasons the relatively healthy elderly will resist 
joining this is precisely this issue of the denial of choice. If I am 
an elderly person and I live in a rural area of Florida where only one 
prescription drug plan is available, why shouldn't I be able to elect 
that one prescription drug plan or traditional Medicare? If, on the 
other hand, I am in an urban area where there are 20 freestanding 
plans, although I think this is a highly unlikely prospect, why 
shouldn't I be allowed to elect one of the prescription drug plans or 
traditional Medicare?
  Why? What is the rationale of us denying the elderly that important 
choice when there is no evidence that the standalone plans are going to 
actually save money? This bill itself is the best evidence of its 
unlikelihood of doing so since the Federal Government is picking up 
most of the risk that the standalone plans will, of their necessity, 
entail and while we are denying choice to elderly as to which of the 
various options they want to utilize.
  I cannot conceive of why we are saying to America's elderly that they 
will be denied the choice how they want to get their prescription 
drugs, particularly when they have spoken so overwhelmingly of their 
desire to stay in traditional fee-for-service Medicare for the rest of 
their benefits.
  So for those who favor the approach we are taking, they ought to be 
the strongest voices for the Stabenow amendment because it is one of 
the key steps in assuring that this plan will be positively received by 
Medicare beneficiaries and will actually work once it is in place.
  I urge all of my colleagues, those who favor the basic principles of 
this plan and those who have reservations, to vote for this amendment 
because it is fundamental to achieving the results that are being 
sought, a broadly participated in prescription drug plan which is 
sufficiently attractive, including attractive through choice, for 
America's older citizens.
  The PRESIDING OFFICER (Mr. Hagel). The Senator from Nevada.
  Mr. REID. Parliamentary inquiry. Is there any consent now in effect 
dealing with who speaks next on this amendment?
  The PRESIDING OFFICER. There is none.
  Mr. REID. The two managers asked if Senator Reed from Rhode Island 
could speak for up to 5 minutes--is that right?
  Mr. REED. Ten.
  Mr. REID. Ten minutes. The Senator from Georgia only has 5 minutes to 
speak generally on the bill. So I am wondering if the Senator from 
Rhode Island would allow him to speak for 5 minutes?
  Mr. REED. I would be happy to.
  Mr. REID. Is that right?
  Mr. CHAMBLISS. That is correct.
  Mr. REID. I ask unanimous consent that the Senator from Georgia be 
recognized for 5 minutes to speak on the bill generally and following 
that the Senator from Rhode Island be recognized for 10 minutes to 
speak on the amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Georgia.
  Mr. CHAMBLISS. Mr. President, I thank the Senator from Nevada and my 
friend Senator Reed for being gracious enough to let me speak on this 
bill.
  All of us who have served in this body over the past several years, 
whether it is during our campaigns, going back home for town halls, or 
visiting home over the weekends, have talked about the need for a 
prescription drug benefit within Medicare. We all agree on that. I am 
very pleased that this week, as well as all of next week, we will be 
debating this issue regarding the inclusion of a prescription drug 
benefit within Medicare and the overall improvement of Medicare.
  I am also very pleased that the particular bill that came out of the 
committee has certain options available for seniors in it. The one 
thing we tend to do from a legislative perspective is to put mandates 
and dictates on people, particularly when dealing with health care. 
This particular bill does not do that. There are significant options in 
this bill that Medicare beneficiaries are going to have with respect to 
a prescription drug benefit. I think having these options in place is 
going to put competition in place within Medicare and allow the 
marketplace to work.
  There are senior citizens today that we all refer to, and now I would 
like to concentrate on. I am talking about those low-income senior 
citizens who have high drug costs that need to be taken care of. While 
I remain positive that we are developing a bill--and there are a lot of 
positive things within this bill--I am very concerned that we are 
reaching beyond what most of us in this body have talked about over the 
last several years with respect to a prescription drug benefit; We are 
going way above and beyond providing that benefit just for those low-
income, high-monthly-drug-cost individuals who so desperately need this 
benefit.
  The reason I am so concerned is that from a fiscally responsible 
standpoint, it is incumbent on us, as Members of this body and as 
members of the House, that we do not overreach and put a burden on the 
young people in this country. I don't want them coming back to us one 
day and saying, ``What in the world did you folks do to us in 2003 by 
imposing such a heavy financial burden on Medicare? Because of this 
prescription drug benefit, Medicare cannot remain solvent without 
increasing payments going into Medicare.''
  I have strong concerns that we are overreaching with this bill. That 
is why I am so pleased the Senator from Nebraska, the Presiding Officer 
today, and the Senator from Nevada, Senator Ensign, who have studied 
this issue and have developed a substitute which may be offered as an 
amendment. I look forward to having a healthy debate working with their 
language in addition to the base bill coming out of committee. It is my 
sincere hope that we can find the right answers, and at the same time, 
continue to serve and provide a benefit to those people who so 
desperately need it.
  There is another issue that I want to make sure we are very 
deliberate about and that we cover, and that is the issue regarding the 
ability of our pharmacists, particularly in rural areas, to participate 
in this program. We cannot afford to have a one-size-fits-all benefit 
that allows individuals to go straight to the manufacturing source for 
their benefits under this plan. These pharmacists, particularly in 
rural areas, deal with individual patients and customers on a daily 
basis. They provide a service that not only benefits the patient and 
the customer but benefits Medicare. Pharmacists give advice and counsel 
regarding the drugs that have been prescribed for them, and I think 
without question will save millions of dollars in future years in this 
program within Medicare.
  Lastly, I could not stand up and talk about a prescription drug 
benefit without recognizing that our drug companies over the years--and 
I happened to be sitting in the chair yesterday when Senator Dorgan was 
talking about this, and Senator Dorgan is exactly right--have stepped 
up to serve seniors by providing significant amounts of drugs to low-
income individuals who simply could not afford to buy those drugs. 
These companies offer monetary discounts on large quantities of drugs 
to seniors involved in their plans. One of those companies, Pfizer, 
happened to be in my office today reiterated exactly what they have 
done. This is a very positive thing we should all remember when we are 
talking about our drug companies.
  As we move forward with this bill for the next 2 weeks, I remain very 
cautious about where we are going to be at the end of the day. We do 
have to make sure that we have a healthy debate in light of the fact 
that we do have to provide a prescription drug benefit. We know a bill 
is going to pass, but we certainly need to send the right bill into 
conference with the House, so that when it comes out of conference it 
benefits those folks who need it most, those low-income individuals 
with enormous monthly drug bills. We should be able to look these young

[[Page S8099]]

pages in the eye and say we did not saddle them with a burden that will 
be unaffordable years from now.
  So I thank the Senator from Nevada for letting me interrupt and the 
Senator from Rhode Island for letting me come in and give my speech 
now. I look forward to the debate over the next 10 days as we conclude 
this at the end of next week.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Rhode Island.


                           Amendment No. 931

  Mr. REED. Mr. President, I rise in strong support of the Stabenow 
amendment. I believe the Senator from Michigan has done exactly what is 
right, proper, and wise to do, which is to provide for a permanent 
fallback prescription drug benefit for our seniors in the context of 
this new Part D drug program. Indeed, out of the 650-plus page of this 
bill, the proposal by the Senator from Michigan is the one that most 
closely resembles what is familiar to seniors with regard to the 
current Medicare Program. It is an important issue.
  According to the Congressional Budget Office, roughly 32 percent of 
Medicare beneficiaries enrolled in the proposed new Part D program 
would receive their drug coverage through the fallback plan, at least 
during the initial implementation of the program, so a significant 
number of seniors we already know will participate in these fallback 
plans.
  The reason is because under the existing language of the bill, if two 
private companies are not prepared to offer pharmaceutical benefits in 
a particular region, Medicare must have a fallback program for seniors. 
That makes entirely good sense. The problem is, if and when there are 
two companies, this fallback provision evaporates. It goes away. What 
this will lead to is instability and a circumscribed choice for 
seniors.
  We can just imagine a senior who enters the fallback program may 
spend 1, 2, 3, or 4 years there, is happy with the program, satisfied 
with the benefits, and suddenly they are told, no, this program is 
going away because there are now two competitors in the marketplace. It 
does not make sense. It circumscribes choice and it creates instability 
and uncertainty in a program that should be full of stability, 
certainty, and choice. I hope we can adopt this amendment to ensure 
that the Medicare fallback program is a permanent part of the Part D 
program.

  Let me suggest something else. When we think of the dynamics of this 
proposed program, two pharmaceutical beneficiary management companies 
come into a particular region knowing full well if one decides to go, 
then Medicare would have to reconstitute this fallback program--
expensive--probably on short notice. That is tremendous leverage for 
other PBMs in the market to go back to the Medicare program and say, 
wait a second, we are leaving unless you provide additional incentives, 
additional compensation, additional risk sharing.
  That is a leverage point that I think will be exploited by 
businesses. It is a fair point to exploit. They can vote with their 
feet. They can leave the region. That is tremendous power to put in the 
hands of any one plan--it is not the two; anyone could decide to go--
and suddenly you have to constitute the standby.
  If there is a permanent fallback program, that leverage does not 
exist. Automatically, the senior would choose or not choose to get 
their benefits from the fallback program. That is another important 
aspect.
  We also understand these managed care programs and pharmaceutical 
benefit managers operate, obviously, to make a profit. They are 
prepared and capable of leaving on short notice if, in fact, they 
believe they are not realizing a profit.
  We have seen this in my home State of Rhode Island, a state with a 
significant penetration of Medicare managed care. Thirty percent of 
beneficiaries in Medicare in my State are enrolled in a managed care 
plan. There used to be several managed care plans, but most have left 
the market, leaving essentially one insurance company providing these 
managed care benefits. When the other plans departed, we saw increases 
in costs to seniors and less generous terms offered by the surviving 
companies. Why? Simple. Competition slacked off; they did not have to 
be as aggressive competing for seniors. That likelihood could happen in 
this case.
  Again, that is a strong argument for the Stabenow amendment, to have 
at least one plan that will be there, with permanent, defined benefits 
that are not likely to change as other competitors drop out of the 
market. That is another selling point, a strong selling point, for the 
Stabenow plan.
  I believe this amendment is very important. It will go a long way to 
assuring seniors they are not part of some arbitrary experiment in the 
marketplace, that there will be at least one plan that is always there, 
that the benefits are well defined, and that plan will be an important 
aspect of making sure there is market discipline as well as consumer 
choice for seniors.
  Some people might say: We cannot do this because we have a cap of 
$400 billion over 10 years that limits us. That is an arbitrary limit, 
obviously. In fact, it seems to me it is a limit that is not justified, 
given the generous tax cuts we have already provided to so many wealthy 
Americans as opposed to those likely recipients of this package. This 
arbitrary cap should not limit us from creating a program that we hope 
will not only endure for a long time but will be efficient, effective, 
and attractive to seniors.
  I believe if we pass the Stabenow amendment, we are going to make 
this program much more attractive to seniors, give them confidence they 
have at least one choice through the standby plan, that will not leave 
the marketplace, that will not change benefits as competitive forces 
change, that will be something they can count on. As well as receiving 
pharmaceutical benefits, I think seniors are asking for something else, 
and that is confidence that their benefits will endure and not be 
ephemeral.
  As a result, I urge my colleagues to support the Stabenow amendment.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  The PRESIDING OFFICER. The Senator from Michigan.
  Ms. STABENOW. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Ms. STABENOW. Mr. President, I appreciate my colleagues coming to the 
floor in support of my amendment. I take a moment to reiterate what we 
are doing in this amendment.
  We are indicating in this amendment we want to make sure every senior 
has the choice of traditional Medicare for prescription drugs as well 
as a choice of HMOs or PPOs or other private sector plans. We are 
talking about seniors wanting to have choice or the desire to give 
seniors choice.
  The majority of seniors, as a matter of fact, like traditional 
Medicare. It is very clear. They either have chosen traditional 
Medicare or do not have any private options, and 89 percent of our 
seniors fall in that category. The majority have chosen Medicare or may 
live in a rural area where they do not have the choice of a private 
plan but they are in Medicare and they have their coverage, they can 
choose their doctor, they can live anywhere within their State or 
anywhere in the country and know the cost will be the same. It is 
dependable; it is available it them.
  That is what we are trying to do, guarantee seniors will be able to 
continue to have that choice along with new options for those who live 
in an area where there is a managed care plan and they choose to go 
into an HMO or PPO, that would be absolutely available to them. If they 
choose another private insurance plan, assuming there are those 
available to them, fine, that is certainly an option that we all agree 
should be available to our seniors.
  The question is whether we will shut off the choice the majority of 
seniors have already selected, the one they say they want. With all of 
the talk about choices, what I hear from folks is not: Please give me 
more insurance plans to wade through or to figure out how to get health 
care; please give me more insurance bureaucracy to wade through each 
day. Seniors say: Update Medicare and cover prescription drugs.

[[Page S8100]]

  It is simple. They want their traditional Medicare, choose their own 
doctor, choose their own pharmacy, to be able to make their own choices 
and to have them available regardless of where they are in the country, 
but they want to make sure they have prescription drugs as well.
  We know if health care in 1965 were like it is now, prescription 
drugs would have automatically been covered. We know that. We also know 
in 1965, as I indicated earlier, Medicare came into being essentially 
because of a failure in the private market. That is not a criticism; it 
is a reality that covering older Americans certainly is more costly as 
we use more health care. As we get up in age, we find we use more 
health care, we use more prescription drugs. There are fewer carriers 
wanting to cover. Certainly, way back in 1965, that was the case when 
half the seniors in the country could not find a private insurance plan 
or could not afford a private insurance plan available.
  Medicare came into being in order to make sure that health care was 
available for older Americans and for the disabled in our country. It 
was a value statement about who we are and what we think is important. 
It was an important value statement just as Social Security coming into 
being was a value statement about the fact we wanted to make sure there 
was a basic amount of money for everyone to know there is a certain 
amount of financial support available to them as they get older, as 
they retire. It is a value statement. Medicare and Social Security have 
both been great American success stories.

  We are now at a point where medicine has changed, the delivery 
system, the way we provide care. Most of us go to the doctor's office 
and walk out with at least one prescription. We have the opportunity to 
take medicine to keep us well, to manage our high blood pressure, 
cholesterol, or other issues that allow us to remain healthy and remain 
out of the hospital. These are all very positive. We also have the 
opportunity to avoid heart surgery by taking a pill or have other 
options by taking medications that cause us not to have to go into 
inpatient care in the hospital.
  A lot of good has happened. We are now at a point where it makes 
sense to update Medicare. The question is how to do that. We really 
have two different views on how to do that.
  One that I share says we should take a system that has worked and we 
should make sure it is fully funded so our physicians and hospitals and 
home health care and nursing homes have what they need to provide 
services. That is another critical issue--the resources being pulled 
out of Medicare and the underfunding of Medicare which has caused 
problems. We should provide full funding, and we should make sure it is 
modernized to cover preventive efforts and that we cover prescription 
drugs as a part of an integrated, modern health care system under 
Medicare. We should use more technology so there is less paperwork and 
more streamlining, which I know is of great concern to health care 
providers. We can do all that within the framework of Medicare, which 
has worked so well. Why is that important? Because it is dependable, 
reliable, affordable, and it is a value statement about who we are as 
Americans. That is one view.
  Another view is we should move back to the model before Medicare came 
into existence, and that is more of a reliance on private health 
insurance plans. We hear from many insurance carriers that they are not 
interested in prescription-only policies. They are not interested. It 
is different. Insurance usually means you provide insurance to a large 
number of people assuming only some of them will get sick or some will 
have automobile crashes or some will have their homes burn down--not 
everybody.
  In the area of prescription drugs for seniors, from an insurance 
model it is very different. In fact, when you cover people, you can be 
assured almost all of them, if not all of them, will in fact need your 
insurance. They will need your coverage. So it is a very different kind 
of model than traditional insurance, where only some people use the 
insurance but everybody is paying into a system and spreading the risk.
  That is one of the difficulties we have had, trying to fit this model 
of private insurance into the fact that we are talking about private 
insurance for health care, prescription drug care, where everyone who 
is buying the product will be using it. There are a number of questions 
about how to fit that model in and make it work.
  Then there are questions about why. Why do we do that? Why do we 
propose something that is complicated, that on the one hand provides 
choice, which is good, from the private sector, but on the other hand 
is convoluted and complicated for those who want to stay in traditional 
Medicare and not make them make that choice. That is one of the 
questions, Why is this happening?
  From the pharmaceuticals' standpoint, they are very much opposed to 
seniors being under one plan, 40 million people in one place, to be 
able to negotiate large discounts in price. As a result of that, they 
certainly have lobbied very heavily for a plan that divides seniors 
into a lot of different places so they have less leverage to be able to 
lower prices and negotiate discounts. That is also a concern of mine.
  We know also that under traditional Medicare, we actually save money. 
We hear all the talk about market forces and lowering prices. In 
reality, facts show the opposite. In fact, commonsense I think shows 
the opposite when we look at what is happening in the private sector 
today. The average small business has seen its insurance premiums 
double in the last 5 years. Certainly in Michigan, major high-tech 
manufacturing in the State has seen 15 or 20 percent or more increases 
in the cost of private health insurance every year. Yet under Medicare 
we see the costs going up about 5 percent a year.
  We look at this and say: Wait a minute, we are talking about a plan 
that costs more, not less. How does that make sense?
  We also know, when we look at administrative costs, we are told by 
those who have analyzed it that administrative costs for Medicare to 
administer the program are about 2 percent. In the private HMOs in 
place right now under Medicare, their costs are 15 percent for 
administration. We are told that in the private sector they actually go 
higher, that in some private plans it has been as high as 31 percent 
for administrative costs.
  We look at that and say, How does this make sense? We don't want 15 
percent going into administration when it can be 2 percent so more of 
those precious dollars that we have can then go into buying medicine. 
That would seem to make sense.
  There are a number of different reasons I believe it makes sense to 
make sure the real choice seniors want to have, which is traditional 
Medicare, is one of the choices available to them. I personally believe 
it will save dollars. It will allow the money we have to be used more 
for purchasing medicine and for health care rather than for 
administration or other kinds of costs.
  Medicare is a nonprofit system by design. I know there are 
differences in philosophy about a for-profit system under health care 
versus a nonprofit system. But the majority of hospitals in this 
country are nonprofit. The Medicare system itself is set up so that 
every dollar possible goes into care. I believe that is a model we 
should continue. I believe it is a model, although it can always be 
improved--and I would be the first to say we can improve and streamline 
the Medicare system--fundamentally it has worked for people. It has 
been there. It has been a system that has held down costs. It has been 
dependable and reliable for every single person who is an older 
American, or for a disabled person in our country. I wish we would 
embrace it rather than talk about dismantling it.
  I ask colleagues to come today, as we vote on this amendment, and 
join together to provide real choice for our seniors, the choice they 
are asking for as well as every other choice. Let's make sure every 
choice they might want to have they could have, including traditional 
Medicare.
  Mr. President, I yield the floor. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. SMITH. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Oregon.

[[Page S8101]]

  Mr. SMITH. Mr. President, I rise to respond to the Senator from 
Michigan. I think she makes a number of points that are worth our 
consideration. I think this can be done through the Government route. 
But the grand experiment here is predicated on a belief that the 
marketplace can actually work.
  If we were to adopt the Stabenow amendment, it would clearly 
undermine the private sector from forming plans and offering prices 
which have the potential of very real savings for our seniors and 
providing us with some very real reforms which seniors are counting on; 
that is, that we provide this benefit without undermining the financial 
integrity of Medicare.
  We need to make up our minds. We can either go the Government route 
or we can go the market route. The Government route can work but it 
comes at a cost that is, frankly, hard to calculate.
  Even as we speak, right now on Part B Medicare, the Government is 
looking at gross overpayments already on prescription drugs and is 
having to make reimbursements because of that.
  Imagine all of the inefficiencies that would be infused into the 
system if we relied upon the Federal Government to manage every 
prescription drug for every senior in this country. If they are 
overpaying on one and wasting money at the same time, I hate to think 
of the bill the Federal Government would have to foot if we did this 
for every senior on the basis that the Senator is describing.
  Moreover, the Congressional Budget Office has just announced an 
initial estimate of what the Stabenow amendment would cost, which is an 
additional $50 billion over 10 years. Without a doubt, with the budget 
that provides $400 billion over 10 years, this would exceed that by $50 
billion. I am sure at some point a manager of the bill will make a 
budget point of order. It has come at a significant additional cost of 
$50 billion.
  Again, I return to the point that we can either let the marketplace 
work or we can let the Government do it. But if you have a permanent 
Government backup as opposed to a fallback provision until the 
marketplace develops, you will retard, if not destroy, the marketplace 
from ever developing. It is that simple.
  The predicate of the compromise between Republicans and Democrats 
that has been a result of the prescription drug benefit coming to our 
seniors is that we are going to have a fallback. But we are going to 
give the marketplace a chance. We are going to see which one works. As 
for me and my money, I am placing my bet on the marketplace, if we 
provide an economic structure for it to develop. If it develops, it 
will give real hope and a real renewed life to Medicare, and it will 
give our seniors the benefit they need of a prescription drug 
immediately. I think that is the better vote. I think it is the better 
way.
  I think we know how Government works. When it is necessary for a 
Government bureaucrat to be between you and your medicine cabinet, I 
shutter, frankly, at the inefficiencies that can come from that; 
whereas, if you allow the marketplace to work--as with PPOs which the 
Presiding Officer and I have as Federal employees--frankly, they can 
take a holistic approach to your health by including prescription 
drugs. It gives us a very real chance to give our seniors a program 
that includes prescription drugs, which includes holistic health care, 
and which doesn't rely on a Government formulary and Government price 
setting to determine what drugs you can have and what they are going to 
cost.
  I urge my colleagues to vote no on the Stabenow amendment because it 
undermines entirely the bipartisan agreement that has been arrived at 
in the Finance Committee.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Ms. STABENOW. Mr. President, my friend from Oregon was speaking about 
medicine cabinets. On the question of whether you want a for-profit 
insurance company or a bureaucrat between you and your medicine 
cabinet, or whether you want Medicare, which we have known and relied 
upon since 1965, I appreciate that there is a different view and 
philosophy. I think there is a fundamental difference in ideology that 
is working here.
  It is interesting. I had a chance to go back to the debates when 
Medicare was first developed. The same kind of differences occurred at 
that time and the same debate about whether or not we should provide 
care under one plan under Medicare that is stable and reliable or use 
the private market private insurance company. The very same kind of 
debate was going on then that is going on now.
  I believe the right choice in 1965 was Medicare. I believe it 
continues to be one of the choices that makes sense to offer to 
seniors.
  I wish to respond to the Congressional Budget Office estimate. It is 
disappointing to me to find that they have chosen to score it at $50 
billion above the $400 billion. We have worked with them. In fact, we 
made it clear that the intent of this amendment was not to add $1 to 
the budget resolution. It is to use the $400 billion and within that to 
have a carve-out or choice of Medicare. In fact, so as to guarantee 
that, we included at the end of the bill an authority to prevent 
increased costs. If the administrator--in this case we are talking 
about HHS--determines that Federal payments made with respect to 
eligible beneficiaries enrolled in a contract under this section exceed 
on average the Federal payments made with respect to eligible 
beneficiaries enrolled in a Medicare prescription drug plan or 
MedicareAdvantage, the administrator may adjust the requirement or 
payment under such a contract to eliminate such excess.
  The reason we have included that is to guarantee that it is within 
the $400 billion parameter. If, in fact, the Congressional Budget 
Office has not looked at that, it is unfortunate. I would disagree with 
their analysis.
  I indicate again that this is not about changing the budget 
resolution or the amount of dollars. It is about creating the best 
choice or one more choice. It may not be the best for an individual. 
They may decide that going through a PPO or an HMO or some other part 
of the alphabet might be a better choice for them. The question is 
whether people will have a full range of choices including the choice 
that the overwhelming number of seniors have told us they want.
  The intent of this amendment is in fact not to add anything to the 
cost of this particular bill.
  I yield the floor. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mrs. HUTCHISON. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. HUTCHISON. Mr. President, I have heard the Senator from Michigan 
describe her amendment. I have to say I would be concerned about a 
Government-run prescription drug benefit because of what it would do to 
our free enterprise system and our capability to have competition which 
I think is very important. I think the underlying bill provides the 
competitiveness that will be so important for a balanced system, and it 
is also one that will give seniors the best prices and the best 
choices.
  I would like to make a statement in general about the bill we have 
before us. I have to say that we have been talking about reform of 
Medicare for years--maybe for the 10 years I have been here. But today 
we are now talking about a real bill and maybe a real chance to reform 
this very important program.
  I think it is clear that any time there is reform we must include a 
prescription drug component. We must have a choice which is similar to 
that in the private sector, and we must admit that Medicare has not 
kept pace with the rapid changes in our health care system.
  As our research community pushes the envelope and develops lifesaving 
medicines and procedures, our Nation's health care system must take 
that innovation into account or it will not be the greatest health care 
system in the world.
  Pharmaceuticals have revolutionized medical care. Increasingly, 
ailments are treated with medication as opposed to invasive surgeries. 
It is imperative that those who rely on Medicare have access to 
affordable prescription drugs.

[[Page S8102]]

When Medicare won't pay for medicine to treat diabetes but will pay for 
the amputation of a limb caused by complications of diabetes, I think 
we can admit that we have a problem.
  A prescription drug benefit alone is not the answer. True reform must 
provide our Nation's seniors the freedom to choose physicians and 
benefits based on their individual needs. If a beneficiary is satisfied 
with existing coverage, the beneficiary should have the option to stay 
put. But if she chooses to enroll in a private insurance PPO or HMO, 
she should be allowed that choice. This choice is incorporated in the 
underlying bill.
  Also, I have an amendment, cosponsored by Senators Kennedy, Durbin, 
Specter, and Talent, to restore cuts in Medicare reimbursement to 
teaching hospitals. Texas hospitals are facing the loss of $26 million 
in 2003 due to Medicare reimbursement cuts. Nationwide, teaching 
hospitals will lose $794 million this year and $4.2 billion over the 
next 5 years. Every State will be similarly affected.
  Teaching hospitals are experiencing a terrible financial crisis. My 
amendment restores the fiscal year 2002 level of reimbursement for 
indirect medical education--they are called IME payments--to teaching 
hospitals. This allowance has been cut incrementally since the Balanced 
Budget Act of 1997 from 7.7 percent to 5.5 percent in fiscal year 2003.
  Teaching hospitals have higher costs due to their critical role in 
educating tomorrow's physicians. They run more tests, they have newer 
technology, and they require more staff because they are training our 
future health professionals. The additional payment is vital to 
continuing this training. A disproportionate percentage of the most 
seriously ill and injured patients recover and convalesce in teaching 
hospitals. These hospitals have 78 percent of all trauma centers and 92 
percent of all burn beds.
  Although only 21 percent of all hospitals are teaching hospitals, 
they deliver over two-thirds of charity care. They conduct 
groundbreaking research. The University of Texas Medical Branch in 
Galveston--as one example in my State--will lose $1.9 million in these 
payments this year if the amendment is not adopted. UTMB leads research 
on anthrax, smallpox, and plague. We cannot afford to have teaching 
hospitals cut back on research that benefits every individual.
  In the budget we passed earlier this year, $400 billion was set aside 
for Medicare reform. It is our responsibility to use that $400 billion 
wisely and to bring this incredible program into the 21st century so 
that America's seniors will have the medical coverage they need and 
deserve.
  I think the bill before us needs work. We all agree that it is not a 
perfect bill and we want to make it better. We want to make sure it 
does two basic things: that it increases the quality of health care for 
our seniors, and, secondly, that it does so at a reasonable price for 
our future generations. We do not want another huge commitment that is 
going to turn into an entitlement that is unbearable in the future. But 
when Medicare will cover the cost of a hospital stay for 5 days for the 
amputation of a limb but it will not allow you to pay for the medicine 
that will keep you from having to amputate that limb, something is 
wrong in the system, and we must fix it. This time we can do it.
  Thank you, Mr. President. I yield the floor.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. HATCH. Mr. President, I have been listening to this debate and 
listening to the distinguished Senator from Michigan. If you love the 
Federal Government and the Federal Government's control over all of our 
lives, boy, this is the program for you, because it certainly would fly 
in the face of everything we have been trying to do to create a program 
where you have some options, some choices, and where people can make 
their own decisions as to what type of health care they want, seniors 
in particular.
  So I rise in opposition to the Stabenow amendment. The way I 
understand the amendment, it would require a permanent fallback to be 
offered to beneficiaries in addition to the private stand-alone drug 
plans. Making the fallback plan a permanent option will completely 
undermine the very structure upon which this bill is built.
  First and foremost, including a permanent fallback plan creates an 
uneven playing field. Frankly, we hope the Government fallback plan is 
never needed. The only reason it is in this bill is to take care of 
those situations where there are no bidding competitors to provide the 
health care. We believe there would be bidding competitors, and there 
is no real reason to have a fallback other than in those rural areas or 
tough areas where it is uneconomical for business to compete for the 
business, where you are going to need a no-risk, Government sponsored 
and subsidized, and completely controlled fallback plan.
  So first and foremost, including a permanent fallback plan creates an 
uneven playing field. The Government fallback is a non-risk-bearing 
entity. The fallback plan will operate in regions without any risk for 
gains or losses. The Government pays for the fallback plan's 
administrative costs associated with delivering the drug benefit. If we 
make the fallback plan permanent, as the distinguished Senator from 
Michigan would do, we are basically requiring privately delivered drug 
plans, which are at least partially responsible for bearing the risk of 
delivering this benefit, to enter this same market and compete with 
these Government fallback plans.
  This would not only be unfair, but it also sets up our drug plan for 
failure. There isn't a private health plan out there that will enter 
such a lopsided market where we give their competitors such a large 
financial advantage. Simply put, this amendment would discourage the 
initial entry of private plans, dooming the effort to provide 
beneficiaries the drug benefit through competing private plans with all 
of the cost savings and benefits that would come from competition.
  In addition, including a permanent fallback plan would add billions 
of dollars to the cost of this bill. CBO estimates that the cost of 
this fallback plan would be at least $50 billion over 10 years. So, 
literally, by including a permanent fallback plan that will cost $50 
billion-plus over 10 years to the cost of this bill, we would be 
relying, at least partially, on an inefficient, more costly, 
Government-controlled, Government-style delivery system to provide 
beneficiaries with drug coverage.
  When the Senate was debating the Medicare prescription drug issue 
last year, this was one of the biggest criticisms against the Graham 
drug benefit. The Graham drug benefit plan created a one-size-fits-all 
drug benefit delivered by the Federal Government. This is not what 
Medicare beneficiaries want.
  Beneficiaries want choice in drug coverage. They do not want to be 
forced into a Government-run plan and offered a one-size-fits-all 
benefit. The Stabenow amendment would place the drug benefit right back 
in the hands of Government-run health care, Government micromanagement, 
and, worst of all, price controls. Government bureaucrats would 
ultimately put the Government in charge of setting drug prices. We 
simply do not want Government bureaucrats in charge of setting drug 
prices. We want the private market to make these decisions, not the 
Federal Government.
  My colleague from Florida was just reminiscing about the 1988 
catastrophic law. I was here. I argued against it. We all saw the 
people jumping up and down on Danny Rostenkowski's car when they 
realized they had to pay for their drug expenses. Well, you can imagine 
what is going to happen if we have Government take over this program.
  If this amendment passes, we will be creating another Medicare 
catastrophe. In fact, we already know the Federal Government does not 
do the best job of reimbursing for prescription drugs due to years of 
overpayments for the drugs already covered under Part B of Medicare.
  Medicare has been overpaying for Part B drugs for years because of 
its inability to keep up with the marketplace. The intent of S. 1 is to 
introduce a new model to deliver care to Medicare beneficiaries. We 
want to offer Medicare beneficiaries a meaningful drug benefit. This 
drug benefit will include multiple choices but it only works when all 
options are expected to participate under the same rules. You

[[Page S8103]]

don't set it up so that all the options that have a chance of working 
fail because you have a government-run, government-subsidized, 
government-controlled, government-bureaucratized program, which is 
exactly what the Stabenow amendment would establish.
  Those who are extremely liberal will love that program, because it 
just means Government controls every aspect of our lives in health 
care. In S. 1, we included the Government fallback as a safety net to 
ensure that every senior has access to pharmaceutical drug coverage. 
But it is a fallback of last resort. We hope we will never have to have 
a fallback plan for any region or any area. But it is a last resort, if 
we need it. That is because even the Congressional Budget Office 
concludes that the permanent fallback plan is a more costly, less 
efficient model to deliver pharmaceutical benefits.
  Again, let me remind everybody that the CBO says the Stabenow 
amendment will cost at least $50 billion over the next 10 years. 
Knowing the Government as I do, I say at least $50 billion. It will 
probably be a lot more than that. It will take all the incentives to 
keep costs down out of the program, as we take away risk, which is what 
the competing companies have to meet. They have to meet risk factors.
  In conclusion, the Stabenow amendment would deny Medicare 
beneficiaries the opportunity to enroll in the plan that best fits 
their needs. They would be denied that opportunity. The Stabenow plan 
would force all our seniors into a government-run, government-
controlled, government-bureaucratized drug benefit. It would basically 
undermine every possible competitive aspect that might possibly hold 
costs in line and bring them down.
  This amendment by the distinguished Senator from Michigan would 
effectively deny beneficiaries a private plan option thus denying 
beneficiaries a choice in drug coverage, one of the fundamental 
principles of this bill--choice, the right to pick the coverage you 
want. That is what our prescription drug program would give 
beneficiaries.
  There are those who believe that socialism is the answer to 
everything. Let government do it. Government can do it more 
efficiently. If you believe that, you haven't watched the last 50 
years. I urge my colleagues to defeat this amendment because it will 
take away important drug coverage choices for Medicare beneficiaries. 
It will lead us into a situation where Government is going to control 
everything, and, as a result, Medicare beneficiaries will be left with 
no choices in drug coverage. I don't want to go back to those days when 
they were jumping up and down on Danny Rostenkowski's car because the 
senior citizens realized they had to pay for it. I want to give 
Medicare beneficiaries choices and make sure there is some competition 
in the marketplace so that the choices will be good ones. I don't want 
to go to just a one-size-fits-all government program which literally 
will not work except at a tremendously costly expense to U.S. 
taxpayers.
  For these reasons, I urge my colleagues to oppose the Stabenow 
amendment.
  I yield the floor.
  Ms. MIKULSKI. Mr. President, I want a medicare prescription drug plan 
that benefits seniors--not a plan that benefits insurance companies. 
That is why I am a cosponsor of the Stabenow amendment.
  This amendment gives seniors a choice: to get their prescription 
drugs through traditional Medicare or through a private insurance 
company
  Why is this important? Because it lets seniors choose the program 
that fits their needs. Seniors trust Medicare. It has provided a safety 
net for seniors for almost 40 years. Medicare hasn't let them down.
  We can't say the same about insurance companies. We have been down 
that road in Maryland with Medicare+Choice. The insurance companies 
came in. They enticed seniors with promises of better care and 
prescription drugs. They took the money from our seniors and left town 
leaving over 100,000 Maryland seniors without coverage.
  Seniors in my State were gouged and abandoned. So I don't trust 
insurance companies to be there for seniors. I trust seniors to make 
their own decision to decide which prescription drug plan is best for 
them.
  Seniors trust Medicare. When given an opportunity, I think seniors 
will choose Medicare. In the mid-1990s, when Medicare HMOs offered 
prescription drug benefits. Only about 15 percent of beneficiaries 
signed up.
  Yet year after year, Senate Democrats have fought off efforts to 
privatize Medicare--to force seniors to leave their family doctors and 
join HMOs and other private plans. We heard Newt Gingrich talk about 
making Medicare ``wither on the vine.'' Then this year, the President's 
prescription drug proposal would have forced seniors to leave the 
Medicare they trust to get the drugs they need.
  I believe honor thy mother and father is not just a good commandment 
to live by. It is good public policy to govern by. That is why I feel 
so strongly about Medicare.
  Medicare is not the problem. It is the solution. That is why Congress 
must now provide a prescription drug benefit for seniors. To benefit 
seniors--not to benefit insurance companies. We must do it now--to help 
seniors, to help families, top help American business and to help our 
economy.
  I urge my colleagues to join me in supporting the Stabenow amendment.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. SMITH. Mr. President, I ask unanimous consent that the vote in 
relationship to the pending amendment No. 931 occur at 3:15 today with 
no amendments in order to the amendment prior to the vote and 5 minutes 
for debate equally divided prior to the vote.
  I further ask unanimous consent that at 2:15 today the amendment be 
set aside and Senator Enzi then be recognized to offer an amendment.
  Mr. REID. Reserving the right to object, the senior Senator from 
Illinois is on the floor. I am wondering how long the Senator wishes to 
speak on the Stabenow amendment. If the Senator from Oregon would allow 
the Senator from Illinois to speak until 2:15 on the Stabenow 
amendment.
  Mr. SMITH. I have no objection.
  Mr. REID. I would ask for a modification; that we be recognized for 
10 minutes; following that, Senator Enzi be recognized after the 
Stabenow amendment is set aside.
  The PRESIDING OFFICER (Mr. Alexander). Is there objection to the 
modified request?
  Without objection, it is so ordered.
  The Senator from Illinois.
  Mr. DURBIN. Pursuant to the unanimous consent request, it is my 
understanding I am recognized for 10 minutes.
  The PRESIDING OFFICER. That is correct.
  Mr. DURBIN. Mr. President, at about 3:15 we will have a chance to 
vote on an amendment. It is an important amendment to the prescription 
drug plan, an amendment offered by my colleague and friend Senator 
Stabenow of Michigan, who has been our leader in the Democratic caucus 
on the prescription drug issue. There is no one who has put more time 
in it. Senator Stabenow is going to give the Senate a very basic choice 
to make.
  Under the Grassley-Baucus bill, a senior citizen, once this goes in 
effect after the Presidential election, will take a look at the area 
they live in and if they can find two private providers for 
prescription drugs, they have to choose between the two of them. If 
they can't find two that will provide that protection, that service, 
then there will be a Medicare plan known as a fallback plan which the 
senior can turn to, but it is not a plan that will be administered by 
Medicare. It is a plan that will be administered by a private provider 
under Medicare. So no matter where you turn as a senior under this 
plan, you are always going to find a private provider, a private 
insurance company.
  The Republicans, many who support the bill, argue that is real 
competition. Senator Stabenow takes it to another level and says, if 
you want real competition, one of the options that should always be 
available to the senior is to go to a prescription drug plan 
administered by Medicare itself.
  Why would you want a Federal agency to administer this plan? I will 
give you two reasons. First, there is no profit motive. Medicare is 
basically going to be involved in this to try to provide

[[Page S8104]]

the service, and we know that the services they provide are at a lower 
administrative cost than any private insurance company. No. 2--and this 
is where the rubber meets the road--Medicare can say to the drug 
companies, we want you to be part of the Medicare alternative; 
therefore, tell us what you will do to contain the cost of your 
prescription drugs. So they have bargaining power on behalf of seniors 
to reduce the overall cost of drugs that are offered to seniors, a win/
win situation.
  Does it work? Go to the Veterans' Administration hospitals. Look what 
they have accomplished. They said to the drug companies, you want to 
sell drugs to veterans, great. But tell us the best price you will give 
us, and the best price offered at veterans' hospitals to the men and 
women in uniform is 40 to 50 percent below what seniors are paying over 
the counter for their prescription drugs across America today. So if 
you go to the Stabenow alternative, a Medicare-administered plan, no 
profit motive, low administrative cost and a formulary, a group of 
drugs that has been discounted for seniors, it is an absolute win 
situation for seniors and for the Government and for the cost of the 
program.
  Those who are arguing for competition on the other side say, just let 
these private providers get at it. Boy, they will really show you how 
they can bring prices down. They live in fear that if Medicare is 
involved in it, Medicare will show them how prices can really come 
down. That is what this is all about.
  I hear these arguments on the floor from people who I respect saying 
the Stabenow amendment is going to limit choices. The heck it will. The 
Stabenow amendment gives to seniors the real choice, the Medicare 
choice, the choice that they want.
  I would like to ask the Senator from Michigan if she will respond to 
a question. She has a chart that shows the interests of senior citizens 
on this issue. If this is any indication, how would the senior citizens 
vote on the Stabenow amendment?
  Ms. STABENOW. First, I thank my colleague for his eloquence. It is 
true that 89 percent of the seniors in this country are in traditional 
Medicare. Only 11 percent are currently in managed HMO plans. Since 
1997, seniors have been given a choice between what has been called 
Medicare+Choice and traditional Medicare. Overwhelmingly, they have 
stayed in Medicare.
  Mr. DURBIN. Does the Senator's amendment limit the choices for 
seniors--
  Ms. STABENOW. Absolutely not.
  Mr. DURBIN.--when you compare it to the underlying bill?
  Ms. STABENOW. Absolutely not. What we are doing is saying, instead of 
two private insurance plans, we add a third, so instead of two choices, 
you have at least three.
  Mr. DURBIN. Again, let me ask, through the Chair, if I might, is it 
not true that if Medicare then can offer this plan on behalf of tens of 
millions of seniors, Medicare can go to the drug companies and say: All 
right, you want to sell us Celebrex or Zoloft or whatever; what is the 
best price you will offer Medicare?
  Isn't that more of an assurance that the prices seniors will pay 
under that alternative will be lower?
  Ms. STABENOW. Absolutely. The Senator from Illinois has hit what I 
think is the most critical point, and the reason there is such 
opposition, certainly from the pharmaceutical industry, to what we are 
trying to do through Medicare. They don't want the majority of seniors 
in one insurance plan together in Medicare where they can force a group 
discount. They would like to divide seniors up in lots of different 
insurance plans and not give them the leverage to bring prices down.
  Mr. DURBIN. Also, I ask, under the underlying Grassley-Baucus bill, 
what force is there for cost containment? What kinds of elements are in 
that bill that will help bring down the cost of prescription drugs for 
America's families and America's seniors if we don't put Medicare into 
the process bargaining on their behalf?
  Ms. STABENOW. I don't see anything in here that brings it down. In 
fact, what we are doing in the underlying bill is adding the profit. We 
are putting for-profit business into this process, so you are actually 
adding to the cost of this system. I don't see anything in here that 
will bring prices down. I think that is why the pharmaceutical industry 
is very supportive of this plan because, unfortunately, the average 
retail price of an advertised brand is going up three times the rate of 
inflation. This does nothing to address that and bring the prices down.

  Mr. DURBIN. I thank the Senator.
  While I still have a minute or two, I will just say this. Time and 
again, our friends on the Republican side of the aisle say we should 
contract out Government services, privatize them, to save the taxpayers 
money. They say, if you will just get it away from the Government 
bureaucracy and put it into the private sector, we will show you how to 
really provide a service at a low cost. Sadly, many times that doesn't 
happen. The costs go up, the quality is not good, and we are stuck with 
private-side contractors when we contract out.
  Now we have an interesting turn of events. We hear from the 
Republicans and conservative side that we don't want a Government 
agency to be able to compete with the private sector. We don't think 
that is going to be fair. There is no real choice there.
  There is a choice. I think the choice is obvious. If Medicare--
speaking for the vast majority of senior citizens--can bargain for 
lower prescription drug prices, the winners will be not only the 
seniors who will pay less but the taxpayers who will pay less. The $400 
billion in this bill will go a lot further if we can have lower cost 
prescription drugs.
  I say to my friends on the Republican side of the aisle, don't be 
afraid of competition, and don't be afraid if one of the competitors is 
Medicare. The seniors who you represent have already voted on this 
issue by a 9-to-1 margin. They prefer traditional Medicare. We should 
not be afraid of it.
  The Stabenow amendment is a step in the right direction. It says if 
we are going to have a prescription drug plan that Americans can afford 
and that the taxpayers can afford to pay for, yes, we need to have cost 
containment. This bill has little or none. The Stabenow amendment 
brings in real competition and, unless that competition is there, let 
me tell you what we have done; we have said we will subsidize 
prescription drug costs no matter how high they go. Mark my words, as 
history has proven, they will continue to increase to a point where it 
bankrupts the current bill before us.
  The Stabenow amendment is, I think, not only a stand for common sense 
but a guarantee that competition will really be there to protect 
seniors.
  I yield the floor.
  The PRESIDING OFFICER. The Democratic leader is recognized.
  Mr. DASCHLE. Mr. President, I will use my leader time. I am not sure 
what the allocation of time is right now.
  I commend the distinguished Senator from Michigan and the Senator 
from Illinois for their work on this particular amendment. I think I 
can say for most, if not all, of our caucus members, this is the most 
important amendment as it relates to this bill, in large measure 
because it goes to the essence of what it is we believe we need to do.
  What we have said from the very beginning is let's build on what we 
have achieved in the Medicare system now for the last 38 years. 
Obviously, we know there are ways in which the program needs to be 
updated and reformed. I think there is common agreement among 
Republicans and Democrats that if we are to reform Medicare, the single 
most important priority is to ensure that we recognize that health care 
delivery has changed dramatically in the last 40 years.
  Health care delivery now is largely outpatient. Far more people get 
their health care in an outpatient setting than they do inpatient. With 
that recognition, we made a decision in the 1960s that was wrong. We 
said we would reimburse drug costs in a hospital but we would not 
reimburse drug costs outside of a hospital or doctor's office. Well, 
had we decided back then that we would reimburse drug costs regardless, 
we would not be here today. So we made a decision based on, I am sure, 
a lot of different factors--cost was probably important--that we wish 
now we could have reversed a long time ago. But that, in essence, is 
what we are talking about with reform. It is a recognition that health 
care delivery itself has changed.

[[Page S8105]]

  The real question is, What will be the mechanism by which seniors 
acquire these prescription drugs? There are those who have suggested 
that seniors ought to have choice. I have heard the distinguished 
Senator from Michigan say so eloquently that if you are in favor of 
choice, you will be in favor of this amendment because that is 
basically what we are proposing--choice. We are saying to seniors, if 
you think you can find a better plan out there somewhere, offered 
within your region, take it. This is a voluntary program. We are not 
mandating that you do anything. But if you think Medicare has provided 
a good service and if you think, in order to be consistent with the 
spirit and the concept of Medicare to begin with, that it ought to be 
offered through the Medicare system, you ought to have a right to 
choose that as well.
  Why in Heaven's name would we deny a senior the right to stay within 
Medicare when they get their doctor and hospital benefits through 
Medicare? They ought to get prescription drugs through Medicare. So 
that is, in essence, what the Senator from Michigan is suggesting with 
her amendment. Let's allow choice; let's allow consistency.
  But I think it goes beyond the choice of the senior citizens. The 
reason it ought to be our choice occurred again last night to me as I 
listened to some of the debate in the House Committee. The question was 
asked last night: Can you tell us what the administrative costs will be 
for the private sector systems providing this new prescription drug 
benefit? On record last night during that debate the answer was given: 
25 percent.
  The administrative costs for the private sector plans is anticipated 
to be 25 percent. That means out of the $400 billion we are committing 
to the drug program under this legislation, $100 billion could go to 
paperwork.
  We have asked what is the administrative cost of the Medicare system, 
and we are told by CBO and others that the administrative cost today 
for Medicare is between 3 and 4 percent. So we could save upwards of 20 
percent if we had an opportunity for seniors to use the Medicare 
system. That is another reason that choice would make sense to us--to 
keep administrative costs down.
  We only have to look to the Veterans Administration to see how 
effectively they have controlled costs, not only administratively but 
on drug acquisition costs. The drug acquisition cost through the 
Veterans Administration is dramatically lower, ranging anywhere from 15 
to 30 percent below what is done in the private sector through private 
insurance companies. We could save in Medicare as well.
  From a cost containment point of view, an administrative point of 
view, and a choice point of view, this amendment ought to pass. I think 
it is key to sending the right signal not only to our seniors about 
what kind of services we want to provide, about what kind of 
consistency, what kind of choice we want to offer, but it ought to be a 
message to the taxpayer. We are going to do it through the most 
efficient, most administratively simple concept to which we can 
subscribe. Extending Medicare, providing drug benefits through 
Medicare, is the way to do it.
  Again, I commend the distinguished Senator from Michigan for her 
efforts and for her amendment. I hope it will enjoy broad bipartisan 
support. I yield the floor.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
Wyoming is recognized.


                           Amendment No. 932

  Mr. ENZI. Mr. President, I send an amendment to the desk, and I ask 
unanimous consent that the pending amendment be set aside until 5 
minutes before the vote.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will report.
  The assistant legislative clerk read as follows:

       The Senator from Wyoming [Mr. Enzi], for himself and Mr. 
     Reed, proposes an amendment numbered 932.

  Mr. ENZI. Mr. President, I ask unanimous consent that the reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

     (Purpose: To improve disclosure requirements and to increase 
                          beneficiary choices)

       On page 57, between lines 21 and 22, insert the following:
       ``(3) Disclosure.--The eligible entity offering a Medicare 
     Prescription Drug plan and the MedicareAdvantage organization 
     offering a MedicareAdvantage plan shall disclose to the 
     Administrator (in a manner specified by the Administrator) 
     the extent to which discounts, direct or indirect subsidies, 
     rebates, or other price concessions or direct or indirect 
     remunerations made available to the entity or organization by 
     a manufacturer are passed through to enrollees through 
     pharmacies and other dispensers or otherwise. The provisions 
     of section 1927(b)(3)(D) shall apply to information disclosed 
     to the Administrator under this paragraph in the same manner 
     as such provisions apply to information disclosed under such 
     section.
       ``(4) Audits and reports.--To protect against fraud and 
     abuse and to ensure proper disclosures and accounting under 
     this part, in addition to any protections against fraud and 
     abuse provided under section 1860D-7(f)(1), the Administrator 
     may periodically audit the financial statements and records 
     of an eligible entity offering a Medicare Prescription Drug 
     plan and a MedicareAdvantage organization offering a 
     MedicareAdvantage plan.
       On page 37, between lines 20 and 21, insert the following:
       ``(C) Level playing field.--An eligible entity offering a 
     Medicare Prescription Drug plan shall permit enrollees to 
     receive benefits (which may include a 90-day supply of drugs 
     or biologicals) through a community pharmacy, rather than 
     through mail order, with any differential in cost paid by 
     such enrollees.
       ``(D) Participating pharmacies not required to accept 
     insurance risk.--An eligible entity offering a Medicare 
     Prescription Drug plan may not require participating 
     pharmacies to accept insurance risk as a condition of 
     participation.

  Mr. ENZI. Mr. President, I rise today to offer an amendment that will 
contribute to fair prices for consumers and fair treatment for 
pharmacies under the new Medicare prescription drug benefit. I am 
pleased that my distinguished colleague from Rhode Island, Senator 
Reed, is joining me in offering this amendment. He serves with me on 
the Health, Education, Labor, and Pensions Committee and has been a 
stalwart in helping with some of the small pharmacist issues. That is 
what a large area this bill seeks to take care of.
  It is an issue across the entire country. It is not just an issue in 
Wyoming or the West. We all have local pharmacists. Local pharmacists 
provide a tremendous service to the people for whom they are providers. 
One of those local services is to explain how the drugs are used, what 
their proper use is. They have an excellent knowledge of the drugs a 
person is taking and recognize conflicts and iron those out with the 
doctor. They work with the doctor to come up with some generic drugs, 
in some cases, to save costs. Largely, they are left out of any of the 
pricing mechanisms. They do all of this on a very low margin.
  This bill does not take care of that part of local pharmacists, but 
it allows them to still be in the market. This bill ensures fair prices 
for consumers.
  The amendment we are proposing would ensure that we hold Medicare 
drug plans accountable for passing on to consumers a fair portion of 
the rebates, the discounts, and the other incentives that the plan may 
receive from drug manufacturers and other sources.
  Specifically, the amendment would require Medicare prescription drug 
plans and Medicare Advantage organizations to disclose to the Federal 
Government the extent to which they pass those rebates and discounts on 
to Medicare beneficiaries.
  The amendment would also clarify that the Federal Government may 
audit their financial statements and records to ensure compliance and 
deter fraud and abuse in this area.
  To ensure fair treatment for pharmacies, the amendment we are 
offering would prohibit Medicare drug plans from implementing 
restrictions that would steer consumers to the mail order pharmacies. 
It would require the Medicare drug plans to allow local community 
pharmacists to fill long-term prescriptions--not just 30-day 
prescriptions, but 90-day prescriptions--and offer other services they 
are equipped and licensed to provide. It protects the rights of seniors 
to choose their trusted local pharmacist over a mail order house.
  Our amendment would also prohibit Medicare prescription drug plans 
and Medicare Advantage organizations from requiring pharmacies to 
accept

[[Page S8106]]

insurance risk as a condition of participation in a plan. Pharmacists 
and pharmacies dispense medications and provide services; they are not 
insurance companies.
  This provision will ease the minds of the pharmacists who are 
concerned that Medicare drug plans might force them to share the risk. 
This has come to light, I am sure, to all of us in town meetings we 
have held, town meetings where pharmacists have shown up, town meetings 
where the pharmacists either have their national publication or 
publications from their colleges that point out some of the 
difficulties they are having operating in the local market, the local 
market where they have the actual contact with the consumer, the local 
market where they are the ones providing the advice, the care, and 
sometimes the protection of the patient. We want to make absolutely 
sure we do not leave them out of the mix.

  This is a part of the solution that has been suggested in those 
college publications and those national pharmacist publications. These 
are local professionals who provide a local service. They do an 
outstanding job of helping out their customers. They understand who the 
customer is because they see them face to face; they are not just a 
voice over the telephone taking an order.
  They will play an important role in any drug benefit that is passed, 
whether it is through a profitable situation for them--and we hope they 
can stay in business so we have the help of this local pharmacist--or 
whether it is forced on them in a nonprofitable way. They have been 
doing that.
  It would be nice if we watched out for the small businesses in the 
towns across America. Small businesses are the heart of America. They 
are the ones that provide the community help and community services. 
They are the ones that participate in all kinds of community events.
  We have to be careful this bill does not take them out of the loop 
and put them out of business so that kind of service disappears from 
the face of America. It is part of America. The drug stores have been 
the heart of downtown for years and now the heart of the health care 
system. They are often the main source of health care service and 
advice, particularly in the rural and frontier areas. In the bigger 
cities, there may be more contact with people who can provide 
information. Some of that comes through the HMOs, and some of it comes 
through the prescription drug managers who are often tied in with those 
HMOs. But they are not the ones who really do the contact with the 
customer, particularly in the rural and frontier areas.
  I sponsored a bill to remedy our pharmacist shortage, and I am hoping 
that bill will come to the floor. It is a bill that helps with the 
forgiveness of the loans it takes to get through the process of 
becoming a pharmacist. We have to make sure these people are available 
and continue to be available in smalltown America and in the big 
cities. We also have to make sure there are faculty to teach these 
people properly to interact with the customers.
  Half of the money would go to providing loan forgiveness for 
pharmacists who become faculty and half to forgiveness for people who 
actually become pharmacists in underserved areas, and underserved areas 
are sometimes urban areas as well. This bill does not address this. 
That is another bill we need to fill in the pharmacist piece. It 
unanimously came through the Health, Education, Labor, and Pensions 
Committee, and it recognizes the need for local pharmacists and that 
local interface we are all used to having. Seniors and pharmacists are 
both concerned with how the interaction will happen. Seniors do trust 
their hometown pharmacist.
  Senator Reed and I believe this amendment will go a long way toward 
answering the concerns of seniors and pharmacists about how this new 
Medicare drug benefit will impact the trusted relationship that 
pharmacists and their senior patients share.
  I encourage all of my colleagues to take a closer look at this 
amendment and help me get it adopted. As I mentioned, it has bipartisan 
support. If we had a little more time, I am sure we would have had a 
lot more cosponsors. We recognize this is an appropriate place for this 
amendment to appear and an appropriate service to provide under the 
prescription drug benefit of Medicare.
  So I encourage my colleagues to vote for it. I thank them for their 
consideration.
  I yield the floor.
  The PRESIDING OFFICER (Mrs. Dole). The Senator from Oregon.
  Mr. SMITH. I thank my colleague for his amendment. I think the Enzi-
Reed amendment will clearly improve beneficiaries' access to long-term 
prescriptions at their local pharmacies, as well as to increased 
disclosure requirements for participating plans. Community pharmacists 
play an integral and active role in health care delivery by providing 
programs that help patients manage their disease, prevent dangerous 
drug interactions and educate and counsel on the proper use of their 
medications. Any prescription drug program will rely heavily on 
community pharmacists.
  Under S. 1, the underlying bill, entities eligible to offer a 
Medicare prescription drug plan would be required to ensure that 
beneficiaries have convenient access to community pharmacies in both 
rural and urban areas. Additionally, no eligible plan would be allowed 
to offer prescription drug coverage solely through mail order 
pharmacies.
  The Enzi amendment builds on the provisions already included in S. 1 
and would ensure that beneficiaries who enroll in prescription drug 
plans and Medicare Advantage plans that offer mail order benefits would 
also have the option to fill long-term prescriptions in community 
pharmacies. This amendment also would provide beneficiaries 
flexibility, convenience, and increased corporate reporting 
requirements for Medicare prescription drug plans. This should promote, 
not stifle, competition and improve choice.
  So let's be clear. There are efficiencies inherent in mail order 
pharmacies and beneficiaries would continue to benefit financially by 
purchasing drugs through the mail, but this amendment would provide 
them with yet another choice, another option, as well.
  It is certainly my intention to vote for the Enzi-Reed amendment. I 
am not in a position to say that the chairman is saying that yet, but I 
suspect he will.
  I understand Senator Enzi will speak for a few more minutes.
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. ENZI. I thank the Senator from Oregon for his comments. He has 
very concisely laid it out, has a tremendous understanding of this 
amendment and the need for it, and made a fair assumption that it could 
cost slightly more by going through the local pharmacist. But one of 
the things we want to do is make sure that local pharmacist is an 
option.
  If beneficiaries getting the prescription drugs order it through the 
local pharmacy and the cost comes to more than it would be through a 
mail order firm, then the person receiving the prescription drugs does 
have to make up that difference in cost.
  These four provisions in the amendment will make a tremendous 
difference to both consumers and to pharmacists. The aim is twofold. It 
is to have fair prices for consumers and then fair treatment for the 
local pharmacies. As was mentioned, the two provisions that require 
fair prices would require the Medicare prescription drug plans and 
Medicare Advantage organizations to disclose, to the extent that they 
pass Medicare beneficiaries, any rebates or discounts that they 
negotiate from drug manufacturers. In other words, if they get a break, 
the consumer is supposed to get a break. It permits the Government to 
audit the plans and the organizations' financial statements and 
records--and it is primarily the records that are important--to ensure 
compliance to make sure there is not fraud and abuse and to make sure, 
again, that those reductions get passed through to the consumer. So we 
want fair prices for consumers.
  The consumers and pharmacies do support the first two provisions 
aimed at ensuring this transparency and accountability on the part of 
pharmacy benefit managers, PBMs, the companies that will probably win 
contracts or bids to manage the new drug benefit.
  Pharmacies argue that the pharmacy benefit managers, the PBMs, are

[[Page S8107]]

squeezing their margins while consumers argue that the PBMs have 
financial incentives to steer patients to the drugs that make the most 
profits for the PBMs, even when they may not be the most appropriate 
drugs for the patients. So that is another reason that not only the 
fair price but the transparency has to be there.
  What are these PBMs, pharmacy benefit managers? PBMs administer 
prescription drug benefits through contracts with employers, managed 
health care organizations, and insurance carriers. Today, the top 20 
firms manage more than 90 percent of retail prescription drug 
purchases, and three firms, AdvancePCS, Express Scripts, and Merck-
Medco Managed Care, dominate the market.
  Large self-insured employers turned to PBMs during the 1990s to 
administer the popular drug benefit, to manage the costs and 
utilization trends to ensure appropriate use of drugs and improved 
quality care. However, the employer frustration over rising costs and 
questions about appropriateness of drug use are stimulating interest in 
PBM contractual relationships, especially financial arrangements with 
drug manufacturers, and the bearing those relationships have on the PBM 
performance.
  PBMs once earned the bulk of their revenue by holding down drug costs 
for health plans. They now earn a large portion of their revenue from 
drug companies that pay them undisclosed rebates and other financial 
incentives for promoting certain medications. For nearly 4 years, 
the U.S. attorney's office in Philadelphia has been looking into how 
PBMs negotiate discounts, rebates, and payments from pharmaceutical 
manufacturers and how the resulting revenues are shared with PBM 
clients.

  So what does the amendment do to answer the concerns? The amendment 
would give the Government the ability to ensure that the Medicare drug 
plans administered by PBMs are passing through the fair share of their 
rebates and discounts on to consumers. It would also clarify the 
Government's authority to audit the drug plans to confirm the accuracy 
of the disclosure of the rebates and discounts.
  The main thrust of it is to make sure the local pharmacist has a fair 
shot for the service they provide. I hope everybody remembers when they 
go to a pharmacist the time he spends explaining how often they take 
the drugs and what they cannot take before or after, and what they can 
have with them. They also have an understanding of the other 
medications that people are taking so that if there is a possibility 
that there will be an interaction between two medications, they can 
solve that problem.
  Of course, the only way that happens is if a person is working with 
one pharmacist. If people are calling a whole bunch of different 
pharmacists, because of privacy laws they do not have access to the 
interaction of the other drugs that a person is taking.
  So that local pharmacist provides a tremendous service, and it is 
only fair that we include those professionals in the ability to compete 
in this market, and people can continue to place their trust in the 
local person that they can see face to face and from whom they can pick 
up their prescriptions. It is a relatively short amendment, but again 
it is one that has very strong bipartisan support and one that will 
fulfill a need. So far as we know, there is very little opposition. So 
I look forward to having my colleagues support it.
  Again, I thank the Senator from Oregon for his comments and this 
opportunity to present the amendment.
  I yield the floor.
  Mr. SMITH. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. REED. Madam President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Madam President, I rise in support of the Enzi-Reed 
pharmacy access amendment.
  I compliment my colleague and friend, Senator Enzi from Wyoming. We 
have worked on several issues with respect to the pharmacy benefits. It 
has been a pleasure and it has been productive, not only for ourselves 
but for the professional pharmacy community. Pharmacists are the third 
largest health care profession in the country in terms of numbers of 
practitioners, and they are becoming increasingly more central to our 
health care system.
  This amendment is designed to accomplish two very important 
objectives with respect to the proposed Medicare pharmacy benefit for 
seniors. First, its aim is to assure transparency and accountability in 
the collection and dissemination of negotiated savings by Medicare 
prescription drug benefit plans and Medicare Advantage plans. Second, 
it is designed to guarantee Medicare beneficiaries access to community 
pharmacies when filling prescriptions of 90 days or longer. Without the 
Enzi-Reed amendment, these protections, these safeguards, these 
essential elements would not be present in the bill we are considering 
today.
  This language is very similar to proposed language included in the 
counterpart legislation being deliberated in the other body. If we are 
to rely upon private companies to negotiate and administer a benefit on 
behalf of the Federal Government as well as on behalf of tens of 
millions of elderly and disabled beneficiaries, we need to be sure 
these entities operate with the best interests of these parties in mind 
and not simply and exclusively their bottom line. Through this 
amendment, plans will be required to disclose to the Government the 
extent to which they pass on to Medicare beneficiaries rebates, 
discounts, and any other savings negotiated from the drug 
manufacturers.
  We all recognize one of the essential elements of this legislation is 
the notion that private pharmacy benefit management companies will 
negotiate with pharmacies and manufacturers to get the best possible 
price. We hope that best possible price is passed on almost entirely to 
the beneficiaries and to the payers, which include the Federal 
Government. It would be ironic, indeed, if we establish a system in 
which the intermediaries gained huge profits, while the Government and 
beneficiaries continue to pay substantial sums for the pharmaceutical 
benefits.

  By requiring disclosure of negotiated savings by drug plan 
administrators, we guarantee a greater degree of transparency and make 
sure beneficiaries are getting the best possible savings on their 
prescription drugs. The essence of the Enzi-Reed amendment is let the 
markets operate, but make sure everyone has complete information about 
who is reaping the benefits of these negotiated transactions between 
purchasers and suppliers of these pharmaceuticals.
  Since beneficiaries are expected to pay anywhere between 50 percent 
and 100 percent of the cost of drugs--those individuals in the gap 
would be paying 100 percent of the cost of drugs--we have to make sure 
they are getting the best possible deal. This amendment will go a long 
way towards ensuring that actually happens.
  If the PBMs do not pass these benefits and negotiated savings along 
to the public and the Federal Government, then we all should know. This 
amendment will ensure that level of accountability.
  Second, the Enzi-Reed amendment allows beneficiaries to receive 90-
day prescriptions and other related benefits through community 
pharmacies. Senator Enzi represents the great State of Wyoming in which 
a pharmacy--I am sure in some of the smaller communities--might be the 
only source of pharmaceutical supplies and medical advice and many 
other things. Pharmacies are an important part of the fabric of a 
community. To deny seniors the right to get their pharmaceutical 
supplies from these pharmacies would not only be wrong but inefficient. 
If that is where they would like to get their prescriptions, they would 
be assured they can get the benefit through the local pharmacy under 
this amendment.
  Rhode Island is a little different from Wyoming, but pharmacies in 
Rhode Island have the same role in the lives of seniors, particularly 
in terms of getting their benefits and other important health care 
services. This amendment would allow beneficiaries to obtain 90-day 
supplies through the community pharmacist, wherever they are.

[[Page S8108]]

  This does not exclude mail order, but it simply makes sure it is not 
the only option that seniors have; that they can continue to rely upon 
the local pharmacy for their benefits.
  I should say something else. Not only is the local pharmacy a source 
of pharmaceuticals, it is usually an excellent source of advice and 
assistance by trained pharmacists. Increasingly, these pharmacists are 
taking on a very important role in advising seniors, within the limits 
of their practice, as to the appropriate use of pharmaceuticals and are 
also a source of advice on many other health care issues. So I hope my 
colleagues would agree that we should encourage the use of local 
pharmacies. This amendment will help do that.
  I again commend Senator Enzi for his work and leadership on this 
issue. We share a common belief that professional pharmacy is a 
critical part of our health care system. If we allow pharmacists to 
operate, we will get the benefit of their expertise, and it will 
redound to the health needs of our seniors and to the financial 
responsibilities that we face in enacting this legislation.
  I urge all my colleagues to support this amendment.
  I yield the floor.
  Mr. ENZI. Madam President, I thank the Senator from Rhode Island, Mr. 
Reed, for his efforts on this bill and the efforts on all the other 
ones we worked on together over the years. We came to the Senate at the 
same time and served on the Health, Education, Pensions and Labor 
Committee since that time. I think we have been able to reach some 
reasonable solutions before, and we will have yet another one here. I 
appreciate his comments and his work.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.

  Mr. REID. Madam President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Under the previous order, there are 5 minutes evenly divided before 
the vote on the Stabenow amendment.
  Who yields time?
  The Senator from Michigan.
  Ms. STABENOW. Madam President, I appreciate those who are 
cosponsoring my amendment and have joined with me. I ask unanimous 
consent that Senator Lieberman's name be added as a cosponsor to the 
amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Ms. STABENOW. This amendment is very simple and very straightforward. 
What we are saying is, seniors ought to have every possible choice for 
their prescription drugs, and one of those choices should be under 
traditional Medicare.
  Today, 89 percent of seniors and those with disabilities in our 
country are under the traditional Medicare insurance plan; only 11 
percent are not. We want to make sure, in this amendment, those seniors 
who are under traditional Medicare--choosing their own doctor, having 
the confidence to know that regardless of where they live they will 
have the same premium, the same cost, the same benefit, the 
dependability of Medicare--that they, in fact, will be able to choose 
traditional Medicare.
  Under every cost estimate we have looked at, in terms of 
administrative costs, the growth in programs, other kinds of costs, 
Medicare has always come out less expensive than the private plans that 
have been compared to it. So, in fact, this does not cost more money, 
it costs less.
  In our proposal, we stay within the $400 billion parameters by 
allowing the Secretary of HHS to actually modify the plan to stay 
within the $400 billion in the budget resolution. This is no additional 
cost. This is a question of choice and making sure seniors who, 
overwhelmingly, choose to stay in traditional Medicare have the 
opportunity to do so. I ask my colleagues to join with us in creating 
true choice for our seniors.
  Madam President, I reserve the remainder of my time.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. SMITH. Madam President, it is my understanding that CBO has 
evaluated the information just provided them by the Senator from 
Michigan, and they are standing by their opinion that her amendment 
will cost an additional $50 billion over 10 years. So while the 
Stabenow amendment does violate the budget, which allocates $400 
billion, it is my understanding the leadership on this side does not 
want to raise a point of order and would like to take this vote just 
straight up on its merits.
  The provisions of this bill offer Senators a choice between a new way 
or the old way. I ask my colleagues: Do you want to go the way of 
Government price control in which you put a bureaucrat between you and 
your medicine cabinet regardless of Medicare's terrible experience in 
evaluating market prices on prescription drugs? If you believe this is 
the way Medicare's future is best provided, then you should vote for 
the Stabenow amendment.
  If you want to try a new way, if you want to see if the marketplace 
actually works to provide more choices, more cost control, and even 
better quality and innovation, then you should vote with the bipartisan 
agreement that has the support of, I believe, a majority of Senators.
  This bill presents a choice between the past and the future, between 
Government, central planning, price controls, and a marketplace that 
can evolve. But that marketplace will not evolve if Government comes in 
and says, on a permanent basis: we are going to be the other choice. I 
can promise you capital will not follow, and there will be no 
marketplace developed.
  I think seniors of this country are due a prescription drugs package 
that can pass and that the President will sign. The President is not 
going to sign a Medicare and Prescription Drugs bill that comprises the 
Stabenow amendment.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Michigan.
  Ms. STABENOW. Madam President, prior to 1965, seniors had to go to 
private insurance companies to get their health care. Half could not 
find or afford private health care. That is why we created Medicare.
  Now we are looking at the opportunity to keep that choice for 
seniors, plus the opportunity to expand. If they want to be in an HMO, 
if they want to be in a PPO, they can find insurance in their 
community. That is terrific. That is their choice. But those who have 
chosen Medicare deserve the right to pick that choice.
  The PRESIDING OFFICER. The Senator's time has expired.
  The Senator from Oregon.
  Mr. SMITH. Madam President, have the yeas and nays been ordered?
  The PRESIDING OFFICER. They have not.
  Mr. SMITH. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The question is on agreeing to amendment No. 931.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. REID. I announce that the Senator from North Carolina (Mr. 
Edwards), the Senator from Hawaii (Mr. Inouye), the Senator from 
Massachusetts (Mr. Kerry), and the Senator from Connecticut (Mr. 
Lieberman), are necessarily absent.
  I also announce that the Senator from Massachusetts (Mr. Kennedy) is 
absent attending a funeral.
  I further announce that, if present and voting, the Senator from 
Massachusetts (Mr. Kerry) would vote ``yea''.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 37, nays 58, as follows:

                      [Rollcall Vote No. 227 Leg.]

                                YEAS--37

     Akaka
     Bayh
     Biden
     Bingaman
     Boxer
     Byrd
     Cantwell
     Clinton
     Conrad
     Corzine
     Daschle
     Dayton
     Dodd
     Dorgan
     Durbin
     Feingold
     Feinstein
     Graham (FL)
     Harkin
     Hollings
     Johnson
     Kohl
     Lautenberg
     Leahy
     Levin
     Lincoln
     Mikulski
     Murray
     Nelson (FL)
     Pryor
     Reed

[[Page S8109]]


     Reid
     Rockefeller
     Sarbanes
     Schumer
     Stabenow
     Wyden

                                NAYS--58

     Alexander
     Allard
     Allen
     Baucus
     Bennett
     Bond
     Breaux
     Brownback
     Bunning
     Burns
     Campbell
     Carper
     Chafee
     Chambliss
     Cochran
     Coleman
     Collins
     Cornyn
     Craig
     Crapo
     DeWine
     Dole
     Domenici
     Ensign
     Enzi
     Fitzgerald
     Frist
     Graham (SC)
     Grassley
     Gregg
     Hagel
     Hatch
     Hutchison
     Inhofe
     Jeffords
     Kyl
     Landrieu
     Lott
     Lugar
     McCain
     McConnell
     Miller
     Murkowski
     Nelson (NE)
     Nickles
     Roberts
     Santorum
     Sessions
     Shelby
     Smith
     Snowe
     Specter
     Stevens
     Sununu
     Talent
     Thomas
     Voinovich
     Warner

                             NOT VOTING--5

     Edwards
     Inouye
     Kennedy
     Kerry
     Lieberman
  The amendment (No. 931) was rejected.
  Mr. SMITH. I move to reconsider the vote.
  Mr. BAUCUS. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. BAUCUS. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BAUCUS. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Graham of South Carolina). Without 
objection, it is so ordered.
  Mr. BAUCUS. Mr. President, we are now on the Enzi amendment. I ask 
unanimous consent that the Enzi amendment be temporarily set aside so 
that at 4:20 the Senate can proceed to an amendment offered by the 
Senator from New Mexico, Mr. Bingaman.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  Mr. BAUCUS. I also ask that there be 30 minutes on that amendment 
equally divided in the usual form.
  The PRESIDING OFFICER. Is there objection?
  Mr. BAUCUS. Mr. President, I withdraw the second request. So the only 
request pending, which I think the Chair has ruled on favorably, is 
that we go to the Bingaman amendment at 4:20.
  The PRESIDING OFFICER. That is correct.
  Mr. BAUCUS. I thank the Chair.
  Mr. President, pending 4:20, when the Senator from New Mexico will 
offer his amendment, I rise to speak about the rural provisions in the 
Medicare bill.
  This bill has a lot of provisions to help rural America. I am very 
proud of these provisions. I also wish to compliment the chairman of 
the committee, Senator Grassley. Over the last year, he and I have 
jointly co-authored legislation to address the imbalance in Medicare 
payments that exists between rural and urban areas of our country. For 
many rural areas of our country, providing health care services is very 
challenging given Medicare's current payment rates.
  In rural America, Medicare often dominates. That is, most hospitals, 
doctors and other health care providers receive the lion's share of 
their reimbursements from Medicare. I know that in many communities in 
Montana, particularly the smallest communities, Medicare accounts for 
over more than 50 percent of hospitals total reimbursements. This share 
is also as high in some larger towns, but certainly more the case in 
smaller towns.
  Rural hospitals are often the major employer in their communities. It 
is what makes the small town tick. If it were not for the rural 
hospital, the population in those towns would deteriorate. I have seen 
that happen in a good number of communities in Montana, where the 
hospital--fewer than 20 beds in many cases--is the major employer in 
the town.
  Once Medicare payments start to decline significantly, as is the case 
in many areas, that smalltown hospital has to close up, or converts to 
what is called a critical access facility and is no longer the full 
service hospital it was. So it is very important that rural America be 
adequately reimbursed under Medicare.
  In addition to Medicare reimbursements, I believe we have also 
provided assistance to rural areas with respect to our proposed drug 
benefit. I believe that the drug benefit outlined in this bill will 
work for rural America. For example, if private drug-only plans do not 
materialize, our bill provides for a hard and fast fallback, a 
Government guarantee for rural seniors. This guarantee is important 
because many rural States have had an unfortunate experience with 
Medicare+Choice, the program that currently allows private health plans 
to participate in Medicare. But because there are so few people in 
rural America, HMOs and other Medicare+Choice plans, have found it too 
difficult to operate and have withdrawn.
  I do not have the figures with me off the top of my head, but there 
are thousands of people in rural areas who once had access to a 
Medicare+Choice plan but no longer have that opportunity because the 
areas are just so sparsely populated for health plans to work. That is 
a real concern with respect to the prescription drug benefit we are 
providing in this bill; namely, will private drug plans, in addition to 
the preferred provider organizations, want to offer prescription drug 
benefits in rural America or not? It is a big question, and it is an 
unanswered question.
  We hope they do want to come in and participate. We hope private 
plans that currently do not now exist will, under the provisions of 
this bill, when it goes into effect in a few years, want to provide 
prescription drug benefits for seniors. We hope that many plans want to 
come in and compete with each other to help reduce costs.
  There is no great assurance that these private plans will reduce 
costs. If one looks at the HMOs, they currently are paid at a higher 
rate than what Medicare pays for beneficaries in the fee-for-service 
program. Some can make a strong argument that these private plans are 
going to cost more. The theory is that competition will allow them to 
bring down costs and provide the same benefits for seniors. So it is an 
unanswered question. People just do not know the degree to which these 
private plans are going to work. Therein lies the question: What about 
those parts of America where private plans do not participate? What 
about those seniors? How can we assure that they are going to get 
prescription drug benefits? The bill before us tries to address that.
  The bill addresses this question by providing for a guaranteed 
fallback plan. In those parts of the country where there are not two or 
more competing private drug plans, government-backed fallback plan is 
guaranteed. Seniors will be able to get the prescription drug benefits 
under pharmacy benefit manager (PMB), or similar organization that is 
not required to bear insurance risk. It will only be required to bear 
performance risk for the administrative costs of providing the benefit. 
The fallback plan will not bear insurance risk as required of the 
private drug plans.
  The purpose of the fallback plan is to make sure that rural America--
in fact, any part of America where there are not two private plans--is 
served fairly by this prescription drug program.
  As I mentioned, the bill includes many provisions to address the 
current imbalance in Medicare reimbursements between urban and rural 
America. One provision would correct differences in the standardized 
amount rate for inpatient hospitals. The standardized amount is higher 
for urban hospitals than for rural hospitals. The provision says that 
Medicare should pay the same across the board. Clearly, there will be 
other adjustments that affect different circumstances and different 
parts of the country, but the standardized amount would be the same 
rate for both urban and rural hospitals. That is extremely important to 
many hospitals in rural areas.
  Last year's appropriations bill equalized the standardized amount for 
a 6-month period. This bill makes that permanent. It is a change that 
the Medicare Payment Advisory Commission, or MedPAC, has recommended 
that Congress make. This bill this and other MedPAC recommendations to 
heart by saying, You are the experts, you know better what is going on 
than anyone else.
  This bill contains a couple of other important MedPAC 
recommendations. For example, it raises the Medicare disproportionate 
share threshold for rural hospitals. The Medicare DSH program says if 
you are a hospital and

[[Page S8110]]

have a disproportionate number of people under Medicare who are low 
income, you should receive extra assistance under Medicare. Our bill 
raises that threshold for rural hospitals a little higher.
  The bill also adjusts payments for hospitals with very low patient 
volume. We know volume is a big component of whether a hospital is able 
to make ends meet.
  The bill extends the rural home health add-on payment at a level of 5 
percent. Home health care is extremely important in rural America.
  This bill includes other provisions that not necessarily rural 
specific. For example, the legislation increases payments to dialysis 
providers, including those in urban areas, for a 2-year period.
  The bill provides desperately needed assistance to urban hospitals 
that provide a disproportionate share of services to low income 
individuals. These hospitals are struggling with growing pressures of 
more uninsured and low income patients. It is not fair for those 
hospitals that have to bear these costs. They have to provide charity 
care. In fact, in many respects under the law they are required to. 
This gives them a bit of a break with these burdens and their nursing 
shortages
  The bill provides much-needed regulatory relief for both rural and 
urban hospitals. We have heard from doctors and hospitals that say the 
carriers and fiscal intermediaries are too heavy-handed; they assume 
physicians and providers are guilty when they question reimbursement, 
instead of assuming we are innocent. The regulatory relief measures in 
this bill address this concern. These provisions are significant and go 
a long way to assure providers spend less time on paperwork burdens and 
more time with their patients.

  Some may say that this bill does not go far enough to relieve these 
burdens. A lot of doctors and hospitals administrators will say: Gee, 
why all this Medicare paperwork? We want to spend time with our 
patients. Nevertheless, the regulatory provisions of this bill will 
reduce paperwork and unnecessary regulation.
  I realize there are a number of provider provisions--with respect to 
doctors and hospitals and other providers--that are not addressed in 
this bill. These provisions include payments under the Medicare 
physician fee schedule, which will be cut in 2004 through 2007 unless 
further congressional action despite an additional $54 billion in the 
bill we passed earlier this year. We recognize the need to address 
these impending cuts in the future. Physician's fees are projected to 
drop significantly. We cannot address that in this bill. We do not have 
the money. That is a problem we will have to face in 2004. I alert 
Senators, that will be expensive. We will have to deal with it.
  There are also Senators who want to address what is called IME, or 
indirect medical education. This is the special payment adjustor under 
Medicare for teaching hospitals. It is now currently reduced to its 
lowest level ever. That is, teaching hospitals are receiving less to 
help train physicians across the country. That is a concern many have. 
We are going to try to deal with that as best we can as this bill 
progresses.
  Nursing home payments are not addressed. Many Senators have talked 
about addressing some of the problems facing nursing homes. They, too, 
experienced a sharp reduction in payments over in 2003. This list of 
payment provisions is not limited. There are several other provider 
provisions about which many Senators have raised concerns.
  Our ability to deal with these additional issues is limited. Why? 
Because this is a $400 billion Medicare package. The fact remains, this 
is a package of relatively sparse drug benefits. Yes, $400 billion 
sounds like a lot of money, and it is. But $400 billion extended over 
10 years, means that we have to carefully consider what the amounts 
should be for the deductible, copayments, and the premiums. The numbers 
are OK, but they are not great.
  I don't want to oversell this bill or over promise. This legislation 
is a step in the right direction. This is a good first chapter. It is a 
start in providing prescription drug benefits for seniors. We only have 
$400 billion so we have not been able to address these other 
provisions. We would like to. We would like to find a way to deal with 
them. But at this time, the dollars are simply not there.

  I might add, we will do what we can in future days, weeks, and months 
to try to address these concerns.
  I know the chairman of the committee, Senator Grassley, wants to work 
with our colleagues to address these provisions and also provide a fair 
deal for rural, as well as urban, folks in America. We want to address 
future geographic inequities with respect to the drug benefit. The fact 
is, rural States are very concerned if we enact this prescription drug 
benefit, are going to come out on the short end of the stick. More 
federal money will end up going to go to urban seniors. That will cause 
a great problem.
  At the same time, seniors in urban areas are afraid the money will go 
to the rural areas, that the urban cities will end up on short end of 
the stick. The fact is, we do not know how it will work. We just don't 
know. Senator Snowe offered an amendment in the Finance Committee for a 
study to address possible geographic inequities in drug spending across 
the country. She later amended it, made it a little stronger, to say 
that HHS will have the discretion to address any geographic inequities. 
There may be an amendment on the floor to require the HHS Secretary to 
address the inequities.
  It is a point about which we are all very sensitive. We are trying to 
find a way to make this geographic adjustment process work. Geographic 
adjustment for drug spending has never been tried before. It is 
uncharted territory. We just don't know. It probably makes sense the 
Secretary have discretion.
  That is a short summary of some of the rural provisions in the bill. 
I see the Senator from Texas is on the Senate floor. Does the Senator 
from Texas wish to speak at this point?
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. CORNYN. Mr. President, I appreciate the Senator from Montana 
giving me a chance to say just a few words.
  May I inquire, my understanding was Senator Bingaman was going to be 
coming at 4:20 under a previous agreement to speak, but there also was 
a possibility I might be allowed to continue a while longer, perhaps 20 
minutes.
  The PRESIDING OFFICER. Is there objection to the modification of the 
agreement?
  Mr. BINGAMAN. Mr. President, I have no objection to the request of 
the Senator from Texas who asked if he could be allowed to speak for 15 
or 20 minutes before we begin my amendment. If that is not a problem 
for the manager of the bill, I have no objection.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. CORNYN. I express my appreciation to the managers of the bill and 
Senator Bingaman for his courtesy.
  This is obviously a critical issue that confronts the Senate, one 
this body has talked about for a long time. It appears we are on the 
precipice of actually delivering what many of us have campaigned on, on 
both sides of the aisle, in previous elections.
  Medicare has been a successful program for the last 30 years, and it 
has served our seniors well. But it faces major challenges. Obviously, 
we are all interested in strengthening Medicare so it will continue to 
be a program that will serve our children and grandchildren as it has 
our parents and grandparents. Medicare was created in 1965 and reflects 
the state of health care in that year. While the world has changed and 
medicine has changed, Medicare has not changed. It is time to improve 
and strengthen Medicare so it can serve the needs of Americans of this 
generation and the next, and can also be within our fiscal constraints.

  Medicare is stuck in 1965, and so are its beneficiaries. Medicare's 
promise falls far short when its recipients suffer from outdated and 
inadequate benefits, limited protection against rising medical costs, 
or a stodgy Government plan that cannot deliver responsive medical 
services or ensure high-quality health care.
  While health insurance has followed the demands of the free market, 
Medicare still lacks catastrophic protection or full coverage of many 
preventive benefits in a comprehensive outpatient prescription drug 
benefit.
  One of the critical improvements included in this bill is immediate 
assistance, in the form of prescription drug

[[Page S8111]]

coverage, for those seniors who cannot currently obtain it or who do so 
only at great economic hardship and great personal hardship. I have 
supported the principle of a prescription drug benefit from day 1 for 
the seniors who need it. I am proud to reiterate my support here today.
  Having said that, I have significant concerns about the legislation 
that is before this body--some aspects of it, significant aspects of 
it. While a prescription drug benefit and expanded treatment choices 
will help America's seniors, this bill falls substantially short of 
President Bush's framework for reform. If we endorse this legislation 
without real and meaningful reform, we rush to satisfy political 
interests rather than take the time to form sound policy, and we do a 
great disservice to the Medicare beneficiaries who depend on this 
coverage, to our constituencies, and to the future generations who will 
have the financial burden to pay for it. Ultimately, if we do not take 
care, we could do more harm than good.
  According to estimates of the Congressional Budget Office, this plan 
will have unintended ramifications for Americans. It will force nearly 
40 percent of retired Americans who currently have prescription drug 
benefits under private plans onto taxpayer-paid plans that would be 
provided under this bill. The CBO, the Congressional Budget Office, 
predicts that only 2 percent of seniors will actually choose the only 
vehicle for reform provided for under this bill, that of the preferred 
provider organizations, the PPOs, while the rest will remain in 
Medicare basically as it currently exists with a prescription drug 
benefit added, hardly what we could call true reform.
  We should not fool ourselves. What we are actually providing seniors 
under Medicare, and through this bill, is actually very different from 
what Members of Congress receive. Under the Federal Employees Health 
Benefits Plan, all of us in this body, along with 10 million Federal 
employees, can enroll in a number of flexible preferred provider 
organizations. The plans we can choose as Federal employees do not have 
restrictive price caps, and they provide for more choice. As a result, 
those of us who work for the Federal Government can obtain better 
coverage and treatment than the vast majority of our constituents. This 
disparity, I believe, should not be tolerated under this plan, 
especially one that charges under the banner of reform.

  Price controls are a recipe for long-term disaster. The best 
determiner of price in a product is the free market, not government 
bureaucrats sitting in darkened cubicles wearing green eyeshades. My 
other concern is that this purports to be a universal entitlement, 
based on nothing like what we have talked about in many of our 
campaigns, which is actually need. It will provide a prescription drug 
benefit to millionaires, including Members of this body who just do not 
need it. I question the morality of any proposal that would take the 
hard-earned money out of the pockets of truck drivers, schoolteachers, 
police officers, small business men and women and single moms, to 
subsidize a prescription drug benefit for people who are well to do.
  When it comes to health care, I believe the proper role of government 
is to protect the freedom of all people to act as they see fit to 
maintain and improve their health care. Today, millions of Americans 
suffer from chronic diseases that are for the most part preventable. 
Our Nation spends about $1.4 trillion a year on health care--more than 
any other country in the world--and chronic diseases account for 
roughly 75 percent of those health care costs. Preventing disease 
before it happens is better, more humane, and less expensive than 
curing disease after it manifests itself, and prevention can lead to a 
far better quality of life. If Medicare is to adapt to the demands of a 
new populace, it must become a system refocused on the importance of 
preventive care.
  I strongly believe that real positive change in our Medicare system 
must begin with the foundation of individual responsibility and the 
choices that can only be provided by the free market--not by a 
government mandate.
  We must not offer up a short-term legislative answer that plays 
politics with people's health and the needs of future beneficiaries. We 
should not tinker only around the edges and call it reform.
  As we work over this week and next to produce a solution to this 
challenge that lies before us, we cannot allow ourselves to believe our 
striving will fail, and we must not convince ourselves we have already 
succeeded.
  In conclusion, let me say it is my most ardent hope that this bill, 
which I know was produced by great effort of the staff and on a 
bipartisan basis by the Senate Finance Committee, can be improved and 
that the improvement will allow us to make sure the benefit is targeted 
to those seniors who actually need the help and not millionaires, 
thereby having the wealth transferred out of the pockets of hard-
working Americans to pay for a prescription drug benefit for 
millionaires and others who are well to do.
  Second, let us make sure we don't crowd out private dollars that are 
currently paying for prescription drug benefits for many retired 
persons which they have negotiated under the terms of their retirement 
or pension plan. Right now up to 40 percent of those dollars will be 
chased off and the Federal Government--in other words, the taxpayer--
will step forward and fill that gap. That is something we should not 
allow.
  Third, if this is truly going to be reform, it has to be something 
more than business as usual.
  What concerns me quite a bit is on the one hand the OMB estimates 
that some 40 percent of seniors will opt for the true vehicle for 
reform--the PPOs, the preferred provider organizations--but, on the 
other hand, another agency of the Federal Government, the Congressional 
Budget Office, says No, it won't be 43 percent. It won't be 40 percent. 
It will be 2 percent.
  In other words, if the Congressional Budget Office is right, we will 
not have accomplished what the President has asked us to do and what 
many in this institution believe is so important; that is, true reform.
  It is my hope and prayer we will be able to make the necessary 
adjustments to this very good start. But there are some very grave 
concerns that I and others have about the bill as it currently exists.
  In a tight budget, I hope we do not vote for what is by most 
conservative estimates a $400 billion new entitlement on top of $2.2 
trillion the Federal Government commits to nondiscretionary entitlement 
spending each year, unless we make sure it is absolutely necessary and 
targeted to those who need it most, and that it does not supplant other 
private insurance and other measures designed to provide prescription 
drug coverage for our seniors.

  I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BINGAMAN. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 933

  Mr. BINGAMAN. Mr. President, I send an amendment to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from New Mexico [Mr. Bingaman] proposes an 
     amendment numbered 933.

  Mr. BINGAMAN. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

(Purpose: To eliminate the application of an asset test for purposes of 
   eligibility for premium and cost-sharing subsidies for low-income 
                             beneficiaries)

       On page 120, between lines 16 and 17, insert the following:
       ``(I) Elimination of application of asset test.--With 
     respect to eligibility determinations for premium and cost-
     sharing subsidies under this section made on or after October 
     1, 2008, such determinations shall be made without regard to 
     subparagraph (C) of section 1905(p)(1) (to the extent a 
     State, as of such date, has not already eliminated the 
     application of such subparagraph).

  Mr. BINGAMAN. Mr. President, this is a very straightforward, simple 
amendment that deals with a problem that is buried in this legislation 
and

[[Page S8112]]

which really needs to be dealt with. That is the so-called assets test. 
My amendment would eliminate the assets test beginning in the year 
2009.
  The first obvious question everyone should be asking is, What is the 
assets test? The assets test is as follows: The bill provides a more 
generous set of benefits for low-income individuals and low-income 
couples. That is as we intend.
  I think all Members of the Senate recognize that those who have the 
least in the way of income really need the most help in paying for 
their prescription drugs, particularly when you are dealing with 
seniors who are not, in most cases, out in the workplace able to 
increase their income. We believe the proper, the humane, and the 
compassionate thing is to provide this greater level of subsidy for 
low-income individuals.
  In particular, we look at those individuals with incomes up to 160 
percent of poverty. That is the figure we have in this legislation. 
That translates into, I believe, what we are talking about. A couple 
with an income of perhaps $17,000 or $18,000 a year would qualify, and 
if they had any more income than that they would not qualify for this 
higher level of subsidy.
  The bill also provides that if a low-income individual has as much as 
$4,000 in assets, that individual is not entitled to that subsidy in 
the same way others would be.
  For example, if you have a 70 or 75-year-old widow who is receiving 
$5,000 a year in income or $6,000 a year or $8,000 in income and that 
widow also has $1,000 in U.S. savings bonds, and a car that has a blue 
book value of $3,100, then that widow is not entitled to the full 
benefit unless and until she goes out and either sells the savings 
bonds or sells the car or somehow or other impoverishes herself to be 
able to demonstrate she does not have assets worth $4,000.`
  This is a test that was put in the law many years ago. It is one that 
adds great complexity to the law. In fact, a major effect of this 
assets test is to discourage a great many low-income individuals from 
even applying for the increased benefit that is provided for in this 
legislation because the requirements for reporting, filling out forms, 
getting blue book values on your automobile--these are complicated 
requirements that discourage people from applying across the board.
  I also point out that under this assets test, not only is it $4,000 
for an individual--so if you have $4,000 worth of income, of assets, as 
a widow, you fail the assets test--but if you are married, it is then 
$6,000. A lot of the Members of this Senate and the Congress have given 
speeches about what a terrible thing the marriage penalty is. Here is 
another marriage penalty that is in the law we are dealing with today. 
This is a penalty which says, if you get married, your ability to hold 
on to assets and still get this full benefit is reduced. You cannot 
hold on to as many assets. You can only hold on to $6,000 as a couple 
whereas you could hold on to $4,000 as an individual.
  In my view, the justification for this assets test has long since 
gone away. The reality is, if people are unable to work, as most 
seniors are, unable to increase their income, if they are low-income 
individuals, and if they have very substantial prescription drug costs, 
they need the assistance we are providing in this legislation--or 
trying to provide in this legislation--and we should not take that away 
from them by virtue of their having $4,000 worth of assets as an 
individual or $6,000 worth of assets as a couple.
  Let me elaborate on this a little bit more. There are about 40 
million seniors and people with disabilities who depend on Medicare who 
could benefit from this prescription drug coverage we are talking about 
in this bill, and this assistance is particularly critical for those 
low-income individuals. Here we are talking about 14 million 
beneficiaries who have incomes less than 160 percent of poverty. Many 
of those individuals are in the State the Presiding Officer represents. 
Many of those individuals are in my State of New Mexico.
  The bill provides a significant benefit to those low-income seniors 
and individuals with disabilities, but it does so only if they do not 
fail the assets test. I do not know the exact figures, but the 
Congressional Budget Office estimate is that 21 percent of Medicare 
beneficiaries who would otherwise qualify for this low-income benefit 
in fact will be denied that full benefit because they fail the assets 
test.
  In fact, for those below 100 percent of poverty, if they fail the 
assets test, their cost sharing is increased, under this bill, by 400 
percent. For those between 100 and 135 percent of poverty, the assets 
test causes their cost sharing to increase by 200 percent.
  I believe strongly that in the year 2009--which is what I have in my 
amendment--we should eliminate the assets test. I would propose we do 
it earlier, frankly, but I am informed that the Budget Committee has 
calculated the cost of the bill in such a way that there is no funding 
available for us to do anything such as eliminate the assets test 
before the year 2009. So I have crafted the amendment so that it would 
become effective in the year 2009.
  In addition to protecting low-income beneficiaries below 135 percent 
of poverty from much higher costs, much higher copays due to this 
assets test, it should also be noted that the assets test significantly 
increases the paperwork burden on seniors and on individuals with 
disabilities.
  While the underlying bill provides physicians and other health 
providers with regulatory relief--and that is one of the things we keep 
talking about when we try to describe the benefits in this bill--I fear 
the bill will significantly complicate the ability of Medicare 
beneficiaries to receive prescription drug coverage, particularly low-
income individuals. They may need--I said this in the committee during 
our markup, and I believe it is not a totally facetious statement--they 
may need an accountant or a lawyer just to figure out the paperwork 
having to do with this assets test and how they can access these 
benefits.
  We should not be putting people to the choice of selling their car or 
liquidating their U.S. savings bonds in order to get the benefits of 
this bill. There are a great many low-income individuals who have very 
high prescription drug costs. That is a very unfortunate fact but one 
we are trying to come to grips with here.
  Under the bill, if they fail the assets test, their copay requirement 
is 10 percent up until they hit the so-called doughnut portion of the 
bill, which means essentially $4,000 of prescription drug expense in 
any given year; and then for the next $1,500 or $1,800 beyond that, 
they pay a 20-percent copay. If you have high prescription drug costs, 
a 20-percent copay is substantial. If you have high prescription drug 
costs, even a 10-percent copay can be substantial if your income is 
extremely low. And that is the group we are talking about here.
  So, Mr. President, I hope my colleagues will support the amendment. 
It is done in a responsible way. It is not drafted in such a way that 
it would take effect immediately. It takes effect in the year 2009, 
when we are advised by the Budget Committee funds will be available to 
pay to eliminate this assets test. It clearly is the right thing to do. 
It is the humane thing to do if, in fact, we are serious about helping 
low-income seniors deal with this very substantial burden. We should 
adopt this amendment and eliminate the assets test as soon as we can 
afford to do so. And the Budget Committee tells me that is in fiscal 
year 2009.
  So I hope very much colleagues will support the amendment.
  Mr. SPECTER. Mr. President, I have sought recognition to express my 
support for increased funding for rural hospitals. Pennsylvania is a 
geographically and demographically diverse State, and the health care 
needs of the communities across the Commonwealth differ significantly. 
But there is one constant--access to appropriate health care is 
critical, and if we are not prudent in making wise health care policy 
decisions now, we may jeopardize our citizens' ability to get the right 
care, in the right setting, at the right time.
  We must be aware of the pressures and challenges that constantly 
weaken the foundation of the health care system--the medical liability 
insurance crisis, inadequate State and Federal reimbursements, 
workforce shortages, growing uncompensated care costs, rising costs of 
technology and pharmaceuticals, bioterrorism planning and

[[Page S8113]]

training, and a growing elderly population. As we look at restructuring 
a segment of the Medicare Program, we have the opportunity to 
strengthen that foundation. Improving our prescription drug benefits 
will not help the senior citizens of this country if health care 
providers cannot meet their needs.
  We must also remember that our actions here in the Senate and by our 
colleagues in the House have implications not only for the quality and 
stability of our health care system but for our economic health as 
well. A recent study completed by the Penn State Cooperative Extension 
and the Pennsylvania Office of Rural Health shows that the State's 
hospitals are the largest component of the health services sector, 
generating more than $33.9 billion to the State's economy. This 
includes 260,000 full- and part-time jobs, a payroll exceeding $9.3 
billion, and a ripple effect that provides another 179,400 jobs and 
$5.4 billion in additional employee compensation. In many counties, the 
hospital is the No. 1 employer. Furthermore, the State's research 
hospitals have been identified as an integral component of 
biotechnology clusters, serving as an engine of growth in the new 
economy.
  Given all of these dynamics, we must support a legislative plan that 
adequately funds hospital and health systems. This plan must recognize 
that our rural communities face a unique set of challenges because they 
are often the only provider of health care in a vast geographic region 
and they have greater difficulty recruiting health care workers and 
physicians in today's health care climate. Such a plan should also 
include two major rural provisions dealing with the standardized rate 
amount and a change in the labor component to 62 percent. The 
standardized rate amount will allow rural hospitals to receive a 
Medicare standardized payment rate equal to the higher rate paid to 
urban areas. The adjustment of the labor component from 71 percent to 
62 percent for rural hospitals will allow rural hospitals, which 
traditionally have low labor costs, to base a larger portion of their 
Medicare reimbursement on nonlabor provisions, thereby receiving a 
higher reimbursement from Medicare.
  I urge my colleagues to join in making sound health care policy 
decisions to ensure we are strengthening the foundation of our health 
care delivery system in those areas in which it is most vulnerable.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. FRIST. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. FRIST. Mr. President, I wish to take a few minutes to address the 
Prescription Drug and Medicare Improvement Act of 2003 in a very basic 
way, and that is to answer some of the questions I have received over 
the last several days since we have captured much of the attention both 
of the media as well as constituents around the country who realize we 
really are going to pass very significant, very important legislation 
that will affect their lives, that will affect the lives of seniors, 
individuals with disabilities, and that will affect the lives of future 
generations. And this will happen in the next 12 to 13 days.
  It goes back to the question of, Do we really need to change? Are 
things really that different that they demand the sort of response we 
are putting forward where we talk about strengthening and improving the 
Medicare Program overall and at the same time providing prescription 
drug coverage for seniors and individuals with disabilities that is not 
being provided today, and do it in a way that can be sustained over 
time, recognizing that we will have a huge demographic shift of seniors 
over the next 30 years as a product of the baby boom following World 
War II. That fertility curve, that baby boom moving through the system 
begins to hit about 2007, 2008. That is when the curve moves through.
  For the next 25 years after that, we will see this huge explosive 
growth in the number of seniors with fewer and fewer workers actually 
paying into the system.
  We have now been on the bill Monday, Tuesday, and Wednesday, after 
having over 30 hearings on Medicare over the last several years and 
several hearings this year specifically on prescription drugs and 
Medicare modernization in the Finance Committee. We have done it in a 
very systematic way, in a bipartisan way that I think captures the very 
best of what this institution is all about, recognizing that we do not 
know all of the answers, we cannot cure all of the problems.
  We have to be very careful not to overpromise because everybody wants 
as much health care resources as possible, so we cannot overpromise. As 
I say, we need to reform the system in a way that does not just respond 
to the needs of today but responds to the next year, 5 years from now 
and 10 years from now. Since we cannot do it perfectly now, we have to 
do it in a way so that the system is flexible and allows us to adapt 
appropriately.
  Working on a bipartisan basis, the goal is to deliver a secure 
Medicare Program that is comprehensive and, at the same time, offers 
maximum choice with that increased flexibility and that much-needed 
prescription drug coverage which seniors do not have today through the 
Medicare Program.
  I look forward to the continued debate over the next 10, 11 days on 
how we collectively determine how best to accomplish those goals. I am 
confident we will be able to cull the very best ideas from both sides 
of the aisle to pass a responsible and effective plan.
  As I mentioned, I want to limit my comments today to about how 
medicine, science, and health care delivery has evolved and, indeed, 
how that evolution, which has been very rapid in terms of breakthroughs 
in science, which I have been privileged to watch and participate in as 
I was in the field of medicine for 20 years before coming to the 
Senate--it has been miraculous in so many ways. When I close my eyes, I 
see my patients with artificial hearts I had the privilege of 
implanting, and with the heart transplants I was blessed to do on a 
weekly basis or even more often. I was involved in not the whole period 
since 1965 when Medicare began, but shortly thereafter, I was in the 
active practice of clinical medicine over that period of time.
  If we just look at the last 10 years, life expectancy has increased 
by around 2 to 3 years, and if we look at the last 40 years, going back 
to about 1960, life expectancy increased 10 years in that period of 
time since Medicare was begun.
  Death rates from heart disease have been cut in about half over the 
period since Medicare began. Heart disease happens to be the field in 
which I specialized.
  If we look at the field of cancer, whether it is prostate cancer, 
breast cancer, or colon cancer, because of new treatments, new 
medicines, and new diagnostic tools, we have seen markedly increased 
patient survival rates. At the same time, we have seen these great 
medical breakthroughs in the health care delivery system, the private 
health care delivery system--not Medicare--but the private health care 
delivery system has evolved and has responded.
  The problem is that the underlying Medicare system itself has not 
evolved. In fact, there has been very little change in the Medicare 
system since 1965. So we have all these great medical advances and 
advances in health care delivery over time which has skyrocketed, with 
improved advances throughout, but we have a Medicare system that has 
changed very little. It is this gap, this difference between the great 
breakthroughs in medicine, science, and health care delivery and the 
pretty much nonchanging Medicare system. That gap is what we are 
attempting to fill, to respond to as we go forward.

  Medicare was designed to respond to an acute illness. Let's say you 
are healthy and all of a sudden you have a heart attack and you have a 
good response to that heart attack in hospital treatment, and it worked 
pretty well as long as that was what health care delivery was.
  Today, the situation has changed markedly. Preventive medicine today 
is exponentially more important than in 1965. Why? Because we 
understand how to prevent disease, how to maintain health. In 1965, we 
did not fully understand the nature of the science of preventive 
medicine. It simply was not

[[Page S8114]]

developed in 1965 to the degree it is today. Yet we have a Medicare 
system which has--I came close to saying almost no preventive care is 
provided in Medicare today. That is a little bit of an overexaggeration 
because we have to legislate that, yes, Medicare does cover 
mammography. Almost every one of these procedures has to be legislated, 
and with so many advances coming through quickly, we cannot keep up.
  There is very little preventive care in Medicare today. Yet we all 
know how important it is if we look at managing one's health today, 
maximizing one's health.
  In the 1970s, health care responded to acute episodic illnesses. 
Today it is preventive health care, maintaining wellness, management of 
chronic disease on an outpatient basis, using medicines, but Medicare 
has not changed very much.
  I will give a couple of examples. Again, the goal is health care 
security for seniors. If you see a senior, you want to be able to say: 
The Government is helping you with health care security, and health 
care security means we have to include prescription drugs.
  I mentioned Medicare lacks good preventive coverage. It also lacks 
the wellness care in chronic disease management. For example, Medicare 
does not cover cholesterol screening. If we look at heart disease, 
cholesterol is important. Yet Medicare does not cover cholesterol 
screening.
  Medicare does not cover an annual physical examination today. I do 
not know if it has to be every year or every 18 months, but the point 
is, systematic regular examinations, if you are going to pick up that 
cancer when it is small or that heart disease before it becomes a 
massive heart attack, you can do it through annual physical exams, but 
they are not covered under Medicare.
  Medicare does not protect at the extreme end, what we call 
catastrophic. That means if you are sick enough, if you have a lot of 
out-of-pocket expenditures, Medicare has no limit to that. Today if you 
have a catastrophic illness, there is no upper limit. A lot of people 
do not realize that.
  The one issue we talk a lot about, because it is probably most 
dramatic, is that Medicare does not at all cover outpatient 
prescription drugs.
  Thus, we have gaps in coverage for seniors. We are promising them 
health care security which they deserve, and yet we have these huge 
gaps in coverage which have been created since 1965. It is our 
obligation, our responsibility to respond, and, thus, over the next 12 
days we will be putting together a bipartisan plan--though we do not 
know all the answers--we will be putting together the very best of what 
we do know to respond to these needs.
  Today, on average--and a lot of people do not understand, or they 
were not aware of this, so it is important for us to keep saying it--
Medicare covers right at about half of what a senior's medical care 
expenses are. Most think it covers 80 or 90 percent. If one is not yet 
a senior, it is important for them to know what their Government is 
doing for them now is to cover only about half of the expenses. Again, 
most people are not aware of that.
  The response to that is that seniors and individuals with 
disabilities try to fill those gaps on their own, sometimes 
successfully, and many times not. They try to do it through Medicaid. 
They try to do it through private supplemental insurance programs, only 
to find that they are hit with these skyrocketing premiums that are 
growing 10, 15, 20 percent a year at this point. Or they find that 
their employer on whom they were depending is scaling back on the 
benefits that they once had when they were working full time.
  I say all of this because it is important for people to understand 
why we are aggressively moving ahead in the way we are to develop a 
strengthened and improved Medicare plan.
  I mentioned the lack of prescription drugs. If we look at aging, our 
population over the age of 65, we know prescription drugs become even 
more important than they are under 65 years of age or under 50 years of 
age or under 45 years of age, and that is new. It is really within the 
last 30 years that these medicines have become so important. Thus, it 
is our obligation to strengthen and improve access to prescription 
drugs.
  I have had the privilege to observe a lot of this as a physician, and 
I will give a couple of examples. Over the past 3 decades--remember, 
Medicare started in 1965--the death rate from hardening of the 
arteries, or atherosclerosis, the underlying pathology within the 
heart, has declined by 74 percent. Deaths from ischemic heart disease--
ischemic is low blood flow where the heart is not getting enough oxygen 
and blood, and that is what causes a heart attack, hardening of the 
arteries, myocardial infarction, heart attack--death rates have fallen 
over the last 30 years by 60 percent.
  People ask why. There are lots of reasons, but I would say one of the 
major reasons is medicines today, that we are treating high blood 
pressure earlier; we are treating congestive heart failure earlier 
before these deaths from ischemic and other heart disease occur. 
Medicines that were not around 30 years ago are the beta blockers. It 
actually makes the heart so it does not beat so hard. If it is not 
beating so hard, it does not consume as much energy and does not need 
as much oxygen. Therefore, low blood flow to the heart does okay. Other 
drugs called ACE, A-C-E, inhibitors, the medicines, in large part, have 
explained this increasing survival fall in mortality.
  Over the last 30 years since Medicare began, death rates from 
emphysema, or lung disease--a type of lung disease called chronic 
obstructive pulmonary disease, emphysema, is one of those two types--
have fallen by 60 percent in large part because of the use of anti-
inflammatory medications--they decrease the inflammation in the lungs--
and also a group of drugs call bronchodilators, which dilate those 
little bronchial air waves in the lung. The point is, it is these 
medicines that in large part explain this improved health and the 
improved treatment of emphysema.
  I have a couple of books with which I wanted to illustrate my point. 
Nearly 400 lifesaving drugs have been produced in the last 10 years. 
Meanwhile, there are over 600 medicines under development right now by 
the Nation's pharmaceutical research companies to treat diabetes, heart 
disease, cancer, stroke, and peripheral vascular disease.

  I mentioned these books. This is called the PDR, the Physicians' Desk 
Reference, for pharmaceutical specialities and biologicals for the 
physician's desk. Every physician in the country uses this on a regular 
basis because it allows them to look up individual medicines. It gives 
the descriptions, the side effects, and the contraindications. No 
matter how smart one is or how much time one spends with it, there is 
no way to remember all of these drugs or everything in the book, 
although some people may be able to.
  The point is, this book was printed in 1965. This is the year 
Medicare was actually passed and then implemented. That was over 30 
years ago. Again, this book has 1,060 pages in it. The type is pretty 
small. It is just medicine after medicine. When I see this, I am kind 
of glad I do not have to know all of that right now because there is so 
much in it.
  This PDR is the 57th edition, and this one is from 2003. It is pretty 
interesting to me because this first book is when Medicare started, and 
this other book is where we are today. Today's book is a little bigger 
but is a lot thicker, and instead of having 1,060 pages in it--these 
are not all lifesaving drugs but all drugs which have a real importance 
in terms of treating and quality of life--this book has 3,500 pages in 
it. I wish I could show this to the Chair, but the type in this new 
book is about half the size of the type in the old book. So the truth 
is, it is about 6,000 pages.
  The point is, medicines make a difference. They made a difference in 
1965. They really make a difference today. Seniors do not have access 
to these through our Medicare system in either case. Great advances, 
and our Medicare system has not changed. It does not recognize that as 
we go forward. That is why we are here. I want to make this case of why 
we are here and why this is so important today that the health care 
system, the delivery system, has markedly improved with great 
scientific advances, and Medicare is not capturing it today. Our 
seniors deserve for those to be captured.
  Next month does mark the 38th anniversary of the launch of Medicare. 
On July 30, 1965, President Johnson traveled to Independence, MO, to 
sign the

[[Page S8115]]

bill into law. President Truman, who had initiated the drive for health 
care security for seniors about 20 years earlier, was on hand to 
receive that first Medicare card. President Johnson, upon signing that 
historic legislation, told the assembled lawmakers in 1965:

       The benefits under the law are as varied and broad as the 
     marvelous modern medicine itself. No longer will older 
     Americans be denied the healing miracle of modern medicine. 
     No longer will illness crush and destroy the savings that 
     they have so carefully put away over a lifetime so that they 
     might enjoy dignity in their later years. No longer will 
     young families see their own incomes, and their own hopes, 
     eaten away simply because they are carrying out their deep 
     moral obligations to their parents . . .

  Nearly 40 years later, we have an opportunity to realize this noble 
vision. Before the end of next week, the Senate will have the 
opportunity to pass legislation that does provide prescription drug 
coverage for our seniors, that does protect seniors and gives them 
health care security by giving them greater choices so that they can 
choose the health care coverage that best meets their individual needs.
  I believe future generations will judge us by the choices we make 
over the next several days and at the end of next week, whether we 
chose to act responsibly, recognizing our obligations to strengthen and 
improve the system, or whether we chose just to talk about it, the same 
rhetoric, something that we should do. My position is clear; now is the 
time to act. I am delighted we are acting in a bipartisan way. Now is 
the time not just to tinker and play around the edges, but it is time 
to truly transform the system.
  We have a responsibility to provide our seniors with a system that 
works, that indeed gives them health care security, and now is our 
opportunity to deliver it. It will require us to focus on the big 
picture. It will require us to focus on the future. It will require us 
to focus on our fellow citizens, whom we are so privileged to 
represent.
  The PRESIDING OFFICER (Ms. Collins). The Senator from Utah.
  Mr. HATCH. Madam President, I compliment the distinguished majority 
leader for his excellent set of remarks today. The comparison between 
the two PDR books is startling. Anyone who looks at it has to admit we 
have come a long way since 1965.
  This bill was a great addition to the health care for our people. It 
could not have happened without the distinguished Senator from 
Tennessee, our leader, plus the distinguished Senator from Iowa, 
Senator Grassley, and the distinguished leader from Montana, Senator 
Baucus. I appreciate having a doctor in the Senate. As a former medical 
liability defense lawyer, I have to say I have always respected Senator 
Frist very greatly, but nothing comes close to how much I respect him 
as a physician, as somebody who cares for people and has given so much 
of his life to healing people.
  I am very grateful to have heard these remarks today.
  Mr. FRIST. I thank the Senator.


                           Amendment No. 933

  Mr. HATCH. Madam President, I will only take a few minutes, but I 
rise in opposition to the Bingaman amendment.
  First, let me make one thing clear, and perfectly clear:
  The assets test in S. 1 is the same assets test used for determining 
eligibility for the qualified Medicare beneficiaries, QMBs, specified 
low-income Medicare beneficiaries, SLMBs, and qualified individuals, 
QI-1s.
  S. 1 provides a generous low-income subsidy for those who are below 
160 percent of the Federal poverty level. Currently, in order for some 
individuals under 160 percent of poverty to receive limited Medicaid 
protections, they must meet both an income limit and an assets test.
  In S. 1, we simply follow these same rules in order for low-income 
beneficiaries to receive assistance with their prescription drug 
coverage.
  By including the Medicaid assets test for Medicare prescription drug 
subsidies, we are providing beneficiaries with seamless health 
coverage. We are not confusing beneficiaries and we are not adding 
additional administrative burdens to States.
  Let me give you some background on the current assets test included 
in the Medicaid program.
  Qualified Medicare beneficiaries are individuals below 100 percent of 
poverty. In 2006, the annual income limit is $9,670 for individuals and 
$13,051 for couples. QMBs are allowed to have assets below $4,000 for 
individuals and $6,000 for couples.
  Specified low-income Medicare beneficiaries and QI-1s are those with 
incomes between 100 percent of poverty and 135 percent of poverty. In 
2006, the annual income limit is $13,054 for individuals and $17,618 
for couples. SLMBs and QI-1s are allowed to have assets below $4,000 
for individuals and $6,000 for couples.
  Beneficiaries between 136 percent and 159 percent of poverty will 
have annual income limits of $15,472 for individuals and $20,881 for 
couples in 2006. Beneficiaries between 136 and 159 percent of poverty 
would not be subjected to assets tests.
  Current law establishes resource limits for low-income elderly or 
disabled individuals. Let met emphasize, this is not a newly added 
restriction on certain low-income Medicare beneficiaries. However, 
current law also provides States with the flexibility to choose to 
disregard all or part of these resources.
  The Bingaman amendment, which eliminates the Medicaid assets test 
limits would add significantly to the number of eligible beneficiaries.
  A study prepared for the Kaiser Family Foundation estimates that as 
many as 11 million individuals would be newly eligible for low-income 
assistance if the assets test were eliminated. I have no idea how much 
that will cost but it will be expensive.
  In addition to increasing the Federal cost of the bill, this 
amendment would impose a significant, new, unfunded mandate on States, 
which must pay a share of Medicaid benefits by paying for the dual 
eligible beneficiary's liability for premiums, deductibles, and 
coinsurance.
  Also, some States may experience an additional administrative or 
financial impact from potential program redesigns because, in some 
cases, States link eligibility for their state-only programs with the 
eligibility requirements for these special categories of the dually 
eligible.
  S. 1 includes a provision to require the GAO to conduct a study and 
make recommendations to Congress by 2007 regarding the extent to which 
drug utilization and access to covered drugs differs between qualifying 
dual eligibles who receive subsidies and individuals who do not qualify 
solely because of the application of an assets test.
  This amendment will not only cost money, it will cause confusion. I 
urge my colleagues to defeat the Bingaman amendment.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Madam President, the underlying bill, the bill from the 
Senate Finance Committee to provide prescription drugs for the 
improvement and strengthening of Medicare, provides a very generous 
low-income subsidy for those who are below 160 percent of the Federal 
poverty level. For some of the seniors below 160 percent of the Federal 
poverty level, there is no asset test.
  Currently, in order for some of the individuals below 160 percent of 
poverty to receive the most generous low-income subsidies, there is an 
asset test and there ought to be. The crafting of this bill provided 
everyone a conscientious effort and decision to make possible this 
legislation and to make it well balanced. There were extra dollars and 
the decision was made to fill in the coverage gap rather than eliminate 
the assets test. There is no limitless amount of funds for this 
prescription drug benefit.
  We are in a position of zero sum gain. We have $400 billion under the 
budget to work with. This bill works to do the most for all Medicare 
beneficiaries. Seniors with incomes below 160 percent and who do not 
pass the established asset test still receive a very generous low-
income subsidy. These beneficiaries will not have a gap in coverage.
  This amendment by the Senator from New Mexico will add unknown costs 
to the current bill. It will change the structure of the bill and 
affect the current Medicaid Program by adding costs that are very 
substantial in the outyears. Therefore, when we vote tomorrow on the 
Bingaman amendment I hope we will have a strong vote against it. Not 
that I denigrate in any way the intentions of the Senator from New 
Mexico. I know him to be a very conscientious Senator, to do well, and 
to

[[Page S8116]]

be very thoughtful in his approach. Obviously, on this point he has 
some disagreement with the product of our committee that was voted out 
16 to 5 last Thursday.
  But, here again, we have to do the most we can within the $400 
billion that the Budget Committee has given us to work with for 
providing a prescription drug benefit to our seniors as part of 
improving and strengthening the Medicare Program overall. We could have 
put more money into the asset test as he indicates he wants to do now 
with this amendment. We chose, as I indicated before, to help more 
people with the same amount of money by filling in the gap or, as some 
people would say, the donut hole.
  We believe we should put as much effort as we can into taking care of 
that problem because, to help the very same people Senator Bingaman 
wants to help, we have put a lot of resources into the effort of 
prescription drugs for seniors, for those below 160 percent of poverty.
  So, once again, I urge the amendment be defeated when we vote on it 
tomorrow.
  I yield the floor. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________