[Congressional Record Volume 149, Number 169 (Thursday, November 20, 2003)]
[House]
[Pages H11877-H12103]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      CONFERENCE REPORT ON H.R. 1, MEDICARE PRESCRIPTION DRUG AND 
                       MODERNIZATION ACT OF 2003

  Mr. THOMAS submitted the following conference report and statement on 
the bill (H.R. 1) to amend title XVIII of the Social Security Act to 
provide for a voluntary program for prescription drug coverage under 
the Medicare Program, to modernize the Medicare Program, to amend the 
Internal Revenue Code of 1986 to allow a deduction to individuals for 
amounts contributed to health savings security accounts and health 
savings accounts, to provide for the disposition of unused health 
benefits in cafeteria plans and flexible spending arrangements, and for 
other purposes:

                  Conference Report (H. Rept. 108-391)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendments of the Senate to the bill (H.R. 
     1), to amend title XVIII of the Social Security Act to 
     provide for a voluntary program for prescription drug 
     coverage under the Medicare Program, to modernize the 
     Medicare Program, to amend the Internal Revenue Code of 1986 
     to allow a deduction to individuals for amounts contributed 
     to health savings security accounts and health savings 
     accounts, to provide for the disposition of unused health 
     benefits in cafeteria plans and flexible spending 
     arrangements, and for other purposes, having met, after full 
     and free conference, have agreed to recommend and do 
     recommend to their respective Houses as follows:
       That the House recede from its disagreement to the 
     amendment of the Senate to the text of the bill and agree to 
     the same with an amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment, insert the following.

     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 ``Medicare 
     Prescription Drug, Improvement, and Modernization Act of 
     2003''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in division A of 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

Sec. 101. Medicare prescription drug benefit.

         ``Part D--Voluntary Prescription Drug Benefit Program

``Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits

``Sec. 1860D-1. Eligibility, enrollment, and information.
``Sec. 1860D-2. Prescription drug benefits.
``Sec. 1860D-3. Access to a choice of qualified prescription drug 
              coverage.
``Sec. 1860D-4. Beneficiary protections for qualified prescription drug 
              coverage.

     ``Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

``Sec. 1860D-11. PDP regions; submission of bids; plan approval.
``Sec. 1860D-12. Requirements for and contracts with prescription drug 
              plan (PDP) sponsors.
``Sec. 1860D-13. Premiums; late enrollment penalty.
``Sec. 1860D-14. Premium and cost-sharing subsidies for low-income 
              individuals.
``Sec. 1860D-15. Subsidies for part D eligible individuals for 
              qualified prescription drug coverage.
``Sec. 1860D-16. Medicare Prescription Drug Account in the Federal 
              Supplementary Medical Insurance Trust Fund.

``Subpart 3--Application to Medicare Advantage Program and Treatment of 
     Employer-Sponsored Programs and Other Prescription Drug Plans

``Sec. 1860D-21. Application to Medicare Advantage program and related 
              managed care programs.
``Sec. 1860D-22. Special rules for employer-sponsored programs.
``Sec. 1860D-23. State pharmaceutical assistance programs.
``Sec. 1860D-24. Coordination requirements for plans providing 
              prescription drug coverage.

``Subpart 4--Medicare Prescription Drug Discount Card and Transitional 
                           Assistance Program

``Sec. 1860D-31. Medicare prescription drug discount card and 
              transitional assistance program.

         ``Subpart 5--Definitions and Miscellaneous Provisions

``Sec. 1860D-41. Definitions; treatment of references to provisions in 
              part C.

[[Page H11878]]

``Sec. 1860D-42. Miscellaneous provisions.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug 
              discount card and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription 
              drug programs.
Sec. 109. Expanding the work of medicare Quality Improvement 
              Organizations to include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

                   Subtitle B--Immediate Improvements

Sec. 211. Immediate improvements.

    Subtitle C--Offering of Medicare Advantage (MA) Regional Plans; 
                     Medicare Advantage Competition

Sec. 221. Establishment of MA regional plans.
Sec. 222. Competition program beginning in 2006.
Sec. 223. Effective date.

                     Subtitle D--Additional Reforms

Sec. 231. Specialized MA plans for special needs individuals.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Medicare MSAs.
Sec. 234. Extension of reasonable cost contracts.
Sec. 235. 2-year extension of municipal health service demonstration 
              projects.
Sec. 236. Payment by PACE providers for medicare and medicaid services 
              furnished by noncontract providers.
Sec. 237. Reimbursement for Federally qualified health centers 
              providing services under MA plans.
Sec. 238. Institute of Medicine evaluation and report on health care 
              performance measures.

         Subtitle E--Comparative Cost Adjustment (CCA) Program

Sec. 241. Comparative Cost Adjustment (CCA) program.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Payment for durable medical equipment; competitive 
              acquisition of certain items and services.
Sec. 303. Payment reform for covered outpatient drugs and biologicals.
Sec. 304. Extension of application of payment reform for covered 
              outpatient drugs and biologicals to other physician 
              specialties.
Sec. 305. Payment for inhalation drugs.
Sec. 306. Demonstration project for use of recovery audit contractors.
Sec. 307. Pilot program for national and State background checks on 
              direct patient access employees of long-term care 
              facilities or providers.

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

Sec. 401. Equalizing urban and rural standardized payment amounts under 
              the medicare inpatient hospital prospective payment 
              system.
Sec. 402. Enhanced disproportionate share hospital (DSH) treatment for 
              rural hospitals and urban hospitals with fewer than 100 
              beds.
Sec. 403. Adjustment to the medicare inpatient hospital prospective 
              payment system wage index to revise the labor-related 
              share of such index.
Sec. 404. More frequent update in weights used in hospital market 
              basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Medicare inpatient hospital payment adjustment for low-volume 
              hospitals.
Sec. 407. Treatment of missing cost reporting periods for sole 
              community hospitals.
Sec. 408. Recognition of attending nurse practitioners as attending 
              physicians to serve hospice patients.
Sec. 409. Rural hospice demonstration project.
Sec. 410. Exclusion of certain rural health clinic and federally 
              qualified health center services from the prospective 
              payment system for skilled nursing facilities.
Sec. 410A. Rural community hospital demonstration program.

             Subtitle B--Provisions Relating to Part B Only

Sec. 411. 2-year extension of hold harmless provisions for small rural 
              hospitals and sole community hospitals under the 
              prospective payment system for hospital outpatient 
              department services.
Sec. 412. Establishment of floor on work geographic adjustment.
Sec. 413. Medicare incentive payment program improvements for physician 
              scarcity.
Sec. 414. Payment for rural and urban ambulance services.
Sec. 415. Providing appropriate coverage of rural air ambulance 
              services.
Sec. 416. Treatment of certain clinical diagnostic laboratory tests 
              furnished to hospital outpatients in certain rural areas.
Sec. 417. Extension of telemedicine demonstration project.
Sec. 418. Report on demonstration project permitting skilled nursing 
              facilities to be originating telehealth sites; authority 
              to implement.

            Subtitle C--Provisions Relating to Parts A and B

Sec. 421. 1-year increase for home health services furnished in a rural 
              area.
Sec. 422. Redistribution of unused resident positions.

                      Subtitle D--Other Provisions

Sec. 431. Providing safe harbor for certain collaborative efforts that 
              benefit medically underserved populations.
Sec. 432. Office of Rural Health Policy improvements.
Sec. 433. MedPAC study on rural hospital payment adjustments.
Sec. 434. Frontier extended stay clinic demonstration project.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 501. Revision of acute care hospital payment updates.
Sec. 502. Revision of the indirect medical education (IME) adjustment 
              percentage.
Sec. 503. Recognition of new medical technologies under inpatient 
              hospital prospective payment system.
Sec. 504. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 505. Wage index adjustment reclassification reform.
Sec. 506. Limitation on charges for inpatient hospital contract health 
              services provided to Indians by medicare participating 
              hospitals.
Sec. 507. Clarifications to certain exceptions to medicare limits on 
              physician referrals.
Sec. 508. 1-Time appeals process for hospital wage index 
              classification.

                      Subtitle B--Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.
Sec. 513. Study on portable diagnostic ultrasound services for 
              beneficiaries in skilled nursing facilities.

                TITLE VI--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Treatment of physicians' services furnished in Alaska.
Sec. 603. Inclusion of podiatrists, dentists, and optometrists under 
              private contracting authority.
Sec. 604. GAO study on access to physicians' services.
Sec. 605. Collaborative demonstration-based review of physician 
              practice expense geographic adjustment data.
Sec. 606. MedPAC report on payment for physicians' services.

                    Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cardiovascular screening blood tests.
Sec. 613. Coverage of diabetes screening tests.
Sec. 614. Improved payment for certain mammography services.

                      Subtitle C--Other Provisions

Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Limitation of application of functional equivalence standard.
Sec. 623. Payment for renal dialysis services.
Sec. 624. 2-year moratorium on therapy caps; provisions relating to 
              reports.
Sec. 625. Waiver of part B late enrollment penalty for certain military 
              retirees; special enrollment period.
Sec. 626. Payment for services furnished in ambulatory surgical 
              centers.
Sec. 627. Payment for certain shoes and inserts under the fee schedule 
              for orthotics and prosthetics.
Sec. 628. Payment for clinical diagnostic laboratory tests.
Sec. 629. Indexing part B deductible to inflation.
Sec. 630. 5-year authorization of reimbursement for all medicare part B 
              services furnished by certain Indian hospitals and 
              clinics.

  Subtitle D--Additional Demonstrations, Studies, and Other Provisions

Sec. 641. Demonstration project for coverage of certain prescription 
              drugs and biologicals.
Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) 
              for the treatment of primary immune deficiency diseases 
              in the home.
Sec. 643. MedPAC study of coverage of surgical first assisting services 
              of certified registered nurse first assistants.
Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.
Sec. 645. Studies relating to vision impairments.
Sec. 646. Medicare health care quality demonstration programs.
Sec. 647. MedPAC study on direct access to physical therapy services.
Sec. 648. Demonstration project for consumer-directed chronic 
              outpatient services.

[[Page H11879]]

Sec. 649. Medicare care management performance demonstration.
Sec. 650. GAO study and report on the propagation of concierge care.
Sec. 651. Demonstration of coverage of chiropractic services under 
              medicare.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. Demonstration project to clarify the definition of homebound.
Sec. 703. Demonstration project for medical adult day care services.
Sec. 704. Temporary suspension of OASIS requirement for collection of 
              data on non-medicare and non-medicaid patients.
Sec. 705. MedPAC study on medicare margins of home health agencies.
Sec. 706. Coverage of religious nonmedical health care institution 
              services furnished in the home.

                 Subtitle B--Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.
Sec. 712. Exception to initial residency period for geriatric residency 
              or fellowship programs.
Sec. 713. Treatment of volunteer supervision.

                  Subtitle C--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
              service.
Sec. 722. Medicare Advantage quality improvement programs.
Sec. 723. Chronically ill medicare beneficiary research, data, 
              demonstration strategy.

                      Subtitle D--Other Provisions

Sec. 731. Improvements in national and local coverage determination 
              process to respond to changes in technology.
Sec. 732. Extension of treatment of certain physician pathology 
              services under medicare.
Sec. 733. Payment for pancreatic islet cell investigational transplants 
              for medicare beneficiaries in clinical trials.
Sec. 734. Restoration of medicare trust funds.
Sec. 735. Modifications to Medicare Payment Advisory Commission 
              (MedPAC).
Sec. 736. Technical amendments.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

Sec. 801. Inclusion in annual report of medicare trustees of 
              information on status of medicare trust funds.
Sec. 802. Presidential submission of legislation.
Sec. 803. Procedures in the House of Representatives.
Sec. 804. Procedures in the Senate.

     Subtitle B--Income-Related Reduction in Part B Premium Subsidy

Sec. 811. Income-related reduction in part B premium subsidy.

   TITLE IX--ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION, AND 
                           CONTRACTING REFORM

Sec. 900. Administrative improvements within the Centers for Medicare & 
              Medicaid Services (CMS).

                     Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.
Sec. 902. Issuance of regulations.
Sec. 903. Compliance with changes in regulations and policies.
Sec. 904. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 911. Increased flexibility in medicare administration.
Sec. 912. Requirements for information security for medicare 
              administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 921. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare Beneficiary Ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to 
              beneficiaries about skilled nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities 
              in hospital discharge plans.

                    Subtitle D--Appeals and Recovery

Sec. 931. Transfer of responsibility for medicare appeals.
Sec. 932. Process for expedited access to review.
Sec. 933. Revisions to medicare appeals process.
Sec. 934. Prepayment review.
Sec. 935. Recovery of overpayments.
Sec. 936. Provider enrollment process; right of appeal.
Sec. 937. Process for correction of minor errors and omissions without 
              pursuing appeals process.
Sec. 938. Prior determination process for certain items and services; 
              advance beneficiary notices.
Sec. 939. Appeals by providers when there is no other party available.
Sec. 940. Revisions to appeals timeframes and amounts.
Sec. 940A. Mediation process for local coverage determinations.

                  Subtitle E--Miscellaneous Provisions

Sec. 941. Policy development regarding evaluation and management (E & 
              M) documentation guidelines.
Sec. 942. Improvement in oversight of technology and coverage.
Sec. 943. Treatment of hospitals for certain services under medicare 
              secondary payor (MSP) provisions.
Sec. 944. EMTALA improvements.
Sec. 945. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
              Advisory Group.
Sec. 946. Authorizing use of arrangements to provide core hospice 
              services in certain circumstances.
Sec. 947. Application of OSHA bloodborne pathogens standard to certain 
              hospitals.
Sec. 948. BIPA-related technical amendments and corrections.
Sec. 949. Conforming authority to waive a program exclusion.
Sec. 950. Treatment of certain dental claims.
Sec. 951. Furnishing hospitals with information to compute DSH formula.
Sec. 952. Revisions to reassignment provisions.
Sec. 953. Other provisions.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                    Subtitle A--Medicaid Provisions

Sec. 1001. Medicaid disproportionate share hospital (DSH) payments.
Sec. 1002. Clarification of inclusion of inpatient drug prices charged 
              to certain public hospitals in the best price exemptions 
              for the medicaid drug rebate program.
Sec. 1003. Extension of moratorium.

                  Subtitle B--Miscellaneous Provisions

Sec. 1011. Federal reimbursement of emergency health services furnished 
              to undocumented aliens.
Sec. 1012. Commission on Systemic Interoperability.
Sec. 1013. Research on outcomes of health care items and services.
Sec. 1014. Health care that works for all Americans: Citizens Health 
              Care Working Group.
Sec. 1015. Funding start-up administrative costs for medicare reform.
Sec. 1016. Health care infrastructure improvement program.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

Sec. 1101. 30-month stay-of-effectiveness period.
Sec. 1102. Forfeiture of 180-day exclusivity period.
Sec. 1103. Bioavailability and bioequivalence.
Sec. 1104. Conforming amendments.

              Subtitle B--Federal Trade Commission Review

Sec. 1111. Definitions.
Sec. 1112. Notification of agreements.
Sec. 1113. Filing deadlines.
Sec. 1114. Disclosure exemption.
Sec. 1115. Enforcement.
Sec. 1116. Rulemaking.
Sec. 1117. Savings clause.
Sec. 1118. Effective date.

             Subtitle C--Importation of Prescription Drugs

Sec. 1121. Importation of prescription drugs.
Sec. 1122. Study and report on importation of drugs.
Sec. 1123. Study and report on trade in pharmaceuticals.

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

Sec. 1201. Health savings accounts.
Sec. 1202. Exclusion from gross income of certain Federal subsidies for 
              prescription drug plans.
Sec. 1203. Exception to information reporting requirements related to 
              certain health arrangements.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.
  (a) In General.--Title XVIII is amended--
       (1) by redesignating part D as part E; and
       (2) by inserting after part C the following new part:

         ``Part D--Voluntary Prescription Drug Benefit Program

``Subpart 1--Part D Eligible Individuals and Prescription Drug Benefits


               ``eligibility, enrollment, and information

       ``Sec. 1860D-1. (a) Provision of Qualified Prescription 
     Drug Coverage Through Enrollment in Plans.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this part, each part D eligible individual (as defined in 
     paragraph (3)(A)) is entitled to obtain qualified 
     prescription drug coverage (described in section 1860D-2(a)) 
     as follows:
       ``(A) Fee-for-service enrollees may receive coverage 
     through a prescription drug plan.--A part D eligible 
     individual who is not enrolled in an MA plan may obtain 
     qualified prescription drug coverage through enrollment in a 
     prescription drug plan (as defined in section 1860D-
     41(a)(14)).
       ``(B) Medicare advantage enrollees.--
       ``(i) Enrollees in a plan providing qualified prescription 
     drug coverage receive coverage through the plan.--A part D 
     eligible individual who is enrolled in an MA-PD plan obtains 
     such coverage through such plan.
       ``(ii) Limitation on enrollment of ma plan enrollees in 
     prescription drug plans.--Except as provided in clauses (iii) 
     and (iv), a part D eligible individual who is enrolled in an 
     MA plan may not enroll in a prescription drug plan under this 
     part.
       ``(iii) Private fee-for-service enrollees in ma plans not 
     providing qualified prescription drug coverage permitted to 
     enroll in a prescription drug plan.--A part D eligible 
     individual who is enrolled in an MA private fee-for-service 
     plan (as defined in section 1859(b)(2))

[[Page H11880]]

     that does not provide qualified prescription drug coverage 
     may obtain qualified prescription drug coverage through 
     enrollment in a prescription drug plan.
       ``(iv) Enrollees in msa plans permitted to enroll in a 
     prescription drug plan.--A part D eligible individual who is 
     enrolled in an MSA plan (as defined in section 1859(b)(3)) 
     may obtain qualified prescription drug coverage through 
     enrollment in a prescription drug plan.
       ``(2) Coverage first effective january 1, 2006.--Coverage 
     under prescription drug plans and MA-PD plans shall first be 
     effective on January 1, 2006.
       ``(3) Definitions.--For purposes of this part:
       ``(A) Part d eligible individual.--The term `part D 
     eligible individual' means an individual who is entitled to 
     benefits under part A or enrolled under part B.
       ``(B) MA plan.--The term `MA plan' has the meaning given 
     such term in section 1859(b)(1).
       ``(C) MA-PD plan.--The term `MA-PD plan' means an MA plan 
     that provides qualified prescription drug coverage.
       ``(b) Enrollment Process for Prescription Drug Plans.--
       ``(1) Establishment of process.--
       ``(A) In general.--The Secretary shall establish a process 
     for the enrollment, disenrollment, termination, and change of 
     enrollment of part D eligible individuals in prescription 
     drug plans consistent with this subsection.
       ``(B) Application of ma rules.--In establishing such 
     process, the Secretary shall use rules similar to (and 
     coordinated with) the rules for enrollment, disenrollment, 
     termination, and change of enrollment with an MA-PD plan 
     under the following provisions of section 1851:
       ``(i) Residence requirements.--Section 1851(b)(1)(A), 
     relating to residence requirements.
       ``(ii) Exercise of choice.--Section 1851(c) (other than 
     paragraph (3)(A) of such section), relating to exercise of 
     choice.
       ``(iii) Coverage election periods.--Subject to paragraphs 
     (2) and (3) of this subsection, section 1851(e) (other than 
     subparagraphs (B) and (C) of paragraph (2) and the second 
     sentence of paragraph (4) of such section), relating to 
     coverage election periods, including initial periods, annual 
     coordinated election periods, special election periods, and 
     election periods for exceptional circumstances.
       ``(iv) Coverage periods.--Section 1851(f), relating to 
     effectiveness of elections and changes of elections.
       ``(v) Guaranteed issue and renewal.--Section 1851(g) (other 
     than paragraph (2) of such section and clause (i) and the 
     second sentence of clause (ii) of paragraph (3)(C) of such 
     section), relating to guaranteed issue and renewal.
       ``(vi) Marketing material and application forms.--Section 
     1851(h), relating to approval of marketing material and 
     application forms.
     In applying clauses (ii), (iv), and (v) of this subparagraph, 
     any reference to section 1851(e) shall be treated as a 
     reference to such section as applied pursuant to clause (iii) 
     of this subparagraph.
       ``(C) Special rule.--The process established under 
     subparagraph (A) shall include, in the case of a part D 
     eligible individual who is a full-benefit dual eligible 
     individual (as defined in section 1935(c)(6)) who has failed 
     to enroll in a prescription drug plan or an MA-PD plan, for 
     the enrollment in a prescription drug plan that has a monthly 
     beneficiary premium that does not exceed the premium 
     assistance available under section 1860D-14(a)(1)(A)). If 
     there is more than one such plan available, the Secretary 
     shall enroll such an individual on a random basis among all 
     such plans in the PDP region. Nothing in the previous 
     sentence shall prevent such an individual from declining or 
     changing such enrollment.
       ``(2) Initial enrollment period.--
       ``(A) Program initiation.--In the case of an individual who 
     is a part D eligible individual as of November 15, 2005, 
     there shall be an initial enrollment period that shall be the 
     same as the annual, coordinated open election period 
     described in section 1851(e)(3)(B)(iii), as applied under 
     paragraph (1)(B)(iii).
       ``(B) Continuing periods.--In the case of an individual who 
     becomes a part D eligible individual after November 15, 2005, 
     there shall be an initial enrollment period which is the 
     period under section 1851(e)(1), as applied under paragraph 
     (1)(B)(iii) of this section, as if `entitled to benefits 
     under part A or enrolled under part B' were substituted for 
     `entitled to benefits under part A and enrolled under part 
     B', but in no case shall such period end before the period 
     described in subparagraph (A).
       ``(3) Additional special enrollment periods.--The Secretary 
     shall establish special enrollment periods, including the 
     following:
       ``(A) Involuntary loss of creditable prescription drug 
     coverage.--
       ``(i) In general.--In the case of a part D eligible 
     individual who involuntarily loses creditable prescription 
     drug coverage (as defined in section 1860D-13(b)(4)).
       ``(ii) Notice.--In establishing special enrollment periods 
     under clause (i), the Secretary shall take into account when 
     the part D eligible individuals are provided notice of the 
     loss of creditable prescription drug coverage.
       ``(iii) Failure to pay premium.--For purposes of clause 
     (i), a loss of coverage shall be treated as voluntary if the 
     coverage is terminated because of failure to pay a required 
     beneficiary premium.
       ``(iv) Reduction in coverage.--For purposes of clause (i), 
     a reduction in coverage so that the coverage no longer meets 
     the requirements under section 1860D-13(b)(5) (relating to 
     actuarial equivalence) shall be treated as an involuntary 
     loss of coverage.
       ``(B) Errors in enrollment.--In the case described in 
     section 1837(h) (relating to errors in enrollment), in the 
     same manner as such section applies to part B.
       ``(C) Exceptional circumstances.--In the case of part D 
     eligible individuals who meet such exceptional conditions (in 
     addition to those conditions applied under paragraph 
     (1)(B)(iii)) as the Secretary may provide.
       ``(D) Medicaid coverage.--In the case of an individual (as 
     determined by the Secretary) who is a full-benefit dual 
     eligible individual (as defined in section 1935(c)(6)).
       ``(E) Discontinuance of ma-pd election during first year of 
     eligibility.--In the case of a part D eligible individual who 
     discontinues enrollment in an MA-PD plan under the second 
     sentence of section 1851(e)(4) at the time of the election of 
     coverage under such sentence under the original medicare fee-
     for-service program.
       ``(4) Information to facilitate enrollment.--
       ``(A) In general.--Notwithstanding any other provision of 
     law but subject to subparagraph (B), the Secretary may 
     provide to each PDP sponsor and MA organization such 
     identifying information about part D eligible individuals as 
     the Secretary determines to be necessary to facilitate 
     efficient marketing of prescription drug plans and MA-PD 
     plans to such individuals and enrollment of such individuals 
     in such plans.
       ``(B) Limitation.--
       ``(i) Provision of information.--The Secretary may provide 
     the information under subparagraph (A) only to the extent 
     necessary to carry out such subparagraph.
       ``(ii) Use of information.--Such information provided by 
     the Secretary to a PDP sponsor or an MA organization may be 
     used by such sponsor or organization only to facilitate 
     marketing of, and enrollment of part D eligible individuals 
     in, prescription drug plans and MA-PD plans.
       ``(5) Reference to enrollment procedures for ma-pd plans.--
     For rules applicable to enrollment, disenrollment, 
     termination, and change of enrollment of part D eligible 
     individuals in MA-PD plans, see section 1851.
       ``(6) Reference to penalties for late enrollment.--Section 
     1860D-13(b) imposes a late enrollment penalty for part D 
     eligible individuals who--
       ``(A) enroll in a prescription drug plan or an MA-PD plan 
     after the initial enrollment period described in paragraph 
     (2); and
       ``(B) fail to maintain continuous creditable prescription 
     drug coverage during the period of non-enrollment.
       ``(c) Providing Information to Beneficiaries.--
       ``(1) Activities.--The Secretary shall conduct activities 
     that are designed to broadly disseminate information to part 
     D eligible individuals (and prospective part D eligible 
     individuals) regarding the coverage provided under this part. 
     Such activities shall ensure that such information is first 
     made available at least 30 days prior to the initial 
     enrollment period described in subsection (b)(2)(A).
       ``(2) Requirements.--The activities described in paragraph 
     (1) shall--
       ``(A) be similar to the activities performed by the 
     Secretary under section 1851(d), including dissemination 
     (including through the toll-free telephone number 1-800-
     MEDICARE) of comparative information for prescription drug 
     plans and MA-PD plans; and
       ``(B) be coordinated with the activities performed by the 
     Secretary under such section and under section 1804.
       ``(3) Comparative information.--
       ``(A) In general.--Subject to subparagraph (B), the 
     comparative information referred to in paragraph (2)(A) shall 
     include a comparison of the following with respect to 
     qualified prescription drug coverage:
       ``(i) Benefits.--The benefits provided under the plan.
       ``(ii) Monthly beneficiary premium.--The monthly 
     beneficiary premium under the plan.
       ``(iii) Quality and performance.--The quality and 
     performance under the plan.
       ``(iv) Beneficiary cost-sharing.--The cost-sharing required 
     of part D eligible individuals under the plan.
       ``(v) Consumer satisfaction surveys.--The results of 
     consumer satisfaction surveys regarding the plan conducted 
     pursuant to section 1860D-4(d).
       ``(B) Exception for unavailability of information.--The 
     Secretary is not required to provide comparative information 
     under clauses (iii) and (v) of subparagraph (A) with respect 
     to a plan--
       ``(i) for the first plan year in which it is offered; and
       ``(ii) for the next plan year if it is impracticable or the 
     information is otherwise unavailable.
       ``(4) Information on late enrollment penalty.--The 
     information disseminated under paragraph (1) shall include 
     information concerning the methodology for determining the 
     late enrollment penalty under section 1860D-13(b).


                      ``prescription drug benefits

       ``Sec. 1860D-2. (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 (b)) and access to negotiated prices 
     under subsection (d).
       ``(B) Alternative prescription drug coverage with at least 
     actuarially equivalent benefits and access to negotiated 
     prices.--Coverage of covered part D drugs which meets the 
     alternative prescription drug coverage requirements of 
     subsection (c) and access to negotiated prices under 
     subsection (d), but only if the benefit design of such 
     coverage is approved by the Secretary, as provided under 
     subsection (c).

[[Page H11881]]

       ``(2) Permitting supplemental prescription drug coverage.--
       ``(A) In general.--Subject to subparagraph (B), qualified 
     prescription drug coverage may include supplemental 
     prescription drug coverage consisting of either or both of 
     the following:
       ``(i) Certain reductions in cost-sharing.--

       ``(I) In general.--A reduction in the annual deductible, a 
     reduction in the coinsurance percentage, or an increase in 
     the initial coverage limit with respect to covered part D 
     drugs, or any combination thereof, insofar as such a 
     reduction or increase increases the actuarial value of 
     benefits above the actuarial value of basic prescription drug 
     coverage.
       ``(II) Construction.--Nothing in this paragraph shall be 
     construed as affecting the application of subsection (c)(3).

       ``(ii) Optional drugs.--Coverage of any product that would 
     be a covered part D drug but for the application of 
     subsection (e)(2)(A).
       ``(B) Requirement.--A PDP sponsor may not offer a 
     prescription drug plan that provides supplemental 
     prescription drug coverage pursuant to subparagraph (A) in an 
     area unless the sponsor also offers a prescription drug plan 
     in the area that only provides basic prescription drug 
     coverage.
       ``(3) Basic prescription drug coverage.--For purposes of 
     this part and part C, the term `basic prescription drug 
     coverage' means either of the following:
       ``(A) Coverage that meets the requirements of paragraph 
     (1)(A).
       ``(B) Coverage that meets the requirements of paragraph 
     (1)(B) but does not have any supplemental prescription drug 
     coverage described in paragraph (2)(A).
       ``(4) 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.
       ``(5) Construction.--Nothing in this subsection shall be 
     construed as changing the computation of incurred costs under 
     subsection (b)(4).
       ``(b) Standard Prescription Drug Coverage.--For purposes of 
     this part and part C, the term `standard prescription drug 
     coverage' means coverage of covered part D drugs that meets 
     the following requirements:
       ``(1) Deductible.--
       ``(A) In general.--The coverage has an annual deductible--
       ``(i) for 2006, that is equal to $250; or
       ``(ii) for a subsequent year, that is equal to the amount 
     specified under this paragraph for the previous year 
     increased by the percentage specified in paragraph (6) for 
     the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $5 shall be rounded to the 
     nearest multiple of $5.
       ``(2) Benefit structure.--
       ``(A) 25 percent coinsurance.--The coverage has coinsurance 
     (for costs above the annual deductible specified in paragraph 
     (1) and up to the initial coverage limit under paragraph (3)) 
     that is--
       ``(i) equal to 25 percent; or
       ``(ii) actuarially equivalent (using processes and methods 
     established under section 1860D-11(c)) to an average expected 
     payment of 25 percent of such costs.
       ``(B) Use of tiers.--Nothing in this part shall be 
     construed as preventing a PDP sponsor or an MA organization 
     from applying tiered copayments under a plan, so long as such 
     tiered copayments are consistent with subparagraph (A)(ii).
       ``(3) Initial coverage limit.--
       ``(A) In general.--Except as provided in 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 $2,250; 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 (6) 
     for the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $10 shall be rounded to the 
     nearest multiple of $10.
       ``(4) Protection against high out-of-pocket expenditures.--
       ``(A) In general.--
       ``(i) In general.--The coverage provides benefits, after 
     the part D eligible individual has incurred costs (as 
     described in subparagraph (C)) for covered part D drugs in a 
     year equal to the annual out-of-pocket threshold specified in 
     subparagraph (B), with cost-sharing that is equal to the 
     greater of--

       ``(I) a copayment of $2 for a generic drug or a preferred 
     drug that is a multiple source drug (as defined in section 
     1927(k)(7)(A)(i)) and $5 for any other drug; or
       ``(II) coinsurance that is equal to 5 percent.

       ``(ii) Adjustment of amount.--For a year after 2006, the 
     dollar amounts specified in clause (i)(I) shall be equal to 
     the dollar amounts specified in this subparagraph for the 
     previous year, increased by the annual percentage increase 
     described in paragraph (6) for the year involved. Any amount 
     established under this clause that is not a multiple of a 5 
     cents shall be rounded to the nearest multiple of 5 cents.
       ``(B) Annual out-of-pocket threshold.--
       ``(i) In general.--For purposes of this part, the `annual 
     out-of-pocket threshold' specified in this subparagraph--

       ``(I) for 2006, is equal to $3,600; 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 (6) for the year involved.

       ``(ii) Rounding.--Any amount determined under clause 
     (i)(II) that is not a multiple of $50 shall be rounded to the 
     nearest multiple of $50.
       ``(C) Application.--In applying subparagraph (A)--
       ``(i) incurred costs shall only include costs incurred with 
     respect to covered part D drugs for the annual deductible 
     described in paragraph (1), for cost-sharing described in 
     paragraph (2), and for amounts for which benefits are not 
     provided because of the application of the initial coverage 
     limit described in paragraph (3), but does not include any 
     costs incurred for covered part D drugs which are not 
     included (or treated as being included) in the plan's 
     formulary; and
       ``(ii) such costs shall be treated as incurred only if they 
     are paid by the part D eligible individual (or by another 
     person, such as a family member, on behalf of the 
     individual), under section 1860D-14, or under a State 
     Pharmaceutical Assistance Program and the part D eligible 
     individual (or other person) is not reimbursed through 
     insurance or otherwise, a group health plan, or other third-
     party payment arrangement (other than under such section or 
     such a Program) for such costs.
       ``(D) Information regarding third-party reimbursement.--
       ``(i) Procedures for exchanging information.--In order to 
     accurately apply the requirements of subparagraph (C)(ii), 
     the Secretary is authorized to establish procedures, in 
     coordination with the Secretary of the Treasury and the 
     Secretary of Labor--

       ``(I) for determining whether costs for part D eligible 
     individuals are being reimbursed through insurance or 
     otherwise, a group health plan, or other third-party payment 
     arrangement; and
       ``(II) for alerting the PDP sponsors and MA organizations 
     that offer the prescription drug plans and MA-PD plans in 
     which such individuals are enrolled about such reimbursement 
     arrangements.

       ``(ii) Authority to request information from enrollees.--A 
     PDP sponsor or an MA organization may periodically ask part D 
     eligible individuals enrolled in a prescription drug plan or 
     an MA-PD plan offered by the sponsor or organization whether 
     such 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 Secretary and 
     determined through a process established by the Secretary) 
     shall constitute grounds for termination of enrollment in any 
     plan under section 1851(g)(3)(B) (and as applied under this 
     part under section 1860D-1(b)(1)(B)(v)) for a period 
     specified by the Secretary.
       ``(5) Construction.--Nothing in this part shall be 
     construed as preventing a PDP sponsor or an MA organization 
     offering an MA-PD plan from reducing to 0 the cost-sharing 
     otherwise applicable to preferred or generic drugs.
       ``(6) Annual percentage increase.--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 part D drugs in the United 
     States for part D eligible individuals, as determined by the 
     Secretary for the 12-month period ending in July of the 
     previous year using such methods as the Secretary shall 
     specify.
       ``(c) Alternative Prescription Drug Coverage 
     Requirements.--A prescription drug plan or an MA-PD plan may 
     provide a different prescription drug benefit design from 
     standard prescription drug coverage so long as the Secretary 
     determines (consistent with section 1860D-11(c)) that the 
     following requirements are met and the plan applies for, and 
     receives, the approval of the Secretary for such benefit 
     design:
       ``(1) Assuring at least actuarially equivalent coverage.--
       ``(A) Assuring equivalent value of total coverage.--The 
     actuarial value of the total coverage is at least equal to 
     the actuarial value 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 exceeds the actuarial value of the subsidy 
     payments under section 1860D-15 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, to provide 
     for the payment, with respect to costs incurred that are 
     equal to the initial coverage limit under subsection (b)(3) 
     for the year, of an amount equal to at least the product of--
       ``(i) the amount by which the initial coverage limit 
     described in subsection (b)(3) for the year exceeds the 
     deductible described in subsection (b)(1) for the year; and
       ``(ii) 100 percent minus the coinsurance percentage 
     specified in subsection (b)(2)(A)(i).
       ``(2) Maximum required deductible.--The deductible under 
     the coverage shall not exceed the deductible amount specified 
     under subsection (b)(1) for the year.
       ``(3) Same protection against high out-of-pocket 
     expenditures.--The coverage provides the coverage required 
     under subsection (b)(4).
       ``(d) Access to Negotiated Prices.--
       ``(1) Access.--
       ``(A) In general.--Under qualified prescription drug 
     coverage offered by a PDP sponsor offering a prescription 
     drug plan or an MA organization offering an MA-PD plan, the 
     sponsor or organization shall provide enrollees with access 
     to negotiated prices used for payment for covered part D 
     drugs, regardless of the fact that no benefits may be payable 
     under the coverage with respect to such drugs because of the 
     application of a deductible or other cost-sharing or an 
     initial coverage limit (described in subsection (b)(3)).

[[Page H11882]]

       ``(B) Negotiated prices.--For purposes of this part, 
     negotiated prices shall take into account negotiated price 
     concessions, such as discounts, direct or indirect subsidies, 
     rebates, and direct or indirect remunerations, for covered 
     part D drugs, and include any dispensing fees for such drugs.
       ``(C) Medicaid-related provisions.--The prices negotiated 
     by a prescription drug plan, by an MA-PD plan with respect to 
     covered part D drugs, or by a qualified retiree prescription 
     drug plan (as defined in section 1860D-22(a)(2)) with respect 
     to such drugs on behalf of part D eligible individuals, 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) Disclosure.--A PDP sponsor offering a prescription 
     drug plan or an MA organization offering an MA-PD plan shall 
     disclose to the Secretary (in a manner specified by the 
     Secretary) the aggregate negotiated price concessions 
     described in paragraph (1)(B) made available to the sponsor 
     or organization by a manufacturer which are passed through in 
     the form of lower subsidies, lower monthly beneficiary 
     prescription drug premiums, and lower prices through 
     pharmacies and other dispensers. The provisions of section 
     1927(b)(3)(D) apply to information disclosed to the Secretary 
     under this paragraph.
       ``(3) Audits.--To protect against fraud and abuse and to 
     ensure proper disclosures and accounting under this part and 
     in accordance with section 1857(d)(2)(B) (as applied under 
     section 1860D-12(b)(3)(C)), the Secretary may conduct 
     periodic audits, directly or through contracts, of the 
     financial statements and records of PDP sponsors with respect 
     to prescription drug plans and MA organizations with respect 
     to MA-PD plans.
       ``(e) Covered Part D Drug Defined.--
       ``(1) In general.--Except as provided in this subsection, 
     for purposes of this part, the term `covered part D drug' 
     means--
       ``(A) a drug that may be dispensed only upon a prescription 
     and that is described in subparagraph (A)(i), (A)(ii), or 
     (A)(iii) of section 1927(k)(2); or
       ``(B) a biological product described in clauses (i) through 
     (iii) of subparagraph (B) of such section or insulin 
     described in subparagraph (C) of such section and medical 
     supplies associated with the injection of insulin (as defined 
     in regulations of the Secretary),
     and such term includes a vaccine licensed under section 351 
     of the Public Health Service Act and any use of a covered 
     part D drug for a medically accepted indication (as defined 
     in section 1927(k)(6)).
       ``(2) Exclusions.--
       ``(A) In general.--Such term 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) of such section 
     (relating to smoking cessation agents), or under section 
     1927(d)(3).
       ``(B) Medicare covered drugs.--A drug prescribed for a part 
     D eligible individual that would otherwise be a covered part 
     D drug under this part shall not be so considered if payment 
     for such drug as so prescribed and dispensed or administered 
     with respect to that individual is available (or would be 
     available but for the application of a deductible) under part 
     A or B for that individual.
       ``(3) Application of general exclusion provisions.--A 
     prescription drug plan or an MA-PD plan may exclude from 
     qualified prescription drug coverage any covered part D 
     drug--
       ``(A) for which payment would not be made if section 
     1862(a) applied to this part; or
       ``(B) which is not prescribed in accordance with the plan 
     or this part.

     Such exclusions are determinations subject to reconsideration 
     and appeal pursuant to subsections (g) and (h), respectively, 
     of section 1860D-4.


      ``access to a choice of qualified prescription drug coverage

       ``Sec. 1860D-3. (a) Assuring Access to a Choice of 
     Coverage.--
       ``(1) Choice of at least two plans in each area.--The 
     Secretary shall ensure that each part D eligible individual 
     has available, consistent with paragraph (2), a choice of 
     enrollment in at least 2 qualifying plans (as defined in 
     paragraph (3)) in the area in which the individual resides, 
     at least one of which is a prescription drug plan. In any 
     such case in which such plans are not available, the part D 
     eligible individual shall be given the opportunity to enroll 
     in a fallback prescription drug plan.
       ``(2) Requirement for different plan sponsors.--The 
     requirement in paragraph (1) is not satisfied with respect to 
     an area if only one entity offers all the qualifying plans in 
     the area.
       ``(3) Qualifying plan defined.--For purposes of this 
     section, the term `qualifying plan' means--
       ``(A) a prescription drug plan; or
       ``(B) an MA-PD plan described in section 1851(a)(2)(A)(i) 
     that provides--
       ``(i) basic prescription drug coverage; or
       ``(ii) qualified prescription drug coverage that provides 
     supplemental prescription drug coverage so long as there is 
     no MA monthly supplemental beneficiary premium applied under 
     the plan, due to the application of a credit against such 
     premium of a rebate under section 1854(b)(1)(C).
       ``(b) Flexibility in Risk Assumed and Application of 
     Fallback Plan.--In order to ensure access pursuant to 
     subsection (a) in an area--
       ``(1) the Secretary may approve limited risk plans under 
     section 1860D-11(f) for the area; and
       ``(2) only if such access is still not provided in the area 
     after applying paragraph (1), the Secretary shall provide for 
     the offering of a fallback prescription drug plan for that 
     area under section 1860D-11(g).


   ``beneficiary protections for qualified prescription drug coverage

       ``Sec. 1860D-4. (a) Dissemination of Information.--
       ``(1) General information.--
       ``(A) Application of ma information.--A PDP sponsor shall 
     disclose, in a clear, accurate, and standardized form to each 
     enrollee with a prescription drug plan offered by the sponsor 
     under this part at the time of enrollment and at least 
     annually thereafter, the information described in section 
     1852(c)(1) relating to such plan, insofar as the Secretary 
     determines appropriate with respect to benefits provided 
     under this part, and including the information described in 
     subparagraph (B).
       ``(B) Drug specific information.--The information described 
     in this subparagraph is information concerning the following:
       ``(i) Access to specific covered part D drugs, including 
     access through pharmacy networks.
       ``(ii) How any formulary (including any tiered formulary 
     structure) used by the sponsor functions, including a 
     description of how a part D eligible individual may obtain 
     information on the formulary consistent with paragraph (3).
       ``(iii) Beneficiary cost-sharing requirements and how a 
     part D eligible individual may obtain information on such 
     requirements, including tiered or other copayment level 
     applicable to each drug (or class of drugs), consistent with 
     paragraph (3).
       ``(iv) The medication therapy management program required 
     under subsection (c).
       ``(2) Disclosure upon request of general coverage, 
     utilization, and grievance information.--Upon request of a 
     part D eligible individual who is eligible to enroll in a 
     prescription drug plan, the PDP sponsor offering such plan 
     shall provide information similar (as determined by the 
     Secretary) to the information described in subparagraphs (A), 
     (B), and (C) of section 1852(c)(2) to such individual.
       ``(3) Provision of specific information.--
       ``(A) Response to beneficiary questions.--Each PDP sponsor 
     offering a prescription drug plan shall have a mechanism for 
     providing specific information on a timely basis to enrollees 
     upon request. Such mechanism shall include access to 
     information through the use of a toll-free telephone number 
     and, upon request, the provision of such information in 
     writing.
       ``(B) Availability of information on changes in formulary 
     through the internet.--A PDP sponsor offering a prescription 
     drug plan shall make available on a timely basis through an 
     Internet website information on specific changes in the 
     formulary under the plan (including changes to tiered or 
     preferred status of covered part D drugs).
       ``(4) Claims information.--A PDP sponsor offering a 
     prescription drug plan must furnish to each enrollee in a 
     form easily understandable to such enrollees--
       ``(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--
       ``(i) the initial coverage limit for the current year; and
       ``(ii) the annual out-of-pocket threshold for the current 
     year.
     Notices under subparagraph (B) need not be provided more 
     often than as specified by the Secretary and notices under 
     subparagraph (B)(ii) shall take into account the application 
     of section 1860D-2(b)(4)(C) to the extent practicable, as 
     specified by the Secretary.
       ``(b) Access to Covered Part D Drugs.--
       ``(1) Assuring pharmacy access.--
       ``(A) Participation of any willing pharmacy.--A 
     prescription drug plan shall permit the participation of any 
     pharmacy that meets the terms and conditions under the plan.
       ``(B) Discounts allowed for network pharmacies.--For 
     covered part D drugs dispensed through in-network pharmacies, 
     a prescription drug plan may, notwithstanding subparagraph 
     (A), reduce coinsurance or copayments for part D eligible 
     individuals enrolled in the plan below the level otherwise 
     required. In no case shall such a reduction result in an 
     increase in payments made by the Secretary under section 
     1860D-15 to a plan.
       ``(C) Convenient access for network pharmacies.--
       ``(i) In general.--The PDP sponsor of the 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 (consistent with rules established by the Secretary).
       ``(ii) Application of tricare standards.--The Secretary 
     shall establish rules for convenient access to in-network 
     pharmacies under this subparagraph that are no less favorable 
     to enrollees than the rules for convenient access to 
     pharmacies included in the statement of work of solicitation 
     (#MDA906-03-R-0002) of the Department of Defense under the 
     TRICARE Retail Pharmacy (TRRx) as of March 13, 2003.
       ``(iii) Adequate emergency access.--Such rules shall 
     include adequate emergency access for enrollees.
       ``(iv) Convenient access in long-term care facilities.--
     Such rules may include standards with respect to access for 
     enrollees who are residing in long-term care facilities and 
     for pharmacies operated by the Indian Health Service, Indian 
     tribes and tribal organizations, and urban Indian 
     organizations (as defined in section 4 of the Indian Health 
     Care Improvement Act).
       ``(D) Level playing field.--Such a sponsor shall permit 
     enrollees to receive benefits (which may include a 90-day 
     supply of drugs or

[[Page H11883]]

     biologicals) through a pharmacy (other than a mail order 
     pharmacy), with any differential in charge paid by such 
     enrollees.
       ``(E)  Not required to accept insurance risk.--The terms 
     and conditions under subparagraph (A) may not require 
     participating pharmacies to accept insurance risk as a 
     condition of participation.
       ``(2) Use of standardized technology.--
       ``(A) In general.--The PDP sponsor of a prescription drug 
     plan shall issue (and reissue, as appropriate) such a card 
     (or other technology) that may be used by an enrollee to 
     assure access to negotiated prices under section 1860D-2(d).
       ``(B) Standards.--
       ``(i) In general.--The Secretary shall provide for the 
     development, adoption, or recognition of standards relating 
     to a standardized format for the card or other technology 
     required under subparagraph (A). Such standards shall be 
     compatible with part C 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 Secretary shall consult with the National 
     Council for Prescription Drug Programs and other standard 
     setting organizations determined appropriate by the 
     Secretary.
       ``(iii) Implementation.--The Secretary shall develop, 
     adopt, or recognize the standards under clause (i) by such 
     date as the Secretary determines shall be sufficient to 
     ensure that PDP sponsors utilize such standards beginning 
     January 1, 2006.
       ``(3) Requirements on development and application of 
     formularies.--If a PDP sponsor of a prescription drug plan 
     uses a formulary (including the use of tiered cost-sharing), 
     the following requirements must be met:
       ``(A) Development and revision by a pharmacy and 
     therapeutic (p&t) committee.--
       ``(i) In general.--The formulary must be developed and 
     reviewed by a pharmacy and therapeutic committee. A majority 
     of the members of such committee shall consist of individuals 
     who are practicing physicians or practicing pharmacists (or 
     both).
       ``(ii) Inclusion of independent experts.--Such committee 
     shall include at least one practicing physician and at least 
     one practicing pharmacist, each of whom--

       ``(I) is independent and free of conflict with respect to 
     the sponsor and plan; and
       ``(II) has expertise in the care of elderly or disabled 
     persons.

       ``(B) Formulary development.--In developing and reviewing 
     the formulary, the committee shall--
       ``(i) 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; and
       ``(ii) take into account whether including in the formulary 
     (or in a tier in such formulary) particular covered part D 
     drugs has therapeutic advantages in terms of safety and 
     efficacy.
       ``(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 part D drugs, 
     although not necessarily all drugs within such categories and 
     classes.
       ``(ii) Model guidelines.--The Secretary shall request the 
     United States Pharmacopeia to develop, in consultation with 
     pharmaceutical benefit managers and other interested parties, 
     a list of categories and classes that may be used by 
     prescription drug plans under this paragraph and to revise 
     such classification from time to time to reflect changes in 
     therapeutic uses of covered part D drugs and the additions of 
     new covered part D drugs.
       ``(iii) Limitation on changes in therapeutic 
     classification.--The PDP sponsor of a prescription drug plan 
     may not change the therapeutic categories and classes in a 
     formulary other than at the beginning of each plan year 
     except as the Secretary may permit to take into account new 
     therapeutic uses and newly approved covered part D drugs.
       ``(D) Provider and patient education.--The PDP sponsor 
     shall establish policies and procedures to educate and inform 
     health care providers and enrollees concerning the formulary.
       ``(E) Notice before removing drug from formulary or 
     changing preferred or tier status of drug.--Any removal of a 
     covered part D drug from a formulary and any change in the 
     preferred or tiered cost-sharing status of such a drug shall 
     take effect only after appropriate notice is made available 
     (such as under subsection (a)(3)) to the Secretary, affected 
     enrollees, physicians, pharmacies, and pharmacists.
       ``(F) Periodic evaluation of protocols.--In connection with 
     the formulary, the sponsor of a prescription drug plan shall 
     provide for the periodic evaluation and analysis of treatment 
     protocols and procedures.

     The requirements of this paragraph may be met by a PDP 
     sponsor directly or through arrangements with another entity.
       ``(c) Cost and Utilization Management; Quality Assurance; 
     Medication Therapy Management Program.--
       ``(1) In general.--The PDP sponsor shall have in place, 
     directly or through appropriate arrangements, with respect to 
     covered part D drugs, the following:
       ``(A) A cost-effective drug utilization management program, 
     including incentives to reduce costs when medically 
     appropriate, such as through the use of multiple source drugs 
     (as defined in section 1927(k)(7)(A)(i)).
       ``(B) Quality assurance measures and systems to reduce 
     medication errors and adverse drug interactions and improve 
     medication use.
       ``(C) A medication therapy management program described in 
     paragraph (2).
       ``(D) A program to control fraud, abuse, and waste.
     Nothing in this section shall be construed as impairing a PDP 
     sponsor from utilizing cost management tools (including 
     differential payments) under all methods of operation.
       ``(2) Medication therapy management program.--
       ``(A) Description.--
       ``(i) In general.--A medication therapy management program 
     described in this paragraph is a program of drug therapy 
     management that may be furnished by a pharmacist and that is 
     designed to assure, with respect to targeted beneficiaries 
     described in clause (ii), that covered part D drugs under the 
     prescription drug plan are appropriately used to optimize 
     therapeutic outcomes through improved medication use, and to 
     reduce the risk of adverse events, including adverse drug 
     interactions. Such a program may distinguish between services 
     in ambulatory and institutional settings.
       ``(ii) Targeted beneficiaries described.--Targeted 
     beneficiaries described in this clause are part D eligible 
     individuals who--

       ``(I) have multiple chronic diseases (such as diabetes, 
     asthma, hypertension, hyperlipidemia, and congestive heart 
     failure);

       ``(II) are taking multiple covered part D drugs; and
       ``(III) are identified as likely to incur annual costs for 
     covered part D drugs that exceed a level specified by the 
     Secretary.

       ``(B) Elements.--Such program may include elements that 
     promote--
       ``(i) enhanced enrollee understanding to promote the 
     appropriate use of medications by enrollees and to reduce the 
     risk of potential adverse events associated with medications, 
     through beneficiary education, counseling, and other 
     appropriate means;
       ``(ii) increased enrollee adherence with prescription 
     medication regimens through medication refill reminders, 
     special packaging, and other compliance programs and other 
     appropriate means; and
       ``(iii) detection of adverse drug events and patterns of 
     overuse and underuse of prescription drugs.
       ``(C) Development of program in cooperation with licensed 
     pharmacists.--Such program shall be developed in cooperation 
     with licensed and practicing pharmacists and physicians.
       ``(D) Coordination with care management plans.--The 
     Secretary shall establish guidelines for the coordination of 
     any medication therapy management program under this 
     paragraph with respect to a targeted beneficiary with any 
     care management plan established with respect to such 
     beneficiary under a chronic care improvement program under 
     section 1807.
       ``(E) Considerations in pharmacy fees.--The PDP sponsor of 
     a prescription drug plan shall take into account, in 
     establishing fees for pharmacists and others providing 
     services under such plan, the resources used, and time 
     required to, implement the medication therapy management 
     program under this paragraph. Each such sponsor shall 
     disclose to the Secretary upon request the amount of any such 
     management or dispensing fees. The provisions of section 
     1927(b)(3)(D) apply to information disclosed under this 
     subparagraph.
       ``(d) Consumer Satisfaction Surveys.--In order to provide 
     for comparative information under section 1860D-
     1(c)(3)(A)(v), the Secretary shall conduct consumer 
     satisfaction surveys with respect to PDP sponsors and 
     prescription drug plans in a manner similar to the manner 
     such surveys are conducted for MA organizations and MA plans 
     under part C.
       ``(e) Electronic Prescription Program.--
       ``(1) Application of standards.--As of such date as the 
     Secretary may specify, but not later than 1 year after the 
     date of promulgation of final standards under paragraph 
     (4)(D), prescriptions and other information described in 
     paragraph (2)(A) for covered part D drugs prescribed for part 
     D eligible individuals that are transmitted electronically 
     shall be transmitted only in accordance with such standards 
     under an electronic prescription drug program that meets the 
     requirements of paragraph (2).
       ``(2) Program requirements.--Consistent with uniform 
     standards established under paragraph (3)--
       ``(A) Provision of information to prescribing health care 
     professional and dispensing pharmacies and pharmacists.--An 
     electronic prescription drug program shall provide for the 
     electronic transmittal to the prescribing health care 
     professional and to the dispensing pharmacy and pharmacist of 
     the prescription and information on eligibility and benefits 
     (including the drugs included in the applicable formulary, 
     any tiered formulary structure, and any requirements for 
     prior authorization) and of the following information with 
     respect to the prescribing and dispensing of a covered part D 
     drug:
       ``(i) Information on the drug being prescribed or dispensed 
     and other drugs listed on the medication history, including 
     information on drug-drug interactions, warnings or cautions, 
     and, when indicated, dosage adjustments.
       ``(ii) Information on the availability of lower cost, 
     therapeutically appropriate alternatives (if any) for the 
     drug prescribed.
       ``(B) Application to medical history information.--
     Effective on and after such date as the Secretary specifies 
     and after the establishment of appropriate standards to carry 
     out this subparagraph, the program shall provide for the 
     electronic transmittal in a manner similar to the manner 
     under subparagraph (A) of information that relates to the 
     medical history concerning the individual and related to a 
     covered part D drug being prescribed or dispensed, upon 
     request of the professional or pharmacist involved.
       ``(C) Limitations.--Information shall only be disclosed 
     under subparagraph (A) or (B) if the

[[Page H11884]]

     disclosure of such information is permitted under 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.
       ``(D) Timing.--To the extent feasible, the information 
     exchanged under this paragraph shall be on an interactive, 
     real-time basis.
       ``(3) Standards.--
       ``(A) In general.--The Secretary shall provide consistent 
     with this subsection for the promulgation of uniform 
     standards relating to the requirements for electronic 
     prescription drug programs under paragraph (2).
       ``(B) Objectives.--Such standards shall be consistent with 
     the objectives of improving--
       ``(i) patient safety;
       ``(ii) the quality of care provided to patients; and
       ``(iii) efficiencies, including cost savings, in the 
     delivery of care.
       ``(C) Design criteria.--Such standards shall--
       ``(i) be designed so that, to the extent practicable, the 
     standards do not impose an undue administrative burden on 
     prescribing health care professionals and dispensing 
     pharmacies and pharmacists;
       ``(ii) be compatible with standards established under part 
     C of title XI, standards established under subsection 
     (b)(2)(B)(i), and with general health information technology 
     standards; and
       ``(iii) be designed so that they permit electronic exchange 
     of drug labeling and drug listing information maintained by 
     the Food and Drug Administration and the National Library of 
     Medicine.
       ``(D) Permitting use of appropriate messaging.--Such 
     standards shall allow for the messaging of information only 
     if it relates to the appropriate prescribing of drugs, 
     including quality assurance measures and systems referred to 
     in subsection (c)(1)(B).
       ``(E) Permitting patient designation of dispensing 
     pharmacy.--
       ``(i) In general.--Consistent with clause (ii), such 
     standards shall permit a part D eligible individual to 
     designate a particular pharmacy to dispense a prescribed 
     drug.
       ``(ii) No change in benefits.--Clause (i) shall not be 
     construed as affecting--

       ``(I) the access required to be provided to pharmacies by a 
     prescription drug plan; or
       ``(II) the application of any differences in benefits or 
     payments under such a plan based on the pharmacy dispensing a 
     covered part D drug.

       ``(4) Development, promulgation, and modification of 
     standards.--
       ``(A) Initial standards.--Not later than September 1, 2005, 
     the Secretary shall develop, adopt, recognize, or modify 
     initial uniform standards relating to the requirements for 
     electronic prescription drug programs described in paragraph 
     (2) taking into consideration the recommendations (if any) 
     from the National Committee on Vital and Health Statistics 
     (as established under section 306(k) of the Public Health 
     Service Act (42 U.S.C. 242k(k))) under subparagraph (B).
       ``(B) Role of ncvhs.--The National Committee on Vital and 
     Health Statistics shall develop recommendations for uniform 
     standards relating to such requirements in consultation with 
     the following:
       ``(i) Standard setting organizations (as defined in section 
     1171(8))
       ``(ii) Practicing physicians.
       ``(iii) Hospitals.
       ``(iv) Pharmacies.
       ``(v) Practicing pharmacists.
       ``(vi) Pharmacy benefit managers.
       ``(vii) State boards of pharmacy.
       ``(viii) State boards of medicine.
       ``(ix) Experts on electronic prescribing.
       ``(x) Other appropriate Federal agencies.
       ``(C) Pilot project to test initial standards.--
       ``(i) In general.--During the 1-year period that begins on 
     January 1, 2006, the Secretary shall conduct a pilot project 
     to test the initial standards developed under subparagraph 
     (A) prior to the promulgation of the final uniform standards 
     under subparagraph (D) in order to provide for the efficient 
     implementation of the requirements described in paragraph 
     (2).
       ``(ii) Exception.--Pilot testing of standards is not 
     required under clause (i) where there already is adequate 
     industry experience with such standards, as determined by the 
     Secretary after consultation with effected standard setting 
     organizations and industry users.
       ``(iii) Voluntary participation of physicians and 
     pharmacies.--In order to conduct the pilot project under 
     clause (i), the Secretary shall enter into agreements with 
     physicians, physician groups, pharmacies, hospitals, PDP 
     sponsors, MA organizations, and other appropriate entities 
     under which health care professionals electronically transmit 
     prescriptions to dispensing pharmacies and pharmacists in 
     accordance with such standards.
       ``(iv) Evaluation and report.--

       ``(I) Evaluation.--The Secretary shall conduct an 
     evaluation of the pilot project conducted under clause (i).
       ``(II) Report to congress.--Not later than April 1, 2007, 
     the Secretary shall submit to Congress a report on the 
     evaluation conducted under subclause (I).

       ``(D) Final standards.--Based upon the evaluation of the 
     pilot project under subparagraph (C)(iv)(I) and not later 
     than April 1, 2008, the Secretary shall promulgate uniform 
     standards relating to the requirements described in paragraph 
     (2).
       ``(5) Relation to state laws.--The standards promulgated 
     under this subsection shall supersede any State law or 
     regulation that--
       ``(A) is contrary to the standards or restricts the ability 
     to carry out this part; and
       ``(B) pertains to the electronic transmission of medication 
     history and of information on eligibility, benefits, and 
     prescriptions with respect to covered part D drugs under this 
     part.
       ``(6) Establishment of safe harbor.--The Secretary, in 
     consultation with the Attorney General, shall promulgate 
     regulations that provide for a safe harbor from sanctions 
     under paragraphs (1) and (2) of section 1128B(b) and an 
     exception to the prohibition under subsection (a)(1) of 
     section 1877 with respect to the provision of nonmonetary 
     remuneration (in the form of hardware, software, or 
     information technology and training services) necessary and 
     used solely to receive and transmit electronic prescription 
     information in accordance with the standards promulgated 
     under this subsection--
       ``(A) in the case of a hospital, by the hospital to members 
     of its medical staff;
       ``(B) in the case of a group practice (as defined in 
     section 1877(h)(4)), by the practice to prescribing health 
     care professionals who are members of such practice; and
       ``(C) in the case of a PDP sponsor or MA organization, by 
     the sponsor or organization to pharmacists and pharmacies 
     participating in the network of such sponsor or organization, 
     and to prescribing health care professionals.
       ``(f) Grievance Mechanism.--Each PDP sponsor shall provide 
     meaningful procedures for hearing and resolving grievances 
     between the sponsor (including any entity or individual 
     through which the sponsor provides covered benefits) and 
     enrollees with prescription drug plans of the sponsor under 
     this part in accordance with section 1852(f).
       ``(g) Coverage Determinations and Reconsiderations.--
       ``(1) Application of coverage determination and 
     reconsideration provisions.--A PDP sponsor shall meet the 
     requirements of paragraphs (1) through (3) of section 1852(g) 
     with respect to covered benefits under the prescription drug 
     plan it offers under this part in the same manner as such 
     requirements apply to an MA organization with respect to 
     benefits it offers under an MA plan under part C.
       ``(2) Request for a determination for the treatment of 
     tiered formulary drug.--In the case of a prescription drug 
     plan offered by a PDP sponsor that provides for tiered cost-
     sharing for drugs included within a formulary and provides 
     lower cost-sharing for preferred drugs included within the 
     formulary, a part D eligible individual who is enrolled in 
     the plan may request an exception to the tiered cost-sharing 
     structure. Under such an exception, a nonpreferred drug could 
     be covered under the terms applicable for preferred drugs if 
     the prescribing physician determines that the preferred drug 
     for treatment of the same condition either would not be as 
     effective for the individual or would have adverse effects 
     for the individual or both. A PDP sponsor shall have an 
     exceptions process under this paragraph consistent with 
     guidelines established by the Secretary for making a 
     determination with respect to such a request. Denial of such 
     an exception shall be treated as a coverage denial for 
     purposes of applying subsection (h).
       ``(h) Appeals.--
       ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
     shall meet the requirements of paragraphs (4) and (5) of 
     section 1852(g) with respect to benefits (including a 
     determination related to the application of tiered cost-
     sharing described in subsection (g)(2)) in a manner similar 
     (as determined by the Secretary) to the manner such 
     requirements apply to an MA organization with respect to 
     benefits under the original medicare fee-for-service program 
     option it offers under an MA plan under part C. In applying 
     this paragraph only the part D eligible individual shall be 
     entitled to bring such an appeal.
       ``(2) Limitation in cases on nonformulary determinations.--
     A part D eligible individual who is enrolled in a 
     prescription drug plan offered by a PDP sponsor may appeal 
     under paragraph (1) a determination not to provide for 
     coverage of a covered part D drug that is not on the 
     formulary under the plan only if the prescribing physician 
     determines that all covered part D drugs on any tier of the 
     formulary for treatment of the same condition would not be as 
     effective for the individual as the nonformulary drug, would 
     have adverse effects for the individual, or both.
       ``(3) Treatment of nonformulary determinations.--If a PDP 
     sponsor determines that a plan provides coverage for a 
     covered part D drug that is not on the formulary of the plan, 
     the drug shall be treated as being included on the formulary 
     for purposes of section 1860D-2(b)(4)(C)(i).
       ``(i) Privacy, Confidentiality, and Accuracy of Enrollee 
     Records.--The provisions of section 1852(h) shall apply to a 
     PDP sponsor and prescription drug plan in the same manner as 
     it applies to an MA organization and an MA plan.
       ``(j) Treatment of Accreditation.--Subparagraph (A) of 
     section 1852(e)(4) (relating to treatment of accreditation) 
     shall apply to a PDP sponsor under this part with respect to 
     the following requirements, in the same manner as it applies 
     to an MA organization with respect to the requirements in 
     subparagraph (B) (other than clause (vii) thereof) of such 
     section:
       ``(1) Subsection (b) of this section (relating to access to 
     covered part D drugs).
       ``(2) Subsection (c) of this section (including quality 
     assurance and medication therapy management).
       ``(3) Subsection (i) of this section (relating to 
     confidentiality and accuracy of enrollee records).
       ``(k) Public Disclosure of Pharmaceutical Prices for 
     Equivalent Drugs.--
       ``(1) In general.--A PDP sponsor offering a prescription 
     drug plan shall provide that each pharmacy that dispenses a 
     covered part D drug shall inform an enrollee of any 
     differential between the price of the drug to the enrollee 
     and

[[Page H11885]]

     the price of the lowest priced generic covered part D drug 
     under the plan that is therapeutically equivalent and 
     bioequivalent and available at such pharmacy.
       ``(2) Timing of notice.--
       ``(A) In general.--Subject to subparagraph (B), the 
     information under paragraph (1) shall be provided at the time 
     of purchase of the drug involved, or, in the case of 
     dispensing by mail order, at the time of delivery of such 
     drug.
       ``(B) Waiver.--The Secretary may waive subparagraph (A) in 
     such circumstances as the Secretary may specify.

     ``Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing


            ``pdp regions; submission of bids; plan approval

       ``Sec. 1860D-11. (a) Establishment of PDP Regions; Service 
     Areas.--
       ``(1) Coverage of entire pdp region.--The service area for 
     a prescription drug plan shall consist of an entire PDP 
     region established under paragraph (2).
       ``(2) Establishment of pdp regions.--
       ``(A) In general.--The Secretary shall establish, and may 
     revise, PDP regions in a manner that is consistent with the 
     requirements for the establishment and revision of MA regions 
     under subparagraphs (B) and (C) of section 1858(a)(2).
       ``(B) Relation to ma regions.--To the extent practicable, 
     PDP regions shall be the same as MA regions under section 
     1858(a)(2). The Secretary may establish PDP regions which are 
     not the same as MA regions if the Secretary determines that 
     the establishment of different regions under this part would 
     improve access to benefits under this part.
       ``(C) Authority for territories.--The Secretary shall 
     establish, and may revise, PDP regions for areas in States 
     that are not within the 50 States or the District of 
     Columbia.
       ``(3) National plan.--Nothing in this subsection shall be 
     construed as preventing a prescription drug plan from being 
     offered in more than one PDP region (including all PDP 
     regions).
       ``(b) Submission of Bids, Premiums, and Related 
     Information.--
       ``(1) In general.--A PDP sponsor shall submit to the 
     Secretary information described in paragraph (2) with respect 
     to each prescription drug plan it offers. Such information 
     shall be submitted at the same time and in a similar manner 
     to the manner in which information described in paragraph (6) 
     of section 1854(a) is submitted by an MA organization under 
     paragraph (1) of such section.
       ``(2) Information described.--The information described in 
     this paragraph is information on the following:
       ``(A) Coverage provided.--The prescription drug coverage 
     provided under the plan, including the deductible and other 
     cost-sharing.
       ``(B) Actuarial value.--The actuarial value of the 
     qualified prescription drug coverage in the region for a part 
     D eligible individual with a national average risk profile 
     for the factors described in section 1860D-15(c)(1)(A) (as 
     specified by the Secretary).
       ``(C) Bid.--Information on the bid, including an actuarial 
     certification of--
       ``(i) the basis for the actuarial value described in 
     subparagraph (B) assumed in such bid;
       ``(ii) the portion of such bid attributable to basic 
     prescription drug coverage and, if applicable, the portion of 
     such bid attributable to supplemental benefits;
       ``(iii) assumptions regarding the reinsurance subsidy 
     payments provided under section 1860D-15(b) subtracted from 
     the actuarial value to produce such bid; and
       ``(iv) administrative expenses assumed in the bid.
       ``(D) Service area.--The service area for the plan.
       ``(E) Level of risk assumed.--
       ``(i) In general.--Whether the PDP sponsor requires a 
     modification of risk level under clause (ii) and, if so, the 
     extent of such modification. Any such modification shall 
     apply with respect to all prescription drug plans offered by 
     a PDP sponsor in a PDP region. This subparagraph shall not 
     apply to an MA-PD plan.
       ``(ii) Risk levels described.--A modification of risk level 
     under this clause may consist of one or more of the 
     following:

       ``(I) Increase in federal percentage assumed in initial 
     risk corridor.--An equal percentage point increase in the 
     percents applied under subparagraphs (B)(i), (B)(ii)(I), 
     (C)(i), and (C)(ii)(I) of section 1860D-15(e)(2). In no case 
     shall the application of previous sentence prevent the 
     application of a higher percentage under section 1869D-
     15(e)(2)(B)(iii).
       ``(II) Increase in federal percentage assumed in second 
     risk corridor.--An equal percentage point increase in the 
     percents applied under subparagraphs (B)(ii)(II) and 
     (C)(ii)(II) of section 1860D-15(e)(2).
       ``(III) Decrease in size of risk corridors.--A decrease in 
     the threshold risk percentages specified in section 1860D-
     15(e)(3)(C).

       ``(F) Additional information.--Such other information as 
     the Secretary may require to carry out this part.
       ``(3) Paperwork reduction for offering of prescription drug 
     plans nationally or in multi-region areas.--The Secretary 
     shall establish requirements for information submission under 
     this subsection in a manner that promotes the offering of 
     such plans in more than one PDP region (including all 
     regions) through the filing of consolidated information.
       ``(c) Actuarial Valuation.--
       ``(1) Processes.--For purposes of this part, the Secretary 
     shall establish processes and methods for determining the 
     actuarial valuation of prescription drug coverage, 
     including--
       ``(A) an actuarial valuation of standard prescription drug 
     coverage under section 1860D-2(b);
       ``(B) actuarial valuations relating to alternative 
     prescription drug coverage under section 1860D-2(c)(1);
       ``(C) an actuarial valuation of the reinsurance subsidy 
     payments under section 1860D-15(b);
       ``(D) the use of generally accepted actuarial principles 
     and methodologies; and
       ``(E) applying the same methodology for determinations of 
     actuarial valuations under subparagraphs (A) and (B).
       ``(2) Accounting for drug utilization.--Such processes and 
     methods for determining actuarial valuation shall take into 
     account the effect that providing alternative prescription 
     drug coverage (rather than standard prescription drug 
     coverage) has on drug utilization.
       ``(3) Responsibilities.--
       ``(A) Plan responsibilities.--PDP sponsors and MA 
     organizations are responsible for the preparation and 
     submission of actuarial valuations required under this part 
     for prescription drug plans and MA-PD plans they offer.
       ``(B) Use of outside actuaries.--Under the processes and 
     methods established under paragraph (1), PDP sponsors 
     offering prescription drug plans and MA organizations 
     offering MA-PD plans may use actuarial opinions certified by 
     independent, qualified actuaries to establish actuarial 
     values.
       ``(d) Review of Information and Negotiation.--
       ``(1) Review of information.--The Secretary shall review 
     the information filed under subsection (b) for the purpose of 
     conducting negotiations under paragraph (2).
       ``(2) Negotiation regarding terms and conditions.--Subject 
     to subsection (i), in exercising the authority under 
     paragraph (1), the Secretary--
       ``(A) has the authority to negotiate the terms and 
     conditions of the proposed bid submitted and other terms and 
     conditions of a proposed plan; and
       ``(B) has authority similar to the authority of the 
     Director of the Office of Personnel Management with respect 
     to health benefits plans under chapter 89 of title 5, United 
     States Code.
       ``(e) Approval of Proposed Plans.--
       ``(1) In general.--After review and negotiation under 
     subsection (d), the Secretary shall approve or disapprove the 
     prescription drug plan.
       ``(2) Requirements for approval.--The Secretary may approve 
     a prescription drug plan only if the following requirements 
     are met:
       ``(A) Compliance with requirements.--The plan and the PDP 
     sponsor offering the plan comply with the requirements under 
     this part, including the provision of qualified prescription 
     drug coverage.
       ``(B) Actuarial determinations.--The Secretary determines 
     that the plan and PDP sponsor meet the requirements under 
     this part relating to actuarial determinations, including 
     such requirements under section 1860D-2(c).
       ``(C) Application of fehbp standard.--
       ``(i) In general.--The Secretary determines that the 
     portion of the bid submitted under subsection (b) that is 
     attributable to basic prescription drug coverage is supported 
     by the actuarial bases provided under such subsection and 
     reasonably and equitably reflects the revenue requirements 
     (as used for purposes of section 1302(8)(C) of the Public 
     Health Service Act) for benefits provided under that plan, 
     less the sum (determined on a monthly per capita basis) of 
     the actuarial value of the reinsurance payments under section 
     1860D-15(b).
       ``(ii) Supplemental coverage.--The Secretary determines 
     that the portion of the bid submitted under subsection (b) 
     that is attributable to supplemental prescription drug 
     coverage pursuant to section 1860D-2(a)(2) is supported by 
     the actuarial bases provided under such subsection and 
     reasonably and equitably reflects the revenue requirements 
     (as used for purposes of section 1302(8)(C) of the Public 
     Health Service Act) for such coverage under the plan.
       ``(D) Plan design.--
       ``(i) In general.--The Secretary does not find that the 
     design of the plan and its benefits (including any formulary 
     and tiered formulary structure) are likely to substantially 
     discourage enrollment by certain part D eligible individuals 
     under the plan.
       ``(ii) Use of categories and classes in formularies.--The 
     Secretary may not find that the design of categories and 
     classes within a formulary violates clause (i) if such 
     categories and classes are consistent with guidelines (if 
     any) for such categories and classes established by the 
     United States Pharmacopeia.
       ``(f) Application of Limited Risk Plans.--
       ``(1) Conditions for approval of limited risk plans.--The 
     Secretary may only approve a limited risk plan (as defined in 
     paragraph (4)(A)) for a PDP region if the access requirements 
     under section 1860D-3(a) would not be met for the region but 
     for the approval of such a plan (or a fallback prescription 
     drug plan under subsection (g)).
       ``(2) Rules.--The following rules shall apply with respect 
     to the approval of a limited risk plan in a PDP region:
       ``(A) Limited exercise of authority.--Only the minimum 
     number of such plans may be approved in order to meet the 
     access requirements under section 1860D-3(a).
       ``(B) Maximizing assumption of risk.--The Secretary shall 
     provide priority in approval for those plans bearing the 
     highest level of risk (as computed by the Secretary), but the 
     Secretary may take into account the level of the bids 
     submitted by such plans.
       ``(C) No full underwriting for limited risk plans.--In no 
     case may the Secretary approve a limited risk plan under 
     which the modification of risk level provides for no (or a de 
     minimis) level of financial risk.
       ``(3) Acceptance of all full risk contracts.--There shall 
     be no limit on the number of full risk plans that are 
     approved under subsection (e).

[[Page H11886]]

       ``(4) Risk-plans defined.--For purposes of this subsection:
       ``(A) Limited risk plan.--The term `limited risk plan' 
     means a prescription drug plan that provides basic 
     prescription drug coverage and for which the PDP sponsor 
     includes a modification of risk level described in 
     subparagraph (E) of subsection (b)(2) in its bid submitted 
     for the plan under such subsection. Such term does not 
     include a fallback prescription drug plan.
       ``(B) Full risk plan.--The term `full risk plan' means a 
     prescription drug plan that is not a limited risk plan or a 
     fallback prescription drug plan.
       ``(g) Guaranteeing Access to Coverage.--
       ``(1) Solicitation of bids.--
       ``(A) In general.--Separate from the bidding process under 
     subsection (b), the Secretary shall provide for a process for 
     the solicitation of bids from eligible fallback entities (as 
     defined in paragraph (2)) for the offering in all fallback 
     service areas (as defined in paragraph (3)) in one or more 
     PDP regions of a fallback prescription drug plan (as defined 
     in paragraph (4)) during the contract period specified in 
     paragraph (5)).
       ``(B) Acceptance of bids.--
       ``(i) In general.--Except as provided in this subparagraph, 
     the provisions of subsection (e) shall apply with respect to 
     the approval or disapproval of fallback prescription drug 
     plans. The Secretary shall enter into contracts under this 
     subsection with eligible fallback entities for the offering 
     of fallback prescription drug plans so approved in fallback 
     service areas.
       ``(ii) Limitation of 1 plan for all fallback service areas 
     in a pdp region.--With respect to all fallback service areas 
     in any PDP region for a contract period, the Secretary shall 
     approve the offering of only 1 fallback prescription drug 
     plan.
       ``(iii) 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 this subsection. The provisions of subsection 
     (d) of section 1874A shall apply to a contract under this 
     section in the same manner as they apply to a contract under 
     such section.
       ``(iv) Timing.--The Secretary shall approve a fallback 
     prescription drug plan for a PDP region in a manner so that, 
     if there are any fallback service areas in the region for a 
     year, the fallback prescription drug plan is offered at the 
     same time as prescription drug plans would otherwise be 
     offered.
       ``(V) No national fallback plan.--The Secretary shall not 
     enter into a contract with a single fallback entity for the 
     offering of fallback plans throughout the United States.
       ``(2) Eligible fallback entity.--For purposes of this 
     section, the term `eligible fallback entity' means, with 
     respect to all fallback service areas in a PDP region for a 
     contract period, an entity that--
       ``(A) meets the requirements to be a PDP sponsor (or would 
     meet such requirements but for the fact that the entity is 
     not a risk-bearing entity); and
       ``(B) does not submit a bid under section 1860D-11(b) for 
     any prescription drug plan for any PDP region for the first 
     year of such contract period.

     For purposes of subparagraph (B), an entity shall be treated 
     as submitting a bid with respect to a prescription drug plan 
     if the entity is acting as a subcontractor of a PDP sponsor 
     that is offering such a plan. The previous sentence shall not 
     apply to entities that are subcontractors of an MA 
     organization except insofar as such organization is acting as 
     a PDP sponsor with respect to a prescription drug plan.
       ``(3) Fallback service area.--For purposes of this 
     subsection, the term `fallback service area' means, for a PDP 
     region with respect to a year, any area within such region 
     for which the Secretary determines before the beginning of 
     the year that the access requirements of the first sentence 
     of section 1860D-3(a) will not be met for part D eligible 
     individuals residing in the area for the year.
       ``(4) Fallback prescription drug plan.--For purposes of 
     this part, the term `fallback prescription drug plan' means a 
     prescription drug plan that--
       ``(A) only offers the standard prescription drug coverage 
     and access to negotiated prices described in section 1860D-
     2(a)(1)(A) and does not include any supplemental prescription 
     drug coverage; and
       ``(B) meets such other requirements as the Secretary may 
     specify.
       ``(5) Payments under the contract.--
       ``(A) In general.--A contract entered into under this 
     subsection shall provide for--
       ``(i) payment for the actual costs (taking into account 
     negotiated price concessions described in section 1860D-
     2(d)(1)(B)) of covered part D drugs provided to part D 
     eligible individuals enrolled in a fallback prescription drug 
     plan offered by the entity; and
       ``(ii) payment of management fees that are tied to 
     performance measures established by the Secretary for the 
     management, administration, and delivery of the benefits 
     under the contract.
       ``(B) Performance measures.--The performance measures 
     established by the Secretary pursuant to subparagraph (A)(ii) 
     shall include at least measures for each of the following:
       ``(i) Costs.--The entity contains costs to the Medicare 
     Prescription Drug Account and to part D eligible individuals 
     enrolled in a fallback prescription drug plan offered by the 
     entity through mechanisms such as generic substitution and 
     price discounts.
       ``(ii) Quality programs.--The entity provides such 
     enrollees with quality programs that avoid adverse drug 
     reactions and overutilization and reduce medical errors.
       ``(iii) Customer service.--The entity provides timely and 
     accurate delivery of services and pharmacy and beneficiary 
     support services.
       ``(iv) Benefit administration and claims adjudication.--The 
     entity provides efficient and effective benefit 
     administration and claims adjudication.
       ``(6) Monthly beneficiary premium.--Except as provided in 
     section 1860D-13(b) (relating to late enrollment penalty) and 
     subject to section 1860D-14 (relating to low-income 
     assistance), the monthly beneficiary premium to be charged 
     under a fallback prescription drug plan offered in all 
     fallback service areas in a PDP region shall be uniform and 
     shall be equal to 25.5 percent of an amount equal to the 
     Secretary's estimate of the average monthly per capita 
     actuarial cost, including administrative expenses, under the 
     fallback prescription drug plan of providing coverage in the 
     region, as calculated by the Chief Actuary of the Centers for 
     Medicare & Medicaid Services. In calculating such 
     administrative expenses, the Chief Actuary shall use a factor 
     that is based on similar expenses of prescription drug plans 
     that are not fallback prescription drug plans.
       ``(7) General contract terms and conditions.--
       ``(A) In general.--Except as may be appropriate to carry 
     out this section, the terms and conditions of contracts with 
     eligible fallback entities offering fallback prescription 
     drug plans under this subsection shall be the same as the 
     terms and conditions of contracts under this part for 
     prescription drug plans.
       ``(B) Period of contract.--
       ``(i) In general.--Subject to clause (ii), a contract 
     approved for a fallback prescription drug plan for fallback 
     service areas for a PDP region under this section shall be 
     for a period of 3 years (except as may be renewed after a 
     subsequent bidding process).
       ``(ii) Limitation.--A fallback prescription drug plan may 
     be offered under a contract in an area for a year only if 
     that area is a fallback service area for that year.
       ``(C) Entity not permitted to market or brand fallback 
     prescription drug plans.--An eligible fallback entity with a 
     contract under this subsection may not engage in any 
     marketing or branding of a fallback prescription drug plan.
       ``(h) Annual Report on Use of Limited Risk Plans and 
     Fallback Plans.--The Secretary shall submit to Congress an 
     annual report that describes instances in which limited risk 
     plans and fallback prescription drug plans were offered under 
     subsections (f) and (g). The Secretary shall include in such 
     report such recommendations as may be appropriate to limit 
     the need for the provision of such plans and to maximize the 
     assumption of financial risk under section subsection (f).
       ``(i) Noninterference.--In order to promote competition 
     under this part and in carrying out this part, the 
     Secretary--
       ``(1) may not interfere with the negotiations between drug 
     manufacturers and pharmacies and PDP sponsors; and
       ``(2) may not require a particular formulary or institute a 
     price structure for the reimbursement of covered part D 
     drugs.
       ``(j) Coordination of Benefits.--A PDP sponsor offering a 
     prescription drug plan shall permit State Pharmaceutical 
     Assistance Programs and Rx plans under sections 1860D-23 and 
     1860D-24 to coordinate benefits with the plan and, in 
     connection with such coordination with such a Program, not to 
     impose fees that are unrelated to the cost of coordination.


  ``requirements for and contracts with prescription drug plan (pdp) 
                                sponsors

       ``Sec. 1860D-12. (a) General Requirements.--Each PDP 
     sponsor of a prescription drug plan shall meet the following 
     requirements:
       ``(1) Licensure.--Subject to subsection (c), the sponsor 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 prescription drug 
     plan.
       ``(2) Assumption of financial risk for unsubsidized 
     coverage.--
       ``(A) In general.--Subject to subparagraph (B), to the 
     extent that the entity is at risk the entity assumes 
     financial risk on a prospective basis for benefits that it 
     offers under a prescription drug plan and that is not covered 
     under section 1860D-15(b).
       ``(B) Reinsurance permitted.--The plan sponsor may obtain 
     insurance or make other arrangements for the cost of coverage 
     provided to any enrollee to the extent that the sponsor is at 
     risk for providing such coverage.
       ``(3) Solvency for unlicensed sponsors.--In the case of a 
     PDP sponsor that is not described in paragraph (1) and for 
     which a waiver has been approved under subsection (c), such 
     sponsor shall meet solvency standards established by the 
     Secretary under subsection (d).
       ``(b) Contract Requirements.--
       ``(1) In general.--The Secretary shall not permit the 
     enrollment under section 1860D-1 in a prescription drug plan 
     offered by a PDP sponsor under this part, and the sponsor 
     shall not be eligible for payments under section 1860D-14 or 
     1860D-15, unless the Secretary has entered into a contract 
     under this subsection with the sponsor with respect to the 
     offering of such plan. Such a contract with a sponsor may 
     cover more than one prescription drug plan. Such contract 
     shall provide that the sponsor 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.
       ``(2) Limitation on entities offering fallback prescription 
     drug plans.--The Secretary shall not enter into a contract 
     with a PDP sponsor for the offering of a prescription drug 
     plan (other than a fallback prescription drug plan) in a PDP 
     region for a year if the sponsor--
       ``(A) submitted a bid under section 1860D-11(g) for such 
     year (as the first year of a contract period under such 
     section) to offer a fallback prescription drug plan in any 
     PDP region;

[[Page H11887]]

       ``(B) offers a fallback prescription drug plan in any PDP 
     region during the year; or
       ``(C) offered a fallback prescription drug plan in that PDP 
     region during the previous year.
     For purposes of this paragraph, an entity shall be treated as 
     submitting a bid with respect to a prescription drug plan or 
     offering a fallback prescription drug plan if the entity is 
     acting as a subcontractor of a PDP sponsor that is offering 
     such a plan. The previous sentence shall not apply to 
     entities that are subcontractors of an MA organization except 
     insofar as such organization is acting as a PDP sponsor with 
     respect to a prescription drug plan.
       ``(3) Incorporation of certain medicare advantage contract 
     requirements.--Except as otherwise provided, the following 
     provisions of section 1857 shall apply to contracts under 
     this section in the same manner as they apply to contracts 
     under section 1857(a):
       ``(A) Minimum enrollment.--Paragraphs (1) and (3) of 
     section 1857(b), except that--
       ``(i) the Secretary may increase the minimum number of 
     enrollees required under such paragraph (1) as the Secretary 
     determines appropriate; and
       ``(ii) the requirement of such paragraph (1) shall be 
     waived during the first contract year with respect to an 
     organization in a region.
       ``(B) Contract period and effectiveness.--Section 1857(c), 
     except that in applying paragraph (4)(B) of such section any 
     reference to payment amounts under section 1853 shall be 
     deemed payment amounts under section 1860D-15.
       ``(C) Protections against fraud and beneficiary 
     protections.--Section 1857(d).
       ``(D) Additional contract terms.--Section 1857(e); except 
     that section 1857(e)(2) shall apply as specified to PDP 
     sponsors and payments under this part to an MA-PD plan shall 
     be treated as expenditures made under part D.
       ``(E) Intermediate sanctions.--Section 1857(g) (other than 
     paragraph (1)(F) of such section), except that in applying 
     such section the reference in section 1857(g)(1)(B) to 
     section 1854 is deemed a reference to this part.
       ``(F) Procedures for termination.--Section 1857(h).
       ``(c) Waiver of Certain Requirements To Expand Choice.--
       ``(1) Authorizing waiver.--
       ``(A) In general.--In the case of an entity that seeks to 
     offer a prescription drug plan in a State, the Secretary 
     shall waive the requirement of subsection (a)(1) that the 
     entity be licensed in that State if the Secretary determines, 
     based on the application and other evidence presented to the 
     Secretary, that any of the grounds for approval of the 
     application described in paragraph (2) have been met.
       ``(B) Application of regional plan waiver rule.--In 
     addition to the waiver available under subparagraph (A), the 
     provisions of section 1858(d) shall apply to PDP sponsors 
     under this part in a manner similar to the manner in which 
     such provisions apply to MA organizations under part C, 
     except that no application shall be required under paragraph 
     (1)(B) of such section in the case of a State that does not 
     provide a licensing process for such a sponsor.
       ``(2) Grounds for approval.--
       ``(A) In general.--The grounds for approval under this 
     paragraph are--
       ``(i) subject to subparagraph (B), the grounds for approval 
     described in subparagraphs (B), (C), and (D) of section 
     1855(a)(2); and
       ``(ii) the application by a State of any grounds other than 
     those required under Federal law.
       ``(B) Special rules.--In applying subparagraph (A)(i)--
       ``(i) the ground of approval described in section 
     1855(a)(2)(B) is deemed to have been met if the State does 
     not have a licensing process in effect with respect to the 
     PDP sponsor; and
       ``(ii) for plan years beginning before January 1, 2008, if 
     the State does have such a licensing process in effect, such 
     ground for approval described in such section is deemed to 
     have been met upon submission of an application described in 
     such section.
       ``(3) Application of waiver procedures.--With respect to an 
     application for a waiver (or a waiver granted) under 
     paragraph (1)(A) of this subsection, the provisions of 
     subparagraphs (E), (F), and (G) of section 1855(a)(2) shall 
     apply, except that clauses (i) and (ii) of such subparagraph 
     (E) shall not apply in the case of a State that does not have 
     a licensing process described in paragraph (2)(B)(i) in 
     effect.
       ``(4) References to certain provisions.--In applying 
     provisions of section 1855(a)(2) under paragraphs (2) and (3) 
     of this subsection to prescription drug plans and PDP 
     sponsors--
       ``(A) any reference to a waiver application under section 
     1855 shall be treated as a reference to a waiver application 
     under paragraph (1)(A) of this subsection; and
       ``(B) any reference to solvency standards shall be treated 
     as a reference to solvency standards established under 
     subsection (d) of this section.
       ``(d) Solvency Standards for Non-Licensed Entities.--
       ``(1) Establishment and publication.--The Secretary, 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.--A PDP sponsor 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 Secretary shall 
     establish certification procedures for such sponsors 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 a PDP sponsor is licensed in 
     accordance with subsection (a)(1) or has a waiver application 
     approved under subsection (c) does not deem the sponsor to 
     meet other requirements imposed under this part for a 
     sponsor.
       ``(f) Periodic Review and Revision of Standards.--
       ``(1) In general.--Subject to paragraph (2), the Secretary 
     may periodically review the standards established under this 
     section and, based on such review, may revise such standards 
     if the Secretary determines such revision to be appropriate.
       ``(2) Prohibition of midyear implementation of significant 
     new regulatory requirements.--The Secretary may not 
     implement, other than at the beginning of a calendar year, 
     regulations under this section that impose new, significant 
     regulatory requirements on a PDP sponsor or a prescription 
     drug plan.
       ``(g) Prohibition of State Imposition of Premium Taxes; 
     Relation to State Laws.--The provisions of sections 1854(g) 
     and 1856(b)(3) shall apply with respect to PDP sponsors and 
     prescription drug plans under this part in the same manner as 
     such sections apply to MA organizations and MA plans under 
     part C.


                  ``premiums; late enrollment penalty

       ``Sec. 1860D-13. (a) Monthly Beneficiary Premium.--
       ``(1) Computation.--
       ``(A) In general.--The monthly beneficiary premium for a 
     prescription drug plan is the base beneficiary premium 
     computed under paragraph (2) as adjusted under this 
     paragraph.
       ``(B) Adjustment to reflect difference between bid and 
     national average bid.--
       ``(i) Above average bid.--If for a month the amount of the 
     standardized bid amount (as defined in paragraph (5)) exceeds 
     the amount of the adjusted national average monthly bid 
     amount (as defined in clause (iii)), the base beneficiary 
     premium for the month shall be increased by the amount of 
     such excess.
       ``(ii) Below average bid.--If for a month the amount of the 
     adjusted national average monthly bid amount for the month 
     exceeds the standardized bid amount, the base beneficiary 
     premium for the month shall be decreased by the amount of 
     such excess.
       ``(iii) Adjusted national average monthly bid amount 
     defined.--For purposes of this subparagraph, the term 
     `adjusted national average monthly bid amount' means the 
     national average monthly bid amount computed under paragraph 
     (4), as adjusted under section 1860D-15(c)(2).
       ``(C) Increase for supplemental prescription drug 
     benefits.--The base beneficiary premium shall be increased by 
     the portion of the PDP approved bid that is attributable to 
     supplemental prescription drug benefits.
       ``(D) Increase for late enrollment penalty.--The base 
     beneficiary premium shall be increased by the amount of any 
     late enrollment penalty under subsection (b).
       ``(E) Decrease for low-income assistance.--The monthly 
     beneficiary premium is subject to decrease in the case of a 
     subsidy eligible individual under section 1860D-14.
       ``(F) Uniform premium.--Except as provided in subparagraphs 
     (D) and (E), the monthly beneficiary premium for a 
     prescription drug plan in a PDP region is the same for all 
     part D eligible individuals enrolled in the plan.
       ``(2) Base beneficiary premium.--The base beneficiary 
     premium under this paragraph for a prescription drug plan for 
     a month is equal to the product--
       ``(A) the beneficiary premium percentage (as specified in 
     paragraph (3)); and
       ``(B) the national average monthly bid amount (computed 
     under paragraph (4)) for the month.
       ``(3) Beneficiary premium percentage.--For purposes of this 
     subsection, the beneficiary premium percentage for any year 
     is the percentage equal to a fraction--
       ``(A) the numerator of which is 25.5 percent; and
       ``(B) the denominator of which is 100 percent minus a 
     percentage equal to--
       ``(i) the total reinsurance payments which the Secretary 
     estimates are payable under section 1860D-15(b) with respect 
     to the coverage year; divided by
       ``(ii) the sum of--

       ``(I) the amount estimated under clause (i) for the year; 
     and
       ``(II) the total payments which the Secretary estimates 
     will be paid to prescription drug plans and MA-PD plans that 
     are attributable to the standardized bid amount during the 
     year, taking into account amounts paid by the Secretary and 
     enrollees.

       ``(4) Computation of national average monthly bid amount.--
       ``(A) In general.--For each year (beginning with 2006) the 
     Secretary shall compute a national average monthly bid amount 
     equal to the average of the standardized bid amounts (as 
     defined in paragraph (5)) for each prescription drug plan and 
     for each MA-PD plan described in section 1851(a)(2)(A)(i). 
     Such average does not take into account the bids submitted 
     for MSA plans, MA private fee-for-service plan, and 
     specialized MA plans for special needs individuals, PACE 
     programs under section 1894 (pursuant to section 1860D-
     21(f)), and under reasonable cost reimbursement contracts 
     under section 1876(h) (pursuant to section 1860D-21(e)).
       ``(B) Weighted average.--
       ``(i) In general.--The monthly national average monthly bid 
     amount computed under subparagraph (A) for a year shall be a 
     weighted average, with the weight for each plan being equal 
     to the average number of part D eligible individuals enrolled 
     in such plan in the reference month (as defined in section 
     1858(f)(4)).
       ``(ii) Special rule for 2006.--For purposes of applying 
     this paragraph for 2006, the Secretary

[[Page H11888]]

     shall establish procedures for determining the weighted 
     average under clause (i) for 2005.
       ``(5) Standardized bid amount defined.--For purposes of 
     this subsection, the term `standardized bid amount' means the 
     following:
       ``(A) Prescription drug plans.--
       ``(i) Basic coverage.--In the case of a prescription drug 
     plan that provides basic prescription drug coverage, the PDP 
     approved bid (as defined in paragraph (6)).
       ``(ii) Supplemental coverage.--In the case of a 
     prescription drug plan that provides supplemental 
     prescription drug coverage, the portion of the PDP approved 
     bid that is attributable to basic prescription drug coverage.
       ``(B) MA-PD plans.--In the case of an MA-PD plan, the 
     portion of the accepted bid amount that is attributable to 
     basic prescription drug coverage.
       ``(6) PDP approved bid defined.--For purposes of this part, 
     the term `PDP approved bid' means, with respect to a 
     prescription drug plan, the bid amount approved for the plan 
     under this part.
       ``(b) Late Enrollment Penalty.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this subsection, in the case of a part D eligible individual 
     described in paragraph (2) with respect to a continuous 
     period of eligibility, there shall be an increase in the 
     monthly beneficiary premium established under subsection (a) 
     in an amount determined under paragraph (3).
       ``(2) Individuals subject to penalty.--A part D eligible 
     individual described in this paragraph is, with respect to a 
     continuous period of eligibility, an individual for whom 
     there is a continuous period of 63 days or longer (all of 
     which in such continuous period of eligibility) beginning on 
     the day after the last date of the individual's initial 
     enrollment period under section 1860D-1(b)(2) and ending on 
     the date of enrollment under a prescription drug plan or MA-
     PD plan during all of which the individual was not covered 
     under any creditable prescription drug coverage.
       ``(3) Amount of penalty.--
       ``(A) In general.--The amount determined under this 
     paragraph for a part D eligible individual for a continuous 
     period of eligibility is the greater of--
       ``(i) an amount that the Secretary determines is 
     actuarially sound for each uncovered month (as defined in 
     subparagraph (B)) in the same continuous period of 
     eligibility; or
       ``(ii) 1 percent of the base beneficiary premium (computed 
     under subsection (a)(2)) for each such uncovered month in 
     such period.
       ``(B) Uncovered month defined.--For purposes of this 
     subsection, the term `uncovered month' means, with respect to 
     a part D eligible individual, any month beginning after the 
     end of the initial enrollment period under section 1860D-
     1(b)(2) unless the individual can demonstrate that the 
     individual had creditable prescription drug coverage (as 
     defined in paragraph (4)) for any portion of such month.
       ``(4) Creditable prescription drug coverage defined.--For 
     purposes of this part, the term `creditable prescription drug 
     coverage' means any of the following coverage, but only if 
     the coverage meets the requirement of paragraph (5):
       ``(A) Coverage under prescription drug plan or ma-pd 
     plan.--Coverage under a prescription drug plan or under an 
     MA-PD plan.
       ``(B) Medicaid.--Coverage under a medicaid plan under title 
     XIX or under a waiver under section 1115.
       ``(C) Group health plan.--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-
     22(a)(2)).
       ``(D) State pharmaceutical assistance program.--Coverage 
     under a State pharmaceutical assistance program described in 
     section 1860D-23(b)(1).
       ``(E) Veterans' coverage of prescription drugs.--Coverage 
     for veterans, and survivors and dependents of veterans, under 
     chapter 17 of title 38, United States Code.
       ``(F) 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) Military coverage (including tricare).--Coverage 
     under chapter 55 of title 10, United States Code.
       ``(H) Other coverage.--Such other coverage as the Secretary 
     determines appropriate.
       ``(5) Actuarial equivalence requirement.--Coverage meets 
     the requirement of this paragraph only if the coverage is 
     determined (in a manner specified by the Secretary) to 
     provide coverage of the cost of prescription drugs the 
     actuarial value of which (as defined by the Secretary) to the 
     individual equals or exceeds the actuarial value of standard 
     prescription drug coverage (as determined under section 
     1860D-11(c)).
       ``(6) Procedures to document creditable prescription drug 
     coverage.--
       ``(A) In general.--The Secretary shall establish procedures 
     (including the form, manner, and time) for the documentation 
     of creditable prescription drug coverage, including 
     procedures to assist in determining whether coverage meets 
     the requirement of paragraph (5).
       ``(B) Disclosure by entities offering creditable 
     prescription drug coverage.--
       ``(i) In general.--Each entity that offers prescription 
     drug coverage of the type described in subparagraphs (B) 
     through (H) of paragraph (4) shall provide for disclosure, in 
     a form, manner, and time consistent with standards 
     established by the Secretary, to the Secretary and part D 
     eligible individuals of whether the coverage meets the 
     requirement of paragraph (5) or whether such coverage is 
     changed so it no longer meets such requirement.
       ``(ii) Disclosure of non-creditable coverage.--In the case 
     of such coverage that does not meet such requirement, the 
     disclosure to part D eligible individuals under this 
     subparagraph shall include information regarding the fact 
     that because such coverage does not meet such requirement 
     there are limitations on the periods in a year in which the 
     individuals may enroll under a prescription drug plan or an 
     MA-PD plan and that any such enrollment is subject to a late 
     enrollment penalty under this subsection.
       ``(C) Waiver of requirement.--In the case of a part D 
     eligible individual who was enrolled in prescription drug 
     coverage of the type described in subparagraphs (B) through 
     (H) of paragraph (4) which is not creditable prescription 
     drug coverage because it does not meet the requirement of 
     paragraph (5), the individual may apply to the Secretary to 
     have such coverage treated as creditable prescription drug 
     coverage if the individual establishes that the individual 
     was not adequately informed that such coverage did not meet 
     such requirement.
       ``(7) Continuous period of eligibility.--
       ``(A) In general.--Subject to subparagraph (B), for 
     purposes of this subsection, the term `continuous period of 
     eligibility' means, with respect to a part D eligible 
     individual, the period that begins with the first day on 
     which the individual is eligible to enroll in a prescription 
     drug plan under this part and ends with the individual's 
     death.
       ``(B) Separate period.--Any period during all of which a 
     part D eligible individual is entitled to hospital insurance 
     benefits under part A and--
       ``(i) which terminated in or before the month preceding the 
     month in which the individual attained age 65; or
       ``(ii) for which the basis for eligibility for such 
     entitlement changed between section 226(b) and section 
     226(a), between 226(b) and section 226A, or between section 
     226A and section 226(a),
     shall be a separate continuous period of eligibility with 
     respect to the individual (and each such period which 
     terminates shall be deemed not to have existed for purposes 
     of subsequently applying this paragraph).
       ``(c) Collection of Monthly Beneficiary Premiums.--
       ``(1) In general.--Subject to paragraphs (2) and (3), the 
     provisions of section 1854(d) shall apply to PDP sponsors and 
     premiums (and any late enrollment penalty) under this part in 
     the same manner as they apply to MA organizations and 
     beneficiary premiums under part C, except that any reference 
     to a Trust Fund is deemed for this purpose a reference to the 
     Medicare Prescription Drug Account.
       ``(2) Crediting of late enrollment penalty.--
       ``(A) Portion attributable to increased actuarial costs.--
     With respect to late enrollment penalties imposed under 
     subsection (b), the Secretary shall specify the portion of 
     such a penalty that the Secretary estimates is attributable 
     to increased actuarial costs assumed by the PDP sponsor or MA 
     organization (and not taken into account through risk 
     adjustment provided under section 1860D-15(c)(1) or through 
     reinsurance payments under section 1860D-15(b)) as a result 
     of such late enrollment.
       ``(B) Collection through withholding.--In the case of a 
     late enrollment penalty that is collected from a part D 
     eligible individual in the manner described in section 
     1854(d)(2)(A), the Secretary shall provide that only the 
     portion of such penalty estimated under subparagraph (A) 
     shall be paid to the PDP sponsor or MA organization offering 
     the part D plan in which the individual is enrolled.
       ``(C) Collection by plan.--In the case of a late enrollment 
     penalty that is collected from a part D eligible individual 
     in a manner other than the manner described in section 
     1854(d)(2)(A), the Secretary shall establish procedures for 
     reducing payments otherwise made to the PDP sponsor or MA 
     organization by an amount equal to the amount of such penalty 
     less the portion of such penalty estimated under subparagraph 
     (A).
       ``(3) Fallback plans.--In applying this subsection in the 
     case of a fallback prescription drug plan, paragraph (2) 
     shall not apply and the monthly beneficiary premium shall be 
     collected in the manner specified in section 1854(d)(2)(A) 
     (or such other manner as may be provided under section 1840 
     in the case of monthly premiums under section 1839).


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

       ``Sec. 1860D-14. (a) Income-Related Subsidies for 
     Individuals With Income Up to 150 Percent of Poverty Line.--
       ``(1) Individuals with income below 135 percent of poverty 
     line.--In the case of a subsidy eligible individual (as 
     defined in paragraph (3)) who is determined to have income 
     that is below 135 percent of the poverty line applicable to a 
     family of the size involved and who meets the resources 
     requirement described in paragraph (3)(D) or who is covered 
     under this paragraph under paragraph (3)(B)(i), the 
     individual is entitled under this section to the following:
       ``(A) Full premium subsidy.--An income-related premium 
     subsidy equal to--
       ``(i) 100 percent of the amount described in subsection 
     (b)(1), but not to exceed the premium amount specified in 
     subsection (b)(2)(B); plus
       ``(ii) 80 percent of any late enrollment penalties imposed 
     under section 1860D-13(b) for the first 60 months in which 
     such penalties are imposed for that individual, and 100 
     percent of any such penalties for any subsequent month.
       ``(B) Elimination of deductible.--A reduction in the annual 
     deductible applicable under section 1860D-2(b)(1) to $0.
       ``(C) Continuation of coverage above the initial coverage 
     limit.--The continuation of

[[Page H11889]]

     coverage from the initial coverage limit (under paragraph (3) 
     of section 1860D-2(b)) for expenditures incurred through the 
     total amount of expenditures at which benefits are available 
     under paragraph (4) of such section, subject to the reduced 
     cost-sharing described in subparagraph (D).
       ``(D) Reduction in cost-sharing below out-of-pocket 
     threshold.--
       ``(i) Institutionalized individuals.--In the case of an 
     individual who is a full-benefit dual eligible individual and 
     who is an institutionalized individual or couple (as defined 
     in section 1902(q)(1)(B)), the elimination of any beneficiary 
     coinsurance described in section 1860D-2(b)(2) (for all 
     amounts through the total amount of expenditures at which 
     benefits are available under section 1860D-2(b)(4)).
       ``(ii) Lowest income dual eligible individuals.--In the 
     case of an individual not described in clause (i) who is a 
     full-benefit dual eligible individual and whose income does 
     not exceed 100 percent of the poverty line applicable to a 
     family of the size involved, the substitution for the 
     beneficiary coinsurance described in section 1860D-2(b)(2) 
     (for all amounts through the total amount of expenditures at 
     which benefits are available under section 1860D-2(b)(4)) of 
     a copayment amount that does not exceed $1 for a generic drug 
     or a preferred drug that is a multiple source drug (as 
     defined in section 1927(k)(7)(A)(i)) and $3 for any other 
     drug, or, if less, the copayment amount applicable to an 
     individual under clause (iii).
       ``(iii) Other individuals.--In the case of an individual 
     not described in clause (i) or (ii), the substitution for the 
     beneficiary coinsurance described in section 1860D-2(b)(2) 
     (for all amounts through the total amount of expenditures at 
     which benefits are available under section 1860D-2(b)(4)) of 
     a copayment amount that does not exceed the copayment amount 
     specified under section 1860D-2(b)(4)(A)(i)(I) for the drug 
     and year involved.
       ``(E) Elimination of cost-sharing above annual out-of-
     pocket threshold.--The elimination of any cost-sharing 
     imposed under section 1860D-2(b)(4)(A).
       ``(2) Other individuals with income below 150 percent of 
     poverty line.--In the case of a subsidy eligible individual 
     who is not described in paragraph (1), the individual is 
     entitled under this section to the following:
       ``(A) Sliding scale premium subsidy.--An income-related 
     premium subsidy determined on a linear sliding scale ranging 
     from 100 percent of the amount described in paragraph (1)(A) 
     for individuals with incomes at or below 135 percent of such 
     level to 0 percent of such amount for individuals with 
     incomes at 150 percent of such level.
       ``(B) Reduction of deductible.--A reduction in the annual 
     deductible applicable under section 1860D-2(b)(1) to $50.
       ``(C) Continuation of coverage above the initial coverage 
     limit.--The continuation of coverage from the initial 
     coverage limit (under paragraph (3) of section 1860D-2(b)) 
     for expenditures incurred through the total amount of 
     expenditures at which benefits are available under paragraph 
     (4) of such section, subject to the reduced coinsurance 
     described in subparagraph (D).
       ``(D) Reduction in cost-sharing below out-of-pocket 
     threshold.--The substitution for the beneficiary coinsurance 
     described in section 1860D-2(b)(2) (for all amounts above the 
     deductible under subparagraph (B) through the total amount of 
     expenditures at which benefits are available under section 
     1860D-2(b)(4)) of coinsurance of `15 percent' instead of 
     coinsurance of `25 percent' in section 1860D-2(b)(2).
       ``(E) Reduction of cost-sharing above annual out-of-pocket 
     threshold.--Subject to subsection (c), the substitution for 
     the cost-sharing imposed under section 1860D-2(b)(4)(A) of a 
     copayment or coinsurance not to exceed the copayment or 
     coinsurance amount specified under section 1860D-
     2(b)(4)(A)(i)(I) for the drug and year involved.
       ``(3) Determination of eligibility.--
       ``(A) Subsidy eligible individual defined.--For purposes of 
     this part, subject to subparagraph (F), the term `subsidy 
     eligible individual' means a part D eligible individual who--
       ``(i) is enrolled in a prescription drug plan or MA-PD 
     plan;
       ``(ii) has income below 150 percent of the poverty line 
     applicable to a family of the size involved; and
       ``(iii) meets the resources requirement described in 
     subparagraph (D) or (E).
       ``(B) Determinations.--
       ``(i) In general.--The determination of whether a part D 
     eligible individual residing in a State is a subsidy eligible 
     individual and whether the individual is described in 
     paragraph (1) shall be determined under the State plan under 
     title XIX for the State under section 1935(a) or by the 
     Commissioner of Social Security. There are authorized to be 
     appropriated to the Social Security Administration such sums 
     as may be necessary for the determination of eligibility 
     under this subparagraph.
       ``(ii) Effective period.--Determinations under this 
     subparagraph shall be effective beginning with the month in 
     which the individual applies for a determination that the 
     individual is a subsidy eligible individual and shall remain 
     in effect for a period specified by the Secretary, but not to 
     exceed 1 year.
       ``(iii) Redeterminations and appeals through medicaid.--
     Redeterminations and appeals, with respect to eligibility 
     determinations under clause (i) made under a State plan under 
     title XIX, shall be made in accordance with the frequency of, 
     and manner in which, redeterminations and appeals of 
     eligibility are made under such plan for purposes of medical 
     assistance under such title.
       ``(iv) Redeterminations and appeals through commissioner.--
     With respect to eligibility determinations under clause (i) 
     made by the Commissioner of Social Security--

       ``(I) redeterminations shall be made at such time or times 
     as may be provided by the Commissioner; and
       ``(II) the Commissioner shall establish procedures for 
     appeals of such determinations that are similar to the 
     procedures described in the third sentence of section 
     1631(c)(1)(A).

       ``(v) Treatment of medicaid beneficiaries.--Subject to 
     subparagraph (F), the Secretary--

       ``(I) shall provide that part D eligible individuals who 
     are full-benefit dual eligible individuals (as defined in 
     section 1935(c)(6)) or who are recipients of supplemental 
     security income benefits under title XVI shall be treated as 
     subsidy eligible individuals described in paragraph (1); and
       ``(II) may provide that part D eligible individuals not 
     described in subclause (I) who are determined for purposes of 
     the State plan under title XIX to be eligible for medical 
     assistance under clause (i), (iii), or (iv) of section 
     1902(a)(10)(E) are treated as being determined to be subsidy 
     eligible individuals described in paragraph (1).

     Insofar as the Secretary determines that the eligibility 
     requirements under the State plan for medical assistance 
     referred to in subclause (II) are substantially the same as 
     the requirements for being treated as a subsidy eligible 
     individual described in paragraph (1), the Secretary shall 
     provide for the treatment described in such subclause.
       ``(C) Income determinations.--For purposes of applying this 
     section--
       ``(i) in the case of a part D eligible individual who is 
     not treated as a subsidy eligible individual under 
     subparagraph (B)(v), income shall be determined in the manner 
     described in section 1905(p)(1)(B), without regard to the 
     application of section 1902(r)(2); and
       ``(ii) 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.
     Nothing in clause (i) shall be construed to affect the 
     application of section 1902(r)(2) for the determination of 
     eligibility for medical assistance under title XIX.
       ``(D) Resource standard applied to full low-income subsidy 
     to be based on three times ssi resource standard.--The 
     resources requirement of this subparagraph is that an 
     individual's resources (as determined under section 1613 for 
     purposes of the supplemental security income program) do not 
     exceed--
       ``(i) for 2006 three times the maximum amount of resources 
     that an individual may have and obtain benefits under that 
     program; and
       ``(ii) for a subsequent year the resource limitation 
     established under this clause for the previous year increased 
     by the annual percentage increase in the consumer price index 
     (all items; U.S. city average) as of September of such 
     previous year.
     Any resource limitation established under clause (ii) that is 
     not a multiple of $10 shall be rounded to the nearest 
     multiple of $10.
       ``(E) Alternative resource standard.--
       ``(i) In general.--The resources requirement of this 
     subparagraph is that an individual's resources (as determined 
     under section 1613 for purposes of the supplemental security 
     income program) do not exceed--

       ``(I) for 2006, $10,000 (or $20,000 in the case of the 
     combined value of the individual's assets or resources and 
     the assets or resources of the individual's spouse); and
       ``(II) for a subsequent year the dollar amounts specified 
     in this subclause (or subclause (I)) for the previous year 
     increased by the annual percentage increase in the consumer 
     price index (all items; U.S. city average) as of September of 
     such previous year.

     Any dollar amount established under subclause (II) that is 
     not a multiple of $10 shall be rounded to the nearest 
     multiple of $10.
       ``(ii) Use of simplified application form and process.--The 
     Secretary, jointly with the Commissioner of Social Security, 
     shall--

       ``(I) develop a model, simplified application form and 
     process consistent with clause (iii) for the determination 
     and verification of a part D eligible individual's assets or 
     resources under this subparagraph; and
       ``(II) provide such form to States.

       ``(iii) Documentation and safeguards.--Under such process--

       ``(I) the application form shall consist of an attestation 
     under penalty of perjury regarding the level of assets or 
     resources (or combined assets and resources in the case of a 
     married part D eligible individual) and valuations of general 
     classes of assets or resources;
       ``(II) such form shall be accompanied by copies of recent 
     statements (if any) from financial institutions in support of 
     the application; and
       ``(III) matters attested to in the application shall be 
     subject to appropriate methods of verification.

       ``(iv) Methodology flexibility.--The Secretary may permit a 
     State in making eligibility determinations for premium and 
     cost-sharing subsidies under this section to use the same 
     asset or resource methodologies that are used with respect to 
     eligibility for medical assistance for medicare cost-sharing 
     described in section 1905(p) so long as the Secretary 
     determines that the use of such methodologies will not result 
     in any significant differences in the number of individuals 
     determined to be subsidy eligible individuals.
       ``(F) Treatment of territorial residents.--In the case of a 
     part D eligible individual who is not a resident of the 50 
     States or the District of Columbia, the individual is not 
     eligible to be a subsidy eligible individual under

[[Page H11890]]

     this section but may be eligible for financial assistance 
     with prescription drug expenses under section 1935(e).
       ``(4) Indexing dollar amounts.--
       ``(A) Copayment for lowest income dual eligible 
     individuals.--The dollar amounts applied under paragraph 
     (1)(D)(ii)--
       ``(i) for 2007 shall be the dollar amounts specified in 
     such paragraph increased by the annual percentage increase in 
     the consumer price index (all items; U.S. city average) as of 
     September of such previous year; or
       ``(ii) for a subsequent year shall be the dollar amounts 
     specified in this clause (or clause (i)) for the previous 
     year increased by the annual percentage increase in the 
     consumer price index (all items; U.S. city average) as of 
     September of such previous year.

     Any amount established under clause (i) or (ii), that is 
     based on an increase of $1 or $3, that is not a multiple of 5 
     cents or 10 cents, respectively, shall be rounded to the 
     nearest multiple of 5 cents or 10 cents, respectively.
       ``(B) Reduced deductible.--The dollar amount applied under 
     paragraph (2)(B)--
       ``(i) for 2007 shall be the dollar amount specified in such 
     paragraph increased by the annual percentage increase 
     described in section 1860D-2(b)(6) for 2007; or
       ``(ii) for a subsequent year shall be the dollar amount 
     specified in this clause (or clause (i)) for the previous 
     year increased by the annual percentage increase described in 
     section 1860D-2(b)(6) for the year involved.

     Any amount established under clause (i) or (ii) that is not a 
     multiple of $1 shall be rounded to the nearest multiple of 
     $1.
       ``(b) Premium Subsidy Amount.--
       ``(1) In general.--The premium subsidy amount described in 
     this subsection for a subsidy eligible individual residing in 
     a PDP region and enrolled in a prescription drug plan or MA-
     PD plan is the low-income benchmark premium amount (as 
     defined in paragraph (2)) for the PDP region in which the 
     individual resides or, if greater, the amount specified in 
     paragraph (3).
       ``(2) Low-income benchmark premium amount defined.--
       ``(A) In general.--For purposes of this subsection, the 
     term `low-income benchmark premium amount' means, with 
     respect to a PDP region in which--
       ``(i) all prescription drug plans are offered by the same 
     PDP sponsor, the weighted average of the amounts described in 
     subparagraph (B)(i) for such plans; or
       ``(ii) there are prescription drug plans offered by more 
     than one PDP sponsor, the weighted average of amounts 
     described in subparagraph (B) for prescription drug plans and 
     MA-PD plans described in section 1851(a)(2)(A)(i) offered in 
     such region.
       ``(B) Premium amounts described.--The premium amounts 
     described in this subparagraph are, in the case of--
       ``(i) a prescription drug plan that is a basic prescription 
     drug plan, the monthly beneficiary premium for such plan;
       ``(ii) a prescription drug plan that provides alternative 
     prescription drug coverage the actuarial value of which is 
     greater than that of standard prescription drug coverage, the 
     portion of the monthly beneficiary premium that is 
     attributable to basic prescription drug coverage; and
       ``(iii) an MA-PD plan, the portion of the MA monthly 
     prescription drug beneficiary premium that is attributable to 
     basic prescription drug benefits (described in section 
     1852(a)(6)(B)(ii)).

     The premium amounts described in this subparagraph do not 
     include any amounts attributable to late enrollment penalties 
     under section 1860D-13(b).
       ``(3) Access to 0 premium plan.--In no case shall the 
     premium subsidy amount under this subsection for a PDP region 
     be less than the lowest monthly beneficiary premium for a 
     prescription drug plan that offers basic prescription drug 
     coverage in the region.
       ``(c) Administration of Subsidy Program.--
       ``(1) In general.--The Secretary shall provide a process 
     whereby, in the case of a part D eligible individual who is 
     determined to be a subsidy eligible individual and who is 
     enrolled in a prescription drug plan or is enrolled in an MA-
     PD plan--
       ``(A) the Secretary provides for a notification of the PDP 
     sponsor or the MA organization offering the plan involved 
     that the individual is eligible for a subsidy and the amount 
     of the subsidy under subsection (a);
       ``(B) the sponsor or organization involved reduces the 
     premiums or cost-sharing otherwise imposed by the amount of 
     the applicable subsidy and submits to the Secretary 
     information on the amount of such reduction;
       ``(C) the Secretary periodically and on a timely basis 
     reimburses the sponsor or organization for the amount of such 
     reductions; and
       ``(D) the Secretary ensures the confidentiality of 
     individually identifiable information.
     In applying subparagraph (C), the Secretary shall compute 
     reductions based upon imposition under subsections (a)(1)(D) 
     and (a)(2)(E) of unreduced copayment amounts applied under 
     such subsections.
       ``(2) Use of capitated form of payment.--The reimbursement 
     under this section with respect to cost-sharing subsidies 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 special provisions 
     under the medicaid program relating to medicare prescription 
     drug benefits, see section 1935.


``subsidies for part d eligible individuals for qualified prescription 
                             drug coverage

       ``Sec. 1860D-15. (a) Subsidy Payment.--In order to reduce 
     premium levels applicable to qualified prescription drug 
     coverage for part D eligible individuals consistent with an 
     overall subsidy level of 74.5 percent for basic prescription 
     drug coverage, to reduce adverse selection among prescription 
     drug plans and MA-PD plans, and to promote the participation 
     of PDP sponsors under this part and MA organizations under 
     part C, the Secretary shall provide for payment to a PDP 
     sponsor that offers a prescription drug plan and an MA 
     organization that offers an MA-PD plan of the following 
     subsidies in accordance with this section:
       ``(1) Direct subsidy.--A direct subsidy for each part D 
     eligible individual enrolled in a prescription drug plan or 
     MA-PD plan for a month equal to--
       ``(A) the amount of the plan's standardized bid amount (as 
     defined in section 1860D-13(a)(5)), adjusted under subsection 
     (c)(1), reduced by
       ``(B) the base beneficiary premium (as computed under 
     paragraph (2) of section 1860D-13(a) and as adjusted under 
     paragraph (1)(B) of such section).
       ``(2) Subsidy through reinsurance.--The reinsurance payment 
     amount (as defined in subsection (b)).

     This section constitutes budget authority in advance of 
     appropriations Acts and represents the obligation of the 
     Secretary to provide for the payment of amounts provided 
     under this section.
       ``(b) Reinsurance Payment Amount.--
       ``(1) In general.--The reinsurance payment amount under 
     this subsection for a part D eligible individual enrolled in 
     a prescription drug plan or MA-PD plan for a coverage year is 
     an amount equal to 80 percent of the allowable reinsurance 
     costs (as specified in paragraph (2)) attributable to that 
     portion of gross covered prescription drug costs as specified 
     in paragraph (3) incurred in the coverage year after such 
     individual has incurred costs that exceed the annual out-of-
     pocket threshold specified in section 1860D-2(b)(4)(B).
       ``(2) Allowable reinsurance costs.--For purposes of this 
     section, the term `allowable reinsurance costs' means, with 
     respect to gross covered prescription drug costs under a 
     prescription drug plan offered by a PDP sponsor or an MA-PD 
     plan offered by an MA organization, the part of such costs 
     that are actually paid (net of discounts, chargebacks, and 
     average percentage rebates) by the sponsor or organization or 
     by (or on behalf of) an enrollee under the plan, but in no 
     case more than the part of such costs that would have been 
     paid under the plan if the prescription drug coverage under 
     the plan were basic prescription drug coverage, or, in the 
     case of a plan providing supplemental prescription drug 
     coverage, if such coverage were standard prescription drug 
     coverage.
       ``(3) Gross covered prescription drug costs.--For purposes 
     of this section, the term `gross covered prescription drug 
     costs' means, with respect to a part D eligible individual 
     enrolled in a prescription drug plan or MA-PD plan during a 
     coverage year, the costs incurred under the plan, not 
     including administrative costs, but including costs directly 
     related to the dispensing of covered part D drugs during the 
     year and costs relating to the deductible. Such costs shall 
     be determined whether they are paid by the individual or 
     under the plan, regardless of whether the coverage under the 
     plan exceeds basic prescription drug coverage.
       ``(4) Coverage year defined.--For purposes of this section, 
     the term `coverage year' means a calendar year in which 
     covered part D drugs are dispensed if the claim for such 
     drugs (and payment on such claim) is made not later than such 
     period after the end of such year as the Secretary specifies.
       ``(c) Adjustments Relating to Bids.--
       ``(1) Health status risk adjustment.--
       ``(A) Establishment of risk adjustors.--The Secretary shall 
     establish an appropriate methodology for adjusting the 
     standardized bid amount under subsection (a)(1)(A) to take 
     into account variation in costs for basic prescription drug 
     coverage among prescription drug plans and MA-PD plans based 
     on the differences in actuarial risk of different enrollees 
     being served. Any such risk adjustment shall be designed in a 
     manner so as not to result in a change in the aggregate 
     amounts payable to such plans under subsection (a)(1) and 
     through that portion of the monthly beneficiary prescription 
     drug premiums described in subsection (a)(1)(B) and MA 
     monthly prescription drug beneficiary premiums.
       ``(B) Considerations.--In establishing the methodology 
     under subparagraph (A), the Secretary may take into account 
     the similar methodologies used under section 1853(a)(3) to 
     adjust payments to MA organizations for benefits under the 
     original medicare fee-for-service program option.
       ``(C) Data collection.--In order to carry out this 
     paragraph, the Secretary shall require--
       ``(i) PDP sponsors to submit data regarding drug claims 
     that can be linked at the individual level to part A and part 
     B data and such other information as the Secretary determines 
     necessary; and
       ``(ii) MA organizations that offer MA-PD plans to submit 
     data regarding drug claims that can be linked at the 
     individual level to other data that such organizations are 
     required to submit to the Secretary and such other 
     information as the Secretary determines necessary.
       ``(D) Publication.--At the time of publication of risk 
     adjustment factors under section 1853(b)(1)(B)(i)(II), the 
     Secretary shall publish the risk adjusters established under 
     this paragraph for the succeeding year.
       ``(2) Geographic adjustment.--
       ``(A) In general.--Subject to subparagraph (B), for 
     purposes of section 1860D-13(a)(1)(B)(iii), the Secretary 
     shall establish an

[[Page H11891]]

     appropriate methodology for adjusting the national average 
     monthly bid amount (computed under section 1860D-13(a)(4)) to 
     take into account differences in prices for covered part D 
     drugs among PDP regions.
       ``(B) De minimis rule.--If the Secretary determines that 
     the price variations described in subparagraph (A) among PDP 
     regions are de minimis, the Secretary shall not provide for 
     adjustment under this paragraph.
       ``(C) Budget neutral adjustment.--Any adjustment under this 
     paragraph 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 Secretary had not applied such 
     adjustment.
       ``(d) Payment Methods.--
       ``(1) In general.--Payments under this section shall be 
     based on such a method as the Secretary determines. The 
     Secretary may establish a payment method by which interim 
     payments of amounts under this section are made during a year 
     based on the Secretary's best estimate of amounts that will 
     be payable after obtaining all of the information.
       ``(2) Requirement for provision of information.--
       ``(A) Requirement.--Payments under this section to a PDP 
     sponsor or MA organization are conditioned upon the 
     furnishing to the Secretary, in a form and manner specified 
     by the Secretary, of such information as may be required to 
     carry out this section.
       ``(B) Restriction on use of information.--Information 
     disclosed or obtained pursuant to subparagraph (A) may be 
     used by officers, employees, and contractors of the 
     Department of Health and Human Services only for the purposes 
     of, and to the extent necessary in, carrying out this 
     section.
       ``(3) Source of payments.--Payments under this section 
     shall be made from the Medicare Prescription Drug Account.
       ``(4) Application of enrollee adjustment.--The provisions 
     of section 1853(a)(2) shall apply to payments to PDP sponsors 
     under this section in the same manner as they apply to 
     payments to MA organizations under section 1853(a).
       ``(e) Portion of Total Payments to a Sponsor or 
     Organization Subject to Risk (Application of Risk 
     Corridors).--
       ``(1) Computation of adjusted allowable risk corridor 
     costs.--
       ``(A) In general.--For purposes of this subsection, the 
     term `adjusted allowable risk corridor costs' means, for a 
     plan for a coverage year (as defined in subsection (b)(4))--
       ``(i) the allowable risk corridor costs (as defined in 
     subparagraph (B)) for the plan for the year, reduced by
       ``(ii) the sum of (I) the total reinsurance payments made 
     under subsection (b) to the sponsor of the plan for the year, 
     and (II) the total subsidy payments made under section 1860D-
     14 to the sponsor of the plan for the year.
       ``(B) Allowable risk corridor costs.--For purposes of this 
     subsection, the term `allowable risk corridor costs' means, 
     with respect to a prescription drug plan offered by a PDP 
     sponsor or an MA-PD plan offered by an MA organization, the 
     part of costs (not including administrative costs, but 
     including costs directly related to the dispensing of covered 
     part D drugs during the year) incurred by the sponsor or 
     organization under the plan that are actually paid (net of 
     discounts, chargebacks, and average percentage rebates) by 
     the sponsor or organization under the plan, but in no case 
     more than the part of such costs that would have been paid 
     under the plan if the prescription drug coverage under the 
     plan were basic prescription drug coverage, or, in the case 
     of a plan providing supplemental prescription drug coverage, 
     if such coverage were basic prescription drug coverage taking 
     into account the adjustment under section 1860D-11(c)(2). In 
     computing allowable costs under this paragraph, the Secretary 
     shall compute such costs based upon imposition under 
     paragraphs (1)(D) and (2)(E) of section 1860D-14(a) of the 
     maximum amount of copayments permitted under such paragraphs.
       ``(2) Adjustment of payment.--
       ``(A) No adjustment if adjusted allowable risk corridor 
     costs within risk corridor.--If the adjusted allowable risk 
     corridor costs (as defined in paragraph (1)) for the plan for 
     the year are at least equal to the first threshold lower 
     limit of the risk corridor (specified in paragraph 
     (3)(A)(i)), but not greater than the first threshold upper 
     limit of the risk corridor (specified in paragraph 
     (3)(A)(iii)) for the plan for the year, then no payment 
     adjustment shall be made under this subsection.
       ``(B) Increase in payment if adjusted allowable risk 
     corridor costs above upper limit of risk corridor.--
       ``(i) Costs between first and second threshold upper 
     limits.--If the adjusted allowable risk corridor costs for 
     the plan for the year are greater than the first threshold 
     upper limit, but not greater than the second threshold upper 
     limit, of the risk corridor for the plan for the year, the 
     Secretary shall increase the total of the payments made to 
     the sponsor or organization offering the plan for the year 
     under this section by an amount equal to 50 percent (or, for 
     2006 and 2007, 75 percent or 90 percent if the conditions 
     described in clause (iii) are met for the year) of the 
     difference between such adjusted allowable risk corridor 
     costs and the first threshold upper limit of the risk 
     corridor.
       ``(ii) Costs above second threshold upper limits.--If the 
     adjusted allowable risk corridor costs for the plan for the 
     year are greater than the second threshold upper limit of the 
     risk corridor for the plan for the year, the Secretary shall 
     increase the total of the payments made to the sponsor or 
     organization offering the plan for the year under this 
     section by an amount equal to the sum of--

       ``(I) 50 percent (or, for 2006 and 2007, 75 percent or 90 
     percent if the conditions described in clause (iii) are met 
     for the year) of the difference between the second threshold 
     upper limit and the first threshold upper limit; and
       ``(II) 80 percent of the difference between such adjusted 
     allowable risk corridor costs and the second threshold upper 
     limit of the risk corridor.

       ``(iii) Conditions for application of higher percentage for 
     2006 and 2007.--The conditions described in this clause are 
     met for 2006 or 2007 if the Secretary determines with respect 
     to such year that--

       ``(I) at least 60 percent of prescription drug plans and 
     MA-PD plans to which this subsection applies have adjusted 
     allowable risk corridor 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
       ``(II) such plans represent at least 60 percent of part D 
     eligible individuals enrolled in any prescription drug plan 
     or MA-PD plan.

       ``(C) Reduction in payment if adjusted allowable risk 
     corridor costs below lower limit of risk corridor.--
       ``(i) Costs between first and second threshold lower 
     limits.--If the adjusted allowable risk corridor costs for 
     the plan for the year are less than the first threshold lower 
     limit, but not less than the second threshold lower limit, of 
     the risk corridor for the plan for the year, the Secretary 
     shall reduce the total of the payments made to the sponsor or 
     organization offering the plan for the year under this 
     section by an amount (or otherwise recover from the sponsor 
     or organization an amount) equal to 50 percent (or, for 2006 
     and 2007, 75 percent) of the difference between the first 
     threshold lower limit of the risk corridor and such adjusted 
     allowable risk corridor costs.
       ``(ii) Costs below second threshold lower limit.--If the 
     adjusted allowable risk corridor costs for the plan for the 
     year are less the second threshold lower limit of the risk 
     corridor for the plan for the year, the Secretary shall 
     reduce the total of the payments made to the sponsor or 
     organization offering the plan for the year under this 
     section by an amount (or otherwise recover from the sponsor 
     or organization an amount) equal to the sum of--

       ``(I) 50 percent (or, for 2006 and 2007, 75 percent) of the 
     difference between the first threshold lower limit and the 
     second threshold lower limit; and
       ``(II) 80 percent of the difference between the second 
     threshold upper limit of the risk corridor and such adjusted 
     allowable risk corridor costs.

       ``(3) Establishment of risk corridors.--
       ``(A) In general.--For each plan year the Secretary shall 
     establish a risk corridor for each prescription drug plan and 
     each MA-PD 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 prescription drug 
     plan or an MA-PD plan in a year, the total amount of payments 
     paid to the PDP sponsor or MA-PD organization for the plan 
     for the year, taking into account amounts paid by the 
     Secretary and enrollees, based upon the standardized bid 
     amount (as defined in section 1860D-13(a)(5) and as risk 
     adjusted under subsection (c)(1)), reduced by the total 
     amount of administrative expenses for the year assumed in 
     such standardized bid.
       ``(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 Secretary, 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 percent;
       ``(II) for 2008 through 2011, 10 percent; and
       ``(III) for 2012 and subsequent years, a percentage 
     established by the Secretary 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 section 1860D-11(b)(2)(E)(ii), a PDP 
     sponsor may submit a bid that requests a decrease in the 
     applicable first or second threshold risk percentages or an 
     increase in the percents applied under paragraph (2).
       ``(4) Plans at risk for entire amount of supplemental 
     prescription drug coverage.--A PDP sponsor and MA 
     organization that offers

[[Page H11892]]

     a plan that provides supplemental prescription drug benefits 
     shall be at full financial risk for the provision of such 
     supplemental benefits.
       ``(5) No effect on monthly premium.--No adjustment in 
     payments made by reason of this subsection shall affect the 
     monthly beneficiary premium or the MA monthly prescription 
     drug beneficiary premium.
       ``(f) Disclosure of Information.--
       ``(1) In general.--Each contract under this part and under 
     part C shall provide that--
       ``(A) the PDP sponsor offering a prescription drug plan or 
     an MA organization offering an MA-PD plan shall provide the 
     Secretary with such information as the Secretary determines 
     is necessary to carry out this section; and
       ``(B) the Secretary shall have the right in accordance with 
     section 1857(d)(2)(B) (as applied under section 1860D-
     12(b)(3)(C)) to inspect and audit any books and records of a 
     PDP sponsor or MA organization that pertain to the 
     information regarding costs provided to the Secretary under 
     subparagraph (A).
       ``(2) Restriction on use of information.--Information 
     disclosed or obtained pursuant to the provisions of this 
     section may be used by officers, employees, and contractors 
     of the Department of Health and Human Services only for the 
     purposes of, and to the extent necessary in, carrying out 
     this section.
       ``(g) Payment for Fallback Prescription Drug Plans.--In 
     lieu of the amounts otherwise payable under this section to a 
     PDP sponsor offering a fallback prescription drug plan (as 
     defined in section 1860D-3(c)(4)), the amount payable shall 
     be the amounts determined under the contract for such plan 
     pursuant to section 1860D-11(g)(5).


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

       ``Sec. 1860D-16. (a) Establishment and Operation of 
     Account.--
       ``(1) Establishment.--There is created within the Federal 
     Supplementary Medical Insurance Trust Fund established by 
     section 1841 an account to be known as the `Medicare 
     Prescription Drug Account' (in this section referred to as 
     the `Account').
       ``(2) Funding.--The Account shall consist of such gifts and 
     bequests as may be made as provided in section 201(i)(1), 
     accrued interest on balances in the Account, and such amounts 
     as may be deposited in, or appropriated to, such 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, but shall be invested, and such 
     investments redeemed, in the same manner as all other funds 
     and investments within such 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 under section 1860D-14 (relating to low-
     income subsidy payments);
       ``(B) payments under section 1860D-15 (relating to subsidy 
     payments and payments for fallback plans);
       ``(C) payments to sponsors of qualified retiree 
     prescription drug plans under section 1860D-22(a); and
       ``(D) payments with respect to administrative expenses 
     under this part in accordance with section 201(g).
       ``(2) Transfers to medicaid account for increased 
     administrative costs.--The Managing Trustee shall transfer 
     from time to time from the Account to the Grants to States 
     for Medicaid account amounts the Secretary certifies are 
     attributable to increases in payment resulting from the 
     application of section 1935(b).
       ``(3) Payments of premiums withheld.--The Managing Trustee 
     shall make payment to the PDP sponsor or MA organization 
     involved of the premiums (and the portion of late enrollment 
     penalties) that are collected in the manner described in 
     section 1854(d)(2)(A) and that are payable under a 
     prescription drug plan or MA-PD plan offered by such sponsor 
     or organization.
       ``(4) Treatment in relation to part b premium.--Amounts 
     payable from the Account shall not be taken into account in 
     computing actuarial rates or premium amounts under section 
     1839.
       ``(c) Deposits Into Account.--
       ``(1) Low-income transfer.--Amounts paid under section 
     1935(c) (and any amounts collected or offset under paragraph 
     (1)(C) of such section) are deposited into the Account.
       ``(2) Amounts withheld.--Pursuant to sections 1860D-13(c) 
     and 1854(d) (as applied under this part), amounts that are 
     withheld (and allocated) to the Account are deposited into 
     the Account.
       ``(3) Appropriations to cover government contributions.--
     There are authorized to be appropriated from time to time, 
     out of any moneys in the Treasury not otherwise appropriated, 
     to the Account, an amount equivalent to the amount of 
     payments made from the Account under subsection (b) plus such 
     amounts as the Managing Trustee certifies is necessary to 
     maintain an appropriate contingency margin, reduced by the 
     amounts deposited under paragraph (1) or subsection (a)(2).
       ``(4) Initial funding and reserve.--In order to assure 
     prompt payment of benefits provided under this part and the 
     administrative expenses thereunder during the early months of 
     the program established by this part and to provide an 
     initial contingency reserve, there are authorized to be 
     appropriated to the Account, out of any moneys in the 
     Treasury not otherwise appropriated, such amount as the 
     Secretary certifies are required, but not to exceed 10 
     percent of the estimated total expenditures from such Account 
     in 2006.
       ``(5) Transfer of any remaining balance from transitional 
     assistance account.--Any balance in the Transitional 
     Assistance Account that is transferred under section 1860D-
     31(k)(5) shall be deposited into the Account.

``Subpart 3--Application to Medicare Advantage Program and Treatment of 
     Employer-Sponsored Programs and Other Prescription Drug Plans


 ``application to medicare advantage program and related managed care 
                                programs

       ``Sec. 1860D-21. (a) Special Rules Relating to Offering of 
     Qualified Prescription Drug Coverage.--
       ``(1) In general.--An MA organization on and after January 
     1, 2006--
       ``(A) may not offer an MA plan described in section 
     1851(a)(2)(A) in an area unless either that plan (or another 
     MA plan offered by the organization in that same service 
     area) includes required prescription drug coverage (as 
     defined in paragraph (2)); and
       ``(B) may not offer prescription drug coverage (other than 
     that required under parts A and B) to an enrollee--
       ``(i) under an MSA plan; or
       ``(ii) under another MA plan unless such drug coverage 
     under such other plan provides qualified prescription drug 
     coverage and unless the requirements of this section with 
     respect to such coverage are met.
       ``(2) Qualifying coverage.--For purposes of paragraph 
     (1)(A), the term `required coverage' means with respect to an 
     MA-PD plan--
       ``(A) basic prescription drug coverage; or
       ``(B) qualified prescription drug coverage that provides 
     supplemental prescription drug coverage, so long as there is 
     no MA monthly supplemental beneficiary premium applied under 
     the plan (due to the application of a credit against such 
     premium of a rebate under section 1854(b)(1)(C)).
       ``(b) Application of Default Enrollment Rules.--
       ``(1) Seamless continuation.--In applying section 
     1851(c)(3)(A)(ii), an individual who is enrolled in a health 
     benefits plan shall not be considered to have been deemed to 
     make an election into an MA-PD plan unless such health 
     benefits plan provides any prescription drug coverage.
       ``(2) MA continuation.--In applying section 1851(c)(3)(B), 
     an individual who is enrolled in an MA plan shall not be 
     considered to have been deemed to make an election into an 
     MA-PD plan unless--
       ``(A) for purposes of the election as of January 1, 2006, 
     the MA plan provided as of December 31, 2005, any 
     prescription drug coverage; or
       ``(B) for periods after January 1, 2006, such MA plan is an 
     MA-PD plan.
       ``(3) Discontinuance of ma-pd election during first year of 
     eligibility.--In applying the second sentence of section 
     1851(e)(4) in the case of an individual who is electing to 
     discontinue enrollment in an MA-PD plan, the individual shall 
     be permitted to enroll in a prescription drug plan under part 
     D at the time of the election of coverage under the original 
     medicare fee-for-service program.
       ``(4) Rules regarding enrollees in ma plans not providing 
     qualified prescription drug coverage.--In the case of an 
     individual who is enrolled in an MA plan (other than an MSA 
     plan) that does not provide qualified prescription drug 
     coverage, if the organization offering such coverage 
     discontinues the offering with respect to the individual of 
     all MA plans that do not provide such coverage--
       ``(i) the individual is deemed to have elected the original 
     medicare fee-for-service program option, unless the 
     individual affirmatively elects to enroll in an MA-PD plan; 
     and
       ``(ii) in the case of such a deemed election, the 
     disenrollment shall be treated as an involuntary termination 
     of the MA plan described in subparagraph (B)(ii) of section 
     1882(s)(3) for purposes of applying such section.
     The information disclosed under section 1852(c)(1) for 
     individuals who are enrolled in such an MA plan shall include 
     information regarding such rules.
       ``(c) Application of Part D Rules for Prescription Drug 
     Coverage.--With respect to the offering of qualified 
     prescription drug coverage by an MA organization under this 
     part on and after January 1, 2006--
       ``(1) In general.--Except as otherwise provided, the 
     provisions of this part shall apply under part C with respect 
     to prescription drug coverage provided under MA-PD plans in 
     lieu of the other provisions of part C that would apply to 
     such coverage under such plans.
       ``(2) Waiver.--The Secretary shall waive the provisions 
     referred to in paragraph (1) to the extent the Secretary 
     determines that such provisions duplicate, or are in conflict 
     with, provisions otherwise applicable to the organization or 
     plan under part C or as may be necessary in order to improve 
     coordination of this part with the benefits under this part.
       ``(3) Treatment of ma owned and operated pharmacies.--The 
     Secretary may waive the requirement of section 1860D-
     4(b)(1)(C) in the case of an MA-PD plan that provides access 
     (other than mail order) to qualified prescription drug 
     coverage through pharmacies owned and operated by the MA 
     organization, if the Secretary determines that the 
     organization's pharmacy network is sufficient to provide 
     comparable access for enrollees under the plan.
       ``(d) Special Rules for Private Fee-for-Service Plans That 
     Offer Prescription Drug Coverage.--With respect to an MA plan 
     described in section 1851(a)(2)(C) that offers qualified 
     prescription drug coverage, on and after January 1, 2006, the 
     following rules apply:
       ``(1) Requirements regarding negotiated prices.--
     Subsections (a)(1) and (d)(1) of section

[[Page H11893]]

     1860D-2 and section 1860D-4(b)(2)(A) shall not be construed 
     to require the plan to provide negotiated prices (described 
     in subsection (d)(1)(B) of such section), but shall apply to 
     the extent the plan does so.
       ``(2) Modification of pharmacy access standard and 
     disclosure requirement.--If the plan provides coverage for 
     drugs purchased from all pharmacies, without charging 
     additional cost-sharing, and without regard to whether they 
     are participating pharmacies in a network or have entered 
     into contracts or agreements with pharmacies to provide drugs 
     to enrollees covered by the plan, subsections (b)(1)(C) and 
     (k) of section 1860D-4 shall not apply to the plan.
       ``(3) Drug utilization management program and medication 
     therapy management program not required.--The requirements of 
     subparagraphs (A) and (C) of section 1860D-4(c)(1) shall not 
     apply to the plan.
       ``(4) Application of reinsurance.--The Secretary shall 
     determine the amount of reinsurance payments under section 
     1860D-15(b) using a methodology that--
       ``(A) bases such amount on the Secretary's estimate of the 
     amount of such payments that would be payable if the plan 
     were an MA-PD plan described in section 1851(a)(2)(A)(i) and 
     the previous provisions of this subsection did not apply; and
       ``(B) takes into account the average reinsurance payments 
     made under section 1860D-15(b) for populations of similar 
     risk under MA-PD plans described in such section.
       ``(5) Exemption from risk corridor provisions.--The 
     provisions of section 1860D-15(e) shall not apply.
       ``(6) Exemption from negotiations.--Subsections (d) and 
     (e)(2)(C) of section 1860D-11 shall not apply and the 
     provisions of section 1854(a)(5)(B) prohibiting the review, 
     approval, or disapproval of amounts described in such section 
     shall apply to the proposed bid and terms and conditions 
     described in section 1860D-11(d).
       ``(7) Treatment of incurred costs without regard to 
     formulary.--The exclusion of costs incurred for covered part 
     D drugs which are not included (or treated as being included) 
     in a plan's formulary under section 1860D-2(b)(4)(B)(i) shall 
     not apply insofar as the plan does not utilize a formulary.
       ``(e) Application to Reasonable Cost Reimbursement 
     Contractors.--
       ``(1) In general.--Subject to paragraphs (2) and (3) and 
     rules established by the Secretary, in the case of an 
     organization that is providing benefits under a reasonable 
     cost reimbursement contract under section 1876(h) and that 
     elects to provide qualified prescription drug coverage to a 
     part D eligible individual who is enrolled under such a 
     contract, the provisions of this part (and related provisions 
     of part C) shall apply to the provision of such coverage to 
     such enrollee in the same manner as such provisions apply to 
     the provision of such coverage under an MA-PD local plan 
     described in section 1851(a)(2)(A)(i) and coverage under such 
     a contract that so provides qualified prescription drug 
     coverage shall be deemed to be an MA-PD local plan.
       ``(2) Limitation on enrollment.--In applying paragraph (1), 
     the organization may not enroll part D eligible individuals 
     who are not enrolled under the reasonable cost reimbursement 
     contract involved.
       ``(3) Bids not included in determining national average 
     monthly bid amount.--The bid of an organization offering 
     prescription drug coverage under this subsection shall not be 
     taken into account in computing the national average monthly 
     bid amount and low-income benchmark premium amount under this 
     part.
       ``(f) Application to PACE.--
       ``(1) In general.--Subject to paragraphs (2) and (3) and 
     rules established by the Secretary, in the case of a PACE 
     program under section 1894 that elects to provide qualified 
     prescription drug coverage to a part D eligible individual 
     who is enrolled under such program, the provisions of this 
     part (and related provisions of part C) shall apply to the 
     provision of such coverage to such enrollee in a manner that 
     is similar to the manner in which such provisions apply to 
     the provision of such coverage under an MA-PD local plan 
     described in section 1851(a)(2)(A)(ii) and a PACE program 
     that so provides such coverage may be deemed to be an MA-PD 
     local plan.
       ``(2) Limitation on enrollment.--In applying paragraph (1), 
     the organization may not enroll part D eligible individuals 
     who are not enrolled under the PACE program involved.
       ``(3) Bids not included in determining standardized bid 
     amount.--The bid of an organization offering prescription 
     drug coverage under this subsection is not be taken into 
     account in computing any average benchmark bid amount and 
     low-income benchmark premium amount under this part.


            ``special rules for employer-sponsored programs

       ``Sec. 1860D-22. (a) Subsidy Payment.--
       ``(1) In general.--The Secretary shall provide in 
     accordance with this subsection for payment to the sponsor of 
     a qualified retiree prescription drug plan (as defined in 
     paragraph (2)) of a special subsidy payment equal to the 
     amount specified in paragraph (3) for each qualified covered 
     retiree under the plan (as defined in paragraph (4)). This 
     subsection constitutes budget authority in advance of 
     appropriations Acts and represents the obligation of the 
     Secretary to provide for the payment of amounts provided 
     under this section.
       ``(2) Qualified retiree prescription drug plan defined.--
     For purposes of this subsection, the term `qualified retiree 
     prescription drug plan' means employment-based retiree health 
     coverage (as defined in subsection (c)(1)) if, with respect 
     to a part D eligible individual who is a participant or 
     beneficiary under such coverage, the following requirements 
     are met:
       ``(A) Attestation of actuarial equivalence to standard 
     coverage.--The sponsor of the plan provides the Secretary, 
     annually or at such other time as the Secretary may require, 
     with an attestation that the actuarial value of prescription 
     drug coverage under the plan (as determined using the 
     processes and methods described in section 1860D-11(c)) is at 
     least equal to the actuarial value of standard prescription 
     drug coverage.
       ``(B) Audits.--The sponsor of the plan, or an administrator 
     of the plan designated by the sponsor, shall maintain (and 
     afford the Secretary access to) such records as the Secretary 
     may require for purposes of audits and other oversight 
     activities necessary to ensure the adequacy of prescription 
     drug coverage and the accuracy of payments made under this 
     section. The provisions of section 1860D-2(d)(3) shall apply 
     to such information under this section (including such 
     actuarial value and attestation) in a manner similar to the 
     manner in which they apply to financial records of PDP 
     sponsors and MA organizations.
       ``(C) Provision of disclosure regarding prescription drug 
     coverage.--The sponsor of the plan shall provide for 
     disclosure of information regarding prescription drug 
     coverage in accordance with section 1860D-13(b)(6)(B).
       ``(3) Employer and union special subsidy amounts.--
       ``(A) In general.--For purposes of this subsection, the 
     special subsidy payment amount under this paragraph for a 
     qualifying covered retiree for a coverage year enrolled with 
     the sponsor of a qualified retiree prescription drug plan is, 
     for the portion of the retiree's gross covered retiree plan-
     related prescription drug costs (as defined in subparagraph 
     (C)(ii)) for such year that exceeds the cost threshold amount 
     specified in subparagraph (B) and does not exceed the cost 
     limit under such subparagraph, an amount equal to 28 percent 
     of the allowable retiree costs (as defined in subparagraph 
     (C)(i)) attributable to such gross covered prescription drug 
     costs.
       ``(B) Cost threshold and cost limit applicable.--
       ``(i) In general.--Subject to clause (ii)--

       ``(I) the cost threshold under this subparagraph is equal 
     to $250 for plan years that end in 2006; and
       ``(II) the cost limit under this subparagraph is equal to 
     $5,000 for plan years that end in 2006.

       ``(ii) Indexing.--The cost threshold and cost limit amounts 
     specified in subclauses (I) and (II) of clause (i) for a plan 
     year that ends after 2006 shall be adjusted in the same 
     manner as the annual deductible and the annual out-of-pocket 
     threshold, respectively, are annually adjusted under 
     paragraphs (1) and (4)(B) of section 1860D-2(b).
       ``(C) Definitions.--For purposes of this paragraph:
       ``(i) Allowable retiree costs.--The term `allowable retiree 
     costs' means, with respect to gross covered prescription drug 
     costs under a qualified retiree prescription drug plan by a 
     plan sponsor, the part of such costs that are actually paid 
     (net of discounts, chargebacks, and average percentage 
     rebates) by the sponsor or by or on behalf of a qualifying 
     covered retiree under the plan.
       ``(ii) Gross covered retiree plan-related prescription drug 
     costs.--For purposes of this section, the term `gross covered 
     retiree plan-related prescription drug costs' means, with 
     respect to a qualifying covered retiree enrolled in a 
     qualified retiree prescription drug plan during a coverage 
     year, the costs incurred under the plan, not including 
     administrative costs, but including costs directly related to 
     the dispensing of covered part D drugs during the year. Such 
     costs shall be determined whether they are paid by the 
     retiree or under the plan.
       ``(iii) Coverage year.--The term `coverage year' has the 
     meaning given such term in section 1860D-15(b)(4).
       ``(4) Qualifying covered retiree defined.--For purposes of 
     this subsection, the term `qualifying covered retiree' means 
     a part D eligible individual who is not enrolled in a 
     prescription drug plan or an MA-PD plan but is covered under 
     a qualified retiree prescription drug plan.
       ``(5) Payment methods, including provision of necessary 
     information.--The provisions of section 1860D-15(d) 
     (including paragraph (2), relating to requirement for 
     provision of information) shall apply to payments under this 
     subsection in a manner similar to the manner in which they 
     apply to payment under section 1860D-15(b).
       ``(6) Construction.--Nothing in this subsection shall be 
     construed as--
       ``(A) precluding a part D eligible individual who is 
     covered under employment-based retiree health coverage from 
     enrolling in a prescription drug plan or in an MA-PD plan;
       ``(B) precluding such employment-based retiree health 
     coverage or an employer or other person from paying all or 
     any portion of any premium required for coverage under a 
     prescription drug plan or MA-PD plan on behalf of such an 
     individual;
       ``(C) preventing such employment-based retiree health 
     coverage from providing coverage--
       ``(i) that is better than standard prescription drug 
     coverage to retirees who are covered under a qualified 
     retiree prescription drug plan; or
       ``(ii) that is supplemental to the benefits provided under 
     a prescription drug plan or an MA-PD plan, including benefits 
     to retirees who are not covered under a qualified retiree 
     prescription drug plan but who are enrolled in such a 
     prescription drug plan or MA-PD plan; or
       ``(D) preventing employers to provide for flexibility in 
     benefit design and pharmacy access provisions, without regard 
     to the requirements for basic prescription drug coverage, so 
     long as the actuarial equivalence requirement of paragraph 
     (2)(A) is met.

[[Page H11894]]

       ``(b) Application of MA Waiver Authority.--The provisions 
     of section 1857(i) shall apply with respect to prescription 
     drug plans in relation to employment-based retiree health 
     coverage in a manner similar to the manner in which they 
     apply to an MA plan in relation to employers, including 
     authorizing the establishment of separate premium amounts for 
     enrollees in a prescription drug plan by reason of such 
     coverage and limitations on enrollment to part D eligible 
     individuals enrolled under such coverage.
       ``(c) Definitions.--For purposes of this section:
       ``(1) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage of health care costs (whether 
     provided by voluntary insurance coverage or pursuant to 
     statutory or contractual obligation) for part D eligible 
     individuals (or for such individuals and their spouses and 
     dependents) under a group health plan based on their status 
     as retired participants in such plan.
       ``(2) Sponsor.--The term `sponsor' means a plan sponsor, as 
     defined in section 3(16)(B) of the Employee Retirement Income 
     Security Act of 1974, in relation to a group health plan, 
     except that, in the case of a plan maintained jointly by one 
     employer and an employee organization and with respect to 
     which the employer is the primary source of financing, such 
     term means such employer.
       ``(3) Group health plan.--The term `group health plan' 
     includes such a plan as defined in section 607(1) of the 
     Employee Retirement Income Security Act of 1974 and also 
     includes the following:
       ``(A) Federal and state governmental plans.--Such a plan 
     established or maintained for its employees by the Government 
     of the United States, by the government of any State or 
     political subdivision thereof, or by any agency or 
     instrumentality of any of the foregoing, including a health 
     benefits plan offered under chapter 89 of title 5, United 
     States Code.
       ``(B) Collectively bargained plans.--Such a plan 
     established or maintained under or pursuant to one or more 
     collective bargaining agreements.
       ``(C) Church plans.--Such a plan established and maintained 
     for its employees (or their beneficiaries) by a church or by 
     a convention or association of churches which is exempt from 
     tax under section 501 of the Internal Revenue Code of 1986.


               ``state pharmaceutical assistance programs

       ``Sec. 1860D-23. (a) Requirements for Benefit 
     Coordination.--
       ``(1) In general.--Before July 1, 2005, the Secretary shall 
     establish consistent with this section requirements for 
     prescription drug plans to ensure the effective coordination 
     between a part D plan (as defined in paragraph (5)) and a 
     State Pharmaceutical Assistance Program (as defined in 
     subsection (b)) with respect to--
       ``(A) payment of premiums and coverage; and
       ``(B) payment for supplemental prescription drug benefits,
     for part D eligible individuals enrolled under both types of 
     plans.
       ``(2) Coordination elements.--The requirements under 
     paragraph (1) shall include requirements relating to 
     coordination of each of the following:
       ``(A) Enrollment file sharing.
       ``(B) The processing of claims, including electronic 
     processing.
       ``(C) Claims payment.
       ``(D) Claims reconciliation reports.
       ``(E) Application of the protection against high out-of-
     pocket expenditures under section 1860D-2(b)(4).
       ``(F) Other administrative processes specified by the 
     Secretary.
     Such requirements shall be consistent with applicable law to 
     safeguard the privacy of any individually identifiable 
     beneficiary information.
       ``(3) Use of lump sum per capita method.--Such requirements 
     shall include a method for the application by a part D plan 
     of specified funding amounts from a State Pharmaceutical 
     Assistance Program for enrolled individuals for supplemental 
     prescription drug benefits.
       ``(4) Consultation.--In establishing requirements under 
     this subsection, the Secretary shall consult with State 
     Pharmaceutical Assistance Programs, MA organizations, States, 
     pharmaceutical benefit managers, employers, representatives 
     of part D eligible individuals, the data processing experts, 
     pharmacists, pharmaceutical manufacturers, and other experts.
       ``(5) Part d plan defined.--For purposes of this section 
     and section 1860D-24, the term `part D plan' means a 
     prescription drug plan and an MA-PD plan.
       ``(b) State Pharmaceutical Assistance Program.--For 
     purposes of this part, the term `State Pharmaceutical 
     Assistance Program' means a State program--
       ``(1) which provides financial assistance for the purchase 
     or provision of supplemental prescription drug coverage or 
     benefits on behalf of part D eligible individuals;
       ``(2) which, in determining eligibility and the amount of 
     assistance to part D eligible individuals under the Program, 
     provides assistance to such individuals in all part D plans 
     and does not discriminate based upon the part D plan in which 
     the individual is enrolled; and
       ``(3) which satisfies the requirements of subsections (a) 
     and (c).
       ``(c) Relation to Other Provisions.--
       ``(1) Medicare as primary payor.--The requirements of this 
     section shall not change or affect the primary payor status 
     of a part D plan.
       ``(2) Use of a single card.--A card that is issued under 
     section 1860D-4(b)(2)(A) for use under a part D plan may also 
     be used in connection with coverage of benefits provided 
     under a State Pharmaceutical Assistance Program and, in such 
     case, may contain an emblem or symbol indicating such 
     connection.
       ``(3) Other provisions.--The provisions of section 1860D-
     24(c) shall apply to the requirements under this section.
       ``(4) Special treatment under out-of-pocket rule.--In 
     applying section 1860D-2(b)(4)(C)(ii), expenses incurred 
     under a State Pharmaceutical Assistance Program may be 
     counted toward the annual out-of-pocket threshold.
       ``(5) Construction.--Nothing in this section shall be 
     construed as requiring a State Pharmaceutical Assistance 
     Program to coordinate or provide financial assistance with 
     respect to any part D plan.
       ``(d) Facilitation of Transition and Coordination With 
     State Pharmaceutical Assistance Programs.--
       ``(1) Transitional grant program.--The Secretary shall 
     provide payments to State Pharmaceutical Assistance Programs 
     with an application approved under this subsection.
       ``(2) Use of funds.--Payments under this section may be 
     used by a Program for any of the following:
       ``(A) Educating part D eligible individuals enrolled in the 
     Program about the prescription drug coverage available 
     through part D plans under this part.
       ``(B) Providing technical assistance, phone support, and 
     counseling for such enrollees to facilitate selection and 
     enrollment in such plans.
       ``(C) Other activities designed to promote the effective 
     coordination of enrollment, coverage, and payment between 
     such Program and such plans.
       ``(3) Allocation of funds.--Of the amount appropriated to 
     carry out this subsection for a fiscal year, the Secretary 
     shall allocate payments among Programs that have applications 
     approved under paragraph (4) for such fiscal year in 
     proportion to the number of enrollees enrolled in each such 
     Program as of October 1, 2003.
       ``(4) Application.--No payments may be made under this 
     subsection except pursuant to an application that is 
     submitted and approved in a time, manner, and form specified 
     by the Secretary.
       ``(5) Funding.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated for each of 
     fiscal years 2005 and 2006, $62,500,000 to carry out this 
     subsection.


   ``coordination requirements for plans providing prescription drug 
                                coverage

       ``Sec. 1860D-24. (a) Application of Benefit Coordination 
     Requirements to Additional Plans.--
       ``(1) In general.--The Secretary shall apply the 
     coordination requirements established under section 1860D-
     23(a) to Rx plans described in subsection (b) in the same 
     manner as such requirements apply to a State Pharmaceutical 
     Assistance Program.
       ``(2) Application to treatment of certain out-of-pocket 
     expenditures.--To the extent specified by the Secretary, the 
     requirements referred to in paragraph (1) shall apply to 
     procedures established under section 1860D-2(b)(4)(D).
       ``(3) User fees.--
       ``(A) In general.--The Secretary may impose user fees for 
     the transmittal of information necessary for benefit 
     coordination under section 1860D-2(b)(4)(D) in a manner 
     similar to the manner in which user fees are imposed under 
     section 1842(h)(3)(B), except that the Secretary may retain a 
     portion of such fees to defray the Secretary's costs in 
     carrying out procedures under section 1860D-2(b)(4)(D).
       ``(B) Application.--A user fee may not be imposed under 
     subparagraph (A) with respect to a State Pharmaceutical 
     Assistance Program.
       ``(b) Rx Plan.--An Rx plan described in this subsection is 
     any of the following:
       ``(1) Medicaid programs.--A State plan under title XIX, 
     including such a plan operating under a waiver under section 
     1115, if it meets the requirements of section 1860D-23(b)(2).
       ``(2) Group health plans.--An employer group health plan.
       ``(3) FEHBP.--The Federal employees health benefits plan 
     under chapter 89 of title 5, United States Code.
       ``(4) Military coverage (including tricare).--Coverage 
     under chapter 55 of title 10, United States Code.
       ``(5) Other prescription drug coverage.--Such other health 
     benefit plans or programs that provide coverage or financial 
     assistance for the purchase or provision of prescription drug 
     coverage on behalf of part D eligible individuals as the 
     Secretary may specify.
       ``(c) Relation to Other Provisions.--
       ``(1) Use of cost management tools.--The requirements of 
     this section shall not impair or prevent a PDP sponsor or MA 
     organization from applying cost management tools (including 
     differential payments) under all methods of operation.
       ``(2) No affect on treatment of certain out-of-pocket 
     expenditures.--The requirements of this section shall not 
     affect the application of the procedures established under 
     section 1860D-2(b)(4)(D).

``Subpart 4--Medicare Prescription Drug Discount Card and Transitional 
                           Assistance Program


``medicare prescription drug discount card and transitional assistance 
                                program

       ``Sec. 1860D-31. (a) Establishment of Program.--
       ``(1) In general.--The Secretary shall establish a program 
     under this section--
       ``(A) to endorse prescription drug discount card programs 
     that meet the requirements of this section in order to 
     provide access to prescription drug discounts through 
     prescription drug card sponsors for discount card eligible 
     individuals throughout the United States; and
       ``(B) to provide for transitional assistance for 
     transitional assistance eligible individuals enrolled in such 
     endorsed programs.

[[Page H11895]]

       ``(2) Period of operation.--
       ``(A) Implementation deadline.--The Secretary shall 
     implement the program under this section so that discount 
     cards and transitional assistance are first available by not 
     later than 6 months after the date of the enactment of this 
     section.
       ``(B) Expediting implementation.--The Secretary shall 
     promulgate regulations to carry out the program under this 
     section which may be effective and final immediately on an 
     interim basis as of the date of publication of the interim 
     final regulation. If the Secretary provides for an interim 
     final regulation, the Secretary shall provide for a period of 
     public comments on such regulation after the date of 
     publication. The Secretary may change or revise such 
     regulation after completion of the period of public comment.
       ``(C) Termination and transition.--
       ``(i) In general.--Subject to clause (ii)--

       ``(I) the program under this section shall not apply to 
     covered discount card drugs dispensed after December 31, 
     2005; and

       ``(II) transitional assistance shall be available after 
     such date to the extent the assistance relates to drugs 
     dispensed on or before such date.

       ``(ii) Transition.--In the case of an individual who is 
     enrolled in an endorsed discount card program as of December 
     31, 2005, during the individual's transition period (if any) 
     under clause (iii), in accordance with transition rules 
     specified by the Secretary--

       ``(I) such endorsed program may continue to apply to 
     covered discount card drugs dispensed to the individual under 
     the program during such transition period;
       ``(II) no annual enrollment fee shall be applicable during 
     the transition period;
       ``(III) during such period the individual may not change 
     the endorsed program plan in which the individual is 
     enrolled; and
       ``(IV) the balance of any transitional assistance remaining 
     on January 1, 2006, shall remain available for drugs 
     dispensed during the individual's transition period.

       ``(iii) Transition period.--The transition period under 
     this clause for an individual is the period beginning on 
     January 1, 2006, and ending in the case of an individual 
     who--

       ``(I) is enrolled in a prescription drug plan or an MA-PD 
     plan before the last date of the initial enrollment period 
     under section 1860D-1(b)(2)(A), on the effective date of the 
     individual's coverage under such part; or
       ``(II) is not so enrolled, on the last day of such initial 
     period.

       ``(3) Voluntary nature of program.--Nothing in this section 
     shall be construed as requiring a discount card eligible 
     individual to enroll in an endorsed discount card program 
     under this section.
       ``(4) Glossary and definitions of terms.--For purposes of 
     this section:
       ``(A) Covered discount card drug.--The term `covered 
     discount card drug' has the meaning given the term `covered 
     part D drug' in section 1860D-2(e).
       ``(B) Discount card eligible individual.--The term 
     `discount card eligible individual' is defined in subsection 
     (b)(1)(A).
       ``(C) Endorsed discount card program; endorsed program.--
     The terms `endorsed discount card program' and `endorsed 
     program' mean a prescription drug discount card program that 
     is endorsed (and for which the sponsor has a contract with 
     the Secretary) under this section.
       ``(D) Negotiated price.--Negotiated prices are described in 
     subsection (e)(1)(A)(ii).
       ``(E) Prescription drug card sponsor; sponsor.--The terms 
     `prescription drug card sponsor' and `sponsor' are defined in 
     subsection (h)(1)(A).
       ``(F) State.--The term `State' has the meaning given such 
     term for purposes of title XIX.
       ``(G) Transitional assistance eligible individual.--The 
     term `transitional assistance eligible individual' is defined 
     in subsection (b)(2).
       ``(b) Eligibility for Discount Card and for Transitional 
     Assistance.--For purposes of this section:
       ``(1) Discount card eligible individual.--
       ``(A) In general.--The term `discount card eligible 
     individual' means an individual who--
       ``(i) is entitled to benefits, or enrolled, under part A or 
     enrolled under part B; and
       ``(ii) subject to paragraph (4), is not an individual 
     described in subparagraph (B).
       ``(B) Individual described.--An individual described in 
     this subparagraph is an individual described in subparagraph 
     (A)(i) who is enrolled under title XIX (or under a waiver 
     under section 1115 of the requirements of such title) and is 
     entitled to any medical assistance for outpatient prescribed 
     drugs described in section 1905(a)(12).
       ``(2) Transitional assistance eligible individual.--
       ``(A) In general.--Subject to subparagraph (B), the term 
     `transitional assistance eligible individual' means a 
     discount card eligible individual who resides in one of the 
     50 States or the District of Columbia and whose income (as 
     determined under subsection (f)(1)(B)) is not more than 135 
     percent of the poverty line (as defined in section 673(2) of 
     the Community Services Block Grant Act, 42 U.S.C. 9902(2), 
     including any revision required by such section) applicable 
     to the family size involved (as determined under subsection 
     (f)(1)(B)).
       ``(B) Exclusion of individuals with certain prescription 
     drug coverage.--Such term does not include an individual who 
     has coverage of, or assistance for, covered discount card 
     drugs under any of the following:
       ``(i) A group health plan or health insurance coverage (as 
     such terms are defined in section 2791 of the Public Health 
     Service Act), other than coverage under a plan under part C 
     and other than coverage consisting only of excepted benefits 
     (as defined in such section).
       ``(ii) Chapter 55 of title 10, United States Code (relating 
     to medical and dental care for members of the uniformed 
     services).
       ``(iii) A plan under chapter 89 of title 5, United States 
     Code (relating to the Federal employees' health benefits 
     program).
       ``(3) Special transitional assistance eligible 
     individual.--The term `special transitional assistance 
     eligible individual' means a transitional assistance eligible 
     individual whose income (as determined under subsection 
     (f)(1)(B)) is not more than 100 percent of the poverty line 
     (as defined in section 673(2) of the Community Services Block 
     Grant Act, 42 U.S.C. 9902(2), including any revision required 
     by such section) applicable to the family size involved (as 
     determined under subsection (f)(1)(B)).
       ``(4) Treatment of medicaid medically needy.--For purposes 
     of this section, the Secretary shall provide for appropriate 
     rules for the treatment of medically needy individuals 
     described in section 1902(a)(10)(C) as discount card eligible 
     individuals and as transitional assistance eligible 
     individuals.
       ``(c) Enrollment and Enrollment Fees.--
       ``(1) Enrollment process.--The Secretary shall establish a 
     process through which a discount card eligible individual is 
     enrolled and disenrolled in an endorsed discount card program 
     under this section consistent with the following:
       ``(A) Continuous open enrollment.--Subject to the 
     succeeding provisions of this paragraph and subsection 
     (h)(9), a discount card eligible individual who is not 
     enrolled in an endorsed discount card program and is residing 
     in a State may enroll in any such endorsed program--
       ``(i) that serves residents of the State; and
       ``(ii) at any time beginning on the initial enrollment 
     date, specified by the Secretary, and before January 1, 2006.
       ``(B) Use of standard enrollment form.--An enrollment in an 
     endorsed program shall only be effected through completion of 
     a standard enrollment form specified by the Secretary. Each 
     sponsor of an endorsed program shall transmit to the 
     Secretary (in a form and manner specified by the Secretary) 
     information on individuals who complete such enrollment forms 
     and, to the extent provided under subsection (f), information 
     regarding certification as a transitional assistance eligible 
     individual.
       ``(C) Enrollment only in one program.--
       ``(i) In general.--Subject to clauses (ii) and (iii), a 
     discount card eligible individual may be enrolled in only one 
     endorsed discount card program under this section.
       ``(ii) Change in endorsed program permitted for 2005.--The 
     Secretary shall establish a process, similar to (and 
     coordinated with) the process for annual, coordinated 
     elections under section 1851(e)(3) during 2004, under which 
     an individual enrolled in an endorsed discount card program 
     may change the endorsed program in which the individual is 
     enrolled for 2005.
       ``(iii) Additional exceptions.--The Secretary shall permit 
     an individual to change the endorsed discount card program in 
     which the individual is enrolled in the case of an individual 
     who changes residence to be outside the service area of such 
     program and in such other exceptional cases as the Secretary 
     may provide (taking into account the circumstances for 
     special election periods under section 1851(e)(4)). Under the 
     previous sentence, the Secretary may consider a change in 
     residential setting (such as placement in a nursing facility) 
     or enrollment in or disenrollment from a plan under part C 
     through which the individual was enrolled in an endorsed 
     program to be an exceptional circumstance.
       ``(D) Disenrollment.--
       ``(i) Voluntary.--An individual may voluntarily disenroll 
     from an endorsed discount card program at any time. In the 
     case of such a voluntary disenrollment, the individual may 
     not enroll in another endorsed program, except under such 
     exceptional circumstances as the Secretary may recognize 
     under subparagraph (C)(iii) or during the annual coordinated 
     enrollment period provided under subparagraph (C)(ii).
       ``(ii) Involuntary.--An individual who is enrolled in an 
     endorsed discount card program and not a transitional 
     assistance eligible individual may be disenrolled by the 
     sponsor of the program if the individual fails to pay any 
     annual enrollment fee required under the program.
       ``(E) Application to certain enrollees.--In the case of a 
     discount card eligible individual who is enrolled in a plan 
     described in section 1851(a)(2)(A) or under a reasonable cost 
     reimbursement contract under section 1876(h) that is offered 
     by an organization that also is a prescription discount card 
     sponsor that offers an endorsed discount card program under 
     which the individual may be enrolled and that has made an 
     election to apply the special rules under subsection 
     (h)(9)(B) for such an endorsed program, the individual may 
     only enroll in such an endorsed discount card program offered 
     by that sponsor.
       ``(2) Enrollment fees.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this paragraph, a prescription drug card sponsor may charge 
     an annual enrollment fee for each discount card eligible 
     individual enrolled in an endorsed discount card program 
     offered by such sponsor. The annual enrollment fee for either 
     2004 or 2005 shall not be prorated for portions of a year. 
     There shall be no annual enrollment fee for a year after 
     2005.
       ``(B) Amount.--No annual enrollment fee charged under 
     subparagraph (A) may exceed $30.
       ``(C) Uniform enrollment fee.--A prescription drug card 
     sponsor shall ensure that the annual enrollment fee (if any) 
     for an endorsed discount card program is the same for all 
     discount card eligible individuals enrolled in the program 
     and residing in the State.
       ``(D) Collection.--The annual enrollment fee (if any) 
     charged for enrollment in an endorsed

[[Page H11896]]

     program shall be collected by the sponsor of the program.
       ``(E) Payment of fee for transitional assistance eligible 
     individuals.--Under subsection (g)(1)(A), the annual 
     enrollment fee (if any) otherwise charged under this 
     paragraph with respect to a transitional assistance eligible 
     individual shall be paid by the Secretary on behalf of such 
     individual.
       ``(F) Optional payment of fee by state.--
       ``(i) In general.--The Secretary shall establish an 
     arrangement under which a State may provide for payment of 
     some or all of the enrollment fee for some or all enrollees 
     who are not transitional assistance eligible individuals in 
     the State, as specified by the State under the arrangement. 
     Insofar as such a payment arrangement is made with respect to 
     an enrollee, the amount of the enrollment fee shall be paid 
     directly by the State to the sponsor.
       ``(ii) No federal matching available under medicaid or 
     schip.--Expenditures made by a State for enrollment fees 
     described in clause (i) shall not be treated as State 
     expenditures for purposes of Federal matching payments under 
     title XIX or XXI.
       ``(G) Rules in case of changes in program enrollment during 
     a year.--The Secretary shall provide special rules in the 
     case of payment of an annual enrollment fee for a discount 
     card eligible individual who changes the endorsed program in 
     which the individual is enrolled during a year.
       ``(3) Issuance of discount card.--Each prescription drug 
     card sponsor of an endorsed discount card program shall 
     issue, in a standard format specified by the Secretary, to 
     each discount card eligible individual enrolled in such 
     program a card that establishes proof of enrollment and that 
     can be used in a coordinated manner to identify the sponsor, 
     program, and individual for purposes of the program under 
     this section.
       ``(4) Period of access.--In the case of a discount card 
     eligible individual who enrolls in an endorsed program, 
     access to negotiated prices and transitional assistance, if 
     any, under such endorsed program shall take effect on such 
     date as the Secretary shall specify.
       ``(d) Provision of Information on Enrollment and Program 
     Features.--
       ``(1) Secretarial responsibilities.--
       ``(A) In general.--The Secretary shall provide for 
     activities under this subsection to broadly disseminate 
     information to discount card eligible individuals (and 
     prospective eligible individuals) regarding--
       ``(i) enrollment in endorsed discount card programs; and
       ``(ii) the features of the program under this section, 
     including the availability of transitional assistance.
       ``(B) Promotion of informed choice.--In order to promote 
     informed choice among endorsed prescription drug discount 
     card programs, the Secretary shall provide for the 
     dissemination of information which--
       ``(i) compares the annual enrollment fee and other features 
     of such programs, which may include comparative prices for 
     covered discount card drugs; and
       ``(ii) includes educational materials on the variability of 
     discounts on prices of covered discount card drugs under an 
     endorsed program.

     The dissemination of information under clause (i) shall, to 
     the extent practicable, be coordinated with the dissemination 
     of educational information on other medicare options.
       ``(C) Special rule for initial enrollment date under the 
     program.--To the extent practicable, the Secretary shall 
     ensure, through the activities described in subparagraphs (A) 
     and (B), that discount card eligible individuals are provided 
     with such information at least 30 days prior to the initial 
     enrollment date specified under subsection (c)(1)(A)(ii).
       ``(D) Use of medicare toll-free number.--The Secretary 
     shall provide through the toll-free telephone number 1-800-
     MEDICARE for the receipt and response to inquiries and 
     complaints concerning the program under this section and 
     endorsed programs.
       ``(2) Prescription drug card sponsor responsibilities.--
       ``(A) In general.--Each prescription drug card sponsor that 
     offers an endorsed discount card program shall make available 
     to discount card eligible individuals (through the Internet 
     and otherwise) information that the Secretary identifies as 
     being necessary to promote informed choice among endorsed 
     discount card programs by such individuals, including 
     information on enrollment fees and negotiated prices for 
     covered discount card drugs charged to such individuals.
       ``(B) Response to enrollee questions.--Each sponsor 
     offering an endorsed discount card program shall have a 
     mechanism (including a toll-free telephone number) for 
     providing upon request specific information (such as 
     negotiated prices and the amount of transitional assistance 
     remaining available through the program) to discount card 
     eligible individuals enrolled in the program. The sponsor 
     shall inform transitional assistance eligible individuals 
     enrolled in the program of the availability of such toll-free 
     telephone number to provide information on the amount of 
     available transitional assistance.
       ``(C) Information on balance of transitional assistance 
     available at point-of-sale.--Each sponsor offering an 
     endorsed discount card program shall have a mechanism so that 
     information on the amount of transitional assistance 
     remaining under subsection (g)(1)(B) is available 
     (electronically or by telephone) at the point-of-sale of 
     covered discount card drugs.
       ``(3) Public disclosure of pharmaceutical prices for 
     equivalent drugs.--
       ``(A) In general.--A prescription drug card sponsor 
     offering an endorsed discount card program shall provide that 
     each pharmacy that dispenses a covered discount card drug 
     shall inform a discount card eligible individual enrolled in 
     the program of any differential between the price of the drug 
     to the enrollee and the price of the lowest priced generic 
     covered discount card drug under the program that is 
     therapeutically equivalent and bioequivalent and available at 
     such pharmacy.
       ``(B) Timing of notice.--
       ``(i) In general.--Subject to clause (ii), the information 
     under subparagraph (A) shall be provided at the time of 
     purchase of the drug involved, or, in the case of dispensing 
     by mail order, at the time of delivery of such drug.
       ``(ii) Waiver.--The Secretary may waive clause (i) in such 
     circumstances as the Secretary may specify.
       ``(e) Discount Card Features.--
       ``(1) Savings to enrollees through negotiated prices.--
       ``(A) Access to negotiated prices.--
       ``(i) In general.--Each prescription drug card sponsor that 
     offers an endorsed discount card program shall provide each 
     discount card eligible individual enrolled in the program 
     with access to negotiated prices.
       ``(ii) Negotiated prices.--For purposes of this section, 
     negotiated prices shall take into account negotiated price 
     concessions, such as discounts, direct or indirect subsidies, 
     rebates, and direct or indirect remunerations, for covered 
     discount card drugs, and include any dispensing fees for such 
     drugs.
       ``(B) Ensuring pharmacy access.--Each prescription drug 
     card sponsor offering an endorsed discount card program shall 
     secure the participation in its network of a sufficient 
     number of pharmacies that dispense (other than solely by mail 
     order) drugs directly to enrollees to ensure convenient 
     access to covered discount card drugs at negotiated prices 
     (consistent with rules established by the Secretary). The 
     Secretary shall establish convenient access rules under this 
     clause that are no less favorable to enrollees than the 
     standards for convenient access to pharmacies included in the 
     statement of work of solicitation (#MDA906-03-R-0002) of the 
     Department of Defense under the TRICARE Retail Pharmacy 
     (TRRx) as of March 13, 2003.
       ``(C) Prohibition on charges for required services.--
       ``(i) In general.--Subject to clause (ii), a prescription 
     drug card sponsor (and any pharmacy contracting with such 
     sponsor for the provision of covered discount card drugs to 
     individuals enrolled in such sponsor's endorsed discount card 
     program) may not charge an enrollee any amount for any items 
     and services required to be provided by the sponsor under 
     this section.
       ``(ii) Construction.--Nothing in clause (i) shall be 
     construed to prevent--

       ``(I) the sponsor from charging the annual enrollment fee 
     (except in the case of a transitional assistance eligible 
     individual); and

       ``(II) the pharmacy dispensing the covered discount card 
     drug, from imposing a charge (consistent with the negotiated 
     price) for the covered discount card drug dispensed, reduced 
     by the amount of any transitional assistance made available.

       ``(D) Inapplicability of medicaid best price rules.--The 
     prices negotiated from drug manufacturers for covered 
     discount card drugs under an endorsed discount card program 
     under this section 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) Reduction of medication errors and adverse drug 
     interactions.--Each endorsed discount card program shall 
     implement a system to reduce the likelihood of medication 
     errors and adverse drug interactions and to improve 
     medication use.
       ``(f) Eligibility Procedures for Endorsed Programs and 
     Transitional Assistance.--
       ``(1) Determinations.--
       ``(A) Procedures.--The determination of whether an 
     individual is a discount card eligible individual or a 
     transitional assistance eligible individual or a special 
     transitional assistance eligible individual (as defined in 
     subsection (b)) shall be determined under procedures 
     specified by the Secretary consistent with this subsection.
       ``(B) Income and family size determinations.--For purposes 
     of this section, the Secretary shall define the terms 
     `income' and `family size' and shall specify the methods and 
     period for which they are determined. If under such methods 
     income or family size is determined based on the income or 
     family size for prior periods of time, the Secretary shall 
     permit (whether through a process of reconsideration or 
     otherwise) an individual whose income or family size has 
     changed to elect to have eligibility for transitional 
     assistance determined based on income or family size for a 
     more recent period.
       ``(2) Use of self-certification for transitional 
     assistance.--
       ``(A) In general.--Under the procedures specified under 
     paragraph (1)(A) an individual who wishes to be treated as a 
     transitional assistance eligible individual or a special 
     transitional assistance eligible individual under this 
     section (or another qualified person on such individual's 
     behalf) shall certify on the enrollment form under subsection 
     (c)(1)(B) (or similar form specified by the Secretary), 
     through a simplified means specified by the Secretary and 
     under penalty of perjury or similar sanction for false 
     statements, as to the amount of the individual's income, 
     family size, and individual's prescription drug coverage (if 
     any) insofar as they relate to eligibility to be a 
     transitional assistance eligible individual or a special 
     transitional assistance eligible individual. Such 
     certification shall be deemed as consent to verification of 
     respective eligibility under paragraph (3). A certification 
     under this paragraph may be provided before, on, or after the 
     time of enrollment under an endorsed program.

[[Page H11897]]

       ``(B) Treatment of self-certification.--The Secretary shall 
     treat a certification under subparagraph (A) that is verified 
     under paragraph (3) as a determination that the individual 
     involved is a transitional assistance eligible individual or 
     special transitional assistance eligible individual (as the 
     case may be) for the entire period of the enrollment of the 
     individual in any endorsed program.
       ``(3) Verification.--
       ``(A) In general.--The Secretary shall establish methods 
     (which may include the use of sampling and the use of 
     information described in subparagraph (B)) to verify 
     eligibility for individuals who seek to enroll in an endorsed 
     program and for individuals who provide a certification under 
     paragraph (2).
       ``(B) Information described.--The information described in 
     this subparagraph is as follows:
       ``(i) Medicaid-related information.--Information on 
     eligibility under title XIX and provided to the Secretary 
     under arrangements between the Secretary and States in order 
     to verify the eligibility of individuals who seek to enroll 
     in an endorsed program and of individuals who provide 
     certification under paragraph (2).
       ``(ii) Social security information.--Financial information 
     made available to the Secretary under arrangements between 
     the Secretary and the Commissioner of Social Security in 
     order to verify the eligibility of individuals who provide 
     such certification.
       ``(iii) Information from secretary of the treasury.--
     Financial information made available to the Secretary under 
     section 6103(l)(19) of the Internal Revenue Code of 1986 in 
     order to verify the eligibility of individuals who provide 
     such certification.
       ``(C) Verification in cases of medicaid enrollees.--
       ``(i) In general.--Nothing in this section shall be 
     construed as preventing the Secretary from finding that a 
     discount card eligible individual meets the income 
     requirements under subsection (b)(2)(A) if the individual is 
     within a category of discount card eligible individuals who 
     are enrolled under title XIX (such as qualified medicare 
     beneficiaries (QMBs), specified low-income medicare 
     beneficiaries (SLMBs), and certain qualified individuals (QI-
     1s)).
       ``(ii) Availability of information for verification 
     purposes.--As a condition of provision of Federal financial 
     participation to a State that is one of the 50 States or the 
     District of Columbia under title XIX, for purposes of 
     carrying out this section, the State shall provide the 
     information it submits to the Secretary relating to such 
     title in a manner specified by the Secretary that permits the 
     Secretary to identify individuals who are described in 
     subsection (b)(1)(B) or are transitional assistance eligible 
     individuals or special transitional assistance eligible 
     individuals.
       ``(4) Reconsideration.--
       ``(A) In general.--The Secretary shall establish a process 
     under which a discount card eligible individual, who is 
     determined through the certification and verification methods 
     under paragraphs (2) and (3) not to be a transitional 
     assistance eligible individual or a special transitional 
     assistance eligible individual, may request a reconsideration 
     of the determination.
       ``(B) Contract authority.--The Secretary may enter into a 
     contract to perform the reconsiderations requested under 
     subparagraph (A).
       ``(C) Communication of results.--Under the process under 
     subparagraph (A) the results of such reconsideration shall be 
     communicated to the individual and the prescription drug card 
     sponsor involved.
       ``(g) Transitional Assistance.--
       ``(1) Provision of transitional assistance.--An individual 
     who is a transitional assistance eligible individual (as 
     determined under this section) and who is enrolled with an 
     endorsed program is entitled--
       ``(A) to have payment made of any annual enrollment fee 
     charged under subsection (c)(2) for enrollment under the 
     program; and
       ``(B) to have payment made, up to the amount specified in 
     paragraph (2), under such endorsed program of 90 percent (or 
     95 percent in the case of a special transitional assistance 
     eligible individual) of the costs incurred for covered 
     discount card drugs obtained through the program taking into 
     account the negotiated price (if any) for the drug under the 
     program.
       ``(2) Limitation on dollar amount.--
       ``(A) In general.--Subject to subparagraph (B), the amount 
     specified in this paragraph for a transitional assistance 
     eligible individual--
       ``(i) for costs incurred during 2004, is $600; or
       ``(ii) for costs incurred during 2005, is--

       ``(I) $600, plus
       ``(II) except as provided in subparagraph (E), the amount 
     by which the amount available under this paragraph for 2004 
     for that individual exceeds the amount of payment made under 
     paragraph (1)(B) for that individual for costs incurred 
     during 2004.

       ``(B) Proration.--
       ``(i) In general.--In the case of an individual not 
     described in clause (ii) with respect to a year, the 
     Secretary may prorate the amount specified in subparagraph 
     (A) for the balance of the year involved in a manner 
     specified by the Secretary.
       ``(ii) Individual described.--An individual described in 
     this clause is a transitional assistance eligible individual 
     who--

       ``(I) with respect to 2004, enrolls in an endorsed program, 
     and provides a certification under subsection (f)(2), before 
     the initial implementation date of the program under this 
     section; and
       ``(II) with respect to 2005, is enrolled in an endorsed 
     program, and has provided such a certification, before 
     February 1, 2005.

       ``(C) Accounting for available balances in cases of changes 
     in program enrollment.--In the case of a transitional 
     assistance eligible individual who changes the endorsed 
     discount card program in which the individual is enrolled 
     under this section, the Secretary shall provide a process 
     under which the Secretary provides to the sponsor of the 
     endorsed program in which the individual enrolls information 
     concerning the balance of amounts available on behalf of the 
     individual under this paragraph.
       ``(D) Limitation on use of funds.--Pursuant to subsection 
     (a)(2)(C), no assistance shall be provided under paragraph 
     (1)(B) with respect to covered discount card drugs dispensed 
     after December 31, 2005.
       ``(E) No rollover permitted in case of voluntary 
     disenrollment.--Except in such exceptional cases as the 
     Secretary may provide, in the case of a transitional 
     assistance eligible individual who voluntarily disenrolls 
     from an endorsed plan, the provisions of subclause (II) of 
     subparagraph (A)(ii) shall not apply.
       ``(3) Payment.--The Secretary shall provide a method for 
     the reimbursement of prescription drug card sponsors for 
     assistance provided under this subsection.
       ``(4) Coverage of coinsurance.--
       ``(A) Waiver permitted by pharmacy.--Nothing in this 
     section shall be construed as precluding a pharmacy from 
     reducing or waiving the application of coinsurance imposed 
     under paragraph (1)(B) in accordance with section 
     1128B(b)(3)(G).
       ``(B) Optional payment of coinsurance by state.--
       ``(i) In general.--The Secretary shall establish an 
     arrangement under which a State may provide for payment of 
     some or all of the coinsurance under paragraph (1)(B) for 
     some or all enrollees in the State, as specified by the State 
     under the arrangement. Insofar as such a payment arrangement 
     is made with respect to an enrollee, the amount of the 
     coinsurance shall be paid directly by the State to the 
     pharmacy involved.
       ``(ii) No federal matching available under medicaid or 
     schip.--Expenditures made by a State for coinsurance 
     described in clause (i) shall not be treated as State 
     expenditures for purposes of Federal matching payments under 
     title XIX or XXI.
       ``(iii) Not treated as medicare cost-sharing.--Coinsurance 
     described in paragraph (1)(B) shall not be treated as 
     coinsurance under this title for purposes of section 
     1905(p)(3)(B).
       ``(C) Treatment of coinsurance.--The amount of any 
     coinsurance imposed under paragraph (1)(B), whether paid or 
     waived under this paragraph, shall not be taken into account 
     in applying the limitation in dollar amount under paragraph 
     (2).
       ``(5) Ensuring access to transitional assistance for 
     qualified residents of long-term care facilities and american 
     indians.--
       ``(A) Residents of long-term care facilities.--The 
     Secretary shall establish procedures and may waive 
     requirements of this section as necessary to negotiate 
     arrangements with sponsors to provide arrangements with 
     pharmacies that support long-term care facilities in order to 
     ensure access to transitional assistance for transitional 
     assistance eligible individuals who reside in long-term care 
     facilities.
       ``(B) American indians.--The Secretary shall establish 
     procedures and may waive requirements of this section to 
     ensure that, for purposes of providing transitional 
     assistance, pharmacies operated by the Indian Health Service, 
     Indian tribes and tribal organizations, and urban Indian 
     organizations (as defined in section 4 of the Indian Health 
     Care Improvement Act) have the opportunity to participate in 
     the pharmacy networks of at least two endorsed programs in 
     each of the 50 States and the District of Columbia where such 
     a pharmacy operates.
       ``(6) No impact on benefits under other programs.--The 
     availability of negotiated prices or transitional assistance 
     under this section shall not be treated as benefits or 
     otherwise taken into account in determining an individual's 
     eligibility for, or the amount of benefits under, any other 
     Federal program.
       ``(7) Disregard for purposes of part c.--Nonuniformity of 
     benefits resulting from the implementation of this section 
     (including the provision or nonprovision of transitional 
     assistance and the payment or waiver of any enrollment fee 
     under this section) shall not be taken into account in 
     applying section 1854(f).
       ``(h) Qualification of Prescription Drug Card Sponsors and 
     Endorsement of Discount Card Programs; Beneficiary 
     Protections.--
       ``(1) Prescription drug card sponsor and qualifications.--
       ``(A) Prescription drug card sponsor and sponsor defined.--
     For purposes of this section, the terms `prescription drug 
     card sponsor' and `sponsor' mean any nongovernmental entity 
     that the Secretary determines to be appropriate to offer an 
     endorsed discount card program under this section, which may 
     include--
       ``(i) a pharmaceutical benefit management company;
       ``(ii) a wholesale or retail pharmacy delivery system;
       ``(iii) an insurer (including an insurer that offers 
     medicare supplemental policies under section 1882);
       ``(iv) an organization offering a plan under part C; or
       ``(v) any combination of the entities described in clauses 
     (i) through (iv).
       ``(B) Administrative qualifications.--Each endorsed 
     discount card program shall be operated directly, or through 
     arrangements with an affiliated organization (or 
     organizations), by one or more entities that have 
     demonstrated experience and expertise in operating such a 
     program or a similar program and that meets such business 
     stability and integrity requirements as the Secretary may 
     specify.
       ``(C) Accounting for transitional assistance.--The sponsor 
     of an endorsed discount

[[Page H11898]]

     card program shall have arrangements satisfactory to the 
     Secretary to account for the assistance provided under 
     subsection (g) on behalf of transitional assistance eligible 
     individuals.
       ``(2) Applications for program endorsement.--
       ``(A) Submission.--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, an 
     application containing such information as the Secretary may 
     require.
       ``(B) Approval; compliance with applicable requirements.--
     The Secretary shall review the application submitted under 
     subparagraph (A) and shall determine whether to endorse the 
     prescription drug discount card program. The Secretary may 
     not endorse such a program unless--
       ``(i) the program and prescription drug card sponsor 
     offering the program comply with the applicable requirements 
     under this section; and
       ``(ii) the sponsor has entered into a contract with the 
     Secretary to carry out such requirements.
       ``(C) Termination of endorsement and contracts.--An 
     endorsement of an endorsed program and a contract under 
     subparagraph (B) shall be for the duration of the program 
     under this section (including any transition applicable under 
     subsection (a)(2)(C)(ii)), except that the Secretary may, 
     with notice and for cause (as defined by the Secretary), 
     terminate such endorsement and contract.
       ``(D) Ensuring choice of programs.--
       ``(i) In general.--The Secretary shall ensure that there is 
     available to each discount card eligible individual a choice 
     of at least 2 endorsed programs (each offered by a different 
     sponsor).
       ``(ii) Limitation on number.--The Secretary may limit (but 
     not below 2) the number of sponsors in a State that are 
     awarded contracts under this paragraph.
       ``(3) Service area encompassing entire states.--Except as 
     provided in paragraph (9), if a prescription drug card 
     sponsor that offers an endorsed program enrolls in the 
     program individuals residing in any part of a State, the 
     sponsor must permit any discount card eligible individual 
     residing in any portion of the State to enroll in the 
     program.
       ``(4) Savings to medicare beneficiaries.--Each prescription 
     drug card sponsor that offers an endorsed discount card 
     program shall pass on to discount card eligible individuals 
     enrolled in the program negotiated prices on covered discount 
     card drugs, including discounts negotiated with pharmacies 
     and manufacturers, to the extent disclosed under subsection 
     (i)(1).
       ``(5) Grievance mechanism.--Each prescription drug card 
     sponsor shall provide meaningful procedures for hearing and 
     resolving grievances between the sponsor (including any 
     entity or individual through which the sponsor carries out 
     the endorsed discount card program) and enrollees in endorsed 
     discount card programs of the sponsor under this section in a 
     manner similar to that required under section 1852(f).
       ``(6) Confidentiality of enrollee records.--
       ``(A) In general.--For purposes of the program under this 
     section, the operations of an endorsed program are covered 
     functions and a prescription drug card sponsor is a covered 
     entity for purposes of applying part C of title XI and all 
     regulatory provisions promulgated thereunder, including 
     regulations (relating to privacy) adopted pursuant to the 
     authority of the Secretary under section 264(c) of the Health 
     Insurance Portability and Accountability Act of 1996 (42 
     U.S.C. 1320d-2 note).
       ``(B) Waiver authority.--In order to promote participation 
     of sponsors in the program under this section, the Secretary 
     may waive such relevant portions of regulations relating to 
     privacy referred to in subparagraph (A), for such 
     appropriate, limited period of time, as the Secretary 
     specifies.
       ``(7) Limitation on provision and marketing of products and 
     services.--The sponsor of an endorsed discount card program--
       ``(A) may provide under the program--
       ``(i) a product or service only if the product or service 
     is directly related to a covered discount card drug; or
       ``(ii) a discount price for nonprescription drugs; and
       ``(B) may, to the extent otherwise permitted under 
     paragraph (6) (relating to application of HIPAA 
     requirements), market a product or service under the program 
     only if the product or service is directly related to--
       ``(i) a covered discount card drug; or
       ``(ii) a drug described in subparagraph (A)(ii) and the 
     marketing consists of information on the discounted price 
     made available for the drug involved.
       ``(8) Additional protections.--Each endorsed discount card 
     program shall meet such additional requirements as the 
     Secretary identifies to protect and promote the interest of 
     discount card eligible individuals, including requirements 
     that ensure that discount card eligible individuals enrolled 
     in endorsed discount card programs are not charged more than 
     the lower of the price based on negotiated prices or the 
     usual and customary price.
       ``(9) Special rules for certain organizations.--
       ``(A) In general.--In the case of an organization that is 
     offering a plan under part C or enrollment under a reasonable 
     cost reimbursement contract under section 1876(h) that is 
     seeking to be a prescription drug card sponsor under this 
     section, the organization may elect to apply the special 
     rules under subparagraph (B) with respect to enrollees in any 
     plan described in section 1851(a)(2)(A) that it offers or 
     under such contract and an endorsed discount card program it 
     offers, but only if it limits enrollment under such program 
     to individuals enrolled in such plan or under such contract.
       ``(B) Special rules.--The special rules under this 
     subparagraph are as follows:
       ``(i) Limitation on enrollment.--The sponsor limits 
     enrollment under this section under the endorsed discount 
     card program to discount card eligible individuals who are 
     enrolled in the part C plan involved or under the reasonable 
     cost reimbursement contract involved and is not required nor 
     permitted to enroll other individuals under such program.
       ``(ii) Pharmacy access.--Pharmacy access requirements under 
     subsection (e)(1)(B) are deemed to be met if the access is 
     made available through a pharmacy network (and not only 
     through mail order) and the network used by the sponsor is 
     approved by the Secretary.
       ``(iii) Sponsor requirements.--The Secretary may waive the 
     application of such requirements for a sponsor as the 
     Secretary determines to be duplicative or to conflict with a 
     requirement of the organization under part C or section 1876 
     (as the case may be) or to be necessary in order to improve 
     coordination of this section with the benefits under such 
     part or section.
       ``(i) Disclosure and Oversight.--
       ``(1) Disclosure.--Each prescription drug card sponsor 
     offering an endorsed discount card program shall disclose to 
     the Secretary (in a manner specified by the Secretary) 
     information relating to program performance, use of 
     prescription drugs by discount card eligible individuals 
     enrolled in the program, the extent to which negotiated price 
     concessions described in subsection (e)(1)(A)(ii) made 
     available to the entity by a manufacturer are passed through 
     to enrollees through pharmacies or otherwise, and such other 
     information as the Secretary may specify. The provisions of 
     section 1927(b)(3)(D) shall apply to drug pricing data 
     reported under the previous sentence (other than data in 
     aggregate form).
       ``(2) Oversight; audit and inspection authority.--The 
     Secretary shall provide appropriate oversight to ensure 
     compliance of endorsed discount card programs and their 
     sponsors with the requirements of this section. The Secretary 
     shall have the right to audit and inspect any books and 
     records of a prescription discount card sponsor (and of any 
     affiliated organization referred to in subsection (h)(1)(B)) 
     that pertain to the endorsed discount card program under this 
     section, including amounts payable to the sponsor under this 
     section.
       ``(3) Sanctions for abusive practices.--The Secretary may 
     implement intermediate sanctions or may revoke the 
     endorsement of a program offered by a sponsor under this 
     section if the Secretary determines that the sponsor or the 
     program no longer meets the applicable requirements of this 
     section or that the sponsor has engaged in false or 
     misleading marketing practices. The Secretary may impose a 
     civil money penalty in an amount not to exceed $10,000 for 
     conduct that a party knows or should know is a violation of 
     this section. The provisions of section 1128A (other than 
     subsections (a) and (b) and the second sentence of subsection 
     (f)) 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).
       ``(j) Treatment of Territories.--
       ``(1) In general.--The Secretary may waive any provision of 
     this section (including subsection (h)(2)(D)) in the case of 
     a resident of a State (other than the 50 States and the 
     District of Columbia) insofar as the Secretary determines it 
     is necessary to secure access to negotiated prices for 
     discount card eligible individuals (or, at the option of the 
     Secretary, individuals described in subsection (b)(1)(A)(i)).
       ``(2) Transitional assistance.--
       ``(A) In general.--In the case of a State, other than the 
     50 States and the District of Columbia, if the State 
     establishes a plan described in subparagraph (B) (for 
     providing transitional assistance with respect to the 
     provision of prescription drugs to some or all individuals 
     residing in the State who are described in subparagraph 
     (B)(i)), the Secretary shall pay to the State for the entire 
     period of the operation of this section an amount equal to 
     the amount allotted to the State under subparagraph (C).
       ``(B) Plan.--The plan described in this subparagraph is a 
     plan that--
       ``(i) provides transitional assistance with respect to the 
     provision of covered discount card drugs to some or all 
     individuals who are entitled to benefits under part A or 
     enrolled under part B, who reside in the State, and who have 
     income below 135 percent of the poverty line; and
       ``(ii) assures that amounts received by the State under 
     this paragraph are used only for such assistance.
       ``(C) Allotment limit.--The amount described in this 
     subparagraph for a State is equal to $35,000,000 multiplied 
     by the ratio (as estimated by the Secretary) of--
       ``(i) the number of individuals who are entitled to 
     benefits under part A or enrolled under part B and who reside 
     in the State (as determined by the Secretary as of July 1, 
     2003), to
       ``(ii) the sum of such numbers for all States to which this 
     paragraph applies.
       ``(D) Continued availability of funds.--Amounts made 
     available to a State under this paragraph which are not used 
     under this paragraph shall be added to the amount available 
     to that State for purposes of carrying out section 1935(e).
       ``(k) Funding.--
       ``(1) Establishment of transitional assistance account.--
       ``(A) In general.--There is created within the Federal 
     Supplementary Medical Insurance Trust Fund established by 
     section 1841 an account to be known as the `Transitional 
     Assistance Account' (in this subsection referred to as the 
     `Account').
       ``(B) Funds.--The Account shall consist of such gifts and 
     bequests as may be made as provided in section 201(i)(1), 
     accrued interest on

[[Page H11899]]

     balances in the Account, and such amounts as may be deposited 
     in, or appropriated to, the Account as provided in this 
     subsection.
       ``(C) Separate from rest of trust fund.--Funds provided 
     under this subsection to the Account shall be kept separate 
     from all other funds within the Federal Supplementary Medical 
     Insurance Trust Fund, but shall be invested, and such 
     investments redeemed, in the same manner as all other funds 
     and investments within such Trust Fund.
       ``(2) Payments from account.--
       ``(A) 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 for transitional 
     assistance provided under subsections (g) and (j)(2).
       ``(B) 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.
       ``(3) Appropriations to cover benefits.--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 made from the Account in the year.
       ``(4) For administrative expenses.--There are authorized to 
     be appropriated to the Secretary such sums as may be 
     necessary to carry out the Secretary's responsibilities under 
     this section.
       ``(5) Transfer of any remaining balance to medicare 
     prescription drug account.--Any balance remaining in the 
     Account after the Secretary determines that funds in the 
     Account are no longer necessary to carry out the program 
     under this section shall be transferred and deposited into 
     the Medicare Prescription Drug Account under section 1860D-
     16.
       ``(6) Construction.--Nothing in this section shall be 
     construed as authorizing the Secretary to provide for payment 
     (other than payment of an enrollment fee on behalf of a 
     transitional assistance eligible individual under subsection 
     (g)(1)(A)) to a sponsor for administrative expenses incurred 
     by the sponsor in carrying out this section (including in 
     administering the transitional assistance provisions of 
     subsections (f) and (g)).

         ``Subpart 5--Definitions and Miscellaneous Provisions


     ``definitions; treatment of references to provisions in part c

       ``Sec. 1860D-41. (a) Definitions.--For purposes of this 
     part:
       ``(1) Basic prescription drug coverage.--The term `basic 
     prescription drug coverage' is defined in section 1860D-
     2(a)(3).
       ``(2) Covered part d drug.--The term `covered part D drug' 
     is defined in section 1860D-2(e).
       ``(3) Creditable prescription drug coverage.--The term 
     `creditable prescription drug coverage' has the meaning given 
     such term in section 1860D-13(b)(4).
       ``(4) Part d eligible individual.--The term `part D 
     eligible individual' has the meaning given such term in 
     section 1860D-1(a)(4)(A).
       ``(5) Fallback prescription drug plan.--The term `fallback 
     prescription drug plan' has the meaning given such term in 
     section 1860D-11(g)(4).
       ``(6) Initial coverage limit.--The term `initial coverage 
     limit' means such limit as established under section 1860D-
     2(b)(3), or, in the case of coverage that is not standard 
     prescription drug coverage, the comparable limit (if any) 
     established under the coverage.
       ``(7) Insurance risk.--The term `insurance risk' means, 
     with respect to a participating pharmacy, risk of the type 
     commonly assumed only by insurers licensed by a State and 
     does not include payment variations designed to reflect 
     performance-based measures of activities within the control 
     of the pharmacy, such as formulary compliance and generic 
     drug substitution.
       ``(8) MA plan.--The term `MA plan' has the meaning given 
     such term in section 1860D-1(a)(4)(B).
       ``(9) MA-PD plan.--The term `MA-PD plan' has the meaning 
     given such term in section 1860D-1(a)(4)(C).
       ``(10) Medicare prescription drug account.--The term 
     `Medicare Prescription Drug Account' means the Account 
     created under section 1860D-16(a).
       ``(11) PDP approved bid.--The term `PDP approved bid' has 
     the meaning given such term in section 1860D-13(a)(6).
       ``(12) PDP region.--The term `PDP region' means such a 
     region as provided under section 1860D-11(a)(2).
       ``(13) PDP sponsor.--The term `PDP sponsor' means a 
     nongovernmental entity that is certified under this part as 
     meeting the requirements and standards of this part for such 
     a sponsor.
       ``(14) Prescription drug plan.--The term `prescription drug 
     plan' means prescription drug coverage that is offered--
       ``(A) under a policy, contract, or plan that has been 
     approved under section 1860D-11(e); and
       ``(B) by a PDP sponsor pursuant to, and in accordance with, 
     a contract between the Secretary and the sponsor under 
     section 1860D-12(b).
       ``(15) Qualified prescription drug coverage.--The term 
     `qualified prescription drug coverage' is defined in section 
     1860D-2(a)(1).
       ``(16) Standard prescription drug coverage.--The term 
     `standard prescription drug coverage' is defined in section 
     1860D-2(b).
       ``(17) State pharmaceutical assistance program.--The term 
     `State Pharmaceutical Assistance Program' has the meaning 
     given such term in section 1860D-23(b).
       ``(18) Subsidy eligible individual.--The term `subsidy 
     eligible individual' has the meaning given such term in 
     section 1860D-14(a)(3)(A).
       ``(b) Application of Part C Provisions Under This Part.--
     For purposes of applying provisions of part C under this part 
     with respect to a prescription drug plan and a PDP sponsor, 
     unless otherwise provided in this part such provisions shall 
     be applied as if--
       ``(1) any reference to an MA plan included a reference to a 
     prescription drug plan;
       ``(2) any reference to an MA organization or a provider-
     sponsored organization included a reference to a PDP sponsor;
       ``(3) any reference to a contract under section 1857 
     included a reference to a contract under section 1860D-12(b);
       ``(4) any reference to part C included a reference to this 
     part; and
       ``(5) any reference to an election period under section 
     1851 were a reference to an enrollment period under section 
     1860D-1.


                       ``miscellaneous provisions

       ``Sec. 1860D-42. (a) Access to Coverage in Territories.--
     The Secretary may waive such requirements of this part, 
     including section 1860D-3(a)(1), insofar as the Secretary 
     determines it is necessary to secure access to qualified 
     prescription drug coverage for part D eligible individuals 
     residing in a State (other than the 50 States and the 
     District of Columbia).
       ``(b) Application of Demonstration Authority.--The 
     provisions of section 402 of the Social Security Amendments 
     of 1967 (Public Law 90-248) shall apply with respect to this 
     part and part C in the same manner it applies with respect to 
     parts A and B, except that any reference with respect to a 
     Trust Fund in relation to an experiment or demonstration 
     project relating to prescription drug coverage under this 
     part shall be deemed a reference to the Medicare Prescription 
     Drug Account within the Federal Supplementary Medical 
     Insurance Trust Fund.''.
       (b) 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 title and title II.
       (c) Study on Transitioning Part B Prescription Drug 
     Coverage.--Not later than January 1, 2005, the Secretary 
     shall submit a report to Congress that makes recommendations 
     regarding methods for providing benefits under subpart 1 of 
     part D of title XVIII of the Social Security Act for 
     outpatient prescription drugs for which benefits are provided 
     under part B of such title.
       (d) Report on Progress in Implementation of Prescription 
     Drug Benefit.--Not later than March 1, 2005, the Secretary 
     shall submit a report to Congress on the progress that has 
     been made in implementing the prescription drug benefit under 
     this title. The Secretary shall include in the report 
     specific steps that have been taken, and that need to be 
     taken, to ensure a timely start of the program on January 1, 
     2006. The report shall include recommendations regarding an 
     appropriate transition from the program under section 1860D-
     31 of the Social Security Act to prescription drug benefits 
     under subpart 1 of part D of title XVIII of such Act.
       (e) Additional Conforming Changes.--
       (1) Conforming references to previous part d.--Any 
     reference in law (in effect before the date of the enactment 
     of this Act) to part D of title XVIII of the Social Security 
     Act is deemed a reference to part E of such title (as in 
     effect after such date).
       (2) Conforming amendment permitting waiver of cost-
     sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
     amended--
       (A) by striking ``and'' at the end of subparagraph (E);
       (B) by striking the period at the end of subparagraph (F) 
     and inserting ``; and''; and
       (C) by adding at the end the following new subparagraph:
       ``(G) the waiver or reduction by pharmacies (including 
     pharmacies of the Indian Health Service, Indian tribes, 
     tribal organizations, and urban Indian organizations) of any 
     cost-sharing imposed under part D of title XVIII, if the 
     conditions described in clauses (i) through (iii) of section 
     1128A(i)(6)(A) are met with respect to the waiver or 
     reduction (except that, in the case of such a waiver or 
     reduction on behalf of a subsidy eligible individual (as 
     defined in section 1860D-14(a)(3)), section 1128A(i)(6)(A) 
     shall be applied without regard to clauses (ii) and (iii) of 
     that section).''.
       (3) Medicare prescription drug account.--
       (A) Section 201(g) (42 U.S.C. 401(g)) is amended--
       (i) in paragraph (1)(B)(i)(V), by inserting ``(and, of such 
     portion, the portion of such costs which should have been 
     borne by the Medicare Prescription Drug Account in such Trust 
     Fund)'' after ``Trust Fund''; and
       (ii) in paragraph (1)(B)(ii)(III), by inserting ``(and, of 
     such portion, the portion of such costs which should have 
     been borne by the Medicare Prescription Drug Account in such 
     Trust Fund)'' after ``Trust Fund''.
       (B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) is amended by 
     inserting ``(and for the Medicare Prescription Drug Account 
     and the Transitional Assistance Account in such Trust Fund)'' 
     after ``Federal Supplementary Medical Insurance Trust Fund''.
       (C) Section 1841 (42 U.S.C. 1395t) is amended--
       (i) in the last sentence of subsection (a)--

       (I) by striking ``and'' before ``such amounts''; and
       (II) by inserting before the period the following: ``, and 
     such amounts as may be deposited in, or appropriated to, the 
     Medicare Prescription Drug Account established by section 
     1860D-16'';

       (ii) in subsection (g), by adding at the end the following: 
     ``The payments provided for under part D, other than under 
     section 1860D-31(k)(2),

[[Page H11900]]

     shall be made from the Medicare Prescription Drug Account in 
     the Trust Fund.'';
       (iii) in subsection (h), by inserting ``or pursuant to 
     section 1860D-13(c)(1) or 1854(d)(2)(A) (in which case 
     payments shall be made in appropriate part from the Medicare 
     Prescription Drug Account in the Trust Fund)'' after 
     ``1840(d)''; and
       (iv) in subsection (i), by inserting after ``and section 
     1842(g)'' the following: ``and pursuant to sections 1860D-
     13(c)(1) and 1854(d)(2)(A) (in which case payments shall be 
     made in appropriate part from the Medicare Prescription Drug 
     Account in the Trust Fund)''.
       (D) Section 1853(f) (42 U.S.C. 1395w-23(f)) is amended--
       (i) in the heading by striking ``Trust Fund'' and inserting 
     ``Trust Funds''; and
       (ii) by inserting after the first sentence the following: 
     ``Payments to MA organizations for statutory drug benefits 
     provided under this title are made from the Medicare 
     Prescription Drug Account in the Federal Supplementary 
     Medical Insurance Trust Fund.''.
       (4) Application of confidentiality for drug pricing data.--
     Section 1927(b)(3)(D) (42 U.S.C. 1396r-8(b)(3)(D)) is amended 
     by adding after and below clause (iii) the following:

     ``The previous sentence shall also apply to information 
     disclosed under section 1860D-2(d)(2) or 1860D-4(c)(2)(E).''.
       (5) Clarification of treatment of part a enrollees.--
     Section 1818(a) (42 U.S.C. 1395i-2(a)) is amended by adding 
     at the end the following: ``Except as otherwise provided, any 
     reference to an individual entitled to benefits under this 
     part includes an individual entitled to benefits under this 
     part pursuant to an enrollment under this section or section 
     1818A.''.
       (6) Disclosure.--Section 6103(l)(7)(D)(ii) of the Internal 
     Revenue Code of 1986 is amended by inserting ``or subsidies 
     provided under section 1860D-14 of such Act'' after ``Social 
     Security Act''.
       (7) Extension of study authority.--Section 1875(b) (42 
     U.S.C. 1395ll(b)) is amended by striking ``the insurance 
     programs under parts A and B'' and inserting ``this title''.
       (8) Conforming amendments relating to facilitation of 
     electronic prescribing.--
       (A) Section 1128B(b)(3)(C) (42 U.S.C. 1320a-7b(b)(3)(C)) is 
     amended by inserting ``or in regulations under section 1860D-
     3(e)(6)'' after ``1987''.
       (B) Section 1877(b) (42 U.S.C. 1395nn(b)) is amended by 
     adding at the end the following new paragraph:
       ``(5) Electronic prescribing.--An exception established by 
     regulation under section 1860D-3(e)(6).''.
       (9) Other changes.--Section 1927(g)(1)(B)(i) (42 U.S.C. 
     1396r-8(g)(1)(B)(i)) is amended--
       (A) by adding ``and'' at the end of subclause (II); and
       (B) by striking subclause (IV).

     SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

       (a) Conforming Amendments to Enrollment Process.--
       (1) Extending open enrollment periods.--Section 1851(e) (42 
     U.S.C. 1395w-21(e)) is amended--
       (A) in paragraph (2), by striking ``2004'' and ``2005'' and 
     inserting ``2005'' and ``2006'' each place it appears; and
       (B) in paragraph (4), by striking ``2005'' and inserting 
     ``2006'' each place it appears.
       (2) Establishment of special annual, coordinated election 
     period for 6 months beginning november 15, 2005.--Section 
     1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)) is amended to 
     read as follows:
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means--
       ``(i) with respect to a year before 2002, the month of 
     November before such year;
       ``(ii) with respect to 2002, 2003, 2004, and 2005, the 
     period beginning on November 15 and ending on December 31 of 
     the year before such year;
       ``(iii) with respect to 2006, the period beginning on 
     November 15, 2005, and ending on May 15, 2006; and
       ``(iv) with respect to 2007 and succeeding years, the 
     period beginning on November 15 and ending on December 31 of 
     the year before such year.''.
       (3) Special information campaign.--Section 1851(e)(3) (42 
     U.S.C. 1395w-21(e)(3)) is amended--
       (A) in subparagraph (C), by inserting ``and during the 
     period described in subparagraph (B)(iii)'' after 
     ``(beginning with 1999)''; and
       (B) in subparagraph (D)--
       (i) in the heading by striking ``campaign in 1998'' and 
     inserting ``campaigns''; and
       (ii) by adding at the end the following: ``During the 
     period described in subparagraph (B)(iii), the Secretary 
     shall provide for an educational and publicity campaign to 
     inform MA eligible individuals about the availability of MA 
     plans (including MA-PD plans) offered in different areas and 
     the election process provided under this section.''.
       (4) Coordinating initial enrollment periods.--Section 
     1851(e)(1) (42 U.S.C. 1395w-21(e)(1)) is amended by adding at 
     the end the following new sentence: ``If any portion of an 
     individual's initial enrollment period under part B occurs 
     after the end of the annual, coordinated election period 
     described in paragraph (3)(B)(iii), the initial enrollment 
     period under this part shall further extend through the end 
     of the individual's initial enrollment period under part 
     B.''.
       (5) Coordination of effectiveness of elections during 
     annual coordinated election period for 2006.--Section 
     1851(f)(3) (42 U.S.C. 1395w-21(f)(3)) is amended by inserting 
     ``, other than the period described in clause (iii) of such 
     subsection'' after ``subsection (e)(3)(B)''.
       (6) Limitation on one-change rule to same type of plan.--
     Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is amended--
       (A) in subparagraph (B)(i), by inserting ``, subparagraph 
     (C)(iii),'' after ``clause (ii)'';
       (B) in subparagraph (C)(i), by striking ``clause (ii)'' and 
     inserting ``clauses (ii) and (iii)''; and
       (C) by adding at the end of subparagraph (C) the following 
     new clause:
       ``(iii) Limitation on exercise of right with respect to 
     prescription drug coverage.--Effective for plan years 
     beginning on or after January 1, 2006, in applying clause (i) 
     (and clause (i) of subparagraph (B)) in the case of an 
     individual who--

       ``(I) is enrolled in an MA plan that does provide qualified 
     prescription drug coverage, the individual may exercise the 
     right under such clause only with respect to coverage under 
     the original fee-for-service plan or coverage under another 
     MA plan that does not provide such coverage and may not 
     exercise such right to obtain coverage under an MA-PD plan or 
     under a prescription drug plan under part D; or
       ``(II) is enrolled in an MA-PD plan, the individual may 
     exercise the right under such clause only with respect to 
     coverage under another MA-PD plan (and not an MA plan that 
     does not provide qualified prescription drug coverage) or 
     under the original fee-for-service plan and coverage under a 
     prescription drug plan under part D.''.

       (b) Promotion of E-Prescribing by MA Plans.--Section 
     1852(j) (42 U.S.C. 1395w-22(j)) is amended by adding at the 
     end the following new paragraph:
       ``(7) Promotion of E-Prescribing by MA Plans.--
       ``(A) In general.--An MA-PD plan may provide for a separate 
     payment or otherwise provide for a differential payment for a 
     participating physician that prescribes covered part D drugs 
     in accordance with an electronic prescription drug program 
     that meets standards established under section 1860D-4(e).
       ``(B) Considerations.--Such payment may take into 
     consideration the costs of the physician in implementing such 
     a program and may also be increased for those participating 
     physicians who significantly increase--
       ``(i) formulary compliance;
       ``(ii) lower cost, therapeutically equivalent alternatives;
       ``(iii) reductions in adverse drug interactions; and
       ``(iv) efficiencies in filing prescriptions through reduced 
     administrative costs.
       ``(C) Structure.--Additional or increased payments under 
     this subsection may be structured in the same manner as 
     medication therapy management fees are structured under 
     section 1860D-4(c)(2)(E).''.
       (c) Other Conforming Amendments.--
       (1) Section 1851(a)(1) (42 U.S.C. 1395w-21(a)(1)) is 
     amended--
       (A) by inserting ``(other than qualified prescription drug 
     benefits)'' after ``benefits'';
       (B) by striking the period at the end of subparagraph (B) 
     and inserting a comma; and
       (C) by adding after and below subparagraph (B) the 
     following:

     ``and may elect qualified prescription drug coverage in 
     accordance with section 1860D-1.''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply on and after January 1, 2006.

     SEC. 103. MEDICAID AMENDMENTS.

       (a) Determinations of Eligibility for Low-Income 
     Subsidies.--
       (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
     amended--
       (A) by striking ``and'' at the end of paragraph (64);
       (B) by striking the period at the end of paragraph (65) and 
     inserting ``; and''; and
       (C) by inserting after paragraph (65) the following new 
     paragraph:
       ``(66) provide for making eligibility determinations under 
     section 1935(a).''.
       (2) New section.--Title XIX is further 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) Requirements Relating to Medicare 
     Prescription Drug Low-Income Subsidies and Medicare 
     Transitional Prescription Drug Assistance.--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 do the following:
       ``(1) Information for transitional prescription drug 
     assistance verification.--The State shall provide the 
     Secretary with information to carry out section 1860D-
     31(f)(3)(B)(i).
       ``(2) Eligibility determinations for low-income 
     subsidies.--The State shall--
       ``(A) make determinations of eligibility for premium and 
     cost-sharing subsidies under and in accordance with section 
     1860D-14;
       ``(B) inform the Secretary of such determinations in cases 
     in which such eligibility is established; and
       ``(C) otherwise provide the Secretary with such information 
     as may be required to carry out part D, other than subpart 4, 
     of title XVIII (including section 1860D-14).
       ``(3) Screening for eligibility, and enrollment of, 
     beneficiaries for medicare cost-sharing.--As part of making 
     an eligibility determination required under paragraph (2) for 
     an individual, the State shall make a determination of the 
     individual's eligibility for medical assistance for any 
     medicare cost-sharing described in section 1905(p)(3) and, if 
     the individual is eligible for any such medicare cost-
     sharing, offer enrollment to the individual under the State 
     plan (or under a waiver of such plan).

[[Page H11901]]

       ``(b) Regular Federal Subsidy of Administrative Costs.--The 
     amounts expended by a State in carrying out subsection (a) 
     are expenditures reimbursable under the appropriate paragraph 
     of section 1903(a).
       (b) Phased-In Federal Assumption of Medicaid Responsibility 
     for Premium and Cost-Sharing Subsidies for Dually Eligible 
     Individuals.--Section 1935, as inserted by subsection (a)(2), 
     is amended by adding at the end the following new subsection:
       ``(c) Federal Assumption of Medicaid Prescription Drug 
     Costs for Dually Eligible Individuals.--
       ``(1) Phased-down state contribution.--
       ``(A) In general.--Each of the 50 States and the District 
     of Columbia for each month beginning with January 2006 shall 
     provide for payment under this subsection to the Secretary of 
     the product of--
       ``(i) the amount computed under paragraph (2)(A) for the 
     State and month;
       ``(ii) the total number of full-benefit dual eligible 
     individuals (as defined in paragraph (6)) for such State and 
     month; and
       ``(iii) the factor for the month specified in paragraph 
     (5).
       ``(B) Form and manner of payment.--Payment under 
     subparagraph (A) shall be made in a manner specified by the 
     Secretary that is similar to the manner in which State 
     payments are made under an agreement entered into under 
     section 1843, except that all such payments shall be 
     deposited into the Medicare Prescription Drug Account in the 
     Federal Supplementary Medical Insurance Trust Fund.
       ``(C) Compliance.--If a State fails to pay to the Secretary 
     an amount required under subparagraph (A), interest shall 
     accrue on such amount at the rate provided under section 
     1903(d)(5). The amount so owed and applicable interest shall 
     be immediately offset against amounts otherwise payable to 
     the State under section 1903(a), in accordance with the 
     Federal Claims Collection Act of 1996 and applicable 
     regulations.
       ``(D) Data match.--The Secretary shall perform such 
     periodic data matches as may be necessary to identify and 
     compute the number of full-benefit dual eligible individuals 
     for purposes of computing the amount under subparagraph (A).
       ``(2) Amount.--
       ``(A) In general.--The amount computed under this paragraph 
     for a State described in paragraph (1) and for a month in a 
     year is equal to--
       ``(i) \1/12\ of the product of--

       ``(I) the base year state medicaid per capita expenditures 
     for covered part D drugs for full-benefit dual eligible 
     individuals (as computed under paragraph (3)); and
       ``(II) a proportion equal to 100 percent minus the Federal 
     medical assistance percentage (as defined in section 1905(b)) 
     applicable to the State for the fiscal year in which the 
     month occurs; and

       ``(ii) increased for each year (beginning with 2004 up to 
     and including the year involved) by the applicable growth 
     factor specified in paragraph (4) for that year.
       ``(B) Notice.--The Secretary shall notify each State 
     described in paragraph (1) not later than October 15 before 
     the beginning of each year (beginning with 2006) of the 
     amount computed under subparagraph (A) for the State for that 
     year.
       ``(3) Base year state medicaid per capita expenditures for 
     covered part D drugs for full-benefit dual eligible 
     individuals.--
       ``(A) In general.--For purposes of paragraph (2)(A), the 
     `base year State medicaid per capita expenditures for covered 
     part D drugs for full-benefit dual eligible individuals' for 
     a State is equal to the weighted average (as weighted under 
     subparagraph (C)) of--
       ``(i) the gross per capita medicaid expenditures for 
     prescription drugs for 2003, determined under subparagraph 
     (B); and
       ``(ii) the estimated actuarial value of prescription drug 
     benefits provided under a capitated managed care plan per 
     full-benefit dual eligible individual for 2003, as determined 
     using such data as the Secretary determines appropriate.
       ``(B) Gross per capita medicaid expenditures for 
     prescription drugs.--
       ``(i) In general.--The gross per capita medicaid 
     expenditures for prescription drugs for 2003 under this 
     subparagraph is equal to the expenditures, including 
     dispensing fees, for the State under this title during 2003 
     for covered outpatient drugs, determined per full-benefit-
     dual-eligible-individual for such individuals not receiving 
     medical assistance for such drugs through a medicaid managed 
     care plan.
       ``(ii) Determination.--In determining the amount under 
     clause (i), the Secretary shall--

       ``(I) use data from the Medicaid Statistical Information 
     System (MSIS) and other available data;
       ``(II) exclude expenditures attributable to covered 
     outpatient prescription drugs that are not covered part D 
     drugs (as defined in section 1860D-2(e)); and
       ``(III) reduce such expenditures by the product of such 
     portion and the adjustment factor (described in clause 
     (iii)).

       ``(iii) Adjustment factor.--The adjustment factor described 
     in this clause for a State is equal to the ratio for the 
     State for 2003 of--

       ``(I) aggregate payments under agreements under section 
     1927; to
       ``(II) the gross expenditures under this title for covered 
     outpatient drugs referred to in clause (i).

     Such factor shall be determined based on information reported 
     by the State in the medicaid financial management reports 
     (form CMS-64) for the 4 quarters of calendar year 2003 and 
     such other data as the Secretary may require.
       ``(C) Weighted average.--The weighted average under 
     subparagraph (A) shall be determined taking into account--
       ``(i) with respect to subparagraph (A)(i), the average 
     number of full-benefit dual eligible individuals in 2003 who 
     are not described in clause (ii); and
       ``(ii) with respect to subparagraph (A)(ii), the average 
     number of full-benefit dual eligible individuals in such year 
     who received in 2003 medical assistance for covered 
     outpatient drugs through a medicaid managed care plan.
       ``(4) Applicable growth factor.--The applicable growth 
     factor under this paragraph for--
       ``(A) each of 2004, 2005, and 2006, is the average annual 
     percent change (to that year from the previous year) of the 
     per capita amount of prescription drug expenditures (as 
     determined based on the most recent National Health 
     Expenditure projections for the years involved); and
       ``(B) a succeeding year, is the annual percentage increase 
     specified in section 1860D-2(b)(6) for the year.
       ``(5) Factor.--The factor under this paragraph for a 
     month--
       ``(A) in 2006 is 90 percent;
       ``(B) in 2007 is 88-\1/3\ percent;
       ``(C) in 2008 is 86-\2/3\ percent;
       ``(D) in 2009 is 85 percent;
       ``(E) in 2010 is 83-\1/3\ percent;
       ``(F) in 2011 is 81-\2/3\ percent;
       ``(G) in 2012 is 80 percent;
       ``(H) in 2013 is 78-\1/3\ percent;
       ``(I) in 2014 is 76-\2/3\ percent; or
       ``(J) after December 2014, is 75 percent.
       ``(6) Full-benefit dual eligible individual defined.--
       ``(A) In general.--For purposes of this section, the term 
     `full-benefit dual eligible individual' means for a State for 
     a month an individual who--
       ``(i) has coverage for the month for covered part D drugs 
     under a prescription drug plan under part D of title XVIII, 
     or under an MA-PD plan under part C of such title; and
       ``(ii) is determined eligible by the State for medical 
     assistance for full benefits under this title for such month 
     under section 1902(a)(10)(A) or 1902(a)(10)(C), by reason of 
     section 1902(f), or under any other category of eligibility 
     for medical assistance for full benefits under this title, as 
     determined by the Secretary.
       ``(B) Treatment of medically needy and other individuals 
     required to spend down.--In applying subparagraph (A) in the 
     case of an individual determined to be eligible by the State 
     for medical assistance under section 1902(a)(10)(C) or by 
     reason of section 1902(f), the individual shall be treated as 
     meeting the requirement of subparagraph (A)(ii) for any month 
     if such medical assistance is provided for in any part of the 
     month.''.
       (c) Medicaid Coordination With Medicare Prescription Drug 
     Benefits.--Section 1935, as so inserted and amended, is 
     further amended by adding at the end the following new 
     subsection:
       ``(d) Coordination of Prescription Drug Benefits.--
       ``(1) Medicare as primary payor.--In the case of a part D 
     eligible individual (as defined in section 1860D-1(a)(3)(A)) 
     who is described in subsection (c)(6)(A)(ii), notwithstanding 
     any other provision of this title, medical assistance is not 
     available under this title for such drugs (or for any cost-
     sharing respecting such drugs), and the rules under this 
     title relating to the provision of medical assistance for 
     such drugs shall not apply. The provision of benefits with 
     respect to such drugs shall not be considered as the 
     provision of care or services under the plan under this 
     title. No payment may be made under section 1903(a) for 
     prescribed drugs for which medical assistance is not 
     available pursuant to this paragraph.
       ``(2) Coverage of certain excludable drugs.--In the case of 
     medical assistance under this title with respect to a covered 
     outpatient drug (other than a covered part D drug) furnished 
     to an individual who is enrolled in a prescription drug plan 
     under part D of title XVIII or an MA-PD plan under part C of 
     such title, the State may elect to provide such medical 
     assistance in the manner otherwise provided in the case of 
     individuals who are not full-benefit dual eligible 
     individuals or through an arrangement with such plan.''.
       (d) Treatment of Territories.--
       (1) In general.--Section 1935, as so inserted and amended, 
     is further amended--
       (A) in subsection (a) in the matter preceding paragraph 
     (1), by inserting ``subject to subsection (e)'' after 
     ``section 1903(a)'';
       (B) in subsection (c)(1), by inserting ``subject to 
     subsection (e)'' after ``1903(a)(1)''; and
       (C) by adding at the end the following new subsection:
       ``(e) Treatment of Territories.--
       ``(1) In general.--In the case of a State, other than the 
     50 States and the District of Columbia--
       ``(A) the previous provisions of this section shall not 
     apply to residents of such State; and
       ``(B) if the State establishes and submits to the Secretary 
     a plan described in paragraph (2) (for providing medical 
     assistance with respect to the provision of prescription 
     drugs to part D eligible individuals), the amount otherwise 
     determined under section 1108(f) (as increased under section 
     1108(g)) for the State shall be increased by the amount for 
     the fiscal period specified in paragraph (3).
       ``(2) Plan.--The Secretary shall determine that a plan is 
     described in this paragraph if the plan--
       ``(A) provides medical assistance with respect to the 
     provision of covered part D drugs (as defined in section 
     1860D-2(e)) to low-income part D eligible individuals;
       ``(B) provides assurances that additional amounts received 
     by the State that are attributable to the operation of this 
     subsection shall be used only for such assistance and related 
     administrative expenses and that no more than 10

[[Page H11902]]

     percent of the amount specified in paragraph (3)(A) for the 
     State for any fiscal period shall be used for such 
     administrative expenses; and
       ``(C) meets such other criteria as the Secretary may 
     establish.
       ``(3) Increased amount.--
       ``(A) In general.--The amount specified in this paragraph 
     for a State for a year is equal to the product of--
       ``(i) the aggregate amount specified in subparagraph (B); 
     and
       ``(ii) the ratio (as estimated by the Secretary) of--

       ``(I) the number of individuals who are entitled to 
     benefits under part A or enrolled under part B and who reside 
     in the State (as determined by the Secretary based on the 
     most recent available data before the beginning of the year); 
     to
       ``(II) the sum of such numbers for all States that submit a 
     plan described in paragraph (2).

       ``(B) Aggregate amount.--The aggregate amount specified in 
     this subparagraph for--
       ``(i) the last 3 quarters of fiscal year 2006, is equal to 
     $28,125,000;
       ``(ii) fiscal year 2007, is equal to $37,500,000; or
       ``(iii) a subsequent year, is equal to the aggregate amount 
     specified in this subparagraph for the previous year 
     increased by annual percentage increase specified in section 
     1860D-2(b)(6) for the year involved.
       ``(4) Report.--The Secretary shall submit to Congress a 
     report on the application of this subsection and may include 
     in the report such recommendations as the Secretary deems 
     appropriate.''.
       (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
     1308(f)) is amended by inserting ``and section 
     1935(e)(1)(B)'' after ``Subject to subsection (g)''.
       (e) Amendment to Best Price.--
       (1) In general.--Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r-
     8(c)(1)(C)(i)) is amended--
       (A) by striking ``and'' at the end of subclause (III);
       (B) by striking the period at the end of subclause (IV) and 
     inserting a semicolon; and
       (C) by adding at the end the following new subclauses:

       ``(V) the prices negotiated from drug manufacturers for 
     covered discount card drugs under an endorsed discount card 
     program under section 1860D-31; and
       ``(VI) any prices charged which are negotiated by a 
     prescription drug plan under part D of title XVIII, by an MA-
     PD plan under part C of such title with respect to covered 
     part D drugs or by a qualified retiree prescription drug plan 
     (as defined in section 1860D-22(a)(2)) with respect to such 
     drugs on behalf of individuals entitled to benefits under 
     part A or enrolled under part B of such title.''.

       (2) In general.--Section 1927(c)(1)(C)(i)(VI) of the Social 
     Security Act, as added by paragraph (1), shall apply to 
     prices charged for drugs dispensed on or after January 1, 
     2006.
       (f) Extension of Medicare Cost-Sharing for Part B Premium 
     for Qualifying Individuals Through September 2004.--
       (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
     1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public 
     Law 108-89, is amended by striking ``ending with March 2004'' 
     and inserting ``ending with September 2004''.
       (2) Total amount available for allocation.--Section 1933(g) 
     (42 U.S.C. 1396u-3(g)), as added by section 401(c) of Public 
     Law 108-89, is amended--
       (A) in the matter preceding paragraph (1), by striking 
     ``March 31, 2004'' and inserting ``September 30, 2004''; and
       (B) in paragraph (2), by striking ``$100,000,000'' and 
     inserting ``$300,000,000''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to calendar quarters beginning on or after April 
     1, 2004.
       (g) 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 assistance under section 1860D-31(f), or for 
     premium and cost-sharing subsidies under section 1860D-14'' 
     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 assistance under section 1860D-31(f), or 
     premium and cost-sharing subsidies under section 1860D-14'' 
     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 transitional 
     assistance under section 1860D-31(f), or for premium and 
     cost-sharing subsidies for low-income individuals under 
     section 1860D-14'' after ``1933''; and
       (B) in paragraph (2), by inserting ``, program, and 
     subsidies'' after ``medical assistance''.

     SEC. 104. MEDIGAP AMENDMENTS.

       (a) Rules Relating to Medigap Policies That Provide 
     Prescription Drug Coverage.--
       (1) In general.--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 new 
     policies that provide prescription drug coverage.--
       ``(A) In general.--Notwithstanding any other provision of 
     law, on or after January 1, 2006, a medigap Rx policy (as 
     defined in paragraph (6)(A)) may not be sold, issued, or 
     renewed under this section--
       ``(i) to an individual who is a part D enrollee (as defined 
     in paragraph (6)(B)); or
       ``(ii) except as provided in subparagraph (B), to an 
     individual who is not a part D enrollee.
       ``(B) Continuation permitted for non-part d enrollees.--
     Subparagraph (A)(ii) shall not apply to the renewal of a 
     medigap Rx policy that was issued before January 1, 2006.
       ``(C) Construction.--Nothing in this subsection shall be 
     construed as preventing the offering on and after January 1, 
     2006, of `H', `I', and `J' policies described in paragraph 
     (2)(D)(i) if the benefit packages are modified in accordance 
     with paragraph (2)(C).
       ``(2) Elimination of duplicative coverage upon part d 
     enrollment.--
       ``(A) In general.--In the case of an individual who is 
     covered under a medigap Rx policy and enrolls under a part D 
     plan--
       ``(i) before the end of the initial part D enrollment 
     period, the individual may--

       ``(I) enroll in a medicare supplemental policy without 
     prescription drug coverage under paragraph (3); or
       ``(II) continue the policy in effect subject to the 
     modification described in subparagraph (C)(i); or

       ``(ii) after the end of such period, the individual may 
     continue the policy in effect subject to such modification.
       ``(B) Notice required to be provided to current 
     policyholders with medigap rx policy.--No medicare 
     supplemental policy of an issuer shall be deemed to meet the 
     standards in subsection (c) unless the issuer provides 
     written notice (in accordance with standards of the Secretary 
     established in consultation with the National Association of 
     Insurance Commissioners) during the 60-day period immediately 
     preceding the initial part D enrollment period, to each 
     individual who is a policyholder or certificate holder of a 
     medigap Rx policy (at the most recent available address of 
     that individual) of the following:
       ``(i) If the individual enrolls in a plan under part D 
     during the initial enrollment period under section 1860D-
     1(b)(2)(A), the individual has the option of--

       ``(I) continuing enrollment in the individual's current 
     plan, but the plan's coverage of prescription drugs will be 
     modified under subparagraph (C)(i); or
       ``(II) enrolling in another medicare supplemental policy 
     pursuant to paragraph (3).

       ``(ii) If the individual does not enroll in a plan under 
     part D during such period, the individual may continue 
     enrollment in the individual's current plan without change, 
     but--

       ``(I) the individual will not be guaranteed the option of 
     enrollment in another medicare supplemental policy pursuant 
     to paragraph (3); and
       ``(II) if the current plan does not provide creditable 
     prescription drug coverage (as defined in section 1860D-
     13(b)(4)), notice of such fact and that there are limitations 
     on the periods in a year in which the individual may enroll 
     under a part D plan and any such enrollment is subject to a 
     late enrollment penalty.

       ``(iii) Such other information as the Secretary may specify 
     (in consultation with the National Association of Insurance 
     Commissioners), including the potential impact of such 
     election on premiums for medicare supplemental policies.
       ``(C) Modification.--
       ``(i) In general.--The policy modification described in 
     this subparagraph is the elimination of prescription coverage 
     for expenses of prescription drugs incurred after the 
     effective date of the individual's coverage under a part D 
     plan and the appropriate adjustment of premiums to reflect 
     such elimination of coverage.
       ``(ii) Continuation of renewability and application of 
     modification.--No medicare supplemental policy of an issuer 
     shall be deemed to meet the standards in subsection (c) 
     unless the issuer--

       ``(I) continues renewability of medigap Rx policies that it 
     has issued, subject to subclause (II); and
       ``(II) applies the policy modification described in clause 
     (i) in the cases described in clauses (i)(II) and (ii) of 
     subparagraph (A).

       ``(D) References to rx policies.--
       ``(i) H, i, and j policies.--Any reference to a benefit 
     package classified as `H', `I', or `J' (including the benefit 
     package classified as `J' with a high deductible feature, as 
     described in subsection (p)(11)) under the standards 
     established under subsection (p)(2) shall be construed as 
     including a reference to such a package as modified under 
     subparagraph (C) and such packages as modified shall not be 
     counted as a separate benefit package under such subsection.
       ``(ii) Application in waivered states.--Except for the 
     modification provided under subparagraph (C), the waivers 
     previously in effect under subsection (p)(2) shall continue 
     in effect.
       ``(3) Availability of substitute policies with guaranteed 
     issue.--
       ``(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', or `F' 
     (including the benefit package classified as `F' with a high 
     deductible feature, as described in subsection (p)(11)), 
     under the standards established under subsection (p)(2), or a 
     benefit package described in subparagraph (A) or (B) of 
     subsection (w)(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

[[Page H11903]]

       ``(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 not later than 63 days after the effective 
     date of the individual's coverage under a part D plan.
       ``(B) Individual covered.--An individual described in this 
     subparagraph with respect to the issuer of a medicare 
     supplemental policy is an individual who--
       ``(i) enrolls in a part D plan during the initial part D 
     enrollment period;
       ``(ii) at the time of such enrollment was enrolled in a 
     medigap Rx policy issued by such issuer; and
       ``(iii) terminates enrollment in such policy and submits 
     evidence of such termination along with the application for 
     the policy under subparagraph (A).
       ``(C) Special rule for waivered states.--For purposes of 
     applying this paragraph in the case of a State that provides 
     for offering of benefit packages other than under the 
     classification referred to in subparagraph (A)(i), the 
     references to benefit packages in such subparagraph are 
     deemed references to comparable benefit packages offered in 
     such State.
       ``(4) Enforcement.--
       ``(A) Penalties for duplication.--The penalties described 
     in subsection (d)(3)(A)(ii) shall apply with respect to a 
     violation of paragraph (1)(A).
       ``(B) Guaranteed issue.--The provisions of paragraph (4) of 
     subsection (s) shall apply with respect to the requirements 
     of paragraph (3) in the same manner as they apply to the 
     requirements of such subsection.
       ``(5) Construction.--Any provision in this section or in a 
     medicare supplemental policy relating to guaranteed 
     renewability of coverage shall be deemed to have been met 
     with respect to a part D enrollee through the continuation of 
     the policy subject to modification under paragraph (2)(C) or 
     the offering of a substitute policy under paragraph (3). The 
     previous sentence shall not be construed to affect the 
     guaranteed renewability of such a modified or substitute 
     policy.
       ``(6) Definitions.--For purposes of this subsection:
       ``(A) Medigap rx policy.--The term `medigap Rx policy' 
     means a medicare supplemental policy--
       ``(i) 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 subsection 
     (p)(11)) under the standards established under subsection 
     (p)(2), without regard to this subsection; and
       ``(ii) to which such standards do not apply (or to which 
     such standards have been waived under subsection (p)(6)) but 
     which provides benefits for prescription drugs.

     Such term does not include a policy with a benefit package as 
     classified under clause (i) which has been modified under 
     paragraph (2)(C)(i).
       ``(B) Part d enrollee.--The term `part D enrollee' means an 
     individual who is enrolled in a part D plan.
       ``(C) Part d plan.--The term `part D plan' means a 
     prescription drug plan or an MA-PD plan (as defined for 
     purposes of part D).
       ``(D) Initial part d enrollment period.--The term `initial 
     part D enrollment period' means the initial enrollment period 
     described in section 1860D-1(b)(2)(A).''.
       (2) Conforming current guaranteed issue provisions.--
       (A) Extending guaranteed issue policy for individuals 
     enrolled in medigap rx policies who try medicare advantage.--
     Subsection (s)(3)(C)(ii) of such section is amended--
       (i) by striking ``(ii) Only'' and inserting ``(ii)(I) 
     Subject to subclause (II), only''; and
       (ii) by adding at the end the following new subclause:
       ``(II) If the medicare supplemental policy referred to in 
     subparagraph (B)(v) was a medigap Rx policy (as defined in 
     subsection (v)(6)(A)), a medicare supplemental policy 
     described in this subparagraph is such policy in which the 
     individual was most recently enrolled as modified under 
     subsection (v)(2)(C)(i) or, at the election of the 
     individual, a policy referred to in subsection 
     (v)(3)(A)(i).''.
       (B) Conforming amendment.--Section 1882(s)(3)(C)(iii) is 
     amended by inserting ``and subject to subsection (v)(1)'' 
     after ``subparagraph (B)(vi)''.
       (b) Development of New Standards for Medigap Policies.--
       (1) In general.--Section 1882 (42 U.S.C. 1395ss) is further 
     amended by adding at the end the following new subsection:
       ``(w) Development of New Standards for Medicare 
     Supplemental Policies.--
       ``(1) In general.--The Secretary shall request the National 
     Association of Insurance Commissioners to review and revise 
     the standards for benefit packages under subsection (p)(1), 
     taking into account the changes in benefits resulting from 
     enactment of the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003 and to otherwise update standards 
     to reflect other changes in law included in such Act. Such 
     revision shall incorporate the inclusion of the 2 benefit 
     packages described in paragraph (2). Such revisions shall be 
     made consistent with the rules applicable under subsection 
     (p)(1)(E) with the reference to the `1991 NAIC Model 
     Regulation' deemed a reference to the NAIC Model Regulation 
     as published in the Federal Register on December 4, 1998, and 
     as subsequently updated by the National Association of 
     Insurance Commissioners to reflect previous changes in law 
     (and subsection (v)) and the reference to `date of enactment 
     of this subsection' deemed a reference to the date of 
     enactment of the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003. To the extent practicable, such 
     revision shall provide for the implementation of revised 
     standards for benefit packages as of January 1, 2006.
       ``(2) New benefit packages.--The benefit packages described 
     in this paragraph are the following (notwithstanding any 
     other provision of this section relating to a core benefit 
     package):
       ``(A) First new benefit package.--A benefit package 
     consisting of the following:
       ``(i) Subject to clause (ii), coverage of 50 percent of the 
     cost-sharing otherwise applicable under parts A and B, except 
     there shall be no coverage of the part B deductible and 
     coverage of 100 percent of any cost-sharing otherwise 
     applicable for preventive benefits.
       ``(ii) Coverage for all hospital inpatient coinsurance and 
     365 extra lifetime days of coverage of inpatient hospital 
     services (as in the current core benefit package).
       ``(iii) A limitation on annual out-of-pocket expenditures 
     under parts A and B to $4,000 in 2006 (or, in a subsequent 
     year, to such limitation for the previous year increased by 
     an appropriate inflation adjustment specified by the 
     Secretary).
       ``(B) Second new benefit package.--A benefit package 
     consisting of the benefit package described in subparagraph 
     (A), except as follows:
       ``(i) Substitute `75 percent' for `50 percent' in clause 
     (i) of such subparagraph.
       ``(ii) Substitute `$2,000' for `$4,000' in clause (iii) of 
     such subparagraph.''.
       (2) Conforming amendments.--Section 1882 (42 U.S.C. 1395ss) 
     is amended--
       (A) in subsection (g)(1), by inserting ``a prescription 
     drug plan under part D or'' after ``but does not include''; 
     and
       (B) in subsection (o)(1), by striking ``subsection (p)'' 
     and inserting ``subsections (p), (v), and (w)''.
       (c) 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 a PDP sponsor under part D of title XVIII 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 a PDP sponsor under such part D as a condition 
     for issuing such policy.

     SEC. 105. ADDITIONAL PROVISIONS RELATING TO MEDICARE 
                   PRESCRIPTION DRUG DISCOUNT CARD AND 
                   TRANSITIONAL ASSISTANCE PROGRAM.

       (a) Exclusion of Costs From Determination of Part B Monthly 
     Premium.--Section 1839(g) (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 medicare prescription drug discount card and 
     transitional assistance program under section 1860D-31.''.
       (b) Application of Confidentiality for Drug Pricing Data.--
     The last sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r-
     8(b)(3)(D)), as added by section 101(e)(4), is amended by 
     inserting ``and drug pricing data reported under the first 
     sentence of section 1860D-31(i)(1)'' after ``section 1860D-
     4(c)(2)(E)''.
       (c) Rules for Implementation.--The following rules shall 
     apply to the medicare prescription drug discount card and 
     transitional assistance program under section 1860D-31 of the 
     Social Security Act, as added by section 101(a):
       (1) In promulgating regulations pursuant to subsection 
     (a)(2)(B) of such section 1860D-31--
       (A) section 1871(a)(3) of the Social Security Act (42 
     U.S.C. 1395hh(a)(3)), as added by section 902(a)(1), shall 
     not apply;
       (B) chapter 35 of title 44, United States Code, shall not 
     apply; and
       (C) sections 553(d) and 801(a)(3)(A) of title 5, United 
     States Code, shall not apply.
       (2) Section 1857(c)(5) of the Social Security Act (42 
     U.S.C. 1395w-27(c)(5)) shall apply with respect to section 
     1860D-31 of such Act, as added by section 101(a), in the same 
     manner as it applies to part C of title XVIII of such Act.
       (3) The administration of such program shall be made 
     without regard to chapter 35 of title 44, United States Code.
       (4)(A) There shall be no judicial review of a determination 
     not to endorse, or enter into a contract, with a prescription 
     drug card sponsor under section 1860D-31 of the Social 
     Security Act.
       (B) In the case of any order issued to enjoin any provision 
     of section 1860D-31 of the Social Security Act (or of any 
     provision of this section), such order shall not affect any 
     other provision of such section (or of this section) and all 
     such provisions shall be treated as severable.
       (d) Conforming Amendments to Federal SMI Trust Fund for 
     Transitional Assistance Account.--Section 1841 (42 U.S.C. 
     1395t), as amended by section 101(e)(3)(C), is amended--
       (1) in the last sentence of subsection (a), by inserting 
     after ``section 1860D-16'' the following: ``or the 
     Transitional Assistance Account established by section 1860D-
     31(k)(1)''; and
       (2) in subsection (g), by adding at the end the following: 
     ``The payments provided for under section 1860D-31(k)(2) 
     shall be made from the Transitional Assistance Account in the 
     Trust Fund.''.
       (e) Disclosure of Return Information for Purposes of 
     Providing Transitional Assistance Under Medicare Discount 
     Card Program.--
       (1) In general.--Subsection (l) of section 6103 of the 
     Internal Revenue Code of 1986 (relating to

[[Page H11904]]

     disclosure of returns and return information for purposes 
     other than tax administration) is amended by adding at the 
     end the following new paragraph:
       ``(19) Disclosure of return information for purposes of 
     providing transitional assistance under medicare discount 
     card program.--
       ``(A) In general.--The Secretary, upon written request from 
     the Secretary of Health and Human Services pursuant to 
     carrying out section 1860D-31 of the Social Security Act, 
     shall disclose to officers, employees, and contractors of the 
     Department of Health and Human Services with respect to a 
     taxpayer for the applicable year--
       ``(i)(I) whether the adjusted gross income, as modified in 
     accordance with specifications of the Secretary of Health and 
     Human Services for purposes of carrying out such section, of 
     such taxpayer and, if applicable, such taxpayer's spouse, for 
     the applicable year, exceeds the amounts specified by the 
     Secretary of Health and Human Services in order to apply the 
     100 and 135 percent of the poverty lines under such section, 
     (II) whether the return was a joint return, and (III) the 
     applicable year, or
       ``(ii) if applicable, the fact that there is no return 
     filed for such taxpayer for the applicable year.
       ``(B) Definition of applicable year.--For the purposes of 
     this subsection, the term `applicable year' means the most 
     recent taxable year for which information is available in the 
     Internal Revenue Service's taxpayer data information systems, 
     or, if there is no return filed for such taxpayer for such 
     year, the prior taxable year.
       ``(C) Restriction on use of disclosed information.--Return 
     information disclosed under this paragraph may be used only 
     for the purposes of determining eligibility for and 
     administering transitional assistance under section 1860D-31 
     of the Social Security Act.''
       (2) Confidentiality.--Paragraph (3) of section 6103(a) of 
     such Code is amended by striking ``or (16)'' and inserting 
     ``(16), or (19)''.
       (3) Procedures and recordkeeping related to disclosures.--
     Subsection (p)(4) of section 6103 of such Code is amended by 
     striking ``(l)(16) or (17)'' each place it appears and 
     inserting ``(l)(16), (17), or (19)''.
       (4) Unauthorized disclosure or inspection.--Paragraph (2) 
     of section 7213(a) of such Code is amended by striking ``or 
     (16)'' and inserting ``(16), or (19)''.

     SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION 
                   COMMISSION.

       (a) Establishment.--
       (1) In general.--There is established, as of the first day 
     of the third month beginning after the date of the enactment 
     of this Act, a State Pharmaceutical Assistance Transition 
     Commission (in this section referred to as the 
     ``Commission'') to develop a proposal for addressing the 
     unique transitional issues facing State pharmaceutical 
     assistance programs, and program participants, due to the 
     implementation of the voluntary prescription drug benefit 
     program under part D of title XVIII of the Social Security 
     Act, as added by section 101.
       (2) Definitions.--For purposes of this section:
       (A) State pharmaceutical assistance program defined.--The 
     term ``State pharmaceutical assistance program'' means a 
     program (other than the medicaid program) operated by a State 
     (or under contract with a State) that provides as of the date 
     of the enactment of this Act financial assistance to medicare 
     beneficiaries for the purchase of prescription drugs.
       (B) Program participant.--The term ``program participant'' 
     means a low-income medicare beneficiary who is a participant 
     in a State pharmaceutical assistance program.
       (b) Composition.--The Commission shall include the 
     following:
       (1) A representative of each Governor of each State that 
     the Secretary identifies as operating on a statewide basis a 
     State pharmaceutical assistance program that provides for 
     eligibility and benefits that are comparable or more generous 
     than the low-income assistance eligibility and benefits 
     offered under section 1860D-14 of the Social Security Act.
       (2) Representatives from other States that the Secretary 
     identifies have in operation other State pharmaceutical 
     assistance programs, as appointed by the Secretary.
       (3) Representatives of organizations that have an inherent 
     interest in program participants or the program itself, as 
     appointed by the Secretary but not to exceed the number of 
     representatives under paragraphs (1) and (2).
       (4) Representatives of Medicare Advantage organizations, 
     pharmaceutical benefit managers, and other private health 
     insurance plans, as appointed by the Secretary.
       (5) The Secretary (or the Secretary's designee) and such 
     other members as the Secretary may specify. The Secretary 
     shall designate a member to serve as Chair of the Commission 
     and the Commission shall meet at the call of the Chair.
       (c) Development of Proposal.--The Commission shall develop 
     the proposal described in subsection (a) in a manner 
     consistent with the following principles:
       (1) Protection of the interests of program participants in 
     a manner that is the least disruptive to such participants 
     and that includes a single point of contact for enrollment 
     and processing of benefits.
       (2) Protection of the financial and flexibility interests 
     of States so that States are not financially worse off as a 
     result of the enactment of this title.
       (3) Principles of medicare modernization under this Act.
       (d) Report.--By not later than January 1, 2005, the 
     Commission shall submit to the President and Congress a 
     report that contains a detailed proposal (including specific 
     legislative or administrative recommendations, if any) and 
     such other recommendations as the Commission deems 
     appropriate.
       (e) Support.--The Secretary shall provide the Commission 
     with the administrative support services necessary for the 
     Commission to carry out its responsibilities under this 
     section.
       (f) Termination.--The Commission shall terminate 30 days 
     after the date of submission of the report under subsection 
     (d).

     SEC. 107. STUDIES AND REPORTS.

       (a) Study Regarding Regional Variations in Prescription 
     Drug Spending.--
       (1) In general.--The Secretary shall conduct a study that 
     examines variations in per capita spending for covered part D 
     drugs under part D of title XVIII of the Social Security Act 
     among PDP regions and, with respect to such spending, the 
     amount of such variation that is attributable to--
       (A) price variations (described in section 1860D-15(c)(2) 
     of such Act); and
       (B) differences in per capita utilization that is not taken 
     into account in the health status risk adjustment provided 
     under section 1860D-15(c)(1) of such Act.
       (2) Report and recommendations.--Not later than January 1, 
     2009, the Secretary shall submit to Congress a report on the 
     study conducted under paragraph (1). Such report shall 
     include--
       (A) information regarding the extent of geographic 
     variation described in paragraph (1)(B);
       (B) an analysis of the impact on direct subsidies under 
     section 1860D-15(a)(1) of the Social Security Act in 
     different PDP regions if such subsidies were adjusted to take 
     into account the variation described in subparagraph (A); and
       (C) recommendations regarding the appropriateness of 
     applying an additional geographic adjustment factor under 
     section 1860D-15(c)(2) that reflects some or all of the 
     variation described in subparagraph (A).
       (b) Review and Report on Current Standards of Practice for 
     Pharmacy Services Provided to Patients in Nursing 
     Facilities.--
       (1) Review.--
       (A) In general.--Not later than 12 months after the date of 
     the enactment of this Act, the Secretary shall conduct a 
     thorough review of the current standards of practice for 
     pharmacy services provided to patients in nursing facilities
       (B) Specific matters reviewed.--In conducting the review 
     under subparagraph (A), the Secretary shall--
       (i) assess the current standards of practice, clinical 
     services, and other service requirements generally used for 
     pharmacy services in long-term care settings; and
       (ii) evaluate the impact of those standards with respect to 
     patient safety, reduction of medication errors and quality of 
     care.
       (2) Report.--
       (A) In general.--Not later than the date that is 18 months 
     after the date of the enactment of this Act, the Secretary 
     shall submit a report to Congress on the study conducted 
     under paragraph (1)(A).
       (B) Contents.--The report submitted under subparagraph (A) 
     shall contain--
       (i) a description of the plans of the Secretary to 
     implement the provisions of this Act in a manner consistent 
     with applicable State and Federal laws designed to protect 
     the safety and quality of care of nursing facility patients; 
     and
       (ii) recommendations regarding necessary actions and 
     appropriate reimbursement to ensure the provision of 
     prescription drugs to medicare beneficiaries residing in 
     nursing facilities in a manner consistent with existing 
     patient safety and quality of care standards under applicable 
     State and Federal laws.
       (c) IOM Study on Drug Safety and Quality.--
       (1) In general.--The Secretary shall enter into a contract 
     with the Institutes of Medicine of the National Academies of 
     Science (such Institutes referred to in this subsection as 
     the ``IOM'') to carry out a comprehensive study (in this 
     subsection referred to as the ``study'') of drug safety and 
     quality issues in order to provide a blueprint for system-
     wide change.
       (2) Objectives.--
       (A) The study shall develop a full understanding of drug 
     safety and quality issues through an evidence-based review of 
     literature, case studies, and analysis. This review will 
     consider the nature and causes of medication errors, their 
     impact on patients, the differences in causation, impact, and 
     prevention across multiple dimensions of health care 
     delivery-including patient populations, care settings, 
     clinicians, and institutional cultures.
       (B) The study shall attempt to develop credible estimates 
     of the incidence, severity, costs of medication errors that 
     can be useful in prioritizing resources for national quality 
     improvement efforts and influencing national health care 
     policy.
       (C) The study shall evaluate alternative approaches to 
     reducing medication errors in terms of their efficacy, cost-
     effectiveness, appropriateness in different settings and 
     circumstances, feasibility, institutional barriers to 
     implementation, associated risks, and the quality of evidence 
     supporting the approach.
       (D) The study shall provide guidance to consumers, 
     providers, payers, and other key stakeholders on high-
     priority strategies to achieve both short-term and long-term 
     drug safety goals, to elucidate the goals and expected 
     results of such initiatives and support the business case for 
     them, and to identify critical success factors and key levers 
     for achieving success.
       (E) The study shall assess the opportunities and key 
     impediments to broad nationwide implementation of medication 
     error reductions, and to provide guidance to policy-makers 
     and government agencies (including the Food and Drug 
     Administration, the Centers for Medicare & Medicaid Services, 
     and the National Institutes of Health) in promoting a 
     national agenda for medication error reduction.

[[Page H11905]]

       (F) The study shall develop an applied research agenda to 
     evaluate the health and cost impacts of alternative 
     interventions, and to assess collaborative public and private 
     strategies for implementing the research agenda through AHRQ 
     and other government agencies.
       (3) Conduct of study.--
       (A) Expert committee.--In conducting the study, the IOM 
     shall convene a committee of leading experts and key 
     stakeholders in pharmaceutical management and drug safety, 
     including clinicians, health services researchers, 
     pharmacists, system administrators, payer representatives, 
     and others.
       (B) Completion.--The study shall be completed within an 18-
     month period.
       (4) Report.--A report on the study shall be submitted to 
     Congress upon the completion of the study.
       (5) Authorization of appropriations.--There are authorized 
     to be appropriated to carry out this section such sums as may 
     be necessary.
       (d) Study of Multi-year Contracts.--
       (1) In general.--The Secretary shall provide for a study on 
     the feasibility and advisability of providing for contracting 
     with PDP sponsors and MA organizations under parts C and D of 
     title XVIII on a multi-year basis.
       (2) Report.--Not later than January 1, 2007, the Secretary 
     shall submit to Congress a report on the study under 
     paragraph (1). The report shall include such recommendations 
     as the Secretary deems appropriate.
       (e) GAO Study Regarding Impact of Assets Test for Subsidy 
     Eligible Individuals.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study to determine the extent to which drug 
     utilization and access to covered part D drugs under part D 
     of title XVIII of the Social Security Act by subsidy eligible 
     individuals differs from such utilization and access for 
     individuals who would qualify as such subsidy eligible 
     individuals but for the application of section 1860D-
     14(a)(3)(A)(iii) of such Act.
       (2) Report.--Not later than September 30, 2007, the 
     Comptroller General shall submit a report to Congress on the 
     study conducted under paragraph (1) that includes such 
     recommendations for legislation as the Comptroller General 
     determines are appropriate.
       (f) Study on Making Prescription Pharmaceutical Information 
     Accessible for Blind and Visually-Impaired Individuals.--
       (1) Study.--
       (A) In general.--The Secretary shall undertake a study of 
     how to make prescription pharmaceutical information, 
     including drug labels and usage instructions, accessible to 
     blind and visually-impaired individuals.
       (B) Study to include existing and emerging technologies.--
     The study under subparagraph (A) shall include a review of 
     existing and emerging technologies, including assistive 
     technology, that makes essential information on the content 
     and prescribed use of pharmaceutical medicines available in a 
     usable format for blind and visually-impaired individuals.
       (2) Report.--
       (A) In general.--Not later than 18 months after the date of 
     the enactment of this Act, the Secretary shall submit a 
     report to Congress on the study required under paragraph (1).
       (B) Contents of report.--The report required under 
     paragraph (1) shall include recommendations for the 
     implementation of usable formats for making prescription 
     pharmaceutical information available to blind and visually-
     impaired individuals and an estimate of the costs associated 
     with the implementation of each format.

     SEC. 108. GRANTS TO PHYSICIANS TO IMPLEMENT ELECTRONIC 
                   PRESCRIPTION DRUG PROGRAMS.

       (a) In General.--The Secretary is authorized to make grants 
     to physicians for the purpose of assisting such physicians to 
     implement electronic prescription drug programs that comply 
     with the standards promulgated or modified under section 
     1860D-4(e) of the Social Security Act, as inserted by section 
     101(a).
       (b) Awarding of Grants.--
       (1) Application.--No grant may be made under this section 
     except pursuant to a grant application that is submitted and 
     approved in a time, manner, and form specified by the 
     Secretary.
       (2) Considerations and preferences.--In awarding grants 
     under this section, the Secretary shall--
       (A) give special consideration to physicians who serve a 
     disproportionate number of medicare patients; and
       (B) give preference to physicians who serve a rural or 
     underserved area.
       (3) Limitation on grants.--Only 1 grant may be awarded 
     under this section with respect to any physician or group 
     practice of physicians.
       (c) Terms and Conditions.--
       (1) In general.--Grants under this section shall be made 
     under such terms and conditions as the Secretary specifies 
     consistent with this section.
       (2) Use of grant funds.--Funds provided under grants under 
     this section may be used for any of the following:
       (A) For purchasing, leasing, and installing computer 
     software and hardware, including handheld computer 
     technologies.
       (B) Making upgrades and other improvements to existing 
     computer software and hardware to enable e-prescribing.
       (C) Providing education and training to eligible physician 
     staff on the use of technology to implement the electronic 
     transmission of prescription and patient information.
       (3) Provision of information.--As a condition for the 
     awarding of a grant under this section, an applicant shall 
     provide to the Secretary such information as the Secretary 
     may require in order to--
       (A) evaluate the project for which the grant is made; and
       (B) ensure that funding provided under the grant is 
     expended only for the purposes for which it is made.
       (4) Audit.--The Secretary shall conduct appropriate audits 
     of grants under this section.
       (5) Matching requirement.--The applicant for a grant under 
     this section shall agree, with respect to the costs to be 
     incurred by the applicant in implementing an electronic 
     prescription drug program, to make available (directly or 
     through donations from public or private entities) non-
     Federal contributions toward such costs in an amount that is 
     not less than 50 percent of such costs. Non-Federal 
     contributions under the previous sentence may be in cash or 
     in kind, fairly evaluated, including plant, equipment, or 
     services. Amounts provided by the Federal Government, or 
     services assisted or subsidized to any significant extent by 
     the Federal Government, may not be included in determining 
     the amount of such contributions.
       (d) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section $50,000,000 for 
     fiscal year 2007 and such sums as may be necessary for each 
     of fiscal years 2008 and 2009.

     SEC. 109. 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 ``, to Medicare Advantage 
     organizations pursuant to contracts under part C, and to 
     prescription drug sponsors pursuant to contracts 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, Medicare Advantage organizations 
     offering Medicare Advantage plans under part C, and 
     prescription drug sponsors offering prescription drug plans 
     under part D 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.
       (d) IOM Study of QIOs.--
       (1) In general.--The Secretary shall request the Institute 
     of Medicine of the National Academy of Sciences to conduct an 
     evaluation of the program under part B of title XI of the 
     Social Security Act. The study shall include a review of the 
     following:
       (A) An overview of the program under such part.
       (B) The duties of organizations with contracts with the 
     Secretary under such part.
       (C) The extent to which quality improvement organizations 
     improve the quality of care for medicare beneficiaries.
       (D) The extent to which other entities could perform such 
     quality improvement functions as well as, or better than, 
     quality improvement organizations.
       (E) The effectiveness of reviews and other actions 
     conducted by such organizations in carrying out those duties.
       (F) The source and amount of funding for such 
     organizations.
       (G) The conduct of oversight of such organizations.
       (2) Report to congress.--Not later than June 1, 2006, the 
     Secretary shall submit to Congress a report on the results of 
     the study described in paragraph (1), including any 
     recommendations for legislation.
       (3) Increased competition.--If the Secretary finds based on 
     the study conducted under paragraph (1) that other entities 
     could improve quality in the medicare program as well as, or 
     better than, the current quality improvement organizations, 
     then the Secretary shall provide for such increased 
     competition through the addition of new types of entities 
     which may perform quality improvement functions.

     SEC. 110. CONFLICT OF INTEREST STUDY.

       (a) Study.--The Federal Trade Commission shall conduct a 
     study of differences in payment amounts for pharmacy services 
     provided to enrollees in group health plans that utilize 
     pharmacy benefit managers. Such study shall include the 
     following:
       (1) An assessment of the differences in costs incurred by 
     such enrollees and plans for prescription drugs dispensed by 
     mail-order pharmacies owned by pharmaceutical benefit 
     managers compared to mail-order pharmacies not owned by 
     pharmaceutical benefit managers, and community pharmacies.
       (2) Whether such plans are acting in a manner that 
     maximizes competition and results in lower prescription drug 
     prices for enrollees.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection 
     (a). Such report shall include recommendations regarding any 
     need for legislation to ensure the fiscal integrity of the 
     voluntary prescription drug benefit program under part D of 
     title XVIII, as added by section 101, that may be 
     appropriated as the result of such study.
       (c) Exemption From Paperwork Reduction Act.--Chapter 35 of 
     title 44, United States Code, shall not apply to the 
     collection of information under subsection (a).

     SEC. 111. STUDY ON EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.

       (a) Study.--The Comptroller General of the United States 
     shall conduct an initial and final study under this 
     subsection to examine trends in employment-based retiree 
     health coverage (as

[[Page H11906]]

     defined in 1860D-22(c)(1) of the Social Security Act, as 
     added by section 101), including coverage under the Federal 
     Employees Health Benefits Program (FEHBP), and the options 
     and incentives available under this Act which may have an 
     effect on the voluntary provision of such coverage.
       (b) Content of Initial Study.--The initial study under this 
     section shall consider the following:
       (1) Trends in employment-based retiree health coverage 
     prior to the date of the enactment of this Act.
       (2) The opinions of sponsors of employment-based retiree 
     health coverage concerning which of the options available 
     under this Act they are most likely to utilize for the 
     provision of health coverage to their medicare-eligible 
     retirees, including an assessment of the administrative 
     burdens associated with the available options.
       (3) The likelihood of sponsors of employment-based retiree 
     health coverage to maintain or adjust their levels of retiree 
     health benefits beyond coordination with medicare, including 
     for prescription drug coverage, provided to medicare-eligible 
     retirees after the date of the enactment of this Act.
       (4) The factors that sponsors of employment-based retiree 
     health coverage expect to consider in making decisions about 
     any changes they may make in the health coverage provided to 
     medicare-eligible retirees.
       (5) Whether the prescription drug plan options available, 
     or the health plan options available under the Medicare 
     Advantage program, are likely to cause employers and other 
     entities that did not provide health coverage to retirees 
     prior to the date of the enactment of this Act to provide 
     supplemental coverage or contributions toward premium 
     expenses for medicare-eligible retirees who may enroll in 
     such options in the future.
       (c) Contents of Final Study.--The final study under this 
     section shall consider the following:
       (1) Changes in the trends in employment-based retiree 
     health coverage since the completion of the initial study by 
     the Comptroller General.
       (2) Factors contributing to any changes in coverage levels.
       (3) The number and characteristics of sponsors of 
     employment-based retiree health coverage who receive the 
     special subsidy payments under section 1860D-22 of the Social 
     Security Act, as added by section 101, for the provision of 
     prescription drug coverage to their medicare-eligible 
     retirees that is the same or greater actuarial value as the 
     prescription drug coverage available to other medicare 
     beneficiaries without employment-based retiree health 
     coverage.
       (4) The extent to which sponsors of employment-based 
     retiree health coverage provide supplemental health coverage 
     or contribute to the premiums for medicare-eligible retirees 
     who enroll in a prescription drug plan or an MA-PD plan.
       (5) Other coverage options, including tax-preferred 
     retirement or health savings accounts, consumer-directed 
     health plans, or other vehicles that sponsors of employment-
     based retiree health coverage believe would assist retirees 
     with their future health care needs and their willingness to 
     sponsor such alternative plan designs.
       (6) The extent to which employers or other entities that 
     did not provide employment-based retiree health coverage 
     prior to the date of the enactment of this Act provided some 
     form of coverage or financial assistance for retiree health 
     care needs after the date of the enactment of this Act.
       (7) Recommendations by employers, benefits experts, 
     academics, and others on ways that the voluntary provision of 
     employment-based retiree health coverage may be improved and 
     expanded.
       (d) Reports.--The Comptroller General shall submit a report 
     to Congress on--
       (1) the initial study under subsection (b) not later than 1 
     year after the date of the enactment of this Act; and
       (2) the final study under subsection (c) not later than 
     January 1, 2007.
       (e) Consultation.--The Comptroller General shall consult 
     with sponsors of employment-based retiree health coverage, 
     benefits experts, human resources professionals, employee 
     benefits consultants, and academics with experience in health 
     benefits and survey research in the development and design of 
     the initial and final studies under this section.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

     SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

       (a) In General.--There is hereby established the Medicare 
     Advantage program. The Medicare Advantage program shall 
     consist of the program under part C of title XVIII of the 
     Social Security Act (as amended by this Act).
       (b) References.--Subject to subsection (c), any reference 
     to the program under part C of title XVIII of the Social 
     Security Act shall be deemed a reference to the Medicare 
     Advantage program and, with respect to such part, any 
     reference to ``Medicare+Choice'' is deemed a reference to 
     ``Medicare Advantage'' and ``MA''.
       (c) Transition.--In order to provide for an orderly 
     transition and avoid beneficiary and provider confusion, the 
     Secretary shall provide for an appropriate transition in the 
     use of the terms ``Medicare+Choice'' and ``Medicare 
     Advantage'' (or ``MA'') in reference to the program under 
     part C of title XVIII of the Social Security Act. Such 
     transition shall be fully completed for all materials for 
     plan years beginning not later than January 1, 2006. Before 
     the completion of such transition, any reference to 
     ``Medicare Advantage'' or ``MA'' shall be deemed to include a 
     reference to ``Medicare+Choice''.

                   Subtitle B--Immediate Improvements

     SEC. 211. IMMEDIATE IMPROVEMENTS.

       (a) Equalizing Payments With Fee-for-Service.--
       (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
     23(c)(1)) is amended by adding at the end the following:
       ``(D) 100 percent of fee-for-service costs.--
       ``(i) In general.--For each year specified in clause (ii), 
     the adjusted average per capita cost for the year involved, 
     determined under section 1876(a)(4) and adjusted as 
     appropriate for the purpose of risk adjustment, for the MA 
     payment area for individuals who are not enrolled in an MA 
     plan under this part for the year, but adjusted to exclude 
     costs attributable to payments under section 1886(h).
       ``(ii) Periodic rebasing.--The provisions of clause (i) 
     shall apply for 2004 and for subsequent years as the 
     Secretary shall specify (but not less than once every 3 
     years).
       ``(iii) Inclusion of costs of va and dod military facility 
     services to medicare-eligible beneficiaries.--In determining 
     the adjusted average per capita cost under clause (i) for a 
     year, such cost shall be adjusted to include the Secretary's 
     estimate, on a per capita basis, of the amount of additional 
     payments that would have been made in the area involved under 
     this title if individuals entitled to benefits under this 
     title had not received services from facilities of the 
     Department of Defense or the Department of Veterans 
     Affairs.''.
       (2) Conforming amendment.--Such section is further amended, 
     in the matter before subparagraph (A), by striking ``or (C)'' 
     and inserting ``(C), or (D)''.
       (b) Change in Budget Neutrality for Blend.--Section 1853(c) 
     (42 U.S.C. 1395w-23(c)) is amended--
       (1) in paragraph (1)(A), by inserting ``(for a year other 
     than 2004)'' after ``multiplied''; and
       (2) in paragraph (5), by inserting ``(other than 2004)'' 
     after ``for each year''.
       (c) Increasing Minimum Percentage Increase to National 
     Growth Rate.--
       (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
     23(c)(1)) is amended--
       (A) in subparagraph (A), by striking ``The sum'' and 
     inserting ``For a year before 2005, the sum'';
       (B) in subparagraph (B)(iv), by striking ``and each 
     succeeding year'' and inserting ``, 2003, and 2004'';
       (C) in subparagraph (C)(iv), by striking ``and each 
     succeeding year'' and inserting ``and 2003''; and
       (D) by adding at the end of subparagraph (C) the following 
     new clause:
       ``(v) For 2004 and each succeeding year, the greater of--

       ``(I) 102 percent of the annual MA capitation rate under 
     this paragraph for the area for the previous year; or
       ``(II) the annual MA capitation rate under this paragraph 
     for the area for the previous year increased by the national 
     per capita MA growth percentage, described in paragraph (6) 
     for that succeeding year, but not taking into account any 
     adjustment under paragraph (6)(C) for a year before 2004.''.

       (2) Conforming amendment.--Section 1853(c)(6)(C) (42 U.S.C. 
     1395w-23(c)(6)(C)) is amended by inserting before the period 
     at the end the following: ``, except that for purposes of 
     paragraph (1)(C)(v)(II), no such adjustment shall be made for 
     a year before 2004''.
       (d) Inclusion of Costs of DOD and VA Military Facility 
     Services to Medicare-Eligible Beneficiaries in Calculation of 
     Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) 
     is amended--
       (1) in subparagraph (A), by striking ``subparagraph (B)'' 
     and inserting ``subparagraphs (B) and (E)''; and
       (2) by adding at the end the following new subparagraph:
       ``(E) Inclusion of costs of dod and va military facility 
     services to medicare-eligible beneficiaries.--In determining 
     the area-specific MA capitation rate under subparagraph (A) 
     for a year (beginning with 2004), the annual per capita rate 
     of payment for 1997 determined under section 1876(a)(1)(C) 
     shall be adjusted to include in the rate the Secretary's 
     estimate, on a per capita basis, of the amount of additional 
     payments that would have been made in the area involved under 
     this title if individuals entitled to benefits under this 
     title had not received services from facilities of the 
     Department of Defense or the Department of Veterans 
     Affairs.''.
       (e) Extending Special Rule for Certain Inpatient Hospital 
     Stays to Rehabilitation Hospitals and Long-Term Care 
     Hospitals.--
       (1) In general.--Section 1853(g) (42 U.S.C. 1395w-23(g)) is 
     amended--
       (A) in the matter preceding paragraph (1), by inserting ``, 
     a rehabilitation hospital described in section 
     1886(d)(1)(B)(ii) or a distinct part rehabilitation unit 
     described in the matter following clause (v) of section 
     1886(d)(1)(B), or a long-term care hospital (described in 
     section 1886(d)(1)(B)(iv))'' after ``1886(d)(1)(B))''; and
       (B) in paragraph (2)(B), by inserting ``or other payment 
     provision under this title for inpatient services for the 
     type of facility, hospital, or unit involved, described in 
     the matter preceding paragraph (1), as the case may be,'' 
     after ``1886(d)''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to contract years beginning on or after January 
     1, 2004.
       (f) MedPAC Study of AAPCC.--
       (1) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study that assesses the method used for determining 
     the adjusted average per capita cost (AAPCC) under section 
     1876(a)(4) of the Social Security Act (42 U.S.C. 
     1395mm(a)(4)) as applied under section 1853(c)(1)(A) of such 
     Act (as amended by subsection (a)). Such study shall include 
     an examination of--

[[Page H11907]]

       (A) the bases for variation in such costs between different 
     areas, including differences in input prices, utilization, 
     and practice patterns;
       (B) the appropriate geographic area for payment of MA local 
     plans under the Medicare Advantage program under part C of 
     title XVIII of such Act; and
       (C) the accuracy of risk adjustment methods in reflecting 
     differences in costs of providing care to different groups of 
     beneficiaries served under such program.
       (2) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under paragraph (1).
       (g) Report on Impact of Increased Financial Assistance to 
     Medicare Advantage Plans.--Not later than July 1, 2006, the 
     Secretary shall submit to Congress a report that describes 
     the impact of additional financing provided under this Act 
     and other Acts (including the Medicare, Medicaid, and SCHIP 
     Balanced Budget Refinement Act of 1999 and BIPA) on the 
     availability of Medicare Advantage plans in different areas 
     and its impact on lowering premiums and increasing benefits 
     under such plans.
       (h) MedPAC Study and Report on Clarification of Authority 
     Regarding Disapproval of Unreasonable Beneficiary Cost-
     Sharing.--
       (1) Study.--The Medicare Payment Advisory Commission, in 
     consultation with beneficiaries, consumer groups, employers, 
     and organizations offering plans under part C of title XVIII 
     of the Social Security Act, shall conduct a study to 
     determine the extent to which the cost-sharing structures 
     under such plans affect access to covered services or select 
     enrollees based on the health status of eligible individuals 
     described 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 
     Commission shall submit a report to Congress on the study 
     conducted under paragraph (1) together with recommendations 
     for such legislation and administrative actions as the 
     Commission considers appropriate.
       (i) Implementation of Provisions.--
       (1) Announcement of revised medicare advantage payment 
     rates.--Within 6 weeks after the date of the enactment of 
     this Act, the Secretary shall determine, and shall announce 
     (in a manner intended to provide notice to interested 
     parties) MA capitation rates under section 1853 of the Social 
     Security Act (42 U.S.C. 1395w-23) for 2004, revised in 
     accordance with the provisions of this section.
       (2) Transition to revised payment rates.--The provisions of 
     section 604 of BIPA (114 Stat. 2763A-555) (other than 
     subsection (a)) shall apply to the provisions of subsections 
     (a) through (d) of this section for 2004 in the same manner 
     as the provisions of such section 604 applied to the 
     provisions of BIPA for 2001.
       (3) Special rule for payment rates in 2004.--
       (A) January and february.--Notwithstanding the amendments 
     made by subsections (a) through (d), for purposes of making 
     payments under section 1853 of the Social Security Act (42 
     U.S.C. 1395w-23) for January and February 2004, the annual 
     capitation rate for a payment area shall be calculated and 
     the excess amount under section 1854(f)(1)(B) of such Act (42 
     U.S.C. 1395w-24(f)(1)(B)) shall be determined as if such 
     amendments had not been enacted.
       (B) March through december.--Notwithstanding the amendments 
     made by subsections (a) through (d), for purposes of making 
     payments under section 1853 of the Social Security Act (42 
     U.S.C. 1395w-23) for March through December 2004, the annual 
     capitation rate for a payment area shall be calculated and 
     the excess amount under section 1854(f)(1)(B) of such Act (42 
     U.S.C. 1395w-24(f)(1)(B)) shall be determined, in such manner 
     as the Secretary estimates will ensure that the total of such 
     payments with respect to 2004 is the same as the amounts that 
     would have been if subparagraph (A) had not been enacted.
       (C) Construction.--Subparagraphs (A) and (B) shall not be 
     taken into account in computing such capitation rate for 2005 
     and subsequent years.
       (4) Plans required to provide notice of changes in plan 
     benefits.--In the case of an organization offering a plan 
     under part C of title XVIII of the Social Security Act that 
     revises its submission of the information described in 
     section 1854(a)(1) of such Act (42 U.S.C. 1395w-23(a)(1)) for 
     a plan pursuant to the application of paragraph (2), if such 
     revision results in changes in beneficiary premiums, 
     beneficiary cost-sharing, or benefits under the plan, then by 
     not later than 3 weeks after the date the Secretary approves 
     such submission, the organization offering the plan shall 
     provide each beneficiary enrolled in the plan with written 
     notice of such changes.
       (5) Limitation on review.--There shall be no administrative 
     or judicial review under section 1869 or section 1878 of the 
     Social Security Act (42 U.S.C. 1395ff and 1395oo), or 
     otherwise of any determination made by the Secretary under 
     this subsection or the application of the payment rates 
     determined pursuant to this subsection.
       (j) Additional Amendments.--Section 1852(d)(4) (42 U.S.C. 
     1395w-22(d)(4)) is amended--
       (1) in subparagraph (B), by inserting ``(other than deemed 
     contracts or agreements under subsection (j)(6))'' after 
     ``the plan has contracts or agreements''; and
       (2) in the last sentence, by inserting before the period at 
     the end the following: ``, except that, if a plan entirely 
     meets such requirement with respect to a category of health 
     care professional or provider on the basis of subparagraph 
     (B), it may provide for a higher beneficiary copayment in the 
     case of health care professionals and providers of that 
     category who do not have contracts or agreements (other than 
     deemed contracts or agreements under subsection (j)(6)) to 
     provide covered services under the terms of the plan''.

    Subtitle C--Offering of Medicare Advantage (MA) Regional Plans; 
                     Medicare Advantage Competition

     SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

       (a) Offering of MA Regional Plans.--
       (1) In general.--Section 1851(a)(2)(A) is amended--
       (A) by striking ``Coordinated care plans.--Coordinated'' 
     and inserting the following: ``Coordinated care plans 
     (including regional plans).--
       ``(i) In general.--Coordinated'';
       (B) by inserting ``regional or local'' before ``preferred 
     provider organization plans''; and
       (C) by inserting `` (including MA regional plans)'' after 
     ``preferred provider organization plans''.
       (2) Moratorium on new local preferred provider organization 
     plans.--The Secretary shall not permit the offering of a 
     local preferred provider organization plan under part C of 
     title XVIII of the Social Security Act during 2006 or 2007 in 
     a service area unless such plan was offered under such part 
     (including under a demonstration project under such part) in 
     such area as of December 31, 2005.
       (b) Definition of MA Regional Plan; MA Local Plan.--
       (1) In general.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
     amended by adding at the end the following new paragraphs:
       ``(4) MA regional plan.--The term `MA regional plan' means 
     an MA plan described in section 1851(a)(2)(A)(i)--
       ``(A) that has a network of providers that have agreed to a 
     contractually specified reimbursement for covered benefits 
     with the organization offering the plan;
       ``(B) that provides for reimbursement for all covered 
     benefits regardless of whether such benefits are provided 
     within such network of providers; and
       ``(C) the service area of which is one or more entire MA 
     regions.
       ``(5) MA local plan.--The term `MA local plan' means an MA 
     plan that is not an MA regional plan.''.
       (2) Construction.--Nothing in part C of title XVIII of the 
     Social Security Act shall be construed as preventing an MSA 
     plan or MA private fee-for-service plan from having a service 
     area that covers one or more MA regions or the entire nation.
       (c) Rules for MA Regional Plans.--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 ma regional plans

       ``Sec. 1858. (a) Regional Service Area; Establishment of MA 
     Regions.--
       ``(1) Coverage of entire ma region.--The service area for 
     an MA regional plan shall consist of an entire MA region 
     established under paragraph (2) and the provisions of section 
     1854(h) shall not apply to such a plan.
       ``(2) Establishment of ma regions.--
       ``(A) MA region.--For purposes of this title, the term `MA 
     region' means such a region within the 50 States and the 
     District of Columbia as established by the Secretary under 
     this paragraph.
       ``(B) Establishment.--
       ``(i) Initial establishment.--Not later than January 1, 
     2005, the Secretary shall first establish and publish MA 
     regions.
       ``(ii) Periodic review and revision of service areas.--The 
     Secretary may periodically review MA regions under this 
     paragraph and, based on such review, may revise such regions 
     if the Secretary determines such revision to be appropriate.
       ``(C) Requirements for ma regions.--The Secretary shall 
     establish, and may revise, MA regions under this paragraph in 
     a manner consistent with the following:
       ``(i) Number of regions.--There shall be no fewer than 10 
     regions, and no more than 50 regions.
       ``(ii) Maximizing availability of plans.--The regions shall 
     maximize the availability of MA regional plans to all MA 
     eligible individuals without regard to health status, 
     especially those residing in rural areas.
       ``(D) Market survey and analysis.--Before establishing MA 
     regions, the Secretary shall conduct a market survey and 
     analysis, including an examination of current insurance 
     markets, to determine how the regions should be established.
       ``(3) National plan.--Nothing in this subsection shall be 
     construed as preventing an MA regional plan from being 
     offered in more than one MA region (including all regions).
       ``(b) Application of Single Deductible and Catastrophic 
     Limit on Out-of-Pocket Expenses.--An MA regional plan shall 
     include the following:
       ``(1) Single deductible.--Any deductible for benefits under 
     the original medicare fee-for-service program option shall be 
     a single deductible (instead of a separate inpatient hospital 
     deductible and a part B deductible) and may be applied 
     differentially for in-network services and may be waived for 
     preventive or other items and services.
       ``(2) Catastrophic limit.--
       ``(A) In-network.--A catastrophic limit on out-of-pocket 
     expenditures for in-network benefits under the original 
     medicare fee-for-service program option.
       ``(B) Total.--A catastrophic limit on out-of-pocket 
     expenditures for all benefits under the original medicare 
     fee-for-service program option.
       ``(c) Portion of Total Payments to an Organization Subject 
     to Risk for 2006 and 2007.--

[[Page H11908]]

       ``(1) Application of risk corridors.--
       ``(A) In general.--This subsection shall only apply to MA 
     regional plans offered during 2006 or 2007.
       ``(B) Notification of allowable costs under the plan.--In 
     the case of an MA organization that offers an MA regional 
     plan in an MA region in 2006 or 2007, the organization shall 
     notify the Secretary, before such date in the succeeding year 
     as the Secretary specifies, of--
       ``(i) its total amount of costs that the organization 
     incurred in providing benefits covered under the original 
     medicare fee-for-service program option for all enrollees 
     under the plan in the region in the year and the portion of 
     such costs that is attributable to administrative expenses 
     described in subparagraph (C); and
       ``(ii) its total amount of costs that the organization 
     incurred in providing rebatable integrated benefits (as 
     defined in subparagraph (D)) and with respect to such 
     benefits the portion of such costs that is attributable to 
     administrative expenses described in subparagraph (C) and not 
     described in clause (i) of this subparagraph.
       ``(C) Allowable costs defined.--For purposes of this 
     subsection, the term `allowable costs' means, with respect to 
     an MA regional plan for a year, the total amount of costs 
     described in subparagraph (B) for the plan and year, reduced 
     by the portion of such costs attributable to administrative 
     expenses incurred in providing the benefits described in such 
     subparagraph.
       ``(D) Rebatable integrated benefits.--For purposes of this 
     subsection, the term `rebatable integrated benefits' means 
     such non-drug supplemental benefits under subclause (I) of 
     section 1854(b)(1)(C)(ii) pursuant to a rebate under such 
     section that the Secretary determines are integrated with the 
     benefits described in subparagraph (B)(i).
       ``(2) Adjustment of payment.--
       ``(A) No adjustment if allowable costs within 3 percent of 
     target amount.--If the allowable costs for the plan for the 
     year are at least 97 percent, but do not exceed 103 percent, 
     of the target amount for the plan and year, there shall be no 
     payment adjustment under this subsection for the plan and 
     year.
       ``(B) Increase in payment if allowable costs above 103 
     percent of target amount.--
       ``(i) Costs between 103 and 108 percent of target amount.--
     If the allowable costs for the plan for the year are greater 
     than 103 percent, but not greater than 108 percent, of the 
     target amount for the plan and year, the Secretary shall 
     increase the total of the monthly payments made to the 
     organization offering the plan for the year under section 
     1853(a) by an amount equal to 50 percent of the difference 
     between such allowable costs and 103 percent of such target 
     amount.
       ``(ii) Costs above 108 percent of target amount.--If the 
     allowable costs for the plan for the year are greater than 
     108 percent of the target amount for the plan and year, the 
     Secretary shall increase the total of the monthly payments 
     made to the organization offering the plan for the year under 
     section 1853(a) by an amount equal to the sum of--

       ``(I) 2.5 percent of such target amount; and
       ``(II) 80 percent of the difference between such allowable 
     costs and 108 percent of such target amount.

       ``(C) Reduction in payment if allowable costs below 97 
     percent of target amount.--
       ``(i) Costs between 92 and 97 percent of target amount.--If 
     the allowable costs for the plan for the year are less than 
     97 percent, but greater than or equal to 92 percent, of the 
     target amount for the plan and year, the Secretary shall 
     reduce the total of the monthly payments made to the 
     organization offering the plan for the year under section 
     1853(a) by an amount (or otherwise recover from the plan an 
     amount) equal to 50 percent of the difference between 97 
     percent of the target amount and such allowable costs.
       ``(ii) Costs below 92 percent of target amount.--If the 
     allowable costs for the plan for the year are less than 92 
     percent of the target amount for the plan and year, the 
     Secretary shall reduce the total of the monthly payments made 
     to the organization offering the plan for the year under 
     section 1853(a) by an amount (or otherwise recover from the 
     plan an amount) equal to the sum of--

       ``(I) 2.5 percent of such target amount; and
       ``(II) 80 percent of the difference between 92 percent of 
     such target amount and such allowable costs.

       ``(D) Target amount described.--For purposes of this 
     paragraph, the term `target amount' means, with respect to an 
     MA regional plan offered by an organization in a year, an 
     amount equal to--
       ``(i) the sum of--

       ``(I) the total monthly payments made to the organization 
     for enrollees in the plan for the year that are attributable 
     to benefits under the original medicare fee-for-service 
     program option (as defined in section 1852(a)(1)(B));
       ``(II) the total of the MA monthly basic beneficiary 
     premium collectable for such enrollees for the year; and
       ``(III) the total amount of the rebates under section 
     1854(b)(1)(C)(ii) that are attributable to rebatable 
     integrated benefits; reduced by

       ``(ii) the amount of administrative expenses assumed in the 
     bid insofar as the bid is attributable to benefits described 
     in clause (i)(I) or (i)(III).
       ``(3) Disclosure of information.--
       ``(A) In general.--Each contract under this part shall 
     provide--
       ``(i) that an MA organization offering an MA regional plan 
     shall provide the Secretary with such information as the 
     Secretary determines is necessary to carry out this 
     subsection; and
       ``(ii) that, pursuant to section 1857(d)(2)(B), the 
     Secretary has the right to inspect and audit any books and 
     records of the organization that pertain to the information 
     regarding costs provided to the Secretary under paragraph 
     (1)(B).
       ``(B) Restriction on use of information.--Information 
     disclosed or obtained pursuant to the provisions of this 
     subsection may be used by officers, employees, and 
     contractors of the Department of Health and Human Services 
     only for the purposes of, and to the extent necessary in, 
     carrying out this subsection.
       ``(d) Organizational and Financial Requirements.--
       ``(1) In general.--In the case of an MA organization that 
     is offering an MA regional plan in an MA region and--
       ``(A) meets the requirements of section 1855(a)(1) with 
     respect to at least one such State in such region; and
       ``(B) with respect to each other State in such region in 
     which it does not meet requirements, it demonstrates to the 
     satisfaction of the Secretary that it has filed the necessary 
     application to meet such requirements,

     the Secretary may waive such requirement with respect to each 
     State described in subparagraph (B) for such period of time 
     as the Secretary determines appropriate for the timely 
     processing of such an application by the State (and, if such 
     application is denied, through the end of such plan year as 
     the Secretary determines appropriate to provide for a 
     transition).
       ``(2) Selection of appropriate state.--In applying 
     paragraph (1) in the case of an MA organization that meets 
     the requirements of section 1855(a)(1) with respect to more 
     than one State in a region, the organization shall select, in 
     a manner specified by the Secretary among such States, one 
     State the rules of which shall apply in the case of the 
     States described in paragraph (1)(B).
       ``(e) Stabilization Fund.--
       ``(1) Establishment.--The Secretary shall establish under 
     this subsection an MA Regional Plan Stabilization Fund (in 
     this subsection referred to as the `Fund') which shall be 
     available for 2 purposes:
       ``(A) Plan entry.--To provide incentives to have MA 
     regional plans offered in each MA region under paragraph (3).
       ``(B) Plan retention.--To provide incentives to retain MA 
     regional plans in certain MA regions with below-national-
     average MA market penetration under paragraph (4).
       ``(2) Funding.--
       ``(A) Initial funding.--
       ``(i) In general.--There shall be available to the Fund, 
     for expenditures from the Fund during the period beginning on 
     January 1, 2007, and ending on December 31, 2013, a total of 
     $10,000,000,000.
       ``(ii) Payment from trust funds.--Such amount shall be 
     available to the Fund, as expenditures are made from the 
     Fund, from the Federal Hospital Insurance Trust Fund and the 
     Federal Supplementary Medical Insurance Trust Fund in the 
     proportion specified in section 1853(f).
       ``(B) Additional funding from savings.--
       ``(i) In general.--There shall also be made available to 
     the Fund, 50 percent of savings described in clause (ii).
       ``(ii) Savings.--The savings described in this clause are 
     25 percent of the average per capita savings described in 
     section 1854(b)(4)(C) for which monthly rebates are provided 
     under section 1854(b)(1)(C) in the fiscal year involved that 
     are attributable to MA regional plans.
       ``(iii) Availability.--Funds made available under this 
     subparagraph shall be transferred into a special account in 
     the Treasury from the Federal Hospital Insurance Trust Fund 
     and the Federal Supplementary Medical Insurance Trust Fund in 
     the proportion specified in section 1853(f) on a monthly 
     basis.
       ``(C) Obligations.--Amounts in the Fund shall be available 
     in advance of appropriations to MA regional plans in 
     qualifying MA regions only in accordance with paragraph (5).
       ``(D) Ordering.--Expenditures from the Fund shall first be 
     made from amounts made available under subparagraph (A).
       ``(3) Plan entry funding.--
       ``(A) In general.--Funding is available under this 
     paragraph for a year only as follows:
       ``(i) National plan.--For a national bonus payment 
     described in subparagraph (B) for the offering by a single MA 
     organization of an MA regional plan in each MA region in the 
     year, but only if there was not such a plan offered in each 
     such region in the previous year. Funding under this clause 
     is only available with respect to any individual MA 
     organization for a single year, but may be made available to 
     more than one such organization in the same year.
       ``(ii) Regional plans.--Subject to clause (iii), for an 
     increased amount under subparagraph (C) for an MA regional 
     plan offered in an MA region which did not have any MA 
     regional plan offered in the prior year.
       ``(iii) Limitation on regional plan funding in case of 
     national plan.--In no case shall there be any payment 
     adjustment under subparagraph (C) for a year for which a 
     national payment adjustment is made under subparagraph (B).
       ``(B) National bonus payment.--The national bonus payment 
     under this subparagraph shall--
       ``(i) be available to an MA organization only if the 
     organization offers MA regional plans in every MA region;
       ``(ii) be available with respect to all MA regional plans 
     of the organization regardless of whether any other MA 
     regional plan is offered in any region; and
       ``(iii) subject to amounts available under paragraph (5) 
     for a year, be equal to 3 percent of the benchmark amount 
     otherwise applicable for each MA regional plan offered by the 
     organization.
       ``(C) Regional payment adjustment.--
       ``(i) In general.--The increased amount under this 
     subparagraph for an MA regional

[[Page H11909]]

     plan in an MA region for a year shall be an amount, 
     determined by the Secretary, based on the bid submitted for 
     such plan (or plans) and shall be available to all MA 
     regional plans offered in such region and year. Such amount 
     may be based on the mean, mode, or median, or other measure 
     of such bids and may vary from region to region. The 
     Secretary may not limit the number of plans or bids in a 
     region.
       ``(ii) Multi-year funding.--

       ``(I) In general.--Subject to amounts available under 
     paragraph (5), funding under this subparagraph shall be 
     available for a period determined by the Secretary.
       ``(II) Report.--If the Secretary determines that funding 
     will be provided for a second consecutive year with respect 
     to an MA region, the Secretary shall submit to the Congress a 
     report that describes the underlying market dynamics in the 
     region and that includes recommendations concerning changes 
     in the payment methodology otherwise provided for MA regional 
     plans under this part.

       ``(iii) Application to all plans in a region.--Funding 
     under this subparagraph with respect to an MA region shall be 
     made available with respect to all MA regional plans offered 
     in the region.
       ``(iv) Limitation on availability of plan retention funding 
     in next year.--If an increased amount is made available under 
     this subparagraph with respect to an MA region for a period 
     determined by the Secretary under clause (ii)(I), in no case 
     shall funding be available under paragraph (4) with respect 
     to MA regional plans offered in the region in the year 
     following such period.
       ``(D) Application.--Any additional payment under this 
     paragraph provided for an MA regional plan for a year shall 
     be treated as if it were an addition to the benchmark amount 
     otherwise applicable to such plan and year, but shall not be 
     taken into account in the computation of any benchmark amount 
     for any subsequent year.
       ``(4) Plan retention funding.--
       ``(A) In general.--Funding is available under this 
     paragraph for a year with respect to MA regional plans 
     offered in an MA region for the increased amount specified in 
     subparagraph (B) but only if the region meets the 
     requirements of subparagraphs (C) and (E).
       ``(B) Payment increase.--The increased amount under this 
     subparagraph for an MA regional plan in an MA region for a 
     year shall be an amount, determined by the Secretary, that 
     does not exceed the greater of--
       ``(i) 3 percent of the benchmark amount applicable in the 
     region; or
       ``(ii) such amount as (when added to the benchmark amount 
     applicable to the region) will result in the ratio of--

       ``(I) such additional amount plus the benchmark amount 
     computed under section 1854(b)(4)(B)(i) for the region and 
     year, to the adjusted average per capita cost for the region 
     and year, as estimated by the Secretary under section 
     1876(a)(4) and adjusted as appropriate for the purpose of 
     risk adjustment; being equal to
       ``(II) the weighted average of such benchmark amounts for 
     all the regions and such year, to the average per capita cost 
     for the United States and such year, as estimated by the 
     Secretary under section 1876(a)(4) and adjusted as 
     appropriate for the purpose of risk adjustment.

       ``(C) Regional requirements.--The requirements of this 
     subparagraph for an MA region for a year are as follows:
       ``(i) Notification of plan exit.--The Secretary has 
     received notice (in such form and manner as the Secretary 
     specifies) before a year that one or more MA regional plans 
     that were offered in the region in the previous year will not 
     be offered in the succeeding year.
       ``(ii) Regional plans available from fewer than 2 ma 
     organizations in the region.--The Secretary determines that 
     if the plans referred to in clause (i) are not offered in the 
     year, fewer than 2 MA organizations will be offering MA 
     regional plans in the region in the year involved.
       ``(iii) Percentage enrollment in ma regional plans below 
     national average.--For the previous year, the Secretary 
     determines that the average percentage of MA eligible 
     individuals residing in the region who are enrolled in MA 
     regional plans is less than the average percentage of such 
     individuals in the United States enrolled in such plans.
       ``(D) Application.--Any additional payment under this 
     paragraph provided for an MA regional plan for a year shall 
     be treated as if it were an addition to the benchmark amount 
     otherwise applicable to such plan and year, but shall not be 
     taken into account in the computation of any benchmark amount 
     for any subsequent year.
       ``(E) 2-consecutive-year limitation.--
       ``(i) In general.--In no case shall any funding be 
     available under this paragraph in an MA region in a period of 
     consecutive years that exceeds 2 years.
       ``(ii) Report.--If the Secretary determines that funding 
     will be provided under this paragraph for a second 
     consecutive year with respect to an MA region, the Secretary 
     shall submit to the Congress a report that describes the 
     underlying market dynamics in the region and that includes 
     recommendations concerning changes in the payment methodology 
     otherwise provided for MA regional plans under this part.
       ``(5) Funding limitation.--
       ``(A) In general.--The total amount expended from the Fund 
     as a result of the application of this subsection through the 
     end of a calendar year may not exceed the amount available to 
     the Fund as of the first day of such year. For purposes of 
     this subsection, amounts that are expended under this title 
     insofar as such amounts would not have been expended but for 
     the application of this subsection shall be counted as 
     amounts expended as a result of such application.
       ``(B) Application of limitation.--The Secretary may 
     obligate funds from the Fund for a year only if the Secretary 
     determines (and the Chief Actuary of the Centers for Medicare 
     & Medicaid Services and the appropriate budget officer 
     certify) that there are available in the Fund at the 
     beginning of the year sufficient amounts to cover all such 
     obligations incurred during the year consistent with 
     subparagraph (A). The Secretary shall take such steps, in 
     connection with computing additional payment amounts under 
     paragraphs (3) and (4) and including limitations on 
     enrollment in MA regional plans receiving such payments, as 
     will ensure that sufficient funds are available to make such 
     payments for the entire year. Funds shall only be made 
     available from the Fund pursuant to an apportionment made in 
     accordance with applicable procedures.
       ``(6) Secretary reports.--Not later than April 1 of each 
     year (beginning in 2008), the Secretary shall submit a report 
     to Congress and the Comptroller General of the United States 
     that includes--
       ``(A) a detailed description of--
       ``(i) the total amount expended as a result of the 
     application of this subsection in the previous year compared 
     to the total amount that would have been expended under this 
     title in the year if this subsection had not been enacted;
       ``(ii) the projections of the total amount that will be 
     expended as a result of the application of this subsection in 
     the year in which the report is submitted compared to the 
     total amount that would have been expended under this title 
     in the year if this subsection had not been enacted;
       ``(iii) amounts remaining within the funding limitation 
     specified in paragraph (5); and
       ``(iv) the steps that the Secretary will take under 
     paragraph (5)(B) to ensure that the application of this 
     subsection will not cause expenditures to exceed the amount 
     available in the Fund; and
       ``(B) a certification from the Chief Actuary of the Centers 
     for Medicare & Medicaid Services that the description 
     provided under subparagraph (A) is reasonable, accurate, and 
     based on generally accepted actuarial principles and 
     methodologies.
       ``(7) Biennial gao reports.--Not later than January 1 of 
     2009, 2011, 2013, and 2015, the Comptroller General of the 
     United States shall submit to the Secretary and Congress a 
     report on the application of additional payments under this 
     subsection. Each report shall include--
       ``(A) an evaluation of--
       ``(i) the quality of care provided to individuals enrolled 
     in MA regional plans for which additional payments were made 
     under this subsection;
       ``(ii) the satisfaction of such individuals with benefits 
     under such a plan;
       ``(iii) the costs to the medicare program for payments made 
     to such plans; and
       ``(iv) any improvements in the delivery of health care 
     services under such a plan;
       ``(B) a comparative analysis of the performance of MA 
     regional plans receiving payments under this subsection with 
     MA regional plans not receiving such payments; and
       ``(C) recommendations for such legislation or 
     administrative action as the Comptroller General determines 
     to be appropriate.
       ``(f) Computation of Applicable MA Region-Specific Non-Drug 
     Monthly Benchmark Amounts.--
       ``(1) Computation for regions.--For purposes of section 
     1853(j)(2) and this section, subject to subsection (e), the 
     term `MA region-specific non-drug monthly benchmark amount' 
     means, with respect to an MA region for a month in a year, 
     the sum of the 2 components described in paragraph (2) for 
     the region and year. The Secretary shall compute such 
     benchmark amount for each MA region before the beginning of 
     each annual, coordinated election period under section 
     1851(e)(3)(B) for each year (beginning with 2006).
       ``(2) 2 components.--For purposes of paragraph (1), the 2 
     components described in this paragraph for an MA region and a 
     year are the following:
       ``(A) Statutory component.--The product of the following:
       ``(i) Statutory region-specific non-drug amount.--The 
     statutory region-specific non-drug amount (as defined in 
     paragraph (3)) for the region and year.
       ``(ii) Statutory national market share.--The statutory 
     national market share percentage, determined under paragraph 
     (4) for the year.
       ``(B) Plan-bid component.--The product of the following:
       ``(i) Weighted average of ma plan bids in region.--The 
     weighted average of the plan bids for the region and year (as 
     determined under paragraph (5)(A)).
       ``(ii) Non-statutory market share.--1 minus the statutory 
     national market share percentage, determined under paragraph 
     (4) for the year.
       ``(3) Statutory region-specific non-drug amount.--For 
     purposes of paragraph (2)(A)(i), the term `statutory region-
     specific non-drug amount' means, for an MA region and year, 
     an amount equal the sum (for each MA local area within the 
     region) of the product of--
       ``(A) MA area-specific non-drug monthly benchmark amount 
     under section 1853(j)(1)(A) for that area and year; and
       ``(B) the number of MA eligible individuals residing in the 
     local area, divided by the total number of MA eligible 
     individuals residing in the region.
       ``(4) Computation of statutory market share percentage.--
       ``(A) In general.--The Secretary shall determine for each 
     year a statutory national market share percentage that is 
     equal to the proportion of MA eligible individuals nationally 
     who were not enrolled in an MA plan during the reference 
     month.

[[Page H11910]]

       ``(B) Reference month defined.--For purposes of this part, 
     the term `reference month' means, with respect to a year, the 
     most recent month during the previous year for which the 
     Secretary determines that data are available to compute the 
     percentage specified in subparagraph (A) and other relevant 
     percentages under this part.
       ``(5) Determination of weighted average ma bids for a 
     region.--
       ``(A) In general.--For purposes of paragraph (2)(B)(i), the 
     weighted average of plan bids for an MA region and a year is 
     the sum, for MA regional plans described in subparagraph (D) 
     in the region and year, of the products (for each such plan) 
     of the following:
       ``(i) Monthly ma statutory non-drug bid amount.--The 
     unadjusted MA statutory non-drug monthly bid amount for the 
     plan.
       ``(ii) Plan's share of ma enrollment in region.--The factor 
     described in subparagraph (B) for the plan.
       ``(B) Plan's share of ma enrollment in region.--
       ``(i) In general.--Subject to the succeeding provisions of 
     this subparagraph, the factor described in this subparagraph 
     for a plan is equal to the number of individuals described in 
     subparagraph (C) for such plan, divided by the total number 
     of such individuals for all MA regional plans described in 
     subparagraph (D) for that region and year.
       ``(ii) Single plan rule.--In the case of an MA region in 
     which only a single MA regional plan is being offered, the 
     factor described in this subparagraph shall be equal to 1.
       ``(iii) Equal division among multiple plans in year in 
     which plans are first available.--In the case of an MA region 
     in the first year in which any MA regional plan is offered, 
     if more than one MA regional plan is offered in such year, 
     the factor described in this subparagraph for a plan shall 
     (as specified by the Secretary) be equal to--

       ``(I) 1 divided by the number of such plans offered in such 
     year; or
       ``(II) a factor for such plan that is based upon the 
     organization's estimate of projected enrollment, as reviewed 
     and adjusted by the Secretary to ensure reasonableness and as 
     is certified by the Chief Actuary of the Centers for Medicare 
     & Medicaid Services.

       ``(C) Counting of individuals.--For purposes of 
     subparagraph (B)(i), the Secretary shall count for each MA 
     regional plan described in subparagraph (D) for an MA region 
     and year, the number of individuals who reside in the region 
     and who were enrolled under such plan under this part during 
     the reference month.
       ``(D) Plans covered.--For an MA region and year, an MA 
     regional plan described in this subparagraph is an MA 
     regional plan that is offered in the region and year and was 
     offered in the region in the reference month.
       ``(g) Election of Uniform Coverage Determination.--Instead 
     of applying section 1852(a)(2)(C) with respect to an MA 
     regional plan, the organization offering the plan may elect 
     to have a local coverage determination for the entire MA 
     region be the local coverage determination applied for any 
     part of such region (as selected by the organization).
       ``(h) Assuring Network Adequacy.--
       ``(1) In general.--For purposes of enabling MA 
     organizations that offer MA regional plans to meet applicable 
     provider access requirements under section 1852 with respect 
     to such plans, the Secretary may provide for payment under 
     this section to an essential hospital that provides inpatient 
     hospital services to enrollees in such a plan where the MA 
     organization offering the plan certifies to the Secretary 
     that the organization was unable to reach an agreement 
     between the hospital and the organization regarding provision 
     of such services under the plan. Such payment shall be 
     available only if--
       ``(A) the organization provides assurances satisfactory to 
     the Secretary that the organization will make payment to the 
     hospital for inpatient hospital services of an amount that is 
     not less than the amount that would be payable to the 
     hospital under section 1886 with respect to such services; 
     and
       ``(B) with respect to specific inpatient hospital services 
     provided to an enrollee, the hospital demonstrates to the 
     satisfaction of the Secretary that the hospital's costs of 
     such services exceed the payment amount described in 
     subparagraph (A).
       ``(2) Payment amounts.--The payment amount under this 
     subsection for inpatient hospital services provided by a 
     subsection (d) hospital to an enrollee in an MA regional plan 
     shall be, subject to the limitation of funds under paragraph 
     (3), the amount (if any) by which--
       ``(A) the amount of payment that would have been paid for 
     such services under this title if the enrollees were covered 
     under the original medicare fee-for-service program option 
     and the hospital were a critical access hospital; exceeds
       ``(B) the amount of payment made for such services under 
     paragraph (1)(A).
       ``(3) Available amounts.--There shall be available for 
     payments under this subsection--
       ``(A) in 2006, $25,000,000; and
       ``(B) in each succeeding year the amount specified in this 
     paragraph for the preceding year increased by the market 
     basket percentage increase (as defined in section 
     1886(b)(3)(B)(iii)) for the fiscal year ending in such 
     succeeding year.

     Payments under this subsection shall be made from the Federal 
     Hospital Insurance Trust Fund.
       ``(4) Essential hospital.--In this subsection, the term 
     `essential hospital' means, with respect to an MA regional 
     plan offered by an MA organization, a subsection (d) hospital 
     (as defined in section 1886(d)) that the Secretary 
     determines, based upon an application filed by the 
     organization with the Secretary, is necessary to meet the 
     requirements referred to in paragraph (1) for such plan.''.
       (d) Conforming Amendments.--
       (1) Relating to ma regions.--Section 1853(d) (42 U.S.C. 
     1395w-23(d)) is amended--
       (A) by amending the heading to read as follows: ``MA 
     Payment Area; MA Local Area; MA Region Defined'';
       (B) by redesignating paragraphs (2) and (3) as paragraphs 
     (3) and (4), respectively;
       (C) by amending paragraph (1) to read as follows:
       ``(1) MA payment area.--In this part, except as provided in 
     this subsection, the term `MA payment area' means--
       ``(A) with respect to an MA local plan, an MA local area 
     (as defined in paragraph (2)); and
       ``(B) with respect to an MA regional plan, an MA region (as 
     established under section 1858(a)(2)).'';
       (D) by inserting after paragraph (1) the following new 
     paragraph:
       ``(2) MA local area.--The term `MA local area' means a 
     county or equivalent area specified by the Secretary.''; and
       (E) in paragraph (4), as so redesignated--
       (i) in subparagraph (A), by inserting ``for MA local 
     plans'' after ``paragraph (1)'';
       (ii) in subparagraph (A)(iii), by striking ``paragraph 
     (1)'' and inserting ``paragraph (1)(A)''; and
       (iii) in subparagraph (B)--

       (I) by inserting ``with respect to MA local plans'' after 
     ``established under this section'';
       (II) by inserting ``for such plans'' after ``payments under 
     this section''; and
       (III) by inserting ``for such plans'' after ``made under 
     this section''.

       (2) MA local area defined.--Section 1859(c) (42 U.S.C. 
     1395w-29(c)) is amended by adding at the end the following:
       ``(5) MA local area.--The term `MA local area' is defined 
     in section 1853(d)(2).''.
       (3) Application of special benefit rules to ppos and 
     regional plans.--Section 1852(a) (42 U.S.C. 1395w-22(a)) is 
     amended--
       (A) in paragraph (1), by inserting ``and except as provided 
     in paragraph (6) for MA regional plans'' after ``MSA plans''; 
     and
       (B) by adding at the end the following new paragraph:
       ``(6) Special benefit rules for regional plans.--In the 
     case of an MA plan that is an MA regional plan, benefits 
     under the plan shall include the benefits described in 
     paragraphs (1) and (2) of section 1858(b).''.
       (4) Application of capitation rates to local areas.--
     Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) is amended by 
     inserting ``that is an MA local area'' after ``for a 
     Medicare+Choice payment area''.
       (5) Network adequacy hospital payments.--Section 1851(i)(2) 
     (42 U.S.C. 1395w-21(i)(2)) is amended by inserting 
     ``1858(h),'' after ``1857(f)(2),''.

     SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

       (a) Submission of Bidding and Rebate Information Beginning 
     in 2006.--
       (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is 
     amended--
       (A) by amending paragraph (1) of subsection (a) to read as 
     follows:
       ``(1) In general.--
       ``(A) Initial submission.--Not later than the second Monday 
     in September of 2002, 2003, and 2004 (or the first Monday in 
     June of each subsequent year), each MA organization shall 
     submit to the Secretary, in a form and manner specified by 
     the Secretary and for each MA plan for the service area (or 
     segment of such an area if permitted under subsection (h)) in 
     which it intends to be offered in the following year the 
     following:
       ``(i) The information described in paragraph (2), (3), (4), 
     or (6)(A) for the type of plan and year involved.
       ``(ii) The plan type for each plan.
       ``(iii) The enrollment capacity (if any) in relation to the 
     plan and area.
       ``(B) Beneficiary rebate information.--In the case of a 
     plan required to provide a monthly rebate under subsection 
     (b)(1)(C) for a year, the MA organization offering the plan 
     shall submit to the Secretary, in such form and manner and at 
     such time as the Secretary specifies, information on--
       ``(i) the manner in which such rebate will be provided 
     under clause (ii) of such subsection; and
       ``(ii) the MA monthly prescription drug beneficiary premium 
     (if any) and the MA monthly supplemental beneficiary premium 
     (if any).
       ``(C) Paperwork reduction for offering of ma regional plans 
     nationally or in multi-region areas.--The Secretary shall 
     establish requirements for information submission under this 
     subsection in a manner that promotes the offering of MA 
     regional plans in more than one region (including all 
     regions) through the filing of consolidated information.''; 
     and
       (B) by adding at the end of subsection (a) the following:
       ``(6) Submission of bid amounts by ma organizations 
     beginning in 2006.--
       ``(A) Information to be submitted.--For an MA plan (other 
     than an MSA plan) for a plan year beginning on or after 
     January 1, 2006, the information described in this 
     subparagraph is as follows:
       ``(i) The monthly aggregate bid amount for the provision of 
     all items and services under the plan, which amount shall be 
     based on average revenue requirements (as used for purposes 
     of section 1302(8) of the Public Health Service Act) in the 
     payment area for an enrollee with a national average risk 
     profile for the factors described in section 1853(a)(1)(C) 
     (as specified by the Secretary).
       ``(ii) The proportions of such bid amount that are 
     attributable to--

       ``(I) the provision of benefits under the original medicare 
     fee-for-service program option (as defined in section 
     1852(a)(1)(B));
       ``(II) the provision of basic prescription drug coverage; 
     and

[[Page H11911]]

       ``(III) the provision of supplemental health care benefits.

       ``(iii) The actuarial basis for determining the amount 
     under clause (i) and the proportions described in clause (ii) 
     and such additional information as the Secretary may require 
     to verify such actuarial bases and the projected number of 
     enrollees in each MA local area.
       ``(iv) A description of deductibles, coinsurance, and 
     copayments applicable under the plan and the actuarial value 
     of such deductibles, coinsurance, and copayments, described 
     in subsection (e)(4)(A).
       ``(v) With respect to qualified prescription drug coverage, 
     the information required under section 1860D-4, as 
     incorporated under section 1860D-11(b)(2), with respect to 
     such coverage.
     In the case of a specialized MA plan for special needs 
     individuals, the information described in this subparagraph 
     is such information as the Secretary shall specify.
       ``(B) Acceptance and negotiation of bid amounts.--
       ``(i) Authority.--Subject to clauses (iii) and (iv), the 
     Secretary has the authority to negotiate regarding monthly 
     bid amounts submitted under subparagraph (A) (and the 
     proportions described in subparagraph (A)(ii)), including 
     supplemental benefits provided under subsection 
     (b)(1)(C)(ii)(I) and in exercising such authority the 
     Secretary shall have authority similar to the authority of 
     the Director of the Office of Personnel Management with 
     respect to health benefits plans under chapter 89 of title 5, 
     United States Code.
       ``(ii) Application of fehbp standard.--Subject to clause 
     (iv), the Secretary may only accept such a bid amount or 
     proportion if the Secretary determines that such amount and 
     proportions are supported by the actuarial bases provided 
     under subparagraph (A) and reasonably and equitably reflects 
     the revenue requirements (as used for purposes of section 
     1302(8) of the Public Health Service Act) of benefits 
     provided under that plan.
       ``(iii) Noninterference.--In order to promote competition 
     under this part and part D and in carrying out such parts, 
     the Secretary may not require any MA organization to contract 
     with a particular hospital, physician, or other entity or 
     individual to furnish items and services under this title or 
     require a particular price structure for payment under such a 
     contract to the extent consistent with the Secretary's 
     authority under this part.
       ``(iv) Exception.--In the case of a plan described in 
     section 1851(a)(2)(C), the provisions of clauses (i) and (ii) 
     shall not apply and the provisions of paragraph (5)(B), 
     prohibiting the review, approval, or disapproval of amounts 
     described in such paragraph, shall apply to the negotiation 
     and rejection of the monthly bid amounts and the proportions 
     referred to in subparagraph (A).''.
       (2) Definition of benefits under the original medicare fee-
     for-service program option.--Section 1852(a)(1) (42 U.S.C. 
     1395w-22(a)(1)) is amended--
       (A) by striking ``In general.--Except'' and inserting 
     ``Requirement.--
       ``(A) In general.--Except''; and
       (B) by striking ``title XI'' and all that follows and 
     inserting the following: ``title XI, benefits under the 
     original medicare fee-for-service program option (and, for 
     plan years before 2006, additional benefits required under 
     section 1854(f)(1)(A)).
       ``(B) Benefits under the original medicare fee-for-service 
     program option defined.--
       ``(i) In general.--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 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.
       ``(ii) Special rule for regional plans.--In the case of an 
     MA regional plan in determining an actuarially equivalent 
     level of cost-sharing with respect to benefits under the 
     original medicare fee-for-service program option, there shall 
     only be taken into account, with respect to the application 
     of section 1858(b)(2), such expenses only with respect to 
     subparagraph (A) of such section.''.
       (3) Conforming amendment relating to supplemental health 
     benefits.--Section 1852(a)(3) (42 U.S.C. 1395w-22(a)(3)) is 
     amended by adding at the end the following: ``Such benefits 
     may include reductions in cost-sharing below the actuarial 
     value specified in section 1854(e)(4)(B).''.
       (b) Providing for Beneficiary Savings for Certain Plans.--
       (1) Beneficiary rebates.--Section 1854(b)(1) (42 U.S.C. 
     1395w-24(b)(1)) is amended--
       (A) in subparagraph (A), by striking ``The monthly amount'' 
     and inserting ``Subject to the rebate under subparagraph (C), 
     the monthly amount (if any)''; and
       (B) by adding at the end the following new subparagraph:
       ``(C) Beneficiary rebate rule.--
       ``(i) Requirement.--The MA plan shall provide to the 
     enrollee a monthly rebate equal to 75 percent of the average 
     per capita savings (if any) described in paragraph (3)(C) or 
     (4)(C), as applicable to the plan and year involved.
       ``(ii) Form of rebate.--A rebate required under this 
     subparagraph shall be provided through the application of the 
     amount of the rebate toward one or more of the following:

       ``(I) Provision of supplemental health care benefits and 
     payment for premium for supplemental benefits.--The provision 
     of supplemental health care benefits described in section 
     1852(a)(3) in a manner specified under the plan, which may 
     include the reduction of cost-sharing otherwise applicable as 
     well as additional health care benefits which are not 
     benefits under the original medicare fee-for-service program 
     option, or crediting toward an MA monthly supplemental 
     beneficiary premium (if any).
       ``(II) Payment for premium for prescription drug 
     coverage.--Crediting toward the MA monthly prescription drug 
     beneficiary premium.
       ``(III) Payment toward part b premium.--Crediting toward 
     the premium imposed under part B (determined without regard 
     to the application of subsections (b), (h), and (i) of 
     section 1839).

       ``(iii) Disclosure relating to rebates.--The plan shall 
     disclose to the Secretary information on the form and amount 
     of the rebate provided under this subparagraph or the 
     actuarial value in the case of supplemental health care 
     benefits.
       ``(iv) Application of part b premium reduction.--Insofar as 
     an MA organization elects to provide a rebate under this 
     subparagraph under a plan as a credit toward the part B 
     premium under clause (ii)(III), the Secretary shall apply 
     such credit to reduce the premium under section 1839 of each 
     enrollee in such plan as provided in section 1840(i).''.
       (2) Revision of premium terminology.--Section 1854(b)(2) 
     (42 U.S.C. 1395w-24(b)(2)) is amended--
       (A) in the heading, by inserting ``and bid'' after 
     ``Premium'';
       (B) by redesignating subparagraph (C) as subparagraph (D);
       (C) by striking subparagraphs (A) and (B) and inserting the 
     following:
       ``(A) MA monthly basic beneficiary premium.--The term `MA 
     monthly basic beneficiary premium' means, with respect to an 
     MA plan--
       ``(i) described in section 1853(a)(1)(B)(i) (relating to 
     plans providing rebates), zero; or
       ``(ii) described in section 1853(a)(1)(B)(ii), the amount 
     (if any) by which the unadjusted MA statutory non-drug 
     monthly bid amount (as defined in subparagraph (E)) exceeds 
     the applicable unadjusted MA area-specific non-drug monthly 
     benchmark amount (as defined in section 1853(j)).
       ``(B) MA monthly prescription drug beneficiary premium.--
     The term `MA monthly prescription drug beneficiary premium' 
     means, with respect to an MA plan, the base beneficiary 
     premium (as determined under section 1860D-13(a)(2) and as 
     adjusted under section 1860D-13(a)(1)(B)), less the amount of 
     rebate credited toward such amount under section 
     1854(b)(1)(C)(ii)(II).
       ``(C) MA monthly supplemental beneficiary premium.--The 
     term `MA monthly supplemental beneficiary premium' means, 
     with respect to an MA plan, the portion of the aggregate 
     monthly bid amount submitted under clause (i) of subsection 
     (a)(6)(A) for the year that is attributable under clause 
     (ii)(III) of such subsection to the provision of supplemental 
     health care benefits, less the amount of rebate credited 
     toward such portion under section 1854(b)(1)(C)(ii)(I).''; 
     and
       (D) by adding at the end the following:
       ``(E) Unadjusted ma statutory non-drug monthly bid 
     amount.--The term `unadjusted MA statutory non-drug monthly 
     bid amount' means the portion of the bid amount submitted 
     under clause (i) of subsection (a)(6)(A) for the year that is 
     attributable under clause (ii)(I) of such subsection to the 
     provision of benefits under the original medicare fee-for-
     service program option (as defined in section 
     1852(a)(1)(B)).''.
       (3) Computation of savings.--Section 1854(b) (42 U.S.C. 
     1395w-24(b)) is further amended by adding at the end the 
     following new paragraphs:
       ``(3) Computation of average per capita monthly savings for 
     local plans.--For purposes of paragraph (1)(C)(i), the 
     average per capita monthly savings referred to in such 
     paragraph for an MA local plan and year is computed as 
     follows:
       ``(A) Determination of statewide average risk adjustment 
     for local plans.--
       ``(i) In general.--Subject to clause (iii), the Secretary 
     shall determine, at the same time rates are promulgated under 
     section 1853(b)(1) (beginning with 2006) for each State, the 
     average of the risk adjustment factors to be applied under 
     section 1853(a)(1)(C) to payment for enrollees in that State 
     for MA local plans.
       ``(ii) Treatment of states for first year in which local 
     plan offered.--In the case of a State in which no MA local 
     plan was offered in the previous year, the Secretary shall 
     estimate such average. In making such estimate, the Secretary 
     may use average risk adjustment factors applied to comparable 
     States or applied on a national basis.
       ``(iii) Authority to determine risk adjustment for areas 
     other than states.--The Secretary may provide for the 
     determination and application of risk adjustment factors 
     under this subparagraph on the basis of areas other than 
     States or on a plan-specific basis.
       ``(B) Determination of risk adjusted benchmark and risk-
     adjusted bid for local plans.--For each MA plan offered in a 
     local area in a State, the Secretary shall--
       ``(i) adjust the applicable MA area-specific non-drug 
     monthly benchmark amount (as defined in section 1853(j)(1)) 
     for the area by the average risk adjustment factor computed 
     under subparagraph (A); and
       ``(ii) adjust the unadjusted MA statutory non-drug monthly 
     bid amount by such applicable average risk adjustment factor.
       ``(C) Determination of average per capita monthly 
     savings.--The average per capita monthly savings described in 
     this subparagraph for an MA local plan is equal to the amount 
     (if any) by which--
       ``(i) the risk-adjusted benchmark amount computed under 
     subparagraph (B)(i); exceeds
       ``(ii) the risk-adjusted bid computed under subparagraph 
     (B)(ii).

[[Page H11912]]

       ``(4) Computation of average per capita monthly savings for 
     regional plans.--For purposes of paragraph (1)(C)(i), the 
     average per capita monthly savings referred to in such 
     paragraph for an MA regional plan and year is computed as 
     follows:
       ``(A) Determination of regionwide average risk adjustment 
     for regional plans.--
       ``(i) In general.--The Secretary shall determine, at the 
     same time rates are promulgated under section 1853(b)(1) 
     (beginning with 2006) for each MA region the average of the 
     risk adjustment factors to be applied under section 
     1853(a)(1)(C) to payment for enrollees in that region for MA 
     regional plans.
       ``(ii) Treatment of regions for first year in which 
     regional plan offered.--In the case of an MA region in which 
     no MA regional plan was offered in the previous year, the 
     Secretary shall estimate such average. In making such 
     estimate, the Secretary may use average risk adjustment 
     factors applied to comparable regions or applied on a 
     national basis.
       ``(iii) Authority to determine risk adjustment for areas 
     other than regions.--The Secretary may provide for the 
     determination and application of risk adjustment factors 
     under this subparagraph on the basis of areas other than MA 
     regions or on a plan-specific basis.
       ``(B) Determination of risk-adjusted benchmark and risk-
     adjusted bid for regional plans.--For each MA regional plan 
     offered in a region, the Secretary shall--
       ``(i) adjust the applicable MA area-specific non-drug 
     monthly benchmark amount (as defined in section 1853(j)(2)) 
     for the region by the average risk adjustment factor computed 
     under subparagraph (A); and
       ``(ii) adjust the unadjusted MA statutory non-drug monthly 
     bid amount by such applicable average risk adjustment factor.
       ``(C) Determination of average per capita monthly 
     savings.--The average per capita monthly savings described in 
     this subparagraph for an MA regional plan is equal to the 
     amount (if any) by which--
       ``(i) the risk-adjusted benchmark amount computed under 
     subparagraph (B)(i); exceeds
       ``(ii) the risk-adjusted bid computed under subparagraph 
     (B)(ii).''.
       (c) Collection of Premiums.--Section 1854(d) (42 U.S.C. 
     1395w-24(d)) is amended--
       (1) by striking ``Premiums.--Each'' and inserting 
     ``Premiums.--
       ``(1) In general.--Each''; and
       (2) by adding at the end the following new paragraphs:
       ``(2) Beneficiary's option of payment through withholding 
     from social security payment or use of electronic funds 
     transfer mechanism.--In accordance with regulations, an MA 
     organization shall permit each enrollee, at the enrollee's 
     option, to make payment of premiums (if any) under this part 
     to the organization through--
       ``(A) withholding from benefit payments in the manner 
     provided under section 1840 with respect to monthly premiums 
     under section 1839;
       ``(B) an electronic funds transfer mechanism (such as 
     automatic charges of an account at a financial institution or 
     a credit or debit card account); or
       ``(C) such other means as the Secretary may specify, 
     including payment by an employer or under employment-based 
     retiree health coverage (as defined in section 1860D-
     22(c)(1)) on behalf of an employee or former employee (or 
     dependent).

     All premium payments that are withheld under subparagraph (A) 
     shall be credited to the appropriate Trust Fund (or Account 
     thereof), as specified by the Secretary, under this title and 
     shall be paid to the MA organization involved. No charge may 
     be imposed under an MA plan with respect to the election of 
     the payment option described in subparagraph (A). The 
     Secretary shall consult with the Commissioner of Social 
     Security and the Secretary of the Treasury regarding methods 
     for allocating premiums withheld under subparagraph (A) among 
     the appropriate Trust Funds and Account.
       ``(3) Information necessary for collection.--In order to 
     carry out paragraph (2)(A) with respect to an enrollee who 
     has elected such paragraph to apply, the Secretary shall 
     transmit to the Commissioner of Social Security--
       ``(A) by the beginning of each year, the name, social 
     security account number, consolidated monthly beneficiary 
     premium described in paragraph (4) owed by such enrollee for 
     each month during the year, and other information determined 
     appropriate by the Secretary, in consultation with the 
     Commissioner of Social Security; and
       ``(B) periodically throughout the year, information to 
     update the information previously transmitted under this 
     paragraph for the year.
       ``(4) Consolidated monthly beneficiary premium.--In the 
     case of an enrollee in an MA plan, the Secretary shall 
     provide a mechanism for the consolidation of--
       ``(A) the MA monthly basic beneficiary premium (if any);
       ``(B) the MA monthly supplemental beneficiary premium (if 
     any); and
       ``(C) the MA monthly prescription drug beneficiary premium 
     (if any).''.
       (d) Computation of MA Area-Specific Non-Drug Benchmark.--
     Section 1853 (42 U.S.C. 1395w-23) is amended by adding at the 
     end the following new subsection:
       ``(j) Computation of Benchmark Amounts.--For purposes of 
     this part, the term `MA area-specific non-drug monthly 
     benchmark amount' means for a month in a year--
       ``(1) with respect to--
       ``(A) a service area that is entirely within an MA local 
     area, an amount equal to \1/12\ of the annual MA capitation 
     rate under section 1853(c)(1) for the area for the year, 
     adjusted as appropriate for the purpose of risk adjustment; 
     or
       ``(B) a service area that includes more than one MA local 
     area, an amount equal to the average of the amounts described 
     in subparagraph (A) for each such local MA area, weighted by 
     the projected number of enrollees in the plan residing in the 
     respective local MA areas (as used by the plan for purposes 
     of the bid and disclosed to the Secretary under section 
     1854(a)(6)(A)(iii)), adjusted as appropriate for the purpose 
     of risk adjustment; or
       ``(2) with respect to an MA region for a month in a year, 
     the MA region-specific non-drug monthly benchmark amount, as 
     defined in section 1858(f) for the region for the year.''.
       (e) Payment of Plans Based on Bid Amounts.--
       (1) In general.--Section 1853(a)(1) (42 U.S.C. 1395w-
     23(a)(1)) (42 U.S.C. 1395w-23) is amended--
       (A) by redesignating subparagraph (B) as subparagraph (H); 
     and
       (B) in subparagraph (A), by striking ``in an amount'' and 
     all that follows and inserting the following: ``in an amount 
     determined as follows:
       ``(i) Payment before 2006.--For years before 2006, the 
     payment amount shall be equal to \1/12\ of the annual MA 
     capitation rate (as calculated under subsection (c)(1)) with 
     respect to that individual for that area, adjusted under 
     subparagraph (C) and reduced by the amount of any reduction 
     elected under section 1854(f )(1)(E).
       ``(ii) Payment for original fee-for-service benefits 
     beginning with 2006.--For years beginning with 2006, the 
     amount specified in subparagraph (B).
       ``(B) Payment amount for original fee-for-service benefits 
     beginning with 2006.--
       ``(i) Payment of bid for plans with bids below benchmark.--
     In the case of a plan for which there are average per capita 
     monthly savings described in section 1854(b)(3)(C) or 
     1854(b)(4)(C), as the case may be, the amount specified in 
     this subparagraph is equal to the unadjusted MA statutory 
     non-drug monthly bid amount, adjusted under subparagraph (C) 
     and (if applicable) under subparagraphs (F) and (G), plus the 
     amount (if any) of any rebate under subparagraph (E).
       ``(ii) Payment of benchmark for plans with bids at or above 
     benchmark.--In the case of a plan for which there are no 
     average per capita monthly savings described in section 
     1854(b)(3)(C) or 1854(b)(4)(C), as the case may be, the 
     amount specified in this subparagraph is equal to the MA 
     area-specific non-drug monthly benchmark amount, adjusted 
     under subparagraph (C) and (if applicable) under 
     subparagraphs (F) and (G).
       ``(iii) Payment of benchmark for msa plans.--
     Notwithstanding clauses (i) and (ii), in the case of an MSA 
     plan, the amount specified in this subparagraph is equal to 
     the MA area-specific non-drug monthly benchmark amount, 
     adjusted under subparagraph (C).
       ``(C) Demographic adjustment, including adjustment for 
     health status.--The Secretary shall adjust the payment amount 
     under subparagraph (A)(i) and the amount specified under 
     subparagraph (B)(i), (B)(ii), and (B)(iii) for such risk 
     factors as age, disability status, gender, institutional 
     status, and such other factors as the Secretary determines to 
     be appropriate, including adjustment for health status under 
     paragraph (3), so as to ensure actuarial equivalence. The 
     Secretary may add to, modify, or substitute for such 
     adjustment factors if such changes will improve the 
     determination of actuarial equivalence.
       ``(D) Separate payment for federal drug subsidies.--In the 
     case of an enrollee in an MA-PD plan, the MA organization 
     offering such plan also receives--
       ``(i) subsidies under section 1860D-15 (other than under 
     subsection (g)); and
       ``(ii) reimbursement for premium and cost-sharing 
     reductions for low-income individuals under section 1860D-
     14(c)(1)(C).
       ``(E) Payment of rebate for plans with bids below 
     benchmark.--In the case of a plan for which there are average 
     per capita monthly savings described in section 1854(b)(3)(C) 
     or 1854(b)(4)(C), as the case may be, the amount specified in 
     this subparagraph is the amount of the monthly rebate 
     computed under section 1854(b)(1)(C)(i) for that plan and 
     year (as reduced by the amount of any credit provided under 
     section 1854(b)(1)(C)(iv)).
       ``(F) Adjustment for intra-area variations.--
       ``(i) Intra-regional variations.--In the case of payment 
     with respect to an MA regional plan for an MA region, the 
     Secretary shall also adjust the amounts specified under 
     subparagraphs (B)(i) and (B)(ii) in a manner to take into 
     account variations in MA local payment rates under this part 
     among the different MA local areas included in such region.
       ``(ii) Intra-service area variations.--In the case of 
     payment with respect to an MA local plan for a service area 
     that covers more than one MA local area, the Secretary shall 
     also adjust the amounts specified under subparagraphs (B)(i) 
     and (B)(ii) in a manner to take into account variations in MA 
     local payment rates under this part among the different MA 
     local areas included in such service area.
       ``(G) Adjustment relating to risk adjustment.--The 
     Secretary shall adjust payments with respect to MA plans as 
     necessary to ensure that--
       ``(i) the sum of--

       ``(I) the monthly payment made under subparagraph (A)(ii); 
     and
       ``(II) the MA monthly basic beneficiary premium under 
     section 1854(b)(2)(A); equals

       ``(ii) the unadjusted MA statutory non-drug monthly bid 
     amount, adjusted in the manner described in subparagraph (C) 
     and, for an MA regional plan, subparagraph (F).''.
       (f) Conforming Changes to Annual Announcement Process.--
     Section 1853(b) (42 U.S.C. 1395w-23(b)(1)) is amended--

[[Page H11913]]

       (1) by amending paragraph (1) to read as follows:
       ``(1) Annual announcements.--
       ``(A) For 2005.--The Secretary shall determine, and shall 
     announce (in a manner intended to provide notice to 
     interested parties), not later than the second Monday in May 
     of 2004, with respect to each MA payment area, the following:
       ``(i) MA capitation rates.--The annual MA capitation rate 
     for each MA payment area for 2005.
       ``(ii) Adjustment factors.--The risk and other factors to 
     be used in adjusting such rates under subsection (a)(1)(C) 
     for payments for months in 2005.
       ``(B) For 2006 and subsequent years.--For a year after 
     2005--
       ``(i) Initial announcement.--The Secretary shall determine, 
     and shall announce (in a manner intended to provide notice to 
     interested parties), not later than the first Monday in April 
     before the calendar year concerned, with respect to each MA 
     payment area, the following:

       ``(I) MA capitation rates; ma local area benchmark.--The 
     annual MA capitation rate for each MA payment area for the 
     year.
       ``(II) Adjustment factors.--The risk and other factors to 
     be used in adjusting such rates under subsection (a)(1)(C) 
     for payments for months in such year.

       ``(ii) Regional benchmark announcement.--The Secretary 
     shall determine, and shall announce (in a manner intended to 
     provide notice to interested parties), on a timely basis 
     before the calendar year concerned, with respect to each MA 
     region and each MA regional plan for which a bid was 
     submitted under section 1854, the MA region-specific non-drug 
     monthly benchmark amount for that region for the year 
     involved.''; and
       (2) in paragraph (3), by striking ``in the announcement'' 
     and all that follows and inserting ``in such announcement.''.
       (g) Other Amendments Relating to Premiums and Bid 
     Amounts.--
       (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is 
     amended--
       (A) by amending the section heading to read as follows:


                     ``premiums and bid amounts'';

       (B) in the heading of subsection (a), by inserting ``, Bid 
     Amounts,'' after ``Premiums'';
       (C) in subsection (a)(2)--
       (i) by inserting ``before 2006'' after ``for coordinated 
     care plans''; and
       (ii) by inserting ``for a year before 2006'' after 
     ``section 1851(a)(2)(A)'';
       (D) in subsection (a)(3), by striking ``described'' and 
     inserting ``for any year'';
       (E) in subsection (a)(4)--
       (i) by inserting ``before 2006'' after ``for private fee-
     for-service plans''; and
       (ii) by inserting ``for a year before 2006'' after 
     ``section 1852(a)(1)(A)'';
       (F) in subsection (a)(5)(A), by inserting ``paragraphs (2) 
     and (4) of'' after ``filed under'';
       (G) in subsection (a)(5)(B), by inserting after ``paragraph 
     (3) or'' the following: ``, in the case of an MA private fee-
     for-service plan,''; and
       (H) in subsection (b)(1)(A) by striking ``and'' and 
     inserting a comma and by inserting before the period at the 
     end the following: ``, and, if the plan provides qualified 
     prescription drug coverage, the MA monthly prescription drug 
     beneficiary premium''.
       (2) Uniformity.--Section 1854(c) (42 U.S.C. 1395w-24(c)) is 
     amended to read as follows:
       ``(c) Uniform Premium and Bid Amounts.--Except as permitted 
     under section 1857(i), the MA monthly bid amount submitted 
     under subsection (a)(6), the amounts of the MA monthly basic, 
     prescription drug, and supplemental beneficiary premiums, and 
     the MA monthly MSA premium charged under subsection (b) of an 
     MA organization under this part may not vary among 
     individuals enrolled in the plan.''.
       (3) Premiums.--Section 1854(d)(1) (42 U.S.C. 1395w-
     24(d)(1)), as amended by subsection (c)(1), is amended by 
     inserting ``, prescription drug,'' after ``basic''.
       (4) Limitation on enrollee liability.--Section 1854(e) (42 
     U.S.C. 1395w-24(e)) is amended--
       (A) in paragraph (1), by striking ``.--In'' and inserting 
     ``before 2006.--For periods before 2006, in'';
       (B) in paragraph (2), by striking ``.--If'' and insert 
     ``before 2006.--For periods before 2006, if'';
       (C) in paragraph (3), by striking ``or (2)'' and inserting 
     ``, (2), or (4)''; and
       (D) in paragraph (4)--
       (i) by inserting ``and for basic benefits beginning in 
     2006'' after ``plans'';
       (ii) in the matter before subparagraph (A), by inserting 
     ``and for periods beginning with 2006, with respect to an MA 
     plan described in section 1851(a)(2)(A)'' after ``MSA 
     plan)'';
       (iii) in subparagraph (A), by striking ``required benefits 
     described in section 1852(a)(1)'' and inserting ``benefits 
     under the original medicare fee-for-service program option''; 
     and
       (iv) in subparagraph (B), by inserting ``with respect to 
     such benefits'' after ``would be applicable''.
       (5) Modification of acr process.--Section 1854(f) (42 
     U.S.C. 1395w-24(f)) is amended--
       (A) in the heading, by inserting ``Before 2006'' after 
     ``Additional Benefits''; and
       (B) in paragraph (1)(A), by striking ``Each'' and inserting 
     ``For years before 2006, each''.
       (h) Plan Incentives.--Section 1852(j)(4) (42 U.S.C. 1395w-
     22(j)(4)) is amended--
       (1) by inserting ``the organization provides assurances 
     satisfactory to the Secretary that'' after ``unless'';
       (2) in clause (ii)--
       (A) by striking ``the organization--'' and all that follows 
     through ``(I) provides'' and inserting ``the organization 
     provides'';
       (B) by striking ``, and'' and inserting a period; and
       (C) by striking subclause (II); and
       (3) by striking clause (iii).
       (i) Continuation of Treatment of Enrollees With End-Stage 
     Renal Disease.--Section 1853(a)(1)(H), as redesignated under 
     subsection (d)(1)(A), is amended--
       (1) by amending the second sentence to read as follows: 
     ``Such rates of payment shall be actuarially equivalent to 
     rates that would have been paid with respect to other 
     enrollees in the MA payment area (or such other area as 
     specified by the Secretary) under the provisions of this 
     section as in effect before the date of the enactment of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003.''; and
       (2) by adding at the end the following new sentence: ``The 
     Secretary may apply the competitive bidding methodology 
     provided for in this section, with appropriate adjustments to 
     account for the risk adjustment methodology applied to end 
     stage renal disease payments.''.
       (j) Facilitation of Employer Sponsorship of MA Plans.--
     Section 1857(i) (42 U.S.C. 1395w-27(i)) is amended--
       (1) by designating the matter following the heading as a 
     paragraph (1) with the heading ``Contracts with ma 
     organizations.--'' and appropriate indentation; and
       (2) by adding at the end the following new paragraph:
       ``(2) Employer sponsored ma plans.--To facilitate the 
     offering of MA plans by employers, labor organizations, or 
     the trustees of a fund established by one or more employers 
     or labor organizations (or combination thereof ) to furnish 
     benefits to the entity's employees, former employees (or 
     combination thereof ) or members or former members (or 
     combination thereof ) of the labor organizations, the 
     Secretary may waive or modify requirements that hinder the 
     design of, the offering of, or the enrollment in such MA 
     plans. Notwithstanding section 1851(g), an MA plan described 
     in the previous sentence may restrict the enrollment of 
     individuals under this part to individuals who are 
     beneficiaries and participants in such plan.''.
       (k) Expansion of Medicare Beneficiary Education and 
     Information Campaign.--Section 1857(e)(2) (42 U.S.C. 1395w-
     27(e)(2)) is amended--
       (1) in subparagraph (A) by inserting ``and a PDP sponsor 
     under part D'' after ``organization'';
       (2) in subparagraph (B)--
       (A) by inserting ``and each PDP sponsor with a contract 
     under part D'' after ``contract under this part'';
       (B) by inserting ``or sponsor's'' after ``organization's''; 
     and
       (C) by inserting ``, section 1860D-1(c),'' after 
     ``information)'';
       (3) in subparagraph (C)--
       (A) by inserting ``and ending with fiscal year 2005'' after 
     ``beginning with fiscal year 2001'';
       (B) by inserting ``and for each fiscal year beginning with 
     fiscal year 2006 an amount equal to $200,000,000,'' after 
     ``$100,000,000,''; and
       (C) by inserting ``and section 1860D-12(b)(3)(D)'' after 
     ``under this paragraph'';
       (4) in subparagraph (D)--
       (A) in clause (i) by inserting ``and section 1860D-1(c)'' 
     after ``section 1851'';
       (B) in clause (ii)(III), by striking ``and'' at the end of 
     subclause (III);
       (C) in clause (ii)(IV), by striking ``each succeeding 
     fiscal year.'' and inserting ``each succeeding fiscal year 
     before fiscal year 2006; and''; and
       (D) in clause (ii), by adding at the end the following new 
     subclause:
       ``(V) the applicable portion (as defined in subparagraph 
     (F)) of $200,000,000 in fiscal year 2006 and each succeeding 
     fiscal year.''; and
       (5) by adding at the end the following new subparagraph:
       ``(F) Applicable portion defined.--In this paragraph, the 
     term `applicable portion' means, for a fiscal year--
       ``(i) with respect to MA organizations, the Secretary's 
     estimate of the total proportion of expenditures under this 
     title that are attributable to expenditures made under this 
     part (including payments under part D that are made to such 
     organizations); or
       ``(ii) with respect to PDP sponsors, the Secretary's 
     estimate of the total proportion of expenditures under this 
     title that are attributable to expenditures made to such 
     sponsors under part D.''.
       (l) Conforming Amendments.--
       (1) Protection against beneficiary selection.--Section 
     1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by 
     adding at the end the following: ``The Secretary shall not 
     approve a plan of an organization if the Secretary determines 
     that the design of the plan and its benefits are likely to 
     substantially discourage enrollment by certain MA eligible 
     individuals with the organization.''.
       (2) Relating to rebates.--
       (A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is amended 
     by striking ``80 percent of any reduction elected under 
     section 1854(f )(1)(E)'' and inserting ``any credit provided 
     under section 1854(b)(1)(C)(ii)(III)''.
       (B) The first sentence of section 1840(i) (42 U.S.C. 
     1395s(i)) is amended by inserting ``and to reflect any credit 
     provided under section 1854(b)(1)(C)(iv)'' after ``section 
     1854(f )(1)(E)''.
       (C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
     inserting ``or any credits provided under section 
     1854(b)(1)(C)(iv)'' after ``section 1854(f )(1)(E)''.
       (3) Other conforming and technical amendments.--
       (A) Section 1851(b)(1) (42 U.S.C. 1395w-21(b)(1)) is 
     amended--
       (i) in subparagraph (B), by striking ``a plan'' and 
     inserting ``an MA local plan'';
       (ii) in subparagraph (B), by striking ``basic benefits 
     described in section 1852(a)(1)(A)'' and inserting ``benefits 
     under the original medicare fee-for-service program option''; 
     and

[[Page H11914]]

       (iii) in subparagraph (C), by striking ``in a 
     Medicare+Choice plan'' and inserting ``in an MA local plan''.
       (B) Section 1851(d) (42 U.S.C. 1395w-21(d)) is amended--
       (i) in paragraph (3), by adding at the end the following 
     new subparagraph:
       ``(F) Catastrophic coverage and single deductible.--In the 
     case of an MA regional plan, a description of the 
     catastrophic coverage and single deductible applicable under 
     the plan.'';
       (ii) in paragraph (4)(A)(ii), by inserting ``, including 
     information on the single deductible (if applicable) under 
     section 1858(b)(1)'' after ``cost sharing'';
       (iii) in paragraph (4)(B)(i), by striking ``Medicare+Choice 
     monthly basic'' and all that follows and inserting ``monthly 
     amount of the premium charged to an individual.''; and
       (iv) by amending subparagraph (E) of subsection (d)(4) to 
     read as follows:
       ``(E) Supplemental benefits.--Supplemental health care 
     benefits, including any reductions in cost-sharing under 
     section 1852(a)(3) and the terms and conditions (including 
     premiums) for such benefits.''.
       (C) Section 1857(d)(1) (42 U.S.C. 1395w-27(d)(1)) is 
     amended by striking ``, costs, and computation of the 
     adjusted community rate'' and inserting ``and costs, 
     including allowable costs under section 1858(c)''.
       (D) Section 1851(a)(3)(B)(ii) (42 U.S.C. 1395w-
     21(a)(3)(B)(ii)) is amended by striking ``section 
     1851(e)(4)(A)'' and inserting ``subsection (e)(4)(A)''.
       (E) Section 1851(f)(1) (42 U.S.C. 1395w-21(f)(1)) is 
     amended by striking ``subsection (e)(1)(A)'' and inserting 
     ``subsection (e)(1)''.

     SEC. 223. EFFECTIVE DATE.

       (a) Effective Date.--The amendments made by this subtitle 
     shall apply with respect to plan years beginning on or after 
     January 1, 2006.
       (b) Issuance of Regulations.--The Secretary shall revise 
     the regulations previously promulgated to carry out part C of 
     title XVIII of the Social Security Act to carry out the 
     provisions of this Act.

                     Subtitle D--Additional Reforms

     SEC. 231. SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.

       (a) Treatment as Coordinated Care Plan.--Section 
     1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)), as amended by 
     section 221(a), is amended by adding at the end the following 
     new clause:
       ``(ii) Specialized ma plans for special needs 
     individuals.--Specialized MA plans for special needs 
     individuals (as defined in section 1859(b)(6)) may be any 
     type of coordinated care plan.''.
       (b) Specialized MA Plan for Special Needs Individuals 
     Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)), as amended 
     by section 221(b), is amended by adding at the end the 
     following new paragraph:
       ``(6) Specialized ma plans for special needs individuals.--
       ``(A) In general.--The term `specialized MA plan for 
     special needs individuals' means an MA plan that exclusively 
     serves special needs individuals (as defined in subparagraph 
     (B)).
       ``(B) Special needs individual.--The term `special needs 
     individual' means an MA 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 
     MA plan described in subparagraph (A) for individuals with 
     severe or disabling chronic conditions.

     The Secretary may waive application of section 1851(a)(3)(B) 
     in the case of an individual described in clause (i), (ii), 
     or (iii) of this subparagraph and may apply rules similar to 
     the rules of section 1894(c)(4) for continued eligibility of 
     special needs individuals.''.
       (c) Restriction on Enrollment Permitted.--Section 1859 (42 
     U.S.C. 1395w-29) is amended by adding at the end the 
     following new subsection:
       ``(f) Restriction on Enrollment for Specialized MA Plans 
     for Special Needs Individuals.--In the case of a specialized 
     MA plan for special needs individuals (as defined in 
     subsection (b)(6)), notwithstanding any other provision of 
     this part and in accordance with regulations of the Secretary 
     and for periods before January 1, 2009, the plan may restrict 
     the enrollment of individuals under the plan to individuals 
     who are within one or more classes of special needs 
     individuals.''.
       (d) Authority To Designate Other Plans as Specialized MA 
     Plans.--In promulgating regulations to carry out section 
     1851(a)(2)(A)(ii) of the Social Security Act (as added by 
     subsection (a)) and section 1859(b)(6) of such Act (as added 
     by subsection (b)), the Secretary may provide 
     (notwithstanding section 1859(b)(6)(A) of such Act) for the 
     offering of specialized MA plans for special needs 
     individuals by MA plans that disproportionately serve special 
     needs individuals.
       (e) Report to Congress.--Not later than December 31, 2007, 
     the Secretary shall submit to Congress a report that assesses 
     the impact of specialized MA plans for special needs 
     individuals 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).
       (f) Effective Dates.--
       (1) In general.--The amendments made by subsections (a), 
     (b), and (c) shall take effect upon the date of the enactment 
     of this Act.
       (2) Deadline for issuance of requirements for special needs 
     individuals; transition.--No later than 1 year after the date 
     of the enactment of this Act, the Secretary shall issue final 
     regulations to establish requirements for special needs 
     individuals under section 1859(b)(6)(B)(iii) of the Social 
     Security Act, as added by subsection (b).

     SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

       (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-
     26(b)(3)) is amended to read as follows:
       ``(3) Relation to state laws.--The standards established 
     under this part shall supersede any State law or regulation 
     (other than State licensing laws or State laws relating to 
     plan solvency) with respect to MA plans which are offered by 
     MA organizations under this part.''.
       (b) Conforming Amendment.--Section 1854(g) (42 U.S.C. 
     1395w-24(g)) is amended by inserting ``or premiums paid to 
     such organizations under this part'' after ``section 1853''.
       (c) Effective Date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.

     SEC. 233. MEDICARE MSAS.

       (a) Exemption From Reporting Requirement.--
       (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
     22(e)(1)) is amended by inserting ``(other than MSA plans)'' 
     after ``plans''.
       (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-
     22) is amended--
       (A) in subsection (c)(1)(I), by inserting before the period 
     at the end the following: ``, if required under such 
     section''; and
       (B) in subsection (e)(2)(A), by striking ``, a non-network 
     MSA plan,''; and
       (C) in subsection (e)(2)(B), by striking ``, non-network 
     msa plans,'' and ``, a non-network MSA plan,''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply on and after the date of the enactment of this 
     Act but shall not apply to contract years beginning on or 
     after January 1, 2006.
       (b) Making Program Permanent and Eliminating Cap.--Section 
     1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
       (1) in the heading, by striking ``on a demonstration 
     basis'';
       (2) by striking the first sentence of subparagraph (A); and
       (3) by striking the second sentence of subparagraph (C).
       (c) Applying Limitations on Balance Billing.--Section 
     1852(k)(1) (42 U.S.C. 1395w-22(k)(1)) is amended by inserting 
     ``or with an organization offering an MSA plan'' after 
     ``section 1851(a)(2)(A)''.
       (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 
     1395w-21(e)(5)(A)) is amended--
       (1) by adding ``or'' at the end of clause (i);
       (2) by striking ``, or'' at the end of clause (ii) and 
     inserting a semicolon; and
       (3) by striking clause (iii).

     SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

       Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 
     1395mm(h)(5)) is amended to read as follows:
       ``(C)(i) Subject to clause (ii), a reasonable cost 
     reimbursement contract under this subsection may be extended 
     or renewed indefinitely.
       ``(ii) For any period beginning on or after January 1, 
     2008, a reasonable cost reimbursement contract under this 
     subsection may not be extended or renewed for a service area 
     insofar as such area during the entire previous year was 
     within the service area of--
       ``(I) 2 or more MA regional plans described in clause 
     (iii); or
       ``(II) 2 or more MA local plans described in clause (iii).
       ``(iii) A plan described in this clause for a year for a 
     service area is a plan described in section 1851(a)(2)(A)(i) 
     if the service area for the year meets the following minimum 
     enrollment requirements:
       ``(I) With respect to any portion of the area involved that 
     is within a Metropolitan Statistical Area with a population 
     of more than 250,000 and counties contiguous to such 
     Metropolitan Statistical Area, 5,000 individuals.
       ``(II) With respect to any other portion of such area, 
     1,500 individuals.''.

     SEC. 235. 2-YEAR EXTENSION OF MUNICIPAL HEALTH SERVICE 
                   DEMONSTRATION PROJECTS.

       The last sentence of section 9215(a) of the Consolidated 
     Omnibus Budget Reconciliation Act of 1985 (42 U.S.C. 1395b-1 
     note), as amended by section 6135 of the Omnibus Budget 
     Reconciliation Act of 1989, section 13557 of the Omnibus 
     Budget Reconciliation Act of 1993, section 4017 of BBA, 
     section 534 of BBRA (113 Stat. 1501A-390), and section 633 of 
     BIPA, is amended by striking ``December 31, 2004'' and 
     inserting ``December 31, 2006''.

     SEC. 236. 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)'';
       (D) by inserting ``(or, in the case of a PACE provider, 
     contract or other agreement)'' after ``have a contract''; and
       (E) 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:

[[Page H11915]]

       ``(3) Treatment of medicare services furnished by 
     noncontract physicians and other entities.--
       ``(A) Application of medicare advantage requirement with 
     respect to medicare services furnished by noncontract 
     physicians and other entities.--Section 1852(k)(1) (relating 
     to limitations on balance billing against MA 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 or other agreement establishing 
     payment amounts for services furnished to such an individual 
     in the same manner as such section applies to MA 
     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 or other agreement 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)), as amended by section 103(a), is amended--
       (A) in paragraph (65), by striking ``and'' at the end;
       (B) in paragraph (66), by striking the period at the end 
     and inserting ``; and''; and
       (C) by inserting after paragraph (66) the following new 
     paragraph:
       ``(67) 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 or other agreement 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) Application under medicaid.--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 advantage requirement with 
     respect to medicare services furnished by noncontract 
     physicians and other entities.--Section 1852(k)(1) (relating 
     to limitations on balance billing against MA 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 or other agreement establishing 
     payment amounts for services furnished to such an individual 
     in the same manner as such section applies to MA 
     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 or other agreement 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)(67).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2004.

     SEC. 237. REIMBURSEMENT FOR FEDERALLY QUALIFIED HEALTH 
                   CENTERS PROVIDING SERVICES UNDER MA PLANS.

       (a) Reimbursement.--Section 1833(a)(3) (42 U.S.C. 
     1395l(a)(3)) is amended to read as follows:
       ``(3) in the case of services described in section 
     1832(a)(2)(D)--
       ``(A) except as provided in subparagraph (B), the costs 
     which are reasonable and related to the cost of furnishing 
     such services or which are based on such other tests of 
     reasonableness as the Secretary may prescribe in regulations, 
     including those authorized under section 1861(v)(1)(A), less 
     the amount a provider may charge as described in clause (ii) 
     of section 1866(a)(2)(A), but in no case may the payment for 
     such services (other than for items and services described in 
     section 1861(s)(10)(A)) exceed 80 percent of such costs; or
       ``(B) with respect to the services described in clause (ii) 
     of section 1832(a)(2)(D) that are furnished to an individual 
     enrolled with a MA plan under part C pursuant to a written 
     agreement described in section 1853(a)(4), the amount (if 
     any) by which--
       ``(i) the amount of payment that would have otherwise been 
     provided under subparagraph (A) (calculated as if `100 
     percent' were substituted for `80 percent' in such 
     subparagraph) for such services if the individual had not 
     been so enrolled; exceeds
       ``(ii) the amount of the payments received under such 
     written agreement for such services (not including any 
     financial incentives provided for in such agreement such as 
     risk pool payments, bonuses, or withholds),

     less the amount the Federally qualified health center may 
     charge as described in section 1857(e)(3)(B);''.
       (b) Continuation of Monthly Payments.--
       (1) In general.--Section 1853(a) (42 U.S.C. 1395w-23(a)) is 
     amended by adding at the end the following new paragraph:
       ``(4) Payment rule for federally qualified health center 
     services.--If an individual who is enrolled with an MA plan 
     under this part receives a service from a Federally qualified 
     health center that has a written agreement with the MA 
     organization that offers such plan for providing such a 
     service (including any agreement required under section 
     1857(e)(3))--
       ``(A) the Secretary shall pay the amount determined under 
     section 1833(a)(3)(B) directly to the Federally qualified 
     health center not less frequently than quarterly; and
       ``(B) the Secretary shall not reduce the amount of the 
     monthly payments under this subsection as a result of the 
     application of subparagraph (A).''.
       (2) Conforming amendments.--
       (A) Section 1851(i) (42 U.S.C. 1395w-21(i)) is amended--
       (i) in paragraph (1), by inserting ``1853(a)(4),'' after 
     ``Subject to sections 1852(a)(5),''; and
       (ii) in paragraph (2), by inserting ``1853(a)(4),'' after 
     ``Subject to sections''.
       (B) Section 1853(c)(5) is amended by striking ``subsections 
     (a)(3)(C)(iii) and (i)'' and inserting ``subsections 
     (a)(3)(C)(iii), (a)(4), and (i)''.
       (c) Additional Contract Requirements.--Section 1857(e) (42 
     U.S.C. 1395w-27(e)) is amended by adding at the end the 
     following new paragraph:
       ``(3) Agreements with federally qualified health centers.--
       ``(A) Payment levels and amounts.--A contract under this 
     section with an MA organization shall require the 
     organization to provide, in any written agreement described 
     in section 1853(a)(4) between the organization and a 
     Federally qualified health center, for a level and amount of 
     payment to the Federally qualified health center for services 
     provided by such health center that is not less than the 
     level and amount of payment that the plan would make for such 
     services if the services had been furnished by a entity 
     providing similar services that was not a Federally qualified 
     health center.
       ``(B) Cost-sharing.--Under the written agreement referred 
     to in subparagraph (A), a Federally qualified health center 
     must accept the payment amount referred to in such 
     subparagraph plus the Federal payment provided for in section 
     1833(a)(3)(B) as payment in full for services covered by the 
     agreement, except that such a health center may collect any 
     amount of cost-sharing permitted under the contract under 
     this section, so long as the amounts of any deductible, 
     coinsurance, or copayment comply with the requirements under 
     section 1854(e).''.
       (d) Safe Harbor.--Section 1128B(b)(3) (42 U.S.C. 1320a-
     7b(b)(3)), as amended by section 101(f)(2), is amended--
       (1) in subparagraph (F), by striking ``and'' after the 
     semicolon at the end;
       (2) in subparagraph (G), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(H) any remuneration between a Federally qualified health 
     center (or an entity controlled by such a health center) and 
     an MA organization pursuant to a written agreement described 
     in section 1853(a)(4).''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to services provided on or after January 1, 2006, 
     and contract years beginning on or after such date.

     SEC. 238. 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 the enactment of this Act, the Secretary 
     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 in the public and 
     private sectors 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.

[[Page H11916]]

       (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, other health care providers, health plans, 
     purchasers, and patients.
       (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 and appropriate committees of 
     jurisdiction of the Senate and House of Representatives 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, including options for 
     updating performance measures, in the original medicare fee-
     for-service program under parts A and B of title XVIII of the 
     Social Security Act, the Medicare Advantage 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 such sums as may be necessary for purposes 
     of conducting the evaluation and preparing the report 
     required by this section.

         Subtitle E--Comparative Cost Adjustment (CCA) Program

     SEC. 241. COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM.

       (a) In General.--Part C of title XVIII is amended by adding 
     at the end the following new section:


              ``comparative cost adjustment (cca) program

       ``Sec. 1860C-1. (a) Establishment of Program.--
       ``(1) In general.--The Secretary shall establish a program 
     under this section (in this section referred to as the `CCA 
     program') for the application of comparative cost adjustment 
     in CCA areas selected under this section.
       ``(2) Duration.--The CCA program shall begin January 1, 
     2010, and shall extend over a period of 6 years, and end on 
     December 31, 2015.
       ``(3) Report.--Upon the completion of the CCA program, the 
     Secretary shall submit a report to Congress. Such report 
     shall include the following, with respect to both this part 
     and the original medicare fee-for-service program:
       ``(A) An evaluation of the financial impact of the CCA 
     program.
       ``(B) An evaluation of changes in access to physicians and 
     other health care providers.
       ``(C) Beneficiary satisfaction.
       ``(D) Recommendations regarding any extension or expansion 
     of the CCA program.
       ``(b) Requirements for Selection of CCA Areas.--
       ``(1) CCA area defined.--
       ``(A) In general.--For purposes of this section, the term 
     `CCA area' means an MSA that meets the requirements of 
     paragraph (2) and is selected by the Secretary under 
     subsection (c).
       ``(B) MSA defined.--For purposes of this section, the term 
     `MSA' means a Metropolitan Statistical Area (or such similar 
     area as the Secretary recognizes).
       ``(2) Requirements for cca areas.--The requirements of this 
     paragraph for an MSA to be a CCA area are as follows:
       ``(A) MA enrollment requirement.--For the reference month 
     (as defined under section 1858(f)(4)(B)) with respect to 
     2010, at least 25 percent of the total number of MA eligible 
     individuals who reside in the MSA were enrolled in an MA 
     local plan described in section 1851(a)(2)(A)(i).
       ``(B) 2 plan requirement.--There will be offered in the MSA 
     during the annual, coordinated election period under section 
     1851(e)(3)(B) before the beginning of 2010 at least 2 MA 
     local plans described in section 1851(a)(2)(A)(i) (in 
     addition to the fee-for-service program under parts A and B), 
     each offered by a different MA organization and each of which 
     met the minimum enrollment requirements of paragraph (1) of 
     section 1857(b) (as applied without regard to paragraph (3) 
     thereof) as of the reference month.
       ``(c) Selection of CCA Areas.--
       ``(1) General selection criteria.--The Secretary shall 
     select CCA areas from among those MSAs qualifying under 
     subsection (b) in a manner that--
       ``(A) seeks to maximize the opportunity to test the 
     application of comparative cost adjustment under this title;
       ``(B) does not seek to maximize the number of MA eligible 
     individuals who reside in such areas; and
       ``(C) provides for geographic diversity consistent with the 
     criteria specified in paragraph (2).
       ``(2) Selection criteria.--With respect to the selection of 
     MSAs that qualify to be CCA areas under subsection (b), the 
     following rules apply, to the maximum extent feasible:
       ``(A) Maximum number.--The number of such MSAs selected may 
     not exceed the lesser of (i) 6, or (ii) 25 percent of the 
     number of MSAs that meet the requirement of subsection 
     (b)(2)(A).
       ``(B) One of 4 largest areas by population.--At least one 
     such qualifying MSA shall be selected from among the 4 such 
     qualifying MSAs with the largest total population of MA 
     eligible individuals.
       ``(C) One of 4 areas with lowest population density.--At 
     least one such qualifying MSA shall be selected from among 
     the 4 such qualifying MSAs with the lowest population density 
     (as measured by residents per square mile or similar measure 
     of density).
       ``(D) Multistate area.--At least one such qualifying MSA 
     shall be selected that includes a multi-State area. Such an 
     MSA may be an MSA described in subparagraph (B) or (C).
       ``(E) Limitation within same geographic region.--No more 
     than 2 such MSAs shall be selected that are, in whole or in 
     part, within the same geographic region (as specified by the 
     Secretary) of the United States.
       ``(F) Priority to areas not within certain demonstration 
     projects.--Priority shall be provided for those qualifying 
     MSAs that do not have a demonstration project in effect as of 
     the date of the enactment of this section for medicare 
     preferred provider organization plans under this part.
       ``(d) Application of Comparative Cost Adjustment.--
       ``(1) In general.--In the case of a CCA area for a year--
       ``(A) for purposes of applying this part with respect to 
     payment for MA local plans, any reference to an MA area-
     specific non-drug monthly benchmark amount shall be treated 
     as a reference to such benchmark computed as if the CCA area-
     specific non-drug monthly benchmark amount (as defined in 
     subsection (e)(1)) were substituted for the amount described 
     in section 1853(j)(1)(A) for the CCA area and year involved, 
     as phased in under paragraph (3); and
       ``(B) with respect to months in the year for individuals 
     residing in the CCA area who are not enrolled in an MA plan, 
     the amount of the monthly premium under section 1839 is 
     subject to adjustment under subsection (f).
       ``(2) Exclusion of ma local areas with fewer than 2 
     organizations offering ma plans.--
       ``(A) In general.--In no case shall an MA local area that 
     is within an MSA be included as part of a CCA area unless for 
     2010 (and, except as provided in subparagraph (B), for a 
     subsequent year) there is offered in each part of such MA 
     local area at least 2 MA local plans described in section 
     1851(a)(2)(A)(i) each of which is offered by a different MA 
     organization.
       ``(B) Continuation.--If an MA local area meets the 
     requirement of subparagraph (A) and is included in a CCA area 
     for 2010, such local area shall continue to be included in 
     such CCA area for a subsequent year notwithstanding that it 
     no longer meets such requirement so long as there is at least 
     one MA local plan described in section 1851(a)(2)(A)(i) that 
     is offered in such local area.
       ``(3) Phase-in of cca benchmark.--
       ``(A) In general.--In applying this section for a year 
     before 2013, paragraph (1)(A) shall be applied as if the 
     phase-in fraction under subparagraph (B) of the CCA non-drug 
     monthly benchmark amount for the year were substituted for 
     such fraction of the MA area-specific non-drug monthly 
     benchmark amount.
       ``(B) Phase-in fraction.--The phase-in fraction under this 
     subparagraph is--
       ``(i) for 2010 \1/4\; and
       ``(ii) for a subsequent year is the phase-in fraction under 
     this subparagraph for the previous year increased by \1/4\, 
     but in no case more than 1.
       ``(e) Computation of CCA Benchmark Amount.--
       ``(1) CCA non-drug monthly benchmark amount.--For purposes 
     of this section, the term `CCA non-drug monthly benchmark 
     amount' means, with respect to a CCA area for a month in a 
     year, the sum of the 2 components described in paragraph (2) 
     for the area and year. The Secretary shall compute such 
     benchmark amount for each such CCA area before the beginning 
     of each annual, coordinated election period under section 
     1851(e)(3)(B) for each year (beginning with 2010) in which 
     the CCA area is so selected.
       ``(2) 2 components.--For purposes of paragraph (1), the 2 
     components described in this paragraph for a CCA area and a 
     year are the following:
       ``(A) MA local component.--The product of the following:
       ``(i) Weighted average of medicare advantage plan bids in 
     area.--The weighted average of the plan bids for the area and 
     year (as determined under paragraph (3)(A)).
       ``(ii) Non-ffs market share.--1 minus the fee-for-service 
     market share percentage, determined under paragraph (4) for 
     the area and year.
       ``(B) Fee-for-service component.--The product of the 
     following:
       ``(i) Fee-for-service area-specific non-drug amount.--The 
     fee-for-service area-specific non-drug amount (as defined in 
     paragraph (5)) for the area and year.
       ``(ii) Fee-for-service market share.--The fee-for-service 
     market share percentage, determined under paragraph (4) for 
     the area and year.
       ``(3) Determination of weighted average ma bids for a cca 
     area.--
       ``(A) In general.--For purposes of paragraph (2)(A)(i), the 
     weighted average of plan bids for a CCA area and a year is, 
     subject to subparagraph (D), the sum of the following 
     products for MA local plans described in subparagraph (C) in 
     the area and year:
       ``(i) Monthly medicare advantage statutory non-drug bid 
     amount.--The accepted unadjusted MA statutory non-drug 
     monthly bid amount.
       ``(ii) Plan's share of medicare advantage enrollment in 
     area.--The number of individuals described in subparagraph 
     (B), divided by the total number of such individuals for all 
     MA plans described in subparagraph (C) for that area and 
     year.
       ``(B) Counting of individuals.--The Secretary shall count, 
     for each MA local plan described in subparagraph (C) for an 
     area and year, the number of individuals who reside in the 
     area and who were enrolled under such plan under this part 
     during the reference month for that year.
       ``(C) Exclusion of plans not offered in previous year.--For 
     an area and year, the MA local plans described in this 
     subparagraph are MA local plans described in section

[[Page H11917]]

     1851(a)(2)(A)(i) that are offered in the area and year and 
     were offered in the CCA area in the reference month.
       ``(D) Computation of weighted average of plan bids.--In 
     calculating the weighted average of plan bids for a CCA area 
     under subparagraph (A)--
       ``(i) in the case of an MA local plan that has a service 
     area only part of which is within such CCA area, the MA 
     organization offering such plan shall submit a separate bid 
     for such plan for the portion within such CCA area; and
       ``(ii) the Secretary shall adjust such separate bid (or, in 
     the case of an MA local plan that has a service area entirely 
     within such CCA area, the plan bid) as may be necessary to 
     take into account differences between the service area of 
     such plan within the CCA area and the entire CCA area and the 
     distribution of plan enrollees of all MA local plans offered 
     within the CCA area.
       ``(4) Computation of fee-for-service market share 
     percentage.--The Secretary shall determine, for a year and a 
     CCA area, the proportion (in this subsection referred to as 
     the `fee-for-service market share percentage') equal to--
       ``(A) the total number of MA eligible individuals residing 
     in such area who during the reference month for the year were 
     not enrolled in any MA plan; divided by
       ``(B) the sum of such number and the total number of MA 
     eligible individuals residing in such area who during such 
     reference month were enrolled in an MA local plan described 
     in section 1851(a)(2)(A)(i),
     or, if greater, such proportion determined for individuals 
     nationally.
       ``(5) Fee-for-service area-specific non-drug amount.--
       ``(A) In general.--For purposes of paragraph (2)(B)(i) and 
     subsection (f)(2)(A), subject to subparagraph (C), the term 
     `fee-for-service area-specific non-drug amount' means, for a 
     CCA area and a year, the adjusted average per capita cost for 
     such area and year involved, determined under section 
     1876(a)(4) and adjusted as appropriate for the purpose of 
     risk adjustment for benefits under the original medicare fee-
     for-service program option for individuals entitled to 
     benefits under part A and enrolled under part B who are not 
     enrolled in an MA plan for the year, but adjusted to exclude 
     costs attributable to payments under section 1886(h).
       ``(B) Use of full risk adjustment to standardize fee-for-
     service costs to typical beneficiary.--In determining the 
     adjusted average per capita cost for an area and year under 
     subparagraph (A), such costs shall be adjusted to fully take 
     into account the demographic and health status risk factors 
     established under section 1853(a)(1)(A)(iv) so that such per 
     capita costs reflect the average costs for a typical 
     beneficiary residing in the CCA area.
       ``(C) Inclusion of costs of va and dod military facility 
     services to medicare-eligible beneficiaries.--In determining 
     the adjusted average per capita cost under subparagraph (A) 
     for a year, such cost shall be adjusted to include the 
     Secretary's estimate, on a per capita basis, of the amount of 
     additional payments that would have been made in the area 
     involved under this title if individuals entitled to benefits 
     under this title had not received services from facilities of 
     the Department of Veterans Affairs or the Department of 
     Defense.
       ``(f) Premium Adjustment.--
       ``(1) Application.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     in the case of an individual who is enrolled under part B, 
     who resides in a CCA area, and who is not enrolled in an MA 
     plan under this part, the monthly premium otherwise applied 
     under part B (determined without regard to subsections (b), 
     (f), and (i) of section 1839 or any adjustment under this 
     subsection) shall be adjusted in accordance with paragraph 
     (2), but only in the case of premiums for months during the 
     period in which the CCA program under this section for such 
     area is in effect.
       ``(B) No premium adjustment for subsidy eligible 
     beneficiaries.--No premium adjustment shall be made under 
     this subsection for a premium for a month if the individual 
     is determined to be a subsidy eligible individual (as defined 
     in section 1860D-14(a)(3)(A)) for the month.
       ``(2) Amount of adjustment.--
       ``(A) In general.--Under this paragraph, subject to the 
     exemption under paragraph (1)(B) and the limitation under 
     subparagraph (B), if the fee-for-service area-specific non-
     drug amount (as defined in section (e)(5)) for a CCA area in 
     which an individual resides for a month--
       ``(i) does not exceed the CCA non-drug monthly benchmark 
     amount (as determined under subsection (e)(1)) for such area 
     and month, the amount of the premium for the individual for 
     the month shall be reduced, by an amount equal to 75 percent 
     of the amount by which such CCA benchmark exceeds such fee-
     for-service area-specific non-drug amount; or
       ``(ii) exceeds such CCA non-drug benchmark, the amount of 
     the premium for the individual for the month shall be 
     adjusted to ensure, that--

       ``(I) the sum of the amount of the adjusted premium and the 
     CCA non-drug benchmark for the area; is equal to
       ``(II) the sum of the unadjusted premium plus the amount of 
     such fee-for-service area-specific non-drug amount for the 
     area.

       ``(B) Limitation.--In no case shall the actual amount of an 
     adjustment under subparagraph (A) for an area and month in a 
     year result in an adjustment that exceeds the maximum 
     adjustment permitted under subparagraph (C) for the area and 
     year, or, if less, the maximum annual adjustment permitted 
     under subparagraph (D) for the area and year.
       ``(C) Phase-in of adjustment.--The amount of an adjustment 
     under subparagraph (A) for a CCA area and year may not exceed 
     the product of the phase-in fraction for the year under 
     subsection (d)(3)(B) multiplied by the amount of the 
     adjustment otherwise computed under subparagraph (A) for the 
     area and year, determined without regard to this subparagraph 
     and subparagraph (D).
       ``(D) 5-percent limitation on adjustment.--The amount of 
     the adjustment under this subsection for months in a year 
     shall not exceed 5 percent of the amount of the monthly 
     premium amount determined for months in the year under 
     section 1839 without regard to subsections (b), (f), and (i) 
     of such section and this subsection.''.
       (b) Conforming Amendments.--
       (1) MA local plans.--
       (A) Section 1853(j)(1)(A) (42 U.S.C. 1395w-23(j)(1)(A)), as 
     added by section 222(d), is amended by inserting ``subject to 
     section 1860C-1(d)(2)(A),'' after ``within an MA local 
     area,''.
       (B) Section 1853(b)(1)(B), as amended by section 222(f)(1), 
     is amended by adding at the end the following new clause:
       ``(iii) Benchmark announcement for cca local areas.--The 
     Secretary shall determine, and shall announce (in a manner 
     intended to provide notice to interested parties), on a 
     timely basis before the calendar year concerned, with respect 
     to each CCA area (as defined in section 1860C-1(b)(1)(A)), 
     the CCA non-drug monthly benchmark amount under section 
     1860C-1(e)(1) for that area for the year involved.''.
       (2) Premium adjustment.--
       (A) Section 1839 (42 U.S.C. 1395r) is amended by adding at 
     the end the following new subsection:
       ``(h) Potential Application of Comparative Cost Adjustment 
     in CCA Areas.--
       ``(1) In general.--Certain individuals who are residing in 
     a CCA area under section 1860C-1 who are not enrolled in an 
     MA plan under part C may be subject to a premium adjustment 
     under subsection (f) of such section for months in which the 
     CCA program under such section is in effect in such area.
       ``(2) No effect on late enrollment penalty or income-
     related adjustment in subsidies.--Nothing in this subsection 
     or section 1860C-1(f) shall be construed as affecting the 
     amount of any premium adjustment under subsection (b) or (i). 
     Subsection (f) shall be applied without regard to any premium 
     adjustment referred to in paragraph (1).
       ``(3) Implementation.--In order to carry out a premium 
     adjustment under this subsection and section 1860C-1(f) 
     (insofar as it is effected through the manner of collection 
     of premiums under section 1840(a)), the Secretary shall 
     transmit to the Commissioner of Social Security--
       ``(A) at the beginning of each year, the name, social 
     security account number, and the amount of the premium 
     adjustment (if any) for each individual enrolled under this 
     part for each month during the year; and
       ``(B) periodically throughout the year, information to 
     update the information previously transmitted under this 
     paragraph for the year.''.
       (B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
     inserting ``and without regard to any premium adjustment 
     effected under sections 1839(h) and 1860C-1(f)'' before the 
     period at the end.
       (c) No Change in Medicare's Defined Benefit Package.--
     Nothing in this part (or the amendments made by this part) 
     shall be construed as changing the entitlement to defined 
     benefits under parts A and B of title XVIII of the Social 
     Security Act.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

     SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

       (a) Technical Amendment Concerning Secretary's Authority To 
     Make Conditional Payment When Certain Primary Plans Do Not 
     Pay Promptly.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is 
     amended--
       (1) in subparagraph (A)(ii), by striking ``promptly (as 
     determined in accordance with regulations)''; and
       (2) in subparagraph (B)--
       (A) by redesignating clauses (i) through (v) as clauses 
     (ii) through (vi), respectively; and
       (B) by inserting before clause (ii), as so redesignated, 
     the following new clause:
       ``(i) Authority to make conditional payment.--The Secretary 
     may make payment under this title with respect to an item or 
     service if a primary plan described in subparagraph (A)(ii) 
     has not made or cannot reasonably be expected to make payment 
     with respect to such item or service promptly (as determined 
     in accordance with regulations). Any such payment by the 
     Secretary shall be conditioned on reimbursement to the 
     appropriate Trust Fund in accordance with the succeeding 
     provisions of this subsection.''.
       (b) Clarifying Amendments to Conditional Payment 
     Provisions.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as 
     amended by subsection (a), is amended--
       (1) in subparagraph (A), in the matter following clause 
     (ii), by inserting the following sentence at the end: ``An 
     entity that engages in a business, trade, or profession shall 
     be deemed to have a self-insured plan if it carries its own 
     risk (whether by a failure to obtain insurance, or otherwise) 
     in whole or in part.'';
       (2) in subparagraph (B)(ii), as redesignated by subsection 
     (a)(2)(A)--
       (A) by striking the first sentence and inserting the 
     following: ``A primary plan, and an entity that receives 
     payment from a primary plan, shall reimburse the appropriate 
     Trust Fund for any payment made by the Secretary under this 
     title with respect to an item or service if it is 
     demonstrated that such primary plan has or had a 
     responsibility to make payment with respect to such item or 
     service. A primary plan's

[[Page H11918]]

     responsibility for such payment may be demonstrated by a 
     judgment, a payment conditioned upon the recipient's 
     compromise, waiver, or release (whether or not there is a 
     determination or admission of liability) of payment for items 
     or services included in a claim against the primary plan or 
     the primary plan's insured, or by other means.''; and
       (B) in the final sentence, by striking ``on the date such 
     notice or other information is received'' and inserting ``on 
     the date notice of, or information related to, a primary 
     plan's responsibility for such payment or other information 
     is received''; and
       (3) in subparagraph (B)(iii), as redesignated by subsection 
     (a)(2)(A), by striking the first sentence and inserting the 
     following: ``In order to recover payment made under this 
     title for an item or service, the United States may bring an 
     action against any or all entities that are or were required 
     or responsible (directly, as an insurer or self-insurer, as a 
     third-party administrator, as an employer that sponsors or 
     contributes to a group health plan, or large group health 
     plan, or otherwise) to make payment with respect to the same 
     item or service (or any portion thereof) under a primary 
     plan. The United States may, in accordance with paragraph 
     (3)(A) collect double damages against any such entity. In 
     addition, the United States may recover under this clause 
     from any entity that has received payment from a primary plan 
     or from the proceeds of a primary plan's payment to any 
     entity.''.
       (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 
     1395y(b)) is amended--
       (1) in paragraph (1)(A), by moving the indentation of 
     clauses (ii) through (v) 2 ems to the left; and
       (2) in paragraph (3)(A), by striking ``such'' before 
     ``paragraphs''.
       (d) Effective Dates.--The amendments made by this section 
     shall be effective--
       (1) in the case of subsection (a), as if included in the 
     enactment of title III of the Medicare and Medicaid Budget 
     Reconciliation Amendments of 1984 (Public Law 98-369); and
       (2) in the case of subsections (b) and (c), as if included 
     in the enactment of section 953 of the Omnibus Reconciliation 
     Act of 1980 (Public Law 96-499; 94 Stat. 2647).

     SEC. 302. PAYMENT FOR DURABLE MEDICAL EQUIPMENT; COMPETITIVE 
                   ACQUISITION OF CERTAIN ITEMS AND SERVICES.

       (a) Quality Enhancement and Fraud Reduction.--
       (1) Establishment of quality standards and accreditation 
     requirements for durable medical equipment suppliers.--
     Section 1834(a) (42 U.S.C. 1395m(a)) is amended--
       (A) by transferring paragraph (17), as added by section 
     4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat. 
     458), to the end of such section and redesignating such 
     paragraph as paragraph (19); and
       (B) 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 
     suppliers of items and services described in subparagraph (D) 
     to be applied by recognized independent accreditation 
     organizations (as designated under subparagraph (B)) and with 
     which such suppliers shall be required to comply in order 
     to--
       ``(i) furnish any such item or service for which payment is 
     made under this part; and
       ``(ii) receive or retain a provider or supplier number used 
     to submit claims for reimbursement for any such item or 
     service for which payment may be made under this title.
       ``(B) Designation of independent accreditation 
     organizations.--Not later than the date that is 1 year after 
     the date on which the Secretary implements the quality 
     standards under subparagraph (A), notwithstanding section 
     1865(b), the Secretary shall designate and approve one or 
     more independent accreditation organizations for purposes of 
     such subparagraph.
       ``(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 the following items and 
     services, as the Secretary determines appropriate:
       ``(i) Covered items (as defined in paragraph (13)) for 
     which payment may otherwise be made under this subsection.
       ``(ii) Prosthetic devices and orthotics and prosthetics 
     described in section 1834(h)(4).
       ``(iii) Items and services described in section 1842(s)(2).
       ``(E) Implementation.--The Secretary may establish by 
     program instruction or otherwise the quality standards under 
     this paragraph, after consultation with representatives of 
     relevant parties. Such standards shall be applied 
     prospectively and shall be published on the Internet website 
     of the Centers for Medicare & Medicaid Services.''.
       (2) Establishment of clinical conditions of coverage 
     standards for items of durable medical equipment.--Section 
     1834(a)(1) (42 U.S.C. 1395m(a)(1)) is amended by adding at 
     the end the following new subparagraph:
       ``(E) Clinical conditions for coverage.--
       ``(i) In general.--The Secretary shall establish standards 
     for clinical conditions for payment for covered items under 
     this subsection.
       ``(ii) Requirements.--The standards established under 
     clause (i) shall include the specification of types or 
     classes of covered items that require, as a condition of 
     payment under this subsection, a face-to-face examination of 
     the individual by a physician (as defined in section 
     1861(r)(1)), a physician assistant, nurse practitioner, or a 
     clinical nurse specialist (as those terms are defined in 
     section 1861(aa)(5)) and a prescription for the item.
       ``(iii) Priority of establishment of standards.--In 
     establishing the standards under this subparagraph, the 
     Secretary shall first establish standards for those covered 
     items for which the Secretary determines there has been a 
     proliferation of use, consistent findings of charges for 
     covered items that are not delivered, or consistent findings 
     of falsification of documentation to provide for payment of 
     such covered items under this part.
       ``(iv) Standards for power wheelchairs.--Effective on the 
     date of the enactment of this subparagraph, in the case of a 
     covered item consisting of a motorized or power wheelchair 
     for an individual, payment may not be made for such covered 
     item unless a physician (as defined in section 1861(r)(1)), a 
     physician assistant, nurse practitioner, or a clinical nurse 
     specialist (as those terms are defined in section 
     1861(aa)(5)) has conducted a face-to-face examination of the 
     individual and written a prescription for the item.
       ``(v) Limitation on payment for covered items.--Payment may 
     not be made for a covered item under this subsection unless 
     the item meets any standards established under this 
     subparagraph for clinical condition of coverage.''.
       (b) Competitive Acquisition.--
       (1) In general.--Section 1847 (42 U.S.C. 1395w-3) is 
     amended to read as follows:


        ``competitive acquisition of certain items and services

       ``Sec. 1847. (a) Establishment of Competitive Acquisition 
     Programs.--
       ``(1) Implementation of programs.--
       ``(A) In general.--The Secretary shall establish and 
     implement programs under which competitive acquisition areas 
     are established throughout the United States for contract 
     award purposes for the furnishing under this part of 
     competitively priced items and services (described in 
     paragraph (2)) for which payment is made under this part. 
     Such areas may differ for different items and services.
       ``(B) Phased-in implementation.--The programs--
       ``(i) shall be phased in among competitive acquisition 
     areas in a manner so that the competition under the programs 
     occurs in--

       ``(I) 10 of the largest metropolitan statistical areas in 
     2007;
       ``(II) 80 of the largest metropolitan statistical areas in 
     2009; and
       ``(III) additional areas after 2009; and

       ``(ii) may be phased in first among the highest cost and 
     highest volume items and services or those items and services 
     that the Secretary determines have the largest savings 
     potential.
       ``(C) Waiver of certain provisions.--In carrying out the 
     programs, the Secretary may waive such provisions of the 
     Federal Acquisition Regulation as are necessary for the 
     efficient implementation of this section, other than 
     provisions relating to confidentiality of information and 
     such other provisions as the Secretary determines 
     appropriate.
       ``(2) Items and services described.--The items and services 
     referred to in paragraph (1) are the following:
       ``(A) Durable medical equipment and medical supplies.--
     Covered items (as defined in section 1834(a)(13)) for which 
     payment would otherwise be made under section 1834(a), 
     including items used in infusion and drugs (other than 
     inhalation drugs) and supplies used in conjunction with 
     durable medical equipment, but excluding class III devices 
     under the Federal Food, Drug, and Cosmetic Act.
       ``(B) Other equipment and supplies.--Items and services 
     described in section 1842(s)(2)(D), other than parenteral 
     nutrients, equipment, and supplies.
       ``(C) Off-the-shelf orthotics.--Orthotics described in 
     section 1861(s)(9) for which payment would otherwise be made 
     under section 1834(h) which require minimal self-adjustment 
     for appropriate use and do not require expertise in trimming, 
     bending, molding, assembling, or customizing to fit to the 
     individual.
       ``(3) Exception authority.--In carrying out the programs 
     under this section, the Secretary may exempt--
       ``(A) rural areas and areas with low population density 
     within urban areas that are not competitive, unless there is 
     a significant national market through mail order for a 
     particular item or service; and
       ``(B) items and services for which the application of 
     competitive acquisition is not likely to result in 
     significant savings.
       ``(4) Special rule for certain rented items of durable 
     medical equipment and oxygen.--In the case of a covered item 
     for which payment is made on a rental basis under section 
     1834(a) and in the case of payment for oxygen under section 
     1834(a)(5), the Secretary shall establish a process by which 
     rental agreements for the covered items and supply 
     arrangements with oxygen suppliers entered into before the 
     application of the competitive acquisition program under this 
     section for the item may be continued notwithstanding this 
     section. In the case of any such continuation, the supplier 
     involved shall provide for appropriate servicing and 
     replacement, as required under section 1834(a).
       ``(5) Physician authorization.--
       ``(A) In general.--With respect to items or services 
     included within a particular HCPCS code, the Secretary may 
     establish a process for certain items and services under 
     which a physician may prescribe a particular brand or mode of 
     delivery of an item or service within such code if the 
     physician determines that use of the particular item or 
     service would avoid an adverse medical outcome on the 
     individual, as determined by the Secretary.

[[Page H11919]]

       ``(B) No effect on payment amount.--A prescription under 
     subparagraph (A) shall not affect the amount of payment 
     otherwise applicable for the item or service under the code 
     involved.
       ``(6) Application.--For each competitive acquisition area 
     in which the program is implemented under this subsection 
     with respect to items and services, the payment basis 
     determined under the competition conducted under subsection 
     (b) shall be substituted for the payment basis otherwise 
     applied under section 1834(a), section 1834(h), or section 
     1842(s), as appropriate.
       ``(b) Program Requirements.--
       ``(1) In general.--The Secretary shall conduct a 
     competition among entities supplying items and services 
     described in subsection (a)(2) for each competitive 
     acquisition area in which the program is implemented under 
     subsection (a) with respect to such items and services.
       ``(2) Conditions for awarding contract.--
       ``(A) In general.--The Secretary may not award a contract 
     to any entity under the competition conducted in an 
     competitive acquisition area pursuant to paragraph (1) to 
     furnish such items or services unless the Secretary finds all 
     of the following:
       ``(i) The entity meets applicable quality standards 
     specified by the Secretary under section 1834(a)(20).
       ``(ii) The entity meets applicable financial standards 
     specified by the Secretary, taking into account the needs of 
     small providers.
       ``(iii) The total amounts to be paid to contractors in a 
     competitive acquisition area are expected to be less than the 
     total amounts that would otherwise be paid.
       ``(iv) Access of individuals to a choice of multiple 
     suppliers in the area is maintained.
       ``(B) Timely implementation of program.--Any delay in the 
     implementation of quality standards under section 1834(a)(20) 
     or delay in the receipt of advice from the program oversight 
     committee established under subsection (c) shall not delay 
     the implementation of the competitive acquisition program 
     under this section.
       ``(3) Contents of contract.--
       ``(A) In general.--A contract entered into with an entity 
     under the competition conducted pursuant to paragraph (1) is 
     subject to terms and conditions that the Secretary may 
     specify.
       ``(B) Term of contracts.--The Secretary shall recompete 
     contracts under this section not less often than once every 3 
     years.
       ``(4) Limit on number of contractors.--
       ``(A) In general.--The Secretary may limit the number of 
     contractors in a competitive acquisition area to the number 
     needed to meet projected demand for items and services 
     covered under the contracts. In awarding contracts, the 
     Secretary shall take into account the ability of bidding 
     entities to furnish items or services in sufficient 
     quantities to meet the anticipated needs of individuals for 
     such items or services in the geographic area covered under 
     the contract on a timely basis.
       ``(B) Multiple winners.--The Secretary shall award 
     contracts to multiple entities submitting bids in each area 
     for an item or service.
       ``(5) Payment.--
       ``(A) In general.--Payment under this part for 
     competitively priced items and services described in 
     subsection (a)(2) shall be based on bids submitted and 
     accepted under this section for such items and services. 
     Based on such bids the Secretary shall determine a single 
     payment amount for each item or service in each competitive 
     acquisition area.
       ``(B) Reduced beneficiary cost-sharing.--
       ``(i) Application of coinsurance.--Payment under this 
     section for items and services shall be in an amount equal to 
     80 percent of the payment basis described in subparagraph 
     (A).
       ``(ii) Application of deductible.--Before applying clause 
     (i), the individual shall be required to meet the deductible 
     described in section 1833(b).
       ``(C) Payment on assignment-related basis.--Payment for any 
     item or service furnished by the entity may only be made 
     under this section on an assignment-related basis.
       ``(D) Construction.--Nothing in this section shall be 
     construed as precluding the use of an advanced beneficiary 
     notice with respect to a competitively priced item and 
     service.
       ``(6) Participating contractors.--
       ``(A) In general.--Except as provided in subsection (a)(4), 
     payment shall not be made for items and services described in 
     subsection (a)(2) furnished by a contractor and for which 
     competition is conducted under this section unless--
       ``(i) the contractor has submitted a bid for such items and 
     services under this section; and
       ``(ii) the Secretary has awarded a contract to the 
     contractor for such items and services under this section.
       ``(B) Bid defined.--In this section, the term `bid' means 
     an offer to furnish an item or service for a particular price 
     and time period that includes, where appropriate, any 
     services that are attendant to the furnishing of the item or 
     service.
       ``(C) Rules for mergers and acquisitions.--In applying 
     subparagraph (A) to a contractor, the contractor shall 
     include a successor entity in the case of a merger or 
     acquisition, if the successor entity assumes such contract 
     along with any liabilities that may have occurred thereunder.
       ``(D) Protection of small suppliers.--In developing 
     procedures relating to bids and the awarding of contracts 
     under this section, the Secretary shall take appropriate 
     steps to ensure that small suppliers of items and services 
     have an opportunity to be considered for participation in the 
     program under this section.
       ``(7) Consideration in determining categories for bids.--
     The Secretary may consider the clinical efficiency and value 
     of specific items within codes, including whether some items 
     have a greater therapeutic advantage to individuals.
       ``(8) Authority to contract for education, monitoring, 
     outreach, and complaint services.--The Secretary may enter 
     into contracts with appropriate entities to address 
     complaints from individuals who receive items and services 
     from an entity with a contract under this section and to 
     conduct appropriate education of and outreach to such 
     individuals and monitoring quality of services with respect 
     to the program.
       ``(9) Authority to contract for implementation.--The 
     Secretary may contract with appropriate entities to implement 
     the competitive bidding program under this section.
       ``(10) No administrative or judicial review.--There shall 
     be no administrative or judicial review under section 1869, 
     section 1878, or otherwise, of--
       ``(A) the establishment of payment amounts under paragraph 
     (5);
       ``(B) the awarding of contracts under this section;
       ``(C) the designation of competitive acquisition areas 
     under subsection (a)(1)(A);
       ``(D) the phased-in implementation under subsection 
     (a)(1)(B);
       ``(E) the selection of items and services for competitive 
     acquisition under subsection (a)(2); or
       ``(F) the bidding structure and number of contractors 
     selected under this section.
       ``(c) Program Advisory and Oversight Committee.--
       ``(1) Establishment.--The Secretary shall establish a 
     Program Advisory and Oversight Committee (hereinafter in this 
     section referred to as the `Committee').
       ``(2) Membership; terms.--The Committee shall consist of 
     such members as the Secretary may appoint who shall serve for 
     such term as the Secretary may specify.
       ``(3) Duties.--
       ``(A) Advice.--The Committee shall provide advice to the 
     Secretary with respect to the following functions:
       ``(i) The implementation of the program under this section.
       ``(ii) The establishment of financial standards for 
     purposes of subsection (b)(2)(A)(ii).
       ``(iii) The establishment of requirements for collection of 
     data for the efficient management of the program.
       ``(iv) The development of proposals for efficient 
     interaction among manufacturers, providers of services, 
     suppliers (as defined in section 1861(d)), and individuals.
       ``(v) The establishment of quality standards under section 
     1834(a)(20).
       ``(B) Additional duties.--The Committee shall perform such 
     additional functions to assist the Secretary in carrying out 
     this section as the Secretary may specify.
       ``(4) Inapplicability of faca.--The provisions of the 
     Federal Advisory Committee Act (5 U.S.C. App.) shall not 
     apply.
       ``(5) Termination.--The Committee shall terminate on 
     December 31, 2009.
       ``(d) Report.--Not later than July 1, 2009, the Secretary 
     shall submit to Congress a report on the programs under this 
     section. The report shall include information on savings, 
     reductions in cost-sharing, access to and quality of items 
     and services, and satisfaction of individuals.
       ``(e) Demonstration Project for Clinical Laboratory 
     Services.--
       ``(1) In general.--The Secretary shall conduct a 
     demonstration project on the application of competitive 
     acquisition under this section to clinical diagnostic 
     laboratory tests--
       ``(A) for which payment would otherwise be made under 
     section 1833(h) (other than for pap smear laboratory tests 
     under paragraph (7) of such section) or section 1834(d)(1) 
     (relating to colorectal cancer screening tests); and
       ``(B) which are furnished by entities that did not have a 
     face-to-face encounter with the individual.
       ``(2) Terms and conditions.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     such project shall be under the same conditions as are 
     applicable to items and services described in subsection 
     (a)(2), excluding subsection (b)(5)(B) and other conditions 
     as the Secretary determines to be appropriate.
       ``(B) Application of clia quality standards.--The quality 
     standards established by the Secretary under section 353 of 
     the Public Health Service Act for clinical diagnostic 
     laboratory tests shall apply to such tests under the 
     demonstration project under this section in lieu of quality 
     standards described in subsection (b)(2)(A)(i).
       ``(3) Report.--The Secretary shall submit to Congress--
       ``(A) an initial report on the project not later than 
     December 31, 2005; and
       ``(B) such progress and final reports on the project after 
     such date as the Secretary determines appropriate.''.
       (2) Conforming amendments.--Section 1833(a)(1) (42 U.S.C. 
     1395l(a)(1)) is amended--
       (A) by striking ``and (U)'' and inserting ``(U)'';
       (B) by inserting before the semicolon at the end the 
     following: ``, and (V) notwithstanding subparagraphs (I) 
     (relating to durable medical equipment), (M) (relating to 
     prosthetic devices and orthotics and prosthetics), and (Q) 
     (relating to 1842(s) items), with respect to competitively 
     priced items and services (described in section 1847(a)(2)) 
     that are furnished in a competitive area, the amounts paid 
     shall be the amounts described in section 1847(b)(5)''; and
       (C) in clause (D)--
       (i) by striking ``or (ii)'' and inserting ``(ii)''; and
       (ii) by adding at the end the following: ``or (iii) on the 
     basis of a rate established under a demonstration project 
     under section 1847(e), the amount paid shall be equal to 100 
     percent of such rate,''.
       (3) GAO report on impact of competitive acquisition on 
     suppliers.--

[[Page H11920]]

       (A) Study.--The Comptroller General of the United States 
     shall conduct a study on the impact of competitive 
     acquisition of durable medical equipment under section 1847 
     of the Social Security Act, as amended by paragraph (1), on 
     suppliers and manufacturers of such equipment and on 
     patients. Such study shall specifically examine the impact of 
     such competitive acquisition on access to, and quality of, 
     such equipment and service related to such equipment.
       (B) Report.--Not later than January 1, 2009, the 
     Comptroller General shall submit to Congress a report on the 
     study conducted under subparagraph (A) and shall include in 
     the report such recommendations as the Comptroller General 
     determines appropriate.
       (c) Transitional Freeze.--
       (1) DME.--
       (A) In general.--Section 1834(a)(14) (42 U.S.C. 
     1395m(a)(14)) is amended--
       (i) in subparagraph (E), by striking ``and'' at the end;
       (ii) in subparagraph (F)--

       (I) by striking ``a subsequent year'' and inserting 
     ``2003''; and
       (II) by striking ``the previous year.'' and inserting 
     ``2002;''; and

       (iii) by adding at the end the following new subparagraphs:
       ``(G) for 2004 through 2006--
       ``(i) subject to clause (ii), 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;
       ``(H) for 2007--
       ``(i) subject to clause (ii), 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 change determined by the 
     Secretary to be appropriate taking into account 
     recommendations contained in the report of the Comptroller 
     General of the United States under section 302(c)(1)(B) of 
     the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003; and
       ``(ii) in the case of covered items not described in clause 
     (i), 0 percentage points; and
       ``(I) for 2008--
       ``(i) subject to clause (ii), 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) (as applied to the payment amount for 2007 
     determined after the application of the percentage change 
     under subparagraph (H)(i)); and
       ``(ii) in the case of covered items not described in clause 
     (i), 0 percentage points; and
       ``(J) for a subsequent year, 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) GAO report on class iii medical devices.--Not later 
     than March 1, 2006, the Comptroller General of the United 
     States shall submit to Congress, and transmit to the 
     Secretary, a report containing recommendations on the 
     appropriate update percentage under section 1834(a)(14) of 
     the Social Security Act (42 U.S.C. 1395m(a)(14)) for class 
     III medical devices described in section 513(a)(1)(C) of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360(a)(1)(C)) 
     furnished to medicare beneficiaries during 2007 and 2008.
       (2) Payment rule for specified items.--Section 1834(a) (42 
     U.S.C. 1395m(a)), as amended by subsection (a), is further 
     amended by adding at the end the following new paragraph:
       ``(21) Special payment rule for specified items and 
     supplies.--
       ``(A) In general.--Notwithstanding the preceding provisions 
     of this subsection, for specified items and supplies 
     (described in subparagraph (B)) furnished during 2005, the 
     payment amount otherwise determined under this subsection for 
     such specified items and supplies shall be reduced by the 
     percentage difference between--
       ``(i) the amount of payment otherwise determined for the 
     specified item or supply under this subsection for 2002, and
       ``(ii) the amount of payment for the specified item or 
     supply under chapter 89 of title 5, United States Code, as 
     identified in the column entitled `Median FEHP Price' in the 
     table entitled `SUMMARY OF MEDICARE PRICES COMPARED TO VA, 
     MEDICAID, RETAIL, AND FEHP PRICES FOR 16 ITEMS' included in 
     the Testimony of the Inspector General before the Senate 
     Committee on Appropriations, June 12, 2002, or any subsequent 
     report by the Inspector General.
       ``(B) Specified item or supply described.--For purposes of 
     subparagraph (A), a specified item or supply means oxygen and 
     oxygen equipment, standard wheelchairs (including standard 
     power wheelchairs), nebulizers, diabetic supplies consisting 
     of lancets and testing strips, hospital beds, and air 
     mattresses, but only if the HCPCS code for the item or supply 
     is identified in a table referred to in subparagraph (A)(ii).
       ``(C) Application of update to special payment amount.--The 
     covered item update under paragraph (14) for specified items 
     and supplies for 2006 and each subsequent year shall be 
     applied to the payment amount under subparagraph (A) unless 
     payment is made for such items and supplies under section 
     1847.''.
       (3) Prosthetic devices and orthotics and prosthetics.--
     Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
       (A) in clause (vii), by striking ``and'' at the end;
       (B) in clause (viii), by striking ``a subsequent year'' and 
     inserting ``2003''; and
       (C) by adding at the end the following new clauses:
       ``(ix) for 2004, 2005, and 2006, 0 percent; and
       ``(x) for a subsequent year, the percentage increase in the 
     consumer price index for all urban consumers (United States 
     city average) for the 12-month period ending with June of the 
     previous year;''.
       (d) Conforming Amendments.--
       (1) Durable medical equipment; limitation of inherent 
     reasonableness authority.--Section 1834(a) (42 U.S.C. 
     1395m(a)) is amended--
       (A) in paragraph (1)(B), by striking ``The payment basis'' 
     and inserting ``Subject to subparagraph (F)(i), the payment 
     basis'';
       (B) in paragraph (1)(C), by striking ``This subsection'' 
     and inserting ``Subject to subparagraph (F)(ii), this 
     subsection'';
       (C) by adding at the end of paragraph (1) the following new 
     subparagraph:
       ``(F) Application of competitive acquisition; limitation of 
     inherent reasonableness authority.--In the case of covered 
     items furnished on or after January 1, 2009, that are 
     included in a competitive acquisition program in a 
     competitive acquisition area under section 1847(a)--
       ``(i) the payment basis under this subsection for such 
     items and services furnished in such area shall be the 
     payment basis determined under such competitive acquisition 
     program; and
       ``(ii) the Secretary may use information on the payment 
     determined under such competitive acquisition programs to 
     adjust the payment amount otherwise recognized under 
     subparagraph (B)(ii) for an area that is not a competitive 
     acquisition area under section 1847 and in the case of such 
     adjustment, paragraph (10)(B) shall not be applied.''; and
       (D) in paragraph (10)(B), by inserting ``in an area and 
     with respect to covered items and services for which the 
     Secretary does not make a payment amount adjustment under 
     paragraph (1)(F)'' after ``under this subsection''.
       (2) Off-the-shelf orthotics; limitation of inherent 
     reasonableness authority.--Section 1834(h) (42 U.S.C. 
     1395m(h)) is amended--
       (A) in paragraph (1)(B), by striking ``and (E)'' and 
     inserting ``, (E), and (H)(i)'';
       (B) in paragraph (1)(D), by striking ``This subsection'' 
     and inserting ``Subject to subparagraph (H)(ii), this 
     subsection''; and
       (C) by adding at the end of paragraph (1) the following new 
     subparagraph:
       ``(H) Application of competitive acquisition to orthotics; 
     limitation of inherent reasonableness authority.--In the case 
     of orthotics described in paragraph (2)(C) of section 1847(a) 
     furnished on or after January 1, 2009, that are included in a 
     competitive acquisition program in a competitive acquisition 
     area under such section--
       ``(i) the payment basis under this subsection for such 
     orthotics furnished in such area shall be the payment basis 
     determined under such competitive acquisition program; and
       ``(ii) the Secretary may use information on the payment 
     determined under such competitive acquisition programs to 
     adjust the payment amount otherwise recognized under 
     subparagraph (B)(ii) for an area that is not a competitive 
     acquisition area under section 1847, and in the case of such 
     adjustment, paragraphs (8) and (9) of section 1842(b) shall 
     not be applied.''.
       (3) Other items and services; limitation of inherent 
     reasonableness authority.--Section 1842(s) (42 U.S.C. 
     1395u(s)) is amended--
       (A) in the first sentence of paragraph (1), by striking 
     ``The Secretary'' and inserting ``Subject to paragraph (3), 
     the Secretary''; and
       (B) by adding at the end the following new paragraph:
       ``(3) In the case of items and services described in 
     paragraph (2)(D) that are included in a competitive 
     acquisition program in a competitive acquisition area under 
     section 1847(a)--
       ``(A) the payment basis under this subsection for such 
     items and services furnished in such area shall be the 
     payment basis determined under such competitive acquisition 
     program; and
       ``(B) the Secretary may use information on the payment 
     determined under such competitive acquisition programs to 
     adjust the payment amount otherwise applicable under 
     paragraph (1) for an area that is not a competitive 
     acquisition area under section 1847, and in the case of such 
     adjustment, paragraphs (8) and (9) of section 1842(b) shall 
     not be applied.''.
       (e) Report on Activities of Suppliers.--The Inspector 
     General of the Department of Health and Human Services shall 
     conduct a study to determine the extent to which (if any) 
     suppliers of covered items of durable medical equipment that 
     are subject to the competitive acquisition program under 
     section 1847 of the Social Security Act, as amended by 
     subsection (a), are soliciting physicians to prescribe 
     certain brands or modes of delivery of covered items based on 
     profitability. Not later than July 1, 2009, the Inspector 
     General shall submit to Congress a report on such study.

     SEC. 303. PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND 
                   BIOLOGICALS.

       (a) Adjustment to Physician Fee Schedule.--
       (1) Adjustment in 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 of subparagraph (B), the 
     following new clause:
       ``(iv) Exemption from budget neutrality.--The additional 
     expenditures attributable to--

       ``(I) subparagraph (H) shall not be taken into account in 
     applying clause (ii)(II) for 2004;
       ``(II) subparagraph (I) insofar as it relates to a 
     physician fee schedule for 2005 or 2006 shall not be taken 
     into account in applying clause (ii)(II) for drug 
     administration services under the fee schedule for such year 
     for a specialty described in subparagraph (I)(ii)(II); and

[[Page H11921]]

       ``(III) subparagraph (J) insofar as it relates to a 
     physician fee schedule for 2005 or 2006 shall not be taken 
     into account in applying clause (ii)(II) for drug 
     administration services under the fee schedule for such 
     year.''; and

       (B) by adding at the end the following new subparagraphs:
       ``(H) Adjustments in practice expense relative value units 
     for certain drug administration services beginning in 2004.--
       ``(i) Use of survey data.--In establishing the physician 
     fee schedule under subsection (b) with respect to payments 
     for services furnished on or after January 1, 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 drug 
     administration services; and
       ``(II) meets criteria established by the Secretary for 
     acceptance of such surveys.

       ``(ii) Pricing of clinical oncology nurses in practice 
     expense methodology.--If the survey described in clause (i) 
     includes data on wages, salaries, and compensation of 
     clinical oncology nurses, the Secretary shall utilize such 
     data in the methodology for determining practice expense 
     relative value units under subsection (c).
       ``(iii) Work relative value units for certain drug 
     administration services.--In establishing the relative value 
     units under this paragraph for drug administration services 
     described in clause (iv) furnished on or after January 1, 
     2004, the Secretary shall establish work relative value units 
     equal to the work relative value units for a level 1 office 
     medical visit for an established patient.
       ``(iv) Drug administration services described.--The drug 
     administration services described in this clause are 
     physicians' services--

       ``(I) which are classified as of October 1, 2003, within 
     any of the following groups of procedures: therapeutic or 
     diagnostic infusions (excluding chemotherapy); chemotherapy 
     administration services; and therapeutic, prophylactic, or 
     diagnostic injections;
       ``(II) for which there are no work relative value units 
     assigned under this subsection as of such date; and
       ``(III) for which national relative value units have been 
     assigned under this subsection as of such date.

       ``(I) Adjustments in practice expense relative value units 
     for certain drug administration services beginning with 
     2005.--
       ``(i) In general.--In establishing the physician fee 
     schedule under subsection (b) with respect to payments for 
     services furnished on or after January 1, 2005 or 2006, the 
     Secretary shall adjust the practice expense relative value 
     units for such year consistent with clause (ii).
       ``(ii) Use of supplemental survey data.--

       ``(I) In general.--Subject to subclause (II), if a 
     specialty submits to the Secretary by not later than March 1, 
     2004, for 2005, or March 1, 2005, for 2006, data that 
     includes expenses for the administration of drugs and 
     biologicals for which the payment amount is determined 
     pursuant to section 1842(o), the Secretary shall use such 
     supplemental survey data in carrying out this subparagraph 
     for the years involved insofar as they are collected and 
     provided by entities and organizations consistent with the 
     criteria established by the Secretary pursuant to section 
     212(a) of the Medicare, Medicaid, and SCHIP Balanced Budget 
     Refinement Act of 1999.
       ``(II) Limitation on specialty.--Subclause (I) shall apply 
     to a specialty only insofar as not less than 40 percent of 
     payments for the specialty under this title in 2002 are 
     attributable to the administration of drugs and biologicals, 
     as determined by the Secretary.
       ``(III) Application.--This clause shall not apply with 
     respect to a survey to which subparagraph (H)(i) applies.

       ``(J) Provisions for appropriate reporting and billing for 
     physicians' services associated with the administration of 
     covered outpatient drugs and biologicals.--
       ``(i) Evaluation of codes.--The Secretary shall promptly 
     evaluate existing drug administration codes for physicians' 
     services to ensure accurate reporting and billing for such 
     services, taking into account levels of complexity of the 
     administration and resource consumption.
       ``(ii) Use of existing processes.--In carrying out clause 
     (i), the Secretary shall use existing processes for the 
     consideration of coding changes and, to the extent coding 
     changes are made, shall use such processes in establishing 
     relative values for such services.
       ``(iii) Implementation.--In carrying out clause (i), the 
     Secretary shall consult with representatives of physician 
     specialties affected by the implementation of section 1847A 
     or section 1847B, and shall take such steps within the 
     Secretary's authority to expedite such considerations under 
     clause (ii).
       ``(iv) Subsequent, budget neutral adjustments permitted.--
     Nothing in subparagraph (H) or (I) or this subparagraph shall 
     be construed as preventing the Secretary from providing for 
     adjustments in practice expense relative value units under 
     (and consistent with) subparagraph (B) for years after 2004, 
     2005, or 2006, respectively.''.
       (2) 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 affected relative to the practice expense relative 
     value units of services not determined under such 
     methodology, as a result of the amendments made by paragraph 
     (1).
       (3) 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 October 1, 2003, 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 drug or 
     biological 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 as the Secretary determines 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).
       (4) Transitional adjustment.--
       (A) In general.--In order to provide for a transition 
     during 2004 and 2005 to the payment system established under 
     the amendments made by this section, in the case of 
     physicians' services consisting of drug administration 
     services described in subparagraph (H)(iv) of section 
     1848(c)(2) of the Social Security Act (42 U.S.C. 1395w-
     4(c)(2)), as added by paragraph (1)(B), furnished on or after 
     January 1, 2004, and before January 1, 2006, in addition to 
     the amount determined under the fee schedule under section 
     1848(b) of such Act (42 U.S.C. 1395w-4(b)) there also shall 
     be paid to the physician from the Federal Supplementary 
     Medical Insurance Trust Fund an amount equal to the 
     applicable percentage specified in subparagraph (B) of such 
     fee schedule amount for the services so determined.
       (B) Applicable percentage.--The applicable percentage 
     specified in this subparagraph for services furnished--
       (i) during 2004, is 32 percent; and
       (ii) during 2005, is 3 percent.
       (5) Medpac review and reports; secretarial response.--
       (A) Review.--The Medicare Payment Advisory Commission shall 
     review the payment changes made under this section insofar as 
     they affect payment under part B of title XVIII of the Social 
     Security Act--
       (i) for items and services furnished by oncologists; and
       (ii) for drug administration services furnished by other 
     specialists.
       (B) Other matters studied.--In conducting the review under 
     subparagraph (A), the Commission shall also review such 
     changes as they affect--
       (i) the quality of care furnished to individuals enrolled 
     under part B and the satisfaction of such individuals with 
     that care;
       (ii) the adequacy of reimbursement as applied in, and the 
     availability in, different geographic areas and to different 
     physician practice sizes; and
       (iii) the impact on physician practices.
       (C) Reports.--The Commission shall submit to the Secretary 
     and Congress--
       (i) not later than January 1, 2006, a report on the review 
     conducted under subparagraph (A)(i); and
       (ii) not later than January 1, 2007, a report on the review 
     conducted under subparagraph (A)(ii).

     Each such report may include such recommendations regarding 
     further adjustments in such payments as the Commission deems 
     appropriate.
       (D) Secretarial response.--As part of the rulemaking with 
     respect to payment for physicians services under section 1848 
     of the Social Security Act (42 U.S.C. 1395w-4) for 2007, the 
     Secretary may make appropriate adjustments to payment for 
     items and services described in subparagraph (A)(i), taking 
     into account the report submitted under such subparagraph 
     (C)(i).
       (b) Application of Market-Based Payment Systems.--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 the 
     following:
       ``(A) In the case of any of the following drugs or 
     biologicals, 95 percent of the average wholesale price:
       ``(i) A drug or biological furnished before January 1, 
     2004.
       ``(ii) Blood clotting factors furnished during 2004.
       ``(iii) A drug or biological furnished during 2004 that was 
     not available for payment under this part as of April 1, 
     2003.
       ``(iv) A vaccine described in subparagraph (A) or (B) of 
     section 1861(s)(10) furnished on or after January 1, 2004.
       ``(v) A drug or biological furnished during 2004 in 
     connection with the furnishing of renal dialysis services if 
     separately billed by renal dialysis facilities.
       ``(B) In the case of a drug or biological furnished during 
     2004 that is not described in--
       ``(i) clause (ii), (iii), (iv), or (v) of subparagraph (A),
       ``(ii) subparagraph (D)(i), or
       ``(iii) subparagraph (F),

     the amount determined under paragraph (4).

[[Page H11922]]

       ``(C) In the case of a drug or biological that is not 
     described in subparagraph (A)(iv), (D)(i), or (F) furnished 
     on or after January 1, 2005, the amount provided under 
     section 1847, section 1847A, section 1847B, or section 
     1881(b)(13), as the case may be for the drug or biological.
       ``(D)(i) Except as provided in clause (ii), in the case of 
     infusion drugs furnished through an item of durable medical 
     equipment covered under section 1861(n) on or after January 
     1, 2004, 95 percent of the average wholesale price for such 
     drug in effect on October 1, 2003.
       ``(ii) In the case of such infusion drugs furnished in a 
     competitive acquisition area under section 1847 on or after 
     January 1, 2007, the amount provided under section 1847.
       ``(E) In the case of a drug or biological, consisting of 
     intravenous immune globulin, furnished--
       ``(i) in 2004, the amount of payment provided under 
     paragraph (4); and
       ``(ii) in 2005 and subsequent years, the amount of payment 
     provided under section 1847A.
       ``(F) In the case of blood and blood products (other than 
     blood clotting factors), the amount of payment shall be 
     determined in the same manner as such amount of payment was 
     determined on October 1, 2003.
       ``(G) The provisions of subparagraphs (A) through (F) of 
     this paragraph shall not apply to an inhalation drug or 
     biological furnished through durable medical equipment 
     covered under section 1861(n).''; and
       (2) by adding at the end the following new paragraph:
       ``(4)(A) Subject to the succeeding provisions of this 
     paragraph, the amount of payment for a drug or biological 
     under this paragraph furnished in 2004 is equal to 85 percent 
     of the average wholesale price (determined as of April 1, 
     2003) for the drug or biological.
       ``(B) The Secretary shall substitute for the percentage 
     under subparagraph (A) for a drug or biological the 
     percentage that would apply to the drug or biological under 
     the column entitled `Average of GAO and OIG data (percent)' 
     in the table entitled `Table 3.--Medicare Part B Drugs in the 
     Most Recent GAO and OIG Studies' published on August 20, 
     2003, in the Federal Register (68 Fed. Reg. 50445).
       ``(C)(i) The Secretary may substitute for the percentage 
     under subparagraph (A) a percentage that is based on data and 
     information submitted by the manufacturer of the drug or 
     biological by October 15, 2003.
       ``(ii) The Secretary may substitute for the percentage 
     under subparagraph (A) with respect to drugs and biologicals 
     furnished during 2004 on or after April 1, 2004, a percentage 
     that is based on data and information submitted by the 
     manufacturer of the drug or biological after October 15, 
     2003, and before January 1, 2004.
       ``(D) In no case may the percentage substituted under 
     subparagraph (B) or (C) be less than 80 percent.''.
       (c) Application of Average Sales Price Methods Beginning in 
     2005.--
       (1) In general.--Title XVIII is amended by inserting after 
     section 1847 (42 U.S.C. 1395w-3), as amended by section 
     302(b), the following new section:


            ``use of average sales price payment methodology

       ``Sec. 1847A. (a) Application.--
       ``(1) In general.--Except as provided in paragraph (2), 
     this section shall apply to payment for drugs and biologicals 
     that are described in section 1842(o)(1)(C) and that are 
     furnished on or after January 1, 2005.
       ``(2) Election.--This section shall not apply in the case 
     of a physician who elects under subsection (a)(1)(A)(ii) of 
     section 1847B for that section to apply instead of this 
     section for the payment for drugs and biologicals.
       ``(b) Payment Amount.--
       ``(1) In general.--Subject to subsections (d)(3)(C) and 
     (e), the amount of payment determined under this section for 
     the billing and payment code for a drug or biological (based 
     on a minimum dosage unit) is, subject to applicable 
     deductible and coinsurance--
       ``(A) in the case of a multiple source drug (as defined in 
     subsection (c)(6)(C)), 106 percent of the amount determined 
     under paragraph (3); or
       ``(B) in the case of a single source drug or biological (as 
     defined in subsection (c)(6)(D)), 106 percent of the amount 
     determined under paragraph (4).
       ``(2) Specification of unit.--
       ``(A) Specification by manufacturer.--The manufacturer of a 
     drug or biological shall specify the unit associated with 
     each National Drug Code (including package size) as part of 
     the submission of data under section 1927(b)(3)(A)(iii).
       ``(B) Unit defined.--In this section, the term `unit' 
     means, with respect to each National Drug Code (including 
     package size) associated with a drug or biological, the 
     lowest identifiable quantity (such as a capsule or tablet, 
     milligram of molecules, or grams) of the drug or biological 
     that is dispensed, exclusive of any diluent without reference 
     to volume measures pertaining to liquids. For years after 
     2004, the Secretary may establish the unit for a manufacturer 
     to report and methods for counting units as the Secretary 
     determines appropriate to implement this section.
       ``(3) Multiple source drug.--For all drug products included 
     within the same multiple source drug billing and payment 
     code, the amount specified in this paragraph is the volume-
     weighted average of the average sales prices reported under 
     section 1927(b)(3)(A)(iii) determined by--
       ``(A) computing the sum of the products (for each National 
     Drug Code assigned to such drug products) of--
       ``(i) the manufacturer's average sales price (as defined in 
     subsection (c)); and
       ``(ii) the total number of units specified under paragraph 
     (2) sold; and
       ``(B) dividing the sum determined under subparagraph (A) by 
     the sum of the total number of units under subparagraph 
     (A)(ii) for all National Drug Codes assigned to such drug 
     products.
       ``(4) Single source drug or biological.--The amount 
     specified in this paragraph for a single source drug or 
     biological is the lesser of the following:
       ``(A) Average sales price.--The average sales price as 
     determined using the methodology applied under paragraph (3) 
     for all National Drug Codes assigned to such drug or 
     biological product.
       ``(B) Wholesale acquisition cost (wac).--The wholesale 
     acquisition cost (as defined in subsection (c)(6)(B)) using 
     the methodology applied under paragraph (3) for all National 
     Drug Codes assigned to such drug or biological product.
       ``(5) Basis for payment amount.--The payment amount shall 
     be determined under this subsection based on information 
     reported under subsection (f) and without regard to any 
     special packaging, labeling, or identifiers on the dosage 
     form or product or package.
       ``(c) Manufacturer's Average Sales Price.--
       ``(1) In general.--For purposes of this section, subject to 
     paragraphs (2) and (3), the manufacturer's `average sales 
     price' means, of a drug or biological for a National Drug 
     Code for a calendar quarter for a manufacturer for a unit--
       ``(A) the manufacturer's sales to all purchasers (excluding 
     sales exempted in paragraph (2)) in the United States for 
     such drug or biological in the calendar quarter; divided by
       ``(B) the total number of such units of such drug or 
     biological sold by the manufacturer in such quarter.
       ``(2) Certain sales exempted from computation.--In 
     calculating the manufacturer's average sales price under this 
     subsection, the following sales shall be excluded:
       ``(A) Sales exempt from best price.--Sales exempt from the 
     inclusion in the determination of `best price' under section 
     1927(c)(1)(C)(i).
       ``(B) Sales at nominal charge.--Such other sales as the 
     Secretary identifies as sales to an entity that are merely 
     nominal in amount (as applied for purposes of section 
     1927(c)(1)(C)(ii)(III), except as the Secretary may otherwise 
     provide).
       ``(3) Sale price net of discounts.--In calculating the 
     manufacturer's average sales price under this subsection, 
     such price shall include volume discounts, prompt pay 
     discounts, cash discounts, free goods that are contingent on 
     any purchase requirement, chargebacks, and rebates (other 
     than rebates under section 1927). For years after 2004, the 
     Secretary may include in such price other price concessions, 
     which may be based on recommendations of the Inspector 
     General, that would result in a reduction of the cost to the 
     purchaser.
       ``(4) Payment methodology in cases where average sales 
     price during first quarter of sales is unavailable.--In the 
     case of a drug or biological during an initial period (not to 
     exceed a full calendar quarter) in which data on the prices 
     for sales for the drug or biological is not sufficiently 
     available from the manufacturer to compute an average sales 
     price for the drug or biological, the Secretary may determine 
     the amount payable under this section for the drug or 
     biological based on--
       ``(A) the wholesale acquisition cost; or
       ``(B) the methodologies in effect under this part on 
     November 1, 2003, to determine payment amounts for drugs or 
     biologicals.
       ``(5) Frequency of determinations.--
       ``(A) In general on a quarterly basis.--The manufacturer's 
     average sales price, for a drug or biological of a 
     manufacturer, shall be calculated by such manufacturer under 
     this subsection on a quarterly basis. In making such 
     calculation insofar as there is a lag in the reporting of the 
     information on rebates and chargebacks under paragraph (3) so 
     that adequate data are not available on a timely basis, the 
     manufacturer shall apply a methodology based on a 12-month 
     rolling average for the manufacturer to estimate costs 
     attributable to rebates and chargebacks. For years after 
     2004, the Secretary may establish a uniform methodology under 
     this subparagraph to estimate and apply such costs.
       ``(B) Updates in payment amounts.--The payment amounts 
     under subsection (b) shall be updated by the Secretary on a 
     quarterly basis and shall be applied based upon the 
     manufacturer's average sales price calculated for the most 
     recent calendar quarter for which data is available.
       ``(C) Use of contractors; implementation.--The Secretary 
     may contract with appropriate entities to calculate the 
     payment amount under subsection (b). Notwithstanding any 
     other provision of law, the Secretary may implement, by 
     program instruction or otherwise, any of the provisions of 
     this section.
       ``(6) Definitions and other rules.--In this section:
       ``(A) Manufacturer.--The term `manufacturer' means, with 
     respect to a drug or biological, the manufacturer (as defined 
     in section 1927(k)(5)).
       ``(B) Wholesale acquisition cost.--The term `wholesale 
     acquisition cost' means, with respect to a drug or 
     biological, the manufacturer's list price for the drug or 
     biological to wholesalers or direct purchasers in the United 
     States, not including prompt pay or other discounts, rebates 
     or reductions in price, for the most recent month for which 
     the information is available, as reported in wholesale price 
     guides or other publications of drug or biological pricing 
     data.
       ``(C) Multiple source drug.--
       ``(i) In general.--The term `multiple source drug' means, 
     for a calendar quarter, a drug for

[[Page H11923]]

     which there are 2 or more drug products which--

       ``(I) are rated as therapeutically equivalent (under the 
     Food and Drug Administration's most recent publication of 
     `Approved Drug Products with Therapeutic Equivalence 
     Evaluations'),
       ``(II) except as provided in subparagraph (E), are 
     pharmaceutically equivalent and bioequivalent, as determined 
     under subparagraph (F) and as determined by the Food and Drug 
     Administration, and
       ``(III) are sold or marketed in the United States during 
     the quarter.

       ``(ii) Exception.--With respect to single source drugs or 
     biologicals that are within the same billing and payment code 
     as of October 1, 2003, the Secretary shall treat such single 
     source drugs or biologicals as if the single source drugs or 
     biologicals were multiple source drugs.
       ``(D) Single source drug or biological.--The term `single 
     source drug or biological' means--
       ``(i) a biological; or
       ``(ii) a drug which is not a multiple source drug and which 
     is produced or distributed under a new drug application 
     approved by the Food and Drug Administration, including a 
     drug product marketed by any cross-licensed producers or 
     distributors operating under the new drug application.
       ``(E) Exception from pharmaceutical equivalence and 
     bioequivalence requirement.--Subparagraph (C)(ii) shall not 
     apply if the Food and Drug Administration changes by 
     regulation the requirement that, for purposes of the 
     publication described in subparagraph (C)(i), in order for 
     drug products to be rated as therapeutically equivalent, they 
     must be pharmaceutically equivalent and bioequivalent, as 
     defined in subparagraph (F).
       ``(F) Determination of pharmaceutical equivalence and 
     bioequivalence.--For purposes of this paragraph--
       ``(i) drug products are pharmaceutically equivalent if the 
     products contain identical amounts of the same active drug 
     ingredient in the same dosage form and meet compendial or 
     other applicable standards of strength, quality, purity, and 
     identity; and
       ``(ii) drugs are bioequivalent if they do not present a 
     known or potential bioequivalence problem, or, if they do 
     present such a problem, they are shown to meet an appropriate 
     standard of bioequivalence.
       ``(G) Inclusion of vaccines.--In applying provisions of 
     section 1927 under this section, `other than a vaccine' is 
     deemed deleted from section 1927(k)(2)(B).
       ``(d) Monitoring of Market Prices.--
       ``(1) In general.--The Inspector General of the Department 
     of Health and Human Services shall conduct studies, which may 
     include surveys, to determine the widely available market 
     prices of drugs and biologicals to which this section 
     applies, as the Inspector General, in consultation with the 
     Secretary, determines to be appropriate.
       ``(2) Comparison of prices.--Based upon such studies and 
     other data for drugs and biologicals, the Inspector General 
     shall compare the average sales price under this section for 
     drugs and biologicals with--
       ``(A) the widely available market price for such drugs and 
     biologicals (if any); and
       ``(B) the average manufacturer price (as determined under 
     section 1927(k)(1)) for such drugs and biologicals.
       ``(3) Limitation on average sales price.--
       ``(A) In general.--The Secretary may disregard the average 
     sales price for a drug or biological that exceeds the widely 
     available market price or the average manufacturer price for 
     such drug or biological by the applicable threshold 
     percentage (as defined in subparagraph (B)).
       ``(B) Applicable threshold percentage defined.--In this 
     paragraph, the term `applicable threshold percentage' means--
       ``(i) in 2005, in the case of an average sales price for a 
     drug or biological that exceeds widely available market price 
     or the average manufacturer price, 5 percent; and
       ``(ii) in 2006 and subsequent years, the percentage applied 
     under this subparagraph subject to such adjustment as the 
     Secretary may specify for the widely available market price 
     or the average manufacturer price, or both.
       ``(C) Authority to adjust average sales price.--If the 
     Inspector General finds that the average sales price for a 
     drug or biological exceeds such widely available market price 
     or average manufacturer price for such drug or biological by 
     the applicable threshold percentage, the Inspector General 
     shall inform the Secretary (at such times as the Secretary 
     may specify to carry out this subparagraph) and the Secretary 
     shall, effective as of the next quarter, substitute for the 
     amount of payment otherwise determined under this section for 
     such drug or biological the lesser of--
       ``(i) the widely available market price for the drug or 
     biological (if any); or
       ``(ii) 103 percent of the average manufacturer price (as 
     determined under section 1927(k)(1)) for the drug or 
     biological.
       ``(4) Civil money penalty.--
       ``(A) In general.--If the Secretary determines that a 
     manufacturer has made a misrepresentation in the reporting of 
     the manufacturer's average sales price for a drug or 
     biological, the Secretary may apply a civil money penalty in 
     an amount of up to $10,000 for each such price 
     misrepresentation and for each day in which such price 
     misrepresentation was applied.
       ``(B) Procedures.--The provisions of section 1128A (other 
     than subsections (a) and (b)) shall apply to civil money 
     penalties under subparagraph (B) in the same manner as they 
     apply to a penalty or proceeding under section 1128A(a).
       ``(5) Widely available market price.--
       ``(A) In general.--In this subsection, the term `widely 
     available market price' means the price that a prudent 
     physician or supplier would pay for the drug or biological. 
     In determining such price, the Inspector General shall take 
     into account the discounts, rebates, and other price 
     concessions routinely made available to such prudent 
     physicians or suppliers for such drugs or biologicals.
       ``(B) Considerations.--In determining the price under 
     subparagraph (A), the Inspector General shall consider 
     information from one or more of the following sources:
       ``(i) Manufacturers.
       ``(ii) Wholesalers.
       ``(iii) Distributors.
       ``(iv) Physician supply houses.
       ``(v) Specialty pharmacies.
       ``(vi) Group purchasing arrangements.
       ``(vii) Surveys of physicians.
       ``(viii) Surveys of suppliers.
       ``(ix) Information on such market prices from insurers.
       ``(x) Information on such market prices from private health 
     plans.
       ``(e) Authority To Use Alternative Payment in Response to 
     Public Health Emergency.--In the case of a public health 
     emergency under section 319 of the Public Health Service Act 
     in which there is a documented inability to access drugs and 
     biologicals, and a concomitant increase in the price, of a 
     drug or biological which is not reflected in the 
     manufacturer's average sales price for one or more quarters, 
     the Secretary may use the wholesale acquisition cost (or 
     other reasonable measure of drug or biological price) instead 
     of the manufacturer's average sales price for such quarters 
     and for subsequent quarters until the price and availability 
     of the drug or biological has stabilized and is substantially 
     reflected in the applicable manufacturer's average sales 
     price.
       ``(f) Quarterly Report on Average Sales Price.--For 
     requirements for reporting the manufacturer's average sales 
     price (and, if required to make payment, the manufacturer's 
     wholesale acquisition cost) for the drug or biological under 
     this section, see section 1927(b)(3).
       ``(g) Judicial Review.--There shall be no administrative or 
     judicial review under section 1869, section 1878, or 
     otherwise, of--
       ``(1) determinations of payment amounts under this section, 
     including the assignment of National Drug Codes to billing 
     and payment codes;
       ``(2) the identification of units (and package size) under 
     subsection (b)(2);
       ``(3) the method to allocate rebates, chargebacks, and 
     other price concessions to a quarter if specified by the 
     Secretary;
       ``(4) the manufacturer's average sales price when it is 
     used for the determination of a payment amount under this 
     section; and
       ``(5) the disclosure of the average manufacturer price by 
     reason of an adjustment under subsection (d)(3)(C) or (e).''.
       (2) Report on sales to pharmacy benefit managers.--
       (A) Study.--The Secretary shall conduct a study on sales of 
     drugs and biologicals to large volume purchasers, such as 
     pharmacy benefit managers and health maintenance 
     organizations, for purposes of determining whether the price 
     at which such drugs and biologicals are sold to such 
     purchasers does not represent the price such drugs and 
     biologicals are made available for purchase to prudent 
     physicians.
       (B) Report.--Not later than January 1, 2006, the Secretary 
     shall submit to Congress a report on the study conducted 
     under paragraph (1), and shall include recommendations on 
     whether such sales to large volume purchasers should be 
     excluded from the computation of a manufacturer's average 
     sales price under section 1847A of the Social Security Act, 
     as added by paragraph (1).
       (3) Inspector general report on adequacy of reimbursement 
     rate under average sales price methodology.--
       (A) Study.--The Inspector General of the Department of 
     Health and Human Services shall conduct a study on the 
     ability of physician practices in the specialties of 
     hematology, hematology/oncology, and medical oncology of 
     different sizes, especially particularly large practices, to 
     obtain drugs and biologicals for the treatment of cancer 
     patients at 106 percent of the average sales price for the 
     drugs and biologicals. In conducting the study, the Inspector 
     General shall conduct an audit of a representative sample of 
     such practices to determine the adequacy of reimbursement 
     under section 1847A of the Social Security Act, as added by 
     paragraph (1).
       (B) Report.--Not later October 1, 2005, the Inspector 
     General shall submit to Congress a report on the study 
     conducted under subparagraph (A), and shall include 
     recommendations on the adequacy of reimbursement for such 
     drugs and biologicals under such section 1847A.
       (d) Payment Based on Competition.--
       (1) In general.--Title XVIII is amended by inserting after 
     section 1847A, as added by subsection (c), the following new 
     section:


     ``competitive acquisition of outpatient drugs and biologicals

       ``Sec. 1847B. (a) Implementation of Competitive 
     Acquisition.--
       ``(1) Implementation of program.--
       ``(A) In general.--The Secretary shall establish and 
     implement a competitive acquisition program under which--
       ``(i) competitive acquisition areas are established for 
     contract award purposes for acquisition of and payment for 
     categories of competitively biddable drugs and biologicals 
     (as defined in paragraph (2)) under this part;
       ``(ii) each physician is given the opportunity annually to 
     elect to obtain drugs and biologicals under the program, 
     rather than under section 1847A; and
       ``(iii) each physician who elects to obtain drugs and 
     biologicals under the program makes

[[Page H11924]]

     an annual selection under paragraph (5) of the contractor 
     through which drugs and biologicals within a category of 
     drugs and biologicals will be acquired and delivered to the 
     physician under this part.

     This section shall not apply in the case of a physician who 
     elects section 1847A to apply.
       ``(B) Implementation.--For purposes of implementing the 
     program, the Secretary shall establish categories of 
     competitively biddable drugs and biologicals. The Secretary 
     shall phase in the program with respect to those categories 
     beginning in 2006 in such manner as the Secretary determines 
     to be appropriate.
       ``(C) Waiver of certain provisions.--In order to promote 
     competition, in carrying out the program the Secretary may 
     waive such provisions of the Federal Acquisition Regulation 
     as are necessary for the efficient implementation of this 
     section, other than provisions relating to confidentiality of 
     information and such other provisions as the Secretary 
     determines appropriate.
       ``(D) Exclusion authority.--The Secretary may exclude 
     competitively biddable drugs and biologicals (including a 
     class of such drugs and biologicals) from the competitive 
     bidding system under this section if the application of 
     competitive bidding to such drugs or biologicals--
       ``(i) is not likely to result in significant savings; or
       ``(ii) is likely to have an adverse impact on access to 
     such drugs or biologicals.
       ``(2) Competitively biddable drugs and biologicals and 
     program defined.--For purposes of this section--
       ``(A) Competitively biddable drugs and biologicals 
     defined.--The term `competitively biddable drugs and 
     biologicals' means a drug or biological described in section 
     1842(o)(1)(C) and furnished on or after January 1, 2006.
       ``(B) Program.--The term `program' means the competitive 
     acquisition program under this section.
       ``(C) Competitive acquisition area; area.--The terms 
     `competitive acquisition area' and `area' mean an appropriate 
     geographic region established by the Secretary under the 
     program.
       ``(D) Contractor.--The term `contractor' means an entity 
     that has entered into a contract with the Secretary under 
     this section.
       ``(3) Application of program payment methodology.--
       ``(A) In general.--With respect to competitively biddable 
     drugs and biologicals which are supplied under the program in 
     an area and which are prescribed by a physician who has 
     elected this section to apply--
       ``(i) the claim for such drugs and biologicals shall be 
     submitted by the contractor that supplied the drugs and 
     biologicals;
       ``(ii) collection of amounts of any deductible and 
     coinsurance applicable with respect to such drugs and 
     biologicals shall be the responsibility of such contractor 
     and shall not be collected unless the drug or biological is 
     administered to the individual involved; and
       ``(iii) the payment under this section (and related amounts 
     of any applicable deductible and coinsurance) for such drugs 
     and biologicals--

       ``(I) shall be made only to such contractor; and
       ``(II) shall be conditioned upon the administration of such 
     drugs and biologicals.

       ``(B) Process for adjustments.--The Secretary shall provide 
     a process for adjustments to payments in the case in which 
     payment is made for drugs and biologicals which were billed 
     at the time of dispensing but which were not actually 
     administered.
       ``(C) Information for purposes of cost-sharing.--The 
     Secretary shall provide a process by which physicians submit 
     information to contractors for purposes of the collection of 
     any applicable deductible or coinsurance amounts under 
     subparagraph (A)(ii).
       ``(4) Contract required.--Payment may not be made under 
     this part for competitively biddable drugs and biologicals 
     prescribed by a physician who has elected this section to 
     apply within a category and a competitive acquisition area 
     with respect to which the program applies unless--
       ``(A) the drugs or biologicals are supplied by a contractor 
     with a contract under this section for such category of drugs 
     and biologicals and area; and
       ``(B) the physician has elected such contractor under 
     paragraph (5) for such category and area.
       ``(5) Contractor selection process.--
       ``(A) Annual selection.--
       ``(i) In general.--The Secretary shall provide a process 
     for the selection of a contractor, on an annual basis and in 
     such exigent circumstances as the Secretary may provide and 
     with respect to each category of competitively biddable drugs 
     and biologicals for an area by selecting physicians.
       ``(ii) Timing of selection.--The selection of a contractor 
     under clause (i) shall be made at the time of the election 
     described in section 1847A(a) for this section to apply and 
     shall be coordinated with agreements entered into under 
     section 1842(h).
       ``(B) Information on contractors.--The Secretary shall make 
     available to physicians on an ongoing basis, through a 
     directory posted on the Internet website of the Centers for 
     Medicare & Medicaid Services or otherwise and upon request, a 
     list of the contractors under this section in the different 
     competitive acquisition areas.
       ``(C) Selecting physician defined.--For purposes of this 
     section, the term `selecting physician' means, with respect 
     to a contractor and category and competitive acquisition 
     area, a physician who has elected this section to apply and 
     has selected to apply under this section such contractor for 
     such category and area.
       ``(b) Program Requirements.--
       ``(1) Contract for competitively biddable drugs and 
     biologicals.--The Secretary shall conduct a competition among 
     entities for the acquisition of competitively biddable drugs 
     and biologicals. Notwithstanding any other provision of this 
     title, in the case of a multiple source drug, the Secretary 
     shall conduct such competition among entities for the 
     acquisition of at least one competitively biddable drug and 
     biological within each billing and payment code within each 
     category for each competitive acquisition area.
       ``(2) Conditions for awarding contract.--
       ``(A) In general.--The Secretary may not award a contract 
     to any entity under the competition conducted in a 
     competitive acquisition area pursuant to paragraph (1) with 
     respect to the acquisition of competitively biddable drugs 
     and biologicals within a category unless the Secretary finds 
     that the entity meets all of the following with respect to 
     the contract period involved:
       ``(i) Capacity to supply competitively biddable drug or 
     biological within category.--

       ``(I) In general.--The entity has sufficient arrangements 
     to acquire and to deliver competitively biddable drugs and 
     biologicals within such category in the area specified in the 
     contract.
       ``(II) Shipment methodology.--The entity has arrangements 
     in effect for the shipment at least 5 days each week of 
     competitively biddable drugs and biologicals under the 
     contract and for the timely delivery (including for emergency 
     situations) of such drugs and biologicals in the area under 
     the contract.

       ``(ii) Quality, service, financial performance and solvency 
     standards.--The entity meets quality, service, financial 
     performance, and solvency standards specified by the 
     Secretary, including--

       ``(I) the establishment of procedures for the prompt 
     response and resolution of complaints of physicians and 
     individuals and of inquiries regarding the shipment of 
     competitively biddable drugs and biologicals; and
       ``(II) a grievance and appeals process for the resolution 
     of disputes.

       ``(B) Additional considerations.--The Secretary may refuse 
     to award a contract under this section, and may terminate 
     such a contract, with an entity based upon--
       ``(i) the suspension or revocation, by the Federal 
     Government or a State government, of the entity's license for 
     the distribution of drugs or biologicals (including 
     controlled substances); or
       ``(ii) the exclusion of the entity under section 1128 from 
     participation under this title.
       ``(C) Application of medicare provider ombudsman.--For 
     provision providing for a program-wide Medicare Provider 
     Ombudsman to review complaints, see section 1868(b), as added 
     by section 923 of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003.
       ``(3) Awarding multiple contracts for a category and 
     area.--The Secretary may limit (but not below 2) the number 
     of qualified entities that are awarded such contracts for any 
     category and area. The Secretary shall select among qualified 
     entities based on the following:
       ``(A) The bid prices for competitively biddable drugs and 
     biologicals within the category and area.
       ``(B) Bid price for distribution of such drugs and 
     biologicals.
       ``(C) Ability to ensure product integrity.
       ``(D) Customer service.
       ``(E) Past experience in the distribution of drugs and 
     biologicals, including controlled substances.
       ``(F) Such other factors as the Secretary may specify.
       ``(4) Terms of contracts.--
       ``(A) In general.--A contract entered into with an entity 
     under the competition conducted pursuant to paragraph (1) is 
     subject to terms and conditions that the Secretary may 
     specify consistent with this section.
       ``(B) Period of contracts.--A contract under this section 
     shall be for a term of 3 years, but may be terminated by the 
     Secretary or the entity with appropriate, advance notice.
       ``(C) Integrity of drug and biological distribution 
     system.--A contractor (as defined in subsection (a)(2)(D)) 
     shall--
       ``(i) acquire all drug and biological products it 
     distributes directly from the manufacturer or from a 
     distributor that has acquired the products directly from the 
     manufacturer; and
       ``(ii) comply with any product integrity safeguards as may 
     be determined to be appropriate by the Secretary.
     Nothing in this subparagraph shall be construed to relieve or 
     exempt any contractor from the provisions of the Federal 
     Food, Drug, and Cosmetic Act that relate to the wholesale 
     distribution of prescription drugs or biologicals.
       ``(D) Compliance with code of conduct and fraud and abuse 
     rules.--Under the contract--
       ``(i) the contractor shall comply with a code of conduct, 
     specified or recognized by the Secretary, that includes 
     standards relating to conflicts of interest; and
       ``(ii) the contractor shall comply with all applicable 
     provisions relating to prevention of fraud and abuse, 
     including compliance with applicable guidelines of the 
     Department of Justice and the Inspector General of the 
     Department of Health and Human Services.
       ``(E) Direct delivery of drugs and biologicals to 
     physicians.--Under the contract the contractor shall only 
     supply competitively biddable drugs and biologicals directly 
     to the selecting physicians and not directly to individuals, 
     except under circumstances and settings where an individual 
     currently receives a drug or biological in the individual's 
     home or other non-physician office setting as the Secretary 
     may provide. The contractor shall not deliver drugs and 
     biologicals to a selecting physician except upon receipt of a 
     prescription for such drugs and biologicals, and such 
     necessary data as may be required by the Secretary to carry 
     out this section. This section does not--

[[Page H11925]]

       ``(i) require a physician to submit a prescription for each 
     individual treatment; or
       ``(ii) change a physician's flexibility in terms of writing 
     a prescription for drugs or biologicals for a single 
     treatment or a course of treatment.
       ``(5) Permitting access to drugs and biologicals.--The 
     Secretary shall establish rules under this section under 
     which drugs and biologicals which are acquired through a 
     contractor under this section may be used to resupply 
     inventories of such drugs and biologicals which are 
     administered consistent with safe drug practices and with 
     adequate safeguards against fraud and abuse. The previous 
     sentence shall apply if the physicians can demonstrate to the 
     Secretary all of the following:
       ``(A) The drugs or biologicals are required immediately.
       ``(B) The physician could not have reasonably anticipated 
     the immediate requirement for the drugs or biologicals.
       ``(C) The contractor could not deliver to the physician the 
     drugs or biologicals in a timely manner.
       ``(D) The drugs or biologicals were administered in an 
     emergency situation.
       ``(6) Construction.--Nothing in this section shall be 
     construed as waiving applicable State requirements relating 
     to licensing of pharmacies.
       ``(c) Bidding Process.--
       ``(1) In general.--In awarding a contract for a category of 
     drugs and biologicals in an area under the program, the 
     Secretary shall consider with respect to each entity seeking 
     to be awarded a contract the bid price and the other factors 
     referred to in subsection (b)(3).
       ``(2) Bid defined.--In this section, the term `bid' means 
     an offer to furnish a competitively biddable drug or 
     biological for a particular price and time period.
       ``(3) Bidding on a national or regional basis.--Nothing in 
     this section shall be construed as precluding a bidder from 
     bidding for contracts in all areas of the United States or as 
     requiring a bidder to submit a bid for all areas of the 
     United States.
       ``(4) Uniformity of bids within area.--The amount of the 
     bid submitted under a contract offer for any competitively 
     biddable drug or biological for an area shall be the same for 
     that drug or biological for all portions of that area.
       ``(5) Confidentiality of bids.--The provisions of 
     subparagraph (D) of section 1927(b)(3) shall apply to periods 
     during which a bid is submitted with respect to a 
     competitively biddable drug or biological under this section 
     in the same manner as it applies to information disclosed 
     under such section, except that any reference--
       ``(A) in that subparagraph to a `manufacturer or 
     wholesaler' is deemed a reference to a `bidder' under this 
     section;
       ``(B) in that section to `prices charged for drugs' is 
     deemed a reference to a `bid' submitted under this section; 
     and
       ``(C) in clause (i) of that section to `this section', is 
     deemed a reference to `part B of title XVIII'.
       ``(6) Inclusion of costs.--The bid price submitted in a 
     contract offer for a competitively biddable drug or 
     biological shall--
       ``(A) include all costs related to the delivery of the drug 
     or biological to the selecting physician (or other point of 
     delivery); and
       ``(B) include the costs of dispensing (including shipping) 
     of such drug or biological and management fees, but shall not 
     include any costs related to the administration of the drug 
     or biological, or wastage, spillage, or spoilage.
       ``(7) Price adjustments during contract period; disclosure 
     of costs.--Each contract awarded shall provide for--
       ``(A) disclosure to the Secretary the contractor's 
     reasonable, net acquisition costs for periods specified by 
     the Secretary, not more often than quarterly, of the 
     contract; and
       ``(B) appropriate price adjustments over the period of the 
     contract to reflect significant increases or decreases in a 
     contractor's reasonable, net acquisition costs, as so 
     disclosed.
       ``(d) Computation of Payment Amounts.--
       ``(1) In general.--Payment under this section for 
     competitively biddable drugs or biologicals shall be based on 
     bids submitted and accepted under this section for such drugs 
     or biologicals in an area. Based on such bids the Secretary 
     shall determine a single payment amount for each 
     competitively biddable drug or biological in the area.
       ``(2) Special rules.--The Secretary shall establish rules 
     regarding the use under this section of the alternative 
     payment amount provided under section 1847A to the use of a 
     price for specific competitively biddable drugs and 
     biologicals in the following cases:
       ``(A) New drugs and biologicals.--A competitively biddable 
     drug or biological for which a payment and billing code has 
     not been established.
       ``(B) Other cases.--Such other exceptional cases as the 
     Secretary may specify in regulations.
       ``(e) Cost-sharing.--
       ``(1) Application of coinsurance.--Payment under this 
     section for competitively biddable drugs and biologicals 
     shall be in an amount equal to 80 percent of the payment 
     basis described in subsection (d)(1).
       ``(2) Deductible.--Before applying paragraph (1), the 
     individual shall be required to meet the deductible described 
     in section 1833(b).
       ``(3) Collection.--Such coinsurance and deductible shall be 
     collected by the contractor that supplies the drug or 
     biological involved. Subject to subsection (a)(3)(B), such 
     coinsurance and deductible may be collected in a manner 
     similar to the manner in which the coinsurance and deductible 
     are collected for durable medical equipment under this part.
       ``(f) Special Payment Rules.--
       ``(1) Use in exclusion cases.--If the Secretary excludes a 
     drug or biological (or class of drugs or biologicals) under 
     subsection (a)(1)(D), the Secretary may provide for payment 
     to be made under this part for such drugs and biologicals (or 
     class) using the payment methodology under section 1847A.
       ``(2) Application of requirement for assignment.--For 
     provision requiring assignment of claims for competitively 
     biddable drugs and biologicals, see section 1842(o)(3).
       ``(3) Protection for beneficiary in case of medical 
     necessity denial.--For protection of individuals against 
     liability in the case of medical necessity determinations, 
     see section 1842(b)(3)(B)(ii)(III).
       ``(g) Judicial Review.--There shall be no administrative or 
     judicial review under section 1869, section 1878, or 
     otherwise, of--
       ``(1) the establishment of payment amounts under subsection 
     (d)(1);
       ``(2) the awarding of contracts under this section;
       ``(3) the establishment of competitive acquisition areas 
     under subsection (a)(2)(C);
       ``(4) the phased-in implementation under subsection 
     (a)(1)(B);
       ``(5) the selection of categories of competitively biddable 
     drugs and biologicals for competitive acquisition under such 
     subsection or the selection of a drug in the case of multiple 
     source drugs; or
       ``(6) the bidding structure and number of contractors 
     selected under this section.''.
       (2) Report.--Not later than July 1, 2008, the Secretary 
     shall submit to Congress a report on the program conducted 
     under section 1847B of the Social Security Act, as added by 
     paragraph (1). Such report shall include information on 
     savings, reductions in cost-sharing, access to competitively 
     biddable drugs and biologicals, the range of choices of 
     contractors available to physicians, the satisfaction of 
     physicians and of individuals enrolled under this part, and 
     information comparing prices for drugs and biologicals under 
     such section and section 1847A of such Act, as added by 
     subsection (c).
       (e) Adjustments to Payment Amounts for Administration of 
     Drugs and Biologicals.--
       (1) Items and services relating to furnishing of blood 
     clotting factors.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
     amended by subsection (b)(2), is amended by adding at the end 
     the following new paragraph:
       ``(5)(A) Subject to subparagraph (B), in the case of 
     clotting factors furnished on or after January 1, 2005, 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', provide for a separate payment, to the 
     entity which furnishes to the patient blood clotting factors, 
     for items and services related to the furnishing of such 
     factors in an amount that the Secretary determines to be 
     appropriate. Such payment amount may take into account any or 
     all of the following:
       ``(i) The mixing (if appropriate) and delivery of factors 
     to an individual, including special inventory management and 
     storage requirements.
       ``(ii) Ancillary supplies and patient training necessary 
     for the self-administration of such factors.
       ``(B) In determining the separate payment amount under 
     subparagraph (A) for blood clotting factors furnished in 
     2005, the Secretary shall ensure that the total amount of 
     payments under this part (as estimated by the Secretary) for 
     such factors under paragraph (1)(C) 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 303 of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003 had not been 
     enacted.
       ``(C) The separate payment amount under this subparagraph 
     for blood clotting factors furnished in 2006 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 in the consumer price index for medical 
     care for the 12-month period ending with June of the previous 
     year.''.
       (2) Pharmacy supplying fee for certain drugs and 
     biologicals.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
     previously amended, is amended by adding at the end the 
     following new paragraph:
       ``(6) 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, the 
     Secretary shall pay to the pharmacy a supplying fee for such 
     a drug determined appropriate by the Secretary (less the 
     applicable deductible and coinsurance amounts).''.
       (f) Linkage of Revised Drug Payments and Increases for Drug 
     Administration.--The Secretary shall not implement the 
     revisions in payment amounts for drugs and biologicals 
     administered by physicians as a result of the amendments made 
     by subsection (b) with respect to 2004 unless the Secretary 
     concurrently makes adjustments to the practice expense 
     payment adjustment under the amendments made by subsection 
     (a).
       (g) Prohibition of Administrative and Judicial Review.--
       (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
     previously amended, is amended by adding at the end the 
     following new paragraph:
       ``(7) 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 (4) through (6).''.
       (2) Physician fee schedule.--Section 1848(i)(1)(B) (42 
     U.S.C. 1395w-4(i)(1)(B)) is amended by striking ``subsection 
     (c)(2)(F)'' and inserting ``subsections (c)(2)(F), (c)(2)(H), 
     and (c)(2)(I)''.
       (3) Multiple chemotherapy agents, other services currently 
     on the non-physician work pool, and transitional 
     adjustment.--

[[Page H11926]]

     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) through (4) of subsection (a).
       (h) Continuation of Payment Methodology for 
     Radiopharmaceuticals.--Nothing in the amendments made by this 
     section shall be construed as changing the payment 
     methodology under part B of title XVIII of the Social 
     Security Act for radiopharmaceuticals, including the use by 
     carriers of invoice pricing methodology.
       (i) Conforming Amendments.--
       (1) Application of asp and competitive bidding.--Section 
     1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended by adding at 
     the end the following: ``This paragraph shall not apply in 
     the case of payment under paragraph (1)(C).''.
       (2) No change in coverage basis.--Section 1861(s)(2)(A) (42 
     U.S.C. 1395x(s)(2)(A)) is amended by inserting ``(or would 
     have been so included but for the application of section 
     1847B)'' after ``included in the physicians' bills''.
       (3) Payment.--(A) Section 1833(a)(1)(S) (42 U.S.C. 
     1395l(a)(1)(S)) is amended by inserting ``(or, if applicable, 
     under section 1847, 1847A, or 1847B)'' after ``1842(o)''.
       (B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is amended--
       (i) by striking ``and'' at the end of subparagraph (H);
       (ii) by striking the semicolon at the end of subparagraph 
     (I) and inserting ``, and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(J) in the case of a drug or biological specified in 
     section 1847A(c)(6)(C) for which payment is made under part B 
     that is furnished in a competitive area under section 1847B, 
     that is not furnished by an entity under a contract under 
     such section;''.
       (4) Consolidated reporting of pricing information.--Section 
     1927 (42 U.S.C. 1396r-8) is amended--
       (A) in subsection (a)(1), by inserting ``or under part B of 
     title XVIII'' after ``section 1903(a)'';
       (B) in subsection (b)(3)(A)--
       (i) in clause (i), by striking ``and'' at the end and 
     inserting a semicolon;
       (ii) in clause (ii), by striking the period and inserting 
     ``; and''; and
       (iii) by adding at the end the following:
       ``(iii) for calendar quarters beginning on or after January 
     1, 2004, in conjunction with reporting required under clause 
     (i) and by National Drug Code (including package size)--

       ``(I) the manufacturer's average sales price (as defined in 
     section 1847A(c)) and the total number of units specified 
     under section 1847A(b)(2)(A);
       ``(II) if required to make payment under section 1847A, the 
     manufacturer's wholesale acquisition cost, as defined in 
     subsection (c)(6) of such section; and
       ``(III) information on those sales that were made at a 
     nominal price or otherwise described in section 
     1847A(c)(2)(B);

     for a drug or biological described in subparagraph (C), (D), 
     (E), or (G) of section 1842(o)(1) or section 
     1881(b)(13)(A)(ii).

     Information reported under this subparagraph is subject to 
     audit by the Inspector General of the Department of Health 
     and Human Services.'';
       (C) in subsection (b)(3)(B)--
       (i) in the heading, by inserting ``and manufacturer's 
     average sales price'' after ``price''; and
       (ii) by inserting ``and manufacturer's average sales prices 
     (including wholesale acquisition cost) if required to make 
     payment'' after ``manufacturer prices''; and
       (D) in subsection (b)(3)(D)--
       (i) in the matter preceding clause (i), by inserting 
     ``(other than the wholesale acquisition cost for purposes of 
     carrying out section 1847A)'' after ``subsection 
     (a)(6)(A)(ii)''; and
       (ii) in clause (i), by inserting ``, to carry out section 
     1847A (including the determination and implementation of the 
     payment amount), or to carry out section 1847B'' after ``this 
     section''.
       (5) Implementation.--The provisions of chapter 8 of title 
     5, United States Code, shall not apply with respect to 
     regulations implementing the amendments made by subsections 
     (a), (b), and (e)(3), to regulations implementing section 
     304, and to regulations implementing the amendment made by 
     section 305(a), insofar as such regulations apply in 2004.
       (6) Repeal of study.--Section 4556 of the Balanced Budget 
     Act of 1997 (42 U.S.C. 1395u note) is amended by striking 
     subsection (c).
       (j) Application to Certain Physician Specialties.--Insofar 
     as the amendments made by this section apply to payments for 
     drugs or biologicals and drug administration services 
     furnished by physicians, such amendments shall only apply to 
     physicians in the specialties of hematology, hematology/
     oncology, and medical oncology under title XVIII of the 
     Social Security Act.

     SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR 
                   COVERED OUTPATIENT DRUGS AND BIOLOGICALS TO 
                   OTHER PHYSICIAN SPECIALTIES.

       Notwithstanding section 303(j), the amendments made by 
     section 303 shall also apply to payments for drugs or 
     biologicals and drug administration services furnished by 
     physicians in specialties other than the specialties of 
     hematology, hematology/oncology, and medical oncology.

     SEC. 305. PAYMENT FOR INHALATION DRUGS.

       (a) In General.--Section 1842(o)(1)(G) (42 U.S.C. 
     1395u(o)(1)(G)), as added by section 303(b), is amended to 
     read as follows:
       ``(G) In the case of inhalation drugs or biologicals 
     furnished through durable medical equipment covered under 
     section 1861(n) that are furnished--
       ``(i) in 2004, the amount provided under paragraph (4) for 
     the drug or biological; and
       ``(ii) in 2005 and subsequent years, the amount provided 
     under section 1847A for the drug or biological.''.
       (b) GAO Study of Medicare Payment for Inhalation Therapy.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study to examine the adequacy of current 
     reimbursements for inhalation therapy under the medicare 
     program.
       (2) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1).

     SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT 
                   CONTRACTORS.

       (a) In General.--The Secretary shall conduct a 
     demonstration project under this section (in this section 
     referred to as the ``project'') to demonstrate the use of 
     recovery audit contractors under the Medicare Integrity 
     Program in identifying underpayments and overpayments and 
     recouping overpayments under the medicare program for 
     services for which payment is made under part A or B of title 
     XVIII of the Social Security Act. Under the project--
       (1) payment may be made to such a contractor on a 
     contingent basis;
       (2) such percentage as the Secretary may specify of the 
     amount recovered shall be retained by the Secretary and shall 
     be available to the program management account of the Centers 
     for Medicare & Medicaid Services; and
       (3) the Secretary shall examine the efficacy of such use 
     with respect to duplicative payments, accuracy of coding, and 
     other payment policies in which inaccurate payments arise.
       (b) Scope and Duration.--
       (1) Scope.--The project shall cover at least 2 States that 
     are among the States with--
       (A) the highest per capita utilization rates of medicare 
     services, and
       (B) at least 3 contractors.
       (2) Duration.--The project shall last for not longer than 3 
     years.
       (c) Waiver.--The Secretary shall waive such provisions of 
     title XVIII of the Social Security Act as may be necessary to 
     provide for payment for services under the project in 
     accordance with subsection (a).
       (d) Qualifications of Contractors.--
       (1) In general.--The Secretary shall enter into a recovery 
     audit contract under this section with an entity only if the 
     entity has staff that has the appropriate clinical knowledge 
     of and experience with the payment rules and regulations 
     under the medicare program or the entity has or will contract 
     with another entity that has such knowledgeable and 
     experienced staff.
       (2) Ineligibility of certain contractors.--The Secretary 
     may not enter into a recovery audit contract under this 
     section with an entity to the extent that the entity is a 
     fiscal intermediary under section 1816 of the Social Security 
     Act (42 U.S.C. 1395h), a carrier under section 1842 of such 
     Act (42 U.S.C. 1395u), or a Medicare Administrative 
     Contractor under section 1874A of such Act.
       (3) Preference for entities with demonstrated 
     proficiency.--In awarding contracts to recovery audit 
     contractors under this section, the Secretary shall give 
     preference to those risk entities that the Secretary 
     determines have demonstrated more than 3 years direct 
     management experience and a proficiency for cost control or 
     recovery audits with private insurers, health care providers, 
     health plans, or under the medicaid program under title XIX 
     of the Social Security Act.
       (e) Construction Relating to Conduct of Investigation of 
     Fraud.--A recovery of an overpayment to a provider by a 
     recovery audit contractor shall not be construed to prohibit 
     the Secretary or the Attorney General from investigating and 
     prosecuting, if appropriate, allegations of fraud or abuse 
     arising from such overpayment.
       (f) Report.--The Secretary shall submit to Congress a 
     report on the project not later than 6 months after the date 
     of its completion. Such reports shall include information on 
     the impact of the project on savings to the medicare program 
     and recommendations on the cost-effectiveness of extending or 
     expanding the project.information' means information about a 
     conviction for a relevant crime or a finding of patient or 
     resident abuse.

     SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND 
                   CHECKS ON DIRECT PATIENT ACCESS EMPLOYEES OF 
                   LONG-TERM CARE FACILITIES OR PROVIDERS.

       (a) Authority To Conduct Program.--The Secretary, in 
     consultation with the Attorney General, shall establish a 
     pilot program to identify efficient, effective, and 
     economical procedures for long term care facilities or 
     providers to conduct background checks on prospective direct 
     patient access employees.
       (b) Requirements.--
       (1) In general.--Under the pilot program, a long-term care 
     facility or provider in a participating State, prior to 
     employing a direct patient access employee that is first 
     hired on or after the commencement date of the pilot program 
     in the State, shall conduct a background check on the 
     employee in accordance with such procedures as the 
     participating State shall establish.
       (2) Procedures.--
       (A) In general.--The procedures established by a 
     participating State under paragraph (1) should be designed 
     to--
       (i) give a prospective direct access patient employee 
     notice that the long-term care facility or provider is 
     required to perform background checks with respect to new 
     employees;
       (ii) require, as a condition of employment, that the 
     employee--

       (I) provide a written statement disclosing any 
     disqualifying information;

[[Page H11927]]

       (II) provide a statement signed by the employee authorizing 
     the facility to request national and State criminal history 
     background checks;
       (III) provide the facility with a rolled set of the 
     employee's fingerprints; and
       (IV) provide any other identification information the 
     participating State may require;

       (iii) require the facility or provider to check any 
     available registries that would be likely to contain 
     disqualifying information about a prospective employee of a 
     long-term care facility or provider; and
       (iv) permit the facility or provider to obtain State and 
     national criminal history background checks on the 
     prospective employee through a 10-fingerprint check that 
     utilizes State criminal records and the Integrated Automated 
     Fingerprint Identification System of the Federal Bureau of 
     Investigation.
       (B) Elimination of unnecessary checks.--The procedures 
     established by a participating State under paragraph (1) 
     shall permit a long-term care facility or provider to 
     terminate the background check at any stage at which the 
     facility or provider obtains disqualifying information 
     regarding a prospective direct patient access employee.
       (3) Prohibition on hiring of abusive workers.--
       (A) In general.--A long-term care facility or provider may 
     not knowingly employ any direct patient access employee who 
     has any disqualifying information.
       (B) Provisional employment.--
       (i) In general.--Under the pilot program, a participating 
     State may permit a long-term care facility or provider to 
     provide for a provisional period of employment for a direct 
     patient access employee pending completion of a background 
     check, subject to such supervision during the employee's 
     provisional period of employment as the participating State 
     determines appropriate.
       (ii) Special consideration for certain facilities and 
     providers.--In determining what constitutes appropriate 
     supervision of a provisional employee, a participating State 
     shall take into account cost or other burdens that would be 
     imposed on small rural long-term care facilities or 
     providers, as well as the nature of care delivered by such 
     facilities or providers that are home health agencies or 
     providers of hospice care.
       (4) Use of information; immunity from liability.--
       (A) Use of information.--A participating State shall ensure 
     that a long-term care facility or provider that obtains 
     information about a direct patient access employee pursuant 
     to a background check uses such information only for the 
     purpose of determining the suitability of the employee for 
     employment.
       (B) Immunity from liability.--A participating State shall 
     ensure that a long-term care facility or provider that, in 
     denying employment for an individual selected for hire as a 
     direct patient access employee (including during any period 
     of provisional employment), reasonably relies upon 
     information obtained through a background check of the 
     individual, shall not be liable in any action brought by the 
     individual based on the employment determination resulting 
     from the information.
       (5) Agreements with employment agencies.--A participating 
     State may establish procedures for facilitating the conduct 
     of background checks on prospective direct patient access 
     employees that are hired by a long-term care facility or 
     provider through an employment agency (including a temporary 
     employment agency).
       (6) Penalties.--A participating State may impose such 
     penalties as the State determines appropriate to enforce the 
     requirements of the pilot program conducted in that State.
       (c) Participating States.--
       (1) In general.--The Secretary shall enter into agreements 
     with not more than 10 States to conduct the pilot program 
     under this section in such States.
       (2) Requirements for states.--An agreement entered into 
     under paragraph (1) shall require that a participating 
     State--
       (A) be responsible for monitoring compliance with the 
     requirements of the pilot program;
       (B) have procedures by which a provisional employee or an 
     employee may appeal or dispute the accuracy of the 
     information obtained in a background check performed under 
     the pilot program; and
       (C) agree to--
       (i) review the results of any State or national criminal 
     history background checks conducted regarding a prospective 
     direct patient access employee to determine whether the 
     employee has any conviction for a relevant crime;
       (ii) immediately report to the entity that requested the 
     criminal history background checks the results of such 
     review; and
       (iii) in the case of an employee with a conviction for a 
     relevant crime that is subject to reporting under section 
     1128E of the Social Security Act (42 U.S.C. 1320a-7e), report 
     the existence of such conviction to the database established 
     under that section.
       (3) Application and selection criteria.--
       (A) Application.--A State seeking to participate in the 
     pilot program established under this section, shall submit an 
     application to the Secretary containing such information and 
     at such time as the Secretary may specify.
       (B) Selection criteria.--
       (i) In general.--In selecting States to participate in the 
     pilot program, the Secretary shall establish criteria to 
     ensure--

       (I) geographic diversity;
       (II) the inclusion of a variety of long-term care 
     facilities or providers;
       (III) the evaluation of a variety of payment mechanisms for 
     covering the costs of conducting the background checks 
     required under the pilot program; and
       (IV) the evaluation of a variety of penalties (monetary and 
     otherwise) used by participating States to enforce the 
     requirements of the pilot program in such States.

       (ii) Additional criteria.--The Secretary shall, to the 
     greatest extent practicable, select States to participate in 
     the pilot program in accordance with the following:

       (I) At least one participating State should permit long-
     term care facilities or providers to provide for a 
     provisional period of employment pending completion of a 
     background check and at least one such State should not 
     permit such a period of employment.
       (II) At least one participating State should establish 
     procedures under which employment agencies (including 
     temporary employment agencies) may contact the State directly 
     to conduct background checks on prospective direct patient 
     access employees.
       (III) At least one participating State should include 
     patient abuse prevention training (including behavior 
     training and interventions) for managers and employees of 
     long-term care facilities and providers as part of the pilot 
     program conducted in that State.

       (iii) Inclusion of states with existing programs.--Nothing 
     in this section shall be construed as prohibiting any State 
     which, as of the date of the enactment of this Act, has 
     procedures for conducting background checks on behalf of any 
     entity described in subsection (g)(5) from being selected to 
     participate in the pilot program conducted under this 
     section.
       (d) Payments.--Of the amounts made available under 
     subsection (f) to conduct the pilot program under this 
     section, the Secretary shall--
       (1) make payments to participating States for the costs of 
     conducting the pilot program in such States; and
       (2) reserve up to 4 percent of such amounts to conduct the 
     evaluation required under subsection (e).
       (e) Evaluation.--The Secretary, in consultation with the 
     Attorney General, shall conduct by grant, contract, or 
     interagency agreement an evaluation of the pilot program 
     conducted under this section. Such evaluation shall--
       (1) review the various procedures implemented by 
     participating States for long-term care facilities or 
     providers to conduct background checks of direct patient 
     access employees and identify the most efficient, effective, 
     and economical procedures for conducting such background 
     checks;
       (2) assess the costs of conducting such background checks 
     (including start-up and administrative costs);
       (3) consider the benefits and problems associated with 
     requiring employees or facilities or providers to pay the 
     costs of conducting such background checks;
       (4) consider whether the costs of conducting such 
     background checks should be allocated between the medicare 
     and medicaid programs and if so, identify an equitable 
     methodology for doing so;
       (5) determine the extent to which conducting such 
     background checks leads to any unintended consequences, 
     including a reduction in the available workforce for such 
     facilities or providers;
       (6) review forms used by participating States in order to 
     develop, in consultation with the Attorney General, a model 
     form for such background checks;
       (7) determine the effectiveness of background checks 
     conducted by employment agencies; and
       (8) recommend appropriate procedures and payment mechanisms 
     for implementing a national criminal background check program 
     for such facilities and providers.
       (f) Funding.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Secretary to carry out the pilot program under this section 
     for the period of fiscal years 2004 through 2007, 
     $25,000,000.
       (g) Definitions.--In this section:
       (1) Conviction for a relevant crime.--The term ``conviction 
     for a relevant crime'' means any Federal or State criminal 
     conviction for--
       (A) any offense described in section 1128(a) of the Social 
     Security Act (42 U.S.C. 1320a-7); and
       (B) such other types of offenses as a participating State 
     may specify for purposes of conducting the pilot program in 
     such State.
       (2) Disqualifying information.--The term ``disqualifying 
     information'' means a conviction for a relevant crime or a 
     finding of patient or resident abuse.
       (3) Finding of patient or resident abuse.--The term 
     ``finding of patient or resident abuse'' means any 
     substantiated finding by a State agency under section 
     1819(g)(1)(C) or 1919(g)(1)(C) of the Social Security Act (42 
     U.S.C. 1395i-3(g)(1)(C), 1396r(g)(1)(C)) or a Federal agency 
     that a direct patient access employee has committed--
       (A) an act of patient or resident abuse or neglect or a 
     misappropriation of patient or resident property; or
       (B) such other types of acts as a participating State may 
     specify for purposes of conducting the pilot program in such 
     State.
       (4) Direct patient access employee.--The term ``direct 
     patient access employee'' means any individual (other than a 
     volunteer) that has access to a patient or resident of a 
     long-term care facility or provider through employment or 
     through a contract with such facility or provider, as 
     determined by a participating State for purposes of 
     conducting the pilot program in such State.
       (5) Long-term care facility or provider.--
       (A) In general.--The term ``long-term care facility or 
     provider'' means the following facilities or providers which 
     receive payment for services under title XVIII or XIX of the 
     Social Security Act:
       (i) A skilled nursing facility (as defined in section 
     1819(a) of the Social Security Act) (42 U.S.C. 1395i-3(a)).

[[Page H11928]]

       (ii) A nursing facility (as defined in section 1919(a) in 
     such Act) (42 U.S.C. 1396r(a)).
       (iii) A home health agency.
       (iv) A provider of hospice care (as defined in section 
     1861(dd)(1) of such Act) (42 U.S.C. 1395x(dd)(1)).
       (v) A long-term care hospital (as described in section 
     1886(d)(1)(B)(iv) of such Act) (42 U.S.C. 
     1395ww(d)(1)(B)(iv)).
       (vi) A provider of personal care services.
       (vii) A residential care provider that arranges for, or 
     directly provides, long-term care services.
       (viii) An intermediate care facility for the mentally 
     retarded (as defined in section 1905(d) of such Act) 42 
     U.S.C. 1396d(d)).
       (B) Additional facilities or providers.--During the first 
     year in which a pilot program under this section is conducted 
     in a participating State, the State may expand the list of 
     facilities or providers under subparagraph (A) (on a phased-
     in basis or otherwise) to include such other facilities or 
     providers of long-term care services under such titles as the 
     participating State determines appropriate.
       (C) Exceptions.--Such term does not include--
       (i) any facility or entity that provides, or is a provider 
     of, services described in subparagraph (A) that are 
     exclusively provided to an individual pursuant to a self-
     directed arrangement that meets such requirements as the 
     participating State may establish in accordance with guidance 
     from the Secretary; or
       (ii) any such arrangement that is obtained by a patient or 
     resident functioning as an employer.
       (6) Participating state.--The term ``participating State'' 
     means a State with an agreement under subsection (c)(1).

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

     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 subclause (II), for discharges''; and
       (2) by adding at the end the following new subclause:
       ``(II) For discharges occurring in a fiscal year (beginning 
     with fiscal year 2004), the Secretary shall compute a 
     standardized amount for hospitals located in any area within 
     the United States and within each region equal to the 
     standardized amount computed for the previous fiscal year 
     under this subparagraph for hospitals located in a large 
     urban area (or, beginning with fiscal year 2005, for all 
     hospitals in the previous fiscal year) increased by the 
     applicable percentage increase under 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'';
       (C) in clause (i)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2004,'' 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 2004,'' 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 2003, 
     for hospitals located in all areas, to the product of--
       ``(I) the applicable 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,''.
       (3) Additional technical amendment.--Section 
     1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is 
     amended by striking ``in an other urban area'' and inserting 
     ``in an urban area''.
       (c) Equalizing Urban and Rural Standardized Payment Amounts 
     Under the Medicare Inpatient Hospital Prospective Payment 
     System for Hospitals in Puerto Rico.--
       (1) In general.--Section 1886(d)(9)(A) (42 U.S.C. 
     1395ww(d)(9)(A)), as amended by section 504, is amended--
       (A) in clause (i), by striking ``and'' after the comma at 
     the end; and
       (B) by striking clause (ii) and inserting the following new 
     clause:
       ``(ii) the applicable Federal percentage (specified in 
     subparagraph (E)) of--
       ``(I) for discharges beginning in a fiscal year beginning 
     on or after October 1, 1997, and before October 1, 2003, the 
     discharge-weighted average of--
       ``(aa) the national adjusted DRG prospective payment rate 
     (determined under paragraph (3)(D)) for hospitals located in 
     a large urban area,
       ``(bb) such rate for hospitals located in other urban 
     areas, and
       ``(cc) such rate for hospitals located in a rural area,

     for such discharges, adjusted in the manner provided in 
     paragraph (3)(E) for different area wage levels; and
       ``(II) for discharges in a fiscal year beginning on or 
     after October 1, 2003, the national DRG prospective payment 
     rate determined under paragraph (3)(D)(iii) for hospitals 
     located in any area for such discharges, adjusted in the 
     manner provided in paragraph (3)(E) for different area wage 
     levels.

     As used in this section, the term `subsection (d) Puerto Rico 
     hospital' means a hospital that is located in Puerto Rico and 
     that would be a subsection (d) hospital (as defined in 
     paragraph (1)(B)) if it were located in one of the 50 
     States.''.
       (2) Application of puerto rico standardized amount based on 
     large urban areas.--Section 1886(d)(9)(C) (42 U.S.C. 
     1395ww(d)(9)(C)) is amended--
       (A) in clause (i)--
       (i) by striking ``(i) The Secretary'' and inserting 
     ``(i)(I) For discharges in a fiscal year after fiscal year 
     1988 and before fiscal year 2004, the Secretary''; and
       (ii) by adding at the end the following new subclause:
       ``(II) For discharges occurring in a fiscal year (beginning 
     with fiscal year 2004), the Secretary shall compute an 
     average standardized amount for hospitals located in any area 
     of Puerto Rico that is equal to the average standardized 
     amount computed under subclause (I) for fiscal year 2003 for 
     hospitals in a large urban area (or, beginning with fiscal 
     year 2005, for all hospitals in the previous fiscal year) 
     increased by the applicable percentage increase under 
     subsection (b)(3)(B) for the fiscal year involved.'';
       (B) in clause (ii), by inserting ``(or for fiscal year 2004 
     and thereafter, the average standardized amount)'' after 
     ``each of the average standardized amounts''; and
       (C) in clause (iii)(I), by striking ``for hospitals located 
     in an urban or rural area, respectively''.
       (d) Implementation.--
       (1) In general.--The amendments made by subsections (a), 
     (b), and (c)(1) of this section shall have no effect on the 
     authority of the Secretary, under subsection (b)(2) of 
     section 402 of Public Law 108-89, to delay implementation of 
     the extension of provisions equalizing urban and rural 
     standardized inpatient hospital payments under subsection (a) 
     of such section 402.
       (2) Application of puerto rico standardized amount based on 
     large urban areas.--The authority of the Secretary referred 
     to in paragraph (1) shall apply with respect to the 
     amendments made by subsection (c)(2) of this section in the 
     same manner as that authority applies with respect to the 
     extension of provisions equalizing urban and rural 
     standardized inpatient hospital payments under subsection (a) 
     of such section 402, except that any reference in subsection 
     (b)(2)(A) of such section 402 is deemed to be a reference to 
     April 1, 2004.

     SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) 
                   TREATMENT FOR RURAL HOSPITALS AND URBAN 
                   HOSPITALS WITH FEWER THAN 100 BEDS.

       (a) Doubling the Cap.--Section 1886(d)(5)(F) (42 U.S.C. 
     1395ww(d)(5)(F)) is amended by adding at the end the 
     following new clause:
       ``(xiv)(I) In the case of discharges occurring on or after 
     April 1, 2004, subject to subclause (II), there shall be 
     substituted for the disproportionate share adjustment 
     percentage otherwise determined under clause (iv) (other than 
     subclause (I)) or under clause (viii), (x), (xi), (xii), or 
     (xiii), the disproportionate share adjustment percentage 
     determined under clause (vii) (relating to large, urban 
     hospitals).
       ``(II) Under subclause (I), the disproportionate share 
     adjustment percentage shall not exceed 12 percent for a 
     hospital that is not classified as a rural referral center 
     under subparagraph (C).''.
       (b) Conforming Amendments.--Section 1886(d) (42 U.S.C. 
     1395ww(d)) is amended--
       (1) in paragraph (5)(F)--
       (A) in each of subclauses (II), (III), (IV), (V), and (VI) 
     of clause (iv), by inserting ``subject to clause (xiv) and'' 
     before ``for discharges occurring'';
       (B) in clause (viii), by striking ``The formula'' and 
     inserting ``Subject to clause (xiv), the formula''; and
       (C) in each of clauses (x), (xi), (xii), and (xiii), by 
     striking ``For purposes'' and inserting ``Subject to clause 
     (xiv), for purposes''; and
       (2) in paragraph (2)(C)(iv)--
       (A) by striking ``or'' before ``the enactment of section 
     303''; and
       (B) by inserting before the period at the end the 
     following: ``, or the enactment of section 402(a)(1) of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003''.

     SEC. 403. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL 
                   PROSPECTIVE PAYMENT SYSTEM WAGE INDEX TO REVISE 
                   THE LABOR-RELATED SHARE OF SUCH INDEX.

       (a) Adjustment.--
       (1) In general.--Section 1886(d)(3)(E) (42 U.S.C. 
     1395ww(d)(3)(E)) is amended--
       (A) by striking ``wage levels.--The Secretary'' and 
     inserting ``wage levels.--
       ``(i) In general.--Except as provided in clause (ii), the 
     Secretary''; and
       (B) by adding at the end the following new clause:
       ``(ii) Alternative proportion to be adjusted beginning in 
     fiscal year 2005.--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), unless the application of this clause

[[Page H11929]]

     would result in lower payments to a hospital than would 
     otherwise be made.''.
       (2) 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 403(a)(1) 
     of the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003 had not been enacted.''.
       (b) Application to Puerto Rico Hospitals.--Section 
     1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is 
     amended--
       (1) by inserting ``(I)'' after ``(iv)'';
       (2) by striking ``paragraph (3)(E)'' and inserting 
     ``paragraph (3)(E)(i)''; and
       (3) by adding at the end the following new 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), 
     unless the application of this subclause would result in 
     lower payments to a hospital than would otherwise be made.''.

     SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL 
                   MARKET BASKET.

       (a) More Frequent Updates in Weights.--After revising the 
     weights used in the hospital market basket under section 
     1886(b)(3)(B)(iii) of the Social Security Act (42 U.S.C. 
     1395ww(b)(3)(B)(iii)) to reflect the most current data 
     available, the Secretary shall establish a frequency for 
     revising such weights, including the labor share, in such 
     market basket to reflect the most current data available more 
     frequently than once every 5 years.
       (b) Incorporation of Explanation in Rulemaking.--The 
     Secretary shall include in the publication of the final rule 
     for payment for inpatient hospital services under section 
     1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) for 
     fiscal year 2006, an explanation of the reasons for, and 
     options considered, in determining frequency established 
     under subsection (a).

     SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

       (a) Increase in Payment Amounts.--
       (1) In general.--Sections 1814(l), 1834(g)(1), and 
     1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 
     1395tt(a)(3)) are each amended by inserting ``equal to 101 
     percent of'' before ``the reasonable costs''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to payments for services furnished during cost 
     reporting periods beginning on or after January 1, 2004.
       (b) 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--
       (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 with respect to costs incurred for services 
     furnished on or after January 1, 2005.
       (c) Authorization of Periodic Interim Payment (PIP).--
       (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
     is amended--
       (A) in the matter before subparagraph (A), by inserting ``, 
     in the cases described in subparagraphs (A) through (D)'' 
     after ``1986'';
       (B) by striking ``and'' at the end of subparagraph (C);
       (C) by adding ``and'' at the end of subparagraph (D); and
       (D) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) inpatient critical access hospital services;''.
       (2) Development of alternative timing methods of periodic 
     interim payments.--With respect to periodic interim payments 
     to critical access hospitals for inpatient critical access 
     hospital services under section 1815(e)(2)(E) of the Social 
     Security Act, as added by paragraph (1), the Secretary shall 
     develop alternative methods for the timing of such payments.
       (3) Authorization of pip.--The amendments made by paragraph 
     (1) shall apply to payments made on or after July 1, 2004.
       (d) Condition for Application of Special Professional 
     Service Payment Adjustment.--
       (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) 
     is amended by adding after and below subparagraph (B) the 
     following:
     ``The Secretary may not require, as a condition for applying 
     subparagraph (B) with respect to a critical access hospital, 
     that each physician or other practitioner providing 
     professional services in the hospital must assign billing 
     rights with respect to such services, except that such 
     subparagraph shall not apply to those physicians and 
     practitioners who have not assigned such billing rights.''.
       (2) Effective date.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendment made by paragraph (1) shall apply to cost 
     reporting periods beginning on or after July 1, 2004.
       (B) Rule of application.--In the case of a critical access 
     hospital that made an election under section 1834(g)(2) of 
     the Social Security Act (42 U.S.C. 1395m(g)(2)) before 
     November 1, 2003, the amendment made by paragraph (1) shall 
     apply to cost reporting periods beginning on or after July 1, 
     2001.
       (e) Revision of Bed Limitation for Hospitals.--
       (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 
     1395i-4(c)(2)(B)(iii)) is amended by striking ``15 (or, in 
     the case of a facility under an agreement described in 
     subsection (f), 25)'' and inserting ``25''.
       (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 apply to designations made before, on, or after January 
     1, 2004, but any election made pursuant to regulations 
     promulgated to carry out such amendments shall only apply 
     prospectively.
       (f) Provisions Relating to FLEX Grants.--
       (1) Additional 4-year period of funding.--Section 1820(j) 
     (42 U.S.C. 1395i-4(j)) is amended by inserting before the 
     period at the end the following: ``, and for making grants to 
     all States under paragraphs (1) and (2) of subsection (g), 
     $35,000,000 in each of fiscal years 2005 through 2008''.
       (2) Additional requirements and administration.--Section 
     1820(g) (42 U.S.C. 1395i-4(g)) is amended by adding at the 
     end the following new paragraphs:
       ``(4) Additional requirements with respect to flex 
     grants.--With respect to grants awarded under paragraph (1) 
     or (2) from funds appropriated for fiscal year 2005 and 
     subsequent fiscal years--
       ``(A) Consultation with the state hospital association and 
     rural hospitals on the most appropriate ways to use grants.--
     A State 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) Limitation on use of grant funds for administrative 
     expenses.--A State may not expend more than the lesser of--
       ``(i) 15 percent of the amount of the grant for 
     administrative expenses; or
       ``(ii) the State's federally negotiated indirect rate for 
     administering the grant.
       ``(5) Use of funds for federal administrative expenses.--Of 
     the total amount appropriated for grants under paragraphs (1) 
     and (2) for a fiscal year (beginning with fiscal year 2005), 
     up to 5 percent of such amount shall be available to the 
     Health Resources and Services Administration for purposes of 
     administering such grants.''.
       (g) Authority To Establish Psychiatric and Rehabilitation 
     Distinct Part Units.--
       (1) In general.--Section 1820(c)(2) (42 U.S.C. 1395i-
     4(c)(2)) is amended by adding at the end the following:
       ``(E) Authority to establish psychiatric and rehabilitation 
     distinct part units.--
       ``(i) In general.--Subject to the succeeding provisions of 
     this subparagraph, a critical access hospital may establish--

       ``(I) a psychiatric unit of the hospital that is a distinct 
     part of the hospital; and
       ``(II) a rehabilitation unit of the hospital that is a 
     distinct part of the hospital,

     if the distinct part meets the requirements (including 
     conditions of participation) that would otherwise apply to 
     the distinct part if the distinct part were established by a 
     subsection (d) hospital in accordance with the matter 
     following clause (v) of section 1886(d)(1)(B), including any 
     regulations adopted by the Secretary under such section.
       ``(ii) Limitation on number of beds.--The total number of 
     beds that may be established under clause (i) for a distinct 
     part unit may not exceed 10.
       ``(iii) Exclusion of beds from bed count.--In determining 
     the number of beds of a critical access hospital for purposes 
     of applying the bed limitations referred to in subparagraph 
     (B)(iii) and subsection (f), the Secretary shall not take 
     into account any bed established under clause (i).
       ``(iv) Effect of failure to meet requirements.--If a 
     psychiatric or rehabilitation unit established under clause 
     (i) does not meet the requirements described in such clause 
     with respect to a cost reporting period, no payment may be 
     made under this title to the hospital for services furnished 
     in such unit during such period. Payment to the hospital for 
     services furnished in the unit may resume only after the 
     hospital has demonstrated to the Secretary that the unit 
     meets such requirements.''.
       (2) Payment on a prospective payment basis.--Section 
     1814(l) (42 U.S.C. 1395f(l)) is amended--
       (A) by striking ``(l) The amount'' and inserting ``(l)(1) 
     Except as provided in paragraph (2), the amount''; and
       (B) by adding at the end the following new paragraph:
       ``(2) In the case of a distinct part psychiatric or 
     rehabilitation unit of a critical access hospital described 
     in section 1820(c)(2)(E), the amount of payment for inpatient 
     critical access hospital services of such unit shall be equal 
     to the amount of the payment that would otherwise be made if 
     such services were inpatient hospital services of a distinct 
     part psychiatric or rehabilitation unit, respectively, 
     described in the matter following clause (v) of section 
     1886(d)(1)(B).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to cost reporting periods beginning on or after 
     October 1, 2004.
       (h) Waiver Authority.--
       (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 U.S.C. 
     1395i-4(c)(2)(B)(i)(II)) is amended by inserting ``before 
     January 1, 2006,'' after ``is certified''.
       (2) Grandfathering waiver authority for certain 
     facilities.--Section 1820(h) (42 U.S.C. 1395i-4(h)) is 
     amended--
       (A) in the heading preceding paragraph (1), by striking 
     ``of Certain Facilities'' and inserting ``Provisions''; and

[[Page H11930]]

       (B) by adding at the end the following new paragraph:
       ``(3) State authority to waive 35-mile rule.--In the case 
     of a facility that was designated as a critical access 
     hospital before January 1, 2006, and was certified by the 
     State as being a necessary provider of health care services 
     to residents in the area under subsection (c)(2)(B)(i)(II), 
     as in effect before such date, the authority under such 
     subsection with respect to any redesignation of such facility 
     shall continue to apply notwithstanding the amendment made by 
     section 405(h)(1) of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003.''.

     SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR 
                   LOW-VOLUME HOSPITALS.

       (a) In General.--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) In general.--In addition to any payments calculated 
     under this section for a subsection (d) hospital, for 
     discharges occurring during a fiscal year (beginning with 
     fiscal year 2005), the Secretary shall provide for an 
     additional payment amount to each low-volume hospital (as 
     defined in subparagraph (C)(i)) for discharges occurring 
     during that fiscal year that is equal to the applicable 
     percentage increase (determined under subparagraph (B) for 
     the hospital involved) in the amount paid to such hospital 
     under this section for such discharges (determined without 
     regard to this paragraph).
       ``(B) Applicable percentage increase.--The Secretary shall 
     determine an applicable percentage increase for purposes of 
     subparagraph (A) as follows:
       ``(i) The Secretary shall determine the empirical 
     relationship for subsection (d) hospitals between the 
     standardized cost-per-case for such hospitals and the total 
     number of discharges of such hospitals and the amount of the 
     additional incremental costs (if any) that are associated 
     with such number of discharges.
       ``(ii) The applicable percentage increase shall be 
     determined based upon such relationship in a manner that 
     reflects, based upon the number of such discharges for a 
     subsection (d) hospital, such additional incremental costs.
       ``(iii) In no case shall the applicable percentage increase 
     exceed 25 percent.
       ``(C) Definitions.--
       ``(i) Low-volume hospital.--For purposes of this paragraph, 
     the term `low-volume hospital' means, for a fiscal year, a 
     subsection (d) hospital (as defined in paragraph (1)(B)) that 
     the Secretary determines is located more than 25 road miles 
     from another subsection (d) hospital and has less than 800 
     discharges during the fiscal year.
       ``(ii) Discharge.--For purposes of subparagraph (B) and 
     clause (i), the term `discharge' means an inpatient acute 
     care discharge of an individual regardless of whether the 
     individual is entitled to benefits under part A.''.
       (b) Judicial Review.--Section 1886(d)(7)(A) (42 U.S.C. 
     1395ww(d)(7)(A)) is amended by inserting after ``to 
     subsection (e)(1)'' the following: ``or the determination of 
     the applicable percentage increase under paragraph 
     (12)(A)(ii)''.

     SEC. 407. TREATMENT OF MISSING COST REPORTING PERIODS FOR 
                   SOLE COMMUNITY HOSPITALS.

       (a) In General.--Section 1886(b)(3)(I) (42 U.S.C. 
     1395ww(b)(3)(I)) is amended by adding at the end the 
     following new clause:
       ``(iii) In no case shall a hospital be denied treatment as 
     a sole community hospital or payment (on the basis of a 
     target rate as such as a hospital) because data are 
     unavailable for any cost reporting period due to changes in 
     ownership, changes in fiscal intermediaries, or other 
     extraordinary circumstances, so long as data for at least one 
     applicable base cost reporting period is available.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to cost reporting periods beginning on or after 
     January 1, 2004.

     SEC. 408. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS 
                   ATTENDING PHYSICIANS TO SERVE HOSPICE PATIENTS.

       (a) In General.--Section 1861(dd)(3)(B) (42 U.S.C. 
     1395x(dd)(3)(B)) is amended by inserting ``or nurse 
     practitioner (as defined in subsection (aa)(5))'' after ``the 
     physician (as defined in subsection (r)(1))''.
       (b) Clarification of Hospice Role of Nurse Practitioners.--
     Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I)) 
     is amended by inserting ``(which for purposes of this 
     subparagraph does not include a nurse practitioner)'' after 
     ``attending physician (as defined in section 
     1861(dd)(3)(B))''.

     SEC. 409. RURAL HOSPICE DEMONSTRATION PROJECT.

       (a) In General.--The Secretary shall conduct a 
     demonstration project for the delivery of hospice care to 
     medicare beneficiaries in rural areas. Under the project 
     medicare beneficiaries who are unable to receive hospice care 
     in the facility for lack of an appropriate caregiver are 
     provided such care in a facility of 20 or fewer beds which 
     offers, within its walls, the full range of services provided 
     by hospice programs under section 1861(dd) of the Social 
     Security Act (42 U.S.C. 1395x(dd)).
       (b) Scope of Project.--The Secretary shall conduct the 
     project under this section with respect to no more than 3 
     hospice programs over a period of not longer than 5 years 
     each.
       (c) Compliance With Conditions.--Under the demonstration 
     project--
       (1) the hospice program shall comply with otherwise 
     applicable requirements, except that it shall not be required 
     to offer services outside of the home or to meet the 
     requirements of section 1861(dd)(2)(A)(iii) of the Social 
     Security Act; and
       (2) payments for hospice care shall be made at the rates 
     otherwise applicable to such care under title XVIII of such 
     Act.

     The Secretary may require the program to comply with such 
     additional quality assurance standards for its provision of 
     services in its facility as the Secretary deems appropriate.
       (d) Report.--Upon completion of the project, the Secretary 
     shall submit a report to Congress on the project and shall 
     include in the report recommendations regarding extension of 
     such project to hospice programs serving rural areas.

     SEC. 410. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND 
                   FEDERALLY QUALIFIED HEALTH CENTER SERVICES FROM 
                   THE PROSPECTIVE PAYMENT SYSTEM FOR SKILLED 
                   NURSING FACILITIES.

       (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 
     1395yy(e)(2)(A)) is amended--
       (1) in clause (i)(II), by striking ``clauses (ii) and 
     (iii)'' and inserting ``clauses (ii), (iii), and (iv)''; and
       (2) by adding at the end 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 an individual not affiliated with a rural health 
     clinic or a Federally qualified health center.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to services furnished on or after January 1, 
     2005.

     SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

       (a) Establishment of Rural Community Hospital (RCH) 
     Demonstration Program.--
       (1) In general.--The Secretary shall establish a 
     demonstration program to test the feasibility and 
     advisability of the establishment of rural community 
     hospitals (as defined in subsection (f)(1)) to furnish 
     covered inpatient hospital services (as defined in subsection 
     (f)(2)) to medicare beneficiaries.
       (2) Demonstration areas.--The program shall be conducted in 
     rural areas selected by the Secretary in States with low 
     population densities, as determined by the Secretary.
       (3) Application.--Each rural community hospital that is 
     located in a demonstration area selected under paragraph (2) 
     that desires to participate in the demonstration program 
     under this section shall submit an application to the 
     Secretary at such time, in such manner, and containing such 
     information as the Secretary may require.
       (4) Selection of hospitals.--The Secretary shall select 
     from among rural community hospitals submitting applications 
     under paragraph (3) not more than 15 of such hospitals to 
     participate in the demonstration program under this section.
       (5) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 5-year period.
       (6) Implementation.--The Secretary shall implement the 
     demonstration program not later than January 1, 2005, but may 
     not implement the program before October 1, 2004.
       (b) Payment.--
       (1) In general.--The amount of payment under the 
     demonstration program for covered inpatient hospital services 
     furnished in a rural community hospital, other than such 
     services furnished in a psychiatric or rehabilitation unit of 
     the hospital which is a distinct part, is--
       (A) for discharges occurring in the first cost reporting 
     period beginning on or after the implementation of the 
     demonstration program, the reasonable costs of providing such 
     services; and
       (B) for discharges occurring in a subsequent cost reporting 
     period under the demonstration program, the lesser of--
       (i) the reasonable costs of providing such services in the 
     cost reporting period involved; or
       (ii) the target amount (as defined in paragraph (2), 
     applicable to the cost reporting period involved.
       (2) Target amount.--For purposes of paragraph (1)(B)(ii), 
     the term ``target amount'' means, with respect to a rural 
     community hospital for a particular 12-month cost reporting 
     period--
       (A) in the case of the second such reporting period for 
     which this subsection is in effect, the reasonable costs of 
     providing such covered inpatient hospital services as 
     determined under paragraph (1)(A), and
       (B) in the case of a later reporting period, the target 
     amount for the preceding 12-month cost reporting period,

     increased by the applicable percentage increase (under clause 
     (i) of section 1886(b)(3)(B) of the Social Security Act (42 
     U.S.C. 1395ww(b)(3)(B))) in the market basket percentage 
     increase (as defined in clause (iii) of such section) for 
     that particular cost reporting period.
       (c) 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) 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.
       (d) Waiver Authority.--The Secretary may waive such 
     requirements of title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.) as

[[Page H11931]]

     may be necessary for the purpose of carrying out the 
     demonstration program under this section.
       (e) 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.
       (f) Definitions.--In this section:
       (1) Rural community hospital defined.--
       (A) In general.--The term ``rural community hospital'' 
     means a hospital (as defined in section 1861(e) of the Social 
     Security Act (42 U.S.C. 1395x(e))) that--
       (i) is located in a rural area (as defined in section 
     1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D))) or 
     treated as being so located pursuant to section 1886(d)(8)(E) 
     of such Act (42 U.S.C. 1395ww(d)(8)(E));
       (ii) subject to paragraph (2), has fewer than 51 acute care 
     inpatient beds, as reported in its most recent cost report;
       (iii) makes available 24-hour emergency care services; and
       (iv) is not eligible for designation, or has not been 
     designated, as a critical access hospital under section 1820.
       (B) Treatment of psychiatric and rehabilitation units.--For 
     purposes of paragraph (1)(B), beds in a psychiatric or 
     rehabilitation unit of the hospital which is a distinct part 
     of the hospital shall not be counted.
       (2) Covered inpatient hospital services.--The term 
     ``covered inpatient hospital services'' means inpatient 
     hospital services, and includes extended care services 
     furnished under an agreement under section 1883 of the Social 
     Security Act (42 U.S.C. 1395tt).

             Subtitle B--Provisions Relating to Part B Only

     SEC. 411. 2-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR 
                   SMALL RURAL HOSPITALS AND SOLE COMMUNITY 
                   HOSPITALS UNDER THE PROSPECTIVE PAYMENT SYSTEM 
                   FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

       (a) Hold Harmless Provisions.--
       (1) In general.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
     1395l(t)(7)(D)(i)) is amended--
       (A) in the heading, by striking ``small'' and inserting 
     ``certain'';
       (B) by inserting ``or a sole community hospital (as defined 
     in section 1886(d)(5)(D)(iii)) located in a rural area'' 
     after ``100 beds''; and
       (C) by striking ``2004'' and inserting ``2006''.
       (2) Effective date.--The amendment made by paragraph (1)(B) 
     shall apply with respect to cost reporting periods beginning 
     on and after January 1, 2004.
       (b) Study; Authorization of Adjustment.--Section 1833(t) 
     (42 U.S.C. 1395l(t)) is amended--
       (1) by redesignating paragraph (13) as paragraph (16); and
       (2) by inserting after paragraph (12) the following new 
     paragraph:
       ``(13) Authorization of adjustment for rural hospitals.--
       ``(A) Study.--The Secretary shall conduct a study to 
     determine if, under the system under this subsection, costs 
     incurred by hospitals located in rural areas by ambulatory 
     payment classification groups (APCs) exceed those costs 
     incurred by hospitals located in urban areas.
       ``(B) Authorization of adjustment.--Insofar as the 
     Secretary determines under subparagraph (A) that costs 
     incurred by hospitals located in rural areas exceed those 
     costs incurred by hospitals located in urban areas, the 
     Secretary shall provide for an appropriate adjustment under 
     paragraph (2)(E) to reflect those higher costs by January 1, 
     2006.''.

     SEC. 412. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC 
                   ADJUSTMENT.

       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), and (E)''; 
     and
       (2) by adding at the end the following new subparagraph:
       ``(E) Floor at 1.0 on work geographic index.--After 
     calculating the work geographic index in subparagraph 
     (A)(iii), for purposes of payment for services furnished on 
     or after January 1, 2004, and before January 1, 2007, the 
     Secretary shall increase the work geographic index to 1.00 
     for any locality for which such work geographic index is less 
     than 1.00.''.

     SEC. 413. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR 
                   PHYSICIAN SCARCITY.

       (a) Additional Incentive Payment for Certain Physician 
     Scarcity Areas.--Section 1833 (42 U.S.C. 1395l) is amended by 
     adding at the end the following new subsection:
       ``(u) Incentive Payments for Physician Scarcity Areas.--
       ``(1) In general.--In the case of physicians' services 
     furnished on or after January 1, 2005, and before January 1, 
     2008--
       ``(A) by a primary care physician in a primary care 
     scarcity county (identified under paragraph (4)); or
       ``(B) by a physician who is not a primary care physician in 
     a specialist care scarcity county (as so identified),

     in addition to the amount of payment that would otherwise be 
     made for such services under this part, there also shall be 
     paid an amount equal to 5 percent of the payment amount for 
     the service under this part.
       ``(2) Determination of ratios of physicians to medicare 
     beneficiaries in area.--Based upon available data, the 
     Secretary shall establish for each county or equivalent area 
     in the United States, the following:
       ``(A) Number of physicians practicing in the area.--The 
     number of physicians who furnish physicians' services in the 
     active practice of medicine or osteopathy in that county or 
     area, other than physicians whose practice is exclusively for 
     the Federal Government, physicians who are retired, or 
     physicians who only provide administrative services. Of such 
     number, the number of such physicians who are--
       ``(i) primary care physicians; or
       ``(ii) physicians who are not primary care physicians.
       ``(B) Number of medicare beneficiaries residing in the 
     area.--The number of individuals who are residing in the 
     county and are entitled to benefits under part A or enrolled 
     under this part, or both (in this subsection referred to as 
     `individuals').
       ``(C) Determination of ratios.--
       ``(i) Primary care ratio.--The ratio (in this paragraph 
     referred to as the `primary care ratio') of the number of 
     primary care physicians (determined under subparagraph 
     (A)(i)), to the number of individuals determined under 
     subparagraph (B).
       ``(ii) Specialist care ratio.--The ratio (in this paragraph 
     referred to as the `specialist care ratio') of the number of 
     other physicians (determined under subparagraph (A)(ii)), to 
     the number of individuals determined under subparagraph (B).
       ``(3) Ranking of counties.--The Secretary shall rank each 
     such county or area based separately on its primary care 
     ratio and its specialist care ratio.
       ``(4) Identification of counties.--
       ``(A) In general.--The Secretary shall identify--
       ``(i) those counties and areas (in this paragraph referred 
     to as `primary care scarcity counties') with the lowest 
     primary care ratios that represent, if each such county or 
     area were weighted by the number of individuals determined 
     under paragraph (2)(B), an aggregate total of 20 percent of 
     the total of the individuals determined under such paragraph; 
     and
       ``(ii) those counties and areas (in this subsection 
     referred to as `specialist care scarcity counties') with the 
     lowest specialist care ratios that represent, if each such 
     county or area were weighted by the number of individuals 
     determined under paragraph (2)(B), an aggregate total of 20 
     percent of the total of the individuals determined under such 
     paragraph.
       ``(B) Periodic revisions.--The Secretary shall periodically 
     revise the counties or areas identified in subparagraph (A) 
     (but not less often than once every three years) unless the 
     Secretary determines that there is no new data available on 
     the number of physicians practicing in the county or area or 
     the number of individuals residing in the county or area, as 
     identified in paragraph (2).
       ``(C) Identification of counties where service is 
     furnished.--For purposes of paying the additional amount 
     specified in paragraph (1), if the Secretary uses the 5-digit 
     postal ZIP Code where the service is furnished, the dominant 
     county of the postal ZIP Code (as determined by the United 
     States Postal Service, or otherwise) shall be used to 
     determine whether the postal ZIP Code is in a scarcity county 
     identified in subparagraph (A) or revised in subparagraph 
     (B).
       ``(D) Judicial review.--There shall be no administrative or 
     judicial review under section 1869, 1878, or otherwise, 
     respecting--
       ``(i) the identification of a county or area;
       ``(ii) the assignment of a specialty of any physician under 
     this paragraph;
       ``(iii) the assignment of a physician to a county under 
     paragraph (2); or
       ``(iv) the assignment of a postal ZIP Code to a county or 
     other area under this subsection.
       ``(5) Rural census tracts.--To the extent feasible, the 
     Secretary shall treat 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)), as an equivalent area for purposes of 
     qualifying as a primary care scarcity county or specialist 
     care scarcity county under this subsection.
       ``(6) Physician Defined.--For purposes of this paragraph, 
     the term `physician' means a physician described in section 
     1861(r)(1) and the term `primary care physician' means a 
     physician who is identified in the available data as a 
     general practitioner, family practice practitioner, general 
     internist, or obstetrician or gynecologist.
       ``(7) Publication of list of counties; posting on 
     website.--With respect to a year for which a county or area 
     is identified or revised under paragraph (4), the Secretary 
     shall identify such counties or areas as part of the proposed 
     and final rule to implement the physician fee schedule under 
     section 1848 for the applicable year. The Secretary shall 
     post the list of counties identified or revised under 
     paragraph (4) on the Internet website of the Centers for 
     Medicare & Medicaid Services.''.
       (b) Improvement to Medicare Incentive Payment Program.--
       (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) is 
     amended--
       (A) by inserting ``(1)'' after ``(m)'';
       (B) in paragraph (1), as designated by subparagraph (A)--
       (i) by inserting ``in a year'' after ``In the case of 
     physicians' services furnished''; and
       (ii) by inserting ``as identified by the Secretary prior to 
     the beginning of such year'' after ``as a health professional 
     shortage area''; and
       (C) by adding at the end the following new paragraphs:
       ``(2) For each health professional shortage area identified 
     in paragraph (1) that consists of an entire county, the 
     Secretary shall provide for the additional payment under 
     paragraph (1) without any requirement on the physician to 
     identify the health professional shortage area

[[Page H11932]]

     involved. The Secretary may implement the previous sentence 
     using the method specified in subsection (u)(4)(C).
       ``(3) The Secretary shall post on the Internet website of 
     the Centers for Medicare & Medicaid Services a list of the 
     health professional shortage areas identified in paragraph 
     (1) that consist of a partial county to facilitate the 
     additional payment under paragraph (1) in such areas.
       ``(4) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, respecting--
       ``(A) the identification of a county or area;
       ``(B) the assignment of a specialty of any physician under 
     this paragraph;
       ``(C) the assignment of a physician to a county under this 
     subsection; or
       ``(D) the assignment of a postal zip code to a county or 
     other area under this subsection.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to physicians' services furnished on or after 
     January 1, 2005.
       (c) GAO Study of Geographic Differences in Payments for 
     Physicians' Services.--
       (1) 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--
       (A) an assessment of the validity of the geographic 
     adjustment factors used for each component of the fee 
     schedule;
       (B) an evaluation of the measures used for such adjustment, 
     including the frequency of revisions;
       (C) 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; and
       (D) an evaluation of the effect of the adjustment to the 
     physician work geographic index under section 1848(e)(1)(E) 
     of the Social Security Act, as added by section 412, on 
     physician location and retention in areas affected by such 
     adjustment, taking into account--
       (i) differences in recruitment costs and retention rates 
     for physicians, including specialists, between large urban 
     areas and other areas; and
       (ii) the mobility of physicians, including specialists, 
     over the last decade.
       (2) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1). 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).

     SEC. 414. PAYMENT FOR RURAL AND URBAN AMBULANCE SERVICES.

       (a) Phase-In Providing Floor Using Blend of Fee Schedule 
     and Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 
     1395m(l)) is amended--
       (1) in paragraph (2)(E), by inserting ``consistent with 
     paragraph (11)'' after ``in an efficient and fair manner''; 
     and
       (2) by redesignating paragraph (8), as added by section 
     221(a) of BIPA (114 Stat. 2763A-486), as paragraph (9); and
       (3) by adding at the end the following new paragraph:
       ``(10) Phase-in providing floor using blend of fee schedule 
     and regional fee schedules.--In carrying out the phase-in 
     under paragraph (2)(E) for each level of ground service 
     furnished in a year, the portion of the payment amount that 
     is based on the fee schedule shall be the greater of the 
     amount determined under such fee schedule (without regard to 
     this paragraph) or the following blended rate of the fee 
     schedule under paragraph (1) and of a regional fee schedule 
     for the region involved:
       ``(A) For 2004 (for services furnished on or after July 1, 
     2004), the blended rate shall be based 20 percent on the fee 
     schedule under paragraph (1) and 80 percent on the regional 
     fee schedule.
       ``(B) For 2005, the blended rate shall be based 40 percent 
     on the fee schedule under paragraph (1) and 60 percent on the 
     regional fee schedule.
       ``(C) For 2006, the blended rate shall be based 60 percent 
     on the fee schedule under paragraph (1) and 40 percent on the 
     regional fee schedule.
       ``(D) For 2007, 2008, and 2009, the blended rate shall be 
     based 80 percent on the fee schedule under paragraph (1) and 
     20 percent on the regional fee schedule.
       ``(E) For 2010 and each succeeding year, the blended rate 
     shall be based 100 percent on the fee schedule under 
     paragraph (1).

     For purposes of this paragraph, the Secretary shall establish 
     a regional fee schedule for each of the nine census divisions 
     (referred to in section 1886(d)(2)) using the methodology 
     (used in establishing the fee schedule under paragraph (1)) 
     to calculate a regional conversion factor and a regional 
     mileage payment rate and using the same payment adjustments 
     and the same relative value units as used in the fee schedule 
     under such paragraph.''.
       (b) Adjustment in Payment for Certain Long Trips.--Section 
     1834(l), as amended by subsection (a), is amended by adding 
     at the end the following new paragraph:
       ``(11) Adjustment in payment for certain long trips.--In 
     the case of ground ambulance services furnished on or after 
     July 1, 2004, and before January 1, 2009, regardless of where 
     the transportation originates, the fee schedule established 
     under this subsection shall provide that, with respect to the 
     payment rate for mileage for a trip above 50 miles the per 
     mile rate otherwise established shall be increased by \1/4\ 
     of the payment per mile otherwise applicable to miles in 
     excess of 50 miles in such trip.''.
       (c) Improvement in Payments To Retain Emergency Capacity 
     for Ambulance Services in Rural Areas.--
       (1) In general.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
     amended by subsections (a) and (b), is amended by adding at 
     the end the following new paragraph:
       ``(12) Assistance for rural providers furnishing services 
     in low population density areas.--
       ``(A) In general.--In the case of ground ambulance services 
     furnished on or after July 1, 2004, and before January 1, 
     2010, for which the transportation originates in a qualified 
     rural area (identified under subparagraph (B)(iii)), the 
     Secretary shall provide for a percent increase in the base 
     rate of the fee schedule for a trip established under this 
     subsection. In establishing such percent increase, the 
     Secretary shall estimate the average cost per trip for such 
     services (not taking into account mileage) in the lowest 
     quartile as compared to the average cost per trip for such 
     services (not taking into account mileage) in the highest 
     quartile of all rural county populations.
       ``(B) Identification of qualified rural areas.--
       ``(i) Determination of population density in area.--Based 
     upon data from the United States decennial census for the 
     year 2000, the Secretary shall determine, for each rural 
     area, the population density for that area.
       ``(ii) Ranking of areas.--The Secretary shall rank each 
     such area based on such population density.
       ``(iii) Identification of qualified rural areas.--The 
     Secretary shall identify those areas (in subparagraph (A) 
     referred to as `qualified rural areas') with the lowest 
     population densities that represent, if each such area were 
     weighted by the population of such area (as used in computing 
     such population densities), an aggregate total of 25 percent 
     of the total of the population of all such areas.
       ``(iv) Rural area.--For purposes of this paragraph, the 
     term `rural area' has the meaning given such term in section 
     1886(d)(2)(D). If feasible, the Secretary shall treat 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) as a rural 
     area for purposes of this paragraph.
       ``(v) Judicial review.--There shall be no administrative or 
     judicial review under section 1869, 1878, or otherwise, 
     respecting the identification of an area under this 
     subparagraph.''.
       (2) Use of data.--In order to promptly implement section 
     1834(l)(12) of the Social Security Act, as added by paragraph 
     (1), the Secretary may use data furnished by the Comptroller 
     General of the United States.
       (d) Temporary Increase for Ground Ambulance Services.--
     Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 
     subsections (a), (b), and (c), is amended by adding at the 
     end the following new paragraph:
       ``(13) Temporary increase for ground ambulance services.--
       ``(A) In general.--After computing the rates with respect 
     to ground ambulance services under the other applicable 
     provisions of this subsection, in the case of such services 
     furnished on or after July 1, 2004, and before January 1, 
     2007, for which the transportation originates in--
       ``(i) a rural area described in paragraph (9) or in a rural 
     census tract described in such paragraph, the fee schedule 
     established under this section shall provide that the rate 
     for the service otherwise established, after the application 
     of any increase under paragraphs (11) and (12), shall be 
     increased by 2 percent; and
       ``(ii) an area not described in clause (i), the fee 
     schedule established under this subsection shall provide that 
     the rate for the service otherwise established, after the 
     application of any increase under paragraph (11), shall be 
     increased by 1 percent.
       ``(B) Application of increased payments after 2006.--The 
     increased payments under subparagraph (A) shall not be taken 
     into account in calculating payments for services furnished 
     after the period specified in such subparagraph.''.
       (e) Implementation.--The Secretary may implement the 
     amendments made by this section, and revise the conversion 
     factor applicable under section 1834(l) of the Social 
     Security Act (42 U.S.C. 1395m(l)) for purposes of 
     implementing such amendments, on an interim final basis, or 
     by program instruction.
       (f) GAO Report on Costs and Access.--Not later than 
     December 31, 2005, the Comptroller General of the United 
     States shall submit to Congress an initial report on how 
     costs differ among the types of ambulance providers and on 
     access, supply, and quality of ambulance services in those 
     regions and States that have a reduction in payment under the 
     medicare ambulance fee schedule (under section 1834(l) of the 
     Social Security Act, as amended by this Act). Not later than 
     December 31, 2007, the Comptroller General shall submit to 
     Congress a final report on such access and supply.
       (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 
     Stat. 2763A-487) is amended by striking ``subsection (b)(2)'' 
     and inserting ``subsection (b)(3)''.
       (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended 
     by moving subparagraph (U) 4 ems to the left.

     SEC. 415. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR 
                   AMBULANCE SERVICES.

       (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
     amended by subsections (a), (b),

[[Page H11933]]

     (c), and (d) of section 414, is amended by adding at the end 
     the following new paragraph:
       ``(14) Providing appropriate coverage of rural air 
     ambulance services.--
       ``(A) In general.--The regulations described in section 
     1861(s)(7) shall provide, to the extent that any ambulance 
     services (whether ground or air) may be covered under such 
     section, that a rural air ambulance service (as defined in 
     subparagraph (C)) is reimbursed under this subsection at the 
     air ambulance rate if the air ambulance service--
       ``(i) is reasonable and 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) Satisfaction of requirement of medically necessary.--
     The requirement of subparagraph (A)(i) is deemed to be met 
     for a rural air ambulance service if--
       ``(i) subject to subparagraph (D), such service is 
     requested by a physician or other qualified medical personnel 
     (as specified by the Secretary) who reasonably determines or 
     certifies that the individual's condition is such that the 
     time needed to transport the individual by land or the 
     instability of transportation by land poses a threat to the 
     individual's survival or seriously endangers the individual's 
     health; or
       ``(ii) such service is furnished pursuant to a protocol 
     that is established by a State or regional emergency medical 
     service (EMS) agency and recognized or approved by the 
     Secretary under which the use of an air ambulance is 
     recommended, if such agency does not have an ownership 
     interest in the entity furnishing such service.
       ``(C) Rural air ambulance service defined.--For purposes of 
     this paragraph, the term `rural air ambulance service' means 
     fixed wing and rotary wing air ambulance service in which the 
     point of pick up of the individual occurs in a rural area (as 
     defined in section 1886(d)(2)(D)) or in 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)).
       ``(D) Limitation.--
       ``(i) In general.--Subparagraph (B)(i) shall not apply if 
     there is a financial or employment relationship between the 
     person requesting the rural air ambulance service and the 
     entity furnishing the ambulance service, or an entity under 
     common ownership with the entity furnishing the air ambulance 
     service, or a financial relationship between an immediate 
     family member of such requester and such an entity.
       ``(ii) Exception.--Where a hospital and the entity 
     furnishing rural air ambulance services are under common 
     ownership, clause (i) shall not apply to remuneration 
     (through employment or other relationship) by the hospital of 
     the requester or immediate family member if the remuneration 
     is for provider-based physician services furnished in a 
     hospital (as described in section 1887) which are reimbursed 
     under part A and the amount of the remuneration is unrelated 
     directly or indirectly to the provision of rural 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)(14),'' after ``but''.
       (c) Effective Date.--The amendments made by this subsection 
     shall apply to services furnished on or after January 1, 
     2005.

     SEC. 416. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY 
                   TESTS FURNISHED TO HOSPITAL OUTPATIENTS IN 
                   CERTAIN RURAL AREAS.

       (a) In General.--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 during a cost reporting period described in 
     subsection (b) by a hospital with fewer than 50 beds that is 
     located in a qualified rural area (identified under paragraph 
     (12)(B)(iii) of section 1834(l) of the Social Security Act 
     (42 U.S.C. 1395m(l)), as added by section 414(c)) as part of 
     outpatient services of the hospital, the amount of payment 
     for such test shall be 100 percent of the reasonable costs of 
     the hospital in furnishing such test.
       (b) Application.--A cost reporting period described in this 
     subsection is a cost reporting period beginning during the 2-
     year period beginning on July 1, 2004.
       (c) Provision as Part of Outpatient Hospital Services.--For 
     purposes of subsection (a), in determining whether clinical 
     diagnostic laboratory services are furnished as part of 
     outpatient services of a hospital, the Secretary shall apply 
     the same rules that are used to determine whether clinical 
     diagnostic laboratory services are furnished as an outpatient 
     critical access hospital service under section 1834(g)(4) of 
     the Social Security Act (42 U.S.C. 1395m(g)(4)).

     SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

       Section 4207 of the Balanced Budget Act of 1997 (Public Law 
     105-33) is amended--
       (1) in subsection (a)(4), by striking ``4-year'' and 
     inserting ``8-year''; and
       (2) in subsection (d)(3), by striking ``$30,000,000'' and 
     inserting ``$60,000,000''.

     SEC. 418. REPORT ON DEMONSTRATION PROJECT PERMITTING SKILLED 
                   NURSING FACILITIES TO BE ORIGINATING TELEHEALTH 
                   SITES; AUTHORITY TO IMPLEMENT.

       (a) Evaluation.--The Secretary, acting through the 
     Administrator of the Health Resources and Services 
     Administration in consultation with the Administrator of the 
     Centers for Medicare & Medicaid Services, shall evaluate 
     demonstration projects conducted by the Secretary under which 
     skilled nursing facilities (as defined in section 1819(a) of 
     the Social Security Act (42 U.S.C. 1395i-3(a)) are treated as 
     originating sites for telehealth services.
       (b) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on the evaluation conducted 
     under subsection (a). Such report shall include 
     recommendations on mechanisms to ensure that permitting a 
     skilled nursing facility to serve as an originating site for 
     the use of telehealth services or any other service delivered 
     via a telecommunications system does not serve as a 
     substitute for in-person visits furnished by a physician, or 
     for in-person visits furnished by a physician assistant, 
     nurse practitioner or clinical nurse specialist, as is 
     otherwise required by the Secretary.
       (c) Authority To Expand Originating Telehealth Sites to 
     Include Skilled Nursing Facilities.--Insofar as the Secretary 
     concludes in the report required under subsection (b) that it 
     is advisable to permit a skilled nursing facility to be an 
     originating site for telehealth services under section 
     1834(m) of the Social Security Act (42 U.S.C. 1395m(m)), and 
     that the Secretary can establish the mechanisms to ensure 
     such permission does not serve as a substitute for in-person 
     visits furnished by a physician, or for in-person visits 
     furnished by a physician assistant, nurse practitioner or 
     clinical nurse specialist, the Secretary may deem a skilled 
     nursing facility to be an originating site under paragraph 
     (4)(C)(ii) of such section beginning on January 1, 2006.

            Subtitle C--Provisions Relating to Parts A and B

     SEC. 421. 1-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED 
                   IN A RURAL AREA.

       (a) In General.--With respect to episodes and visits ending 
     on or after April 1, 2004, and before April 1, 2005, 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))), 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. 422. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

       (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)(4)) 
     is amended--
       (1) in paragraph (4)(F)(i), by inserting ``subject to 
     paragraph (7),'' after ``October 1, 1997,'';
       (2) in paragraph (4)(H)(i), by inserting ``and subject to 
     paragraph (7)'' after ``subparagraphs (F) and (G)''; and
       (3) by adding at the end the following new paragraph:
       ``(7) Redistribution of unused resident positions.--
       ``(A) Reduction in limit based on unused positions.--
       ``(i) Programs subject to reduction.--

       ``(I) In general.--Except as provided in subclause (II), if 
     a hospital's reference resident level (specified in clause 
     (ii)) is less than the otherwise applicable resident limit 
     (as defined in subparagraph (C)(ii)), effective for portions 
     of cost reporting periods occurring on or after July 1, 2005, 
     the otherwise applicable resident limit shall be reduced by 
     75 percent of the difference between such otherwise 
     applicable resident limit and such reference resident level.
       ``(II) Exception for small rural hospitals.--This 
     subparagraph shall not apply to a hospital located in a rural 
     area (as defined in subsection (d)(2)(D)(ii)) with fewer than 
     250 acute care inpatient beds.

       ``(ii) Reference resident level.--

       ``(I) In general.--Except as otherwise provided in 
     subclauses (II) and (III), the reference resident level 
     specified in this clause for a hospital is the resident level 
     for the most recent cost reporting period of the hospital 
     ending on or before September 30, 2002, for which a cost 
     report has been settled (or, if not, submitted (subject to 
     audit)), as determined by the Secretary.
       ``(II) Use of most recent accounting period to recognize 
     expansion of existing programs.--If a hospital submits a 
     timely request to increase its resident level due to an 
     expansion of an existing residency training program that is 
     not reflected on the most recent settled cost report, after 
     audit and subject to the discretion of the Secretary, the 
     reference resident level for such hospital is the resident 
     level for the cost reporting period that includes July 1, 
     2003, as determined by the Secretary.
       ``(III) Expansions under newly approved programs.--Upon the 
     timely request of a hospital, the Secretary shall adjust the 
     reference resident level specified under subclause (I) or 
     (II) to include the number of medical residents that were 
     approved in an application for a medical residency training 
     program that was approved by an appropriate accrediting 
     organization (as determined by the Secretary) before January 
     1, 2002, but which was not in operation during the cost 
     reporting period used under subclause (I) or (II), as the 
     case may be, as determined by the Secretary.

       ``(iii) Affiliation.--The provisions of clause (i) shall be 
     applied to hospitals which are members of the same affiliated 
     group (as defined by

[[Page H11934]]

     the Secretary under paragraph (4)(H)(ii)) as of July 1, 2003.
       ``(B) Redistribution.--
       ``(i) In general.--The Secretary is authorized to increase 
     the otherwise applicable resident limit for each qualifying 
     hospital that submits a timely application under this 
     subparagraph by such number as the Secretary may approve for 
     portions of cost reporting periods occurring on or after July 
     1, 2005. The aggregate number of increases in the otherwise 
     applicable resident limits under this subparagraph may not 
     exceed the Secretary's estimate of the aggregate reduction in 
     such limits attributable to subparagraph (A).
       ``(ii) Considerations in redistribution.--In determining 
     for which hospitals the increase in the otherwise applicable 
     resident limit is provided under clause (i), the Secretary 
     shall take into account the demonstrated likelihood of the 
     hospital filling the positions within the first 3 cost 
     reporting periods beginning on or after July 1, 2005, made 
     available under this subparagraph, as determined by the 
     Secretary.
       ``(iii) Priority for rural and small urban areas.--In 
     determining for which hospitals and residency training 
     programs an increase in the otherwise applicable resident 
     limit is provided under clause (i), the Secretary shall 
     distribute the increase to programs of hospitals located in 
     the following priority order:

       ``(I) First, to hospitals located in rural areas (as 
     defined in subsection (d)(2)(D)(ii)).
       ``(II) Second, to hospitals located in urban areas that are 
     not large urban areas (as defined for purposes of subsection 
     (d)).
       ``(III) Third, to other hospitals in a State if the 
     residency training program involved is in a specialty for 
     which there are not other residency training programs in the 
     State.

     Increases of residency limits within the same priority 
     category under this clause shall be determined by the 
     Secretary.
       ``(iv) Limitation.--In no case shall more than 25 full-time 
     equivalent additional residency positions be made available 
     under this subparagraph with respect to any hospital.
       ``(v) Application of locality adjusted national average per 
     resident amount.--With respect to additional residency 
     positions in a hospital attributable to the increase provided 
     under this subparagraph, notwithstanding any other provision 
     of this subsection, the approved FTE resident amount is 
     deemed to be equal to the locality adjusted national average 
     per resident amount computed under paragraph (4)(E) for that 
     hospital.
       ``(vi) Construction.--Nothing in this subparagraph shall be 
     construed as permitting the redistribution of reductions in 
     residency positions attributable to voluntary reduction 
     programs under paragraph (6), under a demonstration project 
     approved as of October 31, 2003, under the authority of 
     section 402 of Public Law 90-248, or as affecting the ability 
     of a hospital to establish new medical residency training 
     programs under paragraph (4)(H).
       ``(C) Resident level and limit defined.--In this paragraph:
       ``(i) Resident level.--The term `resident level' means, 
     with respect to a hospital, the total number of full-time 
     equivalent residents, before the application of weighting 
     factors (as determined under paragraph (4)), in the fields of 
     allopathic and osteopathic medicine for the hospital.
       ``(ii) Otherwise applicable resident limit.--The term 
     `otherwise applicable resident limit' means, with respect to 
     a hospital, the limit otherwise applicable under 
     subparagraphs (F)(i) and (H) of paragraph (4) on the resident 
     level for the hospital determined without regard to this 
     paragraph.
       ``(D) Judicial review.--There shall be no administrative or 
     judicial review under section 1869, 1878, or otherwise, with 
     respect to determinations made under this paragraph.''.
       (b) Conforming Provisions.--(1) Section 1886(d)(5)(B) (42 
     U.S.C. 1395ww(d)(5)(B)) is amended--
       (A) in the second sentence of clause (ii), by striking 
     ``For discharges'' and inserting ``Subject to clause (ix), 
     for discharges'';
       (B) in clause (v), by adding at the end the following: 
     ``The provisions of subsection (h)(7) shall apply with 
     respect to the first sentence of this clause in the same 
     manner as it applies with respect to subsection 
     (h)(4)(F)(i).''; and
       (C) by adding at the end the following new clause:
       ``(ix) For discharges occurring on or after July 1, 2005, 
     insofar as an additional payment amount under this 
     subparagraph is attributable to resident positions 
     redistributed to a hospital under subsection (h)(7)(B), in 
     computing the indirect teaching adjustment factor under 
     clause (ii) the adjustment shall be computed in a manner as 
     if `c' were equal to 0.66 with respect to such resident 
     positions.''.
       (2) Chapter 35 of title 44, United States Code, shall not 
     apply with respect to applications under section 1886(h)(7) 
     of the Social Security Act, as added by subsection (a)(3).
       (c) Report on Extension of Applications Under 
     Redistribution Program.--Not later than July 1, 2005, the 
     Secretary shall submit to Congress a report containing 
     recommendations regarding whether to extend the deadline for 
     applications for an increase in resident limits under section 
     1886(h)(4)(I)(ii)(II) of the Social Security Act (as added by 
     subsection (a)).

                      Subtitle D--Other Provisions

     SEC. 431. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE 
                   EFFORTS THAT BENEFIT MEDICALLY UNDERSERVED 
                   POPULATIONS.

       (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
     7(b)(3)), as amended by section 101(e)(2), is amended--
       (1) in subparagraph (F), by striking ``and'' after the 
     semicolon at the end;
       (2) in subparagraph (G), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(H) any remuneration between a health center entity 
     described under clause (i) or (ii) of section 1905(l)(2)(B) 
     and any individual or entity providing goods, items, 
     services, donations, loans, or a combination thereof, to such 
     health center entity pursuant to a contract, lease, grant, 
     loan, or other agreement, if such agreement contributes to 
     the ability of the health center entity to maintain or 
     increase the availability, or enhance the quality, of 
     services provided to a medically underserved population 
     served by the health center entity.''.
       (b) Rulemaking for Exception for Health Center Entity 
     Arrangements.--
       (1) Establishment.--
       (A) In general.--The Secretary shall establish, on an 
     expedited basis, standards relating to the exception 
     described in section 1128B(b)(3)(H) of the Social Security 
     Act, as added by subsection (a), for health center entity 
     arrangements to the antikickback penalties.
       (B) Factors to consider.--The Secretary shall consider the 
     following factors, among others, in establishing standards 
     relating to the exception for health center entity 
     arrangements under subparagraph (A):
       (i) Whether the arrangement between the health center 
     entity and the other party results in savings of Federal 
     grant funds or increased revenues to the health center 
     entity.
       (ii) Whether the arrangement between the health center 
     entity and the other party restricts or limits an 
     individual's freedom of choice.
       (iii) Whether the arrangement between the health center 
     entity and the other party protects a health care 
     professional's independent medical judgment regarding 
     medically appropriate treatment.

     The Secretary may also include other standards and criteria 
     that are consistent with the intent of Congress in enacting 
     the exception established under this section.
       (2) Deadline.--Not later than 1 year after the date of the 
     enactment of this Act the Secretary shall publish final 
     regulations establishing the standards described in paragraph 
     (1).

     SEC. 432. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.

       Section 711(b) (42 U.S.C. 912(b)) is amended--
       (1) in paragraph (3), by striking ``and'' after the comma 
     at the end;
       (2) in paragraph (4), by striking the period at the end and 
     inserting ``, and''; and
       (3) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) administer grants, cooperative agreements, and 
     contracts to provide technical assistance and other 
     activities as necessary to support activities related to 
     improving health care in rural areas.''.

     SEC. 433. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT ADJUSTMENTS.

       (a) In General.--The Medicare Payment Advisory Commission 
     shall conduct a study of the impact of sections 401 through 
     406, 411, 416, and 505. The Commission shall analyze the 
     effect on total payments, growth in costs, capital spending, 
     and such other payment effects under those sections.
       (b) Reports.--
       (1) Interim report.--Not later than 18 months after the 
     date of the enactment of this Act, the Commission shall 
     submit to Congress an interim report on the matters studied 
     under subsection (a) with respect only to changes to the 
     critical access hospital provisions under section 405.
       (2) Final report.--Not later than 3 years after the date of 
     the enactment of this Act, the Commission shall submit to 
     Congress a final report on all matters studied under 
     subsection (a).

     SEC. 434. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION 
                   PROJECT.

       (a) Authority To Conduct Demonstration Project.--The 
     Secretary shall waive such provisions of the medicare program 
     established under title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.) as are necessary to conduct a 
     demonstration project under which frontier extended stay 
     clinics described in subsection (b) in isolated rural areas 
     are treated as providers of items and services under the 
     medicare program.
       (b) Clinics Described.--A frontier extended stay clinic is 
     described in this subsection if the clinic--
       (1) is located in a community where the closest short-term 
     acute care hospital or critical access hospital is at least 
     75 miles away from the community or is inaccessible by public 
     road; and
       (2) is designed to address the needs of--
       (A) seriously or critically ill or injured patients who, 
     due to adverse weather conditions or other reasons, cannot be 
     transferred quickly to acute care referral centers; or
       (B) patients who need monitoring and observation for a 
     limited period of time.
       (c) Specification of Codes.--The Secretary shall determine 
     the appropriate life-safety codes for such clinics that treat 
     patients for needs referred to in subsection (b)(2).
       (d) Funding.--
       (1) In general.--Subject to paragraph (2), there are 
     authorized to be appropriated, in appropriate part from the 
     Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund, such sums as are 
     necessary to conduct the demonstration project under this 
     section.
       (2) Budget neutral implementation.--In conducting the 
     demonstration project 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

[[Page H11935]]

     medicare program if the demonstration project under this 
     section was not implemented.
       (e) 3-Year Period.--The Secretary shall conduct the 
     demonstration under this section for a 3-year period.
       (f) Report.--Not later than the date that is 1 year after 
     the date on which the demonstration project concludes, the 
     Secretary shall submit to Congress a report on the 
     demonstration project, together with such recommendations for 
     legislation or administrative action as the Secretary 
     determines appropriate.
       (g) Definitions.--In this section, the terms ``hospital'' 
     and ``critical access hospital'' have the meanings given such 
     terms in subsections (e) and (mm), respectively, of section 
     1861 of the Social Security Act (42 U.S.C. 1395x).

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

     SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

       (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
     1395ww(b)(3)(B)(i)) is amended--
       (1) by striking ``and'' at the end of subclause (XVIII);
       (2) by striking subclause (XIX); and
       (3) by inserting after subclause (XVIII) the following new 
     subclauses:
       ``(XIX) for each of fiscal years 2004 through 2007, subject 
     to clause (vii), the market basket percentage increase for 
     hospitals in all areas; and
       ``(XX) for fiscal year 2008 and each subsequent fiscal 
     year, the market basket percentage increase for hospitals in 
     all areas.''.
       (b) Submission of Hospital Quality Data.--Section 
     1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) is amended by 
     adding at the end the following new clause:
       ``(vii)(I) For purposes of clause (i)(XIX) for each of 
     fiscal years 2005 through 2007, in a case of a subsection (d) 
     hospital that does not submit data to the Secretary in 
     accordance with subclause (II) with respect to such a fiscal 
     year, the applicable percentage increase under such clause 
     for such fiscal year shall be reduced by 0.4 percentage 
     points. Such reduction shall apply only with respect to the 
     fiscal year involved, and the Secretary shall not take into 
     account such reduction in computing the applicable percentage 
     increase under clause (i)(XIX) for a subsequent fiscal year.
       ``(II) Each subsection (d) hospital shall submit to the 
     Secretary quality data (for a set of 10 indicators 
     established by the Secretary as of November 1, 2003) that 
     relate to the quality of care furnished by the hospital in 
     inpatient settings in a form and manner, and at a time, 
     specified by the Secretary for purposes of this clause, but 
     with respect to fiscal year 2005, the Secretary shall provide 
     for a 30-day grace period for the submission of data by a 
     hospital.''.
       (c) GAO Study and Report on Appropriateness of Payments 
     Under the Prospective Payment System for Inpatient Hospital 
     Services.--
       (1) Study.--The Comptroller General of the United States, 
     using the most current data available, shall conduct a study 
     to determine--
       (A) 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
       (B) 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.
       (2) Report.--Not later than 24 months after the date of the 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to Congress a report on the study 
     conducted under paragraph (1) together with such 
     recommendations for legislative and administrative action as 
     the Comptroller General determines appropriate.

     SEC. 502. REVISION OF THE INDIRECT MEDICAL EDUCATION (IME) 
                   ADJUSTMENT PERCENTAGE.

       (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
     1395ww(d)(5)(B)(ii)) is amended--
       (1) in subclause (VI), by striking ``and'' after the 
     semicolon at the end;
       (2) in subclause (VII)--
       (A) by inserting ``and before April 1, 2004,'' after ``on 
     or after October 1, 2002,''; and
       (B) by striking the period at the end and inserting a 
     semicolon; and
       (3) by adding at the end the following new subclauses:
       ``(VIII) on or after April 1, 2004, and before October 1, 
     2004, `c' is equal to 1.47;
       ``(IX) during fiscal year 2005, `c' is equal to 1.42;
       ``(X) during fiscal year 2006, `c' is equal to 1.37;
       ``(XI) during fiscal year 2007, `c' is equal to 1.32; and
       ``(XII) on or after October 1, 2007, `c' is equal to 
     1.35.''.
       (b) Conforming Amendment Relating to Determination of 
     Standardized Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
     1395ww(d)(2)(C)(i)) is amended--
       (1) by striking ``1999 or'' and inserting ``1999,''; and
       (2) by inserting ``, or the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003'' after ``2000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to discharges occurring on or after April 1, 
     2004.

     SEC. 503. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER 
                   INPATIENT HOSPITAL PROSPECTIVE PAYMENT SYSTEM.

       (a) Improving Timeliness of Data Collection.--Section 
     1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is amended by 
     adding at the end the following new clause:
       ``(vii) Under the mechanism under this subparagraph, the 
     Secretary shall provide for the addition of new diagnosis and 
     procedure codes in April 1 of each year, but the addition of 
     such codes shall not require the Secretary to adjust the 
     payment (or diagnosis-related group classification) under 
     this subsection until the fiscal year that begins after such 
     date.''.
       (b) Eligibility Standard for Technology Outliers.--
       (1) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
     (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
     ``(applying a threshold specified by the Secretary that is 
     the lesser of 75 percent of the standardized amount 
     (increased to reflect the difference between cost and 
     charges) or 75 percent of one standard deviation for the 
     diagnosis-related group involved)'' after ``is inadequate''.
       (2) Process for public input.--Section 1886(d)(5)(K) (42 
     U.S.C. 1395ww(d)(5)(K)), as amended by subsection (a), is 
     amended--
       (A) in clause (i), by adding at the end the following: 
     ``Such mechanism shall be modified to meet the requirements 
     of clause (viii).''; and
       (B) by adding at the end the following new clause:
       ``(viii) The mechanism established pursuant to clause (i) 
     shall be adjusted to provide, before publication of a 
     proposed rule, for public input regarding whether a new 
     service or technology represents an advance in medical 
     technology that substantially improves the diagnosis or 
     treatment of individuals entitled to benefits under part A as 
     follows:
       ``(I) The Secretary shall make public and periodically 
     update a list of all the services and technologies for which 
     an application for additional payment under this subparagraph 
     is pending.
       ``(II) The Secretary shall accept comments, 
     recommendations, and data from the public regarding whether 
     the service or technology represents a substantial 
     improvement.
       ``(III) The Secretary shall provide for a meeting at which 
     organizations representing hospitals, physicians, such 
     individuals, manufacturers, and any other interested party 
     may present comments, recommendations, and data to the 
     clinical staff of the Centers for Medicare & Medicaid 
     Services before publication of a notice of proposed 
     rulemaking regarding whether service or technology represents 
     a substantial improvement.''.
       (c) Preference for Use of DRG Adjustment.--Section 
     1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as amended by 
     subsections (a) and (b), is amended by adding at the end the 
     following new clause:
       ``(ix) Before establishing any add-on payment under this 
     subparagraph with respect to a new technology, the Secretary 
     shall seek to identify one or more diagnosis-related groups 
     associated with such technology, based on similar clinical or 
     anatomical characteristics and the cost of the technology. 
     Within such groups the Secretary shall assign an eligible new 
     technology into a diagnosis-related group where the average 
     costs of care most closely approximate the costs of care of 
     using the new technology. No add-on payment under this 
     subparagraph shall be made with respect to such new 
     technology and this clause shall not affect the application 
     of paragraph (4)(C)(iii).''.
       (d) Establishment of New Funding for Hospital Inpatient 
     Technology.--
       (1) In general.--Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 
     1395ww(d)(5)(K)(ii)(III)) is amended by striking ``subject to 
     paragraph (4)(C)(iii),''.
       (2) Not budget neutral.--There shall be no reduction or 
     other adjustment in payments under section 1886 of the Social 
     Security Act because an additional payment is provided under 
     subsection (d)(5)(K)(ii)(III) of such section.
       (e) Effective Date.--
       (1) In general.--The Secretary shall implement the 
     amendments made by this section so that they apply to 
     classification for fiscal years beginning with fiscal year 
     2005.
       (2) Reconsiderations of applications for fiscal year 2004 
     that are denied.--In the case of an application for a 
     classification of a medical service or technology as a new 
     medical service or technology under section 1886(d)(5)(K) of 
     the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
     filed for fiscal year 2004 and that is denied--
       (A) the Secretary shall automatically reconsider the 
     application as an application for fiscal year 2005 under the 
     amendments made by this section; and
       (B) the maximum time period otherwise permitted for such 
     classification of the service or technology shall be extended 
     by 12 months.

     SEC. 504. INCREASE IN 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) on or after October 1, 1987, and before October 1, 
     1997, the applicable Puerto Rico percentage is 75 percent and 
     the applicable Federal percentage is 25 percent;

[[Page H11936]]

       ``(ii) on or after October 1, 1997, and before April 1, 
     2004, the applicable Puerto Rico percentage is 50 percent and 
     the applicable Federal percentage is 50 percent;
       ``(iii) on or after April 1, 2004, and before October 1, 
     2004, the applicable Puerto Rico percentage is 37.5 percent 
     and the applicable Federal percentage is 62.5 percent; and
       ``(iv) on or after October 1, 2004, the applicable Puerto 
     Rico percentage is 25 percent and the applicable Federal 
     percentage is 75 percent.''.

     SEC. 505. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.

       (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)), as 
     amended by section 406, is amended by adding at the end the 
     following new paragraph:
       ``(13)(A) In order to recognize commuting patterns among 
     geographic areas, the Secretary shall establish a process 
     through application or otherwise for an increase of the wage 
     index applied under paragraph (3)(E) for subsection (d) 
     hospitals located in a qualifying county described in 
     subparagraph (B) in the amount computed under subparagraph 
     (D) based on out-migration of hospital employees who reside 
     in that county to any higher wage index area.
       ``(B) The Secretary shall establish criteria for a 
     qualifying county under this subparagraph based on the out-
     migration referred to in subparagraph (A) and differences in 
     the area wage indices. Under such criteria the Secretary 
     shall, utilizing such data as the Secretary determines to be 
     appropriate, establish--
       ``(i) a threshold percentage, established by the Secretary, 
     of the weighted average of the area wage index or indices for 
     the higher wage index areas involved;
       ``(ii) a threshold (of not less than 10 percent) for 
     minimum out-migration to a higher wage index area or areas; 
     and
       ``(iii) a requirement that the average hourly wage of the 
     hospitals in the qualifying county equals or exceeds the 
     average hourly wage of all the hospitals in the area in which 
     the qualifying county is located.
       ``(C) For purposes of this paragraph, the term `higher wage 
     index area' means, with respect to a county, an area with a 
     wage index that exceeds that of the county.
       ``(D) The increase in the wage index under subparagraph (A) 
     for a qualifying county shall be equal to the percentage of 
     the hospital employees residing in the qualifying county who 
     are employed in any higher wage index area multiplied by the 
     sum of the products, for each higher wage index area of--
       ``(i) the difference between--
       ``(I) the wage index for such higher wage index area, and
       ``(II) the wage index of the qualifying county; and
       ``(ii) the number of hospital employees residing in the 
     qualifying county who are employed in such higher wage index 
     area divided by the total number of hospital employees 
     residing in the qualifying county who are employed in any 
     higher wage index area.
       ``(E) The process under this paragraph may be based upon 
     the process used by the Medicare Geographic Classification 
     Review Board under paragraph (10). As the Secretary 
     determines to be appropriate to carry out such process, the 
     Secretary may require hospitals (including subsection (d) 
     hospitals and other hospitals) and critical access hospitals, 
     as required under section 1866(a)(1)(T), to submit data 
     regarding the location of residence, or the Secretary may use 
     data from other sources.
       ``(F) A wage index increase under this paragraph shall be 
     effective for a period of 3 fiscal years, except that the 
     Secretary shall establish procedures under which a subsection 
     (d) hospital may elect to waive the application of such wage 
     index increase.
       ``(G) A hospital in a county that has a wage index increase 
     under this paragraph for a period and that has not waived the 
     application of such an increase under subparagraph (F) is not 
     eligible for reclassification under paragraph (8) or (10) 
     during that period.
       ``(H) Any increase in a wage index under this paragraph for 
     a county shall not be taken into account for purposes of--
       ``(i) computing the wage index for portions of the wage 
     index area (not including the county) in which the county is 
     located; or
       ``(ii) applying any budget neutrality adjustment with 
     respect to such index under paragraph (8)(D).
       ``(I) The thresholds described in subparagraph (B), data on 
     hospital employees used under this paragraph, and any 
     determination of the Secretary under the process described in 
     subparagraph (E) shall be final and shall not be subject to 
     judicial review.''.
       (b) Conforming Amendments.--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 at the end 
     and inserting ``, and''; and
       (3) by inserting after subparagraph (S) the following new 
     subparagraph:
       ``(T) in the case of hospitals and critical access 
     hospitals, to furnish to the Secretary such data as the 
     Secretary determines appropriate pursuant to subparagraph (E) 
     of section 1886(d)(12) to carry out such section.''.
       (c) Effective Date.--The amendments made by this section 
     shall first apply to the wage index for discharges occurring 
     on or after October 1, 2004. In initially implementing such 
     amendments, the Secretary may modify the deadlines otherwise 
     applicable under clauses (ii) and (iii)(I) of section 
     1886(d)(10)(C) of the Social Security Act (42 U.S.C. 
     1395ww(d)(10)(C)), for submission of, and actions on, 
     applications relating to changes in hospital geographic 
     reclassification.

     SEC. 506. 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)), as amended by section 505(b), is amended--
       (1) in subparagraph (S), by striking ``and'' at the end;
       (2) in subparagraph (T), by striking the period and 
     inserting ``, and''; and
       (3) by inserting after subparagraph (T) the following new 
     subparagraph:
       ``(U) 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 both--
       ``(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 any 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 1 year after 
     the date of enactment of this Act) to medicare participation 
     agreements in effect (or entered into) on or after such date.
       (c) Promulgation of Regulations.--The Secretary shall 
     promulgate regulations to carry out the amendments made by 
     subsection (a).

     SEC. 507. 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 inserting a semicolon; and
       (ii) by redesignating subparagraph (B) as subparagraph (C) 
     and inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) effective for the 18-month period beginning on the 
     date of the enactment of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003, 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 subsection (d) hospital (as defined in section 
     1886(d)(1)(B)) that is primarily or exclusively engaged in 
     the care and treatment of one of the following categories:
       ``(i) Patients with a cardiac condition.
       ``(ii) Patients with an orthopedic condition.
       ``(iii) Patients receiving a surgical procedure.
       ``(iv) Any other specialized category of services 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--
       ``(i) determined by the Secretary--

       ``(I) to be in operation before November 18, 2003; or
       ``(II) under development as of such date;

       ``(ii) for which the number of physician investors at any 
     time on or after such date is no greater than the number of 
     such investors as of such date;
       ``(iii) for which the type of categories described in 
     subparagraph (A) at any time on or after such date is no 
     different than the type of such categories as of such date;
       ``(iv) for which any increase in the number of beds occurs 
     only in the facilities on the main campus of the hospital and 
     does not exceed 50 percent of the number of beds in the 
     hospital as of November 18, 2003, or 5 beds, whichever is 
     greater; and
       ``(v) 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; and
       ``(B) effective for the 18-month period beginning on the 
     date of the enactment of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003, the entity is not 
     a specialty hospital (as defined in subsection (h)(7)).''.
       (b) 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 
     November 18, 2003, the Secretary shall consider--

[[Page H11937]]

       (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.
       (c) Studies.--
       (1) MedPAC study.--The Medicare Payment Advisory 
     Commission, in consultation with the Comptroller General of 
     the United States, shall conduct a study to determine--
       (A) any differences in the costs of health care services 
     furnished to patients by physician-owned specialty hospitals 
     and the costs of such services furnished by local full-
     service community hospitals within specific diagnosis-related 
     groups;
       (B) the extent to which specialty hospitals, relative to 
     local full-service community hospitals, treat patients in 
     certain diagnosis-related groups within a category, such as 
     cardiology, and an analysis of the selection;
       (C) the financial impact of physician-owned specialty 
     hospitals on local full-service community hospitals;
       (D) how the current diagnosis-related group system should 
     be updated to better reflect the cost of delivering care in a 
     hospital setting; and
       (E) the proportions of payments received, by type of payer, 
     between the specialty hospitals and local full-service 
     community hospitals.
       (2) HHS study.--The Secretary shall conduct a study of a 
     representative sample of specialty hospitals--
       (A) to determine the percentage of patients admitted to 
     physician-owned specialty hospitals who are referred by 
     physicians with an ownership interest;
       (B) to determine the referral patterns of physician owners, 
     including the percentage of patients they referred to 
     physician-owned specialty hospitals and the percentage of 
     patients they referred to local full-service community 
     hospitals for the same condition;
       (C) to compare the quality of care furnished in physician-
     owned specialty hospitals and in local full-service community 
     hospitals for similar conditions and patient satisfaction 
     with such care; and
       (D) to assess the differences in uncompensated care, as 
     defined by the Secretary, between the specialty hospital and 
     local full-service community hospitals, and the relative 
     value of any tax exemption available to such hospitals.
       (3) Reports.--Not later than 15 months after the date of 
     the enactment of this Act, the Commission and the Secretary, 
     respectively, shall each submit to Congress a report on the 
     studies conducted under paragraphs (1) and (2), respectively, 
     and shall include any recommendations for legislation or 
     administrative changes.

     SEC. 508. 1-TIME APPEALS PROCESS FOR HOSPITAL WAGE INDEX 
                   CLASSIFICATION.

         (a) Establishment of Process.--
         (1) In general.--The Secretary shall establish not later 
     than January 1, 2004, by instruction or otherwise a process 
     under which a hospital may appeal the wage index 
     classification otherwise applicable to the hospital and 
     select another area within the State (or, at the discretion 
     of the Secretary, within a contiguous State) to which to be 
     reclassified.
         (2) Process requirements.--The process established under 
     paragraph (1) shall be consistent with the following:
         (A) Such an appeal may be filed as soon as possible after 
     the date of the enactment of this Act but shall be filed by 
     not later than February 15, 2004.
         (B) Such an appeal shall be heard by the Medicare 
     Geographic Reclassification Review Board.
         (C) There shall be no further administrative or judicial 
     review of a decision of such Board.
         (3) Reclassification upon successful appeal.--If the 
     Medicare Geographic Reclassification Review Board determines 
     that the hospital is a qualifying hospital (as defined in 
     subsection (c)), the hospital shall be reclassified to the 
     area selected under paragraph (1). Such reclassification 
     shall apply with respect to discharges occurring during the 
     3-year period beginning with April 1, 2004.
         (4) Inapplicability of certain provisions.--Except as the 
     Secretary may provide, the provisions of paragraphs (8) and 
     (10) of section 1886(d) of the Social Security Act (42 U.S.C. 
     1395ww(d)) shall not apply to an appeal under this section.
         (b) Application of Reclassification.--In the case of an 
     appeal decided in favor of a qualifying hospital under 
     subsection (a), the wage index reclassification shall not 
     affect the wage index computation for any area or for any 
     other hospital and shall not be effected in a budget neutral 
     manner. The provisions of this section shall not affect 
     payment for discharges occurring after the end of the 3-year-
     period referred to in subsection (a).
         (c) Qualifying Hospital Defined.--For purposes of this 
     section, the term ``qualifying hospital'' means a subsection 
     (d) hospital (as defined in section 1886(d)(1)(B) of the 
     Social Security Act, 42 U.S.C. 1395ww(d)(1)(B)) that--
         (1) does not qualify for a change in wage index 
     classification under paragraph (8) or (10) of section 1886(d) 
     of the Social Security Act (42 U.S.C. 1395ww(d)) on the basis 
     of requirements relating to distance or commuting; and
         (2) meets such other criteria, such as quality, as the 
     Secretary may specify by instruction or otherwise.

     The Secretary may modify the wage comparison guidelines 
     promulgated under section 1886(d)(10)(D) of such Act (42 
     U.S.C. 1395ww(d)(10)(D)) in carrying out this section.
         (d) Wage Index Classification.--For purposes of this 
     section, the term ``wage index classification'' means the 
     geographic area in which it is classified for purposes of 
     determining for a fiscal year the factor used to adjust the 
     DRG prospective payment rate under section 1886(d) of the 
     Social Security Act (42 U.S.C. 1395ww(d)) for area 
     differences in hospital wage levels that applies to such 
     hospital under paragraph (3)(E) of such section.
         (e) Limitation on Expenditures.--The aggregate amount of 
     additional expenditures resulting from the application of 
     this section shall not exceed $900,000,000.
         (f) Transitional Extension.--Any reclassification of a 
     county or other area made by Act of Congress for purposes of 
     making payments under section 1886(d) of the Social Security 
     Act (42 U.S.C. 1395ww(d)) that expired on September 30, 2003, 
     shall be deemed to be in effect during the period beginning 
     on January 1, 2004, and ending on September 30, 2004.

                      Subtitle B--Other Provisions

     SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FACILITY 
                   SERVICES.

       (a) Adjustment to RUGs for AIDS Residents.--Paragraph (12) 
     of section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read 
     as follows:
       ``(12) Adjustment for residents with aids.--
       ``(A) In general.--Subject to subparagraph (B), in the case 
     of a resident of a skilled nursing facility who is afflicted 
     with acquired immune deficiency syndrome (AIDS), the per diem 
     amount of payment otherwise applicable (determined without 
     regard to any increase under section 101 of the Medicare, 
     Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, 
     or under section 314(a) of Medicare, Medicaid, and SCHIP 
     Benefits Improvement and Protection Act of 2000), shall be 
     increased by 128 percent to reflect increased costs 
     associated with such residents.
       ``(B) Sunset.--Subparagraph (A) shall not apply on and 
     after such date as the Secretary certifies that there is an 
     appropriate adjustment in the case mix under paragraph 
     (4)(G)(i) to compensate for the increased costs associated 
     with residents described in such subparagraph.''.
       (b) Effective Date.--The amendment made by paragraph (1) 
     shall apply to services furnished on or after October 1, 
     2004.

     SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

       (a) Coverage of Hospice Consultation Services.--Section 
     1812(a) (42 U.S.C. 1395d(a)) is amended--
       (1) by striking ``and'' at the end of paragraph (3);
       (2) by striking the period at the end of paragraph (4) and 
     inserting ``; and''; and
       (3) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) for individuals who are terminally ill, have not made 
     an election under subsection (d)(1), and have not previously 
     received services under this paragraph, services that are 
     furnished by a physician (as defined in section 1861(r)(1)) 
     who is either the medical director or an employee of a 
     hospice program and that--
       ``(A) consist of--
       ``(i) an evaluation of the individual's need for pain and 
     symptom management, including the individual's need for 
     hospice care; and
       ``(ii) counseling the individual with respect to hospice 
     care and other care options; and
       ``(B) may include advising the individual regarding 
     advanced care planning.''.
       (b) Payment.--Section 1814(i) (42 U.S.C. 1395f(i)) is 
     amended by adding at the end the following new paragraph:
       ``(4) The amount paid to a hospice program with respect to 
     the services under section 1812(a)(5) for which payment may 
     be made under this part shall be equal to an amount 
     established for an office or other outpatient visit for 
     evaluation and management associated with presenting problems 
     of moderate severity and requiring medical decisionmaking of 
     low complexity under the fee schedule established under 
     section 1848(b), other than the portion of such amount 
     attributable to the practice expense component.''.
       (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 
     U.S.C. 1395x(dd)(2)(A)(i)) is amended by inserting before the 
     comma at the end the following: ``and services described in 
     section 1812(a)(5)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to services provided by a hospice program on or 
     after January 1, 2005.

     SEC. 513. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND SERVICES 
                   FOR BENEFICIARIES IN SKILLED NURSING 
                   FACILITIES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study of portable diagnostic ultrasound 
     services furnished to medicare beneficiaries in skilled 
     nursing facilities. Such study shall consider the following:
       (1) Types of equipment; training.--The types of portable 
     diagnostic ultrasound services furnished to such 
     beneficiaries, the types of portable ultrasound equipment 
     used to furnish such services, and the technical skills, or 
     training, or both, required for technicians to furnish such 
     services.
       (2) Clinical appropriateness.--The clinical appropriateness 
     of transporting portable diagnostic ultrasound diagnostic and 
     technicians to patients in skilled nursing facilities as 
     opposed to transporting such patients to a hospital or other 
     facility that furnishes diagnostic ultrasound services.
       (3) Financial impact.--The financial impact if Medicare 
     were make a separate payment for portable ultrasound 
     diagnostic services, including the impact of separate 
     payments--
       (A) for transportation and technician services for 
     residents during a resident in a part A stay, that would 
     otherwise be paid for under the prospective payment system 
     for covered skilled nursing facility services (under section 
     1888(e) of

[[Page H11938]]

     the Social Security Act (42 U.S.C. 1395yy(e)); and
       (B) for such services for residents in a skilled nursing 
     facility after a part A stay.
       (4) Credentialing requirements.--Whether the Secretary 
     should establish credentialing or other requirements for 
     technicians that furnish diagnostic ultrasound services to 
     medicare beneficiaries.
       (b) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a), and shall include any recommendations for legislation or 
     administrative change as the Comptroller General determines 
     appropriate.

                TITLE VI--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

     SEC. 601. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

       (a) Update for 2004 and 2005.--
       (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
     amended by adding at the end the following new paragraph:
       ``(5) Update for 2004 and 2005.--The update to the single 
     conversion factor established in paragraph (1)(C) for each of 
     2004 and 2005 shall be not less than 1.5 percent.''.
       (2) Conforming amendment.--Paragraph (4)(B) of such section 
     is amended, in the matter before clause (i), by inserting 
     ``and paragraph (5)'' after ``subparagraph (D)''.
       (3) Not treated as change in law and regulation in 
     sustainable growth rate determination.--The amendments made 
     by this subsection shall not be treated as a change in law 
     for purposes of applying section 1848(f)(2)(D) of the Social 
     Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
       (b) Use of 10-Year Rolling Average in Computing Gross 
     Domestic Product.--
       (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
     4(f)(2)(C)) is amended--
       (A) by striking ``projected'' and inserting ``annual 
     average''; and
       (B) by striking ``from the previous applicable period to 
     the applicable period involved'' and inserting ``during the 
     10-year period ending with the applicable period involved''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to computations of the sustainable growth rate 
     for years beginning with 2003.

     SEC. 602. TREATMENT OF PHYSICIANS' SERVICES FURNISHED IN 
                   ALASKA.

       Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)), as amended by 
     section 421, is amended--
       (1) in subparagraph (A), by striking ``subparagraphs (B), 
     (C), (E), and (F)'' and inserting ``subparagraphs (B), (C), 
     (E), (F) and (G)''; and
       (2) by adding at the end the following new subparagraph:
       ``(G) Floor for practice expense, malpractice, and work 
     geographic indices for services furnished in alaska.--For 
     purposes of payment for services furnished in Alaska on or 
     after January 1, 2004, and before January 1, 2006, after 
     calculating the practice expense, malpractice, and work 
     geographic indices in clauses (i), (ii), and (iii) of 
     subparagraph (A) and in subparagraph (B), the Secretary shall 
     increase any such index to 1.67 if such index would otherwise 
     be less than 1.67.''.

     SEC. 603. INCLUSION OF PODIATRISTS, DENTISTS, AND 
                   OPTOMETRISTS UNDER PRIVATE CONTRACTING 
                   AUTHORITY.

       Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is amended 
     by striking ``section 1861(r)(1)'' and inserting ``paragraphs 
     (1), (2), (3), and (4) of section 1861(r)''.

     SEC. 604. GAO STUDY ON ACCESS TO PHYSICIANS' SERVICES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study on access of medicare beneficiaries to 
     physicians' services under the medicare program. The study 
     shall include--
       (1) an assessment of the use by beneficiaries of such 
     services through an analysis of claims submitted by 
     physicians for such services under part B of the medicare 
     program;
       (2) an examination of changes in the use by beneficiaries 
     of physicians' services over time; and
       (3) an examination of the extent to which physicians are 
     not accepting new medicare beneficiaries as patients.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a). The report shall include a determination whether--
       (1) data from claims submitted by physicians under part B 
     of the medicare program indicate potential access problems 
     for medicare beneficiaries in certain geographic areas; and
       (2) access by medicare beneficiaries to physicians' 
     services may have improved, remained constant, or 
     deteriorated over time.

     SEC. 605. COLLABORATIVE DEMONSTRATION-BASED REVIEW OF 
                   PHYSICIAN PRACTICE EXPENSE GEOGRAPHIC 
                   ADJUSTMENT DATA.

       (a) In General.--Not later than January 1, 2005, the 
     Secretary shall, in collaboration with State and other 
     appropriate organizations representing physicians, and other 
     appropriate persons, review and consider alternative data 
     sources than those currently used in establishing the 
     geographic index for the practice expense component under the 
     medicare physician fee schedule under section 
     1848(e)(1)(A)(i) of the Social Security Act (42 U.S.C. 1395w-
     4(e)(1)(A)(i)).
       (b) Sites.--The Secretary shall select two physician 
     payment localities in which to carry out subsection (a). One 
     locality shall include rural areas and at least one locality 
     shall be a statewide locality that includes both urban and 
     rural areas.
       (c) Report and Recommendations.--
       (1) Report.--Not later than January 1, 2006, the Secretary 
     shall submit to Congress a report on the review and 
     consideration conducted under subsection (a). Such report 
     shall include information on the alternative developed data 
     sources considered by the Secretary under subsection (a), 
     including the accuracy and validity of the data as measures 
     of the elements of the geographic index for practice expenses 
     under the medicare physician fee schedule as well as the 
     feasibility of using such alternative data nationwide in lieu 
     of current proxy data used in such index, and the estimated 
     impacts of using such alternative data.
       (2) Recommendations.--The report submitted under paragraph 
     (1) shall contain recommendations on which data sources 
     reviewed and considered under subsection (a) are appropriate 
     for use in calculating the geographic index for practice 
     expenses under the medicare physician fee schedule.

     SEC. 606. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

       (a) Practice Expense Component.--Not later than 1 year 
     after the date of the enactment of this Act, the Medicare 
     Payment Advisory Commission shall submit to Congress a report 
     on the effect of refinements to the practice expense 
     component of payments for physicians' services, after the 
     transition to a full resource-based payment system in 2002, 
     under section 1848 of the Social Security Act (42 U.S.C. 
     1395w-4). Such report shall examine the following matters by 
     physician specialty:
       (1) The effect of such refinements on payment for 
     physicians' services.
       (2) The interaction of the practice expense component with 
     other components of and adjustments to payment for 
     physicians' services under such section.
       (3) The appropriateness of the amount of compensation by 
     reason of such refinements.
       (4) The effect of such refinements on access to care by 
     medicare beneficiaries to physicians' services.
       (5) The effect of such refinements on physician 
     participation under the medicare program.
       (b) Volume of Physicians' Services.--Not later than 1 year 
     after the date of the enactment of this Act, the Medicare 
     Payment Advisory Commission shall submit to Congress a report 
     on the extent to which increases in the volume of physicians' 
     services under part B of the medicare program are a result of 
     care that improves the health and well-being of medicare 
     beneficiaries. The study shall include the following:
       (1) An analysis of recent and historic growth in the 
     components that the Secretary includes under the sustainable 
     growth rate (under section 1848(f) of the Social Security Act 
     (42 U.S.C. 1395w-4(f))).
       (2) An examination of the relative growth of volume in 
     physicians' services between medicare beneficiaries and other 
     populations.
       (3) An analysis of the degree to which new technology, 
     including coverage determinations of the Centers for Medicare 
     & Medicaid Services, has affected the volume of physicians' 
     services.
       (4) An examination of the impact on volume of demographic 
     changes.
       (5) An examination of shifts in the site of service or 
     services that influence the number and intensity of services 
     furnished in physicians' offices and the extent to which 
     changes in reimbursement rates to other providers have 
     effected these changes.
       (6) An evaluation of the extent to which the Centers for 
     Medicare & Medicaid Services takes into account the impact of 
     law and regulations on the sustainable growth rate.

                    Subtitle B--Preventive Services

     SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL 
                   EXAMINATION.

       (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) 
     is amended--
       (1) in subparagraph (U), by striking ``and'' at the end;
       (2) in subparagraph (V)(iii), by inserting ``and'' at the 
     end; and
       (3) by adding at the end the following new subparagraph:
       ``(W) an initial preventive physical examination (as 
     defined in subsection (ww));''.
       (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is 
     amended by adding at the end the following new subsection:

               ``Initial Preventive Physical Examination

       ``(ww)(1) The term `initial preventive physical 
     examination' means physicians' services consisting of a 
     physical examination (including measurement of height, 
     weight, and blood pressure, and an electrocardiogram) with 
     the goal of health promotion and disease detection and 
     includes education, counseling, and referral with respect to 
     screening and other preventive services described in 
     paragraph (2), but does not include clinical laboratory 
     tests.
       ``(2) The screening and other preventive services described 
     in this paragraph include the following:
       ``(A) Pneumococcal, influenza, and hepatitis B vaccine and 
     administration under subsection (s)(10).
       ``(B) Screening mammography as defined in subsection (jj).
       ``(C) Screening pap smear and screening pelvic exam as 
     defined in subsection (nn).
       ``(D) Prostate cancer screening tests as defined in 
     subsection (oo).
       ``(E) Colorectal cancer screening tests as defined in 
     subsection (pp).
       ``(F) Diabetes outpatient self-management training services 
     as defined in subsection (qq)(1).
       ``(G) Bone mass measurement as defined in subsection (rr).
       ``(H) Screening for glaucoma as defined in subsection (uu).

[[Page H11939]]

       ``(I) Medical nutrition therapy services as defined in 
     subsection (vv).
       ``(J) Cardiovascular screening blood tests as defined in 
     subsection (xx)(1).
       ``(K) Diabetes screening tests as defined in subsection 
     (yy).''.
       (c) Payment as Physicians' Services.--Section 1848(j)(3) 
     (42 U.S.C. 1395w-4(j)(3)) is amended by inserting ``(2)(W),'' 
     after ``(2)(S),''.
       (d) Other Conforming Amendments.--(1) Section 1862(a) (42 
     U.S.C. 1395y(a)), as amended by section 303(i)(3)(B), is 
     amended--
       (A) in paragraph (1)--
       (i) by striking ``and'' at the end of subparagraph (I);
       (ii) by striking the semicolon at the end of subparagraph 
     (J) and inserting ``, and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(K) in the case of an initial preventive physical 
     examination, which is performed not later than 6 months after 
     the date the individual's first coverage period begins under 
     part B;''; a
       (B) in paragraph (7), by striking ``or (H)'' and inserting 
     ``(H), or (K)''.
       (2) Clauses (i) and (ii) of section 1861(s)(2)(K) (42 
     U.S.C. 1395x(s)(2)(K)) are each amended by inserting ``and 
     services described in subsection (ww)(1)'' after ``services 
     which would be physicians' services''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2005, but only for individuals whose coverage period under 
     part B begins on or after such date.

     SEC. 612. COVERAGE OF CARDIOVASCULAR SCREENING BLOOD TESTS.

       (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
     as amended by section 611(a), is amended--
       (1) in subparagraph (V)(iii), by striking ``and'' at the 
     end;
       (2) in subparagraph (W), by inserting ``and'' at the end; 
     and
       (3) by adding at the end the following new subparagraph:
       ``(X) cardiovascular screening blood tests (as defined in 
     subsection (xx)(1));''.
       (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is 
     amended by adding at the end the following new subsection:

                 ``Cardiovascular Screening Blood Test

       ``(xx)(1) The term `cardiovascular screening blood test' 
     means a blood test for the early detection of cardiovascular 
     disease (or abnormalities associated with an elevated risk of 
     cardiovascular disease) that tests for the following:
       ``(A) Cholesterol levels and other lipid or triglyceride 
     levels.
       ``(B) Such other indications associated with the presence 
     of, or an elevated risk for, cardiovascular disease as the 
     Secretary may approve for all individuals (or for some 
     individuals determined by the Secretary to be at risk for 
     cardiovascular disease), including indications measured by 
     noninvasive testing.
     The Secretary may not approve an indication under 
     subparagraph (B) for any individual unless a blood test for 
     such is recommended by the United States Preventive Services 
     Task Force.
       ``(2) The Secretary shall establish standards, in 
     consultation with appropriate organizations, regarding the 
     frequency for each type of cardiovascular screening blood 
     tests, except that such frequency may not be more often than 
     once every 2 years.''.
       (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
     as amended by section 611(d), is amended--
       (1) by striking ``and'' at the end of subparagraph (J);
       (2) by striking the semicolon at the end of subparagraph 
     (K) and inserting ``, and''; and
       (3) by adding at the end the following new subparagraph:
       ``(L) in the case of cardiovascular screening blood tests 
     (as defined in section 1861(xx)(1)), which are performed more 
     frequently than is covered under section 1861(xx)(2);''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to tests furnished on or after January 1, 2005.

     SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.

       (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
     as amended by section 612(a), is amended--
       (1) in subparagraph (W), by striking ``and'' at the end;
       (2) in subparagraph (X), by adding ``and'' at the end; and
       (3) by adding at the end the following new subparagraph:
       ``(Y) diabetes screening tests (as defined in subsection 
     (yy));''.
       (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
     amended by section 612(b), is amended by adding at the end 
     the following new subsection:

                       ``Diabetes Screening Tests

       ``(yy)(1) The term `diabetes screening tests' means testing 
     furnished to an individual at risk for diabetes (as defined 
     in paragraph (2)) for the purpose of early detection of 
     diabetes, including--
       ``(A) a fasting plasma glucose test; and
       ``(B) such other tests, and modifications to tests, as the 
     Secretary determines appropriate, in consultation with 
     appropriate organizations.
       ``(2) For purposes of paragraph (1), the term `individual 
     at risk for diabetes' means an individual who has any of the 
     following risk factors for diabetes:
       ``(A) Hypertension.
       ``(B) Dyslipidemia.
       ``(C) Obesity, defined as a body mass index greater than or 
     equal to 30 kg/m2.
       ``(D) Previous identification of an elevated impaired 
     fasting glucose.
       ``(E) Previous identification of impaired glucose 
     tolerance.
       ``(F) A risk factor consisting of at least 2 of the 
     following characteristics:
       ``(i) Overweight, defined as a body mass index greater than 
     25, but less than 30, kg/m2.
       ``(ii) A family history of diabetes.
       ``(iii) A history of gestational diabetes mellitus or 
     delivery of a baby weighing greater than 9 pounds.
       ``(iv) 65 years of age or older.
       ``(3) The Secretary shall establish standards, in 
     consultation with appropriate organizations, regarding the 
     frequency of diabetes screening tests, except that such 
     frequency may not be more often than twice within the 12-
     month period following the date of the most recent diabetes 
     screening test of that individual.''.
       (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
     as amended by section 612(c), is amended--
       (1) by striking ``and'' at the end of subparagraph (K);
       (2) by striking the semicolon at the end of subparagraph 
     (L) and inserting ``, and''; and
       (3) by adding at the end the following new subparagraph:
       ``(M) in the case of a diabetes screening test (as defined 
     in section 1861(yy)(1)), which is performed more frequently 
     than is covered under section 1861(yy)(3);''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to tests furnished on or after January 1, 2005.

     SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

       (a) Exclusion From OPD Fee Schedule.--Section 
     1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended 
     by inserting before the period at the end the following: 
     ``and does not include screening mammography (as defined in 
     section 1861(jj)) and diagnostic mammography''.
       (b) Conforming Amendment.--Section 1833(a)(2)(E)(i) (42 
     U.S.C. 1395l(a)(2)(E)(i)) is amended by inserting ``and, for 
     services furnished on or after January 1, 2005, diagnostic 
     mammography'' after ``screening mammography''.
       (c) Effective Date.--The amendments made by this section 
     shall apply--
       (1) in the case of screening mammography, to services 
     furnished on or after the date of the enactment of this Act; 
     and
       (2) in the case of diagnostic mammography, to services 
     furnished on or after January 1, 2005.

                      Subtitle C--Other Provisions

     SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) PAYMENT 
                   REFORM.

       (a) Payment for Drugs.--
       (1) Special rules for certain drugs and biologicals.--
     Section 1833(t) (42 U.S.C. 1395l(t)), as amended by section 
     411(b), is amended by inserting after paragraph (13) the 
     following new paragraphs:
       ``(14) Drug apc payment rates.--
       ``(A) In general.--The amount of payment under this 
     subsection for a specified covered outpatient drug (defined 
     in subparagraph (B)) that is furnished as part of a covered 
     OPD service (or group of services)--
       ``(i) in 2004, in the case of--

       ``(I) a sole source drug shall in no case be less than 88 
     percent, or exceed 95 percent, of the reference average 
     wholesale price for the drug;
       ``(II) an innovator multiple source drug shall in no case 
     exceed 68 percent of the reference average wholesale price 
     for the drug; or
       ``(III) a noninnovator multiple source drug shall in no 
     case exceed 46 percent of the reference average wholesale 
     price for the drug;

       ``(ii) in 2005, in the case of--

       ``(I) a sole source drug shall in no case be less than 83 
     percent, or exceed 95 percent, of the reference average 
     wholesale price for the drug;
       ``(II) an innovator multiple source drug shall in no case 
     exceed 68 percent of the reference average wholesale price 
     for the drug; or
       ``(III) a noninnovator multiple source drug shall in no 
     case exceed 46 percent of the reference average wholesale 
     price for the drug; or

       ``(iii) in a subsequent year, shall be equal, subject to 
     subparagraph (E)--

       ``(I) to the average acquisition cost for the drug for that 
     year (which, at the option of the Secretary, may vary by 
     hospital group (as defined by the Secretary based on volume 
     of covered OPD services or other relevant characteristics)), 
     as determined by the Secretary taking into account the 
     hospital acquisition cost survey data under subparagraph (D); 
     or
       ``(II) if hospital acquisition cost data are not available, 
     the average price for the drug in the year established under 
     section 1842(o), section 1847A, or section 1847B, as the case 
     may be, as calculated and adjusted by the Secretary as 
     necessary for purposes of this paragraph.

       ``(B) Specified covered outpatient drug defined.--
       ``(i) In general.--In this paragraph, the term `specified 
     covered outpatient drug' means, subject to clause (ii), a 
     covered outpatient drug (as defined in section 1927(k)(2)) 
     for which a separate ambulatory payment classification group 
     (APC) has been established and that is--

       ``(I) a radiopharmaceutical; or
       ``(II) a drug or biological for which payment was made 
     under paragraph (6) (relating to pass-through payments) on or 
     before December 31, 2002.

       ``(ii) Exception.--Such term does not include--

       ``(I) a drug or biological for which payment is first made 
     on or after January 1, 2003, under paragraph (6);
       ``(II) a drug or biological for which a temporary HCPCS 
     code has not been assigned; or
       ``(III) during 2004 and 2005, an orphan drug (as designated 
     by the Secretary).

       ``(C) Payment for designated orphan drugs during 2004 and 
     2005.--The amount of payment under this subsection for an 
     orphan drug designated by the Secretary under subparagraph

[[Page H11940]]

     (B)(ii)(III) that is furnished as part of a covered OPD 
     service (or group of services) during 2004 and 2005 shall 
     equal such amount as the Secretary may specify.
       ``(D) Acquisition cost survey for hospital outpatient 
     drugs.--
       ``(i) Annual gao surveys in 2004 and 2005.--

       ``(I) In general.--The Comptroller General of the United 
     States shall conduct a survey in each of 2004 and 2005 to 
     determine the hospital acquisition cost for each specified 
     covered outpatient drug. Not later than April 1, 2005, the 
     Comptroller General shall furnish data from such surveys to 
     the Secretary for use in setting the payment rates under 
     subparagraph (A) for 2006.
       ``(II) Recommendations.--Upon the completion of such 
     surveys, the Comptroller General shall recommend to the 
     Secretary the frequency and methodology of subsequent surveys 
     to be conducted by the Secretary under clause (ii).

       ``(ii) Subsequent secretarial surveys.--The Secretary, 
     taking into account such recommendations, shall conduct 
     periodic subsequent surveys to determine the hospital 
     acquisition cost for each specified covered outpatient drug 
     for use in setting the payment rates under subparagraph (A).
       ``(iii) Survey requirements.--The surveys conducted under 
     clauses (i) and (ii) shall have a large sample of hospitals 
     that is sufficient to generate a statistically significant 
     estimate of the average hospital acquisition cost for each 
     specified covered outpatient drug. With respect to the 
     surveys conducted under clause (i), the Comptroller General 
     shall report to Congress on the justification for the size of 
     the sample used in order to assure the validity of such 
     estimates.
       ``(iv) Differentiation in cost.--In conducting surveys 
     under clause (i), the Comptroller General shall determine and 
     report to Congress if there is (and the extent of any) 
     variation in hospital acquisition costs for drugs among 
     hospitals based on the volume of covered OPD services 
     performed by such hospitals or other relevant characteristics 
     of such hospitals (as defined by the Comptroller General).
       ``(v) Comment on proposed rates.--Not later than 30 days 
     after the date the Secretary promulgated proposed rules 
     setting forth the payment rates under subparagraph (A) for 
     2006, the Comptroller General shall evaluate such proposed 
     rates and submit to Congress a report regarding the 
     appropriateness of such rates based on the surveys the 
     Comptroller General has conducted under clause (i).
       ``(E) Adjustment in payment rates for overhead costs.--
       ``(i) Medpac report on drug apc design.--The Medicare 
     Payment Advisory Commission shall submit to the Secretary, 
     not later than July 1, 2005, a report on adjustment of 
     payment for ambulatory payment classifications for specified 
     covered outpatient drugs to take into account overhead and 
     related expenses, such as pharmacy services and handling 
     costs. Such report shall include--

       ``(I) a description and analysis of the data available with 
     regard to such expenses;
       ``(II) a recommendation as to whether such a payment 
     adjustment should be made; and
       ``(III) if such adjustment should be made, a recommendation 
     regarding the methodology for making such an adjustment.

       ``(ii) Adjustment authorized.--The Secretary may adjust the 
     weights for ambulatory payment classifications for specified 
     covered outpatient drugs to take into account the 
     recommendations contained in the report submitted under 
     clause (i).
       ``(F) Classes of drugs.--For purposes of this paragraph:
       ``(i) Sole source drugs.--The term `sole source drug' 
     means--

       ``(I) a biological product (as defined under section 
     1861(t)(1)); or
       ``(II) a single source drug (as defined in section 
     1927(k)(7)(A)(iv)).

       ``(ii) Innovator multiple source drugs.--The term 
     `innovator multiple source drug' has the meaning given such 
     term in section 1927(k)(7)(A)(ii).
       ``(iii) Noninnovator multiple source drugs.--The term 
     `noninnovator multiple source drug' has the meaning given 
     such term in section 1927(k)(7)(A)(iii).
       ``(G) Reference average wholesale price.--The term 
     `reference average wholesale price' means, with respect to a 
     specified covered outpatient drug, the average wholesale 
     price for the drug as determined under section 1842(o) as of 
     May 1, 2003.
       ``(H) Inapplicability of expenditures in determining 
     conversion, weighting, and other adjustment factors.--
     Additional expenditures resulting from this paragraph shall 
     not be taken into account in establishing the conversion, 
     weighting, and other adjustment factors for 2004 and 2005 
     under paragraph (9), but shall be taken into account for 
     subsequent years.
       ``(15) Payment for new drugs and biologicals until hcpcs 
     code assigned.--With respect to payment under this part for 
     an outpatient drug or biological that is covered under this 
     part and is furnished as part of covered OPD services for 
     which a HCPCS code has not been assigned, the amount provided 
     for payment for such drug or biological under this part shall 
     be equal to 95 percent of the average wholesale price for the 
     drug or biological.''.
       (2) Reduction in threshold for separate apcs for drugs.--
     Section 1833(t)(16), as redesignated section 411(b), is 
     amended by adding at the end the following new subparagraph:
       ``(B) Threshold for establishment of separate apcs for 
     drugs.--The Secretary shall reduce the threshold for the 
     establishment of separate ambulatory payment classification 
     groups (APCs) with respect to drugs or biologicals to $50 per 
     administration for drugs and biologicals furnished in 2005 
     and 2006.''.
       (3) Exclusion of separate drug apcs from outlier 
     payments.--Section 1833(t)(5) is amended by adding at the end 
     the following new subparagraph:
       ``(E) Exclusion of separate drug and biological apcs from 
     outlier payments.--No additional payment shall be made under 
     subparagraph (A) in the case of ambulatory payment 
     classification groups established separately for drugs or 
     biologicals.''.
       (4) Payment for pass through drugs.--Section 
     1833(t)(6)(D)(i) (42 U.S.C. 1395l(t)(6)(D)(i)) is amended by 
     inserting after ``under section 1842(o)'' the following: 
     ``(or if the drug or biological is covered under a 
     competitive acquisition contract under section 1847B, an 
     amount determined by the Secretary equal to the average price 
     for the drug or biological for all competitive acquisition 
     areas and year established under such section as calculated 
     and adjusted by the Secretary for purposes of this 
     paragraph)''.
       (5) Conforming amendment 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 adjustments under the preceding 
     sentence for 2004 and 2005, the Secretary shall not take into 
     account under this subparagraph or paragraph (2)(E) any 
     expenditures that would not have been made but for the 
     application of paragraph (14).''.
       (6) Effective date.--The amendments made by this subsection 
     shall apply to items and services furnished on or after 
     January 1, 2004.
       (b) Special Payment for Brachytherapy.--
       (1) In general.--Section 1833(t)(16), as redesignated by 
     section 411(b) and as amended by subsection (a)(2), is 
     amended by adding at the end the following new subparagraph:
       ``(C) Payment for devices of brachytherapy at charges 
     adjusted to cost.--Notwithstanding the preceding provisions 
     of this subsection, for a device of brachytherapy consisting 
     of a seed or seeds (or radioactive source) furnished on or 
     after January 1, 2004, and before January 1, 2007, the 
     payment basis for the device under this subsection shall be 
     equal to the hospital's charges for each device furnished, 
     adjusted to cost. Charges for such devices shall not be 
     included in determining any outlier payment under this 
     subsection.''.
       (2) Specification of groups for brachytherapy devices.--
     Section 1833(t)(2) (42 U.S.C. 1395l(t)(2)) is amended--
       (A) in subparagraph (F), by striking ``and'' at the end;
       (B) in subparagraph (G), by striking the period at the end 
     and inserting ``; and''; and
       (C) by adding at the end the following new subparagraph:
       ``(H) with respect to devices of brachytherapy consisting 
     of a seed or seeds (or radioactive source), the Secretary 
     shall create additional groups of covered OPD services that 
     classify such devices separately from the other services (or 
     group of services) paid for under this subsection in a manner 
     reflecting the number, isotope, and radioactive intensity of 
     such devices furnished, including separate groups for 
     palladium-103 and iodine-125 devices.''.
       (3) GAO report.--The Comptroller General of the United 
     States shall conduct a study to determine appropriate payment 
     amounts under section 1833(t)(16)(C) of the Social Security 
     Act, as added by paragraph (1), for devices of brachytherapy. 
     Not later than January 1, 2005, the Comptroller General shall 
     submit to Congress and the Secretary a report on the study 
     conducted under this paragraph, and shall include specific 
     recommendations for appropriate payments for such devices.

     SEC. 622. 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.--Clause (i) shall apply to the 
     application of a functional equivalence standard to a drug or 
     biological on or after the date of enactment of the Medicare 
     Prescription Drug, Improvement, and Modernization 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 bioequivalent, 
     as determined by the Commissioner of Food and Drugs.''.

     SEC. 623. PAYMENT FOR RENAL DIALYSIS SERVICES.

       (a) Increase in Renal Dialysis Composite Rate for Services 
     Furnished.--The last sentence of section 1881(b)(7) (42 
     U.S.C. 1395rr(b)(7)) is amended--
       (1) by striking ``and'' before ``for such services'' the 
     second place it appears;
       (2) by inserting ``and before January 1, 2005,'' after 
     ``January 1, 2001,''; and
       (3) by inserting before the period at the end the 
     following: ``, and for such services furnished on or after 
     January 1, 2005, by 1.6 percent above such composite rate 
     payment amounts for such services furnished on December 31, 
     2004''.
       (b) Restoring Composite Rate Exceptions for Pediatric 
     Facilities.--
       (1) In general.--Section 422(a)(2) of BIPA is amended--

[[Page H11941]]

       (A) in subparagraph (A), by striking ``and (C)'' and 
     inserting ``, (C), and (D)'';
       (B) in subparagraph (B), by striking ``In the case'' and 
     inserting ``Subject to subparagraph (D), in the case''; and
       (C) by adding at the end the following new subparagraph:
       ``(D) Inapplicability to pediatric facilities.--
     Subparagraphs (A) and (B) shall not apply, as of October 1, 
     2002, to pediatric facilities that do not have an exception 
     rate described in subparagraph (C) in effect on such date. 
     For purposes of this subparagraph, the term `pediatric 
     facility' means a renal facility at least 50 percent of whose 
     patients are individuals under 18 years of age.''.
       (2) Conforming amendment.--The fourth sentence of section 
     1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking 
     ``The Secretary'' and inserting ``Subject to section 
     422(a)(2) of the Medicare, Medicaid, and SCHIP Benefits 
     Improvement and Protection Act of 2000, the Secretary''.
       (c) Inspector General Studies on ESRD Drugs.--
       (1) In general.--The Inspector General of the Department of 
     Health and Human Services shall conduct two studies with 
     respect to drugs and biologicals (including erythropoietin) 
     furnished to end-stage renal disease patients under the 
     medicare program which are separately billed by end stage 
     renal disease facilities.
       (2) Studies on esrd drugs.--
       (A) Existing drugs.--The first study under paragraph (1) 
     shall be conducted with respect to such drugs and biologicals 
     for which a billing code exists prior to January 1, 2004.
       (B) New drugs.--The second study under paragraph (1) shall 
     be conducted with respect to such drugs and biologicals for 
     which a billing code does not exist prior to January 1, 2004.
       (3) Matters studied.--Under each study conducted under 
     paragraph (1), the Inspector General shall--
       (A) determine the difference between the amount of payment 
     made to end stage renal disease facilities under title XVIII 
     of the Social Security Act for such drugs and biologicals and 
     the acquisition costs of such facilities for such drugs and 
     biologicals and which are separately billed by end stage 
     renal disease facilities, and
       (B) estimate the rates of growth of expenditures for such 
     drugs and biologicals billed by such facilities.
       (4) Reports.--
       (A) Existing esrd drugs.--Not later than April 1, 2004, the 
     Inspector General shall report to the Secretary on the study 
     described in paragraph (2)(A).
       (B) New esrd drugs.--Not later than April 1, 2006, the 
     Inspector General shall report to the Secretary on the study 
     described in paragraph (2)(B).
       (d) Basic Case-Mix Adjusted Composite Rate for Renal 
     Dialysis Facility Services.--(1) Section 1881(b) (42 U.S.C. 
     1395rr(b)) is amended by adding at the end the following new 
     paragraphs:
       ``(12)(A) In lieu of payment under paragraph (7) beginning 
     with services furnished on January 1, 2005, the Secretary 
     shall establish a basic case-mix adjusted prospective payment 
     system for dialysis services furnished by providers of 
     services and renal dialysis facilities in a year to 
     individuals in a facility and to such individuals at home. 
     The case-mix under such system shall be for a limited number 
     of patient characteristics.
       ``(B) The system described in subparagraph (A) shall 
     include--
       ``(i) the services comprising the composite rate 
     established under paragraph (7); and
       ``(ii) the difference between payment amounts under this 
     title for separately billed drugs and biologicals (including 
     erythropoietin) and acquisition costs of such drugs and 
     biologicals, as determined by the Inspector General reports 
     to the Secretary as required by section 623(c) of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003--
       ``(I) beginning with 2005, for such drugs and biologicals 
     for which a billing code exists prior to January 1, 2004; and
       ``(II) beginning with 2007, for such drugs and biologicals 
     for which a billing code does not exist prior to January 1, 
     2004,
     adjusted to 2005, or 2007, respectively, as determined to be 
     appropriate by the Secretary.
       ``(C)(i) In applying subparagraph (B)(ii) for 2005, such 
     payment amounts under this title shall be determined using 
     the methodology specified in paragraph (13)(A)(i).
       ``(ii) For 2006, the Secretary shall provide for an 
     adjustment to the payments under clause (i) to reflect the 
     difference between the payment amounts using the methodology 
     under paragraph (13)(A)(i) and the payment amount determined 
     using the methodology applied by the Secretary under 
     paragraph (13)(A)(iii) of such paragraph, as estimated by the 
     Secretary.
       ``(D) The Secretary shall adjust the payment rates under 
     such system by a geographic index as the Secretary determines 
     to be appropriate. If the Secretary applies a geographic 
     index under this paragraph that differs from the index 
     applied under paragraph (7) the Secretary shall phase-in the 
     application of the index under this paragraph over a 
     multiyear period.
       ``(E)(i) Such system shall be designed to result in the 
     same aggregate amount of expenditures for such services, as 
     estimated by the Secretary, as would have been made for 2005 
     if this paragraph did not apply.
       ``(ii) The adjustment made under subparagraph (B)(ii)(II) 
     shall be done in a manner to result in the same aggregate 
     amount of expenditures after such adjustment as would 
     otherwise have been made for such services for 2006 or 2007, 
     respectively, as estimated by the Secretary, if this 
     paragraph did not apply.
       ``(F) Beginning with 2006, the Secretary shall annually 
     increase the basic case-mix adjusted payment amounts 
     established under this paragraph, by an amount determined 
     by--
       ``(i) applying the estimated growth in expenditures for 
     drugs and biologicals (including erythropoietin) that are 
     separately billable to the component of the basic case-mix 
     adjusted system described in subparagraph (B)(ii); and
       ``(ii) converting the amount determined in clause (i) to an 
     increase applicable to the basic case-mix adjusted payment 
     amounts established under subparagraph (B).
     Nothing in this paragraph shall be construed as providing for 
     an update to the composite rate component of the basic case-
     mix adjusted system under subparagraph (B).
       ``(G) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, of the case-
     mix system, relative weights, payment amounts, the geographic 
     adjustment factor, or the update for the system established 
     under this paragraph, or the determination of the difference 
     between medicare payment amounts and acquisition costs for 
     separately billed drugs and biologicals (including 
     erythropoietin) under this paragraph and paragraph (13).
       ``(13)(A) The payment amounts under this title for 
     separately billed drugs and biologicals furnished in a year, 
     beginning with 2004, are as follows:
       ``(i) For such drugs and biologicals (other than 
     erythropoietin) furnished in 2004, the amount determined 
     under section 1842(o)(1)(A)(v) for the drug or biological.
       ``(ii) For such drugs and biologicals (including 
     erythropoietin) furnished in 2005, the acquisition cost of 
     the drug or biological, as determined by the Inspector 
     General reports to the Secretary as required by section 
     623(c) of the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003. Insofar as the Inspector General 
     has not determined the acquisition cost with respect to a 
     drug or biological, the Secretary shall determine the payment 
     amount for such drug or biological.
       ``(iii) For such drugs and biologicals (including 
     erythropoietin) furnished in 2006 and subsequent years, such 
     acquisition cost or the amount determined under section 1847A 
     for the drug or biological, as the Secretary may specify.
       ``(B)(i) Drugs and biologicals (including erythropoietin) 
     which were separately billed under this subsection on the day 
     before the date of the enactment of the Medicare Prescription 
     Drug, Improvement, and Modernization Act of 2003 shall 
     continue to be separately billed on and after such date.
       ``(ii) Nothing in this paragraph, section 1842(o), section 
     1847A, or section 1847B shall be construed as requiring or 
     authorizing the bundling of payment for drugs and biologicals 
     into the basic case-mix adjusted payment system under this 
     paragraph.''.
       (2) Paragraph (7) of such section is amended in the first 
     sentence by striking ``The Secretary'' and inserting 
     ``Subject to paragraph (12), the Secretary''.
       (3) Paragraph (11)(B) of such section is amended by 
     inserting ``subject to paragraphs (12) and (13)'' before 
     ``payment for such item''.
       (e) Demonstration of Bundled Case-Mix Adjusted Payment 
     System for ESRD Services.--
       (1) In general.--The Secretary shall establish a 
     demonstration project of the use of a fully case-mix adjusted 
     payment system for end stage renal disease services under 
     section 1881 of the Social Security Act (42 U.S.C. 1395rr) 
     for patient characteristics identified in the report under 
     subsection (f) that bundles into such payment rates amounts 
     for--
       (A) drugs and biologicals (including erythropoietin) 
     furnished to end stage renal disease patients under the 
     medicare program which are separately billed by end stage 
     renal disease facilities (as of the date of the enactment of 
     this Act); and
       (B) clinical laboratory tests related to such drugs and 
     biologicals.
       (2) Facilities included in the demonstration.--In 
     conducting the demonstration under this subsection, the 
     Secretary shall ensure the participation of a sufficient 
     number of providers of dialysis services and renal dialysis 
     facilities, but in no case to exceed 500. In selecting such 
     providers and facilities, the Secretary shall ensure that the 
     following types of providers are included in the 
     demonstration:
       (A) Urban providers and facilities.
       (B) Rural providers and facilities.
       (C) Not-for-profit providers and facilities.
       (D) For-profit providers and facilities.
       (E) Independent providers and facilities.
       (F) Specialty providers and facilities, including pediatric 
     providers and facilities and small providers and facilities.
       (3) Temporary add-on payment for dialysis services 
     furnished under the demonstration.--
       (A) In general.--During the period of the demonstration 
     project, the Secretary shall increase payment rates that 
     would otherwise apply under section 1881(b) of such Act (42 
     U.S.C. 1395rr(b)) by 1.6 percent for dialysis services 
     furnished in facilities in the demonstration site.
       (B) Rules of construction.--Nothing in this subsection 
     shall be construed as--
       (i) as an annual update under section 1881(b) of the Social 
     Security Act (42 U.S.C. 1395rr(b));
       (ii) as increasing the baseline for payments under such 
     section; or
       (iii) requiring the budget neutral implementation of the 
     demonstration project under this subsection.
       (4) 3-year period.--The Secretary shall conduct the 
     demonstration under this subsection for the 3-year period 
     beginning on January 1, 2006.
       (5) Use of advisory board.--
       (A) In general.--In carrying out the demonstration under 
     this subsection, the Secretary shall establish an advisory 
     board comprised of representatives described in subparagraph 
     (B) to

[[Page H11942]]

     provide advice and recommendations with respect to the 
     establishment and operation of such demonstration.
       (B) Representatives.--Representatives referred to in 
     subparagraph (A) include representatives of the following:
       (i) Patient organizations.
       (ii) Individuals with expertise in end stage renal dialysis 
     services, such as clinicians, economists, and researchers.
       (iii) The Medicare Payment Advisory Commission, established 
     under section 1805 of the Social Security Act (42 U.S.C. 
     1395b-6).
       (iv) The National Institutes of Health.
       (v) Network organizations under section 1881(c) of the 
     Social Security Act (42 U.S.C. 1395rr(c)).
       (vi) Medicare contractors to monitor quality of care.
       (vii) Providers of services and renal dialysis facilities 
     furnishing end stage renal disease services.
       (C) Termination of advisory panel.--The advisory panel 
     shall terminate on December 31, 2008.
       (6) Authorization of appropriations.--There are authorized 
     to be appropriated, in appropriate part from the Federal 
     Hospital Insurance Trust Fund and the Federal Supplementary 
     Medical Insurance Trust Fund, $5,000,000 in fiscal year 2006 
     to conduct the demonstration under this subsection.
       (f) Report on a Bundled Prospective Payment System for End 
     Stage Renal Disease Services.--
       (1) Report.--
       (A) In general.--Not later than October 1, 2005, the 
     Secretary shall submit to Congress a report detailing the 
     elements and features for the design and implementation of a 
     bundled prospective payment system for services furnished by 
     end stage renal disease facilities including, to the maximum 
     extent feasible, bundling of drugs, clinical laboratory 
     tests, and other items that are separately billed by such 
     facilities. The report shall include a description of the 
     methodology to be used for the establishment of payment 
     rates, including components of the new system described in 
     paragraph (2).
       (B) Recommendations.--The Secretary shall include in such 
     report recommendations on elements, features, and methodology 
     for a bundled prospective payment system or other issues 
     related to such system as the Secretary determines to be 
     appropriate.
       (2) Elements and features of a bundled prospective payment 
     system.--The report required under paragraph (1) shall 
     include the following elements and features of a bundled 
     prospective payment system:
       (A) Bundle of items and services.--A description of the 
     bundle of items and services to be included under the 
     prospective payment system.
       (B) Case mix.--A description of the case-mix adjustment to 
     account for the relative resource use of different types of 
     patients.
       (C) Wage index.--A description of an adjustment to account 
     for geographic differences in wages.
       (D) Rural areas.--The appropriateness of establishing a 
     specific payment adjustment to account for additional costs 
     incurred by rural facilities.
       (E) Other adjustments.--Such other adjustments as may be 
     necessary to reflect the variation in costs incurred by 
     facilities in caring for patients with end stage renal 
     disease.
       (F) Update framework.--A methodology for appropriate 
     updates under the prospective payment system.
       (G) Additional recommendations.--Such other matters as the 
     Secretary determines to be appropriate.

     SEC. 624. 2-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS 
                   RELATING TO REPORTS.

       (a) Additional Moratorium on Therapy Caps.--
       (1) 2004 and 2005.--Section 1833(g)(4) (42 U.S.C. 
     1395l(g)(4)) is amended by striking ``and 2002'' and 
     inserting ``2002, 2004, and 2005''.
       (2) Remainder of 2003.--For the period beginning on the 
     date of the enactment of this Act and ending of December 31, 
     2003, the Secretary shall not apply the provisions of 
     paragraphs (1), (2), and (3) of section 1833(g) to expenses 
     incurred with respect to services described in such 
     paragraphs during such period. Nothing in the preceding 
     sentence shall be construed as affecting the application of 
     such paragraphs by the Secretary before the date of the 
     enactment of this Act.
       (b) Prompt Submission of Overdue Reports on Payment and 
     Utilization of Outpatient Therapy Services.--Not later than 
     March 31, 2004, the Secretary shall submit to Congress the 
     reports required under section 4541(d)(2) of the Balanced 
     Budget Act of 1997 (Public Law 105-33; 111 Stat. 457) 
     (relating to alternatives to a single annual dollar cap on 
     outpatient therapy) and under section 221(d) of the Medicare, 
     Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 
     (Appendix F, 113 Stat. 1501A-352), as enacted into law by 
     section 1000(a)(6) of Public Law 106-113 (relating to 
     utilization patterns for outpatient therapy).
       (c) GAO Report Identifying Conditions and Diseases 
     Justifying Waiver of Therapy Cap.--
       (1) Study.--The Comptroller General of the United States 
     shall identify conditions or diseases that may justify 
     waiving the application of the therapy caps under section 
     1833(g) of the Social Security Act (42 U.S.C. 1395l(g)) with 
     respect to such conditions or diseases.
       (2) Report to congress.--Not later than October 1, 2004, 
     the Comptroller General shall submit to Congress a report on 
     the conditions and diseases identified under paragraph (1), 
     and shall include a recommendation of criteria, with respect 
     to such conditions and disease, under which a waiver of the 
     therapy caps would apply.

     SEC. 625. 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 enrolls under this part during 
     2001, 2002, 2003, or 2004 and who demonstrates to the 
     Secretary before December 31, 2004, that the individual is a 
     covered beneficiary (as defined in section 1072(5) of title 
     10, United States Code). The Secretary of Health and Human 
     Services 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 
     2004. The Secretary shall establish a method for providing 
     rebates of premium penalties paid for months on or after 
     January 2004 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 the enactment of this Act, 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 of Health and Human Services shall provide for a 
     special enrollment period during which the individual may 
     enroll under such part. Such period shall begin as soon as 
     possible after the date of the enactment of this Act and 
     shall end on December 31, 2004.
       (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. 626. PAYMENT FOR SERVICES FURNISHED IN AMBULATORY 
                   SURGICAL CENTERS.

       (a) Reductions in Payment Updates.--Section 1833(i)(2)(C) 
     (42 U.S.C. 1395l(i)(2)(C)) is amended to read as follows:
       ``(C)(i) Notwithstanding the second sentence of each of 
     subparagraphs (A) and (B), except as otherwise specified in 
     clauses (ii), (iii), and (iv), if the Secretary has not 
     updated amounts established under such subparagraphs or under 
     subparagraph (D), with respect to facility services furnished 
     during a fiscal year (beginning with fiscal year 1986 or a 
     calendar year (beginning with 2006)), such amounts shall be 
     increased by the percentage increase in the Consumer Price 
     Index for all urban consumers (U.S. city average) as 
     estimated by the Secretary for the 12-month period ending 
     with the midpoint of the year involved.
       ``(ii) In each of the fiscal years 1998 through 2002, the 
     increase under this subparagraph shall be reduced (but not 
     below zero) by 2.0 percentage points.
       ``(iii) In fiscal year 2004, beginning with April 1, 2004, 
     the increase under this subparagraph shall be the Consumer 
     Price Index for all urban consumers (U.S. city average) as 
     estimated by the Secretary for the 12-month period ending 
     with March 31, 2003, minus 3.0 percentage points.
       ``(iv) In fiscal year 2005, the last quarter of calendar 
     year 2005, and each of calendar years 2006 through 2009, the 
     increase under this subparagraph shall be 0 percent.''.
       (b) Repeal of Survey Requirement and Implementation of New 
     System.--Section 1833(i)(2) (42 U.S.C. 1395l(i)(2)) is 
     amended--
       (1) in subparagraph (A)--
       (A) in the matter preceding clause (i), by striking ``The'' 
     and inserting ``For services furnished prior to the 
     implementation of the system described in subparagraph (D), 
     the''; and
       (B) in clause (i), by striking ``taken not later than 
     January 1, 1995, and every 5 years thereafter,''; and
       (2) by adding at the end the following new subparagraph:
       ``(D)(i) Taking into account the recommendations in the 
     report under section 626(d) of Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003, the Secretary 
     shall implement a revised payment system for payment of 
     surgical services furnished in ambulatory surgical centers.
       ``(ii) In the year the system described in clause (i) is 
     implemented, such system shall be designed to result in the 
     same aggregate amount of expenditures for such services as 
     would be made if this subparagraph did not apply, as 
     estimated by the Secretary.
       ``(iii) The Secretary shall implement the system described 
     in clause (i) for periods in a manner so that it is first 
     effective beginning on or after January 1, 2006, and not 
     later than January 1, 2008.
       ``(iv) There shall be no administrative or judicial review 
     under section 1869, 1878, or otherwise, of the classification 
     system, the relative weights, payment amounts, and the 
     geographic adjustment factor, if any, under this 
     subparagraph.''.
       (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
     1395l(a)(1)) is amended by adding the following new 
     subparagraph:
       ``(G) with respect to facility services furnished in 
     connection with a surgical procedure specified pursuant to 
     subsection (i)(1)(A) and furnished to an individual in an 
     ambulatory surgical center described in such subsection, for 
     services furnished beginning with the implementation date of 
     a revised payment system for such services in such facilities 
     specified in subsection (i)(2)(D), the amounts paid shall be 
     80 percent of the lesser of the actual charge for the 
     services or

[[Page H11943]]

     the amount determined by the Secretary under such revised 
     payment system,''.
       (d) GAO Study of Ambulatory Surgical Center Payments.--
       (1) Study.--
       (A) In general.--The Comptroller General of the United 
     States shall conduct a study that compares the relative costs 
     of procedures furnished in ambulatory surgical centers to the 
     relative costs of procedures furnished in hospital outpatient 
     departments under section 1833(t) of the Social Security Act 
     (42 U.S.C. 1395l(t)). The study shall also examine how 
     accurately ambulatory payment categories reflect procedures 
     furnished in ambulatory surgical centers.
       (B) Consideration of asc data.--In conducting the study 
     under paragraph (1), the Comptroller General shall consider 
     data submitted by ambulatory surgical centers regarding the 
     matters described in clauses (i) through (iii) of paragraph 
     (2)(B).
       (2) Report and recommendations.--
       (A) Report.--Not later than January 1, 2005, the 
     Comptroller General shall submit to Congress a report on the 
     study conducted under paragraph (1).
       (B) Recommendations.--The report submitted under 
     subparagraph (A) shall include recommendations on the 
     following matters:
       (i) The appropriateness of using the groups of covered 
     services and relative weights established under the 
     outpatient prospective payment system as the basis of payment 
     for ambulatory surgical centers.
       (ii) If the relative weights under such hospital outpatient 
     prospective payment system are appropriate for such purpose--

       (I) whether the payment rates for ambulatory surgical 
     centers should be based on a uniform percentage of the 
     payment rates or weights under such outpatient system; or
       (II) whether the payment rates for ambulatory surgical 
     centers should vary, or the weights should be revised, based 
     on specific procedures or types of services (such as 
     ophthalmology and pain management services).

       (iii) Whether a geographic adjustment should be used for 
     payment of services furnished in ambulatory surgical centers, 
     and if so, the labor and nonlabor shares of such payment.

     SEC. 627. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE FEE 
                   SCHEDULE FOR ORTHOTICS AND PROSTHETICS.

       (a) In General.--Section 1833(o) (42 U.S.C. 1395l(o)) is 
     amended--
       (1) in paragraph (1)(B), by striking ``no more than the 
     limits established under paragraph (2)'' and inserting ``no 
     more than the amount of payment applicable under paragraph 
     (2)''; and
       (2) in paragraph (2), to read as follows:
       ``(2)(A) Except as provided by the Secretary under 
     subparagraphs (B) and (C), the amount of payment under this 
     paragraph for custom molded shoes, extra-depth shoes, and 
     inserts shall be the amount determined for such items by the 
     Secretary under section 1834(h).
       ``(B) The Secretary may establish payment amounts for shoes 
     and inserts that are lower than the amount established under 
     section 1834(h) if the Secretary finds that shoes and inserts 
     of an appropriate quality are readily available at or below 
     the amount established under such section.
       ``(C) In accordance with procedures established by the 
     Secretary, an individual entitled to benefits with respect to 
     shoes described in section 1861(s)(12) may substitute 
     modification of such shoes instead of obtaining one (or more, 
     as specified by the Secretary) pair of inserts (other than 
     the original pair of inserts with respect to such shoes). In 
     such case, the Secretary shall substitute, for the payment 
     amount established under section 1834(h), a payment amount 
     that the Secretary estimates will assure that there is no net 
     increase in expenditures under this subsection as a result of 
     this subparagraph.''.
       (b) Conforming Amendments.--(1) Section 1834(h)(4)(C) (42 
     U.S.C. 1395m(h)(4)(C)) is amended by inserting ``(and 
     includes shoes described in section 1861(s)(12))'' after ``in 
     section 1861(s)(9)''.
       (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended 
     by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this section 
     shall apply to items furnished on or after January 1, 2005.

     SEC. 628. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.

       Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
     1395l(h)(2)(A)(ii)(IV)) is amended by striking ``and 1998 
     through 2002'' and inserting ``, 1998 through 2002, and 2004 
     through 2008''.

     SEC. 629. 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 2004, $110 for 2005, and for a subsequent year the 
     amount of such deductible for the previous year increased by 
     the annual percentage increase in the monthly actuarial rate 
     under section 1839(a)(1) ending with such subsequent year 
     (rounded to the nearest $1)''.

     SEC. 630. 5-YEAR AUTHORIZATION OF REIMBURSEMENT FOR ALL 
                   MEDICARE PART B SERVICES FURNISHED BY CERTAIN 
                   INDIAN HOSPITALS AND CLINICS.

       Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) is 
     amended by inserting ``(and for items and services furnished 
     during the 5-year period beginning on January 1, 2005, all 
     items and services for which payment may be made under part 
     B)'' after ``for services described in paragraph (2)''.

  Subtitle D--Additional Demonstrations, Studies, and Other Provisions

     SEC. 641. DEMONSTRATION PROJECT FOR COVERAGE OF CERTAIN 
                   PRESCRIPTION DRUGS AND BIOLOGICALS.

       (a) Demonstration Project.--The Secretary shall conduct a 
     demonstration project under part B of title XVIII of the 
     Social Security Act under which payment is made for drugs or 
     biologicals that are prescribed as replacements for drugs and 
     biologicals described in section 1861(s)(2)(A) or 
     1861(s)(2)(Q) of such Act (42 U.S.C. 1395x(s)(2)(A), 
     1395x(s)(2)(Q)), or both, for which payment is made under 
     such part. Such project shall provide for cost-sharing 
     applicable with respect to such drugs or biologicals in the 
     same manner as cost-sharing applies with respect to part D 
     drugs under standard prescription drug coverage (as defined 
     in section 1860D-2(b) of the Social Security Act, as added by 
     section 101(a)).
       (b) Demonstration Project Sites.--The project established 
     under this section shall be conducted in sites selected by 
     the Secretary.
       (c) Duration.--The Secretary shall conduct the 
     demonstration project for the 2-year period beginning on the 
     date that is 90 days after the date of the enactment of this 
     Act, but in no case may the project extend beyond December 
     31, 2005.
       (d) Limitation.--Under the demonstration project over the 
     duration of the project, the Secretary may not provide--
       (1) coverage for more than 50,000 patients; and
       (2) more than $500,000,000 in funding.
       (e) Report.--Not later than July 1, 2006, the Secretary 
     shall submit to Congress a report on the project. The report 
     shall include an evaluation of patient access to care and 
     patient outcomes under the project, as well as an analysis of 
     the cost effectiveness of the project, including an 
     evaluation of the costs savings (if any) to the medicare 
     program attributable to reduced physicians' services and 
     hospital outpatient departments services for administration 
     of the biological.

     SEC. 642. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE 
                   GLOBULIN (IVIG) FOR THE TREATMENT OF PRIMARY 
                   IMMUNE DEFICIENCY DISEASES IN THE HOME.

       (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended 
     by sections 611(a) and 612(a) is amended--
       (1) in subsection (s)(2)--
       (A) by striking ``and'' at the end of subparagraph (X);
       (B) by adding ``and'' at the end of subparagraph (Y); and
       (C) by adding at the end the following new subparagraph:
       ``(Z) intravenous immune globulin for the treatment of 
     primary immune deficiency diseases in the home (as defined in 
     subsection (zz));''; and
       (2) by adding at the end the following new subsection:

                     ``Intravenous Immune Globulin

       ``(zz) The term `intravenous immune globulin' means an 
     approved pooled plasma derivative for the treatment in the 
     patient's home of a patient with a diagnosed primary immune 
     deficiency disease, but not including items or services 
     related to the administration of the derivative, if a 
     physician determines administration of the derivative in the 
     patient's home is medically appropriate.''.
       (b) Payment as a Drug or Biological.--Section 1833(a)(1)(S) 
     (42 U.S.C. 1395l(a)(1)(S)) is amended by inserting 
     ``(including intravenous immune globulin (as defined in 
     section 1861(zz)))'' after ``with respect to drugs and 
     biologicals''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to items furnished administered on or after 
     January 1, 2004.

     SEC. 643. MEDPAC STUDY OF COVERAGE OF SURGICAL FIRST 
                   ASSISTING SERVICES OF CERTIFIED REGISTERED 
                   NURSE FIRST ASSISTANTS.

       (a) Study.--The Medicare Payment Advisory Commission (in 
     this section referred to as the ``Commission'') shall conduct 
     a study on the feasibility and advisability of providing for 
     payment under part B of title XVIII of the Social Security 
     Act for surgical first assisting services furnished by a 
     certified registered nurse first assistant to medicare 
     beneficiaries.
       (b) Report.--Not later than January 1, 2005, the Commission 
     shall submit to Congress a report on the study conducted 
     under subsection (a) together with recommendations for such 
     legislation or administrative action as the Commission 
     determines to be appropriate.
       (c) Definitions.--In this section:
       (1) Surgical first assisting services.--The term ``surgical 
     first assisting services'' means services consisting of first 
     assisting a physician with surgery and related preoperative, 
     intraoperative, and postoperative care (as determined by the 
     Secretary) furnished by a certified registered nurse first 
     assistant (as defined in paragraph (2)) which the certified 
     registered nurse first assistant is legally authorized to 
     perform by the State in which the services are performed.
       (2) Certified registered nurse first assistant.--The term 
     ``certified registered nurse first assistant'' means an 
     individual who--
       (A) is a registered nurse and is licensed to practice 
     nursing in the State in which the surgical first assisting 
     services are performed;
       (B) has completed a minimum of 2,000 hours of first 
     assisting a physician with surgery and related preoperative, 
     intraoperative, and postoperative care; and
       (C) is certified as a registered nurse first assistant by 
     an organization recognized by the Secretary.

     SEC. 644. MEDPAC STUDY OF PAYMENT FOR CARDIO-THORACIC 
                   SURGEONS.

       (a) Study.--The Medicare Payment Advisory Commission (in 
     this section referred to as the ``Commission'') shall conduct 
     a study on the

[[Page H11944]]

     practice expense relative values established by the Secretary 
     of Health and Human Services under the medicare physician fee 
     schedule under section 1848 of the Social Security Act (42 
     U.S.C. 1395w-4) for physicians in the specialties of thoracic 
     and cardiac surgery to determine whether such values 
     adequately take into account the attendant costs that such 
     physicians incur in providing clinical staff for patient care 
     in hospitals.
       (b) Report.--Not later than January 1, 2005, the Commission 
     shall submit to Congress a report on the study conducted 
     under subsection (a) together with recommendations for such 
     legislation or administrative action as the Commission 
     determines to be appropriate.

     SEC. 645. STUDIES RELATING TO VISION IMPAIRMENTS.

       (a) Coverage of Outpatient Vision Services Furnished by 
     Vision Rehabilitation Professionals Under Part B.--
       (1) Study.--The Secretary shall conduct a study to 
     determine the feasibility and advisability of providing for 
     payment for vision rehabilitation services furnished by 
     vision rehabilitation professionals.
       (2) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on the study conducted 
     under paragraph (1) together with recommendations for such 
     legislation or administrative action as the Secretary 
     determines to be appropriate.
       (3) Vision rehabilitation professional defined.--In this 
     subsection, the term ``vision rehabilitation professional'' 
     means an orientation and mobility specialist, a 
     rehabilitation teacher, or a low vision therapist.
       (b) Report on Appropriateness of a Demonstration Project To 
     Test Feasibility of Using PPO Networks To Reduce Costs of 
     Acquiring Eyeglasses for Medicare Beneficiaries After 
     Cataract Surgery.--Not later than 1 year after the date of 
     the enactment of this Act, the Secretary shall submit to 
     Congress a report on the feasibility of establishing a two-
     year demonstration project under which the Secretary enters 
     into arrangements with vision care preferred provider 
     organization networks to furnish and pay for conventional 
     eyeglasses subsequent to each cataract surgery with insertion 
     of an intraocular lens on behalf of Medicare beneficiaries. 
     In such report, the Secretary shall include an estimate of 
     potential cost savings to the Medicare program through the 
     use of such networks, taking into consideration quality of 
     service and beneficiary access to services offered by vision 
     care preferred provider organization networks.

     SEC. 646. 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 an 
     individual who is entitled to benefits under part A and 
     enrolled under part B, including any individual who is 
     enrolled in a Medicare Advantage plan 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 original medicare fee-for-service program under 
     parts A and B or the package of benefits available through a 
     Medicare Advantage plan 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 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.''.

     SEC. 647. MEDPAC STUDY ON DIRECT ACCESS TO PHYSICAL THERAPY 
                   SERVICES.

       (a) Study.--The Medicare Payment Advisory Commission (in 
     this section referred to as the ``Commission'') shall conduct 
     a study on the feasibility and advisability of allowing 
     medicare fee-for-service beneficiaries direct access to 
     outpatient physical therapy services and physical therapy 
     services furnished as comprehensive rehabilitation facility 
     services.
       (b) Report.--Not later than January 1, 2005, the Commission 
     shall submit to Congress a report on the study conducted 
     under subsection (a) together with recommendations for such 
     legislation or administrative action as the Commission 
     determines to be appropriate.
       (c) Direct Access Defined.--The term ``direct access'' 
     means, with respect to outpatient physical therapy services 
     and physical therapy services furnished as comprehensive 
     outpatient

[[Page H11945]]

     rehabilitation facility services, coverage of and payment for 
     such services in accordance with the provisions of title 
     XVIII of the Social Security Act, except that sections 
     1835(a)(2), 1861(p), and 1861(cc) of such Act (42 U.S.C. 
     1395n(a)(2), 1395x(p), and 1395x(cc), respectively) shall be 
     applied--
       (1) without regard to any requirement that--
       (A) an individual be under the care of (or referred by) a 
     physician; or
       (B) services be provided under the supervision of a 
     physician; and
       (2) by allowing a physician or a qualified physical 
     therapist to satisfy any requirement for--
       (A) certification and recertification; and
       (B) establishment and periodic review of a plan of care.

     SEC. 648. DEMONSTRATION PROJECT FOR CONSUMER-DIRECTED CHRONIC 
                   OUTPATIENT SERVICES.

       (a) Establishment.--
       (1) In general.--Subject to the succeeding provisions of 
     this section, the Secretary shall establish demonstration 
     projects (in this section referred to as ``demonstration 
     projects'') under which the Secretary shall evaluate methods 
     that improve the quality of care provided to individuals with 
     chronic conditions and that reduce expenditures that would 
     otherwise be made under the medicare program on behalf of 
     such individuals for such chronic conditions, such methods to 
     include permitting those beneficiaries to direct their own 
     health care needs and services.
       (2) Individuals with chronic conditions defined.--In this 
     section, the term ``individuals with chronic conditions'' 
     means an individual entitled to benefits under part A of 
     title XVIII of the Social Security Act, and enrolled under 
     part B of such title, but who is not enrolled under part C of 
     such title who is diagnosed as having one or more chronic 
     conditions (as defined by the Secretary), such as diabetes.
       (b) Design of Projects.--
       (1) Evaluation before implementation of project.--
       (A) In general.--In establishing the demonstration projects 
     under this section, the Secretary shall evaluate best 
     practices employed by group health plans and practices under 
     State plans for medical assistance under the medicaid program 
     under title XIX of the Social Security Act, as well as best 
     practices in the private sector or other areas, of methods 
     that permit patients to self-direct the provision of personal 
     care services. The Secretary shall evaluate such practices 
     for a 1-year period and, based on such evaluation, shall 
     design the demonstration project.
       (B) Requirement for estimate of budget neutral costs.--As 
     part of the evaluation under subparagraph (A), the Secretary 
     shall evaluate the costs of furnishing care under the 
     projects. The Secretary may not implement the demonstration 
     projects under this section unless the Secretary determines 
     that the costs of providing care to individuals with chronic 
     conditions under the project will not exceed the costs, in 
     the aggregate, of furnishing care to such individuals under 
     title XVIII of the Social Security Act, that would otherwise 
     be paid without regard to the demonstration projects for the 
     period of the project.
       (2) Scope of services.--The Secretary shall determine the 
     appropriate scope of personal care services that would apply 
     under the demonstration projects.
       (c) Voluntary Participation.--Participation of providers of 
     services and suppliers, and of individuals with chronic 
     conditions, in the demonstration projects shall be voluntary.
       (d) Demonstration Projects Sites.--Not later than 2 years 
     after the date of the enactment of this Act, the Secretary 
     shall conduct a demonstration project in at least one area 
     that the Secretary determines has a population of individuals 
     entitled to benefits under part A of title XVIII of the 
     Social Security Act, and enrolled under part B of such title, 
     with a rate of incidence of diabetes that significantly 
     exceeds the national average rate of all areas.
       (e) Evaluation and Report.--
       (1) Evaluations.--The Secretary shall conduct evaluations 
     of the clinical and cost effectiveness of the demonstration 
     projects.
       (2) Reports.--Not later than 2 years after the commencement 
     of the demonstration projects, and biannually thereafter, the 
     Secretary shall submit to Congress a report on the 
     evaluation, and shall include in the report the following:
       (A) An analysis of the patient outcomes and costs of 
     furnishing care to the individuals with chronic conditions 
     participating in the projects as compared to such outcomes 
     and costs to other individuals for the same health 
     conditions.
       (B) Evaluation of patient satisfaction under the 
     demonstration projects.
       (C) Such recommendations regarding the extension, 
     expansion, or termination of the projects as the Secretary 
     determines appropriate.
       (f) Waiver Authority.--The Secretary shall waive compliance 
     with the requirements of title XVIII of the Social Security 
     Act (42 U.S.C. 1395 et seq.) to such extent and for such 
     period as the Secretary determines is necessary to conduct 
     demonstration projects.
       (g) Authorization of Appropriations.--(1) Payments for the 
     costs of carrying out the demonstration project under this 
     section shall be made from the Federal Supplementary Medical 
     Insurance Trust Fund under section 1841 of such Act (42 
     U.S.C. 1395t).
       (2) There are authorized to be appropriated from such Trust 
     Fund such sums as may be necessary for the Secretary to enter 
     into contracts with appropriate organizations for the deign, 
     implementation, and evaluation of the demonstration project.
       (3) In no case may expenditures under this section exceed 
     the aggregate expenditures that would otherwise have been 
     made for the provision of personal care services.

     SEC. 649. MEDICARE CARE MANAGEMENT PERFORMANCE DEMONSTRATION.

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a pay-for-
     performance demonstration program with physicians to meet the 
     needs of eligible beneficiaries through the adoption and use 
     of health information technology and evidence-based outcomes 
     measures for--
       (A) promoting continuity of care;
       (B) helping stabilize medical conditions;
       (C) preventing or minimizing acute exacerbations of chronic 
     conditions; and
       (D) reducing adverse health outcomes, such as adverse drug 
     interactions related to polypharmacy.
       (2) Sites.--The Secretary shall designate no more than 4 
     sites at which to conduct the demonstration program under 
     this section, of which--
       (A) 2 shall be in an urban area;
       (B) 1 shall be in a rural area; and
       (C) 1 shall be in a State with a medical school with a 
     Department of Geriatrics that manages rural outreach sites 
     and is capable of managing patients with multiple chronic 
     conditions, one of which is dementia.
       (3) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 3-year period.
       (4) Consultation.--In carrying out the demonstration 
     program under this section, the Secretary shall consult with 
     private sector and non-profit groups that are undertaking 
     similar efforts to improve quality and reduce avoidable 
     hospitalizations for chronically ill patients.
       (b) Participation.--
       (1) In general.--A physician who provides care for a 
     minimum number of eligible beneficiaries (as specified by the 
     Secretary) may participate in the demonstration program under 
     this section if such physician agrees, to phase-in over the 
     course of the 3-year demonstration period and with the 
     assistance provided under subsection (d)(2)--
       (A) the use of health information technology to manage the 
     clinical care of eligible beneficiaries consistent with 
     paragraph (3); and
       (B) the electronic reporting of clinical quality and 
     outcomes measures in accordance with requirements established 
     by the Secretary under the demonstration program.
       (2) Special rule.--In the case of the sites referred to in 
     subparagraphs (B) and (C) of subsection (a)(2), a physician 
     who provides care for a minimum number of beneficiaries with 
     two or more chronic conditions, including dementia (as 
     specified by the Secretary), may participate in the program 
     under this section if such physician agrees to the 
     requirements in subparagraphs (A) and (B) of paragraph (1).
       (3) Practice standards.--Each physician participating in 
     the demonstration program under this section must demonstrate 
     the ability--
       (A) to assess each eligible beneficiary for conditions 
     other than chronic conditions, such as impaired cognitive 
     ability and co-morbidities, for the purposes of developing 
     care management requirements;
       (B) to serve as the primary contact of eligible 
     beneficiaries in accessing items and services for which 
     payment may be made under the medicare program;
       (C) to establish and maintain health care information 
     system for such beneficiaries;
       (D) to promote continuity of care across providers and 
     settings;
       (E) to use evidence-based guidelines and meet such clinical 
     quality and outcome measures as the Secretary shall require;
       (F) to promote self-care through the provision of patient 
     education and support for patients or, where appropriate, 
     family caregivers;
       (G) when appropriate, to refer such beneficiaries to 
     community service organizations; and
       (H) to meet such other complex care management requirements 
     as the Secretary may specify.

     The guidelines and measures required under subparagraph (E) 
     shall be designed to take into account beneficiaries with 
     multiple chronic conditions.
       (c) Payment Methodology.--Under the demonstration program 
     under this section the Secretary shall pay a per beneficiary 
     amount to each participating physician who meets or exceeds 
     specific performance standards established by the Secretary 
     with respect to the clinical quality and outcome measures 
     reported under subsection (b)(1)(B). Such amount may vary 
     based on different levels of performance or improvement.
       (d) Administration.--
       (1) Use of quality improvement organizations.--The 
     Secretary shall contract with quality improvement 
     organizations or such other entities as the Secretary deems 
     appropriate to enroll physicians and evaluate their 
     performance under the demonstration program under this 
     section.
       (2) Technical assistance.--The Secretary shall require in 
     such contracts that the contractor be responsible for 
     technical assistance and education as needed to physicians 
     enrolled in the demonstration program under this section for 
     the purpose of aiding their adoption of health information 
     technology, meeting practice standards, and implementing 
     required clinical and outcomes measures.
       (e) Funding.--
       (1) In general.--The Secretary shall provide for the 
     transfer from the Federal Supplementary Medical 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

[[Page H11946]]

     Secretary shall ensure that the aggregate payments made by 
     the Secretary do not exceed the amount which the Secretary 
     estimates would have been 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 12 months after the date of 
     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) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means any individual who--
       (A) is entitled to benefits under part A and enrolled for 
     benefits under part B of title XVIII of the Social Security 
     Act and is not enrolled in a plan under part C of such title; 
     and
       (B) has one or more chronic medical conditions specified by 
     the Secretary (one of which may be cognitive impairment).
       (2) Health information technology.--The term ``health 
     information technology'' means email communication, clinical 
     alerts and reminders, and other information technology that 
     meets such functionality, interoperability, and other 
     standards as prescribed by the Secretary.

     SEC. 650. GAO STUDY AND REPORT ON THE PROPAGATION OF 
                   CONCIERGE CARE.

       (a) Study.--
       (1) In general.--The Comptroller General of the United 
     States shall conduct a study on concierge care (as defined in 
     paragraph (2)) to determine the extent to which such care--
       (A) is used by medicare beneficiaries (as defined in 
     section 1802(b)(5)(A) of the Social Security Act (42 U.S.C. 
     1395a(b)(5)(A))); and
       (B) has impacted upon the access of medicare beneficiaries 
     (as so defined) to items and services for which reimbursement 
     is provided under the medicare program under title XVIII of 
     the Social Security Act (42 U.S.C. 1395 et seq.).
       (2) Concierge care.--In this section, the term ``concierge 
     care'' means an arrangement under which, as a prerequisite 
     for the provision of a health care item or service to an 
     individual, a physician, practitioner (as described in 
     section 1842(b)(18)(C) of the Social Security Act (42 U.S.C. 
     1395u(b)(18)(C))), or other individual--
       (A) charges a membership fee or another incidental fee to 
     an individual desiring to receive the health care item or 
     service from such physician, practitioner, or other 
     individual; or
       (B) requires the individual desiring to receive the health 
     care item or service from such physician, practitioner, or 
     other individual to purchase an item or service.
       (b) Report.--Not later than the date that is 12 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)(1) 
     together with such recommendations for legislative or 
     administrative action as the Comptroller General determines 
     to be appropriate.

     SEC. 651. 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.).
       (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 Medicare Advantage 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 4 demonstration sites.
       (B) Geographic diversity.--Of the sites described in 
     subparagraph (A)--
       (i) 2 shall be in rural areas; and
       (ii) 2 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 2 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).

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

     SEC. 701. UPDATE IN HOME HEALTH SERVICES.

       (a) Change to Calendar Year Update.--Section 1895(b) (42 
     U.S.C. 1395fff(b)(3)) is amended--
       (1) in paragraph (3)(B)(i)--
       (A) by striking ``each fiscal year (beginning with fiscal 
     year 2002)'' and inserting ``fiscal year 2002 and for fiscal 
     year 2003 and for each subsequent year (beginning with 
     2004)''; and
       (B) by inserting ``or year'' after ``the fiscal year'';
       (2) in paragraph (3)(B)(ii)--
       (A) in subclause (I), by striking ``or'' at the end;
       (B) by redesignating subclause (II) as subclause (III);
       (C) in subclause (III), as so redesignated, by striking 
     ``any subsequent fiscal year'' and inserting ``2004 and any 
     subsequent year''; and
       (D) by inserting after subclause (I) the following new 
     subclause:

       ``(II) for the last calendar quarter of 2003 and the first 
     calendar quarter of 2004, the home health market basket 
     percentage increase; or'';

       (3) in paragraph (3)(B)(iii), by inserting ``or year'' 
     after ``fiscal year'' each place it appears; and
       (4) in paragraph (3)(B)(iv)--
       (A) by inserting ``or year'' after ``fiscal year'' each 
     place it appears; and
       (B) by inserting ``or years'' after ``fiscal years''; and
       (5) in paragraph (5), by inserting ``or year'' after 
     ``fiscal year''.
       (b) Adjustment to Updates for 2004, 2005, and 2006.--
     Section 1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), 
     as amended by subsection (a)(2), is amended--
       (1) by striking ``or'' at the end of subclause (II);
       (2) by redesignating subclause (III) as subclause (IV);
       (3) in subclause (IV), as so redesignated, by striking 
     ``2004'' and inserting ``2007''; and
       (4) by inserting after subclause (II) the following new 
     subclause:

       ``(III) the last 3 calendar quarters of 2004, and each of 
     2005 and 2006 the home health market basket percentage 
     increase minus 0.8 percentage points; or''.

     SEC. 702. DEMONSTRATION PROJECT TO CLARIFY THE DEFINITION OF 
                   HOMEBOUND.

       (a) Demonstration Project.--Not later than 180 days after 
     the date of the enactment of this

[[Page H11947]]

     Act, the Secretary shall conduct a 2-year demonstration 
     project under part B of title XVIII of the Social Security 
     Act under which medicare beneficiaries with chronic 
     conditions described in subsection (b) are deemed to be 
     homebound for purposes of receiving home health services 
     under the medicare program.
       (b) Medicare Beneficiary Described.--For purposes of 
     subsection (a), a medicare beneficiary is eligible to be 
     deemed to be homebound, without regard to the purpose, 
     frequency, or duration of absences from the home, if--
       (1) the beneficiary has been certified by one physician as 
     an individual who has a permanent and severe, disabling 
     condition that is not expected to improve;
       (2) the beneficiary is dependent upon assistance from 
     another individual with at least 3 out of the 5 activities of 
     daily living for the rest of the beneficiary's life;
       (3) the beneficiary requires skilled nursing services for 
     the rest of the beneficiary's life and the skilled nursing is 
     more than medication management;
       (4) an attendant is required to visit the beneficiary on a 
     daily basis to monitor and treat the beneficiary's medical 
     condition or to assist the beneficiary with activities of 
     daily living;
       (5) the beneficiary requires technological assistance or 
     the assistance of another person to leave the home; and
       (6) the beneficiary does not regularly work in a paid 
     position full-time or part-time outside the home.
       (c) Demonstration Project Sites.--The demonstration project 
     established under this section shall be conducted in 3 States 
     selected by the Secretary to represent the Northeast, 
     Midwest, and Western regions of the United States.
       (d) Limitation on Number of Participants.--The aggregate 
     number of such beneficiaries that may participate in the 
     project may not exceed 15,000.
       (e) Data.--The Secretary shall collect such data on the 
     demonstration project with respect to the provision of home 
     health services to medicare beneficiaries that relates to 
     quality of care, patient outcomes, and additional costs, if 
     any, to the medicare program.
       (f) Report to Congress.--Not later than 1 year after the 
     date of the completion of the demonstration project under 
     this section, the Secretary shall submit to Congress a report 
     on the project using the data collected under subsection (e). 
     The report shall include the following:
       (1) An examination of whether the provision of home health 
     services to medicare beneficiaries under the project has had 
     any of the following effects:
       (A) Has adversely affected the provision of home health 
     services under the medicare program.
       (B) Has directly caused an increase of expenditures under 
     the medicare program for the provision of such services that 
     is directly attributable to such clarification.
       (2) The specific data evidencing the amount of any increase 
     in expenditures that is directly attributable to the 
     demonstration project (expressed both in absolute dollar 
     terms and as a percentage) above expenditures that would 
     otherwise have been incurred for home health services under 
     the medicare program.
       (3) Specific recommendations to exempt permanently and 
     severely disabled homebound beneficiaries from restrictions 
     on the length, frequency, and purpose of their absences from 
     the home to qualify for home health services without 
     incurring additional costs to the medicare program.
       (g) Waiver Authority.--The Secretary shall waive compliance 
     with the requirements of title XVIII of the Social Security 
     Act (42 U.S.C. 1395 et seq.) to such extent and for such 
     period as the Secretary determines is necessary to conduct 
     demonstration projects.
       (h) Construction.--Nothing in this section shall be 
     construed as waiving any applicable civil monetary penalty, 
     criminal penalty, or other remedy available to the Secretary 
     under title XI or title XVIII of the Social Security Act for 
     acts prohibited under such titles, including penalties for 
     false certifications for purposes of receipt of items or 
     services under the medicare program.
       (i) Authorization of Appropriations.--Payments for the 
     costs of carrying out the demonstration project under this 
     section shall be made from the Federal Supplementary Medical 
     Insurance Trust Fund under section 1841 of such Act (42 
     U.S.C. 1395t).
       (j) Definitions.--In this section:
       (1) Medicare beneficiary.--The term ``medicare 
     beneficiary'' means an individual who is enrolled under part 
     B of title XVIII of the Social Security Act.
       (2) Home health services.--The term ``home health 
     services'' has the meaning given such term in section 1861(m) 
     of the Social Security Act (42 U.S.C. 1395x(m)).
       (3) Activities of daily living defined.--The term 
     ``activities of daily living'' means eating, toileting, 
     transferring, bathing, and dressing.

     SEC. 703. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY-CARE 
                   SERVICES.

       (a) Establishment.--Subject to the succeeding provisions of 
     this section, the Secretary shall establish a demonstration 
     project (in this section referred to as the ``demonstration 
     project'') under which the Secretary shall, as part of a plan 
     of an episode of care for home health services established 
     for a medicare beneficiary, permit a home health agency, 
     directly or under arrangements with a medical adult day-care 
     facility, to provide medical adult day-care services as a 
     substitute for a portion of home health services that would 
     otherwise be provided in the beneficiary's home.
       (b) Payment.--
       (1) In general.--Subject to paragraph (2), the amount of 
     payment for an episode of care for home health services, a 
     portion of which consists of substitute medical adult day-
     care services, under the demonstration project shall be made 
     at a rate equal to 95 percent of the amount that would 
     otherwise apply for such home health services under section 
     1895 of the Social Security Act (42 U.S.C. 1395fff). In no 
     case may a home health agency, or a medical adult day-care 
     facility under arrangements with a home health agency, 
     separately charge a beneficiary for medical adult day-care 
     services furnished under the plan of care.
       (2) Adjustment in case of overutilization of substitute 
     adult day-care services to ensure budget neutrality.--The 
     Secretary shall monitor the expenditures under the 
     demonstration project and under title XVIII of the Social 
     Security Act for home health services. If the Secretary 
     estimates that the total expenditures under the demonstration 
     project 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 project 
     had not been conducted, the Secretary shall adjust the rate 
     of payment to medical adult day-care facilities under 
     paragraph (1) in order to eliminate such excess.
       (c) Demonstration Project Sites.--The demonstration project 
     established under this section shall be conducted in not more 
     than 5 sites in States selected by the Secretary that license 
     or certify providers of services that furnish medical adult 
     day-care services.
       (d) Duration.--The Secretary shall conduct the 
     demonstration project for a period of 3 years.
       (e) Voluntary Participation.--Participation of medicare 
     beneficiaries in the demonstration project shall be 
     voluntary. The total number of such beneficiaries that may 
     participate in the project at any given time may not exceed 
     15,000.
       (f) Preference in Selecting Agencies.--In selecting home 
     health agencies to participate under the demonstration 
     project, the Secretary shall give preference to those 
     agencies that are currently licensed or certified through 
     common ownership and control to furnish medical adult day-
     care services.
       (g) Waiver Authority.--The Secretary may waive such 
     requirements of title XVIII of the Social Security Act as may 
     be necessary for the purposes of carrying out the 
     demonstration project, other than waiving the requirement 
     that an individual be homebound in order to be eligible for 
     benefits for home health services.
       (h) Evaluation and Report.--The Secretary shall conduct an 
     evaluation of the clinical and cost-effectiveness of the 
     demonstration project. Not later than 6 months after the 
     completion of the project, the Secretary shall submit to 
     Congress a report on the evaluation, and shall include in the 
     report the following:
       (1) An analysis of the patient outcomes and costs of 
     furnishing care to the medicare beneficiaries participating 
     in the project as compared to such outcomes and costs to 
     beneficiaries receiving only home health services for the 
     same health conditions.
       (2) Such recommendations regarding the extension, 
     expansion, or termination of the project as the Secretary 
     determines appropriate.
       (i) Definitions.--In this section:
       (1) 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)).
       (2) Medical adult day-care facility.--The term ``medical 
     adult day-care facility'' means a facility that--
       (A) has been licensed or certified by a State to furnish 
     medical adult day-care services in the State for a continuous 
     2-year period;
       (B) is engaged in providing skilled nursing services and 
     other therapeutic services directly or under arrangement with 
     a home health agency;
       (C) is licensed and certified by the State in which it 
     operates or meets such standards established by the Secretary 
     to assure quality of care and such other requirements as the 
     Secretary finds necessary in the interest of the health and 
     safety of individuals who are furnished services in the 
     facility; and
       (D) provides medical adult day-care services.
       (3) Medical adult day-care services.--The term ``medical 
     adult day-care services'' means--
       (A) home health service items and services described in 
     paragraphs (1) through (7) of section 1861(m) furnished in a 
     medical adult day-care facility;
       (B) a program of supervised activities furnished in a group 
     setting in the facility that--
       (i) meet such criteria as the Secretary determines 
     appropriate; and
       (ii) is designed to promote physical and mental health of 
     the individuals; and
       (C) such other services as the Secretary may specify.
       (4) Medicare beneficiary.--The term ``medicare 
     beneficiary'' means an individual entitled to benefits under 
     part A of this title, enrolled under part B of this title, or 
     both.

     SEC. 704. TEMPORARY SUSPENSION OF OASIS REQUIREMENT FOR 
                   COLLECTION OF DATA ON NON-MEDICARE AND NON-
                   MEDICAID PATIENTS.

       (a) In General.--During the period described in subsection 
     (b), the Secretary may not require, under section 4602(e) of 
     the Balanced Budget Act of 1997 (Public Law 105-33; 111 Stat. 
     467) or otherwise under OASIS, a home health agency to gather 
     or submit information that relates to an individual who is 
     not eligible for benefits under either title XVIII or title 
     XIX of the Social Security Act (such information in this 
     section referred to as ``non-medicare/medicaid OASIS 
     information'').
       (b) Period of Suspension.--The period described in this 
     subsection--
       (1) begins on the date of the enactment of this Act; and

[[Page H11948]]

       (2) ends on the last day of the second month beginning 
     after the date as of which the Secretary has published final 
     regulations regarding the collection and use by the Centers 
     for Medicare & Medicaid Services of non-medicare/medicaid 
     OASIS information following the submission of the report 
     required under subsection (c).
       (c) Report.--
       (1) Study.--The Secretary shall conduct a study on how non-
     medicare/medicaid OASIS information is and can be used by 
     large home health agencies. Such study shall examine--
       (A) whether there are unique benefits from the analysis of 
     such information that cannot be derived from other 
     information available to, or collected by, such agencies; and
       (B) the value of collecting such information by small home 
     health agencies compared to the administrative burden related 
     to such collection.

     In conducting the study the Secretary shall obtain 
     recommendations from quality assessment experts in the use of 
     such information and the necessity of small, as well as 
     large, home health agencies collecting such information.
       (2) Report.--The Secretary shall submit to Congress a 
     report on the study conducted under paragraph (1) by not 
     later than 18 months after the date of the enactment of this 
     Act.
       (d) Construction.--Nothing in this section shall be 
     construed as preventing home health agencies from collecting 
     non-medicare/medicaid OASIS information for their own use.

     SEC. 705. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH 
                   AGENCIES.

       (a) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study of payment margins of home health agencies 
     under the home health prospective payment system under 
     section 1895 of the Social Security Act (42 U.S.C. 1395fff). 
     Such study shall examine whether systematic differences in 
     payment margins are related to differences in case mix (as 
     measured by home health resource groups (HHRGs)) among such 
     agencies. The study shall use the partial or full-year cost 
     reports filed by home health agencies.
       (b) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study under subsection (a).

     SEC. 706. COVERAGE OF RELIGIOUS NONMEDICAL HEALTH CARE 
                   INSTITUTION SERVICES FURNISHED IN THE HOME.

       (a) In General.--Section 1821(a) (42 U.S.C. 1395i-5(a)) is 
     amended--
       (1) in the matter preceding paragraph (1), by inserting 
     ``and for home health services furnished an individual by a 
     religious nonmedical health care institution'' after 
     ``religious nonmedical health care institution''; and
       (2) in paragraph (2)--
       (A) by striking ``or extended care services'' and inserting 
     ``, extended care services, or home health services''; and
       (B) by inserting ``, or receiving services from a home 
     health agency,'' after ``skilled nursing facility''.
       (b) Definition.--Section 1861 (42 U.S.C. 1395x), as amended 
     by section 642, is amended by adding at the end the following 
     new section:

    ``Extended Care in Religious Nonmedical Health Care Institutions

       ``(aaa)(1) The term `home health agency' also includes a 
     religious nonmedical health care institution (as defined in 
     subsection (ss)(1)), but only with respect to items and 
     services ordinarily furnished by such an institution to 
     individuals in their homes, and that are comparable to items 
     and services furnished to individuals by a home health agency 
     that is not religious nonmedical health care institution.
       ``(2)(A) Subject to subparagraphs (B), payment may be made 
     with respect to services provided by such an institution only 
     to such extent and under such conditions, limitations, and 
     requirements (in addition to or in lieu of the conditions, 
     limitations, and requirements otherwise applicable) as may be 
     provided in regulations consistent with section 1821.
       ``(B) Notwithstanding any other provision of this title, 
     payment may not be made under subparagraph (A)--
       ``(i) in a year insofar as such payments exceed $700,000; 
     and
       ``(ii) after December 31, 2006.''.

                 Subtitle B--Graduate Medical Education

     SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH COST 
                   PROGRAMS.

       Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) 
     is amended--
       (1) in subclause (I)--
       (A) by inserting ``and 2004 through 2013'' after ``and 
     2002''; and
       (B) by inserting ``or during the period beginning with 
     fiscal year 2004 and ending with fiscal year 2013'' after 
     ``during fiscal year 2001 or fiscal year 2002''; and
       (2) in subclause (II)--
       (A) by striking ``fiscal year 2004, or fiscal year 2005,'' 
     and
       (B) by striking ``For a'' and inserting ``For the''.

     SEC. 712. EXCEPTION TO INITIAL RESIDENCY PERIOD FOR GERIATRIC 
                   RESIDENCY OR FELLOWSHIP PROGRAMS.

       (a) Clarification of Congressional Intent.--Congress 
     intended section 1886(h)(5)(F)(ii) of the Social Security Act 
     (42 U.S.C. 1395ww(h)(5)(F)(ii)), as added by section 9202 of 
     the Consolidated Omnibus Budget Reconciliation Act of 1985 
     (Public Law 99-272), to provide an exception to the initial 
     residency period for geriatric residency or fellowship 
     programs such that, where a particular approved geriatric 
     training program requires a resident to complete 2 years of 
     training to initially become board eligible in the geriatric 
     specialty, the 2 years spent in the geriatric training 
     program are treated as part of the resident's initial 
     residency period, but are not counted against any limitation 
     on the initial residency period.
       (b) Interim Final Regulatory Authority and Effective 
     Date.--The Secretary shall promulgate interim final 
     regulations consistent with the congressional intent 
     expressed in this section after notice and pending 
     opportunity for public comment to be effective for cost 
     reporting periods beginning on or after October 1, 2003.

     SEC. 713. TREATMENT OF VOLUNTEER SUPERVISION.

       (a) Moratorium on Changes in Treatment.--During the 1-year 
     period beginning on January 1, 2004, for purposes of applying 
     subsections (d)(5)(B) and (h) of section 1886 of the Social 
     Security Act (42 U.S.C. 1395ww), the Secretary shall allow 
     all hospitals to count residents in osteopathic and 
     allopathic family practice programs in existence as of 
     January 1, 2002, who are training at non-hospital sites, 
     without regard to the financial arrangement between the 
     hospital and the teaching physician practicing in the non-
     hospital site to which the resident has been assigned.
       (b) Study and Report.--
       (1) Study.--The Inspector General of the Department of 
     Health and Human Services shall conduct a study of the 
     appropriateness of alternative payment methodologies under 
     such sections for the costs of training residents in non-
     hospital settings.
       (2) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Inspector General shall submit to 
     Congress a report on the study conducted under paragraph (1), 
     together with such recommendations as the Inspector General 
     determines appropriate.

                  Subtitle C--Chronic Care Improvement

     SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT UNDER 
                   TRADITIONAL FEE-FOR-SERVICE.

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


                       ``chronic care improvement

       ``Sec. 1807. (a) Implementation of Chronic Care Improvement 
     Programs.--
       ``(1) In general.--The Secretary shall provide for the 
     phased-in development, testing, evaluation, and 
     implementation of chronic care improvement programs in 
     accordance with this section. Each such program shall be 
     designed to improve clinical quality and beneficiary 
     satisfaction and achieve spending targets with respect to 
     expenditures under this title for targeted beneficiaries with 
     one or more threshold conditions.
       ``(2) Definitions.--For purposes of this section:
       ``(A) Chronic care improvement program.--The term `chronic 
     care improvement program' means a program described in 
     paragraph (1) that is offered under an agreement under 
     subsection (b) or (c).
       ``(B) Chronic care improvement organization.--The term 
     `chronic care improvement organization' means an entity that 
     has entered into an agreement under subsection (b) or (c) to 
     provide, directly or through contracts with subcontractors, a 
     chronic care improvement program under this section. Such an 
     entity may be a disease management organization, health 
     insurer, integrated delivery system, physician group 
     practice, a consortium of such entities, or any other legal 
     entity that the Secretary determines appropriate to carry out 
     a chronic care improvement program under this section.
       ``(C) Care management plan.--The term `care management 
     plan' means a plan established under subsection (d) for a 
     participant in a chronic care improvement program.
       ``(D) Threshold condition.--The term `threshold condition' 
     means a chronic condition, such as congestive heart failure, 
     diabetes, chronic obstructive pulmonary disease (COPD), or 
     other diseases or conditions, as selected by the Secretary as 
     appropriate for the establishment of a chronic care 
     improvement program.
       ``(E) Targeted beneficiary.--The term `targeted 
     beneficiary' means, with respect to a chronic care 
     improvement program, an individual who--
       ``(i) is entitled to benefits under part A and enrolled 
     under part B, but not enrolled in a plan under part C;
       ``(ii) has one or more threshold conditions covered under 
     such program; and
       ``(iii) has been identified under subsection (d)(1) as a 
     potential participant in such program.
       ``(3) Construction.--Nothing in this section shall be 
     construed as--
       ``(A) expanding the amount, duration, or scope of benefits 
     under this title;
       ``(B) providing an entitlement to participate in a chronic 
     care improvement program under this section;
       ``(C) providing for any hearing or appeal rights under 
     section 1869, 1878, or otherwise, with respect to a chronic 
     care improvement program under this section; or
       ``(D) providing benefits under a chronic care improvement 
     program for which a claim may be submitted to the Secretary 
     by any provider of services or supplier (as defined in 
     section 1861(d)).
       ``(b) Developmental Phase (Phase I).--
       ``(1) In general.--In carrying out this section, the 
     Secretary shall enter into agreements consistent with 
     subsection (f) with chronic care improvement organizations 
     for the development, testing, and evaluation of chronic care 
     improvement programs using randomized controlled trials. The 
     first such agreement shall be entered into not later than 12 
     months after the date of the enactment of this section.
       ``(2) Agreement period.--The period of an agreement under 
     this subsection shall be for 3 years.
       ``(3) Minimum participation.--
       ``(A) In general.--The Secretary shall enter into 
     agreements under this subsection in a manner so that chronic 
     care improvement programs offered under this section are 
     offered in geographic areas that, in the aggregate, consist 
     of

[[Page H11949]]

     areas in which at least 10 percent of the aggregate number of 
     medicare beneficiaries reside.
       ``(B) Medicare beneficiary defined.--In this paragraph, the 
     term `medicare beneficiary' means an individual who is 
     entitled to benefits under part A, enrolled under part B, or 
     both, and who resides in the United States.
       ``(4) Site selection.--In selecting geographic areas in 
     which agreements are entered into under this subsection, the 
     Secretary shall ensure that each chronic care improvement 
     program is conducted in a geographic area in which at least 
     10,000 targeted beneficiaries reside among other individuals 
     entitled to benefits under part A, enrolled under part B, or 
     both to serve as a control population.
       ``(5) Independent evaluations of phase i programs.--The 
     Secretary shall contract for an independent evaluation of the 
     programs conducted under this subsection. Such evaluation 
     shall be done by a contractor with knowledge of chronic care 
     management programs and demonstrated experience in the 
     evaluation of such programs. Each evaluation shall include an 
     assessment of the following factors of the programs:
       ``(A) Quality improvement measures, such as adherence to 
     evidence-based guidelines and rehospitalization rates.
       ``(B) Beneficiary and provider satisfaction.
       ``(C) Health outcomes.
       ``(D) Financial outcomes, including any cost savings to the 
     program under this title.
       ``(c) Expanded Implementation Phase (Phase II).--
       ``(1) In general.--With respect to chronic care improvement 
     programs conducted under subsection (b), if the Secretary 
     finds that the results of the independent evaluation 
     conducted under subsection (b)(6) indicate that the 
     conditions specified in paragraph (2) have been met by a 
     program (or components of such program), the Secretary shall 
     enter into agreements consistent with subsection (f) to 
     expand the implementation of the program (or components) to 
     additional geographic areas not covered under the program as 
     conducted under subsection (b), which may include the 
     implementation of the program on a national basis. Such 
     expansion shall begin not earlier than 2 years after the 
     program is implemented under subsection (b) and not later 
     than 6 months after the date of completion of such program.
       ``(2) Conditions for expansion of programs.--The conditions 
     specified in this paragraph are, with respect to a chronic 
     care improvement program conducted under subsection (b) for a 
     threshold condition, that the program is expected to--
       ``(A) improve the clinical quality of care;
       ``(B) improve beneficiary satisfaction; and
       ``(C) achieve targets for savings to the program under this 
     title specified by the Secretary in the agreement within a 
     range determined to be appropriate by the Secretary, subject 
     to the application of budget neutrality with respect to the 
     program and not taking into account any payments by the 
     organization under the agreement under the program for risk 
     under subsection (f)(3)(B).
       ``(3) Independent evaluations of phase ii programs.--The 
     Secretary shall carry out evaluations of programs expanded 
     under this subsection as the Secretary determines 
     appropriate. Such evaluations shall be carried out in the 
     similar manner as is provided under subsection (b)(5).
       ``(d) Identification and Enrollment of Prospective Program 
     Participants.--
       ``(1) Identification of prospective program participants.--
     The Secretary shall establish a method for identifying 
     targeted beneficiaries who may benefit from participation in 
     a chronic care improvement program.
       ``(2) Initial contact by secretary.--The Secretary shall 
     communicate with each targeted beneficiary concerning 
     participation in a chronic care improvement program. Such 
     communication may be made by the Secretary and shall include 
     information on the following:
       ``(A) A description of the advantages to the beneficiary in 
     participating in a program.
       ``(B) Notification that the organization offering a program 
     may contact the beneficiary directly concerning such 
     participation.
       ``(C) Notification that participation in a program is 
     voluntary.
       ``(D) A description of the method for the beneficiary to 
     participate or for declining to participate and the method 
     for obtaining additional information concerning such 
     participation.
       ``(3) Voluntary participation.--A targeted beneficiary may 
     participate in a chronic care improvement program on a 
     voluntary basis and may terminate participation at any time.
       ``(e) Chronic Care Improvement Programs.--
       ``(1) In general.--Each chronic care improvement program 
     shall--
       ``(A) have a process to screen each targeted beneficiary 
     for conditions other than threshold conditions, such as 
     impaired cognitive ability and co-morbidities, for the 
     purposes of developing an individualized, goal-oriented care 
     management plan under paragraph (2);
       ``(B) provide each targeted beneficiary participating in 
     the program with such plan; and
       ``(C) carry out such plan and other chronic care 
     improvement activities in accordance with paragraph (3).
       ``(2) Elements of care management plans.--A care management 
     plan for a targeted beneficiary shall be developed with the 
     beneficiary and shall, to the extent appropriate, include the 
     following:
       ``(A) A designated point of contact responsible for 
     communications with the beneficiary and for facilitating 
     communications with other health care providers under the 
     plan.
       ``(B) Self-care education for the beneficiary (through 
     approaches such as disease management or medical nutrition 
     therapy) and education for primary caregivers and family 
     members.
       ``(C) Education for physicians and other providers and 
     collaboration to enhance communication of relevant clinical 
     information.
       ``(D) The use of monitoring technologies that enable 
     patient guidance through the exchange of pertinent clinical 
     information, such as vital signs, symptomatic information, 
     and health self-assessment.
       ``(E) The provision of information about hospice care, pain 
     and palliative care, and end-of-life care.
       ``(3) Conduct of programs.--In carrying out paragraph 
     (1)(C) with respect to a participant, the chronic care 
     improvement organization shall--
       ``(A) guide the participant in managing the participant's 
     health (including all co-morbidities, relevant health care 
     services, and pharmaceutical needs) and in performing 
     activities as specified under the elements of the care 
     management plan of the participant;
       ``(B) use decision-support tools such as evidence-based 
     practice guidelines or other criteria as determined by the 
     Secretary; and
       ``(C) develop a clinical information database to track and 
     monitor each participant across settings and to evaluate 
     outcomes.
       ``(4) Additional responsibilities.--
       ``(A) Outcomes report.--Each chronic care improvement 
     organization offering a chronic care improvement program 
     shall monitor and report to the Secretary, in a manner 
     specified by the Secretary, on health care quality, cost, and 
     outcomes.
       ``(B) Additional requirements.--Each such organization and 
     program shall comply with such additional requirements as the 
     Secretary may specify.
       ``(5) Accreditation.--The Secretary may provide that 
     chronic care improvement programs and chronic care 
     improvement organizations that are accredited by qualified 
     organizations (as defined by the Secretary) may be deemed to 
     meet such requirements under this section as the Secretary 
     may specify.
       ``(f) Terms of Agreements.--
       ``(1) Terms and conditions.--
       ``(A) In general.--An agreement under this section with a 
     chronic care improvement organization shall contain such 
     terms and conditions as the Secretary may specify consistent 
     with this section.
       ``(B) Clinical, quality improvement, and financial 
     requirements.--The Secretary may not enter into an agreement 
     with such an organization under this section for the 
     operation of a chronic care improvement program unless--
       ``(i) the program and organization meet the requirements of 
     subsection (e) and such clinical, quality improvement, 
     financial, and other requirements as the Secretary deems to 
     be appropriate for the targeted beneficiaries to be served; 
     and
       ``(ii) the organization demonstrates to the satisfaction of 
     the Secretary that the organization is able to assume 
     financial risk for performance under the agreement (as 
     applied under paragraph (3)(B)) with respect to payments made 
     to the organization under such agreement through available 
     reserves, reinsurance, withholds, or such other means as the 
     Secretary determines appropriate.
       ``(2) Manner of payment.--Subject to paragraph (3)(B), the 
     payment under an agreement under--
       ``(A) subsection (b) shall be computed on a per-member per-
     month basis; or
       ``(B) subsection (c) may be on a per-member per-month basis 
     or such other basis as the Secretary and organization may 
     agree.
       ``(3) Application of performance standards.--
       ``(A) Specification of performance standards.--Each 
     agreement under this section with a chronic care improvement 
     organization shall specify performance standards for each of 
     the factors specified in subsection (c)(2), including 
     clinical quality and spending targets under this title, 
     against which the performance of the chronic care improvement 
     organization under the agreement is measured.
       ``(B) Adjustment of payment based on performance.--
       ``(i) In general.--Each such agreement shall provide for 
     adjustments in payment rates to an organization under the 
     agreement insofar as the Secretary determines that the 
     organization failed to meet the performance standards 
     specified in the agreement under subparagraph (A).
       ``(ii) Financial risk for performance.--In the case of an 
     agreement under subsection (b) or (c), the agreement shall 
     provide for a full recovery for any amount by which the fees 
     paid to the organization under the agreement exceed the 
     estimated savings to the programs under this title 
     attributable to implementation of such agreement.
       ``(4) Budget neutral payment condition.--Under this 
     section, the Secretary shall ensure that the aggregate sum of 
     medicare program benefit expenditures for beneficiaries 
     participating in chronic care improvement programs and funds 
     paid to chronic care improvement organizations under this 
     section, shall not exceed the medicare program benefit 
     expenditures that the Secretary estimates would have been 
     made for such targeted beneficiaries in the absence of such 
     programs.
       ``(g) Funding.--(1) Subject to paragraph (2), there are 
     appropriated to the Secretary, in appropriate part from the 
     Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund, such sums as may 
     be necessary to provide for agreements with chronic care 
     improvement programs under this section.
       ``(2) In no case shall the funding under this section 
     exceed $100,000,000 in aggregate increased expenditures under 
     this title (after taking into account any savings 
     attributable to the

[[Page H11950]]

     operation of this section) over the 3-fiscal-year period 
     beginning on October 1, 2003.''.
       (b) Reports.--The Secretary shall submit to Congress 
     reports on the operation of section 1807 of the Social 
     Security Act, as added by subsection (a), as follows:
       (1) Not later than 2 years after the date of the 
     implementation of such section, the Secretary shall submit to 
     Congress an interim report on the scope of implementation of 
     the programs under subsection (b) of such section, the design 
     of the programs, and preliminary cost and quality findings 
     with respect to those programs based on the following 
     measures of the programs:
       (A) Quality improvement measures, such as adherence to 
     evidence-based guidelines and rehospitalization rates.
       (B) Beneficiary and provider satisfaction.
       (C) Health outcomes.
       (D) Financial outcomes.
       (2) Not later than 3 years and 6 months after the date of 
     the implementation of such section the Secretary shall submit 
     to Congress an update to the report required under paragraph 
     (1) on the results of such programs.
       (3) The Secretary shall submit to Congress 2 additional 
     biennial reports on the chronic care improvement programs 
     conducted under such section. The first such report shall be 
     submitted not later than 2 years after the report is 
     submitted under paragraph (2). Each such report shall include 
     information on--
       (A) the scope of implementation (in terms of both regions 
     and chronic conditions) of the chronic care improvement 
     programs;
       (B) the design of the programs; and
       (C) the improvements in health outcomes and financial 
     efficiencies that result from such implementation.

     SEC. 722. MEDICARE ADVANTAGE QUALITY IMPROVEMENT PROGRAMS.

       (a) In General.--Section 1852(e) (42 U.S.C. 1395w-22(e)) is 
     amended--
       (1) in the heading, by striking ``Assurance'' and inserting 
     ``Improvement'';
       (2) by amending paragraphs (1) through (3) to read as 
     follows:
       ``(1) In general.--Each MA organization shall have an 
     ongoing quality improvement program for the purpose of 
     improving the quality of care provided to enrollees in each 
     MA plan offered by such organization (other than an MA 
     private fee-for-service plan or an MSA plan).
       ``(2) Chronic care improvement programs.--As part of the 
     quality improvement program under paragraph (1), each MA 
     organization shall have a chronic care improvement program. 
     Each chronic care improvement program shall have a method for 
     monitoring and identifying enrollees with multiple or 
     sufficiently severe chronic conditions that meet criteria 
     established by the organization for participation under the 
     program.
       ``(3) Data.--
       ``(A) Collection, analysis, and reporting.--
       ``(i) In general.--Except as provided in clauses (ii) and 
     (iii) with respect to plans described in such clauses and 
     subject to subparagraph (B), as part of the quality 
     improvement program under paragraph (1), each MA organization 
     shall provide for the collection, analysis, and reporting of 
     data that permits the measurement of health outcomes and 
     other indices of quality.
       ``(ii) Application to ma regional plans.--The Secretary 
     shall establish as appropriate by regulation requirements for 
     the collection, analysis, and reporting of data that permits 
     the measurement of health outcomes and other indices of 
     quality for MA organizations with respect to MA regional 
     plans. Such requirements may not exceed the requirements 
     under this subparagraph with respect to MA local plans that 
     are preferred provider organization plans.
       ``(iii) Application to preferred provider organizations.--
     Clause (i) shall apply to MA organizations with respect to MA 
     local plans that are preferred provider organization plans 
     only insofar as services are furnished by providers or 
     services, physicians, and other health care practitioners and 
     suppliers that have contracts with such organization to 
     furnish services under such plans.
       ``(iv) Definition of preferred provider organization 
     plan.--In this subparagraph, the term `preferred provider 
     organization plan' means an MA 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 an organization that is not licensed 
     or organized under State law as a health maintenance 
     organization.

       ``(B) Limitations.--
       ``(i) Types of data.--The Secretary shall not collect under 
     subparagraph (A) data on quality, outcomes, and beneficiary 
     satisfaction to facilitate consumer choice and program 
     administration other than the types of data that were 
     collected by the Secretary as of November 1, 2003.
       ``(ii) Changes in types of data.--Subject to subclause 
     (iii), the Secretary may only change the types of data that 
     are required to be submitted under subparagraph (A) after 
     submitting to Congress a report on the reasons for such 
     changes that was prepared in consultation with MA 
     organizations and private accrediting bodies.
       ``(iii) Construction.--Nothing in the subsection shall be 
     construed as restricting the ability of the Secretary to 
     carry out the duties under section 1851(d)(4)(D).'';
       (3) in paragraph (4)(B)--
       (A) by amending clause (i) to read as follows:
       ``(i) Paragraphs (1) through (3) of this subsection 
     (relating to quality improvement programs).''; and
       (B) by adding at the end the following new clause:
       ``(vii) The requirements described in section 1860D-4(j), 
     to the extent such requirements apply under section 1860D-
     21(c).''; and
       (4) by striking paragraph (5).
       (b) Conforming Amendment.--Section 1852(c)(1)(I) (42 U.S.C. 
     1395w-22(c)(1)(I)) is amended to read as follows:
       ``(I) Quality improvement program.--A description of the 
     organization's quality improvement program under subsection 
     (e).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to contract years beginning on and 
     after January 1, 2006.

     SEC. 723. CHRONICALLY ILL MEDICARE BENEFICIARY RESEARCH, 
                   DATA, DEMONSTRATION STRATEGY.

       (a) Development of Plan.--Not later than 6 months after the 
     date of the enactment of this Act, the Secretary shall 
     develop a plan to improve quality of care and reduce the cost 
     of care for chronically ill medicare beneficiaries.
       (b) Plan Requirements.--The plan will utilize existing data 
     and identify data gaps, develop research initiatives, and 
     propose intervention demonstration programs to provide better 
     health care for chronically ill medicare beneficiaries. The 
     plan shall--
       (1) integrate existing data sets including, the Medicare 
     Current Beneficiary Survey (MCBS), Minimum Data Set (MDS), 
     Outcome and Assessment Information Set (OASIS), data from 
     Quality Improvement Organizations (QIO), and claims data;
       (2) identify any new data needs and a methodology to 
     address new data needs;
       (3) plan for the collection of such data in a data 
     warehouse; and
       (4) develop a research agenda using such data.
       (c) Consultation.--In developing the plan under this 
     section, the Secretary shall consult with experts in the 
     fields of care for the chronically ill (including 
     clinicians).
       (d) Implementation.--Not later than 2 years after the date 
     of the enactment of this Act, the Secretary shall implement 
     the plan developed under this section. The Secretary may 
     contract with appropriate entities to implement such plan.
       (e) Authorization of Appropriations.--There are authorized 
     to be appropriated to the Secretary such sums as may be 
     necessary in fiscal years 2004 and 2005 to carry out this 
     section.

                      Subtitle D--Other Provisions

     SEC. 731. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE 
                   DETERMINATION PROCESS TO RESPOND TO CHANGES IN 
                   TECHNOLOGY.

       (a) National and Local Coverage Determination Process.--
       (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended 
     by sections 948 and 950, is amended--
       (A) in the third sentence of subsection (a), by inserting 
     ``consistent with subsection (l)'' after ``the Secretary 
     shall ensure''; and
       (B) by adding at the end the following new subsection:
       ``(l) National and Local Coverage Determination Process.--
       ``(1) Factors and evidence used in making national coverage 
     determinations.--The Secretary shall make available to the 
     public the factors considered in making national coverage 
     determinations of whether an item or service is reasonable 
     and necessary. The Secretary shall develop guidance documents 
     to carry out this paragraph in a manner similar to the 
     development of guidance documents under section 701(h) of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 371(h)).
       ``(2) Timeframe for decisions on requests for national 
     coverage determinations.--In the case of a request for a 
     national coverage determination that--
       ``(A) does not require a technology assessment from an 
     outside entity or deliberation from the Medicare Coverage 
     Advisory Committee, the decision on the request shall be made 
     not later than 6 months after the date of the request; or
       ``(B) requires such an assessment or deliberation and in 
     which a clinical trial is not requested, the decision on the 
     request shall be made not later than 9 months after the date 
     of the request.
       ``(3) Process for public comment in national coverage 
     determinations.--
       ``(A) Period for proposed decision.--Not later than the end 
     of the 6-month period (or 9-month period for requests 
     described in paragraph (2)(B)) that begins on the date a 
     request for a national coverage determination is made, the 
     Secretary shall make a draft of proposed decision on the 
     request available to the public through the Internet website 
     of the Centers for Medicare & Medicaid Services or other 
     appropriate means.
       ``(B) 30-day period for public comment.--Beginning on the 
     date the Secretary makes a draft of the proposed decision 
     available under subparagraph (A), the Secretary shall provide 
     a 30-day period for public comment on such draft.
       ``(C) 60-day period for final decision.--Not later than 60 
     days after the conclusion of the 30-day period referred to 
     under subparagraph (B), the Secretary shall--
       ``(i) make a final decision on the request;
       ``(ii) include in such final decision summaries of the 
     public comments received and responses to such comments;
       ``(iii) make available to the public the clinical evidence 
     and other data used in making such a decision when the 
     decision differs from the recommendations of the Medicare 
     Coverage Advisory Committee; and
       ``(iv) in the case of a final decision under clause (i) to 
     grant the request for the national

[[Page H11951]]

     coverage determination, the Secretary shall assign a 
     temporary or permanent code (whether existing or 
     unclassified) and implement the coding change.
       ``(4) Consultation with outside experts in certain national 
     coverage determinations.--With respect to a request for a 
     national coverage determination for which there is not a 
     review by the Medicare Coverage Advisory Committee, the 
     Secretary shall consult with appropriate outside clinical 
     experts.
       ``(5) Local coverage determination process.--
       ``(A) Plan to promote consistency of coverage 
     determinations.--The Secretary shall develop a plan to 
     evaluate new local coverage determinations to determine which 
     determinations should be adopted nationally and to what 
     extent greater consistency can be achieved among local 
     coverage determinations.
       ``(B) Consultation.--The Secretary shall require the fiscal 
     intermediaries or carriers providing services within the same 
     area to consult on all new local coverage determinations 
     within the area.
       ``(C) Dissemination of information.--The Secretary should 
     serve as a center to disseminate information on local 
     coverage determinations among fiscal intermediaries and 
     carriers to reduce duplication of effort.
       ``(6) National and local coverage determination defined.--
     For purposes of this subsection--
       ``(A) National coverage determination.--The term `national 
     coverage determination' means a determination by the 
     Secretary with respect to whether or not a particular item or 
     service is covered nationally under this title.
       ``(B) Local coverage determination.--The term `local 
     coverage determination' has the meaning given that in section 
     1869(f)(2)(B).''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to national coverage determinations as of January 
     1, 2004, and section 1862(l)(5) of the Social Security Act, 
     as added by such paragraph, shall apply to local coverage 
     determinations made on or after July 1, 2004.
       (b) Medicare Coverage of Routine Costs Associated With 
     Certain Clinical Trials of Category A Devices.--
       (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended 
     by subsection (a), is amended by adding at the end the 
     following new subsection:
       ``(m) Coverage of Routine Costs Associated With Certain 
     Clinical Trials of Category A Devices.--
       ``(1) In general.--In the case of an individual entitled to 
     benefits under part A, or enrolled under part B, or both who 
     participates in a category A clinical trial, the Secretary 
     shall not exclude under subsection (a)(1) payment for 
     coverage of routine costs of care (as defined by the 
     Secretary) furnished to such individual in the trial.
       ``(2) Category a clinical trial.--For purposes of paragraph 
     (1), a `category A clinical trial' means a trial of a medical 
     device if--
       ``(A) the trial is of an experimental/investigational 
     (category A) medical device (as defined in regulations under 
     section 405.201(b) of title 42, Code of Federal Regulations 
     (as in effect as of September 1, 2003));
       ``(B) the trial meets criteria established by the Secretary 
     to ensure that the trial conforms to appropriate scientific 
     and ethical standards; and
       ``(C) in the case of a trial initiated before January 1, 
     2010, the device involved in the trial has been determined by 
     the Secretary to be intended for use in the diagnosis, 
     monitoring, or treatment of an immediately life-threatening 
     disease or condition.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to routine costs incurred on and after January 1, 
     2005, and, as of such date, section 411.15(o) of title 42, 
     Code of Federal Regulations, is superseded to the extent 
     inconsistent with section 1862(m) of the Social Security Act, 
     as added by such paragraph.
       (3) Rule of construction.--Nothing in the amendment made by 
     paragraph (1) shall be construed as applying to, or 
     affecting, coverage or payment for a nonexperimental/
     investigational (category B) device.
       (c) Issuance of Temporary National Codes.--Not later than 
     July 1, 2004, the Secretary shall implement revised 
     procedures for the issuance of temporary national HCPCS codes 
     under part B of title XVIII of the Social Security Act.

     SEC. 732. 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 and 
     2006'' before the period at the end.

     SEC. 733. PAYMENT FOR PANCREATIC ISLET CELL INVESTIGATIONAL 
                   TRANSPLANTS FOR MEDICARE BENEFICIARIES IN 
                   CLINICAL TRIALS.

       (a) Clinical Trial.--
       (1) In general.--The Secretary, acting through the National 
     Institute of Diabetes and Digestive and Kidney Disorders, 
     shall conduct a clinical investigation of pancreatic islet 
     cell transplantation which includes medicare beneficiaries.
       (2) Authorization of appropriations.--There are authorized 
     to be appropriated to the Secretary such sums as may be 
     necessary to conduct the clinical investigation under 
     paragraph (1).
       (b) Medicare Payment.--Not earlier than October 1, 2004, 
     the Secretary shall pay for the routine costs as well as 
     transplantation and appropriate related items and services 
     (as described in subsection (c)) in the case of medicare 
     beneficiaries who are participating in a clinical trial 
     described in subsection (a) as if such transplantation were 
     covered under title XVIII of such Act and as would be paid 
     under part A or part B of such title for such beneficiary.
       (c) Scope of Payment.--For purposes of subsection (b):
       (1) The term ``routine costs'' means reasonable and 
     necessary routine patient care costs (as defined in the 
     Centers for Medicare & Medicaid Services Coverage Issues 
     Manual, section 30-1), including immunosuppressive drugs and 
     other followup care.
       (2) The term ``transplantation and appropriate related 
     items and services'' means items and services related to the 
     acquisition and delivery of the pancreatic islet cell 
     transplantation, notwithstanding any national noncoverage 
     determination contained in the Centers for Medicare & 
     Medicaid Services Coverage Issues Manual.
       (3) The term ``medicare beneficiary'' means an individual 
     who is entitled to benefits under part A of title XVIII of 
     the Social Security Act, or enrolled under part B of such 
     title, or both.
       (d) Construction.--The provisions of this section shall not 
     be construed--
       (1) to permit payment for partial pancreatic tissue or 
     islet cell transplantation under title XVIII of the Social 
     Security Act other than payment as described in subsection 
     (b); or
       (2) as authorizing or requiring coverage or payment 
     conveying--
       (A) benefits under part A of such title to a beneficiary 
     not entitled to such part A; or
       (B) benefits under part B of such title to a beneficiary 
     not enrolled in such part B.

     SEC. 734. RESTORATION OF MEDICARE TRUST FUNDS.

       (a) Definitions.--In this section:
       (1) Clerical error.--The term ``clerical error'' means a 
     failure that occurs on or after April 15, 2001, to have 
     transferred the correct amount from the general fund of the 
     Treasury to a Trust Fund.
       (2) Trust fund.--The term ``Trust Fund'' means the Federal 
     Hospital Insurance Trust Fund established under section 1817 
     of the Social Security 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).
       (b) Correction of Trust Fund Holdings.--
       (1) In general.--The Secretary of the Treasury shall take 
     the actions described in paragraph (2) with respect to the 
     Trust Fund with the goal being that, after such actions are 
     taken, the holdings of the Trust Fund will replicate, to the 
     extent practicable in the judgment of the Secretary of the 
     Treasury, in consultation with the Secretary, the holdings 
     that would have been held by the Trust Fund if the clerical 
     error involved had not occurred.
       (2) Obligations issued and redeemed.--The Secretary of the 
     Treasury shall--
       (A) issue to the Trust Fund obligations under chapter 31 of 
     title 31, United States Code, that bear issue dates, interest 
     rates, and maturity dates that are the same as those for the 
     obligations that--
       (i) would have been issued to the Trust Fund if the 
     clerical error involved had not occurred; or
       (ii) were issued to the Trust Fund and were redeemed by 
     reason of the clerical error involved; and
       (B) redeem from the Trust Fund obligations that would have 
     been redeemed from the Trust Fund if the clerical error 
     involved had not occurred.
       (c) Appropriation.--There is appropriated to the Trust 
     Fund, out of any money in the Treasury not otherwise 
     appropriated, an amount determined by the Secretary of the 
     Treasury, in consultation with the Secretary, to be equal to 
     the interest income lost by the Trust Fund through the date 
     on which the appropriation is being made as a result of the 
     clerical error involved.
       (d) Congressional Notice.--In the case of a clerical error 
     that occurs after April 15, 2001, the Secretary of the 
     Treasury, before taking action to correct the error under 
     this section, shall notify the appropriate committees of 
     Congress concerning such error and the actions to be taken 
     under this section in response to such error.
       (e) Deadline.--With respect to the clerical error that 
     occurred on April 15, 2001, not later than 120 days after the 
     date of the enactment of this Act--
       (1) the Secretary of the Treasury shall take the actions 
     under subsection (b)(1); and
       (2) the appropriation under subsection (c) shall be made.

     SEC. 735. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY 
                   COMMISSION (MEDPAC).

       (a) Examination of Budget Consequences.--Section 1805(b) 
     (42 U.S.C. 1395b-6(b)) is amended by adding at the end the 
     following new paragraph:
       ``(8) Examination of budget consequences.--Before making 
     any recommendations, the Commission shall examine the budget 
     consequences of such recommendations, directly or through 
     consultation with appropriate expert entities.''.
       (b) Consideration of Efficient Provision of Services.--
     Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is 
     amended by inserting ``the efficient provision of'' after 
     ``expenditures for''.
       (c) Application of Disclosure Requirements.--
       (1) In general.--Section 1805(c)(2)(D) (42 U.S.C. 1395b-
     6(c)(2)(D)) is amended by adding at the end the following: 
     ``Members of the Commission shall be treated as employees of 
     Congress for purposes of applying title I of the Ethics in 
     Government Act of 1978 (Public Law 95-521).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on January 1, 2004.
       (d) Additional Reports.--
       (1) Data needs and sources.--The Medicare Payment Advisory 
     Commission shall conduct a

[[Page H11952]]

     study, and submit a report to Congress by not later than June 
     1, 2004, on the need for current data, and sources of current 
     data available, to determine the solvency and financial 
     circumstances of hospitals and other medicare providers of 
     services.
       (2) Use of tax-related returns.--Using return information 
     provided under Form 990 of the Internal Revenue Service, the 
     Commission shall submit to Congress, by not later than June 
     1, 2004, a report on the following:
       (A) Investments, endowments, and fundraising of hospitals 
     participating under the medicare program and related 
     foundations.
       (B) Access to capital financing for private and for not-
     for-profit hospitals.
       (e) Representation of Experts in Prescription Drugs.--
       (1) In general.--Section 1805(c)(2)(B) (42 U.S.C. 1395b-
     6(c)(2)(B)) is amended by inserting ``experts in the area of 
     pharmaco-economics or prescription drug benefit programs,'' 
     after ``other health professionals,''.
       (2) Appointment.--The Comptroller General of the United 
     States shall ensure that the membership of the Commission 
     complies with the amendment made by paragraph (1) with 
     respect to appointments made on or after the date of the 
     enactment of this Act.

     SEC. 736. TECHNICAL AMENDMENTS.

       (a) Part A.--(1) Section 1814(a) (42 U.S.C. 1395f(a)) is 
     amended--
       (A) by striking the seventh sentence, as added by section 
     322(a)(1) of BIPA (114 Stat. 2763A-501); and
       (B) in paragraph (7)(A)--
       (i) in clause (i), by inserting before the comma at the end 
     the following: ``based on the physician's or medical 
     director's clinical judgment regarding the normal course of 
     the individual's illness''; and
       (ii) in clause (ii), by inserting before the semicolon at 
     the end the following: ``based on such clinical judgment''.
       (2) Section 1814(b) (42 U.S.C. 1395f(b)), in the matter 
     preceding paragraph (1), is amended by inserting a comma 
     after ``1813''.
       (3) Section 1815(e)(1)(B) (42 U.S.C. 1395g(e)(1)(B)), in 
     the matter preceding clause (i), is amended by striking ``of 
     hospital'' and inserting ``of a hospital''.
       (4) Section 1816(c)(2)(B)(ii) (42 U.S.C. 
     1395h(c)(2)(B)(ii)) is amended--
       (A) by striking ``and'' at the end of subclause (III); and
       (B) by striking the period at the end of subclause (IV) and 
     inserting ``, and''.
       (5) Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is 
     amended--
       (A) in clause (i)(I), by striking the comma at the end and 
     inserting a semicolon; and
       (B) in clause (ii), by striking ``the Medicare and medicaid 
     programs'' and inserting ``the programs under this title and 
     title XIX''.
       (6) Section 1817(k)(6)(B) (42 U.S.C. 1395i(k)(6)(B)) is 
     amended by striking ``Medicare program under title XVIII'' 
     and inserting ``program under this title''.
       (7) Section 1818 (42 U.S.C. 1395i-2) is amended--
       (A) in subsection (d)(6)(A) is amended by inserting ``of 
     such Code'' after ``3111(b)''; and
       (B) in subsection (g)(2)(B) is amended by striking 
     ``subsection (b).'' and inserting ``subsection (b)''.
       (8) Section 1819 (42 U.S.C. 1395i-3) is amended--
       (A) in subsection (b)(4)(C)(i), by striking ``at least at 
     least'' and inserting ``at least'';
       (B) in subsection (d)(1)(A), by striking ``physical 
     mental'' and inserting ``physical, mental''; and
       (C) in subsection (f)(2)(B)(iii), by moving the last 
     sentence 2 ems to the left.
       (9) Section 1886(b)(3)(I)(i)(I) (42 U.S.C. 
     1395ww(b)(3)(I)(i)(I)) is amended by striking ``the the'' and 
     inserting ``the''.
       (10) The heading of subsection (mm) of section 1861 (42 
     U.S.C. 1395x) is amended to read as follows:

    ``Critical Access Hospital; Critical Access Hospital Services''.

       (11) Paragraphs (1) and (2) of section 1861(tt) (42 U.S.C. 
     1395x(tt)) are each amended by striking ``rural primary 
     care'' and inserting ``critical access''.
       (12) Section 1865(b)(3)(B) (42 U.S.C. 1395bb(b)(3)(B)) is 
     amended by striking ``section 1819 and 1861(j)'' and 
     inserting ``sections 1819 and 1861(j)''.
       (13) Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) is amended 
     by moving subparagraph (D) 2 ems to the left.
       (14) Section 1867 (42 U.S.C. 1395dd) is amended--
       (A) in the matter following clause (ii) of subsection 
     (d)(1)(B), by striking ``is is'' and inserting ``is'';
       (B) in subsection (e)(1)(B), by striking ``a pregnant 
     women'' and inserting ``a pregnant woman''; and
       (C) in subsection (e)(2), by striking ``means hospital'' 
     and inserting ``means a hospital''.
       (15) Section 1886(g)(3)(B) (42 U.S.C. 1395ww(g)(3)(B)) is 
     amended by striking ``(as defined in subsection 
     (d)(5)(D)(iii)'' and inserting ``(as defined in subsection 
     (d)(5)(D)(iii))''.
       (b) Part B.--(1) Section 1833(h)(5)(D) (42 U.S.C. 
     1395l(h)(5)(D)) is amended by striking ``clinic,,'' and 
     inserting ``clinic,''.
       (2) Section 1833(t)(3)(C)(ii) (42 U.S.C. 
     1395l(t)(3)(C)(ii)) is amended by striking ``clause (iii)'' 
     and inserting ``clause (iv)''.
       (3) Section 1861(v)(1)(S)(ii)(III) (42 U.S.C. 
     1395x(v)(1)(S)(ii)(III)) is amended by striking ``(as defined 
     in section 1886(d)(5)(D)(iii)'' and inserting ``(as defined 
     in section 1886(d)(5)(D)(iii))''.
       (4) Section 1834(b)(4)(D)(iv) (42 U.S.C. 
     1395m(b)(4)(D)(iv)) is amended by striking ``clauses (vi)'' 
     and inserting ``clause (vi)''.
       (5) Section 1834(m)(4)(C)(ii)(III) (42 U.S.C. 
     1395m(m)(4)(C)(ii)(III)) is amended by striking 
     ``1861(aa)(s)'' and inserting ``1861(aa)(2)''.
       (6) Section 1838(a)(1) (42 U.S.C. 1395q(a)(1)) is amended 
     by inserting a comma after ``1966''.
       (7) The second sentence of section 1839(a)(4) (42 U.S.C. 
     1395r(a)(4)) is amended by striking ``which will'' and 
     inserting ``will''.
       (8) Section 1842(c)(2)(B)(ii) (42 U.S.C. 
     1395u(c)(2)(B)(ii)) is amended--
       (A) by striking ``and'' at the end of subclause (III); and
       (B) by striking the period at the end of subclause (IV) and 
     inserting ``, and''.
       (9) Section 1842(i)(2) (42 U.S.C. 1395u(i)(2)) is amended 
     by striking ``services, a physician'' and inserting 
     ``services, to a physician''.
       (10) Section 1848(i)(3)(A) (42 U.S.C. 1395w-4(i)(3)(A)) is 
     amended by striking ``a comparable services'' and inserting 
     ``comparable services''.
       (11) Section 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) 
     is amended by striking ``; and but'' and inserting ``, but''.
       (12) Section 1861(aa)(1)(B) (42 U.S.C. 1395x(aa)(1)(B)) is 
     amended by striking ``,,'' and inserting a comma.
       (13) Section 128(b)(2) of BIPA (114 Stat. 2763A-480) is 
     amended by striking ``Not later that'' and inserting ``Not 
     later than'' each place it appears.
       (c) Parts A and B.--(1) Section 1812(a)(3) (42 U.S.C. 
     1395d(a)(3)) is amended--
       (A) by striking ``for individuals not'' and inserting ``in 
     the case of individuals not''; and
       (B) by striking ``for individuals so'' and inserting ``in 
     the case of individuals so''.
       (2)(A) Section 1814(a) (42 U.S.C. 1395f(a)) is amended in 
     the sixth sentence by striking ``leave home,'' and inserting 
     ``leave home and''.
       (B) Section 1835(a) (42 U.S.C. 1395n(a)) is amended in the 
     seventh sentence by striking ``leave home,'' and inserting 
     ``leave home and''.
       (3) Section 1891(d)(1) (42 U.S.C. 1395bbb(d)(1)) is amended 
     by striking ``subsection (c)(2)(C)(I)'' and inserting 
     ``subsection (c)(2)(C)(i)(I)''.
       (4) Section 1861(v) (42 U.S.C. 1395x(v)) is amended by 
     moving paragraph (8) (including clauses (i) through (v) of 
     such paragraph) 2 ems to the left.
       (5) Section 1866B(b)(7)(D) (42 U.S.C. 1395cc-2(b)(7)(D)) is 
     amended by striking ``(c)(2)(A)(ii)'' and inserting 
     ``(c)(2)(B)''.
       (6) Section 1886(h)(3)(D)(ii)(III) (42 U.S.C. 
     1395ww(h)(3)(D)(ii)(III)) is amended by striking ``and'' 
     after the comma at the end.
       (7) Section 1893(a) (42 U.S.C. 1395ddd(a)) is amended by 
     striking ``Medicare program'' and inserting ``medicare 
     program''.
       (8) Section 1896(b)(4) (42 U.S.C. 1395ggg(b)(4)) is amended 
     by striking ``701(f)'' and inserting ``712(f)''.
       (d) Part C.--(1) Section 1853 (42 U.S.C. 1395w-23), as 
     amended by section 607 of BIPA (114 Stat. 2763A-558), is 
     amended--
       (A) in subsection (a)(3)(C)(ii), by striking ``clause 
     (iii)'' and inserting ``clause (iv)'';
       (B) in subsection (a)(3)(C), by redesignating the clause 
     (iii) added by such section 607 as clause (iv); and
       (C) in subsection (c)(5), by striking ``(a)(3)(C)(iii)'' 
     and inserting ``(a)(3)(C)(iv)''.
       (2) Section 1876 (42 U.S.C. 1395mm) is amended--
       (A) in subsection (c)(2)(B), by striking ``signifcant'' and 
     inserting ``significant''; and
       (B) in subsection (j)(2), by striking ``this setion'' and 
     inserting ``this section''.
       (e) Medigap.--Section 1882 (42 U.S.C. 1395ss) is amended--
       (1) in subsection (d)(3)(A)(i)(II), by striking ``plan a 
     medicare supplemental policy'' and inserting ``plan, a 
     medicare supplemental policy'';
       (2) in subsection (d)(3)(B)(iii)(II), by striking ``to the 
     best of the issuer or seller's knowledge'' and inserting ``to 
     the best of the issuer's or seller's knowledge'';
       (3) in subsection (g)(2)(A), by striking ``medicare 
     supplement policies'' and inserting ``medicare supplemental 
     policies'';
       (4) in subsection (p)(2)(B), by striking ``, and'' and 
     inserting ``; and''; and
       (5) in subsection (s)(3)(A)(iii), by striking ``pre-
     existing'' and inserting ``preexisting''.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

     SEC. 801. INCLUSION IN ANNUAL REPORT OF MEDICARE TRUSTEES OF 
                   INFORMATION ON STATUS OF MEDICARE TRUST FUNDS.

       (a) Determinations of Excess General Revenue Medicare 
     Funding.--
       (1) In general.--The Board of Trustees of each medicare 
     trust fund shall include in the annual reports submitted 
     under subsection (b)(2) of sections 1817 and 1841 of the 
     Social Security Act (42 U.S.C. 1395i and 1395t)--
       (A) the information described in subsection (b); and
       (B) a determination as to whether there is projected to be 
     excess general revenue medicare funding (as defined in 
     subsection (c)) for the fiscal year in which the report is 
     submitted or for any of the succeeding 6 fiscal years.
       (2) Medicare funding warning.--For purposes of section 
     1105(h) of title 31, United States Code, and this subtitle, 
     an affirmative determination under paragraph (1)(B) in 2 
     consecutive annual reports shall be treated as a medicare 
     funding warning in the year in which the second such report 
     is made.
       (3) 7-fiscal-year reporting period.--For purposes of this 
     subtitle, the term ``7-fiscal-year reporting period'' means, 
     with respect to a year in which an annual report described in 
     paragraph (1) is made, the period of 7 consecutive fiscal 
     years beginning with the fiscal year in which the report is 
     submitted.
       (b) Information.--The information described in this 
     subsection for an annual report in a year is as follows:
       (1) Projections of growth of general revenue spending.--A 
     statement of the general revenue medicare funding as a 
     percentage of the total medicare outlays for each of the 
     following:

[[Page H11953]]

       (A) Each fiscal year within the 7-fiscal-year reporting 
     period.
       (B) Previous fiscal years and as of 10, 50, and 75 years 
     after such year.
       (2) Comparison with other growth trends.--A comparison of 
     the trend of such percentages with the annual growth rate in 
     the following:
       (A) The gross domestic product.
       (B) Private health costs.
       (C) National health expenditures.
       (D) Other appropriate measures.
       (3) Part d spending.--Expenditures, including trends in 
     expenditures, under part D of title XVIII of the Social 
     Security Act, as added by section 101.
       (4) Combined medicare trust fund analysis.--A financial 
     analysis of the combined medicare trust funds if general 
     revenue medicare funding were limited to the percentage 
     specified in subsection (c)(1)(B) of total medicare outlays.
       (c) Definitions.--For purposes of this section:
       (1) Excess general revenue medicare funding.--The term 
     ``excess general revenue medicare funding'' means, with 
     respect to a fiscal year, that--
       (A) general revenue medicare funding (as defined in 
     paragraph (2)), expressed as a percentage of total medicare 
     outlays (as defined in paragraph (4)) for the fiscal year; 
     exceeds
       (B) 45 percent.
       (2) General revenue medicare funding.--The term ``general 
     revenue medicare funding'' means for a year--
       (A) the total medicare outlays (as defined in paragraph 
     (4)) for the year; minus
       (B) the dedicated medicare financing sources (as defined in 
     paragraph (3)) for the year.
       (3) Dedicated medicare financing sources.--The term 
     ``dedicated medicare financing sources'' means the following:
       (A) Hospital insurance tax.--Amounts appropriated to the 
     Hospital Insurance Trust Fund under the third sentence of 
     section 1817(a) of the Social Security Act (42 U.S.C. 
     1395i(a)) and amounts transferred to such Trust Fund under 
     section 7(c)(2) of the Railroad Retirement Act of 1974 (45 
     U.S.C. 231f(c)(2)).
       (B) Taxation of certain oasdi benefits.--Amounts 
     appropriated to the Hospital Insurance Trust Fund under 
     section 121(e)(1)(B) of the Social Security Amendments of 
     1983 (Public Law 98-21), as inserted by section 13215(c) of 
     the Omnibus Budget Reconciliation Act of 1993 (Public Law 
     103-66).
       (C) State transfers.--The State share of amounts paid to 
     the Federal Government by a State under section 1843 of the 
     Social Security Act (42 U.S.C. 1395v) or pursuant to section 
     1935(c) of such Act.
       (D) Premiums.--The following premiums:
       (i) Part a.--Premiums paid by non-Federal sources under 
     sections 1818 and section 1818A (42 U.S.C. 1395i-2 and 1395i-
     2a) of such Act.
       (ii) Part b.--Premiums paid by non-Federal sources under 
     section 1839 of such Act (42 U.S.C. 1395r), including any 
     adjustments in premiums under such section.
       (iii) Part d.--Monthly beneficiary premiums paid under part 
     D of title XVIII of such Act, as added by section 101, and MA 
     monthly prescription drug beneficiary premiums paid under 
     part C of such title insofar as they are attributable to 
     basic prescription drug coverage.

     Premiums under clauses (ii) and (iii) shall be determined 
     without regard to any reduction in such premiums attributable 
     to a beneficiary rebate under section 1854(b)(1)(C) of such 
     title, as amended by section 222(b)(1), and premiums under 
     clause (iii) are deemed to include any amounts paid under 
     section 1860D-13(b) of such title, as added by section 101.
       (E) Gifts.--Amounts received by the medicare trust funds 
     under section 201(i) of the Social Security Act (42 U.S.C. 
     401(i)).
       (4) Total medicare outlays.--The term ``total medicare 
     outlays'' means total outlays from the medicare trust funds 
     and shall--
       (A) include payments made to plans under part C of title 
     XVIII of the Social Security Act that are attributable to any 
     rebates under section 1854(b)(1)(C) of such Act (42 U.S.C. 
     1395w-24(b)(1)(C)), as amended by section 222(b)(1);
       (B) include administrative expenditures made in carrying 
     out title XVIII of such Act and Federal outlays under section 
     1935(b) of such Act, as added by section 103(a)(2); and
       (C) offset outlays by the amount of fraud and abuse 
     collections insofar as they are applied or deposited into a 
     medicare trust fund.
       (5) Medicare trust fund.--The term ``medicare trust fund'' 
     means--
       (A) the Federal Hospital Insurance Trust Fund established 
     under section 1817 of the Social Security Act (42 U.S.C. 
     1395i); and
       (B) the Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841 of such Act (42 U.S.C. 1395t), 
     including the Medicare Prescription Drug Account under such 
     Trust Fund.
       (d) Conforming Amendments.--
       (1) Federal hospital insurance trust fund.--Section 
     1817(b)(2) (42 U.S.C. 1395i(b)(2)) is amended by adding at 
     the end the following: ``Each report provided under paragraph 
     (2) beginning with the report in 2005 shall include the 
     information specified in section 801(a) of Medicare 
     Prescription Drug, Improvement, and Modernization Act of 
     2003.''.
       (2) Federal supplementary medical insurance trust fund.--
     Section 1841(b)(2) (42 U.S.C. 1395t(b)(2)) is amended by 
     adding at the end the following: ``Each report provided under 
     paragraph (2) beginning with the report in 2005 shall include 
     the information specified in section 801(a) of Medicare 
     Prescription Drug, Improvement, and Modernization Act of 
     2003.''.
       (e) Notice of Medicare Funding Warning.--Whenever any 
     report described in subsection (a) contains a determination 
     that for any fiscal year within the 7-fiscal-year reporting 
     period there will be excess general revenue medicare funding, 
     Congress and the President should address the matter under 
     existing rules and procedures.

     SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.

       (a) In General.--Section 1105 of title 31, United States 
     Code, is amended by adding at the end the following new 
     subsection:
       ``(h)(1) If there is a medicare funding warning under 
     section 801(a)(2) of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003 made in a year, 
     the President shall submit to Congress, within the 15-day 
     period beginning on the date of the budget submission to 
     Congress under subsection (a) for the succeeding year, 
     proposed legislation to respond to such warning.
       ``(2) Paragraph (1) does not apply if, during the year in 
     which the warning is made, legislation is enacted which 
     eliminates excess general revenue medicare funding (as 
     defined in section 801(c) of the Medicare Prescription Drug, 
     Improvement, and Modernization Act of 2003) for the 7-fiscal-
     year reporting period, as certified by the Board of Trustees 
     of each medicare trust fund (as defined in section 801(c)(5) 
     of such Act) not later than 30 days after the date of the 
     enactment of such legislation.''.
       (b) Sense of Congress.--It is the sense of Congress that 
     legislation submitted pursuant to section 1105(h) of title 
     31, United States Code, in a year should be designed to 
     eliminate excess general revenue medicare funding (as defined 
     in section 801(c)) for the 7-fiscal-year period that begins 
     in such year.

     SEC. 803. PROCEDURES IN THE HOUSE OF REPRESENTATIVES.

       (a) Introduction and Referral of President's Legislative 
     Proposal.--
       (1) Introduction.--In the case of a legislative proposal 
     submitted by the President pursuant to section 1105(h) of 
     title 31, United States Code, within the 15-day period 
     specified in paragraph (1) of such section, the Majority 
     Leader of the House of Representatives (or his designee) and 
     the Minority Leader of the House of Representatives (or his 
     designee) shall introduce such proposal (by request), the 
     title of which is as follows: ``A bill to respond to a 
     medicare funding warning.'' Such bill shall be introduced 
     within 3 legislative days after Congress receives such 
     proposal.
       (2) Referral.--Any legislation introduced pursuant to 
     paragraph (1) shall be referred to the appropriate committees 
     of the House of Representatives.
       (b) Direction to the Appropriate House Committees.--
       (1) In general.--In the House, in any year during which the 
     President is required to submit proposed legislation to 
     Congress under section 1105(h) of title 31, United States 
     Code, the appropriate committees shall report medicare 
     funding legislation by not later than June 30 of such year.
       (2) Medicare funding legislation.--For purposes of this 
     section, the term ``medicare funding legislation'' means--
       (A) legislation introduced pursuant to subsection (a)(1), 
     but only if the legislative proposal upon which the 
     legislation is based was submitted within the 15-day period 
     referred to in such subsection; or
       (B) any bill the title of which is as follows: ``A bill to 
     respond to a medicare funding warning.''.
       (3) Certification.--With respect to any medicare funding 
     legislation or any amendment to such legislation to respond 
     to a medicare funding warning, the chairman of the Committee 
     on the Budget of the House shall certify--
       (A) whether or not such legislation eliminates excess 
     general revenue medicare funding (as defined in section 
     801(c)) for each fiscal year in the 7-fiscal-year reporting 
     period; and
       (B) with respect to such an amendment, whether the 
     legislation, as amended, would eliminate excess general 
     revenue medicare funding (as defined in section 801(c)) for 
     each fiscal year in such 7-fiscal-year reporting period.
       (c) Fallback Procedure for Floor Consideration if the House 
     Fails to Vote on Final Passage by July 30.--
       (1) After July 30 of any year during which the President is 
     required to submit proposed legislation to Congress under 
     section 1105(h) of title 31, United States Code, unless the 
     House of Representatives has voted on final passage of any 
     medicare funding legislation for which there is an 
     affirmative certification under subsection (b)(3)(A), then, 
     after the expiration of not less than 30 calendar days (and 
     concurrently 5 legislative days), it is in order to move to 
     discharge any committee to which medicare funding legislation 
     which has such a certification and which has been referred to 
     such committee for 30 calendar days from further 
     consideration of the legislation.
       (2) A motion to discharge may be made only by an individual 
     favoring the legislation, may be made only if supported by 
     one-fifth of the total membership of the House (a quorum 
     being present), and is highly privileged in the House. Debate 
     thereon shall be limited to not more than one hour, the time 
     to be divided in the House equally between those favoring and 
     those opposing the motion. An amendment to the motion is not 
     in order, and it is not in order to move to reconsider the 
     vote by which the motion is agreed to or disagreed to.
       (3) Only one motion to discharge a particular committee may 
     be adopted under this subsection in any session of a 
     Congress.
       (4) Notwithstanding paragraph (1), it shall not be in order 
     to move to discharge a committee from further consideration 
     of medicare funding legislation pursuant to this subsection 
     during a session of a Congress if, during the previous 
     session of the Congress, the House passed medicare funding 
     legislation for which there is an affirmative certification 
     under subsection (b)(3)(A).
       (d) Floor Consideration in the House of Discharged 
     Legislation.--

[[Page H11954]]

       (1) In the House, not later than 3 legislative days after 
     any committee has been discharged from further consideration 
     of legislation under subsection (c), the Speaker shall 
     resolve the House into the Committee of the Whole for 
     consideration of the legislation.
       (2) The first reading of the legislation shall be dispensed 
     with. All points of order against consideration of the 
     legislation are waived. General debate shall be confined to 
     the legislation and shall not exceed five hours, which shall 
     be divided equally between those favoring and those opposing 
     the legislation. After general debate the legislation shall 
     be considered for amendment under the five-minute rule. 
     During consideration of the legislation, no amendments shall 
     be in order in the House or in the Committee of the Whole 
     except those for which there has been an affirmative 
     certification under subsection (b)(3)(B). All points of order 
     against consideration of any such amendment in the Committee 
     of the Whole are waived. The legislation, together with any 
     amendments which shall be in order, shall be considered as 
     read. During the consideration of the bill for amendment, the 
     Chairman of the Committee of the Whole may accord priority in 
     recognition on the basis of whether the Member offering an 
     amendment has caused it to be printed in the portion of the 
     Congressional Record designated for that purpose in clause 8 
     of Rule XVIII of the Rules of the House of Representatives. 
     Debate on any amendment shall not exceed one hour, which 
     shall be divided equally between those favoring and those 
     opposing the amendment, and no pro forma amendments shall be 
     offered during the debate. The total time for debate on all 
     amendments shall not exceed 10 hours. At the conclusion of 
     consideration of the legislation for amendment, the Committee 
     shall rise and report the legislation to the House with such 
     amendments as may have been adopted. The previous question 
     shall be considered as ordered on the legislation and 
     amendments thereto to final passage without intervening 
     motion except one motion to recommit with or without 
     instructions. If the Committee of the Whole rises and reports 
     that it has come to no resolution on the bill, then on the 
     next legislative day the House shall, immediately after the 
     third daily order of business under clause 1 of Rule XIV of 
     the Rules of the House of Representatives, resolve into the 
     Committee of the Whole for further consideration of the bill.
       (3) All appeals from the decisions of the Chair relating to 
     the application of the Rules of the House of Representatives 
     to the procedure relating to any such legislation shall be 
     decided without debate.
       (4) Except to the extent specifically provided in the 
     preceding provisions of this subsection, consideration of any 
     such legislation and amendments thereto (or any conference 
     report thereon) shall be governed by the Rules of the House 
     of Representatives applicable to other bills and resolutions, 
     amendments, and conference reports in similar circumstances.
       (e) Legislative Day Defined.--As used in this section, the 
     term ``legislative day'' means a day on which the House of 
     Representatives is in session.
       (f) Restriction on Waiver.--In the House, the provisions of 
     this section may be waived only by a rule or order proposing 
     only to waive such provisions.
       (g) Rulemaking Power.--The provisions of this section are 
     enacted by the Congress--
       (1) as an exercise of the rulemaking power of the House of 
     Representatives and, as such, shall be considered as part of 
     the rules of that House and shall supersede other rules only 
     to the extent that they are inconsistent therewith; and
       (2) with full recognition of the constitutional right of 
     that House to change the rules (so far as they relate to the 
     procedures of that House) at any time, in the same manner, 
     and to the same extent as in the case of any other rule of 
     that House.

     SEC. 804. PROCEDURES IN THE SENATE.

       (a) Introduction and Referral of President's Legislative 
     Proposal.--
       (1) Introduction.--In the case of a legislative proposal 
     submitted by the President pursuant to section 1105(h) of 
     title 31, United States Code, within the 15-day period 
     specified in paragraph (1) of such section, the Majority 
     Leader and Minority Leader of the Senate (or their designees) 
     shall introduce such proposal (by request), the title of 
     which is as follows: ``A bill to respond to a medicare 
     funding warning.'' Such bill shall be introduced within 3 
     days of session after Congress receives such proposal.
       (2) Referral.--Any legislation introduced pursuant to 
     paragraph (1) shall be referred to the Committee on Finance.
       (b) Medicare Funding Legislation.--For purposes of this 
     section, the term ``medicare funding legislation'' means--
       (1) legislation introduced pursuant to subsection (a)(1), 
     but only if the legislative proposal upon which the 
     legislation is based was submitted within the 15-day period 
     referred to in such subsection; or
       (2) any bill the title of which is as follows: ``A bill to 
     respond to a medicare funding warning.''.
       (c) Qualification for Special Procedures.--
       (1) In general.--The special procedures set forth in 
     subsections (d) and (e) shall apply to medicare funding 
     legislation, as described in subsection (b), only if the 
     legislation--
       (A) is medicare funding legislation that is passed by the 
     House of Representatives; or
       (B) contains matter within the jurisdiction of the 
     Committee on Finance in the Senate.
       (2) Failure to qualify for special procedures.--If the 
     medicare funding legislation does not satisfy paragraph (1), 
     then the legislation shall be considered under the ordinary 
     procedures of the Standing Rules of the Senate.
       (d) Discharge.--
       (1) In general.--If the Committee on Finance has not 
     reported medicare funding legislation described in subsection 
     (c)(1) by June 30 of a year in which the President is 
     required to submit medicare funding legislation to Congress 
     under section 1105(h) of title 31, United States Code, then 
     any Senator may move to discharge the Committee of any single 
     medicare funding legislation measure. Only one such motion 
     shall be in order in any session of Congress.
       (2) Debate limits.--Debate in the Senate on any such motion 
     to discharge, and all appeals in connection therewith, shall 
     be limited to not more than 2 hours. The time shall be 
     equally divided between, and controlled by, the maker of the 
     motion and the Majority Leader, or their designees, except 
     that in the event the Majority Leader is in favor of such 
     motion, the time in opposition thereto shall be controlled by 
     the Minority Leader or the Minority Leader's designee. A 
     point of order under this subsection may be made at any time. 
     It is not in order to move to proceed to another measure or 
     matter while such motion (or the motion to reconsider such 
     motion) is pending.
       (3) Amendments.--No amendment to the motion to discharge 
     shall be in order.
       (4) Exception if certified legislation enacted.--
     Notwithstanding paragraph (1), it shall not be in order to 
     discharge the Committee from further consideration of 
     medicare funding legislation pursuant to this subsection 
     during a session of a Congress if the chairman of the 
     Committee on the Budget of the Senate certifies that medicare 
     funding legislation has been enacted that eliminates excess 
     general revenue medicare funding (as defined in section 
     801(c)) for each fiscal year in the 7-fiscal-year reporting 
     period.
       (e) Consideration.--After the date on which the Committee 
     on Finance has reported medicare funding legislation 
     described in subsection (c)(1), or has been discharged (under 
     subsection (d)) from further consideration of, such 
     legislation, it is in order (even though a previous motion to 
     the same effect has been disagreed to) for any Member of the 
     Senate to move to proceed to the consideration of such 
     legislation.
       (f) Rules of the Senate.--This section is enacted by the 
     Senate--
       (1) as an exercise of the rulemaking power of the Senate 
     and as such it is deemed a part of the rules of the Senate, 
     but applicable only with respect to the procedure to be 
     followed in the Senate in the case of a bill described in 
     this paragraph, and it supersedes other rules only to the 
     extent that it is inconsistent with such rules; and
       (2) with full recognition of the constitutional right of 
     the Senate to change the rules (so far as relating to the 
     procedure of the Senate) at any time, in the same manner, and 
     to the same extent as in the case of any other rule of the 
     Senate.

     Subtitle B--Income-Related Reduction in Part B Premium Subsidy

     SEC. 811. INCOME-RELATED REDUCTION IN PART B PREMIUM SUBSIDY.

       (a) In General.--Section 1839 (42 U.S.C. 1395r), as amended 
     by section 241(c), is amended by adding at the end the 
     following:
       ``(i) Reduction in Premium Subsidy Based on Income.--
       ``(1) In general.--In the case of an individual whose 
     modified adjusted gross income exceeds the threshold amount 
     under paragraph (2), the monthly amount of the premium 
     subsidy applicable to the premium under this section for a 
     month after December 2006 shall be reduced (and the monthly 
     premium shall be increased) by the monthly adjustment amount 
     specified in paragraph (3).
       ``(2) Threshold amount.--For purposes of this subsection, 
     the threshold amount is--
       ``(A) except as provided in subparagraph (B), $80,000, and
       ``(B) in the case of a joint return, twice the amount 
     applicable under subparagraph (A) for the calendar year.
       ``(3) Monthly adjustment amount.--
       ``(A) In general.--Subject to subparagraph (B), the monthly 
     adjustment amount specified in this paragraph for an 
     individual for a month in a year is equal to the product of 
     the following:
       ``(i) Sliding scale percentage.--The applicable percentage 
     specified in the table in subparagraph (C) for the individual 
     minus 25 percentage points.
       ``(ii) Unsubsidized part b premium amount.--200 percent of 
     the monthly actuarial rate for enrollees age 65 and over (as 
     determined under subsection (a)(1) for the year).
       ``(B) 5-year phase in.--The monthly adjustment amount 
     specified in this paragraph for an individual for a month in 
     a year before 2011 is equal to the following percentage of 
     the monthly adjustment amount specified in subparagraph (A):
       ``(i) For 2007, 20 percent.
       ``(ii) For 2008, 40 percent.
       ``(iii) For 2009, 60 percent.
       ``(iv) for 2010, 80 percent.
       ``(C) Applicable percentage.--
       ``(i) In general.--

 
  ``If the modified adjusted gross income     The applicable percentage
                    is:                                  is:
 
 
More than $80,000 but not more than             35percent
More than $100,000 but not more than            50 percent
 $150,000.
More than $150,000 but not more than            65 percent
 $200,000.
More than $200,000........................      80 percent.
 

       ``(ii) Joint returns.--In the case of a joint return, 
     clause (i) shall be applied by substituting dollar amounts 
     which are twice the dollar amounts otherwise applicable under 
     clause (i) for the calendar year.
       ``(iii) Married individuals filing separate returns.--In 
     the case of an individual who--

       ``(I) is married as of the close of the taxable year 
     (within the meaning of section 7703 of the

[[Page H11955]]

     Internal Revenue Code of 1986) but does not file a joint 
     return for such year, and
       ``(II) does not live apart from such individual's spouse at 
     all times during the taxable year,

     clause (i) shall be applied by reducing each of the dollar 
     amounts otherwise applicable under such clause for the 
     calendar year by the threshold amount for such year 
     applicable to an unmarried individual.
       ``(4) Modified adjusted gross income.--
       ``(A) In general.--For purposes of this subsection, the 
     term `modified adjusted gross income' means adjusted gross 
     income (as defined in section 62 of the Internal Revenue Code 
     of 1986)--
       ``(i) determined without regard to sections 135, 911, 931, 
     and 933 of such Code; and
       ``(ii) increased by the amount of interest received or 
     accrued during the taxable year which is exempt from tax 
     under such Code.
     In the case of an individual filing a joint return, any 
     reference in this subsection to the modified adjusted gross 
     income of such individual shall be to such return's modified 
     adjusted gross income.
       ``(B) Taxable year to be used in determining modified 
     adjusted gross income.--
       ``(i) In general.--In applying this subsection for an 
     individual's premiums in a month in a year, subject to clause 
     (ii) and subparagraph (C), the individual's modified adjusted 
     gross income shall be such income determined for the 
     individual's last taxable year beginning in the second 
     calendar year preceding the year involved.
       ``(ii) Temporary use of other data.--If, as of October 15 
     before a calendar year, the Secretary of the Treasury does 
     not have adequate data for an individual in appropriate 
     electronic form for the taxable year referred to in clause 
     (i), the individual's modified adjusted gross income shall be 
     determined using the data in such form from the previous 
     taxable year. Except as provided in regulations prescribed by 
     the Commissioner of Social Security in consultation with the 
     Secretary, the preceding sentence shall cease to apply when 
     adequate data in appropriate electronic form are available 
     for the individual for the taxable year referred to in clause 
     (i), and proper adjustments shall be made to the extent that 
     the premium adjustments determined under the preceding 
     sentence were inconsistent with those determined using such 
     taxable year.
       ``(iii) Non-filers.--In the case of individuals with 
     respect to whom the Secretary of the Treasury does not have 
     adequate data in appropriate electronic form for either 
     taxable year referred to in clause (i) or clause (ii), the 
     Commissioner of Social Security, in consultation with the 
     Secretary, shall prescribe regulations which provide for the 
     treatment of the premium adjustment with respect to such 
     individual under this subsection, including regulations which 
     provide for--

       ``(I) the application of the highest applicable percentage 
     under paragraph (3)(C) to such individual if the Commissioner 
     has information which indicates that such individual's 
     modified adjusted gross income might exceed the threshold 
     amount for the taxable year referred to in clause (i), and
       ``(II) proper adjustments in the case of the application of 
     an applicable percentage under subclause (I) to such 
     individual which is inconsistent with such individual's 
     modified adjusted gross income for such taxable year.

       ``(C) Use of more recent taxable year.--
       ``(i) In general.--The Commissioner of Social Security in 
     consultation with the Secretary of the Treasury shall 
     establish a procedures under which an individual's modified 
     adjusted gross income shall, at the request of such 
     individual, be determined under this subsection--

       ``(I) for a more recent taxable year than the taxable year 
     otherwise used under subparagraph (B), or
       ``(II) by such methodology as the Commissioner, in 
     consultation with such Secretary, determines to be 
     appropriate, which may include a methodology for aggregating 
     or disaggregating information from tax returns in the case of 
     marriage or divorce.

       ``(ii) Standard for granting requests.--A request under 
     clause (i)(I) to use a more recent taxable year may be 
     granted only if--

       ``(I) the individual furnishes to such Commissioner with 
     respect to such year such documentation, such as a copy of a 
     filed Federal income tax return or an equivalent document, as 
     the Commissioner specifies for purposes of determining the 
     premium adjustment (if any) under this subsection; and
       ``(II) the individual's modified adjusted gross income for 
     such year is significantly less than such income for the 
     taxable year determined under subparagraph (B) by reason of 
     the death of such individual's spouse, the marriage or 
     divorce of such individual, or other major life changing 
     events specified in regulations prescribed by the 
     Commissioner in consultation with the Secretary.

       ``(5) Inflation adjustment.--
       ``(A) In general.--In the case of any calendar year 
     beginning after 2007, each dollar amount in paragraph (2) or 
     (3) shall be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the percentage (if any) by which the average of the 
     Consumer Price Index for all urban consumers (United States 
     city average) for the 12-month period ending with August of 
     the preceding calendar year exceeds such average for the 12-
     month period ending with August 2006.
       ``(B) Rounding.--If any dollar amount after being increased 
     under subparagraph (A) is not a multiple of $1,000, such 
     dollar amount shall be rounded to the nearest multiple of 
     $1,000.
       ``(6) Joint return defined.--For purposes of this 
     subsection, the term `joint return' has the meaning given to 
     such term by section 7701(a)(38) of the Internal Revenue Code 
     of 1986.''.
       (b) Conforming Amendments.--
       (1) Section 1839 (42 U.S.C. 1395r) is amended--
       (A) in subsection (a)(2), by striking ``and (f)'' and 
     inserting ``(f), and (i)'';
       (B) in subsection (b), inserting ``(without regard to any 
     adjustment under subsection (i))'' after ``subsection (a)''; 
     and
       (C) in subsection (f)--
       (i) by striking ``and if'' and inserting ``if''; and
       (ii) by inserting ``and if the amount of the individual's 
     premium is not adjusted for such January under subsection 
     (i),'' after ``section 1840(b)(1),''.
       (2) Section 1844 (42 U.S.C. 1395w) is amended--
       (A) in subsection (a)(1)--
       (i) in subparagraph (B), by striking ``plus'' at the end 
     and inserting ``minus''; and
       (ii) by adding at the end the following new subparagraph:
       ``(C) the aggregate amount of additional premium payments 
     attributable to the application of section 1839(i); plus''; 
     and
       (B) in subsection (c), by inserting before the period at 
     the end the following: ``and without regard to any premium 
     adjustment under section 1839(i)''.
       (c) Reporting Requirements for Secretary of the Treasury.--
       (1) In general.--Subsection (l) of section 6103 of the 
     Internal Revenue Code of 1986 (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration), as amended by section 105(e), is amended by 
     adding at the end the following new paragraph:
       ``(20) Disclosure of return information to carry out 
     medicare part b premium subsidy adjustment.--
       ``(A) In general.--The Secretary shall, upon written 
     request from the Commissioner of Social Security, disclose to 
     officers, employees, and contractors of the Social Security 
     Administration return information of a taxpayer whose premium 
     (according to the records of the Secretary) may be subject to 
     adjustment under section 1839(i) of the Social Security Act. 
     Such return information shall be limited to--
       ``(i) taxpayer identity information with respect to such 
     taxpayer,
       ``(ii) the filing status of such taxpayer,
       ``(iii) the adjusted gross income of such taxpayer,
       ``(iv) the amounts excluded from such taxpayer's gross 
     income under sections 135 and 911 to the extent such 
     information is available,
       ``(v) the interest received or accrued during the taxable 
     year which is exempt from the tax imposed by chapter 1 to the 
     extent such information is available,
       ``(vi) the amounts excluded from such taxpayer's gross 
     income by sections 931 and 933 to the extent such information 
     is available,
       ``(vii) such other information relating to the liability of 
     the taxpayer as is prescribed by the Secretary by regulation 
     as might indicate in the case of a taxpayer who is an 
     individual described in subsection (i)(4)(B)(iii) of section 
     1839 of the Social Security Act that the amount of the 
     premium of the taxpayer under such section may be subject to 
     adjustment under subsection (i) of such section and the 
     amount of such adjustment, and
       ``(viii) the taxable year with respect to which the 
     preceding information relates.
       ``(B) Restriction on use of disclosed information.--Return 
     information disclosed under subparagraph (A) may be used by 
     officers, employees, and contractors of the Social Security 
     Administration only for the purposes of, and to the extent 
     necessary in, establishing the appropriate amount of any 
     premium adjustment under such section 1839(i).''
       (2) Conforming amendments.--
       (A) Paragraph (3) of section 6103(a) of such Code, as 
     amended by section 105(e)(1), is amended by striking ``or 
     (19)'' and inserting ``(19), or (20)''.
       (B) Paragraph (4) of section 6103(p) of such Code, as 
     amended by section 105(e)(3), is amended by striking 
     ``(l)(16), (17), or (19)'' each place it appears and 
     inserting ``(l)(16), (17), (19), or (20)''.
       (C) Paragraph (2) of section 7213(a) of such Code, as 
     amended by section 105(e)(4), is amended by striking ``or 
     (19)'' and inserting ``(19), or (20)''.

   TITLE IX--ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION, AND 
                           CONTRACTING REFORM

     SEC. 900. ADMINISTRATIVE IMPROVEMENTS WITHIN THE CENTERS FOR 
                   MEDICARE & MEDICAID SERVICES (CMS).

       (a) Coordinated Administration of Medicare Prescription 
     Drug and Medicare Advantage Programs.--Title XVIII (42 U.S.C. 
     1395 et seq.), as amended by section 721, is amended by 
     inserting after 1807 the following new section:


                ``provisions relating to administration

       ``Sec. 1808. (a) Coordinated Administration of Medicare 
     Prescription Drug and Medicare Advantage Programs.--
       ``(1) In general.--There is within the Centers for Medicare 
     & Medicaid Services a center to carry out the duties 
     described in paragraph (3).
       ``(2) Director.--Such center shall be headed by a director 
     who shall report directly to the Administrator of the Centers 
     for Medicare & Medicaid Services.
       ``(3) Duties.--The duties described in this paragraph are 
     the following:
       ``(A) The administration of parts C and D.
       ``(B) The provision of notice and information under section 
     1804.
       ``(C) Such other duties as the Secretary may specify.
       ``(4) Deadline.--The Secretary shall ensure that the center 
     is carrying out the duties described in paragraph (3) by not 
     later than January 1, 2008.''.

[[Page H11956]]

       (b) Management Staff for the Centers for Medicare & 
     Medicaid Services.--Such section is further amended by adding 
     at the end the following new subsection:
       ``(b) Employment of Management Staff.--
       ``(1) In general.--The Secretary may employ, within the 
     Centers for Medicare & Medicaid Services, such individuals as 
     management staff as the Secretary determines to be 
     appropriate. With respect to the administration of parts C 
     and D, such individuals shall include individuals with 
     private sector expertise in negotiations with health benefits 
     plans.
       ``(2) Eligibility.--To be eligible for employment under 
     paragraph (1) an individual shall be required to have 
     demonstrated, by their education and experience (either in 
     the public or private sector), superior expertise in at least 
     one of the following areas:
       ``(A) The review, negotiation, and administration of health 
     care contracts.
       ``(B) The design of health care benefit plans.
       ``(C) Actuarial sciences.
       ``(D) Compliance with health plan contracts.
       ``(E) Consumer education and decision making.
       ``(F) Any other area specified by the Secretary that 
     requires specialized management or other expertise.
       ``(3) Rates of payment.--
       ``(A) Performance-related pay.--Subject to subparagraph 
     (B), the Secretary shall establish the rate of pay for an 
     individual employed under paragraph (1). Such rate shall take 
     into account expertise, experience, and performance.
       ``(B) Limitation.--In no case may the rate of compensation 
     determined under subparagraph (A) exceed the highest rate of 
     basic pay for the Senior Executive Service under section 
     5382(b) of title 5, United States Code.''.
       (c) Requirement for Dedicated Actuary for Private Health 
     Plans.--Section 1117(b) (42 U.S.C. 1317(b)) is amended by 
     adding at the end the following new paragraph:
       ``(3) In the office of the Chief Actuary there shall be an 
     actuary whose duties relate exclusively to the programs under 
     parts C and D of title XVIII and related provisions of such 
     title.''.
       (d) 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 January 1, 2004.
       (e) Conforming Amendments Relating to Health Care Financing 
     Administration.--
       (1) Amendments to the social security act.--The Social 
     Security Act is amended--
       (A) in section 1117 (42 U.S.C. 1317)--
       (i) in the heading to read as follows:


``appointment of the administrator and chief actuary of the centers for 
                    medicare & medicaid services'';

       (ii) in subsection (a), by striking ``Health Care Financing 
     Administration'' and inserting ``Centers for Medicare & 
     Medicaid Services''; and
       (iii) in subsection (b)(1)--

       (I) by striking ``Health Care Financing Administration'' 
     and inserting ``Centers for Medicare & Medicaid Services''; 
     and
       (II) by striking ``Administration'' and inserting 
     ``Centers'';

       (B) in section 1140(a) (42 U.S.C. 1320b-10(a))--
       (i) in paragraph (1), by striking ``Health Care Financing 
     Administration'' both places it appears in the matter 
     following subparagraph (B) and inserting ``Centers for 
     Medicare & Medicaid Services'';
       (ii) in paragraph (1)(A)--

       (I) by striking ``Health Care Financing Administration'' 
     and inserting ``Centers for Medicare & Medicaid Services''; 
     and
       (II) by striking ``HCFA'' and inserting ``CMS''; and

       (iii) in paragraph (1)(B), by striking ``Health Care 
     Financing Administration'' both places it appears and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (C) in section 1142(b)(3) (42 U.S.C. 1320b-12(b)(3)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (D) in section 1817(b) (42 U.S.C. 1395i(b))--
       (i) by striking ``Health Care Financing Administration'', 
     both in the fifth sentence of the matter preceding paragraph 
     (1) and in the second sentence of the matter following 
     paragraph (4), and inserting ``Centers for Medicare & 
     Medicaid Services''; and
       (ii) by striking ``Chief Actuarial Officer'' in the second 
     sentence of the matter following paragraph (4) and inserting 
     ``Chief Actuary'';
       (E) in section 1841(b) (42 U.S.C. 1395t(b))--
       (i) by striking ``Health Care Financing Administration'', 
     both in the fifth sentence of the matter preceding paragraph 
     (1) and in the second sentence of the matter following 
     paragraph (4), and inserting ``Centers for Medicare & 
     Medicaid Services''; and
       (ii) by striking ``Chief Actuarial Officer'' in the second 
     sentence of the matter following paragraph (4) and inserting 
     ``Chief Actuary'';
       (F) in section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)), by 
     striking ``Health Care Financing Administration'' in the 
     matter following subparagraph (B) and inserting ``Centers for 
     Medicare & Medicaid Services'';
       (G) in section 1853 (42 U.S.C. 1395w-23)--
       (i) in subsection (b)(4), by striking ``Health Care 
     Financing Administration'' in the first sentence and 
     inserting ``Centers for Medicare & Medicaid Services''; and
       (ii) in subsection (c)(7), by striking ``Health Care 
     Financing Administration'' in the last sentence and inserting 
     ``Centers for Medicare & Medicaid Services'';
       (H) in section 1854(a)(5)(A) (42 U.S.C. 1395w-24(a)(5)(A)), 
     by striking ``Health Care Financing Administration''and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (I) in section 1857(d)(4)(A)(ii) (42 U.S.C. 1395w-
     27(d)(4)(A)(ii)), by striking ``Health Care Financing 
     Administration'' and inserting ``Secretary'';
       (J) in section 1862(b)(5)(A)(ii) (42 U.S.C. 
     1395y(b)(5)(A)(ii)), by striking ``Health Care Financing 
     Administration'' and inserting ``Centers for Medicare & 
     Medicaid Services'';
       (K) in section 1927(e)(4) (42 U.S.C. 1396r-8(e)(4)), by 
     striking ``HCFA'' and inserting ``The Secretary'';
       (L) in section 1927(f)(2) (42 U.S.C. 1396r-8(f)(2)), by 
     striking ``HCFA'' and inserting ``The Secretary''; and
       (M) in section 2104(g)(3) (42 U.S.C. 1397dd(g)(3)) by 
     inserting ``or CMS Form 64 or CMS Form 21, as the case may 
     be,'' after ``HCFA Form 64 or HCFA Form 21''.
       (2) Amendments to the public health service act.--The 
     Public Health Service Act is amended--
       (A) in section 501(d)(18) (42 U.S.C. 290aa(d)(18)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (B) in section 507(b)(6) (42 U.S.C. 290bb(b)(6)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (C) in section 916 (42 U.S.C. 299b-5)--
       (i) in subsection (b)(2), by striking ``Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services''; and
       (ii) in subsection (c)(2), by striking ``Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services'';
       (D) in section 921(c)(3)(A) (42 U.S.C. 299c(c)(3)(A)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (E) in section 1318(a)(2) (42 U.S.C. 300e-17(a)(2)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services'';
       (F) in section 2102(a)(7) (42 U.S.C. 300aa-2(a)(7)), by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services''; and
       (G) in section 2675(a) (42 U.S.C. 300ff-75(a)), by striking 
     ``Health Care Financing Administration'' in the first 
     sentence and inserting ``Centers for Medicare & Medicaid 
     Services''.
       (3) Amendments to the internal revenue code of 1986.--
     Section 6103(l)(12) of the Internal Revenue Code of 1986 is 
     amended--
       (A) in subparagraph (B), by striking ``Health Care 
     Financing Administration'' in the matter preceding clause (i) 
     and inserting ``Centers for Medicare & Medicaid Services''; 
     and
       (B) in subparagraph (C)--
       (i) by striking ``health care financing administration'' in 
     the heading and inserting ``centers for medicare & medicaid 
     services''; and
       (ii) by striking ``Health Care Financing Administration'' 
     in the matter preceding clause (i) and inserting ``Centers 
     for Medicare & Medicaid Services''.
       (4) Amendments to title 10, united states code.--Title 10, 
     United States Code, is amended--
       (A) in section 1086(d)(4), by striking ``administrator of 
     the Health Care Financing Administration'' in the last 
     sentence and inserting ``Administrator of the Centers for 
     Medicare & Medicaid Services''; and
       (B) in section 1095(k)(2), by striking ``Health Care 
     Financing Administration'' in the second sentence and 
     inserting ``Centers for Medicare & Medicaid Services''.
       (5) Amendments to the alzheimer's disease and related 
     dementias services research act of 1992.--The Alzheimer's 
     Disease and Related Dementias Research Act of 1992 (42 U.S.C. 
     11271 et seq.) is amended--
       (A) in the heading of subpart 3 of part D to read as 
     follows:

 ``Subpart 3--Responsibilities of the Centers for Medicare & Medicaid 
                              Services'';

       (B) in section 937 (42 U.S.C. 11271)--
       (i) in subsection (a), by striking ``National Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services'';
       (ii) in subsection (b)(1), by striking ``Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services'';
       (iii) in subsection (b)(2), by striking ``Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services''; and
       (iv) in subsection (c), by striking ``Health Care Financing 
     Administration'' and inserting ``Centers for Medicare & 
     Medicaid Services''; and
       (C) in section 938 (42 U.S.C. 11272), by striking ``Health 
     Care Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services''.
       (6) Miscellaneous amendments.--
       (A) Rehabilitation act of 1973.--Section 202(b)(8) of the 
     Rehabilitation Act of 1973 (29 U.S.C. 762(b)(8)) is amended 
     by striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services''.
       (B) Indian health care improvement act.--Section 405(d)(1) 
     of the Indian Health Care Improvement Act (25 U.S.C. 
     1645(d)(1)) is amended by striking ``Health Care Financing 
     Administration'' in the matter preceding subparagraph (A) and 
     inserting ``Centers for Medicare & Medicaid Services''.
       (C) Individuals with disabilities education act.--Section 
     644(b)(5) of the Individuals with

[[Page H11957]]

     Disabilities Education Act (20 U.S.C. 1444(b)(5)) is amended 
     by striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services''.
       (D) The home health care and alzheimer's disease amendments 
     of 1990.--Section 302(a)(9) of the Home Health Care and 
     Alzheimer's Disease Amendments of 1990 (42 U.S.C. 242q-
     1(a)(9)) is amended by striking ``Health Care Financing 
     Administration'' and inserting ``Centers for Medicare & 
     Medicaid Services''.
       (E) The children's health act of 2000.--Section 2503(a) of 
     the Children's Health Act of 2000 (42 U.S.C. 247b-3a(a)) is 
     amended by striking ``Health Care Financing Administration'' 
     and inserting ``Centers for Medicare & Medicaid Services''.
       (F) The national institutes of health revitalization act of 
     1993.--Section 1909 of the National Institutes of Health 
     Revitalization Act of 1993 (42 U.S.C. 299a note) is amended 
     by striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services''.
       (G) The omnibus budget reconciliation act of 1990.--Section 
     4359(d) of the Omnibus Budget Reconciliation Act of 1990 (42 
     U.S.C. 1395b-3(d)) is amended by striking ``Health Care 
     Financing Administration'' and inserting ``Centers for 
     Medicare & Medicaid Services''.
       (H) The medicare, medicaid, and schip benefits improvement 
     and protection act of 2000.--Section 104(d)(4) of the 
     Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000 (42 U.S.C. 1395m note) is amended by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Health Care''.
       (7) Additional amendment.--Section 403 of the Act entitled, 
     ``An Act to authorize certain appropriations for the 
     territories of the United States, to amend certain Acts 
     relating thereto, and for other purposes'', enacted October 
     15, 1977 (48 U.S.C. 1574-1; 48 U.S.C. 1421q-1), is amended by 
     striking ``Health Care Financing Administration'' and 
     inserting ``Centers for Medicare & Medicaid Services''.

                     Subtitle A--Regulatory Reform

     SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

       (a) Construction.--Nothing in this title shall be 
     construed--
       (1) to compromise or affect existing legal remedies for 
     addressing fraud or abuse, whether it be criminal 
     prosecution, civil enforcement, or administrative remedies, 
     including under sections 3729 through 3733 of title 31, 
     United States Code (commonly known as the ``False Claims 
     Act''); or
       (2) to prevent or impede the Department of Health and Human 
     Services in any way from its ongoing efforts to eliminate 
     waste, fraud, and abuse in the medicare program.

     Furthermore, the consolidation of medicare administrative 
     contracting set forth in this division does not constitute 
     consolidation of the Federal Hospital Insurance Trust Fund 
     and the Federal Supplementary Medical Insurance Trust Fund or 
     reflect any position on that issue.
       (b) Definition of Supplier.--Section 1861 (42 U.S.C. 1395x) 
     is amended by inserting after subsection (c) the following 
     new subsection:

                               ``Supplier

       ``(d) The term `supplier' means, unless the context 
     otherwise requires, a physician or other practitioner, a 
     facility, or other entity (other than a provider of services) 
     that furnishes items or services under this title.''.

     SEC. 902. ISSUANCE OF REGULATIONS.

       (a) Regular Timeline for Publication of Final Rules.--
       (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
     amended by adding at the end the following new paragraph:
       ``(3)(A) The Secretary, in consultation with the Director 
     of the Office of Management and Budget, shall establish and 
     publish a regular timeline for the publication of final 
     regulations based on the previous publication of a proposed 
     regulation or an interim final regulation.
       ``(B) Such timeline may vary among different regulations 
     based on differences in the complexity of the regulation, the 
     number and scope of comments received, and other relevant 
     factors, but shall not be longer than 3 years except under 
     exceptional circumstances. If the Secretary intends to vary 
     such timeline with respect to the publication of a final 
     regulation, the Secretary shall cause to have published in 
     the Federal Register notice of the different timeline by not 
     later than the timeline previously established with respect 
     to such regulation. Such notice shall include a brief 
     explanation of the justification for such variation.
       ``(C) In the case of interim final regulations, upon the 
     expiration of the regular timeline established under this 
     paragraph for the publication of a final regulation after 
     opportunity for public comment, the interim final regulation 
     shall not continue in effect unless the Secretary publishes 
     (at the end of the regular timeline and, if applicable, at 
     the end of each succeeding 1-year period) a notice of 
     continuation of the regulation that includes an explanation 
     of why the regular timeline (and any subsequent 1-year 
     extension) was not complied with. If such a notice is 
     published, the regular timeline (or such timeline as 
     previously extended under this paragraph) for publication of 
     the final regulation shall be treated as having been extended 
     for 1 additional year.
       ``(D) The Secretary shall annually submit to Congress a 
     report that describes the instances in which the Secretary 
     failed to publish a final regulation within the applicable 
     regular timeline under this paragraph and that provides an 
     explanation for such failures.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of this Act. 
     The Secretary shall provide for an appropriate transition to 
     take into account the backlog of previously published interim 
     final regulations.
       (b) Limitations on New Matter in Final Regulations.--
       (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)), as 
     amended by subsection (a), is amended by adding at the end 
     the following new paragraph:
       ``(4) If the Secretary publishes a final regulation that 
     includes a provision that is not a logical outgrowth of a 
     previously published notice of proposed rulemaking or interim 
     final rule, such provision shall be treated as a proposed 
     regulation and shall not take effect until there is the 
     further opportunity for public comment and a publication of 
     the provision again as a final regulation.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to final regulations published on or after the 
     date of the enactment of this Act.

     SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS AND 
                   POLICIES.

       (a) No Retroactive Application of Substantive Changes.--
       (1) In general.--Section 1871 (42 U.S.C. 1395hh), as 
     amended by section 902(a), is amended by adding at the end 
     the following new subsection:
       ``(e)(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 the enactment of this Act.
       (b) Timeline for Compliance With Substantive Changes After 
     Notice.--
       (1) In general.--Section 1871(e)(1), as added by subsection 
     (a), is amended by adding at the end the following:
       ``(B)(i) Except as provided in clause (ii), a substantive 
     change referred to in subparagraph (A) shall not become 
     effective before 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 such 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.
       ``(C) No action shall be taken against a provider of 
     services or supplier with respect to noncompliance with such 
     a substantive change for items and services furnished before 
     the effective date of such a change.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to compliance actions undertaken on or after the 
     date of the enactment of this Act.
       (c) Reliance on Guidance.--
       (1) In general.--Section 1871(e), as added by subsection 
     (a), is further amended by adding at the end the following 
     new paragraph:
       ``(2)(A) If--
       ``(i) a provider of services or supplier follows the 
     written guidance (which may be transmitted electronically) 
     provided by the Secretary or by a medicare contractor (as 
     defined in section 1889(g)) acting within the scope of the 
     contractor's contract authority, with respect to the 
     furnishing of items or services and submission of a claim for 
     benefits for such items or services with respect to such 
     provider or supplier;
       ``(ii) the Secretary determines that the provider of 
     services or supplier has accurately presented the 
     circumstances relating to such items, services, and claim to 
     the contractor in writing; and
       ``(iii) the guidance was in error;

     the provider of services 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 (including 
     interest under a repayment plan under section 1893 or 
     otherwise) relating to the provision of such items or service 
     or such claim if the provider of services or supplier 
     reasonably relied on such guidance.
       ``(B) Subparagraph (A) shall not be construed as preventing 
     the recoupment or repayment (without any additional penalty) 
     relating to an overpayment insofar as the overpayment was 
     solely the result of a clerical or technical operational 
     error.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of this Act 
     and shall only apply to a penalty or interest imposed with 
     respect to guidance provided on or after July 24, 2003.

     SEC. 904. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

       (a) GAO Study on Advisory Opinion Authority.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study to determine the feasibility and 
     appropriateness of establishing in the Secretary authority to 
     provide legally binding advisory opinions on appropriate 
     interpretation and application of regulations to carry out 
     the medicare program under title XVIII of the Social Security 
     Act. Such study shall examine the appropriate timeframe for 
     issuing such advisory opinions, as well as the need for 
     additional staff and funding to provide such opinions.

[[Page H11958]]

       (2) Report.--The Comptroller General shall submit to 
     Congress a report on the study conducted under paragraph (1) 
     by not later than 1 year after the date of the enactment of 
     this Act.
       (b) Report on Legal and Regulatory Inconsistencies.--
     Section 1871 (42 U.S.C. 1395hh), as amended by section 
     903(a)(1), is amended by adding at the end the following new 
     subsection:
       ``(f)(1) Not later than 2 years after the date of the 
     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 individuals entitled to benefits 
     under part A or enrolled under part B, or both, providers of 
     services, and suppliers and from the Medicare Beneficiary 
     Ombudsman with respect to such areas of inconsistency and 
     conflict; and
       ``(B) information from medicare contractors that tracks the 
     nature of written and telephone inquiries.
       ``(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--Contracting Reform

     SEC. 911. 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;
       ``(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 or supplier (or class of such providers of services 
     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 or supplier or class of provider of services 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 functions relating to services furnished to 
     individuals entitled to benefits under part A or enrolled 
     under part B, or both, 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, 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.--Providing 
     education and outreach to individuals entitled to benefits 
     under part A or enrolled under part B, or both, and providing 
     assistance to those individuals with specific issues, 
     concerns, or problems.
       ``(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 or suppliers.
       ``(E) Communication with providers.--Communicating to 
     providers of services and suppliers any information or 
     instructions furnished to the medicare administrative 
     contractor by the Secretary, and facilitating communication 
     between such providers and suppliers and the Secretary.
       ``(F) Provider education and technical assistance.--
     Performing the functions relating to provider education, 
     training, and technical assistance.
       ``(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 duties.--In entering into contracts 
     under this section, the Secretary shall assure that functions 
     of medicare administrative contractors in carrying out 
     activities under parts A and B do not duplicate activities 
     carried out under a contract 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 section, the Federal Acquisition Regulation applies 
     to contracts under this section.
       ``(b) Contracting Requirements.--
       ``(1) Use of competitive procedures.--
       ``(A) In general.--Except as provided in laws with general 
     applicability to Federal acquisition and procurement or in 
     subparagraph (B), the Secretary shall use competitive 
     procedures when entering into contracts with medicare 
     administrative contractors under this section, taking into 
     account performance quality as well as price and other 
     factors.
       ``(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 5 years.
       ``(C) Transfer of functions.--The Secretary may transfer 
     functions among medicare administrative contractors 
     consistent with the provisions of this paragraph. The 
     Secretary shall ensure that performance quality is considered 
     in such transfers. The Secretary shall provide public notice 
     (whether in the Federal Register or otherwise) of any such 
     transfer (including a description of the functions so 
     transferred, a description of the providers of services and 
     suppliers affected by such transfer, and contact information 
     for the contractors involved).
       ``(D) Incentives for quality.--The Secretary shall 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, quality of services 
     provided, and other matters as the Secretary finds pertinent.
       ``(3) Performance requirements.--
       ``(A) Development of specific performance requirements.--
       ``(i) In general.--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.
       ``(ii) Consultation.--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.
       ``(iii) Publication of standards.--The Secretary shall make 
     such performance requirements and measurement standards 
     available to the public.
       ``(B) Considerations.--The Secretary shall include, as one 
     of the standards developed under subparagraph (A), 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.
       ``(c) Terms and Conditions.--

[[Page H11959]]

       ``(1) In general.--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 
     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 the United States) of a certifying officer designated as 
     provided in paragraph (1) of this subsection.
       ``(3) Liability of medicare administrative contractor.--
       ``(A) In general.--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 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.
       ``(B) 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.
       ``(4) Indemnification by secretary.--
       ``(A) In general.--Subject to subparagraphs (B) and (D), 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 the Secretary 
     determines to be appropriate and as 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 judicial proceeding or by the Secretary to 
     be criminal in nature, fraudulent, or grossly negligent. If 
     indemnification is provided by the Secretary with respect to 
     a contractor before a determination that such costs arose 
     directly from such conduct, the contractor shall reimburse 
     the Secretary for costs of indemnification.
       ``(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 or compromises.--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 such 
     settlement or compromise. Any indemnification under 
     subparagraph (A) with respect to amounts paid under a 
     settlement or compromise of a proceeding described in such 
     subparagraph are conditioned upon prior written approval by 
     the Secretary of the final settlement or compromise.
       ``(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 Regulation.''.
       (2) Consideration of incorporation of current law 
     standards.--In developing contract performance requirements 
     under section 1874A(b) of the Social Security Act, as 
     inserted 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 the 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,'' in the matter 
     preceding clause (i); and
       (II) by striking ``carrier'' and inserting ``medicare 
     administrative contractor'' in clause (i);

       (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)(A), 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), in the matter preceding subparagraph 
     (A), by striking ``carrier'' and inserting ``medicare 
     administrative contractor''; and
       (E) by striking paragraphs (5) and (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''.
       (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.--

[[Page H11960]]

       (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 Act, 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 October 1, 2005, 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 
     prior to October 1, 2005, 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 functions under current 
     contracts and agreements and under transition contracts.--
     Notwithstanding the amendments made by this section, 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 during the period that begins on the date 
     of the enactment of this Act and ends on October 1, 2011, and 
     any reference in such provisions to an agreement or contract 
     shall be deemed to include a contract under section 1874A of 
     such Act, as inserted by subsection (a)(1), that continues 
     the activities referred to in such provisions.
       (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 a 
     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 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 section.
       (g) Reports on Implementation.--
       (1) Plan for implementation.--By not later than October 1, 
     2004, the Secretary shall submit a report to Congress and the 
     Comptroller General of the United States that describes the 
     plan for implementation of the amendments made by this 
     section. 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.

     SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
                   ADMINISTRATIVE CONTRACTORS.

       (a) In General.--Section 1874A, as added by section 
     911(a)(1), is amended by adding at the end the following new 
     subsection:
       ``(e) Requirements for Information Security.--
       ``(1) Development of information security program.--A 
     medicare administrative contractor that performs the 
     functions referred to in subparagraphs (A) and (B) of 
     subsection (a)(4) (relating to determining and making 
     payments) shall implement a contractor-wide information 
     security program to provide information security for the 
     operation and assets of the contractor with respect to such 
     functions under this title. An information security program 
     under this paragraph shall meet the requirements for 
     information security programs imposed on Federal agencies 
     under paragraphs (1) through (8) of section 3544(b) of title 
     44, United States Code (other than the requirements under 
     paragraphs (2)(D)(i), (5)(A), and (5)(B) of such section).
       ``(2) Independent audits.--
       ``(A) Performance of annual evaluations.--Each year a 
     medicare administrative contractor that performs the 
     functions referred to in subparagraphs (A) and (B) of 
     subsection (a)(4) (relating to determining and making 
     payments) shall undergo an evaluation of the information 
     security of the contractor with respect to such functions 
     under this title. The evaluation shall--
       ``(i) be performed by an entity that meets such 
     requirements for independence as the Inspector General of the 
     Department of Health and Human Services may establish; and
       ``(ii) test the effectiveness of information security 
     control techniques of an appropriate subset of the 
     contractor's information systems (as defined in section 
     3502(8) of title 44, United States Code) relating to such 
     functions under this title and an assessment of compliance 
     with the requirements of this subsection and related 
     information security policies, procedures, standards and 
     guidelines, including policies and procedures as may be 
     prescribed by the Director of the Office of Management and 
     Budget and applicable information security standards 
     promulgated under section 11331 of title 40, United States 
     Code.
       ``(B) Deadline for initial evaluation.--
       ``(i) New contractors.--In the case of a medicare 
     administrative contractor covered by this subsection that has 
     not previously performed the functions referred to in 
     subparagraphs (A) and (B) of subsection (a)(4) (relating to 
     determining and making payments) as a fiscal intermediary or 
     carrier under section 1816 or 1842, the first independent 
     evaluation conducted pursuant to subparagraph (A) shall be 
     completed prior to commencing such functions.
       ``(ii) Other contractors.--In the case of a medicare 
     administrative contractor covered by this subsection that is 
     not described in clause (i), the first independent evaluation 
     conducted pursuant to subparagraph (A) shall be completed 
     within 1 year after the date the contractor commences 
     functions referred to in clause (i) under this section.
       ``(C) Reports on evaluations.--
       ``(i) To the department of health and human services.--The 
     results of independent evaluations under subparagraph (A) 
     shall be submitted promptly to the Inspector General of the 
     Department of Health and Human Services and to the Secretary.
       ``(ii) To congress.--The Inspector General of the 
     Department of Health and Human Services shall submit to 
     Congress annual reports on the results of such evaluations, 
     including assessments of the scope and sufficiency of such 
     evaluations.
       ``(iii) Agency reporting.--The Secretary shall address the 
     results of such evaluations in reports required under section 
     3544(c) of title 44, United States Code.''.
       (b) Application of Requirements to Fiscal Intermediaries 
     and Carriers.--
       (1) In general.--The provisions of section 1874A(e)(2) of 
     the Social Security Act (other than subparagraph (B)), as 
     added by subsection (a), shall apply to each fiscal 
     intermediary under section 1816 of the Social Security Act 
     (42 U.S.C. 1395h) and each carrier under section 1842 of such 
     Act (42 U.S.C. 1395u) in the same manner as they apply to 
     medicare administrative contractors under such provisions.
       (2) Deadline for initial evaluation.--In the case of such a 
     fiscal intermediary or carrier with an agreement or contract 
     under such respective section in effect as of the date of the 
     enactment of this Act, the first evaluation under section 
     1874A(e)(2)(A) of the Social Security Act (as added by 
     subsection (a)), pursuant to paragraph (1), shall be 
     completed (and a report on the evaluation submitted to the 
     Secretary) by not later than 1 year after such date.

                   Subtitle C--Education and Outreach

     SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

       (a) Coordination of Education Funding.--
       (1) In general.--Title XVIII 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 (g), including under section 1893) in order to 
     maximize the effectiveness of Federal education efforts for 
     providers of services and suppliers.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the 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 
     911(a)(1) and as amended by section 912(a), is amended by 
     adding at the end the following new subsection:
       ``(f) Incentives To Improve Contractor Performance in 
     Provider Education and Outreach.--The Secretary shall use 
     specific claims payment error rates or similar methodology of 
     medicare administrative contractors in the processing or 
     reviewing of medicare claims in order to give such 
     contractors an incentive to implement effective education and 
     outreach programs for providers of services and suppliers.''.
       (2) Application to fiscal intermediaries and carriers.--The 
     provisions of section 1874A(f) of the Social Security Act, as 
     added by paragraph (1), shall apply to each fiscal 
     intermediary under section 1816 of the Social Security Act 
     (42 U.S.C. 1395h) and each carrier under section 1842 of such 
     Act (42 U.S.C. 1395u) in the same manner as they apply to 
     medicare administrative contractors under such provisions.
       (3) GAO report on adequacy of methodology.--Not later than 
     October 1, 2004, the

[[Page H11961]]

     Comptroller General of the United States shall submit to 
     Congress and to the Secretary a report on the adequacy of the 
     methodology under section 1874A(f) of the Social Security 
     Act, as added by paragraph (1), and shall include in the 
     report such recommendations as the Comptroller General 
     determines appropriate with respect to the methodology.
       (4) Report on use of methodology in assessing contractor 
     performance.--Not later than October 1, 2004, the Secretary 
     shall submit to Congress a report that describes how the 
     Secretary intends to use such methodology in assessing 
     medicare contractor performance in implementing effective 
     education and outreach programs, including whether to use 
     such methodology as a basis for performance bonuses. The 
     report shall include an analysis of the sources of identified 
     errors and potential changes in systems of contractors and 
     rules of the Secretary that could reduce claims error rates.
       (c) Provision of Access to and Prompt Responses From 
     Medicare Administrative Contractors.--
       (1) In general.--Section 1874A, as added by section 
     911(a)(1) and as amended by section 912(a) and subsection 
     (b), is further amended by adding at the end the following 
     new subsection:
       ``(g) Communications With Beneficiaries, Providers of 
     Services and Suppliers.--
       ``(1) Communication strategy.--The Secretary shall develop 
     a strategy for communications with individuals entitled to 
     benefits under part A or enrolled under part B, or both, and 
     with providers of services and suppliers under this title.
       ``(2) Response to written inquiries.--Each medicare 
     administrative contractor shall, for those providers of 
     services and suppliers which submit claims to the contractor 
     for claims processing and for those individuals entitled to 
     benefits under part A or enrolled under part B, or both, with 
     respect to whom claims are submitted for claims processing, 
     provide general written responses (which may be through 
     electronic transmission) in a clear, concise, and accurate 
     manner to inquiries of providers of services, suppliers, and 
     individuals entitled to benefits under part A or enrolled 
     under part B, or both, 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 each medicare administrative contractor shall 
     provide, for those providers of services and suppliers which 
     submit claims to the contractor for claims processing and for 
     those individuals entitled to benefits under part A or 
     enrolled under part B, or both, with respect to whom claims 
     are submitted for claims processing, a toll-free telephone 
     number at which such individuals, providers of services, 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 administrative 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 make 
     public standards to monitor the accuracy, consistency, and 
     timeliness of the information provided in response to written 
     and telephone 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 administrative contractors, the Secretary shall take 
     into account 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) Authorization of appropriations.--There are 
     authorized to be appropriated such sums as are necessary to 
     carry out this subsection.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect October 1, 2004.
       (3) Application to fiscal intermediaries and carriers.--The 
     provisions of section 1874A(g) of the Social Security Act, as 
     added by paragraph (1), shall apply to each fiscal 
     intermediary under section 1816 of the Social Security Act 
     (42 U.S.C. 1395h) and each carrier under section 1842 of such 
     Act (42 U.S.C. 1395u) in the same manner as they apply to 
     medicare administrative contractors under such provisions.
       (d) Improved Provider Education and Training.--
       (1) In general.--Section 1889, as added by subsection (a), 
     is amended by adding at the end the following new 
     subsections:
       ``(b) Enhanced Education and Training.--
       ``(1) Additional resources.--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) such sums as may 
     be necessary for fiscal years beginning with fiscal year 
     2005.
       ``(2) Use.--The funds made available under paragraph (1) 
     shall be used to increase the conduct by medicare contractors 
     of education and training of providers of services and 
     suppliers regarding billing, coding, and other appropriate 
     items and may also be used to improve the accuracy, 
     consistency, and timeliness of contractor responses.
       ``(c) 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 tailor 
     such activities to meet 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) a provider of services with fewer than 25 full-time-
     equivalent employees; or
       ``(B) a supplier with fewer than 10 full-time-equivalent 
     employees.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on October 1, 2004.
       (e) Requirement To Maintain Internet Websites.--
       (1) In general.--Section 1889, as added by subsection (a) 
     and as amended by subsection (d), is further amended by 
     adding at the end the following new subsection:
       ``(d) Internet Websites; FAQs.--The Secretary, and each 
     medicare contractor insofar as it provides services 
     (including claims processing) for providers of services or 
     suppliers, shall maintain an Internet website which--
       ``(1) provides answers in an easily accessible format to 
     frequently asked questions, and
       ``(2) includes other published materials of the contractor,
     that relate to providers of services and suppliers under the 
     programs under this title (and title XI insofar as it relates 
     to such programs).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on October 1, 2004.
       (f) Additional Provider Education Provisions.--
       (1) In general.--Section 1889, as added by subsection (a) 
     and as amended by subsections (d) and (e), is further amended 
     by adding at the end the following new subsections:
       ``(e) 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 services or suppliers for the 
     purpose of conducting any type of audit or prepayment review.
       ``(f) 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.

       ``(g) Definitions.--For purposes of this section, the term 
     `medicare contractor' includes the following:
       ``(1) A medicare administrative contractor with a contract 
     under section 1874A, including 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 or supplier an entity that has 
     no authority under this title or title IX with respect to 
     such activities and such provider of services or supplier.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of this Act.

     SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION 
                   PROGRAM.

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a 
     demonstration program (in this section referred to as the 
     ``demonstration program'') under which technical assistance 
     described in paragraph (2) is made available, upon request 
     and on a voluntary basis, to small providers of services or 
     suppliers in order to improve compliance with the applicable 
     requirements of the programs under medicare program under 
     title XVIII of the Social Security Act (including provisions 
     of title XI of such Act insofar as they relate to such title 
     and are not administered by the Office of the Inspector 
     General of the Department of Health and Human Services).
       (2) Forms of technical assistance.--The technical 
     assistance described in this paragraph is--
       (A) evaluation and recommendations regarding billing and 
     related systems; and
       (B) information and assistance regarding policies and 
     procedures under the medicare program, including coding and 
     reimbursement.
       (3) Small providers of services or suppliers.--In this 
     section, the term ``small providers of services or 
     suppliers'' means--
       (A) a provider of services with fewer than 25 full-time-
     equivalent employees; or
       (B) a supplier with fewer than 10 full-time-equivalent 
     employees.
       (b) Qualification of Contractors.--In conducting the 
     demonstration program, the Secretary shall enter into 
     contracts with qualified

[[Page H11962]]

     organizations (such as peer review organizations or entities 
     described in section 1889(g)(2) of the Social Security Act, 
     as inserted by section 921(f)(1)) with appropriate expertise 
     with billing systems of the full range of providers of 
     services and suppliers to provide the technical assistance. 
     In awarding such contracts, the Secretary shall consider any 
     prior investigations of the entity's work by the Inspector 
     General of Department of Health and Human Services or the 
     Comptroller General of the United States.
       (c) Description of Technical Assistance.--The technical 
     assistance provided under the demonstration program shall 
     include a direct and in-person examination of billing systems 
     and internal controls of small providers of services or 
     suppliers to determine program compliance and to suggest more 
     efficient or effective means of achieving such compliance.
       (d) GAO Evaluation.--Not later than 2 years after the date 
     the demonstration program is first implemented, the 
     Comptroller General, in consultation with the Inspector 
     General of the Department of Health and Human Services, shall 
     conduct an evaluation of the demonstration program. The 
     evaluation shall include a determination of whether claims 
     error rates are reduced for small providers of services or 
     suppliers who participated in the program and the extent of 
     improper payments made as a result of the demonstration 
     program. The Comptroller General shall submit a report to the 
     Secretary and the Congress on such evaluation and shall 
     include in such report recommendations regarding the 
     continuation or extension of the demonstration program.
       (e) Financial Participation by Providers.--The provision of 
     technical assistance to a small provider of services or 
     supplier under the demonstration program is conditioned upon 
     the small provider of services or supplier paying an amount 
     estimated (and disclosed in advance of a provider's or 
     supplier's participation in the program) to be equal to 25 
     percent of the cost of the technical assistance.
       (f) Authorization of Appropriations.--There are authorized 
     to be appropriated, from amounts not otherwise appropriated 
     in the Treasury, such sums as may be necessary to carry out 
     this section.

     SEC. 923. MEDICARE BENEFICIARY OMBUDSMAN.

       (a) In General.--Section 1808, as added and amended by 
     section 900, is amended by adding at the end the following 
     new subsection:
       ``(c) Medicare Beneficiary Ombudsman.--
       ``(1) In general.--The Secretary shall appoint within the 
     Department of Health and Human Services a Medicare 
     Beneficiary Ombudsman who shall have expertise and experience 
     in the fields of health care and education of (and assistance 
     to) individuals entitled to benefits under this title.
       ``(2) Duties.--The Medicare Beneficiary Ombudsman shall--
       ``(A) receive complaints, grievances, and requests for 
     information submitted by individuals entitled to benefits 
     under part A or enrolled under part B, or both, with respect 
     to any aspect of the medicare program;
       ``(B) provide assistance with respect to complaints, 
     grievances, and requests referred to in subparagraph (A), 
     including--
       ``(i) assistance in collecting relevant information for 
     such individuals, to seek an appeal of a decision or 
     determination made by a fiscal intermediary, carrier, MA 
     organization, or the Secretary;
       ``(ii) assistance to such individuals with any problems 
     arising from disenrollment from an MA plan under part C; and
       ``(iii) assistance to such individuals in presenting 
     information under section 1839(i)(4)(C) (relating to income-
     related premium adjustment; and
       ``(C) submit annual reports to Congress and the Secretary 
     that describe the activities of the Office and that include 
     such recommendations for improvement in the administration of 
     this title as the Ombudsman determines appropriate.

     The Ombudsman shall not serve as an advocate for any 
     increases in payments or new coverage of services, but may 
     identify issues and problems in payment or coverage policies.
       ``(3) Working with health insurance counseling programs.--
     To the extent possible, the Ombudsman shall work with health 
     insurance counseling programs (receiving funding under 
     section 4360 of Omnibus Budget Reconciliation Act of 1990) to 
     facilitate the provision of information to individuals 
     entitled to benefits under part A or enrolled under part B, 
     or both regarding MA plans and changes to those plans. 
     Nothing in this paragraph shall preclude further 
     collaboration between the Ombudsman and such programs.''.
       (b) Deadline for Appointment.--By not later than 1 year 
     after the date of the enactment of this Act, the Secretary 
     shall appoint the Medicare Beneficiary Ombudsman under 
     section 1808(c) of the Social Security Act, as added by 
     subsection (a).
       (c) Funding.--There are authorized to be appropriated to 
     the Secretary (in appropriate part from the Federal Hospital 
     Insurance Trust Fund, established under section 1817 of the 
     Social Security 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)) to carry out 
     section 1808(c) of such Act (relating to the Medicare 
     Beneficiary Ombudsman), as added by subsection (a), such sums 
     as are necessary for fiscal year 2004 and each succeeding 
     fiscal year.
       (d) Use of Central, Toll-Free Number (1-800-MEDICARE).--
       (1) Phone triage system; listing in medicare handbook 
     instead of other toll-free numbers.--Section 1804(b) (42 
     U.S.C. 1395b-2(b)) is amended by adding at the end the 
     following: ``The Secretary shall provide, through the toll-
     free telephone 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.''.
       (2) Monitoring accuracy.--
       (A) Study.--The Comptroller General of the United States 
     shall conduct a study to monitor the accuracy and consistency 
     of information provided to individuals entitled to benefits 
     under part A or enrolled under part B, or both, through the 
     toll-free telephone number 1-800-MEDICARE, including an 
     assessment of whether the information provided is sufficient 
     to answer questions of such individuals. In conducting the 
     study, the Comptroller General shall examine the education 
     and training of the individuals providing information through 
     such number.
       (B) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under 
     subparagraph (A).

     SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

       (a) In General.--The Secretary shall establish a 
     demonstration program (in this section referred to as the 
     ``demonstration program'') under which medicare specialists 
     employed by the Department of Health and Human Services 
     provide advice and assistance to individuals entitled to 
     benefits under part A of title XVIII of the Social Security 
     Act, or enrolled under part B of such title, or both, 
     regarding the medicare program at the location of existing 
     local offices of the Social Security Administration.
       (b) Locations.--
       (1) In general.--The demonstration program shall be 
     conducted in at least 6 offices or areas. Subject to 
     paragraph (2), in selecting such offices and areas, the 
     Secretary shall provide preference for offices with a high 
     volume of visits by individuals referred to in subsection 
     (a).
       (2) 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.
       (c) Duration.--The demonstration program shall be conducted 
     over a 3-year period.
       (d) Evaluation and Report.--
       (1) Evaluation.--The Secretary shall provide for an 
     evaluation of the demonstration program. Such evaluation 
     shall include an analysis of--
       (A) utilization of, and satisfaction of those individuals 
     referred to in subsection (a) with, the assistance provided 
     under the program; and
       (B) the cost-effectiveness of providing beneficiary 
     assistance through out-stationing medicare specialists at 
     local offices of the Social Security Administration.
       (2) 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 offices of the 
     Social Security Administration.

     SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NOTICES TO 
                   BENEFICIARIES ABOUT SKILLED NURSING FACILITY 
                   BENEFITS.

       (a) In General.--The Secretary shall provide that in 
     medicare beneficiary notices provided (under section 1806(a) 
     of the Social Security Act, 42 U.S.C. 1395b-7(a)) with 
     respect to the provision of post-hospital extended care 
     services under part A of title XVIII of the Social Security 
     Act, there shall be included information on the number of 
     days of coverage of such services remaining under such part 
     for the medicare beneficiary and spell of illness involved.
       (b) Effective Date.--Subsection (a) shall apply to notices 
     provided during calendar quarters beginning more than 6 
     months after the date of the enactment of this Act.

     SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED NURSING 
                   FACILITIES IN HOSPITAL DISCHARGE PLANS.

       (a) Availability of Data.--The Secretary shall publicly 
     provide information that enables hospital discharge planners, 
     medicare beneficiaries, and the public to identify skilled 
     nursing facilities that are participating in the medicare 
     program.
       (b) Inclusion of Information in Certain Hospital Discharge 
     Plans.--
       (1) In general.--Section 1861(ee)(2)(D) (42 U.S.C. 
     1395x(ee)(2)(D)) is amended--
       (A) by striking ``hospice services'' and inserting 
     ``hospice care and post-hospital extended care services''; 
     and
       (B) by inserting before the period at the end the 
     following: ``and, in the case of individuals who are likely 
     to need post-hospital extended care services, the 
     availability of such services through facilities that 
     participate in the program under this title and that serve 
     the area in which the patient resides''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to discharge plans made on or after such date as 
     the Secretary shall specify, but not later than 6 months 
     after the date the Secretary provides for availability of 
     information under subsection (a).

                    Subtitle D--Appeals and Recovery

     SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

       (a) Transition Plan.--
       (1) In general.--Not later than April 1, 2004, the 
     Commissioner of Social Security and the

[[Page H11963]]

     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.
       (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 consistent with the requirements of 
     subsection (b)(2).
       (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 
     carry out subsection (b)(3).
       (J) Hiring.--The steps that should be taken to hire 
     administrative law judges (and support staff) to carry out 
     subsection (b)(4).
       (K) Performance standards.--The appropriateness of 
     establishing performance standards for administrative law 
     judges with respect to timelines for decisions in cases under 
     title XVIII of the Social Security Act taking into account 
     requirements under subsection (b)(2) for the independence of 
     such judges and consistent with the applicable provisions of 
     title 5, United States Code relating to impartiality.
       (L) Shared resources.--The steps that should be taken to 
     carry out subsection (b)(6) (relating to the arrangements 
     with the Commissioner of Social Security 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 (42 U.S.C. 
     1395ff) (as amended by this Act).
       (4) GAO evaluation.--The Comptroller General of the United 
     States shall evaluate the plan and, not later than the date 
     that is 6 months after the date on which the plan is received 
     by the Comptroller General, shall submit to Congress a report 
     on such evaluation.
       (b) Transfer of Adjudication Authority.--
       (1) In general.--Not earlier than July 1, 2005, and not 
     later than October 1, 2005, the Commissioner of Social 
     Security and the Secretary shall implement the transition 
     plan under subsection (a) and transfer the administrative law 
     judge functions described in such subsection from the 
     Social Security Administration to the Secretary.
       (2) Assuring independence of judges.--The Secretary shall 
     assure the independence of administrative law judges 
     performing the administrative law judge functions transferred 
     under paragraph (1) from the Centers for Medicare & Medicaid 
     Services and its contractors. In order to assure such 
     independence, the Secretary shall place such judges in an 
     administrative office that is organizationally and 
     functionally separate from such Centers. Such judges shall 
     report to, and be under the general supervision of, the 
     Secretary, but shall not report to, or be subject to 
     supervision by, another officer of the Department of Health 
     and Human Services.
       (3) Geographic distribution.--The Secretary shall provide 
     for an appropriate geographic distribution of administrative 
     law judges performing the administrative law judge functions 
     transferred under paragraph (1) throughout the United States 
     to ensure timely access to such judges.
       (4) Hiring authority.--Subject to the amounts provided in 
     advance in appropriations Acts, the Secretary shall have 
     authority to hire administrative law judges to hear such 
     cases, taking into consideration those judges with expertise 
     in handling medicare appeals and in a manner consistent with 
     paragraph (3), and to hire support staff for such judges.
       (5) Financing.--Amounts payable under law to the 
     Commissioner for administrative law judges performing the 
     administrative law judge functions transferred under 
     paragraph (1) from the Federal Hospital Insurance Trust Fund 
     and the Federal Supplementary Medical Insurance Trust Fund 
     shall become payable to the Secretary for the functions so 
     transferred.
       (6) Shared resources.--The Secretary shall enter into such 
     arrangements with the Commissioner as may be appropriate with 
     respect to transferred functions of administrative law judges 
     to share office space, support staff, and other resources, 
     with appropriate reimbursement from the Trust Funds described 
     in paragraph (5).
       (c) Increased Financial Support.--In addition to any 
     amounts otherwise appropriated, to ensure timely action on 
     appeals before administrative law judges and the Departmental 
     Appeals Board consistent with section 1869 of the Social 
     Security Act (42 U.S.C. 1395ff) (as amended by this Act), 
     there are authorized to be appropriated (in appropriate part 
     from the Federal Hospital Insurance Trust Fund, established 
     under section 1817 of the Social Security 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)) to the Secretary such sums as are necessary for 
     fiscal year 2005 and each subsequent fiscal year to--
       (1) increase the number of administrative law judges (and 
     their staffs) under subsection (b)(4);
       (2) improve education and training opportunities for 
     administrative law judges (and their staffs); and
       (3) increase the staff of the Departmental Appeals Board.
       (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 
     U.S.C. 1395ff(f)(2)(A)(i)) is amended by striking ``of the 
     Social Security Administration''.

     SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

       (a) Expedited Access to Judicial Review.--
       (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)) is 
     amended--
       (A) in paragraph (1)(A), by inserting ``, subject to 
     paragraph (2),'' before ``to judicial review of the 
     Secretary's final decision''; and
       (B) 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 an individual entitled to benefits 
     under part A or enrolled under part B, or both, 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.
       ``(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 one 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 or suppliers under this title.
       ``(D) Review entity defined.--For purposes of this 
     subsection, the term `review entity' means an entity of up to 
     three reviewers who

[[Page H11964]]

     are administrative law judges or members of the Departmental 
     Appeals Board selected for purposes of making determinations 
     under this paragraph.''.
       (2) 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).''.
       (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 individuals entitled to benefits under part A 
     or enrolled under part B, or both, 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) Expedited Review of Certain Provider Agreement 
     Determinations.--
       (1) Termination and certain other immediate remedies.--
     Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)), as amended by 
     subsection (b), is amended by adding at the end the following 
     new subparagraph:
       ``(C)(i) The Secretary shall develop and implement a 
     process to expedite proceedings under this subsection in 
     which--
       ``(I) the remedy of termination of participation has been 
     imposed;
       ``(II) a remedy described in clause (i) or (iii) of section 
     1819(h)(2)(B) has been imposed, but only if such remedy has 
     been imposed on an immediate basis; or
       ``(III) a determination has been made as to a finding of 
     substandard quality of care that results in the loss of 
     approval of a skilled nursing facility's nurse aide training 
     program.
       ``(ii) Under such process under clause (i), priority shall 
     be provided in cases of termination described in clause 
     (i)(I).
       ``(iii) 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.''.
       (2) Waiver of disapproval of nurse-aide training 
     programs.--Sections 1819(f)(2) and section 1919(f)(2) (42 
     U.S.C. 1395i-3(f)(2) and 1396r(f)(2)) are each amended--
       (A) in subparagraph (B)(iii), by striking ``subparagraph 
     (C)'' and inserting ``subparagraphs (C) and (D)''; and
       (B) by adding at the end the following new subparagraph:
       ``(D) Waiver of disapproval of nurse-aide training 
     programs.--Upon application of a nursing facility, the 
     Secretary may waive the application of subparagraph 
     (B)(iii)(I)(c) if the imposition of the civil monetary 
     penalty was not related to the quality of care provided to 
     residents of the facility. Nothing in this subparagraph shall 
     be construed as eliminating any requirement upon a facility 
     to pay a civil monetary penalty described in the preceding 
     sentence.''.
       (3) 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, established under section 1817 of the Social Security 
     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)) to the Secretary such additional sums 
     for fiscal year 2004 and each subsequent fiscal year as may 
     be necessary. The purposes for which such amounts are 
     available include increasing the number of administrative law 
     judges (and their staffs) and the appellate level staff at 
     the Departmental Appeals Board of the Department of Health 
     and Human Services and educating such judges and staffs on 
     long-term care issues.
       (d) Effective Date.--The amendments made by this section 
     shall apply to appeals filed on or after October 1, 2004.

     SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

       (a) Requiring Full and Early Presentation of Evidence.--
       (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as 
     amended by section 932(a), is further amended by adding at 
     the end the following new paragraph:
       ``(3) Requiring full and early presentation of evidence by 
     providers.--A provider of services or supplier may not 
     introduce evidence in any appeal under this section that was 
     not presented at the reconsideration conducted by the 
     qualified independent contractor under subsection (c), unless 
     there is good cause which precluded the introduction of such 
     evidence at or before that reconsideration.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on October 1, 2004.
       (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 paragraphs:
       ``(4) Requirements of notice of determinations.--With 
     respect to an initial determination insofar as it results in 
     a denial of a claim for benefits--
       ``(A) the written notice on the determination shall 
     include--
       ``(i) the reasons for the determination, including whether 
     a local medical review policy or a local coverage 
     determination was used;
       ``(ii) the procedures for obtaining additional information 
     concerning the determination, including the information 
     described in subparagraph (B); and
       ``(iii) notification of the right to seek a redetermination 
     or otherwise appeal the determination and instructions on how 
     to initiate such a redetermination under this section;
       ``(B) such written notice shall be provided in printed form 
     and written in a manner calculated to be understood by the 
     individual entitled to benefits under part A or enrolled 
     under part B, or both; and
       ``(C) the individual provided such written notice may 
     obtain, upon request, information on the specific provision 
     of the policy, manual, or regulation used in making the 
     redetermination.
       ``(5) Requirements of notice of redeterminations.--With 
     respect to a redetermination insofar as it results in a 
     denial of a claim for benefits--
       ``(A) the written notice on the redetermination shall 
     include--
       ``(i) the specific reasons for the redetermination;
       ``(ii) as appropriate, a summary of the clinical or 
     scientific evidence used in making the redetermination;
       ``(iii) a description of the procedures for obtaining 
     additional information concerning the redetermination; and
       ``(iv) notification of the right to appeal the 
     redetermination and instructions on how to initiate such an 
     appeal under this section;
       ``(B) such written notice shall be provided in printed form 
     and written in a manner calculated to be understood by the 
     individual entitled to benefits under part A or enrolled 
     under part B, or both; and
       ``(C) the individual provided such written notice may 
     obtain, upon request, information on the specific provision 
     of the policy, manual, or regulation used in making the 
     redetermination.''.
       (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
     1395ff(c)(3)(E)) is amended--
       (A) by inserting ``be written in a manner calculated to be 
     understood by the individual entitled to benefits under part 
     A or enrolled under part B, or both, and shall include (to 
     the extent appropriate)'' after ``in writing,''; and
       (B) by inserting ``and a notification of the right to 
     appeal such determination and instructions on how to initiate 
     such appeal under this section'' after ``such 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 calculated to be 
     understood by the individual entitled to benefits under part 
     A or enrolled under part B, or both, 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) Submission of record for appeal.--Section 
     1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) is amended by 
     striking ``prepare'' and inserting ``submit'' and by striking 
     ``with respect to'' and all that follows through ``and 
     relevant policies''.
       (d) Qualified Independent Contractors.--
       (1) Eligibility requirements of qualified independent 
     contractors.--Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)) is 
     amended--
       (A) in subparagraph (A), by striking ``sufficient training 
     and expertise in medical science and legal matters'' and 
     inserting ``sufficient medical, legal, and other expertise 
     (including knowledge of the program under this title) and 
     sufficient staffing''; and
       (B) by adding at the end the following new subparagraph:
       ``(K) Independence requirements.--
       ``(i) In general.--Subject to clause (ii), a qualified 
     independent contractor shall not conduct any activities in a 
     case unless 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.

       ``(ii) Exception for reasonable 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.''.
       (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:

[[Page H11965]]

       ``(D) Qualifications for 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'), a reviewing professional meets the 
     qualifications described in paragraph (4) and, where a claim 
     is regarding the furnishing of treatment by a physician 
     (allopathic or osteopathic) or the provision of items or 
     services by a physician (allopathic or osteopathic), a 
     reviewing professional shall be a physician (allopathic or 
     osteopathic).
       ``(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.
       ``(B) Exception.--Nothing in subparagraph (A) shall be 
     construed to--
       ``(i) prohibit an individual, solely on the basis of a 
     participation agreement with a fiscal intermediary, carrier, 
     or other contractor, from serving as a reviewing professional 
     if--

       ``(I) the individual is not involved in the provision of 
     items or services in the case under review;
       ``(II) the fact of such an agreement is disclosed to the 
     Secretary and the individual entitled to benefits under part 
     A or enrolled under part B, or both, or such individual's 
     authorized representative, and neither party objects; and
       ``(III) the 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 having such 
     staff privileges if the existence of such privileges is 
     disclosed to the Secretary and such individual (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).

     For purposes of this paragraph, the term `participation 
     agreement' means an agreement relating to the provision of 
     health care services by the individual and does not include 
     the provision of services as a reviewer under this 
     subsection.
       ``(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) a physician (allopathic or osteopathic) who is 
     appropriately credentialed or licensed in one or more States 
     to deliver health care services and has medical expertise in 
     the field of practice that is appropriate for the items or 
     services at issue; or
       ``(B) a health care professional who is legally authorized 
     in one or more States (in accordance with State law or the 
     State regulatory mechanism provided by State law) to furnish 
     the health care items or services at issue and has medical 
     expertise in the field of practice that is appropriate for 
     such items or services.
       ``(5) Related party defined.--For purposes of this section, 
     the term `related party' means, with respect to a case under 
     this title involving a specific individual entitled to 
     benefits under part A or enrolled under part B, or both, 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) Reducing minimum number of qualified independent 
     contractors.--Section 1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is 
     amended by striking ``not fewer than 12 qualified independent 
     contractors under this subsection'' and inserting ``a 
     sufficient number of qualified independent contractors (but 
     not fewer than 4 such contractors) to conduct 
     reconsiderations consistent with the timeframes applicable 
     under this subsection''.
       (4) Effective date.--The amendments made by paragraphs (1) 
     and (2) 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).
       (5) Transition.--In applying section 1869(g) of the Social 
     Security Act (as added by paragraph (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. 934. PREPAYMENT REVIEW.

       (a) In General.--Section 1874A, as added by section 
     911(a)(1) and as amended by sections 912(b), 921(b)(1), and 
     921(c)(1), is further amended by adding at the end the 
     following new subsection:
       ``(h) Conduct of Prepayment Review.--
       ``(1) Conduct of random prepayment review.--
       ``(A) In general.--A medicare administrative contractor may 
     conduct random prepayment review only to develop a 
     contractor-wide or program-wide claims payment error rates or 
     under such additional circumstances as may be provided under 
     regulations, developed in consultation with providers of 
     services and suppliers.
       ``(B) Use of standard protocols when conducting prepayment 
     reviews.--When a medicare administrative contractor conducts 
     a random prepayment review, the contractor may conduct such 
     review only in accordance with a standard protocol for random 
     prepayment audits developed by the Secretary.
       ``(C) Construction.--Nothing in this paragraph shall be 
     construed as preventing the denial of payments for claims 
     actually reviewed under a random prepayment review.
       ``(D) Random prepayment review.--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.
       ``(2) Limitations on non-random prepayment review.--
       ``(A) Limitations on initiation of non-random prepayment 
     review.--A medicare administrative contractor may not 
     initiate non-random prepayment review of a provider of 
     services or supplier based on the initial identification by 
     that provider of services or supplier of an improper billing 
     practice unless there is a likelihood of sustained or high 
     level of payment error under section 1893(f)(3)(A).
       ``(B) Termination of non-random prepayment review.--The 
     Secretary shall issue regulations relating to the 
     termination, including termination dates, of non-random 
     prepayment review. Such regulations may vary such a 
     termination date based upon the differences in the 
     circumstances triggering prepayment review.''.
       (b) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendment made by subsection (a) shall take effect 1 year 
     after the date of the enactment of this Act.
       (2) Deadline for promulgation of certain regulations.--The 
     Secretary shall first issue regulations under section 
     1874A(h) of the Social Security Act, as added by subsection 
     (a), by not later than 1 year after the date of the enactment 
     of this Act.
       (3) Application of standard protocols for random prepayment 
     review.--Section 1874A(h)(1)(B) 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 the enactment of this Act) as the 
     Secretary shall specify.
       (c) Application to Fiscal Intermediaries and Carriers.--The 
     provisions of section 1874A(h) of the Social Security Act, as 
     added by subsection (a), shall apply to each fiscal 
     intermediary under section 1816 of the Social Security Act 
     (42 U.S.C. 1395h) and each carrier under section 1842 of such 
     Act (42 U.S.C. 1395u) in the same manner as they apply to 
     medicare administrative contractors under such provisions.

     SEC. 935. RECOVERY OF OVERPAYMENTS.

       (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is 
     amended by adding at the end the following new subsection:
       ``(f) Recovery of Overpayments.--
       ``(1) Use of repayment plans.--
       ``(A) In general.--If the repayment, within 30 days by a 
     provider of services or supplier, of an overpayment under 
     this title would constitute a hardship (as described in 
     subparagraph (B)), subject to subparagraph (C), upon request 
     of the provider of services or supplier the Secretary shall 
     enter into a plan with the provider of services or supplier 
     for the repayment (through offset or otherwise) of such 
     overpayment over a period of at least 6 months but not longer 
     than 3 years (or not longer than 5 years in the case of 
     extreme hardship, as determined by the Secretary). Interest 
     shall accrue on the balance through the period of repayment. 
     Such plan shall meet terms and conditions determined to be 
     appropriate by the Secretary.
       ``(B) Hardship.--
       ``(i) In general.--For purposes of subparagraph (A), the 
     repayment of an overpayment (or overpayments) within 30 days 
     is deemed to constitute a hardship if--

       ``(I) in the case of a provider of services that files cost 
     reports, the aggregate amount of the overpayments exceeds 10 
     percent of the amount paid under this title to the provider 
     of services for the cost reporting period covered by the most 
     recently submitted cost report; or
       ``(II) in the case of another provider of services or 
     supplier, the aggregate amount of the overpayments exceeds 10 
     percent of the amount paid under this title to the provider 
     of services or supplier for the previous calendar year.

       ``(ii) Rule of application.--The Secretary shall establish 
     rules for the application of this

[[Page H11966]]

     subparagraph in the case of a provider of services or 
     supplier that was not paid under this title during the 
     previous year or was paid under this title only during a 
     portion of that year.
       ``(iii) Treatment of previous overpayments.--If a provider 
     of services or supplier has entered into a repayment plan 
     under subparagraph (A) with respect to a specific overpayment 
     amount, such payment amount under the repayment plan shall 
     not be taken into account under clause (i) with respect to 
     subsequent overpayment amounts.
       ``(C) Exceptions.--Subparagraph (A) shall not apply if--
       ``(i) the Secretary has reason to suspect that the provider 
     of services 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 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) In general.--In the case of a provider of services or 
     supplier that is determined to have received an overpayment 
     under this title and that seeks a reconsideration by a 
     qualified independent contractor on such determination under 
     section 1869(b)(1), 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. If the provisions of 
     section 1869(b)(1) (providing for such a reconsideration by a 
     qualified independent contractor) are not in effect, in 
     applying the previous sentence any reference to such a 
     reconsideration shall be treated as a reference to a 
     redetermination by the fiscal intermediary or carrier 
     involved.
       ``(B) Collection with interest.--Insofar as the 
     determination on such appeal is against the provider of 
     services or supplier, interest on the overpayment shall 
     accrue on and after the date of the original notice of 
     overpayment. Insofar as such determination against the 
     provider of services or supplier is later reversed, the 
     Secretary shall provide for repayment of the amount recouped 
     plus interest at the same rate as would apply under the 
     previous sentence for the period in which the amount was 
     recouped.
       ``(C) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' has the meaning 
     given such term in section 1889(g).
       ``(3) Limitation on use of extrapolation.--A medicare 
     contractor may not use extrapolation to determine overpayment 
     amounts to be recovered by recoupment, offset, or otherwise 
     unless the Secretary determines that--
       ``(A) there is a sustained or high level of payment error; 
     or
       ``(B) documented educational intervention has failed to 
     correct the payment error.

     There shall be no administrative or judicial review under 
     section 1869, section 1878, or otherwise, of determinations 
     by the Secretary of sustained or high levels of payment 
     errors under this paragraph.
       ``(4) Provision of supporting documentation.--In the case 
     of a provider of services or supplier with respect to which 
     amounts were previously overpaid, a medicare contractor may 
     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) 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 or supplier a consent settlement, the Secretary 
     shall--
       ``(i) communicate to the provider of services or supplier--

       ``(I) 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;
       ``(II) the nature of the problems identified in such 
     evaluation; and
       ``(III) the steps that the provider of services or supplier 
     should take to address the problems; and

       ``(ii) provide for a 45-day period during which the 
     provider of services 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 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 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 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 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 or supplier agrees not to appeal the 
     claims involved.
       ``(6) Notice of over-utilization of codes.--The Secretary 
     shall establish, in consultation with organizations 
     representing the classes of providers of services and 
     suppliers, a process under which the Secretary provides for 
     notice to classes of providers of services and suppliers 
     served by the contractor in cases in which the contractor has 
     identified that particular billing codes may be overutilized 
     by that class of providers of services or suppliers under the 
     programs under this title (or provisions of title XI insofar 
     as they relate to such programs).
       ``(7) 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 or supplier 
     under this title, the contractor shall provide the provider 
     of services 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 or supplier under this title, the contractor 
     shall--
       ``(i) give the provider of services or supplier a full 
     review and explanation of the findings of the audit in a 
     manner that is understandable to the provider of services or 
     supplier and permits the development of an appropriate 
     corrective action plan;
       ``(ii) inform the provider of services or supplier of the 
     appeal rights under this title as well as consent settlement 
     options (which are at the discretion of the Secretary);
       ``(iii) give the provider of services or supplier an 
     opportunity to provide additional information to the 
     contractor; and
       ``(iv) take into account information provided, on a timely 
     basis, by the provider of services or supplier under clause 
     (iii).
       ``(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.
       ``(8) Standard methodology for probe sampling.--The 
     Secretary shall establish a standard methodology for medicare 
     contractors to use in selecting a sample of claims for review 
     in the case of an abnormal billing pattern.''.
       (b) Effective Dates and Deadlines.--
       (1) Use of repayment plans.--Section 1893(f)(1) of the 
     Social Security Act, as added by subsection (a), shall apply 
     to requests for repayment plans made after the date of the 
     enactment of this Act.
       (2) Limitation on recoupment.--Section 1893(f)(2) of the 
     Social Security Act, as added by subsection (a), shall apply 
     to actions taken after the date of the enactment of this Act.
       (3) Use of extrapolation.--Section 1893(f)(3) of the Social 
     Security Act, as added by subsection (a), shall apply to 
     statistically valid random samples initiated after the date 
     that is 1 year after the date of the enactment of this Act.
       (4) Provision of supporting documentation.--Section 
     1893(f)(4) of the Social Security Act, as added by subsection 
     (a), shall take effect on the date of the enactment of this 
     Act.
       (5) Consent settlement.--Section 1893(f)(5) of the Social 
     Security Act, as added by subsection (a), shall apply to 
     consent settlements entered into after the date of the 
     enactment of this Act.
       (6) Notice of overutilization.--Not later than 1 year after 
     the date of the enactment of this Act, the Secretary shall 
     first establish the process for notice of overutilization of 
     billing codes under section 1893A(f)(6) of the Social 
     Security Act, as added by subsection (a).
       (7) Payment audits.--Section 1893A(f)(7) of the Social 
     Security Act, as added by subsection (a), shall apply to 
     audits initiated after the date of the enactment of this Act.
       (8) Standard for abnormal billing patterns.--Not later than 
     1 year after the date of the enactment of this Act, the 
     Secretary shall first establish a standard methodology for 
     selection of sample claims for abnormal billing patterns 
     under section 1893(f)(8) of the Social Security Act, as added 
     by subsection (a).

     SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

       (a) In General.--Section 1866 (42 U.S.C. 1395cc) is 
     amended--
       (1) by adding at the end of the heading the following: ``; 
     enrollment processes''; and
       (2) by adding at the end the following new subsection:
       ``(j) Enrollment Process for Providers of Services and 
     Suppliers.--
       ``(1) Enrollment process.--
       ``(A) In general.--The Secretary shall establish by 
     regulation a process for the enrollment of providers of 
     services and suppliers under this title.
       ``(B) Deadlines.--The Secretary shall establish by 
     regulation procedures under which there are deadlines for 
     actions on applications for enrollment (and, if applicable, 
     renewal of enrollment). The Secretary shall monitor the 
     performance of medicare administrative contractors in meeting 
     the deadlines established under this subparagraph.
       ``(C) Consultation before changing provider enrollment 
     forms.--The Secretary shall consult with providers of 
     services and suppliers before making changes in the provider 
     enrollment forms required of such providers and suppliers to 
     be eligible to submit claims for which payment may be made 
     under this title.

[[Page H11967]]

       ``(2) Hearing rights in cases of denial or non-renewal.--A 
     provider of services or supplier whose application to enroll 
     (or, if applicable, to renew enrollment) under this title is 
     denied may have a hearing and judicial review of such denial 
     under the procedures that apply under subsection (h)(1)(A) to 
     a provider of services that is dissatisfied with a 
     determination by the Secretary.''.
       (b) Effective Dates.--
       (1) Enrollment process.--The Secretary shall provide for 
     the establishment of the enrollment process under section 
     1866(j)(1) of the Social Security Act, as added by subsection 
     (a)(2), within 6 months after the date of the enactment of 
     this Act.
       (2) Consultation.--Section 1866(j)(1)(C) of the Social 
     Security Act, as added by subsection (a)(2), shall apply with 
     respect to changes in provider enrollment forms made on or 
     after January 1, 2004.
       (3) Hearing rights.--Section 1866(j)(2) of the Social 
     Security Act, as added by subsection (a)(2), shall apply to 
     denials occurring on or after such date (not later than 1 
     year after the date of the enactment of this Act) as the 
     Secretary specifies.

     SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS AND 
                   OMISSIONS WITHOUT PURSUING APPEALS PROCESS.

       (a) Claims.--The Secretary shall develop, in consultation 
     with appropriate medicare contractors (as defined in section 
     1889(g) of the Social Security Act, as inserted by section 
     301(a)(1)) and representatives of providers of services 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 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 the 
     enactment of this Act, the Secretary shall first develop the 
     process under subsection (a).

     SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND 
                   SERVICES; ADVANCE BENEFICIARY NOTICES.

       (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as 
     amended by section 933(d)(2)(B), is further amended by adding 
     at the end the following new subsection:
       ``(h) Prior Determination Process for Certain Items and 
     Services.--
       ``(1) Establishment of process.--
       ``(A) In general.--With respect to a medicare 
     administrative contractor that has a contract under section 
     1874A that provides for making payments under this title with 
     respect to physicians' services (as defined in section 
     1848(j)(3)), the Secretary shall establish a prior 
     determination process that meets the requirements of this 
     subsection and that shall be applied by such contractor in 
     the case of eligible requesters.
       ``(B) Eligible requester.--For purposes of this subsection, 
     each of the following shall be an eligible requester:
       ``(i) A participating physician, but only with respect to 
     physicians' services to be furnished to an individual who is 
     entitled to benefits under this title and who has consented 
     to the physician making the request under this subsection for 
     those physicians' services.
       ``(ii) An individual entitled to benefits under this title, 
     but only with respect to a physicians' service for which the 
     individual receives, from a physician, an advance beneficiary 
     notice under section 1879(a).
       ``(2) Secretarial flexibility.--The Secretary shall 
     establish by regulation reasonable limits on the physicians' 
     services for which a prior determination of coverage may be 
     requested under this subsection. In establishing such limits, 
     the Secretary may consider the dollar amount involved with 
     respect to the physicians' service, administrative costs and 
     burdens, and other relevant factors.
       ``(3) Request for prior determination.--
       ``(A) In general.--Subject to paragraph (2), under the 
     process established under this subsection an eligible 
     requester may submit to the contractor a request for a 
     determination, before the furnishing of a physicians' 
     service, as to whether the physicians' service is covered 
     under this title consistent with the applicable requirements 
     of section 1862(a)(1)(A) (relating to medical necessity).
       ``(B) Accompanying documentation.--The Secretary may 
     require that the request be accompanied by a description of 
     the physicians' service, supporting documentation relating to 
     the medical necessity for the physicians' service, and any 
     other appropriate documentation. In the case of a request 
     submitted by an eligible requester who is described in 
     paragraph (1)(B)(ii), the Secretary may require that the 
     request also be accompanied by a copy of the advance 
     beneficiary notice involved.
       ``(4) Response to request.--
       ``(A) In general.--Under such process, the contractor shall 
     provide the eligible requester with written notice of a 
     determination as to whether--
       ``(i) the physicians' service is so covered;
       ``(ii) the physicians' service is not so covered; or
       ``(iii) the contractor lacks sufficient information to make 
     a coverage determination with respect to the physicians' 
     service.
       ``(B) Contents of notice for certain determinations.--
       ``(i) Noncoverage.--If the contractor makes the 
     determination described in subparagraph (A)(ii), the 
     contractor shall include in the notice a brief explanation of 
     the basis for the determination, including on what national 
     or local coverage or noncoverage determination (if any) the 
     determination is based, and a description of any applicable 
     rights under subsection (a).
       ``(ii) Insufficient information.--If the contractor makes 
     the determination described in subparagraph (A)(iii), the 
     contractor shall include in the notice a description of the 
     additional information required to make the coverage 
     determination.
       ``(C) Deadline to respond.--Such notice shall be provided 
     within the same time period as the time period applicable to 
     the contractor providing notice of initial determinations on 
     a claim for benefits under subsection (a)(2)(A).
       ``(D) Informing beneficiary in case of physician request.--
     In the case of a request by a participating physician under 
     paragraph (1)(B)(i), the process shall provide that the 
     individual to whom the physicians' service is proposed to be 
     furnished shall be informed of any determination described in 
     subparagraph (A)(ii) (relating to a determination of non-
     coverage) and the right (referred to in paragraph (6)(B)) to 
     obtain the physicians' service and have a claim submitted for 
     the physicians' service.
       ``(5) Binding nature of positive determination.--If the 
     contractor makes the determination described in paragraph 
     (4)(A)(i), such determination shall be binding on the 
     contractor in the absence of fraud or evidence of 
     misrepresentation of facts presented to the contractor.
       ``(6) Limitation on further review.--
       ``(A) In general.--Contractor determinations described in 
     paragraph (4)(A)(ii) or (4)(A)(iii) (relating to pre-service 
     claims) are not subject to further administrative appeal or 
     judicial review under this section or otherwise.
       ``(B) Decision not to seek prior determination or negative 
     determination does not impact right to obtain services, seek 
     reimbursement, or appeal rights.--Nothing in this subsection 
     shall be construed as affecting the right of an individual 
     who--
       ``(i) decides not to seek a prior determination under this 
     subsection with respect to physicians' services; or
       ``(ii) seeks such a determination and has received a 
     determination described in paragraph (4)(A)(ii),

     from receiving (and submitting a claim for) such physicians' 
     services and from obtaining administrative or judicial review 
     respecting such claim under the other applicable provisions 
     of this section. Failure to seek a prior determination under 
     this subsection with respect to physicians' service shall not 
     be taken into account in such administrative or judicial 
     review.
       ``(C) No prior determination after receipt of services.--
     Once an individual is provided physicians' services, there 
     shall be no prior determination under this subsection with 
     respect to such physicians' services.''.
       (b) Effective Date; Sunset; Transition.--
       (1) Effective date.--The Secretary shall establish the 
     prior determination process under the amendment made by 
     subsection (a) in such a manner as to provide for the 
     acceptance of requests for determinations under such process 
     filed not later than 18 months after the date of the 
     enactment of this Act.
       (2) Sunset.--Such prior determination process shall not 
     apply to requests filed after the end of the 5-year period 
     beginning on the first date on which requests for 
     determinations under such process are accepted.
       (3) Transition.--During the period in which the amendment 
     made by subsection (a) has become effective but contracts are 
     not provided under section 1874A of the Social Security Act 
     with medicare administrative contractors, any reference in 
     section 1869(g) of such Act (as added by such amendment) to 
     such a contractor is deemed a reference to a fiscal 
     intermediary or carrier with an agreement under section 1816, 
     or contract under section 1842, respectively, of such Act.
       (4) Limitation on application to sgr.--For purposes of 
     applying section 1848(f)(2)(D) of the Social Security Act (42 
     U.S.C. 1395w-4(f)(2)(D)), the amendment made by subsection 
     (a) shall not be considered to be a change in law or 
     regulation.
       (c) Provisions Relating to Advance Beneficiary Notices; 
     Report on Prior Determination Process.--
       (1) Data collection.--The Secretary shall establish a 
     process for the collection of information on the instances in 
     which an advance beneficiary notice (as defined in paragraph 
     (5)) has been provided and on instances in which a 
     beneficiary indicates on such a notice that the beneficiary 
     does not intend to seek to have the item or service that is 
     the subject of the notice furnished.
       (2) Outreach and education.--The Secretary shall establish 
     a program of outreach and education for beneficiaries and 
     providers of services and other persons on the appropriate 
     use of advance beneficiary notices and coverage policies 
     under the medicare program.
       (3) GAO report on use of advance beneficiary notices.--Not 
     later than 18 months after the date on which section 1869(h) 
     of the Social Security Act (as added by subsection (a)) takes 
     effect, the Comptroller General of the United States shall 
     submit to Congress a report on the use of advance beneficiary 
     notices under title XVIII of such Act. Such report shall 
     include information concerning the providers of services and 
     other persons that have provided such notices and the 
     response of beneficiaries to such notices.
       (4) GAO report on use of prior determination process.--Not 
     later than 36 months after the date on which section 1869(h) 
     of the Social Security Act (as added by subsection (a)) takes 
     effect, the Comptroller General of the United States shall 
     submit to Congress a report on the use of the prior 
     determination process under such section. Such report shall 
     include--
       (A) information concerning--
       (i) the number and types of procedures for which a prior 
     determination has been sought;
       (ii) determinations made under the process;
       (iii) the percentage of beneficiaries prevailing;
       (iv) in those cases in which the beneficiaries do not 
     prevail, the reasons why such beneficiaries did not prevail; 
     and

[[Page H11968]]

       (v) changes in receipt of services resulting from the 
     application of such process;
       (B) an evaluation of whether the process was useful for 
     physicians (and other suppliers) and beneficiaries, whether 
     it was timely, and whether the amount of information required 
     was burdensome to physicians and beneficiaries; and
       (C) recommendations for improvements or continuation of 
     such process.
       (5) Advance beneficiary notice defined.--In this 
     subsection, the term ``advance beneficiary notice'' means a 
     written notice provided under section 1879(a) of the Social 
     Security Act (42 U.S.C. 1395pp(a)) to an individual entitled 
     to benefits under part A or enrolled under part B of title 
     XVIII of such Act before items or services are furnished 
     under such part in cases where a provider of services or 
     other person that would furnish the item or service believes 
     that payment will not be made for some or all of such items 
     or services under such title.

     SEC. 939. 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 or 
     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 the enactment of this Act 
     and shall apply to items and services furnished on or after 
     such date.

     SEC. 940. REVISIONS TO APPEALS TIMEFRAMES AND AMOUNTS.

       (a) Timeframes.--Section 1869 (42 U.S.C. 1395ff) is 
     amended--
       (1) in subsection (a)(3)(C)(ii), by striking ``30-day 
     period'' each place it appears and inserting ``60-day 
     period''; and
       (2) in subsection (c)(3)(C)(i), by striking ``30-day 
     period'' and inserting ``60-day period''.
       (b) Amounts.--
       (1) In general.--Section 1869(b)(1)(E) (42 U.S.C. 
     1395ff(b)(1)(E)) is amended by adding at the end the 
     following new clause:
       ``(iii) Adjustment of dollar amounts.--For requests for 
     hearings or judicial review made in a year after 2004, the 
     dollar amounts specified in clause (i) shall be equal to such 
     dollar amounts increased by the percentage increase in the 
     medical care component of the consumer price index for all 
     urban consumers (U.S. city average) for July 2003 to the July 
     preceding the year involved. Any amount determined under the 
     previous sentence that is not a multiple of $10 shall be 
     rounded to the nearest multiple of $10.''.
       (2) Conforming amendments.--(A) Section 1852(g)(5) (42 
     U.S.C. 1395w-22(g)(5)) is amended by adding at the end the 
     following: ``The provisions of section 1869(b)(1)(E)(iii) 
     shall apply with respect to dollar amounts specified in the 
     first 2 sentences of this paragraph in the same manner as 
     they apply to the dollar amounts specified in section 
     1869(b)(1)(E)(i).''.
       (B) Section 1876(b)(5)(B) (42 U.S.C. 1395mm(b)(5)(B)) is 
     amended by adding at the end the following: ``The provisions 
     of section 1869(b)(1)(E)(iii) shall apply with respect to 
     dollar amounts specified in the first 2 sentences of this 
     subparagraph in the same manner as they apply to the dollar 
     amounts specified in section 1869(b)(1)(E)(i).''.

     SEC. 940A. MEDIATION PROCESS FOR LOCAL COVERAGE 
                   DETERMINATIONS.

       (a) In General.--Section 1869 (42 U.S.C. 1395ff), as 
     amended by section 938(a), is amended by adding at the end 
     the following new subsection:
       ``(i) Mediation Process for Local Coverage 
     Determinations.--
       ``(1) Establishment of process.--The Secretary shall 
     establish a mediation process under this subsection through 
     the use of a physician trained in mediation and employed by 
     the Centers for Medicare & Medicaid Services.
       ``(2) Responsibility of mediator.--Under the process 
     established in paragraph (1), such a mediator shall mediate 
     in disputes between groups representing providers of 
     services, suppliers (as defined in section 1861(d)), and the 
     medical director for a medicare administrative contractor 
     whenever the regional administrator (as defined by the 
     Secretary) involved determines that there was a systematic 
     pattern and a large volume of complaints from such groups 
     regarding decisions of such director or there is a complaint 
     from the co-chair of the advisory committee for that 
     contractor to such regional administrator regarding such 
     dispute.''.
       (b) Inclusion in mac contracts.--Section 1874A(b)(3)(A)(i), 
     as added by section 911(a)(1), is amended by adding at the 
     end the following: ``Such requirements shall include specific 
     performance duties expected of a medical director of a 
     medicare administrative contractor, including requirements 
     relating to professional relations and the availability of 
     such director to conduct medical determination activities 
     within the jurisdiction of such a contractor.''.

                  Subtitle E--Miscellaneous Provisions

     SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION AND 
                   MANAGEMENT (E & M) DOCUMENTATION GUIDELINES.

       (a) In General.--The Secretary may not implement any new or 
     modified documentation guidelines (which for purposes of this 
     section includes clinical examples) for evaluation and 
     management physician services under the title XVIII of the 
     Social Security Act on or after the date of the enactment of 
     this Act unless the Secretary--
       (1) has developed the guidelines in collaboration with 
     practicing physicians (including both generalists and 
     specialists) and provided for an assessment of the proposed 
     guidelines by the physician community;
       (2) has established a plan that contains specific goals, 
     including a schedule, for improving the use of such 
     guidelines;
       (3) has conducted appropriate and representative pilot 
     projects under subsection (b) to test such guidelines;
       (4) finds, based on reports submitted under subsection 
     (b)(5) with respect to pilot projects conducted for such or 
     related guidelines, that the objectives described in 
     subsection (c) will be met in the implementation of such 
     guidelines; and
       (5) has established, and is implementing, a program to 
     educate physicians on the use of such guidelines and that 
     includes appropriate outreach.

     The Secretary shall make changes to the manner in which 
     existing evaluation and management documentation guidelines 
     are implemented to reduce paperwork burdens on physicians.
       (b) Pilot Projects to Test Modified or New Evaluation and 
     Management Documentation Guidelines.--
       (1) In general.--With respect to proposed new or modified 
     documentation guidelines referred to in subsection (a), the 
     Secretary shall conduct under this subsection appropriate and 
     representative pilot projects to test the proposed 
     guidelines.
       (2) Length and consultation.--Each pilot project under this 
     subsection shall--
       (A) be voluntary;
       (B) be of sufficient length as determined by the Secretary 
     (but in no case to exceed 1 year) to allow for preparatory 
     physician and medicare contractor education, analysis, and 
     use and assessment of potential evaluation and management 
     guidelines; and
       (C) be conducted, in development and throughout the 
     planning and operational stages of the project, in 
     consultation with practicing physicians (including both 
     generalists and specialists).
       (3) Range of pilot projects.--Of the pilot projects 
     conducted under this subsection with respect to proposed new 
     or modified documentation guidelines--
       (A) at least one shall focus on a peer review method by 
     physicians (not employed by a medicare contractor) which 
     evaluates medical record information for claims submitted by 
     physicians identified as statistical outliers relative to 
     codes used for billing purposes for such services;
       (B) at least one shall focus on an alternative method to 
     detailed guidelines based on physician documentation of face 
     to face encounter time with a patient;
       (C) at least one shall be conducted for services furnished 
     in a rural area and at least one for services furnished 
     outside such an area; and
       (D) at least one shall be conducted in a setting where 
     physicians bill under physicians' services in teaching 
     settings and at least one shall be conducted in a setting 
     other than a teaching setting.
       (4) Study of impact.--Each pilot project shall examine the 
     effect of the proposed guidelines on--
       (A) different types of physician practices, including those 
     with fewer than 10 full-time-equivalent employees (including 
     physicians); and
       (B) the costs of physician compliance, including education, 
     implementation, auditing, and monitoring.
       (5) Report on pilot projects.--Not later than 6 months 
     after the date of completion of pilot projects carried out 
     under this subsection with respect to a proposed guideline 
     described in paragraph (1), the Secretary shall submit to 
     Congress a report on the pilot projects. Each such report 
     shall include a finding by the Secretary of whether the 
     objectives described in subsection (c) will be met in the 
     implementation of such proposed guideline.
       (c) Objectives for Evaluation and Management Guidelines.--
     The objectives for modified evaluation and management 
     documentation guidelines developed by the Secretary shall be 
     to--
       (1) identify clinically relevant documentation needed to 
     code accurately and assess coding levels accurately;
       (2) decrease the level of non-clinically pertinent and 
     burdensome documentation time and content in the physician's 
     medical record;
       (3) increase accuracy by reviewers; and
       (4) educate both physicians and reviewers.
       (d) Study of Simpler, Alternative Systems of Documentation 
     for Physician Claims.--
       (1) Study.--The Secretary shall carry out a study of the 
     matters described in paragraph (2).
       (2) Matters described.--The matters referred to in 
     paragraph (1) are--
       (A) the development of a simpler, alternative system of 
     requirements for documentation accompanying claims for 
     evaluation and management physician services for which 
     payment is made under title XVIII of the Social Security Act; 
     and
       (B) consideration of systems other than current coding and 
     documentation requirements for payment for such physician 
     services.
       (3) Consultation with practicing physicians.--In designing 
     and carrying out the study under paragraph (1), the Secretary 
     shall consult with practicing physicians, including 
     physicians who are part of group practices and including both 
     generalists and specialists.
       (4) Application of hipaa uniform coding requirements.--In 
     developing an alternative system under paragraph (2), the 
     Secretary shall consider requirements of administrative 
     simplification under part C of title XI of the Social 
     Security Act.
       (5) Report to congress.--(A) Not later than October 1, 
     2005, the Secretary shall submit to Congress a report on the 
     results of the study conducted under paragraph (1).

[[Page H11969]]

       (B) The Medicare Payment Advisory Commission shall conduct 
     an analysis of the results of the study included in the 
     report under subparagraph (A) and shall submit a report on 
     such analysis to Congress.
       (e) Study on Appropriate Coding of Certain Extended Office 
     Visits.--The Secretary shall conduct a study of the 
     appropriateness of coding in cases of extended office visits 
     in which there is no diagnosis made. Not later than October 
     1, 2005, the Secretary shall submit a report to Congress on 
     such study and shall include recommendations on how to code 
     appropriately for such visits in a manner that takes into 
     account the amount of time the physician spent with the 
     patient.
       (f) Definitions.--In this section--
       (1) the term ``rural area'' has the meaning given that term 
     in section 1886(d)(2)(D) of the Social Security Act (42 
     U.S.C. 1395ww(d)(2)(D)); and
       (2) the term ``teaching settings'' are those settings 
     described in section 415.150 of title 42, Code of Federal 
     Regulations.

     SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND 
                   COVERAGE.

       (a) Council for Technology and Innovation.--Section 1868 
     (42 U.S.C. 1395ee) is amended--
       (1) by adding at the end of the heading the following: ``; 
     council for technology and innovation'';
       (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) Council for Technology and Innovation.--
       ``(1) Establishment.--The Secretary shall establish a 
     Council for Technology and Innovation within the Centers for 
     Medicare & Medicaid Services (in this section referred to as 
     `CMS').
       ``(2) Composition.--The Council shall be composed of senior 
     CMS staff and clinicians and shall be chaired by the 
     Executive Coordinator for Technology and Innovation 
     (appointed or designated under paragraph (4)).
       ``(3) Duties.--The Council shall coordinate the activities 
     of coverage, coding, and payment processes under this title 
     with respect to new technologies and procedures, including 
     new drug therapies, and shall coordinate the exchange of 
     information on new technologies between CMS and other 
     entities that make similar decisions.
       ``(4) Executive coordinator for technology and 
     innovation.--The Secretary shall appoint (or designate) a 
     noncareer appointee (as defined in section 3132(a)(7) of 
     title 5, United States Code) who shall serve as the Executive 
     Coordinator for Technology and Innovation. Such executive 
     coordinator shall report to the Administrator of CMS, shall 
     chair the Council, shall oversee the execution of its duties, 
     and shall serve as a single point of contact for outside 
     groups and entities regarding the coverage, coding, and 
     payment processes under this title.''.
       (b) Methods for Determining Payment Basis for New Lab 
     Tests.--Section 1833(h) (42 U.S.C. 1395l(h)) is amended by 
     adding at the end the following:
       ``(8)(A) The Secretary shall establish by regulation 
     procedures for determining the basis for, and amount of, 
     payment under this subsection for any clinical diagnostic 
     laboratory test with respect to which a new or substantially 
     revised HCPCS code is assigned on or after January 1, 2005 
     (in this paragraph referred to as `new tests').
       ``(B) Determinations under subparagraph (A) shall be made 
     only after the Secretary--
       ``(i) makes available to the public (through an Internet 
     website and other appropriate mechanisms) a list that 
     includes any such test for which establishment of a payment 
     amount under this subsection is being considered for a year;
       ``(ii) on the same day such list is made available, causes 
     to have published in the Federal Register notice of a meeting 
     to receive comments and recommendations (and data on which 
     recommendations are based) from the public on the appropriate 
     basis under this subsection for establishing payment amounts 
     for the tests on such list;
       ``(iii) not less than 30 days after publication of such 
     notice convenes a meeting, that includes representatives of 
     officials of the Centers for Medicare & Medicaid Services 
     involved in determining payment amounts, to receive such 
     comments and recommendations (and data on which the 
     recommendations are based);
       ``(iv) taking into account the comments and recommendations 
     (and accompanying data) received at such meeting, develops 
     and makes available to the public (through an Internet 
     website and other appropriate mechanisms) a list of proposed 
     determinations with respect to the appropriate basis for 
     establishing a payment amount under this subsection for each 
     such code, together with an explanation of the reasons for 
     each such determination, the data on which the determinations 
     are based, and a request for public written comments on the 
     proposed determination; and
       ``(v) taking into account the comments received during the 
     public comment period, develops and makes available to the 
     public (through an Internet website and other appropriate 
     mechanisms) a list of final determinations of the payment 
     amounts for such tests under this subsection, together with 
     the rationale for each such determination, the data on which 
     the determinations are based, and responses to comments and 
     suggestions received from the public.
       ``(C) Under the procedures established pursuant to 
     subparagraph (A), the Secretary shall--
       ``(i) set forth the criteria for making determinations 
     under subparagraph (A); and
       ``(ii) make available to the public the data (other than 
     proprietary data) considered in making such determinations.
       ``(D) The Secretary may convene such further public 
     meetings to receive public comments on payment amounts for 
     new tests under this subsection as the Secretary deems 
     appropriate.
       ``(E) For purposes of this paragraph:
       ``(i) The term `HCPCS' refers to the Health Care Procedure 
     Coding System.
       ``(ii) A code shall be considered to be `substantially 
     revised' if there is a substantive change to the definition 
     of the test or procedure to which the code applies (such as a 
     new analyte or a new methodology for measuring an existing 
     analyte-specific test).''.
       (c) GAO Study on Improvements in External Data Collection 
     for Use in the Medicare Inpatient Payment System.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study that analyzes which external data can 
     be collected in a shorter timeframe by the Centers for 
     Medicare & Medicaid Services for use in computing payments 
     for inpatient hospital services. The study may include an 
     evaluation of the feasibility and appropriateness of using 
     quarterly samples or special surveys or any other methods. 
     The study shall include an analysis of whether other 
     executive agencies, such as the Bureau of Labor Statistics in 
     the Department of Commerce, are best suited to collect this 
     information.
       (2) Report.--By not later than October 1, 2004, the 
     Comptroller General shall submit a report to Congress on the 
     study under paragraph (1).

     SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER 
                   MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

       (a) In General.--The Secretary shall not require a hospital 
     (including a critical access hospital) to ask questions (or 
     obtain information) relating to the application of section 
     1862(b) of the Social Security Act (relating to medicare 
     secondary payor provisions) in the case of reference 
     laboratory services described in subsection (b), if the 
     Secretary does not impose such requirement in the case of 
     such services furnished by an independent laboratory.
       (b) Reference Laboratory Services Described.--Reference 
     laboratory services described in this subsection are clinical 
     laboratory diagnostic tests (or the interpretation of such 
     tests, or both) furnished without a face-to-face encounter 
     between the individual entitled to benefits under part A or 
     enrolled under part B, or both, and the hospital involved and 
     in which the hospital submits a claim only for such test or 
     interpretation.

     SEC. 944. EMTALA IMPROVEMENTS.

       (a) Payment for EMTALA-Mandated Screening and Stabilization 
     Services.--
       (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended 
     by inserting after subsection (c) the following new 
     subsection:
       ``(d) For purposes of subsection (a)(1)(A), in the case of 
     any item or service that is required to be provided pursuant 
     to section 1867 to an individual who is entitled to benefits 
     under this title, determinations as to whether the item or 
     service is reasonable and necessary shall be made on the 
     basis of the information available to the treating physician 
     or practitioner (including the patient's presenting symptoms 
     or complaint) at the time the item or service was ordered or 
     furnished by the physician or practitioner (and not on the 
     patient's principal diagnosis). When making such 
     determinations with respect to such an item or service, the 
     Secretary shall not consider the frequency with which the 
     item or service was provided to the patient before or after 
     the time of the admission or visit.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to items and services furnished on or after 
     January 1, 2004.
       (b) Notification of Providers When EMTALA Investigation 
     Closed.--Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is 
     amended by adding at the end the following new paragraph:
       ``(4) Notice upon closing an investigation.--The Secretary 
     shall establish a procedure to notify hospitals and 
     physicians when an investigation under this section is 
     closed.''.
       (c) Prior Review by Peer Review Organizations in EMTALA 
     Cases Involving Termination of Participation.--
       (1) In general.--Section 1867(d)(3) (42 U.S.C. 
     1395dd(d)(3)) is amended--
       (A) in the first sentence, by inserting ``or in terminating 
     a hospital's participation under this title'' after ``in 
     imposing sanctions under paragraph (1)''; and
       (B) by adding at the end the following new sentences: 
     ``Except in the case in which a delay would jeopardize the 
     health or safety of individuals, the Secretary shall also 
     request such a review before making a compliance 
     determination as part of the process of terminating a 
     hospital's participation under this title for violations 
     related to the appropriateness of a medical screening 
     examination, stabilizing treatment, or an appropriate 
     transfer as required by this section, and shall provide a 
     period of 5 days for such review. The Secretary shall provide 
     a copy of the organization's report to the hospital or 
     physician consistent with confidentiality requirements 
     imposed on the organization under such part B.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to terminations of participation initiated on or 
     after the date of the enactment of this Act.

[[Page H11970]]

     SEC. 945. EMERGENCY MEDICAL TREATMENT AND LABOR ACT (EMTALA) 
                   TECHNICAL ADVISORY GROUP.

       (a) Establishment.--The Secretary shall establish a 
     Technical Advisory Group (in this section referred to as the 
     ``Advisory Group'') to review issues related to the Emergency 
     Medical Treatment and Labor Act (EMTALA) and its 
     implementation. In this section, the term ``EMTALA'' refers 
     to the provisions of section 1867 of the Social Security Act 
     (42 U.S.C. 1395dd).
       (b) Membership.--The Advisory Group shall be composed of 19 
     members, including the Administrator of the Centers for 
     Medicare & Medicaid Services and the Inspector General of the 
     Department of Health and Human Services and of which--
       (1) 4 shall be representatives of hospitals, including at 
     least one public hospital, that have experience with the 
     application of EMTALA and at least 2 of which have not been 
     cited for EMTALA violations;
       (2) 7 shall be practicing physicians drawn from the fields 
     of emergency medicine, cardiology or cardiothoracic surgery, 
     orthopedic surgery, neurosurgery, pediatrics or a pediatric 
     subspecialty, obstetrics-gynecology, and psychiatry, with not 
     more than one physician from any particular field;
       (3) 2 shall represent patients;
       (4) 2 shall be staff involved in EMTALA investigations from 
     different regional offices of the Centers for Medicare & 
     Medicaid Services; and
       (5) 1 shall be from a State survey office involved in 
     EMTALA investigations and 1 shall be from a peer review 
     organization, both of whom shall be from areas other than the 
     regions represented under paragraph (4).

     In selecting members described in paragraphs (1) through (3), 
     the Secretary shall consider qualified individuals nominated 
     by organizations representing providers and patients.
       (c) General Responsibilities.--The Advisory Group--
       (1) shall review EMTALA regulations;
       (2) may provide advice and recommendations to the Secretary 
     with respect to those regulations and their application to 
     hospitals and physicians;
       (3) shall solicit comments and recommendations from 
     hospitals, physicians, and the public regarding the 
     implementation of such regulations; and
       (4) may disseminate information on the application of such 
     regulations to hospitals, physicians, and the public.
       (d) Administrative Matters.--
       (1) Chairperson.--The members of the Advisory Group shall 
     elect a member to serve as chairperson of the Advisory Group 
     for the life of the Advisory Group.
       (2) Meetings.--The Advisory Group shall first meet at the 
     direction of the Secretary. The Advisory Group shall then 
     meet twice per year and at such other times as the Advisory 
     Group may provide.
       (e) Termination.--The Advisory Group shall terminate 30 
     months after the date of its first meeting.
       (f) Waiver of Administrative Limitation.--The Secretary 
     shall establish the Advisory Group notwithstanding any 
     limitation that may apply to the number of advisory 
     committees that may be established (within the Department of 
     Health and Human Services or otherwise).

     SEC. 946. 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)), as amended by section 512(b), is amended by 
     adding at the end the following new paragraph:
       ``(5) 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 the date of 
     the enactment of this Act.

     SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD 
                   TO CERTAIN HOSPITALS.

       (a) In General.--Section 1866 (42 U.S.C. 1395cc), as 
     amended by section 506, is amended--
       (1) in subsection (a)(1)--
       (A) in subparagraph (T), by striking ``and'' at the end;
       (B) in subparagraph (U), by striking the period at the end 
     and inserting ``, and''; and
       (C) by inserting after subparagraph (U) the following new 
     subparagraph:
       ``(V) in the case of hospitals that are not otherwise 
     subject to the Occupational Safety and Health Act of 1970 (or 
     a State occupational safety and health plan that is approved 
     under 18(b) of such Act), to comply with the Bloodborne 
     Pathogens standard under section 1910.1030 of title 29 of the 
     Code of Federal Regulations (or as subsequently 
     redesignated).''; and
       (2) by adding at the end of subsection (b) the following 
     new paragraph:
       ``(4)(A) A hospital that fails to comply with the 
     requirement of subsection (a)(1)(V) (relating to the 
     Bloodborne Pathogens standard) is subject to a civil money 
     penalty in an amount described in subparagraph (B), but is 
     not subject to termination of an agreement under this 
     section.
       ``(B) The amount referred to in subparagraph (A) is an 
     amount that is similar to the amount of civil penalties that 
     may be imposed under section 17 of the Occupational Safety 
     and Health Act of 1970 for a violation of the Bloodborne 
     Pathogens standard referred to in subsection (a)(1)(U) by a 
     hospital that is subject to the provisions of such Act.
       ``(C) A civil money penalty under this paragraph shall be 
     imposed and collected in the same manner as civil money 
     penalties under subsection (a) of section 1128A are imposed 
     and collected under that section.''.
       (b) Effective Date.--The amendments made by this subsection 
     (a) shall apply to hospitals as of July 1, 2004.

     SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

       (a) Technical Amendments Relating to Advisory Committee 
     Under BIPA Section 522.--(1) Subsection (i) of section 1114 
     (42 U.S.C. 1314)--
       (A) is transferred to section 1862 and added at the end of 
     such section; and
       (B) is redesignated as subsection (j).
       (2) Section 1862 (42 U.S.C. 1395y) is amended--
       (A) in the last sentence of subsection (a), by striking 
     ``established under section 1114(f)''; and
       (B) in subsection (j), as so transferred and redesignated--
       (i) by striking ``under subsection (f)''; and
       (ii) by striking ``section 1862(a)(1)'' and inserting 
     ``subsection (a)(1)''.
       (b) Terminology Corrections.--(1) Section 1869(c)(3)(I)(ii) 
     (42 U.S.C. 1395ff(c)(3)(I)(ii)) is amended--
       (A) in subclause (III), by striking ``policy'' and 
     inserting ``determination''; and
       (B) in subclause (IV), by striking ``medical review 
     policies'' and inserting ``coverage determinations''.
       (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w-22(a)(2)(C)) is 
     amended by striking ``policy'' and ``policy'' and inserting 
     ``determination'' each place it appears and 
     ``determination'', respectively.
       (c) Reference Corrections.--Section 1869(f)(4) (42 U.S.C. 
     1395ff(f)(4)) is amended--
       (1) in subparagraph (A)(iv), by striking ``subclause (I), 
     (II), or (III)'' and inserting ``clause (i), (ii), or 
     (iii)'';
       (2) in subparagraph (B), by striking ``clause (i)(IV)'' and 
     ``clause (i)(III)'' and inserting ``subparagraph (A)(iv)'' 
     and ``subparagraph (A)(iii)'', respectively; and
       (3) in subparagraph (C), by striking ``clause (i)'', 
     ``subclause (IV)'' and ``subparagraph (A)'' and inserting 
     ``subparagraph (A)'', ``clause (iv)'' and ``paragraph 
     (1)(A)'', respectively each place it appears.
       (d) Other Corrections.--Effective as if included in the 
     enactment of section 521(c) of BIPA, section 1154(e) (42 
     U.S.C. 1320c-3(e)) is amended by striking paragraph (5).
       (e) Effective Date.--Except as otherwise provided, the 
     amendments made by this section shall be effective as if 
     included in the enactment of BIPA.

     SEC. 949. CONFORMING 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 five years, except that, upon the request of the 
     administrator of a Federal health care program (as defined in 
     section 1128B(f)) who determines that the exclusion would 
     impose a hardship on individuals entitled to benefits under 
     part A of title XVIII or enrolled under part B of such title, 
     or both, 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.''.

     SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

       (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended 
     by adding at the end, after the subsection transferred and 
     redesignated by section 948(a), the following new subsection:
       ``(k)(1) Subject to paragraph (2), a group health plan (as 
     defined in subsection (a)(1)(A)(v)) providing supplemental or 
     secondary coverage to individuals also entitled to services 
     under this title shall not require a medicare claims 
     determination under this title for dental benefits 
     specifically excluded under subsection (a)(12) as a condition 
     of making a claims determination for such benefits under the 
     group health plan.
       ``(2) A group health plan may require a claims 
     determination under this title in cases involving or 
     appearing to involve inpatient dental hospital services or 
     dental services expressly covered under this title pursuant 
     to actions taken by the Secretary.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date that is 60 days after the date 
     of the enactment of this Act.

     SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE 
                   DSH FORMULA.

       Beginning not later than 1 year after the date of the 
     enactment of this Act, the Secretary shall

[[Page H11971]]

     arrange to furnish to subsection (d) hospitals (as defined in 
     section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 
     1395ww(d)(1)(B)) the data necessary for such hospitals to 
     compute the number of patient days used in computing the 
     disproportionate patient percentage under such section for 
     that hospital for the current cost reporting year. Such data 
     shall also be furnished to other hospitals which would 
     qualify for additional payments under part A of title XVIII 
     of the Social Security Act on the basis of such data.

     SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

       (a) In General.--Section 1842(b)(6)(A) (42 U.S.C. 
     1395u(b)(6)(A)) is amended by striking ``or (ii) (where the 
     service was provided in a hospital, critical access hospital, 
     clinic, or other facility) to the facility in which the 
     service was provided if there is a contractual arrangement 
     between such physician or other person and such facility 
     under which such facility submits the bill for such 
     service,'' and inserting ``or (ii) where the service was 
     provided under a contractual arrangement between such 
     physician or other person and an entity, to the entity if, 
     under the contractual arrangement, the entity submits the 
     bill for the service and the contractual 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 the 
     enactment of this Act.

     SEC. 953. OTHER PROVISIONS.

       (a) GAO Reports on the Physician Compensation.--
       (1) Sustainable growth rate and updates.--Not later than 6 
     months after the date of the enactment of this Act, the 
     Comptroller General of the United States shall submit to 
     Congress a report on the appropriateness of the updates in 
     the conversion factor under subsection (d)(3) of section 1848 
     of the Social Security Act (42 U.S.C. 1395w-4), including the 
     appropriateness of the sustainable growth rate formula under 
     subsection (f) of such section for 2002 and succeeding years. 
     Such report shall examine the stability and predictability of 
     such updates and rate and alternatives for the use of such 
     rate in the updates.
       (2) Physician compensation generally.--Not later than 12 
     months after the date of the enactment of this Act, the 
     Comptroller General shall submit to Congress a report on all 
     aspects of physician compensation for services furnished 
     under title XVIII of the Social Security Act, and how those 
     aspects interact and the effect on appropriate compensation 
     for physician services. Such report shall review alternatives 
     for the physician fee schedule under section 1848 of such 
     title (42 U.S.C. 1395w-4).
       (b) Annual Publication of List of National Coverage 
     Determinations.--The Secretary shall provide, in an 
     appropriate annual publication available to the public, a 
     list of national coverage determinations made under title 
     XVIII of the Social Security Act in the previous year and 
     information on how to get more information with respect to 
     such determinations.
       (c) GAO Report on Flexibility in Applying Home Health 
     Conditions of Participation to Patients Who Are Not Medicare 
     Beneficiaries.--Not later than 6 months after the date of the 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to Congress a report on the implications 
     if there were flexibility in the application of the medicare 
     conditions of participation for home health agencies with 
     respect to groups or types of patients who are not medicare 
     beneficiaries. The report shall include an analysis of the 
     potential impact of such flexible application on clinical 
     operations and the recipients of such services and an 
     analysis of methods for monitoring the quality of care 
     provided to such recipients.
       (d) OIG Report on Notices Relating to Use of Hospital 
     Lifetime Reserve Days.--Not later than 1 year after the date 
     of the enactment of this Act, the Inspector General of the 
     Department of Health and Human Services shall submit a report 
     to Congress on--
       (1) the extent to which hospitals provide notice to 
     medicare beneficiaries in accordance with applicable 
     requirements before they use the 60 lifetime reserve days 
     described in section 1812(a)(1) of the Social Security Act 
     (42 U.S.C. 1395d(a)(1)); and
       (2) the appropriateness and feasibility of hospitals 
     providing a notice to such beneficiaries before they 
     completely exhaust such lifetime reserve days.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                    Subtitle A--Medicaid Provisions

     SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH) 
                   PAYMENTS.

       (a) Temporary Increase.--Section 1923(f)(3) (42 U.S.C. 
     1396r-4(f)(3)) is amended--
       (1) in subparagraph (A), by striking ``subparagraph (B)'' 
     and inserting ``subparagraphs (B) and (C)''; and
       (2) by adding at the end the following new subparagraphs:
       ``(C) Special, temporary increase in allotments on a one-
     time, non-cumulative basis.--The DSH allotment for any State 
     (other than a State with a DSH allotment determined under 
     paragraph (5))--
       ``(i) for fiscal year 2004 is equal to 116 percent of the 
     DSH allotment for the State for fiscal year 2003 under this 
     paragraph, notwithstanding subparagraph (B); and
       ``(ii) for each succeeding fiscal year is equal to the DSH 
     allotment for the State for fiscal year 2004 or, in the case 
     of fiscal years beginning with the fiscal year specified in 
     subparagraph (D) for that State, the DSH allotment for the 
     State for the previous fiscal year increased by the 
     percentage change in the consumer price index for all urban 
     consumers (all items; U.S. city average), for the previous 
     fiscal year.
       ``(D) Fiscal year specified.--For purposes of subparagraph 
     (C)(ii), the fiscal year specified in this subparagraph for a 
     State is the first fiscal year for which the Secretary 
     estimates that the DSH allotment for that State will equal 
     (or no longer exceed) the DSH allotment for that State under 
     the law as in effect before the date of the enactment of this 
     subparagraph.''.
       (b) Increase in Floor for Treatment as a Low DSH State.--
     Section 1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is amended--
       (1) in the paragraph heading, by striking ``extremely'';
       (2) by striking ``In the case of'' and inserting the 
     following:
       ``(A) For fiscal years 2001 through 2003 for extremely low 
     dsh states.--In the case of'';
       (3) by inserting ``before fiscal year 2004'' after ``In 
     subsequent years''; and
       (4) by adding at the end the following:
       ``(B) For fiscal year 2004 and subsequent fiscal years.--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 the State with respect to--
       ``(i) fiscal year 2004 shall be the DSH allotment for the 
     State for fiscal year 2003 increased by 16 percent;
       ``(ii) each succeeding fiscal year before fiscal year 2009 
     shall be the DSH allotment for the State for the previous 
     fiscal year increased by 16 percent; and
       ``(iii) fiscal year 2009 and any subsequent fiscal year, 
     shall be the DSH allotment for the State for the previous 
     year subject to an increase for inflation as provided in 
     paragraph (3)(A).''.
       (c) Allotment Adjustment.--Section 1923(f) (42 U.S.C. 
     1396r-4(f)) is amended--
       (1) in paragraph (3)(A), by striking ``The DSH'' and 
     inserting ``Except as provided in paragraph (6), the DSH'';
       (2) by redesignating paragraph (6) as paragraph (7); and
       (3) 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 
     is revoked or terminated before the end of either such fiscal 
     year and there is no DSH allotment for the State, 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 would not exceed the 
     amount allowed under paragraph (3)(B)(ii) and that does not 
     result in greater expenditures under this title than would 
     have been made if such waiver had not been revoked or 
     terminated.

     In determining the amount of an appropriate DSH allotment 
     under subparagraph (B) for a State, the Secretary shall take 
     into account the level of DSH expenditures for the State for 
     the fiscal year preceding the fiscal year in which the waiver 
     commenced.''.
       (d) Increased Reporting and Other Requirements To Ensure 
     the Appropriate Use of Medicaid DSH Payment Adjustments.--
     Section 1923 (42 U.S.C. 1396r-4) is amended by adding at the 
     end the following new subsection:
       ``(j) Annual Reports and Other Requirements 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 do the following:
       ``(1) Report.--The State shall submit an annual report that 
     includes the following:
       ``(A) An identification of 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.
       ``(B) 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.
       ``(2) Independent certified audit.--The State shall 
     annually submit to the Secretary an independent certified 
     audit that verifies each of the following:
       ``(A) The extent to which hospitals in the State have 
     reduced their uncompensated care costs to reflect the total 
     amount of claimed expenditures made under this section.
       ``(B) Payments under this section to hospitals that comply 
     with the requirements of subsection (g).

[[Page H11972]]

       ``(C) Only the uncompensated care costs of providing 
     inpatient hospital and outpatient hospital services to 
     individuals described in paragraph (1)(A) of such subsection 
     are included in the calculation of the hospital-specific 
     limits under such subsection.
       ``(D) The State included all payments under this title, 
     including supplemental payments, in the calculation of such 
     hospital-specific limits.
       ``(E) The State has separately documented and retained a 
     record of all of its costs under this title, claimed 
     expenditures under this title, uninsured costs in determining 
     payment adjustments under this section, and any payments made 
     on behalf of the uninsured from payment adjustments under 
     this section.''.
       (e) Clarification Regarding Non-Regulation of Transfers.--
       (1) In general.--Nothing in section 1903(w) of the Social 
     Security Act (42 U.S.C. 1396b(w)) shall be construed by the 
     Secretary as prohibiting a State's use of funds as the non-
     Federal share of expenditures under title XIX of such Act 
     where such funds are transferred from or certified by a 
     publicly-owned regional medical center located in another 
     State and described in paragraph (2), so long as the 
     Secretary determines that such use of funds is proper and in 
     the interest of the program under title XIX.
       (2) Center described.--A center described in this paragraph 
     is a publicly-owned regional medical center that--
       (A) provides level 1 trauma and burn care service;
       (B) provides level 3 neonatal care services;
       (C) is obligated to serve all patients, regardless of State 
     of origin;
       (D) is located within a Standard Metropolitan Statistical 
     Area (SMSA) that includes at least 3 States, including the 
     States described in paragraph (1);
       (E) serves as a tertiary care provider for patients 
     residing within a 125 mile radius; and
       (F) meets the criteria for a disproportionate share 
     hospital under section 1923 of such Act in at least one State 
     other than the one in which the center is located.
       (3) Effective period.--This subsection shall apply through 
     December 31, 2005.

     SEC. 1002. 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) (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) (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.''.

     SEC. 1003. EXTENSION OF MORATORIUM.

       (a) In General.--Section 6408(a)(3) of the Omnibus Budget 
     Reconciliation Act of 1989, as amended by section 13642 of 
     the Omnibus Budget Reconciliation Act of 1993 and section 
     4758 of the Balanced Budget Act of 1997, is amended--
       (1) by striking ``until December 31, 2002'', and
       (2) by striking ``Kent Community Hospital Complex in 
     Michigan or.''
       (b) Effective Dates.--
       (1) Permanent extension.--The amendment made by subsection 
     (a)(1) shall take effect as if included in the amendment made 
     by section 4758 of the Balanced Budget Act of 1997.
       (2) Modification.--The amendment made by subsection (a)(2) 
     shall take effect on the date of enactment of this Act.

                  Subtitle B--Miscellaneous Provisions

     SEC. 1011. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES 
                   FURNISHED TO UNDOCUMENTED ALIENS.

       (a) Total Amount Available for Allotment.--
       (1) In general.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Secretary $250,000,000 for each of fiscal years 2005 through 
     2008 for the purpose of making allotments under this section 
     for payments to eligible providers in States described in 
     paragraph (1) or (2) of subsection (b).
       (2) Availability.--Funds appropriated under paragraph (1) 
     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 amount to make allotments for such 
     fiscal year in accordance with subparagraph (B).
       (B) Formula.--The amount of the allotment for payments to 
     eligible providers in 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 as compared 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, in addition to 
     amounts allotted under paragraph (1), 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 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 alien apprehensions in 
     the State in that fiscal year as compared to the total of 
     such apprehensions for all such States for the preceding 
     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 apprehension rates for the 4-
     consecutive-quarter period ending before the beginning of the 
     fiscal year for which information is available for 
     undocumented aliens in such States, as reported by the 
     Department of Homeland Security.
       (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 the amount (subject to the total amount 
     available from such allotments) determined under paragraph 
     (2) directly to eligible providers located in the State for 
     the provision of eligible services to aliens described in 
     paragraph (5) to the extent that the eligible provider was 
     not otherwise reimbursed (through insurance or otherwise) for 
     such services during that fiscal year.
       (2) Determination of payment amounts.--
       (A) In general.--Subject to subparagraph (B), the payment 
     amount determined under this paragraph shall be an amount 
     determined by the Secretary that is equal to the lesser of--
       (i) the amount that the provider demonstrates was incurred 
     for the provision of such services; or
       (ii) amounts determined under a methodology established by 
     the Secretary for purposes of this subsection.
       (B) Pro-rata reduction.--If the amount of funds allotted to 
     a State under subsection (b) for a fiscal year is 
     insufficient to ensure that each eligible provider in that 
     State receives the amount of payment calculated under 
     subparagraph (A), the Secretary shall reduce that amount of 
     payment with respect to each eligible provider to ensure that 
     the entire amount allotted to the State for that fiscal year 
     is paid to such eligible providers.
       (3) Methodology.--In establishing a methodology under 
     paragraph (2)(A)(ii), the Secretary--
       (A) may establish different methodologies for types of 
     eligible providers;
       (B) may base payments for hospital services on estimated 
     hospital charges, adjusted to estimated cost, through the 
     application of hospital-specific cost-to-charge ratios;
       (C) shall provide for the election by a hospital to receive 
     either payments to the hospital for--
       (i) hospital and physician services; or
       (ii) hospital services and for a portion of the on-call 
     payments made by the hospital to physicians; and
       (D) shall make quarterly payments under this section to 
     eligible providers.

     If a hospital makes the election under subparagraph (C)(i), 
     the hospital shall pass on payments for services of a 
     physician to the physician and may not charge any 
     administrative or other fee with respect to such payments.
       (4) Limitation on use of funds.--Payments made to eligible 
     providers in a State from allotments made under subsection 
     (b) for a fiscal year may only be used for costs incurred in 
     providing eligible services to aliens described in paragraph 
     (5).
       (5) Aliens described.--For purposes of paragraphs (1) and 
     (2), aliens described in this paragraph are any of the 
     following:
       (A) Undocumented aliens.
       (B) Aliens who have been paroled into the United States at 
     a United States port of entry for the purpose of receiving 
     eligible services.
       (C) Mexican citizens permitted to enter the United States 
     for not more than 72 hours under the authority of a biometric 
     machine readable border crossing identification card (also 
     referred to as a ``laser visa'') issued in accordance with 
     the requirements of regulations prescribed under section 
     101(a)(6) of the Immigration and Nationality Act (8 U.S.C. 
     1101(a)(6)).
       (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 eligible 
     providers located in a State may request payments under 
     subsection (c).
       (B) Inclusion of measures to combat fraud and abuse.--The 
     Secretary shall include in the process established under 
     subparagraph (A) measures to ensure that inappropriate, 
     excessive, or fraudulent payments are not made from the 
     allotments determined under subsection (b), including 
     certification by the eligible provider of the veracity of the 
     payment request.
       (2) Advance payment; retrospective adjustment.--The process 
     established under paragraph (1) may provide 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) Eligible provider.--The term ``eligible provider'' 
     means a hospital, physician, or provider of ambulance 
     services (including an Indian Health Service facility whether 
     operated by the Indian Health Service or by an Indian tribe 
     or tribal organization).
       (2) Eligible services.--The term ``eligible services'' 
     means health care services required by

[[Page H11973]]

     the application of section 1867 of the Social Security Act 
     (42 U.S.C. 1395dd), and related hospital inpatient and 
     outpatient services and ambulance services (as defined by the 
     Secretary).
       (3) 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)), except that such term shall include a 
     critical access hospital (as defined in section 1861(mm)(1) 
     of such Act (42 U.S.C. 1395x(mm)(1)).
       (4) Physician.--The term ``physician'' has the meaning 
     given that term in section 1861(r) of the Social Security Act 
     (42 U.S.C. 1395x(r)).
       (5) 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).
       (6) State.--The term ``State'' means the 50 States and the 
     District of Columbia.

     SEC. 1012. COMMISSION ON SYSTEMIC INTEROPERABILITY.

       (a) Establishment.--The Secretary shall establish a 
     commission to be known as the ``Commission on Systemic 
     Interoperability'' (in this section referred to as the 
     ``Commission'').
       (b) Duties.--
       (1) In general.--The Commission shall develop a 
     comprehensive strategy for the adoption and implementation of 
     health care information technology standards, that includes a 
     timeline and prioritization for such adoption and 
     implementation.
       (2) Considerations.--In developing the comprehensive health 
     care information technology strategy under paragraph (1), the 
     Commission shall consider--
       (A) the costs and benefits of the standards, both financial 
     impact and quality improvement;
       (B) the current demand on industry resources to implement 
     this Act and other electronic standards, including HIPAA 
     standards; and
       (C) the most cost-effective and efficient means for 
     industry to implement the standards.
       (3) Noninterference.--In carrying out this section, the 
     Commission shall not interfere with any standards development 
     of adoption processes underway in the private or public 
     sector and shall not replicate activities related to such 
     standards or the national health information infrastructure 
     underway within the Department of Health and Human Services.
       (4) Report.--Not later than October 31, 2005, the 
     Commission shall submit to the Secretary and to Congress a 
     report describing the strategy developed under paragraph (1), 
     including an analysis of the matters considered under 
     paragraph (2).
       (c) Membership.--
       (1) Number and appointment.--The Commission shall be 
     composed of 11 members appointed as follows:
       (A) The President shall appoint 3 members, one of whom the 
     President shall designate as Chairperson.
       (B) The Majority Leader of the Senate shall appoint 2 
     members.
       (C) The Minority Leader of the Senate shall appoint 2 
     members.
       (D) The Speaker of the House of Representatives shall 
     appoint 2 members.
       (E) The Minority Leader of the House of Representatives 
     shall appoint 2 members.
       (2) Qualifications.--The membership of the Commission shall 
     include individuals with national recognition for their 
     expertise in health finance and economics, health plans and 
     integrated delivery systems, reimbursement of health 
     facilities, practicing physicians, practicing pharmacists, 
     and other providers of health services, health care 
     technology and information systems, and other related fields, 
     who provide a mix of different professionals, broad 
     geographic representation, and a balance between urban and 
     rural representatives.
       (d) Terms.--Each member shall be appointed for the life of 
     the Commission.
       (e) Compensation.--
       (1) Rates of pay.--Members shall each be paid at a rate not 
     to exceed the daily equivalent of the rate of basic pay for 
     level IV of the Executive Schedule for each day (including 
     travel time) during which they are engaged in the actual 
     performance of duties vested in the Commission.
       (2) Prohibition of compensation of federal employees.--
     Members of the Commission who are full-time officers or 
     employees of the United States or Members of Congress may not 
     receive additional pay, allowances, or benefits by reason of 
     their service on the Commission.
       (3) Travel expenses.--Each member shall receive travel 
     expenses, including per diem in lieu of subsistence, in 
     accordance with applicable provisions under subchapter I of 
     chapter 57 of title 5, United States Code.
       (f) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum but a lesser number may hold 
     hearings.
       (g) Director and Staff of Commission; Experts and 
     Consultants.--
       (1) Director.--The Commission shall have a Director who 
     shall be appointed by the Chairperson. The Director shall be 
     paid at a rate not to exceed the rate of basic pay for level 
     IV of the Executive Schedule.
       (2) Staff.--With the approval of the Commission, the 
     Director may appoint and fix the pay of such additional 
     personnel as the Director considers appropriate.
       (3) Applicability of certain civil service laws.--The 
     Director and staff of the Commission may be appointed without 
     regard to the provisions of title 5, United States Code, 
     governing appointments in the competitive service, and may be 
     paid without regard to the provisions of chapter 51 and 
     subchapter III of chapter 53 of that title relating to 
     classification and General Schedule pay rates, except that an 
     individual so appointed may not receive pay in excess of 
     level IV of the Executive Schedule.
       (4) Experts and consultants.--With the approval of the 
     Commission, the Director may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code.
       (5) Staff of federal agencies.--Upon request of the 
     Chairperson, the head of any Federal department or agency may 
     detail, on a reimbursable basis, any of the personnel of that 
     department or agency to the Commission to assist it in 
     carrying out its duties under this Act.
       (h) Powers of Commission.--
       (1) Hearings and sessions.--The Commission may, for the 
     purpose of carrying out this Act, hold hearings, sit and act 
     at times and places, take testimony, and receive evidence as 
     the Commission considers appropriate.
       (2) Powers of members and agents.--Any member or agent of 
     the Commission may, if authorized by the Commission, take any 
     action which the Commission is authorized to take by this 
     section.
       (3) Obtaining official data.--The Commission may secure 
     directly from any department or agency of the United States 
     information necessary to enable it to carry out this Act. 
     Upon request of the Chairperson of the Commission, the head 
     of that department or agency shall furnish that information 
     to the Commission.
       (4) Gifts, bequests, and devises.--The Commission may 
     accept, use, and dispose of gifts, bequests, or devises of 
     services or property, both real and personal, for the purpose 
     of aiding or facilitating the work of the Commission. Gifts, 
     bequests, or devises of money and proceeds from sales of 
     other property received as gifts, bequests, or devises shall 
     be deposited in the Treasury and shall be available for 
     disbursement upon order of the Commission. For purposes of 
     Federal income, estate, and gift taxes, property accepted 
     under this subsection shall be considered as a gift, bequest, 
     or devise to the United States.
       (5) Mails.--The Commission may use the United States mails 
     in the same manner and under the same conditions as other 
     departments and agencies of the United States.
       (6) Administrative support services.--Upon the request of 
     the Commission, the Administrator of General Services shall 
     provide to the Commission, on a reimbursable basis, the 
     administrative support services necessary for the Commission 
     to carry out its responsibilities under this Act.
       (7) Contract authority.--The Commission may enter into 
     contracts or make other arrangements, as may be necessary for 
     the conduct of the work of the Commission (without regard to 
     section 3709 of the Revised Statutes (41 U.S.C. 5)).
       (i) Termination.--The Commission shall terminate on 30 days 
     after submitting its report pursuant to subsection (b)(3).
       (j) Authorization of Appropriations.--There is authorized 
     to be appropriated such sums as may be necessary to carry out 
     this section.

     SEC. 1013. RESEARCH ON OUTCOMES OF HEALTH CARE ITEMS AND 
                   SERVICES.

       (a) Research, Demonstrations, and Evaluations.--
       (1) Improvement of effectiveness and efficiency.--
       (A) In general.--To improve the quality, effectiveness, and 
     efficiency of health care delivered pursuant to the programs 
     established under titles XVIII, XIX, and XXI of the Social 
     Security Act, the Secretary acting through the Director of 
     the Agency for Healthcare Research and Quality (in this 
     section referred to as the ``Director''), shall conduct and 
     support research to meet the priorities and requests for 
     scientific evidence and information identified by such 
     programs with respect to--
       (i) the outcomes, comparative clinical effectiveness, and 
     appropriateness of health care items and services (including 
     prescription drugs); and
       (ii) strategies for improving the efficiency and 
     effectiveness of such programs, including the ways in which 
     such items and services are organized, managed, and delivered 
     under such programs.
       (B) Specification.--To respond to priorities and 
     information requests in subparagraph (A), the Secretary may 
     conduct or support, by grant, contract, or interagency 
     agreement, research, demonstrations, evaluations, technology 
     assessments, or other activities, including the provision of 
     technical assistance, scientific expertise, or methodological 
     assistance.
       (2) Priorities.--
       (A) In general.--The Secretary shall establish a process to 
     develop priorities that will guide the research, 
     demonstrations, and evaluation activities undertaken pursuant 
     to this section.
       (B) Initial list.--Not later than 6 months after the date 
     of the enactment of this Act, the Secretary shall establish 
     an initial list of priorities for research related to health 
     care items and services (including prescription drugs).
       (C) Process.--In carrying out subparagraph (A), the 
     Secretary--
       (i) shall ensure that there is broad and ongoing 
     consultation with relevant stakeholders in identifying the 
     highest priorities for research, demonstrations, and 
     evaluations to support and improve the programs established 
     under titles XVIII, XIX, and XXI of the Social Security Act;
       (ii) may include health care items and services which 
     impose a high cost on such programs, as well as those which 
     may be underutilized or overutilized and which may 
     significantly improve the prevention, treatment, or cure of 
     diseases and conditions (including chronic conditions) which 
     impose high direct or indirect costs on patients or society; 
     and
       (iii) shall ensure that the research and activities 
     undertaken pursuant to this section are responsive to the 
     specified priorities and are conducted in a timely manner.
       (3) Evaluation and synthesis of scientific evidence.--
       (A) In general.--The Secretary shall--

[[Page H11974]]

       (i) evaluate and synthesize available scientific evidence 
     related to health care items and services (including 
     prescription drugs) identified as priorities in accordance 
     with paragraph (2) with respect to the comparative clinical 
     effectiveness, outcomes, appropriateness, and provision of 
     such items and services (including prescription drugs);
       (ii) identify issues for which existing scientific evidence 
     is insufficient with respect to such health care items and 
     services (including prescription drugs);
       (iii) disseminate to prescription drug plans and MA-PD 
     plans under part D of title XVIII of the Social Security Act, 
     other health plans, and the public the findings made under 
     clauses (i) and (ii); and
       (iv) work in voluntary collaboration with public and 
     private sector entities to facilitate the development of new 
     scientific knowledge regarding health care items and services 
     (including prescription drugs).
       (B) Initial research.--The Secretary shall complete the 
     evaluation and synthesis of the initial research required by 
     the priority list developed under paragraph (2)(B) not later 
     than 18 months after the development of such list.
       (C) Dissemination.--
       (i) In general.--To enhance patient safety and the quality 
     of health care, the Secretary shall make available and 
     disseminate in appropriate formats to prescription drugs 
     plans under part D, and MA-PD plans under part C, of title 
     XVIII of the Social Security Act, other health plans, and the 
     public the evaluations and syntheses prepared pursuant to 
     subparagraph (A) and the findings of research conducted 
     pursuant to paragraph (1). In carrying out this clause the 
     Secretary, in order to facilitate the availability of such 
     evaluations and syntheses or findings at every decision point 
     in the health care system, shall--

       (I) present such evaluations and syntheses or findings in a 
     form that is easily understood by the individuals receiving 
     health care items and services (including prescription drugs) 
     under such plans and periodically assess that the 
     requirements of this subclause have been met; and
       (II) provide such evaluations and syntheses or findings and 
     other relevant information through easily accessible and 
     searchable electronic mechanisms, and in hard copy formats as 
     appropriate.

       (ii) Rule of construction.--Nothing in this section shall 
     be construed as--

       (I) affecting the authority of the Secretary or the 
     Commissioner of Food and Drugs under the Federal Food, Drug, 
     and Cosmetic Act or the Public Health Service Act; or
       (II) conferring any authority referred to in subclause (I) 
     to the Director.

       (D) Accountability.--In carrying out this paragraph, the 
     Secretary shall implement activities in a manner that--
       (i) makes publicly available all scientific evidence relied 
     upon and the methodologies employed, provided such evidence 
     and method are not protected from public disclosure by 
     section 1905 of title 18, United States Code, or other 
     applicable law so that the results of the research, analyses, 
     or syntheses can be evaluated or replicated; and
       (ii) ensures that any information needs and unresolved 
     issues identified in subparagraph (A)(ii) are taken into 
     account in priority-setting for future research conducted by 
     the Secretary.
       (4) Confidentiality.--
       (A) In general.--In making use of administrative, clinical, 
     and program data and information developed or collected with 
     respect to the programs established under titles XVIII, XIX, 
     and XXI of the Social Security Act, for purposes of carrying 
     out the requirements of this section or the activities 
     authorized under title IX of the Public Health Service Act 
     (42 U.S.C. 299 et seq.), such data and information shall be 
     protected in accordance with the confidentiality requirements 
     of title IX of the Public Health Service Act.
       (B) Rule of construction.--Nothing in this section shall be 
     construed to require or permit the disclosure of data 
     provided to the Secretary that is otherwise protected from 
     disclosure under the Federal Food, Drug, and Cosmetic Act, 
     section 1905 of title 18, United States Code, or other 
     applicable law.
       (5) Evaluations.--The Secretary shall conduct and support 
     evaluations of the activities carried out under this section 
     to determine the extent to which such activities have had an 
     effect on outcomes and utilization of health care items and 
     services.
       (6) Improving information available to health care 
     providers, patients, and policymakers.--Not later than 18 
     months after the date of enactment of this Act, the Secretary 
     shall identify options that could be undertaken in voluntary 
     collaboration with private and public entities (as 
     appropriate) for the--
       (A) provision of more timely information through the 
     programs established under titles XVIII, XIX, and XXI of the 
     Social Security Act, regarding the outcomes and quality of 
     patient care, including clinical and patient-reported 
     outcomes, especially with respect to interventions and 
     conditions for which clinical trials would not be feasible or 
     raise ethical concerns that are difficult to address;
       (B) acceleration of the adoption of innovation and quality 
     improvement under such programs; and
       (C) development of management tools for the programs 
     established under titles XIX and XXI of the Social Security 
     Act, and with respect to the programs established under such 
     titles, assess the feasibility of using administrative or 
     claims data, to--
       (i) improve oversight by State officials;
       (ii) support Federal and State initiatives to improve the 
     quality, safety, and efficiency of services provided under 
     such programs; and
       (iii) provide a basis for estimating the fiscal and 
     coverage impact of Federal or State program and policy 
     changes.
       (b) Recommendations.--
       (1) Disclaimer.--In carrying out this section, the Director 
     shall--
       (A) not mandate national standards of clinical practice or 
     quality health care standards; and
       (B) include in any recommendations resulting from projects 
     funded and published by the Director, a corresponding 
     reference to the prohibition described in subparagraph (A).
       (2) Requirement for implementation.--Research, evaluation, 
     and communication activities performed pursuant to this 
     section shall reflect the principle that clinicians and 
     patients should have the best available evidence upon which 
     to make choices in health care items and services, in 
     providers, and in health care delivery systems, recognizing 
     that patient subpopulations and patient and physician 
     preferences may vary.
       (3) Rule of construction.--Nothing in this section shall be 
     construed to provide the Director with authority to mandate a 
     national standard or require a specific approach to quality 
     measurement and reporting.
       (c) Research With Respect to Dissemination.--The Secretary, 
     acting through the Director, may conduct or support research 
     with respect to improving methods of disseminating 
     information in accordance with subsection (a)(3)(C).
       (d) Limitation on CMS.--The Administrator of the Centers 
     for Medicare & Medicaid Services may not use data obtained in 
     accordance with this section to withhold coverage of a 
     prescription drug.
       (e) Authorization of Appropriations.--There is authorized 
     to be appropriated to carry out this section, $50,000,000 for 
     fiscal year 2004, and such sums as may be necessary for each 
     fiscal year thereafter.

     SEC. 1014. HEALTH CARE THAT WORKS FOR ALL AMERICANS: CITIZENS 
                   HEALTH CARE WORKING GROUP.

       (a) Findings.--Congress finds the following:
       (1) In order to improve the health care system, the 
     American public must engage in an informed national public 
     debate to make choices about the services they want covered, 
     what health care coverage they want, and how they are willing 
     to pay for coverage.
       (2) More than a trillion dollars annually is spent on the 
     health care system, yet--
       (A) 41,000,000 Americans are uninsured;
       (B) insured individuals do not always have access to 
     essential, effective services to improve and maintain their 
     health; and
       (C) employers, who cover over 170,000,000 Americans, find 
     providing coverage increasingly difficult because of rising 
     costs and double digit premium increases.
       (3) Despite increases in medical care spending that are 
     greater than the rate of inflation, population growth, and 
     Gross Domestic Product growth, there has not been a 
     commensurate improvement in our health status as a nation.
       (4) Health care costs for even just 1 member of a family 
     can be catastrophic, resulting in medical bills potentially 
     harming the economic stability of the entire family.
       (5) Common life occurrences can jeopardize the ability of a 
     family to retain private coverage or jeopardize access to 
     public coverage.
       (6) Innovations in health care access, coverage, and 
     quality of care, including the use of technology, have often 
     come from States, local communities, and private sector 
     organizations, but more creative policies could tap this 
     potential.
       (7) Despite our Nation's wealth, the health care system 
     does not provide coverage to all Americans who want it.
       (b) Purposes.--The purposes of this section are--
       (1) to provide for a nationwide public debate about 
     improving the health care system to provide every American 
     with the ability to obtain quality, affordable health care 
     coverage; and
       (2) to provide for a vote by Congress on the 
     recommendations that result from the debate.
       (c) Establishment.--The Secretary, acting through the 
     Agency for Healthcare Research and Quality, shall establish 
     an entity to be known as the Citizens' Health Care Working 
     Group (referred to in this section as the ``Working Group'').
       (d) Membership.--
       (1) Number and appointment.--The Working Group shall be 
     composed of 15 members. One member shall be the Secretary. 
     The Comptroller General of the United States shall appoint 14 
     members.
       (2) Qualifications.--
       (A) In general.--The membership of the Working Group shall 
     include--
       (i) consumers of health services that represent those 
     individuals who have not had insurance within 2 years of 
     appointment, that have had chronic illnesses, including 
     mental illness, are disabled, and those who receive insurance 
     coverage through medicare and medicaid; and
       (ii) individuals with expertise in financing and paying for 
     benefits and access to care, business and labor perspectives, 
     and providers of health care.

     The membership shall reflect a broad geographic 
     representation and a balance between urban and rural 
     representatives.
       (B) Prohibited appointments.--Members of the Working Group 
     shall not include Members of Congress or other elected 
     government officials (Federal, State, or local). Individuals 
     appointed to the Working Group shall not be paid employees or 
     representatives of associations or advocacy organizations 
     involved in the health care system.
       (e) Period of Appointment.--Members of the Working Group 
     shall be appointed for a life of the Working Group. Any 
     vacancies shall not affect the power and duties of the 
     Working Group but shall be filled in the same manner as the 
     original appointment.

[[Page H11975]]

       (f) Designation of the Chairperson.--Not later than 15 days 
     after the date on which all members of the Working Group have 
     been appointed under subsection (d)(1), the Comptroller 
     General shall designate the chairperson of the Working Group.
       (g) Subcommittees.--The Working Group may establish 
     subcommittees if doing so increases the efficiency of the 
     Working Group in completing its tasks.
       (h) Duties.--
       (1) Hearings.--Not later than 90 days after the date of the 
     designation of the chairperson under subsection (f), the 
     Working Group shall hold hearings to examine--
       (A) the capacity of the public and private health care 
     systems to expand coverage options;
       (B) the cost of health care and the effectiveness of care 
     provided at all stages of disease;
       (C) innovative State strategies used to expand health care 
     coverage and lower health care costs;
       (D) local community solutions to accessing health care 
     coverage;
       (E) efforts to enroll individuals currently eligible for 
     public or private health care coverage;
       (F) the role of evidence-based medical practices that can 
     be documented as restoring, maintaining, or improving a 
     patient's health, and the use of technology in supporting 
     providers in improving quality of care and lowering costs; 
     and
       (G) strategies to assist purchasers of health care, 
     including consumers, to become more aware of the impact of 
     costs, and to lower the costs of health care.
       (2) Additional hearings.--The Working Group may hold 
     additional hearings on subjects other than those listed in 
     paragraph (1) so long as such hearings are determined to be 
     necessary by the Working Group in carrying out the purposes 
     of this section. Such additional hearings do not have to be 
     completed within the time period specified in paragraph (1) 
     but shall not delay the other activities of the Working Group 
     under this section.
       (3) The health report to the american people.--Not later 
     than 90 days after the hearings described in paragraphs (1) 
     and (2) are completed, the Working Group shall prepare and 
     make available to health care consumers through the Internet 
     and other appropriate public channels, a report to be 
     entitled, ``The Health Report to the American People''. Such 
     report shall be understandable to the general public and 
     include--
       (A) a summary of--
       (i) health care and related services that may be used by 
     individuals throughout their life span;
       (ii) the cost of health care services and their medical 
     effectiveness in providing better quality of care for 
     different age groups;
       (iii) the source of coverage and payment, including 
     reimbursement, for health care services;
       (iv) the reasons people are uninsured or underinsured and 
     the cost to taxpayers, purchasers of health services, and 
     communities when Americans are uninsured or underinsured;
       (v) the impact on health care outcomes and costs when 
     individuals are treated in all stages of disease;
       (vi) health care cost containment strategies; and
       (vii) information on health care needs that need to be 
     addressed;
       (B) examples of community strategies to provide health care 
     coverage or access;
       (C) information on geographic-specific issues relating to 
     health care;
       (D) information concerning the cost of care in different 
     settings, including institutional-based care and home and 
     community-based care;
       (E) a summary of ways to finance health care coverage; and
       (F) the role of technology in providing future health care 
     including ways to support the information needs of patients 
     and providers.
       (4) Community meetings.--
       (A) In general.--Not later than 1 year after the date on 
     which all the members of the Working Group have been 
     appointed under subsection (d)(1) and appropriations are 
     first made available to carry out this section the Working 
     Group shall initiate health care community meetings 
     throughout the United States (in this paragraph referred to 
     as ``community meetings''). Such community meetings may be 
     geographically or regionally based and shall be completed 
     within 180 days after the initiation of the first meeting.
       (B) Number of meetings.--The Working Group shall hold a 
     sufficient number of community meetings in order to receive 
     information that reflects--
       (i) the geographic differences throughout the United 
     States;
       (ii) diverse populations; and
       (iii) a balance among urban and rural populations.
       (C) Meeting requirements.--
       (i) Facilitator.--A State health officer may be the 
     facilitator at the community meetings.
       (ii) Attendance.--At least 1 member of the Working Group 
     shall attend and serve as chair of each community meeting. 
     Other members may participate through interactive technology.
       (iii) Topics.--The community meetings shall, at a minimum, 
     address the following questions:

       (I) What health care benefits and services should be 
     provided?
       (II) How does the American public want health care 
     delivered?
       (III) How should health care coverage be financed?
       (IV) What trade-offs are the American public willing to 
     make in either benefits or financing to ensure access to 
     affordable, high quality health care coverage and services?

       (iv) Interactive technology.--The Working Group may 
     encourage public participation in community meetings through 
     interactive technology and other means as determined 
     appropriate by the Working Group.
       (D) Interim requirements.--Not later than 180 days after 
     the date of completion of the community meetings, the Working 
     Group shall prepare and make available to the public through 
     the Internet and other appropriate public channels, an 
     interim set of recommendations on health care coverage and 
     ways to improve and strengthen the health care system based 
     on the information and preferences expressed at the community 
     meetings. There shall be a 90-day public comment period on 
     such recommendations.
       (i) Recommendations.--Not later than 120 days after the 
     expiration of the public comment period described in 
     subsection (h)(4)(D), the Working Group shall submit to 
     Congress and the President a final set of recommendations.
       (j) Administration.--
       (1) Executive director.--There shall be an Executive 
     Director of the Working Group who shall be appointed by the 
     chairperson of the Working Group in consultation with the 
     members of the Working Group.
       (2) Compensation.--While serving on the business of the 
     Working Group (including travel time), a member of the 
     Working Group shall be entitled to compensation at the per 
     diem equivalent of the rate provided for level IV of the 
     Executive Schedule under section 5315 of title 5, United 
     States Code, and while so serving away from home and the 
     member's regular place of business, a member may be allowed 
     travel expenses, as authorized by the chairperson of the 
     Working Group. For purposes of pay and employment benefits, 
     rights, and privileges, all personnel of the Working Group 
     shall be treated as if they were employees of the Senate.
       (3) Information from federal agencies.--The Working Group 
     may secure directly from any Federal department or agency 
     such information as the Working Group considers necessary to 
     carry out this section. Upon request of the Working Group, 
     the head of such department or agency shall furnish such 
     information.
       (4) Postal services.--The Working Group may use the United 
     States mails in the same manner and under the same conditions 
     as other departments and agencies of the Federal 
     Government.
       (k) Detail.--Not more than 10 Federal Government employees 
     employed by the Department of Labor and 10 Federal Government 
     employees employed by the Department of Health and Human 
     Services may be detailed to the Working Group under this 
     section without further reimbursement. Any detail of an 
     employee shall be without interruption or loss of civil 
     service status or privilege.
       (l) Temporary and Intermittent Services.--The chairperson 
     of the Working Group may procure temporary and intermittent 
     services under section 3109(b) of title 5, United States 
     Code, at rates for individuals which do not exceed the daily 
     equivalent of the annual rate of basic pay prescribed for 
     level V of the Executive Schedule under section 5316 of such 
     title.
       (m) Annual Report.--Not later than 1 year after the date of 
     enactment of this Act, and annually thereafter during the 
     existence of the Working Group, the Working Group shall 
     report to Congress and make public a detailed description of 
     the expenditures of the Working Group used to carry out its 
     duties under this section.
       (n) Sunset of Working Group.--The Working Group shall 
     terminate on the date that is 2 years after the date on which 
     all the members of the Working Group have been appointed 
     under subsection (d)(1) and appropriations are first made 
     available to carry out this section.
       (o) Administration Review and Comments.--Not later than 45 
     days after receiving the final recommendations of the Working 
     Group under subsection (i), the President shall submit a 
     report to Congress which shall contain--
       (1) additional views and comments on such recommendations; 
     and
       (2) recommendations for such legislation and administrative 
     actions as the President considers appropriate.
       (p) Required Congressional Action.--Not later than 45 days 
     after receiving the report submitted by the President under 
     subsection (o), each committee of jurisdiction of Congress, 
     the Committee on Finance of the Senate, the Committee on 
     Health, Education, Labor, and Pensions of the Senate, the 
     Committee on Ways and Means of the House of Representatives, 
     the Committee on Energy and Commerce of the House of 
     Representatives, Committee on Education and the Workforce of 
     the House of Representatives, shall hold at least 1 hearing 
     on such report and on the final recommendations of the 
     Working Group submitted under subsection (i).
       (q) Authorization of Appropriations.--
       (1) In general.--There are authorized to be appropriated to 
     carry out this section, other than subsection (h)(3), 
     $3,000,000 for each of fiscal years 2005 and 2006.
       (2) Health report to the american people.--There are 
     authorized to be appropriated for the preparation and 
     dissemination of the Health Report to the American People 
     described in subsection (h)(3), such sums as may be necessary 
     for the fiscal year in which the report is required to be 
     submitted.

     SEC. 1015. FUNDING START-UP ADMINISTRATIVE COSTS FOR MEDICARE 
                   REFORM.

       (a) In General.--There are appropriated to carry out this 
     Act (including the amendments made by this Act), to be 
     transferred from the Federal Hospital Insurance Trust Fund 
     and the Federal Supplementary Medical Insurance Trust Fund--
       (1) not to exceed $1,000,000,000 for the Centers for 
     Medicare & Medicaid Services; and
       (2) not to exceed $500,000,000 for the Social Security 
     Administration.

[[Page H11976]]

       (b) Availability.--Amounts provided under subsection (a) 
     shall remain available until September 30, 2005.
       (c) Application.--From amounts provided under subsection 
     (a)(2), the Social Security Administration may reimburse the 
     Internal Revenue Service for expenses in carrying out this 
     Act (and the amendments made by this Act).
       (d) Transfer.--The President may transfer amounts provided 
     under subsection (a) between the Centers for Medicare & 
     Medicaid Services and the Social Security Administration. 
     Notice of such transfers shall be transmitted within 15 days 
     to the authorizing committees of the House of Representatives 
     and of the Senate.

     SEC. 1016. HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM.

       Title XVIII is amended by adding at the end the following 
     new section:


            ``health care infrastructure improvement program

       ``Sec. 1897. (a) Establishment.--The Secretary shall 
     establish a loan program that provides loans to qualifying 
     hospitals for payment of the capital costs of projects 
     described in subsection (d).
       ``(b) Application.--No loan may be provided under this 
     section to a qualifying hospital except pursuant to an 
     application that is submitted and approved in a time, manner, 
     and form specified by the Secretary. A loan under this 
     section shall be on such terms and conditions and meet such 
     requirements as the Secretary determines appropriate.
       ``(c) Selection Criteria.--
       ``(1) In general.--The Secretary shall establish criteria 
     for selecting among qualifying hospitals that apply for a 
     loan under this section. Such criteria shall consider the 
     extent to which the project for which loan is sought 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.
       ``(2) Qualifying hospital defined.--For purposes of this 
     section, the term `qualifying hospital' means a hospital 
     that--
       ``(A) is engaged in research in the causes, prevention, and 
     treatment of cancer; and
       ``(B) is designated as a cancer center for the National 
     Cancer Institute or is designated by the State as the 
     official cancer institute of the State.
       ``(d) Projects.--A project described in this subsection is 
     a project of a qualifying hospital that is designed to 
     improve the health care infrastructure of the hospital, 
     including construction, renovation, or other capital 
     improvements.
       ``(e) State and Local Permits.--The provision of a loan 
     under this section with respect to a project shall not--
       ``(1) relieve any recipient of the loan 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.
       ``(f) Forgiveness of Indebtedness.--The Secretary may 
     forgive a loan provided to a qualifying hospital under this 
     section 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 hospital 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.
       ``(g) Funding.--
       ``(1) In general.--There are appropriated, out of amounts 
     in the Treasury not otherwise appropriated, to carry out this 
     section, $200,000,000, 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 section, not more than $2,000,000 for 
     each of fiscal years 2004 through 2008.
       ``(3) Availability.--Amounts appropriated under this 
     section shall be available for obligation on July 1, 2004.
       ``(h) Report to Congress.--Not later than 4 years after the 
     date of the enactment of this section, the Secretary shall 
     submit to Congress a report on the projects for which loans 
     are provided under this section and a recommendation as to 
     whether the Congress should authorize the Secretary to 
     continue loans under this section beyond fiscal year 2008.''.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

     SEC. 1101. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD.

       (a) Abbreviated New Drug Applications.--Section 505(j) of 
     the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) 
     is amended--
       (1) in paragraph (2)--
       (A) by striking subparagraph (B) and inserting the 
     following:
       ``(B) Notice of opinion that patent is invalid or will not 
     be infringed.--
       ``(i) Agreement to give notice.--An applicant that makes a 
     certification described in subparagraph (A)(vii)(IV) shall 
     include in the application a statement that the applicant 
     will give notice as required by this subparagraph.
       ``(ii) Timing of notice.--An applicant that makes a 
     certification described in subparagraph (A)(vii)(IV) shall 
     give notice as required under this subparagraph--
       ``(I) if the certification is in the application, not later 
     than 20 days after the date of the postmark on the notice 
     with which the Secretary informs the applicant that the 
     application has been filed; or
       ``(II) if the certification is in an amendment or 
     supplement to the application, at the time at which the 
     applicant submits the amendment or supplement, regardless of 
     whether the applicant has already given notice with respect 
     to another such certification contained in the application or 
     in an amendment or supplement to the application.
       ``(iii) Recipients of notice.--An applicant required under 
     this subparagraph to give notice shall give notice to--
       ``(I) each owner of the patent that is the subject of the 
     certification (or a representative of the owner designated to 
     receive such a notice); and
       ``(II) the holder of the approved application under 
     subsection (b) for the drug that is claimed by the patent or 
     a use of which is claimed by the patent (or a representative 
     of the holder designated to receive such a notice).
       ``(iv) Contents of notice.--A notice required under this 
     subparagraph shall--
       ``(I) state that an application that contains data from 
     bioavailability or bioequivalence studies has been submitted 
     under this subsection for the drug with respect to which the 
     certification is made to obtain approval to engage in the 
     commercial manufacture, use, or sale of the drug before the 
     expiration of the patent referred to in the certification; 
     and
       ``(II) include a detailed statement of the factual and 
     legal basis of the opinion of the applicant that the patent 
     is invalid or will not be infringed.''; and
       (B) by adding at the end the following subparagraph:
       ``(D)(i) An applicant may not amend or supplement an 
     application to seek approval of a drug referring to a 
     different listed drug from the listed drug identified in the 
     application as submitted to the Secretary.
       ``(ii) With respect to the drug for which an application is 
     submitted, nothing in this subsection prohibits an applicant 
     from amending or supplementing the application to seek 
     approval of a different strength.
       ``(iii) Within 60 days after the date of the enactment of 
     the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003, the Secretary shall issue guidance 
     defining the term `listed drug' for purposes of this 
     subparagraph.''; and
       (2) in paragraph (5)--
       (A) in subparagraph (B)--
       (i) by striking ``under the following'' and inserting ``by 
     applying the following to each certification made under 
     paragraph (2)(A)(vii)''; and
       (ii) in clause (iii)--

       (I) in the first sentence, by striking ``unless'' and all 
     that follows and inserting ``unless, before the expiration of 
     45 days after the date on which the notice described in 
     paragraph (2)(B) is received, an action is brought for 
     infringement of the patent that is the subject of the 
     certification and for which information was submitted to the 
     Secretary under subsection (b)(1) or (c)(2) before the date 
     on which the application (excluding an amendment or 
     supplement to the application), which the Secretary later 
     determines to be substantially complete, was submitted.''; 
     and
       (II) in the second sentence--

       (aa) by striking subclause (I) and inserting the following:
       ``(I) if before the expiration of such period the district 
     court decides that the patent is invalid or not infringed 
     (including any substantive determination that there is no 
     cause of action for patent infringement or invalidity), the 
     approval shall be made effective on--
       ``(aa) the date on which the court enters judgment 
     reflecting the decision; or
       ``(bb) the date of a settlement order or consent decree 
     signed and entered by the court stating that the patent that 
     is the subject of the certification is invalid or not 
     infringed;'';
       (bb) by striking subclause (II) and inserting the 
     following:
       ``(II) if before the expiration of such period the district 
     court decides that the patent has been infringed--
       ``(aa) if the judgment of the district court is appealed, 
     the approval shall be made effective on--

       ``(AA) the date on which the court of appeals decides that 
     the patent is invalid or not infringed (including any 
     substantive determination that there is no cause of action 
     for patent infringement or invalidity); or
       ``(BB) the date of a settlement order or consent decree 
     signed and entered by the court of appeals stating that the 
     patent that is the subject of the certification is invalid or 
     not infringed; or

       ``(bb) if the judgment of the district court is not 
     appealed or is affirmed, the approval shall be made effective 
     on the date specified by the district court in a court order 
     under section 271(e)(4)(A) of title 35, United States 
     Code;'';
       (cc) in subclause (III), by striking ``on the date of such 
     court decision.'' and inserting ``as provided in subclause 
     (I); or'';
       (dd) by inserting after subclause (III) the following:
       ``(IV) if before the expiration of such period the court 
     grants a preliminary injunction prohibiting the applicant 
     from engaging in the commercial manufacture or sale of the 
     drug until the court decides the issues of patent validity

[[Page H11977]]

     and infringement and if the court decides that such patent 
     has been infringed, the approval shall be made effective as 
     provided in subclause (II).''; and
       (ee) in the matter after and below subclause (IV) (as added 
     by item (dd)), by striking ``Until the expiration'' and all 
     that follows;
       (B) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (E) and (F), respectively; and
       (C) by inserting after subparagraph (B) the following:
       ``(C) Civil action to obtain patent certainty.--
       ``(i) Declaratory judgment absent infringement action.--

       ``(I) In general.--No action may be brought under section 
     2201 of title 28, United States Code, by an applicant under 
     paragraph (2) for a declaratory judgment with respect to a 
     patent which is the subject of the certification referred to 
     in subparagraph (B)(iii) unless--

       ``(aa) the forty-five day period referred to in such 
     subparagraph has expired;
       ``(bb) neither the owner of such patent nor the holder of 
     the approved application under subsection (b) for the drug 
     that is claimed by the patent or a use of which is claimed by 
     the patent brought a civil action against the applicant for 
     infringement of the patent before the expiration of such 
     period; and
       ``(cc) in any case in which the notice provided under 
     paragraph (2)(B) relates to noninfringement, the notice was 
     accompanied by a document described in subclause (III).

       ``(II) Filing of civil action.--If the conditions described 
     in items (aa), (bb), and as applicable, (cc) of subclause (I) 
     have been met, the applicant referred to in such subclause 
     may, in accordance with section 2201 of title 28, United 
     States Code, bring a civil action under such section against 
     the owner or holder referred to in such subclause (but not 
     against any owner or holder that has brought such a civil 
     action against the applicant, unless that civil action was 
     dismissed without prejudice) for a declaratory judgment that 
     the patent is invalid or will not be infringed by the drug 
     for which the applicant seeks approval, except that such 
     civil action may be brought for a declaratory judgment that 
     the patent will not be infringed only in a case in which the 
     condition described in subclause (I)(cc) is applicable. A 
     civil action referred to in this subclause shall be brought 
     in the judicial district where the defendant has its 
     principal place of business or a regular and established 
     place of business.
       ``(III) Offer of confidential access to application.--For 
     purposes of subclause (I)(cc), the document described in this 
     subclause is a document providing an offer of confidential 
     access to the application that is in the custody of the 
     applicant under paragraph (2) for the purpose of determining 
     whether an action referred to in subparagraph (B)(iii) should 
     be brought. The document providing the offer of confidential 
     access shall contain such restrictions as to persons entitled 
     to access, and on the use and disposition of any 
     information accessed, as would apply had a protective 
     order been entered for the purpose of protecting trade 
     secrets and other confidential business information. A 
     request for access to an application under an offer of 
     confidential access shall be considered acceptance of the 
     offer of confidential access with the restrictions as to 
     persons entitled to access, and on the use and disposition 
     of any information accessed, contained in the offer of 
     confidential access, and those restrictions and other 
     terms of the offer of confidential access shall be 
     considered terms of an enforceable contract. Any person 
     provided an offer of confidential access shall review the 
     application for the sole and limited purpose of evaluating 
     possible infringement of the patent that is the subject of 
     the certification under paragraph (2)(A)(vii)(IV) and for 
     no other purpose, and may not disclose information of no 
     relevance to any issue of patent infringement to any 
     person other than a person provided an offer of 
     confidential access. Further, the application may be 
     redacted by the applicant to remove any information of no 
     relevance to any issue of patent infringement.
       ``(ii) Counterclaim to infringement action.--

       ``(I) In general.--If an owner of the patent or the holder 
     of the approved application under subsection (b) for the drug 
     that is claimed by the patent or a use of which is claimed by 
     the patent brings a patent infringement action against the 
     applicant, the applicant may assert a counterclaim seeking an 
     order requiring the holder to correct or delete the patent 
     information submitted by the holder under subsection (b) or 
     (c) on the ground that the patent does not claim either--

       ``(aa) the drug for which the application was approved; or
       ``(bb) an approved method of using the drug.

       ``(II) No independent cause of action.--Subclause (I) does 
     not authorize the assertion of a claim described in subclause 
     (I) in any civil action or proceeding other than a 
     counterclaim described in subclause (I).

       ``(iii) No damages.--An applicant shall not be entitled to 
     damages in a civil action under clause (i) or a counterclaim 
     under clause (ii).''.
       (b) Applications Generally.--Section 505 of the Federal 
     Food, Drug, and Cosmetic Act (21 U.S.C. 355) is amended--
       (1) in subsection (b)--
       (A) by striking paragraph (3) and inserting the following:
       ``(3) Notice of opinion that patent is invalid or will not 
     be infringed.--
       ``(A) Agreement to give notice.--An applicant that makes a 
     certification described in paragraph (2)(A)(iv) shall include 
     in the application a statement that the applicant will give 
     notice as required by this paragraph.
       ``(B) Timing of notice.--An applicant that makes a 
     certification described in paragraph (2)(A)(iv) shall give 
     notice as required under this paragraph--
       ``(i) if the certification is in the application, not later 
     than 20 days after the date of the postmark on the notice 
     with which the Secretary informs the applicant that the 
     application has been filed; or
       ``(ii) if the certification is in an amendment or 
     supplement to the application, at the time at which the 
     applicant submits the amendment or supplement, regardless of 
     whether the applicant has already given notice with respect 
     to another such certification contained in the application or 
     in an amendment or supplement to the application.
       ``(C) Recipients of notice.--An applicant required under 
     this paragraph to give notice shall give notice to--
       ``(i) each owner of the patent that is the subject of the 
     certification (or a representative of the owner designated to 
     receive such a notice); and
       ``(ii) the holder of the approved application under this 
     subsection for the drug that is claimed by the patent or a 
     use of which is claimed by the patent (or a representative of 
     the holder designated to receive such a notice).
       ``(D) Contents of notice.--A notice required under this 
     paragraph shall--
       ``(i) state that an application that contains data from 
     bioavailability or bioequivalence studies has been submitted 
     under this subsection for the drug with respect to which the 
     certification is made to obtain approval to engage in the 
     commercial manufacture, use, or sale of the drug before the 
     expiration of the patent referred to in the certification; 
     and
       ``(ii) include a detailed statement of the factual and 
     legal basis of the opinion of the applicant that the patent 
     is invalid or will not be infringed.''; and
       (B)(i) by redesignating paragraph (4) as paragraph (5); and
       (ii) by inserting after paragraph (3) the following 
     paragraph:
       ``(4)(A) An applicant may not amend or supplement an 
     application referred to in paragraph (2) to seek approval of 
     a drug that is a different drug than the drug identified in 
     the application as submitted to the Secretary.
       ``(B) With respect to the drug for which such an 
     application is submitted, nothing in this subsection or 
     subsection (c)(3) prohibits an applicant from amending or 
     supplementing the application to seek approval of a different 
     strength.''; and
       (2) in subsection (c)(3)--
       (A) in the first sentence, by striking ``under the 
     following'' and inserting ``by applying the following to each 
     certification made under subsection (b)(2)(A)'';
       (B) in subparagraph (C)--
       (i) in the first sentence, by striking ``unless'' and all 
     that follows and inserting ``unless, before the expiration of 
     45 days after the date on which the notice described in 
     subsection (b)(3) is received, an action is brought for 
     infringement of the patent that is the subject of the 
     certification and for which information was submitted to the 
     Secretary under paragraph (2) or subsection (b)(1) before the 
     date on which the application (excluding an amendment or 
     supplement to the application) was submitted.'';
       (ii) in the second sentence--

       (I) by striking ``paragraph (3)(B)'' and inserting 
     ``subsection (b)(3)'';
       (II) by striking clause (i) and inserting the following:

       ``(i) if before the expiration of such period the district 
     court decides that the patent is invalid or not infringed 
     (including any substantive determination that there is no 
     cause of action for patent infringement or invalidity), the 
     approval shall be made effective on--
       ``(I) the date on which the court enters judgment 
     reflecting the decision; or
       ``(II) the date of a settlement order or consent decree 
     signed and entered by the court stating that the patent that 
     is the subject of the certification is invalid or not 
     infringed;'';

       (III) by striking clause (ii) and inserting the following:

       ``(ii) if before the expiration of such period the district 
     court decides that the patent has been infringed--
       ``(I) if the judgment of the district court is appealed, 
     the approval shall be made effective on--

       ``(aa) the date on which the court of appeals decides that 
     the patent is invalid or not infringed (including any 
     substantive determination that there is no cause of action 
     for patent infringement or invalidity); or
       ``(bb) the date of a settlement order or consent decree 
     signed and entered by the court of appeals stating that the 
     patent that is the subject of the certification is invalid or 
     not infringed; or

       ``(II) if the judgment of the district court is not 
     appealed or is affirmed, the approval shall be made effective 
     on the date specified by the district court in a court order 
     under section 271(e)(4)(A) of title 35, United States 
     Code;'';

       (IV) in clause (iii), by striking ``on the date of such 
     court decision.'' and inserting ``as provided in clause (i); 
     or'';
       (V) by inserting after clause (iii), the following:

       ``(iv) if before the expiration of such period the court 
     grants a preliminary injunction prohibiting the applicant 
     from engaging in the commercial manufacture or sale of the 
     drug until the court decides the issues of patent validity 
     and infringement and if the court decides that such patent 
     has been infringed, the approval shall be made effective as 
     provided in clause (ii).''; and

       (VI) in the matter after and below clause (iv) (as added by 
     subclause (V)), by striking ``Until the expiration'' and all 
     that follows; and

       (iii) in the third sentence, by striking ``paragraph 
     (3)(B)'' and inserting ``subsection (b)(3)'';
       (C) by redesignating subparagraph (D) as subparagraph (E); 
     and

[[Page H11978]]

       (D) by inserting after subparagraph (C) the following:
       ``(D) Civil action to obtain patent certainty.--
       ``(i) Declaratory judgment absent infringement action.--

       ``(I) In general.--No action may be brought under section 
     2201 of title 28, United States Code, by an applicant 
     referred to in subsection (b)(2) for a declaratory judgment 
     with respect to a patent which is the subject of the 
     certification referred to in subparagraph (C) unless--

       ``(aa) the forty-five day period referred to in such 
     subparagraph has expired;
       ``(bb) neither the owner of such patent nor the holder of 
     the approved application under subsection (b) for the drug 
     that is claimed by the patent or a use of which is claimed by 
     the patent brought a civil action against the applicant for 
     infringement of the patent before the expiration of such 
     period; and
       ``(cc) in any case in which the notice provided under 
     paragraph (2)(B) relates to noninfringement, the notice was 
     accompanied by a document described in subclause (III).

       ``(II) Filing of civil action.--If the conditions described 
     in items (aa), (bb), and as applicable, (cc) of subclause (I) 
     have been met, the applicant referred to in such subclause 
     may, in accordance with section 2201 of title 28, United 
     States Code, bring a civil action under such section against 
     the owner or holder referred to in such subclause (but not 
     against any owner or holder that has brought such a civil 
     action against the applicant, unless that civil action was 
     dismissed without prejudice) for a declaratory judgment that 
     the patent is invalid or will not be infringed by the drug 
     for which the applicant seeks approval, except that such 
     civil action may be brought for a declaratory judgment that 
     the patent will not be infringed only in a case in which the 
     condition described in subclause (I)(cc) is applicable. A 
     civil action referred to in this subclause shall be brought 
     in the judicial district where the defendant has its 
     principal place of business or a regular and established 
     place of business.
       ``(III) Offer of confidential access to application.--For 
     purposes of subclause (I)(cc), the document described in this 
     subclause is a document providing an offer of confidential 
     access to the application that is in the custody of the 
     applicant referred to in subsection (b)(2) for the purpose of 
     determining whether an action referred to in subparagraph (C) 
     should be brought. The document providing the offer of 
     confidential access shall contain such restrictions as to 
     persons entitled to access, and on the use and disposition of 
     any information accessed, as would apply had a protective 
     order been entered for the purpose of protecting trade 
     secrets and other confidential business information. A 
     request for access to an application under an offer of 
     confidential access shall be considered acceptance of the 
     offer of confidential access with the restrictions as to 
     persons entitled to access, and on the use and disposition of 
     any information accessed, contained in the offer of 
     confidential access, and those restrictions and other terms 
     of the offer of confidential access shall be considered terms 
     of an enforceable contract. Any person provided an offer of 
     confidential access shall review the application for the sole 
     and limited purpose of evaluating possible infringement of 
     the patent that is the subject of the certification under 
     subsection (b)(2)(A)(iv) and for no other purpose, and may 
     not disclose information of no relevance to any issue of 
     patent infringement to any person other than a person 
     provided an offer of confidential access. Further, the 
     application may be redacted by the applicant to remove any 
     information of no relevance to any issue of patent 
     infringement.

       ``(ii) Counterclaim to infringement action.--

       ``(I) In general.--If an owner of the patent or the holder 
     of the approved application under subsection (b) for the drug 
     that is claimed by the patent or a use of which is claimed by 
     the patent brings a patent infringement action against the 
     applicant, the applicant may assert a counterclaim seeking an 
     order requiring the holder to correct or delete the patent 
     information submitted by the holder under subsection (b) or 
     this subsection on the ground that the patent does not claim 
     either--

       ``(aa) the drug for which the application was approved; or
       ``(bb) an approved method of using the drug.

       ``(II) No independent cause of action.--Subclause (I) does 
     not authorize the assertion of a claim described in subclause 
     (I) in any civil action or proceeding other than a 
     counterclaim described in subclause (I).

       ``(iii) No damages.--An applicant shall not be entitled to 
     damages in a civil action under clause (i) or a counterclaim 
     under clause (ii).''.
       (c) Applicability.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by subsections (a) and (b), apply to 
     any proceeding under section 505 of the Federal Food, Drug, 
     and Cosmetic Act (21 U.S.C. 355) that is pending on or after 
     the date of the enactment of this Act regardless of the date 
     on which the proceeding was commenced or is commenced.
       (2) Notice of opinion that patent is invalid or will not be 
     infringed.--The amendments made by subsections (a)(1) and 
     (b)(1) apply with respect to any certification under 
     subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 
     of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 
     submitted on or after August 18, 2003, in an application 
     filed under subsection (b) or (j) of that section or in an 
     amendment or supplement to an application filed under 
     subsection (b) or (j) of that section.
       (3) Effective date of approval.--The amendments made by 
     subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply with 
     respect to any patent information submitted under subsection 
     (b)(1) or (c)(2) of section 505 of the Federal Food, Drug, 
     and Cosmetic Act (21 U.S.C. 355) on or after August 18, 2003.
       (d) Infringement Actions.--Section 271(e) of title 35, 
     United States Code, is amended by adding at the end the 
     following:
       ``(5) Where a person has filed an application described in 
     paragraph (2) that includes a certification under subsection 
     (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355), and 
     neither the owner of the patent that is the subject of the 
     certification nor the holder of the approved application 
     under subsection (b) of such section for the drug that is 
     claimed by the patent or a use of which is claimed by the 
     patent brought an action for infringement of such patent 
     before the expiration of 45 days after the date on which the 
     notice given under subsection (b)(3) or (j)(2)(B) of such 
     section was received, the courts of the United States shall, 
     to the extent consistent with the Constitution, have subject 
     matter jurisdiction in any action brought by such person 
     under section 2201 of title 28 for a declaratory judgment 
     that such patent is invalid or not infringed.''.

     SEC. 1102. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

       (a) In General.--Section 505(j)(5) of the Federal Food, 
     Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by 
     section 1101) is amended--
       (1) in subparagraph (B), by striking clause (iv) and 
     inserting the following:
       ``(iv) 180-day exclusivity period.--
       ``(I) Effectiveness of application.--Subject to 
     subparagraph (D), if the application contains a certification 
     described in paragraph (2)(A)(vii)(IV) and is for a drug for 
     which a first applicant has submitted an application 
     containing such a certification, the application shall be 
     made effective on the date that is 180 days after the date of 
     the first commercial marketing of the drug (including the 
     commercial marketing of the listed drug) by any first 
     applicant.
       ``(II) Definitions.--In this paragraph:
       ``(aa) 180-day exclusivity period.--The term `180-day 
     exclusivity period' means the 180-day period ending on the 
     day before the date on which an application submitted by an 
     applicant other than a first applicant could become effective 
     under this clause.
       ``(bb) First applicant.--As used in this subsection, the 
     term `first applicant' means an applicant that, on the first 
     day on which a substantially complete application containing 
     a certification described in paragraph (2)(A)(vii)(IV) is 
     submitted for approval of a drug, submits a substantially 
     complete application that contains and lawfully maintains a 
     certification described in paragraph (2)(A)(vii)(IV) for the 
     drug.
       ``(cc) Substantially complete application.--As used in this 
     subsection, the term `substantially complete application' 
     means an application under this subsection that on its face 
     is sufficiently complete to permit a substantive review and 
     contains all the information required by paragraph (2)(A).
       ``(dd) Tentative approval.--

       ``(AA) In general.--The term `tentative approval' means 
     notification to an applicant by the Secretary that an 
     application under this subsection meets the requirements of 
     paragraph (2)(A), but cannot receive effective approval 
     because the application does not meet the requirements of 
     this subparagraph, there is a period of exclusivity for the 
     listed drug under subparagraph (F) or section 505A, or there 
     is a 7-year period of exclusivity for the listed drug under 
     section 527.
       ``(BB) Limitation.--A drug that is granted tentative 
     approval by the Secretary is not an approved drug and shall 
     not have an effective approval until the Secretary issues an 
     approval after any necessary additional review of the 
     application.''; and

       (2) by inserting after subparagraph (C) the following:
       ``(D) Forfeiture of 180-day exclusivity period.--
       ``(i) Definition of forfeiture event.--In this 
     subparagraph, the term `forfeiture event', with respect to an 
     application under this subsection, means the occurrence of 
     any of the following:

       ``(I) Failure to market.--The first applicant fails to 
     market the drug by the later of--

       ``(aa) the earlier of the date that is--
       ``(AA) 75 days after the date on which the approval of the 
     application of the first applicant is made effective under 
     subparagraph (B)(iii); or
       ``(BB) 30 months after the date of submission of the 
     application of the first applicant; or
       ``(bb) with respect to the first applicant or any other 
     applicant (which other applicant has received tentative 
     approval), the date that is 75 days after the date as of 
     which, as to each of the patents with respect to which the 
     first applicant submitted and lawfully maintained a 
     certification qualifying the first applicant for the 180-day 
     exclusivity period under subparagraph (B)(iv), at least 1 of 
     the following has occurred:
       ``(AA) In an infringement action brought against that 
     applicant with respect to the patent or in a declaratory 
     judgment action brought by that applicant with respect to the 
     patent, a court enters a final decision from which no appeal 
     (other than a petition to the Supreme Court for a writ of 
     certiorari) has been or can be taken that the patent is 
     invalid or not infringed.
       ``(BB) In an infringement action or a declaratory judgment 
     action described in subitem (AA), a court signs a settlement 
     order or consent decree that enters a final judgment that 
     includes a finding that the patent is invalid or not 
     infringed.
       ``(CC) The patent information submitted under subsection 
     (b) or (c) is withdrawn by the holder of the application 
     approved under subsection (b).

       ``(II) Withdrawal of application.--The first applicant 
     withdraws the application or the Secretary considers the 
     application to have been

[[Page H11979]]

     withdrawn as a result of a determination by the Secretary 
     that the application does not meet the requirements for 
     approval under paragraph (4).
       ``(III) Amendment of certification.--The first applicant 
     amends or withdraws the certification for all of the patents 
     with respect to which that applicant submitted a 
     certification qualifying the applicant for the 180-day 
     exclusivity period.
       ``(IV) Failure to obtain tentative approval.--The first 
     applicant fails to obtain tentative approval of the 
     application within 30 months after the date on which the 
     application is filed, unless the failure is caused by a 
     change in or a review of the requirements for approval of the 
     application imposed after the date on which the application 
     is filed.
       ``(V) Agreement with another applicant, the listed drug 
     application holder, or a patent owner.--The first applicant 
     enters into an agreement with another applicant under this 
     subsection for the drug, the holder of the application for 
     the listed drug, or an owner of the patent that is the 
     subject of the certification under paragraph (2)(A)(vii)(IV), 
     the Federal Trade Commission or the Attorney General files a 
     complaint, and there is a final decision of the Federal Trade 
     Commission or the court with regard to the complaint from 
     which no appeal (other than a petition to the Supreme Court 
     for a writ of certiorari) has been or can be taken that the 
     agreement has violated the antitrust laws (as defined in 
     section 1 of the Clayton Act (15 U.S.C. 12), except that the 
     term includes section 5 of the Federal Trade Commission Act 
     (15 U.S.C. 45) to the extent that that section applies to 
     unfair methods of competition).
       ``(VI) Expiration of all patents.--All of the patents as to 
     which the applicant submitted a certification qualifying it 
     for the 180-day exclusivity period have expired.

       ``(ii) Forfeiture.--The 180-day exclusivity period 
     described in subparagraph (B)(iv) shall be forfeited by a 
     first applicant if a forfeiture event occurs with respect to 
     that first applicant.
       ``(iii) Subsequent applicant.--If all first applicants 
     forfeit the 180-day exclusivity period under clause (ii)--

       ``(I) approval of any application containing a 
     certification described in paragraph (2)(A)(vii)(IV) shall be 
     made effective in accordance with subparagraph (B)(iii); and
       ``(II) no applicant shall be eligible for a 180-day 
     exclusivity period.''.

       (b) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendment made by subsection (a) shall be effective only with 
     respect to an application filed under section 505(j) of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after 
     the date of the enactment of this Act for a listed drug for 
     which no certification under section 505(j)(2)(A)(vii)(IV) of 
     that Act was made before the date of the enactment of this 
     Act.
       (2) Collusive agreements.--If a forfeiture event described 
     in section 505(j)(5)(D)(i)(V) of that Act occurs in the case 
     of an applicant, the applicant shall forfeit the 180-day 
     period under section 505(j)(5)(B)(iv) of that Act without 
     regard to when the first certification under section 
     505(j)(2)(A)(vii)(IV) of that Act for the listed drug was 
     made.
       (3) Decision of a court when the 180-day exclusivity period 
     has not been triggered.--With respect to an application filed 
     before, on, or after the date of the enactment of this Act 
     for a listed drug for which a certification under section 
     505(j)(2)(A)(vii)(IV) of that Act was made before the date of 
     the enactment of this Act and for which neither of the events 
     described in subclause (I) or (II) of section 
     505(j)(5)(B)(iv) of that Act (as in effect on the day before 
     the date of the enactment of this Act) has occurred on or 
     before the date of the enactment of this Act, the term 
     ``decision of a court'' as used in clause (iv) of section 
     505(j)(5)(B) of that Act means a final decision of a court 
     from which no appeal (other than a petition to the Supreme 
     Court for a writ of certiorari) has been or can be taken.

     SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE.

       (a) In General.--Section 505(j)(8) of the Federal Food, 
     Drug, and Cosmetic Act (21 U.S.C. 355(j)(8)) is amended--
       (1) by striking subparagraph (A) and inserting the 
     following:
       ``(A)(i) The term `bioavailability' means the rate and 
     extent to which the active ingredient or therapeutic 
     ingredient is absorbed from a drug and becomes available at 
     the site of drug action.
       ``(ii) For a drug that is not intended to be absorbed into 
     the bloodstream, the Secretary may assess bioavailability by 
     scientifically valid measurements intended to reflect the 
     rate and extent to which the active ingredient or therapeutic 
     ingredient becomes available at the site of drug action.''; 
     and
       (2) by adding at the end the following:
       ``(C) For a drug that is not intended to be absorbed into 
     the bloodstream, the Secretary may establish alternative, 
     scientifically valid methods to show bioequivalence if the 
     alternative methods are expected to detect a significant 
     difference between the drug and the listed drug in safety and 
     therapeutic effect.''.
       (b) Effect of Amendment.--The amendment made by subsection 
     (a) does not alter the standards for approval of drugs under 
     section 505(j) of the Federal Food, Drug, and Cosmetic Act 
     (21 U.S.C. 355(j)).

     SEC. 1104. CONFORMING AMENDMENTS.

       Section 505A of the Federal Food, Drug, and Cosmetic Act 
     (21 U.S.C. 355a) is amended--
       (1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), by 
     striking ``(j)(5)(D)(ii)'' each place it appears and 
     inserting ``(j)(5)(F)(ii)'';
       (2) in subsections (b)(1)(A)(ii) and (c)(1)(A)(ii), by 
     striking ``(j)(5)(D)'' each place it appears and inserting 
     ``(j)(5)(F)''; and
       (3) in subsections (e) and (l), by striking 
     ``505(j)(5)(D)'' each place it appears and inserting 
     ``505(j)(5)(F)''.

              Subtitle B--Federal Trade Commission Review

     SEC. 1111. DEFINITIONS.

       In this subtitle:
       (1) ANDA.--The term ``ANDA'' means an abbreviated drug 
     application, as defined under section 201(aa) of the Federal 
     Food, Drug, and Cosmetic Act.
       (2) Assistant attorney general.--The term ``Assistant 
     Attorney General'' means the Assistant Attorney General in 
     charge of the Antitrust Division of the Department of 
     Justice.
       (3) Brand name drug.--The term ``brand name drug'' means a 
     drug for which an application is approved under section 
     505(c) of the Federal Food, Drug, and Cosmetic Act, including 
     an application referred to in section 505(b)(2) of such Act.
       (4) Brand name drug company.--The term ``brand name drug 
     company'' means the party that holds the approved application 
     referred to in paragraph (3) for a brand name drug that is a 
     listed drug in an ANDA, or a party that is the owner of a 
     patent for which information is submitted for such drug under 
     subsection (b) or (c) of section 505 of the Federal Food, 
     Drug, and Cosmetic Act.
       (5) Commission.--The term ``Commission'' means the Federal 
     Trade Commission.
       (6) Generic drug.--The term ``generic drug'' means a drug 
     for which an application under section 505(j) of the Federal 
     Food, Drug, and Cosmetic Act is approved.
       (7) Generic drug applicant.--The term ``generic drug 
     applicant'' means a person who has filed or received approval 
     for an ANDA under section 505(j) of the Federal Food, Drug, 
     and Cosmetic Act.
       (8) Listed drug.--The term ``listed drug'' means a brand 
     name drug that is listed under section 505(j)(7) of the 
     Federal Food, Drug, and Cosmetic Act.

     SEC. 1112. NOTIFICATION OF AGREEMENTS.

       (a) Agreement With Brand Name Drug Company.--
       (1) Requirement.--A generic drug applicant that has 
     submitted an ANDA containing a certification under section 
     505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic 
     Act and a brand name drug company that enter into an 
     agreement described in paragraph (2) shall each file the 
     agreement in accordance with subsection (c). The agreement 
     shall be filed prior to the date of the first commercial 
     marketing of the generic drug that is the subject of the 
     ANDA.
       (2) Subject matter of agreement.--An agreement described in 
     this paragraph between a generic drug applicant and a brand 
     name drug company is an agreement regarding--
       (A) the manufacture, marketing or sale of the brand name 
     drug that is the listed drug in the ANDA involved;
       (B) the manufacture, marketing, or sale of the generic drug 
     for which the ANDA was submitted; or
       (C) the 180-day period referred to in section 
     505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic Act 
     as it applies to such ANDA or to any other ANDA based on the 
     same brand name drug.
       (b) Agreement With Another Generic Drug Applicant.--
       (1) Requirement.--A generic drug applicant that has 
     submitted an ANDA containing a certification under section 
     505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic 
     Act with respect to a listed drug and another generic drug 
     applicant that has submitted an ANDA containing such a 
     certification for the same listed drug shall each file the 
     agreement in accordance with subsection (c). The agreement 
     shall be filed prior to the date of the first commercial 
     marketing of either of the generic drugs for which such ANDAs 
     were submitted.
       (2) Subject matter of agreement.--An agreement described in 
     this paragraph between two generic drug applicants is an 
     agreement regarding the 180-day period referred to in section 
     505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic Act 
     as it applies to the ANDAs with which the agreement is 
     concerned.
       (c) Filing.--
       (1) Agreement.--The parties that are required in subsection 
     (a) or (b) to file an agreement in accordance with this 
     subsection shall file with the Assistant Attorney General and 
     the Commission the text of any such agreement, except that 
     such parties are not required to file an agreement that 
     solely concerns--
       (A) purchase orders for raw material supplies;
       (B) equipment and facility contracts;
       (C) employment or consulting contracts; or
       (D) packaging and labeling contracts.
       (2) Other agreements.--The parties that are required in 
     subsection (a) or (b) to file an agreement in accordance with 
     this subsection shall file with the Assistant Attorney 
     General and the Commission the text of any agreements between 
     the parties that are not described in such subsections and 
     are contingent upon, provide a contingent condition for, or 
     are otherwise related to an agreement that is required in 
     subsection (a) or (b) to be filed in accordance with this 
     subsection.
       (3) Description.--In the event that any agreement required 
     in subsection (a) or (b) to be filed in accordance with this 
     subsection has not been reduced to text, each of the parties 
     involved shall file written descriptions of such agreement 
     that are sufficient to disclose all the terms and conditions 
     of the agreement.

     SEC. 1113. FILING DEADLINES.

       Any filing required under section 1112 shall be filed with 
     the Assistant Attorney General and the Commission not later 
     than 10 business days after the date the agreements are 
     executed.

     SEC. 1114. DISCLOSURE EXEMPTION.

       Any information or documentary material filed with the 
     Assistant Attorney General or the

[[Page H11980]]

     Commission pursuant to this subtitle shall be exempt from 
     disclosure under section 552 of title 5, United States Code, 
     and no such information or documentary material may be made 
     public, except as may be relevant to any administrative or 
     judicial action or proceeding. Nothing in this section is 
     intended to prevent disclosure to either body of the Congress 
     or to any duly authorized committee or subcommittee of the 
     Congress.

     SEC. 1115. ENFORCEMENT.

       (a) Civil Penalty.--Any brand name drug company or generic 
     drug applicant which fails to comply with any provision of 
     this subtitle shall be liable for a civil penalty of not more 
     than $11,000, for each day during which such entity is in 
     violation of this subtitle. Such penalty may be recovered in 
     a civil action brought by the United States, or brought by 
     the Commission in accordance with the procedures established 
     in section 16(a)(1) of the Federal Trade Commission Act (15 
     U.S.C. 56(a)).
       (b) Compliance and Equitable Relief.--If any brand name 
     drug company or generic drug applicant fails to comply with 
     any provision of this subtitle, the United States district 
     court may order compliance, and may grant such other 
     equitable relief as the court in its discretion determines 
     necessary or appropriate, upon application of the Assistant 
     Attorney General or the Commission.

     SEC. 1116. RULEMAKING.

       The Commission, with the concurrence of the Assistant 
     Attorney General and by rule in accordance with section 553 
     of title 5, United States Code, consistent with the purposes 
     of this subtitle--
       (1) may define the terms used in this subtitle;
       (2) may exempt classes of persons or agreements from the 
     requirements of this subtitle; and
       (3) may prescribe such other rules as may be necessary and 
     appropriate to carry out the purposes of this subtitle.

     SEC. 1117. SAVINGS CLAUSE.

       Any action taken by the Assistant Attorney General or the 
     Commission, or any failure of the Assistant Attorney General 
     or the Commission to take action, under this subtitle shall 
     not at any time bar any proceeding or any action with respect 
     to any agreement between a brand name drug company and a 
     generic drug applicant, or any agreement between generic drug 
     applicants, under any other provision of law, nor shall any 
     filing under this subtitle constitute or create a presumption 
     of any violation of any competition laws.

     SEC. 1118. EFFECTIVE DATE.

       This subtitle shall--
       (1) take effect 30 days after the date of the enactment of 
     this Act; and
       (2) shall apply to agreements described in section 1112 
     that are entered into 30 days after the date of the enactment 
     of this Act.

             Subtitle C--Importation of Prescription Drugs

     SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.

       (a) In General.--Chapter VIII of the Federal Food, Drug, 
     and Cosmetic Act (21 U.S.C. 381 et seq.) is amended by 
     striking section 804 and inserting the following:

     ``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

       ``(a) Definitions.--In this section:
       ``(1) Importer.--The term `importer' means a pharmacist or 
     wholesaler.
       ``(2) Pharmacist.--The term `pharmacist' means a person 
     licensed by a State to practice pharmacy, including the 
     dispensing and selling of prescription drugs.
       ``(3) Prescription drug.--The term `prescription drug' 
     means a drug subject to section 503(b), other than--
       ``(A) a controlled substance (as defined in section 102 of 
     the Controlled Substances Act (21 U.S.C. 802));
       ``(B) a biological product (as defined in section 351 of 
     the Public Health Service Act (42 U.S.C. 262));
       ``(C) an infused drug (including a peritoneal dialysis 
     solution);
       ``(D) an intravenously injected drug;
       ``(E) a drug that is inhaled during surgery; or
       ``(F) a drug which is a parenteral drug, the importation of 
     which pursuant to subsection (b) is determined by the 
     Secretary to pose a threat to the public health, in which 
     case section 801(d)(1) shall continue to apply.
       ``(4) Qualifying laboratory.--The term `qualifying 
     laboratory' means a laboratory in the United States that has 
     been approved by the Secretary for the purposes of this 
     section.
       ``(5) Wholesaler.--
       ``(A) In general.--The term `wholesaler' means a person 
     licensed as a wholesaler or distributor of prescription drugs 
     in the United States under section 503(e)(2)(A).
       ``(B) Exclusion.--The term `wholesaler' does not include a 
     person authorized to import drugs under section 801(d)(1).
       ``(b) Regulations.--The Secretary, after consultation with 
     the United States Trade Representative and the Commissioner 
     of Customs, shall promulgate regulations permitting 
     pharmacists and wholesalers to import prescription drugs from 
     Canada into the United States.
       ``(c) Limitation.--The regulations under subsection (b) 
     shall--
       ``(1) require that safeguards be in place to ensure that 
     each prescription drug imported under the regulations 
     complies with section 505 (including with respect to being 
     safe and effective for the intended use of the prescription 
     drug), with sections 501 and 502, and with other applicable 
     requirements of this Act;
       ``(2) require that an importer of a prescription drug under 
     the regulations comply with subsections (d)(1) and (e); and
       ``(3) contain any additional provisions determined by the 
     Secretary to be appropriate as a safeguard to protect the 
     public health or as a means to facilitate the importation of 
     prescription drugs.
       ``(d) Information and Records.--
       ``(1) In general.--The regulations under subsection (b) 
     shall require an importer of a prescription drug under 
     subsection (b) to submit to the Secretary the following 
     information and documentation:
       ``(A) The name and quantity of the active ingredient of the 
     prescription drug.
       ``(B) A description of the dosage form of the prescription 
     drug.
       ``(C) The date on which the prescription drug is shipped.
       ``(D) The quantity of the prescription drug that is 
     shipped.
       ``(E) The point of origin and destination of the 
     prescription drug.
       ``(F) The price paid by the importer for the prescription 
     drug.
       ``(G) Documentation from the foreign seller specifying--
       ``(i) the original source of the prescription drug; and
       ``(ii) the quantity of each lot of the prescription drug 
     originally received by the seller from that source.
       ``(H) The lot or control number assigned to the 
     prescription drug by the manufacturer of the prescription 
     drug.
       ``(I) The name, address, telephone number, and professional 
     license number (if any) of the importer.
       ``(J)(i) In the case of a prescription drug that is shipped 
     directly from the first foreign recipient of the prescription 
     drug from the manufacturer:
       ``(I) Documentation demonstrating that the prescription 
     drug was received by the recipient from the manufacturer and 
     subsequently shipped by the first foreign recipient to the 
     importer.
       ``(II) Documentation of the quantity of each lot of the 
     prescription drug received by the first foreign recipient 
     demonstrating that the quantity being imported into the 
     United States is not more than the quantity that was received 
     by the first foreign recipient.
       ``(III)(aa) In the case of an initial imported shipment, 
     documentation demonstrating that each batch of the 
     prescription drug in the shipment was statistically sampled 
     and tested for authenticity and degradation.
       ``(bb) In the case of any subsequent shipment, 
     documentation demonstrating that a statistically valid sample 
     of the shipment was tested for authenticity and degradation.
       ``(ii) In the case of a prescription drug that is not 
     shipped directly from the first foreign recipient of the 
     prescription drug from the manufacturer, documentation 
     demonstrating that each batch in each shipment offered for 
     importation into the United States was statistically sampled 
     and tested for authenticity and degradation.
       ``(K) Certification from the importer or manufacturer of 
     the prescription drug that the prescription drug--
       ``(i) is approved for marketing in the United States and is 
     not adulterated or misbranded; and
       ``(ii) meets all labeling requirements under this Act.
       ``(L) Laboratory records, including complete data derived 
     from all tests necessary to ensure that the prescription drug 
     is in compliance with established specifications and 
     standards.
       ``(M) Documentation demonstrating that the testing required 
     by subparagraphs (J) and (L) was conducted at a qualifying 
     laboratory.
       ``(N) Any other information that the Secretary determines 
     is necessary to ensure the protection of the public health.
       ``(2) Maintenance by the secretary.--The Secretary shall 
     maintain information and documentation submitted under 
     paragraph (1) for such period of time as the Secretary 
     determines to be necessary.
       ``(e) Testing.--The regulations under subsection (b) shall 
     require--
       ``(1) that testing described in subparagraphs (J) and (L) 
     of subsection (d)(1) be conducted by the importer or by the 
     manufacturer of the prescription drug at a qualified 
     laboratory;
       ``(2) if the tests are conducted by the importer--
       ``(A) that information needed to--
       ``(i) authenticate the prescription drug being tested; and
       ``(ii) confirm that the labeling of the prescription drug 
     complies with labeling requirements under this Act;

     be supplied by the manufacturer of the prescription drug to 
     the pharmacist or wholesaler; and
       ``(B) that the information supplied under subparagraph (A) 
     be kept in strict confidence and used only for purposes of 
     testing or otherwise complying with this Act; and
       ``(3) may include such additional provisions as the 
     Secretary determines to be appropriate to provide for the 
     protection of trade secrets and commercial or financial 
     information that is privileged or confidential.
       ``(f) Registration of Foreign Sellers.--Any establishment 
     within Canada engaged in the distribution of a prescription 
     drug that is imported or offered for importation into the 
     United States shall register with the Secretary the name and 
     place of business of the establishment and the name of the 
     United States agent for the establishment.
       ``(g) Suspension of Importation.--The Secretary shall 
     require that importations of a specific prescription drug or 
     importations by a specific importer under subsection (b) be 
     immediately suspended on discovery of a pattern of 
     importation of that specific prescription drug or by that 
     specific importer of drugs that are counterfeit or in 
     violation of any requirement under this section, until an 
     investigation is completed and the Secretary determines that 
     the public is adequately protected from counterfeit and 
     violative prescription drugs being imported under subsection 
     (b).

[[Page H11981]]

       ``(h) Approved Labeling.--The manufacturer of a 
     prescription drug shall provide an importer written 
     authorization for the importer to use, at no cost, the 
     approved labeling for the prescription drug.
       ``(i) Charitable Contributions.--Notwithstanding any other 
     provision of this section, section 801(d)(1) continues to 
     apply to a prescription drug that is donated or otherwise 
     supplied at no charge by the manufacturer of the drug to a 
     charitable or humanitarian organization (including the United 
     Nations and affiliates) or to a government of a foreign 
     country.
       ``(j) Waiver Authority for Importation by Individuals.--
       ``(1) Declarations.--Congress declares that in the 
     enforcement against individuals of the prohibition of 
     importation of prescription drugs and devices, the Secretary 
     should--
       ``(A) focus enforcement on cases in which the importation 
     by an individual poses a significant threat to public health; 
     and
       ``(B) exercise discretion to permit individuals to make 
     such importations in circumstances in which--
       ``(i) the importation is clearly for personal use; and
       ``(ii) the prescription drug or device imported does not 
     appear to present an unreasonable risk to the individual.
       ``(2) Waiver authority.--
       ``(A) In general.--The Secretary may grant to individuals, 
     by regulation or on a case-by-case basis, a waiver of the 
     prohibition of importation of a prescription drug or device 
     or class of prescription drugs or devices, under such 
     conditions as the Secretary determines to be appropriate.
       ``(B) Guidance on case-by-case waivers.--The Secretary 
     shall publish, and update as necessary, guidance that 
     accurately describes circumstances in which the Secretary 
     will consistently grant waivers on a case-by-case basis under 
     subparagraph (A), so that individuals may know with the 
     greatest practicable degree of certainty whether a particular 
     importation for personal use will be permitted.
       ``(3) Drugs imported from canada.--In particular, the 
     Secretary shall by regulation grant individuals a waiver to 
     permit individuals to import into the United States a 
     prescription drug that--
       ``(A) is imported from a licensed pharmacy for personal use 
     by an individual, not for resale, in quantities that do not 
     exceed a 90-day supply;
       ``(B) is accompanied by a copy of a valid prescription;
       ``(C) is imported from Canada, from a seller registered 
     with the Secretary;
       ``(D) is a prescription drug approved by the Secretary 
     under chapter V;
       ``(E) is in the form of a final finished dosage that was 
     manufactured in an establishment registered under section 
     510; and
       ``(F) is imported under such other conditions as the 
     Secretary determines to be necessary to ensure public safety.
       ``(k) Construction.--Nothing in this section limits the 
     authority of the Secretary relating to the importation of 
     prescription drugs, other than with respect to section 
     801(d)(1) as provided in this section.
       ``(l) Effectiveness of Section.--
       ``(1) Commencement of program.--This section shall become 
     effective only if the Secretary certifies to the Congress 
     that the implementation of this section will--
       (A) pose no additional risk to the public's health and 
     safety; and
       (B) result in a significant reduction in the cost of 
     covered products to the American consumer.
       ``(2) Termination of program.--
       ``(A) In general.--If, after the date that is 1 year after 
     the effective date of the regulations under subsection (b) 
     and before the date that is 18 months after the effective 
     date, the Secretary submits to Congress a certification that, 
     in the opinion of the Secretary, based on substantial 
     evidence obtained after the effective date, the benefits of 
     implementation of this section do not outweigh any detriment 
     of implementation of this section, this section shall cease 
     to be effective as of the date that is 30 days after the date 
     on which the Secretary submits the certification.
       ``(B) Procedure.--The Secretary shall not submit a 
     certification under subparagraph (A) unless, after a hearing 
     on the record under sections 556 and 557 of title 5, United 
     States Code, the Secretary--
       ``(i)(I) determines that it is more likely than not that 
     implementation of this section would result in an increase in 
     the risk to the public health and safety;
       ``(II) identifies specifically, in qualitative and 
     quantitative terms, the nature of the increased risk;
       ``(III) identifies specifically the causes of the increased 
     risk; and
       ``(IV)(aa) considers whether any measures can be taken to 
     avoid, reduce, or mitigate the increased risk; and
       ``(bb) if the Secretary determines that any measures 
     described in item (aa) would require additional statutory 
     authority, submits to Congress a report describing the 
     legislation that would be required;
       ``(ii) identifies specifically, in qualitative and 
     quantitative terms, the benefits that would result from 
     implementation of this section (including the benefit of 
     reductions in the cost of covered products to consumers in 
     the United States, allowing consumers to procure needed 
     medication that consumers might not otherwise be able to 
     procure without foregoing other necessities of life); and
       ``(iii)(I) compares in specific terms the detriment 
     identified under clause (i) with the benefits identified 
     under clause (ii); and
       ``(II) determines that the benefits do not outweigh the 
     detriment.
       ``(m) Authorization of Appropriations.--There are 
     authorized to be appropriated such sums as are necessary to 
     carry out this section.''.
       (b) Conforming Amendments.--The Federal Food, Drug, and 
     Cosmetic Act is amended--
       (1) in section 301(aa) (21 U.S.C. 331(aa)), by striking 
     ``covered product in violation of section 804'' and inserting 
     ``prescription drug in violation of section 804''; and
       (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by striking 
     ``covered product pursuant to section 804(a)'' and inserting 
     ``prescription drug under section 804(b)''.

     SEC. 1122. STUDY AND REPORT ON IMPORTATION OF DRUGS.

       The Secretary, in consultation with appropriate government 
     agencies, shall conduct a study on the importation of drugs 
     into the United States pursuant to section 804 of the Federal 
     Food, Drug, and Cosmetic Act (as added by section 1121 of 
     this Act). Not later than 12 months after the date of the 
     enactment of this Act, the Secretary shall submit to the 
     appropriate committees of the Congress a report providing the 
     findings of such study.

     SEC. 1123. STUDY AND REPORT ON TRADE IN PHARMACEUTICALS.

       The President's designees shall conduct a study and report 
     on issues related to trade and pharmaceuticals.

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

     SEC. 1201. HEALTH SAVINGS ACCOUNTS.

       (a) In General.--Part VII of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to additional 
     itemized deductions for individuals) is amended by 
     redesignating section 223 as section 224 and by inserting 
     after section 222 the following new section:

     ``SEC. 223. HEALTH SAVINGS ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual who 
     is an eligible individual for any month during the taxable 
     year, there shall be allowed as a deduction for the taxable 
     year an amount equal to the aggregate amount paid in cash 
     during such taxable year by or on behalf of such individual 
     to a health savings account of such individual.
       ``(b) Limitations.--
       ``(1) In general.--The amount allowable as a deduction 
     under subsection (a) to an individual for the taxable year 
     shall not exceed the sum of the monthly limitations for 
     months during such taxable year that the individual is an 
     eligible individual.
       ``(2) Monthly limitation.--The monthly limitation for any 
     month is \1/12\ of--
       ``(A) in the case of an eligible individual who has self-
     only coverage under a high deductible health plan as of the 
     first day of such month, the lesser of--
       ``(i) the annual deductible under such coverage, or
       ``(ii) $2,250, or
       ``(B) in the case of an eligible individual who has family 
     coverage under a high deductible health plan as of the first 
     day of such month, the lesser of--
       ``(i) the annual deductible under such coverage, or
       ``(ii) $4,500.
       ``(3) Additional contributions for individuals 55 or 
     older.--
       ``(A) In general.--In the case of an individual who has 
     attained age 55 before the close of the taxable year, the 
     applicable limitation under subparagraphs (A) and (B) of 
     paragraph (2) shall be increased by the additional 
     contribution amount.
       ``(B) Additional contribution amount.--For purposes of this 
     section, the additional contribution amount is the amount 
     determined in accordance with the following table:

``For taxable years                                      The additional
beginning in:                                   contribution amount is:
  2004........................................................$500 ....

  2005........................................................$600 ....

  2006........................................................$700 ....

  2007........................................................$800 ....

  2008........................................................$900 ....

  2009 and thereafter.......................................$1,000.....

       ``(4) Coordination with other contributions.--The 
     limitation which would (but for this paragraph) apply under 
     this subsection to an individual for any taxable year shall 
     be reduced (but not below zero) by the sum of--
       ``(A) the aggregate amount paid for such taxable year to 
     Archer MSAs of such individual, and
       ``(B) the aggregate amount contributed to health savings 
     accounts of such individual which is excludable from the 
     taxpayer's gross income for such taxable year under section 
     106(d) (and such amount shall not be allowed as a deduction 
     under subsection (a)).
     Subparagraph (A) shall not apply with respect to any 
     individual to whom paragraph (5) applies.
       ``(5) Special rule for married individuals.--In the case of 
     individuals who are married to each other, if either spouse 
     has family coverage--
       ``(A) both spouses shall be treated as having only such 
     family coverage (and if such spouses each have family 
     coverage under different plans, as having the family coverage 
     with the lowest annual deductible), and
       ``(B) the limitation under paragraph (1) (after the 
     application of subparagraph (A) and without regard to any 
     additional contribution amount under paragraph (3))--
       ``(i) shall be reduced by the aggregate amount paid to 
     Archer MSAs of such spouses for the taxable year, and
       ``(ii) after such reduction, shall be divided equally 
     between them unless they agree on a different division.
       ``(6) Denial of deduction to dependents.--No deduction 
     shall be allowed under this section

[[Page H11982]]

     to any individual with respect to whom a deduction under 
     section 151 is allowable to another taxpayer for a taxable 
     year beginning in the calendar year in which such 
     individual's taxable year begins.
       ``(7) Medicare eligible individuals.--The limitation under 
     this subsection for any month with respect to an individual 
     shall be zero for the first month such individual is entitled 
     to benefits under title XVIII of the Social Security Act and 
     for each month thereafter.
       ``(c) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Eligible individual.--
       ``(A) In general.--The term `eligible individual' means, 
     with respect to any month, any individual if--
       ``(i) such individual is covered under a high deductible 
     health plan as of the 1st day of such month, and
       ``(ii) such individual is not, while covered under a high 
     deductible health plan, covered under any health plan--

       ``(I) which is not a high deductible health plan, and

       ``(II) which provides coverage for any benefit which is 
     covered under the high deductible health plan.

       ``(B) Certain coverage disregarded.--Subparagraph (A)(ii) 
     shall be applied without regard to--
       ``(i) coverage for any benefit provided by permitted 
     insurance, and
       ``(ii) coverage (whether through insurance or otherwise) 
     for accidents, disability, dental care, vision care, or long-
     term care.
       ``(2) High deductible health plan.--
       ``(A) In general.--The term `high deductible health plan' 
     means a health plan--
       ``(i) which has an annual deductible which is not less 
     than--

       ``(I) $1,000 for self-only coverage, and
       ``(II) twice the dollar amount in subclause (I) for family 
     coverage, and

       ``(ii) the sum of the annual deductible and the other 
     annual out-of-pocket expenses required to be paid under the 
     plan (other than for premiums) for covered benefits does not 
     exceed--

       ``(I) $5,000 for self-only coverage, and
       ``(II) twice the dollar amount in subclause (I) for family 
     coverage.

       ``(B) Exclusion of certain plans.--Such term does not 
     include a health plan if substantially all of its coverage is 
     coverage described in paragraph (1)(B).
       ``(C) Safe harbor for absence of preventive care 
     deductible.--A plan shall not fail to be treated as a high 
     deductible health plan by reason of failing to have a 
     deductible for preventive care (within the meaning of section 
     1871 of the Social Security Act, except as otherwise provided 
     by the Secretary).
       ``(D) Special rules for network plans.--In the case of a 
     plan using a network of providers--
       ``(i) Annual out-of-pocket limitation.--Such plan shall not 
     fail to be treated as a high deductible health plan by reason 
     of having an out-of-pocket limitation for services provided 
     outside of such network which exceeds the applicable 
     limitation under subparagraph (A)(ii).
       ``(ii) Annual deductible.--Such plan's annual deductible 
     for services provided outside of such network shall not be 
     taken into account for purposes of subsection (b)(2).
       ``(3) Permitted insurance.--The term `permitted insurance' 
     means--
       ``(A) insurance if substantially all of the coverage 
     provided under such insurance relates to--
       ``(i) liabilities incurred under workers' compensation 
     laws,
       ``(ii) tort liabilities,
       ``(iii) liabilities relating to ownership or use of 
     property, or
       ``(iv) such other similar liabilities as the Secretary may 
     specify by regulations,
       ``(B) insurance for a specified disease or illness, and
       ``(C) insurance paying a fixed amount per day (or other 
     period) of hospitalization.
       ``(4) Family coverage.--The term `family coverage' means 
     any coverage other than self-only coverage.
       ``(5) Archer msa.--The term `Archer MSA' has the meaning 
     given such term in section 220(d).
       ``(d) Health Savings Account.--For purposes of this 
     section--
       ``(1) In general.--The term `health savings account' means 
     a trust created or organized in the United States as a health 
     savings account exclusively for the purpose of paying the 
     qualified medical expenses of the account beneficiary, but 
     only if the written governing instrument creating the trust 
     meets the following requirements:
       ``(A) Except in the case of a rollover contribution 
     described in subsection (f)(5) or section 220(f)(5), no 
     contribution will be accepted--
       ``(i) unless it is in cash, or
       ``(ii) to the extent such contribution, when added to 
     previous contributions to the trust for the calendar year, 
     exceeds the sum of--

       ``(I) the dollar amount in effect under subsection 
     (b)(2)(B)(ii), and
       ``(II) the dollar amount in effect under subsection 
     (b)(3)(B).

       ``(B) The trustee is a bank (as defined in section 408(n)), 
     an insurance company (as defined in section 816), or another 
     person who demonstrates to the satisfaction of the Secretary 
     that the manner in which such person will administer the 
     trust will be consistent with the requirements of this 
     section.
       ``(C) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(D) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(E) The interest of an individual in the balance in his 
     account is nonforfeitable.
       ``(2) Qualified medical expenses.--
       ``(A) In general.--The term `qualified medical expenses' 
     means, with respect to an account beneficiary, amounts paid 
     by such beneficiary for medical care (as defined in section 
     213(d) for such individual, the spouse of such individual, 
     and any dependent (as defined in section 152) of such 
     individual, but only to the extent such amounts are not 
     compensated for by insurance or otherwise.
       ``(B) Health insurance may not be purchased from account.--
     Subparagraph (A) shall not apply to any payment for 
     insurance.
       ``(C) Exceptions.--Subparagraph (B) shall not apply to any 
     expense for coverage under--
       ``(i) a health plan during any period of continuation 
     coverage required under any Federal law,
       ``(ii) a qualified long-term care insurance contract (as 
     defined in section 7702B(b)),
       ``(iii) a health plan during a period in which the 
     individual is receiving unemployment compensation under any 
     Federal or State law, or
       ``(iv) in the case of an account beneficiary who has 
     attained the age specified in section 1811 of the Social 
     Security Act, any health insurance other than a medicare 
     supplemental policy (as defined in section 1882 of the Social 
     Security Act).
       ``(3) Account beneficiary.--The term `account beneficiary' 
     means the individual on whose behalf the health savings 
     account was established.
       ``(4) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 219(d)(2) (relating to no deduction for 
     rollovers).
       ``(B) Section 219(f)(3) (relating to time when 
     contributions deemed made).
       ``(C) Except as provided in section 106(d), section 
     219(f)(5) (relating to employer payments).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) Section 408(h) (relating to custodial accounts).
       ``(e) Tax Treatment of Accounts.--
       ``(1) In general.--A health savings account is exempt from 
     taxation under this subtitle unless such account has ceased 
     to be a health savings account. Notwithstanding the preceding 
     sentence, any such account is subject to the taxes imposed by 
     section 511 (relating to imposition of tax on unrelated 
     business income of charitable, etc. organizations).
       ``(2) Account terminations.--Rules similar to the rules of 
     paragraphs (2) and (4) of section 408(e) shall apply to 
     health savings accounts, and any amount treated as 
     distributed under such rules shall be treated as not used to 
     pay qualified medical expenses.
       ``(f) Tax Treatment of Distributions.--
       ``(1) Amounts used for qualified medical expenses.--Any 
     amount paid or distributed out of a health savings account 
     which is used exclusively to pay qualified medical expenses 
     of any account beneficiary shall not be includible in gross 
     income.
       ``(2) Inclusion of amounts not used for qualified medical 
     expenses.--Any amount paid or distributed out of a health 
     savings account which is not used exclusively to pay the 
     qualified medical expenses of the account beneficiary shall 
     be included in the gross income of such beneficiary.
       ``(3) Excess contributions returned before due date of 
     return.--
       ``(A) In general.--If any excess contribution is 
     contributed for a taxable year to any health savings account 
     of an individual, paragraph (2) shall not apply to 
     distributions from the health savings accounts of such 
     individual (to the extent such distributions do not exceed 
     the aggregate excess contributions to all such accounts of 
     such individual for such year) if--
       ``(i) such distribution is received by the individual on or 
     before the last day prescribed by law (including extensions 
     of time) for filing such individual's return for such taxable 
     year, and
       ``(ii) such distribution is accompanied by the amount of 
     net income attributable to such excess contribution.
     Any net income described in clause (ii) shall be included in 
     the gross income of the individual for the taxable year in 
     which it is received.
       ``(B) Excess contribution.--For purposes of subparagraph 
     (A), the term `excess contribution' means any contribution 
     (other than a rollover contribution described in paragraph 
     (5) or section 220(f)(5)) which is neither excludable from 
     gross income under section 106(d) nor deductible under this 
     section.
       ``(4) Additional tax on distributions not used for 
     qualified medical expenses.--
       ``(A) In general.--The tax imposed by this chapter on the 
     account beneficiary for any taxable year in which there is a 
     payment or distribution from a health savings account of such 
     beneficiary which is includible in gross income under 
     paragraph (2) shall be increased by 10 percent of the amount 
     which is so includible.
       ``(B) Exception for disability or death.--Subparagraph (A) 
     shall not apply if the payment or distribution is made after 
     the account beneficiary becomes disabled within the meaning 
     of section 72(m)(7) or dies.
       ``(C) Exception for distributions after medicare 
     eligibility.--Subparagraph (A) shall not apply to any payment 
     or distribution after the date on which the account 
     beneficiary attains the age specified in section 1811 of the 
     Social Security Act.
       ``(5) Rollover contribution.--An amount is described in 
     this paragraph as a rollover contribution if it meets the 
     requirements of subparagraphs (A) and (B).
       ``(A) In general.--Paragraph (2) shall not apply to any 
     amount paid or distributed from a health savings account to 
     the account beneficiary to the extent the amount received is 
     paid into a health savings account for the benefit of such 
     beneficiary not later than the 60th day after the day on 
     which the beneficiary receives the payment or distribution.

[[Page H11983]]

       ``(B) Limitation.--This paragraph shall not apply to any 
     amount described in subparagraph (A) received by an 
     individual from a health savings account if, at any time 
     during the 1-year period ending on the day of such receipt, 
     such individual received any other amount described in 
     subparagraph (A) from a health savings account which was not 
     includible in the individual's gross income because of the 
     application of this paragraph.
       ``(6) Coordination with medical expense deduction.--For 
     purposes of determining the amount of the deduction under 
     section 213, any payment or distribution out of a health 
     savings account for qualified medical expenses shall not be 
     treated as an expense paid for medical care.
       ``(7) Transfer of account incident to divorce.--The 
     transfer of an individual's interest in a health savings 
     account to an individual's spouse or former spouse under a 
     divorce or separation instrument described in subparagraph 
     (A) of section 71(b)(2) shall not be considered a taxable 
     transfer made by such individual notwithstanding any other 
     provision of this subtitle, and such interest shall, after 
     such transfer, be treated as a health savings account with 
     respect to which such spouse is the account beneficiary.
       ``(8) Treatment after death of account beneficiary.--
       ``(A) Treatment if designated beneficiary is spouse.--If 
     the account beneficiary's surviving spouse acquires such 
     beneficiary's interest in a health savings account by reason 
     of being the designated beneficiary of such account at the 
     death of the account beneficiary, such health savings account 
     shall be treated as if the spouse were the account 
     beneficiary.
       ``(B) Other cases.--
       ``(i) In general.-- If, by reason of the death of the 
     account beneficiary, any person acquires the account 
     beneficiary's interest in a health savings account in a case 
     to which subparagraph (A) does not apply--

       ``(I) such account shall cease to be a health savings 
     account as of the date of death, and
       ``(II) an amount equal to the fair market value of the 
     assets in such account on such date shall be includible if 
     such person is not the estate of such beneficiary, in such 
     person's gross income for the taxable year which includes 
     such date, or if such person is the estate of such 
     beneficiary, in such beneficiary's gross income for the last 
     taxable year of such beneficiary.

       ``(ii) Special rules.--

       ``(I) Reduction of inclusion for predeath expenses.--The 
     amount includible in gross income under clause (i) by any 
     person (other than the estate) shall be reduced by the amount 
     of qualified medical expenses which were incurred by the 
     decedent before the date of the decedent's death and paid by 
     such person within 1 year after such date.
       ``(II) Deduction for estate taxes.-- An appropriate 
     deduction shall be allowed under section 691(c) to any person 
     (other than the decedent or the decedent's spouse) with 
     respect to amounts included in gross income under clause (i) 
     by such person.

       ``(g) Cost-of-Living Adjustment.--
       ``(1) In general.--Each dollar amount in subsections (b)(2) 
     and (c)(2)(A) shall be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which such taxable 
     year begins determined by substituting for `calendar year 
     1992' in subparagraph (B) thereof--
       ``(i) except as provided in clause (ii), `calendar year 
     1997', and
       ``(ii) in the case of each dollar amount in subsection 
     (c)(2)(A), `calendar year 2003'.
       ``(2) Rounding.--If any increase under paragraph (1) is not 
     a multiple of $50, such increase shall be rounded to the 
     nearest multiple of $50.
       ``(h) Reports.--The Secretary may require--
       ``(1) the trustee of a health savings account to make such 
     reports regarding such account to the Secretary and to the 
     account beneficiary with respect to contributions, 
     distributions, the return of excess contributions, and such 
     other matters as the Secretary determines appropriate, and
       ``(2) any person who provides an individual with a high 
     deductible health plan to make such reports to the Secretary 
     and to the account beneficiary with respect to such plan as 
     the Secretary determines appropriate.

     The reports required by this subsection shall be filed at 
     such time and in such manner and furnished to such 
     individuals at such time and in such manner as may be 
     required by the Secretary.''.
       (b) Deduction Allowed Whether or Not Individual Itemizes 
     Other Deductions.--Subsection (a) of section 62 of such Code 
     is amended by inserting after paragraph (18) the following 
     new paragraph:
       ``(19) Health savings accounts.--The deduction allowed by 
     section 223.''.
       (c) Rollovers from Archer MSAs Permitted.--Subparagraph (A) 
     of section 220(f)(5) of such Code (relating to rollover 
     contribution) is amended by inserting ``or a health savings 
     account (as defined in section 223(d))'' after ``paid into an 
     Archer MSA''.
       (d) Exclusions for Employer Contributions to Health Savings 
     Accounts.--
       (1) Exclusion from income tax.--Section 106 of such Code 
     (relating to contributions by employer to accident and health 
     plans) is amended by adding at the end the following new 
     subsection:
       ``(d) Contributions to Health Savings Accounts.--
       ``(1) In general.--In the case of an employee who is an 
     eligible individual (as defined in section 223(c)(1)), 
     amounts contributed by such employee's employer to any health 
     savings account (as defined in section 223(d)) of such 
     employee shall be treated as employer-provided coverage for 
     medical expenses under an accident or health plan to the 
     extent such amounts do not exceed the limitation under 
     section 223(b) (determined without regard to this subsection) 
     which is applicable to such employee for such taxable year.
       ``(2) Special rules.--Rules similar to the rules of 
     paragraphs (2), (3), (4), and (5) of subsection (b) shall 
     apply for purposes of this subsection.
       ``(3) Cross reference.--

       ``For penalty on failure by employer to make comparable 
     contributions to the health savings accounts of comparable 
     employees, see section 4980G.''.
       (2) Exclusion from employment taxes.--
       (A) Railroad retirement tax.--Subsection (e) of section 
     3231 of such Code is amended by adding at the end the 
     following new paragraph:
       ``(11) Health savings account contributions.--The term 
     `compensation' shall not include any payment made to or for 
     the benefit of an employee if at the time of such payment it 
     is reasonable to believe that the employee will be able to 
     exclude such payment from income under section 106(d).''.
       (B) Unemployment tax.--Subsection (b) of section 3306 of 
     such Code is amended by striking ``or'' at the end of 
     paragraph (16), by striking the period at the end of 
     paragraph (17) and inserting ``; or'', and by inserting after 
     paragraph (17) the following new paragraph:
       ``(18) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(d).''.
       (C) Withholding tax.--Subsection (a) of section 3401 of 
     such Code is amended by striking ``or'' at the end of 
     paragraph (20), by striking the period at the end of 
     paragraph (21) and inserting ``; or'', and by inserting after 
     paragraph (21) the following new paragraph:
       ``(22) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(d).''.
       (3) Employer contributions required to be shown on w-2.--
     Subsection (a) of section 6051 of such Code is amended by 
     striking ``and'' at the end of paragraph (10), by striking 
     the period at the end of paragraph (11) and inserting ``, 
     and'', and by inserting after paragraph (11) the following 
     new paragraph:
       ``(12) the amount contributed to any health savings account 
     (as defined in section 223(d)) of such employee or such 
     employee's spouse.''.
       (4) Penalty for failure of employer to make comparable 
     health savings account contributions.--
       (A) In general.--Chapter 43 of such Code is amended by 
     adding after section 4980F the following new section:

     ``SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH 
                   SAVINGS ACCOUNT CONTRIBUTIONS.

       ``(a) General Rule.--In the case of an employer who makes a 
     contribution to the health savings account of any employee 
     during a calendar year, there is hereby imposed a tax on the 
     failure of such employer to meet the requirements of 
     subsection (b) for such calendar year.
       ``(b) Rules and Requirements.--Rules and requirements 
     similar to the rules and requirements of section 4980E shall 
     apply for purposes of this section.
       ``(c) Regulations.--The Secretary shall issue regulations 
     to carry out the purposes of this section, including 
     regulations providing special rules for employers who make 
     contributions to Archer MSAs and health savings accounts 
     during the calendar year.''.
       (B) Clerical amendment.--The table of sections for chapter 
     43 of such Code is amended by adding after the item relating 
     to section 4980F the following new item:

       ``Sec. 4980G. Failure of employer to make comparable health 
           savings account contributions.''.

       (e) Tax on Excess Contributions.--Section 4973 of such Code 
     (relating to tax on excess contributions to certain tax-
     favored accounts and annuities) is amended--
       (1) by striking ``or'' at the end of subsection (a)(3), by 
     inserting ``or'' at the end of subsection (a)(4), and by 
     inserting after subsection (a)(4) the following new 
     paragraph:
       ``(5) a health savings account (within the meaning of 
     section 223(d)),'', and
       (2) by adding at the end the following new subsection:
       ``(g) Excess Contributions to Health Savings Accounts.--For 
     purposes of this section, in the case of health savings 
     accounts (within the meaning of section 223(d)), the term 
     `excess contributions' means the sum of--
       ``(1) the aggregate amount contributed for the taxable year 
     to the accounts (other than a rollover contribution described 
     in section 220(f)(5) or 223(f)(5)) which is neither 
     excludable from gross income under section 106(d) nor 
     allowable as a deduction under section 223 for such year, and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year, reduced by the sum of--
       ``(A) the distributions out of the accounts which were 
     included in gross income under section 223(f)(2), and
       ``(B) the excess (if any) of--
       ``(i) the maximum amount allowable as a deduction under 
     section 223(b) (determined without regard to section 106(d)) 
     for the taxable year, over
       ``(ii) the amount contributed to the accounts for the 
     taxable year.

     For purposes of this subsection, any contribution which is 
     distributed out of the health savings account in a 
     distribution to which section 223(f)(3) applies shall be 
     treated as an amount not contributed.''.

[[Page H11984]]

       (f) Tax on Prohibited Transactions.--
       (1) Section 4975 of such Code (relating to tax on 
     prohibited transactions) is amended by adding at the end of 
     subsection (c) the following new paragraph:
       ``(6) Special rule for health savings accounts.--An 
     individual for whose benefit a health savings account (within 
     the meaning of section 223(d)) is established shall be exempt 
     from the tax imposed by this section with respect to any 
     transaction concerning such account (which would otherwise be 
     taxable under this section) if, with respect to such 
     transaction, the account ceases to be a health savings 
     account by reason of the application of section 223(e)(2) to 
     such account.''.
       (2) Paragraph (1) of section 4975(e) of such Code is 
     amended by redesignating subparagraphs (E) and (F) as 
     subparagraphs (F) and (G), respectively, and by inserting 
     after subparagraph (D) the following new subparagraph:
       ``(E) a health savings account described in section 
     223(d),''.
       (g) Failure To Provide Reports on Health Savings 
     Accounts.--Paragraph (2) of section 6693(a) of such Code 
     (relating to reports) is amended by redesignating 
     subparagraphs (C) and (D) as subparagraphs (D) and (E), 
     respectively, and by inserting after subparagraph (B) the 
     following new subparagraph:
       ``(C) section 223(h) (relating to health savings 
     accounts),''.
       (h) Exception From Capitalization of Policy Acquisition 
     Expenses.--Subparagraph (B) of section 848(e)(1) of such Code 
     (defining specified insurance contract) is amended by 
     striking ``and'' at the end of clause (iii), by striking the 
     period at the end of clause (iv) and inserting ``, and'', and 
     by adding at the end the following new clause:
       ``(v) any contract which is a health savings account (as 
     defined in section 223(d)).''.
       (i) Health Savings Accounts May Be Offered Under Cafeteria 
     Plans.--Paragraph (2) of section 125(d) (relating to 
     cafeteria plan defined) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Exception for health savings accounts.--Subparagraph 
     (A) shall not apply to a plan to the extent of amounts which 
     a covered employee may elect to have the employer pay as 
     contributions to a health savings account established on 
     behalf of the employee.''.
       (j) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 of such Code is amended by 
     striking the last item and inserting the following:

       ``Sec. 223. Health savings accounts.
       ``Sec. 224. Cross reference.''.

       (k) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 1202. EXCLUSION FROM GROSS INCOME OF CERTAIN FEDERAL 
                   SUBSIDIES FOR PRESCRIPTION DRUG PLANS.

       (a) In General.--Part III of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 is amended by inserting 
     after section 139 the following new section:

     ``SEC. 139A. FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG PLANS.

       ``Gross income shall not include any special subsidy 
     payment received under section 1860D-22 of the Social 
     Security Act. This section shall not be taken into account 
     for purposes of determining whether any deduction is 
     allowable with respect to any cost taken into account in 
     determining such payment.''.
       (b) Alternative Minimum Tax Relief.--Section 56(g)(4)(B) of 
     such Code is amended by inserting ``or 139A'' after ``section 
     114''.
       (c) Conforming Amendment.--The table of sections for part 
     III of subchapter B of chapter 1 of such Code is amended by 
     inserting after the item relating to section 139 the 
     following new item:

             ``Sec. 139A. Federal subsidies for prescription drug 
                                                         plans.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 1203. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS 
                   RELATED TO CERTAIN HEALTH ARRANGEMENTS.

       (a) In General.--Section 6041 of the Internal Revenue Code 
     of 1986 (relating to information at source) is amended by 
     adding at the end the following new subsection:
       ``(f) Section Does Not Apply to Certain Health 
     Arrangements.--This section shall not apply to any payment 
     for medical care (as defined in section 213(d)) made under--
       ``(1) a flexible spending arrangement (as defined in 
     section 106(c)(2)), or
       ``(2) a health reimbursement arrangement which is treated 
     as employer-provided coverage under an accident or health 
     plan for purposes of section 106.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2002.
       And the Senate agree to the same.
       That the House recede from its disagreement to the 
     amendment of the Senate to the title of the bill and agree to 
     the same with an amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment to the title of the bill insert the following: ``An 
     Act to amend title XVIII of the Social Security Act to 
     provide for a voluntary prescription drug coverage program 
     under the medicare program, to modernize, strengthen, and 
     improve the medicare program, to amend the Internal Revenue 
     Code of 1986 to allow a deduction to individuals for amounts 
     contributed to health savings accounts, to amend the Federal 
     Food, Drug, and Cosmetic Act with respect to abbreviated 
     applications for the approval of new drugs and the 
     importation of prescription drugs, and for other purposes.''.
       And the Senate agree to the same.

     Billy Tauzin,
     William Thomas,
     Michael Bilirakis,
     Nancy L. Johnson,
     Tom DeLay,
                                Managers on the Part of the House.

     Chuck Grassley,
     Orrin Hatch,
     Don Nickles,
     Bill Frist,
     Jon Kyl,
     Max Baucus,
     John Breaux,
                               Managers on the Part of the Senate.

       JOINT EXPLANATION STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the Senate to the bill (H.R. 1) to amend title 
     XVIII of the Social Security Act to provide for a voluntary 
     program for prescription drug coverage under the Medicare 
     Program, to modernize the Medicare Program to amend the 
     Internal Revenue Code of 1986 to allow a deduction to 
     individuals for amounts contributed to health savings 
     security accounts and health savings accounts, to provide for 
     the disposition of unused health benefits in cafeteria plans 
     and flexible spending arrangements, and for other purposes, 
     submit the following joint statement to the House and the 
     Senate in explanation of the effect of the action agreed upon 
     by the managers and recommended in the accompanying 
     conference report:
       The Senate amendment to the text of the bill struck all of 
     the House bill after the enacting clause and inserted a 
     substitute text.
       The House recedes from its disagreement to the amendment of 
     the Senate with an amendment that is a substitute for the 
     Hose bill and the Senate amendment. The differences between 
     the House bill, the Senate amendment, and the substitute 
     agreed to in conference are noted below, except for clerical 
     corrections, conforming changes made necessary by agreements 
     reached by the conferees, and minor drafting and clarifying 
     changes.

 Medicare Prescription Drug, Improvement, and Modernization Act of 2003

       Short Title; Amendments to Social Security Act; References 
     to BIPA and Secretary; Table of Contents. (Section 1 of 
     Conference Agreement; Section 1 of House bill; Section 1 of 
     Senate bill).
     Present Law
       No provision.
     House Provision
       The provision specifies the title of the Act as the 
     ``Medicare Prescription Drug and Modernization Act of 2003''. 
     The provision also includes a table of contents.
     Senate Provision
       The provision specifies the title of the Act as the 
     ``Prescription Drug and Medicare Improvement Act of 2003''. 
     The provision also includes a table of contents.
     Conference Agreement
       The provision specifies the title of the Act as the 
     ``Medicare Prescription Drug, Improvement and Modernization 
     Act of 2003''. The provision also includes a table of 
     contents.

              Title I--Medicare Prescription Drug Benefit

       Voluntary Prescription Drug Benefit Program (Section 101 of 
     Conference agreement, Section 101 of House bill; Section 101 
     of Senate bill).
     Present Law
       Medicare does not cover most outpatient prescription drugs. 
     Beneficiaries who are inpatients of hospitals or skilled 
     nursing facilities may receive drugs as part of their 
     treatment. Medicare payments made to the facilities cover 
     these costs. Medicare also makes payments to physicians for 
     drugs or biologicals which cannot be self-administered. This 
     means that coverage is generally limited to drugs or 
     biologicals administered by infusion or injection. However, 
     if the injection is generally self-administered (e.g., 
     insulin), it is not covered.
       Despite the general limitation on coverage for outpatient 
     drugs, the law specifically authorizes coverage for the 
     following: (1) drugs used in immunosuppressive therapy (such 
     as cyclosporin) following discharge from a hospital for a 
     Medicare covered organ transplant; (2) erythropoietin (EPO) 
     for the treatment of anemia for persons with chronic renal 
     failure who are on dialysis; (3) drugs taken orally during 
     cancer chemotherapy providing they have the same active 
     ingredients and are used for the same indications as 
     chemotherapy drugs which would be covered if they were not 
     self-administered and were administered as incident to a 
     physician's professional service; and (4) hemophilia clotting 
     factors for hemophilia patients competent to use such factors 
     to control bleeding without medical supervision, and items 
     related to the administration of such factors. The program 
     also pays for supplies (including drugs) that are necessary 
     for the effective use of covered durable medical equipment, 
     including those which must be put directly into the equipment 
     (e.g., tumor chemotherapy agents used with an infusion pump). 
     Medicare also covers pneumococcal pneumonia vaccines, 
     hepatitis B vaccines, and influenza virus vaccines.
       The Committee on Ways and Means, the Committee on Energy 
     and Commerce and the

[[Page H11985]]

     Senate Finance Committee have held numerous hearings on 
     providing prescription drug benefits to seniors, modernizing 
     the program by making benefits, cost sharing and the delivery 
     of care more rational, and strengthening Medicare financially 
     for current and future generations.
       The typical senior now takes more than 20 prescriptions a 
     year to improve their health or manage their diseases. While 
     seniors are taking more drugs than any other demographic 
     group, they are often paying the highest prices because about 
     twenty five percent of seniors have no prescription drug 
     coverage. Similarly, low-income beneficiaries must often make 
     unacceptable choices between life-saving medicines and other 
     essentials.
       The addition of a prescription drug benefit to Medicare, 
     while providing seniors additional choices in how they 
     receive their health services, is a critical modernization of 
     the program.
       Legislation to achieve these goals passed the House in 2000 
     (H.R. 4680, the Medicare Rx 2000 Act), in 2002 (H.R. 4954, 
     the Medicare Modernization and Prescription Drug Act), and in 
     2003 (H.R. 1, the Medicare Prescription Drug and 
     Modernization Act). The Senate passed legislation (S.1, the 
     Prescription Drug and Medicare Improvement Act) to modernize 
     the program and provide prescription drugs in 2003.
       The conference report is the culmination of this 
     legislative process.
     House Bill
       The provision would establish a new Voluntary Prescription 
     Drug Benefit Program under a new Part D of Title XVIII of the 
     Social Security Act. Effective January 1, 2006, a new 
     optional benefit would be established under a new Part D. 
     Beneficiaries could purchase either ``standard coverage'' or 
     actuarially equivalent coverage. In 2006, ``standard 
     coverage'' would have a $250 deductible, 20% cost-sharing for 
     costs between $251 and $2,000, then no coverage until the 
     beneficiary had out-of-pocket costs of $3,500 when full 
     coverage would be provided.
       The out-of-pocket limit would be higher for higher income 
     beneficiaries. Low-income subsidies would be provided for 
     persons with incomes below 150% of poverty. Coverage would be 
     provided through prescription drug plans (PDPs) or Medicare 
     Advantage (MA) Rx plans or Enhanced Fee-For-Service (EFFS) Rx 
     plans. The program would rely on private plans to provide 
     coverage and to bear some of the financial risk for drug 
     costs; federal subsidies would be provided to encourage 
     participation. Plans would determine payments and would be 
     expected to negotiate prices. The new Medicare Benefits 
     Administration (MBA), within the Department of Health and 
     Human Services (HHS) would administer the benefit.
     Senate Bill
       Effective January 1, 2006, a new optional benefit would be 
     established under a new Part D. Beneficiaries could purchase 
     either ``standard coverage'' or actuarially equivalent 
     coverage. In 2006, ``standard coverage'' would have a $275 
     deductible, 50% cost-sharing for costs between $276 and 
     $4,500, then no coverage until the beneficiary had out-of-
     pocket costs of $3,700; and 10% cost-sharing thereafter. 
     Individuals with incomes below 160% of poverty would receive 
     additional assistance. The bill would rely on private plans 
     to provide coverage and to bear a portion of the financial 
     risk for drug costs. Federal subsidies would be provided to 
     encourage participation. (A fallback mechanism would be 
     provided in areas where private risk bearing plans were not 
     available. Under the fallback mechanism, Medicare would 
     contract with a private plan to provide the benefit in the 
     area; the plan would not be at financial risk, except for a 
     small portion of management fees tied to performance). 
     Coverage would be provided through Medicare Prescription Drug 
     Plans (PDPs) or MedicareAdvantage plans (MAs). A new Center 
     for Medicare Choices (CMC) would be established within the 
     Department of Health and Human Services (HHS) to administer 
     the Part D benefit and the new MA program.
     Conference Agreement
       The provision establishes a new voluntary prescription drug 
     benefit under a new Part D of Title XVIII of the Social 
     Security Act. Effective January 1, 2006, a new optional 
     benefit will be established under a new Part D. Beneficiaries 
     could purchase either ``standard coverage'' or alternative 
     coverage with actuarially equivalent benefits. In 2006, 
     ``standard coverage'' will have a $250 deductible, 25% 
     coinsurance for costs between $251 and $2,250, and 
     catastrophic coverage after out of pocket expenses of $3,600. 
     Once the beneficiary reached the catastrophic limit, the 
     program would pay all costs except for nominal cost-sharing. 
     Low-income subsidies would be provided for persons with 
     incomes below 150% of poverty. Coverage would be provided 
     through prescription drug plans or Medicare Advantage 
     prescription drug (MA-PD) plans. The program will rely on 
     private plans to provide coverage and to bear some of the 
     financial risk for drug costs; federal subsidies will be 
     provided to encourage participation. Plans will determine 
     premiums through a bid process and will compete based on 
     premiums and negotiated prices.

          Part D--Voluntary Prescription Drug Benefit Program

       Subpart 1--Eligible Beneficiaries and Prescription Drug 
     Benefits.
       Eligibility, Enrollment and Information (New Section 1860D-
     1 of conference agreement; New Section 1860D-1 and New 
     Section 1860D-5 of House bill; new sections 1860D-1, 1860D-2, 
     1860D-3, and 1860D-4 of Senate bill).
     Present Law
       People generally enroll in Part B when they turn 65. 
     Persons who have applied for Social Security or railroad 
     retirement benefits automatically receive a Medicare card 
     when they turn 65. Persons who have not applied for Social 
     Security or railroad retirement benefits must file an 
     application for Medicare benefits. An individual who becomes 
     entitled to Medicare Part A is automatically enrolled in Part 
     B unless he or she specifically opts out of this coverage. An 
     aged person not entitled to Part A may still enroll in Part 
     B.
     House Bill
       The new Section 1860D-1 would specify that each individual 
     entitled to Medicare Part A or enrolled in Medicare Part B 
     would be entitled to obtain qualified prescription drug 
     coverage. The benefit is completely voluntary. MA 
     organizations and EFFS plans would be required to offer plans 
     that included qualified prescription drug coverage. An 
     individual enrolled in an MA Rx plan or EFFS Rx plan would 
     obtain their drug coverage through the plan. An individual 
     not enrolled in either an MA or EFFS plan could enroll in a 
     new prescription drug plan (PDP). The provision would specify 
     that an individual eligible to make an election to enroll in 
     a PDP, or with an MA Rx or EFFS Rx plan, would do so in 
     accordance with regulations issued by the Administrator of 
     the new Medicare Benefits Administration (MBA). Enrollments 
     and changes in enrollment could occur only during a specified 
     election period. The election periods would generally be the 
     same as those established for MA and EFFS programs including 
     annual coordinated election periods and special election 
     periods. An individual discontinuing an MA election during 
     the first year of eligibility would be permitted to enroll in 
     a PDP at the same time as the election of coverage under the 
     original fee-for-service plan.
       The provision would establish initial election periods. A 
     six month election period, beginning on October 1, 2005, 
     would be established for persons entitled to Part A or 
     enrolled under Part B on that date. For persons first 
     entitled to Part A or enrolled in Part B after that date, an 
     initial election period, which was the same as that for 
     initial part B enrollment, would be established. The 
     Administrator would be required to establish special election 
     periods for persons in special circumstances to ensure no or 
     little disruption in coverage. Specifically these would apply 
     to: persons having and involuntarily losing prescription drug 
     coverage; in cases of enrollment delays or non-enrollment 
     attributable to government action; in the case of an 
     individual meeting exceptional circumstances specified by the 
     Administrator (including circumstances identified by the 
     Administrator for MA enrollment); and in cases of individuals 
     who become eligible for Medicaid drug coverage.
       General information on PDP, MA Rx and EFFS Rx plans would 
     be made available during election periods. The Administrator 
     could provide information on individuals eligible to enroll 
     in plans to plan sponsors and organizations.
       The provision would provide that elections would take 
     effect at the same time that elections take effect for MA 
     plans. However, no election could take effect before January 
     1, 2006. The Administrator would provide for the termination 
     of an election in the case of termination of Part A and Part 
     B coverage or termination of an election for cause (including 
     failure to pay the required premium).
       The new Section 1860D-5 would require the Administrator to 
     establish a process for the selection of a PDP plan or an MA 
     Rx or EFFS Rx plan that provided qualified prescription drug 
     coverage. The process would include the conduct of annual 
     coordinated election periods under which individuals could 
     change the qualifying plans through which they obtained 
     coverage. The process would also include the active 
     dissemination of information to promote an informed selection 
     among qualifying plans (based on price, quality, and other 
     features) in a manner consistent with and in coordination 
     with the dissemination of information under MA. Further, the 
     process would provide for the coordination of elections 
     through filing with an entity offering a MA Rx or EFFS Rx 
     plan or a PDP sponsor in a manner consistent with that 
     provided under MA. The plan would have to inform each 
     enrollee at the beginning of the year of the enrollee's 
     annual out-of-pocket threshold.
       In order to ensure no duplication of coverage, the section 
     would specify that an MA Rx or EFFS Rx enrollee could only 
     elect to receive drug coverage through the plan.

                              Senate Bill

       Under the New Section 1860D-1, the Administrator would 
     provide for and administer a voluntary prescription drug 
     delivery program under which each Part D eligible individual 
     enrolled in Part D would be provided access to drug coverage. 
     In general, MedicareAdvantage enrollees would obtain drug 
     benefits through their MedicareAdvantage plan. Other Part D 
     enrollees would receive their drug coverage through 
     enrollment in a Medicare Prescription Drug Plan offered in 
     the geographic area in which the beneficiary resides. 
     MedicareAdvantage enrollees in MSA plans would also receive 
     drug coverage through enrollment in a Medicare Prescription 
     Drug

[[Page H11986]]

     plan. MedicareAdvantage enrollees in private fee-for-service 
     plans would receive drug benefits through such plan if the 
     plan provided qualified prescription drug coverage; otherwise 
     they would enroll in a Medicare Prescription Drug plan. The 
     program would begin January 1, 2006.
       Under the New Section 1860D-2, the Administrator would 
     establish an enrollment process, which would be similar to 
     that for Part B. An initial open enrollment period would be 
     established. For beneficiaries eligible as of November 1, 
     2005, this would be the 6-month period beginning November 1, 
     2005. Persons becoming eligible after this date would have an 
     initial 7-month enrollment period similar to that established 
     for Part B.
       The New Section 1860D-3 would require the Administrator to 
     establish a process through which a Part D eligible 
     individual who was not enrolled in a MedicareAdvantage Plan 
     (except for an MSA plan or private-fee-for-service plan not 
     offering qualified drug coverage) could enroll in a Medicare 
     Prescription Drug plan serving the geographic area where the 
     beneficiary resides. The beneficiary could make an annual 
     election to change enrollment to another plan. A beneficiary 
     in Part D who failed to enroll in a plan would be enrolled in 
     a plan designated by the Administrator.
       The Administrator would use rules similar to the rules 
     established for enrollment, disenrollment and termination of 
     enrollment with MedicareAdvantage plans. Included would be 
     requirements relating to establishment of special election 
     periods and application of the guaranteed issue and renewal 
     provisions. The Administrator would also coordinate 
     enrollments, disenrollments, and terminations of enrollments 
     under Part C with those under Part D.
       The enrollment process established by the Administrator 
     would ensure that beneficiaries who enrolled in the first 
     open enrollment period (beginning November 2005) would be 
     permitted to elect an eligible entity prior to January 1, 
     2006, in order to assure coverage was effective on that date.
       In general, persons enrolled in MedicareAdvantage Plans 
     would receive drug coverage through their MedicareAdvantage 
     Plans and be subject to their enrollment rules. Persons 
     enrolled in MSA plans or private-fee-for-service plans not 
     offering qualified drug coverage would be subject to Part D 
     enrollment rules.
       The Administrator would be authorized to provide 
     information about eligible beneficiaries to eligible entities 
     with contracts under Part D. Such information would be 
     provided as the Administrator determined necessary to 
     facilitate enrollment with such entities and for only so long 
     and to the extent necessary to carry out this objective.
       The new Section 1860D-4 would require the Administrator to 
     broadly disseminate information to beneficiaries regarding 
     Part D coverage. Current beneficiaries would be provided such 
     information at least 30 days prior to beginning of the first 
     enrollment period.
       Information activities would be similar to those performed 
     for MedicareAdvantage and be coordinated with such 
     activities. Comparative plan information would include a 
     comparison of benefits, monthly beneficiary obligation, 
     quality and performance, beneficiary cost-sharing, consumer 
     satisfaction surveys, and other information specified by the 
     Secretary.
     Conference agreement
       The New Section 1860D-1 of the conference agreement 
     specifies that each individual entitled to Medicare Part A or 
     enrolled in Medicare Part B would be entitled to obtain 
     qualified prescription drug coverage through enrollment in a 
     prescription drug plan. A beneficiary enrolled in a Medicare 
     Advantage (MA) plan providing qualified prescription drug 
     coverage (MA-PD plan) will obtain coverage through that plan. 
     MA enrollees may not enroll in a prescription drug plan (PDP) 
     under Part D except for: (1) Enrollees in private-fee-for 
     service MA plans not offering qualified prescription drug 
     coverage; and (2) Enrollees in Medicare medical savings 
     accounts (MSAs). Coverage first begins January 1, 2006.
       The Secretary is required to establish a process for 
     enrollment, disenrollment, termination, and change of 
     enrollment of eligible beneficiaries in prescription drug 
     plans. The Secretary is required to use rules similar to, and 
     coordinated with rules established for MA-PD plans relating 
     to: residency requirements, exercise of choice, coverage 
     election periods (including initial periods, annual 
     coordinated election periods, special election periods, and 
     election periods for exceptional circumstances); coverage 
     periods (relating to effectiveness of elections and changes 
     of elections); guaranteed issue and renewal; and marketing 
     material and application forms.
       The agreement establishes a default election process for 
     full-benefit dual eligible beneficiaries, that is, persons 
     eligible for both Medicare and full benefits (including 
     prescription drugs) under the state's Medicaid program. The 
     Secretary will enroll any full-benefit dual eligible who has 
     not enrolled in a prescription drug plan or MA-PD plan, in a 
     plan that has a premium equal to or below the premium subsidy 
     amount available to persons with incomes below 135% of 
     poverty. If more than one plan is available, the Secretary 
     will enroll the beneficiary on a random basis among all such 
     plans in the PDP region. Nothing prevents the beneficiary 
     from declining enrollment or changing such enrollment.
       The provision would establish a six-month initial 
     enrollment period, beginning November 15, 2005, for all 
     persons who are eligible beneficiaries on that date; it is 
     the same period established for enrollment period established 
     for MA plans for that year. An initial enrollment period will 
     apply for individuals becoming eligible after that date; in 
     no case can such period be less than six months, which 
     follows the current enrollment process for Part B. Conferees 
     intend the enrollment process to be administratively simple 
     to encourage enrollment in the new plans.
       The Secretary will establish enrollment periods for special 
     circumstances. These include the involuntary loss of 
     creditable prescription drug coverage such as under a group 
     health plan, or a reduction in coverage such that it no 
     longer meets the actuarial equivalence test. Failure to pay 
     the required premium does not meet the definition of 
     involuntary loss of coverage. A special enrollment period is 
     also established for persons who discontinue their enrollment 
     in a MA-PD plan during their first year of eligibility.
       The Secretary is authorized to provide each PDP sponsor and 
     MA organization such identifying information about eligible 
     individuals as the Secretary determines to be necessary to 
     facilitate efficient marketing of plans and enrollment of 
     beneficiaries in plans. The Secretary may provide such 
     information only to the extent necessary to carry out these 
     activities and such PDP sponsor or MA organization may only 
     use it to facilitate marketing and enrollment of 
     beneficiaries in PDP and MA-PD plans. Conferees intend this 
     provision to facilitate outreach to beneficiaries to ensure 
     participation in the program. A consistent barrier to 
     encouraging enrollment in the existing Medicare+Choice 
     program is the high cost of marketing to individuals. With 
     Secretarial assistance, Conferees expect these costs to be 
     reduced so that plans can readily identify eligible 
     beneficiaries and target information effectively.
       The Secretary is required to conduct activities that are 
     designed to broadly disseminate information to eligible 
     beneficiaries and prospective eligible beneficiaries. It must 
     be available at least 30 days prior to the initial enrollment 
     period. The information dissemination requirements are 
     similar to and are to be coordinated with the activities the 
     Secretary is required to perform for MA plans.
       The Conferees expect that in carrying out the annual 
     dissemination of information requirement that the Secretary 
     will conduct a significant public information campaign to 
     educate beneficiaries about the new Medicare drug benefit to 
     ensure the broad dissemination of accurate and timely 
     information. In particular, the Conferees expect that in 
     carrying out this public information campaign that HHS will 
     place a priority on, and make a best and concerted effort to, 
     ensuring that the lower income seniors are aware of the 
     additional benefits available to them and how to enroll. 
     Therefore, the public information campaign should include a 
     program of outreach, information, appropriate mailings, and 
     enrollment assistance with and through appropriate state and 
     federal agencies, including State health insurance counseling 
     and assistance programs, in coordination with other federal 
     programs of assistance to low-income individuals, to maximize 
     enrollment of eligible individuals. In addition, special 
     outreach efforts shall be made for disadvantaged and hard-to-
     reach populations, including targeted efforts in historically 
     underserved populations, and working with low-income 
     assistance sites and a broad array of public, voluntary, and 
     private community organizations serving Medicare 
     beneficiaries. Materials and information shall be made 
     available in languages other than English, where appropriate.
       It is also critical that eligibility determination forms 
     and paperwork should be as simple as possible, with mail-in 
     or electronic filings possible. In addition, face-to-face 
     interviews should not be required except where necessary. The 
     Secretary shall encourage multi-year enrollment (provided 
     eligible individuals will be required to report disqualifying 
     income and asset changes on a timely basis). It is the desire 
     of the Conferees that, within three years after program 
     enactment, the Secretary shall report on best practices in 
     the successful enrollment of low-income beneficiaries.
       The Secretary is also required to disseminate comparative 
     information to beneficiaries for the annual open enrollment 
     period. Comparative information is to include information on 
     benefits and formularies under a plan; monthly beneficiary 
     premium; quality and performance; beneficiary cost-sharing; 
     and consumer satisfaction surveys. The Secretary is not 
     required to provide information on quality and performance or 
     consumer satisfaction during the first plan year or the next 
     plan year if the information is not available. The Secretary 
     is also required to provide information concerning the 
     methodology for determining late enrollment penalties.
       To promote informed decisions, comparative information is 
     to include information on benefits and formularies under a 
     plan; monthly beneficiary premium; quality and performance; 
     beneficiary cost-sharing; and consumer satisfaction surveys. 
     The Secretary is not required to provide information on 
     quality and performance or consumer satisfaction during the 
     first plan year or the next plan year if the information is 
     not available. The Secretary is also required to provide 
     information concerning the methodology for determining late 
     enrollment penalties.

[[Page H11987]]

       Prescription Drug Benefits (New Section 1860D-2 of 
     conference agreement; New Section 1860D-2 of House bill; New 
     Sections 1860D-6, 1860D, and 1860D-1 of Senate bill).
     Present Law
       No provision.
     House Bill
       a. Benefits. The new Section 1860D-2 would specify the 
     requirements for qualified prescription drug coverage. 
     Qualified coverage would be defined as either ``standard 
     coverage'' or actuarially equivalent coverage. In both cases, 
     access would have to be provided to negotiated prices.
       For 2006, ``standard coverage'' would be defined as having 
     a $250 deductible; 20% coinsurance up to the initial coverage 
     limit ($2,000); catastrophic coverage would begin after an 
     individual incurred $3,500 in out of pocket costs. Beginning 
     in 2007, the annual dollar amounts would be increased by the 
     annual percentage increase in average per capita aggregate 
     expenditures for covered outpatient drugs for Medicare 
     beneficiaries for the 12-month period ending in July of the 
     previous year.
       Plans would be permitted to substitute cost-sharing 
     requirements, for costs up to the initial coverage limit that 
     were actuarially consistent with an average expected 20% 
     coinsurance for costs up to the initial coverage limit. They 
     could also apply tiered copayments, provided such copayments 
     were actuarially consistent with the average 20% cost-sharing 
     requirements.
       The provision would specify incurred costs that would count 
     toward meeting the catastrophic limit. Costs would be treated 
     as incurred costs only if they were paid by the individual 
     (or by another family member on behalf of the individual), 
     paid on behalf of a low-income individual under the subsidy 
     provisions, under the Medicaid program, or under a state 
     pharmaceutical assistance program. Any costs for which the 
     individual was reimbursed by insurance or otherwise would not 
     count toward incurred costs. The Administrator would be 
     authorized to establish procedures, in coordination with the 
     Secretary of the Treasury and the Secretary of Labor, for 
     determining whether costs were being reimbursed by insurance 
     or other third-party arrangement. The procedures would 
     provide for alerting entities in which such individuals were 
     enrolled. Entities could also periodically ask enrolled 
     individuals about such arrangements. A material 
     misrepresentation by an individual (as defined in standards 
     set by the Administrator through a process established by the 
     Administrator) would constitute grounds for termination of 
     Part D enrollment.
       The provision would permit a PDP or MA Rx or EFFS Rx plan 
     to offer, subject to approval by the Administrator, 
     alternative coverage providing certain requirements were met. 
     The actuarial value of total coverage would have to be at 
     least equal to the actuarial value of standard coverage. The 
     unsubsidized value of the coverage (i.e. the value of the 
     coverage exceeding subsidy payments) would have to be equal 
     to the unsubsidized value of standard coverage. The coverage 
     would be designed (based on actuarially representative 
     patterns of utilization) to provide for payment of incurred 
     costs up to the initial coverage limit of at least the same 
     percentage of costs provided under standard coverage. 
     Further, stop loss protection would be the same as that under 
     standard coverage.
       Both standard coverage and actuarially equivalent coverage 
     would have to offer access to negotiated prices. Coverage 
     offered by a PDP plan sponsor or a MA or EFFS entity would be 
     required to provide beneficiaries with access to negotiated 
     prices (including applicable discounts). Access would be 
     provided even when no benefits were payable because of the 
     application of cost-sharing or initial coverage limits. 
     Insofar as a state elected to use these negotiated prices for 
     its Medicaid program, the Medicaid drug payment provisions 
     would not apply. (Further, the negotiated prices would not be 
     taken into account in making ``best price'' determinations 
     under Medicaid.) The PDP sponsor or MA or EFFS entity 
     would be required to disclose to the Administrator the 
     extent to which manufacturer discounts or rebates or other 
     remunerations or price concessions were made available to 
     the sponsor or organization and passed through to 
     enrollees through pharmacies and other dispensers. 
     Manufacturers would be required to disclose pricing 
     information to the Administrator under the same conditions 
     currently required for Medicaid.
       Qualified prescription drug coverage could include coverage 
     exceeding that specified for standard coverage or actuarially 
     equivalent coverage. However, any additional coverage would 
     be limited to covered outpatient drugs. The Administrator 
     could terminate a contract with a PDP sponsor or MA or EFFS 
     entity if a determination was made that the sponsor or 
     organizations engaged in activities intended to discourage 
     enrollment of classes of eligible Medicare beneficiaries 
     obtaining coverage through the plan on the basis of their 
     higher likelihood of utilizing prescription drug coverage.
       b. Income-Related Out-of-Pocket threshold. The provision 
     would increase the annual out-of-pocket threshold for each 
     enrollee whose adjusted gross income exceeded a specified 
     income threshold. The portion of income exceeding this income 
     threshold ($60,000 in 2006), but below an income threshold 
     limit ($200,000 in 2006), would be considered in making this 
     calculation. The increase would be calculated as follows. 
     First, the ratio of the annual out-of- pocket limit to the 
     income limit would be calculated and expressed as a percent. 
     For 2006, this would be $3,500 divided by $60,000 equaling 
     5.8%. This percentage would be multiplied by any excess 
     income over $60,000, or, if less, by the difference between 
     income threshold limit and the income threshold ($140,000 in 
     2006). Thus, the catastrophic out-of-pocket limit would be 
     $5,820 for an enrollee with an income of $100,000 and $11,620 
     for persons with incomes at $200,000 or above. Beginning in 
     2007, the income threshold and income threshold limits would 
     be increased by the percentage increase in the consumer price 
     index (CPI) for all urban consumers, rounding to the nearest 
     $100.
       The income used for making the income determination would 
     be adjusted gross income. (Individuals filing joint returns 
     would each be treated separately with each person considered 
     to have an adjusted gross income equal to one-half of the 
     total.) The determination would be the most recent return 
     information disclosed by the Secretary of the Treasury to the 
     Secretary of HHS, (as provided for under Section 106 of this 
     Act) before the beginning of the year. The Secretary, in 
     coordination with the Secretary of the Treasury, would 
     provide a procedure under which an enrollee could elect to 
     use more recent information, including information for a 
     taxable year ending in the current calendar year. The process 
     would require: (1) the enrollee to provide the Secretary with 
     the relevant portion of the more recent return; (2) the 
     Medicare Beneficiary Ombudsman offering assistance to the 
     enrollees in presenting such information and the toll-free 
     number being a point of contact for beneficiaries to inquire 
     how to present the information; (3) verification by the 
     Secretary of the Treasury; and (4) payment by the Secretary 
     to the enrollee equal to the benefit payments that would have 
     been payable under the plan if more recent information had 
     been used. If such payments were made, the PDP sponsor would 
     pay the Secretary the requisite amount, less the applicable 
     reinsurance that would have applied. The payment would be 
     credited to the Prescription Drug Account.
       The Secretary would be required to provide, through the 
     annual Medicare handbook, general information on the 
     calculation of out-of-pocket thresholds. The Secretary would 
     periodically transmit to the Secretary of the Treasury the 
     names and TINs of enrollees in PDPs or MA Rx or EFFS Rx plans 
     and request that the Secretary of the Treasury disclose 
     information as provided for under Section 106 of this Act. 
     The Secretary would disclose to entities offering the plan 
     the amount of the out-of-pocket threshold that would apply to 
     a specified taxpayer. Individuals could opt out of the 
     Secretarial disclosure requirements, if they elected to have 
     the maximum out-of-pocket threshold applied in a year. 
     Criminal and civil penalties would apply to any unauthorized 
     disclosure of information obtained pursuant to Section 106. 
     In disclosing such information, stringent new confidentiality 
     protections would apply.
       c. Covered Drugs. Covered outpatient drugs would be defined 
     to include: (1) a drug which could only be dispensed subject 
     to a prescription and which was described in subparagraph 
     (A)(i) or (A)(ii) of Section 1927(k)(2) of the Social 
     Security Act (relating to drugs covered under Medicaid); (2) 
     a biological product described in paragraph B of such 
     subsection; (3) insulin described in subparagraph C of such 
     section and medical supplies associated with the injection of 
     insulin; and (4) vaccines licensed under section 351 of the 
     Public Health Service Act. Drugs excluded from Medicaid 
     coverage would be excluded from the definition except for 
     smoking cessation drugs. The definition would include any use 
     of a covered outpatient drug for a medically accepted 
     indication. Drugs, which could be paid for under Medicare 
     Part B, would not be covered under Part D. A plan could elect 
     to exclude a drug, which would otherwise be covered, if the 
     drug was excluded under the formulary and the exclusion was 
     not successfully appealed under the new Section 1860D-3. In 
     addition, a PDP or MA Rx or EFFS Rx plan could exclude from 
     coverage, subject to reconsideration and appeals provisions, 
     any drug, which would not meet Medicare's definition of 
     medically necessary or was not prescribed in accordance with 
     the plan or Part D.
     Senate Bill
       a. Benefits. Under the new Section 1860D-6 of the Senate 
     bill, plans would be required to offer ``qualified 
     coverage.'' ``Qualified coverage'' would be either ``standard 
     coverage'' or ``actuarially equivalent coverage.'' Both would 
     require access to negotiated prices. In 2006, standard 
     coverage would be defined as having a $275 deductible, 50% 
     cost-sharing for drug costs between $276 and the initial 
     coverage limit of $4,500, then no coverage, except that 
     beneficiaries would have access to negotiated drug prices, 
     until the beneficiary had out-of-pocket costs of $3,700 
     ($5813 in total spending); and 10% cost-sharing thereafter. 
     These amounts would be increased in future years by the 
     percentage increase in average per capita expenditures for 
     covered drugs for the year ending the previous July.
       Out-of-pocket costs counting toward the limit would include 
     costs paid by the individual (or by another individual such 
     as a family member), paid on behalf of a low-income 
     individual under the low-income provisions, paid under 
     Medicaid, or paid under a

[[Page H11988]]

     state pharmaceutical assistance program. Any costs for which 
     the individual was reimbursed by insurance or otherwise could 
     not be counted. The Administrator would be authorized to 
     establish procedures, in coordination with the Secretary of 
     the Treasury and the Secretary of Labor, for determining 
     whether costs were being reimbursed by insurance or other 
     third-party arrangement. The procedures would provide for 
     alerting entities in which such individuals were enrolled. 
     Entities could also periodically ask enrolled individuals 
     about such arrangements. A material misrepresentation by an 
     individual (as defined in standards set by the Administrator 
     through a process established by the Administrator) would 
     constitute grounds for termination of Part D enrollment.
       Entities could offer more generous drug coverage, if 
     approved by the Administrator, but only if they also offered 
     a plan providing standard coverage. Entities could offer a 
     plan design different from standard coverage provided certain 
     conditions were met. The actuarial value of total coverage 
     would have to be at least equal to the actuarial value of 
     standard coverage. The unsubsidized value of coverage would 
     have to be at least equal to the unsubsidized value of 
     standard coverage. Further, the coverage would be designed, 
     based on a representative pattern of utilization, to cover 
     the same percentage of costs up to the initial benefit limit 
     as provided under the standard plan. The limitation on the 
     deductible and out-of-pocket expenditures would be the same 
     as under standard coverage. The entity would have to apply 
     for and receive approval from the Administrator for an 
     alternative benefit design.
       The Administrator would establish processes for determining 
     the actuarial value of prescription drug coverage. The 
     processes would take into account any effect that providing 
     actuarially equivalent rather than standard coverage would 
     have on utilization.
       Qualified drug plans would be required to provide 
     beneficiaries with access to negotiated prices (including all 
     discounts, direct or indirect subsidies, rebates, other price 
     concessions, or direct or indirect remunerations), regardless 
     of the fact that no benefits may be payable. The entity would 
     be required to issue a card or other technology for this 
     purpose. The Administrator would be required to provide for 
     development of national standards relating to a standardized 
     format for the card or other technology. The standards would 
     be compatible with those provided for under the 
     administrative simplification and electronic prescribing 
     requirements of Title XI. The standards would be implemented 
     no later than January 1, 2008.
       The bill would exempt any prices negotiated by a Medicare 
     Prescription Drug plan, MedicareAdvantage plan, or qualified 
     retiree program from Medicaid's determination of ``best 
     price'' for purposes of the Medicaid drug rebate program.
       b. Income-Related Out-of-Pocket Threshold. No provision.
       c. Covered Drugs. The New Section 1860 D would define 
     covered drugs as drugs, biological products, and insulin 
     (including syringes, and necessary medical supplies 
     associated with the administration of insulin, as defined by 
     the Administrator) which are covered under Medicaid and 
     vaccines licensed under Section 351 of the Public Health 
     Service Act. Coverage would be extended to any use of a 
     covered drug for a medically accepted indication. The term 
     would not include drugs or classes of drugs, or their medical 
     uses, which could be excluded from coverage under Medicaid, 
     except for smoking cessation agents. The term would not 
     include drugs currently covered under Medicare Part A or 
     Medicare Part B to the extent payment is available under 
     those Parts. A drug prescribed for an individual, which would 
     ordinarily be a covered drug, would not be covered if a 
     plan's formulary excluded the drug and the exclusion was not 
     successfully resolved. Further, a Medicare Prescription Drug 
     plan or a MedicareAdvantage plan could exclude drugs which 
     did not meet Medicare's definition of ``reasonable and 
     necessary'' under Section 1862(a) of the Act or which were 
     not prescribed in accordance with the requirements of the 
     plan or Part D.
       New Section 1860D-1 would specify that the program would 
     provide coverage for all therapeutic categories and classes 
     of covered drugs (though not necessarily for all drugs within 
     such categories and classes).
     Conference Agreement
       a. Benefits. The New Section 1860D-2 specifies the 
     requirements for qualified prescription drug coverage. 
     Qualified coverage would be defined as either ``standard 
     prescription drug coverage'' or ``alternative prescription 
     drug coverage'' with at least actuarially equivalent 
     benefits. In both cases, access would have to be provided to 
     negotiated prices.
       Qualified drug plans would be required to provide 
     beneficiaries with access to negotiated prices (including all 
     discounts, direct or indirect subsidies, rebates, other price 
     concessions, or direct or indirect remunerations), regardless 
     of the fact that no benefits may be payable. The entity would 
     be required to issue a card or other technology for this 
     purpose. The Administrator would be required to provide for 
     development of national standards relating to a standardized 
     format for the card or other technology. The standards would 
     be compatible with those provided for under the 
     administrative simplification and electronic prescribing 
     requirements of Title XI.
       Plans are permitted to provide supplemental prescription 
     coverage consisting of either certain reductions in cost-
     sharing (i.e. reduction in deductible, reduction in 
     coinsurance percentage, and increase in initial coverage 
     limit) or coverage of drugs which are excluded because of 
     application of the Medicaid definition of covered drugs. A 
     PDP sponsor may not offer a plan that provides supplemental 
     benefits unless it also offers a basic plan in the area.
       For 2006, ``standard prescription drug coverage'' is 
     defined as having a $250 deductible; 25% coinsurance up to 
     the initial coverage limit ($2,250); and catastrophic 
     coverage after an individual incurred $3,600 in out of pocket 
     expenses. Once the beneficiary reached the catastrophic 
     limit, the program would pay all costs except for nominal 
     cost-sharing.
       Once the beneficiary reached the catastrophic (``stop 
     loss'') limit, the program would pay all costs, except for 
     nominal cost-sharing. Low-income beneficiaries would have no 
     cost- sharing. The cost-sharing is equal to the greater of: 
     (1) a copayment of $2 for a generic drug or preferred 
     multiple source and $5 for any other drug; or (2) five 
     percent coinsurance. Nothing is to be construed as preventing 
     a PDP sponsor or MA organization from reducing the cost-
     sharing for preferred or generic drugs. Beginning in 2007, 
     the annual dollar amounts would be increased by the annual 
     percentage increase in average per capita aggregate 
     expenditures for covered outpatient drugs for Medicare 
     beneficiaries for the 12-month period ending in July of the 
     previous year.
       Plans would be permitted to substitute cost-sharing 
     requirements, for costs up to the initial coverage limit that 
     were actuarially consistent with an average expected 25% 
     coinsurance for costs up to the initial coverage limit. They 
     could also apply tiered copayments, provided such copayments 
     were actuarially consistent with the average 25% cost-sharing 
     requirements.
       The agreement specifies incurred costs that count toward 
     meeting the catastrophic limit. Costs are only considered 
     incurred if they are incurred for the deductible, cost-
     sharing, benefits not paid because of application of the 
     initial coverage limit. Incurred costs do not include amounts 
     for which no benefits are provided because of the application 
     of a formulary. Costs would be treated as incurred costs only 
     if they were paid by the individual (or by another family 
     member on behalf of the individual), paid on behalf of a low-
     income individual under the subsidy provisions, or under a 
     state pharmaceutical assistance program (SPAP). Conferees 
     intend SPAP spending to fill in beneficiary cost sharing and 
     deductibles and have that spending count against the 
     catastrophic. State liability will be limited to spending 
     below the catastrophic limit, and for which there is no 
     coverage. The state pharmacy assistance programs could use 
     money saved from the Medicare drug benefit to extend their 
     assistance to persons with incomes above 150% of poverty. 
     For example, 200% of poverty or even 300% of poverty.
       Any costs for which the individual was reimbursed by 
     insurance or otherwise would not count toward incurred costs. 
     The Secretary is authorized to establish procedures, in 
     coordination with the Secretary of the Treasury and the 
     Secretary of Labor, for determining whether costs were being 
     reimbursed by insurance or other third-party arrangement. The 
     procedures would provide for alerting entities in which such 
     individuals were enrolled. Entities could also periodically 
     ask enrolled individuals about such arrangements. A material 
     misrepresentation by an individual (as defined in standards 
     set by the Secretary through a process established by the 
     Secretary) would constitute grounds for termination of Part D 
     enrollment.
       The provision permits a prescription drug plan or MA-PD 
     plan to offer, subject to approval by the Secretary 
     alternative prescription drug coverage providing certain 
     requirements are met. The actuarial value of total coverage 
     would have to be at least equal to the actuarial value of 
     standard coverage. The unsubsidized value of the coverage 
     (i.e. the value of the coverage exceeding subsidy payments) 
     would have to be equal to the unsubsidized value of standard 
     coverage. The coverage would be designed (based on 
     actuarially representative patterns of utilization) to 
     provide for payment of incurred costs up to the initial 
     coverage limit of at least the same percentage of costs 
     provided under standard coverage. Further, stop loss 
     protection would be the same as that under standard coverage. 
     The deductible could not exceed that under standard coverage.
       Under the conference agreement, prescription drug plans and 
     MA-PD plans are permitted to offer alternative coverage that 
     is at least actuarially equivalent to the standard Part D 
     benefit, provided that the alternative coverage includes an 
     initial deductible that is no more than the deductible in the 
     standard plan and provides the same threshold for 
     catastrophic coverage under the standard Part D benefit. 
     Within these requirements plans may change the cost sharing 
     for the drug benefit, implement different formularies, and 
     the benefit limit can be modified while still maintaining 
     actuarial equivalence.
       For beneficiaries who desire additional drug coverage 
     beyond that offered in the basic Medicare benefit, MA-PD and 
     PDP

[[Page H11989]]

     plans may also provide supplemental prescription drug 
     coverage. Supplemental policies may be offered by a plan to 
     its own enrollees and may provide for a reduction in the 
     annual deductible, reductions in coinsurance or cost-sharing 
     required, or increases in drug coverage above the benefit 
     limit. However, the conferees recognize that the conditions 
     under which the government provides reinsurance subsidies may 
     create significant disincentives for private sector plans to 
     provide supplemental prescription drug coverage.
       To address this concern, the conference agreement clarifies 
     the Secretary's current Medicare demonstration authority to 
     include Part C and Part D with the intent that this authority 
     be used to conduct demonstration projects to allow private 
     sector plans maximum flexibility to design alternative 
     prescription drug coverage. CMS's authority to conduct 
     Medicare demonstrations is provided in section 402 of the 
     Social Security Amendments of 1967 (42 U.S.C. Sec. 1395b-1). 
     Under section 402(b), the Secretary is authorized to waive 
     requirements in Title XVIII that relate to reimbursement and 
     payment. Consistent with the Secretary's current-law 
     demonstration authority, the Conference committee intends 
     that any demonstration of benefit flexibility be limited to 
     evaluate innovations in drug benefit design and to not 
     increase total prescription drug outlays as a result of the 
     demonstrations.
       Under this authority, CMS could alter the payments to 
     prescription drug plans, Medicare Advantage plans and 
     regional PPOs, or some subset thereof. A number of 
     subsections of 402 could be used as authority to demonstrate 
     the impact of providing additional drug coverage to filling 
     in the gap in coverage or for providing benefit flexibility, 
     as long as the provisions being waived could reasonably be 
     characterized as related to payment provisions.
       Specifically, CMS should demonstrate the effect of filling 
     in the gap in coverage by reimbursing participating plans a 
     capitated payment that is actuarially equivalent to the 
     amount that plans would otherwise receive from the government 
     in the form of specific reinsurance when an individual plan 
     enrollee reaches the catastrophic attachment point ($3,600). 
     In order to demonstrate the impact of plans offering flexible 
     benefits, CMS could alter reinsurance payments for MA plans, 
     regional PPOs, or prescription drug plans participating in a 
     waiver program. For example, it is expected that CMS would 
     change the reinsurance payment methodology for a group of 
     plans and compare spending under this alternative methodology 
     to those plans that continue to receive payments as outlined 
     in Title I. However, all plans would be required to at least 
     offer the required benefits, including those required under 
     Part D. CMS is not permitted to waive the minimum benefits 
     provided by the plans. The conferees anticipate that CMS 
     would use this authority to demonstrate that paying MA plans, 
     regional PPOs or PDPs a capitated payment in lieu of specific 
     reinsurance for prescription drug coverage increases plan 
     efficiency and improves the quality of the services.
       Consistent with current law, CMS also is also permitted to 
     develop and engage in demonstrations to determine whether 
     payments for non-Medicare services would result in more 
     economical provision and more effective utilization of 
     Medicare services provided by MA plans, regional PPOs, or 
     prescription drug plans as long as the additional services 
     are incident to Medicare covered services, and provided by 
     entities that meet certain requirements (MA plans and 
     regional PPOs would meet these conditions). Under this 
     subsection, CMS could demonstrate that paying MA plans or 
     regional PPOs a payment to provide non-Medicare benefits 
     (including prescription drug coverage or preventative 
     services not provided under Part C or Part D) results in more 
     economical provision and more effective utilization of 
     comprehensive health care services. Any additional benefits 
     must be determined to be budget neutral, and it is the 
     intention of the Conference committee that any demonstration 
     authority be used in a manner as to not increase Medicare 
     outlays.
       The conferees fully expect that the Secretary will use this 
     demonstration authority to conduct projects to evaluate new 
     methods of providing reinsurance payments that remove 
     disincentives for private sector plans to offer additional 
     prescription drug benefits to their enrollees. In order to 
     meet the budget neutrality requirement, it may be necessary 
     to implement such a demonstration after implementation of the 
     new Part D benefit for one to two years. Using the results of 
     this type of demonstration, the Conferees would expect the 
     Secretary to submit to Congress any recommend changes in the 
     drug payment methodology under this Part. Both standard 
     coverage and alternative coverage would have to offer access 
     to negotiated prices.
       Coverage offered by a PDP plan sponsor or a MA-PD entity 
     would be required to provide beneficiaries with access to 
     negotiated prices. Access would be provided even when no 
     benefits were payable because of the application of cost-
     sharing or an initial coverage limits. Negotiated prices are 
     to take into account negotiated price concessions, such as 
     discounts, direct or indirect subsidies, rebates, and direct 
     or indirect remunerations, for covered Part D drugs, and 
     include dispensing fees. The negotiated prices would not 
     be taken into account in making ``best price'' 
     determinations under Medicaid. Under the current Medicaid 
     best price policy, the largest discount a pharmaceutical 
     manufacturer negotiates in the private market must be 
     passed along to the Medicaid program as well. As GAO and 
     CBO have noted, because manufacturers can only influence 
     market share and volume in the private sector, not 
     Medicaid, the ``best price'' policy has led to less 
     discounting by manufacturers.
       The PDP sponsor or MA-PD entity is required to disclose to 
     the Secretary the aggregate negotiated price concessions made 
     available to the sponsor or organization and passed through 
     in the form of lower subsidies, lower monthly beneficiary 
     premiums, and lower prices through pharmacies and other 
     dispensers. Manufacturers would be required to disclose 
     pricing information to the Secretary, but that information 
     would remain confidential.
       b. Income-Related Out-of-Pocket Threshold. No provision.
       c. Covered Drugs. Covered outpatient drugs are defined to 
     include: (1) a drug which could only be dispensed subject to 
     a prescription and which was described in subparagraph A of 
     Section 1927(k)(2) of the Social Security Act (relating to 
     drugs covered under Medicaid); (2) a biological product 
     described in paragraph B of such subsection; (3) insulin 
     described in subparagraph C of such section and medical 
     supplies associated with the injection of insulin (as defined 
     in regulations of the Secretary); and (4) vaccines licensed 
     under section 351 of the Public Health Service Act. It is the 
     intent of conferees that the definition of insulin, and 
     medical supplies associated with the administration of 
     insulin, as a covered prescription drug shall include medical 
     supplies that the Secretary determines to be reasonable and 
     necessary, such as insulin, insulin syringes, and insulin 
     delivery devices that are not otherwise covered under the 
     durable medical equipment benefit. Drugs excluded from 
     Medicaid coverage are excluded from the definition except for 
     smoking cessation drugs. The definition would include any use 
     of a covered outpatient drug for a medically accepted 
     indication. Drugs, which can be paid for under Medicare Part 
     B, are not covered under Part D. A PDP plan or MA-PD plan 
     could exclude from coverage, subject to reconsideration and 
     appeals provisions, any drug which would not meet Medicare's 
     definition of medically necessary or was not prescribed in 
     accordance with the plan or Part D.
       Access to a Choice of Qualified Prescription Drug Coverage 
     (New Section 1860D-3 of Conference agreement; New Section 
     1860D-5 of House bill; New Section 1860d-13 of Senate bill).
     Present Law
       No provision.
     House Bill
       New section 1860D-5 would require the Administrator to 
     assure that all eligible individuals residing in the U.S. 
     would have a choice of enrollment in at least two qualifying 
     plan options, at least one of which was a PDP, in their area 
     of residence. The requirement would not be satisfied if only 
     one PDP sponsor or one MA or EFFS organization offered all 
     the qualifying plans in the area. If necessary to ensure such 
     access, the Administrator would be authorized to provide 
     partial underwriting of risk for a PDP sponsor to expand its 
     service area under an existing prescription drug plan to 
     adjoining or additional areas, or to establish such a plan, 
     including offering such plan on a regional or nationwide 
     basis. The assistance would be available only so long as, and 
     to the extent, necessary to assure the guaranteed access. 
     However, the Administrator could never provide for the full 
     underwriting of financial risk for any PDP sponsor. 
     Additionally, the Administrator would be directed to seek to 
     maximize the assumption of financial risk by PDP sponsors and 
     entities offering MA Rx or EFFS Rx plans. The Administrator 
     would be required to report to Congress annually on the 
     exercise of this authority and recommendations to minimize 
     the exercise of such authority.
     Senate Bill
       New Section 1860D-13 of the Senate bill would require the 
     Administrator to approve at least 2 contracts to offer a 
     Medicare Prescription drug Plan in an area. If the 
     Administrator determined that at least 2 plans were not going 
     to be available in the subsequent year, the Administrator 
     would reduce the amount of risk required by plans in a 
     region. This would be achieved by adjusting the percentages 
     applicable to risk corridors established under the bill. 
     Alternatively, the reinsurance percentage could be increased. 
     The Administrator could not provide for the full underwriting 
     of financial risk for any entity and could not provide for 
     the underwriting of any financial risk for a public entity. 
     The Administrator would seek to maximize the assumption of 
     financial risk to ensure fair competition among plans. The 
     authority would be used only so long as, and to the extent 
     necessary, to assure access. The authority could not be used 
     if 2 or more qualified bids were submitted in an area by 
     qualified entities.
       Not later than September 1 of each year, beginning in 2005, 
     the Administrator would make a determination as to whether 
     there were 2 approved bids. If not, the Administrator would 
     enter into an annual fallback contract with an entity to 
     provide Part D enrollees in the area with standard coverage 
     (including access to negotiated prices) for the following 
     year.
       In the case of an area with only one competitively bid 
     contract, the plan (at the

[[Page H11990]]

     plan's option) could be offered under the rules established 
     for risk-bearing plans. Beneficiaries could enroll with such 
     plan or with the fallback plan.
     Conference Agreement
       New Section 1860D-3 of the conference agreement requires 
     the Secretary to assure that each beneficiary has available a 
     choice of enrollment in at least 2 qualifying plans in the 
     area in which the beneficiary resides. At least one plan has 
     to be a prescription drug plan. The requirement is not 
     satisfied for an area if only one PDP sponsor or one MA 
     organization offering a MA-PD plan offers all the qualifying 
     plans for the area. A qualifying plan is defined as a 
     prescription drug plan or an MA-PD plan that provides either: 
     (1) basic prescription drug coverage; or (2) qualified 
     prescription drug coverage, so long as there is no MA monthly 
     supplemental beneficiary premium applied (due to the 
     application of a credit against the premium of a rebate). In 
     any case where plans are not available, the beneficiary is 
     given the opportunity to enroll in a fallback plan.
       The conference agreement permits the Secretary, in order to 
     assure access, to approve limited risk contracts as specified 
     under the new Section 1860D-11. Only if access is still not 
     provided, will the Secretary provide for the offering of a 
     fallback plan.
       Beneficiary Protections for Qualified Prescription Drug 
     Coverage (New Section 1860D-4 of conference agreement; New 
     Section 1860D-3 of House bill; New Section 1860D-5 and 
     Section 121 of Senate bill).
     Present Law
       a. Beneficiary Protections. Medicare+Choice plans are 
     required to meet a number of beneficiary protection 
     requirements. They are required to disclose plan information 
     to enrollees. They are required to have procedures relating 
     to coverage decisions, reconsiderations, and appeals. 
     Further, they are required to assure the confidentiality and 
     accuracy of enrollee records.
       Marketing material used by Medicare+Choice plans must be 
     approved by the Secretary.
       b. Electronic Prescription Program. Part C (Administrative 
     Simplification) in Title XI of the Social Security Act 
     requires the Secretary to develop transaction and security 
     standards to support the growth of electronic record keeping 
     and claims processing in the nation's health care system.
       Section 1171 defines health care clearinghouse, health care 
     provider, health plan, personally identifiable health 
     information, and standard setting organization. Section 1172 
     specifies that the administrative simplification standards 
     apply to individual and group health plans, health care 
     clearinghouses, and health care providers who transmit health 
     information electronically in a standard format in connection 
     with one of the transactions specified in Section 1173, or 
     who rely on third-party billing services to conduct such 
     transactions. The Secretary is required either to adopt 
     standards that have already been developed by standard 
     setting organizations or to develop different standards, 
     provided they substantially reduce administrative costs to 
     health plans and providers. If no standard has been adopted 
     by a standard setting organization, the Secretary must 
     develop a new standard based on the recommendations of 
     various specified organizations and agencies.
       Section 1173 instructs the Secretary to adopt the following 
     standards: (1) uniform electronic formats for various common 
     transactions between health care providers and health plans 
     (e.g., health claims, eligibility and enrollment); (2) code 
     sets for data elements in standard electronic transactions; 
     (3) unique health identifiers for individuals, employers, 
     plans, and providers; (4) security standards to safeguard 
     confidential patient information against unauthorized access, 
     use, or disclosure; and (5) electronic signatures to verify 
     the authenticity of transactions. Section 1174 provides a 
     timetable for the adoption of the administrative 
     simplification standards and permits the Secretary to modify 
     the standards as frequently as once every 12 months.
       Section 1175 requires health plans and providers that 
     process electronic transactions to use standard formats and 
     data elements. Plans and providers may transmit and receive 
     such data either directly or by contracting with a 
     clearinghouse to convert nonstandard data elements into 
     standard transactions. Most entities covered by the 
     administrative simplification standards have 24 months to 
     comply. Small health plans have 36 months to comply.
       Section 1176 establishes civil monetary penalties of up to 
     $25,000 per person for violations of the standards. Section 
     1177 establishes criminal penalties for wrongfully obtaining 
     or disclosing personally identifiable health information. 
     Penalties range from a $50,000 fine and/or 1 year in prison, 
     up to a $250,000 fine and/or up to 10 years in prison if the 
     offense is committed with the intent to sell, transfer, or 
     use the information for commercial advantage, personal gain, 
     or to inflict malicious harm. Section 1178 specifies that the 
     standards preempt contrary provisions in state law pertaining 
     to health information. However, the standards may not preempt 
     or limit state laws that are necessary to prevent fraud and 
     abuse, regulate health insurance companies, or report on 
     health care delivery and costs. Also, the standards may not 
     limit the authority of the state to collect and report for 
     public health purposes.
     House Bill
       a. Beneficiary Protections. The New Section 1860D-1 would 
     establish guaranteed issue and community-rating requirements. 
     The provision would specify that individuals electing 
     qualified prescription drug coverage under a PDP plan or MA 
     Rx or EFFS Rx plan could not be denied enrollment based on 
     health status or other factors. MA provisions relating to 
     priority enrollment (where capacity limits have been reached) 
     and limitations on terminations of elections would apply to 
     PDP sponsors. The provision would require PDP sponsors to 
     make drug coverage available to all eligible individuals 
     residing in the area without regard to their health or 
     economic status or their place of residence in the area.
       The New Section 1860D-3 would specify required beneficiary 
     protections. Plans would have to comply with guaranteed issue 
     and community-rated premium requirements specified in the new 
     Section 1860D-1, access to negotiated prices as specified in 
     the new Section 1860D-2, and the non-discrimination 
     provisions specified in the new Section 1860D-6.
       PDP plan sponsors would be required to disclose, to each 
     enrolling beneficiary, information about the plan's benefit 
     structure. The plan would have to disclose information on: 
     (1) access to specific covered drugs, including access 
     through pharmacy networks; (2) how any formulary used by the 
     sponsor functioned; (3) copayment and deductible requirements 
     (including any applicable tiered copayment requirements); and 
     (4) grievance and appeals procedures. In addition, 
     beneficiaries would have the right to obtain more detailed 
     plan information. Plans would be required to have a mechanism 
     for providing specific information to enrollees on request. 
     The sponsor would be required to make available, through an 
     Internet web site and, on request, in writing, information on 
     specific changes in the formulary. Plans would be required to 
     furnish to enrollees, at least monthly, a detailed 
     explanation of benefits when drug benefits were provided, 
     including information on benefits compared to the initial 
     coverage limit and the applicable out-of-pocket threshold.
       PDP sponsors and entities offering an MA Rx or EFFS Rx plan 
     would be required to permit the participation of any pharmacy 
     that met the plan's terms and conditions. A PDP and an MA Rx 
     or EFFS Rx plan could reduce copayments for its enrolled 
     beneficiaries below the otherwise applicable level for drugs 
     dispensed through in-network pharmacies; in no case could the 
     reduction result in an increase in subsidy payments made by 
     the Administrator to the plan. PDP sponsors and entities 
     offering an MA Rx or EFFS Rx plan would be required to secure 
     participation in its network of a sufficient number of 
     pharmacies that dispense drugs directly to patients (other 
     than by mail order) to assure convenient access. The 
     Administrator would establish convenient access rules that 
     were no less favorable to enrollees than rules for convenient 
     access established by the Secretary of Defense on June 1, 
     2003, for purposes of the TRICARE Retail Pharmacy program. 
     The rules would include adequate emergency assess 
     for enrolled beneficiaries. Sponsors would permit 
     enrollees to receive benefits through a community 
     pharmacy, rather than through mail-order, with any 
     differential in cost paid by enrollees. Pharmacies could 
     not be required to accept insurance risk as a condition of 
     participation.
       PDP sponsors and entities offering an MA Rx or EFFS Rx plan 
     would be required to issue (and reissue as appropriate) a 
     card or other technology that could be used by an enrolled 
     beneficiary to assure access to negotiated prices for drugs 
     when coverage was not otherwise provided under the plan. The 
     Administrator would provide for the development of uniform 
     standards relating to a standardized format for the card or 
     other technology. These standards would be compatible with 
     the administrative simplification requirements of Title XI of 
     the Social Security Act.
       The provision would specify that if a PDP sponsor or an MA 
     or EFFS entity used a formulary, it would have to meet 
     certain requirements. It would be required to establish a 
     pharmaceutical and therapeutic committee to develop and 
     review the formulary. The committee would include at least 
     one physician and one pharmacist, independent and free of 
     conflict with respect to the committee, both with expertise 
     in the care of elderly or disabled persons. The majority of 
     members would be physicians or pharmacists. The committee 
     would be required, when developing and reviewing the 
     formulary, to base clinical decisions on the strength of 
     scientific evidence and standards of practice. This would 
     include assessing peer-reviewed medical literature, such as 
     randomized clinical trials, pharmacoeconomic studies, 
     outcomes research data, and such other information the 
     committee determined appropriate. The committee would also 
     take into account whether including a particular covered drug 
     had therapeutic advantages in terms of safety and efficacy. 
     The formulary would have to include drugs within each 
     therapeutic category and class of covered outpatient drugs, 
     although not necessarily all drugs within such categories or 
     classes. When establishing such classes, the committee would 
     take into account the standards published in the United 
     States Pharmacopeia Drug Information. It would be required to 
     make available to plan enrollees, through the Internet or 
     otherwise, the bases for the exclusion of coverage of any 
     drug on the formulary. The

[[Page H11991]]

     committee would be required to establish policies and 
     procedures to educate and inform health care providers and 
     enrollees concerning the formulary. Any removal of a drug 
     from the formulary, and any change in the preferred or tier 
     cost-sharing status of a drug, could not occur until 
     appropriate notice had been provided to beneficiaries and 
     physicians. The plan would provide for periodic evaluation 
     and analysis of treatment protocols and procedures. Further, 
     the PDP sponsor or entity offering a MA Rx or EFFS Rx plan 
     would be required to have, as part of its appeals process, a 
     process for appeals of coverage denials based on application 
     of the formulary.
       The PDP sponsor would be required to have (directly, or 
     indirectly through arrangements) an effective cost and drug 
     utilization management program; quality assurance measures 
     including a medication therapy management program; and a 
     program to control waste, fraud, and abuse. Utilization 
     management programs would be required to include medically 
     appropriate incentives to use generic drugs and therapeutic 
     interchange where appropriate. Medication therapy management 
     programs would be designed to assure, for beneficiaries at 
     risk for potential medication problems such as beneficiaries 
     with complex or chronic diseases (such as diabetes, asthma, 
     hypertension, and congestive heart failure) or multiple 
     prescriptions, that drugs under the plan were appropriately 
     used to optimize therapeutic outcomes through improved 
     medication use and to reduce the risk of adverse events, 
     including adverse drug interactions. The program would be 
     developed in cooperation with licensed pharmacists and 
     physicians. The PDP sponsor would be required, when 
     establishing fees for pharmacists and other providers, to 
     take into account the resources and time associated with the 
     medication therapy management program. The sponsor or entity 
     would disclose the amount of such fees to the Administrator 
     upon request; the fees would be confidential.
       Each PDP sponsor and entity offering a MA Rx or EFFS Rx 
     plan would ensure that each pharmacy or other dispenser 
     informed enrolled beneficiaries at the time of purchase, of 
     any price differential between their prescribed drug and the 
     price of the lowest cost generic drug covered under the plan 
     that was therapeutically equivalent and bioequivalent.
       Each PDP sponsor would be required to have meaningful 
     procedures for the hearing and resolving of any grievances 
     between the organization (including any entity or individual 
     through which the organization provided covered benefits) and 
     enrollees. Enrollees would be afforded access to expedited 
     determinations and reconsiderations, in the same manner 
     afforded under MA. A beneficiary in a plan that provided for 
     tiered cost-sharing could request coverage of a non-preferred 
     drug on the same conditions applicable to preferred drugs, if 
     the prescribing physician determined that the preferred drug 
     for the treatment of the same condition was not as effective 
     for the enrollee or had adverse effects for the enrollee.
       In general, PDP plan sponsors would be required to meet the 
     requirements for independent review and appeals of coverage 
     denials and tiered cost-sharing in the same manner that such 
     requirements applied to MA organizations. An individual 
     enrolled in a PDP plan could appeal to obtain coverage for a 
     drug not on the formulary if the prescribing physician 
     determined that the formulary drug for treatment of the same 
     condition was not as effective for the individual or had 
     adverse effects for the individual. The PDP sponsor would be 
     required to meet requirements related to confidentiality and 
     accuracy of enrollee records in the same manner that such 
     requirements applied to MA organizations.
       b. Electronic Prescription Program. PDP sponsors and 
     entities offering an MA Rx or EFFS Rx plan would be required, 
     effective January 1, 2007, to have in place an electronic 
     prescription program. The program would have to be consistent 
     with national standards developed by the Administrator. The 
     program would be required to provide for electronic 
     transmittal of prescriptions (except in emergencies and 
     exceptional cases). It would also have to provide for the 
     electronic transmittal of information to the prescribing 
     health professional of information that included: (1) 
     information (to the extent available and feasible) on the 
     drugs being prescribed for that patient and other information 
     relating to the medical history or condition of the patient 
     that may be relevant to the appropriate prescription for the 
     patient; (2) cost-effective alternatives (if any) for the 
     prescribed drug; and (3) information on drugs included in the 
     applicable formulary. To the extent feasible, the program 
     would permit the prescribing health professional to provide, 
     and be provided, information on an interactive real time 
     basis.
       The Administrator would provide for the development of 
     uniform standards relating to the electronic prescription 
     drug program. These standards would be compatible with the 
     administrative simplification requirements of Title XI of the 
     Social Security Act. The Administrator would be required to 
     establish an advisory task force that included 
     representatives of physicians, hospitals, pharmacies, 
     beneficiaries, pharmacy benefit managers, individuals with 
     expertise in information technology, and pharmacy benefit 
     experts of the Departments of Veterans Affairs and Defense 
     and other appropriate Federal agencies to provide 
     recommendations to the administrator on such standards, 
     including recommendations relating to: (1) the range of 
     available computerized prescribing software and hardware 
     and their costs to develop and implement; (2) the extent 
     to which such standards and systems could be readily 
     implemented by physicians, pharmacies, and hospitals; (3) 
     efforts to develop uniform standards and a common software 
     platform for the secure electronic communication of 
     medication history, eligibility, benefit, and prescription 
     information; (4) efforts to develop and promote universal 
     connectivity and interoperability for the secure 
     electronic exchange of such information; (5) the cost of 
     implementing such systems; (6) implementation issues as 
     they relate to the administrative simplification 
     provisions of Title XI and current Federal and State 
     prescribing laws and regulations and their impact on 
     implementation of computerized prescribing. The 
     Administrator would constitute the task force by April 1, 
     2004; it would submit recommendations to the Administrator 
     by January 1, 2005. The Administrator would provide for 
     the development and promulgation of national standards by 
     January 1, 2006. The standards would be issued by a 
     standards organization accredited by the American National 
     Standards Institute and be compatible with administrative 
     simplification standards.
     Senate Bill
       a. Beneficiary Protections. Eligible entities offering 
     Medicare Prescription Drug Plans would be required to 
     disclose plan information comparable to that required for 
     MedicareAdvantage plans. Entities would have to disclose 
     information on access, operation of any formulary, 
     beneficiary cost-sharing, and grievance and appeals 
     procedures. Further, upon request of an individual, they 
     would be required to disclose general information on 
     coverage, utilization, and grievance procedures. An eligible 
     entity would be required to have a mechanism for providing 
     specific information to enrollees, upon request, including 
     information on coverage of specific drugs and changes in its 
     formulary. Entities would be required to provide easily 
     understandable explanation of benefits and a notice of 
     benefits in relation to the initial coverage limit and the 
     annual out-of-pocket limit. The MedicareAdvantage 
     requirements relating to approval of marketing materials 
     would apply to information provided by entities on drug 
     plans.
       The bill would include several provisions designed to 
     assure beneficiary access to drugs. Eligible entities would 
     be required to have in place procedures to ensure that 
     beneficiaries were not charged more than the negotiated price 
     of a covered drug. The procedures would include the issuance 
     of a card or other technology that could be used by a 
     beneficiary to assure access to negotiated prices for which 
     coverage was not otherwise provided under the plan. Entities 
     would be required to secure the participation in the network 
     of a sufficient number of pharmacies that dispensed drugs 
     directly to patients (other than by mail order) to ensure 
     convenient access for beneficiaries. The Administrator would 
     be required to establish standards to ensure convenient 
     access, including emergency access. The standards would take 
     into account reasonable distances to pharmacy services in 
     both urban and rural areas and to pharmacy services and 
     access to pharmacy services of the Indian health service and 
     Indian tribes and tribal organizations.
       An entity would be required to establish a point-of-service 
     method of operation under which the plan would provide access 
     to any or all pharmacies not participating in the network and 
     could charge beneficiaries, through adjustments in cost 
     sharing, the additional costs associated with this option. 
     This additional cost sharing would not count toward the 
     program's cost-sharing requirements or benefit limits. 
     Entities would be required to permit enrollees receiving 
     benefits (which may include a 90-day supply of drugs or 
     biologicals) through a community pharmacy, rather than 
     through mail order and may permit a differential amount to be 
     paid by enrollees.
       New Section 1860D-6 would permit entities to use a variety 
     of cost control mechanisms including formularies, tiered 
     copayments, selective contracting with drug providers, and 
     mail order pharmacies. Under New Section 1860D-5, plans 
     electing to use a formulary would be required to establish a 
     pharmacy and therapeutic committee to develop and review the 
     formulary. The pharmacy and therapeutics committee would 
     include at least one academic expert, at least one practicing 
     physician, and at least one practicing pharmacist, all of 
     whom must have expertise in the care of elderly or disabled 
     persons. The committee would base clinical decisions on the 
     strength of scientific evidence and standards of practice. 
     The committee would establish policies and procedures to 
     educate and inform health care providers concerning the 
     formulary. Drugs could not be removed from the formulary 
     until after appropriate notice had been provided to 
     beneficiaries, physicians, and pharmacists. An enrollee would 
     have the right to appeal to obtain coverage for a drug not on 
     the formulary if the prescribing physician determined that 
     the formulary drug was not as effective for treatment of the 
     same condition for the individual or had adverse effects for 
     the individual. If a plan offered tiered cost-sharing for 
     covered drugs, an enrollee would have the right to request 
     that a nonpreferred drug be treated on terms applicable

[[Page H11992]]

     for a preferred drug if the prescribing physician determined 
     that the preferred drug was not as effective for treatment of 
     the same condition for the individual or had adverse effects 
     for the individual.
       The formulary would be required to include drugs within all 
     therapeutic categories and classes of covered drugs (although 
     not necessarily for all drugs within such categories and 
     classes). For purposes of defining therapeutic categories and 
     classes, the Administrator would be required to use the 
     following compendia: American Hospital Formulary Service Drug 
     Information, United States Pharmacopeia-Drug Information, the 
     DRUGEX Information System, and American Medical Association 
     Drug Evaluations.
       Eligible entities would be required to have a cost-
     effective drug utilization management program (including 
     incentives to reduce costs when appropriate). They would be 
     required to have a program to control fraud, abuse, and 
     waste. Further, they would be required to have quality 
     assurance measures, including a medication therapy management 
     program, to reduce medical errors and adverse drug 
     interactions. The medication therapy management program would 
     be designed to assure that drugs for beneficiaries with 
     chronic diseases (such as diabetes, asthma, hypertension, 
     hyperlipidemia, and congestive heart failure) or multiple 
     prescriptions were appropriately used to optimize therapeutic 
     outcomes and reduce the risk of adverse events including 
     adverse drug interactions. The program could include enhanced 
     beneficiary understanding of appropriate use through 
     education, counseling and other appropriate means; increased 
     adherence with prescription regimens through refill 
     reminders, special packaging and other appropriate means; and 
     detection of patterns of overuse and underuse of drugs. The 
     program would be developed in cooperation with pharmacists 
     and physicians. Associated costs would be taken into account 
     by the entity when establishing fees for pharmacists and 
     others providing services under the medication therapy 
     management program.
       Pharmacies or other dispensers would be required to assure 
     that beneficiaries were informed at the time of purchase of 
     any difference between the price of the prescribed drug and 
     the lowest cost generic drug that is therapeutically 
     equivalent and bioequivalent and that is available at the 
     pharmacy or other dispenser. Entities would also be required 
     to have meaningful procedures for hearing and resolving 
     grievances, comparable to those established for 
     MedicareAdvantage plans. In addition, eligible entities would 
     be required to meet MedicareAdvantage requirements relating 
     to coverage determinations. Entities would be required to 
     safeguard the privacy of individually identifiable 
     beneficiary information, maintain such records in an 
     accurate and timely manner, ensure timely access by 
     beneficiaries, and otherwise comply with laws relating to 
     patient privacy.
       Eligible entities would be required to conduct consumer 
     satisfaction surveys with respect to the plan and entity. The 
     Administrator would establish uniform requirements for such 
     survey.
       b. Electronic Prescription Program. The provision would 
     establish a new Part D in Title XI of the Social Security 
     Act. The new Section 1180 would mandate the development or 
     adoption of standards for transactions and data elements for 
     such transactions, to enable the electronic transmission of 
     medication history, eligibility, benefit and other 
     prescription information. In developing the standards, the 
     Secretary would be required to consult with representatives 
     of physicians, hospitals, pharmacists, standard setting 
     organizations, pharmacy benefit managers, beneficiaries, 
     information exchange networks, technology experts, and 
     representatives of the Departments of Veterans Affairs and 
     Defense and other interested parties. The standards developed 
     or adopted by the Secretary would be consistent with the 
     objective of improving patient safety and improving the 
     quality of care.
       Standards would be required to comply with certain 
     requirements. Patients could request a written prescription 
     and not be charged for such request. The standards would 
     accommodate the electronic transmittal of a patient's 
     medication history, eligibility, benefit and other 
     prescription information among prescribing and dispensing 
     professionals at the point of care. The information that 
     could be transmitted using the standards would include: 
     information on the drugs prescribed for the patient; cost-
     effective alternatives (if any) to the drug prescribed; 
     information on eligibility and benefits (including the drugs 
     included in the applicable formulary and any requirements for 
     prior authorization); information on potential drug 
     interactions; and other information to improve the quality of 
     care and to reduce medical errors. The standards would be 
     designed so that, to the extent practicable, they did not 
     impose an undue administrative burden on the practice of 
     medicine, pharmacy, or other health professions.
       The standards developed or adopted by the Secretary would 
     be consistent with Federal regulations (concerning the 
     privacy of individually identifiable health information) 
     promulgated under section 264(c) of the 1996 Health Insurance 
     Portability and Accountability Act (HIPAA), and would be 
     compatible with HIPAA's Administrative Simplification 
     standards.
       The Secretary would be required to adopt standards for the 
     appropriate data elements needed for the electronic exchange 
     of prescription drug information among prescribers, insurers, 
     and other entities.
       The Secretary would have to adopt the standards by Jan. 1, 
     2006, and would be permitted to modify them, but in a manner 
     that minimized the disruption and cost of compliance. 
     Individuals that transmit or receive prescriptions 
     electronically would be required to comply with the 
     standards. However, individuals would not be required to 
     transmit or receive electronic prescriptions. The standards 
     would preempt state electronic prescription laws. Entities 
     covered by the standards would have 24 months to comply. 
     Small health plans, as defined by the Secretary, would have 
     an additional 12 months to comply.
       The Secretary would be required to consult with the 
     Attorney General to ensure that the standards resulted in the 
     secure electronic transmission of prescriptions for 
     controlled substances.
     Conference Agreement
       a. Beneficiary Protections. New Section 1860D-4 establishes 
     beneficiary protection requirements for qualified 
     prescription drug plans. PDP plan sponsors are required to 
     disclose, to each enrolling beneficiary, information about 
     the plan's benefit structure. The plan will disclose 
     information on: (1) access to specific covered drugs 
     (including access through pharmacy networks); (2) how any 
     formulary (including a tiered formulary) used by the sponsor 
     functions, including how a beneficiary might obtain 
     information on the formulary; (3) copayment and deductible 
     requirements (including any applicable tiered copayment 
     requirements; and (4) grievance and appeals procedures. In 
     addition, beneficiaries will have the right to obtain more 
     detailed plan information. Plans will be required to have a 
     mechanism for providing specific information to enrollees on 
     request. The sponsor will be required to make available, 
     through an Internet website, information on specific changes 
     in the formulary (including tiered or preferred status). 
     Sponsors will be required to furnish to enrollees, a detailed 
     explanation of benefits when drug benefits were provided, 
     including information on benefits compared to the initial 
     coverage limit and the applicable out-of-pocket threshold.
       PDP sponsors are required to permit the participation of 
     any pharmacy that meets the plan's terms and conditions. The 
     conference report would require plans to accept any and all 
     pharmacies willing to agree to the terms and conditions of 
     the plan. A PDP could reduce copayments for its enrolled 
     beneficiaries below the otherwise applicable level for drugs 
     dispensed through in-network pharmacies; in no case could the 
     reduction result in an increase in subsidy payments made by 
     the Secretary to the plan. The PDP sponsor is required to 
     secure participation in its network of a sufficient number of 
     pharmacies that dispense drugs directly to patients (other 
     than by mail order) to assure convenient access. The 
     Secretary will establish convenient access rules that are no 
     less favorable to enrollees than rules for convenient access 
     established in the statement of work solicitation (#MDA906-
     03-R-0002) by the Department of Defense on March 13, 2003, 
     for purposes of the TRICARE Retail Pharmacy program. The 
     conference report adopts the House language, with the 
     clarification that the minimum in-network pharmacy for each 
     plan offered by a PDP or MA plan in a geographic area must 
     provide access to pharmacies that is not less restrictive 
     than the TRICARE access standards. These standards require 
     that 90 percent of plan enrollees in urban areas will have 
     access to a retail pharmacy within 2 miles; that 90 percent 
     of suburban plan enrollees will have access to a retail 
     pharmacy within 5 miles; and that 70 percent of rural plan 
     enrollees will have access to a pharmacy within 15 miles. PDP 
     sponsors or MA sponsors can offer broader networks than those 
     meeting the TRICARE access standards.
       Plan sponsors cannot create any pharmacy networks that are 
     more restrictive than the TRICARE access standards. PDP plan 
     sponsors or MA sponsors cannot include mail order only 
     pharmacies. The rules would include adequate emergency access 
     for enrolled beneficiaries. The rules may include standards 
     with respect to access for enrollees in long-term care 
     facilities. Sponsors will permit enrollees to receive 
     benefits (which may include a 90-day supply) through a 
     community pharmacy, rather than through mail-order, with any 
     differential in charge paid by enrollees. In addition, the 
     conference report clarifies that pharmacies could not accept 
     insurance risk.
       PDP sponsors are required to issue (and reissue as 
     appropriate) a card or other technology that could be used by 
     an enrolled beneficiary to assure access to negotiated prices 
     for drugs. The Secretary will provide for the development, 
     adoption, or recognition of standards relating to a 
     standardized format for the card or other technology. These 
     standards are to be compatible with the administrative 
     simplification requirements of Title XI of the Social 
     Security Act. The standards will be implemented by such date 
     the Secretary determines to be sufficient to ensure PDP 
     sponsors utilize such standards beginning January 1, 2006, 
     and developed in consultation with the National Counsel for 
     Prescription Drug Programs (NCPDP) and other standard setting 
     organizations.
       The provision would specify that if a PDP sponsor used a 
     formulary, it would have to meet certain requirements. A 
     pharmaceutical and therapeutic committee would

[[Page H11993]]

     develop and review the formulary. The committee would include 
     at least one practicing physician and one practicing 
     pharmacist, independent and free of conflict with respect to 
     the committee, both with expertise in the care of elderly or 
     disabled persons. The majority of members would be physicians 
     or pharmacists. The committee would be required, when 
     developing and reviewing the formulary, to 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 the committee determined appropriate. The 
     committee would also take into account whether including a 
     particular covered drug in the formulary (or in a particular 
     tier in a formulary) had therapeutic advantages in terms of 
     safety and efficacy. The formulary would have to include 
     drugs within each therapeutic category and class of covered 
     Part D drugs, although not necessarily all drugs within such 
     categories or classes.
       The Secretary is required to request the United States 
     Pharmacopeia to develop a list of categories and classes that 
     may be used by plans. The Secretary's request would also 
     include the revision of such classification from time to time 
     to reflect changes in therapeutic uses of covered drugs and 
     the addition of new covered drugs. The plan sponsor cannot 
     change therapeutic categories and classes in a formulary 
     other than at the beginning of a plan year, except as the 
     Secretary may permit to take into account new therapeutic 
     uses and newly approved covered drugs. Each sponsor is 
     required to establish policies and procedures to educate and 
     inform health care providers and enrollees concerning the 
     formulary. Any removal of a drug from the formulary, and any 
     change in the preferred or tier cost-sharing status of a 
     drug, could not occur until appropriate notice had been 
     provided to the Secretary, beneficiaries, and physicians, 
     pharmacies, and pharmacists. The plan must provide for 
     periodic evaluation and analysis of treatment protocols and 
     procedures.
       The PDP sponsor would be required to have (directly, or 
     indirectly through arrangements) a cost-effective drug 
     utilization management program; quality assurance measures, a 
     medication therapy management program; and a program to 
     control fraud, waste, and abuse. A medication therapy 
     management program is a program of drug therapy management 
     and medication administration, that may be furnished by a 
     pharmacist and that is designed to assure with respect to 
     targeted beneficiaries that drugs under the plan are 
     appropriately used to optimize therapeutic outcomes through 
     improved medication use and to reduce the risk of adverse 
     events, including adverse drug interactions. Targeted 
     individuals are those with multiple chronic diseases (such as 
     diabetes, asthma, hypertension, hyperlipidemia, and 
     congestive heart failure) or are taking multiple drugs or are 
     likely to incur annual costs that exceed a specified level. 
     The program would be developed in cooperation with licensed 
     practicing pharmacists and physicians. Such plans would be 
     coordinated with disease management programs to the extent 
     beneficiaries are enrolled in such programs. The PDP sponsor 
     would be required, when establishing fees for pharmacists and 
     other providers, to take into account the resources and time 
     associated with the medication therapy management program. 
     The sponsor or entity would disclose the amount of such fees 
     to the Administrator upon request; the fees would be 
     confidential.
       The Secretary will be required to conduct consumer 
     satisfaction surveys in order to provide comparative 
     information during the enrollment period.
       Each PDP sponsor is required to have meaningful procedures 
     for the hearing and resolving of any grievances between the 
     sponsor (including any entity or individual through which the 
     sponsor provided covered benefits) and enrollees. Enrollees 
     will be afforded access to expedited determinations and 
     reconsiderations, in the same manner afforded under MA. A 
     beneficiary in a plan that provides for tiered cost-sharing 
     can request coverage of a non-preferred drug on the same 
     conditions applicable to preferred drugs, if the prescribing 
     physician determines that that the preferred drug for the 
     treatment of the same condition is not as effective for the 
     enrollee or has adverse effects for the enrollee. A PDP is 
     required to have an exceptions process consistent with 
     guidelines established by the Secretary.
       In general, PDP plan sponsors will be required to meet the 
     requirements for independent review and appeals of coverage 
     denials and tiered cost-sharing in a similar manner that such 
     requirements applied to MA organizations for fee-for-service 
     benefits. An individual enrolled in a PDP plan may appeal to 
     obtain coverage for a drug not on the formulary only if the 
     prescribing physician determines that all covered Part D 
     drugs on any tier of the formulary for treatment of the same 
     condition would not as effective for the individual or would 
     have adverse effects for the individual or both. The PDP 
     sponsor will be required to meet requirements related to 
     confidentiality and accuracy of enrollee records in the same 
     manner that such requirements applied to MA organizations.
       Each PDP sponsor will provide that each pharmacy that 
     dispenses a covered drug shall inform enrolled beneficiaries 
     at the time of purchase (or at the time of delivery in the 
     case of mail order drugs) of any price differential between 
     the price to the enrollee and the price of the lowest cost 
     generic drug covered under the plan that is therapeutically 
     equivalent and bioequivalent and available at the pharmacy. 
     The Secretary is permitted to waive this requirement.
       b. Electronic Prescription Program. The conference 
     agreement requires the Secretary to develop electronic 
     prescription standards. The standards apply to prescriptions 
     for covered part D drugs and required information that are 
     transmitted electronically under an electronic prescription 
     drug program conducted by a PDP or MA plan. The program must 
     provide for the electronic transmittal of information on 
     eligibility and benefits (including formulary drugs, any 
     tiered formulary structure, and prior authorization 
     requirements), information on the drug being prescribed and 
     other drugs listed in the patient's medication history 
     (including drug-drug interactions), and information on the 
     availability of lower-cost, therapeutically appropriate 
     alternative drugs. The conferees intend for prescribing 
     health care professionals to have ready access to neutral and 
     unbiased information on the full range of covered outpatient 
     drugs available. Disclosure of information must meet the 
     requirements of the HIPAA privacy rule and, to the extent 
     feasible, be on an interactive, real-time basis. The 
     conferees do not intend for the provision relating to 
     ``interactive, real-time'' transmission of information to 
     preclude an individual or entity from complying with the 
     standards under this part by virtue of such individual's 
     or entity's inability to transmit information on an 
     interactive, real-time basis.
       The standards must be consistent with the objectives of 
     improving patient safety and the quality and efficiency of 
     patient care. To the extent practicable, the standards must 
     be designed so that they do not impose an undue 
     administrative burden on prescribing physicians and 
     pharmacists. The standards must also be compatible with the 
     HIPAA Administrative Simplification standards and other 
     health information technology standards, and must permit the 
     electronic exchange of drug labeling and drug listing 
     information maintained by the FDA and the National Library of 
     Medicine. Finally, the standards must accommodate the 
     messaging of information about appropriate prescribing of 
     drugs and allow a beneficiary (consistent with their 
     prescription drug plan) to designate a particular pharmacy to 
     dispense a prescribed drug.
       The conference agreement requires the Secretary to 
     promulgate initial standards by September 1, 2005, taking 
     into account recommendations from the National Committee on 
     Vital and Health Statistics (NCVHS). The NCVHS is required to 
     develop such recommendations in consultation with standard 
     setting organizations, practicing physicians, hospitals, 
     pharmacies, practicing pharmacists, pharmacy benefit 
     managers, state boards of pharmacy and medicine, and 
     appropriate federal agencies. Prior to the promulgation of 
     final standards, the Secretary must enter into voluntary 
     agreements with physicians, pharmacies, hospitals, and PDP 
     sponsors and MA plans to conduct a pilot project to test the 
     initial standards. The pilot project must be conducted during 
     the 1-year period that begins on January 1, 2006, except that 
     pilot testing is not required where there is adequate 
     industry experience. The Secretary must then evaluate the 
     pilot project and report to Congress not later than April 1, 
     2007. Based on the evaluation and not later then April 1, 
     2008, the Secretary must promulgate final standards to take 
     effect within one year. The electronic prescriptions 
     standards shall supercede any contrary state laws.
       The agreement requires the Secretary, in consultation with 
     the Attorney General, to provide a safe harbor from both 
     criminal sanctions under Section 1128(b)(1 and 2) of the Act 
     and the self-referral prohibition under Section 1877 of the 
     Act with respect to the provision of nonmonetary remuneration 
     necessary and used solely to receive and transmit electronic 
     prescription information in accordance with Part D standards. 
     Nonmonetary remuneration includes hardware, software, or 
     information technology and training services. This safe 
     harbor is to apply: (1) in the case of a hospital by the 
     hospital to members of its medical staff; (2) in the case of 
     a medical group practice by the practice to prescribing 
     health care professionals who are members of the practice; 
     and (3) in the case of a PDP sponsor or MA organization, by 
     the sponsor or organization to pharmacists and pharmacies 
     participating in its network and to prescribing health 
     processionals.
       The conferees intend for electronic prescribing to serve as 
     a vehicle to reduce medical errors and improve efficiencies 
     in the health care system, but not for it to be used as a 
     marketing platform or other mechanism to unduly influence the 
     clinical decisions of physicians.

      Subpart 2--Prescription Drug Plans; PDP Sponsors; Financing

       PDP Regions; Submission of Bids; Plan Approval (New Section 
     1860D-11 of Conference Agreement; New Section 1860D-6 and New 
     section 1860D-4 of House bill; New Section 1860D-7, 1860D-12, 
     and 1860D-13 of Senate bill).
     Present Law
       a. PDP Regions. No provision.
       b. Submission of Bids. No provision.
       c. Plan Approval. No provision.
       d. Fallback. No provision

[[Page H11994]]

     House Bill
       a. PDP Regions. The Administrator would designate at least 
     10 service areas in the U.S., consistent with EFFS regions, 
     to the extent practicable.
       b. Submission of Bids. The new Section 1860D-6 would 
     require each PDP sponsor to submit to the Administrator 
     specified information in the same manner as such information 
     was submitted by MA organizations. The information to be 
     submitted would be information on the qualified drug coverage 
     to be provided, the actuarial value of the coverage, and 
     information on the bid and premium for the coverage. The PDP 
     sponsor would have to include an actuarial certification 
     of:(1) the actuarial basis for the bid and premium; (2) the 
     portion of the bid and premium attributable to benefits in 
     excess of the standard coverage; (3) the reduction in the 
     premium resulting from reinsurance subsidies; (4) the 
     reduction in the bid resulting from direct and reinsurance 
     subsidy payments; and (5) such other information required by 
     the Administrator.
       c. Plan Approval. The Administrator would review the 
     submitted information for purposes of conducting negotiations 
     with the plan. The Administrator would approve the premium 
     only if it accurately reflected the actuarial value of the 
     benefits and the 73% average subsidy provided for under the 
     new Section 1860D-8. The Administrator would apply actuarial 
     principles to approval of a premium in a manner similar to 
     that used for establishing the monthly Part B premium. These 
     requirements would not apply to private fee-for-service 
     plans.
       d. Fallback. No provision
     Senate Bill
       a. PDP Regions. New Section 1860D-10 would require the 
     Administrator to establish by April 15, 2005, and 
     periodically review, service areas in which plans could offer 
     benefits. The
       Administrator would establish service areas so that they 
     maximized the availability of Medicare Prescription Drug 
     Plans to eligible beneficiaries and minimized the ability of 
     entities offering plans to favorably select beneficiaries. In 
     establishing the service areas, the Administrator would 
     establish at least 10 service areas, which would have to 
     include at least one state. The Administrator could not 
     divide states so that portions of a state were in different 
     service areas.
       To the extent possible, the Administrator would include 
     multi-state metropolitan statistical areas (MSAs) in a single 
     service area. The Secretary could divide MSAs where it is 
     necessary to establish service areas of such size and 
     geography as to maximize plan participation. 
     The Administrator could conform service areas to those 
     established for preferred provider organizations under 
     MedicareAdvantage.
       Under the New Section 1860D-12, plan service areas could 
     either be, the entire area of one of the service areas 
     established by the Administrator or the entire area covered 
     by Medicare. Entities could submit separate bids for multiple 
     service areas, provided each bid was for a single service 
     area.
       b. Submission of bids. The new Section 1860D-12 of the 
     Senate bill would require entities to submit bids to the 
     Administrator on an annual basis. The bid would be submitted 
     at such time in the previous year as specified by the 
     Administrator. The bid would contain information on proposed 
     plans including benefits, actuarial value of the qualified 
     prescription drug coverage, the service area for the plan, 
     and the monthly premium. Premium information would have to 
     include an actuarial certification of the basis for the 
     premium, the portion of the premium attributable to benefits 
     in excess of standard coverage, and the reduction in bids 
     attributable to reinsurance payments. Entities would also be 
     required to provide information on whether the entity planned 
     to use any funds in the plan stabilization reserve fund that 
     were available to the entity for the purpose of stabilizing 
     or reducing the monthly premium.
       c. Plan Approval. The new Section 1860D-13 would prohibit 
     the Administrator from approving a plan unless the premium, 
     for both standard coverage and for any additional benefits, 
     accurately reflected the actuarial value of the benefits less 
     the actuarial value of reinsurance payments and any 
     stabilization funds used. The bid submitted by an entity for 
     a qualified plan must reasonably and equitably reflect the 
     cost of benefits provided under that plan. The Administrator 
     would have the authority to negotiate the terms and 
     conditions of the proposed monthly premiums and other terms 
     and conditions of proposed plans. The Administrator could 
     disapprove, or limit enrollment in, a proposed plan based on 
     costs to beneficiaries, the quality of coverage and benefits, 
     the adequacy of the plan network, average aggregate projected 
     costs of covered drugs and other factors determined 
     appropriate by the Administrator. The Administrator could 
     approve a plan only if it provided the required benefits and 
     was not designed to result in a favorable selection of 
     beneficiaries. The Administrator would approve at least 2 
     contracts to offer a Medicare Prescription Drug plan in an 
     area. Contracts would be awarded for 2 years.
       d. Fallback. Under New Section 1860D-13, the Administrator, 
     not later than September 1 of each year, beginning in 2005, 
     would make a determination as to whether there were 2 
     approved bids. If not, the Administrator would enter into an 
     annual contract with an entity to provide Part D enrollees in 
     the area with standard coverage (including access to 
     negotiated prices) for the following year. The Administrator 
     could enter into only 1 contract for each such area. A single 
     entity could be awarded contracts for more than one such 
     area. The Administrator could not enter into such a contract 
     if the Administrator received two or more qualified bids 
     after exercise of the authority to reduce risk for entities. 
     Entities would be required to meet beneficiary protection 
     requirements.
       Beneficiary premiums for a fallback plan would be set at 
     the premium amount that would apply if the plan premium 
     equaled the national weighted average premium for the area, 
     as adjusted for geographic differences in drug prices. The 
     Administrator would establish a methodology for making this 
     calculation, which could take into account geographic 
     differences in utilization and the results of the ongoing 
     study on spending and utilization required under the Act. The 
     contract with the plan would provide for payments to the 
     plans for the negotiated costs of covered drugs and payment 
     of prescription management fees tied to performance 
     management fees established by the Administrator. Performance 
     requirements established by the Administrator would include 
     the following; (1) the entity contained costs to taxpayers 
     and to beneficiaries; (2) the entity provided quality 
     clinical care; and (3) the entity provided quality services. 
     The fallback plan would not be permitted to engage in any 
     marketing or branding of the contract. Entities that 
     submitted bids to be a qualified risk-bearing entity could 
     not submit a bid to be a fallback plan.
     Conference Agreement
       a. PDP Regions. New Section 1860D-11 of the conference 
     agreement provides for the establishment of PDP regions. The 
     service area for a plan includes an entire PDP region. The 
     Secretary shall establish, and may revise PDP regions in a 
     manner that is consistent with the requirements for 
     establishment and revision of MA regions. To the extent 
     practicable, PDP regions shall be the same as MA regions. The 
     Secretary may establish different regions if the Secretary 
     determines that it would improve access to drug benefits. The 
     Secretary will establish PDP regions for the territories. A 
     plan can be offered in more than one PDP region, including 
     all PDP regions.
       b. Submission of Bids. Each PDP sponsor is required to 
     submit to the Secretary specified information at the same 
     time and in a similar manner as such information is submitted 
     by MA organizations. The information to be submitted is: (1) 
     information on the prescription drug coverage to be provided; 
     (2) the actuarial value of the qualified prescription drug 
     coverage in the region for a beneficiary with a national 
     average risk profile; (3) information on the bid including 
     the basis for the actuarial value, the portion of the bid 
     attributable to basic coverage and if applicable, the portion 
     attributable to supplemental benefits, and assumptions 
     regarding reinsurance subsidy payments and administrative 
     expenses; (4) service area; (5) level of risk assumed 
     including whether the sponsor requires a modification of risk 
     level and if so the extent of the modification; and (6) such 
     other information required by the Secretary. A modification 
     of risk levels applies to all PDP plans offered by a PDP 
     sponsor in a region; it may include an increase in the 
     federal percentage assumed in the risk corridor or decrease 
     in the size of risk corridors. The Secretary is to establish 
     requirements for information submission in a manner that 
     promotes the offering of plans in more than one PDP region.
       The Secretary is to establish processes and methods for 
     determining the actuarial valuation of prescription drug 
     coverage including: (1) an actuarial valuation of standard 
     coverage; (2) actuarial valuations relating to alternative 
     coverage; (3) use of generally accepted actuarial principles 
     and methodologies; (4) applying the same methodology for 
     determinations of alternative coverage as is used for 
     determinations of standard coverage; and (5) actuarial 
     valuation of reinsurance subsidies. The processes and methods 
     are to take into account the effect that providing 
     alternative coverage (rather than standard coverage) has on 
     drug utilization.
       PDP sponsors and MA organizations are responsible for the 
     submission of required actuarial valuations for plans they 
     offer. They may use actuarial opinions certified by 
     independent, qualified actuaries.
       c. Plan Approval. The Secretary will review the submitted 
     information for purposes of conducting negotiations with the 
     plan. The Secretary has the authority to negotiate the terms 
     and conditions of the plans. The authority is similar to the 
     authority the Director of the Office of Personnel 
     Management has with respect to Federal Employee Health 
     Benefits (FEHB) plans.
       After review and negotiation, the Secretary will approve or 
     disapprove the plan. The Secretary may only approve a plan if 
     certain requirements are met. The plan must comply with Part 
     D requirements, including for actuarial determinations. The 
     Secretary must determine that the portion of the bid that is 
     related to basic coverage is supported by the actuarial bases 
     provided and reasonably and equitably reflects the revenue 
     requirements (as the term is used under Section 1302(8)(c) of 
     the Public Health Service Act) for benefits provided under 
     the plan, less the sum of the actuarial value of the 
     reinsurance payments provided. Similarly, the Secretary must 
     determine that the portion of the bid that is related to 
     supplemental

[[Page H11995]]

     coverage is supported by the actuarial bases provided and 
     reasonably and equitably reflects the revenue requirements 
     for coverage provided under the plan.
       The Secretary can only approve a plan, if the plan and the 
     benefits (including any formulary and tiered formulary 
     structure) are not likely to discourage enrollment by certain 
     beneficiaries.
       The agreement provides that the Secretary may only approve 
     a limited risk plan for a PDP region if the access 
     requirements for the region would otherwise not be met except 
     for the approval of a limited risk or fallback plan. Only the 
     minimum number of limited risk plans necessary for a region 
     to meet access requirements may be approved. The Secretary 
     shall provide priority to those with the highest level of 
     risk. In no case can the reduction of risk provide for no (or 
     a de minimus) level of financial risk. There is no limit on 
     the number of full risk plans that may be approved.
       d. Fallback. The New Section 1860D-3, discussed above, 
     establishes access requirements. If access is not provided, 
     including through a limited risk plan, the conference 
     agreement establishes a fallback process. The Secretary is 
     required to establish a separate process for the solicitation 
     of bids from eligible fallback entities for the offering in 
     all fallback service areas in or more PDP regions of a 
     fallback prescription drug plan during the contract period. A 
     single fallback entity may not offer all fallback plans 
     throughout the United States. Except as otherwise provided, 
     the general provision relating to approval or disapproval of 
     bids under New Section 1860D-11(e) applies with respect to 
     fallback plans. The Secretary can only approve one fallback 
     plan for all fallback service areas in any PDP region for a 
     contract period. Competitive contracting provisions apply. 
     The Secretary shall approve fallback plans so that if there 
     are any fallback service areas in the region for the year, 
     they are offered at the same time as prescription drug plans 
     would otherwise be offered.
       The fallback entity could not submit a bid for a 
     prescription drug plan for any region for the first year of a 
     contract period. A fallback service area is an area within a 
     PDP region in which, after applying the provisions relating 
     to limited risk plans, the access requirements will not be 
     met. Fallback prescription drug plans are permitted to offer 
     only standard prescription drug coverage, pass on negotiated 
     discounts and meet such other requirements specified by the 
     Secretary. The fallback plan would not be permitted to engage 
     in any marketing or branding of the contract.
       Under a fallback contract, the Secretary would pay actual 
     costs of Part D covered drugs taking into account negotiated 
     price concessions. Payment would also be made for 
     prescription management fees tied to performance management 
     requirements, established by the Secretary. Performance 
     requirements established by the Secretary would include the 
     following; (1) the entity contained costs to the Medicare 
     Prescription Drug Account and to beneficiaries; (2) the 
     entity provided quality clinical care, including reduction in 
     adverse drug interactions; and (3) the entity provided timely 
     and accurate delivery of services, including pharmacy and 
     beneficiary support services; and (4) efficient and effective 
     benefit administration and claims adjudication services. 
     Beneficiary premiums under fallback plans would be uniform 
     and equal to 26 percent of the Secretary's estimate of the 
     average monthly per capita actuarial cost (including 
     administrative costs) to the entity offering the fallback 
     plan.
       In general, contract requirements for fallback plans would 
     be the same as those established for prescription drug plans. 
     A contract for a fallback plan would be for 3 years (and be 
     renewable after a subsequent bidding process). However, a 
     contract could not apply in an area in any year unless the 
     area was a fallback service area.
       The Secretary will submit an annual report to Congress that 
     describes the instances in which limited risk plans and 
     fallback plans are offered. The secretary will include such 
     recommendations as may be appropriate to limit the need for 
     the provision of such plans and to maximize the assumption of 
     financial risk.
       In order to promote competition, the Secretary is 
     prohibited from interfering with the negotiations between 
     drug manufacturers and pharmacies and PDP sponsors. Further, 
     the Secretary may not require a particular formulary or 
     require a particular price structure for the reimbursement of 
     covered drugs. Conferees expect PDPs to negotiate price 
     concessions directly with manufacturers.
       PDP sponsors shall permit State pharmaceutical assistance 
     programs and prescription plans under Section 1860D-24 to 
     coordinate benefits with the plan. Fees may not be imposed 
     that are unrelated to coordination. Conferees want to ensure 
     the new Medicare plans are required to coordinate with State 
     plans to ensure those plans can efficiently enroll seniors 
     without unnecessary constraints. Conferees want to ensure a 
     seamless transition for both States and beneficiaries.
       Requirements for and contracts with prescription drug plan 
     (PDP) sponsors (new Section 1860D-12 of Conference agreement; 
     (New Section 1860D-4 of House Bill; New Sections 1860D-7, 
     1860D-10, 1860D-12, and 1860D-13 of Senate Bill).
     Present Law
       Medicare+Choice plans are required to meet a number of 
     financial and organizational requirements. In general they 
     are required to be organized and licensed under state law, 
     except that a special exception may be established for 
     provider-sponsored organizations. In addition, entities must 
     assume full financial risk for required services.
     House Bill
       New Section 1860D-4 would specify organizational plan 
     requirements for entities seeking to become PDP plan 
     sponsors. In general, the section would require a PDP sponsor 
     to be 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 prescription 
     drug plan. Alternatively it could meet solvency standards 
     established by the Administrator for entities not licensed 
     by the state. Plans would be required to assume full 
     financial risk on a prospective basis for covered benefits 
     except: (1) as covered by federal subsidy payments and 
     reinsurance payments for high cost enrollees; or (2) as 
     covered by federal incentive payments to encourage plans 
     to expand service areas for existing plans or establish 
     new plans. The entity could obtain reinsurance or make 
     other arrangements for the cost of coverage provided to 
     enrollees.
       PDP plan sponsors would be required to enter into a 
     contract with the Administrator under which the sponsor 
     agreed to comply both with the applicable requirements and 
     standards and the terms and conditions of payment. The 
     contract could cover more than one plan. Contracts would be 
     for at least one year. The Administrator would have the same 
     authority to negotiate the terms and conditions of the plans 
     as the Director of the Office of Personnel Management has 
     with respect to Federal Employee Health Benefits (FEHB) 
     plans. The Administrator would be required to take into 
     account subsidy payments for covered benefits in negotiating 
     the terms and conditions regarding premiums. The 
     Administrator would designate at least 10 service areas, 
     consistent with EFFS regions.
       The new section would incorporate, by reference, many of 
     the contract requirements applicable to MA plans including 
     minimum enrollment, contract periods, allowable audits to 
     protect against fraud and abuse, intermediate sanctions, and 
     contract terminations. Pro rata user fees could be 
     established to help finance enrollment activities; in no case 
     could the amount of the fee exceed 20% of the maximum fee 
     permitted for an MA or EFFS plan.
       The new Section would permit the Administrator to waive the 
     state licensure requirements under circumstances similar to 
     those permitted under Part C for provider sponsored 
     organizations. In such cases, plans would be required to meet 
     financial solvency and capital adequacy standards established 
     by the Administrator. The Administrator would establish such 
     standards by regulation by October 1, 2004.
       The standards established under Part D would supersede any 
     state law or regulation (other than state licensing laws or 
     laws relating to plan solvency). In addition, states would be 
     prohibited from imposing premium taxes or similar taxes with 
     respect to premiums paid to PDP sponsors or payments made to 
     such sponsors by the Administrator.
     Senate Bill
       Under the New Section 1860D-7, an entity eligible to offer 
     a Medicare Prescription Drug Plan would be organized and 
     licensed under state law as a risk-bearing entity eligible to 
     offer health insurance or health benefits coverage in each 
     state it offers a plan. Alternatively, the Administrator 
     could waive the requirement that the entity be licensed in 
     the state, if the Administrator determined that grounds for 
     approval of the application had been met. By January 1, 2005, 
     the Administrator would, in consultation with the National 
     Association of Insurance Commissioners, establish and publish 
     solvency standards for non-licensed entities.
       Entities would be required to assume financial risk on a 
     prospective basis for costs of benefits in excess of amounts 
     received from premium payments and reinsurance payments. 
     Entities would be permitted to obtain private reinsurance for 
     the portion of the costs for which they were at risk.
       Beneficiaries could not elect a Medicare Prescription Drug 
     Plan unless the Administrator had entered into a contract 
     with the eligible entity for the plan. A contract with an 
     entity could cover more than one plan.
       The New Section 1860D-12 would require the Administrator, 
     by January 1, 2005, to establish by regulation standards to 
     implement Part D. Such standards would be periodically 
     reviewed and revised as appropriate. Significant new 
     regulatory requirements could only be implemented at the 
     beginning of a calendar year. The standards would supersede 
     any state law and regulation to the extent such law or 
     regulation was inconsistent with such standards and in the 
     same manner those standards were superseded for Medicare 
     Advantage plans. Standards specifically superseded include 
     those relating to benefits (including requirements relating 
     to cost- sharing and the structure of formularies), premiums, 
     requirements relating to inclusion or treatment of providers, 
     coverage determinations (including related grievance and 
     appeals processes), and requirements relating to marketing 
     materials and summaries and schedules of benefits for a plan.
       States would be prohibited from imposing a premium or 
     similar tax with respect to

[[Page H11996]]

     premiums paid to the Administrator for Medicare Prescription 
     Drug Plans and any payments made by the Administrator to 
     eligible entities offering such a plan.
     Conference Agreement
       The conference agreement establishes organizational 
     requirements for PDP sponsors under the New Section 1860D-12. 
     In general, the section would require a PDP sponsor to be 
     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 prescription drug plan. 
     Alternatively it could meet solvency standards established by 
     the Secretary for entities not licensed by the state. To the 
     extent an entity is at risk, it must assume financial risk on 
     a prospective basis for covered benefits that is not covered 
     by direct subsidy payments. The entity could obtain insurance 
     or make other arrangements for the cost of coverage provided 
     to enrollees.
       PDP plan sponsors would be required to enter into a 
     contract with the Secretary under which the sponsor agreed to 
     comply both with the applicable requirements and standards 
     and the terms and conditions of payment. The contract could 
     cover more than one plan. The Secretary may not enter into a 
     contract with a PDP sponsor if the entity submitted a bid for 
     the year (as the first year of the contract period) to offer 
     a fallback plan in any region or offered a fallback plan in 
     the region during the previous year. An entity is to be 
     treated as submitting a bid if it is acting as a 
     subcontractor of a PDP sponsor that is offering a plan; 
     however this does not apply to a MA organization insofar as 
     it is acting as a PDP sponsor.
       The new section would incorporate, by reference, many of 
     the contract requirements applicable to MA plans including 
     minimum enrollment, contract periods, protections against 
     fraud and abuse, intermediate sanctions, and contract 
     terminations. Pro rata user fees may be established to help 
     finance enrollment activities.
       The new Section 1860D-12 permits the Secretary, in order to 
     expand choice, to waive the state licensure requirement under 
     circumstances similar to those permitted under Part C for 
     provider sponsored organizations. In such cases, plans would 
     be required to meet financial solvency and capital adequacy 
     standards established by the Secretary. The Secretary, in 
     consultation with the National Association of Insurance 
     Commissioners, would establish and publish such standards 
     by January 1, 2005. The Secretary may periodically review 
     and revise the standards; however, the Secretary may not 
     implement significant new regulatory requirements except 
     at the beginning of a calendar year.
       The standards established under Part D supersede state laws 
     or regulations in the same manner that such laws or 
     regulations are superseded for purposes of MA organizations 
     and plans. In addition, states are prohibited from imposing 
     premium taxes with respect to premiums for PDP plans.
       Premiums; Late Enrollment Penalty (New Section 1860D-13 of 
     the Conference agreement; New Section 1860D-1 and New Section 
     1860D-6 of House Bill; New Sections 1860D-2, 1860D-6, 1860D-
     14, 1860D-15, 1860D-17, and 1860D-18 of Senate bill).
     Present Law
       Persons who delay enrollment in Part B after their initial 
     enrollment period are subject to a premium penalty. Certain 
     persons, including a working individual and/or spouse of a 
     working individual, may be able to delay enrollment in 
     Medicare Part B without being subject to the delayed 
     enrollment penalty.
     House Bill
       New Section 1860D-1 would specify that PDP sponsors and MA 
     or EFFS organizations providing qualified prescription drug 
     coverage could not deny, limit, or condition the coverage or 
     provision of benefits or increase the premium based on any 
     health-related status factor in the case of persons who 
     maintained continuous prescription drug coverage since the 
     date they first qualified to elect drug coverage under Part 
     D. Individuals who did not maintain continuous coverage could 
     be subject to an adjusted premium or a pre-existing condition 
     exclusion in a manner reflecting the additional actuarial 
     risk involved. Such risk would be established through an 
     appropriate actuarial opinion. The Administrator would 
     provide a mechanism for assisting sponsors and entities in 
     identifying eligible individuals who had, or had not, 
     maintained continuous coverage.
       The provision would specify that an individual would be 
     considered to have had continuous prescription drug coverage 
     if the individual established that he or she had coverage 
     under one of the following (and coverage in one plan occurred 
     no more than 63 days after termination of coverage in another 
     plan): (1) qualified prescription drug coverage under a PDP 
     or MA Rx or EFFS Rx plan; (2) Medicaid prescription drug 
     coverage; (3) prescription drug coverage under a group health 
     plan, but only if benefits were at least equivalent to 
     benefits under a qualified PDP; (4) prescription drug 
     coverage under a Medigap plan, but only if the policy was in 
     effect on January 1, 2006, and only if the benefits were at 
     least equivalent to benefits under a qualified PDP; (5) state 
     pharmaceutical assistance program, but only if benefits were 
     at least equivalent to benefits under a qualified PDP; and 
     (6) veterans coverage for prescription drugs, but only if 
     benefits were at least equivalent to benefits under a 
     qualified PDP. Individuals could apply to the Administrator 
     to waive the requirement that such coverage be at least 
     equivalent to benefits under a qualified prescription drug 
     plan. They could make such application if they could 
     establish that they were not adequately informed that the 
     coverage did not provide such level of coverage.
       New Section 1860D-6 would specify that the bid and premium 
     for a PDP could not vary among individuals enrolled in the 
     plan in the same service area, provided they were not subject 
     to late enrollment penalties. A PDP sponsor would permit each 
     enrollee to have their premiums withheld from their Social 
     Security checks in the same manner as is currently done for 
     Part B premiums. Beneficiaries could also make payment of the 
     premium through an electronic funds transfer mechanism. The 
     amount would be credited to the Medicare Prescription Drug 
     Trust Fund. Reductions in Part B premiums attributable to 
     enrollment in MA or EFFS plans could be used to reduce the 
     premium otherwise applicable.
       Under certain conditions, the PDP sponsor or entity 
     offering an MA Rx or EFFS Rx plan in an area would be 
     required to accept, for an individual eligible for a low-
     income premium subsidy, the reference premium amount (premium 
     for standard coverage) as payment in full for the premium for 
     qualified prescription coverage. This requirement would apply 
     if there was no standard coverage available in the area.
     Senate Bill
       New section 1860D-2 would specify that persons enrolling in 
     Part D after their initial enrollment period would be subject 
     to delayed enrollment penalties. The actuarially sound 
     increase for each 12-month period of delayed enrollment would 
     be determined by the Administrator.
       Eligible beneficiaries with creditable drug coverage could 
     elect to continue to receive such coverage, not enroll in 
     Part D, and subsequently enroll in Part D without penalty if 
     the plan terminates, ceases to provide, or reduces the value 
     of the prescription drug coverage under the plan to below the 
     actuarial value of standard prescription drug coverage. 
     Subject to certain conditions, creditable drug coverage would 
     include drug coverage through Medicaid or through a Section 
     1115 waiver for persons who are not dual eligibles, a group 
     health plan, state pharmaceutical assistance program, 
     Veterans' programs, and Medigap. Entities offering creditable 
     coverage would be required to disclose whether coverage 
     equals or exceeds the actuarial value of standard coverage. A 
     special enrollment period would apply for persons losing 
     creditable coverage. In general, it would be the 63-day 
     period beginning on the date the individual lost such 
     coverage. Entitlement would begin the first day of the first 
     month following enrollment.
       The New Section 1860D-14 would require the Administrator to 
     compute a monthly standard coverage premium for each Medicare 
     Prescription Drug plan and for each Medicare Advantage plan. 
     This would equal the value of standard coverage or 
     actuarially equivalent coverage if the plan provided no 
     additional benefits. If the plan offered additional benefits, 
     the calculation would reflect only the value of standard 
     coverage or, alternatively the approved plan premium for the 
     required qualified coverage plan offered by the entity.
       The New Section 1860D-15 would require the Administrator, 
     each year, beginning in 2006, to compute a monthly national 
     average premium equal to the average of the monthly standard 
     coverage premium for each Medicare Prescription Drug plan and 
     each Medicare Advantage plan. The calculation would be a 
     weighted average based on the number of enrollees in the plan 
     in the previous year. The Administrator would establish a 
     methodology for making an adjustment to take into account 
     differences in prices among different areas. In making 
     this calculation, the Administrator could take into 
     account geographic differences in utilization. Any 
     adjustment would be budget neutral.
       The Administrator would establish procedures for making the 
     calculation for 2005.
       New Section 1860D-17 would specify that if the plan's 
     monthly approved premium for standard coverage was equal to 
     the national monthly weighted average premium for such 
     coverage, the beneficiary would pay: (1) the applicable 
     percentage, established for the area, of the monthly national 
     average. If the plan's monthly approved premium was less than 
     the national average the beneficiary would pay: (1) the 
     applicable percentage for the area, minus, (2) the difference 
     between the national average and the plan's premium. If the 
     plan's monthly premium was greater than the national average, 
     the beneficiary would pay: (1) the applicable percentage for 
     the area, plus (2) the difference between the national 
     average and the plan's premium. The applicable percentage for 
     an area would be 30% divided by 100% minus a percentage equal 
     to: total reinsurance payments that will be made in a year 
     (including such payments to qualified retiree plans) divided 
     by such amount plus total payments that would be made to 
     plans, including Medicare Advantage plans, in the year for 
     standard coverage (or actuarially equivalent coverage).
       New Section 1860D-18 would specify that premiums would be 
     collected in the same manner as Part B premiums. The 
     collections would be credited to the Prescription Drug 
     Account. The Administrator would establish procedures whereby 
     the sponsor of employment-based retiree coverage could pay 
     the premium. The Administrator would transmit

[[Page H11997]]

     the information necessary for collection to the Commissioner 
     of Social Security.
       New section 1860D-6 would specify that premiums for a plan 
     would not vary within a region. However, this requirement 
     would not apply to enrollees who were enrolled in a plan 
     pursuant to a contract between the plan and the employer or 
     other group plan that provided employment-based retiree 
     health coverage, if the premium amount was the same for all 
     such enrollees under such agreement.
     Conference Agreement
       The conference agreement establishes a new section 1860D-13 
     which sets requirements for beneficiary premiums. The monthly 
     beneficiary premium for a prescription drug plan is defined 
     as the base beneficiary premium, as adjusted. The base 
     beneficiary premium equals the product of the beneficiary 
     premium percentage and the national average monthly bid 
     amount. The beneficiary premium percentage is equal to: (1) 
     26%, divided by (2) 100% minus a percentage equal to total 
     reinsurance payments divided by the sum of such reinsurance 
     payments and total payments the Secretary estimates will be 
     paid to prescription drug plans in a year that are 
     attributable to the standardized bid amount (taking into 
     account amounts paid by the Secretary and enrollees and the 
     application of risk adjustment). The national average monthly 
     bid amount is a weighted average of standardized bid amounts 
     for each prescription drug plan and each MA-PD plan. It does 
     not take into account bids submitted for MSA plans, MA 
     private fee-for-service plans, specialized MA plans for 
     special needs beneficiaries, PACE programs, and reasonable 
     cost reimbursement contracts. Once the base beneficiary 
     premium is calculated, it is adjusted up or down, as 
     appropriate, to reflect differences between it and the 
     geographically-adjusted national average monthly bid amount. 
     It is further increased for any supplemental benefits and 
     decreased if the individual is entitled to a low-income 
     subsidy. The premium is uniform for all persons enrolled in 
     the plan, except for those receiving low-income subsidies or 
     those subject to a late enrollment penalty.
       Late enrollment penalties would be applied to beneficiaries 
     who failed to maintain creditable coverage for a period of 63 
     days (within a continuous period of eligibility), beginning 
     on the day after the individual's initial enrollment period 
     and ending on the date of enrollment in a prescription drug 
     plan or MA-PD plan. The amount of the penalty is equal to the 
     amount that is the greater of what the Secretary determines 
     is actuarially sound or 1 percent of the national average 
     monthly beneficiary basic premium (not geographically 
     adjusted) for each uncovered month.
       The provision specifies that an individual is considered to 
     have had creditable prescription drug coverage if the 
     individual establishes that he or she had coverage under one 
     of the following: (1) prescription drug plan or MA-PD; (2) 
     Medicaid; (3) group health plan, including a Federal 
     Employees Health Benefits (FEHB) plan and a qualified retiree 
     prescription drug plan; (4) state pharmaceutical assistance 
     program; (5) veterans coverage of prescription drugs; (6) 
     prescription drug coverage under a Medigap plan; (7) military 
     coverage including TRICARE; and 8) other coverage the 
     Secretary determines is appropriate. Coverage meets the 
     definition of creditable coverage only if the actuarial value 
     of prescription drug coverage equals or exceeds the actuarial 
     value of such coverage under standard prescription drug 
     coverage. Individuals could apply to the Secretary to waive 
     the requirement that such coverage be at least equivalent to 
     benefits under a qualified prescription drug plan if they 
     could establish that they were not adequately informed that 
     the coverage did not provide such level of coverage. The 
     Secretary will establish procedures for the documentation of 
     creditable prescription drug coverage. Entities offering 
     creditable coverage would be required to provide disclosure 
     that the coverage does not meet the requirement and the fact 
     that the eligible individual could face late enrollment 
     penalties.
       Beneficiary premium payments may be paid directly to the 
     PDP sponsor or MA organization. Alternatively the beneficiary 
     has the option of having the amount withheld from his or her 
     Social Security payment or having payment made through an 
     electronic funds transfer mechanism. Payments withheld are to 
     be paid to the PDP sponsor; however, in the case of late 
     enrollment penalties only that portion attributable to 
     increased actuarial costs is to be paid to the plan.
       Premium and Cost-Sharing Subsidies for Low-Income Subsidy 
     Individuals (New Section 1860D-14 of the Conference 
     agreement; New section 1860D-7 of House bill; New Section 
     1860D-19 of Senate bill).
     Present Law
       Some low-income aged and disabled Medicare beneficiaries 
     are also eligible for full or partial coverage under 
     Medicaid. Medicaid is a federal-state program, which provides 
     health insurance coverage to certain low-income individuals. 
     Within broad federal guidelines, each state sets its own 
     eligibility criteria, including income eligibility standards. 
     Persons meeting the state standards are entitled to full 
     coverage under Medicaid. Persons entitled to full Medicaid 
     protection generally have all of their health care expenses 
     met by a combination of Medicare and Medicaid. For these 
     ``dual eligibles,'' Medicare pays first for services both 
     programs cover. Medicaid picks up Medicare cost-sharing 
     charges and provides protection against the costs of 
     services generally not covered by Medicare. Perhaps the 
     most important service for the majority of dual eligibles 
     is prescription drugs. These dual eligibles typically have 
     comprehensive drug coverage with only nominal cost-
     sharing.
       Federal law specifies several population groups that are 
     entitled to more limited Medicaid protection. These are 
     qualified Medicare beneficiaries (QMBs), specified low income 
     beneficiaries (SLMBs), and certain qualified individuals. 
     QMBs and SLMBs are not entitled to Medicaid's prescription 
     drug benefit unless they are also entitled to full Medicaid 
     coverage under their state's Medicaid program. Qualifying 
     individuals are never entitled to Medicaid drug coverage 
     (because, by definition, they are not eligible for full 
     Medicaid benefits).
       Qualified Medicare Beneficiaries (QMBs) are aged or 
     disabled persons with incomes at or below the federal poverty 
     level. In 2003, the monthly level is $769 for an individual 
     and $1,030 for a couple. ($9,228 per year for an individual 
     and $12,360 per year for a couple). The qualifying levels are 
     higher than the HHS federal poverty guidelines because, by 
     law, $20 per month of unearned income, rounded to the next 
     dollar, is disregarded in the calculation. QMBs must also 
     have assets below $4,000 for an individual and $6,000 for a 
     couple. QMBs are entitled to have their Medicare cost-sharing 
     charges, including the Part B premium, paid by the Federal-
     state Medicaid program. Medicaid protection is limited to 
     payment of Medicare cost-sharing charges (i.e., the Medicare 
     beneficiary is not entitled to coverage of Medicaid plan 
     services unless the individual is otherwise entitled to 
     Medicaid).
       Specified Low-Income Medicare Beneficiaries (SLMBs) are 
     persons who meet the QMB criteria, except that their income 
     is over the QMB limit. The SLMB limit is 120% of the federal 
     poverty level. In 2003, the monthly income limits are $918 
     for an individual and $1,232 for a couple ($11,016 per year 
     for an individual and $14,784 for a couple). Medicaid 
     protection is limited to payment of the Medicare Part B 
     premium (i.e., the Medicare beneficiary is not entitled to 
     coverage of Medicaid plan services unless the individual is 
     otherwise entitled to Medicaid.)
       Qualifying Individuals (QI-1s) are persons who meet the QMB 
     criteria, except that their income is between 120% and 135% 
     of poverty. The monthly income limit for QI-1 for an 
     individual is $1,031 and for a couple $1,384 ($12,372 per 
     year for an individual and $16,608 for a couple). Medicaid 
     protection for these persons is limited to payment of the 
     monthly Medicare Part B premium. In general, Medicaid 
     payments are shared between the federal government and the 
     states according to a matching formula. However, expenditures 
     under the QI-1 program are paid 100% by the federal 
     government (from the Part B trust fund) up to the state's 
     allocation level. A state is only required to cover the 
     number of persons which would bring its spending on these 
     population groups in a year up to its allocation level. This 
     temporary program, originally slated to end September 30, 
     2002, was extended through March 31, 2004 by P.L. 108-89.
       Eligibility determinations for Medicaid, QMB, SLMB, and QI-
     1 programs are made by the states.
     House Bill
       The New Section 1860D-7 would provide income-related 
     subsidies for low-income individuals. Low-income persons 
     would receive a premium subsidy (based on the value of 
     standard coverage). Individuals with incomes below 135% of 
     poverty would have a subsidy equal to 100% of the value of 
     standard drug coverage provided under the plan. For 
     individuals between 135% and 150% of poverty, there would be 
     a sliding scale premium subsidy ranging from 100% of such 
     value at 135% of poverty to 0% of such value at 150% of 
     poverty. For those with incomes under 135% of poverty, 
     beneficiary cost-sharing for spending up to the initial 
     coverage limit would be reduced to an amount not to exceed $2 
     for a multiple source or generic drug and $5 for a non-
     preferred drug. Sponsors and entities could not charge 
     individuals receiving cost-sharing subsidies more than $5 per 
     prescription. (Beginning in 2007, these amounts would be 
     increased by the percentage increase in per capita 
     beneficiary drug costs.) Sponsors and entities could reduce 
     to zero the cost-sharing otherwise applicable for generic 
     drugs.
       In 2006, persons eligible for low-income subsidies would 
     have to have resources at or below three times the level 
     applicable for the Supplemental Security Income program (i.e. 
     $6,000 for an individual and $9,000 for a couple). Beginning 
     in 2007, these amounts would be increased by the annual 
     percentage increase in the consumer price index.
       The determination of whether an individual was a subsidy 
     eligible individual, and the amount of the subsidy, would be 
     made by the State Medicaid program or the Social Security 
     Administration. Such funds as necessary would be appropriated 
     to the Social Security Administration. Individuals not in the 
     50 states or the District of Columbia could not be subsidy 
     eligible individuals but could be eligible for financial 
     assistance with drug costs under new Section 1935(e) added by 
     Section 103.
       The premium subsidy amount would be defined as the 
     benchmark premium amount for the qualified prescription drug 
     coverage that the beneficiary selects whether offered by a

[[Page H11998]]

     PDP plan or an MA Rx or EFFS Rx plan in the area. The 
     benchmark premium amount for a plan means the premium amount 
     for enrollment under the plan (without regard to any 
     subsidies or late enrollment penalties) for standard coverage 
     (or alternative coverage if the actuarial value was 
     equivalent). If a plan provided alternative coverage with a 
     higher actuarial value than that for standard coverage, the 
     benchmark amount would bear the same ratio to the total 
     premium as the actuarial value of standard coverage was to 
     the actuarial value of alternative coverage.
       The Administrator would provide a process whereby the 
     Administrator would notify the PDP sponsor or MA Rx or EFFS 
     Rx entity that an individual was eligible for a subsidy and 
     the amount of the subsidy. The sponsor or entity would reduce 
     the premiums or cost-sharing otherwise imposed by the amount 
     of the subsidy. The Administrator would periodically, and on 
     a timely basis, reimburse the sponsor or entity for the 
     amount of the reductions.
       Part D benefits would be primary to any coverage available 
     under Medicaid. The Administrator would be required to 
     develop and implement a plan for the coordination of Part D 
     benefits and Medicaid benefits. Particular attention would be 
     given to coordination of payments and preventing fraud and 
     abuse. The Administrator would be required to involve the 
     Secretary, the States, the data processing industry, 
     pharmacists, pharmaceutical manufacturers, and other experts 
     in the development and administration of the plan.
     Senate Bill
       Medicaid beneficiaries eligible for medical and drug 
     benefits under their state Medicaid program (including the 
     medically needy) would continue to receive drug benefits 
     through Medicaid. Persons meeting the definition of QMB, 
     SLMB, or QI-1, and not eligible for Medicaid medical and drug 
     benefits, as well as other persons below 160% of the federal 
     poverty level, would receive their drug benefits through Part 
     D. They would receive assistance for the Part D premium and 
     cost-sharing charges.
       QMBs, SLMBs and QI-1s would have a 100% premium subsidy for 
     premiums provided the plan premium was at or below the 
     national weighted average premium (or the lowest premium in 
     the area if none was below the national weighted average).
       The benefit package for the QMB population would be defined 
     as having a zero deductible, cost-sharing of 2.5% for costs 
     below the initial coverage limit; 5.0% cost-sharing for costs 
     above the initial coverage limit and below the annual 
     catastrophic limit, and 2.5% cost-sharing for costs above the 
     catastrophic limit. The benefit package for the SLMB and QI-1 
     population would be defined as having a zero deductible, 5.0% 
     cost-sharing for costs below the initial coverage limit; 
     10.0% cost-sharing for costs above the initial coverage limit 
     and below the annual catastrophic limit, and 2.5% cost-
     sharing for costs above the catastrophic limit. Plans could 
     waive or reduce cost-sharing otherwise applicable.
       Persons with incomes below 160% of poverty, not otherwise 
     eligible for low-income benefits would have a sliding scale 
     premium subsidy ranging from 100% of the premium at 135% of 
     poverty to 0% at 160% of poverty with no additional premium 
     costs provided the plan premium was at or below the national 
     weighted average premium (or the lowest premium in the area 
     if none was below the national weighted average). The benefit 
     package for this population would be defined as having a $50 
     deductible in 2006 (indexed in subsequent years by the annual 
     percentage increase in average per capita Medicare drug 
     expenditures), 10.0% cost-sharing for costs below the initial 
     coverage limit; 20.0% cost-sharing for costs above the 
     initial coverage limit and below the annual catastrophic 
     limit, and 10.0% cost-sharing for costs above the 
     catastrophic limit. Plans could waive or reduce cost-sharing 
     otherwise applicable.
       QMBs, SLMBs and QI-1s and other Part D enrollees with 
     incomes below 160% of poverty could enroll in 
     MedicareAdvantage and receive their low-income assistance 
     through such plans.
       Beginning November 1, 2005, eligibility for low-income 
     individuals would be determined by states. The Administrator 
     would implement a process to notify the eligible entity or 
     MedicareAdvantage plan that the individual was eligible for a 
     cost-sharing subsidy and the amount of the subsidy. The 
     entity would reduce the applicable cost-sharing and submit 
     information to the Administrator on the amount of the 
     reduction. The Administrator would periodically and on a 
     timely basis reimburse the entity or organization for the 
     amount of the reductions.
       Beginning January 1, 2009, to the extent a state had not 
     already eliminated application of an asset test, it would be 
     required to permit individuals to make a self-declaration 
     that assets did not exceed $10,000 for an individual or 
     $20,000 for a couple. In subsequent years, these amounts 
     would be increased by the increase in the consumer price 
     index. The Secretary would develop a model declaration form.
     Conference Agreement
       New Section 1860D-14 of the conference agreement provides 
     premium and cost-sharing subsidies for low-income subsidy-
     eligible individuals. There are groups of subsidy eligible 
     individuals. The first group is composed of persons who: (1) 
     are enrolled in a prescription drug plan or MA-PD plan; (2) 
     have incomes below 135% of poverty; and (3) have resources in 
     2006 below $6,000 for an individual and $9,000 for a couple 
     (increased in future years by the percentage increase in the 
     CPI), or (4) who is a full benefit dual eligible, regardless 
     whether that person meets other eligibility standards. The 
     second group of subsidy eligible individuals are persons 
     meeting the same requirements, except that the income level 
     is 150% of poverty and an alternative resources standard may 
     be used; this alternative standard in 2006 is $10,000 for an 
     individual and $20,000 for a couple (increased in future 
     years by the percentage increase in the CPI.)
       Individuals with incomes below 135% of poverty, and 
     resources meeting the requirement for the first group, would 
     have a premium subsidy equal to 100% of the low-income 
     benchmark premium amount, but in no case higher than the 
     actual premium amount for basic coverage under the plan. The 
     low-income benchmark premium amount for a region equals 
     either: (1) the weighted average of the basic premiums, if 
     all prescription drug plans are offered by the same PDP 
     sponsor; or (2) the weighted average of premiums for 
     prescription drug plans and MA-PD plans, if plans in the 
     region are offered by more than one PDP sponsor. Other low-
     income subsidy eligible persons will have a sliding scale 
     premium subsidy ranging from 100% of such value at 135% of 
     poverty to 0% of such value at 150% of poverty. Persons below 
     135% of poverty would have a premium subsidy for any late 
     enrollment penalty equal to 80 percent for the first 60 
     months and 100 percent thereafter.
       Beneficiaries in both groups are entitled to cost-sharing 
     subsidies. Individuals with incomes below 135% of poverty, 
     and resources meeting the requirement for the first group 
     will have no deductible, cost-sharing for all costs up to the 
     out-of-pocket threshold of $2 for a generic drug or preferred 
     multiple source and $5 for brand name or non-preferred drug. 
     Institutionalized dual eligibles will have no cost sharing. 
     Full benefit dual eligibles with incomes under 100 percent of 
     poverty will have cost sharing up to the out-of-pocket 
     threshold of up to $1 for a generic drug or preferred 
     multiple source and $3 for a brand name or nonpreferred drug. 
     Other low-income subsidy eligible persons will have a $50 
     deductible, 15 percent cost-sharing for all costs up to the 
     out-of-pocket limit, and cost-sharing for costs above the 
     out-of-pocket threshold of $2 for a generic drug or preferred 
     multiple source and $5 for brand name or non-preferred drug. 
     The deductible and cost-sharing amounts are increased each 
     year beginning in 2007 by the annual percentage increase in 
     per capita beneficiary expenditures for Part D covered drugs 
     except for $1 and $3 cost-sharing, which will increase by the 
     percentage increase in CPI.
       Eligibility determinations are to be made under the state 
     Medicaid plan for the state or by the Commissioner of Social 
     Security. Conferees believe that more beneficiaries will 
     enroll in the new Part D benefit if given the option to apply 
     at the Social Security office as well as the welfare office. 
     Low-income subsidy applications, information, and application 
     assistance shall be available to beneficiaries in all Social 
     Security offices and State Medicaid offices. It is the intent 
     of the conferees that while enrollment at the SSA offices is 
     important, both Medicaid programs and the Social Security 
     Administration should engage in outreach activities to 
     encourage eligible individuals to apply for subsidies under 
     this section. The determinations shall remain effective for a 
     period determined by the Secretary, not to exceed one year. 
     Redeterminations or appeals are to be made in the same manner 
     as such redeterminations and appeals are made by state 
     Medicaid plans or the Commissioner for the supplemental 
     security income program, whichever is appropriate.
       Full dual eligible persons are to be treated as subsidy 
     eligible persons; the Secretary may provide that other 
     Medicaid beneficiaries be treated as subsidy eligible. 
     Otherwise, income is to be determined in the same manner as 
     determinations are made for the QMB program; however, Section 
     1902(r)(2) which permits the use of less restive 
     methodologies does not apply for determining whether an 
     individual is a low-income subsidy eligible individual. 
     However, Section 1902(r)(2) continues to apply to all state 
     Medicaid eligibility determinations. The Secretary is to 
     develop a model simplified application form and process for 
     determining and verifying eligibility. The Commissioner may 
     only require submission of statements from financial 
     institutions for an application for low-income subsidies to 
     be considered complete. No other documentary evidence may be 
     required with the submission of the application. The 
     Secretary is permitted to verify information submitted on the 
     application.
       The Secretary will provide a process whereby the Secretary 
     will notify the PDP sponsor or MA organization that an 
     individual is eligible for a subsidy and the amount of the 
     subsidy. The sponsor or entity would reduce the premiums or 
     cost-sharing otherwise imposed by the amount of the subsidy. 
     The Administrator will periodically, and on a timely basis, 
     reimburse the sponsor or entity for the amount of the 
     reductions. Reimbursement for cost-sharing subsidies may be 
     computed on a capitated basis.
       The residents of the territories are not eligible for low-
     income subsidies. However, they may be eligible for financial 
     assistance

[[Page H11999]]

     under the new section 1935(e), as added by Section 103.
       Subsidies for All Medicare Beneficiaries for Qualified 
     Prescription Drug Coverage (New Section 1860D-15 of 
     Conference agreement; New Section 1860D-8 of House bill; New 
     Sections 1860D-20, 1860D-11, and 1860D-16 of Senate bill).
     House Bill
       a. Subsidies. New Section 1860D-8 would provide for subsidy 
     payments to qualifying entities. The stated purpose of such 
     payments would be to reduce premiums for all beneficiaries 
     consistent with an overall subsidy level of 73%, reduce 
     adverse selection among plans, and promote the participation 
     of PDP sponsors. Such payments would be made as direct 
     subsidies and through reinsurance. The section would 
     constitute budget authority in advance of appropriations and 
     represent the obligation of the Administrator to provide for 
     subsidy payments specified under the section.
       Direct subsidies would be made for individuals enrolled in 
     a PDP, MA Rx or EFFS Rx plan, and equal to 43% of the 
     national weighted average monthly bid amount. Each year, the 
     Administrator would compute a national average monthly bid 
     amount equal to the average of the benchmark bid amounts for 
     each drug plan (not including those offered by private-fee-
     for service entities) adjusted to add back in the value of 
     reinsurance subsidies. The benchmark bid amount would be 
     defined as the portion of the bid attributable to standard 
     coverage or actuarial equivalent coverage. The bid amount 
     would be a weighted average with the weight for each plan 
     equal to the average number of beneficiaries enrolled in the 
     plan for the previous year. (The Administrator would 
     establish a procedure for determining the weighted average 
     for 2005).
       Reinsurance payments would be made for specified costs 
     incurred in providing prescription drug coverage for 
     individuals enrolled in either a PDP plan, or a MA Rx or EFFS 
     Rx plan. The Administrator would provide for reinsurance 
     payments to PDP sponsors, and entities offering MA Rx or EFFS 
     Rx plans. Reinsurance payments would be provided for 30% of 
     an individual's allowable drug costs over the initial 
     reinsurance threshold ($1,000 in 2006) but not over the 
     initial coverage limit ($2,000 in 2006). Reinsurance, not to 
     exceed 80% would also be provided for costs over the out-of-
     pocket threshold ($3,500 in 2006). In the aggregate, 
     reinsurance payments would equal 30% of total payments made 
     by qualifying entities for standard coverage.
       For purposes of calculating reinsurance payments, allowable 
     costs would be defined as the portion of gross covered 
     prescription drug costs that were actually paid by the plan 
     (net of discounts, chargebacks, and average percentage 
     rebates), but in no case more than the part of such costs 
     that would have been paid by the plan if the drug coverage 
     under the plan were standard coverage. Gross covered drug 
     costs would be defined as costs (including administrative 
     costs) incurred under the plan for covered prescription drugs 
     dispensed during the year, including costs related to the 
     deductible, whether paid by the enrollee or the plan, 
     regardless of whether coverage under the plan exceeded 
     standard coverage and regardless of when the payment for the 
     drugs was made.
       The Administrator would be required to estimate the total 
     reinsurance subsidy payments that would be made during the 
     year (including those made to qualified retiree plans) and 
     total benefit payments to be made by qualifying entities for 
     standard coverage during the year. The Administrator would 
     proportionately adjust payments such that total subsidy 
     payments during the year were equal to 30% of total payments 
     made by qualifying plans for standard coverage during the 
     year. The Administrator could, in a budget neutral manner, 
     adjust direct subsidy payments in order to avoid risk 
     selection. The payment method would be determined by the 
     Administrator who could use an interim payment system based 
     on estimates. Payments would be made from the Medicare 
     Prescription Drug Trust Fund.
       b. Risk corridors. No provision.
     Senate Bill
       a. Subsidies. New Section 1860D-20 of the Senate bill would 
     provide for reinsurance payments on behalf of: (1) persons 
     enrolled in a PDP; (2) MA plan (except for MSA plan or 
     private fee-for-service plan not providing qualified 
     coverage); (3) persons eligible for but not enrolled in Part 
     D and covered under a qualified retiree plan; (4) persons 
     eligible for but not enrolled in Part D and covered under a 
     qualified state pharmaceutical assistance program. Qualified 
     retiree plans and state pharmaceutical assistance programs 
     would have to provide coverage at least equal to the 
     actuarial value of standard coverage. Reinsurance payments 
     would be made to plans in the case of individuals whose 
     spending exceeded the out-of-pocket limit. Payments to plans 
     would equal 80% (65% in the case of persons in a state 
     pharmaceutical assistance program) of allowable drug costs 
     exceeding the limit. Allowable costs would be equal to actual 
     costs above the limit. Entities would be required to notify 
     the Administrator of the total actual costs (if any) incurred 
     for providing benefits for an individual after the individual 
     exceeded the out-of-pocket threshold. Administrative costs, 
     costs for coverage in excess of the standard benefit, and 
     discounts, direct or indirect subsidies, rebates, or other 
     price concessions or direct or indirect remunerations would 
     not be included. Payment methods would be determined by 
     the Administrator. Such methods could include the use of 
     interim payments.
       Any plan sponsor that was not an employer would be required 
     to redistribute reinsurance payments to employers 
     contributing to the plan maintained by the sponsor; the 
     payments would be allocated proportionately among all 
     employers contributing to the plan.
       The New Section 1860D-11 would require the Administrator to 
     establish an appropriate method for adjusting payments to 
     plans to take into account variations in costs based on the 
     differences in actuarial risk of different enrollees being 
     served. Any risk adjustment would be designed in a budget 
     neutral manner. The Administrator could take into account 
     similar methodologies used to adjust payments for Medicare 
     Advantage organizations. The Administrator would be required 
     to publish such risk adjusters not later than April 15 each 
     year (beginning in 2005) to be used for computing payments to 
     plans for standard coverage.
       New Section 1860D-16 would require the Administrator to pay 
     each entity offering a Medicare Prescription Drug Plan an 
     amount equal to the full monthly approved premium, with 
     appropriate risk adjusters. Payment terms would be determined 
     by the Administrator and be based on terms used for Medicare 
     Advantage plans. Payments to plans would be adjusted to 
     account for differences in actuarial risk of different 
     enrollees being served.
       b. Risk corridors. New section 1860D-16 would require 
     entities to notify the Administrator for each year (beginning 
     in 2007) of the total actual costs the entity incurred in 
     providing standard coverage in the preceding year. Total 
     actual costs would reflect total payments made to pharmacies 
     and other entities for coverage and the aggregate amount of 
     discounts, direct or indirect subsidies, rebates, or other 
     price concessions or direct or indirect remunerations made to 
     the entity. The notification would not include spending for 
     administrative costs, amounts spent for coverage in excess of 
     standard coverage, or amounts for which the entity 
     subsequently received reinsurance payments.
       The provision would establish risk corridors, which would 
     be defined as specified percentages above and below a target 
     amount. The target amount would be defined as the total of 
     plan premiums minus a percentage (negotiated between the 
     Administrator and the entity) for administrative costs. No 
     payment adjustment would be made if allowable costs were not 
     more than the first threshold upper limit or less than the 
     first threshold lower limit for the year, i.e. if the plans 
     were within the first risk corridor. A portion of any plan 
     spending above or below these levels would be subject to risk 
     adjustments. If allowable costs exceeded the first threshold 
     upper limit, then payments would be increased. If allowable 
     costs were below the first threshold lower limit, payments 
     would be reduced.
       During 2006 and 2007, plans would be at full risk for drug 
     spending within 2.5% above or below the target. Plans would 
     be at risk for 25% of spending exceeding 2.5% (first 
     threshold upper limit) and below 5% of the target (second 
     threshold upper limit). That is their payments would equal 
     75% of the allowable costs for spending in this range. They 
     would be at risk for 10% of the spending exceeding 5% of the 
     target. That is their payments would equal 90% of the 
     allowable costs for spending in this range. Conversely, if 
     plans fell below the target, they would share the savings 
     with the government. They would have to refund 75% of the 
     savings if costs fell between 2.5% and 5% below the target 
     level, and 90% of any amounts below 5% of the target.
       A special transition corridor would be established in the 
     first two years. The Administrator would make a payment 
     adjustment if the Administrator determined that 60% or more 
     of all participating plans (including Medicare Advantage 
     plans) representing at least 60% of covered beneficiaries had 
     allowable costs that were more than 2.5% above the target. 
     Risk corridor payments would equal 90% of any spending 
     greater than 2.5% of the target but below 5% of the target.
       For 2008-2011, the risk corridors would be modified. Plans 
     would be at full risk for drug spending within 5.0% above or 
     below the target level. Plans would be at risk for 50% of 
     spending exceeding 5.0% and below 10.0% of the target level. 
     They would be at risk for 10% of the spending exceeding 10% 
     of the target level. Payments would be increased by 50% of 
     allowable costs exceeding the first threshold upper limit and 
     90% for costs exceeding the second threshold upper limit. 
     Conversely, if plans fell below the target, they would share 
     the savings with the government. They would have to refund 
     50% of the savings if costs fell between 5% and 10% below the 
     target level, and 90% of any amounts below 90% of the target. 
     For years after 2011, the Administrator would establish risk 
     corridors. The first threshold risk percentage could not be 
     less than 5% and the second threshold risk percentage could 
     not be less than 10%.
       Administrative costs would be not be included in the 
     calculation of whether or nor plan spending fell within a 
     particular risk corridor. Administrative costs would be 
     negotiated separately, on a plan by plan basis, with the 
     Administrator. Administrative costs would be subject to 
     performance risk.

[[Page H12000]]

       For purposes of making risk corridor calculations, 
     allowable costs would be based on actual costs reported by 
     the plan.
       The Administrator could require disclosure of any data as 
     needed to administer the benefit. The Administrator would 
     have the right to inspect and audit any books and records of 
     the entity pertaining to amounts reported for drug spending. 
     Information could be used by officers and employees of the 
     Department of Health and Human Services, but only to the 
     extent necessary to carry out this section.
       The Administrator would be required to establish a 
     stabilization reserve fund, within the Prescription Drug 
     Account. Amounts in this fund would be made available to 
     eligible entities beginning with their 2008 contract year. 
     Payments to the fund would be determined as follows. If the 
     target amount for a plan for any year 2006-2010 exceeded 
     applicable costs by more than 3% for the year, the entity 
     would pay the Administrator the amount of such excess; the 
     Administrator would deposit such amount in the fund on behalf 
     of the entity. Applicable costs would be defined as the sum 
     of allowable costs and the amount by which monthly payments 
     were reduced through application of the risk corridor 
     provisions. At appropriate intervals, the Administrator would 
     notify a participating entity of the balances in any of its 
     stabilization accounts. Beginning in 2008, entities would be 
     permitted to use account funds to stabilize or reduce plan 
     premiums. The accounts would expire after 5 years. Any 
     amounts not used by an eligible entity or that was deposited 
     for use by an entity that no longer had a Part D contract 
     would revert to the use of the Prescription Drug Account.
     Conference agreement
       a. Subsidies. New Section 1860D-15 of the conference 
     agreement provides for subsidy payments to qualifying 
     entities. Such payments would reduce premiums for all 
     beneficiaries consistent with an overall subsidy level of 74% 
     for basic coverage, to reduce adverse selection among plans, 
     and to promote the participation of PDP sponsors and MA 
     organizations. Such payments would be made as direct 
     subsidies and through insurance.
       The direct monthly per capita subsidy amount is equal to 
     the plan's standardized bid amount adjusted for health status 
     and risk and reduced by the base beneficiary premium as 
     adjusted to reflect the difference between the bid and the 
     national average bid.
       Reinsurance payments, equal to 80% of allowable costs, 
     would also be provided for an enrollee whose costs exceeded 
     the annual out-of-pocket threshold ($3,600 in 2006). For 
     purposes of calculating reinsurance payments, allowable costs 
     would be defined as the portion of gross covered prescription 
     drug costs that were actually paid by the plan (net of 
     discounts, chargebacks, and average percentage rebates), but 
     in no case more than the part of such costs that would have 
     been paid by the plan if the drug coverage under the plan 
     were basic coverage or, in the case of supplemental coverage, 
     standard coverage. Gross covered drug costs would be defined 
     as costs (not including administrative costs) incurred under 
     the plan for covered prescription drugs dispensed during the 
     year, including costs related to the deductible, whether paid 
     by the enrollee or the plan, regardless of whether coverage 
     under the plan exceeded basic coverage and regardless of when 
     the payment for the drugs was made.
       The Secretary is required to establish an appropriate 
     method for adjusting the standardized bid amount to take into 
     account variations in costs for basic coverage based on the 
     differences in actuarial risk of different enrollees being 
     served. Any risk adjustment would be designed in a budget 
     neutral manner. The Secretary may take into account similar 
     methodologies used to adjust payments for MA organizations. 
     The Secretary would require PDP sponsors and MA organizations 
     offering MA-PD plans to submit data. The Secretary is 
     required to publish such risk adjusters at the same time as 
     risk adjusters are published for MA organizations.
       The Secretary is required to establish an appropriate 
     method for adjusting the national average monthly bid amount 
     per capita subsidy amount to take into account differences. 
     If the Secretary determines that price variations are de 
     minimis, no adjustment is to be made. Any adjustments must be 
     applied in a budget neutral manner.
       The Secretary is to establish payment methods, which may 
     include interim payments. Payments are conditional upon the 
     PDP sponsor and MA organization furnishing necessary 
     information to the Secretary. Information may be used by 
     officers and employees of HHS only for the purposes of and to 
     the extent necessary to carry out the section.
       c. Risk corridors. New Section 1860D-15 of the conference 
     agreement provides for the establishment of risk corridors, 
     which are defined as specified percentages above and below a 
     target amount. The target amount is defined as total payments 
     paid to the plan, taking into account the amount paid by the 
     Secretary and enrollees, based on the standardized bid 
     amount, risk adjusted, and reduced by total administrative 
     expenses assumed in the bid. No payment adjustments will be 
     made if adjusted allowable costs for the plan are at least 
     equal to the first threshold lower limit of the first risk 
     corridor but not greater than the first threshold upper limit 
     of the risk corridor for the year, i.e. if the plans are 
     within the first risk corridor. A portion of any plan 
     spending above or below these levels is subject to risk 
     adjustment. If adjusted allowable costs exceed the first 
     threshold upper limit, then payments are increased. If 
     adjusted allowable costs are below the first threshold lower 
     limit, then payments are reduced. Adjusted allowable costs 
     are reduced by reinsurance and subsidy payments. Payment 
     adjustments would not affect beneficiary premiums.
       During 2006 and 2007, plans would be at full risk for 
     adjusted allowable risk corridor costs within 2.5% above or 
     below the target. Plans with adjusted allowable costs above 
     this level would receive increased payments. If their costs 
     were between 2.5% of the target (first threshold upper limit) 
     and 5% of the target (second threshold upper limit), they 
     would be at risk for 25% of the increased amount; that is 
     their payments would equal 75% of adjusted allowable costs 
     for spending in this range. If their costs were above 5% of 
     the target they would be at risk for 25% of the costs between 
     the first and second threshold upper limits and 20% of the 
     costs above that amount. That is their payments would equal 
     80% of the adjusted allowable costs over the second threshold 
     upper limit. Conversely, if plans fell below the target, they 
     would share the savings with the government. They would have 
     to refund 75% of the savings if costs fell between 2.5% and 
     5% below the target level, and 80% of any amounts below 5% of 
     the target.
       A higher risk sharing percentage would apply in 2006 and 
     2007 if the Secretary determines that 60 percent of 
     prescription drug plans and MA-PD plans, representing at 
     least 60 percent of beneficiaries enrolled in such plans have 
     adjusted allowable costs that are more than the first 
     threshold upper limit. In this case, payment to plans would 
     equal 90 percent of adjusted allowable costs between the 
     first and second upper threshold limits.
       For 2008-2011, the risk corridors would be modified. Plans 
     would be at full risk for drug spending within 5% above or 
     below the target level. Plans would be at risk for 50% of 
     spending exceeding 5% and below 10% of the target level. 
     Additionally, they would be at risk for 20% of any spending 
     exceeding 10% of the target level. Payments would be 
     increased by 50% of adjusted allowable costs exceeding the 
     first threshold upper limit and 80% for any costs exceeding 
     the second threshold upper limit. Conversely, if plans fell 
     below the target, they would share the savings with the 
     government. They would have to refund 50% of the savings if 
     costs fell between 5% and 10% below the target level, and 80% 
     of any amounts below 10% of the target. For years after 2011, 
     the Administrator would establish risk corridors. The first 
     threshold risk percentage could not be less than 5% and the 
     second threshold risk percentage could not be less than 10% 
     of the target amount. Conferees intend the risk corridors to 
     create incentives for plans to enter the market.
       If allowable risk corridor costs are less than the first 
     threshold lower limit, but not greater than the first 
     threshold upper limit for the plan year, then no payment 
     adjustment is made.
       Plans are at full financial risk for all spending for 
     supplemental prescription drug coverage.
       The subsidy and risk corridor provisions would not apply to 
     fallback plans.
       Medicare Prescription Drug Account in the Federal 
     Supplementary Insurance Trust Fund (New Section 1860D-16 of 
     Conference Agreement; New Section 1860D-9 of House Bill; New 
     Section 1860D-25 of Senate Bill).
     Present Law
       Medicare Part B is financed by a combination of enrollee 
     premiums and federal general revenues. Income from these 
     sources is credited to the Federal Supplementary Insurance 
     Trust Fund. Payments are made from the Trust Fund for Part B 
     benefits.
     House Bill
       New Section 1860D-9 would create a Medicare Prescription 
     Drug Trust Fund. Requirements applicable to the Part B trust 
     fund would apply in the same manner to the Drug Trust Fund as 
     they apply to the Part B Trust Fund. The Managing Trustee 
     would pay from the Fund, from time to time, low-income 
     subsidy payments, subsidy payments, and payments for 
     administrative expenses. The Managing Trustee would transfer, 
     from time to time, to the Medicaid account amounts 
     attributable to allowable increases in administrative costs 
     associated with identifying and qualifying beneficiaries 
     eligible for low-income subsidies. Amounts deposited into the 
     Trust Fund would include the federal amount which would 
     otherwise be payable by Medicaid except for the fact that 
     Medicaid becomes the secondary payer of drug benefits for the 
     dual eligibles. The provision would authorize appropriations 
     to the Trust Fund an amount equal to the amount of payments 
     from the Trust Fund reduced by the amount transferred to the 
     Trust Fund.
       The provision would specify that any provision of law 
     relating to the solvency of the trust fund would take into 
     account the Fund and the amounts received by, or payable 
     from, the Fund.
     Senate Bill
       A separate account, known as the Prescription Drug Account, 
     would be established within the Part B Trust Fund. Funds in 
     this Account would be kept separate from other funds within 
     the Trust Fund. Payments

[[Page H12001]]

     would be made from the Account to eligible entities and 
     Medicare Advantage plans and for low-income subsidies, 
     reinsurance payments, and administrative expenses. 
     Appropriations would be made to the Account equal to the 
     amount of payments and transfers made from the Account.
     Conference Agreement
       The conference agreement establishes a Medicare 
     Prescription Drug Account in the Part B Trust Fund. Funds in 
     this Account will be kept separate from other funds within 
     the Trust Fund. Payments will be made from the Account for 
     low-income subsidies, subsidy payments, payments to qualified 
     retiree prescription drug plans, and administrative expenses. 
     Transfers would be made to the Medicaid account for increased 
     administrative costs. States would make payments to the 
     Account for dual eligibles as provided for under Section 
     1935(c). Appropriations would be made to the Account equal to 
     the amount of payments and transfers from the Account. In 
     order to ensure prompt payments in the early months of the 
     program, there are appropriated such amounts the Secretary 
     certified as necessary, not to exceed 10% of estimated 
     expenditures for 2006.

 Subpart 3--Application to Medicare Advantage Program and Treatment of 
     Employer-Sponsored Programs and Other Prescription Drug Plans

       Application to Medicare Advantage Program and Related 
     Managed Care Programs (New Section 1860D-21 of Conference 
     agreement; Section 101 of House bill; Sections 201 and 205 of 
     Senate bill).
     Present Law
       No provision.
     House Bill
       Beginning January 1, 2006, at least one MA plan offered by 
     an MA organization in an area would be required to: (1) offer 
     qualified drug coverage under Part D; (2) meet the 
     beneficiary protections outlined in the new Section 1860D-3, 
     including requirements relating to information dissemination 
     as well as grievance and appeals; and (3) provide the same 
     information required from prescription drug plan sponsors 
     when submitting a bid, unless waived by the Administrator. MA 
     organizations providing qualified drug coverage would receive 
     low-income subsidy payments and direct and reinsurance 
     subsidies. A single premium would be established for drug and 
     non-drug coverage.
       There would be exceptions for the prescription drug 
     coverage offered by private fee-for-service (PFFS) plans. 
     PFFS plans would not be required to negotiate prices or 
     discounts; however, to the extent a plan did so, it would be 
     required to meet related Part D requirements.
     Senate Bill
       In addition to current law requirements, Medicare 
     beneficiaries would also be required to be enrolled in the 
     new Part D (prescription drug program) in order to enroll in 
     MA (except for PFFS).
       Beginning on January 1, 2006, MA plans, other than PFFS and 
     MSA plans, would be required to offer each enrollee qualified 
     prescription drug coverage that met the requirements for such 
     coverage under the MA program and under Part D of Medicare. 
     An MA plan could offer qualified prescription drug coverage 
     that exceeded the coverage required under Part D, as long as 
     it also offered an MA plan in the area that provided only the 
     required coverage. This provision would also establish 
     payments to each MA organization offering an MA plan that 
     provided qualified prescription drug coverage, including a 
     low-income drug subsidy.
     Conference Agreement
       Beginning January 1, 2006, an MA organization cannot offer 
     an MA plan in an area unless either that plan (or another MA 
     plan offered by the organization in the same service area) 
     includes required prescription drug coverage, and could not 
     offer prescription drug coverage (other than that required 
     under parts A and B) to an enrollee under an MSA plan or 
     under another MA plan unless such drug coverage was qualified 
     prescription drug coverage and unless the requirements of 
     this section, with respect to such coverage are met. 
     Qualified coverage is basic coverage or qualified coverage 
     that provides supplemental drug benefits so long as there is 
     no MA monthly supplemental beneficiary premium under the 
     plan.
       An individual enrolled in a health benefits plan would not 
     be considered to have been deemed to make an election into an 
     MA-PD plan, unless the plan provides prescription drug 
     coverage. An individual enrolled in an MA plan would not be 
     considered to have been deemed to make an election into an 
     MA-PD plan, unless: (1) for purposes of the January 1, 2006 
     election, the MA plan provided as of December 31, 2005 any 
     prescription drug coverage; or (2) for periods after January 
     1, 2006, such MA plan was an MA-PD plan. An individual who 
     discontinues enrollment in an MA-PD plan during his/her first 
     year of eligibility could enroll in a prescription drug plan 
     under part D at the time of their election of coverage under 
     original Medicare fee-for-service program.
       If an individual is enrolled in an MA plan (other than an 
     MSA plan) that does not provide qualified prescription drug 
     coverage, and the organization discontinues offering all MA 
     plans without prescription drug coverage, then the individual 
     would be deemed to have elected the original Medicare fee-
     for-service program, unless the individual affirmatively 
     enrolls in an MA-PD plan. This disenrollment would be treated 
     as an involuntary termination of the MA plan.
       The provisions of this part would apply under Part C of 
     Medicare with respect to prescription drug coverage provided 
     under MA-PD plans in lieu of other Part C provisions that 
     would apply to such coverage. The Secretary could waive these 
     provisions to the extent that they duplicate provision under 
     Part C or as may be necessary in order to improve 
     coordination. The Secretary may also waive the pharmacy 
     network requirements of section 1860D-4(b)(1)(C) in the case 
     of an MA-PD plan that provides access (other than mail order) 
     to qualified prescription drug coverage through pharmacies 
     owned and operated by the MA organizations. The Secretary 
     must determine the organization's pharmacy network is 
     sufficient to provide comparable access for enrollees under 
     the plan.
       Private fee-for-service plans (PFFS) plans would not be 
     required to negotiate prices or discounts; however, to the 
     extent a plan did so, it would be required to meet related 
     Part D requirements. If the PFFS plan provided coverage for 
     drugs purchased from all pharmacies, without additional cost-
     sharing, requirements for pharmacy access and public 
     disclosure of pharmaceutical prices for equivalent drugs 
     would not apply. For PFFS plans, the drug utilization 
     management program and the medication therapy management 
     program would not be required. For PFFS plans, the Secretary 
     would determine the amount of reinsurance payment using a 
     methodology that bases such amount on the Secretary's 
     estimate of the amount of such payment that would be payable 
     if the plan were an MA-PD plan and that takes into account 
     the average reinsurance payment made for a population of 
     similar risk under MA-PD plans. The risk corridor provisions 
     would not apply, and plans would be exempt from negotiations 
     on bid terms.
       If an organization provides benefits under a reasonable 
     cost reimbursement contract and also elects to provide 
     qualified prescription drug coverage, then the provisions of 
     this section and related provisions in part C would apply in 
     the same manner as applied to local MA-PD plans. Individuals, 
     who were not enrolled in the reasonable cost plan, could not 
     enroll in the prescription drug plan. The bid of the 
     reasonable cost plan would not be taken into account in 
     computing any standardized bid amount under this section.
       In general, the provisions of Part D and related provisions 
     of Part C apply to PACE programs in the same manner as they 
     apply to MA-PD plans. The organization may not enroll persons 
     not enrolled in PACE. Bids are not taken into account in 
     computing the standardized bid amount.
       Special Rules for Employer-Sponsored Programs (New Section 
     1860D-22 of Conference agreement; New section 1860D-8 of 
     House bill; New Section 1860D-21 and 1860D-22 of Senate 
     bill).
     Present Law
       No provision.
     House Bill
       Under New section 1860D-8, special subsidy payments would 
     be made to a ``qualified retiree prescription drug plan.'' A 
     qualified plan would be defined as employment-based retiree 
     health coverage (including coverage offered pursuant to one 
     or more collective bargaining agreements) meeting certain 
     requirements. The Administrator would have to determine that 
     coverage had at least the same actuarial value as standard 
     coverage. The sponsor (and the plan) would be required to 
     maintain and provide access to records needed to ensure the 
     adequacy of coverage and the accuracy of payments made. 
     Further, the sponsor would be required to provide 
     certifications of coverage. Payment could not be made for an 
     individual unless: the individual was covered under the 
     retiree plan, entitled to enroll under a PDP or MA Rx or EFFS 
     Rx plan but elected not to. Subsidy payments would equal 28% 
     of allowable costs between $250, but not greater than $5,000, 
     indexed annually by the percentage increase in Medicare per 
     capita prescription drug costs. The provision would clarify 
     that nothing in the section would be construed as precluding 
     an individual covered under an employment-based retiree plan 
     from enrolling in a PDP plan or MA or EFFs plan or having the 
     employment based plan from paying the premium. Employment-
     based supplemental coverage would be considered the primary 
     payer for purposes of the Medicare secondary payment 
     provisions.
     Senate Bill
       New Section 1860D-21 of the Senate bill would authorize the 
     Administrator to make direct payments to sponsors of 
     qualified retiree prescription drug plans (as defined under 
     New Section 1860D-20) for each beneficiary enrolled in the 
     plan who was not enrolled in Part D. The amount of the 
     payment would equal the direct subsidy percent of the monthly 
     national average premium for the year, as adjusted by risk 
     adjusters. The direct subsidy percent would be 100% minus the 
     applicable percent as defined under the new Section 1860D-17. 
     The applicable percentage for an area would be 30% divided 
     by: 1) 100%, minus two) a percentage equal to total 
     reinsurance payments that would be made in a year divided by 
     such amount plus total payments that would be made to plans 
     in the year for standard coverage.
       The Administrator would establish payment methods, which 
     could include interim payments. Payments would be made from 
     the Prescription Drug Account.
       New Section 1860D-22 would require the Administrator to 
     make direct payments to

[[Page H12002]]

     sponsors of qualified state pharmaceutical assistance 
     programs for each beneficiary enrolled in the plan who was 
     not enrolled in Part D. The amount of the payment would be 
     calculated in the same way that such payments were calculated 
     for retiree plans. Further, the Administrator would provide 
     for additional payments in behalf of each person who would 
     otherwise qualify for a low-income subsidy, if the individual 
     were enrolled in Part D. The payment would equal the 
     amount the Administrator estimates would have been paid 
     under the subsidy provisions, but in no case more than the 
     average payment made under the subsidy provisions for an 
     individual in the same income group.
     Conference agreement
       New Section 1860D-22 of the conference agreement 
     establishes special rules for employer-sponsored programs. 
     Under certain conditions, the Secretary is required to make 
     special subsidy payments to sponsors of qualified retiree 
     prescription drug plans. These payments are to be made on 
     behalf of an individual covered under the retiree plan, 
     entitled to enroll under a PDP or MA-PD plan but elected not 
     to. Subsidy payments will equal 28% of gross covered retiree 
     plan-related prescription drug costs greater than $250 but 
     not greater than $5,000, adjusted annually by the percentage 
     increase in Medicare per capita prescription drug costs.
       Qualified retiree prescription drug plans must be 
     employment-based group health plans. Group health plans 
     include welfare plans defined under the Employee Retirement 
     Income Security Act, federal and state governmental plans, 
     including such plans as the Federal Employee Health Benefits 
     program and CalPERS, collectively bargained plans, and church 
     plans. Conferees expect that in the case of interpretive 
     matters with regard to plan sponsors of group health plans, 
     CMS will coordinate with the Department of Labor and Treasury 
     Department for guidance. The sponsor must provide the 
     Secretary with an attestation that the actuarial value of 
     prescription drug coverage under the plan is at least 
     equivalent to the actuarial value of standard prescription 
     drug coverage. The sponsor, or administrator designated by 
     the sponsor, shall maintain and afford the Secretary access 
     to necessary records for the purpose of audits and other 
     oversight activities. The sponsor is required to provide 
     disclosure of information in accordance with disclosure of 
     information on creditable coverage.
       Nothing in the section is to be construed as precluding an 
     individual covered under an employment-based retiree plan 
     from enrolling in a PDP plan or MA-PD plan or having the 
     employment-based plan from paying the premium. The PDP or 
     MAPD plan would constitute primary coverage, not the 
     employer. Employment-based retiree coverage may provide 
     coverage that is better than standard coverage to retirees 
     under a qualified retiree prescription drug plan. Employment-
     based retiree health coverage may provide coverage that is 
     supplemental to benefits provided under a prescription drug 
     plan or MA-PD plan to enrollees in such plans. Nothing is to 
     prevent employers from providing flexibility in benefit 
     design and pharmacy access provisions for basic drug coverage 
     so long as actuarial equivalence requirements are met.
       About one-third of Medicare beneficiaries receive coverage 
     for prescription drugs from their former employers. Retirees 
     are generally happy with their coverage and want to keep it. 
     But employer plans are under increasing pressure to drop or 
     scale back coverage. In 1988, 66% of large employers provided 
     health benefits. In 2002, that number slipped to just 34%. 
     Costs for retiree health coverage rose 16.0% in 2002, while 
     prescription drug expenditures increased by 11.8% last year, 
     and most employers predict double-digit health inflation well 
     into the future. Conferees believe the employer retiree 
     subsidies included in the conference report will help 
     employers retain and enhance their prescription drug coverage 
     so that the current erosion in coverage would plateau or even 
     improve. Absent this assistance, many more retirees will lose 
     their employer sponsored coverage.
       State Pharmaceutical Assistance Programs (New Section 
     1860D-23 of Conference agreement).
     Present Law
       A number of states currently have programs to provide low-
     income persons, not qualifying for Medicaid, with financial 
     assistance in meeting their drug costs. The state programs 
     differ substantially in both design and coverage.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference agreement
       New Section 1860D-23 of the conference agreement requires 
     the Secretary, by July 1, 2005, to establish requirements to 
     ensure effective coordination between a Part D plan (both a 
     prescription drug plan and MA-PD plan) and a state 
     pharmaceutical assistance program (SPAP). The coordination 
     requirements relate to payment of premiums and coverage and 
     payment for supplemental drug benefits, and assistance with 
     cost-sharing. Requirements must be included for enrollment 
     file-sharing, claims processing, claims reconciliation 
     reports, application of the catastrophic out-of-pocket 
     protection, and other administrative procedures specified by 
     the Secretary. Requirements are to be consistent with 
     applicable law, to safeguard the privacy of any identifiable 
     beneficiary information. The agreement provides that the 
     requirements must include a method for the application by a 
     Part D plan of specified funding amounts for enrolled 
     beneficiaries for supplemental benefits. The Secretary is 
     required, when developing the requirements, to consult with 
     state programs, the PDP sponsors, MA organizations, States, 
     pharmaceutical benefit managers, employers, data processing 
     experts, pharmacists, pharmaceutical manufacturers, and other 
     experts.
       This legislation allows state pharmacy assistance programs 
     to act as administrative intermediaries for the purpose of 
     facilitating enrollment of SPAP members in prescription drug 
     plans and in the discount card program.
       A state pharmaceutical program that this provision applies 
     to is one: (1) that provides financial assistance for the 
     purchase or provision of supplemental prescription drug 
     coverage on behalf of eligible individuals; and (2) which, in 
     determining program eligibility and amount of payment, 
     provides assistance to beneficiaries in all Part D plans and 
     does not discriminate based on the Part D plan in which the 
     individual is enrolled. A card used under Part D may also be 
     used for benefits under the state program.
       The agreement authorizes the Secretary, based on an 
     approved application, to provide payments to state 
     pharmaceutical assistance programs for the purpose of 
     educating program beneficiaries about Part D coverage, 
     providing technical assistance to facilitate selection and 
     enrollment in plans, and other activities to promote 
     effective coordination. The report provides $62.5 million in 
     mandatory spending in each fiscal year 2005 and 2006 to 
     help promote coordination between Medicare plans and 
     SPAPs.
       Coordination Requirements for Plans Providing Prescription 
     Drug Coverage (New Section 1860D-24 of Conference agreement).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The New Section 1860D-24 of the conference agreement 
     requires the Secretary to apply the coordination requirements 
     established under the New Section 1860D-23 for state 
     pharmaceutical assistance programs, to other prescription 
     plans including Medicaid (including a plan operating under an 
     1115 waiver), group health plans, federal employees health 
     benefits plan, military coverage (including TRICARE), and 
     other coverage specified by the Secretary.
       The coordination requirements include coordination of 
     procedures to establish third-party reimbursement of out-of-
     pocket costs. The provision does not change the application 
     of these procedures. The Secretary may impose user fees for 
     the transmittal of information necessary for benefit 
     coordination.
       Medicare Prescription Drug Discount Card and Transitional 
     Assistance Program (New Section 1860D-31 of Conference 
     agreement; Section 105 of House bill; Section 111 of Senate 
     Bill).
     Present Law
       On July 12, 2001, the President announced a new national 
     drug discount card program for Medicare beneficiaries. Under 
     this program, CMS would endorse drug card programs meeting 
     certain requirements. This program was viewed as an interim 
     step until a legislative reform package, including both a 
     drug benefit and other Medicare reforms, was enacted. 
     Implementation of the drug discount card program was 
     suspended by court action.
     House Bill
       The provision would require the Secretary to establish a 
     program to: (1) endorse prescription drug discount card 
     programs meeting certain requirements; (2) provide for 
     prescription drug accounts; and (3) make available 
     information on such programs to beneficiaries. The Secretary 
     would begin operation of the endorsement program within 90 
     days of enactment. The account part of the program would 
     begin no later than September 2004. The Secretary would 
     provide for an appropriate transition and termination of the 
     program on January 1, 2006. The program would be voluntary.
       Eligible beneficiaries would be defined as persons eligible 
     under Part A or enrolled in Part B, but not enrolled in an MA 
     plan offering qualified prescription drug coverage. The 
     Secretary would establish a process through which an Part D 
     eligible individual could make an election to enroll under 
     the new Section 1807 with an endorsed program. The 
     beneficiary would have to enroll for a year in order to 
     receive the benefits for the year. An individual would, in 
     general have only one opportunity for enrollment. This would 
     occur during an initial, general enrollment period as soon as 
     possible after enactment, and annually thereafter. The annual 
     open enrollment periods would be coordinated with those for 
     MA. An individual who enrolled in the new Section 1807, 
     subsequently enrolled in an MA plan with drug coverage, and 
     then discontinued such MA enrollment would be permitted to 
     reenroll under Section 1807.
       In general, eligible beneficiaries would not be permitted 
     to enroll after their initial enrollment period (as defined 
     under Part B). The Secretary would establish an open 
     enrollment period for current beneficiaries.
       The Secretary would establish a process through which an 
     Part D eligible individual, enrolled under the new Section 
     1807, would

[[Page H12003]]

     select an eligible entity to provide access to negotiated 
     prices. The entity would be one, which had been awarded a 
     contract and served the state in which the beneficiary 
     resided. Eligible entities would be pharmaceutical benefit 
     management companies, wholesale and retail pharmacy delivery 
     systems, insurers, MA organizations, other entities, or any 
     combination of these.
       The enrollment process, established by the Secretary, would 
     use rules similar to those established for MA. Individuals 
     could not select more than one entity at a time and, except 
     for unusual circumstances (including changing residential 
     setting, such as nursing home placement.) change the 
     selection once a year. The process would provide for 
     selecting eligible entities for individuals who enrolled in 
     the New Section 1807, but failed to select an entity. 
     Entities would compete for beneficiaries on the basis of 
     discounts, formularies, pharmacy networks, and other 
     services.
       The Secretary would broadly disseminate information to 
     eligible beneficiaries regarding enrollment, selection of 
     eligible entities, and the coverage made available by 
     entities. The enrollment fee would be $30 with the 2004 fee 
     including any portion of 2003 covered by the program. The fee 
     would be collected in the same manner as Part B premiums are 
     collected from social security payments, except the 
     collection would be made only once a year. States could pay 
     the fee for some or all low-income enrollees in the state. No 
     federal matching payments would be available. The Secretary 
     would make 2/3 of the fee collected available to the eligible 
     entity.
       Each eligible entity would be required to issue a card and 
     an enrollment number to each enrolled beneficiary and to 
     provide for electronic methods to coordinate with 
     prescription drug accounts established under the New Section 
     1807A.
       Beneficiary protections would be established including 
     guaranteed issue and nondiscrimination provisions. If an 
     eligible entity served a state, it would be required to serve 
     the entire state. Entities would be required to disseminate, 
     to each beneficiary who selected the entity, summary 
     information on negotiated prices, access to such prices 
     through pharmacy networks, and how the formulary 
     functioned. Upon request, entities would be required to 
     provide general coverage, utilization, and grievance 
     information. In addition, entities would be required to 
     have a mechanism for providing specific information upon 
     request. The new Part D provisions relating to pharmacy 
     access would apply to eligible entities. To the extent the 
     Secretary determined they could be implemented on a timely 
     basis, entities would be required to meet the new Part D 
     provisions with respect to development and application of 
     formularies and the requirements to have in place an 
     effective cost and drug utilization management program, 
     quality assurance measures and systems, and a program to 
     control fraud, abuse and waste. Each entity would be 
     required to have in place meaningful procedures for 
     hearing and resolving grievances and for expedited 
     determinations and reconsiderations of coverage 
     determinations. Entities would be required to provide 
     pharmaceutical support services. They would also be 
     required to provide for confidentiality and accuracy of 
     enrollee records and periodic reports to the Secretary.
       Entities would be required to provide beneficiaries with 
     access to negotiated prices (including applicable discounts). 
     Such discounts would not be taken into account in 
     establishing ``best price'' for purposes of Medicaid 
     calculations. If the entity used a formulary, negotiated 
     prices would only be available for formulary drugs. 
     Negotiated prices could not be limited to mail order drugs. 
     Entities and contracting pharmacies could not charge 
     beneficiaries for any required services. Entities would be 
     required to disclose to the Secretary the extent to which 
     discounts, or rebates or other remuneration or price 
     concessions made available by a manufacturer were passed 
     through to enrollees; such information would be confidential. 
     Entities would be required to notify enrollees at the time of 
     purchase of the differential between any prescribed drug and 
     the cost of the lowest cost available generic drug that was 
     therapeutically equivalent and bioequivalent.
       The Secretary would be required to establish a prescription 
     drug account for each enrolled individual and deposit into 
     the account the federal contribution amount. This amount 
     would be $800 for an accountholder with income under 135% of 
     poverty, $500 for an accountholder with income between 135% 
     and 150% of poverty, and $100 for all other persons. Income 
     would be determined under the state Medicaid program or by 
     the Social Security Administration (SSA). Such sums as may be 
     necessary would be authorized to be appropriated to the SSA. 
     If the program was not in effect for all of 2004, the amounts 
     would be prorated. Persons would not be eligible for a 
     federal contribution if they were eligible for drug coverage 
     under Medicaid, group health plan, Medigap, medical care for 
     members of the uniformed services, Veterans' medical care, 
     Federal Employees Health Benefits program, or the Indian 
     Health Care Improvement Act. The provision would authorize 
     appropriations to the Part B trust fund of an amount equal to 
     the amount by which benefits and administrative costs 
     exceeded the portion of enrollment fees retained by the 
     Secretary.
       The provision would establish a new Section 1807A, 
     Prescription Drug Accounts, that would be established for 
     each enrolled beneficiary. Contributions to the account would 
     include federal contributions, any state contributions, 
     private contributions (including employer and individual 
     contributions) and spousal rollover contributions. If the 
     accountholder was married at the time of death, the amount in 
     the account attributable to public contributions would be 
     credited to the account, if any, of the surviving spouse, or 
     if the spouse was not an Part D eligible individual, into a 
     reserve account to be held for when the spouse became an Part 
     D eligible individual.
       Costs of the voluntary prescription drug discount card 
     program would not be considered in calculating the Part B 
     premium.
       By March 1, 2005, the Administrator would be required to 
     submit a report to Congress on the progress made in 
     implementing the new prescription drug benefit, including 
     specific steps that had been taken, and need to be taken, to 
     ensure timely start of the program on January 1, 2006.
     Senate Bill
       Section 111 would add a new Section 1807 to the Social 
     Security Act, Medicare Prescription Drug Discount Card 
     Endorsement Program. The Secretary would establish a program 
     under which the Secretary would endorse card programs offered 
     by prescription drug card sponsors meeting certain 
     requirements and would make available information on such 
     programs to beneficiaries. Eligible sponsors would be 
     entities with demonstrated experience and expertise in 
     operating a prescription drug discount card program or 
     similar program that the Secretary determined to be 
     appropriate to provide benefits to Medicare beneficiaries. 
     Such entities would include pharmaceutical benefit management 
     companies, wholesale or retail pharmacist delivery systems, 
     insurers, other entities, or any combination of these.
       Any individual entitled to Part A and enrolled in Part B 
     would be eligible to enroll in an endorsed prescription drug 
     card program. The Secretary would be required to establish 
     procedures for identifying eligible beneficiaries. The 
     Secretary would also be required to establish procedures 
     under which beneficiaries could make an election to enroll 
     and disenroll in an endorsed card program. A beneficiary 
     could only be enrolled in one endorsed program at a time. 
     Card sponsors could charge annual enrollment fees, not to 
     exceed $25. The fee would be the same for all eligible 
     Medicare beneficiaries enrolled in the program and would be 
     collected by the card sponsor.
       The Secretary would provide information, which compared the 
     costs and benefits of various programs. This information 
     dissemination, intended to promote informed choice, would be 
     coordinated with the dissemination of other educational 
     information on other Medicare options. Each card sponsor 
     would make available to each beneficiary (through the 
     Internet or otherwise) information that the Secretary 
     identified as being necessary to provide for informed choice 
     by beneficiaries among endorsed programs; this would include 
     information on enrollment fees, negotiated prices, and 
     services related to drugs offered under the program. The 
     sponsor would have to provide information on how the 
     formulary functioned. The Medicare toll-free number, 1-800-
     MEDICARE, would be used to receive and respond to inquiries 
     and complaints.
       Each endorsed drug card program would have to meet 
     beneficiary protection requirements, including those relating 
     to beneficiary appeals and marketing practices. They would 
     also have to ensure that beneficiaries were not charged more 
     than the lower of the negotiated retail price or the usual 
     and customary price. Each card sponsor would secure the 
     participation of a sufficient number of pharmacies that 
     distributed drugs directly to patients to ensure convenient 
     access (including adequate emergency access) for 
     beneficiaries enrolled in the program. Convenient access 
     would be determined by the Secretary and would take into 
     account reasonable distances to pharmacy services in both 
     urban and rural areas. Each card sponsor would be required to 
     have in place procedures for assuring that quality service 
     was provided to eligible beneficiaries enrolled in a 
     prescription drug discount card program. They would also 
     have to safeguard individually identifiable information in 
     accordance with the Health Insurance Portability and 
     Accountability Act (HIPAA). Sponsors would be prohibited 
     from charging any fees, except for the annual enrollment 
     fee. Card sponsors could not recommend switching an Part D 
     eligible individual to a drug with a higher negotiated 
     price, unless a licensed health professional recommended a 
     switch based on a clinical indication. Negotiated prices 
     could not change more than once every 60 days.
       Card sponsors would provide enrolled beneficiaries with 
     access to negotiated prices used by the sponsor for payment 
     for prescription drugs, provided such drugs were not excluded 
     under the program's formulary. The term negotiated price, 
     would include all discounts, direct or indirect subsidies, 
     rebates, price concessions, and direct or indirect 
     remunerations. Medicaid negotiation rules, including rebate 
     requirements, would not apply.
       Each card program would be required to provide 
     pharmaceutical support services such as education, 
     counseling, and services to prevent adverse drug 
     interactions. Each card sponsor would issue a discount card 
     to program enrollees.
       Sponsors seeking endorsement of a card program would submit 
     required information

[[Page H12004]]

     to the Secretary. The Secretary would review the information 
     and determine whether to endorse the program. A program could 
     not be approved unless it and the sponsor complied with the 
     requirements of the new Section 1807.
       Sponsors could use a formulary. Sponsors electing to use a 
     formulary would be required to establish a pharmaceutical and 
     therapeutic committee (that included at least one academic 
     expert, at least one practicing physician and at least one 
     practicing pharmacist) to develop and review the formulary. 
     The committee would base clinical decisions on the strength 
     of scientific evidence and standards of practice. The 
     formulary would have to include drugs within each therapeutic 
     category and class of covered drugs (as defined by the 
     Secretary) although not necessarily for all drugs within such 
     categories and classes. The committee would establish 
     policies and procedures to educate and inform health care 
     providers concerning the formulary. Drugs could not be 
     removed from the formulary until after appropriate notice had 
     been provided to beneficiaries, physicians, and pharmacies. 
     The Secretary would provide appropriate oversight to ensure 
     compliance of programs; including verification of the 
     negotiated prices and services provided. Each program sponsor 
     would be required to report to the Secretary on program 
     performance, use of drugs by beneficiaries, financial 
     information of the sponsor, and other information required by 
     the Secretary. The Secretary could not disclose any 
     proprietary data that was reported. The Secretary could use 
     Parts A and B claims data for purposes of conducting a drug 
     utilization review program.
       Section 111 would add a new Section 1807A to the Social 
     Security Act, Transitional Prescription Drug Assistance Card 
     Program for Eligible Low-Income Beneficiaries. The Secretary 
     would award contracts to prescription drug card sponsors, 
     offering a program that was endorsed by the Secretary under 
     the new Section 1807, to offer a prescription drug card 
     assistance program to eligible low-income beneficiaries. The 
     program would begin no later than January 1, 2004. The 
     Secretary would provide for a transition and discontinuation 
     of the drug card program and the low-income assistance card 
     program when the new Part D program became effective. The 
     transitional programs would continue to operate at least 6 
     months after the date benefits first became available under 
     Part D.
       All individuals meeting the definition of QMB, SLMB, or QI-
     1, or those with income below 135 percent of poverty who were 
     not eligible to receive drug benefits under Medicaid, could 
     receive assistance with their prescription drug costs, 
     effective January 1, 2004. In addition, those determined to 
     have income below 135 percent of poverty could receive 
     assistance with their prescription drug costs. These persons 
     would have access, through a drug discount card, to up to 
     $600 per year. The entire $600 benefit would be available for 
     the entire year; any balance left on the card in one year 
     could be carried forward. Beneficiaries would be subject to 
     cost-sharing requirements, which could not be less than 5% of 
     the negotiated price for a drug, or 10% for a transitional 
     assistance eligible individual. Cost-sharing charges would 
     not count against the $600. At a minimum, card sponsors would 
     provide low-income enrollees with a minimum of a 20% discount 
     from the average wholesale price for each covered drug.
       In general, the enrollment procedures established for the 
     drug discount card program would apply for this program. Each 
     sponsor offering an assistance card program would be required 
     to enroll any low-income person wishing to enroll if the 
     program served the geographic area where the beneficiary 
     resides. An individual enrolling in an assistance card 
     program would be simultaneously enrolled in a discount card 
     program offered by the sponsor. Enrollment fees would be 
     waived for these individuals and would instead be paid by the 
     Secretary.
       Eligible beneficiaries would have to be provided the 
     information required for the discount card program. In 
     addition, sponsors would be required to notify low-income 
     enrollees, on a periodic basis, of the amount of coverage 
     remaining and on the grievance and appeals process under the 
     program.
       Each card sponsor would secure the participation of a 
     sufficient number of pharmacies that distributed drugs 
     directly to patients to ensure convenient access for 
     beneficiaries enrolled in the program. The Secretary would 
     determine whether convenient access was provided; mail order 
     pharmacies would not be included in the determination. 
     Further, the Secretary could not make a determination that 
     convenient access had been provided, unless an appropriate 
     arrangement was in place for low-income persons in long-term 
     care facilities.
       The Secretary would be required to establish procedures 
     under which benefits under the assistance card program were 
     coordinated with coverage under a state pharmaceutical 
     assistance program or Medicare+Choice plan.
       Drug discount card managers could establish formularies. A 
     low-income enrollee would have the right to appeal to obtain 
     coverage for a drug not on the formulary if the prescribing 
     physician determined that the formulary drug was not as 
     effective for the individual or had adverse effects for the 
     individual. If a plan offered tiered cost-sharing for covered 
     drugs, an enrollee would have the right to request that a 
     nonpreferred drug be treated on terms applicable for a 
     preferred drug if the prescribing physician determined that 
     the preferred drug was not as effective for the individual or 
     had adverse effects for the individual.
       Sponsors offering assistance card programs would be 
     required to process claims negotiate with brand name and 
     generic manufacturers and others for price concessions, track 
     individual beneficiary expenditures, and perform other 
     functions specified by the Secretary. Each sponsor would 
     receive data exchanges in a format specified by the 
     Secretary.
       Entities would be required to assure that low-income 
     beneficiaries were informed at the time of purchase of any 
     difference between the price of the prescribed drug and the 
     lowest cost generic drug that was therapeutically equivalent 
     and bioequivalent and that was available at the pharmacy or 
     other dispenser. Entities would also be required to have 
     meaningful procedures for hearing and resolving grievances, 
     comparable to those established for Medicare+Choice plans. In 
     addition, eligible entities would be required to meet 
     Medicare+Choice requirements relating to coverage 
     determinations.
       Sponsors seeking to offer an assistance program would be 
     required to submit information to the Secretary, in the 
     manner specified by the Secretary. The Secretary could not 
     approve a program unless the sponsor and program met the 
     requirements of the new Section 1807A. Further, the Secretary 
     would have to determine that the entity was appropriate to 
     provide benefits to low-income beneficiaries, was able to 
     manage the monetary assistance provided under the program, 
     agreed to submit to audits by the Secretary, and provided 
     other assurances require by the Secretary. There would be no 
     limit on the number of sponsors who could be awarded 
     contracts. The contract would be for the lifetime of the 
     program and cover the same service area served by the sponsor 
     under the card program under Section 1807. The sponsor could 
     submit an application for endorsement under both programs 
     simultaneously.
       The Secretary would pay sponsors the amount agreed to in 
     the contract between the sponsor and the Secretary. Payments 
     would be made from the Part B trust fund but would not be 
     considered in the calculation of the Part B premium.
       The Secretary would implement New Sections 1807 and 1807A 
     to assure that discounts and benefits were available no later 
     than January 1, 2004. The Secretary would provide for an 
     appropriate transition and discontinuation of the programs; 
     such transition would ensure that benefits continue to 
     operate until the first Part D enrollment period ended.
     Conference Agreement
       a. Establishment of Program. The conference agreement adds 
     a new Section 1860D-31 to the Social Security Act, Medicare 
     Prescription Drug Discount Card and Transitional Assistance 
     Program. The Section requires the Secretary to establish a 
     program to endorse prescription drug discount card programs 
     meeting certain requirements. Discount card eligible 
     individuals would receive access to prescription drug 
     discounts through card sponsors throughout the U.S. The 
     program will also provide transitional assistance for low-
     income persons enrolled in endorsed programs. The program is 
     voluntary for eligible individuals.
       The agreement requires the Secretary to implement the 
     program so that discount cards and transitional assistance 
     are available no later than 6 months after enactment. The 
     Secretary is required to promulgate regulations to carry out 
     the program. They could be promulgated on an interim final 
     basis which could be effective on the date of issuance. In 
     the case interim final regulations are promulgated, a public 
     comment period would be provided. The Secretary could change 
     or revise the regulations after conclusion of the comment 
     period.
       The conference agreement specifies that the new program 
     would not, except as provided for during an individual's 
     transition period, apply to covered discount card drugs 
     dispensed after December 31, 2005. However, any transitional 
     assistance for low income persons would be available after 
     that date to the extent the assistance was for drugs 
     dispensed on or before that date.
       Special rules may apply for an individual in a transition 
     period who is also enrolled under a card program as of 
     December 31, 2005. The transition period to the new Part D is 
     the period beginning January 1, 2006 and ending on the 
     effective date of the individual's coverage under Part D or 
     at the close of the individual's initial enrollment period 
     for Part D. During this period, discounts may continue to 
     apply for drugs dispensed to the individual, no annual 
     enrollment fee would be applicable, the individual could not 
     change the endorsed plan in which they were enrolled, and the 
     balance of any transitional assistance remaining on January 
     1, 2006 would remain available for drugs dispensed during 
     this period.
       b. Eligibility. The conference agreement specifies that 
     persons eligible for the discount card are those entitled to 
     or enrolled under Part A or enrolled under Part B. However 
     individuals enrolled in Medicaid (or under any Section 1115 
     Medicaid waiver) who are entitled to any medical assistance 
     for outpatient prescribed drugs would not be a discount card 
     eligible individual.
       An individual eligible for transitional assistance is a 
     discount card eligible individual, residing in one of the 50 
     states or the

[[Page H12005]]

     District of Columbia, whose income is not more than 135% of 
     the official poverty line applicable to the family size 
     involved. Certain persons would not be eligible for 
     transitional assistance. These are persons who had coverage 
     for, or assistance with, covered discount card drugs under: 
     (1) a group health insurance plan or health insurance plan 
     (other than coverage under a plan under Medicare Part C or 
     coverage consisting only of excepted benefits as that term is 
     defined under Section 2791 of the Public Health Service Act); 
     (2) Chapter 55 of the United States Code relating to medical 
     and dental care for members of the uniformed services; and 
     (3) a plan under the Federal employees health benefits 
     program.
       Certain transitional eligible assistance eligible 
     individuals may also qualify as special transitional 
     assistance eligible individuals. These are persons with 
     incomes below 100% of the official poverty line.
       The Secretary is required to provide for appropriate rules 
     for the treatment of medically needy persons as discount 
     eligible individuals and as transitional assistance eligible 
     individuals.
       c. Enrollment. The conference agreement requires the 
     Secretary to establish a process through which a discount 
     card eligible individual is enrolled and disenrolled in a 
     discount card program. An individual not enrolled in a card 
     program may enroll in any card program, serving residents of 
     the state at any time beginning on the initial enrollment 
     date and before January 1, 2006. Completion of a standard 
     enrollment form, specified by the Secretary, is required. 
     Each program sponsor is required to transmit to the Secretary 
     (in a form and manner specified by the Secretary) information 
     on persons completing the enrollment forms. They are also 
     required to provide certain information relating to the 
     certification as a transitional assistance eligible 
     individual.
       The conference agreement specifies that a discount eligible 
     individual may only be enrolled in one endorsed card program 
     at a time. An individual enrolled in one program in 2004 
     could change the election for 2005. The Secretary will 
     establish a process for making this change, which will be 
     similar to, and coordinated with, that established for annual 
     coordinated elections for Medicare+Choice plans under Part C. 
     The agreement requires the Secretary to permit individuals 
     to change programs in which they were enrolled if they 
     changed residence outside the service area of the plan or 
     under other exceptional circumstances. The Secretary is 
     permitted to consider a change in residential setting 
     (such as placement in a nursing facility) as an 
     exceptional circumstance. Also meeting this criteria would 
     be enrollment or disenrollment from a Medicare+Choice plan 
     through which an individual was enrolled in an endorsed 
     program.
       An individual could voluntarily disenroll from an endorsed 
     program at any time. Such individual could not enroll under 
     another endorsed program except during the open enrollment 
     period or under the exceptional circumstances specified by 
     the Secretary. An individual, who was not a transitional 
     assistance eligible individual, could be disenrolled by the 
     program sponsor, if the individual failed to pay the annual 
     enrollment fee.
       A Medicare+Choice organization or organization operating 
     under a reasonable cost contract that wishes to become a 
     prescription drug card sponsor may elect to limit enrollment 
     in its endorsed discount card program to eligible enrollees 
     enrolled in the plan. If the organization elects this option, 
     its enrollees can only enroll in the endorsed discount card 
     program offered by that sponsor.
       A card sponsor may charge an annual enrollment fee, not to 
     exceed $30, for each enrollee. The fee for either 2004 or 
     2005 could not be prorated. The sponsor will ensure that the 
     annual enrollment fee (if any) is the same for all enrollees 
     residing in the state. The annual enrollment fee is to be 
     collected by the program sponsor. The annual enrollment fee 
     for a transitional assistance eligible individual is to be 
     paid by the Secretary on the individual's behalf.
       The Secretary will establish an arrangement under which a 
     state could pay for some, or all, of the enrollment fee for 
     some or all enrollees who are not transitional assistance 
     eligible individuals. The payment would be paid directly by 
     the state to the sponsor. No federal matching payments would 
     be available.
       The Secretary will establish special rules for individuals 
     who change, during a year, the endorsed program in which they 
     are enrolled.
       Each card sponsor will issue, in a standard format 
     specified by the Secretary, a discount card to each enrollee. 
     The card will establish proof of enrollment. It may be used 
     in a coordinated manner to identify the sponsor, program, and 
     individual. The Secretary will specify the effective date 
     that card enrollees will have access to negotiated prices and 
     transitional assistance, if any.
       d. Information. The conference agreement requires the 
     Secretary to provide for activities that broadly disseminate 
     information to discount card eligible individuals and 
     prospective eligible individuals. These persons would receive 
     information on enrollment in endorsed card programs and on 
     the features of the drug discount card and transitional 
     assistance program. In order to promote informed choice, the 
     Secretary will provide for the dissemination of information, 
     which compares the annual enrollment fee and other features 
     of such programs, which could include comparative prices for 
     covered drugs. To the extent practicable, this will be 
     coordinated with the dissemination of educational material on 
     other Medicare options. The required information will also 
     include educational materials on the variability of discounts 
     on covered drugs under an endorsed program. To the extent 
     practicable, the Secretary will ensure the provision of 
     required information at least 30 days prior to the initial 
     enrollment date. The Secretary, through the use of 1-800-
     MEDICARE, will provide for the receipt and response to 
     inquiries and complaints concerning the discount card program 
     and endorsed programs.
       The conference agreement requires each card sponsor to make 
     available to discount card eligible individuals (through the 
     Internet and otherwise) information the Secretary identifies 
     as being necessary to promote informed choice. This includes 
     information on enrollment fees and negotiated prices for 
     covered drugs. Each sponsor is required to have a mechanism 
     (including a toll free number) for providing, on request, 
     specific information to individuals enrolled in the program. 
     Specific information includes information on negotiated 
     prices and the amount of transitional assistance remaining to 
     the individual. The sponsor is required to inform 
     transitional assistance eligible individuals of the 
     availability of such toll-free numbers to provide information 
     on the amount of available assistance to the individual. 
     Information on the balance of transitional assistance 
     available will have to be available at the point-of-sale, 
     either electronically or by telephone.
       The conference report requires sponsors to provide that 
     each pharmacy that dispensed a covered discount drug to 
     inform program enrollees of any difference between the price 
     of the drug provided to the enrollee and the price of the 
     lowest priced generic drug covered under the program that is 
     therapeutically equivalent and bioequivalent and available at 
     such pharmacy. The notice is to be provided at the time of 
     purchase, or in the case of a mail order drug, at the time of 
     delivery. The Secretary may waive this requirement under 
     circumstances specified by the Secretary.
       e. Discount Card Program. The conference agreement requires 
     each card sponsor to provide each enrollee with access to 
     negotiated prices. These negotiated prices would take into 
     account negotiated price concessions such as discounts, 
     direct or indirect subsidies, rebates, and direct or indirect 
     remunerations for covered drugs. Negotiated prices include 
     any dispensing fees. Seniors currently benefit from 
     prescription drug assistance programs offered by 
     pharmaceutical companies. Conferees intend that these 
     programs continue to be offered until the full implementation 
     of the prescription drug benefit. Nothing in this conference 
     report shall be interpreted as encouraging the 
     discontinuation or diminution of these benefits.
       Each prescription drug card sponsor must secure the 
     participation of a sufficient number of pharmacies that 
     dispense drugs directly to enrollees to ensure convenient 
     access to covered drugs at negotiated prices. This 
     requirement may only be met by entities dispensing drugs 
     other than solely by mail order. Conferees intend for seniors 
     to have access to a bricks and mortar pharmacy. The Secretary 
     will establish convenient access rules that are no less 
     favorable than standards for convenient access to pharmacies 
     applicable under TRICARE. Applicable TRICARE standards are 
     those specified in the statement of work solicitation 
     (#MDA906-03-R-0002) as of March 13, 2003.
       A prescription drug card sponsor (and any pharmacy 
     contracting with the sponsor to provide covered discount card 
     drugs) may not charge enrollees for any items and services 
     required to be provided under the program. This prohibition 
     would not apply to the annual enrollment fee for persons who 
     are not transitional assistance eligible individuals or for 
     the charge for the drug (consistent with the negotiated 
     price) reduced by any transitional assistance.
       The agreement further provides that negotiated prices will 
     not be taken into account for purposes of making best price 
     calculations under the Medicaid rebate program.
       Each endorsed card program is required to implement a 
     system to reduce the likelihood of medication errors and 
     adverse drug interactions and to improve medication use.
       f. Eligibility Procedures. The conference agreement 
     requires the Secretary to establish procedures for 
     eligibility determinations for endorsed programs and for 
     those eligible as a transitional assistance eligible 
     individual or a special transitional eligible individual. The 
     Secretary is to define the terms income and family size and 
     specify the methods and period for which they are determined. 
     If such methods provide for use of information for prior time 
     periods, the Secretary is required to permit an individual 
     whose circumstances changed to have eligibility for 
     transitional assistance determined for a more recent period. 
     The Secretary may use a reconsideration process or other 
     method.
       An individual wishing to be treated as a transitional 
     assistance eligible individual or special transitional 
     eligible individual could self-certify through a simplified 
     means as to their income, family size, and prescription drug 
     coverage (if any). The certification could also be done by 
     another qualified person, acting on the individual's behalf. 
     The certification could be provided before, on or after the 
     time of enrollment in an endorsed

[[Page H12006]]

     program. The self-certification would be deemed as consent to 
     have the information verified by the Secretary. A verified 
     self-certification for as a transitional assistance or 
     special transitional assistance eligible individual would be 
     applicable for the entire period of enrollment in any 
     endorsed program.
       The Secretary is required to establish verification 
     methods, which could include sampling and use of information 
     on Medicaid eligibility provided by the states, financial 
     information from the Commissioner of Social Security, and 
     financial information from the Secretary of the Treasury. The 
     Secretary could find that an individual met the income 
     requirements for transitional assistance if the individual is 
     within a category of discount card eligible individuals who 
     are enrolled under Medicaid (such as qualified Medicare 
     beneficiaries, specified low-income Medicare beneficiaries, 
     and certain qualified individuals). States will be required, 
     as a condition of Federal Medicaid assistance to provide, on 
     a timely basis, information that allows the Secretary to 
     identify persons eligible for drug coverage under Medicaid, 
     or who are transitional assistance eligible individuals, or 
     special transitional eligible individuals. The Secretary is 
     required to establish a reconsideration process for persons 
     determined not to be transitional eligible or special 
     transitional assistance eligible individuals. The results are 
     to be communicated to the individual and drug card sponsor 
     involved. The Secretary may enter into contracts to perform 
     the reconsideration function.
       g. Transitional Assistance. The conference agreement 
     provides special provisions for low-income persons. A 
     transitional assistance eligible individual will be entitled 
     to have his or her discount card enrollment fee paid. Those 
     individuals with incomes below 100% of poverty (special 
     transitional assistance eligible individuals) would be liable 
     for coinsurance charges of 5% of incurred costs up to $600 in 
     both 2004 and 2005. Other transitional assistance eligible 
     individuals (those with incomes between 100% and 135% of 
     poverty) would be liable for coinsurance charges of 10% of 
     incurred costs up to $600 in both 2004 and 2005. Thus, the 
     program will pay 95% of a special transitional eligible 
     individual's incurred drug costs up to $600 in 2004 and 90% 
     of other transitional eligible individual's incurred drug 
     costs up to $600 in 2004. Similarly, payment would be made 
     for 95% or 90%, whichever is appropriate, of the individual's 
     incurred drug costs up to $600 in 2005. In addition, any 
     balance left over from 2004 may be added to the amount 
     available in 2005, except no rollover would be permitted if 
     the individual voluntarily disenrolled from an endorsed plan. 
     No funds will be available under this program for covered 
     discount card drugs dispensed after December 31, 2005. The 
     Secretary will provide a method for the reimbursement of card 
     sponsors for transitional assistance.
       The $600 annual amount is to be prorated in 2004, for 
     persons not enrolling in an endorsed program and providing 
     self-certification prior to the program's initial 
     implementation date. For 2005, the amount is to be prorated 
     for persons not enrolling in an endorsed program and 
     providing self-certification prior to February 1, 2005.
       The conference agreement permits a pharmacy to reduce the 
     coinsurance otherwise applicable. It also permits states to 
     pay some or all of the coinsurance for some or all 
     transitional assistance eligible enrollees. The payment would 
     be made directly by the state to the pharmacy. No federal 
     matching payments would be available for these costs; further 
     they could not be considered as Medicare cost-sharing for 
     purposes of the qualified Medicare beneficiary program.
       The conference agreement includes provisions to ensure 
     access to transitional assistance for qualified residents of 
     long-tem care facilities and American Indians. It requires 
     the Secretary to establish procedures to ensure such access 
     for qualified residents of long-term care facilities. The 
     Secretary could waive requirements of the new Section 1860D-
     31, as necessary, to negotiate arrangements with sponsors to 
     provide arrangements with pharmacies that support long-term 
     care facilities. The Secretary is also required to establish 
     procedures to ensure that pharmacies operated by the Indian 
     Health Service, Indian tribes and tribal organizations, and 
     urban Indian organizations have the opportunity to 
     participate in the pharmacy networks of at least two endorsed 
     programs in each of the 50 states and the District of 
     Columbia where such a pharmacy operates. Where necessary, the 
     Secretary could waive requirements of the new Section 1860D-
     31.
       The availability of negotiated prices or transitional 
     assistance could not be taken into account in determining an 
     individual's eligibility for or benefits under any other 
     Federal program. Any nonuniformity of benefits resulting from 
     the implementation of the new Section 1807 (such as the 
     waiver of an enrollment fee) would not be taken into account 
     in calculations of any required additional benefits under 
     Part C.
       h. Qualifications for Card Sponsors. The conference 
     agreement defines entities eligible to be card sponsors and 
     establishes criteria that such entities would have to meet. 
     The agreement specifies that a card sponsor could be any 
     nongovernmental entity that the Secretary determines is 
     appropriate to offer an endorsed discount card program. An 
     entity which could qualify includes a pharmaceutical benefit 
     management company, a wholesale or retail pharmacy delivery 
     system, an insurer (including one that offered Medigap 
     policies), an organization under Part C, or any combination 
     of these. Each program would have to be operated directly, or 
     through arrangements with an affiliated organization (or 
     organizations), by one or more organizations with 
     demonstrated experience and expertise in operating such a 
     program. Further, the program would have to meet business 
     stability and integrity requirements specified by the 
     Secretary. The sponsor will be required to have arrangements, 
     satisfactory to the Secretary, to account for transitional 
     assistance provided to eligible individuals.
       The conference agreement requires each sponsor seeking 
     endorsement to submit an application to the Secretary. The 
     Secretary would review the application and determine whether 
     to endorse the program. The Secretary could not endorse the 
     program unless the program and sponsor comply with the 
     applicable requirements of the new Section 1860D-31 and the 
     sponsor enters into a contract with the Secretary to carry 
     out such requirements. An endorsement would be for the 
     duration of the discount card and transitional assistance 
     program. The Secretary could make an exception for cause.
       The conference agreement requires the Secretary to ensure 
     that at least 2 endorsed programs (each offered by a 
     different sponsor) are available to each eligible individual. 
     The
       Secretary may limit (but not below 2) the number of 
     sponsors in a state that were awarded contracts.
       Card sponsors enrolling individuals in any part of a state 
     would be required to permit eligible individuals in all parts 
     of the state to enroll. An exception would apply in the case 
     of a Medicare+Choice organization, which elects to limit 
     enrollment in its endorsed discount card program to eligible 
     enrollees enrolled in its Medicare+Choice plan.
       Each prescription drug card sponsor will be required to 
     pass on to discount eligible enrollees the negotiated prices 
     for covered drugs, including discounts negotiated with 
     pharmacies and manufacturers, to the extent such discounts 
     are disclosed under required disclosure rules. Each card 
     sponsor will be required to provide meaningful procedures for 
     hearing and resolving grievances between the sponsor and 
     enrollees in a manner similar to that required for 
     Medicare+Choice. The operations of an endorsed card program 
     are covered functions and a card sponsor is a covered entity 
     for purposes of applying the administrative simplification 
     provisions established in Part C of Title XI of the Social 
     Security Act. Included are regulations promulgated under that 
     Part including privacy regulations. The Secretary could waive 
     the relevant portions of privacy regulations for an 
     appropriate limited period of time in order to promote 
     participation of sponsors.
       The sponsor of an endorsed card program may not provide or 
     market services under the program except if the product or 
     service is directly related to a covered discount card drug 
     or a discount price for a nonprescription drug. Sponsors will 
     also be required to meet additional requirements as the 
     Secretary identifies are needed to ensure that enrollees are 
     not charged more than the lower of the negotiated price or 
     the usual and customary price.
       Special rules apply to Medicare+Choice organizations or 
     organizations offering enrollment under a reasonable cost 
     contract. An organization could elect to limit enrollment in 
     its endorsed discount card program to eligible enrollees 
     enrolled in its plan. In this case, special rules would 
     apply. The sponsor could not enroll individuals not enrolled 
     in the plan. The pharmacy access requirements applicable to 
     card sponsors would be deemed to be met if access is made 
     available through a pharmacy network (and not only through 
     mail order) and the network is approved by the Secretary. The 
     Secretary could waive requirements applicable to card 
     sponsors to the extent he determined they were duplicative or 
     conflicted with a Medicare+Choice or cost contract 
     requirement or were necessary in order to improve 
     coordination of the card program with Medicare+Choice or cost 
     contract benefits.
       Each card sponsor will be required to disclose to the 
     Secretary information relating to: (1) program performance; 
     (2) use of drugs by card program enrollees; (3) extent to 
     which negotiated price concessions made available by the 
     manufacturer are passed through to enrollees through 
     pharmacies or otherwise; and (4) other information specified 
     by the Secretary. The Medicaid provision providing for the 
     confidentiality of drug information will apply to any drug 
     pricing information (other than aggregate data) disclosed 
     under these requirements.
       The Secretary will provide appropriate oversight to ensure 
     compliance of card programs and sponsors with the 
     requirements of the new Section 1860D-31. The Secretary would 
     have the right to audit and inspect any books and records of 
     sponsors (and any affiliated organization) that pertain to 
     the card program, including amounts payable to the sponsor. 
     The Secretary could impose sanctions for abusive practices.
       i. Territories. The conference agreement provides federal 
     assistance to territories, which establish a plan to provide 
     transitional assistance for covered discount drugs to some or 
     all eligible persons residing in the state. Eligible persons 
     are those entitled to benefits under Part A or enrolled in 
     Part B with incomes below 135% of the poverty line. The total 
     amount of available federal assistance is $35 million. The 
     amount available for each territory would be determined using 
     the

[[Page H12007]]

     ratio of the total number of Medicare residents in the 
     territory to Medicare residents in all the territories.
       j. Funding. The conference agreement creates a separate 
     Transitional Assistance Account in the Part B Trust Fund. 
     Funds in this account are to be kept separate from other 
     funds within the Trust fund. Payments are to be made from the 
     Account in such amounts as the Secretary certifies are 
     necessary to make payments for transitional assistance. 
     Appropriations are to be made to the Account equal to the 
     amount of payments from the Account. Such sums as are 
     necessary would be authorized to be appropriated for the 
     Secretary's administrative expenses. Payments could not be 
     made to sponsors for administrative expenses, except for 
     payment of the enrollment fee for transitional eligible 
     individuals. Costs associated with the Medicare prescription 
     drug card and the transitional assistance program would be 
     excluded from the calculation of the Part B premium.
       Definitions; Treatment of References to Provisions in Part 
     C (New Section 1860D-41 of Conference agreement; New Section 
     1860D-10 of House bill; New Sections 1860D, 1860D-26 and 
     Section 110 of Senate bill).
     House Bill
       New Section 1860D-10 would provide cross-references to 
     other sections of the bill for definitions of covered 
     outpatient drugs, initial coverage limit, Medicare 
     Prescription Drug Trust Fund, PDP sponsor, qualified 
     prescription drug coverage, and standard coverage. It would 
     define a prescription drug plan as health benefits coverage 
     that: (1) is offered under a policy, contract, or plan by a 
     PDP sponsor pursuant to and in accordance with a contract 
     between the Administrator and the sponsor; (2) provides 
     qualified prescription drug coverage; and (3) meets the 
     applicable beneficiary protection requirements. It would 
     specify that the term ``insurance risk'' would, for a 
     participating pharmacy, mean the type commonly assumed only 
     by insurers licensed by a state and not payment variations 
     designed to reflect performance-based measures of activities 
     within control of the pharmacy, such as formulary compliance 
     and generic drug substitution. The section would further 
     provide that any reduction or waiver of cost-sharing would 
     not be in violation of kickback and similar prohibitions.
       MA and EFFS plans would be required to offer drug plans 
     pursuant to the requirements of Sections 1851 and New Section 
     1860e-2(d). The provision would specify that Part C 
     requirements relating to a drug plan or sponsor would be 
     applied (unless otherwise specified) as if: (1) any reference 
     to a MA or other plan included a reference to a prescription 
     drug plan; (2) any reference to a provider-sponsored 
     organization included a reference to a PDP sponsor; (3) any 
     reference to a contract included a reference to a drug plan 
     contract; and (4) any reference to Part C included a 
     reference to Part D.
     Senate Bill
       New Section 1860 D would define a number of terms used in 
     the bill. The ``Administrator'' would be defined as the 
     Administrator of the new Center for Medicare Choices 
     established under the bill.
       A ``Part D eligible individual'' would be an individual 
     entitled to, or enrolled for, benefits under Part A and 
     enrolled in Part B. An ``eligible entity'' would be any risk 
     bearing entity that the Administrator determined to be 
     appropriate to provide eligible beneficiaries with benefits 
     under a Medicare Prescription Drug Plan. Eligible entities 
     would include pharmaceutical benefit management companies, 
     wholesale or retail pharmacist delivery systems, insurers 
     (including insurers that offered Medigap policies), other 
     risk bearing entities, or any combination of these. This 
     requirement would not preclude State pharmacy assistance 
     programs from becoming a qualified entity if they meet the 
     requirements.
       A ``Medicare Prescription Drug Plan'' would offer 
     prescription drug coverage under a policy, contract or plan 
     by an eligible entity pursuant to and in accordance with a 
     contract between the Administrator and the entity. The plan 
     would have to be approved by the Administrator.
       The provision would specify that Part C requirements 
     relating to MedicareAdvantage would be applied (unless 
     otherwise specified) 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 included a reference 
     to a drug plan contract; and (4) any reference to Part C 
     included a reference to Part D.
       The provision would permit sponsors of employment-based 
     retiree coverage that offer a prescription drug plan to 
     restrict enrollment in the plan to eligible beneficiaries 
     enrolled in such coverage. Sponsors could not offer 
     enrollment in a Medicare Prescription Drug plan based on the 
     health status of beneficiaries.
       Entities offering a Medicare Prescription Drug plan or a 
     MedicareAdvantage organization offering a MedicareAdvantage 
     plan could enter into an agreement with a state 
     pharmaceutical assistance program (including one established 
     under a Section 115 waiver) to coordinate coverage.
     Conference Agreement
       New Section 1860D-41 provides cross references to other 
     sections of the bill for definitions of basic prescription 
     drug coverage, covered Part D drugs, creditable prescription 
     drug coverage, Part D eligible individual, fallback 
     prescription drug plan, initial coverage limit, MA plan, MA-
     PD plan, Medicare Prescription Drug Account, PDP approved 
     bid, PDP region, qualified prescription drug coverage, 
     standard prescription drug coverage, state pharmaceutical 
     assistance program; and subsidy-Part D eligible individual. 
     It defines the term ``insurance risk'' as meaning for a 
     participating pharmacy, risk of the type commonly assumed 
     only by insurers licensed by a state and does not include 
     payment variations designed to reflect performance-based 
     measures of activities within control of the pharmacy, such 
     as formulary compliance and generic drug substitution. A PDP 
     sponsor is defined as a nongovernmental agency that is 
     certified under Part D as meeting Part D requirements and 
     standards. A prescription drug plan is defined as 
     prescription drug coverage that: is offered (1) under a 
     policy, contract, or plan that has been approved under Part 
     D; and (2) by a PDP sponsor pursuant to and in accordance 
     with a contract between the Secretary and the sponsor under 
     Part D.
       The provision specifies that Part C requirements are to be 
     applied (unless otherwise specified) as if: (1) any reference 
     to a MA plan included a reference to a prescription drug 
     plan; (2) any reference to a provider-sponsored organization 
     included a reference to a PDP sponsor; (3) any reference to a 
     contract included a reference to a drug plan contract; (4) 
     any reference to Part C included a reference to Part D; and 
     (5) any reference to a Part C election period is a reference 
     to a Part D enrollment period.
       Miscellaneous Provisions (New Section 1860D-42 of 
     conference agreement; New Section 1860D-16 of House bill; 
     Section 1860D-26 of Senate bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to submit a legislative 
     proposal within six months of enactment containing necessary 
     technical and conforming amendments. Not later than January 
     1, 2005, the Administrator would be required to submit a 
     report containing recommendations for providing benefits 
     under Part D for drugs currently paid for under Part B.
     Senate Bill
       New Section 1860D-26 would require the Secretary, within 
     six months of enactment, to submit a legislative proposal for 
     any necessary technical and conforming amendments.
     Conference Agreement
       The agreement includes miscellaneous provisions. It permits 
     the Secretary to waive Part D requirements, including the 
     requirement for two plans in an area, insofar as the 
     Secretary determines it necessary to secure access to 
     qualified drug coverage in the territories.
       The agreement requires the Secretary to submit a 
     legislative proposal within six months of enactment 
     containing necessary technical and conforming amendments to 
     titles I and II of the bill. Not later than January 1, 2005, 
     the Secretary is required to submit a report to Congress 
     containing recommendations for providing benefits under 
     Part D for drugs currently paid for under Part B. By March 
     1, 2005, the Secretary is required to submit a report to 
     Congress on the progress made in implementing the drug 
     benefit. The report will include specific steps taken, and 
     that need to be taken, to ensure a timely start on January 
     1, 2006. The report is to include recommendations 
     regarding an appropriate transition form the discount card 
     and transitional assistance program.
       Medicare Advantage Conforming Amendments (Section 102 of 
     Conference agreement; Section 231 of House bill; Sections 201 
     and 204 of Senate bill).
     Present Law
       The Public Health Security and Bioterrorism Preparedness 
     and Response Act of 2002, P.L. 107-188, made temporary 
     changes to reporting dates and deadlines. First, CMS moved 
     its annual announcement of M+C payment rates from no later 
     than March 1 to no later than the 2nd Monday in May, 
     effective only in 2003 and 2004. It also temporarily moved 
     the deadline for plans to submit information about ACRs, M+C 
     premiums, cost sharing, and additional benefits (if any) from 
     no later than July 1 to no later than the 2nd Monday in 
     September in 2002, 2003, and 2004. It also changed the annual 
     coordinated election period from the month of November to 
     November 15th through December 31 in 2002, 2003, and 2004. 
     Once the temporary provision expires, the reporting dates and 
     deadlines would return to the pre-P.L. 107-188 dates.
       In addition, P.L. 107-188 will continue to allow Medicare 
     beneficiaries to make and change election to an M+C plan on 
     an ongoing basis through 2004. Then beginning in 2005, 
     individuals will only be able to make changes on the more 
     limited basis, originally scheduled to be phased in beginning 
     in 2002. Beneficiaries can make or change elections during 
     the annual coordinated election period. Current Medicare 
     beneficiaries may also change their election at any time 
     during the first 6 months of 2005 (or first 3 months of any 
     subsequent year). Additionally, there are special enrollment 
     rules for newly eligible aged beneficiaries as well as 
     special enrollment periods for all enrollees under limited 
     situations, such as an enrollee who changes place of 
     residence.

[[Page H12008]]

       The Secretary must provide information to Medicare 
     beneficiaries and prospective beneficiaries on the coverage 
     options provided under the M+C program, including open season 
     notification, a list of plans and other general information.
     House Bill
       The reporting deadline for ACRs and other information would 
     permanently move to July 1 of each year. The annual 
     coordinated election period would be permanently changed to 
     November 15 through December 31. The announcement of payment 
     rates, including rates for EFFS plans, would be permanently 
     moved to no later than the second Monday in May.
       In addition to the information dissemination required under 
     current law, the Secretary would be required to provide 
     beneficiaries with a list of plans that are or would be 
     available in an area, to the extent the information was 
     available at the time the materials were prepared for 
     mailing.
     Senate Bill
       Each MA organization would be required to submit 
     information by the second Monday in September, including: (1) 
     notice of intent and information on the service area of the 
     plan; (2) the plan type for each plan; (3) specific 
     information for coordinated care and PFFS plans; (4) 
     enrollment capacity; (5) the expected mix of enrollees, by 
     health status; and (6) other information specified by the 
     Secretary.
       Medicare beneficiaries would retain their ability to make 
     and change elections to a Medicare+Choice plan through 2005. 
     The current law limitation on changing elections that begins 
     in 2005, would be delayed until 2006. Further, the annual 
     coordinated election period for 2003 through 2006 would begin 
     on November 15 and end on December 31. Beginning in 2007, the 
     annual coordinated election period would be during the month 
     of November.
       In addition to the information dissemination required under 
     current law, the Secretary would be required to provide: (1) 
     the MA monthly basic beneficiary premium; (2) the monthly 
     beneficiary premium for any enhanced medical benefits; (3) 
     the MA monthly beneficiary obligation for qualified 
     prescription drug coverage; (4) the catastrophic coverage 
     amount (including the maximum limitation on out-of-pocket 
     expenses) and unified deductible for the plan; (5) the 
     outpatient prescription drug coverage benefits; (6) any 
     beneficiary cost-sharing, including information on the 
     unified deductible; (7) comparative information relating to 
     prescription drug coverage; (8) if applicable, any reduction 
     in the Medicare Part B premium; (9) whether the MA monthly 
     premium for enhanced benefits was optional or mandatory; and 
     (10) quality and performance indicators for prescription drug 
     coverage, including a comparison with FFS Medicare.
       Additionally, the Secretary would conduct a special 
     information campaign to inform MA eligible beneficiaries 
     about plans. The campaign would begin on November 15, 2005 
     and ending on December 31, 2005.
     Conference Agreement
       The conference agreement allows Medicare beneficiaries to 
     retain their ability to make and change elections to a 
     Medicare+Choice plan through 2006. The current law limitation 
     on changing elections that begins in 2005, is delayed until 
     2006. Further, the annual coordinated election period for 
     2004 and 2005 begins on November 15 and ends on December 31. 
     For 2006, the annual coordinated election period begins on 
     November 15 and ends on May 15, 2006. Beginning in 2007, the 
     annual coordinated election period will begin on November 15 
     and end on December 31.
       The Secretary is to provide for an education and publicity 
     campaign to inform MA eligible individuals about the 
     availability of MA plans, including MA-PD plans, offered in 
     different areas and the election process for MA plans. If any 
     portion of an individual's initial enrollment period for Part 
     B occurs after the end of the annual coordinated election 
     period, their initial enrollment period would be extended 
     through the end of their Part B initial enrollment period.
       The conference agreement will limit an individual's right 
     to change MA plans, for plan years beginning on or after 
     January 1, 2006. This limit will not affect an 
     individual's opportunity to make changes during the annual 
     coordinated election period, but it will limit changes 
     during the continuous open enrollment and disenrollment 
     periods in a year. Individuals enrolled in an MA plan that 
     provides qualified prescription drug coverage, may only 
     disenroll from their plan to get coverage through FFS 
     Medicare or through another MA plan that does not provide 
     qualified prescription drug coverage. They may not leave 
     their plan to obtain coverage under an MA-PD plan or under 
     a prescription drug plan under Part D. Conversely, 
     individuals enrolled in an MA-PD plan, may only change to 
     another MA-PD plan or they may get coverage under FFS 
     Medicare with coverage under a drug plan under part D. 
     They may not enroll in an MA plan if it does not provide 
     qualified prescription drug coverage.
       An MA-PD plan could provide for a separate or differential 
     payment for a participating physician who prescribes covered 
     part D drugs in accordance with an electronic prescription 
     program meeting Part D requirements. Such payment could take 
     into consideration the implementation costs for the physician 
     and could also be increased for those participating 
     physicians who significantly increased: (1) formulary 
     compliance; (2) lower cost and therapeutically equivalent 
     alternatives; (3) reductions in adverse drug interactions; 
     and (4) efficiencies in filing prescriptions through reduced 
     administrative costs. Additional or increased payment could 
     be structured in the same manner as medication therapy 
     management fees under section 1869(D)-4(c)(2)(E).
       An MA eligible individual could elect qualified 
     prescription drug coverage in accordance with Section 1860D-
     1.
       Medicaid Amendments (Section 103 of Conference agreement; 
     Section 103 of House bill; Section 104 of Senate Bill).
     Present Law
       Some low-income aged and disabled Medicare beneficiaries 
     are also eligible for full or partial coverage under 
     Medicaid. Within broad federal guidelines, each state sets 
     its own eligibility criteria, including income eligibility 
     standards. Persons meeting the state standards are entitled 
     to full coverage under Medicaid. Persons entitled to full 
     Medicaid protection generally have all of their health care 
     expenses met by a combination of Medicare and Medicaid. For 
     these ``dual eligibles'' Medicare pays first for services 
     both programs cover. Medicaid picks up Medicare cost-sharing 
     charges and provides protection against the costs of services 
     generally not covered by Medicare, including prescription 
     drugs. State Medicaid programs have the option to include 
     prescription drugs in their Medicaid benefit packages. All 
     states include drugs for at least some of their Medicaid 
     beneficiaries and many offer it to all program recipients 
     entitled to full Medicaid benefits.
       As noted earlier, Federal law specifies several population 
     groups that are entitled to more limited Medicaid protection. 
     These are qualified Medicare beneficiaries (QMBs), specified 
     low income beneficiaries (SLIMBs), and certain qualified 
     individuals (QI-1s). Assistance under the QI-1 program, 
     originally available for the period January 1, 1998 to 
     December 31, 2002, has been extended to March 31, 2004.
       States make eligibility determinations for their Medicaid 
     populations. Federal matching payments for Medicaid services 
     in the territories is subject to an annual cap.
       Current Medicaid law requires manufacturers to pay state 
     Medicaid programs a basic rebate for single source and 
     innovator multiple source drugs. Basic rebates are calculated 
     by comparing the average manufacturer price for a drug (the 
     average price paid by wholesalers) to the ``best price,'' 
     which is the lowest price offered by the manufacturer in the 
     same period to any wholesaler, retailer, nonprofit, or public 
     agency. For purposes of determining Medicaid rebates, prices 
     paid by a number of federal and state entities are excluded 
     from the definition of ``best price.''
     House Bill
       Section 103 would add a new Section 1935 to the Social 
     Security Act entitled ``Special Provisions Relating to 
     Medicare Prescription Drug Benefit.'' The provision would 
     require states, as a condition of receiving federal Medicaid 
     assistance, to make eligibility determinations for low-income 
     premium and cost-sharing subsidies, inform the Administrator 
     of cases where eligibility has been established, and 
     otherwise provide the Administrator with information that may 
     be needed to carry out Part D. The provision would provide 
     for the phased-in federal assumption of associated 
     administrative costs. In 2005, the federal matching rate 
     would be increased by 6\2/3\ percent and in 2006 by 13\1/3\ 
     percent. In each subsequent year, the percent would be 
     increased by 6\2/3\ percentage points (but in no case could 
     the rate exceed 100 percent). Beginning in 2019, the federal 
     matching rate would be 100 percent. The state would be 
     required to provide the Administrator with the appropriate 
     information needed to properly allocate administrative 
     expenditures that could be made for similar eligibility 
     determinations.
       The provision would provide for the federal phase-in of the 
     costs of premiums and cost-sharing subsidies for dual 
     eligibles (i.e. persons eligible for Medicare and full 
     Medicaid benefits, including drugs). Over the 2006-2020 
     period, the federal matching rate for these costs would be 
     increased to cover 100% of what would otherwise be state 
     costs. States would be required to maintain Medicaid benefits 
     as a wrap around to Medicare benefits for dual eligibles; 
     states could require that these persons elect Part D drug 
     coverage.
       Residents of territories would not be eligible for regular 
     low-income subsidies. However, territories would be able to 
     get additional Medicaid funds, beginning at $25 million in 
     2006 and increasing in subsequent years by the annual 
     percentage increase in prescription drug costs for Medicare 
     beneficiaries. In order to obtain these funds, territories 
     would be required to formulate a plan on how they would 
     dedicate the funds to assist low-income Medicare 
     beneficiaries in obtaining covered outpatient prescription 
     drugs. The Administrator would be required to report to 
     Congress on the application of the law in the territories.
     Senate Bill
       Section 104 would add a new Section 1935 to the Social 
     Security Act entitled ``Special Provisions Relating to 
     Medicare Prescription Drug Benefit.'' The provision would 
     require states to make low-income eligibility determinations 
     for low income subsidies. States would be required, for 
     purposes of the transitional prescription drug card 
     assistance program, to establish eligibility standards 
     consistent with that program; establish

[[Page H12009]]

     procedures for providing presumptive eligibility 
     determinations (similar to that which currently apply for 
     low-income pregnant women and children); make eligibility 
     determinations for the card program; and communicate to the 
     Secretary information on eligibility determinations or 
     discontinuations. For purposes of the low-income subsidies 
     for the new Part D program, states would be required, 
     beginning November 2005, to make eligibility determinations; 
     inform the Administrator of cases where eligibility was 
     established, and otherwise provide the Administrator with 
     any information required to carry out Part D. States would 
     be required to enter agreements with the Commissioner of 
     Social Security to use all social security field offices 
     in the state as information and enrollment sites for 
     making eligibility determinations. As part of the 
     eligibility determination process, states would also be 
     required to screen for eligibility for Medicare cost-
     sharing assistance under the QMB, SLIMB, and QI-1 
     programs.
       The federal government would pay an enhanced matching rate 
     for administrative costs associated with making eligibility 
     determinations. The rate would be 75% for the period January 
     1, 2004-September 30, 2005, 70% for fiscal year 2006, 65% for 
     FY 2007, and 60% beginning in FY 2008. Beginning November 1, 
     2005, the rate would be 100% for purposes of making 
     eligibility determinations for low-income subsidies.
       In addition, states would be entitled to enhanced matching 
     for the costs associated with designing, developing, 
     acquiring and installing improved eligibility determination 
     systems, including hardware and software, for low-income 
     subsidy programs. The enhanced rate would be 90% for fiscal 
     years 2004, 2005, and 2006. The systems would be required to 
     comply with any standards established by the Secretary for 
     improved eligibility systems. Further, the systems would have 
     to be compatible with the standards established under the 
     administrative simplification provisions of Title XI of the 
     Social Security Act.
       Medicaid beneficiaries who were eligible for drug benefits 
     under their state Medicaid program would remain in Medicaid. 
     Beginning January 1, 2006, states agreeing to provide a drug 
     benefit to their dual eligible population that was at least 
     equivalent to minimum standards would be relieved of their 
     responsibility to pay Medicare Part B premiums for persons 
     with incomes between the level established for the 
     supplemental security income program and 100% of the federal 
     poverty level. The minimum standards would be defined as 
     follows. A state would be required to meet all current law 
     coverage standards for dual eligibles under Medicaid, 
     including nominal cost-sharing requirements. States would 
     have to provide beneficiary protections equivalent to those 
     provided under Part D. States could not place a limit on the 
     number of prescriptions for dual eligibles. States would be 
     permitted to cover smoking cessation drugs for this 
     population group.
       If on the date of enactment, a state provided medical 
     assistance to aged and disabled persons up to 100% of 
     poverty, it would be entitled to have the federal government 
     assume the costs for Medicare Part A cost-sharing. The Part A 
     costs would be assumed so long as the state maintained the 
     expanded coverage. The provision would apply effective 
     January 1, 2006.
       Residents of Puerto Rico and the territories would not be 
     eligible for low-income subsidies. Instead, if they chose to 
     provide assistance to their low-income residents they would 
     receive an increase in amounts otherwise paid to them under 
     Medicaid. The aggregate amount available would be $37.5 
     million for the last 3 quarters of FY2006, and $50 million 
     for FY2007. In subsequent fiscal years, the aggregate amount 
     would be the amount available the previous year, increased by 
     the percentage increase in prescription drug spending.
       The provision would extend the QI-1 program through 
     December 2008 with total annual allocations of $400 million 
     through fiscal year 2008 and $100 million for the first 
     quarter of fiscal 2009.
       The provision would expand outreach requirements for the 
     Commissioner of Social Security to include outreach 
     activities for low-income subsidy individuals. By January 1, 
     2005, the Secretary would submit a report to Congress to 
     recommend a voluntary option for dual eligibles to enroll in 
     Part D drug plans.
       The provision would exempt negotiated prices by any 
     qualified plan offering Medicare drug coverage from the 
     calculation of Medicaid ``best price.''
     Conference Agreement
       The conference agreement would add a new Section 1935 to 
     the Social Security Act entitled ``Special Provisions 
     Relating to Medicare Prescription Drug Benefit.'' The 
     provision establishes certain requirements, as a condition of 
     receiving federal Medicaid assistance. States are required to 
     provide the Secretary with Medicaid eligibility information 
     necessary to carry out transitional prescription drug 
     assistance verification. They are required to make 
     eligibility determinations for low-income premium and cost-
     sharing subsidies, inform the Secretary of cases where 
     eligibility has been established, and otherwise provide the 
     Secretary with information that may be needed to carry out 
     Part D. Further, as part of the eligibility determination 
     process, states are required to make determinations for 
     Medicare cost-sharing assistance. Regular federal matching 
     applies to these activities.
       The agreement provides for the federal phase-in of the 
     costs of premiums and cost-sharing subsidies for dual 
     eligibles (i.e., persons eligible for Medicare and full 
     Medicaid benefits, including drugs). The agreement provides 
     for a phased-down state contribution. For each month 
     beginning in 2006, each state is required to provide for 
     payment to the Secretary equal to the product of: (1) 1/12 of 
     the product of the base year state Medicaid per capita 
     expenditures for full-benefit dual eligibles and the state 
     matching rate, and updated to the year involved by the 
     applicable growth factor; (2) the total number of dual 
     eligibles for such state for the month; and (3) the factor 
     for the month. The base year is defined as the weighted 
     average of gross Medicaid expenditures (including dispensing 
     fees) for prescription drugs in 2003 and the estimated 
     actuarial value of prescription drug benefits provided under 
     a capitated care plan for full benefit dual eligibles in that 
     year. The applicable growth factor in 2004, 2005, and 2006 is 
     the average annual percent change in the per capita amount of 
     prescription drug expenditures as determined based on the 
     most recent National Health Expenditure projections. In 
     subsequent years, the growth factor is the annual percentage 
     increase average per capita expenditures under Part D. The 
     factor under #3 is 90% in 2006, phasing down to 75% over 10 
     years. The Secretary is required to notify each state by 
     October 15 of the amount computed under the formula for the 
     following year, beginning in 2006. A state's failure to make 
     required payments would result in interest charges and in an 
     offset to amounts otherwise payable under Medicaid.
       The agreement requires the Secretary when determining gross 
     expenditures for 2003 to: (1) use data from the Medicaid 
     Statistical Information System (MSIS) and other available 
     data; (2) exclude expenditures for drugs that are not covered 
     Part D drugs, and (3) reduce the portion of expenditures not 
     attributable to dispensing fees by an adjustment ratio 
     applied to such portion. The adjustment ratio for a state is 
     equal to 1 minus the ratio in 2003 of aggregate payments 
     under rebate agreements under section 1927 to gross 
     expenditures under Medicaid for covered outpatient drugs.
       The agreement specifies that Medicare is the primary payer 
     for covered drugs for dual eligibles. Medicaid coverage is 
     not available for such drugs or any cost-sharing for such 
     drugs. States may provide coverage for drugs, other than Part 
     D covered drugs in the manner otherwise provided for non-full 
     benefit dual eligibles or through an arrangement with the 
     prescription drug plan of MA-PD plan.
       Residents of territories would not be eligible for regular 
     low-income subsidies. However, territories would be able to 
     apply for additional Medicaid funds. The total amount 
     available is $28.125 million beginning in the last 3 quarters 
     of 2006, $37.5 million in 2007 and increasing in subsequent 
     years by the annual percentage increase in prescription drug 
     costs for Medicare beneficiaries. In order to obtain these 
     funds, territories would be required to provide assurances 
     that additional funds would be used covered drugs and 
     administrative costs (with no more than 10 percent of the 
     total used for administrative expenses.) The Secretary is 
     required to report to Congress on the application of the 
     provision in the territories.
       The agreement exempts prices negotiated from manufacturers 
     for discount card drugs under an endorsement card program and 
     prices negotiated by a prescription drug plan under Part D, a 
     MA-PD plan or a qualified retiree prescription plan from the 
     calculation of Medicaid ``best price.''
       The agreement extends the QI-1 program through September 
     30, 2004. It expands outreach requirements for the 
     Commissioner of Social Security to include outreach 
     activities for transitional assistance and low-income subsidy 
     individuals.
       Medigap Amendments (Section 104 of Conference agreement; 
     Section 104 of House bill; Section 103 of Senate bill).
     Present Law
       Most beneficiaries have some health insurance coverage in 
     addition to basic Medicare benefits. Some individuals obtain 
     private supplementary coverage through an individually-
     purchased policy, commonly referred to as a ``Medigap'' 
     policy. Beneficiaries with Medigap insurance typically have 
     coverage for Medicare's deductibles and coinsurance; they may 
     also have coverage for some items and services not covered by 
     Medicare. Individuals generally select from one of 10 
     standardized plans, though not all 10 plans are offered in 
     all states. The 10 plans are known as Plans A through Plan J. 
     Plan A covers a basic package of benefits. Each of the other 
     nine plans includes the basic benefits plus a different 
     combination of additional benefits. Plan J is the most 
     comprehensive. Plans H, I, and J offer some drug coverage.
       The law provided for the development by the National 
     Association of Insurance Commissioners (NAIC) of standardized 
     benefit packages. It also provides for modifications of such 
     packages when Medicare benefit changes are enacted.
       All insurers offering Medigap policies are required to 
     offer open enrollment for 6 months from the date a person 
     first enrolls in Medicare Part B (generally when the enrollee 
     turns 65). The law also guarantees issuance of specified 
     Medigap policies for certain persons whose previous 
     supplementary coverage was terminated. Guaranteed issue also 
     applies to certain persons who

[[Page H12010]]

     elect to try out a managed care option under the 
     Medicare+Choice plan program.
       Medicare beneficiaries buy supplemental coverage to help 
     pay for health care costs not covered by Medicare. Almost 
     one-quarter (24 percent) of Medicare beneficiaries purchase 
     this coverage as individuals through the private insurance 
     ``Medigap'' market. In 1990, Congress mandated the creation 
     of 10 standardized Medigap policies through the National 
     Association of Insurance Commissioners (NAIC). All 10 plans 
     are required to cover beneficiaries' coinsurance--some of the 
     costs of Medicare services for which beneficiaries are 
     responsible, such as 20 percent of the costs of a physician 
     visit. Nine out of 10 of those policies, which comprise more 
     than 90 percent of the Medigap market, are required to cover 
     the Part A inpatient hospital deductible, and the most 
     popular Medigap policy covers both the Part A hospital 
     deductible and the $100 Part B deductible for physician 
     services. Insulating beneficiaries from this cost sharing 
     incentives over utilization of health services.
       Numerous studies have demonstrated that covering 
     deductibles and coinsurance has led to higher Medicare 
     spending because beneficiaries become insensitive to costs. 
     Beneficiaries with Medigap consume $1,400 more in Medicare 
     services than beneficiaries without supplemental coverage, 
     and $500 more than beneficiaries with employer-sponsored 
     insurance. This higher utilization drives up costs for 
     everyone--premiums of Medicare beneficiaries without Medigap 
     coverage and costs to taxpayers.
       In addition, only the three most expensive Medigap plans 
     cover prescription drugs, and that coverage is limited. Yet, 
     8 of the 10 plans are required to cover foreign travel 
     insurance, while most beneficiaries never leave their home 
     country.
       And despite standardization, premiums continue to increase 
     and vary widely. From 1998 to 2000, average premiums rose 16 
     percent for plans without drug coverage, and more than twice 
     as fast, 37 percent, for plans with drug coverage. In 
     addition, premiums vary dramatically for identical plans in 
     the same location. Weiss Ratings, Inc. analyzed Medigap 
     premiums in 2001. A 65-year old man living in Ft. Myers, 
     Florida would pay about $3,600 for Plan J from Physicians 
     Mutual Insurance Company, but only $2,700 with United 
     Healthcare Insurance Company through AARP. The same gentleman 
     living in Las Vegas would spend about $1,500 for Plan C with 
     United American Insurance Company, but about half that 
     amount--$778 B with the USAA Life Insurance Company for the 
     same policy.
       All of these factors lead conferees to believe Medigap 
     policies should be restructured in light of changes to the 
     marketplace since standardization. Conferees encourage the 
     National Association of Insurance Commissioners (NAIC) to 
     modernize the Medigap market by reforming first dollar 
     coverage requirements that drive over utilization of services 
     and premiums. Conferees believe that in developing the two 
     new policies included in the conference report, NAIC should 
     consider much broader changes to the Medigap market that will 
     effectuate reduced premiums and more rational coverage 
     policies that create incentives for appropriate utilization 
     of services.
     House Bill
       The provision would prohibit, effective January 1, 2006, 
     the issuance of new Medigap policies with prescription drug 
     coverage. The prohibition would not apply to policies 
     replacing another policy with drug coverage. Beneficiaries 
     could keep their existing policies. Further, it would not 
     apply to policies meeting new standards, as outlined below.
       The provision would guarantee issuance of a substitute 
     Medigap policy for persons, enrolling in Part D, who at the 
     time of such enrollment were enrolled in and terminated 
     enrollment in a Medigap policy H, I, or J. The guaranteed 
     enrollment would be for any of the Plans A through Plan G. 
     The guarantee would apply for enrollments occurring in the 
     new Medigap plan within 63 days of termination of enrollment 
     in a Medigap drug Plan H, I, or J. The insurer could not 
     impose an exclusion based on a pre-existing condition for 
     such individuals. Further, the insurer would be prohibited 
     from discriminating in the pricing of such policy on the 
     basis of the individual's health status, claims experience, 
     receipt of health care or medical condition.
       The provision would provide for the development by the NAIC 
     of two new standardized Medigap plans and would outline the 
     standards for these policies. The first new policy would have 
     the following benefits (notwithstanding other provisions of 
     law relating to core benefits): (1) coverage of 50% of the 
     cost-sharing otherwise applicable (except coverage of 100% 
     cost-sharing applicable for preventive benefits); (2) no 
     coverage of the Part B deductible; (3) coverage of all 
     hospital coinsurance for long stays (as in current core 
     package); and (4) a limitation on annual out-of-pocket costs 
     of $4,000 in 2006 (increased in future years by an 
     appropriate inflation adjustment as specified by the 
     Secretary). The second new policy would have the same benefit 
     structure as the first new policy, except that: (1) coverage 
     would be provided for 75%, rather than 50%, of cost-sharing 
     otherwise applicable; and (2) the limitation on out-of-pocket 
     costs would be $2,000, rather than $4,000. Both policies 
     could provide for coverage of Part D cost-sharing; however, 
     neither policy could cover the Part D deductible.
     Senate Bill
       Effective January 1, 2006, Medigap drug policies could not 
     be sold, issued or renewed for Part D enrollees. Persons who 
     had such policies could obtain Medigap coverage without drug 
     benefits. Beneficiaries who sought to enroll during the Part 
     D open enrollment period established for current 
     beneficiaries would be guaranteed issuance of such non-drug 
     policies (without an exclusion based on preexisting 
     conditions). Medigap issuers would be required to notify 
     individuals of these changes 60 days prior to the Part D open 
     enrollment period.
       Medigap insurers could not be required to participate as an 
     eligible entity under the new Part D.
     Conference agreement
       The agreement prohibits, effective January 1, 2006, the 
     selling, issuance, or renewal of existing Medigap policies 
     with prescription drug coverage for Part D enrollees. The 
     prohibition would not apply to renewal of Medigap 
     prescription policies for persons who are not Part D 
     enrollees. Persons enrolling under Part D during the initial 
     enrollment period could enroll in a plan without drug 
     coverage, or continue their previous policy as modified to 
     exclude drugs. H, I, and J policies, modified to exclude 
     drugs, could continue to be offered to new enrollees. Medigap 
     issuers would be required to notify individuals of these 
     changes 60 days prior to the initial Part D enrollment 
     period.
       The provision guarantees issuance of a substitute Medigap 
     policy for persons, enrolling in Part D, who at the time of 
     such enrollment were enrolled in and terminated enrollment in 
     a Medigap policy H, I, or J or a pre-standard policy that 
     included drug coverage. Evidence of enrollment and 
     termination would be required. The guaranteed enrollment is 
     for any of the Plans A, B, C, and F within the same carrier 
     of issue. The guarantee applies for enrollments occurring in 
     the new Medigap plan within 63 days of termination of 
     enrollment in a Medigap drug Plan H, I, or J. The insurer may 
     not impose an exclusion based on a pre-existing condition for 
     such individuals. Further, the insurer is prohibited from 
     discriminating in the pricing of such policy on the basis of 
     the individual's health status, claims experience, receipt of 
     health care or medical condition. The conferees intend that 
     these provisions be administered in such a manner as to avoid 
     a break in coverage.
       The conference agreement requires the Secretary to request 
     the National Association of Insurance Commissioners to review 
     and revise standards for benefit packages taking into account 
     the changes in benefits resulting form the enactment of this 
     Act and to otherwise update standards to reflect other 
     changes in law included in the Act. To the extent 
     practicable, the revision will provide for implementation of 
     revised standards as of January 1, 2006.
       The revision is to include 2 new benefit packages. The 
     first new package will have the following benefits 
     (notwithstanding other provisions of law relating to core 
     benefits): (1) coverage of 50% of the cost-sharing otherwise 
     applicable (except coverage of 100% cost-sharing applicable 
     for preventive benefits); (2) no coverage of the Part B 
     deductible; (3) coverage of all hospital coinsurance for long 
     stays and 365 extra lifetime days of coverage (as in current 
     core package); and (4) a limitation on annual out-of-pocket 
     costs of $4,000 in 2006 (increased in future years by an 
     appropriate inflation adjustment as specified by the 
     Secretary). The second new benefit package will have the same 
     benefit structure as the first new package except that: (1) 
     coverage would be provided for 75%, rather than 50%, of cost-
     sharing otherwise applicable; and (2) the limitation on out-
     of-pocket costs would be $2,000, rather than $4,000.
       Medigap issuers could not be required to participate as a 
     PDP sponsor under the new Part D, nor could a State make such 
     a requirement.
       Additional Provisions Relating to Medicare Prescription 
     Drug Discount Card and Transitional Assistance Program 
     (Section 105 of Conference agreement).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement includes additional provisions 
     relating to the implementation of the Medicare prescription 
     drug discount card and transitional assistance program. It 
     excludes program costs from the calculation of the Part B 
     premium. It applies Medicaid confidentiality provisions to 
     drug pricing data reported by manufacturers under the 
     program.
       The conference agreement includes additional administrative 
     provisions. It specifies that the following sections of law 
     would not apply to the card program: New Section 1871(a)(3) 
     of the Social Security Act relating to time line for 
     publication of final rules; Chapter 35 of Title 44 of the 
     U.S. Code relating to coordination of federal information 
     policy; Section 553(d) of Title 5 of the U.S. Code requiring 
     at least 30 days between issuance and effective date of a 
     substantive rule; and Section 801(a)(3)(A) of title 5 of the 
     U.S. Code providing 60 days for congressional review of a 
     major rule.
       The contracting authority extended to the Secretary under 
     Medicare+Choice also applies to the Secretary with respect to 
     the

[[Page H12011]]

     discount card program. There could be no judicial review of a 
     determination not to endorse or enter into a contract with a 
     card sponsor. Further, an order to enjoin any provision of 
     the new section 1807 would not affect any other provision of 
     the section and all provisions are to be treated as 
     severable.
       The Secretary of the Treasury, upon written request from 
     the Secretary of HHS, is required to disclose to officers and 
     employees of HHS certain information with respect to a 
     taxpayer for the most recent taxable year for which 
     information is available in the Internal Revenue Service's 
     taxpayer data information system, or if no return was filed 
     for that year, the year before that. Required information 
     would consist of whether the adjusted gross income (as 
     modified by HHS regulations) of the taxpayer, and if 
     applicable the taxpayer's spouse, exceeds amounts that are 
     100 percent and 135 percent of the official poverty line. 
     Such information may only be used to determine eligibility 
     for the transitional low-income assistance program.
       State Pharmaceutical Assistance Transition Commission 
     (Section 106 of Conference agreement; Section 107 of House 
     bill).
     Present Law
       A number of states currently have programs to provide low-
     income persons, not qualifying for Medicaid, with financial 
     assistance in meeting their drug costs. The state programs 
     differ substantially in both design and coverage.
     House Bill
       The provision would establish a State Pharmaceutical 
     Assistance Transition Commission to develop a proposal for 
     dealing with the transitional issues facing state programs 
     and participants due to implementation of the new Part D 
     prescription drug program. The Commission, to be established 
     on the first day of the third month following enactment, 
     would include: (1) a representative of each governor from 
     each state with a program that the Secretary identified as 
     having a benefit package comparable to or more generous than 
     the new Part D; (2) representatives from other states that 
     had pharmaceutical assistance programs, as appointed by the 
     Secretary; (3) representatives (not exceeding the total under 
     #1 and #2) of organizations that represented interests of 
     participants, appointed by the Secretary; (4) representatives 
     of MA organizations; and (5) the Secretary or the Secretary's 
     designee and other members specified by the Secretary. The 
     Commission would develop the proposal in accordance with 
     specified principles, namely: (1) protection of the interests 
     of program participants in the least disruptive manner; (2) 
     protection of the financial and flexibility interests of 
     states so they are not financially worse off; and (3) 
     principles of Medicare modernization outlined in Title II of 
     the Act.
       The Commission would report to the President and Congress 
     by January 1, 2005. The report would contain specific 
     proposals including specific legislative or administrative 
     recommendations, if any. The Commission would terminate 30 
     days later.
     Senate Bill
       No provision.
     Conference agreement
       The agreement establishes a State Pharmaceutical Assistance 
     Transition Commission to develop a proposal for dealing with 
     the transitional issues facing State programs and 
     participants due to implementation of the new Part D 
     prescription drug program. The Commission, to be established 
     as of the first day of the third month following enactment, 
     will include: (1) a representative of each governor from each 
     state with a program that the Secretary identifies as having 
     a benefit package comparable to or more generous than the 
     low-income assistance under the new Section 1860D-14; (2) 
     representatives from other states that have pharmaceutical 
     assistance programs, as appointed by the Secretary; (3) 
     representatives (not exceeding the total under #1 and #2) of 
     organizations that have an inherent interest in the 
     participants or the program itself; appointed by the 
     Secretary; (4) representatives of MA organizations, Pharmacy 
     Benefit Managers and other private insurance plans; and (5) 
     the Secretary or the Secretary's designee and other members 
     specified by the Secretary. The Commission is to develop the 
     proposal in accordance with specified principles, namely: (1) 
     protection of the interests of program participants in the 
     least disruptive manner; (2) protection of the financial and 
     flexibility interests of states so they are not financially 
     worse off; and (3) principles of Medicare modernization 
     outlined in Title II of the Act.
       The Commission will report to the President and Congress by 
     January 1, 2005, including specific legislative or 
     administrative recommendations, if any. The Commission will 
     terminate 30 days later. The Conferees intend the Commission 
     to play an integral role in identifying potential problems 
     and proposing creative solutions to ensure a seamless 
     transition for States and beneficiaries in coordinating and 
     interacting with the new Medicare plans.
       Studies and Reports (Section 107 of Conference agreement; 
     New Section 1860D-10 of House bill; Section 102, Section 106 
     and Section 110 of Senate bill).
     House Bill
       Under the new Section 1860D-10, the Secretary, within six 
     months of enactment, would be required to review the current 
     standards of practice for pharmacy services provided to 
     patients in nursing facilities. Specifically, the Secretary 
     would assess: (1) the current standards of practice, clinical 
     services, and other service requirements generally utilized 
     for such pharmacy services; (2) evaluate the impact of those 
     standards with respect to patient safety, reduction of 
     medication errors, and quality of care; and (3) recommend 
     necessary actions. The Secretary would submit a report to the 
     Congress on the findings and recommendations.
     Senate Bill
       Section 110 would require the Secretary to conduct a 
     thorough review of the standards of practice for pharmacy 
     services provided to patients in nursing facilities. The 
     Secretary would assess the current standards, clinical 
     services and other service requirements generally used in 
     long-tern settings and evaluate the impact of these standards 
     with respect to patient safety, reduction of medication 
     errors, and quality of care. Within 18 months of enactment, 
     the Secretary would be required to submit a report to 
     Congress on the study containing: (1) a detailed description 
     of the Secretary's plans to implement the Act in a manner 
     consistent with applicable state and federal laws designed to 
     protect the safety and quality of care of nursing facility 
     patients; and (2) recommendations regarding necessary actions 
     and appropriate reimbursement to ensure the provision of care 
     in such manner.
       Section 102 would require the Administrator to conduct a 
     study, and report to Congress by January 1, 2005, on allowing 
     persons not entitled to Part A, but enrolled in Part B, to 
     enroll in Part D.
       Section 106 requires the Secretary, on an ongoing basis, 
     would study variations in spending and drug utilization under 
     Part D to determine the impact on premiums. The Secretary 
     would examine the impact of geographic adjustments of the 
     monthly national average premium on the maximization of 
     competition and the ability of eligible entities to contain 
     costs. The Secretary would submit an annual report to 
     Congress beginning in 2007.
     Conference Agreement
       The agreement requires the Secretary to study variations in 
     per capita spending for covered Part D drugs among PDP 
     regions to determine the amount of such variation that is 
     attributable to price variations and the differences in per 
     capita utilization that is not taken into account in the 
     health status risk adjustment made to PDP bids. The Secretary 
     is required to submit a report to Congress on the study 
     including information on the extent of geographic variation 
     in per capita utilization, an analysis of the impact of 
     direct subsidies and whether such subsidies should be 
     adjusted to take into account such variation, and 
     recommendations regarding the appropriateness of applying an 
     additional geographic adjustment factor to bids.
       The conference agreement requires the Secretary, within six 
     months of enactment, to review the current standards of 
     practice for pharmacy services provided to patients in 
     nursing facilities. Specifically, the Secretary is to assess: 
     (1) the current standards of practice, clinical services, and 
     other service requirements generally utilized for such 
     pharmacy services; and (2) evaluate the impact of those 
     standards with respect to patient safety, reduction of 
     medication errors, and quality of care. The report is to 
     contain a description of the Secretary's plans to implement 
     this Act in a manner consistent with applicable state and 
     federal laws designed to protect the safety and quality of 
     care of nursing facility patients. The report must also 
     include recommendations regarding necessary actions.
       The conference agreement requires the Secretary to enter 
     into a contract with the Institute of Medicine to carry out a 
     comprehensive study of drug safety and quality issues in 
     order to provide a blueprint for system-wide change. The 
     objectives of the study are to: (1) develop a full 
     understanding of drug safety and quality issues through an 
     evidence-based review of the literature, case studies, and 
     analysis; (2) attempt to develop credible estimates of the 
     incidence, severity and costs of medication errors; (3) 
     evaluate alterative approaches to reducing medication errors; 
     (4) provide guidance on high-priority strategies to achieve 
     drug safety goals; (5) assess opportunities and key 
     impediments to broad nationwide implementation of medication 
     error reductions; and (6) develop an applied research agenda 
     to evaluate the health and cost impacts of alternative 
     interventions. The study is to be completed within an 18-
     month period. Such sums as may be necessary are authorized.
       The agreement requires the Secretary to provide a study on 
     the feasibility and advisability of providing multi-year 
     contracts with PDP sponsors and MA organizations.
       The agreement requires the GAO to conduct a study to 
     determine the extent to which utilization and access to 
     covered Part D drugs for low-income subsidy eligible 
     individuals differs from that for persons who would qualify 
     as subsidy eligible individuals except for application of the 
     assets test. The report is due to Congress by September 30, 
     2007.
       Grants to Physicians to Implement Electronic Prescription 
     Programs (Section 108 of Conference agreement; Section 121 of 
     Senate bill).
     Present Law
       No provision.
     House Bill
       No provision.

[[Page H12012]]

     Senate Bill
       The Secretary would be authorized to award grants to health 
     care providers to implement electronic prescription programs. 
     There would be authorized to be appropriated such sums as may 
     be necessary for each of fiscal years 2006, 2007, and 2008.
     Conference Agreement
       The agreement authorizes the Secretary to make grants to 
     physicians for the purpose of assisting them to implement 
     electronic prescription programs in complying with the 
     standards under the new Section 1860D-(4)(e). The Secretary, 
     in awarding the grant shall give special consideration to 
     physicians who serve a disproportionate number of Medicare 
     patients and give preference to physicians who serve a rural 
     or underserved area. Grant funds may be used for purchasing, 
     leasing, and installing hardware and software; making 
     upgrades and other improvements; and providing education and 
     training to eligible physician staff on the use of 
     technology. Grant applicants are required to provide the 
     secretary with information necessary to evaluate the project 
     and to ensure that funding is expended only for the purposes 
     for which it is made. The applicant must agree to make 
     available non-Federal contributions totaling at least 50 
     percent of the costs. $50 million is authorized for FY 2007, 
     and such sums as may be necessary for FY 2008 and FY 2009.
       Expanding the Work of Medicare Quality Improvement 
     Organizations to Include Parts C and D (New section 109 of 
     the Conference agreement).
     Present Law
       Quality improvement organizations (QIOs) review medical 
     necessity and quality of services provided under Medicare.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference agreement
       The conference agreement expands the work of quality 
     improvement organizations (QIOs) to include Part C and Part 
     D. It is required to offer providers, practitioners, MA 
     organizations, and PDP sponsors quality improvement 
     assistance pertaining to prescription drug therapy. The 
     secretary is to request the Institute of Medicine of the 
     National Academy of Sciences to conduct a study of the QIO 
     program including an evaluation of the program and the extent 
     to which other entities could perform similar quality 
     improvement functions as well as or better than QI0s. The 
     Secretary will report to Congress on such study by June 1, 
     2006. If the Secretary finds, based on the study, that other 
     entities could improve quality as well as or better than 
     QI0s, the Secretary shall provide increased competition 
     through such entities.
       Conflict of Interest Study (Section 110 of Conference 
     agreement).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Federal Trade 
     Commission to conduct a study of differences in payment 
     amounts for pharmacy services provided to enrollees in group 
     health plans that utilize pharmacy benefit managers (PBMs). 
     The study is to include an assessment of the differences in 
     costs incurred by such enrollees and plans for drugs 
     dispensed by mail order pharmacies owned by PBMs compared to 
     those not owned by PBMs, and community pharmacies. The study 
     is to examine whether such plans are acting in a manner that 
     maximizes competition and results in lower prescription drug 
     prices for enrollees. The report is due to Congress within 18 
     months of enactment. It is to include recommendations 
     regarding any legislation to insure the fiscal integrity of 
     the Part D program. Conferees note the Secretary has the 
     authority to accept or reject bids, based, among other 
     factors, costs associated with delivering drug benefits.
       The intent of the conferees in including this assessment by 
     the FTC is to assess whether Medicare spending is likely to 
     be adversely affected because of the use of mail order 
     pharmacies that are owned and operated by a PBM under 
     contract to a prescription drug plan or MA-PD plan. 
     Therefore, this study should evaluate to what extent 
     prescription drug spending is likely to be affected if a PDP 
     or MA-PD plan approves the dispensation of covered drugs from 
     a mail- order pharmacy owned directly or indirectly by a PBM 
     compared to drug utilization and costs if the mail-order 
     pharmacy were independently owned. Such assessment shall take 
     into account the following:
       (1) whether mail order pharmacies that are owned by PBMs 
     (or entities that own PBMs) dispense fewer generic drugs 
     compared to single source drugs within the same therapeutic 
     class when compared to mail order pharmacies that are not 
     owned by PBMs,
       (2) whether mail order pharmacies that are owned by PBMs 
     (or entities that own PBMs) routinely switch patients from 
     lower priced drugs to higher priced drugs (in the absence of 
     a clinical indication) when compared to mail order pharmacies 
     that are not owned by PBMs,
       (3) whether mail order pharmacies owned by PBMs (or 
     entities that own PBMs) sell a higher proportion of 
     repackaged drugs than mail order pharmacies that are not 
     owned by PBMs,
       (4) whether mail order pharmacies owned by PBMs (or 
     entities owned by PBMs) sell repackaged drugs at prices above 
     the manufacturer's average wholesale price,
       (5) Other factors deemed relevant by the FTC.
       In conducting this study, the FTC shall consider whether 
     competition or drug pricing behavior by PBMs would be 
     affected if PBMs were to bear financial risk for drug 
     spending. The FTC shall issue a written report within 18 
     months of the date of enactment.
       Disclosure of Return Information for Purposes of Carrying 
     Out Medicare Catastrophic Prescription Drug Program. (Section 
     106 of House Bill).
     Present Law
       Current law authorizes, under specified circumstances, the 
     disclosure by the Secretary of the Treasury of returns and 
     return information for purposes other than tax 
     administration.
     House Bill
       The provision would permit the Secretary of the Treasury, 
     upon written request from the Secretary of the Department of 
     Health and Human Services (HHS) to disclose to officers and 
     employees of HHS specific information with respect to a 
     specified taxpayer for a specific tax year. The information 
     that could be disclosed is taxpayer identity information and 
     the adjusted gross income for the taxpayer or, if less, the 
     income threshold limit specified under the new Part D 
     ($200,000 in 2006). A specified taxpayer would be either: 
     (1) an individual who had adjusted gross income for the 
     year in question in excess of the income threshold 
     specified in the new Part D ($60,000); or (2) an 
     individual who elected to use more recent income 
     information as permitted under Part D. Individuals filing 
     joint returns would each be treated separately with each 
     person considered to have an adjusted gross income equal 
     to one-half of the total.
       Return information disclosed, could be used by officers and 
     employees of HHS only for administering the prescription drug 
     benefit. They could disclose the annual out-of-pocket 
     threshold applicable to an individual to the entity offering 
     the individual prescription drug coverage. The sponsor could 
     use such information only for the purposes of administering 
     the benefit.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       Limitation on Prescription Drug Benefits of Members of 
     Congress (Section 107 of Senate Bill).
     Present Law
       Members of Congress are entitled to receive health benefits 
     through the Federal Employees Health Benefits (FEHB) program.
     House Bill
       No provision.
     Senate Bill
       During calendar year 2004, the actuarial value of the drug 
     benefit of any Member of Congress enrolled in a FEHBP plan 
     could not exceed the actuarial value of any prescription drug 
     benefit under Title XVIII of the Social Security Act passed 
     by the first session of the 108th Congress and enacted into 
     law. The Office of Personnel Management would promulgate 
     necessary regulations.
     Conference Agreement
       No provision.
       Protecting Seniors With Cancer (Section 108 of Senate 
     Bill).
     Present Law
       Medicaid pays Part B premiums for QMBs, SLIMBs and QI-1s. 
     It pays Medicare cost-sharing charges for QMBs.
     House Bill
       No provision.
     Senate Bill
       The cost-sharing specified under the low-income subsidy 
     provisions would be modified for persons diagnosed with 
     cancer. The cost-sharing specified under New Section 1860D-19 
     would apply except for the following changes. The QMB 
     population would have a full premium subsidy for at least one 
     drug plan available in the area where the beneficiary 
     resided. For the SLIMB and QI-1 population, there would be no 
     premium for any plan whose premium was at or below the 
     monthly national average premium. For other persons below 
     160% of poverty, only a percentage of the premium otherwise 
     applicable. Persons with incomes above 160% of the poverty 
     line would have, in 2006, the same cost-sharing otherwise 
     specified under the bill.
     Conference Agreement
       No provision.
       Protecting Seniors With Cardiovascular Disease, Cancer, or 
     Alzheimer's Disease (Section 109 of Senate Bill).
     Present Law
       Medicaid pays Part B premiums for QMBs, SLIMBs and QI-1s. 
     It pays Medicare cost-sharing charges for QMBs.
     House Bill
       No provision.
     Senate Bill
       The cost-sharing specified under the low-income subsidy 
     provisions would be modified

[[Page H12013]]

     for persons diagnosed with cardiovascular disease, cancer, 
     diabetes or Alzheimer's disease. The cost-sharing specified 
     under New Section 1860D-19 would apply except for the 
     following changes. The QMB population would have a full 
     premium subsidy for at least one drug plan available in the 
     area where the beneficiary resided. For the SLIMB and QI-1 
     population, there would be no premium for any plan whose 
     premium was at or below the monthly national average premium. 
     For other persons below 160% of poverty, only a percentage of 
     the premium otherwise applicable. Persons with incomes above 
     160% of the poverty line would have, in 2006, the same cost-
     sharing otherwise specified under the bill.
     Conference Agreement
       No provision.
       Medication Therapy Management Assessment Program (Section 
     110A of Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 1-year 
     assessment program to contract with qualified pharmacists to 
     provide medication therapy management services to fee-for-
     service beneficiaries. The Secretary would designate 6 
     geographic areas (at least 2 rural), each containing not less 
     than 3 sites. The program would be implemented between 
     October 1, 2004 and January 1, 2005. Beneficiaries in an area 
     could participate if they identified a qualified pharmacist 
     to furnish medication therapy management services. The 
     Secretary would enter into contracts with qualified 
     pharmacists to provide such services. The fee established 
     under the contract would be designed to test various payment 
     methodologies including one that applied a relative value 
     scale and fee schedule. Payments would be made from the Part 
     B trust fund and be budget neutral. The Secretary would be 
     required to make data on the program available and report to 
     Congress within 6 months of completion of the program.
     Conference Agreement
       No provision.
       Section 133. Pharmacy Benefit Managers Transparency 
     Requirements (Section 133 of Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       An eligible entity offering a Medicare prescription drug 
     plan under Part D or a MedicareAdvantage organization 
     offering a MedicareAdvantage plan under Part C could not 
     enter a contract with a pharmacy benefit manager (PBM) owned 
     by a pharmaceutical manufacturing company. PBMs would be 
     required to provide the following information, on an annual 
     basis, to the Assistant Attorney General for Antitrust of the 
     Department of Justice and the Inspector General for the 
     Department of Health and Human Services: (1) aggregate amount 
     of any and all rebates, discounts, administrative fees, 
     promotional allowances, and other payments received or 
     recovered from each pharmaceutical manufacturer; (2) the 
     amount of payments received or recovered from each 
     pharmaceutical manufacturer for each of the top 50 drugs (as 
     measured by volume); and (3) the percentage differential 
     between the price PBMs pay pharmacies and the price the PBM 
     charges the PDP or MA organization. Failure to disclose could 
     result in civil penalties; further, the U.S. district court 
     could order compliance. No disclosed information would be 
     made public, except as might be relevant to any judicial 
     action or proceeding. Nothing in the provision would be 
     intended to prevent disclosure to either body of Congress or 
     any duly authorized committee or subcommittee.
     Conference Agreement
       No provision.
       Office of the Medicare Beneficiary Advocate (Section 134 of 
     Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Within 1 year of enactment, the Secretary would be required 
     to establish an Office of the Medicare Beneficiary Advocate 
     within the Department of Health and Human Services. The 
     Office would establish a toll-free number for beneficiaries 
     to obtain information on the Medicare program, particularly 
     with respect to Part D. It would establish a website with 
     easily accessible information on PDPs and MA plans. From 
     amounts appropriated to the Secretary's administrative 
     account, $2 million could be used to establish the Office and 
     such funds as may be necessary would be used to operate the 
     Office.
     Conference Agreement
       No provision.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

     Sec. 201. Implementation of Medicare Advantage program
     Present Law
       Health maintenance organizations (HMOs) and other types of 
     managed care plans have long participated in the Medicare 
     program, beginning with private health plan contracts in the 
     1970s and the Medicare risk contract program in the 1980s. In 
     1997, Congress passed the Balanced Budget Act of 1997 (BBA 
     1997, P.L. 105-33), which replaced the risk contract program 
     with the Medicare+Choice (M+C) program. M+C plans include 
     coordinated care plans (HMOs, preferred provider 
     organizations or PPOs, and provider-sponsored organizations 
     or PSOs), private fee for service (PFFS) plans, and, on a 
     temporary basis, medical savings accounts (MSAs).
     House Bill
       Section 200. Title II would establish the Medicare Enhanced 
     Fee-for-Service (EFFS) program, under which Medicare 
     beneficiaries would be provided access to a range of regional 
     EFFS plans that could include preferred provider networks, 
     beginning in 2006. It would establish the Medicare Advantage 
     (MA) program, upon enactment, to replace the M+C program, 
     which would continue to offer coordinated care and other 
     plans on a county-wide basis as under current law. It would 
     also use competitive bidding, beginning in 2010, in the same 
     style as the Federal Employees Health Benefits program 
     (FEHBP) for certain EFFS plans and MA plans, to promote 
     greater efficiency and responsiveness to Medicare 
     beneficiaries.
     Senate Bill
       Title II would establish the Medicare Advantage (MA) 
     program, which would replace the M+C program, beginning in 
     2006. The MA program would continue to offer coordinated care 
     and other plans on a county-wide basis as under current law. 
     It would also establish regional PPOs, to be offered in 
     regions. Beginning in 2008, it would establish a limited 
     competition program, in areas designated as ``highly 
     competitive.''
     Conference Agreement
       Section 201. The conference agreement establishes the 
     Medicare Advantage (MA) program under Part C of Medicare. Any 
     reference under Part C of Medicare to the ``Medicare+Choice'' 
     program is deemed to be a reference to ``Medicare Advantage'' 
     and ``MA''.
       This title modernizes and revitalizes private plans under 
     Medicare. The Balanced Budget Act (BBA) of 1997 altered 
     payments for private plans and expanded the types of plans 
     that could be offered under Medicare. Since payment rate 
     changes were implemented, enrollment in private plans has 
     fallen from 6.2 million beneficiaries in 1998 to 4.6 million 
     beneficiaries in November 2003, and the number of plans has 
     decreased from 346 risk plans in 1998 to 155 (151 coordinated 
     care plans and 4 private FFS plans) in November 2003. This 
     disruption has been due, in part, to unpredictable and 
     insufficient payments. BBA 97 fundamentally de-linked 
     payments to plans from FFS payment growth.
       To increase beneficiary choice, Title II reforms the 
     payment system in 2004. All plans would be paid at a rate at 
     least as high as the rate for traditional FFS Medicare, as 
     recommended by the Medicare Payment Advisory Commission 
     (MedPAC). After 2004, private plans' capitation rates would 
     grow at the same rate as FFS Medicare. To increase 
     beneficiary choice in more rural areas, Title II would 
     establish regional plans, which would encourage private plans 
     to serve Medicare beneficiaries in larger regions, beginning 
     in 2006. Both local and regional MA private plans would bid 
     competitively against a benchmark beginning in 2006.
       Once private plans became established, and enrollment in 
     private plans increased, a demonstration of comparative cost 
     adjustment in selected sites would begin in 2010. Plan bids 
     from private plans and rates for traditional FFS Medicare 
     would be averaged to create a benchmark for competitive 
     bidding. The competitive program would encourage 
     beneficiaries to enroll in the most efficient plan, producing 
     savings for both beneficiaries, through reduced premiums, and 
     for taxpayers, through relatively lower Medicare costs.

                   Subtitle B--Immediate Improvements

     Section 211. Immediate improvements
     Present Law
       Under current law, Medicare+Choice (M+C) plans are paid an 
     administered monthly payment, called the M+C payment rate, 
     for each enrollee. The per capita rate for a payment area is 
     set at the highest of three amounts: (1) a minimum payment 
     (or floor) rate, (2) a rate calculated as a blend of an area-
     specific (local) rate and a national rate, or (3) a rate 
     reflecting a minimum increase from the previous year's rate 
     (currently 2%).
       A budget neutrality adjustment is made so that estimated 
     total M+C payments in a given year will be equal to the total 
     payments that would be made if payments were based solely on 
     area-specific rates. The budget neutrality adjustment may 
     only be applied to the blended rates because rates cannot be 
     reduced below the floor or minimum increase amounts. The 
     blend payment is also adjusted to remove the direct and 
     indirect costs of graduate medical education. The blend 
     payment amount is based on a weighted average of local and 
     national rates for all Medicare beneficiaries.
       Each year, the three payment amounts are updated by 
     formulas set in statute. Both the floor and the blend are 
     updated each year by a measure of growth in program spending, 
     the national growth percentage. The minimum increase provides 
     for an increase of at least 2% over the previous year's 
     amount.
       If an individual is in a short-term general hospital at the 
     time he or she elected to enroll in an M+C plan or change 
     from one M+C

[[Page H12014]]

     plan to another, payment for such services would be made 
     through FFS or the original plan. Conversely, if an 
     individual terminates enrollment in an M+C plan, that 
     organization would be responsible for payment for such 
     services until the date of the individual's discharge.
     House Bill
       Section 212(a). For 2004, a 4th payment mechanism would be 
     added and plans would receive the highest of the four payment 
     calculations (the floor, blend, minimum percentage increase, 
     or the new amount). The new payment amount would be 100% of 
     fee-for-service (FFS) costs. The FFS payment would be based 
     on the adjusted average per capita cost for the year, for an 
     MA payment area, for services covered under Parts A and B for 
     beneficiaries entitled to benefits under Part A, enrolled in 
     Part B and not enrolled in an MA plan. This payment would be 
     adjusted to remove payments for direct medical education 
     costs and to include the additional payments that would have 
     been made if Medicare beneficiaries entitled to benefits from 
     facilities of the Department of Veteran Affairs (VA) and the 
     Department of Defense (DOD) had not used those services (VA/
     DOD adjustment).
       Section 212(b). In 2004, no adjustment would be made for 
     budget neutrality, which would fund the blend for that year.
       Section 212(c). The calculation of the minimum percentage 
     increase would also be revised. For 2004 and beyond, the 
     minimum percentage increase would be the greater of: (1) a 2% 
     increase over the previous year's payment rate (as under 
     current law), or (2) the previous year's payment increased by 
     the national per capita MA growth percentage. For purposes of 
     calculating the minimum percentage increase, there would be 
     no adjustment to the national growth percentage for prior 
     years' errors before 2004. Beginning in 2005 and each 
     subsequent year, the payments to a plan would be based on its 
     prior year rate increased by the revised minimum percentage 
     increase.
       Section 212(d). The area-specific MA capitation rate (the 
     local component of the blend) would be adjusted to include 
     the VA/DOD adjustment, beginning in 2004.
       Section 212(e). Beginning January 1, 2004, the payment rule 
     for beneficiaries in a short-term general hospital at the 
     time they either elected to enroll in or to terminate their 
     enrollment in an M+C plan, would be extended to a beneficiary 
     in an inpatient rehabilitation facility.
       Section 212(f). No later than 18 months after enactment of 
     this Act, the Medicare Payment Advisory Commission would 
     report to Congress providing an assessment of the method used 
     for determining the adjusted average per capita cost (AAPCC). 
     The report would examine the variation in costs between 
     different areas, including differences in input prices, 
     utilization and practice patterns; the appropriate geographic 
     area for payment; and the accuracy of the risk adjustment 
     methods in reflecting differences in the cost of providing 
     care to different groups of beneficiaries.
       Section 212(g). No later than July 1, 2006, the 
     Administrator would submit a report to Congress that 
     described the impact of additional financing provided under 
     this Act and other Acts, (including the Balanced Budget 
     Refinement Act of 1999--BBRA and the Benefits Improvement and 
     Protection Act of 2000--BIPA) on the availability of MA plans 
     in different areas and the impact on lowering premiums and 
     increasing benefits under such plans.
       Section 212(h). The Secretary would calculate and announce 
     the new MA capitation rates within 6 weeks of enactment of 
     this legislation.
     Senate Bill
       Section 203. [Sec. 1853(c)]. For payments before 2006, the 
     payment would be calculated in the same manner as under 
     current law--the highest of the blend, minimum payment 
     (floor) rate, or minimum percentage increase. However the 
     calculation of the minimum percentage increase would change 
     for 2005. The minimum percentage increase for 2005 would be a 
     3% increase over the rate for the area for 2003. For 2006 and 
     subsequent years, it would be a 2% increase over the previous 
     year (but calculated as though the increase in 2005 was 2%.) 
     Additionally, beginning in 2014, the minimum amount (floor) 
     would be increased by the percentage increase in the CPI for 
     all consumers, for the 12-month period ending in June of the 
     previous year.
       Section 204(b). The Secretary would conduct a study to 
     determine the extent to which M+C cost-sharing discourages 
     access to covered services or discriminates based on the 
     health status of M+C eligible beneficiaries. The Secretary 
     would submit a report to Congress, providing recommendations 
     for legislation and administrative action, no later than 
     December 31, 2004.
       Section 210. The costs of DOD and VA military facility 
     services would be included in the area specific M+C payment 
     and the local fee for service rates beginning in 2006.
     Conference Agreement
       Section 211(a). The conference agreement makes several 
     changes to the payments for MA plans. In some MA payment 
     areas, the MA payment rate is lower than the costs of 
     providing FFS care to enrollees in traditional Medicare in 
     some parts of the country. Many private plans have seen their 
     Medicare payment rates rise much less rapidly than the costs 
     of FFS Medicare, as they have been held to increases of two 
     percent annually every year since 1998, except for 2001 when 
     a three percent increase was paid due to the BIPA. Health 
     costs in general are running much higher than the two percent 
     payment increases that most plans are receiving in the areas 
     where most of the beneficiaries are enrolled in 
     Medicare+Choice. Plans find it difficult--if not impossible--
     to contract with providers if FFS Medicare can reimburse 
     providers at higher rates than private plans may offer, given 
     their Medicare payments. If paid less than FFS Medicare, 
     private plans may be forced to increase enrollee premiums or 
     cost-sharing, or decrease supplemental benefits, such as 
     prescription drug coverage. Since 1998, the number of plans 
     participating in M+C has declined from 346 to 155.
       To encourage plan entry, all private plans would be paid at 
     a minimum of the FFS rate. In addition, private plan rates 
     would increase at the same rate as growth in FFS Medicare. 
     The goal is to increase beneficiary choice, by increasing 
     private plan participation in Medicare.
       For 2004, a 4th payment mechanism will be added and plans 
     will receive the highest of the four payment calculations 
     (the floor, blend, minimum percentage increase, or the new 
     amount). The new payment amount is 100% of fee-for-service 
     (FFS) costs. The FFS payment is based on the adjusted average 
     per capita cost for the year, for an MA payment area, for 
     services covered under Parts A and B for beneficiaries 
     entitled to benefits under Part A, enrolled in Part B and not 
     enrolled in an MA plan. The 4th payment mechanism, 100% 
     fee-for-service, will be rebased no less than once every 3 
     years. This payment will be adjusted to: (1) remove 
     payments for direct medical education costs, and (2) 
     include the additional payments that would have been made 
     if Medicare beneficiaries entitled to benefits from 
     facilities of the Department of Veteran Affairs (VA) and 
     the Department of Defense (DOD) had not used those 
     services (VA/DOD adjustment).
       Section 211(b). In 2004, no adjustment will be made for 
     budget neutrality, in order to fund the blend for that year.
       Section 211(c). The calculation of the minimum percentage 
     increase will also be revised. For 2004 and beyond, the 
     minimum percentage increase will be the greater of: (1) a 2% 
     increase over the previous year's payment rate (as under 
     current law); or (2) the previous year's payment increased by 
     the national per capita MA growth percentage. For purposes of 
     calculating the minimum percentage increase, there will be no 
     adjustment to the national growth percentage for prior years' 
     errors before 2004. Beginning in 2005 and each subsequent 
     year, the payments to a plan will be based on its prior year 
     rate increased by the revised minimum percentage increase.
       Section 211(d). The area-specific MA capitation rate (the 
     local component of the blend) will be adjusted to include the 
     VA/DOD adjustment, beginning in 2004.
       Section 211(e). Beginning January 1, 2004, the payment rule 
     for beneficiaries in a short-term general hospital at the 
     time they either elected to enroll in or to terminate their 
     enrollment in an MA plan, will be extended to a beneficiary 
     in an rehabilitation hospital, a distinct part rehabilitation 
     unit, or a long-term care hospital. For beneficiaries leaving 
     their MA plan while receiving these inpatient hospital 
     services, this provision will expand the rule that disallows 
     payment for such services under fee-for-service payments for 
     inpatient hospitals. Under the expansion, payments will be 
     prohibited from any type of payment provision under Medicare 
     for inpatient services, for the type of facility, hospital, 
     or unit involved.
       Section 211(f). No later than 18 months after enactment of 
     this Act, the Medicare Payment Advisory Commission (MedPAC) 
     will submit a report to Congress providing an assessment of 
     the method used for determining the adjusted average per 
     capita cost (AAPCC). The report will examine the variation in 
     costs between different areas, including differences in input 
     prices, utilization and practice patterns; the appropriate 
     geographic area for payment of local MA plans; and the 
     accuracy of the risk adjustment methods in reflecting 
     differences in the cost of providing care to different groups 
     of beneficiaries.
       Section 211(g). No later than July 1, 2006, the Secretary 
     will submit a report to Congress that describes the impact of 
     additional financing provided under this Act and other Acts, 
     (including the Balanced Budget Refinement Act of 1999--BBRA 
     and the Benefits Improvement and Protection Act of 2000--
     BIPA) on the availability of MA plans in different areas and 
     the impact on lowering premiums and increasing benefits under 
     such plans.
       Section 211(h). The Medicare Payment Advisory Commission 
     (MedPAC) will conduct a study to determine the extent to 
     which MA cost-sharing affects access to covered services or 
     selects enrollees based on the health status of MA eligible 
     beneficiaries. MedPAC will submit a report to Congress, 
     providing recommendations for legislation and administrative 
     action, no later than December 31, 2004.
       Section 211(i). Within 6 weeks after enactment, the 
     Secretary will determine and announce the revised MA 
     capitation rates. The revised payment rates will be subject 
     to the same transition rules that applied to revised payments 
     after the passage of the Benefits Improvement and Protection 
     Act of 2000 (BIPA, P.L. 106-554), including the requirement 
     that plans that previously announced

[[Page H12015]]

     their intention to terminate their contract or reduce their 
     service area could rescind their notice, among other 
     transition rules. Also for 2004, any changes to payments made 
     under this Act will be effective beginning in March 2004, and 
     would be adjusted to include any additional amounts plans 
     would have received if the new payment system had been 
     effective January 1. If a plan revises its submission of 
     information to the Secretary, and it includes changes in 
     beneficiary premiums, beneficiary cost-sharing, or benefits 
     under the plan, then the plan is required to notify each 
     enrollee in writing, within 3 weeks after the date that the 
     Secretary approves the changes. There will be no 
     administrative or judicial review of any determination made 
     by the Secretary for application of this section or payment 
     rates.
       In order to clarify current law, if a private fee-for-
     service plan has contacts and agreements with a sufficient 
     number and range of providers within a category of health 
     care professionals and providers, it may charge higher 
     beneficiary copayments to providers in that category who do 
     not have such contracts or agreements (other than deemed 
     contracts or agreements).

 Subtitle C--Offering Medicare Advantage (MA) Regional Plan; Medicare 
                         Advantage Competition

     Section 221. Establishment of MA regional plans
     Present Law
       M+C plans include coordinated care plans (HMOs, preferred 
     provider organizations or PPOs, and provider-sponsored 
     organizations or PSOs), private fee for service (PFFS) plans, 
     and, on a temporary basis, medical savings accounts (MSAs).
       Enrollment in any individual M+C plan is open only to those 
     beneficiaries living in a specific service area. An M+C 
     payment area is defined as a county, or equivalent area as 
     specified by the Secretary. Plans define a service area as a 
     set of counties and county parts, identified at the zip code 
     level. At a state's option, the service area could be defined 
     as the entire state; however, to date, no state has done so.
     House Bill
       Section 201(a). [Sec. 1860E-1(a)] Beginning January 1, 
     2006, the Administrator would establish the EFFS program for 
     EFFS eligible individuals in EFFS regions. Plans would be 
     offered on a regional basis, in at least 10 regions 
     established by the Administrator. Before establishing the 
     regions, the Administrator would conduct a market survey and 
     analysis, including an examination of current insurance 
     markets, to determine how the regions should be established. 
     Regions would be established to take into consideration 
     maximizing full access for all EFFS-eligible individuals, 
     especially those residing in rural areas. [Sec. 1860E-1(b)]. 
     EFFS plans would be required to provide either fee-for-
     service (FFS) or preferred provider coverage. Under FFS 
     coverage, plans would: (1) reimburse hospitals, physicians 
     and other providers at a rate determined by the plan on a 
     FFS basis, without placing providers at risk, (2) not vary 
     rates based on the provider's utilization, and (3) not 
     restrict the selection of providers from among those who 
     were lawfully authorized to provide covered services and 
     agreed to accept the plan's terms and conditions. Under 
     preferred provider coverage, plans would: (1) have a 
     network of providers who agreed to a contractually-
     specified reimbursement for covered benefits with the 
     organization, and (2) provide for reimbursement for all 
     covered benefits regardless of whether they were provided 
     within the network.
       [Sec. 1860E-1(c)]. EFFS plans would have to comply with 
     existing eligibility, election, and enrollment provisions 
     (under Sec. 1851) including guaranteed issue and renewal, but 
     could offer cash rebates, reduced premiums, or supplemental 
     benefits to beneficiaries if plan bids were below a specified 
     benchmark.
       [Sec. 1860E-3(a)]. The Administrator may enter into 
     contracts with up to three EFFS organizations in any region.
     Senate Bill
       Section 211. [Sec. 1858(a)]. Beginning January 1, 2006, a 
     preferred provider organization (PPO) plan would be offered 
     to MA eligible individuals in preferred provider regions. A 
     PPO would be an entity with a contract that met other 
     requirements of this Act. A PPO would have a network of 
     providers that agreed to contractually specified 
     reimbursements for covered benefits under Parts A and B. The 
     PPO would pay for all covered services an enrollee received, 
     whether provided in or out of network.
       [Sec. 1858(a)(3)]. There would be at least 10 regions. Each 
     region would have to include at least one state, and could be 
     the entire United States. The Secretary could not divide 
     states so that portions of the state were in different 
     regions. To the extent possible, the Secretary would include 
     multi-state metropolitan statistical areas (MSAs) in a single 
     region, except that he or she could divide an MSA where 
     necessary to establish a region of such size and geography to 
     maximize the participation of PPOs. The Secretary could use 
     the same regions established for the prescription drug 
     program, under Part D. The service area of a PPO would be the 
     region.
       Each plan would be offered to any MA eligible individual 
     residing in the service area.
       Section 211. [Sec. 1858(b)]. PPOs would be required to 
     establish a sufficient number and range of health care 
     professionals and providers willing to provide services under 
     the plan's terms. The Secretary would consider this 
     requirement to be met if the organization had a sufficient 
     number of contracts and agreements with a sufficient number 
     and range of providers. These arrangements would not restrict 
     enrollee access to other providers for covered services. 
     Additionally, if the plan was in a state where 25% or more of 
     the population resided in a health professional shortage 
     area, these arrangements would also not restrict the 
     categories of licensed health professionals or providers from 
     whom the enrollee could obtain covered benefits. The 
     Secretary could disapprove any PPO believed to attract a 
     population that is healthier than the average population of 
     the region serviced by the plan.
       Section 211. [Sec. 1858(d)]. If there were bids for more 
     than three plans in a preferred provider region, the 
     Secretary would limit the number of plans to the three 
     lowest-cost credible plans that met or exceeded the quality 
     or minimum standards.
     Conference Agreement
       The conference agreement establishes a new regional plan 
     program beginning in 2006. The Secretary will establish 
     between 10 and 50 regions across the nation. Plans wishing to 
     participate in this program will be required to serve an 
     entire region. By requiring plans to serve larger service 
     areas that bring together both urban and rural areas, the 
     program will bring greater health plan choices to areas not 
     previously served by the Medicare+Choice program, 
     particularly rural areas.
       In establishing Medicare Advantage regions (MA regions), 
     the Secretary will conduct a market study to determine how 
     regions should best be constructed to maximize plan 
     participation and availability of plans to beneficiaries. The 
     conference agreement includes a number of provisions to 
     provide incentives for plans to participate in the regional 
     program. These provisions include risk corridors for plans 
     during the first 2 years of the program, 2006 and 2007; a 
     stabilization fund to encourage plan entry and limit plan 
     withdrawals; a blended benchmark that will provide greater 
     responsiveness to the market by allowing plan bids to 
     influence the benchmark amount; and a network adequacy fund 
     to assist plans in forming adequate networks, particularly in 
     rural areas. While private plans have experience in serving 
     Medicare beneficiaries at a local level, such plans have not 
     previously operated on a region-wide basis. These provisions 
     will assist plans as they enter this new line of business and 
     learn the market dynamics of serving beneficiaries across 
     larger regions.
       Section 221(a). This provision establishes a 2-year 
     moratorium on new local preferred provider organizations in 
     order to encourage PPOs to operate at the regional level. 
     PPOs that are in operation as of December 31, 2005, including 
     demonstration projects, will be allowed to continue 
     operations and expand enrollment in their existing service 
     areas during this period; however they will not be allowed to 
     expand their service areas. PPOs will be able to enter new or 
     expanded service areas again beginning January 1, 2008.
       Section 221(b). The conference agreement allows MA regional 
     coordinated care plans under the MA program. An MA regional 
     plan: (1) has a network of providers who agreed to a 
     contractually specified reimbursement for covered benefits 
     with the organization offering the plan, (2) provides for 
     reimbursement for all covered benefits regardless of whether 
     such benefits are provided within such network of providers, 
     and (3) has a service area of one or more MA regions. A local 
     MA plan is an MA plan that is not an MA regional plan, and 
     local MA areas are defined, as under current law, as a county 
     or equivalent area specified by the Secretary. MSA and PFFS 
     plans are defined as local plans, although nothing prevents 
     an MSA plan or an MA PFFS plan from serving one or more 
     regions, or the entire Nation.
       Section 221(c). [Sec. 1858(a)(1)]. The service area for an 
     MA regional plan will consist of an entire MA region and may 
     not be segmented.
       [Sec. 1858(a)(2)]. No later than January 1, 2005 the 
     Secretary will establish and publish a list of MA regions. 
     There will be between 10 and 50 regions within the 50 states 
     and the District of Columbia. Before establishing the MA 
     regions, the Secretary will conduct a market survey and 
     analysis, including an examination of current insurance 
     markets. The regions should maximize the availability of 
     MA regional plans to all MA eligible individuals without 
     regard to health status, especially beneficiaries residing 
     in rural areas. To the extent possible, each region should 
     include at least one State, should not divide States 
     across regions, and should include multi-State 
     Metropolitan Statistical Areas in a single region. The 
     Secretary may periodically review MA regions and, based on 
     the review, revise the regions to be more appropriate. An 
     MA regional plan may be offered in more than one region 
     including all regions.
     Single Deductible and Catastrophic Limit
     Present Law
       Medicare does not have a catastrophic limit on beneficiary 
     out-of-pocket expenses, although some M+C plans offer an out-
     of-pocket limit as an added benefit. The original Medicare 
     FFS program includes a Part B deductible and a separate Part 
     A deductible for hospital stays.
     House Bill
       Section 201(a). [Sec. 1860E-2(b and c)]. EFFS plans could 
     only be offered in a region if the plan, among other 
     requirements, included a

[[Page H12016]]

     single deductible for benefits under Parts A and B, and a 
     catastrophic limit on out-of-pocket expenses.
     Senate Bill
       Section 202. [Sec. 1852(a)]. Each MA plan would have to 
     offer a maximum limitation on out-of-pocket expenses and a 
     unified deductible.
     Conference Agreement
       Section 221(c). [Sec. 1858(b)]. In order to ensure that MA 
     regional plans are structured more like existing private 
     market plans for the under-65 population, the conference 
     agreement requires MA regional plans to include a single 
     deductible for benefits under Parts A and B. The single 
     deductible may be applied differentially for in-network 
     services and may be waived for preventive or other items and 
     services. MA regional plans will also be required to include 
     two catastrophic limits--one for out-of-pocket expenditures 
     for in-network Part A and B benefits and one for out-of-
     pocket expenditures for all Part A and B benefits. Payment 
     rates to these plans are not increased to provide this 
     coverage.
     Risk Corridors
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 211. [Sec. 1858(e)]. The PPO would notify the 
     Secretary of the total amount of costs incurred during 2007 
     and 2008 in providing covered benefits under Part A and B of 
     Medicare, except that certain expenses would not be included 
     (administrative expenses over the amount determined 
     appropriate by the Administrator and amounts expended for 
     enhanced medical benefits).
       The Secretary would be required to establish risk corridors 
     for the regional PPO plans for 2006 and 2007. Medicare would 
     share risk with PPO organizations after costs fell above or 
     below a risk corridor of 5% as follows: (1) Medicare would 
     share 50% of the losses or profits between 105% and 110% of a 
     target which consists of Medicare's MA payment plus the 
     beneficiaries' contributions; and (2) Medicare would share 
     90% of the losses or profits above 110% of the target. PPOs 
     would be at full risk for all enhanced medical benefits. A 
     beneficiary's liability would not be affected by these risk 
     corridors in the given years.
     Conference Agreement
       Section 221(c). [Sec. 1858(c)]. In order to encourage plans 
     to enter the regional market and to provide assistance to 
     these plans during the start-up phase of their business, 
     Medicare will share risk with MA regional plans if costs fall 
     above or below a specific risk corridor. These risk corridors 
     will be available to plans during 2006 and 2007. The 
     conference agreement provides that MA regional plans notify 
     the Secretary of: (1) the total costs of providing Part A and 
     B benefits and the portion attributable to allowable 
     administrative expenses, and (2) the costs of providing 
     rebatable integrated benefits and the portion of these costs 
     attributable to allowable administrative expenses. Allowable 
     cost is defined, with respect to an MA regional plan for a 
     year, as the total amount of costs incurred in providing 
     benefits under the original Medicare FFS program, and 
     rebatable integrated benefits, reduced by administrative 
     expenses. Rebatable integrated benefits are defined as non-
     drug supplemental benefits provided by a plan, as part of its 
     required rebate to beneficiaries, that are integrated with 
     the benefits under the original Medicare fee-for-service 
     program. The Secretary will have discretion to evaluate 
     whether certain rebatable benefits should be included in 
     allowable costs for risk corridor calculations.
       [Sec. 1854(c)(2)(D)]. The target amount is defined as an 
     amount equal to the sum of: (1) the total monthly payments 
     made to the organization for enrollees in the plan for the 
     year that are attributable to benefits under the original 
     Medicare FFS program; (2) the total of the MA monthly basic 
     beneficiary premium, collectable for the enrollees for the 
     year; and (3) the total amount of rebatable integrated 
     benefits that the Secretary determines are appropriate for 
     inclusion in the risk corridor calculation. The target amount 
     does not include the cost of administrative expenses for FFS 
     benefits or for rebatable supplemental benefits.
       [Sec. 1854(c)(2)]. There will be no payment adjustment if 
     the allowable costs for the plan are at least 97 percent, but 
     do not exceed 103 percent of the target amount for the plan. 
     If allowable costs for the plan are more than 103 percent but 
     less than 108 percent of the target amount for the plan for 
     the year, the Secretary will increase the total monthly 
     payments made to the organization by 50 percent of the 
     difference between 103 percent and allowable costs. If 
     allowable costs for the plan are greater than 108 percent of 
     the target amount, the Secretary will increase the total 
     monthly payments to the plan by an amount equal to the sum 
     of: (1) 2.5 percent of the target amount; and (2) 80 percent 
     of the difference between allowable costs and 108 percent of 
     the target. Conversely, if the allowable costs for the plan 
     are less than 97 percent, but greater than or equal to 92 
     percent of the target amount, the Secretary will reduce 
     the total monthly payment to the plan by 50 percent of the 
     difference between 97 percent of the target amount and the 
     allowable cost. If the allowable costs for the plan are 
     below 92 percent of the target, the Secretary will reduce 
     the total monthly payments to the organization by the sum 
     of: (1) 2.5 percent of the target amount, and (2) 80 
     percent of the difference between 92 percent of the target 
     and the allowable cost.
        [Sec. 1854(c)(3)]. Each contract under the MA program will 
     provide the information the Secretary deems necessary to 
     carry out this subsection. While the Secretary has the right 
     to inspect and audit all books and records pertaining to 
     information provided under this section, the information 
     disclosed or obtained may only be used to carry out this 
     section.
     Organizational and Financial Requirements
        [Sec. 1854(d)]. In order to facilitate the offering of MA 
     plans in regions that may encompass multiple states, the 
     conference agreement establishes rules for applying licensing 
     requirements across states. If an MA organization offering an 
     MA regional plan is organized and licensed under State law in 
     a state in the region but does not meet the requirements in 
     other states in the region, the Secretary may waive such 
     requirement for an appropriate period of time. Such a waiver 
     can only be granted if the organization demonstrates to the 
     Secretary's satisfaction that it has filed the necessary 
     application to meet the other state's requirements. If an MA 
     organization is organized and licensed under more than one 
     state in the region, and the organization does not meet the 
     requirements of each state, the organization may select the 
     rules of one State and apply those rules to the entire 
     service area until such time as the organization meets a 
     state's requirements, in a manner specified by the Secretary.
     Stabilization Fund
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 231. If an area was designated as highly 
     competitive, benchmarks would not apply. Instead, a plan 
     would bid the total payment it was willing to accept (not 
     taking into account risk adjustment) for providing required 
     Parts A and B benefits to plan enrollees residing in the 
     service area. The Secretary would substitute the second 
     lowest bid for the benchmark. If there were fewer than three 
     bids, the Secretary would be required to substitute the 
     lowest bid for the benchmark. Total funding for this 
     provision is limited to $6 billion over 2009 through 2013.
     Conference Agreement
       Section 221(c). [Sec. 1858(e)]. During the past several 
     years a number of plans have pulled out of the 
     Medicare+Choice program due to changing market conditions and 
     an inflexible payment formula. Plans were held to 2 percent 
     annual payment increases while costs in the fee-for-service 
     program were rising at a much faster rate. Under current law, 
     the Secretary had no ability to respond quickly to these 
     market changes, resulting in plan withdrawals which have 
     affected millions of beneficiaries. In order to promote 
     greater stability in the regional program and provide the 
     Secretary with a tool to respond to market fluctuations, the 
     conference agreement establishes an MA Regional Plan 
     Stabilization Fund. The Fund can be used to provide 
     incentives for plan entry in each region and plan retention 
     in MA regions with below- average MA penetration. Initially, 
     $10 billion will be available for expenditures from the Fund 
     beginning on January 1, 2007 and these start-up funds will 
     only be available until December 31, 2013. Funds will be 
     drawn from the Federal Hospital Insurance Trust Fund and the 
     Federal Supplementary Medical Insurance Trust Fund in a 
     proportion that reflects the relative weight that the 
     benefits under Parts A and B represent of the actuarial value 
     of the total benefit. Additional funds will be available in 
     an amount equal to 12.5% of average per capita monthly 
     savings from regional plans that bid below the benchmark. The 
     additional funds will be deposited on a monthly basis into a 
     special account in the Treasury.
       The Fund is designed to allow the Secretary to respond to 
     market conditions on a temporary basis. If the Fund is used 
     for either plan entry or retention for 2 consecutive years, 
     the Secretary must report to Congress on the underlying 
     market conditions in the regions. These reports will give 
     Congress time to respond to the market conditions through 
     changes to the regions or the underlying payment system.
        [Sec. 1858(e)(2)]. The funds will be available in advance 
     of appropriations to MA regional plans in accordance with 
     specified funding limitations. [Sec. 1854(e)(5)]. The total 
     amount projected to be expended from the Fund in any year may 
     not exceed the amount available in the Fund as of the first 
     day of that year. If the use of the stabilization fund 
     results in increased expenditures under this title, the 
     increased expenditures shall be counted as expenditures from 
     the Fund. The Secretary will only obligate funds if the 
     Secretary, the Chief Actuary of CMS, and the appropriate 
     budget officer certifies that there are sufficient funds at 
     the beginning of the year to cover all such obligations for 
     that year. The Secretary will take steps to ensure that 
     sufficient funds are available to make such payments for the 
     entire year, which may include computing additional payment 
     amounts or limitations on enrollment in MA regional plans 
     receiving such payments. [Sec. 1858(e)(2)(D)]. Expenditures 
     from the Fund will first be made from amounts made available 
     from the initial funding.
        [Sec. 1858(e)(3)]. Plan entry incentives are available for 
     either a one-year national bonus payment or multi-year 
     adjustments in regional payments; however in no case can

[[Page H12017]]

     there be a regional payment adjustment if there is a national 
     bonus for that year. In order to encourage the offering of 
     plans in all regions, the national bonus payment will be 
     available to an MA organization that elects to offer a 
     regional plan in each MA region in a year, but only if one of 
     the regions did not have a plan available in the previous 
     year. Funding is only available for a single year, but more 
     than one organization can receive the incentive in the same 
     year. The national bonus payment will: (1) be available to an 
     organization only if it offers plans in every MA region; (2) 
     be available to all MA regional plans of the organization 
     regardless of whether any other MA regional plan is offered 
     in any region; and (3) be equal to 3 percent of the benchmark 
     amount otherwise applicable for each MA regional plan offered 
     by the organization, subject to funding limitations.
        [Sec. 1858(e)(3)]. If a national bonus payment is not 
     made, a regional payment adjustment can be made. The regional 
     payment adjustment is an increased payment for an MA regional 
     plan offered in an MA region that did not have any MA 
     regional plans offered in the previous year. The Secretary 
     will determine the adjusted payment amount based solely on 
     plans' bids in the region, and the adjusted payment amount 
     will be available to all plans offered in the region. The 
     amount can be based on the mean, mode, median or other 
     measure of such bids and may vary from region to region, but 
     the payment amount cannot be determined through a method that 
     limits the number of plans or bids in the region. Such a 
     payment adjustment will be treated as a change to the 
     benchmark amount in that region for purposes of calculating 
     individual plan payments and beneficiary rebates.
        [Sec. 1858(e)(3)(C)(ii)]. Subject to funding limitations, 
     the Secretary will determine the period of time that funds 
     are available for regional payment changes to encourage plan 
     entry. If funding will be provided for a second consecutive 
     year under this provision, the Secretary is required to 
     submit a report to Congress describing the underlying market 
     dynamics in the region and recommending changes to the 
     payment methodology. Multi-year funding may be made available 
     to all MA plans offered in a region. If this multi-year 
     increased amount is made available to MA plans in a region, 
     funding will not be available for plan retention in the 
     region in the following year. Regional payment adjustments 
     will not be taken into account when computing the underlying 
     benchmark for the subsequent year.
        [Sec. 1858(e)(4)]. In addition to using the Fund to 
     encourage plans to enter regions that might otherwise go 
     unserved, the Secretary may also use the fund to encourage 
     plans to remain in regions if market conditions are causing 
     plan withdrawals. Incentives for plan retention could take 
     the form of an increased payment to plans in regions that 
     meet specific requirements. The requirements are: (1) one or 
     more plans inform the Secretary that they will discontinue 
     service in the region in the succeeding year; (2) the 
     Secretary determines that if those plans were not offered, 
     fewer than 2 MA regional plans, each offered by a different 
     organization, would be offered in the region in the year; (3) 
     for the previous year, the Secretary determines that the 
     proportion of beneficiaries enrolled in MA regional plans in 
     the region is less than national average of MA regional plan 
     enrollment; (4) funds have not already been awarded for 2 
     consecutive years. Any additional payment amount will be 
     treated as if it were an addition to the benchmark amount 
     otherwise applicable, but will not be taken into account in 
     the computation of the benchmark for any subsequent year. If 
     plans receive funding under this part for a second year, the 
     Secretary will submit a report to Congress that describes the 
     underlying market dynamics in the region and includes 
     recommendations concerning changes in the payment methodology 
     otherwise provided for MA regional plans under this part.
        [Sec. 1858(e)(4)]. The incentive for plan retention 
     payment will be an amount determined by the Secretary, that 
     does not exceed the greater of: (1) 3 percent of the 
     benchmark amount applicable in the region; or (2) an amount 
     that, when added to the benchmark, results in a ratio such 
     that the additional amount plus the benchmark for the region 
     divided by the adjusted average per capita cost (AAPCC) 
     equals the weighted average of benchmarks for all regions 
     divided by the AAPCC for the United States.
        [Sec. 1858(e)(6)]. Not later than April 1 of each year 
     beginning in 2008, the Secretary will submit a report to 
     Congress and the Comptroller General of the United States 
     that includes: (1) a detailed description of the total amount 
     expended as a result of the Stabilization Fund in the 
     previous year (and the projections for the current year) 
     compared to the total amount that would have been expended 
     under this title in each year if this subsection had not been 
     enacted; (2) amounts remaining within the funding 
     limitations; and (3) the steps the Secretary will take to 
     ensure that the expenditures from the Stabilization Fund will 
     not exceed the amount available. The report will include 
     certification from the Chief Actuary of CMS that estimates 
     are reasonable, accurate and based on generally accepted 
     actuarial principles and methodologies.
        [Sec. 1858(e)(7)]. Not later than January 1 of 2009, 2011, 
     2013 and 2015, the Comptroller General of the United States 
     will submit a report to the Secretary and Congress on the 
     application of payments from the Stabilization Fund. The 
     reports will include an evaluation of: (1) the quality of 
     care provided to individuals for which additional payments 
     were made from the Stabilization Fund; (2) beneficiary 
     satisfaction; (3) the cost of Stabilization Fund payments to 
     the Medicare program; and (4) any improvements in service 
     delivery. The report will also include a comparative analysis 
     of the performance of MA regional plans receiving payments to 
     MA regional plans not receiving Stabilization Fund payments, 
     and recommendations for legislation or administrative action 
     as the Comptroller General determines would be appropriate.
     Regional Blended Benchmark
     Present Law
       Under current law, Medicare+Choice (M+C) plans are paid an 
     administered monthly payment, called the M+C payment rate, 
     for each enrollee. The per capita rate for a payment area is 
     set at the highest of three amounts: (1) a minimum payment 
     (or floor) rate, (2) a rate calculated as a blend of an area-
     specific (local) rate and a national rate, or (3) a rate 
     reflecting a minimum increase from the previous year's rate 
     (currently 2%). In general, the Secretary makes monthly 
     payments for each M+C enrollee reduced by any Part B premium 
     reduction, and adjusted for risk.
     House Bill
       Section 201. [Sec. 1860E-3(b)]. The EFFS region-specific 
     non-drug monthly benchmark amount means an amount equal to 
     \1/12\ of the average (weighted by the number of EFFS 
     eligible individuals in each local payment area in the 
     region) of the annual MA payment rate for payment areas 
     within the region.
     Senate Bill
       Section 211. [Sec. 1858(c)(2)]. Beginning in 2006, the 
     Secretary would calculate a benchmark amount for required 
     services for each region equal to the average of each 
     benchmark amount for each MA payment area within the region, 
     weighted by the number of MA eligible individuals residing in 
     the payment area for the year. Each year, beginning in 2005, 
     the Secretary would publish (at the time of publication of 
     the risk adjustors under Part D--no later than April 15) the 
     benchmark amount for each region, factors to be used for 
     adjusting payments under the comprehensive risk adjustment 
     methodology and methodology used for adjustments for 
     geographic variations within a region.
     Conference Agreement
        Section 221(c). [Sec. 1854(f)]. Beginning in 2006, the 
     Secretary will compute a ``blended benchmark'' amount for 
     each MA region. The blended benchmark is designed to be 
     responsive to market conditions in the region by allowing 
     plan bids to influence the final benchmark amount. The MA 
     region-specific non-drug monthly benchmark amount is defined 
     as the sum of a statutory component and a plan-bid component 
     for the year. The statutory component is the product of the 
     statutory region-specific non-drug amount for the region and 
     the year, and the statutory national market share percentage. 
     The statutory region-specific non-drug amount, the first part 
     of the statutory component, is an amount equal to the sum, 
     (for each local MA area within the region) of the product of 
     the MA area-specific non-drug monthly benchmark amount for 
     the area and the year, and the number of MA eligible 
     individuals residing in the local area, divided by the total 
     number of MA eligible individuals residing in the region. The 
     statutory national market share percentage, the second part 
     of the statutory component, is equal to the proportion of MA 
     eligible individuals nationally who were not enrolled in an 
     MA plan during the most recent month during the previous year 
     for which data are available.
        The plan-bid component is the product of the weighted 
     average of MA plan bids for the region and the year and the 
     non-statutory market share percentage. The weighted average 
     of plan bids for an MA region is calculated as the sum across 
     MA regional plans, of (for each plan) the products of the 
     unadjusted MA statutory non-drug monthly bid for the plan, 
     and the plan's share of MA enrollment in the region. Or, in 
     the first year in which any regional plan is offered in a 
     region, if more than one MA regional plan is offered in that 
     year, the plan's share of MA enrollment in the region is 
     replaced in the formula either by (1) one divided by the 
     number of plans in the region, or (2) a share estimated by 
     the Secretary. The non-statutory market share percentage is 
     one minus the statutory national market share percentage.
     Uniform Coverage Determination
     Present Law
        An M+C organization may elect to have a single local 
     coverage policy apply to its plan when the plan's service 
     area includes more than one local coverage policy area. The 
     Secretary will identify the local coverage policy that is 
     most beneficial to M+C enrollees.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 221(c). [Sec. 1854(g)]. The organization offering 
     an MA regional plan may elect to have a local coverage 
     determination for the entire MA plan based on the local 
     coverage determination applied for any part of the region, as 
     selected by the organization. These local coverage 
     determination are may be appealed under the applicable 
     provisions of section 1869(f) (BIPA, sec. 522).

[[Page H12018]]

     Assurance of Network Adequacy
     Present Law
       An M+C organization may select the providers in its 
     network, so long as: (1) the organization makes the benefits 
     available and accessible to each individual within the 
     service area with reasonable promptness and in a manner which 
     assures continuity in the provision of benefits; (2) when 
     medically necessary, the organization makes benefits 
     available and accessible 24 hours a day and 7 days a week; 
     and (3) the plan provides reimbursement for services provided 
     outside of the network when services are medically necessary 
     and immediately required, when the services are renal 
     dialysis and the beneficiary is temporarily out of the plan's 
     service area, or when the services are maintenance care or 
     post-stabilization. The organization must provide access to 
     appropriate providers including credentialed specialists, and 
     must provide emergency services without regard to prior 
     authorization.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 221(c). [Sec. 1854(h)]. All current law network 
     adequacy requirements will remain in place under the new 
     regional program. However, because regions may encompass 
     areas served by a single hospital, plans may have difficulty 
     meeting their network adequacy requirements if they are 
     unable to reach an agreement with such a hospital. In order 
     to facilitate the meeting of these network adequacy 
     requirements across large regions, the conference agreement 
     allows the Secretary to provide payment to an essential 
     hospital that provides services to enrollees in an area, in 
     cases in which the MA organization offering the plan was 
     unable to reach an agreement with the hospital regarding 
     provision of services to plan enrollees. The Secretary will 
     make the plan payment available only if the organization 
     makes satisfactory assurances to the Secretary that it will 
     pay the hospital an amount not less than the Medicare Part A 
     payment for such services, and, with respect to specific 
     services provided to an enrollee, the hospital demonstrates 
     that its costs exceed the Medicare Part A payment. The 
     agreement makes $25 million available in 2006, increased each 
     year by the growth in the market basket percentage. Subject 
     to that limit, the payment, if any, would be the amount by 
     which the payment for inpatient hospital services if the 
     hospital were a critical access hospital exceeds the payment 
     for the same service that the hospital would otherwise 
     receive. An essential hospital would be defined as a general 
     acute care hospital that demonstrates to the Secretary that 
     its costs exceed the Medicare Part A payment and is 
     determined by the Secretary to be necessary for the plan to 
     meet its network adequacy requirements.
     Section 222. Competition program beginning in 2006
     Submission of bidding and rebate information
     Present Law
       Under current law, Medicare+Choice (M+C) plans are paid an 
     administered monthly payment, called the M+C payment rate, 
     for each enrollee. The per capita rate for a payment area is 
     set at the highest of three amounts: (1) a minimum payment 
     (or floor) rate, (2) a rate calculated as a blend of an area-
     specific (local) rate and a national rate, or (3) a rate 
     reflecting a minimum increase from the previous year's rate 
     (currently 2%). In general, the Secretary makes monthly 
     payments for each M+C enrollee, reduced by any Part B premium 
     reduction, and adjusted for risk.
       Each year a coordinated care plan of an M+C organization 
     submits an adjusted community rate (ACR) proposal, estimating 
     its proposed cost to serve Medicare beneficiaries for the 
     following contract year and comparing such costs to the 
     estimated costs of providing Medicare services to a 
     commercial population. To the extent that a plan's ACR is 
     below the administered payment amount, the plan must provide 
     additional benefits to its enrollees or reductions in the 
     Part B premium. In submitting its proposal, the organization 
     must include information on: (1) the ACR; (2) the M+C monthly 
     basic beneficiary premium; (3) a description of the 
     deductible, coinsurance and copayments under the plan 
     (including the actuarial value of each); and (4) a 
     description of any required additional benefits. For 
     supplemental benefits, the organization must also include: 
     (1) the ACR, (2) the M+C monthly supplemental beneficiary 
     premium, and (3) a description of the deductible, coinsurance 
     and copayments, including the actuarial value of each.
     House Bill
       Section 221(a). Beginning in 2006, an MA organization would 
     be required to provide the following information: (1) the 
     monthly bid amount for the provision of all required items 
     and services, based on average costs for a typical enrollee 
     residing in the area and the actuarial bases for determining 
     such amount; (2) the proportion of the bid attributed to the 
     provision of statutory non-drug benefits (the ``unadjusted MA 
     statutory non-drug monthly bid'' amount), statutory 
     prescription drug benefits, and non-statutory benefits 
     (including the actuarial basis for determining these 
     proportions); and (3) additional information as the 
     Administrator may require.
     Senate Bill
       Section 204. [Sec. 1854(a)]. Each MA organization would be 
     required to submit information by the second Monday in 
     September, including: (1) notice of intent and information on 
     the service area of the plan; (2) the plan type for each 
     plan; (3) specific information for coordinated care and PFFS 
     plans; (4) enrollment capacity; (5) the expected mix of 
     enrollees, by health status; and (6) other information 
     specified by the Secretary. For coordinated care plans and 
     PFFS plans, the plans would also be required to submit the 
     plan bid (the total amount that the plan was willing to 
     accept for required Parts A and B benefits not taking into 
     account the application of comprehensive risk adjustment), 
     the assumptions used in preparing the bid with respect to the 
     number of enrollees in each payment area and the mix by 
     health status, and any required information for prescription 
     drug coverage. The plan bid would also have to be based on 
     actuarial equivalence.
       For any enhanced medical benefit package a plan chooses to 
     offer, it would be required to provide the following 
     information: (1) the ACR, (2) the portion of the actuarial 
     value of such benefits package, if any, that would be applied 
     toward satisfying the requirement for additional benefits, 
     (3) the MA monthly beneficiary premium for enhanced benefits, 
     (4) cost-sharing requirements, (5) the description of whether 
     the unified deductible had been lowered or if the maximum 
     out-of-pocket limitation had been decreased, and (6) other 
     information required by the Secretary.
       [Sec. 1854(a)(5)]. Each plan bid would be required to 
     reasonably and equitably reflect the cost of benefits 
     provided under that plan.
     Conference Agreement
       Section 222(a). Under the current Medicare+Choice system, 
     plans are paid a fixed administrative amount regardless of 
     their efficiency or their actual costs of providing services 
     to the Medicare population. Beginning in 2006, an MA 
     organization (other than an MSA) will be required to submit a 
     bid to provide services to Medicare beneficiaries on either a 
     local or a regional level. In submitting its bid, the plan 
     will provide the following information: (1) the monthly 
     aggregate bid amount for the provision of all required items 
     and services, based on average revenue requirements (as 
     applied under Title XIII of the Public Health Service Act for 
     Health Maintenance Organizations) in the payment area for an 
     enrollee with a national average risk profile (including 
     demographic risk factors and health status); (2) the 
     proportion of the bid attributable to the provision of 
     benefits under the original Medicare fee-for-service program, 
     basic prescription drug coverage, and supplemental health 
     care benefits; (3) the actuarial basis for determining the 
     amounts and proportions, and additional information as the 
     Secretary may require to verify such actuarial basis; (4) a 
     description of deductibles, coinsurance and copayments 
     applicable under the plan and their actuarial value; and (5) 
     for qualified prescription drug coverage, the information 
     required under Title I of this Act. In order to facilitate 
     regional plans being offered in more than one MA region, the 
     Secretary will establish procedures to reduce paperwork for 
     bids in multiple regions. Use of the term ``required 
     revenue'' is intended to make clear that the bids of health 
     plans incorporate all their revenue needs, both the medical 
     costs of providing benefits and associated administrative 
     costs (including profits or retained earnings).
       The changes made in the bidding process under Part C do not 
     apply to PACE programs, which operate outside of Part C. 
     However, if they wish to offer qualified prescription drug 
     coverage, they will be treated as a MA-PD local plan and must 
     submit a bid for drug coverage.
       Plan bids for supplemental benefits, for which plans charge 
     a premium may include reductions in the cost sharing that 
     would otherwise apply under the plan for Part A and B 
     services. Benefits in each of the three areas (A/B benefits, 
     prescription drug benefits, and supplemental benefits) will 
     be integrated together in a way that is seamless to the 
     beneficiary and paid for through a single premium.
     Acceptance and Negotiation of Bid Amounts
     Present Law
       The Secretary reviews the information submitted by plans 
     and approves or disapproves the premiums, cost-sharing 
     amounts, and benefits. The Secretary does not have the 
     authority to review the premiums for either MSA plans or PFFS 
     plans.
     House Bill
       Section 221(a)(3)(C). The Administrator would have the same 
     authority to negotiate bid amounts that the Director of the 
     Office of Personnel Management has with respect to the 
     Federal Employee Health Benefits Plan. The Administrator 
     could negotiate the bid amount and could also reject a bid 
     amount or proportion of the bid, if it was not supported by 
     the actuarial basis. PFFS plans would be exempt from this 
     negotiation.
     Senate Bill
       Section 204(a)(5). Each bid amount would have to reasonable 
     and equitably reflect the cost of benefits provided by the 
     plan.
     Conference Agreement
       Section 222(a). The conference agreement provides the 
     Secretary with the authority to negotiate the monthly bid 
     amount and the proportions, including supplemental benefits. 
     The Secretary has similar authority to negotiate bid amounts 
     to that of the Director of the Office of Personnel Management 
     with respect to the Federal Employees

[[Page H12019]]

     Health Benefits Program. The Secretary may only accept such a 
     bid amount and proportion if they are supported by the 
     actuarial bases, and reasonably and equitably reflect the 
     revenue requirement (as applied under Title XIII of the 
     Public Health Service Act for Health Maintenance 
     Organizations) of benefits provided under the plan. As under 
     current law, the Secretary does not have the authority to 
     review the bid amounts for PFFS plans.
       The Secretary may not require: (1) any MA organization to 
     contract with a particular hospital, physician, or other 
     entity or individual to furnish items and services under this 
     title; or (2) a particular price structure for payment under 
     such a contract to the extent consistent with the Secretary's 
     authority.
     Benefits under the original Medicare fee-for-service program 
         option
     Present Law
       M+C plans are required to include all Medicare-covered 
     services (Parts A and B benefits) except hospice care. In 
     some circumstances, plans may also be required to offer 
     additional benefits or reduced cost-sharing to their 
     beneficiaries. The basic benefit package includes all of the 
     required Medicare-covered benefits (except hospice services) 
     as well as the additional benefits, as determined by a 
     formula which is set in law. The adjusted community rate 
     (ACR) mechanism is the process through which health plans 
     determine the minimum amount of additional benefits, if any, 
     they are required to provide to Medicare enrollees and the 
     cost-sharing they are permitted to charge for those benefits. 
     Medicare does not have a catastrophic limit on beneficiary 
     out-of-pocket expenses although some M+C plans offer an out-
     of-pocket limit as an added benefit. The original Medicare 
     FFS program includes a Part B deductible and a separate Part 
     A deductible for inpatient hospital stays.
     House Bill
       MA organizations, other than PFFS plans, will be required 
     to offer at least one plan in their service area that 
     provides drug coverage as outlined in Title I. However, if an 
     organization offers one such plan with drug coverage, they 
     may offer alternative plans without such drug coverage. MA 
     plans would be required to pay rebates to beneficiaries--in 
     the form of additional benefits, reduced premiums, or cash 
     payments--to the extent that program payments to MA plans 
     exceeded bid amounts. MA plans would also be able to offer 
     supplemental benefits for additional premiums.
     Senate Bill
       Section 202. [Sec. 1852(a)]. In addition to offering 
     Medicare Parts A and B benefits (except hospice) and any 
     additional required benefits, each MA plan (except MSAs, and 
     in the case of prescription drug coverage, PFFS plans) would 
     be required to offer: (1) qualified prescription drug 
     coverage under Part D to beneficiaries residing in the area, 
     and (2) a maximum limitation on out-of-pocket expenses and a 
     unified deductible.
       [Sec. 1852(a)(7)]. The unified deductible would be defined 
     as an annual deductible amount applied in lieu of the 
     inpatient hospital deductible and the Part B deductible. This 
     would not prevent an MA organization from requiring 
     coinsurance or a copayment for inpatient hospital services, 
     after the unified deductible was satisfied, subject to 
     statutory limitations.
       [Sec. 1852(a)(2)(D)]. A PFFS plan could choose not to offer 
     qualified prescription drug coverage under part D. 
     Beneficiaries enrolling in such a PFFS plan could choose to 
     enroll in an eligible entity under part D to receive their 
     prescription drug coverage. [Sec. 1852(d)(4)]. A PFFS plan 
     entirely meeting the access requirement for a category of 
     providers through contracts or agreements (other than deemed 
     contracts) could require higher beneficiary co-payments for 
     providers who did not have such contracts or agreements.
     Conference Agreement
       Section 222(a). Beginning in 2006, plan bids will be 
     compared to a benchmark amount. For MA local plans, the 
     benchmark amount will be the MA payment rates. For MA 
     regional plans, the benchmark amount will be the regional 
     blended benchmark. Plans that submit bids below the benchmark 
     will be paid their bids, plus 75 percent of the difference 
     between the benchmark and the bid, which must be returned to 
     beneficiaries in the form of additional benefits or reduced 
     premiums. For plans that bid above the benchmark the 
     government will pay the benchmark amount, and the beneficiary 
     will pay the difference between the benchmark and the bid 
     amount as a premium. When for an MA regional plan, in 
     determining the actuarially equivalent level of cost-sharing 
     for required benefits, only expenses for in-network providers 
     will be taken into account for the application of the 
     catastrophic limit. Supplemental benefits can include 
     reductions in cost-sharing for A and B benefits below the 
     actuarial value of the deductible, coinsurance and copayments 
     that would be applicable, on average, to individuals in the 
     original fee-for-service program.
       MA organizations, other than PFFS plans, will be required 
     to offer at least one plan in their service area that 
     provides drug coverage as outlined in Title I. However, if an 
     organization offers one such plan with drug coverage, it may 
     offer alternative plans without such drug coverage.

                          Beneficiary Savings

     Present Law
       To the extent that a plan's ACR is below the administered 
     payment amount, plans must provide reduced cost-sharing, 
     additional benefits, or reduced Part B premiums to their 
     Medicare enrollees. Such benefits must be valued at 100 
     percent of the difference between the projected cost of 
     providing Medicare-covered services to its commercial 
     population and the expected revenue for Medicare enrollees. 
     Plans can choose which additional benefits to offer, however, 
     the total cost of these benefits must at least equal the 
     ``savings'' from Medicare-covered services. Plans may also 
     place the additional funds in a stabilization fund or return 
     funds to the Treasury.
     House Bill
       Section 221(b). An MA plan would be required to provide an 
     enrollee a monthly rebate that equaled 75 percent of any 
     average per capita savings (the amount by which the risk-
     adjusted benchmark exceeded the risk-adjusted bid). The 
     rebate could be: (1) credited toward the MA monthly 
     supplemental beneficiary premium or the prescription drug 
     premium; (2) paid directly to the beneficiary; (3) provided 
     by another means approved by the Administrator; (4) or any 
     combination of the above. The remaining 25 percent of the 
     average per capita savings would be retained by the federal 
     government.
       Benchmarks would equal one-twelfth of the annual MA 
     capitation rate for an enrollee in that area, and would be 
     calculated by updating the previous year's capitation rate by 
     the annual increase in the minimum percentage increase.
     Senate Bill
       [Sec. 1854(c)]. If the weighted service area benchmark 
     exceeded the plan bid, the Secretary would require the plan 
     to provide additional benefits, and if the plan bid exceeded 
     the weighted service area benchmark, the plan could charge an 
     MA monthly basic beneficiary premium equal to the amount the 
     bid exceeded the benchmark.
       Section 204. [Sec. 1854(g)]. If the plan bid was lower than 
     the weighted service area benchmark, the plan could, in 
     addition to benefits allowed under current law, also lower 
     the amount of the unified deductible and decrease the maximum 
     limitation on out-of-pocket expenses. However, plans would be 
     restricted from specifying any additional benefits that 
     provided for the coverage of any prescription drug, other 
     than that relating to covered drugs under Part D.
     Conference Agreement
       Section 222(b). The conference agreement requires an MA 
     plan to provide an enrollee with a monthly rebate equal to 75 
     percent of any average per capita savings (the amount by 
     which the risk-adjusted benchmark exceeds the risk-adjusted 
     bid). In calculating such savings, and in order to ensure 
     that savings are uniform for all enrollees in a plan, the 
     benchmark and the bid will be risk adjusted according to a 
     statewide (for local plans) or region-wide (for regional 
     plans) risk adjuster. Alternatively, the Secretary has the 
     discretion to risk adjust the benchmark and bid on a plan-
     specific basis for the purpose of calculating such savings. 
     The beneficiary rebate can be credited toward the provision 
     of supplemental health care benefits (including a reduction 
     in cost-sharing, additional benefits or a credit toward any 
     MA monthly supplemental beneficiary premium), the 
     prescription drug premium, or the Part B premium. The plan 
     will inform the Secretary about the form and amount of the 
     rebate, or the actuarial value, in the case of supplemental 
     health care benefits. The remaining 25 percent of the average 
     per capita savings will be retained by the federal 
     government.
     Revision of Premium Terminology
     Present Law
       The M+C monthly basic beneficiary premium is the amount 
     authorized to be charged for the plan based on the 
     application of the ``limitation on enrollee liability''. The 
     ``limitation on enrollee liability'' requires that the 
     actuarial value of the premium, deductibles, coinsurance, and 
     copayments applicable on average to enrollees in an M+C plan 
     for required services does not exceed the actuarial value of 
     deductibles, coinsurance, and copayments on average for 
     beneficiaries in traditional Medicare. However, this average 
     may be achieved by having higher copayments for some M+C 
     services and lower copayments for other services. The 
     supplemental beneficiary premium is amount authorized to be 
     charged for the plan, such that the actuarial value of 
     supplemental beneficiary premium, deductibles, coinsurance, 
     and copayments for such benefits does not exceed the ACR for 
     such benefits. These requirements do not apply to PFFS plans.
     House Bill
       Section 221 (d). For plans with a bid amount below the 
     benchmark, the basic premium would be zero. For plans with 
     bids above the benchmark, the basic premium would be equal to 
     the amount by which the bid exceeded the benchmark.
     Senate Bill
       Section 204. If the weighted service area benchmark 
     exceeded the plan bid, the plan would have to provide 
     additional benefits. If the bid exceeded the weighted service 
     area benchmark, the amount of the excess would be the MA 
     monthly basic beneficiary premium.

[[Page H12020]]

     Conference Agreement
       Section 222(b). For plans providing rebates (plans that bid 
     below the benchmark), the MA monthly basic beneficiary 
     premium will be zero. For plans with bids above the 
     applicable benchmark, the MA monthly basic beneficiary 
     premium will equal the amount by which the bid exceeds the 
     benchmark. The MA monthly prescription drug beneficiary 
     premium is the portion of the aggregate monthly bid amount 
     that is attributable to the provision of prescription drug 
     benefits under Title I of this Act, less the amount of any 
     rebate. The MA monthly supplemental beneficiary premium is 
     the portion of the aggregate monthly bid amount that is 
     attributable to the provision of supplemental health care 
     benefits, less the amount of any rebate. The unadjusted MA 
     statutory non-drug monthly bid is the portion of the bid 
     submitted by a plan attributable to the provision of required 
     benefits under Medicare fee-for-service.
     Collection of Premiums
     Present Law
       Medicare beneficiaries may have their Part B premiums 
     deducted directly from their Social Security benefits.
     House Bill
       Section 221(b). Enrollees would be permitted to have their 
     MA premiums deducted directly from their Social Security 
     benefits or through an electronic funds transfer. The 
     Administrator would be required to provide a mechanism 
     whereby a beneficiary who joined an MA plan and elected Part 
     D coverage through the plan would be able to pay one 
     consolidated premium amount.
     Senate Bill
       No provision.
     Conference Agreement
       Section 222(c). The conference agreement allows enrollees 
     to have their MA premiums deducted directly from their Social 
     Security benefits, through an electronic funds transfer, or 
     such other mean as specified by the Secretary, including 
     payment by an employer or under employment-based retiree 
     coverage on behalf of an employee, a former employee, or a 
     dependent. All premium payments deducted from Social Security 
     benefits will be credited to the appropriate Trust Fund as 
     specified by the Secretary (in consultation with the 
     Commissioner of Social Security and the Secretary of the 
     Treasury) and shall be paid to the MA organization involved. 
     The MA plan may not impose a charge for individuals electing 
     to pay their premiums through a deduction from their Social 
     Security payments.
       For individuals electing to have premiums deducted directly 
     from Social Security benefits, the Secretary will transmit to 
     the Commissioner of Social Security, by the beginning of each 
     year, the name, social security account number, consolidated 
     monthly beneficiary premium owed by the enrollee for each 
     month during the year, and other information determined 
     appropriate by the Secretary. Information will be 
     periodically updated throughout the year. The Secretary will 
     be required to provide a mechanism for the consolidation of 
     any MA monthly basic beneficiary premium, any MA monthly 
     supplemental beneficiary premium, and any MA monthly 
     prescription drug beneficiary premium.
     Computation of MA Benchmark and Payments of Plans Based on 
         Bid Amounts
     Present Law
       Under current law, Medicare+Choice (M+C) plans are paid an 
     administered monthly payment, called the M+C payment rate, 
     for each enrollee. The per capita rate for a payment area is 
     set at the highest of three amounts: (1) a minimum payment 
     (or floor) rate, (2) a rate calculated as a blend of an area-
     specific (local) rate and a national rate, or (3) a rate 
     reflecting a minimum increase from the previous year's rate 
     (currently 2%). In general, the Secretary makes monthly 
     payments for each M+C enrollee, reduced by any Part B premium 
     reduction, and adjusted for risk.
     House Bill
       Section 221(c). For payments before 2006, the monthly 
     payment amount would equal \1/12\ of the annual MA capitation 
     rate, for an enrollee for that area, reduced by any Part B 
     premium reduction and adjusted for risk factors such as age, 
     disability status, gender, institutional status and other 
     factors the Administrator determines to be appropriate, 
     including an adjustment for health status.
       Beginning in 2006, MA payment rates would be determined by 
     the Administrator by comparing plan bids to the benchmark. 
     Non-drug benefits: Beginning in 2006, for plans with bids 
     below the benchmark, the payment would equal the unadjusted 
     MA statutory non-drug monthly bid amount, with adjustments 
     for demographic factors (including age, disability, and 
     gender) and health status and the monthly rebate. Conversely, 
     for plans with bids at or above the benchmark, the payment 
     amount would equal the MA area-specific non-drug monthly 
     benchmark amount, with the demographic and health status 
     adjustments. Drug benefits: Additionally, for an MA enrollee 
     who enrolled in Part D and elected prescription drug coverage 
     through the plan, the plan's payment would include a direct 
     and a reinsurance subsidy payment and reimbursement for 
     premiums and cost-sharing reductions for certain low-income 
     beneficiaries, as outlined in Title I of this bill.
     Senate Bill
       Section 203. [Sec. 1853(a)]. Each MA organization would 
     receive a separate monthly payment for: (1) benefits under 
     FFS Medicare Parts A and B, and (2) benefits under the 
     prescription drug program, Part D. The Secretary would ensure 
     that payments for each enrollee would equal the MA benchmark 
     amount for the payment area, as adjusted. The adjustments 
     would include both a risk adjustment and an adjustment based 
     on the ratio of the payment amount to the weighted service 
     area benchmark.
       Section 203. [Sec. 1853(c&d)]. Beginning in 2006, payments 
     to MA plans would be determined differently, based on a 
     comparison between plan bids and the weighted service area 
     benchmark. The Secretary would however, continue to calculate 
     the annual M+C capitation rates.
       Plans would submit bids to the Secretary by the second 
     Monday in September.
       The Secretary would calculate the benchmark amounts as the 
     greater of the minimum amount (floor) or the local FFS rate 
     for the area. The local FFS rate would be calculated 
     similarly to the adjusted average per capita cost (AAPCC), 
     adjusted to remove the costs of indirect and direct graduate 
     medical education.
       The Secretary would calculate the weighted service area 
     benchmark amount equal to the weighted average of the 
     benchmark amounts for required services for the payment areas 
     included in the service area of the plan.
       The Secretary would determine the difference between each 
     plan's bid and the weighted service area benchmark amount. 
     For plan bids that equal or exceed the weighted service area 
     benchmark, the MA organization would be paid the weighted 
     service area benchmark amount. For plan bids below the 
     weighted service area benchmark, the plan would be paid the 
     weighted service area benchmark reduced by the amount of any 
     premium reduction elected by the plan. The Secretary would 
     adjust payments using the comprehensive risk adjustment 
     methodology.
       Section 205. This provision would establish the additional 
     payments that would be made to the MA plans for the 
     prescription drug coverage under Part D.
     Conference Agreement
       Section 222(d). The conference agreement defines the term 
     MA area-specific non-drug monthly benchmark amount, for a 
     month in a year, for a service area that is entirely within 
     an MA local area, as an amount equal to \1/12\ of the annual 
     MA capitation rate for the area. For a service area within 
     more than one MA local area, the amount is equal to the 
     average of the local amounts, weighted by the projected 
     number of enrollees in the plan residing in the respective 
     local area. For an MA region, the MA region-specific 
     benchmark amount for the region for the year is defined as 
     the sum of the statutory component and the plan-bid 
     component. The statutory component is a weighted average of 
     the local MA benchmarks in the region.
       Section 222(e). For payments before 2006, the conference 
     agreement sets the monthly payment amount to equal \1/12\ of 
     the annual MA capitation rate, for an enrollee for that area, 
     reduced by any Part B premium reduction and adjusted for 
     demographic factors such as age, disability status, gender, 
     institutional status and other factors the Secretary 
     determines to be appropriate, including an adjustment for 
     health status.
       Beginning in 2006, MA payment rates will be determined by 
     the Secretary by comparing plan bids to the benchmark. Non-
     drug benefits: Beginning in 2006, for plans with bids below 
     the benchmark, the payment will equal the unadjusted MA 
     statutory non-drug monthly bid amount, with adjustments for 
     demographic factors (including age, disability, and gender) 
     and health status, adjustments for intra-regional variation 
     (if applicable), adjustments relating to risk adjustment, and 
     the monthly rebate. To adjust for intra-regional variation, 
     the Secretary will adjust the amounts to take into account 
     variation in MA local payment rates among the different MA 
     local areas included in a region. For adjustments relating to 
     risk, the Secretary will adjust payments to MA plans to 
     ensure that the sum of the monthly payment and any basic 
     beneficiary premium equals the unadjusted MA statutory non-
     drug monthly bid amount, with demographic adjustments, and 
     for an MA regional plan, adjustments for intra-regional 
     variations. For plans with bids at or above the benchmark, 
     the payment amount will equal the MA area-specific non-drug 
     monthly benchmark amount, with the demographic and health 
     status adjustments, adjustments for intra-regional variation 
     (if applicable), and adjustments relating to risk adjustment. 
     The use of a risk adjustment methodology that uses 
     demographic factors and health status factors will continue 
     as under current law, and the Secretary will continue to have 
     the flexibility to develop and implement new risk adjustment 
     methodologies. Drug benefits: Additionally, for an MA 
     enrollee in an MA-PD plan, the plan's payment will include a 
     subsidy payment and reimbursement for premiums and cost-
     sharing reductions for certain low-income beneficiaries, as 
     outlined in Title I of this bill.
       In the case of an MSA plan, the payment equals the MA area-
     specific non-drug monthly benchmark amount, adjusted for 
     demographics and health status.
     Annual Announcement Process
     Present Law
       The Secretary annually determines and announces, no later 
     than May 1 for 2003 and

[[Page H12021]]

     2004 and March 1, thereafter (for the following year), the 
     annual M+C capitation rate for each M+C payment area and the 
     risk and other factors to be used in adjusting these rates.
     House Bill
       Section 221(e). For years before 2006, for the calendar 
     year concerned, the Secretary would announce the annual MA 
     capitation rate for each MA payment area for the year and the 
     risk and other factors to be used to adjust these rates. 
     Beginning in 2006, the Secretary would announce yearly the MA 
     area-specific non-drug benchmark and the adjustment factors 
     relating to demographics, end stage renal disease (ESRD), and 
     health status in each MA plan in the area.
     Senate Bill
       Section 203. [Sec. 1853(a)]. Beginning April 15, 2005 (at 
     the same time as risk adjusters for prescription drug 
     coverage were announced), the Secretary would annually 
     announce the benchmark for each MA payment area and the risk 
     adjustment factors.
     Conference Agreement
       Section 222(f). For payments in 2005, the conference 
     agreement requires the Secretary to determine and announce 
     the MA capitation rates for each MA payment area for 2005, 
     and the risk and other adjustment factors, by the 2nd Monday 
     in May of 2004. For 2006 and subsequent years, the Secretary 
     will determine and announce, not later than the 1st Monday in 
     April before the calendar year concerned, the MA capitation 
     rate for each payment area, and the risk and other factors to 
     be used in adjusting such rates. The Secretary will determine 
     and announce, on a timely basis before the calendar year 
     concerned, for each MA region and MA regional plan for which 
     a bid is submitted, the MA region-specific non-drug monthly 
     benchmark amount.
     Protection Against Beneficiary Selection
     Present Law
        The M+C monthly basic and supplemental beneficiary premium 
     cannot vary among individuals enrolled in a the same plan.
     House Bill
       Section 221(d). The MA monthly bid amount, the MA monthly 
     basic, prescription drug, and the supplemental beneficiary 
     premium would not vary among enrollees in the plan. 
     Additionally, the MA monthly MSA premium would not vary 
     within an MSA plan.
     Senate Bill
       Section 204. The provision would establish the requirement 
     that the MA monthly basic beneficiary premium, the MA monthly 
     beneficiary obligation for qualified prescription drug 
     coverage, and the MA monthly beneficiary premium for enhanced 
     medical benefits could not vary among beneficiaries enrolled 
     in the plan. Also, the MA MSA premium would not vary among 
     beneficiaries enrolled in the MSA plan.
     Conference Agreement
       Section 222 (g). Except as permitted to facilitate the 
     offering of MA plans under contracts between MA organizations 
     and employers, labor organizations or the trustees to a fund 
     established by one or more employers or labor organizations 
     (as currently allowed under sec. 1857(i)), the MA monthly bid 
     amount, the MA monthly basic, prescription drug, and the 
     supplemental beneficiary premium may not vary among enrollees 
     in the plan.
     Adjusted Community Rates
     Present Law
       Each year an M+C organization submits an ACR proposal, 
     estimating their proposed cost of serving Medicare 
     beneficiaries for the following contract year as compared to 
     the estimated cost of providing the same services to a 
     commercial population. The ACR process is a mechanism through 
     which health plans determine the minimum amount of additional 
     benefits they are required to provide to Medicare enrollees 
     and the cost-sharing they are permitted to charge for those 
     benefits.
     House Bill
       Plan bids would replace ACRs beginning in 2006.
     Senate Bill
       No provision.
     Conference Agreement
       Plan bids will replace ACRs beginning in 2006.
     Plan Incentives
     Present Law
       A M+C organization may not operate a physician incentive 
     plan unless it meets the following requirements: (1) 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 to an 
     enrollee; or (2) if the plan places a physician or group at 
     substantial financial risk, it must provide stop-loss 
     protection and conduct periodic surveys of current and former 
     enrollees to determine the degree of access and satisfaction 
     with the quality of services. The organization must provide 
     the Secretary with sufficient information regarding the plan, 
     to determine whether or not the plan is in compliance with 
     these requirements.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 222 (h). An MA organization may not operate a 
     physician incentive plan unless it provides assurances 
     satisfactory to the Secretary. Requirements that the 
     organization: (1) conduct periodic surveys, and (2) provide 
     the Secretary with sufficient information regarding the plan, 
     to determine whether or not the plan is in compliance with 
     these requirements are replaced. Instead, the plan must 
     provide such information as the Secretary requires on any 
     physician incentive plan.
     Continuation of treatment of enrollees with End-Stage Renal 
         Disease
     Present Law
       The Secretary established a separate rate of payment to an 
     M+C organization for individuals with ESRD who are enrolled 
     in an M+C plan.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 222 (i). The conference agreement requires payment 
     rates to be actuarially equivalent to rates that would have 
     been paid with respect to other enrollees in the MA payment 
     area (or such other area as specified by the Secretary) under 
     the provision of this section in effect before the enactment 
     of this Act. The Secretary may apply the competitive bidding 
     methodology of this section, with appropriate adjustments to 
     account for the risk adjustment methodology applied to ESRD 
     payments.
     Facilitating employer participation
     Present Law
       Employers may sponsor an M+C plan or pay premiums for 
     retirees who enroll in an M+C plan. If an M+C plan contracts 
     with an employer group health plan (EGHP) that covers 
     enrollees in an M+C plan, the enrollees must be provided the 
     same benefits as all other enrollees in the M+C plan, with 
     the EGHP benefits supplementing the M+C plan benefits. The 
     Secretary may waive or modify requirements that hinder the 
     ability of employer or union group health plans to offer an 
     M+C plan option.
     House Bill
       No provision.
     Senate Bill
       Section 206. The Administrator could permit an MA plan to 
     establish a separate premium amount for enrollees in an 
     employer or other group health plan that provides employment-
     based retiree health coverage. This provision would also 
     apply the current law requirements to regional PPOs.
     Conference Agreement
       Section 222(j). The conference agreement allows the 
     Secretary to waive or modify requirements that hinder the 
     design of, offering of, or enrollment in an MA plan offered 
     by employers, labor organizations, or the trustees of a fund 
     established by one or more employers or labor organizations 
     (to furnish benefits to any combination of current or former 
     employees, or current or former members of the labor 
     organization.) The MA plan may restrict enrollment to 
     individuals who are beneficiaries and participants in such a 
     plan.
     Expansion of Medicare Beneficiary Education and Information 
         Campaign
     Present Law
       The Secretary is authorized to collect a user fee from each 
     M+C organization for use in carrying out enrollment 
     information dissemination activities for the program as well 
     as the health insurance and counseling assistance program. 
     The fee is based on the ratio of the organization's number of 
     Medicare enrollees to the total number of Medicare 
     beneficiaries. There are authorized to be appropriated $1 
     million each year, reduced by any fees collected by the 
     Secretary, to carry out these activities.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 222(k). The conference agreement allows the 
     Secretary to also charge a PDP sponsor under Part D for its 
     share of fees related to enrollment information dissemination 
     activities. The authorization for appropriated amounts will 
     be increased to $2 million each year, beginning in 2006.
     Protection against Beneficiary Selection
     Present Law
       No provision.
     House Bill
       Section 221(d). The Administrator would not approve a plan 
     if benefits were designed to substantially discourage 
     enrollment by certain MA eligible individuals.
     Senate Bill
       Section 204. [Sec. 1854(a)]. The Secretary could disapprove 
     a plan bid if he or she determined that the deductibles, 
     coinsurance or copayments discouraged access to covered 
     services or were likely to result in favorable selection of 
     MA eligible beneficiaries.
     Conference Agreement
       Section 222(l). The Secretary may not approve a plan if the 
     design of the plan and its benefits are likely to 
     substantially discourage enrollment by certain MA eligible 
     individuals.

[[Page H12022]]

       Section 223. Effective date.
     Present Law
       No provision.
     House Bill
       Section 211(e). The MA program would be effective January 
     1, 2004. Section 21(g). The competition program would be 
     effective January 1, 2006.
     Senate Bill
       Section 209. Generally effective January 1, 2006. However, 
     the Secretary would apply payment and other rules for MSA 
     plans, as if this title had not been enacted.
     Conference Agreement
       The conference agreement makes the amendments of Title II 
     effective for plan years beginning on or after January 1, 
     2006, unless otherwise provided. The Secretary shall revise 
     previously promulgated regulations for the changes due to the 
     provisions of this Act, to carry out Part C of Medicare.

                     Subtitle D--Additional Reforms

     Section 231. Specialized MA plans for special needs 
         beneficiaries
     Present Law
       One model for providing a specialized M+C plan, EverCare, 
     operates as a demonstration program. EverCare is designed to 
     study the effectiveness of managing acute-care needs of 
     nursing home residents by pairing physicians and geriatric 
     nurse practitioners. EverCare receives a fixed capitated 
     payment, based on a percentage of the AAPCC, for all nursing 
     home resident Medicare enrollees.
     House Bill
       Section 233. A new MA option would be established--
     specialized MA plans for special needs beneficiaries (such as 
     the EverCare demonstration). Special needs beneficiaries are 
     defined as those MA eligible beneficiaries who were 
     institutionalized, entitled to Medicaid, or met requirements 
     determined by the Administrator. Enrollment in specialized MA 
     plans could be limited to special needs beneficiaries until 
     January 1, 2007. Interim final regulations would be required 
     within 6 months of enactment. The Secretary would be 
     permitted to offer specialized MA plans for plans that 
     disproportionately serve beneficiaries with special needs who 
     are the frail elderly. No later than December 31, 2005, the 
     Administrator would be required to submit a report to 
     Congress that assessed the impact of specialized MA plans for 
     special needs beneficiaries on the cost and quality of 
     services provided to enrollees.
     Senate Bill
       Section 222. A new M+C option would be established--
     specialized M+C plans for special needs beneficiaries (such 
     as the EverCare demonstration). Special needs beneficiaries 
     are defined as those M+C eligible beneficiaries who were 
     institutionalized, entitled to Medicaid, or met requirements 
     determined by the Secretary. Enrollment in specialized M+C 
     plans could be limited to special needs beneficiaries until 
     January 1, 2008. No later than December 31, 2006, the 
     Secretary would be required to submit a report to Congress 
     that assessed the impact of specialized M+C plans for special 
     needs beneficiaries on the cost and quality of services 
     provided to enrollees. No later than 1 year after enactment 
     of this Act, the Secretary would be required to issue final 
     regulations to establish requirements for special needs 
     beneficiaries.
     Conference Agreement
       Section 231. The establishment of a specialized plan 
     designation provides health plans the authority and 
     incentives to develop targeted clinical programs to more 
     effectively care for high-risk beneficiaries who have 
     multiple chronic conditions or have complex medical problems. 
     This provision designates two specific segments of the 
     Medicare population as special needs beneficiaries, but also 
     provides the Secretary the authority to designate other 
     chronically ill or disabled beneficiaries as ``special needs 
     beneficiaries'' to allow plans to serve additional high risk 
     groups who would benefit from enrollment in plans that offer 
     targeted geriatric approaches and innovations in chronic 
     illness care. The Secretary should consider Medicare 
     demonstrations for guidance regarding other potential special 
     needs beneficiary designations.
       The provision would establish a new Medicare Advantage 
     option--Specialized Medicare Advantage plans for Special 
     Needs Beneficiaries. Specialized Medicare Advantage plans are 
     plans that exclusively serve special needs beneficiaries such 
     as the Evercare and Wisconsin Partnership demonstrations and, 
     at the discretion of the Secretary, those that serve a 
     disproportionate number of such beneficiaries. Special needs 
     beneficiaries are defined as Medicare Advantage enrollees who 
     are institutionalized, or entitled to Medicaid, or 
     individuals with severe and disabling conditions that the 
     Secretary deems would benefit from a specialized plan. 
     Specialized Medicare Advantage plans can limit enrollment to 
     special needs beneficiaries until January 1, 2009. No later 
     than 1 year after enactment of this act, the Secretary is 
     required to issue final regulations to establish requirements 
     for special needs beneficiaries. No later than December 31, 
     2007, the Secretary is required to submit a report to 
     Congress that assesses the impact of Specialized Medicare 
     Advantage plans on the cost and quality of care. The 
     provision does not change current Medicare+Choice quality, 
     oversight or payment rules.
       The legislation also allows the Secretary to define as 
     Specialized Medicare Advantage plans those that 
     ``disproportionately'' serve special needs beneficiaries. 
     Since there is no existing standard for measuring 
     ``disproportionate,'' the provision gives the Secretary 
     discretion in promulgating this part of the regulation with a 
     view toward establishing quantitative criteria for defining 
     ``disproportionate.'' The Secretary may identify such means 
     of measuring ``disproportionate'' as are feasible to capture 
     appropriate risk levels for designation as a ``Specialized 
     Medicare Advantage Plan for Special Needs Beneficiaries.'' 
     The Secretary may wish to require further validation that 
     ``disproportionate'' plans are 'specialized'' by requiring 
     evidence of processes or clinical programs designed to 
     address the unique needs of the special needs beneficiaries 
     served.
     Section 232. Avoiding duplicative State regulation
     Present Law
       Medicare law currently preempts state law or regulation 
     from applying to M+C plans to the extent they are 
     inconsistent with federal requirements imposed on M+C plans, 
     and specifically, relating to benefit requirements, the 
     inclusion or treatment of providers, and coverage 
     determinations (including related appeals and grievance 
     processes).
     House Bill
       Section 232. Federal standards established by this 
     legislation would supersede any state law or regulation 
     (other than state licensure laws and state laws relating to 
     plan solvency), with respect to MA plans offered by MA 
     organizations.
     Senate Bill
       No provision.
     Conference Agreement
       Section 232. The conference agreement clarifies that the MA 
     program is a federal program operated under Federal rules. 
     State laws, do not, and should not apply, with the exception 
     of state licensing laws or state laws related to plan 
     solvency. There has been some confusion in recent court 
     cases. This provision would apply prospectively; thus, it 
     would not affect previous and ongoing litigation.
       Additionally, no state may impose a premium, or similar, 
     tax on premiums paid to MA organizations under this bill.
     Section 233. Medicare Medical Savings Accounts (MSAs)
     Present Law
       BBA1997 authorized a demonstration for M+C MSAs. The M+C 
     option combined a high-deductible health insurance plan with 
     an M+C MSA. New enrollment was not allowed after January 1, 
     2003 or after the number of enrollees reached 390,000. No 
     private plans have established an M+C MSA for Medicare 
     beneficiaries. M+C plans (including MSAs) must have an 
     ongoing quality assurance program for health care services 
     provided to Medicare beneficiaries. The required elements of 
     the program are specified in statute.
     House Bill
       Section 234. The requirement that MSAs report on enrollee 
     encounters for an ongoing quality assurance program would be 
     eliminated because MSAs are not plans but bank accounts. The 
     Medicare MSA demonstration would be made a permanent option, 
     the capacity limit would be removed and the deadline for 
     enrollment would be eliminated. Non-contract providers 
     furnishing services to enrollees of MSAs will be subject to 
     the same balanced billing limitations as non-contract 
     providers furnishing services to enrollees of coordinated 
     care plans.
     Senate Bill
       Section 201. The deadline for enrollment in an MSA would be 
     extended until December 31, 2003.
     Conference Agreement
       Section 233. Medicare MSAs are not being offered in the 
     Medicare program today, despite the legislative authority 
     granted in 1997 and despite the fact that non-Medicare MSAs 
     are being offered. The Medicare MSA demonstration will be 
     made a permanent option, the capacity limit will be removed 
     and the deadline for enrollment will be eliminated. The 
     requirement that MSAs report on enrollee encounters for an 
     ongoing quality assurance program would be eliminated because 
     MSAs are not plans but bank accounts. Non-contract providers 
     furnishing services to enrollees of MSAs will be subject to 
     the same balanced billing limitations as non-contract 
     providers furnishing services to enrollees of coordinated 
     care plans. The Conferees hope to encourage this additional 
     choice for seniors through these changes.
     Section 234. Extension of reasonable cost contracts
     Present Law
       Cost-based plans are those plans that are reimbursed by 
     Medicare for the actual cost of furnishing covered services 
     to Medicare beneficiaries, less the estimated value of 
     beneficiary cost-sharing. The Secretary cannot extend or 
     renew a reasonable cost reimbursement contract for any period 
     beyond December 31, 2004.
     House Bill
       Section 235. Reasonable cost contracts could be extended or 
     renewed indefinitely, with an exception that would begin in 
     2008. Beginning January 1, 2008, cost contracts could not be 
     continued if during the entire previous year, the service 
     area had two or more coordinated care MA plans or two or more 
     EFFS plans, each of which met the following minimum 
     enrollment requirements:

[[Page H12023]]

     (1) at least 5,000 enrollees for the portion of the area that 
     is within a metropolitan statistical area having more than 
     250,000 people and counties contiguous to such an area, and 
     (2) at least 1,500 enrollees for any other portion of such 
     area.
     Senate Bill
       Section 221. Reasonable cost contracts could be extended or 
     renewed until December 31, 2009. Beginning in 2004, these 
     plans would have to comply with certain requirements of the 
     M+C program (and beginning in 2006 the MA program), including 
     ongoing quality assurance programs, physician incentive plan 
     limitations, uniform premium amount requirements, premium tax 
     restrictions, federal preemption, authority of an 
     organization to include supplemental health care benefits, 
     benefit filling deadlines, contract renewals and beneficiary 
     notifications, and proposed cost-sharing subject to the 
     Secretary's review.
       The Secretary would be required to approve a new 
     application for a group practice HMO to enter into a 
     reasonable cost contract if the group met certain 
     requirements of the Public Health Service Act. The 
     requirements would be that the group practice HMO, as of 
     January 1, 2004, provided at least 85% of the services of a 
     physician (which are provided as basic health services) 
     through a medical group (or groups), and met other 
     requirements for such entities specified in statute.
     Conference Agreement
       Section 234. The conference agreement ends the uncertainty 
     about the continuation of cost contracts, allowing these 
     plans to operate indefinitely, unless two other plans of the 
     same type (i.e., either 2 local or 2 regional plans) enter 
     the cost contract's service area. These other plans must meet 
     the following minimum enrollment requirements: (1) at least 
     5,000 enrollees for the portion of the area that is within a 
     metropolitan statistical area having more than 250,000 people 
     and counties contiguous to such an area, and (2) at least 
     1,500 enrollees for any other portion of such area. The 
     Conferees believe that if other private plans are willing to 
     enter the cost contract's service area, then the cost 
     contract should be required to operate under the same 
     provisions as these other private plans.
       Section 235. 2-year extension of Municipal Health Service 
     demonstration projects
     Present Law
       The Municipal Health Services Demonstration Project 
     operates in four cities. These cities use their existing 
     public health programs as the nucleus of a coordinated system 
     to provide community-based health care for the underserved 
     urban poor. The project provides comprehensive health 
     services, including a prescription drug benefit and dental 
     services.
       BBA 97 extended the program through 2000. The BBRA extended 
     it through 2002, and the BIPA extended it through December 
     31, 2004.
     House Bill
       Section 236. Demonstration projects would be extended 
     through December 31, 2009, for beneficiaries who reside in 
     the city in which the project is operated.
     Senate Bill
       Section 618. Demonstration projects would be extended 
     through December 31, 2006, for beneficiaries who reside in 
     the city in which the project is operated.
     Conference Agreement
       Section 235. The conference agreement extends demonstration 
     projects through December 31, 2006, for beneficiaries who 
     reside in the city in which the project is operated.
     Section 236. Payment by Program of All-Inclusive Care for the 
         Elderly (PACE) providers for Medicare and Medicaid 
         services furnished by non-contract providers
     Present Law
       PACE was created as a demonstration project in the Omnibus 
     Budget Reconciliation Act (OBRA 86). The Secretary was 
     required to grant waivers of certain Medicare and Medicaid 
     requirements to a maximum of 10 (expanded to 15 in OBRA90) 
     community-based organizations to provide health and long-term 
     care services on a capitated basis to frail elderly persons 
     at risk of being institutionalized. The Balanced Budget Act 
     97 (BBA97) made PACE a permanent part of Medicare and a state 
     option for the Medicaid program.
     House Bill
       No provision.
     Senate Bill
       Section 223. For the Medicare program, protections against 
     balance billing to PACE providers and beneficiaries enrolled 
     with such PACE providers would apply in the same manner as 
     applies to M+C. For the Medicaid program, with respect to 
     services covered under the State plan (but not under 
     Medicare) that were furnished to a beneficiary enrolled in a 
     PACE program, the PACE program would not be required to pay a 
     provider an amount greater than required under the state 
     plan.
     Conference Agreement
       Section 236. For the Medicare program, protections against 
     balance billing to PACE providers and beneficiaries enrolled 
     with such PACE providers apply in the same manner as applies 
     to M+C (MA). For the Medicaid program, with respect to 
     services covered under the State plan (but not under 
     Medicare) that are furnished to a beneficiary enrolled in a 
     PACE program, the PACE program is not required to pay a 
     provider an amount greater than required under the state 
     plan.
     Section 237. Reimbursement for Federally Qualified Health 
         Centers (FQHCs) providing services under MA plans
     Present Law
       Services provided by FQHCs to Medicare enrollees are 
     reimbursed at no more than 80% of the reasonable costs of 
     providing such services less any beneficiary cost sharing 
     amounts collected.
       People who knowingly and willfully offer or pay a kickback, 
     a bribe, or rebate to directly or indirectly induce referrals 
     or the provision of services under a Federal program may be 
     subject to financial penalties and imprisonment. Certain 
     exceptions or safe harbors that are not considered violations 
     of the anti-kickback statute have been established.
     House Bill
       No provision.
     Senate Bill
       Section 615. FQHCs would receive a wrap-around payment for 
     the reasonable costs of care provided to Medicare managed 
     care patients served at such centers. The provision would 
     raise reimbursements to FQHCs, so that when they are combined 
     with M+C payments and cost-sharing payments from 
     beneficiaries, they would equal 100% of the reasonable costs 
     of providing such services.
       This provision would extend the safe harbor to include any 
     remuneration between a FQHC (or entity control by and FQHC) 
     and an MA organization.
     Conference Agreement
       Section 237. FQHCs will receive a wrap-around payment for 
     the reasonable costs of care provided to Medicare managed 
     care patients served at such centers. The provision raises 
     reimbursements to FQHCs, so that when they are combined with 
     MA payments and cost-sharing payments from beneficiaries, 
     they equal 100% of the reasonable costs of providing such 
     services.
       This provision extends the safe harbor to include any 
     remuneration between a FQHC (or entity control by an FQHC) 
     and an MA organization.
     Section 238. Study of performance-based payment systems
     Present Law
       No provision.
     House Bill
       Section 237. The Secretary would request that the IOM 
     conduct a study to review and evaluate public and private 
     sector experiences in: (1) establishing performance measures 
     and payment incentives under the Medicare program, and (2) 
     linking performance to payment. The Secretary would also 
     request that no later than 18 months after enactment, the 
     Institute submit a report to the Secretary and the Congress 
     that included a review and evaluation of incentives to 
     encourage quality performance, as specified in the statute. 
     The study would also examine how these measures and 
     incentives might be applied in the Medicare MA, EFFS, and FFS 
     programs. The report would include recommendations regarding 
     appropriate performance measures for use in assessing and 
     paying for quality and would identify options for updating 
     performance measures.
     Senate Bill
       Section 224. Within 2 months of enactment, the Secretary 
     would be required to enter into an arrangement with IOM to 
     evaluate leading health care performance measures and options 
     to implement policies that align performance with payment 
     under the Medicare program. The information that would be 
     catalogued, reviewed and evaluated by IOM would be specified 
     in statute. A report would be due to the Secretary and the 
     congressional committees of jurisdiction within 18 months of 
     enactment. There would be $1 million authorized to be 
     appropriated to conduct the evaluation and prepare the 
     report.
     Conference Agreement
       Section 238. The conference agreement requires that within 
     2 months of enactment, the Secretary shall enter into an 
     arrangement with IOM to evaluate leading health care 
     performance measures in the public and private sectors and 
     options to implement policies that align performance with 
     payment under the Medicare program. The information examined 
     by IOM includes the validity of leading health care 
     performance measures, the success and utility of alternative 
     performance incentive programs, and options to implement 
     policy that aligns performance with payments. The Institute 
     shall consult with MedPAC. A report is be due to the 
     Secretary and the congressional committees of jurisdiction 
     within 18 months of enactment. There will be authorized to be 
     appropriated such sums as may be necessary to conduct the 
     evaluation and prepare the report.

        Subtitle E--Demonstration of Comparative Cost Adjustment

     Establishment of Demonstration
     Present Law
       No provision.
     House Bill
       Section 241. Beginning in 2010, FEHBP-style competition 
     would begin nationwide in competitive areas. Competitive 
     areas would be defined as areas in which Medicare 
     beneficiaries have access to two private plans--either two MA 
     or two EFFS plans--along

[[Page H12024]]

     with traditional FFS Medicare; and private plan enrollment in 
     the area that is at least as great as private plan enrollment 
     nationwide, or 20 percent, whichever is lower. Competitive MA 
     (CMA) areas would be limited to metropolitan statistical 
     areas, or areas with substantial numbers of MA enrollees. To 
     be considered a competitive area, the two private plans must 
     be offered during the open season by different organizations, 
     each meeting minimum enrollment requirements as of March of 
     the previous year.
       In competitive areas, private plans would submit bids and 
     traditional FFS would calculate FFS amounts, based on the 
     adjusted average per capita cost (AAPCC) in the area or 
     region. The AAPCC would be adjusted to remove costs 
     associated with direct graduate medical education, and to 
     include costs of services provided to Medicare beneficiaries 
     by the VA and DoD military facilities. In addition, payments 
     would be adjusted for health status and other demographic 
     factors.
       The competitive benchmark would be set at the weighted 
     average of the private plan bids and the FFS amount in the 
     competitive area. In order to provide traditional FFS 
     disproportionate influence in competitive areas, the weight 
     of the benchmark for FFS would equal the nationwide 
     proportion of Medicare beneficiaries enrolled in FFS, or the 
     competitive area's proportion, if higher. The weights for all 
     other private plans would equal the national proportion of 
     beneficiaries enrolled in private plans, or the regional 
     proportion if lower.
       The competitive benchmark would be blended with the older, 
     pre-2010 benchmark for the area over a 5-year period to allow 
     for transition to a more competitive system.
       Beneficiaries enrolling in plans with bids or FFS amounts 
     below the competitive benchmark would receive 75 percent of 
     the difference between the benchmark and bid/FFS amount, and 
     the government would receive 25 percent of the difference. 
     Beneficiaries enrolling in plans with bids/FFS amounts above 
     the benchmark would pay the excess. Premium adjustments would 
     be moderated over a 5-year period for beneficiaries remaining 
     in traditional FFS in competitive areas. The traditional FFS 
     beneficiary premium would be unaffected in non-competitive 
     areas or regions.
       Beginning in 2010, the MBA Administrator would announce the 
     MA area-specific non- drug benchmark yearly. If applicable, 
     the MBA Administrator would also announce, for the year and 
     CMA area: the competitive MA non-drug benchmark; the national 
     FFS market share percentage; the demographic, end-stage renal 
     disease, and health status adjustment factors; the MA area-
     wide non-drug benchmark amount; the FFS area-specific non-
     drug amount; and MA enrollment.
       To carry out this section, the MBA Administrator would 
     transmit the name, social security number, and adjustment 
     amount to the Commissioner of SSA at the beginning of each 
     year and at periodic times throughout the year.
     Senate Bill
       No provision.
     Conference Agreement
       Section 241 [Sec. 1860 C-1]. In order to test whether 
     direct competition between private plans and the original 
     Medicare FFS program will enhance competition in Medicare, 
     improve health care delivery for all Medicare beneficiaries, 
     and provide for greater beneficiary savings and reductions in 
     government costs, the conference agreement requires the 
     Secretary to establish a demonstration for the application of 
     comparative cost adjustment (CCA). The 6-year demonstration 
     will begin on January 1, 2010. The first 4 years include a 
     phase-in. Upon completion of the demonstration, the Secretary 
     will submit a report to Congress that includes an evaluation 
     of: (1) the financial impact on Medicare, (2) changes in 
     access to physicians and other health care providers, and (3) 
     beneficiary satisfaction under the demonstration and original 
     Medicare fee-for-service. Based upon the results of the 
     evaluation, the Secretary will provide recommendations for 
     any extension or expansion of the demonstration. The 
     demonstration cannot be extended unless there is a 
     reauthorization from Congress.
       Allowing for competition for enrollees, between private 
     plans and original FFS Medicare, will level the playing field 
     between all options available to Medicare beneficiaries. If 
     traditional FFS Medicare is able to provide benefits at a 
     lower cost than some or all private plans in a competitive 
     area, then beneficiaries remaining in traditional FFS will 
     see their premiums decline. In this case, beneficiaries 
     enrolling in higher-cost private plans will be required to 
     pay the extra price stemming from that decision. Likewise, if 
     a private plan is able to offer Medicare beneficiaries 
     coverage at a lower cost, then beneficiaries will be 
     encouraged to enroll in the private plan by lowering the 
     beneficiaries' costs of coverage under the private plan. In 
     any case, beneficiaries will be entitled to the same defined 
     benefit package and payments to plans will be fully adjusted 
     for health and other demographic factors.
       Without this stage of competition, private plans will have 
     an incentive to shadow price their benchmarks. A floating 
     benchmark rewards more efficient plans, and it allows these 
     more efficient plans to lower the benchmark in future years, 
     as their market share rises.
       Several features were added in the Chairman's amendment in 
     the nature of a substitute to allow for a smooth transition 
     to a more competitive system in 2010 in competitive areas/
     regions, and to prevent shock to the current system. The 
     competitive benchmark, based on private plan bids and 
     traditional FFS rates, would be calculated based on the 
     relative enrollment in FFS versus private plans nationwide 
     (or the area/region if FFS enrollment is a larger proportion 
     in the area/region). This feature ensures that the 
     competitive benchmark is closer to the traditional FFS rate 
     than would otherwise occur. Premium changes for beneficiaries 
     remaining in traditional FFS in competitive areas would be 
     phased-in over five years to prevent oscillations. In 
     addition, the competitive benchmark would be phased-in over a 
     5-year period for private plans. This would allow for a more 
     gradual change from the benchmarks under the pre-2010 system 
     to the new competitive benchmark in competitive areas.
       The Secretary will select CCA demonstration areas from 
     among qualifying Metropolitan Statistical Areas (MSAs). To 
     qualify, an MSA must have: (1) at least 25 percent of 
     eligible Medicare beneficiaries enrolled in a local 
     coordinated care MA plan; and (2) at least 2 coordinated MA 
     local plans offered by different organizations, both of which 
     meet minimum enrollment criteria. The total number of CCA 
     areas may not exceed 6, or 25% of the total number of 
     qualifying MSAs, whichever is lower.
       To maximize the opportunity for a successful demonstration, 
     the Secretary will select CCA demonstration areas to provide 
     for geographic diversity and not seek to maximize the number 
     of beneficiaries affected by the demonstration. At least one 
     of the selected MSAs must be chosen from the 4 largest that 
     qualify (based on the eligible MA population). At least one 
     selected MSA must be chosen from among the 4 with the lowest 
     population density. At least one must include a multi-State 
     area. No more than 2 CCA areas may be located within the same 
     geographic region. In addition, the Secretary will also grant 
     priority to qualifying MSAs that have not had a Medicare 
     preferred provider organization (PPO) plan demonstration.
       In order to ensure that all beneficiaries residing in a CCA 
     demonstration area have sufficient choice, a county within 
     the MSA will be included only if it has at least 2 MA local 
     coordinated care plans, each of which is offered by a 
     different MA organization. An area will continue to be 
     included as long as there is at least one MA local plan 
     offered in the local area.
       To minimize any possible disruption, the demonstration will 
     be phased in over a four- year period between 2010 and 2013. 
     Both the benchmark and changes to the Part B premiums under 
     the original FFS program will be phased-in over this 4-year 
     period.
       In CCA areas, private plans would submit bids and 
     traditional FFS would calculate FFS amounts, based on the 
     adjusted average per capita cost (AAPCC) in the area or 
     region. The AAPCC would be adjusted to remove costs 
     associated with direct graduate medical education, and to 
     include costs of services provided to Medicare beneficiaries 
     by the VA and DoD military facilities. In addition, payments 
     would be adjusted for health status and other demographic 
     factors.
       The CCA competitive benchmark would be set at the weighted 
     average of the private plan bids and the FFS amount in the 
     CCA area. In order to provide traditional FFS 
     disproportionate influence in CCA areas, the weight of the 
     benchmark for FFS would equal the nationwide proportion of 
     Medicare beneficiaries enrolled in FFS, or the CCA area's 
     proportion, if higher. The weights for all other private 
     plans would equal the national proportion of beneficiaries 
     enrolled in private plans, or the CCA proportion if lower.
       The CCA competitive benchmark would be blended with the 
     older, pre-2010 benchmark for the area over a 4-year period 
     to allow for transition to a more competitive system.
       Beneficiaries enrolling in plans with bids or FFS amounts 
     below the CCA competitive benchmark would receive 75 percent 
     of the difference between the benchmark and bid/FFS amount, 
     and the government would receive 25 percent of the 
     difference. Beneficiaries enrolling in plans with bids/FFS 
     amounts above the benchmark would pay the excess. Premium 
     adjustments would be moderated over a 4-year period for 
     beneficiaries remaining in traditional FFS in CCA areas.
       In order to test whether application of the CCA benchmark 
     to the traditional FFS program will improve efficiency of the 
     program, an individual residing in a CCA demonstration area 
     who is enrolled in Part B of Medicare, but not enrolled in an 
     MA plan, can have an adjustment to their Part B premium, 
     either as an increase or a decrease. No premium adjustment 
     would be made for individuals, for a month that they were 
     eligible for a prescription drug subsidy, as defined in 
     Title I of this Act. That is, individual with incomes 
     below 150 percent of poverty and who also meet the assets 
     requirements would continue to pay the Part B premium 
     amount.
       The Part B premium adjustment for FFS beneficiaries in CCA 
     demonstration areas would be made as follows: (1) if the FFS 
     area-specific non-drug amount for the month does not exceed 
     the CCA non-drug benchmark, the Part B premium is reduced by 
     75% of the difference; and (2) if the FFS area-specific non-
     drug amount for the month exceeds the CCA non-drug benchmark, 
     the Part B premium is increased by the full amount of the 
     difference. This adjustment will be phased-in over 4 years. 
     There is also a 5%

[[Page H12025]]

     limit to the adjustment, irrespective of whether it is an 
     increase or a decrease.
       The premium adjustment will not affect any late enrollment 
     penalties or income-related adjustments to the Part B 
     premiums as established under Title VIII of this Act. The 
     Secretary will transmit to the Commissioner of Social 
     Security at the beginning of each year, the name, social 
     security account number and the amount the any adjustment for 
     each individual, and periodically through the year, update 
     the information.
       Nothing in the demonstration project in any way changes the 
     entitlement to defined benefits under Parts A and B of the 
     Medicare program. Throughout the demonstration, beneficiaries 
     will have complete freedom to choose either a private plan or 
     the traditional Medicare fee-for-service program.

                            Other Provisions

     Expanding the work of Medicare Quality Improvement 
         Organizations (QIOs) to include parts C and D
     Present Law
       QIOs, formerly known as Peer Review Organizations (PROs), 
     are responsible for working with consumers, physicians, 
     hospitals, and other care-givers to refine care delivery.
     House Bill
       No provision.
     Senate Bill
       Section 225. The responsibilities of the QIOs would be 
     expanded to include M+C and MA organizations, prescription 
     drug card sponsors, and eligible entities beginning January 
     1, 2004. Quality improvement assistance relating to 
     prescription drug therapy would be provided to providers, 
     practitioners, prescription drug card sponsors, eligible 
     entities under Part D, M+C plans, and MA plans beginning 
     January 1, 2004.
     Conference Agreement
       The conference agreement does not include this provision.
     Extension of demonstration for end-stage renal disease (ESRD) 
         managed care
     Present Law
       Medicare beneficiaries with ESRD cannot enroll in a managed 
     care plan. If they develop ESRD while a member of a plan they 
     can continue their enrollment in the plan. The Deficit 
     Reduction Act of 1984 established a demonstration project for 
     ESRD managed care, which was subsequently extended by the 
     Omnibus Budget Reconciliation Act of 1993.
     House Bill
       No provision.
     Senate Bill
       Section 226. The Secretary would be required to extend the 
     demonstration project for ESRD managed care through December 
     31, 2007. The terms and conditions in place during 2002 would 
     apply. The monthly capitation rate for enrollees would be set 
     based on the reasonable medical and direct administrative 
     costs of providing the benefits to participants.
     Conference Agreement
       The conference agreement does not include this provision.
     MA annual coordinated election period
     Present Law
       The Public Health Security and Bioterrorism Preparedness 
     and Response Act of 2002, P.L. 107-188 changed the annual 
     coordinated election period from the month of November to 
     November 15th through December 31st in 2002, 2003, and 2004. 
     Once the temporary provisions expired, the reporting dates 
     and deadlines return to the pre-P.L.107-188 dates.
       In addition, P.L. 107-188 continues to allow Medicare 
     beneficiaries to make and change election to an M+C plan on 
     an ongoing basis through 2004. Then beginning in 2005, 
     individuals may only make changes on the more limited basis, 
     originally scheduled to be phased in beginning in 2002. Since 
     the beginning of the M+C program, beneficiaries have been 
     able to make and change election to an M+C plan on an ongoing 
     basis. Beginning in 2005, elections and changes to elections 
     will be available on a more limited basis. Beneficiaries can 
     make or change elections during the annual coordinated 
     election period. Current Medicare beneficiaries may also 
     change their election at any time during the first 6 months 
     of 2005 (or first 3 months of any subsequent year). 
     Additionally, there are special enrollment rules for newly 
     eligible aged beneficiaries as well as special enrollment 
     periods for all enrollees under limited situations, such as 
     an enrollee who changes place of residence.
     House Bill
       Section 231. The annual coordinated election period would 
     be permanently changed to November 15 through December 31.
     Senate Bill
       Section 201. [Sec. 1851(e)]. Medicare beneficiaries would 
     retain their ability to make and change elections to an M+C 
     plan through 2005. The current law limitation on changing 
     elections that begins in 2005, would be delayed until 2006. 
     Further, the annual coordinated election period for 2003 
     through 2006 would begin on November 15 and end on December 
     31. Beginning in 2007, the annual coordinated election period 
     would be during the month of November.
       [Sec. 1851(e)(3)]. Additionally, the Secretary would 
     conduct a special information campaign to inform MA eligible 
     beneficiaries about plans. The campaign would begin on 
     November 15, 2005 and ending on December 31, 2005.
     Conference Agreement
       The conference agreement does not include this provision.
     Cause for intermediate sanctions
     Present Law
       The Secretary is authorized to carry out specific remedies 
     in the event that an M+C organization: (1) fails 
     substantially to provide medically necessary items and 
     services required to be provided, if the failure adversely 
     affects the Medicare enrollee; (2) imposes premiums on 
     enrollees that are in excess of those allowed; (3) acts to 
     expel or refuses to re-enroll an enrollee in violation of 
     Federal requirements; (4) engages in any practice that would 
     have the effect of denying or discouraging enrollment (except 
     as permitted by law) of eligible beneficiaries whose medical 
     condition or history indicates a need for substantial future 
     medical services; (5) misrepresents or falsifies information 
     to the Secretary or others; (6) fails to comply with rules 
     regarding physician participation; or (7) employs or 
     contracts with any individual or entity that has been 
     excluded from participation in Medicare.
     House Bill
       No comparable provision.
     Senate Bill
       Section 208. In addition to specifications included in 
     current law, the Secretary could also carry out remedies if 
     an organization charged any Medicare enrollee an amount in 
     excess of the MA monthly beneficiary obligation for qualified 
     prescription drug coverage, provided coverage that was not 
     qualified prescription drug coverage, offered prescription 
     drug coverage but did not make standard prescription drug 
     coverage available, or provided coverage for drugs other than 
     that relating to prescription drugs covered under Part D, as 
     an enhanced or additional benefit.
     Conference Agreement
       The conference agreement does not include this provision.
     Evaluate fee-for-service modernization projects
     Present Law
       No provision.
     House Bill
       No explicit provision. H.R. 1 would establish chronic care 
     improvement benefits under fee-for-service (Section 721) and 
     under MA and EFFS (Section 722).
     Senate Bill
       Section 232. The Secretary would be required to review the 
     results of the demonstrations required under Sections 442, 
     443, and 444 of this bill and report to Congress by January 
     1, 2008. [These demonstrations are the Medicare health care 
     quality demonstration, the Medicare complex clinical care 
     management payment demonstration, and the Medicare fee-for-
     service care coordination demonstration.] Beginning in 2009, 
     the Secretary would be required to establish projects to 
     provide Medicare beneficiaries in traditional Medicare 
     coverage of enhanced benefits or services (preventive 
     services not already covered under Medicare, chronic care 
     coordination services, disease management services or other 
     benefits determined by the Secretary). The purpose of the 
     projects would be to evaluate whether the enhanced benefits 
     or services improved the quality of care, improved health 
     care delivery systems, and reduced expenditures under the 
     Medicare program. The projects would be conducted in regions 
     comparable to the regions designated as ``highly 
     competitive.'' The Secretary would be required to submit 
     annual reports to Congress and the GAO beginning no later 
     than April 1, 2010. The GAO would be required to report by 
     January 1, 2011 and biennially thereafter for as long as the 
     projects were being conducted.
     Conference Agreement
       The conference agreement does not include this provision.
     Establish MA enrollment goal
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 241. This provision would establish an MA 
     enrollment goal of at least 15% of Medicare beneficiaries by 
     January 1, 2010. If the goal were not met, a bipartisan 
     commission would be established as provided for in Section 
     242.
     Conference Agreement
       The conference agreement does not include this provision.
     Establish national bipartisan commission on Medicare reform
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 242. If the enrollment goal described in Section 
     241 were not met, the National Bipartisan Commission on 
     Medicare Reform would be established. The Commission would 
     review and analyze the long-term financial condition of the 
     Medicare program; identify problems that threaten the 
     financial integrity of the Medicare Trust Funds; and analyze 
     potential solutions to the identified problems. The 
     Commission would be required to make recommendations, 
     including issues facing Medicare, such as solvency, financing 
     of the Medicare Trust Funds, and benefits.

[[Page H12026]]

     The Commission would have 17 members--four appointed by the 
     President, 12 appointed by Congressional leaders, and one 
     appointed jointly by the President and Congressional leaders 
     to serve as Chairperson. The Commission would be required to 
     submit a report and an implementation bill to the President 
     and Congress no later than April 1, 2014.
     Conference Agreement
       The conference agreement does not include this provision.
     Establish congressional consideration of reform proposals
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 243. Congressional leaders would be required to 
     introduce the implementation bill required by Section 242. 
     Hearings would be required by appropriate committees as well 
     as floor consideration.
     Conference Agreement
       The conference agreement does not include this provision.
     Authorize appropriations
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Section 244. Appropriations would be authorized for such 
     sums as necessary to carry out the provisions regarding the 
     National Bipartisan Commission on Medicare Reform for fiscal 
     years 2012 through 2013.
     Conference Agreement
       The conference agreement does not include this provision.
     Enhanced benefits
     Present Law
       M+C plans may offer supplemental benefits in addition to 
     any required benefits under Parts A and B of Medicare and any 
     additional required benefits.
     House Bill
       Section 221 (a). Plans could include supplemental benefits 
     in their bids. The Secretary's authority to negotiate bids 
     would include these supplemental benefits.
     Senate Bill
       Section 202. [Sec. 1852(a)(3)]. MA plans could choose to 
     provide beneficiaries with enhanced medical benefits that the 
     Secretary could approve. The Secretary could deny any 
     submission for enhanced benefits believed to discourage 
     enrollment by MA eligible individuals. The Secretary could 
     not approve any enhanced medical benefit that provided for 
     the coverage of any prescription drug, other than those 
     relating to covered prescription drugs under Part D.
     Conference Agreement
       The conference agreement does not include this provision.
     Incentive for Enrollment
     Present Law
       M+C plans cannot offer cash or monetary rebates as an 
     inducement for enrollment.
     House Bill
       Section 221 (d). For MA plans, the ability to offer cash or 
     monetary rebates would be limited to the rebates (based on 
     the calculation of average per capita monthly savings) 
     established under this bill.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.

              TITLE III--COMBATTING WASTE, FRAUD AND ABUSE

       Medicare Secondary Payor (MSP) Provisions (Section 301 of 
     the Conference Agreement, Section 301 of the House Bill, and 
     Section 461 of the Senate Bill).
     Present Law
       In certain instances, Medicare is prohibited from making 
     payment for a health care claim if payment is expected to be 
     made promptly under workmen's compensation law or plan, under 
     automobile or liability insurance (including a self-insured 
     plan) or under no-fault insurance on behalf of a beneficiary. 
     Medicare is permitted to make a conditional payment in 
     certain circumstances including if Medicare could reasonably 
     expect payment to be made under a workers compensation plan 
     or no-fault insurance claim but Medicare determines that the 
     payment will not be made promptly, as determined in 
     accordance with regulations).
     House Bill
       The Secretary would be able to make a conditional Medicare 
     payment if a workmen's compensation law or plan, an 
     automobile or liability insurance policy or plan (including a 
     self-insured plan), or a no-fault insurance plan, has not 
     made or cannot reasonably be expected to make prompt payment 
     (as determined in accordance with regulations). This payment 
     would be contingent on reimbursement by the primary plan to 
     the Medicare Trust Funds. This provision on conditional 
     payment would be effective as if included in the enactment of 
     title III of the Medicare and Medicaid Budget Reconciliation 
     Amendments of 1984 (P.L. 98-369) (which was contained in the 
     Deficit Reduction Act of 1984).
       The list of primary plans for which conditional payment 
     could be made would be clarified; an entity engaging in a 
     business, trade, or profession would be deemed as having a 
     self-insured plan if it carries its own risk. A primary plan, 
     as well as an entity that receives payment from a primary 
     plan, would be required to reimburse the Medicare Trust Funds 
     for any payment made by the Secretary if the primary plan was 
     obligated to make payment. The Secretary's authority to 
     recover payment from any and all responsible entities and 
     bring action, including the collection of double damages, to 
     recover payment under the Medicare Secondary Payer provisions 
     also would be clarified. This provision clarifying the 
     conditional payment provisions would be effective upon 
     enactment.
     Senate Bill
       Identical provision.
     Conference Agreement
       The conference agreement clarifies that the Secretary may 
     make a conditional Medicare payment if a workmen's 
     compensation law or plan, an automobile or liability 
     insurance policy or plan (including a self-insured plan), or 
     a no-fault insurance plan, has not made or cannot reasonably 
     be expected to make prompt payment (as determined in 
     accordance with regulations). This payment is contingent on 
     reimbursement by the primary plan to the Medicare Trust 
     Funds. This provision on conditional payment is effective as 
     if included in the enactment of title III of the Medicare and 
     Medicaid Budget Reconciliation Amendments of 1984 (P.L. 98-
     369) (which was contained in the Deficit Reduction Act of 
     1984).
       The list of primary plans for which conditional payment 
     could be made is also clarified; an entity engaging in a 
     business, trade, or profession would be deemed as having a 
     self-insured plan if it carries its own risk. A primary plan, 
     as well as an entity that receives payment from a primary 
     plan, is required to reimburse the Medicare Trust Funds for 
     any payment made by the Secretary if the primary plan was 
     obligated to make payment. The Secretary's authority to 
     recover payment from any and all responsible entities and to 
     bring action, including the collection of double damages, to 
     recover payment under the Medicare Secondary Payer provisions 
     also is clarified. This provision clarifying the conditional 
     payment provisions is effective as if included in the 
     enactment of section 953 of the Omnibus Reconciliation Act of 
     1980.
       Payment for Durable Medical Equipment; Competitive 
     Acquisition of Certain Items and Services (Section 302 of the 
     Conference Agreement, Section 302 of the House Bill, and 
     Section 430 of the Senate Bill).
     Present Law
       Medicare pays for durable medical equipment (DME), using a 
     different fee schedule for each class of covered items. Under 
     the fee schedule, covered items are classified into six major 
     categories, one of which is prosthetics and orthotic devices. 
     In general, fee schedule payments are a weighted average of 
     either local or regional prices, subject to national limits 
     (both floors and ceilings), that are updated each year by the 
     consumer price index for urban consumers (CPI-U) for the 12-
     month period ending with June of the previous year.
       Medical devices are classified into three categories: Class 
     I devices represent minimal potential for harm, and are 
     subject to the least regulatory control (e.g., elastic 
     bandages and enema kits). Class II devices are moderate risk 
     (e.g., some surgical lasers). Class III devices are devices 
     that sustain or support life, are implanted, or present 
     potential unreasonable risk (e.g., implantable infusion pumps 
     and heart valve replacements) and are subject to premarket 
     approval, the most stringent regulatory control.
       BBA 97 authorized the Secretary to conduct up to five 
     demonstration projects to test competitive bidding as a way 
     for Medicare to price and pay for Part B services other than 
     physician services. The Secretary was required to establish 
     up to three competitive acquisition areas for this purpose. 
     Three competitive bidding demonstrations for durable medical 
     equipment, prosthetics, orthotics, and supplies were 
     implemented, two in Polk County, Florida and one in the San 
     Antonio, Texas area.
     House Bill
       The Secretary would be required to establish and implement 
     competitive acquisition programs for durable medical 
     equipment, medical supplies, items used in infusion, drugs 
     and supplies used in conjunction with durable medical 
     equipment, medical supplies, home dialysis supplies, blood 
     products, parental nutrition, and off-the-shelf orthotics 
     (requiring minimal self-adjustment for appropriate use) that 
     would replace the Medicare fee schedule payments. 
     Enteral nutrients and class III devices, those that 
     sustain or support life, are implanted, or present 
     potential unreasonable risk (e.g., implantable infusion 
     pumps and heart valve replacements) and are subject to 
     premarket approval by the Food and Drug Administration 
     would not be covered by the program.
       In starting the programs, the Secretary would be required 
     to establish competitive acquisition areas, but would be able 
     to exempt rural areas and areas with low population density 
     within urban areas that are not competitive, unless a 
     significant national market exists through mail order for a 
     particular item or service. The programs would be phased-in 
     over 3 years with at least one-third of the areas implemented 
     in 2005 and two-thirds of the areas implemented in

[[Page H12027]]

     2006. High-cost items and services would be required to be 
     phased-in first. The Secretary would be able to exempt items 
     and services for which competitive acquisition would not be 
     likely to result in significant savings. The Secretary would 
     be required to establish a process where existing rental 
     agreements for covered DME items entered into contract before 
     implementation of this program would not be affected. The 
     supplier would be required to provide for appropriate 
     servicing and replacement of these rental items. Also, the 
     Secretary may establish a process where a physician would be 
     able to prescribe a particular brand or mode of delivery of 
     an item or service if such item is clinically more 
     appropriate than other similar items.
       Certain requirements for the competitive acquisition 
     program would be established. Specifically, the Secretary 
     would be allowed to award contracts in an area only when the 
     following conditions were met: entities met quality and 
     financial standards specified by the Secretary or the Program 
     Advisory and Oversight Committee; total amounts paid under 
     the contracts would be expected to be less than would 
     otherwise be paid; beneficiary access to multiple suppliers 
     would be maintained; and beneficiary liability would be 
     limited to 20% of the applicable contract award price. 
     Contracts would be required to be re-competed at least every 
     three years. The Secretary would be required to award 
     contracts to multiple entities submitting bids in each area 
     for an item or service and would also have the authority to 
     limit the number of contractors in a competitive acquisition 
     area to the number needed to meet projected demand for 
     covered items and services. The similarity of the clinical 
     efficiency and the value of specific products would be 
     considered when establishing the categories and products that 
     would be subject to bidding. The Secretary would not be able 
     to pay for items furnished by a contractor unless the 
     contractor has submitted a bid to supply the item and the 
     contract has been awarded. The Secretary would be permitted 
     to waive certain provisions of the Federal Acquisition 
     Regulation that are necessary for the efficient 
     implementation of this program, other than those relating to 
     confidentiality of information. The Secretary would also be 
     able to contract with an appropriate entity to address 
     beneficiary complaints, provide beneficiary outreach and 
     education services, and monitor the quality of items and 
     services provided. The Secretary would be required to report 
     to Congress annually on savings, reductions in cost-sharing, 
     access to items and services, and beneficiary satisfaction 
     under the competitive acquisition program.
       A Program Advisory and Oversight Committee with members 
     appointed by the Secretary would be established. The 
     Committee would be required to provide advice and technical 
     assistance to the Secretary regarding the implementation of 
     the program, data collection requirements, proposals for 
     efficient interaction among manufacturers and distributors of 
     the items and services, providers, and beneficiaries, and 
     other functions specified by the Secretary. The provisions of 
     the Federal Advisory Committee Act would not apply to this 
     Committee. The Secretary would be required to conduct a 
     demonstration program on using competitive acquisition for 
     clinical laboratory tests that are furnished without a face-
     to-face encounter between the individual and the hospital 
     personnel or physician performing the test. The same quality 
     and financial conditions specified for the DME competitive 
     acquisition program would apply for clinical laboratory test 
     competitive acquisition. An initial report to Congress would 
     be required of the Secretary not later than December 31, 2005 
     with progress and final reports as the Secretary would 
     determine appropriate.
       The covered items and services included in the competitive 
     acquisition program would be paid as determined under this 
     program. The Secretary would be able to use this payment 
     information to adjust the payment amounts for DME not in a 
     competitive acquisition area. In this instance, the inherent 
     reasonableness rule would not be applied. Orthotics in a 
     competitive acquisition program would also be paid the 
     amounts determined by this program. The Secretary would be 
     able to use this payment information to adjust the payment 
     amounts for such items. The provision would be effective upon 
     enactment.
     Senate Bill
       Medicare would not increase the DME fee schedule amounts in 
     any of the years from 2004 through 2010 and would update the 
     amounts by the CPI-U in each subsequent year. Payments for 
     orthotic devices that have not been custom-fabricated would 
     be similarly affected. Class III medical devices would be 
     exempt from the freeze in DME payments. Prosthetics, 
     prosthetic devices, and custom-fabricated orthotics would be 
     updated by the percentage change in the CPI-U. The provision 
     would also subject DME companies to an accreditation and 
     quality assurance process. The Secretary would be required to 
     designate independent accreditation organizations no later 
     than 6 months from enactment after consultation with an 
     expert outside advisory panel. The application of quality 
     standards would be phased in over a 3-year period. The 
     provision would be effective upon enactment.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish and implement quality standards for suppliers of: 
     items and services of durable medical equipment, prosthetics 
     and orthotics, and certain other items and services. 
     Suppliers of the following items and services are included in 
     the conference agreement: items of durable medical equipment, 
     prosthetic devices, orthotics and prosthetics, medical 
     supplies, home dialysis supplies and equipment, therapeutic 
     shoes, parenteral and enteral nutrients, equipment, and 
     supplies, electromyogram devices, salivation devices, blood 
     products, and transfusion machines. The Secretary is 
     explicitly authorized to establish the quality standards by 
     program memorandum on a prospective basis after consultation 
     with representatives of relevant parties. The standards are 
     required to be posted on the Internet website of CMS. The 
     Secretary is required to designate one or more independent 
     accreditation organizations not later than one year after the 
     date the quality standards are implemented. The quality 
     standards may not be less stringent than the quality 
     standards otherwise in place.
       The Secretary is required to establish standards for 
     clinical conditions for payment for covered durable medical 
     equipment that include the specification of types or classes 
     of covered items that require, as a condition of payment, a 
     face-to-face examination and a prescription for the item. 
     Standards are required to be established for those covered 
     items for which there has been a proliferation of use, 
     consistent findings of charges for covered items that are 
     not delivered, or consistent findings of falsification of 
     documentation to provide for payment of such covered 
     items. Beginning with the date of enactment, payment may 
     not be made for motorized or power wheelchairs unless a 
     physician, physician assistant, nurse practitioner, or a 
     clinical nurse specialist has conducted a face-to-face 
     examination of the individual and written a prescription 
     for the item. Medicare payment is not permitted unless the 
     item meets the standards established for clinical 
     condition of coverage.
       The conference agreement also establishes competitive 
     acquisition programs for durable medical equipment (including 
     items used in infusion and drugs), medical supplies, home 
     dialysis supplies, therapeutic shoes, enteral nutrients, 
     equipment, and supplies, electromyogram devices, salivation 
     devices, blood products, and transfusion medicine, and off-
     the-shelf orthotics (requiring minimal self-adjustment for 
     appropriate use) that would replace the Medicare fee schedule 
     payments. Exclusions from the competitive acquisition are: 
     inhalation drugs; parenteral nutrients, equipment, and 
     supplies; and class III devices, that is those that sustain 
     or support life, are implanted, or present potential 
     unreasonable risk (e.g., implantable infusion pumps and heart 
     valve replacements) and are subject to premarket approval by 
     the Food and Drug Administration.
       In starting the programs, the Secretary is required to 
     establish competitive acquisition areas, but would be able to 
     exempt rural areas and areas with low population density 
     within urban areas that are not competitive, unless a 
     significant national market exists through mail order for a 
     particular item or service. The programs will be phased-in so 
     that competition under the programs occurs in 10 of the 
     largest metropolitan statistical areas in 2007; 80 of the 
     largest metropolitan statistical areas in 2009; and remaining 
     areas after 2009. The Secretary is permitted to phase-in 
     first items and services with the highest cost and highest 
     volume, or those items and services that the Secretary 
     determines have the largest savings potential. The Secretary 
     may exempt items and services for which competitive 
     acquisition would not be likely to result in significant 
     savings. The Secretary is required to establish a process 
     where existing rental agreements for covered DME items 
     entered into contract before implementation of this program 
     would not be affected. The supplier would be required to 
     provide for appropriate servicing and replacement of these 
     rental items. Also, the Secretary may establish a process 
     where a physician would be able to prescribe a particular 
     brand or mode of delivery of an item or service within a 
     particular healthcare procedure code (HCPCS) if the physician 
     determines that use of the item or service would avoid an 
     adverse medical outcome on the beneficiary, as determined by 
     the Secretary, although this could not affect the amount of 
     payment otherwise applicable.
       Certain requirements for the competitive acquisition 
     program are established by the conference agreement. 
     Specifically, the Secretary cannot award contracts in an area 
     unless the following conditions were met: (1) entities meet 
     quality standards established by the Secretary; (2) entities 
     meet financial standards specified by the Secretary, taking 
     into account the needs of small providers; (3) total amounts 
     paid under the contracts are expected to be less than would 
     otherwise be paid; and (4) beneficiary access to multiple 
     suppliers would be maintained. Contracts are subject to terms 
     and conditions that the Secretary may specify and are 
     required to be re-competed at least every 3 years. The 
     Secretary is required to award contracts to multiple entities 
     submitting bids in each area for an item or service and has 
     the authority to limit the number of contractors in a 
     competitive acquisition area to the number needed to meet 
     projected demand for covered items and services.
       Payment for competitively priced items and services will be 
     based on bids submitted and accepted. The Secretary is 
     required to determine a single payment amount for each item 
     or service in each competitive acquisition area. Medicare 
     payment is required to be equal to 80 percent of the payment 
     amount determined, with beneficiaries paying the remaining 20 
     percent (after meeting

[[Page H12028]]

     the Part B deductible). Payment for any item or services can 
     be made only on an assignment-related basis that is the 
     supplier bills Medicare and accepts Medicare payment as 
     payment in full. The use of advanced beneficiary notices is 
     not precluded by this program.
       In establishing the categories and products that would be 
     subject to bidding, the Secretary is permitted to consider 
     the clinical efficiency and the value of specific items 
     within HCPCs codes, including whether some items have a 
     greater therapeutic advantage to individuals. The Secretary 
     is required to take appropriate steps to ensure that small 
     suppliers of items and services have an opportunity to be 
     considered for participation in this program. The Secretary 
     cannot pay for items furnished by a contractor unless the 
     contractor has submitted a bid to supply the item and the 
     contract has been awarded. The Secretary is permitted to 
     waive certain provisions of the Federal Acquisition 
     Regulation that are necessary for the efficient 
     implementation of this program, other than those relating to 
     confidentiality of information. The Secretary is permitted to 
     contract with an appropriate entity to address beneficiary 
     complaints, provide beneficiary outreach and education 
     services, and monitor the quality of items and services 
     provided. The Secretary is also permitted to contract with 
     entities to implement the competitive bidding program. The 
     conference agreement prohibits administrative or judicial 
     review of the establishment of payments amounts, the awarding 
     of contracts, the designation of competitive acquisition 
     areas, the phased-in implementation, the selection of items 
     and services for competitive acquisition or the bidding 
     structure and number of contractors. The Secretary is 
     required to report to Congress by July 1, 2009, on savings, 
     reductions in cost-sharing, access to items and services, and 
     beneficiary satisfaction under the competitive acquisition 
     program.
       A Program Advisory and Oversight Committee with members 
     appointed by the Secretary is required to be established. The 
     Committee is required to provide advice to the Secretary 
     regarding the implementation of the program, data collection 
     requirements, proposals for efficient interaction among 
     manufacturers and distributors of the items and services, 
     providers, and beneficiaries, the establishment of quality 
     standards, and other functions specified by the Secretary. 
     The provisions of the Federal Advisory Committee Act do not 
     apply to this Committee. The Committee is required to end on 
     December 31, 2009.
       The Secretary is required to conduct a demonstration 
     program on using competitive acquisition for clinical 
     laboratory tests that are furnished without a face-to-face 
     encounter between the individual and the hospital personnel 
     or physician performing the test. The terms and conditions of 
     the demonstration are to include the application of CLIA 
     quality standards. An initial report to Congress is required 
     of the Secretary no later than December 31, 2005, with 
     progress and final reports as the Secretary determines 
     appropriate.
       For durable medical equipment, prosthetic devices, 
     prosthetics and orthotics, the update will be 0 percentage 
     points in 2004 through 2008. After 2008, for those items not 
     included in competitive bidding the update will be the 
     consumer price index (CPI). For 2005, the payment amount for 
     certain items, oxygen and oxygen equipment, standard 
     wheelchairs, nebulizers, diabetic lancets and testing strips, 
     hospital beds and air mattresses, will be reduced. The 
     Secretary will take the payment amount otherwise determined 
     and reduce it by the percentage difference between the amount 
     of payment otherwise determined for the specific item for 
     2002 and the amount of payment for the specific item and HCPC 
     code under chapter 89 of title 5, United States Code 
     (which was identified in the column entitled a median 
     FEHBP Price in the table entitled ``A Summary of Medicare 
     Prices Compared to VA, Medicaid, Retail, and FEHP Prices 
     for 16 Items'' that was included in the Testimony of the 
     Inspector General before the Senate Committee on 
     Appropriations, June 12, 2002). An OIG report on oxygen 
     will be available in the spring of 2004.
       For class III medical devices the update in 2004, 2005, and 
     2006 is equal to the percentage increase in the consumer 
     price index for all urban consumers (CPI-U) for the 12-month 
     period ending with June of the previous year. In 2007 the 
     percentage change for class III medical devices is to be 
     determined by the Secretary after taking into account 
     recommendations made by the Comptroller General in a report 
     on class III medical devices. In 2008 the update is 
     determined by the amount paid in 2007 updated by the CPI. In 
     subsequent years the CPI is the update.
       For covered items and services furnished beginning January 
     1, 2009, items and services included in the competitive 
     acquisition program would be paid as determined under that 
     program and the Secretary would be able to use this payment 
     information to adjust the payment amounts for DME, off-the-
     shelf orthotics, and other items and services that are 
     supplied in an area that is not a competitive acquisition 
     area. The inherent reasonableness authority for DME, off-the-
     shelf orthotics, medical supplies, home dialysis supplies, 
     therapeutic shoes, enteral nutrients, equipment, and 
     supplies, electromyogram devices, salivation devices, blood 
     products, and transfusion medicine is not eliminated but, if 
     the Secretary uses the competitive acquisition program 
     information to adjust payments, then inherent reasonableness 
     authority cannot be used.
       The Inspector General of the Department of Health and Human 
     Services (the Inspector General) is required to study the 
     extent to which (if any) suppliers of covered items of DME 
     that are subject to the competitive acquisition program are 
     soliciting physicians to prescribe certain brands or modes of 
     delivery of covered items based on profitability. The report 
     is due to Congress no later than July 1, 2009.
       The provision is effective upon enactment.
       Competitive Acquisition of Covered Outpatient Drugs and 
     Biologicals (Section 303 of the Conference Agreement, Section 
     303 of the House Bill, and Section 432 of the Senate Bill).
       Adjustment to the Physician Fee Schedule (Section 303(a) of 
     the Conference Agreement, Section 303(a) of the House Bill 
     and Section 432(b) of the Senate Bill).
     Present Law
       The relative value associated with a particular physician 
     service is the sum of three components: physician work, 
     practice expense, and malpractice expense. Practice expense 
     includes both direct costs (such as clinical personnel time 
     and medical supplies used to provide a specific service to an 
     individual patient) as well as indirect costs such as rent, 
     utilities, and business costs associated with running a 
     practice). When the physician fee schedule was implemented, 
     reimbursement for practice expenses was based on historic 
     charges. The Social Security Act Amendments of 1994 (PL. 103-
     432) required the Secretary to develop a methodology for a 
     resource based system for calculating practice expenses for 
     use in CY1998. BBA 1997 delayed the implementation of the 
     methodology until CY1999 and established a transition period 
     with full implementation by CY2002. BBRA required the 
     Secretary to establish a data collection process and data 
     standards for determining practice expense relative values. 
     Under this survey process, the Secretary was required to use 
     data collected or developed outside HHS, to the maximum 
     extent practicable, consistent with sound data collection 
     practices.
       The Secretary is required to periodically review and adjust 
     the relative values affecting physician payment to account 
     for changes in medical practice, coding changes, new data on 
     relative value components, or the addition of new procedures. 
     Under the budget-neutrality requirement, changes in these 
     factors cannot cause expenditures to differ by more than $20 
     million from what would have been spent if such adjustments 
     had not been made.
     House Bill
       The Secretary would be required to increase the practice 
     expense relative value for the physician fee schedule in 
     CY2005 using survey data that includes information on the 
     expense associated with administering drugs and biologicals. 
     The supplemental data provided by entities and organizations 
     would be included if consistent with the Secretary's criteria 
     for acceptable survey data and submitted by December 31, 
     2004. Using existing processes for coding considerations, the 
     Secretary would be required to promptly evaluate existing 
     codes for the administration of covered outpatient drugs and 
     biologicals to ensure accurate reporting and billing for 
     these services. Any payment increase in CY2005 that resulted 
     from using supplemental survey data or reevaluating codes 
     would not be subject to budget neutrality provisions, would 
     be exempt from administrative and judicial review, and would 
     be treated as a change in law and regulation in the 
     sustainable growth rate determination. Nothing in this 
     section would prevent the Secretary from providing for 
     practice expense adjustments in subsequent years, subject to 
     the budget neutrality provisions. The Secretary would be 
     required to consult with the Comptroller General of the 
     United States (GAO) and groups representing the affected 
     physician specialties before publishing the notice of 
     proposed rulemaking. Also, the Secretary would be required to 
     adjust the non-physician work pool methodology so that 
     practice expense relative values for these services are not 
     disproportionately reduced as a result of the above changes. 
     The provision would be effective upon enactment.
     Senate Bill
       The Secretary would be required to establish the practice 
     expense relative value for the physician fee schedule in 
     CY2004 using the survey data collected from a physician 
     specialty organization as of January 1, 2003 if the data 
     cover the practice expenses for oncology administration 
     services and meet the Secretary's criteria for acceptable 
     survey data. The Secretary would also be required to review 
     and appropriately modify Medicare's payment policy for the 
     administration of more than one anticancer chemotherapy agent 
     to an individual patient on a single day. The increase in 
     expenditures resulting from this provision would be exempt 
     from the budget-neutrality requirement. Also, the Secretary 
     would be required to adjust the non- physician work pool 
     methodology so that practice expense relative values for 
     these services are not disproportionately reduced as a result 
     of the above changes. The provision would be effective upon 
     enactment.
       The Secretary would not be able to revise payment amounts 
     for a category of outpatient drugs or biologicals unless the 
     Secretary concurrently adjusts the payment amounts 
     for administration of such category of drug or biological. 
     The provision would be effective upon enactment.

[[Page H12029]]

       The provisions affecting the practice expense relative 
     values, multiple chemotherapy agents administered on a single 
     day, and treatment of other services currently in the non-
     physician work pool would not be subject to administrative or 
     judicial review under Sections 1869 and 1878 of the Social 
     Security Act (SSA) or otherwise. The provision would be 
     effective upon enactment.
     Conference Agreement
       Beginning in 2004, the Secretary is required to make 
     adjustments in practice expense relative value units for 
     certain drug administration services when establishing the 
     physician fee schedule. The Secretary is required to use the 
     survey data submitted by the American Society of Clinical 
     Oncology (ASCO) in 2002 because it meets criteria established 
     under the BBRA for use.
       The Secretary is required to add work relative value units 
     to certain drug administration services, equal to the work 
     relative value units for a level 1 office medical visit for 
     an established patient. These services are classified, as of 
     October 1, 2003, within any of the following groups of 
     procedures: therapeutic or diagnostic infusions (excluding 
     chemotherapy), chemotherapy administration services, and 
     therapeutic, prophylactic or diagnostic injections. Only 
     those services for which national relative value units, but 
     no work relative value units have been assigned by October 1, 
     2003 are included. These specified drug administration 
     services are intended to be those classified as of October 1, 
     2003, within HCPCs codes 90780-90781, 96400, 96408-96425, 
     96520, 96530 and 90782-90788, and as subsequently may be 
     modified by CMS, to provide work relative value units for CPT 
     code 99211 for a level 1 office medical visit for an 
     established patient.
       Starting in 2005, the Secretary is required to use 
     supplemental survey data to increase practice expense 
     relative values for other drug administration services in the 
     physician fee schedule if that supplemental survey data 
     include information on the expense associated with 
     administering drugs and biologicals, the survey meets 
     criteria for acceptance, and the survey is submitted by March 
     1, 2004, for 2005, or March 1, 2005 for 2006. This provision 
     will apply only to a specialty that received 40% or more of 
     its Medicare payments in 2002 from drugs and biologicals and 
     would not apply to the ASCO survey submitted in 2002.
       The Secretary is also required to promptly evaluate 
     existing drug administration codes for physicians' services 
     to ensure accurate reporting and billing for these services. 
     These codes should take into account levels of complexity of 
     the administration and resource consumption. The Secretary is 
     required to use existing processes for considering coding 
     changes and for incorporating appropriate changes in the 
     relative values for such services. As part of this process, 
     the Secretary is required to consult with representatives of 
     physician specialties affected by the changes in payment for 
     drugs under this section and, within the scope of existing 
     authority, expedite appropriate conclusions resulting from 
     these coding evaluations.
       The adjustments in practice expense relative value units 
     for certain drug administration services based on the ASCO 
     survey data are exempt from the budget neutrality 
     requirements in 2004. Adjustments in practice expense 
     relative value units for other drug administration services 
     in 2005, 2006, or 2007 based on the surveys or coding changes 
     described above are also exempt. Nothing in this section 
     shall prevent the Secretary making these practice expense 
     adjustments in subsequent years, subject to the budget 
     neutrality provisions.
       The Secretary is required to make adjustments to the non-
     physician work pool methodology so that the practice expense 
     relative values for other services in the pool are not 
     affected by the changes to practice expenses for drug 
     administration. This provision is intended to protect the 
     services in the non-physician work pool from payment 
     reductions resulting from changes made to the AWP payment 
     methodology. The budget neutrality waiver was included in 
     this section to ensure that the increase in practice expense 
     relative value units for drug administration services 
     (resulting from the use of new supplemental survey data) 
     would not be offset by decreases in the other non-physician 
     work pool services. The Secretary is further required to 
     review and appropriately modify Medicare's payment policy in 
     effect on October 1, 2003, for the administration of more 
     than one drug or biological to an individual on a single day 
     through the push technique. The increase in expenditures 
     resulting from this provision will be exempt from the budget-
     neutrality requirement in 2004. The Conferees strongly urge 
     the Secretary to make payment for these multiple pushes.
       A transitional adjustment or additional payment for 
     services furnished from April 1, 2004, through December 31, 
     2005 will be made for drug administration services. This Part 
     B payment is to be made to the physician and equals a 
     percentage of the payment otherwise made. The percent is 32 
     in 2004, and 3 in 2005.
       MedPAC is required to review the payment changes as they 
     affect payments for items and services furnished by 
     oncologists and for drug administration services furnished by 
     other specialists. This review will also include an 
     examination of the effect of such changes on the quality of 
     Part B services and beneficiary satisfaction with such care. 
     The Commission is required to submit a report to the 
     Secretary and Congress by January 1, 2006 on oncologists' 
     payments and by January 1, 2007 on drug administration 
     services furnished by other specialists. The reports may 
     include recommendations for further adjustments. The 
     Secretary could make appropriate adjustments to payments as 
     part of the rulemaking for physician payments for 2007.
       Section 303 exempts all physician specialties, other than 
     oncology, from the payment adjustments made to both 
     physicians' services and expenses for the administration of 
     drugs and biologicals in this section, and does not apply to 
     inhalation drugs in Section 305. Section 304 requires the 
     Secretary to disregard this exemption and apply the 
     adjustments in section 303 to these other specialties. The 
     intent in drafting the two sections in this manner is to 
     segregate the savings achieved from adjustments to payments 
     to oncologists from savings derived from other physician 
     specialties. The specialties to which the provisions apply 
     are the specialties as used by the carriers in administering 
     Medicare.
       Application of Market based Payment Systems (Sections 
     303(b) through Sections 303(d) of the Conference Agreement, 
     Section 303(b) of the House Bill and Section 432(a) of the 
     Senate Bill).
     Present Law
       Although Medicare does not currently provide an outpatient 
     prescription drug benefit, coverage of certain outpatient 
     drugs is authorized by statute. Specifically, under Medicare 
     Part B, outpatient prescription drugs and biologicals are 
     covered if they are usually not self-administered and are 
     provided incident to a physician's services. Drugs and 
     biologicals are also covered if they are necessary for the 
     effective use of covered durable medical equipment. In 
     addition, Medicare will pay for certain self-administered 
     oral cancer and anti-nausea drugs, erythropoietin (used to 
     treat anemia), immunosuppressive drugs after covered 
     Medicare organ transplants and hemophilia clotting 
     factors. Vaccines for diseases like influenza, pneumonia, 
     and hepatitis B are considered drugs and are covered by 
     Medicare. Payments for covered outpatient drugs are made 
     under Medicare Part B and are generally calculated using 
     the average wholesale price (AWP).
       The AWP is intended to represent the average price used by 
     wholesalers to sell drugs to their customers. It has been 
     based on prices reported by drug manufacturers, that are 
     published in industry reference publications or drug price 
     compendia. There are no uniform criteria for reporting these 
     numbers. Moreover, these reported prices do not reflect the 
     discounts that manufacturers and wholesalers customarily 
     offer to providers and physicians. AWP has never been defined 
     in either statute or regulation, but it is used to set 
     reimbursement amounts for drugs and biologicals covered under 
     the Medicare Part B benefit
       The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) 
     specified that Medicare payment for covered outpatient 
     prescription drugs would equal 95 percent of AWP. Current 
     Medicare payment rates are 95% of AWP for brand name drugs 
     produced by a single manufacturer (referred to single source 
     drugs.) Medicare pays 95% of the lower of (a) the median AWP 
     of all generic drugs or (b) the lowest brand-name product AWP 
     for drugs with 2 or more competing brand names drugs 
     (referred to as multisource or multiple source drugs) or 
     those drugs with available generic equivalents. Although 
     Medicare uses a Healthcare Common Procedure Coding System 
     (HCPCS) code to identify and pay for physician administered 
     drugs, AWPs are reported on the basis of national drug codes 
     (NDC), which are maintained by the Food and Drug 
     Administration (FDA). Every drug sold in the United States 
     has a unique NDC that provides information on its chemical 
     molecule, drug manufacturer, dosage, dosage from and package 
     size. In addition, there may be several multiple source or 
     generic drugs within a specific HCPCS code.
       There is substantial evidence that indicates that AWPs for 
     many Medicare-covered products far exceed the acquisition 
     cost paid by suppliers and physicians. Reliance on AWP 
     (instead of a market based price) has caused significantly 
     increased payments, as some use AWP to inflate payments made 
     for drugs to influence physician prescribing practices. This 
     has resulted in Medicare paying more than $1 billion per year 
     in excess overpayments for these products. Because Medicare 
     beneficiaries are also required to pay coinsurance amounts 
     equal to 20 percent of the Medicare payment amount, the 
     increased Medicare payment amounts resulting from inflated 
     AWPs cause Medicare beneficiaries to pay hundreds of millions 
     of extra dollars in inflated co-payments every year.
       Some physicians assert that the overpayment for drugs 
     covers underpayment for practice expenses. They contend that 
     Medicare does not adequately reimburse them for the practice 
     expenses associated with providing care in outpatient 
     settings. This section reduces the overpayment for drugs and 
     biologics, while increasing physician practice expenses.
       Since 1992, the HHS Office of the Inspector General OIG 
     (OIG) has raised concerns about how certain drug 
     manufacturers have established AWPs for certain of their 
     Medicare- covered drugs that were much higher than the prices 
     generally paid by the health care providers to those drug 
     companies. This difference--commonly referred to by the 
     industry and the health care community as the ``spread''--
     results in a profit to providers

[[Page H12030]]

     each time they administer such drugs to Medicare patients. 
     For example, in 1999, an oncologist could purchase 10 mgs of 
     doxorubicin, a chemotherapy agent, for $10.08, while 
     Medicare's reimbursement for that same dose was $42.92, 
     resulting in a profit to the providers of $32.84. The OIG, 
     based on a review of 24 of the Medicare-covered drugs, 
     estimate that such practices result in Medicare making $750 
     million each year in overpayments to these providers.
       Subsequently, the findings of this report were updated with 
     more current drug pricing. This updated report found that, of 
     the $3.7 billion Medicare spent for 24 drugs in 2000, if 
     Medicare paid the actual wholesale prices available to 
     physicians and suppliers for these 24 drugs, the program and 
     its beneficiaries would have saved $887 million a year.
       In addition to the financial toll on the U.S. Treasury, 
     these large spreads also affect Medicare beneficiaries, who 
     are often required to pay dramatically inflated co-payments 
     for the drugs they receive. These co-payments sometimes even 
     exceed the actual price that the provider has paid for the 
     drug. For example, leucovorin calcium, a chemotherapy agent, 
     had a beneficiary co-payment of $3.60 per dosage, while the 
     OIG estimated a provider could buy the same drug for $2.94, 
     and would receive a total reimbursement (including 
     beneficiary co-payment) of $18.02 per dose. OIG estimated 
     that if Medicare had paid reimbursements equal to widely 
     available wholesale prices, beneficiaries would have paid 
     $175 million less in coinsurance.
       A September, 2001, GAO report found that physicians can 
     obtain Medicare-covered drugs at prices significantly below 
     current Medicare payments. GAO found that the average 
     discount from AWP ranged from 13 percent to 34 percent, and 
     that two drugs had discounts of 65 percent and 86 percent.
       Evidence also suggests that certain types of health care 
     providers may also be making treatment decisions based at 
     least in part upon the amount of profit they can reap from 
     the use of certain drugs. In one particularly disturbing 
     example, a respiratory therapy drug, ipratropium bromide, saw 
     its utilization skyrocket after certain drug manufacturers 
     began to build a large spread in its price. In 1995, Medicare 
     reimbursed providers $14 million dollars for their use of 
     ipratropium bromide. After the spread was created, 
     utilization increased dramatically, to the point where 
     Medicare paid $250 million for the same drug in 1999, and 
     over $300 million in 2000 and 2001.
       In its recommendations to the Congress, the GAO urged CMS 
     to take steps to begin reimbursing providers for Part B-
     covered drugs and related services at levels reflecting 
     providers' acquisition costs using information about actual 
     market transaction prices. The GAO also recommended that CMS 
     should evaluate expanding competitive bidding approaches to 
     setting payment levels, and that CMS should monitor 
     beneficiary access to covered drugs in light of any changes 
     to reimbursement.
       The GAO also debunked some common myths generally held by 
     many in the health care community. Specifically, the GAO 
     found that despite concerns that the discounts available to 
     large purchasers would not be available to physicians with a 
     small number of drug claims, physicians with low volumes 
     reported that their purchase prices were the same or less 
     than the widely available prices GAO documented. GAO also 
     believes that Medicare should pay for each service 
     appropriately and not rely on overpayments for some 
     services to offset inadequate payments for complementary 
     services. The Committee shares this view, and believes the 
     legislation achieves this goal.
       The Committee on Ways and Means, the Committee on Energy 
     and Commerce and the Senate Finance Committee have all 
     conducted independent investigations and held public hearings 
     on the problems associated with using AWP as a reimbursement 
     benchmark. All three Committees have also examined the 
     reimbursement for drug administration through the Medicare 
     physician payment structure. Both reimbursement systems were 
     found to have serious flaws in methodology and application.
       More recently, the Centers for Medicare and Medicaid 
     Services issued a proposed rule on August 20, 2003, to 
     improve the way that Medicare pays for covered drugs and 
     asked for public input on the best way to achieve that goal. 
     The rule solicited comments on four differing approaches:
       Medicare would pay the same amounts for covered drugs that 
     private insurers pay; Medicare would apply a discount of 10 
     to 20 percent from the inflated average wholesale price in 
     2004 and then establish more reasonable payment updates in 
     future years; Medicare would use existing sources of market-
     based prices and would develop additional sources to monitor 
     market changes over time, such as drug price catalogs; or 
     Medicare would establish a competitive bidding process for 
     drugs and would also require drug companies to report their 
     average sales prices.
       Because of the serious flawed reimbursement methodology in 
     the current system, and absent a change in the statute, CMS 
     has indicated they will move forward with the rule.
     House Bill
       New sections 1847A and 1847B would be established. Under 
     1847A, the Secretary would be required to establish a 
     competitive acquisition program to acquire and pay for 
     covered outpatient drugs. Under this program, at least 2 
     contractors would be established in each competitive 
     acquisition area (which would be defined as an appropriate 
     geographic region) throughout the United States. Each year, a 
     physician would be able to select a contractor who would 
     deliver covered drugs and biologicals to the physician; 
     alternatively, a physician would be able to elect payment 
     under the use of the average sales price payment methodology 
     established by 1847B.
       Under the competitive acquisition program, there would be 2 
     categories of drugs under this program: the oncology category 
     (which would include drugs determined by the Secretary as 
     typically primarily billed by oncologists or are otherwise 
     used to treat cancer) which would be implemented beginning in 
     2005 and the non-oncology category which would be implemented 
     beginning in 2006. In this case, covered drugs means certain 
     drugs currently covered under Section 1842(o) of the SSA 
     which are not covered as part of the competitive acquisition 
     for durable medical equipment. Blood clotting factors, drugs 
     and biologicals furnished as treatment for end-stage renal 
     disease (ESRD), radiopharmaceuticals, and vaccines would not 
     be considered covered drugs under the competitive acquisition 
     program. The Secretary would also be able to exclude other 
     drugs and biologicals or classes of drugs and biologicals 
     that are not appropriate for competitive bidding or would not 
     produce savings.
       Certain contractor selection and contracting requirements 
     for the competitive acquisition program would be established. 
     Specifically, the Secretary would be required to establish an 
     annual selection process for a contractor in each area for 
     each of the 2 categories of drugs. The Secretary may not 
     award the 2-year contract to any entity that does not have 
     the capacity to supply covered outpatient drugs within the 
     applicable category or does not meet quality, service, and 
     financial performance and solvency standards established by 
     the Secretary. Specifically the entity would be required to 
     have (1) arrangements to ship covered drugs at least 5 days 
     of the week and on an emergency basis; (2) procedures for the 
     prompt response and resolution of physician and beneficiary 
     complaints and inquiries; (3) grievance resolution 
     procedures, including review by the Medicare Provider 
     Ombudsman established in this legislation. The Secretary 
     would not be able to contract with an entity that has had its 
     license for distributing drugs (including controlled 
     substances) suspended or revoked by the Federal or a State 
     government or that has been excluded from program 
     participation. A contractor would be required to comply with 
     a specified code of conduct, including conflict of interest 
     provisions as well as all applicable provisions relating to 
     the prevention of fraud and abuse. A contract would be able 
     to include the specifications with respect to secure 
     facilities, safe and appropriate storage of covered drugs, 
     examination of drugs, record keeping, written policies and 
     procedures, and compliance personnel. Those contractors may 
     be required to comply with additional product integrity 
     safeguards for drugs susceptible to counterfeiting or 
     diversion. Contracts would be able to be terminated by either 
     the Secretary or the entity with appropriate advance notice. 
     The Secretary would make the list of the available 
     contractors accessible to physicians on an ongoing basis, 
     through a directory posted on the Internet and provided by 
     request.
       The Secretary would be able to limit the number of 
     qualified entities in each category and area, but not below 
     two. The Secretary would be required to base selection on bid 
     prices for covered drugs, bid prices for distribution of 
     those drugs, ability to ensure product integrity, customer 
     service, past experience with drug distribution, and other 
     factors. This bid price would include all costs related to 
     the delivery of the drug or biological to the selecting 
     physician or other delivery point as well as all dispensing 
     and shipping costs. Costs relating to the administration of 
     the drug or biological or waste, spillage or spoilage would 
     not be included. As part of the awarded contract, the 
     selected contractor would be required to disclose the 
     reasonable, net acquisition costs regularly (but not more 
     often than once a quarter) as specified by the Secretary. The 
     selected contractor would also be required to disclose 
     appropriate price adjustments over the period of the contract 
     to reflect changes in reasonable, net acquisition costs.
       The Secretary would be able to reject the contract offer of 
     an entity for a category of drugs and biologicals if the 
     Secretary establishes that the aggregate average bid price 
     exceeds the average sales price (as determined under Section 
     1847B discussed subsequently). Nothing in the section would 
     prevent a bidder from submitting a contract offer to cover 
     all areas of the United States; nothing would prevent 
     requiring a bidder to submit a contract offer to cover all 
     areas of the United States. The amount of the bid price 
     submitted under a contract offer would be required to be the 
     same for all portions of the area. The Secretary would be 
     permitted to waive certain provisions of the Federal 
     Acquisition Regulation that are necessary for the efficient 
     implementation of this program, other than those relating to 
     confidentiality of information.
       The Secretary would be required to compute an area average 
     of the bid prices submitted, in contract offers accepted for 
     the category and the area, for each year or other

[[Page H12031]]

     contract period. The Secretary would apply special rules and 
     alternative payment amounts to establish a price for specific 
     covered drugs including new drugs and biologicals, oral 
     anti-cancer and immunosuppressive drugs. Generally, the 
     Secretary would not be able to adjust payments for drugs 
     under this section unless supplemental data is used to 
     adjust the practice expense payment adjustment. Also, if 
     the Secretary excludes a class of drugs or biologicals or 
     a specific item from the competitive acquisition program, 
     Medicare's payment would be based on the average sales 
     price methodology discussed subsequently. Beneficiary 
     liability would be limited to 20% of the payment basis for 
     the covered drug or biological.
       The contractor supplying the physician in the area would 
     submit the claim for the drug and would collect the cost-
     sharing amount from the beneficiary after administration of 
     the drug.Both program payment and beneficiary cost sharing 
     amounts would only be made to the contractor; would only be 
     made upon the administration of the drug; and would be based 
     on the average bid of prices for the drug and biological in 
     the area. The Secretary would be required to establish a 
     process for recovery of payments billed at the time of 
     dispensing for drugs that were not actually administered. The 
     Secretary would be required to establish an appeals process 
     for physicians that is comparable to those provided to a 
     physician who prescribes durable medical equipment or a 
     laboratory test.
       The appropriate contractor, as selected by the physician, 
     would supply covered drugs directly to the physician, except 
     under the circumstances when a beneficiary is presently able 
     to receive a drug at home. The Secretary would be able to 
     specify other non-physician office settings where a 
     beneficiary would be able to receive a covered drug directly. 
     However, the contractor would not be able to deliver drugs to 
     a physician without first receiving a prescription as well as 
     other necessary information specified by the Secretary. A 
     physician would not be required to submit a prescription for 
     each individual treatment. The Secretary would establish 
     requirements, including adequate safeguards against fraud and 
     abuse and consistent with safe drug practices, in order for a 
     physician to maintain a supply of drugs that may be needed in 
     emergency situations. In order to maintain such an inventory, 
     a physician would be required to demonstrate that the drugs 
     would be immediately required, not reasonably foreseen as 
     immediately required, not able to be delivered by the 
     contractor in a timely manner, and administered in an 
     emergency situation. No applicable State requirements 
     relating to the licensing of pharmacies would be waived.
       The Secretary would be able to establish an advisory 
     committee to assist in the implementation of this program. 
     The Secretary would be required to report to Congress on 
     savings, reductions in cost-sharing, access to items and 
     services, the availability of contractors as well as 
     beneficiary and satisfaction under the competitive 
     acquisition program. These reports would be due each year 
     from 2005, 2006, and 2007.
       Alternatively, physicians would be able to elect payment 
     for covered outpatient drugs under a separate methodology 
     established in Section 1847B. Subject to the applicable 
     beneficiary coinsurance and deductible amount, a single and 
     multiple source drugs would be paid 112% of the applicable 
     price in 2005 and 2006 and 100% of the price subsequently. 
     The applicable price for all the products within multiple 
     source drug codes would be the reported volume-weighted 
     average of the average sales price; the applicable price for 
     a single source drug would be the lesser of the 
     manufacturer's average sales price for the NDC code or the 
     reported wholesale acquisition cost. The payment amount would 
     be determined without regard to any special packaging, 
     labeling or identifiers on the dosage form or product or 
     package.
       Starting for calendar quarters on or after April 1, 2004, 
     the average sales price would be calculated by NDC code each 
     calendar quarter by dividing a manufacturer's total sales by 
     the total number of units sold in that quarter. Certain sales 
     would be exempt from the calculation: (1) those sales that 
     are exempt from the Medicaid drug rebate program including 
     those to the Indian Health Service, the Department of 
     Veterans Affairs, a state Veterans home, the Department of 
     Defense, or the Public Health Services as well as any price 
     charged under the Federal Supply Schedule or used under a 
     state pharmaceutical assistance program; and (2) those sales 
     that do not reflect market prices, as determined by the 
     Secretary. The average sales price would take into account 
     volume discounts, prompt pay discounts, cash discounts, 
     chargebacks and certain rebates. The Secretary would be able 
     to disregard the average sales price during the first quarter 
     of a new drug's sales if the price data is not sufficient to 
     determine an average amount payable. The average sales price 
     would be determined by the manufacturer on a quarterly basis; 
     to the extent that data on rebates and chargebacks is 
     reported on a lagged basis, the manufacturer would apply the 
     12-month rolling average methodology to estimate the amount 
     of such discounts, as specified by the Secretary. The 
     wholesale acquisition cost would be the manufacturer's list 
     price for the drug to wholesalers or direct purchasers in the 
     United States for the most recent available month, not 
     including discounts or other price reductions, as reported in 
     wholesale price guides or other pricing publications. Payment 
     rates would be updated on a quarterly basis and based on the 
     most recent calendar quarter. The Secretary would be able to 
     use carriers, fiscal intermediaries or other contractors to 
     determine the payment amounts. Certain standards would be 
     established with respect to the definition of multiple source 
     and single source drugs. Certain determinations of 
     pharmaceutical equivalence and bioequivalence would be 
     established. There would be no administrative or judicial 
     review of the determination of the manufacturer's average 
     sale price.
       The Secretary would be able to use the wholesale 
     acquisition cost or other reasonable measure of drug price 
     instead of the manufacturer's average sale price in the case 
     of certain public emergencies where there is a documented 
     inability to access covered outpatient drugs and a related 
     increase in price. The alternative price would be used until 
     the price and availability of the drug or biological has 
     stabilized and is substantially reflected in the 
     manufacturer's average sale price.
       The Secretary would be required to submit an annual report 
     to the Committees of jurisdiction on the trends in average 
     sales prices, the administrative costs, and total value of 
     payment as well as a comparison of the average manufacturer's 
     sale price with the price established under the Medicaid drug 
     rebate program. The provision would be effective upon 
     enactment.
     Senate Bill
       Drugs or biologicals furnished before January 1, 2004 would 
     be paid at 95% of the AWP. In 2004, existing drugs and 
     biologicals would be paid the lower of the AWP or 85% of the 
     listed AWP as of April 1, 2003. In subsequent years, this 
     price would be increased by change the consumer price index 
     (CPI) for medical care for the previous year ending in June. 
     Existing drugs and biologicals are those first available for 
     payment on or before April 1, 2003. After January 1, 2004, 
     payments for influenza virus, pneumococcal pneumonia, and 
     hepatitis B vaccines would be equal to the AWP.
       The Secretary would be required to establish a process to 
     determine whether the widely available market price to 
     physicians and suppliers for drugs and biologicals furnished 
     in a year is different from the AWP amounts. This 
     determination would be based on: (1) any report on market 
     price published by the Inspector General (IG) of the 
     Department of Health and Human Services (HHS) or GAO after 
     December 31,1999; (2) a review of market prices by the 
     Secretary including information from insurers, private 
     health plans, manufacturers, wholesalers, distributors, 
     physician supply houses, specialty pharmacies, group 
     purchasing arrangements, physicians, suppliers or any 
     other appropriate source as determined by the Secretary; 
     (3) data submitted by the manufacturer of the drug or 
     biological or by another entity; and (4) other appropriate 
     information as determined by the Secretary. If the market 
     price for a drug or biological determined through this 
     process differs from the AWP amount, that market price 
     shall be treated as the AWP amount when determining 
     Medicare's payment for a drug or biological in 2004 and 
     subsequently. The Secretary would be able to make 
     subsequent determinations with respect to the widely 
     available market price for a given drug or biological. If 
     not, the prior market price determination will be 
     considered as the basis for Medicare's payment amount for 
     such an item.
       If, however, the first market price determination for a 
     given drug or biological would result in a payment amount 
     that is 15% less than would otherwise be made, the Secretary 
     would provide for an appropriate transition period where the 
     price is reduced in annual increments equal to 15% of 
     Medicare's payment amount in the previous year. At the end of 
     the transition period, the market price (as determined) would 
     serve as basis for Medicare's payment amount. This transition 
     period would not apply to a drug or biological where a 
     generic version of that drug or biological first enters the 
     market on or after January 1, 2004. The generic version would 
     not be required to be marketed under the chemical name of the 
     given drug or biological.
       New drugs and biologicals, those that are first available 
     for Medicare payment after April 1, 2003, would be subject to 
     certain requirements in order to obtain a code and receive 
     Medicare payment. A manufacturer would be required to provide 
     the Secretary with necessary and appropriate information on 
     the estimated price that the manufacturer expects physicians 
     and suppliers to pay to routinely obtain the drug or 
     biological; the manufacturer would be able to provide the 
     Secretary with other appropriate information as well. During 
     the first year that the drug or biological is available for 
     Medicare payment, the manufacturer would be required to 
     provide the Secretary with updated information on the actual 
     market prices paid by physicians or suppliers for such drugs 
     and biologicals. These market prices would be equal to the 
     lesser of the average wholesale price for the drug or 
     biological or the amount determined by the Secretary based on 
     information originally submitted by the manufacturer 
     supplemented by other appropriate information. The market 
     price of the drug or biological during the second year after 
     becoming available for Medicare payment is subject to the 
     same conditions as in the first year. In subsequent years, 
     the market price would be equal to the lesser of the

[[Page H12032]]

     average wholesale price or the widely available market price 
     as determined by the Secretary in the same fashion as for 
     existing drugs. If no market price determination occurs, then 
     Medicare's payment for the drug or biological in the prior 
     year is updated by the change in the CPI for medical care for 
     the previous year ending in June.
       The provision would be effective upon enactment.
       With respect to home infusion drugs and biologicals, the 
     Secretary would be able to make separate payments for these 
     drugs and biologicals furnished through covered DME on or 
     after January 1, 2004, if such payments are determined to be 
     appropriate. Total amount of payments for the infusion drugs 
     in the year could not exceed the total amount of spending 
     that would have occurred without enactment of this 
     legislation. The provision would be effective upon enactment.
     Conference Agreement
       Certain categories of drugs and biologicals will continue 
     to be paid at 95 percent of the AWP; these include a drug or 
     biological furnished before January 1, 2004; blood clotting 
     factors furnished during 2004; a drug or biological furnished 
     during 2004 that was not available for Part B payment as of 
     April 1, 2003; pneumococcal, influenza, and hepatitis B 
     vaccines; and a drug or biological (other than 
     erythropoietin) furnished in connection with renal dialysis 
     services that are separately billed by renal dialysis 
     facilities; and radiopharmaceuticals and blood products. In 
     general, payments for other drugs furnished in 2004 will 
     equal 85 percent of the average wholesale price (determined 
     as of April 1, 2003). Beginning in 2005, drugs and 
     biologicals, except for pneumococcal, influenza, and 
     hepatitis B vaccines and those associated with certain renal 
     dialysis services, will be paid using either the average 
     sales price methodology or through the competitive 
     acquisition program. Infusion drugs furnished through covered 
     durable medical equipment starting January 1, 2004 will be 
     paid at 95% of the AWP in effect on October 1, 2003; those 
     infusion drugs which may be furnished in a competitive 
     acquisition area starting January 1, 2007 will be paid on the 
     competitive price. Intravenous immune globulin will be paid 
     at 95% of AWP in 2004 and paid according to the average sales 
     price method beginning in 2005.
       The Secretary is authorized to substitute a different 
     percent of the April 1, 2003 AWP, based on the Secretary's 
     NPRM, but not less than 80%. Also, the Secretary may adjust 
     the price based on data submitted by the manufacturer of the 
     drug or biological by October 15, 2003.
       New sections 1847A and 1847B are established in the Social 
     Security Act. New Section 1847A establishes the use of the 
     average sales price methodology for payment for drugs and 
     biologicals (except for pneumococcal, influenza, and 
     hepatitis B vaccines, or drugs or biologicals furnished in 
     connection with certain renal dialysis services, blood or 
     blood products or radiopharmaceuticals) furnished starting 
     January 1, 2005. This methodology does not apply in the case 
     of a physician who elects to participate in the newly 
     established competition acquisition program established in 
     new Section 1847B; payments for drugs and biologicals will be 
     paid under that section instead.
       Medicare's payment under the average sales price 
     methodology will equal 106% of the applicable price for a 
     multiple source drug or single source drug, subject to the 
     applicable beneficiary deductible and coinsurance 
     requirements. The manufacturer will be required to specify 
     the unit associated with each National Drug Code (NDC) as 
     part of its Medicaid reporting requirements. Unit is defined 
     as the lowest identifiable quantity of the drug or biological 
     by NDC (including package size) that is dispensed, exclusive 
     of any diluents without reference to volume measures 
     pertaining to liquids. After 2004, the Secretary may 
     establish the counting method and unit for the manufacturer 
     to report.
       The applicable price for all drug products within the same 
     multiple source drug billing and payment code is the volume-
     weighted average of the sales prices. The applicable price 
     for single source drugs is the lesser of the manufacturer's 
     average sales price for an NDC or the wholesale acquisition 
     cost (WAC). A limited number of single source drugs and 
     biologicals are currently included in the same HCPCs codes, 
     along with other similar single source products. The 
     Conferees intend to exempt these products from the definition 
     of single source drugs or biologicals, and continue to allow 
     these products to be treated as multiple source drugs and be 
     included within the same HCPCs code. The payment amount is 
     determined without regard to any special packaging, labeling 
     or identifiers on the dosage form or product or package. 
     In the section, the term ``payment and billing code'' 
     shall mean the HCPCs code for such drug or biological.
       A manufacturer's average sales price is calculated by NDC 
     code for each calendar quarter by dividing a manufacturer's 
     total sales by the total number of units sold in that 
     quarter. Certain sales are exempt from the calculation: (1) 
     certain sales that are exempt from the Medicaid drug rebate 
     program including those to the Indian Health Service, the 
     Department of Veterans Affairs, a state Veteran's home, the 
     Department of Defense, or the Public Health Services; and (2) 
     sales that are nominal in amount, as used in the Medicaid 
     rebate program. The average sales price will take into 
     account volume discounts, prompt pay discounts, cash 
     discounts, free goods that are contingent on any purchase 
     requirement, chargebacks and certain rebates (not including 
     Medicaid rebates). After 2004, the Secretary may include 
     other price concessions that result in a price reduction to 
     the purchaser as may be recommended by the Inspector General.
       The Secretary will be able to disregard the average sales 
     price during the first quarter of a new drug's sales if the 
     price data is not sufficient to determine an average amount 
     payable. The average sales price will be calculated by the 
     manufacturer on a quarterly basis; to the extent that data on 
     rebates and chargebacks is reported on a lagged basis, the 
     manufacturer will apply the 12-month rolling average 
     methodology to estimate the amount of such discounts, as 
     specified by the Secretary. After 2004, the Secretary may 
     establish a uniform methodology to estimate and apply such 
     costs. Payment rates will be updated on a quarterly basis. 
     The Secretary may contract with appropriate entities to 
     determine the payment amounts. The Secretary may implement 
     any provision of this section by program instruction or 
     otherwise.
       To monitor market prices, the Inspector General will 
     conduct studies, which may include market surveys, to 
     determine market prices of drugs and biologicals paid under 
     this section. The Inspector General will compare average 
     sales price under Medicare with the widely available market 
     price and the average manufacturer price. The Secretary may 
     disregard the average sales price reported by a manufacturer 
     if this price exceeds the market price or average 
     manufacturer price by a threshold percentage. In 2005 the 
     threshold is 5%; in 2006 and subsequent years, the percentage 
     threshold will be specified by the Secretary. If the 
     Inspector General finds that the average sales price for a 
     drug or biological exceeds the widely available market price 
     or average manufacturer price by the applicable threshold, 
     the Inspector General will inform the Secretary at specified 
     times, and the Secretary will substitute a payment amount 
     equal to the lesser of the widely available market price or 
     106 percent of the average manufacturer price.
       The section requires that in order to have a drug covered 
     under both Medicare and Medicaid, a manufacturer must submit 
     information quarterly on the manufacturer's average sales 
     price, total number of units, wholesale acquisition cost and 
     sales made at nominal price. The Conferees intend that if a 
     manufacturer knowingly (as defined by section 3729(b) of the 
     False Claims Act) submits false information, that such 
     submission be considered a ``false record or statement'' made 
     or used ``to get a false or fraudulent claim paid or approved 
     by the government'' for purposes of section 3729(a)(2) of 
     title 31, United States Code, known as the False Claims Act. 
     Thus if a manufacturer knowingly submits any false 
     information, the manufacturer would be fully subject to 
     liability under the False Claims Act.
       The Conferees intend that that the Secretary, in making 
     determinations to use the widely available market price, 
     rather than the ASP, would provide a number of procedural and 
     substantive safeguards to ensure the reliability and validity 
     of the data used to make such determinations. These 
     safeguards would include notice and comment rulemaking, 
     identification of the specific sources of information used to 
     make such determinations, and explanations of the methodology 
     and criteria for selecting such sources.
       If the Secretary determines that a manufacturer has 
     misrepresented the average sales price of a drug, the 
     Secretary may apply a civil monetary penalty of up to $10,000 
     for each price discrepancy and for each day in which the 
     price misrepresentation was applied. In this subsection for 
     drugs furnished in a year after 2004, the widely available 
     market price is the price that a prudent physician or 
     supplier would pay for a drug or biological, taking into 
     account discounts, rebates and other price concessions 
     routinely made available. The Secretary will consider 
     information from one or more of the following sources 
     including manufacturers, wholesalers, distributors, physician 
     supply houses, specialty pharmacies, group purchasing 
     arrangements, physician and supplier surveys as well as 
     information on market prices from insurers and private health 
     plans.
       The Secretary will be able to use the wholesale acquisition 
     cost or other reasonable measure of drug price instead of the 
     manufacturer's average sale price in the case of certain 
     public emergencies where there is a documented inability to 
     access covered outpatient drugs and a related increase in 
     price (which is not reflected in the manufacturer's average 
     sale price for one or more quarters). The alternative price 
     will be used until the price and availability of the drug or 
     biological has stabilized and is substantially reflected in 
     the manufacturer's average sale price.
       There will be no administrative or judicial review of 
     determinations of payment amounts including the assignment of 
     NDCs to billing and payment codes; the identification of 
     units and package size; the method to allocate rebates, 
     chargebacks, and other price concessions to a quarter, the 
     manufacturer average sales price when it is used for 
     Medicare's price determinations, and the disclosure of the 
     average manufacturer price under certain situations.

[[Page H12033]]

       The Secretary will conduct a study on the sales of drugs 
     and biologicals to large volume purchasers such as pharmacy 
     benefit managers to determine whether the price at which 
     drugs and biologicals are sold to these purchasers represents 
     the price made available to physicians. The Secretary will 
     submit a report to Congress, including recommendations, on 
     whether sales to large volume purchasers should be excluded 
     from the computation of the manufacturer's average sale 
     price. Upon completion of this report, the Secretary may 
     require that manufacturers separately report these prices, 
     which may also then be excluded from future calculations of 
     ASP, if the Secretary determines that doing so would be 
     better reflect prices available to prudent physicians.
       Under the new Section 1847B, the Secretary would be 
     required to establish a competitive acquisition program to 
     acquire and pay for competitively biddable drugs and 
     biologicals. Under the program, competitive acquisition areas 
     (defined as an appropriate geographic region) will be 
     established throughout the United States. Each year, a 
     physician would be able to select a contractor who would 
     deliver covered drugs and biologicals to the physician; 
     alternatively, a physician would be able to elect payment 
     using the methodology established by Section 1847A. Conferees 
     intend this choice to be completely voluntary on behalf of 
     the physician. Use of this system should reduce 
     administrative and inventory costs for physicians. In 
     addition, because physicians do not take title to the drug, 
     their liability is reduced.
       Under the competitive acquisition program, categories of 
     competitively biddable drugs under this program will be 
     established, and the program will be phased in beginning in 
     2006. In order to promote competition and the efficient 
     operation of the program, the Secretary would be able to 
     waive provisions of the Federal Acquisition Regulation, other 
     than those relating to confidentiality of information and 
     other provisions deemed appropriate by the Secretary.
       Competitively biddable drugs and biologicals exclude 
     pneumococcal, influenza, and hepatitis B vaccines or drugs or 
     biologicals (other than erythropoietin) furnished in 
     connection with renal dialysis services furnished starting 
     January 1, 2006, radiopharmaceuticals, IVIG products and 
     blood products. Conferees do not intend to exclude 
     therapeutic vaccines, such as new vaccines used to treat 
     cancer that may be in development. The Secretary will be able 
     to exclude competitively biddable drugs and biologicals 
     including classes of such drugs and biologicals that are not 
     appropriate for competitive bidding, if such inclusion is not 
     likely to result in significant savings or is likely to have 
     an adverse impact on access to the drugs and biologicals. The 
     Secretary may provide for payment of these excluded drugs and 
     biologicals (or class of same) using the average sale price 
     methodology established in Section 1847A. Conferees intend 
     the use of the exclusion authority to apply in exceptional 
     cases. Such authority is not intended to be a system wide 
     replacement for competitive bidding.
       The contractor supplying the physician in the area will 
     submit the claim for the drugs and biologicals and will 
     collect the cost-sharing amount from the beneficiary after 
     administration of the drug. Both program payment and 
     beneficiary cost sharing amounts will only be made to the 
     contractor and will only be made upon the administration of 
     the drug or biological. The Secretary is required to 
     establish a process for recovery of payments billed at the 
     time of dispensing of drugs or biologicals that were not 
     actually administered as well as a process by which 
     physicians submit information to contractors for the purposes 
     of collection of any applicable deductible or coinsurance 
     amounts. Payment could only be made to the contractor, 
     provided the contractor has a contract and the physician 
     elects that contractor for such category of drug or 
     biological for the area. Alternatively, the physician may 
     elect Section 1847A to apply.
       Certain contractor selection and contracting requirements 
     for the competitive acquisition program are established. 
     Specifically, the Secretary is required to establish an 
     annual selection process for a contractor in each area for 
     each category of drugs and biologicals. The selection of the 
     contractor will be made at the time the physician elects to 
     participate in the program established under Section 1847B. 
     The Secretary will make a list of contractors in the 
     different competitive acquisition area who are available to 
     physicians on an ongoing basis through a directory posted on 
     the Internet website of the Centers for Medicare & Medicaid 
     Services, and through the annual CMS ``Dear Doctor'' 
     campaign.
       The Secretary will conduct a competition among entities for 
     the acquisition of at least one competitively biddable drug 
     or biological that is a multiple source or a single source 
     drug or biological within each billing and payment code 
     within each category for each area. The competition within a 
     HCPCS code for multiple source drug products is intended to 
     produce competitive forces that will lower bid prices for 
     drugs. Because multiple source drugs and generics within a 
     HCPCS code are therapeutically equivalent, such competition 
     will ensure access to appropriate therapeutic products. The 
     Secretary may not award the 3-year contract to any entity 
     that does not have the capacity to supply competitively 
     biddable drugs or biologicals within the applicable category 
     or does not meet quality, service, and financial performance 
     and solvency standards established by the Secretary. 
     Specifically, the entity would be required to have (1) 
     sufficient arrangements to ship competitively biddable drugs 
     and biologicals at least 5 days of the week in order for the 
     timely delivery (including for emergency situations) of such 
     drugs and biologicals; (2) procedures for the prompt response 
     and resolution of physician and beneficiary complaints and 
     inquiries regarding the shipment of these drugs; and (3) a 
     grievance and appeals process. Review of complaints by the 
     Medicare Provider Ombudsman has been established in Section 
     923 of this legislation. The Secretary will not be able to 
     contract with an entity that has had its license for 
     distributing drugs (including controlled substances) 
     suspended or revoked by the Federal or a State Government or 
     that has been excluded from program participation.
       The Secretary will be able to limit the number of qualified 
     entities in each category and area, but not below 2 for any 
     category and area. The Secretary is required to base 
     selection on bid prices for competitively biddable drugs and 
     biologicals, bid prices for distribution of those drugs and 
     biologicals, ability to ensure product integrity, customer 
     service, past experience with drug and biologic distribution, 
     and other factors.
       The contract is subject to terms and conditions that the 
     Secretary may specify. The contract will be for a term of 3 
     years, but may be terminated by either the Secretary or the 
     entity with appropriate notice. The Secretary must require 
     that all drugs and biological products distributed by a 
     contractor be acquired directly from the manufacturer or from 
     a distributor that has acquired the products directly from 
     the manufacturer. Nothing in this provision relieves or 
     exempts any contractor from the requirements of the Federal 
     Food, Drug, and Cosmetic Act that relate to the wholesale 
     distribution of prescription drugs or biologicals. Conferees 
     want to ensure the safe distribution of drugs and to ensure 
     counterfeiting and adulteration is minimized. Such measures 
     include includes the safe and appropriate storage of drugs 
     and biologicals, disposition of damaged and outdated drugs 
     and biologicals and appropriate record keeping and compliance 
     personnel.
       Contractors will be required to comply with a code of 
     conduct and fraud and abuse rules. Specifically, the 
     contractor will comply with standards relating to conflicts 
     of interest and all applicable provisions and guidelines 
     relating to the prevention of fraud and abuse established by 
     the Department of Justice and the Inspector General.
       The appropriate contractor, as selected by the physician, 
     will supply competitively biddable drugs and biologicals 
     directly to the physician, except under the circumstances 
     when a beneficiary is presently able to receive a drug at 
     home or other non-physician office settings as the Secretary 
     may provide. The contractor shall not deliver drugs to a 
     physician without first receiving a prescription as well as 
     other necessary information specified by the Secretary. 
     However, a physician would not be required to submit a 
     prescription for each individual treatment or change a 
     physician's flexibility in terms of writing a prescription 
     for a single treatment or course of treatment. Conferees do 
     not intend contractors to mix drug products prior to a 
     patient's visit, but may do so should it be clinically 
     advised. If specialty pharmacies mix products under the 
     program for a specific patient, it should be done only to the 
     benefit of the patient. Such cases may include a physician 
     office that lacks the ability to mix Part B drugs in 
     compliance with medical, clinical and environmental 
     standards. In no way do conferees intend the requirements for 
     the competition program to impair a patient's access to 
     health treatment as a result of changes in the patient's 
     health status, including pre-mixed drugs or biologics.
       The Secretary is required to establish rules allowing 
     physicians to use drugs or biologics from their own 
     inventories in emergency situations consistent with safe drug 
     practices and with adequate safeguards against fraud and 
     abuse. In order to resupply such an inventory, a physician 
     will be required to demonstrate that the drugs are 
     immediately required; that the immediate need could not 
     reasonably have been foreseen, that the drugs could not be 
     delivered by the contractor in a timely manner, and that the 
     drugs were administered in an emergency situation. No 
     applicable State requirements relating to the licensing of 
     pharmacies are waived.
       The Secretary is required to base selection of the 
     contractors on several factors including bid prices. Bid 
     prices are those in effect and available through the entity 
     for the contract period and includes all costs related to the 
     delivery of the drug or biological to the selecting physician 
     or other delivery point as well as all dispensing and 
     shipping costs. Costs relating to the administration of the 
     drug or biological or waste, spillage or spoilage are not 
     included. As part of the awarded contract, the selected 
     contractor will be required to disclose the reasonable, net 
     acquisition costs regularly (but not more often than once a 
     quarter) as specified by the Secretary. The selected 
     contractor will also be required to disclose appropriate 
     price adjustments over the period of the contract to reflect 
     changes in reasonable, net acquisition costs.
       Payments would be based upon bids submitted and accepted, 
     and the Secretary

[[Page H12034]]

     would determine a single payment amount for each drug in an 
     area. The Secretary will apply special rules and alternative 
     payment amounts to establish a price for specific 
     competitively biddable drugs and biologicals, including new 
     drugs and biologicals (for which an average bid price has not 
     been previously determined) and other exceptional cases 
     specified in regulations. Medicare's payment for these drugs 
     equals 80% of the payment amount after the Medicare 
     beneficiary meets the applicable deductible. Generally, these 
     coinsurance and deductible amounts will be collected by the 
     contractor that supplies the drug or biological which may be 
     collected in a similar manner as those collected for durable 
     medical equipment.
       Nothing in the section prevents a bidder from submitting a 
     contract offer to cover all areas of the United States. 
     Similarly, nothing would require a bidder to submit a 
     contract offer to cover all areas of the United States. The 
     amount of the bid price submitted under a contract offer is 
     required to be the same for all portions of the area.
       The Secretary will establish a procedure under which a 
     prescribing physician has certain appeal rights that are 
     similar to those provided to a physician who prescribes 
     durable medical equipment or a clinical diagnostic laboratory 
     test. Certain provisions specified in Section 1842(o)(3) with 
     respect to assignment will also apply to claims for 
     competitively biddable drugs and biologicals. Certain 
     protections against liability in case of adverse medical 
     necessity determination will apply to Medicare beneficiaries. 
     There shall be no administrative or judicial review with 
     respect to the establishment of payment amounts, contract 
     awards, establishment of competitive acquisition areas, the 
     phased in implementation, the selection of categories of 
     competitively biddable drugs and biologicals for competitive 
     acquisition or the bidding structure or number of contractors 
     who are selected.
       No later than July 1, 2008, the Secretary is required to 
     report to Congress on savings, reductions in cost-sharing, 
     access to competitively biddable drugs and biologicals, the 
     range of choices of contractors available to providers as 
     well as beneficiary and provider satisfaction under the 
     competitive acquisition program. The report will also examine 
     the information comparing prices for drugs in the competitive 
     acquisition program and under the application of the average 
     sales price methodology under Section 1847A.
       In developing rules to implement this section, the 
     Secretary should seek public comment on factors that 
     disadvantage certain covered drugs based on drug forms and 
     delivery and dispensing modes, and which may result in 
     increased Medicare expenditures.
       Items and Services Relating to Furnishing of Blood Clotting 
     Factors (Section 303(e)(1) of the Conference Agreement and 
     Section 303(f) of the House Bill).
     Present Law
       Medicare will pay for blood clotting factors for hemophilia 
     patients who are competent to use such factors to control 
     bleeding without medical supervision, as well as the items 
     related to the administration of such factors.
     House Bill
       MedPAC would be required to submit to Congress specific 
     recommendations with respect to payment for blood clotting 
     factors and its administration in its 2004 annual report. The 
     provision would be effective upon enactment.
     Senate Bill
       The Secretary is required to review the GAO report on 
     payment for blood clotting factors and provide a separate 
     payment for the administration of these factors. The total 
     amount of payments for blood clotting factors furnished in 
     CY2004 would not exceed the amount that would have otherwise 
     been expended. In CY2005 and subsequently, this separate 
     payment amount would be updated by the change in the CPI for 
     medical care for the previous year ending in June. The 
     provision would be effective upon enactment.
     Conference Agreement
       The Secretary is required to review the GAO report on 
     payment for blood clotting factors and provide a separate 
     payment for the administration of these factors. The payment 
     amount may take into account the mixing (if appropriate) and 
     delivery of factors to an individual, including special 
     inventory management and storage requirements as well as 
     ancillary supplies and patient training necessary for self-
     administration. The total amount of payments for blood 
     clotting factors furnished in CY2005 can not exceed the 
     amount that would have otherwise been expended. In CY2006 and 
     subsequently, this separate payment amount would be updated 
     by the change in the CPI for medical care for the previous 
     year ending in June.
       Pharmacy Supplying Fee for Certain Drugs and Biologicals 
     (Section 303(e)(2), Section 303(g) of the House Bill and 
     Section 432(b)(8) of the Senate Bill).
     Present Law
       Medicare pays for certain outpatient prescription drugs and 
     biologicals. For instance, Medicare pays a dispensing fee in 
     conjunction with inhalation therapy drugs used in nebulizers. 
     Medicare does not pay a dispensing fee to pharmacists or 
     providers who supply oral drugs.
     House Bill
       The Secretary would be required to provide for separate 
     payments in the physician fee schedule to cover the 
     administration and acquisition costs associated with covered 
     drugs and biologicals furnished by a contractor under the 
     competitive acquisition program. The provision would be 
     effective upon enactment.
     Senate Bill
       Medicare would pay a dispensing fee (less the applicable 
     deductible and coinsurance amounts) to licensed approved 
     pharmacies for covered immunosuppressive drugs, oral anti-
     cancer drugs, and oral anti-nausea drugs used as part of an 
     anti-cancer chemotherapeutic regimen. Medicare would be able 
     to pay a dispensing fee (less the applicable deductible and 
     coinsurance amounts) to licensed approved pharmacies for 
     other drugs and biologicals. The provision would be effective 
     upon enactment.
     Conference Agreement
       The Secretary is required to pay a supply fee (less the 
     applicable deductible and coinsurance amounts) to licensed 
     approved pharmacies for covered immunosuppressive drugs, oral 
     anti-cancer drugs, and oral anti-nausea drugs used as part of 
     an anti-cancer chemotherapeutic regimen. Such fee is not 
     meant to be a dispensing fee. The intent of the Conferees is 
     to not to include in such fee, amounts for cognitive 
     services.
       Linkage of Revised Drug Payments and Increases for Drug 
     Administration (Section 303(f) of the Conference Agreement 
     and Section 432(b)(1) of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       A linkage of revising drug payments to incorporate market 
     prices and payment increases for drug administration would be 
     established.
     Conference Agreement
       The Secretary cannot implement the revision in payment 
     amount for categories of drug or biological administered by 
     physicians unless the Secretary concurrently makes the 
     practice expense payment adjustment on the basis of survey 
     data as specified earlier.
       Prohibition of Administrative and Judicial Review (Section 
     303(g) of the Conference Agreement and Section 432(d) of the 
     Senate Bill).
     Present Law
       Medicare beneficiaries and, in certain circumstances, 
     providers and suppliers of health care services may appeal 
     adverse determinations regarding claims for benefits under 
     Part A and Part B. Section 1869 of the SSA allows these 
     parties who have been denied coverage of an item or service 
     the right to appeal that decision through a series of 
     administrative appeals and then into federal district court 
     under certain circumstances. Section 1878 of the SSA allows 
     providers who are dissatisfied with certain cost reporting 
     determinations that affect their reimbursement amounts the 
     right to appeal that decision in front of the Provider 
     Reimbursement Review Board and then into federal district 
     court if certain thresholds regarding the amount in dispute 
     are met at each step of the appeals process.
     House Bill
       No provision.
     Senate Bill
       The provisions concerning Medicare's determination of 
     payment amounts for existing and new drugs and biologicals 
     including the administration of blood clotting factors, home 
     infusion drugs and inhalation drugs would not be subject to 
     administrative or judicial review under Sections 1869 and 
     1878 of the SSA or otherwise. The provision would be 
     effective upon enactment.
     Conference Agreement
       The provisions concerning Medicare's determination of 
     payment amounts, methods or adjustments including those with 
     respect to a drug's widely available market price in 2004, 
     the administration of blood clotting factors, and pharmacy 
     supplying fees will not be subject to administrative or 
     judicial review under Sections 1869 and 1878 of the SSA or 
     otherwise. The provision would be effective upon enactment.
       The provisions concerning Medicare's determination of the 
     budget neutral adjustments, adjustments to the practice 
     expense relative value units for certain drug administration 
     services and other drug administration services will not be 
     subject to administrative or judicial review under Section 
     1869 of the SSA or otherwise. The provision would be 
     effective upon enactment.
       The provisions concerning Medicare's treatment of other 
     services currently in the non-physician work pool, payment 
     for multiple chemotherapy agents furnished on a single day 
     through the push technique, and the transitional adjustment 
     will not be subject to administrative or judicial review 
     under Sections 1869 and Section 1878 of the SSA or otherwise. 
     The provision would be effective upon enactment.
       Continuation of Payment Methodology for 
     Radiopharmaceuticals (Section 303(h) of the Conference 
     Agreement and Section 303(c) of the House Bill).
     Present Law
       Under certain circumstances, Medicare makes a separate 
     payment for supplies furnished in connection with a 
     procedure. Medicare will pay separately for pharmaceutical

[[Page H12035]]

     or radiopharmaceutical supplies when procedures such as 
     diagnostic radiolologic procedures or other diagnostic tests 
     requiring a pharmacological stressing agent.
       Although Medicare uses the Healthcare Common Procedure 
     Coding System (HCPCS) codes to identify and pay for physician 
     administered drugs, the AWPs are established for national 
     drug codes (NDC) codes that are maintained by the Food and 
     Drug Administration (FDA). Until January 1, 2003, each 
     Medicare carrier would convert NDC codes into HCPCS codes in 
     order to develop AWP-based payments for physicians in its 
     area. To address the variation in carrier-established drug 
     pricing methods, CMS implemented a single drug pricer (SDP), 
     a centrally administered fee schedule for covered outpatient 
     drugs on January 1, 2003. The SDP excludes 
     radiopharmaceuticals, outpatient hospital drugs, and drugs 
     paid by the durable medical equipment regional carriers 
     (DMERCs).
     House Bill
       These provisions would not affect the existing carrier 
     invoice pricing method used to pay for radiopharmaceuticals. 
     The provision would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement will not change the Part B payment 
     methodology for radiopharmaceuticals including the use by 
     carriers of the invoice pricing method.
       Conforming Amendments (Section 303(i) of the Conference 
     Agreement and Section 303(d) of the House Bill).
     Present Law
       No provision.
     House Bill
       The provisions in this section would not affect the 
     existing coverage for outpatient drugs. The collection of 
     data to calculate the manufacturer's average sales price and 
     the manufacturer's wholesale acquisition cost would be 
     included as part of the Medicaid drug rebate program for 
     calendar quarters beginning on or after April 1, 2004. 
     Information on sales that were made at a nominal price would 
     also be submitted and be subject to audit by the HHS 
     Inspector General. The provision would be effective upon 
     enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement includes conforming amendments to 
     the existing statutory language. A pharmacy-dispensing fee 
     will not be paid when payment for a drug is made under the 
     average sales price or competitive acquisition program. The 
     provisions in this section will not affect the existing 
     coverage for outpatient drugs. The list of services paid for 
     under Part B will be amended to include drugs paid for under 
     Sections 1847, 1847A, and 1847B. Information by NDC 
     (including package size) on the manufacturer's average sales 
     price and total number of units; the manufacturer's wholesale 
     acquisition cost; sales that were made at a nominal price 
     will be included as part of the Medicaid drug rebate program 
     for calendar quarters beginning on or after January 1, 2004. 
     This information will be subject to audit by the Inspector 
     General. The Secretary will be able to survey wholesalers and 
     manufacturers that directly distribute covered outpatient 
     drugs to verify average sales price (including wholesale 
     acquisition cost) under the Medicaid drug rebate program. The 
     provisions with respect to the Congressional review of agency 
     rulemaking will not apply with respect to regulations that 
     implement adjustments to the physician fee schedule or the 
     application of market based payment systems. The existing 
     requirement that the Secretary study the effect on AWP of 
     Medicare's policy to pay for covered outpatient drugs at 95% 
     of AWP is repealed.
     Extension
       Payment for Inhalation Drugs and Certain Other Drugs 
     (Section 305 of the Conference Agreement, Section 602(c) of 
     the House Bill, and Section 432(b)(7) of the Senate Bill).
     Present Law
       Medicare will cover outpatient prescription drugs and 
     biologicals if they are necessary for the effective use of 
     covered durable medical equipment (DME), including those 
     drugs that must be put directly into the equipment such 
     respiratory drugs given through a nebulizer (inhalation 
     drugs).
     House Bill
       GAO would be required to conduct a study to examine the 
     adequacy of current reimbursements for inhalation therapy 
     under the Medicare program and submit the results of the 
     study in a report to Congress no later than May 1, 2004.
     Senate Bill
       The Secretary would be able to increase payments for 
     covered DME associated with inhalation drugs and biologicals 
     and make separate payments for such drugs and biologicals 
     furnished through covered DME on or after January 1, 2004, if 
     such payments are determined to be appropriate. The 
     associated spending attributed to the increased and separate 
     payments for the covered DME and inhalation drugs and 
     biologicals in the year would not exceed the 10% of 
     the difference between the savings in total spending for 
     these drug and biologicals attributed to the prescription 
     drug pricing changes enacted in this legislation. The 
     provision would be effective upon enactment.
     Conference Agreement
       Inhalation drugs or biologicals furnished through covered 
     durable medical equipment that is not described in 
     subparagraph (A)(iv) will be paid at 85% of AWP in 2004. In 
     2005, it will be the amount provided under the average sales 
     price methodology.
       GAO is required to conduct a study to examine the adequacy 
     of current reimbursements for inhalation therapy under the 
     Medicare program and submit the results of the study in a 
     report to Congress no later than 1 year from the enactment 
     date of this legislation.
       Demonstration Project for Use of Recovery Audit Contractors 
     (Section 305 of the Conference Agreement and Section 304 of 
     the House Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to conduct a demonstration 
     project for up to 3 years on the use of recovery audit 
     contractors under the Medicare Integrity Program. The 
     recovery audit contractors would identify underpayments and 
     overpayments in the Medicare program and would recoup 
     overpayments made to providers. Payment would be made to 
     these contractors on a contingent basis, a percentage of the 
     amount recovered by the contractors would be able to be 
     retained by the Secretary and available to the program 
     management account of Centers for Medicare & Medicaid 
     Services (CMS), and the Secretary would be required to 
     examine the efficacy of using these contractors with respect 
     to duplicative payments, accuracy of coding, and other 
     payment policies in which inaccurate payments arise. The 
     demonstration project would be required to cover at least 2 
     states that are among the states with the highest per-capita 
     utilization rates of Medicare services and have at least 3 
     recovery audit contractors. The Secretary would be able to 
     waive Medicare statutory provisions to pay for the services 
     of the recovery audit contractors. Recovery of an overpayment 
     through this project would not prohibit the Secretary or the 
     Attorney General from investigating and prosecuting 
     appropriate allegations of fraud and abuse. Fiscal 
     intermediaries, carriers, and Medicare Administrative 
     Contractors would not be eligible to participate as a 
     recovery audit contractor. The Secretary would be required to 
     show preference to contracting with entities that have 
     demonstrated more than 3 years direct management experience 
     and a proficiency in recovery audits with private insurers or 
     state Medicaid programs. Within 6 months of completion, the 
     Secretary would be required to report to Congress on the 
     project's savings to the Medicare program, including 
     recommendations on the cost-effectiveness of extending or 
     expanding the program. The provision would be effective upon 
     enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to conduct 
     a demonstration project for up to 3 years on the use of 
     recovery audit contractors under the Medicare Integrity 
     Program. The recovery audit contractors will identify 
     underpayments and overpayments in the Medicare program and 
     recoup overpayments made to providers. Payment may be made to 
     these contractors on a contingent basis, a percentage of the 
     amount recovered by the contractors is to be retained by the 
     Secretary and available to the program management account of 
     the Centers for Medicare & Medicaid Services (CMS), and the 
     Secretary is required to examine the efficacy of using these 
     contractors with respect to duplicative payments, accuracy of 
     coding, and other payment policies in which inaccurate 
     payments arise.
       The demonstration project is required to cover at least 2 
     states that are among the states with the highest per-capita 
     utilization rates of Medicare services and that have at least 
     3 recovery audit contractors. The Secretary is required to 
     waive Medicare statutory provisions as necessary in order to 
     pay for the services of the recovery audit contractors. The 
     Secretary is required to show preference to contracting with 
     entities that have demonstrated more than 3 years direct 
     management experience and a proficiency in recovery audits 
     with private insurers or state Medicaid programs. Fiscal 
     intermediaries, carriers, and Medicare Administrative 
     Contractors are not eligible to participate as a recovery 
     audit contractor. Recovery of an overpayment through this 
     project does not prohibit the Secretary or the Attorney 
     General from investigating and prosecuting allegations of 
     fraud or abuse arising from the overpayment. Within 6 months 
     of completion, the Secretary is required to report to 
     Congress on the project's savings to the Medicare program, 
     including recommendations on the cost-effectiveness of 
     extending or expanding the program. The provision is 
     effective upon enactment.
       Pilot Program for National and State Background Checks on 
     Direct Patient Access Employees of Long-Term Care Facilities 
     or Providers (Section 306 of the Conference Agreement and 
     Section 620 of the Senate Bill).
     Present Law
       Nursing homes and home health agencies may request the 
     Federal Bureau of Investigation (FBI) to search its all-state 
     national data bank of arrest and convictions for the

[[Page H12036]]

     criminal histories of applicants who would provide direct 
     patient care, as long as states establish mechanisms for 
     processing these requests. Most states have enacted laws that 
     require or allow nursing homes and home health agencies to 
     conduct these criminal background checks for certain 
     categories of potential employees. The Attorney General may 
     charge nursing homes and home health agencies fees of no 
     greater than $50 per request.
       To conduct a criminal background check, nursing homes and 
     home health agencies must provide a copy of an applicants 
     fingerprints, a statement signed by the applicant authorizing 
     the search, and other information to the appropriate state 
     agency. Such information must be provided no later than 7 
     days after its acquisition by the nursing home or home health 
     agency. Nursing facilities or home health care agencies that 
     deny employment based on reasonable reliance on information 
     from the Attorney General are exempt from liability for any 
     action brought by the applicant. The information received 
     from either the state or Attorney General may be used 
     only for the purpose of determining the suitability of the 
     applicant for employment by the agency in a position 
     involved in direct patient care.
       HHS maintains a national health care fraud and abuse data 
     base, the Healthcare Integrity and Protection Data Bank 
     (HIPDB), for the reporting of final adverse actions, 
     including health care related civil judgments and criminal 
     convictions of health care practitioners, providers and 
     suppliers. This information is currently available for self-
     query by government agencies, health plans, health care 
     providers, suppliers and practitioners. All states also 
     maintain their own registries of persons who have completed 
     nurse aide training and competency evaluation programs and 
     other persons for whom the state determines meet the 
     requirements to work as a nurse aide. Included in these 
     registries are data describing state findings of resident 
     neglect, abuse and/or the misappropriation of resident 
     property.
       State agencies that survey providers to ensure they meet 
     Medicare and/or Medicaid requirements for participation are 
     referred to as survey and certification agencies, or state 
     survey agencies. Under current law, state survey agencies are 
     required to investigate allegations of resident neglect, 
     abuse and/or the misappropriation of resident property in 
     nursing homes.
     House Bill
       No provision.
     Senate Bill
       Medicare and/or Medicaid certified nursing homes, home 
     health agencies, hospices, long-term care hospitals, 
     intermediate care facilities for the mentally retarded (ICF/
     MRs), and other entities providing long-term care services 
     would be required to initiate background checks for certain 
     workers. These workers would include those licensed, 
     certified, nonlicensed, or contracted employee of a long term 
     care facility or provider (other than a volunteer) that has 
     access to a patient or resident, including nurse assistants, 
     nurse aides, home health aides, individuals who provide home 
     care, and personal care workers and attendants.
       Providers would be required to: (1) give written notice to 
     workers about background checks, (2) obtain a written 
     statement disclosing any conviction for a relevant crime or 
     finding of patient or resident abuse from the worker, (3) 
     receive written permission from workers authorizing a 
     criminal background check, (4) obtain fingerprints or thumb 
     prints of workers, (5) conduct self- queries of the HIPDB, 
     and (6) comply with other information requirements specified 
     by the Secretary. States would then be required to check 
     state arrest and conviction data banks, and if appropriate, 
     request the FBI to check national criminal history records on 
     behalf of providers that are required to conduct these 
     background checks.
       The long-term care providers would be prohibited from 
     employing a worker who has any conviction for a relevant 
     crime or a finding of patient or resident abuse. Those found 
     to violate these requirements would be subject to criminal 
     penalty fines and/or imprisonment. Providers that are found 
     to violate these requirements would face civil monetary 
     fines. Providers would be permitted to provisionally employ 
     workers pending completion of the criminal background checks 
     as long as they comply with supervisory requirements. Special 
     consideration would be given to rural facilities and home 
     health providers.
       Providers would be reimbursed for their costs associated 
     with the requirements of this provision by the Secretary of 
     HHS. The Attorney General could charge fees to any state 
     requesting a search and exchange of records. States could 
     also charge providers fees. Yet, providers could not charge 
     fees to workers.
       The nurse aide registry would be expanded to include all 
     employees of providers, including non-licensed workers, and 
     renamed an employee registry. Survey and certification 
     agencies would be required to investigate abuse and neglect 
     allegations and misappropriation of resident property 
     concerning any individual employed or used by any 
     participating health and long-term care providers. $10.2 
     million would be authorized to be appropriated for FY 2004, 
     with compliance with these provisions phases in for various 
     groups of providers.
       Grants would be available to public or private non-profit 
     entities to develop information on best practices in patient 
     abuse prevention training (including behavior training and 
     interventions) for managers and staff of hospital and health 
     care facilities, and for other purposes.
       Long-term care providers could access the HIPDB data bank 
     and HIPDB would be expanded to include findings of abuse, 
     neglect, or misappropriation of resident property. A report 
     would be due to Congress no later than 2 years after 
     enactment on the number of requests for searches and 
     exchanges of records, the disposition of requests, and the 
     cost of responding to such requests.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish pilot projects in no more than 10 states for the 
     purpose of expanding background checks for workers to other 
     Medicare and Medicaid long-term care providers. Long-term 
     care facilities or providers include Medicare- and/or 
     Medicaid-certified nursing homes, home health agencies, 
     hospices, long-term care hospitals, intermediate care 
     facilities for the mentally retarded (ICF/MRs), and other 
     entities that provide long-term care services (except for 
     those paid through a self-directed arrangement).
       States that agree to participate in this pilot project will 
     be responsible for monitoring provider compliance and must 
     establish procedures for workers to appeal or dispute the 
     findings of the background checks. The Secretary will 
     establish criteria for selecting those states seeking to 
     participate and pay those states for the costs of conducting 
     the pilot program (reserving 2% of the payments for the 
     program's evaluation).
       Long-term care providers in participating states are 
     required to: (1) give notice to new workers about background 
     checks, and (2) obtain a written statement disclosing any 
     conviction for a relevant crime or finding of patient or 
     resident abuse from the worker, (3) receive written 
     permission from workers authorizing a criminal background 
     check, (4) obtain a rolled set of finger prints of workers, 
     (5) obtain any other information specified by the state; and 
     (6) initiate a check of available registries that document 
     findings of resident or patient neglect, abuse, or 
     misappropriation of property (if no information about a 
     conviction of a relevant crime or finding of abuse are 
     found). Providers must also obtain information on the workers 
     from the state through a 10-fingerprint background check to 
     be conducted using state criminal records and the Integrated 
     Automated Fingerprint Identification system of the Federal 
     Bureau of Investigation. Disqualifying information for 
     employment includes information about a conviction for a 
     relevant crime, a finding of patient or resident abuse, or a 
     felony conviction related to health care fraud or a 
     controlled substance. Under the agreement, at least one state 
     should test if providers could contract with employment 
     agencies, subject to conditions specified by the state, to 
     conduct these background checks.
       Pending completion of the national and state criminal 
     history background checks, states may permit providers to 
     provisionally employ workers as long as they comply with 
     supervisory requirements established by the state. These 
     requirements would take into account the cost or other 
     burdens associated with small rural providers as well as the 
     nature of care delivered by home health or hospice providers.
       The information obtained from the check may only be used 
     for the purpose of determining the suitability of the 
     applicant for employment. Providers are also protected from 
     liability for denying employment based on reasonable reliance 
     on information from the background checks. For fiscal years 
     2005 and 2006, $25 million is appropriated from funds not 
     otherwise appropriated.
       GAO Study (Section 303(e) of the House Bill).
     Present Law
       No provision.
     House Bill
       GAO would be required to conduct a study to assess the 
     impact of amendments made by this section on the delivery of 
     services and their impact on access to drugs by 
     beneficiaries. The report would be due no later than 2007.
     Senate Bill
       GAO would be required to conduct a study that examines the 
     impact of the drug payment and adjustment provisions on the 
     access of Medicare beneficiaries' to covered drugs and 
     biologicals. The report, including appropriate 
     recommendations, would be due to Congress no later than 
     January 1, 2006. The Inspector General would be required to 
     conduct one or more studies that examine the market prices 
     for Medicare covered drugs and biologicals, which are widely 
     available to physicians and suppliers. The report would 
     examine those drugs and biologicals that represent the 
     largest portion of Medicare spending on such items and 
     include a comparison of market prices with Medicare payment 
     amounts.
     Conference Agreement
       No provision.
       Study on Codes for Non-Oncology Codes (Section 303(h) of 
     the House Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to submit a study to 
     Congress within one year of enactment that examines the 
     appropriateness of

[[Page H12037]]

     establishing and implementing separate codes for non-oncology 
     infusions that address the level of complexity and resource 
     consumption. If deemed appropriate, the Secretary would be 
     able to implement appropriate changes in the payment 
     methodology. The provision would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       Payment for Chemotherapy Drugs Purchased But Not 
     Administered by Physicians (Section 432(b)(9) of the Senate 
     Bill).
     Present Law
       Medicare does not pay for chemotherapy drugs that purchased 
     by physicians, are not dispensed, and must be discarded.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be able to compensate a physician for 
     chemotherapy drugs that are purchased with a reasonable 
     intent to administer to a Medicare beneficiary but which 
     cannot be administered despite the physician's reasonable 
     efforts, because the beneficiary is too sick or the 
     beneficiary's condition changes and the physician must 
     discard the drugs. The Secretary would be able to increase 
     the Medicare payment amount for all covered chemotherapy 
     drugs, but the total amount of the increase could not exceed 
     one percent of the payment for chemotherapy drugs. The 
     beneficiary's cost sharing amounts would not be affected. The 
     provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Extension of Medicare Secondary Payer Rules for Individuals 
     with End-Stage Renal Disease (Section 450F of the Senate 
     Bill).
     Present Law
       Generally, Medicare is the primary payer, that is, it pays 
     health claims first, with an individual's private or other 
     public plan filling in some or all of the coverage gaps. In 
     certain cases, the beneficiary's other coverage pays first, 
     while Medicare is the secondary payer. This is known as the 
     Medicare secondary payer (MSP program). The MSP provisions 
     apply to group health plans for the working aged, large group 
     health plans for the disabled, and, for 30 months, employer 
     health plans for the end-stage renal disease (ESRD) 
     population.
     House Bill
       No provision.
     Senate Bill
       This provision would extend the limited time period that 
     employer health plans are primary payer for beneficiaries 
     with end-stage renal disease from 30 months to 36 months. The 
     provision would apply for items and services furnished 
     beginning January 1, 2004.
     Conference Agreement
       No provision.

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

       Equalizing Urban and Rural Standardized Payment Amounts 
     under the Medicare Inpatient Hospital Prospective Payment 
     System (Section 401 of the Conference Agreement, Section 402 
     of the House Bill, and Section 401 of the Senate Bill).
     Present Law
       Medicare pays for inpatient services in acute hospitals in 
     large urban areas using a standardized amount that is 1.6% 
     more than the standardized amount used to pay hospitals in 
     other areas (both rural areas and smaller urban areas). The 
     Consolidated Appropriations Act of 2003 (P.L. 108-7) provided 
     for a temporary payment increase for rural and small urban 
     hospitals; all Medicare discharges from April 1, 2003, to 
     September 30, 2003, will be paid on the basis of the large 
     urban area amount. This temporary increase was further 
     extended to discharges through March 31, 2004 by P.L. 108-89, 
     which permitted the Secretary to delay implementation of the 
     payment increase until November 1, 2003, if necessary.
       Under Medicare's prospective payment system for inpatient 
     services, separate standardized amounts are used to establish 
     payments for discharges from short-term general hospitals in 
     Puerto Rico. The separate amounts are a blended calculation 
     based on an equal proportion of the federal national amount 
     and the local amount, which are computed using data from 
     hospitals in Puerto Rico. Presently, two local amounts are 
     calculated: one for hospitals in large urban areas and one 
     for hospitals in other areas.
     House Bill
       Beginning for discharges in FY2004, the standardized amount 
     for hospitals located in areas other than large urban areas 
     would be equal to the amount used to pay hospitals located in 
     large urban areas. Technical conforming amendments would also 
     be adopted.
     Senate Bill
       Medicare would pay hospitals in rural and small urban areas 
     in the fifty states using the standardized amount used to pay 
     hospitals in large urban areas starting for discharges in 
     FY2004. The Secretary would compute one standardized amount 
     for hospitals in Puerto Rico equal to that for urban areas.
     Conference Agreement
       Medicare will pay hospitals in rural and small urban areas 
     in the fifty states using the standardized amount that would 
     be used to pay hospitals in large urban areas starting for 
     discharges in FY2004. The Secretary will compute one local 
     standardized amount for all hospitals in Puerto Rico equal to 
     that for hospitals in large urban areas in Puerto Rico 
     starting for discharges in FY2004. The existing single 
     standardized amount will continue for hospitals that are not 
     in Puerto Rico are not affected. Hospitals in Puerto Rico 
     will receive the legislated payment increase starting for 
     discharges on April 1, 2004.
       Enhanced Disproportionate Share Hospital (DSH) Treatment 
     for Rural Hospitals and Urban Hospitals with Fewer than 100 
     Beds (Section 402 of the Conference Agreement, Section 401 of 
     the House Bill, and Section 404 of the Senate Bill).
     Present Law
       Medicare makes additional payments to certain acute 
     hospitals that serve a large number of low-income Medicare 
     and Medicaid patients as part of its inpatient prospective 
     payment system (IPSS). As specified by BIPA, starting with 
     discharges occurring on or after April 1, 2001, all hospitals 
     are eligible to receive Medicare disproportionate share 
     hospital (DSH) payments when their DSH patient percentage or 
     threshold amount exceeds 15%. Different formulas are used to 
     establish a hospital's DSH payment adjustment, depending upon 
     the hospital's location, number of beds and status as a rural 
     referral center (RRC) or sole community hospital (SCH). 
     Although a SCH or RRC can qualify for a higher DSH 
     adjustment, generally, the DSH adjustment that a small urban 
     or rural hospital can receive is limited to 5.25%. Large (100 
     beds and more) urban hospitals and large rural hospitals (500 
     beds and more) are eligible for a higher adjustment that can 
     be significantly greater; the amount of the DSH adjustment 
     received by these larger hospitals will depend upon its DSH 
     percentage. Certain urban hospitals (Pickle hospitals) 
     receive DSH payments under an alternative formula that 
     considers the proportion of a hospital's patient care 
     revenues that are received from state and local indigent care 
     funds.
     House Bill
       Starting for discharges after October 1, 2003, a hospital 
     that is not a large urban hospital that qualifies for a DSH 
     adjustment would receive its DSH payments using the current 
     DSH adjustment formula for large urban hospitals, subject to 
     a limit. The DSH adjustment for any of these hospitals, 
     except for rural referral centers, would be capped at 10%. A 
     Pickle hospital receiving a DSH adjustment under the 
     alternative formula would not be affected.
     Senate Bill
       Starting for discharges after October 1, 2004, a hospital 
     that qualifies for a DSH adjustment when its DSH patient 
     percentage exceeds the 15% DSH threshold would receive the 
     DSH payments using the current formula that establishes the 
     DSH adjustment for a large urban hospital. A Pickle hospital 
     receiving a DSH adjustment under the alternative formula 
     would not be affected.
     Conference Agreement
       Starting for discharges after April 1, 2004, a hospital 
     that is not a large urban hospital that qualifies for a DSH 
     adjustment will receive its DSH payments using the current 
     DSH adjustment formula for large urban hospitals, subject to 
     a limit. The DSH adjustment for any of these hospitals, 
     except for rural referral centers, will be capped at 12%. A 
     Pickle hospital receiving a DSH adjustment under the 
     alternative formula will not be affected by this provision.
       Adjustment of the Medicare Inpatient Hospital Prospective 
     Payment System Wage Index to Revise the Labor-Related Share 
     of Such Index (Section 403 of the Conference Agreement, 
     Section 416 of the House Bill, and Section 402 of the Senate 
     Bill).
     Present Law
       Medicare's payments to acute hospitals are adjusted, either 
     increased or decreased as appropriate, by the wage index of 
     the area where the hospital is located or where it has been 
     reassigned. Presently, approximately 71 percent of the 
     standardized amount for each hospital discharge is adjusted 
     by the area wage index. Decreasing this proportion or labor-
     related share would increase Medicare payments to hospitals 
     in areas with wage indices below one and decrease Medicare 
     payments to hospitals in areas with wage indices above one.
     House Bill
       For discharges occurring on or after October 1, 2003, the 
     Secretary would be required to decrease the labor-related 
     share to 62 percent of the standardized amount only if such 
     change would result in higher total payments to the hospital. 
     This provision would be applied without regard to certain 
     budget-neutrality requirements.
     Senate Bill
       For cost reporting periods beginning on or after October 1, 
     2004, the Secretary would be required to decrease the labor-
     related share to 62 percent of the standardized amount only 
     if such change would result in higher total payments to the 
     hospital. This provision would be applied without regard to 
     certain budget-neutrality requirements.
     Conference Agreement
       For discharges on or after October 1, 2004, the Secretary 
     is required to decrease the

[[Page H12038]]

     labor-related share to 62 percent of the standardized amount 
     when such change will result in higher total payments to the 
     hospital. This provision is applied without regard to certain 
     budget-neutrality requirements. For discharges on or after 
     October 1, 2004, the Secretary is also required to decrease 
     the labor-related share to 62 percent of the standardized 
     amount for hospitals in Puerto Rico when such change results 
     in higher total payments to the hospital.
       More Frequent Update in Weights Used in Hospital Market 
     Basket (Section 404 of the Conference Agreement and Section 
     404 of the House Bill).
     Present Law
       Medicare's standardized amounts, which serve as the basis 
     of its payment per discharge from an acute hospital, are 
     increased annually using an update factor that is determined 
     in part by the projected increase in the hospital market 
     basket. The market basket is a fixed-weight hospital input 
     price index, which measures the average change in the price 
     of goods and services that hospitals purchase in order to 
     furnish inpatient care. The Centers for Medicare and Medicaid 
     Services (CMS) revises the cost category weights, reevaluates 
     the price proxies for such categories, and rebases (or 
     changes the base period) for the market basket every 5 years. 
     CMS implemented a revised and rebased market basket using 
     1997 cost data to set the FY2003 Medicare hospital payment 
     rates.
     House Bill
       The Secretary would be required to revise the market basket 
     weights to reflect the most currently available data and to 
     establish a schedule for revising the cost category weights 
     more often than once every 5 years. The Secretary would be 
     required to submit a report to Congress by October 1, 2004 on 
     the reasons for and the options considered in establishing 
     such a schedule.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary is required to revise the market basket 
     weights to reflect the most currently available data and to 
     establish a schedule for revising the cost category weights 
     more often than once every 5 years. The Secretary is required 
     to publish the reasons for and the options considered in 
     establishing such a schedule in the final rule establishing 
     FY2006 inpatient hospital payments.
       Improvements to the Critical Access Hospital (CAH) Program 
     (Section 405 of the Conference Agreement, Section 405 of the 
     House Bill, and Section 405 of the Senate Bill).
       Increase in Payment Amounts (Section 405(a) of the 
     Conference Agreement and Section 405(a) of the House Bill).
     Present Law
       Generally, a critical access hospital (CAH) receives 
     reasonable cost reimbursement for care rendered to Medicare 
     beneficiaries. CAHs may elect either a cost-based hospital 
     outpatient service reimbursement or an all-inclusive rate, 
     which is equal to a reasonable cost reimbursement for 
     facility services plus 115 percent of the fee schedule 
     payment for professional services. Ambulance services that 
     are owned and operated by CAHs are reimbursed on a reasonable 
     cost basis if these ambulance services are 35 miles from 
     another ambulance system.
     House Bill
       Inpatient, outpatient, and covered skilled nursing facility 
     services provided by a CAH would be reimbursed at 102 percent 
     of reasonable costs of services furnished to Medicare 
     beneficiaries. This provision would apply to cost reporting 
     periods beginning on or after October 1, 2003.
     Senate Bill
       No provision.
     Conference Agreement
       Inpatient, outpatient, and covered skilled nursing facility 
     services provided by a CAH will be reimbursed at 101 percent 
     of reasonable costs of services furnished to Medicare 
     beneficiaries. This provision applies to cost reporting 
     periods beginning on or after January 1, 2004.
       Coverage of Costs For Certain Emergency Room On-Call 
     Providers (Section 405(b) of the Conference Agreement, 
     Section 405(b) of the House Bill, and Section 405(c) of the 
     Senate Bill).
     Present Law
       BIPA required the Secretary to include the costs of 
     compensation (and related costs) of on-call emergency room 
     physicians who are not present on the premises of a CAH, are 
     not otherwise furnishing services, and are not on-call at any 
     other provider or facility when determining the allowable, 
     reasonable cost of outpatient CAH services.
     House Bill
       Reimbursement of on-call emergency room providers would be 
     expanded to include the costs associated with physician 
     assistants, nurse practitioners, and clinical nurse 
     specialists as well as emergency room physicians for covered 
     Medicare services. This provision would apply to costs for 
     services provided on or after January 1, 2004.
     Senate Bill
       The provision would expand reimbursement of on-call 
     emergency room providers to include physician assistants, 
     nurse practitioners, and clinical nurse specialists as well 
     as emergency room physicians for covered Medicare services 
     provided on or after January 1, 2005.
     Conference Agreement
       The provision expands reimbursement of on-call emergency 
     room providers to include physician assistants, nurse 
     practitioners, and clinical nurse specialists as well as 
     emergency room physicians for the costs associated with 
     covered Medicare services provided on or after January 1, 
     2005.
       Authorization of Periodic Interim Payment (PIP) (Section 
     405(c) of the Conference Agreement, Section 405(d) of the 
     House Bill, and Section 405(d) of the Senate Bill).
     Present Law
       Eligible hospitals, skilled nursing facilities, and 
     hospices which meet certain requirements receive Medicare 
     periodic interim payments (PIP) every 2 weeks; these payments 
     are based on estimated annual costs without regard to the 
     submission of individual claims. At the end of the year, a 
     settlement is made to account for any difference between the 
     estimated PIP payment and the actual amount owed. A CAH is 
     not eligible for PIP payments.
     House Bill
       An eligible CAH would be able to receive payments made on a 
     PIP basis for its inpatient services. The Secretary would be 
     required to develop alternative methods based on the 
     expenditures of the hospital for these PIP payments. This 
     provision would apply to payments made on or after January 1, 
     2004.
     Senate Bill
       Starting with payments made on or after January 1, 2005, an 
     eligible CAH would be able to receive payments made on a PIP 
     basis for inpatient services. The provision would apply to 
     payments for inpatient CAH services furnished on or after 
     January 1, 2005.
     Conference Agreement
       An eligible CAH will be able to receive payments made on a 
     PIP basis for its inpatient services. The Secretary is 
     required to develop alternative methods for the timing of PIP 
     payments to these CAHs. This provision applies to payments 
     made on or after July 1, 2004.
       Condition for Application of Special Professional Service 
     Payment Adjustment (Section 405(d) of the Conference 
     Agreement and Section 405(e) of the House Bill).
     Present Law
       As specified by BBRA, CAHs can elect to be paid for 
     outpatient services using cost-based reimbursement for its 
     facility fee and at 115 percent of the fee schedule for 
     professional services otherwise included within its 
     outpatient critical access hospital services for cost 
     reporting periods starting on or after October 1, 2000.
     House Bill
       The Secretary would not be able to require that all 
     physicians providing services in a CAH assign their billing 
     rights to the entity in order for the CAH to be able to be 
     paid on the basis of 115 percent of the fee schedule for the 
     professional services provided by the physicians. However, a 
     CAH would not receive payment based on 115 percent of the fee 
     schedule for any individual physician who did not assign 
     billing rights to the CAH. This provision would be effective 
     as if it had been included as part of BBRA.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary cannot require that all physicians or 
     practitioners providing services in a CAH assign their 
     billing rights to the entity in order for the CAH to be able 
     to be paid on the basis of 115 percent of the fee schedule 
     for the professional services provided by the physicians. 
     However, a CAH will not receive payment based on 115 percent 
     of the fee schedule for any individual physician or 
     practitioner who did not assign billing rights to the CAH. 
     This provision applies to cost report periods starting on or 
     after July 1, 2004 except for those CAHs that have already 
     elected payment for physician services on this basis in the 
     past; this provision will apply to those CAHs starting for 
     cost reporting periods on or after July 1, 2003.
       Revision in Bed Limitation for Hospitals (Section 405(e) of 
     the Conference Agreement, Section 405(f) of the House Bill, 
     and Section 405(a) of the Senate Bill).
     Present Law
       A CAH is a limited service facility that must provide 24-
     hour emergency services and operate a limited number of 
     inpatient beds in which hospital stays can average no more 
     than 96 hours. A CAH cannot operate more than 15 acute-care 
     beds at one time, but can have an additional 10 swing beds 
     that are set up for skilled nursing facility (SNF) level 
     care. SNF beds in a unit of the facility that is licensed as 
     a distinct-part skilled nursing facility at the time of the 
     facility's application for CAH designation are not counted 
     toward these bed limits.
     House Bill
       The Secretary would be required to specify standards for 
     determining whether a CAH has seasonal variations in patient 
     admissions that would justify a 5-bed increase in the number 
     of beds it can maintain (and still retain its classification 
     as a CAH). CAHs that operate swing beds would be able to use 
     up to 25 beds for acute care services as long as no more than 
     10 beds at any time are used for non-acute services. Those 
     CAHs with swing beds that made this election would not be 
     eligible for the 5-bed seasonal adjustment. A CAH with swing 
     beds that elects to operate 15 of its 25 beds as acute care 
     beds would be eligible for the 5-bed seasonal adjustment.

[[Page H12039]]

     These provisions would only apply to CAH designations made 
     before, on, or after January 1, 2004.
     Senate Bill
       A CAH would be able to operate up to 25 swing beds or acute 
     care beds, subject to the 96 hour average length of stay for 
     acute care patients. The requirement that only 15 of the 25 
     beds be used for acute care at any time would be dropped. The 
     provision would be effective for designations made on or 
     after October 1, 2004.
     Conference Agreement
       A CAH will be able to operate up to 25 beds. The 
     requirement that only 15 of the 25 beds be used for acute 
     care at any time will be dropped. The provision will apply to 
     CAH designations made before, on, or after January 1, 2004, 
     but any election made pursuant to the regulations promulgated 
     to implement this provision will only apply prospectively.
       Provisions Relating to FLEX Grants (Section 405(f) of the 
     Conference Agreement, Section 405(g) of the House Bill, and 
     Section 405(f) of the Senate Bill).
     Present Law
       The Secretary is able to make grants for specified purposes 
     to states or eligible small rural hospitals that apply for 
     such awards. For example, the Medicare Hospital Flexibility 
     Program awards grants to states for rural health care 
     planning and implementation activities, rural network 
     development and implementation, to establish or expand rural 
     emergency medical services and for CAH designations.
       The Secretary may also award grants to hospitals to assist 
     eligible small rural hospitals in implementing data systems 
     required under BBA 1997. Small rural hospitals are short term 
     general hospitals with less than 50 beds that are located in 
     rural areas.
       Funding for the rural hospital flexibility grant program 
     was $25 million from FY1999 through FY2001; $40 million in 
     FY2002; and $25 million in 2003. The authorization to award 
     the grants expired in FY2002.
     House Bill
       The authorization to award grants would be established from 
     FY2004 through FY2008 from the Federal Hospital Insurance 
     Trust Fund at amounts of up $25 million each year. The 
     provision would be effective upon enactment.
     Senate Bill
       The provision would permit the Secretary to award grants 
     under the Small Rural Hospital Improvement Program to 
     hospitals that have submitted applications to assist eligible 
     small rural hospitals in reducing medical errors, increasing 
     patient safety, protecting patient privacy, and improving 
     hospital quality. These grants would not exceed $50,000 and 
     would be able to be used to purchase computer software and 
     hardware, educate and train hospital staff, and obtain 
     technical assistance. The provision would authorize 
     appropriations of $40 million each year from FY2004 through 
     FY2008 from the Federal Hospital Insurance Trust Fund for 
     grants to states for specified purposes. States that are 
     awarded grants would be required to consult with the hospital 
     association and rural hospitals in the state on the most 
     appropriate way to use such funds. The provision would also 
     authorize $25 million each year from FY2004 through FY2008 
     for the Small Rural Hospital Improvement Program. This amount 
     would be appropriated from amounts in the treasury not 
     otherwise appropriated.
       The provisions would be effective upon enactment. They 
     would apply to grants awarded on or after the date of 
     enactment and would apply to grants awarded prior to the date 
     of enactment to the extent that the funds have not yet been 
     obligated.
     Conference Agreement
       The authorization to award rural hospital flexibility 
     grants is established at $35 million each year from FY2005 
     through FY2008. Starting with funds appropriated for FY2005 
     and in subsequent years, a state is required to consult with 
     the hospital association and rural hospitals in the state on 
     the most appropriate way to use such funds. A state may not 
     spend more than 15% of the grant amount or the states 
     federally negotiated indirect rate for administrative 
     purposes. Beginning with FY2005 up to 5% of the total amount 
     appropriated for grants will be available to the Health 
     Resources and Services Administration for administering these 
     grants.
       Exclusion of Certain Beds from Bed Count and Removal of 
     Barriers to Establishment of Distinct Part Units (Section 
     405(g) of the Conference Agreement and Section 405(g) of the 
     Senate Bill).
     Present Law
       Beds in distinct part psychiatric or rehabilitation units 
     operated by an entity seeking to become a CAH would not count 
     toward the bed limit.
     House Bill
       No provision.
     Senate Bill
       The Secretary would not be able to count any beds in a 
     distinct part psychiatric or rehabilitation unit operated by 
     the entity seeking to become a CAH. The total number of beds 
     in these distinct part units would not be able to exceed 25. 
     A CAH would be able to establish a distinct part psychiatric 
     or rehabilitation unit. The provision would apply to 
     designations on or after October 1, 2003.
     Conference Agreement
       A CAH can establish a distinct part psychiatric or 
     rehabilitation unit that meets the applicable requirements 
     for such beds established for a short-term, general hospital, 
     specifically, a subsection (d) hospital as defined in 
     1886(d)(1)(B). If the distinct part units do not meet these 
     requirements during a cost reporting period, then no Medicare 
     payment will be made to the CAH for services furnished in the 
     unit during the period. Medicare payments will resume only 
     after the CAH demonstrates that the requirements have been 
     met. Medicare payments for services provided in the distinct 
     part units will equal payments that are made on a prospective 
     payment basis to distinct part units of short term general 
     hospitals. The Secretary will not count any beds in the 
     distinct part psychiatric or rehabilitation units toward the 
     CAH bed limit. The total number of beds in these distinct 
     part units cannot exceed 10. The provision will apply to cost 
     reporting periods starting October 1, 2004.
       Waiver Authority (Section 405(h) of the Conference 
     Agreement).
     Present Law
       Currently to qualify as a CAH, the rural, for-profit, non 
     profit or public hospital must be located more than 35 miles 
     from another hospital or 15 miles in areas with mountainous 
     terrain or those where only secondary roads are available. 
     These mileage standards may be waived if the hospital has 
     been designated by the state as a necessary provider of 
     health care.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Report
       Currently to qualify as a CAH, the rural, for-profit, non 
     profit or public hospital must be located more than 35 miles 
     from another hospital or 15 miles in areas with mountainous 
     terrain or those where only secondary roads are available. 
     These mileage standards may be waived if the hospital has 
     been designated by the state as a necessary provider of 
     health care. This authority is eliminated 2 years after 
     enactment.
       Medicare Inpatient Hospital Payment Adjustment for Low-
     Volume Hospitals (Section 406 of the Conference Agreement and 
     Section 403 of the Senate Bill).
     Present Law
       Medicare pays inpatient acute hospital services on a 
     discharge basis without regard for the number of 
     beneficiaries discharged from any given hospital. Under 
     certain circumstances, however, sole community hospitals 
     (SCHs) and Medicare dependent hospitals with more than a 5% 
     decline in total discharges from one period to the next may 
     apply for an adjustment to their payment rates to partially 
     account for higher costs associated with a drop in patient 
     volume due to circumstances beyond its control.
     House Bill
       No provision.
     Senate Bill
       The provision would require the Secretary to provide for a 
     graduated adjustment to Medicare's inpatient payment rates to 
     account for the higher unit costs associated with low-volume 
     hospitals. Certain hospitals with fewer than 2,000 total 
     discharges during the 3 most recent cost reporting periods 
     would be eligible for up to a 25% increase in their Medicare 
     payment amount starting for FY2005 cost reporting periods. 
     Eligible hospitals would be located at least 15 miles from a 
     similar hospital or those determined by the Secretary to be 
     so located due to factors such as weather conditions, travel 
     conditions, or travel time to the nearest alternative source 
     of appropriate inpatient care. Certain budget-neutrality 
     requirements would not apply to this provision.
     Conference Agreement
       The Secretary is required to provide for a graduated 
     adjustment to Medicare's inpatient payment rates to account 
     for the higher unit costs associated with low-volume 
     hospitals starting for discharges occurring in FY2005. The 
     Secretary shall determine the empirical relationship between 
     the standardized cost per case, the number of discharges, and 
     the additional incremental costs (if any) for low-volume 
     hospitals; the percentage payment increase for these 
     hospitals will be based on this relationship, but in no case 
     will be greater than 25%. A low-volume hospital is a short-
     term general hospital (as defined by 1886(d)(B) of the Social 
     Security Act or SSA) that is located more than 25 road miles 
     from another such hospital and that has less than 800 
     discharges during the fiscal year. A discharge means an 
     inpatient acute care discharge of an individual regardless of 
     whether the individual is entitled to Part A benefits. 
     Certain budget-neutrality requirements would not apply to 
     this provision. The determination of the percentage payment 
     increase is not subject to administrative or judicial review.
       Treatment of Missing Cost Reporting Periods for Sole 
     Community Hospitals (Section 407 of the Conference Agreement 
     and Section 414 of the House Bill).
     Present Law
       Sole community hospitals (SCHs) are hospitals that, because 
     of factors such as isolated location, weather conditions, 
     travel conditions, or absence of other hospitals, are the 
     sole source of inpatient services reasonably available in a 
     geographic area, or are located more than 35 road miles from 
     another hospital. The primary advantage of an

[[Page H12040]]

     SCH classification is that these hospitals receive Medicare 
     payments based on the current national PPS national 
     standardized amount or on hospital-specific per discharge 
     costs from either FY 1982, FY1987 or FY1996 updated to the 
     current year, whatever amount will provide the highest 
     Medicare reimbursement. The FY1996 base year option became 
     effective for discharges on or after FY2001 on a phased in 
     basis and will be fully implemented for SCH discharges on or 
     after FY2004.
     House Bill
       A hospital would not be able to be denied treatment as a 
     SCH or receive payment as a SCH because data are unavailable 
     for any cost reporting period due to changes in ownership, 
     changes in fiscal intermediaries, or other extraordinary 
     circumstances, so long as data from at least one applicable 
     base cost reporting period is available. The provision would 
     apply to cost reporting periods beginning on or after January 
     1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       A hospital will not be able to be denied treatment as a SCH 
     or receive payment as a SCH because data are unavailable for 
     any cost reporting period due to changes in ownership, 
     changes in fiscal intermediaries, or other extraordinary 
     circumstances, so long as data from at least one applicable 
     base cost reporting period is available. The provision 
     applies to cost reporting periods beginning on or after 
     January 1, 2004.
       Recognition of Attending Nurse Practitioners as Attending 
     Physicians to Serve Hospice Patients (Section 408 of the 
     Conference Agreement, Section 409 of the House Bill, and 
     Section 407 of the Senate Bill).
     Present Law
       Medicare covers hospice services to care for the terminal 
     illnesses of the beneficiary. In general, beneficiaries who 
     elect the hospice benefit give up other Medicare services 
     that seek to treat the terminal illness or that duplicate 
     services provided by the hospice. Services are provided 
     primarily in the patient's home by a Medicare approved 
     hospice. Reasonable and necessary medical and support 
     services for the management of the terminal illness are 
     furnished under a written plan-of-care established and 
     periodically reviewed by the patient's attending physician 
     and the hospice. To be eligible for Medicare's hospice care, 
     a beneficiary must be certified as terminally ill by an 
     attending physician and the medical director or other 
     physician at the hospice and elect hospice treatment. An 
     attending physician who may be an employee of the hospice is 
     identified by the patient as having the most significant role 
     in the determination and delivery of the patient's medical 
     care when the patient makes an election to receive hospice 
     care.
     House Bill
       A beneficiary electing hospice care would be able to 
     identify a nurse practitioner as an attending physician. This 
     nurse practitioner would not be able to certify the 
     beneficiary as terminally ill for the purpose of entering 
     hospice care. The provision would be effective upon 
     enactment.
     Senate Bill
       A terminally ill beneficiary under hospice care would be 
     able to receive services provided by a physician assistant, 
     nurse practitioner, or clinical nurse specialist who is not 
     an employee of the hospice program and who the beneficiary 
     identifies, when electing hospice care, as the health care 
     provider having the most significant role in the 
     determination of medical care provided to the beneficiary. A 
     physician assistant, nurse practitioner, or clinical nurse 
     specialist so identified by the beneficiary would be able to 
     periodically review the beneficiary's written plan of care. 
     The amendments would apply to hospice care furnished on or 
     after October 1, 2004.
     Conference Agreement
       The conference agreement expands the definition of 
     attending physician in hospice to include a nurse 
     practitioner. A nurse practitioner is not permitted to 
     certify a beneficiary as terminally ill for the purposes of 
     receiving the hospice benefit. The provision would be 
     effective upon enactment.
       Rural Hospice Demonstration Project (Section 409 of the 
     Conference Agreement and Section 418 of the House Bill).
     Present Law
       Medicare's hospice services are provided primarily in a 
     patient's home to beneficiaries who are terminally ill and 
     who elect such services. Medicare law prescribes that the 
     aggregate number of days of inpatient care provided to 
     Medicare beneficiaries who elect hospice care in any 12-month 
     period cannot exceed 20% of the total number of days of 
     hospice coverage provided to these persons.
     House Bill
       The Secretary would be required to establish a 
     demonstration project of no more than 5 years in 3 hospice 
     programs to deliver hospice care to Medicare beneficiaries in 
     rural areas. Those Medicare beneficiaries who lack an 
     appropriate caregiver and are unable to receive home-based 
     hospice care would be able to receive hospice care in a 
     facility of 20 or fewer beds that offers a full range of 
     hospice services within its walls. The facility would not be 
     required to offer services outside of the home and the limit 
     on the aggregate number of inpatient days provided to 
     Medicare beneficiaries who elect hospice care would be 
     waived. The Secretary would be able to require the program to 
     comply with additional quality assurance standards. Payments 
     for the hospice care would be made at the rates that would be 
     otherwise applicable to Medicare. Upon completion of the 
     demonstration project, the Secretary would be required to 
     submit a report to Congress, including recommendations, 
     regarding the extension of the project to hospice programs 
     serving rural areas.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a demonstration project in 3 hospice programs to 
     deliver hospice care to Medicare beneficiaries in rural 
     areas. A project is not permitted to last longer than 5 
     years. Those Medicare beneficiaries who lack an appropriate 
     caregiver and are unable to receive home-based hospice care 
     could receive hospice care in a facility of 20 or fewer beds 
     that offers a full range of hospice services within its 
     walls. The facility will not be required to offer services 
     outside of the home. The limit on the aggregate number of 
     inpatient days provided to Medicare beneficiaries who elect 
     hospice care is waived under the demonstration. The Secretary 
     may require the program to comply with additional quality 
     assurance standards. Payments for the hospice care will be 
     made at the rates that would be otherwise applicable to 
     Medicare. Upon completion of the demonstration project, the 
     Secretary is required to submit a report to Congress, 
     including recommendations, regarding the extension of the 
     project to hospice programs serving rural areas.
       Establishment of Essential Rural Hospital Classification 
     (Section 403 of the House Bill).
     Present Law
       Under current law, a critical access hospital (CAH) is a 
     limited service facility that must provide 24-hour emergency 
     services and operate a limited number of inpatient beds in 
     which hospital stays can average no more than 96 hours. A CAH 
     is exempt from Medicare's inpatient prospective payment 
     system (IPPS) and receives reasonable cost reimbursement for 
     care rendered to Medicare beneficiaries. Certain acute care 
     general hospitals, particularly those facilities identified 
     as isolated or essential hospitals primarily located in rural 
     areas, receive special treatment under IPPS.
     House Bill
       The definition of CAH hospitals and services would be 
     amended to add an essential rural hospital. An essential 
     rural hospital would apply for such a classification, would 
     have more than 25 licensed acute care beds, and would be 
     located in a rural area as defined by IPPS. The Secretary 
     would have to determine that the closure of this hospital 
     would significantly diminish the ability of beneficiaries to 
     obtain essential health care services based on the certain 
     criteria. Specifically, the Secretary would determine that 
     high proportion of Medicare beneficiaries residing in the 
     service area of the hospital received basic inpatient care 
     from the hospital; a hospital with more than 200 licensed 
     beds would have to provide specialized surgical care to a 
     high percentage of beneficiaries residing in the area who 
     were hospitalized during the most recent year for which data 
     are available. Regardless of the size of the hospital, almost 
     all physicians in the area would have to have admitting 
     privileges and provide their inpatient services primarily at 
     the hospital. Also, the Secretary would have to determine the 
     closure of the hospital would have a significant adverse 
     impact on the availability of health care service in the 
     absence of the hospital. In making such determination, the 
     Secretary may also consider: (1) whether ambulatory care 
     providers in the hospital's area are insufficient to handle 
     the outpatient care of the hospital; (2) whether 
     beneficiaries would have difficulty accessing care; and (3) 
     whether the hospital has a significant commitment to provide 
     graduate medical education in a rural area. The essential 
     rural hospital would have to have a quality of care score 
     above the median score for hospitals in the State. A hospital 
     classified as an essential rural hospital would not be able 
     to change such classification and would not be able to be 
     treated as a sole community hospital, Medicare dependent 
     hospital or rural referral center under IPPS. A hospital that 
     is classified as an essential rural hospital for a cost 
     reporting period beginning on or after October 1, 2004 would 
     be reimbursed 102% of its reasonable costs for inpatient and 
     outpatient services provided by acute hospitals Beneficiary 
     cost-sharing amounts would not be affected and required 
     billing for such services would not be waived. The provision 
     would apply to cost reporting periods beginning on or after 
     October 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       Modification of the Isolation Test for Cost-Based CAH 
     Ambulance Services (Section 405(c) of the House Bill and 
     Section 405(b) of the Senate Bill).
     Present Law
       Ambulance services provided by a CAH or provided by an 
     entity that is owned or operated by a CAH is paid on a 
     reasonable cost basis and not the ambulance fee schedule, if

[[Page H12041]]

     the CAH or entity is the only provider or supplier of 
     ambulance services that is located within a 35-mile drive of 
     the CAH.
     House Bill
       The 35-mile requirement would not apply to the ambulance 
     services that are furnished after the first cost reporting 
     period beginning after the date of enactment by a provider or 
     supplier of ambulance services who is determined by the 
     Secretary to be a first responder to emergencies. This 
     provision would apply to ambulance services furnished on or 
     after the first cost reporting periods that begins after the 
     date of enactment.
     Senate Bill
       The provision would drop the requirement that the CAH or 
     the related entity be the only ambulance provider with a 35-
     mile drive in order to receive reasonable cost reimbursement 
     for the ambulance services. The provision would apply to 
     services furnished on or after January 1, 2005.
     Conference Agreement
       No provision.
       Exclusion of New CAHs from PPS Hospital Wage Index 
     Calculation (Section 405(e) of the Senate Bill).
     Present Law
       Certain qualified small hospitals are converting to CAHs. 
     After conversion, these facilities are paid on a reasonable 
     cost basis and are not paid under the hospital inpatient 
     prospective payment system (IPPS). Medicare's IPPS payments 
     to acute hospitals are adjusted by the wage index of the area 
     where the hospital is located or has been reassigned. 
     Although the hospital wage index is recalculated annually, 
     the wage index for any given fiscal year is based on data 
     submitted as part of a hospital's cost report from 4 years 
     previously. As established by regulation, starting for FY2004 
     payments, wage data from hospitals that have converted to 
     CAHs will be excluded in the IPPS wage index calculation.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to exclude wage data from 
     hospitals that have converted to CAHs from the IPPS wage 
     index calculation starting for cost reporting periods on or 
     after January 1, 2004. The provision would be effective upon 
     enactment.
     Conference Agreement
       No provision.
       Rural Community Hospital Demonstration Program (Section 
     410A of the Conference Report and Section 414 of the Senate 
     Bill).
     Present Law
       No provision
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 5-year rural 
     community hospital (RCH) demonstration program in 4 areas 
     including Kansas and Nebraska that will pay for acute 
     inpatient services, outpatient services, and certain home 
     health services in qualifying hospitals either on the basis 
     of its reasonable costs (without regard to the amount of 
     customary charges) or using the respective prospective 
     payment systems for those services. In this instance, 
     reasonable cost reimbursement of capital costs would include 
     a return on equity payment of 150% of the average rate of 
     interest on obligations issued for purchase by the Federal 
     Hospital Insurance (HI) Trust Fund.
       Eligible rural hospitals would be those (1) located in 
     counties that have not been assigned to metropolitan 
     statistical areas or those urban hospitals that have been 
     designated as rural; (2) with less than 51 acute inpatient 
     beds (psychiatric and rehabilitation beds in distinct part 
     units would not be counted); (3) offering 24-hour emergency 
     care services; and (4) have a provider agreement in effect 
     and is open to the public as of January 1, 2003. Critical 
     access hospitals would be able to participate in the 
     demonstration. Entities with replacement facilities, 
     obtaining a new provider number because of an ownership 
     change, or with a binding agreement for the construction, 
     reconstruction, lease, rental or financing of building on 
     January 1, 2003 would not be prohibited from participating. A 
     qualified-RCH based home health agency would be a provider 
     based agency that is located in a county in which no main or 
     branch office of another home health agency is located or is 
     at least 35 miles from any main or branch office of another 
     home health agency.
       Consolidated billing associated with skilled nursing 
     facilities would be permitted. The cost of Medicare 
     beneficiaries' bad debt would be reimbursed at 100%. 
     Beneficiary copayments for hospital outpatient services would 
     established as under the hospital outpatient prospective 
     payment system. No cost sharing would apply to clinical 
     diagnostic laboratory services. The cost sharing amounts 
     associated with other services would be established according 
     to the payment methodology selected by the provider for the 
     services in question. Funding for the demonstration project 
     would be transferred in appropriate proportions from the HI 
     and the Federal Supplementary Insurance trust funds. The 
     Secretary would be required to ensure that aggregate payments 
     under this demonstration program do not exceed what would 
     have been spent if the program had not been implemented. The 
     Secretary would be permitted to waive administrative, peer 
     review as well as fraud and abuse requirements in Title 11 
     and other Medicare requirements in Title 18 of the Social 
     Security Act. The Secretary would be required to submit a 
     report including recommendations to Congress no later than 6 
     months after completion of the demonstration. The Secretary 
     would be required to implement the demonstration no later 
     than January 1, 2005, but not before October 1, 2004.
     Conference Agreement
       The Secretary is required to establish a demonstration 
     program in rural areas to test different payment methods for 
     under 50 bed rural hospitals. The hospitals are paid their 
     costs for inpatient and extended care (swing-bed) services 
     for 5 years, subject to a cap. The payment methodology is 
     similar to the Tefra payment system used for Children's 
     hospitals. The hospitals cannot be eligible for the CAH 
     program.
       Critical Access Hospital Improvement Demonstration Program 
     (Section 415 of the Senate Bill).
     Present Law
       No provision
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 5-year 
     critical access hospital (CAH) demonstration program in 4 
     areas including Kansas and Nebraska to test various methods 
     to improve the CAH program. Participating CAHs would be able 
     to maintain distinct part psychiatric and rehabilitation 
     units of up to 10 beds that would not be counted toward the 
     CAH-bed limit. These psychiatric and rehabilitation services 
     would be paid on a reasonable cost basis (without regard to 
     the amount of customary charges). Home health agencies 
     operated by participating CAHs would be able to opt out of 
     the home health prospective payment system (PPS) and would be 
     reimbursed on the basis of reasonable costs (without regard 
     to the customary charge limit). Distinct part skilled nursing 
     facilities (SNF) operated by a CAH would be exempt from SNF-
     PPS and would be reimbursed on the basis of reasonable costs 
     (without regard to the customary charge limit). Consolidated 
     billing associated with skilled nursing facilities would be 
     permitted. In this instance reasonable cost reimbursement of 
     capital costs associated with inpatient, outpatient, extended 
     care, post-hospital extended care, home health, and ambulance 
     services would include a return on equity payment of 150% of 
     the average rate of interest on obligations issued for 
     purchase by the Federal Hospital Insurance (HI) Trust Fund.
       Eligible CAHs in the 4 demonstration areas would have to 
     apply to participate in the demonstration project. Funding 
     for the demonstration project would be transferred in 
     appropriate proportions from the HI and the Federal 
     Supplementary Insurance trust funds. The Secretary would be 
     required to ensure that aggregate payments under this 
     demonstration program do not exceed what would have been 
     spent if the program had not been implemented. The Secretary 
     would be permitted to waive administrative, peer review as 
     well as fraud and abuse requirements in Title 11 and other 
     Medicare requirements in Title 18 of the Social Security Act. 
     The Secretary would be required to submit a report including 
     recommendations to Congress no later than 6 months after 
     completion of the demonstration. The Secretary would be 
     required to implement the demonstration no later than January 
     1, 2005, but not before October 1, 2004.
     Conference Agreement
       No provision.
       Increase in Payments for Certain Services Furnished by 
     Small Rural Hospitals Under Medicare Prospective Payment 
     System for Hospital Outpatient Department Services (Section 
     424 in the Senate Bill).
     Present Law
       Under the OPPS, which was implemented in August, 2000, 
     Medicare pays for covered services using a fee schedule based 
     on ambulatory payment classifications (APCs). Beneficiary 
     copayments are established as a percentage of Medicare's fee 
     schedule payment and differ by APC. Certain hospitals, 
     including rural hospitals with no more than 100 beds, are 
     protected from financial losses that result from 
     implementation of the new outpatient PPS under hold harmless 
     provisions.
     House Bill
       No provision.
     Senate Bill
       The provision would increase Medicare payments for covered 
     outpatient clinic and emergency room visits that are provided 
     by rural hospitals with up to 100 beds on or after January 1, 
     2005 and before January 1, 2008. Applicable Medicare 
     outpatient fee schedule amounts would be increased up by 5%. 
     The beneficiary copayment amounts for these services would 
     not be affected. The resulting increase in Medicare payments 
     would not be considered as PPS payments when calculating 
     whether a rural hospital's PPS payments are less than its 
     pre-BBA payment amounts under the temporary hold harmless 
     provisions. Also, the budget-neutrality provisions for 
     Medicare's outpatient PPS would not be applicable. Finally, 
     these increased payments would not affect Medicare payments 
     for covered outpatient services after January 1, 2007.
     Conference Agreement
       No provision.

[[Page H12042]]

             Subtitle B--Provisions Relating to Part B Only

       2-Year Extension of Hold Harmless Provisions for Small 
     Rural Hospitals and Sole Community Hospitals Under 
     Prospective Payment System for Hospital Outpatient Department 
     Services (Section 411 of the Conference Agreement, Section 
     407 of the House Bill, and Section 423 of the Senate Bill).
     Present Law
       The prospective payment system (PPS) for services provided 
     by outpatient departments (OPD) was implemented in August, 
     2000 for most acute care hospitals. Under the OPD PPS, 
     Medicare pays for covered services using a fee schedule based 
     on ambulatory payment classifications (APCs). Rural hospitals 
     with no more than 100 beds are paid no less under this PPS 
     system than they would have received under the prior 
     reimbursement system for covered OPD services because of hold 
     harmless provisions. The hold harmless provisions apply to 
     services provided before January 1, 2004.
     House Bill
       The hold harmless provisions governing OPD reimbursement 
     for small rural hospitals would be extended until January 1, 
     2006. The hold harmless provisions would be extended to sole 
     community hospitals located in a rural area starting for 
     services furnished on or after January 1, 2004 until January 
     1, 2006. The Secretary would be required to conduct a study 
     to determine if the costs, by APC groups, incurred by rural 
     providers exceed those costs incurred by urban providers. If 
     appropriate, the Secretary would provide a payment 
     adjustment to reflect the higher costs of rural providers 
     by January 1, 2005.
     Senate Bill
       The hold harmless provisions governing OPD reimbursement 
     for small rural hospitals would be extended until January 1, 
     2006. These hold harmless provisions would be extended to 
     sole community hospitals located in rural areas for services 
     provided in 2006.
     Conference Agreement
       The hold harmless provisions governing OPD reimbursement 
     for small rural hospitals are extended until January 1, 2006. 
     The hold harmless provisions are extended to sole community 
     hospitals located in a rural area starting for services 
     furnished on or after January 1, 2004 until January 1, 2006. 
     The Secretary is required to conduct a study to determine if 
     the costs, by APC groups, incurred by rural providers exceed 
     those costs incurred by urban providers. If appropriate, the 
     Secretary will provide for a payment adjustment to reflect 
     the higher costs of rural providers by January 1, 2006.
       Establishment of Floor on Work Geographic Adjustment 
     (Section 412 of the Conference Agreement, Section 605 of the 
     House Bill, and Section 421 of the Senate Bill).
     Present Law
       Medicare's payment for physicians' services under a fee 
     schedule has three components: the relative value for the 
     service, geographic adjustment factors and a conversion 
     factor into a dollar amount. A service's relative value is 
     made up of a physician work component, a practice expense 
     component, and a malpractice expense component. Each of these 
     is then adjusted by a separate geographic adjustment factor 
     and combined together to calculate an indexed relative value 
     for that service provided in a given location. This locality 
     adjusted relative value unit is multiplied by the conversion 
     factor to calculate Medicare's payment for a service provided 
     by a physician in a given area.
       The geographic adjustment factors are indices that reflect 
     the relative cost difference in a given area in comparison to 
     the national average. An area with costs above the national 
     average would have an index greater than 1.00; alternatively, 
     an area with costs below the national average would have an 
     index less than 1.00. The physician work geographic 
     adjustment factor is based on a sample of median hourly 
     earnings in six professional specialty occupational 
     categories. Unlike the other geographic adjustments, the work 
     adjustment factor reflects only one-quarter of the cost 
     differences in an area. The practice expense adjustment 
     factor is based on employee wages, office rents, medical 
     equipments and supplies, and other miscellaneous expenses. 
     The malpractice adjustment factor reflects differences in 
     malpractice insurance costs.
       The Secretary is required to periodically review and adjust 
     the relative values affecting physician payment to account 
     for changes in medical practice, coding changes, new data on 
     relative value components, or the addition of new procedures. 
     Under the budget-neutrality requirement, changes in these 
     factors cannot cause expenditures to differ by more than $20 
     million from what would have been spent if such adjustments 
     had not been made.
     House Bill
       For services furnished after January 1, 2004 and before 
     January 1, 2006, the Secretary would be required to increase 
     the value of any work geographic index that is below 1.00 to 
     1.00 unless the Secretary determines, based on the subsequent 
     GAO study, that there is no sound economic rationale for such 
     change. The provision would be effective upon enactment.
     Senate Bill
       For services furnished after January 1, 2004, the Secretary 
     would be required to increase the value of any work 
     geographic index that is below .980 to .980. The values for 
     work index would be raised to 1.0 for services furnished in 
     2005, 2006, and 2007. The practice expense and malpractice 
     geographic indices in low value localities areas would be 
     raised to 1.00 for services furnished in 2005 through 2008.
     Conference Agreement
       The Secretary is required to increase the value of any work 
     geographic index that is below 1.0 to 1.0 for services 
     furnished on or after January 1, 2004 and before January 1, 
     2007.
       Medicare Incentive Payment Program Improvements for 
     Physician Scarcity (Section 413 of the Conference Agreement, 
     Section 417 of the House Bill, and Section 422 of the Senate 
     Bill).
     Present Law
       Physicians providing services in a health professional 
     shortage area (HPSA) are entitled to an incentive payment 
     from the Medicare program. This incentive payment is a 10% 
     increase over the amount which would otherwise be paid under 
     the physician fee schedule. Physicians are responsible for 
     indicating their eligibility for this bonus on their billing 
     forms.
     House Bill
       This provision would establish a new five percent bonus 
     payment program for physicians providing care to Medicare 
     beneficiaries in physician scarcity areas. The Secretary 
     would calculate two measures of scarcity. A primary care 
     scarcity area would be determined based on the number of 
     primary care physicians per Medicare beneficiary--the primary 
     care ratio. A specialty care scarcity area would be based on 
     the number of specialty care physicians per Medicare 
     beneficiary--the specialty care ratio. The number of 
     physicians would be based on physicians who actively practice 
     medicine or osteopathy, and would exclude physicians whose 
     practice is exclusively for the Federal Government, 
     physicians who are retired, or physicians who only provide 
     administrative services.
       The Secretary would rank each county or area based on its 
     primary care ratio. Primary care scarcity counties or areas 
     would be those counties or areas with the lowest primary care 
     ratios, such that 20 percent of Medicare beneficiaries reside 
     in these counties, when each county or area is weighted by 
     the number of Medicare beneficiaries in the county or area. 
     Specialty care scarcity counties or areas would be identified 
     in the same manner, using the specialty care ratio. There 
     would be no administrative or judicial review of the 
     identification of counties or areas, or of a specialty of any 
     physician.
       To the extent feasible, the Secretary would treat a rural 
     census tract of a metropolitan statistical area, as 
     determined under the most recent modification of the 
     Goldsmith Modification, as an equivalent area for purposes of 
     qualifying as a primary care scarcity area or specialty care 
     scarcity area.
       The Secretary would be required to publish a list of all 
     areas which would qualify as primary care scarcity counties 
     or specialty care scarcity counties as part of the proposed 
     and final rules to implement the physician fee schedule.
       The provision would also include improvement to the 
     Medicare Incentive Payment Program, which provides a 10 
     percent bonus to physicians in shortage areas. The Secretary 
     would be required to establish procedures under which the 
     Secretary, and not the physician furnishing the service, 
     would be responsible for determining when a bonus payment 
     should be made. As part of the physician proposed and final 
     rule for the physician fee schedule, the Secretary would be 
     required to include a list of all areas which would qualify 
     as a health professional shortage area for the upcoming year.
     Senate Bill
       The Secretary would be required to establish procedures to 
     determine when the physician is eligible for a bonus payment. 
     The Secretary would also be required to (1) establish an 
     ongoing program to educate physicians about the incentive 
     program; (2) establish an ongoing study of the incentive 
     program to determine whether beneficiaries' access to 
     physician's services within the HPSA has improved; and (3) 
     submit annual reports including appropriate recommendations 
     for necessary administrative or legislative action concerning 
     improvements to the program. GAO would be required to conduct 
     an ongoing study of the MIP program on beneficiary access to 
     services and submit a report, including appropriate 
     recommendations, no later than 1 year from the date of 
     enactment.
     Conference Agreement
       Additional Incentive Payment for Certain Physician Scarcity 
     Areas (Section 413(a) of the Conference Agreement).
       The Conference Agreement establishes a new 5 percent 
     incentive payment program designed to reward both primary 
     care and specialist care physicians for furnishing services 
     in the areas that have fewest physicians available to serve 
     beneficiaries. The incentive payment will be made in counties 
     accounting for 20 percent of Medicare beneficiaries, which is 
     likely to represent more than 20 percent of counties. As with 
     the current HPSA bonus program, the 5 percent bonus would be 
     added to the amount that Medicare pays after deducting 
     beneficiary cost sharing so that beneficiaries do not pay 
     cost-sharing on the incentive payment.
       The Secretary will calculate two measures of scarcity. A 
     primary care scarcity area will

[[Page H12043]]

     be determined based on the number of primary care physicians 
     per Medicare beneficiary--the primary care ratio. A specialty 
     care scarcity area will be based on the number of specialty 
     care physicians per Medicare beneficiary--the specialty care 
     ratio. The number of physicians will be based on physicians 
     who actively practice medicine or osteopathy, and will 
     exclude physicians whose practice is exclusively for the 
     Federal Government, physicians who are retired, or physicians 
     who only provide administrative services.
       The provision requires identification of the county in 
     which the service is furnished in order to apply to the 
     bonus. Currently, it is the understanding of the Conferees 
     that the address where the service is furnished, including 
     the 5-digit zip code, is contained on the Medicare claim 
     form. Since some zip codes cross county boundaries, the 
     provision allows the Secretary to assign zip codes to 
     counties based on the dominant county of the zip code as 
     determined by the US Postal Service or otherwise. However, 
     nothing would preclude, nor require, the Secretary ultimately 
     to use 9-digit zip codes to determine the county in which the 
     service is furnished. The provision requires periodic review 
     and revision of the counties eligible for the bonus, but not 
     less often than once every three years. To the extent 
     feasible, the Secretary will treat a rural census tract of a 
     metropolitan statistical area, as determined under the most 
     recent modification of the Goldsmith Modification, as an 
     equivalent area for purposes of qualifying as a primary care 
     scarcity area or specialty care scarcity area.
       There will be no administrative or judicial review of the 
     designation of the county or area as a scarcity area, the 
     designation of an individual physician's specialty, the 
     assignment of a physician to a county or the assignment of a 
     postal zip code to the county or other area.
       The Secretary will be required to publish a list of all 
     areas which will qualify as primary care scarcity counties or 
     specialty care scarcity counties as part of the proposed and 
     final rules to implement the physician fee schedule.
       The list of eligible counties will be published each year 
     in the proposed and final rule implementing the physician fee 
     schedule. The list of counties will be posted on the Internet 
     website of the Centers for Medicare and Medicaid Services 
     (CMS).
       The new five percent bonus for physicians in either primary 
     care scarcity counties or specialty care scarcity counties 
     will increase financial incentives for physicians to provide 
     care to Medicare beneficiaries in these areas with a shortage 
     of physicians. This bonus payment will make it easier to 
     recruit and retain physicians in these scarcity areas.
       Improvement to Medicare Incentive Payment Program (Section 
     413(b) of the Conference Agreement).
       The Conference Agreement requires the Secretary to pay the 
     current law 10 percent Health Professional Shortage Area 
     (HPSA) incentive payment for services furnished in full 
     county primary care geographic area HPSAs automatically 
     rather than having the physician identify that the services 
     were furnished in such area. The implementation of the 
     incentive payment will be the same as for the physician 
     scarcity full county incentive payments, namely use of the 5 
     digit zip code with the dominant county of the zip code in 
     cases where zip codes cross county boundaries. A physician 
     will not need to report the HPSA modifier on the claim form 
     for services furnished in full county HSPAs.
       The Conference Agreement does not contain a requirement to 
     automate payment of incentive payments for services furnished 
     in partial county HPSAs. However, the provision does not 
     preclude the Secretary from automating payment in partial 
     county HPSAs if the Secretary determines that it is feasible 
     to do so based on information on the Medicare claim form.
       The Conference Agreement requires the Secretary to develop 
     a user friendly web site through which physicians may obtain 
     information on partial county HPSAs to facilitate reporting 
     of the modifier to identify the applicability of the 
     incentive payment in partial county HPSAs. The provision 
     requires that before the beginning of a calendar year the 
     Secretary will identify the HPSAs for which the incentive 
     payments will be made for such calendar year. Since HRSA 
     designates HPSAs, HRSA will transmit to CMS the list of 
     applicable HPSAs with enough lead time for CMS to implement 
     the incentive payments for the following calendar year.
       Improvements to the Medicare Incentive Program will shift 
     responsibility for identifying eligibility for the 10 percent 
     bonus from physicians to the Secretary. A service furnished 
     in a county that is both a full county HPSA and a scarcity 
     county would receive both bonuses--a total incentive payment 
     of 15 percent.
       GAO Study of Geographic Differences in Payments for 
     Physicians' Services (Section 413(c) of the Conference 
     Agreement, Section 413 of the House Bill, and Section 444 of 
     the Senate Bill).
     Present Law
       No provision.
     House Bill
       GAO would be required to study geographic differences in 
     payment amounts in the physician fee schedule including: (1) 
     an assessment of the validity of each component of the 
     geographic adjustment factors; (2) an evaluation of the 
     measures and the frequency with which they are revised; and 
     (3) an evaluation of the methods used to establish the costs 
     of professional liability insurance including the variation 
     between physician specialties and among different states, the 
     update to the geographic cost of practice index, and the 
     relative weights for the malpractice component. The study, 
     including recommendations concerning use of more current data 
     and use of cost data rather than price proxies, would be due 
     to Congress within 1 year of enactment.
     Senate Bill
       GAO would be required to study geographic differences in 
     payment amounts in the physician fee schedule including: (1) 
     an assessment of the validity of each component of the 
     geographic adjustment factors; (2) an evaluation of the 
     measures and the frequency with which they are revised; (3) 
     an evaluation of the methods used to establish the costs of 
     professional liability insurance including the variation 
     between physician specialties and among different states, the 
     update to the geographic cost of practice index, and the 
     relative weighs for the malpractice component; (4) an 
     evaluation of the economic basis for the floors on the 
     geographic adjustments established previously in this 
     legislation; (5) an evaluation of the effect of the 
     geographic adjustments on physician retention, recruitment 
     costs, physician mobility; (6) an evaluation of the 
     appropriateness of extending such adjustment; (7) an 
     evaluation of the adjustment of the work geographic practice 
     cost index to reflect \1/4\ the area cost difference in 
     physician work; (8) an evaluation of the effect of the 
     geographic practice cost index on physician location and 
     retention in higher cost areas; and (9) an evaluation of the 
     1/4 adjustment of such an index. The study would include 
     recommendations concerning use of more current data and use 
     of cost data rather than price proxies. The study would be 
     due to Congress within 1 year of enactment.
     Conference Agreement
       GAO will study payment differences under the physician fee 
     schedule for different geographic areas, including: (1) an 
     assessment of the validity of the geographic adjustment 
     factors 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 method used to determine professional liability insurance 
     costs including the variation between physician specialties 
     and among different states, the update to the geographic cost 
     of practice index, and the relative weighs for the 
     malpractice component; and (4) an evaluation of the effect of 
     the physician work geographic adjustment as modified by this 
     legislation on physician location and retention taking into 
     account differences in recruitment costs and retention rates 
     for physicians (including specialists) between large urban 
     areas and other areas and the mobility of physicians over the 
     last decade. The study, including recommendations concerning 
     use of more current data and use of cost data rather than 
     price proxies, is due to Congress within 1 year of the 
     enactment date.
     Payment for Rural and Urban Ambulance Services
       Phase-In Providing Floor Using Blend of Fee Schedule and 
     Regional Fee Schedule (Section 414(a) of the Conference 
     Agreement and Section 622 of the House Bill).
     Present Law
       Traditionally, Medicare has paid suppliers of ambulance 
     services on a reasonable charge basis and paid provider-based 
     ambulances on a reasonable cost basis. BBA 1997 provided for 
     the establishment of a national fee schedule which was to 
     implemented in phases, in an efficient and fair manner. The 
     required fee schedule became effective April 1, 2002 with 
     full implementation by January, 2006. In the transition 
     period, a gradually decreasing portion of the payment is to 
     be based on the prior payment methodology (either reasonable 
     costs or reasonable charges).
     House Bill
       Payments for ambulance services would be based on the 
     ambulance specific amount blended with the national fee 
     schedule amount or a combined rate of the national fee 
     schedule and a regional fee schedule, whichever resulted in 
     the larger payment. The blended rate during the phase-in 
     period would incorporate a decreasing portion of the payment 
     based on regional fee schedules calculated for each of nine 
     census regions. Generally, the regional fee schedules would 
     be based on the same methodology and data used to construct 
     the national fee schedule. For services provided in 2004, the 
     blended rate would be based on 20% of the national fee 
     schedule and 80% of the regional fee schedule; in 2005 
     blended rate would be based on a 40% national and 60% 
     regional split; in 2006, the blended rate would be based on a 
     60% national and 40% regional split; in 2007, 2008 and 2009, 
     the blended rate would be based on a 80% national and 20% 
     regional split; and in 2010 and subsequently, the ambulance 
     fee schedule would be based on the national fee schedule.
     Senate Bill
       No provision.
     Conference Agreement
       Payments for ambulance services will be based on the 
     ambulance specific amount blended with either the national 
     fee schedule amount or a combined rate of the national

[[Page H12044]]

     fee schedule and a regional fee schedule, whichever resulted 
     in the larger payment. The blended rate during the phase-in 
     period will incorporate a decreasing portion of the payment 
     based on regional fee schedules calculated for each of nine 
     census regions. Generally, the regional fee schedules will be 
     based on the same methodology and data used to construct the 
     national fee schedule. For 2004, starting for services on 
     July 1, 2004, the blended rate is based on 20% of the 
     national fee schedule and 80% of the regional fee schedule; 
     for 2005, the blended rate is based on a 40% national and 60% 
     regional split; in 2006, the blended rate is based on a 60% 
     national and 40% regional split; in 2007, 2008 and 2009, the 
     blended rate is based on a 80% national and 20% regional 
     split; and in 2010 and subsequently, the ambulance fee 
     schedule is based on the national fee schedule.
       Adjustment in Payment for Certain Long Trips (Section 
     414(b) of the Conference Agreement and Section 622 of the 
     House Bill).
     Present Law
       The fee schedule payment amount equals the base rate for 
     the level of service plus payment for mileage and specified 
     adjustment factors. Additional mileage payments are made in 
     rural areas. BIPA increased payment for rural ambulance 
     mileage for distances greater than 17 miles and up to 50 
     miles for services provided before January 1, 2004. The 
     amount of the increase was at least one-half of the payment 
     per mile established in the fee schedule for the first 17 
     miles of transport.
     House Bill
       Medicare's payments for ground ambulance services would be 
     increased by one quarter of the amount otherwise established 
     for trips longer than 50 miles occurring on or after January 
     1, 2004 and before January 1 2009. The payment increase would 
     apply regardless of where the transportation originated. GAO 
     would be required to submit an initial report to Congress on 
     the access and supply of ambulance services in regions and 
     states where ambulance payments are reduced by December 31, 
     2005. GAO would be required to submit a final report to 
     Congress no later than December 31, 2007. The provision would 
     apply to ambulance services furnished on or after January 1, 
     2004.
     Senate Bill
       No provision.
     Conference Agreement
       Medicare's payments for ground ambulance services will be 
     increased by one quarter of the payment per mile rate 
     otherwise established for trips longer than 50 miles 
     occurring on or after July 1, 2004 and before January 1, 
     2009. The payment increase applies regardless of where the 
     transportation originates.
       Improvement in Payments to Retain Emergency Capacity For 
     Ambulance Services in Rural Areas (Section 414(c) of the 
     Conference Agreement and Section 410 of the House Bill).
     Present Law
       Traditionally, Medicare has paid suppliers of ambulance 
     services on a reasonable charge basis and paid provider-based 
     ambulances on a reasonable cost basis. BBA 1997 provided for 
     the establishment of a national fee schedule which was to be 
     implemented in phases, in an efficient and fair manner. The 
     required fee schedule became effective April 1, 2002 with 
     full implementation by January, 2006. In the transition 
     period, a gradually decreasing portion of the payment is to 
     be based on the prior payment methodology (either reasonable 
     costs or reasonable charges).
       The fee schedule payment amount equals the base rate for 
     the level of service plus payment for mileage and specified 
     adjustment factors. Additional mileage payments are made in 
     rural areas. BIPA increased payment for rural ambulance 
     mileage for distances greater than 17 miles and up to 50 
     miles for services provided before January 1, 2004. The 
     amount of the increase was at least one-half of the payment 
     per mile established in the fee schedule for the first 17 
     miles of transport.
     House Bill
       Starting for services provided January 1, 2004 the 
     Secretary would be required to provide a percentage increase 
     in the base rate of the fee schedule for ground ambulance 
     services that originate in a qualified rural area. The 
     increase would be estimated using the average cost per trip 
     for the base rate in the lowest quartile as compared to the 
     average cost for the base rate in the highest quartile of all 
     rural counties. A qualified rural county is a rural area (a 
     county not assigned to a metropolitan statistical area) with 
     a population density of Medicare beneficiaries in the lowest 
     quartile of all rural counties.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary will provide a percentage increase in the 
     base rate of the fee schedule for ground ambulance services 
     furnished on or after July 1, 2004 and before January 1, 2010 
     that originate in a qualified rural area. The payment 
     increase is estimated using the average cost per trip for the 
     base rate (not taking into account mileage) in the lowest 
     quartile as compared to the average cost for the base rate 
     (not taking into account mileage) in the highest quartile of 
     all rural counties. The Secretary will determine the 
     population density for each rural area using 2000 Census data 
     and rank each county accordingly. The qualified rural areas 
     are those with the lowest population densities that 
     collectively represent a total of 25% of the population in 
     those areas. To the extent feasible, the Secretary is 
     required to treat certain rural census tracts in metropolitan 
     statistical areas as a rural area. There will be no 
     administrative or judicial review under Sections 1869 and 
     1878 of the SSA or otherwise with respect to the 
     identification of a qualified rural area. In order to 
     promptly implement this provision, the Secretary may use data 
     furnished by GAO.
       Temporary Increase for Ground Ambulance Services (Section 
     414(d) of the Conference Agreement and Section 425 of Senate 
     Bill).
     Present Law
       The ambulance fee schedule payment amount equals the base 
     rate for the level of service plus payment for mileage and 
     specified adjustment factors. Additional mileage payments are 
     made in rural areas. BIPA increased payment for rural 
     ambulance mileage for distances greater than 17 miles and up 
     to 50 miles for services provided before January 1, 2004. The 
     amount of the increase was at least one-half of the payment 
     per mile established in the fee schedule for the first 17 
     miles of transport.
     House Bill
       No provision.
     Senate Bill
       The payments for ground ambulance services originating in a 
     rural area or a rural census tract would be increased by 5% 
     for services furnished on or after January 1, 2005 through 
     December 31, 2007. The fee schedule for ambulances in other 
     areas would be increased by 2%. These increased payments 
     would not affect Medicare payments for covered ambulance 
     services in subsequent periods. The conversion factor for 
     ambulance services would not be adjusted downward because of 
     the Secretary's evaluation of the prior year's conversion 
     factor.
     Conference Agreement
       The payments for ground ambulance services originating in a 
     rural area or a rural census tract will be increased by 2% 
     (after application of the long trip and low density payment 
     increases) for services furnished on or after July 1, 2004 
     through December 31, 2007. The fee schedule for ambulances in 
     other areas (after application of the long trip adjustment) 
     will increase by 1%. These increased payments will not affect 
     Medicare payments for covered ambulance services after 2007.
       Implementation, GAO Report on Costs and Access, and 
     Technical Amendments (Section 414(e)-(g) of the Conference 
     Agreement).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary is able to implement the amendments made by 
     Section 414 and revisions to the conversion factor on an 
     interim, final basis or by program instruction. GAO is 
     required to submit an initial report to Congress on cost 
     differences among different types of ambulance providers, and 
     the impact of payment reductions in the ambulance fee 
     schedule on access, supply, and quality of ambulance services 
     in regions and states with such reductions. Other technical 
     amendments will also be adopted.
       Providing Appropriate Coverage of Rural Air Ambulance 
     Services (Section 415 of the Conference Agreement and Section 
     426 in the Senate Bill).
     Present Law
       Medicare pays for ambulance services under a fee schedule. 
     Seven categories of ground ambulance services, ranging from 
     basic life support to specialty care transport, and two 
     categories of air ambulance services are established. Payment 
     for ambulance services can only be made if other methods of 
     transportation are contraindicated by the patient's medical 
     conditions, but only to the extent provided in regulations.
     House Bill
       No provision.
     Senate Bill
       The regulations governing ambulance services would be 
     required to ensure that air ambulance services be reimbursed 
     if: (1) the air ambulance service is medically necessary 
     based on the health condition of the patient being 
     transported at or immediately prior to the time of the 
     transport service; and (2) the air ambulance service complies 
     with the equipment and crew requirements established by the 
     Secretary. An air ambulance service would be considered 
     medically necessary when requested: (1) by a physician or 
     hospital in accordance with their responsibilities under the 
     Emergency Medical Treatment and Active Labor Act; (2) as a 
     result of a protocol established by a state or regional 
     emergency medical service agency; (3) by a physician, nurse 
     practitioner, physician assistant, registered nurse, or 
     emergency medical responder who reasonably determines or 
     certifies that patient's condition is such that the time 
     involved in land transport significantly increases the 
     patient's medical risks; or (4) by a Federal or State agency 
     to relocate patients following a natural disaster, an act of 
     war, or a terrorist act. Air ambulance services would be 
     defined

[[Page H12045]]

     as a fixed wing or rotary wing air ambulance services. The 
     provision would apply to services furnished on or after 
     January 1, 2005.
     Conference Agreement
       The regulations governing the use of ambulance services 
     will provide that to the extent that any ambulance service 
     (whether ground or air) may be covered, a rural air ambulance 
     service will be at the air ambulance rate if: (1) the air 
     ambulance service is reasonable and necessary based on the 
     health condition of the patient being transported at or 
     immediately prior to the time of the transport service; and 
     (2) the air ambulance service complies with the equipment and 
     crew requirements established by the Secretary. An air 
     ambulance service is considered reasonable and necessary 
     when requested: (1) by a physician or other qualified 
     medical personnel who reasonably determines or certifies 
     that an individual's condition is such that the time 
     needed to transport the individual by land or the 
     instability of land transportation poses a threat to the 
     individual's survival or seriously endangers the 
     individual's health or (2) such services is furnished 
     pursuant to a protocol under which the use of an air 
     ambulance is recommended that is established by a state or 
     regional emergency medical services (EMS) agency and 
     recognized or approved by the Secretary. The EMS agency 
     cannot have an ownership interest in the entity furnishing 
     such service. Also, there cannot be a financial or 
     employment relationship or a common ownership arrangement 
     between the person requesting the rural air ambulance 
     service and the furnishing entity or a financial 
     relationship between an immediate family member of such 
     requester and such an entity. This prohibition does not 
     apply to instances when a hospital and an entity 
     furnishing the rural air ambulance services are under 
     common ownership if remuneration (through employment or 
     other relationship) is for provider based physician 
     services furnished in a hospital which are reimbursed 
     under Part A and is unrelated directly or indirectly to 
     the provision of rural air ambulance services. A rural air 
     ambulance service is defined as a fixed wing or rotary 
     wing air ambulance service where the individual's point of 
     pick up is in a rural area or rural census tract. The 
     provision applies to services furnished on or after 
     January 1, 2005.
       Treatment of Certain Clinical Diagnostic Laboratory Tests 
     Furnished To Hospital Outpatients in Certain Rural Areas 
     (Section 416 of the Conference Agreement and Section 427 of 
     the Senate Bill).
     Present Law
       Generally, hospitals that provide clinical diagnostic 
     laboratory tests under Part B are reimbursed using a fee 
     schedule. Sole community hospitals (SCHs) that provide some 
     clinical diagnostic tests 24 hours a day qualify for a 2% 
     increase in the amounts established in the outpatient 
     laboratory fee schedule; no beneficiary cost-sharing amounts 
     are imposed.
     House Bill
       No provision.
     Senate Bill
       SCHs that provide clinical diagnostic laboratory tests 
     covered under Part B in 2005 and 2006 would be reimbursed 
     their reasonable costs of furnishing the tests. No 
     beneficiary cost sharing amounts would apply to these 
     services.
     Conference Agreement
       Hospitals with under 50 beds in qualified rural areas (low 
     density population rural areas established under Section 
     414(c) of this legislation) will receive 100% reasonable cost 
     reimbursement for clinical diagnostic laboratory tests 
     covered under Part B that are provided as outpatient hospital 
     services. The Secretary will apply the rules that determine 
     whether clinical diagnostic laboratory tests are furnished as 
     an outpatient critical access hospital service to establish 
     whether these clinical diagnostic laboratory tests are 
     outpatient hospital services. The provision will apply to 
     services furnished during a cost reporting period beginning 
     during the 2-year period starting July 1, 2004.
       Extension of the Telemedicine Demonstration Project 
     (Section 417 of the Conference Agreement and Section 415 of 
     the House Bill).
     Present Law
       BBA 1997 established a single 4-year demonstration project 
     where an eligible health care provider telemedicine network 
     would use high-capacity computer systems and medical 
     infomatics to improve primary care and prevent health 
     complications in Medicare beneficiaries with diabetes 
     mellitus. The Informatics, Telemedicine, and Education 
     Demonstration project uses modified home computers or home 
     telemedicine units linked to clinical information systems to 
     assist beneficiaries residing in medically under-served rural 
     or medically under- served inner-city areas, interaction with 
     a nurse case manager, video conferencing, and access to 
     health information and medical data, in both Spanish and 
     English. The demonstration will expire in February 2004.
     House Bill
       The demonstration project would be extended for 4 years and 
     total funding would be increased from $30 million to $60 
     million. The provision would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The demonstration project is extended for 4 years and total 
     funding will be increased from $30 million to $60 million. 
     The provision will be effective upon enactment.
       Report on Demonstration Project Permitting Skilled Nursing 
     Facilities to Be Originating Telehealth Sites (Section 418 of 
     the Conference Agreement and Section 450H of the Senate 
     Bill).
     Present Law
       Medicare will pay for use of certain telecommunications 
     systems as a substitute for face-to-face encounters to 
     provide consultations, office or other outpatient visits, 
     individual psychotherapy and pharmacologic management 
     services to eligible beneficiaries. With certain exceptions, 
     Medicare beneficiaries are eligible for telehealth services 
     only if they are presented from an originating site located 
     in either a rural health professional shortage area or in a 
     county that is not in a metropolitan statistical area. An 
     originating site is the location of the beneficiary at the 
     time the services being furnished by the telecommunications 
     system occurs. Originating sites defined in statute include 
     the office of a physician or practitioner, a hospital, a 
     critical access hospital, a rural health clinic or a 
     federally qualified health center.
     House Bill
       No provision.
     Senate Bill
       This provision would add types of providers to the list of 
     originating sites that can bill Medicare for telehealth 
     services. The additional providers are both those defined by 
     the statute and those that would be defined by the Secretary. 
     Providers defined in the statute are: a skilled nursing 
     facility (1918(a)), a community mental health center 
     (1861(ff)(2)(B)), and a facility operated by the Indian 
     Health Service or by an Indian tribe, tribal organization, or 
     an urban Indian organization (as defined in Senate Section 4 
     of the Indian Health Care Improvement Act). Providers that 
     would be defined by the Secretary are: an assisted-living 
     facility, a board-and-care home, a county or community health 
     clinic, and a long-term care facility (as defined by the 
     Secretary.) In addition, the Secretary would be required to 
     encourage and facilitate the adoption of State provisions 
     allowing for multi-state practitioner licensure across State 
     boundaries. The provision would be effective upon enactment.
     Conference Agreement
       The Secretary will evaluate a demonstration project under 
     which a skilled nursing facility is treated as an originating 
     site for telehealth services. The Secretary will delegate the 
     evaluation to the Administrator of the Health Resources and 
     Services Administration who will consult with the 
     Administrator for the Centers for Medicare & Medicaid 
     Services. No later than January 1, 2005, the Secretary will 
     submit a report to Congress on the evaluation including 
     recommendations on mechanisms to ensure that permitting a 
     skilled nursing facility to serve as an originating site for 
     the use of telehealth services or any other services 
     delivered via a telecommunications system does not substitute 
     for in-person required visits furnished by physicians, 
     physician assistants, nurse practitioners or clinical nurse 
     specialists at specified intervals as required by the 
     Secretary. If the Secretary concludes that it is advisable to 
     permit a skilled nursing facility to be an originating site 
     for telehealth services, and the Secretary can establish the 
     mechanisms to ensure such permission does not serve as a 
     substitute for in-person visits, the Secretary may deem a 
     skilled nursing facility to be an originating site beginning 
     on January 1, 2006.
       Exclusion of Certain Rural Health Clinic and Federally 
     Qualified Health Center Services from the Prospective Payment 
     System for Skilled Nursing Facilities (Section 410 of the 
     Conference Report and 408 of the House Bill and Section 429 
     of the Senate Bill).
     Present Law
       Under Medicare's prospective payment system (PPS), skilled 
     nursing facilities (SNFs) are paid a predetermined amount to 
     cover all services provided in a day, including the costs 
     associated with room and board, nursing, therapy, and drugs; 
     the daily payment will vary depending upon a patient's 
     therapy, nursing and special care needs as established by one 
     of 44 resource utilization groups (RUGs). Certain services 
     and items provided an SNF resident, such as physicians' 
     services, specified ambulance services, chemotherapy items 
     and services, and certain outpatient services from a 
     Medicare-participating hospital or critical access hospital, 
     are excluded from the SNF-PPS and paid separately under Part 
     B.
     House Bill
       Services provided by a rural health clinic (RHCs) and a 
     federally qualified health center (FQHC) after January 1, 
     2004 would be excluded from SNF-PPS if such services would 
     have been excluded if furnished by a physician or 
     practitioner who was not affiliated with an RHC or FQHC. The 
     provisions would apply to services furnished on or after 
     January 1, 2004.
     Senate Bill
       Services provided by a rural health clinic (RHC) and a 
     federally qualified health center (FQHC) after January 1, 
     2005 would be excluded from SNF-PPS if such services would 
     have been excluded if furnished by a physician or 
     practitioner who was not affiliated

[[Page H12046]]

     with an RHC or FQHC. Outpatient services that are beyond the 
     general scope of SNF comprehensive care plans that are 
     provided by an entity that is 100% owned as a joint venture 
     by two Medicare-participating hospitals or critical access 
     hospitals would be excluded from the SNF-PPS. The provision 
     would apply to services furnished on or after January 1, 
     2005.
     Conference Agreement
       Services provided by a rural health clinic (RHC) and a 
     federally qualified health center (FQHC) after January 1, 
     2004 would be excluded from SNF-PPS if such services would 
     have been excluded if furnished by a physician or 
     practitioner who was not affiliated with an RHC or FQHC. The 
     provisions would apply to services furnished on or after 
     January 1, 2004.
       Improvement in Rural Health Clinic Reimbursement (Section 
     428 in the Senate Bill).
     Present Law
       BBA 1997 extended the per visit payment limits that had 
     existed for independent rural health clinics to provider-
     based rural health clinics (RHC) except for those clinics 
     based in small rural hospitals with fewer than 50 beds. For 
     services rendered from January 1, 2003 through February 28, 
     2003, the RHC upper payment limit is $66.46, which reflects a 
     2.6% increase in 2002 payment limit as established by the 
     2002 Medicare Economic Index (MEI). For services rendered 
     from March 1, 2003 through December 31, 2003, the Medicare 
     RHC upper payment limit is $66.72, which reflects a 3.0% 
     increase in the 2002 payment limit as established by the 2003 
     MEI. The 2002 MEI was used as an update for 3 months because 
     the delayed implementation of the 2003 MEI.
     House Bill
       No provision.
     Senate Bill
       The RHC upper payment would be increased to $80.00 for 
     calendar year 2005. The MEI applicable to primary care 
     services would be used to increase the payment limit in 
     subsequent years. The provision would be effective upon 
     enactment.
     Conference Agreement
       No provision.
       Frontier Extended Stay Clinic Demonstration Project 
     (Section 434 of the Conference Report and Section 457/
     Duplicative Provision 460 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to conduct a demonstration 
     project that would treat frontier extended stay clinics as a 
     Medicare provider. A frontier extended stay clinic is one 
     that is located in a community where the closest acute care 
     hospital or critical access hospital is at least 75 miles 
     away or is inaccessible by public road. Such clinics are 
     designed to address the needs of seriously or critically ill 
     or injured patients who, due to adverse weather conditions or 
     other reasons, cannot be transferred quickly to acute care 
     referral centers; or patients who need monitoring and 
     observation for a limited period of time. The provision would 
     be effective upon enactment.
     Conference Agreement
       The Secretary would be required to conduct a demonstration 
     project that would treat frontier extended stay clinics as a 
     Medicare provider. A frontier extended stay clinic is one 
     that is located in a community where the closest acute care 
     hospital or critical access hospital is at least 75 miles 
     away or is inaccessible by public road and is designed to 
     address the needs of seriously or critically ill or injured 
     patients who, due to adverse weather conditions or other 
     reasons, cannot be transferred quickly to acute care referral 
     centers; or patients who need monitoring and observation for 
     a limited period of time. The Secretary is required to 
     develop life safety code standards for these clinics such as 
     sprinkler system because the patients stay overnight. The 
     provision would be effective upon enactment and is budget 
     neutral.

            Subtitle C--Provisions Relating to Parts A and B

       1-Year Increase for Home Health Services Furnished in a 
     Rural Area (Section 421 of the Conference Agreement, Section 
     411 of the House Bill, and Section 451 of the Senate Bill).
     Present Law
       The Medicare home health PPS which was implemented on 
     October 1, 2000 provides a standardized payment for a 60-day 
     episode of care furnished to a Medicare beneficiary. 
     Medicare's payment is adjusted to reflect the type and 
     intensity of care furnished and area wages as measured by the 
     hospital wage index. BIPA increased PPS payments by 10% for 
     home health services furnished in the home of beneficiaries 
     living in rural areas during the 2-year period beginning 
     April 1, 2001, through March 31, 2003, without regard to 
     certain budget-neutrality provisions applying to home health 
     PPS. The temporary additional payment is not included in the 
     base for determination of payment updates.
     House Bill
       The provision would extend a 5% additional payment for home 
     health care services furnished in a rural area during FY2004 
     and FY2005 without regard to certain budget-neutrality 
     requirements. The provision would be effective upon 
     enactment.
     Senate Bill
       The provision would provide a temporary payment increase of 
     5% for home health care services furnished in a rural area on 
     or after October 1, 2004 and before October 1, 2006 without 
     regard to certain budget-neutrality requirements. The 
     temporary additional payment would not be considered when 
     determining future home health payment amounts. The provision 
     would be effective upon enactment.
     Conference Agreement
       The conference agreement provides a 1-year, 5% additional 
     payment for home health care services furnished in a rural 
     area without regard to certain budget-neutrality 
     requirements. The temporary additional payment begins for 
     episodes and visits ending on or after April 1, 2004 and 
     before April 1, 2005 and is not to be used in calculating 
     future home health payment amounts.
       Redistribution of Unused Resident Positions (Section 422 of 
     the Conference Agreement and Section 406 of the House Bill).
     Present Law
       Medicare has different resident limits for counting 
     residents in its indirect medical education (IME) adjustment 
     and for reimbursement for a teaching hospital's direct 
     medical education (DGME) costs. Generally, a hospital's IME 
     adjustment depends on a hospital's teaching intensity as 
     measured by the ratio of the number of interns and residents 
     per bed. Prior to BBA 1997, the number of residents that 
     could be counted for IME purposes included only those in the 
     hospital inpatient and outpatient departments. Effective 
     October 1, 1997, under certain circumstances a hospital may 
     now count residents in non-hospital sites for the purposes of 
     IME. Medicare DGME payment to a teaching hospital is based on 
     its updated cost per resident (subject to a locality 
     adjustment and certain payment corridors), the weighted 
     number of approved full-time-equivalent (FTE) residents, and 
     Medicare's share of inpatient days in the hospital. Medicare 
     counts residents in their initial residency period (the 
     lesser of the minimum number of years required for board 
     eligibility in the physician's specialty or 5 years) as 1.0 
     FTE. Residents whose training has extended beyond their 
     initial residency period count as 0.5 FTE. Residents in 
     certain specialties are allowed additional years in their 
     initial residency period. Residents who are graduates from 
     foreign medical schools do not count unless they pass certain 
     exams.
       Generally, the resident counts for both IME and DGME 
     payments are based on the number of residents in approved 
     allopathic and osteopathic teaching programs that were 
     reported by the hospital for the cost reporting period ending 
     in calendar year 1996. The DGME resident limit is based on 
     the unweighted resident counts. It may differ from the IME 
     limit because in 1996 residents training in non-hospital 
     sites were eligible for DGME payments but not for IME 
     payments. Hospitals that established new training programs 
     before August 5, 1997 are partially exempt from the cap. 
     Other exceptions apply to certain hospitals including those 
     with new programs established after that date. Hospitals in 
     rural areas (and nonrural hospitals operating training 
     programs in rural areas) can be paid for 130% of the number 
     of residents allowed by their cap. Under certain conditions, 
     an affiliated group of hospitals under a specific arrangement 
     may combine their resident limits into an aggregate limit. 
     Subject to these resident limits, a teaching hospital's IME 
     and DGME payments are based on a 3-year rolling average of 
     resident counts, that is, the resident count will be based on 
     the average of the resident count in the current year and the 
     2 preceding years. The rolling average calculation includes 
     podiatry and dental residents.
     House Bill
       A teaching hospitals total number of Medicare-reimbursed 
     resident positions would be reduced for cost reporting 
     periods starting January 1, 2004 if its resident reference 
     level is less than its applicable resident limit. If so, the 
     reduction would equal 75% of the difference between the 
     hospitals limit and its resident reference level. The 
     resident reference level would be the highest number of 
     allopathic and osteopathic resident positions (before the 
     application of any weighting factors) for the hospital during 
     the reference period. A hospitals reference period would be 
     the 3 most recent consecutive cost reporting periods for 
     which a hospitals cost reports have been settled (or in the 
     absence of such settled cost reports, submitted reports) on 
     or before September 30, 2002. The Secretary would be able to 
     adjust a hospitals resident reference level, upon the timely 
     request for such an adjustment, for the cost reporting period 
     that includes July 1, 2003.
       The Secretary would be authorized to increase the 
     applicable resident limits for hospitals by an aggregate 
     number that does not exceed the overall reduction in such 
     limits. No increase would be permitted for any portion of 
     cost reporting period that occurs before July 1, 2004 or 
     before the date of a hospital's application for such an 
     increase. No increase would be permitted unless the hospital 
     applied for such an increase by December 31, 2005. The 
     Secretary would consider the need for an increase in the 
     physician specialty and the location involved. The Secretary 
     would first distribute the increased resident count to 
     programs in hospitals located in rural areas and hospitals 
     that are

[[Page H12047]]

     not in large urban areas on a first-come-first-served basis. 
     The hospital would have to demonstrate that the resident 
     positions would be filled; not more than 25 positions would 
     be given to any hospital. These hospitals would be reimbursed 
     for DGME for the increase in resident positions at the 
     locality adjusted national average per resident amount. 
     Changes in a hospitals resident count established under this 
     section would affect a hospitals IME adjustment. These 
     provisions would not apply to reductions in residency 
     programs that occurred as part of the voluntary reduction 
     program or would affect the ability of certain hospitals to 
     establish a new medical residency training programs. The 
     Secretary would be required to submit a report to Congress no 
     later than July 1, 2005 on whether to extend the application 
     deadline for increases in resident limits. The provision 
     would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       A teaching hospital's total number of Medicare-reimbursed 
     resident positions will be reduced for cost reporting periods 
     starting July 1, 2005 if its reference resident level is less 
     than its applicable resident limit. Rural hospitals with less 
     than 250 acute care inpatient beds would be exempt from such 
     reductions. For other such hospitals, the reduction will 
     equal 75% of the difference between the hospital's limit and 
     its reference resident level. The resident reference level is 
     the highest number of allopathic and osteopathic resident 
     positions (before the application of any weighting factors) 
     for the hospital during the reference period. This reference 
     level is either (1) the resident level of the most recent 
     cost reporting period of the hospital for which a cost report 
     has been settled (or submitted, subject to audit) on or 
     before September 30, 2002 or (2) the resident level for the 
     cost reporting period that includes July 1, 2003, if 
     requested on a timely basis by the hospital subject to audit. 
     Upon this timely request at the discretion of the Secretary, 
     a hospital's reference level will be adjusted to include the 
     number of medical residents for the cost reporting period 
     that includes July 1, 2003. Upon timely request of the 
     hospital, the Secretary will adjust the reference resident 
     level to include the number of medical residents that were 
     approved in an application to the appropriate accrediting 
     organization before January 1, 2002 if the program was not in 
     operation by the cost reporting period in question (either 
     September 30, 2002 or July 1, 2003 depending upon the 
     hospital's circumstances and the Secretary's approval). The 
     reduction will apply to hospitals that are members of the 
     same affiliated group as of July 1, 2003.
       The Secretary is authorized to increase the applicable 
     resident limits for hospitals for portions of cost reporting 
     periods occurring on or after July 1, 2005 by an aggregate 
     number that does not exceed the overall reduction in such 
     limits. The Secretary will take into account the demonstrated 
     likelihood of the hospital filling the positions within the 
     first 3 cost reporting periods beginning on or after July 1, 
     2005 when determining which hospitals would receive an 
     increase in their resident levels. The Secretary will 
     establish a priority order to distribute the increased 
     resident count first to programs in hospitals located in 
     rural areas, then to hospitals that are not in large urban 
     areas and finally to other hospitals in a state where there 
     is no other training program for a particular specialty. The 
     Secretary shall consider giving special consideration to 
     hospitals that train a large share of graduates from 
     historically large medical colleges. Increases to limits with 
     the same priority category will be determined by the 
     Secretary. Not more than 25 additional FTEs will be given to 
     any hospital. These hospitals will be reimbursed for DGME for 
     the increase in resident positions at the locality adjusted 
     national average per resident amount. Changes in a hospital's 
     resident count established under this section will affect a 
     hospital's IME adjustment; the IME adjustment will be 
     calculated as if ``c'' is equal to 0.66 for these additional 
     positions starting for discharges after July 1, 2005. These 
     provisions will not apply to reductions in residency programs 
     that occurred as part of the voluntary reduction program or 
     will not affect the ability of certain hospitals to establish 
     new medical residency training programs. The Secretary is 
     required to submit a report to Congress no later than July 1, 
     2005 on whether to extend the application deadline for 
     increases in resident limits. Requirement with respect to 
     Federal information policy established by Chapter 35 of Title 
     44, United States Code will not apply to applications under 
     this section.

                      Subtitle D--Other Provisions

       Providing Safe Harbor for Certain Collaborative Efforts 
     that Benefit Medically Underserved Populations (Section 431 
     of the Conference Agreement and Section 412 of the House 
     Bill).
     Present Law
       People who knowingly and willfully offer or pay a kickback, 
     a bribe, or rebate directly or indirectly to induce referrals 
     or the provision of services under a Federal program may be 
     subject to financial penalties and imprisonment. Certain 
     exceptions or safe harbors that are not considered violations 
     of the anti-kickback statute have been established.
     House Bill
       Remuneration in the form of a contract, lease, grant, loan 
     or other agreement between a public or non-profit private 
     health center and an individual or entity providing goods or 
     services to the health center would not be a violation of the 
     anti-kickback statute if such an agreement would contribute 
     to the ability of the health center to maintain or increase 
     the availability or quality of services provided to a 
     medically underserved population. The Secretary would be 
     required to establish standards, on an expedited basis, 
     related to this safe harbor that would consider whether the 
     arrangement (1) resulted in savings of Federal grant funds or 
     increased revenues to the health center; (2) expanded or 
     limited a patient's freedom of choice; and (3) protected a 
     health care professional's independence regarding the 
     provision of medically appropriate treatment. The Secretary 
     would also be able to include other standards that are 
     consistent with Congressional intent in enacting this 
     exception. The Secretary would be required to publish an 
     interim final rule in the Federal Register no later than 180 
     days from enactment that would establish these standards. The 
     rule would be effective immediately, subject to change after 
     a public comment period of not more than 60 days. The 
     provision would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       Remuneration in the form of a contract, lease, grant, loan 
     or other agreement between a public or non-profit private 
     health center and an individual or entity providing goods or 
     services to the health center would not be a violation of the 
     anti-kickback statute if such an agreement would contribute 
     to the ability of the health center to maintain or increase 
     the availability or quality of services provided to a 
     medically underserved population. The Secretary would be 
     required to establish standards, on an expedited basis, 
     related to this safe harbor that would consider whether the 
     arrangement (1) results in savings of Federal grant funds or 
     increased revenues to the health center; (2) expands or 
     limits a patient's freedom of choice; and (3) protects a 
     health care professional's independence regarding the 
     provision of medically appropriate treatment. The Secretary 
     would also be able to include other standards that are 
     consistent with Congressional intent in enacting this 
     exception. The Secretary would be required to publish a final 
     regulation establishing these standards no later than 1 year 
     from the date of enactment.
       Office of Rural Health Policy Improvement (Section 432 of 
     the Conference Agreement and Section 637 of the Senate Bill).
     Present Law
       Within the Department of Health and Human Services, the 
     Office of Rural Health Policy advises the Secretary on the 
     effects of current policies and proposed statutory, 
     regulatory, administrative, and budgetary changes in Medicare 
     and Medicaid program on the financial viability of small 
     rural hospitals, the ability of rural areas to attract and 
     retain physicians and other health professionals, and access 
     to and the quality of health care in rural areas. In addition 
     to advising the Secretary, the Office has other 
     responsibilities including coordinating the activities within 
     HHS that relate to rural health care.
     House Bill
       No provision.
     Senate Bill
       The list of explicit responsibilities of the Office is 
     expanded to include administering grants, cooperative 
     agreements, and contracts to provide technical assistance and 
     other activities as necessary to support activities related 
     to improving health care in rural areas. The provision would 
     be effective upon enactment.
     Conference Agreement
       The functions of the Office of Rural Health Policy will be 
     expanded; it will be authorized to administer grants, 
     cooperative agreements, and contracts to provide technical 
     assistance and other necessary activities to support 
     activities related to improving rural health care. The 
     provision is effective on enactment.
       MedPAC Study on Rural Payment Adjustments (Section 433 of 
     the Conference Agreement).
     Present Law
       No provision.
     House Bill

                              No provision

     Conference Agreement
       MedPAC will study the effect on specified rural provisions 
     in this legislation (specifically, Sections 401 through 405, 
     411, 416, and 504) including total payments, growth in costs, 
     capital spending and other payment factors. An interim report 
     on changes to the critical access hospital program (in 
     Section 405) is due to Congress no later than 18 months from 
     the date of enactment. MedPAC's final report on all topics is 
     due to Congress no later than 3 years from the date of 
     enactment.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

       Revision of Acute Hospital Payment Updates (Section 501(a) 
     and 501(b) of the Conference Agreement and Section 501 of the 
     House Bill).

[[Page H12048]]

     Present Law
       Each year, Medicare's operating payments to hospitals are 
     increased or updated by a factor that is determined in part 
     by the projected annual change in the hospital market basket 
     (MB). Congress establishes the update for Medicare's 
     inpatient prospective payment system (IPSS) for operating 
     costs, often several years in advance. Currently, acute 
     hospitals will receive the MB as an update for FY2004 and 
     subsequently. CMS has asked hospital to report on 10 JCAHO/
     CMS measures, developed by the National Quality Foundation. 
     For example, whether a patient with an acute myocardial 
     infarction receives aspirin at arrival. As of October 9, 
     2003, 420 hospitals (out of the over 5,000 acute care 
     hospitals that bill Medicare) had provided CMS with one of 
     more measures.
     House Bill
       Acute hospitals would receive an operating update of the MB 
     minus 0.4 percentage points for FY2004 through FY2006. The 
     operating update would be the MB increase in FY2007 and 
     subsequently. The provision would be effective upon 
     enactment.
     Senate Bill
       No provision.
     Conference Agreement
       An acute hospital will receive an operating update of the 
     MB in FY2004. An acute hospital will receive an operating 
     update of the MB from FY2005 through FY2007 if it submits 
     data on the 10 quality indicators established by the 
     Secretary as of November 1, 2003. The Secretary will specify 
     the form, manner, and time of the data submission except that 
     any data collection and editing must be done before the start 
     of the fiscal year. For FY2005, the Secretary will provide 
     for a 30-day grace period for the submission of the required 
     data. A hospital that does not submit data to the Secretary 
     will receive an update of the MB minus 0.4 percentage points 
     for the fiscal year in question. The Secretary will not take 
     into account this reduction when computing the applicable 
     percentage increase in subsequent years.
       The Secretary is directed to compile and clarify the 
     procedures and policies for billing for blood and blood costs 
     in the hospital inpatient and outpatient settings as well as 
     the operation of the collection of the blood deductible.
       Inpatient rehabilitation facilities (IRF) provide Medicare 
     patients with rehabilitation services. They are distinguished 
     from acute care settings by a number of criteria including 
     that 75 percent of their cases must be in ten categories--
     stroke, spinal cord injury, congenital deformity, amputation, 
     major multiple trauma, fracture of femur, brain injury, and 
     polyarthritis, including rheumatoid arthritis, neurological 
     disorders, and burns. This criterion is commonly referred to 
     as the ``75 percent rule.''
       On September 2, 2003, CMS issued proposed changes in 
     classifying IRFs. The Conferees are concerned that the rule, 
     as written, would have severe consequences for access to 
     inpatient rehabilitation hospital services. The Conferees 
     concur with the Medicare Payment Advisory Commission (MedPAC) 
     finding that further analysis should be conducted to identify 
     which conditions are clinically appropriate for inclusion in 
     the calculation of the 75 percent rule used to determine 
     eligibility for reimbursement under the inpatient 
     rehabilitation facility prospective payment system. The 
     Conferees direct the GAO to issue a report, in consultation 
     with experts in the field of physical medicine and 
     rehabilitation to look at whether the current list of 
     conditions represents a clinically appropriate standard for 
     defining IRF services and, if not, which additional 
     conditions should be added to the list. During the study 
     period, the Committee urges the Secretary to delay 
     implementation of the rule and not accept new IRF 
     applications until the report is finished.
       GAO Study and Report on Appropriateness of Payments Under 
     the Prospective Payment System for Inpatient Hospital 
     Services (Section 501(c) of the Conference Agreement and 
     Section 413 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       GAO would be required to use the most current data 
     available to conduct a study to determine: (1) the 
     appropriate level and distribution of Medicare payments in 
     relation to costs to short-term general hospitals under the 
     inpatient prospective payment system (IPPS) and (2) the need 
     for geographic adjustments to reflect legitimate differences 
     in hospital costs across geographic areas, kinds of 
     hospitals, and types of cases. The study, including 
     recommendations for necessary legislative and administrative 
     action, would be due to Congress within 18 months of 
     enactment.
     Conference Agreement
       GAO is required to use the most current data available to 
     conduct a study to determine: (1) the appropriate level and 
     distribution of Medicare payments in relation to costs for 
     short-term general hospitals under the inpatient prospective 
     payment system (IPPS) and (2) the need for geographic 
     adjustments to reflect legitimate differences in hospital 
     costs across geographic areas, kinds of hospitals, and types 
     of cases. The study, including recommendations for necessary 
     legislative and administrative action, is due to Congress 
     within 24 months of enactment.
       Revision of the Indirect Medical Education (IME) Adjustment 
     Percentage (Section 502 of the Conference Agreement and 
     Section 418 of the Senate Bill).
     Present Law
       A hospital's IME payment to a hospital is based on a 
     percentage add-on to the PPS rate that is established by a 
     curvilinear formula that currently provides a payment 
     increase of approximately 5.5% for each 10% increase in the 
     hospital's intern and resident-to-bed (IRB) ratio. The 
     following formula is multiplied by a hospital's base payment 
     rate for each Medicare discharge to determine the IME 
     payment: 1.35 X [(1+ IRB)0.405 -1]. The multiplier 
     of 1.35 increases the level of the IME adjustment to the 
     existing target level of 5.5%. Congress has periodically 
     changed the multiplier (or ``c'') to decrease or increase IME 
     payments to teaching hospitals.
     House Bill
       No provision.
     Senate Bill
       The IME multiplier in 2004 and in 2005 would be 1.36; on or 
     after 2005, the multiplier would be 1.355. This would 
     increase payments to teaching hospitals by $300 million over 
     10 years. The provision would apply to discharges on or after 
     October 1, 2003.
     Conference Agreement
       From April 1, 2004 until September 30, 2004, the IME 
     multiplier is equal to 1.47; during FY2005, the IME 
     multiplier is 1.42; during FY2006, the IME multiplier is 
     1.37; during FY2007, the IME multiplier is 1.32; and, 
     starting October 1, 2007, the IME multiplier is equal to 
     1.35.
       Recognition of New Medical Technologies Under Inpatient 
     Hospital Prospective Payment System (Section 503 of the 
     Conference Agreement and Section 502 of the House Bill).
     Current Law
       BIPA established that Medicare's inpatient hospital payment 
     system should include a mechanism to recognize the costs of 
     new medical services and technologies for discharges 
     beginning on or after October 1, 2001. The additional 
     hospital payments can be made by the means of a new 
     technology groups, an add-on payment, a payment adjustment, 
     or other mechanism, but cannot be a separate fee schedule and 
     must be budget-neutral. A medical service or technology will 
     be considered to be new if it meets criteria established by 
     the Secretary after notice and the opportunity for public 
     comment. The Centers for Medicare and Medicaid (CMS) 
     published the final regulation implementing these provisions 
     on September 7, 2001. This regulation changed the meeting 
     schedule for decisions on the creation and implementation of 
     new billing codes. (ICD-9-CM codes). The regulation also 
     established that technology that provided a substantial 
     improvement to existing treatments would qualify for 
     additional payments. The add-on payment for eligible new 
     technology would occur when the standard diagnosis related 
     group (DRG) payment was inadequate; this threshold, which was 
     established as one standard deviation above the mean 
     standardized DRG. In these cases, the add-on payment for new 
     technology would be the lesser of (a) 50% of the costs of the 
     new technology or (b) 50% of the amount by which the costs 
     exceeded the standard DRG payment; however if the new 
     technology payments are estimated to exceed the budgeted 
     target amount of 1% of the total operating inpatient 
     payments, the add-on payments are reduced prospectively.
     House Bill
       The Secretary would be required to add new diagnosis and 
     procedure codes in April 1 of each year but would not be 
     required to affect Medicare's payment or DRG classification 
     until the fiscal year that begins after that date. The 
     Secretary would not be able to deny a service or technology 
     treatment as a new technology because the service (or 
     technology) has been in use prior to the 2-to-3 year period 
     before it was issued a billing code and a sample of specific 
     discharges where the service has been used can be identified. 
     When establishing whether DRG payments are inadequate, the 
     Secretary would be required to apply a threshold that is the 
     lesser of 75% of the standardized amount (increased to 
     reflect the difference between costs and charges) or 75% of 
     one standard deviation for DRG involved. The Secretary would 
     be required to provide additional clarification in regulation 
     on the criteria used to determine whether a new service 
     represents an advance in technology that substantially 
     improves the existing diagnosis or treatment. The Secretary 
     would be required to deem that a technology provide a 
     substantial improvement on an existing treatment if the 
     technology in question is a drug or biological that is 
     designated under section 506 of the Federal Food, Drug, and 
     Cosmetic Act, approved under section 314.510 or 601.41 of 
     Title 21, Code of Federal Regulations, designated for 
     priority review when the marketing application was filed, is 
     a medical device for which an exemption has been granted 
     under section 520(m) of such Act, or for which priority or 
     expedited review has been provided under section 515(d)(5). 
     For other technologies that may be substantial improvements, 
     the Secretary would be required to: (1) maintain and update a 
     public list of pending applications for specific services and 
     technologies to be evaluated for eligibility for additional 
     payment; (2) accept comments

[[Page H12049]]

     recommendations and data from the public regarding whether a 
     service or technology represents a substantial improvement; 
     and (3) provide for a meeting at which organizations 
     representing physicians, beneficiaries, manufacturers or 
     other interested parties may present comments, 
     recommendations, and data to the clinical staff of CMS 
     regarding whether a service or technology represents a 
     substantial improvement. These actions would occur prior to 
     the publication of the proposed regulation. Before 
     establishing an add-on payment as the appropriate 
     reimbursement mechanism, the Secretary would be directed to 
     identify one or more DRGs and assign the technology to that 
     DRG, taking into account similar clinical or anatomical 
     characteristics and the relative cost of the technology. The 
     Secretary would assign an eligible technology into a DRG 
     where the average cost of care most closely approximates the 
     cost of the new technology. In such a case, no add-on payment 
     would be made; the application of the budget-neutrality 
     requirement with respect to annual DRG reclassifications and 
     recalculation of associated DRG weights would not be 
     affected. The Secretary would be required to increase the 
     percentage associated with add-on payments from 50% to the 
     marginal rate or percentage that Medicare reimburses 
     inpatient outlier cases. The provisions would not affect the 
     Secretary's authority to determine whether services are 
     medically necessary and appropriate. Funding for this new 
     technology would no longer be budget neutral.
       The Secretary would be required to implement these 
     provisions to new technology determinations beginning in 
     FY2005. The Secretary would be required to automatically 
     reconsider an application as a new technology that was denied 
     for FY2004 as an application under these new provisions. If 
     such an application is granted, the maximum time 
     period otherwise permitted for such classification as a 
     new technology would be extended by 12 months.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary is required to add new diagnosis and 
     procedure codes in April 1 of each year but is not be 
     required to affect Medicare's payment or DRG classification 
     until the fiscal year that begins after that date. When 
     establishing whether DRG payments are inadequate, the 
     Secretary would be required to apply a threshold that is the 
     lesser of 75% of the standardized amount (increased to 
     reflect the difference between costs and charges) or 75% of 
     one standard deviation for the DRG involved. The Secretary 
     should collect at least 2 years of data before incorporating 
     the technology into a permanent group. The Secretary is be 
     required to: (1) maintain and update a public list of pending 
     applications for specific services and technologies to be 
     evaluated for eligibility for additional payment; (2) accept 
     comments recommendations and data from the public regarding 
     whether a service or technology represents a substantial 
     improvement; and (3) provide for a meeting at which 
     organizations representing physicians, beneficiaries, 
     manufacturers or other interested parties may present 
     comments, recommendations, and data to the clinical staff of 
     CMS regarding whether a service or technology represents a 
     substantial improvement. These actions will occur prior to 
     the publication of the proposed regulation. Before 
     establishing an add-on payment as the appropriate 
     reimbursement mechanism, the Secretary is directed to 
     identify one or more DRGs and assign the technology to that 
     DRG, taking into account similar clinical or anatomical 
     characteristics and the relative cost of the technology. The 
     Secretary will assign an eligible technology into a DRG where 
     the average cost of care most closely approximates the cost 
     of the new technology. In such a case, no add-on payment 
     would be made; the application of the budget-neutrality 
     requirement with respect to annual DRG reclassifications and 
     recalculation of associated DRG weights will not be affected. 
     The Secretary should consider increasing the percent of 
     payment associated with the add-on payments up to the 
     marginal rate used for the inpatient outlier. Funding for new 
     technology will no longer be budget neutral.
       The Secretary is required to implement these provisions to 
     new technology determinations beginning in FY2005. The 
     Secretary is required to automatically reconsider an 
     application as a new technology that was denied for FY2005 as 
     an application under these new provisions. If such an 
     application is granted, the maximum time period otherwise 
     permitted for such classification as a new technology is 
     extended by 12 months.
       Increase in Federal Rate for Hospitals in Puerto Rico 
     (Section 504 of the Conference Agreement, Section 503 of the 
     House Bill, and Section 409 of the Senate Bill).
     Present Law
       Under Medicare's prospective payment system for inpatient 
     services, a separate standardized amount is used to establish 
     payments for discharges from short-term general hospitals in 
     Puerto Rico. BBA 97 provides for an adjustment of the Puerto 
     Rico rate from a blended amount based on 25% of the federal 
     national amount and 75% of the local amount to a blended 
     amount based on a 50/50 split between national and local 
     amounts.
     House Bill
       Hospitals in Puerto Rico would receive Medicare payments 
     based on a 50/50 split between federal and local amounts 
     before October 1, 2003. From FY2004 through FY2007, an 
     increasing amount of the payment rate would be based on 
     federal national rates as follows: during FY2004, payment 
     would be 59% national and 41% local; this would change to 67% 
     national and 33% local during FY2005 and 75% national and 25% 
     local during FY2006 and subsequently.
     Senate Bill
       Hospitals in Puerto Rico would receive Medicare payments 
     based on a 50/50 split between national and local amounts 
     until September 30, 2003. These hospitals would receive 
     Medicare payments based on 100% of the federal rate for 
     discharges on or after October 1, 2004 and before October 1, 
     2009. The rate for hospitals Puerto Rico would revert to a 
     50/50 split after October 1, 2009.
     Conference Agreement
       Hospitals in Puerto Rico will receive Medicare payments 
     based on a 50/50 split between federal and local amounts 
     before April 1, 2004. Starting April 1, 2004 through 
     September 30, 2004, payment will be based on 62.5% national 
     amount and 37.5% local amount; this will change to 75% 
     national and 25% local after October 1, 2004 and in 
     subsequent years.
       Wage Index Adjustment Reclassification Reform (Section 505 
     of the Conference Agreement and Section 504 of the House 
     Bill).
     Present Law
       Unlike other providers, acute hospitals may apply to the 
     Medicare Geographic Classification Review Board (MGCRB) for a 
     change in classification from a rural area to an urban area, 
     or reassignment from one urban area to another urban area. 
     The MGCRB was created to determine whether a hospital should 
     be redesignated to an area with which it has close proximity 
     for purposes of using the other area's wage index. If 
     reclassification is granted, the new wage index will be used 
     to calculating Medicare's payment for inpatient and 
     outpatient services.
       Generally, hospitals must demonstrate a close proximity to 
     the areas where they seek to be reclassified. This proximity 
     can be established if one of two conditions is met: (1) an 
     urban hospital must be no more than 15 miles and a rural 
     hospital must be no more than 35 miles from the area where it 
     wants to be reclassified; or (2) at least 50% of the 
     hospital's employees reside in the area. A rural referral 
     center (RRC) or a sole community hospital (SCH) or a hospital 
     that is both a RRC and a SCH does not have to meet the 
     proximity test. After establishing appropriate proximity, a 
     hospital may qualify for the payment rate of another area if 
     it proves that its incurred costs are comparable to those of 
     hospitals in that area under established criteria. To use an 
     area's wage index, a rural hospital must demonstrate that its 
     average hourly wage is equal to at least 82% of the average 
     hourly wage of hospitals in the area to which it seeks 
     redesignation; an urban hospital must demonstrate that its 
     average hourly wage is at least 84% of such an area. Also an 
     urban hospital cannot be reclassified unless average 
     hourly wage is at least 108% of the average hourly wage of 
     the area in which it is located; this standard is 106% for 
     rural hospitals seeking reclassification to an area.
       For redesignations starting in FY2003, the average hourly 
     wage comparisons used to determine whether a hospital can use 
     another area's wage index are based on 3 years worth of 
     lagged data submitted by hospitals as part of their cost 
     report. For instance, FY2003 wage index reclassifications 
     were based on weighted 3-year averages of average hourly 
     wages using data from FY1997, FY1998, and FY1999 cost 
     reports. Wage index reclassifications are effective for 3 
     years unless the hospital notifies the MCGRB and withdraws or 
     terminates its reclassification.
     House Bill
       The Secretary would be required to establish an application 
     process and payment adjustment to recognize the commuting 
     patterns of hospital employees. A hospital that qualified for 
     such a payment adjustment would have average hourly wages 
     that exceed the average wages of the area in which it is 
     located and have at least 10% of its employees living in 1 or 
     more areas that have higher wage index values. This 
     qualifying hospital would have its wage index value increased 
     by the percentage of its total employees who live in any area 
     with a higher wage index value. The process would be based on 
     the MGCRB reclassification process and schedule with respect 
     to data submitted. Such an adjustment would be effective for 
     3 years unless a hospital withdraws or elects to terminate 
     its payment. A hospital that receives a commuting wage 
     adjustment would not be eligible for reclassification into 
     another area by the MCGRB. These commuting wage adjustments 
     would not affect the computation of the wage index of the 
     area in which the hospital is located or any other area. It 
     would also be exempt from certain budget neutrality 
     requirements. The provisions would apply to discharges on or 
     after October 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The Secretary is required to establish a process and 
     payment adjustment to recognize the out-migration of hospital 
     employees

[[Page H12050]]

     who reside in a county and work in different area with a 
     higher wage index. A hospital that receives such a payment 
     adjustment will be located in a qualifying county that meets 
     criteria established by the Secretary. This criteria will 
     include (1) a threshold percentage of the weighted average of 
     the area wage index or indices for the higher wage index 
     areas; (2) a threshold of not less than 10 percent for 
     minimum out-migration to a higher wage index area or areas 
     and (3) a requirement that the average hourly wage of the 
     hospitals in the qualifying county equals or exceeds the 
     average hourly wage of all the hospitals in the area where 
     the county is located. A qualifying hospital will have its 
     wage index value increased by the percentage of the hospital 
     employees residing in the qualifying county who are employed 
     in any area with a higher wage value. The adjustment will 
     equal the sum of the products of the difference between the 
     wage index value of any higher wage area and the qualifying 
     county multiplied by the number of hospital employee who 
     reside in the qualifying county but are employed in any 
     higher wage index area. The application process for this 
     adjustment is based on the MGCRB reclassification process and 
     schedule with respect to data submitted. Such an adjustment 
     is effective for 3 years unless a hospital withdraws or 
     elects to terminate its payment.
       The Secretary may require acute hospitals and other 
     hospitals as well as critical access hospitals to submit data 
     regarding the location of their employee's residence or the 
     Secretary may use data from other sources. A hospital that 
     receives a commuting wage adjustment is not eligible for 
     reclassification into another area by the MCGRB. The 
     commuting wage adjustment does not affect the computation of 
     the wage index of the area in which the hospital is located 
     or any other area. It is also exempt from certain budget 
     neutrality requirements. The thresholds and other qualifying 
     criteria for the commuting wage adjustment is not subject to 
     judicial review. The provisions apply to discharges on or 
     after October 1, 2004. In initially implementing this 
     adjustment, the Secretary may modify the deadlines otherwise 
     applicable to data submission and actions on applications for 
     geographic reclassification.
       Limitation on Charges for Inpatient Hospital Contract 
     Health Services Provided to Indians by Medicare Participating 
     Hospitals (Section 506 of the Conference Agreement and 
     Section 412 of the Senate Bill).
     Present Law
       The Indian Health Service (IHS) provides health care both 
     directly, through tribes and tribal consortia, and through 
     urban Indian organizations. The Indian Health Care 
     Improvement Act (P.L. 94-437) authorized IHS to collect 
     directly from Medicare, Medicaid, and other third party 
     insurers for health services covered by those programs. In 
     addition to care provided directly from IHS and tribal 
     providers, contract health services are purchased by IHS and 
     the tribes from more than 2,000 private providers, if the 
     local facility is unable to provide the needed care. These 
     health services are provided principally for members of 
     tribes who live in contract health service delivery areas. 
     Contract support funding across all IHS programs has been 
     insufficient to cover all IHS and tribal costs. When the 
     costs are not reimbursed through appropriations, the tribes 
     and IHS use program funds to make up the difference.
     House Bill
       No provision.
     Senate Bill
       The amendment would prohibit hospitals that participate in 
     Medicare and that provide Medicare covered inpatient hospital 
     services under the contract health services program funded by 
     the Indian Health Services from charging more than the 
     Medicare established rates for these services. This provision 
     would apply to contract health services programs operated by 
     the Indian Health Service, an Indian tribe or tribal 
     organization or an urban Indian organization. The provision 
     would apply to Medicare participation agreements in effect or 
     entered into by a date specified by the Secretary. In no case 
     would this provision be applicable later than 6 months from 
     the date of enactment.
     Conference Agreement
       Hospitals that participate in Medicare and that provide 
     Medicare covered inpatient hospital services under the 
     contract health services program funded by the Indian Health 
     Services and operated by the Indian Health Service, an Indian 
     tribe, an Indian tribal organization, or an urban Indian 
     organization will be paid in accordance with regulations 
     promulgated by the Secretary regarding admission practices, 
     payment methodologies, and rates of payments. This will 
     include the requirement to accept these rates as payment 
     in full. This provision will apply to Medicare 
     participation agreements in effect or entered into by a 
     date specified by the Secretary. In no case will this date 
     be later than 1 year after the date of enactment.
       Clarifications to Certain Exceptions to Medicare Limits on 
     Physician Referrals (Section 507 of the Conference Agreement, 
     Section 505 of the House Bill and Section 453 of the Senate 
     Bill).
     Present Law
       Physicians are generally prohibited from referring Medicare 
     patients to facilities in which they (or their immediate 
     family member) have financial interests. Physicians, however, 
     are not prohibited from referring patients to whole hospitals 
     (and several other entities) in which they have ownership or 
     investment interests.
     House Bill
       The Medicare Payment Advisory Commission (MedPAC) would be 
     required to conduct a study of specialty hospitals compared 
     with other similar general acute hospitals including the 
     number and extent of patients referred by physicians with an 
     investment interest in the facility, the quality of care 
     furnished, the impact of the specialty hospital on the acute 
     general hospital, and the differences in the scope of 
     services, Medicaid utilization and the amount of 
     uncompensated care that is furnished. The report, including 
     recommendations, would be due to Congress no later than 1 
     year from enactment.
     Senate Bill
       The exception for physician investment and self-referral 
     would not extend to specialty hospitals. In this instance, a 
     specialty hospital would be one that is primarily or 
     exclusively engaged in the care and treatment of patients 
     with cardiac or orthopedic conditions, those receiving a 
     surgical procedure, or other specialized categories of 
     patients or cases deemed appropriate. A specialty hospital 
     would not include any hospital that is determined by the 
     Secretary to be in operation, under development as of such 
     date, with the same number of beds and physician investors as 
     of June 12, 2002. The Secretary would consider the following 
     factors in determining whether a hospital is under 
     development: whether the architectural plans have been 
     completed; funding has been received; zoning requirements 
     have been met; necessary approvals from appropriate State 
     agencies have been received and other appropriate evidence.
       The rural provider exception would be modified. These rural 
     providers would not include specialty hospitals and the 
     Secretary would determine, with respect to the entity, that 
     such services would not be available in such area but for the 
     ownership or investment interest.
     Conference Agreement
       For a period of 18 months from the date of enactment, the 
     ``whole hospital'' exception would be amended to exclude 
     those circumstances in which a physician's ownership interest 
     is in a subsection d hospital devoted primarily or 
     exclusively to cardiac, orthopedic surgical, or other 
     specialties designated by the Secretary. Specialty hospitals 
     in operation or under development as of November 18, 2003 
     would be exempt from the provision. Within a period of 15 
     months from the date of enactment MedPAC, in consultation 
     with the General Accounting Office (GAO), and HHS would study 
     the effects of the whole-hospital exception for physician-
     ownership in specialty hospitals.
       In order to qualify for exception from this provision, a 
     specialty hospital must have been in operation or under 
     development (as defined in this bill) as of November 18, 
     2003. Additionally, in order to maintain the exception, a 
     specialty hospital may not increase the number of physician 
     investors as of November 18, 2003; change or expand the field 
     of specialization it treats; expand beyond the main campus; 
     or increase the total number of beds in its facilities by 
     more than the greater of 5 beds or 50 percent of the number 
     of beds in the hospital as of November 18, 2003. The 
     Secretary shall determine what constitutes the number of beds 
     in a hospital that is considered under development as of 
     November 18, 2003. The Secretary may evaluate all relevant 
     development plans and documents in order to make this 
     determination.
       Long-term acute care hospitals, rehabilitation hospitals, 
     psychiatric hospitals, cancer hospitals, and children's 
     hospitals are not considered to be specialty hospitals for 
     purposes of this section. When studying the effects of the 
     whole-hospital exception, MedPAC, in consultation with GAO 
     shall undertake a study in accordance with the legislation.
     Effective Date
       Beginning on the date of enactment, this provision would 
     establish an 18-month moratorium on physician self-referrals 
     to specialty hospitals. Hospitals in existence or under 
     development as of November 18, 2003 would be exempt from the 
     moratorium. A study would be completed within 15 months of 
     date of enactment.
       MedPAC Study and Report Regarding Medicare Disproportionate 
     Share Hospital
       Adjustments (Section 404A of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Medicare Payment Advisory Commission (MedPAC) would be 
     required to conduct a study to determine (1) whether 
     disproportionate share hospital (DSH) payments should be made 
     in the same manner as Medicare's graduate medical education 
     payments; (2) the extent that hospitals receiving Medicaid 
     DSH payments also receive Medicare DSH payments; and (3) 
     whether to add uncompensated care costs to the Medicare DSH 
     formula. The report, including recommendations, would be due 
     to Congress within 1 year from enactment. The provision would 
     be effective upon enactment.
     Conference Agreement
       No provision.
       Treatment of Grandfathered Long-Term Care Hospitals 
     (Section 416/Duplicate Provision 420B of the Senate Bill).

[[Page H12051]]

     Present Law
       A hospital-in-a-hospital is a long-term hospital that is 
     physically located in an acute care hospital and provides 
     inpatient services that are paid at a higher rate than would 
     apply if the long term hospital were treated by Medicare as 
     an acute care hospital. The Centers for Medicare and Medicaid 
     Services (CMS) has established certain requirements for a 
     hospital-in-a-hospital to be excluded from the inpatient 
     prospective payment system and be paid as a long-term 
     hospital. For instance, a hospital-within-a-hospital has to 
     be able to independently perform certain basic hospital 
     functions. CMS exempted existing hospitals-with-a-hospital 
     (those that were in existence on or before September 30, 
     1995) when these requirements were established. On May 19, 
     2003, CMS proposed to revise the conditions of the hospitals' 
     exemption; a hospital-within-a hospital would only be exempt 
     from the existing requirements if it continues to operate 
     within the same terms and conditions that were in effect as 
     of September 30, 1995.
     House Bill
       No provision.
     Senate Bill
       The Secretary would not be able to impose any special 
     conditions on the operation, size, and number of beds or 
     location of an existing long-term hospital in order to 
     continue participating in Medicare or Medicaid or to continue 
     being classified as a long-term hospital. The Secretary would 
     not be able to adopt a proposed regulation that would 
     implement such conditions or any revision to such regulation 
     that have a comparable effect. The provisions would apply to 
     cost reporting periods ending on or after December 31, 2002.
     Conference Agreement
       No provision.
       Treatment of Certain Entities For Purposes of Payments 
     Under the Medicare Program (Section 417 of the Senate Bill).
     Present Law
       Acute care hospitals may apply to the Medicare Geographic 
     Classification Review Board (MGCRB) for a change in 
     classification from a rural area to an urban area, or 
     reassignment from one urban area to another urban area. The 
     MGCRB was created to determine whether a hospital should be 
     redesignated to an area with which it has close proximity for 
     purposes of using the other area's standardized amount or 
     wage index, or both. (If, as proposed, the standardized 
     amount for all hospitals will equal the amount used to pay 
     hospitals in large urban areas, a hospital's need to 
     reclassify to use of another area's standardized amount will 
     virtually disappear.) If reclassification is granted, the new 
     wage index will be used to calculating Medicare's payment for 
     inpatient and outpatient services. Hospital reclassifications 
     are established on a budget-neutral basis so aggregate 
     inpatient prospective payment system expenditures will not 
     increase as a result.
       Generally, hospitals must demonstrate a close proximity to 
     the areas where they seek to be reclassified. After 
     establishing appropriate proximity, a hospital may qualify 
     for the payment rate of another area if it proves that its 
     incurred costs are comparable to those of hospitals in that 
     area. Aside from reclassifications through the MGCRB, 
     hospitals have also been reclassified by law.
     House Bill
       No provision.
     Senate Bill
       Starting on or after October 1, 2003, Iredell County and 
     Rowan County, North Carolina would be deemed to be located in 
     the Charlotte-Gastonia-Rock Hill, North Carolina, South 
     Carolina Metropolitan Statistical Area for the purpose of 
     Medicare's inpatient and outpatient acute hospital 
     reimbursement. The Secretary would be required to adjust the 
     wage index values of all hospitals in North Carolina to 
     assure that aggregate payments for hospital inpatient 
     operating costs are not greater than they would have been 
     without such a change.
       Starting on or after October 1, 2003, Iredell County and 
     Rowan County, North Carolina would be deemed to be located in 
     the Charlotte-Gastonia-Rock Hill, North Carolina, and South 
     Carolina Metropolitan Statistical Area for the purpose of 
     Medicare's skilled nursing facility (SNF) and home health 
     reimbursement. This change will be made in a way to ensure 
     that aggregate payments for SNF and home health services in 
     North Carolina are not greater than they would have been 
     without such a change.
     Conference Agreement
       No provision.
       Calculation of Wage Indices for Hospitals (Conference 
     Report Section 508 and Section 419 of the Senate Bill).
     Present Law
       Acute hospitals may apply to the Medicare Geographic 
     Classification Review Board (MGCRB) for a change in 
     classification from a rural area to an urban area, or 
     reassignment from one urban area to another urban area but no 
     later than February 15, 2004. If reclassification is granted, 
     the new wage index will be used to calculating Medicare's 
     payment for inpatient and outpatient services. Generally, 
     hospitals must demonstrate a close proximity to the areas 
     where they seek to be reclassified. After establishing 
     appropriate proximity, a hospital may qualify for the payment 
     rate of another area if it proves that its incurred costs are 
     comparable to those of hospitals in that area. The 
     reclassification standards which are established by 
     regulation are different for urban than for rural hospitals. 
     It is easier for a rural hospital to reclassify to a 
     different area. Aside from reclassifications through the 
     MGCRB, hospitals have also been reclassified by law.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be able to waive established 
     reclassification criteria in calculating the wage index in a 
     state when making payments for hospital discharges in FY2004. 
     The provision would be effective upon enactment.
     Conference Agreement
       The Secretary shall establish by instruction not later than 
     January 1, 2004 or otherwise a one-time process under which a 
     hospital may appeal the wage index classification otherwise 
     applicable to the hospital and select another area within the 
     State (or at the discretion of the Secretary to a contiguous 
     state. A qualifying hospital is not eligible for a wage index 
     classification on the basis of distance and/or commuting. It 
     also must meet such other criteria, such as quality, as the 
     Secretary may specify by instruction or otherwise. The 
     reclassification will be effective for three years beginning 
     with April 1, 2004. Hospitals can waive reclassification 
     under this provision during the three year period. The 
     Secretary shall limit the additional expenditures to $900 
     million.

                      Subtitle B--Other Provisions

       Payment for Covered Skilled Nursing Facility Services 
     (Section 511 of the Conference Agreement and Section 511 of 
     the House Bill).
     Present Law
       Medicare uses a system of daily rates to pay for care in a 
     skilled nursing facility (SNF). There are 44 daily rates 
     categories, known as resource utilization groups (RUGs) and 
     each group reflects a different case mix and intensity of 
     services, such as skilled nursing care and/or various therapy 
     and other services.
     House Bill
       The per diem RUG payment for a SNF resident with acquired 
     immune deficiency syndrome (AIDS) would be increased by 128%. 
     This payment increase would not apply on after such date when 
     the Secretary certifies that the SNF case mix adjustment 
     adequately compensates for the facility's increased costs 
     associated with caring for a resident with AIDS. The 
     provision would be effective for services on or after October 
     1, 2003.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement increases the per diem RUG payment 
     for a SNF resident with acquired immune deficiency syndrome 
     (AIDS) by 128% (the BBRA temporary RUG add-on does not apply 
     in this case). This payment increase would not apply on after 
     such date when the Secretary certifies that the SNF case mix 
     adjustment adequately compensates for the facility's 
     increased costs associated with caring for a resident with 
     AIDS. The provision is effective for services on or after 
     October 1, 2004.
       Coverage of Hospice Consultation Services (Section 512 of 
     the Conference Agreement and Section 512 of the House Bill).
     Present Law
       Current law authorized coverage of hospice services, in 
     lieu of certain other Medicare benefits, for terminally ill 
     beneficiaries who elect such coverage.
     House Bill
       Coverage of certain physician's services for certain 
     terminally ill individuals would be authorized. Persons 
     entitled to these services would be individuals who have not 
     elected the hospice benefit and have not previously received 
     these physician's services. Covered services would be those 
     furnished by a physician who is the medical director or 
     employee of a hospice program. Services would include 
     evaluating the individual's need for pain and symptom 
     management, counseling the individual with respect to end-of-
     life issues and care options, and advising the individual 
     regarding advanced care planning. Payment for such services 
     would equal the amount established for similar services under 
     the physician fee schedule, excluding the practice expense 
     component. The provision would apply to consultation services 
     provided by a hospice program on or after January 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement provides coverage of certain 
     physician's services for certain terminally ill individuals. 
     Beneficiaries entitled to these services are those who have 
     not elected the hospice benefit and have not previously 
     received these physician's services. Covered services are 
     those furnished by a physician who is the medical director or 
     employee of a hospice program. The covered services are: 
     evaluating the beneficiary's need for pain and symptom 
     management, including the individual's need for hospice care; 
     counseling the beneficiary with respect to end-of-life issues 
     and care options, and advising the beneficiary regarding 
     advanced care planning. Payment for such services equals the 
     amount established for similar services under the physician 
     fee schedule, excluding the practice expense component. The

[[Page H12052]]

     provision would apply to consultation services provided by a 
     hospice program on or after January 1, 2005.
       Increase for Hospitals with Disproportionate Indigent Care 
     Revenues (Section 420A of the Senate Bill).
     Present Law
       Certain hospitals receive additional Medicare payments 
     because they serve a disproportionate share of poor Medicare 
     and Medicaid patients measured by a formula that incorporates 
     the proportion of the hospital's Medicare inpatient days 
     provided to poor Medicare beneficiaries (those who receive 
     Supplemental Security Income or SSI) added to the proportion 
     of total hospital days provided to Medicaid recipients. A few 
     urban hospitals receive disproportionate share hospital (DSH) 
     payments under the Pickle Amendment (named after former 
     Representative Pickle from Texas) which establishes an 
     alternative formula that considers the proportion of a 
     hospital's patient care revenues that are received from state 
     and local indigent care funds. If a hospital receives at 
     least 30% of its patient care revenue from these indigent 
     care funds, it qualifies as a ``Pickle'' hospital and will 
     get a 35% increase in its Medicare operating payments. The 
     Pickle hospitals receive a capital DSH adjustment of 14.16%. 
     The capital adjustment is calculated with the presumption 
     that other urban hospitals would have had a DSH patient share 
     percentage of 65.4% in order to receive a 35% operating DSH 
     adjustment. If so, 65.4% DSH adjustment entered into the 
     capital formula (a complicated calculation involving ``e is 
     the natural antilog of 1'') would equal 14.16%.
     House Bill
       No provision.
     Senate Bill
       Hospitals that qualify for the DSH adjustment under the 
     Pickle amendment would receive a DSH operating and capital 
     adjustment of 40% for discharges on or after October 1, 2003. 
     The provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Equitable Treatment for Children's Hospitals (Section 450J 
     of the Senate Bill).
     Present Law
       Outpatient hospital prospective payment contains a 
     permanent ``hold harmless'' for cancer hospitals and 
     children's hospitals. Under this hold harmless, payments to 
     these hospitals cannot fall below what these hospitals would 
     have received under the payment system in place before PPS.
     House Bill
       No provision.
     Senate Bill
       The provision would modify the hold harmless that certain 
     children's hospitals receive. To receive the hold harmless a 
     children's hospital would be required to be located in a 
     state with an inpatient PPS waiver (Maryland is the only 
     state that continues its waiver under 1814(b)(3)) and to have 
     an outpatient PPS payment that is less than either what the 
     hospital would have received under the previous payment 
     system or the hospital's reasonable operating and capital 
     costs. A children's hospital meeting these criteria would 
     receive payment reflecting the greater difference between the 
     outpatient PPS amount and the greater of either the previous 
     payment system amount or the reasonable costs. The provision 
     would be effective for services furnished on or after October 
     1, 2003.
     Conference Agreement
       No provision.

                TITLE VI--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

       Revision of Updates for Physicians' Services (Section 601 
     of the Conference Agreement, Section 601 of the House Bill, 
     and Sections 464/Duplicative Provisions 622 and 629 of the 
     Senate Bill).
     Present Law
       Medicare pays for services of physicians and certain non-
     physician practitioners on the basis of a fee schedule. The 
     fee schedule, in place since 1992, is intended to relate 
     payments for a given service to the actual resources used in 
     providing that service. The fee schedule assigns relative 
     values to services. These relative values reflect physician 
     work (i.e., the time, skill, and intensity it takes to 
     provide the service), practice expenses, and malpractice 
     costs. The relative values are adjusted for geographic 
     variations in costs. The adjusted relative values are then 
     converted into a dollar payment amount by a conversion 
     factor.
       The law provides a specific formula for calculating the 
     annual update to the conversion factor. The intent of the 
     formula is to place a restraint on overall increases in 
     spending for physicians' services. Several factors enter into 
     the calculation of the formula. These include: (1) the 
     sustainable growth rate (SGR), which is essentially a target 
     for Medicare spending growth for physicians' services; (2) 
     the Medicare economic index (MEI), which measures inflation 
     in the inputs needed to produce physicians' services; and (3) 
     an adjustment that modifies the update, which would otherwise 
     be allowed by the MEI, to bring spending in line with the SGR 
     target. The SGR target is not a limit on expenditures. 
     Rather, the fee schedule update reflects the success or 
     failure in meeting the target. If expenditures exceed the 
     target, the update for a future year is reduced.
       The annual percentage update to the conversion factor 
     equals the MEI, subject to an adjustment (known as the update 
     adjustment factor) to match target spending for physicians 
     services under the SGR system. (During a transition period, 
     2001-2005, an additional adjustment is made to achieve budget 
     neutrality.) The update adjustment sets the conversion factor 
     at a level so that projected spending for the year will meet 
     allowed spending by the end of the year. Allowed spending for 
     the year is calculated using the SGR. However, in no case can 
     the update adjustment factor be less than minus 7% or more 
     than plus 3%.
       The update adjustment factor is the sum of: (1) the prior 
     year adjustment component, and (2) the cumulative adjustment 
     component. The prior year adjustment component is determined 
     by: (1) computing the difference between allowed expenditures 
     for physicians' services for the prior year and the amount of 
     actual expenditures for that year; (2) dividing this amount 
     by the actual expenditures for that year; and (3) multiplying 
     that amount by 0.75. The cumulative adjustment component is 
     determined by: (1) computing the difference between allowed 
     expenditures for physicians' services from April 1, 1996 
     through the end of the prior year and the amount of actual 
     expenditures during such period; (2) dividing that difference 
     by actual expenditures for the prior year as increased by the 
     SGR for the year for which the update adjustment factor is to 
     be determined; and (3) multiplying that amount by 0.33. Use 
     of both the prior year adjustment component and the 
     cumulative adjustment component allows any deviation between 
     cumulative actual expenditures and cumulative allowed 
     expenditures to be corrected over several years rather than a 
     single year.
       The law also specifies a formula for calculating the SGR. 
     It is based on changes in four factors: (1) estimated changes 
     in fees; (2) estimated change in the average number of Part B 
     enrollees (excluding Medicare+Choice beneficiaries); (3) 
     estimated projected growth in real gross domestic product 
     (GDP) growth per capita; and (4) estimated change in 
     expenditures due to changes in law or regulations. This 
     system is designed to adjust for how well actual expenditures 
     meet SGR target expenditures.
       Provisions in the Consolidated Appropriations Resolution of 
     2003 (P.L. 108-7) permitted redeterminations of SGR for prior 
     years. As a result, the conversion factor for 2003 was 
     increased 1.6% over the 2002 level. Other aspects of the 
     formula for the annual payment rate were not addressed. CMS 
     reports an update factor of -4.5% for 2004.
     House Bill
       The update to the conversion factor for 2004 and 2005 would 
     be not less than 1.5% and would be exempt from the budget 
     neutrality adjustment. This modification would not be treated 
     as a change in law and regulation in SGR determination.
       The formula for calculating the sustainable growth rate 
     would be modified. The GDP factor would be based on the 
     annual average change over the preceding 10 years (a 10-year 
     rolling average). This calculation would replace the current 
     GDP factor which measures the 1-year change from the 
     preceding year. The 10-year rolling average calculation of 
     the GDP would apply to computations of the SGR starting in 
     2003.
     Senate Bill
       The provision expresses a sense of the Senate that Medicare 
     beneficiary access to quality care may be compromised if 
     Congress does not prevent cuts in 2004 and following years 
     that stem from the sustainable growth rate (SGR) formula.
       The provision provides a sense of the Senate that the 
     reductions in Medicare's physician fee schedule are untenable 
     if not destabilizing, primarily caused by the sustainable 
     growth rate calculation, and that CMS should use its 
     discretion to make certain exclusions and adjustments to the 
     calculation.
     Conference Agreement
       The update to the conversion factor for 2004 and 2005 will 
     not be not less than 1.5% and will be exempt from the budget 
     neutrality adjustment, instead of -4.5% in 2004 and a smaller 
     reduction in 2005. This modification would not be treated as 
     a change in law and regulation in SGR determination.
       The formula for calculating the sustainable growth rate 
     will be modified. The GDP factor will be based on the annual 
     average change over the preceding 10 years (a 10-year rolling 
     average). This calculation will replace the current GDP 
     factor which measures the 1-year change from the preceding 
     year. The 10-year rolling average calculation of the GDP 
     will apply to computations of the SGR starting in 2003.
       Treatment of Physicians' Services furnished in Alaska 
     (Section 602 of the Conference Agreement and Section 450K of 
     the Senate Bill).
     Current Law
       Physicians who provide services to Medicare beneficiaries 
     are paid based on a physician fee schedule, which has three 
     components: the relative value for the service, a geographic 
     adjustment factor and a conversion factor. The geographic 
     adjustment factor is the sum of three geographic practice 
     cost indices (GPCIs), namely a work GPCI, a practice expense 
     GPCI, and a malpractice GPCI. An area with costs above the 
     national

[[Page H12053]]

     average would have a GPCI greater than 1.00; an area with 
     costs below the national average would have a GPCI less than 
     1.00.
     House Bill
       No provision.
     Senate Bill
       For calendar year 2004, physicians providing Medicare 
     services in Alaska would be paid 90 percent of the Veterans 
     Affairs (VA) fee schedule for physician services that was 
     used for fiscal year 2001. For calendar year 2005, this 
     payment amount would be increased by the update amount for 
     the Medicare physician fee schedule for 2005. If no VA fee 
     schedule amount existed for a physician service, the payment 
     amount would be the sum of the Medicare payment amount plus 
     90% of the percentage difference between the Medicare fee 
     schedule and the VA fee schedule (on a claims-weighted 
     basis). The provision would be effective for services 
     furnished on or after January 1, 2004 and before January 1, 
     2006.
     Conference Agreement
       In calendar years 2004 and 2005, for physician services 
     provided in Alaska, the Secretary is required to increase 
     geographic practice cost indices to a level of 1.67 for each 
     of the work, practice expense and malpractice cost indices.
       Inclusion of Podiatrists, Dentists, and Optometrists under 
     Private Contracting Authority (Section 603 of the Conference 
     Agreement and Section 604 of the House Bill).
     Present Law
       Private contracting allows a physician and Medicare 
     beneficiary not to submit a claim for a service which would 
     otherwise be covered and paid for by Medicare. Under private 
     contracting, physicians can bill patients at their discretion 
     without being subject to upper payment limits specified by 
     Medicare. If a physician decides to enter into a private 
     contract with a Medicare beneficiary, that physician must 
     agree to forego any reimbursement by Medicare for all 
     Medicare beneficiaries for 2 years. The patient is not 
     subject to the 2-year limit and is able to receive services 
     from other physicians who do not have such private contracts 
     and have Medicare pay for the services. Both physicians and 
     practitioners may enter private contracts. In this instance, 
     a physician is limited to a doctor of medicine and 
     osteopathy; chiropractors, podiatrists, dentists, and 
     optometrists are not included. Practitioners are physician 
     assistants, nurse practitioners, clinical nurse specialists, 
     certified registered nurse anesthetists, certified nurse 
     midwives, clinical psychologists, and clinical social 
     workers.
     House Bill
       Doctors of dental surgery or of dental medicine and doctors 
     of podiatric medicine would be able to enter into private 
     contracts with Medicare beneficiaries. The provision would be 
     effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       Doctors of dental surgery or of dental medicine, doctors of 
     podiatric medicine, and doctors of optometry will be able to 
     enter into private contracts with Medicare beneficiaries. The 
     provision will be effective upon enactment.
       GAO Study on Access to Physicians' Services (Section 604 of 
     the Conference Agreement and Sections 602(a) and 602(b) of 
     the House Bill).

        GAO Study on Beneficiary Access to Physicians' Services

     Present Law
       Periodic analyses by the Physician Payment Review 
     Commission, and subsequently MedPAC, as well as CMS showed 
     that access to physicians' services generally remained good 
     for most beneficiaries through 1999. Detailed data are not 
     available for a subsequent period; however, several surveys 
     have showed a decline in the percentage of physicians 
     accepting new Medicare patients.
     House Bill
       GAO would be required to conduct a study on access of 
     Medicare beneficiaries to physician's services under 
     Medicare. The study would include an assessment of 
     beneficiaries' use of services through an analysis of claims 
     data. It would also examine changes in use of physicians' 
     services over time. Further, it would examine the extent to 
     which physicians are not accepting new Medicare beneficiaries 
     as patients. GAO would be required to submit a report to 
     Congress on this study within 18 months of enactment. The 
     report would determine whether data from claims submitted by 
     physicians indicate potential access problems for 
     beneficiaries in certain geographic areas. The report would 
     determine whether access by beneficiaries to physicians' 
     services has improved, remained constant, or deteriorated 
     over time.
       The Secretary would be required to request the Institute of 
     Medicine to conduct a study on the adequacy of the supply of 
     physicians (including specialists) in the country and the 
     factors that affect supply. The Secretary would be required 
     to submit the results of the study in a report to Congress 
     no later than 2 years of the date of enactment.
     Senate Bill
       No provision.
     Conference Agreement
       GAO is required to conduct a study on access of Medicare 
     beneficiaries to physicians' services under Medicare. The 
     study will include an assessment of beneficiaries' use of 
     physician services through an analysis of claims data. It 
     will also examine changes in use of physicians' services over 
     time. Further, it will examine the extent to which physicians 
     are not accepting new Medicare beneficiaries as patients. GAO 
     is required to submit a report to Congress on this study 
     within 18 months of enactment. The report will determine 
     whether data from claims submitted by physicians indicate 
     potential access problems for beneficiaries in certain 
     geographic areas. The report will also determine whether 
     access by beneficiaries to physicians' services has improved, 
     remained constant, or deteriorated over time.
       Collaborative Demonstration-based Review of Physician 
     Practice Expense Geographic Adjustment Data (Section 605 of 
     the Conference Report and Section 421 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       For services furnished after January 1, 2004, the Secretary 
     would be required to increase the value of any work 
     geographic index that is below .980 to .980. The values for 
     work index would be raised to 1.0 for services furnished in 
     2005, 2006, and 2007. The practice expense and malpractice 
     geographic indices in low value localities areas would be 
     raised to 1.00 for services furnished in 2005 through 2008.
     Conference Agreement
       The Secretary is required to review and consider 
     alternative data sources than those currently used to 
     establish the geographic index for the practice expense 
     component under Medicare's physician fee schedule no later 
     than January 1, 2005. The Secretary will collaborate with 
     state and other appropriate organizations representing 
     physicians, and other appropriate persons. The Secretary will 
     select 2 physician payment localities for this evaluation; 
     one of the localities will be a rural area and one will be a 
     statewide locality that includes both urban and rural areas. 
     The Secretary will submit a report to Congress including 
     recommendations on alternative data sources, including their 
     accuracy and validity, the feasibility of using the 
     alternative data, and the estimated impact of using these 
     data for the practice expense adjustment. The report is due 
     no later than January 1, 2006.
       MedPAC Report on Payment for Physicians' Services (Section 
     606 of the Conference Agreement and Section 603 of the House 
     Bill).
     Present Law
       Medicare pays for physicians' services on the basis of a 
     fee schedule. The fee schedule assigns relative values to 
     services. These relative values reflect physician work, 
     practice expenses and malpractice expenses. Resource-based 
     practice expense relative values were phased-in beginning in 
     1999. Beginning in 2002, the values were totally resource-
     based.
       Certain services have a professional component and a 
     technical component. The technical component does not include 
     a relative value for physician work. A global value includes 
     both the professional and technical components. The physician 
     must bill for the global value if the physician furnishes 
     both the professional component and the technical component.
     House Bill
       MedPAC would be required to report to Congress on the 
     effects of refinements to the practice expense component of 
     payments for physicians' services after full implementation 
     of the resource-based payment in 2002. The report is to 
     examine the following by specialty: (1) the effect of 
     refinements on payments for physicians services; (2) 
     interaction of the practice expense component with other 
     components of and adjustments to payment for physicians' 
     services; (3) appropriateness of the amount of compensation 
     by reason of such refinements; (4) effect of such refinements 
     on access to care by Medicare beneficiaries to physicians' 
     services; and (5) effect of such refinements on physician 
     participation under the Medicare program. The report would be 
     due within 1 year of enactment. MedPAC would also be required 
     to study the extent to which increases in the volume of 
     physician services improves beneficiaries' health and well-
     being. MedPAC would be required to analyze the trends in 
     components included in the sustainable growth rate 
     calculation; the growth in volume of physician services 
     provided to Medicare beneficiaries in comparison to other 
     populations; the extent to which coverage determinations and 
     new technology has affected growth in volume; the effect of 
     demographic changes on volume; the effect of shifts in sites 
     of services; and the extent to which the impact of law and 
     regulations is taken into account.
     Senate Bill
       No provision.
     Conference Agreement
       MedPAC is required to report to Congress on the effects of 
     refinements to the practice expense component of payments for 
     physicians' services after full implementation of the 
     resource-based payment in 2002. The report will examine the 
     following by specialty: (1) the effect of refinements on 
     payments for physicians' services; (2) the interaction of the 
     practice expense component with other components of and 
     adjustments to payment

[[Page H12054]]

     for physicians' services; (3) the appropriateness of the 
     amount of compensation by reason of such refinements; (4) the 
     effect of such refinements on access to care by Medicare 
     beneficiaries to physicians' services; and (5) the effect 
     of such refinements on physician participation under the 
     Medicare program. The report is due within 1 year of 
     enactment. MedPAC is also required to study the extent to 
     which increases in the volume of physician services 
     improves beneficiaries' health and well-being. MedPAC is 
     required to analyze the trends in components included in 
     the sustainable growth rate calculation; the growth in 
     volume of physician service provided to Medicare 
     beneficiaries in comparison to other populations; the 
     extent to which coverage determinations and new technology 
     has affected growth in volume; the effect of demographic 
     changes on volume; the effect of shifts in sites of 
     services; and the extent to which the impact of law and 
     regulations is taken into account. The report is due 
     within 1 year of enactment.
       GAO Report Section (Section 605(b) of the House Bill).
     Present Law
       No provision.
     House Bill
       As part of the previously mandated study of geographic 
     differences in physician payments, GAO would be required to 
     evaluate (1) whether a sound economic basis for raising the 
     geographic work adjustment exists; (2) the effect of such 
     adjustment of physician location and retention including 
     differences in recruitment cost and physician mobility; and 
     the appropriateness of establishing a floor of 1.00 on the 
     work geographic adjustment. GAO would be required to submit 
     the report to Congress and the Secretary by September 1, 
     2004.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       GAO Study and Report on the Propagation of Concierge Care 
     (Section 447 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       GAO would be required to conduct a study on concierge care 
     provided to Medicare beneficiaries and its affect on their 
     access to Medicare covered services and submit a report to 
     Congress, including recommendations, no later than 12 months 
     from enactment. In this instance, concierge care would be an 
     arrangement where a physician or practitioner charges an 
     individual seeking care a membership fee or other fee or 
     requires the purchase of an item or service as a prerequisite 
     for providing the care. The provision would be effective upon 
     enactment.
     Conference Agreement
       No provision.

                    Subtitle B--Preventive Services

       Coverage of An Initial Preventive Physical Examination 
     (Section 611 of the Conference Agreement and Section 611 of 
     the House Bill).
     Present Law
       Medicare covers a number of preventive services. However, 
     it does not cover routine physical examinations.
     House Bill
       Medicare coverage of an initial preventive physical 
     examination would be authorized. The physical examination 
     would be defined as physicians' services consisting of a 
     physical examination with the goal of health promotion and 
     disease detection. It would include items and services 
     (excluding clinical laboratory tests) consistent with the 
     recommendations of the United States Preventive Services Task 
     Force as determined by the Secretary. A covered initial 
     preventive physical examination would be one performed no 
     later than 6 months after the individual's initial coverage 
     date under Part B. Initial preventive physical exams would be 
     included in the definition of physicians' services for 
     purposes of the physician fee schedule. The Part B deductible 
     and coinsurance would be waived for initial preventive 
     physical exams. The provision would apply to services 
     furnished on or after January 1, 2004 for those individuals 
     whose coverage begins on or after such date.
     Senate Bill
       No provision.
     Conference Agreement
       Medicare coverage of an initial preventive physical 
     examination is authorized, subject to deductible and 
     beneficiary cost sharing. The physical examination is defined 
     as physicians' services consisting of a physical examination 
     (including measurement of height, weight, and blood pressure, 
     and an electrocardiogram) with the goal of health promotion 
     and disease detection. The examination includes education, 
     counseling, and referral with respect to specific screening 
     services and other preventive services, but does not include 
     clinical laboratory tests. The screening and preventive 
     services are certain vaccines, screening mammography, 
     screening pap smear and screening pelvic exam, prostate 
     cancer screening tests, colorectal cancer screening tests, 
     diabetes outpatient self management, bone mass 
     measurement, screening for glaucoma, medical nutrition 
     therapy, cardiovascular screening blood tests and diabetes 
     screening tests. A covered initial preventive physical 
     examination is performed no later than 6 months after the 
     individual's initial coverage date under Part B. Initial 
     preventive physical exams are included in the definition 
     of physicians services for purposes of the physician fee 
     schedule. The provision applies to services furnished on 
     or after January 1, 2005, but only for those individuals 
     whose coverage begins on or after such date.
       The Conference encourages the United States Preventive 
     Services Task Force to examine aortic aneurysm screening 
     using ultrasound. Aortic aneurysms are a leading cause of 
     death in the United States, and many in the medical community 
     believe that most, if not all, of the approximately 15,000 
     known deaths each year would be prevented with appropriate 
     screening.
       Coverage of Cardiovascular Screening Blood Tests (Section 
     612 of the Conference Agreement, Section 612 of the House 
     Bill, and Section 450D of the Senate Bill).
     Present Law
       Medicare covers a number of preventive services. However, 
     it does not cover cardiovascular screening tests.
     House Bill
       Medicare coverage of cholesterol and blood lipid screening 
     would be authorized. The screening would be defined as 
     diagnostic testing of cholesterol and other lipid levels of 
     the blood for the purpose of early detection of abnormal 
     cholesterol and other lipid levels. The Secretary would be 
     required to establish standards regarding the frequency and 
     type of these screening tests, but not more often than once 
     every 2 years. The provision would apply to services 
     furnished on or after January 1, 2005.
     Senate Bill
       Medicare coverage of cardiovascular screening tests would 
     be authorized. The screening would be defined as diagnostic 
     testing for the early detection of cardiovascular disease 
     including tests for cholesterol levels, lipid levels of the 
     blood, and other appropriate tests for cardiovascular 
     disease. The Secretary would be required to consult with 
     appropriate organizations and to establish standards 
     regarding the frequency and type of these screening tests, 
     but not more often than once every 2 years. The provision 
     would apply to services furnished on or after January 1, 
     2005.
     Conference Agreement
       Medicare coverage of cardiovascular screening blood tests 
     is authorized. The screening is defined as a blood test for 
     the early detection of cardiovascular disease (or 
     abnormalities associated with an elevated risk of 
     cardiovascular disease) including tests for cholesterol 
     levels and other lipid or triglyceride levels as well as such 
     other indications associated with the presence of (or an 
     elevated risk for) cardiovascular disease as the Secretary 
     may approve for all individuals or for some individuals 
     determined to be at risk for such disease. These indications 
     may include indications measured by non-invasive testing. The 
     Secretary cannot approve an indication for any individual 
     unless a blood test for such is recommended by the United 
     States Preventive Services Task Force. The Secretary is 
     required to consult with appropriate organizations and to 
     establish standards regarding the frequency and type of these 
     screening tests, but the frequency may not be more often than 
     once every 2 years. The provision applies to services 
     furnished on or after January 1, 2005.
       Coverage of Diabetes Screening Tests (Section 613 of the 
     Conference Agreement and Section 630 of the House Bill).
     Present Law
       On July 1, 1998, Medicare began covering diabetes self-
     management training services. These educational and training 
     services are provided on an outpatient basis by physicians or 
     other certified providers who have experience in diabetes 
     self-management training services. Blood testing strips and 
     home blood glucose monitors are used by diabetics to measure 
     blood glucose levels to determine if these levels are being 
     maintained adequately. Medicare covers blood testing strips 
     and blood glucose monitors for all individuals with diabetes 
     regardless of whether they are insulin-dependent. The 
     Secretary is also required to consult with appropriate 
     organizations to establish outcome measures to assess 
     improvements in the health status of individuals with 
     diabetes. Based on this information, the Secretary will make 
     recommendations to Congress on changes to Medicare's coverage 
     of services for these beneficiaries. Medicare does not 
     presently cover laboratory diagnostic tests and other 
     services that are used to screen for diabetes.
     House Bill
       Diabetes screening tests and services would be included as 
     a covered medical service. In this instance, diabetes 
     screening tests would include fasting plasma glucose tests 
     and other appropriate tests provided to an individual at risk 
     for diabetes. Individuals at risk for diabetes would have any 
     or a combination of the following conditions: (1) have a 
     family history of diabetes; (2) are overweight with a body 
     mass index greater than or equal to 25 kg/m\2\; (3) are 
     habitually physically inactive; (4) are a member of a high-
     risk ethnic or racial group; (5) have previously been 
     identified with an elevated impaired fasting glucose; (6) 
     have hypertension;

[[Page H12055]]

     (7) have dyslipidemia; (8) have a history of gestational 
     diabetes mellitus or have delivered a baby weighing more than 
     9 pounds; or (9) have polycystic ovary syndrome. The 
     Secretary would be required to establish standards, in 
     consultation with appropriate organizations regarding the 
     frequency of screening tests except the tests would not be 
     covered more often that twice in the 12-month period 
     following the date of the individual's most recent diabetes 
     screening test. The provision would apply to tests furnished 
     on or after 90 days from enactment.
     Senate Bill
       No provision.
     Conference Agreement
       Diabetes screening tests furnished to an individual at risk 
     for diabetes for the purpose of early detection of diabetes 
     are included as a covered medical service. In this instance, 
     diabetes screening tests include fasting plasma glucose tests 
     as well as other tests and modifications to those tests 
     deemed appropriate by the Secretary after consultation with 
     appropriate organizations. Individuals at risk for diabetes 
     have any or a combination of the following conditions: (1) 
     hypertension; (2) dyslipidemia; (3) obesity, with a body mass 
     index greater than or equal to 30 kg/m\2\; (4) previous 
     identification of an elevated impaired fasting glucose; (5) 
     previous identification of impaired glucose tolerance or (6) 
     a risk factor of at least 2 of the following characteristics: 
     overweight with a body mass index of greater than 25, but 
     less than 30, kg/m\2\; a family history of diabetes; a 
     history of gestational diabetes mellitus or delivery of a 
     baby weighing more than 9 pounds; or age of 65 years or more. 
     The Secretary is required to establish standards, in 
     consultation with appropriate organizations regarding the 
     frequency of screening tests except the tests will not be 
     covered more often that twice in the 12-month period 
     following the date of the individual's most recent diabetes 
     screening test. The provision applies to tests furnished 
     starting January 1, 2005.
       Improved Payment for Certain Mammography Services (Section 
     614 of the Conference Agreement, Section 614 of the House 
     Bill, and Section 445 of the Senate Bill).
     Present Law
       Screening mammography coverage includes the radiological 
     procedure as well as the physician's interpretation of the 
     results of the procedure. The usual Part B deductible is 
     waived for tests. Payment is made under the physician fee 
     schedule.
       Certain services paid under fee schedules or other payment 
     systems including ambulance services, services for patients 
     with end-stage renal disease paid under the ESRD composite 
     rate, professional services of physicians and non-physician 
     practitioners paid under the physician fee schedule, and 
     laboratory services paid under the clinical diagnostic 
     laboratory fee schedule are excluded from Medicare's 
     outpatient prospective payment system (OPPS).
     House Bill
       Unilateral and bilateral diagnostic mammography as well as 
     screening mammography services would be excluded from OPPS. 
     The Secretary would be required to provide an appropriate 
     adjustment to the physician fee schedule for the technical 
     component of the diagnostic mammography based on the most 
     recent cost data available. This adjustment would be applied 
     to services provided on or after January 1, 2004.
     Senate Bill
       Unilateral and bilateral diagnostic mammography as well as 
     screening mammography services would be excluded from OPPS. 
     The Secretary would be required to provide an appropriate 
     adjustment to the physician fee schedule for the technical 
     component of the diagnostic mammography based on the most 
     recent cost data available. This adjustment would be applied 
     to services provided on or after January 1, 2005.
     Conference Agreement
       Screening mammography and diagnostic mammography will be 
     excluded from OPPS. This provision will apply to screening 
     mammography services furnished on or after the date of 
     enactment and will apply to diagnostic mammography services 
     furnished on or after January 1, 2005.
       Waiver of Deductible for Colorectal Cancer Screening Tests 
     (Section 613 of the House Bill).
     Present Law
       Covered colorectal screening tests for prevention purposes 
     include (1) an annual fecal-occult blood test for individuals 
     age 50 and older; (2) flexible sigmoidoscopy every 4 years 
     for individuals age 50 and older; (3) colonoscopy for high-
     risk individuals every 2 years and for other individuals 
     every 10 years; and (4) screening barium enemas every 4 years 
     for individuals age 50 and older who are not at high risk of 
     developing colorectal cancer or every 2 years for high risk 
     individuals. Payment is made according to the applicable 
     payment system for the provider performing the test.
       Unless otherwise specified, Part B services are subject to 
     beneficiary cost sharing amounts, including an annual 
     deductible and coinsurance amount. Colorectal screening tests 
     are subject to the deductible and coinsurance.
     House Bill
       The Part B deductibles would be waived for colorectal 
     cancer screening tests. The provision would apply to items 
     and services furnished on or after January 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.

                      Subtitle C--Other Provisions

       Hospital Outpatient Department (HOPD) Payment Reform 
     (Section 621 of the Conference Report, Section 621(a) of the 
     House Bill, and Section 436 of the Senate Bill).
       Payment for Drugs (Section 621(a) of the Conference 
     Agreement, Sections 621(a) and 621(d) of the House Bill, and 
     Section 436 of the Senate Bill).
     Present Law
       Under hospital outpatient department (HOPD) prospective 
     payment system (OPPS), the unit of payment is the individual 
     service or procedure as assigned to one of about 570 
     ambulatory payment classifications (APCs) groups. Services 
     are classified into APCs based on their Healthcare Common 
     Procedure Coding System (HCPCS), a standardized coding 
     system used to identify products, supplies, and services 
     for claims processing and payment purposes. To the extent 
     possible, integral services and items including drugs are 
     bundled or packaged within each APC. For instance, an APC 
     for a surgical procedure will include operating and 
     recovery room services, anesthesia and surgical supplies. 
     Medicare's payment for HOPD services is calculated by 
     multiplying the relative weight associated with an APC by 
     a geographically adjusted conversion factor. The 
     conversion factor is updated on a calendar year schedule 
     and the annual updates are based on the hospital market 
     basket (MB). Currently, the CY2004 HOPD update will equal 
     the projected change in the MB.
       Medicare pays for covered outpatient drugs in one of three 
     ways: (1) as a transitional pass-through payment; (2) as a 
     separate APC payment; or (3) as packaged APC payment with 
     other services.
       Transitional pass-through payments are supplemental 
     payments to cover the incremental cost associated with new 
     medical devices, drugs and biologicals that are inputs to an 
     existing service. The additional payment for a given item is 
     established for 2 or 3 years and then the costs are 
     incorporated into the APC relative weights. BBRA specified 
     that pass-through payments would be made for current orphan 
     drugs, as designated under section 526 of the Federal Food, 
     Drug, and Cosmetic Act; current cancer therapy drugs, 
     biologicals, and brachytherapy; current radiophamaceutical 
     drugs and biological products; and new drugs and biological 
     agents.
       Generally, CMS has established that a pass-through payment 
     for an eligible drug is based on the difference between 95% 
     of its average wholesale price and the portion of the 
     otherwise applicable APC payment rate attributable to the 
     existing drug, subject to a budget neutrality provision. The 
     pass-through amount for new drugs with a substitute drug 
     recognized in a separate drug APC payment is the difference 
     between 95% of new drug's AWP and the payment rate for the 
     comparable dose of the associated drugs APC.
       CMS imputes the hospital costs for these drugs to establish 
     the beneficiary copayment amounts as well as to project the 
     amount of pass-through spending in order to calculate the 
     uniform reduction to payments under the budget neutrality 
     constraint. This imputed value is calculated by multiplying 
     the average wholesale price (AWP) for the drug by the 
     applicable cost-to-charge ratio which varies by the class of 
     drug. For CY2003, the average ratio of cost to AWP for sole-
     source drugs manufactured by one entity is 0.71, for multiple 
     source drugs is 0.68, and for multiple source drugs with 
     generic competitors is 0.43. There is enormous variation 
     within a category from close to zero to above 100% of AWP.
       Current drugs and biologicals that have been in 
     transitional pass-through status on or prior to January 1, 
     2000 were removed from that payment status effective January 
     1, 2003. CMS established separate APC payments for certain of 
     these drugs, including orphan drugs, blood and blood 
     products, and selected higher cost drugs in CY2003. CMS 
     established a threshold of $150 per claim line for a drug to 
     qualify for a separate APC payment as a higher-cost drug. 
     Other drugs that had qualified for a transitional pass-
     through payment were packaged in to procedural APCs. For 
     example, in some instances, brachytherapy seeds (radioactive 
     isotopes used in cancer treatments) were packaged into 
     payments for brachytherapy procedures. Essentially, the 
     payment rates for these drug-related APCs are based on a 
     relative weight calculated in the same way as procedural APCs 
     are calculated. However, the cost to charge ratios are from 
     only one department.
     House Bill
       Under Section 621(a), starting for services furnished on or 
     after January 1, 2004, certain covered OPD drugs would be 
     paid no more than 95% of AWP or be less than the transition 
     percentage of the AWP from CY2004 through CY2006. In 
     subsequent years, payment would be equal to average price for 
     the drug in the area and year established by the competitive 
     acquisition program under 1847A. The covered OPD drugs 
     affected by this provision are radiopharmceuticals and 
     outpatient drugs that were paid on a pass-through basis on or 
     before December 31, 2002. These would not include drugs for 
     which

[[Page H12056]]

     pass-through payments are first made on or after January 1, 
     2003 or those drugs for which a temporary HCPCS code has not 
     been assigned. Drugs for which a temporary HCPCS code has not 
     been assigned would be reimbursed at 95% of the AWP.
       The transition percentage to AWP for sole-source drugs 
     manufactured by one entity is 83% in CY2004, 77% in CY2005, 
     and 71% in CY2006. The transition percentage to AWP for 
     innovator multiple source drugs is 81.5% in CY2004, 75% in 
     CY2005, and 68% in CY2006. The transition percentage to AWP 
     for multiple source drugs with generic drug competitors is 
     46% in CY2004 through CY2006. Generally, a multiple source 
     drug is a covered drug for which there are 2 or more 
     therapeutically equivalent drug products. An innovator 
     multiple source drug is a multiple source drug that was 
     originally marketed under an original new drug application 
     approved by the Food and Drug Administration (FDA). A sole 
     source drug is not a multiple source drug. The additional 
     expenditures resulting from these provisions would not be 
     subject to the budget neutrality requirement.
       Starting in CY2004, the Secretary would be required to 
     lower the threshold for establishing a separate APC group for 
     higher costs drugs from $150 to $50 per administration. These 
     separate drug APC groups would not be eligible for outlier 
     payments. Starting in CY2004, Medicare's transitional pass-
     through payments for drugs and biologicals covered under a 
     competitive acquisition contract would reflect the amount 
     paid under that contract, not 95% of AWP.
       Under Section 621(d), the Secretary would be required to 
     study the hospital acquisition costs related to covered 
     outpatient drugs that cost $50 per administration and more 
     that are reimbursed under the HOPD-PPS. The study would 
     encompass a representative sample of urban and rural 
     hospitals. The report including recommendations on the 
     usefulness of the cost data and frequency of subsequent data 
     collection efforts would be due to Congress no later than 
     January 1, 2006. The report would also discuss whether the 
     data is appropriate for making adjustments to payments made 
     under the competitive acquisition contract established by 
     section 1847A and whether separate estimates can be made for 
     overhead costs including handling and administering drugs. 
     The provision would be effective upon enactment.
     Senate Bill
       A new payment mechanism for certain drugs and biologicals 
     provided in hospital outpatient departments (OPD) would be 
     established from January 1, 2005 and before January 1, 2007. 
     The drugs and biologicals would be those for which hospitals 
     received transitional pass-through payments prior to January 
     1, 2005 and those that would have been paid in such a manner 
     but for the application of this provision or those that are 
     assigned to drug specific APCs on or after the date of 
     enactment. Payments made under this provision would be 
     exempt from the budget neutrality requirement in FY2005 
     and FY2006.
       In 2005, these drugs or biologicals furnished as part of a 
     current OPD service would be paid as follows: a single source 
     or orphan product would be paid at 94% of the AWP existing on 
     May 1, 2003; a multiple source drug would be paid at 91% of 
     the AWP existing on May 1, 2003; and a multiple source drug 
     with generic equivalents would be paid at 71% of AWP on May 
     1, 2003. Drugs and biologicals that were furnished as part of 
     other OPD services would be paid using the same applicable 
     percentage of the AWP that would have been determined on May 
     1, 2003 if payment could have been made on that date. For 
     2006, these payment amounts would be increased by the 
     percentage increase in the consumer price index for all urban 
     consumers for the 12-month period ending in June of the 
     previous year.
       The Secretary would be required to contract with an 
     eligible organization (a private nonprofit organization) to 
     conduct a study to determine the hospital acquisition, 
     pharmacy services, and handling costs for each of the drugs 
     paid in this fashion. The study would be required to be 
     accurate with 3% of the true mean hospital acquisition and 
     handling costs for each drug and biological at the 95% 
     confidence level; begin not later than January 1, 2005; and 
     be updated annually. Each year, beginning January 1, 2006, 
     the Secretary would be required to submit a report to 
     Congress, including recommendations, on the drug costs. These 
     drug costs would be used in determining the payment amounts 
     for each drug and biological provided as part of a covered 
     OPD service furnished on or after January 1, 2007.
     Conference Agreement
       Starting for services furnished on or after January 1, 
     2004, specified covered OPD drugs would be paid based on a 
     percentage of the reference average wholesale price for the 
     drug. The percentage of the reference price for sole-source 
     drugs manufactured by one entity can be no less than 88% and 
     no greater than 95% in CY2004 and no less than 83% and no 
     greater than 95% in CY2005. The percentage of the reference 
     price for innovator multiple source drugs can be no greater 
     than 68% in CY2004 and CY2005. The percentage of the 
     reference price for noninnovator multiple source drugs can be 
     no greater than 46% in CY2004 and CY2006. The reference 
     average wholesale price is the average wholesale price for 
     the drug as of May 1, 2003.
       A sole source drug is biological product approved under a 
     biologics license application under section 351 of the Public 
     Health Services Act or a single source drug produced or 
     distributed under an original new drug application approved 
     by the Food and Drug Administration (FDA) which includes a 
     drug product marketed by appropriate cross-licensed producers 
     or distributors as established in Section 1927(k)(7)(A)(iv) 
     of the Social Security Act (the Act); an innovator multiple 
     source drug is a multiple source drug that was originally 
     marketed under an original new drug application approved by 
     FDA as established in Section 1927(k)(7)(A)(ii) of the Act; 
     and, a noninnovator multiple source drug is a multiple source 
     drug that is not an innovator multiple source drug as 
     established in 1927(k)(7)(A)(iii) of the Act. A biological 
     includes any product that the Centers for Medicare and 
     Medicaid services has determined to be a biological under 
     section 1861(t)(1) of the Act.
       It is the intent of the Conference that products eligible 
     for the transitional payment under the hospital outpatient 
     department section include all products paid by Medicare on a 
     pass-through list as a drug or biologic prior to December 31, 
     2002, or as a radiopharmaceutical product as a pass-through 
     product are in a separate ambulatory payment classification 
     (APC). This section clarifies that radiopharmaceuticals are 
     drugs under the hospital outpatient department section and 
     that the term ``specified covered outpatient drug'' includes 
     radiopharmaceuticals.
       In subsequent years, payment will be equal to the average 
     acquisition cost for the drug for that year (which may vary 
     by hospital group taking into account hospital volume or 
     other hospital characteristics) or if hospital acquisition 
     cost data are not available, the average price for the drug 
     in the year other than radiopharmacuticals established under 
     Sections 1842(o), 1847A or 1847B as calculated and adjusted 
     by the Secretary. The covered OPD drugs affected by this 
     provision are outpatient drugs that were paid on a pass-
     through basis on or before December 31, 2002. These would not 
     include drugs for which pass-through payments are first made 
     on or after January 1, 2003; those drugs for which a 
     temporary HCPCS code has not been assigned; or, during 2004 
     and 2005, orphan drugs. Drugs for which a temporary HCPCS 
     code has not been assigned will be reimbursed at 95% of the 
     AWP. Orphan drugs during this 2 year time period will be paid 
     at an amount specified by the Secretary.
        GAO is required to conduct an acquisition cost survey for 
     each specified covered drug in 2004 and 2005. The surveys 
     (those done by GAO and then subsequently by the Secretary) 
     will be based on a large sample of hospitals that is 
     sufficient to generate a statistically significant estimate 
     of the average hospital acquisition cost for each specified 
     covered outpatient drug. No later than April 1, 2005, GAO 
     will furnish this survey data to the Secretary to use in 
     setting payment rates for 2006. GAO will evaluate the 2006 
     payment rates and submit a report to Congress on their 
     appropriateness no later than 30 days after the date the 
     Secretary promulgates the proposed rule setting forth these 
     rates.
       Upon completion of their surveys, GAO will submit 
     recommendations regarding the survey methodology and survey 
     frequency to the Secretary for subsequent surveys. The 
     Secretary will conduct periodic surveys to determine the 
     hospital acquisition costs for each specified covered 
     outpatient drug to set subsequent payment rates. GAO will 
     report to Congress on the justification for the size of the 
     sample used in order to assure the validity of the estimates; 
     the extent of variation in hospital acquisition costs among 
     hospitals based on the volume of covered OPD services or 
     other relevant characteristics.
       MedPAC will submit a report to the Secretary on the payment 
     adjustment to ambulatory payment classifications for 
     specified covered outpatient drugs that takes into account 
     overhead and related expenses (such as pharmacy services and 
     handling costs). The report will include (1) a description 
     and analysis of the available data; (2) a recommendation as 
     to whether the payment adjustment should be made; and (3) if 
     such an adjustment should be made, a recommendation regarding 
     the appropriate methodology. The Secretary is authorized to 
     adjust the weights for ambulatory payment classification 
     based on such a recommendation.
       The additional expenditures that result from the previous 
     changes will not be taken into account in establishing the 
     conversion, weighting and other adjustment factors for 2004 
     and 2005, but will be taken into account in subsequent years.
       For drugs and biologicals furnished in 2004 and 2005, the 
     Secretary is required to lower the threshold for establishing 
     a separate APC group for higher costs drugs from $150 to $50 
     per administration. These separate drug APC groups are not be 
     eligible for outlier payments. Starting in CY2004, Medicare's 
     transitional pass-through payments for drugs and 
     biologicals covered under a competitive acquisition 
     contract will equal the average price for the drug or 
     biological for all competitive acquisition areas 
     calculated and adjusted by the Secretary for that year.
       Special Payment for Brachytherapy (Section 421(b) of the 
     Conference Report, Section 621(b) of the House Bill and 
     Section 450A of the Senate Bill).

[[Page H12057]]

     Present Law
       Current drugs and biologicals that have been in 
     transitional pass-through status on or prior to January 1, 
     2000 were removed from that payment status effective January 
     1, 2003. The Center for Medicare and Medicaid Services (CMS) 
     established separate APC payments for certain of these drugs, 
     including orphan drugs, blood and blood products, and 
     selected higher cost drugs in CY2003. CMS established a 
     threshold of $150 per claim line for a drug to qualify for a 
     separate APC payment as a higher-cost drug. Essentially, the 
     payment rates for these drug-related APCs are based on a 
     relative weight calculated in the same way as procedural APCs 
     are calculated. Other drugs that had qualified for a 
     transitional pass-through payment were packaged in to 
     procedural APCs. For example, in some instances, 
     brachytherapy seeds (radioactive isotopes used in cancer 
     treatments) were packaged into payments for brachytherapy 
     procedures.
       Essentially, the payment rates for these drug-related APCs 
     are based on a relative weight calculated in the same way as 
     procedural APCs are calculated.
     House Bill
       From January 1, 2004 through December 31, 2006, Medicare's 
     payments for brachytherapy devices would equal the hospital's 
     charges adjusted to cost. The Secretary would be required to 
     create separate APCs to pay for these devices that reflect to 
     the number, isotope, and radioactive intensity of such 
     devices. This would include separate groups for palladium-103 
     and iodine-125 devices. GAO would be required to study the 
     appropriateness of payments for brachytherapy devices and 
     submit a report including recommendations to Congress no 
     later than January 1, 2005. The provision would be effective 
     upon enactment.
     Senate Bill
       The Secretary would be required to conduct a 3-year 
     demonstration project that would exclude brachytherapy 
     devices from the OPPS and paid on the basis of the hospital's 
     charges for each device, adjusted to cost. The Secretary 
     would be required to create separate, additional groups of 
     covered HOPD services for brachytherapy devices to reflect 
     the number, isotope, and radioactive intensity of such 
     devices. The Secretary would be required to assure that 
     aggregate payments under this project would not exceed what 
     otherwise would have been spent. The project would begin 90 
     days after the date of enactment. The Secretary would be 
     required to submit a report on the evaluation of patient 
     outcomes and cost effectiveness of the project to Congress no 
     later than January 1, 2007.
     Conference Agreement
       The provision would require the Secretary to make payment 
     for each brachytherapy device furnished under the hospital 
     outpatient prospective payment system equal to the hospital's 
     charges for the brachytherapy device adjusted to cost for all 
     brachytherapy devices furnished on or after January 1, 2004 
     and before January 1, 2007. Charges for such devices will not 
     be included in determining any outlier payment.
       The provision also would require the Secretary to create 
     and use ambulatory payment classification (APC) groups that 
     classify brachytherapy devices separately from all the other 
     services and items paid for under the hospital outpatient 
     prospective payment system. The Secretary must reflect the 
     number, the radioactive isotope and the radioactive intensity 
     of the brachytherapy devices furnished to each patient, 
     including the use of separate APCs for brachytherapy devices 
     made from palladium-103 and iodine-125.
       Limitation of Application of Functional Equivalence Test 
     (Section 622 of the Conference Agreement, Section 621(c) of 
     the House Bill, and Section 437 of the Senate Bill).
     Present Law
       In the November, 1 2002 Federal Register, CMS established a 
     new concept of functional equivalence for drugs to an 
     existing treatment. The transitional pass-through rate for a 
     drug was reduced to zero starting for services in 2003.
     House Bill
       The Secretary would be prohibited from applying a 
     functional equivalence standard or any similar standard in 
     order to deem a particular drug or biological to be similar 
     or functionally equivalent to another drug unless the 
     Commissioner of the Food and Drug Administration establishes 
     such a standard and certifies that the two products are 
     functionally equivalent. The Secretary would be able to 
     implement this standard after applicable rulemaking 
     requirements.
       This provision would apply to the application of a 
     functional equivalent on or after the date of enactment. The 
     provision prohibits the application of this standard to a 
     drug or biological prior to June 13, 2003.
     Senate Bill
       The Secretary would be prohibited from publishing 
     regulations that apply a functional equivalence standard to a 
     drug or biological for transitional pass-through payments 
     under OPPS. This prohibition would apply to the application 
     of the functional equivalence standard on or after the date 
     of enactment, unless such application was made prior to 
     enactment and the Secretary applies such standard to the drug 
     only for the purposes of transitional pass-through payments. 
     This provision would not affect the Secretary authority to 
     deem a particular drug to be identical to another drug if the 
     2 products are pharmaceutically equivalent and bioequivalent, 
     as determined by the Commissioner of the Food and Drug 
     Administration.
     Conference Agreement
       The Secretary is prohibited from publishing regulations, 
     program memorandum local medical review policies or any other 
     guidance (including the HOPD-PPS payment rate rules) that 
     apply a functional equivalence or similar standard to a drug 
     or biological for transitional pass-through payments under 
     OPPS. This prohibition applies to the application of the 
     functional equivalence standard on or after the date of 
     enactment, unless such application was made prior to 
     enactment and the Secretary applies such standard to the 
     drug only for the purposes of transitional pass-through 
     payments. This provision does not affect the Secretary's 
     authority to deem a particular drug to be identical to 
     another drug if the 2 products are pharmaceutically 
     equivalent and bioequivalent, as determined by the 
     Commissioner of the Food and Drug Administration.
       Payment for Renal Dialysis Services (Section 623 of the 
     Conference Agreement, Section 623 of the House Bill, Section 
     432(b)(5) of the Senate Bill).
     Present Law
       Dialysis facilities providing care to beneficiaries with 
     end-stage renal disease (ESRD) receive a fixed prospectively 
     determined payment amount (the composite rate) for each 
     dialysis treatment, regardless of whether services are 
     provided at the facility or in the patient's home. The 
     composite rate includes the dialysis costs but excludes 
     separately billable drugs and biologicals and laboratory 
     services. Providers receive 95% of the AWP for separately 
     billable injectable medications other than erythropoietin 
     (EPO) administered during treatments at the facility. 
     Medicare pays separately for EPO which is used to treat 
     anemia for persons with chronic renal failure who are on 
     dialysis. Congress has set Medicare's payment for (EPO) at 
     $10 per 1,000 units whether it is administered intravenously 
     or subcutaneously in dialysis facilities or in patients' 
     homes.
       BBRA increased the composite rates by 1.2% for dialysis 
     services furnished in both 2000 and 2001. BIPA subsequently 
     increased the 2001 update to 2.4%. The composite rate has not 
     been increased since then.
       Prior to BIPA, an increase in the composite rate would 
     trigger an opportunity for facilities to request an exception 
     to the composite rate in order to receive higher payments. 
     BIPA prohibited the Secretary from granting new exceptions to 
     the composite rate (after applications received after July 1, 
     2001).
       In 2003, Secretary announced a demonstration project 
     establishing a disease-management program that will allow 
     organizations experienced with treating end-stage renal 
     disease (ESRD) patients to develop financing and delivery 
     approaches to better meet the needs of beneficiaries with 
     ESRD. CMS is soliciting a variety of types of organizations 
     to coordinate care to patients with ESRD, encourage the 
     provision of disease-management services for these patients, 
     collect clinical performance data and provide incentives for 
     more effective care.
     House Bill
       The provision would increase the ESRD composite payment 
     rate by 1.6% for 2004.
       The prohibition on exceptions contained in BIPA section 
     422(a)(2) would not apply to pediatric ESRD facilities as of 
     October 1, 2002. Pediatric facilities would be defined as a 
     renal facility with 50% of its patients under 18 years old. 
     The provision would be effective upon enactment.
       The provision would require the Secretary to establish an 
     advisory board for the ESRD disease management demonstration. 
     The advisory board would be comprised of representatives of 
     patient organizations, clinicians, the Medicare Payment 
     Advisory Commission (MedPAC), the National Kidney Foundation, 
     the National Institute of Diabetes and Digestive and Kidney 
     Diseases of the National Institutes of Health, ESRD networks, 
     Medicare contractors to monitor quality of care, providers of 
     services and renal dialysis facilities furnishing ESRD 
     services, economists, and researchers. The provision would be 
     effective upon enactment.
     Senate Bill
       The composite rate for dialysis services furnished during 
     2004 would be increased by an amount to ensure that the sum 
     of the total amount of the composite rate payments plus the 
     payments that are billed separately for drugs and biologicals 
     (but not EPO) would equal the composite rate payments plus 
     payments made for separately billed drugs and biologicals 
     (not including EPO) as if the drug pricing provisions of this 
     legislation were not enacted. During 2005, the ESRD composite 
     rate would be increased by 0.05% and further increased by 
     1.6%. During 2006, the ESRD composite rate of the previous 
     year would be increased by 0.05% and then further increased 
     by 1.6%. During 2007 and subsequently, the composite ESRD 
     rate of the previous year would be increased by 0.05%. In any 
     year after 2004, the Secretary would be required to provide 
     for additional increases in the composite rate to account for 
     any payment reductions for separately administered drugs and 
     biologicals (but not EPO) in the same manner as in 2004. 
     These payment amounts, methods or adjustments would not be 
     subject to administrative or judicial review under the 
     statutory appeals

[[Page H12058]]

     processes as established by Senate section 1869 of the SSA, 
     by the Provider Reimbursement Review Board established by 
     Senate section 1878 of the SSA, or otherwise. The provision 
     would be effective upon enactment.
     Conference Agreement
       The conference agreement increases the composite rate for 
     renal dialysis by 1.6% for 2005.
       The prohibition on exceptions contained in BIPA section 
     422(a)(2) does not apply to pediatric ESRD facilities as of 
     October 1, 2002. Pediatric ESRD facilities are defined as 
     renal facilities with 50% of their patients under 18 years 
     old. The provision is effective upon enactment.
       The Inspector General of HHS is required to conduct 2 
     studies regarding drugs and biologicals (including 
     erythropoietin) furnished to ESRD patients and billed 
     separately to Medicare by ESRD facilities. The first study 
     will address existing drugs and biologicals--those for which 
     a billing code exists prior to January 1, 2004--and is 
     required to be submitted to the Secretary by April 1, 2004. 
     The second study is of new drugs and biologicals--those for 
     which a billing code does not exist prior to January 1, 
     2004--and is due to the Secretary by April 1, 2006. Each 
     study is required to determine the difference, or spread, 
     between the Medicare payment amount to ESRD facilities for 
     drugs and biologicals, and the facilities' acquisition costs 
     for the drugs and biologicals which are separately billed by 
     the facilities. The studies are also to estimate the rates of 
     growth of expenditures for these drugs and biologicals.
       The conference agreement requires the Secretary to 
     establish a basic case-mix adjusted prospective payment 
     system for dialysis services. The basic case-mix adjusted 
     system is required to begin for services furnished on January 
     1, 2005. The system is required to adjust for a limited 
     number of patient characteristics (the case-mix).
       The basic case-mix adjusted system is composed of two 
     components: (1) those services which currently comprise the 
     composite rate (including the 1.6% increase in 2005), and (2) 
     the spread on separately billed drugs and biologicals 
     (including erythropoietin and as determined by the 
     Inspector General reports).
       Drugs and biologicals (including erythropoietin) currently 
     billed separately, will continue to be billed separately 
     under the basic case-mix adjusted system at acquisition 
     costs. They cannot be bundled into the new system.
       In addition, the Secretary is also required to adjust the 
     basic case-mix adjusted system payment rates by a geographic 
     index. If the geographic index is different from the one used 
     with the composite rate, then the Secretary is required to 
     phase-in the application over a multi-year period.
       Overall, spending for ESRD services included under the 
     basic case-mix adjusted system is required to result in the 
     same aggregate amount of expenditures as would occur if the 
     current system continued in 2005
       The system would be updated in 2006 for growth in drug 
     spending for the portion of the basic case-mix adjusted 
     payment amount that is represented by what is current spread 
     on separately billed drugs and biologicals. However, the 
     provision does not provide for an update to the composite 
     rate portion of the base rate in 2006 and forward. The 
     increase for drug growth for the spread component would be 
     adjusted downward by its proportionate share (of the spread 
     and composite rate components) and the resulting increase 
     applied to the sum. An adjustment would be made in 2007 for 
     the spread calculated for new drugs and biologicals (those 
     for which a billing code does not exist prior to January 1, 
     2004) using the 2006 Inspector General study.
       Payments for separately billed drugs and biologicals will 
     be 95% of the AWP for 2004 and acquisition costs in 2005, 
     and, beginning in 2006 the Secretary has the authority to 
     apply a payment methodology he determines appropriate which 
     may include the average sales price payment methodology 
     (under the new section 1847A found in section 303(c) of the 
     conference agreement) or acquisition costs.
       No administrative or judicial review is permitted of the 
     case-mix system, the relative weights, payment amounts, the 
     geographic adjustment factor, or the update of the basic 
     case-mix adjusted system portion related to drug spending 
     growth applied to spread, or in the determination of the 
     difference between Medicare payment amounts and acquisition 
     costs for separately billed drugs and biologicals.
       By October 1, 2005, the Secretary is required to report to 
     Congress on the elements and features for the design and 
     implementation of a fully case-mix adjusted, bundled 
     prospective payment system for services furnished by ESRD 
     facilities, including to the extent feasible, drugs, clinical 
     laboratory tests, and other items that are separately billed 
     by ESRD facilities. The report is required to include a 
     description of the methodology to be used for the 
     establishment of payment rates including the bundle of items 
     and services, case-mix, wage index, rural area payment 
     adjustments, other adjustments, and update framework.
       The Secretary is required to establish a 3-year 
     demonstration project of the fully case-mix adjusted payment 
     system for ESRD services, beginning January 1, 2006. The 
     fully case-mix adjusted system is to include a case-mix 
     system for patient characteristics identified in the report 
     and to bundle separately billed drugs and biologicals and 
     related clinical laboratory tests into the payment rates. The 
     Secretary is required to ensure that sufficient numbers of 
     providers of dialysis services and ESRD facilities 
     participate in the demonstration, but not to exceed 500. The 
     Secretary is required to ensure that urban, rural, not-for-
     profit, for-profit, independent, and specialty providers and 
     facilities are included in the demonstration. During the 
     demonstration, the Secretary is required to increase payment 
     rates that would otherwise apply by 1.6% for dialysis 
     services furnished by demonstration participants. In carrying 
     out the demonstration, the Secretary is required to establish 
     an advisory board comprised of representatives of: patient 
     organizations; individuals with expertise in ESRD services, 
     such as clinicians, economists, and researchers; the Medicare 
     Payment Advisory Commission, the National Institutes of 
     Health, network organizations; Medicare contractors to 
     monitor quality of care; and providers of services and renal 
     dialysis facilities. The advisory panel is required to 
     terminate December 31, 2008. Appropriations are authorized 
     from the Medicare trust funds in the amount of $5 million in 
     FY 2006 to conduct this demonstration.
       1-Year Moratorium on Therapy Caps; Provisions Relating to 
     Report (Section 624 of the Conference Agreement and Section 
     624 of the House Bill).
     Present Law
       Medicare provides that therapy patients must be under the 
     care of a physician; a plan of treatment must be developed by 
     the physician or therapist; and the plan must be periodically 
     reviewed by the physician.
       BBA 97 established annual payment limits per beneficiary 
     for all outpatient therapy services provided by non-hospital 
     providers. The limits applied to services provided by 
     independent therapists as well as to those provided by 
     comprehensive outpatient rehabilitation facilities (CORFs) 
     and other rehabilitation agencies. There are 2 beneficiary 
     limits. The first is a $1,500 per beneficiary annual cap for 
     all outpatient physical therapy services and speech language 
     pathology services. The second is a $1,500 per beneficiary 
     annual cap for all outpatient occupational therapy services. 
     Beginning in 2002, the amount would increase by the Medicare 
     Economic Index (MEI), rounded to the nearest multiple of $10. 
     The limits did not apply to outpatient services provided by 
     hospitals. BBRA 99 suspended application of the therapy 
     limits in 2000 and 2001. BIPA extended the suspension through 
     2002. The therapy caps became effective in September 2003.
       BBA 97 required the Secretary to report to Congress by 
     January 1, 2001, on recommendations on a revised coverage 
     policy of outpatient physical therapy and occupational 
     therapy services based on a classification of individuals by 
     diagnostic category and prior use of services, in both 
     inpatient and outpatient settings, in place of uniform dollar 
     limitations. BIPA required the Secretary to conduct a study 
     on the implications of eliminating the ``in the room'' 
     supervision requirement for Medicare payment for physical 
     therapy assistants who are supervised by physical therapists 
     and the implications of this requirement on the physical 
     therapy cap. A report on the study was due within 18 months 
     of enactment.
     House Bill
       Application of the therapy caps would be suspended in 2004. 
     The Secretary would be required to submit the reports 
     required by BBA 97 and BIPA by December 31, 2002. The 
     Secretary would be required to request the Institute of 
     Medicine to identify conditions or diseases that should 
     justify conducting an assessment of the need to waive the 
     therapy caps. The Secretary would be required to submit to 
     Congress a preliminary report on the conditions and 
     diseases identified by July 1, 2004. A final report, 
     including recommendations, would be due by October 1, 
     2004.
     Senate Bill
       No provision.
     Conference Agreement
       Application of the therapy caps is suspended as of the date 
     of enactment through calendar year 2005. The implementation 
     of this provision shall not be deemed to have any retroactive 
     impact upon beneficiaries who exceeded their caps prior to 
     the date of enactment. The Secretary is required to submit 
     the reports required by BBA 97 and BIPA by March 31, 2004 
     relating to the alternatives to a single annual dollar cap on 
     outpatient therapy and the utilization patterns for 
     outpatient therapy. The GAO is required to identify 
     conditions or diseases that may justify waiving the 
     application of the therapy caps and report to Congress by 
     October 1, 2004. The report is required to include a 
     recommendation of criteria, with respect to the conditions 
     and diseases, under which a waiver of the therapy caps would 
     apply.
       Waiver of Part B Late Enrollment Penalty for Certain 
     Military Retirees; Special Enrollment Period (Section 625 of 
     the Conference Agreement, Section 627 of the House Bill, and 
     Section 439 of the Senate Bill).
     Present Law
       A late enrollment penalty is required to be imposed on 
     beneficiaries who do not enroll in Medicare part B upon 
     becoming eligible for Medicare.

[[Page H12059]]

     House Bill
       Congress enacted TRICARE for Life, which re-established 
     TRICARE health care coverage as a wraparound to Medicare for 
     military retirees, age 65 and older. To take advantage of the 
     TRICARE for Life program, military retirees must be enrolled 
     in Medicare Part B. There is a late enrollment penalty for 
     military retirees who do not enroll in Medicare Part B upon 
     becoming eligible for Medicare. This provision would waive 
     the late enrollment penalty for military retirees, 65 and 
     older, who enroll(ed) in the TRICARE for Life program from 
     2001-2004.
       The Secretary would also be required to provide a special 
     Part B enrollment period for these military retirees 
     beginning as soon as possible after enactment and ending 
     December 31, 2004. The provision would apply to premiums for 
     months beginning January 2004. The Secretary would be 
     required to rebate premium penalties paid for months on or 
     after January 2004 for which a penalty does not apply as a 
     result of this provision, but for which a penalty was 
     collected.
     Senate Bill
       Beginning January 2005, the provision would waive the late 
     enrollment penalty for certain military retirees who enrolled 
     in Part B during 2002, 2003, 2004 or 2005. A special 
     enrollment period, beginning 1 year after enactment and 
     ending December 31, 2005 would be provided.
     Conference Agreement
       Congress enacted TRICARE for Life, which re-established 
     TRICARE health care coverage as a wraparound to Medicare for 
     military retirees, age 65 and older. To take advantage of the 
     TRICARE for Life program, military retirees must be enrolled 
     in Medicare Part B. The provision waives the late enrollment 
     penalty for military retirees who did not enroll in Medicare 
     Part B upon becoming eligible for Medicare. The waiver 
     applies to the late enrollment penalty for military retirees, 
     65 and over, who enroll(ed) in the TRICARE for Life program 
     from 2001 to 2004.
       The Secretary is required to provide a special Part B 
     enrollment period for these military retirees beginning as 
     soon as possible after enactment and ending December 31, 
     2004. The provision applies to premiums for months beginning 
     January 2004. The Secretary is required to rebate premium 
     penalties paid for months on or after January 2004 for which 
     a penalty does not apply as a result of this provision, but 
     for which a penalty was collected.
       Payments for Services Furnished in Ambulatory Surgical 
     Centers (Section 626 of the Conference Agreement and Section 
     625 of the House Bill).
     Present Law
       Medicare uses a fee schedule to pay for the facility 
     services related to a surgery provided in an ambulatory 
     surgery center (ASC). The associated physician services 
     (surgery and anesthesia) are reimbursed under the physician 
     fee schedule. CMS maintains the list of approved ASC 
     procedures which is required to be updated every 2 years. The 
     Secretary is required to update ASC rates based on a survey 
     of the actual audited costs incurred by a representative 
     sample of ASCs every 5 years beginning no later than January 
     1, 1995. Between revisions, the rates are to be updated 
     annually on a calendar year schedule using the CPI-U. From 
     FY1998 through FY2002, the update was established as the CPI-
     U minus 2.0 percentage points, but not less than zero.
       In June 1998, CMS issued a proposed notice which would have 
     implemented a prospective payment system (PPS) for ASCs. The 
     Balanced Budget Refinement Act of 1999 required that full 
     implementation of the proposed ASC rates be phased in over a 
     3-year period. The Benefits Improvement and Protection Act of 
     2000 (BIPA) delayed implementation of the PPS before January 
     1, 2002. BIPA also required that CMS use 1999 or later cost 
     survey data in the PPS. A final rule implementing the new 
     payment system for ASCs has not yet been issued.
     House Bill
       The reduction in the update would be extended. ASCs would 
     get an increase calculated as the CPI-U minus 2.0 percentage 
     points (but not less than zero) in each of the fiscal years 
     from 2004 through 2008.
     Senate Bill
       No provision.
     Conference Agreement
       In FY2004, starting April 1, 2004, the ASC update will be 
     the CPI-U (estimated as of March 31, 2003 minus 3.0 
     percentage points. In FY2005, the last quarter of calendar 
     year 2005, and each of the calendar years 2006 through 2009 
     the update will be 0%. Upon implementation of the new ASC 
     payment system, the Secretary will no longer be required to 
     update ASC rates based on a survey of the actual audited 
     costs incurred by a representative sample of ASCs every 5 
     years. Subject to GAO's recommendations (discussed 
     subsequently), the Secretary will implement a revised payment 
     system for surgical services furnished in an ASC. This 
     payment system will be designed to be budget neutral in the 
     year it is implemented; the amount of aggregate expenditures 
     for such services under the new system will be the same as 
     would have occurred under the old system. The new system will 
     be implemented so that it is first effective on or after 
     January 1, 2006 and not later than January 1, 2008. There 
     will be no administrative or judicial review of the ASC 
     classification system, relative weights, payment amounts and 
     any geographic adjustment factor. GAO will conduct a 
     comparative study of the relative costs of procedures 
     furnished in ASCs to those furnished in hospital outpatient 
     departments under OPPS. The study will examine the accuracy 
     of the ambulatory payment categories with respect to the 
     procedures furnished in the ASCs. GAO will submit 
     recommendations and consider ASC data with respect to (1) the 
     appropriateness of using groups and relative weights 
     established for the outpatient hospital PPS as the basis of 
     the new ASC payment system; (2) if such weights are 
     appropriate, whether the ASC payments should be based on a 
     uniform percentage of such weights, whether the percentages 
     should vary, or whether the weights should be revised for 
     certain procedures or types of services; and (3) the 
     appropriateness of a geographic adjustment in the ASC payment 
     system and if appropriate, the labor and non-labor shares of 
     such payment.
       Payment for Certain Shoes and Inserts under the Fee 
     Schedule for Orthotics and Prosthetics (Section 627 of the 
     Conference Agreement, and Section 626 of the House Bill).
     Present Law
       Subject to specified limits and under certain 
     circumstances, Medicare will pay for extra-depth shoes with 
     inserts or custom molded shoes with inserts for an individual 
     with severe diabetic foot disease. Coverage is limited to one 
     of the following within a calendar year: (1) one pair of 
     custom-molded shoes (including inserts provided with such 
     shoes) and two additional pairs of inserts, or (2) one pair 
     of extra-depth shoes (not including inserts provided with 
     such shoes) and three pairs of inserts. An individual may 
     substitute modifications of custom-molded or extra-depth 
     shoes instead of obtaining one pair of inserts, other than 
     the initial pair of inserts. Footwear must be fitted and 
     furnished by a podiatrist or other qualified individual such 
     as a pedorthist, orthotist, or prosthetist. The certifying 
     physician may not furnish the therapeutic shoe unless the 
     physician is the only qualified individual in the area.
       Payment is made on a reasonable charge basis, subject to 
     upper limits established by the Secretary. These limits are 
     based on 1988 amounts that were set forth in Section 1833(o) 
     of the Act and then adjusted by the same percentage increases 
     allowed for DME fees except that if the updated limit is not 
     a multiple of $1, it is rounded to the nearest multiple of 
     $1. The Secretary or a carrier may establish lower payment 
     limits than established by statute if shoes and inserts of an 
     appropriate quality are readily available at lower amounts.
       Although updates in payment for diabetic shoes are related 
     to that used to increase the DME fee schedule, the shoes are 
     not subject to DME coverage rules or the DME fee schedule. In 
     addition, diabetic shoes are neither considered DME nor 
     orthotics, but a separate category of coverage under Medicare 
     Part B.
     House Bill
       Payment for diabetic shoes would be limited by the amount 
     that would be paid if they were considered to be a prosthetic 
     or orthotic device. The Secretary would be able to establish 
     lower payment limits than these amounts if shoes and inserts 
     of an appropriate quality are readily available at lower 
     amounts. The Secretary would be required to establish a 
     payment amount for an individual substituting modifications 
     to the covered shoe that would assure that there is no net 
     increase in Medicare expenditures. The provision would apply 
     to items furnished on or after January 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       Payment for diabetic shoes is limited under the conference 
     agreement by the amount that would be paid if they were 
     considered to be a prosthetic or orthotic device. The 
     Secretary may establish lower payment limits than these 
     amount if shoes and inserts of an appropriate quality are 
     readily available at lower amounts. The Secretary is required 
     to establish a payment amount for an individual substituting 
     modifications to the covered shoe that would assure that 
     there is no net increase in Medicare expenditures. The 
     provision applies to items furnished on or after January 1, 
     2005.
       Payment for Clinical Diagnostic Laboratory Tests (Section 
     628 of the Conference Agreement, Section 431 of Senate Bill).
     Present Law
       Medicare payment for clinical diagnostic laboratory test is 
     made using a fee schedule. The fee schedule is updated on a 
     calendar year basis using the CPI-U. BBA 97 froze the fee 
     schedule from 1998 through 2002. The update for 2003 was 
     equal to the full CPI-U increase. No beneficiary cost-sharing 
     is imposed.
     House Bill
       No provision.
     Senate Bill
       Medicare would pay all clinical laboratories 80% of the 
     applicable fee schedule amount. Hospital-based and physician 
     office and independent laboratories would be able to charge 
     beneficiaries a 20% coinsurance amount. The Medicare Part B 
     deductible would apply to clinical diagnostic laboratory 
     tests furnished across all settings; except for those tests 
     provided by sole community hospitals (see Senate Section 
     427). The provision

[[Page H12060]]

     would apply to tests furnished on or after January 1, 2004.
     Conference Agreement
       The conference agreement does not provide for any updates 
     to the clinical diagnostic laboratory test fee schedule for 
     2004 through 2008.
       Indexing Part B Deductible to Inflation (Section 629 of the 
     Conference Agreement, Section 628 of the House Bill, Section 
     433 of the Senate Bill).
     Present Law
       Under Part B, Medicare generally pays 80 percent of the 
     approved amount for covered services after the beneficiary 
     pays an annual deductible of $100. The Part B deductible has 
     been set at $100 since 1991.
     House Bill
       Starting for January 1, 2004, the Medicare Part B 
     deductible would be increased by the same percentage as the 
     Part B premium increase. Specifically, the annual percentage 
     increase in the monthly actuarial value of benefits payable 
     from the Federal Supplementary Medical Insurance Trust Fund 
     would be used as the update. The amount would be rounded to 
     the nearest dollar. The provision would be effective upon 
     enactment.
     Senate Bill
       The Medicare Part B deductible would be set at $100 through 
     2005 and then increased to $125 in 2006. Effective January 1 
     of subsequent years, the deductible would be increased 
     annually by the percentage change in the CPI-U for the 
     previous year ending in June. The amount would be rounded to 
     the nearest dollar. The provision would be effective upon 
     enactment.
     Conference Agreement
       The Medicare Part B deductible will remain $100 through 
     2004. The deductible will be $110 for 2005, and in subsequent 
     years the deductible will be increased by the same percentage 
     as the Part B premium increase. Specifically, the annual 
     percentage increase in the monthly actuarial value of 
     benefits payable from the Federal Supplementary Medical 
     Insurance Trust Fund will be used as the update. The 
     deductible amount will be rounded to the nearest dollar. The 
     provision is effective upon enactment.
       In 1966, Medicare's $50 Part B deductible equaled about 45 
     percent of Part B charges. Today's $100 deductible equals 
     about three percent of such charges. Indexing the Part B 
     deductible to grow at the same rate as total Part B spending 
     per beneficiary would maintain the deductible at 3 percent of 
     such charges over time.
       An unchanged Part B deductible is a benefit increase over 
     time, as costs of medical care rise. Beneficiaries pay about 
     25 percent of this benefit increase, through increased Part B 
     premiums; taxpayers finance the remaining 75 percent. The 
     Part B deductible has increased only three times since the 
     beginning of Medicare, when it was $50. The deductible has 
     since been increased to $60 in 1973, $75 in 1982, and $100 in 
     1991. About one-half of beneficiaries are insulated from Part 
     B deductibles through Medigap, Medicaid, or employer-
     sponsored supplemental insurance that covers the Part B 
     deductible. The Part B deductible has increased only three 
     times since Medicare began in 1965, when it was $50. It was 
     raised to $60 in 1973, $75 in 1982, and $100 in 1991.
       5-year Authorization of Reimbursement for All Medicare Part 
     B Services Furnished by Certain Indian Hospitals and Clinics 
     (Section 630 of the Conference Agreement and Section 450C of 
     the Senate Bill).
     Present Law
       Medicare covers specified Part B services provided by a 
     hospital or ambulatory care clinic (whether provider-based or 
     freestanding) that is operated by the Indian Health Service, 
     by an Indian tribe, or by a tribal organization. These 
     services include physicians' services, health practitioners 
     (physician assistant, nurse practitioner, or clinical nurse 
     specialist; certified registered nurse anesthetist; certified 
     nurse-midwife; clinical social worker; clinical psychologist; 
     and a registered dietitian or nutrition professional) and 
     outpatient physical therapy services provided by a physical 
     or occupational therapists.
     House Bill
       No provision.
     Senate Bill
       The provision would expand covered Medicare Part B items 
     and services provided in hospitals or ambulatory care clinics 
     (whether provider-based or freestanding) that are operated by 
     the Indian Health Service or by an Indian tribe or tribal 
     organization. All covered Part B items and services would be 
     paid when provided in a hospital or ambulatory care clinic 
     operated by the Indian Health Service or by an Indian tribe 
     or tribal organization. The provision would apply to items 
     and services furnished on or after October 1, 2004.
     Conference Agreement
       The conference agreement provides a 5-year expansion of the 
     items and services covered under Medicare Part B when 
     furnished in Indian hospitals and ambulatory care clinics. 
     The conference agreement applies to items and services 
     furnished on or after January 1, 2005.
       Conforming Changes Regarding Federally Qualified Health 
     Centers (Section 420 of the Senate Bill).
     Present Law
       Medicare pays federally qualified health centers (FQHCs) 
     for their services on a reasonable cost basis.
     House Bill
       No provision.
     Senate Bill
       Medicare would exclude the costs incurred by a FQHC for 
     providing services and receiving payments through a contract 
     with an eligible entity operating a Medicare prescription 
     drug plan. The provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Reimbursement for Total Body Orthotic Management for 
     Certain Nursing Home Patients (Section 450B of the Senate 
     Bill).
     Present Law
       Orthotics are rigid devices, often called braces, which are 
     applied to the outside of the body as a means of support for 
     a weak or deformed body member or restricting or eliminating 
     motion in a diseased or injured part of the body. They are 
     categorized into one of three groups of devices: custom 
     fitted, which require alterations to a prefabricated product; 
     custom fabricated, which are made for a specific patient from 
     his/her individual measurements; and molded to patient model, 
     which are created from a cast of the patient's body part. 
     Examples of orthotics include spinal body jackets, hip 
     abductors, and knee braces. Add-ons, such as straps and 
     linings, are billed separately. Suppliers of orthotics 
     include certified orthotists, medical equipment companies, 
     and physicians' offices.
       Orthotics (e.g., leg, arm, back, and neck braces) are 
     covered Part B benefits when furnished in an institutional 
     setting, such as in a hospital or skilled nurses facility, 
     while durable medical equipment (DME) is not covered in those 
     settings. Medicare considers a brace as an orthotic device 
     when it can be used independently of DME. On the other hand, 
     if a brace must be used in conjunction with, or is an 
     accessory of, a DME item, then the brace is considered an 
     item of DME. Orthotic devices include braces that are part of 
     a bracing system even if the system depends on attachment to 
     an external structure or frame.
       At one point, the Centers for Medicare and Medicaid (CMS) 
     in HCFA Ruling, No. 96-1, declared that bracing systems 
     should be characterized as DME rather than orthotics. That 
     ruling was deemed invalid because it made a substantive 
     change in Medicare coverage rules and was not properly 
     promulgated. Although the braces in a bracing system are 
     attached to an external frame, they perform the functions of 
     braces and the external frame is assistive in nature rather 
     than determinative of the system's classification. Since the 
     patients who need bracing systems typically are cared for in 
     the nursing home environment, the classification of the 
     bracing systems is crucial because orthotics are covered when 
     furnished to nursing home patient, while DME is not. However, 
     under the Benefits Improvement and Protection Act of 2000 
     (BIPA) (PubLNo 106-554), no payment may be made for 
     prosthetics and certain custom-fabricated orthotics unless 
     they are furnished by a qualified practitioner and fabricated 
     by a qualified practitioner or a qualified supplier at an 
     approved facility. Affected custom-fabricated orthotics are 
     items requiring education, training, and experience to 
     custom-fabricate and that are on a list to be published by 
     the Secretary.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to issue product codes that 
     qualified practitioners and suppliers may used to receive 
     Medicare reimbursement for qualified total body orthotic 
     management devices no later than 60 days from enactment. 
     These medically prescribed devices would consist of custom 
     fitted individual braces with adjustable points at the hip, 
     knee, ankle, elbow and wrists when the braces are attached to 
     a frame that is integral to the device and the frame serves 
     no purpose without the braces. The device would be designed 
     to improve function, retard the progression of 
     musculoskeletal deformity or restrict, eliminate, or assist 
     in the functioning of the upper or lower extremities for a 
     beneficiary who is in the full time care of a skilled nursing 
     facility who requires such care for medical reasons. The 
     provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Medicare Coverage of Self Injected Biologicals (Section 
     450E of the Senate Bill).
       Although Medicare does not currently provide an outpatient 
     prescription drug benefit, coverage of certain outpatient 
     drugs and biologicals is specifically authorized by statute. 
     For example, under Medicare Part B, outpatient prescription 
     drugs and biologicals are covered if they are usually not 
     self-administered and are provided incident to a physician's 
     services. Generally, Medicare will cover an outpatient drug 
     as usually self-administered if it is delivered by 
     intramuscular injection, but not if it is injected 
     subcutaneously.
     House Bill
       No provision.
     Senate Bill
       From January 1, 2004 and before January 1, 2006, Medicare 
     would cover self-injected

[[Page H12061]]

     biologicals that are approved by the Food and Drug 
     Administration and that are prescribed as complete 
     replacements for drugs or biologicals that are currently 
     covered in physicians' offices or as hospital services 
     provided to outpatients that are usually self-administered 
     and provided incident to a physician's services. Medicare 
     would cover self-injected drugs that are used to treat 
     multiple sclerosis. The provision would apply to drugs and 
     biologicals furnished on or after January 1, 2004 and 
     before January 1, 2006.
     Conference Agreement
       No provision.
       Requiring the Internal Revenue Service to Deposit 
     Installment Agreement and Other Fees in the Treasury as 
     Miscellaneous Receipts (Section 450G of the Senate Bill).
     Present Law
       The Secretary of the Treasury was granted the authority by 
     Senate Section 3 of the Administrative Provisions of the 
     Internal Revenue Service of Public Law 103-286, the Treasury, 
     Postal Service and General Government Appropriations Act of 
     1995 to establish new fees (if the fee is authorized by 
     another law) or raise fees for services provided by the 
     Internal Revenue Service to supplement appropriations made 
     available to the Internal Revenue Service. The fees must be 
     based on the costs of providing the specific services (to the 
     persons paying the fees), and the Secretary must report 
     quarterly to the Congress on the collection of such fees and 
     how they are spent.
     House Bill
       No provision.
     Senate Bill
       The Secretary of the Treasury must deposit any fees 
     collected under the authority provided by Senate Section 3 of 
     the Administrative Provisions of the Internal Revenue Service 
     of Public Law 103-286, the Treasury, Postal Service and 
     General Government Appropriations Act of 1995 into the 
     Treasury as miscellaneous receipts. The fees collected are 
     only available to the Internal Revenue Service if authority 
     is provided in advance in an appropriations Act. The 
     provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Medicare Coverage of Kidney Disease Education Services 
     (Section 456 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       Kidney disease education services would be covered under 
     Medicare. The services covered would be those: furnished to 
     an individual with kidney disease who will require dialysis 
     or a kidney transplant; furnished upon the referral of the 
     physician managing the individual's kidney condition; and 
     designed to provide comprehensive information regarding the 
     management of comorbidities, the prevention of uremic 
     complications, and each option for renal replacement therapy 
     (including peritoneal diaylsis, hemodialysis and 
     transplantation) and to ensure that the individual has the 
     opportunity to actively participate in the choice of therapy. 
     Kidney disease education services would be paid using the 
     physician fee schedule on an assignment-related basis (thus 
     prohibiting balance billing) outside the ESRD composite rate.
       The Secretary would be required to ensure (and to monitor 
     implementation to ensure) that each beneficiary who is 
     entitled to kidney disease education services under Medicare 
     receives such services in a timely manner that ensures that 
     the beneficiary receives the maximum benefit of the services.
       The Secretary would be required to report to Congress 
     annually on the number of Medicare beneficiaries who are 
     entitled to these education services and who received these 
     services. In addition, the report would include any 
     recommendations for legislative and administrative action as 
     the Secretary determines appropriate. The first report would 
     be due April 1, 2004. The provision would apply to services 
     furnished on or after January 1, 2004.
     Conference Agreement
       No provision.

  Subtitle D--Additional Demonstrations, Studies and Other Provisions

       Demonstration Project for Coverage of Certain Prescription 
     Drugs and Biologics (Section 641 of the Conference Agreement 
     and Section 631 of the House Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to conduct a 2-year 
     demonstration project in 3 states covering more than 10,000 
     patients under Part B of the Medicare program that would pay 
     for drugs and biologicals that are prescribed as replacements 
     for existing covered drugs that are furnished incident to a 
     physician's professional service which are not usually self-
     administered including oral anticancer chemotherapeutic 
     agents. The project would not extend beyond December 31, 2005 
     and would not cost more than $100 million. The Secretary 
     would be required to submit an evaluation to Congress 
     concerning patient access and outcomes as well as the 
     project's cost effectiveness. The Secretary would also be 
     required to examine any cost savings attributed to reduced 
     physicians' services and hospital outpatient department 
     services for the administration of the biological. The 
     demonstration project would begin 90 days from enactment 
     and would end no later than December 31, 2005.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to conduct 
     a 2-year demonstration project in 6 states covering more than 
     50,000 patients under Medicare Part B that pays for drugs and 
     biologics that are prescribed as replacements for existing 
     covered drugs that are furnished incident to a physician's 
     professional service which are not usually self-administered, 
     including oral anticancer chemotherapeutic agents. The 
     project is required to provide for cost-sharing applicable 
     with respect to the drugs or biologics in the same manner as 
     the cost-sharing applicable under part D for standard 
     prescription drug coverage. The project is not permitted to 
     cost more than $500 million. No less than 40 percent of the 
     funding shall be for oral cancer. The Secretary is required 
     to submit an evaluation to Congress concerning patient access 
     and outcomes as well as the project's cost effectiveness. The 
     Secretary is also required to examine any cost savings 
     attributed to reduced physicians' services and hospital 
     outpatient department services for the administration of the 
     biological. The demonstration project is required to begin 90 
     days following enactment and end no later than December 31, 
     2005.
       The managers intend that this provision of the 
     demonstration will provide immediate Part B coverage for all 
     immunomodulating drugs and biologicals used when treating 
     multiple sclerosis. Coverage will be extended without regard 
     to whether there is medical or other supervision with respect 
     to the administration of such drug or biological, and include 
     the biological administered via intramuscular injection 
     currently covered under Section 1861(s)(2)(A) or (B) of the 
     Social Security Act.
       Extension of Coverage of Intravenous Immune Globulin (IVIG) 
     for the Treatment of Primary Immune Deficiency Diseases in 
     the Home (Section 642 of the Conference Agreement and Section 
     629 of the House Bill).
     Present Law
       Intravenous immune globulin (IVIG) is a blood product 
     prepared from the pooled plasma of donors. It has been used 
     to treat a variety of autoimmune diseases, including 
     mucocutaneous blistering diseases. It has fewer side effects 
     than steroids or immunosuppressive agents. Effective October 
     1, 2002, IVIG is covered for the treatment of certain 
     conditions including pemphigus vulgaris, pemphigus foliaceus, 
     and epidermolysis bullosa acquisita for the following 
     specific patient subpopulations: (1) patients who have failed 
     conventional therapy; (2) patients in whom conventional 
     therapy is otherwise contraindicated; and (3) patients with 
     rapidly progressive disease in whom a clinical response could 
     not be affected quickly enough using conventional agents. 
     IVIG for the treatment of autoimmune muco-
     cutaneous blistering diseases must be used only for short 
     term therapy and not as a maintenance therapy. Contractors 
     have discretion to define what constitutes a failure of 
     conventional therapy and what constitutes short-term therapy.
     House Bill
       Intravenous immune globulin for the treatment of primary 
     immune deficiency diseases in the home would be included as a 
     covered medical service. Intravenous immune globulin would be 
     defined as an approved pooled plasma derivative for the 
     treatment in the patient's home of a patient with a diagnosed 
     primary immune deficiency disease, if a physician determines 
     administration of the derivative in the patient's home is 
     medically appropriate. This would not include items or 
     services related to the administration of the derivative. 
     Intravenous immune globulin would be paid at 80 percent of 
     the lesser of actual charge or the payment amount. This 
     provision would apply to items furnished on or after January 
     1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement includes intravenous immune 
     globulin for the treatment in the home of primary immune 
     deficiency diseases as a covered medical service under 
     Medicare. Intravenous immune globulin is defined as an 
     approved pooled plasma derivative for the treatment, in the 
     patient's home, of a patient with a diagnosed primary immune 
     deficiency disease, if a physician determines administration 
     of the derivative in the patient's home is medically 
     appropriate. Items or services related to the administration 
     of the derivative are not included in the definition. 
     Intravenous immune globulin is to be paid at 80 percent of 
     the lesser of actual charge or the payment amount. This 
     provision applies to items furnished on or after January 1, 
     2004.
       MedPAC Study of Coverage of Surgical First Assisting 
     Services of Certified Registered Nurse First Assistants 
     (Section 643 of the Conference Agreement and Section 450I of 
     the Senate Bill).
     Present Law
       Surgical first assisting services are not separately 
     covered services of Medicare and certified registered nurse 
     first assistants are

[[Page H12062]]

     not able to bill the Medicare program directly for their 
     services. Their services are paid by surgeons who are paid 
     under the Medicare physician fee schedule.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to conduct a 3-year 
     demonstration in 5 states that would pay for ``surgical first 
     assisting services'' to Medicare beneficiaries furnished by a 
     certified registered nurse first assistant. These services 
     would consist of assisting a physician with surgery and 
     related preoperative, intraoperative, and postoperative care 
     furnished by a certified registered nurse first assistant. 
     Payment would be 80% of the lesser of: the actual charge for 
     the services or 85% of the physician fee schedule amount. 
     Aggregate payments for the demonstration would be required 
     not to exceed the amount that would have been paid if this 
     demonstration project had not been implemented. The 
     Secretary would be required to report to Congress on the 
     evaluation of patient outcomes and on the cost-
     effectiveness of the demonstration by January 1, 2007. The 
     demonstration is required to begin 90 days after 
     enactment.
     Conference Agreement
       The conference agreement requires that MedPAC study the 
     feasibility and advisability of Medicare Part B payment for 
     surgical first assisting services furnished to Medicare 
     beneficiaries by a certified registered nurse first 
     assistant. MedPAC is required to submit the report by January 
     1, 2005 and to include recommendations for legislation or 
     administrative action.
       MedPAC Study of Payment for Cardio-Thoracic Surgeons 
     (Section 644 of the Conference Agreement).
     Present Law
       Cardio-thoracic surgeons are paid under the Medicare 
     physician fee schedule for their services.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the MedPAC to study the 
     practice expense relative values in the Medicare physician 
     fee schedule for the specialty of thoracic surgery to 
     determine whether such values adequately take into account 
     the attendant costs of nurse assistants at surgery. The study 
     is required to be submitted to Congress by January 1, 2005 
     and to include recommendations for legislative or 
     administrative action.
       Study on Coverage of Outpatient Vision Services Furnished 
     by Vision Rehabilitation Professionals Under Part B (Section 
     645 of the Conference Agreement and Section 446 of the Senate 
     Bill).
     Present Law
       Medicare does not cover routine eye care or related 
     services and will not pay for eyeglasses; most contact 
     lenses; eye examinations for the purpose of prescribing, 
     fitting, or changing eyeglasses or contact lenses; and most 
     procedures performed to determine the refractive state of the 
     eyes.
       Medicare pays for prosthetic devices (other than dental) 
     which replace all or part of an internal body organ 
     (including contiguous tissue) when furnished incident to 
     physicians' services or on a physician's order. The law 
     specifically provides coverage for one pair of conventional 
     eyeglasses or contact lenses furnished subsequent to each 
     cataract surgery with insertion of an intraocular lens.
       The Rehabilitation Act of 1973 as amended prohibits 
     discrimination in programs conducted by federal agencies, in 
     programs receiving federal financial assistance, in federal 
     employment and employment practices of federal contractors. 
     The act provides much of the basis for the Americans with 
     Disabilities Act including its standards for determining 
     employment discrimination.
     House Bill
       No provision.
     Senate Bill
       Medicare Part B would cover vision rehabilitation services 
     furnished to a beneficiary who is diagnosed with certain 
     vision impairments. These vision impairments would be vision 
     loss that constitutes a significant limitation of visual 
     capability that cannot be corrected by conventional means and 
     that is manifested by one or more of the following 
     conditions: (1) best corrected visual acuity of less than 20/
     60 or significant central field defect; (2) significant 
     peripheral field defect including homonymous or heteronymous 
     bilateral visual field defect or generalized contraction or 
     constriction of field; (3) reduced peak contrast sensitivity; 
     and (4) other appropriate diagnoses or indications. Covered 
     services would be established by a plan of care developed by 
     a qualified physician or qualified occupational therapist 
     whose plan of care is periodically reviewed by a qualified 
     physician. These services would be provided in an appropriate 
     setting by a qualified physician, qualified occupational 
     therapist, or vision rehabilitation professional under the 
     general supervision of a qualified physician using a plan of 
     care established and reviewed by the qualified physician. A 
     qualified physician would be an ophthalmologist or a doctor 
     of optometry. A vision rehabilitation professional would 
     include an orientation and mobility specialist, a 
     rehabilitation teacher, or a low vision therapist who is 
     appropriately licensed and certified under prevailing state 
     laws with appropriate education and training.
       Medicare would pay for the services under the physician fee 
     schedule. These services would not be paid under the hospital 
     outpatient department prospective payment system. Payment 
     would be made to the qualified physician or the facility 
     (such as a rehabilitation agency, a clinic, or other 
     facility) through which services are furnished under the plan 
     care if there is a contractual arrangement between the vision 
     rehabilitation specialist and the facility where the facility 
     submits the bill for the services. Medicare's coverage of 
     vision rehabilitation services would not be taken into 
     account for any purpose under the Rehabilitation Act of 1973.
       The Secretary would be required to publish a interim final 
     rule in the Federal Register no later than 180 days from the 
     date of enactment; the regulation, although effective 
     immediately, would be subject to at least a 60-day public 
     comment period. The Secretary would be required to consult 
     with qualified professional and consumer groups including the 
     National Vision Rehabilitation Cooperative, the Association 
     for Education and Rehabilitation of the Blind and Visually 
     Impaired, the Academy for Certification of Vision 
     Rehabilitation and Education Professionals, the American 
     Academy of Ophthalmology, the American Occupational 
     Therapy Association, and the American Optometric 
     Association.
     Conference Agreement
       The conference agreement requires the Secretary to study 
     the feasibility and advisability of: (1) providing for 
     payment for vision rehabilitation services furnished by 
     vision rehabilitation professionals, and (2) implementing a 
     demonstration project for vision care PPO networks to furnish 
     and pay for conventional eyeglasses subsequent to each 
     cataract surgery with the insertion of intra ocular lens. The 
     Secretary is urged to examine any licensure or certification 
     difficulties faced by vision rehabilitation professionals. 
     The report is due to Congress by January 1, 2005 and is to 
     include recommendations for legislation or administrative 
     action. In reviewing reimbursement for vision rehabilitation 
     professionals, the report shall examine payments through 
     qualified physicians to vision rehabilitation professionals 
     for either directly supervised services or services delivered 
     under generalized supervision.
       Medicare Health Care Quality Demonstration Programs 
     (Section 646 of the Conference Agreement and Section 441 of 
     the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 5-year 
     demonstration program that examines the health delivery 
     factors which encourage the delivery of improved patient care 
     quality including: (1) incentives to improve the safety of 
     care provided to beneficiaries; (2) appropriate use of best 
     practice guidelines; (3) reduction of scientific uncertainty 
     through examination of service variation and outcomes 
     measurement; (4) encouragement of shared decision making 
     between providers and patients; (5) the provision of 
     incentives to improve safety, quality, and efficiency; (6) 
     appropriate use of culturally and ethnically sensitive care; 
     and (7) related financial effects associated with these 
     changes. The participants would include appropriate health 
     care groups including physician groups, integrated health 
     care delivery systems, or regional coalitions. These health 
     care groups may implement alternative payment systems that 
     encourage the delivery of high quality care and streamline 
     documentation and reporting requirements. They may also offer 
     benefit packages distinct from those that are currently 
     available under Medicare Parts A and B and under the Part C 
     Medicare Advantage plan. To qualify for this demonstration, 
     health care groups must meet Secretary-established quality 
     standards; implement quality improvement mechanisms that 
     integrate community-based support, primary care, and referral 
     care; encourage patient participation in decisions; among 
     other requirements.
       The Secretary may waive Medicare and Peer Review and 
     Administrative Simplification (Title XI) requirements as 
     necessary and may direct agencies within Health and Human 
     Services (HHS) to evaluate, analyze, support, and assist in 
     the demonstration project. The demonstration program would be 
     subject to budget-neutrality requirements. The Secretary 
     would not be permitted to implement the program before 
     October 1, 2004.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a 5-year demonstration program that examines the 
     health delivery factors which encourage the delivery of 
     improved patient care quality including: (1) incentives to 
     improve the safety of care provided to beneficiaries; (2) 
     appropriate use of best practice guidelines; (3) reduction of 
     scientific uncertainty through examination of service 
     variation and outcomes measurement; (4) encouragement of 
     shared decision making between providers and patients; (5) 
     the provision of incentives to improve safety, quality, and 
     efficiency; (6) appropriate use of culturally and ethnically 
     sensitive care; and (7) related financial effects associated 
     with these changes. Health care groups

[[Page H12063]]

     that may participate are physician groups, integrated health 
     care delivery systems, and regional coalitions. These health 
     care groups may implement alternative payment systems that 
     encourage the delivery of high quality care and streamline 
     documentation and reporting requirements. They may also offer 
     benefit packages distinct from those that are currently 
     available under Medicare Parts A and B and under the Part C 
     Medicare Advantage plan.
       To qualify for this demonstration, health care groups must 
     meet Secretary-established quality standards; implement 
     quality improvement mechanisms that integrate community-based 
     support, primary care, and referral care; encourage patient 
     participation in decisions; among other requirements. The 
     Secretary may waive Medicare and Peer Review and 
     Administrative Simplification (Title XI) requirements as 
     necessary and may direct agencies within Health and Human 
     Services (HHS) to evaluate, analyze, support, and assist in 
     the demonstration project. The demonstration program is 
     subject to budget-neutrality requirements.
       GAO Study on Coverage of Marriage and Family Therapist 
     Services and Mental Health Counselor Services Under Part B of 
     the Medicare Program (Section 647 of the Conference Agreement 
     and Section 448 of the Senate Bill).
     Present Law
       Medicare's Part B payment for outpatient mental health 
     services is limited to 62.5% of covered expenses incurred in 
     any calendar year in connection with the treatment of a 
     mental, psychoneurotic, or personality disorder of an 
     individual who is not an inpatient of a hospital at the time 
     such expenses are incurred. The term ``treatment'' does not 
     include brief office visits for the sole purpose of 
     monitoring or changing drug prescriptions used in the 
     treatment of such disorders or partial hospitalization 
     services that are not directly provided by the physician. 
     This 62.5% payment limitation applies to outpatient mental 
     health treatments furnished by physicians, comprehensive 
     outpatient rehabilitation facilities (CORFs), physician 
     assistants, clinical psychologists, and clinical social 
     workers. Items and supplies furnished by physicians or other 
     mental health practitioners in connection with treatment are 
     also subject to the limitation. The limitation is applied 
     only to therapeutic services (e.g., psychotherapy) and to 
     follow-up diagnostic services performed to evaluate the 
     progress of a course of treatment. Charges for initial 
     diagnostic services (i.e., psychiatric testing and evaluation 
     used to diagnose the patient's illness) are not subject to 
     this limitation. The 62.5% limitation is subject to Part B 
     deductible and coinsurance requirements.
       Medicare covers outpatient hospital partial hospitalization 
     services connected with the treatment of mental illness. 
     Partial hospitalization services are covered only if the 
     individual would otherwise require inpatient psychiatric 
     care. The 62.5% payment limitation does not apply to partial 
     hospitalization services, except for services that are 
     directly provided by a physician. Under this benefit, 
     Medicare covers: (A) individual and group therapy with 
     physicians or psychologists (or other authorized mental 
     health professionals); (B) occupational therapy; (C) services 
     of social workers, trained psychiatric nurses, and other 
     staff trained to work with psychiatric patients; (D) drugs 
     and biologicals furnished for therapeutic purposes that 
     cannot be self-administered; (E) individualized activity 
     therapies that are not primarily recreational or 
     diversionary; (F) family counseling (for treatment of the 
     patient's condition); (G) patient training and education; and 
     (H) diagnostic services. Partial hospitalization services are 
     also covered in community mental health centers. Family 
     counseling services with members of the household are covered 
     only where the primary purpose of such counseling is the 
     treatment of the patient's condition.
     House Bill
       No provision.
     Senate Bill
       Medicare would cover marriage and family therapist services 
     and mental health counselor services for the diagnosis and 
     treatment of mental illness. The therapists would be legally 
     authorized to provide such services under State law and would 
     provide services that would be otherwise covered if furnished 
     by a physician or furnished incident to a physician's 
     professional service. No facility or other provider would 
     charge or be paid for these services. The amount of payment 
     would be 80% of the lesser of the actual charge or 75% of the 
     amount paid to a psychologist. These services would be 
     subject to assignment. These services would be excluded from 
     the skilled nursing facility prospective payment system. 
     Rural health clinics, federally qualified health centers, 
     hospice programs would be authorized to provide such 
     services. Marriage and family therapists would be authorized 
     to develop post hospital discharge plans for patients. The 
     provisions would apply to services furnished on or after 
     January 1, 2004.
     Conference Agreement
       The conference agreement requires the GAO to study the 
     feasibility and advisability of providing Medicare Part B 
     coverage of marriage and family therapist services and mental 
     health counselors and of the appropriate settings and payment 
     methodologies of such services. Recommendations for 
     legislation or administrative actions are also required to be 
     included in the study. The report is required to be submitted 
     to Congress no later than January 1, 2005.
       MedPAC Study on Direct Access to Physical Therapy Services 
     (Section 648 of the Conference Agreement, Section 624 of the 
     House bill and Section 449 of the Senate bill).
     Present Law
       No provision.
     House Bill
       GAO would be required to conduct a study on access to 
     physical therapist services in States authorizing access to 
     such services without a physician referral compared to States 
     that require such a physician referral. The study would: (1) 
     examine the use of and referral patterns for physical 
     therapist services for patients age 50 and older in states 
     that authorize such services without a physician referral and 
     in states that require such a referral; (2) examine the use 
     of and referral patterns for physical therapist services for 
     patients who are Medicare beneficiaries; (3) examine the 
     physical therapist services within the facilities of the 
     Department of Defense; and (4) analyze the potential impact 
     on beneficiaries and on Medicare expenditures of eliminating 
     the need for a physician referral for physical therapist 
     services under the Medicare program. GAO would be required to 
     submit a report to Congress on the study within one year of 
     enactment.
     Senate Bill
       The Secretary would be required to establish a 3-year 
     demonstration project in at least 5 states to examine the 
     costs and patient satisfaction associated with allowing 
     Medicare fee-for-service beneficiaries direct access to 
     outpatient physical therapy services and comprehensive 
     outpatient rehabilitation facility (CORF) services. In this 
     instance, the beneficiary would not be required to be under 
     the care of or referred by a physician to receive physical 
     therapy services. Also, a physician or qualified physical 
     therapist would be permitted to certify, recertify, establish 
     and periodically review the beneficiary's plan of care. To 
     the extent possible, the demonstration project would be 
     conducted on a statewide basis. The project would be required 
     to be established not later than 1 year after the date of 
     enactment. The Secretary would be allowed to terminate the 
     operation of a project at a site if, based on actual data, 
     Medicare expenditures are greater than they otherwise would 
     be without implementation of the demonstration project. The 
     Secretary would be able to waive Medicare requirements as 
     necessary and appropriate. The Secretary would be required to 
     conduct interim and final evaluations of the project which 
     would be submitted to the Congressional committees of 
     jurisdiction no later than the end of the second year of 
     operation and no later than 180 days after the end of the 
     project. This provision would be effective upon enactment.
     Conference Agreement
       The conference agreement requires MedPAC to study the 
     feasibility and advisability of allowing Medicare 
     beneficiaries in fee-for-service direct access to outpatient 
     physical therapy services and those physical therapy services 
     that are furnished as comprehensive rehabilitation facility 
     services. For the purposes of the study, direct access is 
     defined as access to physical therapy services without the 
     requirement that beneficiaries be under the care of, or 
     referred by, a physician. Further, the services provided are 
     not required to be under the supervision of a physician. 
     Finally, either a physician or a qualified physical therapist 
     could satisfy any requirement for certification, 
     recertification and establishment and review of a plan of 
     care. This study, together with recommendations for 
     legislation or administrative actions, must be submitted to 
     Congress no later than January 1, 2005.
       Demonstration Project for Consumer Directed Chronic 
     Outpatient Services (Section 648 of the Conference Report and 
     Section 736 of the House bill)
     Present Law
       No provision. Medicare coverage requires that a beneficiary 
     need medically necessary care. In general, Medicare pays the 
     provider that delivers skilled health care services.
     House Bill
       The Secretary would be required to establish no fewer than 
     3 demonstration projects that evaluate methods to improve the 
     quality of care provided to Medicare beneficiaries with 
     chronic conditions and that reduce expenditures that would 
     otherwise be made on their behalf by Medicare. The methods 
     would be required to include permitting beneficiaries to 
     direct their own health care needs and services. In designing 
     the demonstrations, the Secretary would be required to 
     evaluate practices used by group health plans and practices 
     under State Medicaid programs that permit patients to self-
     direct the provision of personal care services and to 
     determine the appropriate scope of personal care services 
     that would apply under the demonstration projects.
       The Secretary would be required to establish the 
     demonstrations within 2 years of enactment. Demonstrations 
     would be required to be located in an urban area, a rural 
     area, and an area that has a Medicare population with a 
     diabetes rate that significantly exceeds the national average 
     rate. The Secretary would be required to evaluate the 
     clinical and cost effectiveness of the demonstrations. 
     Reports to Congress would be required biannually beginning 2 
     years after the demonstrations begin.

[[Page H12064]]

     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish no fewer than 3 demonstration projects that 
     evaluate methods to improve the quality of care provided to 
     Medicare beneficiaries with chronic conditions and that 
     reduce expenditures that would otherwise be made on their 
     behalf by Medicare. The methods are required to include 
     permitting beneficiaries to direct their own health care 
     needs and services. In designing the demonstrations, the 
     Secretary is required to evaluate practices used by group 
     health plans and practices under State Medicaid programs that 
     permit patients to self-direct the provision of personal care 
     services and to determine the appropriate scope of personal 
     care services that apply under the demonstration projects.
       The Secretary is required to establish the demonstrations 
     within 2 years of enactment. Demonstrations are required to 
     be located in an urban area, a rural area, and an area that 
     has a Medicare population with a diabetes rate that 
     significantly exceeds the national average rate. The 
     Secretary is required to evaluate the clinical and cost 
     effectiveness of the demonstrations. Reports to Congress are 
     required biannually beginning 2 years after the 
     demonstrations begin.
       Medicare Care Management Performance Demonstration (Section 
     649 of the Conference Report and Section 736 of the House 
     Bill).
     Current Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 3-year 
     demonstration program to promote continuity of care, help 
     stabilize medical conditions, prevent or minimize acute 
     exacerbations of chronic conditions, and reduce adverse 
     health outcomes before October 1, 2004. Six sites would be 
     designated for the demonstration, 3 in urban areas and at 
     least 1 in a rural area. One site would be required to be 
     located in Arkansas. Any Medicare beneficiary enrolled in 
     part B who has at least 4 complex medical conditions and is 
     unable to manage their own care or has a functional 
     limitation and resides in a demonstration area may 
     participate in the program if the beneficiary identifies a 
     principal care physician who agrees to manage the complex 
     clinical care of the beneficiary under the demonstration.
       Each principal care physician who agrees to manage the 
     complex clinical care of a beneficiary eligible to 
     participate would be required to agree to: (1) serve as the 
     primary contact of the beneficiary in accessing items and 
     services under Medicare; (2) maintain medical information 
     related to care and services furnished by other health care 
     providers 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 beneficiary and 
     the use of evidence-based guidelines; (4) promote self-care 
     and family care giver involvement where appropriate; (5) have 
     appropriate staffing arrangements to conduct patient self-
     management and other care coordination activities as 
     specified by the Secretary; refer the beneficiary to 
     community service 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.
       The Secretary would pay each principal care physician a 
     monthly complex care management fee developed by the 
     Secretary. The fee would be the full payment for all the 
     functions performed by the principal care physician 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. 
     Aggregate payments by Medicare could not exceed the amount 
     that would otherwise have been paid if the demonstration 
     program had not been implemented. The Secretary would be 
     required to report to Congress on the demonstration program 6 
     months after its completion.
     Conference Agreement
       The Secretary would be required to establish a 3-year 
     demonstration program to promote continuity of care, help 
     stabilize medical conditions, prevent or minimize acute 
     exacerbations of chronic conditions, and reduce adverse 
     health outcomes. Four sites would be designated for the 
     demonstration: with at least two in urban areas and one in a 
     rural area. One of the demonstration sites would be in a 
     state with a medical school with a geriatrics department that 
     manages rural outreach sites and is capable of managing 
     patients with multiple chronic conditions, one of which is 
     dementia. Any Medicare beneficiary enrolled in part A and B 
     who has one or more chronic medical conditions specified by 
     the Secretary (one of which may be a cognitive impairment) 
     and is unable to manage their own care or has a functional 
     limitation and resides in a demonstration area may 
     participate in the program if the beneficiary identifies a 
     principal care physician who agrees to manage the complex 
     clinical care of the beneficiary under the demonstration.
       The conferees encourage CMS to work with Agency for 
     Healthcare Research and Quality (AHRQ) to provide grants to 
     assist physicians in carrying out the health information 
     technology aspect of the demonstration. In particular, the 
     grants should focus on issues involving clinical decision 
     support tools, clinical reminders, and improved communication 
     between patients, providers and payors. AHRQ is currently 
     working to provide grant programs in this area.
       Demonstration of Coverage of Chiropractic Services under 
     Medicare (Section 440 of the Senate Bill).
     Present Law
       No specific provision with respect to a demonstration 
     project. Medicare covers limited chiropractic services, 
     specifically manual manipulation for correction of a 
     dislocated or misaligned vertebra or subluxation.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 3-year 
     demonstration program at 6 sites to evaluate the feasibility 
     and desirability of covering additional chiropractic services 
     under Medicare. These projects may not be implemented before 
     October 1, 2004. The chiropractic services included in the 
     demonstration shall include, at a minimum, care for 
     neuromusculoskeletal conditions typical among eligible 
     beneficiaries as well as diagnostic and other services that a 
     chiropractor is legally authorized to perform. An eligible 
     beneficiary participating in the demonstration project, 
     including those enrolled in Medicare +Choice or Medicare 
     Advantage plans, would not be required to receive approval by 
     physician or other practitioner in order to receive 
     chiropractic services under the demonstration project.
       The Secretary would be required to consult with 
     chiropractors, organizations representing chiropractors, 
     beneficiaries and organizations representing beneficiaries in 
     establishing the demonstration projects. Participation by 
     eligible beneficiaries would be on a voluntary basis. The 6 
     sites would be equally split between rural and urban areas; 
     at least one of the sites would be in a health professional 
     shortage area. The Secretary would be required to evaluate 
     the demonstration projects to determine (1) whether the 
     participating beneficiaries used fewer Medicare covered 
     services than those who did not participate; (2) the cost of 
     providing such chiropractic services under Medicare; (3) the 
     quality of care and satisfaction of participating 
     beneficiaries; and (4) other appropriate matters.
       The Secretary would be required to submit a report, 
     including recommendations, to Congress on the evaluation no 
     later than 1 year after the demonstration projects conclude. 
     The Secretary would waive Medicare requirements as necessary. 
     The demonstration program would be subject to a budget-
     neutrality requirement. Appropriations from the Federal 
     Supplementary Insurance Trust Fund are authorized as 
     necessary to conduct this demonstration. The provision would 
     be effective upon enactment.
     Conference Agreement
       The Secretary would be required to establish a 2-year 
     demonstration program at 4 sites to evaluate the feasibility 
     and desirability of covering additional chiropractic services 
     under Medicare. These projects may not be implemented before 
     October 1, 2004. The chiropractic services included in the 
     demonstration shall include, at a minimum, care for 
     neuromusculoskeletal conditions typical among eligible 
     beneficiaries as well as diagnostic and other services that a 
     chiropractor is legally authorized to perform by the State or 
     jurisdiction where treatment occurs. An eligible beneficiary 
     participating in the demonstration project, including those 
     enrolled in Medicare +Choice or Medicare Advantage plans, 
     would not be required to receive approval by physician or 
     other practitioner in order to receive chiropractic services 
     under the demonstration project.
       The Secretary would be required to consult with 
     chiropractors, organizations representing chiropractors, 
     beneficiaries and organizations representing beneficiaries in 
     establishing the demonstration projects. Participation by 
     eligible beneficiaries would be on a voluntary basis. The 4 
     sites would be equally split between rural and urban areas; 
     at least one of the sites would be in a health professional 
     shortage area. The Secretary would be required to evaluate 
     the demonstration projects to determine (1) whether the 
     participating beneficiaries used fewer Medicare covered 
     services than those who did not participate; (2) the cost of 
     providing such chiropractic services under Medicare; (3) the 
     quality of care and satisfaction of participating 
     beneficiaries; and (4) other appropriate matters.
       The Secretary would be required to submit a report, 
     including recommendations, to Congress on the evaluation no 
     later than 1 year after the demonstration projects conclude. 
     The Secretary would waive Medicare requirements as necessary. 
     The demonstration program would be subject to a budget-
     neutrality requirement. Appropriations from the Federal 
     Supplementary Insurance Trust Fund are authorized as 
     necessary to conduct this demonstration.
       Demonstration Project to Examine What Weight Loss Weight 
     Management Services

[[Page H12065]]

     Can Cost-Effectively Reach the Same Result as the NIH 
     Diabetes Primary Prevention Trial Study: A 50 Percent 
     Reduction in the Risk for Type 2 Diabetes for Individuals Who 
     Have Impaired Glucose Tolerance and Are Obese (Section 450I 
     of the Senate Bill).
     Present Law
       No provision regarding the demonstration. Medicare covers 
     medical nutrition therapy services for beneficiaries with 
     diabetes or a renal disease who (1) have not received 
     diabetes outpatient self-management training services within 
     a time period to be determined by the Secretary, (2) are not 
     receiving maintenance dialysis, and (3) meet other criteria 
     to be established by the Secretary. Nutrition therapy 
     services are nutritional diagnostic, therapy, and counseling 
     services for the purpose of disease management. The services 
     must be provided by a registered dietitian or nutritional 
     professional pursuant to a referral by a physician. Payment 
     is based on the lower of actual charges or 85% of the 
     physician fee schedule on an assignment-related basis.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a 
     demonstration project that would examine the cost 
     effectiveness and health benefits of providing group weight 
     loss management services for Medicare beneficiaries who are 
     obese and have impaired glucose tolerance. Group weight loss 
     management services are those furnished to beneficiaries who 
     have been diagnosed and referred by a physician for 
     assessment and treatment based on individual needs or a 
     specific program or method that has demonstrated efficacy to 
     produce and maintain weight loss through results published in 
     peer-reviewed scientific journals. The program would be 
     required to provide assessment of current body weight and 
     recording of weight status at each meeting session; provision 
     of a healthy eating plan; provision of an activity plan; 
     provision of a behavior modification plan; and a weekly group 
     support meeting.
       Expenditures would be constrained by 2 limitations: the 
     costs of group weight loss management services could not 
     exceed the annual cost per recipient of the medical 
     nutritional therapy benefit and the total amount of payments 
     made under the demonstration could not exceed $2.5 million 
     for each fiscal year of the project. Medical nutrition 
     therapy services that would be furnished under the 
     demonstration project would be covered under part B of 
     Medicare and payment would be 80% of the lesser of the actual 
     charge for the services or 85% of the applicable physician 
     fee schedule amount. Group weight loss management 
     professionals would be paid by Medicare on an assignment-
     related basis and balance billing would not be permitted.
       The demonstration project would be conducted for 2 years at 
     sites designated by the Secretary. The Secretary would be 
     required to give preference to sites located in rural areas 
     or areas that have a high concentration of Native Americans 
     with type 2 diabetes. The Secretary would be required to 
     submit interim reports on this demonstration project to the 
     Committee on Ways and Means and the Committee on Finance. A 
     final report to both Committees would be due 6 months after 
     the date the demonstration project concludes. The provision 
     would be effective upon enactment.
     Conference Agreement
       No provision.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

       Update in Home Health Services (Section 701 of the 
     Conference Agreement and Section 701 of the House Bill).
     Present Law
       Home health service payments are increased on a federal 
     fiscal year basis that begins in October. The FY 2004 
     statutory update will be the full increase in the market 
     basket index. The prospective payment system provides for 
     outlier payment B payments for extraordinarily costly cases B 
     with the total amount of outlier payment (the outlier pool) 
     not exceeding 5 percent of estimated total home health 
     prospective payments.
     House Bill
       This provision would increase home health agency payments 
     by the home health market basket percentage increase minus 
     0.4 percentage points for 2004 through 2006. The update for 
     subsequent years would be the full market basket percentage 
     increase. The provision would also change the time frame for 
     the update from the federal fiscal year to a calendar year 
     basis. The home health prospective payment rates would not 
     increase for the October 1 through December 31, 2003 period.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement changes the time frame for the 
     home health update from the federal fiscal year to a calendar 
     year basis beginning with 2004. Home health agency payments 
     are increased by the full market basket percentage for the 
     last quarter of 2003 (October, November, and December) and 
     for the first quarter of 2004 (January, February, and March). 
     The update for the remainder of 2004 and for 2005 and 2006 is 
     the home health market basket percentage increase minus 0.8 
     percentage points. The size of the outlier pool for home 
     health prospective payment may not exceed 3 percent of the 
     total payment projected under the payment system beginning 
     January 1, 2004, total payments are not increased to account 
     for the difference.
       Demonstration Project to Clarify the Definition of 
     Homebound (Section 702 of the Conference Agreement, Section 
     704 of the House Bill, and Section 450 of the Senate Bill).
     Present Law
       Home health services are covered only if the Medicare 
     beneficiary is confined to the home, needs skilled nursing 
     care on an intermittent basis or needs physical or 
     occupational therapy or speech-language pathology services, 
     has had a plan of care established that is periodically 
     reviewed by a physician, and is under a physician's care. Any 
     absence of a beneficiary from the home for purposes of 
     receiving health care treatment, including regular absences 
     for participating in therapeutic, psychosocial, or medical 
     treatment in an adult daycare program does not disqualify an 
     individual from being considered confined to the home (or 
     homebound). Further, any other absence of a beneficiary from 
     the home cannot disqualify an individual from being 
     considered homebound if the absence is of infrequent or of 
     relatively short duration.
       Absence from the home to attend a religious service is 
     considered an absence of infrequent or short duration.
     House Bill
       The Secretary would be required to conduct a 2-year 
     demonstration project where beneficiaries with chronic 
     conditions would be deemed to be homebound in order to 
     receive home health services under Medicare. A beneficiary 
     would have to have been certified by a physician to have a 
     permanent and severe condition that will not improve; to 
     permanently need assistance with at least 3 out of the 5 
     activities of daily living (eating, toileting, transferring, 
     bathing, and dressing); to permanently require skilled 
     nursing services (not including medication management); to 
     need either an attendant during the day to monitor and treat 
     the beneficiary's medical condition or daily skilled nursing; 
     and to require technological assistance or the assistance of 
     another person to leave the home.
       The Secretary would be required to select 3 states in which 
     to conduct the demonstration in the northeast, midwest and 
     western regions of the United States. Up to 15,000 
     beneficiaries would be permitted to participate. Data would 
     be required to be collected regarding the quality of care, 
     patient outcomes, and additional costs, if any to Medicare. 
     The demonstration would be required to begin within 6 months 
     of enactment. Within 1 year of completing the demonstration, 
     the Secretary would be required to report to Congress on 
     whether the subject of the demonstration adversely affected 
     the provision of home health services under Medicare or 
     directly caused an unreasonable increase of expenditures 
     under Medicare; specific data showing any increase in 
     expenditures directly attributable to the demonstration 
     project; and specific recommendations to exempt permanently 
     and severely disabled homebound beneficiaries from 
     restrictions on the length, frequency, and purpose of their 
     absences from the home to qualify for home health services 
     without incurring additional unreasonable costs to Medicare. 
     The provision would be effective upon enactment.
     Senate Bill
       The Secretary would be required to conduct a 2-year 
     demonstration project where beneficiaries with chronic 
     conditions would be deemed to be homebound in order to 
     receive home health services under Medicare. A beneficiary 
     would have to have been certified by a physician to have a 
     permanent and severe condition that will not improve; to 
     permanently need assistance with at least 3 out of the 5 
     activities of daily living (eating, toileting, transferring, 
     bathing, and dressing); to permanently require skilled 
     nursing services (not including medication management); to 
     need either an attendant during the day to monitor and treat 
     the beneficiary's medical condition or daily skilled nursing; 
     and to require technological assistance or the assistance of 
     another person to leave the home.
       The Secretary would be required to select 3 states in which 
     to conduct the demonstration in the northeast, midwest and 
     western regions of the United States. Up to 15,000 
     beneficiaries would be permitted to participate. Data would 
     be required to be collected regarding the quality of care, 
     patient outcomes, and additional costs, if any to Medicare. 
     The demonstration would be required to begin within 6 months 
     of enactment. Within 1 year of completing the demonstration, 
     the Secretary would be required to report to Congress on 
     whether the subject of the demonstration adversely effected 
     the provision of home health services under Medicare or 
     directly caused an unreasonable increase of expenditures 
     under Medicare; specific data showing any increase in 
     expenditures directly attributable to the demonstration 
     project; and specific recommendations to exempt permanently 
     and severely disabled homebound beneficiaries from 
     restrictions on the length, frequency, and purpose of their 
     absences from the home to

[[Page H12066]]

     qualify for home health services without incurring additional 
     unreasonable costs to Medicare. The provision would be 
     effective upon enactment.
     Conference Agreement
       The Secretary is required to conduct a 2-year demonstration 
     project where beneficiaries enrolled in Medicare Part B with 
     specified chronic conditions would be deemed to be homebound 
     in order to receive home health services under Medicare. A 
     beneficiary is eligible to be deemed to be homebound if the 
     beneficiary: (1) has been certified by a physician to have a 
     permanent and severe condition that is not expected to 
     improve; (2) permanently needs assistance with at least 3 out 
     of the 5 activities of daily living (eating, toileting, 
     transferring, bathing, and dressing); (3) permanently 
     requires skilled nursing services (not including medication 
     management); (4) needs either an attendant during each day to 
     monitor and treat the beneficiary's medical condition or to 
     assist the beneficiary with activities of daily living; (5) 
     requires technological assistance or the assistance of 
     another person to leave the home; and (6) does not regularly 
     work in a paid position full-time or part-time outside the 
     home.
       The Secretary is required to select 3 states in the 
     northeast, midwest and western regions of the United States 
     in which to conduct the demonstration. Up to 15,000 
     beneficiaries can participate. Data must be collected 
     regarding the quality of care, patient outcomes, and 
     additional costs, if any to Medicare. The demonstration is 
     required to begin within 6 months of enactment. Within 1 year 
     of completing the demonstration, the Secretary is required to 
     report to Congress on: whether the subject of the 
     demonstration adversely effected the provision of home health 
     services under Medicare or has directly caused an 
     unreasonable increase of expenditures under Medicare; 
     specific data showing any increase in expenditures directly 
     attributable to the demonstration project; and specific 
     recommendations to exempt permanently and severely disabled 
     homebound beneficiaries from restrictions on the length, 
     frequency, and purpose of their absences from the home to 
     qualify for home health services without incurring additional 
     unreasonable costs to Medicare. Payment for the costs of 
     carrying out the demonstration project will be made from the 
     Part B Trust Fund. The provision is effective upon enactment.
       Demonstration Project for Medical Adult Day Care Services 
     (Section 703 of the Conference Agreement, Section 732 of the 
     House Bill, Section 454 of the Senate Bill).
     Present Law
       No provision
     House Bill
       Subject to earlier provisions, the Secretary would be 
     required to establish a demonstration project under which a 
     home health agency, directly or under arrangement with a 
     medical adult day care facility, provide medical adult day 
     care services as a substitute for a portion of home health 
     services otherwise provided in a beneficiary's home. Such 
     services would have to be provided as part of a plan for an 
     episode of care for home health services established for a 
     beneficiary. Payment for the episode would equal 95% of the 
     amount that would otherwise apply. In no case would the 
     agency or facility be able to charge the beneficiary 
     separately for the medical adult day care services. The 
     Secretary would reduce payments made under the home health 
     prospective payment system to offset any amounts spent on the 
     demonstration project. The 3-year demonstration project would 
     be conducted in not more than 5 sites (which can include 
     multiple facilities) in states that license or certify 
     providers of medical adult day care services, as selected by 
     the Secretary. Participation of up to 15,000 Medicare 
     beneficiaries would be on a voluntary basis.
       When selecting participants, the Secretary would give 
     preference to home health agencies that are currently 
     licensed to furnish medical adult day care services and have 
     furnished such services to Medicare beneficiaries on a 
     continuous basis for a prior 2-year period. A medical adult 
     day care facility would (1) have been licensed or certified 
     by a State to furnish medical adult day care services for a 
     continuous 2-year period; (2) have been engaged in providing 
     skilled nursing services or other therapeutic services 
     directly or under arrangement with a home health agency; and 
     (3) would meet quality standards and other requirements as 
     established by the Secretary. The Secretary would be able to 
     waive necessary Medicare requirements except that 
     beneficiaries must be homebound in order to be eligible for 
     home health services.
       The Secretary would be required to evaluate the project's 
     clinical and cost effectiveness and submit a report to 
     Congress no later than 30 months after its commencement. The 
     report would include: (1) an analysis of patient outcomes and 
     comparative costs relative to beneficiaries who receive only 
     home health services for the same health conditions and (2) 
     recommendations concerning the extension, expansion, or 
     termination of the project. The provision would be effective 
     upon enactment.
     Senate Bill
       Subject to earlier provisions, the Secretary would be 
     required to establish a demonstration project under which a 
     home health agency, directly or under arrangement with a 
     medical adult day care facility, provide medical adult day 
     care services as a substitute for a portion of home health 
     services otherwise provided in a beneficiary's home. Such 
     services would have to be provided as part of a plan for an 
     episode of care for home health services established for a 
     beneficiary. Payment for the episode would equal 95% of the 
     amount that would otherwise apply. In no case would the 
     agency or facility be able to charge the beneficiary 
     separately for the medical adult day care services. The 
     Secretary would reduce payments made under the home health 
     prospective payment system to offset any amounts spent on the 
     demonstration project. The 3- year demonstration project 
     would be conducted in not more than 5 sites in states that 
     license or certify providers of medical adult day care 
     services, as selected by the Secretary. Participation of up 
     to 15,000 Medicare beneficiaries would be on a voluntary 
     basis.
       When selecting participants, the Secretary would give 
     preference to home health agencies that are currently 
     licensed to furnish medical adult day care services and have 
     furnished such services to Medicare beneficiaries on a 
     continuous basis for a prior 2-year period. A medical adult 
     day care facility would (1) have been licensed or certified 
     by a State to furnish medical adult day care services for a 
     continuous 2-year period; (2) have been engaged in providing 
     skilled nursing services or other therapeutic services 
     directly or under arrangement with a home health agency; and 
     (3) would meet quality standards and other requirements as 
     established by the Secretary. The Secretary would be able to 
     waive necessary Medicare requirements except that 
     beneficiaries must be homebound in order to be eligible for 
     home health services.
       The Secretary would be required to evaluate the project's 
     clinical and cost effectiveness and submit a report to 
     Congress no later than 30 months after its commencement. The 
     report would include: (1) an analysis of patient outcomes and 
     comparative costs relative to beneficiaries who receive only 
     home health services for the same health conditions and (2) 
     recommendations concerning the extension, expansion, or 
     termination of the project. The provision would be effective 
     upon enactment.
     Conference Agreement
       Subject to earlier provisions in the conference agreement, 
     the conference agreement requires the Secretary to establish 
     a demonstration project under which a home health agency, 
     directly or under arrangement with a medical adult day care 
     facility, provides medical adult day care services as a 
     substitute for a portion of home health services otherwise 
     provided in a beneficiary's home. Such services would be 
     provided as part of a plan for an episode of care for home 
     health services established for a beneficiary. Payment for 
     the episode will equal 95% of the amount that would otherwise 
     apply subject to budget neutrality provisions. The agency or 
     facility is prohibited from charging the beneficiary 
     separately for the medical adult day care services. The 
     Secretary is required to reduce payments made to medical 
     adult day care facilities under the demonstration to offset 
     excess spending. The 3-year demonstration project is to be 
     conducted in not more than 5 sites in states that license or 
     certify providers of medical adult day care services, as 
     selected by the Secretary. Participation of up to 15,000 
     Medicare beneficiaries is on a voluntary basis.
       When selecting participants, the Secretary is required to 
     give preference to home health agencies that are currently 
     licensed to furnish medical adult day care services and have 
     furnished such services to Medicare beneficiaries on a 
     continuous basis for a prior 2-year period. A medical adult 
     day care facility is one that: (1) has been licensed or 
     certified by a State to furnish medical adult day care 
     services for a continuous 2-year period; (2) has been engaged 
     in providing skilled nursing services or other therapeutic 
     services directly or under arrangement with a home health 
     agency; and (3) would meet quality standards and other 
     requirements as established by the Secretary. The Secretary 
     is able to waive necessary Medicare requirements except that 
     beneficiaries must be homebound in order to be eligible for 
     home health services.
       The Secretary is required to evaluate the project's 
     clinical and cost effectiveness and submit a report to 
     Congress no later than 6 months after completion of the 
     demonstration. The report is required to include: (1) an 
     analysis of patient outcomes and comparative costs relative 
     to beneficiaries who receive only home health services for 
     the same health conditions, and (2) recommendations 
     concerning the extension, expansion, or termination of the 
     project. The provision is effective upon enactment.
       Temporary Suspension of OASIS Requirement for Collection of 
     Data on Non-Medicare and Non-Medicaid Patients (Section 704 
     of the Conference Agreement, Section 954 in the House Bill, 
     Section 630 in the Senate Bill).
     Present Law
       Medicare is required to monitor the quality of home health 
     care and services for all patients as part of the survey 
     process with a standardized, reproducible assessment 
     instrument. The purpose of the monitoring is to determine 
     whether the agency is helping all patients achieve and 
     maintain the highest functional capacity that is possible as 
     is reflected in the care plan the home health agency has 
     developed for the patient. Medicare has implemented this 
     requirement

[[Page H12067]]

     using the Outcomes and Assessment Information Set (OASIS). 
     The OASIS data are used for Medicare payment (under home 
     health prospective payment) and for quality improvement 
     purposes for all patients.
     House Bill
       The requirement that home health agencies must collect 
     OASIS data on private pay (non-Medicare, non-Medicaid) 
     patients would be suspended until after the Secretary (1) 
     reported to Congress on the benefits of these data, the value 
     of the data compared to the administrative burden of data 
     collection in small agencies, and the use of the OASIS 
     information by both large and small agencies and then (2) 
     published final regulations regarding the collection and use 
     of non-Medicare/non-Medicaid OASIS data. The provision would 
     not prohibit home health agencies from collecting OASIS data 
     on private pay patients for the agencies' own use.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement suspends the requirement that home 
     health agencies must collect OASIS data on private pay (non-
     Medicare, non-Medicaid) until the Secretary (1) reports to 
     Congress on the benefits of these data, the value of the data 
     compared to the administrative burden of data collection in 
     small agencies, and the use of the OASIS information by both 
     large and small agencies, and then (2) publishes final 
     regulations regarding the collection and use of OASIS. The 
     provision does not prohibit home health agencies from 
     collecting OASIS data on private pay patients for the 
     agencies' own use.
       MedPAC Study of Medicare Margins of Home Health Agencies 
     (Section 705 of the Conference Agreement and Section 703 of 
     the House Bill).
     Present Law
       No provision.
     House Bill
       The provision would require MedPAC to study payment margins 
     of home health agencies paid under the Medicare home health 
     prospective payment system. The study would examine whether 
     systematic differences in payment margins were related to 
     differences in case mix, as measured by home health resource 
     groups (HHRGs). MedPAC would be required to submit a report 
     to Congress on the study within 2 years of enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires MedPAC to study payment 
     margins of home health agencies paid under the Medicare home 
     health prospective payment system, using cost reports filed 
     by agencies. The study is required to examine whether 
     systematic differences in payment margins are related to 
     differences in case mix, as measured by home health resource 
     groups (HHRGs), among agencies. MedPAC is required to submit 
     a report to Congress on the study within 2 years of 
     enactment.
       Coverage of Religious Nonmedical Health Care Institution 
     Services Furnished In the Home. (Section 706 of the 
     Conference Report).
     Present Law
       No provision
     House Bill
       No provision
     Conference Report
       A religious nonmedical health care institution can provide 
     home health services to individuals that meet the criteria 
     laid out in 1821.
       Increase in Medicare Payment for Certain Home Health 
     Services (Section 451/Duplicative Provisions 459 and 463 of 
     the Senate Bill).
     Present Law
       Home health PPS provides payment for a 60-day episode of 
     care furnished to a Medicare beneficiary. Medicare's payment 
     is adjusted to reflect the type and intensity of care 
     furnished and area wages as measured by the hospital wage 
     index. BIPA increased PPS payments by 10% for home health 
     services furnished in the home of beneficiaries living in 
     rural areas during the 2-year period beginning April 1, 2001, 
     through March 31, 2003, without regard to certain budget- 
     neutrality provisions applying to home health PPS. The 
     temporary additional payment was not included in the base for 
     determination of payment updates.
       Home health PPS is required to make payments for 
     extraordinarily costly cases. The total amount of the outlier 
     payment may not exceed 5% of the total payment estimated to 
     be made for the fiscal year.
     House Bill
       No provision.
     Senate Bill
       A 10% additional payment for home health care services 
     furnished in a rural area during FY 2005 and FY 2006 would be 
     provided without regard to certain budget-neutrality 
     requirements. The total amount of outlier payments would be 
     reduced to no more than 3% of total payments in FY 2004 and 
     4% for FYs 2005 and 2006. The provision would be effective 
     for services furnished on or after October 1, 2003.
     Conference Agreement
       No provision.
       Limitation on Reduction in Area Wage Adjustment Factors 
     under the Prospective Payment System for Home Health Services 
     (Section 452 of the Senate Bill).
     Present Law
       Home health agencies are paid under Medicare using the 
     prospective payment system. In calculating payment, the 
     portion of the base payment amount that is attributable to 
     wages and wage related costs is required to be adjusted for 
     those costs. The Secretary is required to calculate an area 
     wage adjustment factor that is actually used to adjust the 
     base payment amount. The factors change annually as new wage 
     data are reported and areas change in relative costliness.
     House Bill
       No provision.
     Senate Bill
       The provision would limit any reduction in the home health 
     area wage adjustment factor for fiscal years 2005 and 2006. 
     Any reduction could be no more than 3% less than the area 
     wage adjustment factor applicable to home health services for 
     the area in the previous year. The provision would be 
     effective upon enactment.
     Conference Agreement
       No provision.

                 Subtitle B--Graduate Medical Education

       Extension of Update Limitation on High Cost Programs 
     (Section 711 of the Conference Agreement and Section 711 of 
     the House Bill).
     Present Law
       Medicare pays hospitals for its share of direct graduate 
     medical education (DGME) costs in approved programs using a 
     count of the hospital's number of full-time equivalent 
     residents and a hospital-specific historic cost per resident, 
     updated for inflation. BBRA changed Medicare's methodology 
     for calculating DGME payments to teaching hospitals to 
     incorporate a national average amount based on FY1997 
     hospital specific per resident amounts. Starting in FY2001, 
     hospitals received no less than 70% of a geographically 
     adjusted national average amount. BIPA increased this floor 
     to 85% of the locality adjusted, updated, and weighted 
     national PRA starting for cost report periods beginning 
     during FY2002. Hospitals with per resident amounts above 140% 
     of the geographically adjusted national average amount had 
     payments frozen at current levels for FY2001 and FY2002, and 
     in FY2003-FY2005 would receive an update equal to the 
     Consumer Price Index (CPI) increase minus 2 percentage 
     points. Currently, hospitals with per resident amounts 
     between 85% and 140% of the geographically adjusted national 
     average would continue to receive payments based on their 
     hospital-specific per resident amounts updated for inflation.
     House Bill
       The hospitals with per resident amounts above 140% of the 
     geographically adjusted national average amount would not get 
     an update from FY2004 through FY2013.
     Senate Bill
       No provision.
     Conference Agreement
       Hospitals with per resident amounts about 140% of the 
     geographically adjusted national average amount would not get 
     an update from FY2004 through FY20013.
       Exception to the Initial Residency Period for Geriatric 
     Residency or Fellowship Programs (Section 712 of the 
     Conference Agreement and Section 410 of the Senate Bill).
     Present Law
       Medicare counts residents in their initial residency period 
     (the lesser of the minimum number of years required for board 
     eligibility in the physician's specialty or 5 years) as 1.0 
     FTE. Residents whose training has extended beyond their 
     initial residency period count as 0.5 FTE. Residents in 
     certain specialties are allowed additional years in their 
     initial residency period.
       Geriatrics is a subspecialty of family practice, internal 
     medicine and psychiatry. A 1-year fellowship is required for 
     certification in geriatrics, following an initial residency 
     in one of those three areas. The certifying boards agreed to 
     reduce the minimum fellowship requirement from 2 years to 1 
     year, beginning with the 1998 exam. Those physicians 
     interested in an academic career in geriatrics are encouraged 
     to pursue 2-year and 3-year fellowships.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to promulgate interim final 
     regulations after notice and comment that establish a 2-year 
     exception to the initial residency program for certain 
     geriatric training programs. The regulations would be 
     effective for cost reporting periods on or after October 
     1, 2003. The provision would be effective upon enactment.
     Conference Agreement
       The conference agreement clarifies that Congress intended 
     to provide an exception to the initial residency period for 
     geriatric fellowship programs to accommodate programs that 
     require 2 years of training to initially become board 
     eligible in the geriatric specialty. The Secretary is 
     required to promulgate interim final regulations after notice 
     and comment consistent with this intent after notice and 
     subject to public comment. The regulations will be effective 
     for cost reporting periods on or after October 1, 2003. The 
     conferees also clarify that under section

[[Page H12068]]

     1886(h) (5)(F), the initial residency period for any 
     residency for which the ACGME requires a preliminary or 
     general clinical year of training is to be determined in the 
     resident's second year of training.
       The Conference Committee is pleased that the Secretary has 
     published a proposed rule, on January 12 2001, to provide 
     Medicare payment for clinical psychology internship training 
     programs. The Committee notes that Congress has consistently 
     urged the Secretary to initiate payment for the training of 
     clinical psychologists since 1997 and still awaits a final 
     rule.
       The Committee is concerned that delay in the rules will 
     mean that hospitals and institutions will continue to reduce 
     or eliminate psychology training programs as has been 
     occurring in recent years to the detriment of Medicare 
     beneficiaries. The Committee directs implementation of the 
     rule within six months of the date of enactment of the law to 
     which this report is attached. The Committee notes that 
     clinical psychologists provide valuable and unique services 
     to Medicare beneficiaries during their training. Regarding 
     their training, clinical psychologists are distinguishable 
     from other health care professionals in that they are the 
     only doctoral level mental health professionals fully 
     participating in Medicare whose clinical training is not 
     currently reimbursed. In addition, their clinical internship 
     training is entirely controlled, administered, supervised, 
     evaluated, and certified by the hospital or institution, 
     separately accredited, and distinct from any university 
     training they receive. Clinical psychologists are hospital-
     based in the final stages of their training function in a 
     parallel status to medical interns and residents, not medical 
     nursing or health professional students. Where a clinical 
     psychologist has clearly finished his or her educational 
     curriculum and is training solely in the hospital setting, it 
     is the intention of Congress that the hospital be reimbursed 
     if that training is hospital-based.
       Authority to Include Costs of Training of Psychologists in 
     Payments to Hospitals Under Medicare (Section 408 of the 
     Senate).
     Present Law
       Medicare pays hospitals for its share of direct costs 
     associated with approved hospital-based training programs for 
     nurses and certain other allied health professionals 
     including inhalation therapists, nurse anesthetists, 
     occupational and physical therapists. Medicare will not pay 
     for such costs associated with psychologists' training.
     House Bill
       No provision.
     Senate Bill
       Medicare would reimburse its share of the reasonable costs 
     of approved education activities of psychologists under the 
     allied health professional training provisions. The provision 
     would apply for cost reporting periods beginning on or after 
     October 1, 2004.
     Conference Agreement
       No provision.
       Clarification of Congressional Intent Regarding the 
     Counting of Residents in a Nonprovider Setting and a 
     Technical Amendment Regarding the 3-year Rolling Ratio and 
     the IME Ratio (Section 411 of the Senate Bill).
     Present Law
       Medicare has different resident limits for counting 
     residents its indirect medical education (IME) adjustment and 
     for reimbursement for a teaching hospital's direct medical 
     education (DGME) costs. Generally, a hospital's IME 
     adjustment depends on a hospital's teaching intensity as 
     measured by the ratio of the number of interns and residents 
     per bed (the IRB ratio). Prior to BBA 1997, the number of 
     residents that could be counted for IME purposes included 
     only those in the hospital inpatient and outpatient 
     departments. Effective October 1, 1997, under certain 
     circumstances, a hospital may now count residents in non-
     hospital sites for the purposes of IME. Medicare's DGME 
     payment to teaching hospital is based on its updated cost per 
     resident (subject to a locality adjustment and certain 
     payment corridors), the weighted number of approved full-
     time-equivalent (FTE) residents, and Medicare's share of 
     inpatient days in the hospital. Medicare counts residents in 
     their initial residency period (the lesser of the minimum 
     number of years required for board eligibility in the 
     physician's specialty or 5 years) as 1.0 FTE. Residents whose 
     training has extended beyond their initial residency period 
     count as 0.5 FTE. Residents in certain specialties are 
     allowed additional years in their initial residency period. 
     Residents who are graduates from foreign medical schools do 
     not count unless they pass certain exams.
       Generally, the resident counts for both IME and DGME 
     payments are based on the number of residents in approved 
     allopathic and osteopathic teaching programs that were 
     reported by the hospital for the cost reporting period ending 
     in calendar year 1996. The DGME resident limit is based on 
     the unweighted resident counts. It may differ from the IME 
     limit because in 1996 residents training in non-hospital 
     sites were eligible for DGME payments but not for IME 
     payments. Hospitals that established new training programs 
     before August 5, 1997 are partially exempt from the cap. 
     Other exceptions apply to certain hospitals including those 
     with new programs established after that date. Hospitals in 
     rural areas (and non-rural hospitals operating training 
     programs in rural areas) can be reimbursed for 130% of the 
     number of residents allowed by their cap. Under certain 
     conditions, an affiliated group of hospitals under a specific 
     arrangement may combine their resident limits into an 
     aggregate limit.
       Subject to these resident limits, a teaching hospital's IME 
     and DGME payments are based on a 3-year rolling average of 
     resident counts, that is, the resident count will be based on 
     the average of the resident count in the current year and the 
     2 preceding years. The rolling average calculation includes 
     podiatry and dental residents. If a hospital is above its 
     limit, the count for the purposes of the rolling average is 
     the FTE cap. In addition to the resident limit, BBA 1997 
     also places a limit on the IRB ratio itself. A hospital's 
     IRB ratio used to calculate its IME adjustment for the 
     current payment year cannot exceed its IRB ratio from the 
     immediately preceding cost reporting period.
       CMS has published regulations that limit Medicare's 
     graduate medical payments when existing residents are 
     transferred from a non-hospital entity to a teaching 
     hospital, particularly when the non-hospital entity has 
     historically paid for the training costs without hospital 
     funding. CMS seeks to limit reimbursement to those residents 
     that rotate from a hospital setting to non-hospital sites in 
     order to (1) encourage hospitals to broaden physician 
     training in ways that will encompass different primary care 
     settings; and (2) prevent cost shifting from existing support 
     within the community to Medicare.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to reimburse teaching 
     hospitals for residents in non-hospital locations, when 
     hospitals incur all, or substantially all, the costs of the 
     training in that site starting from the effective date of a 
     written agreement between the hospital and the entity owning 
     or operating the non-hospital site. The effective date of the 
     written agreement would be determined according to generally 
     accepted accounting principles. The Secretary would not be 
     able to take into account the fact that the hospital costs 
     incurred are lower than actual Medicare reimbursement. 
     Starting for FY2004, dental and podiatric residents would be 
     removed from the 3-year rolling average calculation for IME 
     and DGME reimbursements. The provision would be effective 
     upon enactment.
     Conference Agreement
       For 12 months as of January 1, teaching hospitals can count 
     residents in non-hospital locations regardless of the 
     financial arrangement between the hospital and the teaching 
     physician at the nonhospital clinic site participating in a 
     family practice program. Provisions regarding the payment of 
     IME and DME for training in non-hospital sites that were 
     included in the Balanced Budget Act of 1997 Congress were 
     intended to encourage placement of residents in rural and 
     other underserved areas and in ambulatory sites that are more 
     in alignment with the types of practice they would have upon 
     practice. The purpose was two-fold: to increase access to 
     care by increasing the numbers of residents training in those 
     settings, and to increase the likelihood of physicians 
     placing themselves in practice in rural and underserved 
     areas.
       For programs established after January 1, 2002, the 
     Secretary shall clarify in future regulation its definition 
     of reasonableness of payment for supervisory physicians.
       The Secretary shall initiate a study on the training of 
     residents in non-hospital settings, and the use of volunteer 
     faculty in those settings. The study is due within six months 
     of enactment. The study shall include the following:
       Examination of the effect of the change in the BBA that 
     allowed payment by Medicare for graduate medical education in 
     non-hospital settings, to include whether access and numbers 
     of physicians placing in rural and underserved areas has 
     increased.
       Examination of programs on a national level regarding 
     evidence of possible misuse of federal money with respect to 
     volunteering supervisory physicians.
       A determination whether supervisory physicians are freely 
     volunteering their time.
       A description of what incentives are available in each 
     state that are offered to physicians who volunteer their time 
     as supervisory physicians (eg. CME credit hours, hospital 
     privileges, etc.)

                  Subtitle C--Chronic Care Improvement

       Voluntary Chronic Care Improvement Under Traditional Fee-
     For-Service (Section 721 of the Conference Agreement, Section 
     721 of the House Bill, and Section 442 of the Senate Bill).
     Present Law
       No provision.
       A hearing was held by the Ways and Means Committee, Health 
     Subcommittee on February 25, 2003 on the importance of 
     providing chronic care management in fee-for-service 
     Medicare. Statistics from the Robert Wood Johnson Foundation 
     state 84% of Medicare beneficiaries have one or more chronic 
     conditions and account for 95% of Medicare spending. With 
     Americans living longer due to advances in medical procedures 
     and increased availability to medications, Medicare costs 
     will continue to escalate. Thus, chronic care programs should 
     be implemented in both traditional fee-for-service and 
     private plans to target these individuals, improve health 
     outcomes and save money.

[[Page H12069]]

       The Centers for Medicare & Medicaid Services (CMS) has run 
     demonstration programs in the Medicare program targeting high 
     cost seniors. Currently, CMS is managing more than a dozen 
     disease management demonstration projects. The BBA allowed 
     for the continuation of demonstration projects that were 
     cost-effective, improved quality of care and patient/
     beneficiary satisfaction. These demonstration sites enrolled 
     more than 7,600 Medicare beneficiaries. CMS has also started 
     on disease management demonstrations authorized by BIPA of 
     2000, to provide disease management services to Medicare 
     beneficiaries with congestive heart failure, diabetes, or 
     coronary heart disease. CMS estimates that enrollment will 
     include around 30,000 Medicare beneficiaries. BIPA also 
     required a physician group demonstration to encourage 
     coordination and reward physicians for improving beneficiary 
     health outcomes. CMS has demonstrated significant progress in 
     integrating chronic care management programs into fee-for-
     service Medicare and HMOs. The following provision would 
     increase the number of chronic care management programs (also 
     known as disease management programs) in fee-for-service 
     Medicare, with the intention of expanding these programs 
     nationwide if health outcomes improve and Medicare costs 
     decrease.
       Additionally, a 1999 survey showed 56% of employers offer 
     disease management services to their employees, along with 
     67% of HMOs and 64% of POS plans. Private plans continue to 
     offer disease management programs to reduce costs, improve 
     health outcomes, and increase patient and provider 
     satisfaction. Because many of these health plans offer 
     chronic care management programs already, it is important to 
     require Medicare Advantage to offer these programs, as 
     well.
     House Bill
       The Secretary would be required to establish a process for 
     providing chronic care improvement programs for Medicare 
     beneficiaries in fee-for-service Medicare (Parts A and B) who 
     have certain chronic conditions such as congestive heart 
     failure, diabetes, chronic obstructive pulmonary disease 
     (COPD), stroke or other diseases identified by the Secretary 
     for inclusion in the program. The Secretary would establish 
     administrative regions (called CCMA regions) within the 
     United States for the chronic care improvement programs. 
     Within each region, the Secretary would select at least two 
     contractors under a competitive bidding process on the basis 
     of the ability of each bidder to achieve improved health 
     outcomes of beneficiaries and improved financial outcomes of 
     the Medicare program. A contractor could be a disease 
     improvement organization, health insurer, provider 
     organization, a group of physicians, or any other legal 
     entity that the Secretary determines appropriate. Contractors 
     would be required to meet certain clinical, quality 
     improvement, financial, and other requirements specified by 
     the Secretary. Subcontractors could be used by the 
     contractors. The Secretary would be able to phase-in 
     implementation of the program beginning one year after 
     enactment.
       Each program would be required to have a method for 
     identifying targeted Medicare beneficiaries who would be 
     offered participation in the program. The Secretary would be 
     required to assist the program in identifying beneficiaries. 
     Each beneficiary would be assigned to only one contractor 
     that would be responsible for guiding beneficiaries in 
     managing their health, including all co-morbidities. Initial 
     contact with a Medicare beneficiary would be from the 
     Secretary who would provide information about the program, a 
     description of advantages in participating, notification that 
     the contractor could contact the beneficiary directly 
     concerning participation, the voluntary nature of program 
     participation, and a means to decline participation or 
     decline being contacted by the program. Each program would be 
     required to develop an individualized, goal-oriented chronic 
     care improvement plan with the beneficiary. The chronic care 
     improvement plan would be required to contain: a single point 
     of contact to coordinate care; self-improvement education for 
     the individual and support education for health care 
     providers, primary caregivers, and family members; 
     coordination between prescription drug benefits, home health, 
     and other health care services; collaboration with physicians 
     and other providers to enhance communication of relevant 
     clinical information; the use of monitoring technologies, 
     where appropriate; and information about hospice care, pain 
     and palliative care, and end-of-life care, as appropriate. In 
     developing the chronic care improvement plan, programs would 
     be required to use decision support tools such as evidence-
     based practice guidelines to track and monitor each 
     beneficiary across care settings and evaluate outcomes using 
     a clinical information database. The program would be 
     required to meet any additional requirements that the 
     Secretary finds appropriate. Programs that have been 
     accredited by qualified organizations would be deemed to have 
     met such requirements as specified by the Secretary.
       Contractor payments for each chronic care improvement 
     program would be required to result in Medicare program 
     outlays that would otherwise have been incurred in the 
     absence of the program for the three-year contract period. 
     The Secretary would be required to assure that there would be 
     no net aggregate increase in Medicare payments, in entering 
     into a contract for the program over the 3-year period, 
     including program outlays, administrative expenses (that 
     would not have been paid under Medicare without this 
     demonstration), and contractor fees. Contracts for chronic 
     care improvement programs would be treated as a risk-sharing 
     arrangement. In addition, payment to contractors would be 
     subject to the contractor meeting clinical and financial 
     performance standards established by the Secretary.
       Program contractors would be required to report to the 
     Secretary on the quality of care and efficacy of the program 
     in terms of process measures (such as reductions in errors of 
     treatment and rehospitalization rates), beneficiary and 
     provider satisfaction, health outcomes, and financial 
     outcomes. The Secretary would be required to submit to 
     Congress annual reports on the program including information 
     on progress made toward national coverage, common delivery 
     models, and information on improvements in health outcomes as 
     well as financial efficiencies resulting from the program. 
     The Secretary would also be required to conduct a randomized 
     clinical trial to assess the potential for cost reductions 
     under Medicare by comparing costs of beneficiaries enrolled 
     in chronic care improvement programs and beneficiaries who 
     are eligible to participate but are not enrolled.
       Appropriations of such sums as necessary to provide for 
     contracts with chronic care improvement programs would be 
     authorized from the Medicare Trust Funds, but in no case 
     would the funding be permitted to exceed $100 million over 3 
     years.
       The provision would be effective upon enactment and the 
     Secretary would be required to begin implementing the chronic 
     care improvement programs no later than 1 year after 
     enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish and implement chronic care improvement programs. If 
     the programs are established, they are required to improve 
     clinical quality and beneficiary satisfaction and achieve 
     spending targets for Medicare for beneficiaries with certain 
     chronic health conditions.
       The chronic care improvement (CCI) program is required to 
     (1) have a process to screen each targeted beneficiary for 
     conditions other than the specified chronic conditions, such 
     as impaired cognitive ability and co-morbidities, in order to 
     develop an individualized, goal-oriented care management 
     plan; (2) provide each targeted beneficiary participating in 
     the program with the care management plan; and (3) carry out 
     the plan and other chronic care improvement activities. The 
     care management plan is required to be developed with the 
     beneficiary and, to the extent appropriate, include: (1) a 
     designated point of contact responsible for communications 
     with the beneficiary and for facilitating communications with 
     other health care providers; (2) self-care education for the 
     beneficiary (through approaches such as disease management or 
     medical nutrition therapy) and education for primary 
     caregivers and family members; (3) education for physicians 
     and other providers and collaboration to enhance 
     communication of relevant clinical information; (4) the use 
     of monitoring technologies that enable patient guidance 
     through the exchange of pertinent clinical information, such 
     as vital signs, symptomatic information, and health self-
     assessment; and (5) the provision of information about 
     hospice care, pain and palliative care, and end-of-life care. 
     To the extent that a care management plan includes 
     medical nutrition therapy, such services should be 
     delivered by a registered dietician or nutrition 
     professional as defined in Section 1861 of the Social 
     Security Act (42 U.S.C. 1395x.)
       The Secretary is required to develop a method for 
     identifying targeted beneficiaries who may benefit from 
     participation in a chronic care improvement program and to 
     communicate with the targeted beneficiary regarding the 
     opportunity to participate. Targeted beneficiaries who are 
     eligible to participate cannot be enrolled in a plan under 
     Medicare Part C and must have one or more of the threshold 
     conditions including: congestive heart failure, diabetes, 
     chronic obstructive pulmonary disease (COPD), or other 
     diseases or conditions specified by the Secretary. 
     Beneficiary participation is voluntary.
       In carrying out the care management plan, the chronic care 
     improvement organization is required to: (1) guide the 
     participant in managing the participant's health (including 
     all co-morbidities, relevant health care services, and 
     pharmaceutical needs) and in performing activities as 
     specified under the elements of the care management plan of 
     the participant; (2) use decision-support tools such as 
     evidence-based practice guidelines or other criteria as 
     determined by the Secretary; and (3) develop a clinical 
     information database to track and monitor each participant 
     across settings and to evaluate outcomes.
       The establishment of the chronic care improvement program 
     is conducted in 2 parts. In phase I, the developmental phase, 
     the Secretary is required to enter into contracts with 
     chronic care improvement organizations for the development, 
     testing, and evaluation of chronic care improvement programs 
     using randomized controlled trials. The first contract is 
     required 12 months after enactment for a 3-year period. The 
     Secretary is required to enter into contracts to ensure

[[Page H12070]]

     that chronic care improvement programs cover geographic areas 
     in which at least 10 percent of Medicare beneficiaries 
     reside. The Secretary is further required to ensure that each 
     chronic care improvement program includes at least 10,000 
     targeted beneficiaries along with a sufficient number of 
     Medicare beneficiaries to serve as a control group. The 
     Secretary is required to contract for an independent 
     evaluation of each chronic care improvement program. The 
     evaluation is required to include quality improvement 
     measures, such as adherence to evidence-based guidelines and 
     rehospitalization rates; beneficiary and provider 
     satisfaction; health outcomes; and financial outcomes, 
     including any cost savings to Medicare.
       If the Secretary finds that the chronic care improvement 
     programs have improved the clinical quality of care, improved 
     beneficiary satisfaction, and achieved specified spending 
     targets, then the Secretary is required to expand the program 
     to additional geographic areas not covered during phase I. 
     Phase II may include national expansion of the program and is 
     required to begin no later than 6 months after the completion 
     of phase I (nor earlier than 2 years after phase I began). 
     The Secretary is also required to evaluate phase II programs 
     using the same criteria used in the phase I evaluation.
       Chronic care improvement organizations are required to 
     monitor and report to the Secretary on health care quality, 
     cost, and outcomes, in a time and manner specified by the 
     Secretary. The organizations are also required to comply with 
     any additional requirements the Secretary may specify. The 
     Secretary may deem chronic care improvement organizations 
     which are accredited by qualified organizations to have met 
     requirements that the Secretary may specify.
       The Secretary is not permitted to contract with an 
     organization to operate a chronic care improvement program 
     unless the organization meets the requirements for a chronic 
     care improvement program and such clinical, quality 
     improvement, financial, and other requirements as the 
     Secretary deems to be appropriate for the target 
     beneficiaries to be served; and the organization demonstrates 
     (to the satisfaction of the Secretary) that it is able to 
     assume financial risk for performance under the contract. 
     Each contract is required to specify performance standards 
     for each of the specified evaluation factors including 
     clinical quality and Medicare spending targets, against which 
     the performance of the chronic care improvement organization 
     under the contract is measured. Contractual adjustments are 
     required if the contractor fails to meet specified 
     performance standards. Further, the contract is required to 
     provide for full recovery by the government of any amount by 
     which the fees paid to the contractor exceed the estimated 
     savings to Medicare that are attributable to the 
     implementation of the contract. The Secretary is required to 
     ensure that aggregate Medicare benefit expenditures for 
     targeted beneficiaries participating in the chronic care 
     improvement program do not exceed estimated Medicare 
     expenditures for a comparable population in the absence of 
     such a program.
       Appropriations of such sums as necessary to provide for 
     contracts with chronic care improvement programs would be 
     authorized from the Medicare Trust Funds, but in no case 
     would the funding be permitted to exceed $100 million over 3 
     years, beginning October 1, 2003.
       The Secretary is required to submit an interim report to 
     Congress on the scope of implementation of the program, the 
     design of the programs, and the preliminary cost and quality 
     findings based on the evaluation criteria no later than 2 
     years after implementation. No later than 3\1/2\ years after 
     implementation, the Secretary is required to submit an update 
     to the interim report to Congress. The Secretary is further 
     required to submit to Congress 2 additional biennial reports 
     on the chronic care improvement programs. The first is due no 
     later than 2 years after the update report.
       Medicare Advantage Quality Improvement Programs (Section 
     722 of the House Bill and Sections 202 and 442 of the Senate 
     Bill)
     Present Law
       Under the Medicare+Choice program, organizations are 
     required to have quality assurance programs that include 
     measuring outcomes, monitoring and evaluating high volume and 
     high risk services and the care of acute and chronic 
     conditions, and evaluating the effectiveness of the efforts.
     House Bill
       Each Medicare Advantage plan offered would be required to 
     have a chronic care improvement program for enrollees with 
     multiple or sufficiently severe chronic conditions such as 
     congestive heart failure, diabetes, chronic obstructive 
     pulmonary disease (COPD), stroke, prostate and colon cancer, 
     hypertension, or other disease identified by the Secretary. 
     The program would be required to have a method for monitoring 
     and identifying enrollees with multiple or sufficiently 
     severe chronic conditions and to develop with an enrollee's 
     consent an individualized, goal-oriented chronic care 
     improvement plan.
       The chronic care improvement plan would be required to 
     include: a single point of contact to coordinate care; self-
     improvement education for the individual and support 
     education for health care providers, primary caregivers, and 
     family members; coordination between prescription 
     drug benefits, home health, and other health care 
     services; collaboration with physicians and other 
     providers to enhance communication of relevant clinical 
     information; the use of monitoring technologies, where 
     appropriate; and information about hospice care, pain and 
     palliative care, and end-of-life care, as appropriate. In 
     developing the chronic care improvement plan, programs 
     would be required to use decision support tools such as 
     evidence-based practice guidelines track and monitor each 
     beneficiary across care settings and evaluate outcomes 
     using a clinical information database. The program would 
     be required to meet any additional requirements that the 
     Secretary finds appropriate. Programs that have been 
     accredited by qualified organizations would be deemed to 
     have met such requirements as specified by the Secretary.
       Each Medicare Advantage organization would be required to 
     report to the Secretary on the quality of care and efficacy 
     of the chronic care improvement program in terms of process 
     measures (such as reductions in errors of treatment and 
     rehospitalization rates), beneficiary and provider 
     satisfaction, health outcomes, and financial outcomes. The 
     provision would apply for contract years beginning on or 
     after one year after enactment.
     Senate Bill
       The quality assurance program for Medicare Advantage plans 
     would be required to provide access to disease management and 
     chronic care services and to provide access to preventive 
     benefits and information for enrollees on the benefits in 
     addition to current quality assurance requirements.
       The Secretary would be required to establish a 
     demonstration program that uses qualified care management 
     organizations to provide health risk assessment and care 
     management services to Medicare beneficiaries that are at 
     high-risk (as defined by the Secretary but including 
     beneficiaries with multiple sclerosis or other disabling 
     chronic conditions, nursing home residents or beneficiaries 
     at risk for nursing home placement, or beneficiaries that are 
     also eligible for Medicaid). The Secretary would select 6 
     sites, giving preference to sites located in rural areas. The 
     demonstration program would last 5 years but would not be 
     implemented before October 1, 2004.
       Any high-risk beneficiary residing in a designated area who 
     is not a member of a Medicare+Choice plan may participate if 
     the beneficiary identifies a care management organization 
     that agrees to furnish care management services to the 
     beneficiary under the demonstration program. The Secretary 
     would be required to contract with care management 
     organizations to provide care management services to 
     beneficiaries eligible to participate in the demonstration. 
     The Secretary may contract with more than one care management 
     organization in a geographic area.
       The Secretary would pay the care management organization a 
     fee that is based on bids submitted by care management 
     organizations. The fee would be required to place the care 
     management organization partially at risk. Payment of the 
     full fee would depend upon the care management organization 
     meeting benchmarks for quality and cost. The Secretary may 
     cancel a contract with a care management organization if the 
     organization does not meet negotiated savings or quality 
     outcome targets for the year. Aggregate payments by Medicare 
     could not exceed the amount that would otherwise have been 
     paid if the demonstration program had not been implemented. 
     The Secretary would be required to report to Congress six 
     months after the completion of the demonstration on the 
     program. The provision would be effective upon enactment.
     Conference Agreement
       The conference agreement requires each Medicare Advantage 
     organization to have an on-going quality improvement program 
     for improving the quality of care provided to enrollees 
     (except for private fee-for-service plans or MSA plans) 
     effective for contract years beginning January 1, 2006. As 
     part of the quality improvement program, each MA organization 
     is required to have a chronic care improvement program. Each 
     chronic care improvement program is required to have a method 
     for monitoring and identifying enrollees with multiple or 
     sufficiently severe chronic conditions that meet criteria 
     established by the organization for participation under the 
     program.
       Each MA organization is required to provide for the 
     collection, analysis and reporting of data that permit 
     measurement of health outcomes and other indicators of 
     quality. The Secretary will establish through regulation 
     appropriate reporting requirements for regional PPOs. The 
     Secretary is permitted to change the types of data that are 
     required of plans only after submitting to Congress a report 
     on the reasons for the changes that was prepared in 
     consultation with MA plans and private accrediting bodies. 
     The Secretary is not permitted to collect data on quality, 
     outcomes, and beneficiary satisfaction for the purposes of 
     consumer choice and program administration if the data were 
     not already being collected as of November 1, 2003. However, 
     these provision regarding data are not to be construed as 
     restricting the ability of the Secretary to carry out the 
     comparative information dissemination provisions regarding 
     plan quality and performance that are contained in section 
     1851(d)(4)(D).
       The conference agreement also provides that MA 
     organizations are deemed to meet

[[Page H12071]]

     the quality improvement program requirements as the Secretary 
     determines to be appropriate if the MA organization is 
     accredited (and periodically reaccredited) by a private 
     accrediting organization under a process that the Secretary 
     has determined ensures that the accrediting organization 
     applies and enforces standards that meet or exceed the 
     standards established by the Secretary.
       Chronically Ill Medicare Beneficiary Research, Data, 
     Demonstration Strategy (Section 723 of the Conference 
     Agreement).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to develop 
     a plan to improve quality of care and to reduce the cost of 
     care for chronically ill Medicare beneficiaries within 6 
     months after enactment. The plan is required to use existing 
     data and identify data gaps, develop research initiatives, 
     and propose intervention demonstration programs to provide 
     better health care for chronically ill Medicare 
     beneficiaries. The plan is required to: (1) integrate 
     existing datasets including the Medicare Current 
     Beneficiary Survey, the Minimum Data Set, the Outcome and 
     Assessment Information Set, data from the Quality 
     Improvement Organizations, and claims data; (2) identify 
     any new data needs and a methodology to address new data 
     needs; (3) plan for the collection of such data in a data 
     warehouse; and (4) develop a research agenda using the 
     data. In developing the plan, the Secretary is required to 
     consult with experts in the fields of care for the 
     chronically ill (including clinicians) and is required to 
     enter into contracts with appropriate entities for the 
     development of the plan. The Secretary is required to 
     implement the plan no later than 2 years after enactment. 
     Appropriations are authorized from amounts in the Treasury 
     not otherwise appropriated, such sums as may be necessary 
     in fiscal years 2004 and 2005 to carry out this provision.
     Subtitle D--Other Provisions
       Improvements in the National and Local Coverage 
     Determination Process to Respond to Changes in Technology 
     (Section 731 of the Conference Agreement, Section 733 of the 
     House Bill, and Sections 458 and 554 of the Senate Bill).
     Present Law
       Coverage Determinations. Under administrative authorities, 
     CMS announced in March 2003 the establishment of a technology 
     council charged with improving Medicare coverage, coding and 
     payment for emerging technologies. Council membership 
     includes senior CMS staff.
       Clinical Trials. No explicit statutory authorization 
     regarding category A clinical trials. Under existing 
     authorities, Medicare covers the routine costs of qualifying 
     clinical trials which includes items or services typically 
     provided absent a clinical trial and items or services needed 
     for the diagnosis or treatment of complications. Medicare 
     does not pay for certain aspects of the clinical trial 
     including: the investigational item or service, items and 
     services not used in the direct clinical management of the 
     patient, and items and services customarily provided by the 
     research sponsor free of charge for any enrollee in the 
     trial.
       Coding. The Secretary issues temporary national Health care 
     Common Procedure Coding System (HCPCS) codes under Medicare 
     Part B that are used until permanent codes are established.
     House Bill
       Coverage. The Secretary would be required to make available 
     to the public the factors considered in making national 
     coverage determinations of whether an item or service is 
     reasonable and necessary. The Secretary would be required to 
     develop guidance documents similar to those required by the 
     Federal Food, Drug and Cosmetic Act (21 U.S.C. 371(h)). The 
     provision would establish a time frame for decisions 
     regarding national coverage determinations of 6 months after 
     a request when a technology assessment is not required and 9 
     months when a technology assessment is required and in which 
     a clinical trial is not requested.
       Following the 6- or 9-month period, the Secretary would be 
     required to make a draft of the proposed decision available 
     in the HHS website or by other means; to provide a 30-day 
     public comment period; to make a final decision on the 
     request within 60 days following the conclusion of the public 
     comment period; make the clinical evidence and data used in 
     making the decision available to the public when the decision 
     differs from the recommendations of the Medicare Coverage 
     Advisory Committee; and in the case of a decision to grant 
     the coverage determination, assign a temporary or permanent 
     code and implement the coding change. In instances where a 
     request for a national coverage determination is not reviewed 
     by the Medicare Coverage Advisory Committee, the Secretary 
     would be required to consult with appropriate outside 
     clinical experts.
       The Secretary would also be required to develop a plan to 
     evaluate new local coverage determinations to decide which 
     local decisions should be adopted nationally and to decide to 
     what extent greater consistency can be achieved among local 
     coverage decisions, to require the Medicare contractors 
     within an area to consult on new local coverage policies, and 
     to disseminate information on local coverage determination 
     among Medicare contractors to reduce duplication of effort. 
     The provision would be effective for determinations as of 
     January 1, 2004.
       Clinical Trials. Medicare would cover the routine costs of 
     care for beneficiaries participating in clinical trials that 
     are conducted in accordance with an investigational device 
     exemption approved under section 530(g) of the Federal Food, 
     Drug, and Cosmetic Act. The provision would be effective for 
     clinical trials begun before, on, or after the date of 
     enactment and to items and services furnished on or after 
     enactment.
       Coding. The Secretary would be required to implement 
     revised procedures for the issuance of temporary national 
     HCPCS codes by January 1, 2004. The provision would further 
     require the Secretary to use data reflecting prices and costs 
     of products in the United States in setting payment rates. 
     The provision would be effective upon enactment.
     Senate Bill
       Coverage. The provision would establish a time frame for 
     decisions regarding national coverage determinations of 6 
     months after a request when a technology assessment is not 
     required and 9 months when a technology assessment is 
     required and in which a clinical trial is not requested. 
     Following the 6- or 9-month period, the Secretary would be 
     required to make a draft of the proposed decision available 
     in the HHS website or by other means; to provide a 30-day 
     public comment period; to make a final decision on the 
     request within 60 days following the conclusion of the public 
     comment period; make the clinical evidence and data used in 
     making the decision available to the public when the decision 
     differs from the recommendations of the Medicare Coverage 
     Advisory Committee; and in the case of a decision to grant 
     the coverage determination, assign a temporary or permanent 
     code and implement the coverage decision at the end of the 
     60-day period. The provision would apply to national coverage 
     determinations as of January 1, 2004.
       The Secretary would be required to establish a Council for 
     Technology and Innovation composed of senior CMS staff and 
     clinicians to coordinate coverage, coding, and payment 
     processes under Title XVIII and the exchange of information 
     on new technologies between CMS and other entities that make 
     similar decisions. The provision would be effective upon 
     enactment.
       Clinical Trials. The routine costs of care for Medicare 
     beneficiaries participating in clinical trials that are 
     conducted in accordance with an investigational device 
     exemption approved under Senate Section 530(g) of the Federal 
     Food, Drug, and Cosmetic Act would be covered. This provision 
     would not require the Secretary to modify the existing 
     regulations and cover the cost of a medical device that is 
     the subject of an investigational device exemption by the 
     Food and Drug Administration. The Secretary would be required 
     to ensure that total Medicare expenditures associated with 
     this provision do not exceed: $32 million in 2005; $34 
     million in 2006; $36 million in 2007; $38 million in 2008; 
     $40 million in 2009; $42 million in 2010; $44 million in 
     2011; $48 million in 2012; and $50 million in 2013. The 
     Secretary would be required to take appropriate steps to stay 
     within these funding limitations, including limiting the 
     number of clinical trials covered and paying for only a 
     portion of the associated routine costs. The provision would 
     be effective for clinical trials begun before, on, or after 
     the date of enactment and to items and services furnished on 
     or after January 1, 2005.
       Coding. No provision.
     Conference Agreement
       Coverage. The conference agreement requires the Secretary 
     to make available to the public the factors considered in 
     making national coverage determinations of whether an item or 
     service is reasonable and necessary. The Secretary is 
     required to develop guidance documents similar to those 
     required by the Federal Food, Drug and Cosmetic Act (21 
     U.S.C. 371(h)). The provision establishes a timeframe for 
     decisions regarding national coverage determinations of 6 
     months after a request when a technology assessment is not 
     required and 9 months when a technology assessment is 
     required and in which a clinical trial is not requested.
       Following the 6- or 9-month period, the Secretary is 
     required to make a draft of the proposed decision available 
     in the HHS website or by other means; to provide a 30-day 
     public comment period; to make a final decision on the 
     request with 60 days following the conclusion of the public 
     comment period; make the clinical evidence and data used in 
     making the decision available to the public when the decision 
     differs from the recommendations of the Medicare Coverage 
     Advisory Committee; and in the case of a decision to grant 
     the coverage determination, assign a temporary or permanent 
     code and implement the coding change. In instances where a 
     request for a national coverage determination is not reviewed 
     by the Medicare Coverage Advisory Committee, the Secretary is 
     required to consult with appropriate outside clinical 
     experts.
       The Secretary is also required to develop a plan to 
     evaluate new local coverage determinations to decide which 
     local decisions should be adopted nationally and to decide to 
     what extent greater consistency can be achieved among local 
     coverage decisions, to

[[Page H12072]]

     require the Medicare contractors within an area to consult on 
     new local coverage policies, and to disseminate information 
     on local coverage determination among Medicare contractors to 
     reduce duplication of effort. The provision is effective for 
     national determinations as of January 1, 2004 and for local 
     coverage determinations made on or after July 1, 2004.
       Clinical Trials. The conference agreement prohibits the 
     Secretary from excluding from Medicare coverage the routine 
     costs of care incurred by a Medicare beneficiary 
     participating in a category A clinical trial, beginning with 
     routine costs incurred on and after January 1, 2005. The 
     conference agreement makes clear that this provision does not 
     apply to, or affect, Medicare coverage or payment for a non-
     experimental/investigational (category B) device.
       Coding. The conference agreement requires the Secretary to 
     implement revised procedures for issuing temporary national 
     HCPCS codes under Medicare Part B no later than July 1, 2004.
       Extension of Treatment for Certain Physician Pathology 
     Services Under Medicare (Section 732 of the Conference 
     Agreement, Section 734 of the House Bill, and Section 435 of 
     the Senate Bill).
     Present Law
       In general, independent laboratories cannot directly bill 
     for the technical component of pathology services provided to 
     Medicare beneficiaries who are inpatients or outpatients of 
     acute care hospitals. BIPA permitted independent laboratories 
     with existing arrangements with acute care hospitals to bill 
     Medicare separately for the technical component of pathology 
     services provided to the hospitals' inpatients and 
     outpatients. The arrangement between the hospital and the 
     independent laboratory had to be in effect as of July 22, 
     1999. The direct payments for these services apply to 
     services furnished during a 2-year period starting on January 
     1, 2001 and ending December 31, 2002.
     House Bill
       Medicare would make direct payments for the technical 
     component of pathology services furnished to beneficiaries 
     who are inpatients or outpatients of acute care hospitals on 
     or after January 1, 2004 until December 31, 2008. A change in 
     hospital ownership would not affect these direct billing 
     arrangements. The provision would be effective as if it had 
     been included in BIPA.
     Senate Bill
       Direct payments for the technical component for these 
     pathology services would be made for services furnished 
     during 2005. The provision would be effective upon enactment.
     Conference Agreement
       Direct payments for the technical component for these 
     pathology services will be made for services furnished during 
     2005 and 2006.
       Payment for Pancreatic Islet Cell Investigational 
     Transplants for Medicare Beneficiaries in Clinical Trials 
     (Section 733 of the Conference Agreement, Section 735 of the 
     House Bill, and Section 462 of the Senate Bill).
     Present Law
       No explicit statutory authorization. Under existing 
     authorities, Medicare covers the routine costs of qualifying 
     clinical trials which includes items or services typically 
     provided absent a clinical trial and items or services needed 
     for the diagnosis or treatment of complications. Medicare 
     does not pay for certain aspects of the clinical trial 
     including: the investigational item or service, items and 
     services not used in the direct clinical management of the 
     patient, and items and services customarily provided by 
     the research sponsor free of charge for any enrollee in 
     the trial.
     House Bill
       Medicare would be required to pay for the routine costs for 
     items and services that beneficiaries receive as part of a 
     clinical investigation of pancreatic islet cell transplants 
     conducted by the National Institute of Health. The provision 
     would be effective upon enactment.
     Senate Bill
       The Secretary would be required to establish a 5-year 
     demonstration project to pay for pancreatic islet cell 
     transplantation and related items and services for Medicare 
     beneficiaries who have type 1 diabetes and end-stage renal 
     disease. The Secretary would be required to establish an 
     appropriate methodology to pay for the items and services 
     furnished under the demonstration. A report to Congress would 
     be required on the project 4 months after the demonstration 
     ends. The provision would be effective upon enactment.
     Conference Agreement
       The conference agreement requires the Secretary, acting 
     through the National Institute of Diabetes and Digestive and 
     Kidney Disorders, to conduct a clinical investigation of 
     pancreatic islet cell transplantation which includes Medicare 
     beneficiaries. Beginning no earlier than October 1, 2004, the 
     Secretary is required to pay for the routine costs as well as 
     transplantation and appropriate related items and services 
     for Medicare beneficiaries who are participating in such a 
     trial.
       In implementing the clinical investigation of pancreatic 
     islet cell transplantations, CMS, in working with NIH, should 
     ensure that a sufficient number of Medicare beneficiaries 
     participate so that the results are applicable to the broader 
     Medicare population with Type 1 diabetes and Medicare is able 
     to make an informed decision regarding coverage of pancreatic 
     islet transplantation.
       Restoration of Trust Funds (Section 734 of the Conference 
     Agreement and Section 623 of the Senate Bill).
     Present Law
       The Federal Hospital Insurance (HI) Trust Fund was 
     established on July 30, 1965 as a separate account in the 
     U.S. Treasury. All of the HI financial operations are handled 
     through this fund. The trust fund's primary source of income 
     consists of amounts appropriated to it, under permanent 
     authority, on the basis of taxes paid by workers, their 
     employers, and individuals with self-employment income. Up to 
     85% of an individual or a couples Old Age and Survivors, 
     Disability Insurance (OASDI) benefits may be subject to 
     federal income taxation if their income exceeds certain 
     thresholds. The income tax revenue attributable to the first 
     50% of the OASDI benefits is allocated to the OAS and DI 
     trust funds. The revenue associated with the amount between 
     50% and 85% is allocated to the HI trust funds. An incorrect 
     amount of income from the taxation of OASDI benefits was 
     transferred into the HI Trust Fund in April 2001, because of 
     clerical error. An additional amount was transferred into the 
     HI Trust Fund in December, 2001 to correct for the principal 
     component of the error. Correction of the interest component 
     associated with the clerical error requires legislation.
     House Bill
       No provision.
     Senate Bill
       After consultation with the Secretary of HHS, the Secretary 
     of the Treasury would be required to transfer into the HI 
     Trust fund an amount that would have been held by that fund 
     if the clerical error had not occurred within 120 days of 
     enactment.
     Conference Agreement
       The conference agreement requires the Secretary of the 
     Treasury to transfer into the HI Trust Fund an amount that 
     would have been held by that fund if the clerical error had 
     not occurred. Such money is appropriated to the HI Trust 
     Fund. The appropriation is made and transfer is required 
     within 120 days of enactment of this Act. In the case of a 
     clerical error that occurs after April 15, 2001, the 
     Secretary of the Treasury is required to notify the 
     appropriate committees of Congress about the error and the 
     actions to be taken, before such action is taken.
       Modifications to Medicare Payment Advisory Commission 
     (MedPAC) (Section 735 of the Conference Agreement and Section 
     731 of the House Bill).
     Present Law
       The Medicare Payment Advisory Commission is a 17-member 
     body that reports and makes recommendations to Congress 
     regarding Medicare payment policies. The Comptroller General 
     is required to establish a public disclosure system for 
     Commissioners to disclose financial and other potential 
     conflicts of interest.
     House Bill
       MedPAC would be required to examine the budgetary 
     consequences of a recommendation before making the 
     recommendation and to review the factors affecting the 
     efficient provision of expenditures for services in different 
     health care sectors under Medicare fee-for-service. MedPAC 
     would be required to submit 2 additional reports no later 
     than June 1, 2004. The first report would study the need for 
     current data, and the sources of current data available, to 
     determine the solvency and financial circumstances of 
     hospitals and other Medicare providers. MedPAC would be 
     required to examine data on uncompensated care, as well as 
     the share of uncompensated care accounted for by the expenses 
     for treating illegal aliens. The second report would address 
     investments and capital financing of hospitals participating 
     under Medicare and access to capital financing for private 
     and not-for-profit hospitals. The provision would also 
     require that members of the Commission be treated as 
     employees of Congress for purposes of financial disclosure 
     requirements.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires that MedPAC is to examine 
     the budgetary consequences of a recommendation before making 
     the recommendation and to review the factors affecting the 
     efficient provision of expenditures for services in different 
     health care sectors under Medicare fee-for-service. MedPAC is 
     required to submit 2 additional reports no later than June 1, 
     2004. The first report is to study the need for current data 
     and the sources of current data available, to determine the 
     solvency and financial circumstances of hospitals and other 
     Medicare providers. The second report is to address 
     investments and capital financing of hospitals participating 
     under Medicare and access to capital financing for private 
     and not-for-profit hospitals.
       The conference agreement requires that the Comptroller 
     General appoint experts in the area of pharmaco-economics or 
     prescription drug benefit programs to MedPAC. In addition, 
     members of the Commission are required to be treated as 
     employees of Congress for purposes of financial disclosure 
     requirements and the Comptroller General is required to 
     ensure compliance with this requirement.

[[Page H12073]]

       Technical Amendments (Section 736 of the Conference 
     Agreement).
     Present Law
       The Medicare, Medicaid, and SCHIP Benefit Improvement and 
     Protection Act of 2000 (BIPA) contains certain grammatical 
     omissions.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement corrects the grammatical 
     omissions.
       Institute of Medicine Report (Section 723 of the House 
     Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       MedPAC Report (Section 724 of the House Report).
     Present Law
       No provision.
     House Bill
       MedPAC would be required to evaluate the chronic care 
     improvement program. The evaluation would be required to 
     include a description of the status of the implementation of 
     the programs, the quality of health care services provided to 
     individuals participating in the program, and the cost 
     savings attributed to the implementation of the program. The 
     report of the evaluation would be required to be submitted to 
     Congress not later than two years after the implementation of 
     the programs. The provision would be effective upon 
     enactment.
     Senate Bill
       No provision.
     Conference Agreement
       No provision.
       MedPAC Study on Medicare Payments and Efficiencies in the 
     Health Care System (Section 455 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       MedPAC would be required to make recommendations to 
     Congress regarding ways to recognize and reward efficiencies 
     and lower utilization of services created by the practice of 
     medicine in historically efficient and low-cost areas. The 
     recommendations would be required to be made within 
     established Medicare payment methodologies for hospitals and 
     physicians. The measures of efficiency would include: shorter 
     than average hospital stays; fewer than average physician 
     visits; fewer than average laboratory tests; greater than 
     average utilization of hospice services; and the efficacy of 
     disease management and preventive health services. The 
     recommendations would be due 18 months after enactment.
     Conference Agreement
       No provision.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A: Cost Containment

       Inclusion in Annual Report of Medicare Trustees of 
     Information on Status of Medicare Trust Funds (Section 801 of 
     the Conference Agreement, Section 131 of House Bill; Sections 
     131 and 132 of Senate Bill ).
     Current Law
       The Medicare Board of Trustees was established under the 
     Social Security Act to oversee the financial operations of 
     the Medicare Hospital Insurance (HI) trust fund and the 
     Medicare Supplementary Medical Insurance (SMI) trust fund. 
     The Trustees are required to submit annual reports to the 
     Congress.
       The HI trust fund revenues come primarily from payroll 
     taxes. Employers and employees each pay 1.45% of their 
     earnings, while self-employed workers pay 2.9% of their net 
     income. Other HI revenue sources include interest on the 
     investments of the trust fund, federal income taxes on Social 
     Security benefits, premiums from voluntary enrollees into 
     Part A, railroad retirement account transfers and 
     reimbursement for certain uninsured persons. Medicare Part A 
     pays for beneficiaries medical expenses incurred in 
     hospitals, skilled nursing facilities, hospices, and a 
     portion of home health care services.
       The SMI trust fund revenues are composed of beneficiary 
     premiums to purchase Part B and general revenues. The Part B 
     premium is set at an amount so that aggregate premiums are 
     estimated to equal 25% of program costs and the monthly 
     premium for 2003 is $58.70. General revenues comprise the 
     remaining 75% of Part B program costs. Medicare Part B pays 
     for the following: physician and other health care 
     practitioner services; other medical and health services, 
     including laboratory and diagnostic tests; outpatient 
     hospital services and clinic services; and therapy and 
     ambulance services; durable medical equipment, and home 
     health services not covered under Part A.
     House Bill
       The provision would require the trustees to submit a 
     combined report on the status of the two trust funds and the 
     Prescription Drug Trust Fund. The report would include a 
     statement of the total amounts obligated during the preceding 
     fiscal year from the General Revenues of the Treasury for 
     payment of benefits and the percentage such amount bore to 
     all other general revenue obligations of the Treasury in that 
     year. This information would be provided for each year 
     beginning with the inception of Medicare. Ten-year and 75-
     year projections would also be required. The report would 
     also provide a comparison to the rate of growth in the gross 
     domestic product. Each report would be published by the 
     Committees on Ways and Means and Energy and Commerce and be 
     made available on the Internet.
     Senate Bill
       Section 131 would require the trustees to submit a combined 
     report on the status of the two trust funds including the 
     Prescription Drug Account. The report would include a 
     statement of the total amounts obligated during the preceding 
     fiscal year from the General Revenues of the Treasury and the 
     percentage such amount bore to all other obligations of the 
     Treasury in that year. This calculation would be made 
     separately for Medicare benefits and for administrative and 
     other expenses. This information would be provided for each 
     year beginning with the inception of Medicare. Ten-year and 
     50-year projections would also be required. The report would 
     also provide a comparison of the rates of growth for both 
     benefits and administrative costs to the rates of growth in 
     the gross domestic product, health insurance costs in the 
     private sector, employment-based health insurance costs in 
     the public and private sectors, and other areas as determined 
     appropriate by the Board of Trustees.
       The section would express the sense of the Congress that 
     the committees of jurisdiction would hold hearings on these 
     reports.
       Section 132 would require the 2004 reports to include an 
     analysis of the total amount of unfunded obligation of 
     Medicare. The analysis would compare long-term obligations, 
     including the combined obligations of the HI and SMI trust 
     funds, to the dedicated funding sources for the program (not 
     including transfers of general revenue)
     Conference Agreement
       Beginning with their report in 2005, the Trustees' annual 
     report is required to include information on: (1) projections 
     of growth of general revenue Medicare spending as a 
     percentage of the total Medicare outlays for the fiscal year 
     and each of the succeeding 6 fiscal years, 10, 50, and 75 
     years after the fiscal year, and previous fiscal years; (2) 
     comparisons with the growth trends for the gross domestic 
     product, private health costs, national health expenditures, 
     and other appropriate measures; (3) expenditures and trends 
     in expenditures under Part D; and (4) a financial analysis of 
     the combined Medicare trust funds if general revenue funding 
     for Medicare is limited to 45 percent of total Medicare 
     outlays. The trust fund reports are also required to include 
     a determination as to whether there is projected to be 
     ``excess general revenue Medicare funding'' (as defined in 
     the paragraph below) for any of the succeeding 6 fiscal years 
     in its annual reports of Medicare's trust funds.
       ``Excess general revenue Medicare funding'' is defined as 
     general revenue Medicare funding expressed as a percentage of 
     total Medicare outlays in excess of 45 percent. This measure 
     is calculated by dividing total Medicare outlays minus 
     dedicated Medicare financing sources by total Medicare 
     outlays.
       An affirmative determination of excess general revenue 
     funding of Medicare for 2 consecutive annual reports will be 
     treated as funding warning for Medicare in the second year 
     for the purposes of requiring Presidential submission of 
     legislation to Congress. Whenever any Trustees report 
     includes a determination that within the 7-fiscal-year period 
     there will be excess general revenue Medicare funding, 
     Congress and the President are advised to address the matter 
     under existing rules and procedures.
       Dedicated Medicare financing sources include amounts 
     appropriated to the HI trust fund for payroll taxes, 
     transfers from the Railroad Retirement accounts, 
     reimbursements for uninsured persons, and reimbursement for 
     transitional insured coverage; taxation of certain OASDI 
     benefits and tier II railroad retirement taxes, state 
     transfers for Medicare coverage of eligible individuals who 
     receive public assistance; premiums for Parts A, B, and D 
     paid by non-Federal sources including amounts from voluntary 
     enrollees (Part A), adjustments (Part B) and the MA 
     monthly prescription drug beneficiary premiums paid under 
     Part C that are attributable to basic prescription drug 
     coverage (Part D); and gifts received by the Medicare 
     trust funds. The premium amounts are determined without 
     regard to any reduction in the Part B premiums 
     attributable to the beneficiary rebate under the MA 
     program and Part D premium amounts are deemed to include 
     any penalties for late enrollment.
       Medicare outlays means total outlays from the Medicare 
     trust funds and include payments made to plans under part C 
     that are attributable to any rebates under the Medicare 
     Advantage program and Medicare administrative expenditures. 
     These outlays are required to be offset by the amount of 
     fraud and abuse collection when applied to or deposited into 
     a Medicare trust fund.
       The Medicare trust funds are defined as the Federal 
     Hospital Insurance Trust Fund and the Federal Supplementary 
     Medical Insurance Trust Fund which includes the Medicare 
     Prescription Drug Account.

[[Page H12074]]

       Presidential Submission of Legislation (Section 802 of the 
     Conference Agreement).
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       In the event that a Medicare funding warning is made, the 
     President is required to submit to Congress proposed 
     legislation to respond to the warning. This must be completed 
     within the 15-day period beginning on the date of the budget 
     submission to Congress for the succeeding year it is made. If 
     during the year in which the warning is made, legislation is 
     enacted which eliminates excess general revenue Medicare 
     funding for the 7-fiscal year period, then the President is 
     not required to make a legislative proposal. The conference 
     agreement expresses a sense of Congress that legislation 
     submitted in this regard should be designed to eliminate 
     excess general revenue Medicare funding for the 7-fiscal year 
     period that begins in such year, as certified by the Board of 
     Trustees not later than 30 days after the date of enactment.
       Procedures in the House of Representatives (Section 803 of 
     the Conference Agreement).
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement sets out the procedures for House 
     consideration of the President's legislative proposal. Within 
     3 days of receiving the President's legislative proposal, the 
     Majority Leader and Minority Leader of the House, or their 
     designees, are required to introduce the proposal. Any 
     legislation introduced is required to be referred to the 
     appropriate committees which are required to report Medicare 
     funding legislation no later than June 30. The chairman of 
     the Committee on the Budget is required to certify whether or 
     not Medicare funding legislation eliminates excess general 
     revenue Medicare funding for any year within the 7-fiscal 
     year period and whether the legislation would eliminate 
     excess general revenue Medicare funding within the 7-fiscal 
     year period.
       If the House fails to vote on final passage of the 
     legislation by July 30, fallback procedures are provided for 
     under the conference agreement. After 30 calendar days (and 
     concurrently 5 legislative days) after the introduction of 
     the legislation, a move to discharge any committee to which 
     the legislation has been referred is in order, under 
     specified circumstances, and debate on the motion to 
     discharge is limited to one hour.
       The conference agreement provides for floor consideration 
     in the House of the discharged legislation by the Committee 
     of the Whole no later than 3 legislative days after 
     discharge.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       Section 804 provides for some limited special procedures in 
     the Senate for consideration of legislation arising from the 
     Medicare Trustees determination that there will be ``excess 
     general revenue Medicare funding'' under section 801.
       If the Medicare Trustees report, pursuant to section 801, 
     includes a ``medicare funding warning'' and if the President 
     submits the legislation described in section 802 in response 
     to such warning, that legislation (along with any other 
     qualifying legislation otherwise introduced in the Senate or 
     received from the House) will be entitled to the special 
     procedures set out in section 804.
       Section 804(a) requires the Majority Leader and the 
     Minority Leader (or their designees) to introduce the 
     President's legislation. Such legislation must be entitled 
     ``A bill to respond to a medicare funding warning.'' This 
     bill, regardless of the subject matter and notwithstanding 
     any jurisdictional precedents of the Senate, shall be 
     referred to the Committee on Finance. Any other legislation 
     introduced by any member of the Senate, bearing this same 
     title, shall also be referred to the Committee on Finance. 
     Such referrals shall not be considered to create any 
     jurisdictional precedents for the Senate.
       Section 804(c) provides that this ``medicare funding 
     legislation'' will be entitled to the special rules set out 
     in subsections (d) and (e) only if: (1) it was passed by the 
     House or (2) it is limited to matters within the jurisdiction 
     of the Committee on Finance. This subsection ensures that a 
     measure is subject to the special rules (whether it be the 
     President's bill or one introduced by a member of the Senate) 
     only if its contents are limited to matters solely within the 
     jurisdiction of Finance. Thus the President or any member of 
     the Senate may propose any type of legislation in the name of 
     eradicating the ``excess general revenue Medicare funding'', 
     but only those measures which conform with the jurisdictional 
     constraints of the Committee on Finance, shall be entitled to 
     the special procedures set out in this section.
       Clearly however, the Senate can not dictate the content of 
     the House-passed measure. Thus subsection (c) explicitly 
     states that a bill coming over from the House would still be 
     entitled to these special procedures. The conferees intend 
     that these procedures apply to the House-passed bill 
     regardless of any jurisdictional issues, but limit the 
     application of the procedures to a Senate-originated matter 
     that is within the jurisdiction of Finance. If a measure does 
     not qualify for these special procedures, then it shall be 
     considered under the regular order in the Senate.
       Section 804(d) provides a unique mechanism in the Senate: a 
     motion to discharge a specific piece of legislation. 
     Subsection (d) states that if the Committee on Finance has 
     not reported any ``medicare funding legislation'' by June 30 
     then it is in order for any Senator to move to discharge the 
     committee from any one of the pieces of ``medicare funding 
     legislation'' that has been referred to that committee. Only 
     one motion may be made in any session of Congress and such 
     motion may only refer to a single piece of legislation. This 
     motion is not amendable and debate of the motion and any 
     related appeals is limited to 2 hours. The 2 hours is to be 
     equally divided and controlled between the maker of the 
     motion and the Majority Leader (or their designees). If the 
     Majority Leader supports the motion, then the time in 
     opposition will be controlled by the Minority Leader (or the 
     Minority Leader's designee).
       Unlike other instances of limited debate, in this case, a 
     point of order may be made at any time during the 2 hours--a 
     Senator need not await the expiration or yielding back of 
     time to do so. Any appeal made within the 2 hours, may be 
     debated for whatever time remains if any Senator desires to 
     debate the appeal. Any motion or appeal made after the 2 
     hours shall be decided without debate. It is not in order to 
     move to proceed to the consideration of any other measure or 
     matter while the motion to discharge (or the motion to 
     reconsider the vote with respect to the motion to discharge) 
     is pending. The only motions in order during the 2 hours (or 
     at the conclusion of the 2 hours) of debate are as follows: 
     to postpone to a day certain, to postpone indefinitely, to 
     lay on the table, to take a recess, to adjourn to a day 
     certain, to adjourn. These motions shall have the same 
     precedence as described in Rule XXII of the Standing Rules of 
     the Senate. Note that pursuant to subsection (d)(2), the 
     motion to proceed to executive business (which is listed in 
     Rule XXII) as well as the motion to proceed to any other 
     legislative matter is explicitly precluded.
       Pursuant to subsection (d)(4), this special motion to 
     discharge is no longer available if the Chairman of the 
     Committee on the Budget certifies that ``medicare funding 
     legislation'' which eliminates the ``excess general revenue 
     medicare funding'' described in section 801(c) has been 
     enacted in that session.
       Subsection (e) reiterates the fact that under existing 
     Senate procedures once ``medicare funding legislation'' has 
     been placed on the Calendar (having been either reported or 
     discharged from the committee) it is in order for any member 
     of the Senate to make a motion to proceed to the 
     consideration of that measure. Such motion and all subsequent 
     actions in the Senate shall be considered under the Standing 
     Rules of the Senate and the precedents thereto or pursuant to 
     any unanimous consent agreements reached, as the case may be. 
     This section should not be interpreted as creating a 
     ``privileged'' measure in the Senate. Consequently, it is the 
     intent of the Conferees that there will be no further special 
     procedures (such as a waiver or alteration of the procedures 
     with respect to reports set out in Rule XVII or any other 
     rule of the Standing Rules of the Senate) available to such 
     measures as a result of this Act.

     Subtitle B: Income-Related Reduction in Part B Premium Subsidy

     Present Law
       The Medicare Part B premium is currently set each year to 
     cover 25 percent of Medicare's benefits under Part B. When 
     Medicare was created in 1965, the Part B premium was set to 
     cover 50 percent of the costs of the Part B benefits. The 
     share of Part B spending covered by the premium declined 
     between 1975 and 1983 to less than 25 percent of spending, 
     because during that time premium increases were limited by 
     the cost-of-living adjustment for Social Security benefits. 
     During the late 1980s and early 1990s, Congress routinely 
     voted to set the Part B premium at 25 percent of Part B 
     costs, and that percentage was codified in the Balanced 
     Budget Act of 1997 (BBA 97).
       All seniors over age 65 who elect Part B during their 
     initial enrollment period pay the same Part B premium, 
     regardless of income.
     House Bill
       No provision.
     Senate Amendment
       No provision.
     Conference Agreement
       In order to begin to address the fiscal challenges facing 
     the Medicare program, beginning in 2007, Medicare 
     beneficiaries with incomes over $80,000 for an individual or 
     $160,000 for a married couple will be asked to contribute 
     more to the cost of their Medicare benefits through payment 
     of a higher premium. Approximately 4 percent of Medicare 
     beneficiaries have incomes above these levels. All 
     beneficiaries will continue to receive some level of premium 
     assistance, and all beneficiaries will continue to be 
     eligible for the full range of Medicare benefits. This 
     proposal will target taxpayer dollars at those who need it 
     the most by reducing the government subsidy for those who 
     have the resources to cover more of their own costs.

[[Page H12075]]

       Beneficiaries with incomes under $80,000 for an individual 
     and $160,000 for a married couple will continue to receive a 
     government subsidy at 75 percent and pay premiums at the 25 
     percent rate. Those with incomes between $80,000 and $100,000 
     ($160,000 and $200,000 for a married couple) will receive a 
     65 percent subsidy and pay 35 percent as a premium. Those 
     with incomes between $100,000 and $150,000 ($200,000 and 
     $300,000 for a couple) will receive a 50 percent subsidy and 
     pay a premium at 50 percent. Those with incomes between 
     $150,000 and $200,000 ($300,000 and $400,000 for a married 
     couple) will receive a 35 percent subsidy and pay a premium 
     at a 65 percent rate. Those with incomes above $200,000 
     ($400,000 for a married couple) will receive a 20 percent 
     subsidy and pay a premium at an 80 percent rate.
       Beneficiaries who are affected will be notified of their 
     premium levels at the start of the year. They may appeal 
     their premium level based on major changes in life 
     circumstances, such as divorce, marriage, or death of a 
     spouse. Although this policy affects only a small number of 
     beneficiaries, it will have a significant impact in 
     controlling the growth of Medicare spending in the future.
       To facilitate the income-related reduction in Part B 
     premium subsidy, the conference agreement authorizes the 
     disclosure of certain return information to employees and 
     contractors of the Social Security Administration. Upon 
     written request from the Commissioner of Social Security, the 
     IRS may disclose certain items of return information with 
     respect to a taxpayer whose premium may be subject to 
     adjustment. With respect to such taxpayers, the IRS may 
     disclose (1) taxpayer identity information; (2) filing 
     status; (3) adjusted gross income; (4) the amounts excluded 
     from such taxpayer's gross income under sections 135 and 911 
     of the Internal Revenue Code (relating to income from United 
     States Savings bonds used to pay higher education tuition and 
     fees, and foreign earned income); (5) tax-exempt interest 
     received or accrued during the taxable year to the extent 
     such information is available; (6) amounts excluded from such 
     taxpayer's gross income by sections 931 and 933 of the 
     Internal Revenue Code (relating to income from sources within 
     Guam, American Samoa, the Northern Mariana Islands, or Puerto 
     Rico); (7) for nonfilers only, such other information 
     relating to the liability of the taxpayer as the Secretary 
     may prescribe by regulation, as might indicate that the 
     amount of the premium of the taxpayer may be subject to 
     adjustment (including estimated tax payments and income 
     information derived from Form W-2, Form 1099, or similar 
     information returns); and (8) the taxable year with respect 
     to which the preceding information relates. Return 
     information disclosed under this authority may be used by 
     employees and contractors of the Social Security 
     Administration only for purposes of, and to the extent 
     necessary in, establishing the appropriate amount of any Part 
     B premium adjustment. Employees and contractors of the Social 
     Security Administration are subject to the penalties for 
     unauthorized disclosure and inspection, as well as the 
     applicable safeguard requirements.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

       Administrative Improvements within the Centers for Medicare 
     & Medicaid Services (CMS) (Section 900 of the Conference 
     Agreement, Sections 801 and 802 of the House Bill, Sections 
     301 and 302 of the Senate Bill).
     Present Law
       The authority for administering the Medicare program 
     resides with the Secretary of Health and Human Services. The 
     Secretary originally created the agency that administers the 
     Medicare and Medicaid programs in 1977 under his 
     administrative authority. Regulations regarding Medicare are 
     required to be promulgated by the Secretary. The Medicare 
     statute requires that the Administrator of the Centers for 
     Medicare & Medicaid Services (CMS formerly known as the 
     Health Care Financing Administration) be appointed by the 
     President with the advice and consent of the Senate. Title 5 
     of the U.S. Code sets the Administrator's salary at level IV 
     of the Executive Schedule. The Medicare statute requires that 
     the HCFA administrator appoint a Chief Actuary who reports 
     directly to such administrator and is paid at the highest 
     rate of basic pay for the Senior Executive Service.
     House Bill
       The section would amend title XVIII to add new section 1809 
     which, under subsection (a), would establish a new Medicare 
     Benefits Administration (MBA) within the Department of Health 
     and Human Services.
       Subsection (b) would provide for an Administrator and 
     Deputy Administrator of the MBA. Both would be appointed by 
     the President with the advice and consent of the Senate for 
     4-year terms. If a successor did not take office at the end 
     of the term, the Administrator would continue in office until 
     the successor enters the office. In that event, the confirmed 
     successor's term would be the balance of the 4-year period. 
     The Administrator would be paid at level III of the Executive 
     Schedule and the Deputy Administrator at level IV of the 
     Executive Schedule. The Administrator would be responsible 
     for the exercise of all powers and the discharge of duties of 
     the MBA and has authority and control over all personnel. The 
     provision would permit the Administrator to prescribe such 
     rules and regulations as the Administrator determined 
     necessary or appropriate to carry out the functions of MBA, 
     subject to the Administrative Procedure Act. The 
     Administrator would be able to establish different 
     organizational units within the MBA except for any unit, 
     component, or provision specifically provided for by section 
     1809. The Administrator may assign duties, delegate, or 
     authorize redelegations of authority to MBA officers and 
     employees as needed. The Secretary of Health and Human 
     Services shall ensure appropriate coordination between the 
     Administrator of MBA and the Administrator of the Centers for 
     Medicare & Medicaid Services (CMS) in administering the 
     Medicare program. The provision also would establish a 
     position of Chief Actuary within the MBA who would be 
     appointed by the Administrator and paid at the highest rate 
     of basic pay for the Senior Executive Service. The Chief 
     Actuary would exercise such duties as are appropriate for the 
     office of Chief Actuary and in accordance with professional 
     standards of actuarial independence.
       Subsection (c) would prescribe the duties of the 
     Administrator and administrative provisions relating to the 
     MBA. In administering parts C, D, and E of Medicare, the 
     Administrator would be required to negotiate, enter into and 
     enforce contracts with Medicare Advantage plans and enhanced 
     fee-for-service plans and with prescription drug plan 
     sponsors for Medicare prescription drug plans. The 
     Administrator would be required to carry out any duty 
     provided for under part C, D, or E of Medicare including 
     implementing the prescription drug discount card endorsement 
     program and demonstration programs (that are carried out in 
     whole or in part under part C, D, or E). The provision 
     specifically prohibits the Administrator from requiring a 
     particular formulary or instituting a price structure for the 
     reimbursement of covered drugs, from interfering in any way 
     with negotiations between prescription drug plan sponsors and 
     Medicare Advantage organizations and enhanced fee-for-service 
     organizations and drug manufacturers, wholesalers, or other 
     suppliers of covered drugs; and otherwise interfering with 
     the competitive nature of providing prescription drug 
     coverage through such entities and organizations. These 
     negotiations would be carried out by private plans, eager to 
     capture market share through lower premiums, and 
     manufacturers, willing to negotiate discounts for volume 
     assurance. Such private sector entities are far better suited 
     to achieve maximum discounts and lower premiums for plan 
     participants than a disinterested Administrator.
       The Administrator would be required to submit a report to 
     Congress and the President on the administration of parts C, 
     D, and E during the previous year by not later than March 31 
     of each year.
       The Administrator, with the approval of the Secretary, 
     would be permitted to hire staff to administer the activities 
     of MBA without regard to chapter 31 of title 5 of the U.S. 
     Code, except for 12 sections. The Administrator would be 
     required to employ staff with appropriate and necessary 
     experience in negotiating contracts in the private sector. 
     The staff of MBA would be paid without regard to chapter 51 
     (other than section 5101 requiring classification of 
     positions according to certain principles) and chapter 53 
     (other than section 5301 relating to the principles of pay 
     systems) of title 5 of the U.S. Code. The rate of 
     compensation for staff of MBA would not be able to exceed 
     level IV of the Executive Schedule. The Administrator would 
     be limited in the number of full-time-equivalent (FTEs) 
     employees for the MBA to the number of FTEs within CMS 
     performing the functions being transferred at the time of 
     enactment. The Secretary, the Administrator of MBA and the 
     Administrator of CMS would be required to establish an 
     appropriate transition of responsibility to redelegate the 
     administration of Medicare part C from CMS to MBA. The 
     provision would require the Secretary to ensure that the 
     Administrator of CMS transfers such information and data as 
     the Administrator of MBA requires to carry out the duties of 
     MBA.
       Subsection (d) would require the Secretary to establish an 
     Office of Beneficiary Assistance within MBA to coordinate 
     Medicare beneficiary outreach and education activities, and 
     provide Medicare benefit and appeals information to Medicare 
     beneficiaries under parts C, D, and E.
       Subsection (e) would establish the Medicare Policy Advisory 
     Board (the Board) within the MBA to advise, consult with, and 
     make recommendations to the Administrator regarding the 
     administration and payment policies of parts C, D, and E. The 
     Board would be required to report to Congress and to the 
     Administrator of MBA such reports as the Board determines 
     appropriate and may contain recommendations that the Board 
     considers appropriate regarding legislative or administrative 
     changes to improve the administration of parts C, D, and E 
     including: increasing competition under part C, D, or E for 
     services furnished to beneficiaries; improving efforts to 
     provide beneficiaries information and education about 
     Medicare, parts C, D, and E, and Medicare enrollment; 
     evaluating implementation of risk adjustment under parts C 
     and E; and improving competition and access to plans under 
     parts C, D, and E. The reports would be required to be 
     published in the Federal Register. The reports would be 
     submitted directly to Congress and no officer or agency of 
     the government would be allowed to require the Board to 
     submit a report for approval, comments,

[[Page H12076]]

     or review prior to submission to Congress. Not later than 90 
     days after a report is submitted to the Administrator, the 
     Administrator would be required to submit to Congress and the 
     President an analysis of the recommendations made by the 
     Board. The analysis would be required to be published in the 
     Federal Register.
       The Board would be made up of 7 members serving three-year 
     terms, with 3 members appointed by the President, 2 appointed 
     by the Speaker of the House of Representatives, and 2 
     appointed by the President pro tempore of the Senate. Board 
     members may be reappointed but may not serve for more than 8 
     years. The Board shall elect the Chair to serve for 3 years. 
     The Board is required to meet at least three times a year and 
     at the call of the Chair.
       The Board would be required to have a director who, with 
     the approval of the Board, may appoint staff without regard 
     to chapter 31 of title 5 of the United States Code (which 
     addresses authority for employment). In addition, the 
     director and staff could be paid without regard to the 
     provisions of chapter 51 and 53 of title 5 which are related 
     to classification and pay rates and pay systems--although the 
     rate of compensation is capped at level IV of the Executive 
     Schedule. The Board could contract with and compensate 
     government and private agencies or persons to carry out its 
     duties without regard to section 3709 of the Revised Statutes 
     (41 U.S.C. 5).
       Subsection (f) would authorize an appropriation of such 
     sums as are necessary from the Federal Hospital Insurance 
     Trust Fund and from the Federal Supplementary Medical 
     Insurance Trust Fund (including the Prescription Drug 
     Account) to carry out section 1808.
       The provision would be effective upon enactment, however, 
     the enrollment and eligibility functions and implementation 
     of parts C and E would be effective January 1, 2006.
     Senate Bill
       The section would amend title XVIII to add new section 
     1808, which, under subsection (a), would establish a new 
     Center for Medicare Choices (CMC) within the Department of 
     Health and Human Services by no later than March 1, 2004, to 
     administer parts C and D of Medicare.
       Subsection (b) would provide for an Administrator of CMC 
     who would be appointed by the President with the advice and 
     consent of the Senate for 5-year terms. The Administrator 
     would be able to appoint a Deputy Administrator. If a 
     successor did not take office at the end of the term, the 
     Administrator would continue in office until the successor 
     enters the office. In that event, the confirmed successor's 
     term would be the balance of the 5-year period. The 
     Administrator would be paid at level III of the Executive 
     Schedule and the Deputy Administrator at level IV of the 
     Executive Schedule. The Administrator would be responsible 
     for the exercise of all powers and the discharge of duties of 
     CMC and has authority and control over all personnel. The 
     provision would permit the Administrator to prescribe such 
     rules and regulations as the Administrator determined 
     necessary or appropriate to carry out the functions of CMC, 
     subject to the Administrative Procedure Act. The 
     Administrator would be able to establish different 
     organizational units within the CMC except for any unit, 
     component, or provision provided by section 1808. The 
     Administrator may assign duties, delegate, or authorize 
     redelegations of authority to CMC officers and employees 
     as needed. The Secretary of Health and Human Services 
     shall ensure appropriate coordination between the 
     Administrator of CMC and the Administrator of the Centers 
     for Medicare & Medicaid Services in administering the 
     Medicare program.
       Subsection (c) would prescribe the duties of the 
     Administrator and administrative provisions relating to the 
     CMC. In administering parts C and D of Medicare, the 
     Administrator would be required to negotiate, enter into and 
     enforce contracts with MedicareAdvantage plans and with 
     eligible entities for Medicare prescription drug plans. The 
     Administrator would be required to carry out any duty 
     provided for under part C or D of Medicare including 
     demonstration programs (that are carried out in whole or in 
     part under parts C or D). The Administrator of the agency, to 
     the extent possible, would not be able 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. The Administrator would be 
     required to submit a report to Congress and the President on 
     the administration of the voluntary prescription drug 
     delivery program not later than March 31 of each year.
       The Administrator, with the approval of the Secretary, 
     would be able to employ management staff as determined 
     appropriate. The Administrator would be able to compensate 
     such managers up to the highest rate of basic pay for the 
     Senior Executive Service. Any such manager would be required 
     to have demonstrated, by their education and experience 
     (either in the public or private sectors) superior expertise 
     in the review, negotiation, and administration of health care 
     contracts, the design of health care benefit plans, actuarial 
     sciences, compliance and health plan contracts, consumer 
     education and decision-making.
       Subsection (d) would require the Secretary to establish an 
     Office of Beneficiary Assistance within CMC to make Medicare 
     eligibility determinations, enroll beneficiaries into 
     Medicare, provide Medicare benefit and appeals information, 
     and carry out any other activities relating to Medicare 
     beneficiaries under title XVIII. Within the Office of 
     Beneficiary Assistance, a Beneficiary Ombudsman would be 
     established who is appointed by the Secretary. The Ombudsman 
     would be required to receive complaints, grievances, and 
     requests for information submitted by a Medicare beneficiary 
     regarding any aspect of the Medicare program; to provide 
     assistance with the complaints, grievances and requests 
     including assisting beneficiaries with appeals; and with 
     problems arising from disenrolling from a MedicareAdvantage 
     plan or a prescription drug plan. The Ombudsman would be 
     required to submit annual reports to Congress, the Secretary, 
     and the Medicare Competitive Policy Advisory Board describing 
     the activities of the Ombudsman's office and including any 
     recommendations for improvement in the administration of 
     title XVIII. The Ombudsman would also be required to 
     coordinate with state medical ombudsmen programs, and with 
     state- and community-based consumer organizations to provide 
     information about the Medicare program and to conduct 
     education outreach regarding resolution or avoidance of 
     disputes and problems under the Medicare program.
       Subsection (e) would establish the Medicare Competitive 
     Policy Advisory Board (the Board) within the CMC to advise, 
     consult with, and make recommendations to the Administrator 
     regarding the administration and payment policies of parts C 
     and D. The Board would be required to report to Congress and 
     to the Administrator of CMC such reports as the Board 
     determines appropriate and may contain recommendations that 
     the Board considers appropriate regarding legislative or 
     administrative changes to improve the administration of parts 
     C and D including: stability and solvency of the program, 
     increasing competition, improving the quality of benefits, 
     incorporating disease management, improving competition and 
     access to plans in rural areas, and improving beneficiary 
     information and education for the entire Medicare program. 
     The reports would be required to be published in the Federal 
     Register. The reports would be submitted directly to Congress 
     and no officer or agency of the government would be allowed 
     to require the Board to submit a report for approval, 
     comments, or review prior to submission to Congress. Not 
     later than 90 days after a report is submitted to the 
     Administrator, the Administrator would be required to submit 
     to Congress and the President an analysis of the 
     recommendations made by the Board. The analysis would be 
     required to be published in the Federal Register. The 
     Administrator of CMC is required to provide information and 
     assistance to the Board as is requested to carry out its 
     functions.
       The Board would be made up of 7 members serving three-year 
     terms, with three members appointed by the President, two 
     appointed by the Speaker of the House of Representatives, and 
     two appointed by the President pro tempore of the Senate. 
     Board members may be reappointed but may not serve for more 
     than 8 years. The Board shall elect the Chair to serve for 
     three years. The Board is required to meet at least three 
     times a year and at the call of the Chair. The Board is 
     required to have an executive director who, with the approval 
     of the Board, may appoint staff as appropriate.
       Subsection (f) would authorize an appropriation of such 
     sums as are necessary from the Federal Hospital Insurance 
     Trust Fund and from the Federal Supplementary Medical 
     Insurance Trust Fund (including the Prescription Drug 
     Account) to carry out section 1808.
       The provision would also require that the Secretary provide 
     1-800-Medicare as a means by which individuals seeking 
     information about or assistance with Medicare can receive 
     assistance. The Secretary would be required to route calls to 
     the appropriate entity to provide the assistance or 
     information. The 1-800-Medicare number would be included in 
     the Medicare handbook in place of the listing of phone 
     numbers of individual contractors.
       The Administrator of CMC would be added as Co-Secretary of 
     the Board of Trustees of the Medicare Trust Funds. In 
     addition, the pay level for the Administrator of CMS would be 
     increased from level IV of the Executive Schedule to level 
     III.
       The CMC would be required to be established by the 
     Secretary no later than March 1, 2004.
     Conference Agreement
       The conference agreement creates a new section 1808 of the 
     Social Security Act establishing a center within the Centers 
     for Medicare & Medicaid Services to administer Parts C and D 
     of Medicare, provide notice and information to beneficiaries 
     (as required under section 1804 of the Social Security Act), 
     and other such duties as specified by the Secretary. The 
     person heading the Center is required to report to the 
     Administrator of CMS. The Secretary is required to ensure 
     that the Center is carrying out these duties by no later than 
     January 1, 2008.
       The conference agreement permits the Secretary to employ 
     management staff as he determines to be appropriate. If such 
     staff are employed, the staff must have demonstrated superior 
     expertise in at least one of the following areas: (1) the 
     review, negotiation, and

[[Page H12077]]

     administration of health care contracts; (2) the design of 
     health care benefit plans; (3) actuarial sciences; (4) 
     consumer education and decision making; (5) any other area 
     specified by the Secretary that requires specialized 
     management or other expertise. The Secretary is required to 
     establish the rate of pay taking into account expertise, 
     experience, and performance. The pay rate cannot exceed the 
     highest rate of basic pay for the Senior Executive Service 
     under section 5382(b) of title 5, United States Code 
     (currently ES-6). Such flexibility ensures those with private 
     sector, real world experience managing benefit plans are 
     hired and utilized to ensure the success of the new Medicare 
     plans. This expertise will help mitigate against potential 
     failure in coaxing integrated plans that promote coordinated 
     care and modern health delivery into the Medicare program.
       The conference agreement requires that an actuary within 
     the office of the Chief Actuary of CMS have duties 
     exclusively related to Parts C and D of Medicare and related 
     provisions. The pay grade for the Administrator of CMS is 
     increased to Executive Level III beginning January 1, 2004. 
     The conferees strongly encourage the hiring of a separate 
     actuary within the office of the actuary to assist the 
     functions of the center. Because the analysis of the fee-for-
     service actuary can effect payment rates in private plan 
     reimbursement, the two should be kept independent and answer 
     directly to the Secretary.
       In addition, the conference agreement changes statutory 
     references from the Health Care Financing Administration to 
     the Centers for Medicare & Medicaid Services.
       Construction; Definition of Supplier (Section 901 of the 
     Conference Agreement, Section 901 of the House Bill).
     Present Law
       Section 1861 of the Social Security Act contains 
     definitions of services, institutions, and so forth under 
     Medicare. Supplier is not explicitly defined.
     House Bill
       Nothing in this title would be construed as compromising or 
     affecting existing legal remedies for addressing fraud or 
     abuse, whether it be criminal prosecution, civil enforcement 
     or administrative remedies (including the False Claims Act) 
     or to prevent or impede HHS from its efforts to eliminate 
     waste, fraud, or abuse in Medicare. The provision also would 
     clarify that consolidation of the Medicare administrative 
     contractors does not consolidate the Federal Hospital 
     Insurance Trust Fund and the Federal Supplementary Medical 
     Insurance Trust Fund. The provision would also clarify that 
     the term ``supplier'' means a physician or other 
     practitioner, a facility or other entity (other than a 
     provider of services) furnishing items or services under 
     Medicare. The provision would be effective upon enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement provides that nothing in this 
     title shall be construed as compromising or affecting 
     existing legal remedies for addressing fraud or abuse, 
     whether it be criminal prosecution, civil enforcement or 
     administrative remedies (including the False Claims Act) or 
     to prevent or impede HHS from its efforts to eliminate waste, 
     fraud, or abuse in Medicare. The conference agreement also 
     clarifies that consolidating the Medicare administrative 
     contractors does not consolidate the Federal Hospital 
     Insurance Trust Fund and the Federal Supplementary Medical 
     Insurance Trust Fund. The agreement also clarifies that the 
     term ``supplier'' means a physician or other practitioner, a 
     facility or other entity (other than a provider of services) 
     furnishing items or services under Medicare. The provision is 
     effective upon enactment.
       Issuance of Regulations (Section 902 of the Conference 
     Agreement, Section 902 of the House Bill, Section 501 of the 
     Senate Bill).
     Present Law
       The Secretary is required to prescribe regulations that are 
     necessary to administer the Medicare program. The Secretary 
     must publish proposed regulations in the Federal Register, 
     with at least 30 days to solicit public comment before 
     issuing the final regulation except in the following 
     circumstances: (1) the statute permits the regulation to be 
     issued in interim final form or provides for a shorter public 
     comment period; (2) the statutory deadline for implementing a 
     provision is less than 150 days after the date of enactment 
     of the statute containing the provision; (3) under the good 
     cause exception contained in the rule-making provision of 
     title 5 of the United States Code, notice and public comment 
     procedures are deemed impracticable, unnecessary or contrary 
     to the public interest. The Secretary must publish a list of 
     all manual instructions, interpretative rules, statements of 
     policy, and guidelines, which are promulgated to carry out 
     Medicare law in the Federal Register no less frequently than 
     every 3 months.
       There is no explicit statutory instruction on logical 
     outgrowth. The courts have repeatedly held that new matter in 
     final regulations must be a ``logical outgrowth of the 
     proposed rule'' and is an inherent aspect of notice and 
     comment rulemaking.
     House Bill
       The provision would require the Secretary, in consultation 
     with the Director of the Office of Management and Budget, to 
     establish and publish a regular timeline for the publication 
     of final regulations based on the previous publication of a 
     proposed rule or an interim final regulation. The timeframe 
     established would not be permitted to be longer than three 
     years, except under extraordinary circumstances. If the 
     Secretary were to vary the timeline he established, the 
     provision would require him to publish a notice in the 
     Federal Register with the new timeline and an explanation of 
     the variation. In the case of interim final regulations, the 
     provision would require that if the Secretary did not meet 
     his established timeframe, then the interim final regulation 
     would not be able to continue in effect unless the Secretary 
     published a notice of continuation of the regulation that 
     included an explanation of why the regular time line had not 
     been complied with. This provision regarding timelines would 
     be effective upon enactment.
       The provision also would require that a measure in a final 
     regulation that is not a logical outgrowth of the proposed 
     regulation or interim final regulation would be treated as a 
     proposed regulation. The measure would not be able to take 
     effect until public comment occurred and the measure was 
     published as a final regulation. This provision would apply 
     to final regulations published on or after the date of 
     enactment.
     Senate Bill
       The Secretary would be required to publish a final 
     regulation within 12 months of the publication of an interim 
     final regulation or the interim final regulation would no 
     longer be effective. Subject to appropriate notice, the 
     Secretary would be able to extend this deadline for up to 12 
     additional months. The Secretary would be required to publish 
     a notice in the Federal Register 6 months after the date of 
     enactment providing the status of each interim final 
     regulation for which no final regulation has been published 
     and providing the date by which the final regulation is 
     planned to be published. This provision would be effective 
     upon enactment.
     Conference Agreement
       The conference agreement requires the Secretary, in 
     consultation with the Director of the Office of Management 
     and Budget, to establish and publish a regular timeline for 
     the publication of final regulations based on the previous 
     publication of a proposed rule or an interim final 
     regulation. The timeframe established is not be permitted to 
     be longer than 3 years, except under extraordinary 
     circumstances. If the Secretary varies the timeline he 
     established, he is required to publish a notice in the 
     Federal Register with the new timeline and an explanation of 
     the variation. In the case of interim final regulations, if 
     the Secretary does not meet his established timeframe, then 
     the interim final regulation cannot continue in effect unless 
     the Secretary publishes a notice of continuation of the 
     regulation that includes an explanation of why the regular 
     timeline was not complied with. This agreement regarding 
     timelines is effective upon enactment.
       The conference agreement also requires that a measure in a 
     final regulation that is not a logical outgrowth of the 
     proposed regulation or interim final regulation is to be 
     treated as a proposed regulation. The measure could not take 
     effect until public comment occurred and the measure is 
     published as a final regulation. This agreement applies to 
     final regulations published on or after enactment.
       Compliance with Changes in Regulation and Policies. 
     (Section 903 of the Conference Agreement, Section 903 of the 
     House Bill, Sections 502 and 533 of the Senate Bill).
     Present Law
       No explicit statutory instruction. As a result of case law, 
     there is a strong presumption against retroactive rulemaking. 
     In Bowen v. Georgetown University Hospital, the Supreme Court 
     ruled that there must be explicit statutory authority to 
     engage in retroactive rulemaking.
     House Bill
       The provision would bar retroactive application of any 
     substantive changes in regulation, manual instructions, 
     interpretative rules, statements of policy, or guidelines 
     unless the Secretary determines retroactive application is 
     needed to comply with the statute or is in the public 
     interest, effective upon enactment. No substantive change 
     would go into effect until 30 days after the change is issued 
     or published unless it would be needed to comply with 
     statutory changes or was in the public interest. Compliance 
     actions would be able to be taken for items and services 
     furnished only on or after the effective date of the change, 
     effective upon enactment. If a provider or supplier follows 
     written guidance provided by the Secretary or a Medicare 
     contractor when furnishing items or services or submitting a 
     claim and the guidance is inaccurate, the provider or 
     supplier would not be subject to penalty or repayment of 
     overpayment (unless the inaccurate information was due to a 
     clerical or technical operational error).
     Senate Bill
       Same provisions.
     Conference Agreement
       The conference agreement bars retroactive application of 
     any substantive changes in regulation, manual instructions, 
     interpretative rules, statements of policy, or guidelines 
     unless the Secretary determines retroactive application is 
     needed to comply with the

[[Page H12078]]

     statute or is in the public interest. No substantive change 
     could go into effect until 30 days after the change is issued 
     or published unless it is needed to comply with statutory 
     changes or in the public interest. Compliance actions could 
     be taken for items and services furnished only on or after 
     the effective date of the change, effective upon enactment. 
     If a provider or supplier follows written guidance provided 
     by the Secretary or a Medicare contractor when furnishing 
     items or services or submitting a claim and the guidance is 
     inaccurate, the provider or supplier is not subject to 
     penalty or interest (unless the inaccurate information was 
     due to a clerical or technical operational error).
       The conference agreement also makes clear that a provider 
     or supplier is not subject to any penalty or interest on a 
     repayment plan (including under section 1893 of the Social 
     Security Act, relating to the Medicare Integrity Program, or 
     otherwise) relating to the provision of such items or 
     services or a claim if the provider or supplier reasonably 
     relied on the guidance. The conference agreement applies to a 
     sanction imposed with respect to guidance provided on or 
     after July 24, 2003.
       Reports and Studies Relating to Regulatory Reform. (Section 
     904 of the Conference Agreement, Section 904 of the House 
     Bill, Section 503 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       The GAO would be required to study the feasibility and 
     appropriateness of the Secretary providing legally binding 
     advisory opinions on appropriate interpretation and 
     application of Medicare regulations. The report would be due 
     to Congress 1 year after enactment.
       The Secretary would be required to report to Congress every 
     2 years on the administration of Medicare and areas of 
     inconsistency or conflict among various provisions under law 
     and regulation. The report would include recommendations for 
     legislation or administrative action that the Secretary 
     determines appropriate to further reduce such inconsistency 
     or conflicts. The first report would be due to Congress 2 
     years after enactment.
     Senate Bill
       Requires the Secretary to report to Congress in 2 years, 
     and every 3 years thereafter, on the administration of 
     Medicare and areas of inconsistency or conflict among various 
     provisions under law and regulation and recommendations for 
     legislation or administrative action that the Secretary 
     determines appropriate to further reduce such inconsistency 
     or conflicts.
     Conference Agreement
       The conference agreement requires the GAO to study the 
     feasibility and appropriateness of the Secretary providing 
     legally binding advisory opinions on appropriate 
     interpretation and application of Medicare regulations. The 
     report is due to Congress 1 year after enactment.
       The Secretary is required to report to Congress in 2 years 
     and every 3 years thereafter on the administration of 
     Medicare and areas of inconsistency or conflict among various 
     provisions under law and regulation. The report is to include 
     recommendations for legislation or administrative action that 
     the Secretary determines appropriate to further reduce such 
     inconsistency or conflicts.
       Increased Flexibility in Medicare Administration. (Section 
     911 of the Conference Agreement, Section 911 of the House 
     Bill, Section 521 of the Senate Bill).
     Present Law
       The Secretary is authorized to enter into agreements with 
     fiscal intermediaries nominated by different provider 
     associations to make Medicare payments for health care 
     services furnished by institutional providers. For Medicare 
     Part B claims, the Secretary is authorized to enter into 
     contracts only with health insurers (or carriers) to make 
     Medicare payments to physicians, practitioners and other 
     health care suppliers. Section 1834(a)(12) of the Act 
     authorizes separate regional carriers for the payment of 
     durable medical equipment (DME) claims. The Secretary is also 
     authorized to contract for certain program safeguard 
     activities under the Medicare Integrity Program (MIP).
       Certain terms and conditions of the contracting agreements 
     for fiscal intermediaries and carriers are specified in the 
     Medicare statute. Medicare regulations coupled with long-
     standing agency practices have further limited the way that 
     contracts for claims administration services can be 
     established.
       Certain functions and responsibilities of the fiscal 
     intermediaries and carriers are specified in the statute as 
     well. The Secretary may not require that carriers or 
     intermediaries match data obtained in its other activities 
     with Medicare data in order to identify beneficiaries who 
     have other insurance coverage as part of the Medicare 
     Secondary Payer (MSP) program. With the exception of prior 
     authorization of DME claims, an entity may not perform 
     activities (or receive related payments) under a claims 
     processing contract to the extent that the activities are 
     carried out pursuant to a MIP contract. Performance standards 
     with respect to the timeliness of reviews, fair hearings, 
     reconsiderations and exemption decisions are established as 
     well.
       A Medicare contract with an intermediary or carrier may 
     require any of its employees certifying or making payments 
     provide a surety bond to the United States in an amount 
     established by the Secretary. Neither the contractor nor the 
     contractor's employee who certifies the amount of Medicare 
     payments is liable for erroneous payments in the absence of 
     gross negligence or intent to defraud the United States. 
     Neither the contractor nor the contractor's employee who 
     disburses payments is liable for erroneous payments in the 
     absence of gross negligence or intent to defraud the United 
     States, if such payments are based upon a voucher signed by 
     the certifying employee.
     House Bill
       This provision would add a new Section 1874A to the Social 
     Security Act and would permit the Secretary to competitively 
     contract with any eligible entity to serve as a Medicare 
     contractor. The provision would eliminate the distinction 
     between Part A contractors (fiscal intermediaries) and Part B 
     contractors (carriers) and take the separate authorities for 
     fiscal intermediaries and carriers and merge them into a 
     single authority for the new contractor. These new 
     contractors would be called Medicare Administrative 
     Contractors (MACs) and would assume all the functions of the 
     current fiscal intermediaries and carriers: determining the 
     amount of Medicare payments required to be made to providers 
     and suppliers, making the payments, providing education and 
     outreach to beneficiaries, providers and suppliers, 
     communicating with providers and suppliers, and additional 
     functions as are necessary.
       The Secretary would be permitted to renew the MAC contracts 
     annually for up to 5 years. All contracts would be required 
     to be re-competed at least every 5 years using competitive 
     processes. Federal Acquisition Regulations (FAR) would apply 
     to these contracts except to the extent any provisions are 
     inconsistent with a specific Medicare requirement, including 
     incentive contracts. The contracts would be required to 
     contain performance requirements that would be developed by 
     the Secretary who could consult with beneficiary, provider, 
     and supplier organizations, would be consistent with written 
     statements of work and would be used for evaluating 
     contractor performance. MAC would be required to furnish the 
     Secretary such timely information as he may require and to 
     maintain and provide access to records the Secretary finds 
     necessary. The Secretary could require a surety bond from the 
     MAC or certain officers or employees as the Secretary finds 
     appropriate. The Secretary would be prohibited from requiring 
     that the MAC match data from other activities for Medicare 
     secondary payer purposes.
       The provision would limit liability of certifying and 
     disbursing officers and the Medicare Administrative 
     Contractors except in cases of reckless disregard or the 
     intent to defraud the United States. This limitation on 
     liability would not limit liability under the False Claims 
     Act. The provision also establishes circumstances where 
     contractors and their employees would be indemnified, both in 
     the contract and as the Secretary determines appropriate.
       The provision would make numerous conforming amendments as 
     the authorities for the fiscal intermediaries and carriers 
     are stricken. After enactment of the bill, but before October 
     1, 2005, the Secretary would be permitted to enter into new 
     fiscal intermediary agreements without regard to any of the 
     provider nomination provisions.
       The Secretary would be required to submit a report to 
     Congress and the GAO by no later than October 1, 2004, that 
     describes the plan for implementing these provisions. The GAO 
     is required to evaluate the Secretary's plan and, within six 
     months of receiving the plan, report on the evaluation to 
     Congress and make any recommendations the Comptroller General 
     believes appropriate. The Secretary is also required to 
     report to Congress by October 1, 2008 on the status of 
     implementing the contracting reform provisions including the 
     number of contracts that have been competitively bid, the 
     distribution of functions among contracts and contractors, a 
     timeline for complete transition to full competition, and a 
     detailed description of how the Secretary has modified 
     oversight and management of Medicare contractors to adapt to 
     full competition.
       Competitive bidding for the MACs would be required to begin 
     for annual contract periods that begin on or after October 1, 
     2005.
     Senate Bill
       Same provision, containing three main differences: First, 
     contracts would be required to be recompeted every 6 years. 
     Second, a MAC with a contract to perform local coverage 
     determinations would be required to designate at least 1 
     different individual to serve as a medical director for each 
     state for which local coverage determinations are made; use 
     the medical director in making the local coverage 
     determinations; and appoint a contractor advisory committee 
     for each state for which local coverage determinations are 
     made to participate in an advisory capacity in the 
     development of the local determinations. Finally, competitive 
     bidding for the MACs would be required to begin for annual 
     contract periods that begin on or after October 1, 2011.
     Conference Agreement
       The conference agreement adds a new Section 1874A to the 
     Social Security Act into which the Medicare contractor 
     authority is consolidated. The conference agreement permits 
     the Secretary to competitively contract with any eligible 
     entity to serve as a Medicare Administrative Contractor 
     (MAC). The conference agreement eliminates the distinction 
     between Part A contractors (fiscal intermediaries) and Part B 
     contractors

[[Page H12079]]

     (carriers) and takes the separate authorities for fiscal 
     intermediaries and carriers and merges them into a single 
     authority for the new contractor. All the functions of the 
     current fiscal intermediaries and carriers are assumed by the 
     new MACs: determining the amount of Medicare payments 
     required to be made to providers and suppliers, making the 
     payments, providing education and outreach to beneficiaries, 
     providers and suppliers, communicating with providers and 
     suppliers, and additional functions as are necessary.
       The Secretary is permitted to renew the MAC contracts 
     annually for up to 5 years. All contracts must be re-competed 
     at least every 5 years using competitive processes. Federal 
     Acquisition Regulations (FAR) apply to MAC contracts except 
     to the extent any provisions are inconsistent with a specific 
     Medicare requirement, including incentive contracts. (The 
     conference agreement does not extend FAR provision to other 
     contractors under title XVIII.) The Secretary is required to 
     develop contract performance requirements to carry out the 
     functions described in the provision and to develop standards 
     for measuring the extent to which a contractor has met the 
     requirements. The Secretary is required to consult with 
     beneficiary and provider organizations, and organizations and 
     agencies performing other Medicare functions. The Secretary 
     is required to make the performance requirements and 
     measurement standards available to the public and must 
     include provider and beneficiary satisfaction levels as one 
     of the requirements.
       MAC performance requirements are required to be included in 
     the contract and consistent with written statements of work 
     and used for evaluating contractor performance. MACs are 
     required to furnish the Secretary such timely information as 
     he may require and to maintain and provide access to records 
     the Secretary finds necessary. The Secretary may require a 
     surety bond from the MAC or certain officers or employees as 
     the Secretary finds appropriate. The Secretary is prohibited 
     from requiring that the MAC match data from other activities 
     for Medicare secondary payer purposes.
       The conference agreement limits the liability of certifying 
     and disbursing officers and the Medicare Administrative 
     Contractors except in cases of reckless disregard or the 
     intent to defraud the United States. The standard does not 
     limit liability for conduct that constitutes a violation of 
     the False Claims Act. The conference agreement also 
     establishes circumstances where contractors and their 
     employees are indemnified, both in the contract and as the 
     Secretary determines appropriate.
       The conference agreement makes numerous conforming 
     amendments as the statutory authorities for the fiscal 
     intermediaries and carriers are stricken. After enactment of 
     the bill, but before October 1, 2005, the Secretary is 
     authorized to enter into new fiscal intermediary agreements 
     without regard to any of the provider nomination provisions 
     under section 1816 of the Social Security Act and may enter 
     into new carrier contracts. The Secretary is required to take 
     such steps as are necessary to provide for an appropriate 
     transition from the fiscal intermediary agreements and 
     carrier contracts to the MAC contracts. In addition, the 
     Secretary is explicitly authorized to continue Medicare 
     Integrity Program fiscal intermediary agreements and carrier 
     contracts from the enactment of this provision through 
     October 1, 2011.
       The Secretary is required to submit a legislative proposal 
     providing technical and conforming amendments to this 
     provision to the appropriate committees of Congress within 6 
     weeks of enactment. The Secretary is required to submit a 
     report to Congress and the GAO by no later than October 1, 
     2004, that describes the plan for implementing these 
     provisions. The GAO is required to evaluate the Secretary's 
     plan and, within 6 months of receiving the plan, report on 
     the evaluation to Congress and make any recommendations the 
     Comptroller General believes appropriate. The Secretary is 
     also required to report to Congress by October 1, 2008, on 
     the status of implementing the contracting reform provisions 
     including the number of contracts that have been 
     competitively bid, the distribution of functions among 
     contracts and contractors, a timeline for complete transition 
     to full competition, and a detailed description of how the 
     Secretary has modified oversight and management of Medicare 
     contractors to adapt to full competition.
       Competitive bidding for the MACs would be required to begin 
     October 1, 2005 and all contracts should have been bid under 
     the new structure by September 30, 2011.
       Requirements for Information Security for Medicare 
     Administrative Contractors (Section 912 of the Conference 
     Agreement, Section 912 of the House Bill).
     Present Law
       No provision.
     House Bill
       Medicare administrative contractors (as well as fiscal 
     intermediaries and carriers until the MACs are established) 
     would be required to implement a contractor-wide information 
     security program to provide information security for the 
     operation and assets of the contractor for Medicare 
     functions. The information security program would be required 
     to meet certain requirements for information security 
     programs imposed on Federal agencies under title 44 of the 
     United States Code. Medicare administrative contractors would 
     be required to undergo an annual independent evaluation of 
     their information security programs. Existing contractors 
     would be required to undergo the first independent evaluation 
     within one year after the date of enactment and new 
     contractors would be required to have such a program in place 
     before beginning the claim determination and payment 
     activities. The results of the independent evaluations would 
     be submitted to the Secretary and the HHS Inspector General. 
     The Inspector General of HHS would be required to report to 
     Congress annually on the results of the evaluations. The 
     Secretary would be required to address the results of the 
     evaluations in required management reports.
     Senate Bill
       No comparable provision.
     Conference Agreement
       The conference agreement requires Medicare administrative 
     contractors (as well as fiscal intermediaries and carriers 
     until the MACs are established) to implement a contractor-
     wide information security program to provide information 
     security for the operation and assets of the contractor for 
     Medicare functions. The information security program is 
     required to meet certain requirements for information 
     security programs imposed on Federal agencies under title 44 
     of the United States Code. Medicare administrative 
     contractors are required to undergo an annual independent 
     evaluation of their information security programs. Current 
     fiscal intermediaries and carriers are required to undergo 
     the first independent evaluation within one year after the 
     date of enactment and new contractors would be required to 
     have such a program in place before beginning the claim 
     determination and payment activities. The MACs are required 
     to submit the results of the independent evaluations to the 
     Secretary and the HHS Inspector General. The Inspector 
     General of HHS is required to report to Congress annually on 
     the results of the evaluations. The Secretary is required to 
     address the results of the evaluations in required management 
     reports.
       Provider Education and Technical Assistance. (Section 921 
     of the Conference Agreement, Section 921 of the House Bill, 
     Sections 531 and 532 of the Senate Bill).
     Present Law
     (a) Coordination of Education Funding.
     Present Law
       Medicare's provider education activities are funded through 
     the program management appropriation and through Education 
     and Training component of the Medicare Integrity Program 
     (MIP). Both claims processing contractors (fiscal 
     intermediaries and carriers) and MIP contractors may 
     undertake provider education activities.
     House Bill
       The provision would add Section 1889 to the Social Security 
     Act, which would require the Secretary to coordinate 
     educational activities through the Medicare contractors to 
     maximize the effectiveness of education efforts for providers 
     and suppliers and to report to Congress with a description 
     and evaluation of the steps taken to coordinate provider 
     education funding. The provision would be effective upon 
     enactment. The Secretary would be required to report to 
     Congress on the steps taken to coordinate the funding of 
     provider education under the provision by October 1, 2004.
     Senate Bill
       The provision would require the Secretary to coordinate 
     educational activities through the Medicare contractors to 
     maximize the effectiveness of education efforts for providers 
     and suppliers. The provision would be effective upon 
     enactment.
     Conference Agreement
       The conference agreement adds section 1889 to the Social 
     Security Act requiring the Secretary to coordinate 
     educational activities through the Medicare contractors to 
     maximize the effectiveness of education efforts for providers 
     and suppliers and to report to Congress with a description 
     and evaluation of the steps taken to coordinate provider 
     education funding. The agreement is effective upon enactment. 
     The Secretary is required to report to Congress on the steps 
     taken to coordinate the funding of provider education under 
     the provision by October 1, 2004.
     (b) Incentives to Improve Contractor Performance.
     Present Law
       No specific statutory provision. Since FY1996, as part of 
     the audit required by the Chief Financial Officers Act, an 
     estimate of improper payments in Medicare fee-for-service has 
     been established annually. As a recent initiative, CMS is 
     implementing a comprehensive error rate-testing program to 
     produce national, contractor specific, benefit category 
     specific and provider specific paid claim error rates.
     House Bill
       The Secretary would be required to use specific claims 
     payment error rates (or similar methodology) to provide 
     incentives for contractors to implement effective education 
     and outreach programs for providers and suppliers. The 
     provision would require the Comptroller General to submit to 
     Congress and the Secretary a study and to make 
     recommendations on the adequacy of the Secretary's 
     methodology by October 1, 2004. The Secretary would be 
     required to report to Congress by October 1, 2004 
     regarding how he intends to use the methodology in 
     assessing Medicare contractor performance.

[[Page H12080]]

     Senate Bill
       The provision would require the Secretary to use specific 
     claims payment error rates (or similar methodology) to 
     provide incentives for contractors to implement effective 
     education and outreach programs for providers and suppliers 
     by October 1, 2004. The Conferees agree that any such 
     methodology shall include non-responses in the measurement of 
     the error rate. The Comptroller General would be required to 
     study the adequacy of the methodology and make 
     recommendations to the Secretary. The Secretary would be 
     required to report to Congress regarding how he intends to 
     use the methodology in assessing Medicare contractor 
     performance.
     Conference Agreement
       The conference agreement requires the Secretary to use 
     specific claims payment error rates (or similar methodology) 
     to provide incentives for contractors to implement effective 
     education and outreach programs for providers and suppliers. 
     The Comptroller General is required to submit to Congress and 
     the Secretary a study the adequacy of the methodology and to 
     make recommendations. The Secretary is required to report to 
     Congress by October 1, 2004 regarding how he intends to use 
     the methodology in assessing Medicare contractor performance.
     (c) Provision of Access to and Prompt Responses from Medicare 
         Administrative Contractors.
     Present Law
       No specific statutory provision. Statutory provisions 
     generally instruct carriers to assist providers and others 
     who furnish services in developing procedures relating to 
     utilization practices and to serve as a channel of 
     communication relating information on program administration. 
     Fiscal intermediaries are generally instructed to (1) provide 
     consultative services to institutions and other agencies to 
     enable them to establish and maintain fiscal records 
     necessary for program participation and payment and (2) serve 
     as a center for any information as well as a channel for 
     communication with providers.
     House Bill
       The Secretary would be required to develop a strategy for 
     communicating with beneficiaries, providers and suppliers. 
     Medicare contractors would be required to provide responses 
     to written inquiries that are clear, concise and accurate 
     within 45 business days of the receipt of the written 
     inquiry. The Secretary would be required to ensure that 
     Medicare contractors have a toll-free telephone number where 
     beneficiaries, providers and suppliers may obtain information 
     regarding billing, coding, claims, coverage, and other 
     appropriate Medicare information. Medicare contractors would 
     be required to maintain a system for identifying the person 
     supplying information to beneficiaries, providers, and 
     suppliers and to monitor the accuracy, consistency, and 
     timeliness of the information provided. The Secretary would 
     be required to establish and make public standards to monitor 
     the accuracy, consistency, and timeliness of written and 
     telephone responses of Medicare contractors as well as to 
     evaluate the contractors against these standards. The 
     provision would be effective October 1, 2004.
     Senate Bill
       Identical provision.
     Conference Agreement
       The conference agreement requires the Secretary to develop 
     a strategy for communicating with beneficiaries, providers 
     and suppliers, beginning October 1, 2004. Medicare 
     contractors are required to provide responses to written 
     inquiries that are clear, concise and accurate within 45 
     business days of the receipt of the written inquiry. The 
     Secretary is required to ensure that Medicare contractors 
     have a toll-free telephone number where beneficiaries, 
     providers and suppliers may obtain information regarding 
     billing, coding, claims, coverage, and other appropriate 
     Medicare information. Medicare contractors would be required 
     to maintain a system for identifying the person supplying 
     information to beneficiaries, providers, and suppliers and to 
     monitor the accuracy, consistency, and timeliness of the 
     information provided. The Secretary is required to establish 
     and make public standards to monitor the accuracy, 
     consistency, and timeliness of written and telephone 
     responses of Medicare contractors as well as to evaluate the 
     contractors against these standards. The conference agreement 
     authorizes to be appropriated such sums as are necessary to 
     carry out this subsection.
     (d) Improved Provider Education and Training.
     Present Law
       In FY 2003, approximately $122 million was budget by CMS 
     for provider education and training.
     House Bill
       The provision would authorize $25 million to be 
     appropriated from the Medicare Trust Funds for fiscal years 
     2005 and 2006, and such sums as necessary for succeeding 
     fiscal years for Medicare contractors to increase education 
     and training activities for providers and suppliers. Medicare 
     contractors would be required to tailor education and 
     training activities to meet the special needs of small 
     providers or suppliers. The provision defines a small 
     provider as an institution with fewer than 25 full-time 
     equivalents (FTEs) and a small supplier as one with fewer 
     than 10 FTEs.
     Senate Bill
       The provision would provide increased funding for the 
     Medicare Integrity Program of $35 million beginning with 
     FY2004 for increased provider and supplier education. Also 
     would require Medicare contractors to take into consideration 
     the special needs of small providers or suppliers when 
     conducting education and training activities and permits 
     provision of technical assistance beginning January 1, 2004.
     Conference agreement
       The conference agreement authorizes such sums as necessary 
     to be appropriated for fiscal years beginning with FY 2005 to 
     be used to increase education and training activities for 
     providers and suppliers regarding billing, coding, and other 
     appropriate items and may be used to improve the accuracy, 
     consistency, and timeliness of contractor responses. 
     Beginning October 1, 2004, Medicare contractors are required 
     to tailor education and training activities to meet the 
     special needs of small providers or suppliers. Technical 
     assistance is permitted to be included in the education and 
     training activities. The provision defines a small provider 
     as an institution with fewer than 25 full-time equivalents 
     (FTEs) and a small supplier as one with fewer than 10 FTEs.
     (e) Requirement to Maintain Internet Sites.
     Present Law
       No statutory provision. CMS and the Medicare contractors 
     currently maintain internet sites.
     House Bill
       The provision would require that the Secretary and the 
     Medicare contractors maintain Internet sites to answer 
     frequently asked questions and provide published materials of 
     the contractors beginning October 1, 2004.
     Senate Bill
       No provision.
     Conference agreement
       Beginning October 1, 2004, the conference agreement 
     requires the Secretary and the Medicare contractors to 
     maintain Internet sites to answer frequently asked questions 
     and provide published materials of the contractors.
     (f) Additional Provider Education Provisions.
     Present Law
       No provision.
     House Bill
       The provision would bar Medicare contractors from using a 
     record of attendance (or non-attendance) at educational 
     activities to select or track providers or suppliers in 
     conducting any type of audit or prepayment review. The 
     provision would not require Medicare contractors to disclose 
     information that would compromise law enforcement activities 
     or reveal findings of law enforcement-related audits. This 
     provision would be effective upon enactment.
     Senate Bill
       The provision would bar Medicare contractors from using a 
     record of attendance (or non-attendance) at educational 
     activities to select or track providers or suppliers in 
     conducting any type of audit or prepayment review. The 
     provision would not require Medicare contractors to disclose 
     the screens used for identifying claims that will be subject 
     to medical review or information that would compromise 
     pending law enforcement activities or reveal findings of law 
     enforcement-related audits. This provision would be effective 
     upon enactment.
     Conference agreement
       The conference agreements bars Medicare contractors from 
     using a record of attendance (or non-attendance) at 
     educational activities to select or track providers or 
     suppliers in conducting any type of audit or prepayment 
     review. Nothing in section 1889 or 1893(g) shall be construed 
     as providing for disclosure by a Medicare contractor of the 
     screens used for identifying claims that will be subject to 
     medical review or of information that would compromise 
     pending law enforcement activities or reveal findings of law 
     enforcement-related audits. The agreement is effective upon 
     enactment.
       Small Provider Technical Assistance Demonstration Program. 
     (Section 922 of the Conference Agreement, Section 922 of the 
     House Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to establish a 
     demonstration program to provide technical assistance to 
     small providers and suppliers, when they have requested the 
     assistance, to improve compliance with Medicare requirements. 
     If errors are found, the Secretary would be barred from 
     recovering any overpayments barring evidence of fraud and if 
     the problem that is the subject of the compliance review has 
     been satisfactorily corrected within 30 days and the problem 
     remains corrected. Providers participating would be expected 
     to pay 25 percent of the cost of the technical assistance. A 
     GAO study would be required not later than 2 years after the 
     demonstration program begins. Appropriations would be 
     authorized for $1 million for FY 2005 and $6 million for FY 
     2006 to carry out the demonstration.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a demonstration program to provide technical 
     assistance to

[[Page H12081]]

     small providers and suppliers, when they have requested the 
     assistance, in order to improve compliance with Medicare 
     requirements. Technical assistance includes direct and in-
     person examination of billing systems and internal controls 
     to determine program compliance and to suggest more efficient 
     or effective means of achieving compliance. Providers 
     participating are expected to pay 25 percent of the cost of 
     the technical assistance. Appropriations of such sums as may 
     be necessary to carry out this demonstration program 
     are authorized from amounts not otherwise appropriated in 
     the Treasury. The GAO is required to evaluate the 
     demonstration no later than 2 years after it begins and 
     submit a report to the Congress and the Secretary. The GAO 
     is required to include in the report recommendations 
     regarding the continuation or extension of the 
     demonstration.
       Medicare Provider Ombudsman; Medicare Beneficiary 
     Ombudsman. (Section 923 of the Conference Agreement, Section 
     923 of the House Bill, Sections 301 and 534 of the Senate 
     Bill).
     Present Law
       No provision.
     House Bill
       A Medicare Provider Ombudsman would be required to be 
     appointed by the Secretary and located within the Department 
     of Health and Human Services. The Provider Ombudsman would be 
     required to provide confidential assistance to providers and 
     suppliers regarding complaints, grievances, requests for 
     information, and resolution of unclear or conflicting 
     guidance about Medicare. The Ombudsman would submit 
     recommendations to the Secretary regarding improving the 
     administration of Medicare, addressing recurring patterns of 
     confusion under Medicare, and ways to provide for an 
     appropriate and consistent response in cases of self-
     identified overpayments by providers and suppliers. Such 
     sums, as necessary, would be authorized and be appropriated 
     for FY 2004 and subsequent years.
       A Medicare Beneficiary Ombudsman would be required to be 
     appointed by the Secretary and located within HHS. The 
     Secretary would be required to appoint both ombudsmen not 
     later than one year from the date of enactment. The 
     Beneficiary Ombudsman would be required to have expertise and 
     experience in health care, education of, and assistance to 
     Medicare beneficiaries. The Beneficiary Ombudsman would be 
     required to receive complaints, grievances, and requests for 
     information submitted by Medicare beneficiaries. The 
     Beneficiary Ombudsman would also be required to assist 
     beneficiaries in collecting relevant information to seek an 
     appeal of a decision or determination made by the Secretary, 
     a Medicare contractor, or a Medicare+Choice organization and 
     assisting a beneficiary with any problems arising from 
     disenrolling in a Medicare+Choice plan and with presenting 
     income information for purposes relating to the prescription 
     drug benefit. The Beneficiary Ombudsman would be required to 
     work with state Health Insurance Counseling Programs, to the 
     extent possible.
       Such sums as are necessary are authorized to be 
     appropriated for FY 2004 and each succeeding fiscal year to 
     carry out the ombudsmen provisions.
       This provision would also require the use of 1-800-MEDICARE 
     for all individuals seeking information about, or assistance 
     with Medicare. Rather than listing individual telephone 
     numbers for Medicare contractors in the Medicare handbook, 
     only 1-800-MEDICARE would be shown. The Comptroller General 
     would be required to study the accuracy and consistency of 
     information provided by the 1-800-MEDICARE line and to assess 
     whether the information sufficiently answers the questions of 
     beneficiaries. The report on the study would be required to 
     be submitted to Congress not later than one year after 
     enactment.
     Senate Bill
       Same provisions.
     Conference Agreement
       The conference agreement creates a new section 1810 
     establishing a Medicare Beneficiary Ombudsman. The Secretary 
     is required to appoint an Ombudsman with expertise and 
     experience in the fields of health care and education of (and 
     assistance to) Medicare beneficiaries not later than 1 year 
     after the date of enactment. The Ombudsman will receive 
     complaints, grievances, and requests for information from 
     Medicare beneficiaries, and provide assistance in these 
     matters and matters relating to appeals decisions made by 
     Medicare contractors, Medicare+Choice organizations or the 
     Secretary, as well as assistance to beneficiaries with any 
     problems disenrolling from a Medicare+Choice plan. In 
     addition, the Ombudsman will assist beneficiaries in 
     presenting information relating to the income-related premium 
     adjustment. The Beneficiary Ombudsman is required to work 
     with State Health Insurance Counseling Programs, to the 
     extent possible. The Ombudsman is prohibited from advocating 
     for any increases in payment or new coverage of services, but 
     may identify issues and problems in payment or coverage 
     policies.
       Appropriations are authorized to be appropriated in such 
     sums as are necessary for FY 2004 and each succeeding fiscal 
     year to carry out the Beneficiary Ombudsman provision.
       The conference agreement also requires making 1-800-
     MEDICARE available to all individuals seeking information 
     about, or assistance with, Medicare. Rather than listing 
     individual telephone numbers for Medicare contractors in the 
     Medicare handbook, only 1-800-MEDICARE would be shown. The 
     Comptroller General is required to study the accuracy and 
     consistency of information provided on the 1-800-MEDICARE 
     line and to assess whether the information sufficiently 
     answers the questions of beneficiaries. The report on the 
     study is due to Congress not later than one year after 
     enactment.
       It is the intent of the Conferees that Medicare 
     beneficiaries have access to prescription drugs for the 
     treatment of mental illness and neurological diseases 
     resulting in severe epileptic episodes under the new 
     provisions of Part D. To fulfill this purpose the 
     Administrator of the Center for Medicare Choices shall take 
     the appropriate steps before the first open enrollment period 
     to ensure that Medicare beneficiaries have clinically 
     appropriated access to pharmaceutical treatments for mental 
     illness, including but not limited to schizophrenia, bipolar 
     disorder, depression, anxiety disorder, dementia, and 
     attention deficit disorder/attention deficit hyperactivity 
     disorder and neurological illnesses resulting in epileptic 
     episodes.
       The conferees anticipate that disabled individuals will 
     enroll in one of the many private sector prescription drug 
     plans or MA-PD plans. Competition will necessitate plans 
     offering the full complement of medicines, including atypical 
     antipsychotics, to treat the severely mentally ill. If a plan 
     chooses not to offer or restrict access to a particular 
     medication to treat the mentally ill, the disabled will have 
     the freedom to choose a plan that has appropriate access to 
     the medicine needed. The Conferees believe this is critical 
     as the severely mentally ill are a unique population with 
     unique prescription drug needs as individual responses to 
     mental health medications are different.
       Beneficiary Outreach Demonstration Program. (Section 924 of 
     the Conference Agreement, Section 924 of the House Bill, 
     Section 535 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to conduct a 3-year 
     demonstration program where Medicare specialists would 
     provide assistance to beneficiaries in at least 6 local 
     Social Security offices (2 would be located in rural areas) 
     that have a high volume of visits by Medicare beneficiaries. 
     The Secretary would be required to evaluate the results of 
     the demonstration regarding the feasibility and cost-
     effectiveness of permanently out-stationing Medicare 
     specialists at local Social Security offices and report to 
     Congress. The provision would be effective upon enactment.
     Senate Bill
       Same provision
     Conference Agreement
       The conference agreement requires the Secretary to conduct 
     a 3-year demonstration program where Medicare specialists 
     would provide assistance to beneficiaries in at least 6 local 
     Social Security offices (2 would be located in rural areas) 
     that have a high volume of visits by Medicare beneficiaries. 
     The Secretary is required to evaluate the results of the 
     demonstration regarding the feasibility and cost-
     effectiveness of permanently out-stationing Medicare 
     specialists at local Social Security offices and report to 
     Congress. The agreement is effective upon enactment.
       Inclusion of Additional Information in Notices to 
     Beneficiaries About Skilled Nursing Facility Benefits. 
     (Section 925 of the Conference Agreement, Section 925 of the 
     House Bill, Section 551 of the Senate Bill).
     Present Law
       Although the statute requires that beneficiaries receive a 
     statement listing the items and services for which payment 
     has been made, there is no explicit statutory instruction 
     that requires the notice to include information about the 
     number of days of coverage remaining in either the hospital 
     or skilled nursing facility (SNF) benefit or the spell of 
     illness.
     House Bill
       The Secretary would be required to provide information 
     about the number of days of coverage remaining under the SNF 
     benefit and the spell of illness involved in the explanation 
     of Medicare benefits. The provision would be effective for 
     notices provided during calendar quarters beginning more than 
     6 months after the date of enactment.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement requires the Secretary to provide 
     information about the number of days of coverage remaining 
     under the SNF benefit and the spell of illness involved in 
     the explanation of Medicare benefits. The agreement applies 
     to notices provided during calendar quarters beginning more 
     than 6 months after the date of enactment.
       Information on Medicare-Certified Skilled Nursing 
     Facilities in Hospital Discharge Plans. (Section 926 of the 
     Conference Agreement, Section 926 of the House Bill, Section 
     552 of the Senate Bill).
     Present Law
       The hospital discharge planning process requires evaluation 
     of a patient's likely need for post-hospital services 
     including hospice and home care.
     House Bill
       The Secretary would be required to make information 
     publicly available regarding

[[Page H12082]]

     whether SNFs are participating in the Medicare program. 
     Hospital discharge planning would be required to evaluate a 
     patient's need for SNF care.
       The provision would apply to discharge plans made on or 
     after the date specified by the Secretary, but not later than 
     six months after the Secretary provides information regarding 
     SNFs that participate in the Medicare program.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement requires the Secretary to make 
     information publicly available regarding whether SNFs are 
     participating in the Medicare program. Hospital discharge 
     planning is required to evaluate a patient's need for SNF 
     care.
       The agreement applies to discharge plans made on or after 
     the date specified by the Secretary, but not later than six 
     months after the Secretary provides information regarding 
     SNFs that participate in the Medicare program.
       Transfer of Responsibility for Medicare Appeals. (Section 
     931 of the Conference Agreement, Section 931 of the House 
     Bill, Sections 511 and 519 of the Senate Bill).
     Present Law
       Denials of claims for Medicare payment may be appealed by 
     beneficiaries (or providers who are representing the 
     beneficiary) or in certain circumstances, providers or 
     suppliers directly. The third level of appeal is to an 
     administrative law judge (ALJ). The ALJs that hear Medicare 
     cases are employed by the Social Security Administration--a 
     legacy from the inception of the Medicare program when 
     Medicare was part of Social Security. BIPA section 522 
     requires that appeals of local coverage determinations be 
     heard by ALJs of the Social Security Administration (SSA). As 
     a result, if the ALJ function were moved from SSA to HHS, 
     these local coverage determination appeals would still need 
     to be heard by SSA ALJs.
     House Bill
       The Secretary and the Commissioner of the Social Security 
     Administration (SSA) would be required to develop a plan to 
     transfer the functions of the administrative law judges 
     (ALJs) who are responsible for hearing Medicare cases from 
     SSA to HHS. This plan would be due to Congress not later than 
     October 1, 2004. A GAO evaluation of the plan would be due 
     within 6 months of the plan's submission. ALJ functions would 
     be transferred no earlier than July 1, 2005 and no later than 
     October 1, 2005.
       The Secretary would be required to place the ALJs in an 
     administrative office that is organizationally and 
     functionally separate from the Centers for Medicare & 
     Medicaid Services and the ALJs would be required to report 
     to, and be under the general supervision of the Secretary. No 
     other official within the Department would be permitted to 
     supervise the ALJs. The Secretary would be required to 
     provide for appropriate geographic distribution of ALJs, 
     would have the authority to hire ALJs and support staff, and 
     would be required to enter into arrangements with the 
     Commissioner, as appropriate, to share office space, support 
     staff and other resources with appropriate reimbursement.
       Authorizes to be appropriated such sums as are necessary 
     for FY2005 and each subsequent fiscal year to increase the 
     number of ALJs, improve education and training of ALJs and to 
     increase the staff of the Departmental Appeals Board (the 
     final level of appeal).
     Senate Bill
       The Secretary and Commissioner of Social Security would be 
     required to develop and transmit to Congress and the 
     Comptroller General a plan for transferring the functions of 
     administrative law judges (ALJs) responsible for hearing 
     cases under Medicare from the Social Security Administration 
     to HHS no later than April 1, 2004. The plan would be 
     required to include information on: workload; cost 
     projections and financing; transition timetable; regulations; 
     development of a case tracking system; feasibility of 
     precedential authority; feasibility of electronic appeals 
     filings and teleconference; steps needed to assure 
     independence of ALJs, including assuring that they are in an 
     office that is operationally and functionally separate from 
     the Centers for Medicare & Medicaid Services and the Center 
     for Medicare Choices; geographic distribution of ALJs; steps 
     for hiring ALJs; performance standards of ALJs; sharing 
     resources with Social Security regarding ALJs; training; and 
     recommendations for further Congressional action. The GAO 
     would be required to evaluate the Secretary's and 
     Commissioner's plan and report to Congress on the result of 
     the evaluation within 6 months of the receiving the plan. The 
     Secretary would be prohibited from implementing the plan 
     developed until no earlier than 6 month after the GAO report.
       The statutory language that requires SSA ALJs be used to 
     hear appeals of local coverage determinations would be 
     eliminated. The requirement that these appeals be heard by 
     ALJs would be retained. The provision would be effective upon 
     enactment.
     Conference Agreement
       The conference agreement requires the Secretary and the 
     Commissioner of Social Security to develop a plan to transfer 
     the administrative law judge function from SSA to HHS for 
     Medicare appeals. Their plan is due to Congress and the 
     Comptroller General not later than April 1, 2004. The plan is 
     required to include information on: anticipated workload and 
     staffing requirements; funding requirements; transition 
     timetable; regulations; case tracking system; feasibility of 
     developing a process to give Department Appeals Board 
     decisions binding precedential authority; feasibility of 
     filing appeals with ALJs electronically and conducting 
     hearings using tele- or video-conferencing technologies; 
     steps that should be taken to ensure the independence of 
     ALJs; steps that should be taken to provide for an 
     appropriate geographic distribution of ALJs throughout the 
     United States; steps that should be taken to hire ALJs and 
     support staff; appropriateness of establishing performance 
     standards; steps that should be taken to carry out any needed 
     shared resources with SSA; needed training; and any 
     additional recommendations for further Congressional action.
       A GAO evaluation of the plan is required within 6 months of 
     the plan's submission. ALJ functions are required to be 
     transferred no earlier than July 1, 2005 and no later than 
     October 1, 2005.
       The Secretary is required to place the ALJs in an 
     administrative office that is organizationally and 
     functionally separate from the Centers for Medicare & 
     Medicaid Services and the ALJs would be required to report 
     to, and be under the general supervision of the Secretary. No 
     other official within the Department is permitted to 
     supervise the ALJs. The Secretary is required to provide for 
     appropriate geographic distribution of ALJs, would have the 
     authority to hire ALJs and support staff, and is required to 
     enter into arrangements with the Commissioner, as 
     appropriate, to share office space, support staff and other 
     resources with appropriate reimbursement.
       In addition to any amounts otherwise appropriated, the 
     agreement authorizes to be appropriated such sums as are 
     necessary for FY 2005 and each subsequent fiscal year to 
     increase the number of ALJs, improve education and training 
     of ALJs, and to increase the staff of the Departmental 
     Appeals Board (the final level of appeal).
       The conference agreement strikes the statutory language 
     that requires SSA ALJs be used to hear appeals of local 
     coverage determinations. The requirement that these appeals 
     be heard by ALJs is retained. This provision is effective 
     upon enactment.
       Process for Expedited Access to Review. (Section 932 of the 
     Conference Agreement, Section 932 of the House Bill, Sections 
     512 and 513 of the Senate Bill).
     Present Law
       In general, administrative appeals must be exhausted prior 
     to judicial review. The statute requires the automatic 
     suspension of nurse aide training programs in skilled nursing 
     facilities that have been subject to extended survey (that 
     is, found to provide substandard care), have had serious 
     sanctions imposed, or have waivers for required licensed 
     nurse staffing.
     House Bill
       The Secretary would be required to establish a process 
     where a provider, supplier, or a beneficiary may obtain 
     expedited access to judicial review when a 3-member review 
     panel (composed of ALJs, members of the Departmental Appeals 
     Board, or qualified individuals from qualified independent 
     contractors designated by the Secretary) determines, within 
     60 days of a complete written request, that it does not have 
     the authority to decide the question of law or regulation and 
     where material facts are not in dispute. The decision would 
     not be subject to review by the Secretary. Interest would be 
     assessed on any amount in controversy and would be awarded by 
     the reviewing court in favor of the prevailing party. This 
     expedited access to judicial review would also be permitted 
     for cases where the Secretary does not enter into or renew 
     provider agreements.
       Expedited review would also be established for certain 
     remedies imposed against SNFs. The remedies in the provision 
     are termination of participation, denial of payments, and 
     imposition of temporary management. The Secretary would be 
     required to develop a process for reinstating approval of 
     nurse aide training programs that have been terminated 
     (before the end of the mandatory 2-year disapproval period) 
     if the only reason for the termination was the assessment of 
     a civil money penalty of $5,000 or more. The appropriation of 
     such sums as needed for FY2005 and subsequent years would be 
     authorized to reduce by 50% the average time for 
     administrative determinations, to increase the number of ALJs 
     and appellate staff at the DAB, and to educate these judges 
     and their staffs on long-term care issues. This provision 
     would be effective for appeals filed one or after October 1, 
     2004.
     Senate Bill
       The Secretary would be required to establish a process 
     where a provider, supplier, or a beneficiary may obtain 
     expedited access to judicial review when a review entity (up 
     to 3 qualified reviewers drawn from the ALJs or Departmental 
     Appeals Board) determines, within 60 days of a complete 
     written request, that it does not have the authority to 
     decide the question of law or regulation and where material 
     facts are not in dispute. The decision would not be subject 
     to review by the Secretary. Interest would be assessed on any 
     amount in controversy and is awarded by the reviewing court 
     in favor of the prevailing party. Expedited access to 
     judicial review would be permitted for cases where the 
     Secretary does not enter into or renew provider

[[Page H12083]]

     agreements. The provision would be effective for appeals 
     filed on or after October 1, 2004.
       The Secretary also would be required to develop and 
     implement a process to expedite review for certain remedies 
     imposed against skilled nursing facilities (SNFs): 
     termination of participation, immediate denial of payments, 
     immediate imposition of temporary management, and suspension 
     of nurse aide training programs.
       This provision would authorize the appropriation of such 
     sums as needed for FY2004 and subsequent years to reduce by 
     50% the average time for administrative determinations, to 
     increase the number of ALJs and appellate staff at the DAB, 
     and to educate these judges and their staffs on long-term 
     care issues.
       The Comptroller General would be required to report to 
     Congress on the access of Medicare beneficiaries and health 
     care providers to judicial review of actions of the Secretary 
     and HHS after February 29, 2000 (the date of the decision of 
     Shalala v. Illinois Council on Long Term Care, Inc. (529 U.S. 
     1 (2000)). The report would be due not later than one year 
     after enactment.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a process where a provider, supplier, or a 
     beneficiary may obtain access to judicial review when a 
     review entity (up to 3 qualified reviewers drawn from the 
     ALJs or Departmental Appeals Board) determines, within 60 
     days of a complete written request, that it does not have the 
     authority to decide the question of law or regulation and 
     where material facts are not in dispute. The decision is 
     subject to review by the Secretary. Interest is assessed on 
     any amount in controversy and is awarded by the reviewing 
     court in favor of the prevailing party. Expedited access to 
     judicial review is permitted for cases where the Secretary 
     does not enter into or renew provider agreements. The 
     conference agreement is effective for appeals filed on or 
     after October 1, 2004.
       The agreement requires the Secretary to establish a process 
     to expedite appeals of provider terminations and certain 
     other remedies imposed on skilled nursing facilities, 
     including denial of payment for new admissions and temporary 
     management, if imposed on an immediate basis. Providers who 
     are subject to the remedies of denial of payment or temporary 
     management may only access the expedited process when these 
     remedies are imposed on an immediate basis and where the 
     facility has no opportunity to correct the deficiency. The 
     agreement would also allow an expedited appeal where a 
     finding of substandard quality of care has resulted in the 
     disapproval of a skilled nursing facility's nurse aide 
     training program. The agreement requires the Secretary to 
     give priority to cases where termination has been imposed on 
     a provider.
       The agreement includes a provision allowing the Secretary 
     to waive disapproval of a nurse aide training program, upon 
     application by a nursing facility if the disapproval resulted 
     from the imposition of a civil monetary penalty that was not 
     related to quality of care provided to residents of the 
     facility. Quality of care in such instances refers to direct, 
     hands on care provided to residents of a facility. This 
     agreement does not permit the Secretary to waive the CMP.
       In addition to any amounts otherwise appropriated, the 
     conference agreement authorizes the appropriation of such 
     sums as needed for FY2004 and subsequent years in order to 
     reduce by 50% the average time for administrative 
     determinations, to increase the number of ALJs and appellate 
     staff at the DAB, and to educate these judges and their 
     staffs on long-term care issues.
       Revisions to Medicare Appeals Process. (Section 933 of the 
     Conference Agreement, Section 933 of the House Bill, Section 
     514 of the Senate Bill).
     (a) Requiring Full and Early Presentation of Evidence
     Present Law
       No provision. New evidence can be presented at any stage of 
     the appeals process.
     House Bill
       The provision would require providers and suppliers to 
     present all evidence for an appeal at the reconsideration 
     level that is conducted by a qualified independent contractor 
     (QIC) unless good cause precluded the introduction of the 
     evidence. The provision would be effective October 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires providers and suppliers 
     to present all evidence for an appeal at the reconsideration 
     level that is conducted by a qualified independent contractor 
     (QIC) unless good cause precluded the introduction of the 
     evidence. The conference agreement provision is effective 
     October 1, 2004.
     (b) Use of Patients' Medical Records
     Present Law
       No provision.
     House Bill
       The provision would provide for the use of beneficiaries' 
     medical records in appeals reconsiderations by qualified 
     independent contractors (QICs). The provision would be 
     effective upon enactment.
     Senate Bill
       Beneficiaries' medical records would be able to be used in 
     appeals reconsiderations by qualified independent 
     contractors. The provision would be effective upon enactment.
     Conference Agreement
       The conference agreement provides for the use of 
     beneficiaries' medical records in appeals reconsiderations by 
     QICs. The conference agreement is effective upon enactment.
     (c) Notice Requirements for Medicare Appeals
     Present Law
       No statutory provision. Determinations and denials of 
     appeals currently include the policy, regulatory, or 
     statutory reason for the denial and information on how to 
     appeal the denial. The Benefits Improvement and Protection 
     Act (BIPA) of 2000, changed the appeals process and created a 
     new independent review (the qualified independent contractors 
     or QICs), which has not yet been implemented.
     House Bill
       The provision would require that when claims are denied the 
     written notice of determination include the reasons for the 
     determination, including whether a local medical review 
     policy or a local coverage determination was used; the 
     procedures for obtaining additional information concerning 
     the determination including, when requested, the specific 
     provision of the policy, manual, or regulation used in making 
     the determination; and notification of the right to seek an 
     appeal and instructions for appealing the determination.
       In the case when a redetermination (the first level of 
     appeal) is denied, the written notice would be required to 
     include: the specific reasons for the redetermination; as 
     appropriate, a summary of the clinical or scientific evidence 
     used in making the redetermination; a description of the 
     procedures for obtaining additional information concerning 
     the redetermination. The notice would be required to be 
     written in a manner calculated to be understood by a 
     beneficiary. A beneficiary receiving such a notice would be 
     permitted to request and receive information on the specific 
     provision of the policy, manual, or regulation used in making 
     the redetermination.
       In the case when a reconsideration (the second level of 
     appeal) is decided, the written notice would be required to 
     be written in a manner calculated to be understood by the 
     beneficiary and information regarding appeal rights and 
     processes provided.
       For appeals (to either the ALJ or Departmental Appeals 
     Board (DAB)), the notice of the decision would be required to 
     be in writing and written in a manner calculated to be 
     understood by the beneficiary, to include the specific 
     reasons for the determination, including to the extent 
     appropriate a summary of the clinical or scientific evidence 
     used in making the determination; the procedures for 
     obtaining additional information regarding the decision; and 
     notification of the right to appeal and how to initiate such 
     an appeal. The provision also requires that the qualified 
     independent contractor submit information that is needed for 
     an appeal of a decision.
     Senate Bill
       The provision would require that when claims are denied, 
     the written notice of the decision at every level of the 
     appeal or with the initial determination would be required to 
     be written in a manner to be understood by the beneficiary 
     and include notification of the right to appeal the decision 
     and instruction on how to initiate an appeal.
       In addition, the determination would be required to include 
     the reasons for the determination including, as appropriate, 
     the provision of the policy, manual, or regulation that 
     resulted in the denial if requested; and the procedures for 
     obtaining additional information concerning the 
     determination.
       In the case when a redetermination (the first level of 
     appeal) is denied, the written notice would be required to 
     include: the reasons for the decision and, as appropriate, 
     the provision of the policy, manual, or regulation that 
     resulted in the denial if requested, and a summary of the 
     clinical or scientific evidence used in making the 
     redetermination; and a description of the procedures for 
     obtaining additional information concerning the 
     redetermination.
       In the case when a reconsideration (the second level of 
     appeal) is decided, the written notice would be required to 
     include a detailed explanation of the decision as well as a 
     discussion of the pertinent facts and applicable regulations 
     applied in making the decision, to the extent appropriate; 
     and in the case of a decision regarding whether an item or 
     service is reasonable and necessary for the diagnosis or 
     treatment of illness or injury, an explanation of the 
     medical or scientific rationale for the decision.
       For appeals (to either the ALJ or Departmental Appeals 
     Board (DAB)), the notice of the decision would be required to 
     include the specific reasons for the determination including, 
     to the extent appropriate, a summary of the clinical or 
     scientific evidence used in making the determination; and the 
     procedures for obtaining additional information concerning 
     the decision.
     Conference Agreement
       The conference agreement requires that when claims are 
     denied in either the initial determination or in subsequent 
     appeals, a written notice of the decision is required and to 
     be written in a manner calculated to be understood by the 
     beneficiary and to include notification of the right to 
     appeal the decision and instruction on how to initiate an 
     appeal.

[[Page H12084]]

       In addition, the determination is required to include the 
     reasons for the determination, including whether a local 
     medical review policy or a local coverage determination was 
     used; and the procedures for obtaining additional information 
     concerning the determination including, when requested, the 
     specific provision of the policy, manual, or regulation used 
     in making the determination.
       In the case when a redetermination (the first level of 
     appeal) is denied, the written notice is required to include: 
     the specific reasons for the redetermination; as appropriate, 
     a summary of the clinical or scientific evidence used in 
     making the redetermination; a description of the procedures 
     for obtaining additional information concerning the 
     redetermination. A beneficiary receiving such a notice is 
     permitted to request and receive information on the specific 
     provision of the policy, manual, or regulation used in making 
     the redetermination.
       In the case when a reconsideration (the second level of 
     appeal) is decided, the written notice is required to be 
     written in a manner calculated to be understood by the 
     beneficiary and information regarding appeal rights and 
     processes provided.
       For appeals (to either the ALJ or Departmental Appeals 
     Board (DAB)), the notice of the decision is required to be in 
     writing and written in a manner calculated to be understood 
     by the beneficiary, to include the specific reasons for the 
     determination, including to the extent appropriate a summary 
     of the clinical or scientific evidence used in making the 
     determination; the procedures for obtaining additional 
     information regarding the decision; and notification of the 
     right to appeal and how to initiate such an appeal.
       The conference agreement also requires that the qualified 
     independent contractor submit information that is needed for 
     an appeal of a decision. The conference agreement is 
     effective upon enactment.
     (d) Qualified Independent Contractors
     Present Law
       BIPA established a new and independent second level of 
     appeal called the qualified independent contractors (QICs). 
     BIPA called for at least 12 QICs. The QICs have not yet been 
     implemented.
     House Bill
       The provision would clarify eligibility requirements for 
     qualified independent contractors and their reviewer 
     employees including medical and legal expertise, independence 
     requirements, and the prohibition on compensation being 
     linked to decisions rendered. The required number of 
     qualified independent contractors would be reduced from not 
     fewer than 12 to not fewer than 4. The provisions regarding 
     the eligibility requirements of QICs and QIC reviews would be 
     effective as if included in the enactment of BIPA.
     Senate Bill
       The provision would clarify eligibility requirements for 
     qualified independent contractors and their reviewer 
     employees including medical and legal expertise, independence 
     requirements, and prohibitions on compensation being linked 
     to decisions rendered. The required minimum number of 
     qualified independent contractors would be reduced from 12 to 
     4.
       In addition, the provision would delay the effective date 
     of certain appeals provisions until December 1, 2004. 
     Expedited determinations would be delayed until October 1, 
     2003. The provision would allow the transitional use of peer 
     review organizations (now called quality improvement 
     organizations by the Secretary) to conduct expedited 
     determinations until the QICs are operating.
     Conference Agreement
       The conference agreement clarifies eligibility requirements 
     for qualified independent contractors and their reviewer 
     employees including medical and legal expertise, independence 
     requirements, and the prohibition on compensation being 
     linked to decisions rendered. The required number of 
     qualified independent contractors is reduced from not fewer 
     than 12 to not fewer than 4. The provisions regarding the 
     eligibility requirements of QICs and QIC reviews are 
     effective as if included in the enactment of BIPA.
     Implementation of Certain BIPA Effective Dates
     Present Law
       The BIPA claims appeals provisions were effective October 
     1, 2002 but have not been implemented.
     House Bill
       No provision.
     Senate Bill
       The provision would delay the effective date of certain 
     appeals provisions until December 1, 2004. Expedited 
     determinations would be delayed until October 1, 2003. The 
     provision would allow the transitional use of peer review 
     organizations (now called quality improvement organizations 
     by the Secretary) to conduct expedited determinations until 
     the QICs are operating.
     Conference Agreement
       No provision.
       Prepayment Review. (Section 934 of the Conference 
     Agreement, Section 934 of the House Bill, Section 541 of the 
     Senate Bill).
     Present Law
       No explicit statutory instruction. Under administrative 
     authorities, CMS has instructed the contractors to use random 
     prepayment reviews to develop contractor-wide and program-
     wide error rates. Non-random payment reviews are permitted in 
     certain circumstances laid out in instructions to the 
     contractors.
     House Bill
       Medicare contractors would be permitted to conduct random 
     prepayment reviews only to develop a contractor-wide or 
     program-wide error rate or such additional circumstances as 
     the Secretary provides for in regulations that were developed 
     in consultation with providers and suppliers. Random 
     prepayment review would only be permitted in accordance with 
     standard protocol developed by the Secretary. Nonrandom 
     payment reviews would be permitted only when there was a 
     likelihood of sustained or high level of payment error. The 
     Secretary would be required to issue regulations regarding 
     the termination and termination dates of non-random 
     prepayment review. Variation in termination dates would be 
     permitted depending upon the differences in the circumstances 
     triggering prepayment review.
       The Secretary would be required to issue the required 
     regulations not later than one year after enactment. The 
     provision regarding the use of standard protocols when 
     conducting prepayment reviews would apply to random 
     prepayment reviews conducted on or after the date specified 
     by the Secretary (but not later than one year after 
     enactment). The remaining provisions would be effective one 
     year after enactment.
     Senate Bill
       The conduct of random prepayment review would be limited 
     only to those done in accordance with a standard protocol 
     developed by the Secretary. Non-random reviews would be 
     prohibited unless a likelihood of sustained or high level of 
     payment error (as defined by the Secretary) existed and the 
     Secretary would be required to establish protocols for 
     terminating the non-random reviews within one year of 
     enactment. The Secretary would be required to publish 
     implementing regulations and develop and publish protocols 
     not later than one year after enactment. The provision would 
     be effective for random reviews conducted on or after the 
     date specified by the Secretary (but not later than one year 
     after enactment).
     Conference Agreement
       The conference agreement permits Medicare contractors to 
     conduct random prepayment reviews only to develop a 
     contractor-wide or program-wide error rate or such additional 
     circumstances as the Secretary provides for in regulations 
     that are developed in consultation with providers and 
     suppliers. Random prepayment reviews are only permitted in 
     accordance with standard protocol developed by the Secretary. 
     Nonrandom payment reviews are permitted only when there is a 
     likelihood of sustained or high level of payment error. The 
     Secretary is required to issue regulations regarding the 
     termination and termination dates of non-random prepayment 
     review. Variation in termination dates is permitted depending 
     upon the differences in the circumstances triggering 
     prepayment review.
       The Secretary is required to issue the required regulations 
     not later than 1 year after enactment. The provision 
     regarding the use of standard protocols when conducting 
     prepayment reviews applies to random prepayment reviews 
     conducted on or after the date specified by the Secretary 
     (but not later than 1 year after enactment). The remaining 
     provisions are effective 1 year after enactment.
       Recovery of Overpayments. (Section 935 of the Conference 
     Agreement, Section 935 of the House Bill, Section 542 of the 
     Senate Bill).
     Present Law
       No explicit statutory instruction. Under administrative 
     authorities, CMS negotiates extended repayment plans with 
     providers that need additional time to repay Medicare 
     overpayments.
     House Bill
       In situations where repaying a Medicare overpayment within 
     30 days would be a hardship for a provider or supplier, the 
     Secretary would be required to enter into an extended 
     repayment plan of at least 6 months duration. The repayment 
     plan would not be permitted to go beyond 3 years (or 5 years 
     in the case of extreme hardship, as determined by the 
     Secretary). Interest would be required to accrue on the 
     balance through the repayment period. Hardship would be 
     defined if, for providers that file cost reports, the 
     aggregate amount of the overpayment exceeded 10 percent of 
     the amount paid by Medicare to the provider for the time 
     period covered by the most recently submitted cost report. In 
     the case of a provider or supplier that is not required to 
     file a cost report, hardship would be defined if the 
     aggregate amount of the overpayment exceeded 10 percent of 
     the amount paid under Medicare for the previous calendar 
     year. The Secretary would be required to develop rules for 
     the case of a provider or supplier that was not paid under 
     Medicare during the previous year or for only a portion of 
     the year. Any other repayment plans that a provider or 
     supplier has with the Secretary, would not be taken into 
     account by the Secretary in calculating hardship. If the 
     Secretary has reason to suspect that the provider or supplier 
     may file for bankruptcy or otherwise cease to do business or 
     discontinue participation in Medicare or there is an 
     indication of fraud or abuse, the Secretary would not be 
     obligated to enter into an extended repayment plan with the 
     provider or supplier. If a provider or supplier fails to make 
     a payment according to the repayment plan, the Secretary 
     would be permitted to immediately seek to offset

[[Page H12085]]

     or recover the total outstanding balance of the repayment 
     plan, including interest.
       The Secretary would be prohibited from recouping any 
     overpayments until a reconsideration-level appeal (or a 
     redetermination by the fiscal intermediary or carrier if the 
     QICs are not yet in place) was decided, if a reconsideration 
     was requested. Interest would be required to be paid to the 
     provider if the appeal was successful (beginning from the 
     time the overpayment is recouped) or that interest would be 
     required to be paid to the Secretary if the appeal was 
     unsuccessful (and if the overpayment was not paid to the 
     Secretary).
       Extrapolation would be limited to those circumstances where 
     there is a sustained or high level of payment error, as 
     defined by the Secretary in regulation, or documented 
     educational intervention has failed to correct the payment 
     error.
       Medicare contractors would be permitted 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 in the case of a provider 
     or supplier with prior overpayments.
       The Secretary would be able to use consent settlements to 
     settle projected overpayments under certain conditions. 
     Specifically the Secretary would be required to communicate 
     with the provider or supplier that medical record review has 
     indicated an overpayment exists, the nature of the problems 
     identified, the steps needed to address the problems, and 
     afford the provider or supplier 45 days to furnish additional 
     information regarding the medical records for the claims 
     reviewed. If, after reviewing the additional information an 
     overpayment continues to exist, the Secretary would be 
     required to provide notice and an explanation of the 
     determination and then may offer the provider two mechanisms 
     to resolve the overpayment: either an opportunity for a 
     statistically valid random sample or a consent settlement 
     (without waiving any appeal rights).
       The Secretary would be required to establish a process to 
     provide notice to certain providers and suppliers in cases 
     where billing codes were over-utilized by members of that 
     class in certain areas, in consultation with organizations 
     that represent the affected provider or supplier class.
       If post-payment audits were conducted, the Medicare 
     contractor would be required to provide the provider or 
     supplier with written notice of the intent to conduct the 
     audit. The contractor would further be required to give the 
     provider or supplier a full and understandable explanation of 
     the findings of the audit and permit the development of an 
     appropriate corrective action plan, inform the provider or 
     supplier of appeal rights and consent settlement options, and 
     give the provider or supplier the opportunity to provide 
     additional information to the contractor, unless notice or 
     findings would compromise any law enforcement activities.
       The Secretary would be required to establish a standard 
     methodology for Medicare contractors to use in selecting a 
     sample of claims for review in cases of abnormal billing 
     patterns.
       In general the provisions would be effective upon 
     enactment. The limitation on extrapolation would apply to 
     samples initiated after the date that is 1 year after the 
     date of enactment. The Secretary would be required to 
     establish the process for notice of overutilization of 
     billing codes not later than 1 year after enactment. The 
     Secretary would be required to establish a standard 
     methodology for selecting sample claims for abnormal billing 
     patterns not later than 1 year after enactment.
     Senate Bill
       This provision would add a new subsection (h) to 1874A that 
     would require establishment of at least a 1 year repayment 
     plan--but not longer than three years--when a provider 
     requests a repayment plan, unless the Secretary believes the 
     provider may declare bankruptcy. If a provider or supplier 
     fails to make a scheduled payment, the Secretary could 
     immediately offset or recover the outstanding balance. The 
     Secretary would be required to develop standards for the 
     recovery of overpayments not later than one year after 
     enactment.
       The Secretary would be barred from recouping any 
     overpayments until a reconsideration-level appeal was decided 
     (if one were requested). The paragraph provides that interest 
     would be required to be paid to the provider if the appeal 
     was successful (beginning from the time the overpayment is 
     recouped) or that interest would be required to be paid to 
     the Secretary if the appeal was unsuccessful (and if the 
     overpayment was not paid to the Secretary).
       The provision would also require that if post-payment 
     audits were conducted, the Medicare contractor would be 
     required to provide the provider or supplier with written 
     notice of the intent to conduct the audit. The contractor 
     would further be required to give the provider or supplier a 
     full and understandable explanation of the findings of the 
     audit and permit the development of an appropriate corrective 
     action plan, inform the provider or supplier of appeal rights 
     and consent settlement options, and give the provider or 
     supplier the opportunity to provide additional information to 
     the contractor, unless notice or findings would compromise 
     any law enforcement activities.
       The Secretary would be required to establish a process to 
     provide notice to certain providers and suppliers in cases 
     where billing codes were over-utilized by members of that 
     class in certain areas, in consultation with organizations 
     that represent the affected provider or supplier class. The 
     process would be required not later than one year after 
     enactment.
       Not later than one year after enactment, the Secretary 
     would be required to establish a standard methodology for 
     Medicare contractors to use in selecting a sample of claims 
     for review in cases of abnormal billing patterns.
       The Secretary would be authorized to use a consent 
     settlement process to settle projected overpayments under 
     certain specified conditions.
       The provisions affecting post-payment audits and consent 
     settlements would be effective to audits initiated and 
     consent settlements entered into after the date of enactment. 
     Other provisions would be effective for action taken 1 year 
     after enactment.
     Conference Agreement
       In situations where repaying a Medicare overpayment within 
     30 days would be a hardship for a provider or supplier, the 
     conference agreement requires the Secretary to enter into an 
     extended repayment plan of at least 6 months duration. The 
     repayment plan is not permitted to go beyond 3 years (or 5 
     years in the case of extreme hardship, as determined by the 
     Secretary). Interest is required to accrue on the balance 
     through the repayment period. Hardship is defined if, for 
     providers that file cost reports, the aggregate amount of the 
     overpayment exceeded 10 percent of the amount paid by 
     Medicare to the provider for the time period covered by the 
     most recently submitted cost report. In the case of a 
     provider or supplier that is not required to file a cost 
     report, hardship is defined if the aggregate amount of the 
     overpayment exceeded 10 percent of the amount paid under 
     Medicare for the previous calendar year. The Secretary is 
     required to develop rules for the case of a provider or 
     supplier that was not paid under Medicare during the 
     previous year or for only a portion of the year. Any other 
     repayment plans that a provider or supplier has with the 
     Secretary, are not taken into account by the Secretary in 
     calculating hardship. If the Secretary has reason to 
     suspect that the provider or supplier may file for 
     bankruptcy or otherwise cease to do business or 
     discontinue participation in Medicare or there is an 
     indication of fraud or abuse, the Secretary is not 
     obligated to enter into an extended repayment plan with 
     the provider or supplier. If a provider or supplier fails 
     to make a payment according to the repayment plan, the 
     Secretary may immediately seek to offset or recover the 
     total outstanding balance of the repayment plan, including 
     interest.
       The Secretary is prohibited from recouping any overpayments 
     until a reconsideration-level appeal (or a redetermination by 
     the fiscal intermediary or carrier if the QICs are not yet in 
     place) was decided, if a reconsideration was requested. 
     Interest is required to be paid to the provider if the appeal 
     is successful (beginning from the time the overpayment is 
     recouped) or interest is required to be paid to the Secretary 
     if the appeal is unsuccessful (and if the overpayment was not 
     paid to the Secretary).
       Extrapolation is limited to those circumstances where there 
     is a sustained or high level of payment error, as defined by 
     the Secretary in regulation, or document educational 
     intervention has failed to correct the payment error.
       Medicare contractors are permitted 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 in the case of a provider 
     or supplier with prior overpayments.
       The Secretary is permitted to use consent settlements to 
     settle projected overpayments under certain conditions. 
     Specifically the Secretary is required to communicate with 
     the provider or supplier that medical record review has 
     indicated an overpayment exists, the nature of the problems 
     identified, the steps needed to address the problems, and 
     afford the provider or supplier 45 days to furnish additional 
     information regarding the medical records for the claims 
     reviewed. If, after reviewing the additional information an 
     overpayment continues to exist, the Secretary is required to 
     provide notice and an explanation of the determination and 
     then may offer the provider two mechanisms to resolve the 
     overpayment: either an opportunity for a statistically valid 
     random sample or a consent settlement (without waiving any 
     appeal rights).
       The Secretary is required to establish a process to provide 
     notice to certain providers and suppliers in cases where 
     billing codes were over-utilized by members of that class in 
     certain areas, in consultation with organizations that 
     represent the affected provider or supplier class.
       If post-payment audits are conducted, the Medicare 
     contractor is required to provide the provider or supplier 
     with written notice of the intent to conduct the audit. The 
     contractor is further required to give the provider or 
     supplier a full and understandable explanation of the 
     findings of the audit and permit the development of an 
     appropriate corrective action plan, inform the provider or 
     supplier of appeal rights and consent settlement options, and 
     give the provider or supplier the opportunity to provide 
     additional information to the contractor, unless notice or 
     findings would compromise any law enforcement activities.

[[Page H12086]]

       The Secretary is required to establish a standard 
     methodology for Medicare contractors to use in selecting a 
     sample of claims for review in cases of abnormal billing 
     patterns.
       In general, the provisions are effective upon enactment. 
     The limitation on extrapolation would apply to samples 
     initiated after the date that is 1 year after the date of 
     enactment. The Secretary is required to establish the process 
     for notice of overutilization of billing codes not later than 
     1 year after enactment. The Secretary is required to 
     establish a standard methodology for selecting sample claims 
     for abnormal billing patterns not later than 1 year after 
     enactment.
       Provider Enrollment Process; Right of Appeal. (Section 936 
     of the Conference Agreement, Section 936 of the House Bill, 
     Section 515 of the Senate Bill).
     Present Law
       No explicit statutory instruction. Under administrative 
     authorities, CMS has established provider enrollment 
     processes in instructions to the contractors.
     House Bill
       The Secretary would be required to establish in regulation 
     a provider enrollment process with hearing rights in the case 
     of a denial or non-renewal. The process would be required to 
     include deadlines for actions on applications for enrollment 
     and enrollment renewals. The Secretary would be required to 
     monitor the performance of the Medicare contractors in 
     meeting the deadlines he establishes. Before changing 
     provider enrollment forms, the Secretary would be required to 
     consult with providers and suppliers. The provision would 
     also establish hearing rights in cases where the applications 
     have been denied.
       The enrollment process would be required to be established 
     within 6 months of enactment. The consultation process on 
     provider enrollment forms would be required for changes in 
     the form beginning January 1, 2004. The provision of hearing 
     rights would apply to denials that occur 1 year after 
     enactment or an earlier date specified by the Secretary.
     Senate Bill
       Same provisions.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish in regulation a provider enrollment process with 
     hearing rights in the case of a denial or non-renewal. The 
     process is required to include deadlines for actions on 
     applications for enrollment and enrollment renewals. The 
     Secretary is required to monitor the performance of the 
     Medicare contractors in meeting the deadlines he establishes. 
     Before changing provider enrollment forms, the Secretary is 
     required to consult with providers and suppliers. The 
     conference agreement also establishes hearing rights in cases 
     where the applications have been denied.
       The enrollment process is required to be established within 
     6 months of enactment. The consultation process on provider 
     enrollment forms is required for changes in the form 
     beginning
       January 1, 2004. The provision of hearing rights applies to 
     denials that occur 1 year after enactment or an earlier date 
     specified by the Secretary.
       Process for Correction of Minor Errors and Omissions 
     without Pursuing Appeals Process. (Section 937 of the 
     Conference Agreement, Section 937 of the House Bill, Section 
     543 the Senate Bill).
     Present Law
       No explicit statutory instruction. Administratively, the 
     Medicare contractors send a claim's denial when a claim has 
     been submitted that lacks required information. Amendments to 
     cost reports are not allowed once a cost report is settled.
     House Bill
       This provision would require the Secretary to establish a 
     process so providers and suppliers could correct minor errors 
     in claims that were submitted for payment. The provision 
     would also require the Secretary to permit hospitals to 
     correct wage data errors that affect geographic 
     reclassification even if the cost report has been settled. 
     For FY 2004 alone, resubmittal of the application for 
     geographic reclassification would be permitted. The provision 
     would be effective upon enactment.
     Senate Bill
       This provision would require the Secretary to establish a 
     process so providers and suppliers could correct minor errors 
     in claims that were submitted for payment. The provision 
     would require that the process be developed not later than 1 
     year after enactment.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a process so providers and suppliers could correct 
     minor errors in claims that were submitted for payment within 
     1 year after enactment.
       Prior Determination Process for Certain Items and Services; 
     Advance Beneficiary Notices. (Section 938 of the Conference 
     Agreement, Section 938 of the House Bill, Section 535(b) of 
     the Senate Bill).
     Present Law
       Medicare law prohibits payment for items and services that 
     are not medically reasonable and necessary for the diagnosis 
     or treatment of an illness or an injury. Under certain 
     circumstances, however, Medicare will pay for noncovered 
     services that have been provided if both the beneficiary and 
     the provider of the services did not know and could not have 
     reasonably been expected to know that Medicare payment would 
     not be made for these services.
       A provider may be held liable for providing uncovered 
     services, if, for example, specific requirements are 
     published by the Medicare contractor or the provider has 
     received a denial or reduction of payment on the same or 
     similar service. In cases where the provider believes that 
     the service may not be covered as reasonable and necessary, 
     an acceptable advance notice of Medicare's possible denial of 
     payment must be given to the patient if the provider does not 
     want to accept financial responsibility for the service. The 
     notice must be given in writing, in advance of providing the 
     service; include the patient's name, date and description of 
     service as well as reasons why the service would not be 
     covered; and must be signed and dated by the patient to 
     indicate that the beneficiary will assume financial liability 
     for the service if Medicare payment is denied or reduced.
     House Bill
       The Secretary would be required to establish a process 
     through regulation where physicians and beneficiaries can 
     establish whether Medicare covers certain categories of items 
     and services before such services are provided. An eligible 
     requestor would be a physician, but only in case of items and 
     services for which the physician is paid directly and a 
     Medicare beneficiary who receives an advance beneficiary 
     notice from a physician would receive direct payment for that 
     service. The provisions would establish (1) that such prior 
     determinations would be binding on the Medicare contractor, 
     absent fraud or misrepresentation of facts; (2) the right to 
     redetermination in the case of a denial; (3) the 
     applicability of existing deadlines with respect to those 
     redeterminations; (4) that contractors' advance 
     determinations (and redeterminations) are not subject to 
     further administrative or judicial review; and (5) an 
     individual retains all rights to usual administrative or 
     judicial review after receiving the service or receiving a 
     determination that a service would not be covered. These 
     provisions would not affect a Medicare beneficiary's right 
     not to seek an advance determination. The prior determination 
     process would be established in time to address such requests 
     that are filed by 18 months of enactment. The Secretary would 
     be required to collect data on the advance determinations and 
     to establish a beneficiary outreach and education program. 
     GAO is required to report on the use of the advance 
     beneficiary notice and prior determination process within 18 
     months of its implementation.
     Senate Bill
       The Secretary would be required to establish a 
     demonstration project to test the administrative feasibility 
     of providing a process for beneficiaries and providers to 
     request and receive a determination as to whether the item or 
     service is covered under Medicare by reasons of Medical 
     necessity, before the item or service involved is furnished 
     to the beneficiary.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a prior determination process through regulation 
     where physicians and beneficiaries can determine whether 
     Medicare covers certain physician services before such 
     services are provided. An eligible requestor is a physician, 
     but only in case of services for which the physician is paid 
     directly, or a Medicare beneficiary, who receives an advance 
     beneficiary notice from a physician who would receive direct 
     payment for that service. The provision establishes (1) that 
     such prior determinations would be binding on the Medicare 
     contractor, absent fraud or misrepresentation of facts; (2) 
     the right to redetermination in the case of a denial; (3) the 
     applicability of existing deadlines with respect to those 
     redeterminations; (4) that contractors' advance 
     determinations (and redeterminations) are not subject to 
     further administrative or judicial review; and (5) an 
     individual retains all rights to usual administrative or 
     judicial review after receiving the service or receiving a 
     determination that a service would not be covered. These 
     provisions do not affect a Medicare beneficiary's right 
     not to seek an advance determination. The prior 
     determination process is required to be established in 
     time to address such requests that are filed by 18 months 
     after enactment and it sunsets 5 years later. For purposes 
     of calculating the physician fee schedule sustainable 
     growth rate, this provision is not to be considered to be 
     a change in law or regulation. The Secretary is required 
     to collect data on the advance beneficiary notices and to 
     establish a beneficiary outreach and education program. 
     GAO is required to report on the use of the advance 
     beneficiary notices within 18 months of the implementation 
     of the prior determination process. The GAO is also 
     required to report on the use of the prior determination 
     process within 36 months of the implementation of the 
     prior determination process.
       Appeals by Providers When There is No Other Party 
     Available. (Section 939 of the Conference Agreement, Section 
     516 of the Senate Bill).
     Present Law
       Section 1870 of the Social Security Act provides for the 
     recovery of overpayments and the settlement of claims for 
     benefits on behalf of a deceased beneficiary

[[Page H12087]]

     House Bill
       No provision.
     Senate Bill
       In the case where a beneficiary dies before assigning 
     appeal rights, a provider or supplier would be permitted to 
     appeal a payment denial by a Medicare contractor. The 
     provision would be effective for items and services furnished 
     on or after enactment.
     Conference Agreement
       In the case where a beneficiary dies before assigning 
     appeal rights, the conference agreement permits a provider or 
     supplier to appeal a payment denial by a Medicare contractor. 
     The provision is effective for items and services furnished 
     on or after enactment.
       Revisions to Appeals Timeframes and Amounts. (Section 940 
     of the Conference Agreement, Section 518 of the Senate Bill).
     Present Law
       BIPA revised the timeframes for Medicare appeals. For the 
     first level of appeal, the ``redetermination'' level, the 
     timeframe for decisions was reduced from 90 days for a part A 
     appeal and 45 days for a part B appeal to 30 days; for the 
     second level, the ``reconsideration'' level, the timeframe 
     was reduced from 120 days for a part B appeal to 30 days 
     (this is a new level of appeal for part A appeals); for the 
     third level, appeals before administrative law judges, the 
     timeframe was reduced from no time limit to 90 days; and the 
     fourth level, appeals before the Department Appeals Board, 
     the timeframe was reduced from no time limit to 90 days. BIPA 
     also provided that a beneficiary could ``escalate'' his or 
     her appeal to the next level if the appeal was not decided in 
     a timely fashion.
       To appeal a claim, the beneficiary must have an ``amount in 
     controversy'' of $100 or more. Judicial review is available 
     only for amounts in controversy of $1,000 or more. Claims are 
     permitted to be aggregated in order to reach the amount in 
     controversy if certain conditions are met.
     House Bill
       No provision.
     Senate Bill
       This provision would add 30 days to the timeframe for 
     deciding an appeal at each of the four levels of appeal. No 
     provision regarding the indexing of amounts in controversy.
     Conference Agreement
       The conference agreement adds 30 days to the timeframe for 
     deciding an appeal at the redetermination and reconsideration 
     levels of appeal (that is, the first two levels of appeal). 
     The conference agreement also indexes the amount in 
     controversy for appeals to the CPI-U, rounded to the nearest 
     multiple of $10 beginning in 2005.
       Mediation Process for Local Coverage Determinations 
     (Section 940A of the Conference Agreement, Section 517 of the 
     Senate Bill).
     Present Law
       Only beneficiaries have standing to appeal local coverage 
     decisions by Medicare contractors. Mediation is not currently 
     used in Medicare to resolve disputes.
     House Bill
       No provision.
     Senate Bill
       The parties that have standing to appeal local coverage 
     decisions would be expanded to include providers or suppliers 
     adversely affected by the determination. The Secretary would 
     be required to establish a process whereby a provider or 
     supplier may request a local coverage determination under 
     certain circumstances. A provider or supplier could seek a 
     local coverage determination if the Secretary determined 
     that: (A) there have been at least five reversals by an ALJ 
     of redeterminations made by a Medicare contractor in at least 
     two different cases; (B) that each reversal involved 
     substantially similar material facts; (C) each reversal 
     involved the same medical necessity issue; and (D) at least 
     50% of the total claims submitted by the provider within the 
     past year involving the requisite facts and medical necessity 
     issue have been denied and then reversed by an ALJ. Such sums 
     as necessary to carry out the provisions above would be 
     authorized to be appropriated. Also the provision would 
     require the Secretary to study and report to Congress on the 
     feasibility and advisability of requiring Medicare 
     contractors to track the subject and status of claims denials 
     that are appealed and final determinations.
       The expansion in standing would be effective for any review 
     or request of any local coverage determination filed on or 
     after October 1, 2003 and for any local coverage 
     determination made on or after October 1, 2003. The 
     requirement to establish a process for a provider or supplier 
     to request a local coverage determination would be effective 
     for requests filed on or after the date of enactment. The 
     report would be due to Congress not later than one year after 
     the date of enactment.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a mediation process using a physician trained in 
     mediation and employed by CMS. This process is to be used to 
     mediate disputes between groups representing providers, 
     physicians, and suppliers and the medical director for the 
     Medicare contractor in any area that the relevant CMS 
     regional administrator determines that there is a systematic 
     pattern and a large volume of complaints from such groups 
     regarding decisions of the medical director or there is a 
     complaint from the co-chair of the advisory committee for 
     that contractor. The Secretary is required to include in the 
     contract with Medicare Administrative Contractors the 
     performance duties expected of a medical director including 
     professional relations. The provision is effective upon 
     enactment.
       Policy Development Regarding Evaluation and Management 
     (E&M) Documentation Guidelines. (Section 941 of the 
     Conference Agreement, Section 941 of the House Bill, Section 
     553 of the Senate Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would not be permitted to implement any new 
     documentation guidelines for, or clinical examples of, 
     evaluation and management (E&M) physician services unless the 
     Secretary: (1) developed the guidelines in collaboration with 
     practicing physicians (both generalists and specialists) and 
     provided for an assessment of the proposed guidelines by the 
     physician community; (2) established a plan containing 
     specific goals, including a schedule, for improving the use 
     of the guidelines; (3) conducted pilot projects to test 
     modifications to the guidelines; (4) finds the guidelines 
     have met established objectives; and (5) established and 
     implemented an education program on the use of the guidelines 
     with appropriate outreach. The Secretary would make changes 
     to existing E&M guidelines to reduce paperwork burdens on 
     physicians. The provision establishes objectives for 
     modifications of the E&M guidelines: (1) identification of 
     clinically relevant documentation needed to code accurately 
     and assess coding levels accurately; (2) decrease the level 
     of non-clinically pertinent and burdensome documentation time 
     and content in the medical record; (3) increase accuracy of 
     reviewers; and (4) education of physicians and reviewers.
       The pilot projects would be required to be conducted on a 
     voluntary basis in consultation with practicing physicians 
     (both generalists and specialists) and be of sufficient 
     length to educate physicians and contractors on E&M 
     guidelines. A range of different projects would be 
     established and include at least one project: using a 
     physician peer review method, using an alternative method 
     based on face-to-face encounter time with the patient, in a 
     rural area, outside a rural area, and where physicians bill 
     under physician services in a teaching setting and 
     nonteaching setting. The projects would examine the effect of 
     modified E&M guidelines on different types of physician 
     practices in terms of the cost of compliance. Data collected 
     under these projects would not be the basis for overpayment 
     demands or post-payment audits. This protection would apply 
     to claims filed as part of the project, would last the 
     duration of the project and would last for as long as the 
     provider participated in the project. Each pilot conducted 
     would examine the effect of the new E&M documentation 
     guidelines on different types of physician practices 
     (including those with fewer than 10 full-time equivalent 
     employees) and the costs of physician compliance including 
     education implementation, auditing, and monitoring. The 
     Secretary would be required to submit periodic reports to 
     Congress on these pilot projects.
       The provision would require a study of an alternative 
     system for documenting physician claims. Specifically the 
     Secretary would be required to study developing a simpler 
     system for documenting claims for evaluation and management 
     services and to consider systems other than current coding 
     and documentation requirements. The Secretary would be 
     required to consult with practicing physicians in designing 
     and carrying out the study. This study would be due to 
     Congress no later than October 1, 2005. MedPAC would be 
     required to analyze the results of the study and report to 
     Congress. The Secretary would also be required to study the 
     appropriateness of coding in cases of extended office visits 
     in which no diagnosis is made and report to Congress no later 
     than October 1, 2005. The Secretary would be required to 
     include in the report recommendations on how to code 
     appropriately for these visits in a manner that takes into 
     account the amount of time the physician spent with the 
     patient.
     Senate Bill
       The Secretary would be required to ensure, before making 
     changes in documentation guidelines for, or clinical examples 
     of, or codes to report E&M physician services, that the 
     process used in developing the guidelines, examples, or codes 
     was widely consultative among physicians, reflects a broad 
     consensus among specialties, and would allow verification of 
     reported and furnished services.
     Conference Agreement
       The conference agreement does not permit the Secretary to 
     implement any new or modified documentation guidelines 
     (including clinical examples) for evaluation and management 
     (E&M) physician services unless the Secretary has: (1) 
     developed the guidelines in collaboration with practicing 
     physicians (both generalists and specialists) and provided 
     for an assessment of the proposed guidelines by the physician 
     community; (2) established a plan containing specific goals, 
     including a schedule, for improving the use of the 
     guidelines; (3) conducted pilot projects to test 
     modifications to the guidelines; (4) found the guidelines 
     have met established objectives; and (5) established

[[Page H12088]]

     and implemented an education program on the use of the 
     guidelines with appropriate outreach. The conference 
     agreement requires the Secretary to make changes to existing 
     E&M guidelines to reduce paperwork burdens on physicians. The 
     conference agreement establishes objectives for modifications 
     of the E&M guidelines: (1) identification of clinically 
     relevant documentation needed to code accurately and assess 
     coding levels accurately; (2) decrease the level of non-
     clinically pertinent and burdensome documentation time and 
     content in the medical record; (3) increase accuracy of 
     reviewers; and (4) education of physicians and reviewers.
       The pilot projects are required to be conducted on a 
     voluntary basis in consultation with practicing physicians 
     (both generalists and specialists) and are of sufficient 
     length (but, in no case longer than 1 year) to educate 
     physicians and contractors on E&M guidelines. A range of 
     different projects would be established and include at least 
     one project that: (1) uses a physician peer review method 
     (that is not used by a Medicare contractor) that evaluates 
     medical record information for claims submitted by physicians 
     identified as statistical outliers relative to codes used for 
     billing purposes for these services; (2) uses an alternative 
     method based on face-to-face encounter time with the patient; 
     (3) is conducted for services furnished in a rural area and 
     one for services furnished outside a rural area; and (4) is 
     conducted in a setting where physicians bill under physician 
     services in a teaching setting and one in a nonteaching 
     setting. The projects would examine the effect of modified 
     E&M guidelines on different types of physician practices in 
     terms of the cost of compliance. Each pilot conducted is 
     required to examine the effect of the new E&M documentation 
     guidelines on different types of physician practices 
     (including those with fewer than 10 full-time equivalent 
     employees) and the costs of physician compliance including 
     education implementation, auditing, and monitoring. The 
     provision requires the Secretary to submit a report to 
     Congress on these pilot projects within 6 months of 
     completion of the pilots.
       A study of an alternative system for documenting physician 
     claims is also required. Specifically, the Secretary is 
     required to study developing a simpler system for documenting 
     claims for evaluation and management services and to consider 
     systems other than current coding and documentation 
     requirements. The Secretary is required to consult with 
     practicing physicians in designing and carrying out the 
     study. This study is due to Congress no later than October 1, 
     2005. MedPAC would be required to analyze the results of the 
     study and report to Congress. The Secretary is also required 
     to study the appropriateness of coding in cases of extended 
     office visits in which no diagnosis is made and report to 
     Congress no later than October 1, 2005. The Secretary is 
     required to include in the report recommendations on how to 
     code appropriately for these visits in a manner that takes 
     into account the amount of time the physician spent with the 
     patient.
       Improvement in Oversight of Technology and Coverage. 
     (Section 942 of the Conference Agreement, Section 942 of the 
     House bill, Section 554 of the Senate Bill).
     (a) Council for Technology and Innovation
     Present Law
       No provision.
     House Bill
       The Secretary would be required to establish a Council for 
     Technology and Innovation within the Centers for Medicare & 
     Medicaid Services (CMS). The council would be composed of 
     senior CMS staff and clinicians with a chairperson designated 
     by the Secretary who reports to the CMS administrator. The 
     Chairperson would serve as the Executive Coordinator for 
     Technology and Innovation would be the single point of 
     contact for outside groups and entities regarding Medicare 
     coverage, coding, and payment processes. The Council would 
     coordinate Medicare's coverage, coding, and payment processes 
     as well as information exchange with other entities with 
     respect to new technologies and procedures, including drug 
     therapies.
     Senate Bill
       The provision would require the Secretary to establish a 
     Council for Technology and Innovation composed of senior CMS 
     staff and clinicians to coordinate coverage, coding, and 
     payment processes under Title XVIII and the exchange of 
     information on new technologies between CMS and other 
     entities that make similar decisions.
     Conference Agreement
       The conference agreement requires the Secretary establish a 
     Council for Technology and Innovation within the Centers for 
     Medicare & Medicaid Services (CMS). The council is to be 
     composed of senior CMS staff and clinicians with a 
     chairperson designated by the Secretary who reports to the 
     CMS administrator. The Chairperson will serve as the 
     Executive Coordinator for Technology and Innovation and will 
     be the single point of contact for outside groups and 
     entities regarding Medicare coverage, coding, and payment 
     processes. The Council is required to coordinate Medicare's 
     coverage, coding, and payment processes as well as 
     information exchange with other entities with respect to new 
     technologies and procedures, including drug therapies.
     (b) Methods for Determining Payment Basis for New Lab Tests
     Present Law
       Outpatient clinical diagnostic laboratory tests are paid on 
     the basis of area wide fee schedules. The law establishes a 
     cap on the payment amounts, which is currently set at 74 
     percent of the median for all fee schedules for that test. 
     The cap is set at 100 percent of the median for tests 
     performed after January 1, 2001 that the Secretary determines 
     are new tests for which no limitation amount has previously 
     been established.
     House Bill
       The Secretary would be required to establish procedures (by 
     regulation) for determining the basis for and amount of 
     payments for new clinical diagnostic laboratory tests. New 
     laboratory tests would be defined as those assigned a new, or 
     substantially revised Health Care Procedure Coding System 
     (HCPCS) code on or after January 1, 2005. The Secretary, as 
     part of this procedure, would be required to (1) provide a 
     list (on an Internet site or other appropriate venue) of 
     tests for which payments are being established in that year; 
     (2) publish a notice of a meeting in the Federal Register on 
     the day the list becomes available; (3) hold the public 
     meeting no earlier than 30 days after the notice to receive 
     public comments and recommendations; (4) take into account 
     the comments, recommendations and accompanying data in both 
     proposed and final payment determinations. The Secretary 
     would set forth the criteria for making these determinations; 
     make public the available data considered in making such 
     determinations; and could convene other public meetings as 
     necessary. Effective for codes assigned on or after January 
     1, 2005.
     Senate Bill
       No provision.
     Conference agreement
       The conference agreement requires the Secretary to 
     establish procedures (by regulation) for determining the 
     basis for and amount of payments for new clinical diagnostic 
     laboratory tests. New laboratory tests are defined as those 
     assigned a new, or substantially revised Health Care 
     Procedure Coding System (HCPCS) code on or after January 1, 
     2005. The Secretary, as part of this procedure, is required 
     to (1) provide a list (on an Internet site or other 
     appropriate venue) of tests for which payments are being 
     established in that year; (2) publish a notice of a meeting 
     in the Federal Register on the day the list becomes 
     available; (3) hold the public meeting no earlier than 30 
     days after the notice to receive public comments and 
     recommendations; (4) take into account the comments, 
     recommendations and accompanying data in both proposed and 
     final payment determinations. The Secretary sets forth the 
     criteria for making these determinations, which include 
     whether a test should be established through gap-filling or 
     cross-walking to an existing code. In these cases, carriers 
     and CMS cannot substitute an alternative service for a gap 
     filled amount, the Secretary shall make public the available 
     data considered in making such determinations; and convenes 
     other public meetings as necessary. The provision is 
     effective for codes assigned on or after January 1, 2005.
       (c) GAO Study on Improvements in External Data Collection 
     for Use in the Medicare Inpatient Payment System.
     Present Law
       No provision.
     House Bill
       The GAO would be required to study which external data can 
     be collected in a shorter time frame by CMS to use in 
     calculating payments for inpatient hospital services. The GAO 
     could evaluate feasibility and appropriateness of using 
     quarterly samples or special surveys and would include an 
     analysis of whether other executive agencies are best suited 
     to collect this information. The report would be due to 
     Congress no later than October 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the GAO to study which 
     external data can be collected in a shorter time frame by CMS 
     to use in calculating payments for inpatient hospital 
     services. The GAO may evaluate feasibility and 
     appropriateness of using quarterly samples or special surveys 
     and is required to include an analysis of whether other 
     executive agencies are best suited to collect this 
     information. The report is due to Congress no later than 
     October 1, 2004.
     (d) Process for Adoption of ICD Codes as Data Standard
     Present Law
       The Secretary is required to rely on the recommendations 
     from the National Committee on Vital and Health Statistics 
     (NCVHS) before adopting health information standards and 
     codes. The current standard for procedure codes is the 
     International Classification of Diseases, 9th Revision, 
     clinical modification (ICD-9-CM is the basis of the Medicare 
     inpatient hospital PPS payment system). The NCVHS made a 
     recommendation on November 5th to the Secretary about 
     adopting the latest revision, the ICD-10-PCS (Procedure 
     Coding System) or ICD-10-CM as a coding standard.
     House Bill
       The Secretary would be permitted to adopt the ICD-10-PCS 
     and the ICD-10-CM within 1-year of enactment without 
     receiving a recommendation from the National Committee on 
     Vital and Health Statistics (NCVHS).
     Senate Bill
       No provision.

[[Page H12089]]

     Conference Agreement
       No provision. Because the NCVHS made a recommendation to 
     the Secretary, Conferees believed the House provision was no 
     longer necessary.
       Conferees urge the Secretary, however, to accept the 
     recommendation of the NCVHS and issue a notice of proposed 
     rule making to initiate the regulatory process for the 
     concurrent adoption of ICD-10-CM and ICD-10-PCS. ICD-10 would 
     replace the 23-year-old ICD-9-CM coding classification 
     system, which has highly limited reporting capabilities for 
     today's needs and growth capacity for future needs, making it 
     an unacceptable coding classification system for both 
     inpatient and outpatient diagnosis. ICD-10 would be able to 
     keep pace with advances in modern medicine, thus ensuring 
     accurate reimbursement rates for emerging technologies and 
     patient access to the highest quality care.
       Since 1997, NCVHS has closely examined this issue and 
     received testimonies and letters from more than 80 public- 
     and private-sector groups representing the full range of 
     interests in the health care community. NCVHS and other 
     parties have commissioned numerous studies, all of which 
     NCVHS also has carefully considered. The Committee finds that 
     the recommendation made by NCVHS is based on sound evidence 
     and is, in the words of NCVHS, ``in the best interests of the 
     country as a whole.'' Conferees encourage the Secretary to 
     implement the recommendation as quickly as possible.
       Treatment of Hospitals for Certain Services Under Medicare 
     Secondary Payor (MSP) Provisions. (Section 943 of the 
     Conference Agreement, Section 943 of the House Bill).
     Present Law
       In certain instances when a beneficiary has other insurance 
     coverage, Medicare becomes the secondary insurance. Medicare 
     Secondary Payer is the Medicare program's coordination 
     of benefits with other insurers. Section 1862(b)(6) of the 
     Social Security Act requires an entity furnishing a Part B 
     service to obtain information from the beneficiary on 
     whether other insurance coverage is available.
     House Bill
       The Secretary would not require a hospital or a critical 
     access hospital to ask questions or obtain information 
     relating to the Medicare secondary payer provisions in the 
     case of reference laboratory services if the same 
     requirements are not imposed upon those provided by an 
     independent laboratory. Reference laboratory services would 
     be those clinical laboratory diagnostic tests and 
     interpretations of same that are furnished without a face-to-
     face encounter between the beneficiary and the hospital where 
     the hospital submits a claim for the services.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement prohibits the Secretary from 
     requiring a hospital or a critical access hospital to ask 
     questions or obtain information relating to the Medicare 
     secondary payer provisions in the case of reference 
     laboratory services if the same requirements are not imposed 
     upon those provided by an independent laboratory. Reference 
     laboratory services are those clinical laboratory diagnostic 
     tests and interpretations of same that are furnished without 
     a face-to-face encounter between the beneficiary and the 
     hospital where the hospital submits a claim for the services.
       EMTALA Improvements. (Section 944 of the Conference 
     Agreement, Section 944 of the House Bill).
     Present Law
       Medicare requires participating hospitals that operate an 
     emergency room to provide necessary screening and 
     stabilization services to any patient who comes to an 
     emergency room requesting examination or treatment in order 
     to determine whether an emergency medical situation exists.
       Hospitals that are found to be in violation of Emergency 
     Medical Treatment and Active Labor Act (EMTALA) requirements 
     may face civil monetary penalties and termination of their 
     provider agreement. Prior to imposing a civil monetary 
     penalty, the Secretary is required to request a peer review 
     organization (PRO--currently called quality improvement 
     organizations or QIOs) to assess whether the involved 
     beneficiary had an emergency condition, which had not been 
     stabilized and provide a report on its findings. Except in 
     the case where a delay would jeopardize the health or safety, 
     the Secretary provides 60-day period for the requested PRO 
     review.
     House Bill
       Emergency room services provided to screen and stabilize a 
     Medicare beneficiary furnished after January 1, 2004, would 
     be evaluated for Medicare's ``reasonable and necessary'' 
     requirement on the basis of the information available to the 
     treating physician or practitioner at the time the services 
     were ordered; this would include the patient's presenting 
     symptoms or complaint and not the patient's principal 
     diagnosis. The Secretary would not be able to consider the 
     frequency with which the item or service was provided to the 
     patient before or after the time of admission or visit. The 
     Secretary would be required to establish a procedure to 
     notify hospitals and physicians when an EMTALA investigation 
     is closed.
       Except in the case where a delay would jeopardize the 
     health and safety of individuals, the Secretary would be 
     required to request a PRO review before making a compliance 
     determination that would terminate a hospital's Medicare 
     participation because of EMTALA violations and provide a 
     period of 5 business days for such review. The PRO would be 
     required to provide a copy of the report on its findings to 
     the hospital or physician, consistent with existing 
     confidentiality requirements. This provision would apply to 
     terminations initiated on or after enactment
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires emergency room services 
     provided to screen and stabilize a Medicare beneficiary 
     furnished after January 1, 2004, to be evaluated for 
     Medicare's ``reasonable and necessary'' requirement on the 
     basis of the information available to the treating physician 
     or practitioner at the time the services were ordered; this 
     includes the patient's presenting symptoms or complaint and 
     not the patient's principal diagnosis. The Secretary is 
     prohibited from considering the frequency with which the item 
     or service was provided to the patient before or after the 
     time of admission or visit.
       The Secretary is required to establish a procedure to 
     notify hospitals and physicians when an EMTALA investigation 
     is closed.
       Except in the case where a delay would jeopardize the 
     health and safety of individuals, the Secretary is required 
     to request a PRO review before making a compliance 
     determination that would terminate a hospital's Medicare 
     participation because of EMTALA violations and provide a 
     period of 5 business days for such review. The PRO is 
     required to provide a copy of the report on its findings to 
     the hospital or physician, consistent with existing 
     confidentiality requirements. This provision applies to 
     terminations initiated on or after enactment.
       Emergency Medical Treatment and Active Labor Act (EMTALA) 
     Technical Advisory Group. (Section 945 of the Conference 
     Agreement, Section 945 of the House Bill).
     Present Law
       No provision.
     House Bill
       The Secretary would be required to establish a 19-member 
     technical advisory group under specified requirements to 
     review issues related to EMTALA. The advisory group would be 
     comprised of: the CMS Administrator; the HHS Inspector 
     General; 4 hospital representatives who have EMTALA 
     experience, (2 of whom have not experienced EMTALA 
     violations) 7 practicing physicians with specified 
     experience; 2 patient representatives; 2 regional CMS staff 
     involved in EMTALA investigations; 1 representative from a 
     State survey organization and 1 from peer review 
     organization. The Secretary would select qualified 
     individuals who are nominated by organizations representing 
     providers and patients.
       The advisory group would review EMTALA regulations; provide 
     advice and recommendations to the Secretary; solicit public 
     comments from interested parties; and disseminate information 
     on the application of the EMTALA regulations. The advisory 
     group would be required to (1) elect a member to as 
     chairperson; (2) schedule its first meeting at the direction 
     of the Secretary and meet at least twice a year subsequently; 
     and (3) terminate 30 months after the date of its first 
     meeting. The Secretary would be required to establish the 
     advisory group regardless of any limitation that may apply to 
     the number of advisory committees that may be established 
     within HHS.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to 
     establish a 19-member technical advisory group under 
     specified requirements to review issues related to EMTALA. 
     The advisory group would be comprised of: the CMS 
     Administrator; the HHS Inspector General; 4 hospital 
     representatives who have EMTALA experience (2 of whom have 
     not experienced EMTALA violations); 7 practicing physicians 
     with specified experience; 2 patient representatives; 2 
     regional CMS staff involved in EMTALA investigations; 1 
     representative from a State survey organization and 1 from 
     peer review organization. The Secretary is required to select 
     qualified individuals who are nominated by organizations 
     representing providers and patients.
       The advisory group will review EMTALA regulations; provide 
     advice and recommendations to the Secretary; solicit public 
     comments from interested parties; and disseminate information 
     on the application of the EMTALA regulations. The advisory 
     group is required to: (1) elect a member to as chairperson; 
     (2) schedule its first meeting at the direction of the 
     Secretary and meet at least twice a year subsequently; and 
     (3) terminate 30 months after the date of its first meeting. 
     The Secretary is required to establish the advisory group 
     regardless of any limitation that may apply to the number of 
     advisory committees that may be established within HHS.
       Authorizing Use of Arrangements to Provide Core Hospice 
     Services in Certain Circumstances. (Section 946 of the 
     Conference Agreement, Section 946 of the House Bill, Section 
     406 of the Senate Bill).

[[Page H12090]]

     Present Law
       A hospice is a public agency or private organization that 
     is primarily engaged in providing and making available 
     certain care to a terminally ill Medicare beneficiary under a 
     written plan.
     House Bill
       A hospice would be permitted to (1) enter into arrangements 
     with another hospice program to provide care in 
     extraordinary, exigent or other non-routine circumstances, 
     such as unanticipated high patient loads, staffing shortages 
     due to illness, or temporary travel by a patient outside the 
     hospice's service area; and (2) bill and be paid for the 
     hospice care provided under these arrangements. The provision 
     would be effective for hospice care provided on or after the 
     date of enactment.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement permits a hospice to: (1) enter 
     into arrangements with another hospice program to provide 
     care in extraordinary, exigent or other non-routine 
     circumstances, such as unanticipated high patient loads, 
     staffing shortages due to illness, or temporary travel by a 
     patient outside the hospice's service area; and (2) bill and 
     be paid for the hospice care provided under these 
     arrangements. The provision is effective for hospice care 
     provided on or after the date of enactment.
       Application of OSHA Bloodborne Pathogens Standard to 
     Certain Hospitals. (Section 947 of the Conference Agreement, 
     Section 947 of the House Bill).
     Present Law
       Section 1866 establishes certain conditions of 
     participation that providers must meet in order to 
     participate in Medicare.
     House Bill
       Public hospitals that are not otherwise subject to the 
     Occupational Safety and Health Act of 1970 would be required 
     to comply with the Bloodborne Pathogens standard under 
     section 1910.1030 of title 29 of the Code of Federal 
     Regulations. A hospital that fails to comply with the 
     requirement would be subject to a civil monetary penalty, but 
     would not be terminated from participating in Medicare. The 
     provision would apply to hospitals as of July 1, 2004.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires that public hospitals, 
     not otherwise subject to the Occupational Safety and Health 
     Act of 1970, comply with the Bloodborne Pathogens standard 
     under section 1910.1030 of title 29 of the Code of Federal 
     Regulations. A hospital that fails to comply with the 
     requirement will be subject to a civil monetary penalty, but 
     cannot be terminated from participating in Medicare. The 
     provision applies to hospitals as of July 1, 2004.
       BIPA-Related Technical Amendments and Corrections. (Section 
     948 of the Conference Agreement, Section 948 of the House 
     Bill).
     Present Law
       BIPA established an advisory process for national coverage 
     determinations where panels of experts formed by advisory 
     committees could forward their recommendations directly to 
     the Secretary without prior approval of the advisory 
     committee or the Executive Committee.
     House Bill
       The statutory reference in BIPA would be changed from the 
     Social Security Act to the Public Health Service Act. Other 
     BIPA references would be changed from ``policy'' to 
     ``determinations.'' The provision is effective as if included 
     in the enactment of BIPA.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement changes the statutory reference in 
     BIPA from the Social Security Act to the Public Health 
     Service Act. Other BIPA references would be changed from 
     ``policy'' to ``determinations.'' The provision is effective 
     as if included in the enactment of BIPA.
       Conforming Authority to Waive a Program Exclusion. (Section 
     949 of the Conference Agreement, Section 949 of the House 
     Bill, Section 544 of the Senate Bill).
     Present Law
       The Secretary is required to exclude individuals and 
     entities from participation in federal health programs that 
     are (1) convicted of a criminal offense related to health 
     care delivery under Medicare or under state health programs; 
     (2) convicted of a criminal offense related to patient abuse 
     or neglect under federal or state law; (3) convicted of a 
     felony relating to fraud, theft, or financial misconduct 
     relating to a health care program finance or operated by the 
     federal, state or local government; or (4) convicted of a 
     felony related to a controlled substance.
     House Bill
       The administrator of a federal health program would be 
     permitted to waive certain 5-year exclusions if the exclusion 
     of a sole community physician or source of specialized 
     services in a community would impose a hardship. The 
     mandatory exclusions that could be waived would be those 
     related to convictions associated with program-related 
     crimes; health care fraud and controlled substance. The 
     provision would be effective upon enactment.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement permits the administrator of a 
     federal health program to waive certain 5-year exclusions if 
     the exclusion of a sole community physician or source of 
     specialized services in a community will impose a hardship. 
     The mandatory exclusions that can be waived are those related 
     to convictions associated with program-related crimes; health 
     care fraud and controlled substance. The provision is 
     effective upon enactment.
       Treatment of Certain Dental Claims. (Section 950 of the 
     Conference Agreement, Section 950 of the House Bill, Section 
     555 of the Senate Bill).
     Present Law
       The Medicare benefit does not include most dental services. 
     Some insurers may require a claim denial from Medicare before 
     accepting the dental claim for payment review, even if the 
     service is not covered by Medicare.
     House Bill
       A group health plan providing supplemental or secondary 
     coverage to Medicare beneficiaries would not be able to 
     require dentists to obtain a claim denial from Medicare for 
     noncovered dental services before paying the claim. The 
     provision would be effective 60 days after enactment.
     Senate Bill
       Same provision.
     Conference Agreement
       The conference agreement provides that a group health plan 
     providing supplemental or secondary coverage to Medicare 
     beneficiaries cannot require dentists to obtain a claim 
     denial from Medicare for dental services that are not covered 
     by Medicare before paying the claim. The provision is 
     effective 60 days after enactment.
       Furnishing Hospitals with Information to Compute DSH 
     Formula. (Section 951 of the Conference Agreement, Section 
     951 of the House Bill).
     Present Law
       Disproportionate share hospital (DSH) payments under 
     Medicare are calculated using a formula that includes the 
     number of patient days for patients eligible for Medicaid.
     House Bill
       The provision would require the Secretary to provide 
     information that hospitals need to calculate the number of 
     Medicaid patient days used in the Medicare DSH payment 
     formula, not later than 1 year after enactment.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement requires the Secretary to arrange 
     for the provision of information that hospitals need to 
     calculate the Medicare DSH payment formula not later than 1 
     year after enactment.
       Revisions to Reassignment Provisions (Section 952 of the 
     Conference Agreement, Section 952 of the House Bill, Section 
     434 of the Senate Bill).
     Present Law
       In general, Medicare Part B payments may be made only to a 
     Medicare beneficiary or to physician or other person who 
     provided the service. Section 1842(b)(6) of the Social 
     Security Act establishes the Medicare reassignment 
     prohibitions and does not permit physicians to reassign their 
     Medicare payments to entities with which they have a 
     relationship on an independent contractor basis. In order for 
     an independent contractor to reassign Medicare benefits, the 
     services must be performed on the premises of the entity to 
     which the benefits will be reassigned.
     House Bill
       Medicare payment for Part B services would be permitted to 
     be made to an entity, as defined by the Secretary, that has a 
     contractual arrangement with the physician or other person 
     who provided the service for the entity to bill for the 
     service and the contractual arrangement meets program 
     integrity and other safeguards specified by the Secretary.
       The provision would be effective for payments made on or 
     after one year after the date of enactment.
     Senate Bill
       Same provision, but would include a conforming amendment.
     Conference Agreement
       This provision amends the Social Security Act to allow 
     physicians and non-physician practitioners to reassign 
     payment for Medicare-covered services, regardless of where 
     the arrangement (including but not limited to a hospital, 
     clinic, medical group, a physician practice management 
     organization, or a staffing company) so long as there is a 
     contractual arrangement between the physician and the entity 
     under which the entity submits the bill for such service. As 
     a result, the Secretary could enroll these entities in the 
     Medicare program. The Secretary may also provide for other 
     enrollment qualifications to assure program integrity, 
     including joint and several liability.
       This provision will streamline Medicare enrollment while 
     also enhancing HHS' program integrity efforts. By permitting 
     entities that retain independent contractors to enroll with 
     the Medicare program and thereby directly bill the Medicare 
     program, HHS

[[Page H12091]]

     will be able to monitor the claims submitted by the entities 
     that retain independent contractors as well as those entities 
     that employ physicians. The Committee supports appropriate 
     program integrity efforts (e.g. joint and several liability) 
     for any entities billing the Medicare program including 
     entities with employees as well as independent contractors. 
     Further, the Committee believes that physicians' and non-
     physician practitioners' should be entitled to unrestrictive 
     access to billings submitted on their behalf by the entity 
     with which they have contracted. The Committee intends that 
     the Secretary will implement this provision via program 
     instructions to the Medicare contractors. The changes made by 
     this provision shall apply to Medicare payments made on or 
     after date of enactment.
       The provision is effective upon enactment.
       Other Provisions. (Section 953 of the Conference Agreement, 
     Section 953 of the House Bill).
     Present Law
       No provisions.
     House Bill
       GAO Report on Physician Compensation. No later than six 
     months from enactment, GAO would be required to report to 
     Congress on the appropriateness of the updates in the 
     conversion factor including the appropriateness of the 
     sustainable growth rate (SGR) formula for 2002 and 
     subsequently. The report would examine the stability and the 
     predictability of the updates and rate as well as the 
     alternatives for use of the SGR in the updates. No later than 
     12 months from enactment, GAO would be required to report to 
     Congress on all aspects of physician compensation for 
     Medicare services. The report would review the alternatives 
     for the physician fee schedule.
       Annual Publication of List of National Coverage 
     Determinations. The Secretary would be required to publish an 
     annual list of nation coverage determinations made under 
     Medicare in the previous year. Included would be information 
     on how to get more information about the determinations. The 
     list would be published to the public in an appropriate 
     annual publication.
       GAO Report on Flexibility in Applying Home Health 
     Conditions of Participation to Patients Who Are Not Medicare 
     Beneficiaries. The GAO would be required to report to 
     Congress on the implications if the Medicare conditions of 
     participation for home health agencies were applied flexibly 
     with respect to groups or types of patients who are not 
     Medicare beneficiaries. The report would include an analysis 
     of the potential impact of this flexibility on clinical 
     operations and the recipients of such services and an 
     analysis of methods for monitoring the quality of care 
     provided to these recipients. The report would be due no 
     later than six months after enactment.
       OIG Report on Notices Relating to Use of Hospital Lifetime 
     Reserve Days. The Inspector General of HHS would be required 
     to report to Congress on the extent to which hospitals 
     provide notice to Medicare beneficiaries, in accordance with 
     applicable requirements, before they use the 60 lifetime 
     reserve days under the hospital benefit. The report would 
     also include the appropriateness and feasibility of hospitals 
     providing a notice to beneficiaries before they exhaust the 
     lifetime reserve days. The report would be due no later than 
     one year after enactment.
     Senate Bill
       No provision.
     Conference Agreement
       GAO Report on Physician Compensation. The conference 
     agreement requires that, no later than six months from 
     enactment, the GAO report to Congress on the appropriateness 
     of the updates in the conversion factor including the 
     appropriateness of the sustainable growth rate (SGR) formula 
     for 2002 and subsequent years. The report will examine the 
     stability and the predictability of the updates and rate as 
     well as the alternatives for use of the SGR in the updates. 
     No later than 12 months from enactment, GAO is required to 
     report to Congress on all aspects of physician compensation 
     for Medicare services. The report is required to review the 
     alternatives for the physician fee schedule.
       Annual Publication of List of National Coverage 
     Determinations. The conference agreement requires the 
     Secretary publish an annual list of national coverage 
     determinations made under Medicare in the previous year. 
     Information on how to get more information about the 
     determinations is required to be included in the publication. 
     The list and the information are required to be published in 
     an appropriate annual publication that is publicly available.
       GAO Report on Flexibility in Applying Home Health 
     Conditions of Participation to Patients Who Are Not Medicare 
     Beneficiaries. The conference agreement requires the GAO to 
     report to Congress on the implications if the Medicare 
     conditions of participation for home health agencies were 
     applied flexibly with respect to groups or types of patients 
     who are not Medicare beneficiaries. The report is required to 
     include an analysis of the potential impact of this 
     flexibility on clinical operations and the recipients of such 
     services and an analysis of methods for monitoring the 
     quality of care provided to these recipients. The report is 
     due no later than six months after enactment.
       OIG Report on Notices Relating to Use of Hospital Lifetime 
     Reserve Days. The conference agreement requires the Inspector 
     General of HHS to report to Congress on the extent to which 
     hospitals provide notice to Medicare beneficiaries, in 
     accordance with applicable requirements, before they use the 
     60 lifetime reserve days under the hospital benefit. The 
     report is required to include the appropriateness and 
     feasibility of hospitals providing a notice to beneficiaries 
     before they exhaust the lifetime reserve days. The report is 
     due no later than one year after enactment.

Streamlining and Simplification of Medicare Regulations (Section 504 of 
                           the Senate Bill).

     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to analyze Medicare 
     regulations for the purposes of determining how to streamline 
     the regulations and reduce the number of words in the 
     regulations by two-thirds by October 1, 2004. If the 
     Secretary determines that the two-thirds reduction is 
     infeasible, he would be required to inform Congress in 
     writing by July 1, 2004 of the reasons and then establish a 
     feasible reduction to be achieved by January 1, 2005. The 
     provision would be effective upon enactment.
     Conference Agreement
       No provision.

 Elimination of the Requirement for De Novo Review by the Departmental 
            Appeals Board (Section 520 of the Senate Bill).

     Present Law
       BIPA section 521 requires that the Departmental Appeals 
     Board (DAB), the fourth level of appeal, review appeals cases 
     de novo. Prior to BIPA, the DAB reviewed appeals based on the 
     record established during the previous three levels of 
     appeal.
     House Bill
       No provision.
     Senate Bill
       The DAB would be required to review a decision and render a 
     decision or remand the appeal to the ALJ within the 90-day 
     period. The provision would be effective upon enactment.
     Conference Agreement
       No provision.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                    Subtitle A--Medicaid Provisions

       Medicaid Disproportionate Share (DSH) Hospital Payments--
     Temporary Increase. (Section 1001(a) of the Conference 
     Agreement, Section 1001 of the House Bill, and Section 601 of 
     the Senate Bill)
     Present Law
       Hospitals that serve a large number of uninsured patients 
     and Medicaid enrollees receive additional Medicaid 
     disproportionate share hospital (DSH) payments. As 
     established in the BBA 1997, the federal share of Medicaid 
     DSH payments is capped at specified amounts for each state 
     for FY1998 through FY2002. For most states, those specified 
     amounts declined over the 5-year period. A state's allotment 
     for FY2003 and for later years is equal to its allotment for 
     the previous year increased by the percentage change in the 
     consumer price index for urban consumers (CPI-U) for the 
     previous year. In addition, each state's DSH payment for 
     FY2003 and subsequent years is limited to no more than 12% of 
     total spending for medical assistance in each state for that 
     year.
       BIPA provided states with a temporary reprieve from the 
     declining allotments by establishing a special rule for the 
     calculation of DSH allotments for 2 years, raising allotments 
     for FY2001 and for FY2002. The provision also clarified that 
     the FY2003 allotments were to be calculated as specified 
     under BBA 1997, using the lower, pre-BIPA levels for FY2002 
     in those calculations.
       DSH payments to each inpatient general hospital are limited 
     to some percentage of the costs of providing inpatient and 
     outpatient services to Medicaid and uninsured patients at 
     that hospital, less payments received from or on behalf of 
     Medicaid and uninsured patients. These costs are considered 
     to be unreimbursed costs. DSH payments to private hospitals 
     may be no greater than 100% of unreimbursed costs. Public 
     hospitals, for the two state fiscal years beginning after 
     September 2002, cannot receive DSH payments that exceed 175% 
     of unreimbursed costs. Thereafter, those hospitals would be 
     limited to DSH payments of no more than 100% of unreimbursed 
     costs.
     House Bill
       The provision would establish a temporary increase in DSH 
     allotments for FY2004 and for certain subsequent fiscal 
     years. Allotments for FY2004 would be set at 120% of FY2003 
     allotments as under BIPA and would not be subject to the 
     ceiling capping states' allotments at 12% of medical 
     assistance payments. Allotments for subsequent years would be 
     equal to the allotments for FY2004 unless the Secretary 
     determines that the allotments as would have been calculated 
     prior to the enactment of this bill would equal or exceed the 
     FY2004 amounts. For such fiscal years, allotments would be 
     equal to allotments for the prior fiscal year increased by 
     the percentage change in the consumer price index for all 
     urban consumers for the previous fiscal year. The provision 
     would be effective upon enactment.
     Senate Bill
       The special DSH rule established by BIPA that raised DSH 
     allotments, subject to the current law limit of 12% of 
     spending for medical assistance, would be extended for FY2004

[[Page H12092]]

     and FY2005. Allotments for FY2004 would be calculated to be 
     equal to FY2004 allotments (as established by BBA 1997) 
     increased by the product of 0.50; and the difference between: 
     (a) FY2002 allotments (as established by BIPA 2000) increased 
     by the percentage change in the CPI-U for each of fiscal 
     years 2002 and 2003, and (b) FY2004 allotments (as 
     established by BBA 1997). Allotments FY2005 would be 
     calculated to be equal to FY2005 allotments (as established 
     by BBA 1997) increased by the product of 0.50; and the 
     difference between: (a) FY2002 allotments (as established by 
     the BIPA 2000) increased by the percentage change in the CPI-
     U for each of fiscal years, 2002, 2003, and 2004, and (b) 
     FY2005 allotments (as established by BBA 1997). For FY2006 
     and thereafter, DSH allotments would be calculated based on 
     the previous years' amount (as established by BBA 1997 and 
     subject to the current law limit of 12% of spending for 
     medical assistance) increased by the percentage change in the 
     CPI-U for the previous fiscal year. All allotments would 
     remain subject to the current law limit of 12% of medical 
     assistance spending.
       A separate calculation of the DSH allotment for the 
     District of Columbia for FY2004 would be specified. The DSH 
     allotment for the District of Columbia for FY2004 would be 
     raised, subject to the current law limit of 12% of spending 
     for medical assistance, by multiplying $49 million by the 
     percentage change in the CPI-U for each of FY2000, FY2001, 
     FY2002, and FY2003. The provision would be effective upon 
     enactment.
     Conference Agreement
       The conference agreement will establish a temporary 
     increase in DSH allotments for FY2004 and for certain 
     subsequent fiscal years. Allotments for FY2004 are to be set 
     at 116% of FY2003 allotments as under BIPA and will not be 
     subject to the ceiling capping states' allotments at 12% of 
     medical assistance payments. Allotments for subsequent years 
     will be equal to the allotments for FY2004 unless the 
     Secretary determines that the allotments as would have been 
     calculated prior to the enactment of this bill would equal or 
     no longer exceed the FY2004 amounts. For such fiscal years, 
     allotments will be equal to allotments for the prior fiscal 
     year increased by the percentage change in the consumer price 
     index for all urban consumers for the previous fiscal year. 
     The provision is effective upon enactment.
       Increase in the Floor for Treatment as an Extremely Low DSH 
     States Under the Medicaid Program for Fiscal Years 2004 and 
     2005. (Section 1001(b) of the Conference Agreement, Section 
     602 of the Senate Bill)
     Present Law
       Extremely low DSH states are those states whose FY1999 
     federal and state DSH expenditures (as reported to CMS on 
     August 31, 2000) are greater than zero but less than 1% of 
     the state's total medical assistance expenditures during that 
     fiscal year. DSH allotments for the extremely low DSH states 
     for FY2001 would be equal to 1% of the state's total amount 
     of expenditures under their plan for such assistance during 
     that fiscal year. For subsequent fiscal years, the allotments 
     for extremely low DSH states would be equal to their 
     allotment for the previous year, increased by the percentage 
     change in the CPI-U for the previous year, subject to a 
     ceiling of 12% of that state's total medical assistance 
     payments in that year.
     House Bill
       No provision.
     Senate Bill
       Allotments for certain extremely low DSH states for FY2004 
     and FY2005 would be increased. For states with DSH 
     expenditures for FY2000 (as reported to CMS as of August 31, 
     2003) that are greater than zero but less than 3% of the 
     state's total medical assistance expenditures during that 
     fiscal year, the provision would raise the DSH allotments for 
     FY2004 to 3% of the state's total amount of expenditures for 
     such assistance during that fiscal year. States with DSH 
     expenditures for FY2001 (as reported to CMS as of August 31, 
     2004) that are greater than zero but less than 3% of the 
     state's total medical assistance expenditures during that 
     fiscal year would have the DSH allotments for FY2005 equal to 
     such state's DSH allotment for FY2004 increased by the 
     percentage change in the CPI-U for FY2004.
       A special DSH allotment adjustment for certain states would 
     be specified for FY2004 and FY2005. For Tennessee, if its 
     state-wide Section 1115 waiver is revoked or terminated 
     during FY2004 and/or FY2005, the Secretary of HHS would 
     permit the state to submit an amendment to its state plan 
     that would describe the methodology to be used by the state 
     to identify and make payments for disproportionate share 
     hospitals (including children's hospitals, and institutions 
     for mental diseases, or other mental health facilities--other 
     than state-owned institutions or facilities), based on the 
     proportion of patients served by such hospitals that are low-
     income patients with special needs. The state would be 
     required to provide data for the computation of an 
     appropriate DSH allotment that does not result in greater 
     expenditures under this title than would have been made if 
     such waiver had not been revoked or terminated. The provision 
     would be effective upon enactment.
     Conference Agreement
       The conference agreement will raise the temporary floor for 
     extremely low DSH states as defined under current law for 
     fiscal years 2004 through 2008 by 16% above current amounts.
       Increased Reporting Requirements to Ensure the 
     Appropriateness of Payment Adjustments to Disproportionate 
     Share Hospitals Under the Medicaid Program. (Section 1001(c) 
     of the Conference Agreement, Section 603 of the Senate Bill)
     Present Law
       BBA 1997 required each state to submit to the Secretary an 
     annual report describing the disproportionate share payments 
     made to each disproportionate share hospital (DSH) and the 
     methodology used by the state for prioritizing payments to 
     such hospitals.
     House Bill
       No provision.
     Senate Bill
       As a condition of receiving federal Medicaid payments for 
     FY2004 and each fiscal year thereafter, the provision would 
     require each state to submit to the Secretary an annual 
     report (for the previous fiscal year) identifying each 
     disproportionate share hospital that received a payment, the 
     amount such hospital received, as well as other information 
     the Secretary determines necessary to ensure the 
     appropriateness of the DSH payments for the previous fiscal 
     year. The provision would be effective upon enactment.
     Conference Agreement
       As a condition of receiving federal Medicaid payments for 
     FY2004 and each fiscal year thereafter, the conference 
     agreement will require each state to submit to the Secretary 
     an annual report (for the previous fiscal year) identifying 
     each disproportionate share hospital that received a payment, 
     the amount such hospital received, as well as other 
     information the Secretary determines necessary to ensure the 
     appropriateness of the DSH payments for the previous fiscal 
     year. In addition, the conference agreement will require 
     states to submit annually to the Secretary an independent 
     certified audit verifying: the extent to which hospitals 
     receiving DSH payments have reduced their uncompensated care 
     costs to reflect DSH payments received; the states' 
     compliance with the hospital-specific payment ceilings; the 
     methodology used to calculate those ceilings; and the 
     documentation maintained by the states regarding claimed 
     costs, expenditures and payments under this section. The 
     conference agreement will be effective upon enactment.
       Clarification of Inclusion of Inpatient Drug Prices Charged 
     to Certain Public Hospitals in the Best Price Exemptions for 
     the Medicaid Drug Rebate Program. (Section 1002 of the 
     Conference Agreement, Section 1002 of the House Bill, and 
     Section 604 of the Senate Bill)
     Present Law
       Medicaid drug rebates are calculated based on the 
     difference between the average manufacturer's price (AMP) and 
     the manufacturer's ``best price.'' In determining the ``best 
     price'' for a drug sold by a manufacturer, certain discounted 
     prices and fee schedules are disregarded. The special 
     discounted prices for outpatient drugs negotiated by the 
     Office of Pharmacy Affairs (of HHS) with drug manufacturers 
     on behalf of certain clinics and safety net providers are one 
     example of prices excluded from Medicaid's ``best price'' 
     determination. Because of this exclusion from Medicaid's 
     ``best price'' definition, the discounts available to safety 
     net providers have no bearing on the calculation of drug 
     rebates under the Medicaid program, allowing those providers 
     to negotiate better rates with manufacturers, since Medicaid 
     rebates will not change with the size of their negotiated 
     discounts. Discounted prices for inpatient drugs for many 
     safety net providers, however, are not disregarded in the 
     Medicaid ``best price'' determination.
     House Bill
       The provision would modify the definition of ``best price'' 
     for the purpose of calculating Medicaid drug rebates, to also 
     disregard the discounted inpatient drug prices charged to 
     certain public safety net hospitals. Those hospitals would 
     also be subject to the same auditing and record keeping 
     requirements as other providers with similar exemptions 
     from Medicaid's ``best price'' determination. The 
     provision would be effective upon enactment.
     Senate Bill
       The provision would modify the definition of ``best price'' 
     for the purpose of calculating Medicaid drug rebates, to also 
     exclude the discounted inpatient drug prices charged to 
     certain public safety net hospitals. Those hospitals would 
     also be subject to the same auditing and record keeping 
     requirements as other providers with similar exemptions from 
     Medicaid's ``best price'' determination. The provision would 
     be effective October 1, 2003.
     Conference Agreement
       The conference agreement will modify the definition of 
     ``best price'' for the purpose of calculating Medicaid drug 
     rebates, to also exclude the discounted inpatient drug prices 
     charged to certain public safety net hospitals. Those 
     hospitals will also be subject to the same auditing and 
     record keeping requirements as other providers with similar 
     exemptions from Medicaid's ``best price'' determination. The 
     provision will be effective upon enactment.
     Assistance for States for Legal Immigrants
     Present Law
       ``Qualified aliens'' who entered the United States after 
     the enactment of the Personal

[[Page H12093]]

     Responsibility and Work Opportunity Reconciliation Act of 
     1996 (PRWORA, August 22, 1996) are not eligible to receive 
     federally funded benefits under Medicaid or SCHIP for 5 
     years. Qualified aliens who entered the United States prior 
     to the enactment of PRWORA are eligible for federally funded 
     Medicaid coverage as a state option, as are qualified aliens 
     arriving after August 22, 1996 who have been present in the 
     United States for more than 5 years.
       A person who executed an affidavit of support for an alien 
     under Senate Section 213A of the Immigration and Nationality 
     Act (INA) is liable to reimburse the federal or state 
     government for the public benefits received by the sponsored 
     alien until the alien naturalizes or has accumulated 40 
     quarters of work. Senate Section 213A was enacted as a part 
     of PRWORA on August 22, 1996.
     House Bill
       No provision.
     Senate Bill
       The provision would lift the 5-year ban and would allow 
     states the option to provide medical assistance to certain 
     lawfully residing individuals under Medicaid (including under 
     a waiver authorized by the Secretary) or SCHIP for any of 
     fiscal years 2005 through 2007. Those eligible would include 
     lawfully residing women during pregnancy and the 60-day 
     period after delivery, and children otherwise eligible for 
     Medicaid or SCHIP as defined by the state plan. States opting 
     to provide coverage to such lawfully residing individuals 
     under SCHIP must also provide coverage to such individuals 
     under Medicaid. If services are provided under the Medicaid 
     program, the alien's sponsor would not be liable to reimburse 
     the federal or state government for the cost of such 
     services. The provision would be effective upon enactment.
     Conference Agreement
       No provision.
       GAO Study Regarding Impact of Assets Test for Low-income 
     Beneficiaries. (Section 607 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision would require the General Accounting Office 
     (GAO) to conduct a study to determine the extent to which 
     drug utilization and access to covered drugs differs between: 
     (1) individuals who qualify for the transitional assistance 
     prescription drug card program or for the premiums and cost 
     sharing subsidies available to certain low-income 
     beneficiaries (including qualified Medicare beneficiaries, 
     specified low-income Medicare beneficiaries or qualifying 
     individual under Senate Section 1860(D)), and (2) individuals 
     who do not qualify for the transitional assistance 
     prescription drug card program or for the premiums and cost 
     sharing subsidies available to certain low-income 
     beneficiaries solely as a result of the application of an 
     assets test to the income eligibility requirements of such 
     individuals. The GAO would be required to submit to Congress 
     the final report (including recommendations for legislation) 
     no later than September 30, 2007. The provision would be 
     effective upon enactment.
     Conference Agreement
       No provision.
     Clarification Regarding Non-Regulation of Transfers
     Present Law
       No specific provision
     House bill
       No provision
     Senate bill
       No provision
     Conference Agreement
       The final conference agreement permits the Secretary, in 
     limited instances, to allow a publicly-owned regional medical 
     center to utilize the disproportionate share hospital 
     allotment of another State. This provision will apply through 
     December 31, 2005.
     Urban Health Provider Adjustment. (Section 625 of the Senate 
         Bill)
     Present Law
       There are two other types of ceilings on DSH payments, in 
     addition to the state-wide allotments. The ``hospital-
     specific'' ceiling limits payments to hospitals to some 
     percentage of the each hospital's costs of providing 
     inpatient and outpatient services to Medicaid and uninsured 
     patients, less payments received from or on behalf of 
     Medicaid and uninsured patients (''unreimbursed costs''). DSH 
     payments to public hospitals are limited to 100% of these 
     unreimbursed costs except in fiscal years 2003 and 2004 when 
     the percentage of unreimbursed costs that can be covered by 
     DSH rises to 175%. The hospital-specific ceiling for private 
     hospitals is 100% of unreimbursed costs and for certain 
     public hospitals in the state of California is 175% 
     permanently.
     House Bill
       No provision.
     Senate Bill
       DSH payments made to hospitals that are owned and operated 
     by the state of Indiana and located in Marion County would be 
     made without regard to the state's DSH allotment limitation 
     so long as those payment amounts, fit FY2004 and each fiscal 
     year thereafter do not exceed 175% of the ``unreimbursed 
     costs'' of furnishing hospital services.
     Conference Agreement
       No provision.
       100% FMAP for Medical Assistance Provided to a Native 
     Hawaiian Through a Federally-Qualified Health Center or a 
     Native Hawaiian Health Care System Under the Medicaid 
     Program. (Section 632 of the Senate Bill)
     Present Law
       The Medicaid program is jointly financed by the states and 
     the federal government. The federal government share is based 
     on each state's federal medical assistance percentage (FMAP). 
     The FMAP for a state is calculated using a formula reflecting 
     the state per capita income relative to the average U.S. per 
     capita income. The formula is designed to give a higher FMAP 
     to states with a per capita income below the U.S. average. No 
     state can have an FMAP of less than 50% or more than 83%. 
     Certain services including family planning are paid at an 
     alternative FMAP rate, as are administrative expenses. In 
     addition, the law provides that services provided through an 
     Indian Health Service facility operated by the Indian Health 
     Service or an Indian tribe or tribal organization have an 
     FMAP of 100%.
       The Jobs and Growth Tax Relief Reconciliation Act of 2003 
     (JEGTRRA, P.L. 108-026) altered the statutory calculation of 
     the FMAPs by providing a hold harmless for declines from the 
     prior year for each state FMAP, and a temporary increase of 
     2.95 percentage points for the last 2 quarters of fiscal year 
     2003 and the first three quarters of fiscal year 2004. The 
     calculated statutory FMAPs for Hawaii would be 58.77% for 
     fiscal year 2003 and 58.90% for fiscal year 2004. The JEGTRRA 
     changes result in an FMAP of 61.75% for the last 2 quarters 
     of fiscal year 2003, and 61.85% for the first three quarters 
     of fiscal year 2004. The FMAP for services provided to a 
     Native Hawaiian is the same as for services provided to other 
     Medicaid beneficiaries in Hawaii.
     House Bill
       No provision.
     Senate Bill
       For services provided to a Native Hawaiian by a federally 
     qualified health center or a Native Hawaiian health care 
     system, the FMAP would be 100%. Services qualifying for the 
     100% FMAP would include those provided by referral, and under 
     contract or other arrangement between a health care provider 
     and the federally qualified health center or Native Hawaiian 
     health care system. The provision would be effective for 
     medical assistance provided on or after the date of 
     enactment.
     Conference Agreement
       No provision.
     Extension of Moratorium. (Section 633 of the Senate Bill)
     Present Law
       Medicaid payment for services provided by an institution 
     for mental disease (IMD) may be made only for beneficiaries 
     who are under age 21 or over 65. IMD means a hospital, 
     nursing facility, or other institution of more than 16 beds, 
     that is primarily engaged in providing diagnosis, treatment, 
     or care of persons with mental diseases, including medical 
     attention, nursing care, and related services. For two 
     facilities in Michigan--Kent Community Hospital Complex and 
     Saginaw Community Hospital--previous legislation has imposed 
     a moratorium on determination of the facilities as IMDs 
     through December 31, 2002.
     House Bill
       No provision.
     Senate Bill
       The moratorium on the determination of Saginaw Community 
     Hospital as an IMD would be permanently extended. The 
     provision would be effective as if included in the Balanced 
     Budget Act of 1997.
     Conference Agreement
       The moratorium on the determination of Saginaw Community 
     Hospital as an IMD would be extended for 2 years. The 
     provision would be effective as if included in the Balanced 
     Budget Act of 1997.

                  Subtitle B--Miscellaneous Provisions

     Employer Flexibility. (Section 1011 of the Conference 
         Agreement, and Section 631 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision would amend the Age Discrimination in 
     Employment Act of 1967 to allow an employee benefit plan that 
     provides medical benefits to be offered to retirees who are 
     not eligible for Medicare benefits or benefits provided under 
     a State plan without offering medical benefits, or the same 
     medical benefits, to Medicare-eligible retirees or retirees 
     eligible for benefits under a State plan. Under the 
     provision, an employee benefit plan that distinguishes 
     between those retirees and other retirees would not violate 
     the ADEA. The provision would be effective upon enactment.
     Conference Agreement
       No provision. However, the conferees reviewed the ADEA and 
     its legislative history and believe the legislative history 
     clearly articulates the intent of Congress that employers 
     should not be prevented from providing

[[Page H12094]]

     voluntary benefits to retirees only until they become 
     eligible to participate in the Medicare program.
     Federal Reimbursement of Emergency Health Services Furnished 
         to Undocumented Aliens
     Present Law
       The Balanced Budget Act of 1997 (BBA97) provided $25 
     million in funding for state emergency health services 
     furnished to undocumented aliens for each of FY1998 through 
     2001. Funds were distributed among the 12 states with the 
     highest number of undocumented aliens. In a fiscal year, each 
     state's portion of the total funds available was based on its 
     share of total undocumented aliens in all of the eligible 
     states. The share of undocumented aliens in each state were 
     based on the estimates provided by the Statistics Division of 
     the Immigration and Naturalization Service (INS).
     House Bill
       No provision.
     Senate Bill
       For each of fiscal years 2005 through 2008 the provision 
     would appropriate for allotment among states $250 million in 
     funds for emergency health services furnished to undocumented 
     aliens. Each such fiscal year the Secretary would distribute 
     $167 million of $250 million among all states. Each state 
     would receive an amount equal to the product of the total 
     amount available in each fiscal year, and the proportion of 
     the state's share of undocumented aliens to the total count 
     of undocumented aliens residing in all states as determined 
     by the Statistics Division of the Immigration and 
     Naturalization Service, as of January 2003, based on the 
     decennial census.
       For each of fiscal years 2005 through 2008, the Secretary 
     would distribute $83 million of $250 million among the 6 
     states with the highest number of undocumented alien 
     apprehensions for such fiscal year. Each such state would 
     receive an amount that bears the same ratio to the total 
     amount available for allotments to such states (in each 
     fiscal year) as the ratio of the number of undocumented alien 
     apprehensions in the state (in each fiscal year) to the total 
     number of undocumented alien apprehensions for all such 
     states (in each fiscal year) based on the four most recent 
     quarterly apprehensions rates for undocumented aliens as 
     reported by the Immigration and Naturalization Service.
       From the state allotments described above, the Secretary 
     would pay directly to local governments, hospitals, or other 
     providers located in the state (including providers of 
     services rendered through an Indian Health Service facility) 
     for costs incurred in providing emergency health care 
     services furnished to undocumented aliens during that fiscal 
     year (even if the care is furnished to aliens who have been 
     allowed to enter for the sole purpose of receiving emergency 
     health care services). No later than September 1, 2004, the 
     Secretary would be required to establish a process, that 
     includes measures to protect against fraud and abuse, under 
     which entities would apply for reimbursement from the state's 
     allotments for claims associated with emergency health care 
     services furnished to undocumented aliens. Advanced payments 
     would be made quarterly based on the applicants projected 
     expenditures. The Secretary would also be required to set up 
     a process to allow for prior period adjustments resulting 
     from underpayment or over payment to an entity in a prior 
     quarter. Funds shall remain available until they are 
     expended. The provision would be effective upon enactment.
     Conference Agreement
       For each of fiscal years 2005 through 2008 the Conference 
     agreement appropriates for allotment among eligible providers 
     in the 50 states and the District of Columbia $250 million in 
     additional federal funding for emergency health services 
     furnished to undocumented aliens. For each such fiscal year, 
     the Secretary must distribute $167 million of $250 million 
     among eligible providers in all states. Each state's share of 
     this amount will be based on its proportion of total number 
     of undocumented aliens in all states as determined by the 
     Statistics Division of the Immigration and Naturalization 
     Service, as of January 2003, based on the decennial 
     census.
       For each of fiscal years 2005 through 2008, the Secretary 
     must distribute $83 million of $250 million among eligible 
     providers in the six states with the highest number of 
     undocumented alien apprehensions for such fiscal year. Each 
     state's share of this amount is equal to the product of the 
     total amount available for allotments to such states (in each 
     fiscal year), and the proportion of the number of 
     undocumented alien apprehensions in the state (in each fiscal 
     year) to the total number of undocumented alien apprehensions 
     for all such states (in the preceding fiscal year) based on 
     apprehensions rates for undocumented aliens as reported by 
     the Immigration and Naturalization Service in the four 
     consecutive-quarter period ending before the beginning of the 
     fiscal year for which such information is available.
       From the $250 million in state allotments described above, 
     the Secretary will pay directly to eligible providers located 
     in the state (including hospitals, physicians, or providers 
     of ambulance services, and Indian Health Service facilities) 
     for unreimbursed costs incurred by providing emergency health 
     care services during that fiscal year to: (1) Undocumented 
     aliens; (2) aliens who have been paroled in the United States 
     at a port of entry for the purpose of receiving eligible 
     services; and (3) Mexican citizens permitted to enter the 
     United States for not more than 72 hours under the authority 
     of a specified identification card. In establishing a payment 
     methodology, the Secretary may establish different 
     methodologies for different types of eligible providers, may 
     calculate payments to hospitals based on hospital-specific 
     cost-to-charge ratios, and shall make quarterly payments to 
     eligible providers. Hospitals may elect to receive payment 
     for hospital and all physician services in which case they 
     may pass on payments for physician services directly to 
     physicians without charging hospital administrative fees. If 
     the amount of funds allotted to a state is insufficient to 
     ensure that each eligible provider receives the amount 
     described above then the Secretary is required to reduce the 
     amount of payment to eligible providers to ensure that each 
     eligible provider is paid.
       No later than September 1, 2004, the Secretary must 
     establish a process that includes measures to protect against 
     fraud and abuse to ensure that inappropriate, excessive or 
     fraudulent payments are not made from allotments. Advance 
     payments may be made quarterly based on the applicants 
     projected expenditures. The Secretary is also required to set 
     up a process to allow for prior period adjustments resulting 
     from under payments or over-payments. Funds will remain 
     available until they are expended. The provision will be 
     effective upon enactment.
     Commission on Systematic Interoperability. (Section 1013 of 
         the Conference Agreement)
     Pediatric Palliative Care Demonstration
       Medicare is designed for aged and disabled individuals 
     (typically people over 65 years of age). It was not designed 
     with children in mind.
       The conferees are aware of potential barriers in the 
     current system for children with life-threatening illnesses. 
     First, in order to qualify for hospice, a doctor must certify 
     that a child has 6-months to live. Determining how long a 
     child has to live is often difficult. Second, the current 
     system does not allow a patient to receive curative and 
     palliative care simultaneously. This means that children can 
     either receive treatment for their disease or they can 
     receive palliative care.
       HHS should conduct a demonstration project in up to 6 
     geographically diverse sites to determine whether palliative 
     care for children may be improved under circumstances where 
     such barriers are reduced or eliminated. Such demonstration 
     shall take place over at least a three year period.
       The Secretary, in conducting such demonstration project, 
     should take into account the recommendations of the Institute 
     of Medicine in its report: ``When Children Die: Improving 
     Palliative and End-of-Life Care for Children and their 
     Families.''
       In particular, the Secretary should consider including as 
     part of the demonstration:
       1. Waivers to Elect Hospice Care and Receive Curative 
     Treatment.
       2. Care coordination from diagnosis to end of life.
       3. Features to ensure that parents have information about 
     existing pediatric hospice and palliative care programs to 
     make decisions about the care of their child.
       4. Bereavement counseling for the family and reimbursement 
     to provider.
       The conferees believe that it is important that the 
     Secretary have flexibility when conducting such demonstration 
     to provide additional benefits so long as they are consistent 
     with the recommendations contained in the IOM Report and they 
     are provided in budget neutral manner. The conferees also 
     believe that the Secretary should provide reports to 
     Congress, as appropriate, that include an evaluation of the 
     short- and long-term costs and benefits of palliative care 
     under traditional Medicare and the demonstration projects, 
     determine the quality and duration of palliative care under 
     the demonstration project, and evaluate whether there is an 
     offset of savings by providing pediatric palliative care, and 
     the projected cost of implementing the demonstrations on a 
     national basis.
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Provision
       No provision.
     Conference Agreement
       The conference agreement instructs the Secretary to 
     establish a Commission on Systemic Interoperability to 
     develop a comprehensive strategy for the adoption and 
     implementation of health care information technology 
     standards. In developing its strategy, the Commission must 
     consider the costs and benefits of the standards, the current 
     demand on industry resources to implement these and other 
     electronic standards (including the HIPAA 
     administrative simplification standards), and the most 
     cost-effective and efficient means for industry to 
     implement the standards. The Commission must not interfere 
     with any ongoing process of developing or adopting 
     standards, nor shall it replicate activities related to 
     such standards or to the HHS National Health Information 
     Infrastructure initiative. Not later than October 31, 
     2005, the Commission must submit a report to the Secretary 
     and the Congress describing its strategy.
       The Commission shall be composed of 11 members. The 
     President shall appoint three members, including a 
     Chairperson; the Senate Majority Leader, the Senate Minority

[[Page H12095]]

     Leader, the Speaker, and the House Minority Leader shall each 
     appoint two members. Commission membership must include 
     nationally recognized experts in health finance and 
     economics, health plans and integrated delivery systems, 
     health care reimbursement, health care technology and 
     information systems, and other related fields, as well as 
     physicians, pharmacists, and other health care providers, who 
     provide a mix of professionals, broad geographic 
     representation, and a balance between urban and rural 
     representation. Each member shall be appointed for the life 
     of the Commission.
       Commission members shall be paid for each day (including 
     travel days) of service at a rate not exceeding the rate of 
     basic pay for level IV of the Executive Schedule. Each member 
     shall also receive travel expenses and a per diem. Federal 
     employees who serve on the Commission may not receive any 
     financial compensation.
       A majority of Commission members shall constitute a quorum 
     but a lesser number may hold hearings. The Commission 
     Chairperson must appoint a Director, to be paid at a rate not 
     exceeding the rate of basic pay for level IV of the Executive 
     Schedule. With the Commission's approval, the Director may 
     appoint additional staff, as well as temporary experts and 
     consultants. Employees of federal agencies may also be 
     detailed to the Commission to assist in carrying out its 
     duties.
       The Commission may, as appropriate, hold hearings, take 
     testimony, and receive evidence. Any Commission member or 
     agent may, if so authorized by the Commission, take any 
     action which the Commission is authorized to take. The 
     Commission may obtain official information from a federal 
     agency and may accept, use and dispose of gifts, bequests, or 
     devises of services or property, both real and personal. 
     Gifts, bequests, or devices or money and proceeds from sales 
     of other property received as gifts, bequests, or devices 
     shall be deposited in the Treasury and available for 
     disbursement upon order of the Commission. The Commission may 
     use the U.S. mail under the same conditions as other federal 
     agencies and may enter into contracts as may be necessary to 
     conduct its work. Upon the Commission's request, the 
     Administrator of General Services must provide administrative 
     support services to the Commission on a reimbursable basis.
       The Commission shall terminate 30 days after submitting its 
     report to the Secretary and the Congress. The conference 
     report authorizes to be appropriated such sums as may be 
     necessary to carry out this Section.
     Research on Outcomes of Health Care Items and Services. 
         (Section 1014 of the Conference Agreement)
     Present Law
       The Agency for Healthcare Research and Quality (AHRQ) is an 
     agency within the Department of Health and Human Services. 
     AHRQ's mission is to support, conduct, and disseminate 
     research that improves access to care and the outcomes, 
     quality, cost, and utilization of health care services. The 
     research agenda is designed to be responsive to the needs of 
     its customers, including patients, clinicians, institutions, 
     plans, purchasers, and federal, state and local governments. 
     The research conducted by AHRQ is used to inform medical 
     practice, educate consumer understanding of health care, and 
     expand policymakers' ability to monitor and evaluate the 
     impact of system changes on outcomes, quality, access, cost, 
     and use of health care, and to devise policies to improve 
     system performance.
     House Bill
       No provision.
     Senate Bill
       No provision.
     Conference Agreement
       The conference agreement authorizes and appropriates $50 
     million for fiscal year 2004 for the Secretary through the 
     Agency for Healthcare Research and Quality to conduct 
     research to address the scientific information needs and 
     priorities identified by the Medicare, Medicaid, and State 
     Children Health Insurance Programs. The information needs and 
     priorities will relate to the clinical effectiveness and 
     appropriateness of specified health services and treatments, 
     and the health outcomes associated with such services and 
     treatments. The needs and priorities also will address 
     strategies for improving the efficiency and effectiveness of 
     those health care programs. The Secretary is required to 
     establish a process for developing research priorities. Not 
     later than 6 months after the date of enactment, the 
     Secretary must establish an initial list of priorities. The 
     Secretary must complete the evaluation and synthesis of the 
     scientific evidence related to that initial list within 18 
     months after development of such a list and disseminate the 
     research findings to the public, prescription drug plans, and 
     other plans. Not later than 18 months after the date of 
     enactment, the Secretary is required to identify voluntary 
     options that could be undertaken by public and private 
     entities to improve information sharing regarding outcomes 
     and quality of care, adopt innovative quality improvement 
     strategies, develop management tools to improve oversight by 
     state officials, support federal and state initiatives to 
     improve the quality, safety, and efficiency of services, and 
     provide a basis for estimating the fiscal and coverage impact 
     of federal or state policy changes of the Medicare, Medicaid, 
     and State Children's Health Insurance Programs. The 
     Administrator for the Center for Medicare and Medicaid 
     Services may not use data from the research conducted to 
     withhold coverage of a prescription drug, to mandate a 
     national standard, or require a specific approach to quality 
     measurement and reporting.
     Health Care that Works for All American-Citizens Health Care 
         Working Group. (Section 1015 of the Conference Agreement, 
         and Section 620 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The bill would authorize $3 million for each of the fiscal 
     years 2005 and 2006 for the Secretary of HHS, acting through 
     the Agency for Healthcare Research and Quality, to establish 
     a group that would be called the ``Citizens' Health Care 
     Working Group.'' The 25 members of the group would come from 
     health care stakeholders and would be appointed by 
     Congressional leaders. Working Group member appointments 
     could not be made from elected officials. Appointments would 
     be for a 2-year period. Once all the members of the Working 
     Group have been appointed, Congressional leaders would 
     appoint a chairperson from among the members. The Working 
     Group would be responsible for holding hearings and producing 
     public reports regarding expanding coverage options, the cost 
     of health care, innovative state and community strategies to 
     expand coverage or reduce costs, and the role of evidence-
     based medicine and technology in improving quality and 
     lowering costs. The first hearing would be required to be 
     held within 90 days after the chairperson was appointed and 
     additional hearings would be permitted. Within 90 days of 
     completing hearings, the Working Group would be required to 
     prepare a report that discusses numerous health care issues 
     including health care and related services used by 
     individuals throughout their lifetimes, the cost of health 
     care services, sources of coverage and payment, and reasons 
     for uninsurance and underinsurance.
       In addition to hearings, the Working Group would be 
     required to hold community meetings throughout the United 
     States in sufficient number to reflect geographic 
     differences, diverse populations, and a balance among urban 
     and rural populations. The Working Group would be required to 
     prepare an interim set of recommendations on health care 
     coverage and ways to improve and strengthen the health care 
     system based on the information and preferences expressed at 
     the community meetings within 180 days after the conclusion 
     of the community meetings. There would be a 90-day public 
     comment period on the recommendations. Not later than 120 
     days after the end of the public comment period, the Working 
     Group would be required to submit to Congress and the 
     President a final set of recommendations. Not later than 45 
     days after receiving the final recommendations, the President 
     would be required to submit a report to Congress with 
     additional views and comments on the recommendations and 
     recommendations for legislation and administrative actions. 
     Each congressional committee of jurisdiction would be 
     required to hold at least one hearing on the report and the 
     final recommendations.
       The Working Group would be staffed by an Executive Director 
     appointed by the chairperson, up to 20 Federal Government 
     employees on detail, and could procure temporary or 
     intermittent services of individuals. The Working Group would 
     be required to report to Congress annually a detailed 
     description of the expenditures of the Working Group used to 
     carry out its duties. The Working Group would terminate when 
     the report with the final recommendations is submitted to 
     Congress, but not later than two years after the date on 
     which Working Group members were appointed. The provision 
     would be effective upon enactment.
     Conference Agreement
       The conference agreement authorizes $3 million for each of 
     the fiscal years 2005 and 2006 for the Secretary of HHS, 
     acting through the Agency for Healthcare Research and 
     Quality, to establish a group called the ``Citizens'' Health 
     Care Working Group.'' The working group will be composed of 
     15 members; one member will be the Secretary and the other 14 
     members will be appointed by the Comptroller General. 
     Appointments will include certain consumers of heath 
     services, and individuals with expertise in the health care 
     industry. Appointment will not include elected officials. The 
     duration of appointments will be for the life of the Working 
     Group. Not later than 15 days after which all appointments 
     have been made, the Comptroller General will designate a 
     chairperson from the members. The Working Group will be 
     responsible for holding hearings and producing public reports 
     regarding expanding coverage options, the cost of health 
     care, innovative state and community strategies to expand 
     coverage or reduce costs, and the role of evidence-based 
     medicine and technology in improving quality and lowering 
     costs. The first hearing must be held within 90 days after 
     designation of the chairperson, and additional hearings would 
     be permitted as long as such hearings do not delay the 
     Working Group's other activities. Within 90 days of 
     completing hearings, the Working Group will prepare a report 
     that discusses numerous health care issues including health 
     care and related services used by individuals throughout 
     their lifetimes, the cost of health care services, sources of 
     coverage and payment,

[[Page H12096]]

     and reasons for uninsurance and underinsurance.
       In addition to hearings, the Working Group will hold 
     community meetings throughout the United States in sufficient 
     number to reflect geographic differences, diverse 
     populations, and a balance among urban and rural populations. 
     The Working Group will prepare an interim set of 
     recommendations on health care coverage, and ways to improve 
     and strengthen the health care system based on the 
     information and preferences expressed at the community 
     meetings within 180 days after the conclusion of such 
     meetings. There will be a 90-day public comment period on the 
     recommendations.
       Not later than 120 days after the end of the public comment 
     period, the Working Group will submit to Congress and the 
     President a final set of recommendations. Not later than 45 
     days after receiving the final recommendations, the President 
     will submit a report to Congress with additional views and 
     comments on the recommendations, and recommendations for 
     legislative and administrative actions. Each congressional 
     committee of jurisdiction will hold at least one hearing on 
     the report and the final recommendations.
       The Working Group will be staffed by an Executive Director 
     appointed by the chairperson, up to 20 Federal Government 
     employees on detail, and could procure temporary or 
     intermittent services of individuals. The Working Group will 
     report annually to Congress a detailed description of the 
     expenditures used by the Working Group to carry out its 
     duties. The Working Group will terminate within 2 years after 
     the date on which all members of the Working Group were 
     appointed.
       Establishment of Consumer Ombudsman Account. (Section 606 
     of the Senate Bill)
     Present Law
       The Omnibus Budget Reconciliation Act of 1990 established 
     State Health Insurance Counseling Assistance grants to states 
     to provide education and information to Medicare 
     beneficiaries. Funding has been subject to annual 
     appropriations.
     House Bill
       No provision.
     Senate Bill
       A Consumer Ombudsman Account would be established in the 
     Medicare Trust Fund and $1 for every Medicare beneficiary 
     would be appropriated to the account from the Trust Fund 
     beginning with fiscal year 2005. The account would be used to 
     make grants to State Health Insurance Counseling Programs. 
     The provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Health Care Infrastructure Improvement. (Section 1016 of 
     the Conference agreement and Section 608 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       A loan program would be established to improve the cancer-
     related health care infrastructure in certain geographic 
     areas of the United States. Examples of potentially eligible 
     projects would include 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. In order to receive 
     assistance, the project applicant would be required to: (1) 
     be engaged in research in the causes, prevention, and 
     treatment of cancer; (2) be designated as a cancer center for 
     the National Cancer Institute (NCI) or be designated by the 
     state as the sole official comprehensive cancer effort for 
     the state; and (3) be located in a state that on the date of 
     enactment of this title has a population of less than 3 
     million individuals. $49 million in budget authority would be 
     authorized for July 1, 2004 through FY2008 to carry out the 
     loan program, $2 million of which may be used each year for 
     administration of the program by the Secretary. Not later 
     than 4 years after enactment, the Secretary would be required 
     to submit to Congress a report summarizing the financial 
     performance of the projects that have received assistance 
     under this program, including recommendations on the future 
     operation of the program. The provision would be effective 
     upon enactment.
     Conference Agreement
       A loan program would be established to improve the cancer-
     related health care hospital infrastructure in the United 
     States. Examples of potentially eligible projects would 
     include the construction, renovation, or other capital 
     improvement of any hospital. In order to receive assistance, 
     the project applicant would be required to: (1) be engaged in 
     research in the causes, prevention, and treatment of cancer; 
     (2) be designated as a cancer center for the National Cancer 
     Institute (NCI) or be designated by the state as the sole 
     official comprehensive cancer effort for the state. $200 
     million in budget authority would be authorized for July 1, 
     2004 through FY2008 to carry out the loan program, $2 million 
     of which may be used each year for administration of the 
     program by the Secretary. Not later than 4 years after 
     enactment, the Secretary would be required to submit to 
     Congress a report summarizing the financial performance of 
     the projects that have received assistance under this 
     program, including recommendations on the future operation of 
     the program. The provision would be effective upon enactment.
       Capital Infrastructure Revolving Loan Program. (Section 609 
     of the Senate Bill)
     Present Law
       The Public Health Services Act establishes a fund in the 
     Treasury from which the Secretary of HHS can make loans or 
     loan guarantees in the amounts that have been specified in 
     appropriations Acts from time to time. Under the Medicare 
     Rural Hospital Flexibility Program established as part of 
     Title XVIII, the Secretary may award grants to rural 
     hospitals to cover the implementation costs associated with 
     data systems needed to meet the BBA 97 requirements.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be able to make loans to any rural 
     entity to acquire land, renovate buildings, and purchase 
     major moveable equipment or other appropriate projects. A 
     rural entity would include rural health clinics, a medical 
     facility with less than 50 beds in a county that is not part 
     of a metropolitan statistical area or is in a rural census 
     tract of such area, a hospital that is a rural referral 
     center or a sole community hospital. An entity that has been 
     geographically reclassified for the purposes of Medicare 
     reimbursement would not be precluded from being considered a 
     rural provider. Loan guarantees and interest subsidies of up 
     to 3% of the net effective interest rate would be authorized. 
     The total of the government's exposure with respect to this 
     program would not exceed $50 million per year. The total of 
     the principal amount of all loans directly made or guaranteed 
     in any year may not exceed $250 million per year. In 
     addition, rural providers could apply to receive $50,000 
     planning grants to help assess capital and infrastructure 
     needs. The grants awarded in any year would not exceed $2.5 
     million. The program would expire after September 30, 2008. 
     The provision would be effective upon enactment.
     Conference Agreement
       No provision.
       Increase in Appropriation to the Health Care Fraud and 
     Abuse Control Account. (Section 611 of the Senate Bill)
     Present Law
       The Health Insurance Portability and Accountability Act of 
     1996 (HIPAA, PL.104-91) established the Health Care Fraud and 
     Abuse Control (HCFAC) Program which is administered by the 
     HHS Office of Inspector General and the Department of 
     Justice. Funds for the HCFAC program are appropriated from 
     the Federal Hospital Insurance Trust Fund. HIPAA provided for 
     annual increases of 15% in HCFAC funding through 2003, after 
     which the appropriation for HCFAC and the amount earmarked 
     for HHS-OIG remains the same. In FY2003 the available 
     appropriation for HCFAC was $240,558,320 of which $150 
     million to $160 million was available to the HHS-OIG.
     House Bill
       No provision.
     Senate Bill
       Additional appropriations to HCFAC would be authorized. In 
     FY2004, the increase would be $10 million over the FY2003 
     appropriation limit; in FY2005 the increase would be $15 
     million over the FY2003 limit; in FY2006 the increase would 
     be $25 million above the FY2003 limit. Subsequent years 
     appropriations would be at the 2003 limit. The HHS-OIG 
     earmarked appropriations would increase as well: to $170 
     million in FY2004, $175 million in FY2005, $185 million in 
     FY2006. In subsequent years, it would be not more than $150 
     million and not more than $160 million. The provision would 
     be effective upon enactment.
     Conference Agreement
       No provision.
       Increase in Civil Penalties Under the False Claims Act. 
     (Section 612 of the Senate Bill)
     Present Law
       The False Claims Act imposes a liability on those who 
     knowingly present or cause to be presented a false or 
     fraudulent claim for payment by the government. In certain 
     instances, the person may be liable for a civil penalty of 
     not less than $5,000 and not more than $10,000, plus treble 
     damages.
     House Bill
       No provision.
     Senate Bill
       For violations occurring on or after January 1, 2004, the 
     minimum amount of the civil penalty would be increased from 
     $5,000 to $7,500 and the maximum amount would increase from 
     $10,000 to $15,000. The provision would be effective for 
     violations occurring on or after January 1, 2004.
     Conference Agreement
       No provision.
       Increase in Civil Monetary Penalties under the Social 
     Security Act. (Section 613 of the Senate Bill)
     Present Law
       The Office of the Inspector General (OIG) has the authority 
     to impose civil monetary penalties (CMPs) on any person 
     (including an organization or other entity, but not a 
     beneficiary) who knowingly presents, or causes to be 
     presented, to a state or federal government employee or agent 
     certain false or improper claims for medical or other items 
     or services. CMPs may also be imposed for

[[Page H12097]]

     other fraudulent activities such as inflating charges for 
     services, providing services when not a properly licensed 
     physician, billing for medically unnecessary services, 
     falsely certifying that an individual meets the requirements 
     for home health services, and offering or soliciting 
     remuneration to influence the provision of medical services. 
     Depending upon the violation, Section 1128A of the SSA 
     authorizes the imposition of CMPs up to $10,000 for each item 
     or service involved, up to $15,000 for individuals who 
     provide false or misleading information in certain instances, 
     and up to $50,000 per act in other instances as well as 
     treble damages.
     House Bill
       No provision.
     Senate Bill
       The amount of penalties would be increased for violations 
     that occur on or after January 1, 2004. In instances where 
     penalties are limited to $10,000 would be increased to 
     $12,500; those penalties that are limited to $15,000 would be 
     increased to $18,750; and those that are limited to $50,000 
     would be increased to $62,500. The provision would be 
     effective for violations occurring on or after January 1, 
     2004.
     Conference Agreement
       No provision.
       Extension of Customs User Fees. (Section 614 of the Senate 
     Bill)
     Present Law
       The U.S. Customs Service, the federal government's oldest 
     revenue collecting agency is responsible for regulating the 
     movement of persons, carriers, merchandise, and commodities 
     between the United States and other countries. Its authority 
     to impose user fees for certain services lapsed on September 
     30, 2003, but was subsequently restored.
     House Bill
       No provision.
     Senate Bill
       The authority to impose user fees would be extended until 
     September 30, 2013.
     Conference Agreement
       No provision.
     Provision of Information on Advance Directives. (Section 616 
         of the Senate Bill)
     Present Law
       Information about advance directives is required to be 
     given to patients in hospitals, skilled nursing facilities, 
     and served by home health agencies. The Secretary is required 
     to provide Medicare beneficiaries annual information about 
     Medicare benefits, limitations on payment, and a description 
     of the limited benefits for long-term care. This information 
     is provided to Medicare beneficiaries in the Medicare & You 
     handbook that is mailed annually to all beneficiaries.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to provide information on 
     advance directives in the Medicare & You handbook. The 
     information would be required to be presented in a separate 
     Senate section on advance directives and would include 
     specific information about living wills and durable power of 
     attorney for health care. The Secretary would further be 
     required to note the inclusion of this information in the 
     introductory letter that accompanies the handbook. The 
     provision would be effective upon enactment.
     Conference Agreement
       No provision.
     Sense of the Senate Regarding Implementation of the 
         Prescription Drug and Medicare Improvement Act of 2003. 
         (Section 617 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision expresses a sense of the Senate that the 
     Committee on Finance should hold at least four hearings to 
     monitor implementation of the Prescription Drug and Medicare 
     Improvement Act of 2003. The first hearing should be held 
     within 60 days after enactment of the Act, the remaining 
     hearings should be held May 2004, October 2004, and May 2005. 
     The provision would be effective upon enactment.
     Conference Agreement
       No provision.
     Extension of Municipal Health Service Demonstration Projects. 
         (Section 618 of the Senate Bill)
     Present Law
       Under the Consolidated Omnibus Budget Reconciliation Act of 
     1985, as amended, the Municipal Health Service Demonstration 
     projects will expire on December 31, 2004. The municipal 
     health services demonstration program is a multi-site 
     demonstration intended to improve access to primary care 
     services in underserved urban areas and to reduce the cost of 
     health care. BBA 1997 authorized the Secretary to extend the 
     project through December 31, 2000, but only with respect to 
     persons who had received at least one service for the period 
     of January 1, 1996-August 7, 1997 (the enactment date of BBA 
     97). Sites who wanted the demonstration project extended were 
     required to submit plans for the orderly transition of 
     participants to a non-demonstration health care delivery 
     system. Subsequent legislation extended the project through 
     December 31, 2004.
     House Bill
       No provision.
     Senate Bill
       This provision would extend these demonstration projects to 
     December 31, 2009, for individuals who reside in the city in 
     which the project is operated. The provision would be 
     effective upon enactment.
     Conference Agreement
       No provision.
     Study on Making Prescription Pharmaceutical Information 
         Accessible for Blind and Visually Impaired Individuals. 
         (Section 619 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to study how to make 
     prescription drug information, including drug labels and 
     usage instructions, accessible to blind and visually impaired 
     individuals. The study would be required to include a review 
     of existing and emerging technologies. A report would be 
     required within 18 months of enactment and would include 
     recommendations for implementing usable formats and an 
     estimate of the associated costs. The provision would be 
     effective upon enactment.
     Conference Agreement
       No provision.
     GAO Study of Pharmaceutical Price Controls and Patient 
         Protections in the G-7 Countries. (Section 621/
         Duplicative Provision 634 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The GAO would be required to study price controls on 
     pharmaceuticals in France, Germany, Italy, Japan, the United 
     Kingdom, and Canada to review the impact they have on 
     consumers, including American consumers, and on innovation in 
     medicine. The provision would be effective upon enactment.
     Conference Agreement
       No provision.
     Safety Net Organizations and Patient Advisory Commission. 
         (Section 624/Duplicative Provision 635 of the Senate 
         Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision would establish the Safety Net Organizations 
     and Patient Advisory Commission that would conduct an ongoing 
     review of the health care safety net programs including 
     Medicaid, the State Children's Health Insurance Program 
     (SCHIP), Maternal and Child Health Services Block Grant 
     Programs, Federally qualified health center (FQHC) programs, 
     rural health clinic (RHC) programs, disproportionate share 
     hospital (DSH) payment programs, and the Emergency Medical 
     Treatment and Active Labor Act (EMTALA). The Commission would 
     review a variety of issues and data related to the safety net 
     programs.
       The Commission would be required to submit annual reports 
     to the appropriate committees of Congress on the health care 
     needs of the uninsured and the financial and infrastructure 
     stability of the Nation's core health care safety net. The 
     first report would be due June, 2005. Additional reports 
     could be made if requested by the chairpersons or ranking 
     minority members of appropriate committees of Congress or if 
     the Commission deems such additional reviews and reports 
     appropriate.
       The Commission would have 13 members appointed by the 
     Comptroller General of the United States in consultation with 
     the appropriate committees of Congress. Members would be 
     drawn from health professionals, employers, third-party 
     payers, researchers, recipients of care from core health care 
     safety net and individuals who provide and manage the 
     delivery of care by the core health care safety net. The term 
     of the members would be 3 years, although the initial 
     appointments would be on a staggered basis. The Comptroller 
     General would be required to establish a system for public 
     disclosure of financial and other potential conflicts of 
     interest by members of the Commission. The Commission could 
     hire an executive director and other personnel without regard 
     to the provisions of Title V of the United States Code. The 
     Comptroller General would be required to appoint the initial 
     members of the Commission by June 1, 2004.
     Conference Agreement
       No provision.
     Committee on Drug Compounding. (Section 626 of the Senate 
         Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The Secretary would be required to establish a committee on 
     drug compounding within the Food and Drug Administration to 
     ensure that patients are receiving necessary, safe, and 
     accurate dosages of compounded drugs. The members of the 
     committee would be appointed by the Secretary and would 
     include representatives from the National Association of 
     Boards of Pharmacy; pharmacy

[[Page H12098]]

     groups; physician groups; consumer and patient advocate 
     groups; the United States Pharmacopoeia; and other 
     individuals determined appropriate by the Secretary. The 
     Committee would be required to submit a report with 
     recommendations of the Committee to improve and protect 
     patient safety within 1 year of enactment. The Committee 
     would terminate 1 year after enactment.
     Conference Agreement
       No provision.
     Sense of the Senate Concerning the Structure of Medicare 
         Reform and the Prescription Drug Benefit. (Section 627 of 
         the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision provides a sense of the Senate that Medicare 
     reform legislation should achieve certain principles.
     Conference Agreement
       No provision.
     Sense of the Senate Regarding the Establishment of a 
         Nationwide Permanent Lifestyle Modification Program for 
         Medicare Beneficiaries. (Section 628 of the Senate Bill)
     Present Law
       No provision.
     House Bill
       No provision.
     Senate Bill
       The provision provides a sense of the Senate that coronary 
     disease is expensive, the Medicare Lifestyle Modification 
     Program has been operating in 12 states as a demonstration 
     program, and such program of behavior modification should be 
     conducted on a national basis for those beneficiaries who 
     elect to participate. The provision would be effective upon 
     enactment.
     Conference Agreement
       No provision.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

     Current Law
       Section 804 of the Federal Food, Drug, and Cosmetic Act--
     Importation of Covered Products--was established under the 
     medicine Equity and Drug Safety Act of 2000 (P.L. 106-387). 
     This section of current law has not been implemented.
     House Bill
       Section 1121(a) of H.R. 1 would replace the existing 
     Section 804 entirely. The House bill directs the Secretary to 
     establish, upon certification of safety and cost savings, a 
     program that would allow for the importation of drugs from 
     Canada by pharmacists, wholesalers, and individuals. The 
     House bill incorporates new safety measures such as: (1) the 
     use of tamper-resistant and counterfeit-proof packaging; (2) 
     a new requirement that drugs must contain a statement 
     informing the consumer that the drug has left the country; 
     (3) any drug may only be shipped back to the country by the 
     first Canadian recipient; (4) new authority to the Secretary 
     of HHS to limit importation to certain ports of entry; (5) 
     the importer would be required to keep detailed records and 
     to conduct drug testing; and (6) a manufacturer must provide 
     the importer with approved labeling of the drug. This 
     provision applies to prescription drugs as subject to section 
     503(b) of the Federal Food, Drug, and Cosmetic Act other than 
     a controlled substance, a biological product, an infused 
     drug, an intravenously injected drug, a drug that is inhaled 
     during surgery, or a parenteral drug that the Secretary 
     determines poses a threat to the public health.
     Senate Bill
       Section 801(a) of S. 1 would replace the existing Section 
     804 entirely. The Senate bill directs the Secretary to 
     establish, upon certification of safety and cost savings, a 
     program that would allow for the importation of drugs from 
     Canada by pharmacists, wholesalers, and individuals. The 
     Senate bill incorporates new safety provisions as well as 
     provides new authority to the Secretary of HHS to suspend the 
     program if public safety is compromised. Specifically, 
     between 12 and 18 months after the regulations are 
     implemented, if the Secretary certifies to Congress that, 
     based on substantial evidence, the benefits of the 
     implementation of the importation program do not outweigh any 
     detriment, drug imports under this section would cease 30 
     days after the certification is submitted. However, the 
     certification may not be submitted unless, after a public 
     hearing, the Secretary finds it is more likely than not that 
     implementation will result in an increased risk to the public 
     health. This provision applies to prescription drugs as 
     subject to section 503(b) of the Federal Food, Drug, and 
     Cosmetic Act other than a controlled substance, a biological 
     product, an infused drug, an intravenously injected drug, or 
     a drug that is inhaled during surgery that the Secretary 
     determines poses a threat to the public health.
     Conference Agreement
       The Conference agreement, virtually identical to Section 
     801(a) of S. 1, gives the Secretary, upon certification of 
     safety and cost savings, authority to create a system for the 
     importation of drugs from Canada by pharmacists, wholesalers, 
     and individuals.
       The agreement directs the Secretary of HHS, in consultation 
     with appropriate government agencies, to conduct a 
     comprehensive study that identifies current problems with the 
     implementation of existing law as well as examines a range of 
     issues associated with the importation of drugs. In 
     conducting the study, the Secretary shall take into account 
     the distinctions between--
       Drugs that are biological products with licenses under 
     section 351 of the Public Health Service Act; and
       Drugs with approved applications under subsection (b) or 
     (j) of section 505 of the Federal Food, Drug, and Cosmetic 
     Act.
       The details of the study shall include the following:
       Identification of the limitations, including limitations in 
     resources and, if applicable, in current law authorities that 
     may inhibit the Secretary's ability to certify the safety of 
     pharmaceutical products imported into the US.
       Assessment of the pharmaceutical distribution chain and the 
     need for, and feasibility of, modifications, in order to 
     assure the safety of products that may be imported into the 
     US.
       Analysis of whether anti-counterfeiting technologies could 
     improve the safety of products in the domestic market as well 
     as those products that could be imported from foreign 
     nations. This analysis shall identify the types of 
     technologies, if available, and assess the limitations of 
     these technologies to the distribution chain.
       Estimate of costs borne by entities within the 
     pharmaceutical distribution chain to utilize any new 
     technologies identified in paragraph (3).
       Assess the scope, volume, and safety of unapproved drugs, 
     including controlled substances, entering the United States 
     via mail shipment. This assessment should include the 
     percentage of drugs commercially available in other countries 
     that conform in all respects to FDA requirements, and the 
     limitations of visual inspection, sampling, and other testing 
     methods to determine its quality.
       The extent to which foreign health agencies are willing 
     and/or able to ensure the safety of drugs being exported from 
     their country into the United States, including drugs that 
     are transshipped through their countries.
       Assessment of the potential short and long-term impacts on 
     drug prices and prices for consumers and other system costs 
     associated with importation of pharmaceuticals from Canada 
     and other countries into the U.S.
       Assessment of the impact on the research and development of 
     drugs--and the associated impact on consumers and patients--
     if importation were permitted.
       Estimation of agency resources, including additional field 
     personnel, needed to adequately inspect the current amount of 
     pharmaceutical products entering into the country. This 
     estimate shall detail the number of field personnel needed in 
     order to appropriately secure all ports of entry on a daily 
     basis.
       Identification of liability protections, if any, that 
     should be in place, if importation is permitted, for entities 
     within the pharmaceutical distribution chain.
       Identify the ways in which importation could violate United 
     States and international intellectual property rights and 
     describe the additional legal protections and agency 
     resources that would be needed to assure the effective 
     enforcement of these rights.
       The Conference agreement directs the Secretary to submit a 
     report providing the findings of the study under this section 
     to the appropriate committees of Congress no later than 12 
     months after the date of enactment of this Act.
     Report on Trade in Pharmaceuticals
       The Conference agreement directs the Secretary of Commerce, 
     in consultation with the International Trade Commission, the 
     Secretary of Health and Human Services and the United States 
     Trade Representative, to conduct a study and report on drug 
     pricing practices of countries that are members of the 
     Organization for Economic Cooperation and Development and 
     whether those practices utilize nontariff barriers with 
     respect to trade in pharmaceuticals. The study shall include 
     an analysis of the use of price controls, reference pricing, 
     and other actions that affect the market access of United 
     States pharmaceutical products.
       The study shall include the following:
       Identification of the countries that use price controls or 
     other such practices with respect to pharmaceutical trade.
       Assessment of the price controls and other such practices 
     used by the countries identified.
       Estimate of additional costs to U.S. consumers because of 
     such price controls and other such practices, and the extent 
     to which additional costs would be reduced for U.S. consumers 
     if price controls and other such practices are reduced or 
     eliminated.
       Estimate of the impact such price controls, intellectual 
     property laws, and other such measures have on fair pricing, 
     innovation, generic competition, and research and development 
     in the United States and each country identified.
       Not later than 9 months after the date of enactment of this 
     Act, the report shall be submitted to the Committees on 
     Finance, the Judiciary, and Health, Education, Labor, and 
     Pensions of the Senate, and the Committees on Ways and Means, 
     the Judiciary, and Energy and Commerce of the House of 
     Representatives.

[[Page H12099]]

       In addition, the United States Trade Representative, the 
     Secretary of Commerce, and the Secretary of Health and Human 
     Services shall analyze whether bilateral or multilateral 
     trade or other negotiations present an opportunity to address 
     these price controls and other such practices and shall 
     develop a strategy to address such issues in appropriate 
     negotiations. In so doing, these agencies shall bear in mind 
     the negotiating objective set forth in the Bipartisan Trade 
     Promotion Authority Act of 2002 to achieve the elimination of 
     government measures such as price controls and reference 
     pricing which deny full market access for United States 
     products. In so doing, the agencies shall provide periodic 
     and timely briefings for the Committees of the House and 
     Senate listed above, with an interim briefing no later than 
     90 days after enactment to address negotiations to establish 
     a U.S.-Australia Free Trade Agreement and, as appropriate, 
     other current negotiations.

                 Provisions Related to Hatch-Waxman Law


                       Amendments and Supplements

       In including this provision, Congress does not intend this 
     provision to alter current U.S. Food and Drug 
     Administration's (``FDA'') practice regarding acceptance of 
     supplements to approved new drug applications (``NDAs''), or 
     amendments and supplements to pending and approved 
     abbreviated new drug applications (``ANDAs''). Instead, 
     Congress intends this provision to reflect the FDA's current 
     practice regarding those changes and variations to both 
     innovator and generic drugs that may be approved under 
     amendments and supplements to previously filed NDAs and 
     ANDAs, and expects the Agency to maintain its current policy 
     in designating ``listed drugs.'' The conferees intend that 
     FDA continue to use its existing scientific discretion to 
     determine whether different polymorphs present safety, 
     effectiveness, or bioavailability differences and therefore 
     should be considered the same or different active 
     ingredients.
       The single 30-month stay provisions are a centerpiece of 
     this legislation, allowing lower-priced generic products to 
     enter the market more quickly. As a result, this provision 
     must not be construed as requiring an ANDA applicant to file 
     a new application where, before its enactment, the applicant 
     would have been allowed to file an amendment or supplement to 
     an existing application. Such a construction would run 
     directly contrary to Congress' intent.


                         Declaratory Judgments

       The conferees expect that courts will find jurisdiction, 
     where appropriate, to prevent an improper effort to delay 
     infringement litigation between generic drug manufacturers 
     and pioneer drug companies. The conferees expect courts to 
     apply the ``reasonable apprehension'' test in a manner that 
     provides generic drug manufacturers appropriate access to 
     declaratory judgment relief to the extent required by Article 
     III.
       Through the modifications in this Act, the conferees do not 
     intend for the courts to modify their application of the 
     requirements under Article III that a declaratory judgment 
     plaintiff must, to the extent required by the Constitution, 
     demonstrate a ``reasonable apprehension'' of suit to 
     establish jurisdiction. See, e.g., Fina Oil and Chemical Co. 
     v. Ewen, 123 F.3d 1466, 1471 (Fed. Cir. 1997). The conferees 
     expect the courts to examine as part of their analysis the 
     particular policies served by the Hatch-Waxman Act.
       In determining whether a reasonable apprehension of suit 
     exists where an ANDA has been filed with a paragraph IV 
     certification and the patentee has not brought an 
     infringement suit within the 45 days, the conferees expect 
     courts to examine these specific factors as part of the 
     totality of the circumstances. See, e.g., Vanguard Research, 
     Inc. v. Peat, Inc., 304 F.3d 1249, 1254 (Fed. Cir. 2002). In 
     any given case, the conferees expect a court may or may not 
     find a reasonable apprehension of suit where these two 
     specific factors are present.
     Counterclaims
       Section 1101 of the Conference agreement prohibits the 
     recovery of damages resulting from a successful counterclaim 
     in a paragraph IV patent suit by an ANDA applicant seeking 
     removal of a patent listed in the Orange Book. It is not the 
     intent of Congress to prohibit the recovery by a 
     counterclaimant in a paragraph IV suit of anti-trust or any 
     other damages as a result of the improper listing of a patent 
     in the Orange Book. The language found in this section simply 
     means that in the absence of any other cause of action, a 
     ruling in favor of the counterclaimant resulting in the 
     removal of the patent does not entitle the counterclaimant to 
     recover damages.

                 TITLE XII.--HEALTH SAVINGS INCENTIVES

       Health Savings Accounts and Health Savings Security 
     Accounts (sec. 1202 of the House bill and new sec. 223 of the 
     Code)
     Present Law


                                Overview

       Present law contains a number of provisions dealing with 
     the Federal tax treatment of health expenses and health 
     insurance coverage.


                   Employer-provided health coverage

       In general, employer contributions to an accident or health 
     plan are excludable from an employee's gross income (and 
     wages for employment tax purposes).\1\ This exclusion 
     generally applies to coverage provided to employees 
     (including former employees) and their spouses, dependents, 
     and survivors. Benefits paid under employer-provided accident 
     or health plans are also generally excludable from income to 
     the extent they are reimbursements for medical care.\2\ If 
     certain requirements are satisfied, employer-provided 
     accident or health coverage offered under a cafeteria plan is 
     also excludable from an employee's gross income and wages.\3\ 
     Present law provides for two general employer-provided 
     arrangements that can be used to pay for or reimburse medical 
     expenses of employees on a tax-favored basis: flexible 
     spending arrangements (``FSAs'') and health reimbursement 
     arrangements (``HRAs''). While these arrangements provide 
     similar tax benefits (i.e., the amounts paid under the 
     arrangements for medical care are excludable from gross 
     income and wages for employment tax purposes), they are 
     subject to different rules. A main distinguishing feature 
     between the two arrangements is that while FSAs are generally 
     part of a cafeteria plan and contributions to FSAs are made 
     on a salary reduction basis, HRAs cannot be part of a 
     cafeteria plan and contributions cannot be made on a salary-
     reduction basis.\4\
---------------------------------------------------------------------------
     \1\ Secs. 106, 3121(a)(2), and 3306(b)(2). All ``section,'' 
     ``sec.,'' and ``Code'' references are to the Internal Revenue 
     Code of 1986, as amended.
     \2\ Sec. 105. In the case of a self-insured medical 
     reimbursement arrangement, the exclusion applies to highly 
     compensated employees only if certain nondiscrimination rules 
     are satisfied. Sec. 105(h). Medical care is defined as under 
     section 213(d) and generally includes amounts paid for 
     qualified long-term care insurance and services.
     \3\ Secs. 125, 3121(a)(5)(G), and 3306(b)(5)(G). Long-term 
     care insurance and services may not be provided through a 
     cafeteria plan.
     \4\ Notice 2002-45, 2002-28 I.R.B. 93 (July 15, 2002); Rev. 
     Rul. 2002-41, 2002-28 I.R.B. 75 (July 15, 2002).
---------------------------------------------------------------------------
       Amounts paid or accrued by an employer within a taxable 
     year for a sickness, accident, hospitalization, medical 
     expense, or similar health plan for its employees are 
     generally deductible as ordinary and necessary business 
     expenses.\5\
---------------------------------------------------------------------------
     \5\ Sec. 162.
---------------------------------------------------------------------------


                       Self-employed individuals

       The exclusion for employer-provided health coverage does 
     not apply to self-employed individuals. However, under 
     present law, self-employed individuals (i.e., sole 
     proprietors or partners in a partnership) \6\ are entitled to 
     deduct 100 percent of the amount paid for health insurance 
     for themselves and their spouse and dependents.\7\
---------------------------------------------------------------------------
     \6\ Self-employed individuals include more than two-percent 
     shareholders of S. corporations who are treated as partners 
     for purposes of fringe benefit rules pursuant to section 
     1372.
     \7\ Sec. 162(1).
---------------------------------------------------------------------------


                Itemized deduction for medical expenses

       Under present law, individuals who itemize deductions may 
     deduct amounts paid during the taxable year (to the extent 
     not reimbursed by insurance or otherwise) for medical care of 
     the taxpayer, the taxpayer's spouse, and dependents, to the 
     extent that the total of such expenses exceeds 7.5 percent of 
     the taxpayer's adjusted gross income.\8\
---------------------------------------------------------------------------
     \8\ Sec. 213. The adjusted gross income percentage is 10 
     percent for purposes of the alternative minimum tax. Sec. 
     56(b)(1)(B).
---------------------------------------------------------------------------


                    Archer medical savings accounts

                               In general

       In general, an Archer medical savings account (``MSA'') is 
     a tax-exempt trust or custodial account created exclusively 
     for the benefit of the account holder that is subject to 
     rules similar to those applicable to individual retirement 
     arrangements.\9\
---------------------------------------------------------------------------
     \9\ Sec. 220.
---------------------------------------------------------------------------
       Within limits, contributions to an Archer MSA are 
     deductible in determining adjusted gross income if made by an 
     eligible individual and are excludable from gross income and 
     wages for employment tax purposes if made by the employer of 
     an eligible individual. Earnings on amounts in an Archer MSA 
     are not includible in gross income in the year earned (i.e., 
     inside buildup is not taxable). Distributions from an Archer 
     MSA for qualified medical expenses are not includible in 
     gross income. Distributions not used for qualified medical 
     expenses are includible in gross income and subject to an 
     additional 15-percent tax unless the distribution is made 
     after death, disability, or the individual attains the age of 
     Medicare eligibility (i.e., age 65).
       Qualified medical expenses are generally defined as under 
     section 213(d), except that qualified medical expenses do not 
     include expenses for health insurance other than long-term 
     care insurance, premiums for health coverage during any 
     period of continuation coverage required by Federal law, and 
     premiums for health care coverage while an individual is 
     receiving unemployment compensation under Federal or State 
     law. For purposes of determining the itemized deduction for 
     medical expenses, distributions from an Archer MSA for 
     qualified medical expenses are not treated as expenses paid 
     for medical care under section 213.


                          Eligible individuals

       Archer MSAs are available only to employees of a small 
     employer who are covered under an employer-sponsored high 
     deductible health plan and to self-employed individuals 
     covered under a high deductible health plan.\10\ An employer 
     is a small employer if it employed, on average, no more than 
     50 employees on business days during either of the

[[Page H12100]]

     two preceding calendar years. An individual is not eligible 
     for an Archer MSA if he or she is covered under any other 
     health plan that is not a high deductible health plan (other 
     than a plan providing certain limited types of coverage). 
     Individuals entitled to benefits under Medicare are not 
     eligible individuals. Eligible individuals do not include 
     individuals who may be claimed as a dependent on another 
     person's tax return.
---------------------------------------------------------------------------
     \10\ Self-employed individuals include more than two-percent 
     sharholders of S corporations who are treated as partners for 
     purposes of fringe benefit rules pursuant to section 1372.
---------------------------------------------------------------------------


                       Treatment of contributions

       Individual contributions to an Archer MSA are deductible 
     (within limits) in determining adjusted gross income (i.e., 
     ``above-the-line''). In addition, employer contributions are 
     excludable from gross income and wages for employment tax 
     purposes (within the same limits), except that this exclusion 
     does not apply to contributions made through a cafeteria 
     plan. In the case of an employee, contributions can be made 
     to an Archer MSA either by the individual or by the 
     individual's employer, but not by both.
       The maximum annual contribution that can be made to an 
     Archer MSA for a year is 65 percent of the annual deductible 
     under the high deductible health plan in the case of self-
     only coverage and 75 percent of the annual deductible in the 
     case of family coverage.
       If an employer provides a high deductible health plan 
     coupled with Archer MSAs for employees and makes employer 
     contributions to the Archer MSAs, the employer must make 
     available a comparable contribution on behalf of all 
     employees with comparable coverage during the same period. 
     Contributions are considered comparable if they are either of 
     the same amount or the same percentage of the deductible 
     under the high deductible health plan. If employer 
     contributions do not satisfy the comparability rule during a 
     period, then the employer is subject to an excise tax equal 
     to 35 percent of the aggregate amount contributed by the 
     employer to Archer MSAs of the employer for that period.


               Definition of high deductible health plan

       A high deductible health plan is a health plan with an 
     annual deductible of at least $1,700 and no more than $2,500 
     in the case of self-only coverage and at least $3,350 and no 
     more than $5,050 in the case of family coverage. In addition, 
     the maximum out-of-pocket expenses with respect to allowed 
     costs must be no more than $3,350 in the case of self-only 
     coverage and no more than $6,150 in the case of family 
     coverage.\11\ Out-of-pocket expenses include deductibles, co-
     payments, and other amounts (other than premiums) that the 
     individual must pay for covered benefits under the plan. A 
     plan does not fail to qualify as a high deductible health 
     plan merely because it does not have a deductible for 
     preventive care as required under State law. A plan does not 
     qualify as a high deductible health plan if substantially all 
     of the coverage under the plan is certain permitted insurance 
     or is coverage (whether provided through insurance or 
     otherwise) for accidents, disability, dental care, vision 
     care, or long-term care.
---------------------------------------------------------------------------
     \11\ The deductible and out-of-pocket expenses dollar amounts 
     are for 2003. These amounts are indexed for inflation in 450 
     increments.
---------------------------------------------------------------------------


                  Treatment of death of account holder

       Upon death, any balance remaining in the decedent's Archer 
     MSA is includible in his or her gross estate. If the account 
     holder's surviving spouse is the named beneficiary of the 
     Archer MSA, then, after the death of the account holder, the 
     Archer MSA becomes the Archer MSA of the surviving spouse and 
     the amount of the Archer MSA balance may be deducted in 
     computing the decedent's taxable estate, pursuant to the 
     estate tax marital deduction.\12\ If, upon the account 
     holder's death, the Archer MSA passes to a named beneficiary 
     other than the decedent's surviving spouse, the Archer MSA 
     ceases to be an Archer MSA as of the date of the decedent's 
     death, and the beneficiary is required to include the fair 
     market value of the Archer MSA assets as of the date of death 
     in gross income for the taxable year that includes the date 
     of death. The amount includible in gross income is reduced by 
     the amount in the Archer MSA used, within one year after 
     death, to pay qualified medical expenses incurred prior to 
     the death. If there is no named beneficiary for the 
     decedent's Archer MSA, the Archer MSA ceases to be an Archer 
     MSA as of the date of death, and the fair market value of the 
     assets in the Archer MSA as of such date is includible in the 
     decedent's gross income for the year of the death.
---------------------------------------------------------------------------
     \12\ Sec. 2056.
---------------------------------------------------------------------------


        Limit on number of MSAs; termination of MSA availability

       The number of taxpayers benefiting annually from an Archer 
     MSA contribution is limited to a threshold level (generally 
     750,000 taxpayers). The number of Archer MSAs established has 
     not exceeded the threshold level.
       After 2003, no new contributions can be made to Archer MSAs 
     except by or on behalf of individuals who previously had 
     Archer MSA contributions and employees who are employed by a 
     participating employer.
     House Bill

                               In general

       The House bill creates health savings accounts (``HSAs'') 
     and health savings security accounts (``HSSAs''), which 
     provide tax-favored treatment for current medical expenses as 
     well as the ability to save on a tax-favored basis for future 
     medical expenses. In general, HSAs and HSSAs are tax-exempt 
     trusts or custodial accounts created exclusively to pay for 
     the qualified medical expenses of the account holder and his 
     or her spouse and dependents that are subject to rules 
     similar to those applicable to individual retirement 
     arrangements.\13\ Unless otherwise provided, the following 
     description applies to both HSAs and HSSAs (jointly referred 
     to as ``health accounts'').
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     \13\ As under Archer MSAs, the House bill provision provides 
     that the present-law requirement applicable to insurance 
     companies that certain policy acquisition expenses must be 
     capitalized and amortized (sec. 848) does not apply in the 
     case of any contract that is a health account.
---------------------------------------------------------------------------
       Within limits, contributions to health accounts are 
     deductible if made by an eligible individual and are 
     excludable from gross income and wages for employment tax 
     purposes if made by the employer of an eligible individual. 
     In the case of HSSAs only, family members may make 
     nondeductible contributions on behalf of an eligible 
     individual. Distributions from health accounts for qualified 
     medical expenses are not includible in gross income. 
     Distributions that are not for qualified medical expenses are 
     includible in gross income and subject to an additional 15 
     percent tax. The additional 15 percent tax does not apply 
     after death, disability, or the individual attains the age of 
     Medicare eligibility (i.e., age 65).

                          Eligible individuals


                                  HSAs

       Eligible individuals for HSAs are individuals who are 
     covered by a high deductible health plan and no other health 
     plan that is not a high deductible health plan. Individuals 
     entitled to benefits under Medicare are not eligible to make 
     contributions to an HSA. Eligible individuals do not include 
     individuals who may be claimed as a dependent on another 
     person's tax return.
       An individual with other coverage in addition to a high 
     deductible health plan is still eligible for an HSA if such 
     other coverage is certain permitted insurance or permitted 
     coverage. Permitted insurance is: (1) insurance if 
     substantially all of the coverage provided under such 
     insurance relates to (a) liabilities incurred under worker's 
     compensation law, (b) tort liabilities, (c) liabilities 
     relating to ownership or use of property (e.g., auto 
     insurance), or (d) such other similar liabilities as the 
     Secretary may prescribe by regulations; (2) insurance for a 
     specified disease or illness; and (3) insurance that provides 
     a fixed payment for hospitalization. Permitted coverage is 
     coverage (whether provided through insurance or otherwise) 
     for accidents, disability, dental care, vision care, or long-
     term care.
       A high deductible health plan is a health plan that in the 
     case of self-only coverage has an annual deductible between 
     $1,000 and $2,500 and in the case of family coverage has an 
     annual deductible between $2,000 and $5,050 (for 2003).\14\ 
     The maximum out-of-pocket expenses must be no more than 
     $3,350 in the case of self-only coverage and no more than 
     $6,150 in the case of family coverage. The annual deductible 
     maximum and minimum and out-of-pocket expense amounts are 
     indexed for inflation. A plan is not a high deductible health 
     plan if substantially all of the coverage is for permitted 
     coverage or coverage that may be provided by permitted 
     insurance, as described above.
---------------------------------------------------------------------------
     \14\ Special rules apply for determining whether a health 
     plan that is a preferred provider organization plan meets the 
     requirements of a high deductible plan.
---------------------------------------------------------------------------


                                 HSSAs

       Individuals eligible for HSSAs are individuals who (1) are 
     covered under a health plan meeting minimum deductible 
     requirements and no other health plan that does not meet the 
     minimum deductible requirements, or (2) are uninsured. 
     Individuals entitled to benefits under Medicare are not 
     eligible to make contributions to an HSSA. Eligible 
     individuals do not include individuals who may be claimed as 
     a dependent on another person's tax return.
       An individual with other coverage in addition to a plan 
     meeting the minimum deductible requirements is still eligible 
     for an HSSA if such other coverage is for permitted coverage 
     or coverage that may be provided by permitted insurance, as 
     described above. In addition, an individual is treated as 
     uninsured if his or her only coverage is permitted coverage 
     or coverage that may be provided by permitted insurance.
       A plan meets the minimum deductible requirements if the 
     plan is a health plan with an annual deductible of at least 
     $500 in the case of self-only coverage and at least $1,000 in 
     the case of family coverage. These dollar amounts are indexed 
     for inflation. There are no maximum deductible requirements 
     and no limits on out-of-pocket expenses. A plan is not a 
     minimum deductible plan if substantially all of the coverage 
     is for permitted coverage or coverage that may be provided by 
     permitted insurance, as described above.


              Tax treatment of and limits on contributions

       Contributions to a health account made by an eligible 
     individual are deductible (within limits) in determining 
     adjusted gross income (i.e., ``above-the-line''). In 
     addition, employer contributions to a health account 
     (including salary reduction contributions made through a 
     cafeteria plan) are excludable from gross income and wages 
     for employment tax purposes to the extent the contribution 
     would be deductible if made by the

[[Page H12101]]

     employee (e.g., in the case of an HSSA, subject to the 
     adjusted gross income limits).\15\ Nondeductible 
     contributions may be made to an HSSA by a family member of an 
     eligible individual. In the case of an employee, 
     contributions to a health account may be made by both the 
     individual (and family members in the case of an HSSA) and 
     the individual's employer. All contributions are aggregated 
     for purposes of the maximum annual contribution limit.
---------------------------------------------------------------------------
     \15\ Employer contributions to a health account are 
     excludable from wages for employment tax purposes if, at the 
     time of payment, it is reasonable to believe that the 
     employee will be able to exclude such payment from income 
     (e.g., a reasonable basiss to believe that the employee's 
     income is within the applicabale adjusted gross income limits 
     for an HSSA).
---------------------------------------------------------------------------
       The maximum aggregate annual contribution that can be made 
     to an HSA is 100 percent of the annual deductible under the 
     high deductible plan.\16\
---------------------------------------------------------------------------
     \16\ The annual contribution limit for a health account is 
     the sum of the limits determined separately for each month, 
     based on the individual's status and health plan coverage as 
     of the first day of the month.
---------------------------------------------------------------------------
       The maximum aggregate annual contribution that can be made 
     to an HSSA is (1) $2,000 for (a) persons with self-only 
     coverage and (b) uninsured individuals with no dependents 
     \17\ who do not file a joint return, and (2) $4,000 for (a) 
     individuals with family coverage and (b) uninsured 
     individuals with dependents or who file a joint return. In 
     the case of individuals age 55 and older, the $2,000 and 
     $4,000 HSSA annual contribution limits are increased by $500 
     in 2004, $600 in 2005, $700 in 2006, $800 in 2007, $900 in 
     2008, and $1,000 in 2009 and thereafter.
---------------------------------------------------------------------------
     \17\ Written declarations releasing a claim to a dependency 
     exemption under section 152(e)(2) are disregarded in 
     determining whether an individual has dependents.
---------------------------------------------------------------------------
       The maximum allowable contribution to an HSSA is phased out 
     for taxpayers with adjusted gross income \18\ above certain 
     levels. In the case of individuals with self-only coverage 
     (other than individuals filing a joint return), the phase-out 
     range is $75,000 to $85,000. For individuals with family 
     coverage and individuals filing a joint return, the phase-out 
     range is $150,000 to $170,000. The adjusted gross income 
     limits apply to HSSA contributions from all sources (e.g., 
     both individual and employer contributions).
---------------------------------------------------------------------------
     \18\ Adjusted gross income is defined generally as under the 
     rules relating to individual retirement arrangements 
     (``IRAs''), and is computed after the deduction for 
     contributions to IRAs and before the deductions provided by 
     the provision.
---------------------------------------------------------------------------
       The maximum annual contribution limits for the health 
     accounts are coordinated so that contributions to one type of 
     health account reduce the annual contribution limit for the 
     other type of health account.\19\
---------------------------------------------------------------------------
     \19\ The contribution limits are also coordinated with 
     contributions to Archer MSAs.
---------------------------------------------------------------------------
       An excise tax applies to contributions in excess of the 
     maximum contribution amount for the health account. The 
     excise tax is generally equal to six percent of the 
     cumulative amount of excess contributions that are not 
     distributed from the health account to the contributor.\20\
---------------------------------------------------------------------------
     \20\ Ordering rules apply to determine the nature of any 
     distributed excess contributions (e.g., nondeductible family 
     contributions in the case of an HSSA or employer 
     contributions).
---------------------------------------------------------------------------
       Amounts can be rolled over into a health account from an 
     Archer MSA or a health FSA on a tax-free basis. Amounts can 
     be rolled over into an HSA from another HSA or HSSA and into 
     an HSSA from another HSSA on a tax-free basis. Rollovers from 
     an HSA into an HSSA are not permitted. Amounts transferred 
     from another health account or Archer MSA are not taken into 
     account under the annual contribution limits.
       If an employer makes contributions to employees' health 
     accounts, the employer must make available comparable 
     contributions on behalf of all employees with comparable 
     coverage during the same period. Contributions are considered 
     comparable if they are either of the same amount or the same 
     percentage of the deductible under the plan. The 
     comparability rule is applied separately to part-time 
     employees (i.e., employees who are customarily employed for 
     fewer than 30 hours per week). The comparability rule does 
     not apply to amounts transferred from an employee's health 
     account, health FSA, or Archer MSA or to contributions made 
     through a cafeteria plan.
       If employer contributions do not satisfy the comparability 
     rule during a period, then the employer is subject to an 
     excise tax equal to 35 percent of the aggregate amount 
     contributed by the employer to health accounts of the 
     employer for that period. The excise tax is designed as a 
     proxy for the denial of the deduction for employer 
     contributions. In the case of a failure to comply with the 
     comparability rule which is due to reasonable cause and not 
     to willful neglect, the Secretary may waive part or all of 
     the tax imposed to the extent that the payment of the tax 
     would be excessive relative to the failure involved. For 
     purposes of the comparability rule, employers under common 
     control are aggregated.


                       Taxation of distributions

       Distributions from a health account for qualified medical 
     expenses of the individual and his or her spouse or 
     dependents generally are excludable from gross income. In 
     general, amounts in a health account can be used for 
     qualified medical expenses even if the individual is not 
     currently eligible for contributions to the health 
     account.\21\
---------------------------------------------------------------------------
     \21\ However, in any year for which a contribution is made to 
     an HSA, withdrawals from the HSA maintained by that 
     individual generally are excludable from income only if the 
     individual for whom the expenses were incurred was covered 
     under a high deductible plan for the month in which the 
     expenses were incurred. The rule does not apply for 
     continuation coverage or coverage while the individual is 
     receiving unemployment compensation even if for an individual 
     who is not an eligible individual.
---------------------------------------------------------------------------
       Qualified medical expenses generally are defined as under 
     section 213(d) and include expenses for diagnosis, cure, 
     mitigation, treatment, or prevention of disease, including 
     prescription drugs, transportation primarily for and 
     essential to such care, and qualified long-term care 
     expenses. Qualified medical expenses do not include expenses 
     for insurance other than for (1) long-term care insurance, 
     (2) premiums for health coverage during any period of 
     continuation coverage required by Federal law, and (3) 
     premiums for health care coverage while an individual is 
     receiving unemployment compensation under Federal or State 
     law. In the case of HSSAs, qualified medical expenses also 
     include (1) health insurance meeting the minimum deductible 
     requirements if no portion of the cost of the insurance is 
     paid by the employer or former employer of the individual or 
     the individual's spouse,\22\ and (2) health insurance for 
     individuals who are older than age 65 (including Medicare 
     expenses). For purposes of determining the itemized deduction 
     for medical expenses, distributions from a health account for 
     qualified medical expenses are not treated as expenses paid 
     for medical care under section 213.
---------------------------------------------------------------------------
     \22\ Amounts paid by the employer include salary reduction 
     contributions.
---------------------------------------------------------------------------
       Distributions from a health account that are not for 
     qualified medical expenses are includible in gross income 
     (except to the extent that the distribution is attributable 
     to a return of nondeductible family contributions in the case 
     of an HSSA).\23\ Distributions includible in gross income are 
     also subject to an additional 15-percent tax unless made 
     after death, disability, or the individual attains the age of 
     Medicare eligibility (i.e., age 65).
---------------------------------------------------------------------------
     \23\ Ordering rules apply to determine the extent to which 
     distributions are attributable to nondeductible 
     contributions.
---------------------------------------------------------------------------


              Tax treatment of HSAs and HSSAs after death

       Upon death, any balance remaining in the decedent's health 
     account is includible in his or her gross estate.
       If the health account holder's surviving spouse is the 
     named beneficiary of the health account, then, after the 
     death of the health account holder, the health account 
     becomes the health account of the surviving spouse and the 
     amount of the health account balance may be deducted in 
     computing the decedent's taxable estate, pursuant to the 
     estate tax marital deduction.\24\ The surviving spouse is not 
     required to include any amount in gross income as a result of 
     the death; the general rules applicable to the health account 
     apply to the surviving spouse's health account (e.g., the 
     surviving spouse is subject to income tax only on 
     distributions from the health account for nonqualified 
     expenses). The surviving spouse can exclude from gross income 
     amounts withdrawn from the health account for expenses 
     incurred by the decedent prior to death, to the extent they 
     otherwise are qualified medical expenses.
---------------------------------------------------------------------------
     \24\ Sec. 2056.
---------------------------------------------------------------------------
       If, upon death, the health account passes to a named 
     beneficiary other than the decedent's surviving spouse, the 
     health account ceases to be a health account as of the date 
     of the decedent's death, and the beneficiary is required to 
     include the fair market value of health account assets as of 
     the date of death in gross income for the taxable year that 
     includes the date of death. The amount includible in income 
     is reduced by the amount in the health account used, within 
     one year after death, to pay qualified medical expenses 
     incurred by the decedent prior to the death. As is the case 
     with other health account distributions, whether the expenses 
     are qualified medical expenses is determined as of the time 
     the expenses were incurred. In computing taxable income, the 
     beneficiary may claim a deduction for that portion of the 
     Federal estate tax on the decedent's estate that was 
     attributable to the amount of the health account balance.\25\
---------------------------------------------------------------------------
     \25\ The deduction is calculated in accordance with the 
     present-law rules relating to income in respect of a decedent 
     set forth in section 691(c).
---------------------------------------------------------------------------
       If there is no named beneficiary of the decedent's health 
     account, the health account ceases to be a health account as 
     of the date of death, and the fair market value of the assets 
     in the health account as of such date is includible in the 
     decedent's gross income for the year of the death.
       This rule applies in all cases in which there is no named 
     beneficiary, even if the surviving spouse ultimately obtains 
     the right to the health account assets (e.g., if the 
     surviving spouse is the sole beneficiary of the decedent's 
     estate).


                         Reporting requirements

       Employer contributions are required to be reported on the 
     employee's Form W-2. Trustees of health accounts may be 
     required to report to the Secretary of the Treasury amounts 
     with respect to contributions, distributions, and other 
     matters as determined appropriate by the Secretary. In 
     addition, providers of health insurance are required to 
     report information as may be prescribed by the Secretary.

[[Page H12102]]

       Effective date.--The House bill provision is effective for 
     taxable years beginning after December 31, 2003.
     Senate Amendment
       No provision.
     Conference Agreement
       The conference agreement does not include the House bill 
     provision relating to HSSAs. The conference agreement 
     includes the HSA provision from the House bill, with the 
     following modifications.\26\
---------------------------------------------------------------------------
     \26\ The rules for HSAs generally follow those of Archer MSAs 
     unless otherwise provided.
---------------------------------------------------------------------------
       The conference agreement modifies the definition of a high 
     deductible health plan applicable to HSAs by removing the 
     limitation on the maximum amount of the deductible and 
     increasing the limit on out-of-pocket expenses. Under the 
     conference agreement, a high deductible health plan is a 
     health plan that has a deductible that is at least $1,000 for 
     self-only coverage or $2,000 for family coverage \27\ and 
     that has an out-of-pocket expense limit that is no more than 
     $5,000 in the case of self-only coverage and $10,000 in the 
     case of family coverage.\28\ As under present law, out-of-
     pocket expenses include deductibles, co-payments, and other 
     amounts (other than premiums) that the individual must pay 
     for covered benefits under the plan.
---------------------------------------------------------------------------
     \27\ The $1,000 limit is indexed for inflation. The family 
     coverage limit will always be twice the individual limit (as 
     indexed for inflation).
     \28\ In the case of the plan using a network of providers, 
     the plan does not fail to be a high deductible health plan 
     (if it would otherwise meet the requirements of a high 
     deductible health plan) solely because the out of-pocket 
     expense limit for services provised outside of the network 
     exceeds the $5,000 and $10,000 out-of-pocket expense limits. 
     In addition, such plan's deductible for out-of-network 
     services is not taken into account in determining the annual 
     contribution limit (i.e., the deductible for services within 
     the network is used for such purpose).
---------------------------------------------------------------------------
       Under the conference agreement, the maximum aggregate 
     annual contribution \29\ that can be made to an HSA is the 
     lesser of (1) 100 percent of the annual deductible under the 
     high deductible health plan, or (2) the maximum deductible 
     permitted under an Archer MSA high deductible health plan 
     under present law, as adjusted for inflation. For 2004, the 
     amount of the maximum high deductible is estimated to be 
     $2,600 in the case of self-only coverage and $5,150 in the 
     case of family coverage.
---------------------------------------------------------------------------
     \29\ The maximum annual contribution limit is calculated as 
     the sum of limits determined for each month based on the 
     individual's health plan coverage on the first day of the 
     month.
---------------------------------------------------------------------------
       Under the conference agreement, contributions made by or on 
     behalf of an eligible individual are deductible by the 
     individual. Thus, for example, contributions made by an 
     eligible individual's family members are deductible by the 
     eligible individual to the extent the contributions would be 
     deductible if made by the individual.\30\ As under the House 
     bill, all contributions by or on behalf of an eligible 
     individual are aggregated for purposes of the maximum annual 
     contribution limit. Contributions to Archer MSAs reduce the 
     annual contribution limit for HSAs.
---------------------------------------------------------------------------
     \30\ Under present law, contributions made on behalf of 
     another individual are generally treated as gifts. The 
     present-law gift tax rules apply to contributions made on 
     behalf of another individual.
---------------------------------------------------------------------------
       The conference agreement increases the annual contribution 
     limits for individuals who have attained age 55 by the end of 
     the taxable year. In the case of policyholders and covered 
     spouses who are age 55 or older, the HSA annual contribution 
     limit is greater than the otherwise applicable limit by $500 
     in 2004, $600 in 2005, $700 in 2006, $800 in 2007, $900 in 
     2008, and $1,000 in 2009 and thereafter.\31\ As under the 
     House bill, contributions, including catch-up contributions, 
     cannot be made once an individual is eligible for Medicare. 
     Under the conference agreement, qualified medical expenses 
     are expanded to include health insurance premiums for 
     individuals eligible for Medicare, other than premiums for 
     Medigap policies. Qualified health insurance premiums 
     include, for example, Medicare Part A and Part B premiums, 
     Medicare HMO premiums, and the employee share of premiums for 
     employer- sponsored health insurance including employer-
     sponsored retiree health insurance.
---------------------------------------------------------------------------
     \31\ As in determining the general annual contribution limit, 
     the increase in the annual contribution limit for individuals 
     who have attained age 55 is also determined on a monthly 
     basis.
---------------------------------------------------------------------------
       Except as otherwise provide by the Secretary, preventative 
     care is defined as under section 1871 of the Social Security 
     Act. It is intended that the Secretary of the Treasury will 
     amend the definition of preventative care if the definition 
     used under the Social Security Act is inconsistent with the 
     purposes of the provision. Under the conference agreement, 
     the additional tax on nonqualified distributions is reduced 
     to 10 percent (rather than 15 percent as in the House bill).
       Under the conference agreement, amounts can be rolled over 
     into an HSA from another HSA or from an Archer MSA. The 
     conference agreement also clarifies information reporting 
     requirements in the House bill.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2003.
       Disposition of Unused Health Benefits in Flexible Spending 
     Arrangements (sec. 1203 of the House bill and sec. 125 of the 
     Code)
     Present Law
       A flexible spending arrangement (``FSA'') is defined under 
     the Code as a benefit program which provides employees with 
     coverage under which specified incurred expenses may be 
     reimbursed and the maximum amount of reimbursement which is 
     reasonably available to a participant for such coverage is 
     less than 500 percent of the value of such coverage.\32\ A 
     health FSA is an FSA that provides for reimbursement of 
     medical expenses.\33\ Health FSAs are typically part of a 
     cafeteria plan and may be funded through salary 
     reduction.\34\ Health FSAs are commonly used, for example, to 
     reimburse employees for medical expenses not covered by 
     insurance. There is no special exclusion for benefits 
     provided under an FSA. Thus, health benefits provided under 
     an FSA are excludable from income only if they qualify for 
     exclusion under sections 105 or 106.
---------------------------------------------------------------------------
     \32\ Sec. 106(c).
     \33\ FSAs may also be used to provide certain other 
     nontaxable benefits, such as dependent care.
     \34\ Long-term care insurance cannot be offered through a 
     cafeteria plan. Sec. 125(f).
---------------------------------------------------------------------------
       FSAs that are part of a cafeteria plan must comply with the 
     rules applicable to cafeteria plans generally. One of these 
     rules is that a cafeteria plan may not offer deferred 
     compensation except through a qualified cash or deferred 
     arrangement.\35\ Under proposed Treasury regulations, a 
     cafeteria plan is considered to permit the deferral of 
     compensation if it includes a health FSA which reimburses 
     participants for medical expenses incurred beyond the end of 
     the plan year.\36\ Thus, amounts in an employee's health 
     account that are not used for medical expenses incurred 
     before the end of a plan year must be forfeited. This rule is 
     often referred to as the ``use it or lose it'' rule.
---------------------------------------------------------------------------
     \35\ Sec. 401(k).
     \36\ Prop. Treas. Reg. sec. 1.125-2 Q&A-5(a).
---------------------------------------------------------------------------
     House Bill
       The House bill allows up to $500 of unused health benefits 
     in an employee's health FSA to be carried forward to the 
     employee's health account for the next plan year of the 
     health FSA or transferred to an HSA or HSSA maintained for 
     the benefit of the employee.\37\ Amounts transferred to an 
     HSA or HSSA are treated as employer contributions for 
     purposes of the HSA and HSSA rules. Under the House bill, if 
     an individual is not eligible to contribute to an HSA or HSSA 
     for the taxable year, the individual may transfer up to $500 
     of unused health benefits in the employee's health FSA to a 
     tax-qualified retirement plan, a tax-sheltered annuity 
     (section 403(b)), an individual retirement arrangement 
     (``IRA''), or an eligible deferred compensation plan of a 
     State or local government (section 457). An employee's unused 
     health benefit is the excess of the maximum amount of 
     reimbursement allowable to the employee over the actual 
     amount of reimbursement made during the year. Amounts 
     transferred are subject to the rules and limits on 
     contributions that would otherwise apply to contributions to 
     the transferee plan.
---------------------------------------------------------------------------
     \37\ Section 2 of the bill provides the eligibility rules for 
     contributions to an HSA or HSSA.
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       Effective date.--The House bill provision applies to 
     taxable years beginning after December 31, 2003.
     Senate Amendment
       No provision.
     Conference Agreement
       The conference agreement does not include the House bill 
     provision.
       Exclusion from Gross Income of Certain Federal Subsidies 
     for Prescription Drug Plans (new sec. 139A of the Code)
     Present Law
       Gross income includes all income from whatever source 
     derived unless a specific exclusion applies.\38\
---------------------------------------------------------------------------
     \38\ Sec. 61.
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     House Bill
       No provision.
     Senate Amendment
       No provision.
     Conference Agreement
       The conference agreement provides that gross income does 
     not include any special subsidy payment received under 
     section 1860D-22 of the Social Security Act. The exclusion 
     applies for purposes of both the regular tax and the 
     alternative minimum tax (including the adjustment for 
     adjusted current earnings).
       The exclusion is not taken into account in determining 
     whether a deduction is allowable with respect to costs taken 
     into account in determining the subsidy payment. Accordingly, 
     a taxpayer could claim a deduction for prescription drug 
     expenses incurred even though the taxpayer also received 
     an excludible subsidy related to the same expenses.
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment.
       Exception to Information Reporting Requirements for Certain 
     Health Arrangements (sec. 1204 of the House bill and sec. 
     6041 of the Code)
     Present Law
       Any person in a trade or business who, in the course of 
     that trade or business, makes specified payments to another 
     person totaling $600 or more in a year, must provide an 
     information report to the IRS (as well as a copy to the 
     recipient) on the payments.\39\ Reporting is required to be 
     done on Form 1099. In general, these information reports 
     remind taxpayers of amounts of income that should be 
     reflected on their tax returns and assist the IRS in 
     verifying that taxpayers have correctly reported these 
     amounts.
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     \39\ Sec. 6041.
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       Treasury regulations specify that fees for professional 
     services, including the services

[[Page H12103]]

     of physicians, must be reported.\40\ Treasury regulations 
     also provide a general exception from these information 
     reporting requirements for payments made to corporations, 
     except that this exception is inapplicable if the corporation 
     is ``engaged in providing medical and health care services.'' 
     \41\ Earlier this year, the IRS issued a revenue ruling 
     describing whether employer-provided expense reimbursements 
     made through debit or credit cards or other electronic media 
     are excludible from gross income.\42\ The ruling states that 
     ``payments made to medical service providers through the use 
     of debit, credit, and stored value cards are reportable by 
     the employer on Form 1099-MISC under section 6041.'' \43\
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     \40\ Treas. Reg. sec. 1.6041-1(d)(2).
     \41\ Treas. Reg. sec. 1.6041-3(p)(1). These regulations also 
     provide an eception from these information reporting 
     requirements if the payment is made to a hospital that is 
     tax-exempt or that is owned and operated by a government 
     entity.
     \42\ Rev. Rul. 2003-43, 2003-21 I.R.B. 935 (May 27, 2003).
     \43\ Id.
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     House Bill
       The House bill provides an exception from the generally 
     applicable information reporting provisions for payments for 
     medical care made under either: (1) a flexible spending 
     arrangement,\44\ or (2) a health reimbursement arrangement 
     that is treated as employer-provided coverage.
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     \44\ This term is defined in sec. 106(c)(2).
---------------------------------------------------------------------------
       Effective date.--The House bill provision applies to 
     payments made after December 31, 2002.
     Senate Amendment
       No provision.
     Conference Agreement
       The conference agreement follows the House bill.


                        tax complexity analysis

       Section 4022(b) of the Internal Revenue Service Reform and 
     Restructuring Act of 1998 (the ``IRS Reform Act'') requires 
     the Joint Committee on Taxation (in consultation with the 
     Internal Revenue Service and the Department of the Treasury) 
     to provide a tax complexity analysis. The complexity analysis 
     is required for all legislation reported by the Senate 
     Committee on Finance, the House Committee on Ways and Means, 
     or any committee of conference if the legislation includes a 
     provision that directly or indirectly amends the Internal 
     Revenue Code (the ``Code'') and has widespread applicability 
     to individuals or small businesses.
       The staff of the Joint Committee on Taxation has determined 
     that a complexity analysis is not required under section 
     4022(b) of the IRS Reform Act because the bill contains no 
     provisions that amend the Code and that have ``widespread 
     applicability'' to individuals or small businesses
     Billy Tauzin,
     William Thomas,
     Michael Bilirakis,
     Nancy L. Johnson,
     Tom DeLay,
                                Managers on the Part of the House.

     Chuck Grassley,
     Orrin Hatch,
     Don Nickles,
     Bill Frist,
     Jon Kyl,
     Max Baucus,
     John Breaux,
                               Managers on the Part of the Senate.