[Congressional Record (Bound Edition), Volume 149 (2003), Part 12]
[House]
[Pages 16248-16259]
[From the U.S. Government Publishing Office, www.gpo.gov]




                               AMENDMENTS

  Under clause 8 of rule XVIII, proposed amendments were submitted as 
follows:

                                 H.R. 1

                      Offered By: Mr. King of Iowa

       Amendment No. 1: At the end of title VII add the following 
     new section:

     SEC. 735. ENCOURAGEMENT OF PROVISION OF HIGH-QUALITY, COST-
                   EFFECTIVE INPATIENT HOSPITAL SERVICES.

       (a) Purpose.--The purpose under this section is to 
     encourage the provision of high- quality, cost-effective 
     health care to beneficiaries under the medicare program under 
     title XVIII of the Social Security Act (42 U.S.C. 1395 et 
     seq.) by providing incentive payments to hospitals located in 
     States in which high-quality and cost-effective services are 
     being provided in order to finance further quality 
     improvements.
       (b) Intent.--It is the intent of Congress to provide 
     incentives for States to deliver high quality health care and 
     to create incentives that assures medicare recognizes value 
     in the products and services that the program purchases on 
     behalf of medicare beneficiaries.
       (c) Mechanism.--
       (1) Establishment.--Not later than 6 months after the date 
     of enactment of this Act, the Secretary shall establish a 
     mechanism under which--
       (A) the Secretary provides economic incentives to providers 
     of inpatient hospital services that deliver high-quality 
     health care at low costs in accordance with the methodology 
     established by the Agency for Healthcare Research and Quality 
     under paragraph (2) with a 5 percent add-on bonus payment to 
     providers of inpatient hospital services within the top ten 
     performing States; and
       (B) the Secretary necessarily recognizes and includes 
     measurements that factor both the quality of care delivered 
     in a medicare purchasing region or in the event that 
     purchasing regions are not developed, then in a State, to 
     medicare beneficiaries and consumption of resources, 
     including but not limited to labor, technology, capital 
     infrastructure and pharmaceuticals in the delivery of 
     services to medicare beneficiaries under the medicare program 
     under title XVIII of the Social Security Act.
       (2) Value and quality ranking methodology.--
       (A) In general.--The Agency for Healthcare Research and 
     Quality shall establish a value and quality ranking 
     methodology under which the Secretary awards bonus payments 
     to providers of inpatient hospital services located in those 
     States that demonstrate that such providers in the State are 
     providing high value because of the high-quality, cost-
     effective health care services being provided to medicare 
     beneficiaries.
       (B) Basis.--The methodology established under subparagraph 
     (A) shall be based on the rank and performance on medicare 
     quality indicators published annually in the Journal of the 
     American Medical Association (JAMA) that uses Medicare's 
     current quality of care measures. Cost rankings will be based 
     on the Centers for Medicare and Medicaid Services (CMS) 
     annual report ranking States based on average Medicare 
     spending per recipient for each State.
       (d) Definitions.--In this section:
       (1) Provider of inpatient hospital services.--The term 
     ``provider of inpatient hospital services'' means any 
     individual or entity that receives payment under the medicare 
     program under title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.) for providing an inpatient hospital 
     services (as defined in section 1861(b) of such Act (42 
     U.S.C. 1395x(b)).
       (2) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.

                                 H.R. 1

                        Offered By: Mr. Sanders

       Amendment No. 2: Amend title I to read as follows:

         TITLE I--MEDICARE EXTENSION OF DRUGS TO SENIORS (MEDS)

     SEC. 101. FINDINGS.

       Congress makes the following findings:
       (1) Prescription medicine coverage was not a standard part 
     of health insurance when the medicare program under title 
     XVIII of the Social Security Act was enacted in 1965. Since 
     1965, however, medicine coverage has become a key component 
     of most private and public health insurance coverage, except 
     for the medicare program.
       (2) At least \2/3\ of medicare beneficiaries have 
     unreliable, inadequate, or no medicine coverage at all.
       (3) Seniors who do not have medicine coverage typically 
     pay, at a minimum, 15 percent more than people with coverage.
       (4) Medicare beneficiaries at all income levels lack 
     prescription medicine coverage, with more than \1/2\ of such 
     beneficiaries having incomes greater than 150 percent of the 
     poverty line.
       (5) The number of private firms offering retiree health 
     coverage is declining.
       (6) Medigap premiums for medicines are too expensive for 
     most beneficiaries and are highest for older senior citizens, 
     who need prescription medicine coverage the most and 
     typically have the lowest incomes.
       (7) All medicare beneficiaries should have access to a 
     voluntary, reliable, affordable, and defined outpatient 
     medicine benefit as part of the medicare program that assists 
     with the high cost of prescription medicines and protects 
     them against excessive out-of-pocket costs.

     SEC. 102. PRESCRIPTION MEDICINE BENEFIT PROGRAM.

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

   ``PART D--PRESCRIPTION MEDICINE BENEFIT FOR THE AGED AND DISABLED


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

       ``Sec. 1860. (a) In General.--There is established a 
     voluntary insurance program to provide prescription medicine 
     benefits, including pharmacy services, in accordance with the 
     provisions of this part for individuals who are aged or 
     disabled or have end-stage renal disease and who elect to 
     enroll under such program, to be financed from premium 
     payments by enrollees together with contributions from funds 
     appropriated by the Federal Government.
       ``(b) Sunset for Excessive Costs.--Notwithstanding any 
     other provision of law, the Secretary shall determine the net 
     amount of expenditures resulting from the enactment of the 
     Medicare Prescription Drug and Modernization Act of 2003 
     during the period beginning with fiscal year 2004 and ending 
     with fiscal year 2013, including the provisions of this part. 
     If the Secretary determines that such net expenditures during 
     such period (without regard to this subsection) will exceed 
     $400,000,000,000, then the Secretary shall provide for the 
     termination of the program under this part as of such date as 
     will assure that such net expenditures do not exceed 
     $400,000,000,000 during such period.


                          ``Scope of benefits

       ``Sec. 1860A. (a) In General.--The benefits provided to an 
     individual enrolled in the insurance program under this part 
     shall consist of--
       ``(1) payments made, in accordance with the provisions of 
     this part, for covered prescription medicines (as specified 
     in subsection (b)) dispensed by any pharmacy participating in 
     the program under this part (and, in circumstances designated 
     by the Secretary, by a nonparticipating pharmacy), including 
     any specifically named medicine prescribed for the individual 
     by a qualified health care professional regardless of whether 
     the medicine is included in any formulary established under 
     this part if such medicine is certified as medically 
     necessary by such health care professional (except that the 
     Secretary shall encourage to the maximum extent possible the 
     substitution and use of lower-cost generics), up to the 
     benefit limits specified in section 1860B; and
       ``(2) charging by pharmacies of the negotiated price--
       ``(A) for all covered prescription medicines, without 
     regard to such benefit limit; and
       ``(B) established with respect to any drugs or classes of 
     drugs described in subparagraphs (A), (B), (D), (E), or (F) 
     of section 1927(d)(2) that are available to individuals 
     receiving benefits under this title.

[[Page 16249]]

       ``(b) Covered Prescription Medicines.--
       ``(1) In general.--Covered prescription medicines, for 
     purposes of this part, include all prescription medicines (as 
     defined in section 1860K(1)), including smoking cessation 
     agents, except as otherwise provided in this subsection.
       ``(2) Exclusions from coverage.--Covered prescription 
     medicines shall not include drugs or classes of drugs 
     described in subparagraphs (A) through (D) and (F) through 
     (H) of section 1927(d)(2) unless--
       ``(A) specifically provided otherwise by the Secretary with 
     respect to a drug in any of such classes; or
       ``(B) a drug in any of such classes is certified to be 
     medically necessary by a health care professional.
       ``(3) Exclusion of prescription medicines to the extent 
     covered under part a or b.--A medicine prescribed for an 
     individual that would otherwise be a covered prescription 
     medicine under this part shall not be so considered to the 
     extent that payment for such medicine is available under part 
     A or B, including all injectable drugs and biologicals for 
     which payment was made or should have been made by a carrier 
     under section 1861(s)(2) (A) or (B) as of the date of 
     enactment of the Medicare Extension of Drugs to Seniors 
     (MEDS) Act of 2003. Medicines otherwise covered under part A 
     or B shall be covered under this part to the extent that 
     benefits under part A or B are exhausted.
       ``(4) Study on inclusion of home infusion therapy 
     services.--Not later than one year after the date of the 
     enactment of the Medicare Extension of Drugs to Seniors 
     (MEDS) Act of 2003, the Secretary shall submit to Congress a 
     legislative proposal for the delivery of home infusion 
     therapy services under this title and for a system of payment 
     for such a benefit that coordinates items and services 
     furnished under part B and under this part.


                 ``Payment of benefits; benefit limits

       ``Sec. 1860B. (a) Payment of Benefits.--
       ``(1) In general.--There shall be paid from the 
     Prescription Medicine Insurance Account within the 
     Supplementary Medical Insurance Trust Fund, in the case of 
     each individual who is enrolled in the insurance program 
     under this part and who purchases covered prescription 
     medicines in a calendar year--
       ``(A) with respect to costs incurred for covered 
     prescription medicine furnished during a year, before the 
     individual has incurred out-of-pocket expenses under this 
     subsection equal to the catastrophic out-of-pocket limit 
     specified in subsection (b), an amount equal to the 
     applicable percentage (specified in paragraph (2)) of the 
     negotiated price for each such covered prescription medicine 
     or such higher percentage as is proposed under section 
     1860G(b)(7); and
       ``(B) with respect to costs incurred for covered 
     prescription medicine furnished during a year, after the 
     individual has incurred out-of-pocket expenses under this 
     subsection equal to the catastrophic out-of-pocket limit 
     specified in subsection (b), an amount equal to 100 percent 
     of the negotiated price for each such covered prescription 
     medicine.
       ``(2) Applicable percentage.--The applicable percentage 
     specified in this paragraph is 80 percent or such higher 
     percentage as is proposed under section 1860G(b)(7), if the 
     Secretary finds that such higher percentage will not increase 
     aggregate costs to the Prescription Medicine Insurance 
     Account.
       ``(b) Catastrophic Limit on Out-Of-Pocket Expenses.--
       ``(1) In general.--The catastrophic limit on out-of-pocket 
     expenses specified in this subsection for--
       ``(A) for each of calendar years 2005 and 2006, $2,000; and
       ``(B) subject to paragraph (2), for calendar year 2007 and 
     each subsequent calendar year is equal the limit for the 
     preceding year under this paragraph adjusted by the 
     sustainable growth rate percentage (determined under section 
     1861I(b)) for the year involved.
       ``(2) Rounding.--Any amount determined under paragraph 
     (1)(E) that is not a multiple of $10 shall be rounded to the 
     nearest multiple of $10.


                      ``Eligibility and enrollment

       ``Sec. 1860C. (a) Eligibility.--Every individual who, in or 
     after 2005, is entitled to hospital insurance benefits under 
     part A or enrolled in the medical insurance program under 
     part B is eligible to enroll, in accordance with the 
     provisions of this section, in the insurance program under 
     this part, during an enrollment period prescribed in or under 
     this section, in such manner and form as may be prescribed by 
     regulations.
       ``(b) Enrollment.--
       ``(1) In general.--Each individual who satisfies subsection 
     (a) shall be enrolled (or eligible to enroll) in the program 
     under this part in accordance with the provisions of section 
     1837, as if that section applied to this part, except as 
     otherwise explicitly provided in this part.
       ``(2) Single enrollment period.--Except as provided in 
     section 1837(i) (as such section applies to this part), 
     1860E, or 1860H(e), or as otherwise explicitly provided, no 
     individual shall be entitled to enroll in the program under 
     this part at any time after the initial enrollment period 
     without penalty, and in the case of all other late 
     enrollments, the Secretary shall develop a late enrollment 
     penalty for the individual that fully recovers the additional 
     actuarial risk involved providing coverage for the 
     individual.
       ``(3) Special enrollment period for 2005.--
       ``(A) In general.--An individual who first satisfies 
     subsection (a) in 2005 may, at any time on or before December 
     31, 2005--
       ``(i) enroll in the program under this part; and
       ``(ii) enroll or reenroll in such program after having 
     previously declined or terminated enrollment in such program.
       ``(B) Effective date of coverage.--An individual who 
     enrolls under the program under this part pursuant to 
     subparagraph (A) shall be entitled to benefits under this 
     part beginning on the first day of the month following the 
     month in which such enrollment occurs.
       ``(c) Period of Coverage.--
       ``(1) In general.--Except as otherwise provided in this 
     part, an individual's coverage under the program under this 
     part shall be effective for the period provided in section 
     1838, as if that section applied to the program under this 
     part.
       ``(2) Part d coverage terminated by termination of coverage 
     under parts a and b.--In addition to the causes of 
     termination specified in section 1838, an individual's 
     coverage under this part shall be terminated when the 
     individual retains coverage under neither the program under 
     part A nor the program under part B, effective on the 
     effective date of termination of coverage under part A or (if 
     later) under part B.


                               ``Premiums

       ``Sec. 1860D. (a) Annual Establishment of Monthly Premium 
     Rates.--
       ``(1) In general.--The Secretary shall, during September of 
     2004 and of each succeeding year, determine and promulgate a 
     monthly premium rate for the succeeding year in accordance 
     with the provisions of this subsection.
       ``(2) Initial premiums.--For months in 2005, the monthly 
     premium rate under this subsection shall be--
       ``(A) $24, in the case of premiums paid by an individual 
     enrolled in the program under this part; and
       ``(B) $32, in the case of premiums paid for such an 
     individual by a former employer (as defined in section 
     1860H(f)(2)).
       ``(3) Subsequent years.--
       ``(A) In general.--For months in a year after 2005, the 
     monthly premium under this subsection shall be (subject to 
     subparagraph (B)) the monthly premium (computed under this 
     subsection without regard to subparagraph (B)) for the 
     previous year increased by the annual percentage increase in 
     average per capita aggregate expenditures for covered 
     outpatient medicines in the United States for medicare 
     beneficiaries, as estimated and published by the Secretary in 
     September before the year and for the year involved.
       ``(B) Rounding.--The monthly premium determined under 
     subparagraph (A) shall be rounded to the nearest multiple of 
     10 cents if it is not a multiple of 10 cents.
       ``(C) Publication of assumptions.--The Secretary shall 
     publish, together with the promulgation of the monthly 
     premium rates under this paragraph, a statement setting forth 
     the actuarial assumptions and bases employed in arriving at 
     the monthly premium under subparagraph (A).
       ``(b) Payment of Premiums.--
       ``(1) Payments by deduction from social security, railroad 
     retirement benefits, or benefits administered by opm.--
       ``(A) Deduction from benefits.--In the case of an 
     individual who is entitled to or receiving benefits as 
     described in subsection (a), (b), or (d) of section 1840, 
     premiums payable under this part shall be collected by 
     deduction from such benefits at the same time and in the same 
     manner as premiums payable under part B are collected 
     pursuant to section 1840.
       ``(B) Transfers to prescription medicine insurance 
     account.--The Secretary of the Treasury shall, from time to 
     time, but not less often than quarterly, transfer premiums 
     collected pursuant to subparagraph (A) to the Prescription 
     Medicine Insurance Account from the appropriate funds and 
     accounts described in subsections (a)(2), (b)(2), and (d)(2) 
     of section 1840, on the basis of the certifications described 
     in such subsections. The amounts of such transfers shall be 
     appropriately adjusted to the extent that prior transfers 
     were too great or too small.
       ``(2) Direct payments to secretary.--
       ``(A) Additional payment by enrollee.--An individual to 
     whom paragraph (1) applies (other than an individual 
     receiving benefits as described in section 1840(d)) and who 
     estimates that the amount that will be available for 
     deduction under such paragraph for any premium payment period 
     will be less than the amount of the monthly premiums for such 
     period may (under regulations) pay to the Secretary the 
     estimated balance, or such greater portion of the monthly 
     premium as the individual chooses.
       ``(B) Payments by other enrollees.--An individual enrolled 
     in the insurance program under this part with respect to whom 
     none of the preceding provisions of this subsection applies 
     (or to whom section 1840(c) applies) shall pay premiums to 
     the Secretary at such times and in such manner as the 
     Secretary shall by regulations prescribe.

[[Page 16250]]

       ``(C) Deposit of premiums.--Amounts paid to the Secretary 
     under this paragraph shall be deposited in the Treasury to 
     the credit of the Prescription Medicine Insurance Account in 
     the Supplementary Medical Insurance Trust Fund.
       ``(c) Certain Low-Income Individuals.--For rules concerning 
     premiums for certain low-income individuals, see section 
     1860E.


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

       ``Sec. 1860E. (a) State Agreements for Coverage.--
       ``(1) In general.--The Secretary shall, at the request of a 
     State, enter into an agreement with the State under which all 
     individuals described in paragraph (2) are enrolled in the 
     program under this part, without regard to whether any such 
     individual has previously declined the opportunity to enroll 
     in such program.
       ``(2) Eligibility groups.--The individuals described in 
     this paragraph, for purposes of paragraph (1), are 
     individuals who satisfy section 1860C(a) and who are--
       ``(A)(i) eligible individuals within the meaning of section 
     1843; and
       ``(ii) in a coverage group or groups permitted under 
     section 1843 (as selected by the State and specified in the 
     agreement); or
       ``(B) qualified medicare medicine beneficiaries (as defined 
     in subsection (e)(1)).
       ``(3) Coverage period.--The period of coverage under this 
     part of an individual enrolled under an agreement under this 
     subsection shall be as follows:
       ``(A) Individuals eligible (at state option) for part b 
     buy-in.--In the case of an individual described in subsection 
     (a)(2)(A), the coverage period shall be the same period that 
     applies (or would apply) pursuant to section 1843(d).
       ``(B) Qualified medicare medicine beneficiaries.--In the 
     case of an individual described in subsection (a)(2)(B)--
       ``(i) the coverage period shall begin on the latest of--

       ``(I) January 1, 2005;
       ``(II) the first day of the third month following the month 
     in which the State agreement is entered into; or
       ``(III) the first day of the first month following the 
     month in which the individual satisfies section 1860C(a); and

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

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

[[Page 16251]]




               ``Prescription Medicine Insurance Account

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


                      ``Administration of benefits

       ``Sec. 1860G. (a) Through CMS.--The Secretary shall provide 
     for administration of the benefits under this part through 
     the Centers for Medicare & Medicaid Services in accordance 
     with the provisions of this section. The Administrator of 
     such Centers may enter into contracts with carriers to 
     administer this part in the same manner as the Administrator 
     enters into such contracts to administer part B. Any such 
     contract shall be separate from any contract under section 
     1842.
       ``(b) Administration Functions.--In carrying out this part, 
     the Administrator (or a carrier under a contract with the 
     Administrator) shall (or in the case of the function 
     described in paragraph (9), may) perform the following 
     functions:
       ``(1) Participation agreements, prices, and fees.--
       ``(A) Negotiated prices.--Establish, through negotiations 
     with medicine manufacturers and wholesalers and pharmacies, a 
     schedule of prices for covered prescription medicines.
       ``(B) Agreements with pharmacies.--Enter into participation 
     agreements under subsection (c) with pharmacies, that include 
     terms that--
       ``(i) secure the participation of sufficient numbers of 
     pharmacies to ensure convenient access (including adequate 
     emergency access);
       ``(ii) permit the participation of any pharmacy in the 
     service area that meets the participation requirements 
     described in subsection (c); and
       ``(iii) allow for reasonable dispensing and consultation 
     fees for pharmacies.
       ``(C) Lists of prices and participating pharmacies.--Ensure 
     that the negotiated prices established under subparagraph (A) 
     and the list of pharmacies with agreements under subsection 
     (c) are regularly updated and readily available to health 
     care professionals authorized to prescribe medicines, 
     participating pharmacies, and enrolled individuals.
       ``(2) Tracking of covered enrolled individuals.--Maintain 
     accurate, updated records of all enrolled individuals (other 
     than individuals enrolled in a plan under part C).
       ``(3) Payment and coordination of benefits.--
       ``(A) Payment.--
       ``(i) Administer claims for payment of benefits under this 
     part and encourage, to the maximum extent possible, use of 
     electronic means for the submissions of claims.
       ``(ii) Determine amounts of benefit payments to be made.
       ``(iii) Receive, disburse, and account for funds used in 
     making such payments, including through the activities 
     specified in the provisions of this paragraph.
       ``(B) Coordination.--Coordinate with other private benefit 
     providers, pharmacies, and other relevant entities as 
     necessary to ensure appropriate coordination of benefits with 
     respect to enrolled individuals, including coordination of 
     access to and payment for covered prescription medicines 
     according to an individual's in-service area plan provisions, 
     when such individual is traveling outside the home service 
     area, and under such other circumstances as the Secretary may 
     specify.

       ``(C) Explanation of benefits.--Furnish to enrolled 
     individuals an explanation of benefits in accordance with 
     section 1806(a), and a notice of the balance of benefits 
     remaining for the current year, whenever prescription 
     medicine benefits are provided under this part (except that 
     such notice need not be provided more often than monthly).
       ``(4) Rules relating to provision of benefits.--
       ``(A) In general.--In providing benefits under this part, 
     the Secretary (directly or through contracts) shall employ 
     mechanisms to provide benefits economically, including the 
     use of--
       ``(i) formularies (consistent with subparagraph (B));
       ``(ii) automatic generic medicine substitution (unless the 
     physician specifies otherwise, in which case a 30-day 
     prescription may be dispensed pending a consultation with the 
     physician on whether a generic substitute can be dispensed in 
     the future);
       ``(iii) tiered copayments (which may include copayments at 
     a rate lower than 20 percent) to encourage the use of the 
     lowest cost, on-formulary product in cases where there is no 
     restrictive prescription (described in subparagraph (D)(i)); 
     and
       ``(iv) therapeutic interchange.
       ``(B) Requirements with respect to formularies.--If a 
     formulary is used to contain costs under this part--
       ``(i) use an advisory committee (or a therapeutics 
     committee) comprised of licensed practicing physicians, 
     pharmacists, and other health care practitioners to develop 
     and manage the formulary;
       ``(ii) include in the formulary at least 1 medicine from 
     each therapeutic class and, if available, a generic 
     equivalent thereof; and
       ``(iii) disclose to current and prospective enrollees and 
     to participating providers and pharmacies, the nature of the 
     formulary restrictions, including information regarding the 
     medicines included in the formulary and any difference in 
     cost-sharing amounts.
       ``(C) Construction.--Nothing in this subsection shall be 
     construed to prevent the Secretary (directly or through 
     contracts) from using incentives (including a lower 
     beneficiary coinsurance) to encourage enrollees to select 
     generic or other cost-effective medicines, so long as--
       ``(i) such incentives are designed not to result in any 
     increase in the aggregate expenditures under the Federal 
     Medicare Prescription Medicine Trust Fund;
       ``(ii) the average coinsurance charged to all beneficiaries 
     by the Secretary (directly or through contractors) shall seek 
     to approximate (but in no case exceed) 20 percent for on-
     formulary medicines;
       ``(iii) a beneficiary's coinsurance shall be no greater 
     than 20 percent if the prescription is a restrictive 
     prescription; and
       ``(iv) the reimbursement for a prescribed nonformulary 
     medicine without a restrictive prescription in no case shall 
     be more than the lowest reimbursement for a formulary 
     medicine in the therapeutic class of the prescribed medicine.
       ``(D) Restrictive prescription.--For purposes of this 
     section:
       ``(i) Written prescriptions.--In the case of a written 
     prescription for a medicine, it is a restrictive prescription 
     only if the prescription indicates, in the writing of the 
     physician or other qualified person prescribing the medicine 
     and with an appropriate phrase (such as `brand medically 
     necessary') recognized by the Secretary, that a particular 
     medicine product must be dispensed based upon a belief by the 
     physician or person prescribing the medicine that the 
     particular medicine will provide even marginally superior 
     therapeutic benefits to the individual for whom the medicine 
     is prescribed or would have marginally fewer adverse 
     reactions with respect to such individual.
       ``(ii) Telephone prescriptions.--In the case of a 
     prescription issued by telephone for a medicine, it is a 
     restrictive prescription only if the prescription cannot be 
     longer than 30 days and the physician or other qualified 
     person prescribing the medicine (through use of such an 
     appropriate phrase) states that a particular medicine product 
     must be dispensed, and the physician or other qualified 
     person submits to the pharmacy involved, within 30 days after 
     the date of the telephone prescription, a written 
     confirmation from the physician or other qualified person 
     prescribing the medicine and which indicates with such 
     appropriate phrase that the particular medicine product was 
     required to have been dispensed based upon a belief by the 
     physician or person prescribing the medicine that the 
     particular medicine will provide even marginally superior 
     therapeutic benefits to the individual for whom the medicine 
     is prescribed or would have marginally fewer adverse 
     reactions with respect to such individual. Such written 
     confirmation is required to refill the prescription.
       ``(iii) Review of restrictive prescriptions.--The advisory 
     committee (established under subparagraph (B)(i)) may decide 
     to review a restrictive prescription and, if so, it may 
     approve or disapprove such restrictive prescription. It may 
     not disapprove such restrictive prescription unless it finds 
     that there is no literature approved by the Food and Drug 
     Administration that supports a determination that the 
     particular medicine provides even marginally superior 
     therapeutic benefits to the individual for whom the medicine 
     is prescribed or would have marginally fewer adverse 
     reactions with respect to such individual. If it disapproves, 
     upon request of the prescribing physician or the enrollee, 
     the committee must provide for a review by an independent 
     contractor of such decision within 48 hours of the time of 
     submission of the prescription, to determine whether the 
     prescription is an eligible benefit under this part. The 
     Secretary shall ensure that independent contractors so used 
     are completely independent of the contractor or its advisory 
     committee.
       ``(5) Cost and utilization management; quality assurance.--
     Have in place effective cost and utilization management, drug 
     utilization review, quality assurance measures,

[[Page 16252]]

     and systems to reduce medical errors, including at least the 
     following, together with such additional measures as the 
     Administrator may specify:
       ``(A) Drug utilization review.--A drug utilization review 
     program conforming to the standards provided in section 
     1927(g)(2) (with such modifications as the Administrator 
     finds appropriate).
       ``(B) Fraud and abuse control.--Activities to control 
     fraud, abuse, and waste, including prevention of diversion of 
     pharmaceuticals to the illegal market.
       ``(C) Medication therapy management.--
       ``(i) In general.--A program of medicine therapy management 
     and medication administration that is designed to assure that 
     covered outpatient medicines are appropriately used to 
     achieve therapeutic goals and reduce the risk of adverse 
     events, including adverse drug interactions.
       ``(ii) Elements.--Such program may include--

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

       ``(iii) Development of program in cooperation with licensed 
     pharmacists.--The program shall be developed in cooperation 
     with licensed pharmacists and physicians.
       ``(iv) Considerations in pharmacy fees.--There shall be 
     taken into account, in establishing fees for pharmacists and 
     others providing services under the medication therapy 
     management program, the resources and time used in 
     implementing the program.
       ``(6) Education and information activities.--Have in place 
     mechanisms for disseminating educational and informational 
     materials to enrolled individuals and health care providers 
     designed to encourage effective and cost-effective use of 
     prescription medicine benefits and to ensure that enrolled 
     individuals understand their rights and obligations under the 
     program.
       ``(7) Beneficiary protections.--
       ``(A) Confidentiality of health information.--Have in 
     effect systems to safeguard the confidentiality of health 
     care information on enrolled individuals, which comply with 
     section 1106 and with section 552a of title 5, United States 
     Code, and meet such additional standards as the Administrator 
     may prescribe.
       ``(B) Grievance and appeal procedures.--Have in place such 
     procedures as the Administrator may specify for hearing and 
     resolving grievances and appeals, including expedited 
     appeals, brought by enrolled individuals against the 
     Administrator or a pharmacy concerning benefits under this 
     part, which shall include procedures equivalent to those 
     specified in subsections (f) and (g) of section 1852.
       ``(8) Records, reports, and audits.--
       ``(A) Records and audits.--Maintain adequate records, and 
     afford the Administrator access to such records (including 
     for audit purposes).
       ``(B) Reports.--Make such reports and submissions of 
     financial and utilization data as the Administrator may 
     require taking into account standard commercial practices.
       ``(9) Proposal for alternative coinsurance amount.--
       ``(A) Submission.--The Administrator may provide for 
     increased Government cost-sharing for generic prescription 
     medicines, prescription medicines on a formulary, or 
     prescription medicines obtained through mail order 
     pharmacies.
       ``(B) Contents.--The proposal submitted under subparagraph 
     (A) shall contain evidence that such increased cost-sharing 
     would not result in an increase in aggregate costs to the 
     Account, including an analysis of differences in projected 
     drug utilization patterns by beneficiaries whose cost-sharing 
     would be reduced under the proposal and those making the 
     cost-sharing payments that would otherwise apply.
       ``(10) Other requirements.--Meet such other requirements as 
     the Secretary may specify.
     The Administrator shall negotiate a schedule of prices under 
     paragraph (1)(A), except that nothing in this sentence shall 
     prevent a carrier under a contract with the Administrator 
     from negotiating a lower schedule of prices for covered 
     prescription medicines.
       ``(c) Pharmacy Participation Agreements.--
       ``(1) In general.--A pharmacy that meets the requirements 
     of this subsection shall be eligible to enter an agreement 
     with the Administrator to furnish covered prescription 
     medicines and pharmacists' services to enrolled individuals.
       ``(2) Terms of agreement.--An agreement under this 
     subsection shall include the following terms and 
     requirements:
       ``(A) Licensing.--The pharmacy and pharmacists shall meet 
     (and throughout the contract period will continue to meet) 
     all applicable State and local licensing requirements.
       ``(B) Limitation on charges.--Pharmacies participating 
     under this part shall not charge an enrolled individual more 
     than the negotiated price for an individual medicine as 
     established under subsection (b)(1), regardless of whether 
     such individual has attained the benefit limit under section 
     1860B(b), and shall not charge an enrolled individual more 
     than the individual's share of the negotiated price as 
     determined under the provisions of this part.
       ``(C) Performance standards.--The pharmacy and the 
     pharmacist shall comply with performance standards relating 
     to--
       ``(i) measures for quality assurance, reduction of medical 
     errors, and participation in the drug utilization review 
     program described in subsection (b)(3)(A);
       ``(ii) systems to ensure compliance with the 
     confidentiality standards applicable under subsection 
     (b)(5)(A); and
       ``(iii) other requirements as the Secretary may impose to 
     ensure integrity, efficiency, and the quality of the program.
       ``(D) Disclosure of price of generic medicine.--A pharmacy 
     participating under this part shall inform an enrollee of the 
     difference in price between generic and non-generic 
     equivalents.
       ``(d) Special Attention to Rural and Hard-To-Serve Areas.--
       ``(1) In general.--The Secretary shall ensure that all 
     beneficiaries have access to the full range of 
     pharmaceuticals under this part, and shall give special 
     attention to access, pharmacist counseling, and delivery in 
     rural and hard-to-serve areas (as the Secretary may define by 
     regulation).
       ``(2) Special attention defined.--For purposes of paragraph 
     (1), the term `special attention' may include bonus payments 
     to retail pharmacists in rural areas and any other actions 
     the Secretary determines are necessary to ensure full access 
     to rural and hard-to-serve beneficiaries.
       ``(3) GAO report.--Not later than 2 years after the 
     implementation of this part the Comptroller General of the 
     United States shall submit to Congress a report on the access 
     of medicare beneficiaries to pharmaceuticals and pharmacists' 
     services in rural and hard-to-serve areas under this part 
     together with any recommendations of the Comptroller General 
     regarding any additional steps the Secretary may need to take 
     to ensure the access of medicare beneficiaries to 
     pharmaceuticals and pharmacists' services in such areas under 
     this part.
       ``(e) Incentives for Cost and Utilization Management and 
     Quality Improvement.--The Secretary is authorized to include 
     in a contract awarded under subsection (b) with a carrier 
     such incentives for cost and utilization management and 
     quality improvement as the Secretary may deem appropriate, 
     including--
       ``(1) bonus and penalty incentives to encourage 
     administrative efficiency;
       ``(2) incentives under which carriers share in any benefit 
     savings achieved;
       ``(3) risk-sharing arrangements related to initiatives to 
     encourage savings in benefit payments;
       ``(4) financial incentives under which savings derived from 
     the substitution of generic medicines in lieu of non-generic 
     medicines are made available to carriers, pharmacies, and the 
     Prescription Medicine Insurance Account; and
       ``(5) any other incentive that the Secretary deems 
     appropriate and likely to be effective in managing costs or 
     utilization.


  ``Employer Incentive Program for employment-based retiree medicine 
                                coverage

       ``Sec. 1860H. (a) Program Authority.--The Secretary shall 
     develop and implement a program under this section called the 
     `Employer Incentive Program' that encourages employers and 
     other sponsors of employment-based health care coverage to 
     provide adequate prescription medicine benefits to retired 
     individuals and to maintain such existing benefit programs, 
     by subsidizing, in part, the sponsor's cost of providing 
     coverage under qualifying plans.
       ``(b) Sponsor Requirements.--In order to be eligible to 
     receive an incentive payment under this section with respect 
     to coverage of an individual under a qualified retiree 
     prescription medicine plan (as defined in subsection (f)(3)), 
     a sponsor shall meet the following requirements:
       ``(1) Assurances.--The sponsor shall--
       ``(A) annually attest, and provide such assurances as the 
     Secretary may require, that the coverage offered by the 
     sponsor is a qualified retiree prescription medicine plan, 
     and will remain such a plan for the duration of the sponsor's 
     participation in the program under this section; and
       ``(B) guarantee that it will give notice to the Secretary 
     and covered retirees--
       ``(i) at least 120 days before terminating its plan; and
       ``(ii) immediately upon determining that the actuarial 
     value of the prescription medicine benefit under the plan 
     falls below the actuarial value of the insurance benefit 
     under this part.
       ``(2) Other requirements.--The sponsor shall provide such 
     information, and comply with such requirements, including 
     information requirements to ensure the integrity of the 
     program, as the Secretary may find necessary to administer 
     the program under this section.
       ``(c) Incentive Payment.--
       ``(1) In general.--A sponsor that meets the requirements of 
     subsection (b) with respect to a quarter in a calendar year 
     shall have

[[Page 16253]]

     payment made by the Secretary on a quarterly basis (to the 
     sponsor or, at the sponsor's direction, to the appropriate 
     employment-based health plan) of an incentive payment, in the 
     amount determined as described in paragraph (2), for each 
     retired individual (or spouse) who--
       ``(A) was covered under the sponsor's qualified retiree 
     prescription medicine plan during such quarter; and
       ``(B) was eligible for but was not enrolled in the 
     insurance program under this part.
       ``(2) Amount of incentive.--The payment under this section 
     with respect to each individual described in paragraph (1) 
     for a month shall be equal to \2/3\ of the monthly premium 
     amount payable from the Prescription Medicine Insurance 
     Account for an enrolled individual, as set for the calendar 
     year pursuant to section 1860D(a)(2).
       ``(3) Payment date.--The incentive under this section with 
     respect to a calendar quarter shall be payable as of the end 
     of the next succeeding calendar quarter.
       ``(d) Civil Money Penalties.--A sponsor, health plan, or 
     other entity that the Secretary determines has, directly or 
     through its agent, provided information in connection with a 
     request for an incentive payment under this section that the 
     entity knew or should have known to be false shall be subject 
     to a civil monetary penalty in an amount equal to $2,000 for 
     each false representation plus an amount not to exceed 3 
     times the total incentive amounts under subsection (c) that 
     were paid (or would have been payable) on the basis of such 
     information.
       ``(e) Part D Enrollment for Certain Individuals Covered by 
     Employment-Based Retiree Health Coverage Plans.--
       ``(1) Eligible individuals.--An individual shall be given 
     the opportunity to enroll in the program under this part 
     during the period specified in paragraph (2) if--
       ``(A) the individual declined enrollment in the program 
     under this part at the time the individual first satisfied 
     section 1860C(a);
       ``(B) at that time, the individual was covered under a 
     qualified retiree prescription medicine plan for which an 
     incentive payment was paid under this section; and
       ``(C)(i) the sponsor subsequently ceased to offer such 
     plan; or
       ``(ii) the value of prescription medicine coverage under 
     such plan is reduced below the value of the coverage provided 
     at the time the individual first became eligible to 
     participate in the program under this part.
       ``(2) Special enrollment period.--An individual described 
     in paragraph (1) shall be eligible to enroll in the program 
     under this part during the 6-month period beginning on the 
     first day of the month in which--
       ``(A) the individual receives a notice that coverage under 
     such plan has terminated (in the circumstance described in 
     paragraph (1)(C)(i)) or notice that a claim has been denied 
     because of such a termination; or
       ``(B) the individual received notice of the change in 
     benefits (in the circumstance described in paragraph 
     (1)(C)(ii)).
       ``(f) Definitions.--In this section:
       ``(1) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage of health care costs for retired 
     individuals (or for such individuals and their spouses and 
     dependents) based on their status as former employees or 
     labor union members.
       ``(2) Employer.--The term `employer' has the meaning given 
     to such term by section 3(5) of the Employee Retirement 
     Income Security Act of 1974 (except that such term shall 
     include only employers of 2 or more employees).
       ``(3) Qualified retiree prescription medicine plan.--The 
     term `qualified retiree prescription medicine plan' means 
     health insurance coverage included in employment-based 
     retiree health coverage that--
       ``(A) provides coverage of the cost of prescription 
     medicines whose actuarial value to each retired beneficiary 
     equals or exceeds the actuarial value of the benefits 
     provided to an individual enrolled in the program under this 
     part; and
       ``(B) does not deny, limit, or condition the coverage or 
     provision of prescription medicine benefits for retired 
     individuals based on age or any health status-related factor 
     described in section 2702(a)(1) of the Public Health Service 
     Act.
       ``(4) Sponsor.--The term `sponsor' has the meaning given 
     the term `plan sponsor' by section 3(16)(B) of the Employee 
     Retirement Income Security Act of 1974.


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

       ``Sec. 1860I. (a) Monitoring Expenditures.--The Secretary 
     shall monitor expenditures under this part. On October 1, 
     2005, Secretary shall estimate total expenditures under this 
     part for 2005.
       ``(b) Establishment of Sustainable Growth Rate.--
       ``(1) In general.--The Secretary shall establish a 
     sustainable growth rate prescription medicine target system 
     for expenditures under this part for each year after 2005.
       ``(2) Initial computation.--Such target shall equal the 
     amount of total expenditures estimated for 2005 adjusted by 
     the Secretary's estimate of a sustainable growth rate (in 
     this section referred to as an `SGR') percentage between 2005 
     and 2006. Such SGR shall be estimated based on the following:
       ``(A) Reasonable changes in the cost of production or price 
     of covered pharmaceuticals, but in no event more than the 
     rate of increase in the consumer price index for all urban 
     consumers for the period involved.
       ``(B) Population enrolled in this part, both in numbers and 
     in average age and severity of chronic and acute illnesses.
       ``(C) Appropriate changes in utilization of 
     pharmaceuticals, as determined by the Drug Review Board 
     (established under subsection (c)(3)) and based on best 
     estimates of utilization change if there were no direct-to-
     consumer advertising or promotions to providers.
       ``(D) Productivity index of manufacturers and distributors.
       ``(E) Percentage of products with patent and market 
     exclusivity protection versus products without patent 
     protection and changes in the availability of generic 
     substitutes.
       ``(F) Such other factors as the Secretary may determine are 
     appropriate.

     In no event may the sustainable growth rate exceed 120 
     percent of the estimated per capita growth in total spending 
     under this title.
       ``(3) Computation for subsequent years.--In October of 2006 
     and each year thereafter, for purposes of setting the SGRs 
     for the succeeding year, the Secretary shall adjust each 
     current year's estimated expenditures by the estimated SGR 
     for the succeeding year, further adjusted for corrections in 
     earlier estimates and the receipt of additional data on 
     previous years spending as follows:
       ``(A) Error estimates.--An adjustment (up or down) for 
     errors in the estimate of total expenditures under this part 
     for the previous year.
       ``(B) Costs.--An adjustment (up or down) for corrections in 
     the cost of production of prescriptions covered under this 
     part between the current calendar year and the previous year.
       ``(C) Target.--An adjustment for any amount (over or under) 
     that expenditures in the current year under this part are 
     estimated to differ from the target amount set for the year. 
     If expenditures in the current year are estimated to be--
       ``(i) less than the target amount, future target amounts 
     will be adjusted downward; or
       ``(ii) more than the target amount, the Secretary shall 
     notify all pharmaceutical manufacturers with sales of 
     pharmaceutical prescription medicine products to medicare 
     beneficiaries under this part, of a rebate requirement 
     (except as provided in this subparagraph) to be deposited in 
     the Federal Medicare Prescription Medicine Trust Fund.
       ``(D) Rebate determination.--The amount of the rebate 
     described in subparagraph (C)(ii) may vary among 
     manufacturers and shall be based on the manufacturer's 
     estimated contribution to the expenditure above the target 
     amount, taking into consideration such factors as--
       ``(i) above average increases in the cost of the 
     manufacturer's product;
       ``(ii) increases in utilization due to promotion activities 
     of the manufacturer, wholesaler, or retailer;
       ``(iii) launch prices of new drugs at the same or higher 
     prices as similar drugs already in the marketplace (so-called 
     `me too' or `copy-cat' drugs);
       ``(iv) the role of the manufacturer in delaying the entry 
     of generic products into the market; and
       ``(v) such other actions by the manufacturer that the 
     Secretary may determine has contributed to the failure to 
     meet the SGR target.

     The rebates shall be established under such subparagraph so 
     that the total amount of the rebates is estimated to ensure 
     that the amount the target for the current year is estimated 
     to be exceeded is recovered in lower spending in the 
     subsequent year; except that, no rebate shall be made in any 
     manufacturer's product which the Food and Drug Administration 
     has determined is a breakthrough medicine (as determined 
     under subsection (c)) or an orphan medicine.
       ``(c) Breakthrough Medicines.--
       ``(1) Determination.--For purposes of this section, a 
     medicine is a `breakthrough medicine' if the Drug Review 
     Board (established under paragraph (3)) determines--
       ``(A) it is a new product that will make a significant and 
     major improvement by reducing physical or mental illness, 
     reducing mortality, or reducing disability; and
       ``(B) that no other product is available to beneficiaries 
     that achieves similar results for the same condition at a 
     lower cost.
       ``(2) Condition.--An exemption from rebates under 
     subsection (b)(3) for a breakthrough medicine shall continue 
     as long as the medicine is certified as a breakthrough 
     medicine but shall be limited to 7 calendar years from 2003 
     or 7 calendar years from the date of the initial 
     determination under paragraph (1), whichever is later.
       ``(3) Drug review board.--The Drug Review Board under this 
     paragraph shall consist of the Commissioner of Food and 
     Drugs, the Directors of the National Institutes of Health, 
     the Director of the National Science

[[Page 16254]]

     Foundation, and 10 experts in pharmaceuticals, medical 
     research, and clinical care, selected by the Commissioner of 
     Food and Drugs from the faculty of academic medical centers, 
     except that no person who has (or who has an immediate family 
     member that has) any conflict of interest with any 
     pharmaceutical manufacturer shall serve on the Board.
       ``(d) No Review.--The Secretary's determination of the 
     rebate amounts under this section, and the Drug Review 
     Board's determination of what is a breakthrough drug, are not 
     subject to administrative or judicial review.


           ``Appropriations to cover Government contributions

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


                    ``Prescription medicine defined

       ``Sec. 1860K. As used in this part, the term `prescription 
     medicine' means--
       ``(1) a drug that may be dispensed only upon a 
     prescription, and that is described in subparagraph (A)(i), 
     (A)(ii), or (B) of section 1927(k)(2); and
       ``(2) insulin certified under section 506 of the Federal 
     Food, Drug, and Cosmetic Act, and needles, syringes, and 
     disposable pumps for the administration of such insulin.


                                ``study

       ``Sec. 1860L. (a) In General.--The Secretary shall conduct 
     a study of the efficiency, cost-effectiveness, and impact on 
     health outcomes of the program under this part. The Secretary 
     shall include in such study an analysis of the savings from 
     the cost containment provisions of this part as well as a 
     projection of future costs.
       ``(b) Report.--The Secretary shall submit to Congress a 
     report on the study under subsection (a) by not later than 3 
     years after the date the program under this part is first 
     implemented.''.
       (b) Conforming Amendments.--
       (1) Amendments to federal supplementary health insurance 
     trust fund.--Section 1841 of the Social Security Act (42 
     U.S.C. 1395t) is amended--
       (A) in the last sentence of subsection (a)--
       (i) by striking ``and'' after ``section 201(i)(1)''; and
       (ii) by inserting before the period the following: ``, and 
     such amounts as may be deposited in, or appropriated to, the 
     Prescription Medicine Insurance Account established by 
     section 1860F'';
       (B) in subsection (g), by inserting after ``by this part,'' 
     the following: ``the payments provided for under part D (in 
     which case the payments shall come from the Prescription 
     Medicine Insurance Account in the Supplementary Medical 
     Insurance Trust Fund),'';
       (C) in the first sentence of subsection (h), by inserting 
     before the period the following: ``and section 1860D(b)(4) 
     (in which case the payments shall come from the Prescription 
     Medicine Insurance Account in the Supplementary Medical 
     Insurance Trust Fund)''; and
       (D) in the first sentence of subsection (i)--
       (i) by striking ``and'' after ``section 1840(b)(1)''; and
       (ii) by inserting before the period the following: ``, 
     section 1860D(b)(2) (in which case the payments shall come 
     from the Prescription Medicine Insurance Account in the 
     Supplementary Medical Insurance Trust Fund)''.
       (2) Prescription medicine option under medicare+choice 
     plans.--
       (A) Eligibility, election, and enrollment.--Section 1851 of 
     the Social Security Act (42 U.S.C. 1395w-21) is amended--
       (i) in subsection (a)(1)(A), by striking ``parts A and B'' 
     inserting ``parts A, B, and D''; and
       (ii) in subsection (i)(1), by striking ``parts A and B'' 
     and inserting ``parts A, B, and D''.
       (B) Voluntary beneficiary enrollment for medicine 
     coverage.--Section 1852(a)(1)(A) of such Act (42 U.S.C. 
     1395w-22(a)(1)(A)) is amended by inserting ``(and under part 
     D to individuals also enrolled under that part)'' after 
     ``parts A and B''.
       (C) Access to services.--Section 1852(d)(1) of such Act (42 
     U.S.C. 1395w-22(d)(1)) is amended--
       (i) in subparagraph (D), by striking ``and'' at the end;
       (ii) in subparagraph (E), by striking the period at the end 
     and inserting ``; and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(F) the plan for prescription medicine benefits under 
     part D guarantees coverage of any specifically named covered 
     prescription medicine for an enrollee, when prescribed by a 
     physician in accordance with the provisions of such part, 
     regardless of whether such medicine would otherwise be 
     covered under an applicable formulary or discount 
     arrangement.''.
       (D) Payments to organizations.--Section 1853(a)(1)(A) of 
     such Act (42 U.S.C. 1395w-23(a)(1)(A)) is amended--
       (i) by inserting ``determined separately for benefits under 
     parts A and B and under part D (for individuals enrolled 
     under that part)'' after ``as calculated under subsection 
     (c)'';
       (ii) by striking ``that area, adjusted for such risk 
     factors'' and inserting ``that area. In the case of payment 
     for benefits under parts A and B, such payment shall be 
     adjusted for such risk factors as''; and
       (iii) by inserting before the last sentence the following: 
     ``In the case of the payments for benefits under part D, such 
     payment shall initially be adjusted for the risk factors of 
     each enrollee as the Secretary determines to be feasible and 
     appropriate. By 2008, the adjustments would be for the same 
     risk factors applicable for benefits under parts A and B.''.
       (E) Calculation of annual medicare +choice capitation 
     rates.--Section 1853(c) of such Act (42 U.S.C. 1395w-23(c)) 
     is amended--
       (i) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``for benefits under parts A and B'' after 
     ``capitation rate'';
       (ii) in paragraph (6)(A), by striking ``rate of growth in 
     expenditures under this title'' and inserting ``rate of 
     growth in expenditures for benefits available under parts A 
     and B''; and
       (iii) by adding at the end the following new paragraph:
       ``(8) Payment for prescription medicines.--The Secretary 
     shall determine a capitation rate for prescription 
     medicines--
       ``(A) dispensed in 2005, which is based on the projected 
     national per capita costs for prescription medicine benefits 
     under part D and associated claims processing costs for 
     beneficiaries under the original medicare fee-for-service 
     program; and
       ``(B) dispensed in each subsequent year, which shall be 
     equal to the rate for the previous year updated by the 
     Secretary's estimate of the projected per capita rate of 
     growth in expenditures under this title for an individual 
     enrolled under part D.''.
       (F) Limitation on enrollee liability.--Section 1854(e) of 
     such Act (42 U.S.C. 1395w-24(e)) is amended by adding at the 
     end the following new paragraph:
       ``(5) Special rule for provision of part d benefits.--In no 
     event may a Medicare+Choice organization include as part of a 
     plan for prescription medicine benefits under part D a 
     requirement that an enrollee pay a deductible, or a 
     coinsurance percentage that exceeds 20 percent.''.
       (G) Requirement for additional benefits.--Section 
     1854(f)(1) of such Act (42 U.S.C. 1395w-24(f)(1)) is amended 
     by adding at the end the following new sentence: ``Such 
     determination shall be made separately for benefits under 
     parts A and B and for prescription medicine benefits under 
     part D.''.
       (3) Exclusions from coverage.--
       (A) Application to part d.--Section 1862(a) of the Social 
     Security Act (42 U.S.C. 1395y(a)) is amended in the matter 
     preceding paragraph (1) by striking ``part A or part B'' and 
     inserting ``part A, B, or D''.
       (B) Prescription medicines not excluded from coverage if 
     appropriately prescribed.--Section 1862(a)(1) of such Act (42 
     U.S.C. 1395y(a)(1)) is amended--
       (i) in subparagraph (H), by striking ``and'' at the end;
       (ii) in subparagraph (I), by striking the semicolon at the 
     end and inserting ``, and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(J) in the case of prescription medicines covered under 
     part D, which are not prescribed in accordance with such 
     part;''.

     SEC. 103. SUBSTANTIAL REDUCTIONS IN THE PRICE OF PRESCRIPTION 
                   DRUGS FOR MEDICARE BENEFICIARIES.

       (a) Participating Manufacturers.--
       (1) In general.--Each participating manufacturer of a 
     covered outpatient drug shall make available for purchase by 
     each pharmacy such covered outpatient drug in the amount 
     described in paragraph (2) at the price described in 
     paragraph (3).
       (2) Description of amount of drugs.--The amount of a 
     covered outpatient drug that a participating manufacturer 
     shall make available for purchase by a pharmacy is an amount 
     equal to the aggregate amount of the covered outpatient drug 
     sold or distributed by the pharmacy to medicare 
     beneficiaries.
       (3) Description of price.--The price at which a 
     participating manufacturer shall make a covered outpatient 
     drug available for purchase by a pharmacy is the price equal 
     to the lowest of the following:
       (A) The lowest price paid for the covered outpatient drug 
     by any agency or department of the United States.
       (B) The manufacturer's best price for the covered 
     outpatient drug, as defined in section 1927(c)(1)(C) of the 
     Social Security Act (42 U.S.C. 1396r-8(c)(1)(C)).

[[Page 16255]]

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

     SEC. 104. 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; or
       ``(E) a drug that is inhaled during surgery.
       ``(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
       ``(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

[[Page 16256]]

     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.
       ``(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 the prescription drugs or by the importer that 
     is 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).
       ``(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) Prohibition of Discrimination.--
       ``(1) In general.--It shall be unlawful for a manufacturer 
     of a prescription drug to discriminate against, or cause any 
     other person to discriminate against, a pharmacist or 
     wholesaler that purchases or offers to purchase a 
     prescription drug from the manufacturer or from any person 
     that distributes a prescription drug manufactured by the drug 
     manufacturer.
       ``(2) Discrimination.--For the purposes of paragraph (1), a 
     manufacturer of a prescription drug shall be considered to 
     discriminate against a pharmacist or wholesaler if the 
     manufacturer enters into a contract for sale of a 
     prescription drug, places a limit on supply, or employs any 
     other measure, that has the effect of--
       ``(A) providing pharmacists or wholesalers access to 
     prescription drugs on terms or conditions that are less 
     favorable than the terms or conditions provided to a foreign 
     purchaser (other than a charitable or humanitarian 
     organization) of the prescription drug; or
       ``(B) restricting the access of pharmacists or wholesalers 
     to a prescription drug that is permitted to be imported into 
     the United States under this section.
       ``(j) 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.
       ``(k) 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.
       ``(l) Studies; Reports.--
       ``(1) By the institute of medicine of the national academy 
     of sciences.--
       ``(A) Study.--
       ``(i) In general.--The Secretary shall request that the 
     Institute of Medicine of the National Academy of Sciences 
     conduct a study of--

       ``(I) importations of prescription drugs made under the 
     regulations under subsection (b); and
       ``(II) information and documentation submitted under 
     subsection (d).

       ``(ii) Requirements.--In conducting the study, the 
     Institute of Medicine shall--

       ``(I) evaluate the compliance of importers with the 
     regulations under subsection (b);
       ``(II) compare the number of shipments under the 
     regulations under subsection (b) during the study period that 
     are determined to be counterfeit, misbranded, or adulterated, 
     and compare that number with the number of shipments made 
     during the study period within the United States that are 
     determined to be counterfeit, misbranded, or adulterated; and
       ``(III) consult with the Secretary, the United States Trade 
     Representative, and the Commissioner of Patents and 
     Trademarks to evaluate the effect of importations under the 
     regulations under subsection (b) on trade and patent rights 
     under Federal law.

       ``(B) Report.--Not later than 2 years after the effective 
     date of the regulations under subsection (b), the Institute 
     of Medicine shall submit to Congress a report describing the 
     findings of the study under subparagraph (A).
       ``(2) By the comptroller general.--
       ``(A) Study.--The Comptroller General of the United States 
     shall conduct a study to determine the effect of this section 
     on the price of prescription drugs sold to consumers at 
     retail.
       ``(B) Report.--Not later than 18 months after the effective 
     date of the regulations under subsection (b), the Comptroller 
     General of the United States shall submit to Congress a 
     report describing the findings of the study under 
     subparagraph (A).
       ``(m) 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.
       ``(n) 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'';
       (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. 105. REASONABLE PRICE AGREEMENT FOR FEDERALLY FUNDED 
                   RESEARCH.

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

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

     SEC. 106. GAO ONGOING STUDIES AND REPORTS ON PROGRAM; 
                   MISCELLANEOUS REPORTS.

       (a) Ongoing Study.--The Comptroller General of the United 
     States shall conduct an ongoing study and analysis of the 
     prescription medicine benefit program under part D

[[Page 16257]]

     of the medicare program under title XVIII of the Social 
     Security Act (as added by section 102 of this Act), including 
     an analysis of each of the following:
       (1) The extent to which the administering entities have 
     achieved volume-based discounts similar to the favored price 
     paid by other large purchasers.
       (2) Whether access to the benefits under such program are 
     in fact available to all beneficiaries, with special 
     attention given to access for beneficiaries living in rural 
     and hard-to-serve areas.
       (3) The success of such program in reducing medication 
     error and adverse medicine reactions and improving quality of 
     care, and whether it is probable that the program has 
     resulted in savings through reduced hospitalizations and 
     morbidity due to medication errors and adverse medicine 
     reactions.
       (4) Whether patient medical record confidentiality is being 
     maintained and safe-guarded.
       (5) Such other issues as the Comptroller General may 
     consider.
       (b) Reports.--The Comptroller General shall issue such 
     reports on the results of the ongoing study described in (a) 
     as the Comptroller General shall deem appropriate and shall 
     notify Congress on a timely basis of significant problems in 
     the operation of the part D prescription medicine program and 
     the need for legislative adjustments and improvements.
       (c) Miscellaneous Studies and Reports.--
       (1) Study on methods to encourage additional research on 
     breakthrough pharmaceuticals.--
       (A) In general.--The Secretary of Health and Human Services 
     shall seek the advice of the Secretary of the Treasury on 
     possible tax and trade law changes to encourage increased 
     original research on new pharmaceutical breakthrough products 
     designed to address disease and illness.
       (B) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include recommended methods to encourage the 
     pharmaceutical industry to devote more resources to research 
     and development of new covered products than it devotes to 
     overhead expenses.
       (2) Study on pharmaceutical sales practices and impact on 
     costs and quality of care.--
       (A) In general.--The Secretary of Health and Human Services 
     shall conduct a study on the methods used by the 
     pharmaceutical industry to advertise and sell to consumers 
     and educate and sell to providers.
       (B) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include the estimated direct and indirect costs of the 
     sales methods used, the quality of the information conveyed, 
     and whether such sales efforts leads (or could lead) to 
     inappropriate prescribing. Such report may include 
     legislative and regulatory recommendations to encourage more 
     appropriate education and prescribing practices.
       (3) Study on cost of pharmaceutical research.--
       (A) In general.--The Secretary of Health and Human Services 
     shall conduct a study on the costs of, and needs for, the 
     pharmaceutical research and the role that the taxpayer 
     provides in encouraging such research.
       (B) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on such study. The report 
     shall include a description of the full-range of taxpayer-
     assisted programs impacting pharmaceutical research, 
     including tax, trade, government research, and regulatory 
     assistance. The report may also include legislative and 
     regulatory recommendations that are designed to ensure that 
     the taxpayer's investment in pharmaceutical research results 
     in the availability of pharmaceuticals at reasonable prices.
       (4) Report on pharmaceutical prices in major foreign 
     nations.--Not later than January 1, 2005, the Secretary of 
     Health and Human Services shall submit to Congress a report 
     on the retail price of major pharmaceutical products in 
     various developed nations, compared to prices for the same or 
     similar products in the United States. The report shall 
     include a description of the principal reasons for any price 
     differences that may exist.

     SEC. 107. MEDIGAP TRANSITION PROVISIONS.

       (a) In General.--Notwithstanding any other provision of 
     law, no new medicare supplemental policy that provides 
     coverage of expenses for prescription drugs may be issued 
     under section 1882 of the Social Security Act on or after 
     January 1, 2005, to an individual unless it replaces a 
     medicare supplemental policy that was issued to that 
     individual and that provided some coverage of expenses for 
     prescription drugs.
       (b) Issuance of Substitute Policies if Obtaining 
     Prescription Drug Coverage Through Medicare.--
       (1) In general.--The issuer of a medicare supplemental 
     policy--
       (A) may not deny or condition the issuance or effectiveness 
     of a medicare supplemental policy that has a benefit package 
     classified as ``A'', ``B'', ``C'', ``D'', ``E'', ``F'', or 
     ``G'' (under the standards established under subsection 
     (p)(2) of section 1882 of the Social Security Act, 42 U.S.C. 
     1395ss) and that is offered and is available for issuance to 
     new enrollees by such issuer;
       (B) may not discriminate in the pricing of such policy, 
     because of health status, claims experience, receipt of 
     health care, or medical condition; and
       (C) may not impose an exclusion of benefits based on a pre-
     existing condition under such policy,

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

                                 H.R. 1

                        Offered By: Mr. Sanders

       Amendment No. 3: Add at the end of title I the following 
     new section:

     SEC. 108. 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; or
       ``(E) a drug that is inhaled during surgery.
       ``(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.

[[Page 16258]]

       ``(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
       ``(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.
       ``(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 the prescription drugs or by the importer that 
     is 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).
       ``(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) Prohibition of Discrimination.--
       ``(1) In general.--It shall be unlawful for a manufacturer 
     of a prescription drug to discriminate against, or cause any 
     other person to discriminate against, a pharmacist or 
     wholesaler that purchases or offers to purchase a 
     prescription drug from the manufacturer or from any person 
     that distributes a prescription drug manufactured by the drug 
     manufacturer.
       ``(2) Discrimination.--For the purposes of paragraph (1), a 
     manufacturer of a prescription drug shall be considered to 
     discriminate against a pharmacist or wholesaler if the 
     manufacturer enters into a contract for sale of a 
     prescription drug, places a limit on supply, or employs any 
     other measure, that has the effect of--
       ``(A) providing pharmacists or wholesalers access to 
     prescription drugs on terms or conditions that are less 
     favorable than the terms or conditions provided to a foreign 
     purchaser (other than a charitable or humanitarian 
     organization) of the prescription drug; or
       ``(B) restricting the access of pharmacists or wholesalers 
     to a prescription drug that is permitted to be imported into 
     the United States under this section.
       ``(j) 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.
       ``(k) 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.
       ``(l) Studies; Reports.--
       ``(1) By the institute of medicine of the national academy 
     of sciences.--
       ``(A) Study.--
       ``(i) In general.--The Secretary shall request that the 
     Institute of Medicine of the National Academy of Sciences 
     conduct a study of--

       ``(I) importations of prescription drugs made under the 
     regulations under subsection (b); and
       ``(II) information and documentation submitted under 
     subsection (d).

       ``(ii) Requirements.--In conducting the study, the 
     Institute of Medicine shall--

       ``(I) evaluate the compliance of importers with the 
     regulations under subsection (b);
       ``(II) compare the number of shipments under the 
     regulations under subsection (b) during the study period that 
     are determined to be counterfeit, misbranded, or adulterated, 
     and compare that number with the number of shipments made 
     during the study period within the United States that are 
     determined to be counterfeit, misbranded, or adulterated; and
       ``(III) consult with the Secretary, the United States Trade 
     Representative, and the Commissioner of Patents and 
     Trademarks to evaluate the effect of importations under the 
     regulations under subsection (b) on trade and patent rights 
     under Federal law.

[[Page 16259]]

       ``(B) Report.--Not later than 2 years after the effective 
     date of the regulations under subsection (b), the Institute 
     of Medicine shall submit to Congress a report describing the 
     findings of the study under subparagraph (A).
       ``(2) By the comptroller general.--
       ``(A) Study.--The Comptroller General of the United States 
     shall conduct a study to determine the effect of this section 
     on the price of prescription drugs sold to consumers at 
     retail.
       ``(B) Report.--Not later than 18 months after the effective 
     date of the regulations under subsection (b), the Comptroller 
     General of the United States shall submit to Congress a 
     report describing the findings of the study under 
     subparagraph (A).
       ``(m) 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.
       ``(n) 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'';
       (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)''.